Owens v Comlaw

Court of Appeal (Vic)|2006-07-07|Before: ASHLEY and REDLICH, JJ.A.

Bankruptcy - Appeal commenced by bankrupt defendant before sequestration order made - Purported election by trustee to prosecute appeal under s.60(2), Bankruptcy Act 1966 (Cth) - Whether appeal an action to which s.60(2) applied - Answer not necessarily dependent upon whether the action or its subject-matter was property vesting in the trustee under s.58(1) - Relevance of connection between action and estate of bankrupt - Action pertaining to recovery of professional costs by bankrupt for work performed before bankruptcy -Application by trustee to discontinue the appeal - Whether open to trustee to discontinue appeal after making election to prosecute the same.

For the Applicant (David James Lofthouse (as trustee of the bankrupt estate of Suzann Janet Owens))

1 Before the Court is an application made by summons filed 3 April 2006. The applicant is David James Lofthouse, trustee of the bankrupt estate of Suzann Janet Owens. The application raises a question whether the trustee had power, under s.60(2) of the Bankruptcy Act 1966 (Cth) ("the Act"), to elect to prosecute an appeal commenced by the bankrupt before her bankruptcy - the appeal seeking to challenge a declaration made by Nettle, J., then sitting in the Trial Division, concerning the terms of a retainer between the bankrupt (a solicitor) and the respondents to the appeal; and also seeking to challenge costs orders made at trial. The application raises a further question: if the trustee was empowered to make such an election, and elected to prosecute the appeal, was he thereafter entitled to seek leave to discontinue the same?

The Circumstances

2 In the latter part of 1998 and in the first four months of 1999, Ms Owens, the bankrupt, acted as solicitor for Comlaw (No 62) Pty Ltd, Garms Roseville Pty Ltd, and Ann Garms. They are the respondents to this appeal. A dispute arose between Ms Owens and the respondents as to the proper amount of her costs. Essentially, the dispute related to the matters in respect of which, and the basis upon which, Ms Owens' professional costs should be charged.

3 On 3 November 2000, Ms Owens served on the respondents a bill of costs in taxable form. It was in an amount of $130,935.60 plus disbursements of $10,240. As at that time the respondents had paid $11,957.50 on account of costs. As I understand it, they have paid no other amount since the bill was rendered.

4 The respondents responded to the bill in two ways. First, they instituted a proceeding seeking taxation. Second, they commenced a proceeding on 21 August 2001 by which they sought, inter alia, declaratory relief as to the terms of their retainer of Ms Owens.

5 The later proceeding was heard by Nettle J, as his Honour then was, in February 2003. The respondents only pursued their claim for declaratory relief. On 4 March 2003 Nettle, J gave reasons and made orders. The declarations which his Honour made as to the terms of the retainer were not wholly as contended for either by the respondents or by Ms Owens. Overall, they somewhat favoured the respondents' position. Then, as to the costs of the proceedings, his Honour made orders against Ms Owens - largely on a solicitor and client basis, but in part on an indemnity basis.

6 Ms Owens appealed. By her amended notice of appeal dated 14 April 2003 she sought to overturn the declarations made by Nettle J as to the terms of the retainer. Further, she challenged the order that she pay solicitor and client costs.

7 The appeal was listed for hearing on 14 June 2005. That may not have been the first date upon which it was listed. Be that as it may, on 10 May 2005 a sequestration order was made against Ms Owens in the Federal Magistrates' Court, and Mr Lofthouse was appointed trustee of her bankrupt estate pursuant to s.156A of the Act.

8 The appeal did not proceed on 14 June 2005, the Court having been appraised of developments.

9 On 13 June, the respondents' solicitors wrote to Mr Lofthouse, giving him notice of "the action" pursuant to s.60(3) of the Act.

10 On 14 June, Mr Lofthouse wrote to the respondents' solicitors, electing to continue to prosecute "the above action". See s.60(2). The consequence of the election, assuming the action to have been one in respect of which s.60(2) applied, was that the action was not deemed to have been abandoned under s.60(3).

11 On 26 October 2005 Messrs Aitken Walker & Strachan lodged a notice of solicitor acting. That firm described itself in the notice as "Solicitors for David James Lofthouse as Trustee of the Bankrupt Estate of Suzann Janet Owens". The notice asserted that the firm had "commenced to act" for Mr Lofthouse.

12 Since that time, there have been two developments. First, Mr Lofthouse has come to the view that the appeal should not be pursued. He deposes at paragraph 6 of his affidavit sworn 3 April 2006 that -

"After investigating the merits of the appeal, I have made a decision not to continue with the appeal".

13 Second, he has come to doubt whether he has any interest in the appeal; and so to question whether his election, and the subsequent act of Aitken Walker & Strachan in lodging a notice of solicitor acting, were in the one case a proper exercise of power, and in the other case appropriate.

14 Hence the present summons, which seeks relief as follows:

"1. ... if the right to appeal from the judgment made by Nettle J on 4 March 2003 is not vested in and not capable of being exercised by David James Lofthouse (as trustee of the bankrupt estate of Suzann Janet Owens), then pursuant to Order 20.03(4) of the Supreme Court (General Civil procedure) Rules 1996 Aitken Walker & Strachan be granted leave to file a Notice of Solicitor Ceasing to Act.

2. ... if the right to appeal from the judgment made by Nettle J on 4 March 2003 is vested in an capable of being exercised by David James Lofthouse (as trustee of the bankrupt estate of Suzann Janet Owens), then pursuant to Order 64.15 of the Supreme Court (General Civil procedure) Rules 1996 he have leave to wholly discontinue the proceeding."

15 Notwithstanding the orders sought by the summons, the position adopted by the trustee on the hearing of the application was less than clear-cut. Counsel said that his client would not oppose an order that the appeal be dismissed; and announced that in the alternative the trustee would seek leave to discontinue. But then he added that his client would not oppose any application made by Ms Owens for an adjournment. In the end, as I understand it, he urged the Court to take either the second or third of those courses; and in the event that it took the second course, then stay the operation of its order. What lay behind this manoeuvring was, as it seems, a desire expressed by Ms Owens, if the trustee was in truth seised of the present appeal, that he assign the right of appeal to a third person so that it might be prosecuted. The matter had lately been raised, and the trustee could not consider assignment until some firm proposition had been made.

16 Each of the courses adverted to by counsel for the trustee in argument - contrary to the relief sought by paragraph 1 of the summons - had a common starting point - that is, that the trustee had properly exercised a power of election under s.60(2) of the Act and was seised of the "right to appeal" referred to in the summons dated 3 April 2006. The respondents, for their part, agreed that this was the situation. But they opposed adjournment, their counsel submitting that the Court should dismiss the appeal, though staying operation of that order for, say, 30 days. Ms. Owens took a different position again. By counsel, she contended that the right of appeal belonged to her, unaffected by her bankruptcy. But she sought an adjournment so as to assign that right to a third party. Alternatively, if the Court should conclude that the right of appeal was now vested in the trustee, she sought an adjournment so as to negotiate an assignment of that right by the trustee to a third person.

Resolution of the Application

17 Several procedural issues, as will appear, arise in this matter; but I presently focus upon the substance of the application. The key question, it seems to me, is whether s.60(2) of the Act has application to this appeal. In my opinion it does. I should say why that is so.

18 The contention that the action may be one about which s.60(2)(3) have nothing to say, so far as it was advanced for the trustee, rested on the proposition that the subject matter of the proceeding pertains to income which was earned by Ms Owens before her bankruptcy, but which will be received thereafter. On the authority of Re Sharpe; Ex parte Donnelly[1] such income, when received, falls within Division 4B of Part VI of the Act. It is not property, by contrast with income earned and received before bankruptcy, which vests in the trustee under s.58(1) of the Act, see also s.116(1)[2], although under Division 4 of Part VI the trustee may require that contributions be made from it towards the bankrupt's estate. The argument runs, in effect, that s.60(2)(3) are concerned with property which vests in the trustee, or actions to do with such property. Income of the kind described does not so vest. Therefore s.60(2)(3) have no application.

19 I turn to the submissions advanced on behalf of Ms Owens. Counsel submitted that standing to pursue an appeal belongs to the person who has the necessary interest in the subject matter of the appeal. The right of appeal, so counsel submitted, "follows the property". The exceptions to the operation of s.60(2) which are created by sub.s (4) are not exhaustive. Rather, the unifying rationale for determining what kind of action continues to belong to a bankrupt is found by asking whether the subject matter of the action has a very strong nexus with the bankrupt.

20 Counsel relied upon the reasons in dissent of Hill, J. in the Full Federal Court in Fuller and Cummings v. Beach Petroleum NZ and Anor[3] as to what is comprehended by the concept of "property" of a bankrupt, and upon the approval, in substance, of his Honour's approach to that issue when Beach Petroleum went on appeal to the High Court sub. nom. Cummings and Fuller v. Claremont Petroleum NL and Anor[4]. He also referred to and relied upon Daemar v. Industrial Commission of New South Wales & Ors[5]; Griffiths v. Civil Aviation Authority[6]; McCallum v. Federal Commissioner of Taxation,[7] Re Civitareale and Secretary, Department of Family and Community Services and Anor[8] and Hill v. Smithfield Service Centre Pty. Ltd.[9]

21 I focus upon the submissions advanced by counsel for Ms Owens. Resolution of those submissions, as will be seen, effectively addresses the submissions made for the trustee.

22 As is always the case, it is necessary to identify what was in issue in the authorities to which counsel referred. This general observation may be made at the outset: each of Griffiths, Claremont Petroleum, McCallum and Hill was a matter in which the appeal or application (conveniently "appeal") was instituted after the appellant had been made bankrupt. In those cases s.60(2)(3) could have no application. Questions arose whether the right of appeal was itself "property" which vested in the trustee under s.58(1), whether "property" was the subject matter of the appeal rather than the right of appeal, and whether - assuming that the right of action did not vest in the trustee - the appellant in any event had sufficient standing to prosecute the appeal. In some of the cases there was incidental discussion of s.60(2)(3)(4), essentially in considering whether a particular construction of those provisions, and of s.58(1), would yield a disconformity in result depending upon whether appeal was instituted before or after the sequestration order was made. But, in substance, those appeals did not concern s.60(2), (3) and (4). Only indirectly do they shed any light upon the operation of those provisions.

23 Against the background of those general observations, I address the authorities seriatim.

24 Griffiths was decided before the High Court published its decision in Claremont Petroleum. The decision of the Full Federal Court in Beach Petroleum - that is, Claremont by another name - remained intact. The question in Griffiths was whether a right of appeal against a decision of the Commonwealth Administrative Appeals Tribunal in respect of conditions imposed an aviation licences held by the appellant was "property" within the Act. The Full Federal Court answered that question in the negative,[10] distinguishing Beach Petroleum, in which it had been held that a right to appeal against a money judgment did constitute "property".

25 Cooper, J. in passages relied upon by counsel for Ms Owens, opined that:

" ... it was not the intention of Parliament in passing s.60(4) and s.116(2)(g)) nor the predecessors of these sections, to state exhaustively the exceptions to the property in the nature of rights of action which would not pass to the trustee and thereby to identify by omission all other rights as 'property' within the meaning of s.5 of the Act."[11]

" ... Claims by or against the bankrupt which do not affect the estate of the bankrupt in any way or interfere in the due administration of it are of no interest to the trustee (see Merry v. R [1887] VicLawRp 56; (1887) 13 VLR 264 at 267 per Higinbotham, C.J.: 'Personal wrongs within the meaning of s.77, are wrongs or injuries done to the reputation or person, such as libel, slander or assault; these do not affect his estate in any way'; John v Neiman Holdings (1986) 84 FLR 84 at 85 where Young, J. held that 'action' in s.60(2) of the Act had to be read down to mean a civil proceeding at law or equity which must relate to the property of the bankrupt; Beneficial Insurance Co Ltd. v. Hamilton (1985) 73 FLR 347 at 348 where Holland, J. held that the election given by s.60(2) was only available where it was still a relevant and practical matter for the administration of the estate.

Nor do the cases on either the Bankruptcy Act (Cth), or the Act, lead to the conclusion that the exceptions in s.60(4) and s.116(2)(g) of the Act were intended by Parliament to be an exhaustive statement of the rights of action to be excluded from the property of a bankrupt which was to pass to the trustee."[12]

26 Those things were said in the context of his Honour's analysis of the objects of the Act, and his observation that it was not -

" ... concerned to prevent the bankrupt enforcing rights which are personal to the bankrupt and irrelevant to the attainment of the statutory objects of the Act. In consequence, a construction of the Act which denies to a bankrupt the enjoyment of rights which do not affect the value of the bankrupt's estate or the administration of the estate is to be avoided."[13]

27 Whilst the passages upon which Ms Owens' counsel relied assist conclusions that there are, or may be, cases which fall outside s.60(2) although they are not excluded by operation of s.60(4), and that a bare right of action personal to a bankrupt is not "property" within ss.5(1), 58(1), they recognise that a relevant enquiry is whether a claim [read "action"] by a bankrupt affects the bankrupt's estate "in any way" or interferes in its due administration.

28 I turn to Claremont Petroleum. The question was whether the appellants had standing to pursue an appeal against a money judgment. Two arguments were advanced why there was no such right. First, that the right to appeal was not "property" within s.5(1) of the Act. Second, that the appellants did not have such an interest in the appeals as would give them locus standi to institute the same.

29 The majority in the High Court[14] held that the right of appeal in the instant case, being an appeal against a money judgment, was not a "property" which vested in the trustee. That opened up the question whether the appellants nonetheless had standing to pursue their appeals. Their Honours resolved that question against each appellant. That was because his bankruptcy had divested him of interest in property which vested in his trustee, and of liability for provable debts. Even if his appeal succeeded, even if there would or might be a surplus in his estate, his contingent interest in the surplus did not give him rights which would permit him to prosecute the appeal. If the trustee did not appeal, then the appellant had a potential remedy under s.178 of the Act[15]. I mention in passing their Honours' observation that, had the appeals been commenced before the sequestration orders, then s.60(2) would have applied.[16]

30 McCallum involved commencement of a proceeding to review a decision by the Federal Commissioner of Taxation to disallow an objection to a notice of assessment. The proceeding, in the Commonwealth Administrative Appeals Tribunal, was initiated after the taxpayer was made bankrupt. It was common ground in the Full Federal Court that the right of review was not "property" which vested in the trustee. The issue, as in Claremont Petroleum, became one of standing. The trustee had standing to apply for the review. But that did not necessarily mean that the taxpayer did not have standing. The majority in the Full Federal Court concluded that, although it was likely that the taxpayer lacked standing, conceivably the converse might be the case. The matter was remitted to the Tribunal for further consideration.

31 In all, McCallum applied Claremont Petroleum. It established no new principle.

32 The plaintiff in Hill was authorised by ASIC to apply to the Supreme Court of New South Wales for an examination summons against the receiver of a company (by then in liquidation) pertaining to the sale by the receiver of certain property. By the time that the summons was issued, Hill had been made bankrupt. The receiver applied for the discharge of the summons, alleging want of standing, and that the summons was an abuse of process. Austin, J. held that a statutory procedural right to obtain information, that being the nature of the examination summons, was not "property" under s.58(1) of the Act, or property divisible amongst the creditors for the purposes of s.116. He held further, having regard to the language of relevant provisions of the Corporations Act 2001 (Cth), that Hill had standing to bring the proceeding[17]. But his Honour discharged the order for the issue of the summons, having concluded that Hill's predominant purpose was an illegitimate one.

33 Hill shows only this: that in a case where s.60(2) does not apply: (1) a right of action may be of a kind which does not constitute "property" vesting in the trustee; and (2) the bankrupt may have standing to pursue it. In that case, standing was found to exist by reference to particular statutory provisions.

34 I turn to the authorities referred to by counsel for Ms Owens which did raise the application of s.60.

35 Daemar involved that situation. D was a respondent to proceedings in the Industrial Commission of New South Wales in which the applicant sought to have a contract declared void. The Commission made a declaration to that effect. D and another respondent were ordered to pay the applicant a money amount. An appeal was brought, and lost. In the course of the proceedings, the Commission made a number of critical comments about D. He initiated a proceeding in the Supreme Court, by which he sought, principally, prerogative relief. After he commenced the proceeding, he was made bankrupt. His trustee made no election under s.60(2) of that Act.

36 The Court held that the proceeding fell within s.60(2). It was an "action" within the very wide language of s.60(5). It was not an action excluded from the operation of s.60(2) by operation of s.60(4). The proceeding was stayed.

37 Kirby, P. (as his Honour then was) gave the leading judgment. Having described the purposes of the relevant purpose of ss.60(2)-(5) and 116 [18] his Honour said this concerning the scope of s.60(2):

"There may be cases where an 'action' commenced by a person who subsequently becomes a bankrupt, and who is seeking relief prerogative in nature, would indeed fall outside the provisions of s.60(2), as that sub-section was intended by the Parliament to operate. I do not wish to be taken as necessarily agreeing with the submission that an action in the Family Court of Australia commenced by a person who subsequently becomes a bankrupt is not caught by the operation of s.60(2). Such an action, like other actions, may involve orders for costs which may effectively concern the trustee acting on behalf of the creditors. It is not necessary here finally to determine the question. The point which must be made is that 'action', particularly as defined in the Act, is a word of wide meaning. Its width is emphasised by the very limited exceptions which Parliament has specifically provided for in s.60(4)."[19]

" ... it will be observed that in s.60(5) the word 'action' is given an extremely wide definition to embrace 'any civil proceeding, whether in law or in equity'. The word 'whether' suggests that an assumption was made that all civil proceedings would either be in law or in equity. The width of the expression, quite apart from the statutory definition is stressed in many cases."[20]

" ... even if one were to approach the word 'action' in s.60(2) with a view to confining its operation where an ambiguity arose, in this case, at least, there is none. The 'action' commenced by this claimant is undoubtedly one whereby he seeks relief affecting his property.

...

" ... His 'action' is therefore of the very kind to which s.60(2) was designed to apply. Obviously, the prosecution of litigation commenced before bankruptcy by a person who later becomes bankrupt can involve the potential or actual diminution of the estate of the bankrupt available to his creditors. On occasion, it can, of course, provide a benefit to the creditors. That is precisely why Parliament has provided for the trustee to make an election."[21]

" ... as far as the apparent disharmony between s.58 and s.60 is concerned, this case clearly falls within s.60 and s.60(2) must be given its full operation. If the section is clear, as I believe it to be, the fact that it may sometimes provide a wider provision for a stay on proceedings commenced before bankruptcy than would effectively be secured by proceedings commenced after bankruptcy does not avail the claimant. Especially because the Parliament has specifically adumbrated the exceptions to the operation of the statutory stay, in the terms of s.60(4), this indicates that it attended to the way in which prior civil action should go forward at the option only of the trustee, or be stayed by the statute."[22]

38 Civitareale involved applications by a husband and wife to the Commonwealth Administrative Appeals Tribunal for review of decisions of the Social Security Appeals Tribunal that they owed moneys to the Commonwealth. The husband commenced his appeal before he was made bankrupt.[23] The Tribunal held that the proceeding was not an "action" within the s.60(5) definition. So s.60(2) had no application.

39 It is not altogether clear to me how the learned Deputy President arrived at his conclusion that the proceeding was not an "action". I think it is likely that he focussed upon the nature of the proceedings, the nature of the relief sought, and the potential effect of the proceedings upon the property of the bankrupt[24] and upon the view of Pincus, J. in Re Brown; Ex parte Taylor v. Queensland Electricity Commission[25] that a claim for arbitration of a contract, not being a court proceeding, was not caught by s.60(2).[26]

40 I should next refer to an authority not cited by counsel, but which I mentioned in the course of argument. In Re Lofthouse,[27] a question arose whether an action on foot at time of bankruptcy in which the bankrupt asserted that he sued as a bare trustee was an action falling within s.60(2). Gray, J. held that it was, and that the trustee had elected to prosecute it. Concerning s.60, his Honour said this:

"Section 60 is not the provision that vests the right of action in the trustee in bankruptcy. It has a different, and in some respects wider, role. It operates to stay pending proceedings unless the trustee elects to prosecute or discontinue them. It also provides the machinery for a defendant or other party to a pending proceeding to force the making of an election. It is directed towards the protection of the bankrupt's creditors, by preventing the unnecessary dissipation of the assets of the estate in fruitless litigation. In my view, s 60 also has the purpose of protecting a defendant or other party to a pending proceeding. A defendant or other party to a pending proceeding suffers an immediate detriment upon the plaintiff becoming a bankrupt. The detriment is that if the defendant or other party should be successful in the proceeding, and should obtain an order that the plaintiff pay the costs of the proceeding, the order will be effectively unenforceable because of the bankruptcy. The rationale behind s 60(2) and (3) is therefore, at least in part, to protect those whom the bankrupt has been suing. Such protection would be lost if the word 'action' in s 60 were to be construed as excluding a proceeding in which the bankrupt has sued as a trustee for someone else.

In my view, s 60 has been enacted deliberately as a broad provision, so as to encompass any proceeding brought by a bankrupt before bankruptcy. The exceptions have been expressed quite narrowly. The intention is that, once a bankruptcy occurs, no further costs should be incurred in a proceeding unless the trustee in bankruptcy makes an election to continue the proceeding. If such an election is made, the trustee in bankruptcy will ordinarily become substituted as plaintiff in the pending proceeding, in the capacity of trustee in bankruptcy for the former plaintiff. The trustee in bankruptcy will thereby become liable for the costs of the proceeding in the event that it is unsuccessful and a costs order is made in favour of the defendant in the proceeding or some other party to it. The trustee in bankruptcy may be entitled to an indemnity in respect of those costs out of the bankrupt estate, as expenses of the administration of the estate, to the extent to which the estate has assets. The trustee in bankruptcy will obviously consider whether continuing to prosecute the proceeding will be likely to have any benefit to the estate of the bankrupt, and therefore to the bankrupt's creditors."

41 On a number of occasions now I have mentioned, and there has been reference in authorities which I have cited, to s.60(4). The general ambit of that provision was described by Lockhart, J. in Faulkner v. Bluett[28].

42 Having regard to the language of relevant provisions of the Act, to the authorities to which I have referred, and to the circumstances revealed by the material before the Court, I consider that the following propositions may be stated:

(1) By s.58(1)(b) of the Act, the after acquired property of a bankrupt vests in the trustee. By operation of Division 4B of Part VI of the Act, the income derived by the bankrupt during bankruptcy - which includes income earned before, but received after, sequestration - is not after- acquired income. Nonetheless, the trustee may require the bankrupt to make contributions towards the estate out of such income.

(2) Section 60(2) operates to stay an action which is on foot at the time when a person is made bankrupt until the trustee makes an election to prosecute or discontinue the same within the period made relevant by the giving of notice under sub.s.(3). That is so where the proceeding is an "action" within the meaning of sub.s(5),[29] provided always that it is not an action excluded from the operation of subs.(2) by sub.s.(4).

(3) "Action" is apt to include an appeal.

(4) The question whether an action is one to which s.60(2) applies, assuming that it fits the description in sub.s.(5), and is not excluded by operation of sub.s.(4), is not necessarily dependent upon the action or its subject matter being "property" which vested in the trustee under s.58(1). There may nonetheless be such a connection between the action and the estate as to make s.60(2) applicable. This case is an illustration of such a connection.

(5) Thus, one could expect that a consequence of a successful appeal would be that the quantum of professional costs recoverable by Ms Owens from the respondents would be the greater. That could be expected to bear upon the quantum of required contributions, and in turn bear upon the size of the estate divisible amongst creditors.

(6) Again, a likely consequence of a successful appeal would be that the costs order made against Ms Owens at first instance would be reversed. Such an outcome would benefit the estate - at least by reducing the quantum of claims provable against it.

(7) Further, the success of the appeal might have favourable implications for the quantum of disbursements recoverable from the respondents. Disbursements, when recovered, should probably be described as after-acquired property. But whether or not that be so, the larger the amount of recoverable disbursements, the better for Ms Owens' creditors.

(8) All in all, even if none of the favourable consequences of a successful appeal should be characterised as "property", it is evident that successful prosecution of the appeal would be likely to have favourable consequences for creditors - I except the respondents. That shows a connection between the action and the estate which, in my opinion, is quite sufficient to give s.60(2) application.

(9) The nature of the action is not one which could call s.60(4) into play.

(10) So far as - qualifying proposition (2) - there may be cases where s.60(2) does not operate although the action falls within the sub.s.(5) definition, and is not excluded by sub.s.(4), this action is not akin to the kinds of matters mentioned by Cooper, J. in Griffiths, or hinted by Kirby P in Daemar.

(11) Questions which have arisen where an action was commenced after bankruptcy - whether the action or its subject matter was properly within s.58(1), and, if not, whether the bankrupt nonetheless had standing to pursue such action - have not arisen in the context to which s.60(2) applies. The factual situations are quite different, and one could not safely extrapolate from the former to the latter.

43 In the event, as I said earlier, this action is one to which s.60(2) applied. The submissions to the contrary must be rejected.

44 I turn to other matters. The trustee elected to prosecute the appeal. A consequence of his election was that s.60(3) did not operate so that he was deemed to have abandoned the appeal. By his summons, he now seeks leave to discontinue. It was not argued that, once having elected to prosecute the appeal, he was now precluded from seeking and obtaining such leave.[30] The period allowed for making an election under s.60(3) is quite short. Often enough, an election may be required within a short time after the trustee is appointed. That is what happened here. It would be antagonistic to the concept that a trustee should administer a bankrupt's estate so that creditors will receive the best possible financial outcome if a trustee should feel compelled to elect to discontinue an action, without knowing much about it, for fear that, if the contrary election was made, he or she could be compelled to prosecute it to completion despite coming to a later, informed opinion that the action was unsound, and that to continue to prosecute it would likely reduce the funds available for creditors. No argument having been advanced to the contrary, I would not read s.60(2) as having that effect.

45 The trustee is not a party to the appeal. His counsel accepted, however, that if his client was seised of the matter under s.60(2), then his client should be substituted as appellant. He referred to s.161 of the Act. In my opinion, the trustee should be substituted as appellant. In addition to s.161, the following matters are pertinent.

46 Rule 9.09(1) of Chapter I of the Rules provides that where a party to a proceeding becomes bankrupt, the proceeding shall not abate but may be carried on in accordance with r. 9.09(2). The latter provides that -

"Where at any stage of a proceeding the interest or liability of any party . . . devolves upon some other person, the Court may order that the other person be added as a party . . . or made a party in substitution for the original party and that the proceeding be carried on so constituted."

47 In the context of somewhat different rules of court, it was held in Jackson v North Eastern Railway Company[31] that upon bankruptcy of a sole plaintiff, the cause of action becomes vested in the trustee and the plaintiff cannot continue the proceeding.[32] So also, in Emden v Carte[33], it was held that if a trustee elects to prosecute the proceeding, he must apply to be made a party. In more recent times, the New South Wales Court of Appeal ordered that a trustee be made a party. In Ryan v Hopkinson[34], the appellant plaintiff had been made bankrupt between trial and appeal, but nonetheless conducted the appeal without any election having been made within time. To regularize what had occurred, the Court of Appeal extended the time for election, and then considered it the preferable option that the trustee be substituted as appellant[35]. I should also mention re Lofthouse. Gray J certainly perceived it to be the ordinary course that the trustee should be substituted as plaintiff.

48 Ms Owens was the defendant at trial. But it is presently unnecessary to consider the way in which s.58(3) might have operated, if at all, in the circumstances of this case. The question, in the context of the appeal which is on foot, is whether an order ought be made adding or substituting the trustee under Rule 9.09(2). The trustee elected to continue to prosecute the matter. Having become, in substance, the proponent, it is appropriate that he became the proponent in form. He should be substituted as appellant in this fashion: "David James Lofthouse the Trustee of the property of Suzann Janet Owens, a bankrupt." As substituted appellant, he may then make - indeed, he made by his summons - application for leave to wholly discontinue the appeal.

49 What orders, save for substituting the trustee as appellant, should the Court make? I have already noted the competing submissions of the parties.

50 It is a matter for a litigant to assess prospects of success. The trustee has made that assessment and has decided to seek leave to discontinue. No doubt he has made his assessment mindful of the interests both of the creditors and the bankrupt. In those circumstances, I see no reason why leave to discontinue under r.64.15 should not be granted.

51 But there is a question whether an order should now be made to that effect, even if its operation was stayed. It appears that the trustee has already been asked to assign the right of appeal to a third party. If nothing comes of that, it is at least possible that Ms Owens will appeal to the Federal Court under s.178 of the Act against the trustee's decision to discontinue the appeal. It is not desirable that an order permitting discontinuance be made under r.64.15, with the finality which it carries, until a reasonable time has been allowed for the taking of one or other course. On the other hand, whilst I do not accept the submission made for the respondents that the appeal should now be dismissed, the trustee and Ms Owens should not have unlimited time in which to conduct their relevant affairs. I therefore propose that the application for leave to discontinue be adjourned to 25 August 2006; and foreshadow that, in the absence of some further relevant step being taken by a

party, it should be expected that leave to discontinue would then be granted. I further propose that leave be reserved to the parties, and Ms Owens, to apply to the Court within the period between now and 25 August as they might be advised; and that the summons[36] be otherwise dismissed.

52 I should finally add this: There is doubt whether the notice given by Messrs Aitken Walker & Strachan, to which I have earlier referred, was filed and served in accordance with the Rules. But now that the trustee is to be substituted as a party, I think that it would be an unnecessary waste of money to require the solicitors to file a new notice. The document already filed and served should be taken to address the new situation.

53 For the reasons given by Ashley, J.A. I agree with the disposition of the application as his Honour proposes.

[1] [1998] FCA 6; (1998) 80 FCR 536 (Lockhart J, Federal Court).

[2] Re Gillies; Ex parte Official Trustee in Bankruptcy v Gillies [1993] FCA 289; (1993) 42 FCR 571 (French J, Federal Court).

[3] [1993] FCA 453; (1993) 43 FCR 60.

[4] (1996) 185 CLR 124.

[5] (1988) 12 NSWLR 45.

[6] [1996] FCA 1502; (1996) 41 ALD 50, Full Federal Court, at 56, 63-64 per Einfeld, J. and at 67 - 68 per Cooper, J.

[7] (1997) 145 ALR 446, Full Federal Court.

[8] [1999] AATA 486; [1999] 57 ALD 451.

[9] [2002] NSWSC 999; (2002) 171 FLR 154, Austin, J. Supreme Court of New South Wales.

[10] At 52-53 per Spender, J., 63-64 per Einfeld, J. and at 69 per Cooper, J.

[11] At 68.

[12] At 69

[13] At 67.

[14] Brennnan, C.J., Gaudron and McHugh, JJ.

[15] At 138.

[16] At 130.

[17] At 162, [42]. .

[18] At 596.

[19] At 599

[20] At 600.

[21] At 600.

[22] At 601.

[23] The sequence of events concerning the wife was somewhat more complicated. It need not be recounted.

[24] That was his summary of the approach of Kirby, P. in Daemar.

[25] (1988) 19 FCR 180.

[26] See at [61].

[27] [2001] FCA 25; (2001) 107 FCR 151.

[28] [1981] FCA 3; (1981) 52 FLR 115 at 118-122. See also Cox v. Journeaux & Ors (No. 2) [1935] HCA 48; (1935) 52 CLR 713 at 721.

[29] Civitareale is an example of a case in which an extant proceeding was held not to constitute such an "action".

[30] Perhaps compare per Gray J in Re Lofthouse at 159, [23].

[31] [1877] 5 Ch D 844 (CA).

[32] See the very short judgments of Jessel MR, James LJ and Baggallay LJ at 849.

[33] (1881) 17 Ch D 768.

[34] (1993) 16 Fam LR 659.

[35] See per Priestley JA at [23].

[36] That is, insofar as it sought relief in the terms of paragraph 1.

Supreme Court (General Civil procedure) Rules 1996

(1993) 16 Fam LR 659

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