ARNOYA HOLDINGS PTY LIMITED & ORS v METWAY LEASING LIMITED

First Appellant - N/A COUNSEL : Second Appellant - K Campbell - In person Third Appellant - K Smark Respondent - M Skinner SOLICITORS : Appellants - N/A Respondent - Lincoln Smith & Co CATCHWORDS : BANKRUPTCY - failure by trustee to make an election to pursue an appeal; PRACTICE AND PROCEDURE - application for adjournment in order to make application for annulment of bankruptcy ACTS CITED : Bankruptcy Act 1966 (Cth) Bryant v Commonwealth Bank of Australia (1997) 75 FCR 545 CASES CITED: Mannigel v Hewlett Phelps (unreported) CA 12 June 1991 Cox v Journeaux & Ors [No 2] (1935) 52 CLR 713 GIO of NSW v Frederichberg (1968) 118 CLR 403 DECISION : Appeal dismissed; No order as to costs

THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40397/95 CL 12042/94

SHELLER JA POWELL JA BEAZLEY JA

ARNOYA HOLDINGS PTY LIMITED & ORS v METWAY LEASING LIMITED JUDGMENT

1 SHELLER JA: When this appeal was called on for hearing there was no appearance for the first appellant, Arnoya Holdings Pty Limited which is in liquidation. Apparently, the liquidator has formally abandoned Arnoya's appeal. The second appellant, Mr Keith Malcolm Campbell, appeared in person. Mr K Smark of counsel appeared for the third appellant, Mrs Lois Audrey Campbell. 2 An immediate problem, so far as Mr and Mrs Campbell are concerned, is that they are both bankrupt and the trustees in bankruptcy have either abandoned the appeals or not taken steps to prosecute them in accordance with the requirements of the Bankruptcy Act 1966 (Cth) to which I will return. 3 Faced with this problem, Mr Campbell applied to have the appeal adjourned to enable him and Mrs Campbell to apply to the Federal Court to have the bankruptcies annulled. In support of his application, Mr Campbell relied upon an affidavit made by him on 18 April 1999. Annexed to that affidavit are reasons for judgment of Wilcox J of 1 September 1998 in proceedings brought in the Federal Court by Mr and Mrs Campbell against a number of parties including the respondent in this appeal. 4 Part of the application before Wilcox J was for an annulment pursuant to s153B of the Bankruptcy Act. Section 153B enables the Court, if it is satisfied that a sequestration order ought not to have been made, to make an order annulling the bankruptcy. Wilcox J refused that application and dismissed it. He noted in his reasons for judgment that one of the contentions on behalf of the applicants was that the bankruptcy proceedings had been commenced for an illegitimate purpose namely, for the purpose of stopping the appeal brought against the decision of Barr AJ to the Court of Appeal, that is to say, the very appeal that is before the Court today. Wilcox J said: "However in this case there is no evidence of improper purpose. The only basis of the claim of illegitimate purpose is that it is said, no doubt correctly, that the Court of Appeal Registrar was informed that Mr and Mrs Campbell were now bankrupt. Metway Leasing may have asserted this meant the appeal could not proceed, something that is conceded by Mr Wheelhouse who appears for Metway before me, to be an incorrect understanding of the position. However even if that statement was made, this falls far short of showing the possession of an improper purpose. In order to make good that claim, it would be necessary to show Metway Leasing was actuated by the improper purpose when it decided to commence or to continue the bankruptcy proceedings. There is no evidence along those lines and therefore no basis upon which the Court can reach the satisfaction which is a necessary plea condition to an annulment under s153B of the Bankruptcy Act. The applications for annulment must be dismissed." 5 Undoubtedly there has been some confusion in the respondent's attitude to the appeals now pressed on behalf of Mr and Mrs Campbell. 6 The sequestration orders were made in the case of Mr Campbell on 6 June 1996 and in the case of Mrs Campbell on 4 April 1997. On 26 August 1997 the respondent filed a notice of motion to have this appeal struck out. It appears for reasons which have never been explained that that application by notice of motion was withdrawn by consent. 7 It may be that the concession attributed by Wilcox J to Mr Wheelhouse had something to do with what for present purposes I will describe as the exception to s60 of the Bankruptcy Act which is found in subs (4) of that section. 8 Section 60 (2) of the Bankruptcy Act provides that an action commenced by a person, who subsequently becomes a bankrupt, is, upon his or her becoming a bankrupt, stayed until the trustee makes election in writing to prosecute or discontinue the action. Subsection (3) provides if the trustee does not make such an election within 28 days after notice of the action is served upon him or her by a defendant or other party to the action, he or she shall be deemed to have abandoned the action. Subsection (4) provides that notwithstanding anything contained in this section, a bankrupt may continue in his or her own name, an action commenced by him or her before he or she became a bankrupt, in respect of (a) any personal injury or wrong done to the bankrupt, his or her spouse or a member of his or her family, or, (b) the death of his or her spouse or of a member of his or her family. 9 Material was placed before the Court today, and I refer to exhibit 2, which shows that in the case of Mr Campbell no election was made by the trustee in bankruptcy to prosecute or discontinue the appeal. In those circumstances, the solicitors for the trustee say that their client is of the view that it is deemed to have abandoned the action because of s60 (3) of the Bankruptcy Act. 10 In the case of Mrs Campbell there is material that the trustee in bankruptcy has not elected to prosecute the appeal and regards itself as having abandoned the same. 11 On 17 September 1998 Messrs Lincoln Smith and Co, the solicitors for the respondent, wrote to Mr and Mrs Campbell referring to the orders made by Wilcox J in the Federal Court on 1 September. The solicitors wrote: "Would you please advise us by return as to when the matters which are awaiting hearing in the Court of Appeal will next be before the Registrar. In order that all outstanding matters be now brought to some finality, we propose that, one, your appeal in the Court of Appeal be brought on for hearing as quickly as possible. That may involve our client in adjourning to the hearing of the appeal. The notice of motion which it has pending in the Court of Appeal and in your withdrawing your notice of motion, seeking to have those proceedings cross vested to the Federal Court. We note that in relation to your cross vesting application, Wilcox J expressed a clear view as to the prospects of that application succeeding when the matter was last before him. In relation to our client's motion, we are of the view that your right to bring an appeal is restricted by the fact that you remain an undischarged bankrupt but that is a matter which the Court of Appeal may choose to deal with at the ultimate hearing of the appeal." 12 Then after a second paragraph which I need not quote, the letter concluded: "Would you please contact us as soon as possible to advise us as to whether or not you agree with the course which we have suggested in this letter or otherwise to advise us as to what you now propose to do in relation to the outstanding proceedings." 13 Mr Campbell helpfully reduced his submissions on this application to writing. He reiterated the matters which it seems to me in large measure were dealt with by Wilcox J in the Federal Court as to the purposes for which the sequestration orders were obtained. However, the thrust of Mr Campbell's application for an adjournment is that until late last week, he was not aware that on this appeal, the respondent would be relying upon the abandonment of the appeal pursuant to the provisions of s60 of the Bankruptcy Act. 14 The situation is however that regardless of whether this point is taken by the parties, s60 dictates the consequence of a trustee making an election or failing to make an election, whether to prosecute or discontinue an action. Within the meaning of "action" is included an appeal such as the appeal presently brought by Mr and Mrs Campbell. In that respect, I refer to the decision of the Full Federal Court in Bryant v the Commonwealth Bank of Australia (1997) 75 FCR 545. 15 Mr Skinner, who appeared for the respondent, helpfully referred to various matters which the Court should pay regard to, in considering whether the exception in subs (4) applies. In particular, Mr Skinner referred us to a passage in the judgment of Handley JA in Mannigel v Hewlett Phelps, an unreported decision of this Court of 12 June 1991, which is found in Butterworths Unreported Judgments 1997. 16 In determining whether or not the action can be regarded as one in respect of any personal injury or wrong done to the bankrupt, Handley JA referred to the following passage from the judgment of Sir Owen Dixon in Cox v Journeaux and Ors [No 2] (1935) 52 CLR 713 at 721. Sir Owen Dixon said: "The test appears to be whether the damages or part of them are to be estimated by immediate reference to pain felt by the bankrupt in respect of his mind, body or character and without reference to his rights of property." 17 Handley JA continued in the context of the case before him: "The plaintiffs claimed damages in the proceedings in the manner particularised in para 17 (e), (i) and (g) of their amended statement of claim but these claims were consequential upon alleged breaches of professional duty owed to them by the defendants in relation to the purchase of the land and the contract by the vendor to erect a dwelling house on it. The plaintiff's claims for damages for loss of credit for mental distress, inconvenience and for injury to their physical and mental health therefore were not claims 'without reference to their rights of property' within the principle stated by Dixon J. On the contrary, those claims were consequential on damages to the plaintiff's financial and property interests as a result of alleged breaches of professional duty by the solicitors." 18 Mr Skinner helpfully took us to the cross-claims filed on behalf of the appellants in these proceedings. From those, it can be discerned that the only claim which could in any way be said to fall within the phrase that I have quoted from subs (4) was a claim found in Mr Campbell's cross- claim in what has been called the possession proceedings, the first of two proceedings which were the subject of this appeal. Those proceedings were numbered 16194 of 1991. In that cross-claim Mr Campbell said that in consequence of matters previously set forth, he had suffered loss and damage and would continue to suffer loss and damage, particularised in part as follows: (a) Loss of Profits to K & L Campbell as shareholders of Baystan $1,084,000

(b) (i) Loss of investment of $1,084,000 @ 10% for 3 years $312,000

(ii) Alternatively, loss of investment opportunities on 500,000 @ 10% for 3 years $150,000

19 Further, or, in the alternative, by reason of the publication of letters referred to in para 6 above and communication generally to the managing agent and to the "tenant of the land" by the cross-defendant, the cross-claimant has suffered injury to its [sic his] reputation and suffered hurt and embarrassment and has and will continue to suffer loss and damage in the local area of Grafton. 20 However, it is plain enough from an analysis of the cross-claim that Mr Campbell's claim was based upon a number of representations said to have gone to the basis upon which a deed of compromise or various mortgages were entered into by him. In the language of Handley JA in Mannigel it seems to me that it could not be said that Mr Campbell's claim for injury to reputation and hurt and embarrassment was a claim without reference to their rights of property within the principle stated by Dixon J. 21 I am quite satisfied that s60 of the Bankruptcy Act applies to this appeal. Accordingly, it seems to me that at this point of time, the Court can only proceed on the basis that Mr and Mrs Campbell's appeals have been abandoned. 22 Mr Campbell seeks an adjournment in order to make a further application to the Federal Court for an annulment of the sequestration based upon ss73 and 74 of the Bankruptcy Act which deals with compositions or arrangements with creditors. He has indicated to the Court and there is some material to support this and that such an application may in the future have some chance of success. 23 There is one other matter which is I think significant in considering the present application and that is that Mr and Mrs Campbell have abandoned all the grounds of appeal set out in the various notices and amended notices of appeal that have been filed on their behalf up to this point of time. If the appeal is to proceed it would be on the basis of an application to further amend, to add a ground based upon the trial Judge, Barr AJ's alleged apprehended bias. The particular ground as it has been set out in the written submissions filed by Mr Smark is as follows: "His Honour's conduct in stating in open court that I am concerned that Mr and Mrs Campbell may rob the company of its assets, was such as to cause fair minded persons to consider that his Honour might not resolve the questions before him with a fair and unprejudiced mind." 24 It was said that this allegation as to what his Honour said would be supported by some affidavit material to be filed in Court. It is to be observed that the judgment from which this appeal is now brought was one delivered in part in April and in part in June 1995. It is also to be observed that an application was made to Priestley JA to amend the grounds of the notice of appeal, in part we are informed, on the same basis that it is now sought to amend it. That application was refused by his Honour and no application made to review his Honour's decision. 25 It is to be observed that apparently no point of bias or apprehended bias was taken before the trial Judge and apparently what is now relied upon is not to be found in the transcript. In that regard, I refer to what was said by the High Court in The Government Insurance Office of New South Wales v Fredrichberg (1968) 118 CLR 403, particularly in the judgment of Sir Garfield Barwick at 413, a judgment with which Sir Frank Kitto agreed, and in the judgment of Sir William Owen at 423, a judgment with which Sir Douglas Menzies agreed. 26 However all that may be, as I have said, the situation is that as at this point of time, before this Court, the appeals are to be taken as having been abandoned. That being the case, it does not seem to me to be appropriate to grant the adjournment which Mr Campbell seeks. I should observe in passing that Mr Smark on behalf of Mrs Campbell did not make any application for an adjournment. 27 Accordingly, in my opinion, the application for adjournment should be refused. 28 POWELL JA: I agree. 29 BEAZLEY JA: I agree. 30 SHELLER JA: Is there any submission that you want to make Mr Skinner? SKINNER: Before I do I should make one comment because I felt bound to with a lay litigant in person. SHELLER JA : I'm sorry I didn't hear what you said. SKINNER : There is one comment I should make before I make my application to have the proceedings dismissed. In the material provided to me this morning, there was an allegation made which is contained in affidavit which says it seems by hearsay-- SHELLER JA : Is this an affidavit that is before us? SKINNER : Not at all. SHELLER JA: Why should we be listening to you about that? SKINNER : It is my duty to the court to make sure that a matter that came to my attention as an allegation is erased. It's an allegation that the trial Judge made a telephone call to counsel who appeared on behalf of my client. It's in hearsay form. SHELLER JA : Mr Skinner none of this material is before us at the moment and I don't think we want to hear you or should hear you on that Mr Skinner. SKINNER : Much obliged your Honour. Yes I move that the appeals be dismissed. SHELLER JA: Mr Campbell and Mr Smark is there anything you want to say about that application? SMARK : Not on my part your Honour. SHELLER JA : Mr Campbell is there anything further you wish to say? CAMPBELL : No, your Honour except that we will be applying to Wilcox J again. I don't know whether that affects anything in this Court and if the bankruptcies are annulled, I will be seeking advice as to what steps we should take because we feel that we have two opportunities for the bankruptcy annulment. And in relation to what Mr Skinner said, I have a letter from-- SHELLER JA : You can disregard that Mr Campbell. We pay no attention to that at all. 31 In the circumstances, Mr Skinner for the respondent now asks that the appeals be dismissed. In the light of the reasons I have given and the effect of s60 of the Bankruptcy Act that seems to me to be the appropriate order that the Court should now make. 32 POWELL JA: I agree. 33 BEAZLEY JA: I agree. 34 SHELLER JA: Therefore the order of the Court is that the appeals are dismissed. Is any further order sought Mr Skinner? SKINNER: We seek an order for costs. SHELLER JA : Is there anything you wish to say about that? SMARK: There may be a question, if the appeals were deemed to have been dismissed and that is now the Court's holding, as to the appropriateness of that order. SHELLER JA : Deemed to be or are abandoned. SMARK : Deemed to be abandoned and are dismissed by order of the Court but that is all I can say. 35 SHELLER JA: The Court will not make any order as to costs.

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