Byczko v Sheahan - [2005] FMCA 169

FEDERAL MAGISTRATES COURT OF AUSTRALIA

BYCZKO v SHEAHAN & ANOR

[2005] FMCA 169

BANKRUPTCY – Whether claim under De Facto Relationships Act (SA) constitutes provable debt pursuant to s.82 of the Bankruptcy Act.

Bankruptcy Act 1966 ss.82(2), 82(4), 82(6), 99, 120, 121, 178
De Facto Relationships Act 1966 (SA), s.10(c), 11(1)(a), 11(1)(b), 11(1)(d), 107
The Constitution, s.51(xxi), 51(xxii)
Real Property Act 1886 (SA), s.64
Family Law Act 1975, s.79
Federal (Proceedings) Costs Act 1981 (Cth), s.10(2)
Companies Act 1961 (SA), s.374D

Official Trustee v CS & GJ Hanby PtyLtd (1989) 21 FCR 19
Lyford v Carey (1985) 3 ACLC 515
Corporate Affairs Commission v Karounos (1985) 3 ACLC 410
Sieling & Sieling (1979) FLC 90-627
Fisher vFisher (1986) 161 CLR 438
Re Chemaisse: Federal Commissioner of Taxation (Intervener) (1990) FLC 92-133
Lopatinsky v Official Trustee in Bankruptcy (2003) FCA 1256 (6 November 2003)
Haines v Bendall (1991) 172 CLR 60
Pyramid Building Society (in liq) v Terry (1997) 189 CLR 176
Parij & Parij (1997) 72 SASR 153

Applicant:

JAN CZESLAW BYCZKO

Respondents:

JOHN SHEAHAN AS TRUSTEE OF THE BANKRUPT ESTATE OF JAN CZESLAW BYCZKO & FIONA MICHELLE WITTWER

File No:

ADG157 of 2002

Delivered on:

28 February 2005

Delivered at:

Melbourne (by video link to Adelaide)

Hearing Date:

17 January 2005

Date of Last Submissions:

28 January 2005

Judgment of:

McInnis FM

REPRESENTATION

Counsel for the Applicant:

Ms E Connolly

Solicitors for the Applicant:

Connolly & Co

Counsel for the First Respondent:

Mr M Livesey

Solicitors for the First Respondent:

Minter Ellison

Counsel for the Second Respondent:

No appearance

Solicitors for the Second Respondent:

Christopher Ganzis & Co

ORDERS

It is declared that the proof of debt to the amount of $130,000 lodged by the Second Respondent, Ms Fiona Michelle Wittwer with the First Respondent is not a provable debt pursuant to s.82 of the Bankruptcy Act 1966.
It is declared that the proof of debt in the amount of $130,000 lodged by the Second Respondent Ms Fiona Michelle Wittwer with the First Respondent is:-
(a) a demand in the nature of unliquidated damages arising otherwise than by breach of promise, contract or breach of trust and
(b) thus not provable in Bankruptcy pursuant to s.82(2) of the Bankruptcy Act 1966.
It is declared that the value of the debt or liability owed by the Applicant to Ms Fiona Michelle Wittwer is a debt or liability not provable in the Bankruptcy pursuant to s.82(6) of the Bankruptcy Act 1966.
It is ordered that the adjudication by the First Respondent of the Second Respondent’s proof of debt lodged in the sum of $130,000 be set aside.
The costs of the First Respondent of and incidental to these proceedings save and except for those costs incurred arising out of the re-hearing of the application recovered pursuant to s.10 of the Federal (Proceedings) Act 1981 be costs payable to the First Respondent out of the Bankrupt Estate of the Applicant.
There be no further orders for costs in this application.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
ADELAIDE

ADG157 of 2002

JAN CZESLAW BYCZKO

Applicant

And

JOHN SHEAHAN AS TRUSTEE OF THE BANKRUPT ESTATE OF JAN CZESLAW BYCZKO & FIONA MICHELLE WITTWER

Respondents

REASONS FOR JUDGMENT

(as corrected 2 March 2005)

In this matter Jan Czeslaw Byzcko (the Applicant) by an application filed on 3 July 2002 sought orders as a bankrupt claiming to be aggrieved by a decision of John Sheahan (the First Respondent) as trustee of the Applicant’s Bankrupt Estate.
The Application and issue which is the subject of determination before this Court relates to a proof of debt to the amount of $130,000 lodged by Ms Fiona Michelle Wittwer (the Second Respondent). The Applicant claims that the proof of debt is for unliquidated damages arising otherwise than by reason of a contract, promise or breach of trust and is therefore not provable in bankruptcy (see Bankruptcy Act 1966 (“the Bankruptcy Act”) s.82(2), 82(6) and 178).
Reliance was also placed upon the Commonwealth Constitution and in particular it is claimed that this Court does not have jurisdiction to deal with the Second Respondent’s claim as set out in the proof of debt as that claim falls to be determined under the provisions of the De Facto Relationships Act 1966 (SA) (“the DFRA”). It is claimed by the Applicant that by virtue of the operation of s.107 of the Commonwealth Constitution and that the Commonwealth has no power to legislate or determine de facto property division matters but only matters arising out of marriage and divorce and matrimonial causes pursuant to s.51(xxi) and 51(xxii) of the Constitution. The determination of that issue described by the parties as a preliminary issue, that is determination of whether or not the proof of debt is indeed a debt falling within s.82 of the Bankruptcy Act given that it has arisen by way of a claim under the DFRA.
The Applicant also sought to rely upon s.99 of the Bankruptcy Act and further claims that the proof of debt of the Second Respondent should be found and/or declared by the Court to be wrongly admitted and to be expunged. That amendment was allowed without objection. Since the amendment was allowed s.99 was repealed by Act No 131 of 2002 which received Royal Assent on 18 December 2002. For reasons that will become apparent I do not regard it as necessary to consider that section any further in this judgment.
The matter was first listed before the Court on 25 July 2002. On that date it was adjourned to enable the Applicant to seek legal advice. The day before that hearing the Applicant had sworn an affidavit setting out some relevant background details which I shall refer to in this judgment.
When the matter came before the Court on 20 August 2002 it was then further adjourned to 27 August 2002 and by that date the Applicant was represented.
Initially a Third Respondent had been named in the proceedings and for present purposes it is only necessary to note that the Application against that Third Respondent was discontinued by Notice of Discontinuance filed 26 August 2002. When the matter came before the Court on 27 August 2002 it was further adjourned to 24 September 2002. On 24 September 2002 directions were given in relation to the filing and serving of affidavits and the matter further adjourned to

29 October 2002. On that date orders were made which included the following:-
“That the threshold question as provable debt be listed for argument at 2 pm on 10 December 2002 noting half day allowed.”
The Applicant was granted liberty to file and serve an Amended Application and the parties were required to provide a Summary of Argument and List of Authorities.
Summaries were provided by the parties together with Lists of Authorities as ordered and the matter proceeded to a hearing on

10 December 2002 and the decision reserved.
As a result of the illness of the presiding Federal Magistrate who heard the matter on 10 December 2002, the Chief Federal Magistrate has directed that I should re-hear the matter. Parties were advised of the decision of the Chief Federal Magistrate and were given the opportunity to make any further submissions either in writing or before the Court which had convened on 17 January 2005. As a result of orders made by this Court on 17 January 2005 the First Respondent provided further written submissions dated 20 January 2005 and the Applicant relied on further submissions filed on 28 January 2005.

It had been ordered that upon receipt of the further written submissions the Court would reserve its decision. It should be noted that the parties were advised that the Court would otherwise rely upon the transcript of the proceedings and submissions made by the parties on 10 December 2002.
The Third Respondent has been excused from further participation in the proceedings before me though had made submissions set out in the transcript of the hearing conducted on 10 December 2002.

Background facts

The Applicant relied upon an affidavit sworn by him on 3 July 2002. The First Respondent relied upon an affidavit sworn by his partner Ian Russell Lock on 15 October 2002. The Second Respondent had relied upon an affidavit sworn by her on 28 October 2002.
The Applicant became bankrupt on 12 March 2001 on his own petition and the Official Trustee was appointed as Trustee of the Bankrupt Estate. On 29 March 2001 the First Respondent was appointed Trustee in Bankruptcy in place of the Official Trustee following a resolution passed at a meeting of creditors of the Applicant held on 26 March 2001.
At the time of bankruptcy the Applicant had separated from his de facto partner, the Second Respondent. He claims the relationship lasted only four and a half years though there is dispute about that matter. It appears that the relationship commenced in or about March 1993. There are two children of the relationship, one born on

28 January 1995 and another on 26 March 1996.
The Applicant claims that he had separated from the Second Respondent in November 1998. It is not necessary to recite in detail the circumstances of the separation save that there are allegations and counter allegations with the Applicant referring to the Second Respondent as having a drug habit and other allegations by the Second Respondent of the Applicant assaulting the Second Respondent with restraining orders obtained. It appears that the Second Respondent obtained interim orders in the Family Court of Australia whereby the children resided with her. Ultimately however orders were made on

17 December 2001 that the children reside with the Applicant and contact orders were made with the Second Respondent. Those orders appear to be interim orders and it is claimed by the Applicant that the Second Respondent did not exercise contact frequently. Further orders were made by the Family Court on 11 April 2002. On that occasion there was no appearance for the Second Respondent and it would appear that by default orders were made that the children reside with the Applicant with contact at such times and upon such conditions as agreed between the parties. An injunction was granted restraining the Second Respondent from attending the childrens’ school or from attempting to communicate with the children at their school. Although affidavits filed in the Family Court of Australia were annexed to the affidavit of the Applicant, I do not regard it as appropriate for this Court to permit the Applicant to rely upon those affidavits save for the purpose of demonstrating that there were significant issues between the Applicant and the Second Respondent concerning the residence and contact of the children.
The Applicant’s father died on 23 March 1998 and the Applicant and his brother inherited their father’s estate. On 19 October 1998 the Applicant purchased “10 Gilson cultured opals” from Tennyson Turner (“Turner”) allegedly valued at $300,000. The purchase of the opals was purportedly made by the Applicant as an investment.
It would appear that in or about October 1998 the Applicant was the registered proprietor of two properties. The first a property situated at 252 Anzac Highway Plympton (the Plympton property) and the second a property situated at 3 Hotchkiss Crescent Croydon Park (the Croydon Park property) (“the properties”). The Applicant claims that he had owned the Plympton property before he commenced the relationship with the Second Respondent and that the Croydon Park property he obtained from the proceeds of his father’s estate.
In about November or early December 1998 the Applicant executed mortgages over the Croydon Park property for $100,000 and the Plympton property for $200,000 and the mortgagee was Turner. It is claimed that the mortgage was granted to Turner as security for a loan by him to the Applicant of $300,000 at 10% per annum for the purchase of the opals. Further details are provided in relation to transactions concerning the properties and in my view it is not necessary to recite those details in this decision.

Court proceedings

Arising out of the investigations by the First Respondent a decision was made to make application to the Federal Court of Australia seeking orders pursuant to ss.120 and 121 that dealings in the properties be set aside with orders that the properties be transferred unencumbered to the Trustee for the benefit of the Applicant’s creditors.
Accordingly an application was filed on 29 May 2001 in the Federal Court of Australia, South Australia District Registry, Application No. S7015 of 2001 (the Federal Court Action). An interim injunction was granted against the Respondents in relation to the properties on 30 May 2001. On 22 June 2001 orders were made that the First Respondent be appointed receiver of the properties and on 25 June 2001 the Federal Court made orders in respect of the full powers and authorities of the receiver in respect of the properties including a power of sale of the Croydon Park property. On 31 July 2001 the Federal Court ordered pursuant to s.64 of the Real Property Act 1886 (SA) that in relation to the Croydon Park property the Registrar General cancel certain entries from the Register Book including mortgages and that the Receiver hold the net proceeds of sale of that property in trust subject to further orders of the Court. Details of the history of the dealings with the properties were provided in the Federal Court Action by the First Respondent and the trial commenced before the Federal Court on

21 August 2001. On 22 August 2001 the action was resolved by agreement with consent orders effectively providing the substantial relief as claimed by the First Respondent. Directions were subsequently made in relation to the properties.
It should be noted that on or about 8 October 1999 the Second Respondent commenced proceedings in the District Court of South Australia seeking division of the property pursuant to the DFRA in Application No. 1452 of 1999 (the District Court Action). For the sake of completeness it is noted that there is another action in the District Court by the Applicant against the Second Respondent seeking return of chattels and that the Second Respondent’s application for division of property under the DFRA appears to have commenced after earlier proceedings had been issued in the Family Court of Australia. In any event the District Court Action was referred to and was the subject of directions by the Federal Court. Insofar as orders in relation to the sale and disposition of the Trustee’s interest in the Plympton property was not to occur until delivery of judgment in the District Court Action.
The First Respondent sold the Croydon Park property at public auction on 3 August 2001 for $203,500.00 with settlement taking place on

3 September 2001. The Trustee sold the Plympton property at public auction on 17 December 2001 for $327,000.00 with settlement taking place on 18 January 2002.
In a report to creditors dated 15 May 2002 the Second Respondent claimed to have adjudicated all claims other than that of the Second Respondent and had admitted a claim from the Child Support Agency for $306,635.67 and another claim for $27,035.84. The only outstanding claim at that time would appear to be the Second Respondent’s claim of $130,000.00. Other claims had been rejected and the First Respondent in the report to creditors in part states the following:-
“Accordingly the only matter now outstanding is in the administration before a distribution can be made to creditors is the receipt of a proof from Ms Fiona Wittwer and its adjudication. I note that Ms Wittwer commenced proceedings against the bankrupt on 8 October 1998. Those proceedings, which were stayed by operation of the Bankruptcy Act recommenced (with the consent of the Federal Court) late last year. I understand that the matter has been heard and judgment is awaited. I propose to deal with Ms Wittwer’s claim once judgment has been delivered. Please note that it does not automatically follow that Ms Wittwer’s claim will be admitted in the amount of whatever judgment she receives in her favour. The bankrupt had a small cross-claim in the District Court proceedings. The cross-claim was not pursued by me in the District Court. I consider that it would be far more cost effective to deal with that cross-claim when adjudicating Ms Wittwer’s claim. Accordingly it may be that Ms Wittwer’s final admitted claim is less than the amount of any judgment she receives from the District Court.”
His Honour Judge Robertson in the District Court completed hearing all the evidence. In the District Court action the Second Respondent sought an order pursuant to s.10(c) of the DFRA to be paid an amount equivalent of 60% of the total net assets of the Applicant and the Second Respondent as at the date of separation or alternatively the sum of $200,000.00 from the net proceeds of sale of the properties.
Despite the pending proceeding in the District Court the First Respondent formed a view that pursuant to s.82 of the Bankruptcy Act that the Second Respondent’s claim in the District Court was a provable debt in the Bankrupt Estate of the Applicant and was a liability to which the bankrupt was subject at the date of bankruptcy.

It is useful to set out the following paragraph from the affidavit relied upon by the First Respondent of Ian Russell Lock sworn 15 October 2002 where the deponent states:-
“31.The Trustee formed the view that pursuant to s.82 of the Act. Wittwer’s District Court claim was a provable claim in the Bankrupt’s Estate being a liability to which the Bankrupt was subject at the date of bankruptcy. The Trustee maintains that Wittwer’s District Court claim was not in the nature of a claim for unliquidated damages (which is excluded from operation of the Act if it arises otherwise than by reason of a contract, promise or breach of trust) but rather it is a claim for the division of property under the DF Act and therefore falls within the ambit of s.82(1) of the Act.”
Consistent with that view the First Respondent then sought to make an estimate of the debt claimed and for that purpose sought advice from a lawyer purportedly being an expert in the area of family law. Material was given to that solicitor and advice received. The advice appears to be that the Second Respondent would “probably be entitled to between $50,000 and $60,000 in respect of the District Court Action but noted that $100,000 may not be outside the range.” Further the expert is alleged to have considered that the Second Respondent “would be entitled to approximately two-thirds of her legal costs, equating to approximately $70,000” (See Lock Affidavit paragraph 35).
An Amended Proof of Debt was lodged by the Second Respondent on 29 July 2001 claiming the sum of $130,000. That Amended Proof of Debt was lodged at the invitation of the First Respondent. The First Respondent notes that the Second Respondent did not require “the Trustee to adjudicate on the Amended Proof at that stage as she wished to await the outcome of the District Court Action” (see paragraph 37 of the Lock Affidavit).
On 17 June 2002 the then Second Respondent’s solicitors requested the First Respondent to proceed with the Amended Proof of Debt. An assessment was made having regard to the legal advice and the material filed in the District Court Action that at the date of bankruptcy a fair assessment of the Second Respondent’s claim was in the order of $130,000. The First Respondent formally admitted the Amended Proof in that sum. By correspondence dated 17 June 2002 the Second Respondent and Applicant were notified of the First Respondent’s assessment. Thereafter as indicated earlier in this judgment the application in the present proceedings was filed on 3 July 2002.
It is not necessary in this decision to further undertake an assessment of the quantum of the Amended Proof of Debt for reasons which will become apparent.

Part of the material included transcript from proceedings in the District Court conducted by His Honour Judge Robertson on 14 June 2002.

It is clear from the transcript that the Learned Trial Judge had reconvened initially for the purpose of dealing with what he was prepared to regard as an application to re-open the case by the Applicant in order to receive into evidence an order made in the Family Court on 11 April 2002. They are the orders referred to earlier in this judgment concerning residence of the children and injunctive relief. Leave was granted to the Applicant to re-open the case for the purpose of tendering the order. The Learned Trial Judge then raised with the Second Respondent’s representative the issue of identifying the property of the parties at the date of trial.
His Honour further referred the parties to the need for the Court to determine whether and if so what contributions were made of a kind under s.11(1)(a) and (b) and other relevant matters under s.11(1)(d) of the DFRA. His Honour went on to refer to the importance of not making an order for a lump sum greater than would seem to be the net return of the property of a defendant upon sale and stated, “Here the defendant virtually has no property. All of his property vested in the Official Trustee at the time of bankruptcy”. The following further extract appears in the transcript,
“Of course the bottom line in s10 requires that the Court make an order which is by way of being just and being equitable. Now, that poses the problem that it seems to me that you have, and that you would not appear to have comprehended at the time that this matter was ordered by the Federal Court or leave was given to proceed. That is if there is no property, there can be no order. The approach that you have taken and made quite clear is that you feel this is a provable debt in the bankruptcy, and I think the Trustee has made that point to me. I have already made the point that I don’t agree with that, but I am the first to admit that I haven’t heard detailed argument of such substance that would satisfy me that I am right. Its only an opinion that I express in looking at the authorities.”
It will be noted that after those comments were made by the Learned Trial Judge the First Respondent notified the parties by letter dated

17 June 2002 of the decision to admit as a provable debt the claim by the Second Respondent and assess it in the sum of $130,000. The Applicant by letter dated 19 June 2002 stated in part that in his view the First Respondent had no power to adjudicate in any way on the alleged claim of the Second Respondent as this was entirely “the province of the State Court to determine”.
His Honour Judge Robertson made further comments which as

I understand it ultimately led to a conclusion that he would not proceed to deliver judgment pending the outcome of this application and consideration of whether or not there is a provable debt. It is useful to set out the following extracts from the transcript:-
“… other than those two aspects of property that I’ve referred to, there is no property and it’s unlikely – but I don’t express it with any finality – that I would make an order if there was no property. Well, I can’t make an order. It’s as simply as that on the authorities that I have looked at, which I think are right. You can’t make an order, even a lump sum order, for any more than the property of the person against whom the lump sum order is made. In other words, if you had assets worth $50,000 the most that could ever be awarded against you would be $50,000. You could award $60,000.
…
Now one thing I didn’t consider at that time, because it didn’t occur to me, is that the premise upon which the Federal Court gave leave for the plaintiff to continue with these proceedings is that, what is being claimed is a provable debt. So, in effect I’d reached a conclusion different than the Federal Court. I didn’t do that in any disrespectful fashion. It just didn’t occur to me that that was the premise upon which the Federal Court gave it’s approval. I don’t know whether the Federal Court heard detailed argument as to whether it was a provable debt or not. That’s not for me anyway. And again, not being disrespectful to the Federal Court, I still adhere to the opinion I’d first concluded, that it wasn’t a provable debt. But let me say this, I’ve not heard any detailed argument. It’s only matters that I’ve concluded as a result of looking at the issue.”
(Transcript pp.68 & 69)
As I understand it the District Court made no orders as to costs and although not clear on the material before me had apparently struck out the claim by the Second Respondent.

Relevant legislation

Bankruptcy Act – section 82

Section 82 provides -
“(1)Subject to this Division, all debts and liabilities, present or future, certain or contingent, to which a bankrupt was subject at the date of the bankruptcy, or to which he or she may become subject before his or her discharge by reason of an obligation incurred before the date of the bankruptcy, are provable in his or her bankruptcy.
….
(2) Demands in the nature of unliquidated damages arising otherwise than by reason of a contract, promise or breach of trust are not provable in bankruptcy.
….
(6) If the Court finds that the value of the debt or liability cannot be fairly estimated, the debt or liability shall be deemed not to be provable in the bankruptcy.”

De Facto Relationships Act

Sections 10 and 11 provide –
“10—Power to make orders for division of property
(1)On an application for the division of property, the court may make orders it considers necessary to divide the property of either or both the de facto partners between them in a way that is just and equitable.
(2)For example, the court may make orders for—
(a)the transfer of property from one de facto partner to the other; or
(b)the sale of property and the division of the net proceeds between the de facto partners in proportions decided by the court; or
(c)the payment by one de facto partner of a lump sum to the other.
11—Matters for consideration by the court
(1)In deciding whether to make an order for the division of property under this Part, and if so the terms of the order, the court—
(a) must consider the financial and non-financial contributions made directly or indirectly by or on behalf of the de facto partners to—
(i) the acquisition, conservation or improvement of property of either or both partners; or
(ii) the financial resources of either or both partners; and
(b) must consider the contributions (including homemaking or parenting contributions) made by either of the de facto partners to the other partner or to children of the partners or either of them; and
(c)must have regard to the terms of any relevant cohabitation agreement; and
(d)may have regard to other relevant matters.
(2)If a relevant cohabitation agreement—
(a)is a certificated agreement; and
(b)provides for the exclusion of the court's power to set aside or vary the agreement,
an order for the division of property under this Part must be consistent with the terms of the agreement.”

Family Law Act 1975 – section 79

Section 79 provides –
“(1)In proceedings with respect to the property of the parties to a marriage or either of them, the court may make such order as it considers appropriate altering the interests of the parties in the property, including an order for a settlement of property in substitution for any interest in the property and including an order requiring either or both of the parties to make, for the benefit of either or both of the parties or a child of the marriage, such settlement or transfer of property as the court determines.

Submissions

Applicant’s submissions

The Applicant submitted that a claim under the DFRA is not a debt or liability which falls within the definition of s.82 of the Bankruptcy Act. Although acknowledging a proof of debt or liability arising under a Statute may be admissible (see Official Trustee v CS & GJ Hanby PtyLtd (1989) 21 FCR 19, it was submitted in the present case the Second Respondent’s claim was not a debt or liability to which the Applicant was “subject at the date of bankruptcy” nor was it one where the Applicant became subject before his discharge by reason of “an obligation incurred before the date of bankruptcy”.
In considering the phrase “an obligation incurred before the date of bankruptcy” reference was made to the decision of Franklyn J in Lyford v Carey (1985) 3 ACLC 515 as follows:-
“… imports the necessity that there be in existence at the date of the bankruptcy, an obligation (which may itself as well as its performance by suspended by the condition of the contingency), out of which a liability to pay money will arise on the happening of the contingency. That is to say there must be an obligation upon which the contingency can operate. For the purposes of Sec. 82 that obligation (suspended or not) must exist as at the date of bankruptcy.” (at 518).
It was submitted that accordingly where the obligation is created by judicial determination after the date of bankruptcy then it is not a provable debt even if it arose out of facts and matters occurring before the bankruptcy.
Reliance was placed upon the decision of Corporate Affairs Commission v Karounos (1985) 3 ACLC 410 where at 412 Prior J in considering an issue of whether an order made under s.374D of the Companies Act 1961(SA) after the date of bankruptcy merely enforced an existing right or created a new obligation stated:-
“An order made under section 374D certainly gives rise to a liability but it is not a debt or liability to which the bankrupt was subject at the date of the bankruptcy. The offences occurred before the date of bankruptcy but the liability resulting from any order I make is contingent upon the conviction of 15 August 1984. My order and the convection are both after the date of bankruptcy. Nor is the debt of liability to which he may become subject before his discharge ‘by reason of any obligation incurred before the date of bankruptcy’. The obligation is not incurred until after conviction and the order now sought. Thus, even if these proceedings were proceedings by a creditor, they are not with respect to any provable debts.”
Reference was made to s.10 of the DFRA and though mandatory factors set out in s.11. It was argued that s.10 is analogous to s.79(1) of the Family Law Act set out above. Reliance was placed upon the case of Sieling & Sieling (1979) FLC 90-627 where Evatt CJ and Marshall SJ noted that “[o]rders under s.79 are not declaratory but prospective in their effect”. The right to bring proceedings under s.79 was described by their Honours as an “inchoate right” (see p.727).
Reliance was placed upon the decision of the High Court in Fisher vFisher (1986) 161 CLR 438 where Mason and Deane JJ stated the following:-
“… orders made under section 79 do not give effect to antecedent rights arising in virtue of the marital relationship. Instead they perform a dual function by creating and enforcing rights in one blow, so to speak: see generally R v Commonwealth Court of Conciliation and Arbitration; Ex parte Barrett (1945) 70 CLR 141 at 165-169”.
The Applicant further relied upon the decision of the Full Court of the Family Court in the matter of Re Chemaisse: Federal Commissioner of Taxation (Intervener) (1990) FLC 92-133 where Fogarty, Nygh and Maxwell JJ at 77,915 summarised the effect of Seiling and Fisher in the following manner:-
“Rights arising under section 79 came into existence when an order is made under that section. Neither that section nor any other provisions of the Family Law Act establish rights, however described, in a party to a marriage over the property of the other spouse arising from the existence of the marriage or the activities of the parties during that marriage or the institution of proceedings under section 79, where those rights do not otherwise exist under the laws in Australia.”
Considering the similar language used in both s.10 of the DFRA and s.79 of the FLA, it was argued on behalf of the Applicant the same factors are taken into account in making orders and both have the same underlying policy considerations supporting them. As a result it was submitted rights under s.10 of the DFRA must also be regarded as coming into existence when an order is made under section. Having regard to the authorities in relation to s.79(1) of the FLA it was submitted that it is difficult to see how the section could otherwise operate. A right to make a claim under the DFRA is properly regarded as a mere inchoate right and accordingly is similar to the right established under s.79 of the FLA.
In the present case it was argued that in the absence of any order being made under the DFRA at the date of bankruptcy there can be no debt or liability and there is no obligation within the meaning of s.82 of the Bankruptcy Act from which the debt or liability might arise. Therefore it is submitted the Trustee has wrongly admitted the Second Respondent’s proof of debt.
It was argued in the alternative that s.82(6) of the Bankruptcy Act should apply namely the Court should find the value of the debt or liability cannot be fairly estimated and accordingly the debt or liability should be deemed not to be provable in the bankruptcy.
It was argued that the use of the word “damages” in s.82(2) where it appears is wide enough to take into account the claim by the Second Respondent under the DFRA.
Reference was made to Lopatinsky v Official Trustee in Bankruptcy (2003) FCA 1256 (6 November 2003) and it was argued this case is distinguishable from the present case. In Lopatinsky the Applicant Wife and the bankrupt had been married for approximately 20 years when they separated. The bankrupt was a Russian national who at the time of the marriage had no financial resources. The initial matrimonial home was purchased and paid for by the Applicant from loans from her family. The Applicant and the bankrupt subsequently sold the property and purchased a second property. The property settlement which was effected between the husband and wife in that case was made prior to the bankruptcy and on the facts would appear to reflect a fair settlement of the respective interests of the Applicant and the bankrupt.
The current case however is quite different in that there is a relatively short period of the relationship with the female partner making little if any financial contribution and there had not been any property settlement prior to the bankruptcy with the Applicant in fact opposing the Second Respondent’s application in the District Court.
It was submitted there is no basis upon which the First Respondent could make any assessment of the Second Respondent’s interest. The approach of the First Respondent in identifying an amount for costs was entirely erroneous and not based on sound principles which would be required if costs were to be taxed.
In relation to costs it was submitted that an order should be made for the costs incurred since notification that the matter will not be determined by the Learned Federal Magistrate who heard the matter initially in December 2002.
The Applicant sought an order for costs against the First Respondent in part on the basis that the solicitor offering an opinion about the outcome of the District Court proceedings had recommended obtaining the opinion of Counsel on the issue and that was not done.

Respondent’s submissions

First Respondent submissions

The First Respondent argued that reliance upon s.82(2) of the Bankruptcy Act is misplaced. There is no claim by the Second Respondent for damages in a conventional sense which might be claimed where a plaintiff is intended to be placed in a position she would have occupied had the legal wrong not occurred (see Haines v Bendall (1991) 172 CLR 60). The claim by the Second Respondent it was argued does not depend upon tort or contract though questions of unconscionability and issues concerning breach of trust may arise.
In relation to the alternative claim relying upon s.82(6) of the Bankruptcy Act, it was argued that once the proof of debt is lodged then the trustee was obliged to make an estimate of the value of the debt or liability where it does not bear a certain value (see s.82(4) of the Bankruptcy Act).
Reliance was placed on the material of Ian Russell Lock in his affidavit of 15 October 2001 and it was argued that this demonstrates the trustee had available a large volume of information relating to the de facto relationship in the matter. After reviewing that information it was argued the trustee properly sought advice upon and admitted the proof of debt accordingly. That process involved an estimate by the trustee of the “value” of the bankrupt’s liability. The estimate was made in good faith and following legal advice and could properly be regarded therefore as a “fair” estimate (see Pyramid Building Society (in liq) v Terry (1997) 189 CLR 176 at 190). Any issue of whether or not the estimate was excessive is a matter that could be considered separately. It was argued that in this case the Court is not confronted with circumstances where the bankrupt’s liability could not be fairly estimated.
It is conceded that s.82 has broad scope and is intended to form a part of a regime in which the bankrupt emerges from bankruptcy free of debts and liabilities. The corollary to a finding that the Second Respondent’s claim does not come within s.82 of the Bankruptcy Act would be to deem her free to pursue her claim against the bankrupt, however that claim was struck out by Judge Robertson on the basis that she had elected to proceed in accordance with the Bankruptcy regime.
An attempt was made to analyse the DFRA on the basis that the relationship was one that qualified for the criteria for the division of property of the de facto partners in a relationship that lasted longer than three years and where there were children of that relationship.
The First Respondent rejected the suggestion that there is an analogy between the Family Law Act and the DFRA. The scheme under the Bankruptcy Act in any event is different to those considerations under the Family Law Act or the DFRA. The conclusion that the DFRA claim comes within the Bankruptcy Act scheme would be in accordance with the purpose underlying s.82 and the operation of the Bankruptcy Act scheme generally. It was submitted the DFRA claim is liability “present or future, certain or contingent” at the date of the bankruptcy as required by s.82 of the Bankruptcy Act. An attempt was sought to be argued that there are close analogies between the DFRA claim and a claim based upon the type of unconscionable conduct considered in Baumgartner v Baumgartner (1987) 164 CLR 173 and Giumelli v Giumelli (1999) 196 CLR 101.
By way of further submissions filed on 20 January 2005 it was submitted on behalf of the First Respondent the decision referred to of Moore J in Lopatinsky v Official Trustee (2003) FCA 1256

(6 November 2003) is not directly relevant. That was a case involving a claim by a Trustee based on settlement made prior to bankruptcy concerning an informal division of property between former spouses. In that case in defending the claim the former wife successfully argued she should be able to erect a constructive trust in relation to property against the asserted interest of a trustee when assuming the position of the bankrupt. To that extent Lopatinsky like the decision of Parij & Parij (1997) 72 SASR 153 involved claims based upon constructive trust principles. Both cases it was submitted recognise the interest in a constructive trust of a former de facto wife. Reference was made to paragraph [16] of Lopatinsky where the Court states the following:-
“16 I have little doubt that, in these circumstances, the principle in Baumgartner v Baumgartner (1987) 164 CLR 137 would operate, as the Full Court suggested it might, to erect a constructive trust in relation to the Peakhurst property against the asserted interest of the Trustee when assuming the position of the bankrupt. It was recognised in Baumgartner v Baumgartner (at 150) that contributions both financially or in kind can be called into account. As Deane J noted in the earlier case of Muschinski v Dodds (1985 160 CLR 583, the indirect contribution of one party can take the form of support, home-making and family care. The applicant provided all of these things in large measure in addition to her financial contribution. As Debelle J noted in Parij v Parij (1997) 72 SASR 153 at 166, substantial and not token regard should be had to the contribution of a partner who is the home maker and care giver. I should note that in that matter, the members of the Full Court identified, by a mechanism involving no particular exactitude, the interest in a constructive trust of the former de facto wife (in property, the legal title of which was vested in the former de facto husband) as one fifth (Cox and Millhouse JJ), on the one hand, and one-third (Debelle J) on the other. In the present case the applicant, with the assistance of her parents, overwhelmingly assumed the role, in relevant respects, as the provider of funds as well as the home maker and care giver.

The First Respondent submitted that it would be surprising if the Trustee was required to consider such an interest in Lopatinsky but not required to consider such an interest in the present case.
The Court’s determination should be one as to whether or not the Second Respondent has a provable debt as well as her claim for costs is likewise a provable debt. It was argued that there was no basis upon which the First Respondent’s conduct could be impugned or his ordinary entitlement to costs be granted out of the bankrupt’s estate.
The First Respondent otherwise seeks orders for costs to be paid out of the bankrupt estate and otherwise indicated submissions were offered to assist the Court and that the First Respondent would abide by any orders made by the Court.

Second Respondent’s submissions

It was submitted on behalf of the Second Respondent that her claim against the bankrupt is a provable debt under s.82 of the Bankruptcy Act. It was argued that it was a liability to which the bankrupt was subject to the date of bankruptcy and is not one for unliquidated damages. Rather it was claim for division of property under the DFRA. No comparison can be made with s.79 of the FLA. Any lack of court orders specifying indebtedness cannot be argued as a bar to the claim being a provable debt. The Trustee it was argued is bound by the same equities which affect the bankrupt. Accordingly the Trustee was obliged pursuant to s.82(4) of the Bankruptcy Act to make an estimate of the value of the liability of the Second Respondent which was fairly estimated due to the availability of the transcript, the District Court proceedings and obtaining of counsel’s opinion as a fair and equitable settlement.
Further reliance was placed upon what is asserted to be the bankrupt’s unconscionable conduct or on the basis that the Second Respondent has an equitable interest by way of constructive trust in the bankrupt property. Once a trust is established from the date of its establishment the beneficiary has in equity a proprietary interest in the trust property which should be enforceable in equity against any subsequent holder of the property including the Trustee in Bankruptcy. The Court was invited to find that the Applicant had engaged in unconscionable conduct or had been unjustly enriched.

Reasoning

In my view the proper interpretation of s.82 leads me to conclude that the claim by the Second Respondent in its entirety could not be regarded as a provable debt. I am satisfied that the proper forum in which the claim should be made would be the District Court of South Australia under the State legislation where it clearly has jurisdiction to determine the matter based upon the principles set out in ss.10 and 11 of the DFRA. I am satisfied that this Court does not have jurisdiction to determine applications under the DFRA and that this is a matter under the Constitution which is subject to the jurisdiction of the relevant State Court. Hence for this Court to embark upon an assessment which effectively involves what could only be described as a determination under the DFRA would at the very least involve the exercise of jurisdiction in a matter which is otherwise unconstitutional.
I accept that there is an appropriate analogy to be drawn between the provisions of the DFRA and s.79 of the FLA. In reaching that decision I further conclude that in the circumstances I am not satisfied that the claim made by the Second Respondent could properly be regarded as an obligation incurred before the date of bankruptcy. It does not appear to me to be a debt or liability present or future, certain or contingent to which it could properly be said the bankrupt was subject at the date of the bankruptcy. A claim made under the appropriate State legislation for which that State District Court has jurisdiction depends on a number of variables and I am not satisfied it is appropriate to simply conclude that it is a provable debt and obtain the opinion of a solicitor in resolving outstanding issues when those issues were agitated and the subject of a defended action in the appropriate State Court. It is difficult to assess any liability in the circumstances where prior to the date of the bankruptcy the Second Respondent merely has a potential claim to be heard and determined by the State Court in accordance with State legislation. It may properly be regarded as an inchoate right as submitted by counsel for the Applicant. That right would only arise once an order is made under the relevant State legislation by the State Court. In the absence of any order made pursuant to the State legislation at the date of bankruptcy, I accept the submissions by the Applicant that there is no debt or liability and further no obligation within the meaning of s.82 of the Bankruptcy Act. Whilst there may be some examples where debts or liabilities arise under a Statute and may be enforceable, I do not accept that proceedings which have not been determined in favour of the Second Respondent under the DFRA establish any obligation of a kind which would permit the proof of debt to fall within the ambit of s.82(1) of the Bankruptcy Act.
Any orders under s.10 of the DFRA are prospective and I am satisfied that in the present circumstances the Second Respondent’s claim under the DFRA is not a provable debt within the meaning of s.82 of the Bankruptcy Act.
I am further satisfied in the circumstances that the value of any debt or liability, if there be a debt or liability, for the purpose of s.82 could not be fairly estimated and should therefore pursuant to s.82(6) be deemed not to be provable in bankruptcy. In circumstances of this kind where there is specific State legislation and a State Court vested with jurisdiction to deal with the complex issues which arise in the division of property between de facto partners it is perhaps not surprising that this Court sitting as a Court of Bankruptcy would not venture to make an estimate and nor in the circumstances is it surprising that a Trustee in Bankruptcy would have difficulty making an estimate without some assessment being made by a solicitor or Counsel experienced in the jurisdiction. That assessment, however, in the absence of an assessment of witnesses and evidence albeit with transcript in this case does not provide a proper basis upon which an estimate can be given in lieu of the estimate that could be the subject of adjudication by a properly constituted Court after hearing and determining facts based upon the evidence before the Court exercising its jurisdiction under the relevant State legislation.
If Parliament intended to include claims of this kind in federal legislation then it could specifically include reference to debts consisting all or part of any sums which become payable under the State legislation in the same way as maintenance agreement or maintenance orders are included by specific amendment to the legislation (s.82(1)(a) of the Bankruptcy Act).
I do not accept that in the present case where there is a clear statutory basis upon which the claim by the Second Respondent may be brought arising out of the de facto relationship with the Applicant that the Court should seek to interpret the facts and circumstances of the present application as one constituting a constructive trust or indeed make a finding of unconscionable conduct or unjust enrichment as advanced by the Respondents. To do so would be to broaden the operation of s.82 considerably and in the light of specific State legislation dealing with the relationship between the Applicant and the Second Respondent it would be inappropriate to effectively invent or impose upon the Applicant a claim arising out of any constructive trust, unconscionable conduct or unjust enrichment.
In my view a claim under the DFRA is comparable to an unliquidated damages claim otherwise and by reason of a contract, promise or breach of trust and accordingly is not provable. It seems to me that despite the fact that the claim is under a Statute that does not detract from it being a claim properly regarded as unliquidated damages. There is a similarity between a claim in these circumstances under the State Statute and a claim under the Trade Practices Act even though those claims specifically refer to damages, it is clear to me that claims under the DFRA effectively seek damages by way of a payment of a lump sum. The lump sum could properly be considered comparable to damages.
It is clear to me that the costs component of the Second Respondent’s claim seemed to include costs arising out of Family Court and District Court proceedings. There is no costs order made against the Applicant in the District Court proceedings. In the absence of any specific orders for costs at the relevant time I am satisfied that to the extent that costs form part of the proof of debt that that part of the proof of debt is not sufficient to constitute a debt pursuant to s.82 of the Bankruptcy Act. It would be presumptuous of the First Respondent to stand in the shoes of either a State or Family Court and make what effectively might be regarded a guess as to the costs that may have been awarded by those Courts respectively.
Whilst allegations were made in the affidavit material by the Applicant that the Trustee has acted inappropriately in the conduct of the administration of the Bankrupt Estate and in these proceedings, I am not prepared to make that finding.
I am not satisfied in the present case that there is a comparison to be made between the decision of the Court in Lopatinsky and the present application. I accept the submissions made for and on behalf of the Applicant that the decision in that case is distinguishable from the present case for the reasons advanced for and on behalf of the Applicant.
Although submissions made for and on behalf of the First Respondent appear to be advocating a particular outcome, it is clear that the First Respondent will abide by this Court’s decision and has to a large extent provided submissions by way of assistance to the Court and appropriately brought matters to the attention of the Court. It may have been preferable for the Trustee to seek the guidance of the Court by way of declaratory relief prior to incurring the expenses in estimating the value of the claimed provable debt by the Second Respondent. Nevertheless in the circumstances I am satisfied in the exercise of my discretion that it is appropriate to make declarations of the kind sought in the Application and do so after hearing further submissions by the parties as to the precise form of those declarations. I make the following declarations and orders:-
(1)It is declared that the proof of debt to the amount of $130,000 lodged by the Second Respondent, Ms Fiona Michelle Wittwer with the First Respondent is not a provable debt pursuant to s.82 of the Bankruptcy Act 1966.
(2)It is declared that the proof of debt in the amount of $130,000 lodged by the Second Respondent Ms Fiona Michelle Wittwer with the First Respondent is:-
(a) a demand in the nature of unliquidated damages arising otherwise than by breach of promise, contract or breach of trust and
(b) thus not provable in Bankruptcy pursuant to s.82(2) of the Bankruptcy Act 1966.
(3)It is declared that the value of the debt or liability owed by the Applicant to Ms Fiona Michelle Wittwer is a debt or liability not provable in the Bankruptcy pursuant to s.82(6) of the Bankruptcy Act 1966.
(4)It is ordered that the adjudication by the First Respondent of the Second Respondent’s proof of debt lodged in the sum of $130,000 be set aside.
(5)The costs of the First Respondent of and incidental to these proceedings save and except for those costs incurred arising out of the re-hearing of the application recovered pursuant to s.10 of the Federal (Proceedings) Act 1981 be costs payable to the First Respondent out of the Bankrupt Estate of the Applicant.
(6)There be no further orders for costs in this application.
I am prepared to grant a certificate to parties pursuant to s.10(2) of the Federal (Proceedings) Costs Act 1981 (Cth) in relation to those costs of and incidental to the re-hearing of the application including the costs of supplementary submissions filed by the parties and attendance at any further hearings including audio link hearings conducted by the Court.

I certify that the preceding seventy-seven (77) paragraphs are a true copy of the reasons for judgment of McInnis FM

Associate:

Date: 2 March 2005