Falstein v Official Receiver

108 CLR 523
1962 - 1219A - HCA

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(Judgment by: Dixon CJ, Taylor J, Menzies J)

Between: Falstein
And: Official Receiver

Court:

Judges:
Dixon CJ
Taylor J
Menzies J

Subject References:
Bankruptcy
Income
Provision for appropriation of earnings to creditors
Whether applicable to professional fees

Legislative References:
Bankruptcy Act 1924 (Cth) - s 101

Hearing date: 9 November 1962
Judgment date: 19 December 1962

Sydney

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Judgment by:
Dixon CJ
Taylor J
Menzies J

On 17th March 1959 the Court of Bankruptcy ordered, pursuant to s. 101 of the Bankruptcy Act, that the Official Receiver should, out of the earnings of the bankrupt, receive for distribution amongst his creditors the sum of PD100 per calendar month, "the first such payment to be made on or before 30th April 1959 and thereafter the said sum of One hundred pounds (PD100) to be paid on or before the last day of each succeeding calendar month" until otherwise ordered.  Subsequently, on 20th October 1961, this order was varied by a direction that for a period of six months the bankrupt should pay forty pounds a month, the first of such monthly payments to be made on or before 31st October 1961 "and to be continued until the expiration of this period of six months".  The order added that at the end of that period the Official Receiver should be at liberty to apply to vary the order then made.

According to its terms this order of variation ceased to operate six months after 31st October 1961 but it is common ground that the order as drawn up does not express the true intent of the order actually made in Court.  What was intended was that the variation should continue indefinitely or until further order, but that the Official Receiver should not be at liberty to move for any further variation until the specified period of six months had expired.

We have not before us the material upon which either the original order or the order by way of variation was made but it appears that until 1st March 1961 the bankrupt was employed in business at a salary.  On that date, however, he is said to have resumed practice at the Bar of New South Wales. No doubt, it was this latter circumstance which led to the variation of the original order and which induced the learned judge of first instance to preclude any further application by the Official Receiver for the period mentioned.  However, these matters are by the way for in March 1962 the bankrupt applied in person to the Bankruptcy Court for an order rescinding the earlier orders on the ground that they were not authorized by the terms of s. 101.  His application was refused and this appeal is brought from the order of refusal.

Section 101 is in the following terms:

"Subject to this Act, where a bankrupt is in receipt of pay, pension, salary, emoluments, profits, wages, earnings, or income, the trustee shall receive for distribution amongst the creditors so much thereof as the Court, on the application of the trustee, directs:

Provided that this section shall not apply to any pay, pension, salary, or wages which by any Act or State Act is made exempt from attachment or incapable of being assigned or charged."

The bankrupt appeared before us in person to prosecute the appeal and it was his contention that as a barrister, he cannot be said to be "in receipt" of his professional income until he actually receives it and, further, that the professional fees or earnings of a barrister are not comprehended by the words "pay, pension, salary, emoluments, profits, wages, earnings, or income".  The first proposition, as we understood the argument, was based upon the circumstance that a barrister in New South Wales has no right to enforce payment of outstanding fees by action or suit and, since he has no such right, that he cannot be said to be in receipt of fees until he actually receives them.  In support of the second proposition he quoted a number of English authorities which are not in point for the composite expression which has, from time to time, been the subject of consideration in the English Courts is "salary or income" and the word "income" has been consistently construed ejusdem generis with "salary".  As a consequence the professional earnings of a "bone setter" were in England held to be outside the scope of the relevant provision (Ex parte Benwell; In re Hutton) ^[F1] and, no doubt, the same reasoning would have been taken to apply to ordinary business or trade profits.  But the collocation of words in s. 101 is descriptive of a much larger variety of receipts than those comprehended by mere "salary or income" as that expression has been understood and there is no reason for thinking that business or trade profits or professional incomes are not within the ambit of the local section.

Section 101 appears in a division of the Act which deals with the realization of bankrupts' property.  By s. 99 the trustee is directed to take possession of the deeds, books and documents of the bankrupt and all other parts of his property capable of manual delivery.  Where any part of the property of the bankrupt consists of things in action they are to be deemed to have been duly assigned to the trustee.  Under s. 100 authority is given to take the steps therein prescribed to obtain possession of the property of the bankrupt and, thereafter, follow the provisions of s. 101.  Section 102 deals with the appropriation of income of property subject to restraint upon anticipation and the next two sections make provision with respect to the vesting and transfer of property and the disclaimer of onerous property.  The English provision to which reference has been made occupies a like place in the English legislation.  From time to time it has been argued that this provision is intended merely to qualify the more general provisions of the legislation pursuant to which the property of a bankrupt divisible amongst his creditors is, subject to the Act, to include all property which belongs to or is vested in the bankrupt at the commencement of bankruptcy, or is acquired by or devolves on him before his discharge.

Apart from any express exceptions to the generality of those provisions all of the earnings of a bankrupt received by him after the making of a sequestration order and before his discharge would be available for distribution among his creditors though the bankrupt would be free to deal with them bona fide and for value in the absence of any intervention by the trustee.  The initial proposition should also, perhaps, be read subject to old and consistent authority that a bankrupt's trustee cannot maintain an action for money earned by the bankrupt since his bankruptcy by his personal exertions if such moneys are required by him for his personal support and maintenance.  This was so whether the trustee sought to recover the money from a bankrupt's debtor or from the bankrupt himself (see e.g. In re Roberts). ^[F2]

These considerations have, at different times, been seized upon to found the contention that the relevant English provision applied only to income of a bankrupt which, apart from the effect of that provision, would pass to the trustee (see e.g. In re Landau) ^[F3] and that what it did was to create a particular and exclusive form of intervention by the trustee.  At other times the contention was raised that the provision applied only to income which did not vest in the trustee.  But it is now too late in the day for either of these conflicting arguments to prevail.  Farwell J., in In re Garrett) ^[F4] was firmly of the opinion that the English section applied "both to property that vests in the trustee ... and also to property not so vesting" and that view was confirmed in In re Landau; ^[F5] In re Tennant's Application; ^[F6] and In re Cohen. ^[F7]

In the  first mentioned of these three cases Slesser L.J. observed that "although some of the authorities, notably Ex parte Huggins, ^[F8] seems to proceed upon the assumption that the property there was property which vested in the trustee, and the Master of the Rolls points out, and Lindley L.J. also, that s. 51 as it now is ... is a modification and qualification of the vesting section, and that the different kinds of property with which they deal vest in the trustee but subject to the modifications and qualifications contained in what is now s. 51, yet nevertheless" he was of the opinion "that later authorities show quite clearly that even in the case  of salary or income which is not within ss. 18 and 38, the Court has jurisdiction to make an order under s. 51 where it is salary or income within that section". ^[F9]   The same view has been taken in this Court (see Stuart-Robertson v  Lloyd) ^[F10] though it should be observed that the proviso  to s. 101 of the Bankruptcy Act excludes from the ambit of the section "any pay, pension, salary, or wages which by any Act or State Act is made exempt from attachment or incapable of being assigned or charged".

Once it be accepted that s. 101 was intended to apply to income whether or not it is of such a character as to pass to the trustee pursuant to the general provisions of the Act the basis for any argument founded on the words which it contains-"the trustee shall receive ... so much thereof as the Court ... directs"-disappears.  No argument so based was, in fact, presented to us but we have thought fit to consider whether the presence of these words in the Commonwealth Act ought to be regarded as indicative of an intention that the operation of the section should be confined to income which would otherwise vest generally in the trustee.  But the use of the expression in question is not in our view sufficient to produce this result.  The section does not contemplate merely that the trustee shall, to the extent of any order which may be made under its provisions, succeed to the rights of a bankrupt against his debtor; rather it contemplates a right to receive from the debtor some part of his earnings though, possibly, the existence of an order may enable the trustee to give an effectual receipt for moneys paid to him direct by the bankrupt's debtor.  Subject to one matter, therefore, we are of the opinion that the Bankruptcy Court had authority to make the order of which the appellant complained.

The final matter is concerned with the bankrupt's contention that he was not in "receipt of" any income and the basis upon which this argument was erected has already been adverted to.  The contention is, however, sufficiently answered by the words of Dixon J. (as he then was) in Nette v  Howarth ^[F11] where his Honour said:

"Whilst these words" (i.e. "in receipt of")  "do not connote necessarily a regular periodicity, they do suggest recurrence as an actual or expected characteristic of the things the section proceeds to describe.  They raise a presumption that they will be  of a revenue nature". ^[F12]

It is, we think, of no consequence that, in New South Wales, a barrister has no legal right to sue at law for his fees, for a barrister who, in the course of his practice, is earning and receiving fees is, in the language of the section, just as much "in receipt" of the resultant income as would be a person who, for his services, is, or will in the ordinary course, become entitled to be remunerated by salary or wages or by a share of business or trading profits.  "In receipt of" is, we think, descriptive of an existing and continuing state of affairs and, that being so, it is immaterial that the fees of a barrister are not legally recoverable.  Accordingly we are of the opinion that the appeal should be dismissed.