W and W - [2003] FMCAfam 225

FEDERAL MAGISTRATES COURT OF AUSTRALIA

W & W

[2003] FMCA fam225

FAMILY LAW – Enforcement Summons – Bankruptcy of Husband – distinction between property and maintenance orders for purposes of s.58 of Bankruptcy Act – Registrar to be satisfied of failure to make payment – onus upon person requesting enforcement summons to satisfy Registrar.

Family Law Rules: O33
Bankruptcy Act 1966 (Cth) ss. 5, 58 and 82

Moncada & Moncada (1984) FLC 91-524
Re Sharp; Ex parte Tietyans Investments Pty Ltd (in liq) [1998] FCA 1367
Re McMaster: Ex parte McMaster (1991) FCR 70
Kidd and Shegog (1993) FLC 92-425
Clyne v Deputy Commissioner of Taxation (1984) 154 CLR 589

Applicant:

V A W

Respondent:

V J W

File No:

LNM 386 of 2002

Delivered on:

30 June 2003

Delivered at:

Devonport

Hearing date:

19 June 2003

Judgment of:

Roberts FM

REPRESENTATION

Counsel for the Applicant:

Mr G Hay

Solicitors for the Applicant:

Doolan & Brothers

Counsel for the Respondent:

Mr P Tree

Solicitors for the Respondent:

Ian Guest & Associates

ORDERS

That the Enforcement Summons filed on behalf of V A W on 26^th August 2002 and issued on 29^th August 2002 be dismissed.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
LAUNCESTON

LNM 386 of 2003

V A W

Applicant

And

V J W

Respondent

REASONS FOR JUDGMENT

This matter relates to an Enforcement Summons issued on behalf of V A W (“the Wife”) on 29^th August 2002. In that document, it is alleged that the Respondent, V J W (“the Husband”) is in default or in arrears in the sum of $115,428.68 in relation to Orders of the Family Court of Australia dated 28^th April 1995.

Background

On 28^th April 1995 Consent Orders were made in the Family Court of Australia (“the Orders”) in accordance with Terms of Settlement that had been executed by the Husband, the Wife and others on 4^th April 1995 (“the Terms of Settlement”).
The Orders provided for certain transfers of property and payments of money to the Wife in Orders 2 and 3 thereof. There does not appear to be any suggestion that the Husband has not complied with those Orders.
Order 4 provides as follows:
4Subject to Order 5 hereof the Husband shall pay or cause the Weller Companies or the Weller Trusts to pay to the wife with the intent that if the Weller Companies or the Weller Trusts do not pay that the husband shall have sole responsibility to pay:
(a)Total matrimonial property payments of $260,000 payable by 520 consecutive weekly instalments of $500 each commencing on the first day of April 1995; and
(b)(i) from the first day of January, 1995 and on the first day of January in each year thereafter, until the death of the wife or she ceases to be licensed to drive a motor vehicle in Tasmania or the expiration of ten years from the making of the Order (whichever shall first occur) periodic maintenance of $2,500;
(ii) (It is not necessary to recite this subparagraph in detail. It provided for annual Consumer Price Index (CPI) adjustments to the amount referred to in (b)(1)).
Order 5 provided that if the Husband or the Trusts or the Companies disposed of any interest in a particular Inn (“the Inn”) to any person other than the Husband, the Companies, the Trusts or the parties’ son, then the balance unpaid pursuant to paragraph (a) of Order 4 would become immediately due and payable.
Order 6 provided that, if the monies payable pursuant to Order 4(a) had not become payable pursuant to Order 5, the Husband was to allow or cause the management of the Inn to allow the Wife to charge meals to an account in her name not to exceed $750 per year and the Husband was to indemnify her in relation to the payment thereof.
Orders 7, 8 and 9 related to indemnities and property transfers that are not relevant to this decision.
Order 10 provided that interest was to be paid in relation to any overdue payments at the rate provided for in the Family Law Rules.
The Terms of Settlement were noted to be:
“in full and final satisfaction of either parties’ (sic) claim against the other for matrimonial property settlement and spouse maintenance pursuant to the provisions of the Family Law Act 1975.”
The Husband became a bankrupt on 6^th June 2002.

Issues

The dispute between the parties is whether or not the Husband’s bankruptcy prevents the Wife from continuing the action commenced by the Form 46 Enforcement Summons issued by a Deputy-Registrar on 29^th August 2002.

The Law

Order 33 rule 3 of the Family Law Rules provides that:
if a person fails to satisfy an obligation, a person seeking to enforce the obligation may file an affidavit requesting the issue of … a summons in accordance with Form 46.
It is clear from subrule (3) of rule 3 that the Registrar has the discretion to issue a summons if satisfied that the person so obligated has failed to comply with the obligation.
Section 58 of the Bankruptcy Act 1966 (“the Act”) provides as follows:
(1)Subject to this Act, where a debtor becomes a bankrupt:
(a)the property of the bankrupt, not being after-acquired property, vests forthwith in the Official Trustee or, if, at the time when the debtor becomes a bankrupt, a registered trustee becomes the trustee of the estate of the bankrupt by virtue of section 156A, in that registered trustee; and
(b)after-acquired property of the bankrupt vests, as soon as it is acquired by, or devolves on, the bankrupt, in the Official Trustee or, if a registered trustee is the trustee of the estate of the bankrupt, in that registered trustee.
(2)Where a law of the Commonwealth or of a State or Territory of the Commonwealth requires the transmission of property to be registered and enables the trustee of the estate of a bankrupt to be registered as the owner of any such property that is part of the property of the bankrupt, that property, notwithstanding that it vests in equity in the trustee by virtue of this section, does not so vest at law until the requirements of that law have been complied with.
(3)Except as provided by this Act after a debtor has become a bankrupt, it is not competent for a creditor:
(a)to enforce any remedy against the person or the property of the bankrupt in respect of a provable debt; or
(b)except with the leave of the Court and on such terms as the Court thinks fit, to commence any legal proceeding in respect of a provable debt or take any fresh step in such a proceeding.
(4)After a debtor has become a bankrupt, distress for rent shall not be levied or proceeded with against the property of the bankrupt, whether or not the bankrupt is a tenant of the landlord by whom the distress is sought to be levied.
(5)Nothing in this section affects the right of a secured creditor to realize or otherwise deal with his or her security.
(5A)Nothing in this section shall be taken to prevent a creditor from enforcing any remedy against a bankrupt, or against any property of a bankrupt that is not vested in the trustee of the bankrupt, in respect of any liability of the bankrupt under:
(a)a maintenance agreement; or
(b)a maintenance order;
whether entered into or made, as the case may be, before or after the commencement of this subsection.
(6)In this section, after-acquired property, in relation to a bankrupt, means property that is acquired by, or devolves on, the bankrupt on or after the date of the bankruptcy, being property that is divisible amongst the creditors of the bankrupt.
Section 5 of the Act contains the following definition:
maintenance order means:
(a)an order relating to the maintenance of a person, including an order relating to the payment of arrears of maintenance, that is made or registered under a law of the Commonwealth or of a State or Territory of the Commonwealth; or
(b)an assessment made under the Child Support (Assessment) Act 1989.
Subsections (1) and (1A) of Section 82 of the Act provide as follows:
(1)Subject to this Division, all debts and liabilities, present or future, certain or contingent, to which a bankrupt was subject at the date of the bankruptcy, or to which he or she may become subject before his or her discharge by reason of an obligation incurred before the date of the bankruptcy, are provable in his or her bankruptcy.
(1A)Without limiting subsection (1), debts referred to in that subsection include a debt consisting of all or part of a sum that became payable by the bankrupt under a maintenance agreement or maintenance order before the date of the bankruptcy.

Findings & Conclusions

It seems to me that in relation to Section 58 if the Act, I must draw a distinction between the property settlement orders and the maintenance orders that were made on 28^th April 1995. In this regard, Order 4(a) is stated clearly to be a property order, whereas Order 4(b) is clearly stated to be an order for “periodic maintenance”. In my view, each of the two parts of that order can stand on its own and, as a result, I am able to deal with each part separately. The reason for dealing with them separately will become apparent.
Except as otherwise provided for in the Act, Section 58(3) prevents the Wife from enforcing a remedy in relation to a “provable debt” or from taking or continuing proceedings without the leave of the Court. In this matter, no such leave has been granted, but the Federal Magistrates Court of Australia is a Court with jurisdiction to grant such leave. Therefore, I need to look at whether such leave would be granted.
In relation to the property order in Order 4(a), it is clear that any unpaid amount is a provable debt for the purposes of Section 82 of the Act. See Moncada & Moncada (1984) FLC 91-524. However, it is clear from cases such as Re Sharp; Ex parte Tietyans Investments Pty Ltd (in liq) [1998] FCA 1367 that the policies which underpin Section 58(3) are:
a)to free the bankrupt from any claims which might be made in respect of the period prior to bankruptcy;
b)to permit the trustee in bankruptcy, if the proof of debt is accepted, to treat the claim against the Estate as the claims of all other creditors are treated; and
c)to ensure that the trustee is not put to expense in defending proceedings where there is no money to defend them.
In deciding whether or not to grant leave to proceed under Section 58(3), a Court must consider whether or not the objects of the Act will be met if the creditor is allowed to proceed. Those objects are to ensure a fair distribution of the bankrupt’s assets among the creditors and prevent one creditor from gaining an unfair advantage over the others. See Re McMaster: Ex parte McMaster (1991) FCR 70.
Clearly, any leave to take other proceeding would be likely to give the Wife an advantage that the Husband’s other creditors would not have. Consequently, I am of the view that a Court should not grant leave in this case in relation to the property order that is contained in Order 4(a).
Indeed, I am fortified in my view that leave should not be granted when I take into account the fact that the Wife’s solicitors suggest in the letter dated 21^st June 2001 attached to her affidavit (“the solicitor’s letter”) that she may have a separate claim against another person in relation to a guarantee to pay the amount owing under the property order contained in Order 4(a).
In my view, requesting the issue of the summons was not an act on the part of the Wife which “commenced legal proceedings” within the meaning of subsection 58(3)(b). See Kidd and Shegog (1993) FLC 92-425, where Hannon J said at page 80,366:
“Although enforcement proceedings initiated by the procedures set out in Order 33 rule 3 are proceedings within the definition contained in Section 4, in that they are proceedings in a court, they are not instituted by the making of the application to the Registrar. The relevant proceedings are not instituted until the Registrar, in the exercise of a discretion, issues the summons. If the discretion is exercised against the issue of the summons no proceedings come into existence.”
However, if the Wife is to be allowed to continue with the enforcement summons procedures in relation to the property order contained in Order 4(a), that would be “taking a fresh step” in proceedings. She is prevented from doing that by subsection (3) of Section 58 of the Act.
In the joint judgment of Gibbs CJ, Murphy, Brennan and Dawson JJ in Clyne v Deputy Commissioner of Taxation (1984) 154 CLR 589 the following passage is found at pages 594-595:
“The effect of the bankruptcy however is that the debtor is no longer obliged to pay his creditors; indeed he is disabled from doing so. If he offered payment they could not safely accept it; their right is a right of proof against the estate.”
However, subsection 58(5A) provides an exception to the provisions of subsection 58(3) of the Act, which may be available to the Wife in relation to any maintenance orders contained in the consent orders of 28^th April 1995. That is because it provides that nothing in Section 58:
“shall be taken to prevent a creditor from enforcing any remedy against a bankrupt, or against any property of a bankrupt that is not vested in the trustee of the bankrupt, in respect of any liability of the bankrupt under …. a maintenance order.”
It is clear that subsection (5A) has been included in the Act to ensure that bankrupt debtors do not automatically avoid their legal obligations to maintain their families.
Although a maintenance debt is a provable debt in bankruptcy because of Section 82 of the Act, subsection 58(5A) makes it clear that the Wife is not limited to the remedy of proving the debt in bankruptcy.
Order 33 rule 3(3) of the Family Law Rules provides that:
On receipt of an affidavit … and an appropriate form of summons, the Registrar may issue a summons … if … the Registrar is satisfied that the person under the obligation has failed to make a payment for a period of at least 2 weeks.
It is therefore my view that, when the Wife filed the enforcement summons and her affidavit, there was an onus upon her to provide sufficient information in her affidavit to enable the Registrar to be satisfied that he should exercise his discretion to issue the enforcement summons.
The Wife’s affidavit states that, on or about 4^th April 2001 the Husband ceased making payments as particularised in the solicitor’s letter. That letter stated that significant property payments were in arrears. However, as stated above, by virtue of the Husband’s bankruptcy, subsection 58(3) now prevents the Wife from commencing proceedings in relation to any funds due under the property orders other than with the Court’s leave.
In relation to maintenance payments claimed to be owing, it is incorrectly claimed in the solicitors letter that the Wife has an entitlement under Order 4(b) to “motor vehicle expenses” in the sum of $2,500 per annum and a “meal allowance” of $750 under Order 6. However, they are simply errors of terminology.
Dealing firstly with the claimed “meal allowance”, it is clear from Order 6 that the Wife’s entitlement to charge meals and to an indemnity in relation to the cost of those meals would cease if the Inn was sold to someone other than the individuals or entities referred to in Order 5. It appears that the Inn was sold to the parties’ daughter-in-law in February 2001 and she is not referred to in the Orders. Consequently, the Wife’s entitlement to charge meals and to be indemnified must have ceased from the time that the Inn was sold.
While it may be possible to characterise Order 6 as a “maintenance order” for the purposes of Section 58(5A), there is nothing in the Wife’s affidavit to show whether she had ever charged any such meals to an account at the Inn. Consequently, it was not possible for the Registrar to know whether any obligation had arisen requiring the Husband to make a payment under Order 6 or whether he had “failed to make a payment”.
In relation to what is erroneously called “motor vehicle expenses” in the solicitor’s letter, there is an entitlement to “periodic maintenance of $2,500” under Order 4(b) that arises on January 1^st in each year. If any such sum was owed to the Wife, it must have accrued prior to 12^th August 2002, being the date on which she swore her affidavit. Unfortunately, neither her affidavit nor the solicitor’s letter specifies how much she was claiming was owed to her. However, the enforcement summons drafted on her behalf shows that the Wife is claiming only $2,500 pursuant to Order 4(b). I can only assume therefore that that sum must have become payable on 1^st January 2002 and that she is not making any claim for a CPI adjustment.
The Wife’s affidavit states that she received $2,000 in March 2002 and at the date of swearing her affidavit, she had also been receiving $75 per week. She did not specify the total of the payments that she had received up to the time of swearing her affidavit, but if she had received $2,000 in March and $75 per week for only seven weeks, the total would have exceeded $2,500.
It is therefore my view that it was not possible for a Registrar to be satisfied that the Husband had “failed to make a payment” of $2,500 that the Wife claims was required of him under Order 4(b).
In short, the Wife did not provide information in her affidavit that could have enabled a Registrar to be satisfied that the Husband had failed to comply with any maintenance order contained in either Order 6 or Order 4(b) of the Orders of 28^th April 1995. It is therefore my view that it was not competent for the Registrar to issue an enforcement summons in relation to the Husband’s maintenance obligations.
Further, it is my view that it is not appropriate for the matter to be adjourned to allow the Wife to file further affidavit material. Her obligation to provide the necessary information arose at the time when her request was made for the enforcement summons to be issued.
Although, it was competent for the Registrar to issue the enforcement summons in relation to the property order in Order 4(a), it is not competent for the Wife to continue the proceedings. See paragraph 24 above.
In view of these matters, I am of the view that the enforcement summons must be dismissed.

I certify that the preceding forty (40) paragraphs are a true copy of the reasons for judgment of Roberts FM

Associate:
Date: