Goodman v Thomson Maloney & Partners Pty Ltd trading as Charter Keck Cramer

REASONS FOR JUDGMENT 1 The application being called over today is an application for leave to appeal from a judgment of a single judge of this Court. The judgment from which the applicants wish to appeal is an interlocutory judgment, requiring the first applicant, Mr Goodman, and the second applicant, his wife, to provide security for costs in a proceeding in the Court, and staying the proceeding if they do not. On 12 November 2010, Jessup J dismissed parts of the application for leave to appeal and referred the remainder to the Full Court. 2 On 17 December 2010, a federal magistrate made a sequestration order against the estate of the first applicant. On the same day, the solicitors for the respondent wrote to the trustee in bankruptcy, giving him notice of this application. The trustee in bankruptcy wrote back, by letter dated 13 January 2011, stating that he was not in a position to make an election in writing to prosecute or to discontinue the application. 3 By s 60(2) of the Bankruptcy Act 1966 (Cth) ("the Bankruptcy Act"): An action commenced by a person who subsequently becomes a bankrupt is, upon his or her becoming a bankrupt, stayed until the trustee makes election, in writing, to prosecute or discontinue the action. Section 60(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. In s 60(5), the word "action" is defined to mean any civil proceeding, whether at law or in equity. This is certainly a wide enough definition to include an appeal in a civil proceeding. For the purposes of s 60(2) and (3), therefore, an application for leave to appeal against the order requiring security for costs is an "action". 4 On the face of it, therefore, no election in writing having been made by the trustee in bankruptcy within 28 days after notice of the application has been served on him by the respondent, the trustee is deemed to have abandoned the application for leave to appeal. 5 There is an exception to the provisions of s 60, found in s 60(4). That subsection provides that: a bankrupt may continue, in his or her own name, an action commenced by him or her before he or she became a bankrupt in respect of: (a) any personal injury or wrong done to the bankrupt, his or her spouse or de facto partner or a member of his or her family; or (b) the death of his or her spouse or de facto partner or of a member of his or her family. It is apparent that that provision has nothing to do with the present case. An application for leave to appeal against an order that a litigant provide security for costs is not a proceeding in respect of personal injury or wrong done to that litigant. 6 The first applicant relied on a statement that he quoted from Jambrecina v Official Trustee in Bankruptcy [2003] FCA 1352 at [13], where Bennett J said: Section 60(2) refers to the stay of an action commenced by a person who subsequently becomes a bankrupt, until the trustee makes an election to prosecute or discontinue the action. That is not the case here because, while the trustee has made an election in writing not to prosecute or discontinue the action, which election is challenged by Mr Jambrecina by reason of s 178, the proceedings were commenced in the High Court after he became a bankrupt. Section 60(4) excludes from the operation of s 60(2) and provides that the bankrupt may continue, in his own name, an action commenced by him before he became a bankrupt in respect of a personal injury or wrong done to him and such a right to recover damages or compensation is not part of the property of the bankrupt to be divisible amongst his creditors (s 116(2)(g)). Again, this section may have no application as it does not apply where the bankruptcy preceded the commencement of the action. If s 60(2) and s 60(4) of the Act do not apply, the cause of action would then vest in the respondent by reason of s 58(1). 7 The first applicant read the sentence in which her Honour referred to s 60(4) and s 116(2)(g) of the Bankruptcy Act and attempted to expand that sentence into a broad proposition that, unless the application for leave to appeal involved property divisible among the creditors of a bankrupt, then that application falls within s 60(4). This is obviously an unsustainable proposition. Bennett J was doing no more than summarising the effect of s 60(4) and s 116(2)(g), before saying that they had no application to the case before her. In the proposed appeal, the applicants do not seek to recover damages or, indeed, to recover anything, but merely to undo an order made against them. It is clear, in my view, that s 60(4) is inapplicable to the present case. 8 It might be thought that, once the application for leave to appeal had been abandoned, or deemed to be abandoned, by the trustee in bankruptcy, it ought to be dismissed. In Finikiotis v Knight Frank (SA) Pty Ltd [2001] FCA 1733, the Full Court determined that that would not be an appropriate order. That case involved a situation similar to the present, where there was before the Full Court an appeal which did not fall within s 60(4) of the Bankruptcy Act, and which had not been the subject of an election by the trustee in bankruptcy. The Full Court declined to dismiss the appeal, but instead made orders having the effect of staying it until after the appeal brought by one of the appellants in that case against a sequestration order should be determined, and orders that had the effect of reviving the appeal if the bankruptcy of the appellants were set aside or annulled. 9 The Full Court judgment, of course, is binding on me. I therefore should not make orders dismissing the application for leave to appeal. Rather, I should make orders staying it until the outcome of the appeal against the sequestration order, or any other possible proceeding in which the bankruptcy might be annulled, should become known. 10 One further issue arises. The second applicant in this case is not a bankrupt. There is a corporation named in the application for leave to appeal as the third applicant. It is in liquidation and its right of appeal is stayed in any event by reason of that. So, it is the position of the second applicant that causes the greatest difficulty. 11 In McKellar v Container Terminal Management Services Ltd (No 4) [2002] FCA 185, Weinberg J dealt with a similar issue. At [22], his Honour cited authorities to the effect that, where one of several applicants in a proceeding is made bankrupt, the effect of s 60(2) of the Bankruptcy Act is to stay the entire proceeding, and not just the claims brought by the bankrupt. His Honour followed those authorities. I should follow those authorities as well. Therefore, I should stay the application for leave to appeal so far as both the first and second applicant are concerned, until such time as the outcome of the first applicant's bankruptcy appeal is known. 12 I make the following orders: