Stone v Permanent Custodians Ltd

[2016] WASCA 200

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

TITLE OF COURT :   THE COURT OF APPEAL (WA)

CITATION:   STONE -v- PERMANENT CUSTODIANS LTD [2016] WASCA 200

CORAM:   NEWNES JA

MURPHY JA

HEARD:   11 NOVEMBER 2016

DELIVERED          :   25 NOVEMBER 2016

FILE NO/S:   CACV 47 of 2016

BETWEEN:   PETAH JOHN STONE

VALERIE KAYE STONE
Appellants

AND

PERMANENT CUSTODIANS LTD
Respondent

ON APPEAL FROM:

Jurisdiction              :  SUPREME COURT OF WESTERN AUSTRALIA

Coram  :MASTER SANDERSON

File No  :CIV 2544 of 2015

Catchwords:

Practice and procedure - Whether appeal has reasonable prospect of succeeding - Appeal against summary judgment for defendant/respondent - Claim by plaintiffs/appellants on alleged cause of action on mortgage arising before bankruptcy - Appellants discharged from bankruptcy - Whether proceedings commenced by appellants after discharge incompetent

Legislation:

Bankruptcy Act 1966 (Cth), s 7(2), s 58(1)

Result:

Appeal dismissed

Category:    B

Representation:

Counsel:

Appellants:     In person

Respondent:     Mr M Holler

Solicitors:

Appellants:     In person

Respondent:     Norton Rose Fulbright Australia

Case(s) referred to in judgment(s):

Cummings v Claremont Petroleum NL (1996) 185 CLR 124

Daemar v Industrial Commission of New South Wales (No 2) (1990) 22 NSWLR 178

Samootin v Shea [2010] NSWCA 371

1. JUDGMENT OF THE COURT: This is an appeal from a decision of Master Sanderson who ordered that summary judgment be entered against the appellants on their claim against the respondent. The respondent has applied for an order dismissing the appeal, pursuant to r 43(2)(g)(i) of the Supreme Court (Court of Appeal) Rules 2005 (WA), on the basis that none of the grounds of appeal has a reasonable prospect of succeeding.

Background

1. In 2004, the appellants, who are farmers, entered into a loan agreement with Landmark Operations Ltd, Landmark (Queensland) Ltd and Rabobank Australia Ltd (the Original Lenders) pursuant to which the Original Lenders advanced to the appellants a seasonal or overdraft facility of $1,400,000 and a term loan of $2,211,000.  The funds were secured by a registered mortgage over the first‑named appellant's land.  The loan agreement was subsequently varied from time to time and, on or about 30 November 2005, the Original Lenders assigned their interest in the loan agreement and mortgage to the respondent.

2. The original loan agreement was superseded by a loan agreement, dated 27 March 2006, between the appellants and the respondent pursuant to which the respondent advanced to the appellants the sum of $2,000,000 by way of a seasonal or overdraft facility and the sum of $2,211,000 by way of a term loan.  Those funds were secured by the same mortgage.   Again, the loan agreement was subsequently varied from time to time.

3. The appellants defaulted in repayment of the seasonal facility and the term loan and the respondent demanded repayment of the sum then due and owing plus interest. 

4. The appellants did not pay the sum demanded and the respondent commenced proceedings (CIV 2021/2008) claiming vacant possession of the mortgaged land and the amount outstanding under the loan agreement and the mortgage. The appellants filed a defence and counterclaim. Among other things, the appellants alleged that (a) the assignment by the Original Lenders was ineffectual as notice of the assignment was not given to the appellants, and (b) in breach of the loan agreement the respondent had failed to provide funds to which the appellants were entitled and had wrongfully refused to permit the appellants to give a crop lien to another lender, thereby reducing the land the appellants were able to crop. The appellants claimed damages for the respondent's alleged breaches and for alleged breaches of s 52 of the Trade Practices Act 1974 (Cth).

5. The proceedings in CIV 2021/2008 were subsequently settled and the terms of settlement recorded in a Deed of Settlement and Release dated 11 February 2011 (the deed).  By the deed, relevantly, the appellants released the respondent from 'any action, demand, notice, claim, damages or proceeding which they have or may have in the future relating to, or arising out of, or in connection with the Loan Agreement, the Mortgage, the Dispute or the Proceedings.'  The 'Dispute' is defined in the deed in the widest terms to cover any claim of any nature by the appellants against the respondent in connection with the loan agreement, the mortgage, or the proceedings.  Clause 13 of the deed provides that the deed may be pleaded as a bar to any such claim.

6. The settlement was subject to the parties signing a memorandum of consent orders and orders being made in terms of the memorandum.  Those orders, made by Kenneth Martin J on 11 February 2011, were that:

   1.judgment be entered for the respondent in the sum of $6,201,523.83;

   2.the appellants deliver up vacant possession of the mortgaged land;

   3.the appellants' counterclaim be dismissed; and

   4.there be no order as to costs.

7. On 16 May 2011, orders were made for the sequestration of the estates of each of the appellants under the Bankruptcy Act 1966 (Cth). The appellants were discharged from bankruptcy on 30 June 2014.

8. On 9 June 2015, the appellants issued proceedings by way of an originating summons (CIV 1870/2015) in which they sought declarations, among other things, that the respondent had no interest in the mortgage and that the debt claimed by the respondent in CIV 2021/2008 was not enforceable, and alternatively, that the respondent had engaged in unlawful conduct and that the contractual terms relied upon by the respondent were unlawful.  The appellants sought an order that all costs orders against them in CIV 2021/2008 be discharged.

9. On 8 September 2015, the master ordered that summary judgment be entered against the appellants in those proceedings.

10. The proceedings that are the subject of this appeal were commenced by the appellants by a generally indorsed writ of summons filed on 29 September 2015 (CIV 2544/2015).  In the indorsement of claim, the appellants claimed a declaration that the deed was void and damages on the ground that the signatory of the deed on behalf of the respondent by a power of attorney did not hold such a power.  The appellants alleged they had executed the deed in reliance upon the signatory being duly authorised and had suffered damage as a result. 

11. A statement of claim was filed on 18 March 2016.   With all due respect to the appellants, it is incomprehensible not only in its terms but also because, for reasons that do not emerge from the document, it appears to plead a claim against the ANZ Bank in connection with the loan transactions and the mortgage, and to seek various declarations and damages against the ANZ Bank, including damages pursuant to the Property Law Act 1974 (Qld). It also bears no relationship to the indorsement in the writ.

12. In any event, the respondent again applied for summary judgment and, on 17 May 2016, it was ordered that there be judgment for the respondent.  The master found, in effect, that by reason of their bankruptcy the appellants had no standing to bring the claim and that the proceedings were incompetent.  He also noted that the claim was res judicata or subject to Anshun estoppel.

13. The appellants filed an appeal notice on 3 June 2016.  The appellants' case was filed on 8 July 2016.  The respondent filed the present application on 25 July 2016 and written submissions in support of it on 25 July 2016.  The appellants filed written submissions in opposition to the application on 15 August 2016.

The grounds of appeal

1. The grounds of appeal are not easy to follow but, as we understand them, the substantive contentions are that the master erred in:

   1.finding that the deed is enforceable, when he should have found that it was not enforceable as the signatory on behalf of the respondent was not authorised to execute it;

   2.refusing to permit the appellants to join other parties to the proceeding; and

   3.finding that the appellants did not have standing to bring the claim, notwithstanding that the appellants had been discharged from bankruptcy.

The disposition of the application

1. At the outset of the hearing, the first-named appellant (who appeared alone at the hearing) requested an adjournment on the grounds that he wished to discuss the matter with a friend who has assisted the appellants and to put in further written submissions (ts 5).  We refused to grant an adjournment.  Orders had been made by consent on 8 August 2016 that the appellants were to file and serve any written submissions by 12 September 2016.  The appellants filed written submissions on 15 August 2016.  They were advised of the hearing date by a registrar's notice to attend dated 30 August 2016.  If the appellants wished to obtain assistance there had been ample time to do so.  No explanation was proffered for the failure to do so.  Nor were we informed why the application for an adjournment had been left to the last minute.  It had all the appearances of a delaying tactic.  We concluded that no proper basis had been made out for an adjournment.

2. Turning then to the respondent's application, it was submitted by the respondent that there were three separate grounds upon which the appeal must inevitably fail:

   (a)the appellants did not have standing to bring the claim they advanced as any rights they may have against the respondent had vested in the Official Trustee under the Bankruptcy Act;

   (b)the claim is res judicata or an Anshun estoppel arises by reason of the judgments in CIV 2021/2008 and CIV 1870/2015; and

   (c)the claim is barred by the deed.

3. It is necessary to deal only with the first of those.  The relevant principles are not in doubt.

4. A person becomes a bankrupt upon a sequestration order being made against their estate: Bankruptcy Act s 43(2). Under s 58(1) of the Bankruptcy Act, when a person becomes a bankrupt their property, apart from after-acquired property, vests forthwith in the Official Trustee.  After-acquired property vests in the Official Trustee as soon as it is acquired by, or devolves on, the bankrupt.

5. The vesting under s 58(1) is a transfer, by automatic operation of the Act, to the Official Trustee of title to all the 'property', as defined, of the bankrupt.

6. In s 5, 'property ' is defined to mean:

   real or personal property of every description, whether situate in Australia or elsewhere, and includes any estate, interest or profit, whether present or future, vested or contingent, arising out of or incident to any such real or personal property.

7. Once a person becomes a bankrupt, they are deprived of the right to bring or maintain an action in respect of the property that vests in the Official Trustee.  During the period of their bankruptcy, a bankrupt 'has no right to bring or prosecute proceedings to protect, enhance or add to the property of which he has been divested on bankruptcy': Cummings v Claremont Petroleum NL (1996) 185 CLR 124, 135 ‑ 136; and any action commenced by a person before their bankruptcy, apart from an action in respect of 'personal injury or wrong' done to the bankrupt or a member of his or her family, is automatically stayed upon the person becoming a bankrupt, unless within the required time the Official Trustee makes an election in writing to prosecute or discontinue the action: Bankruptcy Act s 60(2), (4).

8. The position does not change after the person's discharge from bankruptcy in respect of property that vested in the Official Trustee under s 58(1). The discharge of a bankrupt does not cause any assets that have vested in the Official Trustee to revert to the bankrupt; the property vested in the Official Trustee remains vested in the Official Trustee: Daemar v Industrial Commission of New South Wales (No 2)(1990) 22 NSWLR 178, 185; Samootin v Shea [2010] NSWCA 371 [94], [95].

9. The appellants submitted, however, that the sequestration orders had not been validly made because the respondent was not entitled to present a petition for a sequestration order against them and the sequestration orders were therefore of no effect. The appellants relied upon s 7(2) of the Bankruptcy Act, which provides, relevantly, that:

   A sequestration order shall not be made against, nor a debtor's petition presented by … a corporation.

10. That submission is based upon a fundamental misunderstanding of s 7(2). A 'debtor's petition' is defined in s 5 of the Bankruptcy Act to mean, relevantly, 'a petition presented by a debtor against himself or herself'. The effect of s 7(2), therefore, is simply to exclude a sequestration order being made against a corporation on the petition of a third party or a corporation presenting a petition for a sequestration order against itself. In the case of each of the appellants, the sequestration order was made on a creditor's petition.  There is no prohibition on a corporation presenting a creditor's petition.

11. It follows that, although they have been discharged from bankruptcy, the appellants lack the capacity to bring proceedings to enforce claims that existed at the time of sequestration.  While the present claims are in their terms incomprehensible, it is clear enough that they relate to causes of action that are alleged to have arisen before the appellants' bankruptcy.  Any such claims they may have had against the respondent were assets of their respective estates at the time the sequestration orders were made, and accordingly those claims (if they existed) automatically vested in the Official Trustee and remain vested in the Official Trustee. The master, with respect, correctly concluded that the proceedings were incompetent and that judgment should be entered for the respondent.

12. None of the grounds of appeal has any reasonable prospect of succeeding and there is nothing to suggest that any arguable grounds of appeal exist.  The appeal must be dismissed.