MANNIGEL v HEWLETT PHELPS

Court of Appeal (NSW)|1991-06-12|Before: Newman J, Handley JA, Kirby P, Meagher JA

MANNIGEL v HEWLETT PHELPS SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL

KIRBY P, MEAGHER and HANDLEY JJA 12 June 1991, 12 June 1991 [1991] NSWCA 186

BANKRUPTCY - plaintiffs commence proceedings against former solicitors for negligence and breach of contract - later become bankrupt - effect of Bankruptcy Act 1966 (Cth) s60(2) - trial judge (Newman J) determines effect as separate question under SCR Pt31 R2 - enters judgment for solicitors - appeal

Handley JA This is an appeal. brought by the plaintiffs from a verdict directed for the defendants by Mr Justice Newman and the judgment entered pursuant to that verdict.

In May 1979 the plaintiffs, husband and wife, commenced an action in the Supreme Court against their former solicitors for professional negligence. In an amended statement of claim filed on 14 March 1985 the plaintiffs pleaded their case both in contract and tort.

They alleged that they had retained the defendants as their solicitors to act in connections with the purchase of land at North Nowra and in connection with the contract they entered into with the vendor to construct a home on that land.

Particulars of negligence were given and the plaintiffs claimed damages for their economic loss and, under pars 17(e), 17(f) and 17(g) of the statement of claim, for loss of their credit and reputation, for inconvenience, mental distress and strain and for injury to their physical and mental health.

At the hearing of the proceedings before Mr Justice Newman, the plaintiffs, then being represented by solicitors and counsel, formally admitted that the damages claimed particularised under paral7(e), (f) and (g) referred to above were alleged to be the consequences of the economic loss they suffered as a result of the alleged breaches of duty by the defendants and had not been caused in some other way.

On 3 December 1979 both plaintiffs became bankrupt as a result of sequestration orders made by the Federal Court. The plaintiffs were discharged from their bankruptcies on 3 December 1982. The proceedings of this Court came on for trial before Mr Justice Newman and a civil jury in May 1989. The defendants applied to the trial judge for the determination as a separate question under RSC Pt31 R2 of their defence that the causes of the action sued upon had passed to the Official Receiver on the making of the sequestration orders.

The trial judge hear legal argument on this question in the absence of the jury. At the conclusion of the argument he upheld the defence and directed the jury to return a verdict for the defendants. Under objection from counsel then appearing for the plaintiffs he entered judgment for the defendants in the action. The plaintiffs, as they were entitled to, appealed as of right from the judgment.

The issue on the appeal turned on the effect of the sequestration orders on the present proceedings. S60 subs(2) of the Bankruptcy Act provides:

"An action commenced by a person who subsequently becomes a bankrupt is, upon his becoming a bankrupt, stayed until the Trustee makes election, in writing, to prosecute or discontinue the action."

Prima facie s60 subs(2) operated in this case to stay the proceedings upon the making of the sequestration orders on 3 December 1979. S60 subs(3) enables a defendant to require the trustee to elect to prosecute or discontinue the proceedings.

In the present case there is no evidence that the Trustee ever hade such an election or chat the defendants gave written notice to the Trustee requiring an election to be made. Prima facie, therefore, the proceedings remained on foot but stayed by the operation of s60 subs(2). However, s60 subs (4) excludes certain actions from the operation of s60 subs(2) and the appellants relied upon one of these exclusions.

S60 subs(4)(a) provides that a bankrupt may continue in his own name an action commenced by him before he became a bankrupt in respect of "any personal injury or wrong done to the bankrupt." The appellants contend that their case fell within this provision.

The meaning of the expression "personal injury or wrong" in s 60 subs4(a) and equivalent: provisions is well settled. In Daemar v The Industrial Commission of New South Wales and Ors (No.1) (1988) 90 FLR 469 at 479 this Court referred to and applied the statement by Dixon J in Cox v Journeaux and Ors (No. 2) (1935) 52 CLR 713 at 721 that: "The test appears to be whether the damages or part of them are to be estimated by immediate reference to pain felt by the bankrupt in respect of his mind body or character and without reference to his rights of property."

The plaintiffs claimed damages in the proceedings in the manner particularised in par 17(e), (i) and (g) of their amended statement of claim but these claims were consequential upon alleged breaches of professional duty owed to them by the defendants in relation to the purchase of the land and the contract by the vendor to erect a dwelling house on it. The plaintiffs claims for damages for loss of credit, for mental distress, inconvenience and for injury to their physical and mental health therefore were not claims "without reference to their rights of property" within the principle stated by Dixon J On the contrary those claims were consequential on damages to the plaintiff's financial and property interests as a result of alleged breaches of professional duty by the solicitors.

The plaintiffs in the present case sue on indivisible causes of action in tort and contract. Those causes of action formed part of the property of the plaintiffs which vested in the Official Receiver on their bankruptcy. No separate cause of action to recover damages for any personal injury or wrong has been pleaded or exists in the circumstances. Accordingly the proceedings in the Common Law Division of this Court were stayed by the operation of s60 subs(2) on 3 December 1979 and remained stayed throughout the bankruptcy.

Moreover it is now established that the discharge of the plaintiffs from bankruptcy which took effect on 3 December 1982 did not revest these causes of action in the plaintiffs - see Daemar V The Industrial Commission of New South Wales and Ors (No. 2) (Court of Appeal, unreported 14 December 1990 pp 7-13) where this Court approved the earlier decision to that effect of Needham J. in Peglar v Dale (1975) 24 FLR 401.

Accordingly, in my opinion, the present proceedings have remained stayed since 3 December 1979. The stay operated to prevent any further step being taken in the proceedings unless and until that stay was lifted by the election of the trustee or the proceedings were abandoned.

Accordingly, the trial Judge was not entitled to direct the jury to return a verdict for the defendants or to enter judgment for the defendants in the proceedings. In these circumstances in my opinion while the appeal fails in substance, it succeeds in relation to the order made by the trial Judge.

Counsel then appearing for the present appellants at the trial objected to a verdict being directed for the defendants and judgment being entered for them in the action and, correctly, took the point on which, in my opinion, the appeal must succeed. Moreover, the present point is also taken in the notice of appeal and in the appellant's written submissions. In these circumstances the appeal should be allowed in part, the judgment entered for the defendants in the action set aside, and in lieu thereof a declaration made that the proceedings remain stayed pursuant to the operation of s60 subs(2) of the Bankruptcy Act. I would not disturb the order for costs made at the trial.

So far as the costs of the present proceedings are concerned the appellants have succeeded in relation to the form of the order and for all the Court knows that success may have some practical sign finance in due course. However, the appeal has failed in relation to the substance of the matter because, in my opinion, the plaintiffs are not entitled to prosecute these proceedings in their own name, and for their exclusive benefit.

I would therefore, propose that the following orders be made:

Set aside the verdict and judgment for the defendants entered in the Common Law Division.

In lieu thereof declare that the proceedings remain stayed by the operation of s60 subs(2) of the Bankruptcy Act.

Kirby P I agree generally for the reasons which Handley JA has stated with theorders which he has proposed.

As to the indivisible character of the causes of action upon which the appellants sued, I would merely add that in the agreed facts which were tendered at the trial the following agreed fact appears: "5. The damages particularised in paral7(e), (f) and (g) of the amended statement of claim are alleged by the plaintiff to be the consequence of the other damages particularised in paral7(a),

(b) (c) and (d) but are not alleged to be otherwise the result of the alleged breaches of duty by the defendants." This agreed fact made clear the character of the alleged damages as they were presented to the trial judge and on the basis of which the separated question was answered by him. It is true that they bear, at first glance, the character of personal wrong. However both in the pleadings and in the agreed facts they are related to the causes of action in contract and tort sued upon. Those causes of action are not of the character which are saved by s60 subs49a). Accordingly, the proceedings brought by the appellants were stayed by the statute. Because a stay, not judgment, was the proper legal consequence of the Act, I agree with the orders proposed.

Meagher JA I agree with Mr Justice Handley.

Appeal allowed in part;
Set aside the verdict and judgment for the defendants entered in the Common Law Division;
In lieu thereof, declare that the proceedings remain stayed by operation

of s60(2) Bankruptcy Act 1966 (Cth); and 4. No order as to the costs of the appeal.

The Appellant appeared in Person Counsel for the Respondent: IG Harrison

Solicitors for the Respondent: P V McCulloch and Buggy

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