Holpitt Pty Ltd v Varimu Pty Ltd

[1991] FCA 269

Re: GRAHAM DOUGLAS COCKERILL, a bankrupt, with the consent of Robert Burns,
his trustee in bankruptcy, ARTHUR DAVID THOMAS DINGLE, a bankrupt, with the
consent of Robert Burns, his trustee in bankruptcy, and VALERIE DINGLE, a
bankrupt, with the consent of Robert Burns, her trustee in bankruptcy
And: WESTPAC BANKING CORPORATION
No. N G29 of 1991
FED No. 269
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Pincus J.(1)

CATCHWORDS

Bankruptcy - suit instituted when applicants bankrupt - whether right of action is property which passes to trustee - whether annulment of bankruptcy makes suit good retrospectively.

Bankruptcy Act 1966, ss.58, 116

HEARING

BRISBANE

#DATE 23:5:1991

Counsel for the applicants: Mr G.H. Brandis

Solicitors for the applicants: Bowdens

Counsel for the respondent: Mr A.J.H. Morris

Solicitors for the respondent: Feez Ruthning

ORDER

The application for dismissal be adjourned to a date to be fixed by the Registrar.

The costs of and incidental to the application for dismissal be reserved.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

This is an application by the respondent to dismiss these proceedings on the ground that all the applicants are bankrupts, suing in respect of a cause of action which arose before bankruptcy. The principal application (which I shall call "the suit") is one in which the applicants complain of misleading statements and the like concerning a loan in foreign currency and seek to challenge the validity of securities given in relation to that loan; it was filed on 25 January 1991. The wrongs complained of occurred, of course, before that date.

1. Each of the applicants filed a debtor's petition on 25 October 1990 under the Bankruptcy Act 1966 and each petition was accepted by the Registrar on 26 October 1990. On that date, each of the applicants became bankrupt and therefore the property of each vested forthwith in the trustee: s.58(1)(a). Under s.5, the expression "the property of the bankrupt" which is used in s.58 means, with an exception which is not here relevant:
   

"(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 ...".

1. That is, the property of the bankrupt vests in the trustee, but the expression "the property of the bankrupt" depends on the notion of property divisible among the creditors. That in turn is defined by s.116(1), the relevant paragraphs of which are:
   

"(a) all property that belonged to, or was vested in, a bankrupt at the commencement of the bankruptcy, or has been acquired or is

acquired by him, or has devolved or devolves on him, after the

commencement of the bankruptcy and before his discharge;

(b) the capacity to exercise, and to take proceedings for exercising, all such powers in, over or in respect of property as might have

been exercised by the bankrupt for his own benefit at the

commencement of the bankruptcy or at any time after the

commencement of the bankruptcy and before his discharge ...".

1. The question whether the word "property" in this provision includes rights of action is discussed in McDonald, Henry and Meek's Australian Bankruptcy Law and Practice (5th edition by Darvall and Fernon) Volume 1, para 613. The learned editors' view is that the vesting under s.116 and s.58 covers rights of action. The editors suggest that in determining what rights of action vest in the trustee "regard must be had to the limitations placed upon the literal construction of the bankruptcy statutes by the cases cited". Those cases excluded, for example, certain "personal" causes of action: Coffey v Bennett (1961) VR 264.

2. It is my view that the property which vests in the trustee includes causes of action, but it is not clear to me that the exceptions from vesting include rights of action other than those expressly excepted by s.116(2)(g). However, it is unnecessary now to decide the point just mentioned, because there is no reason to think that under the common law of bankruptcy, the right of action claimed here would not have passed to the trustee, nor is the right excluded by s.116(2)(g); it is not one for a "personal injury or wrong" done to any of the bankrupts.

3. The argument for the applicants opposing dismissal is that they have applied to annul their bankruptcies and that if they succeed, the annulment will, so far as practicable, take effect retrospectively: Bailey v Johnson (1872) LR 7 Exch 263. It is put on behalf of the applicants that if the suit is dismissed, but their annulment applications (which are set down for hearing next month) subsequently succeed, then they may in the result lose their right of action or part of it; it is submitted that a time limitation may possibly operate against them between the date of commencement of the suit (25 January 1991) and the date of annulment, so as to prevent recovery of some loss.

4. Counsel were unable to refer me to any authority in which a similar problem has arisen. Counsel for the applicants urged upon me the view that the practical course is to adjourn the respondent's application for dismissal.

5. In Hodgson v M'Caughan (1877) 3 VLR (L) 292, an action was begun while the plaintiff was insolvent, but her estate was subsequently "released from sequestration" under the Insolvency Statute 1871. The effect of such release was, it appears, to re - vest all causes of action "in the same manner as if the estate of such insolvent had never been sequestrated". It was held that the subsequent release did not avail the plaintiff. The reasons for judgment, in full, are as follows:
   

"The case is the same, in principle, as that of an administrator. The

letters relate back when he obtains them, but not before he does so".

As to the principle that a grant of administration to a plaintiff in a suit who has, before the grant, sued as an administrator does not make the suit competent, see Ingall v Moran (1944) KB 160.

1. If the Victorian case is right and applies to annulment under the present Commonwealth Act, then there is no point in adjourning the application for dismissal, for annulment cannot make the suit good.

2. In The Metropolitan Bank, Limited v Pooley (1885) 10 App Cas 210, a bankrupt sued on a cause of action which, it was held, had passed to the trustee. The Lord Chancellor said that the bankrupt had no standing and the action was therefore "frivolous and vexatious". I would not hold a contention that annulments next month would make this suit good to be frivolous and vexatious; despite the Victorian case, that seems quite an arguable proposition. But should the Court, as a matter of discretion, allow the applicants to keep the suit alive in case they later get annulments?

3. The applications for annulment were filed on 29 April last; but for the necessity of allowing time to respond to the applications filed and, perhaps, the pressures on judicial time, the applications for annulment might well have been set down for hearing on a date earlier than 13 June next, which is the date on which they are, in fact, to be heard. It would seem odd that the parties' substantive rights should be affected by circumstances of that sort. The applicants have at present no standing in the suit alleging misleading statements, but may acquire standing soon. If annulments are granted, that acquisition would arguably date back to the date of bankruptcy, prior to the institution of the suit. It was not suggested that I should treat the applications for annulment as groundless.

4. I propose to adjourn the application for dismissal sine die. If the applications for annulment fail, or other circumstances supervene making it seem to them a desirable course, no doubt the respondent bank's advisers will have the application for dismissal relisted.

5. The order will be that the application for dismissal be adjourned to a date to be fixed by the Registrar; costs reserved.