Muir v Angeles

[2020] NSWSC 1056

Supreme Court

New South Wales

Medium Neutral Citation:

Muir v Angeles [2020] NSWSC 1056

Hearing dates:

18 June 2020

Date of orders:

12 August 2020

Decision date:

12 August 2020

Jurisdiction:

Equity

Before:

Hallen J

Decision:

The Court:

(a) Orders that the Cross-Summons filed by the Defendant on 2 August 2019 be dismissed.

(b) Makes no order as to the Plaintiff’s costs of the notice of motion to the intent that she bears her own costs thereof.

(c) Orders that the balance of the proceedings be listed for directions before the Succession List Judge at 9:30 a.m. on Tuesday 25 August 2020.

Catchwords:

BANKRUPTCY – Effect of bankruptcy on proceedings commenced by Plaintiff seeking various forms of relief to do with the estate of her father, the deceased –Action by the Defendant, by way of Cross-Summons for family provision order under Succession Act 2006 (NSW), Ch 3 – The Defendant made bankrupt following the commencement of the proceedings – Summons and Cross-Summons filed before endorsement of the debtor’s petition – Whether claim by Defendant is automatically stayed – Whether trustee in bankruptcy is deemed to have abandoned the claim raised in the Cross-Summons – Whether Cross-Summons was stayed and should be dismissed

SUCCESSION – Family provision – Practice – Application for summary dismissal of claim – Where Cross-Claimant is declared bankrupt – Whether claim made in Cross-Summons for family provision order should be summarily dismissed – No evidence of the Defendant referred to on notice of motion for dismissal – Reference only to defence filed by Defendant

Legislation Cited:

Bankruptcy Act 1966 (Cth), ss 58, 60, 82

Civil Procedure Act 2005 (NSW), ss 3, 56, 57, 91

Succession Act 2006 (NSW), ss 59, 91

Uniform Civil Procedure Rules 2005 (NSW), r 18.7

Cases Cited:

Aware Industries Ltd v Robinson (1997) 75 FCR 600

Cameron v Cole (1944) 68 CLR 571; [1944] HCA 5

Coffey v Bennett [1961] VR 264

Cole v Challenge Bank Limited [2002] FCAFC 200

Collicoat v McMillan [1999] 3 VR 803

Coyne v Commercial Equity Corporation Ltd (1998) 20 WAR 109

Cummings v Claremont Petroleum NL (1996) 185 CLR 124; [1996] HCA 19

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

Deputy Commissioner of Taxation v Garrett [2015] VSC 347

Duckworth v Water Corporation (2012) 261 FLR 185; [2012] WASC 30

Feiglin v Ainsworth (No 3) (2013) 280 FLR 24; [2013] VSC 560

Freeman v Joiner [2005] FCAFC 149

Frigger v Rowe Bristol Lawyers Pty Ltd [2020] WASC 5

Jandric v Jandric (No 2) [2007] WASC 273

Jensen v State of New South Wales [2014] NSWSC 682

John v Neiman Holdings Pty Ltd (1986) 84 FLR 84

Liristis v Gadelrabb [2012] NSWCA 327

McLeod v Johns [1981] 1 NSWLR 347

Menzies v Marriott [2009] VSC 345

Nugawela v Commissioner of Taxation [2018] FCA 1458

Official Receiver in Bankruptcy v Schultz (1990) 170 CLR 306; [1990] HCA 45

Owens v Comlaw (No 62) Pty Ltd (2006) 201 FLR 275; [2006] VSCA 151

Poesch v Grosvero [2013] VSC 596

Psevdos v Commonwealth Bank of Australia [2018] SASC 9

Re Collins; Ex parte Official Trustee in Bankruptcy v Bracher (1986) 10 FCR 209

Re Lofthouse (In the matter of Guss) (2001) 107 FCR 151; [2001] FCA 25

Savage v Australian Unity Funds Management Ltd [2011] NSWCA 270

State of Queensland v Beames [2004] 2 Qd R 99; [2003] QSC 399

Steiner v Strang (No 2) [2017] NSWSC 891

Temsign Pty Ltd v Biscen Pty Ltd (1998) 20 WAR 47

Voskuilen v Morisset Mega Markets [2005] NSWSC 34

Want v Moss (1889) 10 LR (NSW) 274

Watson v National Australia Bank [2017] FCA 128

Zhao v Suzhou Haishun Investment Management Co Ltd [2020] VSCA 34

Texts Cited:

PP McQuade and MGR Gronow, McDonald, Henry & Meek: Australian Bankruptcy Law and Practice (2020, Lawbook Co)

Category:

Procedural and other rulings

Parties:

Caitlin Stanmore Muir (Plaintiff)
John Dondi Angeles (Defendant)

Representation:

Counsel:
K Leotta (Plaintiff)

File Number(s):

2018/00398591

Judgment

Introduction

1. HIS HONOUR: The main legal issues in this case stem from the death of Brian Thomas Gregory Muir (the deceased), who died on 30 November 2017, and the bankruptcy of John Dondi Angeles, the Defendant in these proceedings. The Plaintiff in the proceedings is Caitlin Stanmore Muir, one of the three, now adult, children of the deceased. The relationship of the Defendant and the deceased is the subject of dispute.

2. The aspect of the proceedings with which I am dealing in these reasons concerns a notice of motion filed on 23 April 2020 by the Plaintiff to which I shall refer later in these reasons.

The Procedural Background

3. The Plaintiff commenced the substantive proceedings by Summons filed on 28 December 2018, which was made returnable on 15 February 2019. In the intervening period, on 25 January 2019, the Plaintiff filed an amended Summons seeking, relevantly, a family provision order under s 59 of the Succession Act 2006 (NSW), an order under s 91 of the Succession Act for a grant of administration in respect of the estate of the deceased for the purposes only of permitting the application concerned to be dealt with, the designation of property as notional estate of the deceased, an order extending the time for the making of her application, and an order for her costs.

4. On the first return date of the amended Summons, being 15 February 2019, Mrs K Leotta of counsel appeared for the Plaintiff and Mr C J Dibb of counsel appeared for the Defendant. The Court made directions for the filing and service of the Plaintiff’s evidence in chief and the proceedings were adjourned until 25 March 2019.

5. On 25 March 2019, appearances were as on the prior occasion. Counsel indicated that the Plaintiff intended to seek other relief, including declarations of trust (constructive or resulting), in relation to land situated at East Kangaloon, a locality in the Southern Highlands of New South Wales (the East Kangaloon property). The Court then ordered that the matter proceed by way of pleadings. The Court also noted that the Defendant was “the appropriate Defendant as he may be the holder of property sought to be designated as notional estate”.

6. The Plaintiff filed a Statement of Claim on 15 April 2019. An amended Statement of Claim was filed on 4 July 2019, in which the Plaintiff sought, amongst other things, a declaration that the deceased “intended the document signed by him on 27 November 2017 to be his will”; consequential relief going to the construction of that document; a declaration that the East Kangaloon property, which had been registered in the sole name of the Defendant, was held on a common intention constructive trust as to a one half share, or that he held one half of the proceeds of sale on trust, for the deceased; alternatively, that there was a resulting trust created by the deceased’s contribution of $155,000, or $70,843.41, or such other sum as the Court determined, in respect of the proceeds of sale of the property; as well as other relief relating to the East Kangaloon property, or relating to the proceeds of sale thereof. In addition, the Plaintiff maintained the claim for a family provision order and an order designating half of the proceeds of sale of the East Kangaloon property as the notional estate of the deceased.

7. The Defendant filed a Defence to the Amended Statement of Claim on 31 July 2019 and a Cross-Summons on 2 August 2019, in which he, also, sought a family provision order. In addition, he sought an order that the time for making his application be extended up to and including the date of filing the Cross-Summons.

8. In his Defence to the amended Statement of Claim, the Defendant asserted that he had been the spouse of the deceased at the time of his death; he admitted that he had become the registered proprietor of the East Kangaloon property on, or about, 24 March 2017; he asserted that he had sold the East Kangaloon property on, or about, 19 March 2019; he denied that he had held any part of that property on trust for the deceased. He also asserted that any amounts paid by the deceased were by way of a gift, made by the deceased, to him.

9. The matter was listed in the Family Provision List (as it then was) a number of times for procedural, and other, directions. It was listed for a judicial settlement conference on 12 August 2019, in which the parties and legal representatives participated, but which, regrettably, was unsuccessful.

10. On 29 November 2019, the matter was listed in a Callover on 21 February 2020, in order to obtain a hearing date, with an estimated duration of three days.

11. On 20 February 2020, the Defendant filed a document headed “Submitting Appearance”, which stated:

“I, John Dondi Angeles, the defendant, due to health issues arising from a recent heart procedure in October 2019 and insolvency issues with the filing of voluntary bankruptcy under the Bankruptcy Act 1966, will not take part in any future proceedings and submits to the making of all orders sought, and the giving or entry of judgment in respect of all claims made.” (emphasis removed)

12. On 21 February 2020, there was no appearance by, or on behalf of, the Defendant, and the purported “Submitting Appearance” did not come to the Court’s attention on that day as it had not been e-filed. The matter was adjourned until 27 March 2020. However, before the hearing date was allocated, the Defendant was declared bankrupt on 25 February 2020.

13. On each occasion after 29 November 2019, that the matter was listed, there had been no appearance by, or on behalf of, the Defendant.

The Plaintiff’s notice of motion

14. The Plaintiff in the notice of motion to which reference has been made, relevantly, sought the following orders:

“1. In consequence of the trustee in bankruptcy of the defendant’s estate pursuant to s 60(3) of the Bankruptcy Act 1966 (Cth) being deemed to have abandoned the cross-claim brought by the defendant, an order that judgment be entered in favour of the plaintiff cross-defendant; or alternatively that such cross-claim be dismissed.

2. An order that the matter otherwise be set down for hearing.

3. An order that the defendant pay the plaintiff’s costs of this motion.”

15. In support of the notice of motion, the Plaintiff relied upon her affidavit sworn 23 April 2020; her affidavit sworn 8 March 2019; and two affidavits of service to which I shall refer.

16. Annexed to her affidavit sworn 23 April 2020, was a copy of a letter dated 28 February 2020, addressed to her, from Jones Partners, Chartered Accountants, stating that Bruce Gleeson (the author of the letter) had been “appointed Trustee of the … Bankrupt Estate [of the Defendant, John Dondi Angeles] on 25 February 2020”. It stated that the Defendant had been declared bankrupt as a result of lodging a Debtor’s Petition.

17. The letter from Mr Gleeson went on:

“I note that the Bankrupt is involved in legal proceedings with you in the Supreme Court of NSW. I note that:

1. Pursuant [to] Section 58(3) of the Bankruptcy Act 1966 (“the Act”), it is not competent for a creditor to enforce any remedy against the person or property of the person in respect of a provable debt without leave of the Court; and

2. Pursuant to Section 60 of the Act, legal proceedings against the Bankrupt with respect to a provable debt are stayed.

The Bankrupt has filed a cross-claim in the proceedings. This cross-claim is stayed until I elect to prosecute or discontinue the action pursuant to Section 60 of the Act. I am currently reviewing the documents filed in the proceedings and will advise of my election.

Please advise of your intentions regarding the above.

To the extent that you believe you may have a claim against the Bankrupt, please arrange to complete and return the enclosed Proof of Debt form at your earliest convenience. I am required within twenty (20) business days to issue a Report to Creditors which will provide details to creditors of the Bankrupt’s affairs and the likelihood of a dividend to creditors.”

18. How the Trustee in Bankruptcy came to be aware of these proceedings is not revealed in the evidence read on the notice of motion. One, however, suspects that the Defendant made his Trustee in Bankruptcy aware by delivering relevant documents to him, or that somehow, otherwise, the Trustee learned of the proceedings through his investigations into the Defendant’s bankrupt estate.

19. Other than what is set out in the letter from the Trustee in Bankruptcy, the circumstances in which the Defendant’s bankruptcy arose were not disclosed. How much the creditors of the Defendant’s bankrupt estate were said to be owed is also not known. Nor does any Report to Creditors form part of the evidence read on the notice of motion.

20. There is no evidence of any election having been made by the Defendant’s Trustee in Bankruptcy in relation to the Cross-Claim since the letter sent to the Plaintiff. That is a matter upon which the Plaintiff relies.

21. The Plaintiff sent a letter, dated 16 April 2020, to the Trustee in Bankruptcy, which stated:

“The Plaintiff specifically refers to your letter of 28 February 2020 and notes that 28 days have passed without any notice to the Plaintiff or the Court of the Trustee’s election to prosecute or discontinue the Defendant’s cross claim in the matter.

The Plaintiff is of the view that the Trustee has abandoned the Defendant’s cross claim and will proceed to apply to the Court for an order that the cross claim be dismissed for want of prosecution.”

22. Again, there is no evidence of any response from the Trustee in Bankruptcy to this letter.

23. The notice of motion filed by the Plaintiff was first returnable in the Succession List on 11 May 2020. Once again, there was no appearance by, or on behalf of, the Defendant. Nor was there any appearance by, or on behalf of, his Trustee in Bankruptcy.

24. Mrs Leotta, counsel for the Plaintiff, who again appeared, lodged a written Outline of Submissions, comprising four pages, in support of the notice of motion. Because the matter was likely to require some consideration, I referred it to Chambers to be determined on the papers.

25. Before doing so, I read an affidavit of the Plaintiff sworn 6 May 2020, in which she stated that on 24 April 2020, she had sent, by email, addressed to the Defendant, a sealed copy of the notice of motion and an affidavit in support thereof. There was no evidence that she had received any response from the Defendant.

26. Upon considering the documents in Chambers, I came to the view that there were a number of matters that required further submissions from counsel for the Plaintiff, and the matter was listed, administratively, for oral submissions, at 2:00 p.m. on 18 June 2020.

27. On 18 June 2020, once again there was no appearance by, or on behalf of, the Defendant, or by, or on behalf of, the Trustee in Bankruptcy. Counsel for the Plaintiff read an affidavit of service which satisfied me that the Plaintiff, herself, had given written notice of the adjourned date for the hearing of the notice of motion on 16 June 2020, and had received a response from a representative of the Trustee in Bankruptcy, in which it was confirmed that there would be no appearance, by him, or by any legal representative on his behalf. The author of the reply provided no reasons for the non-appearance by the Trustee in Bankruptcy.

28. The affidavit also stated that on that day, she had sent, by email, addressed to the Defendant, notification of the date and time of the hearing of the notice of motion. Of course, that was only one day before the matter was listed. Again, there was no evidence that she had received any response from the Defendant.

29. Despite the closeness of the date of the email sent to the Defendant to inform him that the matter was listed, the evidence, overall, makes it tolerably clear that he would have been unlikely to have participated in any event. Certainly, his Trustee in Bankruptcy appears to have chosen not to do so.

30. The Uniform Civil Procedure Rules 2005 (NSW) r 18.7 provides that “[i]f service of a notice of motion on any party is required by these rules, and notice of motion has been duly served on that party, the court may hear and dispose of the motion in the absence of that party”.

31. There was no evidence of any correspondence from the Defendant to the Plaintiff, or for that matter, to the Court, providing any basis for his non-appearance at any time after November 2019 (other than what was stated in the “Submitting Appearance”). Nor was there any explanation for his Trustee in Bankruptcy choosing not to appear. There was evidence that each had been made aware of the notice of motion and of the date on which the matter was before the Court.

32. There are few authorities considering the effect of r 18.7. I respectfully agree with the views expressed by Hamill J in Jensen v State of New South Wales [2014] NSWSC 682 at [9], to the effect that the discretion given in the rule is to be governed by the general principles contained in ss 56 and 57 of the Civil Procedure Act 2005 (NSW). His Honour also stated:

“To be brief about it, both the Act and the rules are designed to facilitate the just, quick and cheap resolution of the real issues in the proceedings. Where there is any deviation between these three objectives I would certainly take the view that ‘just’ would prevail.”

33. Thus, whilst the clear purpose of r 18.7 is the efficient dispatch of court business, the court, in dispatching court business, does not ignore the right of the respondent to be informed, or, at least, to be made aware, of the date on which the notice of motion is to be heard.

34. It is a fundamental principle that a party who may be adversely affected by the making of court orders has a right to be heard: Cameron v Cole (1944) 68 CLR 571; [1944] HCA 5, in which Rich J wrote at 589:

“It is a fundamental principle of natural justice, applicable to all courts whether superior or inferior, that a person against whom a claim or charge is made must be given a reasonable opportunity of appearing and presenting his case. If this principle be not observed, the person affected is entitled, ex debito justitiae, to have any determination which affects him set aside; and a court which finds that it has been led to purport to determine a matter in which there has been a failure to observe the principle has inherent jurisdiction to set its determination aside ... In such a case there has been no valid trial at all.”

35. The history of the proceedings is lengthy, and the proceedings have been before the Court on many occasions. I was satisfied that the Defendant was made aware of the proceedings generally and of the notice of motion, as was his Trustee in Bankruptcy.

36. Of course, I considered whether I should adjourn the hearing of the notice of motion again, to give the Defendant a further opportunity to appear. However, it seemed to me that there would be no utility in doing so, in the absence of any reasons why neither he, nor his Trustee in Bankruptcy, failed not appear at the hearing of the notice of motion. I also remembered the terms of the “Submitting Appearance”. There was simply no reason to believe that either would be more likely to appear on any adjourned date.

37. In all the circumstances, I was satisfied that the Defendant and his Trustee in Bankruptcy had been given notice of the date of the hearing of the notice of motion and that each determined not to participate. Therefore, I proceeded to hear the notice of motion in their absence.

The Factual Background

38. It is next convenient to refer to the factual background of the present application. I have taken what follows from the affidavit sworn by the Plaintiff on 8 March 2019. Whilst the contents of the affidavit have not been tested, the following facts appear to me, unlikely to be disputed.

39. The Plaintiff is the daughter of the deceased. She was born in May 1970. She has two sisters, Gabriella Muir and Marie-Claire Muir. Their parents divorced in the late 1980s, or early 1990s, and there was a property settlement made between them in the 1990s.

40. The deceased died intestate. However, the Plaintiff asserts that a document dated 27 November 2017 (the 2017 document), to which I shall refer, was a document which has testamentary effect. It is not presently necessary to determine whether that is so.

38. The Plaintiff does not set out details of her understanding of the deceased’s assets and liabilities at the date of his death. I have referred to her assertion concerning the East Kangaloon property as notional estate of the deceased.

39. By Transfer, which appears to have been registered in May 2017, the Defendant came to be the registered proprietor of the East Kangaloon property. The consideration shown on that Transfer, the receipt of which was acknowledged by the Transferor, was $550,000.

40. There was a Mortgage dated 24 March 2017, also, apparently, registered on the title to the East Kangaloon property, in May 2017, between the Defendant and the Australia and New Zealand Banking Group Limited. The amount secured by the Mortgage is not disclosed on the copy of the Mortgage document in evidence.

41. The Plaintiff asserted that the deceased had contributed to the purchase price of the East Kangaloon property. She referred to a conversation with the deceased which was stated to be as follows:

“After the Deceased’s diagnosis in June 2017 the deceased spoke to me:

‘I looked at many properties and after I had chosen this farm John came to sign for the mortgage. I paid most of the deposit in cheques, one from Suema and two smaller ones. I borrowed the stamp duty from Elisabeth because somehow it had slipped my mind that we needed money for the stamp duty. I paid a lot of other contributions to the farm but the cheques in the deposit are the only readily available link to me.’”

45. The 2017 document is in the following terms:

“Brian Muir acknowledges that he owes his daughter Caitlin an amount (c. $200k) which he sadly now accepts he is unable to ever repay.

He requests of his beloved John Angeles that Caitlin receive Brian’s share of the equity in the Kangaloon farm which he and John bought, or its value, sometime within the next five years.”

46. The document was said to have been signed by the deceased, and witnessed by the Plaintiff and Michael Murray, a friend of the deceased.

47. I shall not, in these reasons, repeat the Plaintiff’s evidence of the nature of the correspondence with the Defendant following the death of the deceased. However, there is little doubt that, in an email dated 2 December 2017, she sent a photograph of the 2017 document to him.

48. I am unable to refer to the contents of the Defendant’s affidavits as they were not referred to by counsel for the Plaintiff as part of the evidence on the notice of motion.

The Submissions

49. In her written submissions, Mrs Leotta did not address, at all, the question whether s 60(2) of the Bankruptcy Act 1966 (Cth) operates to stay a claim made by an eligible person for a family provision order, in circumstances where he, or she, was made bankrupt after the commencement of the proceedings.

50. At the hearing, the following exchange occurred (Tcpt, 18 June 2020, p 5(01–23)):

“What I am wondering is if the position is that the claim for a family provision order is not property that vests in the trustee in bankruptcy, I am just wondering what reason the trustee in bankruptcy would have to take any steps since, in reality, the creditors, until such time as an order is made, will not receive the provision, if any, that the Court orders should be made for the defendant by virtue of his cross summons. That is one of the things that is troubling me.

I appreciate that there is authority for the proposition that action in section 60(2) means any action and arguably includes the cross claim or the cross summons for family provision relief. I am just wondering whether in circumstances of a family provision claim that that is what the intention of the Bankruptcy Act is.

In other words, what is the utility of a trustee in bankruptcy interfering with a family provision claim made by a bankrupt when the claim for a family provision order can only be made by the bankrupt and it is only if a bankrupt obtains an order for provision that any money might go to the trustee in bankruptcy.

LEOTTA: Your Honour, I would say that if that is correct, that is a very strong limitation on section 60(2) which you would have thought would be very specific, not general, terms and the family provision action is an action.”

51. Mrs Leotta’s submission, thus, seemed to be that, unless there was some language in s 60 of the Bankruptcy Act to the contrary, the meaning of “action” included a claim for family provision relief: Tcpt, 18 June 2020, p 5(46) – p 6(02). She did not refer to any authority for the submission that she had advanced.

52. Mrs Leotta then turned to what would occur, assuming s 60(2) applied to stay the Defendant’s Cross-Claim. She submitted that by operation of s 60(3) the Trustee in Bankruptcy may be deemed to have abandoned the action. She submitted in her written submissions at pars 2, 4 and 5:

“A time period of 72 days has passed since the Trustee became aware of these legal proceedings and has failed to prosecute any action on behalf of the Bankrupt. The trustee has failed to appear at any of the direction hearings on 27 March, 6 April and 11 May 2020.

…

The Plaintiff has carried out service both by electric transmission as well as personal service on the Trustee, and his officers at the office of the Trustee with the Notice of Motion dated 23 April 2020 and the affidavit of the Plaintiff sworn 23 April 2020 on 27 April 2020 in accordance with an agreed time for attendance at the Trustee’s office. An officer, of the Trustee in Bankruptcy informed the Plaintiff that the Trustee does not intend to attend at Court.

The Plaintiff’s evidence is unchallenged that appropriate service and notice of the orders sought by the Plaintiff in her Notice of Motion was given to the Trustee and the time limit pursuant to S60(3) of the Act is deemed to have expired for the Trustee’s [sic] to make any election to proceed on the Cross Claim.”

53. Mrs Leotta submitted that, in those circumstances, the Defendant’s Cross-Claim ought to be dismissed for want of prosecution: Outline of Submissions at par 6. In support of that submission, she referred to the recent decision of Hill J in Frigger v Rowe Bristol Lawyers Pty Ltd [2020] WASC 5 at [66]–[67]. There, her Honour had held that if proceedings were deemed to be abandoned pursuant to s 60(3), it was open to the respondent (or in this case the Plaintiff) to make an application for the proceedings to be dismissed for want of prosecution.

54. Following the submissions made by counsel for the Plaintiff, I reserved my decision.

Determination

55. I have referred to the relief that the Plaintiff seeks earlier in these reasons. Regrettably, the written Outline of Submissions dated 11 May 2020, filed by counsel, only dealt with par 1 of the notice of motion, namely, whether the Defendant’s Trustee in Bankruptcy was “deemed to have abandoned the cross-claim brought by the defendant” and “an order that judgment be entered in favour of the plaintiff cross-defendant”.

56. The determination of the questions raised by the notice of motion requires a consideration of the statutory scheme that applies.

57. Section 58(3) of the Bankruptcy Act vests the property of the bankrupt upon the trustee in bankruptcy forthwith upon the debtor becoming a bankrupt. There is long-standing authority that holds that a bankrupt’s claim for family provision is not a chose in action that vests in a trustee in bankruptcy by the operation of s 58 of the Bankruptcy Act. A family provision claim is a personal, or bare, right and, therefore, falls outside the ambit of s 58: see, for example, Coffey v Bennett [1961] VR 264 at 265–267 (Sholl J); McLeod v Johns [1981] 1 NSWLR 347 at 349 (Kearney J); Collicoat v McMillan [1999] 3 VR 803 at 822 [51] (Ormiston J).

58. However if, whilst the applicant for a family provision order remains an undischarged bankrupt, he, or she, receives a lump sum, or other property through such proceedings, by way of a family provision order, such lump sum, or other property, will be available to the trustee for distribution to creditors.

59. In Official Receiver in Bankruptcy v Schultz (1990) 170 CLR 306 at 316–317; [1990] HCA 45, Mason CJ, Brennan, Deane, Dawson and Gaudron JJ held, in dealing with a claim under s 41 of the Succession Act 1981 (Qld) that:

“… the person to whom a benefit flows following the making of such an order receives that benefit as the result of the creation of rights pursuant to the making of the order and not by way of variation to any pre-existing rights which that person may have possessed pursuant to the will. It should be observed that the same result has been reached in relation to legislation providing that the order should take effect as if it had been made by codicil: Re Bishop; Union-Fidelity Trustee Co of Australia Ltd v Montgomery; McLeod v Johns.

The new right conferred by an order made pursuant to s 41 is not dissimilar to the right to due administration arising under the will. Each is subject to the availability of assets in the estate to satisfy the right, and in each case the holder of the right expects to receive a particular payment or piece of property. But the two rights are none the less fundamentally different. A right derived from an order under s 41 may displace the benefit of rights conferred by the will and hence confer an entitlement of a special kind beyond that of an ordinary beneficiary. The two kinds of right spring from different sources and remain distinct, despite their similarities. That this is so appears from s 41(11) of the Succession Act, which stipulates that the right conferred by an order under s 41, there described as the ‘provision’, may not be mortgaged, assigned or charged without the permission of the Court. This provision is inconsistent with the notion that the right conferred by an order under s 41 is absorbed into the subsisting right to due administration of the estate.” (citations omitted)

60. However, that is not a relevant matter in the present case. The first question to be determined is whether a claim for a family provision order is an “action” within the meaning of s 60(2) of the Bankruptcy Act, or put another way, does the Cross-Summons brought by the Defendant for a family provision order fall within the definition of an “action”? If it does not, it is not governed by s 60 at all.

61. Section 60(2) of the Bankruptcy Act provides:

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.

62. The sub-section applies only to an action commenced prior to the bankruptcy: Coyne v Commercial Equity Corporation Ltd (1998) 20 WAR 109 at 116 (Kennedy J, Franklyn J agreeing), 125 (Walsh J); Jandric v Jandric (No 2) [2007] WASC 273 at [9] (E M Heenan J); Watson v National Australia Bank [2017] FCA 128 at [41] (Greenwood J). (In this case, the Cross-Claim was filed and served well before the bankruptcy.)

63. The terms of s 60 apply to an “action” which is defined to mean any civil proceeding, whether at law or in equity: Bankruptcy Act, s 60(5). In the Civil Procedure Act, s 3(1), civil proceedings means “any proceedings other than criminal proceedings”.

64. Section 60(2) confers no discretion on the court. If the section applies, then the action is stayed until a written election is given by the trustee of the estate of the bankrupt to prosecute, or to discontinue, the action: Temsign Pty Ltd v Biscen Pty Ltd (1998) 20 WAR 47 at 57 (Wheeler J), or alternatively, the action is deemed abandoned in the absence of an election: s 60(3) of the Bankruptcy Act.

65. The word “action” has been construed broadly and the definition in s 60(5) is an extremely wide one. In Daemar v Industrial Commission of New South Wales (1988) 12 NSWLR 45, the Court of Appeal held that an action by summons for orders for relief in the nature of prerogative writs directed to the respondent Industrial Commission, was stayed by operation of s 60(2) of the Bankruptcy Act. The Court rejected the claimant’s contention that the action did not fall within s 60(2).

66. Although the Court accepted that the claimant’s arguments were not “without force”, Kirby P (as his Honour then was) (Samuels and Clarke JJA agreeing), held, at 54, that s 60(2) applied to the claimant’s summons, stating that “‘action’, particularly as defined in the [Bankruptcy] Act, is a word of wide meaning” and that “[i]ts width is emphasised by the very limited exceptions which Parliament has specifically provided for in s 60(4)”.

67. Young JA endorsed the approach of Kirby P in Savage v Australian Unity Funds Management Ltd [2011] NSWCA 270 at [15].

68. In Re Lofthouse (In the matter of Guss) (2001) 107 FCR 151 at 157–158 [18]–[20]; [2001] FCA 25 at [18]–[20], Gray J considered the effect of s 60 and the breadth of the definition of “action”. His Honour wrote at [18]–[20]:

“Section 60 is an adjunct to the scheme of the Act whereby the property of a bankrupt passes to the bankrupt’s trustee consequent upon a sequestration order. By s 58 of the Act, the property of a bankrupt vests forthwith in the Official Trustee or a trustee in bankruptcy when a debtor becomes a bankrupt. That section has the effect of vesting in the trustee in bankruptcy all rights of action in pending proceedings commenced by the bankrupt. Even if it be the case that property of which a bankrupt is a bare trustee for someone else does not pass to the trustee in bankruptcy (because such property is not available for distribution to the bankrupt’s creditors), it does not follow that s 60 must be construed as excluding proceedings brought by the bankrupt as trustee.

Section 60 is not the provision that vests the right of action in the trustee in bankruptcy. It has a different, and in some respects wider, role. It operates to stay pending proceedings unless the trustee elects to prosecute or discontinue them. It also provides the machinery for a defendant or other party to a pending proceeding to force the making of an election. It is directed towards the protection of the bankrupt’s creditors, by preventing the unnecessary dissipation of the assets of the estate in fruitless litigation. In my view, s 60 also has the purpose of protecting a defendant or other party to a pending proceeding. A defendant or other party to a pending proceeding suffers an immediate detriment upon the plaintiff becoming a bankrupt. The detriment is that if the defendant or other party should be successful in the proceeding, and should obtain an order that the plaintiff pay the costs of the proceeding, the order will be effectively unenforceable because of the bankruptcy. The rationale behind s 60(2) and 60(3) is therefore, at least in part, to protect those whom the bankrupt has been suing. Such protection would be lost if the word ‘action’ in s 60 were to be construed as excluding a proceeding in which the bankrupt has sued as a trustee for someone else.

In my view, s 60 has been enacted deliberately as a broad provision, so as to encompass any proceeding brought by a bankrupt before bankruptcy. The exceptions have been expressed quite narrowly. The intention is that, once a bankruptcy occurs, no further costs should be incurred in a proceeding unless the trustee in bankruptcy makes an election to continue the proceeding. If such an election is made, the trustee in bankruptcy will ordinarily become substituted as plaintiff in the pending proceeding, in the capacity of trustee in bankruptcy for the former plaintiff. The trustee in bankruptcy will thereby become liable for the costs of the proceeding in the event that it is unsuccessful and a costs order is made in favour of the defendant in the proceeding or some other party to it. The trustee in bankruptcy may be entitled to an indemnity in respect of those costs out of the bankrupt estate, as expenses of the administration of the estate, to the extent to which the estate has assets. The trustee in bankruptcy will obviously consider whether continuing to prosecute the proceeding will be likely to have any benefit to the estate of the bankrupt, and therefore to the bankrupt’s creditors. One of the elements that the trustee in bankruptcy will take into account is whether the bankrupt is suing in a personal capacity or some other capacity, particularly that of trustee for someone else. If the bankrupt has sued as trustee for another person, and the estate will not benefit, the trustee in bankruptcy would no doubt usually elect not to continue to prosecute the proceeding. This would protect any defendant, and perhaps other parties to the proceeding, with respect to costs. Of course, it may impact on the beneficiary of the trust of which the bankrupt claims to be trustee. The beneficiary may be forced to institute proceedings in his or her own right to enforce the trustee’s legal right, as can be done where there are ‘exceptional circumstances’ …” (citations omitted)

69. His Honour’s remarks on the effect of s 60 on a claim brought by a bankrupt, as trustee, are not presently analogous. However, his Honour’s more general remarks on the scope of s 60(2) would suggest a reading of “action” that is not confined to choses in action which would vest in the Trustee in Bankruptcy by operation of s 58.

70. That the application of s 60(2) does not depend on the right of action being property which vests in the trustee in bankruptcy under s 58(1) of the Bankruptcy Act has also been the view of the Court of Appeal in Victoria in Owens v Comlaw (No 62) Pty Ltd (2006) 201 FLR 275 at 285 [42]; [2006] VSCA 151 at [42] (Ashley JA, Redlich JA agreeing). (Ashley JA, at [40], referred to Re Lofthouse, as “an authority not cited by counsel, but which I mentioned in the course of argument”).

71. The conclusion of Gray J in Re Lofthouse was followed by Edelman J (as his Honour then was) in Duckworth v Water Corporation (2012) 261 FLR 185 at 191–194 [32]–[48]; [2012] WASC 30. His Honour articulated seven reasons in support of the decision to do so at [32]–[48]. I shall not repeat those reasons other than to note that his Honour identified, at [43]–[44], the policy said to underlie s 60(2) of the Bankruptcy Act as follows:

“It has often been repeated that one rationale behind s 60(2) is ‘to protect those whom the bankrupt has been suing’: Re Lofthouse (158) [19]; Owens v Comlaw (No 62) Pty Ltd (284) [40] (Ashley JA; Redlich JA agreeing). In Want v Moss (1889) 10 LR (NSW) 274, 279, Manning J said that ‘it would be monstrous if … a bankrupt, who can have no means to pay costs if he fails, should be allowed to go on and put the plaintiff to trouble and expense’.

The reason why those whom the bankrupt has been suing need protection is because ‘if the defendant or other party should be successful in the proceeding, and should obtain an order that the [bankrupt] pay the costs of the proceeding, the order will be effectively unenforceable because of the bankruptcy’: Re Lofthouse (at [19]); Owens v Comlaw (No 62) Pty Ltd at [40] (Ashley JA); Temsign Pty Ltd v Biscen Pty Ltd (at 54; at 183) (Wheeler J).”

72. In Deputy Commissioner of Taxation v Garrett [2015] VSC 347 at [19], Riordan J wrote:

“The proposition that s 60(2) should be read as limiting the word ‘action’ only to a proceeding which is connected with the property of the bankrupt, which is vested in the trustee pursuant to s 58, was authoritatively rejected by the Victorian Court of Appeal in Owens v Comlaw (No 62) Pty Ltd, which approved the decision of Gray J in Re Lofthouse, which has been further endorsed by Edelman J in Duckworth v Water Corporation.” (citations omitted)

73. However, there is some suggestion both in the academic commentary and the authorities, that s 60(2) will not stay a claim for a family provision order. The learned editors of PP McQuade and MGR Gronow, McDonald, Henry & Meek: Australian Bankruptcy Law and Practice (2020, Lawbook Co) write at [60.2.05]:

“Because the right to claim ‘family provision’ from a deceased estate under Part IV of the Administration and Probate Act 1958 (Vic) and equivalent legislation in other states and territories is a right personal to the bankrupt and not a chose in action that vests in the trustee under s 58 of the Bankruptcy Act 1966 (Cth) as to which see [58.1.20]), a proceeding commenced by a bankrupt claiming such provision is not stayed under s 60, and can be continued by the bankrupt in her or his own name: Menzies v Marriott [2009] VSC 345, at [46] (Hollingworth J); Poesch v Grosvero [2013] VSC 596, at [10] – [33] (Derham As J) and the authorities there cited, including Coffey v Bennett [1961] VR 264, at 266-267, and McLeod v Johns [1981] 1 NSWLR 347, at 349.”

74. As stated, the learned editors appear to exclude family provision claims from the ambit of s 60 on the basis that such claims do not vest in a trustee in bankruptcy by the operation of s 58. Because such a view is ostensibly contrary to the authorities to which I have made reference above, it is necessary to examine the authorities upon which the learned editors rely.

75. I begin, with Hollingworth J’s decision in Menzies v Marriott [2009] VSC 345. That was a case where the plaintiff made an application for an extension of the time in which to bring a claim for provision under Administration and Probate Act 1958 (Vic). In considering that application, Hollingworth J turned to the merits of the plaintiff’s claim. Her Honour considered it relevant that the plaintiff was, at the time of the application, an undischarged bankrupt. Her Honour wrote at [46]:

“The right to apply for relief under Part IV is personal, and does not vest in a person’s trustee in bankruptcy. That means that the plaintiff, not his trustee in bankruptcy, is the appropriate party to bring the proceedings. However if, whilst he remains an undischarged bankrupt, the plaintiff receives money or other property through Part IV proceedings, either by way of judgment or a settlement sum, such property will be available to the trustee for distribution to creditors.” (citations omitted)

76. There can be no disagreement with her Honour’s statement of the relevant principles. Importantly, nowhere in her Honour’s reasons did she refer to s 60 of the Bankruptcy Act. It may well have been unnecessary to do so. Had the plaintiff been an undischarged bankrupt at the time of filing his application, s 60 would have no application. It is not clear from her Honour’s reasons when, precisely, the plaintiff was made a bankrupt.

77. In my view, Menzies v Marriott does little more than repeat the oft-cited principle that a claim for family provision relief is personal to the bankrupt. It does not, in terms, go as far as the learned editors of McDonald, Henry & Meek suggest.

78. Turning then to two other decisions cited by the learned editors: Coffey v Bennett and McLeod v Johns. I have already referred to those decisions as standing for the proposition, much like Menzies v Marriott, that a claim for family provision is personal to the bankrupt. Kearney J, in McLeod v Johns, made no reference to s 60 in the judgment. The report of the decision makes it plain, at 348, that the plaintiff was an undischarged bankrupt at the date of the deceased’s death and, consequently, was bankrupt prior to the commencement of the proceedings. Section 60 could, therefore, have no application.

79. Coffey v Bennett was decided prior to the enactment of the Bankruptcy Act. However, the Bankruptcy Act 1924 (Cth), then in force, contained a materially similar provision to s 60(2) of the current Act in s 63(3). Sholl J did not refer to s 63 or the possibility of a stay. Again, this is unsurprising as the plaintiff in that case was made bankrupt nearly 12 months before he filed his summons for family provision relief.

80. That then leaves the decision of Derham AsJ in Poesch v Grosvero [2013] VSC 596. In that case, his Honour squarely considered whether s 60(2) covers a claim for a family provision order. His Honour wrote at [10]:

“Whether this proceeding is stayed by s 60 of the Bankruptcy Act depends upon whether the right to make a claim for family provision under Part IV is property within the meaning of the Bankruptcy Act.”

81. Then, having considered the relevant provisions and the authorities, at [11]–[28], his Honour concluded at [29]:

“In relation to the question whether the statutory right to make a claim under s 91 of Part IV is a species of property that vests in the bankrupt’s trustee, the authorities are all one way, and the answer is clearly in the negative …”

82. His Honour added, at [34]:

“Accordingly, the position is –

(a) The right to claim provision under Part IV is not a chose in action, or other species of property, that vests in the Plaintiff’s trustee in bankruptcy;

(b) The proceeding is therefore not stayed under s 60 of the Bankruptcy Act; and

(c) The trustee does not therefore have a right of election under s 60(2) of the Bankruptcy Act.” (emphasis in original)

83. As I have stated, it cannot be doubted that the Defendant’s right to claim a family provision order is not a chose in action, or other species of property, that vests in his Trustee in Bankruptcy. The majority of the High Court in Cummings v Claremont Petroleum NL (1996) 185 CLR 124 at 136 (Brennan CJ, Gaudron and McHugh JJ); [1996] HCA 19, referred, without apparent disapproval, to Coffey v Bennett illustrating an example of “rights of action which do not pass to a trustee on bankruptcy because they are personal to the bankrupt and do not affect the quantum of the bankrupt estate”.

84. But it is Derham AsJ’s subsequent conclusions with which I must, respectfully, disagree. The conclusion at [34(b)] (referred to above) does not accord with the authorities following from Re Lofthouse where it has been held that s 60 is not to be constrained by s 58. I have referred to these authorities earlier.

85. There has been little subsequent consideration of Derham AsJ’s decision directly on this issue. However, the case was cited before Kunc J in Steiner v Strang (No 2) [2017] NSWSC 891 at [43]. Although, as his Honour wrote, he did not have to decide the point, he continued, at [67]:

“Nor do I see how the making of a sequestration order would interfere with the Court's delivery of judgment. I should acknowledge that, with the utmost respect, I have some difficulty accepting the correctness of Poesch (see paragraph [43] above) because Derham AsJ does not appear to have had his attention directed to s 60(5) of the BA, which defines any action that would be stayed as ‘any civil proceeding, whether at law or equity’.”

86. I respectfully agree with the doubts expressed by Kunc J.

87. In my view, the plain words used in s 60(2) encompass all actions “commenced by a person who subsequently becomes a bankrupt”. The claim for a family provision order clearly falls within the definition of “civil proceedings” in the Civil Procedure Act and it does not matter whether that claim is one that is vested in the bankrupt’s trustee in bankruptcy.

88. To conclude otherwise would, in my opinion, run afoul of the purpose behind s 60 as elucidated by Edelman J in Duckworth v Water Corporation. As long ago as 1889 it had been written by Manning J in Want v Moss (1889) 10 LR (NSW) 274 at 279:

“It could never have been contemplated that a bankrupt, who can have no means to pay costs if he fails, should be allowed to go on and put the plaintiff to trouble and expense.”

89. I see no reason why that logic does not equally apply where a plaintiff, or in this case the Cross-Claimant, has commenced a family provision claim as distinct from other actions at law or in equity.

90. Thus, I conclude that the meaning of the term “action” is not to be confined to the property of the bankrupt to which s 58 applies. Instead, “action” must be given the meaning set out in s 60(5), a meaning that is broad enough to encompass a claim for a family provision order as sought by the Defendant in the Cross-Claim.

91. The effect of s 60(2) of the Bankruptcy Act, therefore, is that there is a statutory stay of the proceedings by way of Cross-Summons, upon the Defendant becoming bankrupt. As Young J (as his Honour then was) explained in John v Neiman Holdings Pty Ltd (1986) 84 FLR 84 at 86, all that is meant by a stay is that “nobody can take any step in the proceedings, nobody can make any order in the proceedings”. In other words, “a stay is a procedural phenomenon that suspends, as it were, a legal proceeding”. The action remains stayed until the trustee in bankruptcy elects in writing to prosecute or to discontinue it: Feiglin v Ainsworth (No 3) (2013) 280 FLR 24 at 30 [26]; [2013] VSC 560 at [26] (Mukhtar AsJ).

92. Section 60(4) of the Bankruptcy Act “creates a limited exception to the scheme enshrined in s 60. Relevantly, it permits a bankrupt to continue an action commenced by him, or her, before he or she became bankrupt, in respect of ‘any personal injury or wrong done to the bankrupt’”: Psevdos v Commonwealth Bank of Australia [2018] SASC 9 at [37] (Stanley J). There is no suggestion that the claim in the Defendant’s Cross-Summons falls within any of the exceptions.

93. Having concluded that the Cross-Claim has been automatically stayed, by operation of law, the next question is whether the Defendant’s Trustee in Bankruptcy, has failed to make an election to prosecute, or discontinue, the Cross-Claim within 28 days after notice of the action was served upon him. If so, he will be deemed to have abandoned the action. Importantly, it is the Trustee who bears the responsibility to make the election to prosecute or to discontinue. As stated, there is no evidence that the Defendant’s Trustee in Bankruptcy has made an election in this case.

94. The Act does not express the manner in which the election must be made and no formality of an election is required, except that it should be in writing and, implicitly, it should be communicated to the other parties in the action and to the court.

95. In this regard, s 60(3) of the Bankruptcy Act provides:

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.

96. Regrettably, the Court also did not have the benefit of detailed argument and submissions on this point.

97. The sub-section confers on “a defendant or other party to the action” an entitlement to a particular judicial order on the trustee in bankruptcy’s omission to make an election within the required period of time following the service on the trustee in bankruptcy of a notice and to attach to that omission is the description of a “deemed” abandonment of the action.

98. However, the 28 day period provided for in s 60(3) does not commence to run until the trustee in bankruptcy has been served with the requisite notice. It is the service of a notice of the action that is a condition precedent to the running of time under s 60(3).

99. The Bankruptcy Act does not prescribe a form for the notice of the action for the purposes of s 60(3).

100. In Liristis v Gadelrabb [2012] NSWCA 327, Basten JA (sitting alone in the Court of Appeal to determine a motion) considered the submission of the respondent that the proceedings should be deemed abandoned by operation of s 60(3). His Honour described a deemed abandonment, at [4]:

“The trigger for that event is the service of notice of the action. In relation to the proceedings in this Court that would involve service of, at the very least, the application for leave to appeal and the draft notice of appeal, if not the contents of the white book as a whole.”

101. The question whether knowledge of the action could constitute notice pursuant to s 60(3) was considered by the Full Court of the Federal Court of Australia in Aware Industries Ltd v Robinson (1997) 75 FCR 600, in which case, the knowledge of the proceedings, or the notice thereof, had come to the trustee from the bankrupt party. The Court (Northrop, Davies and Sundberg JJ) held at 602:

“Section 60(3) cannot be read as if the 28-day period runs from the day on which the trustee becomes aware of the existence of an action. That is not what the subsection says, and the two concepts — becoming aware of the existence of an action and being served with notice of it — are quite different. The second is a formal concept involving the notions familiar to lawyers of ‘notice’ and ‘service’. The word ‘notice’ is used in its strict sense. There must be a document which is a notification, and it must be served upon the trustee.

…

It is no answer to this to say, as the appellants submitted, that it would have been otiose for their solicitors to have informed the trustee of the existence of an action of which he was aware. The question is not whether the trustee already knew of the action. It is whether notice of the action has been served on him. The 28-day period is not set running by the trustee’s acquisition of information about the action, but by a notice which satisfies the description in s 60(3). If in order to start time running a defendant must notify the trustee of something of which the trustee is already aware, so be it.”

102. Their Honours went on, at 602–603, to describe what would constitute sufficient notice:

“It might be thought that the requirements of s 60(3) would be satisfied by service of a document which said no more than that an action in an identified court had been commenced by the bankrupt to which the person serving the notice was a defendant. But we do not regard the notice contemplated by s 60(3) as a mere provision of the details of the action. The consequences of the effluxion of time without an election to prosecute are serious. An action which may have value will be lost. The purpose of the notice is to alert the trustee to the need to consider whether to prosecute or discontinue the action. In those circumstances it is appropriate to read s 60(3) as requiring that the notice contain sufficient information to draw the trustee’s attention to the fact that time will run against the trustee upon service of the notice. Ideally a notice will be in the form of that served in Welinski v Temple (unreported, Federal Court, 8 April 1997). The document served in that case was described as a notice pursuant to s 60. It recited the existence of the action and that the persons on whose behalf it was given were the defendants in the action, required the trustee within 28 days of service to provide in writing an election advising the defendants of the trustee’s intention to prosecute or discontinue the action, and stated that in default of such advice the trustee would be deemed to have abandoned the action. That notice expressly drew attention to the fact that time ran from the date of service, and that the action would be deemed to have been abandoned at the expiration of the 28-day period in default of an election to prosecute it. But given that a notice will be directed to a registered trustee, it need not have all the attributes of that served in Welinski so long as, on a fair reading, it draws the trustee’s attention to the fact that time runs against him from the date of service.”

103. The Full Court agreed with the trial judge that s 60(3) did not contemplate the provision of notice by anyone other than a party to the action excluding the bankrupt party: Re Collins; Ex parte Official Trustee in Bankruptcy v Bracher (1986) 10 FCR 209 at 212–213 (Burchett J).

104. From the above, it can be seen that the sort of notice contemplated by the section is one that would provide the description of being a notice under s 60; recite the existence of the action in which the bankrupt was involved; identify the notice-giver as being a particular party in that action; require the trustee in bankruptcy to make a written election within 28 days of service; and state that in default of such election, the trustee in bankruptcy would be deemed to have abandoned the action.

105. It appears that no formal notice triggering s 60(3) was given by “[an] other party to the action” (the Plaintiff). Yet, at least some of the “documents filed in the proceedings” were provided to the Trustee in Bankruptcy otherwise than by the Plaintiff. He was aware of the Cross-Summons filed by the Defendant, and also of the need to make an election. He acknowledged that the “Bankrupt has filed a cross-claim in the proceedings. This cross-claim is stayed until I elect to prosecute or discontinue the action pursuant to Section 60 of the Act. I am currently reviewing the documents filed in the proceedings and will advise of my election”.

106. There was, then, also the Plaintiff’s letter dated 16 April 2020 to the Trustee in Bankruptcy, to which I have earlier referred, to which no response was, apparently, received.

107. In any event, the “notice of the action” required by s 60(3) was acknowledged by the Trustee in Bankruptcy when he stated he was “currently reviewing the documents filed in the proceedings and will advise of my election”. It must be borne in mind that the purpose of notice pursuant to s 60(3) is to alert the Trustee in Bankruptcy of the need to make an election.

108. In Voskuilen v Morisset Mega Markets [2005] NSWSC 34, Gzell J dealt with a similar situation to the present case. In that case, the Official Trustee in Bankruptcy declined to participate in the proceedings, and did not appear before his Honour. Relevantly to the issue of service under s 60(3), his Honour wrote, at [5]:

“The Official Trustee was informed of the proceedings and his attention drawn to those provisions by a letter from the solicitor for Mega-Market dated 29 October 2004. In a response of 2 November 2004, the Official Trustee acknowledged his understanding that the proceedings had been stayed in accordance with the Bankruptcy Act 1966 (Cth), s 60(2) and that he should make an election under s 60(3). No election was made in that letter.”

109. His Honour concluded, at [14], that the correspondence from the Official Trustee constituted an election to abandon the proceedings or, if not an election, it resulted in a deemed abandonment.

110. Whether there is an election to discontinue, or a deemed abandonment, is not of significance, but the terms of any decision to abandon should be made clear: Cole v Challenge Bank Limited [2002] FCAFC 200 at [22] (Emmett J).

111. In the circumstances of this case, I am satisfied that the requirements for notice under s 60(3) have been met. Although the letter dated 16 April 2020 was irregular in form, it met the purpose of alerting the Defendant’s Trustee in Bankruptcy, to the need to make an election. In any event, he was aware of, and had acknowledged, the need to do so in late February.

112. In my view, the Defendant’s Trustee in Bankruptcy has had ample opportunity to consider his position, and as well, has had ample opportunity to (remotely) appear before the Court, or to make an application to another court for an extension of time to make the election if he felt it necessary to do so. Since the letter of 16 April 2020, more than 28 days have passed. As he has not made any election, I am satisfied that the Trustee in Bankruptcy should be deemed to have abandoned the Defendant’s Cross-Claim.

113. The effect of the deemed abandonment of the Cross-Claim was stated by the unanimous Full Court of the Federal Court in Freeman v Joiner [2005] FCAFC 149 at [14]:

“The position is that, whilst the proceedings brought by the bankrupt are deemed to have been abandoned by the trustee, the cause of action remains. The provision, properly construed, operates only upon the trustee. There is no bar to the trustee commencing a fresh proceeding on the same cause of action or a bankrupt, on discharge, doing so whether there has been no determination of the issues.”

114. The practical consequences of a deemed abandonment were described by Wheeler J (as her Honour then was) in Temsign Pty Ltd v Biscen Pty Ltd at 58:

“The question which then arises, as it did in Stobbart’s case, is whether, as the result of the deemed abandonment of the action by the trustee, the plaintiffs’ action should be dismissed, or whether the action should simply be stayed, and if so for what period the stay should operate.”

115. Those remarks received at least the implicit approval of Edelman J in Duckworth v Water Corporation at [91].

116. A separate question, then, arises whether there ought to be a dismissal of the Cross-Claim. The answer will depend on all the relevant circumstances at the time of the application: Nugawela v Commissioner of Taxation [2018] FCA 1458 at [11] (Colvin J); Frigger v Rowe Bristol Lawyers Pty Ltd at [4] (Hill J).

117. McMurdo J (as his Honour then was) wrote in State of Queensland v Beames [2004] 2 Qd R 99 at 103 [16]; [2003] QSC 399 at [16]:

“… the deemed abandonment of this counterclaim has not destroyed any cause of action underlying it. Once that is recognised then there is at least a potential for a striking out or dismissal of the counterclaim to have an impact going beyond that from s 60. In Millane v Shire of Heidelberg [1928] VLR 52, Irvine CJ was asked to dismiss an action in these circumstances, i.e. where the trustee had elected to abandon the proceedings. He was concerned that the dismissal could be pleaded in bar as res judicata and he therefore declined to dismiss it. His decision was applied by Shepherdson J in Holmes v Goodyear Tyre & Rubber Co (Aust) Ltd (1984) 55 ALR 594 at 598. It is not entirely clear that the order sought here, which is the striking out of the counterclaim, would give rise to a res judicata. For example, a judgment dismissing proceedings for want of prosecution, being an interlocutory order, does not give rise to a res judicata. It is unnecessary however to explore that further.” (citations omitted)   

118. I also bear in mind the remarks of Young JA in Savage v Australian Unity Funds Management Ltd at [17]:

“The authorities dealing with first instance cases are to the effect that where an action is abandoned under s 60(3), the Court ought not to dismiss it, because to dismiss it would be to prevent the bankrupt from re-litigating the question once he or she became free to do so: Millane v President of the Shire of Heidelberg [1928] VLR 52; Holmes v Goodyear Tyre & Rubber Co (Aust) Ltd (1984) 73 FLR 88.”

119. In Millane v President of Shire of Heidelberg [1928] VLR 52, Irvine CJ was concerned that if he dismissed the action then “that dismissal may be pleaded in bar as res judicata …”: at 53.

120. Presently, however, s 91(1) of the Civil Procedure Act applies. Should I dismiss the Cross-Claim for want of prosecution, that dismissal would not prevent the Defendant from bringing fresh proceedings or claiming the same relief in fresh proceedings. (That, of course, does not mean his application would be successful.)

121. In my opinion, this is an appropriate case for dismissal. Neither the Defendant, nor his Trustee in Bankruptcy, has expressed any interest in continuing with the Cross-Summons. Indeed the Defendant, by his Submitting Appearance, has expressly disclosed an active disinterest in prosecuting the Cross-Claim.

Costs

122. Counsel made no submissions on whether, in the circumstances, an order for costs could be made against the Defendant in the event that the Cross-Summons was stayed or dismissed. As stated, however, the Plaintiff did seek costs of the notice of motion.

123. It seems to me that an order for costs can be made. In this regard, I refer to the decision of the Victorian Court of Appeal in Zhao v Suzhou Haishun Investment Management Co Ltd [2020] VSCA 34, in which the Court noted at [19]–[20]:

“In all the circumstances, we conclude that this is a case where the applicant has, after litigating her application for leave to appeal and putting the respondent to considerable cost in that regard, made the tactical decision to present her own bankruptcy petition and thus, subject to the right of her bankruptcy trustees to pursue the application for leave to appeal, effectively surrendered.

For these reasons, the applicant should pay the respondent’s costs of and incidental to the application for leave to appeal.”

124. However, I do not propose to make an order for the Plaintiff’s costs because, in all the circumstances, such an order is likely to be futile. Section 82 of the Bankruptcy Act makes clear that liability for a costs order, having not been in existence at the date of bankruptcy, is not a provable debt. Such an interpretation is supported by the High Court’s decision in Foots v Southern Cross Mine Management Pty Ltd (2007) 234 CLR 52; [2007] HCA 56. Gleeson CJ, Gummow, Hayne and Crennan JJ said at 65 [35]:

“What, then of the appellant’s first submission? This is, that his exposure to an adverse costs order arose from an ‘obligation’ incurred prior to his bankruptcy. The submission should be rejected: no such obligation arose until the costs order was made …”

125. Their Honours continued at 66 [36]–[37]:

“The most that can be said, as Mummery LJ observed in Glenister, is that ‘[o]nce legal proceedings have been commenced there is always a possibility or a risk that an order for costs may be made against a party’ (63). But that risk is not a contingent liability within the sense of s 82(1). The order for costs itself is the source of the legal liability and there is no certainty that the court in question will decide to make an order. It should be remarked that in support of his reasoning in Glenister (64), Mummery LJ referred to what had been said by Kitto J in Community Development Pty Ltd v Engwirda Construction Co (65) and by Tadgell J in Federal Commissioner of Taxation v Gosstray (66). The first submission by the appellant should be rejected.

“Incidental?”

Upon like considerations, and again contrary to the appellant’s submissions, it cannot be said that exposure to an adverse costs order is ‘incidental’ to liability for the underlying judgment debt (67). For reasons that will be explored later in these reasons, it is highly doubtful that the text of s 82 supports the notion of ‘incidental’ liabilities that are not themselves provable debts. However, it is sufficient for present purposes to observe that, as a factual and legal matter, costs are no longer an ‘incident’ of either verdict or judgment. As explained above, the making of an adverse costs order turns upon discretionary considerations that arise independently of the entry of judgment against the debtor.”

126. Their Honours concluded at 75–76 [65]:

“If the distraction of British Gold Fields is resisted when construing the text of the Bankruptcy Act, and the nature of a costs order is appreciated, several difficulties lie in the path of the admission to proof of the costs order made against Mr Foots. First, the order made falls outside s 82(1) because it was made after bankruptcy, and was thus not a liability ‘to which a bankrupt was subject at the date of the bankruptcy, or to which he or she may become subject before his or her discharge by reason of an obligation incurred before the date of the bankruptcy’ (emphasis added). Secondly, as explained earlier in these reasons, Mr Foots was under no antecedent obligation to pay costs until the order was made against him. Thirdly, there is no scope in the text or structure of the Bankruptcy Act for the notion of an obligation or liability ‘incidental’ to a provable debt. The necessary corollary of the appellant’s argument is the admission that such an obligation is not itself a provable debt, but is only ‘incidental; to one. If such an obligation is not a provable debt, when then should it be admitted to proof? Dressing the notion in the language of ‘incidence’ does not alter matters: rather, it is apt to disguise the text of the Bankruptcy Act.” (emphasis in original)

Balance of the Proceedings

127. In view of the relief sought in the notice of motion, it is strictly unnecessary for me to assess what, if any, effect the bankruptcy of the Defendant has on the Plaintiff’s claim. When the matter is next before the Court, it will be necessary to raise this matter with counsel for the Plaintiff, as it may very well be that there will be no property of the Defendant, and no actual or notional estate of the deceased, that will be available to the Plaintiff, even if she were successful.

128. (On the notice of motion, the Court was given no details of any steps the Trustee in Bankruptcy has taken, or could take, to gather in the Defendant’s property or the debts the subject of valid proofs of debt.)

129. In all the circumstances, the Court:

1. Orders that the Cross-Summons filed by the Defendant on 2 August 2019 be dismissed.

2. Makes no order as to the Plaintiff’s costs of the notice of motion to the intent that she hears her own costs thereof.

3. Orders that the balance of the proceedings be listed for directions before the Succession List Judge at 9:30 a.m. on Tuesday 25 August 2020.

**********

Decision last updated: 13 August 2020