New South Wales. NWC Finance v Borsellino ... St George Bank was the first registered mortgagee of two of the properties
Judgment Summary Supreme Court New South Wales
NWC Finance v Borsellino (No. 2)[2016] NSWSC 1338 Davies J The Supreme Court has found in favour of the Trustee in Bankruptcy in a dispute with the mortgagee over the proceeds of sale of two properties. Mr and Mrs Borsellino owned three properties. In February 2013 a sequestration order was made against Mr Borsellino. The Official Trustee in Bankruptcy (Trustee) was appointed trustee of his bankrupt estate and asked Mr Borsellino to complete and file a Statement of Affairs. In March the Official Receiver conducted a title search searching “Stephen Guiseppi Borsellino”. The search yielded no results and the Trustee believed Mr Borsellino did not own any properties. Notwithstanding his bankruptcy Mr and Mrs Borsellino entered into a loan agreement and mortgage with NWC Finance (NWC) in March. NWC lent the Borsellinos $330,500 and took security over the three properties. At the time of entry into the mortgage NWC was unaware of Mr Borsellino’s bankruptcy. NWC’s solicitor performed title searches of the three properties and no caveats recording the Trustee’s interest were noted. The identity documents Mr Borsellino provided to NWC confirmed his name was Steven. When NWC searched the National Personal Insolvency Index for Steven no results were returned. It was not until May that the Trustee discovered that Mr Borsellino did in fact own three properties. The Trustee then immediately lodged a caveat over the properties. St George Bank was the first registered mortgagee of two of the properties which it sold pursuant to its power of sale. After St George was paid out there was a surplus of $379,117.17 which was paid into court and was subject to the present claims by NWC and the Trustee. The Court dealt with two notices of motion each claiming payment of funds in Court arising from the mortgagee sale. NWC and the Trustee agreed that the dispute concerned 50% of the funds being Mr Borsellino’s share ($189,558.58). The Trustee acknowledged that NWC was entitled to Mrs Borsellino’s share. NWC argued that both parties had an equitable interest in the funds but that despite the priority of the Trustee’s interest due to the date of bankruptcy the Trustee had engaged in disentitling conduct which postponed its interest behind that of NWC. The alleged disentitling conduct was the Trustee’s failure to lodge a caveat on the properties after the date of bankruptcy and its failure to conduct title searches with wider parameters which would have disclosed Mr Borsellino’s property co-ownership. NWC also submitted that beyond its searches and due diligence there was nothing more its solicitors could have done that would have identified that Mr Borsellino was a bankrupt. This summary has been prepared for general information only. It is not intended to be a substitute for the judgment of the Court or to be used in any later consideration of the Court’s judgment.
The Trustee submitted that upon the sequestration order being made the whole of Mr Borsellino’s interest in the land was vested in the Trustee (Bankruptcy Act 1966 (Cth) s 58). The effect was that Mr Borsellino was the registered proprietor holding the bare legal interest in the land with the equitable interest passing to the Trustee. Consequently the charge Mr Borsellino gave to NWC was ineffective because he did not have an interest to transfer and NWC never obtained an interest in the land. The Trustee also submitted that it had acted entirely appropriately on the information that it had including its reliance on the spelling of Mr Borsellino’s name in the sequestration order, that as soon as it discovered that Mr Borsellino might have owned land it lodged its caveat and that the mere failure to lodge a caveat was insufficient to postpone its prior equity. The Court found that upon the making of the sequestration order Mr and Mrs Borsellino’s joint tenancy was severed and a tenancy in common in equity was created between Mrs Borsellino and the Trustee as the Trustee became vested with Mr Borsellino’s interest. The Court found that as Mr Borsellino retained no equitable interest in the land he could not have disposed of such an interest by way of charge to NWC. NWC also submitted that Mr Borsellino retained an equitable interest in the property because the Trustee did not move to become registered as the legal owner of the land. In rejecting this submission the Court found that the Trustee did not become registered on the properties because it did not know of their existence and was neither negligent nor guilty of disentitling conduct in not knowing. In considering the issue of competing equities and whether the Trustee’s equity was postponed by disentitling conduct the Court considered that the Trustee’s failure to lodge a caveat at an earlier time than it did was insufficient to postpone NWC’s equity and even if it could postpone a prior equity the reason for the non-lodgement was well-explained that is the Trustee did not know Mr Borsellino owned property. The Court also found that the Trustee was entitled to rely on the spelling of Mr Borsellino’s name in the sequestration order, and was under no duty to conduct title searches under multiple names. The Court found that the Trustee was entitled to Mr Borsellino’s 50% share of the funds and ordered NWC to pay the costs of the motions.
This summary has been prepared for general information only. It is not intended to be a substitute for the judgment of the Court or to be used in any later consideration of the Court’s judgment.
