Official Receiver in Bankruptcy v Schultz

[1990] HCATrans 72

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Brisbane No B7 of 1990

B e t w e e n -

OFFICIAL RECEIVER IN BANKRUPTCY

Applicant

and

RONALD ROY SCHULTZ and

MERLE HEATHER SCHULTZ

Respondents

Application for special

leave to appeal

MASON CJ DAWSON J TOOHEY J

Schultz
MR D.J. McGILL:	May it please the Court, I appear for

TRANSCRIPT OF PROCEEDINGS

FROM BRISBANE BY VIDEO LINK TO CANBERRA

ON FRIDAY, 6 APRIL 1990, AT 10.07 AM

Copyright in the High Court of Australia

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the applicant. (instructed by Gilshenan & Luton

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

t e respondent. Cinstructed by Primrose Couper Cronin Rudkin)

MASON CJ: Yes, Mr McGill.

MR McGILL:  This matter raises an issue concerning the

administration of a bankruptcy where the bankrupt

is a beneficiary of a deceased estate. While

Mrs Schultz was bankrup4 Mrs Pereira had died

leaving her some personal property, in particular

jewellery and a house property. On a testator's

family maintenance application the widower obtained,

at first instance, an absolute interest in that

house property but on - - -

MASON CJ:	Mr McGill, we are familiar with the history of the
matter and we are familiar with the question. It
might be of assistance to us if you elaborated the basis for concluding that the Full Court decision
was wrong.
MR McGILL:	Your Honours, in my submission the essential question

is whether there is, in a beneficiary, one chose in

action in respect of the estate, or a separate chose

in action in respect of each property interest in the

estate.

MASON CJ:	Do you concede that you could not win if there were
two separate choses in.. action?
MR McGILL: Yes, Your Honour.	If that is correct, I am sorry, perhaps

I should say there were two issues raised; there is
the second issue in relation to whether the earlier
decision of the Full Court was retrospective to the date
of the original order in the TFM application. But

putting that issue to one side, on the first issue, if

there are two choses in action then the decision of
the majority of the Full Court was right.	The issue is

one of identifying whether a beneficiary's right is a

chose in action in respect of the estate, or whether

there were two choses in action here, in my submission.

The right is identified in the decision of the

Privy Council in LIVINGSTON:'s case, and there is some discussion there as to its nature and if I could take

the Court briefly to a couple of passages. in LIVINGS'lDN, (1965) AC 694.

In ·that - case it was necessary for the

purposes of deciding an issue of the incidence of
death duties to determine where an interest in

an unadministered estate which a deceased person had

was located and whether this was an interest in real

or personal property situated in Queensland. The

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Privy Council, at page 707, if I could take

Your Honours to the top of the first complete

paragraph, their Lordships said:

When Mrs. Coulson died she had the interest of a residuary legatee in the

testator's unadministered estate. The

nature of that interest has been conclusively

defined by decisions of long-established

authority, and its definition no doubt

depends upon the peculiar status which the
law accorded to an executor for the
purposes of carrying out his duties of

administration.

Their Lordships then referred to the special rules

relating to the devolution of land which have now

been abolished in Queensland by section 45 of the

SUCCESSION ACT and said, that subject to those the:

property came to the executor ...... 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. position with regard to the assets that came

to him in the right of his office, and for

certain purposes and in some aspects he was

treated by the court as a trustee.

MASON CJ: But you want to come down to the next paragraph

do you not?

MR McGILL:	Yes, Your Honour, the next paragraph -
MASON CJ: About eight lines from the bottom,"What equity

did not - "

MR McGILL:  Yes, well it refers to the trust,that it did

enforce -

What equity did not do was t_o_xecognise

,,or create for residuary l.agatees a

beneficial interest in the-- assets in

the executor's hands du-.J.ng th~ course

of administration.

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That is discussed further in that passage, but I did not want to read all of it. I will take the Court over to page 717 where there is a short

passage there as well. At the bottom of the first

paragraph at about point 4 of the page, actually

the last sentence in the first paragraph:

What she was entitled to in respect of

her rights under her deceased husband's

will was a chose in action, capable of

being invoked for any purpose connected

with the proper administration of his

estate; and the local situation of this

asset, as much under Queensland law as any

other law, was in New South Wales, where
the testator had been domiciled and his
executors resided and which constituted

the proper forum of administration of his

estate.

(Continued on page 4)

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MASON CJ: But your point is this, that as the residuary

beneficiary has no direct interest in any

particular asset forming part of the trust, in

those circumstances,there can only be one

chose in action; a chose in action that entitles

the beneficiary to due administration.

MR McGILL: Yes, Your Honour, and indeed that would apply

to any beneficiary, because the chose in-action is the right to bring an administration action~

an action for the general administration of the

estate and that is something which necessarily

would only need to be brought once, however many

specific pieces of property were left to a

particular beneficiary under a will.

MASON CJ: How did the Full Court deal with this submission?

What was the Full Court's response to that?

MR McGILL:  The Full Court's response in the case of the

majority, in my submission, was that there were
separate choses in action, and they identified

the relevant chose in action as the chose in action

in respect of the real property. Mr Justice Connolly

did that at page 22, if I could take the Court to

the central passage in His Honour's judgment. It

starts towards the foot of page 22, at line 46:

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 Mr Justice Moynihan 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.

MASON CJ:  Well, the key to that passage appears to be

the notion of inchoate interests under the will?

MR McGILL: Yes, and His Honour identifies there being a

separate interest in respect of each piece of property

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and indeed it is made clear back at page 21,

line 14, where His Honour says that the effect

of the order at first instance in the TFM

proceedings:

If it were to have any effect it must divest

the chose in action in question from the

Official Trustee and vest it in Mr Pereira.

It must be a reference to the chose in action in

respect of 43 Renton Street, because that was the

only property dealt with by the original order

in the TFM proceedings.

MASON CJ: Might that not be correct?

MR McGILL:  Your Honour, in my submission, that particular

proposition, whether or not there is one or two

choses in action, that particular proposition

cannot be correct, because - - -

MASON CJ: What, in the terms in which it is stated yes,

but may it not have been that the effect of the

order of Mr Justice Moynihan was to vest a

chose in action in the official receiver, which

would have entitled the official receiver the

due administration of the estate in respect of

the property known as Renton Street?

MR McGILL:  Your Honour, the effect of Mr Justice Moynihan's

order would have been to vest a chose in action

in Mr Pereira, which would have entitled him

pursuant to the provision to the TESTATOR'S

F.ANILY MAINTENANCE legislation to t..1-ie right to enjoy

t"he interest in Renton Street.

MASON CJ: Yes.

MR McGILL:  But that simply means he is an additional person

who is interested in the estate, so he would have

a right - he might even have a right to enforce

directly - - -

DAWSON J: But does that not mean there are two choses in

action after Mr Justice Moynihan's order?

MR McGILL:  Yes, Your Honour, but the fact that there is one

chose in action under the TESTATOR'£ FAMILY

MAINTENANCE .legislation in· favour of the applicant

to that legislation, does not mean that there is

not still a chose in action in favour of originally

Mrs Schultz and now theofficial trustee, which is

to have the estate duly administered to receive what
ever is to be the outcome of the due administration

of the estate.

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MR McGILL (continuing): It is not a chose in action which

relates to particular property; it is a chose in action which relates to whatever it is that comes out of the estate after it has been duly

administered and - - -

MASON CJ:  From that point onwards you get two choses inaction.

Mr Pereira continues to have his chose in action even

after the Full Court order but, in effect, there

attaches to the chose in action that the Cfficial

Receiver had at all relevant times the prospect of

obtaining due administration in relation to Renton Street.

MR McGILL:  I would prefer to frame it slightly differently.

The chose in action after the Full Court order that the Official Receiver had was a chose in action which

carried the promise of the remainder in Renton Street

on the conclusion of the due administration of the

estate. But, of course, whether that ultimately

came to him depended on what happened in the course

of the administration of the estate. Just as is the

case with any beneficiary, it depends on- .there are a nurrber of

bases on which that could change.

The significance of this distinction is that if

there is - Mr Johnston's affidavit indicates that it

had been thought that there was one chose in action,

or more precisely that simply once a bankrupt, once

a person who was interested under an estate became a

bankrupt, the date of discharge did not matter.

Any interest which the bankrupt would have taken

in the estate will come to the trustee and form part

of the bankrupt estate. That would be correct if there

is one chose in action. If there is a separate

chose in action in respect of each piece of property
it adds to the further complication to the administration
of bankrupt estates in that it is necessary to look
at the situation immediately prior to the discharge
of bankruptcy to see whether, in respect of each

inchoate interest in each piece of property, that

interest produced a chose in action which vested in

the trustee during the bankruptcy and that could vary

in particular estates quite a bit.

MASON CJ:  Mr McGill, we need not trouble you further. We will

hear what Mr Gibson has to say at this stage.

MR McGILL:  Thank you, Your Honours.

MASON CJ: Yes, Mr Gibson?

MR GIBSON:  Thank you, Your Honours. It is correct that, as has

been adverted to by my learned friend, Mr Justice Connolly,

at page 21 of the application book, about about

line 15, referred to the divesting of the chose in

action in question from the official trustee and

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His Honour did, presumably, therefore have in contemplation the notion that there were separate choses of action inuring in favour of the beneficiary with respect to each of the items of property.

MASON CJ:	Do you support that proposition?
MR GIBSON:	Your Honours, in my submission, it is not necessary to go that far for this reason,that it is sufficient
for the respondent's purposes to establish that there
is simply one chose in action but the chose in action, as His Honour correctly, in my submission, referred
to in his reasons at page 23, was not a chose in vacuo;
it related to the various items of property to which
the beneficiary was in due course expecting to be
entitled under the will.

Now if, by virtue of circumstances which, as

in this case, were quite extraordinary, one of those
items of property, or more relevantly, the beneficiary's

expectations in one of those items of property was

extinguished then so, in my submission, it might be

accepted that the chose in action was to that extent
also extinguished and,further, that it is not
thereby sufficient to warrant the conclusion

to which my learned friend connnends Your Honours, but

that there remained a chose in action in respect of

other items of property.

(Continued on page 8)

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MR GIBSON (continuing):  So, in my submission, .the decision

of the Full Court, the majority of the court, can

be supported either on the footing that there are

multiple choses of action relating to each of the
items of the property in relation to which the

beneficiary has an expectation in due course or,

alternatively, that there is one chose which

relates to those individual items.

MASON CJ:  Yes. Is there anything else you want to say in

support of that?

MR GIBSON:  Your Honours, I would simply draw attention to

His Honour's observations, perhaps, at the foot of

page 22 of the appeal book, that it is artificial

for the applicant to assert that the beneficiary's

chose in action remained the same throughout the

events which occurred in this case, only its value

changing, when what occurred in reality was not merely

a fluctuation in the quantum of the gift but an

extinguishing of the gift itself and a subsequent ..

substitution of a benefit entirely different in

nature to that originally provided by the will.	And,
Your Honours, I would further observe that the

recognition - as it must be recognized - that each of

the beneficiaries under a will have, at least, one

chose in action in their favour - - -

MASON CJ:  But, Mr Gibson, to say that it is artificial

seems almost to invite us to disregard the nature

of the chose in action that the residuary
beneficiary has as expounded in LIVINGSTON's case.

And, to say, "Oh well, look, disregard that, look

at the reality of it", there are really separate

gifts in relation to personalty and realty.

MR GIBSON:  Yes, the position of a residuary beneficiary may

be distinguished to that extent from a beneficiary

under a specific devise or a legacy and it was with

respect to the rights of a residuary beneficiary that,

of course, the Privy Council in LIVINGSTON's case

was concerned.

MASON CJ:	But, why is this different?
MR GIBSON:	Because, although a residuary estate may, of course,

consist of many items of personalty or realty,

nevertheless, by the nature of the residue itself,

it is distinct, it is to be distinguished from

specific gifts of realty or personalty. Those

specific gifts may certainly be called upon by the

executors to meet the liabilities of the ~state but

they are individual items and are not collectively

part of a residuary estate.

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Your Honours, there is another aspect to this

matter which, in my submission, is of the utmost

importance in determining whether or not this is an

appropriate case for the grant of special leave and

that is that, in my submission, the facts on which

this issue has arisen are peculiar to this case
and are unlikely to arise in the future, suffice it
to say that for the issue to arise, it is necessary

for the following combination of facts to occur:

that there be an undischarged bankrupt;1 that pending

discharge the bankrupts derive an interest in the

estate of a deceased person whether under a will,

as here, or under an intestacy; that the interest so derived be extinguished either in its entirety or as to a discrete portion thereof, as in this case,

in consequence of an application by a third party
for provision out of a deceased's estate; that the
bankrupt's interest in the deceased's estate be
altered not simply as to the quantum thereof but as
to the nature or the character of the interest so
derived as, for example, in this case where a
devise of real estate in fee simple was set aside and
replaced by a life interest to the applicant for

provision within estate in remainder to the bankrupt

beneficiary and, finally, that the order of the court

so altering the interest of the bankrupt in the

deceased's estate be made after the discharge from

bankruptcy.

(Continued on page 10)

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MR GIBSON (continuing):  Those are, in my submission, a

most extraordinary combination of facts, yet they are the facts which are necessary to give rise to

the point in issue.

DAWS0N··J:  Not really. The general question which is thrown

up is the nature of the chose in

action against an executor.

MR GIBSON:  Yes, indeed, that is so, but it will have practical

import only in the event of circumstances such

as this arising for, Your Honours, the general nature of a chose in action and the fact that it constitutes

property for the purpose of the BANKRUPTCY ACT is

already the subject of authority to which reference

was made by the Full Court and which is not in

issue in this case.

Once this is appreciated, in my submission, those paragraphs of the affidavit in support of this

application on which the applicant relies to establish

that the question of law is of general application

or public importance, and they are paragraphs 11 t© 13

at pages 50 and 51, and also paragraph 15, are seen,

in my submission, to be devoid of substance.	The
consideration addressed by paragraph 11 at the

application book page 50 is precisely that which was

the sub~ect of consideration by Mr Justice Sheppard

in PEVSNER. Paragraph 12 of the affidavit adds

nothing of relevance. Paragraph 13 simply states

what, in my respectful submission, must be obvious,

namely that testators' family maintenance

applications do occasionally affect the interests

of bankrupts in deceased estates.

It offers no assistance to the Court as to

the relative frequency of such occasions, nor does it

assert that the materially relevant facts of this

case to which I have earlier referred have ever

previously occurred to the knowledge ot the Official

Receiver. Finally, in this context, paragraph 15

contains within it at page 54 of the application book

four assertions: that which is contained in the
first sentence and which, in my submission, is,
without more, unpersuasive; that contained in

the opening portion of the second sentence to the

effect:

that in some cases the extent of the

benefit coming to the trustee -

1n bankruptcy -

will depend on the date of the discharge

of the bankrupt -

but that assertion is valid only in the peculiar facts

situation such as has arisen in this case, because

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it has otherwise been dealt with by the judgment

in PEVSNER; the third assertion contained in the

concluding words of the second sentence that the

decision of the Full Court meant:

that it will be in the interests of

the bankrupt for the discharge to

occur as soon as possible whereas it

will be in the interests of the

unsecured creditors for the discharge to

be delayed -

in my submission, also adds nothing new; and

finally, the assertion contained in the last sentence

of the paragraph which, in my submission, is also

lacking in merit. Therefore, in my submission,

the reasons of the majority of the Full Court are

not brought sufficiently into question as to warrant
the grant of special leave but, furthermore, the

peculiar fact situation out of which this application arises is such that the point of law so raised cannot

be seen to be of general importance or application so

as to warrant the grant of special leave.

MASON CJ:  Thank you, Mr Gibson. The Court need not trouble

you, Mr McGill. There will be a grant of special

leave to appeal in this case.

AT 10.32 THE MATTER WAS ADJOURNED SINE DIE

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