Wilerr Enterprises Pty Ltd v Fatharly, Simon Peter and Anor Errichetti Nominees Pty Ltd v Fatharly, Simon Peter and Anor

[1997] FCA 1112

FEDERAL COURT OF AUSTRALIA

BANKRUPTCY - leave to commence and continue proceedings against bankrupt - Supreme Court proceedings already commenced - whether legislation only permits of a grant of leave prior to the commencement of proceedings - interests of other creditors - undertaking as to extent of enforcement of any judgment that may be obtained against bankrupt.

Bankruptcy Act 1966 (Cth), s 58(3)(b)

Re Veghelyi; Smith & Ors v Official Trustee in Bankruptcy (1993) 45 FCR 413 followed
Re McMaster; Ex parte McMaster (1991) 105 ALR 156 considered

WILERR ENTERPRISES PTY LIMITED v SIMON PETER FATHARLY & ANOR
WG 7087 of 1997
AND
ERRICHETTI NOMINEES PTY LIMITED v SIMON PETER FATHARLY & ANOR
WG 7088 of 1997

R D NICHOLSON J
PERTH
11 SEPTEMBER 1997

LIMITED DISTRIBUTION

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY	WG 7087 of 1997

BETWEEN:	WILLER ENTERPRISES PTY LIMITED Applicant
AND:	SIMON PETER FATHARLY (A BANKRUPT) First Respondent
AND:	THE OFFICIAL TRUSTEE IN BANKRUPTCY Second Respondent

AND: WG 7088 of 1997

BETWEEN:	ERRICHETTI NOMINEES PTY LIMITED Applicant
AND:	SIMON PETER FATHARLY (A BANKRUPT) Respondent
AND:	THE OFFICIAL TRUSTEE IN BANKRUPTCY Second Respondent

JUDGE:	R D NICHOLSON J
DATE OF ORDER:	11 SEPTEMBER 1997
WHERE MADE:	PERTH

THE COURT ORDERS THAT:

On the Applicant’s undertaking to the Court that it will only enforce any judgment it may obtain against the first respondent for breach of contract against any professional indemnity policy which may indemnify the first respondent in respect of such judgment

THAT:

1. The Official Trustee in Bankruptcy be added as Second Respondent to these proceedings.

1. The applicant have leave to commence and continue an action in the Supreme Court of Western Australia against the bankrupt for breach of contract in relation to legal advice and representation given to the applicant by the law firm of Fatharly Summers or by the bankrupt in his own right between 1 September 1991 and 30 June 1992.

1. For the purposes of order 2, leave to commence the said proceedings be deemed to have been granted on 3 September 1997.

1. Costs be reserved.

Note:  Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

LIMITED DISTRIBUTION

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY	WG 7087 of 1997

BETWEEN:	WILLER ENTERPRISES PTY LIMITED Applicant
AND:	SIMON PETER FATHARLY (A BANKRUPT) First Respondent

AND: WG 7088 of 1997

BETWEEN:	ERRICHETTI NOMINEES PTY LIMITED Applicant
AND:	SIMON PETER FATHARLY (A BANKRUPT) Respondent
AND:	THE OFFICIAL TRUSTEE IN BANKRUPTCY Second Respondent

JUDGE:	R D NICHOLSON J
DATE:	11 SEPTEMBER 1997
PLACE:	PERTH

REASONS FOR JUDGMENT (EX TEMPORE)

HIS HONOUR: The applicants in these two matters seek the leave of the Court pursuant to s 58(3)(b) of the Bankruptcy Act 1966 (Cth).  Leave is sought in both matters for the applicants to commence and continue an action in the Supreme Court of Western Australia against the respondent (a bankrupt) for breach of contract in relation to legal advice and representation given to the applicant by a law firm, or by the respondent in his own right, between 1 September 1991 and 30 June 1992.  It is the projected claim in contract which gives rise to the need to seek leave.  There is no appearance by the second respondent, who has filed a Notice of Intention to abide by decision in both matters.

In each of the matters the proceedings have in fact already been commenced.  On the face of it this would seem to present a difficulty to applying the sub‑paragraph which reads:

“(3)  Except as provided by this Act, after a debtor has become a bankrupt, it is not competent for a creditor:

...

(b)except with the leave of the Court and on such terms as the Court thinks fit, to commence any legal proceeding in respect of a provable debt or take any fresh step in such a proceeding.”

However, in Re Veghelyi; Smith & Ors v Official Trustee in Bankruptcy (1993) 45 FCR 413, Sweeney J held if the sub-paragraph was to be construed so that it could only permit of a grant of leave prior to the commencement of proceedings, it would be wasteful and undesirable. His Honour said at 417:

“If the Parliament had intended to produce it, it would have said so in plain terms and I do not consider that it has done so.”

He therefore concluded on the proper construction of the sub‑paragraph it was not Parliament’s intention to preclude, in the context of the leave application concerned, an order nunc pro tunc.

In the particular case of Re Vegheli the proceedings had been commenced without knowledge in the plaintiff of the bankrupt state of the defendant.  That distinguishes Re Vegheli from the present circumstances.  However, in my view it does not provide a legitimate point of distinction in principle.  The view reached by Sweeney J was one based on the construction of the statute and had regard to his experience in the bankruptcy jurisdiction.  I have no notice of his view ever having not been accepted or having been overturned.  In my view there is every reason to follow it.  It is a view reached not dependent on the particular circumstances which gave rise to the need for leave in Re Vegheli.

The other matter which the Court must have regard to in an application for leave pursuant to this sub‑paragraph is the interests of creditors.  See, for example, Re McMaster; Ex parte McMaster (1991) 105 ALR 156. Here, however, the application is brought on the basis the applicants undertake to the Court it will only enforce any judgment it may obtain against the bankrupt party for breach of contract against any professional indemnity policy which may indemnify that party in respect of such judgment. That is a situation, therefore, in which the interests of other creditors are not at issue.

It is unnecessary to recite the particular circumstances made apparent by the affidavits relied upon to support the applications.  There is nothing which gives rise to any particular difficulty.  In my opinion, for the reasons I have given, it would be appropriate to make the orders in both matters in the form in which they record the undertaking to which I have referred and are expressed in terms reflecting the fact they will each be orders nunc pro tunc.

I certify that this and the preceding two (2) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice R D NICHOLSON

Associate:

Dated:            24 October 1997

Counsel for the Applicant:	P P McCann
Solicitor for the Applicant:	Majteles & Salmon
Counsel for the Respondent:	No appearance
Solicitor for the Respondent:	None on record
Date of Hearing:	11 September 1997
Date of Judgment:	11 September 1997