Hess v Official Trustee in Bankruptcy
[2015] FCA 1400
•11 December 2015
FEDERAL COURT OF AUSTRALIA
Hess v Official Trustee in Bankruptcy [2015] FCA 1400
Citation: Hess v Official Trustee in Bankruptcy [2015] FCA 1400 Parties: ANGELA HESS v OFFICIAL TRUSTEE IN BANKRUPTCY File number: QUD 677 of 2014 Judge: RANGIAH J Date of judgment: 11 December 2015 Catchwords: BANKRUPTCY AND INSOLVENCY – award of workers’ compensation to estate of deceased worker for injury and death – undischarged bankrupt received compensation money from deceased as inheritance – where bankrupt was both executor and beneficiary of deceased’s estate – whether money formed property divisible amongst the creditors – money received in capacity as beneficiary – money divisible amongst creditors and vests in trustee Legislation: Bankruptcy Act 1966 (Cth) ss 5, 58, 116, 125(1), 153(1) and 178
Succession Act 1981 (Qld) ss 46(1), 52(1) and 66(1)
Workers’ Compensation and Rehabilitation Act 2003 (Qld) ss 128B, 128D, 199, Ch 3 Pt 11 and Pt 3 Div 5Cases cited: Commissioner of Stamp Duties (Qld) v Livingston (1964) 112 CLR 12 cited
Official Receiver in Bankruptcy v Schultz (1990) 170 CLR 306 cited
Official Trustee in Bankruptcy v Jones [2003] NSWSC 343 cited
Re Buckle; Ex parte Ogilvie [1970] ALR 717 cited
Re Pevsner; Ex parte Trustee in Bankruptcy (1983) 68 FLR 254 cited
Re Thorne and Sherson’s Contract [1920] VLR 50 cited
Silvia v Thomson (1989) 87 ALR 695 citedDate of hearing: 25 May 2015 Place: Brisbane Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 54 Solicitor for the Applicant: Mr T Stinchcombe of Worcester & Co Solicitor for the Respondent: Mr SG Muller of Rodgers Barnes & Green
IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION
QUD 677 of 2014
BETWEEN: ANGELA HESS
ApplicantAND: OFFICIAL TRUSTEE IN BANKRUPTCY
Respondent
JUDGE:
RANGIAH J
DATE OF ORDER:
11 DECEMBER 2015
WHERE MADE:
BRISBANE
THE COURT ORDERS THAT:
1.The respondent pay the applicant the sum of $12,025 from the amount transferred to the respondent from Account 50439260 held by the applicant with Credit Union Australia Limited.
2.The respondent pay the applicant’s 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
QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION
QUD 677 of 2014
BETWEEN: ANGELA HESS
ApplicantAND: OFFICIAL TRUSTEE IN BANKRUPTCY
Respondent
JUDGE:
RANGIAH J
DATE:
11 DECEMBER 2015
PLACE:
BRISBANE
REASONS FOR JUDGMENT
The applicant, Angela Hess, is a former bankrupt. The respondent was, and remains, the trustee of the applicant’s bankrupt estate.
The applicant has applied for review, under s 178 of the Bankruptcy Act 1966 (Cth), of a decision made by the respondent on 22 October 2014. The respondent’s decision was that an amount of money inherited by the applicant under the will of her late stepfather vests in the respondent, as trustee.
For the reasons that follow, the applicant’s application should be allowed in part.
THE FACTS
The applicant has experienced a series of unfortunate events in the last 10 years of her life. First, her husband died in a boating accident, while she was pregnant. She has been left with the sole care of her child, who suffers from Asperger’s Syndrome. The applicant’s stepfather was diagnosed with a terminal illness. The applicant nursed the stepfather in her home for five years until his death in 2011.
In the midst of these events, the applicant was unable to meet the mortgage payments to the Commonwealth Bank for her home. She decided to present a debtor’s petition so that her unit would be sold and she would be released from the financial stress she was under.
The applicant became bankrupt on 29 August 2011 upon the respondent accepting her debtor’s petition. She was discharged from bankruptcy three years later, on 30 August 2014.
On 9 July 2012, while she was still an undischarged bankrupt, the applicant received an inheritance from her late stepfather totalling $256,774.38.
The respondent did not realise that the applicant had received the inheritance until July 2014. The applicant had not tried to hide the inheritance and earlier had disclosed to the respondent that she would receive a sum of money. Later she disclosed the amount that remained in her credit-union account in response to a questionnaire sent to her by the respondent. Apparently, there was some administrative error in the respondent’s office which meant that the respondent did not realise earlier that the applicant had received the money.
At that stage all that remained was $120,000, which was in the applicant’s credit-union account. The respondent’s legal representative informed the Court that, despite the applicant having spent some of the inheritance, all that is in dispute between the parties is the remaining $120,000.
On 22 October 2014, the respondent decided that the remaining money vests in the respondent, as trustee, and directed the credit-union to freeze the funds. In doing so, the respondent purported to act under s 125(1) of the Bankruptcy Act. It is not clear that the respondent was entitled to give that direction under s 125(1), as that provision does not seem to have had any application to the applicant, who was not then an undischarged bankrupt, but that issue was not the subject of any argument. Later the credit-union was required by the respondent to transfer the money to the respondent.
The applicant challenges the trustee’s decision on the basis that the amount is compensation recovered by her in respect of personal injury to a member of her family, and is not property divisible amongst her creditors. That argument makes it necessary to examine the source of the money that the applicant inherited.
The applicant’s step father, Jonne Nyman, suffered from an asbestos-related illness. On 18 October 2011, he applied for compensation for his illness pursuant to the Workers’ Compensation and Rehabilitation Act 2003 (Qld) (“the WCRA”). Mr Nyman died on 21 November 2011, prior to the determination of his claim for compensation.
Mr Nyman’s will appointed the applicant and her sister as executors of his estate and bequeathed the whole of his estate to them in equal shares.
On 8 May 2012, the applicant and her sister signed an agreement with WorkCover Queensland as to the disposition of Mr Nyman’s workers’ compensation claim. The agreement named Mr Nyman and “his executors, administrators, successors and assigns” as parties to the agreement. All of those persons were described in the agreement as “the Worker”. The agreement was signed by the applicant and her sister as “co-executors”.
The agreement provides as follows:
RECITALS
AThe Worker allegedly sustained personal injuries in the course of employment with the Employers over a period of time from approximately 1963 until about 1980.
BThe Worker applied for lump sum compensation pursuant to the Workers Compensation and Rehabilitation Act 2003 (“the Act”) on 18 October 2011 claiming statutory compensation in respect of those injuries (“the Application”).
C WorkCover has assessed the Worker’s Application and determined the Worker’s entitlement to compensation pursuant to Workers Compensation and Rehabilitation Act 2003 and any preceding and/or other legislation governing the entitlement of the Worker to statutory compensation.
WORKCOVER’S DETERMINATION
1 Claim and Statutory Lump Sum Compensation
1.1 WorkCover is satisfied that the Worker has satisfied all statutory prerequisites establishing the Worker’s eligibility for statutory compensation assessed as follows:
(a) the statutory claim file number is S11AW911897;
(b) the degree of permanent impairment attributable to the injury (code 4999) is 100%;
(c)the total amount of lump sum compensation (“the Lump Sum”) to which the Worker is entitled pursuant to the Act is $556,345.00 which comprises of;
(1)the amount of latent onset lump sum to which the Worker is entitled is $273,055.00;
(2)the amount of latent onset additional to which the Worker is entitled is $245,749.50;
(3) the amount of latent onset amount to which the Worker is entitled is $27,305.50.
(4) an amount for future funeral benefits of $10,235.00.
(d)the Worker has no right to further statutory compensation in relation to the injury/injuries the subject of this agreement.
2 Costs
2.1 The Worker is not entitled to any costs in relation to the Application.
PAYMENT DIRECTION AND AUTHORITY
2.2The Worker authorises payment of the Lump Sum to the trust account of the Worker’s lawyer, Turner Freeman Lawyers whose receipt will be a good and sufficient discharge on the Worker’s behalf.
It can be seen that WorkCover Queensland determined the Worker’s entitlement to compensation pursuant to the WCRA and any relevant preceding legislation. WorkCover Queensland determined that the total amount of compensation to which the Worker was entitled was $556,345. The agreement authorised payment of the amount assessed into the trust account of the Workers’ lawyers.
On 30 July 2012, the solicitors who had lodged the workers’ compensation application wrote to the applicant noting that they had provided preliminary advice to the applicant that the compensation would be classified as “exempt” and was not property divisible amongst her creditors. The letter noted that the applicant had told the solicitors she had since been in contact with the Insolvency and Trustee Service Australia (“ITSA”) and that she had been advised that the compensation money was exempt from any bankruptcy proceedings. The letter confirmed that the applicant no longer required any assistance in respect of bankruptcy issues.
The respondent denies that any officers of ITSA advised the applicant that the money she received was exempt.
The solicitors apparently deducted an amount for legal costs and then paid $256,774.38 to each of the applicant and her sister on 9 July 2012. As I have noted, the applicant was still an undischarged bankrupt at that time.
THE BANKRUPTCY ACT
Section 58 of the Bankruptcy Act provides, relevantly:
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 …; 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...
…
(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.
In order to determine whether property is “after-acquired property”, it is necessary to examine whether it is “property that is divisible amongst the creditors of the bankrupt”. In that regard, s 116 of the Bankruptcy Act provides, relevantly:
116 Property divisible among creditors
(1) Subject to this Act:
(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; and
…
is property divisible amongst the creditors of the bankrupt.
(2) Subsection (1) does not extend to the following property:
(a) property held by the bankrupt in trust for another person;
…
(g) any right of the bankrupt to recover damages or compensation:
(i)for personal injury or wrong done to the bankrupt, the spouse or de facto partner of the bankrupt or a member of the family of the bankrupt; or
(ii)in respect of the death of the spouse or de facto partner of the bankrupt or a member of the family of the bankrupt;
and any damages or compensation recovered by the bankrupt (whether before or after he or she became a bankrupt) in respect of such an injury or wrong or the death of such a person;
…
The expression “property” is given a broad definition in s 5. In Re Buckle; Ex parte Ogilvie [1970] ALR 717, Gibbs J stated at 721 that, in the context of s 116, “property” is to be understood in light of the principle that, subject to the statutory exceptions, the creditors are to have the benefit of “every species of right, of which by any possibility profit can be made.”
Section 153(1) provides that the discharge of a bankrupt from bankruptcy operates to discharge him or her from all debts provable in the bankruptcy. However, the section does not affect the trustee’s rights to the bankrupt’s property which vests in the trustee by reason of ss 58 and 116: Silvia v Thomson (1989) 87 ALR 695, Re Pevsner; Ex parte Trustee in Bankruptcy (1983) 68 FLR 254 at 256.
CONSIDERATION
The dispute between the parties centres upon the application of s 116 of the Bankruptcy Act. The respondent submits that the inheritance of $120,000 is property that falls within s 116(1)(a) because it devolved to the applicant after the commencement of the bankruptcy and before her discharge from bankruptcy. The applicant submits that the money comes within s 116(2)(g) and is exempt because it was compensation recovered by her in respect of personal injury to a member of her family.
It is not in dispute that the applicant’s stepfather, Mr Nyman, was a member of the applicant’s family. Nor is it in dispute that the money paid by WorkCover Queensland was compensation for personal injury to Mr Nyman.
What is in dispute is whether the amount paid to the applicant was “compensation recovered by the bankrupt…in respect of such an injury” within s 116(2)(g). The question turns upon whether there is a distinction between the recovery of the money by the applicant in her capacity as executor of her stepfather’s estate and receipt of the money as a beneficiary under her stepfather’s will, and whether such a distinction matters.
There is a paucity of information about the application for workers’ compensation before the Court. The application for workers’ compensation is not in evidence. The agreement signed by the applicant and her sister with WorkCover Queensland does not specify under which provisions of the WCRA compensation was assessed.
However, there is enough in the agreement to allow an inference to be drawn that the assessment must have been made under Pt 3 Div 5 of the WCRA. That Division contains the following relevant provisions:
128A Application of div 5
This division applies to a worker if a latent onset injury sustained by the worker is a terminal condition.
128B Entitlements of worker with terminal condition
(1)The worker is entitled to compensation for the latent onset injury calculated only under this division.
(2) The worker is entitled to lump sum compensation equal to the sum of the following amounts–
(a) $200,000;
(b) additional lump sum compensation for care of 10% of the amount payable under paragraph (a);
(c)additional lump sum compensation of up to $200,000 payable according to a graduated scale prescribed under a regulation, having regard to the age of the worker when the worker lodges an application for compensation for the latent onset injury.
…
128D Worker’s dependants
(1) This section applies if the worker has dependants.
(2) The worker’s dependants are entitled to lump sum compensation equal to the sum of the following amounts–
(a) 15% of the amount payable under section 200(2)(a);
(b)2% of the amount payable under section 200(2)(a) for the reasonable expenses of the worker’s funeral.
(3) An insurer may pay the compensation under this section–
(a) to the worker; or
(b) to the worker’s dependants at the same time as the insurer pays the worker lump sum compensation under section 128B.
(4)The worker’s dependants are not entitled to further compensation under chapter 3, part 11 for the death of the worker.
(5) In this section–
dependant, of a worker, means a member of the worker’s family who is completely or partly dependent on the worker’s earnings.
member of the family, of a worker, means–
(a) the worker’s–
…
(iii) child, grandchild or stepchild; or
…
The expression “latent onset injury” is defined in the Dictionary for the WCRA to mean “an insidious disease”.
Several matters may be inferred from the limited evidence that is available.
Firstly, there is evidence that Mr Nyman suffered from an asbestos-related disease and it may be inferred that this was a “latent onset injury” within the WCRA.
Secondly, it may be inferred that three components of the total compensation payable must have been assessed under s 128B of the WCRA. The components for “latent onset amount”, “latent onset lump sum” and “latent onset additional” referred to in the agreement appear to correspond to the items of compensation described in subparas (a), (b) and (c) of s 128B(2) respectively, taking into account an allowance for indexation. Those amounts represent amounts to which an injured worker is entitled for an injury.
Thirdly, the fourth component of compensation for “future funeral benefits” in an amount of $10,235 appears to have been paid under s 128D(2)(b) of the WCRA. I draw that inference because the only other provision the amount could have been paid under is s 199(b) and that provision is not applicable, by operation of s 194(2), because lump sum compensation was paid under s 128B. The future funeral benefit must have been paid on the basis that the applicant or her sister or both were dependents of Mr Nyman.
Fourthly, under the agreement with WorkCover Queensland, the applicant and her sister, as co-executors, authorised WorkCover Queensland to pay the amount of $556,345 to the trust account of “the Worker’s lawyer”. The definition of “the Worker” included Mr Nyman and his executors. It appears, therefore, that the solicitors had initially been acting for Mr Nyman and then for his executors after he died. Therefore, the instruction from the applicant and her sister acting in their capacity as co-executors was that WorkCover Queensland was to pay the compensation money to the trust account of the solicitors acting for them as executors.
Fifthly, I infer that the applicant and her sister, as co-executors, directed the solicitors to make the payment to each of them as beneficiaries under Mr Nyman’s will. I draw that inference because if the payment was to be made to the executors in their capacity as executors, the whole of the amount would likely have been paid to one account. The point is that when the money was received by the applicant from the solicitors, it was received as a beneficiary under the will, not in her capacity as an executor.
In any event, as Mr Muller, the solicitor for the respondent, noted in his helpful submissions, there is authority that where a person is an executor and also a beneficiary, and there is no formal transfer of the property of the deceased estate, the person holds the legal estate in the property as a beneficiary after the executorial duties have been concluded: Official Trustee in Bankruptcy v Jones [2003] NSWSC 343, Re Thorne and Sherson’s Contract [1920] VLR 50. Even if the money was paid to the applicant by the solicitors in her capacity as an executor, legal title passed to the applicant as a beneficiary when the estate was fully administered. I infer that must have happened by 2014, given that Mr Nyman’s death was in 2011.
Section 45 of the Succession Act 1981 (Qld) provides:
(1)The property to which a deceased person was entitled for an interest not ceasing on his or her death…shall on his or her death and notwithstanding any testamentary disposition devolve to and vest in his or her executor and if more than 1 as joint tenants…
Section 52 of the Succession Act states:
(1) The personal representative of a deceased person shall be under a duty to–
(a)collect and get in the real and personal estate of the deceased and administer it according to law; and
…
(d)distribute the estate of the deceased, subject to the administration thereof, as soon as may be; and
…
Section 66(1) of the Succession Act provides:
[O]n the death of any person…all causes of action subsisting against or vested in the person shall survive against, or, as the case may be, for the benefit of, the person’s estate.
Prior to his death, Mr Nyman had a legal entitlement to have his application for workers’ compensation decided in accordance with the WCRA, and any cause of action in respect of his application survived his death for the benefit of his estate. Upon Mr Nyman’s death, his entitlement and any cause of action vested in the applicant and her sister in their capacity as executors. Although the applicant and her sister were also residuary beneficiaries, a residuary beneficiary does not acquire any proprietary interest, legal or equitable, in any asset comprised in the estate at the date of the testator’s death: Commissioner of Stamp Duties (Qld) v Livingston (1964) 112 CLR 12 at 27, Official Receiver in Bankruptcy v Schultz (1990) 170 CLR 306 at 312.
It follows that the applicant, in her capacity as co-executor, had a right to recover compensation for personal injury to Mr Nyman; and, in that capacity, did recover compensation for injury to Mr Nyman. The co-executors also had an obligation to distribute Mr Nyman’s estate to the beneficiaries.
When the compensation was recovered by the applicant in her capacity as a co-executor that compensation fell within subpara (a) or (g) of s 116(2), and was not property divisible amongst her creditors.
The applicant had no right, other than in her capacity as a co-executor to recover the first three components of compensation for injury to Mr Nyman. The fourth component may be in a different category and I will reserve my discussion of that component until later.
The compensation recovered was distributed to the applicant and her sister. I have found that when that money was paid by the solicitors to the applicant, it was received by the applicant as a beneficiary under Mr Nyman’s will, not as an executor.
Section 116(2)(g) refers to “any right of the bankrupt to recover damages or compensation…for personal injury…to …a member of the family of the bankrupt…and any damages or compensation recovered by the bankrupt…in respect of such an injury.” On a literal reading of the provision, the applicant did have a right to recover compensation for personal injury to Mr Nyman; and did recover such compensation. She had that right and recovered compensation in her capacity as co-executor.
However, the money received by the applicant from the trust account of the solicitors cannot be described as “compensation recovered by the bankrupt” within s 116(2)(g). Instead, the money was received as part of an inheritance distributed to her by the executors pursuant to s 52(1)(d) of the Succession Act.
When the money was paid to the solicitor’s trust account on the instructions of the co-executors, it had the character of being compensation for personal injury suffered by Mr Nyman. It did not have that character when it was distributed to the applicant.
It happened that the applicant was both a co-executor and residuary beneficiary under the will. If different persons had been the executors of Mr Nyman’s estate and they paid the money to the applicant, it would be obvious that the applicant was not recovering compensation for Mr Nyman’s injury, but was inheriting a share of Mr Nyman’s estate. The fact that the applicant happened to be a co-executor and did recover workers’ compensation for Mr Nyman’s injury in that capacity does not alter the fact that, as a beneficiary, she received an inheritance, not compensation.
So far I have discussed only the first three components of the compensation that WorkCover Queensland paid to the estate of Mr Nyman. Those components do not fall within s 116(2)(g), and is property divisible amongst the creditors which vests in the respondent.
The fourth component, “future funeral benefits”, is in a different category. It is clear that s 116(2)(g) operates to exempt the compensation recovered by the bankrupt in a personal capacity for any injury to a member of his or her family: for example, if the compensation is sought and awarded under Chapter 3 Part 11 of the WCRA, which provides for compensation to dependants if a worker dies because of an injury. The fourth component could only be paid under s 128D(2)(b) of the WCRA if Mr Nyman had dependents.
Although there is no direct evidence that the applicant or her sister were dependents of Mr Nyman, I infer that she or her sister must have been. If there were no dependents, then no amount was payable under s 128D(2)(b). There is no evidence at all about the relationship between the applicant’s sister and Mr Nyman. However, there is evidence that the applicant nursed Mr Nyman in her own home through his terminal illness, and it is likely that WorkCover Queensland considered that the applicant was partially dependent on Mr Nyman’s earnings, probably through a social security benefit.
In these circumstances, the applicant, as Mr Nyman’s dependent, had a personal right (that is, a right that was not a right in her capacity as executor) to recover compensation for future funeral expenses. The amount received for future funeral expenses was “compensation recovered by the bankrupt…in respect of such an injury…or the death of such a person” within s 116(2)(g). Therefore, that amount is not property divisible amongst the creditors and does not vest in the trustee.
I propose to order that the respondent pay to the applicant the present value of the $10,235 received by the applicant in July 2012. Using an interest rate of 5% per annum, the present value of that sum is approximately $12,025. I will therefore order that the respondent pay the applicant $12,025. That amount is to be paid from the amount transferred to the respondent from the credit-union. The remainder of the amount transferred from the credit-union and any earnings on that amount vests in the respondent.
As the applicant has succeeded in her application, at least in part, she should have her costs. I will order that the respondent pay the applicant’s costs.
I certify that the preceding fifty-four (54) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Rangiah. Associate:
Dated: 11 December 2015
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