Geia v Palm Is Aboriginal Council [1999] QCA 389

3 The date of the bankruptcy was 24 September 1997, some weeks before the wrongful termination which has been alleged. The defendant persuaded the primary judge that the plaintiff's right of action was within the meaning of s 58(1)(b) of the Bankruptcy Act 1966 (Cth) "after acquired property of the bankrupt" and it therefore vested, under that provision, in the Official Trustee. The word "property", which is defined in s 5, ordinarily includes a chose in action: Minister for the Army v Dalziel [1944] HCA 4; (1944) 68 CLR 261 at 290, Georgiadis v Australian and Overseas Telecommunications Corporation (1994) 179 CLR 297.

4 It appears from the reasons given below that the argument advanced there was that the plaintiff's cause of action did not vest in the trustee because it was exempted by s 116(2)(g) of the Bankruptcy Act 1966 (Cth). That provision excludes from property divisible among creditors of the bankrupt the following:

"Any right of the bankrupt to recover damages or compensation:

(i) for personal injury or wrong done to the bankrupt, the spouse of the bankrupt or a member of the family of the bankrupt . . .

and any damages or compensation recovered by the bankrupt (whether before or after he or she became a bankrupt) in respect of such an injury or wrong . . .".

The primary judge rejected that contention and his Honour's view on that point was accepted as correct, in the argument in this Court. The argument for the plaintiff here was that, although no provision of the statute exempts such a cause of action as that which the plaintiff asserts from the general vesting provisions, the "common law of bankruptcy" does so.

5 Accepting as we do the correctness of the concession that s 116(2)(g) does not apply (see Wilson v United Counties Bank Limited [1920] AC 102 at 111, 128-133, and Cox v Journeaux [No 2] [1935] HCA 48; (1935) 52 CLR 713 at 721), it is necessary to consider the English authorities on which the plaintiff relies. In Beckham v Drake [1849] EngR 843; [1849] 2 HL Cas 579 the House of Lords had to consider whether, as here, a bankrupt could sue for breach of a contract to employ him for a period of years. The difference between Beckham v Drake and this case is that there the breach of contract occurred before bankruptcy, whereas here it occurred after bankruptcy. Under the bankruptcy statute there in question "all the present and future personal estate" of the bankrupt vested in the assignees. When that case was decided there were, as appears from the arguments advanced for the plaintiff, authorities establishing non-statutory exceptions to the general vesting provisions. The question was whether these authorities covered a right of action for breach of a contract of employment. Williams J (at 598) referred to authority establishing that the assignee could not sue "to recover damages for bodily or mental sufferings or personal inconvenience"; Platt B distinguished from the case before him one in which the claim was for "injuries to the bankrupt's person or reputation, injuries to him in his character of father, master, or husband, or the breach of a promise to marry" (601), and Cresswell J pointed out that the plaintiff did not "complain of any personal injury, of any personal suffering or inconvenience, occasioned by the defendants' breach of contract" (614). The conclusion adopted was that the cause of action had passed to the assignees.

6 But the House of Lords case was distinguished in Bailey v Thurston & Co Ltd [1903] 1 KB 137 where, as here, the breach of the contract of employment occurred after bankruptcy. The reasoning of Collins MR was, in summary, that since the contract was one for personal services and did not pass to the trustee, neither could a cause of action for breach of it do so. Cozens-Hardy LJ said that it had been established -

". . . for many years that, notwithstanding the generality of the language used in the Bankruptcy Acts, there are some contracts and some rights that do not vest in the trustee". (145, 146)

We note that the Bankruptcy Act 1883 which was in issue in Bailey v Thurston & Co Ltd made after acquired property divisible among the creditors (s 44(i)), as does our s 116(1). Further discussion of the rationale of Bailey's case appears below.

7 We were referred to Affleck v Hammond [1911] 3 KB 162 and to Thistlethwayte v Gender Estates Pty Ltd (1976) 8 ALR 700, in both of which Bailey v Thurston & Co Ltd was relied on; but each of those cases concerned a different point, which was whether the bankrupt could sue for "moneys which, by his personal effort, he had earned" - see Thistlethwayte at 702. We have mentioned above that it is conceded that no such monies are in issue in this case, where the plaintiff says he has a right to damages, or to be paid at the agreed rate past the date when his employment was terminated. The law on the subject dealt with in Thistlethwayte has altered; when that case was decided, s 131 of the Bankruptcy Act 1966 (Cth) entitled a bankrupt in receipt of income to retain it for his own benefit, subject to the court's power to require part of it to be paid to the trustee. By the Bankruptcy Amendment Act 1991 (Cth) that section was repealed and a new system for contribution by a bankrupt was introduced, contained in Division 4B. Its scheme is to create, by force of the Act, a liability to pay part of income received to the estate. A convenient summary of these provisions is to be found in the reasons of French J in Re Gillies; Ex parte Official Receiver in Bankruptcy [1993] FCA 289; (1993) 115 ALR 631. In that case his Honour held that although s 131(1) which had entitled "a bankrupt who is in receipt of income" to retain it for his own benefit had been repealed, Division 4B "rests upon the continuing assumption that the income of the bankrupt does not vest in the trustee". We are in respectful agreement with that view; but it does not, of course, bear upon the question whether a cause of action for breach of a contract which would, if carried out, have produced income for the bankrupt vests in the trustee.

8 To return, as foreshadowed, to Bailey's case, a reason relied on by two of the judges (Collins MR and Stirling LJ) for distinguishing Beckham v Drake was that there were indications in the earlier case that the result depended upon the breach of contract having been completed before the date of bankruptcy. It is true that the judges who gave opinions in Beckham v Drake referred at a number of places to the circumstance that the breach preceded the bankruptcy; two such references are in passages quoted by Collins MR in Bailey's case, at 141. Another is to be found in Lord Campbell's speech, which includes the following:

" . . . this agreement entitled the plaintiff to the sum of £500, upon a breach of the agreement. That was then a debt. That debt had accrued before the bankruptcy, and under the express words of the 6th of Geo IV, Cap 16, 'debts due or to be due to the bankrupt, wheresoever the same may be found or known' are assigned . . . It was a debt before the bankruptcy . . .". (643-644)

This seems to imply that the statute required the cause of action to accrue before bankruptcy, if it was to pass to the assignee. But according to Doria and Macrae, "The Law and Practice of Bankruptcy" (1863), a work which deals with the law as it stood at the date of Beckham v Drake, and later, under the relevant statute the assignees had a right to after acquired property, dependent upon proof that "the right thereto had accrued to the bankrupt prior to the granting of his certificate [of discharge]". (547) That remark was made with reference to s 141 of the Bankruptcy Act 1849, whose terms (set out at 543 and 544 of Doria and Macrae) are to the same effect, so far as relevant, as s 63 of the statute of Geo IV which was that in issue in Beckham v Drake.

9 We have laboured this point, because it is not really clear why some of the opinions in Beckham v Drake emphasise that the breach of contract preceded the bankruptcy; it may be that the accepted construction of s 63 of the statute of Geo IV, at the date of that case, was such that if the breach came after the bankruptcy there was at least doubt whether the cause of action would pass to the assignee. No such doubt was possible under the law as it stood when Bailey's case was decided; s 44(i) of the Bankruptcy Act 1883, which was in issue in that case, made after acquired property divisible among creditors, as we have pointed out.

10 In Wadling v Oliphant [1875] 1 QBD 145, it was held that money due, and paid, to a bankrupt by an employer who had dismissed him without notice vested in the trustee, although the cause of action arose after bankruptcy. Blackburn J pointed out to counsel for the trustee that Parke B laid stress in Beckham v Drake upon the circumstance of the breach being before the bankruptcy (148). In his reasons for judgment Blackburn J remarked:

". . . the question whether such a sum of money would pass to the assignees where the breach was before the bankruptcy was decided in Beckham v Drake, which is a very analogous decision. There, the main point considered in the House of Lords was, whether the penalty became due before or after the bankruptcy, and it was decided that although perhaps the right to recover all the ordinary damages for the breach of the contract would not pass to the assignees, as the action was commenced after the bankruptcy, yet that they could seize a sum of money which had been agreed to be paid as compensation when the first breach took place". (150)

This does not disclose any clear understanding of the relevance of the breach having been, in Beckham v Drake, before the bankruptcy. But in any event the case is authority for the proposition that, under a bankruptcy statute passing after acquired property to the trustee, (as was so in England from 1861) the circumstance that the breach succeeded and did not precede bankruptcy did not necessarily defeat the trustee's rights. The same view was taken by Fry J in Emden v Carte (1881) 17 ChD 169 at 173. These cases were referred to by Collins MR in Bailey's case and each was distinguished on the basis that it decided no more than that the trustee had a right to "intervene". But a study of the reasons given in Wadling v Oliphant shows that the judges who decided it, and especially Blackburn and Archibald JJ, went on no such narrow ground. Blackburn J explained that the point taken was founded upon a case in which it had been held that an assignee could not claim money being the price of the personal services of the insolvent (149) and Archibald J regarded the point as being that ". . . the general principle is that the property of the debtor passes to his assignees, and in order to divest it the case must be brought within some recognised exception" (151).

11 Looking at the matter more broadly, Wadling v Oliphant stood for the proposition that under the then English bankruptcy legislation, the assignee could claim the proceeds of an action of the present kind, where the breach succeeded the bankruptcy; if the supposed distinction put forward in Bailey's case is right, then although the cause of action in respect of the breach of contract does not pass to the trustee, the money when recovered does. No explanation why the law should be in such an odd state is put forward in Bailey's case.

12 The critical point in this case is whether there is any reason to distinguish between actions brought by the assignee on contracts of employment broken before and actions brought on contracts broken after bankruptcy. Bailey's case says the trustee may sue in the former case but not in the latter. But neither our current bankruptcy statute nor that which was in force in England at the time of Bailey's case (see s 44 of the English Bankruptcy Act 1883) distinguishes between property coming to the bankrupt before bankruptcy and that coming after bankruptcy. Both categories of property, subject to exceptions to be found in the statute which do not apply here, pass to the trustee: see ss 58, 116 of the Bankruptcy Act 1966 (Cth).

13 Apart from what appears to us to have been the failure to set out any comprehensible basis for explaining away Wadling v Oliphant, the authority of Bailey's case is weakened, in our opinion, by the circumstance that the reasons given for the doctrine adopted appear to be unsound. In addition to reliance on inconclusive dicta in Beckham v Drake, the judges in Bailey v Thurston & Co Ltd gave four principal grounds for drawing the distinction, between pre and post-bankruptcy breaches on which they relied:

1. Contracts for personal service do not pass to the trustee. (144)

2. If the trustee sued he would have to allege that the bankrupt was always ready and willing to perform his part. (141)

3. The trustee could not hire the bankrupt out to do work. (141)

4. An executed contract for personal service could not be completed without the bankrupt's assistance. (145)

14 The simplest of these contentions is the first - that contracts for personal service do not pass to the trustee - and the other three are, perhaps, merely corollaries of that proposition. But all four objections, insofar as they point to difficulties with the notion that the trustee can sue for the breach by the bankrupt's employer, apply to all such actions, whatever the date of the breach. If the fact that the contract in question is one of personal service and therefore does not vest in the trustee is a ground for holding the trustee may not sue for breach of the contract, then that should prevent a suit by the trustee in all cases; the character of the contract, namely that it is one for personal services, is the same whatever the date of breach.

15 We have noted that one of the judges, Cozens-Hardy LJ, relied on the fact that:

"There was not at the date of the bankruptcy any accrued right of action under the contract which might have vested in the trustee as in Beckham v Drake". (146)

This suggests a simple misapprehension, for the English bankruptcy law at the date of Bailey v Thurston & Co Ltd expressly caught after acquired property.

16 Apart from the reasons just discussed for doubting whether Bailey v Thurston & Co Ltd should be treated as authority under our statute, other considerations should be mentioned. One is that some current contracts for service provide for very large remuneration and the value of the right to sue on such contracts, if broken by the employer, might be a significant part of a bankrupt estate. But if Bailey v Thurston & Co Ltd is to be applied, then the trustee could by no means get access to such an asset, without the bankrupt's co-operation, if the breach relied on occurred after bankruptcy. Another point is that it is, in general, undesirable to require those who have to work under the Bankruptcy Act 1966 (Cth) (a long and complex statute) to read it down on the basis of decisions such as Bailey v Thurston & Co Ltd; on the face of our statute, there is nothing to support the notion that a cause of action of the kind here in question passes to the trustee if it comes into existence before bankruptcy, but not if it does so after bankruptcy. Looking at that matter more broadly, there appears to have been a collection of exceptions to the general proposition that the bankrupt's property vested in the trustee, developed in English cases to fill in what seemed to be gaps in, initially relatively simple, bankruptcy legislation. The Bankruptcy Act 1966 (Cth) has elaborate provisions on this subject, particularly in s 116 and, as to income received after bankruptcy, in Division 4B. Unless there is some pressing reason to do so, such as that it is evident that the Parliament must have intended an exception to be implied, courts should be slow to hold that the statutory scheme to which we have referred has, to some uncertain extent, to be read subject to unstated exceptions, because of doctrines worked out in the older cases, under English statutes.

17 We have therefore concluded that it is not the law that an action of the present type may be brought by the bankrupt; it can only be brought by the trustee. The type to which we refer is an action claiming damages or other sums on the basis of wrongful dismissal, under a contract for personal service, the action not including any sum due before termination - i.e. not including any sum for services actually rendered.

18 It should be added that no suggestion was made in argument in this Court that jurisdiction to decide the point raised is lacking. Section 27 of the Bankruptcy Act 1966 gives the Federal Court exclusive jurisdiction in bankruptcy. This provision, which came into the statute by the Bankruptcy Legislation Amendment Act 1996 (No 44, 1996), could on the face of it be argued to prevent courts, other than the High Court exercising jurisdiction under s 75 of the Constitution, from determining issues arising under the Bankruptcy Act 1966. Strangely, the explanation given for the amendment when the relevant bill was introduced to Parliament was that it was intended "[t]o preserve the situation that creditor's petitions are dealt with in the Federal Court" - see para 81 at p 27 of the Explanatory Memorandum. Presumably the exclusive jurisdiction granted by s 27 covers matters other than creditors' petitions and one would think that it would, properly construed, make many sorts of matters other than creditors' petitions the exclusive province of the Federal Court. The explanation to which we have referred said that bankruptcy matters would still be able to be dealt with by the Supreme Courts under cross-vesting legislation, in appropriate cases.

19 The Federal Court plainly would have jurisdiction, under s 31(1)(f), to decide the issue which we are determining. But our decision and that made by the learned District Court judge are not in proceedings of a kind which are, by any specific provision of the Bankruptcy Act 1966, required to be brought in the Federal Court. That Act does not give the Federal Court power to dismiss an action brought in a State court by a bankrupt, purporting to exercise a cause of action which the Bankruptcy Act vests in the trustee. For this reason we are of the view that the assumption the parties have made, that the District Court and this Court have appropriate jurisdiction, is correct.