Re Clark and Official Trustee in Bankruptcy

50 ALD 291

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(Decision by: President Mathews J)

Clark
v.Official Trustee in Bankruptcy

Tribunal:

Member:
President Mathews J

Hearing date: 2, 3 March
Decision date: 23 April 1998

Melbourne

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Decision by:
President Mathews J

(1) On 24 April 1996 the applicant became a bankrupt on his own petition and the official receiver became trustee of his estate (the trustee). The estate's principal creditors are the State Bank of South Australia (the bank) and the State of South Australia which jointly, on 29 March 1996, obtained judgment against the applicant in the Supreme Court of South Australia in the amount of $81,225,826.25. The judgment of Perry J, awarding common law damages in this amount, is central to a number of the issues raised before me, and I shall be discussing it later.

(2) On 25 October 1996 the applicant applied to the trustee for early discharge from bankruptcy under Div 3 of Pt VII of the Bankruptcy Act 1966 (Cth) (the Act). On 14 January 1997 the trustee refused this application. On 31 January 1997 the applicant applied to the Administrative Appeals Tribunal (the tribunal) for review of this decision.

(3) The trustee's determination refusing early discharge raised a number of issues, some of which do not require discussion here. A ventilation of all disputed aspects of the application would, both parties agree, involve a very lengthy hearing. All this would be unnecessary if, as the respondent urges, the applicant is in any event ineligible to apply for early discharge or is disqualified from obtaining it. In this respect the parties have isolated three issues of law which they have requested be determined on a preliminary basis. A finding in favour of the respondent, at least in relation to either of the first two issues, would necessarily mean that the applicant has no entitlement to an early discharge, thus obviating the need for a lengthy hearing on the merits.

(4) The questions which have been isolated by the parties as susceptible of preliminary rulings are:

•

is the applicant eligible to apply for early discharge under s 149T(a) of the Act?;

•

is the applicant disqualified from early discharge under s 149Y of the Act?; and

•

what definition of income is to be applied in determining the applicant's eligibility for early discharge under s 149T(c) of the Act?

(5) I shall discuss each of these in turn.

Eligibility to apply for early discharge under S 149T(a)

(6) There are a number of criteria for early discharge under s 149T. However the parties agree that we need only concern ourselves with those under s 149T(a) and s 149T(c) (which will be discussed later).

(7) Section 149T(a) is in the following terms:

Subdivision C -- Criteria of eligibility for early discharge

149T Eligibility to apply for early discharge

A bankrupt is eligible to apply for early discharge if, and only if:

(a)

when the bankrupt applies for discharge:

(i)

there is no money available to pay, or insufficient money available to pay in full, the remuneration and expenses of the trustee; or

(ii)

there is no money available to pay a dividend to the bankrupt's creditors; and

(b)

...

(8) In the circumstances of this case, the issues involved in paras (i) and (ii) involve different considerations, and I shall deal with them separately.

Was there money available to pay remuneration and expenses?

(9) When the applicant applied for early discharge, on 25 October 1996 (the relevant date), the funds in the trustee's hands were $393.20. The fees payable pursuant to r 182(1) of the Act were $415. As will become apparent later, there is some dispute between the parties as to whether the $393 was the only money available to the trustee. Had it been so, it would appear on its face that the circumstances would fall within s 149T(a)(i), as the trustee's expenses alone would exceed the money available to the trustee. However there are other factors which need to be placed into the equation.

(10) Paragraph (i) refers to payment of the trustee's remuneration. This raises the question as to whether there was any remuneration payable to the trustee at the relevant date. The respondent, relying on Re Athanassopoulos (1982) 41 ALR 603, submits that there was not. In that case, Lockhart J, following the reasoning of Gibbs J in Re Marc; Ex parte Stapleton (1968) 12 FLR 48 ; [1968] ALR 596, found that the official trustee had no right to remuneration for administration of a bankrupt estate until the completion of the administration. If this reasoning were to be applied in this case it would follow that there was no remuneration of the trustee to be taken into account under para (i) at the relevant date, as the administration was anything but complete at that time. However, without in any way questioning his Honour's conclusion, which he reached in any event with some misgivings, I consider that the governing legislation here requires a different approach. The clear terms of para (i) require that a calculation be made as to the remuneration which would notionally be payable to the trustee on the date of application for early discharge. The remuneration might not in fact be payable until the administration is complete. But that does not affect the requirement that the remuneration be calculated and taken into account for the purposes of para (i).

(11) As it transpires, it will make little difference whether the trustee's remuneration is included among the notional outgoings under para (i). For the trustee's expenses on the relevant date, even without any component for remuneration, were already more than the $393 held in cash. Accordingly, if this were the only money available for the payment of the trustee's expenses and remuneration, then a finding in favour of the applicant must follow.

(12) However, as mentioned earlier, there is a dispute as to whether to $393 was the only item to be placed on the credit side. The respondent submits that an amount of $6563.43, which the trustee received not long after the relevant date, was "money available" to the trustee on that date. This being well in excess of the trustee's expenses ($415) and remuneration (calculated at $3960.76), it would follow that there was a credit balance on the relevant date. Accordingly, a major issue under para (i) was whether this $6563.43 constituted "money available" to pay the trustee's expenses and remuneration as at the relevant date. If so, the applicant will have failed to meet this eligibility criterion. If not, he will have met it.

(13) The $6563.40 constituted the applicant's income entitlement, as at 24 April 1996, from the estate of G S Clark. It was described during the hearing as "the estate money". A letter from the applicant's solicitors to the trustee dated 17 October 1996 confirmed that the money was owing and said that a cheque for the estate money would be forwarded to the trustee upon receipt of dividends on investments some time in November 1996. In fact the cheque was received on 11 December 1996.

(14) Mr Bigmore QC, who appeared for the applicant before me, submitted that the estate money was not "money available" to the trustee at the relevant date. In doing so, he relied on the use of the word "money" in para (i) and urged that as "money" is classically restricted to cash in hand or money at call in a financial institution, the estate money should not be taken into account for the purpose of the section.

(15) There is little authority of assistance on this issue, and nothing directly on point. The definition of "money" or "moneys" will depend upon the context in which these words appear. In Re Litchfield; Public Trustee v Millett (1961) 2 FLR 454 ; [1961] ALR 750 Joske J, sitting in the Supreme Court of Northern Territory, was required to determine the meaning of the phrase in a will, "all other moneys accruing from my estate". His Honour observed that many of the decisions as to the meaning of the word "money" commence with the assumption that the word is used in its primary or strict legal sense, meaning cash in hand (extended later to include money on current account or at call) unless the context or circumstances show that it is intended to be used in a wider sense. In that case, Joske J determined that the phrase, "all other moneys accruing from my estate" pointed to an intention on the part of the testator to dispose of something more than readily procurable cash, and to make the bequest as comprehensive a one as possible.

(16) The reference in s 149T(a)(i) to "available" money must, in my view, enlarge the concept of money beyond that which the trustee has in cash or at call. The New Shorter Oxford English Dictionary defines "available", relevantly, as: "... 3. Able to be used or turned to account; at one's disposal; within one's reach, obtainable; ...".

(17) As at 25 October 1996 the $6563.40 was an acknowledged current debt owing to the bankrupt estate from the GS Clark estate. It was then due and payable, and there were assets from which, if necessary, it could have been paid. Any deferral of payment was designed to meet the convenience of the creditor. It did not affect the availability of the funds. This money was, in my view, thus obtainable by the trustee on the relevant date and was available for the payment of expenses and remuneration under s 149T(a)(i).

(18) This conclusion is not only consistent with the natural meaning of the words used in the section but is also consistent with what I regard to be the clear legislative intention. An examination of the early release provisions, which were introduced into the Act in 1992, shows that they were designed to enable bankrupts, who have otherwise behaved in a blameless manner in relation to their bankruptcy, and whose assets and income-earning capacity are so meagre that there is little point in continuing with the bankruptcy, to apply for early discharge. If "money" in s 149T(a) were defined narrowly, so as to exclude debts currently payable to the bankrupt estate, then it would clearly defeat this intention. Indeed the legislation itself supports a broad definition of the word "money". For the next succeeding section, s 149U, which refers to the information that the trustee may use when determining the matters in s 149T(a), is headed "Lack of divisible property" (emphasis added). "Property" is defined in s 5 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." This clearly shows that a broader view was intended than that urged by the applicant in this case.

(19) A final issue arising under s 149T(a)(i) relates to certain additional expenses, amounting to $58,622.65, which had been incurred by the trustee before the relevant date. These constituted the trustee's legal costs ($13,190.95) and amounts owing to two agents, Messrs Lamb and Rudaks, for work performed on behalf of the trustee in relation to the bankruptcy. The respondent said that it was unnecessary to place these amounts onto the debit side when making an assessment under s 149T(a)(i) as there was money available to the trustee to pay these expenses. This occurred by virtue of a deed of indemnity dated 12 September 1996 which was entered into by the official trustee, the two agents, and the two principal creditors of the estate (the bank and the State of South Australia). In it the creditors (referred to in the deed as "the indemnifying creditor") agreed to indemnify the trustee in respect of the agents' remuneration, fees and expenses, and of the trustee's legal costs. On the relevant date the indemnifying creditor had not yet been billed for these amounts. When, shortly afterwards, the expenses were billed, they were paid in full by the indemnifying creditor pursuant to its obligation under the deed.

(20) The applicant submits that as these expenses were outstanding at the relevant date, and as they greatly exceeded the amount available to the trustee, even including the estate moneys, there was no money available at that date to pay these expenses. The respondent urges that under the deed of indemnity, the indemnifying creditor had an obligation to reimburse these expenses, and thus there was money available to pay them.

(21) The deed of indemnity placed a limit on amounts which were subject to indemnity. However it is common ground that the limit had not been reached by the relevant date. Accordingly, on any view of the matter, the trustee was entitled to call upon the indemnifying creditor to meet his expenses of $58,622.65. This leads me to conclude that money was clearly available at the relevant date to pay those expenses. Indeed it would be difficult to see how one could find otherwise.

(22) For the reasons given I find, in terms of s 149T(a)(i), that as at 25 October 1996 there was money available to pay the remuneration and expenses of the trustee. However that is not the end of the matter. For there is an alternative basis of eligibility under para (ii) of s 149T(a), namely that there is no money available to pay a dividend to the bankrupt's creditors.

Was there money available to pay a dividend?

(23) Mr Delaney, who appears for the respondent, says that paras (i) and (ii) of s 149T(a) need to be read as part of the same legislative scheme. The deed of indemnity meant that money was available to pay the bulk of the trustee's expenses. Similarly, the money from the estate of G S Clark was available to pay the remainder of the expenses as well as the trustee's remuneration as at 25 October 1996. The balance of the estate money, namely $2602.64 was then available for the payment of dividends to creditors.

(24) Mr Bigmore submits that s 149T(a)(i) and (ii) need to be considered separately from each other. In relation to para (ii), he says that if a decision-maker is to place the estate moneys of $6563.40 on the credit side, then he/she must also take account of the trustee's expenses of $58,622.65 on the debit side. It is not to the point, he says, that the trustee was entitled to reimbursement of these expenses from the indemnifying creditor. The indemnity, if paid, would not constitute part of the property of the bankrupt which was available for distribution among creditors and was thus not "money available to pay a dividend to the bankrupt's creditors" under para (ii). Accordingly, he contends, a dividend could not have been paid on the relevant date because s 109(1) of the Act requires the trustee to apply what was left of the estate moneys first in payment of outstanding expenses.

(25) I cannot accept this submission. It would be both unrealistic and artificial to treat the trustee's expenses of $58,622.65 as being priority payments under s 109 without taking into account the trustee's entitlement to obtain reimbursement for them under the deed of indemnity. Nor was there any risk that the estate moneys might have become earmarked for priority payment to the indemnifying creditor under s 109(10) of the Act. That section provides as follows: Division 2 - Order of Payment of Debts

...

109 Priority payments

...

(10) Where in any bankruptcy:

(a)

property has been recovered, realized or preserved under an indemnity for costs of litigation given by a creditor or creditors; or

(b)

expenses in relation to which a creditor has, or creditors have, indemnified a trustee have been recovered;

the Court may, upon the application of the trustee or a creditor, make such orders as it thinks just and equitable with respect to the distribution of that property and the amount of those expenses so recovered with a view to giving the indemnifying creditor or creditors, as the case may be, an advantage over others in consideration of the risk assumed by creditor or creditors.

(26) Under cl 3.3 of the deed of indemnity the trustee made the following undertaking:

If property is recovered by the trustee or funds become available for distribution among the creditors of the estate as a result of the indemnity granted by the indemnifying creditor under this deed, the trustee will take such steps as are appropriate, including, if necessary, making an application to the court, to ensure that the indemnifying creditor is reimbursed the funds advanced by it pursuant to this deed and obtains an advantage in respect of its debt, pursuant to s 109(10) of the Bankruptcy Act 1966. Prior to obtaining such an order, the trustee will deduct the costs, charges and expenses of the administration in accordance with s 109(1) of the Bankruptcy Act 1996.

(27) There is undisputed evidence in this case that the estate money was not property or funds which became "available for distribution among creditors as a result of the indemnity". Accordingly it was not money in respect of which any advantage could have been conferred upon the indemnifying creditor under s 109(10) or as to which the indemnifying creditor could make any claim. The amount by which this money exceeded the trustee's remuneration and expenses was thus a credit in the estate.

(28) $2602.64 may not be a great deal of money. It is entirely overshadowed by the amount of the applicant's debts, which were well over $81 million. That, however, is not to the point. At the relevant date it was available for payment by way of dividend to the applicant's creditors. Accordingly, the requirements of s 149T(a)(ii) have not been met.

(29) It follows that the applicant fails to meet the eligibility criteria under s 149(a).

(30) This finding alone is sufficient to resolve the application in favour of the respondent. However both parties have requested that, whatever my finding may be on any one of the three preliminary issues, I should nevertheless proceed to deal with all of them. There is good reason to do this, and accordingly I turn to consider the second issue raised by the parties.

Disqualification from early discharge pursuant to s 149Y

(31) Section 149Y provides as follows:

149Y Unsecured liabilities exceeding 150% of income

(1)

Subject to subsection (2), a bankrupt is disqualified from early discharge if the bankrupt's unsecured liabilities exceeded 150% of the income that the trustee determines to have been derived by the bankrupt during the year immediately before the date of the bankruptcy.

(2)

Subsection (1) does not apply where:

(a)

the unsecured liabilities were wholly or principally attributable to a tort committed by the bankrupt; and

(b)

the bankrupt was not insured against liability for that tort.

(3)

The trustee may determine any matter referred to in subsection (1) on the basis of the information provided to the trustee by the bankrupt, whether in the bankrupt's statement of affairs or otherwise.

(4)

The trustee may also have regard to any other information in the possession of the trustee but is not required to seek any such information.

(32) It is common ground that the applicant's unsecured liabilities were more than 150 per cent of his income during the year before his bankruptcy. It would be surprising if it were otherwise, given that his unsecured liabilities amounted to over $81 million. The issue in dispute between the parties is whether, by virtue of s 149Y(2), subs (1) does not apply.

(33) Before discussing the details of this matter I should make a general observation. Section 149Y(2) provides for two circumstances which, in combination, will take a bankrupt outside the disqualification provided by subs (1). The respondent, in the determination under review, suggested that, as the applicant was seeking to place himself within these exceptions, there was an onus upon him to establish the matters upon which he relied in order to do so. Mr Bigmore urged that this approach was erroneous, a submission with which I agree. There was and is no burden on the applicant to establish any matter in relation to his application for early discharge. Nor does either party bear an onus in these proceedings before the tribunal (McDonald v Director-General of Social Security (1984) 6 ALD 6).

Were the unsecured liabilities principally attributable to a tort?

(34) The first matter to be considered under s 149Y(2) is whether the unsecured liabilities of the applicant were "wholly or principally attributable to a tort" committed by him. In this case, all but approximately $25,000 of the applicant's unsecured liabilities were attributable to the South Australian judgment against him. Twenty-five thousand dollars in many contexts is a very substantial sum. However when compared to the amount recoverable under the judgment, it pales into insignificance. Accordingly, the applicant's unsecured liabilities were principally attributable to the judgment obtained in the South Australian Supreme Court. The outstanding question is whether that judgment is to be categorised as one relating to a tort committed by the applicant. It is therefore necessary to discuss, albeit briefly, the issues raised in that case.

(35) The South Australian proceedings, commenced jointly by the bank and the State of South Australia, alleged both negligence and a breach of fiduciary duty on the part of the applicant. The claim arose out of the purchase by the bank, from APA Holdings Ltd (APA), of the whole of the issued shares in Oceanic Capital Corporation Ltd (Oceanic). The purchase took place in March 1988, at which time the applicant was managing director and chief executive officer of the bank. He was a driving force in the bank's acquisition of the shares. At no stage during the negotiations did he disclose to the bank that he had a conflict of interest in the transaction. A conflict in fact arose because the applicant was a director and shareholder of Equiticorp Holdings Ltd (Equiticorp) which was owed a substantial amount of money by APA, which at that stage had serious liquidity problems. The sale of Oceanic by APA did much to assist Equiticorp's financial situation, but was disastrous for the bank, as the shares were later found to have been significantly overvalued. The damages awarded against the applicant consisted of the difference between the value of the Oceanic shares as at March 1988 and the price paid by the bank, together with the ongoing cost of borrowings which were necessary to service that difference. In assessing these damages, Perry J made the following observation:

I should add that while in some cases where there are parallel duties owed in equity and in tort, there may be a difference in the quantum of the damages recoverable for breach of one or other duty, that is not the case here. This is because the plaintiffs have limited their claim against Mr Marcus Clark to the damages recoverable at common law. That they have done so avoids the need for me, inter alia, to examine the question whether or not breach of an equitable duty of care, as opposed to breach of other kinds of fiduciary duty, gives rise to a right to compensation in equity as opposed to damages measured by reference to the principles applicable to the assessment of damages in tort. (p 133, tribunal book)

(36) Mr Delaney suggests that because the proceedings which resulted in the judgment alleged both negligence (which is a tort) and breach of fiduciary duty (which is not) it could not be said that the resultant judgment gave rise to a liability in tort. However, as the above passage makes clear, the plaintiffs in that case had limited their claim to damages recoverable in tort. It was on that basis that Perry J calculated the damages which he awarded in his judgment. The fact that the applicant was not only negligent but was also in breach of his fiduciary duty to the bank was irrelevant both to the outcome of the proceedings and to the amount of damages awarded. Accordingly, in my view, the applicant's unsecured liabilities were, within the terms of s 149Y(2)(a), principally attributable to "a tort" committed by him.

(37) The next matter for inquiry is whether, under s 149Y(2)(b), the applicant was insured against liability for that tort.

Was the applicant insured against liability for the tort?

(38) In this case there was an insurance policy which purported to insure the applicant for liability for negligence in the course of his duties as director and officer of the bank. This was a policy issued by FAI General Insurance Company Ltd (FAI) under which directors and officers of the bank were insured against claims made during the currency of the policy (30 June 1990 to 30 June 1991, later extended to 30 September 1991) in respect of "wrongful acts" committed in the course of their duties with the bank. The phrase "wrongful act" was defined in the policy to mean "any error, misstatement or misleading statement, act or omission, or neglect or breach of duty made, committed, attempted or allegedly made, committed or attempted by the insured ...".

(39) Mr Bigmore concedes that this policy, on its face, insured the applicant for liability for the tort of negligence committed in his capacity as a director of the bank. However he says that, given the circumstances of this case, there was never likely to be any (or adequate) cover for the applicant under this policy, and he was thus not "insured" within the meaning of s 149Y(2). He gives four reasons for this:

(i)

the applicant failed to comply with his duty of disclosure under the policy;

(ii)

the applicant's circumstances fell within exclusions under the policy;

(iii)

the policy is a "claims made" policy, and no claim was made during its currency; and

(iv)

the maximum cover under the policy was much less than the applicant's liability under the judgment.

(40) I shall deal with these matters in turn. But before doing so it is relevant to discuss the legislative purpose behind s 149Y. The apparent intention behind this provision was to allow early discharge for bankrupts whose insolvency had been brought about by misfortune rather than mismanagement or worse. To quote the explanatory memorandum:

The bill will introduce an administrative early discharge system to make early discharge open to those who have insufficient financial resources to mount a court application for early discharge, and will introduce comprehensive eligibility and disqualification criteria which will ensure that those whose bankruptcy is brought about by misfortune rather than misdeed have access to early discharge, whereas those whose bankruptcies have occurred as a result of commercially reprehensible behaviour will not be entitled to early discharge.

(41) There is something of an irony here. For it is the fact of the applicant's commercially reprehensible behaviour which, if Mr Bigmore's argument were to succeed, would bring him within s 149Y(2)(b) and thus outside the disqualification contained in s 149Y(1). As both counsels in this case point out, the intention of the section was clearly to allow early discharge to be available for bankrupts who had been involved in some unforeseen and therefore uninsured event. The example given during the hearing was that of an uninsured land holder on whose property a person sustained injury, thus leading to a successful occupier's liability claim. Clearly this applicant falls outside the category of people to whom early discharge was intended to be available. But that will be irrelevant if he otherwise falls within the clear words of the legislation.

(42) I return to discuss the circumstances of this case. It is appropriate at the outset to describe, in general terms, what happened in relation to the FAI policy after it became apparent that the bank stood to lose a substantial amount of money as a result of the Oceanic purchase.

(43) At 6.33 pm EST (6.03 pm central time) on 30 September 1991, FAI was notified by facsimile letter sent from a firm of Adelaide solicitors, that the Oceanic acquisition constituted a potential claim circumstance under the policy. This was 33 minutes, or arguably three minutes, after the policy had expired. On 31 March 1994 the bank and the State of South Australia instituted the proceedings which later culminated in Perry J's judgment of 29 March 1996. There were initially nine defendants, being the applicant, seven of the bank's non-executive directors, and FAI. FAI was sued on the basis that it was the insurer of the seven non-executive directors. No claim against it was made by the present applicant. On 13 September 1994, FAI's solicitors, Tress Cocks and Maddox, wrote a lengthy letter to the solicitors for the seven non-executive directors. Among other matters, the letter pointed out that notification of the claim had taken place after the policy had expired. The letter referred to non-disclosures and misrepresentations in the proposals upon which the policy was based, and said "FAI has decided to exercise its rights to avoid ... the directors' and officers' liability policy ... on the grounds of fraudulent non-disclosure and misrepresentation." No further action, it seems, was taken by FAI to avoid the policy. The applicant himself never claimed under it. As to the proceedings in the South Australian Supreme Court, on 14 February 1996 the plaintiffs' claim against FAI was struck out, and leave was given to discontinue against the other seven directors, the claims against all defendants having apparently been settled. The present applicant was asked about this settlement during his examination on 19 December 1996. He agreed that the settlement between the plaintiffs and the other seven directors involved the participation of FAI as insurer. However no further details are available as to the basis of this settlement.

(44) With this background I turn to the grounds relied upon by Mr Bigmore to show that the applicant fell within s 149Y(2)(b), in that he was not insured against liability for the tort in question.

(45) The first matter relied upon is that the applicant failed to comply with his duty of disclosure under the policy in that the insurance proposal and accompanying documents painted a false and misleading picture of the bank's financial affairs. This, Mr Bigmore says, was a fraudulent failure and misrepresentation and thus fell within s 28(2) of the Insurance Contracts Act 1984 (Cth). Section 28 provides as follows: Division 3 - Remedies for Non-Disclosure and Misrepresentation

General insurance

28(1) This section applies where the person who became the insured under a contract of general insurance upon the contract being entered into:

(a)

failed to comply with the duty of disclosure; or

(b)

made a representation to the insurer before the contract was entered into;

but does not apply where the insurer would have entered into the contract, for the same premium and on the same terms and conditions, even if the insured had not failed to comply with the duty of disclosure or had not made the misrepresentation before the contract was entered into.

(2) If the failure was fraudulent or the misrepresentation was made fraudulently, the insurer may avoid the contract.

(3) If the insurer is not entitled to avoid the contract or, being entitled to avoid the contract (whether under subsection (2) or otherwise) has not done so, the liability of the insurer in respect of a claim is reduced to the amount that would place the insurer in a position in which the insurer would have been if the failure had not occurred or the misrepresentation had not been made.

(46) Under s 28(2), a fraudulent omission or misrepresentation on the part of an insured entitles an insurer to avoid a contract of insurance. However until avoided it remains on foot, as subs (3) makes clear. In this case, FAI's solicitors, in the letter dated 13 September 1994, said that their client had "decided to exercise its rights to avoid" the policy. This language is ambiguous as to whether the letter itself was intended to constitute a notification of avoidance of the policy. The participation of FAI in the subsequent settlement negotiations with the seven non-executive directors of the bank, would suggest that no avoidance had taken place, or, if it had, that it had been waived. Accordingly I find that, at the time of the applicant's bankruptcy and also at the time of application for early discharge, the FAI policy had not been avoided by the insurer and thus remained a valid policy notwithstanding any fraudulent omission or representation on the part of the insured.

(47) The second matter relied upon by Mr Bigmore as bringing the applicant within the terms of s 149Y(2)(b) was that the applicant's circumstances fell within exclusions under the policy, thereby depriving him of entitlement to claim under it. The exclusion clause contained in the policy, so far as relevant to this case, contained the following provisions:

Exclusions. The underwriter shall not be liable under this policy to make any payment for loss in connection with any claim(s) made against any insured:

...

(f)

based upon or attributable to their gaining any personal profit or advantage or remuneration to which they were not entitled.

(g)

brought about or contributed to by the dishonesty of the insured.

...

(48) Mr Bigmore urges that a bankrupt cannot be "insured against liability for a tort" under s 149Y(2)(b) unless there is an effective policy of insurance. If a basis exists for the insurer to decline liability, then there is no insurance under s 149Y(2)(b).

(49) It would be wholly inappropriate to litigate here the issue of whether FAI would be entitled to decline liability on the basis of exclusions (f) and (g). The issue is not as straightforward as Mr Bigmore suggests, as is illustrated by the following two passages from Perry J's judgment in the South Australian proceedings:

I would not go so far as to find that he was necessarily aware that the shares to be acquired were not worth the money which the bank agreed to pay for them. He may well have thought that they represented value for money. But that is nothing to the point. To find that he knew that the shares were not worth the purchase price would be to transform the breach of fiduciary duty which, as will be seen, I find he committed, into dishonesty. The bank does not allege dishonesty. (p 103, tribunal book)

...

Here, I do not think that it could be said that Mr Marcus Clark made a genuine attempt to discharge his role. I do not mean to suggest by that that he necessarily acted "dishonestly". But knowing as he did, having regard to his background and experience, that an independent and proper valuation of the shares in Oceanic was an essential pre-condition to the proper discharge of the duty of care owed by the directors in approving the transaction, he consciously failed to ensure that such a valuation was made. In those circumstances, in my opinion, quite apart from any question of a breach of fiduciary duty, he did not act in "good faith" within the meaning of the section. (p 129, tribunal book)

...

(50) It is thus a moot question whether FAI would have been entitled to decline liability upon the basis of exclusions (f) and (g). In any event, the mere fact that the applicant's circumstances might have brought him within one of the exclusions under the policy does not mean that he was not insured against liability for the tort in question. The policy remains on foot until the exclusion is invoked. In this case the applicant has made no claim under this policy. Were he to do so it is very possible that the insurer would seek to decline liability under one or more of the exclusion clauses. However until it does so, the policy remains in force and the applicant remains "insured against liability" for actions covered by it.

(51) The third matter raised by Mr Bigmore relates to the late notification of the claim under the policy. This matter can be dealt with briefly. It is questionable, given the timing of notification of the claims -- either three or 33 minutes late, depending on the time zone -- that FAI could have declined liability on this ground alone. Tress Cocks and Maddox purported to rely upon this late notification as avoiding the policy in its letter dated 13 September 1994. But other issues were treated in the letter as being much more significant. In any event, the evidence points to the fact that FAI treated the contract as still on foot when it participated in settlement proceedings with the other seven non-executive directors. Accordingly, any right it might have had to avoid the contract by reason of late notification must be taken to have been waived.

(52) The fourth matter relied upon by Mr Bigmore as showing that the applicant was not insured within the meaning of s 149Y(2) relates to the extent of cover under the insurance. The maximum cover provided was $20 million, whereas the judgment against the applicant was for more than four times that amount. Accordingly, Mr Bigmore urges, the applicant was not insured against the whole of his liability for negligence and thus falls within s 149Y(2)(b). The liability of the insured, he says, must be co-extensive with the amount covered by the insurance. In other words, having regard to the purposes of the bankruptcy legislation, not any insurance will suffice to fall within s 149Y(2)(b), but only insurance which covers the whole of the unsecured liabilities referred to. Mr Bigmore says that it would be contrary to the intention of the legislation if only partial insurance cover were to be treated as "insurance" under s 149Y(2)(b), so that a bankrupt who bore a substantial personal liability would still fall within the potential disqualification of s 149Y(1).

(53) In my view the terms of s 149Y(2)(b) do not support this construction. Under that provision, subs (1) will not apply where the bankrupt was "not insured against liability for that tort", meaning the tort to which the liabilities were attributable. Had s 149Y(2)(b) referred to insurance covering the liabilities attributable to the tort, it would have been a different matter. For in this case the insurance cover extended to only a small part of the total liabilities. However the provision, in its terms, refers to insurance for the tort itself. The applicant was insured for negligence, being the tort to which his unsecured liabilities were principally attributable. This being the case, he clearly, in my view, falls outside the terms of s 149Y(2)(b).

(54) It follows from all I have said that, in my view, the applicant does not fall within the terms of s 149Y(2) and is thus subject to the disqualification contained in s 149Y(1) of the Act. This constitutes a further basis for finding that early discharge was unavailable in his case.

What definition of income is to be applied in determining the applicant's eligibility for early discharge under s 149T(c)?

(55) The third matter for determination was raised by the parties only a few days before the hearing. It arises from the terms of s 149T(c) and from the fact that the definition of "income" was altered a few months after the applicant applied for early discharge. Section 149T(c) provides as follows:

Subdivision C (Criteria of eligibility for early discharge

149T Eligibility to apply for early discharge

A bankrupt is eligible to apply for early discharge if, and only if:

...

(c)

the income that the bankrupt is likely to derive during the period of one year beginning at the time when the application is made will not exceed the actual income threshold amount applicable in relation to the bankrupt at that time.

(56) This provision is similar to s 139W of the Act which provides for the trustee to make an assessment of income likely to be derived by a bankrupt within the first 12 months of bankruptcy and for each 12 months thereafter. If that income exceeds the "actual income threshold amount" that is applicable to the bankrupt, then the bankrupt is liable to pay a contribution over this in respect of that period (s 139W(1) with s 139S). The actual income threshold amount is determined according to a number of objective criteria, including the number of dependants a bankrupt might have, living and other expenses etc. If the bankrupt's circumstances change during the 12 month period then the trustee can make a fresh assessment based upon the changed circumstances.

(57) The definition of "income" is contained in s 139L of the Act. It is unnecessary for present purposes to refer to any part of that definition. Suffice it to say that, as at 16 December 1996, pursuant to an earlier Federal Court decision in Bond v Trustee of Property of Bond (A Bankrupt) (1994) 34 ALD 385 ; 125 ALR 399, "income" under s 139L did not include benefits derived by a bankrupt outside an employment situation. On 16 December 1996 s 139L was amended so as to include non-employment related benefits within the definition of income. If this extended definition were to apply in the applicant's case, either from the relevant date or from 16 December 1996, then it would significantly increase his income. Whether the increase would be sufficient for his income to exceed the actual income threshold applicable in his case so as to deprive him of eligibility for early release under s 149T(c) is not yet known. Accordingly, a finding that the new definition applies in the applicant's case will not necessarily conclude the matter in favour of the respondent. A number of factual issues will remain to be resolved. However a finding that the new definition does not apply in the applicant's case will, both parties agree, resolve the issue in favour of the applicant, in that his income for the 12 months after his application for early discharge will not have exceeded the actual income threshold amount applicable in his case. Accordingly, the issue to be resolved here is when, if at all, the new definition of "income" should be applied to an assessment of the applicant's income under s 149T(c). Should it be taken to apply for the whole of the 12 month period (as urged by the respondent), or from the date of its introduction, (as also urged by the respondent). Or, as the applicant urges, should it not be taken to apply to any of the period?

(58) Mr Bigmore relied upon the phrase "is likely to derive" in s 149T(c) as, in effect, freezing the time at which the bankrupt's income falls to be considered, as at the commencement of the 12 month period, namely on the date of application for early discharge. Any change in the definition of income during the course of the year will, he says, be irrelevant. He conceded at the hearing that a decision-maker is entitled to the benefit of hindsight in relation to changed factual circumstances which occur during the 12 month period, but said that this does not extend to changes in the law. In a later written submission he urged that the trustee's assessment of a bankrupt's likely income under s 149T could not be reviewed in the light of subsequent unpredictable information. In other words, there is no scope for a retrospective determination under s 149T unless the new eventuality was "likely" to occur at the beginning of the 12 month period.

(59) Mr Delaney says that there is no logical distinction between an increase in income as a result of a change in fact and one which results from a change in the law. Therefore, he urges, it was appropriate for the trustee to adjust the applicant's anticipated income in accordance with the newly introduced definition.

(60) It is now established law that this tribunal makes its determinations in accordance with the law which applies at the time of its decision rather than that which applied when an application was first made (Re Costello and Secretary, Department of Transport (1979) 2 ALD 934). That, however, will not necessarily resolve this issue. The question here is whether the change of law can be taken into account in assessing the income that the applicant was "likely to derive" during the year in question. In my view it can. Contrary to Mr Bigmore's written submissions, I consider that factual changes in a bankrupt's circumstances can be taken into account under s 149T(c). I can see no relevant distinction between a bankrupt's changed factual circumstances which leads to an increase in income under s 139L and a change in the definition of income which has the same effect.

(61) As to whether the amendment had retrospective effect and thus governs the definition of income during the whole of the 12 month period, Mr Delaney referred to the explanatory memorandum, and particularly to para 95.11. Paragraph 95.11 certainly supports his submission that the new definition was intended to have retrospective operation. But the intention was not translated into the legislative provision. In Fisher v Hebburn Ltd (1960) 105 CLR 188 at 194 Fullagar J made the following comment, "there can be no doubt that the general rule is that an amending enactment -- or, for that matter, any enactment -- is prima facie to be construed as having a prospective operation only". This amendment is, in my view, substantive as opposed to procedural. As such, there is a presumption against retrospectivity. There is nothing in the legislation itself to rebut that presumption. Accordingly, I find that the applicant's income is to be assessed, as between 25 October and 16 December 1996, according to the pre-amendment definition. Thereafter, for the remainder of the 12 month period, the new definition should be applied.

Conclusion

(62) My findings as to the matters raised under s 149T(a) and s 149Y, make it unnecessary to embark upon any further review of the respondent's decision in this matter. For the reasons given above, I consider that the applicant is not entitled to early release from the bankruptcy. I therefore affirm the decision under review.