These proceedings were commenced by summons filed on 3 October 2018 instituting an appeal against a decision of the NSW Civil and Administrative Tribunal ("the Tribunal"). The defendant was, by an earlier name, the respondent to the proceedings in the Tribunal. The defendant has proved that a sequestration order was made against the plaintiff on 18 July 2018. It contends that the rights the plaintiff asserted in the Tribunal and which she asserts in the appeal to this Court are property rights and that they vested in the Official Trustee upon her becoming bankrupt, that is, 2 ½ months prior to the filing the summons: ss 58 and 116 of the Bankruptcy Act 1966 (Cth).
The defendant submits that in these circumstances the proceedings have been incompetent from inception. The defendant has tendered a letter dated 11 December 2018 from the Official Trustee stating that he "is not in a position to prosecute these proceedings". In those circumstances the defendant asks that the summons be dismissed with costs.
On 27 July 2017, the plaintiff entered into a residential tenancy agreement with the defendant. On 4 October 2017 the defendant commenced proceedings against the plaintiff in the Tribunal seeking orders for termination of the tenancy and possession of the premises, on the grounds of non-payment of rent. On 28 November 2017 General Member Campbell, in the Consumer and Commercial Division of the Tribunal, found in favour of the defendant (the landlord) and against the plaintiff. He made orders requiring the plaintiff to do various things. Thereafter, the defendant made application to the Tribunal upon the basis that the plaintiff had breached the orders. The proceedings were reinstated and on or about 30 May 2018 the Tribunal found in favour of the defendant (landlord) with respect to breach of the earlier orders. Accordingly a warrant was issued for the Sheriff to obtain possession of the property the subject of the tenancy agreement.
On or about 7 June 2018, the plaintiff appealed that decision. The appeal was heard on 26 July 2018 by an Appeal Panel comprising Deputy President Schyvens and Senior Member Goldstein. The appeal was dismissed on 16 August 2018: Kostov v Ecclesia Housing Limited [2018] NSWCATAP 196. The Panel explained (at [3] of the judgment) that the Plaintiff, having requested leave to appear by telephone, actually appeared in person at the commencement of the appeal hearing. The Panel recorded that:
she immediately proceeded to make adverse comments about the respondent's [landlord's] conduct, threw plastic cups at the respondent, threw the water from a jug on the bar table over the respondent, and finally threw the empty jug at him.
The Panel noted that the plaintiff then left the courtroom, having decided not to take any further part in the proceedings.
The plaintiff made application, by way of internal appeal in the Tribunal, to set aside the decision of 16 August 2018. That application came before Deputy President Boland and Principal Member Marks on 3 September 2018. The ground upon which the plaintiff relied was that the initial decision had been made in her absence "which resulted in my case not being adequately put to the Tribunal". On 14 September 2018 the application was dismissed: Kostov v Ecclesia Housing (No 2) [2018] NSWCATAP 215. The Tribunal said (at [39]):
There is simply no basis upon which the applicant can claim that the order for possession which was made had no proper basis. That order is unassailable, and any attempt by the applicant to contend otherwise before this Tribunal is doomed to failure and is futile.
The plaintiff's summons in this Court is confused but, as best it can be understood, the plaintiff seeks to appeal the decision of the Appeal Panel of made 16 August 2018 (Kostov v Ecclesia Housing Limited [2018] NSWCATAP 196, see [4] above) whereby the order for possession of the rental property, made 30 May 2018, was confirmed.
By s 58(1)(a) of the Bankruptcy Act all property of the plaintiff vested forthwith in the Official Trustee upon the making of the sequestration order against her on 18 July 2018. Section 5 defines "property", for the purposes of the Act, as follows:
"property" means real or personal property of every description, whether situate in Australia or elsewhere, and includes any estate, interest or profit, whether present or future, vested or contingent, arising out of or incident to any such real or personal property.
The defendant submits that this definition is wide enough to include the interest claimed by the plaintiff under the residential tenancy agreement which was the subject of the litigation in the Tribunal. The defendant relies upon s 116(1) which provides that the "divisible property" of the bankrupt includes:
(b) the capacity to exercise, and to take proceedings for exercising all such powers in, over or in respect of property as might have been exercised by the bankrupt for his or her own benefit at the commencement of the bankruptcy or at any time after the commencement of the bankruptcy and before his or her discharge.
It is submitted by the defendant that the plaintiff's capacity to prosecute these proceedings in respect of her residential tenancy falls within s 116(1)(b) and that it is not within any of the exceptions in subs (2) of s 116. Therefore, it is said, the capacity to prosecute the proceedings has been vested in the Official Trustee from a date before they were commenced. It is submitted the plaintiff had no legal title to commence proceedings and she has no legal title to continue them. As the Official Trustee has indicated an unwillingness to carry on the proceedings the defendant submits they should be dismissed.
If the plaintiff's summons had been filed before she was made bankrupt on 18 July 2018, s 60(2) of the Bankruptcy Act would very clearly have had the effect that the proceedings were automatically stayed until the Official Trustee made an election with respect to them. In the absence of such an election within 28 days from the sequestration order it would be deemed that the proceedings were abandoned.
Commencement of proceedings by a plaintiff after he or she has been made bankrupt is precluded by the Act in a more indirect and less explicit fashion. The combined effect of the definition of "property" (in s 5), the vesting of property in the Official Trustee (under s 58) and the inclusion of capacity to bring proceedings within the concept of divisible property (s 116(1)(b)) is to remove the power of commencing proceedings from the hands of the bankrupt and to place it in the hands of the Trustee.
I accept the defendant's submissions that for these reasons the plaintiff had no standing to commence the proceedings. The Official Trustee has been given the opportunity to adopt the proceedings and to seek to regularise them but he does not wish to do so. In those circumstances the proceedings should be dismissed.
A number of decisions confirm this understanding of the Bankruptcy Act. In Daemar v Industrial Commission of New South Wales (1988) 12 NSWLR 45, Kirby P (Samuels and Clarke JA agreeing) said (at 50-51) the scheme and purpose of the Act is that:
... upon the debtor's becoming a bankrupt, to transfer property rights, including the right to sue in respect of claims to property, from the bankrupt to his trustee. This is so, notwithstanding that it involves personal inconvenience to the bankrupt: see Faulkner v Bluett [1981] FCA 3; (1981) 52 FLR 115 at 119. It is so notwithstanding the fact that it deprives the bankrupt of important civil rights which he or she would otherwise normally enjoy.
His Honour further held:
It is of the essence of bankruptcy, as provided for by the Act, that property which belongs to the bankrupt, including choses in action (other than those which are specifically exempted) are vested upon bankruptcy in the bankrupt's trustee.
In Rana v Musolino [2009] FCA 476 McKerracher J cited the above passages from Daemar v Industrial Commission of New South Wales and held:
A bankrupt does not have standing to commence proceedings unless the action falls into an exception in s 116(2)(g) of the Bankruptcy Act.
Section 116(2)(g) creates the exception that, notwithstanding a sequestration order, the divisible property of the bankrupt does not include:
(g) any right of the bankrupt to recover damages or compensation:
(i) for personal injury or wrong done to the bankrupt, the spouse or de facto partner of the bankrupt or a member of the family of the bankrupt; or
(ii) in respect of the death of the spouse or de facto partner 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 or the death of such a person.
That exception is clearly not engaged by these proceedings. As recognised in Moss v Eaglestone [2011] NSWCA 404, a derivative proceeding based on some underlying cause of action or a lost right to pursue a cause of action takes its character from the underlying matter. In my opinion this applies with equal force to an appeal. On any view, neither the proceedings in the Tribunal nor these proceedings by way of appeal from the Tribunal's decision fall within the exception in s 116(2)(g).
I have considered written submissions form Ms Kostov in opposition to the conclusion, by emails of 12 December 2018, 22 January 2019, 30 January 2019 (with a 14 page attachment) and 31 January 2019 (with reference to Moss v Eaglestone (2011) 257 FLR 96 and further annexed submissions on legislation). None of this material dissuades me from the conclusion expressed above.
For these reasons the summons must be dismissed with costs. On 21 November 2018 I heard submissions from the defendant in support of a specified gross sum order for costs under s 98(4)(c) of the Civil Procedure Act 2005 (NSW). I also received evidence which substantiated to my satisfaction a reasonable figure of $9,000 as at that date. The defendant has in further submissions identified that since 21 November 2018 additional costs of $1,500 have been incurred in communicating with the Official Trustee, obtaining his response and providing detailed written submissions to the Court with respect to the operation of the Bankruptcy Act. I acknowledge the considerable assistance afforded by those further submissions. The additional $1,500 is also reasonable.
I accept that this is an appropriate case in which to make an order for a specified gross sum of costs, having regard to the relatively small amount involved, the delay which would be involved in requiring that costs be assessed, the improbability of any recovery and the trouble and expense to which the defendant has already been put by these proceedings.
For these reasons the orders of the Court will be as follows:
1. The summons is dismissed.
2. The plaintiff is to pay the defendant's costs of the proceedings in the sum of $10,500.
[2]
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Decision last updated: 04 February 2019