Cousins v HTW Valuers Cairns Pty Ltd & Anor [2002] QSC 413

[2] There is no dispute about the action already commenced by the plaintiff being divisible property of the bankrupt estate pursuant to s 5 definition or property and s 116 of the Act. An action is defined in s 60(5) of the Bankruptcy Act 1996 (Cth) ("the Act") to mean any civil proceeding whether at law or in equity.

[3] On 19 March 1999 the applicant /plaintiff commenced by a Writ of Summons an action for damages for negligence against the first defendant in valuing land owned by the plaintiff and, against the second defendant, an action for damages for negligence and breach of duty to the plaintiff as mortgagee in possession of the same property. On 16 June 1999 sequestration orders were made against the applicant and his wife. A Trustee in Bankruptcy was appointed by the Federal Court of Australia as trustee to the estate of the applicant.

[4] Section 60(2) of the Act provides that any action commenced by a person who subsequently becomes a bankrupt is, upon that person's becoming a bankrupt, stayed until the trustee makes election, in writing, either to prosecute or discontinue the action. That same section further provides that, where the trustee has failed to make an election in writing, a defendant may serve on the trustee a notice of the action requiring the trustee to make an election whether or not to proceed.

[5] Such a notice was served by the then solicitors for the second defendant by letter dated 29 June 1999 (see exhibit A to the affidavit of Paul Desmond Sweeney 17/10/02). As the trustee in bankruptcy had not made any election within the stipulated time limit, the trustee is deemed to have abandoned the action (Bankruptcy Act 1966) (Cth) s 60(3).

[6] The applicant/plaintiff has filed an affidavit (3/10/02) swearing to his bankruptcy having been discharged. He now seeks to continue in his own right the action - now deemed to have been abandoned by the trustee.

[7] Kirby P (as he then was) observed in Daemer v Industrial Commission of NSW [No 2] (1990) 22 NSWLR 178 at 182 that the status of an `action' after discharge of a bankrupt "is a matter of some controversy". He there drew attention to what he described (at 184F) as "a competition of ...authority". He reviewed Pegler v Dale (1975) 1 NSWLR 265 in which Needham J held that s 153(1) of the Bankruptcy Act (by which a discharge operates to release a bankrupt from all debt provable in the bankruptcy) does not have the effect of re-vesting in the bankrupt property which had earlier vested in the trustee by virtue of the Act. He discussed the decision in Re Summerhayes; Ex parte the Official Assignee (1890) 1 BC (NSW) 24 where Manning J held that the official assignee's omission to elect to prosecute a pending action commenced by the debtor was not a bar to a subsequent action by the official assignee in his representative capacity founded on the same cause of action. Kirby P pointed out [at 185] that Bennett v Gauge (1876) 35 LT 764 and Re Kwok; Ex parte Rummel (1981) 61 FLR 336 likewise provide authority for the proposition that a trustee's deemed abandonment of the bankrupt's action does not prevent him from enforcing the right to the chose in action which vested in him on bankruptcy by a new action of his own.

[8] On close analysis there really does not seem to be any real competition among any of these authorities. On the one hand by s 152 of the Bankruptcy Act the property of the bankrupt, vested in the trustee by the sequestration order, continues to be vested in the trustee after discharge. Section 153(1), in discharging the bankrupt from debts, cannot have the effect of re-vesting in the bankrupt the property which was, under the sequestration order, vested in the trustee. That was decided in the Daemer case. On the other hand the cause of action is not extinguished by the trustee's omission to elect. Subject to any argument about abandonment, the trustee could sue on the bankrupt's cause of action. But the cause of the action remains vested in the trustee. It is no longer the applicant's to pursue.

[9] Counsel for the second defendant in this matter referred me to Theissbacher v MacGregor Garrick & Co [1993] 2 QdR 223 and, in particular, to the obiter remarks there of Pincus JA and White J in their joint judgment. Their Honours there say that under s 60(3) the deemed abandonment destroys the trustee's right to pursue the action absolutely.

[10] Apart from these remarks being only obiter remarks, I think Theissbacher is readily distinguishable from the present matter. In Theissbacher the bankruptcy was determined by an annulment, not by discharge. The issue in that case was whether the plaintiffs' appeal from an order of the District Court, striking out an action for an indemnity or contribution from the respondents in respect of a successful creditor's claim against the plaintiff and others, should be allowed. The order had terminated the plaintiffs' right to pursue their action. Such an order should not have been made, not because the trustee's right to pursue the action has been destroyed under the Act, but because there had been an order under s 154(1) annulling the bankruptcy. That section had had the general effect that the former bankrupt was to be treated as if he had never been bankrupt, subject to the provisions of s 154(2).

[11] The retrospectivity of the annulling effect was acknowledged and s 154(2) was held not to apply because the general effect of the latter was to preserve from invalidity acts of the trustee, which would otherwise be rendered invalid by the annulment, but the trustee had not done anything at all. If there had been no annulment, s 60(3) would have had the effect of the plaintiff's having lost its cause of action. On discharge, the property of the bankrupt vested in the trustee by the sequestration order would have continued to be vested in the trustee and the plaintiffs could have only proceeded if the trustee assigned that chose in action to them or consented to the plaintiffs' maintaining the action. But there had been an annulment, so s 60(3) was deprived of its effect and the plaintiffs there were entitled to pursue their action.

[12] In this matter, it is clear that, there has been no assignment of the proceedings by the trustee to the applicant (see affidavit of Paul Desmond Sweeney 17/10/02 para 9) and no consent has been given to the applicant maintaining the action. Further, unlike in the Theissbacher case, there is no basis for s 60(3) being deprived of its effect. Therefore the applicant cannot pursue his action.

2. That the applicant pay the respondents' costs to be assessed on the standard basis.