Badcock v PricewaterhouseCoopers & Anor

[2006] SASC 346

Supreme Court of South Australia

(Miscellaneous Appeal: Civil)

BADCOCK v PRICEWATERHOUSECOOPERS & ANOR

[2006] SASC 346

Judgment of The Honourable Justice Debelle (ex tempore)

14 November 2006

BANKRUPTCY - PROCEDURE AND EVIDENCE - PARTIES

Standing to sue - undischarged bankrupt issues legal proceedings - no assignment of entitlement to do so by trustee in bankruptcy - action dismissed on ground that bankrupt lacked standing to sue - appeal from that decision dismissed.

Bankruptcy Act 1966 (Cth) s 5, s 27, s 58, referred to.
Carr v Finance Corporation of Australia Ltd (1981) 147 CLR 246; Licul v Corney (1976) 180 CLR 213; Niord Pty Ltd v Adelaide Petroleum NL (1990) 54 SASR 87; Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 35; re Nguyen; ex parte Official Trustee in Bankruptcy (1992) 35 FCR 320; Willoughby v Clayton Utz (2005) 193 FLR 373, applied.

BADCOCK v PRICEWATERHOUSECOOPERS & ANOR
[2006] SASC 346

Miscellaneous Appeal

1. DEBELLE J.        The appellant is an undischarged bankrupt. An order sequestrating his estate was made on 21 December 2001. Mr C.L. Ambrose is the trustee of the appellant’s bankrupt estate. The appellant has not filed a statement of affairs with the Official Receiver and remains an undischarged bankrupt.

2. The appellant submits that there is no valid order sequestrating his estate. His submission misconceives the effect of the sequestration order. Furthermore, the appellant attempted to have the sequestration order reviewed or set aside. His application was dismissed by a Federal Magistrate on 30 January 2002.

3. The appellant also seeks to submit that in some way this Court should not act on the sequestration order contending that, as it is a nullity, no force or effect should be given to it. While the sequestration order stands in the Federal Court this Court must give effect to it. That is especially so given that s 27 of the Bankruptcy Act 1966 (Cth) invests exclusive jurisdiction in bankruptcy in the Federal Court and in the Federal Magistrates Court. Expressed another way, this Court has no jurisdiction to set aside the sequestration order. It follows that this case must act on the footing that the sequestration order remains in full force and effect.

4. On 2 February 2006, the appellant commenced an action in the District Court of South Australia. In that action he alleged negligence against PricewaterhouseCoopers, who had prepared a report on a company controlled by the appellant called Austfurn Pty Ltd and who had acted as receivers of Austfurn Pty Ltd. That action was commenced well after the sequestration order and while the appellant remained an undischarged bankrupt. Mr Ambrose has not assigned to the appellant any right vested in him as trustee in bankruptcy to institute legal proceedings.

5. On 10 March 2006, the appellant applied for summary judgment in the District Court action or, alternatively, for leave to act as the next friend of his parents.

6. On 16 March 2006, the defendants applied for an order extending the time within which to file their defence. It seems that, at that stage, the defendants were either not aware or had overlooked that the plaintiff was an undischarged bankrupt. However, on 15 May 2006 the defendants applied for an order dismissing the appellant’s claim or, in the alternative, an order striking it out on the ground that, because the appellant was an undischarged bankrupt, he had no entitlement to institute legal proceedings.

7. On 6 July 2006, the three applications were heard by a Master of the District Court. The appellant asked that his application of 10 March 2006 and the defendants’ application of 16 March 2006 be heard before the defendants’ application of 15 May 2006 to dismiss or strike out the action. The Master declined the appellant’s request and said that it was necessary to deal first with the question whether the appellant was entitled to bring the proceedings.

8. After hearing argument, the Master dismissed the appellant’s action on the ground that the appellant was an undischarged bankrupt and was not therefore entitled to institute the action. The appellant appealed from that decision to a Judge of the District Court who dismissed the appeal. The appellant has appealed to this Court from the judgment and orders of the District Court Judge.

9. The first question is whether the orders of both the Master and the Judge of the District Court are final orders or interlocutory orders for which leave to appeal is required. A judgment or order is final if it finally determines the rights of the parties: Licul v Corney (1976) 180 CLR 213 per Gibbs J at 225; Port of Melbourne Authority v Anshun Ltd (1981) 147 CLR 35 at 38; Carr v Finance Corporation of Australia Ltd (1981) 147 CLR 246 at 248. The question whether the judgment or order finally determines the rights of the parties is to be determined by considering its legal effect and not its practical effect: Carr v Finance Corporation of Australia Ltd at 248. A decision that a plaintiff does not have standing is a decision which, as a matter of law, finally determines the rights of the parties in that the plaintiff cannot prosecute the action in any way. On that footing, the decisions of the Master and of the Judge in the District Court were a final decision. However, the question whether the orders made in the District Court were final or interlocutory is of no material consequence in this matter, as on either footing the appellant must fail. The reasons for that conclusion follow.

10. When the appellant became a bankrupt, the property then held by him vested in the trustee in bankruptcy of his estate. In addition, any property acquired by the appellant thereafter also vested in Mr Ambrose as trustee in bankruptcy. That is the effect of s 58 of the Bankruptcy Act.

11. The word “property” is defined by s 5 of the Bankruptcy Act and includes “real or personal property of every description”. Personal property includes the right to institute legal proceedings or continue them: re Nguyen; ex parte Official Trustee in Bankruptcy (1992) 35 FCR 320 at 325. The consequence is that any right which the appellant has to institute proceedings is property and is vested in Mr Ambrose as the trustee in bankruptcy of the appellant’s bankrupt estate. Unless Mr Ambrose assigns the cause of action to the appellant, the appellant is not entitled to institute or pursue legal proceedings. If the appellant has instituted proceedings without such an assignment, those proceedings are a nullity and should be dismissed: Willoughby v Clayton Utz (2005) 193 FLR 373 at [29].

12. It follows that, because of the effect of s 58 of the Bankruptcy Act and because Mr Ambrose has not assigned to him the entitlement to institute or pursue legal proceedings, the appellant has no entitlement to commence the action in the District Court. The proceedings instituted by the appellant were, therefore, void and a nullity. The appellant is not able to prosecute the action.

13. When a question arises as to a person’s entitlement to pursue legal proceedings in a form which goes to the jurisdiction of the court to determine those proceedings, the court should as a general rule determine that question first: Niord Pty Ltd v Adelaide Petroleum NL (1990) 54 SASR 87 at 89. In this case, the question whether the appellant was entitled to institute the action in the District Court had to be determined before all other issues. If the appellant was not entitled to institute the proceedings, the other questions did not have to be determined. The Master was, therefore, correct in determining that question at the outset.

14. For these reasons, it is clear that both the Master and the Judge in the District Court acted correctly in dismissing the appellant’s action and in dismissing the appeal from the decision of the Master in the District Court. It follows that the appeal to this Court must be dismissed. Alternatively, if the appellant requires leave to appeal, leave to appeal should be refused.

15. The appellant has made two applications in this Court. The first is dated 14 September 2006. By that application the appellant applies for leave to appeal. He also applies for substantive orders on issues affecting the conduct of the District Court action and for substantive orders against the respondents. In his second application, which is dated 20 October 2006, the appellant seeks, among other things, production of documents, an account of the remuneration of the receivers of Austfurn Pty Ltd, a Mareva injunction, and summary judgment. These applications are wholly misconceived. There are at least three reasons why the applications must be struck out. First, for the reasons already expressed, the appellant does not have standing to bring these applications. Secondly, the applications involve substantive issues related to the District Court action which, for the reasons already expressed, the appellant is not able to prosecute. Thirdly, the applications involve questions which do not bear upon the issues in the appeal. For all three reasons, the applications must be struck out.

16. The orders will therefore be:

    1.     Appeal dismissed.

    2.Strike out the applications herein dated 14 September 2006 and 20 October 2006.

    3.     The appellant shall pay the respondent’s costs of and incident to the appeal.