Martin Desmond Mullins on behalf of Settlers House Pty Ltd (in liq) v Directline Finance Pty Ltd

[2020] WASCA 166

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

TITLE OF COURT  :   THE COURT OF APPEAL (WA)

CITATION:   MARTIN DESMOND MULLINS on behalf of SETTLERS HOUSE PTY LTD (in liq) -v- DIRECTLINE FINANCE PTY LTD [2020] WASCA 166

CORAM:   MURPHY JA

VAUGHAN JA

HEARD:   24 SEPTEMBER 2020

DELIVERED          :   24 SEPTEMBER 2020

PUBLISHED           :   29 SEPTEMBER 2020

FILE NO/S:   CACV 1 of 2019

BETWEEN:   MARTIN DESMOND MULLINS on behalf of SETTLERS HOUSE PTY LTD (in liq)

Appellant

AND

DIRECTLINE FINANCE PTY LTD

First Respondent

JB COLLINS PTY LTD as trustee for THE COOMBS & BAREI NUMBER 2 SUPER FUND

Second Respondent

BREJON NOMINEES PTY LTD as trustee for THE BREJON FAMILY TRUST

Third Respondent

GNB INVESTMENTS PTY LTD as trustee for THE HOLYOAK INVESTMENT FUND

Fourth Respondent

GEE BEE HOLDINGS PTY LTD as trustee for THE BLUE WATER TRUST

Fifth Respondent

BRUCE GORDON ROBERTS as trustee for THE BLUE WATER TRUST

Sixth Respondent

GLORIA DAWN ROBERTS as trustee for THE BLUE WATER TRUST

Seventh Respondent

BA & VJ MOORE PTY LTD as trustee for THE MOORE FAMILY SUPERANNUATION FUND

Eighth Respondent

NORMAN JOHN BAKER as trustee for THE STEEL FABRICATION SUPER FUND

Ninth Respondent

SUSAN BAKER as trustee for THE STEEL FABRICATION SUPER FUND

Tenth Respondent

DAVID THOMAS NIEHUS

Eleventh Respondent

SHARON NIEHUS

Twelfth Respondent

FORT ROSS NOMINEES PTY LTD

Thirteenth Respondent

COLIN MAXWELL KING

Fourteenth Respondent

BRAMELL INVESTMENTS PTY LTD

Fifteenth Respondent

KERRY KATHLEEN BRAMLEY

Sixteenth Respondent

YORK BELLA MIA PTY LTD

Seventeenth Respondent

ELAINE HELEN KING

Eighteenth Respondent

LEEUWIN CORPORATION PTY LTD

Nineteenth Respondent

FILE NO/S:   CACV 2 of 2019

BETWEEN:   MARTIN DESMOND MULLINS

Appellant

AND

DIRECTLINE FINANCE PTY LTD

First Respondent

BA & VJ MOORE PTY LTD as trustee for THE MOORE FAMILY SUPER FUND

Second Respondent

DAVID THOMAS NIEHUS

Third Respondent

SHARON NIEHUS

Fourth Respondent

JB COLLINS PTY LTD  as trustee for THE COOMBS & BAREI NUMBER 2 SUPER FUND

Fifth Respondent

BREJON NOMINEES PTY LTD  as trustee for THE BREJON FAMILY TRUST

Sixth Respondent

GNB INVESTMENTS PTY LTD  as trustee for THE HOLYOAK INVESTMENT FUND 

Seventh Respondent

GEE BEE HOLDINGS PTY LTD  as trustee for THE BLUE WATER TRUST 

Eighth Respondent

SUSAN BAKER as trustee for THE STEEL FABRICATION SUPER FUND 

Ninth Respondent

NORMAN JOHN BAKER  as trustee for THE STEEL FABRICATION SUPER FUND 

Tenth Respondent

ON APPEAL FROM:

For File No:   CACV 1 of 2019

Jurisdiction              :   SUPREME COURT OF WESTERN AUSTRALIA

Coram:   MASTER SANDERSON

File Number            :   CIV 2568 of 2017

For File No:   CACV 2 of 2019

Jurisdiction              :   SUPREME COURT OF WESTERN AUSTRALIA

Coram:   MASTER SANDERSON

File Number            :   CIV 1495 of 2018

Catchwords:

Practice and procedure - Competency of appeal - Bankruptcy of appellant after commencement of appeal - No election by trustee in bankruptcy to prosecute or discontinue appeal - Deemed abandonment

Practice and procedure - Competency of appeal - Where appeal purportedly brought on behalf of a company - Derivative action - Where appellant had not obtained leave to commence appeal pursuant to s 237 of the Corporations Act 2001 (Cth)

Legislation:

Bankruptcy Act 1966 (Cth), s 60
Corporations Act 2001 (Cth), s 236, s 237

Result:

CACV 1 of 2019
Notice of appeal struck out

CACV 2 of 2019
Notice of appeal struck out with liberty to apply if sequestration order set aside

Category:    B

Representation:

CACV 1 of 2019

Counsel:

Appellant	:	In person
First Respondent	:	No appearance
Second Respondent	:	C S Williams
Third Respondent	:	C S Williams
Fourth Respondent	:	C S Williams
Fifth Respondent	:	C S Williams
Sixth Respondent	:	C S Williams
Seventh Respondent	:	C S Williams
Eighth Respondent	:	No appearance
Ninth Respondent	:	C S Williams
Tenth Respondent	:	C S Williams
Eleventh Respondent	:	No appearance
Twelfth Respondent	:	No appearance
Thirteenth Respondent	:	No appearance
Fourteenth Respondent	:	No appearance
Fifteenth Respondent	:	No appearance
Sixteenth Respondent	:	No appearance
Seventeenth Respondent	:	No appearance
Eighteenth Respondent	:	No appearance
Nineteenth Respondent	:	No appearance

Solicitors:

Appellant	:	In person
First Respondent	:	No appearance
Second Respondent	:	Solomon Brothers
Third Respondent	:	Solomon Brothers
Fourth Respondent	:	Solomon Brothers
Fifth Respondent	:	Solomon Brothers
Sixth Respondent	:	Solomon Brothers
Seventh Respondent	:	Solomon Brothers
Eighth Respondent	:	No appearance
Ninth Respondent	:	Solomon Brothers
Tenth Respondent	:	Solomon Brothers
Eleventh Respondent	:	No appearance
Twelfth Respondent	:	No appearance
Thirteenth Respondent	:	No appearance
Fourteenth Respondent	:	No appearance
Fifteenth Respondent	:	No appearance
Sixteenth Respondent	:	No appearance
Seventeenth Respondent	:	No appearance
Eighteenth Respondent	:	No appearance
Nineteenth Respondent	:	No appearance

CACV 2 of 2019

Counsel:

Appellant	:	In person
First Respondent	:	No appearance
Second Respondent	:	No appearance
Third Respondent	:	No appearance
Fourth Respondent	:	No appearance
Fifth Respondent	:	C S Williams
Sixth Respondent	:	C S Williams
Seventh Respondent	:	C S Williams
Eighth Respondent	:	C S Williams
Ninth Respondent	:	C S Williams
Tenth Respondent	:	C S Williams

Solicitors:

Appellant	:	In person
First Respondent	:	No appearance
Second Respondent	:	No appearance
Third Respondent	:	No appearance
Fourth Respondent	:	No appearance
Fifth Respondent	:	Solomon Brothers
Sixth Respondent	:	Solomon Brothers
Seventh Respondent	:	Solomon Brothers
Eighth Respondent	:	Solomon Brothers
Ninth Respondent	:	Solomon Brothers
Tenth Respondent	:	Solomon Brothers

Case(s) referred to in decision(s):

Berryman v Zurich Australia Ltd [2016] WASC 196; (2016) 310 FLR 108

Cox v Journeaux (No 2) [1935] HCA 48; (1935) 52 CLR 713

Cristovao v Tan and Tan Lawyers Pty Ltd [No 2] [2017] WASCA 171

Daemar v Industrial Commission of New South Wales (1988) 12 NSWLR 45

Fletcher v Westpac [2012] WASCA 154

Schepis v Osborne [2015] FCA 192; (2015) 146 ALD 602

Wood v Links Golf Tasmania Pty Ltd (No 2) [2013] FCA 143

REASONS OF THE COURT:

1. This matter concerned appeals from orders of Master Sanderson dated 13 December 2018 in CIV 2568 of 2017 and CIV 1495 of 2018.  The appeal in CACV 1 of 2019 related to CIV 2568 of 2017.  The appeal in CACV 2 of 2019 related to CIV 1495 of 2018.  The appellant has been made bankrupt since the institution of these appeals. 

2. On 17 September 2020, in each appeal, the court issued an amended registrar's notice to attend on 24 September 2020 for the appellant (Mr Mullins) to show cause why the appeal notice should not be struck out pursuant to r 43(2)(fa)(i)[1] of the Supreme Court (Court of Appeal) Rules 2005 (WA) (Rules), alternatively why the appeal should not be dismissed. The notice was sent both to the appellant at his address for service and to the Australian Financial Security Authority (AFSA) at the address indicated as appropriate for service in a letter to the respondents' solicitors dated 13 August 2020, referred to in Mr Vuksic's affidavit (see [11] below). An earlier notice had also been sent by the court on 9 September 2020 for the appellant to show cause why the appeal should not be struck out pursuant to r 43(2)(fa)(i) of the Rules.

   [1] Rule 43(2)(fa)(i) of the Rules provides that a single judge has jurisdiction to, relevantly, strike out an appeal notice if the appeal is incompetent or has not been validly commenced.

3. On 24 September 2020, we made orders for the disposition of the appeals in terms of [25] ‑ [26] below and said we would provide written reasons.  These are our reasons.

The primary proceedings

1. In general terms, both sets of primary proceedings concerned certain loans obtained by Settlers House Pty Ltd (Settlers House) from a syndicate of lenders including the first ‑ tenth respondents in CACV 1 of 2019 (Syndicate). 

CIV 2568 of 2017

1. In CIV 2568 of 2017, the appellant, Mr Mullins, who was the sole director and shareholder of Settlers House, commenced a derivative action purportedly pursuant to s 236 and s 237 of the Corporations Act 2001 (Cth)[2] in accordance with leave given by Master Sanderson on 20 March 2017, as varied on 6 November 2017.  The master's orders of 20 March 2017 indicate that Settlers House was then in liquidation.[3]

   [2] 236.  Bringing, or intervening in, proceedings on behalf of a company

   [3] 'Order for leave to commence action on behalf of company made by Master Sanderson 20 March 2017'.

2. Although s 236(2) of the Corporations Act required any such proceedings to be brought 'in the company's name', the appellant, rather than Settlers House, was the named plaintiff in the primary proceedings in CIV 2568 of 2017.  The proceedings were commenced naming as plaintiff 'Martin Desmond Mullins on behalf of Settlers House Pty Ltd (in liq) ACN 100 742 265'.  The statement of claim alleged that the writ was issued by the plaintiff pursuant to the order for leave.

3. The appellant in CIV 2568 of 2017 alleged that certain securities had been sold by the Syndicate at an undervalue.  The appellant also alleged, in effect, that other parties had purchased certain secured properties with knowledge that they were undervalue, and that they were implicated in the Syndicate's conduct.

4. The second - tenth respondents in CACV 1 of 2019 applied for defendants' summary judgment against the appellant.  Relevantly, the master ordered summary judgment in favour of the second - tenth respondents and dismissed the appellant's claim against the second ‑ tenth respondents in CIV 2568 of 2017.  The master said that had he not dismissed the appellant's action, he would have ordered security for costs against the appellant.

CIV 1495 of 2018

1. In CIV 1495 of 2018, the fifth - tenth respondents in CACV 2 of 2019 sought (amongst other things) to enforce a guarantee of a loan of $2,750,000 made to Settlers House on 11 October 2010.  They applied for plaintiffs' summary judgment.  The master said, in effect, that whilst there was a triable issue concerning interest, there was no triable issue as to the principal amount.  The master ordered summary judgment against the appellant on the principal sum.

The bankruptcy of the appellant

1. It was not in dispute that the appellant had been made bankrupt since the commencement of the appeals. 

2. Mr A Vuksic, solicitor for the second - seventh, ninth and tenth respondents in CACV 1 of 2019 and fifth ‑ tenth respondents in CACV 2 of 2019, swore an affidavit dated 2 September 2020 in each appeal in which he deposed, relevantly in effect, that:

   1.On or about 14 July 2020, Registrar Trott made an order that the estate of the appellant be sequestrated under the Bankruptcy Act 1966 (Cth). The order noted that the date of the act of bankruptcy was 2 September 2019.

   2.On 14 July 2020, he caused a letter to be sent to the AFSA. The letter referred to these appeals and, by way of service pursuant to s 60(3) of the Bankruptcy Act, enclosed a copy of the sequestration order, together with (1) a copy of the appellant's appeal notice, (2) a copy of the appellant's case, and (3) a copy of Registrar Eaton's orders made 14 July 2020.[4]

   3.The sequestration order was received by the official receiver on 28 July 2020.

   4.The respondents' solicitors have received no notice of an election by the trustee in bankruptcy pursuant to s 60(3) of the Bankruptcy Act.

   [4] On 14 July 2020, the Court of Appeal office issued a notice that the appeals had been listed to be heard on 23 October 2020.

3. In a further affidavit sworn 23 September 2020 in each appeal, Mr Vuksic deposed, in effect, that (1) he had caused to be sent to the AFSA a copy of the court's notice to show cause dated 9 September 2020 in each appeal, and (2) he had received no further correspondence from the AFSA as at the date of his affidavit.[5]

   [5] It appears that Mr Vuksic's affidavits of 23 September 2020 and the appellant's affidavit of 22 September 2020 referred to in [14] below have not been filed.  Nevertheless the court received the affidavits as evidence on the hearing on 24 September 2020. 

4. Sections 60(2), (3) and (4) of the Bankruptcy Act 1966 (Cth) provide:

   (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.

The parties' arguments

1. The appellant referred to an affidavit that he had sworn on 22 September 2020. The affidavit referred in some detail to the alleged merits of the claims in the primary proceedings and the appeals. By this affidavit, and in oral submissions, the appellant also contended that he was entitled under s 60(4) of the Bankruptcy Act to continue with each appeal.  The appellant referred to Berryman v Zurich Australia Ltd[6] as authority for the proposition that the subject matter of these appeals came within the words 'or wrong done' in s 60(4)(a). The appellant nevertheless accepted that the subject matter of the appeals involved property rights.

   [6] Berryman v Zurich Australia Ltd [2016] WASC 196; (2016) 310 FLR 108.

2. The appellant's affidavit also indicated that the appellant has sought a de novo review of the sequestration order in the Federal Circuit Court.[7]  That application is part‑heard, with further affidavits due to be filed by 13 November 2020.  In that regard, there was evidence that on 13 August 2020, the Federal Circuit Court ordered (amongst other things):

   2.Leave is granted to the respondent debtor [Mr Mullins] to file and serve any further affidavit evidence as to other sufficient cause or solvency on or before 6 November 2020.

   [7] As to which see, for example, Schepis v Osborne [2015] FCA 192; (2015) 146 ALD 602 [27].

3. The respondents contended that s 60(4) had no application and that the appeals were deemed to have been abandoned pursuant to s 60(3) of the Bankruptcy Act.

4. The court also invited the parties to make submissions on whether the appeal in CACV 1 of 2019 was incompetent in any event on the basis that leave to commence the appeal was required under s 237 of the Corporations Act, and leave in that regard had not been obtained before the appeal was commenced.  The appellant accepted that such leave had not been obtained.  He appeared to accept, on the one hand, that the master's orders of 20 March 2017, as varied on 6 November 2017, granting leave did not extend to the conduct of the appeal, yet on the other hand, appeared to contend that no further leave was required in light of those orders.

5. The respondents, for their part, adopted the proposition that leave was required under s 237 of the Corporations Act, and that the appeal in CACV 1 of 2019 was incompetent on that basis as well. 

6. The respondents did not seek orders that the appeals be dismissed.  Rather, they sought orders to the effect that the notice of appeal be struck out.  They said that such an order would not create a res judicata against the appellant.  They also sought costs orders.

Disposition

1. As noted earlier, the appeal in CACV 1 of 2019 related to the derivative action on behalf of Settlers House, and the appeal in CACV 2 of 2019 concerned the appellant's personal liability under a guarantee. Section 60(4) has no application to either appeal. The test with respect to s 60(4) is whether the damages or part of them claimed by the bankrupt are to be estimated by immediate reference to pain felt by the bankrupt in respect of his or her mind, body or character and without reference to the bankrupt's rights of property.[8]  The subject matter of the action in each appeal is not of that character.[9]  The decision of Berryman v Zurich, to which the appellant referred, is not authority to the contrary and indeed is inconsistent with the proposition advanced by the appellant.[10]

   [8] Cox v Journeaux (No 2) [1935] HCA 48; (1935) 52 CLR 713, 721; Fletcher v Westpac [2012] WASCA 154 [18].

   [9] See, for example, Fletcher v Westpac [22] ‑ [23]; Daemar v Industrial Commission of New South Wales (1988) 12 NSWLR 45, 55 - 56.

   [10] Berryman [21] - [46], [52] ‑ [55].

2. Dealing with CACV 2 of 2019 first, in the circumstances, the appellant's trustee in bankruptcy is deemed to have abandoned the appeal pursuant to s 60(3) of the Bankruptcy Act. There is no suggestion that the sequestration order is the subject of an appeal. There is, however, evidence that the sequestration order is the subject of an application for review to the Federal Circuit Court. The respondents did not seek a dismissal of the appeal - only that the appeal notice be struck out. In our view, the appropriate order to give effect to the deemed abandonment of the appeal in CACV 2 of 2019 pursuant to s 60(3) of the Bankruptcy Act in these circumstances was to make a formal order that the notice of appeal be struck out, with leave to set aside the striking‑out in the event that the sequestration order is set aside.[11]

   [11] cf Cristovao v Tan and Tan Lawyers Pty Ltd [No 2] [2017] WASCA 171 [11] ‑ [12].

3. In relation to CACV 1 of 2019, leaving aside any procedural difficulty as to the proper name of the party to institute the primary proceedings and any appeal (see [6] above), an appeal is a separate proceeding and requires a separate application under s 237 of the Corporations Act unless the original order for leave extends to the conduct of the appeal:  Wood v Links Golf Tasmania Pty Ltd (No 2).[12]  No such application had been brought in relation to this appeal, and the original orders did not extend to the conduct of an appeal.  Further, in circumstances where the appellant is a bankrupt, and where Settlers House is, it appears, in liquidation, there would be no basis for the grant of leave in favour of the appellant in any event. 

   [12] Wood v Links Golf Tasmania Pty Ltd (No 2) [2013] FCA 143 [20].

4. Absent the grant of leave under s 237 of the Corporations Act in CACV 1 of 2019, the appeal is incompetent on that basis. However, even if that conclusion were wrong, the appeal is, in any event, incompetent by virtue of the deemed abandonment of the appeal pursuant to s 60(3) of the Bankruptcy Act. 

5. In relation to costs, we were not satisfied that the respondents ought to have their costs in CACV 1 of 2019 given the incompetency of the appeal in the absence of leave under s 237 of the Corporations Act, and the respondents' failure to raise this in an early and timely way.  In relation to CACV 2 of 2019, the appropriate course was to make programming orders on the question of costs.

Orders

1. In CACV 1 of 2019, the court declared and ordered:

   1.The appeal is incompetent.

   2.The notice of appeal is struck out.

   3.The hearing date of 23 October 2020 listed for the appeal is vacated.

   4.There is no order for costs of the appeal or of today.

1. In CACV 2 of 2019, the court ordered:

   1.The notice of appeal is struck out.

   2.The appellant have liberty to apply to set aside order 1 in the event that order 2 of the orders of Registrar Trott, dated 14 July 2020, in the Federal Circuit Court of Australia in file number PEG 33/2020 (that the estate of the appellant be sequestrated under the Bankruptcy Act) is set aside on review.

   3.The hearing date of 23 October 2020 listed for the appeal is vacated.

   4.If the fifth - tenth respondents seek any order for costs:

   (a)they must file and serve any application, affidavit and submissions in that regard on or before 4.00 pm 1 October 2020;

   (b)the appellant must file and serve any affidavit and submissions in response on or before 4.00 pm 8 October 2020;

   (c)the application will be determined on the papers unless the court otherwise directs.

   5.In the absence of an application under order 4, there is no order for costs of the appeal or of today.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.

DM
Associate to the Honourable Justice Murphy

29 SEPTEMBER 2020

(1)A person may bring proceedings on behalf of a company, or intervene in any proceedings to which the company is a party for the purpose of taking responsibility on behalf of the company for those proceedings, or for a particular step in those proceedings (for example, compromising or settling them), if:

(a)    the person is:

(i)a member, former member, or person entitled to be registered as a member, of the company or of a related body corporate; or

(ii)an officer or former officer of the company; and

(b) the person is acting with leave granted under section 237.

(2)     Proceedings brought on behalf of a company must be brought in the company's name.

237.  Applying for and granting leave

(1)A person referred to in paragraph 236(1)(a) may apply to the Court for leave to bring, or to intervene in, proceedings.

(2)     The Court must grant the application if it is satisfied that:

(a)    it is probable that the company will not itself bring the proceedings, or properly take responsibility for them, or for the steps in them; and

(b)    the applicant is acting in good faith; and
(c)     it is in the best interests of the company that the applicant be granted leave; and

(d)    if the applicant is applying for leave to bring proceedings - there is a serious question to be tried; and

(e)     either:

(i)at least 14 days before making the application, the applicant gave written notice to the company of the intention to apply for leave and of the reasons for applying; or

(ii)it is appropriate to grant leave even though subparagraph (i) is not satisfied.