Re Coram; Ex parte Official Trustee in Bankruptcy v Inglis

[1992] FCA 425

Re: RONALD ALLAN CORAM
Ex Parte: OFFICIAL TRUSTEE IN BANKRUPTCY
And: SIR BRIAN SCOTT INGLIS; DAVID EDWARD MEIKLEJOHN; LEONARD NOEL PRICE; IAN
WILLIAM COGDELL; ANDREW JAMES MOSSMAN and RICHARD BEACH FERNEE
No. B716 of 1987
FED No. 425
Bankruptcy
(1992) 36 FCR 250

COURT

IN THE FEDERAL COURT OF AUSTRALIA

SOUTH AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE STATE OF SOUTH AUSTRALIA
O'Loughlin J.(1)

CATCHWORDS

Bankruptcy - Superannuation - whether the bankrupt remained entitled to benefits from the fund or whether those benefits had matured or crystallised and become a debt due to the bankrupt - nature of a superannuation fund - "Mareva" injunction - nature and effect of - whether the grant of such an injunction was the happening of an event by which a member of a superannuation fund might be wholly or partly deprived of the personal enjoyment of his rights or interests in such a fund.

Trusts - protective trusts and forfeiture clauses - consideration of facts that will or will nor operate to work a forfeiture.

HEARING

BRISBANE

#DATE 12:6:1992

Counsel for the Applicants: Mr H.C. Williams QC Mr S.M. Adams

Solicitors for the Applicants: Adams Kandelaars

Counsel for the Respondents: Dr R.J. Baxter Ms L.J. Kirk

Solicitors for the Respondents: Finlaysons

ORDER

THE COURT ORDERS THAT:

1. The applicant bring in short minutes of order consistent with these reasons.

2. The respondents pay the applicant's costs.

3. Liberty be reserved to the parties to speak to the minutes of order.
Note: Settlement and entry of order is dealt with in Bankruptcy Rule 124.

JUDGE1

The Official Trustee in Bankruptcy ("the trusteee") seeks declarations to the effect that on 1 April 1987 Ronald Allan Coram ("the bankrupt") became entitled to a payment of a deferred benefit from the Amcor 1970 superannuation fund and that his entitlement was property which vested in the trustee upon his bankruptcy on 2 July 1987.

1. In addition to the declarations, the trustee has sought orders for an account of the money payable by the respondents (who are the trustees of the superannuation fund) and for payment of the amount found due to the trustee.

2. By deed dated 1 June 1970 ("the trust deed") Australian Paper Manufacturers Ltd ("the employer") established for the benefit of its employees, one of whom was the bankrupt, a superannuation fund known as the APM 1970 superannuation fund. That fund subsequently changed its name and is now known as the Amcor 1970 superannuation fund ("the fund"). The terms of the trust deed that existed at the times that are relevant to the issues in this litigation have been agreed and constitute an annexure to a statement of agreed facts.

3. In August 1960 the bankrupt had become a contributing member of an earlier superannuation fund that had been established by the employer for the benefit of its employees. However, upon the establishment of the fund in 1970, the bankrupt, as he was entitled to do, transferred his benefits to and became a member of the fund.

4. He remained a member of the fund until he resigned his employment on 1 May 1983. His circumstances were then governed by the provisions of Clause 18.10(a) of the deed; they dealt with the early retirement or the retrenchment of a member before the attainment of his "Early Retirement Date" which date was, with respect to the bankrupt, agreed as being 1 April 1987. Clause 18.10(a) was as follows:-
   

"(a) Payment consequent on Resignation. A Member who Resigns or is Retrenched before reaching Early-Retirement Date shall be entitled to a Deferred Benefit.

The amount of the Deferred Benefit which shall be payable as a Lump Sum at the Member's Early Retirement Date, shall be an amount equal to the product of (i) and (ii) hereof, where -

(i) is fifteen percent (15%) of Benefit Salary for each completed year of Membership Period and pro rata for any part of any incomplete year in which Contributions have been paid or are deemed to have been paid in respect of the Member, and

(ii) is a reduction factor equal to unity minus one hundredth (1/100th)(or such other fraction as determined by the Trustees after obtaining the advice of the Actuary) for each whole year of the period between the Member's Early Retirement Date and Normal Retirement Date and pro rata for any period less than one year. Provided that where the Member elects that in lieu of the Deferred Benefit a Benefit be paid immediately upon the Member ceasing to be an Employee the amount of the Benefit shall be the Member's Member's Account Balance plus ten percent (10%) of the Member's Account Balance for each year (including any fraction of a year) of Membership Period subject to a maximum addition of one hundred percent (100%) of the Member's Account Balance.

PROVIDED ALWAYS THAT the Trustees may at their discretion and after having obtained the advice of the Actuary reduce the benefit payable pursuant hereto to an amount which does not exceed the benefit payable to the Member pursuant to Clause 12.1 hereof."

1. It was agreed that the bankrupt did not, at the time of his resignation, and has not since made any election; it was also agreed that the respondents have not made any payment nor resolved to make any payment to the bankrupt either by way of his "Deferred Benefit" or by way of an immediate payment that was referable to his "Members Account Balance". That is not intended to suggest that the bankrupt or his trustee has any residual right to make an election under the provisions of Clause 18.10(a). The language of the proviso suggests that any election must be made at, and possibly even before, the time resignation. However there is no need to resolve that point. If the right of election survived the act of resignation, it would only be for a very short time, otherwise it would be impossible for the respondents to meet their obligations under the proviso which require payment to be made "immediately upon the Member ceasing to be an Employee...".

2. Prior to his bankruptcy the bankrupt and his wife had been involved, as defendants, in litigation in the Supreme Court of South Australia. This had led to that Court granting a "Mareva" injunction in favour of the plaintiff on 4 July 1986 in these terms:-
   

"That until further order the defendants be restrained and an injunction is hereby granted restraining them and each of them whether by themselves their servants agents or otherwise from disposing of, dealing with or removing out of the jurisdiction of this Court any of their assets or property both real of personal of whatsoever nature or kind and wheresoever situate."

1. That injunction was subsequently varied on 17 July 1986 to enable the bankrupt and his wife to carry on their business in the ordinary course but otherwise in terms that are inconsequential to the outcome of these proceedings.

2. Clause 12.4 of the trust deed was entitled "Protective trust". The respondents have relied on its provisions to deny the applicant's entitlement to the declarations that it has sought. It provides:-
   

"All interests and Benefits of Members are strictly personal and, except as provided herein, no Member shall assign or charge such interest either absolutely or by way of mortgage charge or otherwise.

If any Member becomes bankrupt or commits any act of bankruptcy or attempts to assign or charge any rights or interest or any part thereof under the Deed or does or suffers anything by which such rights or interests or any part thereof through the Member's act or default or by operation or process of law would or may if absolutely vested in the Member become vested in or payable to any other person or company or if any other event should happen by which the Member might be wholly or partly deprived of the personal enjoyment of such rights or interests herein such rights or interests thereby affected shall thereupon determine. In that event the Trustees may apply the money or property representing such rights or interests for or towards the maintenance or otherwise for the benefit of the Member the Member's spouse Children and Dependants or for such one or more of them to the exclusion of the other or others and if more than one in such shares and proportions as the Trustees may in their absolute discretion determine but so that while employment with an Employer continues no such application may be made except for the relief of hardship."

1. The argument that was advanced by the respondents was to the effect that the granting of the "Mareva" injunction in July 1986 amounted to the happening of an event by which the bankrupt "might be wholly or partly deprived of the personal enjoyment" of his rights or interests in the fund; thus, because of the provisions of Clause 12.4, the bankrupt's rights or interests in the fund were, so it was claimed, determined in 1986.

2. Arguably, the presence of the word "Member" in clause 12.4 would suggest that its provisions only relate to events that affect the circumstances of a person who, by virtue of continued employment, remains a Member of the fund; in other words, it might be thought that the clause did not deal with former Members. However Mr Williams QC, counsel for the trustee made it clear that he did not rely on such an interpretation. He pointed to other provisions in the deed where, probably as a result of laxity in drafting, references were made to "Members" when, quite clearly, the draftsman was referring to "former Members". I believe this to be a generous concession but I will proceed nevertheless to limit myself to a consideration of the arguments upon which Mr Williams relied.

3. The trustee advanced two arguments in support of the declarations that it sought. First, it claimed that clause 12.4 had no operation because the bankrupt's rights under the fund had crystallised or matured as a consequence of his resignation in 1983. Secondly, it claimed that, in any event, the existence of the "Mareva" injunction did not and could not amount to a deprivation of the bankrupt's personal enjoyment of his rights or interests in the fund; at the most, it merely regulated his mode of enjoyment of those rights or interests.

4. In my opinion both these arguments are correct. Historically, a superannuation fund was a form of trust that an employer established for the benefit of his employees. A common form of benefit was a lump sum payment that was payable to the employee (or his dependents) upon the event of his retirement or earlier death; another well-known benefit was a pension plan. Conceptually however, the employee was only intended to benefit upon retirement; thus he would not necessarily receive any part of the amount allocated to the credit of his account if there was an early resignation or a dismissal. The emphasis on the benefit maturing upon retirement also emphasised that until retirement the member's rights to or interests in any benefit were inchoate and would not crystallise until retirement (or earlier death). Even though the benefits afforded through superannuation funds have improved materially over the years - in particular, it is common place for some reduced benefit to vest upon premature retirement and for provisions to cover illness and injury - the inchoate nature of the member's rights or interests have remained unaltered. Until the happening of a prescribed event that will crystallise his right into an actual entitlement, a member of a superannuation fund is neither the legal nor the beneficial owner of the amount that stands to the credit of his account from time to time.

5. In Scott v Commissioner of Taxation (No.2) (1966-67) 40 ALJR265, a case that dealt with the treatment of superannuation funds for income tax purposes, Windeyer J. described such a fund in these terms:-
   

"There is no definition in the Act of a superannuation fund. The meaning of the term must therefore depend upon ordinary usage, the attributes of a thing thus denominated being those which things ordinarily so described have. To say that all that one need do to decide whether there was here a superannuation fund of the required kind is to study the deed is a mistake, because the deed must be read with a preconception of what such a fund is, otherwise reading it can provide no answer.... I have come to the conclusion that there is no essential single attribute of a superannuation fund established for the benefit of employees except that it must be a fund bona fide devoted as its sole purpose to providing for employees who are participants money benefits (or benefits having a monetary value) upon their reaching a prescribed age. In this connexion 'fund', I take it, ordinarily means money (or investments) set aside and invested, the surplus income therefrom being capitalized. I do not put this forward as a definition, but rather as a general description. The Act carries the matter somewhat further, because it (in ss.66 and 82) suggests that a superannuation fund is made up of contributions. Doubtless a 'contribution' properly speaking has the sense of Doctor Johnsons's definition: 'that which is given by several hands for some common purpose'. But in the sense that the word has in the Act, contributions to a superannuation fund may I think all be made by one hand, that of the employer."

(p 278)

1. Kitto J. had to consider the expression "provident, benefit or superannuation fund" in Mahoney v Federal Commissioner of Taxation (1968) 10 AITR 463. He said:
   

"... each of the three descriptive words 'provident', 'benefit' and 'superannuation' must be taken to have connoted a purpose narrower than the purpose of conferring benefits, in a completely general sense, upon employees... All that need be recognized is that just as 'provident' and 'superannuation' both referred to the provision of a particular kind of benefit - in the one case a provision against contemplated contingencies, and in the other case a provision, to arise on an employee's retirement or death or other cessation of employment, of a subvention for him or his estate or persons towards whom he may have stood in some kind of relation commonly giving rise to a legal or moral responsibility - so 'benefit' must have meant a benefit, not in a general sense, but characterized by some specific future purpose. A funeral benefit is a familiar example." (p 464)

1. These passages support the proposition that the present right of a member of a superannuation fund is no more than an expectancy. His entitlements are all in the future and are all dependant upon the happening of a prescribed event, of which the most common was the attainment of an agreed retirement age.

2. I am satisfied that the so-called "Protective Trust" appearing in clause 12.4 of the deed was inserted to protect the inchoate rights of a member of the fund to his future entitlements. This type of clause is quite commonplace in wills and settlements as well as in superannuation funds. Thus the estate of a member of a superannuation fund may be sequestrated or he may be otherwise subjected to the provisions of the Bankruptcy Act. Assuming always that the relevant deed contains the appropriate provisions, no part of his benefit in his superannuation fund will vest in his trustee in bankruptcy for distribution among his creditors whilst he remains in employment and a member of the fund. On the other hand, the terms of the trust deed that constitute the superannuation fund can, and often do, empower the trustee of the fund, in the event of bankruptcy or like events, to apply the member's benefits, on maturity, to or for the benefit of the member's dependants.

3. It seems to me therefore that when one has regard to the nature and purpose of a superannuation fund, there can be no room for doubt: upon the bankrupt deciding to resign in 1983, his rights as a member of the fund matured or crystallised into an asset which then and thereafter formed part of his estate. His rights were no longer an entitlement to a future benefit in a superannuation fund; they had been transformed and had become a debt owing to him by the trustees that was payable at a future ascertainable date, viz:- 1 April 1987, his "Early Retirement Date". If this conclusion is correct then the granting of the "Mareva" injunction in 1986 did not constitute the happening of an event by which the bankrupt "might be wholly or partially deprived of the personal enjoyment" of his rights or interest in the fund because those rights and interests had ceased to exist in 1983.

4. If, however, that conclusion is wrong, it becomes necessary to consider the effect of a "Mareva" injunction. Could the order of the Court have amounted to the happening of an event that might have constituted some deprivation of the bankrupt's personal enjoyment of his rights and entitlements in the fund? For the purpose of considering this argument, let it be assumed that in 1986 the bankrupt still possessed rights or interests in the fund.

5. The respondents have alleged a forfeiture; they therefore carry the burden of satisfying the Court that it has occurred: In re Baring's Settlement Trusts. Baring Brothers and Company Limited v Liddell (1940) 1 Ch 737 at 749 per Morton J. As his Lordship had earlier said:
   

"... if after the Court has gone through the process of construing the clause described by Chitty J. there remains a real doubt in its mind as to whether there has been a forfeiture, then that doubt should be resolved against a forfeiture."

(The reference to Chitty J. is a reference to his judgment in In re Sartoris's Estate. Sartoris v Sartoris (1892) 1 Ch 11, 14 which was affirmed in the Court of Appeal).

1. Barings' case is an example of a set of facts that were sufficient to lead to forfeiture. Trust funds that had been settled under a deed of settlement; the trustees were directed to hold the funds in question -
   

"... upon trust to pay the income thereof to (the defendant) during... her life until... she shall become bankrupt... or until some other act or event shall happen... whereby the said income or any part thereof if belonging absolutely to (the defendant) would become vested in or payable to or changed in favour of some other person...". (p 737-738)

1. The defendant defied an order of the Court to return her children to the jurisdiction. At the instance of her husband, a writ of sequestration was issued and the sequestrators were empowered to take possession of her real and personal property until she should clear her contempt. The solicitors for the sequestrators gave the trustees of the settled funds formal notice to pay no further moneys to the defendant. The trustees took out a summons to determine whether, on the true construction of the settlement, the life interest of the defendant in the income of the trust fund was determined by the writ of sequestration or by any act of the sequestrators. Although Morton J. carried out an extensive review of the authorities, he felt constrained to say at the outset that if the forfeiture clause in the settlement was to be read quite literally, then the notice of the sequestration to the trustees constituted the happening of an event whereby "the income of her share, if belonging absolutely to her, would have become payable to some other persons, namely, the sequestrators". (p 741). He formulated his conclusion in these terms:-
   

"... but to my mind, on the true construction of this clause, the settlor did intend that if an event happened whereby, if the income had belonged absolutely to the tenant for life, she would have been deprived of the personal enjoyment of it and the right to hold it and spend it and use it, then a forfeiture should occur." (p 753)

1. However there are cases where similar forfeiture clauses have not been activated by virtue of the particular facts of the case. In re Salting. Baillie-Hamilton v Morgan (1932) 2 Ch 57 is one such example. A testatrix bequeathed pounds 150,000 to her trustees upon trust to pay the income to the plaintiff until he should assign, charge or otherwise execute, do or suffer some deed, act or thing whereby the income or some part thereof would, if belonging absolutely to him, become payable to some other person. The plaintiff, by arrangement with the trustees applied to the Court and obtained an order authorising the trustees to advance him pounds 15,000 out of capital to pay his debts. The plaintiff was to assign a policy of assurance in a like sum to the trustees as security for the repayment of the advance and the trustees were empowered to pay out of the income of the trust fund any outstanding premium on the policy unless the plaintiff produced a receipt for payment within seven days of the due date.

2. Eve J. concluded that the Court's order did not operate to work a forfeiture of the plaintiff's life interest. He said:
   

"The plaintiff may thereby be temporarily deprived of the enjoyment of part of the income; but I cannot hold that he thereby does an act whereby any part of the income becomes, or will become, payable to any other person or corporation. It is true that if he neglects to do something more, that is to say, to pay the future premiums and to produce the receipts within the seven days, he will have suffered - voluntarily or involuntarily - something by which the income will actually become payable to others, and in that event a forfeiture will, in my opinion, be incurred; but so long as he pays the premiums and the trustees are not called upon to apply any part of the settled income in so doing, I do not think his life interest will be affected." (p 65)

1. In In re Marshall. Marshall v Whateley (1920) 1 Ch 284 it was held that an order in lunacy appointing a receiver did not operate as a forfeiture with respect to a clause containing the words:
   

'until he shall become bankrupt or shall assign or charge or affect to assign or charge the said income or some part thereof or until some other event shall happen whereby if the income belonged absolutely to him he would be wholly or partially deprived of the personal enjoyment thereof." (p 753)

1. In re Tancred's Settlement; Somerville v Tancred (1903) 1 Ch 715 was a case which Mr Williams emphasised. The beneficiary of a life interest assigned it to the trustees of his marriage settlemrnt upon trusts under which he was to receive the income for life. The original settlement contained the usual forfeiture clause. It was held that this was not a disposition or attempted disposition of his life interest so as to cause forfeiture. Morton J. said of this decision in Barings case:
   

"I think it is a correct comment upon that case to say that all that the life tenant did was to alter his mode of enjoyment." (p 751)

1. The first thing that must be said of a "Mareva" injunction is that it severely curtails the rights of an individual. Be that as it may, the primary objective of the Court's intervention is the preservation and maintenance of assets within the jurisdiction. The Court will be loath to interfere when:
   

"... there is no material from which the Court could conclude that the assets of the defendants are likely to be removed from the jurisdiction so as to avoid payment of any judgment which the plaintiffs might obtain."

Per Brandon L.J. in Etablissement Esefka International Anstalt v Central Bank of Nigeria (1979) 1 Lloyd's Rep 445 at 449. See also Iraqi Ministry of Defence and Ors v Arcepey Shipping Co. S.A. and Anor (1981) 1 Qb 65 at p 71.

1. Upon the assumption that the bankrupt retained, in 1986, some right or interest in the superannuation fund the issue that must be decided is whether the "Mareva" injunction can be classified as an "event... by which the member might be wholly or partly deprived of the personal enjoyment of such rights or interests...". It could not be suggested that a plaintiff-creditor obtains a preference or priority or advantage over his debtor as a result of obtaining a "Mareva" injunction; it was never intended that such injunctions would rewrite the law of insolvency: Iraqi Ministry of Defence v Arcepey Shipping Co. S.A. (1981) 1 Qb 65 at 71 per Robert Goff J.; Hortico (Aust) Pty. Ltd. v Energy Equipment and Co. (Aust) Pty. Ltd. (1985) 1 NSWLR 545 at 558 per Young J. Nor, in my opinion could it be said that the effect of the Court's order would amount to a deprivation of any enjoyment. It would no doubt, in appropriate cases, constitute a restriction on enjoyment but that would not be sufficient to activate the forfeiture provisions. I agree with Mr Williams that the effect of a "Mareva" injunction is merely to alter a defendant's mode of enjoying his assets. This alteration may be of long or short duration; much will depend on the outcome of the litigation. Even so, I do not believe that it justifies the operation of the forfeiture clause.

2. The trustee is entitled to appropriate declarations, orders and costs; I direct the trustee to bring in short minutes consistent with these reasons; I reserve to the parties leave to speak to those minutes.