Jacks v Jakimowicz

[2011] VSCA 312

SUPREME COURT OF VICTORIA

COURT OF APPEAL

S APCI 2011 0129

JOHN MICHAEL JACKS	Applicant
	v
PATRICIA ANNE JAKIMOWICZ	Respondent

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APPLICATION ON SUMMONS

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JUDGES	TATE JA and BEACH AJA
WHERE HELD	MELBOURNE
DATE OF HEARING	13 October 2011
DATE OF JUDGMENT	13 October 2011
MEDIUM NEUTRAL CITATION	[2011] VSCA 312
JUDGMENT APPEALED FROM	Jacks v Jakimowicz (Unreported, County Court of Victoria, Judge Lacava, 15 August 2011)

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PRACTICE AND PROCEDURE – Application for leave to appeal – Application for security for costs – Judgment below attended with doubt – Substantial prejudice – Application for leave to appeal granted – Application for security for costs refused.

BANKRUPTCY – The property of the bankrupt – Property divisible among creditors – Protected money – Exempt money – Bankruptcy Act1966 (Cth), ss 5, 58, 60, 116.

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Appearances:	Counsel	Solicitors
For the Applicant	Mr M J Galvin	Thomas Egan & Associates
For the Respondent	Mr J J Isles	Stephen Peter Byrne

TATE JA
BEACH AJA:

1. John Michael Jacks, the applicant, is an undischarged bankrupt, having been declared bankrupt on the petition of a creditor on 14 April 2009.  On 31 March 2011, he commenced a proceeding in the County Court against Patricia Anne Jakimowicz, the respondent.  In the County Court proceeding, the applicant sought a number of orders, including a declaration that the respondent holds a property registered in her name situate at 275 Tantabaroo Road, Willowmavin via Kilmore (‘the Willowmavin property’) on trust for the applicant.

1. On 24 June 2011, the respondent issued a summons in the County Court proceeding seeking an order that the proceeding be dismissed;  alternatively, permanently stayed.  The basis of the application was that the plaintiff, having been declared bankrupt before the proceeding was commenced, did not have standing to bring the proceeding.  On 2 August 2011, the summons came on for hearing before Judge Lacava in the County Court.  On 15 August 2011, Judge Lacava ordered the proceeding stayed and ordered the applicant to pay the respondent’s costs of and incidental to the proceeding.

1. By summons filed 29 August 2011, the applicant seeks leave to appeal from the orders of Judge Lacava.  The respondent opposes leave to appeal being granted.  Additionally, by summons filed 14 September 2011, the respondent seeks security for costs.

The relevant statutory provisions

1. The Act governing this application is the Bankruptcy Act 1966 (Cth) (‘the Act’). Section 58 of the Act relevantly provides:

Vesting of property upon bankruptcy--general rule

(1)        Subject to this Act, where a debtor becomes a bankrupt:

(a)the property of the bankrupt, not being after-acquired property, vests forthwith in the Official Trustee or, if, at the time when the debtor becomes a bankrupt, a registered trustee becomes the trustee of the estate of the bankrupt by virtue of section 156A, in that registered trustee; and

(b)after-acquired property of the bankrupt vests, as soon as it is acquired by, or devolves on, the bankrupt, in the Official Trustee or, if a registered trustee is the trustee of the estate of the bankrupt, in that registered trustee.

Note 1:  This subsection has a limited application if there are orders in force under the proceeds of crime law: see section 58A.

Note 2:  Even if property has vested under this section, it may, under the Proceeds of Crime Act 2002:

(a)       become subject to a restraining order;  and

(b)be taken into account in making a pecuniary penalty order;  and

(c)become subject to a charge to secure the payment of an amount under a pecuniary penalty order, if it is subject to a restraining order;  and

(d)be dealt with by the Official Trustee, if it is subject to a restraining order and a court has directed the Official Trustee to pay the Commonwealth an amount under a pecuniary penalty order out of property subject to the restraining order.

…

(6) In this section, after-acquired property, in relation to a bankrupt, means property that is acquired by, or devolves on, the bankrupt on or after the date of the bankruptcy, being property that is divisible amongst the creditors of the bankrupt.

1. The expression ‘the property of the bankrupt’ is defined in s 5 of the Act relevantly to mean ‘the property divisible among the bankrupt’s creditors … and … 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. Section 60 of the Act provides:

Stay of legal proceedings

(1)The Court may, at any time after the presentation of a petition, upon such terms and conditions as it thinks fit:

(a)discharge an order made, whether before or after the commencement of this subsection, against the person or property of the debtor under any law relating to the imprisonment of fraudulent debtors and, in a case where the debtor is imprisoned or otherwise held in custody under such a law, discharge the debtor out of custody;  or

(b)stay any legal process, whether civil or criminal and whether instituted before or after the commencement of this subsection, against the person or property of the debtor:

(i)in respect of the non-payment of a provable debt or of a pecuniary penalty payable in consequence of the non-payment of a provable debt; or

(ii)in consequence of his or her refusal or failure to comply with an order of a court, whether made in civil or criminal proceedings, for the payment of a provable debt;

and, in a case where the debtor is imprisoned or otherwise held in custody in consequence of the non-payment of a provable debt or of a pecuniary penalty referred to in subparagraph (i) or in consequence of his or her refusal or failure to comply with an order referred to in subparagraph (ii), discharge the debtor out of custody.

(2)An action commenced by a person who subsequently becomes a bankrupt is, upon his or her 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 or her by a defendant or other party to the action, he or she shall be deemed to have abandoned the action.

(4)Notwithstanding anything contained in this section, a bankrupt may continue, in his or her own name, an action commenced by him or her before he or she became a bankrupt in respect of:

(a)any personal injury or wrong done to the bankrupt, his or her spouse or de facto partner or a member of his or her family;  or

(b)the death of his or her spouse or de facto partner or of a member of his or her family.

Note:   See also subsection 5(6).

(4A)Notwithstanding paragraph (1)(b), this section does not empower the Court to stay any proceedings under a proceeds of crime law.

(5)In this section, action means any civil proceeding, whether at law or in equity.

1. Section 116 of the Act contains provisions dealing with what property is divisible among creditors. Section 116(1) sets out various classes of property which are said to be ‘property divisible amongst the creditors of the bankrupt’. Section 116(2) then provides that sub-s (1) does not extend to:

(g)any right of the bankrupt to recover damages or compensation … for personal injury or wrong done to the bankrupt …;

…

(n)      property to which, by virtue of sub-s (3), this paragraph applies;

1. Section 116(3) provides that where the whole, or substantially the whole, of the money paid for the purchase, or used in the acquisition, of particular property is ‘protected money’, paragraph 116(2)(n) applies to the property. ‘Protected money’ is defined in s 116(2D) to mean ‘exempt money’, and ‘exempt money’ is defined to include damages or compensation of a kind referred to in paragraph 116(2)(g).

The judgment below

1. At paragraph [43] of his judgment below, Judge Lacava stated:

In my judgment the defendant’s submission that this proceeding cannot be brought by the plaintiff, an undischarged bankrupt, in his own name is made out.

1. His Honour went on:[1]

I consider the language in s 60(4) of the Act to be clear. Section 60(4) only permits an action to be continued after bankruptcy in certain circumstances. Here the action was commenced after bankruptcy. The Act does not permit that to occur. Further, when properly analysed this proceeding in my view … cannot be said to be a claim for any personal injury or wrong done to the bankrupt within either sections 60 or 116 of the Act.

For these reasons the defendant succeeds on the summons.  I consider the appropriate order that I should make is not to dismiss the proceeding as is sought in the summons but to stay the proceeding … .

[1]Jacks v Jakimowicz (Unreported, County Court of Victoria, Judge Lacava, 15 August 2011), [46].

Is the decision below attended with doubt?

1. In our view, the decision below is attended with doubt.  It is well arguable that no provision of the Bankruptcy Act prevented the applicant from commencing a proceeding in relation to the Willowmavin property.  The material below disclosed that the Willowmavin property was, at least arguably, not property divisible among the bankrupt’s creditors.  Further, nothing in the Bankruptcy Act prevents a bankrupt from commencing proceedings in relation to property that is not ‘property divisible among the bankrupt’s creditors’.

1. As Judge Lacava noted in his judgment, the plaintiff’s trustee in bankruptcy deposed to his belief that he did not have the standing to bring a proceeding to recover any interest the plaintiff might have in the Willowmavin property because such interest was acquired by use of proceeds from a personal injury claim.[2] Thus, the only evidence below was that the Willowmavin property was not ‘the property of the bankrupt’ within the meaning of the Act. At the very least, the issue was a contested fact that could not have been determined against the applicant on the respondent’s stay application.

   [2]Ibid [27]; see also ss 116(2)(g), (n), (2D) and (3) of the Bankruptcy Act.

1. In accepting the respondent’s submissions below, Judge Lacava held that the Act did not permit the plaintiff to commence his proceeding after bankruptcy. Reliance was placed upon s 60(4). However, s 60(4) relates only to the continuing of an action commenced before a plaintiff became bankrupt. There is no provision in the Act preventing a plaintiff from commencing a proceeding after bankruptcy seeking relief in relation to property that does not vest in the trustee of the estate of the bankrupt. That a plaintiff may bring a proceeding in relation to property which is not ‘the property of the bankrupt’ within the meaning of s 58(1) of the Act, after being declared bankrupt, is supported by a number of authorities, including Re Iskenderian;  ex parte Iskenderian Brothers Pty Ltd & Ors,[3] Griffith v Civil Aviation Authority[4] and Randall v Deputy Commissioner of Taxation.[5]  It is, in our view, well arguable that this is what the plaintiff is seeking to do in pursuing the County Court proceeding below.  For these reasons, the decision below staying the applicant’s proceeding is attended with doubt.

   [3](1989) 21 FCR 363.

   [4](1996) 41 ALD 50.

   [5](2008) 174 FCR 441, 446 [35] and following.

Prejudice

1. The proceeding below has been stayed and the applicant ordered to pay the respondent’s costs of the proceeding.  The respondent contends that there is no substantial injustice in leaving the decision below unreversed because ‘his Honour has merely stayed the judgment and it [is] submitted that the action is maintainable upon the appellant being discharged from his bankruptcy’.

1. We disagree.  The indefinite staying (even if only until April 2012) of the applicant’s proceeding and an order that he pay the costs of the proceeding below, in our view, constitutes substantial injustice if the decision below is wrong and left unreversed.  The decision below being attended with doubt and there being substantial injustice in allowing a wrong decision to stand, there should be a grant of leave to appeal in this case.

The application for security for costs

1. In seeking security for costs, the respondent relies upon a statement of Batt JA in Mobilia v Voudiotis,[6] concerning what had been said in earlier cases about an appellant ‘indulging in the luxury of [an] appeal’ and an appellant ‘dragging the respondent from one court to another, always hiding behind [his] impecuniosity’.  In our view, that statement has nothing to do with the present case.  Rule 64.24(2) provides that this Court may ‘in special circumstances’ make an order that security be given for the costs of an appeal.  Factors relevant to the exercise of the discretion include the prospects of success of the appeal and whether the making of an order would be oppressive in that it might stifle a reasonably arguable claim.[7]

   [6](2002) 4 VR 327, 328 [1].

   [7]Maher v Commonwealth Bank of Australia [2008] VSCA 122.

1. This is not the time to engage in a detailed analysis of the applicant’s prospects of success on appeal.  It is sufficient for us to say that we think the prospects of success are sufficient such that no order for security should be made in the circumstances of this case.  To the extent the respondent submitted that the applicant was indulging in the luxury of an appeal in this case, or was dragging the respondent from one court to another and hiding behind his impecuniosity, we reject that submission.  An order for security would, in our view, be oppressive in that it would stifle a very arguable claim – namely the applicant’s entitlement to pursue a proceeding which has been eschewed by his trustee in bankruptcy.

Conclusion

1. For these reasons:

(a)there will be an order granting the applicant leave to appeal from the orders of Judge Lacava made 15 August 2011;  and

(b)the respondent’s application for security for costs will be dismissed.

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