Rand and Rand (No. 2)
[2009] FamCAFC 155
•26 August 2008
FAMILY COURT OF AUSTRALIA
| RAND & RAND (NO. 2) | [2009] FamCAFC 155 |
| FAMILY LAW – APPEAL – Interpretation of orders providing that profits derived from intellectual property rights be shared by husband and wife – impact of husband’s discharge from bankruptcy – discussion of vesting and disclaimer provisions of Bankruptcy Act – not established that trial Judge’s decision erroneous – Court not satisfied that husband’s former trustee in bankruptcy had disclaimed intellectual property rights – appeal dismissed |
| Family Law Act 1975 (Cth) Part VIII, Part VIIIAA, s 94 Bankruptcy Act 1966 (Cth) ss 5, 133 |
| Cummings v Claremont Petroleum NL and Anor; Fuller v Claremont Petroleum NL and Anor (1995-1996) 185 CLR 124 Guirguis, M v Guirguis MFA, Official Trustee in Bankruptcy (1997) FLC 92‑726 O’Neill v O’Neill (1998) FLC 92‑811 |
| APPELLANT: | Mr M Rand |
| RESPONDENT: | Ms S Rand |
| FILE NUMBER: | SYF | 2153 | of | 2001 |
| APPEAL NUMBER: | EA | 16A | of | 2006 |
| DATE DELIVERED: | 26 August 2009 |
| PLACE DELIVERED: | Dubbo |
| PLACE HEARD: | Sydney |
| JUDGMENT OF: | COLEMAN, WARNICK & CRISFORD JJ |
| HEARING DATE: | 15 June 2009 |
| LOWER COURT JURISDICTION: | Family Court of Australia |
| LOWER COURT JUDGMENT DATE: | 28 October 2005 |
| LOWER COURT MNC: | [2006] FamCA 1530 |
REPRESENTATION
| COUNSEL FOR THE APPELLANT: | Mr Robert Lethbridge SC |
| SOLICITOR FOR THE APPELLANT: | StreeterLaw |
| COUNSEL FOR THE RESPONDENT: | Mr Mark Twigg |
| SOLICITOR FOR THE RESPONDENT: | Adrian Twigg & Co |
Orders
That the appeal be dismissed.
That the husband pay the wife’s costs of the appeal as agreed or assessed on a party and party basis.
IT IS NOTED that publication of this judgment under the pseudonym Rand & Rand is approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth)
| THE FULL COURT OF THE FAMILY COURT OF AUSTRALIA AT SYDNEY |
Appeal Number: EA 16A of 2006
File Number: SYF 2153 of 2001
| MR M RAND |
Appellant
And
| MS S RAND |
Respondent
REASONS FOR JUDGMENT
Coleman & Crisford JJ:
By Notice of Appeal filed on 7 February 2006, Mr M Rand (“the husband”) appealed against a number of orders made by Rowlands J on 10 January 2006 in proceedings for settlement of property between the husband, his former wife Ms S Rand(“the wife”) and numerous other entities. Pursuant to earlier orders of this Court, the husband has only been permitted to appeal against Order 3 and, by necessary extension, Order 11 of the orders made by the trial Judge. Those orders provided:
3.And Declared that the Wife (subject to Order 11 hereof) is entitled to one half of any profits arising out of the patents or other intellectual property relating to the conversation [sic] of waste material to building products and further order that the Husband account and (subject to Order 11 hereof) pay to the Wife one half of any profits received in respect of the intellectual property of the various companies known as [NR Technology] Pty Limited, [NR Corporation], [B] Pty Limited and related entitles. …
11.That the Wife’s entitlement to profits pursuant to Order 3 above be limited in amount to the sum of:
(a)any balance outstanding in respect to the sum of $4,417,406 referred to in the final paragraph of the Reasons for Judgment of 10 January 2006, plus
(b)any costs ordered in favour of the Wife in respect of these proceedings including their enforcement, plus
(c)interest on sums outstanding referred to in (a) and (b) above, at the rate of interest prescribed by the Family Law Rules or as otherwise ordered. [AB1, pages 35 & 37].
The wife resisted the husband’s appeal and sought to maintain the trial Judge’s orders. No other party to the proceedings before Rowlands J participated in the appeal. There has been no appearance by or on behalf of the husband’s former trustee on the hearing of the husband’s appeal. We were informed that the husband’s former trustee in bankruptcy, who is a party to the proceedings and was represented before the trial Judge, was notified of the hearing of the husband’s appeal.
Background
Proceedings for settlement of property pursuant to Part VIII and Part VIIIAA of the Family Law Act 1975 (Cth) (“Family Law Act”) between the husband and wife, eleven third party respondents and the husband’s trustee in bankruptcy, Mr PL, were heard by the trial Judge over twenty four hearing days, commencing in September 2002 and concluding in November 2005.
The trial Judge recorded in his judgment that the “Net Assets Known” approximated $5 521 758, and concluded that the wife should be entitled to 80 percent of such assets and the husband to 20 percent of them. Not included in the “Net Assets Known” of $5 521 758 was any value for certain intellectual property rights considered by the trial Judge to have a “worth unknown but a large sum in the order of a million dollars or more”. [AB1, pages 49-50, par 29].
His Honour so concluded having determined that the wife’s entitlement on a contribution basis should be assessed at 50 percent. That entitlement was increased to 80 percent pursuant to section 75(2) of the Family Law Act.
Order 3 made by the trial Judge, which gives rise to the present appeal, related to those intellectual property rights. The husband’s contention in the appeal has been that the intellectual property rights were, on the trial Judge’s findings of fact, “property” which vested in the husband’s trustee in bankruptcy pursuant to the provisions of the Bankruptcy Act 1966 (Cth) (“Bankruptcy Act”). Accordingly, it was submitted that no order could be made against the husband personally in relation to those rights.
The wife’s contention in the appeal has been either that, notwithstanding that the husband has been discharged from bankruptcy, and that the intellectual property rights were thus vested in the husband’s former trustee in bankruptcy pursuant to the provisions of the Bankruptcy Act, the trustee had, formally or informally “disclaimed” such property. The intellectual property rights were thus submitted to have been vested in the husband as at the date of the trial Judge’s orders.
By way of preliminary point, Counsel for the wife challenged the husband’s standing to appeal against the trial Judge’s orders.
The trial Judge’s Judgment
As will be seen, both the preliminarily challenge and the husband’s challenges to the trial Judge’s orders raise issues within a comparatively narrow compass. It is unnecessary, and unhelpful, to refer in any detail to significant portions of the trial Judge’s Reasons for Judgment as they cannot assume any significance in the appeal. Although not directly relevant for present purposes, some matters recorded in his Honour’s judgment provide a useful background to the appeal.
By way of introduction to the proceedings before him, the trial Judge recorded that the parties had married in 1984, and separated in 2000. There were three children of the marriage who were aged 16, 14 and 12 years at the date of his Honour’s judgment. All three children were living with the wife. [AB1, page 45, pars 1 & 2].
Having identified the competing applications, the trial Judge referred to the husband’s bankruptcy, on his own petition, on 28 November 2002. At that time, the proceedings were part heard before his Honour. The trial Judge recorded that the husband then “had debts to various people and entitles but by far the largest creditors were the Husband’s father, Mr [G Rand] (the Second Respondent) and his company [GD] Pty Limited (the Sixth Respondent) of which the Husband was a director”. [AB1, page 46, par 8].
The trial Judge then referred to the wife’s unsuccessful application to annul the husband’s bankruptcy, [AB1, page 46, par 9], and recorded that:
10.Assets of the Husband’s at the time of his bankruptcy became part of his bankrupt estate and not available for consideration as part of the matrimonial pool of assets in these proceedings under Part VIII. The trustee of the Husband’s bankrupt estate, Mr [PL], has disavowed any claim or interest in relation to the [Rand] Family Trust. He does claim an interest, the Husband’s share, in the couples’ former matrimonial home at [A]. It appears that the trustee, at this stage, has not formed a view whether his claim is for 50% or for 16.43% of the home; the Wife claims, on equitable principles, an 83.57% equitable interest in the property. [AB1, page 46, par 10].
For reasons which he detailed, and do not assume significance for present purposes, the trial Judge accepted that the wife had an equitable interest in the A property representing 83.57 percent of the equity in the property as she asserted.
The trial Judge identified the property of the parties and, to the extent that they were known or ascertainable, recorded the values of such property. Relevantly for present purposes, his Honour there referred to three corporations, NR Corporation, NR Technology Pty Ltd and NR International Pty Ltd. [AB1, page 49, par 29]. His Honour had earlier recorded that:
6.… The [NR] Technology involved the exploitation of patents for building blocks. [AB1, pages 45-46, par 6].
As his Honour also recorded in a footnote that the value of those three corporations did not include the intellectual property rights in the technology described by his Honour as:
34.This technology involved the “agglomeration’ (forming of mass) from waste products, particularly from the by-product of power stations, such as fly ash (fine ash which is produced from coal burning). With treatment by chemicals the by-product may be used to make building blocks. [AB1, page 51, par 34].
The trial Judge recorded, accurately there is no doubt, that the husband’s case was that he had no interest in nor was “part of it or linked to” the “technology”, [AB1, page 51, par 35] as we shall for convenience describe the intellectual property rights relating to it throughout our judgment. Counsel for both parties also used that expression to describe the intellectual property rights.
His Honour also recorded, again accurately there is no doubt, that the wife’s case was that “the Husband remains associated with the project to exploit the technology (with associated patents) and that he fails to provide a full and frank disclosure to her, and the Court, in relation to it”. [AB1, page 51, par 36].
The trial Judge then reviewed the evidence before him in relation to this topic. In the course of so doing he recorded that:
45.It is apparent from the foregoing that, on the balance of probabilities, despite his protestations to the contrary, the Husband, through entitles owned and controlled by him, had on ongoing interest in the “Process of Agglomerating Particulate Material” as the invention is called in the assignment document emailed on the 9th July 2001 (Ex W22). His entities include [NR Corporation] (in which the Husband owns some 98% of the shares), [NR International Limited] for whom he signs and [NR Technology] Pty Limited of which he is the beneficial owner. [AB1, page 55, par 45].
No part of the husband’s appeal involved any challenge to the findings of fact there recorded, or indeed to any relevant finding of fact made by the trial Judge. As is not in doubt, and apparent from the trial Judge’s Reasons, the findings of fact in relation to the technology were overwhelmingly adverse to the husband, and witnesses called in aid of his case, and significantly dependent upon the trial Judge’s findings with respect to the credibility of the husband and such witnesses. There has been no challenge to any finding collateral to the trial Judge’s primary findings of fact.
The trial Judge examined the evidence before him in an endeavour to determine which of the corporations to which he had referred was the “owner” of the technology, and concluded that:
47.It appears that the owner of the invention may be [NR Corporation] or {NR Tehcnology] Pty Limited. However Exhibit W70 contains a draft licence from [N Company] to [W Company] for [MM Rand] technology.
48.The Husband’s assertion that the present owner is [MM Rand] cannot be accepted at face value. If he is then the exercise to have him the nominal owner appears to be a “sham” to seem to remove that asset from the Husband’s entitles. Apart from the matrimonial problem the Husband’s status as a bankrupt (2002-2005) had to be accommodated. [AB1, page 55, pars 47-48].
His Honour thus concluded that:
51.In all the circumstances of the case, I am left with the impression that the Husband in fact has access to and control in respect of the invention and the technology. This is based upon by a consideration of the evidence detailed and the evidence in the Husband’s affidavit of 3 May 2002 at para 39, and in exhibits. It demonstrates the Husband’s likely corporate activity in relation to the technology to 2004 and beyond. This must be coupled with his lack of disclosure and the fact that much of the revealed material was only obtained by zealous efforts on behalf of the Wife. The technology appears to be ‘his’ from the way in which he operates in relation to it. [AB1, page 56, par 51].
The trial Judge recorded in some detail, the reasons why he found that the husband’s disavowal of any interest in the technology lacked credibility, and concluded:
61.With the bankruptcy of the Husband now past it is reasonable to assume that interests controlled by the Husband held by his father or entitles, will in due course benefit the Husband as the circumstances allow. [AB1, page 58, par 61].
For reasons which he further detailed, the trial Judge concluded that:
68.In all of the circumstances, the evidence and the Husband’s approach permits the finding I make that the technology is worth to the Husband something in the order of a million dollars or more. [AB1, page 59, par 68].
The trial Judge thus concluded that:
71.Returning to the [NR Technology] item. Given the approach the authorities encourage me to take: the evidence suggests a finding that the Technology is within the beneficial control of the husband, that he has or had had the benefit of it and that it is worth a million dollars or more but otherwise I cannot be more precise. [AB1, page 60, par 71].
His Honour added that:
72.If the husband has disposed of the technology without benefit deliberately then that amounts to waste in the “Kowaliw” [In the Marriage of Kowaliw (1981) FLC 91‑092] sense, as later discussed in these reasons. [AB1, page 60, par 72].
Having dealt with a number of other controversial aspects of the asset pool, which do not assume significance in the present appeal, the trial Judge evaluated the contributions of the parties. It is unnecessary to refer to such consideration for present purposes. The trial Judge’s conclusion that the parties’ contributions could be “regarded as equal” [AB1, page 83, par 216] is not controversial in the present proceedings. Nor is the trial Judge’s conclusion that a number of section 75(2) factors to which his Honour referred justified increasing the wife’s contribution based entitlement to 65 percent.
His Honour said in that regard:
228.Leaving aside the unquantified asset related to [NR], a consideration of the Section 75(2) factors, particularly having regard to the superior earning capacity of the Husband and the Wife’s obligations to the children, suggests a substantial movement for these factors in the wife’s favour so that she receives 65% of the parties net asset and the Husband 35%. [AB1, page 84, par 228].
So far as the technology was concerned, his Honour concluded:
229.However [NR] must be considered as a Section 75(2) factor whether regarded as a financial resource or approached in a manner the Full Court explained in Foda v Foda (1997) FLC 92‑753 (referring to Weir v Weir (1993) FLC 92‑338), as deliberate non-disclosure of a significant asset. Whichever way this is done here, a Section 75(2) adjustment is called for which goes substantially beyond that considered without the [NR] factor. Each approach, to my mind, would lead to the same conclusion namely a division of the parties’ assets 80:20 in the Wife’s favour. [AB1, page 85, par 229].
Under the heading “Justice and Equity”, the trial Judge considered the practical effect of the orders he proposed. His Honour recorded in that regard:
233.That broadly contemplates a division of the kind shown in the table below although the ultimate outcome in the terms above, rather than particularly as suggested by items and sums below, is sought.
Husband
Wife
[NR Corporation]
$123,997
[A property] (Net Value)
$935,984
[RE] Pty Ltd (add back)
$1,499,210
Furniture
$15,000
Husband’s Legal Fees
$111,953
Wife’s Legal Fees
$459,147
Husband’s Super
$21,250
[Rand] Family Trust
$2,355,217
Payment to Wife
($652,058)
Payment from Husband (and 2nd Respondent)
$652,058
$1,104,352 (20%)
$4,417,406 (80%)
[AB1, pages 85-86, par 233].
Notwithstanding his conclusions with respect to the technology, his Honour did not include in the property to be retained or received by the husband any sum referable to such rights. It was not controversial in the appeal that the trial Judge concluded that the intellectual property rights constituted by the technology were worth approximately $1 000 000 to the husband. The husband has not challenged the trial Judge’s conclusions in either respect.
The preliminary challenge to the husband’s appeal
Counsel for the wife submitted that the Husband’s appeal was “incompetent”. [Respondent’s Submissions in Reply, page 2, par 4]. A number of cogent submissions were made in support of that assertion. Rather than attempt to paraphrase them, we set out hereunder the contentions advanced on the wife’s behalf.
5.It is quite clear that this appeal then is filed for an ulterior purpose – namely to secure some advantage to the Husband in what has been described as the “contempt appeal”. However, that is a separate appeal and must be dealt with on its own merits. …
7.Clearly, neither the intellectual property nor the rights in relation to an appeal concerning the intellectual property, are not a right in relation to any action concerning a personal injury within the meaning of s60(4) of the Bankruptcy Act.
8.Of course, if contrary to the above, the Court finds that the intellectual property does not vest in the trustee in bankruptcy, then ipso facto, the ground fails.
9.Either way, the appeal is incompetent and should be dismissed. [Respondent’s Submissions in Reply, pages 2-3, pars 5-9].
Senior Counsel for the husband asserted that the husband had “standing to appeal”. A similarly concise and cogent series of submissions were made in support of that contention. Those submissions provided:
1.1It is common ground that at the date of Judgment, 10 January 2006, and the date of the husband’s Appeal, 7 February 2006, the husband was not bankrupt.
1.2It is submitted that while not relevant here, the right to appeal is not property that vests in a bankrupt’s trustee.
1.3Again, although not relevant here, in certain circumstances where a judgment against a bankrupt creates a provable debt, the bankrupt has no financial interest which would confer locus standi to appeal in his own name.
1.4Further, although again not relevant here, in certain circumstances a bankrupt may avail himself of the provisions of s.178 of the Bankruptcy Act to seek the Court’s leave to pursue an action where his trustee declines to pursue it.
1.5It [is] submitted that neither the High Court’s decision in Cummings nor the decision in the Full Court in Guirguis has application here. This is because:
1.5.1The husband was not at the date of Judgment or the appeal a bankrupt;
1.5.2The appeal is not in respect of any provable debt or judgment which merged in the bankruptcy;
1.5.3The fact that by proper application of law, property found by the trial judge to be property available for distribution to the wife being property of the Appellant might properly be determined to be property vested in his bankruptcy trustee is irrelevant. Force is added to this argument by the provisions of s.116(1) of the Bankruptcy Act, and in particular s.116(1)(a) and (b); and
1.5.4The husband properly had an interest in the subject matter of the appeal. [Submissions in Reply on behalf of Appellant Husband, pages 1-2; pars 1.1-1.5].
Having regard to the authorities to which Counsel for the parties have referred us, we observe that the order sought to be challenged by the husband is on its face addressed to him personally, and potentially obliges him to do certain acts and things. Unless and until the order is discharged, the husband remains bound by it to the extent that it relates to him personally.
If, as we have been informed has occurred, the husband was found to have breached the order, significant sanctions could be, and have been, imposed upon him. In those circumstances, it would be surprising if the husband lacked standing to challenge the order which gives rise to those consequences. We do not understand it to be suggested that the husband could challenge Order 3 made by the trial Judge in his appeal against orders made against him in proceedings arising from his alleged breaches of the order.
Section 94 of the Family Law Act provides for appeals to the Full Court of this Court against orders made by single judges of the Court. The section provides:
Appeals to Family Court from courts other than the Federal Magistrates Court and the Magistrates Court of Western Australia
(1)Subject to sections 94AAA and 94AA, an appeal lies to a Full Court of the Family Court from:
(a) a decree of the Family Court, constituted otherwise than as a Full Court, exercising original or appellate jurisdiction:
(i) under this Act; or
(ii) under any other law; or
(b) a decree of:
(i) a Family Court of a State; or
(ii) a Supreme Court of a State or Territory constituted by a single Judge;
exercising original or appellate jurisdiction under this Act or in proceedings continued in accordance with any of the provisions of section 9.
We discern nothing in the wording of the section which would derogate from the general proposition that a person aggrieved by orders made by the Court should, subject to security for costs, be entitled to seek to challenge such order. Albeit belatedly, the husband has lodged security for the costs of his appeal.
To better appreciate the significance of the judgment of the High Court in Cummings v Claremont Petroleum NL and Anor; Fuller v Claremont Petroleum NL and Anor (1995-1996) 185 CLR 124, to which Counsel for both parties referred us, some understanding of the facts of the case is helpful. The essential facts of the case were that:
Sequestration orders were made against the estates of two respondents to proceedings in the Federal Court after judgment had been reserved but before it was delivered. Judgment was then pronounced against both respondents for substantial damages for conspiracy and deceit, breaches of duties as company directors, and contraventions of s 229(1) of the Companies (South Australia) Code and of provisions of the Fair Trading Act 1987 (SA). The judge gave the applicants in the proceedings leave pursuant to s 58(3) of the Bankruptcy Act 1977 (Cth) to proceed to the point of entering judgment, and judgment was duly entered. The bankrupts filed notices of appeal to the Full Court of the Federal Court pursuant to s 24 of the Federal Court of Australia Act 1976 (Cth). The applicants in the proceedings applied for the notices of appeal to be set aside. The Full Court dismissed the appeals as incompetent. (CLR headnote at 124).
Brennan CJ, Gaudron and McHugh JJ concluded (at 137‑138) that “so far as a judgment entered against a bankrupt creates or evidences a provable debt” in the bankruptcy, “the bankrupt has no financial interest” that confers “locus standi to appeal in his own name against the judgment”, and even his “contingent interest in a surplus in the estate does not give him such an interest”.
Their Honours explained that (at 138):
Of course, a money judgment entered against a bankrupt has the effect of increasing the amount of the debts provable in his estate. But it is immaterial that, if an appeal against the judgment were successful, there would or might be a surplus in the estate after the remaining creditors are paid. A bankrupt's contingent interest in a surplus does not give him an interest which would allow him to sue to enforce proprietary rights and, that being so, it cannot give him an interest to appeal to minimise liabilities. If the bankrupt cannot appeal against such a judgment, does his trustee have the power to do so? The powers of a trustee are defined by s 134. By sub-s (1)(j), the trustee is authorised to “bring, institute or defend any action or other legal proceeding relating to the administration of the estate”. That is an ample power to permit the trustee to institute an appeal against a judgment entered against a bankrupt that affects the administration of the estate.
Dawson and Toohey JJ, who concluded that the appellants lacked standing to appeal, referred to the judgment of Hoffman LJ in Heath v Tang [1993] 4 All ER 694 in which it was said (at 148):
…that in principle a bankrupt cannot in his own name appeal from a judgment against him which is enforceable only against the estate vested in his trustee. [Our emphasis].
As the judgments in Cummings (supra) make clear, the bankrupts personally stood neither to gain nor lose by being permitted to appeal. Their trustees had not appealed the decision on their behalf. On the facts of the case, it would have been surprising, and potentially an abuse of the Court’s process to grant the bankrupts standing to appeal.
Significantly for present purposes, it has not been suggested by Counsel for the wife that the orders of the trial Judge which give rise to this appeal were enforceable against the estate of the husband vested in his trustee in bankruptcy, much less that they were enforceable “only against such estate”. Counsel for the wife submitted in the appeal that the orders were only enforceable against the husband. The husband in this case sought to avoid a liability which was asserted by Counsel for the wife to be personal to him. He thus has an “interest” which the bankrupts in Cummings (supra) lacked. In our view Cummings (supra) is thus distinguishable on its facts from the present appeal.
In Guirguis, M v Guirguis MFA, Official Trustee in Bankruptcy (1997) FLC 92‑726 to which Counsel for both parties also referred us, the bankrupt husband sought, on 8 August 1996, to appeal against orders for settlement of property made by a trial Judge on 10 May 1996. The husband had become bankrupt on 26 July 1996. The Full Court (Barblett DCJ, Ellis and Baker JJ) concluded that the bankrupt husband did not have standing to appeal against the orders for settlement of property.
Their Honours referred to the decision of the High Court in Cummings (supra). Essentially, for the reasons which fell from the High Court in Cummings (supra), the Full Court concluded (at 83,792) that the husband lacked the necessary “interest to support the institution of an appeal in his own name against” those orders.
As with Cummings (supra), success on appeal would only have increased the property vested in the husband’s trustee in bankruptcy pursuant to the provisions of the Bankruptcy Act. To the extent that the husband may have gained from any surplus after satisfying the provable debts of his bankrupt estate as a result of success on appeal, the Full Court accepted, as the High Court did in Cummings (supra), that such possibility did not constitute a requisite interest. For the reasons we have suggested above in distinguishing Cummings (supra), in our view, Guirguis (supra) is also distinguishable from the present case on its facts.
In O’Neill v O’Neill (1998) FLC 92‑811 the wife had filed an application seeking orders for settlement of property on 25 January 1995. On 17 April 1996 the wife was declared bankrupt. On 26 April 1996 the wife filed a pleading in opposition to an application for settlement of property filed on behalf of the husband. The proceedings were listed for hearing in January 1997. The wife having not provided security for costs as required by an earlier order of the Court, the trial Judge dismissed the wife’s application on 30 January 1997. The wife filed a Notice of Appeal against those orders.
The Full Court (Lindenmayer, Finn and Mushin JJ) having considered the decision of the High Court in Cummings (supra) and of the Full Court in Guirguis (supra) and a number of other authorities, observed that (at 85,177-85,178):
88.Furthermore, the majority of the High Court in Cummings referred, without apparent disapproval, to the concept of “rights of action which do not pass to a trustee on bankruptcy because they are personal to the bankrupt and do not affect the quantum of the bankrupt estate” (emphasis added), and cited Coffey v Bennett again without disapproval: at 136. Although there must be a question as to meaning of the words which we have underlined in the passage just quoted, it would appear to remain good law that a bankrupt spouse may initiate and prosecute property settlement proceedings during the course of his or her bankruptcy — although any property acquired would have to vest in the trustee by virtue of s 58(1)(b) of the Bankruptcy Act (apart from the limited classes of property exempted under s 116(2) of that Act).
89.However, and perhaps somewhat anomalously, the Full Court decision in Guirguis has established that in light of the High Court decision in Cummings, a bankrupt spouse cannot appeal property settlement orders unless he or she can establish some interest in the property which is the subject of the orders, and such interest will not be able to be established if the property which is the subject of the orders is vested or will vest on receipt in the trustee in bankruptcy. The fact that a successful appeal may result in a surplus in which the bankrupt would have a contingent interest will apparently not provide the bankrupt with the necessary interest to institute an appeal in his or her own name.
90.This in our view is not an entirely satisfactory situation. But we are not persuaded that we should not follow and apply Guirguis in this case given that certain of the orders ultimately sought to be appealed in this case are so similar to those sought to be appealed in Guirguis and given also that Guirguis would seem correctly to apply the High Court decision in Cummings.
In our view, O’Neill (supra) is distinguishable from the present appeal on its facts, essentially on the basis we have earlier indicated.
The pivotal issue in the current appeal did not arise in any of the authorities to which we have referred. There was no issue in any of those cases that the fruits of a successful appeal would be received by the bankrupt’s trustee or, to the extent that there might be a surplus, by the bankrupt to the extent of such surplus. The sole issue for determination in the present appeal is whether the order under challenge imposes obligations upon the husband personally or upon property vested in his former trustee in bankruptcy. The potential “interest” of the bankrupt is thus significantly dissimilar to that revealed in each of the authorities to which we have referred.
Although not necessarily so expressed, the logical conclusion of the contentions made on behalf of the wife in relation to this issue are that, if the Court entertains the husband’s appeal, and it is unsuccessful, then, albeit retrospectively, the husband would be seen to have had the interest necessary to provide standing to appeal. Conversely, if the husband’s appeal is successfully prosecuted, following the decisions to which we have referred, the husband would lack such interest. For the issue of standing to be determined once the fate of the appeal is known would be a curious, and unsatisfactory state of affairs.
We are not persuaded that the husband lacks standing to prosecute his appeal. The outcome of this appeal may have significant implications for the husband in his pending appeal against orders made against him as a consequence of findings that he breached the order which gives rise to the present appeal. In those circumstances, we are persuaded that the husband has an “interest” sufficient to provide standing to challenge the trial Judge’s order.
We do not perceive that so concluding is inconsistent with any of the authorities to which we have referred. The judgment of Brennan CJ, Gaudron and McHugh JJ in Cummings (supra) (at 138) might be thought to provide tacit support for so concluding. Albeit referring to a judgment against a bankrupt which “reflects on his personal and professional character”, their Honours concluded that leaving the institution of an appeal in such circumstances to the discretion of a trustee “whose interests do not extend, or do not necessarily extend, to the preservation of the bankrupt’s personal or professional character” seemed “unjust”. This would not appear without relevance to the present appeal, particularly if, as Counsel for the wife contends, the husband personally remains bound by the trial Judge’s orders if they remain undisturbed.
The Husband’s Appeal
By leave, and without opposition on behalf of the wife, the husband amended the grounds appearing in his Notice of Appeal filed 7 February 2006 to a single ground which provided:
That His Honour the Trial Judge erred at law in that he failed to recognise that following the husband’s bankruptcy, all property held by the husband (save those explicitly excluded under the Bankruptcy Act, not here relevant) passed from the husband to his trustee in bankruptcy and did not re-vest in the husband upon discharge from bankruptcy, thereby His Honour’s Declaration/Order No. 3 made on 10 January 2006 had no efficacy in law. [Outline of Submissions on behalf of the Appellant Husband, page 1, par 1].
By reference to section 58(1)(a) and (b) of the Bankruptcy Act Senior Counsel for the husband submitted that “all property of the bankrupt including after-acquired property ‘vests forthwith’ or in the case [of] after-acquired property, ‘…as soon as it is acquired by or devolves on the bankrupt…’ in his trustee.” [Outline of Submissions on behalf of the Appellant Husband, page 2, par 3.1].
Reference was made to section 5 of the Bankruptcy Act which defined property as:
…real or personal property of every description, whether situate in Australia or elsewhere, and includes any estate, interest or profit, whether present or future, vested or contingent, arising out of or incident to any such real or personal property.
It was thus submitted that:
…as a matter of law, any interest held by the appellant in any property or any interest held by him in any corporation which itself had any interest in any technology or process whether patented or otherwise, vested in the husband’s trustee in bankruptcy on 28 November 2002. For the purposes of this appeal, the relevant “property” is a process referred to in the trial judge’s judgment as the “Process of Agglomerating Particulate Material” (“the technology”). [Outline of Submissions on behalf of the Appellant Husband, page 2, par 3.3].
It is not in dispute that the technology constitutes “property” within the meaning of section 5 of the Bankruptcy Act.
Senior Counsel for the husband submitted that the husband’s discharge from bankruptcy on 29 November 2005, approximately two months prior to the trial Judge’s orders, “did not operate as a matter of law to re-vest in him any assets or after-acquired property vested in his trustee.” [Outline of Submissions on behalf of the Appellant Husband, page 3, par 3.5].
It was submitted, in reliance upon section 129AA of the Bankruptcy Act that the earliest date upon which after-acquired property may re-vest in the husband was 29 January 2011, being the “day that is the 6th anniversary of the day on which the bankrupt is discharged”. [Outline of Submissions on behalf of the Appellant Husband, page 3, par 3.5].
It was thus submitted that:
…at the date of the trial judge’s judgment, any property to which the husband had any claim, whether contingent or otherwise, or any property of any corporation in which the husband had any interest, remained vested in his bankruptcy trustee and could not be the subject of any order or declaration. [Outline of Submissions on behalf of the Appellant Husband, page 3, par 3.8].
That contention was sought to be supported by the decisions of Pegler vDale (1975) 1 NSWLR 265, Piwinski Corporate Trustees of the Diocese of Armidale (1997) 1 NSWLR 266 and Official Trustee in Bankruptcy v Ritchie (1988) FLC 91‑908.
Senior Counsel for the husband referred to the Statement of Affairs in relation to his bankruptcy (found at Appeal Book Volume 6, page 1038f) and submitted, accurately, that it disclosed the husband’s “directorship of the corporation [NR Technology] Pty Ltd, but no interest in shares in that corporation or the other relevant corporations, [NR Corporation] and [NR International] Pty Ltd”. [Outline of Submissions on behalf of the Appellant Husband, pages 3-4, par 3.9].
The evidence did not permit the trial Judge to make a clear finding as to which corporation or corporations owned the intellectual property rights in the technology. It is clear that his Honour accepted that the legal ownership of those rights was held by one or more of those corporations for the benefit of the husband in a manner that was never satisfactorily explained by the husband during the course of evidence before him. Those findings are not controversial in this appeal.
Having thus submitted that the technology constituted “property” within the terms of the Bankruptcy Act, Senior Counsel for the husband addressed the contention of Counsel for the wife that the trustee had effectively disclaimed any interest in such property. Senior Counsel for the husband submitted that:
…the irresistible inference from the trial judge’s judgment is that apart from any possible claim against the [Rand] Family Trust, the trustee intended to retain any other relevant property.” [Outline of Submissions on behalf of the Appellant Husband, page 4, par 3.10].
In support of that contention, Senior Counsel for the husband referred to the passage in the trial Judge’s Reasons in which his Honour recorded that the trustee of the husband’s bankrupt estate “has disavowed any claim or interest in relation to the [Rand] Family Trust. He does claim an interest, the Husband’s share, in the couples’ former matrimonial home at [A].” [AB1, page 46, par 10].
Reliance was placed upon the written submissions of Counsel for the wife at the conclusion of the trial of the proceedings in which, under the heading, “Identifying the Pool of Assets and their Value” the following submissions were made on behalf of the wife:
9.The consequence of the Husband’s Bankruptcy on the pool of assets is that any assets in the Husband’s hands became part of his Bankrupt estate, except insofar as the trustee, Mr [PL], has disavowed any assets.
10.Similarly, any unsecured debts owed by the Husband fall out of the pool of debts.
11.The trustee has disavowed any claim to any interest in the [Rand] Family Trust. He claims an interest in the home at [A], but has not formed a view whether his claim is for 50% of the equity in the home, or, as the Wife asserts, only 16.43% (given the Wife is claiming on equitable principles 83.57%) of the equity. [AB11, page 2149, pars 9‑11].
It was submitted to be significant that no submission there, or elsewhere, made on behalf of the wife at trial suggested that the trustee had “disavowed” or disclaimed any interest in the technology, notwithstanding that, as was clearly the reality, the wife’s case before the trial Judge was at all times that the husband beneficially owned the intellectual property rights relating to it.
In his written submissions in reply it was further submitted by Senior Counsel for the husband that, although the trustee made clear the absence of any asserted interest in the Rand Family Trust, and asserted an interest in the former matrimonial home of the parties, the trustee did not give any indication that he disclaimed any interest in the technology. [Submissions in Reply on behalf of the Appellant Husband, pages 2-3, par 3.1-3.4].
The position of the husband’s trustee in bankruptcy was submitted to have been that the trustee sought “further to be heard in the following circumstances”: [Submissions in Reply on behalf of the Appellant Husband, page 3, par 3.5]:
So… I think the highest the trustees, or the involvement of the trustee would seek to have, given that there remains some residual uncertainty about the extent of the bankrupt estate because of the lack of any detailed investigation as yet would be to reserve the right to appear and making submissions on the form of any final orders that might be made just to guard against there being any transgression into the field of divisible property. [Submissions in Reply on behalf of the Appellant Husband, page 4, par 3.5; See also AB21, page 3889, lines 42-48].
In support of his contention that the trial Judge erred in concluding that the husband was “by reason of release from it [bankruptcy], the owner of the technology”, Senior Counsel for the husband referred to a number of findings of fact made by the trial Judge. We have earlier referred to each of the findings to which Senior Counsel for the husband referred in this context. [Outline of Submissions on behalf of the Appellant Husband, page 4, par 3.10].
Relying upon the findings of fact of the trial Judge with respect to the intellectual property rights, it was submitted that:
…by reason of the operation of the Act, the trial judge’s findings that the owner of the technology appeared to be either [NR Corporation] or NR Technology] Pty Ltd, and that the assertion that its present owner, [MM Rand], could not be accepted on face value, being a “sham” should necessarily have led to a finding that the ownership of the technology vested in the husband’s bankruptcy trustee. Further, it is submitted that by operation of law, it was not open to the trial judge to find as he did that “the technology appears to be ‘his’ from the way in which he operates in relation to it’. [Outline of Submissions on behalf of the Appellant Husband, page 5, par 3.11].
It was thus submitted that:
It follows, it is submitted, that if by operation of law the husband was not the owner of the technology following his bankruptcy in 2002, then the trial judge’s determination of the assets of the parties at Stage 1, his assessment of their respective contributions at Stage 2, and his assessment of a further adjustment in favour of the wife at Stage 3 needs, must have miscarried. [Outline of Submissions on behalf of the Appellant Husband, page 5, par 3.12].
The consequence of the trial Judge’s error was submitted to have been that:
…had the trial judge not erred in determining ownership of the technology, it was open to him to determine whether or not there was likely a surplus arising out of the husband’s bankruptcy and had he so determined then proceeding to make an order in relation to the amount determined to be the value of that surplus. [Outline of Submissions on behalf of the Appellant Husband, page 5-6, par 3.14].
On behalf of the wife it was submitted, correctly in our view, that there was:
…no ground directed against the primary judge’s finding of a value of the technology of at least $1,000,000 value; nor against the finding [that the] husband was [the] effective controller of the technology. Consequently there is no need in this appeal to go through the substantial evidence upon which his Honour found the Husband’s interest in the technology was proven. [Respondent’s Submissions in Reply, page 3, par 10].
Counsel for the wife submitted that the evidence before the trial Judge established that the trustee had effectively disclaimed any interest in the technology, although it was “not presently known whether this formally was done in relation to the technology”. [Respondent’s Submissions in Reply, page 3, par 11].
In support of this contention, it was submitted that:
…what can be demonstrated is that during the course of the proceedings before Rowlands J the (then) trustee in bankruptcy was represented … and indicated that the trustee effectively disavowed the technology, and the interest in the [Rand] Family Trust. [Respondent’s Submissions in Reply, page 3, par 11].
As did Senior Counsel for the husband, Counsel for the wife referred to the submissions made on behalf of the trustee during the course of the proceedings before the trial Judge. Reliance was placed upon the following statement made by Counsel then appearing for the trustee:
MR GOLICH: [T]he starting position looking at the amended application that’s been handed up and which my friend says is going to be proceeded with whenever the case resumes if the adjournment is granted, none of those orders would appear to impinge on the bankrupt estate. [AB21, page 3889, line 48 – page 3890, line 3].
As is not in doubt, the document to which Counsel for the trustee was referring was the amended application of the wife (found at Appeal Book Volume 10, page 1847f). As is also not in doubt, the amended application sought the relief which became Order 3 made by the trial Judge (inclusive of the inadvertent reference to “conversation”). It was submitted that “[t]he trustee never subsequently sought to move from that position of effective disavowal.” [Respondent’s Submissions in Reply, page 3, par 11].
It was submitted to be:
…a ridiculous situation if, during the course of court proceedings which involved contest about whether property was divisible property, that a concession made by the trustee during the course of those proceedings did not constitute effectively a disclaimer, or that the trustee would still be required to prepare the formal written disclaimer document envisaged by s133(1) of the Bankruptcy Act. [Respondent’s Submissions in Reply, pages 3-4, par 12].
On behalf of the wife, it was further submitted that the trial Judge’s findings “as to the husband’s interest in the technology” confirmed that he accepted that the trustee had in fact disclaimed any interest in the technology. [Respondent’s Submissions in Reply, page 4, par 14]. It was thus asserted that:
Therefore, even if the technology is divisible property that would otherwise have vested in the trustee, he has disclaimed it. [Respondent’s Submissions in Reply, page 4, par 15].
Counsel for the wife further submitted that:
The Husband had repeatedly denied having any interest in the technology. Rowlands J found either that he did control the property through entities controlled by him (and not personally – see AB 1, p55.2), or alternatively, that he had a financial resource in the technology (AB 1, p85.1). [Respondent’s Submissions in Reply, page 4, par 16].
Pivotal to the husband’s appeal is determining whether the husband’s trustee in bankruptcy had “disavowed” or disclaimed any interest in the technology. Section 133 of the Bankruptcy Act provides the legislative framework within which a trustee may disclaim “onerous property”. Although many of the provisions of the section are not relevant for present purposes, it is instructive to set out the section in its entirety. It is clear from the section that an effective disclaimer pursuant to section 133 requires the giving of clear notice in writing and, in certain circumstances, the leave of a court exercising jurisdiction under the Bankruptcy Act. The terms of the section appear to provide little scope for a disclaimer which is effective for the purposes of the Bankruptcy Act which does not comply with the provisions of section 133. There is no suggestion in this case that the trustee gave notice in writing of a disclaimer or purported disclaimer of the technology. In fairness, Counsel for the wife did not assert that the evidence before the trial Judge established compliance with section 133.
Disclaimer of onerous property
(1AA) Where any part of the property of the bankrupt consists of:
(a) land of any tenure burdened with onerous covenants; or
(b) property (including land) that is unsaleable or is not readily saleable;
subsection (1) applies.
(1AB) Where:
(a) any part of the property of the bankrupt consists of property, being neither land nor an interest in land; and
(b) it may reasonably be expected that the costs, charges and expenses that the trustee would incur in realising the property would exceed the proceeds of realising the property;
subsection (1) applies.
(1) Subject to this section, the trustee may, notwithstanding that he or she has endeavoured to sell or has taken possession of the property or exercised any act of ownership in relation to it and notwithstanding, in the case of property the transfer of which is required by a law of the Commonwealth or of a State or Territory of the Commonwealth to be registered, that he or she has not become the registered owner of that property, by writing signed by him or her, at any time disclaim the property.
(1A) Subject to this section, the trustee may at any time, by writing signed by him or her, disclaim any contract that forms part of the property of the bankrupt whether or not the trustee has endeavoured to assign the property or exercised any rights in relation to it.
(2) A disclaimer under subsection (1) or (1A) operates to determine forthwith the rights, interests and liabilities of the bankrupt and his or her property in or in respect of the property disclaimed, and discharges the trustee from all personal liability in respect of the property disclaimed as from the date when the property vested in him or her, but does not, except so far as is necessary for the purpose of releasing the bankrupt and his or her property and the trustee from liability, affect the rights or liabilities of any other person.
(3) If a trustee disclaims property whose transfer must be registered under a law of the Commonwealth or of a State or Territory of the Commonwealth, the trustee must give notice of the disclaimer as soon as practicable to the officer who has the function of registering the transfer.
(4) A trustee is not entitled to disclaim a lease without the leave of the Court unless:
(a) the trustee has given to the lessor and, if the bankrupt has sub‑let the whole or any part of the leased property or has mortgaged the lease, to each sub‑lessee or mortgagee, 28 days’ written notice of his or her intention to disclaim the lease; and
(b) no person to whom the trustee has given such a notice has, within 28 days after it was given to the person, by written notice given to the trustee, required the trustee to apply to the Court for leave to disclaim the lease.
(5) The Court may, in relation to an application for leave to disclaim a lease under this section:
(a) impose such terms as a condition of granting the leave; and
(b) make such orders with respect to fixtures, improvements and other matters arising out of the lease;
as the Court considers just and equitable.
(5A) A trustee is not entitled to disclaim a contract (other than an unprofitable contract) without the leave of the Court.
(5B) The Court may, in relation to an application for leave to disclaim a contract under this section:
(a) impose such terms as a condition of granting the leave; and
(b) make such orders with respect to matters arising out of the contract;
as the Court considers just and equitable.
(6) Where:
(a) an application in writing has been made to the trustee by a person interested in property requiring him or her to decide whether he or she will disclaim the property or not; and
(b) the trustee has, for a period of 28 days after the receipt of the application, or such extended period as is allowed by the Court, declined or neglected to disclaim the property;
the trustee is not entitled to disclaim the property under this section and, in the case of a contract, he or she shall be deemed to have adopted it.
(7) The Court may, on the application of a person who is, as against the trustee, entitled to the benefit or subject to the burden of a contract made with the bankrupt, make an order rescinding the contract on such terms as to payment by or to either party of damages for the non‑performance of the contract, or otherwise, as the Court considers just and equitable.
(8) Damages so payable may be proved as a debt in the bankruptcy.
(9) The Court may, on application by a person either claiming an interest in, or being under a liability not discharged by this Act in respect of, disclaimed property, and after hearing such persons as it thinks fit, make an order, on such terms as the Court considers just and equitable, for the vesting of the property in, or delivery of the property to, a person entitled to it or a person in whom, or to whom, it seems to the Court to be just and equitable that it should be vested or delivered, or a trustee for that person.
(10) Subject to subsection (11), where an order vesting property in a person is made under subsection (9), the property to which it relates vests forthwith in the person named in the order for that purpose without any conveyance, transfer or assignment.
(11) Where:
(a) the property to which such an order relates is property the transfer of which is required by a law of the Commonwealth or of a State or Territory of the Commonwealth to be registered; and
(b) that law enables the registration of such an order;
the property, notwithstanding that it vests in equity in the person named in the order, does not vest in that person at law until the requirements of that law have been complied with.
(12) A person aggrieved by the operation of a disclaimer under this section shall be deemed to be a creditor of the bankrupt to the extent of any loss he or she has suffered by reason of the disclaimer and may prove the loss as a debt in the bankruptcy.
(13) In this section:
“mortgage” includes charge.
“mortgagee” includes the person entitled to the benefit of a charge.
Although we are less than convinced that he reasonably could have, for the purpose of this submission, we proceed on the basis that the trial Judge was not necessarily precluded from concluding that the trustee had disclaimed any interest in the technology if the evidence, or submissions made on behalf of the trustee, supported such a conclusion, notwithstanding that so doing was not in compliance with section 133 of the Bankruptcy Act. As will be seen, the trustee’s position was less than entirely clear, and possibly internally inconsistent, particularly having regard to the submissions made on his behalf to which we shall refer.
An answer to this vexed question is necessarily pursued via the trial Judge’s Reasons for Judgment, and the submissions made to him by Counsel for the trustee in bankruptcy.
The trial Judge expressly recorded, albeit probably technically erroneously, that the husband’s trustee in bankruptcy had “disavowed any claim or interest in relation to the [Rand] Family Trust.” [AB1, page 46, par 10]. Neither there, nor elsewhere in his judgment, did his Honour expressly record a similar disavowal or disclaimer of any interest with respect to the technology. It might thus be thought that, having specifically identified a disavowal, and not referred to others, the trial Judge did not consider that the husband’s trustee in bankruptcy had disclaimed the technology.
No other passage of the trial Judge’s Reasons to which we have been referred, or discovered for ourselves, sheds any clear light on this issue although it might be thought that the trial Judge’s following conclusion that:
61.With the bankruptcy of the Husband now past it is reasonable to assume that interests controlled by the Husband held by his father or entities, will in due course benefit the Husband as the circumstances allow. [Our emphasis]. [AB1, page 58, par 61].
is supportive of the submission of Counsel for the wife that the trial Judge regarded the husband’s trustee in bankruptcy as having disclaimed the technology. So too might his Honour’s conclusion that:
68.In all of the circumstances, the evidence and the Husband’s approach permits the finding I make that the technology is worth to the Husband something in the order of a million dollars or more. [Our emphasis]. [AB1, page 59, par 68].
The Reasons for Judgment of the trial Judge do not in our view clearly reveal whether or not his Honour concluded that the husband’s trustee in bankruptcy had disclaimed the technology.
We have earlier referred to part of the submissions made to the trial Judge by Counsel then appearing for the husband’s trustee in bankruptcy. During the course of his submissions to the trial Judge on 11 August 2005, Counsel appearing for the husband’s trustee in bankruptcy made a submission that:
MR GOLLEDGE: Following the conclusion of the annulment applications, my solicitors wrote to those appearing for the wife, to ask to have clarified that in respect of the balance of the family law proceedings, that no orders would be sought in respect of divisible property, that which is having vested in the Trustee. Those solicitors received a letter of response yesterday that raised two issues that could have some – one of which will have – may have a bearing on next week’s hearing. [AB20, page 3874, lines 28-34].
Counsel for the trustee further submitted:
MR GOLLEDGE: The first of those points was … to seek a[n] assurance or confirmation from the Trustee that he had disclaimed, and by use of that term of art under the Bankruptcy Act, certain interests of the bankrupt estate – and Mr Twigg might correct me – but it appears to be, in the family trust assets that were identified in Mr [PL’s] report. Your Honour might recall that Mr [PL] looked at those matters and formed a view that they didn’t form part of any of the bankrupt estate. And presumably the reason to seek confirmation of that is because no doubt that – those issues will be part of what the wife’s application remains alive about. The position of the Trustee in relation to that can be dealt with quickly, and that is this, the Trustee hasn’t disclaimed them because you can only disclaim under the Bankruptcy Act property which forms part of the estate.
HIS HONOUR: What does “disclaim” mean?
MR GOLLEDGE: “Disclaim” means you give up any – you in effect – that which had vested in you by virtue of section 58 of the Bankruptcy Act is deemed not to have vested in the Trustee and have reverted to the bankrupt.
HIS HONOUR: And that’s a declaration that the Trustee himself can make?
MR GOLLEDGE: The Trustee can do that under section – if it’s onerous property.
HIS HONOUR: Yes
MR GOLLEDGE: But the starting point under section 133, is that it has to form part of the bankrupt estate in the first place, for it to be subject of a proper disclaimer. [AB20, page 3875, lines 1-29].
Counsel for the trustee then clearly stated that:
MR GOLLEDGE: And the Trustee’s view in relation to those assets was the highest the bankrupt’s interest got was the interest of a beneficiary under [a] discretionary trust. That is not divisible property, accordingly there’s no occasion for disclaimer. But, relevantly for these proceedings to the extent that the wife seeks orders in respect of them, that’s a matter of no interest to the bankruptcy trustee. [AB20, page 3875, lines 33-38].
The trial Judge then asked Counsel for the wife, “Well, that’s all you want Mr Twigg, isn’t it?” [AB20, page 3875, line 45]. Discussion then proceeded to a consideration of the wife’s amended application for an order with respect to the former matrimonial home of the parties. [AB20, page 3876]. The discussion in relation to that issue does not assist with the resolution of the issue with which we are concerned.
After that discussion, Counsel for the trustee said:
MR GOLLEDGE: … Once the bankruptcy remained on foot, all that remains left to argue about in terms of the family law application is non-divisible property and any possibility of a surplus. That is what remains open to debate or available – being properties of parties to the marriage. That which is divisible property having vested in Mr [PL] under section 58 has been taken out of that pool, and arguments about that, and in particular in relation to [the] existence of resulting trusts, probably, in my submission have to take place across the road in the Supreme Court in the equity division. [AB20, page 3877, lines 24-32].
There followed a consideration of a number of practical matters in relation to the future course of the proceedings in the light of the trial Judge’s pending retirement in January 2006.
On 15 August 2005, Senior Counsel then appearing for the wife filed the wife’s amended application to which reference has earlier been made. That application sought:
DECLARATION that the Wife is entitled to one half of any profits arising out of the patents or other intellectual property relating to the conversation [sic] of waste material to building products and further order that the Husband account and pay to the Wife one half of any profits received in received [sic] of the intellectual property of the various companies known as [NR Technology] Pty Limited, [NR Corporation], [B] Pty Limited and related entities. [AB10, page 1853, par 6].
As is not in doubt, subject to the addition of the words, “subject to Order 11 hereof”, Order 3 made by the trial Judge was in precisely those terms.
As the transcript confirms, the husband’s trustee in bankruptcy was represented by Counsel on the day when the wife’s amended application was filed in Court. The transcript does not reveal Counsel for the trustee objecting to the filing of the application, or raising any issue as to the ability of the Court to make an order in the terms sought in paragraph 6.
Counsel for the trustee’s response to the application, and potential for the proceedings to be further adjourned was to say
MR GOLICH: … that if the adjournment is granted and the applicant wife proceeds on the basis of the document that’s been handed up, the Trustee is unlikely to be further involved in the matter as it does not appear as though any of the relief sought would be in respect of divisible property (indistinct) understood that any argument about the house might take place across the road. So, in relation to the application I have no objection. [AB21, page 3889, lines 25-30].
The trial Judge then asked:
HIS HONOUR: I’m interested in your continuing involvement. You will be interested in other aspects of the case at least temporarily, won’t you? [AB21, page 3889, lines 32-33].
Counsel for the trustee then responded. We have earlier set out part of that response (paragraph 77). It is appropriate to record the submissions made to the trial Judge by Counsel appearing for the husband’s trustee in bankruptcy in full. Counsel submitted:
MR GOLICH: Well, your Honour, I was just perusing each of the claims for relief sought in the amended application and apart from the order in paragraph 7 it does not appear that any of the final orders or interim orders which the wife is seeking either affect the Trustee or are in respect of divisible property. That being the case, it being accepted – I accept what my friend said about any interest of the husband in the Family Trust do not fall within the bankrupt estates, we have no interest in that. To the extent that [S Pty Ltd] – and there are issue[s] about [S Pty Ltd], we have no interest in that property. So that I think the highest the Trustees, or the only involvement the Trustee would seek to have, given that there remains some residual uncertainty about the extent of the bankrupt estate because of the lack of any detailed investigation as yet would be to reserve the right to appear and make submissions on the form of any final orders that might be made just to guard against there being any transgression into the field of divisible property. But, as I say, the starting position looking at the amended application that’s been handed up and which my friend says is going to be proceeded with whenever the case resumes if the adjournment is granted, none of those orders would appear to impinge on the bankrupt estate. [AB21, page 3889, line 35 – page 3890, line 3].
Although the issue is not without uncertainty, we are ultimately not persuaded that the husband’s trustee in bankruptcy disclaimed, or purported to disclaim, any interest in the technology, or any other “divisible property” which the husband might be found to have had.
Counsel’s suggestion that “there remains some residual uncertainty about the extent of the bankrupt estate because of the lack of any detailed investigation as yet”, and his seeking to “reserve the right to appear and make submissions on the form of any final orders that might be made just to guard against there being any transgression into the field of visible property” [AB21, page 3889, lines 44-48] were not in our view consistent with any intention to disclaim or otherwise abandon any possible avenue of recovery of property of the husband which could properly form part of his bankrupt estate. Such a conclusion is unsurprising given the nature of the duties and obligations of a trustee in bankruptcy, the jurisprudence of the laws of bankruptcy, and their statutory manifestations in the Bankruptcy Act.
Regrettably, no doubt for good reason having regard to the imminence of the trial Judge’s retirement, the opportunity for all parties, and the husband’s trustee in bankruptcy particularly, to make further submissions once the trial Judge produced his Reasons for Judgment prior to the making of final orders, did not materialise. It is regrettable, and not apparently the fault of anyone, that the opportunity to make such submissions, upon which basis the trial was conducted, and which basis the trial Judge clearly accepted as reasonable, did not eventuate.
Had the husband’s trustee in bankruptcy been afforded the opportunity of reading the trial Judge’s Reasons for Judgment prior to the making of final orders, it cannot in our view be concluded that the trustee would necessarily have disclaimed any interest in the technology. Given that all of the entities who asserted, or might have asserted an interest in the technology inconsistent with that of the husband had been parties to the proceedings before the trial Judge, the findings of fact made by him with respect to the beneficial ownership of the technology would have provided a substantial impediment to any efforts of the trustee to pursue the worth of the technology as after-acquired property of the husband’s former bankrupt estate.
The reality that realisation of the technology would, on those same findings of fact, have been potentially problematic may have resulted in the trustee disclaiming the technology, but we are not persuaded that he necessarily would have. If the case had concluded in the way in which it was clearly, and sensibly, understood at trial that it would be, the current appeal could not have arisen. The husband’s trustee in bankruptcy would either, in reliance upon the trial Judge’s findings of fact, have elected to pursue the property on behalf of his estate, or have disclaimed it. In either circumstance, neither the husband nor wife could have successfully complained to this Court.
During the course of the hearing of the appeal, it was asserted that the husband’s former trustee in bankruptcy was notified of the appeal. The transcript records the following exchange:
WARNICK J: Now, what does the trustee know about this appeal, do you know?
MR LETHBRIDGE [Counsel for the husband]: Pursuant to a direction made by her Honour Finn J the trustee was advised of the fact that the Court had permitted my client to appeal in relation to one of the orders originally. He was advised, and that was done on 5 June 2009, and the trustee was requested to inform the Court as to whether he wished to take part in the abovementioned appeal. We have not heard from the trustee, as I understand it, and so notice – put effectively, notice was given to the trustee and we have not heard and he is obviously not here today. [Transcript of 15 June 2009, page 12, lines 16-26].
It is regrettable that the husband’s former trustee in bankruptcy did not participate in the appeal before this Court. Had he, or Counsel on his behalf done so, the uncertainty surrounding this issue would probably have been removed, one way or the other.
It is tempting to think that the absence of any appearance by or on behalf of the husband’s former trustee in bankruptcy signified a lack of interest in the husband and his financial affairs. Such apparent disinterest would not however, in our view, as a matter of law constitute a disclaimer for the purposes of section 133 of the Bankruptcy Act.
For the reasons we have suggested, we are not persuaded that the husband’s trustee in bankruptcy disclaimed any interest in the technology. It may be that, had the opportunity presented itself, the trustee would have done so, but we cannot conclude that he necessarily would have.
As his written submissions confirmed, correctly in our view, Counsel for the wife did not assert that, if the husband’s trustee in bankruptcy had not disclaimed any interest in the technology, that such property did not otherwise vest in the trustee, notwithstanding that he had been discharged from bankruptcy prior to the date of the trial Judge’s orders. We have earlier referred to the statutory provisions relied upon by Senior Counsel for the husband in support of that conclusion. We accept that those provisions have the effect for which Senior Counsel for the husband contended.
Appeals to this Court are against orders (or decrees as section 94 of the Family Law Act refers to them). We conclude that, whatever the trial Judge thought would be the effect of his orders, and whatever their effect at law, the form of the orders would not defeat their operation.
To the extent that, by operation of law, the husband’s interest in the technology vested in his former trustee in bankruptcy, the order made by the trial Judge did not and could not prevent that occurring. Conversely, if, contrary to our conclusion, the husband’s former trustee in bankruptcy has hitherto disclaimed the interest, or subsequently disclaims it, the technology would vest beneficially in the husband.
Although a less than satisfactory state of affairs, the effect of the matters to which we have referred is that it falls to the husband’s former trustee in bankruptcy, by disclaiming or continuing not to disclaim the technology, to effectively determine the extent to which orders apparently directed to the husband personally actually impose personal obligations upon him. Regrettably, in the absence of any appearance by or on behalf of the husband’s former trustee in bankruptcy in this Court, we cannot take that matter further. However, nothing to which we have been referred, or discovered for ourselves, persuades us that the trial Judge’s orders would defeat attempts by the wife to enforce them against the husband’s former trustee in bankruptcy if he does not disclaim the technology, or against the husband if he does. How successful any such attempts may prove is another question altogether, and not one requiring determination in this appeal.
Costs
It was sensibly conceded by Senior Counsel for the husband that if, as has transpired, his appeal is unsuccessful, he could not successfully resist the making of an order for costs against him, and we will so order.
Warnick J:
I have had the advantage of reading (in draft) the reasons for judgment of Coleman and Crisford JJ. I agree that the appeal should be dismissed and, for the reasons which their Honours give, the husband pay the wife’s costs. I agree with the reasons for which the majority rejects the argument that the husband lacked standing to appeal. However, my reasons for concluding that the appeal should be dismissed are, I think, different from those of their Honours, or at least I express them differently.
I see no reason to repeat the majority’s review of the background nor, for the most part, the reasons of the trial judge. I adopt their Honours’ term of reference to the “interest” of the husband, which is at the core of the arguments in this appeal, namely, that it was an interest in the “technology”.
In my view, the appeal fails, essentially for two reasons, either of which might be sufficient to undermine it.
The first is that the trial judge did not find that the husband had a proprietary interest in the technology. The majority has set out the paragraphs in which his Honour considered the question of “ownership” of the technology, but I repeat them here and include several more.
I have highlighted the terms through which I consider Rowlands J stopped short of finding in the husband a proprietary interest, but with which he concluded that the husband once had or still had an interest of value to him:
45It is apparent from the foregoing that, on the balance of probabilities, despite his protestations to the contrary, the Husband, through entities owned and controlled by him, had an ongoing interest in the "Process of Agglomerating Particulate Material" as the invention is called in the assignment document emailed on the 9th July 2001 (Ex W22). His entities include [NR Corporation] (in which the Husband owns some 98% of the shares), [NR International] for whom he signs and [NR Technology] Pty Limited of which he is the beneficial owner.
…
47It appears that the owner of the invention may be [NR Corporation] or [NR Technology] Pty Limited. However Exhibit W70 contains a draft licence from [N Company] to [W Company for [MM Rand] technology.
48The Husband's assertion that the present owner is [MM Rand] cannot be accepted at face value. If he is then the exercise to have him the nominal owner appears to be a "sham" to seem to remove that asset from the Husband's entities. Apart from the matrimonial problem the Husband's status as a bankrupt (2002-2005) had to be accommodated.
…
51.In all the circumstances of the case, I am left with the impression that the Husband in fact has access to and control in respect of the invention and the technology. This is based upon by a consideration of the evidence detailed and the evidence in the Husband's affidavit of 3 May 2002 at para 39, and in exhibits. It demonstrates the Husband's likely corporate activity in relation to the technology to 2004 and beyond. This must be coupled with his lack of disclosure and the fact that much of the revealed material was only obtained by zealous efforts on behalf of the Wife. The technology appears to be `his' from the way in which he operates in relation to it.
…
60.I infer the Husband's technology operations continue from records available as late as 2004 (see Exhibits WB70 and 71). It is appropriate to infer continuance in light of the earlier false denials in relation to such matters and the material concerning current matters set out below.
61.With the bankruptcy of the Husband now past it is reasonable to assume that interests controlled by the Husband held by his father or entities, will in due course benefit the Husband as the circumstances allow.
…
68.In all of the circumstances, the evidence and the Husband’s approach permits the finding I make that the technology is worth to the Husband something in the orders of a million dollars or more.
…
71.Returning to the [NR] Technology item. Given the approach the authorities encourage me to take: the evidence suggests a finding that the Technology is within the beneficial control of the husband, that he has or had had the benefit of it and that it is worth a million dollars or more but otherwise I cannot be more precise.
72.If the husband has disposed of the technology without benefit deliberately then that amounts to waste in the "Kowaliw" sense, as later discussed in these reasons. – [RE] Pty Limited (in Liquidation)
In my view, it follows from what Rowlands J said in the last paragraph quoted, namely that the husband may have disposed of the technology, that his Honour was not in the preceding paragraphs making any finding that, directly or indirectly, the husband still had a proprietary interest in the technology.
Thus, in my view, when in paragraph 51 Rowlands J said “…The technology appears to be ‘his’” his Honour was not, by the use of the possessive, finding a proprietary interest in the husband, but rather indicating “as if his”. The placement of the possessive in parenthesis supports this view.
So does the fact that his Honour did not include the technology as an asset in the pool of assets for division.
Moreover, as seen from passages of the trial judge’s reasoning quoted by the majority, when his Honour came to assess s 75(2) factors, his Honour addressed the technology as “either a financial resource” or “nondisclosure of a significant asset”. The use of alternatives negates a finding of a proprietary interest of the husband in an asset.
In these circumstances, the foundation for the orders challenged in this appeal was not that the husband held a proprietary interest in an asset, which asset either was by law vested in the husband’s bankruptcy trustee or had vested, but was disclaimed by that trustee.
In passing, I disagree with the wife’s counsel’s proposition that, so far as Rowlands J found or may have found that the technology was owned by a corporation in which the husband had an interest, in consequence of that finding and the husband’s bankruptcy, the technology would have vested in the trustee. In my view, it would have been the husband’s interest in the corporation, if any, which would then have vested in his bankruptcy trustee. But I repeat Rowlands J made no positive findings about proprietorial ownership, by the husband directly or indirectly, of the technology.
As seen from the reasons of the majority, order 3 is as follows:
3.AND Declared that the Wife (subject to Order 11 hereof) is entitled to one half of any profits arising out of the patents or other intellectual property relating to the conversation (sic) of waste material to building products and further order that the Husband account and (subject to Order 11 hereof) pay to the Wife one half of any profits received in respect of the intellectual property of the various companies known as [NR Technology] Pty Limited, [NR Corporation], [B] Pty limited and related entities.
The one ground of appeal, as set out in their Honours’ reasons, but repeated here, is:
That His Honour the Trial Judge erred at law in that he failed to recognise that following the husband’s bankruptcy, all property held by the husband (save those explicitly excluded under the Bankruptcy Act, not here relevant) passed from the husband to his trustee in bankruptcy and did not re-vest in the husband upon discharge from bankruptcy, thereby His Honour’s Declaration/Order No. 3 made on 10 January 2006 had no efficacy in law.
Literally, as pleaded, the ground is that the trial judge failed to recognise that, following the husband’s bankruptcy, all property held by the husband passed to the trustee in bankruptcy. As is apparent from passages quoted by the majority, the trial judge did recognise, in paragraph 10 of his reasons, the consequence of the husband’s bankruptcy. He said:
10.Assets of the husband at the time of his bankruptcy became part of his bankrupt estate and not available for consideration as part of the matrimonial pool of assets in these proceedings under Part VIII.
Taken literally, the ground fails.
In so far as the ground should be taken as asserting that the trial judge failed to recognise that, having found that the technology was property of the husband, it therefore vested in his bankruptcy trustee, I have already indicated and explained my rejection of that proposition. That rejected argument is the only basis upon which the ground asserts that “thereby His Honour’s Declaration/Order No 3…had no efficacy in law.”
The second reason why the appeal fails relates directly to the terms of the orders appealed and the terms of the one ground of appeal.
In my view it is important to recognise what the ground of appeal did not raise. Except for the one basis indicated, it did not question the foundation of the declaration that the wife is entitled to one-half of any profits.
The order purports to operate in relation to profits arising from the technology and obliges the husband to account and pay to the wife one-half of any profits. Given his Honour’s reasons set out earlier, this order seems to rest on the foundation of his Honour’s findings about control. The ground does not raise any question about whether those findings were sufficient basis for an order that the husband account.
Significantly, this appeal is also not concerned with the precision or otherwise of the terms of the order, whether as to what compliance with it requires of the husband, or with its enforceability.
Quite apart from these observations, the nature of order 3 is very much affected by the other order appealed, order 11, which is as follows:
11.That the Wife’s entitlement to profits pursuant to Order 3 above be limited in amount to the sum of:
(a)any balance outstanding in respect to the sum of $4,417,406 referred to in the final paragraph of the Reasons for Judgment of 10 January 2006, plus
(b)any costs ordered in favour of the Wife in respect of these proceedings including their enforcement, plus
(c)interest on sums outstanding referred to in (a) and (b) above, at the rate of interest prescribed by the Family Law Rules or as otherwise ordered.
Thus, the “character” of orders 3 and 11 is not the division of then existing property of the husband, but rather that of orders enabling the wife to receive an entitlement to division of existing property, assessed on the basis of contribution and s 75(2) factors, in a property pool, which did not include any value for the technology.
Orders 3 and 11 have something of the character of “pre-emptive enforcement”. The ground of appeal raises no issue arising from that.
These observations reinforce the conclusion that there is nothing to be found in his Honour’s reasons or the orders appealed, which demonstrates that a finding of a proprietary interest in the husband in the technology necessarily underpinned those orders.
Seen from this standpoint, it is strictly unnecessary to consider the wife’s proposition that the husband’s trustee in bankruptcy had disclaimed the interests in the technology. However, I record that, in my view, on the basis of the law and events set out in the reasons of the majority, no disclaimer had occurred.
In my view, having regard to the date upon which this appeal was filed, 17 February 2006, the lifting on 4 May 2009 of the permanent stay upon it and to the restriction of the husband to the one ground of appeal, enshrined in Order 2(b) of the orders of the Full Court of 4 May 2009, it is proper to strictly confine the appeal to that one ground.
I certify that the preceding one hundred and thirty nine (139) paragraphs are a true copy of the reasons for judgment of the Honourable Full Court
Associate:
Date: 26 August 2009
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