Bankruptcy Act 1966 s. 283

Bankruptcy (Estate Charges) Act 1997 ss. 6, 7, 8

Re Kabalan [1993] FCA 76; (1993) 113 ALR 330

Stanley Faulkner and Inspector-General in Bankruptcy (No. 12950, 3 June 1998**)**

Barry R Liggins Pty Ltd v Comptroller-General of Customs and Others (1991) 32 FCR 112

Sean Investments Pty Ltd v MacKellar (1981) 38 ALR 363

Re Queensland Medical Laboratory and Department of Health Housing and Community Services (1994) 33 ALD 159

1. The applicant Mrs Judith Exell became a bankrupt upon the making of a sequestration order against her estate on 17 April 1996 on the basis of a creditor's petition. Mr Robert Cole, a registered trustee was appointed trustee of her estate.

2. The applicant is the registered proprietor of a residential property in Melbourne ("the property"). On 28 May 1998, the trustee filed proceedings in the Supreme Court for possession of the property. On 22 June 1998 a judgment order for possession was made by Master Wheeler with a stay of execution of the judgment until 20 July 1998.

3. Eventually Mrs Exell was able to obtain a loan of $364,000 from C.D.A. Securities Pty Ltd by way of first mortgage security on the property which enabled her to pay her debts in full and the cost of administration of her estate. According to a summary of the mortgage forwarded to Mrs Exell by Coadys, solicitors for the mortgagee, the property was valued at the time by John Orwin of Associated Independent Valuers at $520,000. Settlement of the mortgage loan took place on 11 August 1998. The principal sum borrowed included an amount (approximately $22,000) sufficient to cover interest payments of $2,732.40 per month from settlement date until May 1999. After payment of Coadys legal costs and disbursements and the retention of sufficient funds to make the monthly interest payments until 1 May 1999, the balance of the loan proceeds were disbursed as follows:

4. Creditors of Mrs Exell's estate were paid in full. In fact the only creditors who proved in the estate were two legal firms Howie and Maher $6,979 and Meltzer Green $2,707 a total of $9,686. Although the disbursement statement disclosed $87,000 as paid to the trustee Robert Cole at settlement of the mortgage advance, his statement revealed an amount of $86,318.68 as having been received.

5. The trustee's final account of the administration covering the period from 1 November 1997 and ending on 7 September 1998 was as follows:

Settlement Monies 86,318.68 Realisations charge 6,905.49

Postage and stationery ) Printing or copying ) Advertising ) 3,779.10

Dividend now declared of 100¢ in the $ on $9,686 9,686.00

6. As all of Mrs Exell's debts were paid in full the trustee issued a certificate of annulment of bankruptcy (see s. 153A of the Bankruptcy Act 1966 ("the Bankruptcy Act")) in September 1998.

7. The issue in this matter is the realisations charge of $6,905.49 paid to the Commonwealth, being 8 per cent of the $86,318.68 received by the trustee on settlement of the mortgage advance. In a letter dated 10 June 1998, Mrs Exell wrote to the Inspector-General seeking remission of the realisations charge, at that time estimated by the trustee to be $26,090.00. The letter omitting formal parts read:

"I am writing to seek full remission of the Government fee of $179 at 8% being $26,090 charged against my property by my trustee Mr Robert M H Cole as per his advice to me by fax dated 19/6/98. No Government fee was requested when a letter totalling the amount owing was forwarded to me dated 24/9/96. At this time, I obtained funds to pay out creditors from a lender and instructed a solicitor to act for me regarding the settlement after I had signed all the mortgage documents. However, for reasons not known to me at the time the solicitor did not attend to my matter in November 1996 as I requested him to do. I have since found from information released in the press and media, he was engaged in negiotations (sic) relating to another client which required a great deal of his attention at the time and hence my matter was unattended to resulting in the cost of enormous expenses to me relating to the costs to me of setting up the loan. I have now had to apply for funds again and when creditors are paid, together with added costs incurred because of the lapse in time I have to pay the trustee and the main creditor's solicitor namely Harwood Andrews, I will be left with very little equity in my only asset my home which is also the home of my elderly mother who lives here with me and who is in her mid eighties. She has lived here since becoming ill in 1986 and is totally dependant on me as her only daughter. My mother receives an aged pension and my sole income consists of an invalid or disability pension due to Chronic Rheumatoid Arthritis for which I have been prescribed the cancer drug methotrexate. This condition is of such severity that it is not possible for me to use public transport at all anymore and I am reliant on taxis for every occasion I have to leave my house. This illness requires that I have special shoes made to allow me to take a single step. They cost $600 a pair and as well special orthotics have to be made to insert in each shoe costing $400 a pair. Special podiatrist costs $80.00 for the consultation as the public hospital system no longer provides such items as it once did. I have been told I require knee replacements not just knee reconstructions and this is a very expensive procedure. Extra expense in daily life is unavoidable as ordinary furniture such as chairs have had to be replaced as it is no longer possible because of the degree of the illness to use my ordinary ones. My hands are extremely distorted and dysfunctional and it is difficult to grip anything with any weight. Staff have to be employed twice weekly to carry out the various tasks to be done in our house. I have only the use of two fingers and thumb on my left hand due to the anti-inflammatory injection causing a rupture to the tendons of that hand. Since late last year, many drugs that were subsidised and which I require are now either off the list or increased in price. Recent hospitalisation caused by a side effect of the non steroidal anti inflammatory drug I was given, resulted in enormous expense as it causes peptic ulcers and I was given a blood transfusion at that time. Now I am on iron therapy which is a further expense.

I cannot stress strongly enough how great the hardship on my mother and I would be if I were liable for this charge at 8% being $26,090 as per my trustee's advice on 19/6/98. It is the difference between my bankruptcy being able to be annulled by paying out the amounts already owing with the money I've been able to raise and not being released from bankruptcy which is what I have been desperately trying to achieve since I took the mortgage documents to that solicitor in November 1996. I respectfully request that you grant this, my application for full remission of this government fee and I await your reply to this matter. I am at present attempting to finalise all matters with the trustee."

8. The Inspector-General replied to the effect that as the trustee had not yet received any monies there was no realisations charge payable at that time and therefore no realisations charge to remit. Correspondence followed between the solicitors for Mrs Exell and the Inspector-General. In a letter dated 1 September 1998 her solicitors renewed the application for remission in respect of the actual amount of the realisations charges paid by the trustee.

9. In October 1998 a delegate of the Inspector-General refused the application for remission. The delegate decided it would be inappropriate to remit any portion of the realisations charge stating that any financial difficulty was as a result of Mrs Exell's financial arrangements in refinancing her property and not as a result of the realisations charge being paid from her estate.

10. On 25 June 1999 Mrs Exell made application to the Tribunal for review of that decision. Shortly afterwards she applied for and was granted an extension of time within which to lodge her application.

11. Reasonably in my view, Mr Carroll who appeared for the Inspector-General did not pursue at the hearing the preliminary matter previously raised by the Inspector-General's office concerning the power of the delegate to make the decision under review having regard to the wording of s. 283 and the fact the realisations charge had been paid prior to the making of the decision. The facts reveal that prior to the realisations charge having been paid by the trustee Mrs Exell had sought a remission.

12. The Bankruptcy (Estate Charges) Act 1997 ("the Estate Charges Act") was introduced as part of a package of measures including the Bankruptcy (Registration Charges) Act 1997, together with the consequential amendments to the Bankruptcy Act contained in the Bankruptcy Amendment Act 1997. These measures were designed to increase cost recovery of the Insolvency and Trustee Service Australia ("ITSA"). One aspect of this was to increase the then realisations charge of 3 per cent, (reducing to 1.25 per cent for amounts realised in excess of $100,000) payable by bankruptcy trustees in respect of estates administered by registered trustees and the official trustee, with a flat 8 per cent realisations charge on amounts credited to trustees' accounts in a six monthly period. The legislation came into effect on 14 April 1997 and it applied to a period commencing on 1 November 1996. The Attorney-General Mr Williams in the Second Reading speech when introducing the bills into Parliament, said:

"The combined effect of these measures will place all creditors, whether their bankruptcy is administered by ITSA or by registered trustees, on a more equal footing in terms of contributing to the cost of the bankruptcy administration system. The increased charges and fees will apply only in those matters where there are funds. They will not have an impact on bankrupts."

13. The application for remission was made pursuant to s. 283 of the Bankruptcy Act which reads:

"283 (1) The Inspector-General may remit an amount of interest charge, realisations charge or late payment penalty that is payable but has not been paid if the Inspector-General thinks that:

(a) failure to remit the amount would cause a person hardship; and

(2) The following provisions apply in relation to remissions under subsection (1):

(a) the person liable to pay the charge or penalty may apply for a remission;

(b) an application is to be in writing, setting out the reasons for the application, and is to be made to the Inspector-General;

(c) the Inspector-General's decision on an application is to be in writing;

(d) application may be made to the Administrative Appeals Tribunal for review of a decision to refuse an application, or to remit a lesser amount than was applied for."

14. "Realisations charge" is defined in Part 3 of the Estate Charges Act which is administered by the Inspector-General:

(1) A charge, calculated in accordance with sections 7 and 8, is imposed in respect of amounts received by a trustee (including the Official Trustee) who, during a charge period:

(a) is the trustee of the estate of a bankrupt under the Bankruptcy Act 1966; or

(2) The charge is payable by the trustee to the Commonwealth.

(3) The charge is payable within 21 days after the end of the charge period.

(1) The amount of charge payable for a charge period is an amount equal to:

(a) 8% of the amount on which charge is payable for the period; or

8 Working out the amount on which charge is payable

(1) The amount on which charge is payable for a charge period is the amount realised less the permitted deductions.

(2) The amount realised is the total amount received by the trustee in the capacity referred to in subsection 6(1) during the charge period, but not including:

(3) The permitted deductions are all amounts paid by the trustee in the capacity referred to in subsection 6(1) during the charge period that are:

(a) amounts paid by the trustee in carrying on the business of the bankrupt, deceased person or debtor; or

(4) Once an amount has been taken into account for the purposes of subsection (2) as an amount received, the whole or part of the amount is not to be taken into account again as an amount received for the purposes of another application of that subsection."

15. The issues in the present application, are whether in the applicant's circumstances, failure to remit the realisations charge would cause hardship and if so, whether it is appropriate to exercise the discretion to remit the whole or part of the charge.

16. It was submitted by Mr Carroll, that "hardship" for the purposes of s. 283 should be given the same meaning as in Regulation 16.10 of the Bankruptcy Regulations. Under Reg. 16.10 the Inspector-General has a discretion to waive or remit the whole or part of a fee if reasonably satisfied that payment of the fee, by the person liable to pay it, has imposed or would impose undue hardship on the person, or because of other exceptional circumstances it is proper and reasonable to do so.

17. The Bankruptcy Act does not suggest that "hardship", a well known, common word is to be given any qualified or special meaning for the purposes of s. 283. Its meaning is the dictionary definition: see The Macquarie Dictionary (3rd Ed.) "1. a condition that bears hard upon one; severe toil, trial, oppression, or need. 2. an instance of this; something hard to bear.".

18. In Re Kabalan [1993] FCA 76; (1993) 113 ALR 330 the Federal Court (Gummow J.) was concerned with an application for review of a decision by a Deputy Registrar in Bankruptcy not to remit a filing fee. That decision was made under a Bankruptcy Rule which enabled a fee payable to the Registrar to be waived or remitted if the payment "imposes or would impose hardship". Gummow J. said (at 332 to 333):

"Any condition which presses with particular asperity upon a person may be described as a hardship. The sense is conveyed by the definition in the Oxford English Dictionary, 2nd ed, which includes "hardness of fate or circumstance".

In Rukat v Rukat [1975] Fam 63 at 73, Lawton LJ said:

The word "hardship" is not a word of art. It follows that it must be construed by the courts in a common sense way, and the meaning which is put upon the word "hardship" should be such as would meet with the approval of ordinary sensible people. In my judgment, the ordinary sensible man would take the view that there are two aspects of "hardship" - that which the sufferer from the hardship thinks he is suffering and that which a reasonable bystander with knowledge of all the facts would think he was suffering.

In a case dealing with a provision in s 70 of the Landlord and Tenant (Amendment) Act 1948 (NSW), FG O'Brien Pty Ltd v Elliott [1965] NSWR 1473 at 1475, Asprey J said that in the context in which that term appeared in the landlord and tenant legislation, hardship would comprehend "any matter of appreciable detriment, whether financial, personal or otherwise" and (unsurprisingly) that "each case must depend upon its own particular facts"."

19. Regulation 16.10 to which Mr Carroll referred, is concerned with a specific item, the basis of waiver and remission of a scale fee payable to the Official Receiver (Schedule 9) and to the Official Trustee (Schedule 10). It does not refer to the regime of charges referred to in s. 283 namely interest charge, realisations charge or late payment penalty. The terms "interest charge" and "realisations charge" are for the purposes of Part XV of the Bankruptcy Act (see s. 278) given their meaning as defined in Parts 2 and 3 respectively of the Estate Charges Act and "late payment penalty" is defined in s. 281(1) of the Bankruptcy Act. In the Regulations, a "realisations charge" comes under the definition of a "charge" in Reg. 15A.01 and does not fall within the meaning of a "fee" (see Reg. 16.10(4)) to which Reg. 16.10 refers. The term "hardship" in s. 283 is not qualified by the terms "undue hardship" and "exceptional circumstances" which appear in Regulation 16.10. Support for this construction, that "fee" referred to in Part 16 Division 2 of the Regulations is a separate regime to "charge" in Part 15A is also to be found in the review provisions. Jurisdiction to review a decision on waiver or remission made under Reg. 16.10 to which consideration of "undue hardship" or "other exceptional circumstances" apply, is to be found in Reg. 16.11 whereas in the present matter, power to review a decision under s. 283 of the Bankruptcy Act is contained in that provision: s. 283(2)(d).

20. The respondent also relied on an earlier Tribunal decision Stanley Faulkner and Inspector-General in Bankruptcy (No. 12950, 3 June 1998). In that case the Tribunal (Ms G. Ettinger, Senior Member) reviewed a decision to refuse to exercise a discretion pursuant to Reg. 16.10 to waive or remit the whole or part of the Official Trustee's fees. In remarks which were obiter to the decision under review, the Senior Member equated the considerations of hardship under s. 283 with considerations of "undue hardship" and "exceptional circumstances" in Reg. 16.10 (see paras. 33 and 34 of the Reasons for Decision). I respectfully disagree with this view for the reasons outlined in the preceding paragraph.

21. In submissions Mr Carroll also referred to paragraph 36 of the Explanatory Memorandum to the Bankruptcy Amendment Bill:

"Clause 283 provides for the remission on an amount of interest charge, realisations charge, or late payment penalty that is payable but has not been paid if the Inspector General thinks that failure to remit the amount would cause a person hardship and it is appropriate to remit the amount. It will only be in exceptional circumstances that it would be appropriate, such as in the case of a genuine and unavoidable error on behalf of the trustee."

22. Dealing with the Explanatory Memorandum first, it is in my opinion wrong to ascribe to "hardship" in s. 283, the meaning suggested by the Explanatory Memorandum. It is not a correct approach to the construction of legislation to have resort to extrinsic material to displace the plain words of the statute. In the circumstances outlined in s. 15AB of the Acts Interpretation Act 1901 it is permissible to refer to the Explanatory Memorandum but where as here, the ordinary meaning of the provision as conveyed by its context is clear, it is impermissible by use of the Explanatory Memorandum to create an ambiguity and to resolve it by reference to the same Memorandum: see Barry R Liggins Pty Ltd v Comptroller-General of Customs and Others (1991) 32 FCR 112 at 120 (Beaumont J.).

23. It is not a requirement of the provision that the hardship be "undue" which has a similar meaning to "excessive" or that it be exceptional. Additionally the hardship is not limited to "financial hardship alone", an expression used in s. 1237AAA of the Social Security Act 1991, although in the context of the present matter clearly financial hardship is a relevant consideration as the hardship must be causally related to the realisations charge. Where the considerations of hardship are not specified in the legislation, it is largely for the decision maker in the light of matters placed before him or her by the parties to determine which matters are to be regarded as relevant and the comparative importance to be accorded to those matters: Sean Investments Pty Ltd v MacKellar (1981) 38 ALR 363 at 375 (Deane J.).

24. The term "hardship" can potentially cover a broad spectrum of connotations including meaning an appreciable detriment whether it be financial, personal or otherwise: Re Queensland Medical Laboratory and Department of Health Housing and Community Services (1994) 33 ALD 159 at 166-167.

25. While due weight must be given to the policy objective of the legislation that cost recovery is to be achieved wherever possible, this has to be counter-balanced by the consideration contained in the legislation that the application of this policy does not cause hardship. Hardship is gauged by an examination of individual circumstances. In some circumstances a realisations charge of $6,905 may produce negligible hardship whereas in other circumstances it may be oppressive.

26. Hardship may impact in a number of ways. At a personal level a person may suffer an emotional drain, loss of enjoyment of life or social dislocation. A person's age and state of health may be relevant factors. It may, in the case of a person suffering from a physical or mental disability or condition, impact adversely on coping strategies or on a treatment regime for the disability. These are not only subjective perceptions of hardship but in my view matters which an informed bystander would take into account. Put another way, the question of whether hardship exits is not necessarily answered simply by considering a person's financial position and examining a statement of assets and liabilities.

27. Mrs Exell is in a precarious financial position. Apart from the mortgage, Mrs Exell has approximately $9,000 in debts, mostly property and hospital expenses. The relevance of these post bankruptcy debts is that they illustrate the state of Mrs Exell's financial position. She is in default under the mortgage on the property and has received a notice to pay. Monthly interest payments due in June, July, August and in September 1999 when the principal sum fell due for repayment have not been paid. The default in payment continues. A mortgagee sale of the property is a looming prospect. During the period of her bankruptcy and subsequently Mrs Exell has had no earning capacity. For a number of years she has been in receipt of an invalid pension, her only source of income. The evidence disclosed Mrs Exell had no apparent capacity to service the loan either at the time the loan was obtained or subsequently - so much seems to have been tacitly acknowledged at the time the loan was arranged by the device of adding to the mortgage advance a sufficient amount to pay the majority of the monthly interest payments. While it is well recognised that some former bankrupts have the capacity to make a fresh start and retrieve their financial prosperity, Mrs Exell is not in a position to do so. The reality of her financial position as at the date of annulment of bankruptcy is merely confirmed by the predicament she now finds herself in. While it may be thought that this assessment lends weight to the reasons of the delegate for refusing the request for remission, it can only do so to the extent of financial hardship and not to other aspects of hardship of a personal nature that weigh heavily on the applicant.

28. It was submitted by Mr Carroll, relying on the mortgagee's valuation of the property and on a list of some recent auction results for the postcode in which the property is located, that the payment of the realisations charge has not resulted in hardship.

29. The evidence generally as to the value of the property was inconclusive. The valuation report of John Orwin was not before the Tribunal and the auction results of other properties in nearby areas, in the absence of any other information regarding these properties, are not meaningful. Other material before the Tribunal included a copy of an affidavit of Mrs Exell filed in Federal Court action VG938/1996 in opposition to the request by the petitioning creditor Susan Martin for a sequestration order (Ex. R1). Paragraph 5(d) of the affidavit stated:

"I have discussed the value of the property with [estate agent] who estimates a selling price of between $330,000.00 and $350,000.00. Now produced and shown to me and marked with the letters "JAE4" is a copy of a letter dated 26 February 1996 from [estate agent] in which he estimates the value at approximately $300,000.00. I had not, at this stage, gone to the expense of paying for a sworn valuation of the property. I believe that the property is worth approximately $350,000.00."

30. There was also the estimate of value provided to the trustee at his request by Mr W.G Shelton of Allard & Shelton Pty Ltd, real estates agents and valuers, who estimated the value of the property at $300,000 in March 1997. In his report Mr Shelton wrote:

"The subject property is one of a pair of two storey timber houses constructed about 60 years ago. We note on the title that part of the southern boundary is subject to a party wall easement.

On the ground floor - sittingroom; two rooms used as bedrooms; livingroom; kitchen, bathroom and laundry. Upstairs, two bedrooms, sittingroom, opening to balcony, kitchen and bathroom.

Although the house has a substantial amount of accommodation it is of a very modest or basic standard. It is ripe for complete renovation.

The house sits on an excellent block of land with a frontage of approximately 43 feet and a depth of 200 feet, i.e. 8600 square feet. Furthermore it has the advantage of access at the rear to [name] Street.

The land could offer the prospects of unit development although there would be an obligation for the Purchaser to provide a party wall support where required as shown on title and of course unit development would be subject to Council approval."

31. On one view of her circumstances Mrs Exell relying on the valuation of John Orwin has an equity in the property of $140,000, but on another view if the valuation of Mr Shelton is closer to the mark and allowing for the general increase in property values since his valuation then she has little if any equity in the property at all given the evidence of the general state of the property and the need for repair and renovation. Mrs Exell asserted that developers were not interested in the property because of the adjoining party wall and the unwillingness of the adjoining owner in redevelopment. A further complication is the proposed heritage listing of the property. Ideally, in view of all these matters a contemporary valuation would have been of assistance but I accept that Mrs Exell is in no position to incur any further expense.

32. Mrs Exell and her mother live in the property. Mrs Exell has one child, a daughter living interstate who has her own family and is not in a position to provide financial support. Mrs Exell endures considerable physical hardship associated with her health. In a medical report, Dr Anthony Wickins stated that Mrs Exell has severe crippling rheumatoid arthritis requiring a multitude of treatments including frequent specialist visits, home help/assistance, multiple medications, orthotics and podiatric care, and possible future knee replacements. Dr Wickins also noted that Mrs Exell has care of her elderly mother who also has medical problems. The home help mentioned by Dr Wickins is a part time cleaner. It was evident during the hearing that Mrs Exell is severely restricted in the use of her hands because of the rheumatoid arthritis.

33. Having considered all of the evidence and submissions I am satisfied that failure to remit the realisations charge has caused hardship and in the circumstances it is appropriate there be a full remission.

I certify that the 33 preceding paragraphs are a true copy of the reasons for the decision herein of

Signed: .....................................................................................

Solicitor for the Respondent Australian Government Solicitor