Re Emanuelli, D.J. v Ex parte Horsburgh, A.m

[1987] FCA 34

LIMITED GISTRIEUTIOQ

IN THE FEDERAL COURT OF AUSTRALIA I ' L -

)

EXERCISING FEGERAL JURISDICTION ) NO. 4 5 1 of 1x34

BANKHUFTCY IN l

BANKRUFTCY DISTRICT OF THE iTATE OF VICTORIA

He : GAVIG JOHN Et$"ELLI a Bankrupt

Ex Parte : ALAN t4URRA'i HOhZBCjriGH

(as truscee of the propert7

.af Davld Jahn Emanuelll,

a bankrupt I Applicant

m: NORTHROP J.

W:	11 FEBRUARY 1987
W :	tkLBOUhNE

MINUTES OF ORDER

THE COURT ORDEhS TK4T: -

1. The amount of $200,000 pald to Davld John Emanuelll by the A.M.P. Flre and General Insurance Co. Ltd. be treated as property of the bankrupt vested m Man t4urra.y Horsburgh 2 5 trustee of Davld John Emanuelli, a bankrupt.

2. The costs o f sach of the partles to thls sppllcatlon be treated as expenses Incurred In the administration of the estate of the bankrupt, be taxed and be pald out of the estate of the bankrupt.

~ T h l s order 1 s to be settled and flled In accordance wlth

rule 124 of the Bankruptcy hules.1

,

0

For the purposes of c o n z l d e r l n g t h e q u e s t l o n raised

by t h l s a p p l l c a t l o n . t h s r e i e v a n t f a c t a can b e s t a t % d

s h o r t l y . Those f ac t s ~ l l u s t r a t e t h e d a n g e r s that can a f f ec r :

any person . On 15 Jjnuarp 1978, Da-~ld John Ernanuel l l \ "ths

bankrup t " 1 , xas drlv lnq h l s motor car along s road aetzeen

Faynesvllle and Balrnsdale. He :;as towlna a t r a l i e r a c t a c h e d

m

t o t h e car . X ;<hecl , ~ f the c r a l l e t - f e l l off. ha axie fsli

t o t h e road zur face csus1nq sparks. Thc s p a r k s l g n l t z a dry

J Y S S S alsngslee t h s t-0aaxs-f t he reby sauzlnq a Susn f l r e x h l c h

caused s u b s c a n c l a l damaqs t o a. number of prope t - t l e s . One of

t h e properties so damaged xas ohnsc! by HalleFbury ColleaE.

By a c t l o n I n the Supreme Court of L ' lc tor la . Hal leybury

College clalmed damages ac ra lns t t he bankrup t ,

A t t h e tune of the a c c l d e n t causlnu the bush flre.

t he bankrup t ' s mo to r car w a s t h e s u b l e c t of a comprehenslve

motor vehicle pollcy lssued by A.M.P. F l r e and General

Insu rance Co. Ltd. t " t h e I n s u r e r " 1 . Under t h e p o l ~ c j r , the

I n s u r e r 3 2 s o b l l u e d l n d e n n l f y t o t h e b a n k r u r j t agalnst

l l a b l l l t y a t lay by ;;ay of damages I n ~-espec r : ts danac;e ts

-

propsrty hut Its an$rqate l ~ a n ~ l ~ c y xas llrnltsd to ;Zu\ j .uu \ ) "111 respect of all clalms whatsoever anci howsoever arlslng

out or' any m e accldenr; or serles of accldents arlslnu out a r

the one event". The Insurer denled It xas llable to

lndemnlfy the bankrupt xltii respect to the clalm brought by

Haileybury College and was ]o~ned by the bankrupt as a thlrd

party In those proceedlngs. r3n 16 September 1382, the

3uprSme Court conar;ltutcd by Nut-phy Z. Jase Judqmilnt ln those

proceedmgs. The t-Easons for judument are rzporced:

Ha1levbur;- C~lleas -c. Csanuzlll C1.32;3 1 Y . 3 . ;L;. Ths Court

entered ]udunenc 13 r'a-;our si Hali2ytur:j Czlltg~ agslnst tne

bankruec Ln ths tatal sun sf +12?,,::6.75 xlth costs

subsequently fixed at $15,u&e.Yg ant SardEred the Insurer tu

mdemnli:; t h e bankrupt wlth respect to those sums. An a p p s a l

by the Insurer agalnsc the order to lndsmnlf;. vas dlsmlssed;

see A.M.P.' Flre and General Insurance 130. Ltd. V . Emanuelll

c19e43 V.R. 6 0 7 .

In addltlon to the ~udgment m favour of Halleybury

College, a number of other clalms for damages in respect of

property and arlslng fram the bush f l r e Were pendlng aqalnst

the bankrupt. It was obvious that che total amount of the

llablllty of the bankrupt w l ~ h cezpcct to all those clalms

for damages aualnst h;m exceeded $ 2 u ~ , u O u . The Insurer

washsd Its curpGt-ate hands or' the whole matter. *B-? an

agreemsnt In xt-ltlng between the banlcrupc and the Insurer dated 15 Nay 1484 the Insurer agreed to pay to the bankrupt the sum of ;2irO,UuO and the bankrupt agreed to t-eleasa the

Insurer from "all actlons. sults, clalms and demands

- -4 -

A t 13 June 1384. t h s p o ~ l t l o n ~ 1 c i - 1 r e s p e c t ts

c l a l m s f o r damages aqalnsr: t h e b a n k r u p t w l t h respect t o

darnages t o p r o p e r t y a r l s l n g f rom the bush f l r e w a s : -

1. Judgment f a v o u r I n of Halleyburjr College -

$ 1 2 8 , 2 2 6 . 7 5 . T h e c o s t s amounting to

$15,d43.99 =ere pald by the bankrupt to t h e

Calleqe.	I n t a r e s t	18	a c c r u l r q on	t h e	Judgmenc
d e b t .

2 . Juilqmsnt I n favour of t h r e e o t h e r p e r s o n s

namsly N.:.	t h h e r . A.J. LJatts and L.G.	Nuon	-
s25.3or3.

3 . A number of c l a l m s w h e r e l n t e r l o c u t o r g

~udgment had been entered but damages had not

been assssseii.

4 . A number of c la lms pend lng In Cour t .

5. A number of c l a lms vhsre Leoal proceed lngs had

not been commencea.

For a l l prastlcal purpsses. the o n l y zoucce from uhlch the

bankrupt could pay the ludqments and claim: xas the sum si

+200,000 being the aagregate llmlt sf l1aLlllt:r of the

Insurer under Its pollcy wlth the bankrupt. The Insurer had

pald that $200 ,000 to the bankrupt s zollcltor. The bankrupt

had no further rlqht to mdamn1ty aqalnst the Insurer wlch

respect to clalms arlslnq f r m che bush i ' l r e . The Insurer

xas no longer !under an:; 1lab:lltj; to	monevs	to	chz
bankrupt.

rjn 1;: June 1981, the bankrupt presented lils ocjn

petltlon under 6.55 of the Act. Thz petltlon xas accepted by the Reglstrar. Thereupon the bankrupt became bankrupt on that day. In August 1'384 the bankrupt's sollcltors pald the sum of $200.000 to the trustee who has Invested It pendlng the determmatlon of how that sum 1 s to be expended.

t b l as the proceeds of rrallsatlon of the

bankrupt 5 rlqht to lndemnlty under a contract

of lnsurance agalnst llabllltles to thlrd

partles and to be dealt wlth pursuant to	the
provlslons of 5.117 of the Act.

At the hearlng of the applicatlon, the trustee xas

represented by h15 ~ollc~tor. Halleybury College ;gas

represented by counsel. Twc other counsel appeared who

hetween them represented the other credltors and clalmants

conlng xlthln grcugs 3 , 4 and 5 mentzoned above.

The prlmary questlon l< consldsred flrst. Under

5.58 ar' the Xcc, tha properr:? of che banlit-urjt v e s t t d I n the

trustee m 12 June 1354. Frlma r'acle. che sum of $2UO,UOU w h l c h had been palcl by the inzurer tc crie bankrupt 5 auranr

befors that date xas the pt-opercy of the bankrupc and v e s c e d

In che trustee an 12 June 1984 . On 12 June 1934, the bankrupt had no exlstlng rlght of lndemnlty under hls pollcjr

with the Insurer wlth respect to damages to propsrty caused

by the bush f l r e . The rlght to indemnity under that policy

had been satisfled by the Insurer paylnq to the bankrupt its total amount of llablllty under that pollcy. It iollows,

thererore, that prima facie, the $ 2 0 0 , 0 0 0 1s property of the

bankrupt dlvlslble amongst hls credltsrs, see sub-sectlon

11611) of the Act. Reference wlll be made later In these

reasons to parasraph 116 I 2 1 a) .

The ]udqmsnts obtalned aoamst che bankrupt befor?

1’. June 138-4, are debt-, provable In the bankruptcv; see

sub-sectlon Z 2 ( 11. On E!-L* msterlal before the Court,

Halleybury Colleqe. N.: . Ilaher, A.J. Natts and L.G. Moon thus

;jould be &Le C O PCUVE tkelr dehts I n the bankrupt:?. The clalms by Eh? zthsr persons f o r damages to Ljropsrty, based as they are on the negllqencr of the bankrupt, ace all dsrnanas In the nature of unlx{uldated dasaqez and are not provable ln bankruptcy; see sub-section ,32121 si ths Act. Tin1 s sub-sectlon appllss even where an mterlosutorg ludqment has

been entered but damages have not been assessed. Since thrsr

clams are not provable debts, the provlslons of sub-sectlon 58(3) of the Act do not prevent those persons from pursulnq thelr c l a m s by legal proceedlngs. EJen If ludgment was obtalned ln those proceedlngs and the damages assessed, the ~udqment debts so sbtamed would not be provable debts In the bankruptcy whlch commenced on 12 June 1’384. Any such ]udqment debt, however, could be used as a basls f o r a second bankruptcy but, f o r practical purposes, no useful purpose, on the facts of thls appllcatlsn. could result therefcon.

Inltlally, the crustee advlsed a number oi the

clamants that theli p r o o f i of debt had been admitted. That

advlce vas vronq In law.	That adv lcs cannot affect the legal
posltlon.

It 1s mllfflculc to see nor; 5.117 of the Act #:an have any appllcatlon to the facts o f cheze proceedlnqs. That

section applles whsre a bankrupt nas a rlqht ts lndemnzty

under a contract of Insurance. Under that sectlon. that

rlght vests In the trustae I n the bankru?tcy but amounts

recelved by the tru6tee pursuant to the lndemnlty do not form

part of the property of the bankrupt but must be paid

r'orthwlth to the thlrd person xlth re;l;ect to whom the amount

of the lndernnlty 1s pald. In the prescnt proceedlnus, at no relevant tlme ald the bankrupr; have a rlqht to lndennrty under the pol1.c.~ of lnsurance. P r l o r tu the bankruptq, the

Insurer had pald ta the banlcrugc the total amount of ltz

llablllty under the relevant Insurance pollcj r . At the tlme

of the bankruptcy, there vas no rlyht of the bankrupt to

indemnltg whlcii could vest ln the trustee. The trustee has

no rlght t'o recelve payment from the Insurer. Section 117 of

the Act has no appllcatlon to the facts of these proceedlnqs.

It was not argued chat any of the clamants had any

clalm agalnst the Insurer. No dlrectlons can be made In these proceedlngs adverse to the Insurer whlch IS not a party

to these proceedlnqs. It 1s mterestlng to note that the

Insursr 1 s lnstructlnq one af ths counsel appearmg under ~ t s

rlght of subroCJatlGn slnce It has lndemnliled that clalmant

under a separate lnsurance pollcj-.

It xas aruued on hehalf ~f Ha1leybur-y Ccll+?s that

the $:uir.000 gald. tu the bankrupc ?<AS held by t t s hnkrupt ln

trust for the L'sli+oe. On trLat DJ.SIZ, para,?t-aph i l l : . ( - I .>S the Act woulci have preventec the $LuiJ,Oir0 vestlna m the trustee. Th1.s contentmn 1 s relscted. The Supremr Csurt dld not order the Insurer to make the payment to Halleybury College. If the contentlon %as correct, slmllar trusts would

arise wlth respect to each of the nther clam;. Under the

policy, the bankrupt gas lndemnliled up to a speclfled amount. He has recelved that amount. He had become bankrupt

before paylng any of the clams. The	amount pald to hlm	1 s
property which vests In the trustee.

Accordlngly, on the pr1mar-y issue, the $ 2 0 0 , 0 0 0 .

together vlth accrued lnterest, is to be treated as	property
of the bankrupr: vested In the crustee.

In f-hase clrcumstances, It ii not necessary ts

conslder the other submlsslons made on the basls that 8.117

of the Act applled.

Accordlngly, the order of the Court is that the

amount of $200,000 pald to David John Emanuelll by the A.M.P. Fire and General Insurance Co. Ltd. be treated as property of the bankrupt vested In Alan Murray Horsburgh as trustee of Davld John Emanuelll, a bankrupt.

I certify that this and the eight (8) preceding

pages are a true copy of the Reasons for Judgment

h e m of the Honourable Mr. Justice R.M. Northrop.

- c C Z 3 C L k - JL

ociate

& 11 February 1987