Di Cioccio v Official Trustee in Bankruptcy

[2015] HCATrans 230

[2015] HCATrans 230

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Melbourne  No M46 of 2015

B e t w e e n -

MARC EDWARD DI CIOCCIO

Applicant

and

OFFICIAL TRUSTEE IN BANKRUPTCY (AS TRUSTEE OF THE BANKRUPT ESTATE OF MARC EDWARD DI CIOCCIO)

Respondent

Application for special leave to appeal

KIEFEL J
NETTLE J

TRANSCRIPT OF PROCEEDINGS

AT MELBOURNE ON FRIDAY, 11 SEPTEMBER 2015, AT 10.27 AM

Copyright in the High Court of Australia

MR M.Y. BEARMAN:   May it please the Court, I appear with my learned friend, MR S.P. THOMAS, for the applicant.  (instructed by HDL Legal and Consulting Pty Ltd)

MR P.R. FARY:   May it please the Court, I appear for the respondent.  (instructed by Harris Carlson Lawyers)

KIEFEL J:   Yes, Mr Bearman.

MR BEARMAN:   Your Honour, this application involves an interaction of the provisions providing for contribution of property of a bankrupted to the benefit of creditors and the provisions concerning the contribution of income.  Section 58(1) provides for the property that is to be contributed.  Paragraph (a) is concerned with property of the bankrupt at the commencement of the bankruptcy, and paragraph (b) is concerned with after acquired property.  That is the relevant provision in this case which involves accumulated income of a bankrupt that was then converted for the purchase of shares.  Section 5(1) defines property in wide terms and it becomes, effectively, property of the bankruptcy becomes divisible among its creditors.  Section 116(1) provides that:

(a)all property that belonged to, or was vested in, a bankrupt at the commencement of the bankruptcy, or has been acquired or is acquired by him or her, or has devolved or devolves on him or her, after the commencement of the bankruptcy and before his or her discharge. . . 

. . . 

is property divisible amongst creditors of the bankrupt. 

Subsection (2), then contains a list of certain identified property, including by reference to regulation that does not so vest.  Division 4(b) of Part 6 of the Act is concerned with contributions of income and it operates by reference to a threshold amount, the threshold amount is ultimately calculated by reference to social security payments and the number of dependents that a bankrupt may have, and there is a formula by which the income of a bankrupt which is assessed exceeds that amount; half of the excess becomes contributable and that is in section 139S.  The liability to provide the contributions arises in section 139P. 

The difficulty with the Full Court’s decision is that it, the Full Court, held that there is no conflict at all between the operation of the, if I can call them property divisions, and the income provisions.  It is said at paragraph 33 of the judgments which is at page 28 of the application book that:

The question of construction is whether one can discern from the scheme of the Act such an exemption?

being an exemption in respect of:

property representing income previous derived by an undischarged bankrupt . . . below the actual income threshold amount –

KIEFEL J:   Is not the nub of the Full Court’s decision that the question raised as a result by reference to whether or not the property is divisible, that is, by reference to section 116(2) rather than the contributions provisions in Division 4B?

MR BEARMAN:   Yes, your Honour.  What the Full Court ultimately found – and the effect of the judgment is that the only property that a bankrupt may own whilst undischarged is property identified in section 116(2).

KIEFEL J:   Well, it is limited.  The Act enables retention of property in quite limited – in limited ‑ ‑ ‑

MR BEARMAN:   In those limited circumstances.

KIEFEL J:   Yes.

MR BEARMAN:   The difficulty is, your Honour, or the question is whether or not that section has that consequence, and the way that it was reached, your Honour – the Full Court’s approach was that there was no inconsistency between the income contribution provisions and the property contribution provisions.

KIEFEL J:   Yes.

MR BEARMAN:   In our submission, there is a fundamental inconsistency and that was identified by Justice French, as his Honour was then, in the Re Gillies case where his Honour there pointed out that the accumulation of income itself was property and that in that circumstance, section 58 and section 116 had to give way to Division 4B of Part 6.  Your Honour, it is extracted in the written submissions at pages 38 and 39 of the application book at line 40, page 38 and following.  That decision was referred to and picked up in the Meriton Apartments Pty Ltd v Industrial Relations Commission Case which was a decision of the Full Federal Court, and the statements of each of the judges, including in dissent in that Court, are to the effect that section 116(2):

the Act recognises that classes of property other than those identified in s 116(2) may fall outside the classes of property of the bankrupt . . . [which vest] in the bankrupt’s trustee for the benefit of the bankrupt’s creditors.

We say that that inclusion, albeit in a different circumstance because it arose from a cause of action that was assigned from the trustee back to bankrupt.  The question there was whether that re‑vested under section 58 and the Full Court adopting the way Justice French approached the matter in Re Gillies held that section 116(2) was not the only property that could be held.  

NETTLE J:   You say approached in the way in which Justice French did in Gillies but in fact in Gillies his Honour did exactly what the Full Court did in this case, did he not? 

MR BEARMAN:   No, your Honour.  In that case, the question was whether accumulated income itself – $4000 accumulated income itself – was property that vested in the trustee.  The bankrupt in that case wished to propose that income towards a compromise for the creditors and the question that arose was whether it had vested in the trustee and was available for that purpose and the court held that it was not available to the creditors because it had not vested in the trustee because it was income.

NETTLE J:   Yes.

MR BEARMAN:   It was accumulation.  His Honour then went on to say, in obiter, he would have thought or might have thought that if that money is expended on something outside section 116(2) it might convert but he expressly did not decide the question and that is the very question that arises in this application.  It was a comment made, with respect, your Honour, without analysis, a consideration, it was a throwaway line.  In our submission, when one ‑ ‑ ‑

KIEFEL J:   I do not think there are usually throwaway lines in judgments.

MR BEARMAN:   Well ‑ ‑ ‑

KIEFEL J:   It was obiter.

MR BEARMAN:   It was obiter ‑ ‑ ‑

KIEFEL J:   But it was a view his Honour obviously held and it happens to accord with that of the Full Court.

NETTLE J:   He might – he did not think it was considered obiter, Mr Bearman.

MR BEARMAN:   Your Honour, I will read you – it is extracted in the submissions at page 39, line 20:

“I am inclined to the view that assets purchased by a bankrupt with after‑acquired income will, if not within any of the excluded categories in s 116(2), constitute property divisible among the creditors and vest in the trustee.  In my opinion, however, no final decision should be given on this point which is still rather hypothetical.”

This case clearly raises the point, and it is our submission that if one follows the reasoning that his Honour gave in respect of the income itself, the conclusion that he has proposed by way of obiter dictum cannot follow.  That is because Parliament having determined what is contributable in respect of income – bearing in mind that income is generally property – will have determined what contribution is to be made or not to be made from it.  It also follows, your Honour, if your Honour starts with the commencement of the passage that I quoted, as your Honour Justice French traces the history of the provision and prior to the introduction of the provision, of course, the income of a bankrupt did not contribute at all, no matter what the bankrupt did with it. 

So there was an assumption – there was a legislative assumption that the income provisions in Division 4B of Part 6 operate in a way that do not interfere with sections 58 and section 116.  If that were not so, the receipt of income by a bankrupt itself would always vest as after acquired property.  In our submission, there is not distinction at all in principle with the amount that has been acquired and its expenditure. 

The clearest example is not this case.  The clearest example would be a bankrupt who is in fact assessed and makes a contribution and is left with an amount of money after the amount that the Act has required him to contributed is contributed, there is an amount of money left over by, on the Full Court’s analysis, the expenditure of that amount outside section 116(2) would result in a second contribution being made from the same amount, as it were, that Parliament had already determined was not contributable.  In our submission, if one goes down the path of the Full Court’s reasoning, then all sorts of difficult questions arise about the nature of the conversion of property from one form to another.

The example we gave before the Full Court was the income in this case was received by cheque.  The cheque is property.  Everybody accepts, I think, your Honour, that that is the income that is not after acquired

property because Division 4B of Part 6 applies, but when that cheque is banked into a bank account, it becomes another form of property and on the Full Court’s reasoning, I think expressly, that conversion – because the bank account is not listed in section 116(2) – causes the amount of income to immediately vest in the trustee, and the Full Court said that the out was section 134(1)(ma) which gives a trustee discretion not to include amounts that were seen to be just, but that section relates only to property that is divisible amongst creditors itself. 

So, in fact, it does not assist in the analysis.  It is true that it gives a discretion of the trustee but it falls within the legislative assumption that property of the bankrupt – after acquired property of the bankrupt that is accumulated does not, in our submission, encompass income that is accumulated and expended.

The reason we submit this as a case appropriate for special leave is that it affects every bankrupt who derives income and wishes to expend it.  In our submission, there is a conflict between the decision of the Full Court and the conclusions reached by the Full Court in Meriton Apartments v Industrial Relations Commission.  If section 116(2) is the limit of the exclusions from section 58, then that decision could not be correct.

The Full Court, in our submission, has given no credence to the words of each of section 58, 116 and section 134 that all of those provisions operate subject to the Act, whereas Division 4B of Part 6 does not.  In our submission, that is the reason why once it is recognised that there is a conflict between an amount that has been treated as contributable or non‑contributable for the purposes of Division 4B of Part 6, sections 58, 116 and 134 should give way. 

KIEFEL J:   Yes, thank you.

MR BEARMAN:   Those are our submissions.

KIEFEL J:   Yes, thank you.  We will not need to trouble you.

We do not consider that there is sufficient reason to doubt the decision of the Full Court.  Special leave is refused with costs.

MR BEARMAN:   May it please the Court.

MR FARY:   If the Court pleases.

AT 10.41 AM THE MATTER WAS CONCLUDED