Shephard v Robson

Case [2015] FCA 1194

FEDERAL COURT OF AUSTRALIA

Shephard v Robson [2015] FCA 1194

Citation: Shephard v Robson [2015] FCA 1194
Parties: DEREK GEORGE SHEPHARD v WILLIAM ROLAND ROBSON
File number: NSD 595 of 2014
Judge: MURPHY J
Date of judgment: 5 November 2015
Catchwords: BANKRUPTCY – Whether the whole or part of sum of money paid in settlement of court proceedings is exempt money under ss 116(3) and (4) of the Bankruptcy Act 1966 (Cth) – Whether a proceeding claims damages or compensation for personal injury or wrong – Severing a claim for damages for personal injury or wrong from a claim for damages based in property rights –Whether property is acquired with damages or compensation for personal injury or wrong – Whether the whole or substantially the whole of money used for the acquisition of property is exempt money – Whether some of the proceeds of sale of property can fairly be attributed to protected money
Legislation: Bankruptcy Act 1966 (Cth)
Water Act 1912 (NSW)
Cases cited: Biggin & Co Ltd v Permanite [1951] 1 KB 422
Bryant v Commonwealth Bank of Australia (1997) 75 FCR 545; [1997] FCA 582
Cassell & Co Ltd v Broome [1972] UKHL 3; 1972 AC 1027
Corindi Blueberry Growers Pty Ltd v Shephard (Unreported CA 40799 of 1994, BC 9504601, Handley, Sheller and Powell JJA, 15 May 1995)
Costa Exchange Ltd v Shephard(No 2) [2011] FMCA 545
Costa Exchange Ltd v Shephard [2010] FMCA 804
Cox v Journeaux & Ors (No 2) (1935) 52 CLR 713; [1935] HCA 48
Cummings v Claremont Petroleum NL (1990) 185 CLR 124; [1996] HCA 19
Enzed Holdings v Wynthea (1984) 57 ALR 167
JLW (Vic) Pty Ltd v Tsiloglou [1994] 1 VR 237
Lamb v Cotogno (1987) 164 CLR 1; [1987] HCA 47
Mark Bain Constructions Pty Ltd v Avis; Mark Bain Constructions Pty Ltd v Barnscape Pty Ltd [2012] QCA 100
Re Buckle (1969) 15 FLR 460
Re Iskenderian; Ex parte Iskenderian Bros Pty Ltd (1989) 21 FCR 363; [1989] FCA 270
Rogers v Asset Loan Co Pty Ltd [2006] FCA 434
Shephard v Anthony Hartnell (1871/09, 18 June 2009)
Shephard v Blueberry Farms of Australia (Corindi)Ltd (2001) 162 FLR 339; [2001] FMCA 2
Shephard v Chiquita Brands (South Pacific) Ltd [2001] FMCA 78
Shephard v Chiquita Brands (South Pacific) Ltd [2002] FCA 466
Shephard v Chiquita Brands (South Pacific) Ltd [2002] FMCA 115
Shephard v Chiquita Brands (South Pacific) Ltd [2003] FCA 465
Shephard v Chiquita Brands (South Pacific) Ltd [2003] FCA 841
Shephard v Chiquita Brands (South Pacific) Ltd [2004] FCAFC 76
Shephard v Corindi Blueberry Growers (Unreported 3768 of 1994, BC 9403437, Young J, 8 December 1994
Shephard v Costa Exchange Ltd and Ors [2010] FMCA 314
Todorovic and Another v Waller (1981) 150 CLR 402; [1981] HCA 72
Turner v Official Trustee in Bankruptcy (1996) 71 FCR 418; [1996] FCA 1074
Walter Vignoli v Sydney Harbour Casino [1999] NSWSC 1113; (2000) Aust Torts…

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AGLC
Shephard v Robson [2015] FCA 1194
Case
[2015] FCA 1194
Decision Date

CaseChat Overview and Summary

In Shephard v Robson, the Federal Court considered whether certain sums of money were exempt from division among creditors under the Bankruptcy Act 1966 (Cth). Specifically, the court examined whether any part of the settlement sum paid by Mr Shephard in court proceedings constituted exempt money under sections 116(3) and (4) of the Act. These sections pertain to damages or compensation for personal injury or wrong. The court had to determine if the property acquired with the settlement sum was purchased with protected money, and if so, whether a portion of the proceeds from the sale of that property could be attributed to the protected money.

The legal issues centred on interpreting sections 116(3) and (116(4) of the Bankruptcy Act 1966 (Cth) to ascertain whether damages for personal injury or wrong could be considered exempt money. The court needed to decide if the property acquired with the settlement sum was funded primarily by these damages, and if the proceeds from the sale of the property could be apportioned to reflect the protected money. The court also had to examine the nature of the claims in Mr Shephard’s legal proceedings to establish whether they included claims for damages for personal injury.

The court concluded that $15,000 of the $245,000 settlement sum represented damages for personal injuries suffered by Mr Shephard, making it exempt money. After accounting for legal expenses and a direct payment to him, Mr Shephard used the remaining $200,000 to acquire a 10/12th share of a property. The court found that six percent of this amount was exempt money. It was deemed fair to attribute six percent of a 10/12th share of the net proceeds of sale of the property to the protected money. However, the exact amount of the net proceeds was unclear, and the court directed the trustee to provide further evidence. The trustee’s argument regarding Mr Shephard’s standing to bring the proceeding was deemed untenable, as Mr Shephard had the right to appeal under sections 116(2)(n) and (3) of the Act.

The court ordered the parties to confer and draft minutes of orders reflecting the judgment. It also directed the trustee to provide updated information on costs related to the property sale and any outstanding amounts owed to the trustee. The final orders were to be filed by a specified date, along with any submissions on costs.

Orders

Orders of the court

1. Within 7 days the parties shall confer in an effort to reach agreement as to draft minutes of orders reflecting these reasons. By 4 pm on 20 November 2015 the parties shall file agreed draft minutes of orders reflecting the reasons for judgment or, if there is no agreement, each party shall file draft minutes of the orders for which he contends. By that date, the parties shall also file any submissions on costs of no more than five pages in length.

2. Within 7 days the Respondent shall file and serve an affidavit providing up to date information regarding:

(a) the costs associated with or related to the sale of the property at 53 Fairview Road, Sapphire Beach, New South Wales and the applicable government levy on realisations made in respect of an administration under the Bankruptcy Act 1966 (Cth); and

(b) any amounts owing to the trustee for unpaid remuneration and disbursements, legal costs and disbursements, or other matters.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

For the reasons I now set out, in my view $15,000 of the $245,000 Settlement Sum (about six percent of that sum) represented damages or compensation for personal injuries suffered by Mr Shephard and was therefore exempt money. After deduction of legal expenses and about $7,000 paid directly to him, Mr Shephard spent the remaining $200,000 of the Settlement Sum to acquire a 10/12th part of the Sapphire Beach property. I consider six percent of the outlay on that property was exempt money. It is fair to attribute six percent of a 10/12th part of the net proceeds of sale of the Sapphire Beach property to the exempt or “protected” money used in the purchase, and that amount is not divisible between Mr Shephard’s creditors. The amount of the net proceeds of sale is not clear on the materials and I have directed the trustee to file further evidence in that regard.THE FACTS The background to this proceeding involves a great deal of litigation dating back many years. Some of that litigation throws some light on the nature of Mr Shephard’s claims in the court proceedings to which I have referred and on the issue before me. Mr Shephard has been involved in so much litigation that my account of the various cases is limited, but a fuller account would make no difference to my view.Mr and Mrs Shephard’s purchase of Lot 36, Katherine Drive, Corindi, NSW On 29 June 1984 Mr Shephard and his wife, Yvette Shephard contracted: (a)to purchase a property at Lot 36 Katherine Drive, Corindi, New South Wales from Vosington Pty Ltd (“Vosington”) and a 1/150th share as tenant in common of Lot A of a proposed subdivision of land in Corindi for $13,000;(b)with a company in the same group as Vosington, Johnson Farm Management Pty Ltd, for the purchase and supply of irrigation equipment, the planting of blueberries, the construction of a dam, and the provision of maintenance and supervision of a blueberry plantation on the property (“the Farm Services Agreement”); and(c)with Vosington for the management of the irrigation system to the boundary of Lot 36 and the supply of water to the boundary of that property (“the Water Management Agreement”). Those contracts were part of a scheme for the subdivision of property and the development of blueberry farms by various people who purchased property within the subdivision. The scheme facilitated the pooling and sharing of resources to minimise the unit costs of planting, maintaining, harvesting and marketing of blueberries. Each lot purchaser entered into farm services agreements and water management agreements in the same or substantially similar terms as Mr and Mrs Shephard. Vosington later changed its name to Corindi Blueberry Growers Pty Ltd (“Corindi”), and I shall refer to it by that name. In 1987 Corindi changed the terms upon which farm services were to be provided to Mr Shephard and other lot owners. Mr Shephard became dissatisfied with the terms and the standard of the farm services provided. Over time Corindi came to own most of the farms in the development and offered to purchase Mr and Mrs Shephard’s farm but they did not reach an agreement.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

It is not clear whether the trustee maintained this contention, but it is untenable in any event. It is plain that Mr Shephard has a right under ss 116(2)(n), 116(3) and 116(4) to appeal to the Court pursuant to s 178 of the Act seeking an order that monies the trustee proposed to treat as divisible amongst his creditors are properly exempt monies. Section 178 provides:178 Appeal to Court against trustee’s decision etc.(1)If the bankrupt, a creditor or any other person is affected by an act, omission or decision of the trustee, he or she may apply to the Court, and the Court may make such order in the matter as it thinks just and equitable.(2)The application must be made not later than 60 days after the day on which the person became aware of the trustee’s act, omission or decision.The decision under appeal is the trustee’s decision to refuse to pay Mr Shephard some or all of the proceeds of sale of the Sapphire Beach property.Onus Mr Shephard has the onus. To succeed in the application relying on 116(2)(n) and 116(3) he must establish that the whole or substantially the whole of the $200,000 that he paid for his interest in the Sapphire Beach property was compensation or damages for personal injury or wrong. If he establishes that, then his interest in the property is exempt and if not, his application relying on those provisions must fail. To succeed in the application relying on s 116(4) Mr Shephard must show that some part of the $200,000 he outlaid for his 10/12th part of the Sapphire Beach property was compensation or damages for personal injury (and therefore protected money), and that it is fair to attribute some part of the proceeds of sale of that property to that protected money.Did the 1999 and 2001 proceedings include a claim for damages for personal injury? There can be no question that the 1999 and 2001 proceedings included claims for damages for personal injury. The proceedings alleged that Mr Shephard was injured when he was assaulted by Chiquita’s employees or agents, particularised as follows:(a)on 29 October 1994, the then Chief Executive Officer of Chiquita, Peter McPherson, struck and punched him after trespassing on his land;(b)on 25 and 27 May 1999 and 5 November 1999, Peter Gourlay drove a motor vehicle at speed on the wrong side of the road directly at him as he was cycling;(c)on 27 May 1999, Scott Wolgamot punched and jostled him;(d)on 31 May 1999, Mr Wolgamot trapped his fingers between the handles of a posthole digging tool;(e)on 25 October 1999, Mr Wolgamot, Peter Woods and Michael Tamani pushed and pulled him and trapped his fingers between the handles of a posthole digging tool, and Mr Wolgamot threw him to the ground;(f)on 11 November 1999, Mr Gourlay threw a piece of wood and two stones at him, and one stone hit him on his left foot;(g)on 13 December 1999, Mr Gourlay drove his motorcycle at him, striking his left leg;(h)on 30 August 2000, Mr Wolgamot, David Bardon and Mr Woods lifted and threw him causing him to land upon his chest on compacted soil; and(i)on 6 September 2000, Gary Wright, Mr Bardon, Mr Woods, Ridley Bell and Mr Tamani forcibly propelled him from the back of a truck onto a compacted road reserve head-first and then lifted him from the ground before throwing him in a nearby ditch.

Ratio Decidendi

Legal Principle Established

In Turner v Official Trustee in Bankruptcy (1996) 71 FCR 418; [1996] FCA 1074 (“Turner”) at 422 to 423 (Burchett, Carr and Kiefel JJ) the Full Court explained the meaning of the expression “the whole or substantially the whole” in the following terms:In Re Iskenderian; Ex parte Iskenderian Bros Pty Ltd (1989) 21 FCR 363 at 372 Neaves J, whilst dealing with other difficulties created by s 116(3) in its then form, considered that the question posed by the section was “whether the property, in truth, represents such damages or compensation”. This decision was followed in Re Manivilovski; Ex parte Official Trustee in Bankruptcy (1993) 45 FCR 358. Such an approach gives effect, correctly in our view, to the word “whole” and the phrase following “or substantially the whole”. The section requires, in the first instance, a consideration of the question whether the property is entirely accounted for by the application of protected moneys. If that is not the case, but nevertheless those moneys account for nearly all of what has been used in payment for or in the acquisition of the property, then this too will suffice to keep the property from being divided amongst creditors. But the subsection does not contemplate that property will be withheld from creditors wherever the protected moneys can account for a significant part of the purchase price, or of the means by which it is acquired. Even if, as here, the contribution of protected moneys could be described, in general terms, as “substantial” this would not satisfy the requirement that those moneys represent “substantially the whole” of that price or of the means of acquisition. Whilst “substantial”, when it appears alone, might refer to a contribution of significance, here it derives its meaning from “the whole”, the expression which it qualifies. The importance of the context supplied for the word “substantially”, was emphasised by Hill J in Secretary, Department of Social Security v Wetter (1993) 40 FCR 22 at 29-30, in relation to other statutory provisions. In our view, s 116(3) provides that a bankrupt may retain property that can be seen to represent the protected moneys, subject to only a minor qualification of input from other sources.CONSIDERATIONStanding In his written submissions the trustee contended that Mr Shephard lacked standing to bring the proceeding. He argued that Mr Shephard is an undischarged bankrupt who sought to assert a right to property without the trustee’s approval or any order of the Court establishing his right. On the trustee’s argument, the effect of ss 58(1) and 116(1) of the Act is to prima facie vest all of Mr Shephard’s rights of action in the trustee (Cummings v Claremont Petroleum NL (1990) 185 CLR 124; [1996] HCA 19) and to remove any right Mr Shephard may have had to institute the proceeding (Rogers v Asset Loan Co Pty Ltd [2006] FCA 434 at [42]-[52] and [54]-[57] (Greenwood J)). However, seemingly contrary to his written submissions, in an open letter shortly before trial the trustee accepted that Mr Shephard had a right of appeal against the trustee’s decision.