Re Skinner's and Smith's Application

[1982] FCA 282

Re: IN THE MATTER OF SPECIAL CASES REFERRED TO THE COURT UNDER RULE 119
And: IN THE MATTER OF APPLICATIONS BY IAN ROBERT SKINNER AND DALE KERRY SMITH
FOR THE ISSUE OF BANKRUPTCY NOTICES ADDRESSED TO RONALD WALLACE GOULD, ELAINE
MARGARET GOULD and JULIE GAY GOULD
No. B1871-1872 of 1982
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA

GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE SOUTHERN DISTRICT OF THE STATE OF QUEENSLAND
Fitzgerald J.

CATCHWORDS

BANKRUPTCY - Application for issue of Bankruptcy Notice - Reference by Registrar in Bankruptcy - application for Notice directed to named individuals personally - judgment debt against named individuals as trustees of a trust - Registrar directed to issue bankruptcy notice in accordance with application.

Bankruptcy Act 1966, sub-ss. 40(1), 40(3), 41(3) and 44(1)

Bankruptcy Rules, r.119

Rules of the Supreme Court of Queensland, O.3, r.9.

HEARING

BRISBANE

#DATE 14:12:1982

ORDER

1. The question referred to the Court by the Registrar be answered as follows:

Question: Can bankruptcy proceedings, and in particular a bankruptcy notice, be issued against trustees in their personal capacity based upon costs of an action in which they appeared as trustees.

Answer: Yes

2. Costs of these proceedings be reserved.

JUDGE1

The District Registrar in Bankruptcy for the Southern District of the State of Queensland has stated two special cases for the opinion of the Court in reliance upon Rule 119 of the Bankruptcy Rules, asking in each case whether a bankruptcy notice which has been requested should be issued. Each request was made by Messrs. Ian Robert Skinner and Dayle Kerry Smith, who are solicitors, in whose favour certain orders for costs were made by the Supreme Court of Queensland on 26 May 1982. The persons in relation to whom the bankruptcy notices are requested are Ronald Wallace Gould, Elaine Margaret Gould and Julie Gay Gould who are the trustees of the Gould Family Trust. Support for the course which has been taken by the District Registrar is to be found in the annotations to Rule 119 of the Bankruptcy Rules in the 5th edition of McDonald Henry and Meek's Australian Bankruptcy Law and Practice.

One of the orders for costs made by the Supreme Court of Queensland was made in action No. 1473 of 1982 in which Messrs. Skinner and Smith are the defendants and the plaintiffs are named as "Ronald Wallace Gould, Elaine Margaret Gould and Julie Gay Gould as trustees of the Gould Family Trust". Nowhere in the order is there any description or identification of the plaintiffs other than in the title of the proceedings. The order inter alia dismissed an application for an interlocutory injunction "with costs including reserved costs to be taxed". A certificate of the appropriate Taxing Officer establishes that the costs ordered to be paid were taxed and allowed at the sum of $4,493.30. The District Registrar has been requested to issue a bankruptcy notice claiming that that sum is due to Messrs. Skinner and Smith by Ronald Wallace Gould, Elaine Margaret Gould and Julie Gay Gould under that order of the Supreme Court.

By the other order of the Supreme Court of Queensland which was made in proceedings OS No. 340 of 1982, it was ordered that Caveat No. G723231 be removed and that "the respondents pay the applicants' costs of and incidental to the application to be taxed". According to the title of the proceedings, the caveat had been lodged by Ronald Wallace Gould, Elaine Margaret Gould and Julie Gay Gould as trustees of the Gould Family Trust. Further, in the body of the order, although not in the terms of the actual orders, the respondents are described as "Ronald Wallace Gould, Elaine Margaret Gould and Julie Gay Gould as trustees of the Gould Family Trust". A certificate of the appropriate Taxing Officer establishes that the costs ordered to be paid were taxed and allowed in the sum of $744.35. The District Registrar has been requested to issue a further bankruptcy notice claiming that that sum is due to Messrs Skinner and Smith by Ronald Wallace Gould, Elaine Margaret Gould and Julie Gay Gould pursuant to that order.

The judgment creditors, Messrs Skinner and Smith, appeared before me by Counsel to support the issue of the bankruptcy notices, arguing that each of the orders established a liability upon the trustees personally. Notice had been given to the trustees and two of them, Ronald Wallace Gould and Elaine Margaret Gould, attended by their solicitor, who, while plainly opposed to the issue of the bankruptcy notices, was otherwise somewhat ambivalent as to his present role.

By paragraph 41(3)(a) of the Bankruptcy Act 1966, a bankruptcy notice may not be issued in relation to a debtor except on the application of a creditor who has obtained against the debtor a final judgment or final order within the meaning of paragraph 40(1)(g) or of a person who is to be deemed to be such a creditor by virtue of paragraph 40(3)(d). Paragraph 40(1)(g) states the circumstances in which a debtor upon whom a bankruptcy notice has been served commits an act of bankruptcy. The Act makes no provision as to the minimum amount of a judgment debt upon which a bankruptcy notice may be based, although, by paragraph 44(1)(a), a petition may not be presented unless the indebtedness of the debtor to the petitioning creditor or petitioning creditors amounts to $1000.

Having regard to paragraph 40(3)(b), it does not seem open to doubt that the orders for costs are final orders for the purposes of the Bankruptcy Act: of In Re Wheeler (a debtor) (1982) 1 W.L.R. 175. Further, notwithstanding Re Ravasio; ex parte Leonard Norman Pty Ltd (1965) 6 F.L.R. 373, it was not submitted that Messrs. Skinner and Smith are not creditors in respect of the amount of the costs ordered to be paid for the purposes of the Act, and I propose to follow Re Pannowitz; ex parte Wilson (1975) 6 A.L.R. 287. See also In Re Cartwright; ex parte Cartwright v. Barker (1975) 1 W.L.R. 573 and other cases cited in McDonald Henry and Meek's Australian Bankruptcy Law and Practice, supra, pp. 70 and following. The question for present determination therefore seems to be whether Messrs Skinner and Smith have obtained the orders for costs "against" Ronald Wallace Gould, Elaine Margaret Gould and Julie Gay Gould so that they are personally liable for the amounts at which the costs have been taxed and allowed. Other questions may later arise; e.g. in relation to cross-claims, set-offs, or cross-demands which the solicitor for Ronald Wallace Gould and Elaine Margaret Gould asserted that they have against Messrs Skinner and Smith, without making it clear whether they were alleged to be personal cross-claims or claims held by the Goulds in their capacity as trustee, a matter which may later be of considerable significance.

The only question which seems to me to arise is whether either or both of the orders is so formulated as to exonerate the trustees from the personal liability which they would otherwise plainly bear in respect of the costs and limit their obligations to payment of the costs out of the trust assets. I assume that it would be possible to formulate such an order, just as judgments against executors in appropriate cases are commonly made "de bonis testatoris" or "de bonis intestati" although such orders when dealing with costs often also provide "et si non de bonis propriis". It is unnecessary for present purposes to consider further the various forms of judgment which, in different circumstances, are entered against the legal personal representative of deceased persons, the terms of which are affected by the nature of the pleas advanced by the legal personal representatives; generally, reference may be made to Levy v. Kum Chah (1936) 56 C.L.R. 159; Midland Bank Trust Co Ltd v. Green (No. 2) (1979) 1 W.L.R. 460; and Williams Supreme Court Practice (Victoria), para 16.8.9.

It does not seem to me open to doubt that the general rule is that if a trustee is a litigant in proceedings against a stranger to the trust he is personally liable in respect of any order for costs which is made; the question whether he should be authorised to recover those costs out of the trust estate is a quite different question. Halsbury deals with the matter only as part of a footnote, stating in footnote (e) to paragraph 1789 in Vol. 38 of the 3rd edition "Trusts":

"As between the trustee and third parties, the costs of litigation are not affected by the existence of a trust, but follow the ordinary rules (Brodie v. St Pauls (1791) 1 Ves. 326; Edwards v. Harvey (1809) Coop. G.40)."

Underhill's Law of Trusts and Trustees (13th ed) seems simply to assume that that is the position, discussing rather the trustee's right to reimbursement and indemnity (Article 86), and whether the costs fall on the capital or income of the estate (Article 53, paragraph (d)). The cases seem to proceed on a like assumption: see e.g. Midland Bank Trust Ltd v. Green (No. 2), supra; Re Atkinson (decd) (1971) V.R. 612, 615-616; and In Re Dallaway (decd) (1982) 1 W.L.R. 756. There are numerous cases which show that, except where it has been altered by statute, the same position exists in respect of a trustee in bankruptcy: see Hunter v. Official Receiver (1980) 33 A.L.R. 457, 463; and the authorities collected in McDonald Henry and Meek, supra, p.366 and 367, and in Williams and Muir Hunter on Bankruptcy, 19th ed., p.424.

I can perceive nothing at all in the order made in the action on the dismissal of the application for an interlocutory injunction which could be suggested to indicate an intention to depart from the usual position that the trustee is personally liable for the costs. The only difference in the order for costs on the removal of the caveat lies in the description of the respondents in the body of the order in which reference is made to their capacity as trustees. In my opinion, that is insufficient to alter the position. A covenant by them "as trustees" would not exclude their personal liability: see Watling v. Lewis (1911) 1 Ch. 415, 423; Farhall v. Farhall (1871) L.R. 7 Ch. App. 123, 128; and, generally, Halsbury's Laws of England, 4th ed., Vol. 12, "Deeds and other Instruments", para. 1505.

Further, I am of opinion that a proper understanding of the relevant rules of the Supreme Court of Queensland leads to the conclusion that the orders for costs were against the Goulds personally and made them liable to Messrs Skinner and Smith in their personal capacity.

By O.3, r.9 of the Rules of the Supreme Court, trustees, executors and administrators may sue and be sued on behalf of or as representing the property or estate of which they are trustees or representatives without any of the persons beneficially interested in the trust or estate being joined and are considered as representing such persons. By O.6, r.6, if a plaintiff sues or a defendant is sued in a representative capacity the indorsement must show in what capacity the plaintiff or defendant sues or is sued. The indorsement spoken of is, of course, the indorsement of the plaintiff's claims. Thus, it has been held that a reference to a representative capacity in the title of proceedings does not of itself mean that a plaintiff sues or a defendant is sued in a representative capacity: see Bowler v. John Mowlen and Co Pty Ltd (1951) 3 All E.R. 95-6; of Graham v. Edge (1888) 20 Q.B.D. 683, 689.

O.3, r.9 is plainly merely procedural: see Connolly v. Macartney (1908) 7 C.L.R. 48, 50. Nonetheless, it is plain that it is the trustees, executors or administrators who sue or are sued who are the parties to the action. The rule itself makes that clear. It goes on to provide that the court or a judge may at any stage in the proceedings order that any person beneficially interested in the trust or estate may be made a party in addition to or in lieu of "the previously existing parties"; cf. per Fletcher Moulton LJ in Markt and Co Ltd v. Knight Steamship Company Ltd (1910) 2 K.B. 1021, 1039 and per Eve J. in Price v. Rhondala Urban District Council (1923) W.N. 228, stating that persons represented in a representative action under the equivalent of R.S.C. O.3, r.10 cannot be ordered to pay costs because they are not parties.

Accordingly, in my opinion, the bankruptcy notices requested may be issued and I answer the questions asked accordingly. I order that the costs of the present proceedings before me be reserved.