FEDERAL COURT OF AUSTRALIA

Shephard v Robson [2015] FCA 1194

THE COURT ORDERS THAT:

1.    Within 7 days the parties shall confer in an effort to reach agreement as to draft minutes of orders reflecting these reasons. By 4 pm on 20 November 2015 the parties shall file agreed draft minutes of orders reflecting the reasons for judgment or, if there is no agreement, each party shall file draft minutes of the orders for which he contends. By that date, the parties shall also file any submissions on costs of no more than five pages in length.

2.    Within 7 days the Respondent shall file and serve an affidavit providing up to date information regarding:

(a)    the costs associated with or related to the sale of the property at 53 Fairview Road, Sapphire Beach, New South Wales and the applicable government levy on realisations made in respect of an administration under the Bankruptcy Act 1966 (Cth); and

(b)    any amounts owing to the trustee for unpaid remuneration and disbursements, legal costs and disbursements, or other matters.

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

REASONS FOR JUDGMENT

INTRODUCTION

1    In this proceeding the applicant, Derek Shephard, who is a bankrupt, sought declarations against the respondent, William Robson, his trustee in bankruptcy (“the trustee”). He sought that the whole of $245,000 paid to him in settlement of court proceedings in September 2005 (“the Settlement Sum”), or such lesser amount as the Court deemed appropriate, be declared “exempt money” under s 116 of the Bankruptcy Act 1966 (Cth) (“the Act”) on the basis that the money was damages or compensation for a personal injury or wrong. He also sought a declaration that the 10/12th interest in a property at 53 Fairview Road, Sapphire Beach, New South Wales (“the Sapphire Beach property”) he purchased with part of the Settlement Sum be declared exempt from division between his creditors because it was purchased with exempt money.

2    When the matter came before the Court the Sapphire Beach property had been sold at the direction of the trustee. The fundamental question in the proceeding is whether all, or any part, of the net proceeds of that sale are protected money under the Act. Under ss 116(2)(n) and 116(3) of the Act, if the whole or substantially the whole of money used in the acquisition of the property was protected money then the property is exempt. Under s 116(4), if s 116(2)(n) does not apply and the outlay on the property is in part protected money and in part other money, upon realisation of the property the trustee must pay to Mr Shephard so much of the proceeds of sale as can fairly be attributed to that protected money.

3    The trustee contended that Mr Shephard could not show that any part of the Settlement Sum was damages or compensation for personal injury or wrong, that the Settlement Sum was not exempt money, and that no part of the proceeds of sale of the Sapphire Beach property represents protected money.

4    For the reasons I now set out, in my view $15,000 of the $245,000 Settlement Sum (about six percent of that sum) represented damages or compensation for personal injuries suffered by Mr Shephard and was therefore exempt money. After deduction of legal expenses and about $7,000 paid directly to him, Mr Shephard spent the remaining $200,000 of the Settlement Sum to acquire a 10/12th part of the Sapphire Beach property. I consider six percent of the outlay on that property was exempt money. It is fair to attribute six percent of a 10/12th part of the net proceeds of sale of the Sapphire Beach property to the exempt or “protected” money used in the purchase, and that amount is not divisible between Mr Shephard’s creditors. The amount of the net proceeds of sale is not clear on the materials and I have directed the trustee to file further evidence in that regard.

THE FACTS

5    The background to this proceeding involves a great deal of litigation dating back many years. Some of that litigation throws some light on the nature of Mr Shephard’s claims in the court proceedings to which I have referred and on the issue before me. Mr Shephard has been involved in so much litigation that my account of the various cases is limited, but a fuller account would make no difference to my view.

Mr and Mrs Shephard’s purchase of Lot 36, Katherine Drive, Corindi, NSW

6    On 29 June 1984 Mr Shephard and his wife, Yvette Shephard contracted:

(a)    to purchase a property at Lot 36 Katherine Drive, Corindi, New South Wales from Vosington Pty Ltd (“Vosington”) and a 1/150th share as tenant in common of Lot A of a proposed subdivision of land in Corindi for $13,000;

(b)    with a company in the same group as Vosington, Johnson Farm Management Pty Ltd, for the purchase and supply of irrigation equipment, the planting of blueberries, the construction of a dam, and the provision of maintenance and supervision of a blueberry plantation on the property (“the Farm Services Agreement”); and

(c)    with Vosington for the management of the irrigation system to the boundary of Lot 36 and the supply of water to the boundary of that property (“the Water Management Agreement”).

7    Those contracts were part of a scheme for the subdivision of property and the development of blueberry farms by various people who purchased property within the subdivision. The scheme facilitated the pooling and sharing of resources to minimise the unit costs of planting, maintaining, harvesting and marketing of blueberries. Each lot purchaser entered into farm services agreements and water management agreements in the same or substantially similar terms as Mr and Mrs Shephard.

8    Vosington later changed its name to Corindi Blueberry Growers Pty Ltd (“Corindi”), and I shall refer to it by that name. In 1987 Corindi changed the terms upon which farm services were to be provided to Mr Shephard and other lot owners. Mr Shephard became dissatisfied with the terms and the standard of the farm services provided. Over time Corindi came to own most of the farms in the development and offered to purchase Mr and Mrs Shephard’s farm but they did not reach an agreement.

9    In 1998 Corindi merged with Chiquita Brands South Pacific Limited (“Chiquita”), a company with extensive interests in fruit growing and marketing. Mr Shephard’s disagreement with Corindi continued into the merger.

The Farm Services Agreement proceeding in 1991

10    In 1991 Mr Shephard commenced proceedings against Corindi in the Local Court of New South Wales at Coffs Harbour, claiming entitlement to a refund of money paid for farm management services and for shares in Corindi. Corindi cross-claimed for money alleged to be owing to it under the Farm Services Agreement. The matter was referred to arbitration. The arbitrator delivered an award in Corindi’s favour in June 1994, and in November 1995 the Local Court confirmed the arbitrator’s award. Mr Shephard was ordered to pay Corindi the sum of $8,574 plus interest. He refused or neglected to pay that amount.

The Specific Performance proceeding in 1994

11    In 1991 Corindi executed an equitable charge over its assets and undertakings, and later committed an event of default under the charge. In 1993, at which time Mr and Mrs Shephard had been let into possession of Lot 36 but had not yet paid the purchase price in full, the chargee appointed receivers and managers. The appointment of receivers and managers stimulated Mr and Mrs Shephard to take steps to complete the contract to purchase the property and that provoked a dispute as to their priority against the chargee.

12    Mr and Mrs Shephard commenced an action against Corindi in the Supreme Court of New South Wales seeking specific performance of the purchase contract, and were successful in that proceeding: Shephard v Corindi Blueberry Growers (Unreported 3768 of 1994, BC 9403437, Young J, 8 December 1994). Corindi unsuccessfully appealed to the NSW Supreme Court of Appeal: Corindi Blueberry Growers Pty Ltd v Shephard (Unreported CA 40799 of 1994, BC 9504601, Handley, Sheller and Powell JJA, 15 May 1995).

13    Following judgment in the appeal Corindi executed the transfer of Lot 36 to Mr and Mrs Shephard.

14    In 1994 Corindi terminated the supply of irrigation water to Lot 36, apparently doing so on the basis that Mr Shephard refused to pay the charges levied by it.

The Injunction proceeding in 1995

15    Mr Shephard did not accept that Corindi was entitled to terminate the water supply to his property and he took steps to maintain the water supply by performing works on the irrigation system on his property and on adjoining properties. In 1995 Corindi commenced a proceeding against Mr and Mrs Shephard in the District Court of New South Wales at Coffs Harbour. On 20 October 1995 the Court made an order that Mr and Mrs Shephard be restrained from interfering in any way with the irrigation pipes and other fittings forming the irrigation system running through the easement in Lot 36.

The 1999 proceeding

16    In 1999 Mr Shephard commenced proceeding No. 120 of 1999 in the District Court of New South Wales at Coffs Harbour: Derek George Shephard v Chiquita Brands South Pacific Limited (“the 1999 proceeding”). The proceeding alleged that:

(a)    in 1986/1987 Chiquita unlawfully changed the terms of payment for the maintenance and operation of the irrigation service, and in 1994 it unlawfully terminated the supply of water to Lot 36;

(b)    Chiquita’s actions in cutting off the water supply, refusing to reinstate the water supply, and interfering with Mr Shephard’s attempts to reinstate the water supply were unlawful as they were in breach of statutory duty under the Water Act 1912 (NSW) (“the Water Act”), in breach of fiduciary duty and negligent;

(c)    Chiquita trespassed on Lot 36 by undertaking various works on the irrigation system on that property and trespassed in relation to Mr Shephard’s goods by interfering with and seizing some of his irrigation equipment;

(d)    the unlawful termination of the supply of water to Lot 36 and the seizure of irrigation equipment caused loss and damage through lost income and profits from the death of blueberry plants, the failure of blueberry crops and the lost opportunity to expand farm production; and

(e)    Mr Shephard was also entitled to damages for trespass to property and goods, orders for the return of the seized irrigation equipment, damages in detinue in relation to that equipment, an amount calculated as fair rental for Mr Shephard’s part of the irrigation system, and an account of the harvest rebate and harvest profit for the period from 1987/88 to 1991/92.

17    The pleadings included claims for damages by Mr Shephard for personal injuries alleged to have been suffered when he was assaulted by Chiquita’s employees or agents on 27 May 1999, 31 May 1999, 25 October 1999, 5 November 1999, 13 December 1999, 30 August 2000, and 6 September 2000.

The 2001 proceeding

18    In 2001 Mr Shephard commenced proceeding No. 7 of 2001 in the District Court of New South Wales at Coffs Harbour: Derek George Shephard v Scott Roland Wolgamot and Others (“the 2001 proceeding”). This proceeding covered essentially the same ground as the 1999 proceeding, except that it also made personal claims against the employees or agents of Chiquita who Mr Shephard alleged had trespassed on his land and chattels, and assaulted him (as claimed in the 1999 proceeding). Although the proceeding added further defendants and provided more detailed particulars of the alleged assaults, it did not extend the assault claims in the 1999 proceeding.

The bankruptcy proceedings in 2000 – 2004

19    In April 2000, based on the unpaid judgment in the Farm Services Agreement proceeding, Chiquita served a bankruptcy notice on Mr Shephard. Mr Shephard applied to the Federal Magistrates Court to set the notice aside and was successful due to several defects. He also claimed that he had a set-off or cross-claim in relation to the judgment debt because he was entitled to damages for Chiquita’s trespasses to his land and goods and for personal injuries he suffered in the alleged assaults. The learned Federal Magistrate did not accept that: Shephard v Blueberry Farms of Australia (Corindi) Ltd (2001) 162 FLR 339; [2001] FMCA 2 (Driver FM).

20    Chiquita did not appeal the judgment. Instead, in 2001, it served a new bankruptcy notice and Mr Shephard was unsuccessful in setting that notice aside: Shephard v Chiquita Brands (South Pacific) Ltd [2001] FMCA 78. Mr Shephard was then successful in an appeal to the Federal Court: Shephard v Chiquita Brands (South Pacific) Ltd [2002] FCA 466 (Gyles J). On remittal to the Federal Magistrates Court, Mr Shephard was unsuccessful in setting aside the notice: Shephard v Chiquita Brands (South Pacific) Ltd [2002] FMCA 115 (Raphael FM). Mr Shephard was then unsuccessful in an appeal to the Federal Court against that decision: Shephard v Chiquita Brands (South Pacific) Ltd [2003] FCA 465 (Madgwick J).

21    On 2 July 2003 Madgwick J made an order extending the time for compliance with the bankruptcy notice: Shephard v Chiquita Brands (South Pacific) Ltd [2003] FCA 841. However, Mr Shephard successfully appealed this decision to the Full Court which held that there was no power to extend time under s 41(6A) of the Act once an application to set aside a bankruptcy notice had been disposed of: Shephard v Chiquita Brands (South Pacific) Ltd [2004] FCAFC 76 (Hill, Sackville and Marshall JJ).

22    It appears that, at that point, those bankruptcy proceedings came to a halt.

The Settlement

23    A mediation between the parties to the 1999 and 2001 proccedings was held on 3 August 2005. Mr Shephard was represented at the mediation by senior counsel and a solicitor. The parties reached a settlement at the mediation which was recorded in handwritten terms of settlement dated that day (“Terms of Settlement”) and then in a settlement deed dated 16 September 2005 (“Settlement Deed”). His solicitor witnessed Mr Shephard’s signature on the terms of settlement and on the Settlement Deed.

24    The Settlement Deed recited that Mr Shephard made various allegations against Chiquita in the 1999 proceeding which Chiquita denied, that Mr Shephard made various allegations against Chiquita and the individual defendants in the 2001 proceeding which allegations they denied, that Chiquita had obtained a Federal Magistrates Court order and a Federal Court order against Mr Shephard for a total of $27,546.50, and that Mr Shephard had commenced proceedings in the Federal Court to set aside the bankruptcy notice issued at Chiquita’s request. The Settlement Deed set out the parties’ agreement that:

(a)    Mr Shephard would sell Lot 36 to Chiquita for $55,000;

(b)    conditional upon the sale to it of Lot 36, Chiquita would pay Mr Shephard $245,000 in settlement of his claims in the 1999 and 2001 proceedings;

(c)    on and from the payment to him of the sum of $245,000 Mr Shephard would release and discharge the other parties from all claims which he had or would have had against them but for the execution of the Settlement Deed arising out of the facts, matters and circumstances referred to in the pleadings or in the recitals, and would indemnify them against all such claims. Claims were defined as “all causes of actions, suits, demands, costs and expenses of any kind or nature whatsoever whether present, future or contingent and whether arising at law or in equity or under any statute”;

(d)    upon the transfer of Lot 36 to Chiquita, and in consideration of the release and indemnity provided by Mr Shepherd, the other parties would release and discharge Mr Shephard from all claims made by them which they had or would have had against him arising out of the facts, matters or circumstances referred to in the pleadings, in the recitals, or arising out of any other matter or circumstance whatsoever;

(e)    Mr Shephard would discontinue the 1999 and 2001 proceedings against all parties; and

(f)    Mr Shephard and Chiquita would cooperate to obtain consent orders for the setting aside of the bankruptcy notice with no order as to costs.

25    It is uncontroversial that the parties performed their obligations under the Settlement Deed on or about 16 September 2005. Mr Shephard transferred Lot 36 to Chiquita in return for payment of $55,000, Chiquita paid $245,000 to Mr Shephard, and Mr Shephard filed notices of discontinuance in the 1999 and 2001 proceedings with the consent of each defendant. It is not clear on the materials but I assume that the parties also cooperated to set aside the bankruptcy notice.

Mr Shephard’s purchase of a part of the Sapphire Beach property

26    After deduction of legal costs and disbursements and $7,040 paid directly to Mr Shephard, on 23 September 2005 the remainder of the Settlement Sum, being $200,000, was paid from Mr Shephard’s solicitor’s trust account to Mrs Shephard to purchase a 10/12th part of the Sapphire Beach property.

The Settlement Deed proceeding

27    There was then no litigation for four years. In 2009, for reasons which are not clear to me, Mr Shephard commenced Supreme Court of New South Wales proceeding No. 1871 of 2009 in which he sought to set aside the Settlement Deed (“the Settlement Deed proceeding”). The proceeding was dismissed in June 2009 and Mr Shephard was ordered to pay the defendants’ costs: Shephard v Anthony Hartnell (1871/09, 18 June 2009).

28    In September 2009 costs in the Settlement Deed proceeding were assessed and on 3 February 2010 the Local Court of New South Wales ordered Mr Shephard to pay $48,797.98. Mr Shephard then refused or neglected to pay that amount.

The bankruptcy proceedings in 2010

29    In March 2010, based on the unpaid costs order made against him in the Settlement Deed proceeding, Costa Exchange Ltd (the successor to Chiquita) served a bankruptcy notice upon Mr Shephard. He applied to set aside the bankruptcy notice and asserted that he had a set-off or cross-claim for in excess of $100,000 relating to damages for trespass to land and for personal injuries suffered in the alleged assaults. Following a review of the Terms of Settlement and the Settlement Deed, the Federal Magistrates Court held that the settlement constituted a complete bar to such claims and refused to set aside the notice: Shephard v Costa Exchange Ltd and Ors [2010] FMCA 314 (Driver FM).

30    On 12 October 2010 the Federal Magistrates Court ordered that Mr Shephard’s assets be sequestrated: Costa Exchange Ltd v Shephard [2010] FMCA 804 (Smith FM). In July 2011 the Court refused Mr Shephard’s application to set aside that order: Costa Exchange Ltd v Shephard (No 2) [2011] FMCA 545 (Smith FM).

The sale of the Sapphire Beach property

31    Pursuant to the sequestration order Phillip Aggs was appointed as trustee in bankruptcy. In January 2013 Mr Aggs retired and Mr Robson was appointed trustee in his place.

32    On 22 November 2013 the trustee filed a summons in the New South Wales Supreme Court seeking orders, amongst other things, permitting the appointment of Stephen Hall and James Roger as trustees (“Trustees for Sale”) for the sale of the Sapphire Beach property.

33    On 11 February 2014 Mr Shephard provided written consent to orders appointing the Trustees for Sale and that a 10/12th part of the net proceeds of sale of the Sapphire Beach property be distributed to the trustee. On 14 February 2014 the New South Wales Supreme Court made orders in accordance with Mr Shephard’s consent (“Kunc J Orders”).

34    The auction of the Sapphire Beach property was then fixed for 17 May 2014. The day before the auction Mr Shephard applied to the New South Wales Supreme Court to stay the Kunc J Orders and to restrain the Trustees for Sale from taking any step to sell the property. That application was unsuccessful and on 17 May 2014 the Sapphire Beach property was sold for $301,000 at public auction. Completion was due on 30 June 2014.

Notification of the claim that the Sapphire Beach property was “protected property”

35    On 31 May 2014 Mr Shephard emailed the trustee and sought undertakings that he deliver 10/12ths of the sale price of the Sapphire Beach property to Mr Shephard within 21 days (on the basis that the property was purchased with protected money) and that he pay all costs associated with the sale of the property plus interest and damages.

36    The trustee deposed, and I accept, that this was the first time that Mr Shephard had asserted that the Sapphire Beach property was purchased with protected money, and that prior to that time neither Mr Shephard nor anyone acting on his behalf had ever asserted any claim in relation to the property under s 116 of the Act. On 3 June 2014 the trustee refused to provide the undertaking sought, describing the claim as “unsubstantiated”.

37    On 31 July 2014 the trustee received $142,959.78 from the Trustees for Sale which he stated represented 10/12ths of the net proceeds of sale of the Sapphire Beach property.

THE PROCEEDING

38    Mr Shephard issued this proceeding on 16 June 2014. He filed the Amended Originating Application on 28 July 2014 and I allowed a Further Amended Originating Application and an Amended Statement of Claim on 30 April 2015. As amended, the proceeding sought that:

(a)    the Settlement Sum of $245,000 paid to Mr Shephard, or such proportion of that sum as the Court deemed appropriate, be declared exempt money pursuant to s 116 of the Act;

(b)    a 10/12th part of the Sapphire Beach property be declared protected property, it having been purchased with exempt money; and/or

(c)    pursuant to ss 178 and 116(4) of the Act, the Court order that the trustee pay to Mr Shephard a 10/12th part of the sale price of the Sapphire Beach property, or in the alternative such part of the sale price as is declared to represent exempt money or as is just and equitable.

39    On 2 July 2014 the trustee gave an undertaking to the Court not to distribute the funds from the sale of the Sapphire Beach property received from the Trustees for Sale, until further order.

40    Mr Shephard relied upon his affidavits affirmed on 13 June 2014, 19 June 2014, 4 August 2014, 1 April 2015, 22 April 2015, 24 April 2015 and 28 April 2015 and the affidavit of Mrs Shephard sworn 30 July 2014, together with their annexures. The trustee objected to much of Mr Shepherd’s evidence, and a significant proportion of it was repetitive, irrelevant, or objectionable. However, with the trustee’s consent, I allowed the evidence and I have treated the objections as going to weight.

41    The trustee relied upon his affidavit sworn on 15 December 2014 together with the affidavits of his solicitor, Owen James Anderson, sworn on 25 June 2014, 21 November 2014, 27 November 2014 and 29 April 2015, together with their annexures. Neither party sought to cross-examine.

42    There is no dispute that Mr Shephard used $200,000 of the Settlement Sum to purchase his interest in the Sapphire Beach property.

43    The proceeding turns on Mr Shephard’s contention that the whole, or at least part, of the $245,000 Settlement Sum he received, which he used to purchase his interest in the Sapphire Beach property, was exempt money because it was damages or compensation for personal injuries suffered in the assaults alleged in the 1999 and 2001 proceedings.

44    In broad terms the trustee contended that there was nothing in the Settlement Deed which identified any part of the settlement money as being damages or compensation for personal injuries, the allegations of assault made in the 1999 and 2001 proceedings had been denied, there had been no hearing on the merits of those claims and there was no award of damages for those claims. The trustee denied that any part of the settlement money paid to Mr Shephard represented damages or compensation for personal injuries.

THE STATUTORY FRAMEWORK

45    Pursuant to s 58(1) of the Act, all property of a bankrupt vests in the trustee in bankruptcy on the making of a sequestration order. In s 5 “property” is defined broadly and it includes “real or personal property of every description… and includes any estate, interest or profit, whether present or future, vested or contingent, arising out of or incident to any such real or personal property.” The meaning of “property” is to be considered in light of the principle that the creditors are to receive the benefit of “every beneficial interest which the bankrupt has” and “every species of right of which by any possibility profit can be made”: Re Buckle (1969) 15 FLR 460.

46    This general rule is reflected in s 116(1) which captures all property that belonged to or was vested in or has been or is acquired by or has devolved or devolves on the bankrupt, subject to certain exceptions. It relevantly provides:

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

…

is property divisible amongst the creditors of the bankrupt.

47    Section 116(2) sets out exceptions to the general rule. Relevantly to the present case, s 116(2)(g) provides:

(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;

(Emphasis added.)

48    Section 116(2)(n) provides that the exemption applies to property acquired with such “damages or compensation”, doing so by reference to s 116(3). Section 116(3) provides that:

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.

(Emphasis added.)

49    Section 116(2D) defines “exempt money” to include “damages or compensation of a kind referred to in paragraph (2)(g)”. It defines “protected money” as including exempt money.

50    Section 116(4) is central in the proceeding. It provides:

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.

This provision is important because, if s 116(2)(n) does not apply, and some of the money used to purchase a 10/12th part of the Sapphire Beach property was damages or compensation for personal injury, upon realisation of that property the trustee was obliged to pay to Mr Shephard so much of the proceeds of sale as could fairly be attributed to any protected money used in the purchase of the property.

RELEVANT LEGAL PRINCIPLES

The test as to whether a proceeding claims damages or compensation for personal injury or wrong

51    The question as to whether a legal proceeding claims “damage or compensation … for personal injury or wrong” pursuant to s 116(2)(g) was considered in Cox v Journeaux & Ors (No 2) (1935) 52 CLR 713; [1935] HCA 48 (“Journeaux”) at 721. Dixon J said:

The test appears to be whether the damages or part of them are to be estimated by immediate reference to pain felt by the bankrupt in respect of his mind, body or character and without reference to his rights of property.

(Citations omitted.)

52    In Bryant v Commonwealth Bank of Australia (1997) 75 FCR 545; [1997] FCA 582 (“Bryant”) at 549 per Lockhart, and 557-558 per O’Loughlin and Merkel JJ, their Honours explained that whether a proceeding concerns a claim for personal injury or wrong is to be determined by examining the initiating process and the pleadings and any other relevant documents in the case.

Severing a claim for damages or compensation for personal injury or wrong from a claim based in property rights

53    In extant proceedings which involve mixed causes of action (in the sense that a proceeding includes a cause of action claiming damages for personal injury or wrong and another cause of action based in economic or property rights) the courts have often permitted a bankrupt to sever the personal cause of action from the other claims and allowed the bankrupt to continue to prosecute the personal claim.

54    In Bryant at 548-550 Lockhart J canvassed a number of cases involving mixed causes of action and noted:

In Millane v Shire of Heidelberg [1936] VLR 8 the plaintiff alleged that the defendant trespassed upon the land and unlawfully removed materials. The plaintiff claimed damages not only for the loss of the materials, but also for the defendant’s allegedly high-handed and arbitrary behaviour. The Full Court of the Victorian Supreme Court (Mann CJ, Gavan Duffy and Martin JJ) held that the plaintiff was entitled to prosecute the action so far as it related to the defendant’s behaviour.

In Bullock v Goodluck (1983) 48 ALR 217 the Supreme Court of Tasmania (Cox J) held that the proceedings may be severed where the causes of action were for negligence and also misfeasance of public office. The same approach was taken by the Supreme Court of Queensland (Shepherdson J) in Holmes v Goodyear Tyre & Rubber Co (Aust) Ltd (1984) 73 FLR 88; 55 ALR 594 where damages were claimed for passing off and for defamation.

In Bullock the plaintiff claimed damages for alleged refusal to submit the plaintiff’s applications to the Transport Commission of Tasmania for its consideration concerning certain variations to the plaintiff’s motor vehicle cart licences. In the alternative, the plaintiff claimed damages for negligence and/or misfeasance of public office.

Cox J held (at 224) that the case was capable of severance into the claim for damages for personal injury or wrong which the plaintiff was entitled to prosecute; but otherwise the claim which related solely to the pecuniary loss to his estate vested in the trustee.

In Holmes the bankrupt plaintiff claimed damage caused to his business by alleged defamation and passing off. Those causes of action were held to have passed to the trustees on the plaintiff’s bankruptcy. But the plaintiff was held to be entitled to continue in his own name that part of the action in which he claimed damages for injury to his reputation, credit and character. See also Muir Hunter, Williams Law and Practice in Bankruptcy, (18th ed, 1968), pp 268-269, 319-322.

In other cases courts have declined to sever the proceeding.

In Re Dosanjh; Ex parte Duus (1995) 56 FCR 521 Kiefel J considered the question of mixed claims concerning both property and person in the context of an application by the trustee of the bankrupt for a declaration that money received by the bankrupt from the settlement of a claim for personal injury arising from a motor vehicle accident was property divisible amongst the bankrupt’s creditors. Her Honour reviewed the authorities dealing with mixed claims; and held that the loss referable to hospitalisation of the bankrupt for accident-related injury was a consequential loss flowing from a cause of action for injury to the person of the bankrupt; and that the amount received by the bankrupt was not property divisible amongst the bankrupt’s creditors.

In Daemar v Industrial Commission (NSW) (No 1) (1988) 12 NSWLR 45 the bankrupt sought prerogative writs against the Industrial Commission of New South Wales and claimed that he had suffered a personal wrong as a result of certain of the Commission judgments. Kirby P, with whom Samuels and Clarke JJA agreed, held that a “wrong” of this kind did not attract exemption from the operation of s 60(2) of the Act. His Honour said after referring to the judgment of Dixon J in Cox v Journeaux (at 56):

“The exemption is limited to those cases where it has been considered appropriate to sever the personal interests of the person subsequently made bankrupt from his property, and to reserve to him the prosecution of and benefits derived from such litigation as not being legitimately entitlements of the creditors. In the present case the so-called ‘wrong’ of which the claimant complains is the very source of the financial problems which have led to his bankruptcy. It is therefore to be classified not as a ‘wrong’ which is exempted from the operation of s 60(2) and the statutory stay provided for but as of the very essence of the subject matter to which s 60(2) is addressed.”

In Manningel v Hewlett (unreported, Court of Appeal, NSW, 12 June 1991), Handley JA, with whose reasons for judgment Kirby P and Meagher JA agreed, said (at pp 4-5) that the plaintiffs’ claim for damages for loss of credit, for mental distress, inconvenience and for injury to their physical and mental health were not claims “without reference to their rights of property” within the principle stated by Dixon J in Cox v Journeaux. His Honour held that the claims were consequential to the plaintiff’s financial and property interest as a result of alleged breaches of professional duty by their solicitors. Both plaintiffs became bankrupt. His Honour held that the plaintiffs sued on indivisible causes of action in tort and contract and that those causes of action formed part of their property which vested in the official receiver on their bankruptcy.

Kirby P, whilst agreeing generally with Handley JA’s reasons for judgment, noted that it was an agreed fact before the Court that damages claimed by the plaintiffs in the relevant paragraphs of the statement of claim for loss of their credit and reputation, for inconvenience, mental distress and strain and for injury to their physical and mental health were agreed to be the consequence of the other damages claimed by them essentially for professional negligence and damages for economic loss. His Honour said (at p 8) that the relevant claims for damages bore at first glance the character of personal wrong, but the agreed fact made it clear when read in the light of the pleadings that these damages related to the causes of action in contract and tort which vested in the official receiver. Hence the case turned on its facts.

When an action has been brought by a person who subsequently becomes bankrupt the nature of the action is determined by examining the initiating process and pleadings and any other relevant documents in the case. How does one determine the nature of an appeal? To determine whether an appeal is in respect of a personal injury or wrong done to the bankrupt, his spouse or a member of his family one must look at the action itself which gave rise to the judgment and the subsequent appeal. If, for example, the bankrupt had claimed damages for personal injuries suffered by him in a motor car accident; but a verdict was entered in favour of the defendant and the bankrupt appealed from the judgment, it would be necessary to examine the nature of the action to determine the essential character of the appeal.

(Emphasis added.)

55    I have approached the task of deciding whether the 1999 and 2001 proceedings made distinct claims for damages for personal injury by reference to the pleadings and other relevant documents from the proceedings.

Whether the whole or substantially the whole of money paid to acquire property was protected money, being damages or compensation for personal injury or wrong

56    An issue in the case is whether the whole or substantially the whole of the monies Mr Shephard used to purchased his interest in the Sapphire Beach property were from his claims for damages for personal injury and therefore “protected money”, which would mean the property was exempt pursuant to ss 116(2)(n) and 116(3).

57    In Re Iskenderian; Ex parte Iskenderian Bros Pty Ltd (1989) 21 FCR 363; [1989] FCA 270 (“Re Iskenderian”) at 372, Neaves J explained that this issue involved a decision as to whether the property, in truth, represents such damages or compensation. His Honour said:

… I am of opinion that s 116(2)(g) and (n) and subs (3) sufficiently reflect a legislative intention that a bankrupt, notwithstanding his bankruptcy, is to continue to have the benefit not only of any damages or compensation of the kind referred to in s 116(2)(g) recovered by him, but also of any property which can, as at the time when he becomes a bankrupt, properly be described as representing such damages or compensation. … I can see no basis for concluding that the protection is to extend only to the damages or compensation and to property initially purchased or acquired with the money recovered by way of damages or compensation: see Leach v Official Assignee [1975] 1 NZLR 83 at 87-88. In my opinion, s 116(3) requires that the totality of the circumstances be considered and the question asked whether the property, in truth, represents such damages or compensation.

(Emphasis added.)

58    In Turner v Official Trustee in Bankruptcy (1996) 71 FCR 418; [1996] FCA 1074 (“Turner”) at 422 to 423 (Burchett, Carr and Kiefel JJ) the Full Court explained the meaning of the expression “the whole or substantially the whole” in the following terms:

In Re Iskenderian; Ex parte Iskenderian Bros Pty Ltd (1989) 21 FCR 363 at 372 Neaves J, whilst dealing with other difficulties created by s 116(3) in its then form, considered that the question posed by the section was “whether the property, in truth, represents such damages or compensation”. This decision was followed in Re Manivilovski; Ex parte Official Trustee in Bankruptcy (1993) 45 FCR 358. Such an approach gives effect, correctly in our view, to the word “whole” and the phrase following “or substantially the whole”. The section requires, in the first instance, a consideration of the question whether the property is entirely accounted for by the application of protected moneys. If that is not the case, but nevertheless those moneys account for nearly all of what has been used in payment for or in the acquisition of the property, then this too will suffice to keep the property from being divided amongst creditors. But the subsection does not contemplate that property will be withheld from creditors wherever the protected moneys can account for a significant part of the purchase price, or of the means by which it is acquired. Even if, as here, the contribution of protected moneys could be described, in general terms, as “substantial” this would not satisfy the requirement that those moneys represent “substantially the whole” of that price or of the means of acquisition. Whilst “substantial”, when it appears alone, might refer to a contribution of significance, here it derives its meaning from “the whole”, the expression which it qualifies. The importance of the context supplied for the word “substantially”, was emphasised by Hill J in Secretary, Department of Social Security v Wetter (1993) 40 FCR 22 at 29-30, in relation to other statutory provisions. In our view, s 116(3) provides that a bankrupt may retain property that can be seen to represent the protected moneys, subject to only a minor qualification of input from other sources.

CONSIDERATION

Standing

59    In his written submissions the trustee contended that Mr Shephard lacked standing to bring the proceeding. He argued that Mr Shephard is an undischarged bankrupt who sought to assert a right to property without the trustee’s approval or any order of the Court establishing his right. On the trustee’s argument, the effect of ss 58(1) and 116(1) of the Act is to prima facie vest all of Mr Shephard’s rights of action in the trustee (Cummings v Claremont Petroleum NL (1990) 185 CLR 124; [1996] HCA 19) and to remove any right Mr Shephard may have had to institute the proceeding (Rogers v Asset Loan Co Pty Ltd [2006] FCA 434 at [42]-[52] and [54]-[57] (Greenwood J)). However, seemingly contrary to his written submissions, in an open letter shortly before trial the trustee accepted that Mr Shephard had a right of appeal against the trustee’s decision.

60    It is not clear whether the trustee maintained this contention, but it is untenable in any event. It is plain that Mr Shephard has a right under ss 116(2)(n), 116(3) and 116(4) to appeal to the Court pursuant to s 178 of the Act seeking an order that monies the trustee proposed to treat as divisible amongst his creditors are properly exempt monies. Section 178 provides:

178    Appeal to Court against trustee’s decision etc.

(1)    If the bankrupt, a creditor or any other person is affected by an act, omission or decision of the trustee, he or she may apply to the Court, and the Court may make such order in the matter as it thinks just and equitable.

(2)    The application must be made not later than 60 days after the day on which the person became aware of the trustee’s act, omission or decision.

The decision under appeal is the trustee’s decision to refuse to pay Mr Shephard some or all of the proceeds of sale of the Sapphire Beach property.

Onus

61    Mr Shephard has the onus. To succeed in the application relying on 116(2)(n) and 116(3) he must establish that the whole or substantially the whole of the $200,000 that he paid for his interest in the Sapphire Beach property was compensation or damages for personal injury or wrong. If he establishes that, then his interest in the property is exempt and if not, his application relying on those provisions must fail.

62    To succeed in the application relying on s 116(4) Mr Shephard must show that some part of the $200,000 he outlaid for his 10/12th part of the Sapphire Beach property was compensation or damages for personal injury (and therefore protected money), and that it is fair to attribute some part of the proceeds of sale of that property to that protected money.

Did the 1999 and 2001 proceedings include a claim for damages for personal injury?

63    There can be no question that the 1999 and 2001 proceedings included claims for damages for personal injury. The proceedings alleged that Mr Shephard was injured when he was assaulted by Chiquita’s employees or agents, particularised as follows:

(a)    on 29 October 1994, the then Chief Executive Officer of Chiquita, Peter McPherson, struck and punched him after trespassing on his land;

(b)    on 25 and 27 May 1999 and 5 November 1999, Peter Gourlay drove a motor vehicle at speed on the wrong side of the road directly at him as he was cycling;

(c)    on 27 May 1999, Scott Wolgamot punched and jostled him;

(d)    on 31 May 1999, Mr Wolgamot trapped his fingers between the handles of a posthole digging tool;

(e)    on 25 October 1999, Mr Wolgamot, Peter Woods and Michael Tamani pushed and pulled him and trapped his fingers between the handles of a posthole digging tool, and Mr Wolgamot threw him to the ground;

(f)    on 11 November 1999, Mr Gourlay threw a piece of wood and two stones at him, and one stone hit him on his left foot;

(g)    on 13 December 1999, Mr Gourlay drove his motorcycle at him, striking his left leg;

(h)    on 30 August 2000, Mr Wolgamot, David Bardon and Mr Woods lifted and threw him causing him to land upon his chest on compacted soil; and

(i)    on 6 September 2000, Gary Wright, Mr Bardon, Mr Woods, Ridley Bell and Mr Tamani forcibly propelled him from the back of a truck onto a compacted road reserve head-first and then lifted him from the ground before throwing him in a nearby ditch.

64    The proceedings set out the following particulars of injury:

1.    PARTICULARS OF INJURIES

a.    Bruised and painful upper left arm;

b.    Sore head;

c.    Bleeding from the mouth and nose;

d.    Nausea and gastric problems;

e.    Painful ribs;

f.    Sore neck;

g.    Restricted movement in the neck region;

h.    Bruising and cuts to the right arm;

i.    Bruising and grazing to the left leg;

j.    Graze to the left wrist;

k.    Headaches;

l.    Shock;

m.    Bruising to the chest, hip and knee.

2.    PARTICULARS OF CONTINUING DISABILITIES

a.    Soreness of mouth and teeth;

b.    Restricted neck movement;

c.    Anger and distress;

d.    Preoccupation with the events of injuries;

e.    Irritability;

f.    Feelings of powerlessness and inadequacy;

g.    Aggravation of depression;

h.    Aggravation of social withdrawal;

i.    Loss of motivation;

j.    Fatigue;

k.    Lethargy;

l.    Depression;

m.    Sleeping difficulties;

n.    Concentration difficulties;

o.    Forgetfulness;

p.    Feelings of panic;

65    Mr Shephard provided further and better particulars of his injuries dated 21 July 2004. It is significant that those particulars stated that he did not claim any continuing disabilities as a result of the injuries he suffered.

66    Mr Shephard filed a medical report of Dr Stephen Williams dated 9 April 2001 in the proceedings, which showed that he had provided a contemporaneous history of assaults to his local GP and that he had injuries consistent with the alleged assaults. The report stated:

Mr Derek Shephard has presented on multiple occasions over the last few years with injuries with which he gave a history of having been assaulted on each occasion.

He presented on the [sic] 26/10/99 with bruising on the right upper arm which included a 6 cm x 1.5 cm bruise and several smaller bruises, he also had a 4cm x 2 cm graze on the arm as well. On the 16/12/99 he gave a history of having been struck on the left leg by a motorcycle four days previously. Examination revealed a 9 cm x 3 cm bruise on the medial side of the left leg and a small graze on the dorsum of the left foot.

He presented on the 31/08/00 giving a history of being grabbed from behind. Examination revealed multiple small bruises on the anterior right shoulder, a graze on the lateral side of the right wrist and a painful left shoulder. He presented on the 15/9/00 with bruising over the T12 and L1 spinous processes with several 3 cm x 3 cm bruises present and painful ribs on the right side above the right nipple.

He presented again on the 9/4/01 with multiple scratches on the right forearm and bruising on the right forearm and arm.

Mr Shephard also relied on contemporaneous photographs which he said showed injuries suffered in the alleged assaults, and on Mrs Shephard’s account of Mr Shephard’s reports of assault.

To what extent did the 1999 and 2001 proceedings concern a claim for damages for personal injuries?

67    In my view the claims for damages for personal injuries formed a relatively minor part of the 1999 and 2001 proceedings. I consider that they mainly concerned Mr Shephard’s economic or property rights.

68    I say this, first, because the pleadings primarily concerned Chiquita’s actions in cutting off the water supply to Mr Shephard’s property, refusing to reinstate the water supply, and stopping his attempts to reinstate it. The proceedings alleged that Chiquita’s actions were a breach of statutory duty under the Water Act, a breach of fiduciary duty and negligent, that Chiquita’s actions in entering Lot 36 without Mr Shephard’s permission to, amongst other things, undertake works on the irrigation system constituted trespass to land, and that its actions in interfering with and seizing some of his irrigation equipment constituted trespass to goods. All of those claims for damages were based in Mr Shephard’s property rights, and none of them could properly be described as personal claims.

69    While the proceedings made claims for damages for distress, hurt, humiliation and injury to Mr Shephard’s feelings in relation to the alleged trespasses to land and goods (separately to the claims of assault) I see those claims as related to or consequential upon his property-based claims.

70    Second, Mr Shephard’s position paper for the mediation in August 2005 indicates that the damages claims based on his property rights were the focus of the proceedings. Importantly, the position paper stated that the “nub of this case is whether the defendant was entitled to terminate supply of water to Lot 36 in 1994”. It stated:

Proceedings were commenced by the plaintiff against Chiquita Brands South Pacific in 1999, initially seeking damages for breaches of fiduciary duty by Chiquita and trespasses upon the plaintiff’s land by employees of the defendant. The plaintiff also pleaded compensation for losses caused by the defendant containing the plaintiff’s goods.

More importantly, the plaintiff also sought compensation from the defendant for loss of income and not being able to operate his farm and loss of opportunity to expand the plantation.

In 2001 the plaintiff issued further proceedings against Chiquita and its employees seeking damages for trespass to the plaintiff’s goods, battery, trespass to the plaintiff’s land, private nuisance and detinue.

Every claim set out in the position paper related to Mr Shephard’s property rights except for the passing mention of the claim of battery (in the excerpt above).

71    Third, senior counsel engaged on Mr Shephard’s behalf took the view that Mr Shephard’s property rights were central in the proceedings. In an email to Mr Shephard’s solicitor on 27 February 2004 (“the email advice”), Michael Maurice QC stated:

At the heart of both District Court actions (120 of 1999 & 7 of 2001) is the right of Derek Shephard to participate in the supply of water from Kathleen Drive Dam. Chiquita admits it terminated the supply in 1994 and has acted to prevent Derek Shephard from re-connecting ever since.

The view I have formed is that Lot 36, Derek Shephard’s farm, is entitled to a supply of water from the Kathleen Drive Dam (2.8 megalitres per annum) and has been entitled to a supply of water from that Dam since at least 1991.

I have also formed the view that Chiquita’s actions in cutting off the water supply in 1994, refusing to reinstate it and interfering with Derek Shephard’s actions to reinstate it were unlawful.

The source of Derek Shephard’s rights is an authority granted under s 20 of the Water Act 1912…

Derek Shephard, along with Chiquita and a number of others, is one of the holders of the authority.

The authority is for a joint water supply scheme.

…

Condition 7 of the authority stipulates that the apportionment of water taken by means of the authorised work shall be on such bases as may be mutually arranged between the holders of the authority from time to time. The indications from the Dept of Water & Conservation file are that the water is been apportioned equally between the farms.

Whilst condition 7 requires each holder of the authority [to] contribute equally to the provision, construction, operation, maintenance and renewal of the authorised works, it gives no right to any other holder or group of holders to cut off the supply of water to recover a debt incurred under this condition. Nor does the Act.

I do not understand the source of Chiquita’s claimed power to cut off the water. It is said, though I don’t think it is pleaded, Chiquita claims ownership of the pipes. Too bad, even if true. By participating in the joint water supply scheme it has subordinated its rights of ownership (which seem to me to be doubtful) to the rights of other participants in the scheme and to its obligations under the authority and the Act.

(Emphasis added.)

The email stated that a full advice would be provided shortly thereafter, but neither party adduced any later advice. The email advice only referred in passing to “physical impositions” upon Mr Shephard’s person and gave that matter no attention.

72    Fourth, Dr Williams’ report shows that Mr Shephard’s injuries were largely just bruises, grazes, scratches and soreness. Dr Williams was the only doctor whom Mr Shephard consulted in the relevant period about his injuries, and he did not require specialist attention. In saying this, I do not downplay the significance of the physical assaults which Mr Shephard claims to have occurred. If his claims are accepted, those assaults would have been frightening and distressing, however, Dr Williams’ report shows that he did not suffer serious injuries.

73    The particulars in the proceedings set out Mr Shephard’s “continuing disabilities” as including psychological symptoms such as irritability, feelings of powerlessness and inadequacy, aggravation of depression, aggravation of social withdrawal, loss of motivation, depression, sleeping difficulties, concentration difficulties and panic. However, there is no evidence that Mr Shephard required medical treatment for any such conditions and, in the absence of medical evidence, I do not put much store on those claims. It is significant that Mr Shephard’s further and better particulars dated 21 July 2004 provided that he did not claim any continuing disability, special damages, or economic loss arising from the injuries he suffered.

74    In my view, even without any discount for risks on liability, Mr Shephard’s personal injury claims were of minor quantum.

75    Fifth, the defendants strenuously denied the allegations of assault. While they conceded that there had been various physical altercations involving Mr Shephard they laid the blame at his feet, alleging that he repeatedly interfered with and damaged Chiquita’s irrigation equipment including by climbing inside metal cages they constructed to protect their equipment, that in doing so he was in breach of a court injunction, that their actions were no more than a legitimate defence of the irrigation equipment and that they only used reasonable force. Based on the pleadings and other relevant documents it appears likely that some of those defences had force, at least in relation to some of the incidents. It is likely too that the value of the personal injury claims in any settlement would have been discounted in recognition of the risk that they would not succeed.

76    Sixth, Chiquita’s position paper for the mediation noted that the claim of breach of statutory duty was the nub of the proceedings. It showed that the expert agronomist engaged on Mr Shephard’s behalf calculated the loss of profits from lost blueberry production from 1994 in the sum of $1,523,948. In contrast, it stated that even if the allegations of assault could be made out two Federal Magistrates had found on a prima facie basis that the quantum of any damages for personal injury would be less than $12,000.

77    Seventh, while far from material to my decision, it is worth noting that courts dealing with the bankruptcy proceedings at that time also expressed the view that Mr Shephard’s personal injury claims were either not significant claims or faced real difficulties on liability.

78    For example, in Shephard v Blueberry Farms of Australia (Corindi) Ltd in 2001, Driver FM considered Mr Shephard’s claim that he had a prima facie case in trespass to the person or assault against Chiquita which was a set-off or cross-claim against the debt which was the subject of the bankruptcy notice. His Honour noted that it was common ground that there had been a series of incidents between Mr Shephard and servants or agents of Chiquita which involved physical conflict and that Chiquita acknowledged that its servants or agents had from time to time entered Lot 36 and physically restrained Mr Shephard from interfering with its irrigation system. In obiter his Honour said that it was likely that Chiquita had authority to enter Lot 36 because it had the benefit of an easement, that a court hearing Mr Shephard’s claims for damages for personal injuries would likely have due regard to the fact that Mr Shephard was acting in apparent defiance of an injunction granted by the Local Court, that the court was likely to take cognizance of the possibility that Mr Shephard had deliberately set up a situation of physical confrontation to suit his purposes, and that there was a degree of provocation in Mr Shephard’s actions. His Honour said that he was unable to conclude that Mr Shephard would succeed in an action for assault against Chiquita or its employees or agents or even that he had a prima facie case on the evidence then available.

79    A similar view seems to lie behind Madgwick J’s remarks in Shephard v Chiquita Brands (South Pacific) Ltd [2003] FCA 465 at [28] where his Honour said:

I have examined each of the assault claims alleged and the evidence before Raphael FM in relation to them. Without tediously rehearsing the detail, it is clear that as to none of the particular claims is there any or any adequate evidence of the facts asserted by the appellant sufficient did satisfy the requirements of s 40(1)(g). The deficiencies to some extent vary from allegation to allegation. They were discussed seriatim in argument. In many cases the deficiencies include an inadequacy of material to suggest that anything other than nominal damages might be recoverable. In others, the evidence is, for example, insufficient, in the light of the respondent’s evidence, to ground a cause of action sufficiently viable as to justify delaying any question of bankruptcy pending its further curial investigation. In particular, the mere allegation of fact in (or as in) a statement of claim is not evidence that the debtor has a cross-claim and is insufficient unless supported by prima facie the evidence of their truth.

(Emphasis in bold added. Citations omitted.)

Was all, or any part, of the Settlement Sum damages or compensation for personal injury or wrong?

80    This is the fundamental question in the proceeding. It is convenient to address it by breaking it down into two issues:

(a)    whether the whole, or substantially the whole, of the Settlement Sum was damages or compensation for personal injury; and if not

(b)    whether any, and if so what, part of the Settlement Sum was damages or compensation for personal injury.

Was the whole or substantially the whole of the Settlement Sum damages or compensation for personal injury or wrong?

81    The first issue is straightforward. Contrary to Mr Shephard’s primary contention, in my view it is fanciful to suggest that the whole or substantially the whole of the $245,000 Settlement Sum can be attributed to the personal injury claims.

82    That the 1999 and 2001 proceedings primarily concerned Mr Shephard’s property-based rights is plain from the pleadings, the parties’ position papers for the mediation, and his QC’s email advice. Mr Shephard was advised that he had a strong claim in relation to the unlawful termination of water supply and the expert evidence filed on his behalf put the quantum of his claim for loss of profit at $1.5 million.

83    In contrast, the particulars of injury of 21 July 2004 stated that Mr Shephard had no continuing disabilities and Dr Williams’ report showed that his injuries from the alleged assaults were minor. He did not consult a doctor other than Dr Williams and he did not require any specialist treatment. As the defendants said at the time, putting liability questions to one side, the likely quantum of damages was small. It is also likely that the settlement reflected the defendants’ strenuous denial of the allegations of assault and the risks on liability.

84    Before me Mr Shephard attempted to expand his claims of injury. He deposed that:

Since the attacks by servants of the creditor on 6 September 2000, I have (apart from on one occasion a number of years ago) I have [sic] been unable to sleep in any position other than flat on my back. I note that I experience no physical pain.

He also deposed that since the alleged physical assaults he had woken up during the night, choking on his own saliva. He adduced some evidence of this by way of copies of calendars on which he had noted various dates on which he claimed to have experienced those symptoms. He did not, however, adduce any medical evidence in that regard.

85    In my view Mr Shephard’s attempt to expand his claims of injury was misconceived. There is nothing in the 1999 and 2001 proceedings, in the contemporaneous medical evidence, or in any other contemporaneous document which shows that, at any time prior to the settlement in September 2005, Mr Shephard alleged that he was unable to sleep other than flat on his back or that he woke up during the night choking on his own saliva. I infer that he did not make such allegations at the time. If he did not make such claims at the time it cannot be that any part of the Settlement Sum related to them.

Conclusion regarding the application under ss 116(2)(n) and 116(3)

86    As the Full Court said in Turner at 422 to 423, an applicant claiming that property is exempt by the operation of ss 116(2)(n) and 116(3) must establish that the whole or substantially the whole of the money used in acquisition of the property is protected money. This involves two questions:

(a)    whether the acquisition of the property in question is entirely accounted for by the application of protected money; and if that is not the case

(b)    whether nearly all of the money used for the acquisition is protected money.

Even a “substantial” contribution of protected money towards acquisition of the property does not suffice to meet the test. The contribution must be substantially the whole, or nearly all, of the money used. The question is whether the property, in truth, represents damages or compensation for personal injury or wrong taking into account the totality of the circumstances: Re Iskenderian at 372.

87    The quantum of Mr Shephard’s property based claims was significant and his QC advised that those claims had strong prospects on liability. The quantum of the personal injury claims (considered as an assessment) was low, and there were difficulties in establishing liability. In my view it is far-fetched to suggest that the defendants would have agreed to pay $245,000 (or near to that sum) to settle the modest and strenuously contested personal injury claims. Looked at another way, if the Settlement Sum was largely for the assault claims then Mr Shephard agreed to accept a small amount or nothing in settlement of his substantial and apparently strong property-based claims. That is highly unlikely.

88    Taking into account the matters I have canvassed it is likely that only a minor portion of the Settlement Sum related to the claims for damages for personal injury, and it follows that only a small amount of the money Mr Shephard used to acquire his interest in the Sapphire Beach property could be characterised as exempt money. Because the whole or substantially the whole of the money used to acquire that property was not protected money, Mr Shephard’s application under ss 116(2)(n) and 116(3) must fail.

Was any part of the Settlement Sum damages or compensation for personal injury or wrong, and if so what part?

89    The remaining question is whether some part of the outlay for the Sapphire Beach property was protected money. Mr Shephard contends for a finding that it was, and he seeks an order pursuant to s 116(4) that he be paid so much of the proceeds of sale of that property as can fairly be attributed to that protected money.

90    The trustee contended that Mr Shephard could not show that any part of the Settlement Sum was damages or compensation for personal injury or wrong. He noted, and I accept, that no provision of the Settlement Deed expressly identified any amount to be paid to Mr Shephard by way of damages for personal injury, and that it referred only to “various allegations” made in the proceedings which were denied.

91    First, he submitted that the personal injury claims in the proceedings should not be separated out from the claims based in property rights. I do not agree. The claims for assault were distinctly pleaded and particularised, based on different facts to the claims based on property rights, supported by different evidence to the property-based claims and, were the proceedings extant, they would be capable of being severed from those claims. As Dixon J explained in Journeaux at 721, whether a proceeding relevantly seeks damages or compensation for personal injury or wrong requires an assessment of “whether the damages or part of them are to be estimated by immediate reference to pain felt by the bankrupt in respect of his mind, body or character and without reference to his rights of property”. Mr Shephard’s claims for damages for personal injury meet that test.

92    The trustee submitted that Mr Shephard suffered his personal injuries in the context of the property dispute concerning access to irrigation lines controlled by Chiquita, and that the claims were therefore not “without reference to his property rights” in accordance with the test in Journeaux. I do not agree. While the alleged assaults occurred against the backdrop of a dispute about property rights, in my view they are not properly to be seen as referable to or consequential upon that dispute. Mr Shephard alleged, amongst other things, that he was unlawfully assaulted by being struck and punched, being deliberately driven at in a motor vehicle, being deliberately struck by a motor vehicle, and being thrown headfirst from the back of a truck. Such unlawful conduct must be seen as separate to the property-based claims and “without reference to property rights”. I note that if Mr Shephard made out his assault claims he would succeed in those claims regardless of the result in the property-based claims.

93    Second, the trustee contended that:

(a)    the claims for damages for personal injury were strenuously denied by the defendants to the proceedings;

(b)    the defendants to those claims argued that the physical actions they took in relation to Mr Shephard were reasonable in the circumstances to protect Chiquita’s property rights and their own physical safety; and

(c)    there was no hearing in relation to the claim for damages for personal injury and no judgement regarding causation, liability or quantum.

In a related submission the trustee argued that for the Court to decide that Mr Shephard was entitled to a payment for the claimed personal injuries would require a hearing of the 1999 and 2001 proceedings, and the material before the Court did not allow the Court to make a decision on those claims.

94    Third, the trustee submitted that the Settlement Deed was a fundamental obstacle to Mr Shephard succeeding under s 116(4) because there was nothing in that document to support his contention that the monies constituted damages for personal injury. The trustee also argued that the rights of action in the 1999 and 2001 proceedings were extinguished by the Settlement Deed and any pre-existing claim for damages for personal injury had “lost its character in the amorphous unapportioned manner in which the settlement of numerous commercial claims was realised”.

95    I accept that the fact that the claims were denied by the defendants and never determined by a court is relevant, but it cannot be determinative. Section 116(4) involves a decision, on the balance of probabilities, as to whether an outlay made to acquire property was in part exempt money and in part other money. Damages or compensation for personal injury or wrong is one category of exempt money and throughout Australia such claims are commonly settled without admission of liability. I do not accept that a claim for damages for personal injury must be determined by a Court before any monies received in settlement of the claim can be viewed as protected money in an application under s 116(4).

96    Where a proceeding involved mixed causes of action and the settlement was not apportioned between those causes of action, there are obvious difficulties for a court in reaching a view as to whether any part (and if so what part) of the settlement related to the personal claims of the bankrupt. However, I do not accept that reaching a view as to what monies can fairly be attributed to a claim of personal injury or wrong necessitates hearing that claim. The Court must decide by reference to the pleadings and any other relevant document (including the terms of settlement) whether the settled proceeding included distinct personal claims and whether a portion of the settlement monies related to those claims.

97    The lack of apportionment in the Settlement Deed makes the Court’s task under s 116(4) difficult but in my view the evidence indicates that part of the settlement related to Mr Shephard’s personal injury claim. In Biggin & Co Ltd v Permanite [1951] 1 KB 422 at 438 Devlin J stated:

It is only that where precise evidence is obtainable the court naturally expects to have it. Where it is not the court must do the best it can.

This passage was cited with approval by the Full Federal Court in Enzed Holdings v Wynthea (1984) 57 ALR 167 at 183 (Sheppard, Morling and Wilcox JJ). Their Honours said, in dicta:

The principle is clear. If the court finds damage has occurred it must do its best to quantify the loss even if a degree of speculation and guesswork is involved.

98    In JLW (Vic) Pty Ltd v Tsiloglou [1994] 1 VR 237 at 241 Brooking J reviewed the relevant authorities and said:

It is often said that the amount of the damage must be proved with certainty, but this only means as much “certainty” as is reasonable in the circumstances: Ratcliffe v Evans [1892] 2 QB 524 at 532-3. Where precise evidence is obtainable, the court naturally expects to have it; where it is not, the court must do the best it can: Biggin and Co Ltd v Permanite [1951] 1 KB 422, at 438; Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 83 per Mason CJ and Dawson J. The nature of the damage may be such that the assessment of damages will really be a matter of guesswork, as in the well-known case of Chaplin v Hicks [1911] 2 KB 786, where the plaintiff had lost a chance of winning an engagement as an actress as a prize. So damages will be assessed for the wrongful detention of a racehorse even though it may be necessary to guess at the amount: Wilson v Matthews [1913] VLR 224… But while in some cases guesswork may be permissible in assessing damages, in others it is not.

His Honour continued at 243:

There is no rigid dividing line between cases in which guesswork is permissible in assessing damages and cases in which it is not. The borderline between guesswork and rational assessment is itself indistinct, as is the line between evidence that is “precise” (the Permanite Case dictum) and evidence that is not. In Enzed Holdings v Wynthea (1985) 57 ALR 167, at 182-3…the Full Federal Court thought the case to be one in which precise evidence of the loss was not obtainable, so that if the trial judge found that the plaintiffs had suffered some loss he must do his best to quantify the loss even if “a degree of speculation and guesswork” was involved.

99    The cases to which I have referred concerned the Court’s task in assessing damages which is not the task before me, however in Mark Bain Constructions Pty Ltd v Avis; Mark Bain Constructions Pty Ltd v Barnscape Pty Ltd [2012] QCA 100 at [134] the Queensland Court of Appeal considered how to “dissect” a settlement of proceedings that was inclusive of claims, interest and costs. The settlement terms did not apportion the settlement monies between those elements. Fraser JA, with Chesterman JA and Fryberg J agreeing, said:

The “undissected” nature of the settlement between [the relevant parties in that case] makes that task difficult, but the settled rule is that mere difficulty in estimating a loss does not relieve the Court from the responsibility of making the best estimate it can [and there cited The Commonwealth of Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 83, per Mason CJ and Dawson J, 102 per Brennan J and 105 per Deane J.]

I respectfully agree, and I have taken this approach.

100    Fourth, the trustee argued that Mr Shephard was asking the Court to look outside the Settlement Deed to determine what the parties’ intentions should have been in the circumstances. He argued that this subverted established principles of common law which provide that the best evidence of the parties’ intention is to be found in the agreement itself. I do not accept this. The Settlement Deed is silent in relation to apportionment but in the circumstances there was no requirement for the parties to record any apportionment. In my view the Settlement Deed, read in that context, does not support the trustee’s construction. Having regard to the pleadings, other relevant documents including the parties’ position papers for the mediation, and the email advice of Mr Maurice QC I consider that for the purpose of s 116(4) an apportionment is appropriate.

101    Fifth, the trustee contended that (even if the allegations of assault were made out) Mr Shephard’s claimed injuries were de minimis and his damages claim would have been of no or negligible value. I do not agree. While Mr Shephard’s claimed injuries were not serious or permanent I do not consider they were de minimis.

102    I am satisfied that Mr Shephard’s claims for damages for personal injury had a value at the time of settlement and it is more likely than not that the Settlement Sum included an amount representing the value of those claims. I now turn to consider, on the balance of probabilities, what amount of the Settlement Sum related to the personal injury claims.

103    The proceedings alleged that Mr Shephard was assaulted on nine occasions over a six year period including by being struck and punched, driven at by a motor vehicle, driven at and struck by a motorcycle and being thrown headfirst from the back of a truck. He required medical attention by his local GP on five occasions for multiple bruises, multiple grazes, a painful left shoulder, painful ribs, bruising over his spine and multiple scratches. Dr Williams’ report showed that Mr Shephard’s injuries were not serious or permanent. Any claim Mr Shephard had for medical and like expenses was negligible, he was not incapacitated for work, he made no claim for economic loss, and he did not claim that he suffered any continuing disability in his latest particulars. Mr Shephard’s claims were primarily for general damages for pain and suffering. While Mr Shephard avoided serious injury the alleged assaults are likely to have been distressing, and there were nine alleged assaults in total.

104    Mr Shephard also alleged that, amongst other things, the assaults made him angry and distressed, gave him feelings of powerlessness and inadequacy and either aggravated his depression or caused him depression, but I put little store in these claims for the reasons I have given.

105    It is trite that a plaintiff who has been injured by the conduct of another will be awarded such a sum of money as will, as nearly as possible, put him in the same position as if he had not sustained the injuries: Todorovic and Another v Waller (1981) 150 CLR 402; [1981] HCA 72 (Gibbs CJ and Wilson J).

106    It is likely that the parties’ assessments of the personal injury claims would have been discounted to take account of the risk that the claims would not succeed. The defendants’ defences point to difficulties in some of the allegations of assault. They defended the claims on the basis, amongst others, that Mr Shephard’s actions in interfering with Chiquita’s irrigation system were in defiance of a court injunction, that Chiquita had the benefit of an easement over Mr Shephard’s property and that it was entitled to protect its property from damage at Mr Shephard’s hands and from his interference, provided it used reasonable force. The defendants denied the allegations of assault and in relation to some of the incidents they corroborated each other’s accounts. However, some of the assault claims would have been an oath on oath contest between Mr Shephard and a defendant, for example Mr Shephard’s allegations that on two occasions Mr Gourlay drove his vehicle at him on a public thoroughfare. If it were established that Mr Gourlay had done so, there could be no defence to that claim.

107    It is significant that the pleadings, Mr Shephard’s position paper for the mediation, and his QC’s email advice show that the proceedings primarily concerned his property-based claims, and that in their position paper the defendants took the position that the nub of the proceedings was the property-based claims, and that the assault claims were minor in quantum and weak on liability.

108    While there is little doubt in my mind that some of the Settlement Sum related to Mr Shephard’s personal injury claim, there is no precise evidence of the apportionment of damages between the personal and the property-based claims in the proceedings. The task involves a degree of speculation, but taking into account the matters I have canvassed in my view the parties would have put the personal injury component of the Settlement Sum at about $15,000. This represents the best estimate I can make of the parties’ assessment of general damages for pain and suffering in respect of nine alleged assaults over six years, which occasioned minor and impermanent physical injuries and some distress and upset, taking into account risks on liability.

The claim for aggravated damages and exemplary damages

109    In the 2001 proceeding Mr Shephard also sought aggravated damages as additional compensation. Such damages are available for injured feelings caused by insult and humiliation heightened by the manner or motive of a defendants’ conduct: Cassell & Co Ltd v Broome [1972] UKHL 3; 1972 AC 1027 at 1124 (Diplock LJ); Lamb v Cotogno (1987) 164 CLR 1; [1987] HCA 47 (“Lamb”) at 8. Mr Shephard also claimed exemplary damages to punish the defendants for their alleged contumelious disregard of his rights. I note that the considerations for the assessment of exemplary damages are quite different from the considerations that govern the assessment of compensatory damages, and there is no necessary proportionality between the assessment of the two categories: XL Petroleum (NSW) Pty Ltd v Caltex Oil (Aust) Pty Ltd (1985) 155 CLR 448; [1985] HCA 12 at 471 (Brennan J); Lamb at 8–9.

110    Mr Shephard relied on the decision of Bergin J in Walter Vignoli v Sydney Harbour Casino [1999] NSWSC 1113; (2000) Aust Torts Reports 81-541 (“Vignoli”). In that case her Honour made an award of aggravated damages of $10,000 on the grounds that there was no proper basis for one of the defences taken and because the defendant was not acting in a bona fide manner in pleading and maintaining that defence. Her Honour also made an award of exemplary damages of $35,000 for the defendant’s contumelious disregard of the plaintiff’s rights and the “objectively high-handed” manner in which it treated the plaintiff.

111    Mr Shephard argued that he was entitled in the proceedings to aggravated and exemplary damages on the grounds that he had suffered through the defendants’ conduct for longer than Mr Vignoli, at the time of settlement he had not received an apology from the defendants, and that they had shown no signs of remorse for their actions. Without descending into the detail of the facts in Vignoli they are not analogous to the present case and in my view the case is of little assistance.

112    However, Mr Shephard’s position paper for the mediation did not refer to the claim for aggravated damages and made only a passing reference to the claim for exemplary damages. His QC’s email advice did not refer to the claims for aggravated or exemplary damages at all and neither did the defendants’ position paper for the mediation. I can see nothing in the pleadings or other relevant documents to indicate a likelihood that in settling the proceedings the parties ascribed any value to the claims for aggravated damages and exemplary damages, at least in relation to the alleged assaults.

113    Nor can I see anything to indicate that the defences made to the assault claims were not bona fide or unjustifiable, and as I have said there is likely to have been some force in some of them (as Driver FM said). I also note that, even if one or other of the individual defendants failed to use reasonable force in dealing with Mr Shephard’s interference with the irrigation system, that would not of itself show a conscious and contumelious disregard of his rights.

114    I note also that, to the extent that those claims were genuinely pursued, they most likely related to the property-based claims rather than the assault claims. I do not accept that any part of the Settlement Sum related to claims for aggravated or exemplary damages based on the alleged assaults.

Conclusion regarding the application under s 116(4)

115    The evidence shows that of the $245,000 Settlement Sum about $7,000 was paid directly to Mr Shephard and about $38,000 was taken up in legal costs and disbursements. Mr Shephard then spent the $200,000 balance to acquire a 10/12th part of the Sapphire Beach property from Mrs Shephard.

116    The amount of $15,000 which represented Mr Shephard’s personal injury claims in the settlement was approximately six percent of the Settlement Sum. In my view it is appropriate to treat six percent of the outlay on the Sapphire Beach property (being $12,000) as exempt money.

117    On 30 June 2014 the trustee realised the Sapphire Beach property for $301,000. In my view it is fair to attribute six percent of a 10/12th part of the net proceeds of sale to the protected money outlaid by Mr Shephard, and that amount should be treated as not divisible between his creditors.

118    There is, however, a question as to the quantum of the net proceeds of sale. While the material before the Court shows the deduction of a variety of expenses which appear to relate to the sale of the property, the material also points to other expenses where the connection to the sale is not clear. In particular, there is no material explaining how a $45,316.13 tax invoice for Forsyths Chartered Accountants related to the sale.

CONCLUSION

119    I have directed the trustee to file and serve an affidavit providing up-to-date information setting out all of the costs associated with or related to the sale of the property, together with the applicable government levy on realisations made in respect of an administration under the Act. The affidavit must also provide up-to-date information regarding any amounts owing to the trustee for unpaid remuneration and disbursements, legal costs and disbursements, and other matters.

120    As provided in the orders, the parties are directed to confer in an effort to reach agreement as to draft minutes of orders reflecting these reasons, and to file agreed minutes. If there is no agreement each party must file draft minutes of the orders for which he contends. The parties must also file any submissions on costs.

Associate:

Dated:    5 November 2015