Rose v Meriton Apartments Pty Ltd and anor [2007] NSWIRComm 264 | Case summary

Rose v Meriton Apartments Pty Ltd and anor [2007] NSWIRComm 264 | Case summary | Zoe

14 The most relevant provisions of the Bankruptcy Act are as follows: 58 Vesting of property upon bankruptcy - general rule (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. Note 1 : This subsection has a limited application if there are orders in force under the proceeds of crime law: see section 58A. ... (2) Where a law of the Commonwealth or of a State or Territory of the Commonwealth requires the transmission of property to be registered and enables the trustee of the estate of a bankrupt to be registered as the owner of any such property that is part of the property of the bankrupt, that property, notwithstanding that it vests in equity in the trustee by virtue of this section, does not so vest at law until the requirements of that law have been complied with. (3) Except as provided by this Act, after a debtor has become a bankrupt, it is not competent for a creditor: (a) to enforce any remedy against the person or the property of the bankrupt in respect of a provable debt; or (b) except with the leave of the Court and on such terms as the Court thinks fit, to commence any legal proceeding in respect of a provable debt or take any fresh step in such a proceeding. (4) After a debtor has become a bankrupt, distress for rent shall not be levied or proceeded with against the property of the bankrupt, whether or not the bankrupt is a tenant of the landlord by whom the distress is sought to be levied. (5) Nothing in this section affects the right of a secured creditor to realize or otherwise deal with his or her security.

(1) The Court may, at any time after the presentation of a petition, upon such terms and conditions as it thinks fit: (a) discharge an order made, whether before or after the commencement of this subsection, against the person or property of the debtor under any law relating to the imprisonment of fraudulent debtors and, in a case where the debtor is imprisoned or otherwise held in custody under such a law, discharge the debtor out of custody; or (b) stay any legal process, whether civil or criminal and whether instituted before or after the commencement of this subsection, against the person or property of the debtor: (i) in respect of the non-payment of a provable debt or of a pecuniary penalty payable in consequence of the non-payment of a provable debt; or (ii) in consequence of his or her refusal or failure to comply with an order of a court, whether made in civil or criminal proceedings, for the payment of a provable debt; and, in a case where the debtor is imprisoned or otherwise held in custody in consequence of the non-payment of a provable debt or of a pecuniary penalty referred to in subparagraph (i) or in consequence of his or her refusal or failure to comply with an order referred to in subparagraph (ii), discharge the debtor out of custody. (2) An action commenced by a person who subsequently becomes a bankrupt is, upon his or her 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 or her by a defendant or other party to the action, he or she shall be deemed to have abandoned the action. (4) Notwithstanding anything contained in this section, a bankrupt may continue, in his or her own name, an action commenced by him or her before he or she became a bankrupt in respect of: (a) any personal injury or wrong done to the bankrupt, his or her spouse or a member of his or her family; or (b) the death of his or her spouse or of a member of his or her family. (4A) Notwithstanding paragraph (1)(b), this section does not empower the Court to stay any proceedings under a proceeds of crime law. (5) In this section, action means any civil proceeding, whether at law or in equity.

(a) sell all or any part of the property of the bankrupt; (aa) accept, without terms or conditions, or subject to terms and conditions, a sum of money payable at a future time as the consideration or part of the consideration for the sale of any property of the bankrupt; (ab) lease any property of the bankrupt; (ac) divide among the creditors, in its existing form and according to its estimated value, property that, by reason of its peculiar nature or other special circumstances, cannot readily or advantageously be sold; (b) carry on a business of the bankrupt so far as may be necessary to dispose of it or wind it up for the benefit of creditors; (c) postpone the winding-up of the estate; (d) prove in respect of any debt due to the bankrupt; (da) mortgage or charge any of the property of the bankrupt for the purpose of raising money for the payment of the debts provable in the bankruptcy; (e) compromise any debt claimed to be due to the bankrupt or any claim by the bankrupt; (f) make a compromise with a creditor or a person claiming to be a creditor in respect of a debt provable, or claimed to be provable, in the bankruptcy; (g) make a compromise in respect of any claim arising out of the administration of the estate of the bankrupt, whether the claim is made by or against the trustee; (h) deal with property to which the bankrupt is beneficially entitled as tenant in tail in the same manner as the bankrupt could deal with it if he or she were not a bankrupt; (i) obtain such advice or assistance as he or she considers desirable relating to the administration of the estate or to the conduct or affairs of the bankrupt; (ia) refer any dispute to arbitration; (j) bring, institute or defend any action or other legal proceeding relating to the administration of the estate; (k) execute powers of attorney, deeds or other instruments for the purpose of carrying the provisions of this Act into effect; and (m) employ the bankrupt: (i) to superintend the management of the whole, or a part, of the property of the bankrupt; (ii) to carry on the bankrupt's trade or business for the benefit of the bankrupt's creditors; or (iii) to assist in any other way in administering the property of the bankrupt; and, in consideration of the bankrupt's services, make such allowance to the bankrupt out of the estate as the trustee considers reasonable;

28 In challenging the findings of Marks J as to the question of standing, the appellant contended as follows: (i) Pursuant to the relevant provisions of the IR Act, the Commission has jurisdiction to determine the appellant's application for relief. On this basis, the application to amend the summons so as to include the appellant as a party merely sought to invoke jurisdiction of which the Court is already seized; (ii) Section 106(1) empowers the Commission to make an order in relation to a "contract whereby a person performs work in any industry". The proceedings in this instance involved such a contract or arrangement, according to the appellant, who summarised the details thereof as follows: in early 1999, the appellant in his personal capacity purchased property in real estate developed by Meriton. The appellant was principal director and shareholder of Regis Towers. In April 1999, Meriton executed a Deed with Regis Towers, whereby, for the consideration in the sum of $1,750,000, Meriton agreed, inter alia , to procure a Caretaker Agreement between Regis Towers and Owners Corporation. Under the terms of the Caretaker Agreement, executed in August 1999, the appellant was to personally perform work as a caretaker, work to be performed in an industry in and of New South Wales; (iii) Section 108(a) of the IR Act states that "any party to the contract" may seek an order of the Commission under s 106 with respect to a relevant contract. The broad definition of "contract" contained within s 105, which includes "arrangement" and "collateral arrangement", ought to be applied in interpreting ss 106 and 108, and is applicable in this instance. Relief pursuant to s 106 is, therefore, available to an applicant who may not be a party to a contract as understood by the common law, but who is a party to an arrangement. In this instance, the appellant is a party to the relevant contract or arrangement, based, in part, on the term contained therein that he was to perform work as a caretaker. Applying the definition of "contract" in s 105, which does not confine that word to its strict common law definition, the appellant is thus a "party to the contract" as required by s 108(a);

(7) Similarly, the jurisdiction to terminate an action summarily for want of a cause of action is to be sparingly employed and ought not to be used save where the lack of the cause of action was clearly demonstrated. 34 Where they relate to a challenge to standing the foregoing principles came to be examined in a particular context in the decision in Metrocall Inc v Electronic Tracking System Limited (No 2) (2000) 102 IR 309 ("Metrocall Inc No 2"). In terms of relevant procedure, and consistent with the approach in Nagle (t/a W.D. & J.L. Nagle & Sons) v Tilburg (1993) 51 IR 8, the Full Bench in Metrocall Inc (No 2) upheld Schmidt J's decision to join the Managing Director as an additional applicant as "not an unusual decision in the context of a procedural application" and "one well within her Honour's discretion" (at [9]). It was open to her Honour to find, on the basis of the "limited evidence" available at first instance, "for the purposes of the motion that there was, or was arguably, an arrangement involving the appellant and both respondents to which the (Managing Director) was a party" (at [17]). 35 By way of analogy, in Great Scott International Pty Ltd v Cosmetic Suppliers Pty Ltd (No 2) (2005) 147 IR 95, the Full Bench of the Commission in Court Session considered the appropriate procedure to be followed where dealing with an application to amend a summons (commencing proceedings under s 106) to join an additional applicant. In their judgment, Wright J, President, Walton and Schmidt JJ upheld an appeal against the decision of Marks J to refuse joinder of the director of the appellant corporation (as previously described) as an additional applicant. The Full Bench held: [28] In this case, once the appellant had established that there was an arguable basis for the claim that (the director) was a party to the arrangement, as in Metrocall , the proper approach was to permit the joinder, so that the question of whether or not the necessary facts could be established, was left to be determined on the evidence at the hearing. Absent a joinder order, there would be no basis upon which the question could arise for determination at trial. This approach is entirely consistent with that in Nagle .... 36 We note for completeness that no threshold issue in relation to jurisdiction under s 106 has yet been raised in the proceedings. In particular, the question has not been answered as to whether these are contracts "whereby a person performs work in any industry": this issue has not been in contention in these proceedings but will no doubt be considered in the next stage. We would note that a deliberation of the relevant issues can be seen in Fish & Anor v Solution 6 Holdings Ltd & Ors (2006) 227 ALR 241 at [18]-[20], [34], [43]) (see also Sin Yong Yim & Tae Sik Kim v Industrial Relations Commission of NSW & Hyun Sung (Marco) Choi [2007] NSWCA 77). Relationship between s 108 and s 105 37 As a matter of construction, it is clear that the reference to contract in s 108(a) has the wider meaning given to that expression in s 105 of the IR Act. This conclusion follows from the opening words of s 105, and is consistent with the decision of the Commission in Court Session in Metrocall Inc (No 2) (confirmed in Great Scott International Pty Ltd v Cosmetic Suppliers Pty Ltd & Anor). 38 Metrocall Inc (No 2) involved an appeal against the first instance judgment of Schmidt J to join as an additional applicant, in proceedings commenced under s 106, the Managing Director of the respondent corporation, who, although not named personally as a party to the contract, had been involved in formulating the relevant arrangement between the corporate parties, and was required to personally perform work under the terms of that arrangement. On appeal, the Full Bench (Wright J, President, Hungerford and Kavanagh JJ) determined that it was open to her Honour to find that the Director could have validly commenced proceedings himself as a party to an "arrangement" (and, therefore, a party to a contract, as that term is defined in s 105, and pursuant to s 108 involving both the Director, the appellant, and the relevant corporate entities). With respect to the construction of ss 105, 106 and 108, the Full Bench found: 15 We now turn to the construction of the word "contract" as it appears in s 108 of the Act. The meaning of s 108 was considered by Wright J, President in Hyde v Energy Australia (1999) 92 IR 409 at 423 albeit in relation to an argument somewhat different to that made in these proceedings. In Hyde the respondent's major argument relied upon s 108 in relation to a single summons brought by nine different applicants and submitted that it was significant the summons was brought as an application, not by a party to a contract, but by nine persons apparently acting as a group. The summons, it was said, was therefore brought "otherwise" than in accordance with the provisions of s 108. It was thus necessarily bad and could not be proceeded with. However, each of the applicants was party to a separate, but somewhat similar, contract of employment with the respondent and the applicants also accepted that their summons, as filed, should be read as proposed by the respondent; that is: it was intended to refer to a series of separate contracts, as defined, between the individual applicants and the respondent and not, as literally pleaded, a single contract between the applicants and the respondent. In relation to the respondent's submissions as to invalidity his Honour held, inter alia, that: The submissions of the respondent as to limitations said to arise as to the Court's jurisdiction from the terms and form of s 108 of the Act should not be accepted. Section 108 does not, on its proper construction, preclude the bringing of proceedings such as the present. The intention of the limitations expressed in that section is, in general terms, to limit those who may make an application to the parties to the contract, as defined, or to registered organisations and thus precludes non-parties to such contracts from having standing to commence such proceedings . The origin of s 108 is subsection (2C) of s 88F of the Industrial Arbitration Act 1940, which was included in that section by Act No. l62 of 1985 and which was apparently intended to preclude applications by a non-party of the kind considered in F Sharkey & Co Pty Ltd v Metropolitan Water Sewerage and Drainage Board [1981] 2 NSWLR 824; [1981] AR (NSW) 286 and Metropolitan Water Sewerage and Drainage Board v Judges of the Industrial Commission of New South Wales [1981] AR (NSW) 305 (emphasis added). 16 We consider that his Honour's analysis of s 108 is correct and, in particular, that its intention is to limit those who may bring an application under s 106 to the parties to the contract, that word being given the extended meaning provided to it by s 105. It is to be observed that s 105 is a definitions provision for the whole of Part 9 of the Chapter 2 of the Act, which Part includes both s 106 and s 108. Further, s 105 plainly states that the definitions apply to Part 9 without any qualification. There is, therefore, no basis in either the text of s 105 or in the construction of Part 9 viewed as a whole whereby it could be found that a reference to a "contract" in s 108 is to be construed other than by reference to the extended meaning of that term provided by s 105 (emphasis added).

39 The decision of Custom Credit Corporation Ltd v Goldsmith [1976] AR (NSW) 98 considered the term "arrangement" (in the predecessor provision to s 106, viz., s 88F of the Industrial Arbitration Act 1940), and observed, at 131, as follows: In our view, it is not a matter for comment that there is no definition in s 88F or, for that matter, in any other part of the Industrial Arbitration Act of 'contract'; there is just no reason why there ought to be. It would not be disputed, we believe, that the meaning of contract' is not peculiarly within the knowledge of lawyers, but rather is known to the community at large, who would know, as one reads in Anson's well-known treatise on this branch of the law, that a contract is an agreement enforceable at law, made between two or more persons, by which rights are acquired by one or more to acts or forbearances on the part of the other or others'. But it must be true to say, we think, that it is significant that Parliament did not see fit to include in the Act any definition of arrangement', which is not a term of art and is not a word which has a very precise meaning. Looking at the setting in which it is used in s 88F, we are of the opinion that in one of its meanings arrangement' embraces transactions which do not give rise to contracts or obligations, that is to say, obligations enforceable at law; but we are also of the opinion that in another meaning it embraces a situation where there exist two or more separate contracts which, notwithstanding their separateness, are, given the facts, so sufficiently associated with each other in a practical sense as together to constitute an arrangement of which each contract is a part . 40 It can be seen that the reasoning above supports the finding of the arrangement in the current matter. Under the terms of the relevant arrangement, it is apparent that the appellant was to personally perform the work of caretaker, and was also closely associated with the execution of the relevant contract as principal director and shareholder of the corporate entity known as Regis Towers. 41 As we have stated, there has been no substantive examination of the relevant contractual arrangements and the appellant's connection with those arrangements. The material upon which we are able to rely at this stage of the proceedings includes the originating summons filed by the appellant on 27 April 2005, which provides a summation of the relevant contractual arrangement between the parties as follows: (a) In early 1999, the appellant was principal director and shareholder of Cesscut Pty Ltd (later known as Regis Towers).

(d) In August 1999, by hand of the appellant, Regis Towers executed the Caretaker Agreement with Owners Corporation. (e) Contrary to the representations made by Meriton to Regis Towers and the appellant, the standard of the strata scheme pertaining to the relevant complex (herein the caretaker duties were to be completed) was not satisfactory, in that it did not comply in certain respects with the Building Code of Australia and, consequently, the remuneration payable under the Caretaker Agreement was insufficient to permit Regis Towers and the appellant to discharge their duties under that Agreement, resulting in considerable loss to both Regis Towers and the appellant. (f) A compulsory administrator was appointed to the strata scheme on 27 January 2003, and on 17 September 2004, Regis Towers and the appellant arranged for the appointment of a voluntary administrator to Regis Towers by reason of Meriton Finance Pty Ltd obtaining summary judgment against Regis Towers in the sum of $1,225,000, (a debt which had arisen in part by reason of the Caretaker Agreement being unprofitable), who in turn served a garnishment notice upon Owners Corporation, which in turn withheld funds from Regis Towers. 42 Further, the parties had admitted into evidence copies of the relevant contracts for the purpose of the interlocutory proceedings before Marks J. Those contracts may be described as follows:

On 20 April 1999, a deed was executed by Meriton and Cesscut Pty Ltd wherein Meriton agreed to arrange the granting by Owners Corporation to the Caretaker (Cesscut) of the caretaking and letting rights in respect of the development to be constructed by Meriton. In consideration of Meriton undertaking this action, Cesscut agreed to pay Meriton the sum of $1,750,000, which consisted of an initial deposit to be paid to Meriton on the date of the Deed, and two further sums totalling more than $1,600,000 payable to Meriton upon settlement of two separate "land contracts", wherein the appellant agreed to purchase land developed by Meriton in The Regis (cl. 3.1). Further, annual remuneration by Owners Corporation to the Caretaker was to be paid upon settlement of those land contracts.
On 6 August 1999 a Caretaker Agreement was executed by Owners Corporation and Regis Towers ("the Caretaker"), to appoint the Caretaker to fulfil certain duties with respect to The Regis complex. The Owners Corporation agreed to grant the Caretaker leasing and sales agency rights, and to pay the Caretaker in excess of $670,000 per annum for performance of relevant duties. Whilst the document refers to the Caretaker's employees and agents, cl. 27.2 provides as follows: [27.2] The persons used by the Caretaker to carry out the Caretaker's duties and functions, who are not the principal shareholders or directors of the Caretaker, will require the prior approval in writing of the Executive Committee of the Owners Corporation, such approval not to be unreasonably withheld.... Further, the relevant duties of the Caretaker included the principal person performing the duties of the Caretaker to reside in the complex (Sch. 2, cl. (d)). Other duties to be performed included cleaning and concierge responsibilities.
On 17 October 2000, the original Caretaker Agreement was varied, by agreement, by Owners Corporation and Regis Towers. The variations concerned changes to remuneration levels, an increase to the level of some services provided by Regis Towers, and to clarify some details of the arrangement between the parties to the contract. 43 Notably, there is no evidence provided in relation to the appellant's connection with either Cesscut Pty Ltd or Regis Towers. The only oral submissions provided in relation to the nature of the relevant arrangement are those previously referred to as being provided by the appellant. Conclusion - Standing under s 108

44 Applying the principles enunciated in the relevant authorities, it is clear that s 108 of the IR Act should not to be construed so as to confine the meaning of "contract" in the sense contended by the second respondent, or as contemplated by Marks J in the decision under appeal, and to effectively deny the appellant standing as a "party to the contract". It is sufficient to establish that there is an "arrangement" for the purpose of compliance with the standing requirement contained in s 108(a). The relevant contracts outlined above are part of an arrangement which meets the requirements of ss 105 and 108(a). As a party to that arrangement there is no requirement that the appellant needs to be an actual party to the common law contract(s). 45 We consider that where an applicant for relief performs personal services or work in order to fulfil relevant contractual obligations under the terms of an arrangement (although not the same as the relevant contracting entity/individual(s)), and is instrumentally involved in the formulation of a relevant contractual arrangement as the appellant appears to have been, in the capacity of principal director and shareholder of the relevant corporate entity which is a contractual party to the arrangement, prima facie that applicant is a party to the relevant arrangement, and thus a "party to the contract" for the purpose of obtaining standing pursuant to s 108(a) of the IR Act. 46 Accordingly, taking the evidence, as it presently exists, at its highest and having regard to the relevant authorities to which we have referred, we find that the appellant is party to an arrangement involving the appellant and both respondents that is within the definition of contract in s 105 of the IR Act. A conclusion that the appellant has standing under s 108(a) is open on the facts as they have been provided at this stage in the proceedings. It therefore follows that there is no reason to dismiss the proceedings for lack of standing. 47 We propose, therefore, to dismiss the motion filed on 2 March 2006 by Owners Corporation and the motions filed on 23 February 2006 by Meriton and Owners Corporation, with respect to the applications to have the proceedings struck out or stayed. We also propose to dismiss the motion filed on 27 August 2006 by the appellant seeking that the proceedings be amended.

58 In our view, the trustee made the relevant election under ss 60(2) and (3) in his correspondence of 7 January 2006, indicating that an assignment of a chose in action had been made to the appellant. We agree with the reasoning of Marks J in this respect, and find that his Honour's approach in this regard is consistent with that applied in Brien and in Baker v Sheridan [2005] NSWCA 408 ("Baker v Sheridan"). 59 The decision of the Federal Court in Brien is authority for the proposition that an election may be valid, although an assignment of the relevant chose in action (as "property") is made to a third party, whether that assignment is made before or after the election in question. Further, little formality is required in communicating an intention to prosecute an action in order to comply with ss 60(2) and (3). Madgwick J reasoned as follows: 11 The Act appears at least to contemplate that, upon a bankruptcy occurring, persons who have been sued should not be further troubled by the suit unless the independent trustee has formed the opinion that the action is worth pursuing. The mere act of election will not necessarily and does not of its own force expose the trustee to personal liability for costs. It seems that the "preferable opinion" is that the trustee should be substituted as the plaintiff in the action: Ryan v Hopkinson (1993) 16 FamLR 659 per Priestley JA…. 12 However, there is nothing to stop a trustee, after an election to prosecute the action, from assigning the rights of the bankrupt estate in the action to a third party. The third party may then be substituted as the plaintiff. On such an assignment and substitution, the trustee would have no continuing power to influence the course of the proceedings, except by agreement with the assignee. Thus, the purpose of the Bankruptcy Act is not to assure the defendants in an action begun by a bankrupt that, if the trustee elects to prosecute the action, then he or she will necessarily remain personally available to meet costs or to direct the manner of further prosecution of the action. 13 These considerations affect the meaning to be accorded to the expression "to prosecute" in s 60(2). The phrase cannot mean "to prosecute personally" or "to prosecute under the trustee's direction". Once it is appreciated that the phrase, on the contrary, may include the meaning, "to prosecute or to arrange the prosecution of the action by any assignee who is not a bankrupt", the nature of the election is illuminated. The ability so to elect is obviously not retroactively vitiated by the subsequent assignment of the right to conduct the action in question. 14 Neither, in my opinion, is there any warrant to constrict the notion of an "election" in s 60(2) so as to make it impossible for an assignment which pre-dates the election to take effect. To interpret the notion of the trustee's "election" as the respondents contend is apt to have a number of unfortunate effects. One is to give an unwarranted benefit to the defendants in the action. Another is to disappoint the assignee. A third may be to prevent the bankrupt's estate from retaining either the consideration for the assignment or the rights in the action…. 15 It is apparent, from the trustee's having assigned the right to conduct the action, that it was the trustee's intention that the action should continue. It would be the trustee's implied obligation to the assignee not to fail, except for reasonable cause, to take available steps to make the assignment effective. The Act expressly requires no formality of an election except that it be in writing and implicitly it only requires that such election be communicated to the defendant(s) in the action and to the forum court within a reasonable period or periods. The written assignment in this case may therefore have amounted to an election contemplated by the Act. However, it is unnecessary to decide that question. 16 These considerations lead me to think that the expression "to prosecute" in s 60(2) should be interpreted as including the meaning "to arrange the prosecution of the action by an assignee, who is not a bankrupt, whether or not the assignment occurs before or after the trustee's election to prosecute". 60 This judgment was endorsed by Mason P in the New South Wales Court of Appeal in Baker v Sheridan, at least in terms of what might constitute a valid election. In that matter, the provision of a Notice of Assignment, indicating that the litigation in question would be prosecuted by and through an assignee was held to be valid. The election was found to be clear and unconditional, and it was contended that it would be absurd to suggest that the Official Receiver "in the one breath" discontinued or abandoned the appeal in question, "while at the same time indicating that an assignee claiming through the trustee would be prosecuting the appeal" (at [39]). 61 These decisions appear to provide support for his Honour's claim that the trustee's intentions with respect to the election ought to be ascertained "not only from the language used but from the course of action proposed", and the contention that, on this basis, the election was prima facie valid. Further, it is clear that an election will not be rendered invalid because it was made contemporaneously with an assignment to a third party.

(i) Section 134 of the Bankruptcy Act includes a power to assign property vested in the trustee. There is no warrant to read in a limitation in s 134(1)(a) "excluding any sale, transfer or assignment to the bankrupt". (ii) In this instance, the chose in action is property that vested, when the appellant became a bankrupt, in the trustee under s 58(1)(a). Section 58(1)(b) is not directed to and is distinct from property caught by and within s 58(1)(a). (iii) Neither s 58(1)(a) nor s 58(1)(b) are directed to a re-vesting of property already vested in the trustee. The circularity construction adopted by the trial judge assumes a construction of s 58(1)(a) and (b) that catches a re-vesting of property already vested in the trustee. There is no warrant for this construction. (iv) On its face, s 58(1) is concerned with property not vested in the trustee and it is in no way apparent that there was any legislative purpose intending to catch property already vested in the trustee. Accordingly, a harmonious construction of s 58 with s 134 is readily able to be achieved by recognising that s 58(1) is not concerned with property already vested in the trustee. In these circumstances, the reference to "after acquired property of the bankrupt" does not include property already vested in the trustee. Accordingly, there is no circuitous situation. (v) Section 134 ought not to be read down based on the irrelevant notion that the bankrupt is somehow the subject of a legal disability. A bankrupt does not "cease to be a person in the eyes of the law" upon bankruptcy, and reliance upon policy considerations, which are in no way apparent, to effectively prohibit any assignment of a chose in action to a bankrupt is contrary to Article 7 of the Universal Declaration of Human Rights. (vi) The decision by Wheeler J in Temsign (applied by Bennett J in Jambrecina v Official Trustee in Bankruptcy [2003] FCA 1352 and followed by Master Newnes in Willoughby and Others v Clayton Utz (2005) 193 FLR 373) is flawed in principle, is contrary to the proper construction of the provisions and should not be followed.

70 Wheeler J distinguished the reasoning in Temsign from that in Cirillo, wherein it was contended that the power of sale under s 134 of the Bankruptcy Act extended to a power to sell to the bankrupt, on the basis that the assignee had been discharged from bankruptcy prior to the relevant assignment. Her Honour similarly did not follow the judgment in Nguyen, a matter involving an assignment to a discharged bankrupt and another whose bankruptcy was unclear, wherein French J had endorsed the English decision of Kitson v Hardwick (followed in Ramsey v Hartley [1977] 1 WLR 686). In the latter judgment, Willes J rejected the notion that a chose in action would re-vest in a trustee immediately upon assignment, his Honour finding as follows in relation to such an argument (at 479): That at first sight would seem to be a plausible argument. But I apprehend the law is not so stringent and unjust. There is some property which a bankrupt may deal with and which cannot be claimed by the trustee. For instance, the proceedings of manual labour. These he may clearly hold; and with these he might purchase the goods or the debts from the trustee, and the trustee could no more seize the goods than he could the money itself…. 71 Willes J also pointed out the potential benefits to assigning a chose in action to a bankrupt, as follows (at 478): Having had much experience in bankruptcy, I have seen the advantage of giving the debtor a chance of getting back the business, especially where it is one which depends upon the personal influence or skill of the individual. In many cases a higher price might be obtained from him than a stranger would be willing to give. We are bound to put the ordinary construction upon the words of the Act, unless the doing so will be manifestly inconsistent and contrary to the general scope and policy of the legislation: and, when the Act says the trustee may sell the estate to any person, and that any person buying may sue in his own name in respect of it, I see nothing inconsistent or contrary to the policy of the Act in holding that a sale to the bankrupt himself is not even voidable. 72 These policy considerations, however, were outweighed by the "specific policy underlying s 60", according to Wheeler J (at 91), and it was the latter policy which ultimately led to the final determination. 73 The conclusion in Temsign that a purported assignment to an undischarged bankrupt is ineffective has been endorsed by Madgwick J in Brien, wherein it was observed that: [13]...(O)nce it is appreciated that the phrase, on the contrary, may include the meaning, "to prosecute or to arrange the prosecution of the action by any assignee who is not a bankrupt ", the nature of the election is illuminated (emphasis added). See also [17] in Brien ; Bennett J in Jambrecina v Official Trustee in Bankruptcy at [30-31]; Mason P in Baker v Sheridan at [38]; and Master Newnes in Willoughby & Ors v Clayton Utz .

78 We do not propose to follow the decision in Temsign for the reasons that follow. 79 There is clearly some discrepancy between the divergent lines of authority, and it would appear that divergent views therein reflect differing conclusions as to the purpose of the Bankruptcy Act. In our opinion, it is not appropriate to construe s 134, particularly as it operates in combination with s 58, as intending to preclude any assignment of a right to bring proceedings to an undischarged bankrupt on policy grounds, as occurred in Temsign and in the interlocutory judgment. We do not agree with Marks J that the bankrupt's rights to bring proceedings should be so severely proscribed, for the necessary limitations placed upon a bankrupt as a consequence of the legislative provisions within the Bankruptcy Act are only one aspect of the objectives of that statute, and ought to be reasonable in their application. 80 It is clear that the Bankruptcy Act is concerned with protecting the interests of creditors. Kirby P in Daemar refers to the bankrupt's property vesting in the trustee so that the property might be distributed "principally for the benefit of the creditors". There is no proper basis to conclude that s 60, in particular, is designed to protect the interests of third parties involved in litigation by prohibiting a bankrupt from litigating in all instances other than those set out in s 60(4). There is, however, a balancing exercise which the trustee must embark upon. As Branson J observed in Cirillo, at (585), the "principal duty of the trustee is to consider the interests of creditors of the bankrupt estate in question as a whole". However the trustee may also be mindful of the "legitimate interests of the bankrupt and to the legitimate interests of other parties likely to be affected by the trustee's decision". Thus, it may be appropriate for the trustee to act in the interests of the bankrupt, where those interests do not conflict with the interests of creditors. 81 We agree with the appellant's submission that s 134 empowers the trustee to do a number of things which might benefit the bankrupt (see, for instance, s 134(1)(m) which provides that the bankrupt may be employed to carry on the bankrupt's trade or business for the benefit of the creditors, or s (1)(ma), which provides that allowance may be made out of the estate as is appropriate for the bankrupt). Whilst the rights of a bankrupt ought certainly to be circumscribed, where necessary, to ensure that the trustee is able to fulfil the trustee's duty to relevant creditors, there is nothing in the Bankruptcy Act which would indicate that that circumscription ought to be applied where assigning a right to litigate to a bankrupt may be a real benefit to the creditors, as was the case in the present instance. Indeed, s 134 imposes no such limitation upon the trustee in dealing with the bankrupt's property. 82 We have noted above that the decision in Temsign allows for an assignment on discharge of bankruptcy but not to a undischarged bankrupt, and that the decisions in Cirillo and Nguyen relate to assignments concerning discharged bankrupts. We have taken the view that those latter cases do not address any distinction between undischarged and discharged bankrupts in relation to an effective assignment and, where they do consider the effectiveness of an assignment, they emphasise the balance of the duties of the trustee to creditors, the bankrupt and other parties. However, there is no basis, in our view, to conclude that the assignment is ineffective because the appellant is an undischarged bankrupt.

86 For these reasons, we do not consider that the assignment to the appellant as a bankrupt was invalid. Effect upon the validity of the election of the assignment being ineffective The first instance judgment 87 Having previously stated that the correspondence of 7 January 2006 constituted, prima facie, an election to prosecute the action in question, his Honour then concluded that the election was invalid on the basis that the trustee's correspondence containing the election contemplated that the "proceedings were to be continued by reference to and having regard to the purported assignment". There was no "clear, unconditional election on the part of the trustee to continue the action in his own right absent any assignment to the bankrupt applicant" (at [53]). The election was held to be invalid because it contained, as an "integral component", an assignment which was ineffective. The proceedings were thus deemed to have been abandoned. A similar argument was upheld in Temsign by Wheeler J, at (93), where it was considered that as the assignment was invalid, the course of action taken by the trustee in assigning the chose to the bankrupt "amounted to a refusal to make election with the result that he is deemed to have abandoned the action". Submissions 88 The appellant submitted that the validity of an election ought not to be seen as dependent upon the efficacy of the assignment. In this instance, the trustee clearly expressed an intention that the proceedings were to be prosecuted, without any explicit or implicit reference to any "condition" which related to the assignment, in keeping with the requirements in s 60(2) that an election be unconditional. 89 The respondent, on the other hand, argued that the determination by Marks J that the trustee's election was prima facie valid was incorrect. Whilst it is appropriate that the relevant correspondence must be construed by reference not only to its terms but also from surrounding circumstances, the election was not valid if the trustee was purporting to elect to have the proceedings continued by an undischarged bankrupt. Consideration

90 It is difficult to reconcile his Honour's earlier reasoning with the ultimate determination that the election was invalid because it was somehow conditional upon an (ineffective) assignment. It is not clear on what basis the validity of the election became dependent upon the efficacy of the assignment, and we agree with the appellant's submission that his Honour appeared to be erroneously reading an implicit condition into the election. In order to comply with ss 60(2) and (3), the trustee must make a valid election. The validity of an election depends upon the trustee indicating in writing, even implicitly, an intention, that the relevant chose in action will be prosecuted or discontinued. 91 As Madgwick J determined in Brien, there is no requirement, in order to comply with ss 60(2) and (3), for formality in terms of how the election is expressed. Further, where prosecution of an action has been assigned to a third party prior to an election, the assignment does not render the election invalid, but merely serves as a (further) indicator that the trustee intended that the litigation in question would proceed (although Madgwick J did say all this on the basis that it was an assignment other than to a bankrupt at [13]). There is no basis for concluding that an election will be rendered invalid if an assignment is ineffective, or that there is any obligation upon a trustee to assess whether a relevant assignment is effective in law. There is simply no basis for the distinction made by his Honour between an election which is prima facie valid, and subsequently invalid on the basis that the relevant assignment is ineffective. 92 In our opinion, the assignment was not rendered ineffective on the ground that it was made to an undischarged bankrupt, and thus could not render the election invalid as a consequence of it being ineffective in law. Effect of a valid assignment upon election 93 As there has been a valid assignment made by the trustee by deed of assignment made on 20 December 2005, is the subsequent election made on 7 January 2006 invalidated on that basis? His Honour held at first instance (at [29]) that where an assignment by a trustee to a bankrupt is found to be effective, any subsequent election will then be invalid on the ground that the trustee would have no entitlements, rights or interests with respect to the proceedings for the purpose of making an election, having previously assigned the same to another party (see also Temsign at 93for similar reasoning). 94 We do not agree with this conclusion. The act of assigning a chose in action to the appellant does not result in the trustee having no right to make a subsequent election. Similar reasoning was rejected by Madgwick J in Brien, where it was raised by the respondents, his Honour determining that an election made after an assignment was valid, further observing as follows, at [14]: Further, it is not the case that upon an assignment of the right to the benefit of a particular action, the trustee is irrevocably disconnected from the action: the trustee might buy back such a right. Had the trustee done so here, then, as I apprehend it, the objection taken could not be sustained. The applicant might, indeed, still do so. It would be odd if the ability to elect could be extinguished and then resurrected in that way.

Rose v Meriton Apartments Pty Ltd and anor

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