Cvitanovic

[2021] FedCFamC2G 47

FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 2)

Cvitanovic [2021] FedCFamC2G 47

File number(s):

CAG 27 of 2021

Judgment of:

JUDGE MANOUSARIDIS

Date of judgment:

15 September 2021

Catchwords:

BANKRUPTCY – application by persons for leave to be heard in a proceeding brought by a trustee in bankruptcy for approval to assign causes of action propounded against the persons seeking leave to be heard – application granted.  

Legislation:

Bankruptcy Act 1966 (Cth) ss 120, 121, Sch 2, cl 100-5

Federal Circuit and Family Court (Bankruptcy) Rules 2021 (Cth) r 2.03

Federal Circuit and Family Court of Australia Act 2021 (Cth) s 8

Federal Circuit Court (Bankruptcy) Rules 2016 (Cth) r 2.03

Conveyancing Act 1919 (NSW) s 12

Judicature Act 1873 (UK) s 25(6)

Cases cited:

Read v Brown (1888) 22 Q.B.D 128

Seear v Lawson (1880) 16 Ch. D. 121

Division:

Division 2 General Federal Law

Number of paragraphs:

19

Date of hearing:

27 August 2021

Place:

Sydney

Solicitor for the Applicants:

Ms A Hogan of Namadgi Legal, by telephone

Counsel for the Applicants on the Interim Application:

Mr J Johnson, by telephone

Solicitor for the Applicants on the Interim Application:

Anderson Lawyers

ORDERS

CAG 27 of 2021

FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)

DANIEL IVAN CVITANOVIC

First Applicant

STEPHEN JOHN HUNDY
Second Applicant

ORDER MADE BY:

JUDGE MANOUSARIDIS

DATE OF ORDER:

15 SEPTEMBER 2021

THE COURT ORDERS THAT:

1.Hye Jin Back Lee, Dong Sik Lee, and Kyung Hee Lee have leave to be heard pursuant to r 2.03 of the Federal Circuit and Family Court (Bankruptcy) Rules 2021 (Cth).

2.The costs of the interim application for leave to be heard are reserved.

THE COURT NOTES THAT:

3.These are the orders of the Federal Circuit and Family Court of Australia (Division 2).

Note: The form of the order is subject to the entry in the Court’s records.

Note: This copy of the Court’s Reasons for judgment may be subject to review to remedy minor typographical or grammatical errors (r 17.05(2)(g) Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 17.05 Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth).

REASONS FOR JUDGMENT

INTRODUCTION

1. There are pending before this Court two proceedings (120/121 Proceedings) that were commenced by Mr Macks, the former trustee in bankruptcy of the estate of Unju Lee (bankrupt), for relief based on causes of action (Causes of Action) under s 120 and s 121 of the Bankruptcy Act 1966 (Cth) (Act). In circumstances I have set out in a previous judgment,[1] Mr Macks ceased to be the trustee in bankruptcy, and on 1 April 2021 new trustees were appointed (Trustees).

   [1] Macks as Trustee of the Bankrupt Estate of Lee v Lee [2021] FCCA 1614

2. On 30 June 2021 the Trustees commenced a separate proceeding (Approval Proceeding) in the Canberra Registry of this Court for approval of an assignment by them to Mr Macks of the Causes of Action. The assignment, and the need for the Court’s approval, is based on cl 100-5 of Schedule 2 (Schedule 2) to the Act, which provides:

   100‑5 Trustee may assign right to sue under this Act

   (1)  Subject to subsections (2) and (3), the trustee of a regulated debtor’s estate may assign any right to sue that is conferred on the trustee by this Act.

   (2)  If the trustee’s action has already begun, the trustee cannot assign the right to sue unless the trustee has the approval of the Court.

   (3) Before assigning any right under subsection (1), the trustee must give written notice to the creditors of the proposed assignment.

   (4)  If a right is assigned under this section, a reference in this Act to the trustee in relation to the action is taken to be a reference to the person to whom the right has been assigned.

3. On 3 August 2021 the respondents in the 120/121 Proceedings (Lee parties) filed an interim application in the Approval Proceeding for an order under r 2.03 of the Federal Circuit Court (Bankruptcy) Rules 2016 (Cth) (replaced by r 2.03 of the Federal Circuit and Family Court (Bankruptcy) Rules 2021 (Cth)) (Bankruptcy Rules) that they be granted leave to be heard in the Approval Proceeding. The Trustees oppose that application.

4. In these reasons for judgment, therefore, I consider whether I should grant the Lee parties leave to be heard at the hearing of the Approval Proceeding. Before I set out the competing submissions, it will be useful to set out some of the terms on which the Trustees propose to assign the Causes of Action.

   DEED OF ASSIGNMENT

5. The terms on which the Trustees propose to assign the Causes of Action are contained in what appears to be a deed (Deed) made between the Trustees (who together are identified as the “Assignor”) and Mr Macks, both in his personal capacity (where he is described as the “Former Trustee”), and in his capacity as trustee of a trust named “Macks Lee Trust” (where he is described as the “Assignee”). Clause 2 of the Deed provides:

   In consideration of the matters set out in this Deed, the Assignor:

   (a)Assigns (and agrees to assign) to the Assignee all the Assignor’s rights, title and interest in the Property:

   (i)        On the Effective Date:

   (ii)       Free from all Encumbrances; and

   (iii)      On the terms set out in this Deed; and

   (b)Agrees to perform and observe all the other obligations on the part of the Assignor to be performed or observed under this Deed.

6. “Property” is defined in cl 11(x) to mean “the property and rights described in Item 1 of The Schedule”. Item 1 of the Schedule to the DA states:

   All right, title and interest in and under the Actions and all Claims forming the subject of the Actions, including but limited to all rights to sue accruing under the Bankruptcy Act and in any way relating to the transfer by the Bankrupt of the properties located at . . . Croydon Park NSW 2133.

7. “Actions” is defined in cl 11(c) to mean the 120/121 Proceedings.

8. Clause 3 of the Deed specifies the consideration the Assignee is to provide for the assignment of the Causes of Action. That includes the payment on execution of the Deed of a non-refundable amount; and, on the “Effective Date”, the provision of the “Consideration”. “Consideration” is the consideration specified in item 4 of the Schedule to the Deed.

   PARTIES’ SUBMISSIONS

9. The Lee parties submit they should be granted leave to be heard because there would otherwise be no contradictor in the Approval Proceeding, and also because they have a real commercial interest in the question whether the Court should approve the assignment of the Causes of Action, given those causes of action are being maintained against them. The Trustees, on the other hand, submit the Court should not give leave under r 2.03 of the Bankruptcy Rules as a matter of course; that the fact a person may be affected by the outcome is not a sufficient reason to grant that person leave to be heard; it is not sufficient that a person may potentially be in a position to assist the Court; and, in any event, there is no evidence to suggest the Lee parties will be able to provide any assistance to the Court. The Trustees further submit that cl 100-5 of Schedule 2 on its face does not necessitate the inclusion of the Lee parties; an application for approval is “non-adversarial”.

   DETERMINATION

10. The submissions of the Lee parties and, more particularly, the Trustees, give insufficient attention to that which cl 100-5(2) of Schedule 2 regulates; it regulates the assignment by a trustee in bankruptcy (trustee) of a cause of action in relation to which the trustee has already commenced a proceeding.

11. An assignment by the trustee of a cause of action in relation to which a proceeding is on foot, if allowed, would effect a change in the constitution of the proceeding. It would require the substitution of the assignee for the trustee as the plaintiff or applicant. It would also require the assignee to plead the material facts, or otherwise to file an affidavit deposing to the facts, on which the assignee relies for claiming he or she has title to maintain the cause of action. These are matters which a court would have to regularise by making procedural orders, and in particular, orders permitting the filing of an amended application identifying the assignee as the plaintiff or applicant and, where there are pleadings, an order permitting the filing of an amended statement of claim in which the assignee pleads the material facts on which the assignee relies for his or her title to maintain the cause of action or, if there are no pleadings, an order permitting the assignee to file an affidavit deposing to facts on which the assignee relies for his or her title to maintain the cause of action.

12. It may reasonably be supposed that it is a court’s having to make orders regularising a proceeding to reflect an assignment, if allowed, that, at least to some extent, accounts for cl 100-5(2) of Schedule 2 requiring a court to approve an assignment of a cause of action which is the subject of a proceeding. That implies three things. First, cl 100-5 of Schedule 2 contemplates that an application for approval of the assignment of a cause of action in relation to which there is a proceeding on foot would be made in the proceeding. Second, the application for approval would be made or accompanied by the filing of an application for leave to file an amended application naming the assignee as the applicant or plaintiff and, where there are pleadings, to file an amended statement of claim that pleads the material facts on which the assignee relies for his or her title to sue as assignee, or, where there are no pleadings, to file an affidavit deposing to such facts. Third, the defendant or respondent in the proceeding in which the cause of action is maintained would have the right to oppose, on proper grounds, the assignee’s application for leave to file an amended application naming the assignee as applicant, or oppose the filing of an amended statement of claim pleading the material facts on which the assignee relies for title to maintain the cause of action, or opposing the filing of an affidavit deposing to such facts. Further, the respondent or defendant would additionally have the right to challenge the validity of the assignment after the court were to permit the assignee to be the applicant or plaintiff in the proceeding.

13. What I say in the previous paragraphs is supported by authority. Of particular relevance is Seear v Lawson.[2] In that case the bankrupt estate had included property the bankrupt had conveyed as security for a loan. The trustee commenced a proceeding for a declaration that the deed by which the property was conveyed ought to stand only as security for the sums actually advanced to the bankrupt. A few weeks after he commenced the proceeding the trustee assigned all his right and interest in the property, including the cause of action that was the subject of the proceeding. The assignee then obtained an order, in which the names of the original parties appeared, giving the assignee liberty to carry on and prosecute the proceeding in like manner as if it had been prosecuted by the trustee. The defendant took out a summons to amend the title of the action and the statement of claim to show that the assignee was the real plaintiff. Bacon VC dismissed the summons holding that “the record is perfectly right”.[3] On appeal it was held the proceeding was not properly recorded, and the statement of claim ought to be amended. Sir George Jessel MR said:[4]

    The statement of claim ought to have been headed in the same way to shew who the present Plaintiff is, and it ought to have contained a statement shewing how the Plaintiff got his title, and the proper order is no doubt to direct the Plaintiff to amend by inserting a new or second title, and also by adding such words as he may think property to show how his title is derived.

    [2] Seear v Lawson (1880) 16 Ch. D. 121

    [3] Seear v Lawson (1880) 16 Ch. D. 121, at page 122

    [4] Seear v Lawson (1880) 16 Ch. D. 121, at page 124

14. Also relevant is the judgment of the English Court of Appeal in Read v Brown.[5] The question in that case was whether a cause of action in debt had in part arisen in the city of London (and, for that reason, was an action that fell within the jurisdiction of the Mayor’s Court) only because an assignment of the debt under s 25(6) of the Judicature Act 1873 (UK) (Judicature Act) was executed in the city of London.[6] The determination of that question turned on whether the assignment was a material fact; and the Court of Appeal held it was. Lord Esher MR, who gave the leading judgment, said that a “cause of action” is “every fact which it would be necessary for the plaintiff to prove, if traversed, in order to support his right to the judgment of the Court”; and there was no doubt “that the assignment is a fact which the defendant might traverse; and if that be so, the plaintiff would be bound to prove it”.[7] The Court’s conclusion turned in part on its characterisation of the assignment provided for by s 25(6) of the Judicature Act. Lord Esher MR said:[8]

    The debt is transferred to the assignee and becomes as though it had been his from the beginning; it is no longer to be the debt of the assignor at all, who cannot sue for it, the right to sue being taken from him; the assignee becomes the assignee of a legal debt and is not merely an assignee in equity, and the debt being his, he can sue for it, and sue in his own name.

    [5] Read v Brown (1888) 22 Q.B.D 128

    [6] Subsection s 25(6) of the Judicature Act 1873 (UK) is to a large extent reproduced in s 12 of the Conveyancing Act 1919 (NSW)

    [7] Read v Brown (1888) 22 Q.B.D 128, at page 131

    [8] Read v Brown (1888) 22 Q.B.D 128, at page 132

15. If it is the case that cl 100-5(2) of Schedule 2 contemplates that the trustee would apply for permission to assign a cause of action in the proceeding in which the cause of action is being maintained, the Trustees ought to have applied for approval of their proposed assignment of the Causes of Action in the 120/121 Proceedings. If that had occurred, no question could have arisen about the right of the Lee respondents to be heard on the Trustees’ application for approval. That would be so because Mr Macks, as assignee would have had to apply for leave to amend the application and statement of claim to reflect that Mr Macks, as assignee, would be the applicant, and to plead the material facts that constitute the assignment. There is no reason why the position should be different only because the Trustees have sought the approval of the assignment of the Causes of Action by commencing a separate proceeding. That may be demonstrated by considering the following assumed state of affairs.

16. Assume I were to decide not to grant the Lee parties leave to be heard in the Approval Proceeding, and I were to approve the Trustees’ assignment of the Causes of Action. On those assumptions, Mr Macks, as assignee, would have to apply in the 120/121 Proceedings for leave to amend the application and statement of claim to reflect the assignment of the Causes of Action, and to plead the material facts on which he would rely for the assignment. The Lee parties, as respondents in the 120/121 Proceedings, would be entitled to oppose, on proper grounds, such application to amend. It could not be assumed that the Lee parties would be bound by orders I may have made in the Approval Proceeding, given the Lee parties are not parties to that proceeding, and they would not have been given leave to be heard.

17. The Lee parties should be granted leave to be heard in the Approval Proceeding. It is inevitable that at some stage they will be entitled to be heard on whether Mr Macks should be permitted to apply for leave to maintain the Causes of Action as assignee, assuming I were to approve the assignment. Further, the assignment of the Causes of Action, if allowed, would constitute an additional material fact in each of the Causes of Action. The assignment, to use the words of Lord Esher MR in Read, would become “a fact which the [Lee parties] might traverse; and if that be so, [Mr Macks] would be bound to prove it”.

    DISPOSITION

18. I will grant the Lee parties leave to be heard in the Approval Proceeding, and reserve the question of costs.

19. I will note in the orders I propose to make that the orders are those of the Federal Circuit and Family Court of Australia (Division 2). That is necessary because the seal of this Court that will be affixed to the orders I propose to make only includes the words “Federal Circuit and Family Court of Australia”. The Federal Circuit and Family Court of Australia Act 2021 (Cth) (FCFCOAAct), however, does not constitute any court by that name. Section 8 of the FCFCOA Act continues the existence of two federal courts and renames them. The first federal court the FCFCOA Act continues is the Court that, before 1 September 2021, was named the “Family Court of Australia”, and s 8(1) renames that Court the “Federal Circuit and Family Court of Australia (Division 1)”. The second federal court the FCFCOA Act continues is this Court which, before 1 September 2021, was named the “Federal Circuit Court of Australia”, but which s 8(2) renames the “Federal Circuit and Family Court of Australia (Division 2)”.

I certify that the preceding nineteen (19) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Manousaridis.

Associate:

Dated:       15 September 2021