Freeman v Joiner

REASONS FOR JUDGMENT THE COURT: 1 The appellant was made bankrupt by an order made on 12 March 2002. Prior to the appointment of his trustees in bankruptcy, the appellant had judgment given against him in proceedings brought by the National Australia Bank on 11 October 2000 (No. S4013 of 1998) in the Supreme Court of Queensland. He unsuccessfully appealed to the Court of Appeal of that Court and on 14 March 2003 the High Court refused special leave to appeal from that decision. On 11 March 2002 the appellant brought proceedings against the bank in the Supreme Court (No. S2339 of 2002) seeking damages for the sale of his property at an alleged undervalue by the receivers appointed by the bank. 2 On 27 August 2003 the appellant commenced further proceedings in the Supreme Court under Rule 668 of the Uniform Civil Procedure Rules 1999 (Qld) ('UCPR'), seeking orders setting aside the judgment in action S4013/1998 on the basis of fresh evidence. The application was dismissed by de Jersey CJ on 15 October 2003, on the ground that Mr Freeman did not having standing to pursue the application in view of his bankruptcy. 3 The proceedings brought by the bank for recovery of possession of the appellant's land were founded upon a Bill Facility entered into following a Deed of Mediation between the appellant and the bank. The Bill Facility contained a clause releasing the bank from liability. The trial Judge held that this presented the main obstacle to the appellant's counterclaim in the proceedings. To overcome this difficulty the appellant sought to prove that he was not capable of looking after his interests at the time the Deed of Mediation was entered into because of mental illness. The trial Judge rejected this claim. 4 It appears from the application and supporting material filed by the appellant under Rule 668 UCPR that he seeks to put forward additional medical evidence about a disease he was suffering from and which might have a connexion to psychiatric illness. 5 On 5 April 2002 the bank's solicitors wrote to the appellant's trustees in relation to action no. S2339/2002. It required, pursuant to s 60 of the Bankruptcy Act 1966 (Cth) ('the Act'), the trustee to elect whether to prosecute the appellant's claims. Subsequently it was agreed between the bank and the trustee that the twenty-eight days provided for in s 60(3) for an election, would not run until the determination of the appellant's appeal from his sequestration order, which had been stayed pending appeal. The trustees did not respond within time after the dismissal of the appeal and subsequently accepted that the action was deemed to have been abandoned by operation of the subsection. The trustees did not respond to a further notice with respect to action no S4013/1998 and also accepted that these proceedings were then deemed to have been abandoned. The appellant brought proceedings to review the trustees' decision not to prosecute the actions. It appears from the reasons for judgment of Spender J (Freeman v National Australia Bank [2003] FCA 1233) dismissing that application, that the trustees had given as a reason for their decision 'strong reservations' they held about the prospects of the two proceedings being successful. 6 On 2 December 2004 the appellant wrote to the trustees requesting that they assign the two actions to him. He was notified by letter dated 3 March 2005 in these terms: 'Having considered the judgment of the Full Federal Court of Australia delivered on 1 December 2004, I confirm that I am not currently in a position to consider your request. However, I would be willing to consider your request following receipt of cleared funds in the sum of $6,800, as a contribution towards my anticipated legal and other costs associated with dealing with your request. My anticipated costs may be broken down as follows …'. 7 The reference to the decision of the Full Court was to the appeal from Spender J's decision (Freeman v National Australia Bank [2004] FCAFC 318). The Court dismissed the appeal and concluded its reasons with the following observations (at [36] and [37]): '[36] It is open to Mr Freeman, if he wishes, to ask the Trustees to revisit the question of assignment, and place before them any proposal which Mr Freeman wishes to advance in that respect, and any submission which he wishes to put in support of that proposal. The fact that Mr Freeman is able to take such a course demonstrates that no substantial injustice flows from the refusal of the present application for leave to appeal. [37] It would not be appropriate for us to determine how the Trustees should respond to any such proposal, as the matter is not one which is in issue in the present proceedings. However, for the assistance of the parties, we state that in our view the Trustees would not be bound to respond to any such proposal unless sufficient funds were made available to them so that legal advice could be obtained as to whether the proposal is one to which the Trustees could lawfully agree.' 8 These remarks followed immediately upon the Court's observation that the trustees had strong reservations about the proceedings' success and that it would not be proper for a trustee in bankruptcy to assign a cause of action which demonstrably had no prospects of success, referring to Citicorp Australia Ltd v Official Trustee in Bankruptcy (1996) 71 FCR 550 ('Citicorp v Official Trustee'). 9 The applicant sought review of the trustees' decision requiring to be put in funds before they determined whether to assign the causes of action to him pursuant to s 178 of the Act. The section provides that if a bankrupt is affected by an omission or decision of the trustee, an application may be made to the Court to make such order as the Court thinks just and equitable. The application was dismissed by Tamberlin J. His Honour held that the decision of the trustees to seek legal advice was both appropriate and reasonable. 10 One of the trustees provided reasons for the decision not to proceed to consider the assignment of the actions in an affidavit which was before his Honour. It was said: 'I decided not to consider the Applicant's proposal to assign the Actions because: (a) The Applicant did not provide sufficient funds for the Trustees to obtain legal advice as to whether the proposal was one which the Trustees could lawfully agree; (b) There were and still are no funds in the estate to otherwise obtain legal advice as to whether the proposal was one which the Trustees could lawfully agree; (c) There were and still are no other funds available to pay for that advice, such as pursuant to section 305 of the Bankruptcy Act 1966 funding.' 11 On the hearing of the application to this Court for leave to appeal, the appellant was granted leave to amend his notice of appeal to add another ground. In it he complained that he had not been provided with a copy of the affidavit of the trustee, Mr Joiner, which was essential to the respondent's case. The appellant asserted that he had made a complaint to his Honour about the omission. The transcript contains no record of the statement and we consider it unlikely that his Honour would not have said something had he been apprised of the appellant's situation. Moreover this assertion by the appellant is inconsistent with the appellant's claim of lack of knowledge. The appellant said that he was wholly unaware of the affidavit, although he acknowledged the trustees' solicitor contended that he had provided the appellant with a copy over an hour before the hearing. He says that he only became aware of it much later and after the hearing. 12 There was no discussion at the commencement of the hearing before his Honour as to the material which was relied upon by the parties. It is apparent however that his Honour read the affidavit by the trustee, which required leave to be read. His Honour referred to the contents of the affidavit in his reasons. The trustees' written submissions, which the appellant concedes he did receive, contained a reference to the affidavit as the material relied upon by the respondents. It seems highly unlikely that the respondents would provide the submissions and not the affidavit or that the appellant would say nothing having received the submissions that noted an affidavit which he had not been provided with. He is an experienced litigant and this is most unlikely. We do not accept the appellant's assertion that he was unaware of the existence of the affidavit. In any event it is obvious that he addressed the issues which it raised. In particular the appellant addressed his Honour at length about the strength of his claims. 13 A question arose during the course of this appeal as to the effect of the trustees' abandonment of the two Supreme Court proceedings. Section 60 of the Act is entitled 'Stay of Legal Proceedings'. Subsection 2 provides that an action commenced by a person who subsequently becomes a bankrupt is stayed until the trustee makes election in writing to prosecute or discontinue the action. Subsection 3 provides: '(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.' 14 The position is that, whilst the proceedings brought by the bankrupt are deemed to have been abandoned by the trustee, the cause of action remains. The provision, properly construed, operates only upon the trustee. There is no bar to the trustee commencing a fresh proceeding on the same cause of action or a bankrupt, on discharge, doing so whether there has been no determination of the issues. There is a line of authority to this effect. They include Re Gargan; Ex parte Gargan v Official Trustee in Bankruptcy a decision of Drummond J of 18 August 1995 in QB697 of 1993; Ivor Worrell as trustee of the Bankrupt Estate of Jeffrey Ross Fletcher and Janice Berryl Fletcher v Foodlink Ltd & Ors, a decision of Cooper J of 23 December 1998 in QG 27 of 1998; Temsign Pty Ltd v Biscen Pty Ltd (1998) 157 ALR 83, a decision of Wheeler J; State of Queensland v Beames [2003] QSC 399, a decision of McMurdo J. See also Re Kwok; Ex parte Rummel (1981) 61 FLR 336 at 342, a decision to which reference is made in the above mentioned cases. 15 Technically the trustee would have been correct in rejecting the applicant's request for an assignment of those proceedings. They had been abandoned. What the appellant in reality seeks, and what the trustees' letter to him appears to comprehend, is an assignment of the underlying causes of action. The question then is what was the trustees' duty with respect to such a request. 16 The duties of a trustee in bankruptcy were referred to in some detail by a Full Court in Adsett v Berlouis (1992) 37 FCR 201 at 208-209. A trustee has a dual function: to administer the estate in the interests of the creditors and the bankrupt; and to exercise the powers given and duties imposed by the Act as a public duty and for the public welfare. A trustee in bankruptcy has historically been regarded as an officer of the Court. The Court went on to say: 'The discharge of a public duty imposed by the Act is to be performed conformably with the requirements of that duty, but also conformably with the trustee's obligation to administer the estate in such a manner as to maximise the return from estate assets, and thereby to maximise satisfaction of the creditors' claims and any possible surplus for the bankrupt.' 17 In Citicorp v Official Trustee (at 561) the Full Court emphasised the practical and commercial approach which a trustee should adopt in considering whether to authorise an assignment of a chose in action. This approach has been followed in Re Cheesman v Waters (1997) 143 ALR 78 at 108. A trustee is not obliged to take steps which would be unrealistic or expensive: Citicorp v Official Trustee at 561. The fact that a trustee has no funds which would permit a particular course to be taken is a relevant consideration for a trustee to weigh: Seear v Lawson (1880) 15 Ch D 426 at 433; Stein v Black [1996] 1 AC 243. Those cases dealt with the question as to whether a trustee should have pursued litigation commenced by the bankrupt when they had no funds to do so, but the principle is obviously one of common sense and general application. It was a matter which the Full Court in Freeman v National Australia Bank Limited, referred to above, considered relevant to this case. 18 Citicorp v Official Trustee holds that it is not incumbent upon a trustee to make enquiries about the prospects of success of an action when deciding whether to assign a cause of action (at 561). In many cases it will be more practical simply to assign it for a consideration, leaving the purchaser to risk costs. On the other hand it is an aspect of the trustee's public duty that a claim with no reasonable prospect of success, the prosecution of which would be frivolous and vexatious, should not be assigned: Citicorp v Official Trustee at 565. Their Honours went on to observe that in most cases it will not be clear that a claim has no reasonable prospects. Where it is clear, however, the trustee as an officer of the Court, and the Court itself, should not allow the assignment to occur even where money is offered for it. 19 It does not follow from Citicorp v Official Trustee that in a case where trustees are not certain about the prospects of a claim's success, that an assignment should follow. Principles about what a trustee should do in a particular case cannot be stated as universal. Trustees will be faced with different factual scenarios to which the general principles relating to their duty and to practical issues will need to be addressed. The present case is unusual in that there are strong indications that the further pursuit of the actions may well be frivolous and vexatious. 20 Action no S4013/1998 has been heard and determined and special leave refused. On the hearing of the application for the sequestration order against the appellant's estate, Spender J held that there was no prima facie case shown of fraud or collusion or miscarriage of justice such as to impeach the judgment of Ambrose J. Applications to reopen a case based upon additional evidence are notoriously difficult. There are usually real questions about whether the evidence could reasonably have been discovered earlier and whether it would have affected the trial judge's decision. Both issues are present on a reading of the appellant's material. Spender J also found that the action against the bank, relating to the sale of the appellant's property at an undervalue, to be wrongly constituted. It was, in his Honour's view, properly a claim against the receiver. We also observe that the claim was one brought by Mr Freeman very late, on the day before the hearing of the application for a sequestration order. This raises the question whether he has a bona fide claim. 21 The reasons of the Full Court in the earlier appeal concerning these actions discloses that the trustees held strong reservations about their success. The Full Court obviously considered there was some basis for these views. Whilst recognising that the appellant could seek an assignment of them, the Court was apparently of the view that the trustees would need legal advice and therefore need to be put in funds. It is obvious from their Honour's reference to Citicorp v Official Trustee that they had in mind the discharge of the trustee's public duty with respect to the assignment of causes of action. 22 Given the history of the claims, the problems inherent in their further prosecution, and the observations of the Full Court, it is hardly surprising that the trustees determined to seek advice concerning their duties. In our view, and in the particular circumstances of this case, it was appropriate for them to do so. The appellant was not refused assignment. The request for funds to allow for advice was the practical way for the trustees to properly consider their position on the one hand and the interests of the appellant on the other. 23 The appeal should be dismissed with costs. I certify that the preceding twenty-three (23) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Spender, Kiefel and Dowsett.