Hankin and Anor and Nankervis
[2018] FCCA 2075
•2 August 2018
FEDERAL CIRCUIT COURT OF AUSTRALIA
| HANKIN & ANOR & NANKERVIS | [2018] FCCA 2075 |
| Catchwords: BANKRUPTCY – Husband and wife purchase property – property transferred and re-transferred on several occasions – husband made bankrupt – wife makes claim to equitable interest in property – wife incarcerated – trustee seeks declaration as to legal and equitable interests in property – declarations made by Federal Court – trustee sells property – wife makes claim under s 114 of Family Law Act 1975 (Cth) for injunction to restrain sale or disposition of proceeds of sale – wife made bankrupt – trustee of wife’s bankrupt estate seeks to be joined to Family Law proceeding – trustee of wife’s bankrupt estate seeks to advance claim for adjustment of property interest under s 79 of Family Law Act 1975 (Cth) – whether court has jurisdiction or power to grant relief sought under s 79 or 114 of Family Law Act – whether court should grant relief as matter of discretion. |
| BANKRUPTCY – Jurisdiction of Federal Circuit Court under Bankruptcy Act 1966 (Cth) – power to grant relief – property under Bankruptcy Act includes choses in action – property includes statutory claims under ss 79 and 114 of Family Law Act – whether statutory claims are property of the bankrupt – locus standi – where substantive claims are vested in trustees of bankrupt estates of husband and wife – property vested in trustee in bankruptcy – proceedings in connexion with bankruptcy – property which is personal to bankrupt – whether claims under ss 79 and 114 of Family Law Act are not property which is divisible amongst creditors of bankrupt estate – whether s 116(1) of BankruptcyAct may not extend to such claims by operation of para 116(2)(q) of Act. |
| FAMILY LAW – Jurisdiction of Federal Circuit Court under Family Law Act – jurisdiction conferred in respect of matrimonial cause including claim involving trustee of bankrupt estate and vested bankruptcy property – joinder of additional parties does not deny jurisdiction – power to grant relief – necessity to identify existing legal or equitable interests in property – whether just and equitable to make orders – whether bankrupt spouse has standing to continue claim under ss 79 and 114 of Family Law Act – claims vested in trustee of bankrupt estate – fruits of litigation pass with vested claims. |
| PRACTICE AND PROCEDURE – Joinder – stay of proceedings in bankruptcy – whether person may continue claims once bankrupt – where trustee makes no election to prosecute or discontinue claims – where trustee put to election – election made to prosecute – necessity for leave to take further steps in proceeding – compromise of issues in dispute – approval of compromise dependent on jurisdiction to determine claims – late reference to further authority – not appropriate to consider further submission. |
| STATUTORY INTERPRETATION – Amending legislation affects amendments to Bankruptcy Act and Family Law Act – constructional choice between literal or purposive interpretation of amendment inserted in Family Law Act so as to read ‘spouse’ as ‘spouse or trustee of spouse’s bankrupt estate’ – relevance of legislative history and amendments so as best to illuminate the proper interpretation of Act – coherence in interpretation of Bankruptcy Act and Family Law Act – harmonious interpretation to be preferred. |
| Legislation: Acts Interpretation Act 1901 (Cth), s.15AA |
| Cases cited: Alcan (NT) Alumina Pty Ltd v Commissioners of Territory Revenue (NT) (2009) 239 CLR 27 |
| Other texts cited: Dodds and MacCallum, Bankruptcy and Matrimonial Claims – The Spouse as Competing Creditor, Part I (1985) MULR 211 |
| First Applicant: | MS HANKIN |
| Second Applicants: | MR ABBAS AND MR CAPEL |
| Respondent: | MR NANKERVIS |
| File Number: | MLC 6432 of 2017 |
| Judgment of: | Judge A Kelly |
| Hearing date: | 4 May 2018 |
| Date of Last Submission: | 18 June 2018 |
| Delivered at: | Melbourne |
| Delivered on: | 2 August 2018 |
REPRESENTATION
| The First Applicant appeared in person |
| Counsel for the Second Applicants (Trustees of the bankrupt estate of Ms Hankin) | Mr A Combe | |
| Solicitors for the Second Applicants | Daniela Fazio Lawyers | |
| Counsel for the Respondent (Trustee of the bankrupt estate of Mr Hankin) | Mr Spencer | |
| Solicitors for the Respondent | McLean & Associates Solicitors |
ORDERS
Pursuant to s 58(3)(b) of the Bankruptcy Act 1966 (Cth), Mr Abbas and Mr Capel in their capacity as trustees of the bankrupt estate of Ms Hankin have leave nunc pro tunc to file the application in a case filed on 6 December 2017 and the amended application in a case filed on 16 February 2018.
Mr Abbas and Mr Capel, in their capacity as trustees of the bankrupt estate of Ms Hankin, be joined as second applicants to these proceedings.
The title of the proceeding be amended so as to name:
(a)Ms Hankin, as first applicant;
(b)Mr Abbas and Mr Capel, in their capacity as trustees of the bankrupt estate of Ms Hankin, as second applicants;
(c)Mr Nankervis, in his capacity as trustee of the bankrupt estate of Mr Hankin, as respondent.
Declare that the compromise embodied in the deed of agreement made on 15 June 2018 be approved.
The respondent pay to the second applicants the sum of $110,000.00 from the money held in the trust account of McLean & Associates, solicitors within 7 days of the date of these orders.
The respondent, in his capacity as trustee of the bankrupt estate of Mr Hankin retain the sum of $329,143.37 from the money held in the trust account of McLean & Associates, solicitors.
The second applicants pay the sum of $3,000.00 to the first applicant within 14 days of the date of these orders.
The initiating application filed on 29 June 2017 be otherwise dismissed.
The application in a case filed on 6 December 2017 and the amended application in a case filed on 16 February 2018 otherwise be dismissed.
There be no order as to costs.
IT IS NOTED that publication of this judgment under the pseudonym Hankin & Anor & Nankervis is approved pursuant to s.121(9)(g) of the Family Law Act 1975 (Cth).
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT MELBOURNE |
MLC 6432 of 2017
| MS HANKIN |
First Applicant
And
| MR ABBAS AND MR CAPEL |
Second Applicants
And
| MR NANKERVIS |
Respondent
REASONS FOR JUDGMENT
Introduction
These reasons for judgement explain why orders are made approving a compromise between the trustees of the bankrupt estates of the applicant, Ms Hankin and her husband, Mr Hankin, respectively.
Background
By a transfer of land dated 1980, Mr and Ms Hankin purchased the property situated at Property A, in the State of Victoria, being the whole of the land described in Certificate of Title Volume (the property) as joint proprietors for the sum of $11,000.
On 1981 Mr and Ms Hankin were registered as joint proprietors of the fee simple estate in the property.
On 1981, Mr and Ms Hankin were married. The three children of their marriage were born in 1985, 1987 and 1990 respectively.
Mr Hankin’s solvency
On 1994, Mr Hankin transferred his interest in the property to Ms Hankin. The stated consideration for the transfer of his interest was “the desire of Mr Hankin to make a gift to Ms Hankin.”
Some 15 months later, Mr Hankin entered into a composition with his creditors pursuant to Part X of the Bankruptcy Act 1966 (Cth) together with his brother and business partner, Mr J.
On 1999, Ms Hankin transferred the whole of her interest in the property to Mr Hankin. The stated consideration for this transfer was “natural love and affection.”
On 1999, Mr Hankin became registered as proprietor of the fee simple estate, and Perpetual Trustees Australia Ltd was registered as holder of the interest of first mortgagee, on title to the property.
On 4 December 2013, the Official Receiver accepted a debtor’s petition presented by Mr Hankin whereupon he became a bankrupt. Mr Nankervis was appointed as trustee of Mr Hankin’s bankrupt estate. Mr Hankin’s interest in the property vested in Mr Nankervis as trustee of the bankrupt estate: para 52(1)(a), Bankruptcy Act.
On 21 December 2013, Mr Nankervis lodged a caveat in respect of his interest as trustee of Mr Hankin’s bankrupt estate.
On 13 August 2014, and again on 29 January 2015, Ms Hankin lodged a caveat claiming an interest over the property as chargee.
On 30 July 2015, the applicant asserted an equitable interest in the property. Despite repeated requests, Ms Hankin failed to take any step to substantiate her claim to an equitable interest in the property.
On about 13 November 2015, Mr Nankervis made a decision not to accept Ms Hankin’s claim to an equitable interest in the property, putting her on notice that, as he could not allow any further delay to hinder the due administration of Mr Hankin’s bankrupt estate, he would commence legal proceedings for declaratory relief concerning Ms Hankin’s claim.
Recovery and sale of the property
On 21 April 2016, Mr Nankervis commenced a proceeding in the Federal Court of Australia claiming a declaration that all of the right, title and interest of Mr Hankin in the property was vested in him by operation of ss 58 and 116 of the Bankruptcy Act upon his appointment as trustee of Mr Hankin’s bankrupt estate. Further relief was claimed including that Mr and Ms Hankin give up vacant possession of the property.
On 23 September 2016, Ms Hankin was convicted upon a number of dishonesty offences for which she was sentenced to a term of imprisonment of 12 months. Mr and Ms Hankin then separated following a marriage of approximately 35 years.
In about November 2016, Mr Nankervis learned that Ms Hankin had been imprisoned for her conviction.
On 8 December 2016, an order was made in the Federal Court declaring that the whole of the legal and equitable interest in the property was vested in Mr Nankervis as trustee of Mr Hankin’s bankrupt estate. Orders were made granting Mr Nankervis vacant possession of the property and that Ms Hankin pay the costs of and occasioned by those proceedings.
Mr Nankervis allowed Ms Hankin an extended period in which to remove her personal effects from the property. In March 2017, arrangements were made for the removal of remaining items of personal property from the property and for it to be prepared for sale.
On 29 May 2017, a contract of sale was executed for the sale of the property at a price of $600,000. Settlement upon the sale of the property was effected on 26 July 2017.
In his capacity as trustee of Mr Hankin’s bankrupt estate, Mr Nankervis received $439,143.37 comprising the net proceeds of sale upon settlement of the sale of the property (settlement monies).
Family law claim
On 29 June 2017, Ms Hankin filed an initiating application in this court seeking urgent relief to restrain Mr Nankervis from selling the property or removing any personal effects from the property pending determination of a claim for an adjustment of property interests.
Mr Hankin was not joined as a party to the initiating application and it does not appear that any application was made for an adjustment of property interests pursuant to s 79 of the Family Law Act 1975 (Cth) (s 79). While only the trustee of Mr Hankin’s bankrupt estate was joined as a respondent, the title to the proceeding has, on occasion, included Mr Hankin as a first respondent and named Mr Nankervis as second respondent. As the proceeding has been the subject of compromise it is unnecessary to explore these issues further.
On 17 July 2017, Mr Nankervis filed a response seeking dismissal of Ms Hankin’s initiating application. Alternative relief was sought for the sale of the property with ancillary relief.
In the course of the interim hearings, Mr Nankervis contended that Ms Hankin had failed to make disclosure of documents upon which she relied in relation to her substantive claim for relief. Despite the making of orders for disclosure, only limited disclosure was made.
On 18 July 2017, an order was made setting the proceeding down for a final hearing scheduled for 20 February 2018. An order was also made referring the matter to a conciliation conference. A notation to that order recorded an undertaking by Mr Nankervis to hold the settlement monies on trust until further order. In an effort to resolve the matter, further interlocutory orders were made on 12 September, 5 October and 19 December 2017, including that Ms Hankin have an opportunity to file any amended application.
On 4 September 2017, Mr Nankervis affirmed an affidavit in which he detailed the circumstances relating to his administration of Mr Hankin’s bankrupt estate including the following costs and charges:
a)administration of the estate to that date: $79,930
b)unpaid legal costs and expenses: $59,238
c)estimated future costs of administration: $17,050
d)estimated estate realisation charge payable: $32,247
Mr Nankervis deposed to his belief that Ms Hankin had contributed to an undue amount of costs being incurred in the administration of Mr Hankin’s bankrupt estate.
Mr Nankervis estimated that the amount ultimately available for distribution to creditors was $182,027 and that unsecured creditors were likely to receive an amount of approximately $0.12 in the dollar by way of final distribution from the estate.
As at 7 November 2017, Ms Hankin had not filed any amended application concerning the relief sought in the proceeding and the determination of the proceeding was the only matter which prevented Mr Nankervis from finalising the administration of Mr Hankin’s bankrupt estate and making a final distribution to unsecured creditors.
Ms Hankin's Bankruptcy
On 8 November 2017, Ms Hankin was made bankrupt upon the acceptance by the Official Receiver of a debtor’s petition and on that date Mr Abbas and Mr Capel were appointed as trustees of her bankrupt estate. By force of s 58 of the Bankruptcy Act, the property of Ms Hankin vested in her trustees.
By s 60(2) of the Bankruptcy Act, an action commenced by a person who subsequently becomes bankrupt is stayed until their trustee makes an election, in writing, to prosecute or discontinue the action. By s 60(3) of the Bankruptcy Act, if a trustee does not make such an election within 28 days after notice of the action is served on the trustee by the defendant, the trustee is deemed to have abandoned the action.
On 8 November 2017, the trustee of Mr Hankin’s bankrupt estate gave notice of Ms Hankin’s initiating application to the trustees of Ms Hankin’s bankrupt estate and sought advice whether those trustees would make an election to discontinue or prosecute Ms Hankin’s action pursuant to sub-s 60(3) of the Bankruptcy Act.
The trustees of Ms Hankin’s bankrupt estate made an immediate election to prosecute the claims for relief which had been sought in Ms Hankin’s initiating application. At that point, the only claim for relief was for an injunction to restrain the trustee of Mr Hankin’s bankrupt estate from disposing of the net proceeds of sale of the property.
Application for Joinder
On 6 December 2017, the trustees of Ms Hankin’s bankrupt estate, Messrs Abbas and Capel, made application to be joined to the proceeding pursuant to s 79(11)(c) of the Family Law Act. Ms Hankin’s trustees also sought leave to file and serve an amended initiating application following disclosure of all relevant documents in the proceeding. The application for this further order may be understood as reflecting the anterior need to address the lack of information which was then available to the trustees of Ms Hankin’s bankrupt estate.
In terms of substantive relief, the trustees of Ms Hankin’s bankrupt estate sought interim and final relief pursuant to s 30 of the Bankruptcy Act, or alternatively s 114 of the Family Law Act to restrain Mr Hankin’s trustee from assigning or disposing of any property vested in him as trustee of Mr Hankin’s estate and, in particular, from releasing the whole or any part of the settlement monies until further order.
In an affidavit sworn in support of the application for joinder, Mr Capel deposed to the trustees of Ms Hankin’s bankrupt estate having formed the belief that Ms Hankin had an equitable interest in the property prior to its sale and further that she had a claim on the property which she had transferred to Mr Hankin pursuant to s 79 of the Family Law Act.
On 18 December 2017, the solicitor for the trustees of Ms Hankin’s bankrupt estate affirmed an affidavit to which she exhibited a draft amended initiating application.
By para (i) the draft amended initiating application, Ms Hankin’s trustees sought the following order:
Pursuant to s.79(1)(b) of the Family Law Act 1975, Mr Nankervis in his capacity as Trustee of the property of Mr Hankin, a bankrupt, do all such things and execute all such deed or instruments necessary to pay to Mr Abbas and Mr Capel in their capacity as Trustees of the bankrupt estate of Ms Hankin, a bankrupt, 50% of the nett proceeds of sale of Property A, Vic being the whole of the land comprised in Volume within seven (7) days of the date of this order.
The title of the draft amended initiating application named as applicants, Messrs Abbas and Capel in their capacity as trustees of the property of Ms Hankin and named as respondent, Mr Nankervis in the capacity of trustee of the property of Mr Hankin.
At a directions hearing held on 19 December 2017, orders were made regulating the determination of the application for leave to file the proposed amended initiating application. Those orders were made in circumstances where counsel for the trustee of Mr Hankin’s bankrupt estate submitted that the application would be contested, including on the basis whether the court had jurisdiction to make the order and if so, whether it had power to do so, and if so, whether it should exercise its discretion in favour of the making of such an order.
It was submitted on behalf of the trustees of Ms Hankin’s bankrupt estate that they did not know the circumstances in which the Federal Court had made the declaration that the whole of the right, title and interest of Mr Hankin was vested in his trustee. The submission may perhaps be explained by the circumstance that the orders made in the Federal Court had been made at a time when Ms Hankin had been incarcerated.
It was further contended on behalf of the trustees of Ms Hankin’s bankrupt estate that by force of s 58 of the Bankruptcy Act, a trustee in bankruptcy could only take his interest as trustee in the property of the bankrupt subject to the existing equities.
Mr Capel deposed to the basis on which the trustees of Ms Hankin’s bankrupt estate challenged the vesting of any interest in the property in the trustee of Mr Hankin’s bankrupt estate as follows:
Until such time as a Trustee in Bankruptcy “perfects” his interest from an equitable interest under s 58 of the Bankruptcy Act to a legal interest, the vesting of property in a Trustee in Bankruptcy is incomplete.
Section 58(2) of the Bankruptcy Act requires the transmission of property to be registered in favour of the Trustee of a bankrupt estate notwithstanding that the property vests in equity in a Trustee. Section 58(1) of the Transfer of Land Act 1958 (Vic) requires a Transmission Application to be [registered] to satisfy the requirements of s 58 of the Bankruptcy Act.
The Respondent Mr Nankervis never perfected his equitable interest in the Real Property as he is required to do under s 58(1) of the Transfer of Land Act 1958 (Vic).
Mr Capel further deposed to the basis on which the trustees of Ms Hankin’s bankrupt estate contended that, following a 35 year marriage, Ms Hankin held an equitable interest in the property:
I believe that the Applicant bankrupt arguably had an equitable interest in the Real Property as such an interest would vest in me and Mr Abbas pursuant to ss 58 and 116(1) of the Bankruptcy Act. I further believe the Applicant bankrupt arguable had a valid claim for a share in the Real Property or the nett proceeds of sale of the Real Property under s 79 of the Family Law Act and this action vested in me upon the date of bankruptcy.
I believe that based on the length of the marriage, the fact there were 3 children of the marriage, the fact that my investigations to date disclose that the Applicant bankrupt made significant financial and non-financial contributions to the marriage and to the acquisition, conservation and/ or improvement of the Real Property, this claim is significant.
At this stage I cannot finally quantify the value of that claim but now that the Real Property has been sold, I intend to amend the Initiating Application to make a claim on the Respondents under s 79(1)(b) of the Family Law Act.
It is apparent that the trustees of Ms Hankin’s bankrupt estate contended that both Ms Hankin’s equitable interest in the property and her claim under s 79 had vested in them.
On 9 February 2018, the trustee of Mr Hankin’s bankrupt estate affirmed an affidavit to which he exhibited an updated list of creditors, a report to creditors, a notice issued by him to the trustees of Ms Hankin’s bankrupt estate, and a remuneration claim notice. Mr Nankervis deposed that a considerable amount of the costs and disbursements that had been incurred in the administration of Mr Hankin’s bankrupt estate were attributable to Ms Hankin’s conduct and to the proceeding which she had initiated in this court seeking to restrain him from dealing with the property and, in turn, the settlement monies following upon its sale.
From this list of creditors of Mr Hankin’s bankrupt estate and other documents it appeared that: (1) a total of five creditors were identified who had lodged claims for a total sum in excess of $1.437m; (2) the major creditor was the Australian Tax Office who had lodged a claim for in excess of $1.424m; (3) the trustees of the two bankrupt estates were in dispute as to the amount of the costs that had been incurred in the administration of Mr Hankin’s bankrupt estate.
At a directions hearing conducted on 12 February 2018, Ms Hankin appeared in person, Mr Spencer of Counsel appeared on behalf of the trustee of Mr Hankin’s bankrupt estate. Mr Combe of Counsel was granted leave to appear on behalf of the trustees of Ms Hankin’s bankrupt estate as intervenors. Mr Hankin did not appear and has taken no part in the proceeding.
During this directions hearing, it emerged that the Australian Taxation Office was the major creditor in the bankrupt estates of Mr and Ms Hankin respectively. In the course of that hearing attention was drawn to the duty of the trustees of bankrupt estates with respect to the taking of appropriate steps to recover property and to administer an estate as efficiently as possible by avoiding unnecessary expense together with the powers of performing their functions in a commercially sound way: see para 19(1)(f), (j) and (k) Bankruptcy Act.
An order was made that the trustees of each bankrupt estate consult and use their best endeavours to identify appropriate means by which the issues as concerned the respective bankrupt estates might be resolved and how the property of those estates might be recovered in a commercially sound way and without unnecessary expense.
On 16 February 2018, the trustees of Ms Hankin’s bankrupt estate filed an amended application in a case seeking an order that pursuant to s 79(11) of the Family Law Act, s 30 of the Bankruptcy Act and rr 11.01 and 11.03 of the Federal Circuit Court Rules 2001 they be joined in their capacity as trustees of the property of Ms Hankin’s bankrupt estate.
The compromise
On 28 February 2018, the trustee of Mr Hankin’s bankrupt estate made an open offer to compromise the proceeding. The offer recited the essential facts including a contention that, having regard to the issues which had been ventilated in the Federal Court proceeding, it was not now open to Ms Hankin to re-litigate the question of any equitable interest in the property. Upon that premise it was said that the remaining question was whether it was now open to Ms Hankin to pursue an application for an adjustment of property orders pursuant to s 79. The trustee of Mr Hankin’s bankrupt estate offered to compromise the proceeding by paying a share of the settlement monies to the trustees of Ms Hankin’s bankrupt estate. The open offer was expressed to be subject to approval of creditors.
On 14 March 2018, the trustees of Ms Hankin’s bankrupt estate responded to the offer. By their response Ms Hankin’s trustees disavowed any equitable claim to an interest in the property. Instead, Ms Hankin’s trustees contended that they had made an election pursuant to s 60 of the Bankruptcy Act to prosecute Ms Hankin’s cause of action under Part VIII of the Family Law Act and for that reason contended that the trustees should be granted leave to file the proposed amended initiating application seeking relief under s 79 to secure an adjustment of property rights reflecting Ms Hankin’s financial and non-financial contribution to the property and taking account of discretionary factors under s 75(2) the Family Law Act.
The trustees of Ms Hankin’s estate also disavowed any claim for declaratory relief under s 78 of the Family Law Act and made detailed contentions as to why Ms Hankin was entitled to the relief that was pressed and why the trustees of her bankrupt estate should be joined as parties to the proceeding.
The trustees of Ms Hankin’s bankrupt estate made a counter-offer as to the division of the settlement monies. Further, the trustees of Ms Hankin’s bankrupt estate provided the trustees of Mr Hankin’s estate with an irrevocable authority, signed by Ms Hankin, authorising the payment of all monies paid in respect of the Family Law proceeding to be paid to her trustees in satisfaction of any orders made by this court in respect of her claim under s 79. Ms Hankin’s irrevocable authority directed that any monies so paid be applied in the following order: (1) first in payment of costs, fees, remuneration, disbursements and legal costs; (2) to the unsecured creditors of her bankrupt estate.
In the period to 9 April 2018, further negotiations ensued between the respective trustees of the bankrupt estates of Mr and Ms Hankin. In the course of those negotiations an offer was made to pay a separate sum to Ms Hankin in consideration of her refraining from taking steps concerning non-vested property. In the event, the trustees agreed, in principle, to compromise the issues in dispute in the proceeding but recognised that Ms Hankin had not been informed of the compromise. In the course of those negotiations it was further observed that the parties had not expressly agreed whether their compromise was to be subject to court approval and that an open question remained whether Ms Hankin had been informed that she should obtain and rely upon her own independent legal advice.
At a directions hearing on 4 May 2018, counsel for the trustees of Mr Hankin’s bankrupt estate together with counsel for the trustees of Ms Hankin’s bankrupt estate, as intervenors in the proceeding, informed the court that the matters in dispute in the proceeding had been compromised in a deed. Ms Hankin appeared in person.
The court was informed that the parties had not yet exchanged counterparts of executed deeds. Orders were made for the filing of affidavits together with submissions respecting the question of joinder and approval of the parties’ compromise. In particular, an order was made that the Registrar of the Court make a request of the Victorian Bar’s Pro Bono Committee to furnish advice to Ms Hankin concerning entry into and execution of the deed and any application for approval of the compromise reflected by the deed.
In the course of the directions hearing on 4 May 2018, the parties indicated their consent to the application for approval of the compromise being considered in chambers on the express proviso that the orders and any reasons for judgement be delivered in open court.
Mr Snyder of Counsel accepted a pro bono brief and furnished advice to Ms Hankin respecting the matters addressed above. The court acknowledges the considerable assistance which has been provided by pro bono Counsel in relation to the complex issues raised in this matter.
On 8 May 2018, the solicitor for the trustees of Ms Hankin’s bankrupt estate sent Ms Hankin an email to which was attached a letter of the same date advising that the trustees of the two bankrupt estates had now executed the deed and proposed consent orders be submitted to the court for approval once Ms Hankin had taken the opportunity to obtain independent legal advice. The solicitor for the trustees of Ms Hankin’s bankrupt estate also deposed to instructions to seek court approval to the terms of the deed.
On 10 May 2018, a solicitor for the trustees of Ms Hankin’s bankrupt estate affirmed an affidavit to which she exhibited counterparts of a deed of agreement executed by each of the trustee for Mr Hankin’s bankrupt estate and the trustees of Ms Hankin’s bankrupt estate respectively.
On 18 June 2018, a trustee of Ms Hankin’s bankrupt estate affirmed an affidavit to which he exhibited a copy of the deed duly executed by Ms Hankin. By the deed, the parties are agreed, subject to court approval, that the settlement monies be distributed to the trustees as follows:
a)Ms Hankin’s bankrupt estate, the sum of: $110,000.00.
b)Mr Hankin’s bankrupt estate, the sum of: $329,143.37.
A further term of the deed is that from the sum of $110,000 to be paid to the trustees of Ms Hankin’s bankrupt estate, they be authorised to pay to Ms Hankin a sum of $3,000.00 in full and final satisfaction of any claim which Ms Hankin may have pursuant to s 116(2) of the Bankruptcy Act within 14 days of the date upon which orders are made by this court approving the compromise embodied in the deed.
The deed expressly provides, by cll 2 and 6 that the payments to be made pursuant to the deed are conditional upon the court being satisfied that the orders proposed are just and equitable. The deed further provides that the terms of the consent orders providing for the payment to each of the trustees and Ms Hankin respectively are also conditional upon court approval. The deed contains an express warranty, acknowledgement and representation that each party has sought and obtained their own legal advice respecting the deed. The deed contains a number of other provisions which are not presently material.
Consideration
Ms Hankin’s claim
Having joined in the purchase of the property in 1980 and having then been a party to the marriage for some 35 years, it is beyond any sensible argument that Ms Hankin would have had a claim under s 79 as to warrant being considered for final determination.
The declaration made in the Federal Court on 8 December 2016 was that the whole of the legal and equitable interest in the property was vested in Mr Nankervis as trustee of Mr Hankin’s bankrupt estate. Questions arise whether Ms Hankin’s claim to relief under s 79 was not lost by reason of that declaration and whether the value of that claim was property divisible amongst the creditors of Mr Hankin’s bankrupt estate.
While it was suggested that Ms Hankin’s claim to an equitable interest in the property was barred by an Anshun estoppel, to say as much does not answer the separate question whether Ms Hankin was entitled to relief under s 79. I consider that it was open to add a claim for an adjustment of property interests pursuant to s 79 to the claim for an injunction made under s 114 of the Family Law Act (s 114).
As noted above, the trustee of Mr Hankin’s bankrupt estate contested the application for joinder on the basis of jurisdiction, power and discretion. In short, it was submitted that the property and in turn, the settlement monies, comprised the property of the bankrupt as defined by s 5 of the Bankruptcy Act and had vested in the trustee of Mr Hankin’s bankrupt estate upon his appointment: see s 58(1)(a), Bankruptcy Act (s 58).
The parties’ competing contentions raised a number of issues.
Jurisdiction
Part III of the Bankruptcy Act, which concerns Courts, is comprised of ss 27-37. In Part III, Div 2 addresses the Jurisdiction of Courts in bankruptcy. Concurrent and exclusive jurisdiction in bankruptcy is conferred on the Federal Court of Australia and the Federal Circuit Court of Australia other than that jurisdiction which is conferred on the High Court of Australia under s 75 of the Constitution and the Family Court of Australia under ss 35 or 35A of the Bankruptcy Act.
The general powers of a Court acting in bankruptcy include “full power to decide all questions, whether of law or of fact, in any case of bankruptcy” and to “make such orders (including declaratory orders and orders granting injunctions or other equitable remedies) as the Court considers necessary for the purposes of carrying out or giving effect to this Act”.[1] The Bankruptcy Court may decline such jurisdiction where the issues have already been raised in another court: McDonald Henry & Meek, Australian Bankruptcy Law and Practice, 6th Ed, Vol 1, [58.1.30].
[1] See paras 30(1)(a)-(b) of the Bankruptcy Act.
Part V of the Family Law Act 1975 concerns Jurisdiction of Courts and is comprised of ss 39-47. In relation to any proceedings, ‘court’ means the court exercising jurisdiction in those proceedings by virtue of that Act: s 5. Div 1 of Part V is comprised of s 39 alone and concerns Jurisdiction of Courts in Matrimonial Causes.[2]
[2]Div 1 of Part V is complemented by Div 2 which concerns Jurisdiction of Courts in De facto relationships: see s 39A-39G.
Subject to Part V of the Family Law Act (and save for exceptions which are not material), jurisdiction is conferred on the Federal Circuit Court of Australia with respect to a matrimonial cause that is instituted under the Family Law Act: ss 39(1A), (5AA) Family Law Act. The definition of matrimonial cause is extensive and includes a proceeding between:
a)parties to a marriage with respect to the property of the parties to the marriage or either of them; and
b)a party to a marriage and the trustee of a bankrupt party to the marriage with respect to any vested bankruptcy property in relation to the bankrupt party being, relevantly, proceedings arising out of a marital relationship.
See s 4(1), matrimonial cause, paras (ca)(i) and (cb)(i)-(iii).
The expression vested bankruptcy property is defined in s 4(1) as follows:
Vested bankruptcy property, in relation to a bankrupt, means property of the bankrupt that has vested in the bankruptcy trustee under the Bankruptcy Act 1966. For this purpose, property, has the same meaning as in the Bankruptcy Act 1966.
The definition of vested bankruptcy property thus incorporates the definition of property as provided by the Bankruptcy Act. By s 5(1) of that Act, ‘property’ is given a wide definition and includes any estate, interest or profit, present or future, vested or contingent arising out of or incident to any real or personal property (see below).
Paragraph (cb) of the definition of matrimonial cause and the definition of Vested bankruptcy property were inserted in the Family Law Act by Items 12 and 17 of Sch 1 of the Bankruptcy and Family Law Legislation Amendment Act 2005 (Cth) (Amending Act).[3]
[3] The amendments effected by the Amending Act commenced operation on 18 September 2005.
One object of the Amending Act was to address longstanding issues concerning the interaction between family law and bankruptcy.[4] Many of the problematic issues which had existed prior to the amendment of s 79(1) and related provisions of the Family Law Act were addressed by Dodds and MacCallum in a paper Bankruptcy and Matrimonial Claims – The Spouse as Competing Creditor, Part I (1985) MULR 211.
[4]See cl. 2(a), 8 of the Revised Explanatory Memorandum to the Bankruptcy and Family Law Legislation Amendment Bill (Amendment Bill).
The effect of the insertion of para (cb) in the definition of matrimonial cause was to include proceedings between a party to a marriage and a bankruptcy trustee with respect to vested bankruptcy property.[5]
[5] See Item 36 of Sch 1 to the Amendment Bill.
Amendments proposed by the Amending Act were explained as follows:[6]
10.There are a number of difficulties which can arise when bankruptcy and family law issues and/or proceedings exist at the same time. There are inconsistencies between family law and bankruptcy law which create uncertainty for all involved and can cause hardship for either or both creditors and non-bankrupt spouses.
11. From a bankruptcy perspective, trustees can find themselves in an uncertain position when having to resolve or reconcile competing claims. Creditors unaware of the potential property interest of a non-bankrupt spouse also suffer from a lack of certainty.
12. From a family law perspective, the legal ownership of property does not always reflect the non-financial contribution of the parties to the marriage. The special interest of the non-bankrupt spouse in the marital property created through both financial and non-financial contributions, which may be recognised by the Family Court in exercising its discretion to alter property interests, is not expressly recognised under the Bankruptcy Act.
13. Different outcomes result depending upon the order in which events occur (those events including separation, bankruptcy and distribution of property by the trustee in bankruptcy).
14. The amendments proposed in this Bill will address these issues by clarifying the rights of the bankruptcy trustee and the non-bankrupt spouse. Generally, the amendments will enable concurrent bankruptcy and family law proceedings to be brought together to ensure all the issues are dealt with at the same time. (emphasis added)
While the type of difficulties that were encountered before the Amending Act was passed are illustrated by several cases, I refer to the following.
[6] See cl. 10-12 of the Amendment Bill.
In Coffey v Bennett [1961] VR 264 (Coffey v Bennett), Sholl J held at 266-267 that only an undischarged bankrupt could apply for testators family maintenance under the Administration and Probate Act 1958 (Vic), but that part of the fruits of such a proceeding could become after-acquired property which vested in the trustee of the bankrupt’s estate. The decision rested on the application of s 116 of the Bankruptcy Act. Se Section 116 prescribes that property which is, and is not, divisible amongst the creditors of a bankrupt estate. The right to sue for testator’s family maintenance was held (like a claim for damages for personal injuries), not to be capable of assignment and so could not vest in the trustee of the bankrupt estate. Nor was it property divisible amongst the creditors of a bankrupt estate: see also McDonald Henry and Meek at [58.1.20] and cases cited.
In Re Trigg: Ex Parte Trigg and the Official Receiver (1978) 25 ALR 207, when an order was made in a matrimonial cause for the husband to transfer the whole of his legal and equitable interest in a property, the fact of the husband’s recent bankruptcy had not been revealed to the court. Rogerson J held at 213.40 that the trial judge would have had no power under the Matrimonial Causes Act to order that a person to whom the husband had transferred the property should re-transfer that interest to the wife since “his powers under that Act were limited to making an order against the bankrupt personally”. His Honour held that the wife was deprived of the relief granted by the order for the transfer of the property by reason that the title to that property had passed to the Official Receiver. However, Rogerson J held at 214.10 that it did not follow alternative relief might not be available to the wife from the court now having jurisdiction as would put her in substantially the same position.
In Page and Page (No 2) (1982) FLC 91-241 (Page & Page), Frederico J held that the spouse of an undischarged bankrupt was unable to maintain any claim for a property settlement against the bankrupt as the bankrupt’s property had vested in the trustee of the bankrupt estate. His Honour held that where the interests of a bankrupt party had vested in the trustee, “there could be no property upon which she could found her claim”.[7] The apparent harshness of that result was magnified by the further holding that it remained open to the bankrupt spouse to pursue a claim under s 79 against the property of the non-bankrupt spouse by reason that the court was empowered to make orders by way of settlement of property for the benefit of a party to a marriage. It should be noted that his Honour rejected a submission that no order should be made in favour of a bankrupt under s 79 against a non-bankrupt spouse on the basis that to do so would merely benefit the bankrupt estate, stating at 77,329:
But it would be quite wrong for the husband to be placed in a worse position because of his bankruptcy, or for the wife to be placed in a better position merely because the fruits off the husband’s application [would] be applied to effect a discharge of his just debts.
Frederico J apparently saw nothing objectionable in an order under s 79 which resulted in the bankrupt’s estate being augmented by a bankrupt spouse’s share in property to which he or she had made financial and non-financial contributions. In the event, Frederico J dismissed the bankrupt’s property claim.
[7]Like reasoning was later employed in Stanford v Stanford (2012) 247 CLR 108 in the process of identifying the existing legal and equitable interests of a party in property.
Part VIII of the Family Law Act concerns Property, spousal maintenance and maintenance agreements and comprises ss 71-90. For the purposes of the Family Law Act, ‘property’ in relation to the parties to a marriage, means property to which those parties are, or that party is, as the case may be, entitled, whether in possession or reversion: see s 4(1).
‘Property’ is used in the Family Law Act in a comprehensive sense and extends to the property of the parties or either of them: Kennon v Spry (2008) 238 CLR 366, [52], [78] (French CJ), [91], [126] (Hayne and Gummow JJ), [154], [175] (Heydon J), [200], [224] (Kiefel J). As noted above, for the purposes of the conferral of jurisdiction in relation to a matrimonial cause between a spouse and the trustee of a bankrupt spouse however, the Family Law Act incorporates the definition of ‘property’ provided by the Bankruptcy Act for vested bankruptcy property.
Section 79 concerns the alteration of property interests in a ‘property settlement proceeding’. In a property settlement proceeding, the court may make such order as it considers appropriate: s 79(1). The phrase ‘property settlement proceeding’ is defined for the purposes of the Family Law Act and, in relation to the parties to a marriage, means:
(a). . . proceedings with respect to:
(i) the property of the parties or either of them; or
(ii) the vested bankruptcy property in relation to a bankrupt party to the marriage; or
This definition was inserted by Item 14 of Sch 1 to the Amending Act.
Sub-section 79(1), as amended, addresses both the property of parties to a marriage and the vested bankruptcy property of a bankrupt party to a marriage. Sub-section 79(1) provides:
(1) In property settlement proceedings, the court may make such order as it considers appropriate:
(a)in the case of proceedings with respect to the property of the parties to the marriage or either of them - altering the interests of the parties to the marriage in the property; or
(b) in the case of proceedings with respect to the vested bankruptcy property in relation to a bankrupt party to the marriage - altering the interests of the bankruptcy trustee in the vested bankruptcy property;
including:
(c) an order for a settlement of property in substitution for any interest in the property; and
(d) an order requiring:
(i) either or both of the parties to the marriage; or
(ii) the relevant bankruptcy trustee (if any);
to make, for the benefit of either or both of the parties to the marriage or a child of the marriage, such settlement or transfer of property as the court determines.
By Item 27 of Sch 1 of the Amending Act the existing sub-s 79(1) was repealed and the provision set out above was substituted.
The Amendment Bill explained[8] in relation to s 79(1) that:
Paragraph (a) replicates the existing law. Paragraph (b) provides that a court can alter the interests of the bankruptcy trustee in the vested bankruptcy property. Paragraphs (c) and (d) largely replicate the existing law, although a new paragraph (d)(ii) provides that a court can make an order against the relevant bankruptcy trustee (if any) to make such settlement or transfer of property as the court determines for the benefit of either party to the marriage, or child of the marriage
Other extensive amendments were made to s 79 by the Amending Act.
[8] See Cl 55 of the Amendment Bill.
In each case, sub-s 79(1)(a)-(b) respectively authorise the court to make orders in a property settlement proceeding which alter the property interests of parties to a marriage and the interests of a bankruptcy trustee in relation to vested bankruptcy property respectively.
The court shall not make an order for the adjustment of property interests in a property settlement proceeding unless it is satisfied that it is just and equitable to make that order: s 79(2). The phrase ‘just and equitable’ does not admit of an exhaustive definition. For that reason, the power conferred by s 79 is not to be applied upon a set of fixed rules: Stanford v Stanford, (2012) 247 CLR 108 (Stanford), [36]. In Stanford, the High Court examined the scope of the power conferred by s 79. The plurality identified certain fundamental propositions, including at [36]-[37] that:
. . . it is necessary to begin consideration of whether it is just and equitable to make a property settlement order by identifying, according to ordinary common law and equitable principles, the existing legal and equitable interests of the parties in the property . . . The question posed by s 79(2) is thus whether, having regard to those existing interests, the court is satisfied that it is just and equitable to make a property settlement order.
. . . Questions between husband and wife about the ownership of property that may be then, or may have been in the past, enjoyed in common are to be “decided according to the same scheme of legal titles and equitable principles as govern the rights of any two persons who are not spouses”. The question presented by s 79 is whether those rights and interests should be altered. (citations omitted)
Stanford holds that the scope of the power conferred by s 79 to alter existing legal or equitable interests in property is constrained by the requirement to identify those existing interests which the parties, or one of them, may hold in any property. Separate issues will arise where that property has vested in a trustee in bankruptcy.
Where the court considers it just and equitable to make an order in a property settlement proceeding adjusting the interests in property of parties to a marriage or property that has vested in a bankruptcy trustee, the court may make a wide variety of orders: s 80, Family Law Act. The orders that may be made include an order for the payment of money: paras 80(1)(a). Subject to s 79(2), such orders may be made by consent: para 80(1)(j).
The Rules of Court may make provision for both a party to a marriage and a trustee of the bankrupt estate of a party to notify the court that a person who is a party to a proceeding has been made bankrupt: ss 79H, 79J, Family Law Act.[9] Those provisions recognise that the court and a party to proceedings may have a real interest in such bankruptcy.
[9]See Part 6.5 of the Family Law Rules 2004; r 11 Federal Circuit Court of Australia Rules 2001; cf Yarwood v Shore [2013] FCCA 2114, [13] (Scarlett J).
Section 114 of the Family Law Act concerns Injunctions. In exercising jurisdiction under the Act, the court may grant an injunction in any case in which it appears to be just or convenient to do so: s 114(3). Further, if a party to a marriage is made bankrupt, the court may on the application of the other party to the marriage, grant an injunction under sub-s 114(3) to restrain a bankruptcy trustee from declaring and distributing dividends amongst the bankrupt’s creditors: sub-s 114(4). The express power conferred by sub-s 144(4) was inserted in the Act by Item 59 of Sch 1 of the Amending Act.
The initiating application issued (and as presently constituted) is a proceeding between Ms Hankin, a party to a marriage with Mr Hankin, and Mr Nankervis, the trustee of Mr Hankin’s bankrupt estate. It is no valid objection that Mr Hankin was not made a party to the proceeding.
Jurisdiction is also conferred on the court with respect to certain matrimonial causes, including a cause between a party to a marriage and the trustee of a bankrupt party to the marriage. However, in order for this court to be seized of jurisdiction in such a cause under the Family Law Act, it is not sufficient that the proceeding be a proceeding between a party to a marriage and the trustee of a bankrupt party to the marriage. The proceeding must also be with respect to any vested bankruptcy property in relation to the bankrupt party and be, relevantly, a proceeding arising out of a marital relationship.
In this compartment of the case, counsel for the trustee of Mr Hankin’s bankrupt estate objected that a proceeding between two trustees respecting the vested bankruptcy property of two married, but bankrupt, parties did not constitute a matrimonial cause within para (cb) of that definition. In my opinion, this objection failed to confront the requirements of the defined term. A proceeding will be a matrimonial cause where the requirements of para (cb) are satisfied. It will do so where it meets the description of being a proceeding between a party to a marriage and the trustee of a bankrupt party to the marriage with respect to any vested bankruptcy property in relation to the bankrupt party being, relevantly, a proceeding arising out of a marital relationship.
The property vested in the trustee of Mr Hankin’s bankrupt estate upon Mr Hankin becoming bankrupt and the settlement monies constitute vested bankruptcy property held by his trustee.
It is not without significance that the Amending Act effected substantial amendments to both the Bankruptcy Act and the Family Law Act. In particular, it amended the definition of matrimonial cause and s 79, and as appears below, s 116 of the Bankruptcy Act by excluding from the property divisible amongst creditors of a bankrupt estate such property as was ordered to be transferred to a spouse under Part VIII of the Family Law Act. The objects and purpose of the Amending Act support a conclusion that the Family Law Act and Bankruptcy Act should be given a harmonious construction. To do so would promote principles of coherence in the law: Sullivan v Moody (2001) 207 CLR 562, [50] (Gleeson CJ, Gaudron, McHugh, Hayne and Callinan JJ); CPCF v Minister for Immigration and Border Protection (2015) 255 CLR 514, [214] (per curiam); The Ship “Sam Hawk” v Reiter Petroleum Inc (2016) 246 FCR 337, [139] (Allsop CJ and Edelman J). To do otherwise would be antagonistic to the objects to be secured by those amendments.
In this case, Ms Hankin (a party to a marriage) instituted a proceeding against Mr Nankervis, the trustee of Mr Hankin’s bankrupt estate. Mr Hankin was a party to the marriage. The proceeding instituted by Ms Hankin concerned the disposition of the settlement monies arising from the sale of the former matrimonial home. Those settlement monies answered the description of vested bankruptcy property in relation to a bankrupt party. The definition of vested bankruptcy property in s 4 of the Family Law Act picks up the definition of property in s 5 of the Bankruptcy Act. As stated above, upon acceptance of Mr Hankin’s debtor’s petition, title to the former matrimonial home vested in the trustee of his bankrupt estate. This proceeding was instituted with respect to the settlement monies, being monies which are declared by the Federal Court to have vested in the trustee of Mr Hankin’s bankrupt estate.
The proceeding arose out of the marital relationship of Mr and Ms Hankin. As Ms Hankin was incarcerated at the time of commencement of the proceeding, this may explain why the relief claimed was confined to a claim for an injunction to restrain the disposition of the settlement proceeds. Ms Hankin was able to apply to amend her application. If the cause of action the subject of the application vested in her trustee, it follows that it was also open to the trustee to amend the relief sought. Had the amendment been effected, as a general rule, it would have taken effect from the date that the initiating application was filed.
It is not to the point that parties other than Ms Hankin and the trustee of Mr Hankin’s bankrupt estate might also be joined in the proceeding. The joinder of additional parties to a matrimonial cause is commonplace. Indeed, ss 79F-79J of the Family Law Act contemplate that third parties, trustees and non-bankrupt spouses may be notified of the fact of a parties bankruptcy. In turn, r 11 of the Federal Circuit Court Rules 2001 (Cth) provides ample power to join a person, including one whose interests maybe affected by the decision: cf News Ltd v Australian Rugby Football League (1996) 64 FCR 410, 524-5; Lukies v S2V Consulting Pty Ltd [2018] FCCA 1431. [28]-[52].
The circumstance that additional parties may be joined to a proceeding, being a matrimonial cause in respect of which the court has jurisdiction, does not strip the proceeding of that essential character.
I am satisfied that the proceeding is between a party to a marriage and the trustee of a bankrupt party to the marriage with respect to vested bankruptcy property in relation to a bankrupt married party and that the proceeding arises out of that marital relationship. The proceeding is a matrimonial cause within the meaning provided by par (cb)(i)-(iii) of that definition and in respect of which this court is conferred jurisdiction by ss 39(1A) and (5AA) of the Family Law Act.
I am therefore satisfied that this court had jurisdiction to entertain a claim between Ms Hankin and the trustee of Mr Hankin’s bankrupt estate.
As Stanford requires, identification of the parties existing legal or equitable interests in property is an essential step in such a proceeding. Here, the title to the property had been held by Mr and Ms Hankin as joint tenants following its purchase in 1980. The property was transferred to Ms Hankin and then re-transferred by her to Mr Hankin. The property was held by him at the date that the presentation of his debtor’s petition was accepted and a trustee appointed to his bankrupt estate. The interest held by Mr Hankin in the property then vested in his trustee. Having jurisdiction over vested bankruptcy property, the court was conferred power by s 79 to make orders respecting that property.
Concerning the question of power, I am satisfied that this is a property settlement proceeding as defined by s 4(1). From the perspective of Ms Hankin, it is a proceeding respecting the ultimate disposition of the settlement monies arising from the sale of Mr Hankin’s property which is now vested in the trustee of his bankrupt estate. From the perspective of the trustees of Mr and Ms Hankin’s bankrupt estates, it is a proceeding respecting Ms Hankin’s entitlement, if any, in those monies.
In my opinion, it follows that, by sub-s 79(1)(a)-(b) of the Family Law Act, the court is authorised to make orders altering the interests of the parties to the marriage in their property and also the interests of a trustee in bankruptcy in relation to vested bankruptcy property.
Effect of bankruptcy – ‘Property’
In the interpretation of the Bankruptcy Act, by s 5(1) ‘property’ means:
. . . real or personal property of every description, whether situate in Australia or elsewhere, and includes any estate, interest or profit, whether present or future, vested or contingent, arising out of or incident to any such real or personal property.
The breadth of that definition is self-evident. As noted above, this definition is incorporated in the definition of vested bankruptcy property as provided by s 4(1) of the Family Law Act.
For the purposes of bankruptcy, the concept of ‘property’ is of central relevance in the consideration of what property has or has not vested in a trustee in bankruptcy and that which is divisible amongst creditors.
A cause of action is one form of chose in action. A chose in action is property and where it comprises a right to litigate it includes a right to share in the expected fruits of a proceeding: Re Movitor Pty Ltd (In liq’n) (1996) 64 FCR 380, 391-2 (Drummond J).
The right to protect property by injunction is itself property for the purposes of the Bankruptcy Act: Coumanios v Giunti [2017] FCA 678, [49] (Perry J); see also McDonald Henry and Meek at [58.1.10].
Some rights of action are personal to a bankrupt; being actions which have no implications for the bankrupt estate and are not property for the purposes of the Bankruptcy Act: McDonald Henry & Meek, at [58.1.100] citing, e.g., Griffiths v Civil Aviation Authority (1996) 67 FCR 301 (Spender, Einfield and Cooper JJ). Notably, in their consideration at [58.1.100] of the types of personal property which do not constitute ‘property’ for the purposes of the Bankruptcy Act, the learned authors undertake no discussion of the nature of the rights of action conferred by the Family Law Act in respect of property. Instead, the topic is addressed in the context of s 58(3) and para 116(2)(q)-(r) of the Bankruptcy Act.
Further, in contrast with later provisions of the Bankruptcy Act, the definition of property in that Act is not structured in a form so as to identify the types of property which are included in the definition and to deal separately with the types of property which are then excluded from the reach of that definition. To the contrary, the text of the definition extends to “property of every description”, an expression which Gummow and Whitlam JJ regarded as extending to rights and interests created by statute: Fuller v Claremont Petroleum NL (1993) 117 ALR 235, 241.40 (Fuller); Cummings v Claremont Petroleum NL (1996) 185 CLR 124, 145-6 (Dawson and Toohey JJ) (Cummings).
I see nothing in the text of the definition of property or otherwise in the context of the Bankruptcy Act as a whole to support a conclusion that rights of action under s 79 or 114 are excluded from that definition. It is a separate question whether such statutory rights are personal property in the requisite sense such as will not vest in a trustee in bankruptcy.
A right which is in the nature of an expectancy to property is clearly property within the meaning of the Bankruptcy Act notwithstanding that the expectancy alone creates no legal or equitable interest in the property: Official Receiver v Schultz (1990) 170 CLR 306, 314. The Court described the expectant interest as a chose in action which, when transmitted “by operation of law, such as under the Bankruptcy Act, encompasses not only the chose in action but also the expected fruits of that chose in action”: citing Horton v Jones (1935) 53 CLR 475; In re Leigh’s Will Trusts [1970] Ch 277, 282. The Court held that both the chose in action and the expected fruits of the action passed to the Official Receiver: see also Re Movitor, supra.
In Cummings, Dawson and Toohey JJ considered Rose v Buckett [1901] 2 KB 449, 454 as authority respecting the principle whether a cause of action vested in a trustee in bankruptcy. Rose v Buckett held that the question was whether a right of action would put assets into the trustee’s hands or could be turned for profit. Dawson and Toohey JJ considered the definition to be too narrow and reasoned that the meaning of property in the Bankruptcy Act was of wider scope, in particular, by reason that it was fundamental to the law of bankruptcy that a bankrupt was divested of their property and at the same time, of their liability for debts.
It is plain that a claim under s 79 and an ancillary claim for preservation of property under s 114 have as their ultimate aim the making of an order for the settlement of property or the payment of money. In either event, the fruits arising upon the realisation of such claims would result in assets in the hands of the claimant.
In my opinion and upon the principles examined above, the statutory rights created by ss 79 and 114 are property within the meaning of that term as defined by s 5(1) of the Bankruptcy Act. Subject to the operation of ss 58 and 116 of that Act, the choses in action represented by a claim under s 79 and 114 and the right to share in thee expected fruits of any such claims would prima facie pass to the trustee in bankruptcy of a bankrupt spouse. As stated above, issues raised by ss 58 and 116 require separate consideration. The question addressed to this point is whether such rights constitute property. I consider it is clear that they do.
Locus standi
The broad scheme and purpose of the Bankruptcy Act is directed at absolute control of the bankrupt’s property for the benefit of the creditors of the bankrupt estate: Daemar v Industrial Commission (NSW) (1988) 12 NSWLR 45, 60 (Kirby P); Temsign Pty Ltd v Biscen Pty Ltd (1998) 20 WAR 47, at 52-52 (Wheeler J).
Where a chose in action has vested in the trustee of their estate, the bankrupt loses standing to maintain or prosecute an action for enforcement of the rights attaching to that chose in action: Cummings,185 CLR 124, 135-6. Brennan CJ, Gaudron and McHugh JJ held that a bankrupt had no right to bring or prosecute a proceeding to protect, enhance or add to the property of which he or she had been divested upon becoming bankrupt. As their Honours held, it is both the vesting of the chose in action in the trustee and the absence of a financial interest in that property which deprives the bankrupt of standing to bring proceedings in relation to it: see also McDonald, Henry and Meek at [58.1.60] and cases cited.
Importantly, their Honours also held at 138 that the contingent interest represented by a bankrupt’s expectation in any surplus from the bankrupt estate did not constitute an interest sufficient to allow him or her to sue to enforce proprietary rights: citing Rochfort v Battersby (1849) 2 HL Cas 388, 408; cf at 146-7 (Dawson and Toohey JJ). On that alternative basis standing would be denied to a bankrupt respecting such claims.
Conversely, if the chose in action is property of a kind that does not vest in a trustee, the rights attaching to the chose in action remain with the bankrupt and cannot be enforced by the trustee in bankruptcy.
Essentially, the question of standing in the present circumstances is to be resolved by the determination whether a claim under ss 79 or 114 of the Family Law Act had vested in the trustee of Ms Hankin’s bankrupt estate. It is not necessary in this application to consider the distinct principles which govern standing in relation to rights of appeal: Cummings; Re Gargan; Ex parte Gargan v Official Receiver [1995] FCA 1467; Guirguis v Guirguis and Official Receiver (1997) FLC 92-726; In the Marriage of RM O’Neill and P O’Neill (1998) 23 Fam LR 326 (O’Neill), [68], [87]-[90]; Rand & Rand (No 2) [2009] FamCAFC 155, [52].
For the reasons below, I consider it is clear that Ms Hankin’s claim for an adjustment of property interests under s 79 vested in her trustees. From this it follows that, from the time of their appointment as trustees: (1) the property which vested in her trustees included a cause of action to seek an order for an adjustment of property interests in relation to the property of the marriage; (2) the chose in action which vested in the trustees included the right to share in any part of the settlement monies the subject of an order under s 79; (3) only her trustees had standing to continue and prosecute or discontinue such a proceeding.
Property of the bankrupt
In the interpretation of the Bankruptcy Act, by s 4(1) the expression ‘property of the bankrupt’ means, in relation to a bankrupt (and subject to exceptions which are not presently material):
(i)the property divisible among the bankrupt’s creditors; and
(ii)any rights and powers in relation to that property that would have been exercisable by the bankrupt if he or she had not become a bankrupt; and
Identification of the property which is divisible among the bankrupt’s creditors is addressed by s 116 in Part VI of the Bankruptcy Act (s 116).
The rights and powers in relation to property which is divisible among the bankrupt’s creditors extends to “powers properly so called and refers to powers and authorities to dispose of property or interests in property for the benefit of the donee of that power or some other person”: Cummings 185 CLR 124, 133.
The primary function of this definition is to identify that property which will vest in a trustee pursuant to s 58. In the specified cases where property is not divisible amongst the bankrupt’s creditors or is not a right or power that would otherwise have been exercisable by a non-bankrupt, such property will not vest in a trustee in bankruptcy.
Vesting of property – s 58(1)
Division 4 of Part IV of the Bankruptcy Act, Proceedings in connexion with bankruptcy, concerns the Effect of bankruptcy on property and proceedings and comprises ss 58-63. Division 4 deals separately with the effect of bankruptcy upon property and proceedings respectively.
Bankruptcy will, subject to exceptions as prescribed by the Bankruptcy Act, divest a bankrupt of his or her property and vest that property in their trustee. Section 58 of the Bankruptcy Act relevantly provides:
58. Vesting of property upon bankruptcy – general rule
(1) Subject to this Act, where a debtor becomes a bankrupt:
(a) the property of the bankrupt, not being after-acquired property, vests forthwith in the Official Trustee or, if, at the time when the debtor becomes a bankrupt, a registered trustee becomes the trustee of the estate of the bankrupt by virtue of section 156A, in that registered trustee; and
(b) after-acquired property of the bankrupt vests, as soon as it is acquired by, or devolves on, the bankrupt, in the Official Trustee or, if a registered trustee is the trustee of the estate of the bankrupt, in that registered trustee.
(2) – (5A) . . .
(6) In this section, after-acquired property, in relation to a bankrupt, means property that is acquired by, or devolves on, the bankrupt on or after the date of the bankruptcy, being property that is divisible amongst the creditors of the bankrupt.
As appears from the heading to s 58, the section is expressed to provide a ‘general rule’ with respect to the vesting of property.
By operation of para 58(1)(a), the property of the bankrupt vests in the Official Receiver or in their trustee, as the case requires, forthwith at the time they became bankrupt.[10] It is at the moment a person becomes a bankrupt that the property of the bankrupt vests in their trustee and they are, accordingly, divested of their estate. The simultaneous divesting and vesting of property is fundamental to the law of bankruptcy: Cummings 185 CLR 124, 132, 134, 138 (Brennan CJ, Gaudron and McHugh JJ): Jackson v Health Services Union [2015] FCAFC 188, [27], [37]-[38] (Jessup, Griffiths and White JJ).
[10]Different provisions apply in relation to after-acquired property and are not presently relevant: see s 58(1)(b), Bankruptcy Act.
By operation of s 58(6), the rights embodied in a judgment or order of a court made after the commencement of a bankruptcy constitute after-acquired property for the purposes of that section. In the result, those rights also would vest in the trustee in bankruptcy pursuant to s 58(1)(b) of the Bankruptcy Act: see also McDonald, Henry and Meek at [58.1.20] (as to Family provision claims) and at [58.1.35].
A bankrupt generally has no right to bring or prosecute proceedings to protect, enhance or add to the property of which they had been divested on bankruptcy: Cummings, 185 CLR at 135-6; Rochfort (1849) 2 HL Cas 388, 406, 409; Heath v Tang [1993] 1 WLR 1421. This is because such rights are vested in the trustee of the bankrupt estate.
To adapt the pluralities reasoning in Cummings, it would be anomalous if a valid cause of action of which a person was seized while they remained solvent, lost its existence upon their bankruptcy. On ordinary principles, a cause of action, treated as a species of property, would be transmitted to the trustee of their bankrupt estate upon the appointment of their trustee by operation of s 58(1) of the Bankruptcy Act.
The Amending Act, which effected substantial amendments to both the Family Law Act and the Bankruptcy Act did not amend the definitions of either ‘property’ or ‘the property of the bankrupt’ in s 5(1) or the vesting provisions in s 58 so as to exclude the chose in action comprised in a claim pursuant to ss 79 or 114 from the scope of property which will vest in a trustee in bankruptcy by operation of s 58(1). The absence of any express exclusion of that kind lends support to a prima facie conclusion that the broad definition of property in the Bankruptcy Act will apply the vesting provisions in s 58 to a chose in action comprised in a claim made or available to be made pursuant to ss 79 and 114: cf McDonald, Henry and Meek at [58.1.10], [116.1.60].
In my view, whether the ss 79 or 114 claim had been made or was yet to be made, such a chose in action would constitute either a present or future contingent interest arising out of or incidental to existing property in respect of which the bankrupt spouse had a claim.
I consider that, prima facie, the rights embodied in an order made pursuant to ss 79 or 114 respectively would vest in the trustee in bankruptcy upon the making of those orders, where such orders were made after the commencement of, but before discharge from, bankruptcy.
Insofar as it was suggested that the Amending Act had not made an amendment so as to vest trustees with a right to litigate upon a chose in action constituted by a claim under ss 79 or 114, I consider that it is clear no such amendment was called for. The existing definition of property and the terms of s 58 readily encompass the vesting of property of every description whatsoever. Further, if orders were made altering interests in the settlement monies, the property to be transferred under such order would also vest in the trustees of Ms Hankin’s bankrupt estate. Questions then arise whether such property does or would not vest under the general rule prescribed by s 58 either because the property is personal property or by operation of an order to which para 116(2)(q) applies.
Enforcement – s 58(3)
It is convenient to deal separately with s 58(3). Sub-section 58(3) provides that, subject to the Bankruptcy Act, after a person has become bankrupt it is not competent for a creditor to enforce any remedy against the person or property of the bankrupt or to commence any proceedings or take any fresh step in a proceeding without leave of the court. For the purposes of s 58(3), the expression ‘property of the bankrupt’ is given an extended meaning by the definition contained in s 5(1).
The purpose of s 58(3) is to ensure that one creditor does not secure an undue advantage over other creditors of the bankrupt estate: Re McMaster; Ex parte McMaster (1991) 33 FCR 70 at 73 (Hill J). The learned authors of McDonald Henry and Meek at [58.3.55] identify two decisions in which a party was granted leave to commence proceedings under s 79A of the Family Law Act on terms that required the applicant to hold any judgment for the benefit of the bankrupt’s estate: citing Macquarie Bank Ltd v Bardetta (2005) 216 ALR 670 (Conti J); Re McCauley; Ex parte Fraser (1995) 61 FCR 251 (Davies J).
Section 58(3) proscribes a spouse who has obtained an order under s 79 from enforcing any remedy against the bankrupt’s property. Where an order has not been made, a person may not commence or take any fresh step in a proceeding without leave: In the Marriage of Moncada (1984) FLC 91-524; Melnik v Melnik (2005) 144 FCR 141, [48].
The section applies only to a creditor. Where it applies, para 58(3)(a) operates to prevent a creditor from enforcing a remedy in respect of a provable debt. An order for the payment of a liquidated sum by way of adjustment of property interests pursuant to s 79 creates a provable debt. The debt is created at the time when the order is made: Melnik, [28]. A person who obtains such an order is thereby a creditor. Paragraph 58(3)(b) operates to prevent a creditor from commencing, or taking any fresh step in, a proceeding in respect of a provable debt. Sub-section 58(3) would apply in respect of any order and in respect of any proceedings for an order sought under s 79 in favour of Ms Hankin or the trustee of her bankrupt estate. In the result, it would not be competent for Ms Hankin or her trustee to enforce such order against the property of Mr Hankin’s bankrupt estate or, without leave, to: (a) commence a legal proceeding in respect of a provable debt, or; (b) take any fresh step in a proceeding which aimed to secure an order for a provable debt.
In my opinion, s 58(3) must be read with the exception created by para 116(2)(q) respecting property which a trustee in bankruptcy is required to transfer to a spouse pursuant to such an order.
While I consider para 116(2)(q) below, where it applies para 58(3)(a) would not operate in relation to enforcement of an order made under s 79. This is because: (1) the property in respect of which enforcement was sought would no longer fall within the scope of the definition of property of the bankrupt and as such, would not be part of the property that was divisible amongst the creditors of the bankrupt estate; (2) the person having the benefit of an order made under s 79 to which para 116(2)(q) applied would no longer have a provable debt or be a creditor at least in respect of the property to be transferred under that order. However, para 58(3)(b) would still operate in relation to the commencement of, or fresh steps in, a proceeding for such an order. In either event, para 116(2)(q) would be relied upon by the non-bankrupt spouse to support the grant of leave to commence, or to take a fresh step in, a proceeding on the basis that if an order was ultimately made under s 79: (1) the order could engage para 116(2)(q), and; (2) by operation of para 116(2)(q), the property to be transferred pursuant to the order would be excluded from the property divisible amongst the creditors of the bankrupt estate.
It is unnecessary to resolve the potentially overlapping operation of an order made pursuant to s 79 which created a provable debt and such an order in respect of which para 116(2)(q) applied. At first sight, the order would seem to be enforceable only insofar as the property excluded by para 116(2)(q) was not sufficient to satisfy the liability created by the order. And the quantum of the provable debt would be reduced pro tanto to the extent that it had been satisfied by the value of that property.
For present purposes, I consider that as no order has yet been made, the trustees of Ms Hankin’s bankrupt estate require leave to take any fresh step in this proceeding. Such leave may be granted nunc pro tunc: McDonald, Henry and Meek, [58.3.55], [58.3.65].
Proceedings in connexion with bankruptcy – s 60
Section 60, which lies within Div 4 of Part IV, provides for the stay of proceedings. Section 60 applies only to proceedings commenced by a person before their bankruptcy. As concerns the institution, or continued prosecution, of a proceeding after a person has become bankrupt, these matters are dealt with by s 58 of the Bankruptcy Act above.
One purpose of s 60 is to protect parties from litigation that has been commenced by a person who becomes bankrupt: Temsign at 54. Another purpose of sub-s 60(1) is to confer power to relieve a debtor from civil or criminal proceedings instituted against him or her because of an inability to pay a provable debt: Storey v Lane (1981) 147 CLR 549, 566. The power extends to contravention proceedings arising from non-payment of a property settlement: Melnik, at [24].
A stay of proceedings is not immediate or automatic. Sub-sections 60(2)-(3) establish a regime according to which a trustee of a bankrupt may decide to prosecute or discontinue an action which has been commenced by a person who later becomes a bankrupt. Further, where the trustee does not do so, the trustee may be put to an election, failing which the action will be abandoned. They provide as follows:
(2) An action commenced by a person who subsequently becomes a bankrupt is, upon his or her becoming a bankrupt, stayed until the trustee makes election, in writing, to prosecute or discontinue the action.
(3)If the trustee does not make such an election within 28 days after notice of the action is served upon him or her by a defendant or other party to the action, he or she shall be deemed to have abandoned the action.
(4) Notwithstanding anything contained in this section, a bankrupt may continue, in his or her own name, an action commenced by him or her before he or she became a bankrupt in respect of:
(a) any personal injury or wrong done to the bankrupt, . . ;
(b) the death of his or her spouse or . . . .
In s 60, ‘action’ means any civil proceeding, whether in law or in equity: s 60(5). The statutory origins of these provisions may be traced in Australia to 1841: see s 33, Act 5 Vic No 17; Fuller, at 240.
It is in the interests of the orderly administration of a bankrupt estate that it be for the trustees to determine whether proceedings be prosecuted or discontinued in the interests of creditors: cf Fuller, at 243.
In general, a civil proceeding brought by a person who later becomes bankrupt remains on foot and may be stayed upon an election being made by a trustee in bankruptcy in writing to discontinue the proceeding. Sub-section 60(2) also entitles a trustee in bankruptcy to elect in writing to prosecute an action. Contrastingly, where another party to an action gives notice in accordance with s 60(3) and a trustee in bankruptcy does not make an election to discontinue or prosecute the action, the consequence of the failure to do so results in the action being abandoned. The abandonment of an action effected by s 60(3) does not extinguish the cause of action but may bar a trustee from pursuing it further.
In the present case, the trustees of Ms Hankin’s estate were promptly put to an election whether to prosecute or discontinue this proceeding. Equally promptly they made an election to do so.
Property which is personal to the bankrupt
The matters addressed by sub-s 60(2)-(3) do not apply to the types of action addressed by sub-s 60(4), being proceedings for personal injuries or claims relating to the death of a spouse or family member.
Sub-section 60(4) must be read with s 116(2)(g) which excludes from property that is divisible amongst the creditors of a bankrupt any right to recover damages or compensation for personal injury to the bankrupt, their spouse or family member and any correlative claim arising upon the death of such persons.
In Fuller at 241, Gummow and Whitlam JJ considered it to be of significance that, but for the express exclusion created by s 116(2)(g), such damages would otherwise have fallen within the scope of property divisible amongst creditors of a bankrupt estate. The same view was apparently shared by Dawson and Toohey JJ in Cummings at 146.
On this reasoning, a claim pursuant to ss 79 or 114 would be property divisible amongst the creditors of the bankrupt estate of a party to a marriage unless expressly excluded from the operation of s 116(1). The extent to which this is so is governed by para 116(2)(q) (see below).
In Moss v Eaglestone (2011) 83 NSWLR 476 (Moss v Eaglestone), the NSW Court of Appeal considered the scope and operation of ss 60(4) and 116(2)(g) of the Bankruptcy Act concluding that a claim for professional negligence for failure to commence a defamation action was a claim to which s 60(4) applied. The leading judgment was given by Allsop P with whom Campbell and Young JA agreed. The President held at [29] that “ss 60(4) and 116(2)(g) can be seen to run together: the former permitting the action to proceed at the instance of the bankrupt, the latter providing that the right to damages in such an action does not vest and fall in for the benefit of the creditors.” Allsop P undertook a searching analysis of the history and operation of the provisions, which included the following:
a)the exclusion of actions for personal wrongs from a bankrupt’s estate had its genesis in the English common law of bankruptcy as developed, in particular, in the 1830’s – 1840’s: [32]-[42];
b)two principal considerations which informed the exclusion of certain property from that which was divisible amongst creditors were: (1) the real importance for a bankrupt to be left a reasonable allowance for future support or maintenance; (2) relatedly, the personal nature of exempted property “which never forms part of the bankrupt’s distributable assets”: [33];
c)the focus of bankruptcy law changed progressively from protection of creditors to an increasing concern for the plight of bankrupts. As a result, the concept of property of the bankrupt was developed so as to distinguish the categories of property which was divisible amongst creditors and that which was excluded from such division. The exclusion of certain property had as its aim, the rehabilitation of the bankrupt: [34]-[41];
d)concerning actions for personal wrongs, the touchstone of whether the action was one which vested in the trustee or was a right retained by the bankrupt was whether the nature of the damages were immediately referrable to pain felt by the bankrupt “in respect of his mind, body or character and without reference to his rights of property”: [43] citing Cox v Journeaux (No 2) (1935) 52 CLR 713 (Cox), 721 (Dixon J). The harshness of permitting a result whereby damages reflecting compensation for the solace for the hurt of a personal wrong vested in a trustee served to inform the scope and operation of ss 60(4) and 116: [55]-[59];
e)the relevance of assignment and waiver of tort rules: [60]; and
f)the legislative history of the Bankruptcy Act and recommendations in the Report of the Committee Appointed by the Attorney-General of the Commonwealth to Review the Bankruptcy Law of the Commonwealth which included that s 116 should make express provision excluding damages for personal wrongs from the property divisible amongst creditors: [61]-[67].
Allsop P then examined modern case law and whether Australian jurisprudence would follow that in England respecting mixed claims: [68]-[79]. Allsop P’s analysis of the categories of action which were retained by the bankrupt or vested in the trustee distinguished between:
a)claims which are squarely within the scope of s 60(4) as being claims for the recovery of damages for personal injuries, wrongs arising from death and defamation: [46] citing Beckham v Drake (1849) 2 HL Cas 579 (Beckham);
b)claims which bore a dual character as being for both personal wrongs and economic loss (mixed claims) and where the award of damages for the personal wrong was retained by the bankrupt and damages for economic loss vested in the trustee: [45]-[54] citing Wilson v United Counties Bank [1920] AC 102;
c)English decisions upon mixed claims where the proceeding included claims for past economic loss: [52] citing Ord v Upton [2000] Ch 352; see also at [72]. There, the Court of Appeal held that the trustee held the entire award of damages, so holding on the ground that the subject cause of action was one and indivisible;
d)Australian decisions upon mixed claims, some of which held, for example, that general damages for loss of business reputation consequential upon infringement of financial or property rights, were inseverable from the financial wrong complained of such that the whole of the damages vested in the trustee in bankruptcy: [72]-[77] citing Bryant v Commonwealth Bank of Australia (1997) 75 FCR 545; Mannigel v Hewlett Phelps [1991] NSWCA 186.
More recently, in Jakimowicz v Jacks [2016] VSCA 42 at [56], Warren CJ, Tate and Fergusson JJ held that:
A chose in action falls within this definition and will be divisible property vesting in the trustee in bankruptcy under s 58(1) unless it falls within one of the exemptions in s 116(2)
The Court of Appeal cited Moss v Eaglestone at [28] and Di Cioccio v Official Trustee in Bankruptcy [2015] FCAFC 30, [40] as authority.
Moss v Eaglestone emphasises the historical significance of the common law of bankruptcy and the legislative origins of modern bankruptcy law concerning, relevantly, the scope and operation of ss 58, 60 and 116 of the Bankruptcy Act. It also emphasises: (1) the “clear distinction made between property and person”: [47]-[49], [55], [64], [68]; (2) that the distinction is one of substance as reflected by ss 60(4) and 116(2)(g): [64]-[65]; (3) that damages for a personal wrong to the person or reputation of the bankrupt should not be applied to swell the bankrupt estate and advantage the creditors: [65]-[67]; (4) that the feature which distinguished those proceedings which were retained by a bankrupt and did not vest in the trustee was that the damages claimed were “without reference to his rights of property.” [76] citing Beckham and Cox, supra; see also Cummings, 148; McDonald Henry and Meek at [58.1.10].
Applying the principles confirmed by Moss v Eaglestone, on no view could it be said that a claim under ss 79 or 114 was in the nature of a claim for damages as a result of injury to the person or immediately referrable to pain felt by the bankrupt in respect of his or her mind, body or character. More emphatically, nor could it be said that a claim under ss 79 or 114 could be made without reference to rights of property. As Stanford holds, it is only by reference to existing rights of property that the court is authorised to consider whether it is just and equitable to make an order adjusting such existing property interests.[11]
[11]I do not examine whether a claim under s 79 is a mixed claim in the sense described above; however, it seems unlikely that a claim arising from non-financial contributions could be divisible from the claim for financial contributions to the acquisition of property.
While it was submitted that Page & Page had held that the cause of action for an adjustment of property interests under s 79 was personal and did not vest in the trustee in bankruptcy, Frederico J did not examine that question in particular detail. His Honour regarded the considerations in Coffey v Bennett as being applicable to a claim for settlement of property interests under s 79. The ratio decidendi of Page & Page was that because the property had vested in the trustee of the husband’s bankrupt estate, there could be no property upon which the wife could found her claim. While Frederico J allowed the bankrupt husband to pursue a claim under s 79, the claim was dismissed. Page & Page was decided before Cummings. As the s 79 claim was dismissed, no occasion arose to consider whether the fruits of any s 79 order would vest in the trustee of the husband’s bankrupt estate. Yet Frederico J’s reasoning at [80] above suggests that his Honour well recognised the importance to creditors of the husband’s bankrupt estate of a potential claim under s 79. The following considerations are also relevant to the present matter.
First, Coffey v Bennett was an application for testators family maintenance under the Administration and Probate Act, as distinct from an application for maintenance under the Family Law Act. The personal nature of maintenance claims stand in marked contrast to claims for an potential adjustment of property interests under s 79.
Secondly, the conclusion in Coffey v Bennett that the right of action was personal was grounded upon long standing authority that the nature of an entitlement to testator’s family maintenance meant that it was not capable of assignment to the trustee of the bankrupt estate: see at 266. The reasoning of Gummow and Whitlam in Fuller and Dawson and Toohey JJ in Cummings indicates that non-assignable property may nonetheless be property for the purposes of the Bankruptcy Act. This reasoning informs the nature of available relief under the Family Law Act particularly in light of amendments affected by the Amending Act.
Thirdly, Frederico J did not finding it necessary to refer to the further conclusion in Coffey v Bennett that part of the fruits of such a proceeding could become after-acquired property which would vest in the trustee of the bankrupt’s estate. In Coffey v Bennett, Sholl J stated that:
. . . it is only any excess in the bankrupt’s hands, over and above the amount necessary for his maintenance, that the trustee may claim – Re Ashby, [1892] 1 QB 872 at p. 877 – or that may perhaps be reached by an order of the Court of Bankruptcy under s 101 of the Bankruptcy Act
Sholl J’s view receives clear support from modern decisions: see McDonald Henry and Meek at [58.1.20], [58.1.35] and cases cited.
Fourthly, while neither Coffey v Bennett nor Page & Page appear to receive consideration in McDonald Henry & Meek, by contrast, the learned authors at [116.1.90] do consider Re Ashby; Ex parte Wrenford [1892] 1 QB 872 which was cited by Sholl J, regarding it as authority for the proposition that the trustee of a bankrupt estate may insist on payment of so much as has been paid to a bankrupt as being in excess of that which is necessary for his or her maintenance. Recent Australian decisions support that view also: see McDonald Henry & Meek at [58.1.20] – Family provision claims. These principles furtherh undermine a conclusion that the claim is personal to the bankrupt.
Fifthly, the separate holding in Page & Page that it remained open to a bankrupt to pursue a claim under s 79 was questioned in Trent & Rowley [2014] FamCA 447 by Cronin J who at [29], [31] was sceptical that a bankrupt could commence or prosecute such a claim without leave. The view so expressed in Trent & Rowley is with respect, correct. For completeness, Trent & Rowley did not address the operation of s 116(2)(q) or how an order under s 79 might require the transfer of the property of a bankrupt where such a result was just and equitable.
Sixthly, and contrastingly, the Full Court of the Family Court of Australia has held that a bankrupt may initiate and prosecute property settlement proceedings during the course of their bankruptcy “although any property acquired would vest in the trustee by virtue of s 58(1) of the Bankruptcy Act”: O’Neill, [88]. The Full Court’s reasoning implicitly recognises that the expected fruits of an order in favour of a bankrupt who had successfully prosecuted a claim for relief under s 79 would immediately vest in their trustee in bankruptcy as after-acquired property: see s 58(1)(b), 58(6) of the Bankruptcy Act. The Full Court’s observation at [90] respecting the unsatisfactory state of the laws relating to bankruptcy and property settlement proceedings had no doubt been influential in the changes effected by the Amending Act, including in particular the operation of para 116(2)(q) of the Bankruptcy Act.
Seventhly, s 79 is now in quite different terms to those which applied when Page & Page was decided.[12] While sub-s 79(1) then authorised the court to make an order for a settlement of property in substitution for any property interest, para 79(1)(d)(ii) now authorises the court to make an order requiring the trustee of a bankrupt estate to make such settlement by way of the transfer of property as the court determines.
[12]When enacted in 1975, Sub-section 79(1) provided: 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 thinks fit 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.
Insofar as it was suggested that Page & Page had held that a claim under s 79 was personal and that the fruits of any s 79 order would not vest in the trustee of a bankrupt estate, I respectfully disagree. Further, the amendments effected to s 79(1) by the Amending Act confer express power to make an order respecting vested bankruptcy property that was not available when Page & Page was decided.
It may also be noted that the Amending Act, which effected substantial amendments to both the Family Law Act and the Bankruptcy Act did not affect any amendments to s 60 and, in particular, sub-s 60(4). This serves to reinforce a conclusion that proceedings in respect of which a bankrupt retains locus standi are those claims as are prescribed by s 60(4). If a trustee in bankruptcy is vested with all other property of the bankrupt and this includes choses in action such as a claim under ss 79 or 114, only the trustee has standing to sue and enforce such claims.
Apart from the question whether a chose in action under s 79 vests in a trustee in bankruptcy and whether the expected fruits of any judgment in such a proceeding are property divisible amongst the creditors of the bankrupt’s estate, the position respecting proceedings brought before the commencement of the bankruptcy is ‘quite clear’: cf Fuller, 238-239 (Gummow and Whitlam JJ). Proceedings commenced by a person who later becomes bankrupt are stayed until their trustee makes an election in writing whether to prosecute or discontinue the proceeding: s 60(2). Absent such an election, s 60(3) is engaged and the defendant to the proceeding is then entitled to serve a notice which requires the trustee to make the requisite election. In default of such election, the proceeding is deemed abandoned. Otherwise, a bankrupt may only continue proceedings of the kind which are prescribed by s 60(4) or which are otherwise personal in the requisite sense.
Proceedings under ss 79 and 114 are not proceedings of a kind which s 60(4) permits a bankrupt to continue. Had the Parliament intended to reserve the right to continue such proceedings to a person who became bankrupt, it would have been a straightforward matter for the Amending Act to have so provided. It did not do so. It follows that by operation of s 60(2), it was for the trustees of Ms Hankin’s bankrupt estate to decide whether to prosecute or discontinue this proceeding. That is because the trustees of her estate were vested with the choses in action comprised in her existing claim under s 114 for the preservation of the settlement monies and with her potential claim under s 79 for an adjustment of property interests in that vested bankruptcy property. In my opinion, a claim under s 79 is not a personal right of action. There is no occasion to consider the quite different questions which might arise where a trustee decides not to institute or to discontinue a claim for such relief, including where the bankrupt spouse wished to pursue the claim.
Administration of property – s 82
Part VI of the Bankruptcy Act concerns the Administration of property. Division 1 of Part VI, Proof of debts, comprises ss 82-107 and regulates claims by creditors who may be eligible for the distribution of a dividend in the administration of the bankrupt estate.
By s 82, Debts provable in bankruptcy, a regime is provided for the identification of debts which may be admitted to proof in the administration of the bankrupt estate. The scheme so provided by the Bankruptcy Act is that the creditor cannot enforce any remedy against the person or property of a bankrupt, instead being left to receive a dividend out of the property divisible amongst creditors of the bankrupt: Cummings at 136-137, 139, 147. From the perspective of the bankrupt, divestiture of the property vested in their trustee by s 58 is the quid pro quo of such debt protection. As the learned authors of McDonald Henry and Meek state at [58.1.20]:
On bankruptcy all provable debts owing by the debtor are converted from rights of action against the debtor to a right to share in the distribution of the debtor’s estate vested in the trustee; . . .
And in Clyne v Deputy Commissioner of Taxation(No 3) (1984) 154 CLR 589 at 594-5, Gibbs CJ, Murphy, Brennan and Dawson JJ held that:
The effect of the bankruptcy however is that the debtor is no longer obliged to pay his creditor; indeed he is disabled from doing so. If he offered payment they could not safely accept it; their right is a right of proof against the estate.
It has been assumed that an amount owing pursuant to an order under s 79 of the Family Law Act is capable of proof in a bankruptcy: Dodds & MacCallum at p. 227 citing Bateman & Patterson (1981) FLC 91-057; Re Jensen; Ex parte Jensen (1982) FLC 91-282; see also Re McMaster;In the Marriage of Ejje (2002) 30 Fam LR 331, [13]; Melnik, [45]; McDonald Henry and Meek at [58.3.60].
This assumption reflects the fact that, where the property of a bankrupt spouse has vested in their trustee, recognition should be given to the spouse in whose favour the order has been made for the financial and non-financial contributions which they have made to that property.
The ability of the spouse to prove in a bankrupt’s estate for the amount specified by an order made under s 79 may be seen as complementary to the right conferred by para 116(2)(q) of the Bankruptcy Act to have property which is the subject of an order made under Part VIII not included in the property that is divisible amongst creditors of the estate. The circumstance that the parties have proposed a compromise of the issues in dispute obviates any need to address this topic further.
Property divisible amongst creditors – s 116
By Div 3 of Part VI, which comprises ss 115-128N, provision is made in relation to property that is available for payment of debts. As noted above, the property of the bankrupt includes property that is divisible amongst the creditors of the bankrupt estate.
Section 116 prescribes which property is and is not divisible amongst creditors of a bankrupt estate. Sub-section 116(1) delineates the property of a bankrupt which is divisible amongst his or her creditors. Sub-section 116(2) then identifies certain classes of property to which s 116(1) “does not extend”. Subject to the Bankruptcy Act, property which is divisible amongst the creditors of a bankrupt’s estate includes each class of property described in paras 116(a)-(g).
Relevantly, paras 116(1)(a)-(b) prescribe the following two categories of property that is to be divisible amongst creditors:
(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; and
(b)the capacity to exercise, and to take proceedings for exercising all such powers in, over or in respect of property as might have been exercised by the bankrupt for his or her own benefit at the commencement of the bankruptcy or at any time after the commencement of the bankruptcy and before his or her discharge;
The commencement of a bankruptcy is to be ascertained in accordance with s 115. The discharge and annulment of a bankruptcy is regulated by Part VII of the Bankruptcy Act.
Paragraphs 116(2)(a)-(s) then identify the classes of property to which s 116(1) does not extend; that is, property which is not divisible amongst the creditors of the bankrupt’s estate. As considered in Moss v Eaglestone, par 116(2)(g) provides that sub-s 116(1) does not extend to property comprised in any right of a bankrupt to recover damages or compensation for personal injury or in respect of the death of a spouse or family member and any damages or compensation recovered consequential on such injury or wrong: see at [154]-[157] above.
As relevant to the present case, one class of property that is not divisible amongst the creditors of a bankrupt’s estate is:
(q)any property that, under an order under Part VIII of the Family Law Act 1975 , the trustee is required to transfer to the spouse, or a former spouse, of the bankrupt;
The exclusion of such property depends upon the making of an order.
Paragraph 116(2)(q) was inserted in the Bankruptcy Act by Item 6 of the Amending Act. The effect of the amendment was to provide that property which the trustee was required to transfer to the spouse of the bankrupt under an order under Part VIII of the Family Law Act would not be divisible amongst creditors of the bankrupt.[13] The result of s 116(2)(q) will be to remove from the property divisible amongst creditors under s 116(1) such property as is specified in an order made pursuant to s 79 adjusting property interests, including such an order as between a spouse and the trustee of a bankrupt spouse’s estate.
[13] See Item 29 of the Amendment Bill.
The term spouse is not defined by the Family Law Act: cf ‘spouse party’ in s 4(1). The use of spouse in para 116(2)(q) may be contrasted with the use of the expression ‘de facto partner’ in para 116(2)(r), a cognate provision which also excludes property of a de facto partner from s 116(1). Spouse should be given its ordinary grammatical meaning. As a matter of construction, there is good reason, having regard to the text of para 116(2)(q) and to the location of that provision in Div 3, Part VI of the Bankruptcy Act to treat ‘spouse’ as not having a literal meaning. The constructional choice presented by the use of spouse in para 116(2)(q) should in my opinion be resolved by including the spouse and the trustee of his or her bankrupt estate. Such an interpretation would best achieve, and harmonise, the objects and purposes of the Bankruptcy Act and Family Law Act respectively: s 15AA, Acts Interpretation Act 1901 (Cth); Alcan (NT) Alumina Pty Ltd v Commissioners of Territory Revenue (NT) (2009) 239 CLR 27, [47]; Project Blue Sky v Australian Broadcasting Authority (1998) 194 CLR 355, [69]. I have referred above to the legislative history and in particular, to the predecessor provisions defining matrimonial cause and to s 79 and the amendments made by the Amending Act to each of the Bankruptcy Act and the Family Law Act. Consideration of those matters “serves to illuminate the meaning most apt to be attributed” to para 116(2)(q): cf Western Australian Planning Commission v Southregal Pty Ltd (2017) 259 CLR 106, [69] (Gageler and Nettle JJ). Such a construction would promote coherence in the applicable laws as amended by the Amending Act.
The observations made by Frederico J in Page & Page are as apt today as they were in 1982. To adapt his Honour’s reasoning, it would be quite wrong for either bankrupt estate to be placed in a worse position because of the bankruptcies of Mr or Ms Hankin. Conversely, neither bankrupt estate should be placed in a better position merely because the expected fruits of this application may be applied to effect a discharge of the just debts of the other bankrupt estate. If the trustees of the bankrupt estates of two married parties each have a priority claim respecting whether there should be an adjustment of the interests in property which has vested in them, the issues should be resolved within the scope of s 79 and whether it is just and equitable for any adjustment to take place. Protection to the spousal respective claims is afforded by par 116(2)(q). By this means, the Bankruptcy Act facilitates that s 116(1) will not extend to property that is the subject of an order made under s 79. When an order is made under s 79 for a just and equitable adjustment of property interests, such property will not be divisible amongst the property of the creditors of the other bankrupt estate. This result secures that the property of a bankrupt, including a chose in action and the expected fruits of any claim, remains vested in the trustee in bankruptcy.
Further, in my view the making of orders adjusting property interests in the settlement monies between the two estates may be seen as for the benefit of their respective bankrupt estates: see para 79(1)(d).
The position respecting claims for testator’s family maintenance is readily distinguishable: see, e.g., Menzies v Marriott [2009] VSC 345, [47] (Hollingworth J). In such cases, the rationale for the making of an order is that the claimant has a moral claim upon the deceased estate. The claim is regarded as being personal in the sense discussed in Coffey v Bennett and does not vest in the trustee in bankruptcy: McDonald Henry and Meek, [58.1.20] at p. 8-4058. Contrastingly, a claim under s 79 is not personal and vests in the trustee in bankruptcy. The foundation of claims under ss 79 and 114 is that the bankrupt’s financial and non-financial contributions to the property in question means that it is just and equitable for an adjustment of property interests to be made. The expected fruits of an order made under s 79 will vest in the trustee. It is consistent with the scheme of bankruptcy that the benefit of such orders should go to the benefit of the creditors of the bankrupt estate.
Seen from this perspective, where it is just and equitable to make an order for an adjustment of property interests, it will promote the objects and purposes of each Act that the share in the settlement monies arising from the sale of the property should be allocated to each of their respective estates and be available for distribution amongst their respective creditors. It is not to the point that in the present case the Australian Taxation Office may be the substantial creditor in each estate. The point of principle may be of importance to the remaining creditors. Further, in some cases, the bankrupt spouse might have a contingent expectation of receiving a surplus after creditors are paid in full.
The effect of s 116(2)(q) read with s 79(1)(b) secure the result that the interests of unsecured creditors of a bankrupt estate will not automatically trump the interests of a party to a marriage respecting the financial and non-financial contributions made toward the property of the bankrupt: cf Trustee of the property of Lemnos (a Bankrupt) & Lemnos (2009) FLC 93-394, [99] (Coleman, Thackray and Ryan JJ); B Pty Ltd v Sykes [2014] FamCA 451, [106] (Aldridge J). Parity of reasoning supports the conclusion that the interests of the bankrupt estate of a party who is made bankrupt first in time should not automatically trump the interest of the other party who is made bankrupt at a later time.
Approval of compromise
It is axiomatic that the courts will welcome and encourage compromise of the matters in dispute in a proceeding: Foskett on Compromise, 8th Ed, [10.02]. By s 81 of the Family Law Act a court is obliged to make orders as will finally determine the financial relationships between the parties and avoid a multiplicity of proceedings against them. Given the amendments made to the definition of matrimonial cause the obligation to do so would extend to the final determination of the financial relationships between the parties and any trustee of their bankrupt estate.
In the present case, the trustees of the respective bankrupt estates contend that the settlement monies constitute property that has vested in the trustee of the bankrupt estate of Mr Hankin by operation of s 58 or is property in which Ms Hankin has a claim arising under s 79. The deed provides a modest recompense to Ms Hankin in exchange for her agreement full and final satisfaction of any claim which Ms Hankin may have pursuant to s 116(2) of the Bankruptcy Act. I have evaluated those competing claims and found that Ms Hankin’s bankrupt estate had a valid claim for an adjustment of property interests pursuant to s 79.
The difficulty presented by the present application is that it would have been inappropriate for the court to lend its approval to the compromise if I had concluded that the entirety of the settlement monies were vested in the trustee of Mr Hankin’s bankrupt estate and that Ms Hankin’s claims under s 79 and 114 were not vested in her trustees. It would have been wholly inappropriate to make such orders had I concluded that the initial objection to the application based on want of jurisdiction or power was correct: cf Foskett on Compromise, [10-09]. For the reasons above, there is no want of jurisdiction or power in this court to hear and determine claims of the kind made or sought to be made in this proceeding. It is no objection to the application for approval of the compromise that the application to amend the initiating application so as to add an s 79 claim has not yet been determined. It was entirely within the parties’ ability to negotiate a resolution of the matter in the terms which they achieved. It was also entirely consistent with the trustees’ duties that they did so and thereby put an end to the delay in the administration of the estates.
Conclusion
I am satisfied that the court is conferred with jurisdiction and power to adjudicate claims made under ss 79 and 114 and that in this case such claims are vested in the trustees of Ms Hankin’s bankrupt estate. I am further satisfied that it is appropriate to make the orders sought. Subject to s 79(2), such orders may be made by consent: para 80(1)(j).
While questions may arise as to whether declaratory orders can be made by consent it is appropriate that the orders which the parties were agreed in being made and the court’s approval of their compromise is conveniently recorded in a declaration to that effect: cf Melnik, [53]; McDonald, Henry and Meek at [8-4067].
At the close of business on the day immediately preceding the delivery of judgment, my attention was drawn by one of the parties to a recent decision respecting scope and operation of the Bankruptcy Act in relation to pending property settlement proceedings. On orthodox principles, the Court is entitled to ignore the submission of such matter: cf, eg, Carr v Finance Corporation of Australia Ltd [No 1] (1981) 147 CLR 246 at 258 (Mason J); Eastman v Director of Public Prosecutions (ACT) (2003) 214 CLR 318, [29]-[30] (McHugh J); Re Chief Commissioner of Police (Vic) (2005) 214 ALR 422, [20]-[22], (Gleeson CJ, McHugh, Gummow, Hayden and Heydon JJ), [120] (Kirby J); Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Limited (2010) 241 CLR 357, [111] (Heydon, Crennan and Bell JJ).
The problem presented by the unsolicited submission of matter was articulated in Eastman, [29]-[30] where McHugh J stated:
Once the hearing has concluded, the workload of the Court makes it impossible for the Court to give leave to file further submissions – with all the attendant delay in the Court's business by a fresh round of submissions. Efficiency requires that the despatch of the Court's business not be delayed by further submissions reflecting the afterthoughts of a party . . .
Without intending any disrespect to the supplier of the authority or the learned judge, I decline to consider the authority.
For the reasons above, procedural and substantive orders have been made giving effect to the application for approval of the compromise.
I certify that the preceding one hundred and ninety-six (196) paragraphs are a true copy of the reasons for judgment of Judge A Kelly
Date: 2 August 2018
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