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In this significant application for summary judgment, the question before the Court was whether the plaintiff retained any interest in a ship which had been transferred to the plaintiff while he was an undischarged bankrupt. The plaintiff contended that the transfer of the ship was payment for his skill and services in salvaging the ship and therefore was after-acquired income. In resolving this question, Holmes CJ engaged in a significant discussion of whether the distinction between after-acquired income and property remains relevant, and whether the ship should be classified as income or property. Holmes CJ ultimately concluded that the ship was after-acquired property which vested in the trustee of his estate.
31 July 2020
In January 2016, the Defender, a ship, sank in Ross Creek, Townsville. . Mr Devine, a salvage expert, was engaged to salvage the ship; he alleged that he had agreed that in consideration for the salvage services the owner of the ship agreed to transfer the ship by way of bill of sale to him. . After completing this transaction, and upon trying to access the Defender, Maritime Safety Queensland denied him access to the ship. . Accordingly, Mr Devine sued the State of Queensland for conversion. .
In its Defence, the State pleaded that, because Mr Devine was an undischarged bankrupt at the time of the purported transfer, the Defender was “after-acquired property”, which vested in his trustee in bankruptcy. . In his reply, Mr Devine admitted to being a bankrupt, but pleaded that the ship was received by him as after-acquired income, rather than as property. . The State applied for summary judgment, arguing that the Defender vested in Mr Devine’s trustee in bankruptcy, and so he had no right to it nor any right of action for its loss. . Further, the State contended that the trustee had disclaimed the transfer such that any rights which Mr Devine might have had in the Defender were “determined”. .
As to whether the Defender was after-acquired income or property, Holmes CJ noted that “[a]fter-acquired income of a bankrupt has long been regarded as not vesting in the trustee”. . Her Honour noted that this was supported by Re Gillies; Ex parte Official Trustee in Bankruptcy v Gillies (1993) 42 FCR 571, where it was held that after-acquired income did not vest in the trustee, notwithstanding 1991 amendments to the Bankruptcy Act 1966 (Cth), which made it easier for trustees in bankruptcy to claim after-acquired income. –. Against this, the State relied on Di Cioccio v Official Trustee in Bankruptcy (as Trustee of the Bankrupt Estate of Di Cioccio) (2015) 229 FCR 1, which it said overtook Re Gillies. .
Holmes CJ accepted that Di Cioccio “presents difficulties for the application of Re Gillies”. . However, her Honour noted that if the Full Court had intended that case to be a major departure from Re Gillies, it would have made that clear. . Ultimately, her Honour concluded that Di Cioccio does not stand for the proposition “that the income itself was property divisible among creditors”. . It followed “that a bankrupt is entitled to retain his or her income, subject to the obligation to contribute”. .
While Mr Devine was therefore entitled to after-acquired income, Holmes CJ was not satisfied that the Defender was after-acquired income governed by Div 4B. . Taking in turn the various arguments put on behalf of Mr Devine, if the Defender was held by him as security, under a bailment or for the purposes of salvage, it could not be considered income as his rights in it were limited. . In such cases, it could not be classified as “a profit or gain”. .
Turning to the key point raised by Mr Devine, Holmes CJ did not consider that the receipt of “large illiquid capital assets” such as the Defender “could reasonably be characterised as the receipt of income within” that word’s ordinary meaning. . In any event, her Honour considered that on the evidence, the transfer of the ship was not in the form of payment of income. . Rather, it “proceeded in a manner appropriate to a sale”. . This was so particularly in circumstances where the transfer preceded any attempts to salvage the ship; the previous owner “could expect no benefit from the contemplated work, other than that he was no longer liable to do it”. . While Mr Devine submitted that the benefit was the release from the previous owner’s obligations to the State, her Honour considered that the work to be done post-transfer was for the benefit of Mr Devine, not the previous owner. .
In these circumstances, Holmes CJ found that the ship was after-acquired property, and so vested in Mr Devine’s trustee in bankruptcy. . Whether the disclaimer was effective did not matter in those circumstances. .
In the event, Holmes CJ found that Mr Devine had no real prospect of succeeding in his action, and so gave judgment for the State. –.