Jacks v Jakimowicz
[2014] VSCA 120
•17 June 2014
SUPREME COURT OF VICTORIA
COURT OF APPEAL
S APCI 2011 0129
| JOHN MICHAEL JACKS | Appellant |
| v | |
| PATRICIA ANNE JAKIMOWICZ | |
| Respondent |
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| JUDGES: | MAXWELL ACJ, MANDIE and OSBORN JJA |
| WHERE HELD: | MELBOURNE |
| DATE OF HEARING: | Decided on the papers |
| DATE OF JUDGMENT: | 17 June 2014 |
| MEDIUM NEUTRAL CITATION: | [2014] VSCA 120 |
| JUDGMENT APPEALED FROM: | Jackimowicz v Jacks (Unreported, County Court of Victoria, Judge Lacava, 15 August 2011) |
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BANKRUPTCY – Appeal against an order by a County Court judge staying proceeding Appellant undischarged bankrupt – Not thereby precluded from bringing proceeding – Whether money claimed was received as worker’s compensation and therefore not divisible property for the purposes of the bankruptcy – Question cannot be determined on summary application – Bankruptcy Act 1966 (Cth) s 116.
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| APPEARANCES: | Counsel | Solicitors |
| No appearances by leave of the Court | ||
MAXWELL ACJ:
I have had the advantage of reading in draft the reasons for judgment of Mandie JA. I agree with the orders which his Honour proposes, for the reasons which he gives.
Unusually, this appeal has been decided purely on the basis of the written submissions. This course was proposed by the parties themselves, for the saving of costs, and they should be commended for their initiative. Self-evidently, it is an efficient and cost-effective means of disposing of an appeal.
MANDIE JA:
Introduction
The appellant, Mr Jacks, filed a proceeding in the County Court of Victoria at Melbourne by writ dated 31 March 2011. In his statement of claim, the appellant sought damages against the respondent (then defendant) and certain declarations and other orders in relation to land situated at, and known as, 275 Tandabaroo Road, Willowmavin (‘the Willowmavin property’). At the time of filing the writ the appellant was a bankrupt, a sequestration order having been made against him on a creditor’s petition on 14 April 2009. By summons dated 24 June 2011, the respondent (then defendant) applied to the County Court for an order that the proceeding be dismissed, alternatively that the proceeding be permanently stayed. On 15 August 2011, a County Court judge ordered that the proceeding be stayed. The appellant, by leave, appeals against that order.
Procedural and factual background
In his statement of claim in the County Court proceeding, the appellant alleged:
(a)at all relevant times until about April 2003, the respondent was in a domestic relationship with the appellant’s brother Victor;
(b)on or about 12 August 1985, the respondent and Victor were registered as joint proprietors of a property in Preston and on or about 20 August 1993 the respondent and Victor gave a mortgage over the Preston property to the National Australia Bank Ltd (‘NAB’) to secure the repayment of a loan;
(c)in or about December 1995, the appellant received a worker’s compensation payout of about $358,000;
(d)in or about December 1995, the appellant on the one hand and the respondent and Victor on the other, entered into an agreement under which the respondent and Victor agreed to sell and the appellant agreed to buy the Preston property for the sum of $170 000 (‘the 1995 agreement’);
(e)under the terms of the 1995 agreement, it was agreed that the respondent and Victor would remain the registered proprietors of the Preston property and hold that property on trust for the appellant;[1]
[1]Various other terms of the 1995 agreement were also alleged in the statement of claim.
(f)pursuant to the 1995 agreement, the appellant paid the respondent and Victor the sum of $170 000 and assumed exclusive possession of the Preston property on or about 25 December 1995;
(g) on 19 January 1996, the respondent and Victor became registered as proprietors of a property in Whittlesea, which was purchased by them ‘using monies provided by’ the appellant under the 1995 agreement. In or about June 2000, the respondent and Victor entered into a contract to sell the Whittlesea property;
(h)on 30 August 2000, the appellant lodged a caveat claiming an interest in fee simple in the Preston property pursuant to the 1995 agreement;
(i)on 22 September 2000, the appellant commenced a proceeding No 6077 of 2000 (‘the first County Court proceeding’) seeking a declaration that the Preston property was held by the respondent and Victor on trust for the appellant;
(j)the settlement of the sale of the Whittlesea property was effected on or about 14 December 2000;
(k)in or about early 2001, the appellant entered into an agreement with the respondent and Victor under which it was agreed that the appellant would withdraw his caveat over the Preston property, the respondent and Victor would borrow the sum of $200,000 from Suncorp-Metway Ltd (‘Suncorp’), would discharge the NAB mortgage and grant Suncorp a mortgage over the Preston property;
(l)pursuant to the 2001 agreement, on 12 February 2001, the appellant withdrew his caveat, the NAB mortgage was discharged, the respondent and Victor borrowed $200,000 from, and granted a mortgage over the Preston property to, Suncorp;
(m)on or about 17 April 2001, the respondent and Victor became registered as joint proprietors of the Willowmavin property, which was purchased using monies borrowed by the respondent and Victor from Suncorp;
(n)on or about 29 August 2002, the appellant, the respondent and Victor made terms of settlement in writing to resolve the first County Court proceeding and under which, inter alia, the respondent and Victor agreed to pay the sum of $200,000 to the appellant within 12 months (secured by a second mortgage over the Willowmavin property) and they acknowledged that they held the Preston property on trust for the appellant and executed a deed of trust to that effect;
(o)the respondent and Victor failed to pay the said sum of $200,000 to the appellant under the terms of settlement and declaration of trust;
(p)on or about 29 March 2004, the appellant lodged a further caveat over the Preston property claiming an interest in fee simple pursuant to the declaration of trust;
(q)on or about 11 November 2005, the appellant lodged a caveat over the Willowmavin property claiming an equitable interest as mortgagee;
(r)on or about late 2006 or early 2007, the respondent and Victor failed to discharge their obligations under the loan agreement with Suncorp and thereby defaulted in performing their obligations under the terms of settlement and the deed of trust;
(s)Suncorp took proceedings against the respondent and Victor and in November 2008 took possession of the Preston property and thereafter sold it for the sum of $495,000;
(t)in or about February 2009, the net proceeds from the sale of the Preston Property, being the sum of about $224,228.58, were paid into Court and, after his bankruptcy, the appellant’s trustee (‘Erskine’) sought an order for payment of those monies;
(u)on or about 6 July 2009, orders were made by consent in Erskine’s proceeding that $170,000 be paid to the appellant from the monies paid into Court from the sale of the Preston property;
(v)on or about 5 February 2010, the appellant lodged a caveat over the Willowmavin property relying upon the terms of settlement and/or claiming a resulting trust;
(w)the appellant claimed damages for breach of trust by the respondent flowing from Suncorp’s sale of the Preston property and the appellant particularised those damages, inter alia, by alleging that he had received monies being $325,000 less than the market value of the Preston property; and
(x)the appellant made a number of further allegations in support of a claim that the respondent held the Willowmavin property on trust for him.
As I have said, the respondent applied by summons in the County Court for an order dismissing or staying the appellant’s proceeding. The respondent’s application was supported by an affidavit of her solicitor sworn 24 June 2011 which provided evidence of the appellant’s bankruptcy. An answering affidavit was sworn by the appellant’s solicitor on 21 July 2011, which referred to communications with the respondent’s solicitor in which the respondent’s solicitor said that the basis of the application was that the appellant was an undischarged bankrupt and in which the appellant’s solicitor stated that the monies the subject of the appellant’s claim were monies received from a worker’s compensation claim and therefore not divisible property in the appellant’s bankruptcy.
Subsequently, an affidavit was sworn and filed by the appellant on 28 July 2011. In that affidavit, the appellant deposed that he was injured in an industrial accident in 1991 and that in about December 1995 he received a worker’s compensation payout of approximately $358,000. He said that the proceeding concerned his claim to an interest in the Willowmavin property and that:
I am advised by my solicitor and believe that the Willowmavin property was purchased using funds from my worker’s compensation payout or from monies borrowed by [the respondent] and Victor from me and secured by a mortgage granted over property which was purchased by me from [the respondent] and Victor using my worker’s compensation payout.
The appellant went on in his affidavit to set out the facts underlying his statement of claim. He deposed that he had paid the respondent and Victor $170,000 for the Preston property (and lent them a further $30,000) and that these monies were sourced from his worker’s compensation payout.
He also deposed that he later lent them the sum of $50,000 which he withdrew from his investment account with the National Australia Bank (‘NAB’).
The appellant’s affidavit then referred to the distressing circumstances in which he was evicted from the Preston property and his subsequent bankruptcy and discussions with Erskine. He then deposed:
My trustee in bankruptcy [Erskine] subsequently told me that any claim I might have against the Willowmavin property was not a claim that she could be involved in because she believed that any interest or claim I have can be can be traced back to my worker’s compensation payout. She told me that my worker’s compensation payout and property that was acquired with that money did not form part of my bankrupt estate.
The appellant also filed an affidavit sworn by Erskine who said that her inquiries had led her to the conclusion that any interest of the appellant in the Willowmavin property was not vested in her as trustee because any such property was property acquired using the proceeds of a personal injury claim.
Reasons of County Court judge
The judge ordered that the appellant’s proceeding be stayed and handed down reasons on 15 August 2011. The judge said that the respondent contended that the appellant was not competent to prosecute the claim by reason of the making of a sequestration order, whereas the appellant contended that his rights as set out in the statement of claim had not vested in his trustee by reason of ss 116(2) and (3) of the Bankruptcy Act 1966 (Cth) (‘the Act’). The judge then said:
The parties agree the [respondent’s] summons ought proceed as an application under order 23.01 of the rules.[2] For that purpose, the argument before me proceeded on the basis that the facts pleaded in the statement of claim, be treated as having been established for the purposes only of the argument on the summons.
[2]Order 23.01 of the County Court Civil Procedure Rules 2008 (Vic) relevantly provides that where a proceeding or any claim in a proceeding does not disclose a cause of action, is scandalous, frivolous or vexatious, or is an abuse of the process of the Court, the Court may stay the proceeding generally or in relation to any claim.
After reciting the facts, the judge said:
Importantly, there is nothing pleaded … which purports to trace the money paid by [the appellant] to [the respondent] and Victor from the money received by him from his worker’s compensation claim. That is not surprising since [the appellant] had in fact been repaid money initially paid by him to [the respondent] and Victor ($170,000) used to acquire the Preston property from the settlement of the interpleader proceeding.
The judge then referred to the allegations concerning the Willomavin property and said that, again, there was nothing pleaded which purported to trace the money paid by the appellant to the respondent and Victor from the money received by him from his worker’s compensation claim.
The judge then referred to ss 5, 58(1), 60(4) and 116 of the Act. His Honour then said that the appellant’s proceeding was commenced by the appellant after becoming a bankrupt and before discharge, and it was not an action in respect of personal injury.
He concluded:
In a case where the provisions of ss 116(2)(g) and 116 (2D) and s 116(3) of the Act are enlivened, the damages recovered for personal injury or damages recovered for personal injury that may be ‘exempt money’ or ‘protected money’ is not property of the bankrupt that is available for distribution amongst creditors. But s 116 does not permit a bankrupt to commence a proceeding in his own name. It only carves out of the property of the bankrupt for distribution amongst creditors certain property of the bankrupt and protects that property.
In my judgment, s 60, in terms, does not permit a bankrupt to commence in his or her own name a proceeding of the kind here, after bankruptcy. Only an action which commenced before bankruptcy and which falls within s 60(4) can be continued by a bankrupt in his or her own name after bankruptcy.
In my judgment, [the respondent’s] submission that this proceeding cannot be brought by [the applicant], an undischarged bankrupt, in his own name is made out.
The judge then turned to an argument advanced by the respondent that, having regard to the progress of the appellant’s initial compensation money through the Preston property, then to a property in Whittlesea, and then to the Willowmavin property, the monies had lost their character as compensation and were not ‘protected money’ within s 116(3) of the Act. The judge did not resolve that argument but, instead, reverted to his earlier point stating:
I consider the language of s 60(4) of the Act to be clear. Section 60(4) only permits an action to be continued after bankruptcy in certain circumstances. Here the action was commenced after bankruptcy. The Act does not permit that to occur. Further, when properly analysed, this proceeding in my view, is a claim in damages for breach of terms of settlement or breach of trust. It cannot be said to be a claim for any ‘personal injury or wrong done to the bankrupt’ within either ss 60 or 116 of the Act.
Grounds of appeal
The grounds of the appeal are that:
1.The learned judge erred in law in concluding (in paragraph 43 of the judgment) that the proceeding could not be brought by the plaintiff, an undischarged bankrupt, in his own name.
2.The learned judge erred in law in holding (in paragraphs 42 and 46 of the judgment) that only an action commenced before bankruptcy and which falls within sub-s 60(4) of the Bankruptcy Act 1966 (Cth) can be continued by a bankrupt in his or her own name after bankruptcy.
3.The learned judge erred in law in concluding (in paragraph 46 of the judgment) that the Bankruptcy Act 1966 (Cth) does not permit a bankrupt to commence an action after the bankrupt becomes bankrupt.
4.The learned judge erred (in paragraph 41 of the judgment) in construing s 116 of the Bankruptcy Act 1966 (Cth) as having the effect of not permitting a bankrupt to commence a proceeding in his own name.
5.The learned judge erred in law in failing to characterise the appellant’s claim in the proceeding as property, or a claim with respect to property, within the meaning of sub-s 116(3) and paragraph 116(2)(n) of the Bankruptcy Act 1966 (Cth).
Relevant provisions of the Act
Section 5(1) of the Act defines, unless the contrary intention appears, ‘property’ to mean ‘real or personal property of every description ... and includes any estate, interest or profit, whether present or future, vested or contingent …’ and ‘the property of the bankrupt’ to mean:
(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.
Section 58(1)(a) of the Act, provides that where a debtor becomes a bankrupt:
the property of the bankrupt … vests forthwith in the Official Trustee or … the registered trustee.
Section 116 of the Act relevantly provides as follows:
116 Property divisible amongst creditors
(1) Subject to this Act:
(a)all property that belonged to, or was vested in, a bankrupt at the commencement of the bankruptcy …; 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 …
…
is property divisible amongst the creditors of the bankrupt.
(2) Subsection (1) does not extend to the following property:
…
(g) any right of the bankrupt to recover damages or compensation:
(i) for personal injury or wrong done to the bankrupt …
and any damages or compensation recovered by the bankrupt … in respect of such an injury or wrong …
…
(n)property to which, by virtue of subsection (3), this paragraph applies
…
(2D) In subsections (3) and (4):
…
exempt money means money of any of the following kinds:
…
(b) damages or compensation of a kind referred to in paragraph (2)(g);
…
protected money … means:
(a) exempt money
(3)Where, at any time, the whole, or substantially the whole, or the money paid for the purchase, or used in the acquisition, of particular property is protected money, paragraph (2)(n) applies to the property.
Hearing of appeal
The parties agreed that this appeal should be dealt with ‘on the papers’ without an oral hearing. Accordingly, I have read the written submissions of the parties and turn to consider the grounds of appeal in the light of those submissions.
Grounds 1 to 4
In my opinion, grounds 1 to 4 in terms are made out. Contrary to what the Judge decided, there is nothing in the Act that prevents an undischarged bankrupt[3] from bringing proceedings in his own name after he has been made bankrupt. There is certainly no express provision in the Act to that effect and such a prohibition cannot be implied by reference to the provisions of the Act dealing with proceedings commenced by a bankrupt before his bankruptcy.[4] The correct position, in my opinion, is that a bankrupt is competent to bring a variety of proceedings in his own name but he may lack standing to bring a particular proceeding to the extent that a cause or causes of action the subject of the proceeding had vested in the bankrupt’s trustee and thus could not be sued upon by the bankrupt.[5] In a given case, and this case may or may not be one such case, a defendant might successfully obtain an order for a stay or dismissal of the proceeding on the basis that the bankrupt had no standing to bring the proceeding because the causes of action relied upon had vested in the bankrupt’s trustee.
[3]The appellant has since been discharged from his bankruptcy, but that is irrelevant for the purposes of his appeal.
[4]See s 60 of the Act.
[5]Cummins v Claremont Petroleum NL (1996) 185 CLR 124, 135–6 (Brennan CJ, Gaudron and McHugh JJ); see also Jambrecina v Official Trustee in Bankruptcy [2003] FCA 1352, [13]–[14].
In substance, the respondent’s submissions do not really seek to contend that the judge was correct in deciding that the appellant was not competent to bring a proceeding by virtue of any provision of the Act. Rather, the respondent seeks to support the order made below upon the basis that the causes of action relied upon by the appellant constituted divisible property of the bankrupt that vested in his trustee and that, accordingly, the appellant had no standing to bring the proceeding.
Ground 5
Under this ground, the appellant, in effect, contends that the judge erred in law in failing to characterise his causes of action as being property of the appellant that was not divisible property in his bankruptcy. On the other hand, the respondent contends that the judge was right to stay the proceeding because the causes of action alleged by the appellant all constituted divisible property of the bankrupt within the meaning of the Act and, therefore, those causes of action had vested in the trustee of the appellant’s bankrupt estate and could not be relied upon by the appellant.
The respondent has also sought to meet this ground of appeal by serving a notice of contention dated 26 February 2014 that relies upon the following grounds:
1. On the material before the trial judge, there was no evidence that the Willowmavin property was property purchased or acquired by the appellant [within the meaning of] s 116(3) of [the Act].
2.On the material before the trial judge there was no evidence which traced the money paid by the appellant to the respondent [and to Victor] from the money received by the appellant from his worker’s compensation claim, [within the meaning of] ss 116(2)(g), (2)(n), (2D), (3) and (4) of [the Act] which could ‘fairly be attributed to that protected money’ and therefore [the appellant] failed to establish that it was ‘protected money’ or ‘exempt property’ and his honour was therefore entitled to stay the proceeding.
The respondent submitted that the judge ‘did not accept, from the appellant’s statement of claim, that the declarations and damages sought by the appellant were referable to any protected money or particular property within the operation of’ s 116 of the Act and that the relief sought by the appellant in his statement of claim was divisible property of the appellant’s bankrupt estate vesting in the appellant’s trustee.
Further, in additional submissions filed and dated 30 May 2014 in support of the notice of contention the respondent submitted, in brief and as I would understand them, that:
1. the matter was decided on the basis of the pleaded facts;
2.the appellant claimed that the respondent claimed the Preston property on trust for the appellant but not the Willowmavin property;
3.if the Preston property was property purchased with compensation money, then all the proceeds of the sale thereof (after payment out of the mortgage) should have been paid to the appellant; and
4.the appellant’s entitlement in relation to the Willowmavin property (if any) was limited to a mortgage interest and the amount secured by the mortgage was mingled, or part of an amalgam of funds and could not be characterised as resulting from compensation money.
The respondent submitted that the judge ‘could have granted the stay’ upon the foregoing bases raised in support of the notice of contention.
Although the appellant’s statement of claim refers to him having received a compensation payout of about $358,000, there is no attempt in the pleading to connect that sum or any part of it with the purchase of the Preston property or to connect any of the payout with the other properties referred to in the statement of claim.
In his affidavit in opposition to the respondent’s summons, the appellant refers to advice from his solicitor that the Willowmavin property was purchased using funds from his worker’s compensation payout or from monies borrowed from him and secured by a mortgage granted over the property which was purchased by him (ie, the Preston property) using his worker’s compensation payout. The appellant also deposes that his trustee in bankruptcy told him that any claim he had to the Willowmavin property could be traced back to his worker’s compensation payout. However, just as there is no express pleading directed to this issue, there is no direct evidence either.
As a result, I consider that ground 5 is not made out because neither on the pleading nor on the evidence before the judge was the judge in a position to be satisfied that the appellant’s claim or any part of it was property that was not property divisible amongst creditors within the meaning of the Act.
However, nor do I think that the grounds in the notice of contention are made out because there is no evidence satisfactorily establishing that the causes of action pleaded by the appellant necessarily fall within the definition of divisible property. The pleading itself, whilst not establishing a positive case, does not establish the negative case upon which the respondent seeks to rely. In short, the facts must be fully investigated and the question cannot be determined on a summary application. Indeed, there was no real investigation of them nor could there have been, before the judge below.
I conclude that the orders appealed against cannot be supported on the basis advanced by the respondent, although it will be open to the respondent to rely upon these matters in order to challenge the standing of the appellant at trial.
Conclusion
I would allow the appeal and set aside the orders made below.
OSBORN JA:
I agree with the reasons of Mandie JA.
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