Re The Bankrupt Estate of Vincenzo Cirillo Re The Bankrupt Estate of Sybille Grieves Ex parte Official Trustee in Bankruptcy
[1996] FCA 313
•3 MAY 1996
CATCHWORDS
BANKRUPTCY - application pursuant to ss134 and 135 of the Bankruptcy Act 1966 (Cth) to sell and assign to the bankrupt choses in action which the Official Trustee has as trustee of the bankrupt estates of the bankrupt and his wife - whether Court may grant leave pursuant to s135(1) of the Bankruptcy Act 1966 (Cth) in terms which do not identify the precise causes of action to be assigned - whether Official Trustee is to give consideration to the prospects of success of the asserted causes of action.
BANKRUPTCY - application pursuant to s178 of the Bankruptcy Act 1966 (Cth) to review decision of Official Trustee to sell and assign to the bankrupt choses in action which Official Trustee has as trustee of the bankrupt estates of the bankrupt and his wife - in considering the issue of the sale of property of a bankrupt, including any sale which involves the assignment of a cause of action, the principal duty of the trustee is to consider the interests of creditors as a whole - consideration may also properly be given to the legitimate interests of other parties likely to be affected by the trustee's decision - Official Trustee, as an officer of the Court, is one from high standards of conduct are to be expected - not proper for Official Trustee to assign to any person a cause of action which demonstrably has no prospect of success - no case to interfere with decision of Official Trustee.
BANKRUPTCY - whether Official Trustee required leave of the Court pursuant to s135(1)(b) of the Bankruptcy Act 1966 (Cth) to sell the choses in action to the bankrupt - consideration for the choses in action involved no more than the possibility of a future payment - whether acceptance by Official Trustee of a promise to pay to the trustee a proportion of the proceeds of litigation amounts to an acceptance, as part of the consideration for the sale of the choses in action of "a sum of money payable at a future time" within the meaning of s135(1)(b).
Bankruptcy Act 1966 (Cth) ss 5, 60(3), 134, 135 and 178
Bankruptcy Rules (Cth) r 45AA
Limitation of Actions Act 1936 (SA) s 48
Seear v Lawson (1880) 15 ChD 426
Guy v Churchill (1888) 40 ChD 481
Ramsey v Hartley & Ors (1977) 1 WLR 686
Re Nguyen; ex parte Official Trustee in Bankruptcy (1992) 35 FCR 320
Cotterill v Bank of Singapore (Australia) Ltd & Ors (1995) 37 NSWLR 238
In re Park Gate Waggon Works Company (1881) 17 ChD 234
Grovewood Holdings Plc v James Capel & Co Ltd [1995] Ch 80
Stein v Blake [1995] 2 WLR 710
Re Tyndall (1977) 30 FLR 6
Re Stelnicki (1982) 62 FLR 430.
Gargan v The Official Trustee in Bankruptcy (unreported, Federal Court, Drummond J, 18 August 1995)
Gargan v The Official Trustee in Bankruptcy, (unreported, Full Federal Court, 4 November 1995)
Re Turner; ex parte Mulley (unreported, Federal Court, Northrop J, 22 June 1995)
Ex parte James; In re Condon (1874) 9 LR Ch App 609
Genman Pty Limited & Anor v Beneficial Finance Corporation Limited (unreported, Federal Court, Davies J, 2 July 1991)
Bird Construction Co Ltd v Paterson and Brotherhood of Painters, Decorators, Paper Hangers of America, Glass Workers Local 1725 (1960) 23 DLR (2d) 182
Newcomen v Coulson (1878) 7 ChD 764
Newby v Harrison (1861) 3 De G F & J 287; 45 ER 889
Re Summerhayes & Anor; ex parte The Official Assignee (1890) 1 BC (NSW) 24
Re Kwok & Anor; ex parte Rummel (1981) 61 FLR 336
Millane v President, etc, of Shire of Heidelberg [1928] VR 52
Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589
No SB 865 of 1992
No SB 504 of 1993
Re: THE BANKRUPT ESTATE OF
VINCENZO CIRILLO A Bankrupt
- and -
Re: THE BANKRUPT ESTATE OF
SYBILLE GRIEVES A Bankrupt
Ex Parte: OFFICIAL TRUSTEE IN BANKRUPTCY Applicant
Branson J
Adelaide
3 May 1996
IN THE FEDERAL COURT OF AUSTRALIA )
)
SOUTH AUSTRALIA DISTRICT REGISTRY )
)
GENERAL DIVISION ) No SB 865 of 1992
) No SB 504 of 1993
BANKRUPTCY DISTRICT )
)
OF THE STATE OF SOUTH AUSTRALIA )
Re: THE BANKRUPT ESTATE OF
VINCENZO CIRILLO
A Bankrupt
- and -
Re: THE BANKRUPT ESTATE OF
SYBILLE GRIEVES
A Bankrupt
Ex Parte: OFFICIAL TRUSTEE IN
BANKRUPTCY
Applicant
REASONS FOR JUDGMENT
CORAM: Branson J
PLACE: Adelaide
DATE: 3 May 1996
By an amended application in each of these matters dated 10 April 1996 the Official Trustee in Bankruptcy ("Official Trustee") applied to the Court for orders and directions as follows:-
"1.That the within application in the bankrupt estate of Vincenzo Cirillo and the within application in the bankrupt estate of Sybille Grieves be heard together.
That the Official Trustee in Bankruptcy, having made a decision to accept the offer made by Vincenzo Cirillo, be directed by the Court to sell and assign to Vincenzo Cirillo every chose in action (and all rights title and interest thereto) which the Official Trustee in Bankruptcy as trustee of the bankrupt estates of Vincenzo Cirillo and Sybille Grieves may have against Citicorp Australia Ltd and the Receivers and Managers appointed by Citicorp Australia Ltd over the assets and property of C W Constructions Pty Ltd (Receivers and Managers appointed) ("the company") howsoever arising (including but not limited to) the causes of action specified in the proceedings commenced in the Supreme Court of South Australia being action number No 80 of 1991 in consideration for the sum of $3,500 plus 10% of any award of damages received by Mr Cirillo and Ms Grieves after deduction of all expenses, inclusive of legal costs, and expenses incurred in funding the cost of litigation subject to a limit of the amount owed to creditors pursuant to section 134(4) of the Bankruptcy Act 1966.
That in the alternative, leave be granted by the Court to the Official Trustee in Bankruptcy to sell and assign to Vincenzo Cirillo every chose in action (and all rights title and interest thereto) which the Official Trustee in Bankruptcy as trustee of the bankrupt estates of Vincenzo Cirillo and Sybille Grieves may have against Citicorp Australia Ltd and the Receivers and Managers appointed by Citicorp Australia Ltd over the assets and property of the company howsoever arising (including but not limited to) the causes of action specified in the proceedings commenced in the Supreme Court of South Australia being action number No 80 of 1991 in consideration for the sum of $3,500 plus 10% of any award of damages received by Mr Cirillo and Ms Grieves after deduction of all expenses, inclusive of legal costs and expenses incurred in funding the cost of litigation subject to a limit of the amount owed to creditors pursuant to section 135(1) of the Bankruptcy Act 1966.
4.Such other Orders as this Honourable Court may deem appropriate."
Leave was granted to Vincenzo Giovanni Cirillo ("Mr Cirillo"), Sybille Grieves ("Ms Grieves"), Citicorp Australia Ltd ("Citicorp") and John Harold Heard and Stephen Elliott Young ("Messrs Heard and Young"), receivers and managers of C.W. Construction Pty Ltd (Receivers and Managers Appointed) (In Liquidation), to intervene in and place evidence before the Court on the applications of the Official Trustee.
The applications in the two bankrupt estates, namely that of Mr Cirillo and that of Ms Grieves, were directed to be heard together. They will hereafter be treated as the one application.
Leave to file and serve the amended application referred to above was given during the course of the hearing of this matter. At that time an application on behalf of Citicorp and Messrs Heard and Young pursuant to s178 of the Bankruptcy Act 1966 (Cth) ("the Act") was foreshadowed. Such application was in fact filed on 23 April 1996. It seeks, in effect, review by the Court of the decision of the Official Trustee referred to in paragraph 2 of the Official Trustee's application dated 10 April 1996. None of Citicorp, Messrs Heard and Young, Mr Cirillo, Ms Grieves or the Official Trustee ("the represented parties") sought to put material before the Court on the application of 23 April 1996 which was not already before the Court on the application of 10 April 1996. Nor did any of the represented parties wish to make submissions to the Court on the application of 23 April 1996. It was agreed that the evidence before the Court on the application of 10 April 1996, and the submissions made on that day, should be treated as the evidence and submissions before the Court on the application of 23 April 1996.
BACKGROUND
The following is a chronology of significant, and apparently uncontested events, relevant to the two applications.
Approx March 1981 Vince Cirillo & Associates Pty Ltd incorporated.
Approx November Vince Cirillo & Associates Pty Ltd changed 1981 name to C.W. Construction Pty Ltd ("the Company").
18 April 1983 Citicorp advanced $500,000 to the Company. Debenture Reg. No. 10141/24 charging undertaking and assets of the Company in favour of Citicorp created ("the Debenture").
Approx April 1983 Mr Cirillo and Ms Grieves became the only shareholders and directors of the Company.
14 January 1985 Citicorp served a notice of demand on the Company. Messrs Heard and Young appointed receivers and managers of the undertaking and assets of the Company pursuant to the Debenture.
21 January 1985 Originating summons issued in Supreme Court Action No. 169 of 1985. In such action the Company sought to set aside the appointment of Messrs Heard and Young and sought an injunction restraining them from acting in accordance with their appointment.
7 February 1985 Mohr J of the Supreme Court refused to make any order on the originating summons in Action No 169 of 1998 other than a costs order in favour of the defendants.
Approx March 1985 Order made in the Supreme Court of South Australia for the winding up of the Company.
2 May 1985Writ issued in Supreme Court Action No 1481 of 1985. By such Writ the Company and Messrs Heard and Young sought a declaration that a Poclain HC300 Excavator Serial No 77 ("the Poclain") was the property of the Company and charged to Citicorp and an injunction restraining Mr Cirillo from dealing in any way with the Poclain.
24 May 1985Interlocutory injunction made in Action No 1481 of 1985 restraining Mr Cirillo from dealing with the Poclain. Undertaking as to damages given by plaintiffs.
14 January 1991 Summons and Statement of Claim filed in Supreme Court Action No 80 of 1991. By such Statement of Claim Mr Cirillo and Ms Grieves claimed damages from Citicorp consequent upon the appointment of Messrs Heard and Young as receivers and managers to the Company.
13 January 1992 Summons and Statement of Claim in Action No 80 of 1991 purportedly served on Citicorp by mail.
14 January 1992 Summons and Statement of Claim in Action No 80 of 1991 purportedly served on Citicorp by delivery to Messrs Finlaysons, solicitors.
5 February 1992 Citicorp applied to Supreme Court to set aside service of the Summons and Statement of Claim in Action No 80 of 1991.
20 May 1992 Service of Summons and Statement of Claim in Action No 80 of 1991 set aside.
4 June 1992Estate of Mr Cirillo sequestrated.
7 July 1992Notice of Action No 80 of 1991 served upon Mr Cirillo's trustee in bankruptcy pursuant to s60(3) of the Act. No election made by the trustee.
7 October 1992 In Action No 1481 of 1985 Judge Kelly, a Master of the Supreme Court, caused to be noted on the Court file the following:-
"The plaintiff seeks to discontinue and will if advised, do so in its discretion. The question of costs and the question of the undertakings as to damages, however, remains alive. Having heard plaintiff's counsel, the Official Receiver and Mr Cirillo himself, I now order that if by 31/1/93 Mr Cirillo is still bankrupt and the action has been discontinued, then there will be no order as to costs of that discontinuance and the plaintiff (sic) will automatically be released from the undertakings as to damages given earlier in these proceedings. If, however, at that date the action, having been discontinued, Mr Cirillo has been discharged from bankruptcy, then the question of costs of the discontinuance and the application for release from undertakings is reserved for further consideration upon the application of Mr Cirillo."
5 November 1992 Mr W H Hall, solicitor for the plaintiffs in Action No 80 of 1991 informed the Official Receiver of that action. Official Trustee responded to Mr Hall declining to adopt the proceedings so far as Mr Cirillo was concerned.
4 February 1993 Plaintiffs in Action No 1481 of 1985 wholly discontinue the action.
7 April 1993 Estate of Ms Grieves sequestrated.
20 June 1995 Mr Cirillo discharged from bankruptcy by force of law.
10 September 1995 Mr Cirillo offered to purchase from Official Receiver for $2,000 all rights in the chose in action which vested in Official Trustee upon his bankruptcy in respect of Action No 80 of 1991. Ms Grieves requested Official Receiver to assign to Mr Cirillo the rights in such chose in action which vested in Official Trustee upon her bankruptcy.
20 September 1995 Citicorp advised of the offer to purchase the chose of action against it.
31 October 1995 Messrs Finlaysons, solicitors for Citicorp, advise Official Receiver that Citicorp "vigorously opposes" any sale of rights in Action No 80 of 1991.
20 November 1995 Official Receiver caused creditors of the bankrupt estate of Mr Cirillo to be advised of his offer of 10 September 1995.
9 January 1996 Messrs Finlaysons, solicitors for Citicorp, offered on behalf of their client to pay $3,500 to Official Trustee for the absolute discharge of any claim which Official Trustee may have in his capacity as trustee of the bankrupt estates of Mr Cirillo and Ms Grieves against Citicorp, or alternatively to purchase any such claims.
11 January 1996 Mr Cirillo advised Official Receiver that his offer to purchase extended to:-
"every chose in action (and all rights, title and interest thereto) which the Official Trustee, as trustee of the bankrupt estate of Vincenzo Cirillo and Sybille Grieves, may have against Citicorp Australia Limited and/or Citibank Limited and the Receivers and Managers appointed by either of them over the assets and property of C.W. Construction Pty Ltd howsoever arising (including, but not limited to, the causes of action specified in the proceedings commenced with the Supreme Court of South Australia, being Action No 80 of 1991."
Mr Cirillo increased the amount of his offer to $3,500 plus 10% of any award of damages obtained, after deduction of all costs and expenses, to the limit of the amount owed to creditors.
4 April 1996 Messrs Finlaysons, solicitors for Citicorp, advised of their client's willingness to pay $10,000 to Official Trustee to purchase the discharge of the claims, or the claims referred to in their letter of 9 January 1996.
The Official Trustee, as trustee of the bankrupt estates of Mr Cirillo and Ms Grieves, has at all times lacked the resources to investigate the asserted claims of Mr Cirillo and Ms Grieves against Citicorp and Messrs Heard and Young or to pursue any such asserted claims.
As to his evaluation of the respective offers of Mr Cirillo and Citicorp, counsel for the Official Trustee explained to the Court that as, in the view of the Official Trustee, it was only the more recent offer of Mr Cirillo's which could possibly give rise to a dividend payable to creditors in the two bankrupt estates, the Official Trustee's view was that such offer should be preferred to the more recent offer made on behalf of Citicorp.
STATUTORY FRAMEWORK
Section 134 of the Act authorises a trustee to sell property of a bankrupt, although with a limitation on the value of the property which the trustee may sell by private contract. So far as is here relevant, s134 provides as follows:-
"(1)Subject to this Act, the trustees may do all or any of the following things:-
(a)sell all or any part of the property of the bankrupt
. . . . . . . . . . . . . . . . . . . . . . . . . .
(2)Paragraph (1)(a) does not authorise the trustee to sell by private contract any property having a value exceeding the prescribed amount.
(2A)A reference in sub-s(1) or (2) to the prescribed amount is a reference to $20,000 or, if a greater amount is prescribed for the purposes of this section to that greater amount.
(3)Subject to this Act, the trustee may use his own discretion in the administration of the estate.
(4)The trustee may at any time apply to the Court for directions in respect of a matter arising in connexion with the administration of the estate."
Rule 45AA of the Bankruptcy Rules prescribes the amount of $50,000 for the purposes of s134 of the Act.
Section 135 of the Act deals with powers exercisable by a trustee with certain approvals or with the leave of the Court. For present purposes s135 provides as follows:-
"(1)The trustee may, with the permission of the creditors granted by resolution passed at a meeting of creditors, with the permission of the committee of inspection or with the leave of the Court, do all or any of the following things:-
(a)sell, by private contract, any property of the bankrupt having a net value exceeding $20,000 or such greater amount as is prescribed for the purposes of s134;
(b)accept, without terms or conditions, or subject to terms and conditions, a sum of money payable at a future time as the consideration or part of the consideration for the sale of any property of the bankrupt.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3)Permission or leave given for the purposes of sub-section (1) shall not be general permission or leave to do all or any of the things referred to in that sub-section, but shall be permission or leave to do only the particular thing for which permission or leave is sought in a specified case."
Section 5 of the Act defines "property" for the purposes of the Act very broadly. The definition contained in that section is as follows:-
'"property" means real or personal property of every description, whether situate in Australia or elsewhere, and includes every estate, interest or profit, whether present or future, vested or contingent, arising out of or incident to any real or personal property.'
It is, in my view, no longer seriously open to question that a transaction of the kind here proposed is to be regarded as a sale of property of a bankrupt within the meaning of ss134(1) and 135(1)(a) of the Act. The property of the bankrupt within the meaning of ss134 and 135 may include a chose in action (Seear v Lawson (1880) 15 ChD 426; Guy v Churchill (1888) 40 ChD 481; Ramsey v Hartley & Ors (1977) 1 WLR 686; Re Nguyen; ex parte Official Trustee in Bankruptcy (1992) 35 FCR 320; Cotterill v Bank of Singapore (Australia) Ltd & Ors (1995) 37 NSWLR 238). Sections 134 and 135 of the Act authorise the trustee to sell a chose in action in circumstances which would otherwise attract the rule against maintenance and champerty (Guy v Churchill, Ramsey v Hartley & Ors; Re Nguyen; ex parte Official Trustee in Bankruptcy). See also as to similar provisions in companies legislation: In re Park Gate Waggon Works Company (1881) 17 ChD 234 and Grovewood Holdings Plc v James Capel & Co Ltd [1995] Ch 80. The power of sale created by ss134 and 135 of the Act extends to a power to sell to the bankrupt (Kitson v Hardwick (1872) LR 7 CP 473; Ramsey v Hartley & Ors; Re Nguyen; ex parte Official Trustee in Bankruptcy; Stein v Blake [1995] 2 WLR 710).
Section 178 of the Act is in the following terms:-
"If the Bankrupt, a creditor or any other person is affected by an act, omission or decision of the trustee, he may apply to the Court, and the Court may make such order in the matter as it thinks just and equitable."
I adopt the approach taken by Deane J in Re Tyndall (1977) 30 FLR 6 at 9-10 to the proper construction of s178 of the Act. His Honour there said:-
"In my view, the wording of s178 of the Act is such as to confer upon the court the widest possible discretion as to the appropriate order which should be made in the particular case and is quite inconsistent with the approach that, upon an application made pursuant to the section by a bankrupt, creditor or other person affected by an act, omission or decision of the trustee, the court is only empowered to interfere with the trustee's act, omission or decision if it is of the view that the trustee has acted absurdly or unreasonably or in bad faith. Once the matter is properly before the court, the court is, by the express words of s178, empowered (and, as I have said, obliged) to make such order in the matter as it thinks just and equitable.
This is not, of course, to say that the court should either disregard the relevant decision of the trustee or ignore the well established policy under bankruptcy legislation that the court should not unduly interfere with the day-to-day administration of a bankrupt's estate by a trustee."
See also the decision of Cox J of the Supreme Court of Tasmania in Re Stelnicki (1982) 62 FLR 430.
None of the represented parties contended that Citicorp and Messrs Heard and Young were not persons entitled, in the circumstances with which I am concerned, to apply to the Court pursuant to s178. I shall proceed on the basis that each of them is so entitled.
THE DECISION TO SELL
Mr Pickhaver, counsel for Citicorp and Messrs Heard and Young, contended that a trustee could not assign, and as a consequence the Court could not give leave with respect to an assignment of, any cause of action not actually identified. Obviously any assignment, and any contract of sale, to be effective must have a subject matter. However, I can see no impediment in the way of a trustee assigning, for example, "any cause of action against Y which I may have as trustee of the bankrupt estate of X." Such an assignment would not, in my view, fail for lack of certainty as to its subject matter. The justification for the making of an assignment in such terms might well be that the trustee lacked the funds to establish with precision, or perhaps at all, the particular causes of action, if any, which he or she had as trustee of the particular estate. Re Nguyen; ex parte Official Trustee in Bankruptcy is authority for the proposition that the Court may grant leave pursuant to s135(1) of the Act in terms which do not identify the precise causes of action to be assigned. In that case French J ordered that:-
"The Official Trustee have leave to assign any chose in action which he may have as trustee of the bankrupt estates of Van Phat Nguyen and Son Lanh Luu against the National Australia Bank Ltd and Max Goldenburg to Van Phat Nguyen and Son Lanh Luu on terms and conditions set out in a draft deed exhibited to the affidavit of David John Newell sworn 5 December 1991 in No 112 of 1989."
In this case the affidavit evidence filed on behalf of Mr Cirillo provides considerable detail concerning the claims asserted against Citicorp and Messrs Heard and Young. Such claims flow from the financial dealings between Citicorp and the Company, from the appointment by Citicorp of Messrs Heard and Young as receivers and managers of the Company, and the subsequent conduct of Messrs Heard and Young pursuant to such appointment. In my view further particularity is not required for the purposes of the present application of the Official Trustee.
Mr Pickhaver placed reliance upon the decision of Drummond J in Gargan v The Official Trustee in Bankruptcy (unreported, Federal Court, Drummond J, 18 August 1995) in further contending that a trustee could only properly assign, and as a consequence leave should only be granted to a trustee to assign, a chose in action being a cause of action where it can be shown that the cause of action has a real prospect of success.
In Gargan's Case Mr Gargan sought a direction pursuant to s179 of the Act that his trustee in bankruptcy assign to him a number of causes of action that vested in the trustee upon Mr Gargan's becoming bankrupt. Drummond J approached the application on the basis that unless Mr Gargan could show that he had an arguable case in relation to each cause of action which he sought to have assigned to him the application necessarily failed. At p23 his Honour said:-
"It would not be proper to direct the trustee to assign to the bankrupt a cause of action or a right of litigation associated with a cause of action which has no real prospect of success ...".
In that case Drummond J found that none of the causes of action in respect of which Mr Gargan sought a direction had any arguable chance of success. He dismissed the application. On appeal, the Full Federal Court held that the application of Mr Gargan was misconceived as he "sought assignment to himself of the very things which it was the duty of the Trustee to consider, and, if he thought proper to do so, to prosecute in the interests of the creditors and in the efficient management of the bankruptcy" (Gargan v The Official Trustee in Bankruptcy, unreported, Full Federal Court, 4 November 1995 at p3). The Full Court did not comment on the approach taken by Drummond J at first instance. The differences between that case and this mean, in my view, that it provides little assistance in identifying the matters proper for consideration on the application before me.
Of greater assistance, in my view, is the approach adopted by French J in Re Nguyen; ex parte Official Trustee. In that case leave was sought pursuant to s135(1)(b) of the Act for the trustee to assign to the bankrupts a chose in action, being a cause of action which the bankrupts asserted against a bank and an officer of that bank. French J does not appear to have regarded it as necessary to give consideration to the prospects of success of the asserted cause of action. Rather, his Honour gave consideration to the interests of the creditors as a whole of the bankrupt estates and to the legitimate interests of the bankrupts.
Further guidance, in my view, is to be found in Re Turner; ex parte Mulley (unreported, Federal Court, Northrop J, 22 June 1995). In this case Northrop J appears to have accepted that it would be proper for a trustee to assign to a bankrupt a cause of action which might be hopeless. At pp6-7 of his reasons his Honour said:-
"There has been no final decision made as to what the trustee will do in relation to these claims. There is a possibility that he should assign the causes of action back to the bankrupt to enable the bankrupt to pursue the alleged actions in the appropriate court. This can be done under the general powers conferred on the Trustee. It is a matter which has been directed by the meeting of creditors to be considered by the trustee. There is much to be said for such a course to be taken. Otherwise, the trustee, if he is required to pursue the claim could waste - and I use the word "waste" intentionally - large amounts of money in the bankrupt's estate pursuing what may well be a hopeless case at the expense of creditors generally without any real prospect of recovering anything at all."
I conclude that it is not the law that a trustee can only assign a cause of action if he or she is satisfied that it has a realistic chance of success. In circumstances in which insufficient funds are available to the trustee to allow a proper consideration of the likelihood of success of a cause of action asserted by the bankrupt to form part of his or her property, the appropriate course for the trustee to follow may well be to assign such causes of action to the bankrupt for a consideration which the trustee regards as appropriate in the light of such information as is available. Such a course may well result in some benefit to the creditors and will not place the estate at risk for legal costs. Similarly, where the trustee is unwilling to risk the funds of the bankrupt estate upon litigation with uncertain prospects of success, and no creditor is willing to fund such litigation, it may well be appropriate for the trustee to assign the relevant cause of action to the bankrupt, again for a consideration regarded by him or her as appropriate in all of the circumstances.
In my view, in considering the issue of sale of the property of a bankrupt, including any sale which involves the assignment of a cause of action, the principal duty of the trustee is to consider the interests of the creditors of the bankrupt estate in question as a whole. Consideration may also, in my view, properly be given to the legitimate interests of the bankrupt and to the legitimate interests of other parties likely to be affected by the trustee's decision.
It is not to be forgotten, however, that a trustee in bankruptcy, as an officer of the Court, is one from whom high standards of conduct are to be expected (Ex parte James; In re Condon (1874) 9 LR Ch App 609). In my view, it would not be proper for a trustee in bankruptcy to assign to any person a cause of action which demonstrably had no prospects of success. This would be even more strongly the case should he or she be alert to the possibility that such cause of action might be utilised to cause embarrassment to a third party.
Subject to a matter discussed below, I am not satisfied that the Court should interfere with the decision of the Official Trustee to sell such choses in action as he, as the trustee of the bankrupt estates of Mr Cirillo and Ms Grieves, may have against Citicorp and Messrs Heard and Young.
THE DECISION TO PREFER THE OFFER OF MR CIRILLO
As is set out above, the relevant offer of Citicorp was to purchase either the discharge of the causes of action asserted against it and Messrs Heard and Young for the sum of $10,000, or alternatively to purchase such causes of action for that sum. It was implicit in such offer that, should it be accepted, the asserted causes of action would not be pursued.
The offer of Mr Cirillo, which the Official Trustee preferred, was to purchase such causes of action for the sum of $3,500 plus 10% of any award of damages received by Mr Cirillo from the pursuit of such causes of action after deduction of costs and expenses, to the limit of the amount owing to creditors in the two bankrupt estates.
A thorough evaluation of the likely worth to the two bankrupt estates of each of the above offers would involve assessment of the prospects of success of the proposed pursuit by Mr Cirillo of the causes of action should they be assigned to him. As mentioned above, the Official Trustee has at all times lacked the resources to investigate the asserted claims of Mr Cirillo and Ms Grieves against Citicorp and Messrs Heard and Young. I do not consider that this Court ought itself on these applications undertake a comprehensive assessment of the prospects of success of Mr Cirillo's proposed pursuit of such causes of action. First, it would not be possible for such an exercise properly to be undertaken on affidavit evidence. Moreover, such an exercise would involve this Court in the making of judgments in respect of matters which may require to be litigated at a future time either in this Court or in some other court.
The issue for present consideration, in my view, is whether any reason to interfere with the decision of the Official Trustee to prefer the offer of Mr Cirillo to that of Citicorp has been shown. I note that such decision was apparently made at a time when the evidence before the Court on these applications was available to the Official Trustee. That is, this is not a case in which there is information before the Court which was not available to the Official Trustee at the time that the decision under review was made.
An important aspect of the Official Trustee's evaluation of the two offers was the assessment that the offer of Citicorp would not give rise to a dividend payable to creditors. I assume that the explanation for this is to be found in administration and legal costs. None of the other represented parties sought to challenge this aspect of the Official Trustee's evaluation.
Once this step in the Official Trustee's process of evaluation is accepted, any challenge to his ultimate decision to prefer the offer of Mr Cirillo faces difficulties. The damages which Mr Cirillo asserts to be recoverable pursuant to the causes of action are substantial. Even if the probability of his recovering such damages is extremely low, his offer is nonetheless the only offer which holds out any hope of the payment of a dividend to creditors.
In my view, no cause to interfere with the decision of the Official Trustee to prefer the offer of Mr Cirillo to that of Citicorp has been demonstrated.
DOES THE APPLICATION OF OFFICIAL TRUSTEE INVOKE S135 OF THE ACT?
On behalf of the Official Trustee it was contended that the offer which the Official Trustee favoured involved the acceptance, as part of the consideration for the sale of property of the bankrupts, of "a sum of money payable at a future time" within the meaning of s135(1)(b) of the Act. It followed, it was contended, that in the absence of permission of the creditors granted by resolution at a meeting of creditors or the permission of the committee of inspection, the Official Trustee required the leave of the Court to accept the offer. It was also contended that uncertainty as to the worth of the choses in action proposed to be sold made it necessary for the Official Trustee to obtain leave from the Court (see s134(2) and (2A) and s135(1)(a)). Counsel referred to the following authorities: Re Nguyen; ex parte Official Trustee in Bankruptcy; Genman Pty Limited & Anor v Beneficial Finance Corporation Limited (unreported, Federal Court, Davies J, 2 July 1991) and Cotterill v Bank of Singapore (Australia) Ltd.
The consideration offered by Mr Cirillo in this case involves no more than the possibility of a future payment. Litigation pursuant to the chose or choses in action proposed to be assigned may not eventuate, or if it does eventuate, it may not succeed. French J in Re Nguyen; ex parte Official Trustee in Bankruptcy at 326 appears to have accepted that, in such circumstances, acceptance by the trustee of a promise to pay to the trustee a proportion of the proceeds of such litigation does not amount to an acceptance, as part of the consideration for the sale of the choses in action, of "a sum of money payable at a future time". I incline to the view that any acceptance by the Official Trustee of Mr Cirillo's offer should be regarded as falling within s135(1)(b) of the Act. This construction seems to me to fit with the intention and purpose of s135 of the Act. However, if I am wrong in this, the Court would nonetheless have power to grant leave for the proposed sale pursuant to s135(1)(a). Whilst it may be that leave under that subsection is not necessary if the net value of the claims against Citicorp and Messrs Heard and Young does not exceed $50,000, the evidence before me is insufficient to show that such value is less than $50,000. Mr Cirillo and his advisers appear to be of the view that its value is more than $50,000. I am prepared for present purposes to accept a value of more than $50,000 (see Re Nguyen; ex parte Official Trustee in Bankruptcy at 327).
EARLIER PROCEEDINGS
The chronology set out above refers to three proceedings earlier instituted in the Supreme Court of South Australia. Considerable attention was paid to such proceedings by counsel for Mr Cirillo and Ms Grieves and by counsel for Citicorp and Messrs Heard and Young. Counsel for Mr Cirillo and Ms Grieves used such proceedings to seek to illustrate choses in action said to be available for assignment by the Official Trustee to Mr Cirillo. Counsel for Citicorp and Messrs Heard and Young referred to such proceedings in an endeavour to establish either that such choses in action no longer exist or that their pursuit would be vexatious. I will examine each such action.
Supreme Court of South Australia Action No 169 of 1985
In this action the Company sought to set aside the appointment of Messrs Heard and Young as receivers and managers of the undertaking and assets of the Company, and an injunction restraining them from acting in accordance with that appointment. On 7 February 1985 the Honourable Justice Mohr refused to make the orders sought. On behalf of Mr Cirillo it was accepted before me that, having regard to the material placed before the Supreme Court, this result was inevitable.
It is not clear whether it is submitted on this application that proceedings could now be validly instituted, should the proposed consignment be implemented, seeking to set side the appointment of Messrs Heard and Young as receivers and managers of the Company - the winding up of which is conceded to have concluded. Assuming for present purposes that which I consider to be highly doubtful, namely that the Official Trustee, as trustee of the bankrupt estates of Mr Cirillo and Ms Grieves, has vested in him a legal entitlement to challenge the appointment of Messrs Heard and Young as receivers and managers of the undertaking and assets of the Company, I am of the view that it would not be proper for him to now assign that chose in action to Mr Cirillo. The appointment of Messrs Heard and Young was made more than 11 years ago. It was accepted before me that the winding up of the Company has been completed although the Company has not been dissolved. I am prepared to assume that the ordinary responsibilities of Messrs Heard and Young pursuant to their appointment as receivers and managers of the undertaking and assets of the Company are at an end. No point would now be served by seeking to set aside such appointment. Any attempt now to do so would, in my view, be vexatious.
Supreme Court of South Australia Action No 1481 of 1985
By this action the Company and its receivers and managers sought, amongst other things, a declaration that the Poclain was the property of the Company and charged to Citicorp under the Debenture, and an injunction restraining Mr Cirillo from dealing with the Poclain. On 24 May 1985 an interlocutory injunction was made restraining Mr Cirillo from, in effect, dealing in any way with the Poclain "until the trial of the action or until further order". The plaintiffs gave the usual undertaking as to damages as the price for obtaining this interlocutory injunction.
The proceedings had a somewhat chequered history. On 7 October 1992 Judge Kelly made the order recorded in the chronology set out above. The intended effect of such order is not, in my view, entirely clear.
On 4 February 1993 the plaintiffs wholly discontinued the action. A result of the discontinuance was, it seems to me, the termination of the interlocutory injunction: its purpose was spent. A similar view of the effect of the discontinuance of an action in which an interlocutory injunction had been obtained was taken by the Alberta Supreme Court, Appellate Division, in Bird Construction Co Ltd v Paterson and Brotherhood of Painters, Decorators, Paper Hangers of America, Glass Workers Local 1725 (1960) 23 DLR (2d) 182. Counsel for Citicorp and Messrs Heard and Young did not contend before me that the interlocutory injunction could have survived the discontinuance of the action.
However, as the order of Judge Kelly recognises, a discontinuance of an action does not of itself discharge an undertaking given by a party to the court (see Newcomen v Coulson (1878) 7 ChD 764; Newby v Harrison (1861) 3 De G F & J 287; 45 ER 889).
On reflection I am inclined to agree with Mr Marrone that it is arguable that the order of Judge Kelly of 7 October 1992 did not reach to the events which actually occurred, in that the action was not discontinued by the date which he nominated, namely 31 January 1993. If the order of Judge Kelly did not, in the events which occurred, release the plaintiffs in that action from their undertaking as to damages, the right to claim such damages presumably remained with the Official Trustee as trustee of the bankrupt estate of Mr Cirillo. Although there has been considerable delay in moving to enforce the undertaking (assuming that it has not been discharged) it is not for this Court, in my view, to determine whether such delay has caused the loss of the benefit of the undertaking. That, in my view, is a matter for the Supreme Court. I would not consider an approach to the Supreme Court in that regard necessarily to be vexatious.
Supreme Court of South Australia Action No 80 of 1991
By the Statement of Claim filed in this action, Mr Cirillo and Ms Grieves claimed damages from Citicorp consequent upon the appointment of Messrs Heard and Young as receivers and managers of the Company. It appears that no attempt was made to serve the proceedings upon Citicorp for nearly 12 months. Just before the proceedings lapsed for want of service, service was sought to be achieved by inappropriate means. Such service was set aside by the Supreme Court. No application to renew the summons was apparently ever made. Nonetheless, solicitors for Citicorp served notice of the action on the Official Trustee as Mr Cirillo's trustee in bankruptcy pursuant to s60(3) of the Act. No election was made by the Official Trustee. Not surprisingly, no similar notice was served upon the Official Trustee following the sequestration of the estate of Ms Grieves approximately 10 months later.
The authorities are clear that the omission by a trustee to make an election pursuant to s60(3) of the Act is no bar to a subsequent action by the trustee in respect of the same cause of action (Bennett v Gamgee & Anor (1876) 2 EXD 11; Re Summerhayes & Anor; ex parte The Official Assignee (1890) 1 BC (NSW) 24; Re Kwok & Anor; ex parte Rummel (1981) 61 FLR 336). In Millane v President, etc, of Shire of Heidelberg [1928] VR 52 it was recognised by Irvine CJ that an action abandoned by a trustee might be pursued by the bankrupt after the termination of his bankruptcy.
I accept the submission of Mr Marrone that the notice given pursuant to s60(3) of the Act in the bankrupt estate of Mr Cirillo did not of itself put an end to any cause of action against Citicorp for damages consequent upon the appointment of Messrs Heard and Young as receivers and managers of the Company. It is certainly arguable, in my view, that if the assignment here proposed is made, s60(3) would be no bar to Mr Cirillo's relying on such cause of action.
It appears that Mr Cirillo and Ms Grieves would not now be able to renew the summons in Action No 80 of 1991 (Supreme Court Rules 1987 (SA) R10). However, that of itself would not prevent the commencement of new proceedings intended to raise the same issues as were raised in that action.
TIME
As Mr Pickhaver pointed out, any claim for damages consequent upon the appointment of Messrs Heard and Young as receivers and managers of the Company would appear to be out of time. Mr Marrone, however, called in aid s48 of the Limitation of Actions Act 1936 (SA). That section authorises a court to extend the time for instituting an action "to such an extent, and such terms (if any) as the justice of the case may require". Subsection (3) of s48, so far as is here relevant, provides as follows:-
"(3)This section does not -
(a). . .
(b)empower a court to extend a limitation of time prescribed by this Act unless it is satisfied -
(i)that facts material to the plaintiff's case were not ascertained by him until some point of time occurring within twelve months before the expiration of the period of limitation or occurring after the expiration of that period and that the action was instituted within twelve months after the ascertainment of those facts by the plaintiff; or
(ii)that the plaintiff's failure to institute the action within the period of the limitation resulted from representations or conduct of the defendant, or a person whom the plaintiff reasonably believed to be acting on behalf of the defendant, and was reasonable in view of those representations or that conduct and any other relevant circumstances,
and that in all of the circumstances of the case it is just to grant the extension of time."
The allegations made by Mr Cirillo against Citicorp and Messrs Heard and Young are wide ranging and serious. They include allegations of breach of a loan agreement or agreements, failure to comply with the terms of the Debenture, unconscionable conduct, negligence, and misleading and deceptive conduct. It appears that investigations being made by and on behalf of Mr Cirillo concerning the involvement of Citicorp and Messrs Heard and Young with the Company are ongoing. I do not feel able to conclude, on the evidence before me, that, if leave were granted for the assignment proposed in this matter, any application by Mr Cirillo for an extension of time to institute proceedings would necessarily fail. It may be that claims pursuant to the Trade Practices Act, 1974 (Cth) could not now be instituted. However, the allegations made by Mr Cirillo extend well beyond that Act.
The hurdle which Mr Cirillo will face on the issue of time will undoubtedly be high: the ultimate decision, however, as to whether an extension of time pursuant to s48 of the Limitation of Actions Act should be allowed is one to be made by the court in which any such proceedings are instituted.
OTHER MATTERS
I should make it plain that I reject the argument advanced on behalf of Citicorp and Messrs Heard and Young that the claims which Mr Cirillo and Ms Grieves now assert against Citicorp and Messrs Heard and Young have already been litigated and adjudicated upon in Supreme Court of South Australia Actions Nos 169 of 1985 and 1481 of 1985, or, under the principles adopted in Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589, ought to have been so litigated, and thus cannot now be agitated.
Most of the other arguments advanced on behalf of Citicorp and Messrs Heard and Young are arguments which, in my view, ought more appropriately to be addressed to the court in which any proceedings instituted in reliance on the proposed assignment may be brought. Except to the extent to which I have done so in respect of the isolated issue of possible proceedings seeking to set aside the appointment of Messrs Heard and Young as receivers and managers of the Company, I do not consider it appropriate for this Court on this application to seek to identify each and every complaint made by Mr Cirillo and Ms Grieves against Citicorp and Messrs Heard and Young for the purpose of evaluating procedural or evidentiary obstacles in its path to success.
I wish to make it plain that I do not assume that all of the allegations against Citicorp and Messrs Heard and Young, or indeed, that any of them, can be made out. However, I can not be satisfied on the evidence before me that none of them can be or that their pursuit would necessarily be vexatious.
CONCLUSION
Having regard to the interests of the creditors as a whole of the two bankrupt estates involved, and to the legitimate interests of the bankrupts, I conclude that leave should be granted pursuant to s135(1) of the Act for the proposed assignment by the Official Trustee to Mr Cirillo of such choses in action as the Official Trustee, as the trustee of the bankrupt estates of Mr Cirillo and Ms Grieves, may have against Citicorp and Messrs Heard and Young - but not so as to authorise any proceedings seeking to set aside the appointment of Messrs Heard and Young as receivers and managers of the Company.
I have given consideration to the issue of unwarranted prejudice which Citicorp and Messrs Heard and Young may suffer by reason of such assignment. The mere fact that litigation against them may result from such assignment is not unwarranted prejudice for present purposes. The prejudice to them flowing from such litigation will only be unwarranted in the relevant sense if the litigation is instituted vexatiously or without reasonable prospects of success. I do not consider that the possibility of such prejudice outweighs the factors telling in favour of the grant of leave. If the causes of action alleged against them are as untenable as has been suggested, summary procedures will be available to bring to an early end any such litigation and to limit the costs and inconvenience resulting therefrom.
I will hear counsel as to the precise form of the order to be made, and as to costs.
I certify that this and the preceding pages are a true copy of the Reasons for Judgment of the Honourable Justice Branson.
Associate:
Dated:
Counsel for the applicant : Ms S Maharaj
Solicitors for the applicant : Australian Government
Solicitor
Counsel for the interveners, : Mr R M Marrone
Vincenzo Giovanni Cirillo
and Sybille Grieves
Solicitors for the interveners, : Marrone & Co
Vincenzo Giovanni Cirillo
and Sybille Grieves
Counsel for the interveners, : Mr M G Pickhaver
Citicorp Australia Limited,
John Harold Heard and
Stephen Elliott Young
Solicitors for the interveners, : Finlaysons
Citicorp Australia Limited,
John Harold Heard and
Stephen Elliott Young
Hearing Date : 10 April 1996
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