Federal Court of Australia|1993-09-14|Before: Von Doussa J, Whitlam JJ

Michael John Fuller and Joseph Patrick Cummings v Beach Petroleum NL and Claremont Petroleum NL [1993] FCA 453; (1993) 117 ALR 235 (1993) 43 FCR 60 (14 September 1993)

MICHAEL JOHN FULLER and JOSEPH PATRICK CUMMINGS v. BEACH PETROLEUM N.L. and

Federal Court - appeal - bankruptcy of appellant - whether appeal by bankrupt competent - sequestration order made before delivery of reserved judgment in other proceeding - whether right of appeal exercisable by bankrupt.

Bankruptcy - property of the bankrupt - vesting in trustee - right of appeal against judgment for liquidated sum entered against bankrupt after making of sequestration order.

W.R. Henry and Sons v Hodge [1963] VicRp 17; (1963) VR 111; followed.

Boaler v Power (1910) 2 KB 229; followed.

Davies v English, Scottish and Australian Bank Ltd (1934) 7 ABC 210; distinguished.

Doran v Isaacs [1912] NSWStRp 99; (1912) 12 SR (N.S.W.) 699; followed.

Beckham v Drake [1849] EngR 843; (1849) 2 HLC 579; discussed.

The appellants (respondents to the motions) appeared personally.

Counsel and solicitors for the respondents (applicants on the motions): Mr TA Gray QC and Mr GS Davis

(1) The appeals be dismissed as incompetent.

(2) The appellants pay the costs of the respondents of the

appeal, including the costs of the motions objecting to

competency.

Note: Settlement and entry of orders is dealt with by Rule 36 of the Federal Court Rules.

GUMMOW, WHITLAM JJ Order 52 r. 18 of the Federal Court Rules provides that a respondent may move on notice at any time for an order dismissing an appeal as incompetent. Upon the hearing of the motion, the burden of establishing the competency of the appeal is on the appellant: sub-r. 18 (2).

2. Before the Court are two objections to competency which were heard consecutively. The submissions of the appellant in the first matter, Mr Fuller, were adopted by the appellant in the other matter, Mr Cummings. Both appellants appeared in person. At the time of events giving rise to the litigation they were in practice as solicitors in Adelaide.

3. The respondents, the applicants on the motions ("Beach" and "Claremont" respectively) were the applicants in a proceeding tried by a Judge of this Court (Von Doussa J). Judgment was delivered on 10 June 1993. The decision is reported[1993] FCA 283; , (1993) 115 ALR 411. Mr Fuller was the second respondent in that proceeding, and Mr Cummings the fourth respondent. Spargos Mining N.L. ("Spargos") was the seventh respondent. Mr Fuller and Mr Cummings were among the respondents to a cross-claim by Spargos.

4. Judgment had been reserved on 6 April 1993. After delivery of judgment on 10 June 1993, the primary Judge entered judgment in favour of Beach against, inter alios, Fuller and Cummings, in the sum of $44.45m. His Honour held them liable in tort for a conspiracy to do unlawful acts including acts in breach of their duties as directors of Beach. They were also held liable for gross breaches of fiduciary duty owed to Beach, for contravention of sub-s. 229 (1) of the Companies (South Australia) Code, for the tort of deceit and for contraventions of statutory obligations under State law not to engage in misleading and deceptive conduct. On 16 June 1993, his Honour ordered that the respondents, other than Spargos, pay the costs of the applicants on an indemnity basis. He also entered judgment in favour of Spargos on its cross-claim against Mr Fuller and Mr Cummings for complete indemnity against the judgment for damages and costs awarded against Spargos in favour of Beach in the principal proceedings. Further, Mr Fuller and Mr Cummings were ordered to pay the costs of Spargos of the proceeding and of the cross-claim, on an indemnity basis.

5. On 1 July 1993, Mr Fuller and Mr Cummings each filed notices of appeal in similar form. The only respondents joined on the appeals were Beach and Claremont. An order was sought that the orders of Von Doussa J "be set aside as against the appellant".

6. Before all these events, significant steps had been taken which found the argument on the objections to competency.

7. On 20 May 1993, whilst Von Doussa J had his decision under consideration, another Judge of this Court made a sequestration order against the estate of Mr Fuller. An order against the estate of Mr Cummings was made on 21 May 1993. In the interval before delivery of judgment by Von Doussa J, no application was made for a stay of the action, under sub-s. 60 (1) of the Bankruptcy Act 1966 ("the Act"). The prospects of success of such an application were not canvassed before us.

8. As we have indicated, although Messrs Fuller and Cummings were held liable on several claims in tort, the judgment debt was founded also in breach of fiduciary duty as directors. It seems that demands in the nature of unliquidated damages in tort are not provable in bankruptcy even if reduced before discharge to a judgment debt; see sub-s. 82 (2) of the Act, In re Newman; Ex parte Brooke (1876) 3 Ch D 494 at 497, McIntyre v Perkes [1990] FCA 100; (1990) 22 FCR 260 at 273, Gye v McIntyre [1991] HCA 60; (1991) 171 CLR 609 at 628-629. But a judgment debt founded in a claim of breach of fiduciary duty is not within the exclusion provided in sub-s. 82 (2), and the phrase "by reason of a contract, promise or breach of trust" is wide enough to include demands arising by reason of breach of fiduciary duty: Emma Silver Mining Company v Grant (1880) 17 Ch D 122 at 129-130, Barewa Oil and Mining NL v Isim Mineral Development Pty Ltd (1981) 59 FLR 451 at 456. The appeal in Barewa Oil did not contest this holding: (1982) 64 FLR 287.

9. It follows that the fate of an appeal against the order creating the judgment debt against Messrs Fuller and Cummings is one in which their bankruptcy administration has a real interest. This is in addition to the costs orders made against the bankrupts by the primary Judge.

10. Section 24 of the Federal Court of Australia Act 1976 ("the Federal Court Act") is a law defining the jurisdiction of this Court, within the meaning of s. 77 (i) of the Constitution. It confers a right of appeal against the final orders which were made by Von Doussa J. The respondents contend that by reason of the operation of the bankruptcy law, the right to institute and prosecute such an appeal is vested not in Messrs Fuller and Cummings, but in the trustee of their estates, the trustee having the interests in the matter which we have described.

11. The powers of the Court in respect of appeals are derived from and confined to those given it by statute. There are passages in Sen v The Queen [1991] FCA 296; (1991) 30 FCR 173 at 175, which suggest that s. 24 provides for an appeal only by a "party" to the proceeding and that an appeal may not be prosecuted by an executor or administrator of a deceased litigant, with the result that in such a case the appeal abates. However, the present motions proceeded on the tacit assumption that the term "party" here includes a person representing the litigant by reason of a transmission by operation of law, in this case, the bankruptcy law. The debate was as to the effect of the bankruptcy law itself.

12. It will be observed that the appeals were instituted after, not before, the making of the sequestration orders. If the sequence of events had differed so that the sequestration orders had been made after 1 July 1993, then the position would have been quite clear.

13. This is because sub-s. 60 (2) of the Act would have applied. Sub-sections 60 (2), (3), (4) and (5), provide as follows:

"60 (2) 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.

(3) If the trustee does not make such an election

within 28 days after notice of the action is

served upon him by a defendant or other party to

the action, he shall be deemed to have abandoned

the action.

(4) Notwithstanding anything contained in this

section, a bankrupt may continue, in his own

name, an action commenced by him before he

became a bankrupt in respect of:

(a) any personal injury or wrong done to the

bankrupt, his spouse or a member of his

family; or

(b) the death of his spouse or of a member of

his family.

. . .

(5) In this section, 'action' means any civil

proceeding, whether at law or in equity."

The institution of appellate process is the commencement of an action within the meaning of provisions such as s. 60. This was established by two decisions of the New South Wales Full Court which deal with the pre-1924 bankruptcy legislation of that State. The decisions are Want v Moss (1889) 10 NSWR(L) 274 (which construed sub-s. 10 (6) of the Bankruptcy Act 1887 (N.S.W.)) and Doran v Isaacs [1912] NSWStRp 99; (1912) 12 SR (N.S.W.) 699 (which construed sub-s. 10 (7) of the Bankruptcy Act 1898 (N.S.W.)); cf as to arbitration, Re Brown; Ex parte Taylor v Queensland Electricity Commission (1988) 19 FCR 180.

14. In Want v Moss, the plaintiff recovered a verdict against the defendant, who then moved, under the system at that time prevailing in the Supreme Court of New South Wales, for a rule nisi to set aside that verdict and obtain a new trial. Thereafter, the defendant's estate was sequestrated. He contended, unsuccessfully, that he could proceed with his motion to set aside the verdict. It was held that the motion was a "proceeding commenced" within the meaning of sub-s. 10 (6) of the 1887 Act. Manning J (at 279) said:

"In my opinion it would be monstrous if it were

not so. It could never have been contemplated

that a bankrupt, who can have no means to pay

costs if he fails, should be allowed to go on

and put the plaintiff to trouble and expense.

That being so, the simple question is if the

words of the sub-section are large enough to

include this."

"10 (6) All actions or proceedings at law or in equity

commenced by any person, against whom a

sequestration order shall after-wards be made,

shall, upon such order being made, be stayed,

until the official assignee or trustee shall

make election to prosecute or discontinue the

same, and such official assignee or trustee

shall be bound to make such election within four

weeks after notice to that effect shall be

served upon him by any defendant or party in

such action or proceedings, or other-wise shall

be deemed to have abandoned the same. Provided

that any bankrupt shall be permitted to continue

in his own name and for his own benefit any

action or proceedings commenced by him previous

to his bankruptcy for any personal injury or

wrong done to himself or to any of his family."

16. Sub-section 60 (2) of the present bankruptcy legislation is to similar effect to sub-s. 63(3) of the Bankruptcy Act 1924 ("the 1924 Act"). Of this, it was said in McDonald, Henry and Meek's Australian Bankruptcy Law and Practice, 3rd Ed., 1953, p 151:

"Section 63 (3) only deals with actions or

proceedings commenced before the bank-ruptcy.

Upon sequestration all the bankrupt's choses in

action, subject to the proviso to s. 63 (3),

pass to the official receiver or trustee . . ."

17. The question in the present case is whether the temporal conjunction of circumstances which renders sub-s. 60 (2) inapplicable has the further consequence that upon the proper construction of the other provisions of the Act, Beach and Claremont are exposed to the "monstrous" consequences identified by Manning J a century ago.

18. As we have indicated, Beach and Claremont submitted that the appeals were incompetent because the statutory right to institute and prosecute an appeal, created by the Federal Court Act, was vested in and exercisable by the trustee of the estates of the appellants. On the other hand, Mr Fuller and Mr Cummings emphasised the significance of sub-s. 60 (2) as, in effect, an exhaustive statement of the impact of sequestration orders upon rights of appeal. However, it might be thought an odd result if the authority of a bankrupt to institute and continue with an appeal were greater in the case of an appeal instituted after sequestration than in respect of an appeal pending at the time of sequestration.

19. It is appropriate first to consider the circumstances which gave rise to the need for legislation of the particular nature of sub-s. 60 (2). Those circumstances concerned not the law as to vesting of property in assignees and trustees, so much as differing rules under common law and equitable procedure concerning the abatement of pending trial proceedings by supervening bankruptcy.

20. At common law, the plaintiff might proceed after his bankruptcy, but a plea by the defendant of the bankruptcy of the plaintiff after action brought was a plea in bar to the further maintenance of the action: Foster v Gamgee (1876) 1 QBD 666 at 668. This position was changed, in England, by s. 142 of the Common Law Procedure Act 1852 (U.K.). This forbad such a plea in bar unless the assignees of the bankrupt declined to continue the action; if they declined or did not give security for costs within the time limited, the defendant might plead the bankruptcy. However, such an election was not a bar to a subsequent action by the trustee in his representative capacity, founded on the same cause of action: Bennett v Gamgee (1876) 2 Ex D 11. In that case, at 14, Cleasby B. explained why this was so:

"It has been again and again said that the

position of a trustee is not that he merely

represents the bankrupt so as simply to stand in

his shoes, but that the position of the two is

very different. In Heilbut v Nevill LR 5 CP

478 I pointed out that the assignees were not

suing as representing the bankrupt, but as

assignees of the estate under the bankrupt laws.

That makes the real difference between the

position of the plaintiff if he had chosen to

continue the action of the liquidating debtors,

on which he would have been bound by all their

acts, and his position here, where he is

entitled to say that he sues under the authority

of the bankrupt laws."

21. In Chancery, the position differed. The rights of the plaintiff in the suit were vested in the assignee or trustee, who had the option of deciding whether to continue with the prosecution of the suit; the remedy of the defendant was to move for an order that the assignee revive the suit within a limited time and that the bill otherwise stand dismissed: Jackson v North Eastern Railway Company (1877) 5 Ch D 844 at 845-6, "Daniell's Chancery Practice", 7th Ed., 1901, Vol. 1, p 108. Order 50 r. 1 of the Rules of Court 1875, made under the Judicature legislation, changed the common law rule. It stated O. 50 r. 1:

"An action shall not become abated by reason of

the marriage, death, or bankruptcy of any of

the parties, if the cause of action survive or

continue; and shall not become defective by the

assignment, creation, or devolution of any

estate or title pendente lite."

Order 6 r. 10 of the Rules of this Court is a descendant of this provision.

22. In England, it was held that under the Judicature rules, if the trustee elected not to proceed, the Court might, in the exercise of its general powers, stay the action on the application of the defendant. This approximated to the previous Chancery practice: Warder v Saunders (1882) 10 QBD 114.

23. In the Australian colonies, the legislation had marched in advance of that in England. We have set out above the text of sub-s. 10 (6) of the 1887 New South Wales statute. That in turn had its root in the insolvency legislation passed in New South Wales in 1841, namely s. 33 of the Act 5 Vic. No. 17. This had provided:

"33 And be it enacted That all actions commenced by any

person whose estate shall afterwards be placed under

sequestration as insolvent for any debt or demand due

to the said estate and all proceedings therein shall

upon the order of such sequestration being made be

stayed until the trustee or trustees thereafter chosen

for the administration of the said estate shall make

election to prosecute or discontinue the same and the

trustee or trustees shall be bound to make such

election within six weeks after notice to that effect

shall be served upon him or them by any defendant in

any such action or otherwise shall be deemed to have

abandoned the same Provided however that any insolvent

person shall be permitted to continue in his own name

and for his own benefit any action commenced by him

previous to his insolvency for any personal injury or

wrong done to himself or to any of his family."

Provisions to similar effect were found in the laws of other States (e.g. Insolvency Act 1915 (Vic.), s. 176) and in the 1924 Act, sub-s. 63 (3).

24. It is appropriate now to turn to sub-s. 58 (1) of the Act. It is upon this that Beach and Claremont place primary reliance. The sub-section provides as follows:

"58 (1) Subject to this Act, where a debtor becomes a

bankrupt:

(a) the property of the bankrupt, not being

after-acquired property, vests forthwith

in the Official Trustee or, if, at the

time when the debtor becomes a bankrupt, a

registered trustee becomes the trustee of

the estate of the bankrupt by virtue of

section 156A, in that registered trustee; and

(b) after-acquired property of the bankrupt

vests, as soon as it is acquired by, or

devolves on, the bankrupt, in the Official

Trustee or, if a registered trustee is the

trustee of the estate of the bankrupt, in

that registered trustee."

So far as is material, the expression "the property of the bankrupt" is defined in sub-s. 5 (1) as meaning:

"(i) the property divisible among the bankrupt's

creditors; and

(ii) any rights and powers in relation to that property

that would have been exercisable by the bankrupt if he

or she had not become a bankrupt."

The property divisible amongst the creditors of the bankrupt is stated in sub-s. 116 (1) of the Act as including:

"(a) all property that belonged to, or was vested in,

a bankrupt at the commencement of the

bankruptcy, or has been acquired or is acquired

by him, or has devolved or devolves on him,

after the commencement of the bankruptcy and

before his discharge;

(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 own

benefit at the commencement of the bankruptcy or

at any time after the commencement of the

bankruptcy and before his discharge."

Sub-section 116 (2) provides that sub-s. (1) "does not extend to the following property . . .". This includes:

"(g) any right of the bankrupt to recover damages or

compensation -

(i) for personal injury or wrong done to the

bankrupt, the spouse of the bankrupt or a member

of the family of the bankrupt; or

(ii) in respect of the death of the spouse of the

bankrupt or a member of the family of the bankrupt."

25. It will be recalled that sub-s. 60 (4) provides that in respect of actions commenced before the bankruptcy, the bankrupt may continue in his own name actions in respect of any personal injury or wrong done to the bankrupt, his spouse or a member of his family, or in respect of the death of his spouse or a member of his family. The result of sub-s. 60 (4) and para. 116 (1) (g) is that actions of this sort, whether commenced before or after the bankruptcy, are permitted to continue and there is no vesting of the relevant rights in the trustee. It will also be apparent from other provisions which we have set out that legislation of this kind has a long history. This is considered by French J in Re Heenan; Ex parte Collins trading as Hertz Carnarvon Auto Rentals v Official Receiver (1992) 39 FCR 428.

26. What is of present significance is that s. 116 contemplates that were it not for the express exclusion, what might be called bare rights of action to recover damages or compensation for personal injury, rights not ordinarily assignable, would nevertheless be treated as property divisible amongst the creditors of the bankrupt and therefore as property which vested under sub-s. 58 (1).

27. This consideration may be borne in mind when considering the phrase "of every description" which appears in the definition of "property" in sub-s. 5 (1). This states:

"'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."

28. The term "property" when used in modern statutes may, in its context, include rights and interests which are created by statute and which would not be identified as proprietary by traditional conveyancing law; see, for example, the provisions discussed in Hepples v Commissioner of Taxation (1990) 22 FCR 1 at 9-10, 24-27, 38-40 and Sonenco (No. 77) Pty Limited v Silvia [1989] FCA 462; (1989) 24 FCR 105 at 112-113, 124-125.

29. Further, para. 134 (1) (j) empowers the trustee to bring, institute, or defend any action or other legal proceeding relating to the administration of the estate.

30. In our view, the statutory right of appeal given by s. 24 of the Federal Court Act to, for example, a party against whom judgment has been entered falls within the meaning of the expression "personal property of every description" in the definition of "property" in s. 5 (1) of the Act. This, in our view, is so even though the object of the appeal is the removal of the burdens of a judgment debt and costs orders placed upon the appellant, as an unsuccessful defendant, by the orders the object of the appeal, rather than, for example, the seeking on appeal of orders for payment of money which were unsuccessfully sought below by the appellant, as plaintiff.

31. The unassignability of a right does not necessarily exclude it from the category of property which vests in the trustee; see Ex parte Huggins (1882) 21 Ch D 85 at 91, Hollinshead v Hazleton (1916) 1 AC 428 at 447, Federal Commissioner of Taxation v Official Receiver (1956) 95 CLR 300 at 327. In the first of these decisions (which concerned unassignable salaries and pensions) no less an authority than Sir George Jessel M.R. said that he was not going to attempt to define "property" as "that would be too dangerous". But his Lordship held that the salaries and pensions in question were property which vested in the trustee under the Bankruptcy Act 1869 (U.K.). That, he said, was because of the "large definition" in s. 4. This stated:

"'Property' shall mean and include money, goods,

things in action, land, and every description of

property, whether real or personal; also,

obligations, easements, and every description of

estate, interest and profit, present or future,

vested or contingent, arising out of or incident

to property as above defined."

The provisions in the present statute to which we have referred are certainly not smaller.

32. In W.R. Henry and Sons v Hodge [1963] VicRp 17; (1963) VR 111, Adam J held that the right to have set aside a default judgment upon which a sequestration order had been based was "property" within the meaning of s. 4 of the 1924 legislation. The result was that the bankrupt had no locus standi in an application to set aside such a judgment; it was for the court of bankruptcy, in annulment or rescission proceedings, to determine whether the sequestration order should stand. His Honour, in reaching that conclusion, said that he regarded the decision of the Court of Appeal in Boaler v Power (1910) 2 KB 229 as conclusive. That decision is authority for the proposition that it is for the court of bankruptcy alone to investigate the validity of the petitioning creditor's judgment which is the foundation of the adjudication in bankruptcy. The Victorian Full Court had earlier reached the same result in Kyte v Mahoney (1868) 5 WW and AB (L) 6, but with the significant distinction that the sequestration of the estate of the applicant who was now seeking the new trial had not been based upon the judgment entered against him. The Full Court held that he had no claim now to be heard, his estate being vested in his assignee. The applicant's estate had been sequestrated 3 days before the trial of the action, at which he had not appeared.

33. The present appellants relied upon Davies v The English, Scottish and Australian Bank Ltd (1934) 7 ABC 210. In that case, at 214, Richards J stated that he did not overlook the fact that property which was of no practical benefit to the creditors might pass under the 1924 legislation, hence the need for the provisions as to "onerous" property. But his Honour went on to rely upon the statement by Parke B. in Beckham v Drake [1849] EngR 843; (1849) 2 HLC' 579 at 627, that the only rights of action which pass on a bankruptcy are those which could be turned to profit as assets for the payment of debts. Nevertheless, Richards J also emphasised (at 215-6) that the chose in action in question was, on the rather peculiar facts, of no value or practical benefit even to the debtor (who had executed a deed of assignment under Part XI of the 1924 Act).

34. It is consistent with the policy of the Act that after sequestration of the estates of unsuccessful litigants the successful party not be put at the risk of sustaining further costs of appellate litigation. The respondent to the appeal should not be left to seek what may turn out to be an inadequate order for security for costs. It is also in the interests of the orderly administration of the estate of the bankrupt that it be for the trustee to decide whether appeals of the nature involved here be instituted or continued. We say nothing as to facility that the Act may offer to test, within the administration, any decision so made by the trustee; cf s. 178 of the Act.

35. The trustee of each estate was notified of the present motions, but did not indicate any wish to pursue the appeals. In each matter, the appeal should be dismissed as incompetent, and the applicants should have the costs of their motions and of the appeals.

HILL J Each of Mr Fuller and Mr Cummings ("the appellants") is a bankrupt, a sequestration order having been made against Mr Fuller on 20 May 1993 and against Mr Cummings the next day. By each of these orders Mr Wiley was appointed a trustee of the respective bankrupt estate.

2. On 10 June 1993 von Doussa J delivered judgment in proceedings brought by Beach Petroleum NL and Claremont Petroleum NL ("the respondents") against Mr Fuller, Mr Cummings and a number of others ("the Beach proceedings"). In other proceedings to which each was a party, Wilcox J had given judgment on the application of Claremont in the sum of $462,500 against Mr Cummings and $493,750 against Mr Fuller. In the Beach proceedings, damages were claimed against each of Mr Fuller and Mr Cummings alleging, inter alia, that each had been a party to a conspiracy with others to defraud; that they had engaged in conduct which was misleading and deceptive and in breach of the Fair Trading Act 1987 (SA) giving rise to damage to the applicants; and were in breach of their fiduciary duty and of s.229 of the Companies (South Australia) Code. His Honour entered judgment against each for damages jointly and severally with others, in the sum of $44,450,000 together with costs to be assessed on an indemnity basis. Against this judgment each of Mr Fuller and Mr Cummings has appealed.

3. By notices of motion, the respondents claim that each appeal is incompetent because, it is submitted, the only person with entitlement to appeal would be Mr Wiley as trustee and he not only was not a party to the appeal but also had indicated that he did not intend to prosecute any such appeal. Each of these motions was heard together, Mr Fuller (who appeared personally) made submissions and these were adopted by Mr Cummings (who also was unrepresented).

4. The question is in short compass. By force of s.58(1) of the Bankruptcy Act 1966 ("the Act"), upon the bankruptcy of a debtor there is vested in the trustee in bankruptcy "the property of the bankrupt, not being after- acquired property". After-acquired property of the bankrupt vests so soon as it is acquired by or devolves on the bankrupt. The expressions "property" and "property of the bankrupt" are each defined in s.5(1) 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 property of the bankrupt', in relation to a

bankrupt, means:

(a) except in subsections 58(3) and (4):

(i) the property divisible among the

bankrupt's creditors; and

(ii) any rights and powers in relation to

that property that would have been

exercisable by the bankrupt if he or

she had not become a bankrupt;...".

5. The property of the bankrupt divisible among creditors is defined by s.116(1) of the Act and for present purposes includes:

"(a) all property that belonged to, or was

vested in, a bankrupt at the commencement

of the bankruptcy, or has been acquired or

is acquired by him, or has devolved or

devolves on him, after the commencement of

the bankruptcy and before his discharge;

(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 own benefit at the

commencement of the bankruptcy or at any

time after the commencement of the

bankruptcy and before his discharge;...".

6. There are various exclusions from property divisible among creditors including, by force of s.116(2)(g):

"any right of the bankrupt to recover damages or

compensation -

(i) for personal injury or wrong done to the

bankrupt, the spouse of the bankrupt or a

member of the family of the bankrupt; or

(ii) in respect of the death of the spouse of

the bankrupt or a member of the family of

the bankrupt;...".

7. There can be no doubt but that as at the date of the making of each of the sequestration orders no relevant "property" vested in Mr Wiley relative to the legal proceedings brought by the respondents. Each of the appellants at that time had a potential liability not an asset. Once judgment was entered, each had a right to appeal. That right was conferred by, or is at least implicit in, s.24 of the Federal Court of Australia Act 1976 and O.52 of the Federal Court Rules. Each of the appeals seeks that the orders made by von Doussa J be set aside and that, in respect of each of the appellants, the application brought by the respondents be dismissed. An order is also sought that the respondents pay the costs, both of the appeal and of the initial application. On the appeal, if it be successful, it could be expected that an order for costs would be made in favour of the appellants, but while the Court has jurisdiction to order costs on an appeal pursuant to s.43 of the Federal Court of Australia Act 1976, that jurisdiction is nevertheless discretionary.

8. The respondents claim that the right to appeal against the judgment of von Doussa J, carrying with it "a right" to costs is a chose in action and thus property for the purposes of the Act. Being after-acquired property it vests, so the respondents submit, in the trustee in bankruptcy immediately upon the right to appeal coming into existence. Reference is made in support of this submission to Loxton v Moir [1914] HCA 89; (1914) 18 CLR 360 at 379 per Rich J; WR Henry and Son v Hodge [1963] VicRp 17; (1963) VR 111; Boaler v Power (1910) 2 KB 229; and Wenlock v Moloney (1967) 117 New LJ 295. The respondents rely also upon what is said to be the legislative scheme of the Act to transfer all rights of the bankrupt to the trustee, as it was put, "even where this causes personal inconvenience to the bankrupt or deprives him of important civil rights". It is submitted that the scheme of the Act is that any right of appeal is to be controlled by the trustee in bankruptcy, whether that right has been acquired by the bankrupt before or after the commencement of his bankruptcy. It is submitted that in the event that the appeal had been lodged before the making of the sequestration order, the provisions of s.60 of the Act would have operated to stay the appeal until or unless the trustee made an election to prosecute or discontinue them. So, it is said, the legislative scheme requires that it be incompetent for the appellants to now appeal.

9. For the appellants it is submitted that the right of appeal is not property divisible among creditors because it is not a right of property. Further it is submitted that s.60 could have had no application to operate to stay an appeal in the event that the sequestration order had been made after the appeal had been instituted.

10. There is no doubt that the definition of "property" is very wide. Like the definition concerned in Jones v Skinner (1835) 5 LJ Ch (NS) 87 at 90, it is indicative and descriptive of every possible interest which a party can have in property. The word clearly includes not only tangible things but debts, choses in action and any other rights or interest of a proprietary kind.

11. It is clear that the meaning of the word "property" may vary in accordance with the context in which it appears: cf Hepples v Federal Commissioner of Taxation (1990) 90 ATC 4497 at 4513 per Gummow J, so that the word "property", when considered in the context of a conveyancing statute or a statute imposing a tax upon conveyances, might result in a different meaning being given to the expression than might be given in the context of a taxation statute determining whether income in question was income from property: cf Commissioner of Stamp Duties (NSW) v Yeend [1929] HCA 39; (1929) 43 CLR 235 and Moriarty v Evans Medical Supplies Ltd (1958) 1 WLR 66 at 77 per Viscount Simonds, with whom Lord Tucker agreed; but see Federal Commissioner of Taxation v United Aircraft Corporation [1943] HCA 50; (1943) 68 CLR 525 per Latham CJ at 534-5 and Brent v Federal Commissioner of Taxation [1971] HCA 48; (1971) 125 CLR 418 at 425 per Gibbs J, both cases which discuss in the context of income tax the question whether knowledge or information is property.

12. In R v Toohey; Ex parte Meneling Station Pty Ltd [1982] HCA 69; (1982) 158 CLR 327, it fell to the High Court to determine whether the holder of a Grazing Licence under the Crown Lands Act 1931 (NT) had an estate or interest in the land the subject of the licence so that the land ceased to fall within the meaning of the expression "unalienated Crown land" for the purposes of aboriginal land rights legislation. Mason J in that case referred with approval to a passage from the judgment of Lord Wilberforce in National Provincial Bank Ltd v Ainsworth [1965] UKHL 1; (1965) AC 1175 at 1247-8 where his Lordship had said:

"Before a right or an interest can be admitted

into the category of property, or of a right

affecting property, it must be definable,

identifiable by third parties, capable in its

nature of assumption by third parties, and have

some degree of permanence or stability."

13. Referring to assignability, Mason J said (at 342-343):

"Assignability is not in all circumstances an

essential characteristic of a right of property.

By statute some forms of property are expressed

to be inalienable. Nonetheless, it is generally

correct to say, as Lord Wilberforce said, that a

proprietary right must be 'capable in its nature

of assumption by third parties'...".

14. In so saying his Honour reflected what had been said earlier by Isaacs J in Yeend (supra) (at 245): "Assignability is a consequence, not a test".

15. As Gummow J observed in Hepples, not all personal rights of action will be property. His Honour illustrated that proposition with the example of an equity to have a court rectify a written contract of personal services and the example of a right to maintain an action for recovery of unliquidated damages in tort for personal injury (at 4514).

16. It was early held that not all rights of action passed to the assignee in bankruptcy as part of the bankrupt's "personal estate". While the general rule was that a chose in action representing a claim for a breach of contract would pass to the assignee: Raymond v Fitch 2 C.M. and R 588 at 596 [1835] EngR 205; (150 ER 251 at 254), it was held in a series of authorities that no action could be maintained by an assignee to recover damages for bodily or mental suffering or personal inconvenience sustained by a bankrupt: see, for example, Beckham v Drake [1849] EngR 843; (1849) 2 HLC 579 at 597 [1849] EngR 843; (9 ER 1213 at 1220). The foundation of these authorities appears in part to have been that to vest such an action in the assignee would be attendant with harsh and unjust consequences (Beckham v Drake (supra) at ER 1220). Alternative reasons are that such a right of action required the cooperation of the debtor and that such right of action was not capable of being turned into profit for the benefit of creditors.

17. In Rose v Buckett (1901) 2 KB 449, Collins LJ (at 454) regarded the general principle as having been stated by Parke B in Beckham v Drake (supra) HLC at 627-628; ER at 1230-1231 in the following passage:

"What then is the proper construction of this

section of the act, according to its words and

the several cases decided upon it? The proper

and reasonable construction appears to me to be,

that the statute transfers not all rights of

action which would pass to executors, (for

rights incapable of being converted into money,

such as the next presentation to a void

benefice, pass to them), but all such as would

be assets in their hands for the payment of

debts, and no others - all which could be turned

to profit, for such rights of action are

personal estate. Of such the executor is

assignee in law; and the nature of the office

and duty of a bankrupt's assignee requires that

he should have them also. But rights of action

for torts which would die with the testator,

according to the rule 'actio personalis moritur

cum persona' and all actions of contract

affecting the person only, would not pass. Of

such the executor is not assignee in law; and

whatever may be the reason of the law which

prohibits him from being so, seems equally to

apply to a bankrupt's assignee."

18. Although the language of modern bankruptcy statutes differs from that considered in Beckham v Drake, it does not seem that the change of statutory language was regarded in the United Kingdom as creating a difference. The legislation considered in Rose v Buckett (supra) no longer used general language such as "goods and chattels" encompassing choses in action, but defined "property" in a definition not dissimilar from the definition in the present Australian Act, save that "things in action" were specifically referred to. Nevertheless the law remained the same: Ex parte Vine; in re Wilson (1978) 8 Ch D 364 and Rose v Buckett (supra). That latter case held that in an action for trespass where no substantial damage was done to the premises or to the goods of the plaintiff and where the plaintiff sought damages for personal annoyance to himself and his family, that right of action did not pass to the trustee in bankruptcy.

19. More recently in Re Kavanagh; Ex parte the Bankrupt v Jackson (1950) 1 All ER 39, the Court of Appeal held that it was necessary to apportion a claim brought by a bankrupt between a claim in respect of damage to credit and loss of reputation and other claims which clearly passed to the trustee. The problem is recognised in the current Australian bankruptcy legislation by the exclusion in s.116(2) of damages for personal injuries or wrongs or in respect of the death of the spouse or a member of the family.

20. The early English cases were followed in Australia and New Zealand so, for example, it has been held that a right of action in respect of a tort for damages and breach of contract should be split so that only the latter passed to the trustee in bankruptcy, the former being for a personal injury or wrong which he should be permitted to litigate: Millane v Shire of Heidelberg [1936] VicLawRp 2; (1936) VLR 8. The right of a husband to sue under the fatal accidents legislation for compensation for pecuniary loss suffered through the death of his wife was held not to pass to the trustee in bankruptcy and the trustee was held unable to claim the damages when received by the bankrupt: In re Richter (1929) NZLR 364. A right to apply for relief under testators' family maintenance was held by Scholl J in the Supreme Court of Victoria in Coffey v Bennett [1961] VicRp 41; (1961) VR 264 to be personal and not to pass to the trustee.

21. However now, while the definition of "property" is expressed in broad terms, s.116(2)(g) specifically excludes from the property divisible among creditors:

"(g) any right of the bankrupt to recover

damages or compensation -

(i) for personal injury or wrong done to

the bankrupt, the spouse of the

bankrupt or a member of the family

of the bankrupt; or

(ii) in respect of the death of the

spouse of the bankrupt or a member

of the family of the bankrupt."

22. Thus s.116(2)(g) gives legislative recognition to the law inherited from England.

23. There is, however, no reason to believe that s.116(1)(a) is to be interpreted any more widely than its English counterpart by virtue of the exclusion provisions of s.116(2)(g). Particularly it may be noted that the heading to Division 3 "Property available for Payment of Debts" suggests that s.116(1) and (2) together define that property out of which creditors may be paid. It would be a strange concept to regard a right of appeal against a judgment imposing a liability as being property which could be available for the payment of creditors.

24. The submissions of the respondents proceed upon the basis that a right to appeal against a judgment imposing a liability is a chose in action and in consequence of that a right of property. It is the correctness of these submissions which must be examined.

25. The meaning of the expression "chose in action" or its English language equivalent "thing in action" has varied over time as the discussion in Halsbury Laws of England 4th ed vol 6 "Choses in Action" para.1 reveals. Literally the expression refers to some thing, not the subject of actual physical possession, which can be recovered by action. As the note 3 in that discussion suggests, the phrase has sometimes been treated as equivalent to a right of action and, if that be correct, then it might perhaps be appropriate to refer to a right of appeal as a right of action and therefore a chose in action.

26. In Colonial Bank v Whinney (1885) 30 Ch D 261, the members of the Court of Appeal differed as to the question whether shares were, for the purposes of a particular section in the bankruptcy legislation, choses in action. Fry LJ, whose judgment was subsequently approved in the House of Lords (1886) 11 App Cas 426 referred with approval to the then modern usage of the expression as discussed by Williams in his work Law of Real Property 12 ed p 7 where choses in action were equated with the expression "personal property of an incorporeal kind". At 285-7 his Lordship said:

"According to my view of that law, all personal

things are either in possession or in action.

The law no knows no tertium quid between the

two. 'No chattel' says Lord Coke, in Fulwood's

Case 'either in action or possession, shall go

in succession,' as if the two alternatives were

the only possible ones. 'Property in chattels

personal,' says Blackstone, 'may be either in

possession; which is where a man hath not only

the right to enjoy, but hath the actual

enjoyment of, the thing; or else it is in

action; where a man hath only a bare right,

without any occupation or enjoyment,' and so

Lord Hardwicke in the great case of Ryall v

Rolle, speaks of personal property whether in

possession or action only, as equivalent to all

kinds of personal property...

It has been suggested that the expression

'choses in action' was originally only

applicable to debts; and that by a lax usage it

has acquired a secondary and wider significance.

I am not able to adopt this view. The article

Choses in Action and Choses in Suspense, in

Brooke's Abridgment seems to shew that as early

as 5 Edw. 4, the expression was held to include

the King's right to the marriage of his ward; in

9 Hen. 6, the property in deeds in the hands of

a third person was considered a chose in action;

and in the 33 Hen. 8, the classification of

choses in action into real, personal, and mixed,

was recognised...

It is true that unassignability by act inter

vivos has been a character of many choses in

action in the earlier stages of our law. But

the question whether a personal thing is or is

not assignable, is not, in my opinion, a

criterion of whether it is in possession or in

action. The King has always been able to assign

choses in action that are certain."

27. It is, however, not necessary for the present case to determine whether a right of appeal, which carries with it no right directly to recover property, may properly be described as a chose in action for the bankruptcy legislation does not use the expression "chose in action" at all, but rather the word "property". The issue is not whether a right of appeal is a chose in action but whether it is in fact relevantly "property".

28. It has long been accepted that a mere personal right will not be property. Thus the licence in Jack v Smail [1905] HCA 25; (1905) 2 CLR 684 was not a right of a proprietary kind (at 705 per Griffiths CJ); nor is the right of a discretionary beneficiary not entitled to take in the event of a gift over, a right of property although such a beneficiary has a right in the nature of a chose in action to the due administration of the estate: cf Gartside v Inland Revenue Commissioners [1967] UKHL 6; (1968) AC 553; In re Weir's Settlement Trusts (1968) 3 WLR 1010 and Livingston v Commissioner of Stamp Duties (Qld) [1960] HCA 94; (1962) 107 CLR 411.

29. I find it difficult to conceive of a right to appeal against a judgment for damages (at least divorced of a claim for cost of the appeal) as property in anything but a colloquial sense. This must particularly be the case in the present circumstances where the word "property" is used in the context of that which is divisible among creditors. Thus in Davies v English Scottish and Australian Bank Ltd (1934) 7 ABC 210, Richards J of the Supreme Court of South Australia held that a bare right to litigate which could not benefit creditors was not property of the debtor vesting in the official receiver. At 213-4 his Honour said:

"It must be conceded that the right which Davies

now seeks to enforce is a 'thing in action'.

But for him it is contended that,

notwithstanding the comprehensive language of

s.165 and of the deed itself, it is not

'property of the debtor' within the meaning of

that section; and that the deed and the section

passed no more to the assignee than would pass

under a sequestration order in bankruptcy.

Section 60 provides that, upon sequestration,

'the property of the bankrupt' shall vest in the

official receiver 'and shall be divisible among

the creditors'. Section 91 contains, by

implication, a definition of 'the property of

the bankrupt'. It reads 'The property of the

bankrupt divisible amongst his creditors, and in

this Act referred to as 'the property of the

bankrupt' shall' etc. The only extent to which

this definition elucidates the matter is that it

emphasises the point that the property referred

to is property which is divisible amongst the

bankrupt's creditors. It thus appears that what

passes under a sequestration order is not

necessarily as comprehensive as what is covered

by the word 'property' as defined in s.4. I do

not overlook the fact that property which is of

no practical benefit to the creditors may

pass - hence the need for the provisions as to what

turns out to be 'onerous' property."

30. This view reflects that taken by Parke B in Beckham v Drake (supra) as adopted in Rose v Buckett (supra), to which reference has already been made, namely that it is only such rights of action as would be assets for the payment of debts and "are capable of being turned to profit" as pass on the bankruptcy.

31. I do not think that the fact the appeal, if successful, may carry with it an order for costs makes any difference. Actions for damages for personal injury etc also carry with them the potential for costs but it was not suggested for that reason that they should be treated as property divisible among creditors in the United Kingdom legislation, or for that matter apportioned into that which is divisible on the one hand and that which is not on the other. All the right to costs amounts to is a right to have the Court exercise a judicial discretion in favour of the winning party. That, however, in my view is not a right of property. It is not itself assignable, nor does it have the indicia of property, to which reference has already been made.

32. The submission that the action would be stayed in the event that judgment had been given before the bankruptcy must then be considered. Section 60 operates (subject to s.60(4)) to stay any "action", ie, any "civil proceeding, whether at law or in equity" commenced by a person who subsequently becomes bankrupt. It also provides authority for the Court to stay "any legal process, whether civil or criminal" and whether instituted against the person or property of a bankrupt.

33. The word "action" is wide enough to include not only actions instituted prior to bankruptcy but appellate proceedings: Want v Moss (1889) 10 NSWR 274 and Doran v Isaacs [1912] NSWStRp 99; (1912) 12 SR (NSW) 699. Each of these cases concerned applications to set aside orders made in proceedings equivalent to appeals. Nothing should, however, turn upon the procedural niceties of the manner in which appeals were in the past instituted. No case subsequent to 1912 has considered the matter and perhaps it is now accepted as self-evident.

34. Section 60, as can be seen, for present purposes divides into two distinct parts, the one concerning actions which are commenced by the person who subsequently becomes bankrupt and the other, actions instituted against the debtor. In relation to the former, the Act itself operates to create the stay. If one puts aside the question of appeals being encompassed within the concept of "actions", the evident policy of s.60(2) is, subject to the statutory exceptions in s.60(4), to stay all proceedings brought by the bankrupt (which generally would result in a money verdict in favour of the bankrupt, if successful) until the trustee had the opportunity to investigate them to determine whether they should be continued. The reason for the stay is presumably because continuance of the proceedings would involve expenditure on the part of the trustee. Claims for personal wrongs to the bankrupt not enuring to the benefit of the estate are specifically not stayed: s.60(4). Proceedings brought against the bankrupt, whether civil or criminal, and whether against the bankrupt's person or property, are in a different position. Such proceedings are not automatically stayed. They involve no asset which can enure to the benefit of the estate, so to leave the decision whether they should be continued could work most unfairly to the bankrupt. The trustee would have little incentive, in many cases, to defend those proceedings, particularly if they were against the person of the bankrupt. In this class of case the Court is given the discretion to determine whether there should be a stay.

35. Thus the proceedings before von Doussa J against Messrs Fuller and Cummings were not stayed by the operation of s.60 upon their respective bankruptcies, although it remained open to the Court to order a stay if it thought fit. One may ponder at the policy which would not require a stay of the proceedings before judgment and would not entrust the subsequent disposition of those proceedings at first instance to the discretion of the trustee, but would place the institution of an appeal in those proceedings in the hands of the trustee, particularly when the trustee would not be liable for the costs of the appeal.

36. In a case such as the present I can not agree with Manning J (in Want v Moss (supra) at 279) that "it would be monstrous" if a bankrupt could pursue an appeal. Indeed quite to the contrary. It seems to me "monstrous" that the right to appeal against a judgment which carries with it findings of fraud is to be taken away from the appellant. Any question of payment of costs can be dealt with by the appellate court on a motion for security for costs. If Want v Moss and Dorran v Isaacs were correctly decided, a matter not necessary to decide, there is no reason to extend the injustice by applying them by analogy to a case not within s.60.

37. To the extent that it may be argued that the trustee may wish to contest the liability constituted by the judgment, that matter remains open to the trustee at all times who can reject the proof of debt and in an appropriate case go behind the judgment.

38. I have considered the matter, so far, as a matter of principle. There are, however, some other cases which require discussion. The first is the decision of Adam J of the Supreme Court of Victoria in WR Henry and Son v Hodge (supra). In that case the bankrupt sought to have set aside a judgment in default of appearance made against him in the Supreme Court of Victoria, which judgment was the foundation of the bankruptcy notice upon which a sequestration order was made. It was argued that the right to set aside the judgment was property which had vested in the trustee. With a trace of irony, Adam J said (at 112):

"At first sight it would not appear obvious,

perhaps, that a right or claim to have a

judgment against one set aside came within the

definition of 'property' widely defined as

property is. But as to this I consider that the

decision of the Court of Appeal in Boaler v

Power, (1910) 2 KB 229 is conclusive, and that

it is a decision which I should follow."

39. His Honour did not come to the conclusion by reason of any independent reasoning. It might be added that Adam J was of the view in any event that as a matter of discretion the judgment should not be set aside but that it should be left to the bankruptcy court to deal with the matter in an application for annulment. It therefore becomes necessary to consider the decision of the Court of Appeal to which his Honour made reference.

40. In Boaler v Power (supra) the debtor had failed in two actions and in one of them had failed also in an appeal. The debtor then commenced proceedings claiming to have the orders dismissing the two actions set aside on the ground of fraud and also claiming damages against the defendants other than the company. Shortly thereafter a petition in bankruptcy was presented against the debtor grounded upon the non-payment by him of the costs of one of the actions. It was held by the Court of Appeal, comprising Farwell and Kennedy LJJ, that the claim of the bankrupt to continue the two actions was a chose in action which vested in the trustee and that the bankrupt had no locus standi. No reasoning is given for the decision, which did not relate to an appeal, but reference is made in it to three judgments: Motion v Moojen (1872) LR 14 Eq 202; Rochfort v Battersby [1849] EngR 429; (1849) 2 HLC 388, 9 ER 1139; and The Metropolitan Bank Ltd v Pooley (1884-85) 10 App Cas 210.

41. Before turning to these cases it may be remarked that Boaler v Power is quite distinguishable from the present case. It was a case, not of an appeal, but of proceedings for damages in tort brought by the bankrupt. Under present law that proceeding would have been stayed under s.60(2). Being a proceeding for damages it clearly vested in the trustee. In any event the three cases cited in Boaler, and on which the decision rests, do not require the conclusion that a right of appeal, or for that matter the right to set aside a judgment, vests in the trustee. The first, Motion v Moojen (supra), was a case where the bankrupt was a plaintiff in proceedings charging fraud against the defendants. It was held that the bankrupt was incapacitated from maintaining such a suit. On the bankruptcy, all the rights and interests which the bankrupt had had become vested in the assignee. The second, Rochfort v Battersby (supra), merely decided that an insolvent debtor was not a proper party in proceedings concerning land which had been owned by him and which had on bankruptcy vested in an assignee. The final case, The Metropolitan Bank v Pooley (supra), concerned a claim brought by the bankrupt for damages for fraud and conspiracy and for maintenance and was far removed from the case of a right to appeal.

42. In my view none of these cases compelled the result in Boaler v Power. Two of them were cases of actions commenced by a bankrupt claiming damages. Further I am of the view that that case was wrong in principle. The Court is not bound to follow it and in my view should not do so.

43. In my view a right to appeal against a judgment where damages have been awarded against the appellant and where there is no cross-claim, is not property divisible among creditors vesting in the trustee under s.58(1). I reach this conclusion without the need to consider whether this result is reinforced by the common law principles concerning the non-assignability of bare rights of action. No doubt the legislature can provide for the vesting in the trustee of a bare right of action, notwithstanding that at common law such a bare right would not have been assignable: Ramsey v Hartley (1977) 1 WLR 686 (CA) and s.48(5) of the Bankruptcy Act 1914 (UK), to which there is no equivalent in the present Australian Act. In that event, considerations such as the prevention of maintenance and champerty have no application.

44. The objection to competency of the appeal should accordingly be dismissed with costs.

Crown Lands Act 1931(NT)

Court of Australia Act 1976

Common Law Procedure Act 1852

Michael John Fuller and Joseph Patrick Cummings v Beach Petroleum NL and Claremont Petroleum NL [1993] FCA 453;

At a glance

Court

Decision date

Before

Source

Judgment (125 paragraphs)

Michael John Fuller and Joseph Patrick Cummings v Beach Petroleum NL and Claremont Petroleum NL [1993] FCA 453; (1993) 117 ALR 235 (1993) 43 FCR 60 (14 September 1993)

Parties

Legislation Cited (9)

Cases Cited (20)