Cole v Challenge Bank Limited

GRAY J: 1 Before the Court is a notice of appeal. The question has arisen, in the light of the bankruptcy of the appellants, whether the appeal can proceed and what are the consequences of its inability to proceed. 2 The appellants are Gregory Octavius Cole and Wendy Suzanne Cole. On 11 May 2001, they filed an application in the Court, accompanied by a statement of claim. Against the first respondent, Challenge Bank Limited, the application claimed damages pursuant to s 72 of the Trade Practices Act 1974 (Cth), orders pursuant to s 87 of that Act, alternatively damages for breach of contract and costs. Against the second respondent, Norgard Clohessy, a firm of chartered accountants, the appellants claimed equitable damages for breach of fiduciary duty, damages for negligence, damages pursuant to s 79 of the Fair Trading Act 1987 (WA), orders pursuant to s 77 of that Act and costs. 3 The first respondent moved on notice to strike out the statement of claim and to dismiss the proceeding on the ground that no reasonable cause of action was disclosed, the proceeding was frivolous or vexatious, or the proceeding was an abuse of the process of the Court. It relied on O 20 r 2 of the Federal Court Rules. In response, the appellants provided a document entitled "Applicants' Minute of Substituted Statement of Claim". In effect, this was an amended statement of claim and it became the document that was the subject of the strike-out motion of the first respondent. It is unnecessary to detail the contents of the substituted statement of claim. They are summarised in the reasons for judgment of the learned primary judge in Cole v Challenge Bank Ltd [2001] FCA 1425. The second respondent moved on notice to strike out certain paragraphs of the substituted statement of claim, which pleaded the appellants' case against the second respondent. 4 On 14 August 2001 and 9 October 2001, a single judge of the Court heard both motions. On the latter date the learned judge gave judgment. His Honour ordered that the substituted statement of claim be struck out and the application be dismissed. He also ordered the appellants to pay the respondents' costs of the application. 5 The appellants filed their notice of appeal on 29 October 2001. It is notable that no application for leave to appeal was ever made, although there is authority that suggests that the dismissal of a proceeding consequent upon the striking out of the statement of claim and the refusal to grant leave to re-plead is an interlocutory order, from which leave to appeal is required. 6 On 8 April 2002, while the appeal was pending, the appellants both became bankrupt. It appears that each filed a debtor's petition on that date. 7 Section 60 of the Bankruptcy Act 1966 (Cth) ("the Bankruptcy Act") provides relevantly as follows: "(2) An action commenced by a person who subsequently becomes a bankrupt is, upon his or her becoming a bankrupt, stayed until the trustee makes an election, in writing, to prosecute or discontinue the action. (3) 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. (4) 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. … (5) In this section, action means any civil proceeding, whether at law or in equity." 8 On 11 April 2002, the solicitors for the first respondent wrote to the appellants' trustee in bankruptcy, to give notice pursuant to s 60(3) of the Bankruptcy Act. The letter, in referring to the appeal, said: "We are instructed to request you pursuant to section 60(2) of the Bankruptcy Act to make an election in writing within 28 days whether to prosecute or discontinue the action." 9 The letter enclosed consent orders dismissing the appeal with no order as to costs. The trustee in bankruptcy was invited to sign those consent orders. On 29 April 2002, the solicitors for the trustee in bankruptcy responded to that letter. In their letter of that date they said: "Our client does not intend to pursue the current appeal W507 of 2001 in the Federal Court. He is not a party to the action and cannot sign proposed consent orders. He will simply allow that proceeding to become abandoned by operation of s 60(3) of the Bankruptcy Act." 10 By notice of motion, filed on 3 May 2001, the first respondent seeks an order that the appeal be dismissed and an order that the appellants pay the respondents' costs of the motion and of the appeal. That motion was made returnable today on the listing of the appeal for hearing. Counsel for the first respondent appeared to move the Court. Counsel for the second respondent has also appeared and moved the Court orally for similar orders. 11 Section 60 of the Bankruptcy Act plainly applies to a proceeding of this nature. The definition of "action" in subs (5) is broad enough to cover an appeal in a civil proceeding. The appeal, in my view, clearly does not fall within the exception in s 60(4) of the Bankruptcy Act. Although there is reference in the particulars of loss and damage appended to pars 37 and 58 of the substituted statement of claim to loss of business reputation, in my view, that does not give rise to an action for personal injury or wrong done to the bankrupt. There is clearly no allegation in the substituted statement of claim of personal injury or of defamation. Against the second respondent, the claim is in negligence, but that claim was with respect to the alleged failure to conduct properly the administration of a company in which the appellants claimed to have some interest. In my view, it could not be said, even if the appeal were to have proceeded, that it involved any allegation of personal injury or wrong done to the bankrupt. The mere inclusion of loss of business reputation in particulars of loss and damage relating to entirely different causes of action does not make a proceeding one relating to personal injury or wrong done to the bankrupt. 12 A question arises whether, by the letter of 29 April, the trustee in bankruptcy has elected in writing to discontinue the appeal in terms of s 60(3). The letter itself in the passage I have read seems to be equivocal on that point. In one sentence, the trustee says clearly that he does not intend to pursue the appeal. On the other hand, he seems to regard that statement as not a clear election to discontinue, stating that he will simply allow the proceedings to become abandoned by operation of subs (3). 13 The trustee has not filed a notice of discontinuance of the appeal in accordance with O 52 r 19 of the Federal Court Rules. In a subsequent letter to the solicitors for the first respondent the solicitors for the trustee in bankruptcy said on 1 May 2002: "As previously stated, the trustee in bankruptcy does not intend to pursue the current appeal in the Federal Court. If you apply to a judge to have the appeal dismissed then the trustee does not intend to oppose your application or to appear at the hearing. As you are aware, the trustee is not a party to the proceedings." 14 In my view, the preferable construction of the correspondence is that the trustee in bankruptcy has made an election in writing to discontinue the appeal. The problem is that that has not been followed by any formal discontinuance by notice, which would have put an end to the appeal without the necessity for the appearances today. In my view, in the statement made in the letter of 29 April, the trustee in bankruptcy must be taken to have indicated clearly that he did not intend to continue the appeal against either of the respondents. His election therefore, in my view, is in relation to the entirety of the appeal. 15 If I am wrong and there has been no election, then the effect of s 60(3) of the Bankruptcy Act is that the trustee has been deemed to have abandoned the appeal. It is clear that notice of the appeal was served upon the trustee in bankruptcy by another party to the appeal. It is sufficient that one other party should serve such notice. I note also that the effect of O 52 r 19 is that if a notice of discontinuance is filed and served an appeal is abandoned. 16 The question is whether, in these circumstances, there should be an order for costs in favour of the respondents. Two issues arise in relation to costs, one as to the costs of the appeal, the other as to the costs of the motion. Ordinarily, if an appeal is discontinued, costs follow the event. If an appeal were to be abandoned in normal circumstances by express statement of the appellant, it would be open to a respondent to put an end to it by moving the Court to have the appeal dismissed for want of prosecution. In those circumstances, costs would still follow the event and an order would be made against the appellant in respect of those costs. Such costs would, of course, include the costs of moving the Court to dismiss the appeal for want of prosecution. 17 I am not aware of any authority on the effect of s 60 of the Bankruptcy Act on the matter of costs when either there is an election to discontinue a proceeding or there is a deemed abandonment of it. In my view, the Court should follow the normal practice and costs should follow the event. 18 I therefore would make an order in favour of both the respondents in relation to the costs of the proceeding and of the motion made pursuant to the notice of motion filed on 3 May 2002. 19 For these reasons, I would make the orders sought in the first respondent's notice of motion filed on 3 May 2002; namely, that the appeal be dismissed and the appellants pay the respondents' costs of the motion and the appeal. I certify that the preceding nineteen (19) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gray.