Donnelly v King - [2005] FMCA 192

FEDERAL MAGISTRATES COURT OF AUSTRALIA

DONNELLY v KING & ORS

[2005] FMCA 192

BANKRUPTCY – Application for injunction in respect of property of third respondent – where trustee claims interest in property – where claims under ss.120, 121 of Bankruptcy Act foreshadowed, where claim for constructive trust alleged – whether trustee should give usual undertaking as to damages – where sum to be injuncted responds to different causes of action – where no particulars of claim given – where trustee declines to give undertaking in respect of one cause of action.

Bankruptcy Act 1966, ss.20, 121

Horne v Concore Australia Pty Ltd & Anor [1997] 503 FCA
Re Bayliss; Ex parte Official Trustee in Bankruptcy (1987) 73 ALR 455
Winter v Marac (Aust) Ltd (1986) 6 NSWLR 11

Applicant:

MAX CHRISTOPHER DONNELLY AS TRUSTEE FOR THE BANKRUPT ESTATE OF PETER JAMES KING

First Respondent:

PETER JAMES KING

Second Respondent:

PATRICE KING

Third Respondent:

LEANNE TRACY PROTT

Fourth Respondent:

VINCE EVANS

Fifth Respondent:

IAN PRIDER

File Number:

SYG3561 of 2004

Judgment of:

Raphael FM

Hearing date:

22 February 2005

Date of Last Submission:

22 February 2005

Delivered at:

Sydney

Delivered on:

22 February 2005

REPRESENTATION

Solicitors for the Applicant:

Thomson Playford

Counsel for the Respondent:

Mr J Johnson

Solicitors for the Respondent:

Byrnes Lawyers

ORDERS

Upon the applicant giving the usual undertaking as to damages, the third respondent be restrained from withdrawing or in any manner dealing with the sum of $49,000 presently held in the trust account of East Coast Conveyancing on her behalf, save that the said sum shall be transferred into an interest bearing deposit under the control of the respondent's solicitors as a controlled moneys deposit subject to these orders within seven days.
All orders and injunctions relating to the balance of moneys held in the trust account of East Coast Conveyancing to the order of the respondent be and are hereby discharged.
Costs reserved.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
SYDNEY

SYG3561 of 2004

MAX CHRISTOPHER DONNELLY AS TRUSTEE FOR THE BANKRUPT ESTATE OF PETER JAMES KING

Applicant

And

PETER JAMES KING

First Respondent

PATRICE KING

Second Respondent

LEANNE TRACY PROTT
Third Respondent

VINCE EVANS
Fourth Respondent

IAN PRIDER
Fifth Respondent

REASONS FOR JUDGMENT

The proceedings before me today are proceedings against the third respondent in matter number SYG3561 of 2004. These proceedings were brought against a number of persons by the Trustee in Bankruptcy of Peter James King, seeking information to assist the trustee in the management of the bankrupt's estate. The third respondent is by her own admission the de facto partner of the first respondent, the debtor.
During the course that these proceedings have taken a property owned by the third respondent was sold and the balance of the purchase price has been placed on deposit in a trust account held by her conveyancers. The affect of some previous interlocutory orders of mine was that this money should remain in that account pending further order.
The applicant then approached the court for orders in relation to the sum of $109,324.28 odd by which time the third respondent was represented by counsel. Counsel pointed out, rightly in my view, that the applicant had not made any application for final relief against the third respondent and thus the injunction which he sought to continue had no basis. I made certain orders which were intended to provide the third respondent with information concerning the alleged claim against her by way of the filing of an amended application.
The amended application, which was filed, was filed in proceedings 3561/2004 and claimed relief in respect of the $109,000 odd under two headings. The first ground related to the sum of $49,000. The applicant sought a declaration pursuant to ss.120 and 121 of the Bankruptcy Act 1966 (“the Act”) that the gift by the bankrupt to the respondent of that sum was void against the applicant and an order that the respondent pay the applicant that amount of money. With regard to the balance, the applicant sought a declaration that the respondent held the money on constructive trust for the benefit of the applicant.
Without wishing to be too critical of the drafter of this document, it does seem to me to be defective. Sections 120 and 121 of the Act are alternative methods of recouping monies by a trustee and the wording of those sections make it very unlikely that a claim could be made under both concurrently. But the more serious problem is the failure to particularise or in any way explain the notion of the constructive trust in respect of some $60,000 odd.
When the matter came before me today for the purposes of hearing an application for the continuation of the injunctions Mr Johnson appeared on behalf of the respondent. He made an offer in open court to allow the $49,000 to remain the subject of injunctive relief but on the basis that the applicant trustee gave the usual undertaking as to damages. He resisted in its entirety the possibility that the balance should remain injuncted.
After some debate between the bench and Mr Johnson and Mr Farrar, a situation was reached whereby I agreed that the substantive proceedings between the parties, namely the claim under ss.120 and/or 121, and the claim for the alleged constructive trust would be heard as promptly as possible. It was also accepted by the parties that these claims should be the subject of pleadings and affidavits in support. The matter was left on the basis that I would draft a timetable for the continuation of the proceedings and that I would hear the application by Mr Farrar on behalf of the trustee that any moneys determined by me to be held on the continuing injunctions should not be held subject to an undertaking as to damages.
In respect of the balance sum of $60,000 odd, whilst not resiling from her position, I understood that Mr Johnson's client would reluctantly accept a continuation of the injunction subject to an undertaking as to damages and also subject to the right to seek relief in respect of that sum for the payment of legal costs and on certain other bases.
Mr Farrar in arguing for an injunction free of an undertaking conceded that a decision to grant an injunction in a bankruptcy matter is subject to the usual rules of equity in relation to the provision of that relief.

I am aware that in Horne v Concore Australia Pty Ltd & Anor [1997] 503 FCA North J had before him a suggestion said to be supported by the decision of Pincus J in Re Bayliss; Ex parte Official Trustee in Bankruptcy (1987) 73 ALR 455 at 457, that a Trustee in Bankruptcy in such an application needed to establish his case to some lesser degree. North J declined to resolve that particular issue but it seems to be clear from his judgment that he did not believe that this was necessarily a correct interpretation of the law.
In order to obtain an injunction the trustee must establish that there is a serious issue to be tried between the parties. I am satisfied that a trustee must also be able to indicate some concern that in a case such as this if a sum of money is not protected then there is likely to be a loss to the estate of the bankrupt which will have a direct effect upon the bankrupt's creditors.
The type of case that we have before us here is in reality an application for a Mareva style injunction against a third party of the type dealt with in Winter v Marac (Aust) Ltd (1986) 6 NSWLR. The third respondent has money which the trustee believes he can establish belongs to the bankrupt estate.
The moneys fall into two categories. The sum of $49,000 is admitted by the respondent to have been given to her by the bankrupt. This raises a prima facie case that the money is recoverable under s.120 because the only consideration apparently alleged would seem to me to fall within the definition of “natural love and affection”. But Mr Johnson rightly reserves his client's position and notes that she is entitled to the benefit of those defences set out in the two sections under which the claim is made.
When the matter first came before me I moved under the assumption, which I now accept was probably incorrect, that this money had been used to purchase the property which has been sold and so there was a direct connection between the balance of the proceeds of the sale and the original gift. This does not appear to be the case. On the third respondent's affidavit there would appear to be a considerable mixing of funds. This might be to her advantage insofar as these proceedings are concerned. It makes the possibility of her success slightly greater than I had given her credit for.
In arguendo there was discussed between myself and Mr Johnson on behalf of the third respondent the uses to which the third respondent might put the moneys presently injuncted. One of those uses related to the payment of her legal costs and the other to the possible purchase of a new property in Western Australia to which state the third respondent wishes to move.
It seems clear to me from the affidavit which she herself has sworn that she is unlikely to be moving to Western Australia in the very near future because of the necessity for her to obtain leave from the Family Court or the Federal Magistrates Court or the Local Court of New South Wales to take her son with her. Given the timetable that I am proposing brings this matter back before me within approximately two months I do not think that the third respondent will suffer very much disadvantage from a continuation of the injunctions. By the same token I do not think that the applicant should be relieved of the normal responsibility to give an undertaking in damages when injunctive relief is granted.
The balance of approximately $60,000 is said to be the subject of constructive trusts. The representations made to me by Mr Farrar on behalf of the trustee in relation to this alleged constructive trust seemed to me to be so lacking in detail that had not these been bankruptcy proceedings, with the necessity to protect the rights of a large number of other people as well as those of the third respondent, it would not have been difficult to dismiss the injunction in that regard.
I do take the public interest into account and I have attempted to assist the third respondent by ensuring that the matter is dealt with as speedily as possible. Whatever happens there is no excuse at all for the trustee not to be required to give the undertaking in damages in respect of this part of the injunction.
[There is then set out certain orders for the conduct of the proceedings intended to be made which were not to be promulgated until the parties had obtained instructions. Upon resumption the solicitor for the trustee indicated that his client would give an undertaking in damages in respect of the sum of $49,000 but would not give such an undertaking in respect of the balance. The court determined to make orders as follows, excluding the orders for directions.]
A.Upon the applicant giving the usual undertaking as to damages, the third respondent be restrained from withdrawing or in any manner dealing with the sum of $49,000 presently held in the trust account of East Coast Conveyancing on her behalf save that the said sum shall be transferred into an interest bearing deposit under the control of the respondent's solicitors as a controlled moneys deposit subject to these orders within seven days.
B.All orders and injunctions relating to the balance of moneys held in the trust account of East Coast Conveyancing to the order of the respondent be and are hereby discharged.
C.Costs reserved.

I certify that the preceding seventeen (17) paragraphs are a true copy of the reasons for judgment of Raphael FM

Associate:

Date: