Vincent and Vincent and Anor
[2016] FCCA 227
•12 February 2016
FEDERAL CIRCUIT COURT OF AUSTRALIA
| VINCENT & VINCENT & ANOR | [2016] FCCA 227 |
| Catchwords: TRUSTS AND TRUSTEES – PRACTICE AND PROCEDURE – Application by beneficiary of a Trust in Bankruptcy to bring proceedings in its own name – beneficiary seeking to intervene on behalf of Trustee in family property proceedings pursuant to section 79 of the Family Law Act 1975 (Cth) – Where cause of action is generally available only to the Trustee – Whether leave is granted – whether exceptional circumstances exist. |
| Legislation: Bankruptcy Act 1966 (Cth), ss.58(3), 178 Family Law Act 1975 (Cth), ss.75(2)(ha), 79 Corporations Act 2001 (Cth), s.1321 Civil Procedure Act 2010 (Vic) |
| Chahwanv Euphoric Pty Ltdtrading as Clay & Michael & Anor [2009] NSWSC 805 |
| Applicant: | MS VINCENT |
| First Respondent: | MR VINCENT |
| Intervenor: | MS EATON |
| File Number: | MLC 8051 of 2014 |
| Judgment of: | Judge Riethmuller |
| Hearing date: | 14 July 2015 |
| Date of Last Submission: | 17 August 2015 |
| Delivered at: | Melbourne |
| Delivered on: | 12 February 2016 |
REPRESENTATION
| Counsel for the Applicant: | Ms Campbell |
| Solicitors for the Applicant: | Forte Family Lawyers |
| The Respondent: | No Appearance |
| The Intervenor: | Appearing in person |
ORDERS
The Trustee in Bankruptcy be joined to the proceedings and hereinafter referred to as the Second Respondent.
The Second Respondent file and serve a Notice of Address for Service within 7 days hereof.
The Applicant file and serve a Further Amended Application including the Second Respondent and setting out the actual orders sought with respect to both the First Respondent and the Second Respondent.
IT IS NOTED that publication of this judgment under the pseudonym Vincent & Vincent & Anor is approved pursuant to s.121(9)(g) of the Family Law Act 1975 (Cth).
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT MELBOURNE |
MLC 8051 of 2014
| MS VINCENT |
Applicant
And
| MR VINCENT |
First Respondent
And
| MS EATON |
Intervenor
REASONS FOR JUDGMENT
The applicant and respondent in these proceedings are Wife and Husband, having married on (omitted) 2002 and separated on 8 September 2013.
The parties have three children, born 1999, 2002 and 2003. The applicant brought proceedings on 9 September 2014, seeking property settlement orders pursuant to s.79 of the Family Law Act 1975 (Cth). Despite having filed an Amended Application and a Further Amended Application (the latter on 20 November 2014), the Wife has not particularised her claim beyond a:
‘… property settlement as this court deems just and equitable.’
The Wife says that the Husband left the former matrimonial home on 10 December 2013 and has resided separately since then.
The Respondent Husband filed a Response on 28 November 2014, also seeking orders in the most general terms: ‘orders which this honour court deems fit (sic)’. At the time he was employed by (employer omitted) as a (occupation omitted) and largely agreed with the facts and circumstances alleged by the Wife in her affidavits.
On 2 April 2015, the Husband was sequestrated, and the Official Trustee appointed Trustee of his bankrupt estate. In a report to creditors dated 11 May 2015, the Official Trustee reported a surplus, including superannuation, of $659,704.00 in the separate estate of the Husband, and identified unsecured creditors in the sum of $667,847.00. Of the unsecured creditors, the Intervenor has lodged a proof of debt in the sum of $625,000.00. A further debt is owed to a law firm for a little less the $5,000.00. A company called (omitted) is said to be owed $35,000.00. Lastly, a debt of $2,900.00 is owed to (omitted).
The Trustee identifies that the superannuation listed in the assets of the husband is protected property in the bankruptcy, and, therefore, the husband is able to retain it. The superannuation is in two funds, one in the sum of $189,450.00 and the other in the sum of $329,108.00. Whilst superannuation is protected property for the purpose of the bankruptcy, superannuation splitting orders are open to the Wife, pursuant to the provisions of the Family Law Act 1975 (Cth) (‘the Act’).
On 8 October 2014, the Intervenor, the Husband’s most significant creditor, brought an application to join the proceedings as an intervener on the basis of the debt owing to her. She was joined as an intervener pursuant to orders made on 10 November 2014, and, subsequently, orders were made to preserve the assets of the Husband’s estate.
Following the Husband’s sequestration, the intervener seeks leave to continue to participate in the proceedings, on the basis that:
(a)the Trustee in bankruptcy does not intend to pursue the proceedings, nor defend proceedings by the wife against the estate; and
(b)that the intervener is the significant creditor with respect to the husband’s estate.
On 3 June 2015, Judge Stewart had ordered that the Husband’s Trustee in bankruptcy file a Notice of Address for Service and a Response, failing which the Wife would have liberty to make an application to proceed with the property proceedings without the involvement of the Trustee in bankruptcy. Her Honour also ordered the Husband, as an undischarged bankrupt, to file and serve any application upon which he seeks to rely in the family law proceedings (given that the proceedings include the possibility of orders being made with respect to his superannuation interests, protected property for the purpose of the bankruptcy).
The Trustee in bankruptcy has not filed a Notice of Address for Service. I am told by the solicitors for the Wife and by the Intervenor, that the Trustee has advised that it does not intend to participate in the proceedings to defend the claim by the Wife for property settlement order under the Family Law Act 1975.
The applicant wife seeks to pursue a claim against the bankrupt estate for property settlement orders under s.79 of the Act. It is appropriate that the Official Trustee be formally joined as the Second Respondent in the proceedings as the husband’s property has vested in the Trustee pursuant to the Bankruptcy Act 1966. It is also appropriate that the applicant be required to file a Further Amended Application including the official Trustee as the Second Respondent and setting out the actual orders sought with respect to both the Husband and the Second Respondent.
As the Second Respondent has indicated that it does not intend to contest the proceedings, the question arises as to whether or not the substantial creditor of the estate, who is presently joined as an Intervener, has standing to continue to participate in the proceedings following the bankruptcy of the First Respondent.
Standing of the Intervenor
In the interests of avoiding a multiplicity of suits, and consistent with the principle function of a trust of separating beneficiaries from the task of managing property, the Trustee is generally the proper party to sue or be sued with respect to a trust estate. In the context of bankruptcy, s.178 of the Bankruptcy Act 1966 (Cth) allow the court a broad discretion to review the conduct of the trustee. Section 134 allows the Trustee to seek directions from the court and broad ranging powers for the purpose of carrying out the task of obtaining the Bankrupt’s assets for the creditors including even employing the Bankrupt. The remedies available to beneficiaries at equity, allowing beneficiaries standing where the Court grants leave to sue or defend suits to protect the trust estate, if the Trustee fails to do so. Ordinarily the trustee in bankruptcy is the appropriate person to bring or defend proceedings. It is open to the court to direct the trustee to do so. However, there is a practical problem if the trustee is not in funds and the creditors cannot fund the suit. In such a situation it would be unjust to the creditors not to allow them to represent themselves and pursue the suit for the benefit of the trust estate (indirectly for their even benefit). Whilst such an exercise is unusual, it is open if the justice of a particular case demands. To hold otherwise would allow impecuniosity (potentially caused by the bankrupt) to deny a significant creditor a remedy.
There is competing authority as to whether leave of the Court must first be sought for a beneficiary to take action with respect to a trust estate. In Chahwanv Euphoric Pty Ltdtrading as Clay & Michael & Anor [2009] NSWSC 805 at [33] to [34], Brereton J held that it was not necessary to obtain leave. More recently, in Randa Lee Investments Pty Ltd & Anor v Ballan & Ors [2015] VSC 178 at [37], Sifris J expressed a contrary view, finding on the basis of “logic, principle and of course authority” that the Court’s leave is required and, further, that the Civil Procedure Act 2010 (Vic) requires that such leave be obtained at the earliest possible stage of proceedings. In these proceedings the issue is moot the intervenor was a party prior to the sequestration order and as I see no reason why, leave cannot be granted nunc pro tunc in any event.
I turn then to the issues to which the Court should have regard to in determining whether or not to allow the intervention to not proceed when a trustee in bankruptcy seeks to sue for the benefit of a trust estate.
In Carpenter v Pioneer Park Pty Ltd [2008] NSWSC 551 Barrett J identifies the factors relevant in the determination as to whether leave ought be granted for a beneficiary to proceed with an action with respect to a liquidator. First, whether the beneficiary’s application has “reasonable prospects of success and some tangible benefit;” secondly, “the attitude of the liquidator”; and thirdly, whether practical considerations support the proposed action.
In determining whether the application has reasonable prospects of success, it is appropriate for the Court to look beyond any draft pleading and have regard to “whether the cause of action asserted in the pleading, together with such evidence as is relied on in the application, demonstrates an arguable case for the relief which the proposed litigation would seek.” per Austin J in Cadima Express v DCT [1999] NSWSC 1143, at [45].
An assessment as to the likelihood of the Intervenor’s application succeeding must be made with reference to the proceedings being for the settlement of property pursuant to s.79 of the Family Law Act1975 (Cth) (‘the Act’) brought by the wife.
The applicant wife is pursuing a claim against the estate of the bankrupt, pursuing an inchoate right under s.79 which could potentially prioritise the wife’s claim over that of the creditors. There is a significant issue as to how the s.79 discretion should be exercised in these circumstances, as I identified in ‘Family Law Bankruptcy: An Alternative conception’ (2014) 28 Australian Journal of Family Law 290.
I am satisfied that on the present material the Intervenor has a prima facie case that the husband’s property or part thereof should not be settled on the Wife under s.79 of the Family Law Act 1975. Significantly, this is not a case where the Intervenor is pursuing a claim, rather she is now defending the bankrupt estate against a claim by the Wife
Turning them to the attitude of the Trustee, Bennett J said, in Carpenter v Pioneer Park Pty Ltd [2008] NSWSC 551:
31. The Corporations Act allows decisions of liquidators to be reviewed by the court: see s 1321. The view of the liquidator on the question whether a particular proceeding should be initiated by the company will therefore be an important consideration where, as here, the court is asked to sanction a course under which a creditor or contributory is given carriage of the proceeding on behalf of the company. As Cole J said in Partnership Pacific Ltd v Aliprandi (above):
“If the liquidator were of the view that the action was soundly based but that because of absence of funds he was unable to prosecute it, one can understand a court exercising a discretion to grant a contributory the right to sue in the company's name (whether pursuant to the statute, or under some inherent jurisdiction).”
Just as s.1321 of the Corporations Act 2001 (Cth) confers a power on the Court to review decisions of liquidators, s178 of the Bankruptcy Act 1966 (Cth) similarly confers upon the Court a wide power to review a decision made by a trustee in bankruptcy. The extent to which I am able to assess the Trustee’s reasoning for deciding not to defend on behalf of the trust is limited. As best as I can surmise the trustee’s concerns are based upon the size of the estate and the likely costs of defending the proceedings. Whilst the Trustee may not wish to risk the costs of defending these proceedings, this does not foreclose the Intervenor from defending on behalf of the estate.
Practical Considerations
I am mindful of the costs implications if the Intervenor were granted leave to proceed as a creditor/beneficiary. In this case the Intervenor is the only significant creditor: there will only be one person defending the trust estate. She is defending the assets from a claim under s.79 of the Family Law Act. She is appearing personally, not through a corporate entity that may shield her from a costs order.
This is not a case where her resistance to the wife’s claim is either speculative, untenable or even merely arguable. If the Trustee later decides to participate in the case directions can be made so that the wife need only defend against the Trustee if needed, to ensure the practical and efficient conduct of the proceedings.
Conclusion
I find that the Intervenor should be granted leave to intervene to defend the bankrupt’s estate from the wife’s claims under the Family Law Act.
As the Husband has significant superannuation interests that do not form part of his estate held by the Trustee in Bankruptcy it appears appropriate that the Husband should remain as the First Respondent to enable him to defend these interests, and the Trustee in Bankruptcy be the Second Respondent as the Wife’s claim now seeks a share of property vested in the Trustee. Of course, the Trustee may formally submit to such orders as the court finds appropriate and not participate in the proceedings.
The Intervenor will be given leave to defend the bankrupt’s estate. Should the Husband or the Intervenor wish to make a claim against the Husband or Wife to augment the trust estate she should seek leave and provide a draft Statement of Claim setting out the nature of the claim.
I certify that the preceding twenty-seven (27) paragraphs are a true copy of the reasons for judgment of Judge Riethmuller
Date: 12 February 2016
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