Cummings v Claremont Petroleum NL

Cummings v Claremont Petroleum NL - [1996] HCA 19 - HCA 1996 case summary — Zoe

[7]

An action commenced by a person who subsequently becomes a bankrupt is, upon his becoming a bankrupt, stayed until the trustee makes election, in writing, to prosecute or discontinue the action. The term "action" is defined to mean any civil proceeding (s 60(5)). The institution of an appeal by a defendant against a judgment in favour of a plaintiff is the commencing of a proceeding. That follows from the decision of the Full Court of the Supreme Court of New South Wales in Want v Moss [2] . A verdict had been found for a plaintiff. The defendant moved for a rule nisi to set aside the verdict and his estate was thereafter sequestrated. The motion for a rule nisi was held to be a "proceeding commenced" by the bankrupt that was stayed on his bankruptcy. Manning J said [3] : In my opinion it would be monstrous if it were not so. It could never have been contemplated that a bankrupt, who can have no means to pay costs if he fails, should be allowed to go on and put the plaintiff to trouble and expense It is a proceeding at law and is commenced by a bankrupt, and as it has now been abandoned by the official assignee, the only person who has any interest in the matter, I am clearly of opinion that it cannot be allowed to continue. The considerations which affected Manning J in Want v Moss were echoed by a majority of the Full Court in the present case [4] : It is consistent with the policy of the Act that after sequestration of the estates of unsuccessful litigants the successful party not be put at the risk of sustaining further costs of appellate litigation. In Doran v Isaacs [5] , Want v Moss was held to be authority for the proposition that the statutory term "proceeding commenced" extends to a bankrupt's motion for a new trial in an action in which the bankrupt is a defendant. However, the respondents do not seek to support the order of the Full Court on the footing that the purported appeals were stayed pursuant to s 60(2) of the Act: the bankruptcies were prior, not subsequent, to the commencing of the appeals. But the respondents submit that it would be anomalous if the Act operated to stay an appeal commenced prior to the bankruptcy but not to stay an appeal commenced after the bankruptcy. The anomaly is avoided only if the respondents are right in contending that the appellants, upon becoming bankrupt, had no locus standi to institute an appeal either (i) because their rights to appeal were property vested in their respective trustees or (ii) because the fact that the judgment was enforceable only against property vested in the trustee meant that the appellants ceased to have the interest necessary to give a right to appeal. 1. (1889) 10 NSWR (L) 274. 2. Want v Moss (1889) 10 NSWR (L) 274 at 279. 3. Fuller v Beach Petroleum NL; Cummings v Beach Petroleum NL (1993) 43 FCR 60 at 68. 4. (1912) 12 SR (NSW) 699 at 707.

[11]

If the bankrupt, a creditor or any other person is affected by any act, omission or decision of the trustee, he may apply to the Court, and the Court may make such order in the matter as it thinks just and equitable. In the light of this brief conspectus of the Act, we turn to consider the two bases on which the respondents submit that the appellants had no locus standi to commence an appeal. 1. Section 58(1) reads as follows: "Subject to this Act, where a debtor becomes a bankrupt: (a) the property of the bankrupt, not being after acquired property, vests forthwith in the Official Trustee or, if, at the time when the debtor becomes a bankrupt, a registered trustee becomes the trustee of the estate of the bankrupt by virtue of section 156A, in that registered trustee; and (b) after-acquired property of the bankrupt vests, as soon as it is acquired by, or devolves on, the bankrupt, in the Official Trustee or, if a registered trustee is the trustee of the estate of the bankrupt, in that registered trustee." 2. Section 116(1) provides: "Subject to this Act: (a) all property that belonged to, or was vested in, a bankrupt at the commencement of the bankruptcy, or has been acquired or is acquired by him, or has devolved or devolves on him, after the commencement of the bankruptcy and before the discharge; (b) the capacity to exercise, and to take proceedings for exercising, all such powers in, over or in respect of property as might have been exercised by the bankrupt for his own benefit at the commencement of the bankruptcy or at any time after the commencement of the bankruptcy and before his discharge; (c) property that is vested in the trustee of the bankrupt's estate by or under an order under section 139D; and (d) money that is paid to the trustee of the bankrupt's estate under an order under section 139E; is property divisible amongst the creditors of the bankrupt." The generality of this sub-section is qualified by other sub-sections of s 116 and by subsequent provisions of the Act.

[14]

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. A right to appeal may be a substantive right [10] , but it is another question whether such a right has the character of property. Some rights created by statute can constitute property [11] , but a right to appeal does not have the character of property merely because it is the creature of statute. A chose in action may be the property of the person entitled to enforce it [12] , but a liability to satisfy a judgment enforcing a chose in action is not property of the person against whom the judgment is entered. A liability is not property of the person liable. Nor is a right to appeal against a money judgment property of the judgment debtor. Nor does such a right to appeal answer the description of property divisible among creditors defined by s 116(1)(b), namely, "the capacity to exercise, and to take proceedings for exercising all such powers in, over or in respect of property as might have been exercised by the bankrupt for his own benefit". The powers referred to are powers "which are familiar to all conveyancers and are powers properly so called", as Farwell J pointed out in In re Rose; Trustee of the Property of E T Rose v Rose [13] . In other words, the powers referred to are authorities to dispose of property or interests in property for the benefit of the donee of the power or of some other person. In this case, there is no property "over or in respect of" which the bankrupt is or would have been capable of exercising a power. As a matter of ordinary language, a judgment debtor's right to appeal against the judgment is not property. 1. Colonial Sugar Refining Co Ltd v Irving [1905] AC 369 at 372. 2. See Federal Commissioner of Taxation v Official Receiver (1956) 95 CLR 300 at 327; Australian Tape Manufacturers Association Ltd v The Commonwealth (1993) 176 CLR 480 at 509-510; Mutual Pools & Staff Pty Ltd v The Commonwealth (1994) 179 CLR 155. 3. Georgiadis v Australian & Overseas Telecommunications Corporation (1994) 179 CLR 297 at 303-304, 312, 325, cf 314-316, 320-321. 4. [1904] 2 Ch 348 at 352; see, on appeal [1905] 1 Ch 94.

[16]

It is open to the Court in Bankruptcy, if it thinks fit, to allow the debtor to contest in the Bankruptcy Court the validity of the petitioning creditor's judgment on the ground of fraud, collusion, or for any other sufficient reason: In re Flatau [17] . But this is the only way in which the bankrupt can contest it: the adjudication, while it stands, is conclusively binding on him: he cannot contest it in any other Court on the ground of fraud or on any other ground. The right to continue these three actions is a chose in action vested in the trustee, and the bankrupt has no locus standi: see Motion v Moojen [18] ; Rochfort v Battersby [19] ; Metropolitan Bank Ltd v Pooley [20] . In so far as his Lordship's decision rests on the exclusivity of the bankruptcy procedure for challenging the judgment on which the sequestration order was made, it does not illuminate the question whether a right to appeal is property. But the last sentence above cited suggests that the consequence of the exclusivity is that a right to impeach a judgment for fraud is classified as a chose in action which is part of the property of the bankrupt [21] . By analogy, the same character might be attributed to an appeal against a judgment, as Adam J held. If the postulated appeal relates to property that became vested in the trustee on the bankruptcy, or if the postulated appeal relates to a claim by the bankrupt for money or property that would be vested on recovery in the trustee, the right to appeal is vested in the trustee, as the cases cited by Farwell LJ illustrate. But it does not follow that a right to appeal against a money judgment entered in an action against a bankrupt is property of the bankrupt and, on that account, vested in the trustee. 1. [1963] VR 111 at 112. 2. [1910] 2 KB 229. 3. Boaler v Power [1910] 2 KB 229 at 232-233. 4. (1888) 22 QBD 83. 5. (1872) LR 14 Eq 202. 6. (1849) 2 HLC 388 [9 ER 1139]. 7. (1885) 10 App Cas 210. 8. Section 168 of the Bankruptcy Act 1883 UK (46 & 47 Vict c 52) like s 4 of the Bankruptcy Act 1924 Cth defined property to include, inter alia, "things in action". See now the Insolvency Act 1986 UK, s 436.

[27]

In cases in which the bankrupt is defendant, there is of course usually no question of the cause of action having vested in the trustee. Unless the defence is set-off the bankrupt will not be asserting by way of defence any cause of action of his own. But in cases in which the plaintiff is claiming an interest in some property of the bankrupt, that property will have vested in the trustee. And in claims for debt or damages, the only assets out of which the claim can be satisfied will have likewise vested. It will therefore be equally true to say that the bankrupt has no interest in the proceedings. As we have seen, s 285(3) [38] deprives the plaintiff of any remedy against the bankrupt's person or property and confines him to his right to prove. (Emphasis added.) After canvassing the authorities, his Lordship concluded that they demonstrated "that in principle a bankrupt cannot in his own name appeal from a judgment against him which is enforceable only against the estate vested in his trustee" [39] . In a later unreported case [40] , Hoffmann LJ said: The essence of [the] decision [in Heath v Tang ] is that a bankruptcy order divests the bankrupt of any further interest in what debts he owes because it provides that he shall no longer be under any personal liability. An appeal from the judgment against him or an application to set aside the judgment against him is therefore a matter for his trustee, but does not concern the bankrupt. So far as a judgment entered in an action against a bankrupt creates or evidences a provable debt, we respectfully agree that the bankrupt has no financial interest which would confer locus standi to appeal in his own name against the judgment. That is because it is fundamental to the law of bankruptcy that the bankrupt is divested of both his interest in his property and liability for his provable debts [41] . 1. [1993] 1 WLR 1421; [1993] 4 All ER 694. 2. Heath v Tang [1993] 1 WLR 1421 at 1424; [1993] 4 All ER 694 at 698. 3. Insolvency Act 1986, the United Kingdom analogue of s 58(3) of the Act. 4. Heath v Tang [1993] 1 WLR 1421 at 1425; [1993] 4 All ER 694 at 700. 5. Royal Bank of Scotland v Farley; 17 March 1994. 6. Heath v Tang [1993] 1 WLR 1421 at 1427; [1993] 4 All ER 694 at 701. It was not suggested in argument that, pursuant to s 153, the discharge of the appellants from bankruptcy would not release them from liability for the judgment debt, albeit there has been a finding of fraud. On that footing, the appellants have no financial interest in the judgment entered against them.

At a glance

Court

Decision date

Before

Source

Judgment (86 paragraphs)

Parties

Cases Cited (15)