Trustee cops costs order after injunction denied

No trustee likes to have their hand forced but when the consequences of a coerced injunction application include an adverse costs order well, we bet nobody tells aspiring trustees there’ll be days like these, as the late John Lennon lamented.

“I am not satisfied, however, that the Trustee proposes to enter into a contract of sale if an injunction is not granted.” Judge Nicholas Manousaridis.

Such a day came this week for one South Australian-based trustee when Federal Circuit Court judge Nicholas Manousaridis delivered judgment in the matter of Cooper (Trustee), in the matter of Mayne (Bankrupt) v Nash [2023] FedCFamC2G 840.

After being appointed as trustee of the bankrupt estate Lawrence Keith Mayne in 2016, Oracle Advisory principal Nick Cooper began attempts to liquidate a property that was in the name of both Mayne and his wife Merrily Gaynor Mayne.

Complicating that task has been the existence of a mortgage over the property purportedly entered into with William Nash back in 2011 to secure $205,000 in loans allegedly extended. Nash is said to be a friend of Mayne.

iNO says allegedly because as is clear from the judgment, Cooper entertains some doubt as to whether the loans were in fact made and if so, whether they can still be recovered.

In November 2021 he commenced proceedings against Nash alleging that the loan arrangement constituted an attempt by the bankrupt to prevent the property from becoming divisible among his creditors.

The declaration Cooper sought was that the alleged mortgage is void as against the Trustee or, in the alternative, a declaration that the Mortgage does not secure any liabilities of Mr or Ms Mayne. Cooper also sought orders that would either compel Nash to withdraw the Mortgage or allow for its removal.

Alternatively Cooper argued that Nash had either never advanced any monies to Mayne, or if he had, “the money was repayable “instanta”, and their recovery is now barred by the operation of s 33 of the Limitation of Actions Act 1936 (SA) (Limitation Act)”.

In his defence Nash detailed the history of loans and repayments between himself and the bankrupt and said that no more than half of the Property could pass to Cooper as trustee because Ms Mayne is a co-owner.

In August 2022 Cooper filed an amended statement of claim arguing the whole of the property vested with him. He added the bankrupt and his wife as respondents to the proceedings and sought orders for possession.

The question of whether the mortgage is valid awaits a hearing but in the meantime Cooper also commenced a marketing campaign for the property and obtained an offer he wanted to accept. Further, the bankrupt’s wife indicated that she also wished to sign the sale contract. But Nash refused to discharge his mortgage unless he was paid his $205,000.

Cooper wasn’t prepared to sign the sale contract in such circumstances. That upset the bankrupt’s wife who threatened legal action if the sale was lost.

So Cooper was forced to make an application for a mandatory injunction requiring that, conditional on Nash withdrawing his mortgage, the trustee and the bankrupt’s wife would direct $205,000 of the anticipated property sale proceeds into the “suitor’s fund” pending final resolution of the dispute. And because this has been not so much one of those days as one of those bankruptcies, the judge refused.

“The harm the Trustee says he will suffer if an injunction is not granted is based on the assumption that, if no injunction is granted, he will proceed with the contract for sale of the Property and, on settlement, he will apply $205,000 of the proceeds of sale to discharge the Mortgage; but, if he succeeds in his claims at trial, the Trustee will or may be unable to recover the $205,000 he would have paid to Mr Nash,” there judge said.

“I am not satisfied, however, that the Trustee proposes to enter into a contract of sale of the Property if an injunction is not granted.”

And because costs generally follow the event the judge ordered that Cooper pay the costs incurred by Nash and the bankrupt’s wife. Cooper told us yesterday he was mulling a possible appeal. Strange days indeed.