Re Sellen, W.F. v Ex parte Shirlaw, K.R
[1989] FCA 322
•30 JUNE 1989
Re: WESLEY FRANK SELLEN
Ex parte: KEVIN RICHARD SHIRLAW
No. W1186 of 1988
FED No. 322
Bankruptcy
COURT
IN THE FEDERAL COURT OF AUSTRALIA
BANKRUPTCY DISTRICT OF NEW SOUTH WALES AND THE AUSTRALIAN CAPITAL TERRITORY
GENERAL DIVISION
Davies J.(1)
CATCHWORDS
Bankruptcy - practice - debtor a party to proceedings in Family Court - whether bankruptcy proceedings brought by the Trustee under the Bankruptcy Act should be transferred to the Family Court - rights of creditors and interests of former spouse discussed.
Bankruptcy Act 1966 (Cth) - s.35A
Family Law Act 1973 (Cth) - s.79
Family Court of Australia (Additional Jurisdiction and
Exercise of Powers) Act 1988 (Cth)
Deputy Commissioner of Taxation (NSW) v. Swain (1988) 81 ALR 12
Ascot Investments Pty Limited v. Harper (1981) 148 CLR 337
HEARING
SYDNEY
#DATE 30:6:1989
Counsel for Ms Reinisch: Mr R.G. Craigie
Solicitors for Ms Reinisch: Smits Naple Barwick
Counsel for the Respondent: Mr R.A. Parsons
Solicitors for the Respondent: Sly and Weigall
ORDER
The application be dismissed with costs.
Note: Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules.
JUDGE1
This is an application under s.35A of the Bankruptcy Act 1966 (Cth) to transfer to the Family Court of Australia a proceeding commenced in this Court.
On 4 August 1988, Wesley Frank Sellen became bankrupt on his own petition. On 28 April 1989, the Trustee in Bankruptcy lodged in this Court an application seeking declarations under s.120 of the Bankruptcy Act that certain settlements of property alleged to have been made by Mr Sellen to his wife, Ms Renate Reinisch, were void and seeking orders that the property the subject of the application be delivered up to the Trustee. The property in question was a SAAB motor vehicle, an MG motor vehicle, a quarter interest in two racehorses, certain furniture and equipment in the matrimonial residence and the matrimonial residence itself. Certain ancillary orders were sought including an order that an account be taken of the dealings of Mr Sellen, an accountant, with his trust account.
On 7 June 1989, Ms Reinisch lodged notice of intention to oppose the orders sought and stated the following grounds:-
"1. That issues similar to those raised in the Application filed on 28th April, 1989 herein have already been raised and were raised prior to 28th April, 1989 in the Family Court of Australia by the Applicant as an Intervener in the said Family Court proceedings.
2. The property the subject of this Application includes property the subject of the said Application in the Family Court proceedings.
3. For this Application in this Honourable Court to proceed would result in a duplication of proceedings.
4. There are issues touching on the exercise of rights under the Family Law Act raised in the Family Court (sic) proceedings."
Ms Reinisch then sought an order that the Trustee's application be transferred to the Family Court of Australia and be consolidated with proceedings No. S3799 of 1988 in that Court. It appears that those proceedings were commenced by Ms Reinisch in the Family Court on 22 June 1988, shortly before Mr Sellen presented the petition for his own bankruptcy. In those proceedings, Ms Reinisch sought an order that the family home be sold and that, after payment of costs of sale, the balance remaining be divided between husband and wife provided that, from the husband's half-share, the husband should discharge a mortgage over the property. The proceedings also sought an order that the husband transfer to the wife all his interest in the two racehorses I have already mentioned, in a motor vessel called "Nalia" and in certain Koi Japanese fish. An order was sought pursuant to s.78 of Family Law Act 1975 (Cth) that Ms Reinisch be declared absolutely entitled to the contents of the matrimonial home, to the SAAB motor vehicle and to the MG motor vehicle.
The liabilities of Mr Sellen are alleged to exceed his assets by more than $1,000,000. The liabilities are alleged to be principally funds which were deposited with Mr Sellen for investment. The deposits were directed first to an account which Mr Sellen entitled a Trust Account. From that account more than $1,000,000 was paid into Mr Sellen's personal account, which was in overdraft and was used to fund his practice, to provide his personal living expenses and the like. The Trustee is of the view that trust funds were not properly dealt with and that some of those funds may be traced into assets which were given to Ms Reinisch or are now claimed by her. The Trustee also claims that certain gifts made by Mr Sellen to Ms Reinisch should be declared void under s.120 of the Bankruptcy Act.
The affidavit of Ms Reinisch, which is filed in support of her application for transfer, says little more than that:-
"The balance of convenience will be better served and costs will be saved in the event that the Family Court now hear and determine the matter."
In his submissions, Mr RG Craigie, counsel for Ms Reinisch, could not take that matter any further. There is thus little effective evidence that, from the point of view of practical or efficient administration, the Trustee's application would be better dealt with in the Family Court than in this Court.
Counsel for Ms Reinisch rather put his submissions upon the footing that the Family Court has discretionary powers under the Family Law Act, particularly s.79 thereof, pursuant to which a wife's interests in the family's total property could be adequately protected and recognition given for the contribution both social and financial which she has made to the welfare of the family. Counsel did not refer to the article by Shiff and Waters, "Bankruptcy and Family Law: First Come, First Served?" (1985) 8 UNSW LJ 40; but much of his argument adopted the authors' theme. At p 61, the authors conclude:-
"It will probably never be possible to strike a complete balance between the competing interests of a bankrupt's family and his or her creditors but at least a fairer, and more rational, tradeoff could be found."
Counsel submitted that the discretionary powers conferred upon the Family Court by the Family Law Act enabled this to be achieved in a way that is not possible in proceedings in this Court under the Bankruptcy Act. Counsel's argument reflects ground 4 of the Notice of Intention to Oppose, which is the only ground dealing with the substantive merits of the claim made in the Trustee's application.
Like submissions were rejected by Davies, Lockhart and Burchett JJ. in Deputy Commissioner of Taxation (NSW) v. Swain (1988) 81 ALR 12 At p 19, the Full Court said:-
"A sequestration order reflects a right of a creditor, and creates rights as between a debtor and his creditors and trustee. The Family Court, in the pursuit of its duty (in an appropriate case) to adjust rights as between the parties to a marriage, has no power to deprive other parties of their rights. Its power to deal with the property of the parties over whom it has jurisdiction must start with the property that is theirs, not with property that the law (whether the Bankruptcy Act or some other law) has vested in another."
The Court referred to Ascot Investments Pty Limited v. Harper (1981) 148 CLR 337 and to the remarks of Gibbs J., with whom Stephen, Aickin and Wilson JJ. agreed at p 354, that:-
"It can safely be assumed that the Parliament intended that the powers of the Family Court should be wide enough to prevent either of the parties to a marriage from evading his or her obligations to the other party, but it does not follow that the Parliament intended that the legitimate interests of third parties should be subordinated to the interests of a party to the marriage, or that the Family Court should be able to make orders that would operate to the detriment of third parties. There is nothing in the words of the sections that suggest that the Family Court is intended to have power to defeat or prejudice the rights, or nullify the powers, of third parties, or to require them to perform duties which they were not previously liable to perform."
The Full Court also referred to R. v. Ross-Jones; Ex parte Green (1984) 156 CLR 185 and to the remarks therein in similar vein of Gibbs C.J., with whom Mason J. agreed at p 202, of Murphy J. at p 204, and of Wilson and Dawson JJ. at p 211.
In Swain's case, the Full Court, in applying this principle, held that proceedings in the Federal Court ought not to have been adjourned so as to give priority to concurrent proceedings in the Family Court.
When the Family Court of Australia (Additional Jurisdiction and Exercise of Powers) Act 1988 introduced s.35A into the Bankruptcy Act, it did not intend to or operate so as to affect this principle. The substantive law applicable to the Trustee's application thus remains the same whether the application is heard in this Court or in the Family Court. The principal ground of the motion put forward by counsel therefore fails.
As I have already mentioned, there are not shown to be practical advantages to be gained by the transfer. The material does not show the extent to which issues in the Trustee's application have been formally raised in the proceedings in the Family Court, or the extent to which evidence going to those issues has already been prepared or adduced in the Family Court proceedings, or that there is judicial time available in the Family Court but not in the Federal Court to deal with the matter, or that a judge in the Family Court is particularly familiar with the issues to be resolved.
Rather, the very existence of the Family Court proceedings and the claim made therein for the exercise of the discretionary powers of the Family Court provide a good reason not to transfer the Trustee's application. A fraudulent breach of trust involving more than $1,000,000 is alleged to have occurred. The creditors are entitled to be assured that their interests will be fully protected and that the Trustee will take all proper steps to recover property that ought to be recovered for the benefit of the estate. It would not appear just if the Trustee's proceedings, taken for the benefit of the estate, were to be consolidated with the proceedings taken by Ms Reinisch against Mr Sellen. The Trustee's application is concerned with property divisible amongst creditors. The proceedings between Ms Reinisch and Mr Sellen will be concerned with the property which has not been divided amongst Mr Sellen's creditors. Thus, the subject matter of each dispute is different and it is preferable that the issues be separately considered.
For these reasons, it is inappropriate that this application be transferred to the Family Court of Australia.
I shall dismiss the motion for transfer with costs.
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