Pearce v Mellor Olsson No. DCCIV-99-1436

[2000] SADC 42

DARRYL JOHN PEARCE & GERALDINE ANNE PEARCE v MELLOR OLSSON
[2000] SADC 42

Judge Lunn
Civil.

REASONS ON THE APPEAL AGAINST THE ORDER OF A MASTER REFUSING TO STRIKE OUT THE ACTION.

1. The plaintiffs have sued the defendant by a summons issued on 6 October 1999.  The defendant is a firm of solicitors which has been sued in its firm name.  The plaintiffs have not been legally represented in these proceedings.  The plaintiffs became bankrupt on 11 December 1996 and were discharged from that bankruptcy on 12 December 1999.

2. The plaintiffs’ causes of action as pleaded in their amended statement of claim filed on 24 January 2000 can be paraphrased as follows.  On 8 September 1994 the 1st plaintiff was injured in a road accident.  The plaintiffs retained the defendant to claim damages on their behalf resulting from this accident.  The defendant instituted an action in this Court for that purpose.  On 8 October 1996 the defendant in that action lodged an offer to consent to judgment for $50,000.  The defendant misrepresented to the plaintiffs the effect of this offer and negligently did not advise them of its true effect.  The plaintiffs rejected the offer and the action went to trial.  The defendant negligently failed to put before the trial Judge evidence of the 1st plaintiff’s good character and honesty.  The trial Judge did not believe the evidence of the 1st plaintiff, dismissed the claim and ordered costs against the plaintiffs.  The causes of action which are to be distilled from the pleadings are in contract and tort that the defendant breached its duties to the plaintiffs by misrepresenting the effect of the lodged offer and by not giving proper advice about its effect and separately in not putting forward character evidence at the trial.  These are merely allegations in the amended statement of claim.  Whether they can be proved or not is not my present concern.

3. The amended statement of claim then pleaded various heads of damage which the plaintiffs had suffered as a result of the causes of action, although without always separating what loss allegedly flowed from which breach.  I paraphrase these pleaded heads of damages as follows:

1...... The moneys which the plaintiffs would have recovered if the offer to consent had been accepted.

1. In the alternative to 1, the damages which the plaintiffs would have recovered if the action had gone to trial and the Judge had believed the 1st plaintiff.

2. On the cause of action related to not calling the character evidence “severe embarrassment, loss of personal reputation and self-respect”.

3. As a result of the bankruptcy of the plaintiffs the “loss of personal reputation, embarrassments, inconveniences” they thereby suffered.

4. As a result of the bankruptcy “lost opportunities” (which are not particularised) and financial loss attributable to the loss of their home.

It is the nature of the items of damage claimed which is in issue here and so the lack of particularity in some instances is not relevant on this application.

1. On 18 October 1999 the defendant took out an application to strike out parts of the statement of claim.  On 2 March 2000 a Master dismissed this application.  On 14 March the defendant appealed against that order.  (The notice of appeal seeks to strike out slightly more of the statement of claim than did the original application, but nothing turns on this.)

2. The crux of the defendant’s contention is that the plaintiffs’ causes of action, or some of them, vested in their trustee in bankruptcy by virtue of ss58 and 116 of the Commonwealth Bankruptcy Act 1966 and therefore the plaintiffs cannot sue upon them in this action.  Section 116 provides:

   “...... (a)  all property that belongs to, or was vested in, a bankrupt at the commencement of the bankruptcy,

   ...........

   (b)  the capacity to exercise and to take proceedings for exercising such powers in, over or in respect of property as might have been exercised by the bankrupt for his or her own benefit at the commencement of the bankruptcy

   ...........

   is property divisible among the creditors of the bankrupt.”

By s58(1) this property is vested in the trustee in bankruptcy.  However, by s116(2) there are exceptions to the operation of s116(1).  The application here revolved around whether the plaintiffs’ claim wholly or partly fell within the following exception:

“(2)  Subsection (1) does not extend to the following property ......

(g)    any right of the bankrupt to recover damages or compensation;

(i).... for personal injury or wrong done to the bankrupt, the spouse of the bankrupt .............

and any damages or compensation recovered by the bankrupt (whether before or after he or she became a bankrupt) in respect of such an injury or wrong or the death of such a person.”

In short the issue is whether the pleaded heads of damage were for “personal injury or wrong” done to the plaintiffs.  If so, they can maintain the present action in respect of them.

1. The plaintiffs put forward the superficially attractive argument that as they were only seeking to recover from their solicitors what they would have recovered from the road accident, which was damages for personal injury, therefore their claim in the present action was for personal injury.  Regrettably, there does not seem to be any reported judicial authority on whether a claim for professional negligence against solicitors for damages where a plaintiff has been deprived of damages for personal injury is to be categorised as coming within s116(2)(g)(i).

2. The classic formulation of the test of a right to recover damages for personal injury or wrong is that enunciated by Dixon J in Cox v Journeaux (No 2) (1935) 52 CLR 713 at 721 where he said:

   “The test appears to be whether the damages or part of them are to be estimated by immediate reference to pain felt by the bankrupt in respect of his mind, body or character and without reference to his rights of property.”

Another test which has been cited with approval in numerous cases is that of Lockhart J in Faulkner v Bluett (1981) 52 FLR 115 at 119 where he said:

“The common thread running through these cases is where the primary and substantial right of action is direct pecuniary loss to the property or estate of the bankrupt, the right to sue passes to the trustee notwithstanding that it may have produced personal inconvenience to the bankrupt. ........ Where the essential cause of action is the personal injury done to the personal feelings of the bankrupt the right to sue remains with the bankrupt.”

These tests have been applied in many reported cases, but the factual situations were somewhat different from the present: eg Bryant v Commonwealth Bank (1997) 75 FCR 545; Griffiths v Civil Aviation Authority (1996) 67 FCR 301; Bullock v Goodluck (1983) 48 ALR 217; Gosden v Dixon (1992) 107 ALR 329. The only decision relating to a claim for damages for professional negligence against solicitors appears to be an unreported decision of the New South Wales Court of Appeal in Manningel v Hewlett, 12/6/91, which is referred to in the judgments in Bryant v Commonwealth Bank (above).  However, the retainer for the solicitors in that matter related to property matters, and not to a personal injury claim, and so it is not germane to the present matter.

1. Although it was not cited in argument, there is some assistance to be derived from authorities on a similar issue under the Statutes of Limitation where there are provisions making lesser time periods applicable for instituting proceedings “in respect of personal injury”.  In Ackbar v C F Green & Co Ltd [1975] 1 QB 582, the owner of a vehicle who had been injured while a passenger in the vehicle sued his insurance broker for breach of its contractual duty to have effected insurance over the vehicle which would have covered his claim. The defendant contended that the claim against the broker was out of time because it was a claim in respect of personal injury. The Court rejected this contention and held that the damages sought were not in respect of personal injury but for the loss of the plaintiff’s chance or right to recover his loss from an insurer if the broker had fulfilled its duty. In the reasons in that case there is also reference to a Scottish case of McGahie v Union of Shop  Distributive Workers which is to similar effect.  If the phrases “damages in respect of personal injury” and the like have been interpreted in this way, the narrower phrase in s116(2)(g) “for personal injury” should be interpreted as not extending to claims for professional negligence.

2. Following Ackbar v C F Green & Co Ltd (above) I consider that the test in Cox v Journeaux (No 2) (above) as applied to this matter means that the plaintiffs’ claim for what they would have recovered if their action arising out of the road accident had been successful should be characterised as a property right and not as one for personal injury.  However, the plaintiffs pleaded claim is somewhat wider than this.  The damages claimed in heads of damages Nos 3, 4 and 5 above are not damages which could have been recovered in the earlier action if it had been successful.  The heads of damage Nos 3 and 4 are for personal injury or wrong within the test of Cox v Journeaux (No 2) (above), but those in Nos 1, 2 and 5 are not because they are property matters.  Accordingly, subject possibly to some further clarification by better particulars, s116(2)(g) only preserves the plaintiffs’ right to recover damages under the heads Nos 3 and 4.  Otherwise the causes of action in respect of the heads of damage in paragraphs Nos 1, 2 and 5 have vested in the trustee in bankruptcy and cannot be pursued at present in this action.

3. It was suggested by Lockhart J in Bryant v Commonwealth Bank (above) at 554 that claims under s116(2)(g) could not be pursued where they could not be severed from claims caught by s116(1). I consider here the claims for the heads of damage in paragraph Nos 3 and 4 are properly severable. Some further particularity may be needed, but I can see no reason why they could not be adjudicated upon at a trial independently of the claims which have vested in the trustee in bankruptcy.

4. The Master was incorrect in law in his reasons in apparently treating “wrong” in s116(2)(g)(i) as being any claim in tort or contract.  On the authorities it is confined to personal wrong: Cox v Journeaux (No 2) (above); Griffiths v Civil Aviation (above).  The Master was incorrect in law in finding that the plaintiffs’ discharge from bankruptcy on 12 December 1999 revested in them any property which had previously vested in the trustee but which had not been realised.  There is clear authority that once property is vested in the trustee by virtue of a bankruptcy it remains vested in the trustee irrespective of any subsequent discharge of the bankrupt: Gosden v Dixon (above) at 331; Daemar v Industrial Commission of New South Wales (No 2) (1990) 99 ALR 789 at 795; Bride v Peat Marwick Mitchell [1989] WAR 383. There was no annulment of the bankruptcy. Furthermore, even if any cause of action had revested in the plaintiffs by virtue of their discharge from bankruptcy on 12 December 1999, their claim in respect of it in this action would be barred by the rule in Eshelby v Federation European Bank [1932] 1 KB 423 as it would have been a cause of action in them arising after the commencement of this action: see “Civil Procedure SA”, para [R46.08.1].

5. Accordingly, the appeal is allowed and the order of the Master of 2 March 2000 will be set aside.  I will hear the parties further on the precise terms of the order to be made and as to what parts of the pleaded statement of claim are to be struck out in accordance with the conclusions which I have expressed above.

6. I point out to the plaintiffs that there may be a means by which they can overcome the problems raised by some of their causes of action having become part of their bankrupt estates.  In legal theory it is possible for a trustee in bankruptcy after the discharge of the bankrupt to assign back to the bankrupts those causes of action against the defendant which form part of the bankrupt estate.  The trustee may require some payment before giving such an assignment.  Whether the trustee will, or should, give such an assignment is not for me to say.  Even if the plaintiffs obtain such an assignment, on the law as it stands at present the rule in Eshelby v European Federation Bank, mentioned above, would preclude them from using it in this action and would require that they institute a fresh action.  However, Supreme Court Rules 1987 Amendment No 72 and District Court Rules 1992 Amendment No 27 have introduced a new Rule 46A.12 which will take effect on 3 June 2000.  Under that rule it would be possible, if the Court orders under the new R46A.01(1) that R46A is to apply to this action, for the Court to give leave to incorporate in this action a cause of action for the plaintiffs based on such an assignment.  Whether the Court would grant such leave after 3 June is not for me to say, but it is possible.

7. I point out to the plaintiffs that under s43 of the District Court Act they have a right of appeal against my decision once my order is actually made to a single Judge of the Supreme Court providing either a certificate of this Court or leave from a Judge of the Supreme Court is granted under R96A of the Supreme Court Rules 1987. That leave must be sought within 14 days of my final order being made.