Finikiotis v Knight Frank [2001] FCA 1733 | Case summary

1 I agree with the reasons for judgment that Dowsett J has given. I only desire to add one or two comments on issues that arose in argument in relation to the construction of s 60(2) and (3) of the Bankruptcy Act 1966 (Cth). 2 Subsection (2) provides that an existing action commenced by a person who subsequently becomes bankrupt is, upon that event: "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 (5) defines "action" to mean "any civil proceeding, whether at law or in equity". 3 The appeal that is listed before us today was plainly an "action" for the purposes of subss (2) and (3). It was in existence at the time when the sequestration order was first made against the appellants on 19 February 2001. The trustee has not elected in writing either to prosecute or to discontinue the appeal. A notice was served on the trustee by the second and third respondents to the appeal, calling upon the trustee to make such an election. Within twenty-eight days the trustee did not make such an election. The effect of subs (3) is therefore that the trustee is deemed to have abandoned the action. 4 Counsel for the second and third respondents cited to the Court authorities suggesting that, as a consequence of the deemed abandonment of a proceeding, it is open to the Court to dismiss that proceeding. Indeed, that was the order sought by the notice of motion with which we are dealing. It seems to me, however, that it does not follow from the deemed abandonment of a proceeding that the Court is obliged to dismiss it. The difficulty about dismissing it in the present circumstances is that, if the appellants are successful on appeal from a federal magistrate whose decision on 23 August 2001 confirmed the sequestration order on review of the decision of a registrar, then the right of the appellants to prosecute their appeal would spring into existence again. An order dismissing the appeal in the meantime would cause a possibly insuperable barrier to the appellants exercising their rights to prosecute the appeal. For these reasons, additional to those given by Dowsett J, I would be reluctant to make an order at this stage dismissing the appeal. 5 It may be, as counsel for the first respondent suggested, that s 60(2) itself operates by way of an automatic stay, continuing even after the twenty-eight day period specified in subs (3). Because there is some doubt about that, it seems to me appropriate that the Court should make a specific order staying the appeal until further order. Also, in the circumstances, to prevent a multiplicity of applications, it seems to me to be appropriate that the Court should order that the appellants make no application for a further order unless and until the sequestration orders made against the appellants or either of them are set aside or the bankruptcy of the appellants or either of them is annulled. I certify that the preceding five (5) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gray.

6 As appears from the statement of claim in proceedings commenced in this Court by application dated 7 July 2000, the appellants claim damages from the respondents in connection with transactions in which advances were made to a company of which the appellants were directors. They guaranteed repayment of the advances. The company gave security over certain commercial property. For reasons which are not easy to understand, it is asserted that valuations used in connection with the advance were misleading and deceptive or negligent and that, as a result thereof, the appellants as guarantors have claims for damages against one or other of the respondents. 7 Their statement of claim was struck out by a Judge of this Court on 19 January this year upon the basis that it was embarrassing and vexatious and did not disclose a good cause of action. The action was also dismissed. The appellants have appealed against that decision. However they are now in bankruptcy, the sequestration orders having been made on 19 February 2001. Those orders and various other decisions which led to them are the subject of appeal. The Court is presently considering a motion to strike out the appeal against the order of 19 January. The ground is that the appellants are not competent to prosecute the appeal as any claim has vested in their trustee in bankruptcy. I consider that this is clearly so having regard to the provisions of s 116 and subs 60(3) of the Bankruptcy Act 1966 (Cth). Some attempt has been made by Dr Finikiotis, who appeared on behalf of both appellants, to assert that the proceedings may have been protected by subs 60(4). However, having regard to the various authorities in this area, it is clear that the claim is in connection with the appellants' property and cannot be characterised as involving a personal injury or wrong pursuant to par 60(4)(a). It is also clear that par 60(4)(b) has no application for present purposes. 8 Given that neither of the appellants has standing to prosecute the action and, therefore, any appeal in connection with the action, it follows that only the trustee may do so. The trustee has not elected to adopt the action pursuant to subs 60(3). In those circumstances, I consider that the action has been abandoned. Were that the only relevant circumstance, it would be appropriate to dismiss the appeal. However the existence of appeals concerning the validity of the sequestration orders poses special problems. Should the bankruptcies be annulled or set aside, any election pursuant to subs 60(3) would presumably be of no effect. If the present appeal is dismissed, it may be that there would be no mechanism readily available to reinstate it so as to enable the appellants to prosecute it. I consider that it would be better if the appeal were to be stayed until further order so that, in the event that the sequestration orders are set aside for any reason in the future, the action will still be capable of prosecution. This raises the question of how and when these proceedings will ultimately be disposed of. I see no reason why any of the respondents could not apply, once it became clear that there was no prospect of any further successful appeal in connection with the sequestration orders. 9 In those circumstances, I propose that the appeal be stayed until further order, but upon the basis that the appellants are to make no application for any further order therein unless and until the sequestration order made against either of them is set aside, or either bankruptcy is annulled. I certify that the preceding four (4) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Dowsett.

Finikiotis v Knight Frank

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