Hayward v Scott as Trustee of the Debtor Estate of Hayward
[2013] FCA 421
•9 May 2013
FEDERAL COURT OF AUSTRALIA
Hayward v Scott as Trustee of the Debtor Estate of Hayward [2013] FCA 421
Citation: Hayward v Scott as Trustee of the Debtor Estate of Hayward [2013] FCA 421 Parties: JAMES HAYWARD v ANDREW JOHN SCOTT AND SCOTT DARREN PASCOE AS TRUSTEE OF THE DEBTOR ESTATE OF JAMES HAYWARD and CAMERON MACMILLAN THORNTON File number: VID 957 of 2011 Judge: GRAY J Date of judgment: 9 May 2013 Catchwords: BANKRUPTCY – personal insolvency agreement – debt – whether debtor released from debt – consent judgment of Supreme Court of South Australia – judgment for sum of money owed pursuant to judgment of foreign court and for costs – whether consent to judgment a maintenance agreement – whether registered in, or approved by, court – whether order of court a maintenance order – whether distinction between debt and liability
BANKRUPTCY – personal insolvency agreement – whether power to order release from liability to pay arrears of maintenance – whether such an order should be made
Legislation: Bankruptcy Act 1966 (Cth) ss 5(1), 82, 82(1), 82(1A), 153, 153(1), 153(2)(c), 153(2A), 188, Pt X ss 230, 230(1), 230(3), 231
Child Support (Assessment) Act 1989 (Cth)
Family Law Act 1975 (Cth) ss 4(1) Pt VIIIAB 74(1), 75, 75(2)(g), 86, 86(3), 87, 90B, 90C, 90D
Foreign Judgments Act 1971 (SA)
Foreign Judgments Act 1991 (Cth)
Maintenance Act 1964 (NSW)Cases cited: Re Morris, Morris v Wilson (1974) 3 ALR 47 considered Date of hearing: 21 March 2012, 5 April 2012, 20 February 2013 Place: Melbourne Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 58 Counsel for the applicant: Mr M Lhuede Solicitor for the applicant: Piper Alderman Counsel for the first respondent: The first respondent submitted to any order the Court might make Solicitor for the first respondent: Maddocks Counsel for the second respondent Mr D Colovic (21 March 2012 only) Solicitor for the second respondent: Kelly & Co
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
GENERAL DIVISION
VID 957 of 2011
BETWEEN: JAMES HAYWARD
ApplicantAND: ANDREW JOHN SCOTT AND SCOTT DARREN PASCOE AS TRUSTEE OF THE DEBTOR ESTATE OF JAMES HAYWARD
First RespondentCAMERON MACMILLAN THORNTON
Second Respondent
JUDGE:
GRAY J
DATE OF ORDER:
9 MAY 2013
WHERE MADE:
MELBOURNE
THE COURT ORDERS THAT:
1.The application be dismissed.
2.There be no order as to the costs of the proceeding.
Note:Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
GENERAL DIVISION
VID 957 of 2011
BETWEEN: JAMES HAYWARD
ApplicantAND: ANDREW JOHN SCOTT AND SCOTT DARREN PASCOE AS TRUSTEE OF THE DEBTOR ESTATE OF JAMES HAYWARD
First RespondentCAMERON MACMILLAN THORNTON
Second Respondent
JUDGE:
GRAY J
DATE:
9 MAY 2013
PLACE:
MELBOURNE
REASONS FOR JUDGMENT
The nature and history of the proceeding
The principal question in this proceeding is whether, by entering into a personal insolvency agreement pursuant to Part X of the Bankruptcy Act 1966 (Cth) (“the Bankruptcy Act”), a debtor can be released from a particular debt relating to the maintenance of a child born during the debtor’s former marriage. The debt concerned is the subject of a consent judgment of the Supreme Court of South Australia, in a proceeding in which the debtor’s former wife sought to enforce a judgment of a foreign court for arrears of maintenance for the child. If this question is answered in the negative, a question arises as to whether the Court can order the release of the debtor from arrears of maintenance and, if the Court has that power, whether it should be exercised in favour of the debtor.
The applicant in the proceeding is Mr Hayward. The original first respondent, Warren Brian White, was the original trustee of the personal insolvency agreement entered into by Mr Hayward. The application was filed on 2 September 2011. The orders sought are:
1.A declaration that the claim of Cameron Thornton against the Applicant arising under judgement [sic] debt [sic] obtained in the Supreme Court of South Australia Proceeding No 622 of 2010 is a debt which will be released upon fulfilment of the terms of the Applicant’s Personal Insolvency Agreement executed on 3 August 2011.
2.In the alternative to the above, if such claim is not released by virtue of being found to be on account of a liability to pay arrears under a maintenance agreement or maintenance order then an order pursuant to section 230 and sub-section 153(2A) of the Bankruptcy Act 1966 that such claim be released in full upon the fulfilment of the terms of the Applicant’s Personal Insolvency Agreement.
Mr White filed a submitting appearance on 13 October 2011. At the first directions hearing on 25 October 2011, I raised with counsel for Mr Hayward the question whether Mr Hayward’s former wife, Ms Cameron Macmillan Thornton, should be a respondent to the proceeding, or should receive notice of the proceeding, as it was obvious that to make the orders sought would have a significant effect on her interests. The directions hearing was adjourned to 9 November 2011. On that day, I gave leave to Mr Hayward to serve the originating application on Ms Thornton in a foreign country, namely the United States of America. I also gave directions as to how service was to be effected. Those directions involved sending sealed copies of the originating application, the affidavit of Mr Hayward accompanying it (with copies of the exhibits to that affidavit) and the order of 9 November 2011 by prepaid registered post to Ms Thornton at the address in Connecticut which was said to be her address, and by prepaid ordinary post to Mr David Colovic at Kelly & Co, Solicitors, in Adelaide. Mr Colovic had acted for Ms Thornton in circumstances that are referred to later in these reasons for judgment. I adjourned the directions hearing to 31 January 2012.
On 31 January 2012, the only appearance was by counsel for Mr Hayward. Affidavits as to service on Ms Thornton were filed in Court. I ordered that the proceeding be fixed for hearing. The proceeding was listed for hearing on 21 March 2012. On that day, counsel appeared for Mr Hayward and Mr Colovic appeared for Ms Thornton. Mr Colovic sought an adjournment to obtain instructions from Ms Thornton and to file any affidavit material. I made the following orders:
1. Cameron Macmillan Thornton be added as the second respondent to the proceeding and the title to the proceeding be amended accordingly.
2. On or before 23 March 2012, the second respondent file and serve a notice of address for service.
3. On or before 29 March 2012, the second respondent file and serve any affidavit on which she may seek to rely.
4. The hearing of the application be adjourned to 5 April 2012.
5. The second respondent pay the applicant’s costs thrown away by reason of the adjournment.
On 5 April 2012, counsel for Mr Hayward appeared and, with the consent of Ms Thornton, sought an adjournment of the hearing of the proceeding to enable the parties to seek to resolve the issues between them. Thereafter, there were negotiations between counsel for Mr Hayward and Mr Colovic. No agreement was reached. Eventually, on 22 October 2012, Mr Colovic advised that he had no further instructions, he was no longer retained by Ms Thornton and further correspondence should be directed to Ms Thornton herself. At no time did Ms Thornton comply with the order in para 2 of the orders made on 21 March 2012, by filing and serving a notice of address for service.
At the request of counsel for Mr Hayward, I listed the matter for directions again on 8 November 2012. On that day, I ordered that Andrew John Scott and Scott Darren Pascoe be substituted for Mr White as the first respondent to the proceeding and the title to the proceeding be amended accordingly, and directed that the hearing of the proceeding be resumed on a date to be fixed. Mr Scott and Mr Pascoe have replaced Mr White as trustee of Mr Hayward’s personal insolvency agreement. They filed a notice of address for service, submitting to any order the Court might make.
The hearing was completed on 20 February 2013.
The facts
The applicant, Mr Hayward and Ms Thornton, were married on 6 July 1985. On 26 August 1989, Ms Thornton gave birth to a son. In or about October 1989, the couple separated. Their marriage was dissolved by order of the Superior Court of Stamford in the State of Connecticut in the United States of America (“the Connecticut Court”) on 1 March 1991. On the same day, Mr Hayward and Ms Thornton entered into a written agreement, which contained (among other things) provisions for Mr Hayward to make payments for the support, and for the education, of the child.
There were subsequent proceedings between the parties, in which Ms Thornton alleged breaches of terms of the separation agreement and Mr Hayward sought to modify his obligations to support the child. These resulted in a further agreement, dated 1 August 2002, which varied the terms of the original agreement.
On 26 March 2008, Ms Thornton commenced a further proceeding in the Connecticut Court, claiming arrears of payments required by the varied agreement in respect of support and education of the child. On 4 August 2009, the Connecticut Court gave judgment in that proceeding, ordering Mr Hayward to pay a total of US$276,382.49, partly for child support, partly for education and partly for legal fees and disbursements.
On 12 May 2010, Ms Thornton commenced a proceeding in the Supreme Court of South Australia, claiming the sum due pursuant to the judgment of the Connecticut Court. On 16 July 2010, judgment by consent was entered in that proceeding for the sum of $335,113.02 inclusive of costs.
On 5 November 2010, Mr Hayward was served with a bankruptcy notice based on the judgment of the Supreme Court of South Australia. Subsequently, Ms Thornton filed a creditor’s petition in the Federal Magistrates Court of Australia on 25 May 2011. The creditor’s petition had not been served on Mr Hayward.
On 28 June 2011, Mr Hayward executed an authority authorising Mr White, a registered trustee in bankruptcy, to convene a meeting of his creditors, pursuant to s 188 of the Bankruptcy Act, for the purpose of considering whether Mr Hayward should enter into a personal insolvency agreement pursuant to Pt X of the Bankruptcy Act. Mr Hayward provided a draft of such an agreement and a statement of affairs. Among the unsecured creditors listed in the statement of affairs was Ms Thornton in respect of a debt of $335,113.00.
The meeting of creditors was held on 3 August 2011. On that day, Mr White received an email attaching a proxy form completed by Mr Colovic, purporting to appoint himself as proxy for Ms Thornton. After taking legal advice, Mr White ruled that he was unable to admit the claim of Ms Thornton for the purposes of voting, as the proxy form was not signed by her and Mr Colovic did not hold a power of attorney. It is clear that Mr Colovic’s instructions were to oppose the proposal for a personal insolvency agreement. The meeting passed a special resolution accepting the proposal that Mr Hayward enter into a personal insolvency agreement. The meeting also resolved that Mr White be appointed as trustee of the personal insolvency agreement. On the same day, Mr Hayward and Mr White executed that agreement.
Clause 9 of the personal insolvency agreement provides as follows:
9. Conditions precedent to Deed coming into operation
9.1Within 30 days of execution of this Deed the Debtor will make application in the Federal Court of Australia for a declaration and/or order substantially to the following effect:
(a)That the Claim of Cameron Thornton against the Debtor arising under judgement [sic] debt [sic] obtained in Supreme Court of South Australia Proceeding No. 622 of 2010 is a debt which will be released upon fulfilment of the terms of this Deed, alternatively, if such debt is not released by virtue of being found to be on account of a liability to pay arrears under a maintenance agreement or maintenance order then an order pursuant to section 230 and sub-section 153(2A) of the Act that such Claim be released in full upon the fulfilment of the terms of this Deed.
9.2It is a condition precedent to and the obligations of the Debtor under this Deed only become operative and binding upon him upon the Court making one or other of the alternative orders referred to in clause 9.1(a).
The expression “the Act” in cl 9.1(a) of the agreement is intended to be a reference to the Bankruptcy Act.
The legislation
Part X of the Bankruptcy Act includes s 230, which provides (so far as relevant to this proceeding):
(1)If a personal insolvency agreement provides for a debtor to be released from a provable debt, the agreement operates to release the debtor from that provable debt unless the agreement is set aside or terminated under this Part.
(2)Subsection (1) has effect subject to subsections (3), (4) and (5).
Exceptions
(3)Subsection (1) does not operate to release the debtor from a debt that would not be released by his or her discharge from bankruptcy if he or she had become a bankrupt on the day on which he or she executed the personal insolvency agreement.
Section 82 of the Bankruptcy Act provides, so far as relevant to this proceeding:
(1)Subject to this Division, all debts and liabilities, present or future, certain or contingent, to which a bankrupt was subject at the date of the bankruptcy, or to which he or she may become subject before his or her discharge by reason of an obligation incurred before the date of the bankruptcy, are provable in his or her bankruptcy.
(1A)Without limiting subsection (1), debts referred to in that subsection include a debt consisting of all or part of a sum that became payable by the bankrupt under a maintenance agreement or maintenance order before the date of the bankruptcy.
Section 153 of the Bankruptcy Act provides, so far as relevant to this proceeding:
(1)Subject to this section, where a bankrupt is discharged from a bankruptcy, the discharge operates to release him or her from all debts (including secured debts) provable in the bankruptcy, whether or not, in the case of a secured debt, the secured creditor has surrendered his or her security for the benefit of creditors generally.
(2) The discharge of a bankrupt from a bankruptcy does not:
…
(c)subject to any order of the Court made under subsection (2A), release the bankrupt from any liability under a maintenance agreement or maintenance order;
(2A)The Court may order that the discharge of a bankrupt from bankruptcy shall operate to release the bankrupt, to such extent and subject to such conditions as the Court thinks fit, from liability to pay arrears due under a maintenance agreement or maintenance order.
Section 231 of the Bankruptcy Act makes applicable to personal insolvency agreements a number of specified provisions of the Bankruptcy Act. Section 153 is not one of those provisions.
Among the definitions in s 5(1) of the Bankruptcy Act are the following two definitions:
maintenance agreement means:
(a)a maintenance agreement (within the meaning of the Family Law Act 1975) that has been registered in, or approved by, a court in Australia or an external Territory; or
(b)any other agreement with respect to the maintenance of a person that has been registered in, or approved by, a court in Australia or an external Territory;
but does not include a financial agreement, or Part VIIIAB financial agreement, within the meaning of the Family Law Act 1975.
maintenance order means:
(a)an order relating to the maintenance of a person, including an order relating to the payment of arrears of maintenance, that is made or registered under a law of the Commonwealth or of a State or Territory of the Commonwealth; or
(b) an assessment made under the Child Support (Assessment) Act 1989.
Because of the terms of para (a) of the definition of “maintenance agreement” in s 5(1) of the Bankruptcy Act, it is necessary to look at some provisions of the Family Law Act 1975 (Cth) (“the Family Law Act”). Section 4(1) of the Family Law Act contains the following relevant definitions:
financial matters means:
(a) in relation to the parties to a marriage—matters with respect to:
…
(iii) the maintenance of children of the marriage;
…
maintenance agreement means an agreement in writing made, whether before or after the commencement of this Act and whether within or outside Australia, between the parties to a marriage, being an agreement that makes provision with respect to financial matters, whether or not there are other parties to the agreement and whether or not it also makes provision with respect to other matters, and includes such an agreement that varies an earlier maintenance agreement.
For present purposes, it is possible to disregard the references to a financial agreement, or a Pt VIIIAB financial agreement in the definition of “maintenance agreement” in s 5(1) of the Bankruptcy Act. As defined in s 4(1) of the Family Law Act, a “financial agreement” is a financial agreement under s 90B, 90C or 90D of the Family Law Act. Those provisions relate respectively to agreements before marriage, agreements during marriage and agreements after divorce. In each case, the agreement must be expressed to be made under the relevant section, if it is to be a “financial agreement”. Part VIIIAB of the Family Law Act makes provision for agreements between parties to de facto relationships. Its provisions are confined to such agreements between parties ordinarily resident in States or Territories of Australia and to agreements made in accordance with the laws of States or Territories of Australia.
Identifying the debt
It is necessary to determine whether the debt owed by Mr Hayward to Ms Thornton is a debt that would be released by Mr Hayward’s discharge from bankruptcy if he had become a bankrupt on the date of execution of his personal insolvency agreement. This is because s 230(3) has the effect of preventing a personal insolvency agreement from operating to release a debtor from a debt that would not be released upon discharge from bankruptcy. The combined effect of s 82(1) and (1A) of the Bankruptcy Act is to make a debt consisting of all or part of a sum that became payable under a maintenance agreement or maintenance order a debt provable in bankruptcy. Section 153(1) of the Bankruptcy Act would operate to release a bankrupt from such a debt upon discharge from bankruptcy, unless the debt is a “liability under a maintenance agreement or maintenance order” within the meaning of s 153(2)(c). In order to determine whether these provisions are applicable, it is necessary to identify the debt to which they are to be applied in the present case.
The judgment in favour of Ms Thornton in the Connecticut Court was undoubtedly a judgment for arrears of maintenance that Mr Hayward was liable to pay in respect of the child of his marriage to Ms Thornton, pursuant to the terms of two written agreements. According to well-established principles, the obligation to pay merged in the judgment. The judgment created a new obligation to pay the amount of the judgment debt.
Ms Thornton apparently chose not to register the judgment from Connecticut in the Supreme Court of South Australia, pursuant to the Foreign Judgments Act 1971 (SA) or the Foreign Judgments Act 1991 (Cth). There is no mention of either of these Acts in the statement of claim filed in the Supreme Court of South Australia. Paragraph 8 of the statement of claim does indicate that, “The Plaintiff seeks orders that the Connecticut Judgment be entered in this Court against the Defendant.” The balance of the statement of claim tends to suggest, however, that the cause of action on which Ms Thornton relied was debt. She chose to sue on the basis that a debt was owed to her as a result of the judgment of the Connecticut Court. She was entitled to take this course. The form of the judgment entered, to which reference is made in [27] below, suggests that, even if registration of the judgment of the Connecticut Court in the Supreme Court of South Australia was sought, the judgment of the Supreme Court of South Australia was simply for a sum of money. There was no order for registration of the judgment of the Connecticut Court.
Again, the effect of the entry of judgment in the Supreme Court of South Australia was to create a fresh obligation, being a judgment debt in the sum specified, owed by Mr Hayward to Ms Thornton.
The record of the judgment in the Supreme Court of South Australia that is in evidence in this proceeding shows the judgment to have been by consent. It shows that the judge who gave judgment was Justice Sulan, there was a summons dated 12 May 2010, the date of hearing was 16 July 2010, the date of judgment was 16 July 2010, Mr Colovic appeared for Ms Thornton and a solicitor appeared for Mr Hayward. The order of the court is that, “The Plaintiff recover against the Defendant the sum of $335,113.02 inclusive of costs.”
As to what lies behind the consent to judgment, there is no evidence. Mr Hayward’s affidavit says only that, “On 16 July 2010 I consented to a judgement [sic] debt [sic] in the Supreme Court of South Australia”. There is nothing to indicate whether the consent was given in writing, whether by means of a document containing terms of settlement, an exchange of correspondence between solicitors, or otherwise. All that is known is that, in order to give rise to a judgment by consent, there must have been some kind of agreement between Mr Hayward and Ms Thornton for that result to be effected.
For the purpose of determining whether Mr Hayward’s debt to Ms Thornton would be discharged by his discharge from bankruptcy, if he had been made bankrupt on the date of execution of his personal insolvency agreement, it is necessary to focus on the debt created by the judgment of the Supreme Court of South Australia given on 16 July 2010, and on the agreement reflected by the fact that that judgment was given by consent of the parties.
Maintenance agreement or maintenance order
For the purposes of the application of s 153(2)(c) of the Bankruptcy Act, it is necessary to determine whether the debt constituted by the consent judgment in the Supreme Court of South Australia created a “liability under a maintenance agreement or maintenance order”.
Paragraph (a) of the definition of “maintenance agreement” in s 5(1) of the Bankruptcy Act has two elements. The first is that there must be a maintenance agreement within the meaning of the Family Law Act. The second is that that agreement must have been “registered in, or approved by, a court in Australia”.
The reference to a maintenance agreement within the meaning of the Family Law Act necessarily directs attention to the definition of “maintenance agreement” in s 4(1) of the Family Law Act. This definition has a number of elements. The first is that the agreement must be in writing. As Mr Hayward has not provided evidence in this case as to whether the consent to judgment was or was not in writing, I must assume against him that the consent did amount to an agreement in writing. Mr Hayward carries the onus of proving the facts necessary to establish that the debt he says is released is not a liability under a maintenance agreement. One element of that proof involves showing that the consent on which the judgment in the Supreme Court of South Australia was based was not in writing, and therefore was not a “maintenance agreement” within the definition of that term in s 4(1) of the Family Law Act.
Because of the provision that the agreement may be made within or outside Australia, it is unnecessary to know whether, at the time the agreement to consent to judgment was made, Ms Thornton was providing instructions, or forwarding any document, from Connecticut, and to determine the place of making of the agreement.
The next element is that the agreement must be “between the parties to a marriage”. There is no definition of the phrase “parties to a marriage”, or of the elements of that phrase, in the Family Law Act. It is nevertheless clear that, in the context of the provisions of the Family Law Act, parties to a former marriage are included. Section 74(1) empowers certain courts to make orders “with respect to the maintenance of a party to a marriage”. Section 75 provides for matters to be taken into account in exercising that jurisdiction. Those matters include, in s 75(2)(g), reference to parties who have separated or divorced. Thus, the context in which the definition of “maintenance agreement” in the Family Law Act appears, as well as the specific inclusion in that definition of an agreement that varies an earlier maintenance agreement, suggests that, for the purposes of the definition, parties to a marriage do not cease to be parties to a marriage by the dissolution of that marriage.
The final relevant element of the definition of “maintenance agreement” in s 4(1) of the Family Law Act is that it must make provision with respect to financial matters. The inclusion in the definition of “financial matters” in s 4(1) of the Family Law Act of the reference to maintenance of children of the marriage is relevant to this issue. The subject of the consent judgment of the Supreme Court of South Australia was arrears of maintenance for the son born to Ms Thornton during her marriage to Mr Hayward, and therefore presumed to be a child of the marriage.
For these reasons, it is necessary for me to find that the consent on which the judgment of the Supreme Court of South Australia was based satisfies the elements of the definition in s 4(1) of the Family Law Act of “maintenance agreement”. It therefore satisfies the first limb of para (a) of the definition of “maintenance agreement” in s 5(1) of the Bankruptcy Act.
It is therefore necessary to determine whether that agreement was “registered in, or approved by” the Supreme Court of South Australia. There appears to be no authority on the meaning of these words in the context of the Bankruptcy Act. The Macquarie Dictionary gives several meanings of the word “registered”. For present purposes, it is necessary to have regard to two of those definitions. One is “recorded, as in a register or book; enrolled.” and the other “officially or legally certified by a government officer or board: a registered patent.” Thus, for an agreement to be registered might mean nothing more than that it is documented in the place specified, or it might mean that it has been examined by an official who has made a decision that the agreement fulfils the criteria that must be satisfied before such documentation can be effected. According to the Macquarie Dictionary, “approve” has the relevant definition of “to confirm or sanction officially; ratify.” As is the case with “registered”, it is possible to take the view that “approved” can mean either validated as a formal matter (as in the expression “rubber-stamped”) or found to meet some standard that would justify the expression of approval.
For two reasons, it seems unlikely that, in using the phrase “registered in, or approved by”, Parliament was intending that anyone applying the definition in the Bankruptcy Act would have to determine whether a court had carried out some process of determining whether a maintenance agreement was suitable. The first reason is found in the provisions of the Family Law Act. Section 86 makes provision for the registration of a maintenance agreement, other than an agreement to which s 87 applies, in any court having jurisdiction under the Family Law Act. Section 86(3) makes clear that registration is automatic upon compliance with the rules of the court in which it is sought. Only if the court finds subsequently that there was fraud or undue influence can the agreement be set aside. Section 87 of the Family Law Act applies only to a maintenance agreement containing a provision to the effect that the agreement would operate, in relation to the financial matters dealt with in that agreement, in substitution for any rights of the parties to the agreement. Such an agreement requires approval by the court concerned, before it is enforceable. Both of these provisions are now affected by subsequent legislative amendments, so that the regime is now different. For the purposes of construing the definition of “maintenance agreement” in s 5(1) of the Bankruptcy Act, however the fact that ss 86 and 87 of the Family Law Act created the regimes they did is significant in any attempt to construe the relevant provisions of the Bankruptcy Act in a way that makes those provisions consonant with the Family Law Act. To ascribe to Parliament, when it used the phrase “registered in, or approved by” in the definition of “maintenance agreement” in s 5(1) of the Bankruptcy Act an intention to include only an agreement covered by s 87 of the Family Law Act, and to exclude an agreement covered only by s 86 of the Family Law Act, would be to attribute an intention to produce absurdity. The definition should be construed broadly, rather than narrowly and technically.
The second reason for taking the view that “registered in, or approved by” is not intended to restrict the class of agreements that are within para (a) of the definition of “maintenance agreement” in s 5(1) of the Bankruptcy Act is a practical one. It is unlikely that Parliament intended that a trustee in bankruptcy, or a court exercising jurisdiction under the Bankruptcy Act, should be unable to act on a certificate of a judgment of a court, without the need to inquire whether that court has actually engaged in a process of examining the agreement the subject of such a judgment, for the purpose of ascertaining whether it complies with some criteria.
For these reasons, I conclude that an agreement has been “registered in, or approved by” a court, for the purposes of para (a) of the definition of “maintenance agreement” in s 5(1) of the Bankruptcy Act, if it is the subject of a judgment of that court, without it being necessary to inquire into any criteria on which such registration or approval may have been based. If it were necessary to inquire into the processes that led to the consent judgment of the Supreme Court of South Australia, the onus is on Mr Hayward to satisfy this Court that the Supreme Court of South Australia did not register or approve the agreement to consent to judgment by reference to any relevant criteria. The evidence is silent on that issue.
It follows that Mr Hayward has failed to establish that the consent he and Ms Thornton gave to judgment in the Supreme Court of South Australia was not a maintenance agreement, within the meaning of para (a) of the definition of “maintenance agreement” in s 5(1) of the Bankruptcy Act. It has not been shown that the consent was not in writing. The consent was an agreement between the parties to a marriage. It was an agreement that made provision with respect to financial matters. It therefore fell within the definition of “maintenance agreement” in s 4(1) of the Family Law Act. In addition, the judgment of the Supreme Court of South Australia given on such consent means that the consent was “registered in, or approved by” that court.
The provisions of para (b) of the definition of “maintenance agreement” in s 5(1) of the Bankruptcy Act (which stand alone as an alternative to the provisions in para (a) of that definition) are easier to satisfy. If, for any reason, I am wrong in concluding that the agreement between Mr Hayward and Ms Thornton that produced the consent to judgment in the Supreme Court of South Australia fell within the definition in para (a), then the consent would amount to “any other agreement”, for the purposes of para (b). The consent also was clearly an agreement “with respect to the maintenance of a person”, the person being the son born to Ms Thornton during the marriage between herself and Mr Hayward. For the reasons that I have already set out in [37]-[40] above, the agreement has been “registered in, or approved by,” the Supreme Court of South Australia, by means of the consent judgment. If one or more of the elements of para (a) of the definition have not been met, then the elements of para (b) of that definition have been met very clearly. For reasons that are given in [22] above, the proviso is inapplicable. The agreement between Mr Hayward and Ms Thornton to consent to judgment in the Supreme Court of South Australia must therefore be regarded as a “maintenance agreement”, for the purposes of the definition of that term in s 5(1) of the Bankruptcy Act.
For completeness, I should express my view that the judgment of the Supreme Court of South Australia was not a “maintenance order” for the purposes of the definition of that term in s 5(1) of the Bankruptcy Act. Although it could be described as an order relating to the maintenance of a person (an order relating to the payment of arrears of maintenance being included specifically), it could not be said to have been made or registered under a law of the Commonwealth or of a State or Territory of the Commonwealth. The cause of action relied on, namely debt, is a cause of action at common law, not a cause of action arising under statute and therefore not a cause of action under a law of the Commonwealth or of the State of South Australia. Nor is the consent judgment of the Supreme Court of South Australia an assessment made under the Child Support (Assessment) Act 1989 (Cth).
Liability
Section 153(1) of the Bankruptcy Act provides for the release of a bankrupt from all debts provable in the bankruptcy, upon discharge. The exception in s 153(2)(c) does not refer to a “debt” under a maintenance agreement, but to a “liability” under a maintenance agreement. Counsel for Mr Hayward sought to draw a distinction between a debt and a liability. His argument was based on the judgment of Riley J in Re Morris, Morris v Wilson (1974) 3 ALR 47. A bankruptcy order had been made against Mr Morris on the petition of his wife, who lodged a proof of debt said to have been for arrears of maintenance under an order made by the Children’s Court in Sydney. The question was whether arrears of maintenance payable under the Maintenance Act 1964 (NSW), that had accrued before the making of a sequestration order, constituted a provable debt. Riley J determined that, where no judgment had been entered for the arrears of maintenance, there was no provable debt. On the other hand, a provable debt would have been created if the wife had obtained judgment for the arrears. Because there was such a judgment for part of the arrears, his Honour ordered that the trustee in bankruptcy admit the wife’s proof of debt to the extent to which they were the subject of that judgment.
The statutory provisions are now different from those that were applicable at the time Re Morris was decided. Section 82(1A) of the Bankruptcy Act now makes it clear that all or part of a sum that became payable by the bankrupt under a maintenance agreement or maintenance order before the date of the bankruptcy can be a debt for the purposes of s 82(1), and therefore provable in the bankruptcy, irrespective of whether there has been a judgment for the arrears. Counsel for Mr Hayward said that arrears owing at the date of bankruptcy are a debt, so that the effect of s 153(1) of the Bankruptcy Act is that the bankrupt is released from that debt upon discharge from bankruptcy. According to the argument, what might remain under a maintenance agreement or maintenance order is a “liability”, as distinct from the debt. It is this “liability” in respect of payments of maintenance due after the date of bankruptcy that can be the subject of an order under s 153(2A) of the Bankruptcy Act. This argument cannot be accepted.
In the first place, s 82(1) of the Bankruptcy Act makes it clear that “all debts and liabilities” are provable in the bankruptcy (subject to the later provisions of s 82). It would be strange if, by using only the word “debt” in s 82(1A) of the Bankruptcy Act, Parliament undid the obvious intention of that subsection to cover all arrears of maintenance, and instead provided only that such arrears as were the subject of a judgment prior to bankruptcy and therefore a “debt” according to Re Morris, would be provable in the bankruptcy, whereas “liabilities” for arrears that were not the subject of such a judgment would not be provable. It appears that the words “debt” and “liability”, and the word “debts” and “liabilities” are used interchangeably. In making provision in s 153(2A) for the Court to order the release of the bankrupt from “liability to pay arrears”, Parliament clearly intended to permit the Court to make such an order in relation to arrears that arose before the date of bankruptcy (and are therefore treated by s 82(1A) as a “debt”) or during the period of the bankruptcy.
The word “liability” in s 153(2)(c) of the Bankruptcy Act therefore includes a debt. The provision covers a debt for arrears of maintenance owing at the date of bankruptcy (or the date of execution of a personal insolvency agreement), as well as debts for arrears of maintenance at the date of discharge from bankruptcy and liability for future payments of maintenance, if those obligations arise from a maintenance agreement or a maintenance order. The clear purpose of the legislative provisions covering maintenance agreements and maintenance orders in the Bankruptcy Act is to assist those who are entitled to maintenance to enforce their entitlements and to recover what they can from the bankrupt estate, but not to prevent them from continuing to enforce those entitlements after the bankruptcy. To construe the word “liability” as relating only to arrears after the date of a bankruptcy, or after the date of discharge, would be to subvert this purpose.
It follows that, subject to the question whether any order can, and should, be made pursuant to s 153(2A) of the Bankruptcy Act, Mr Hayward’s personal insolvency agreement is not effective to release him from his debt to Ms Thornton, owed pursuant to the consent judgment of the Supreme Court of South Australia.
The power to order a release
Counsel for Mr Hayward argued that, although s 231 of the Bankruptcy Act does not by its own terms bring s 153(2A) of the Bankruptcy Act into operation in relation to a personal insolvency agreement, the latter provision is necessarily imported. The argument is that s 230 requires resort to s 153, in order to ascertain whether a provable debt would be released on discharge from bankruptcy. As an order made under s 153(2A) would operate to release a bankrupt from liability to pay arrears due under a maintenance agreement or maintenance order, such arrears would be a provable debt from which a bankrupt would be released on discharge from bankruptcy. Section 230(1) would then operate to release a debtor on entry into a personal insolvency agreement.
The absence of any mention in s 231 of the Bankruptcy Act of s 153(2A) is not the only obstacle to accepting this argument. An even greater obstacle is the terms in which the power to make an order for release is conferred upon the Court. The power is to order that a specific event, the discharge of a bankrupt from bankruptcy, is to operate to release that bankrupt from the liability. If there is no bankruptcy, there is no bankrupt and there is no discharge from bankruptcy, so that the conditions for the exercise of the power cannot exist. There is no provision that, in the event of a debtor entering into a personal insolvency agreement, the Court may order the release of that debtor from any liability for arrears of maintenance. In addition, it cannot be said that the importation of s 153(2A) is necessary for the operation of s 153(2)(c). If there cannot be any order made under s 153(2A), the terms of s 153(2)(c) are simply not modified by such an order, and operate in that unmodified form.
For these reasons, I am unable to make the order sought in para 2 of Mr Hayward’s application (see [2] above).
Even if there is power to make the order, I should not make it on the evidence before me. In his affidavit, Mr Hayward expresses some doubts as to whether he is the father of the son born to Ms Thornton during the currency of the marriage. I attach no weight to those doubts. There is a common law presumption that a child born during the currency of a marriage is a child of the marriage. Even if this were not so, it is likely that Mr Hayward would be estopped from denying paternity by reason of the judgments of the Connecticut Court. At the very least, he had the opportunity to raise in the proceedings in which those judgments were given the issue of paternity. To the extent that the issue was raised, it was determined against Mr Hayward by the order that he make provision for the maintenance and education of the son.
Nor do I attach weight to the fact that Ms Thornton has remarried. Her husband is said to be well-off. These circumstances provide no occasion for casting onto that husband the burden of maintaining a child for whom Mr Hayward is responsible.
I do not regard as significant the fact that the original order of the Connecticut Court, on which the debt constituted by the consent judgment of the Supreme Court of South Australia is based, dates from 2002. The fact that the original judgment debt is old merely reflects Mr Hayward’s neglect of his responsibility to pay the debt, or his success in evading that responsibility.
It is true that, according to his statement of affairs, Mr Hayward’s liabilities exceed his assets by a considerable margin. This is probably the reason for the support of all of the creditors other than Ms Thornton for the proposal that Mr Hayward enter into the personal insolvency agreement. An examination of the statement of affairs suggests that Mr Hayward has organised his financial affairs so as to ensure that he has virtually no income and very few assets. He is employed by a firm called Silverton Partners, with an address in Adelaide, as an investment banker, working 40 hours per week, for which he receives no remuneration. He lives rent-free in a house owned by a trust controlled by his wife. His wife pays all living and lifestyle expenses, including motor vehicle expenses. These facts suggest that Mr Hayward has arranged his affairs so as to place out of reach of his creditors, including Ms Thornton, such income and assets as he might normally have had if remuneration for his work had been paid to him and he had used that money to acquire assets.
It was suggested that, having regard to Mr Hayward’s age, his financial position is unlikely to alter. There is no evidence of his age, but his counsel advised me that Mr Hayward is a 54 year old man. I do not take the view that his age is such that his financial position is unlikely to improve in the future.
In all of these circumstances, I should exercise my discretion against making an order relieving Mr Hayward from liability to pay any arrears pursuant to the maintenance agreement I have found to exist, if I had the power to make such an order.
Conclusion
Mr Hayward has been unsuccessful in relation to the two orders he has sought from the Court. His application must be dismissed. Apart from the appearance by Mr Colovic on behalf of Ms Thornton on 21 March 2012, the application has not been defended. As Ms Thornton failed to comply with the order to file and serve a notice of address for service, made on that date, I should regard the application as totally undefended. No occasion arises for the making of any order as to costs.
I certify that the preceding fifty-eight (58) numbered paragraphs are a true copy of the reasons for judgment herein of the Honourable Justice Gray. Associate:
Dated: 9 May 2013
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