FEDERAL COURT OF AUSTRALIA

Kimber v Clark in his capacity as trustee of the property of Kimber [2022] FCAFC 198

ORDERS

THE COURT ORDERS THAT:

1.    The declarations and orders made by the primary judge on 7 September 2021 be varied as follows:

(a)    Declaration 2 be varied to add after “s 116(2)(g)” the words “and s 116(4)”;

(b)    The chapeau of order 6 be varied by deleting the word “net”;

(c)    Order 6(e) be deleted;

(d)    Order 6(i) be varied by replacing “s 116(2)(g)” with “s 116(4)”; and

(e)    Order 11 be deleted.

2.    The appeal otherwise be dismissed.

3.    Costs in relation to the appeal be reserved until delivery of the Court’s reasons.

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

REASONS FOR JUDGMENT

THE COURT:

Introduction

1    These are reasons for substantially dismissing an appeal from orders made by a judge of the Federal Circuit and Family Court of Australia (Division 2), formerly known as the Federal Circuit Court of Australia, pursuant to a limited grant of leave given by Rares J by orders made on 8 February 2022. At the conclusion of the appeal hearing, and after a short adjournment, the Court made orders:

(a)    varying to a relatively minor degree one of the declarations made by the primary judge and parts of one of the substantive orders made by his Honour; and

(b)    deleting the costs order made by his Honour because of issues with its phrasing, and so as to enable a single costs order to be made after hearing from the parties to cover the appeal as well as the proceeding before his Honour after the parties have been heard upon receiving and considering these reasons.

The appeal was otherwise dismissed, having failed on virtually all of the main substantive grounds and arguments advanced.

2    The proceeding before the primary judge was instituted prior to the commencement of the Federal Circuit and Family Court of Australia Act 2021 (Cth) on 1 September 2021, creating the Federal Circuit and Family Court of Australia, but heard and determined by his Honour after that date. It is convenient to refer to the court below at both stages as the Federal Circuit Court.

3    The applicants before the primary judge, and now first respondents in this appeal, were the joint and several Trustees of the property of the appellant, Ms Janelle Mary Kimber, a regulated debtor. The property in question was a strata studio Unit that had been acquired in February 2004 by Ms Kimber. She was the second respondent before his Honour. The Owners Corporation for the block of units which included the Unit was the first respondent before his Honour, and is the second respondent to this appeal.

4    Ms Kimber became a bankrupt on her own debtor’s petition on 22 August 2019, obviating the need to determine an immediately prior creditor’s petition presented by the Owners Corporation. She was discharged from bankruptcy on 23 August 2022.

5    Provisions of s 116 of the Bankruptcy Act 1966 (Cth) as set out below:

(a)    operate to excise from property divisible among the creditors of a bankrupt estate an entire property when the bankrupt wholly or substantially bought it using damages recovered for personal injury; or

(b)    if such a property is only partially paid for by such an award of damages, so much of the proceeds of realising that property as can fairly be attributed to that source.

This case involves the latter, because it was common ground that Ms Kimber paid for the Unit using a combination of funds obtained from an award of damages for personal injury, and a loan from a bank secured by a mortgage over the Unit.

6    On 28 April 2021, the Trustees filed an application in the Federal Circuit Court seeking orders and declarations, including by way of directions in relation to the administration of Ms Kimber’s regulated debtor estate under s 90-15 of the Insolvency Practice Schedule (Bankruptcy), which is Schedule 2 to the Bankruptcy Act. Section 90-15 replaced the former s 134(4) of the Bankruptcy Act by virtue of legislation passed in 2016, but so as to provide that cases decided under or about that former provision have continuing application.

7    The Trustee’s application was heard and determined on 7 September 2021 by the primary judge, now retired, who was an experienced judge in bankruptcy law. That observation is necessary to explain why his Honour did not, and did not need to, make express reference in the course of the hearing to the particular legislative provisions that were being applied by his Honour, in order for it to be tolerably clear as to the legal foundation for the impugned aspects of the declaration and orders that were made.

8    The primary judge was asked to and did:

(a)    answer a separate question by declaration as to the conclusion reached by the Trustees, based on evidence that was before his Honour, that they should pay to Ms Kimber 25% of the proceeds of realising the Unit, being the proportion that could be fairly attributed to money obtained by her from an award of damages for personal injury;

(b)    make an order as to the priority order in which the proceeds of sale of the Unit should be paid;

(c)    make an order for the payment of the Trustees’ costs of the application; and

(d)    make other orders that are not the subject of this appeal, some of which have contextual relevance, such as orders to vacate the Unit, and related orders, to facilitate its sale.

The declaration and orders summarised at (a), (b) and (c) above were the subject of this appeal.

The relevant provisions of the Bankruptcy Act

9    Section 116 of the Bankruptcy Act as in force at the time of the hearing before the primary judge on 7 September 2021 (and which has not changed in any material way since then) relevantly provided as follows:

116    Property divisible among creditors

(1)    Subject to this Act:

(a)    all property that belonged to, or was vested in, a bankrupt at the commencement of the bankruptcy, or has been acquired or is acquired by him or her, or has devolved or devolves on him or her, after the commencement of the bankruptcy and before his or her discharge; and

(b)    the capacity to exercise, and to take proceedings for exercising all such powers in, over or in respect of property as might have been exercised by the bankrupt for his or her own benefit at the commencement of the bankruptcy or at any time after the commencement of the bankruptcy and before his or her discharge; and

(c)    property that is vested in the trustee of the bankrupt’s estate by or under an order under section 139D or 139DA; and

(d)    money that is paid to the trustee of the bankrupt’s estate under an order under section 139E or 139EA; and

(e)    money that is paid to the trustee of the bankrupt’s estate under an order under paragraph 128K(1)(b); and

(f)    money that is paid to the trustee of the bankrupt’s estate under a section 139ZQ notice that relates to a transaction that is void against the trustee under section 128C; and

(g)    money that is paid to the trustee of the bankrupt’s estate under an order under section 139ZU;

is property divisible amongst the creditors of the bankrupt.

(2)    Subsection (1) does not extend to the following property:

…

(g)    any right of the bankrupt to recover damages or compensation:

(i)    for personal injury or wrong done to the bankrupt, the spouse or de facto partner of the bankrupt or a member of the family of the bankrupt; or

(ii)    in respect of the death of the spouse or de facto partner of the bankrupt or a member of the family of the bankrupt;

and any damages or compensation recovered by the bankrupt (whether before or after he or she became a bankrupt) in respect of such an injury or wrong or the death of such a person;

Note:       See also subsection 5(6).

…

(n)    property to which, by virtue of subsection (3), this paragraph applies;

…

(2D)    In subsections (3) and (4):

exempt loan money, in relation to a particular time, means so much of the principal sum of a loan to the bankrupt, or to the bankrupt and another person or other persons, as was repaid, before that time, out of exempt money.

exempt money means money of any of the following kinds:

(a)  an amount to which subsection (1) does not extend because of subparagraph (2)(d)(ii) or (iv);

(b)  damages or compensation of a kind referred to in paragraph (2)(g);

(c)  amounts covered by paragraph (2)(k), (l), (m), (ma) or (mb).

outlay, in relation to property, in relation to a particular time, means all of the following:

(a)  the money paid for the purchase, or used in the acquisition, of the property;

(b)  the money paid before that time in respect of the extensions, alterations and improvements, if any, of the property constructed or made since that purchase or acquisition.

protected money, in relation to a particular time, means:

(a)    exempt money; or

(b)    exempt loan money in relation to that time.

…

(3)    Where, at any time, the whole, or substantially the whole, of the money paid for the purchase, or used in the acquisition, of particular property is protected money, paragraph (2)(n) applies to the property.

(4)    Where, as at the time when the trustee realises particular property to which paragraph (2)(n) does not apply, the outlay in relation to the property is in part protected money and in part other money, the trustee shall pay to the bankrupt so much of the proceeds of realising the property as can fairly be attributed to that protected money.

10    Ms Kimber also relied upon the table in s 25 of the Bankruptcy Regulations 2021 (Cth), which commenced on 1 April 2021, not long before the Trustees’ application was filed in the Federal Circuit Court on 28 April 2021. However, it is not necessary to reproduce that table in these reasons, because it provides the order in which a trustee of the estate of a bankrupt must apply the proceeds of the bankrupt’s property to the costs, expenses and remuneration, as set out in that table, for the purposes of s 109(1)(a) of the Bankruptcy Act. Section 109 deals with priority payments to be made before applying the proceeds of “the property of the bankrupt”, as defined in s 5, in making any other payments. However, that table is not reached in this case until after the process required by s 116(4) has been carried out. In this case, that entails deciding how much of the proceeds of realising the Unit can fairly be attributed to the damages paid to Ms Kimber, such that it does not form part of her property for the purposes of the Bankruptcy Act, including for priority payments out of what is part of her property for those purposes.

The application made to the primary judge and the orders ultimately sought

11    The parts of the relief sought by the application filed by the Trustees on 28 April 2021, and heard by the primary judge on 7 September 2021, that are relevant to the dispute on appeal were as follows:

On the grounds stated in the supporting Affidavit, the Applicant seeks the following orders and declarations pursuant to ss 30, 32, 52, 58(1), 77(1), 104, 109 and 116(1) & (2), 134(4) of the Bankruptcy Act 1966 (Cth), s 90-15 Insolvency Practice Schedule (Bankruptcy), ss 15, 16 and 18 of the Federal Circuit Court of Australia Act 1999 (Cth), ss 74MA and 74O of the Real Property Act, 1900 (NSW); s 84 Strata Schemes Management Act 2015 (NSW); Civil Procedure Act 2005 (NSW) and Uniform Civil Procedure Rules 2005 (NSW) as picked up by s 79 of the Judiciary Act, 1903 (Cth);

[1]    Pursuant to s 90-15 of the Insolvency Practice Schedule (Bankruptcy) the Court give directions to the Applicant and/or a Declaration as between the Applicant and the First Respondent, as to:

(a)    The claim made by the First Respondent, if any, that is:

(i)    a debt arising after the date of bankruptcy;

(ii)    a debt provable in bankruptcy;

(iii)    in respect of the order for costs made at the time of dismissal of the Creditors Petition, namely order 2 of the orders made 23 August 2019 in Proceeding No: SYG 2766/2018 after the date of bankruptcy:

(b)    whether absent taxation in terms of Part 40 of the Federal Court Rules 2011 applying in relation to taxation of costs in the Federal Circuit Court of Australia, those costs have any priority afforded by s 109(1)(a) of the Bankruptcy Act 1966;

(c)    whether in the circumstances the existing order for costs dated 23 August 2019 is an order for costs provable in the bankruptcy having regard to the decision of Foots v Southern Cross Mine Management Pty Ltd (2007) 234 CLR 52; [2007] HCA 56;

(d)    whether in the circumstances the existing order for costs dated 23 August 2019 is an order for costs recoverable as against the Second Respondent outside of the bankruptcy being administered by the Applicant;

(e)    whether in the circumstances absent agreement or taxation, the First Respondent is entitled to recover any monies the subject of the order for costs dated 23 August 2019 as against the Applicant under s84 of the Strata Schemes Management Act 2015 (NSW) as an ordinary unsecured creditor in the bankruptcy of the Second Respondent;

(f)    the amount for which the First Respondent is entitled to prove under s 109 of the Bankruptcy Act 1966 as a creditor with priority or without priority in the administration of the Second Respondent’s estate;

[2]    Pursuant to s 90-15 of the Insolvency Practice Schedule (Bankruptcy) the Court give directions/ declarations to the Applicant as to:

(a)    whether any contributions made by the Second Respondent towards the acquisition of the Property were non-divisible property in terms of s 116 (2) of the Bankruptcy Act;

(b)    If the answer to paragraph 2(a) above is in the affirmative, directions/declarations as to the amount of any contributions of the Second Respondent.

[paragraphs 3 to 5 concerned Ms Kimber vacating the Unit and relief sought in the event that she did not do so]

[6]    That after the sale of the Property by the Applicant at either auction or by private treaty, the Applicant be directed authorised and permitted to deduct from the proceeds of sale:-

(a)    Any amount required to be paid to satisfy any secured entitlement of the National Australia Bank Limited, registered dealing number AI339602, secured against the Property;

(b)    the commission and other expenses of any real estate agent employed by the Applicant;

(c)    the remuneration and expenses of the Applicant in respect of the sale of the property as Trustee of the property of Janelle Mary Kimber, a regulated debtor, including but not limited to all matters related to the registration of the Applicant’s Bankruptcy Application over the Property, the issue of Notices to Vacate, all correspondences to and from the First and Second Respondent concerning a sale of the Property, including considering the Proof of Debt of the First Respondent and the preliminary determinations made by the Applicants with respect to the Proofs of Debt lodged in the bankrupt estate by the known creditors;

(d)    the legal fees and disbursements of transferring the Property to the purchaser (i.e., the conveyancing fees).

(e)    the legal fees and disbursements in respect of these proceedings;

(f)    any taxes including but not limited to Capital Gains Tax, Land Tax and Goods and Services Tax (GST), subject to the directions referred to in paragraphs 1 and 2 above;

(g)    any costs of insurance and any other reasonable expenses incurred for protection and maintenance of the Property;

(h)    cost of any valuation report(s) obtained by the Applicant;

(i)    cost of attending to remove and dispose any Personal Property on the Property (if applicable);

(j)    to make all necessary adjustments of rates and taxes on settlement of the sale of the Property, including the payment of post-bankruptcy levy contributions (incurred from 22 August 2019 being the date of bankruptcy of the Second Respondent) due to the First Respondent to the date of settlement, subject to the directions/declarations referred to in paragraph 1.

[7]    Order pursuant to s74MA of the Real Property Act, 1900 (NSW) that the Second Respondent shall withdraw the Caveat with dealing number AP660240 registered over the Property within 7 days of the date of these orders.

[8]    Order that if the Second Respondent fails to withdraw the Caveat with dealing number AP660240 by the specified date, then pursuant to Rule 29.10 of the Federal Circuit Court Rules 2001 the Registrar or a Deputy Registrar of the Federal Circuit Court of Australia is hereby authorised to sign a form of withdrawal of caveat numbered AP660240 and provide that signed form of withdrawal to the Applicant in registrable form.

[9]    Order pursuant to s74O of the Real Property Act 1900 (NSW), the Second Respondent, by herself, her servants or agents, be restrained from lodging, or causing to be lodged, any further Caveat or other dealing on the title of the Property.

[10]    [provision for service on Ms Kimber]

[11]    Order that the costs of this Application be paid from the Second Respondents share of the net proceeds of sale (if any). Or, in the alternative, an order that the Applicants costs and expenses of this Application and the costs and expenses of attending to remove and dispose any personal property on the Property be paid as a cost and expense of the bankrupt estate and paid in priority pursuant to s109(1) of the Bankruptcy Act.

12    In the week before the hearing before the primary judge, the Trustees sent to Ms Kimber the proposed form of the orders that would be sought at that hearing, which went a little further than the application:

[1]    In relation to Federal Circuit Court proceedings SYG 2766 of 2018, the Applicants (being the costs respondents in SYG 2766 of 2018) and the First Respondent (being the costs applicant in SYG 2766 of 2018) consent to the following:

(a)    A Certificate of Taxation of costs in Federal Circuit Court proceedings SYG 2766 of 2018 in the sum of $75,000.00 being issued in favour of the First Respondent, such sum representing those costs claimed by the First Respondent pursuant to the order of Cameron J on 23 August 2019 in Federal Circuit Court proceedings SYG 2766 of 2018 in Schedule C of its Proof of Debt lodged in the Second Respondent’s bankrupt estate on or about 16 September 2019 (“POD”) claimed as priority costs pursuant to s109(1)(a) of the Bankruptcy Act 1966 (Cth) (“priority costs”).

(b)    The $2,000.00 paid into the Litigants' Fund by the Applicant on or around 9 July 2021 be returned to the Applicants.

(c)    There be no order as to costs of the taxation, with the intention each party is to bear its own costs.

[2]    The Applicants admit the debts claimed in Schedules A and B of the POD (save for item 7 of Schedule A which has been withdrawn) in the collective sum of $132,925.00, which is acknowledged by the First Respondent to be an unsecured debt payable in the ordinary course of the administration of the Second Respondent's bankrupt estate.

[3]    The First Respondent to issue to the Applicants a strata information certificate for the purposes of the Strata Schemes Management Act 2015 (NSW) (“Strata Act”) noting only the following for the period 23 August 2019 to the date of settlement of the real property situate at 110/450 Pacific Highway, Lane Cove North being the land contained in folio identifier 11 O/SP48216 (“the property”):-

(a)    the amount of any regular periodic contributions required to be made to the administrative fund or the capital works fund of the First Respondent for the period 23 August 2019 to date;

(b)    the amount of any such contribution that has not been paid;

(c)    the interest on any contributions of the type referred to in paragraph 3(b) hereof;

(d)    any other matter required by section 184 of the Strata Act to be specified in the Certificate (save for those identified in paragraphs 3 (e) to (h) immediately below).

The s184 Certificate must not include any of the following:-

(e)    Pre-bankruptcy unpaid contributions levied in respect to the property required to be paid to the administrative or capital works fund;

(f)    the interest on those unpaid contributions referred to in paragraph 3(e) above;

(g)    Any debt claimed by the First Respondent incurred on or prior to 23 August 2019;

(h)    Any debt (not being a matter referred to in (a) to (c) above), including legal costs of the type referred to in s 90 of the Strata Act incurred by the First Respondent on or after 23 August 2019 in the administration of the bankrupt estate of the Second Respondent, such a debt being a debt personal as between the First and Second Respondent.

[4]    Order 1 sought by the Applicants in the Application filed in these proceedings on 28 April 2021 ("Application") as between the Applicants and First Respondent be withdrawn.

[5]    In lieu of Order 6 sought by the Applicants in the Application filed in these proceedings on 28 April 2021, the net proceeds of sale of the property be paid in the following order:

(a)    Any amount required to be paid to satisfy any secured entitlement of the National Australia Bank Limited, registered dealing number Al339602 secured against the property;

(b)    the commission and other expenses of any real estate agent employed by the Applicants in respect of the sale;

(c)    the legal fees and disbursements of transferring the property to the purchaser (ie the conveyancing fees);

(d)    any taxes including but not limited to Capital Gains Tax, Land Tax and Goods and Services Tax (GST) deemed payable by the Chief Commissioner of Taxation;

(e)    any costs of insurance and other reasonable expenses incurred for protection and maintenance of the property by the Applicants;

(f)    cost of any valuation report(s) obtained by the Applicants for the property;

(g)    cost of attending to remove and dispose any personal property on the Property (if applicable);

(h)    adjustment of council rates, water rates and amounts of any unpaid contributions in respect of the property payable to the administrative or capital works fund of the First Respondent on and from 23 August 2019 up to and including the date of settlement of the Property, and interest thereon as contemplated by paragraph 3(a) to (c) of these Terms of Settlement;

(i)    Any payment ordered by the Court to be made to the Second Respondent pursuant to s116(2)(g) of the Bankruptcy Act;

(j)    any realisation charge;

[there was no (k)]

(l)    the priority costs of the First Respondent;

(m)    the remuneration, costs and expenses of the Applicants with respect to these proceedings and the sale of the property and the administration of the Second Respondent's bankrupt estate.

[6]    There be no order as to costs of these proceedings as between the Applicants and the First Respondent.

[7]    The First Respondent be excused from further participating in the proceedings.

[8]    The agreement between the Applicants and First Respondent reflected in (1) to (7) above be subject to an application by consent to Judge Driver for approval in proceedings SYG 723 of 2021 by way of settlement of the proceeding as between the Applicant and First Respondent.

13    Ms Kimber complained about the orders sought by the Trustees before the primary judge going further than the ambit of the application itself. However, that complaint was untenable and the primary judge was correct not to accede to the course that she seemed to advocate for of not moulding the relief to the circumstances as they developed, including by reason of agreement being reached between the Trustee and the Owner’s Corporation. Ms Kimber was on notice of this the week before, being a change that sensibly accommodated developments in the litigation of an uncontroversial nature. The Trustees were acting entirely properly in proceeding in this manner, and there was no denial of procedural fairness established in this regard. A right to be heard, or at least an opportunity to be heard, which is what took place, does not equate to a right to have a contrary view prevail.

The declaration and orders challenged on appeal

14    The key declarations and orders for which leave to appeal was granted, being declaration 2, order 6 and order 11, as made by the primary judge and entered, are as follows, adding the unchallenged declaration 1 for context:

FOR THE PURPOSES OF ORDER 3 MADE ON 18 MAY 2021, THE COURT DECLARES THAT:

1.    The answer to the first separate question in 2(a) of the application filed on 28 April 2021 is “yes”.

2.    In relation to paragraph 2(b), the Court declares that pursuant to s 116(2)(g) of the Bankruptcy Act 1966 (Cth) the second respondent enjoys a 25 per cent interest in the net proceeds following the sale of the subject property referred to in Order 3.

THE COURT ORDERS THAT:

…

6.    The net proceeds of sale of the property be paid in the following order:

(a)    any amount required to be paid to satisfy any secured entitlement of the National Australia Bank Limited, registered dealing number Al339602 secured against the Property;

(b)    the commission and other expenses of any real estate agent employed by the applicants in respect of the sale;

(c)    the legal fees and disbursements of transferring the property to the purchaser (ie the conveyancing fees);

(d)    any taxes including but not limited to Capital Gains Tax, Land Tax and Goods and Services Tax (GST) deemed payable by the Chief Commissioner of Taxation;

(e)    any costs of insurance and other reasonable expenses incurred for protection and maintenance of the property by the applicants;

(f)    cost of any valuation report(s) obtained by the applicants for the property;

(g)    cost of attending to remove and dispose any personal property on the Property (if applicable);

(h)    adjustment of council rates, water rates and amounts of any unpaid contributions in respect of the property payable to the administrative or capital works fund of the first respondent on and from 23 August 2019 up to and including the date of settlement of the Property, and interest thereon as contemplated by paragraph 3(a) to (c) of the Terms of Settlement between the applicants and the first respondent dated 25 August 2021;

(i)    any payment ordered by the Court to be made to the second respondent pursuant to s 116(2)(g) of the Bankruptcy Act 1966 (Cth);

(j)    any realisation charge;

(k)    the priority costs of the first respondent;

(l)    the remuneration, costs and expenses of the applicants with respect to these proceedings and the sale of the property and the administration of the second respondent's bankrupt estate.

…

11.    The costs of this application be paid from the second respondent’s share of the net proceeds of sale (if any). Or, in the alternative, an order that the applicants’ costs and expenses of this application and the costs and expenses of attending to remove and dispose any personal property on the Property be paid as a cost and expense of the bankrupt estate and paid in priority pursuant to s 109(1) of the Bankruptcy Act 1966 (Cth).

Key aspects of the evidence before the Court

15    The key aspects of the relevant evidence this Court was taken to by counsel for the Trustees, and not objected to or contradicted by counsel for Ms Kimber, can be summarised as follows.

16    On or about 2 October 2019, the Trustees hand delivered a letter to Ms Kimber advising her that they had lodged a caveat on the title of the Unit to record the interest of the bankrupt estate and setting out the fact that her interest in the Unit would remain vested in them. Ms Kimber informed them that she had used the proceeds of the award for damages she obtained from a medical negligence action to acquire the Unit.

17    On 9 October 2019, a notice under s 77 of the Bankruptcy Act was issued by the Trustees to Ms Kimber, requiring her to provide all books and records in relation to the medical negligence action, all evidence in relation to her receipt and disbursement of monies received, and any other documentary evidence supporting her assertion that compensation monies were used to purchase the Unit. The following documents were subsequently provided by her:

(a)    a copy of the arbitrator’s award dated 26 August 2002 in the sum of $55,602.15 with respect to a medical negligence claim;

(b)    an application for a loan to St George Bank dated 1 December 2003, completing the relevant sections of the form with the following information, and declaring it all to be true and accurate:

(c)    a loan offer from St George Bank of $150,000 dated 8 January 2004, showing that Ms Kimber was required to contribute $3,777 of her own money;

(i)    the loan amount as $150,000;

(ii)    the NSW District Court award Mr Kimber received as $50,000; and

(iii)    the property value as $192,500;

(d)    a document dated 18 January 2004 confirming that St George Bank advanced Ms Kimber $149,646, and that Ms Kimber acted for herself, thus avoiding the cost of conveyancing; and

(e)    a transfer document dated 13 February 2004, transferring the Unit into Ms Kimber’s name with the purchase price of $192,500 and showing that she was exempted from paying stamp duty.

18    On 5 November 2019, Ms Kimber lodged a caveat on the Unit, supported by a statutory declaration, stating that the award from the medical negligence claim was used to buy the Unit, without specifying the amount used.

19    On 4 March 2020, Ms Kimber emailed the Trustees, stating the following:

Dear Alex, confirmation, are the bank documents. I was able to finally discover last week, proving a 2001 District Court medical negligence award was used to buy the property. Award moneys were also used to totally renovate the studio in the first few months. The ATO agreed to retrieve my 2004 tax return to better define those expenses. That should arrive in a week or so.

There is no evidence before the Court to suggest the 2004 tax return was provided.

20    On 26 June 2020, the Trustees emailed Ms Kimber, advising her that it was appropriate that compensation monies received and applied as a percentage interest of 25% of the net proceeds from the sale of the subject property be treated as non-divisible property of the Bankrupt estate; and explaining that in the event no agreement could be reached, they would be required to seek the direction of the Court for either possession of the property, or determination of non-divisible property and a direction regarding priority payment as claimed by the Owners Corporation.

21    The Court was taken to Ms Kimber’s affidavit where she acknowledged and did not challenge the 25% figure put forward by the Trustees.

The submissions for the Trustee furnished before the hearing before the primary judge

22    The Trustees addressed the primary judge by way of two sets of written submissions pertaining to the separate question in 2(a) of the application filed on 28 April 2021 prior to the hearing. One of those submissions was largely procedural. The arguments advanced in the other substantive submission by the Trustees may be briefly summarised as follows:

(a)    Section 30(1) of the Bankruptcy Act grants the Court power to decide questions in law or fact in any bankruptcy matter, and allows the Court to make any such orders as it considers necessary for the purposes of carrying out or giving effect to that Act, including bringing to account and realising the assets of the bankrupt’s estate, issuing a writ of possession and making orders for the removal of a caveat lodged by a regulated debtor, in this case, Ms Kimber.

(b)    If a regulated debtor subsequently purchases real property totally from the money representing the damages or substantially the whole, then that real property is also protected and the regulated debtor is entitled to retain it: s 116(3) of the Bankruptcy Act. However, in Ms Kimber’s case, there is no direct evidence linking the application of the award of damages to the acquisition or improvement of the real property, but it is likely:

(i)    the sum of $50,000 held by Ms Kimber was used towards the acquisition of the real property;

(ii)    the balance was by reason of a borrowing from the St George Bank Limited – subsequently refinanced to the National Australia Bank Limited;

(iii)    the Regulated Debtor paid all instalments under both the St George Bank Limited Mortgage and the National Australia Bank Limited Mortgage from funds which were not protected monies.

(c)    The contribution of Ms Kimber was either:

(i)    the deposit as stated in her Statutory Declaration, $19,250.00 equal to 10%; or

(ii)    the amount of $50,000.00 as a proportion of the purchase consideration of $192,500.00, equal to 25.57%.

23    It should be noted that the submission summarised at [22(c)(i)] above was not entirely accurate, or at least not entirely clear, in suggesting that Ms Kimber had explicitly declared that she had paid a deposit for the unit of $19,250 out of the personal injury damages she was awarded. Ms Kimber’s statutory declaration (which is part of annexure Q to the affidavit of one of the Trustees, Mr Clarke), states that she was the registered proprietor of the Unit, “mortgaged in 2004 using monies paid as a deposit from the medical negligence claim”. It seems that it has been assumed that by this statement Ms Kimber was not just declaring that she had paid a deposit from the medical negligence compensation payment, but also that the deposit was the standard 10% of the $192,500 purchase price, or $19,250. While that is not an unreasonable assumption to make or inference to draw, that was not what Ms Kimber in terms said. Nothing turns on this because the contribution figure that was ultimately used was the higher sum of $50,000, as summarised at [22(c)(ii)] above.

24    The Trustees further submitted that they had previously indicated to Ms Kimber that an amount of 25% entitlement may be appropriate in circumstances where there was no direct evidence linking the award of damages (or any part thereof) to the acquisition or improvement of the Unit, and in the circumstances it was open to the Court to determine the amount which appears on the evidence and is protected so as to give effect to the legislative intention.

The hearing before the primary judge

25    Ms Kimber represented herself in the hearing before the primary judge. The principal issues addressed by the parties were:

(a)    the separate question posed for the primary judge of whether a percentage interest of 25% of the net proceeds from the sale of the Unit to be treated as non-divisible property of the Bankrupt estate was appropriate; and

(b)    the orders sought by the Trustees regarding the disposal of the Unit, reproduced above at [11] above, including costs and payments to be paid from the proceeds of the sale at paragraph 5 of those proposed orders.

26    In their oral submissions, the Trustees again put to the primary judge that a 25% entitlement would be appropriate even in circumstances where there was no direct evidence linking any part of the award of damages to the acquisition or improvement of the Unit. It was put by the Trustees to the primary judge that Ms Kimber’s contribution had given rise to a constructive trust, equivalent to 25% of the net proceeds of sale, and a percentage had been chosen over a monetary figure in order to make it more beneficial to Ms Kimber.

27    On questioning from the primary judge as to how the Trustees moved from the specific figure of $55,000 as a contribution towards the Unit, to the figure of 25% of the net proceeds on sale (being the rounded down percentage corresponding to $50,000), the Trustees cited Fodare v Shearn, which is, it would seem, a reference to the judgment of Barrett J of the New South Wales Supreme Court, Fodare Pty Ltd v Shearn [2009] NSWSC 1140, in which, they submitted, it was determined that the payment of money towards a property did not give rise to a percentage or an ownership interest, instead giving rise to a debt. To elaborate, in that case, involving a question of security for costs, Barrett J found that the existence of the plaintiff, Fodare Pty Ltd, had never been disclosed to the Australian Taxation Office and that the gain realised by the on sale of its property may have given rise to a debt owed by it to the Commissioner. If that is the case the Trustee was referring to, it would appear that this approach of a percentage interest was beneficial to Ms Kimber by potentially avoiding that outcome and also giving her a percentage share in a property for which there had been an increase in value. Certainly, putting the contribution in percentage terms in an asset increasing in value preserved the proportionate value of the contribution. The use of a contribution figure of $50,000, rather than $55,000, can reasonably be seen to be a compromise reflecting actual uncertainty as to precisely how much Ms Kimber in fact contributed to the purchase of the Unit from her personal injury damages award.

28    In her oral submissions to the primary judge, recorded in the transcript of the hearing before the primary judge, Ms Kimber at several points appeared to accept the figure of 25% put forward by the Trustees, which necessarily entailed an acceptance of a contribution figure of $50,000.

29    The primary judge concluded that the appropriate order was a declaration that Ms Kimber enjoyed a 25% interest in the Unit for the purposes of s 116(2) of the Bankruptcy Act.

30    The Trustees further submitted that the orders sought, outlined at [11] above, were necessary to complete the administration of Ms Kimber’s estate in a cost-efficient and proper manner. It should be noted that Ms Kimber opposed the making of these facilitative orders, which would have made the part that she apparently agreed to unworkable.

31    The primary judge determined that that the orders sought in the application (and order 6 in the terms of settlement between the Trustees and the Owners Corporation, reproduced at [12] above) in relation to the disposal of the Unit were both necessary and appropriate, but agreed to stay the orders until 31 January 2022 by consent of both parties, for reasons of preventing Ms Kimber from being put out of a property while subject to stay-at-home orders during the pandemic, preventing any prejudice in case Ms Kimber wished to exercise her rights of appeal, and to give her time due to the impact of the proceeding on her wellbeing.

The competing arguments

32    Ms Kimber’s submission on appeal may be briefly summarised as alleging the following asserted errors:

(a)    an absence of findings and reasons by the primary judge and a related complaint about a denial of procedural fairness;

(b)    errors concerning the outlays to be made from the sale prices obtained for the Unit, essentially asserting that the only permissible deductions were to pay out the secured creditor, namely the mortgagee bank;

(c)    errors as to the proper determination of the fair attribution of the contribution made to the purchase of the Unit from Ms Kimber’s damages award as protected monies under s 116(4) of the Bankruptcy Act, essentially disputing the 25% figure;

(d)    errors concerning priority payments after deduction of sale and related expenses.

33    The arguments advanced in support of the above asserted errors were unconvincing and best addressed by reference to the competing submissions advanced by the Trustees, both orally and in writing, which included taking the Court through key aspects of the evidence and submissions that were before the primary judge, as summarised above. 

34    The submissions for the Trustees defended the orders made by the primary judge, subject to some accepted minor amendments and ultimately an acceptance that the question of costs below and on appeal should be determined by this Court. The Trustees submitted in substance that the complaint about inadequate findings and reasons was without merit. Ms Kimber, by the way she conducted the hearing before the primary judge and before then in correspondence and other dealings with the Trustees as proven before his Honour, should be taken to have conceded that protected monies accounted for 25% of the purchase price of the Unit. While his Honour’s judgment was brief, it reflected that reality and had clearly enough dealt with the evidence that was before him. Those submissions were accepted by this Court at the appeal hearing.

35    As to the related complaint about a denial of procedural fairness, the Trustees submitted that Ms Kimber was aware of procedural directions made by the primary judge on 18 May 2021, and did not take any steps to comply with them by the time of the hearing on 7 September 2021. They submit that the way in which his Honour conducted that hearing does not reveal any denial of procedural fairness. Ms Kimber was given notice of the final orders sought the week before and given a sufficient opportunity to address his Honour. Again, those submissions were accepted by the Court at the appeal hearing.

36    As to the issue of the protected monies, the Trustees submitted that the basis for arriving at the figure of 25% was amply set out in the evidence and submissions provided to the primary judge, as summarised above. No basis for error in the acceptance by his Honour of that evidence and those submissions has been demonstrated. This argument was also accepted by the Court at the appeal hearing.

37    Finally, as to the ordering of the priorities for the payment of the proceeds of sale of the Unit, both as to the realisation of that property, and as to the distribution of any proceeds remaining after that, and subject to the minor amendments made at the conclusion of the appeal hearing, the Trustees submitted that Ms Kimber should be bound by the way in which the hearing was conducted before the primary judge and that arguments that were put on appeal should be rejected both because they were not put below, and because they were in any event incorrect. Subject to those minor corrections, the Trustees’ argument was also accepted by the Court at the appeal hearing. 

38    It follows that no substantive error on the part of the primary judge as alleged was established by Ms Kimber.

39    The Owners’ Corporation in substance supported the Trustees submissions and only made substantial submissions in the contingent event of any major part of the appeal succeeding. This has not occurred and therefore the Owner’s Corporation submissions do not need to be considered further.

40    The key arguments advanced by Ms Kimber failed. It remains to consider the terms of the second declaration and orders 6 and 11 that were challenged.

41    In relation to the second declaration, there was nothing wrong with the impugned declaration made by the primary judge, save that it would have been preferable, for reasons of clarity, to have made an overt additional reference to s 116(4) of the Bankruptcy Act, as ordered by this Court. His Honour, in acceding to the stance taken by Trustees, which entailed to a measurable degree giving Ms Kimber the benefit of legitimate doubts that could have been raised as to the actual level of contribution that she made to the purchase of the Unit from the damages she received for a personal injuries claim, reached a conclusion that amounted to fair attribution as provided for by s 116(4) of the Bankruptcy Act that was amply supported by the evidence. We consider not only that his Honour made no error, but that we would have reached the same, or substantially the same, conclusion.

42    Order 6 made by the primary judge addressed the payments to be made out of the proceeds from the sale of the Unit after paying the secured bank mortgagee (being order 6(b) to (h), which are challenged), and then the priority of payments after that (being order 6(i) to (m), which are not challenged), save for the deletion of the otiose word “net” in the chapeau, and the deletion of order 6(e) because the insurance of the unit is covered by the Owner’s Corporation’s insurance and the insurance of the contents is a matter for Ms Kimber. It would have been an error on the part of the primary judge to have ordered that payment to be made to Ms Kimber out of the sale of the Unit that did not first deduct the rest of the categories of expense in relation to the costs of sale that his Honour provided for in orders 6(b)-(d) and (f)-(i). That is because failure to order the deduction of those expense items would have amounted to a failure to arrive at the “proceeds of realising the property” as required by s 116(4) of the Bankruptcy Act. Ms Kimber’s argument that she was entitled to her percentage share of the acquisition outlay applied to the sale price after deducting only the payment of the mortgage, and no other costs of sale expenses, finds no support in the language of s 116(4), nor in any authority that has been identified by her.

43    In relation to order 11 made by the primary judge as to the costs of the application, to which objection was taken only as to the first sentence, and not to the alternative order in the second sentence which was not opposed, such orders in the alternative are insufficiently clear as to what was required to take place. Further, the order could not, and therefore did not, give account of costs of the appeal, nor of information relevant to the costs of the application before his Honour which were not available to him. While the arguments advanced by Ms Kimber did not establish error as to the first sentence, and the order as made could have been remedied by amendment, the best course was to delete order 11 and make a different order after hearing from the parties once our reasons had been published and time given to consider them.

Conclusion

44    There was a need for this Court to make the relatively minor amendments to the second declaration and parts of order 6 made by the primary judge in order to rectify minor inadequacies and errors. It was also expedient to delete order 11 so that orders could be made both as to costs before the primary judge and before this Court, fully informed by evidence and arguments able to be put before upon consideration of these reasons. Beyond that, the appeal failed and was dismissed on the day of the appeal hearing, all of the main arguments advanced by Ms Kimber having failed.

45    The ordinary consequences of such substantial failure on the main aspects of the appeal would be that costs follow the event. However, the nature of the protected money’s share of the proceeds of realising the Unit, and Ms Kimber’s status as a regulated debtor, meant that it was best to accede to the common ground view that the question of costs on appeal and below was best dealt with on the papers. The Court will do so after receiving any limited evidence and short written submissions from the parties. The parties are therefore directed, after considering these reasons, to furnish by no later than 4.00 pm on 15 December 2022 proposed procedural orders to facilitate the determination of costs both before the primary judge and in this appeal. The Court can then make such procedural orders in chambers before the end of term, and make costs orders in chambers once the material to be furnished is to hand.

Associate:

Dated:    9 December 2022