Brown v Trustee in Bankruptcy

REASONS FOR JUDGMENT 1 This is an application for an order under s 252B of the Bankruptcy Act 1966 (Cth)("the Act") annulling an order made on 1 March 1999 for the administration of the Estate of Mr Stephen Brown ("the deceased") who died on 7 February 1999. The applicant, Mr Mathew Brown ("the deceased's son") is the son of the deceased. The Trustee in Bankruptcy was represented in the proceedings as was the Fair Trading Administration Corporation ("the Corporation"). 2 The events leading to this application are tragic. On 13 March 1998 the deceased was violently assaulted and suffered serious head injuries. The effect of this assault is something I discuss shortly. On 3 August 1998 the deceased was served with two statements of claim in proceedings commenced by the Corporation in the District Court of New South Wales earlier that year ("the District Court proceedings"). In one statement of claim an amount of $13,698.30 was claimed which included a debt of $8,191.00 arising from a payment by the Building Services Corporation under an insurance scheme established under the Building Services Corporation Act 1989 (NSW). The Corporation is the successor of the Building Services Corporation. The payment had been to Mr and Mrs Costa who, so it was alleged, had engaged the deceased to do building work for them. Default judgment was later entered. The other statement of claim sought the payment of $99,412.48 in relation to several payments made by the Building Services Corporation to other clients for whom, it was alleged, the deceased had been engaged to do building work. On 2 September 1998 default judgment was entered in the sum of $100,505.48 in relation to the second proceeding. A bankruptcy notice issued on 11 September 1998 based on the latter judgment debt. On 23 October 1998 the bankruptcy notice was served and on 30 December 1998 a creditor's petition was issued on the application of the Corporation. On 13 November 1998, the deceased was arrested and charged with numerous counts of juvenile sexual assault. He was taken into custody and remained in custody until he committed suicide on 7 February 1999. Service of the creditor's petition was effected on 2 February 1999 at Silverwater prison by delivery to the deceased of a copy of the petition. 3 The return date on the petition was 9.15 am on 15 February 1999. When the matter came before a Registrar of this Court, she was informed that the debtor had died and the matter was stood over until 1 March 1999 to enable evidence of death to be provided. On 1 March 1999 an order was made under s 245 of Part XI of the Act. 4 After the death of the deceased, steps were taken by the deceased's son, as executor, to obtain probate of a will dated 20 November 1998. To that end an advertisement was placed in the Sydney Morning Herald on 15 February 1999 that such an application would be made. In due course it was made and probate was granted on 5 March 1999. The deceased's son commenced to deal with his father's estate. He proceeded to sell a house that had been owned by his father. The deceased's son sought to have removed a caveat lodged over the property by The Trustee in Bankruptcy in proceedings in the Supreme Court of New South Wales. The present application in this Court was filed on 10 August 1999. The position adopted by the Trustee in Bankruptcy and the Corporation in these proceedings was neither to oppose nor support the annulment application. I was informed by counsel for the deceased's son that all unsecured creditors except one had indicated their consent to the application. The submissions by counsel for the deceased's son involved four propositions: (i) the statements of claim on which the default judgments were based did not disclose a cause of action or, to the extent that they were based on the original building contracts between the deceased and his clients, the causes of action are likely to be statute barred. (ii) the creditor's petition sought an order under Part IV of the Act and some other process should have been filed or at least served before any order was made under Part XI of the Act. (iii) if a person dies insolvent their estate can be administered by their executor and it is unnecessary for any order to be made under the Act for the administration of the estate. (iv) at the time the deceased was served with the creditors' petition he was suffering under a mental disability. He was, for the purposes of the Federal Court Rules, a "mentally disabled person" and service on him had to be effected in accordance with O 43 r 13(6) of those Rules. 5 I turn to consider each of these issues. It is plain from the statements of claim that the debt upon which default judgments were entered in the District Court proceedings were debts arising from the operation of s 98 of the Building Services Corporation Act 1989 (NSW) [now the Home Building Act 1989 (NSW)]. Section 98(1) provided: "Any amount paid by the Corporation under BSC Insurance may be recovered by the Corporation in a court of competent jurisdiction as a debt from the person by whom the residential building work concerned was done or contracted to be done." For present purposes, the reference to "Corporation" in this provision can be treated as a reference to the Corporation. In my opinion, it is palpably clear that this provision is intended to create a statutory debt enforceable against a builder if the condition precedent to the creation of the debt is satisfied. The condition precedent is that a payment has been made by the Corporation under the insurance scheme. That fact was pleaded in the District Court proceedings and there is no evidence in these proceedings to suggest that no payments were made. Thus, by operation of s 98, the Corporation was entitled to bring the proceedings and, in the circumstances, obtain default judgment. The judgments are not irregular. 6 The second issue raises the proper construction of s 245 of the Act. That section provides: "(1) Subject to sub-section (2), where a person against whom a creditor's petition has been presented under Part IV dies after her or she has been served with the petition but before a sequestration order has been made on the petition or the petition has been dismissed, an order may be made on that petition for the administration of his or her estate under this Part. (2) The matters of which the Court is to require proof before making such an order in a case to which subsection (1) applies are those of which the court would have required proof before making a sequestration order on the petition if the deceased person had not died. (3) If the Court makes an order that the estate be administered under this Part, the creditor who obtained the order must give a copy of the order to the Official Receiver." 7 This section deals with what is likely to be the fairly unusual circumstance where the debtor dies between the service of a creditor's petition and the hearing of the petition by the Court. But for the death of the debtor, s 52 would have required, before a sequestration could be made, proof of a range of matters including proof of the service of the petition: see s 52(1)(b). In my opinion it is plain from the language and apparent purpose of s 245 that the proof of service required to satisfy the combined operation of s 245(2) and s 52(1)(b) is proof of service on the debtor prior to his or her death. I accept this construction of the Act does create an unusual circumstance where there is, or at least is likely to be, no contradictor because the personal representative of the deceased debtor would have no notice of the application. However it is a result that fairly plainly arises from the language and structure of s 252. Moreover s 252B enables an annulment order to be sought and made. Proceedings under s 244, unlike proceedings continued by operation of s 252, are governed by special provisions which, inter alia, require service of certain documents on the personal representative of the deceased person: see Div 12 of O 77 of the Federal Court Rules. 8 As to the third issue, I accept that under s 46C of the Wills Probate and Administration Act 1898 (NSW) the estate of a deceased person who is insolvent may be administered in the manner provided for in Part 1 of the third schedule of that Act. I also accept that s 244(13) of the Act precludes the presentation of a creditor's petition (other than with the leave of the court) if proceedings have been commenced in a court for the administration of a deceased person's estate. That, however, does not include an application for probate of the type ordinarily made: see Gonzalez v Marmentini, Executrix of the Estate of the late Raber [1998] FCA 911. There was, in my opinion, nothing inappropriate or irregular concerning the exercise by the Registrar of the power conferred by s 245. A principal purpose of the Act is to protect the interests of creditors of individuals who are insolvent. As is noted in Lewis Australian Bankruptcy Law (11th edition, 1999) at 257: "Where an estate is thought to be insolvent, there are considerable advantages in having it administered in bankruptcy rather than under State or Territory laws concerning the administration of insolvent estates. For example, the provisions of ss 118-122 of the Act may increase the property available to creditors (see s 248), and the stringent bankruptcy procedure in realising the estate may be more effective than the procedures available to Supreme Courts under States or Territory laws." 9 The last issue raised by the applicant in these proceedings concerns the service of the creditor's petition on the deceased. Before considering the effect of the rules it is necessary to set out in some detail the evidence concerning the mental state of the deceased at the time the creditor's petition was served on 2 February 1999. As noted earlier, the deceased committed suicide on 7 February 1999. That was a Sunday. He was visited by his sister, Ms Lynette Brown ("the deceased's sister") on the preceding Friday, 5 February 1999. That was three days after the petition was served. Her evidence was that the deceased appeared extremely depressed and was crying. He discussed with her, as he had on earlier occasions with her and his son, whether he should take his own life. He said that he would find it difficult to spend many years in gaol without his family. He was, at that time, not taking anti-depressant medication which had been earlier prescribed by his local general practitioner. The deceased's sister gave evidence that the deceased embraced her in a way that led her to believe it was to be their last contact. I am satisfied that both at this time and almost certainly several days before, the deceased was in a state of fairly severe depression and emotional instability though it appears he was approaching, in a comparatively rational way, the decision he was in the process of making to end his life. 10 As earlier noted, the deceased had been assaulted in early 1998 and had suffered serious injuries to his head. In evidence are a series of reports by Dr K McCarthy who is a consultant in Rehabilitation Medicine in the Brain Injury Rehabilitation Service at Westmead Hospital. In her first report dated 27 April 1998, Dr McCarthy describes the injury suffered by the deceased as a "significant Traumatic Brain Injury". Dr McCarthy saw the deceased on 2 April 1998. The report noted that the assault took place on 13 March 1998 but that the deceased was not found for several days after the attack. He was discharged from hospital on 24 March 1998. He suffered a period of at least twelve days post traumatic amnesia which would place his traumatic brain injury in the severe to very severe category. At the time Dr McCarthy saw the deceased, he told her he was managing well and had noted only minor problems with his memory. Dr McCarthy noted that the deceased was verbose, tangential in his conversation and unable to communicate much detail. While the deceased reported that he was managing his household and had returned to work and undertaken high level cognitive tasks such as preparing his group tax, Dr McCarthy believed he had significant cognitive deficits and that his insight was poor. Dr McCarthy noted in the context of discussing the deceased attending the Nepean Hospital, that the deceased appeared cognitatively unable to manage tasks such as public transport. On 27 April 1998 the deceased was admitted as an inpatient to the Brain Injury Rehabilitation Service. He was discharged on 1 May 1998. The discharge summary contains the following: "The following functional status was elucidated: Mobility - fully independent Personal activities of daily living - fully independent Domestic and community activities of daily living - (ADL) - independent in simple money management. Communication - impairments noted in word finding and reading comprehension. Behaviour - no abnormalities detected. COGNITION: a neuropsychological assessment was performed whilst an inpatient. There were impairments in various aspects of Mr Brown's executive functioning. There was mild to moderate difficulty in concentration. There were memory problems which were thought to be predominantly secondary to his impaired concentration. There was impaired verbal fluency. There was moderate impairment in Mr Brown's strategy generation and problem solving abilities. There was also some evidence of perseveration. Mr Brown did have some insight into his deficits." 11 Dr McCarthy saw the deceased again on 10 July 1998. In her report dated 14 July 1998 Dr McCarthy said: "At this review, Mr Brown has improved from my last assessment. He was far less verbose and tangential in his conversation. He made no paraphrasic or other errors of speech but he said that sometimes he had some difficulty in remembering which word to use. He could carry out simple arithmetical and cognital tasks and I detected no neurological deficits. He still shows some lack of insight into his cognitative deficits but this is improving. Mr Brown manages his household. He has returned to work with support from the Commonwealth Rehabilitation Service. He is self-employed as a Builder of decking. He had several apprentices as well as a partner. … His return to work appears to be going reasonably well. However, at present Mr Brown is not yet cleared to drive."