Theissbacher v MacGregor Garrick & Co

Federal Court of Australia|1995-08-18|Before: Cooper J

THE COURT ORDERS THAT: 1. The notice of motion of the first, second, fifth and sixth respondents is dismissed. 2. The first, second, fifth and sixth respondents pay the applicant's costs of and incidental to the notice of motion to be taxed, if not agreed. 3. The notice of motion of the third and fourth respondents is dismissed. 4. The third and fourth respondents pay the applicant's costs of and incidental to the notice of motion to be taxed, if not agreed. 5. The application is listed for further directions at 9.30 am 5 February 1999. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

BETWEEN: ivor worrell as trustee of the bankrupt estates of geoffrey ross fletcher and janice beryl fletcher

By two notices of motion filed by the first, second, fifth and sixth respondents and the third and fourth respondents respectively, the respondents seek orders that the present proceedings be stayed or dismissed. The respondents contend that the claims and the subject matter of the present proceedings were abandoned or waived as a consequence of the conclusion of the proceedings QG164 of 1995 and that the issues arising in those proceedings are now res judicata or give rise to a cause of action estoppel. For this reason, the respondents contend that the proceedings should be stayed or dismissed. In the alternative, they seek orders that so much of the application and statement of claim, as seeks relief under the Act, be struck out on the ground that the period for bringing proceedings under the Act had expired by 8 April 1998. They also seek orders that the pleadings, to the extent that they allege a cause of action in deceit, be struck out on the basis that such a claim "cannot possibly succeed".

Section 60 of the Bankruptcy Act 1996 (Cth) ("the Bankruptcy Act"), so far as is presently relevant, provides :- "60(2) An action commenced by a person who subsequently becomes a bankrupt is, upon his becoming a bankrupt, stayed until the trustee makes election, in writing, to prosecute or discontinue the action. (3) If the trustee does not make such an election within 28 days after notice of the action is served upon him by a defendant or other party to the action, he shall be deemed to have abandoned the action. .... (5) In this section, 'action' means any civil proceeding, whether at law or in equity." The respondents submit that the effect of an abandonment under s60 of the Bankruptcy Act is to destroy the applicant's right to litigate the matters the subject of the present proceedings and that having made an election not to prosecute QG164 of 1995, he has waived his right, if any, to continue to prosecute it. In support of this proposition they rely upon the obiter dicta observations of Pincus JA and White J in Theissbacher v MacGregor Garrick & Co (a firm) [1993] 2 Qd R 223 at 230. To succeed on this ground the respondents must show that an abandonment under s60 operates as an abandonment of the underlying cause of action or right to statutory relief as opposed to an abandonment of the action or court proceedings. The authorities are against such a conclusion. Section 142 of the Common Law Procedure Act 1852 (UK) was to similar effect to the provisions of section 60(2) and section 60(3) of the Bankruptcy Act. The operation of s142 was considered in Bennett v Gamgee (1876) LR 2 Ex D 11 where Kelly CB and Cleasby B held that the fact that the trustee had elected not to continue an action brought by the bankrupts prior to insolvency did not prevent the trustee commencing fresh proceedings. The underlying reasoning for such a conclusion was that the trustee did not merely stand in the shoes of the bankrupt in respect of the proceedings commenced by the bankrupt. Rather, the right of action vested in the trustee upon the bankruptcy of the debtors. The trustee's right to sue on the cause of action, and bring it to account for the benefit of creditors generally, arose under the statute (at 13 - 14). What was abandoned was the pending action and not the underlying cause of action. The decision was upheld on appeal in the English Court of Appeal: (1877) 36 LT Rep NS 48. The decision in Bennett v Gamgee was applied by Manning J in the Supreme Court of New South Wales in respect of s10(6) of the Bankruptcy Act 1887 (NSW): Re Summerhayes; ex parte The Official Assignee (1890) 1 BC (NSW) 24. The reasoning underlying the decisions in Bennett v Gamgee and Summerhayes and its application in respect of s60 of the Bankruptcy Act arose for consideration in Re Kwok; Ex parte Rummell (1981) 61 FLR 336. The application before Rogerson J in Re Kwok was to set aside a summons for examination issued pursuant to s81 of the Bankruptcy Act. Counsel for the applicant argued that as the bankrupt's action had been struck out and the trustee had abandoned the action, no future action could be brought and the examination was an abuse of process. In dealing with the question of abandonment by operation of s60(3), counsel for the applicant argued that Bennett v Gamgee was not good authority in Australia and Summerhayes' case was wrongly decided. His Honour concluded (at 342 - 343) :- "I am unable to accept Miss Richards' [counsel for the applicant] arguments that these cases affect the authority of Bennett v Gamgee (1876) 35 LT 764 or Summerhayes' case (1890) 1 BC (NSW) 24 or that when s60 of the Bankruptcy Act says the bankrupt's action shall be abandoned, it means that the cause of action vested in the trustee is abandoned. In my opinion both Bennett v Gamgee and Summerhayes' case were correctly decided, and are applicable in the present case. The Act, by providing that the trustee who does not elect to prosecute or discontinue within twenty-eight days of notice served upon him, merely serves to remove uncertainty as to whether or not the trustee intends to go on with the bankrupt's action by effectively forcing him to decide. What effect the deemed abandonment of that action by the trustee may have had upon the bankrupt's action if he subsequently again becomes free to prosecute it himself will depend on the order made in that action by the court in which it was brought, and not on the Bankruptcy Act. But the fact that the trustee decides, or is treated as deciding, to abandon the bankrupt's action does not prevent him from enforcing the right to the chose in action which vested in him on bankruptcy by a new action of his own. The reasoning of Bennett v Gamgee and Summerhayes' case seems to me to be as apposite and applicable now as it was when those decisions were reached. If Parliament had in 1966 or earlier wished to alter the law as laid down in those cases it was open to it to do so. ..." The obiter comments in Theissbacher have expressly been rejected in this court by Drummond J in Re Gargan, ex parte Gargan v Official Trustee in Bankruptcy (unreported, 18 August 1995 at pages 35 - 36, which was upheld on appeal: unreported Davies, Lockhart and Foster JJ, 4 November 1995) and in the Supreme Court of Western Australia in Stobbart v Mocnaj (1996) 16 WAR 318 at 323 in favour of the reasoning in Bennett v Gamgee, Summerhayes and Re Kwok. In the circumstances of the present case the finding by Spender J of deemed abandonment under s60 of the Bankruptcy Act does not bar these proceedings by the applicant: Re Cirillo; Ex parte Official Trustee (1996) 65 FCR 576 at 589 and on appeal Citicorp Australia Ltd v Official Trustee in Bankruptcy (1996) 71 FCR 550 (FC) at 562; Temsign Pty Ltd v Biscen Pty Ltd (1998) 157 ALR 83 at 93 - 94. Nor does the finding that the applicant elected to discontinue the action bar further proceedings on the same cause of action: Summerhayes at 25. This is because the election operates, like the abandonment, at the level of the action, but not in respect of the underlying cause of action or statutory right. The alternative arguments based on res judicata and cause of action estoppel also fall over because there has been no adjudication on the cause of action and the respondents were not sued to judgment in the previous proceedings. In these circumstances, there is no res judicata or cause of action estoppel: Hoystead v Commissioner of Taxation [1926] AC 155 at 163; Jackson v Goldsmith (1950) 81 CLR 446 at 466 - 468.

The time limitation issue Section 82 of the Act imposes a three year limitation period in respect of an action under s82(1). The period runs from the date on which the cause of action accrues. To determine when the cause of action accrues involves a factual determination of the time at which it is reasonably ascertainable that loss or damage has occurred. It is for this reason and also because no issue arises as to a limitation defence until it is pleaded, that a proceeding cannot be struck out as disclosing no cause of action because of the operation of a statute of limitations: Ronex Properties Ltd v John Laing Constructions Ltd [1983] QB 398 (CA) at 404 - 405; Commonwealth v Verwayen (1990) 170 CLR 394 at 473. Similarly, on an application to stay or strike out a claim as frivolous, vexatious or an abuse of process, it is highly undesirable that limitation questions should be decided in interlocutory proceedings in advance of the hearing of the action except on the clearest of cases: Wardley v Western Australia (1992) 175 CLR 514 at 533. In order to establish that the alleged causes of an action accrued prior to 8 April 1995, the respondents relied upon affidavit material before Drummond J in interlocutory injunctive proceedings in QG164 of 1995. That material, filed on 17 October 1995, demonstrates, the respondents submit, that Mr and Mrs Fletcher from December 1994 at the latest, were aware that the representations were false and that they had sustained loss and damage. The respondents submit that the material before Drummond J represents the highest and best case that can be made out for the applicant and that I should act on that basis. The applicant submits that Mr and Mrs Fletcher were, until they found, by accident in the refrigeration motor room at the supermarket, documents which disclosed overstatements in the gross profit of the business as represented, unaware of why the business was not achieving the represented profitability. That is, they became aware in September 1995 that the business, at and prior to the time when the representations were made, had never achieved the represented level of profitability and that the failure to do so since their acquisition of it was not the result of their conduct in running the business or any external circumstance which had arisen after acquisition of the business. The applicant also submits that the conduct of the respondents, or some of them, may give rise to an estoppel to prevent the respondents relying on any limitation defence. I am not persuaded that the applicant's case will not improve beyond that deposed to by Mr Fletcher in his affidavit filed 17 October 1996 in proceedings QG164 of 1995. Nor am I satisfied in the circumstances disclosed in the material that the case is one of the clearest examples in which it is proper to stay or to strike out as frivolous and vexatious those parts of the application and statement of claim which plead a cause of action under the Act.

The action in deceit The claim in deceit was not part of the previous proceedings. The respondents submit that the affidavit material before Drummond J in QG164 of 1995 provide no basis for a claim in deceit. Rather, they submit that material shows that the representations were a mistake and the inaccuracies in them, when discovered, were a surprise to all parties. As I have already stated, I am not persuaded that the material before Drummond J was the best case which could be made out against the respondents. Further, counsel for the applicant advises that, on trial, evidence will be led to sustain a finding that the stocktaking equipment was deliberately calibrated to create an error in the stocktake which in turn produced an overstatement of the gross profit. If that finding is made it will go a long way to support the pleaded allegation that the representations were made knowing they were false or with reckless indifference as to their truth. On the material before me, I can see no basis to find that the claim in deceit must fail or is otherwise an abuse of process: Dey v Victorian Railway Commissioners (1949) 78 CLR 62 at 91 - 92; General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 130.

Conclusion The respondents have failed to make out any ground for the summary relief claimed in the notices of motion. The notices of motion will be dismissed with costs. I certify that this and the preceding six (6) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Cooper

Counsel for the Applicant: FW Redmond Solicitor for the Applicant: McInnes Wilson

Counsel for the First, Second, Fifth and Sixth Respondents: PA Hastie Solicitor for the First, Second, Fifth and Sixth Respondents: Freehill Hollingdale & Page

Counsel for the Third and Fourth Respondents: CEK Hampson QC with LJAT Hampson Solicitors for the Third and Fourth Respondents: MF Lyons & Associates

Date of Hearing: 5 June 1998 Date of Judgment: 23 December 1998

Trade Practices Act 1974(Cth)s 82

Bankruptcy Act 1996(Cth)

Bankruptcy Act 1887(NSW)

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