Mader v O'Halloran

REASONS FOR JUDGMENT 1 This is an application for leave nunc pro tunc to take fresh steps in a proceeding in the Magistrates Court of Western Australia and to commence and take fresh steps in an appeal to the District Court of Western Australia from an order dismissing a claim in the Magistrates Court proceeding. The applicants are Mr Bradley Mader and his partner Ms Loren Amanda Beckwith. 2 The facts of this case are somewhat unusual. The circumstances giving rise to this application are the following. 3 On 13 February 2012, the applicants commenced a claim (367/2012) in the Magistrates Court against Ms Deborah O'Halloran, who had been a financial adviser to the applicants. The applicants claimed the sum of $58,000 and interest from Ms O'Halloran on the basis that she had failed to repay a loan made to her by the applicants. 4 On 2 October 2013, the applicants commenced a claim (2420/2013) in the Magistrates Court against Ms O'Halloran's partner, Ms Joyce Bee Hong Lim. In that claim, the applicants claimed the sum of $58,000 and interest in respect of the unpaid loan. The allegation made against Ms Lim was that in making the loan, Ms O'Halloran had acted as agent for Ms Lim as an undisclosed principal. The two claims were consolidated. 5 In the Magistrates Court, the applicants claimed that Ms O'Halloran and Ms Lim had entered into a contract with a third party to purchase a unit in Brisbane. The applicants claimed that they advanced the sum of $58,000 for the deposit on the contract for the purchase of the unit. The contract fell through and neither Ms O'Halloran nor Ms Lim repaid the $58,000 to the applicants. The applicants claimed the sum of $75,000, being the $58,000 and interest from Ms O'Halloran and Ms Lim jointly and severally. The sum of $75,000 was claimed because that sum represented the upper limit of the Magistrates Court's jurisdiction. 6 The matter was set down for trial in the Joondalup Magistrates Court on 26 May 2014. 7 However, on 16 May 2014, a few days before the hearing, Ms O'Halloran became bankrupt upon her own debtor's petition. The applicants were aware of this fact at the time of the trial. The Magistrate raised with counsel for the applicants whether the fact that Ms O'Halloran was bankrupt comprised an impediment to the making of orders in the proceeding. Counsel for the applicants referred to s 60(2) of the Bankruptcy Act 1966 (Cth), but did not refer to s 58(3) of the Bankruptcy Act. No application for leave under s 58(3) of the Bankruptcy Act to take fresh steps in the proceeding was made. The trial took place and the Magistrate reserved his decision. 8 On 28 November 2014, the Magistrate gave judgment against Ms O'Halloran in the sum of $75,000 and dismissed the claim against Ms Lim on the basis that the applicants had not proved that Ms O'Halloran had acted as agent for Ms Lim or was otherwise liable in respect of the loan agreement. 9 The Court also ordered that Ms O'Halloran pay the applicants' costs. 10 On 8 January 2015, the applicants lodged an appeal (122/2014) in the District Court in respect of the dismissal of the claim against Ms Lim. According to the affidavit of Ms Nicola Spensley McVay sworn on 28 May 2015, the appeal grounds rely upon factual findings made by the Magistrate in relation to the claim against Ms O'Halloran. Ms McVay went on to depose that at the hearing of the appeal on 22 May 2015, the District Court judge hearing the appeal advised counsel for the applicants that the claim against Ms O'Halloran in the Magistrates Court which was part of the consolidated proceeding before the Magistrates Court, was in respect of a provable debt in respect of Ms O'Halloran's bankrupt estate, and that, therefore, s 58(3) of the Bankruptcy Act had application, and that leave should have been obtained prior to taking any fresh step in the proceeding after 16 May 2014 when Ms O'Halloran was declared bankrupt. 11 The presiding District Court judge, therefore, adjourned the appeal to permit the applicants to take steps to obtain the leave of this Court nunc pro tunc in relation to the taking of the fresh steps after 16 May 2014 in respect of the Magistrates Court proceeding and the commencement of, and taking of, fresh steps in the appeal in the District Court. 12 The applicants then commenced this proceeding seeking the leave referred to by the presiding District Court judge. 13 Section 58(3) of the Bankruptcy Act provides: 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. 14 Prior to the hearing of this application, the applicants advised the Official Trustee in Bankruptcy, being the trustee in bankruptcy of Ms O'Halloran's bankrupt estate, of this application for leave nunc pro tunc under s 58(3) of the Bankruptcy Act. 15 By a letter dated 14 July 2015, the Official Trustee relevantly replied: We note your advice that there is an appeal against the Judgment dismissing the claim against Joyce Lim (Second Defendant) and that your current application is being sought against the latter. We further note your advice that your clients do not intend to enforce the judgment against Ms O'Halloran and have not sought orders to do so in the Federal Court. Given the above, the Official Trustee does not have any objection to the above application. Please note there are no currently realisable assets in the bankrupt estate and the Official Trustee will not be further involved in the matter. 16 I have some doubt as to whether the appeal proceeding before the District Court is a proceeding in respect of a "provable debt" for the purposes of s 58(3)(b) of the Bankruptcy Act. This is because the appeal is limited to impugning the Magistrate's order dismissing the claim against Ms Lim and Ms Lim is not a bankrupt. Therefore, the claim that Ms Lim pay the applicants $75,000 would not, on its face, comprise a claim for a "provable debt" to which s 58(3)(b) would apply. For the same reason, it would appear to be doubtful that there was a need for the applicants to obtain leave to take fresh steps to prosecute their claim against Ms Lim in the Magistrates Court proceeding upon the bankruptcy of Ms O'Halloran. It is not uncommon for a proceeding to comprise claims made against multiple respondents - one of whom is bankrupt at the commencement of the proceeding, or becomes bankrupt after the commencement of the proceeding. (See, for example, 7Steel Building Solutions Pty Ltd v Wright [2011] FCA 328, Done v Financial Wisdom Limited [2008] FCA 1706 (Done).) The usual practice is for the applicant in such a proceeding to obtain leave to commence, or take a fresh step in that proceeding (as the case may be) only in respect of the claim or claims made against the bankrupt, and not the solvent parties to the proceeding, on the basis that it is only the claim or claims against the bankrupt which will constitute claims "in respect of a provable debt" for the purposes of s 58(3)(b) of the Bankruptcy Act. 17 However, I have not had the benefit of argument on this issue. In particular, I have not had the benefit of argument on the question of the effect of the applicants not having obtained leave to proceed against Ms O'Halloran, in circumstances where the Magistrate has found that Ms O'Halloran and not Ms Lim, is the true debtor, and the appeal appears, at least on its face, to have the potential to affect that order and the factual findings underpinning that order. In this regard, it is to be observed that the words "in respect of a provable debt" have been afforded a wide construction (Re McMaster; Ex parte McMaster (1991) 33 FCR 70 at 72). 18 There is authority that it is not necessary for this Court, when considering an application for leave under s 58(3)(b) of the Bankruptcy Act to make a final determination of the question of whether leave is required. It is sufficient for the Court to consider the application and grant leave, if so minded, to the extent that the leave may be necessary (Allanson v Midland Credit Ltd (1977) 16 ALR 43 at 48; Stoker (Trustee), in the matter of Starr (Bankrupt) v Starr [2011] FCA 746 at [14] per Jacobson J). 19 I intend to adopt this course. 20 In my view, leave to the applicants to take fresh steps in the Magistrates Court proceeding from 16 May 2014 onward, and to commence and take fresh steps in the District Court appeal proceeding should be granted retrospectively for the following reasons. 21 First, the Bankruptcy Act does not preclude the Court from granting leave retrospectively and courts have granted leave under s 58(3) of the Bankruptcy Act retrospectively on previous occasions. (See, Veghelyi; Smith v Official Trustee in Bankruptcy (1993) 45 FCR 413 at 417; Singh v Official Trustee in Bankruptcy (2007) 214 FLR 84 at [4]-[17] (Singh) where Lucev FM (as his Honour then was) collects a number of authorities on this question.) 22 It is unusual, however, that the leave is sought after judgment has already been entered in the proceeding, but, in my view, that is a consideration which weighs in the discretion of the Court and does not preclude the enlivening of the discretion to grant leave nunc pro tunc. The same is true in relation to the fact that the applicants knew that Ms O'Halloran was bankrupt before continuing with the trial without first obtaining leave under s 58(3) of the Bankruptcy Act. 23 The following factors weigh in favour of granting leave retrospectively in respect of the Magistrates Court proceeding, notwithstanding that judgment has been entered. 24 First, the Magistrates Court proceeding involves claims against one party who subsequently became bankrupt, and another party who was, and is, solvent, and the controversy between the parties is still extant in the sense that an appeal has been brought in respect of the claim against the solvent party. 25 Secondly, because the judgment obtained against the bankrupt is not be to be enforced, there is no special circumstance arising from the fact that judgment against the bankrupt has been entered, which, if leave was given, would be inimical to the policy underlying s 58(3) of the Bankruptcy Act. 26 As to the fact that the applicants knew of the existence of the bankruptcy before trial, the cases referred to by Lucev FM in Singh, show that this circumstance is not fatal to the grant of leave. In this case, it appears that leave was not sought because of the misapprehension of the law by counsel for the applicants, before the Magistrate, in which the Magistrate apparently acquiesced. 27 The second factor in support of granting leave, is that, as I have already mentioned, the allegations made against Ms O'Halloran are intertwined with the allegations made against Ms Lim. In the case of Done, Perram J observed at [34]-[36]: 34 I turn then to the question of whether leave should be granted to the Applicants to proceed against Mr Taylor pursuant to s 58(3)(b) of the Bankruptcy Act. In Re Rose; Ex parte Devaban Pty Ltd [1994] FCA 1082 (unreported, 7 October 1994, Hill J) it was held (at 3-4): On the other hand, the Act does contemplate that the Court will, in an appropriate case, grant leave. In that respect a case would be an appropriate case where the proceedings proposed against the bankrupt are proceedings to which other parties are involved and for the proper conduct of which it may be necessary for the bankrupt to become a party. 35 This principle was applied by Weinberg J in Re Sharp; Ex parte Tietyens Investments Pty Ltd (in liq) [1998] FCA 1367 at 6 and also by Burchett J in Sturdy Components Pty Ltd v Trustee of the Bankrupt Estate of Sturt [2000] FCA 884 at [3]-[4]. 36 The application of that principle in the current proceeding is straightforward. The affairs of Mr Taylor are intertwined with not only those of Bentley Barton but also those of Financial Wisdom and Mr Chen. The examination of the interplay between each of those parties is one which would be assisted by the presence of Mr Taylor in the proceedings…Accordingly, I propose to grant leave to proceed against Mr Taylor. 28 Had an application for leave to proceed against Ms O'Halloran in the Magistrates Court been made timeously, the circumstance that the claims against Ms O'Halloran and Ms Lim were so closely intertwined, would have weighed very heavily in favour of the granting of leave. Another factor that would have weighed in favour of the granting of leave, is the fact that the loan agreement was a verbal agreement and gave rise to factual disputes which would be more suitably determined in court proceedings than by way of a proof of debt procedure. 29 As it has transpired, of course, in light of the fact that the Official Trustee has reported that Ms O'Halloran has no assets, it appears that there will be no utility in filing, or adjudicating upon, proofs of debt. 30 Thirdly, the grant of the nunc pro tunc leave would not undermine the underlying policies of the Bankruptcy Act by preferring one creditor over another. This is because the applicants have advised the Official Trustee that they do not intend to enforce the judgment which they obtained against Ms O'Halloran. 31 Fourthly, the Official Trustee does not object to the granting of the leave. 32 Accordingly, insofar as it may be necessary, the Court grants leave nunc pro tunc for the taking of the fresh steps from 16 May 2014 in respect of the applicants' claim against the first respondent in the Magistrates Court proceeding and also in respect of the commencement on 8 January 2015 of the District Court appeal and the taking of fresh steps in that appeal thereafter. It is a condition of the grant of that leave, that the applicants do not take any steps to enforce the Magistrates Court's judgment for $75,000 and costs against the first respondent, without the further leave of this Court. I certify that the preceding thirty-two (32) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Siopis.