Sloan & Sloan
[2018] FamCA 610
•1 August 2018
FAMILY COURT OF AUSTRALIA
| SLOAN & SLOAN | [2018] FamCA 610 |
| FAMILY LAW – BANKRUPTCY – operation of section 60 of the Bankruptcy Act 1966 (Cth) – where the right to litigate a section 79 application is a personal right that does not pass to the Trustee in bankruptcy. |
| Bankruptcy Act 1966 (Cth) Family Law Act 1975 (Cth) |
| Cummings v Claremont Petroleum NL (1996) 185 CLR 124 Trent & Rowley [2014] FamCA 447 |
| APPLICANT: | Mr Sloan |
| RESPONDENT: | Ms Sloan |
| FILE NUMBER: | SYC | 1444 | of | 2014 |
| DATE DELIVERED: | 1 August 2018 |
| PLACE DELIVERED: | Canberra |
| PLACE HEARD: | Sydney |
| JUDGMENT OF: | Gill J |
| HEARING DATE: | 11 May 2018 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | Mr Lloyd, SC |
| SOLICITOR FOR THE APPLICANT: | Barkus Doolan |
| COUNSEL FOR THE RESPONDENT: | Mr I Coleman, SC Mr O’Brien |
| SOLICITOR FOR THE RESPONDENT: | Sloan Lawyers |
Orders – made on 6 August 2018
IT IS NOTED THAT
Consequent to the delivery of reasons in this matter on the invitation of the respondent wife the proceedings were adjourned in order to enable the parties to address the appropriate orders which would flow as a consequence of the reasons that had been delivered.
Having now been advised by the parties that the Trustee has made an election pursuant to s 61(2) of the Bankruptcy Act 1966 and pursuant to an order made by Justice Thawley of the Federal Court extending the period of time available to the Trustee to make that election and that election having been made within the timeframe stipulated by Justice Thawley:
IT IS ORDERED, UNOPPOSED, THAT
Mr G as Trustee of the property of Mr Sloan (a bankrupt) is joined as Second Applicant in the proceedings.
IT IS FURTHER ORDERED THAT
The interim proceedings are adjourned to 10am on 24 August 2018 for interim hearing for a period of two hours.
The applicants are directed to file and serve any material that they seek to rely upon at that interim hearing and to identify the orders that they seek at that interim hearing by close of business on 17 August 2018.
The respondent wife is directed to file and serve any material that she seeks to rely upon in response to that further material, noting that at present she intends to rely on the currently filed material, by close of business on 21 August 2018.
IT IS NOTED THAT
The parties’ attention has been drawn to the rules insofar as they apply to the provision of material for interim proceedings.
Note: The form of the order is subject to the entry of the order in the Court’s records.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Sloan & Sloan has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
Note: This copy of the Court’s Reasons for Judgment may be subject to review to remedy minor typographical or grammatical errors (r 17.02A(b) of the Family Law Rules 2004 (Cth)), or to record a variation to the order pursuant to r 17.02 Family Law Rules 2004 (Cth).
| FAMILY COURT OF AUSTRALIA AT CANBERRA |
FILE NUMBER: SYC 1444 of 2014
| Mr Sloan |
Applicant
And
| Ms Sloan |
Respondent
REASONS FOR JUDGMENT
Background
The Applicant Husband in this matter is Mr Sloan; the Respondent Wife is Ms Sloan. The proceedings arise from the Husband’s Further Further Further Amended Application in a Case, dated 23 April 2018, stemming from his application filed 13 March 2014.
The Husband also filed an application for contempt on 2 May 2018.
Orders sought
In these proceedings the Husband and Wife seek both final and interlocutory relief in relation to property proceedings and injunctive relief in aid of those property proceedings; the Husband seeks spousal maintenance orders, a sole occupancy order and child-related orders.
The matter has been complicated as the Husband became bankrupt in February 2018. At issue in the proceedings is the question of whether or not the Husband is able to continue the application that he brought prior to becoming bankrupt.
The Wife posed two main arguments against the Husband being able to continue the litigation. The first related to the effect of the bankruptcy vesting provisions in the light of the High Court case of Cummings,[1] which went to the questions of whether the Husband’s right to litigate has now vested in the Trustee and, in any event, whether the Husband has sufficient interest in the subject matter of the litigation to ground standing. The second related to the operation of s 60 of the Bankruptcy Act 1966 (Cth) (“the Bankruptcy Act”).
[1]Cummings v Claremont Petroleum NL (1996) 185 CLR 124.
The effect of the vesting provisions
In general terms s 58 of the Bankruptcy Act provides that property held by the Husband at the time of his bankruptcy, along with property acquired by him during the period of bankruptcy, vests in the trustee.
The consequence is that, to the extent that a right to litigate may be considered to fall within the definition of property within s 5 the Bankruptcy Act, it is vested in the Trustee. The definition of “property” within the Bankruptcy Act is in the broadest terms:
Means real or personal property of every description, whether situate in Australia or elsewhere, and includes any estate, interest or profit, whether present or future, vested or contingent, arising out of or incident to any such real or personal property.
However, as the majority found in Cummings v Claremont Petroleum NL (1996) 185 CLR 124, the definition is not such as to capture all rights to litigate as aspects of property under the Bankruptcy Act.
In Cummings, the High Court was dealing with the issue of an attempt to commence an appeal by two bankrupt litigants (the bankrupt), who had become bankrupt following the hearing of the case but prior to judgment being handed down.
The right to continue the appeal fell, in short, to two matters. The first was whether the right to appeal vested in the Trustee. The second related to whether the bankrupt had standing.
As to the first, the question of the vesting of the right to litigate, the question was one of whether the particular right to litigate constituted property under the Bankruptcy Act. The majority observed that a “right to appeal may be a substantive right, but it is another question whether such a right has the character of property.” To answer the question whether the right to appeal was property their Honours examined the subject matter of the litigation, which was of a debt owed by the appellants. Their Honours observed that a “liability is not property of the person liable. Nor is a right to appeal against a money judgment property of the judgment debtor… (a)s a matter of ordinary language, a judgment debtor’s right to appeal against the judgment is not property.”
It may be taken that if the subject matter of the litigation is property that vests in the Trustee, the right to litigate also vests in the Trustee. Where the subject matter does not meet such a description, as explained above (although a clearer example may be seen in child-related proceedings) the right to litigate remains with the bankrupt.
Given that the particular right to litigate in Cummings could not be considered property and had therefore not vested in the Trustee, the majority found that determining whether the bankrupt held a continued right to litigate hinged upon whether the subject matter, or results of the litigation would vest in the Trustee, in the context that “a bankrupt has no right to bring or prosecute proceedings to protect, enhance or add to the property of which he has been divested on bankruptcy.” This is a matter that would go to whether the bankrupt had standing in relation to the action.
In Cummings, the majority found that the bankrupt had “no financial interest which would confer locus standi to appeal in his own name against the judgment. That is because it is fundamental to the law of bankruptcy that the bankrupt is divested of both his interest in his property and liability for his provable debts.” While they accepted that successful litigation in relation to the debt may reduce the overall indebtedness and thereby increase the prospects of a surplus for the bankrupt, the majority ruled that a contingent interest in a surplus did not give an interest to litigate either to “enforce proprietary rights” or to “appeal to minimise liabilities.” That lack of interest equated to a lack of standing.
The questions thereby posed by the Wife were as to whether the subject matter of the litigation vested in the Trustee and, even if not, whether the Husband retained sufficient interest in the outcome of the proceedings to ground standing.
The Husband relied upon what may be considered as the leading Full Court case dealing with the application of Cummings to family law litigation, being In theMarriage of O'Neill (1998) 23 Fam LR 326 at [87]. This case also dealt with other authorities relied upon by the Husband, such as Page & Page(No 2) (1982) 8 Fam LR 316 and In the Marriage of Reed (1989) 13 Fam LR 566. It accepted the position of Justice Frederico in Page that the right to litigate a s 79 application is a personal right that does not pass to the Trustee in bankruptcy. Presumably (in the light of Cummings) this is because the right does not constitute property under the Bankruptcy Act. An exception to this is established by provisions such as those in ss 79 and 90SM of the Family Law Act 1975, which provide for the involvement of the Trustee in litigation concerning insofar as it concerns vested bankruptcy property.
Reed (perhaps inconsistently with Cummings) supported the right to litigate at first instance due to the possibility of the fruit of a s 79 application outstripping what was to be recovered pursuant to the bankruptcy.
Against this, the Wife relied upon Guirguis v Guirguis and Official Trustee in Bankruptcy (1997) 21 Fam LR 356, (which predated and was considered in O’Neill) where it was determined that the prospect of a surplus (consistently with Cummings) did not ground standing to allow a bankrupt to pursue an appeal.
In O’Neill, the Full Court acknowledged the anomaly between Reed and Guirguis, that there appeared to be a differentiation between first instance and appeal (although this appeared to constitute an obiter dicta aspect of the judgment). Applying Cummings, the Full Court stated as follows:[2]
Furthermore, the majority of the High Court in Cummings referred, without apparent disapproval, to the concept of “rights of action which do not pass to a trustee on bankruptcy because they are personal to the bankrupt and do not affect the quantum of the bankrupt estate” (emphasis added), and cited Coffey v Bennett again without disapproval: at 136. Although there must be a question as to meaning of the words we have underlined in the passage just quoted, it would appear to remain good law that a bankrupt spouse may initiate and prosecute property settlement proceedings during the course of his or her bankruptcy-although any property acquired would have to vest in the trustee by virtue of s58(1)(b) of the Bankruptcy Act (apart from the limited classes of property exempted under s116(2) of that Act).
[2]In theMarriage of O'Neill (1998) 23 Fam LR 326 at [88].
Subject to the caution expressed by the Full Court regarding the qualification as to affecting the quantum, this supports the notion that s 79 proceedings fall into the category of actions that do not vest in the trustee as they are personal to the bankrupt.
It was put for the Wife that Cummings rejected the standing of the bankrupt to bring or prosecute proceedings to add to the vested property. In aid of this the Wife relied upon the operation of s 58 of the Bankruptcy Act, which deals with the vesting of after-acquired property of a bankrupt “as soon as it is acquired by, or devolves on, the bankrupt”. That is, the outcome of the action by the Husband, if successful, will augment the property available for division by the Trustee. It was put that whether or not the claim is personal to the Husband, if the effect of the litigation is to generate after-acquired property then, absent the Trustee in bankruptcy exercising the right to pursue the action, there was no basis on which the bankrupt could.
For the Wife it was put that the Husband can pursue relief in relation to superannuation only (on the basis that such would not be available for division amongst the creditors pursuant to s 116 of the Bankruptcy Act).
If the Husband’s application was such as it only touched upon matters that would affect the quantum of the estate, in the sense that it would augment what was available pursuant to s 116 of the Bankruptcy Act for the creditors, then the Wife’s argument in relation to standing appears good.
However, the weakness in relation to the current case is illustrated by her concession that the Husband could continue in relation to the superannuation component of the claim. The adjustment of parties’ superannuation interests is, like real estate, shareholdings or cash, within the ambit of property within both ss 79 and 90SM of the Family Law Act 1975. While there may be distinctions in how a Court deals with these different types of property, an adjustment falls to be determined in relation to them as a single discretion. They are each the objects of the same overarching discretion, a discretion that does not allow for different items of property to be considered in isolation from others, particularly given that any adjustment must be considered to be just and equitable in relation to the whole of the considerations contained within ss 79 and 90SM, not simply the considerations applied to a fraction of the property of the parties.
The effect of these considerations is that the right to litigate, in this case pursuant to s 79, has not vested in the trustee. Further, given that aspects of that right concern property that will not form a part of the estate available for distribution to the creditors, but rather will deal with interests that will lie with the bankrupt, the issue of standing identified in Cummings does not stifle the Husband’s proceedings in this case. That means that these considerations do not see the ending of the Husband’s application.
The effect of s 60 of the Bankruptcy Act
However, a clear basis for the ending of the Husband’s application flows from s 60 of the Bankruptcy Act.
Section 60(2) states that:
An action commenced by a person who subsequently becomes a bankrupt is, upon his or her becoming a bankrupt, stayed until the trustee makes election, in writing, to prosecute or discontinue the action.
Section 60(3) says:
If the trustee does not make such an election within 28 days after notice of the action is served upon him or her by a defendant or other party to the action, he or she shall be deemed to have abandoned the action.
Section 60(4) says:
Notwithstanding anything contained in this section, a bankrupt may continue, in his or her own name, an action commenced by him or her before he or she became a bankrupt in respect of:
(a)any personal injury or wrong done to the bankrupt, his or her spouse or de facto partner or a member of his or her family; or
(b)the death of his or her spouse or de facto partner or of a member of his or her family.
Section 60(4A) says:
Notwithstanding paragraph (1)(b), this section does not empower the Court to stay any proceedings under a proceeds of crime law.
Section 60(5) says:
In this section, action means any civil proceeding, whether at law or in equity.
It was common between the parties that the Trustee is on notice of the current proceedings but that 28 days had not passed since the trustee came to be on notice. The Trustee appeared on 11 May 2018 to advise the Court that the Trustee at present makes no election to prosecute or discontinue the action commenced by the Husband.
The Husband asserts that s 60 does not constitute a bar to him continuing his current application. The Wife asserts that the provisions stop the Husband from conducting any proceedings other than proceedings in respect of property that, pursuant to s 116 of the Bankruptcy Act, is not divisible among creditors, such as superannuation.
In support of a right to continue the litigation, the Husband relied upon Justice Frederico in Page where he specifically referred to the operation of s 60 of the Bankruptcy Act and indicated that the provision did not stop a bankrupt from pursuing proceedings under s 79 of the Family Law Act 1975. There Justice Frederico said:
Although s 60 of the Bankruptcy Act provides that any action commenced by the bankrupt prior to the bankruptcy is stayed until the trustee elects to either prosecute or discontinue, that does not preclude the bankrupt from bringing or continuing an application under the Family Law Act for settlement of property.
It may be observed that the Husband’s s 79 application in Page was not on foot at the time of the bankruptcy, but post-dated it, meaning that s 60 of the Bankruptcy Act did not have operation in relation to the staying of those proceedings in any event. To the extent that Justice Frederico’s assertion as to “continuing an application” was a reference to the operation of s 60 of the Bankruptcy Act in the context of pre-existing proceedings, it constitutes obiter dicta.
For the Wife it was argued that s 60 of the Bankruptcy Act must be understood differently to the manner in which it was interpreted by Justice Frederico in Page on the basis that s 60(4) (the current exempting provision) commenced on 10 December 2008, significantly after the decision of Page. However, the provision in force prior to the amendment was in identical terms (save for the absence of the reference to de facto partner in the Act in its original form in 1966). This means that the provisions contained at s 60(2) through (4) are in essentially the same terms as those as read by Justice Frederico in Page. Accordingly, no significance flows from the amendment.
This did not detract from the underlying point made for the Wife that the specific references to exclusions in s 60(4), which do not include reference to family law proceedings, implicitly mean that proceedings instituted under the Family Law Act 1975 are not exempted from the operation of the provision.
This understanding of the operation of s 60 of the Bankruptcy Act is consistent with the analysis of Justice Carew in Lincoln (Deceased) v Moore (2016) 54 Fam LR 588 and by Justice Cronin in Trent & Rowley [2014] FamCA 447.
The plain meaning of the language used in the section is to apply to all civil litigation (other than the exempted classes). Litigation that relates to matters other than property caught by the vesting provisions is not exempted. The provision has a blanket effect, other than in the limited specific exceptions set out at s 60(4).
Given the breadth of the definition of “action” this also has the apparent and unwelcome effect that proceedings under Part VII of the Family Law Act 1975 relating to children are also included (save potentially to the extent that they constitute injunctive protections relating to a “wrong done to the bankrupt…or a member of his or her family.”) resulting in their being stayed by a bankruptcy. This effect of s 60 makes no sense and potentially undermines the well-being of children, without any corresponding benefit being conferred on creditors (if such benefit could be weighed against the welfare of a child).
However, absent a relevant exception, this is the effect of the language used in the provision.
The broad operation of s 60(2) and (3) means that in the event that the trustee has not made an election to prosecute the current proceedings, then they are first stayed and then abandoned. This, on its terms, includes all aspects of proceedings, including child-related proceedings.
The contempt application
Since bankruptcy the Husband has commenced a new action for contempt. This is not affected by the operation of s 60 of the Bankruptcy Act.
Further, the application could not be considered to be in relation to a property right. It appears to fall into the category of a right of action personal to the applicant. It does not affect the quantum of the bankrupt estate. It may continue.
Conclusion
The effect of the bankruptcy on the proceedings is to bring the Husband’s applications in existence prior to the bankruptcy to an end (provided no election was ultimately made by the Trustee to pursue the actions). This does not dispose of the Wife’s response to the application.
By her written submissions the Wife invited the Court to deliver reasons and provide an opportunity to the parties to produce minutes consistent with the reasons, given the “issues and potential variety of outcomes.” Particularly given the necessity of dealing with the Wife’s response, and to give the parties the opportunity to address on the terms of the orders, the reasons will be delivered and a date will be allocated to deal with the form of the orders to be made.
I certify that the preceding forty-six (46) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Gill delivered on 1 August 2018.
Associate:
Date: 10 August 2018
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