Suncorp Metway Insurance Ltd; v Piccone (No.2)
[2005] FMCA 648
•16 May 2005
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| SUNCORP METWAY INSURANCE LTD v PICCONE (No.2) | [2005] FMCA 648 |
| BANKRUPTCY – Application seeking leave pursuant to section 58(3) of the Bankruptcy Act to take further step in Supreme Court proceedings and continue with application for a set-off in personal injuries claim brought by the bankrupt against them as the compulsory third party insurer – consideration of section 58(3) in the general scheme of the bankruptcy legislation considered – court satisfied that it is fair and equitable that the applicant be entitled to orders sought. Bankruptcy Act1966 (Cth), ss.55(4), 58, 60, 82, 86, 116(2) Cummings v Claremont Petroleum NL (1996) 185 CLR 124 Re McMaster (1991) 105 ALR 156 |
| Applicant: | SUNCORP METWAY INSURANCE LIMITED (ABN 83 075 695 966) |
| Respondent: | MARK PICCONE |
| File No: | BRG46 of 2005 |
| Delivered on: | 16 May 2005 |
| Delivered at: | Brisbane |
| Hearing date: | 22 April 2005 |
| Judgment of: | Rimmer FM |
REPRESENTATION
| Counsel for the Applicant: | Mr P Bickford |
| Solicitors for the Applicant: | Walsh Halligan Douglas |
| Counsel for the Respondent: | Mr M Taylor |
| Solicitors for the Respondent: | McInnes Wilson Lawyers |
ORDERS
That pursuant to s.58(3) of the Bankruptcy Act 1966 that the applicant Suncorp Metway Insurance Limited have leave to take a fresh step in the Supreme Court proceedings styled Mark Piccone Plaintiff and Michaela Joan Dowling First Defendant and Suncorp Metway Insurance Limited Second Defendant, Matter No. S4597 of 2001.
That the respondent pay the applicants costs in these proceedings. Such costs to be recoverable in the bankruptcy. Such costs to be agreed or taxed in accordance with the Federal Court Rules.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT BRISBANE |
BRG46 of 2005
| SUNCORP METWAY INSURANCE LIMITED (ABN 83 075 695 966) |
Applicant
And
| MARK PICCONE |
Respondent
REASONS FOR JUDGMENT
Proceedings
The Applicant, Suncorp Metway Insurance Limited, seeks leave of this Court pursuant to section 58(3) of the Bankruptcy Act to take a further step in Supreme Court proceedings and continue with their application for a set off in personal injuries claim brought by the bankrupt, Mark Piccone against them as the compulsory third party insurers.
The Respondent opposes the application.
Background
On 12 February 1993 the Respondent, Mark Piccone, was the driver of a vehicle which collided with another vehicle at Old Cleveland Road, Camp Hill. The statutory predecessor to the Applicant was the licensed insurer of Mr Piccone’s vehicle.
The Respondent was made bankrupt on his own petition on 14 September 1993.
A Mr Robert Ward brought proceedings in the Supreme Court of Queensland against the Applicant, Suncorp (as licensed insurer of Mr Piconne’s vehicle) seeking personal injuries and other losses suffered by him in the motor vehicle accident of February 1993. Those proceedings were compromised on 9 October 2000 by payment by Suncorp to Mr Ward of $367,500.00 for damages and $42,500.00 for costs.
On 20 May 2000, Mr Piccone was involved in a further motor vehicle accident when his stationery vehicle was struck by a vehicle driven by a Ms Michaela Dowling. Suncorp was the licensed insurer of Ms Dowling’s vehicle.
On 2 February 2001, Mr Piccone commenced proceedings in the Supreme Court of Queensland against Ms Dowling (as the insured person) and Suncorp (as the insurer) seeking damages for personal injury and other losses. By virtue of section 552 of the Motor Vehicle Insurance Act, such a claim must be brought against the insured person and the insurer however any judgment must be given against the insurer and not the insured person.
In his Statement of Loss and Damages dated 27 November 2001 in the personal injuries action, the Respondent claims total damages of $428,018.50 plus interest and costs.
On 19 March 2002 Suncorp wrote to Mr Piccone advising him of the Settlement of Claim of Mr Ward and of the fact that Suncorp intended to recover the damages of $367,500.00.
On 25 June 2002, Suncorp filed an Amended Defence and counterclaim in the proceedings brought by Mr Piccone in the Supreme Court. In that counterclaim, Suncorp alleged as follows:
a)That at the time of the collision in which Mr Ward was injured, Mr Piccone was under the influence of intoxicating liquor;
b)That the collision was caused by the negligence of Mr Piccone;
c)That Mr Ward was injured and suffered loss and damage;
d)That Mr Ward commenced proceedings that were compromised by Suncorp by the payment of $367,500.00;
e)That the driving of Mr Piccone whilst under the influence of intoxicating liquor or drug contributed in a material degree to the circumstances in which Suncorp agreed to pay the settlement sum to Mr Ward;
f)That Mr Piccone contravened Regulation 13(2)(a) of the Motor Vehicle Insurance Regulations (1968); and
g)That Suncorp was entitled to recover the sum of $367,500.00 from Mr Piccone pursuant to Regulation 17 of the Motor Vehicle Insurance Regulations.
In his answer to the counterclaim Mr Piccone filed on 4 July 2002, he relied on the following:
a)Denied he was under the influence of liquor;
b)Denied that he had been negligent and blamed the collision on an unidentified vehicle;
c)Denied the fact of Mr Ward having been injured;
d)Alleged that if Mr Ward was injured and suffered loss that such was occasioned by his trying to enter the BMW motor vehicle whilst it was on fire;
e)Did not admit the fact, and compromise of Mr Ward’s proceedings;
f)Denied any liability to pay Suncorp;
g)Asserted that Suncorp’s claim was:
i)Statute barred; and
ii)Extinguished by virtue of Mr Piccone’s earlier bankruptcy on 14 September, 1993.
A debtor’s petition was presented by Mr Piccone on 16 October 2002. It was accepted that day by Insolvency and Trustee Service Australia under section 55(4) of the Bankruptcy Act.
The claim which is sought to be set-off relates to the above proceedings involving Mr Ward. The applicant says that the money is owing to it as a debt by Mr Piccone pursuant to Regulation 17 of the Motor Vehicle Insurance Regulations (1968). Suncorp, who is the compulsory third party insurer in both personal injuries matters, have paid a substantial sum of damages in the first proceedings to Mr Ward on behalf of Mr Piccone, and they claim in circumstances where the accident was as a direct result of his negligent conduct for which a criminal court has sentenced Mr Piccone to serve a term of imprisonment for dangerous driving. As the third party compulsory insurer for Ms Dowling, they now have a claim against them made by Mr Piccone for damages for personal injuries whereby they face the prospect of paying a substantial award of damages to Mr Piccone. They wish to be able to proceed with the rightful claim of setoff in those proceedings which has been impacted upon by the fact that Mr Piccone has become bankrupt. It is for this claim that they seek the courts leave under section 58(3) of the Bankruptcy Act.
The respondent argues that in effect, what is sought by the applicants is, as a debtor in a bankruptcy, to obtain a right which is not available to other creditors of the bankrupt, and that is to in effect have their debt dealt with by means of diminishing his personal injuries claim which is not available as divisible property for the benefit of all Mr Piccone’s creditors by virtue of section 116(2) of the Act.
Section 116(2) (g) of the Act provides that included in the property which is not divisible amongst the creditors is property obtained
“ (i) For personal injury or wrong done to the bankrupt;
(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;”
Mr Piccone argues that he is entitled to continue his cause of action for damages in his own name without the approval of his trustee by virtue of section 60(4)(a) of the Act and he is also entitled to recover and retain any damages he may receive in the cause of action that he now has in the Supreme court.
The Law
This matter involves the consideration by the Court of a point of law and application of legal principles which is rather unique as both counsel for the Applicant and the Respondent have pointed out in their submissions. The Respondent’s counsel raised with me at the commencement of the proceedings whether given that it involved a novel and important consideration of the legal principles the case should be referred to the Full Court of the Federal Court as a case stated for determination. However as both parties were represented by Counsel and ready to proceed with the hearing, I determined that the matter should be dealt with by me and if appropriate one or other of the parties could then appeal my decision. It appears clear that because of the importance of the outcome to each party that an appeal would be likely to eventuate. I am of the view that this is the proper way for this court to deal with the matter.
Section 58(3) of the Act states:
(3) Except as provided by this Act, after a debtor has become a bankrupt, it is not competent for a creditor:
(a) to enforce a remedy against the person or the property of the bankrupt in respect of a provable debt; or
(b) except with the leave of the Court, and on such terms as the Court things fit, to commence any legal proceedings in respect of a provable debt or take any fresh step in such a proceeding.
Section 82 of the Act deals with debts provable in the bankruptcy and states:
“Subject to this division, all debts and liabilities, present or future, certain or contingent, to which a bankrupt was subject at the date of the bankruptcy, or to which he or she may become subject before his or her discharge by reason of an obligation incurred before the date of the bankruptcy, are provable in his or her bankruptcy.
Section 116 of the Act deals with property divisible amongst the creditors and states:
“s116(1) Subject of 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…is property divisible amongst the creditors of the bankrupt;
s116(2) subsection 1 does not extend to the following property:
(g) any right of the bankrupt to recover damages or compensation;
(i) for personal injury or wrong done to the bankrupt, the spouse of the bankrupt or member of the family of the bankrupt…and any damages or compensation recovered by the bankrupt (whether before or after he or she becomes a bankrupt, in respect of such injury or wrong or the death of such a person).”
There is no doubt that this amount owed by Mr Piccone to Suncorp is a provable debt. The debt due and owing to Suncorp arises under Regulation 17 of the Motor Vehicle Insurance Regulations. That regulation determines that the amount that was claimed by Suncorp against the Respondent was recoverable by way of action as a debt due and owing but unpaid. Clearly the Applicant was then pursuing recovery of that debt in the counter claim filed by them. This had been commenced in June 2002 and that was the case at the time of presentation of the debtors petition by the Respondent on the 16 October 2002. Therefore it was a debt due and owing by Mr Piccone when he presented his petition.
Regulation 17 of the Motor Vehicle Insurance Regulations 1968 provides as follows:
“Liability of Insurer
…
If in such a case the insurer pays ant sum by way of settlement of proceedings or to satisfy any judgment or order made or entered against him, then he may, by way of action in any Court of competent jurisdiction, recover that sum as a debt due and owing but unpaid from the insured person whose default constitutes the circumstances by reason whereof the insurer, but for this regulation have avoided his liability under the contract of insurance but only if the default is such that the Court in which the proceedings for such recovery is taken is satisfied that it contributed in a material degree to the circumstances in which the insurer agreed to pay or other wise become liable to pay that sum.
Regulation 18 deals with the rights of the insurer to enforce judgment.
Rights of Insurer to enforce Judgment
“An insurer who has paid any sum pursuant to a contract of insurance or these regulations, on behalf of an insured person may use the name of that person in any proceedings to enforce, for the benefit of the insurer, any judgment or order made in connection with the payment of that sum or cost in relation thereto and, upon such payment shall be thereby subrogated to the rights of the insured person against all of other persons who may be liable in law to the insured person in respect of the claim in question”.
It is pursuant to these regulations that Suncorp seeks to set-off the amount which it has paid to Mr Ward as personal injuries for the insured, Mr Piccone against the damages it may be required to pay to Mr Piccone on behalf of another insured person Ms Dowling.
The place of section 58(3) of the Act in the general scheme of the bankruptcy legislation is explained by the High Court in the decision of Cummings v Claremont Petroleum NL (1996) 185 CLR 124. This was considered by the Chief Justice in the decision recent of Gertig v Davies & Anor (2003) 85 SASR 226 where at [15] – [16] stated:
“[15] Section 58(1) of the Act vests the divisible property of the bankrupt in a trustee, and s58(3) of the Act protect a bankrupt and the property of the bankrupt against the enforcement of remedies and enables the court to control proceedings in respect of a provable debt.
[16] The part played by s58(3) is to prevent a creditor from obtaining an advantage over other creditors (by enforcing remedies against personal property) and to prevent the wasteful dissipation of funds on legal proceedings…To the extent that s58(3) protects property not divisible among creditors …(see s116(2) of the Act) the purpose appears to preserve to the bankrupt the modest level of resources to enable to make a living and maintain himself or herself and any dependants, and also to protect certain favoured kinds of savings (such as life insurance policies) and certain other property such as the fruits of a claim for damages for personal injuries….Assets acquired with the proceeds of damages claims are also excluded from the property divisible amongst creditors.”
Later in judgment the Chief Justice goes on to say at paragraphs [18] – [20] as follows:
“[18] If Mr Gertig's claim is successful, Mr Davies' award of damages for personal injuries will certainly be reduced and probably will be eliminated. An asset which Parliament has seen fit to withhold from the creditors will be diminished or lost. The asset will go in reduction of a provable claim by a creditor.
[19] However, the statutory protection of the damages operates only in relation to creditors and possible debts. As far as I can tell, the damages are available to satisfy a debt incurred by the bankrupt after his bankruptcy, but not, of course, if he is bankrupted a second time.
[20] If Mr Gertig's claim succeeds the creditors generally will benefit, to the extent that his claim is no longer a claim against property of Mr Davies that vests in the trustee. While Mr Gertig will secure a better outcome than other creditors, that will not be at the expense of other creditors because they have no right of access to the asset represented by the award of damages.”
His honour went on to consider how a set-off operates at paragraphs [27 – [31] where he says:
“How a set-off operates
27. I agree with the Judge below that a set-off is not effective or operative until the Court so orders. The Court has a discretion in that respect. In that sense, a set-off operates procedurally. But to say that is to say no more than the set-off is not self-executing.
28. The sequence of events will often be, as happened here, that an order is made that judgment be entered for a party for a stated amount, as a result of the Court's decision on a claim. This will be followed by orders as to costs, often made when the order is made that judgment be entered, but sometimes made later. Orders as to the setting-off of costs against judgment would usually be made when the orders for costs are made, but not necessarily. It is conceivable, although unlikely, that if the liability to pay costs and the amount of costs payable was known when the Court directed that judgment be entered on the claim, there might only ever be a single judgment for an amount that reflects the monetary outcome of the direction that costs be set-off against the judgment. But even then that outcome would depend on the Court first directing that there be a set-off. In a case in which it is ordered that costs be set-off against an amount for which judgment has been directed to be entered, presumably that direction would be recalled and a fresh direction or order would be made, reflecting the impact of the decision to order a set-off.
29. This serves to emphasise the procedural nature of a set-off. However, to my mind it also emphasises that the process is one by which, in the case of a money claim, the Court determines for whom judgment will be entered (in the sense of an enforceable judgment) and for how much. In that sense there is a substantive aspect to the entitlement to a set-off, and to the ordering of a set-off.
30. It is not easy to classify a right of set-off as either substantive or procedural, as Meagher Gummow and Lehane acknowledge at 825 and at 818. They are there referring to an equitable set-off. Set-off in bankruptcy under s 86 of the Act has been said to have a substantive effect because if there is a balance payable to the trustee, only that balance of the amount owing is payable: McIntyre v Gye and Perks (1990) 22 FCR 260 at 270 Gummow and von Doussa JJ. In my view similar reasoning applies to a set-off in exercise of the Court's inherent power. Such a set-off appears to operate in the same manner. See also Derham (above) at 57, where that author expresses a slightly different view in relation to an equitable set-off.
31. I do not need to resolve this controversy about the nature of set-offs. The point that is relevant is that the entitlement to a set-off of costs against damages recoverable by judgment can operate to extinguish or reduce the entitlement under the judgment against which the costs are set-off, although this can occur only after and consequent upon an order by the Court. The Court can control the situation until it makes a decision on an application for a set-off by staying enforcement of the judgment on the claim, if it has directed that judgment be entered. To that extent a set-off has a substantive effect. It operates before the Court finally determines whether a judgment will be entered or enforced and for how much.”
In paragraphs [32 – [66] his Honour then goes on to consider the effect of s58(3) of the Act and says:
Effect of s 58(3)
32. I accept Mr McNamara's submission that after Mr Davies' bankruptcy, Mr Gertig continued to have a claim against Mr Davies which could be the subject of a set-off under r 101.01(1)(c). If the Judge intended to decide otherwise (I am not sure that he did) I respectfully disagree.
33. Although it is convenient to speak of a debt provable in bankruptcy as merging in the bankruptcy, or as converted into a right to prove in the bankruptcy, the amount owing by the bankrupt can still be described as a debt, and is so referred to in the Act: Clyne v Deputy Commissioner of Taxation (1984) 154 CLR 579 at 594. This is so, even though the bankrupt is no longer obliged to pay the debt, and is disabled from doing so. In my view the supervening bankruptcy does not, of itself, produce the result that Mr Gertig no longer has an entitlement to a debt that is capable of being set-off against Mr Davies' entitlement to damages.
34. Will the making of an order that Mr Davies' liability to pay costs to Mr Gertig be set-off against Mr Gertig's liability under the direction that judgment be entered for damages, amount to enforcing a "remedy against ... the property of the bankrupt in respect of a provable debt"?
35. Mr McNamara submits that to make the order is to do no more than to recognise a "defensive right or entitlement" in Mr Gertig. He submits that the right asserted is defensive and not remedial. It is a shield, not a sword. The right can never result in an order for the payment of money to Mr Gertig, or in anything that can be enforced in his favour. It can only diminish or eliminate the entitlement of Mr Davies to an order against Mr Gertig. On that basis he submits that what is being enforced is not a remedy.
36. In my view that is too narrow an approach to the meaning of the word "remedy", at least in this context. The term "remedy" is well able to be read as embracing an order for a set-off, however precisely one may analyse the nature of such an order.
37. However, in my opinion the making of an order that costs be set-off against damages is not the enforcement of a remedy against the property of Mr Davies. It may be a remedy, but it is not a remedy against property. In my view the making of the order sought is a step in the process of determining whether an enforceable judgment will be entered in favour of Mr Davies, and if so for what amount. The process of determining whether or not a set-off should be ordered is not the enforcement of a remedy against property of Mr Davies, but a process of reconciling or adjusting mutual claims as between Mr Davies and Mr Gertig arising out of the proceedings brought by Mr Davies. As I have said, the Court is determining whether an enforceable judgment will be entered in favour of Mr Davies, and if so for what amount. It does not seem to me to be accurate to call that a process of enforcing a remedy against property of Mr Davies, the property being the damages that the Court has determined are recoverable by him.
38. In other words, in my view the focus should be on the scope of the concept of a remedy against property of the bankrupt, rather than on the scope of the concept of a remedy as such.
39 I recognise that the order for a set-off is sought after the Court has decided that Mr Davies is entitled to a judgment for damages, and after the Court has determined that Mr Gertig is entitled to an order for costs. But the sequence in which the events occur does not alter the substance of the process in which the Court is engaging. And, as I have already said, in substance the Court has yet to determine whether or not an enforceable judgment will be entered for Mr Davies, and if so for what amount. In other words, the Court has not yet determined what amount is payable as between Mr Davies and Mr Gertig, although it has determined that on the one side there is an entitlement to damages in a specified amount, and on the other side an entitlement to costs in an amount yet to be determined and specified.
40. I gain some slight support for this view from the reasoning of Lockhart J in Taylor v Secretary, Department of Social Security (1988) 79 ALR 327. In that case it was determined that Ms Taylor had been overpaid a widow's pension, and that the overpayment would be recovered by deductions from continuing payments of her pension. She later became bankrupt. The issue on appeal was whether the fact that she was bankrupt prevented the deduction from her pension of amounts representing the overpayments. Much of the reasoning of the Full Court of the Federal Court was concerned with provisions of the Social Security Act. However, one of the submissions advanced was that s 58(3) of the Act applied, and that the making of the deduction was the enforcement of a remedy against the property of Ms Taylor. Some of the deductions were made before the expression "the property of the bankrupt" had been amended to include property of the bankrupt other than property divisible among creditors, for the purposes of s 58(3) and (4) of the Act. But some of the deductions were made after that amendment. And so the issue that arises in this case arose in that case.
41. In part the reasoning of Lockhart J (at 340) was that the deduction was made pursuant to a statutory command in the Social Security Act. But Lockhart J also reasoned (at 341) that the making of the deduction was no more than an administrative adjustment, and was not an enforcement of a remedy against the property of Ms Taylor. On the other hand, Beaumont J appears to have rested his decision in favour of the Commonwealth entirely on the provisions of the Social Security Act, and to have regarded the position of the Commonwealth as analogous to that of a secured creditor. Wilcox J agreed with each of them.
42. In Fraser v Deputy Commissioner of Taxation (1996) 138 ALR 689; 69 FCR 99 the Court considered the application of s 58(3) of the Act to an application made by the Commissioner under the Family Law Act for the setting aside of an under made under that Act for the transfer to a woman of property in which her husband, later bankrupted, had an interest. (The way in which that interest arose does not matter.) The Court held that the making of the application was a legal proceeding for the purposes of s 58(3)(b) but was not the enforcement of a remedy for the purposes of s 58(3)(a). At ALR 699, FCR 111 Beaumont J said that an obvious example of the enforcement of a remedy against the property of a bankrupt would be "to levy execution against the lands or goods of the bankrupt." He said that the words "enforcement" of a "remedy" should be "interpreted as having their settled meaning." He took the view that the "absolute bar" imposed by s 58(3)(a) should not be read too widely, as I understand him. I acknowledge the force of the point he makes, but am cautious about accepting the view that s 58(3)(a) is limited to traditional forms of execution. However, his reasons were agreed in by the other two members of the Court, and the decision is one which this Court should follow.
43. A point that may be made in support of his view is that Parliament has not chosen words apt to embrace any means at all of obtaining payment of a provable debt, but has chosen to use an expression with a limited reach and which, at least in its core area, clearly does refer to traditional forms of execution.
44. I do not treat this decision as determining the issue, because it is not clear that Beaumont J meant to hold that the provision can only apply to traditional forms of execution. My impression is that what he meant was, as he said, that such a thing was an "obvious example" of the enforcement of a remedy, without necessarily being the only thing that would fall within s 58(3)(a). Nevertheless, this decision does support the view that I favour.
45 I have not been able to find any other decisions in point, nor did counsel.
46. My conclusion that the making of an order for a set-off is not the enforcement of a remedy against the property of Mr Davies is, I consider, supported by the fact that to so decide does not run counter to the policy or purposes behind s 58 of the Act. The Judge said that s 58(3) expresses a legislative intention to confine provable creditors to their right of proof, and that to allow a set-off in the present case would be to circumvent that intention.
47. It is true that creditors of the bankrupt with claims provable in bankruptcy are given a right to prove in the bankruptcy, and are subjected to restrictions on their ability to enforce their debts in the usual way. Section 58 in particular is central to that part of the legislative strategy. Nor is s 58(3) to be interpreted narrowly. To the contrary, it should be interpreted in a manner that reflects the statutory policy referred to. But in the end, the issue is the extent of the prohibition created by s 58(3). The provision is the legislative expression of the intention to confine creditors to their right to prove, and the extent to which they are confined is to be measured by the scope of that provision. Other provisions of the Act, such as the statutory provision for a set-off, make it clear that the Act does not in all circumstances confine creditors to their right to prove.
48. Mr Davies' claim for damages does not vest in his trustee. The proceeds of his claim for damages are not divisible among the creditors in his bankruptcy. In that sense the entitlement to damages is protected from his creditors. But s 116(2)(g) of the Act does no more than provide that the damages are not property divisible among the creditors. There is no legislative provision to the effect that the damages are to be protected in any other way.
49 Mr Gertig's entitlement to costs arises from the action in which Mr Davies claimed damages, and is based on the events that occurred in that action. If his entitlement to costs was not a provable debt, there would be nothing to prevent Mr Davies from obtaining the order for set-off that he now seeks. That points up the fact that the damages are not "protected property", except in the sense that they are not divisible among the creditors in the bankruptcy. Mr Gertig makes his application to the Court for an order for set-off not in his capacity as a creditor of the bankrupt, but in his capacity as a defendant in the action, and with reference to events arising in the course of the action.
50. If an order for set-off is made, the making of that order reflects events that have occurred in the course of an action between Mr Davies and Mr Gertig. My view is that if viewed this way, to allow a set-off is not to circumvent the statutory intention. The set-off arises from the action in this Court, not from the fact that Mr Gertig is a creditor of Mr Davies.
51. There are some other points that may be made here. If a set-off is allowed, as I noted earlier, Mr Gertig will be in a better position than other creditors. On the other hand, that is not achieved at the expense of other creditors. Indeed, they all benefit because his claim will no longer be a claim for a share in the assets held by the trustee.
52. For those reasons, my view is that my interpretation of s 58(3)(a) of the Act does not produce a result that is contrary to the statutory scheme, and to the extent that that supports the conclusion that I have reached, I rely upon it.
53. I therefore conclude that s 58(3)(a) does not prevent the Court from making the order that Mr Gertig seeks.
54. I turn now to s 58(3)(b).
55. I consider that the expression "legal proceeding" has its usual meaning, and is not limited to proceedings under the Act, by virtue of the definition in s 5 of the Act: see Green v Schneller [2001] NSWSC 897; (2001) 189 ALR 464 at [9] Barrett J.
56. The proceedings by Mr Davies when instituted were not a "legal proceeding in respect of a provable debt."
57. Once Mr Gertig obtained an order for costs, can it be said that those proceedings became a legal proceeding in respect of a provable debt? In Fraser at ALR 699-703, FCR 112-115 Beaumont J explained why this provision should be given a relatively liberal or wide meaning. He proceeded on the basis that the words "in respect of" should be given:
"... a wide meaning in order to promote the policy of the Act, which was to assist in ensuring that the assets of a bankrupt were distributed in the interests of creditors generally and to prevent one creditor obtaining an undue advantage over the others ...".
See also Green v Schneller at [14]-[15].
58. I begin by making the point that the action by Mr Davies could be said to be in respect of a provable debt and also to be a proceeding for damages. I see no reason why it should be necessary to characterise the action exclusively as one thing or the other.
59. What then is the nexus between the proceedings and the costs order, which gives rise to the provable debt? The costs order was made in the proceedings, and is based on events that occurred in those proceedings. The amount of the provable debt will be determined in those proceedings, albeit by a determination of a subsidiary matter after judgment. I consider that the action can now be said to be a legal proceeding in respect of a provable debt, because of the relationship between the action and the provable debt.
60. Moreover, the making of the application for an order for costs can also be regarded as the commencement of a legal proceeding in respect of a provable debt. Once again, I see no reason why the concept of a "legal proceeding" should be read as limited to a separate action or proceeding such as the action for damages. There is no reason why the expression cannot apply to a distinct step in an existing action, such as an application for costs. That application can be called a "legal proceeding".
61. But the action itself, and the application for costs, were each commenced before Mr Davies became bankrupt. Accordingly, they are not caught by the prohibition against the commencement of "any legal proceeding."
62. Accordingly, the issue is whether the hearing before the Judge, at which Mr Gertig pursued his application for an order for set-off, was the taking of a fresh step in the relevant legal proceeding.
63. As the Judge pointed out, the application for the order for a set-off was also made before the bankruptcy commenced. It was made orally by counsel for Mr Gertig on 28 August 2001. But in my view the "fresh step" of claiming an order for a set-off was not completed on the day on which the application was made orally by counsel. That step was still being taken when the Judge heard submissions on a later day. I would not read the reference to taking "any fresh step" as referring only to the oral making of the application. I would read it as extending to the hearing of the application and to the making of a decision on the application. Although the fresh step began before Mr Davies became bankrupt, it continued after he became bankrupt, and so in my opinion was still taken (in that sense) after he became bankrupt.
64. If I am wrong in that, and the making of the application was itself the relevant fresh step, I would nevertheless hold that the pronouncement of the order for a set-off is itself a fresh step. In other words, I would distinguish between the application and the order. I appreciate that the order is made by the Court, while the application was made by counsel for Mr Gertig. But an order pronounced on an application made by Mr Gertig remains, in my opinion, a step in the proceeding taken by Mr Gertig. In other words, I would regard an order made on application by a party as a step in the proceedings by that party.
65. In reaching these conclusions I am influenced by the consideration that s 58(3)(b) should be read liberally, its purpose being to give the Federal Court the ability to control proceedings in respect of a provable debt, in the interests of creditors generally.
66. For those reasons in my opinion it was open to the Judge to make the order for a set-off, but only if Mr Gertig obtained leave from the Federal Court to take the "fresh step" of applying for the order, or of having the order made on his application.
This decision requires close attention. This was a matter involving the question of whether an award of costs for the defendant was a matter in which leave should have been granted by the Judge at first instance when he was finally quantifying the damages for personal injuries to be awarded between the plaintiff and the defendant and in circumstances where between the determination of liability and the decision to determine whether the defendant’s costs should be set-off against the amount awarded for damages, the plaintiff declared himself bankrupt on a debtor’s petition. It required similar considerations to those required in this matter and it of useful application in these proceedings.
Applicant’s submissions
The applicant argues that Gertig’s case is authority for a number of propositions but importantly including the following:
a)the making of an order that costs (or in this case a debt) be set-off against damages is not the enforcement of a remedy against the property of the bankrupt:
b)the making of such an order is a step in the process of determining whether an enforceable judgment will be entered in favour of a bankrupt and, if so, for what amount; and
c)the process of determining whether a set-off should be ordered is not the enforcement of a remedy against the property of a bankrupt or a process of reconciling of adjusting mutual claims as between a bankrupt and another person who as a defendant in proceedings commenced on behalf of a bankrupt.”
It is argued by the applicant that this is not an action to recover the debt by Suncorp but part of the overall determination by the Supreme Court to determine the amount that Suncorp should in fact pay to Mr Piccone by way of damages for his personal injuries. It is further submitted that in the civil matter the plaintiff has no right to get money from the applicant until he has been awarded damages by the Supreme court and that the set-off that is claimed is simply a determination of the rights of both parties in the court determining the amount which the applicant may have to pay in the award of damages once all of the rights of the parties have been considered.
It is further submitted that as was important to the courts determination in Gertig’s case, this is in no way providing the applicant with any sort of preference in the bankruptcy as clearly the award of damages once assessed is not divisible property available to creditors in the bankruptcy. It is not a remedy claimed by the applicant against the property of the bankrupt and it most definitely just the process of reconciling or adjusting the claims. In this matter it is submitted that there is no suggestion that the counterclaim of the applicant is greater that claim made by Mr Piccone for damages. His claim is for the sum of $428,018.50 and he said in his evidence in chief in earlier proceedings before me in this court that he believes that he is entitled to this amount by way of compensation for his injuries. The amount of the applicant’s counter claim is $365,000.
It is submitted by the applicant that the fact that the right to counter claim arose in different proceedings is irrelevant. It is a permissible and proper claim given the Motor Vehicle Insurance Act and Regulations. The applicant submits that it is only asking for leave to “take a fresh step in already existing proceedings”, it is not asking for leave to institute proceedings.
it is submitted that it is relevant and necessary for the applicant to be permitted to take a fresh step in the Supreme court proceedings because the applicant has good grounds upon which to establish it’s counter claim in that Mr Piccone was driving under the influence of alcohol at the time of the first accident, he was found to have a blood alcohol reading of .169, a high reading and he was sentenced to a term of imprisonment and the sentencing remarks of the Judge hearing the matter are very critical of Mr Piccone.
The Respondent’s submissions
The Respondent guided the Court to section 58(1) of the Bankruptcy Act and stated that this section provides that where a debtor becomes bankrupt, the property of the bankrupt vests with the official trustee.
Section 5 of the Act defines “the property of the bankrupt” as follows:
“The Property of the Bankrupt” in relation to a bankrupt means:
(a)Excepting subsections 58(3) and (4):
(i)The property divisible among the bankrupt’s creditors; and
(ii)Any rights and powers in relation to that property that would have been exercisable by the bankrupt if he or she had not become a bankrupt;
(b)In subsections 58(3) and (4):
(i)The property, rights and powers referred to in paragraph (a) of this definition; and
(ii)Any other property of the bankrupt.”
The Respondent submits that by virtue of section 116 of the Act, the property divisible amongst the creditors does not include the following:
“Section 116(2)(g) any right of the bankrupt to recover damages or compensation:
(i)For person, injury or wrong done to the bankrupt;
(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.”
The Respondent submits he therefore has a right to recover damages in the cause of action in the Supreme Court and also to retain any damages or compensation recovered in that claim.
By virtue of section 60(4)(a), the Respondent states he is entitled to continue in his own name his action for personal injuries without the necessity of approval of his trustee.
The Respondent submits that even if the debt can be established under the Motor Vehicle Insurance Regulations by virtue of section 82 of the Act, it is only provable in the bankruptcy. Section 82 of the Act reads as follows:
“Debts provable in bankruptcy:
Subject to this division, all debts and liabilities, present or future, certain or contingent to which a bankrupt is subject at the date of the bankruptcy, or to which he or she before his or her discharge by reason of an obligation incurred before the date of the bankruptcy are provable in his or her bankruptcy.”
The Respondent submits that had the right to continue an action for damages for personal injuries been vested in the trustee upon the bankruptcy, the Applicant’s right of set-off would have been governed by section 86 of the Act.
By virtue of section 86, the Respondent states a creditor may off-set mutual debts and dealings with a creditor by way of an account of those mutual dealings and the sum due from the debtor to the creditor shall be set-off against the other party. He further states that there is no way could it be that there is a mutual debt or dealing between the Applicant and the Respondent in relation to the personal injuries causes of action as the respective rights of action arose under totally different accidents.
Here, it is submitted, the Applicant seeks the right of set-off of a provable debt in a situation where there is no mutuality (see section 86). That is, it is in a better position by reason of the fact that the personal injuries judgment that the Respondent might receive is not available to the trustee. The Respondent submits that the statutory scheme does not and has never provided for that situation.
The Respondent submits that the policy of the Act insofar as it relates to personal injuries is that the Applicant bankrupt should be able to retain moneys that are paid for him for, amongst other things, the diminution in his amenity and also for the diminution in his ability to earn income.
The Respondent draws the Court’s attention to the policy consideration expressed by Hill J in Re: McMaster, that is, that the debtor is able at some stage to start afresh. The Respondent states that if the Applicant’s submissions are correct, damages that may be obtained for personal injuries for loss of amenity of life outside the three year period become available to the creditor whereas had he been able bodied, the income earned after the three year period is not available to the creditor.
The Respondent goes on to state that, if the Applicant was correct in it’s submissions, the position is then that there is firstly no requirement to prove a mutuality of debt and secondly, damages which may have been obtained by judgment for loss of amenity and loss of income earning capacity well in to the future, become available to a trustee. The Respondent submits that this cannot be correct.
The Respondent, referring to Gertig, states that the set-off is at the discretion of the Court whether the Applicant’s claim is for a set-off at common law or by one of equity.
The Respondent submits that this claim of set-off fails as an equitable set-off by reason of a lack of mutuality and as a common law set-off because the parties are not in the same capacity.
The Respondent submits the Applicant, when relying upon what was said by the Chief Justice in Gertig at paragraphs 37 to 39, fails to take into account the reasoning for off-setting the costs order in Gertig, that being the costs were off-set in the action and not as a creditor and refers the Court specifically to paragraphs 49 to 52.
Even if this Court found that a set-off was available in these circumstances, the Respondent states it would not apply in this case for the following reasons:
a)The situation of a set-off for mutual credits under section 86 requires that the debt firstly has to be ultimately provable: see Re: Hardman ex parte Official Receiver Leng, Rundle & Sloss (1932) 4 ABC 207 (Fed Ct at 212). The Applicant submits that if the Court finds that the alleged debt may be set-off (contrary to the Respondent’s submissions) the same principles would apply and it must be demonstrated that there is a provable debt as a threshold question;
b)The Motor Vehicle Insurance Regulations do not provide assistance as to whether or not the Applicant herein has a claim, apart from the fact that by Regulation 17 it must be shown that the default claimed (the Respondent submits that here that seems to be driving whilst under the influence) contributed in a material degree to the circumstances. It has not been pleaded that driving whilst under the influence contributed in a material degree nor is there any material in which this Court could make any decision on that point.
Relevant findings
In this matter I am of the view that this is a matter where leave should be granted to the applicant as sought. I am satisfied that the decision of Gertig (supra) is not distinguishable simply because of the fact that in this matter the entitlement to claim the set-off and counter claim by the applicants does not arise in the same action in which the claimed damages arises. The applicant is the compulsory third party insurer in both matters and Mr Piccone, the bankrupt, is a party in both matters.
While it is true that the two actions are different causes of action arising from different motor vehicle accidents, the Queensland Motor Vehicle Insurance Act and Regulations provide the legislative basis for the nexus between the proceedings. After considering all of the matters discussed in Gertig’s case I further find that this decision is not distinguishable simply because there is no mutuality as would be required in a claim by the applicants for a set–off under s.86 of the Act.
I find that the granting of leave does not run counter to the policy or purpose behind s.58 of the Act. I adopt the statements made by the Chief Justice in paragraph 48 of Gertig’s case (supra).
It is important in this matter to consider not only the policy behind the bankruptcy provisions but also the policy behind the Queensland Motor Vehicle Insurance Act and Legislation. It is the fact that this legislation ensures that persons who are injured, no matter that a person driving a vehicle is negligent are covered for their injuries by an award of damages paid by the compulsory third party insurer, in this case, the applicant. In that sense the applicant is not an ordinary creditor, simply seeking to recover a debt. They are by virtue of statute and regulations entitled to ensure that their proper liability to pay damages to the bankrupt, Mr Piccone, takes into account that they have covered his loss in earlier proceedings in which he was the person otherwise liable as the first defendant.
The proceedings between the applicant and Mr Piccone will need to be determined. As a part of those proceedings I find it is necessary for the question of the applicants claim to a set off and counter claim should be determined. It will not necessitate separate proceedings and cause costs to escalate unreasonably. It is not a debt recovery action and therefore not an enforcement by a creditor of a debt in the true sens. It is a necessary consideration of the totality of Mr Piccone’s claim against the applicant for the reconciling of the amount of damages that should be paid to him.
I do not accept that the intention of s.58 is to place a third party insurer in the position that the applicant would find themselves if leave is not granted by the Court. If this were the case, it would I find have serious public policy considerations for the wider community who are liable to pay insurance through registration of vehicles and permit the bankrupt to gain an advantage in the assessment of his claim for damages in circumstances whereby the making of this order will not place the applicant in a more advantageous position as opposed to all other creditors.
The damages award, if and when made, will not vest in his Trustee in Bankruptcy. The fruits of Mr Piccone’s damages claim are not divisible amongst other creditors. The only consequence is that if the applicant’s set-off and counter claim is successful, this will reduce the amount of damages ultimately received by the respondent and reduce the amount of the applicant’s provable debt in the bankruptcy. This only will be of benefit to the other creditors. It will support the intention of both the bankruptcy legislation and the motor vehicle insurance legislation of Queensland.
I am satisfied that it is fair and equitable that the applicant, the compulsory third party insurer of both Mr Piccone in the earlier Supreme Court proceedings and the for Ms Dowling in these present Supreme Court proceedings, be entitled to make their counter claim and set off against Mr Piccone. This is a case where the applicant has a clear right to recover the amount of damages which paid for and on behalf of Mr Piccone by virtue of the fact they were his compulsory insurers in the earlier claim. This is particularly so in light of the fact that Mr Piccone has made admissions of liability in that action. It is not for this court to endeavour to assess his evidence about the circumstances of his negligence or otherwise, in these proceedings, however the court is entitled to take that evidence into account in considering the basis of the applicants counter claim and set off and I have done so for that purpose only.
For these reasons I make the orders as set out at the commencement to these reasons for judgment.
I certify that the preceding fifty-nine (59) paragraphs are a true copy of the reasons for judgment of Rimmer FM
Deputy Associate: T.Thomson
Date: 16 May 2005
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