[2003] TASSC 98

CITATION: Stocks & Anor v Retirement Benefits Fund Board & Ors [2003] TASSC 98

Bankruptcy - Administration of property - Realisation of property - Powers of trustee to deal with property - Power to sell - Chose in action - Evidence of date of assignment of equitable instrument.

Hodgson v Sidney [1866] LR 1 Ex 313; Timmings v Treadgold [1923] NZLR 73; Grady v Prison Service [2003] EWCA Civ 527; [2003] 3 All ER 745; Nyssen v Minerva Centre Ltd [1940] NSW WN 112, referred to.

Equity - General principles - Assignments in equity - What amounts to an equitable assignment - In general.

Norman v Federal Commissioner of Taxation [1963] HCA 21; (1963) 109 CLR 9, followed.

Judgment Number: [2003] TASSC 98

and ANDREW HAROLD EDWARDS, DAVID GEORGE ELLWOOD

1 The plaintiffs had conducted a business in 1986 at the Northgate Shopping Centre owned by the defendant. They left the premises in 1987 following which they commenced proceedings by writ dated 7 September 1992 claiming damages for misrepresentation, breach of contract and deceptive conduct. The defendant raised in its pleadings that the status of the plaintiffs, as of the date of the writ, precluded them from bringing the action. On 15 May 2003, this Court ordered the hearing and determination as preliminary issues:

(a) whether, on the commencement of this action by the plaintiffs, there were vested in the plaintiffs, the causes of action relied upon by them; and

(b) if the said causes of action were not so vested, whether the defendant should have judgment in its favour.

2 The relevant pleadings comprised in the amended statement of claim and defence, respectively, are:

"12 On the 15th day of December 1988 by Order of the Federal Court of Australia a Sequestration Order pursuant to the Bankruptcy Act 1966 was made against the estate of each of the plaintiffs.

13 The defendant admits the allegations contained in paragraph 12 of the further amended statement of claim.

13 The Official Receiver in Bankruptcy in the State of New South Wales Mr George Caddy from the 15th day of December 1988 became the Trustee of the bankrupt estate of each of the plaintiffs.

14 The defendant admits the allegations contained in paragraph 13 of the further amended statement of claim.

14 On or about the 15th day of December 1988 the plaintiffs' title, right and interest the chose in action vested in George Caddy ('Caddy') as Trustee of the Plaintiff's bankrupt estates.

15 If the plaintiffs had a right to bring and maintain an action against the defendant as alleged in paragraph 11 of the further amended statement of claim (which is denied) then the defendant admits the allegations contained in paragraph 14 of the further amended statement of claim.

15 On or about the 15th day of December 1991 the plaintiffs were discharged from bankruptcy.

16 Save that the defendant says the plaintiffs were discharged from bankruptcy on 16th December 1991, the defendant admits the allegations contained in paragraph 15 of the further amended statement of claim.

16 On or about the 29th July 1992 Caddy orally agreed to assign the chose in action to the plaintiffs.

17 The defendant denies the allegations contained in paragraph 16 of the further amended statement of claim.

17 The terms of the agreement were embodied in a Deed executed on the 30th August 1992.

18 The defendant denies the allegations contained in paragraph 17 of the further amended statement of claim.

18 It was a term of the deed that in consideration of the plaintiff's covenants contained in the said Deed, Caddy transferred conveyed and assigned to the plaintiffs all his right, title and interest in and to the chose in action to the extent that thereafter the plaintiffs were entitled to all proceeds, profits, damages, interest or other monies of whatsoever kind or howsoever arising out of the chose in action.

19 The defendant denies the allegations contained in paragraph 18 of the further amended statement of claim.

19 By virtue of the matters pleaded in paragraphs l6 to l8 Caddy had on or before the 7th September 1992 assigned to the plaintiffs in equity and or at common law all his right, title and interest in and to the chose in action.

20 The defendant denies each and every allegation contained in paragraph 19 of the further amended statement of claim.

20 On or about the 30th day of January 1995 the defendants were given express notice in writing of the assist of the chose in action.

21 The defendant denies each and every allegation contained in paragraph 20 of the further amended statement of claim.

22 The defendant says that as at 7th September 1992, the date on which the writ commencing these proceedings was filed, the right of action against the defendant, if any, which is the subject of these proceedings, remained vested in the plaintiffs' trustee in bankruptcy.

23 By reason of the matters pleaded in paragraph 22 above, the plaintiffs had no right of action against the defendant when these proceedings were commenced, and they were accordingly not entitled to commence, and cannot maintain, these proceedings.

24 By reason of the matters pleaded in the preceding paragraph, these proceedings should be dismissed."

3 The order of 15 May did not specify the form of the evidence to be adduced at the preliminary hearing, but it appears that Evans J, conscious of problems experienced by litigants in person, did not require the parties to proceed by way of affidavit. Accordingly, this hearing was conducted with the use of oral evidence tested by cross-examination.

4 As a consequence of the sequestration order of 15 December 1988, the property of the plaintiffs vested in the Official Receiver, who became trustee of their estates. The Bankruptcy Act 1966 (Cth) ("the Act"), s58(1)(a), provides:

"(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."

Property is defined in the Act, Pt1A, as meaning:

"'property' means real or personal property of every description, whether situate in Australia or elsewhere, and includes any estate, interest or profit, whether present or future, vested or contingent, arising out of or incident to any such real or personal property."

"(i) the property divisible among the bankrupt's creditors; and

(ii) any rights and powers in relation to that property that would have been exercisable by the bankrupt if he or she had not become a bankrupt."

5 Property extends to a cause of action in tort which includes an action for damages for fraud or false representation causing pecuniary loss (Hodgson v Sidney [1866] LR 1 Ex 313; Timmings v Treadgold [1923] NZLR 73; Grady v Prison Service [2003] EWCA Civ 527; [2003] 3 All ER 745). However a trustee in bankruptcy has power to assign his interest in property to another, including the bankrupt. (The Act, s116(2)(g); Nyssen v Minerva Centre Ltd [1940] NSW WN 112.)

6 The plaintiffs were discharged from bankruptcy on 15 December 1991. In early 1992, the first plaintiff entered into negotiations with the trustee, Mr Caddy, attempting to purchase, as a chose in action, the right to bring these proceedings. In March, the trustee declined to countenance the proposal, but following further discussions agreed, on 29 July 1992, to sell the property for an amount of $2,000 and 25 per cent of the nett proceeds of the action if successful. On 29 July 1992 (a date confirmed by Mr Caddy in a subsequent letter dated 15 February 1994), the trustee "gave instructions to the Australian Government Solicitors to prepare a deed" to give effect to his decision, stating:

"Initially, because RBFIT is a creditor in the estate for a small amount, I intended to take no further action regarding the matter. However, the bankrupts have again contacted me regarding the matter and have requested that the chose in action be sold to them. They have agreed to pay $2,000 to the Official Trustee to cover costs and 25% of damages received if successful.

I would be pleased if you would consider this matter and prepare a suitable deed for execution by the bankrupts and myself."

7 On 13 August, the trustee wrote to the plaintiffs, advising that:

"I advise that the Australian Government Solicitor has now drafted a suitable Deed for sale of the chose in action and this will be forwarded to you in the near future.

I have instructed the Australian Government Solicitor that all correspondence will be directed to you and not to Messrs Piggott Wood & Baker at this stage."

8 On 17 August 1992, the Australian Government Solicitor wrote to the plaintiffs in the following terms:

"I act for the Official Trustee in Bankruptcy in relation to the administration of your bankrupt estate. I understand that you were discharged from bankruptcy on 15 December 1991. I further understand that you wish to purchase from the Official Trustee a right of action that you had at the commencement of your bankruptcy against the Retirement Benefits Fund Investment Trust. This right of action vested in the Official Trustee on your becoming bankrupt. My instructions are that it may be sold to you for the sum of $2,000 plus 25% of any nett judgment or settlement sum in your favour. I have drawn up a draft deed which sets out the terms and conditions that the Official Trustee wishes to see in relation to the sale of this right of action. A copy of this draft deed is attached. I would suggest that you get legal advice in respect of this matter and I invite your, or your legal adviser's, comments on the deed and request an indication of your acceptance or otherwise of the term conditions as soon as possible. Upon execution of the deed in a form satisfactory to both the Official Trustee and to you, you will be required to pay over the amount of $2,000 and the right to sue the Trust will then pass over again to you.

Please feel free to contact me, or have your lawyers contact me, at your earliest convenience."

9 The attached draft deed reflected the agreement made with the trustee. However the first plaintiff successfully negotiated a reduction of the amount payable for the assignment to $500 with no percentage of the nett proceeds of a successful action. The plaintiffs amended their copy of the draft accordingly and returned the altered document to the trustee on 30 August. They enclosed a cheque for the sum of $500 payable, as instructed, to the Australian Government Solicitor. A receipt was issued on 4 September referring to:

10 On 30 September, the Australian Government Solicitor forwarded a copy of the deed "signed on behalf of the Official Trustee in Bankruptcy". That deed contained the initialled alterations made by the plaintiffs on 30 August and the seal of the official trustee. It bore the date 29 September 1992, but was the same document initially signed by the plaintiffs on 30 August.

"2 In consideration of the Assignees' covenant hereinafter contained, the Trustee as trustee in bankruptcy of the estates of the Assignees hereby transfers, conveys and assigns to the Assignees all his right, title and interest in and to the chose in action to the extent that hereafter the Assignees shall be solely entitled (subject as hereinafter mentioned) to all proceeds, profits, damages, interest or other monies of whatsoever kind or howsoever arising out of such chose in action."

"... the rights and title of the Assignees existing immediately prior to the date of the Sequestration Order hereinbefore recited to bring and maintain an action for damages without limit at either common law or under the Trade Practices Act 1976 or both against RETIREMENT BENEFITS FUND INVESTMENT TRUST (RBFIT) for losses suffered resulting from the alleged misrepresentations of RBFIT and its officers in dealing with the said assignees in relation to the operation by the assignees of a business at the Northgate Shopping centre, Hobart in the State of Tasmania in 1985 [1986] whereby the assignees were induced by the alleged misrepresentations to enter into the business operation at Northgate and expend money resulting in financial loss, and in furtherance of the said action for damages the rights so assigned include the right of the assignees to take all necessary ancilliary [sic] action to perfect that claim".

The plaintiffs commenced their action by writ dated 7 September 1992.

12 The defendant contends that there had been no assignment until 29 September 1992. The Court does not accept that contention. The Act, s18(1), creates the office of "Official Trustee in Bankruptcy" as a "corporation sole". The official trustee is permitted the use of seals (s18(4)), but is under no statutory requirement to affix them to every document. A corporate sole may act either as an individual or as a corporation, and does not need a seal (Halsbury's Laws of England, 4 ed, Vol9, 1217). The validity of any decision made or agreement reached by the official trustee is not dependent on the fixing of a seal. The seal is evidentiary, not substantive (s18(7)). The officer has wide powers afforded by statute and is entitled to act through other defined persons acting on his behalf (ss18, 8, 8AA, 8A and 8D).

13 In this case, the official trustee was engaged in the assignment of an equity in the form of a chose in action (Norman v Federal Commissioner of Taxation [1963] HCA 21; (1963) 109 CLR 9). In that case involving a taxpayer purporting to assign future income, Windeyer J had reason to consider the nature of an equitable assignment, concluding at 30 - 31:

"If the interest to be assigned is a creature of equity, such as the beneficial interest of a cestui que trust, then, apart from any statutory provisions, an assignment of it can, of course, only be effected in equity; for the common law does not know it. Any present assignment of such an interest, that is to say of a chose in equity, is therefore necessarily an equitable assignment. Such an assignment can be by way of gift; and, except that writing is required by s 9 of the Statute of Frauds, no formality is necessary beyond a clear expression of an intention to make an immediate disposition. In short, there is no reason at all why a person should not give away any beneficial interest that is his: the classic statement is that of Knight Bruce LJ in Kekewich v Manning [1851] EngR 997; (1851) 1 De G M & G 176 (42 ER 519); see too In re McArdle (dec'd) [1951] 1 Ch 669. It is, of course, necessary that the transaction should take the form of, and be intended as, an immediate transfer of the beneficial interest of the assignor, as distinct from an agreement to assign it. The distinction is critical, for consideration is always necessary to attract the support of equity to a transaction that is a contract rather than a conveyance. The judgment of Stuart VC in Voyle v Hughes [1854] EngR 88; (1854) 2 Sm & G 18 (65 ER 283), puts all this clearly (at p31)."

14 Here the official trustee reached an agreement on 29 July 1992 and evidenced its terms in writing. However, the plaintiff did not accept the terms of that agreement which ceased to have any effect. Whether the official trustee was entitled to hold at least the first plaintiff to that agreement is irrelevant. On 30 August 1992, the official trustee reached a different agreement with the plaintiffs, such agreement being evidenced in writing. As of that date, each party to the assignment could require compliance. Even if the provision of the sum of $500 is regarded as a condition precedent, there existed a concluded agreement and assignment of the equity on 4 September 1992. That the official trustee regarded himself as being bound by the agreement is evidenced by an undated notice, the copy of which is dated 30 January 1995, stating:

"TAKE NOTICE that the chose in action herein was assigned by the Trustee in Bankruptcy to TERRANCE IAN STOCKS and GAIL MAREE STOCKS in or about the 30th day of August 1991, in any event no later than the 7th day of September 1991 and that the Trustee in Bankruptcy has no interest whatsoever in the above proceedings, nor is the Trustee in Bankruptcy entitled to any part of any judgment which may be obtained by the Plaintiffs herein, nor will the Trustee in Bankruptcy make any claim whatsoever against the Defendant or any other parties in the above action or any other corporation or person in relation to any matter in anyway relating to the said proceedings.

15 The finding of fact is that the chose in action was assigned to the plaintiffs on 30 August 1992.

16 The determinations of the preliminary issues referred are:

(1) (a) whether, on the commencement of this action by the plaintiffs, there were vested in the plaintiffs the causes of action relied upon by them.

(b) if the said causes of action were not so vested, whether the defendant should have judgment in its favour.