Jaffee, Re G.M. Prentice, Ex parte M. W.

[1988] FCA 315

CATCHWORDS

BANKRUPTCY - Income of bankrupt	- S. 131 Bankruptcy Act 1966
- factors weighing on exercise of	Court's discretion to order
payment of whole or part of bankrupt's	income to trustee -

income derived from employment by company controlled by

bankrupt's wife - bankrupt unable to earn income in any other

employment.

S. 131 Bankruptcy Act 1966

No W442 of 1986

Ryan J
6 June 1988

Sydney

IN THE FEDERAL COURT OF AUSTRALIA )

1

GENERAL DIVISION	i
1 No W442 of 1986
BANKRUPTCY DISTRICT OF THE STATE	)

OF NEW SOUTH WALES AND THE )

AUSTRALIAN CAPITAL TERRITORY 1

- RE : GERALD MARCUS JAFFEE

(Bankrupt)

EX PARTE: MAXWELL WILLIAM PRENTICE

as Trustee of the
pioperty of GERALD MARCUS

JAFFEE Bankrupt

Coram:	Ryan J
Date :	6 June 1988

Place: Sydney

MINUTES OF ORDER

The Court Orders:

1. That the application be dismissed.

- NOTE: Settlement and entry of orders is dealt with by

Bankruptcy Rule 124.

IN THE FEDERAL COURT OF AUSTRALIA )

)

GENERAL DIVISION

No W442 of 1986

BANKRUPTCY DISTRICT OF THE STATE	)
OF NEW SOUTH WALES	AND THE

AUSTRALIAN CAPITAL TERRITORY

- RE : GERALD HARCUS JAFFEE

(Bankrupt)

EX PARTE: HAXWELL WILLIAM PRENTICE

as Trustee of the
property of GERALD HARCUS

JAFFEE Bankrupt

(Applicant)

Coram:	Ryan J
-	Date:	6 June 1988

Place: Sydney

EX TEMPORE REASONS FOR JUDGMENT

By an application dated 22 December 1987, the

applicant, who is the trustee of the bankrupt estate of

Gerald Harcus Jaffee, has sought the following orders:-

“l. That the net salary of Gerald Marcus Jaffee be

paid by his employer, Gayridge Investments Pty
Limited [’Gayridge‘], directly to the trustee for
the benefit of his creditors pursuant to Section
131 of the Bankruptcy Act, 1966 [‘the Act’].

2.    Alternatively, that such part of the salary of

Gerald Marcus Jaffee as the Court thinks fit be

paid by his employer, Gayridge, directly to the

trustee for the benefit of his creditors, pursuant

to section 131 of the Act."

The application, as appears on its face, is made under

s.131(2) of the Act which provides:-

"The Court may, upon the application of the

trustee, order that all, or such part as the

Court thinks fit, of the income of the bankrupt

shall be paid to the trustee	for the benefit of
the bankrupt's creditors."

In the course of a public examination under 6.81 of the

Act between 1 July and 3 July 1987, it was revealed that the

bankrupt, Hr Jaffee, was employed as the manager of the

company, Gayridge, at a net salary of approximately $1700 a

month. It was further revealed that M r Jaffee's wife had

independent means from which she defrayed her own living

expenses, the expenses of maintaining the joint domestic

establishment of herself and Mr Jaffee and	most	of	Mr
Jaffee's personal living expenses.

It was further indicted that W r Jaffee's salary was

applied by him to other expenses, such as the purchase of

books, magazines, minor articles of clothing, train tickets and occasional drinks and meals, and to payment of medical fees.

In an affidavit sworn on 31 March 1988, Mr Jaffee has

deposed that he has acted on medical advice from Dr Glazer of

Rose Bay about the consequences of a haemorrhaged duodenal ulcer for which e underwent surgery in the USA on 4 November

1986.    The effect of that advice, as confirmed by the oral

evidence of Dr Glazer, was that Mr Jaffee should drastically

reduce his workload, take regular short walks and avoid

stress as much as possible.

RC Jaffee has sworn that in reliance on that advice he

has reduced his workload by now acting only as	a consultant
to Gayridge, in which capacity he	is occupied for no more

than four hours a day on no more than three days a week. M r

Jaffee has further deposed, and the records of Gayridge

confirm, that since the end of February this year,	he has
been remunerated in his capacity as	a consultant at the rate
of $15 an hour and has been in receipt	of a gross income of

$180 a week, which leaves him, after deduction of tax

instalments, with a net amount of $156.50 a week. The

decision to reduce Mr Jaffee's salary was taken at a meeting

of the directors of Gayridge attended	by M r Jaffee's wife and
M i s s Cantrell, the secretary of Gayridge. M r Jaffee's

recollection is that he was in attendance for part of the

time. It does not appear that he protested that the

reduction in salary was unfair or sought	in	any way to
dissuade Gayridge from reducing his salary	in the way	it did.

However, a bankrupt may either, before or after his

bankruptcy, make any bargain which he pleases with any person

as to the remuneration which he is to receive for personal

services; See Re Shine. Ex parte	Shine. [l8921 1 Q.B.	522
where Fry L.J. observed at 531:-

"I	regard the words of the section and of the
order as referring to actual receipt.	They do
not refer	to title. They refer to the actual

receipt of the money. I do not say that, if there were a colourable or sham arrangement, by which a man was made to appear not to be in

receipt of a sum of which he was still actually

in receipt, the Court would not see through it.

But the question is, Is the man really and

actually in receipt of that sum?"

After dealing with the facts of the case then before

the Court, his Lordship continued at the foot of page 531:-

"This section does not enable	the Court to require
a bankrupt to receive anything. It only gives	a
discretionary power to the	Court when the man is
in actual receipt of a sum of money.	The Court

can neither restrain a bankrupt from entering

into a valid agreement about his salary, nor

compel him to earn his salary, nor prevent his

forfeiting it. He is a free man in respect of

all these things. The section only applies when he is actually in receipt of a salary or income."

His significantly reduced income has been applied by Mr

Jaffee in defraying incidental expenses similar in kind to those to which he referred in his public examination. Those

items of expenditure have recently included $45 for an

"Ayurvedic Massage" which Hr Jaffee undergoes about once a
week and which he claims affords some relief from his

physical ailments.

If it were relevant, there is no evidence from which I

can infer that the salary of $180 a week paid to Mr Jaffee by

Gayridge is less than the present value of his services as a

consultant to that company. Indeed, the inference is open

that notwithstanding his expertise in matters related to

breeding and racing of thoroughbred horses, which Mr Jaffee

has assiduously maintained, the bankrupt, who is now aged 69

years and in indifferent health, could not obtain income from

anybody other than Gayridge.

There is authority for the proposition that a wife's

financial position is relevant to an application under 6.131

in respect of her bankrupt husband. See, for example, - Re

Saunders. Ex parte Saunders. 118951 2 Q.B. 424 at 426. In - Re

Saunders, the Court of Appeal was at pains to emphasize that

the discretion under the counterpart of 6.131	is a general
one to	be exercised on the facts of each case and not subject

to any binding rule of law. In the present case, the wife is

not dependent to any extent at all on her husband's income,

but, in fact, contributes significantly from her own income

to his aupport. Those circumstances raise the question

whether the whole or any part of the bankrupt's present

income is reasonably necessary for the support of the

bankrupt himself.

The principles to be applied in answering that question

were distilled from the authorities by Riley J. in the

following passage from Re McLachlan (1975) 8 ALR 162 at 165
where his Honour said:-

"NO order should be made under	S 131 which would
contravene the long-standing principle that	a

bankrupt is not	to	be	deprived	of	income
reasonably	necessary	for	the	maintenance	of

himself and his family: see	eg the cases referred
to by Williams	J in Federal Commissioner of
Taxation v Official Receiver [l9561	ALR 643 at

- . But the cases

'648-9; 95 CLR 300 at 312 5

consistently speak of what the bankrupt is

entitled to retain as being what is required or

reasonably necessary for the support of himself

and his family: see eg Re Gra don [l8961 1 QB 417

at 421; [1895-9] All ER h; Rep Mercer v Vans

Colina (18971, reported I19001 1 QB 130 (n) at

r R e	Robcrts [l9001	1 QB 122 at 128, 129
(where Lindley	HR said that	'the necessity is the

limit of the exception');	Re Walter [l9291 1 Ch
647 at 652-3; [l9281 All ER Rep 640; Nette	V
Eowarth (1935) 53 CLR 55 at 65;	I19351 ALR 241

Palstein v Official Receiver [l9631 ALR 369; 108

t s u m - LR be had to the

bankrupt's occupation and station:  Re Walter,

[l9291 1 Ch) at 653. The burden of proof

at is required or reasonablv necessary is

borne by the bankrupt: Emden v Carte (1881) 1'7 Ch

D 768 at 769; Re Robertson (1931)	4 ABC 133 at
142 (affd (1932)	4 i CLR 4821."
In respect of the last observation	it has been pointed

out by a Full Court of this Court	in Lyford v Levit (1984)	2
FCR 264 at 269:-

"In the matter now before this Court the learned

primary judge described that onus as evidentiary,

saying that 'in the long run the burden of

establishing that an order should	be made and the
quantum of that order lies on the	trustee'. With

respect, we agree with is Honour's view.

Section 131(1) begins with the assertion that a

bankrupt is entitled to retain income for his own

benefit . It is true that the assertion is

prefaced with the words 'Subject to this

section'. But where, as in s.131(2), a statute

permits someone to approach the court for an
order against another, common sense and logic

dictate that it is for the applicant to satisfy

the court that an order should be made."

I am not prepared to infer from the evidence before the

Court that Mrs Jaffee would necessarily contribute to her

d

husband's living expenses some further amount equal to so

much of his present income as he might be ordered under 6.131

to pay to the trustee. It is tempting to speculate that Mrs
Jaffee controls Gayridge and that the present salary allowed
to her husband is merely an allowance in another form to her

husband by way of pocket-money with some incidental taxation

advantages to Gayridge, and through it to Mrs Jaffee. The

evidence does not permit the Court to form firm conclusions

about those matters but, if the speculation be correct, the

consequence of an order under s.131	would probably be that
Gayridge would cease to pay any salary at all to	M r Jaffee

who would then be entirely and directly dependent upon his

wife for his living expenses.

However, on the evidence before the Court, it is

sufficient to indicate that Mr Jaffee has discharged the onus

in an evidentiary sense of showing the whole of his present

net income of $156.50 a week is reasonably necessary to meet

such of his living expenses as, in the present circumstances,

are not defrayed directly by his wife. Against that, the

trustee has not persuaded me that the likelihood that	Mr
Jaffee's wife would meet all those expenses if his net income

were wholly or partly diverted by an order under s.131(2)

renders it an appropriate exercise of the Court's discretion

to make such an order. I should say that this case turns on

its own extraordinary facts, which include the circumstances

that at all relevant times the bankrupt's sole income has

been derived from a company controlled by his wife and he has

had no capacity to earn income from any independent source.

For these reasons the application is refused.

I certify that this and the preceding

seven (7) pages are a true copy of the Reasons for Judgment herein of his Honour Mr Justice Ryan.

Associate A?cr--%.b