FEDERAL COURT OF AUSTRALIA

BANKRUPTCY – creditor’s petition under s 244 of the Bankruptcy Act 1966 for the administration of a deceased person’s estate – motion for dismissal of petition for incompetence for want of leave under s 244(13) – meaning of the expression “proceedings for the administration of a deceased person’s estate”.

COSTS – security for costs in bankruptcy proceedings – where assets of estate expended in proceedings for grant of probate.

Bankruptcy Act 1966 (Cth), ss 244(9), 244(10), 244(13)

Federal Court of Australia Act 1976 (Cth) s 56

FELICIANO GONZALEZ v MARIA DE LUZ MARMENTINI, EXECUTRIX OF THE ESTATE OF THE LATE IDA GARCIA RABER

NG 7369 of 1998

EMMETT J

SYDNEY

7 JULY 1998

the court orders that:

1.      The notice of motion of 3 July 1998 be stood over to 30 July 1998 at 9.30am.

2.      The petition be stood over for directions on 30 July 1998.

3.      The Petitioner file and serve no later than 23 July 1998 an affidavit relating to any judgment give by Marks J in the Industrial Commission on 24 February 1995.

4.      The respondent file and serve no later than 23 July 1998 an affidavit as to the circumstances in which it is asserted that the evidence of the Deceased before Marks J was not completed.

Note:                Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

REASONS FOR JUDGMENT

HIS HONOUR:   On 6 April 1998 a creditor's petition was filed under section 244 of the Bankruptcy Act 1996 (Cth) (“the Act”).  I have before me a notice of motion which seeks, inter alia, an order that the petition be dismissed on the ground that it is incompetent for want of leave under section 244(13) of the Act.

Section 244(1) relevantly provides that where a debt of not less than $2,000 was owing by a deceased person at the time of his or her death to a creditor, the creditor to whom the debt is owing may present a petition to the Court for an order for the administration of the estate of the deceased person.  However, section 244(13) provides that where proceedings have been commenced in a court for the administration of a deceased person's estate under a law of a State or Territory, a petition for an order under this section in relation to the estate is not to be permitted by a creditor except by leave of the Court under such terms and conditions, if any, as the Court thinks fit.

It appears that there has been considerable litigation between Feliciano Gonzalez (“the Petitioner”) and the late Ida Garcia Raber (“the Deceased”).  The evidence before me is not complete as to all of the circumstances surrounding the litigation.  However, it appears that the Petitioner was an employee of the Deceased.  That employment was in connection with a restaurant business called “La Guapa” conducted by the Deceased. 

In 1993 the Petitioner made demands on the Deceased for the payment of moneys alleged to have been owing in respect of unpaid wages.  Subsequently the Petitioner brought proceedings in the Industrial Court of New South Wales seeking, as I understand it, recovery of unpaid wages.  That proceeding came before Marks J of the Industrial Commission in May 1994 and was adjourned part heard.  I have no information as to the precise issues which were ventilated before Marks J or the extent to which he investigated them.

There is some evidence before me which suggests that Marks J endeavoured to conciliate between the parties, but was unsuccessful.  The evidence also suggests that the proceedings were not completed, although the precise detail of that is somewhat murky.  Evidence was given before me that some findings were made by Marks J on 24 February 1995, although the detail of those findings has not been in evidence before me.

The Deceased made a will on 15 June 1995 and died on 18 June 1995.  On 30 August 1995 in circumstances that are presently obscure to me, the proceedings in the Industrial Commission again came before Marks J.  There was no appearance for the Deceased.  Marks J was informed of the Deceased's death.  The purpose of the proceedings on 30 August 1995 was apparently to finalise calculations as to the amount said to be owing by the Deceased to the Petitioner.  The transcript of those proceedings contains inter alia the following:

HIS HONOUR:   I have looked through the calculations.  I don’t know that in my judgment of 24 February I made any reference to interest, did I?

WALLACE:  No, you didn’t as a matter of fact, your Honour.  I have added the interest and we would say it applies at least from the date of termination of employment.

HIS HONOUR:   You would seek an order for payment of interest?

WALLACE:   Yes.  I mean, properly perhaps a calculation should be done to try and pick it up right through the wage period but they are not my instructions.

HIS HONOUR:   Normally my inclination is to provide for payment of interest from the date of commencement of proceedings.

WALLACE:   Yes, I understand that might be the case.  I can redo that.

HIS HONOUR:   There is no need for me to in fact quantify that.  What I will do is make an order that the respondent pay to the applicant the sum of $35,282.76 which amount has been calculated by Counsel for the applicant to be the amount due and owing pursuant to orders 1 and 2 in my reasons for judgment handed down on 24 February last.  I order that the respondent pay to the applicant interest on that amount calculated from the date of commencement of proceedings in accordance with section 94 of the Supreme Court Act. 

I think they are the only orders I need make because you already have an order for costs.

I have not seen a copy of the reasons of 24 February 1995 referred to by Marks J.  One possible reason is that may not be relevant to any issue that I have to decide.

On 24 June 1995 the executrix named in the will of 15 June 1995, who is the respondent to the present proceedings, caused to be published a notice of application for probate of the will.  On 26 June 1995, the respondent was served with notice of caveat against the granting of probate of the will.  On 29 June 1995, the respondent applied for the grant of special letters of administration ad colligenda bona defuncti in order to protect the main asset of the estate, being the business of “La Guapa” Restaurant. 

The evidence indicates that an order was made on 7 July 1995 granting special Letters of Administration to the respondent authorising her to negotiate and complete the sale of the restaurant business with power to pay out of the proceeds of sale the following items only:

(a)        agents commission and other expenses of sale;

(b)        the following debts and the following amounts only:

(i)         outstanding rent presently payable to the lessor of the premises, $5700;

(ii)        gas, $1433.97;

(iii)       electricity, $535.00;

(iv)       telephone $1000, or such lesser amounts as may properly be payable.

Under the order, the balance of the proceeds of sale were to be paid into an interest-bearing account in the joint names of the respondent and Stewart Levitt, the caveator who was appointed executor under a previous will dated 29 September 1990.

On 12 July 1995 the respondent was served with a caveat by the Petitioner opposing the grant of probate of the will of 15 June 1995.  The Petitioner claimed to be a beneficiary under that will.  Pursuant to orders made in the Supreme Court, proceedings for the grant of probate in solemn form of the will were continued by way of statement of claim.  Mr Levitt and the Petitioner were named as defendants in that probate suit.  On 8 August 1995 Mr Levitt was made administrator of the estate pending determination of the validity of the wills.  The purpose of that appointment was to prevent registration of a transfer of real property dated 14 June 1995 from the Deceased to Mr Richard Nolasco, the sole beneficiary named in the will of 15 June 1995. 

Both the probate suit and the proceedings commenced by Mr Levitt in relation to the real property were finalised on 6 August 1997 pursuant to a compromise.  An order was made for the grant of probate of the will of the Deceased to the respondent on 6 August 1997 and the cross claim for probate of the other will was dismissed.  Since the grant of probate the respondent has administered the estate in accordance with section 46C(1) of the Wills Probate and Administration Act 1898 (NSW).

However, there was no order made for the general administration of the estate of the Deceased.  The question before me is whether, in the circumstances of the proceedings which I have described above, section 244(13) has application.  The question is whether the proceedings commenced by the respondent for the grant of probate constituted proceedings for the administration of the Deceased’s estate within the meaning of section 244(13) of the Act.

Counsel for the respondent submitted that the expression “proceedings for the administration of a deceased person's estate” should be understood as meaning proceedings whereby a plaintiff seeks to be admitted as executor or administrator of a deceased estate.  I do not consider that the language of section 244(13) should be understood in that way.  The purpose of section 244(13) is to ensure that there are not two Courts administering an insolvent estate or administering the estate generally.  It is not concerned with the grant of probate or letters of administration by a Court of Probate.

Formerly, orders for the general administration of a trust were made as of course when sought by a trustee or a beneficiary.  However, the procedure of general administration became so characterised by unacceptable delay and expense that legislative changes were made designed to encourage the resolution of disputes by means other than the making of orders for general administration.  Before the commencement of the Supreme Court Act 1970 (NSW), for example, the rules of that Court with respect to such administration proceedings were governed by the Equity Act 1901 (NSW).

It is no longer the practice for an order for general administration to be made if the matters in issue can be disposed of without such an order.  Nevertheless, under the present Rules of the Supreme Court of New South Wales, the making of an order for general administration in an appropriate case might still occur.  For example, Part 68, Rule 8(2) of the Supreme Court Rules provides as follows:

When it appears to the Court that an order for the administration of an estate or the execution of a trust under the direction of the Court is necessary to prevent proceedings by creditors of the estate or by persons claiming to be entitled under the will or on the intestacy of the deceased or to be beneficially entitled under the trust, the Court –

            (a) may make the order; and

(b) may further order that no steps shall be taken under the order, or under any account or inquiry directed, without the leave of the Court.

It is an order such as is contemplated by Part 68 of the Supreme Court Rules which I consider was in contemplation when section 244(13) was enacted.  Administration suits in Australia are in fact rare for the reasons which I have briefly indicated. The purpose of section 244(13) is to ensure that where an order for the administration of an estate has been made by the Supreme Court or of a State or Territory, the effect of which is to prevent any dealings with the estate otherwise than under the direction of the Court, the Bankruptcy Court will not, in conflict with such an order, seek to administer the estate.

Support for that view is derived also from section 244(9) of the Act which requires that, subject to sub-section 244(10), a sealed copy of a petition under section 244 must be served on the legal personal representative of the deceased debtor or, if there is no such legal personal representative, upon such person as the Court directs.  It would be curious for section 244(9) to require service on the legal personal representative if section 244(13) were to be construed as referring to the mere commencement of proceedings for the grant of probate.  Until there is a grant of probate (or letters of administration) there is no legal personal representative.

The fact that section 244(9) contemplates that any petition be served on the legal personal representative, if there is one, suggests that the draftsman had in mind that section 244(13) would not apply to every application for the grant of probate.  In the circumstances, I do not consider that the proceedings which I have briefly described above constitute proceedings for the administration of a deceased person's estate within the meaning of section 244(13).  Accordingly, the relief sought in the notice of motion for dismissal of the petition for incompetence should be itself refused.

The other prayer for relief in the notice of motion filed on 3 July 1998 seeks an order that the petitioner provide security for the respondent's costs of the proceedings in the sum of $15,000.  The basis upon which that order was sought seems to be that there are several circumstances which should be taken into account in the exercise of the Court's discretion under section 56 of the Federal Court of Australia Act 1976 (Cth).

Under section 56, the Court or a judge may order an applicant in a proceeding to give security for the payment of costs that may be awarded against him or her.  The rules provide for the provision of security in certain circumstances although it appears to be common ground that the circumstances of this case do not fall within the rules.  I have not been taken to any part of the rules which are said to replace rule 14 of the old Bankruptcy Rules, which provided specifically for the provision of security for costs in bankruptcy proceedings.  As I understand the case advanced on behalf of the respondent, the Petitioner, by his conduct in relation to the application for probate, was in some way responsible for the wasting of the assets of the estate in costs.

The factors referred to are these:

(1)        he filed a caveat against the grant of probate to the executrix;

(2)        he was a beneficiary under the earlier will;

(3)        having been joined as a defendant in the probate suit he defended the proceedings;

(4)        he brought proceedings against Mr Nolasco in relation to the transfer signed by the Deceased;

(5)        he was a party to the settlement of the proceedings whereby as, I understand it, probate was granted, but there was no order as to costs against the defendants in the probate suit.

I am not persuaded that that evidence leads to an inference that there was any impropriety or contumely on the part of the Petitioner or any abuse of process by his defending the proceedings or bringing the proceedings against Mr Nolasco. 

On the other hand, there are two other matters which concern me in relation to the petition under section 244. The first is that the debt is based, as I have indicated earlier, on a judgment apparently given by Marks J in the Industrial Court in favour of the Petitioner against the Deceased.  There is some evidence before me that the evidence of the Deceased was not complete at the time when Marks J delivered judgment.  If that were so, it would throw considerable doubt on the question of whether the Petitioner will be able to establish a debt such as to warrant the making of an order under section 244. 

The second factor is that the evidence before me indicates that the estate has no assets.  While some minor debts were paid pursuant to the order to which I have referred earlier, it appears that the whole of the assets of the estate have been expended in the proceedings in the Supreme Court for the grant of probate.  There has been no suggestion at present that there was any impropriety in the incurring of those expenses.  On the other hand, there is clear evidence before me of impecuniosity on the part of the Petitioner to the extent that I am satisfied that an order for costs would not be satisfied if it were made against him upon the dismissal of the petition under section 244.

If it were shown to me that there is real doubt about the judgment of Marks J, that might be a reason why I would consider ordering some security in relation to the proceedings.  I also have in mind that by making an order under section 244, the trustees in Bankruptcy of the estate would incur costs which, if the estate has no assets, would not be recoverable.

Those matters incline me to the view that I should defer making any order in relation to the application for security for costs until I have some further information relating to the proceedings before Marks J.  Accordingly, I propose to stand over the notice of motion to 30 July 1998 at 9.30 a.m. I also stand over the petition for directions at that time.  I direct the petitioner to file and serve an affidavit relating to any judgment given by Marks J on 24 February 1995.  I direct the respondent to file and serve an affidavit as to the circumstances in which it is asserted that the evidence of the Deceased before Marks J was not completed, both affidavits to be filed and served no later than 23 July 1998.

Associate:

Dated:              7 July 1998