Official Trustee in Bankruptcy and Galanis & Anor
[2017] FamCAFC 20
•17 February 2017
FAMILY COURT OF AUSTRALIA
| OFFICIAL TRUSTEE IN BANKRUPTCY & GALANIS AND ANOR | [2017] FamCAFC 20 |
| FAMILY LAW – APPEAL – JURISDICTION – Matrimonial cause – Whether the Family Court of Australia has jurisdiction to hear an application to set aside a financial agreement entered into under the Family Law Act 1975 (Cth) (“the Family Law Act”), where that application is made by the trustee in bankruptcy of a discharged bankrupt – Construction of definitions (cb) and (eab) within the definition of “matrimonial cause” in s 4(1) of the Family Law Act – Construction of “government body” within s 4A of the Family Law Act – Where the phrase “bankrupt party to the marriage” in definition (cb) means an undischarged bankrupt – Where the Official Trustee in Bankruptcy is not a government body for the purposes of s 4A of the Family Law Act – Where the Court has no jurisdiction to hear the application as it does not fall within the definition of a matrimonial cause – No error established – Appeal dismissed. FAMILY LAW – APPEAL – COSTS – Where the appellant was wholly unsuccessful – Where the respondent seeks costs on an indemnity basis – Where the circumstances do not justify indemnity costs – Costs as agreed or assessed. |
| Australian Securities and Investments Commission Act 2001 (Cth) ss 8, 9 Family Law Act 1975 (Cth) ss 4(1), 4A, 8(1), 31(1), 39(1), 74(3), 79(11), 79(12), 90D, 90K Bankruptcy and Family Law Legislation Amendment Bill 2005, Revised Explanatory Memorandum |
Australian Securities and Investments Commission & Rich (2003) FLC 93-171
D & D (Costs) (No. 2) (2010) FLC 93-435
Ex parte Llynvi Coal and Iron Co; Re Hide (1871) 7 Ch App 28
Ferella v Official Trustee in Bankruptcy (2010) 188 FCR 68
Kohan and Kohan (1993) FLC 92-340
Limousin & Limousin (Costs) (2007) 38 Fam LR 478
Macchia v Nilant (2001) 110 FCR 101
Quinn v Official Trustee in Bankruptcy (1995) 63 FCR 136
Todd v Official Receiver (1986) 14 FCR 177
| APPELLANT: | Official Trustee in Bankruptcy |
| FIRST RESPONDENT: | Ms Galanis |
| SECOND RESPONDENT: | Mr Dukas |
| FILE NUMBER: | SYC | 3738 | of | 2013 |
| APPEAL NUMBER: | EA | 145 | of | 2014 |
| DATE DELIVERED: | 17 February 2017 |
| PLACE DELIVERED: | Sydney |
| PLACE HEARD: | Sydney |
| JUDGMENT OF: | Bryant CJ, Aldridge & Austin JJ |
| HEARING DATE: | 19 July 2016 |
| LOWER COURT JURISDICTION: | Family Court of Australia |
| LOWER COURT JUDGMENT DATE: | 1 October 2014 |
| LOWER COURT MNC: | [2014] FamCA 832 |
REPRESENTATION
| COUNSEL FOR THE APPELLANT: | Mr Kearney SC with Mr Golledge |
| SOLICITOR FOR THE APPELLANT: | Lobban McNally Lawyers |
| COUNSEL FOR THE FIRST RESPONDENT: | Ms Lowson with Mr Chatterjee |
SOLICITOR FOR THE FIRST RESPONDENT: | Konstan Lawyers |
| THE SECOND RESPONDENT: | No appearance |
Orders
The appeal is dismissed.
The appellant is to pay the first respondent’s costs of the appeal as agreed or, in default of agreement, as assessed.
Note: The form of the order is subject to the entry of the order in the Court’s records.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Official Trustee in Bankruptcy & Galanis and Anor has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
Note: This copy of the Court’s Reasons for Judgment may be subject to review to remedy minor typographical or grammatical errors (r 17.02A(b) of the Family Law Rules 2004 (Cth)), or to record a variation to the order pursuant to r 17.02 Family Law Rules 2004 (Cth).
| THE FULL COURT OF THE FAMILY COURT OF AUSTRALIA AT SYDNEY |
Appeal Number: EA 145 of 2014
File Number: SYC 3738 of 2013
| Official Trustee in Bankruptcy |
Appellant
and
| Ms Galanis |
First Respondent
and
| Mr Dukas |
Second Respondent
REASONS FOR JUDGMENT
Introduction
This appeal concerns whether the Court has jurisdiction, in the particular circumstances of this matter, to determine the appellant’s claim that a financial agreement entered into between the first and second respondents to the appeal should be set aside pursuant to s 90K of the Family Law Act 1975 (Cth) (“the Family Law Act”). The answer to that issue depends on the construction of definitions (cb) and (eab) contained within the definition of “matrimonial cause” in s 4(1) and also s 4A of the Family Law Act.
The first and second respondents in this appeal, Ms Galanis (“the wife”) and Mr Dukas (“the husband”), commenced a relationship in 1999, were married in 2006 and separated in October 2011.
In 2002 they had purchased a property at B Street, Suburb C in the State of New South Wales (“the C property”) as tenants in common, with the wife owning 60 per cent and the husband 40 per cent. It was, however, always the position of the husband and the wife that the wife had provided the whole of the purchase price.
In 2008 the husband became a bankrupt and the Official Trustee in Bankruptcy (“the Official Trustee”) became the trustee of his bankrupt estate. In his statement of financial affairs, the husband informed the Official Trustee of his understanding as to how the property had been purchased; namely, that the husband held 40 per cent of the property on trust for the wife. The husband was discharged from the bankruptcy in 2011.
The husband and the wife separated permanently on 21 October 2011.
On 13 February 2013 the wife and the husband entered into a financial agreement pursuant to s 90D of the Family Law Act. The recitals to the agreement recorded that:
·The wife and the husband hold 60 per cent and 40 per cent legal interest in the C property respectively.
·Despite holding 40 per cent of the legal interest in the property, the husband made no contribution to the purchase of the property.
·That the mortgage over the property had been increased by $100 000 to pay the personal and business debts of the husband.
·That the wife had made all of the mortgage repayments.
·“The Trustee in Bankruptcy of the Husband’s estate has registered a dealing on the title of the matrimonial property in the form [of] a caveat purporting to attach any residual/realisable interest in the beneficial interest of the Husband in the matrimonial property”.
·That, “by virtue of her contribution, the Wife is entitled to claim the entire beneficial interest in the matrimonial property”.
The agreement required the husband to transfer to the wife all of his right, title and interest in the matrimonial home. The wife was obliged to discharge the mortgage and to indemnify the husband against any liabilities relating to the property.
The husband and the wife were to retain whatever other property was held in their names.
The agreement acknowledged the Official Trustee’s claim as to the notice of the husband’s interest in the property. It is implicit that the husband could only transfer to the wife whatever interest he in fact held in the property, which was, of course, subject to the wife’s claims of a resulting trust in her favour and the vesting of whatever beneficial interests were held by the husband in the Official Trustee. If these claims were maintained, it is difficult to see that the husband could transfer anything other than a bare legal title pursuant to the agreement. This was because he held his beneficial interest either for the wife or the Official Trustee.
On 4 July 2013 the Official Trustee filed an application in the Federal Circuit Court of Australia which sought the following orders:
1.An order that the financial agreement between the First Respondent and the Second Respondent dated 11 February 2013 [sic] be set aside.
2.An order that 40% of the net proceeds from sale of the property situated at and known as [B Street, Suburb C] being the land contained in folio […] be paid to the Applicant for distribution amongst creditors in the bankrupt estate of the Second Respondent husband.
3.Costs
By arrangement between the parties, the property was sold and 40 per cent of the proceeds were held pending determination of the proceedings.
On 30 January 2014 the wife filed an Application in a Case seeking that the proceedings be dismissed on the basis that the Court did not have jurisdiction to hear them, because the application did not fall within any of the definitions of “matrimonial cause” contained within s 4(1) of the Family Law Act.
The matter was transferred to the Family Court of Australia and on 1 October 2014 Rees J, having accepted the wife’s contentions, dismissed the proceedings for want of jurisdiction.
The Official Trustee appeals from that decision. The appeal is opposed by the wife. The husband did not appear.
The appeal
As foreshadowed above, the appeal challenges the primary judge’s finding that the Family Court of Australia does not have jurisdiction to hear an application to set aside a financial agreement entered into under the Family Law Act, where that application is made by the trustee in bankruptcy of a discharged bankrupt. In particular, the Official Trustee contends that the primary judge erred by failing to find that the proceedings brought by the Official Trustee fell within the ambit of definitions (cb) and (eab) of “matrimonial cause”, found in s 4(1) and s 4A of the Family Law Act.
At the outset it is necessary to point out that this appeal is not about the substantive rights of the Official Trustee to recover whatever property has vested in it as a result of the husband’s bankruptcy. If, in fact, at the time of that bankruptcy, the husband held an interest in the C property, the Official Trustee will be able to pursue its claim against that property in the Supreme Court of New South Wales or the Federal Court of Australia, if the present appeal is unsuccessful.
Speaking generally, in what can broadly be described as financial proceedings between married or formerly married persons, jurisdiction is conferred on courts exercising jurisdiction under the Family Law Act by means of the concept of “matrimonial cause” (ss 8(1), 31(1) and 39(1) of the Family Law Act). A “matrimonial cause” is defined by s 4(1) of the Family Law Act to include some 13 different types of proceedings. The Official Trustee relied upon two of them to found its claim: definition (cb) and definition (eab). These definitions provide:
(cb)proceedings between:
(i)a party to a marriage; and
(i)the bankruptcy trustee of a bankrupt party to the marriage;
with respect to any vested bankruptcy property in relation to the bankrupt party, being proceedings:
(ii)arising out of the marital relationship; or
(iv) in relation to concurrent, pending or completed divorce or validity of marriage proceedings between the parties to the marriage; or
(v) in relation to the divorce of the parties to the marriage, the annulment of the marriage or the legal separation of the parties to the marriage, being a divorce, annulment or legal separation effected in accordance with the law of an overseas jurisdiction, where that divorce, annulment or legal separation is recognised as valid in Australia under section 104; or
…
(eab) third party proceedings (as defined in section 4A) to set aside a financial agreement; or
Section 4A of the Family Law Act expands on definition (eab) and states that:
(1)For the purposes of paragraph (eab) of the definition of matrimonial cause in subsection 4(1), third party proceedings means proceedings between:
(a)any combination of:
(i)the parties to a financial agreement; and
(ii)the legal personal representatives of any of those parties who have died;
(including a combination consisting solely of parties or consisting solely of representatives); and
(b)any of the following:
(i)a creditor;
(ii)if a creditor is an individual who has died—the legal personal representative of the creditor;
(iii)a government body acting in the interests of a creditor;
being proceedings for the setting aside of the financial agreement on the ground specified in paragraph 90K(1)(aa).
(1A)For the purposes of paragraph (eab) of the definition of matrimonial cause in subsection 4(1), third party proceedings also means proceedings between:
(a) any combination of:
(i)the parties to a financial agreement; and
(ii) the legal personal representatives of any of those parties who have died;
(including a combination consisting solely of parties or consisting solely of representatives); and
(b) either:
(i)another person who is a party to a de facto relationship with one of the spouse parties to the financial agreement; or
(ii)the legal personal representative of that other person if that person has died;
being proceedings for the setting aside of the financial agreement on the ground specified in paragraph 90K(1)(ab).
(2) In this section:
creditor means:
(a)a creditor of a party to the financial agreement; or
(b)a person who, at the commencement of the proceedings, could reasonably have been foreseen by the court as being reasonably likely to become a creditor of a party to the financial agreement.
government body means:
(a)the Commonwealth, a State or a Territory; or
(b)an official or authority of the Commonwealth, a State or a Territory.
Ultimately the appeal turns upon the construction of two phrases within each definition: “bankruptcy trustee of a bankrupt party to the marriage” in (cb) and “government body acting in the interests of a creditor” in (eab) and s 4A.
The Official Trustee submitted that, contrary to the finding of the primary judge, the words “bankruptcy trustee of a bankrupt party to the marriage” refers not only to an undischarged bankrupt but to any person who had been a bankrupt, whether they were discharged or not. In making this submission, senior counsel for the appellant accepted that the effect of this submission was that the use of the word “bankrupt” in relation to a party was essentially otiose.
The wife submitted that the word “bankrupt” was intended to have effect as an adjective limiting the word “party”, so as to confine proceedings falling within the definition of a matrimonial cause to those involving only undischarged bankrupts.
As to definition (eab) and s 4A, the Official Trustee contended it was a “government body acting in the interests of a creditor” (s 4A(1)(b)(iii) of the Family Law Act). The wife advanced the same argument she had successfully prosecuted at first instance: that the Official Trustee was not a government body within that definition.
The wife relied heavily upon the history of the legislative amendments that led to the introduction of the two relevant definitions into the Family Law Act. It is convenient to discuss that history at this stage.
Section 4A and definition (eab) were inserted into the Family Law Act by the Family Law Amendment Act2003 (Cth). At the same time, s 90K(1) of the Family Law Act was amended to include paragraph (1)(aa) and subsection (1A). They provide:
(1) A court may make an order setting aside a financial agreement or a termination agreement if, and only if, the court is satisfied that:
…
(aa) a party to the agreement entered into the agreement:
(i) for the purpose, or for purposes that included the purpose, of defrauding or defeating a creditor or creditors of the party; or
(ii) with reckless disregard of the interests of a creditor or creditors of the party; or
(1A) For the purposes of paragraph (1)(aa), creditor, in relation to a party to the agreement, includes a person who could reasonably have been foreseen by the party as being reasonably likely to become a creditor of the party.
It is evident from the Supplementary Explanatory Memorandum to the Family Law Amendment Bill 2003 that these provisions were inserted into the Family Law Act to overcome the decision in Australian Securities and Investments Commission & Rich (2003) FLC 93-171.
In 2005 there was a more expansive suite of amendments, involving both the Family Law Act and the Bankruptcy Act1966 (Cth) (“the Bankruptcy Act”), which were instituted by the Bankruptcy and Family Law Legislation Amendment Act 2005 (Cth).
Many of the amendments had the effect of permitting the trustee in bankruptcy of a party to be a party to maintenance and property proceedings and enabling property orders to be made against property that had vested in the trustee.
Importantly, the definition of “maintenance agreement” contained within s 5(1) of the Bankruptcy Act was amended so as to exclude from the definition “a financial agreement within the meaning of the Family Law Act”. Thus, the recovery procedures available to trustees in bankruptcy under Division 3 of Part VI of the Bankruptcy Act, which cannot be used against transfers made pursuant to maintenance agreements, now could be used against transfers made under financial agreements. Thus, financial agreements made under the Family Law Act were now vulnerable to attacks by trustees in bankruptcy (see the various iterations of s 123(6) of the Bankruptcy Act).
One aspect of the suite of amendments made in 2005 was the addition of a new act of bankruptcy into s 40 of the Bankruptcy Act. Section 40(1)(o) was introduced to provide:
(1) A debtor commits an act of bankruptcy in each of the following cases:
…
(o) if the debtor becomes insolvent as a result of one or more transfers of property in accordance with:
(i) a financial agreement (within the meaning of the Family Law Act 1975 ); or
(ii) a Part VIIIAB financial agreement (within the meaning of the Family Law Act 1975 );
to which the debtor is a party.
Here, the evident aim of the legislature is to prevent the use of financial agreements to transfer assets for the purpose of defeating or delaying creditors.
Alongside these amendments, two new definitions of “matrimonial cause” were inserted into s 4 of the Family Law Act – definitions (caa) and (cb). The former, analogously with (cb), provides that proceedings between a party to a marriage and “the bankruptcy trustee of a bankrupt party to the marriage” with respect to the maintenance of the first mentioned party are a matrimonial cause.
The construction of definition (cb)
We shall deal first with the primary issue in the appeal: the construction of definition (cb) of the phrase “matrimonial cause”. We shall commence by looking at the word “bankrupt”.
The word “bankrupt” is not defined by the Family Law Act. It is, however, defined by s 5 of the Bankruptcy Act to mean:
a person:
(a)against whose estate a sequestration order has been made; or
(b)who has become bankrupt by virtue of the presentation of a debtor’s petition.
Section 43(2) of the Bankruptcy Act provides that upon the making of a sequestration order against the estate of a debtor, the debtor becomes a bankrupt and continues to be a bankrupt until he or she is discharged or the bankruptcy is annulled. The position is the same if the bankruptcy arises from a debtor’s petition (s 55(8) Bankruptcy Act).
In the ordinary course, a bankrupt is discharged from his or her bankruptcy three years from the date on which the bankrupt filed his or her statement of affairs (s 149(4) Bankruptcy Act). The discharge operates to release the bankrupt from all debts, subject to specified exceptions (s 153 Bankruptcy Act). However, the bankrupt estate continues for the benefit of creditors. The trustee has 20 years from the date of the bankruptcy to claim and recover the property of the bankrupt (s 127(1) Bankruptcy Act).
By the combination of ss 58(1)(b) and 116(1)(a) and (b) of the Bankruptcy Act, property acquired by the bankrupt after the commencement of the bankruptcy and before his or her discharge from bankruptcy vests in the trustee of his or her bankrupt estate and is available for division between creditors. However, a transfer of such property by the bankrupt in good faith and for valuable consideration before any intervention by his trustee is valid as against the trustee. For the purposes of dealing with land, the lodging of a caveat by the trustee is a sufficient intervention.
As was pointed out by Lockhart J in Todd v Official Receiver (1986) 14 FCR 177 at 183 (“Todd”), the definition of bankrupt within s 5(1) is not subject to any temporal constraints. However, the meaning of the word “bankrupt” must be seen in its particular statutory context. Thus, it has been held that s 73 of the Bankruptcy Act applies only to undischarged bankrupts, despite the use of the general term “bankrupt”: Quinn v Official Trustee in Bankruptcy (1995) 63 FCR 136; see also Ferella v Official Trustee in Bankruptcy (2010) 188 FCR 68 and Macchia v Nilant (2001) 110 FCR 101.
The issue here is whether the use of the phrase “bankrupt party” in definition (cb) is merely to distinguish that party from the non-bankrupt party to the marriage or whether it was intended to limit claims by trustees to those involving undischarged bankrupts – in other words, does the phrase have a temporal limitation?
To begin with, it must be noted that the phrase “bankrupt party to a marriage” was introduced into the Family Law Act by the Bankruptcy and Family Law Legislation Amendment Act 2005 (Cth). The phrase appears to be entirely a creation of that amending act and is not found outside of the Family Law Act and the Family Law Rules 2004 (Cth) – the phrase is not used in any other Commonwealth legislation.
The phrase “bankruptcy trustee” is defined by s 4(1) of the Family Law Act as “the trustee of the bankrupt’s estate”. If that definition is incorporated into definition (cb) it reads, in part, “the trustee of the bankrupt’s estate of a bankrupt party to the marriage”. If the trustee is correct, the use of the second “bankrupt” is otiose, as the expanded definition clearly identifies which party to the marriage is a bankrupt.
At the same time as definition (cb) was introduced, there were a number of relevant amendments to the Bankruptcy Act and the Family Law Act.
Section 35 of the Bankruptcy Act was amended to give the Family Court limited jurisdiction under that Act. It provided:
(1)If, at a particular time:
(a)a party to a marriage is a bankrupt; and
(b)the trustee of the bankrupt’s estate is:
(i) a party to property settlement proceedings in relation to either or both of the parties to the marriage; or
(ii) an applicant under section 79A of the Family Law Act 1975 for the variation or setting aside of an order made under section 79 of that Act in property settlement proceedings in relation to either or both of the parties to the marriage; or
(iii)a party to spousal maintenance proceedings in relation to the maintenance of a party to the marriage;
then, at and after that time, the Family Court has jurisdiction in bankruptcy in relation to any matter connected with, or arising out of, the bankruptcy of the bankrupt.
(Emphasis added)
The words emphasised by us indicate that the jurisdiction of a court exercising jurisdiction under the Family Law Act is limited by a requirement that a party to the marriage have the status of a bankrupt (ie an undischarged bankrupt) at the time of the commencement of the proceedings. This is indicated by the phrase “is a bankrupt”.
Subsections 79(11) and (12) were introduced into the Family Law Act at the same time. Subsection 79(11) requires the court to join a bankruptcy trustee in the circumstances set out in that subsection. One of the circumstances that must exist for the subsection to apply is that either at the time the application under s 79 was made a party to the marriage was a bankrupt or, after the application was made but before it was determined, a party to the marriage became a bankrupt.
These provisions suggest that the requirement is met only when a person is, or becomes, a bankrupt and not where a person has been a bankrupt and been discharged. The point of the provision is that the trustee stands in the shoes of the bankrupt in relation to property vested in him or her; the bankrupt party has no right to be heard in relation to that property (s 79(12) Family Law Act). The position is the same for applications for spousal maintenance (s 74(3) Family Law Act).
Proceedings under s 79(11) are a matrimonial cause, notwithstanding they are not between parties to a marriage, because they fall within definition (cb). Similarly, the trustee can stand in the shoes of an undischarged bankrupt in proceedings under s 90K(1) of the Family Law Act.
As we pointed out at the commencement of these reasons, and as was accepted by the parties, in this case the Official Trustee can pursue its claim against the wife in other courts without any need to set the agreement aside. What is in issue in this case is whether the Court has jurisdiction to determine the trustee’s claim to set the financial agreement aside.
It is appropriate to mention here that the Official Trustee sought two orders from the Court: one setting aside the agreement and an order that 40 per cent of the net proceeds of the sale of the property be paid to it. As was properly conceded by counsel for the Official Trustee, the Court had jurisdiction to make the second order only if there was jurisdiction to make the first order. This was because, standing alone, the second order did not fall within one of the definitions of matrimonial cause, and could only be made if it were part of a justiciable cause in which the Court otherwise had jurisdiction.
The purpose of setting aside a financial agreement at the behest of a trustee in bankruptcy is to seek to recover property that would otherwise have been available to that trustee to distribute to creditors. That property can consist only of property that vested in the trustee at the commencement of the bankruptcy or was acquired by or devolved upon the bankrupt prior to his or her discharge from bankruptcy. The trustee has no interest in any property of a bankrupt acquired after discharge.
These factors lend support to the view that the use of the word “bankrupt” in definition (cb) is not otiose but is intended to have adjectival force so as to limit the phrase “bankrupt party” to meaning an undischarged bankrupt. This is the effect of the amendments to the sections dealing with maintenance and property applications, which were enacted at the same time. This construction is supported by the provisions of the Bankruptcy Act, which vest property held by the bankrupt at the time of his or her bankruptcy as well as property that is acquired whilst the bankrupt is an undischarged bankrupt.
As the primary judge pointed out, it is unlikely that the legislature intended that the trustee could commence proceedings to set aside a financial agreement at any time prior to the expiration of 20 years from the date of bankruptcy.
The approach we have taken is consistent with paragraph 18 of the Revised Explanatory Memorandum to the Bankruptcy and Family Law Legislation Amendment Bill 2005, which provided:
The Bill also proposes amendments to ensure that financial agreements under Part VIIIA of the Family Law Act cannot be used to defeat the claims of creditors. One amendment will exclude financial agreements from the definition of ‘maintenance agreement’ in the Bankruptcy Act to ensure that trustees can use the ‘clawback’ provisions of that Act to recover property transferred prior to bankruptcy under such an agreement. A further amendment will introduce a new act of bankruptcy which will occur when a person is rendered insolvent as a result of assets being transferred under a financial agreement. This will mean that the person’s bankruptcy will be taken to have commenced at the time of that transfer which will extend the ‘relation back’ period. This will allow the trustee to claim property transferred under the agreement as divisible property in the bankrupt’s estate. Other amendments to the Family Law Act in Schedule 5 to the Bill will require a separation declaration to be made in relation to binding financial agreements that deal with post-separation financial arrangements, before those aspects of the agreement come into effect.
The emphasis is on preventing the use of financial agreements to transfer property that would otherwise have been divisible property in the bankrupt’s estate.
The effect of this reasoning is that a trustee in bankruptcy would not be able to apply to set aside a financial agreement entered into after a party’s discharge from bankruptcy. As we have pointed out, however, the trustee retains the property that has vested in him or her and may pursue any relevant legal or equitable remedies to recover it. That approach is consistent with the amendments to s 79 of the Family Law Act discussed earlier. The point is that the trustee is permitted to stand in the shoes of a person who is a bankrupt – that is, an undischarged bankrupt – for the purposes of participating in proceedings for the settlement of the property of the parties to the marriage.
In Todd at 188, Spender J discussed the principle set out in Ex parte Llynvi Coal and Iron Co; Re Hide (1871) 7 Ch App 28 (“Llynvi Coal and Iron Co”):
In Ex parte Llynvi Coal and Iron Co; Re Hide (1871) 7 Ch App 28, James L J, speaking in reference to s 23 of the Bankruptcy Act 1869 (Eng), which is in similar terms to s 82 of the Act, said (at 31):
“Every possible demand, every possible claim, every possible liability, except for personal torts, is to be the subject of proof in bankruptcy, and to be ascertained either by the court itself or with the aid of a jury. The broad purview of this Act is, that the bankrupt is to be a freed man — freed not only from debts, but from contracts, liabilities, engagements, and contingencies of every kind. On the other hand, all the persons from whose claims, and from liability to whom he is so freed are to come in with the other creditors and share in the distribution of the assets.”
The status of bankruptcy involves a curtailment of rights and abilities and exposes a bankrupt to quasi-penal consequences. It is conducive to the rehabilitative object of the bankruptcy law that, on discharge from his bankruptcy, the former bankrupt be restored to his full and former status without lingering disabilities and with his immunities unattenuated.
The approach we have outlined above is consistent with this general principle. The amendment the subject of the discussion permits a trustee in bankruptcy to become involved in spousal maintenance or property proceedings in relation to property that has vested in the trustee, possibly to the exclusion of the bankrupt. The trustee’s entitlement is conditional upon a party to the marriage being a bankrupt at the time the proceedings are commenced or becoming a bankrupt during the proceedings. That entitlement does not extend to proceedings commenced after that party’s discharge from bankruptcy.
In our view the construction of definition (cb) is consistent with both the general principle stated in Llynvi Coal and Iron Co and with the trustee’s limited role in spousal maintenance and property proceedings. This construction gives effect to all of the words in the definition, as it accepts that the description of a party as a bankrupt has adjectival force and is intended to limit the trustee to applications against undischarged bankrupts. Thus the submissions of the appellant are not accepted.
For these reasons, this ground of appeal does not succeed.
The construction of definition (eab)
As we have identified earlier, the appellant submits that the Official Trustee in Bankruptcy is a “government body acting in the interest of a creditor” within the meaning of s 4A(1)(b)(iii) of the Family Law Act, thus engaging definition (eab) of “matrimonial cause”.
A government body is defined by s 4A(2) as the Commonwealth, a State or a Territory or an official or authority of the Commonwealth, a State or a Territory.
The Official Trustee submits that it is an official of the Commonwealth because the office is created by Commonwealth legislation, and that the purpose of the office is to recover the bankrupt’s property for distribution to its creditors.
The Official Trustee is a body corporate (s 18(1) Bankruptcy Act). When appointed, the trustee of a bankrupt estate has the same rights, powers and obligations arising from that appointment as registered trustees, who are individuals. Either may be appointed as a trustee, and creditors may replace one with the other (ss 157, 159 and 160 Bankruptcy Act).
Each fulfils the role of a statutory trustee. Given that, and the designation of the Official Trustee as a body corporate, it is difficult to describe the Official Trustee as an official or body of the Commonwealth. Further, it would be an extremely odd outcome if the substantive rights of the parties depended upon whether the trustee of an estate was a registered trustee or the Official Trustee, particularly when one may replace the other.
A contrast may be drawn between the Australian Securities and Investments Commission (“ASIC”) and the Official Trustee. ASIC is a Commonwealth entity for the purposes of the Public Governance, Performance and Accountability Act 2013 (Cth) (see s 9 Australian Securities and Investments Commission Act 2001 (Cth) (“the ASIC Act”)). Section 18AA of the Bankruptcy Act provides that the Official Trustee is not a Commonwealth entity.
Any liabilities of ASIC are liabilities of the Commonwealth (s 8 ASIC Act). On the other hand, the Official Trustee is personally liable for acts done or omitted to be done as a trustee. The Commonwealth is obliged to indemnify the Official Trustee against that liability (s 18A Bankruptcy Act).
These differences are sufficient to indicate that ASIC may well be a government authority, but that the Official Trustee and the Commonwealth are quite distinct entities.
We are satisfied that the Official Trustee is not an official of the Commonwealth and this aspect of the appeal does not succeed.
It follows that the appeal will be dismissed.
Costs
The Official Trustee properly accepted that, in the circumstances of this matter, if the appeal was unsuccessful it should pay the wife’s costs. That is an appropriate order.
The wife sought an order that those costs be paid on an indemnity basis. In doing so she relied upon a letter dated 11 November 2013 in which she asked:
(a)Is the application brought pursuant to the Bankruptcy Act 1966, or the Family Law Act 1975, or both? On which provisions (of either Act) do you rely?
The reply to that letter did not answer those questions.
Indemnity costs are awarded only in exceptional cases: see Kohan and Kohan (1993) FLC 92-340 at 79,614; cited with approval in Limousin & Limousin (Costs) (2007) 38 Fam LR 478 at 485 and D & D (Costs) (No. 2) (2010) FLC 93-435 at 84,767. This is not such a case. Whilst the failure to answer the wife’s letter was regrettable, it does not justify an order for indemnity costs.
There will be an order that the appellant pay the first respondent’s costs, to be assessed on a party and party basis if they cannot be agreed.
I certify that the preceding seventy three (73) paragraphs are a true copy of the reasons for judgment of the Honourable Full Court (Bryant CJ, Aldridge & Austin JJ) delivered on 17 February 2017.
Associate:
Date: 17 February 2017
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