Hoare v Giasoumi, in the matter of the Bankrupt Estate of Roache

APPLICATION 12 Subsection 58(3) of the Bankruptcy Act 1966 (Cth) provides as follows: Except as provided by this Act, after a debtor has become a bankrupt, it is not competent for a creditor: (a) to enforce any remedy against the person or the property of the bankrupt in respect of a provable debt; or (b) except with the leave of the Court and on such terms as the Court thinks fit, to commence any legal proceeding in respect of a provable debt or take any fresh step in such a proceeding. 13 Leave is required only in relation to legal proceedings that are in respect of a provable debt. If the remedy or legal proceeding is not in respect of a provable debt, then s 58(3) of the Act "does not prevent the claimant, during the bankruptcy, from commencing a legal proceeding in respect of the claim or enforcing any remedy against the person or the property of the bankrupt in respect of that claim": see Coventry v Charter Pacific Corporation Ltd (2005) 227 CLR 234 at 238; [2005] HCA 67 at [4]; Nelson v Thompson [2021] FCA 1055 at [14]. 14 Section 5 of the Act defines a "provable debt" as meaning "a debt or liability that is, under this Act, provable in bankruptcy". The debts or liabilities provable in bankruptcy are set out in s 82 of the Act which relevantly provides: Debts provable in bankruptcy (1) Subject to this Division, all debts and liabilities, present or future, certain or contingent, to which a bankrupt was subject at the date of the bankruptcy, or to which he or she may become subject before his or her discharge by reason of an obligation incurred before the date of the bankruptcy, are provable in his or her bankruptcy. … (2) Demands in the nature of unliquidated damages arising otherwise than by reason of a contract, promise or breach of trust are not provable in bankruptcy. 15 While the applicant's claim against Mr Roache is for unliquidated damages, there is some uncertainty as to the precise claims being made against Mr Roache in the proceedings. Mr Hoare's claim for damages in the Distribution Proceeding appears to be based on breach of Mr Roache's duties as a director of the trustee. The basis on which Mr Hoare seeks to make a claim against Mr Roache in respect of the other proceedings is not clear. 16 Whether a claim for breach of a fiduciary duty is a provable debt is a complex question. Different views have been taken on whether a claim for a breach of a fiduciary duty is a claim for a breach of trust for the purposes of s 82(2). There are observations of the High Court in Cummings v Claremont Petroleum NL (1996) 185 CLR 124 at 136 - 137 that a claim arising from breach of fiduciary duty is classified as a claim arising by reason of contract or breach of trust for the purposes of s 82(2). Similar observations were made by Weinberg J in Re Sharp [1998] FCA 1367. As Perram J observed in Mercedes Holdings Pty Ltd v Waters (No 3) [2011] FCA 236 at [117], in the Supreme Court of New South Wales a different view holds sway. In Auto Group Ltd v England (2008) 6 ABC(NS) 72, Bryson AJ at 76 [11] considered Weinberg J's conclusion unsupported by the authorities and to "involve a striking departure from the ordinary and natural meaning of 'breach of trust'". Perram J considered that the High Court's observation needed to be understood in the context where many claims for breach of fiduciary duty arise in a contractual context and thus can be seen as arising out of a contract: Mercedes at [120]. 17 Having regard to the need for an expeditious determination of this application to enable the mediation to occur, I will proceed on the basis that leave under s 58(3) of the Act is necessary: see too Downes J in Nelson v Thompson [2021] FCA 1055 at [23]. Such a course is consistent with the decision of the Full Court in Allanson v Midland Credit Ltd (1977) 30 FLR 108 at 115; [1977] FCA 14, in which it was stated: We consider that it is unnecessary in the circumstances for us to express a final view of the effect of the stay on the operation of s. 58 (3). Where a court is given power to grant leave to perform a particular act or pursue a particular course of action and the question whether the need for such leave has arisen involves difficult and complicated questions of law or fact, it is permissible, in an appropriate case, to proceed on the basis that such leave is necessary rather than involve the parties in the futile exercise of determining, possibly after a series of appeals, whether the need for such leave has arisen. In all the circumstances including the urgency of the matter, we consider that that is the appropriate course to adopt in this case and that we should, to the extent necessary, grant leave to Midland Credit to continue and take fresh steps in the proceedings in the Supreme Court of New South Wales. This approach would, it seems to us, be consistent with that adopted by the High Court in Talga Ltd. v. M. B. C. International Ltd (1976) 133 CLR 622. It is an approach which was raised before us in the course of argument but not before the learned judge below. See also GFIN Pty Limited v Gooden, in the matter of GFIN Pty Limited (No 2) [2020] FCA 1440 at [7]. 18 For the following reasons, the discretion conferred by s 58(3)(b) of the Act should be exercised in favour of granting the relief sought in so far as it is limited to the mediation scheduled for 14 August 2023: (a) the Distribution Proceeding has been on foot in the Supreme Court since 2020. It may be inferred that there has been an investment of significant time and money by the multitude of parties to the proceedings: see Lovell v Penkin, in the matter of the bankrupt estate of Kevin Michael Penkin [2008] FCA 637 at [15]; GFIN at [9], [11]; (b) there is an overlap of issues between the Distribution Proceeding and other proceedings involving many parties. The Supreme Court has formed the view that it is in the interests of justice for the matters to be mediated together. The proceedings against the bankrupt are proceedings to which other parties are involved and for the proper conduct of the proceedings and the mediation it is necessary for the bankrupt to become a party: see 7Steel Building Solutions Pty Ltd v Wright [2011] FCA 328 at [10] - [11]; GFIN at [9]; (c) having regard to the nature of the claim brought by the applicant in the Distributing Proceeding (being a claim brought against a disbarred solicitor relating to a breach of director duties), the factual and legal issues arising in the proceedings are not readily to be determined through the bankruptcy process: see Allanson at 114; Lovell at [14] - [15]; Hall v Warner [2006] FCA 852 at [8]; (d) the orders sought whilst not consented to, are not opposed by the trustee in bankruptcy. 19 The matter has come before the Court as an urgent duty matter given that the mediation is scheduled to commence on 14 August 2023. The proposed scope of the proceedings in the event that mediation is unsuccessful is uncertain. For this reason the Court does not consider it appropriate to grant leave to the applicant to take further steps beyond the step of mediation. If mediation is unsuccessful, the applicant has liberty to bring a further application for leave to proceed against Mr Roache in respect of the Distribution Proceeding or any other proceedings in respect of which it is proposed to join Mr Roache. The Court expects that at the time of making such an application, the applicant will be in a position to inform the Court of the details of the scope of the proposed pleadings to be relied upon including the proposed causes of action and the nature of the relief sought against Mr Roache. I certify that the preceding nineteen (19) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Hespe.