Townend v Townend & Anor
[2008] FMCA 1610
•1 December 2008
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| TOWNEND v TOWNEND & ANOR | [2008] FMCA 1610 and [2008] FMCAfam 1298 |
| FAMILY LAW – Application for alteration of property interests – respondent spouse a bankrupt – the Court has no jurisdiction under the Family Law Act 1975 (Cth) to make orders affecting property vested in the trustee in bankruptcy where the bankruptcy commenced before 18 September 2005 and where the trustee has not sought to be joined as a party. BANKRUPTCY – The Court may make orders under the Bankruptcy Act 1966 (Cth) to deal with matrimonial property vested in the trustee in bankruptcy. |
| Bankruptcy Act 1966 (Cth), ss.5, 30, 58, 59A, 116, 139P, 139Q, 139S, 139ZG Bankruptcy and Family Law Legislation (Amendment) Act 2005 (Cth) Family Law Act 1975 (Cth), ss.74, 79, 117 |
| Re Gillies; Ex-parte Official Trustee in Bankruptcy Re Gillies (1993) 42 FCR 571 Re Sharpe; Ex-parte Donnelly (1998) 80 FCR 536 Zachary & Zachary & Ors [2008] FMCAfam 1209 |
| Applicant: | JOYCE MARY TOWNEND |
| First Respondent: | MILES HAMILTON TOWNEND |
| Second Respondent: | OFFICIAL TRUSTEE IN BANKRUPTCY |
| File Numbers: | SYG1919 of 2008 SYC6330 of 2007 |
| Judgment of: | Driver FM |
| Hearing date: | 1 December 2008 |
| Delivered at: | Sydney |
| Delivered on: | 1 December 2008 |
REPRESENTATION
| Counsel for the Applicant: | Mr D Dura |
| Solicitors for the Applicant: | Gray & Perkins |
| Counsel for the First Respondent: | Mr D Jarrett |
| Counsel for the Second Respondent: | Mr J Johnson |
| Solicitors for the Second Respondent: | Sally Nash & Co |
ORDERS
The application against the second respondent is dismissed.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG1919 of 2008
SYC6330 of 2007
| JOYCE MARY TOWNEND |
Applicant
And
| MILES HAMILTON TOWNEND |
First Respondent
| OFFICIAL TRUSTEE IN BANKRUPTCY |
Second Respondent
REASONS FOR JUDGMENT
(revised from transcript)
I have before me competing applications under the Family Law Act 1975 (Cth) (“the Family Law Act”) and the Bankruptcy Act 1966 (Cth) (“the Bankruptcy Act”) in relation to certain real estate at 84 Maxwell Street, Turramurra. The family law application which was filed on
10 September 2007also seeks other relief as between spouses to the marriage in relation to property and also spousal maintenance.
There is a material distinction to be drawn between property vested in the second respondent, the Official Trustee, arising out of the bankruptcy of the first respondent, Miles Hamilton Townend, and other property of the parties to the marriage.
The matter had been proceeding for some considerable time on the basis that I would be dealing with the family law application, specifically in relation to the issues arising as between the applicant, Mrs Townend, and the Official Trustee in relation to the residential property at Turramurra. However, at the outset of the trial of this matter this morning, counsel for the Official Trustee raised a jurisdictional issue. That issue arises from the decision of this Court in Zachary & Zachary & Ors [2008] FMCAfam 1209 per Kemp FM.
I incorporate in this judgment paragraphs 27 through to 32 of that judgment:
The Law
By virtue of the Bankruptcy and Family Law Legislation Amendment Act 2005 (Cth) (“the Amending Act”), the Court was given jurisdiction to make orders with respect to vested bankruptcy property in relation to a party to the marriage who was bankrupt.
Item 60 of Part 2 of Schedule 1 to the Amending Act states as follows:
60 Application of amendments
(1) Subject to sub-items (2) and (3), the amendments of the Family Law Act 1975 made by this Schedule , to the extent to which they relate to bankruptcies or personal insolvency agreements, apply in relation to:
(a) bankruptcies for which the date of the bankruptcy is after the commencement of this item; and
(b) personal insolvency agreements executed before, at or after the commencement of this item.
(2) The following provisions:
(a) subsections 74(2), (3) and (4) of the Family Law Act 1975 as amended by this Schedule;
(b) subsection 74(8) of the Family Law Act 1975 as amended by this Schedule, to the extent to which that subsection relates to subsection 74(2) of the Family Law Act 1975 as amended by this Schedule;
(c) the definitions inserted in subsection 4(1) of the Family Law Act 1975 by this Schedule, to the extent to which those definitions relate to subsections 74(2), (3) and (4) of the Family Law Act 1975 as amended by this Schedule;
apply to proceedings instituted after the commencement of this item, whether the date of the bankruptcy is before, on or after the date of commencement of this item.
(3) The following provisions:
(a) subsections 79(11), (12) and (13) of the Family Law Act 1975 as amended by this Schedule;
(b) subsection 79(17) of the Family Law Act 1975 as amended by this Schedule, to the extent to which that subsection relates to subsection 79(11) of the Family Law Act 1975 as amended by this Schedule;
(c) the definitions inserted in subsection 4(1) of the Family Law Act 1975 by this Schedule, to the extent to which those definitions relate to subsections 79(11), (12) and (13) of the Family Law Act 1975 as amended by this Schedule;
apply to proceedings instituted after the commencement of this item, whether the date of the bankruptcy is before, on or after the date of commencement of this item.
It is clear that in respect of a bankruptcy entered before the commencement date of the Amending Act being 18 September 2005, there was no jurisdiction in the Court to deal with the vested bankruptcy property of a bankrupt party to the marriage. In those circumstances, the Court would adjourn the proceedings until after the bankrupt party was discharged, when the Court could then deal with whatever assets the former bankrupt possessed. The power to adjourn being conferred under s.79(5) of the Family Law Act.
The Amending Act did not, in any event, give the Court jurisdiction to deal with property other than “vested bankruptcy property”. Accordingly, property coming to the possession of the second respondent as a result of the operation of other provisions of the Bankruptcy Act (such as the income contribution scheme or as a result of proceedings under the anti-avoidance provisions) which moneys do not fall within the concept of “vested property” for the purposes of the Bankruptcy Act and are held solely for the purposes of distribution amongst creditors and not for the benefit of the bankrupt would not be within the Court’s jurisdiction to deal with.
Findings
The Court accepts the submissions of Mr Johnson that the applicant’s present application seeks relief only under the provisions of the Family Law Act and accordingly, this Court’s original jurisdiction under the Bankruptcy Act is not engaged.
The Court further accepts the submissions of Mr Johnson that this Court does not have jurisdiction over the second respondent under the Family Law Act for the following reasons:
a.The Transitional provisions contained in Item 60 of Part 2 Schedule 1 of the Amending Act, as set out above, make it clear that the operative provisions of s.79(1)-(10) of the Family Law Act do not operate where the date of bankruptcy, as here, is prior to 18 September 2005.
b.The Court does not accept Mr Thomas’ submission that the extension of the life of the bankruptcy on 25 August 2006 in effect creates a further or new act of bankruptcy, in this case, after the date of amendment of the Family Law Act, so as to give the Court the power to deal with the vested estate of the first respondent in this case.
c.The said Transitional provisions make it clear that the operative provisions relating to maintenance of s.74 (2), (3), (4) and (8) and relating to property of s.79(11), (12), (13) and (17) of the Family Law Act which apply to bankruptcies existing both before and after 18 September 2005 do so on the basis that it is the second respondent who must apply “to be joined as a party to the proceedings”. The second respondent has not applied in these proceedings. The Court does not accept Mr Thomas’ submission that there is no significant difference between the Trustee making an application to be joined and the applicant in this case, joining the Trustee.
d.There is little factual evidence before the Court for it to determine the nature of the unpaid commissions, (save Mr Johnson’s submission that the amount is about $70,000.00) in terms of whether they are characterised as property which vests in the Trustee or as income which would be exempted property. Whilst the definition of property in s.5 of the Bankruptcy Act is wide enough to encompass income, see Re Gillies; Ex-parte Official Trustee in Bankruptcy Re Gillies (1993) 42 FCR 571 (French J. as he then was). Division 4B of the Act establishes a comprehensive scheme and accordingly where it is inconsistent with ss.58 and 116, Division 4B applies rather than those last mentioned sections. Accordingly if the relevant item has an income nature, it will not vest in the Trustee, see Re Sharpe; Ex-parte Donnelly (1998) 80 FCR 536 (Lockhart J.). The Court is of the view that if the loan account in the third respondent is property it has been derived out of income and would not be divisible under s.116 of the Bankruptcy Act.
e.Section 139P of the Bankruptcy Act states, subject to s.139Q of that Act, that if the income that a bankrupt is likely to derive during a contribution assessment period as assessed by the Trustee under an original assessment exceeds the actual income threshold amount applicable in relation to the bankrupt when that assessment is made, then the bankrupt is liable to pay to the Trustee a contribution in respect of that period. Income over and above the amount the bankrupt is required to pay to the Trustee and which is accumulated is not after acquired property which vests in the Trustee. The bankrupt is entitled to deal with that surplus income for example by way of an offer to creditors when proposing a composition in satisfaction of debts see Re Gilles (supra). The contribution payable by a bankrupt is determined by the application of the formula set out in s.139S. Any assessments made by the Trustee may be the subject of review by the Inspector General and then the Administrative Appeals Tribunal. The contributions that a bankrupt is liable to pay may be payable at such times as the Trustee determines and the Trustee may permit such sums to be paid by instalments. The total of any contributions or instalments that are not paid by the bankrupt are recoverable by the Trustee as a debt due to the estate of the bankrupt. The Trustee under s.139ZG may sign a Certificate setting out the nature and the amount of the debt and file such certificate in the Court in which proceedings have been instituted and that Certificate will be prima facie evidence of the existence and the amount the debt. The Certificate so issued essentially shifts the onus of proof from the Trustee to the bankrupt. However, the bankrupt still has standing to contest the debt and adduce evidence to show why such an assessment should not be accepted and to attack the validity of any underlying certificate.
f.The second respondent has certain rights under the Bankruptcy Act, to have the Official Receiver issue, in effect, a statutory garnishee notice to the third respondent to pay the outstanding debt towards the income contribution, creating in effect a statutory charge in favour of the second respondent.
g.To the extent that the applicant seeks relief under s.79 and/or s.74 of the Family Law Act in respect of:
i.vested property within s.58 of the Bankruptcy Act (s.59A of the Bankruptcy Act having no application) and the Court accepts the shares in the third respondent are in this category as are any dividends received on those shares; and/or
ii.monies (being the commission income that the first respondent has received from the third respondent deposited into a loan account in his name) which become payable to the second respondent on account (relevantly) of assessed Income Contributions which have accrued or which will accrue during the period of the bankruptcy, being a debt due by the first respondent to the second respondent, held for the benefit of the Trustee’s remuneration and the creditors entitled to participate in the bankruptcy under his administration,
they are beyond power. This is so, notwithstanding any agreement by the Trustee, as jurisdiction cannot be conferred on the Court simply by the consent of the parties.
I agree with his Honour’s views as to jurisdiction. In my view, this case is indistinguishable from Zachary & Zachary. Mr Townend was made bankrupt by order of this Court on 18 August 2005. That was before the commencement of the Bankruptcy and Family Law Legislation (Amendment) Act 2005. The consequence, as was pointed out by Kemp FM in Zachary & Zachary, is that this Court has no jurisdiction to deal with the property of a bankrupt which vests in the official trustee pursuant to the Bankruptcy Act in the family law proceedings and no jurisdiction to make orders in those family law proceedings against the trustee where the trustee is an unwilling participant, having been joined as the second respondent by the applicant wife.
Having heard the representatives on the issue, I have concluded that the order I should make is to dismiss the application under the Family Law Act against the second respondent, the Official Trustee. Those proceedings will continue against the first respondent, Mr Townend. There is no point in adjourning the proceedings. Mr Townend will remain a bankrupt until at least 2010 (there was a delay in him filing a statement of affairs until 2007) and there is no doubt what property vested in the Official Trustee. Vested property does not re-vest in a bankrupt after discharge.
I gave leave for the Official Trustee to file in Court today an application under ss.30 and 58 of the Bankruptcy Act seeking, among other things, orders facilitating the sale of the property at Turramurra and the distribution of the proceeds of the sale. I understand that Mr and Mrs Townend continue to live at the property.
The orders sought by the Official Trustee on that application are opposed, at least by Mrs Townend. There is a contest between the parties as to the legal or equitable interest of Mrs Townend in the property. That contest can be dealt with in the bankruptcy proceeding in this Court.
The trustee seeks an indemnity costs order against Mrs Townend.
I understand that there have been discussions between the parties and that those discussions may be relevant to the issue of costs. Ordinarily, pursuant to s.117 of the Family Law Act, no costs order would be made on the dismissal of a family law application. However, costs would normally follow the event in a proceeding under the Bankruptcy Act. The discussions that have occurred between the parties may be relevant to the consideration of costs in relation to both the proceedings and it would be inappropriate for me to deal with what were, no doubt, “without prejudice” discussions until the substantive issues in dispute between the parties have been resolved.
Accordingly, I will defer consideration of the issue of costs generally until the completion of the proceedings between all of the parties.
I certify that the preceding nine (9) paragraphs are a true copy of the reasons for judgment of Driver FM
Associate:
Date: 3 December 2008
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