Re Bruce Harry Morrison Ex Parte The Official receiver Trustee of the estate of the bankrupt

[1978] FCA 114

IN THE FEDERAL COURT OF AUSTRALIA	)
GENERAL DIVISION	1

BANKRUPTCY DIST~ICT OF THE STATE ) No. NSW 392 of 1977

OF NEW SOUTH WALES AND THE )

AUSTRALIAN CAPITAL TERRITORY 1

RE: BRUCE HARRY MORRISON

EX PARTE: THE OFFICIAL RECEIVER Trustee of the estate of the bankrupt.

a JUDGE MAKING ORDER: Riley J.

DATE OF ORDER:	18 April 1978
WHERE MADE:	Sydney

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ORDER:

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1. Application dismissed

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2 . The Official Recelver to pay the costs of VACC

Insurance Co. Limlted. Authorise him to add hls

own costs to that amount and retain the total

out of the estate.

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CATCHWORDS

Bankruptcy - Income of bankrupt - Person conv ic t ed o f l a r ceny

as s e r v a n t - Recognizance conditioned on payment t o Clerk of

Peace of compensat ion for employer - Employer indemnified by

i n s u r e r - C l e r k of Peace authorized by employer t o p a y i n s u r e r -

Offender becomes bankrupt - Appl i ca t ion by t r u s t e e f o r o r d e r

t h a t C l e r k of Peace pay him money paid by bankruqt t o C l e r k

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of Peace s ince bankruptcy - Bankruptcy A c t 1 9 6 6 , S . 131.

R e - BRUCE HARRY MORRISON, EX Parte THE OFFICIAL RECEIVER

CORAM: Ri ley J.

18 April 1978

SYDNEY.

By t h i s a p p l i c a t i o n t h e O f f i c i a l R e c e i v e r s p e c i f i c a l l y

seeks an order under S. 131 of the Bankruptcy A c t 1 9 6 6 . That

s e c t i o n , so f a r as is material t o t h i s case, provides as follows:-

“ ( l ) S u b j e c t t o t h i s s e c t i o n , a bankrupt who is i n

r e c e i p t o f income 1s e n t i t l e d t o r e t a l n It f o r

h i s own b e n e f i t .

( 2 ) The Court may, upon t h e a p p l i c a t i o n o f t h e t r u s t e e ,

o rde r that a l l , o r s u c h p a r t a s t h e C o u r t t h i n k s

f i t , of t h e income o f t h e b a n k r u p t s h a l l be pa id

by t h e b a n k r u p t t o t h e t r u s t e e f o r t h e b e n e f i t o f

t h e b a n k r u p t ’ s c r e d l t o r s “ .

The h i s t o r y o f t h e matter i s t h i s . On 1 7 May 1 9 7 6 Bruce

Harry Morrison pleaded gui l ty before a S t i p e n d i a r y M a g l s t r a t e t o

a charge of l a r ceny as a se rvan t . On 18 August 1976 a Dlstr lc t

Court l u d g e s i t t i n g a t Penr i th ordered him f o r t h a t o f f e n c e t o

e n t e r i n t o a r e c o g n i z a n c e i n t h e sum of $500. There were two

c o n d i t i o n s t o the recognizance. One was t h a t t h e a c c u s e d b e o f

good behaviour f o r a pe r iod o f t h ree yea r s and appea r fo r

sen tence	a t any	time	d u r i n g t h a t p e r l o d	i f	c a l l e d	upon.	The	o t h e r
was

“ tha t he pay the C l e r k o f t he Peace t h e sum of $8,887.40

as compensation for Max Wright Motors Pty. L l m i t e d ,

by in s t a lmen t s of $100.00 p e r month t h e f i r s t of such

i n s t a l m e n t s t o be pa id on or before 1 September, 1 9 7 6 ,

a n d t h e r e a f t e r on or b e f o r e t h e 1st day of the ensuing

months. On o r b e f o r e t h e 1st March, 1 9 7 7 , pay t h e

balance of the compensation. Pay f i n e o f $500.00

w i t h i n 6 months of t h i s d a t e ” ( i . e . 18 August 1 9 7 6 ) .

Morrison pald $100.00 t o the C le rk o f t he Peace in (bu t no t a lways

on t h e f i rs t day o f ) each of the five months from September 1 9 7 6

t o January 1977 , bo th inc lus lve ; bu t he has neve r pa id the

balance ($8,387.40) of the compensat ion, or t h e f l n e o f $500.00.

The C l e r k o f t h e Peace d u l y p a i d o u t t h e first payment of

$100.00 t o Max Wright Motors Pty. Limited, but he paid out the

o t h e r f o u r t o VACC Insurance Co. L imi t ed pu r suan t t o an au tho r l ty

given him on 23 September 1 9 7 6 by Max Wright Motors Pty. L i m i t e d

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which authorised him t o forward any fu ture payments to VACC

Insurance Co. L i m i t e d on behalf of Max Wright Motors Pty. Limited.

On 1 2 July 1977 Morrison became bankrupt on h is own

p e t i t i o n . The O f f l c i a l Receiver i s t h e t rustee of h i s estate.

On 2 September 1 9 7 7 Morrison was c a l l e d up t o appear

aga in be fo re the District C o u r t ~ u d g e who had ordered him to

e n t e r i n t o t h e r e c o g n l z a n c e . A t t h e h e a r i n g o f t h l s a p p l l c a t i o n

the on ly in fo rma t ion be fo re the Cour t as t o what happened on

t h a t d a y was c o n t a i n e d i n a le t ter da ted 1 4 December 1977 from

the C le rk o f t he Peace to t h e O f f i c i a l R e c e i v e r t h e r e c e i p t o f

which was deposed t o by the Off ic ia l Rece lve r In an a f f ldav i t

of 10 January 1978. According t o t h a t le t ter , the l ea rned

District Court Judge on 2 September 1977 " d i r e c t e d no a c t i o n ,

p rov id ing the o f f ende r unde r took ... t o con t lnue paymen t s o f t ha t

compensat ion in accordance wlth the terms of h i s r ecogn izance" .

Having i n mind t h e terms of the recognizance, which I have set

out above, I expressed doubt as t o t h e c o r r e c t n e s s o f t h e

informat ion given by the C l e r k of t h e Peace, and r eques t ed tha t

t he Of f i c i a l Rece ive r shou ld enqu i re fu r the r . H e has now obta lned

a c o p y o f t h e r e l e v a n t t r a n s c r i p t . C o p l e s h a v e b e e n s e n t t o

counsel , and I understand from them that they do not wish to

s u b m i t fur ther argument and are c o n t e n t t h a t I s h o u l d t r e a t t h e

t r a n s c r i p t as b e i n g i n e v i d e n c e b e f o r e m e and as a correct r eco rd

of the proceedings of 2 September 1977.

The t r a n s c r i p t shows t h a t on that day Morrison appeared

i n p e r s o n , h a v i n g b e e n c a l l e d up on breach of his recognlzance

by f a i l u r e t o observe i t s c o n d i t i o n s a s t o payment of

compensation, and admitted the b reach . The Crown P r o s e c u t o r t o l d

H i s Honour, amongst o t h e r t h i n g s , t h a t M o r r i s o n was now a

bankrup t , and sugges t ed tha t he shou ld be r equ i r ed to make f u r t h e r

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payments , bu t defer red dea l ing wi th the breach of the recognizance

on the accused ' s under tak ing t o pu t h lmse l f fo r a s p e c i f i e d

pe r iod unde r the supe rv i s ion and con t ro l o f t he P roba t ion and

Pa ro le Se rv ice .

VACC Insurance Co . Limited, (which I s h a l l c a l l "VACC"),

lodged a proof of debt, sworn by one R. H. P i c k e t t on 16 November

1977 , a l l e g i n g t h a t on 1 2 J u l y 1977 Morrison w a s ] u s t l y a n d t r u l y

indebted t o VACC i n t h e sum of $0,654.40 "m accordance wi th the

p a r t i c u l a r s s p e c i f i e d i n the account annexed ... marked ... A " .

Those p a r t i c u l a r s show:

"Date : 1 7 May 1976

Consideration: Order of Court of Pe t ty Sess ions

P e n r i t h d a t e d 1 7 March 1 9 7 6 .

Amount: $0,007.40

Vouchers ( i f any): Order for payment of compensation

fo l lowing conv ic t ion	of	c h a r g e s i n
matter No. 76/5619".

The O f f i c i a l R e c e i v e r ' s a p p l i c a t i o n , as amended by l e a v e ,

i s f o r :

" A n order under sec t ion 131 of the Bankruptcy A c t 1 9 6 6

t h a t s u c h p a r t o f t h e income of the bankrup t a s has

been paid or w i l l be pa id by the bankrup t t o t h e C l e r k

of t h e Peace a t Sydney s i n c e t h e 1 2 t h J u l y 1977 be paid

by the C le rk o f t he Peace a t Sydney t o t h e a p p l l c a n t

f o r t h e b e n e f i t o f t h e b a n k r u p t ' s c r e d i t o r s u n t i l s u c h

time as t h e o r d e r i s v a r i e d o r t h e b a n k r u p t o b t a i n s a n

o r d e r of d i scha rge pu r suan t t o e i t h e r t h e p r o v i s i o n s

o f s e c t i o n 1 4 9 or s e c t i o n 150 of the Bankruptcy A c t or

s u f f i c i e n t f u n d s h a v e b e e n r e c e i v e d b y h i s t r u s t e e t o

pay 100 c e n t s i n t h e d o l l a r t o p r o v e d creditors".

The a p p l i c a t i o n was duly served on the bankrupt , on t h e

Clerk of the Peace and on VACC. Only VACC appeared, and it was

r ep resen ted by counse l and opposed the appl ica t ion . The O f f i c i a l

Receiver was also represented by counse l .

The a p p l i c a t i o n i s somewhat ambiguously worded, but in

f a c t t h e O f f i c l a l R e c e i v e r seeks a n o r d e r o n l y t h a t t h e C l e r k of

t h e Peace pay him any p a r t o f t h e b a n k r u p t ' s income t h a t t h e

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bankrup t s ince 1 2 Ju ly 1977 has pa id o r w i l l pay t o t h e C l e r k

of t h e Peace, and does no t s eek an o rde r i n r e spec t o f any

money which the bankrupt pa id t o t h e C l e r k of the Peace before

1 2 J u l y 1977.

The O f f i c i a l R e c e i v e r submits t h a t u n l e s s t h e o r d e r

sought i s made t h e C l e r k of the Peace w i l l pay t o VACC any

income of the bankrupt rece ived by h im af te r 1 2 J u l y 1 9 7 7 , whereby

VACC w i l l r e c e i v e a n a d v a n t a g e o v e r o t h e r c r e d i t o r s : b u t t h a t

i f t h e o r d e r i s made, t h a t income w i l l b e d e a l t w i t h i n t h e

admin i s t r a t ion o f t he bankrup t ' s estate I n t h e manner p r e s c r i b e d

by t h e A c t , t h e i r s t a t u t o r y r i g h t s a n d p r i o r i t i e s . so t h a t a l l c r e d i t o r s w i l l s h a r e i n it a c c o r d i n g t o

The ev idence before m e , however , does not es tab l i sh

t h a t VACC is, as it claims t o be, a c r e d i t o r o f t h e b a n k r u p t .

There i s no evidence of any order , such as 1 s a l l e g e d i n t h e

p a r t i c u l a r s of the p roof o f deb t , fo r payment of compensation.

I t i s on payment by Morrison t r u e t h a t t h e r e c o g n i z a n c e o f 1 8 A u g u s t 1 9 7 6 was c o n d i t i o n a l

t o t h e C l e r k of the Peace of an amount

of compensation for Max Wright Motors Pty L t d . But it was for

Morrison himself to d e c i d e , i n t h e l i g h t o f t h e fact t h a t non-

payment would r e s u l t i n h i s b e i n g c a l l e d upon t o come up f o r

sen tence on h i s o f f ence o f l a r ceny , whe the r or not he would, i f

ab le , pay tha t amount . H e was a t no time under any legal

o b l i g a t i o n t o pay it, and the condi t ion of the recognlzance

e s t a b l i s h e d no l ega l r e l a t ionsh ip be tween him and VACC. It is

t r u e also t h a t t h e e v i d e n c e e n a b l e s m e t o c o n c l u d e t h a t It was

Max Wright Motors Pty L t d whose se rvan t t he bankrup t was and from

whom he stole, and t h a t t h a t company was l n d e m n i f i e d t o t h e e x t e n t

of $8,887.40 by VACC under a f i d e l i t y g u a r a n t e e p o l i c y . T h e r e f o r e

so fa r a s was n e c e s s a r y t o e n s u r e t h a t Max Wright Motors Pty Ltd

received no more than a f u l l i n d e m n i t y i n r e s p e c t o f Its loss

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(A.F.G. Insurances Limi ted v . Ci ty of Br ighton ( 1 9 7 2 ) , 1 2 6 C.L.R.

655, 6 6 4 ) . VACC became subrogated t o the advan tage o f eve ry r igh t

of Max Wright Motors Pty Ltd by t h e exercise of wh ich the lo s s

a g a i n s t w h i c h t h a t company was insu red cou ld be diminished:

Cas t e l l a in v . P re s ton (1883) , 11 Q.B.D. 380, 388. But, though

it a p p e a r s t h a t Max Wright Motors Pty Ltd has requested and

a u t h o r i s e d t h e C l e r k o f t h e Peace t o pay t o VACC any money

(up t o $8,887.40) that he may receive from Morrison f o r Max Wright

Motors P t y L t d , t h e e v i d e n c e d o e s n o t e s t a b l i s h t h a t t h e r e i.4

any legal re la t ionship be tween Morr i son and VACC. Cf. In re

Blackburne (1892). 9 Morr. 2 4 9 , 251.

Be t h a t as it may, i n my op in ion the orders sought

cannot be	made.
The enactment i n S . 131(1 ) of t h e g e n e r a l p r i n c i p l e

t h a t a bankrupt i s e n t i t l e d t o r e t a i n f o r h i s own b e n e f i t income

of whlch he "is i n r e c e i p t " r e s o l v e d a n e x i s t i n g d o u b t : see e.g.

Federal Commissioner of Taxat ion v. Off ic ia l Receiver (1956) ,

95 C.L.R. 300 , esp . per Ful lagar J. a t 318-9. A n orde r hav lng t he

e f f e c t o f r e t r i e v i n g income which, i n a c c o r d a n c e w i t h t h a t

gene ra l p r inc ip l en the bankrup t has a l r eady spen t canno t be

made under S . 1 3 1 ( 2 ) ; a n d i n so f a r a s t h e application seeks

such an order it must f a i l . I t m u s t a l s o f a i l i n so f a r a s It

s e e k s a n o r d e r o p e r a t i n g o n f u t u r e income of the bankrupt . The

power t o make such an order "is d i sc re t iona ry , and whe the r an

o r d e r w i l l be made must depend on a l l the c i rcumstances of the

case": Re Buckle ( 1 9 6 9 ) , 15 F.L.R. 4 6 0 , 4 6 4 per Gibbs J; and

i n dec id ing what order t o make the Cour t w i l l have regard t o

the long- s t and ing p r inc ip l e tha t t he bankrup t i s n o t t o be

deprived of income reasonably necessary for the maintenance of

himself and his family: see t h e a u t h o r i t i e s c o l l e c t e d i n

R e McLachlan (1975) 8 A.L.R. 1 6 2 , 165-6 . In the p resent case

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t h e r e i s no evidence before the Court that would enable It to

determine whether by t h e making of the order sought the bankrupt

would be so deprived. It is f o r t h e b a n k r u p t t o show what i s

reasonably necessary for h i s main tenance : R e Robertson (1931),

4 ABC Stuart-Robertson 133 a t 1 4 2 ( t h e d e c i s i o n was af f i rmed sub nom.

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v. Lloyd (1932), 4 7 C.L.R. 4 8 2 ) ; b u t where t h e

Court is without any evidence whatsoever as t o t h e b a n k r u p t ' s

c i rcumstances it s h o u l d , i n my op in ion , exercise i t s d l s c r e t i o n

by d e c l i n i n g t o make an order . That seems to have been the view

of Gibbs J. i n R e Buckle, supra.

e A f u r t h e r r e a s o n why t h e o r d e r s o u g h t c a n n o t , i n my

opinion, be made is t h a t t h e r e i s no evidence that the payments

e by t h e b a n k r u p t t o w h i c h t h e a p p l i c a t i o n r e f e r s h a v e b e e n o r

w i l l be made o u t o f income of the bankrupt (which 1s a l l t h a t a n

order under S . 131(2 ) may a f f e c t ) , and t o make t h e o r d e r a p p l i e d

f o r would be t o impose upon t h e C l e r k o f t h e Peace the burden of

determining whether any money he r ece ived f rom the bankrup t a f t e r

1 2 J u l y 1977 was income of the bankrupt . I t was s u b m i t t e d t h a t

t ha t bu rden would be more apparent than real , because i f money

t h a t h e so r ece ived were not income of the bankrupt then it would

be p rope r ty o f t he bankrup t wh ich had ves t ed in the Of f i c i a l

Receiver and should be paid t o him i n a n y e v e n t : t h e r e s u l t

b e i n g t h a t , i f t h e o r d e r were made, a l l t h e C l e r k of the Peace

would have t o do on rece iv ing any money from the bankrup t would

be t o pay it, wi thout any enqui ry , t o t h e O f f i c i a l R e c e i v e r . The

f a l l a c y i n t h e f o u n d a t i o n of that submission can be exposed by

r e f e r e n c e t o n o more than S . 1 1 6 ( 2 ) ( a ) - ( g ) , r ead in con junc t ion

wi th S. 5 8 ( 1 ) a n d t h e d e f i n i t i o n i n S. 5 ( 1 ) o f " t h e p r o p e r t y of

the bankrupt" . I t i s f o r t h e a p p l i c a n t t o show t h a t t h e b a n k r u p t

i s i n r e c e i p t of income on which an order under S. 131(2) can

opera te , and the burden I have mentioned cannot be imposed on

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t h e C l e r k o f t he Peace.

For those reasons I d e c l l n e t o make t h e o r d e r s o u g h t .

A problem is p o s e d b y t h e f a c t t h a t S . 131(2) provides

o n l y f o r t h e making of an order for payment "by the bankrupt"

and makes no p rov i s ion for an order , such as is sought here ,

d i r e c t e d t o a person other than the bankrupt . The m a t t e r w a s

referred to i n Re Buckle (supra) a t 463-4, where Gibbs 3. h e l d

t h a t , i n v l e w o f S . 63, an order under S. 131(2) could be made

a f t e r t h e b a n k r u p t ' s d e a t h w i t h r e s p e c t t o income due t o b u t n o t

r ece ived by the bankrupt a t the da t e o f h i s dea th , and r emarked

e t h a t a l t h o u g h t h e income could no longer be "pa ld by the bankrup t "

it could be paid by h i s p e r s o n a l r e p r e s e n t a t i v e . No doubt H i s

e Honour c o n t e m p l a t e d t h e c a l l i n g i n a l d of some o the r p rov i s ion o f

t h e A c t such as S. 3 0 ( 1 ) ( b ) . On the evidence before him, however ,

His Honour s a i d t o h a v e b e e n c l e a r l y s e t t l e d . d e c l i n e d t o make t h e o r d e r : t h u s t h e p o i n t c a n n o t b e

It is a p o i n t t h a t w o u l d

arise i f t h e C o u r t f e l t It p r o p e r n o t o n l y t h a t income should

be acquired under S. 131(2) for t h e b e n e f i t o f t h e creditors b u t

a lso t h a t it s h o u l d b e i n t e r c e p t e d a t i t s s o u r c e - for example,

t h e b a n k r u p t ' s e m p l o y e r , o r t h e t r u s t e e of a w i l l under which the

bankrupt was e n t i t l e d t o i ncome; bu t In the n e w whlch I t a k e

of t h e p r e s e n t case it does not arise f o r d e c l s i o n .

The o r d e r I make i s t h a t t h e a p p l i c a t i o n be dismissed.

I s h a l l h e a r s u b m i s s i o n s a s t o costs.