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Oliver v Malanos [2011] FMCA 2 (27 January 2011)

Last Updated: 3 May 2011

FEDERAL MAGISTRATES COURT OF AUSTRALIA

OLIVER v MALANOS

BANKRUPTCY – Disputed funds in a joint bank account – whether the whole of the funds remaining in the account are subject to a trust considered – whether part of the money vested in the trustee in bankruptcy considered – effect of orders made by the Family Court considered.

FAMILY LAW – Whether the applicant should be permitted to seek to enforce the orders of the Family Court against the trustee in bankruptcy considered.

Bankruptcy Act 1966 (Cth), ss.4, 58, 59A, 116, 129, 178
Bankruptcy and Family Law Legislation (Amendment) Act 2005 (Cth)
Family Law Act 1975 (Cth), s.79
Family Law Rules

Cohen v Cohen (1929) 42 CLR 91
Milroy v Lord [1862] EngR 951; [1861-73] All ER 783
Monika Seidel v Tina Poh-Chooi Fung & Ors (unreported, District Court of NSW, 20 March 2009)
Monika Seidel v Tina Poh-Chooi Fung & Stephen James Oliver (unreported, District Court of NSW, 4 December 2008)

Applicant:
STEPHEN JAMES OLIVER

Respondent:
NICHOLAS MALANOS, IN HIS CAPACITY AS TRUSTEE OF THE PROPERTY OF TINA POH-CHOOI FUNG, A BANKRUPT

File Number:
SYG1624 of 2010

Judgment of:
Driver FM

Hearing date:
1 November 2010

Delivered at:
Sydney

Delivered on:
27 January 2011

REPRESENTATION

Counsel for the Applicant:
Mr D W Rayment

Solicitors for the Applicant:
Anderson Lawyers

Counsel for the Respondent:
Mr M Southwick

Solicitors for the Respondent:
Barringer Leather Lawyers

ORDERS

(1) The applicant has leave and liberty to apply within 28 days for further orders under the Family Law Act 1975 (Cth) enforcing or varying orders 5 and 6 of the Family Court made on 10 April 2008 as against the respondent.
(2) Pending the resolution of any such application, the respondent is restrained from withdrawing funds from, operating or making demand for payment from ANZ Bank account BSB 012 396, account number 80746775.
(3) Order 2 shall expire in 28 days if no application is filed pursuant to order 1.
(4) The application filed on 23 July 2010 is otherwise dismissed, with effect from 24 February 2011.
FEDERAL MAGISTRATES
COURT OF AUSTRALIA
AT SYDNEY

SYG1624 of 2010

STEPHEN JAMES OLIVER

Applicant


And


NICHOLAS MALANOS, IN HIS CAPACITY AS TRUSTEE OF THE PROPERTY OF TINA POH-CHOOI FUNG, A BANKRUPT

Respondent


REASONS FOR JUDGMENT

Introduction and background

  1. The applicant, Mr Stephen Oliver, is the former husband of Tina Poh-Chooi Fung, a bankrupt. The respondent, Mr Nicholas Malanos, is the trustee of Ms Fung’s bankrupt estate. The parties are in dispute over a bank account containing approximately $400,000. The trustee contends that not less than $200,000 is property of the bankrupt which vested in the trustee at the commencement of the bankruptcy. Mr Oliver contends that all of the money now in the account is held in trust for the benefit of his children. There is also an issue of the impact of consent orders made in the Family Court prior to the bankruptcy.
  2. Mr Oliver and Ms Fung were married in 1991 and separated in 1999. On 10 April 2008 the Family Court made consent orders for the sale of the former matrimonial home and the division of the proceeds of that sale between Mr Oliver and Ms Fung. Importantly, orders 5 and 6 made at that time stated:
  3. Contracts were exchanged for the sale of the home on 21 July 2008. In September 2008 Mr Oliver and Ms Fung opened a joint bank account with the ANZ Bank. On 7 October 2008 the sale of the home settled. The net proceeds from the sale of the home were deposited into the ANZ Bank account two days later.
  4. On 20 October 2008 Mr Oliver sent an email to Ms Fung calculating their respective entitlements to the money in the ANZ Bank account after deducting $200,000 each apparently in accordance with Family Court order 5. By 28 October 2008 Mr Oliver and Ms Fung had withdrawn all but $400,000 from the account.
  5. On 11 November 2008 the District Court of NSW issued a freezing order on the account in connection with proceedings instituted by a creditor of Ms Fung. Between 17 and 21 November 2008 Mr Oliver withdrew and then redeposited $200,000 from the ANZ Bank account. On 25 November 2008 Mr Oliver set up a new ANZ Bank account in his own name[1]. On 4 December 2008 Geraghty DCJ gave judgment maintaining the freezing order. On 23 January 2009 Elhaim DCJ made orders permitting $2,000 to be withdrawn from the frozen account for the payment of school fees. Mr Oliver paid that money into the new ANZ Bank account in his own name and used it to pay the school fees in February 2009. The freezing order was further continued by Hungerford DCJ on 20 March 2009.
  6. In June 2009 Ms Fung became bankrupt. On 15 July 2010 the trustee served a demand upon the ANZ Bank for $207,413.83 (including accrued interest) pursuant to s.129(4A) of the Bankruptcy Act 1966 (Cth) (“the Bankruptcy Act”). The District Court freezing order was discharged on 16 July 2010.
  7. The present application was filed by Mr Oliver on 23 July 2010. He seeks the following orders:

The evidence and submissions

  1. The application is supported by Mr Oliver’s affidavit made on 23 July 2010. A bundle of documents[2] was exhibited to that affidavit. Mr Oliver was cross-examined on the affidavit and exhibit. The parties made detailed submissions on trust law and the application of the legal principles to the facts of this case.
  2. Mr Oliver notes that the primary dispute between the parties is the question of the beneficial entitlement to approximately $200,000 of the funds held in the joint bank account. He seeks a declaration that the funds are held on trust for the education expenses of his children and for other consequential relief. This is opposed by the trustee who, consistently with the demand issued under s.129(4A) of the Bankruptcy Act, asserts that approximately half the funds in the bank account were beneficially owned by Ms Fung at the time she became bankrupt and hence vested in the trustee. Mr Oliver contends that the critical issue to be resolved is whether the funds in the joint bank account are held on trust. Mr Oliver contends that, by acting consistently with the consent orders of the Family Court, he and Ms Fung exhibited an intention to subject the $400,000 they left in the joint bank account to a trust in favour of their children. Further, or in the alternative, Mr Oliver contends that the effect of the orders made pursuant to s.79 of the Family Law Act 1975 (Cth) (“the Family Law Act”) was to alter the parties’ property interest so as to vest legal title to $200,000 of the wife’s equity and the proceeds of the sale of the family home in Mr Oliver for the purposes of the trust. He submits that I would not be assisted by the two judgments of the District Court concerning the status of the money in the joint bank account. Specifically, he contends that the District Court was in error in finding that Mr Oliver and Ms Fung had failed to comply with order 6 made by the Family Court which called for a separate account to be established to hold the moneys to be applied for the benefit of the children.
  3. Mr Malanos contends that the consent orders made by the Family Court do not express an intention that the fund to be created for the children was to be a trust fund. Further, Mr Malanos notes that the joint account does not meet the description envisaged for the fund to be established under the Family Court orders. He further notes that the joint account has been used for a number of purposes unrelated to the education of the children. He submits that by application of the general principles concerning the creation of the trust, no trust was created either as a consequence of the Family Court orders or by the conduct of Mr Oliver and Ms Fung.

Consideration

  1. This is a case in which the law of bankruptcy and family law intersect. There is a contest over money between Mr Oliver (and through him, his children) and the trustee of the bankrupt estate of his former wife. Upon the commencement of the bankruptcy of Ms Fung, her assets vested in her trustee in bankruptcy. Further, the trustee is charged with the function under the Bankruptcy Act of collecting her assets and applying them for the benefit of creditors.
  2. In 2005, the Bankruptcy and Family Law Legislation (Amendment) Act 2005 (Cth) was enacted. The amendments effected by that legislation gave jurisdiction to the Family Law Courts (including this Court) to resolve any perceived injustices arising from the operation of bankruptcy law without resort to devices such as the imposition of constructive or resulting trusts and without the expense of conducting litigation in more than one court. Following those amendments, s.79 of the Family Law Act now provides:
  3. Vested bankruptcy property in relation to a bankrupt has the same meaning as under the Bankruptcy Act[3].
  4. Further, the vesting provisions of s.58 of the Bankruptcy Act now operate subject to s.59A of the Bankruptcy Act which provides:
  5. There is a question whether s.59A means that any order settling property on the bankrupt’s spouse (or on the children of the marriage) could turn property which otherwise vests in the trustee of the bankrupt estate into the form of protected property which is not available to the creditors. In my view, property disposed of by a spouse pursuant to an order under s.79(1) of the Family Law Act who later becomes bankrupt does not vest in the trustee in bankruptcy and is protected from the claw back provisions in the Bankruptcy Act.
  6. Regard also needs to be had to s.116 of the Bankruptcy Act which identifies property divisible among creditors of the bankrupt estate. Importantly, an exception to the property available to be divided between creditors is any property that, under an order under Part VIII of the Family Law Act, the trustee is required to transfer to the spouse, or a former spouse, of the bankrupt. It follows, in my view, that if the consent orders made by the Family Court have the effect of transferring property from Ms Fung to the children (or to Mr Oliver for the benefit of the children) then that money did not vest in Ms Fung’s trustee in bankruptcy and is not available to him. Further, if that is not the consequence of the Family Court orders, it remains open to Mr Oliver to apply for a variation of property interests as between him and the trustee in bankruptcy to obtain that result. He has not yet done so, possibly because of his belief of the effect of the orders already made.
  7. The orders made by the Family Court on 10 April 2008 were made pursuant to Part 10.4 of the Family Law Rules and it is apparent that the orders were made under s.79(1) of the Family Law Act. The orders were:
3. That pending the completion of the sale:
4. That liberty be reserved to either party to apply with respect to the terms and conditions of an execution of the sale.
5. Following completion of the sale of the property, each of the parties shall deposit into a fund to be created the sum of $200,000 for the payment of all education expenses including tertiary school fees for the children of the marriage, [three names deleted] (“the children”).
6. The Fund for the education of the children referred to in Order 5, shall be in the name of the Husband and shall be managed and administered by him, subject to the Wife’s right to receive accounts for the fund upon request from time to time.
7. The parties agree that the children will live with the Husband and the Wife can contact them or spend time with them whenever she wishes.
8. Each party shall jointly have equal shared parental responsibility for the children.
9. The parties have entered into a Child Support Agreement relating to the Child Support for the children, and a copy of this agreement is attached hereto and marked with the letter “A”.
10. Excluding furniture, household and personal effects, the parties shall retain to the exclusion of the other, the items of property, savings, superannuation entitlements, motor vehicles, in the possession of each of the parties as at the date hereof.
11. In relation to furniture, household and personal effects, the Court notes that the parties will divide these between them, after the property is sold by mutual agreement.
  1. It is apparent that order 2 above effected a variation of property interests between Mr Oliver and Ms Fung.
  2. The effect of order 5 above was to create an enforceable liability at an uncertain time following the completion of the sale of the former matrimonial home, for Mr Oliver and Ms Fung to pay $200,000 from the proceeds of that sale into a fund for the benefit of their children. The order was imperfect in that the obligation to pay did not arise until after the completion of the sale of the property and the obligation to pay did not arise within any particular time after that completion. The orders did not expressly create a trust and, until the fund was created, it is hard to see how there could be one.
  3. The four essential elements of a trust are a trustee, trust property, a beneficiary and a personal obligation annexed to the property. There was no trust property until the former matrimonial home was sold and the parties met their obligation to contribute the required amount to establish the fund. As was noted in Milroy v Lord[4]:
  4. In the proceedings in the District Court between Monica Seidel (creditor) and Ms Fung on 4 December 2008, Judge Geraghty said, in an unreported interlocutory judgment:
  5. His Honour then referred to relevant authorities and concluded:
  6. His Honour concluded that, for the purposes of the proceedings before him, it was appropriate to maintain the freezing order over the joint account pending the outcome of the proceedings.
  7. In a later judgment on 20 March 2009 between the same parties, Acting Judge Hungerford said in an unpublished judgment:
  8. After considering what had transpired in connection with those proceedings his Honour continued:
  9. What was said by the two judges of the District Court is not binding upon me but underscores the difficulty confronting Mr Oliver. There could be no trust until the trust property was created or separated. At their highest, the orders made by the Family Court might be said to support the creation of a trust fund upon the establishment of a separate account in accordance with order 6 made by the Family Court into which both Mr Oliver and Ms Fung were required to pay $200,000. That was not done. It is arguable that Mr Oliver and Ms Fung envisaged that, by leaving $400,000 in the joint account, they were giving effect to the spirit of the Family Court orders, but the money remaining in that account remained the property of Mr Oliver and Ms Fung. They may have intended that money to be set aside for the benefit of their children in accordance with the orders of the Family Court, but until those orders were complied with (and they were not complied with) any transfer of property effected by those orders was not completed.
  10. In Cohen v Cohen [1929] HCA 15; (1929) 42 CLR 91 at 101 Dixon J (as he then was) said
  11. In my view a key feature in this case is that while an account has been created for a separate fund for the children to be held, it has no money in it. The money in the joint ANZ account is held jointly and the account holders have dealt with that money as they pleased, and were free to do so until the account was frozen.
  12. I conclude that the funds sought by the trustee in bankruptcy did vest in the trustee upon the commencement of the bankruptcy and that they are not subject to a trust. However, that is not the end of the matter. The Family Court has made orders, the effect of which (if complied with) would be a variation of property interests as between Mr Oliver and Ms Fung for the benefit of their children. Those orders have not been complied with. Mr Oliver has created a separate account for the apparent purpose of complying with those orders but he has not had that opportunity since the funds in the joint account were frozen by the District Court and the demand was made by Mr Malanos. There is a question whether the orders made by the Family Court should now be enforced either against Mr Oliver, or Mr Malanos or both of them. At a minimum, in my view, the orders should be enforced against Mr Oliver by requiring him to pay the sum remaining his property in the joint account into the account he has opened with the ANZ Bank for his children and to make consequential orders regulating the use of that money consistently with the earlier orders of the Family Court. Mr Malanos should be restrained from pursuing his demand in respect of the money vesting in him as trustee of the bankrupt estate until Mr Oliver has had the opportunity to apply under the Family Law Act for orders against Mr Malanos enforcing or varying the orders of the Family Court. That action, if taken, would complete a variation of property interests as between Mr Oliver and Mr Malanos. It would require a fresh examination of what the future education expenses of the children are likely to be and what is a fair contribution from the parties to meet them.
  13. I will give Mr Oliver the opportunity to apply for further orders under the Family Law Act. Mr Malanos should be restrained from dealing with the funds in the ANZ joint account pending the resolution of such an application. I will hear the parties as to the appropriate form of any other directions and orders and as to costs.

I certify that the preceding thirty (30) paragraphs are a true copy of the reasons for judgment of Driver FM


Date: 27 January 2011

[1] Account number 4787-68019.
[2] Exhibit SJO-1.
[3] See s.4(1).
[4] [1861-73] All ER 783.
[5] (1913) 2 KB 515 at page 521.

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