In the case of, Watton v Whitton as Trustee in Bankruptcy Estate of Steven Leonard Watton, the Plaintiff claimed an equitable interest in a property, which had previously been registered solely in the name of the Plaintiff’s former spouse. Upon the former spouse becoming bankrupt, the property vested in his trustee in bankruptcy (the Defendant), who transferred the property into his name.
Prior to the former spouse becoming bankrupt, the Plaintiff and the former spouse entered into a Binding Financial Agreement (‘BFA’) for the former spouse to transfer his interest in the property to the Plaintiff. Around this time the Plaintiff secured a loan over the property and a mortgage was subsequently registered. The Plaintiff went on to make substantial financial contributions toward the repayment of the loan secured by the mortgage.
Following the expiry of the former spouse’s bankruptcy, the Plaintiff lodged a caveat over the property claiming an equitable interest in the property.
The Defendant asserted that the Plaintiff had no caveatable interest in the property and that the BFA entered into between the Plaintiff and the former spouse was void. The Defendant wrote to the Plaintiff demanding that the caveat be removed and included notice, that an application for the preparation of a Lapsing Notice pursuant to s74J of the Real Property Act 1900 (NSW) would be made should the caveat not be withdrawn.
On 22 December 2016, the Defendant served a Lapsing Notice on the Plaintiff. On 12 January 2017, the Plaintiff commenced proceedings in the Supreme Court of New South Wales, seeking the extension of the operation of the caveat until final determination of the Proceedings.
During the course of the Supreme Court Proceedings, the Plaintiff proposed that the matter was more appropriately heard in the Federal Court of Australia, in circumstances where the Supreme Court did not have jurisdiction to hear matters concerning the Bankruptcy Act 1966 (Cth).
The Plaintiff’s solicitors proposed that the Supreme Court Proceedings remain on foot, extending the operation of the caveat until final determination of the Federal Court Proceedings. The reason for the proposal was that the Real Property Act 1900 (NSW) explicitly refers to an order of the “Supreme Court”.
The Defendant did not accept the proposal, alleging that the Plaintiff should have brought its proceedings in the Federal Court, in the first instance. The Defendant filed a motion, seeking to dismiss the Supreme Court Proceedings, with an order for costs.
The Supreme Court Decision
His Honour Darke J refused to dismiss the proceedings and ordered an extension of the Plaintiff’s caveat until final determination of the Federal Court Proceedings. The Supreme Court held that the appropriate platform for the Plaintiff to commence its proceedings was the Supreme Court.
His Honour noted that although it may be possible for a caveator to proceed to a Federal Court, His Honour did not share the Defendant’s view that there was no doubt that the Federal Court had powers under s74K of the Real Property Act. Accordingly, it was not unreasonable for the Plaintiff to seek relief in the Supreme Court.
His Honour further noted that practitioners should avoid serving lapsing notices over the holiday period, wherever possible to do so.
The Defendant was ordered to pay the Plaintiffs costs of the Supreme Court Proceedings.
The case is a good example of instances where there is an apparent cross vesting of jurisdiction, and the appropriate platform for those being served with lapsing notices to seek their interlocutory relief.
The case also serves as an important reminder to practitioners, that the Court would prefer that the service of lapsing notices be avoided over the holiday period.