B Pty Limited and Sykes and Anor - [2013] FamCA 359

FAMILY COURT OF AUSTRALIA

B PTY LIMITED & SYKES AND ANOR

[2013] FamCA 359

FAMILY LAW – PRACTICE AND PROCEDURE – Where the applicant is neither the trustee in bankruptcy nor a creditor but a commercial entity that had entered into a commercial arrangement with the bankruptcy trustee whereupon the bankruptcy trustee had entered into a Deed of Assignment with the applicant purporting to assign certain rights and entitlements to the applicant to seek orders and thus to bring proceedings under the Family Law Act – Where it was submitted on behalf of the first and second respondents that the applicant’s right to orders pursuant to s 79A and s 79 was not validly or effectively assigned so that the applicant was not entitled to be an applicant in the Family Law proceedings and, notwithstanding the purported assignment, the proper applicant could only be the trustee in bankruptcy – Consideration of relevant authorities – Where it was determined that the applicant is not a person affected within the meaning of s 79A of the Act and is not otherwise entitled to bring the application – Where the deed of assignment is ineffective to the extent that it purports to assign to the applicant the entitlement to bring and maintain an application under s 79A of the Act – Whether the trustee in bankruptcy should be joined to the proceedings as an applicant – Where there was evidence that the trustee in bankruptcy had consented to being joined to the proceedings as an applicant – Where the trustee in bankruptcy was joined to the proceedings as an applicant.

Family Law Act 1975 (Cth) – ss 79, 79A; 79A(5)
Bankruptcy Act 1966 (Cth) – s 58

Cotterill v Bank of Singapore (Australia) Limited (1995) 37 NSWLR 238
DFC of T (WA) v Spanjich and Spanjich (1988) FLC 91-974
John Alexander’s Club v White City Tennis Club Ltd [2010] HCA 19
Movitor Pty Limited (Receivers appointed) v Sims (1996) FCR 380
Oastler & Oastler (1993) FLC 92-390
Seear v Lawson [1880] LR15 Ch D426
Sresbodan & Sresbodan & Ors No 2 (2011) FLC 93-488
Tosich Construction Pty Limited & the Corporations Law (1997) 73 FLR 219
UTSA Pty Limited (in Liq) v Ultratune Australia Pty Limited (1996) 21 ACSR 457
UTSA Pty Limited (in Liq) v Ultratune Australia [1997] 1 VR 667

APPLICANT:

B Pty Limited

FIRST RESPONDENT:

Ms Sykes

SECOND RESPONDENT :

Mr Sykes

FILE NUMBER:

SYC

1555

2012

DATE DELIVERED:

24 May 2013

PLACE DELIVERED:

Sydney

PLACE HEARD:

Sydney

JUDGMENT OF:

Aldridge J

HEARING DATE:

19 April 2013

REPRESENTATION

COUNSEL FOR THE APPLICANT:	Mr Fernon
SOLICITOR FOR THE APPLICANT:	Dixon Holmes Du Pont, Pty Ltd

COUNSEL FOR THE FIRST RESPONDENT:	Mr Steward
SOLICITOR FOR THE FIRST RESPONDENT :	Spinks Eagle Lawyers

SOLICITOR FOR THE SECOND RESPONDENT:

Sydney Law Practice

Orders

That Mr Lane as Trustee of the Bankrupt Estate of Mr Sykes be joined as an Applicant to these proceedings.
That the Applicant shall file and serve an Amended Initiating Application within fourteen (14) days of today.
That the Respondent(s) shall file and serve a Response within fourteen (14) days thereafter.
The matter is listed for directions at 10:00 am on Monday 1 July 2013.
That leave is granted to the parties to make an Application for Costs, if they so wish, within twenty-eight (28) days of the date of these Orders.

IT IS NOTED that publication of this judgment by this Court under the pseudonym B Pty Limited & Sykes and Anor has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).

FAMILY COURT OF AUSTRALIA AT SYDNEY

FILE NUMBER: SYC1555/2012

B Pty Limited

Applicant

And

Ms Sykes
First Respondent

And

Mr Sykes

Second Respondent

REASONS FOR JUDGMENT

Introduction

By Initiating Application filed on 19 March 2012, B Pty Limited (“the Applicant”) seeks orders pursuant to s 79A of the Family Law Act 1975 setting aside orders made on 30 July 2008 by this Court in proceedings between the First Respondent (“the Wife”) and the Second Respondent (“the Husband”).
On … April 2010 the Husband became a bankrupt. On 2 February 2012 the Trustee in Bankruptcy of the Husband purported to assign to the Applicant his rights under s 79 and 79A of the Family Law Act.
The Respondents dispute the validity of that assignment. On 10 April 2013, by consent, I ordered that three (3) questions be determined separately and in advance of the balance of the proceedings. Those questions are:
a)Is the Applicant B Pty Limited, a “person affected” within the meaning of s 79A of the Family Law Act and/or otherwise entitled to bring the application?
b)Is the Deed of Assignment dated 2 February 2012 between the Applicant and Mr Lane legally effective to assign the rights relied upon by B Pty Limited in these proceedings?
c)Should Mr Lane, the Trustee in Bankruptcy of the Husband, be joined as an Applicant in these proceedings?

Background

The Husband and Wife were the proprietors of a property at C Street, Suburb D, New South Wales.
On 3 April 2008 a Bankruptcy Notice was served upon the Husband by a creditor relying upon a Judgment Debt in the sum of $256,714.05.
On 30 June 2008 a Divorce Application was signed by the Wife which was filed on 17 July 2008.
On 28 July 2008 the Husband’s solicitor, in relation to proceedings in the Supreme Court of New South Wales in which the Husband was a defendant, wrote to the other parties consenting to a Judgment in the sum of $12 million against him.
On 30 July 2008 the Husband’s solicitor signed a document headed Short Minutes of Order pursuant to which Judgment was to be entered against the Husband in the sum of $12,870,023.38.
On the same day, that is 30 July 2008, consent orders were made in this Court between the Husband and Wife pursuant to s 79 of the Family Law Act in proceedings SYC 4180 of 2008. One of the orders required the Husband to do all acts and things necessary to transfer to the Wife his right, title and interest in the Suburb D property.
The application for the consent orders was filed on 17 July 2008. Part G of that application, which must be completed if property or maintenance orders are sought under section 79, requires the parties to disclose their liabilities. The Husband did not disclose as a liability either the sum of $256,714.05 or $12,870,023.38 or any sum akin to those amounts.
On … April 2010 the Husband presented a Debtor’s Petition and became a bankrupt.
On 2 February 2012 Mr Lane, the Trustee of the Husband’s bankruptcy, entered into a Deed of Assignment with the Applicant. The Applicant is a commercial entity and, except for the transaction dealt with here, has no relationship with the bankrupt or his estate. In particular, it was never a creditor of the bankrupt.
Clause 2.1 of that deed provided:
On and from the Effective Date in consideration of the Assignee providing the Consideration to the Assignor, the Assignor assigns and transfers absolutely to the Assignee all the Assignor’s present and future rights, title and interests and the assigned interests and the Assignee accepts the assignment; and
The assigned interests are defined by the deed to be:
All causes of actions, rights or entitlements, however or wherever arising, whether present, unascertained, immediate, future or contingent relating to or arising directly or indirectly from;
(a)the Agreement;
(b)the Orders;
(c)any right or entitlement to (or to seek to) vary, have declared void, set aside or take any other action, commence any proceedings or seek any other relief in relation to the Agreement and/or the Orders; and
(d)any right or entitlement to seek, enforce or retain the benefit of any declaration or orders in the Family Court of Australia or any Court, Tribunal or body, or otherwise make or commence any other claim, action or proceeding against the Wife and/or the bankrupt under the Act or otherwise arising out of or in relation to the property or former property of the marriage between the Bankrupt and the Wife.
In that Clause the orders referred to are the consent orders of 30 July 2008 by which the Husband consented to judgment in the sum of $12,870,023.38.
It was agreed between the parties that the logical order to deal with the separate questions was to deal with question two first, then question one and then, if necessary, question three. This is because it is not asserted by the Applicant that it has any right or entitlement to bring these proceedings other than by way of the Deed of Assignment. It has never been a creditor of the Husband and has entered into the Deed with the Trustee in Bankruptcy as a commercial arrangement.

Question 2: is the deed of assignment dated 2 february 2012 between the applicant and mr lane legally effective to assign the rights relied upon by b Pty Limited in these proceedings?

It is clear that the assigned interests pursuant to the Deed refer to three matters. The first is any right or entitlement to vary the orders or have them declared void or set aside, or to seek to have made such orders. As far as the Act is concerned this must be a reference to rights arising under s 79A of the Family Law Act. The second is any right or entitlement to seek to enforce or retain the benefit of any orders in the Family Court arising out of or in relation to the former property of the Husband and the Wife. This is clearly a reference to orders made or sought to be made under s 79 (assuming an order under s 79A was made setting them aside) or orders of variation under s 79A. The third matter is the right to retain the benefit of any such orders.
Thus the first two matters purport to be assignments of rights or entitlements to seek orders and thus to bring proceedings under the Family Law Act. The third matter is a right to receive the benefit of those proceedings.
Neither the Husband nor the Wife suggested that the Deed was not effective to assign to the Applicant the fruits of any litigation taken by the Trustee in Bankruptcy pursuant to s 79A and s 79 of the Family Law Act. Thus there is no suggestion that the Deed is invalid as to the third matter. Rather, the submissions were directed to the first and second matters. It was said that the entitlement or right to seek those orders was not validly or effectively assigned, so that the Applicant was not entitled to be an Applicant in the Family Law proceedings and, notwithstanding the purported assignment, the proper Applicant could only be the Trustee in Bankruptcy solely.
The issue then is whether or not a trustee in bankruptcy can validly assign his or her entitlements or rights under s 79A of the Family Law Act. Section 79A (1) relevantly provides:
Where, on application by a person affected by an order made by a Court under s 79 in property settlement proceedings, the Court is satisfied that:
(a)There has been a miscarriage of justice by reason of fraud, duress, suppression of evidence (including failure to disclose relevant information), the giving of false evidence or any other circumstance; or
(b)…
The Court may, in its discretion, vary the order or set the order aside and, if it considers it appropriate, make another order under s 79 in substitution for the order so set aside.
There has been some debate in the authorities as to what constitutes “a person affected” by an order for the purpose of this section. For example, it has been suggested that a person who was not a creditor of a party at the time of the bankruptcy was not such a person within the meaning of the section. DFC of T (WA) v Spanjich and Spanjich (1988) FLC 91-974 at 77,048. Where there is a bankruptcy a creditor with a provable debt is not a person so affected because of the application of s 58(3) of the Bankruptcy Act 1966. In that case it is the Trustee in Bankruptcy who is the person affected. See Sresbodan & Sresbodan & Ors No 2 (2011) FLC 93-488. It is not, however, necessary to analyse these cases in detail because the Applicant only seeks to rely upon the standing it derives from the assignment and no other matter. It accepts that absent the assignment it would not be a person affected within the meaning of s 79A.
It is therefore necessary to look at the standing of a Trustee in Bankruptcy to bring proceedings under s 79A. Section 79A(5) provides:
For the purposes of this section, if:
(a)An order is made by a Court under s 79 in proceedings with respect to the property of the parties to a marriage or either of them; and
(b)Either of the following sub-paragraphs apply to a party of the marriage:
i.When the order was made, the party was a bankrupt;
ii.After the order was made, the party became a bankrupt;
iii.The Bankruptcy Trustee is taken to be a person whose interests are affected by the order.
The Applicant relies upon the well known and often cited case of Seear v Lawson [1880] LR15 Ch D426. At page 433-434 James LJ said, speaking of the rights of trustees in bankruptcy to assign rights arising from the trusteeship (whether rights that arose by reason of being vested property or otherwise):
Whatever was vested in the Trustee it seems to me that the Trustee is authorised by the Act to sell, and he is entitled to sell instead of incurring the risk of litigation in his own name, and at his own expense.
Supposing this were a right which never was in Mr Webster at all; supposing, for instance, that the Trustee had a right to impeach a deed by reason of it being a fraud upon the creditors, although it was a deed of which Webster himself could not of complained, that right would, in my opinion, have been equally saleable by the Trustee as being part of the assets and property which the Trustee was to get in for the benefit of the creditors. I desire to add, that although we decide this case upon the assumption that such a right as this could not have been assigned by Mr Webster himself, I am by no means prepared to assent to the proposition that it could not. It is clear that that proposition, at least in so far as it relates to property of the Bankrupt, clearly remains the position.
The rights and entitlements of a bankruptcy trustee arising from his or her standing under s 79A(5) are not property of a bankrupt that has vested in the bankruptcy trustee. The trustee derives standing from the express provision of s 79A(5) and not from any right of the bankrupt that has vested. It may be that the bankrupt remains a person affected notwithstanding the bankruptcy (at least in relation to any non-divisible property and any surplus from the estate).
Therefore the rights and entitlements of a trustee in bankruptcy cannot be described as an “asset and property which the trustee was to get in for the benefit of creditors”, to use the words of Seear or a cause of action vested in the husband at the commencement of the bankruptcy (Cotterill v Bank of Singapore (1995) 37 NSWLR 238 at 255).
Section 75A gives a trustee in bankruptcy standing to bring an application under s 79A(1) by taking the trustee to be a person whose interests are affected by the order sought be set aside or varied. However, to use the words of James LJ, s 79A does not give a trustee in bankruptcy “a right to impeach a deed by reason of it being a fraud on creditors”. This is for two reasons. The first is that s 79A does not confer a right. It entitles a person affected in particular circumstances to ask the court, in its discretion, to vary, declare void or set aside orders. There is no existing right being recognised by the court. In order to persuade the court that it is appropriate to make orders under s 79A, in the present case, the Applicant would need to establish a miscarriage of justice arising by reason of the matters set out in s 79A(1)(a). The court may then, in its discretion, vary the order or set it aside and if it considers it appropriate make an order under s 79 of the Family Law Act.
This is conformed by the nature of proceedings under both s 79 and s 79A.
The Full Court has held that the appropriate procedure is for there not to be two hearings in applications under s 79A with the first being limited to whether or not the order should be set aside. The usual course is that there should be one hearing in which the court considers whether the order should be varied or set aside and what, if any, order should be made in lieu of the original order at the same time as the hearing of the application to set aside. (Oastler &Oastler (1989) 16 Fam LR 674; (1993) FLC 92-390). That course seems to be necessarily to involve the weighing of factors arising out of s 79 of the Family Law Act including the specific factors required to be taken into account under s 79(4) of the Family Law Act which of course includes the relevant matters arising from s 75(2). They are very much matters of discretion and involve the weighing of competing circumstances. It involves an alteration of property rights as opposed to identifying and enforcing existing rights.
Thus neither section could be described as giving rise to an existing right enforceable by a cause of action.
The second reason is that, if an order under s 79A is made, the Trustee then has a direct interest in the outcome of the proceedings because such property that remains to be dealt with by the court, would, to the extent the bankrupt had an interest in it, vest in the trustee to the extent the existing property orders were set aside, as opposed to varied. The operation s 58 of the Bankruptcy Act 1966 (Cth) remains unaffected by the Deed. Whilst it purports to assign entitlements to bring proceedings under s 79 and s 79A of the Act and to deal with the fruits of any such action it does not purport to and cannot oust the statutory provisions relating to the vesting of property. That possible interest will be taken into account when the court is considering whether the orders should be varied or, alternatively, set aside.
The result is that the Trustee in Bankruptcy is a relevant and necessary party and the only party that can represent the interests of creditors with provable debts and deal with the divisible property of a bankrupt at the hearing of a s 79 application. The bankrupt party to the marriage, of course, remains a relevant and necessary party, at least in so far as any divisible property and any surplus from the bankrupt’s estate is concerned.
Thus s 79A(5) gives standing to a particular person, the Trustee in Bankruptcy, by taking them to be a person affected within the meaning of s 79A. It confers standing that cannot be transferred to another person. That is to say it is a right personal to the Trustee in Bankruptcy because it is only the Trustee in Bankruptcy that can satisfy the statutory description of being a person affected by the order by reason of s 79A(5).
In Movitor Pty Limited (Receivers appointed) v Sims (1996) 64 FLR 380 Drummond J, referring to claims for insolvent trading (which are claims that must be brought by the Liquidator of the company and not by the company itself) said at 393:
… I am not prepared to draw the distinction that was drawn in Grovewood Holdings PLC v James Capell & Co Limited, supra, between a sale of a cause of action by a liquidator under the statutory power and a sale by him of the fruits of that cause of action under the same power.
Since the share in the fruits of an action belonging to an insolvent company is “property of the company” for the purposes of s 477(2) (c) of the Corporations Law that section authorises the liquidator to make an agreement to pay a percentage of such recoveries in turn for assistance in running the action, because the section empowers the liquidator not only to sell, but to “otherwise dispose of, in any manner” any part of the property of the company.
Lindgren J expressly agreed with that position in Tosich Construction Pty Limited & the Corporations Law (1997) 73 FLR 219. At page 235 his Honour said “it is not to the point that only the liquidator had standing to apply for a remedy which would give rise to those recoveries”.

Entirely to the contrary is the decision of Hansen J in UTSA Pty Limited (in Liq) v Ultratune Australia [1997] 1 VR 667. His Honour said that rights under ss 588(F)(B), 588(F)(C) and 588(F)(F) of the Corporations Act which give rights to the liquidator, but not to the company in liquidation, to recover preferential payments and other commercial transactions, lie in the liquidator and are not assignable. By implication, the Court of Appeal not specifically referring to those parts of his Honour’s Judgment, his Honour’s views were upheld on appeal. (UTSA Pty Limited (in Liq) v Ultratune Australia Pty Limited (1996) 21ACSR 457).
There is a distinction between the two cases.
Movitor and Tosich dealt with applications to authorise a liquidator to enter into a litigation funding agreement and they were not dealing with assignment which was the issue in UTSA.
It neither necessary nor helpful to attempt to reconcile the conflict between Movitor and Tosich on the one hand and UTSA. They deal with sections of the Corporations Act2001 which undoubtedly give causes of action to the liquidator. The terms of those sections, and the causes of action created by them, are in marked contrast to the provisions of s 79A. This matter is to be resolved by the construction of s 79A.
For these reasons I am not satisfied that the Deed of Assignment is legally effective to assign rights and standing to the Applicant such that would enable it to commence and continue these proceedings.
The Applicant, as was accepted by the parties, has the right to receive the benefit of whatever property the Trustee in Bankruptcy may receive as a result of these proceedings if they continue and are successful.

Question 1: Is the applicant b pty limited a person affected within the meaning of s 79A of the family law act and otherwise entitled to bring the application?

Having regard to my findings of the previous question the answer to this question is no.

Question 3: Should mr lane be joined as an applicant in these proceedings?

The First Respondent accepts that the joinder of the Trustee in Bankruptcy to these proceedings is necessary and appropriate for them to be properly constituted.
The Second Respondent agrees that the Trustee in Bankruptcy should be a party to the proceedings but should not be joined as an Applicant. There were two reasons put forward.
The first was that there was no evidence to suggest that the Trustee in Bankruptcy had in fact consented to being joined as an Applicant to the proceedings notwithstanding his lawyer writing to the Applicant’s lawyer saying:
We notify you on behalf of the Trustee that you have instructions to act on behalf of the Trustee in relation to the Family Court proceedings.
A copy of a proposed Amended Initiating Application bearing the original signature of the Trustee in Bankruptcy is before me. There can been no doubt he has consented to being joined as an Applicant.
The second reason was that, if the Trustee in Bankruptcy was to become an applicant there would be a present or potential conflict between the two Applicants that would render it impossible for them to be represented by the same solicitor. No suggestion of any specific present conflict was made. That matter can be addressed if and when it arises.
It was also argued that the Applicant was not a necessary party to the proceedings because it had no interest in them.
In John Alexander’s Club v White City Tennis Club Ltd [2010] HCA19; 241 CLR 1 at 46 the Court said:
Walker Corporation submitted that where a Court is invited to make or proposes to make, orders directly affecting the rights or liabilities of a non party, the non party is a necessary party and ought to be joined. That submission is correct.
As the Applicant is entitled to the fruits of whatever property the Trustee in Bankruptcy might recover as they are a person affected or might be affected by the orders it is appropriate for them to remain as a party given that it may be the beneficiary of any order that might ultimately be made and that it is instructing the same solicitor as the Trustee it is appropriate for it to remain as an applicant.

Summary

Accordingly the answers I order that the three questions be answered as follows:
(a)Is the Deed of Assignment dated 2 February 2012 between the Applicant and Mr Lane legally effective to assign the rights relied upon by B Pty Limited in these proceedings?
To the extent that the Deed purports to assign to the Applicant the entitlement to bring and maintain an application under s 79A of the Family Law Act it is ineffective.
(b)Is the Applicant B Pty Limited a person affected within the meaning s 79A of the Family Law Act 1975 and otherwise entitled to bring the application?
No.
(c)Should Mr Lane, The Trustee in Bankruptcy, be joined as an Applicant in these proceedings?
Yes.
Accordingly, Mr Lane shall be joined in these proceedings and my orders are set out at the commencement of this Judgment.

I certify that the preceding fifty (50) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Aldridge delivered on 24 May 2013.

Associate:

Date: 21 May 2013