Poesch v Grosvero [2013] VSC 596

1. I was told that the bankruptcy arose in the following circumstances. The deceased's parents applied to the Court for letters of administration of their son's estate. The Plaintiff lodged a caveat against the grant of the letters of administration. The defendants applied for summary judgment. Subsequently, I was told, the caveat lapsed by order of McMillan J on 26 October 2012. Her Honour ordered costs against the Plaintiff on a solicitor client basis.
2. On 27 March 2013 these costs were taxed and allowed by Registrar Conidi of the Costs Court in the sum of $21,413.80. A bankruptcy notice based upon these orders formed the basis of a sequestration order made against the Plaintiff on 8 October 2013 by Registrar Caporale in the Federal Circuit Court of Australia. The Plaintiff is thereby an undischarged bankrupt. The only debt in the bankrupt estate is, I was told, the costs judgment in favour of the defendants.
3. According to the Inventory filed in this Court by the defendants, I was informed, the value of the estate in this proceeding is over $700,000.00. It also appears that a part of that estate is the proceeds of an insurance policy in a superannuation fund of which the deceased was a member. The Plaintiff claims to be entitled to the funds payable under that policy, in excess of $200,000, and that sum, if paid to her, will reduce the estate by that amount and enable payment of the debts of the Plaintiff in the bankruptcy.

Does the right of action under Part IV vest in the Trustee?

1. Whether this proceeding is stayed by s 60 of the Bankruptcy Act depends upon whether the right to make a claim for family provision under Part IV is property within the meaning of the Bankruptcy Act. Under s 58 of the Bankruptcy Act "the property of the bankrupt" is vested in the Official Receiver. The property of the bankrupt is defined in s 5 to mean, so far as is relevant, the property divisible among the bankrupt's creditors and any rights and powers in relation to that property that would have been exercisable by the bankrupt if he or she had not become a bankrupt.
2. Section 116(1)(a) of the Bankruptcy Act defines property divisible amongst the creditors of the bankrupt to include, subject to presently immaterial exceptions, 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.
3. In s 5 of the Bankruptcy Act, "property" is defined to mean real or personal property of every description, whether situate in Australia or elsewhere, 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.
4. The effect of these provisions, and their antecedents, is that the definition of "the property of the bankrupt" extends, although not expressly, to choses in action: per French J (as he then was) in Re Nguyen; Ex parte Official Trustee in Bankruptcy.[1]
5. That raises the question whether the statutory right to make application for provision under Part IV is a chose in action or whether it is a personal or bare right. If it is a chose in action it is property of the bankrupt as defined in s 5 of the Bankruptcy Act and vested forthwith in the Trustee in Bankruptcy (in this case the Official Receiver) at the time the Plaintiff became bankrupt pursuant to subsection 58(1) of the Bankruptcy Act. If that is the case, this proceeding may be stayed pursuant to s 60 of the Bankruptcy Act.
6. In Coffey v Bennett[2] Sholl J considered the position of a bankrupt applicant for further provision under Part IV and concluded that the right to apply for relief under Part IV is a personal, or bare, right and if the applicant is an undischarged bankrupt, such right does not vest in the official receiver. In such circumstances s 60 of the Bankruptcy Act does not operate to stay this proceeding.
7. In the course of considering the matter, Sholl J made the following observations:[3]

...in my opinion, the right to sue for maintenance out of an estate is, notwithstanding the possible implications of a New Zealand decision and a New South Wales decision to which I was referred by Mr. Stephen, a personal right not capable of assignment by a statutory claimant or of assignment by operation of law to his trustee in bankruptcy...

Whether or not, however, benefits conferred or taken respectively under an order for testator's family maintenance are, when the order is made, or become at some time thereafter, wholly or partly, property available for creditors, the right to make application for an order under the Act depends on considerations wholly personal to the applicant, including his or her actual relationship to the testator, the moral claim which he or she had on his bounty, the standard of maintenance which the testator might have been expected to provide for the applicant, and the applicant's actual needs. Only the applicant personally can come to the court to seek such a provision...

1. In his reasons, Sholl J referred to two cases in which courts have in effect held that the right to apply for testator's family maintenance is to some extent transmissible to personal representatives on the death of an applicant.
2. In Re Shannon,[4] Long Innes, CJ in Equity, held that the court had jurisdiction to order after the death of an applicant widow, and by way of provision under the relevant Act, payment of liabilities which she had incurred before her death for her maintenance. The widow had duly instituted the application before she died, and the case was actually part heard at her death. Her executor was then joined, and the court allowed out of the testator's estate such part of the costs of the widow's maintenance from the date of the testator's death to her own death, a period of some 18 months, as had resulted in an actual debt owing by her.
3. Long Innes, CJ in Equity said:

The claimant having died before any order could be made, it is obvious that no provision could be properly made for her future maintenance, education or advancement; nor do I think that in a case where the claimant has died after having in fact maintained himself or herself without running into debt, even though on a scale less generous than he or she was entitled to require or expect, the court ought to make an order after the claimant's death which would merely have the effect of swelling the estate which would pass under the claimant's will, or to his or her next-of-kin if intestate, and of benefiting persons who are not within the scope of the Act. In the present case, however, the evidence establishes that the widow dies indebted in respect of board and residence to the extent of 23 pounds 8s 9d.; and unless Mr. Wilson's contention be correct that the court now has no jurisdiction, I think that an order should be made to that extent, notwithstanding that indirectly her legatee may be benefited to that extent.

1. The second decision referred to by Sholl J is Re Hawke (Deceased); Hawke v Public Trustee,[5] in which a son made application for further provision out of his father's estate, but was killed in an accident two days after the hearing of the application and before judgment was given. Stanton J, held that the applicant's right was a chose in action which survived his death, and passed to his executor under the provisions of the New Zealand Law Reform Act 1936. The application could, therefore, be carried on for the benefit of his estate where the circumstances justified some relief notwithstanding his death, though the application - the learned judge held - must proceed on the basis that he had died.
2. Sholl J then concluded:

Even if those decisions be accepted as establishing that in certain circumstances an applicant's right to an order may survive his death, where he has already commenced the application before death--and I express no opinion one way or the other as to whether those decisions would be applied in Victoria, because the question does not arise--they do not really touch the question which I have to decide in this case. ...But what I do hold is that the only person who can apply for such a provision is the person entitled under the Act to do so, and if he be bankrupt, it is still the bankrupt himself who alone can apply. It would introduce great mischiefs and difficulties into the operation of the legislation if assignees, whether by operation of law or by act of the statutory claimant, could come to the court as applicant.

1. Subsequently in McEvoy v Public Trustee,[6] the defendant applied to dismiss a proceeding brought by the executrix of a deceased grandson seeking further provision under the NSW Family Provision Act 1982 out of the estate of the deceased's grandfather. The proceeding had not been commenced before the grandson's death. Powell J considered the provisions of the legislation, the decisions in Re Shannon and Re Hawke, and good deal besides, and concluded that_:_

Having given the matter a great deal of consideration, I have concluded that, even if - which I would question - Re Shannon is to be regarded as having been correctly decided, nonetheless, the language of the FP Act[7] is such as to indicate that it was the legislature's intention that the power to make orders under the Act which is conferred upon the court was to be capable of being exercised only in favour of a living person. If this be so, then it would seem to follow, first, that the legal personal representative of a deceased person who, while alive, would have qualified as an "eligible person" does not have the right to commence proceedings under the Act; and, secondly, that, when a person, who would have qualified as an "eligible person", dies after the commencement of proceedings, but before the making of an order, both the "cause of action", and the proceeding, abate.

1. In McLeod v Johns[8], Kearney J held that the right to apply for family provision does not constitute any species of property, it being a merely personal right which does not vest in the official receiver of a bankrupt's estate.
2. Similarly, in Kavan & Mallery & Anor[9] the Federal Circuit Court of Australia considered, in the context of a de facto relationship claim, whether a respondent's potential claim for family provision under the Succession Act 2006 (NSW) was a chose in action or a bare right. Judge Altobelli held that it is not a chose in action, it is a bare right.
3. In Collicoat v McMillan,[10] Ormiston J upheld the right of an undischarged bankrupt to make a Part IV application, noting:

It is probably sufficient to say that it has been accepted that the right to make a claim for further provision itself does not pass to the official trustee but is a personal right and thus the official trustee is not in this case nor in others a relevant party to the application, although from time to time the official trustee may have a right to intervene to protect an interest already given: see Re Estate of Robert Frangos (unreported, Court of Appeal, 7 July 1995). Because of the personal nature of the claim the better view appears to be that an order should not be made if it will not in fact benefit the applicant. If an order for further provision, intended as it is to provide for a person's maintenance and benefit, would invariably go to his creditors and provide no other benefit to the applicant, then it would not seem appropriate to exercise the discretion at the second stage of the enquiry even if a decision were made that the testator had otherwise failed in the distribution of his or her estate to make adequate provision for proper maintenance and support: see McLeod v Johns [1981] 1 N.S.W.L.R. 347 at 348. In the present case the difficulty is not so acute because, as I have said, the share already to be received by Kenneth will be sufficient and more than sufficient to pay those creditors.

1. Then in 2004 Nettle J (as he then was) in Read v Nicholls[11] had before him a claim for provision by the executor of the will of Ethel Read, commenced four months before her death, out of the estate of Ethel's de facto partner. There was also a claim for an interest in properties in the estate arising from constructive trusts. His Honour reviewed the decisions in Re Shannon, Re Hawke and a decision of Zelling J in Re Wardle,[12] a case concerning s 7 of the South Australian Inheritance (Family Provision ) Act 1972-5.
2. In Read v Nicholls, Nettle J then considered Coffey v Bennett and Sholl J's doubts regarding the decisions in Re Shannon and the doubts expressed by Powell J in McEvoy v Public Trustee, and said (at [41]):

I do not share the doubts identified in Coffey and McEvoy. The reasoning of Long Innes CJ appears to me to be convincing and in any event I consider that I should follow it in the way it has been followed in South Australia and in New Zealand. I proceed on the basis that Re Shannon was correctly decided and, because of the similarity of Pt IV of the Administration and Probate Act 1958 to the New South Wales Testators Family Maintenance Act 1916, that it is applicable to Pt IV of the Administration and Probate Act.

1. In Menzies v Marriott,[13] Hollingworth J followed Coffey v Bennett and McLeod v Johns in holding that the right to apply for relief under Part IV is personal and does not vest in a person's trustee in bankruptcy.
2. In relation to the question whether the statutory right to make a claim under s 91 of Part IV is a species of property that vests in the bankrupt's trustee, the authorities are all one way, and the answer is clearly in the negative. There has been no change of significance in the legislation that could affect this analysis, save that the matters to which the Court must now direct its attention by s 91(4) in determining whether or not the distribution of the estate of the deceased person as effected by his or her will and/or on an intestacy makes adequate provision for the proper maintenance and support of the person include many matters personal to the claimant and to others having claims on the estate. Significant amongst those matters is the financial resources (including earning capacity) and the financial needs of the applicant, of any other applicant and of any beneficiary of the estate at the time of the hearing and for the foreseeable future: see s 91(4)(h).
3. It seems to me that having regard to the terms of s 91 and the way the section in its current form has been interpreted since it was introduced in 1997, including the continuing relevance of "moral duty" and "moral claim" by reason of the continued inclusion in the provision of the concept of "proper maintenance and support", that the right to make application for an order under Part IV still depends on considerations wholly personal to the applicant, including his or her actual relationship to the testator, the moral claim which he or she had on his bounty, the standard of maintenance which the testator might have been expected to provide for the applicant, and the applicant's actual needs. As Sholl J said in Coffey v Bennett, only the applicant personally can come to the court to seek such a provision, or, by virtue of s 91(2)(b), another person on behalf of "that person", a phrase that in the context of the section as a whole, assumes the claimant to be alive.
4. It seems to me that the effect of the decisions reviewed by Nettle J in Read v Nicholls is that a claim validly commenced before the death of the applicant survives (presumably pursuant to s 29 of the Administration and Probate Act 1958, although the provision was not referred to). The position facing the Plaintiff in relation to her bankruptcy is different.
5. Here the question is whether the right to make a claim is the property of the bankrupt under s 5 of the Bankruptcy Act and whether it becomes divisible amongst the bankrupt's creditors by virtue of ss 58 and 116. It seems to me to be a quite different question from that facing Nettle J in Read v Nicholls and in the decisions to which he refers. In those cases, an action already commenced is taken to have survived the death of the deceased claimant to a limited extent, limited to the provision that would have been appropriate up to the claimant's death.
6. The position under the Bankruptcy Act is quite different and turns on the construction of that Act, in relation to which the authorities are persuasive and compelling, as well as binding on me.

1. Accordingly, the position is -
   • (a) The right to claim provision under Part IV is not a chose in action, or other species of property, that vests in the Plaintiff's trustee in bankruptcy;
   • (b) The proceeding is therefore not stayed under s 60 of the Bankruptcy Act; and
   • (c) The trustee does not therefore have a right of election under s 60(2) of the Bankruptcy Act.
2. It is in these circumstances that I have made directions for the proceeding to be advanced.

[1] [1992] FCA 150; (1992) 35 FCR 320 at 325; [1992] FCA 150; 107 ALR 424 at 429.

[2] [1961] VicRp 41; [1961] VR 264.

[4] [1935] NSWStRp 54; (1935) 35 SR (NSW) 516

[5] [1957] NZLR 152

[6] (1989) 16 NSWLR 92 at 99.

[7] Family Provision Act 1982 (NSW)

[9] [2013] FCCA 210 at [29].

[10] [1999] 3 VR 803 at [51].

[11] [2004] VSC 66 at [37]- [41].

[12] (1979) 22 SASR 139. In that case, Zelling also considered decisions in Canada, including Barker v The Westminster Trust Co [1941] 4 DLR 514 and Re McMaster [1957] 10 DLR 436, which disclosed differences of opinion as to whether proceedings under the Canadian legislation equivalent to Part IV were transmissible and passed to the claimant's executors where the claimant died between commencement of the proceeding and the trial.

[13] [2009] VSC 345 at [46].