New South Wales Supreme Court Hughes v Egger (No. 2) [2005] NSWSC 323 CITATION : This decision has been amended. Please see the end of the judgment for a list of the amendments. HEARING DATE(S) : 22/03/05, 24/03/05, 05/04/05 JUDGMENT DATE : 5 April 2005 JUDGMENT OF : White J DECISION : See paras 27 - 31 of judgment. CATCHWORDS : REAL PROPERTY - Property held as tenants in common - Sale of property by auction - Where either party may wish to bid at the auction, but is barred by statute - Appointment of trustees for sale - Property, Stock and Business Agents Act (2002) NSW s 66(1), (2) - Conveyancing Act (1919) NSW s 66G Property Relationships Act (1984) NSW LEGISLATION CITED : Property, Stock and Business Agents Act (2002) NSW Conveyancing Act (1919) NSW Abbott v Pegler (1980) 1 BPR 9267 CASES CITED : Mortimer v Bell (1865) 1 Ch. App. 10 Futuretronics International Pty Ltd v Gadzhis [1992] 2 VR 217 at 247 Desmond Barry Hughes PARTIES : v Sandra June Egger FILE NUMBER(S) : SC 3618/01 Plaintiff: P Abrahams (solicitor) COUNSEL : Defendant: J De Mestre (solicitor) Plaintiff: Broun Abrahams SOLICITORS : Defendant: John de Mestre & Co, Solicitors LOWER COURT JURISDICTION : - 7 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION WHITE J Tuesday, 5 April 2005 3618/01 Desmond Barry Hughes v Sandra June Egger (No. 2) JUDGMENT 1 HIS HONOUR: On 4 February 2005, I gave judgment in these proceedings and stood the matter over to a convenient date to deal with the terms of the orders which should be made to give effect to my reasons. In my judgment I indicated that I would make a declaration pursuant to s 8 of the Property Relationships Act 1984, (NSW) that the plaintiff and the defendant hold the property at 10 Abernethy Street, Seaforth on trust for themselves as tenants in common in the proportions of forty-one per cent for the plaintiff and fifty-nine per cent for the defendant. I also said that I would make orders directing the sale of the property and application of net proceeds of sale after costs in accordance with the parties' beneficial interests. I indicated I would appoint trustees for sale, but expressed the hope that the costs could be avoided if the parties concurred in steps to be taken in relation to the sale. 2 Other matters which need to be addressed in the orders disposing of the proceedings are outlined in that judgment. 3 The parties have prepared short minutes of order to give effect to my reasons. An issue has arisen, however, in relation to the mechanics for the sale of the property. 4 The parties initially prepared short minutes of order on the basis that the property would be submitted for sale by auction. The proposed short minutes of order dealt with the mechanics for the parties setting a reserve price for the sale of the property in the event of their disagreeing on such a price, and for the steps to be taken if the property was not sold at auction. 5 However, a difficulty arose in that the defendant wishes to be able to bid for the property, and it may be that the plaintiff may also wish to bid for the property. The difficulty arises under s 66 of the Property, Stock and Business Agents Act (2002) NSW. Subsections 66(1) and (2) provide: "(1) A sale by auction of residential property or rural land must be notified in the conditions of sale to be subject to the right by the seller or by any person on behalf of the seller or auctioneer to make one bid (and only one bid). (2) At a sale by auction of residential property or rural land: (a) the seller or any person on behalf of the seller or auctioneer must not bid unless the right to bid has been notified in the conditions of sale, and (b) the seller or any person on behalf of the seller or auctioneer must not make more than one bid and must not make any bid if one of them has already bid, and (c) the auctioneer must not take from the seller or any persons on behalf of the seller or auctioneer any bid knowing that the bid is in contravention of this section, and (d) when the auctioneer takes a bid from the seller or any person on behalf of the seller or auctioneer, the auctioneer must, as soon as the bid is taken, clearly state that the bid is a bid by the seller or a person on behalf of the seller or auctioneer. Maximum penalty 200 penalty units." 6 The parties were concerned that because of that section they could only make one bid for the property. 7 On previous occasions when the matter has been before me for the consideration of the orders to be made, various courses were proposed which might deal with that difficulty. They were: (1) that the property should be valued by an independent valuer and the defendant should have the right to buy the property on paying a share of the valuation commensurate with her beneficial interest in the property; (2) that the property be submitted for sale by private treaty rather than by auction; (3) (a course which had no support from either party), that the defendant and the plaintiff should have the right to fix the reserve by making an irrevocable offer to the other, such that if the property was not sold at auction for a higher price, the party making the higher offer which set the reserve, would buy the property at the reserve; (4) that trustees be appointed pursuant to s 66G of the Conveyancing Act . 8 The first proposed course is not one which I consider appropriate to adopt. The parties are entitled to have the property sold at its market value, not at a third party's opinion as to the market value. To adopt the first course would be to invite further litigation, in the event that either party challenged the valuer's opinion as to value. 9 The second course is also unattractive. The parties recognised that if the property was submitted for sale by private treaty, but was not sold and was later submitted for auction, then that course of events would be likely to have a depressive effect on the likely sale price at auction. 10 The third course, as I have said, was not supported by either party and has obvious difficulties. 11 That leaves the fourth option, namely, the appointment of trustees for sale. The solicitor for the defendant expressed some concern that appointing trustees for sale would not avoid the restrictions imposed by s 66 of the Property, Stock and Business Agents Act on sellers of property making more than one bid. The reason for that concern, I understand, was that the trustees for sale would hold the land on behalf of the co-owners and that it was feared that the section would apply equally whether the vendors were the plaintiff and the defendant, or trustees. 12 In my view there is no reason for such an apprehension. Subsection 66G(1) of the Conveyancing Act provides: "(1) Where any property (other than chattels) is held in co-ownership, the Court may, on the application of any one or more of the co-owners, appoint trustees of the property and vest the same in such trustees, subject to encumbrances affecting the entirety but free from encumbrances affecting any undivided shares, to be held by them on the statutory trust for sale or on the statutory trust for partition." 13 Subsection (7) states: "(7) Where property becomes subject to such statutory trust for sale (a) in the case of joint tenancy, a sale under the trust shall not, of itself, affect the severance of that tenancy, (b) in any case land shall be deemed to be converted upon the trustees for sale unless the Court otherwise directs." 14 The effect of an order for the appointment of trustees for sale was described by Powell J in Abbott v Pegler (1980) 1 BPR 9267. His Honour said (at 9270): "... it is, in my view, clear that upon the trustees becoming registered as the proprietors of the subject land, they took title free from any estate, interest or right which might thitherto have entitled Mr Abbott to occupy or remain in possession of the land ... and the rights of Mr Abbott became, instead, a right to have the trustees execute the statutory trust and, if the property were sold, a right to receive his rightful share in the proceeds – indeed, the more correct view may be that, since the order itself operated as a conversion as from the date of the order… Mr Abbott thereafter had no estate, interest or right to occupy or remain in possession of the subject land … even though the title to the subject land did not vest in the trustees until registration of the order." (citation of authorities omitted). 15 Trustees for sale are under a duty to sell as expeditiously as possible and to get the best possible purchase price for the land. At least from the time the order appointing trustees for sale under s 66G of the Conveyancing Act is registered, the land is vested in the trustees, and the rights of the parties are converted into a right to compel due performance of the trust and to share in the proceeds of sale in accordance with their beneficial interests. The prohibition under s 66 of the Property, Stock and Business Agents Act is relevantly a prohibition on the seller or any person on behalf of the seller, bidding, unless the right to bid has been notified in the conditions of sale, and from making more than one bid. 16 Clearly, after the appointment of trustees for sale the relevant seller of the land will be the trustees, not the plaintiff and the defendant. Nor will any bid made by either the plaintiff or the defendant be made on behalf of the trustees. 17 I think it is clear that s 66 of the Property, Stock and Business Agents Act would not preclude either the plaintiff or the defendant from bidding at an auction for the property. That view of the operation of s 66 of the Property, Stock and Business Agents Act is supported by the reasons for the introduction of that section. 18 In the Minister's Second Reading Speech on the introduction of the Property, Stock and Business Agents Bill, the Minister said the Bill would make the buying and selling process more transparent by deterring dummy bidding at auctions and prohibiting misleading statements by agents about estimated sale prices at auctions. Hansard's report of proceedings in the Legislative Assembly on 9 May 2002 records the following: "The recent explosion of auction as the selling method of choice in a hot property market has enlivened consumers' unease about the fairness of the auction system. A particularly sore point is the time-worn practice of dummy bidding. Dummy bidding occurs when an unauthentic bidder is planted in an auction to trigger the bidding or drive it up towards and beyond the reserve price. The intention is to create the impression that there is more interest in a property than actually exists. The bill provides a range of measures to deter dummy bidding at residential property and rural land auctions. For a start, the bill limits the number of vendor bids able to be made at an auction to just one." 19 Thus Parliament's concern was the making of fictitious bids to create an unfair and misleading auction. The law has long held such concerns. In Mortimer v Bell (1865) 1 Ch. App. 10, Lord Cranworth described an auction which contained eleven bids made by a "puffer", (as such persons were then called), or invented by the auctioneer, thus: "The whole proceeding is a fiction calculated, if not intended, to deceive persons who thought of becoming purchasers." (See also Futuretronics International Pty Ltd v Gadzhis [1992] 2 VR 217 at 247). 20 However, the law has never regarded the right of a co-owner to bid at a public auction of property listed for sale by trustees under a statutory power of sale, as raising the concerns against fictitious bidding which have now resulted in legislative reform. 21 Co-owners may make an offer for property submitted by trustees for sale, as a matter of right. In addition section 66I of the Conveyancing Act recognises that the Court may allow co-owners of property to purchase the property either at auction, or otherwise, on such terms as to non-payment of deposit, or as to the setting-off or accounting of any purchase money or any part thereof, as would seem reasonable. 22 There is nothing in the Property, Stock and Business Agents Act which indicates an intention to interfere with the well-established procedures in relation to the sale of property by trustees for sale, or the rights of co-owners to bid at an auction where such properties are submitted for sale by the trustees. 23 Accordingly, I consider it appropriate in the circumstances of this case to make orders for the appointment of trustees for sale. The appropriate consents, affidavits verifying the execution of consents, and affidavits of the fitness of the proposed trustees have been filed. 24 The appointment of trustees for sale also has the advantage that if the property is not sold initially at auction, the course to be adopted for selling the property is one which the trustees will determine in the exercise of their powers as trustees, without being hamstrung by conditions, which, in the circumstances which then prevail, might be inappropriate. 25 Various proposed short minutes have been provided to me. The latest version was handed up this morning by the solicitor for the plaintiff. It provides for the making of a declaration as to the proportions in which the beneficial ownership of the property is held. It provides for making of orders pursuant to s 66G appointing David Gregory Young and Anthony Wayne Elkerton as trustees for sale of the property. It provides for consequential orders which appear to me to be appropriate and which otherwise deal with the matters referred to in my judgment of 4 February 2005. 26 In relation to the division of furniture, the orders follow the orders proposed by the defendant, but substituting a shorter time period for the making available of furniture for collection by the plaintiff than had previously been proposed. However, having regard to the lapse of time since the previous orders were proposed, I consider that the revised time frame in the orders proposed by the plaintiff is reasonable. 27 In addition to the orders which are proposed, I propose to reserve further consideration of the matter and to grant liberty to apply on seven days' notice. 28 I make declarations and orders in accordance with the document handed up by the solicitor for the plaintiff, which I will initial and date today and place with the papers, and to which I have added the following orders. 29 Exhibits may be returned after twenty-eight days. 30 I reserve further consideration of the matter and grant liberty to apply on seven days' notice. 31 I also amend para 15 to read "no further orders as to costs", with the intent that except insofar as costs may already have been awarded, each party should bear his and her own costs. ****** 20/04/2005 - Incomplete sentence at end of paragraph. - Paragraph(s) 23 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.