Re Fenner, S. Ex parte The Official Trustee in Bankruptcy v First Artists Management Pty Ltd
[1991] FCA 546
•22 AUGUST 1991
Re: SIMON FENNER; EX PARTE THE OFFICIAL TRUSTEE IN BANKRUPTCY
And: FIRST ARTISTS MANAGEMENT PTY. LTD. and DARYL BRAITHWAITE
No. V B397 of 1990
FED No. 546
Bankruptcy
COURT
IN THE FEDERAL COURT OF AUSTRALIA
IN THE BANKRUPTCY DISTRICT OF THE STATE OF VICTORIA
GENERAL DIVISION
Jenkinson J.(1)
CATCHWORDS
Bankruptcy - Proceedings in connection with sequestration - Effect of bankruptcy on property and proceedings - Actions and proceedings by or on behalf of bankrupt instituted before sequestration - Election by trustee - Extension of time for election - Considerations relevant to exercise of court's discretion.
Bankruptcy Act 1966 - ss. 33(1)(e), 60
John v Nieman Holdings Pty. Limited (1986) 84 FLR 84
Re Collins, Ex parte Official Trustee in Bankruptcy and Bracher (1986) 65 ALR 338
HEARING
MELBOURNE
#DATE 22:8:1991
Counsel for the Applicant: Mr D.L. Harper QC and Mr M. Dreyfus
Counsel for the second-named
Respondent: Mr H.R. Hansen QC and Mr G.A. Hardy
Solicitors for the Applicant: Roth Warren and Menzies
Solicitors for the second-named
Respondent: Ian Baillieu and Co.
ORDER
The time within which the trustee of the estate of the bankrupt may make election of a kind contemplated by s.60(3) of the Bankruptcy Act 1986 in relation to the action numbered 3606 of 1988 in the Supreme Court of Victoria be extended until 27 August, 1991.
The respondent's costs of this application including reserved costs be taxed and paid by the applicant trustee forthwith after taxation.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
JUDGE1
Application for an order that the time prescribed by sub-section 60(3) of the Bankruptcy Act 1966 be extended to a time after the order extending time is made to enable the election to be made which the sub-section contemplates.
The applicant is the trustee of the bankrupt estate of Simon Fenner. A sequestration order was made in respect of Fenner's estate on 28 March 1990. At that time Fenner was one of three plaintiffs in an action pending in the Supreme Court of Victoria against the two persons who are the respondents to this application. There were, according to the pleadings in that action, joint causes of action in contract in which all three plaintiffs were alleged to be interested. There was also a number of several claims by each plaintiff. The trustee was notified by the plaintiffs' solicitors orally, not long after the sequestration order, and in writing in August 1990 that the action was pending and that Fenner was a party. The solicitors for the plaintiffs continued as solicitors on the record in the Supreme Court proceeding at relevant times. They abstained from giving to the defendants or their solicitors any information that Fenner had become a bankrupt. No explanation has been offered for that quite extraordinary failure. The Official Trustee desired to have advice from the Australian Government Solicitor to assist him in deciding whether to prosecute or to discontinue the action. He did not receive that advice until early this year, for reasons which have not clearly appeared; that is to say, it has not clearly appeared why there was such an extraordinary delay in furnishing the advice. In the mean time interlocutory steps were taken in the Supreme Court action as though it had not been stayed by the operation of sub-section 60(2), and as though no sequestration order had been made against Fenner.
There is a decision of Young J. in the Equity Division of the Supreme Court of New South Wales, John v Nieman Holdings Pty. Limited (1986) 84 FLR 84, that the effect of the operation of the sub-section 60(2), in a case in which one of several plaintiffs becomes bankrupt, is that the whole proceeding is stayed, not merely the proceeding by that bankrupt. It is unnecessary for me to decide whether I am of the same opinion. Nobody has submitted to me that that decision is not correct and I have no reason to suppose that it is not correct. But it is not a critical matter. The really important circumstance in this case is the failure to notify the defendants of the fact of the sequestration order.
Eventually the fact of the sequestration order was disclosed to the defendants' solicitors in about March 1991, and in May 1991 the Official Trustee, having obtained indemnities from creditors, elected to prosecute the action. However, there were proceedings in the Supreme Court action which culminated in the making, by Nathan J. on 8 August 1991, of a declaratory order. The order has not, I understand, been taken out and the evidence before me of the terms of the declaration is some minutes of orders which had apparently been handed up to his Honour. According to those minutes the declaratory order was in these terms: "that this proceeding in so far as it is brought by the second plaintiff be declared to be deemed to be abandoned by the trustee of that plaintiff". The second plaintiff was Simon Fenner, the bankrupt. What is quite clear, even if the exact terms of the order are not known and if his Honour's reasons are not yet in a written version available, is that his Honour was making a declaration concerning the trustee's situation under sub-section 60(3). His Honour was, in effect, declaring that the trustee shall be deemed to have abandoned the action by reason of the occurrence of the circumstances which are specified in that sub-section. And there is no dispute that that is what his Honour did. In order to reach that conclusion, his Honour had to consider the proper construction of the sub-section and in particular what might be comprehended by the words," after notice of the action is served upon him", that is to say the trustee, "by a defendant or other party to the action". I am informed by counsel that his Honour took the view that the expression "other party" would comprehend a plaintiff other than the bankrupt plaintiff, so that notice by such a plaintiff would satisfy the requirements of the sub-section. His Honour had been referred to a decision of Burchett J., Re Collins, Ex parte Official Trustee in Bankruptcy and Bracher (1986) 65 ALR 338, in which Burchett J. held that the expression in the sub-section "defendant or other party to the action" included other parties in a position analogous to that of a defendant, but not the bankrupt plaintiff himself. It may be said that Burchett J. did not, in what he said, comprehend or intend to comprehend the case of a plaintiff other than the bankrupt plaintiff as the giver of notice. But, in any event, for these parties now before me, Nathan J.'s construction of the provision is almost certainly binding by reason of an estoppel, although I do not, I think, have to decide that. Taking that view of the meaning of the sub-section, his Honour was able to conclude, and there does not seem to be any criticism at all of the conclusion, that notice had been served more than 28 days before anything that might be described as an election was made by the Official Trustee. In those circumstances the Official Trustee comes to this court seeking an order to extend that period of 28 days by an exercise of the power conferred by section 33(1)(c) of the Bankruptcy Act 1966. There is authority that that is a power available in relation to sub-section 60(3) and may be exercised after the time limited by the sub-section has expired.
The question is one of discretion. The Supreme Court action has been fixed for hearing in November, and what the applicant seeks is an order which will enable him to seek, after making the election to prosecute, an order by the Supreme Court re-establishing him as a party plaintiff in the place of Fenner, as he was after the order of the Master was made which the order of Nathan J. set aside. The Master had made an order for the joinder of the Official Trustee in Bankruptcy in Fenner's place. It has not been suggested in argument that, once the order was made which Nathan J. did make, it became impossible for the Official Trustee to make an effective election to prosecute the action. No doubt the trustee will say in support of the application he desires to make to the Supreme Court that he made the election before Nathan J.'s order was made, and that the court is able to make the orders which he desires should be made. I do not think I have to make any final resolution of those questions. It is at least sufficiently arguable that if the extension is granted, the Official Trustee will be able to attract an exercise of discretionary power by the Supreme Court as to whether or not it should, as it were, reconstitute that action so that the cause of action which was Fenner's and which now vests in the Official Trustee may be prosecuted in that action, and, as one would hope, at a trial that will take place in November.
The applicants maintain that there would be a very great waste of costs and work if the application is refused and the Official Trustee is obliged to commence a separate proceeding. There would also be duplication of the use of the resources of the Supreme Court or of some other court in hearing in two proceedings a controversy which it is obviously economical to have determined at the one time and by the same judge and at the same trial. I think that, exercising the discretion I have, I should give substantial weight to that consideration and substantial weight also to the interests of the creditors on whose behalf the Official Trustee is doing what he is doing.
On the other hand, the conduct of persons for whom the Official Trustee is responsible has been, at any rate while it remains unexplained, apparently quite deplorable, and the processes of the Supreme Court have been misused for month after month as a result of the failure of the Official Trustee and those who have been acting for him to see to it that that Court and the other parties to the proceedings, that is to say the defendants to the Supreme Court action, were promptly notified of the bankruptcy. Mr Hansen QC, who appeared with Mr Hardy for the respondents, has most carefully analysed the circumstances to see what prejudice that can be measured in money his clients have suffered. It is not easy to see any substantial financial prejudice because many, if not most, of the steps that have been taken in the Supreme Court action have been steps which, if in the result I grant this application, will have been useful steps in bringing the proceeding to trial. On the other hand, this court must be concerned that the administration of the bankruptcy laws has been so badly handled in this case. But I do not really think that this is an occasion to give expression to the court's disappointment at what has happened by forcing the Official Trustee to take a course which must inevitably involve wasteful expenditure of time and money, both that of the parties and that of the community. Accordingly, I think that I should grant this application.
The order that I will make is an order that the time within which the trustee of the estate of the bankrupt may make election of a kind contemplated by section 60(3) of the Bankruptcy Act 1966 in relation to the action numbered 3606 of 1988 in the Supreme Court of Victoria be extended until 27 August 1991. And I will make an order that the respondents' costs of this application, including reserved costs, be taxed and paid by the applicant trustee forthwith after taxation.
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