Simonsen v Legge [2005] FMCA 191

3. The Application was the subject of a video link hearing conducted on 25 February 2005. At the hearing Counsel for the Official Trustee submitted that the Applicant does not require leave to continue the proceedings in the District Court on the basis that the Official Trustee had decided that the Applicant's claim against the Bankrupt is not a provable debt. Accordingly it was submitted the appropriate course for the Court to follow would be to dismiss the Application for Leave to Proceed with no order as to costs.

4. On the basis that the District Court Proceedings do not relate to a provable debt it was submitted on behalf of the Trustee that the Applicant does not require leave of the Court under s.58(3) of the Bankruptcy Act in order to proceed in the District Court. Reliance was placed upon the decision of the Federal Magistrates Court in the matter of Badgery v Nash & Anor [2002] FMCA 149 (11 July 2002). The Respondent submitted that based on that decision the Applicant's District Court proceedings do not relate to a provable debt. The facts in the Badgery v Nash case, it was submitted, are identical to the Applicant's circumstances. Although in that case the case involved a claim regarding representations where money was paid to a company in return for shares, it was found the claim was in the nature of an unliquidated claim for damages notwithstanding that a specific amount was sought. Reliance was placed upon paragraph 18 of the Court's decision where the Court states:-

"18. I am, however, having heard Mr Drysdale, persuaded that I should distinguish those cases on the basis that, on a proper interpretation of s. 82(2), the relevant contract needs to be a contract between the debtor and the creditor: Reid v Interarch Australia Pty Ltd [2000] FCA 1328; ACCC v Kritharas. The contract in this case was not between these parties. That contract in addition does not form an essential element of the causes of action now being pursued in the Queensland Magistrates Court: Aliferis v Kyriacou. I am therefore drawn to the finding that those proceedings do not, for the purposes of section 82(2), arise out of the contract for the purchase of shares, which provides some factual basis for the claim only."

5. It was submitted by the Respondent that the District Court proceedings by the Applicant are for an unliquidated claim and do not relate to a provable debt by virtue of s.82(2) of the Bankruptcy Act. Accordingly the Respondent claims that the Applicant does not require leave of the Court under s.58(3)(b) in order to take a fresh step in the District Court proceedings. It was noted however that if the Applicant obtained a judgment in the District Court then he would not be able to enforce that judgment against any property of the Bankrupt which was previously vested in the Official Trustee as that property no longer belongs to the Bankrupt personally.

6. I should add for the sake of completeness that it is noted in the District Court proceedings that there is another Defendant to those proceedings.

7. The Applicant who is unrepresented claimed that the decision in the Badgery case was distinguishable as it related to a misrepresentation resulting in the provision of shares and did not apply to the current application and was accordingly not relevant. He persisted with his leave application.

8. Section 82(2) of the Bankruptcy Act provides as follows:-

"(2) Demands in the nature of unliquidated damages arising otherwise than by reason of a contract, promise or breach of trust are not provable in bankruptcy."

9. The Writ of Summons issued in the District Court sets out the claim in what is described as a "Substituted Statement of Claim". In part the Plaintiff claims that in or about July 2001 he was offered by the Defendants as company directors a one-third share in a company. In return the Plaintiff would become a shareholder in the company and be appointed as a Director. Finance was obtained, according to the pleading, and payment made by the Plaintiff to the Defendants for the one-third share in the business. The Plaintiff claims that he did not receive shares in the company or provided with a share certificate and was not listed as a shareholder and as a result he claims loss and damage, the particulars of which are described as follows:-

a) $48,000 paid into the company for no consideration

b) $3,664.00 being additional bank costs incurred by the Plaintiff

10. In the Statement of Claim the Plaintiff further claims the sum of $51,664.00 and damages together with interest.

11. The claim appears to be based upon a breach of a "verbal agreement" which by virtue of the Defendant's failure to issue shares in the company to the Plaintiff and/or provide the Plaintiff with a share certificate or list the Plaintiff as a shareholder has been breached resulting in loss and damage. A further claim is made for what is described as "misrepresentation" and reliance is placed upon s.52 of the Trade Practices Act 1974 (Cth).

12. Hence, it may be argued that at least in part a claim under a contract, that is the verbal agreement, and in part a claim for misleading and deceptive conduct under s.52 of the Trade Practices Act with damages presumably to be claimed under s.82 of that Act. In this case although there is an amount of damages specified and variously described there is also a further general claim of damages which in my view would mean that the Badgery authority is not directly relevant. It is sufficient to note that the claim would appear to be for unliquidated damages but that leaves open the question of whether or not arises "otherwise than by reason of a contract, promise or breach of trust". In this case it would appear that there was reliance upon the Trade Practices Act and what I would describe as unliquidated damages arising out of that claim. Although the damages may otherwise be described as unliquidated damages, it seems to me that reliance upon the verbal agreement and what might be described as the promise is sufficient for the purpose of s.82 to provide a claim in contract. What is required in s.82(2) in order to find that the demand is not provable is that a `contract' or `promise' shall not be an element of the cause of action (see Aliferis v Kyriacou [2000] VSCA 123; (2000) 1 VR 447 per Brooking JA at 451).

I am aware that the decision of Brooking JA may appear to be different from the view taken as indicated by His Honour by other Courts and in particular the Federal Court in Re Sharp; ex parte Tietyens Investments Pty Ltd (in liq) & Anor [1998] FCA 1367 though for present purposes I prefer the approach adopted by Brooking JA.

13. In my view the verbal agreement and/or promise in the present case would appear prime facie to at least be properly regarded as an essential element of one of the causes of action relied upon by the Applicant in the District Court Proceedings. For the purpose of s.82(2) a contract means an actual contract whether express or tacit and can include an implied term of a contract whether there is actual agreement and that "promise" means a promise which is legally enforceable such as one made for consideration or without consideration but by deed. Again, I refer to the decision in Aliferis v Kyriacou per Brooking JA at 49-452 and per Charles JA at 461.

14. Accordingly in my view it is incorrect to suggest that the claim of the Applicant in the District Court could not be regarded as a provable debt. Had it simply been a claim under the Trade Practices Act for unliquidated damages then that assessment may have been correct. It includes from the pleadings to which I have referred at least the possibility of the cause of action based upon contract or promise which at least may be enforceable albeit the claim in each of those causes of action would appear to be for unliquidated damages.

15. For those reasons in my view it is necessary to consider whether the Court should grant leave to the Applicant to continue the proceedings pursuant to s.58(3) of the Bankruptcy Act. In the absence of any agreement to accommodate the claim as a provable debt and having regard to the affidavit material filed on behalf of the Applicant setting out the basis of the claim against the Bankrupt, in the exercise of my discretion it is appropriate to grant leave to the Applicant to continue the District Court Proceedings pursuant to s.58(3)(b) of the Bankruptcy Act. To the extent that I may be required to do so I am prepared to grant the order "nunc pro tunc" given that the proceedings commenced in the District Court appear to have been filed on or about 31 December 2003 and perhaps other steps have occurred since the Bankrupt became bankrupt on 22 March 2004. Hence, the appropriate order of the Court will be as follows:-

(1) Pursuant to s.58(3)(b) of the Bankruptcy Act 1966 Mark Jeffrey Simonsen is granted leave to commence and continue proceedings in the District Court of Western Australia in Action No. 586 of 2004 against Geoffrey Spencer Legge.

I certify that the preceding fifteen (15) paragraphs are a true copy of the reasons for judgment of McInnis FM