FEDERAL COURT OF AUSTRALIA

Cunningham (Trustee) v Gapes, in the matter of Gapes (Bankrupt) [2017] FCA 787

ORDERS

THE COURT ORDERS THAT:

1.    The applicant is entitled to summary judgment pursuant to s 31A of the Federal Court of Australia Act 1976 (Cth) (the Federal Court Act).

2.    Pursuant to s 31(1)(f) of the Bankruptcy Act 1966 (Cth) (the Bankruptcy Act), the Money as defined in paragraph 9 of the Statement of Claim filed on 14 November 2016:

(a)    is property divisible among the creditors of the Bankrupt pursuant to s 116 of the Bankruptcy Act; and

(b)    vested in the applicant on 12 March 2014 pursuant to s 58(1)(b) of the Bankruptcy Act.

3.    The respondent do all acts and things necessary to transfer the Money to the applicant forthwith.

4.    The respondent pay the applicant interest on the Money pursuant to s 51A of the Federal Court Act from 13 March 2014 to the date of judgment.

5.    The respondent pay the applicant’s costs on a party-party basis, to be taxed if not otherwise agreed.

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

REASONS FOR JUDGMENT

COLLIER J:

Background

1    Before the Court is an interlocutory application for summary judgment filed on 20 April 2017.

2    Andrew Brian Gapes (the Bankrupt) was made a bankrupt on 17 January 2011. The applicant was appointed the trustee of the Bankrupt’s estate. The respondent, Antonia Gapes, is the wife of the Bankrupt.

3    On 18 December 2013, the Bankrupt’s mother, Neryl Ann Gapes (the deceased) died. A grant of probate was obtained in respect of the will of the deceased on 14 February 2014. The Bankrupt was a named executor and beneficiary of that will.

4    On 12 March 2014, in accordance with the terms of the deceased’s will, the proceeds of a superannuation fund of the deceased were distributed to her beneficiaries, one of whom was the Bankrupt. The Bankrupt’s share, being $87,900.33 (the Money), was apparently paid directly to the respondent, because (inter alia) at the time the Bankrupt did not operate a bank account in his own name.

5    In his substantive application and statement of claim filed on 14 November 2016, the applicant claims that, pursuant to s 58(6) of the Bankruptcy Act 1966 (Cth) (the Bankruptcy Act), the Money is:

a.    after-acquired property, as it was acquired by the Bankrupt after the date of its bankruptcy; and

b.    divisible amongst creditors of the bankrupt.

6    The applicant seeks the following orders:

1.    Pursuant to s 31(1)(f) of the Bankruptcy Act 1966 (‘the Act’), a declaration that the Money:

a.    is, pursuant to s 116 of the Act, property divisible among the creditors of the Bankrupt;

b.    pursuant to s 58(1)(b) of the Act, vested in the Applicant on 12 March 2014;

2.    [not pressed]

3.    An order that the Respondent do all acts and things necessary to transfer the Money to the Applicant forthwith;

4.    Costs;

5.    Such further or other orders as the Court sees fit.

7    In the current interlocutory application, the applicant seeks the following orders:

1.    Summary judgment pursuant to s 31A of the Federal Court of Australia Act 1976 (Cth) and Rule 26.1 of the Federal Court Rules 2011 (Cth).

2.    Interest pursuant to s 51A of the Federal Court of Australia Act 1976 (Cth) from 13 March 2014 to the date of judgment.

3.    Costs.

4.    Such further or other orders as the Court sees fit.

8    The key issue before the Court at the moment is whether the trustee is entitled to summary judgment, because, on the facts, and as a matter of law, the Money is uncontrovertibly divisible property within the meaning of s 58(6) of the Bankruptcy Act. The controversy before the Court stems from the fact that the Money paid to the Bankrupt derived from Money being the proceeds of the superannuation policy of the deceased with Colonial First State.

9    In summary, the applicant submits:

    The Bankrupt did not have an interest in the relevant superannuation policy, his mother did;

    The payment to the respondent was not from a regulated superannuation fund, but was in fact a distribution from the estate of the Bankrupt’s mother pursuant to the terms of her will;

    If the Bankrupt did have an interest in or had received a relevant payment from a superannuation fund, then this would have been evidenced by a payment directly from such a fund, but that did not occur here;

    The respondent’s submission – that the superannuation benefit was not intermingled with any other estate funds and so that somehow maintained the nature of it when the distribution was made from the estate – is not supported by the evidence, and is in any event flawed. The intermingling of funds, as one might come across in a tracing type case, has no relevance or application here;

    The case of Trustees of the Property of Morris (Bankrupt) v Morris (Bankrupt) [2016] FCA 846 can be distinguished because Ms Morris, being a dependent of the deceased (her late husband), was paid the benefits directly upon the favourable exercise of the discretion of the trustees of the two superannuation funds;

    On the respondent’s argument, a bankrupt could avoid property being made divisible to creditors provided he or she could show that its genesis was from a third party’s superannuation fund, irrespective how many hands such funds passed through;

    The Bankrupt was a residuary beneficiary under his mother’s will, and as such he merely had a right to ensure that the personal representatives complete their duties. In that capacity he had no proprietary interest in any of the assets contained in the deceased estate; and

    The respondent is unable to point to a factual or evidentiary dispute that would justify a trial and cannot demonstrate a triable issue constituting a defence to the applicant’s claim.

10    In summary, the respondent submits:

    The grant of probate of the deceased’s estate separately identifies funds in the amount of $248,696.49 held by the deceased in a regulated superannuation fund;

    The funds were received by solicitors for the estate, not intermingled with any other funds and distributed separately to the beneficiaries of the deceased’s will on 12 March 2014;

    The Money is directly and solely attributable to the funds held by the deceased in a superannuation fund and are accordingly a payment to the Bankrupt from that fund;

    Payment through an administrative mechanism of a solicitor, and the estate of a deceased person, does not alter the nature of the funds as a payment to the Bankrupt from a regulated superannuation fund;

    The payment to the respondent represents “a payment to the bankrupt from such a regulated superannuation fund received on or after the date of the bankruptcy” within the meaning of s 116(2)(d)(iv) of the Bankruptcy Act;

    The Money, by legislative definition, property which is excluded from the s 116(1) definition of the Bankruptcy Act for property divisible among creditors, and therefore does not vest in the trustee;

    The Money was received by the respondent at a time when the respondent was unaware that the bankruptcy of the Bankrupt had been extended;

    The Money has since been dispersed by the respondent;

    The substantive application as pleaded does not establish a basis upon which the respondent can be held liable for the debts of the Bankrupt or the failure of the Bankrupt to provide funds to the trustee; and

    It cannot be said that the respondent has “no reasonable prospect of success” and the application for summary judgment should be dismissed.

Consideration

11    Section 31A of the Federal Court of Australia Act 1976 (Cth) (the Federal Court Act) provides:

Summary judgment

(1)    The Court may give judgment for one party against another in relation to the whole or any part of a proceeding if:

(a)    the first party is prosecuting the proceeding or that part of the proceeding; and

(b)    the Court is satisfied that the other party has no reasonable prospect of successfully defending the proceeding or that part of the proceeding.

(2)    …

(3)    For the purposes of this section, a defence or a proceeding or part of a proceeding need not be:

(a)    hopeless; or

(b)    bound to fail;

for it to have no reasonable prospect of success.

(4)    …

(5)    …

12    The exercise of powers to summarily terminate proceedings must always be attended by caution (Spencer v Commonwealth of Australia (2010) 241 CLR 118 at [24]), only occurring in circumstances where there is a high degree of certainty about the ultimate outcome of the proceeding if it were allowed to go to trial in the ordinary way (Agar v Hyde (2000) 201 CLR 552 at [57]; Batistatos v Roads and Traffic Authority (NSW) (2006) 226 CLR 256 at [46]; Spencer 241 CLR 118 at [24]). In that respect, s 31A of the Federal Court Act requires a practical judgment by the Court as to whether the respondent has more than a fanciful prospect of successfully defending the proceedings. This means that, in this case, I should not order summary judgment in favour of the applicant simply because I consider that the respondent is unlikely to successfully defend the claim (including on existing authorities) (Spencer 241 CLR 118 at [25]). Particular caution is required where the case requires consideration of apparently complex questions of fact (Spencer 241 CLR 118 at [26]). I note that these principles were recently reapplied by the Full Court of this Court in Carrigan v Honourable Senator Michaelia Cash [2017] FCAFC 86.

13    Section 58(1) of the Bankruptcy Act provides that the property of a bankrupt vests in the trustee, as does after-acquired property of the bankrupt as soon as it is acquired by or devolves on the bankrupt. Section 116(1)(a) provides that 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, is property divisible amongst the creditors of the bankrupt.

14    “Devolve” means to pass from a person dying to a person living (Stroud’s Judicial Dictionary (9th ed, Sweet & Maxwell, 2016), and is a term familiar to succession law (see, for example, s 45(1) of the Succession Act 1981 (Qld)).

15    It is not controversial that the Money derived from the superannuation fund of the deceased. It appears that the Money “devolved” on the Bankrupt from his mother’s estate. However the respondent relies on s 116(2)(d)(iii) and (iv) of the Bankruptcy Act as excluding the operation of s 116(1)(a), as well as the decision in Morris [2016] FCA 846.

16    Section 116(2)(d)(iii) and (iv) relevantly provide:

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

…

(d)    subject to sections 128B, 128C and 139ZU:

…

(iii)    the interest of the bankrupt in:

(A)    a regulated superannuation fund (within the meaning of the Superannuation Industry (Supervision) Act 1993); or

(B)    an approved deposit fund (within the meaning of that Act); or

(C)    an exempt public sector superannuation scheme (within the meaning of that Act);

(iv)    a payment to the bankrupt from such a fund received on or after the date of the bankruptcy, if the payment is not a pension within the meaning of the Superannuation Industry (Supervision) Act 1993;

17    It is not in dispute that the deceased’s superannuation fund was a regulated superannuation fund within the meaning of the Superannuation Industry (Supervision) Act 1993 (Cth) (SIS Act). The respondent submitted in particular that the Money fell squarely within the words “a payment to the Bankrupt from such a fund” in s 116(2)(d)(iv).

18    Taking into consideration the caution with which the Court must approach applications for summary judgment, I am nonetheless satisfied that the applicant is entitled to summary judgment.

19    First, it is not in dispute that the superannuation funds of the deceased were paid by Colonial First State to the estate of the deceased. The Money was then paid to the Bankrupt in the course of the administration of the deceased’s estate. There is evidence to this effect before the Court in the form of an email from Ms Myrna Gonzales sent on or about 29 July 2016 to the solicitors for the applicant. I note further a letter to the applicant dated 10 April 2014 from Mr GN Johnson of Caldwell Martin Cox, solicitors for the executors of the deceased estate, which read materially as follows:

ESTATE LATE NERYL ANN GAPES

We refer to your letter dated 28 March 23014 [sic] regarding the above Estate.

We act for the three Executors of the Estate they being Craig Anthony Gapes, Scott Leslie Gapes and Andrew Brian Gapes.

As requested, we enclose a copy of the Will of the late Neryl Ann Gapes. Probate of that Will was granted to the Executors on 14 February 2014.

There has been a distribution of the proceeds of the deceased’s Super Fund. An amount of $263,700.98 was distributed on 12 March 2014 with each beneficiary receiving $87,900.33. You will note from the Will that the three Executors are also the Estate beneficiaries.

…

(Emphasis added.)

20    It is common ground that Colonial First State made no payments of any kind directly to either the Bankrupt or the respondent.

21    Second, in that respect it can in no way be said that the Money represented “the interest of the bankrupt in a regulated superannuation fund”, or “a payment to the bankrupt from such a fund”. The term “such a fund” in s 116(2)(d)(iv) must mean “a regulated superannuation fund” within the meaning of the SIS Act as set out in s 116(2)(d)(iii)(A). The evidence before the Court clearly shows that the interest in the Colonial First State superannuation fund was that of the deceased, not the bankrupt, and that there had been a payment from that superannuation fund to the deceased estate.

22    That the Money may have originally derived from a regulated superannuation fund in which the deceased had an interest does not mean that it bore that character by the time that it was paid to the Bankrupt. Patently, the situation is not akin to circumstances where the rightful owner of property has been deprived of it and the law grants rights of following or tracing, such that as a matter of law the character of the property remains identifiable (see, for example, discussion in Bridge M, Gullifer L, McMeel G and Worthington S, The Law of Personal Property (Sweet & Maxwell, 2013) p 17 and McGrath P, Commercial Fraud in Civil Practice (Oxford University Press, 2008) p 477). The respondent has not, and in my view cannot, identify how the Money paid from the superannuation fund to the deceased estate retained the character of fund payments after it became part of the deceased estate and there was a distribution from the estate to the Bankrupt in his capacity as a beneficiary of the estate.

23    As the applicant correctly argued, if the respondent’s submission in this respect had merit a bankrupt could avoid property being made divisible to creditors so long as he or she could show that its genesis was from a third party superannuation fund, irrespective how many hands such funds had passed through.

24    On the evidence before the Court, the Bankrupt had no interest in the deceased’s superannuation fund. He was not a member of the fund. He had an interest in the residue of the deceased estate, and therefore an interest in that part of the deceased estate which was monies paid by the superannuation fund to the deceased estate. His only claim on those monies was by reference to the deceased’s will and the bequest to him of a one-third share in her estate as a tenant in common with the other beneficiaries.

25    Third, the facts of this case are clearly distinguishable from those in Morris [2016] FCA 846. In that case the bankrupt’s husband held policies with two superannuation funds. It was not in dispute that those funds were regulated superannuation funds within the meaning of the Bankruptcy Act and the SIS Act. The husband died several months before the bankruptcy. The bankrupt subsequently received two superannuation payments made directly to her from each superannuation fund. The Court examined pertinent terms from each of the deeds governing the respective superannuation funds, and concluded at [27] and [28] that:

    prior to the exercise of the discretion by the trustees of each fund in her favour, the bankrupt had no interest in either fund;

    upon the favourable exercise of the discretion by the trustees in each fund in her favour, a proprietary interest was created in the bankrupt’s favour; and

    it followed that the bankrupt had, in each instance, an interest which fell within the terms of the exempting item in s 116(2)(d)(iii)(A).

26    His Honour also noted found at [31] that the payments in that case were, literally, payments to the bankrupt in terms of s 116(2)(d)(iv) from a regulated superannuation fund, and that the breadth of reference in that section looks to be a recognition by Parliament of the breadth of persons who may receive payments from superannuation funds.

27    None of the factors determining the outcome of the decision in Morris apply in this case. There is no evidence in this case that the regulated superannuation fund in which the deceased had an interest made any direct payments to the Bankrupt, or that there had been any exercise by the trustees of that fund in favour of the Bankrupt as distinct from the deceased estate of its member.

28    Finally, it is unclear to me why it is relevant that the respondent allegedly knew nothing of the extension of the Bankrupt’s bankruptcy at the time the Money was paid to her. I make this observation in circumstances where the respondent has remained married to the Bankrupt at material times, and the receipt by the Bankrupt of the Money was in the capacity of a volunteer. That the respondent has apparently dispersed the Money is also irrelevant in the circumstances of this case.

29    In my view, on the pleadings and the material before the Court, the outcome of the applicant’s substantive application is a foregone conclusion and warrants an order for summary judgment. The respondent has not pointed to a factual or evidentiary dispute which would justify a trial. The legal principles applicable in this case are clear, have been pleaded by the parties, and unequivocally point to orders in the applicant’s favour.

Associate:

Dated:    13 July 2017