Ellis v Fisher
[2011] VSC 621
•6 December 2011
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMON LAW DIVISION
S CI 2010 00193
| IAN GEOFFREY ELLIS AND CATHY ANN ELLIS | Plaintiffs |
| v | |
| BRIAN FISHER (and others according to the schedule) | Defendants |
| - and - | |
| WALTER PERCIVAL EDWARDS | Third Party |
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JUDGE: | RANDALL AsJ | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 1 July 2011 | |
DATE OF JUDGMENT: | 6 December 2011 | |
CASE MAY BE CITED AS: | Ellis v Fisher and ors | |
MEDIUM NEUTRAL CITATION: | [2011] VSC 621 | Revised 20 December 2011 |
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PRACTICE AND PROCEDURE – Bankruptcy – Effect of bankruptcy on legal proceedings – Commencement and maintenance of proceedings – Joint claim for damages for breach of agreement by plaintiffs – Estate of the first plaintiff was sequestrated prior to the filing of the writ – Section 62 of the Bankruptcy Act provides for suit by a joint contractor without joining a bankrupt – Whether the proceeding is and was always a nullity due to the bankruptcy of the first plaintiff – Proceeding not defeated by misjoinder of bankrupt first plaintiff – Supreme Court (General Civil Procedure) Rules 2005, r 9.05 and 9.06, Bankruptcy Act 1966 (Cth), s 58 and s 62.
COSTS – Court ordered mediation – Bankrupt first plaintiff’s cause of action vested in his trustee in bankruptcy – Plaintiffs attending mediation before regularising the proceedings – Not all appropriate parties present at mediation – Settlement could not have been reached – special costs order justified.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr M T Lapirow | Warren McKeon Dickson Lawyers |
| For the First and Second Defendants | Mr S P Matters | Pinto Law |
| For the Third to Seventh Defendants | Mr A Herskope | JBT Lawyers |
| For the Third Party | Mr P X Tuohey | Monahan + Rowell Lawyers |
HIS HONOUR:
On or about 4 July 2005, the plaintiffs made a mortgage advance in the principal sum of $850,000 to a mortgagor. In the same month, the mortgagor granted a mortgage in favour of Permanent Trustee Australia Limited ACN 008 412 913 (“PTA”). Further, in or about July or August 2005, the mortgagor granted a further mortgage in favour of the defendants to this proceeding.
A priority agreement was entered into between the mortgagor, PTA, the plaintiffs and the defendants. The substance of the priority agreement was to provide for any sale or realisation proceeds to be applied firstly to PTA, secondly to the plaintiffs and thirdly to the defendants. The priority agreement also contained a provision that in the event that there was any transfer or assignment, the transferee or the assignee would enter into a priority deed in the same form as the priority agreement.
On 4 August 2005, PTA registered its mortgage. On 1 September 2005, the defendants registered their mortgage. The plaintiffs did not lodge their mortgage for registration by the Registrar of Titles. Accordingly, on the face of the title, PTA was first mortgagee and the defendants were recorded as second mortgagee.
On or about 1 November 2007, the defendants’ mortgage was transferred to ICA Finance Group Pty Ltd ACN 084 460 266 (“ICA Finance”). Transfer of the mortgage was registered. Further, on or about 1 November 2007, the mortgage held by ICA Finance was transferred to Vista Capital Pty Ltd ACN 055 709 709 (“Vista”). That transfer was registered.
Neither transferee of the mortgage originally in favour of the defendants entered into a priority deed in similar terms to the priority agreement. The plaintiffs alleged that the effect of those subsequent transactions was to disturb the priority set out in the priority agreement so that the plaintiffs could no longer be considered second mortgagees.
On or about 11 February 2008, a receiver manager appointed to the property of the mortgagor sold the property. The proceeds of sale after payment of the PTA obligation was $1,041,210.34.
On or about 11 September 2009, after negotiations with Vista, the plaintiffs received the sum of $520,605.17 being half of the sum of $1,041,210.34. Vista received the other half.
The plaintiffs then sued the defendants for damages based upon breach of the priority agreement as they did not recover the full amount of their mortgage advance.
The proceeding was commenced by the plaintiffs by writ filed 15 January 2010. Various procedural steps have been undertaken including the amendment of the statement of claim and the joinder of the third party. A mediation was convened but aborted on the day.
The third to seventh defendants determined that the first plaintiff had filed a debtor’s petition and his estate was sequestrated on 25 September 2009, approximately three months before the filing of the writ commencing this proceeding.
By summons filed 17 June 2011, the third to seventh defendants seek by way of primary relief, an order that the proceeding be dismissed or stayed. Costs are sought on an indemnity basis. By summons filed 27 June 2011, the first and second defendants sought that the second plaintiff pay the costs thrown away of and incidental to the mediation in the proceeding which commenced on 26 May 2011. Costs were sought on an indemnity basis. Each of the first and second defendants supported the summons by the third to seventh defendants and, likewise, the third to seventh defendants supported the summons by the first and second defendants. The third party also filed a summons on 27 June 2011 seeking virtually the same relief as sought by the first and second defendants.
The issues
The issues for determination are:
(a)whether the proceeding is and was always a nullity by virtue of the bankruptcy of the first plaintiff; and
(b)whether, if the proceeding is not dismissed or stayed, the second plaintiff ought to pay the costs thrown away of the mediation on an indemnity basis or some other basis.
Whether the proceeding is a nullity
The third to seventh defendants relevantly submit as follows: the claim by the plaintiffs is a joint claim for damages. The nature of the breach relied upon by the plaintiffs does not create “a divisible claim for damages” but rather an “indivisible claim” for damages. The obligations owed by the plaintiffs under the priority deed are “joint obligations”. Similarly, the obligations owed to the plaintiffs under the priority deed are owed to them “jointly”.
The third to seventh defendants further submitted:
…
22.At the time the proceeding was commenced by the plaintiffs, the first plaintiff had no standing to bring the claim by reason of his bankruptcy.
23.Any right he had vested in Mr Wily as his trustee who, by reason of operation of s 58 of the Bankruptcy Act 1966 (Cth) had standing to commence the claim with [the second plaintiff].
…
28.…The first plaintiff had no standing at all to commence the proceeding by reason of his bankruptcy. [The second plaintiff] had no standing to commence the proceeding as any claim she wished to make was dependent upon there being a joint claim.
…
32.…The deed of assignment, provides for the assignment absolutely to [the second plaintiff] of Mr Wily’s chose in action. The words contained in the provision make the assignment complete and prevents Mr Wily from now being substituted.
33.The effect of the assignment is to place [the second plaintiff] in a position where she now has the ability to bring the joint claim herself.
34.This can only be done by bringing a fresh claim herself, it does not cure what went before.[1]
[1]The 3rd – 7th Defendants Outline of Submissions.
The third to seventh defendants rely upon s 58 of the Bankruptcy Act 1966 (Cth) which relevantly provides that upon a debtor becoming bankrupt, the property of the bankrupt immediately vests in his or her trustee. The property of the bankrupt includes a chose in action.
The argument pursued by the third to seventh defendants is that as the claim by the first plaintiff had vested in his trustee in bankruptcy prior to the filing of the proceeding in December of 2009, the proceeding is a nullity. The third to seventh defendants relied upon International Bulk Shipping and Services Ltd v Minerals and Metals Trading Corp of India.[2] Lord Justice Evans held, inter alia:
Although the Court had power under RSC Ord 15, r 6 to add or substitute a new party after the expiry of any relevant limitation period, the rule did not apply to an action which was a nullity because the company named as plaintiff had been dissolved and ceased to exist, since it clearly contemplated that there was an existing action in which the addition or substitution might be made.
The action was a nullity since the original plaintiffs had ceased to exist by reason of their dissolution before proceedings were issued in their names.
[2][1996] 1 All E.R. 1017.
In Francis v National Mutual Life Association of Australasia Limited,[3] the plaintiff, a former bankrupt, commenced proceedings purporting to enforce causes of action which arose prior to his bankruptcy. Subsequently he served the defendant with a copy of the deed whereby the Official Trustee in Bankruptcy purported to assign those causes of action to him as and from a day earlier than the commencement of the proceedings. Having determined that, by virtue of the provisions of the Property Law Act 1974 (Qld), the deed of assignment did not have retrospective effect either at law or in equity, Ambrose J held that as the action was never properly constituted, the Court had no power to make an order which would overcome that deficiency.
[3][1999] 2 Qd R 355.
If the first plaintiff had been the only plaintiff in the proceeding, the argument propounded by the third to seventh defendants would lead to the conclusion that there is nothing in the Supreme Court Rules nor in the Civil Procedure Act 2010 (Vic) which the Court may utilise to remedy a cause of action inappropriately instigated by a bankrupt plaintiff.
That is, of course in contrast by cases such as Ox Operations Pty Ltd v Land Mark Property Developments (Vic) Pty Ltd (in liq),[4] where Finkelstein J, dealing with an application to dismiss an action brought at the suit of a company without the appropriate authority, refused to dismiss the proceeding as it had been subsequently ratified by a meeting of members.
[4][2007] FCA 1221.
In Matthews v SPI Electricity and SPI Electricity Pty Ltd v Utility Services Corporation Ltd (Ruling No 1),[5] J Forrest J referred to Finkelstein J’s judgment, and noted, in particular, that an action brought without authority is not a nullity in the sense that it is void ab initio without the possibility of subsequent ratification. J Forrest J regularised the proceeding.
[5][2011] VSC 167.
The principles to be distilled from the cases, including those referred to by J Forrest J, is that generally an action, depending on the circumstances, ought not to be considered void ab initio but rather, such an action was a nullity only in the sense that it could be stayed on the application by a defendant.
The argument of the third to seventh defendants does not address the position where one of two plaintiffs is entitled to prosecute a proceeding. The argument ignores s 62 of the Bankruptcy Act 1966 (Cth). That section provides:
Where a bankrupt is a contractor in respect of a contract jointly with another person or other persons, that person or those persons may sue or be sued in respect of the contract without the joinder of the bankrupt.
In Euphoric Pty Ltd v Kamir Azir Magar & Ors,[6] Einstein J gave judgment against various defendants on the personal covenants under a mortgage. In addition to the defendants there was one other promissor who was bankrupt. At paragraphs 4 & 5 Einstein J said:
Mr Sidhom is not a party to the proceedings because on 20 November 2007 he became bankrupt. No leave has been obtained to proceed against him. It was considered by the plaintiff that the promises made in the mortgage by the defendants and Mr Sidhom were joint promises, not joint and several.
By reason of Mr Sidhom’s bankruptcy and s 62 of the Bankruptcy Act 1966 (Cth), Euphoric was entitled to sue on the mortgage without joining Mr Sidhom. Mr Sidhom has since been discharged from bankruptcy, which discharges his pre-bankruptcy debts to Euphoric but does not affect the obligations of the defendants under the mortgage, being a joint contract …
[6][2011] NSWSC 469.
Section 62 is in the same terms as s 118 of the English bankruptcy provisions. Section 118 was construed by Greer LJ in Josselson v Borst,[7] to relieve a plaintiff from providing notices of assignment to a bankrupt joint contractor prior to the commencement of proceedings against the non-bankrupt contractors.
[7](1938) 1 K.B. 723.
This proceeding was commenced by the plaintiffs in circumstances where it was not necessary nor appropriate to join the first plaintiff into the proceeding. The proceeding cannot be characterised as a “nullity” as it would have been if commenced by the bankrupt plaintiff alone.
The position has now been remedied, as conceded by the third to seventh defendants, by the provision and entry into of the assignment from the first plaintiff’s trustee in bankruptcy. There is no reason why it cannot now proceed.
By s 8 of the Civil Procedure Act 2010, the Court is required to give effect to the overarching purpose in the exercise of any of its powers.
Section 7 of the Civil Procedure Act 2010 sets out:
(1)The overarching purpose of this Act and the rules of court in relation to civil proceedings is to facilitate the just, efficient, timely and cost‑effective resolution of the real issues in dispute.
As previously referred to, steps have been taken in this proceeding without cognisance of the bankruptcy of the first plaintiff. It is appropriate that to facilitate the efficient and cost-effective resolution of the dispute, the proceeding not be dismissed and the Court exercises the powers under the rules to regularise the proceeding. Rule 9.05 provides that a proceeding will not be defeated by the misjoinder of a party. Further, there will be an order pursuant to r 9.06 removing the first plaintiff as a plaintiff as he is not a proper or necessary party.
Costs thrown away by reason of the aborted mediation
The proceeding was referred to mediation. A reference under s 50.07 expressly or tacitly requires each of the parties to attend either by themselves or a person with authority to settle or endeavour to settle a proceeding.
Rule 50.07(7) provides that no evidence shall be admitted of anything said or done by any person at the mediation. The parties have not agreed in writing to admit any such evidence and, in any event, I am reluctant to impinge upon the confidentiality of a mediation save in appropriate exceptional circumstances. This is not one of them. Accordingly, I have disregarded any material which touches upon what might or might not have happened at the mediation. However, it is common ground that a mediation was convened, the mediation did not proceed, at the time of the commencement of the mediation, the first plaintiff still purported to be a plaintiff in the proceeding. The material also discloses that the plaintiffs did not consult with the trustee in bankruptcy until after the issue was identified.
In those circumstances, no quantum leap is involved in determining that not all the appropriate parties were present or otherwise involved in the mediation and, in the absence of the trustee in bankruptcy, any agreement or settlement purportedly entered into would have been futile. The failure of the plaintiffs or the second plaintiff to address these issues prior to the mediation order or the mediation itself, necessarily rendered the mediation nugatory no matter what the result. In those circumstances, it is appropriate that the second plaintiff pay the costs of and incidental to the mediation thrown away on an indemnity basis. In making such an order I am cognisant that the general rule is that costs be taxed on a party/party basis. The discretion to make a special costs order is an unlimited one, though it must be exercised judiciously and not unreasonably but the circumstances should be “special”.[8] The special circumstances in this instance include the filing of a proceeding joining the first plaintiff where the first plaintiff’s cause of action had vested in his trustee in bankruptcy, and then proceeding to a mediation prior to regularising that proceeding in circumstances where a settlement could not have been brokered without the regulisation of the proceeding or without the authority of the trustee in bankruptcy.
[8]Bass Coast Shire Council v King & Vink Nominees Pty Ltd [1997] 2 VR 5 at 29. See also Ugly Tribe Pty Ltd v Sikola [2001] VSC 189.
The costs of the applications
The first and second defendants and the third party have been successful with their summonses and it follows that there will be an order that the second plaintiff pay the first and second defendants’ and the third party’s costs of and incidental to that summons on a party/party basis.
As far as the summons for the third to seventh defendants goes, albeit that the relief sought is refused, it is not in the circumstances appropriate for costs to follow the event. The processes to regularise the proceeding were not put in train until after the application by the third to seventh defendants. In those circumstances I will follow the reasoning of Finkelstein J in Ox Operations and not make any order for costs of that summons.
SCHEDULE OF PARTIES
B E T W E E N
| IAN GEOFFREY ELLIS | First Plaintiff |
| CATHY ANN ELLIS | Second Plaintiff |
| - and - | |
| BRIAN FISHER | First Defendant |
| EDITH FISHER | Second Defendant |
| KATHLEEN MONICA MURPHY | Third Defendant |
| MY SUCCESS ENTERPRISE PTY LTD (ACN 103 634 831) | Fourth Defendant |
| ANTHONY BARNES | Sixth Defendant |
| NANCY BARNES | Sixth Defendant |
| TULIP INVESTMENTS PTY LTD (ACN 112 507 221) | Seventh Defendant |
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