Insolvency and property sales – deposit entitlement after bankruptcy
Majet v Goggin & Miller as Trustees of the Bankrupt Estate of Brett-Hall  QSC 38, considered the impact of a bankruptcy trustee’s disclaimer upon the entitlement of a deposit paid in accordance with a contract for the purchase of a residential property.
In early February 2014, Mr Herbert Ratcliffe Brett-Hall (“the Buyer”) paid a deposit in the amount of $139,000.00 to the trust account of the applicant’s solicitor, Mr Robert Powell Palethorpe (“the Seller’s Solicitor”) for the purchase of a property in St Christians Avenue, Port Douglas.
Prior to settlement, the Buyer was declared bankrupt and a sequestration order was made against his estate. His trustees in bankruptcy in effect assumed his responsibility as the buyer under the contract.
Soon after the bankruptcy, the trustees disclaimed the contract as unprofitable by notice to the sellers Christine and Joel Majet (“the Applicants”), pursuant to s133(1A) of the Bankruptcy Act 1966 (Cth) (“the Act”).
In response to the disclaimer, the Seller’s Solicitor responded to the trustees’ notice, asserting that by disclaiming the contract, the trustees had clearly demonstrated their intention to not be bound by the contract. As such, they argued that the disclaimer entitled the Applicants as sellers to terminate the contract for anticipatory breach by reason of the Buyer’s default. As a result, they argued that the sellers should be entitled to the $139,000.00 deposit amount.
However, the trustees contended that the deposit should be returned to the trustees as the sale did not proceed. Their position was that the deposit remained the beneficial property of the Buyer unless and until the sellers became entitled to it. They argued that the disclaimer could not give rise to a default because by operation of law, the disclaimer relieved the trustees of any obligation to further perform the contract. As such, the seller had no right to terminate and no prospect of entitlement to the deposit under the contract.
The issue before the court was the effect of the disclaimer on the contract and thus, the entitlement to the deposit.
Justice Henry of the Queensland Supreme Court found that the disclaimer only affected the Buyer’s rights, interests, and liabilities under the contract. As the disclaimer ended the Buyer’s right under the contract, the Buyer or his trustees were precluded from relying upon the clause under the contract which states that the Buyer is entitled to receive the deposit if the contract was terminated without default by the Buyer.
Further, Henry J asserted that the disclaimer did not determine the Sellers’ rights or liability under the contract. Although the Buyer was discharged from personal liability for the consequence of not proceeding, the Seller’s right to the deposit was preserved by the proviso in s133(2) of the Act which provides a disclaimer “does not … affect the rights or liabilities of any other person”.
The court also found that the disclaimer was of its nature a manifestation of an unwillingness or inability to perform the contract and was therefore a repudiation of the contract by anticipatory breach.
The trustee’s application was dismissed and the Sellers were entitled to the deposit.
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