FEDERAL COURT OF AUSTRALIA Donnelly (Trustee), in the matter of Hancock (Bankrupt) v Porteous [2001] FCA 1288 PRACTICE AND PROCEDURE – application to dismiss a claim for relief in the proceeding – application to strike out statement of claim Federal Court Rules O 20 r 2 MAX CHRISTOPHER DONNELLY (TRUSTEE OF THE PROPERTY OF THE LATE LANGLEY GEORGE HANCOCK, A BANKRUPT) v ROSEMARIE PORTEOUS N 7891 of 2000 STONE J 5 SEPTEMBER 2001 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 7891 OF 2000 BETWEEN: MAX CHRISTOPHER DONNELLY (TRUSTEE OF THE PROPERTY OF THE LATE LANGLEY GEORGE HANCOCK, A BANKRUPT) APPLICANT AND: ROSEMARIE PORTEOUS RESPONDENT JUDGE: STONE J DATE OF ORDER: 5 SEPTEMBER 2001 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1) the notice of motion filed by the respondent on 6 June 2001 be dismissed; 2) the applicant have leave to file and serve a third amended statement of claim within 21 days; and 3) the respondent pay the applicant's costs of the motion. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 7891 OF 2000 BETWEEN: MAX CHRISTOPHER DONNELLY (TRUSTEE OF THE PROPERTY OF THE LATE LANGLEY GEORGE HANCOCK, A BANKRUPT) APPLICANT AND: ROSEMARIE PORTEOUS RESPONDENT JUDGE: STONE J DATE: 5 SEPTEMBER 2001 PLACE: SYDNEY REASONS FOR JUDGMENT 1 The respondent's notice of motion filed on 6 June 2001 sought the following orders: 1) that the applicant's claim to a charge over the property known as 4-10 Bay Street, Double Bay, New South Wales (the 'Double Bay Property') be dismissed pursuant to Order 20 Rule 2; 2) that the applicant withdraw caveat No. 7585907C lodged on the Title to the Double Bay property within seven (7) days of the making of the Order; 3) that the applicant pay the costs of this motion. 2 Order 20 rule 2 of the Federal Court rules provides that: "Where in any proceeding it appears to the Court that in relation to the proceeding generally or in relation to any claim for relief in the proceeding – (a) no reasonable cause of action is disclosed; (b) the proceeding is frivolous or vexatious; or (c) the proceeding is an abuse of the process of the Court the Court may order that the proceeding be stayed or dismissed generally or in relation to any claim for relief in the proceeding." 3 The applicant's claim to a charge over the Double Bay Property (as defined in the notice of motion) is made in the context of a claim that a payment of $5,500,000 to the respondent is void as against the applicant under s 120 in Pt VI the Bankruptcy Act 1966 (Cth). The further amended statement of claim alleges that the payment was made by Mr Lang Hancock in October 1988 to the respondent as trustee of the Rose and Lang Hancock Domestic Fund. The terms of that fund as set out in the statement of claim are as follows. "14. The following were terms of the [Lang and Rose Hancock Domestic] Fund that: (a) On or about 26 October 1988 [Mr] Hancock would pay to the Respondent an amount of $6,000,000.00, which amount together with certain other moneys of the Respondent would be known as "The Rose and Lang Hancock Domestic Fund". (a) [sic] These moneys would be dealt with by the Respondent as follows: (i) $500,000.00 thereof would be settled or paid to [Mr] Hancock in his capacity as trustee of and upon the trusts known as "The Johanna Lacson Trust"; (ii) the balance thereof would be invested by the Respondent in such manner as she may determine in her absolute discretion and the annual income therefrom after payment of income tax would during the lifetime of Hancock be used inter alia to pay all domestic and residential expenses of [Mr] Hancock, the Respondent and the Respondent's daughter Johanna including medical, educational, household, domestic help, motor vehicle and other expenses; (b) Upon the death of [Mr] Hancock, the Respondent would be released and discharged from all obligations and restrictions in respect of the principal and income of the fund and thenceforth the Fund would be for her sole use and benefit absolutely." 4 It is further pleaded that: "18. On [Mr] Hancock's death on 27 March 1992 the Respondent was released and discharged from all obligations and restrictions in respect of the aforesaid sum of $5,500,000.00 forming part of the [Rose and Lang Hancock Domestic Fund] and such moneys thereupon became the Respondent's absolutely. 19. The aforesaid release and discharge of the Respondent's obligations and restrictions pursuant to the terms of the [Rose and Lang Hancock Domestic Fund] in respect of the aforesaid sum of $5,500,000.00 constituted a transfer of the said sum of $5,500,000.00 by [Mr] Hancock to the Respondent which took effect up on [Mr] Hancock's death on 27 March 1992. 20. The said transfer of the said sum of $5,500,000.00 is void as against the Applicant pursuant to Section 120(1) of the [Bankruptcy] Act." 5 At the hearing of the notice of motion today, Mr Burnside QC put a persuasively simple argument to support the respondent's claims. He argued that the terms of the trust, as pleaded, have the effect that the payment to the respondent in 1988 divested Mr Hancock of all his interest in the money transferred. Mr Hancock, it was said, did not reserve to himself any interest in the corpus of the trust fund. The only interest that Mr Hancock had under the trust was a right in relation to income, however that right might be classified legally. On settlement, Mrs Porteous took the whole of the legal interest in the Rose and Lang Hancock Domestic Fund as trustee. It was to be held by the respondent for her own use and benefit , subject only to the income which, during the lifetime of Mr Hancock, was to be used to pay certain expenses. This qualification in relation to income expired on Mr Hancock's death, leaving the respondent with the equitable interest in the property which she had previously acquired, but no longer subject to any restriction or other claims. Thus, it was submitted, on the facts as pleaded, Mr Hancock could not have transferred the interest in the corpus at his death as he had no interest to transfer – an example of the well-known maxim nemo dat quod non habet. 6 The argument put by Mr Coles QC for the applicant (being the respondent on the notice of motion) was more complex, as it needed to be. It may be an oversimplification but, as I understand it, the gist of Mr Coles' argument was that the payment made in October 1988 was a transfer to the respondent of the legal interest in the $5,500,000 in her capacity as trustee of the Lang and Rose Hancock Domestic Fund. That settlement, it was submitted, gave an immediate gift of income to certain named beneficiaries. More importantly, it gave the respondent a right to the unencumbered corpus of the fund; the gift of which was not completely executed until the death of Mr Hancock. The completion of this gift could be regarded or interpreted as a "transfer" of the corpus of the fund to the respondent at the time of Mr Hancock's death. 7 I do not regard this argument as immediately compelling; however, it is sufficient to persuade me that it would be inappropriate at this stage to grant the relief sought in the notice of motion. It follows that I do not accept the broader claim that Mr Burnside developed in submissions, namely that the further amended statement of claim should be struck out in whole or in part. The argument today, however, revealed that the further amended statement of claim might be more precisely formulated. As it is in the interest of both parties that the basis of the applicant's claim be stated as clearly as possible, I have decided to give leave to the applicant to amend further his further amended statement of claim, provided this is done within twenty-one days. For this reason, the orders of the Court are: 1) that the notice of motion filed by the respondent on 6 June 2001 be dismissed; 2) that the applicant have leave to file and serve a third amended statement of claim within 21 days; and 3) that the respondent pay the applicant's costs of the motion. I certify that the preceding seven (7) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Stone Associate: Dated: 13 September 2001 Counsel for the Applicant: Mr B A Coles QC with Mr C R C Newlinds Solicitor for the Applicant: Kemp Strang Counsel for the Respondent: Mr J W K Burnside with Mr D G Collins Solicitor for the Respondent: Slater & Gordon Date of Hearing: 5 September 2001 Date of Judgment: 5 September 2001