Sheahan v Birdseye [2003] HCATrans 293 (14 August 2003)

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Sheahan v Birdseye [2003] HCATrans 293 (14 August 2003)

Last Updated: 22 August 2003

[2003] HCATrans 293

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Adelaide No A318 of 2002

B e t w e e n -

JOHN SHEAHAN (as Trustee in Bankruptcy of the Estate of Nicholas Guy Birdseye)

Applicant

and

NICHOLAS GUY BIRDSEYE (as trustee of the Nicholas Birdseye Family Trust)

Respondent

Application for special leave to appeal

GLEESON CJ
CALLINAN J

TRANSCRIPT OF PROCEEDINGS

AT ADELAIDE ON THURSDAY, 14 AUGUST 2003, AT 10.47 AM

Copyright in the High Court of Australia

MR R.J. BAXTER: May it please the Court, I appear for the applicant in this matter. (instructed by Johnson Winter & Slattery)

MR W.J.N. WELLS, QC: If the Court pleases, I appear with my learned friend, MR K.G. NICHOLSON, for the respondent. (instructed by Iles Selley Lawyers)

GLEESON CJ: Yes, Mr Baxter.

MR BAXTER: May it please the Court. The issue in this application concerns the construction of section 139D of the Bankruptcy Act and, in particular, concerns the construction of a particular part of subsection (1)(d). The language in the subsection is that “the bankrupt used, or derived a benefit from” the relevant property. There does not seem to be any dispute between the parties here that the relevant property is a chose in action, which the bankrupt owned in his capacity as trustee of his family trust and which was constituted by a debt owed by his wife to him in his capacity as trustee.

The issue that arises out of the judgment below of Justice Carr, exercising the jurisdiction of the Full Court of the Federal Court, is whether, in the circumstances of this case, it can be said, on its true construction of subsection (1)(d), that Mr Birdseye derived a benefit from that chose in action.

The contentions of the applicant for special leave are that the provisions in Division 4A of Part VI of the Bankruptcy Act, of which section 139D is part, were designed – and it can be seen from the provisions of the various sections in that Division itself – to combat the practice of what has been described as “remuneration skimming” or “remuneration warehousing” by bankrupts.

GLEESON CJ: Yes, but just before we get into the metaphors, what was the benefit that he derived from the chose in action?

MR BAXTER: What we say is that it was available to him to use, or otherwise – it was at his disposal in the same way, or in an analogous way, to the motor vehicle in Nelson’s Case which we cite.

GLEESON CJ: Let us avoid analogies and stick to the particular case. What was the use he made or could have made of the debt, the chose in action?

MR BAXTER: The use he could have made is indeed the potential use which was identified by the trial judge himself. In paragraph 60 of the judgment, his Honour says:

If, for example, that debt –

referring to the debt owed by Mrs Birdseye –

had been used as security to provide a loan to Mr Birdseye, that might have been a relevant benefit –

We would say that would have been a relevant benefit, but his Honour is speaking hypothetically.

GLEESON CJ: What was the benefit that he obtained from the debt in the facts as they occurred?

MR BAXTER: That it was available to him to use for such a purpose, should he wish to do so. The difficulty, with respect - - -

GLEESON CJ: And that is a benefit?

MR BAXTER: We say, with respect, that it is. His Honour Justice Carr in the same paragraph 60 says, following the sentence that I have just read out to your Honour:

It would have been a benefit –

that is, using the loan as security –

in the same way as if the relevant “particular property” had been, say, a house or a boat which had been put at his disposal.

Now, one of the problems with this case, with respect, is that one needs to bear in mind that the asset concerned here is an intangible asset. Where there is a tangible asset, such as a house or a boat, as his Honour Justice Carr refers to, it is quite clear. One can see the asset and one can see, from the circumstances, that it is at the bankrupt’s disposal, whether or not he uses it. His Honour seems to accept – certainly he does not reject at that point – that merely placing an asset at the disposal of the bankrupt would be enough for him to derive a benefit from it, if it were intangible.

CALLINAN J: What do you say about paragraph 62 on page 36, that the section requires that there be an actual use - - -

MR BAXTER: Or the derivation - - -

CALLINAN J: - - - or actual derivation of a benefit?

MR BAXTER: The first point we make with that, with respect to your Honour, is that because the section uses the words “used, or derived a benefit from”, it must contemplate the derivation of a benefit from the property which is not encompassed in the word “use”, because otherwise the extra words would be simply superfluous.

CALLINAN J: Derived or obtained, perhaps. I am sorry, you used the word “obtain”. What benefit did he actually obtain?

MR BAXTER: The actual benefit that he obtained was that the asset was available to him to use, in the same way as if it had been a tangible asset, such as the motor vehicle in Nelson’s Case. Even though he never drove the car, even though he did not get into the car at any time, because it had been placed at his disposal, because it was there for him to use, he derived a benefit from it. The difficulty that one faces with an intangible asset, which is owned by the bankrupt himself, albeit perhaps in a different capacity, is that any disposal, any placing at use, must, of course, be simply a matter of a thought process inside the bankrupt’s head. One cannot point to the asset in the way that one can point to the house or the boat, which his Honour refers to in paragraph 60.

So while that is at his disposal, he therefore has a benefit, even though he does not use it. He has a benefit because it is there for him to use. We say that, in exactly the same way, if the asset is there for him to use, then he derives a benefit, just as he would derive a benefit from being offered a boat for use, even though he did not enjoy sailing and would probably be seasick if he got in it. He nonetheless derives a benefit from having it available to use. That, with respect, is what we say is the benefit which he obtained from this asset. He derived the benefit that it was available to him and that he, in his capacity as trustee, could make it available to himself.

Those are the contentions that the applicant for special leave would contend for, if leave were to be granted, in terms of the construction of the section. We do say that the matter is of general importance. It is, with respect, a well-encapsulated and well-defined point. It is one on which it would be appropriate, we say, for this Court to give guidance to courts in bankruptcy around Australia as to how the section should be applied, because what is, with respect, clear is that if the approach which appealed to Justice Carr is to obtain, then the section is quite largely emasculated. It would be a case where only the stupid would be caught by it.

To take a simple example, if the trustee buys the family home and allows the bankrupt to live in it, that is an immediate derivation of a benefit or an immediate use. All he has to do, as far as asset protection, is to lend the money to somebody else to buy the house, and if Justice Carr’s approach prevails then the section does not bite. So that notwithstanding that the purpose of the section is to obviate or combat remuneration skimming or remuneration warehousing in the manner that can and does occur, it would not require much foresight completely to combat the section.

We say it is a matter of general importance. It is a matter on which guidance is appropriate from this Court. It is not, with respect, as our opponents suggest, appropriate to leave it until there is a plethora of first instance and perhaps intermediate appellate decisions before it comes up to the High Court, because the approach taken by Justice Carr might not appeal to other judges. It may well be that there are inconsistent decisions. It is a fundamental proposition; it is a fundamental section within Division 4A of Part VI; and it is appropriate that, at as early a stage as possible, authoritative guidance is given as to the construction of the section. That is the short point that is raised by it in that way and, unless I can assist your Honours further, those are the submissions on behalf of the applicant.

GLEESON CJ: Thank you, Mr Baxter. We do not need to hear you, Mr Wells.

The decision of Justice Carr turned on the facts and circumstances of the particular case, which does not raise an issue suitable for a grant of special leave to appeal. We would add that we think there are insufficient reasons to doubt the correctness of the decision of Justice Carr to warrant a grant of special leave, and the application is refused with costs.

AT 10.59 AM THE MATTER WAS CONCLUDED