Official Receiver in Bankruptcy v Schultz

[1990] HCATrans 143

~

~ ",?~iirll'JI

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Brisbane No Bl4 of 1990

B e t w e e n -

OFFICIAL RECEIVER IN BANKRUPTCY

Appellant

and

RONALD ROY SCHULTZ and MERLE

HEATHER SCHULTZ

Respondents

Y.ASON CJ
BRENNAN J
DEANE J
DAWSON J

Schultz(2)

GAUDRON J

TRANSCRIPT OF PROCEEDINGS

AT BRISBANE ON TUESDAY, 26 JUNE 1990, AT 12.16 PM

Copyright in the High Court of Australia

BlTS/1/ND 1 26/6/90

MR G.L. DAVIES, QC, Solicitor-General for Queensland:

May it please the Court, I appear with my learned

friend, MR J. McGILL, for the appellant.

(instructed by G1lshenan & Luton)

MR G. GIBSON, QC: May it please the Court, I appear for the

respondents with my learned friend, MISS E. FORD.

(instructed by Primrose Couper Cronin Rudkin)

MASON CJ:	Yes, Mr Solicitor.
MR DAVIES:	May I hand up a copy of our outline.
MASON CJ:	Thank you.
MR DAVIES:	Your Honours, may I also hand up a bundle of

statutes and authorities to which we would refer.

Your Honours, the relevant facts and the sequence

in which they occurred are set out in chronological
order in the judgment of Mr Justice Thomas in

the Full Court. Could I take Your Honours to

that on page 26 of the appeal book.

Your Honours will see that a sequestration order was made against the estate of Mrs Schultz

on 11 March 1985. Then on 18 June 1987:

Mrs Pereira died leaving a house property

and certain personal property to Mrs Schultz

and appointing -

she and her husband -

to be the executors.

The terms of that will, Your Honours, are set

out in the first page of the judgment of

Mr Justice Cooper below which is on page 5 of

the appeal book although nothing, in our respectful

submission, turns on the form in which the devise

and bequest were given.

The next event was in the following year,

on 26 July:

Upon application by Mr Pereira (the deceased's

husband) under -

the testator's family maintenance prov1s1on	1n
the SUCCESSION ACT -

Moynihan J ordered that the devise of the above house property to Mrs Schultz be read and construed as a devise of it to

Mr Pereira.

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That order appears at page 2 of the appeal book where His Honour said, just above line 10:

I DIRECT that the Will of the abovenamed

deceased dated the first day of August 1986

be read and construed as though the name

SHELTON CLEMENT PERIERA appeared in

Clause 3(g) thereof instead of -

Mrs Schultz's name.

MASON CJ:  So it carried the contents as well, the house?

MR DAVIES:  Yes, Your Honour. Then, on 20 September 1988

Mrs Schultz was discharged from bankruptcy and

then on 8 December that year the executors appealed

against Mr Justice Moynihan's order, succeeded

at least in part, and the order of the Full Court

on that appeal appears on page 4 of the appeal

book where it appears, at the top of the page,

that it is ordered:

that the order made by the

Honourable Mr Justice Moynihan ..... be varied by deleting therefrom the words -

which he inserted and inserting in lieu the

direction which commences just above line 30 and

goes down to just below line 40 on page 4.

Your Honours, it was common ground between

the parties that, at all material times, the

administration of the estate of Mrs Periera was

and is incomplete.

Your Honours, it was accepted by all courts

below and in argument in those courts - and there

is no notice of contention to the contrary here - that the principles stated in COMMISSION OF STAMP

DUTIES V LIVINGSTON by the Privy Council really

governed this case and the question really was what was the consequence of the application of

those principles to the facts which I have just

stated.

Can I take Your Honours to the principles

as they were stated in that case, (1965) AC 694.

It is in the bundle which I have handed up to

Your Honours. That case, Your Honours will recall,

concerned residuary estate and exigibility for

succession duty but nothing in our respectful

submission, which was said by the Privy Council

limits their remarks to residuary estate. In

fact, they specifically deal with the application

of principles to specific devises and bequests

such as there were in this case.

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Your Honours, at page 707, if I could take

up the advice of the Privy Council, at about

letter D, where Their Lordships said:

There were special rules which long prevailed

about the devolution of freehold land and

its liability for the debts of a deceased -

they are the rules which have changed by

section 45 of the SUCCESSION ACT in Queensland and

in other States, of course -

but subject to the working of these rules
whatever property came to the executor virtute

officii came to him in full ownership, without

distinction between legal and equitable

interests. The whole property was his.

He held it for the purpose of carrying out

the functions and duties of administration,

not for his own benefit; and these duties

would be enforced upon him by the Court of

Chancery, if application had to be made for

that purpose by a creditor or beneficiary

interested in the estate. Certainly, ther~_,f,,,,,,

he was in a fiduciary position with regard

to the assets that came to him in the right of his office, and for certain purposes ~nc

in some aspects he was treated by the cour:

"A II • d K J

as a trustee. n executor , sa1 ay

in IN RE MARSDEN, "is personally liable in

equity for all breaches of the ordinary tr,:<~

which in Courts of Equity are considered

to arise fr om his office . "	He is a tr us t ,_,,,
"in this sense".

Can I then take Your Honours to page 712 and l and if I can, without taking Your Honours ful _

to the criticism which is described as a seconc

line of criticism of Lord Herschell's speech 1n

SUDELEY, take that up at just below letter Don that page where Their Lordships said:

What matters is that the court will contr~i

the executor in the use of his rights over

assets that come to him in that capacity;

but it will do it by the enforcement of rem~di~s

which do not involve the admission or recognit~on

of equitable rights of property in those

assets. Equity in fact calls into existence

and protects equitable rights and interests

in property only where their recognition
has been found to be required in order to
give effect to its doctrines.

Criticisms of this kind arise from the

fact that the terminology of our legal system

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has not produced a sufficient variety of
words to represent the various meanings which

can be conveyed by the words "interest" and

"property".

And then His Lordship referred to the passages quoted from the Chief Justice's judgment in the same case and, in particular, the judgment of Chief Justice Jordan in McCAUGHEY's case where

he said:

"The idea that beneficiaries in an unadministercd

or partially administered estate have no

beneficial interest in the items which go

to make up the estate is repugnant. to elementary

and fundamental principles of equity."

Their Lordshipssay:

If "by beneficial interest in the items"

it is intended to suggest that such beneficiaries

have any property right at all in any of

those items, the proposition cannot be accepted

as either elementary or fundamental. It

is, as has been shown, contrary to the principles

of equity. But, on the other hand, if the

meaning is only that such beneficiaries arc

not without legal remedy during the course

of administration to secure that the assets

are properly dealt with and the rights that

they hope will accrue to them in the future

are safeguarded, the proposition is no doubt

correct. They can be said, therefore, to

have an interest in respect of the assets,

or even a beneficial interest in the assets,

so long as it is understood in what sense

the word "interest" is used in such a context.

And they refer specifically to rights which specific

legatees might have to recover assets at the bottom

of that page where they say:

Nor can the solution of the difficultv

be advanced by referring to those cases in·

Equity Courts in which a creditor or a pecuniary
or residuary legatee has been allowed to

follow and recover assets which have been

improperly abstracted from an estate. The

basis of such proceedings is that they are

taken on behalf of the estate and, if they

are successful, they can only result in the

lost property being restored to the estate

right of remedy, they assert the estate's

for use in the due course of administration.

right of property, not the property right

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of creditor or legatee; indeed, the usual
situation in which such an action has to

be launched is that in which the executor

himself, the proper guardian of the estate,

is in default, and thus his rights have to

be put in motion by some other person on

behalf of the estate.

So, in our respectful submission, what Mrs Schultz
had here and what passed to the trustee in bankruptcy
was the chose in action and, in our respectful

submission, it was one set of rights, it was one

indivisible set of rights which she had in the

estate. It was a right to have the estate duly

administered. It was not a right in rem in respect

of any property, it was a right against the person

or representative. It might be that there are
other rights, as the Privy Council indicated in

that last passage to which I referred, but that

does not mean, in our respectful submission, that

Mrs Schultz had a proprietary right in any specific

asset in the estate because just as even with

respect to residuary estate one cannot be sure

what that involves until the administration is

complete that principle applies equally, in our

respectful submission, to specific devises and

bequests.

So, in our respectful submission, that chose

in action then is and was the property of Mrs Schultz

which, upon her bankruptcy, vested in the Official

Receiver. That follows, in our respectful submission,

from an analysis of section 5, which is the definition

of property, section 58(l)(b), and in particular

section 116(1) of the BANKRUPTCY ACT, which

Your Honours have before you and which I do not

need to take Your Honours to specifically.

Can I take Your Honours, however, to two

cases in which that question has been decided

in a way in which I have just submitted. They

are two decisions of the Federal Court. The first

of them is a case of RE PEVSNER; EX PARTE TRUSTEE

IN BANKRUPTCY, (1983) 68 FLC 254. It is a decision

of His Honour Mr Justice Sheppard. Your Honours

will see, if you go to page 255, the first paragraph

there that:

The bankruptcy of the bankrupt commenced on 3 November 1976.	On 30 January 1979,
his mother died.	By her will she gave the

whole of her property to be divided among

her children .....

On 1 February 1981, the bankrupt was

discharged from his bankruptcy. At that

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time the estate of his mother had not been

fully administered.

His Honour then referred to sections 58 and 116

at the bottom of that page, the definition of

"property" at the top of the following page, then,

at about two-thirds of the way down he refers

to counsel's submission and goes on to say:

But, so it seems to me, the chose in action for the due administration of the estate

itself was property for the purposes of the

relevant provisions in ss 58 and 116.

Then, in the following paragraph, His Honour said:

Once this is understood it seems to

me, particularly by reason of the provisions

of par (a) of s 116(1) ..... that the chose in action to which Lord Radcliffe referred

became vested in the trustee upon the grant

of letters of administration in the mother's

estate on 4 December 1979 .....

The trustee became seized or possessed of such chose in action, is the only person entitled to enforce it and becomes, because of it, entitled to the moneys which will

arise when the estate is distributed. If

this view were incorrect the chose in action,

although vested in the trustee and still vested in the trustee at the time of the

discharge, would be of no practical value.

The position is no different from that which

arises where a beneficiary in an estate has

assigned his interest therein, whether by

way of charge or otherwise. The assignee

is entitled not only to the chose in action

but to the beneficial interest in the property

which the assignor would otherwise have been

entitled to on the estate being fully

administered.

The other case, Your Honours, which follows that

is a decision of Mr Justice Lockhart in a case

called SILVIA V THOMSON, 87 ALR 695. His Honour,

on page 696, just below line 25, refers to the

principles stated in LIVINGSTON and then, in the
following paragraph, states the facts:

Upon the death of the testatrix on 6 June 1986 Mrs Thomson became entitled to

the chose for due administration of the estate

of the testatrix. That chose vested at the

moment of the testatrix's death in the trustee

of Mrs Thomson's estate. The trustee is

the applicant in these proceedings.

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And he goes on to say:

That consequence flows from ..... the BANKRUPTCY

ACT -

and he then says, in the following, paragraph:

In my opinion the chose in action to the due administration of the estate of the
textatrix constituted after acquired property

of Mrs Thomson, a view adopted by Sheppard J

in RE PEVSNER ..... It is a right to have the

estate of the testatrix properly or duly

administered. It is not, of course, a

proprietary right in any specific asset of

the estate of the testatrix.

And if I can just take Your Honours to the following

page, just below line 20, where he said:

The effect of a discharge from bankruptcy

is to release the bankrupt from all debts

provable in the bankruptcy but the trustee

remains trustee of the former bankrupt's

property which remains available for realisation

and distribution among the creditors.

So, Your Honours, the position here was that

at no time did the bankrupt cease to be a beneficiary

under the will, even if the effect of the order

of Mr Justice Movnihan was that she was not a

beneficiary under clause 3(g) in respect of the

house propert½ she still remained a beneficiary

in respect of clause 3(a), and the trustee, therefore,

at all times, in our respectful submission, retained

that chose in action. T~at really, in our respectful submission, indicates no more than, as we said in paragraph 5, that the value of that

chose in action may change from time to time in

the course of administration of an estate for
a variety of reasons; there is nothing surprising

about that.

Your Honours, can I then take Your Honours

to the relevant provisions on the SUCCESSION ACT

which deal with testator's family maintenance

or family provision as it is called in that part.

I commence with section 40, the operative section being section 41.

BRENNAN J:  Mr Solicitor, before you get there, could you

just explain to me how the section 45 of the

SUCCESSION ACT now operates with respect to the

devolution of property on death?

MR DAVIES:  We submit it vests all property in the personal

representative.

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BRENNAN J: And that has the effect, I take it, of a

statutory vesting so that the devise as such,

the testamentary devise, is unnecessary; is that

the way in which it operates?

MR DAVIES:	Yes, Your Honour.
BRENNAN J:	So the provisions of the will, in this case,

operate simply to create the trust on which it

is held?

MR DAVIES: Yes, they create, in the end, an interest 1n

that general sense in that real property.

BRENNAN J:  So that the effect of the SUCCESSION ACT, when

it was introduced here, was simply to change the
old or with respect to the devising of real

property?

MR DAVIES:  To make no distinction between real and personal

property.

BRENNAN J:	And to effect the vesting of property owned by a deceased in that person's personal
representative?
MR DAVIES:	Yes, but I did not understand Your Honour to

be saying that adrlitionally. I mean, that is done,

in any event, we submit, with respect to personal

property.

BRENNAN J: Yes.

MR DAVIES: Yes, that is true. I am reminded, Your Honours -

I am sure Your Honours have noticed this, the

property is defined in section 5 of the SUCCESSION

ACT to include real and personal property.

Can I then take Your Honours to section 41,

the operative provisions with respect to family

TS provision It provides, in effect - and I am just

reading from the last part of subsection (1) - that:

on application by or on behalf of the said

spouse, child or dependant, order that such

provision as the Court thinks fit shall be

made out of the estate of the deceased person

for such spouse, child or dependant -

so that what the effect of the order is, although

it is common at least by courts in Queensland

to frame orders as a rewriting of the will, what

in fact the court is doing is making provision

for an applicant who falls into one or other of

those categories and the other perhaps relevant

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provision I should take Your Honours to is

subsection (10) which states the consequence of

the order being made.

Can I take Your Honours then to the judgment

of the majority of the Full Court in this case

which consists of Mr Justice Connelly and

Mr Justice Ambrose. And can I take Your Honours

to page 21 which is the fourth page of

Mr Justice Connolly's reasons for judgment.

His Honours said there:

In considering the effect of the order of Moynihan J, it must be recognized that

that order operated to give to the husband

of Mrs Pereira that right given by the will

to Mrs Schultz. If it were to have anv effect

it must divest the chose in action in question

from the Official Trustee and vest it in

Mr Pereira. The question immediately arises

whether a construction of s 41 of the SUCCESSION

ACT which would authorise the making of -

such -

an order vesting in Mr Periera property

which, by virtue of the BANKRUPTCY ACT, 1s
divisible amongst the creditors of Mrs Schultz

would not be contrary to s 109 of the CONSTITUTION.

And he went on to say that that really was not

argued.	In our respectful submission, that is
just not correct.	Had it continued to operate,

it would have conferred a chose in action on

Mr Periera and, in consequence, it would have

reduced in value the chose in action which Mrs Schultz

had or, putting it another way, it would have

taken away the expectancy of Mrs Schultz, thereby
reducing the value of the chose in action which

she had because of that and her other expectancy

and it conferred an expectancy on Mr Periera in

respect of which he thereby had a chose in action.

So there is no section 109 problem if that

is the correct analysis. If His Honour's

characterization of.what took place is correct,

then section 109 would apply and it would prevent

the consequence which His Honour stated.

Can I take Your Honours then to two pages

over to page 6 of His Honour's judgment, page 23

of the appeal book, where His Honour said:

On the facts of this case, there was no right

to due administration either in Mrs Schultz

or in the Official Trustee in relation to

43 Renton Street between the order of Movnihan J

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Schultz(2)

and that of the Full Court. In my judgment

therefore the estate in remainder which the

order of the Full Court gave to Mrs Schultz

was something which she did not have on

20th September 1988 when she was discharged

from bankruptcy. It is a right which accrued

after her discharge and it is untouched by

the bankruptcy legislation.

And it really follows from what we have submitted

to the Court that what we submit is that each

beneficiary, because he or she is a beneficiary,

has a right to due administration of the estate

but it is not in relation to specific property,

it is a right to general administration of the

estate as a whole. And if one puts on one side

at the moment any argument about the effect of

the Full Court's order relating back, the Full

Court did not, pursuant to section 41, give

Mrs Schultz anything; it could not because she

was never an applicant and the section 41 authoriz0d

only provision being made for applicants. But

what it did was by making provision for Mr Pcri,·ra

in the terms which it did, it really increased

Mrs Schultz's expectancy and so the value of her

chose in action which had passed by then to th,·

Official Receiver.

Your Honours, for those reasons, in our

respectful submission, His Honour's reasoning

was incorrect. an I take Your Honours then t0

the judgment of His Honour Mr Justice Ambrose

which commences at page 35. Your Honours will

see that not ithstanding his citation of LIVI~l~S:,-i\'s

case on that page, he says, just above line 50.

that he takes:

the view that the right which she -

Mrs Schultz -

obtained under the will was -

a contingent right, and it appears that he is

saying that it is a contingent proprietary right

which, in our respectful submission, is simply

inconsistent with what the Privy Council said.

MASON CJ:  Mr Solicitor, would it be convenient to adjourn

now? We will resume at 2.15.

AT 12.45 PM LUNCHEON ADJOURNMENT

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UPON RESUMING AT 2. 19 PM:

MASON CJ:	Yes, Mr Solicitor.
MR DAVIES:	May it please the Court, before lunch I was taking

Your Honours to the judgment of Mr Justice Ambrose,

the second member of the majority in the court belo~

his judgment commencing at page 35 of the appeal book.

Your Honours will see that he purported to apply

COMMISSIONER OF STAMP DUTIES V LIVINGSTON in the

Privy Council but then went on to say, on page 36,

just below line 10 that:

Mrs Schultz could claim to have only a

contingent right to the property -

and it appears when he speaks of that further down

that he is speaking of a contingent proprietary

right because if one gets to just below line 30, in

the paragraph there, His Honour is speaking of

contingent proprietary rights which, in our

respectful submission, is of course quite

inconsistent with the view of the Privy Council.

The other point which His Honour made which,

the Full Court made under the SUCCESSION ACT. He

in our respectful submission, was wrong is that

said that at page 37 at line 30:

Under the terms of the order of the Full

Court of the 8th December, 1988, Mrs Schultz

was given a right in remainder -

and in our respectful submission that just could not
be correct; that the order of the Full Court could
not have given Mrs Schultz anything. It could have

only made provision to an applicant of the character

described in section 41.

DEANE J:	Because the Privy Council in LIVINGSTON went a lot
further than the decision required, did it not, in
that they went a lot further than, for example,
Justice Kitto went in this Court.
MR DAVIES:	Yes, Your Honour.

DEANE J: And it is a very delicate area in that if the

Privy Council approach be correct it is difficult

to see how, for example, HORTON V JONES could still

stand. I am just wondering whether this strange

approach of the Privy Council is really necessary

for your argument in this case.

MR DAVIES:  Well, it certainly is not for our alternative

argument which I have not reached.

B1T7/1/SH 12 26/6/90

Schultz(2)
DEANE J: No, for your primary argument; that is, that while

the beneficiary may have a proprietary interest in
the equitable sense in the assets to which he or she

is eventually laying claim -

MR DAVIES:  They are derived only from the chose in action.

DEANE J: It derives only from the chose in action which, on

Justice Kitto as distinct from Justice Dixon's

approach - - -

MR DAVIES:  Yes, Your Honour is quite correct but I do not need

to take it as far as that; it is sufficient to say that

whatever right there is, however one describes it, it

derives from the chose in action.

DEANE J:	It is, I would have thought, the last area that I would like to
get involved in a case where it is not absolutely
essential.
MR DAVIES:	I take Your Honour's point and it is certainly sufficient for our purposes to say that; that whatever
interest arises, to put it neutrally, it arises from
the chose in action and the chose in action is one
and indivisible.
GAUDRON J:	Does that mean the position would have been different

if your client did not have a gift of the personal

effects?

MR DAVIES:  In this case it would have Your Honour, yes.

GAUDRON J: Well, that seems an extraordinary result, does it

not?

MR DAVIES: It does and we would, for that reason, adopt what

the Privy Council said in LIVINGSTON.	We say it is
correct but it - - -

GAUDRON J: Well, is that right? I mean, the real question

must be surely that what is the effect of the order

under the TESTATORS FAMILY MAINTENANCE legislation?

Did it extinguish interestscompletely?	I would have
thought maybe not.

MR DAVIES:  Well, it could not have extinguished an interest

which by then had passed to the trustee in bankruptcy.

Your Honours, there is another difficulty, of course, and

perhaps I should not be sidetracking on to this, but

once one talks about the interrelationshp between

section 41 and the BANKRUPTCY ACT provisions in

some way other than the way in which we have

submitted, one does get to a question under

section 109 of the CONSTITUTION.

GAUDRON J: Well, in a sense you get there because it is a

chose in action but also you get there because it

B1T7/2/SH

13   26/6/90

Schultz(2)

seems to be accepted that what the order did was

somehow affect interests or the chose in action

whereas maybe the true effect is just to alter the

order of administration.

MR DAVIES:  Perhaps it is, Your Honour, but all, perhaps, I am

saying is that when one is construing the provision

in that sense, I suppose one might be getting into a

question under section 109. One might be saying that

whether in fact there is a conflict between the

BANKRUPTY ACT provisions and section 41 depends upon

the proper construction of section 41 and there is a
difficulty, of course, at this stage in proceedings

arguing a question of section 109 of the CONSTITUTION.

Your Honours, I do not think there is anything I

can usefully add on that argument. The other submission

we want to make is an alternative one and that is that

the effect of the Full Court order in the proceedings

under the SUCCESSION ACT on its true construction was

retrospective in the sense in which a really quite

similar order was held to be by this Court in

GOULD V VAGGELAS.

Can I ask Your Honours to look at GOULD V

VAGGELAS, (1983-1985) 157 CLR 215 and the relevJ~t

part of the judgment is right at the very end,

Your Honours , a t page 2 7 4 and i t appears th a t c.,· r-- , (

the Full Court did, if Your Honours look at the

middle of page 274, is order that "the judgment

below be varied" in a certain way and what it di'."'. ,•,iS

vary the judgment in the way in which it specifi~•

but did not vary the date of the judgment. In ,,L_;-	respectful submission, the same happened here: th 1 t
what the Full Court did in its order here was u<'c
the judgment of Mr Justice Moynihan and vary it ,:-'
specific respects leaving it for the balance
remaining unchanged. The consequence of that, ~
our respectful submissioq is that on any view of :~e matter, however one views the principles we have
discussed in our first submission, that the inte~ ~r
vested in the Official Receiver.

Your Honours, the only other point which we ~Jke

is the last one we make in paragraph 8 of our outline

and that is the curious consequence of both of our

alternative submissions being wrong, it really means

that the result is achieved because Mr Justice Movnihan

was wrong.

Your Honours, the only other point that perhaps I

should make - we submit for those reasons that the

order which His Honour Mr Justice Cooper at first

instance made is the correct one. His Honour's

order is at pages 15 and 16. However, we submit

that with respect to costs that the appropriate

order is the one which His Honour Mr Justice Thomas

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in the Full Court would have made. His Honour

Mr Justice Cooper ordered costs be paid out of the

estate of the bankrupt and, in our respectful

submission, the appropriate order is that which

His Honour Mr Justice Thomas would have made at

page 34 of the appeal book, which is that they

be paid out of the estate of the deceased and,

for the reasons which His Honour gives on that

page. We really cannot u efully add anything to

His Honour's reasons there which we adopt as our submission in that respect. They are our

submission, may it please the Court.

MASON CJ:  Thank you, Mr Solicitor. Yes, Mr Gibson.

MR GIBSON:	Your Honours, might I also hand up seven copies of the bundle of cases.
Your Honours, the respondents' position has proceeded upon an acceptance of the statements of
principle by the Privy Council in LIVINGSTON's case
with the consequence that the beneficiary under an
estate is entitled only to require that the estate
be duly administered to safeguard the rights which
he hopes will accrue to him in the future under the
will.

Mrs Schultz's entitlement, which arose by virtue

of the will of the deceased, did constitute after
acquired property, within the meaning of that term

in section 58 of the BANKRUPTCY ACT and consistently

with PEVSNER and SILVIA's cases vested in the official

receiver.

On the facts of this case, however, we submit

that nothing turns on whether it is correct to

identify that entitlement as comprising a single

chose in action or separate choses in actio~ that being the issue which the appellants have thought it appropriate to identify as central to the outcome
of the appeal in paragraph 2 of their outline. That

is because, firstly, the effect of the order of

Justice Moynihan on 26 July 1988, whilst of course

Mrs Schultz was still a bankrupt, was to deprive her

of her anticipated future entitlement to a transfer

of the house property at Renton Street and, secondly,

the effect of the order made by the Full Court on

8 December 1988 subsequent to her discharge was to

confer on her an entirely different benefit; namely,

a prospective interest in remainder in the house

property.

Now, both Their Honours Justices Cooper who,

of course, delivered the judgment at first instance,

and Justice Thomas who dissented in the Full Court,

recognized that the benefit conferred on the deceased's

husband by the order of Justice Moynihan originated

BlT7/4/SH	15	26;b/90
Schultz(2)

in that order and was referable to it rather than

being characterized as a benefit provided by the will

itself.

Mr Justice Cooper discussed the point in his

judgment in the appeal record at page 10, lines 50

to page 11, line 30. As His Honour says at the foot

of page 10 and over to page 11:

It is important to understand the nature

of the order made in favour of the deceased's

husband. It is not an order the effect of which

is to rewrite the will giving to him rights

thereunder as a beneficiary which fall to be
enforced by him against the legal representatives

or trustees in the capacity of beneficiary under

the will. The rights he obtains flow from, and

are enforced under, the order.

His Honour then referred to the cases of UNION-FIDELITY and McLEOD V JOHNS, to which I shall shortly refer.

Mr Justice Thomas dealt with the issue similarly at

page 29 of the record, from lines 20 to 50,

3rticularly at line 30. His Honour said:

They -

that is, orders made under the testator's family

maintenance provisions of the SUCCESSION ACT -

are not in substance orders amending the will.

They take effect on the date on which they are made and their effect is not made to depend

upon any notion of relation back. Even though

the court may, and usually does, antedate the provision to the date of the will, because of the convenient form of order which directs that

the will be construed as if it had been so

amended, the right of the applicant originates

from the order of the court.

The authorities referred to by Their Honours are in	point and might I take Your Honours to the cases of
UNION-FIDELITY and McLEOD V JOHNS.

In the UNION-FIDELITY TRUSTEE CO. OF AUSTRALIA

LTD V MONTGOMERY, (1976) 1 NSWLR 134, reference was made by His Honour Justice Helsham to the earlier

judgment of Chief Justice Herring in the Supreme in the bundle but to which I shall not specifically

refer. His Honour referred to that decision at page 140

of the report and quoted with approval, particularly from letters E to G of that page. In the concluding

sentence on page 140, His Honour, again quoting from

the judgment in RE BISHOP, said:

B1T7/5/SH	16	26/6/90
Schultz(2)

The provision in the will, being inadequate,

is not just supplemented in such a case, but is

supplanted by whatever provision the Court thinks

fit to make."

Then, at page 141C, His Honour again quotes from

the judgment in BISHOP:

And later His Honour said:  "Now, as

I have indicated earlier, the widow does

take such benefits as she receives under the

order and dehors the will, ..... "

At page 141D, His Honour applied those extracts from

the judgment in BISHOP by saying:

I must pay heed to the local decisions

given in respect of the Act or one which has

similar provisions. And they suggest to me

that I should treat the provision made for

a dependant by order under the Act as being

something different from a provision made by

will, even though in some respects the provision
made by order is to be treated as being a

testamentary provision.

And, to the same effect is the judgment of

Justice Kearney in McLEOD V JOHNS. In that case - - -

DEANE J:	But do you not really have to go to the Act; that is, the SUCCESSION ACT as your starting point to understand the order?
MR GIBSON:	Yes.

DEANE J: Well, now, as I understand it, the jurisdiction was

to make provision for the husband and to direct the incidence of the burden of that provision. Is that

correct?

MR GIBSON:	Yes, that is so, Your Honour.
DEANE J: Well, then, one starts with the fact that the

situation was that the Official Receiver had the

entitlement to the benefit and the court had

jurisdiction to make provision for the widower and

provide for the incidence of the burden of that

provision. That it did by providing relevantly

that she got the house or that he got the house

and that the Official Receiver bear the burden.

MR GIBSON:	Yes.
DEANE J:	The Official Receiver appealed and that was changed to
he got a life interest in the house and the burden on
the Official Receiver was reduced accordingly.

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MR GIBSON:  Well, in fact, the Official Receiver did not appeal

and I am uncertain as to what role, if any, the

Official Receiver played in those proceedings but, save

for the fact that it was the executors of the

deceased estate who appealed, Your Honour's

observations are quite accurate.

DEANE J: Well, then, does not one then have to analyse what

happened and what happened was there was property of

the Official Receiver; there was an order made to be

borne by that property which would affect the value

of that property; there was an appeal which reduced

the burden of the order. Now, that being so, why did

things depart from the Official Receiver in a way

that is, as it were, irretrievable?

MR GIBSON:  Because the right of property which was vested in

the Official Receiver was the chose in action.	The
chose in action was the right to enforce the due
administration of the will.

DEANE J:	Yes, but the chose in action was always, even
treating this as a specific devise, to the specific
devise less the burden of any order made under the
SUCCESSION ACT.
MR GIBSON:	Indeed.

DEANE J: Well, now, the Official Receiver never lost that.

The content of it was the subject of litigation with changing results but from beginning to the end the Official Receiver remained entitled to

the chose in action related to the specific devise
of the house less only any diminution from
administration and the extent to which it had to

bear the burden of an order under the SUCCESSION ACT.

(Continued on page 19)

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Schultz(2)

MR GIBSON:  Indeed, the fruits of the chose in action, if

one might use that term, was the expected right or

entitlement to a transfer of the house property;

that was what was left to Mrs Schultz in the will

and that was part of the fruits of the chose in

action which vested in the Official Receiver.

But the effect of the order of Justice Moynihan was

to extinguish the interest, if I may use that

term, of the official trustee in the house property

in Renton Street because the chose in action,

whilst it remained alive throughout by virtue of
the fact that the gift of personal property in
clause 3(a) of the will, nevertheless part of the
fruits of that chose in action was extinguished

by virtue of the order at first instance.

DEANE J: Except what I am directing your attention to is the

proposition that the Official Receiver's chose in
action was never extinguished. All that was
happening was the possible ultimate outcome of
it was varying according to the heaviness of

the order made under the SUCCESSION ACT.

MR GIBSON:  Yes, if one accepts that there was one single

chose in action and not a separate chose in action

in respect of separate items of property, then

that is quite right.

DEANE J:  No, I am assuming in your favour that there is only

one. In other words, I am forgetting about the

other property.

MR GIBSON:  Yes. Well, I do not take issue with Your Honour's

observation, but in my submission it does not follow

from that that having regard to the orders made,

at first instance and ultimately on appeal on the

testator's family maintenance application, the chose

in action which has remained alive throughout entitles

the Official Receiver to the benefit - the altered
expectation which Mrs Schultz has with respect to that
house property; in other words, the remainder as opposed to the expected right to a transfer of it absolutely.

DEANE J: Well, I do not want to take time but you see what I

am directing your attention to is the proposition

that from beginning to end the Official Receiver had

the chose in action relating to the specific devise
of the house property and all that was happening
in the litigation was the value of that chose in

action was varying according to the extent of the

burden imposed upon that devise by the order made

under the SUCCESSION ACT.	Do you follow the way
I am putting it to you?

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Schultz(2)

MR GIBSON:  Yes, yes I do but, in my submission, although the

argument is that all that has occurred is a fluctuation

in value in an asset which was, from the outset,

vested in the official trustee, it is my submission

that the orders made go beyond that; they go beyond

affecting a fluctuation in value, they certainly

have had that effect, but they have had the effect

of substituting an entirely different entitlement
in the beneficiary named in the will, namely, a
remainder in lieu of the original right to transfer

and that that has had the effect, not only of

effecting a fluctuation in value, but also of

severing the relationship or connection between the
chose in action and that particular piece of

property.

DEANE J:  I follow the way you put it and do not let me divert

you further from the argument and the order you

want to put it, Mr Gibson.

MR GIBSON:  In substance, Your Honours, that was the effect or

the thrust of the judgment of Justice Connolly at

page 22 of the record where His Honour, from about

line 20 referred to:

the effect of the order of Moynihan J.-

at first instance, and to that of the Full Court,

and His Honour continued, at about line 45:

As I have said earlier, the right to due administration is not an abstraction.

It exists only in virtue of a bequest or

devise and the right is accorded to the legatee or devisee in order that he may

ensure that the estate is duly administered

so that he may enjoy what is given to him

under the will. It is a right which is given

to all who take inchoate interests under the

will and it cannot sensibly be thought to

exist save in association with such inchoate

rights. On the facts of this case, there

was no right to due administration either

in Mrs. Schultz or in the Official Trustee in

relation to 43 Renton Street between the

order of Moynihan J. and that of the Full Court.

MASON CJ:	But why should that be right when the order of
Mr Justice Moynihan was subject to appeal?
MR GIBSON:	Because there was no stay of His Honour's order,

it was efficacious; it was operative; it was

binding, not only on the applicant, the deceased's

husband, but in effect on the respondents and on

Mrs Schultz and, therefore, to deny the effect of the order as characterized by Justice Connolly

BlT8/2/JL	20	26/6/90
Schultz(2)

is, in my submission, to deny that the order

was effective during that period.

BRENNAN J:  Mr Gibson,what is the jurisdiction of the Court

under 41(1) of the SUCCESSION ACT to affect a
testamentary interest by the order, however you
define a testamentary interest? In the language
of 41(1) it is to order that provision be made
out of an estate. It may be that the order takes
priority over, and to that extent supersedes, the
testamentary dispositions, but why is it that

any testamentary disposition conceived of as a

juridical right is affected by section 41?

MR GIBSON: Section 41(10) may have some influence on that.

Your Honour, it provides that:

Upon any order being made, the portion

of ~the estate comprised therein or affected

thereby shall be held subject to the

provisions of the order.

BRENNAN J: Well, does that not rather suggest that the

estate comprised therein, or affected thereby

is not pro tan to extinguished, but is held subject

to. In other words, the problem is one of priority

not of inconsistency.

MR GIBSON:  In my submission that would not be consistent

with the views expressed in the judgments to which

I have referred particularly, for example, the judgment in RE BISHOP, which was referred to

in the UNION-FIDELITY case, to the effect that the
provision in the will, being inadequate, is not
just supplemented in such a case but is supplanted

by whatever provision the Court thinks fit to make.

BRENNAN J: It is difficult to see how the notion of extinc:::ion

sits easily with the language of 41(1).

MR GIBSON: Yes. Nevertheless, in my submission, the

effect of an order made pursuant to section 41(1)

is to create rights which are referable to and

enforceable in respect of the order, rather than

as being taken to be rights embodied in the will.

Your Honours, if I might just conclude with

the passage of Mr Justice Connolly, at page 23,
the final sentence in the first paragraph,

His Honour then concluded that:

the estate in remainder which the order

of the Full Court gave to Mrs. Schultz

was something which she did not have on

20th September, 1988 -

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the date of her discharge -

It is a right which accrued after her

discharge and it is untouched by the

bankruptcy legislation.

Now, notwithstanding the criticisms made of the

form of language used by His Honour when referring

to a:

right to due administration ..... in
relation to 43 Renton Street -

a criticism made by our learned friends, that phrase

appearing at about line 10 on that page, nevertheless,

in my submission, it is plain that His Honour was
expressing the same proposition which I have endeavoured
to express here; that is, that the fruits of the

chose in action - the chose in action which derived

from the will were different in substance from the

position which Mrs Schultz took after the order of

the Full Court.

GAUDRON J:  But are you not- in making that proposition, Mr

Gibson, are you not ignoring LIVINGSTON's case.

You are assuming that what you have got is something

that is quite identifiable by virtue of the will

and because it is identifiable in a different form

it is something quite different. If I take you back

to what Mr Justice Connelly said of:

the ..... right to ..... administration -

and suggest to you that there should be, at the bottom

of page 22, that there should be inserted into that

sentence the words "so far as the law permits" so

that the right is one:  -

that he may ensure that the estate

is duly administered so that he may

enjoy -

so far as the law permits -

what is given to him under the will.

It may be lost by virtue of the order for paYTTlent

of debts; it may be lost by reason that the

estate is one to be administered under the

BANKRUPCY ACT; it may be lost by reason of

testator's family maintenance provisions, but

the right remains the same, it is to enjoy so

far as the law permits and that right, surely,

was always with the Official Receiver and what

the law permitted was different at one end from

seen at another point of time.

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Schultz(2)

MR GIBSON: Although the right - the chose in action - may

have attached to the different gifts which were

bequeathed and devised to the beneficiary,

nevertheless, as the statement of principle
in LIVINGSTON's case, at page 713 letters B to

C emphasizes, in the case of a beneficiary of a specific gift, as opposed to a residuary

beneficiary, there is, in my submission, nothing

questionable about identifying the fruits of

the chose in action by reference to individual

items of property. So, at page 713, in the

opinion of the Privy Council in LIVINGSTON's case,

Lord Radcliffe said as follows:

if the meaning is only that such

beneficiaries are not without legal

remedy during the course of administration

to secure that the assets are properly

dealt with and the rights that they

hope will accrue to them in the future are

safeguarded, the proposition -

that is that they had an interest in property -

is no doubt correct. They can be said,

therefore, to have an interest in respect

of the assets, or even a beneficial

interest in the assets, so long as it is

understood in what sense the word "interest"

is used.

And a little further down the page, at adjacent to

letters E and F, at page 713, His Lordship explained

the basis for the distinction between the position of

a residuary beneficiary and a beneficiary of a

specific gift because, until such time as the

administration is completed, it is impossible to

ascertain of what assets the residue is comprised. In our submission, the order of the Full Court

did confer on Mrs Schultz a benefit which was

different in nature from that which she derived
under the will.	I am conscious of my use of the

phrase "conferred a benefit on her", it may not

be sufficiently specific. I acknowledge that she

was not an applicant, but in my submission the

fact that she was not an applicant is not material

because of the fact that she was affected by the

order and she was bound by the order. Therefore
the benefit, the rights which she - the fruits of the

chose in action which she expected to derive from the

administration of the estate were materially different

following the order made by Justice Moynihan and,

again, in the Full Court to that as they originally

existed.

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Schultz(2)

The members of the Full Court now under

appeal were unanimously of the opinion that the
order of the Full Court, on appeal from the

judgment of Justice Moynihan, took effect as from

the date of its pronouncement and not as at the

date of the judgment at first instance, and this

is, of course, the second point raised in the

submissions of the appellant. Perhaps I should

repeat, briefly, that with respect to the submission

made by our learned friends, that the Full Court

gave nothing to Mrs Schultz, all it did was

increase the value of the expectancy which had by

then passed to the Official Receiver, we submit

that the chose in action,whilst it was there to

enable the beneficiary to derive the fruits of

the benefit of the will, nevertheless, it was not

the expectancy which was passed to the Official

Receiver, it was the chose in action itself.

As to the question of the date on which the

judgment of the Full Court became effective,

Mr Justice Connolly dealt with the issue at page 23,

line 40, through to page 25, line 10,

His Honour referred to the cases of BORTHWICK V

ELDERSLIE STEAMSHIP CO. and to the decisions of

this Court in NICOL V ALLYACHT and GOULD V VAGGEL'..S.

Mr Justice Thomas discussed the issue more

concisely but to similar effect at page 33,

line 10 to line 20, and Justice Ambrose dealt wit:: the matter, similarly, at page 38, about line ~0.

Your Honours, the general rule and that whic:1 we submit is applicable on the facts of this case

is that stated by Master of the Rolls Collins, in

BORTHWICK V ELDERSLIE STEAMSHIP CO., which is in :~e

bundle of cases, and particularly at page 519.

(Continued on page 25 )

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MR GIBSON (continuing): His Lordship said:

There can be no doubt that under -

the rule -

an appeal to a Court of Appeal is a rehearing,

Appeal Court has all the powers of the	and though by rule 4 of the same order the judgment and make any order which ought to
have been made by the Court of first instance, still the judgment of the Court of Appeal is
a judgment of the date on which it was given,
and it would require the invocation of the powers given by -

the order -

if that judgment is to be antedated. The

judgment is not ipso facto antedated by reason

that it is substituted for the judgment in the

Court below. The power to antedate ought, in

my opinion, only to be used on good ground

shown, -

and subsequently, to same effect, the reasoning of

Lord Justice Romer, on page 521, about point 9 of

the way down the page, where His Lordship said:

When a plaintiff has failed in the Court below

so that his action has been dismissed, if he

succeeds on appeal it cannot, I think, be

properly said that the judgment of the Court

of Appeal must be regarded for all purposes as if it had been the judgment given by the

judge in the Court below. The judgment in

favour of the plaintiff must be treated as of

the date on which it was given in the Court
of Appeal, subject to the right of that Court

to antedate its judgment.

In the decision of the House of Lords in

NITRATE PRODUCERS STEAMSHIP COMPANY V SHORT BROTHERS,

(1922) 91 LJKB 871, Lord Buckmaster, in a speech

subsequently referred to approvingly by this Court

in NICOL V ALLYACHT SPARS, said at page 873, in

the third paragraph:

If at the time when the matter originally

came before your Lordships' House on July 1,1921,

it had been desired that the order then made

should speak as from a different date than the

date on which it was pronounced, it was

incumbent upon counsel to ask that this should

be done. In the absence of any such direction,

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where judgment is for the first time directed to be entered in favour of any litigant party

by this House, the date which that judgment

will bear must be the date when the order is

made. It is, of course, a totally different

proposition where the effect of an order in

this House is to restore a judgment of the Court

of first instance which has been reversed by

order of the Court of Appeal. In that case the

judgment of the Court of first instance is expressly restored and remains standing as

from the date when it was given. But in

this case there was no judgment until the time

when it was directed that that judgment should

be entered and made. I therefore entertain no

doubt that there was no power whatever reserved

by the order of this House for any of the

Judges who were to make that order operative to give any different date to it than the date which

it bore.

Now, in the case at hand, there is no question of

the decision of the Full Court having restored an

order made at first instance. To the contrary, it

not only varied the order made by Justice

at first instance, but supplanted it with materially

different provisions.	The fact that the order of
the Full Court was worded	by way of variation

of the order of Justice ~bynL'1an is, in my submission,

not to the point, because it was, in truth, more

than a variation, and it was a form of order, but

not intended to affect the substance of its effect
as, for example, the date on which it commenced

operation. In GOULD V VAGGELAS, a case which is

on our learned friend's list, whilst as appears from

page 274 of the report, the judgment of the Full Court

in that case was expressed to be by way of variation

of the judgment at first instance, it was simply an
action for damages which in the result transpired

that the judgment of the judge at first instance

was allowed on appeal, substantially reduced in

the Full Court and then on appeal to the High Court
restored.	GOULD V VAGGELAS, in my submission, is

no more than an illustration of the application of

the discussion of the House of Lords in the

NITRATE PRODUCERS case, a discussion which as I have

said was adopted by this Court in the case of

NICOL V ALLYACHT SPARS PTY LIMITED, (1988) 165 CLR 306.

particularly at page 310 to 311. Your Honours, as

I have earlier submitted, the order made by

Justice M)ynihan was not stayed, Lt remained operative.

Admittedly an appeal was instituted against it, but

in the absense of a stay, it is not to the point to

submit, as was done by our learned friends, that the

effect of the judgment of the Full Court now under

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appeal and the declaration which has followed as

a consequence of that, proceeds simply upon a

mistake. As Mrs Schultz was discharged from

bankruptcy as at the date of the Full Court order,

the benefits which she derived from the will, as
a consequence of that order, was not property

divisible among her creditors, having regard to the

definition of that term in section 116(1) of the

BANKRUPTCY ACT and in my submission, it was

correctly held by the majority of the Full Court

now under appeal, that that property did not vest

in the Official Receiver. Your Honours, those are

my submissions save for one subsidiary point as

was commented upon by our learned friends.	In
the event - - -

DEANE J:  Mr Gibson, can I divert you back a little bit. I

am probably missing something, but what is it that

gives the iupreme court the power to take a specific

gift which is left to A away from A and to give it

to B?

MR GIBSON:  Your Honour, it derives that power by virtue simply

of section 41(1) of the SUCCESSION ACT.

DEANE J: I see. Well then, what enables the court, apart from

subsection( 4), to say "and the burden of this will

be borne by A who looses everything"? As I say, I

am no doubt missing something, but if you look at

it, subsection(2) seems to presume that the order is

going to be for a pecuniary sum, and subsections(3)and(4)

say the burden of that pecuniary sum will be shared

equally or the court may exonerate parts of the

estate. Now it may be you justify what has been done

as saying, "It is the exoneration of all the estate,

apart from the particular beneficiary~ but that

presumes that it applies to specific devises that

are not payments.

MR GIBSON:  Yes. I am not sure that I am able to take the

point any further, Your Honours, save to repeat

that the power has been treated as arising, as I

understand it, by virtue of the opening first

subsection of the provision.

DEANE J : 41 ( 1 ) ?

MR GIBSON:	Yes.
DEANE J:	No doubt there is some authority and reasoning which

explains that.

MASON CJ:	Yes.
MR GIBSON:	Yes, Your Honours, I wish only to add that, in

the event thqt the orders are against the submissions

BIT9/3/CM	27
Schultz(2)

which I have made,then we concur with the

observations made by our learned friends as to

the appropriate order as to the costs which should

be made, that is as per the order made by

Justice Thomas. Those are my submissions,

thank you, Your Honours.

MASON CJ:  Yes,Mr Solicitor.

MR DAVIES:  Your Honours, just two points. The first is I

should retract an answer which I gave Your Honour

Justice Gaudron, in the light of what Your Honour
Justice Deane has said during the course of our

learned friend's argument, and it is this, that

we would submit that, even if the only property had

been the real property, then a chose in action

remained, though of course, during the period between

the judgment of Justice i'-foynihan and that of the

Full Court, it remained of low value. The other way

in which the matter could be approached is, of course,

and really this follows from what Your Honour

Justice Brennan said, is that wheri one looks at sectio;:;. 41(1)

and section 41(10) that the consequence of the

order is that the interest is held subject to the

order and thus reducing the value of the right, but

only reducing the value of the right pending appeal.

They are our submissions in reply, may it please the Court.

MASON CJ: Yes, thank you,Mr Solicitor. The Court will

consider its decision in this matter.

AT 3.16 PM THE MATTER WAS ADJOURNED SINE DIE

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