A man’s home is not always his castle by TurksLegal

A man’s home is not always his castle By Tannie Kwong | July 2011 Area of Expertise | Commercial Disputes & Insolvency

Summary

The Supreme Court has found that it has the power to appoint a trustee to sell property under section 66G of the Conveyancing Act 1919, notwithstanding that there are proceedings in the Family Court which concern that property1.

Who Does This Impact? Lenders and their legal advisers.

What Action Should Be Taken? From time to time lenders may have possession proceedings caught up indirectly in Family Court proceedings. One of the mortgagors might be content for the lender to sell the property and thus limit the mortgagor’s exposure under a personal covenant. This case underscores that there is a potential strategy which may assist the mortgagor in limiting the extent of his or her liability and which will, in turn, benefit the lender.

The Facts In May 2009, an application was brought by National Australia Bank (‘NAB’) as the mortgagee against Mr Pasupati and Ms King for judgment and possession of a property in Strathfield, NSW. NAB contended that Mr Pasupati and Ms King (formerly, Mrs Pasupati) had defaulted in their obligations to pay NAB under their mortgage. This property in Strathfield was their previous matrimonial home. Mr Pasupati and Ms King were parties to proceedings filed in the Family Court in 2006. Those proceedings concerned matrimonial property, including the Strathfield property. These Family Court proceedings were still on foot at the time of the hearing of the section 66G application. In June 2008, an interim order was made by the Family Court (and the parties consented to these orders) that, amongst other things, no property be transferred or disposed of by Mr Pasupati or Ms King. As part of the Supreme Court proceedings, Ms King filed a cross-claim against Mr Pasupati to sell the Strathfield property under section 66G of the Conveyancing Act. Under this section, a co-owner of a property may apply to the Supreme Court of NSW to have trustees of for sale of the property appointed so that the property can be sold when the co-owners themselves cannot agree on how the co-ownership should be determined.2 (Analogous provisions are found in legislation in other States and Territories.) Mr Pasupati contested the application arguing that the sale would be an abuse of process as the Family Court had previously made orders that the matrimonial home not be sold. Meanwhile, Mr Pasupati continued to reside in the Strathfield property. NAB consented to the orders proposed by Ms King. Ms King was not defending NAB’s proceedings although Mr Pasupati was.

Application Under Section 66G of the Conveyancing Act Whilst section 66G confers a discretion upon the Court as to whether or not it will make an order to appoint trustees to sell the property3, it is usual that the Court will make such an order4 . Indeed, the right to the order is regarded as an incident of coownership5.

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A man’s home is not always his castle by Tannie Kwong

It would not be a proper exercise of discretion of the power to decline relief under section 66G to refuse an application on the grounds of hardship or unfairness6 . To stress the difficulty in framing a defence to an application under section 66G it has been held that: in the unhappy event that the parties are unable to settle their differences then the making of an order appointing trustees for sale seems inevitable unless the respondent could establish a legally binding agreement not to put her out of occupation of her home, or circumstances that would ground some estoppel to similar effect7. Mr Pasupati argued that the Supreme Court has an inherent jurisdiction to stay the section 66G proceedings to prevent an abuse of process which may otherwise occur by taking the matter out of the hands of the Family Court. Mr Pasupati argued that the application was an attempt to ‘pre-empt’ the hearing of the proceedings in the Family Court which had made orders restricting the disposal of the property. Further, Mr Pasupati argued that the property had the potential to increase by a substantial amount in the event that renovation works were completed. However, there was no evidence or any agreement that Mr Pasupati or Ms King would complete these renovation works any time soon. Mr Pasupati continued to live in the Strathfield property, but the mortgage to NAB was not being serviced8.

The Decision The judge, Buddin J, allowed the applicant the relief she sought and ordered that trustees be appointed for the sale of the Strathfield property. The Court determined that the Family Court order concerning the property did not remove the power from the Supreme Court to make orders under section 66G. The Court believed that if a stay were granted, all it would achieve is ‘yet a further delay without any tangible benefit to either of the parties9’. It was decided that whilst it was convenient for Mr Pasupati to base his argument on the Family Court proceedings, the purpose of that order was so that a third party caveator was provided with a measure of protection whilst the dispute between Mr Pasupati and Ms King was still on foot. The Court found that the Family Court order ‘was not and could not have been intended to operate as a general restriction which would prevent the parties from otherwise lawfully disposing of the property10‘. There was also no indication as to when the Family Court proceedings would be finalised. His Honour considered that if a stay were allowed that the Supreme Court proceedings would ‘be stayed almost indefinitely11‘ The Court also rejected Mr Pasupati’s submission that the property had the potential to increase in value. There was no evidence to suggest how Mr Pasupati would be able to fund the improvements, particularly when Mr Pasupati has other debts in excess of $200,000.

Conclusion The decision should send a signal to defaulting mortgagors that a Supreme Court will not necessarily refuse to exercise its powers under section 66G even if another Court in the federal jurisdiction has made an order for such property to be preserved. While it is clearly established that there is a power in the Supreme Court to grant a stay of proceedings such as these, there is no obligation for the Court to make such an order simply because there are also Family Court proceedings on foot12. For there to be a stay (as opposed to a dismissal of the section 66G proceedings) it would have to be established that not to grant a stay would cause a serious injustice13.

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A man’s home is not always his castle by Tannie Kwong

End notes 1 NAB v Pasupati [2011] NSWSC 540. 2

Butt, Land Law (6th edition, 2010) at 265.

3 Forgeard v Shanahan (1994) 35 NSWLR 206 at 213-4. 4 Callahan v O’Neil [2002] NSWSC 877. 5 Ranger v Ranger [2009] QCA 226 6 Hogan v Basedon (1997) 8 BPR 15. 7 Hogan v Basedon at para [59] 8 NAB v Pasupati at para [14]. 9 NAB v Pasupati at para [27]. 10 NAB v Pasupati at para [29]. 11 NAB v Pasupati at para [35]. 12 Williams v Williams [1979] 1 NSWLR 376. 13 NAB v Pasupati at para [34].

For more information, please contact: Tannie Kwong

Lawyer T: 02 8257 5717 tannie.kwong@turkslegal.com.au

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