Sheehan v Brett-Young (No. 3)
[2016] VSC 39
•10 FEBRUARY 2016
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
MAJOR TORTS LIST
S CI 2014 05772
| MARSHALL SHEEHAN | Plaintiff |
| v | |
| MICHAEL BRETT-YOUNG & ORS | Defendant |
---
JUDGE: | JOHN DIXON J |
WHERE HELD: | MELBOURNE |
DATE OF HEARING: | 2 FEBRUARY 2016 |
DATE OF RULING: | 10 FEBRUARY 2016 |
CASE MAY BE CITED AS: | SHEEHAN v BRETT-YOUNG & ORS (No. 3) |
MEDIUM NEUTRAL CITATION: | [2016] VSC 39 |
---
PRACTICE AND PROCEDURE – Pleadings - Application for leave to file and serve a further amended statement of claim - Claim for damages to reputation, lost income, and expenses of defending criminal proceedings sought for malicious prosecution and misfeasance in public office – Plaintiff bankrupt at material times - Whether causes of action pleaded are maintainable - Whether reputational damage to capacity to earn income is divisible amongst creditors - Whether claims are for a personal wrong done to the bankrupt – ss 58, 60(4), 116(1), 116(2)(c), 116(2)(g) Bankruptcy Act1966 (Cth).
---
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr G McCormack appeared amicus curiae | |
| For the First, Second, Third, and Eleventh Defendants | Mr S Hay | Lee and Lyons |
| For the Fourth and Fifth Defendants | ||
| For the Sixth, Seventh, Eighth, Ninth, Tenth, and Twelfth Defendants | Mr R Gipp | Victorian Government Solicitor’s Office |
HIS HONOUR:
Introduction
The plaintiff seeks leave to file and serve a substitute proposed statement of claim dated 16 December 2015 (PSOC). This is not the plaintiff’s first application to file and serve an amended state of claim. The history of this proceeding is recited in Sheehan v Brett Young & Ors (No 2)[1] and need not be here repeated.
[1] [2015] VSC 651.
In Sheehan v Brett Young & Ors (No 2) the plaintiff’s proceeding against the fourth and fifth defendants was dismissed. The first to third and eleventh defendants, the regulatory parties, by summons filed on 22 October 2015 and sixth to tenth and twelfth defendants, the State parties, by summons filed on 21 October 2015, have applied for summary judgment.
The plaintiff has now discontinued claims against all defendants, save for the third and eleventh defendants (‘regulatory defendants’), and the twelfth defendant (‘State’). The plaintiff brings a claim of misfeasance in public office against the regulatory defendants. The plaintiff claims malicious prosecution against the State. The Plaintiff cannot cast his claim in defamation, as it is clearly statute barred.[2] He does not expressly articulate a claim in negligence, but under the cover of alleging the misfeasance claim, the plaintiff pleads the existence of a duty arising from the statutory relationship between himself and the L IV, which duty was breached by it.
[2] See Limitation of Actions Act 1958, s 5(1 AAA).
The regulatory and State defendants contest the plaintiff’s application for leave to file and serve the PSOC.
The State contends that the application for leave to file the PSOC should be refused on the grounds that the proposed malicious prosecution claim has ‘no real prospect of success’ within the terms of s 63 of the Civil Procedure Act 2010 and should not be permitted.[3] Further, that this is not a case in which the Court should exercise the residual discretion in s 64 of the Civil Procedure Act 2010 and decline to give summary judgment because of the ‘interests of justice’ or because only a full hearing on the merits is appropriate.
[3]Citing Matthews v SPI Electricity Pty Ltd (No 6 [2012] VSC 70, [33]-[34], which was overturned on appeal. See Utility Services Corporation Ltd v SPI Electricity Pty Ltd (2012) 35 VR 628 and Taha v Shaq Industries Pty Ltd [2012] VSC 30, [14].
The regulatory parties oppose leave to file and serve the PSOC and maintain their application for summary judgment, or alternatively, dismissal of the proceeding on the basis that there is no maintainable claim against them, and by reason of the failure of the plaintiff in the proceeding to date to identify a viable cause of action.
Issues
A number of issues remain to be resolved. The first issue was whether the fact that the plaintiff was, at material times, an un-discharged bankrupt precludes him from maintaining his claims because they were, by operation of the Bankruptcy Act 1966 (Cth) no longer maintainable by the bankrupt. The defendants contended that this issue raised a pure legal question capable of immediate resolution on the pleadings and justified their application for summary judgment.
The second issue was whether, if the relevant causes of action or any of them had not been assigned by statute to the plaintiff’s trustee in bankruptcy, an arguable cause of action was disclosed by the proposed pleading. Some of the defendants’ objections were substantive and some were procedural. Of greatest significance was the submission that the plaintiff had not, and could not, allege and particularise the necessary mental element required for each alleged cause of action.
There were also a number of question in respect of costs. The solicitors for the regulatory defendants and the State, particularly those defendants against whom the plaintiff had discontinued his proceeding, sought a lump sum assessment of certain costs ordered in the proceeding to date, and a stay of the proceeding pending payment of those costs.
The plaintiff was, for the first time, represented by counsel, although there was not yet a solicitor on the record for the plaintiff. I granted leave for Mr McCormick to appear as an amicus. On the second issue, Mr McCormick contended that, now that he had heard counsel articulate their objections to the pleading, a further amended document could be prepared that would properly plead and particularise the plaintiff’s remaining claims. The parties agreed that I should rule on the first issue of the effect of the plaintiff’s bankruptcies on the claims, before considering the form of the pleading and dealing with cost issues. I have given Mr McCormick leave to serve a further version of the statement of claim for consideration in the event that the claims are not summarily dismissed by reason of the bankruptcy point.
The effect of the plaintiff’s bankruptcies on his causes of action
The Plaintiff has been a bankrupt on two occasions:
(a) Between 12 September 2006 and 13 September 2009; and
(b) Between 21 April 2011 and 1 June 2014.
The relevant events occurred during the first bankruptcy. These proceedings were commenced in New South Wales on 5 March 2014 during the second bankruptcy.
Relevant legislation
Section 58 of the Bankruptcy Act 1966 (Cth) provides that when a debtor becomes bankrupt, his or her property vests in the Official Trustee. Section 116 of the Act provides that, subject to the Act, all property that belonged to the bankrupt at the commencement of the bankruptcy and the capacity to bring proceedings for exercising all powers over the property of the bankrupt is property that is divisible amongst the creditors of the bankrupt.
Section 116 relevantly states:
Property divisible among creditors
(1) Subject to this Act:
(a)all property that belonged to, or was vested in, a bankrupt at the commencement of the bankruptcy, or has been acquired or is acquired by him or her, or has devolved or devolves on him or her, after the commencement of the bankruptcy and before his or her discharge; and
(b)the capacity to exercise, and to take proceedings for exercising all 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 or at any time after the commencement of the bankruptcy and before his or her discharge; and
[...] is property divisible amongst the creditors of the bankrupt.
This provision is, relevantly, subject to two exceptions. Section 116(2)(c) provides:
(2) Subsection (1) does not extend to the following property:
(c)the bankrupt's property that is for use by the bankrupt in earning income by personal exertion and:
Section 116(2)(g) exempts:
(g) any right of the bankrupt to recover damages or compensation:
(i)for personal injury or wrong done to the bankrupt, the spouse or de facto partner of the bankrupt or a member of the family of the bankrupt; or
(ii) …
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 …;
Section 60(4) of the Act provides:
(4)Notwithstanding anything contained in this section, a bankrupt may continue, in his or her own name, an action commenced by him or her before he or she became a bankrupt in respect of:
(a) any personal injury or wrong done to the bankrupt ...
Plaintiff’s claims
As stated above, the plaintiff’s extant claims are, first, brought against the regulatory parties alleging misfeasance in public office and breach of duty, and second, brought against the State alleging malicious prosecution.
The plaintiff asserts that at all relevant times he was an Australian Legal Practitioner and held a Victorian Local Practising Certificate. This assertion was contradicted by a certificate issued on 26 February 2009 by the Law Institute of Victoria that certified that the plaintiff did not hold a practising certificate enabling him to engage in legal practice from 1 July 2008.
The plaintiff alleged that on 21 April 2009, when he attended Wodonga Magistrates Court to represent a client a police prosecutor challenged his right of appearance. The plaintiff left the courtroom and was arrested by Wodonga police in a media glare. He was charged with nine charges of engaging in legal practice without a practising certificate, 14 charges of obtaining property by deception and one charge of attempting to obtain property by deception. Subsequently, on 7 March 2011 at the Melbourne Magistrate’s Court, all the charges were withdrawn by the prosecutor.
Allegations against the Regulatory parties
The plaintiff alleges the LIV issued a certificate under s 7.2.5(1) of the Legal Profession Act 2004, to the effect that the plaintiff did not hold a practising certificate as of 30 June 2008 (referred to as the ‘February 09 Certificate’ in the PSOC). The plaintiff alleges that contrary to what was certified in the February 09 certificate, his practising certificate remained in force.[4] The plaintiff alleges that subsequent certificates issued by the LIV continued to incorrectly contend that the Plaintiff did not have a practising certificate in the period commencing 1 July 2008 and ending 29 April 2009.
[4]In accordance, the plaintiff alleges, with s 2.4.5(3) of the Legal Profession Act 2004, until it was finally determined by the renewal of the certificate (s 2.4.5(4)(a)) on 30 April 2009. See PSOC [26]-[29].
The plaintiff alleges against the LIV that, at all material times and by reason of a delegation from the Legal Services Board, the LIV was the holder of a public office, and that the renewal by the LIV of the plaintiff’s local practising certificate and the act of certification by the February 09 certificate under section 7.2.5(1) of the LPA were incidents of that public office. The plaintiff alleges that at the time of issue of the February 09 certificate, during the periods that were the subject of the charges, and at the time of his arrest on 21 April 2009, he held a local practising certificate and had held that certificate from 1 July 2008. The plaintiff then alleges -
50.The LIV at all material times owed a duty to the plaintiff, in his capacity as an Australian legal practitioner subject to regulation under the LPA, to:
a.Not state that the plaintiff did not have a local practising certificate when in fact he had one;
b.Issue a certificate under section 7.2.5(1) that was correct as to the periods that the plaintiff had a local practising certificate;
c.Not issue a certificate that was incorrect as to the periods that the plaintiff had a local practising certificate;
d.Ensure that the Victoria Police as the prosecuting authority were correctly informed as to the periods that the plaintiff had a local practising certificate;
e.Not to incorrectly inform the Victoria Police as to those periods;
f.Ensure that the 11th defendant was correctly informed as to the periods that the plaintiff had a local practising certificate;
g.Not to incorrectly inform the 11th defendant as to those periods.
51.In breach of that duty, the LIV issued the February 09 certificate, informed the prosecutor on 21 April 2009 that the plaintiff did not have a local practising certificate, informed Detective Senior Constable Simpfendorfer that the plaintiff did not have a local practising certificate and thereafter assisted the police in the prosecution of the plaintiff.
PARTICULARS
The plaintiff repeats and adopts paragraph 26, paragraphs 30-34 and paragraph 40 hereof. Further particulars will be provided after discovery between the parties.
51AFurther in breach of that duty, the LIV issued the July 10 certificate and informed the 11th defendant that the plaintiff did not have a local practising certificate.
PARTICULARS
The plaintiff repeats and adopts paragraph 29A, paragraphs 44D-44L hereof. Further particulars will be provided after discovery between the parties.
52.The LIV acted with complete disregard to the provisions of the LPA insofar as pursuant to those provisions the plaintiff had a local practising certificate in the period 1 July 2008 to 29 April 2009, further or alternatively the LIV acted with reckless indifference to those provisions.
52ABy reason of the matters aforesaid, the LIV acted maliciously in the issuing of the February 09 certificate and the July 10 certificate.
53.By reason of the matters aforesaid, the LIV damaged the reputation of the plaintiff, caused the charges to be laid, caused the arrest of the plaintiff, caused his cessation of practice from 21 April 2009 until 30 April 2009, assisted the no practising certificate investigation, the Lacey investigation and the Cox investigation, resulted after that latter date in a considerable reduction in his practice and thereby caused him to suffer loss and damage.
PARTICULARS
Particulars of loss and damage are set out below.
The claim that is brought against the 11th defendant is of the same nature, but arising out of different, although related, circumstances. The plaintiff alleges that the 11th defendant was a delegate, pursuant to s 6.3.12 of the Legal Profession Act2004. By reason of the delegation, the 11th defendant was the holder of a public office and a number of investigations that she conducted arising out of the certified lack of a practising certificate were incidents of that public office. As with the claim against the L IV, the plaintiff alleges that the 11th defendant owed him a duty arising under the statutory regulatory scheme that she breached. Further, the 11th defendant acted with complete disregard to the provisions of the Legal Profession Act and acted with reckless indifference to those provisions. The plaintiff claims that the 11th defendant’s conduct damaged his reputation and caused a considerable reduction in his practice and caused him loss and damage.
Allegations against the State
The plaintiff relevantly alleged against the State that the charges upon their withdrawal on 7 March 2011 terminated in favour of the plaintiff and that Detective Senior Constable Simpfendorfer had, at the time of their laying, no reasonable or probable cause because over the period of the charges the plaintiff held a local practising certificate. Further, the laying of the charges was actuated by malice on the part of Detective Senior Constable Simpfendorfer and the Victoria Police. The plaintiff gives the following particulars in support of that allegation.
(a)There was no reasonable and probable cause for laying the charges;
(b)The first intimation that the plaintiff had that he was the subject of an investigation was given in open court on 21 April 2009 when the plaintiff was appearing for Mr Draber;
(c)The plaintiffs arrest was then outside of court in public;
(d)Detective Senior Constable Simpfendorfer than gave the interview on 22 April 2009 publicising the plaintiff’s arrest and the possible laying of charges;
(e)The Detective Senior Constable then gave the further interview on 6 July 2008 publicising the actual laying of the charges;
(f)Preventing the plaintiff from acting for Mr Draber deprived Mr Draber at the start of the hearing of his legal representative;
(g)Preventing the plaintiff from acting also prevented the plaintiff appearing in any other criminal matters brought by the police;
(h)Further particulars will be provided after discovery between the parties.
The plaintiff alleges that this conduct damaged his reputation, caused his cessation of practice from 21 April 2009 until 30 April 2009, resulted after April 2009 in a considerable reduction in his practice, and thereby caused him to suffer loss and damage.
Loss and damage
The plaintiff particularises his loss and damage in respect of all of his claims under three categories of loss and damage, being damage to reputation, loss of income, and legal expenses. These claims are particularised as follows:
a.Damages to reputation. The plaintiff had been in practise [sic] in the Borders region since 1985. He particularly had a reputation as a criminal defence solicitor and solicitor advocate regularly appearing against the Police in Victoria and New South Wales to defend prosecutions. The laying of the charge, the publicity that followed, the no practising certificate investigation, the Lacey investigation and the Cox investigation, the inquiries made of the Registrar of the Finley Local Court damaged that reputation in as much as he was then tarred with the brush of practising contrary to law.
b.Lost income. The Plaintiff’s annual gross earnings in the year ended 30 June 2008 were circa $300,000. From the arrest on 21 April 2009 the Plaintiff’s gross income diminished by about 90%. Further particulars will be provided on discovery.
c.Costs and expenses of defending the charges and responding to the no practising certificate investigation, the Lacey investigation and the Cox investigation. Further particulars will be provided on discovery.
The plaintiff also seeks aggravated and exemplary damages.
Are these claims maintainable by the plaintiff
As a general rule subject to certain exceptions, all property of the bankrupt, including the right to bring proceedings, vests in the trustee in bankruptcy. The State and the regulatory defendants submitted that the plaintiff’s causes of action against them had vested in the plaintiff’s bankruptcy trustee. The Plaintiff contended that two exceptions applied, preserving his right to litigate these causes of action: first, the exception to the operation of s 116(1) for income earned during a bankruptcy, and second, if he is unsuccessful on that point, the exception for ‘personal’ claims in s 116(2)(g).
First exception: s 116(2)(c) all
The plaintiff contended that income earned during a bankruptcy does not come within after-acquired property and accordingly does not vest in the bankrupt’s trustee.[5] The plaintiff submitted that the heads of loss and damage, to reputation, loss of income and expenses were not property.
[5]Citing Re Gillies Ex parte Official Trustee in Bankruptcy v Gillies (1993) 42 FCR 571, 576-577.
The precise nature of the heads of loss that are particularised needs to be understood. A particular difficulty is whether the second head of loss is limited to the loss of a capacity to earn income, which is a capital loss, or also extends to the loss of income that could have been earned during the second bankruptcy period. The wider interpretation is appropriate.
In Re Gillies Ex parte Official Receiver,[6] French J (as he then was) found that a sum of $4000, accumulated from the plaintiff’s income since the date of his bankruptcy, did not vest in his trustee in bankruptcy. To explain the current position, French J traced the legislative history of the provision. His Honour referred to the High Court’s decision in Federal Commissioner of Taxation v Official Receiver[7] where Williams J (with Dixon J agreeing) held that the question whether the bankrupt's income in excess of that necessary for his support vested in the official receiver was academic because ‘if the official receiver claims any part of these earnings he must apply to the Bankruptcy Court for an order.’ In the absence of such an order, it was said, ‘the bankrupt is free to dispose of the whole of those earnings.’, Williams J stated of s 101 of the Bankruptcy Act 1924:[8]
It provides that where a bankrupt is in receipt of pay etc the trustee shall receive...so much thereof as the court, on the application of the trustee, directs. It therefore provides in express terms that an order of the court is necessary before any part of such pay etc can be recovered by the trustee and it is implicit in the section that in the absence of such an order none of the pay etc vests in the trustee under section 91(i) of the Act. (my emphasis)
[6]Ibid.
[7](1956) 95 CLR 300, 315.
[8]Ibid, 315.
Fullagar J stated in relation to personal earnings after bankruptcy that the only way in which the trustee can effectively ‘intervene’ is by making an application for an order under s 101.[9]
[9](1956) 95 CLR 300, 320.
In 1962, the Report of the Clyne Committee, appointed by the Attorney-General to review the Bankruptcy Law of the Commonwealth, considered section 101. The committee preferred Fullagar J’s construction of s 101 in Federal Commissioner of Taxation v Official Receiver[10] that personal earnings did not vest in the official receiver. It recommended that the section ought to be recast so that, subject to any order of the Court, a bankrupt who is in receipt of income should be entitled to retain it for his own benefit.
[10](1956) 95 CLR 300.
The recommendation was reflected in the enactment of s 131 of the Bankruptcy Act 1966 which provided, inter alia:
131(1) Subject to this section, a bankrupt who is in receipt of income is entitled to retain it for his own benefit.
(2)The Court may, upon the application of the trustee, order that all, or such part as the Court thinks fit, of the income of the bankrupt shall be paid to the trustee for the benefit of the bankrupt's creditors.
Since Re Gillies Ex parte Official Receiver, it is well established that despite the later repeal of section 131 of the Bankruptcy Act 1966 (Cth)[11], income earned during a bankruptcy does not come within after-acquired property and accordingly does not vest in the bankrupt’s trustee. In Re Gillies, French J relevantly stated:[12]
The Bankruptcy Act 1966 no longer contains the equivalent of s 101 of the 1924 Act of the former s 131. Despite the absence of an equivalent of s 101 of the 1924 Act or s 131, the scheme of Div 4B rests upon the continuing assumption that the income of the bankrupt does not vest in the trustee. There is nothing in the extrinsic material to support a change in the approach to after acquired income which would bring it within the after-acquired property vesting in the trustee.
[11]As it stood prior to repeal in 1992, section 131(1) relevantly provided as follows: ‘Subject to this section, a bankrupt who is in receipt of income is entitled to retain it for his own benefit.’
[12](1993) 42 FCR 571, 576-577.
Knight & Anor v DCT & Anor[13] is authority for the proposition that income earned before a bankruptcy but not received until during the bankruptcy also falls within this exclusion.In that case, the plaintiff was entitled to income earned from work done prior to a bankruptcy, which income was withheld from the plaintiff until after his bankruptcy. Burchett J viewed these payments as ‘deferred income,’ where ‘receipt has simply been deferred for a few months.’ Burchett J found that ‘accordingly, these moneys constitute income which the bankrupt is entitled to retain for his own benefit.’[14]
[13](1987) 79 ALR 347.
[14]Ibid, 355.
In Nettle v Howarth,[15] Dixon J considered the meaning the meaning of ‘in receipt of,’ where a lump sum payment was made to a bankrupt. The lump sum payment was equal to the contributions paid by the bankrupt in respect of superannuation. It was a lump sum which the Superannuation Board was bound by statute to pay. Dixon J considered whether the payment belonged to the bankrupt or the official receiver, and stated:[16]
The governing words of section 101 are “is in receipt of”. Whilst these words do not connote necessarily a regular periodicity, they do suggest recurrence as an actual or expected characteristic of the things the section proceeds to describe. They raise a presumption that they will be of a revenue nature. The lump sum payable to a contributor on his retirement is to be equal to his contributions and these contributions were deducted from his salary. But the contributions ceased to be salary when they were made to the fund. … ’Profits’, ‘earnings’ and ‘income’ are wide words. They cover the fruits of labour and much more besides.
[15](1935) 53 CLR 55, also discussed in Knight & Anor v DCT & Anor (1987) 79 ALR 347, 354.
[16](1935) 53 CLR 55, 64.
In Knight & Anor v DCT & Anor[17] Burchett J that in Nettle v Howarth the bankrupt did not fail because the income was past income; rather, the bankrupt failed because, although the source of the accumulations was income, payment made out of the fund was a capital payment pursuant to statute which did not represent the earnings from which the original contributions had been made.[18] That sum was of a different character to what is claimed by the plaintiff in this proceeding.
[17](1987) 79 ALR 347, 355.
[18]Ibid.
Mr Sheehan’s compensation claim does not concern ‘receipt’ of income, whether that be deferred income or otherwise. He claims an entitlement to damages that represent the loss of his capacity to earn income as a consequence of the wrongs against him. That lost earning capacity will probably be referable both to the period up to the trial, and into the future. The claim is not about any income that has been earned or received. It is always open to a defamation plaintiff to plead and prove actual pecuniary loss. As in personal injuries litigation, the claim is for damage to a capital asset, the personal ability to earn income. While assessment of the claimed head of damage is referable to income the plaintiff has already earned or that the plaintiff has received, the plaintiff, if successful, will be compensated for the damage to or loss of a capital asset. The asset constituted by the plaintiff’s capacity to earn income by personal exertion is not divisible amongst his creditors by force of s 116(2)(c). Because that capital asset was not assigned by the Bankruptcy Act to Mr Sheehan’s trustee the right to bring proceedings for damages for damage to or the loss of that asset has not vested in the trustee.
Second exception: s 116(2)(g)
The exception under s 116(2)(g)(i) of the Act raises the issue whether the plaintiff suffered a personal wrong. The regulatory parties contended that what was claimed was damages for destruction of a business rather than the destruction of capacity to earn income.
For the plaintiff’s claims to fall within the exception in s 116(2)(g) of the Bankruptcy Act, the plaintiff must assert a right to damages or compensation for a personal injury or wrong done to him. The provisions of the Bankruptcy Act set out above make it clear that, upon a debtor becoming a bankrupt, property rights are transferred from the bankrupt to his trustee, including the right to sue in respect of claims to property.
In Cummings v Claremont Petroleum NL[19] the High Court considered the issue of whether a bankrupt could appeal an adverse decision where the judgment included findings of misleading and deceptive conduct for the purpose of protecting himself from reputational damage. Brennan CJ, Gaudron and McHugh JJ explained the intention behind the operation of the Act, to divest the bankrupt of his property and vest it in the trustee to make it available for the payment of creditors. Their Honours stated:[20]
The Act follows the pattern of earlier bankruptcy law. Broadly, and not precisely, the effect of bankruptcy is to divest a bankrupt of his property, to vest that property in a trustee (9) and to make it available for the payment of provable debts (10). The right to commence or take a fresh step in legal proceedings or to enforce any remedy against the person or the property of the bankrupt in respect of a provable debt are, in general, denied to creditors when sequestration is ordered (11). The right of the bankrupt to prosecute proceedings that he has commenced is restricted by s 60(2). The bankrupt's concerns as to the administration of his property and the payment of his creditors can be addressed by the Court in the exercise of its supervisory jurisdiction over the conduct of the trustee.
[19](1995) 185 CLR 124.
[20]Ibid, 132.
Their Honours stated that if the property of the bankrupt has passed to the trustee, the bankrupt will have no interest in or entitlement to proceedings that arise out of that property and the cause of action will vest in the trustee. The plaintiff would have no standing to bring such an action and any losses could only be pursued through the machinery of the Bankruptcy Act. [21]
[21]Ibid, 138.
In contrast, if the nature of the cause of action is personal, it will remain with the bankrupt. It would be unjust to leave such an action to the discretion of a trustee whose interests do not extend, or do not necessarily extend, to the preservation of the bankrupt's personal or professional characteristics.
In Cummings v Claremont Petroleum NL, Brennan CJ, Gaudron and McHugh JJ addressed this point in the context of the bankrupt asserting standing to bring an appeal in respect of a money judgment entered against a bankrupt. Their Honours stated that the reasoning behind leaving with the bankrupt the right to an appeal that reflected on the personal or professional character of the bankrupt was that, unlike the bankrupt, a trustee would not have any interest in bringing such an appeal. Their Honours stated:[22]
By sub-s (1)(j), the trustee is authorised to "bring, institute or defend any action or other legal proceeding relating to the administration of the estate". That is an ample power to permit the trustee to institute an appeal against a judgment entered against a bankrupt that affects the administration of the estate. But if the judgment against which a bankrupt wishes to appeal reflects on his personal or professional character (as the present judgment does), it seems unjust to leave the institution of an appeal to the discretion of a trustee whose interests do not extend, or do not necessarily extend, to the preservation of the bankrupt's personal or professional character.
[22]Ibid, 138.
However, although the court did not regard the right to appeal as property of the respective bankrupt appellants, their bankruptcies left them without such an interest in the judgment against them as would support their institution of an appeal in their own names.
The mere fact that the findings made by the court might affect or damage reputation does not make the claim one of a personal wrong done to the bankrupt. The key distinction appears to be whether the personal injury or wrong could form the basis of a separate cause of action. In Cummings, Dawson and Toohey JJ observed that a judgment for misleading and deceptive conduct did not constitute a ‘personal injury or wrong,’ even though the judgment affected the appellant’s reputation. It did not constitute the basis for a separate cause of action. Their Honours stated: [23]
It may be said that the findings of conspiracy to defraud, deceit, and contraventions of statutory obligations not to engage in misleading or deceptive conduct affect the appellants. But these are findings in the course of arriving at the orders to be made. Although the affect reputation, they are not themselves a “personal injury or wrong done to the bankrupt” which could form the basis for a separate cause of action.
[23]Ibid, 148.
It is necessary to keep the general purpose of the Act in mind when considering whether the plaintiff’s causes of action fall within the exception in s 116(2)(g). In Bryant v Commonwealth Bank,[24] Lockhart J identified the first step in characterising a cause of action was to examine the initiating process and pleadings:[25]
When an action has been brought by a person who subsequently becomes bankrupt the nature of the action is determined by examining the initiating process and pleadings and any other relevant documents in the case. How does one determine the nature of an appeal? To determine whether an appeal is in respect of a personal injury or wrong done to the bankrupt, his spouse or a member of his family one must look at the action itself which gave rise to the judgment and the subsequent appeal.
[24](1977) 75 FCR 545.
[25]Ibid, 549-550.
In Cox v Journeaux (No 2),[26] Dixon J stated the test to be applied when determining whether an action is for personal injury or wrong was to consider whether damages or part of them were to be estimated by immediate reference to the pain felt by the bankrupt, without reference to his rights of property:[27]
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 (Wilson v United Counties Bank Ltd (1920) AC 102, pp 111 and 128–133).
The expression ‘reference to the pain felt’ now seems a little quaint. It is plain enough that what his Honour had in mind was the distinction between compensation for an interference with personal rights as opposed to rights of property. The former form of compensation is identified by reference to the principles for assessment of damages for personal injury or loss of reputation. A loss of earning capacity caused by a personal wrong is compensable.
[26](1935) 52 CLR 713.
[27]Ibid, 721.
This test was applied by the New South Wales Court of Appeal in Daemar v The Industrial Commission of New South Wales and Ors,[28] and in Mannigel v Hewlett Phelps.[29] Daemar was concerned with the invocation of the court’s supervision in jurisdiction over a subordinate tribunal and concerned proceedings in the Industrial Commission, where the claimant sought to void a contract he had entered into with the claimant. The Commission, in disposing of the proceeding and finding the contract void ab initio, was critical of the claimant. The appellant submitted that it was of ‘paramount importance’ that he should have his name cleared. Applying Cox v Journeaux, Kirby P stated:[30]
Although it is true that the claimant contends that a “wrong" has been done to him and that he has suffered hurt and even “defamation” in the course of the judgements of the commission, these contentions are irrelevant to the task of identifying, for the purpose of s 60(4)(a) of the Act, the nature of the action exempted from the stay. The exemption is limited to those cases where it has been considered appropriate to sever the personal interests of the person subsequently made bankrupt from his property, and to reserve to him the prosecution of and benefits derived from such litigation as not being legitimately entitlements of the creditors. In the present case the so-called “wrong” of which the claimant complains is the very source of the financial problems which have led to his bankruptcy.
[28](1988) 90 FLR 469; 79 ALR 591.
[29][1991] NSWCA 186.
[30](1988) 90 FLR 469; 79 ALR 591, 601.
In Mannigel v Hewlett Phelps,[31] the plaintiffs sued their former solicitors for professional negligence in connection with purchase of land and the construction of a home on the land. Although the plaintiffs claimed damages for their economic loss and for the loss of their credit and reputation, inconvenience, mental distress and strain, the latter heads of damages were admitted to be the consequences of the economic loss. Handley JA said:[32]
The plaintiffs’ claims for damages for loss of credit, for mental distress, inconvenience and for injury to their physical and mental health therefore were not claims 'without reference to their rights of property' within the principle stated by Dixon J. On the contrary those claims were consequential on damages to the plaintiff's financial and property interests as a result of alleged breaches of professional duty by the solicitors.
The plaintiffs in the present case sue on indivisible causes of action in tort and contract. Those causes of action formed part of the property of the plaintiffs which vested in the Official Receiver on their bankruptcy. No separate cause of action to recover damages for any personal injury or wrong has been pleaded or exists in the circumstances.
Kirby P noted:[33]
As to the indivisible character of the causes of action upon which the appellants sued, I would merely add that in the agreed facts which were tendered at the trial the following agreed fact appears: “5. The damages particularised in para 17(e), (f) and (g) of the amended statement of claim are alleged by the plaintiff to be the consequence of the other damages particularised in para17(a), (b) (c) and (d) but are not alleged to be otherwise the result of the alleged breaches of duty by the defendants.” This agreed fact made clear the character of the alleged damages as they were presented to the trial judge and on the basis of which the separated question was answered by him. It is true that they bear, at first glance, the character of personal wrong. However both in the pleadings and in the agreed facts they are related to the causes of action in contract and tort sued upon. Those causes of action are not of the character which are saved by s 60(4).
[31][1991] NSWCA 186.
[32]Ibid, 4.
[33]Ibid, 8.
In Faulkner v Bluett,[34] Lockhart J identified the common thread in the cases classifying a cause of action of a bankrupt was that the right to sue passed to the trustee in bankruptcy where the right of action was direct pecuniary loss to the property or estate of the bankrupt, notwithstanding that the cause of action might have produced personal inconvenience to the bankrupt. This stood in contrast to cases where the cause of action was personal, when the action remained with the bankrupt. Lockhart J stated:
The common thread running through these cases is that 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: Wetherell v Julius; Wage on Bankruptcy (1904 ed). Where the essential cause of action is the personal injury done to the person or feelings of the bankrupt the right to sue remains with the bankrupt.
As Erle J said in an oft-cited passage in Beckham v Drake: “The right of action does not pass where the damages are to be estimated by immediate reference to pain felt by the bankrupt in respect of his body, mind or character, and without immediate reference to his rights or property.” (Citations omitted)
[34](1981) 52 FLR 115.
More complex questions can arise where a claim of mixed character is made. In Faulkner v Bluett, the bankrupt made allegations of negligent advice or misrepresentation against the Commonwealth and another, that the Commonwealth represented they would invest in a scheme relating to ‘Trisal clips’. Allegedly relying upon those representations, the bankrupt advanced moneys to Trisal Engineering Pty Ltd for the purpose of developing and marketing the clips. The court held that the right of action was directly related to the bankrupt’s property or estate, and any damages would be estimate by reference to her rights of property. In a passage relied on by the defendants, Lockhart J stated:[35]
Also the English cases draw a distinction between personal earnings of the bankrupt and the profits of a business carried on by him, notwithstanding that the profits were due substantially to the personal effort and labour of the bankrupt, and such profits have been held to pass absolutely to the trustee of his estate. The rationale of the distinction between earnings of a bankrupt personal to him and those derived from a business carried on by him underlies also the distinction between rights of action that vest in the trustee of a bankrupt’s estate and those that do not. Although rights of action generally passed to the trustee of a bankrupt’s estate, exceptions have been created by decisions of the courts, including the following: a right of action for slander, for seduction of a servant, for trespass to land or goods in the plaintiff’s actual possession, at least where the only substantial damage is for the annoyance and personal inconvenience to him, breach after bankruptcy of a contract for personal service made before bankruptcy, and for personal injuries arising out of certain breaches of contract such as a contract for marriage.
[35]Ibid, 119.
However in that case Lockhart J stated obiter that there is some doubt whether a right of action passes to the trustee where one and the same cause of action results in substantial damage to the property of the bankrupt as well as substantial injury to his person or annoyance to his feelings.[36]
[36]Ibid, 119.
In England, the rule appears to be that a cause of action passes to the trustee so far as it relates to the property of the bankrupt, and remains with the bankrupt so far as it relates to his person or feelings. In Wilson v United Counties Bank,[37] the plaintiff and his trustee in bankruptcy were co-plaintiffs. The court accepted that the negligence of the defendants gave rise to two distinct causes of action, one consisting of injury to the bankrupt’s estate, the other personal and consisting of injury to his character, credit and repute.[38] Independent action could be instituted against the defendants by each plaintiff and no difficulty resulted because the damages to which each plaintiff was entitled were separately found.[39] Further, Lord Atkinson cited with approval[40] the passage in Brewer v Drew in which it was held that a plaintiff bankrupt’s claim for damages in trespass for unlawful taking of goods ‘per quod the plaintiff was annoyed and prejudiced in his business, and believed by his customers to be insolvent’ did not pass to his trustee.
[37][1920] AC 102.
[38]Ibid, 131.
[39]Ibid, 132.
[40]Ibid, 129-130.
Wilson supports the proposition that damage to the reputation of a trader can be personal damage, which can be a personal wrong for the purposes of s 116(2)(g), even though that damage may be closely tied to the resultantly damaged reputation of the trader’s business. Several claims by the bankrupt and his trustee could not be made in respect of an indivisible loss, but such claims might be joined in one action with the damages assessed separately.
I see no objection in principle to the English approach to mixed claims and it is clear in Australia that the court may sever a personal claim from a proprietary claim. Dixon J in Cox v Journeaux referred to the dicta of Lord Atkinson in Wilson v United Counties Bank with apparent approval, but was not dealing with a mixed claim in that case.
Returning to Bryant v Commonwealth Bank of Australia,[41] there the bankrupt alleged the bank had breached duties said to be owed to him as mortgagee or secured creditor. His application seeking declarations and damages against the Bank was dismissed and he filed a notice of appeal. His trustee in bankruptcy declined to prosecute the appeal and the Court found that the bankrupt’s claims were essentially referable to his financial and property rights.
[41](1997) 75 FCR 545.
Nonetheless Lockhart J noted that the bankrupt could prosecute the appeal if it was in respect of a personal injury or wrong done to him:[42]
Mr Bryant may continue in his own name the appeal brought by him from the judgment of Sackville J if the appeal is in respect of a personal injury or wrong done to him, his spouse or a member of his family. If the appeal cannot be so described then he cannot continue the action; the right to do so being vested in his trustee who on the facts is deemed to have abandoned the appeal.
[42]Ibid, 547.
Lockhart J identified a line of cases that concerned mixed causes of action. In Millane v Shire of Heidelberg,[43] the plaintiff alleged that the defendant trespassed upon land and unlawfully removed materials. The plaintiff claimed damages not only for the loss of the materials, but also for the defendant’s allegedly high-handed and arbitrary behaviour. The Full Court of the Victorian Supreme Court (Mann CJ, Gavan Duffy and Martin JJ) held that the plaintiff was entitled to prosecute the action so far as it related to the defendant’s behaviour.
[43][1936] VR 8.
In Holmes v Goodyear Tyre & Rubber Co (Aust) Limited,[44] the bankrupt plaintiff claimed damage caused to his business by alleged defamation and passing off. Those causes of action were held to have passed to the trustees on the plaintiff’s bankruptcy. But the plaintiff was held entitled to continue in his own name that part of the action in which he claimed damages for injury to his reputation, credit and character.[45]
[44](1984) 55 ALR 594.
[45]See also Muir Hunter, Williams Law and Practice in Bankruptcy, 18th ed, 1968, 268-9, 319-322.
In Bullock v Goodluck[46] the Supreme Court of Tasmania held that the proceedings may be severed where the causes of action were for negligence, an action on the case pursuant to the rule in Beaudesert Shire Council v Smith,[47] where the plaintiff has suffered loss as the inevitable consequence of the unlawful, intentional and positive acts of another and misfeasance of public office. Cox J was satisfied that the plaintiff had demonstrated a claim to damages for personal injury or wrong, but was not permitted to prosecute that part of the claim that related solely to the pecuniary loss to his estate unless and until his trustee joined in the proceeding in respect of that head of damage. Beaudesert Shire Council v Smith was overruled by the High Court in Northern Territory of Australia v Mengel.[48]
[46](1983) 48 ALR 217.
[47](1966) 120 CLR 145.
[48](1996) 185 CLR 307.
In Moss v Eaglestone[49] the New South Wales Court of Appeal held that a claim by a bankrupt for damages against his former solicitor for negligence for loss of the valuable right to sue for defamation did not vest in his trustee, that being a separate and distinct cause of action not referrable to the bankrupt’s property. Allsop P stated:[50]
In light of the history and policy of the common law of bankruptcy in England and Australia s 60(4) and s 116(2)(g) should not be construed so as to exclude a cause of action for professional negligence for failing to commence an action for defamation. The action for defamation is plainly “an action ... in respect of [a] personal injury or wrong” […] such an action would not form part of the property divisible amongst the creditors of the bankrupt. There is no reason in legal policy or in the language of the Act to treat an action for the loss of that action differently. The value of the lost change of winning such an action should equally fall outside the divisible estate.
[49](2011) 83 NSWLR 476.
[50]Ibid, 480.
Worchild v University of Queensland Law Society[51] is a case where the primary and substantial rights of action that the applicant sought to pursue were proprietary, notwithstanding the assertion that the facts on which those claims were made caused him distress or loss of reputation. The applicant’s claims for aggravated and exemplary damages were claims consequential on his primary claims for breaches of the Trade Practices Act 1974.[52] For this reason, the bankrupt plaintiff had no standing to bring the action. The essential character of the applicant’s claim was that the respondents through representations, had induced him to commence proceedings in the Federal court which lead to his losses now being claimed. Those losses could only be pursued through the machinery of the Bankruptcy Act by his trustee. They could not be severed. They were not claims for ‘personal injury or wrong’.[53] The applicant in Worchild was in a similar position to the would-be appellants in Daemar v Industrial commission and Cummings v Claremont Petroleum, who claimed to have suffered injury as a consequence of the adverse judgments made against them.
[51][2006] FCA 1078.
[52]Ibid, [41].
[53]Ibid, [43].
Worchild was an instance of a right of action where one and the same cause of action resulted in substantial damage to the property of the bankrupt as well as substantial injury to his person or annoyance to his feelings. The personal and proprietary claims could be severed. The claim for personal wrong was a corollary of the proprietary claims, and in and of itself could not form the basis of a separate cause of action.
Drawing on the above authorities, in assessing the character of the proposed claims, the relevant considerations appear to be:
(a) It is important to consider the specific nature of the claims made, by reference to the way they are pleaded or otherwise substantiated in relevant documents before the court in determining whether the claims vest in the trustee or are personal in nature;
(b) If proceedings arise out of property of the bankrupt that has passed to the trustee, the bankrupt will have no interest in or entitlement to that property and the cause of action will have vested in the trustee;
(c) Where the primary and substantial right of action is direct pecuniary loss to the property or estate of the bankrupt, notwithstanding that it may have produced incidental personal inconvenience to the bankrupt, it will vest in the trustee;
(d) Where damage to reputation or a personal claim extends beyond incidental personal inconvenience to the bankrupt but would not in and of itself form the basis of a separate cause of action, the bankrupt has no standing in respect of a claim arising out of property that has passed to the trustee;
(e) When the essential nature of the wrong is personal, the cause of action remains with the bankrupt. A cause of action for personal injury, which can include compensation for loss of capacity to earn income is the classic example of an action that will remain with the bankrupt;
(f) The essential nature of the wrong is personal where the damages or part of them are to be assessed by reference to the loss sustained by the bankrupt in respect of his mind, body or character and without reference to his rights of property. In this context, the concept of ‘mind, body or character’ is only constrained by reference to the objects and purpose of the Bankruptcy Act. It is well recognised that impairment of earning capacity is compensable without reference to any property right of a plaintiff who sustains injury to his mind body or character. It is not within the contemplation of the Bankruptcy Act that compensation for damage to such a personal asset should be available for the payment of provable debts;
(g) Claims can be mixed and in the case of unseverable ‘mixed claims,’ the better view is that the cause of action passes to the trustee in so far as it relates to the property of the bankrupt and remains with the bankrupt in so far as it relates to his person or character, as is the case in England; however,
(h) it is clear, in Australia, that where a claim is mixed and severable, the personal claim may be severed.
I will first consider the nature of the claims advanced by the plaintiff against the State.
Malicious Prosecution
The State contended that the plaintiff wrongly construed s 116(2)(g) to refer to a ‘wrong’ done to the Plaintiff as something separate from ‘personal injury’ such that a bankrupt is entitled to any action in tort. However, I understood the plaintiff to agree that the phrase ‘personal injury or wrong’ is to be read as a whole and that the qualifier ‘personal’ applies to ‘wrong’. That is the sense in which it is to be properly understood.[54]
[54]Cox v Journeaux (No 2) (1935) 52 CLR 713; Daemar v Industrial Commission of NSW (1988) 12 NSWLR 45, 51 & Faulkner v Bluett (1981) 51 FLR 115, 119.
The State first contended that a cause of action in malicious prosecution vested in the Plaintiff's trustee in bankruptcy and, as a result, the Plaintiff has no standing to bring the current proceeding against the State, citing Jacks v Jakimowicz.[55]The passage to which I was referred in Jacks v Jakimowicz does not support the former proposition but in restating the general principle in Cummings v Claremont Petroleum that a bankrupt will have no standing to bring proceeding where the causes of action relied upon has vested in the bankrupt’s trustee would support the latter proposition if the former proposition was valid. That proceeding was concerned with whether property purchased with a compensation payment maintained its character as compensation and was therefore ‘protected money’ within the terms of s 116(1). The bankrupt appellant alleged a breach of trust against the respondent, who contended that the appellant’s causes of action constituted divisible property of the bankrupt that had vested in the trustee. These facts are quite different to those alleged in the current proceeding but,, in any event, the decision does not establish that a malicious prosecution cause of action would vest in Mr Sheehan’s trustee.
[55] (2014) 288 FLR 365; [2014] VSCA 120, [22]-[23].
Second, the State contended that the plaintiff’s particulars of loss and damage, particularly the claims for:
(a) loss of income arising from the adverse impact the prosecution had on his practice as a criminal defence solicitor; and
(b) the costs and expense of defending the prosecution brought against him;
demonstrated that the plaintiff’s claim was substantially one for financial loss alone with no claim for personal injury done to himself or his feelings. The distinction was that the damage, if reputational, was to the reputation of his ‘law practice’ and the plaintiff was seeking damages for loss of his practice. There was, in reality, no claim for personal injury done to himself or his feelings, and the cause of action in malicious prosecution must have vested in his trustee in bankruptcy. The defendants sought to rely on a distinction between the loss of the profits of the business carried out by the plaintiff which is said to be referable to personal earnings, and an injury to the personal character or nature of the plaintiff reflected in the loss of clients of his practice as a solicitor. The proceeding, they submitted, did not involve injury of the latter type.
The plaintiff’s claim for damage to his reputation is expressed as a consequence of being ‘then tarred with the brush of practising contrary to the law,’ when the plaintiff ‘had a reputation as a criminal defence solicitor and solicitor advocate.’ The plaintiff subsequently pleads a loss of income, and the costs and expenses of defending the charges.
The plaintiff contends that, apart from the obvious examples of a personal injury action or a defamation action, it is difficult to imagine anything more personal than a malicious prosecution. The plaintiff contends that an action for malicious prosecution is not an action in respect of property of the bankrupt that is divisible amongst creditors.
That a claim for malicious prosecution is a personal wrong is evident from the very nature of the cause of action. It consists in the prosecution by the defendant of legal proceedings of a criminal nature against the plaintiff, maliciously, and without any reasonable or probable cause whereby the plaintiff is injured. In Saville v Roberts[56] Lord Holt identified three sorts of damage that suffice to support a claim of malicious prosecution; damage to a man’s fame, damage to the person (risk of loss of life or liberty) and the costs of defending the claim.
[56](1699) 1 Ld Raymd 374, 378. Cited by McGregor on Damages 18th ed (Sweet & Maxwell), [38-002].
The losses alleged by the plaintiff to be caused by malicious prosecution cannot be separated from his personal character. The losses alleged are linked to damage to the reputation of the plaintiff caused as a consequence of malicious prosecution. Mr Sheehan’s personal reputation was damaged when he was no longer able to practice as a sole solicitor-advocate, not because he no longer had a practising certificate (because he did) but because of the effect on his reputation of the police prosecution and its attendant publicity. That reputation was key to his capacity to earn income from his skills, qualifications and certification for practice. The damage to the plaintiff’s income earning capacity was consequential on reputational damage.
The plaintiff’s claimed losses will not represent proprietary damage to the plaintiff’s business, with merely consequential damage to the plaintiff’s character. The plaintiff’s personal characteristics, particularly that he practised law within the regulation of the profession, was intrinsic to his business. The case that the plaintiff seeks to make is grounded in whether the plaintiff was entitled to continue to carry on with his business, that of a solicitor-advocate. It is grounded on whether the plaintiff was properly entitled to characterise himself as entitled to practice lawfully as a solicitor.
This is not a case where the plaintiff’s claim for damage to his reputation is no more than a consequential claim intricately connected with a primary proprietary claim. The claim for damage to his reputation could stand alone as an action for damages for defamation were it not statute barred. I do not accept the State’s submission which reconceptualised his loss as that of a separate business, the value of which might be realised for the benefit of his creditors.
The defendants referred me to the English case of Re Rogers, Ex Parte Collins[57] where the bankrupt practised as a dental surgeon in partnership. The bankrupt continued to practice as a dentist after going into bankruptcy. The question was whether the net share of the proceeds to which the bankrupt was entitled was the property of the trustee in bankruptcy or property of the bankrupt.
[57][1893] 1 QB 425.
Vaughan Williams J held that the profit share was the property of the trustee in bankruptcy. This was so, even though for the purpose of earning that profit, the bankrupt would have used his personal skill and attention. The business was of a character that involved much that was independent of the personal exertions of the bankrupt. Vaughan Williams J stated:[58]
It is said that the trustee cannot be entitled to the net share of the earnings of this partnership which is due to Mr Rogers [the bankrupt] because such moneys are the personal earnings of Mr Rogers. It is said - and rightly said - that the personal earnings of a bankrupt do not pass to his trustee, at all events in cases where there is no margin shewn [sic] after sufficient has been applied for the maintenance of the bankrupt. Now, that principle has only been applied to cases where the personal earnings are personal earnings strictly so called.
As I understand the cases, if what the bankrupt is earning is earned by him in his business, it is not sufficient, to bring the earnings within this rule as to personal skills, that the business is of a character which involves a large amount of personal skill and attention by the bankrupt. It was on this ground that it was decided in the case of the surgeon-apothecary (1) and in the case of the architect (2) that the earnings did not fall within the rule.
In these two cases the Court, in considering what was the nature of the earnings of the bankrupt, decided that the earnings could not be treated as mere personal earnings within this rule because, although the bankrupt would have, for the purpose of making these earnings, to use his personal skill and attention, yet the business was of a character which involved much that was independent of the personal exertions of the bankrupt. It was not like the case of a bone-setter, or of an actor, or singer, whose earnings depend really upon the personal exertion of the bankrupt and nothing else.
[58]Ibid, 429.
It was also relevant that the personal earnings were dealt with by the bankrupt as property for the purpose of a partnership with another. This fact alone would change their character. The bankrupt’s rights arose as a matter of contract, rather than as a result of personal injury or wrong. Vaughan Williams J went on to state:[59]
Even if the receipts here would fall properly within the description of personal earnings, as intended by the rule in question, I am by no means prepared to say that such personal earnings would not lose that character by being dealt with by the bankrupt himself as property for the purpose of a partnership with other people.
It seems to me that which the bankrupt earned, although it might originally fall have been his personal earnings, ceases to have that character, and comes to be property in the true sense of the word, when it is the net share which the bankrupt is entitled to for the partnership earnings under his arrangement with his partner. It seems to me that such a net share, although its origins might have been personal earnings and personal exertions becomes mere property, and that the trustee is entitled to it.
[59]Ibid, 431.
These observations are not apposite in the present case. The plaintiff was not in a partnership, and he conducted his practice from a home office. The compensation that is sought is quite different in its nature from a share of partnership earnings and the decision is readily distinguishable.
If I am wrong on these points, at its highest, the plaintiff’s claims could be said to be mixed, with damage to the plaintiff’s business and damage to the plaintiff’s reputation intermingled in the same cause of action. In that event, I would be satisfied that the plaintiff has demonstrated that there is an issue for trial that ought to be more particularly defined by pleadings and resolved by the trial judge.
Misfeasance in public office
The regulatory defendants submitted that the claim of misfeasance in public office was also assigned to the trustee. They relied on Madden v Madden[60] a case in which the Federal Court considered a claim of misfeasance in public office involving the validity of the Commissioner’s assessment of the appellant’s liability for income tax on which the Commissioner obtained judgment. Upon failure to comply with a bankruptcy notice based on the judgment, the Commissioner successfully petitioned for the appellant’s bankruptcy. The appellant sought to quash the tax assessment, declaratory relief, and damages including exemplary damages for the tort of misfeasance in public office.
[60](1996) 136 ALR 98.
The trial judge held the appellant’s case could not possibly succeed and made an order dismissing the proceedings. The appellant appealed the decision.
A majority of the court[61] found that the Commissioner was entitled to make an assessment where no return had been lodged without ascertaining or calculating deductable items from the taxpayer’s income, providing the Commissioner made a genuine attempt at assessment. The Commissioner did not make the assessment in bad faith. The primary finding that there was no arguable case of abuse of power cut the ground from underneath the claim for damages for the tort of misfeasance in public office. Absent a claim of that sort, Foster J held:[62]
The claim as formulated was one relating to the property of the bankrupt, and not to “pain felt by the bankrupt in respect of his body, mind or character”. Beckham v Drake, Faulkner v Bluett, Cox v Journeaux (No 2). Consequently the right to bring the action was vested in the trustee and could not be exercised independently by the appellant bankrupt pursuant to s 116(2)(g()(ii) of the Bankruptcy Act. (Citations omitted)
[61]Sheppard and Foster JJ (Einfeld J dissenting).
[62]Ibid, 139.
Einfeld J stated that the right of action for misfeasance in public office was contemplated by s 116(2)(g) and if proved would demonstrate a conscious or wilful abuse of power aimed directly at the bankrupt which lead to injury.[63]
[63]Ibid, 119.
Madden is readily distinguishable from the present circumstances.
The leading High Court decision on the tort of misfeasance in public office is Northern Territory v Mengel.[64] The claim was for stock losses that followed on restrictions imposed on the movement of cattle by government inspectors following positive testing for brucellosis. The inspectors believed they had power to impose the restrictions and were not actuated by an intention to harm the owners.
[64](1995) 185 CLR 307.
The plurality said of the tort of misfeasance in public office:[65]
However, the weight of authority here and in the United Kingdom is clearly to effect that it is a deliberate tort in the sense that there is no liability unless either there is an intention to cause harm or the officer concerned knowingly acts in excess of his or her power.
And later:[66]
The cases do not establish that misfeasance in public office is constituted simply by an act of a public officer which he or she knows is beyond power and which results in damage. Nor is that required by policy or principal. Policy and principle both suggest that liability should be more closely confined. So far as policy is concerned, it is to be borne in mind that, although the tort is the tort of a public officer, he or she is liable personally and, unless there is de facto authority, there will ordinarily only be personal liability. And principle suggests that misfeasance in public office is a counterpart to, and should be confined in the same way as, those torts which impose liability on private individuals for the intentional infliction of harm.
[65]Ibid, 345.
[66]Ibid, 347.
It is clear from the High Court’s decision in Mengel that although a claim of misfeasance in public office may result in a claim relating to property of a bankrupt that will not necessarily always be the case. Torts which impose liability on private individuals for the intentional infliction of harm on another individual will readily characterised as personal wrongs.
The plaintiff’s present claim requires proof of a conscious or reckless abuse of power directed at him or causing loss to him in his ability to practice as a solicitor. That would be a direct attack upon the plaintiff’s personal attributes, as distinguished from his business or property.
What I have said above in the context of the claim for malicious prosecution about the nature of the losses claimed by the plaintiff applies with equal force in respect of the claim for misfeasance in public office.
Conclusion
I am satisfied that the claims pleaded by the plaintiff in this proceeding were not assigned to the plaintiff’s trustee in bankruptcy by the operation of ss 58 and 116 of the Bankruptcy Act 1966 and, subject to the other issues yet to be determined in respect of the form of the pleading, such claims may be maintained by the plaintiff in this proceeding.
---
18
17
0