Jacks v Jakimowicz
[2011] VCC 1409
•15 August 2011
| IN THE COUNTY COURT OF VICTORIA | Revised |
(Not) Restricted
AT MELBOURNE
CIVIL DIVISION
COMMERCIAL LIST
Case No. CI-11-01385
| JOHN MICHAEL JACKS | Plaintiff |
| v | |
| PATRICIA ANNE JAKIMOWICZ | Defendant |
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| JUDGE: | LACAVA |
| WHERE HELD: | Melbourne |
| DATE OF HEARING: | 2 AUGUST 2011 |
| DATE OF JUDGMENT: | 15 August 2011 |
| CASE MAY BE CITED AS: | Jacks v Jakimowicz |
| MEDIUM NEUTRAL CITATION: | [2011] VCC 1409 |
REASONS FOR JUDGMENT
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Catchwords: Application that proceeding be stayed. Proceeding commenced by plaintiff a bankrupt after bankruptcy in his own name. Operation of section 60(4) of the Bankruptcy Act 1966 (Cth)
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| APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr. E Moon | Thomas Egan |
| For the Defendant | Mr. J Isles | Stephen Peter Byrne |
| HIS HONOUR: |
1 This proceeding was commenced by the plaintiff by writ issued on 31 March 2011. In the statement of claim the plaintiff seeks relief including damages and declarations. One declaration sought is that the defendant holds a property registered in her name situate at 275 Tantabaroo Road, Willowmavin via Kilmore, being the land described in certificate of title volume 10573 folio 546 (‘the Willowmavin Property’) on trust for the plaintiff. There are other declarations sought. The plaintiff also seeks orders for interest and costs.
2 By a summons issued on 24 June 2011 the defendant seeks an order the proceeding be dismissed, alternatively permanently stayed. The summons is supported by an affidavit of the defendant’s solicitor Stephen Peter Byrne sworn 24 June 2011. The basis of the application is that the plaintiff, having been declared bankrupt on 14 April 2009, before the proceeding was commenced, does not have standing to bring the proceeding.
3 It is not in dispute that the plaintiff was declared bankrupt on the petition of a creditor on 14 April 2009. Indeed, paragraph 34 of the statement of claim pleads the fact of the making of a sequestration order.
4 The defendant contends that the plaintiff is not competent to prosecute the claim by reason of the making of a sequestration order. The plaintiff on the other hand submits that his rights as set out in the statement of claim have not vested in his trustee by reason of the exceptions contained in subsections 116(2) and 116(3) of the Bankruptcy Act 1966 (Cth) (‘the Act’).
5 The parties agree the defendant’s summons ought proceed as an application under order 23.01 of the rules. 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.
6 It is necessary that I set out some of the factual scenario as pleaded in the statement of claim.
7 The defendant is the partner or former partner of the plaintiff’s brother Victor Jakimowicz (‘Victor’). In August 1985 the defendant and Victor were the registered proprietors of property at 18 Hawker Avenue, Preston (‘the Preston property’). The Preston property was subject to a mortgage to the National Bank.
8 In about 1991 the plaintiff was injured during the course of his work with Mayne Nicklass. In about December 1995 he received a workers compensation payout of $358,000.
9 Shortly after the plaintiff received his money, an agreement was entered into between the plaintiff and the defendant and Victor whereby the defendant and Victor agreed to sell the Preston property to the plaintiff. The agreement was unusual. The purchase price was $170,000 which the plaintiff paid from the compensation money he received. The defendant and Victor were to remain as registered proprietors and the property was purchased by the plaintiff subject to the existing mortgage to the National Bank. The plaintiff occupied the property and the defendant and Victor agreed to continue to be responsible for mortgage repayments to the National Bank. There were other terms agreed not here relevant.
10 On 19 January 1996 the defendant and Victor were registered as joint proprietors of another property at 125 Halls Road, Whittlesea (‘the Whittlesea property’). The Whittlesea property was purchased by the defendant and Victor using moneys paid to them by the plaintiff for his purchase of the Preston property.
11 On 30 August 2000 the plaintiff lodged a caveat over the title to the Preston property. He claimed an interest in fee simple as owner.
12 In June 2000 the defendant and Victor sold the Whittlesea property.
13 The parties must have had a falling out around this time because on 22 September 2000 the plaintiff commenced a proceeding seeking a declaration that the defendant and Victor held the Preston property on trust for him (‘the first County Court proceeding’).
14 On 14 December 2000 settlement of the sale by the defendant and Victor of the Whittlesea property was effected.
15 In early 2001 the plaintiff and the defendant and Victor entered into an agreement the effect of which was to refinance the National Bank mortgage over the Preston property. Under this agreement the plaintiff agreed to withdraw his caveat over the Preston property. The defendant and Victor agreed to borrow the sum of $200,000 from Suncorp-Metway that would be used to discharge the National Bank mortgage which would in turn be replaced with a first mortgage to Suncorp Metway over the Preston property. All of that was done by the parties.
16 In April 2001 the defendant and Victor became registered as the proprietors of the Willowmavin property. The Willowmavin property was purchased in part from moneys borrowed from Suncorp Metway but secured by a mortgage from the defendant and Victor over the Preston property.
17 On 29 August 2002, the parties entered into terms of settlement to resolve the first County Court proceeding. The terms of settlement were in writing. By those terms, the defendant and Victor agreed, inter alia, to pay $200,000 to the plaintiff within 12 months and to acknowledge that they held the Preston property on trust for the plaintiff and to grant and execute a second mortgage over the Willowmavin property to the plaintiff to secure an agreed amount owed to him of $200,000.
18 As to the question of holding the Preston property on trust, the terms of settlement provided for the defendant and Victor to execute a deed of trust which they did. The terms of the Deed of trust included a declaration that the defendant and Victor held the Preston property on trust for the plaintiff and to comply with the Suncorp Metway mortgage. They also agreed to do all things reasonably required to vest title in the Preston property to the plaintiff.
19 On 29 March 2004 the plaintiff again lodged a caveat over the Preston property claiming an interest in fee simple.
20 On 11 November 2005 the plaintiff lodged a caveat over the Willowmavin property claiming an equitable interest as mortgagee.
21 In late 2006 early 2007 the defendant and Victor defaulted under the mortgage given to Suncorp Metway over the Preston property. On 11 November 2008 Suncorp Metway took possession of the Preston property as registered mortgagee and sold the Preston property for $495,000.
22 In early 2008 the plaintiff agreed to withdraw his caveat over the Willowmavin property which the defendant and Victor then re-financed. In December 2008 the defendant became the sole registered proprietor of the Willowmavin property.
23 After Suncorp Metway sold the Preston Property as mortgagee in possession there was a surplus of funds of $224,228.58 which the mortgagee paid into court.
24 On 17 April 2009 the plaintiff’s trustee in bankruptcy commenced a proceeding against, inter alia, the defendant and Victor for an order for the payment of the moneys out of court to her. I assume that proceeding to be in the nature of an interpleader. The plaintiff’s trustee in bankruptcy also lodged a caveat over the Willowmavin property claiming an equitable interest in that property pursuant to the terms of settlement and/or pursuant to a resulting trust.
25 On 1 June 2009 the plaintiff was joined as the fourth defendant to the interpleader proceeding by the trustee in bankruptcy.
26 On 6 July 2009 orders were made by consent in the interpleader proceeding commenced by the plaintiff’s trustee in bankruptcy. By those consent orders it was agreed that $170,000 be paid to the plaintiff (as a defendant to that proceeding) from the moneys paid into court from the sale of the Preston property. An affidavit filed by the plaintiff on this application from the plaintiff’s trustee in bankruptcy makes no reference to this settlement or to the consent orders. There is no evidence of the basis of settlement of the interpleader proceeding.
27 On 19 January 2010 the plaintiff’s trustee in bankruptcy withdrew his caveat over the Willowmavin property and on 5 February 2010 the plaintiff himself lodged another caveat over the Willowmavin property again claiming an equitable interest in that property pursuant to the terms of settlement and/or pursuant to a resulting trust. As to this, the affidavit filed in this application from the plaintiff’s trustee in bankruptcy, Robyn Erskine deposes to his belief that he did not have the standing to bring a proceeding to recover any interest the plaintiff might have in the Willowmavin property because such interest was acquired by use of proceeds from a personal injury claim.
28 On 1 March 2011 the defendant lodged an application under section 89A of the Transfer of Land Act 1958 seeking removal of the plaintiff’s caveat. The plaintiff brings this proceeding in order to justify his caveat.
29 These are the factual allegations made in the plaintiff’s statement of claim in this proceeding.
30 Paragraph 42 of the statement of claim asserts that when Suncorp Metway entered into possession of the Preston property as mortgagee and sold it, the plaintiff thereby breached her obligations to the plaintiff under the trust deed. In consequence it is claimed the plaintiff suffered loss and damage. In other words, the damage is asserted to be consequent upon the alleged breach of the trust deed. The particulars to paragraph 43 of the statement of claim particularise the loss which is asserted is to be measured by the loss of the right to exclusively occupy the Preston property and the difference between the asserted market value of the Preston property and what was received from the payment out of court. Also the loss is asserted to take into account the lost benefit of future increases in the value of the Preston property.
31 Importantly, there is nothing pleaded in paragraphs 42 or 43 which purports to trace the money paid by the plaintiff to the defendant and Victor from the money received by him from his workers compensation claim. That is not surprising since the plaintiff had in fact been repaid money initially paid by him to the defendant and Victor ($170,000) used to acquire the Preston property from the settlement of the interpleader proceeding.
32 Paragraphs 44 to 47 of the statement of claim plead breaches by the defendant of the terms of settlement and the deed of trust and seek to set up the claim in the Willowmavin property based on equitable estoppel. Again, there is nothing pleaded in paragraphs 44 to 47 of the statement of claim which purports to trace the money paid by the plaintiff to the defendant and Victor from the money received by him from his workers compensation claim.
33 It is necessary to have regard to relevant provisions of the Act.
34 ‘Property’ is defined in section 5 as:
‘real or personal property of every description, whether situate in Australia or elsewhere, and includes any estate, interest or profit, whether present or future, vested or contingent, arising out of or incident to any such real or personal property’.
35 Section 58(1) provides:
‘Subject to this Act, where a debtor becomes a bankrupt:
(a)
the property of the bankrupt, not being after-acquired property, vests forthwith in the Official Trustee or, if, at the time when the debtor becomes bankrupt, a registered trustee becomes the trustee of the estate of the bankrupt by virtue of section 156A, in that registered trustee’ (emphasis added).
36 Section 60(4) provides:
‘Notwithstanding anything contained in this section, a bankrupt may continue, in his or her own name, an action commenced by him or her before he or she became a bankrupt in respect of:
(a) any personal injury or wrong done do the bankrupt, his or her spouse or de facto partner or a member of his or her family; or (b) the death of his or her spouse or de facto partner or of a member of his or her family’. 37 Section 116 provides, inter alia:
‘(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;(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, the spouse or de facto partner of the bankrupt or a member of the family of the bankrupt; or
(ii) …
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 orwrong or the death of such a person.
(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, in relation to a particular time, means:
(a) exempt money. (3) Where, at any time, the whole, or substantially the whole, of the money paid for the purchase, or used in the acquisition, of particular property is protected money,
paragraph (2)(n) applies to the property.(4) Where, as at the time when the trustee realises particular property to which
paragraph (2)(n) does not apply, the outlay in relation to the property is in part
protected money and in part other money, the trustee shall pay to the bankrupt somuch of the proceeds of realising the property as can fairly be attributed to that protected money. (Underlining added)
38 The defendant argues that s.60 of the Act makes it clear that a bankrupt cannot institute proceedings while he is bankrupt. She argues that upon bankruptcy, all of the bankrupt's choses in action (subject to s60(4)), pass to the trustee in bankruptcy.[1] S60(2) deals with all actions commenced by a person before becoming a bankrupt. Those actions are stayed pending an election being made by the trustee in bankruptcy.
[1] . Cummings v Claremont Petroleum NL [1996] HCA 19; (1996) 185 CLR 124, 130 - 131 (Brennan CJ, Dawson, Toohey, Gaudron and McHugh JJ).
39 S60(4) commences with the words ‘Notwithstanding anything contained in this section’. That must be a reference to s60(2). S60(4) then permits a bankrupt ‘in his or her own name’ to continue an action in respect of any personal injury or wrong done to the bankrupt where that action was ‘commenced before’ becoming a bankrupt. This proceeding is not such an action. Not only was the proceeding commenced by the plaintiff, a bankrupt in his own name after becoming a bankrupt and before discharge, but it is also in my judgment not an action in respect of personal injury. Paragraphs 42 and 43 claim damages asserted to be owing to the plaintiff consequent upon the alleged breach of the trust deed. In my view that is not an action in respect of personal injury. Similarly, paragraphs 44 to 47 insofar as they set up a claim in equitable estoppel, also cannot be said to be an action in respect of personal injury.
40 The plaintiff argues that s116 of the Act prescribes what property is divisible amongst creditors of the bankrupt ‘Subject to this Act’. The plaintiff argues s116(2)(g) carves out of the property of a bankrupt any right of a bankrupt to recover damages for personal injury or any damages or compensation recovered whether before or after bankruptcy. Also where money recovered as damages for personal injury has been paid for the purchase or acquisition of property that money is ‘exempt money’ or ‘protected money’ within s116(2D) and s116(3) of the Act.
41 In a case where the provisions of s116(2)(g) and s116(2D) and s116(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 section 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.
42 In my judgment, s60, 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 commenced before bankruptcy and which falls within s60(4) can be continued by a bankrupt in his or her own name after bankruptcy.
43 In my judgment the defendant’s submission that this proceeding cannot be brought by the plaintiff, an undischarged bankrupt, in his own name is made out.
44 The defendant argued in the alternative, that having regard to the progress of the plaintiff’s initial compensation money through the Preston property (1995) then to the Whittlesea property and then to the Willowmavin property (2001) the monies lost their character as compensation. The defendant relied upon Foyster v Prentice [2008] FMCA 757. The defendant argues that having regard to the history of dealings between the parties and the various agreements made, the money used to fund the purchase of the Willowmavin property by the defendant and Victor is not “protected money’ within s116(3) of the Act because "the whole, or substantially the whole, of the money paid for the purchase" cannot be shown in fact to be protected money.
45 As to this argument relies upon the judgment of Neaves J in Re Iskenderian; Ex parte Iskenderian Bros Pty Ltd (1989) 87 ALR 294. The plaintiff submits the Act carves out of the property available for distribution amongst creditors of a bankrupt damages of a kind referred to in section 116(2)(g) or property of a bankrupt purchased with ‘exempt money’ or ‘protected money’ within sections 116(2D) and 116(3). Iskenderian has been cited with approval in a number of cases including Re Manivilovski; Ex parte Official Trustee in Bankruptcy (1993) 117 ALR 537 (Davies J) and Turner v Official Trustee in Bankruptcy (1996) 71 FCR 418.
46 I do not accept that the principles in Iskenderian apply in this case. I consider the language of section 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 sections 60 or 116 of the Act.
47 For these reasons the defendant succeeds on the summons. I consider the appropriate order that I should make is not to dismiss the proceeding as is sought in the summons but to stay the proceeding pursuant to Order 23.01 of the rules. I do so with costs.
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