Pacelli and Hopkinson and Anor
[2010] FMCAfam 1248
•17 November 2010
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| PACELLI & HOPKINSON & ANOR | [2010] FMCAfam 1248 |
| FAMILY LAW – Locus standi of bankrupt party – non-vested assets pursuant to s.116(2) Bankruptcy Act – bankrupt person affected for purposes of s.79A(1) in respect of non-vested assets – reinstatement of bankrupt to proceedings. |
| Administration and Probate Act1958 Bankruptcy Act 1966 Family Law Act 1975 Superannuation Industry (Suspension) Act 1993 |
| Audet v Audet; Official Trustee in Bankruptcy (Intervener) (1995) FLC 92-607; Halsburys Laws of Australia, Butterworths, 1998, vol 3(1) |
| Applicant: | MR PACELLI AS THE TRUSTEE FOR THE BANKRUPT ESTATE OF MR HOPKINSON |
| First Respondent: | MS HOPKINSON |
| Second Respondent: | MR HOPKINSON |
| File Number: | BRC4362 of 2007 |
| Judgment of: | Burnett FM |
| Hearing date: | 18 February 2010 |
| Date of Last Submission: | 9 November 2010 |
| Delivered at: | Brisbane |
| Delivered on: | 17 November 2010 |
REPRESENTATION
| Counsel for the Applicant: | Ms Julian-Armitage |
| Solicitors for the Applicant: | Gregg Lawyers |
| Counsel for the First Respondent: | Mr Cameron |
| Solicitors for the First Respondent: | Nathan Lawyers |
| Counsel for the Second Respondent: | Mr G. Page SC |
| Solicitors for the Second Respondent: |
ORDERS
Mr Hopkinson be reinstated as a party and be noted as first applicant in the proceeding.
Mr Pacelli as Trustee of the bankrupt estate of Mr Hopkinson be noted as second applicant in the proceeding.
Costs reserved.
Application be listed for mention at 9.30am on 24 November 2010.
IT IS NOTED that publication of this judgment under the pseudonym Pacelli & Hopkinson & Anor is approved pursuant to s.121(9)(g) of the Family Law Act 1975 (Cth).
| FEDERAL MAGISTRATES COURT OF AUSTRALIA ATBRISBANE |
BRC 4362 of 2007
| MR PACELLI AS TRUSTEE FOR THE BANKRUPT ESTATE OF MR HOPKINSON |
Applicant
And
| MS HOPKINSON |
First Respondent
| MR HOPKINSON |
Second Respondent
REASONS FOR JUDGMENT
Background
These proceedings commenced in 2007 with the Mr Hopkinson as the applicant (the applicant) seeking orders for injunctions in respect of property and orders for spousal maintenance. Despite their vague expression in the prayer for relief in the initiating application, the proceedings subsequently metamorphosised into conventional proceedings for orders pursuant to s.79 of the Family Law Act (FLA).
On 11 September 2007 the applicant was subject to a sequestration order made under the Bankruptcy Act (BA). Mr Pacelli was appointed as his Trustee in bankruptcy (the Trustee). By orders made on
20 March 2008 pursuant to s.79(11) FLA the Trustee was joined as a party to the proceedings. In turn, he assumed the applicant’s conduct of the property proceedings and the applicant’s role was thereafter limited by operation of s.79(12) FLA.
In due course the respondent and the Trustee purported to resolve all matters between them and proposed a settlement of the s.79 FLA proceedings. Subsequently the Trustee and the respondent by their respective representatives reached agreement on property matters and sought final orders.
As is apparent from the terms of the orders made by consent of the parties, the orders appear to deal comprehensively with all assets of the parties. However, that did not prove to be the case. In fact, the Trustee and the respondent overlooked or ignored a small sum of approximately $13,000.00 which the applicant had credited in his favour with a regulated superannuation fund. At this point it should be observed that the interest in the regulated superannuation fund is an asset of the marriage available under s.79 FLA.
There is no explanation for this omission, although from the Trustee’s perspective it is exempt property pursuant to s.116(2)(d)(iii)(A) BA, being an interest in a regulated superannuation fund within the meaning of the Superannuation Industry (Supervision) Act1993 and thereby a fund in which the Trustee would have no interest.
This matter was not drawn to the court’s attention at the time the final orders pursuant to s.79 FLA were being sought by consent and the court was not directed to any material concerning that issue. That fact appears to be accepted by all.
On 20 February 2009 the applicant made application pursuant to s.79A FLA to set aside the final orders made 24 November 2008. In his application in support of the application to set aside the final orders, the only ground advanced was an unparticularised allegation that there had been a miscarriage of justice entitling relief pursuant to s.79A(1)(a) FLA. Particulars of these allegations were to be supplied in later affidavits.
Subsequently the applicant did file affidavits. However, the substance of those affidavits was directed principally to complaints he had about the manner in which the Trustee kept him informed of and communicated with him concerning the Trustee’s conduct of the proceeding. Nothing in the affidavits gave rise to or supported any allegations made earlier concerning the 24 November order being one made in circumstances anticipated by s.79A(1)(a) FLA.
The applicant subsequently brought two applications, one seeking interlocutory orders directed to his complaints against the Trustee and the other for disqualification in the further conduct of the proceedings. On 3 November 2009 those applications were dismissed.
In addition, given the applicant’s failure to advance any basis for orders pursuant to s.79A FLA and because of his continued disruptive approach to the proceedings, orders were made removing the applicant from the proceedings. The effect was to leave any application pursuant to s.79A FLA to be agitated by the Trustee if the Trustee thought it appropriate. By reason of other matters this application had not been disposed of and until now has been in abeyance.
Until November 2009, the applicant had appeared unrepresented although on one or two occasions he had been assisted by a struck-off solicitor, Mr Crittenden. The applicant himself has previously practiced as a solicitor.
On 5 November 2009 the matter came back before the court. On this occasion the applicant was represented by Mr Page of Senior Counsel. He informed the court that there may be difficulties with the final orders made pursuant to s.79 FLA and the s.79 FLA agreement between the Trustee and the respondent because the applicant in fact had a superannuation fund valued at approximately $13,000.00 which had not been factored into the property settlement agreement and consequent orders. On that basis it was contended that the applicant did in fact have locus standi in the s.79A FLA proceeding and ought to be reinstated for that purpose.
Directions were made on 4 February 2009 requiring the exchange of submissions in respect of that matter for its determination.
In the meantime the applicant launched an appeal in respect of earlier orders which was subsequently abandoned. The matter has now returned for determination of the issue concerning locus standi.
Applicant’s Locus Standi
The principle ground advanced by the applicant in support of his application for locus standi is that he is a person affected by the s.79 FLA order in circumstances where the order has been made following a failure to disclose relevant information – s.79A(1)(a) FLA.
In the ordinary course, given the Trustee had exercised his rights under s.79(11) FLA, the applicant would not have any standing because he was subject to a bankruptcy order. Generally, in those circumstances, he would not be a person whose interests would be affected by the making of an order as all his interests in the matrimonial property would have vested in the Trustee – s.58(1)(a) of the BA.
Where the bankrupt’s only assets are divisible between his creditors that does not present any difficulty. In the matrimonial context, generally, all a bankrupt’s assets will also be assets of the marriage. The vesting of a party’s assets in the hands of the Trustee will merely permit the Trustee on behalf of the bankrupt’s creditors to recover in the s.79 proceedings the bankrupt’s financial interests from the marriage for the creditors’ benefit.
The bankrupt’s capacity to engage in the proceeding is further limited by s.79(12) FLA which provides that without leave (which may only be granted in exceptional circumstances – s.79(13) FLA) a bankrupt party to a marriage is not entitled to make a submission to the court in connection with any vested property.
This outcome is reiterated by s.79A(5) and s.79A(6) FLA which provides that, for the purposes of s.79A FLA, when an order is made under s.79 FLA and one party is a bankrupt then the bankrupt’s trustee is taken to be the person whose interests are affected by the orders and is expressly so in respect of ‘vested property’. That is to say, the bankrupt is not the person whose interests are affected by the order. So much seems consistent with the scheme provided by the BA. Once a person is subject to sequestration his estate vests immediately in the hands of his Trustee – s.58(1)(A) BA. His Trustee then assumes all responsibility including the duty to sequest assets and divide the proceeds amongst his creditors.
However, what of the position where one or some of the assets are exempt from distribution among the creditors? Does the bankrupt have standing in respect of those assets? That is the case here. Here the bankrupt has an interest in a regulated superannuation fund.
The answer in part lies in s.5 BA which defines “the property of the bankrupt” to mean “the property divisible among the bankrupt’s creditors”.
Section 116 details the property divisible among the bankrupt’s creditors. That does not extend to that property described in s.116(2) and more particularly s.116(2)(d)(iii)(A) being a regulated superannuation fund. See also Halsburys Laws of Australia, Butterworths, 1998, vol 3(1) paras.50-825. In other words property which is exempt by s.116(2) does not vest and remains the property of the bankrupt.
Authority supports the view that, despite bankruptcy, a bankrupt has standing in s.79 FLA property proceedings because of their personal nature. Audet v Audet; Official Trustee in Bankruptcy (Intervener) (1995) FLC 92-607; O’Neill, In the marriage of O’Neill [1998] FLC 92-811. In broad terms, those authorities recognise that, as a matter of principle, bankruptcy is no bar to a bankrupt maintaining claims on his/her own behalf under the FLA. Those cases were decided on an earlier enactment of s.79 which was subsequently amended to address the difficulty previously occasioned with claims involving bankrupts as parties and the clash of rights arising. Those matters were discussed in Lemnos v Lemnos [2007] FamCA 1058 at [42] to [62].
However from the amended provisions it seems apparent that the new regime concerned principally the circumstances of the Trustee for claims involving the estates of bankrupts. This was the principal argument of the respondent.
The 2005 amendments dealt with the situation concerning a bankrupt’s vested property and the difficulties occasioned by the involvement of Trustees. However, the amendments to the FLA did not expressly address the situation involving the bankrupt’s non-vested property. In this regard, it appears that the previous legal principles remain undisturbed.
The authorities cited above predate the 2005 amendments and do not address them. The facts in Lemnos did not require the court to consider the situation now under consideration.
In this case the non-vested property specifically concerns the applicant bankrupt’s superannuation fund. By reference to s.116(2) BA, other property which commonly features in proceedings of this kind includes a bankrupt’s household property, personal property, property used for the earning of income by personal exertion, property used as a means of transport and a right to recover compensation for personal injury. In respect of most of the items listed, there are regulated limits on the quantum involved, rendering dispute on these issues pointless. However, estates incorporating superannuation funds and, in some instances, personal injuries claims, can be significant and can involve significant rights of claim by an opposing spouse.
It follows that there is some utility beyond this proceeding in considering whether the amendments of 2005 have disturbed the situation which previously prevailed in so far as they are now to be confined to non-vested property.
That brings into question a consideration of s.79A(5) and s.79A(6) FLA and the bearing they have upon the rights of a bankrupt party.
The bankrupt’s rights in respect of vested property are clearly addressed in s.79 and by implication so too is non-vested property. That is, the bankrupt still retains that party’s right in respect of non-vested property but s.79 does not permit the bankrupt to make “a submission to the court in connection with any vested bankruptcy property” – s.79(12).
However, for the purposes of setting aside a s.79 order, s.79A appears to extend the Trustee’s rights to non-vested property by its proscription in s.79A(5) and the Trustee is taken to be a person whose interests are affected by a s.79 order which includes all matrimonial property –vested and non vested. This is in addition to the Trustee’s rights in respect of “vested property” which are expressly preserved by s.79A(6). Given that a s.79 order relates to the alteration of property interests, including non-vested property – s.79(1)(a) and (b) –, a question must arise as to whether, as a matter of construction, s.79A(5) was intended to exclude a bankrupt party from that party’s claims in respect of non-vested property.
On this matter, the respondents second argument was that as a matter of construction of s.79A(5) FLA the only person whose interests are affected in respect of property and who has standing for the purpose of s.79A(1) FLA is the Trustee.
A purposeful approach should be adopted to the construction of the FLA. See s.15AA Acts Interpretation Act (Cth). The clear purpose of the FLA is to permit the resolution of property claims between parties to a marriage. Save for the 2005 amendments there is nothing in the FLA to expressly exclude the application of the pre-existing principles insofar as they applied to non-vested property. That is, the amendments did not disturb recognition of the rights of the bankrupt in respect of non-vested property. On that basis, I do not think s.79A(5) FLA should be read to exclude a bankrupt from pursuing rights in respect of non-vested property, although a bankrupt’s Trustee is also taken to be a person whose interests are affected in respect of such property.
The fact that the bankrupt is a person affected does not however limit the Trustee’s rights as are deemed by s.79A(5) FLA. In fact, it is entirely foreseeable that both parties have an interest in a s.79 FLA order in respect of non-vested rights enlivening the rights of each. In DCT v Swain[1] the Federal Court has recognised that matter.
[1] Deputy Commissioner of Taxation v Swain (1988) 20 FCR 507 at 514/14. This is particularly apparent from the Full Court’s observation that any success by a bankrupt party to matrimonial proceedings in such proceedings could be recognised in any subsequent annulment.
It follows that as the applicant’s superannuation fund did not vest, he is not subject to s.79(12) FLA in respect of the superannuation fund nor subject to the requirement for leave in respect of an application pursuant to s.79 in respect of that property. He is a person who would be affected by an order under s.79 FLA[2] and has standing to make application pursuant to s.79A(1) FLA.
[2] This approach is consistent with the approach of Greenwood M in Crackenback Investments Pty Ltd v Wywsik (Supreme Court of NSW – 24 Aug 83) BC8300495 at [4].
Is there an interest to be affected?
Unquestionably, the superannuation fund was property of the marriage: s.4(1) FLA. From the material, it seems probable that the superannuation fund was not considered by the parties in concluding their agreement, which gave rise to the s.79 FLA order. If such is the case then, arguably, the applicant has enjoyed an outcome in excess of his entitlement. It is not to the point that the Trustee would not enjoy any greater outcome in the s.79 FLA application. The fact remains that on the applicant’s case, the respondent is getting a sum which is less than her negotiated entitlement which, because the pool available for division, was less than it ought to have been by reason of the omission of the applicant’s interest in the superannuation fund.
In my view, the applicant is affected by the orders, even if the affect is not adverse. It follows that he is entitled to be heard and has standing under s.79A FLA. However, his standing is limited to his interest in the superannuation fund.
Bankrupt as party to proceedings
No submission has been made that the applicant’s application has been deemed abandoned by operation of s.60(4) BA. Indeed, the conduct of the parties suggests otherwise. There is no prohibition under the BA a bankrupt being a party to proceedings. Subject to the proceedings not being stayed there is nothing in the BA preventing a bankrupt from being a party to any proceeding and, in this case, the applicant bankrupt being a party to this application.
Future conduct of the proceeding
Unless the respondent wishes to pursue her entitlement to a share of the superannuation fund which would then require an assessment of the competing interests of the parties, it is difficult to see why the matter ought not be disposed of summarily at some later time. The best possible outcome for the applicant is that he receives the whole of the superannuation fund. The balance of matters concerning the apportionment of the remainder of the estate are matters solely within the remit of the Trustee and the respondent inter se. The applicant has no interest in and can assert no rights in respect of those matters.
If the respondent were to formally abandon any claim in the superannuation fund, I expect that an application for summary relief could be determined expeditiously. That would occur because, at this stage, it appears that in the event the respondent abandoned any claim in the superannuation fund there would be no basis to justify any entitlement for orders pursuant to s.79A FLA for the Court to exercise its discretion to vary the original orders, set them aside or make other orders.
If the Trustee and the respondent were to adopt that approach and if the applicant persists in his application pursuant to s.79A, I would favourably entertain an application for security for costs and, if successful, consider making orders staying the proceeding pending the provision of security and granting the Trustee and the respondent leave to apply in stanta for orders that the orders made on 24 November 2009 be made by way of interim orders.
Orders
Mr Hopkinson be reinstated as a party and be noted as first applicant in the proceeding.
Mr Pacelli as Trustee of the bankrupt estate of Mr Hopkinson be noted as second applicant in the proceeding.
Costs reserved.
Application be listed for mention at 9.30am on 24 November 2010.
I certify that the preceding forty-five (45) paragraphs are a true copy of the reasons for judgment of Burnett FM
Date: 17 November 2010
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