McDonald v Young

Case [2012] FCAFC 137

FEDERAL COURT OF AUSTRALIA

McDonald v Young [2012] FCAFC 137

Citation: McDonald v Young [2012] FCAFC 137
Appeal from: Young, In the matter of Macryannis [2011] FCA 1272
Young, In the matter of Macryannis (No 2) [2012] FCA 175
Parties: GEOFFREY DAVID MCDONALD AS TRUSTEE OF THE BANKRUPT ESTATE OF THE LATE CHRISTOPHER JOHN MACRYANNIS AND KATHRYN ANNE YOUNG
File number: NSD 2135 of 2011
Judges: EMMETT, MIDDLETON AND ROBERTSON JJ
Date of judgment: 24 September 2012
Catchwords:

BANKRUPTCY – administration under Part XI Bankruptcy Act – whether Trustee entitled to deal with non-divisible assets as part of administration  – whether reference to bankrupt’s assets or estate in Bankruptcy Act and Bankruptcy Regulations to be read as reference to whole of deceased person’s property or as reference to divisible property only – where Trustee administered whole of estate including non-divisible assets

BANKRUPTCY – whether Trustee entitled to be remunerated out of exempt assets for dealing with exempt assets – whether Trustee entitled to costs, charges and expenses of administration – whether remuneration and any costs, charges and expenses relating to dealing with exempt assets to be drawn from divisible assets or exempt assets

BANKRUPTCY – extent to which NSW Trustee or the legal personal representative of the deceased has control over non-divisible assets

Legislation: Bankruptcy Act 1966 (Cth) ss 12(1)(b), 58(1), 109(1)(a), 116(1), 116(2), 134, 155H(1)(f), 156(A)(3), 162, 169, 176, 179(1), 179(2), 244, 248(1), 248(3)(c), 249(1), 249(7)
Bankruptcy Regulations 1996 (Cth) regs 6.01, 8.08, 8.12, Sch 3
NSW Trustee and Guardian Act 2009 (NSW)
Trustee Act 1925 (NSW) ss 63, 95
Wills, Probate and Administration Act 1898 (NSW) ss 18A, 44, 46C, 61, Part 1 of Sch 3
Cases cited: Adsett v Berlouis (1992) 37 FCR 201
Shirlaw v Taylor (1991) 31 FCR 222
Wilson v Official Trustee in Bankruptcy [2000] FCA 1251
Date of hearing: 11 May 2012
Date of last submissions: 11 July 2012
Place: Sydney
Division: GENERAL DIVISION
Category: Catchwords
Number of paragraphs: 105
Counsel for the appellant: Mr N Cotman SC
Solicitor for the appellant: Parry Carroll
Counsel for the respondent: Mr LP Robberds QC
Solicitor for the respondent: Rockliffs Solicitors

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

GENERAL DIVISION

NSD 2135 of 2011
ON APPEAL FROM THE FEDERAL COURT OF AUSTRALIA
BETWEEN:

GEOFFREY DAVID MCDONALD
Appellant
AND:

KATHRYN ANNE YOUNG
Respondent

JUDGES:

EMMETT, MIDDLETON AND ROBERTSON JJ

DATE OF ORDER:

24 SEPTEMBER 2012

WHERE MADE:

SYDNEY

THE COURT ORDERS THAT:

1.The Trustee bring in short minutes of proposed orders to give effect to the  reasons of    the Court.

Note:Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011


IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

GENERAL DIVISION

NSD 2135 of 2011
ON APPEAL FROM THE FEDERAL COURT OF AUSTRALIA
BETWEEN:

GEOFFREY DAVID MCDONALD
Appellant
AND:

KATHRYN ANNE YOUNG
Respondent

JUDGES:

EMMETT, MIDDLETON AND ROBERTSON JJ

DATE:

24 SEPTEMBER 2012

PLACE:

SYDNEY

REASONS FOR JUDGMENT

INTRODUCTION........ ........ ........ ........ ........ ........ ........ ........…

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McDonald v Young [2012] FCAFC 137
Case
[2012] FCAFC 137
Decision Date

CaseChat Overview and Summary

In the case of McDonald v Young, the primary judge considered the role and duties of a Trustee in the administration of a deceased person's estate under Part XI of the Bankruptcy Act. The dispute centred around the Trustee's handling of non-divisible assets and whether he was entitled to remuneration and costs from these assets. The primary judge found that while the Trustee had acted on the advice of a solicitor, his failure to seek court intervention earlier had caused undue delay, preventing beneficiaries from accessing their rightful funds.

The legal issues before the court involved interpreting the Bankruptcy Act and Bankruptcy Regulations to determine whether references to a bankrupt's assets or estate included non-divisible assets. Additionally, the court needed to decide whether the Trustee could be remunerated from exempt assets for dealing with such assets and whether costs and expenses relating to these assets should be drawn from divisible or exempt assets. The primary judge concluded that the Trustee's role was to distribute proceeds from non-divisible assets according to the deceased's will but could not be paid from those proceeds.

The reasoning of the primary judge was based on the necessity for the Trustee to act with initiative and diligence, particularly given the confusion surrounding the non-divisible assets. The judge found that while the Trustee had not acted improperly in other respects, his failure to seek timely court intervention was unreasonable. As a result, the judge ruled that the Trustee could not be remunerated from the non-divisible assets, and an inquiry into the Trustee's actions would not benefit the parties involved.

The court ordered that the Trustee prepare minutes of the proposed orders to reflect the reasons of the Court, as per Rule 39.32 of the Federal Court Rules 2011.

Orders

Orders of the court

1. The Trustee bring in short minutes of proposed orders to give effect to the reasons of the Court.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011

Background

Background to the litigation

Full text does not contain this section.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

Mr Findlay ended his letter by saying that he would be writing to the Trustee within a week, requiring him to remit funds that were clearly non-divisible property within 28 days or alternatively, if the status of the funds was in doubt, to pay the funds into Court within 28 days. Mr Findlay said that he understood that the Trustee had already instructed Parry Carroll to make an application to pay the funds into Court and to seek approval for his remuneration and costs. That appears to have been a reference to the Trustee’s Application, which was filed subsequently, on 3 December 2009. THE DECISION OF THE PRIMARY JUDGE The primary judge considered that the history briefly outlined showed a high degree of confusion on both sides, as well as inadequate legal advice and unwarranted delay. Her Honour observed that, had the declarations in relation to the will of the Deceased been sought by Mrs Young earlier, much of the delay might have been avoided. More importantly, her Honour said, the Trustee did not act with the initiative and diligence that it was reasonable to expect. Given that the Trustee was unable to resolve the confusion in relation to the Exempt Assets, her Honour considered that he should have sought the intervention of the Court at an earlier stage. Had there been no uncertainty surrounding the ability of Mrs Young to give a good discharge, the Trustee could have made a partial distribution of the proceeds of realisation of the Exempt Assets. Since he had a genuine belief that he was entitled to be paid remuneration out of the proceeds of the realisation of the Exempt Assets, he could have retained a reasonable sum to cover his costs and remuneration. Her Honour considered that the delay in resolving that issue kept the legitimate beneficiaries out of the funds to which they were entitled for much longer than was necessary. On the other hand, the primary judge accepted that the Trustee acted on recommendations made by Mr Findlay. There has been no complaint about the Trustee’s dealing with the creditors of the Deceased, other than Mrs Young in relation to Exempt Assets, or about his dealing with the property of the Deceased that was divisible amongst creditors. For that reason, her Honour concluded that an inquiry under s 179 in respect of the Trustee’s delay in dealing with the proceeds of realisation of the Exempt Assets would not be of any benefit to Mrs Young, or to the beneficiaries under the will of the Deceased, but would only prolong further the winding-up of the estate. Her Honour considered that the Trustee’s clear duty was to distribute the proceeds of realisation of the Exempt Assets in accordance with the will of the Deceased. However, her Honour considered that no amount in respect of the Trustee’s costs and remuneration could be taken out of those proceeds. Mrs Young contended before the primary judge that there should be an enquiry into whether some fees in respect of the administration of the estate of the Deceased claimed by the Trustee had in fact been incurred by Hall Chadwick and written off by that firm. Her Honour said that the basis of the allegation was a conversation that Mr Findlay said he had in October 2009 with Ms Louise Thomson, a manager at Hall Chadwick. According to Mr Findlay, Ms Thomson told him that any remuneration owing to Hall Chadwick had been written off. Her Honour found that Mr Findlay did not attach much importance to the comment. Her Honour considered that, in the absence of any evidence as to context and the way in which remuneration within Hall Chadwick was structured at the time when the Trustee was a partner, little weight could be given to Ms Thomson’s comment. In her Honour’s view, the limited evidence put forward on the point did not warrant an enquiry.

Ratio Decidendi

Legal Principle Established

Section 244(1) of the Bankruptcy Act relevantly provides that, subject to certain prerequisites being satisfied, a creditor to whom a debt of not less than $5,000 was owing by a deceased person at the time of death may present a petition for an order for the administration of the estate of the deceased person under Part XI of the Bankruptcy Act. Section 244(11) provides that, on the hearing of a petition by a creditor under s 244(1), if the Court is satisfied with the proof of the matters stated in the petition, the service of the petition and the fact that the debt to which the petition relates is still owing, the Court may make an order that the estate of the deceased person be administered under Part XI. Under s 249(1) of the Bankruptcy Act, where an order is made for the administration of the estate of a deceased person, the divisible property of the estate, not being after-acquired property, vests forthwith in the trustee of the estate. In addition, after-acquired property of the estate vests in the trustee, as soon as it is acquired by, or devolves on, the estate. Section 249(1) is equivalent to s 58(1) in relation to a living person who becomes bankrupt. Under s 58(1), where a person becomes bankrupt, the property of the bankrupt, not being after-acquired property, vests forthwith in the trustee of the estate of the bankrupt and after-acquired property of the bankrupt vests, as soon as it is acquired by, or devolves on, the bankrupt, in the trustee of the estate of the bankrupt. The divisible property and after-acquired property are divisible amongst the creditors of the deceased person in accordance with the Bankruptcy Act. Under s 249(7)(a), the divisible property of the estate of a deceased person does not include, relevantly:·property that would not have been divisible amongst the person’s creditors under Part VI, had a sequestration order been made in respect of the person’s estate before death; or·so much of the proceeds of a policy of life assurance or endowment assurance, a payment from a regulated superannuation fund (as defined), or an approved deposit fund (as defined), or a payment from an exempt public sector superannuation scheme (as defined) as would not have been divisible amongst the creditors of the person under Part VI. Section 116(1) of the Bankruptcy Act, which is in Part VI, relevantly provides that 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, is property divisible amongst the creditors of the bankrupt. However, under s 116(2), that provision does not extend to, relevantly, property held by the bankrupt in trust for another person, policies of life assurance or endowment assurance in respect of the life of the bankrupt or of the spouse or de facto partner of the bankrupt, the proceeds of such policies received on or after the date of the bankruptcy, or the interest of the bankrupt in certain superannuation funds.