Worrell v Westpac Banking Corporation

[1994] FCA 472

No. QG 29 of 1991

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BETWEEN:  J m L

Applicant

AND :  C BANKING CORPORATION

Respondent

MINUTES OF ORDEG

Drummond J
14 July, 1994
Brisbane

1.         The applicants be substituted for Mr. Ivor Worrell as applicants in the proceedings commenced by him by amended statement of claim dated 11 November, 1991 and filed 12 November, 1991.

1. The costs of and incidental to the application be costs in the caLse.

nQ.a!E:	Settlement and entry of orders is dealt with in
Order 36 of the Federal Court _Bules.
S)	No. QG 29 of 1991

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BETNEENS

Applicant

AND :  hlESTPAC BANKING CORK!lWW!N

Respondent

Q2LWll:	Drurmnond J
-8	14 July, 1994

ELUSa: Brisbane

REASONS FOR JUDGMENT

This is an application by three former bankrupts, whose bankruptciee were annulled on 7 October, 1992 pursuant to 8. 74(5) the m ~ t c v Act 1966 ICthL ("the Act*), to be mubetituted for their former trustee in bankruptcy, Mt. Worrell, as applicants in proceedings effectively commenced by

W. Worrell against the respondent by amended statement of	claim dated 11 November, 1991. If substitution is ordered,
the result will be the same as if the applicants had
themeelves validly commenced proceedings by that amended etatement of claim: see 0. 6, r. ll(2) the U r a 1 Court
Bulaa.
The respondent submits that that order should not be made. It says instead that an order adding the present applicants as applicants in the proceedings commenced by Mr. Worrell and removing Mr. Worrell from those proceedings should be made. The result of this would be that the applicants would be treated as having commenced proceedings against the respondent on the date of the filing of amended process reflecting the order, adding them as parties: see 0. 6, r.
ll(3) the - .
The respondent would, in such case, have the benefit of much more extensive time bars to the action against it than it would have if substitution were ordered. The respondent ~ubmits that addition is appropriate because an annulment of a bankruptcy under S. 74(5) of the Act only operates to remove the applicant's lack of capacity to sue on the cause of action from the date of a special resolution of creditors that accepted the applicant's proposal for a composition under S. 73 of the Act.
The applicants submit that annulment under S. 74(5) of the Act operates retrospectively, that is to remove their
the date of a sequestration order in October 1990, and for incapacity as bankrupts to sue on the cause of action, from
that reason substitution rather than addition is appropriate.
In v Caseiraatie (unreported, 1 Novher, 1993, Court of
Appeal (Qld)), the President, Fitzgerald J, held that an annulment under S. 74(5) of the Act operated retrospectively to set aside the bankruptcy from the date of a sequestration order and to remove from that same date the former bankrupt's
incapacity to sue on a cause of action that had vested in his trustee upon the making of a sequestration order. His Honour's reasons for reaching this conclusion were:

"It would be consistent with the decision of this Court in u s b a c h e g v =eaor U i c k and CO, (1993) 2 Qd.R. 223 to conclude that, although only annulled 'on' the day of a creditors' special resolution, the annulment was retrospectively effective to annihilate the appellants' bankruptcy and its consequences except as otherwise provided by the Act, notably sub-section 74(6). Prima facie therefore, the appellants were, in law, never bankrupt, and accordingly their cause of action against the respondent remained, in law, vested in them and did not at any time vest in Mr Denby [i.e.,

the trustee of the composition]."

Thomas and Mackenzie JJ gave brief concurring reasons entirely consistent with those of the President. It is highly desirable that there be consistency in the decisions of Australian courts on legislation of general application such as the m ~ t c v Act 1968. Even though I am not bound by this decision, it deals directly with the effect of an annulment under 8. 74(5) of the Act on the former bankrupt's

right to maintain an action commenced by his trustee during

his bankruptcy. I would therefore have to be satisfied that

this decision was manifestly wrong before I would decline to
follow it.

Senior counsel for the respondent sought to demonstrate that this was the case. He pointed out that the decision in W s b a c r n , upon which Fitzgerald J based his conclusions, was a decision not on S. 74(5), but on the different provisions of S. 154 of the Act in the form in which it stood prior to the 1992 amendments. He submitted that since the old S. 154(1) of the Act empowered a court to annul a bankruptcy upon being satisfied that the sequestration order ought never to have been made, it was understandable that such an annulment should be accepted as having full retrospective effect.

There was in contrast no similar justification for giving annulment under S. 74(5) of the Act any retrospective effect. It was brought about by an event; the passing of a special resolution of creditors that occurred during the bankruptcy. Counsel pointed out also that S. 74(5) of the Act expressly declared that upon the happening of that event:

"... the bankruptcy is annulled, by force of this

subsection, on the date on which the special

resolution was passed."

He also referred to sub-sections 74(5A) and (5B) of

the Act. However, sub-section 74(5) of the Act, in fixing the

date on which the annulment occurs as the date of the

resolution of creditors, says nothing in express terms about

what effect such an annulment is to have. Moreover,

Thieeebacher was not a decision as to the effect of annulment

under the old S. 154(l)(a), i.e., where the court concludes that the sequestration order should not have been made. It was instead a decision as to the effective annulment under S. 154(l) (b), i.e., where an event, viz., the payment in full of debts proved in the bankruptcy, occurred after the making of a eequestration order, the validity of which stands unchallenged: at p. 225. In their joint judgment, Pincus JA and White J did not draw any distinction between the effective annulment under old a. 154(l)(a) and an annulment under old 8. 154(1)(b). After a review of the authorities that have all held that the effect of an annulment is retrospective, their Honours concluded at p. 229:

"The effect of annulment has been considered in a number of decisions of the Federal Court. Of these,

Oatea (1987) 88 A.T.C. 4038 at 4040 and & Fitzae- (1988) 99 A.L.R. 189 which followed it unequivocally treat annulment as having retroactive effect ... The former bankrupt is, at least in general terms, treated as never having been made bankrupt; that is the effect of annulment."

There is nothing in messb- which provides any

support for the proposition that annulment operates retrospectively where the proprietary of the making of the sequeetration order is attacked, and prospectively where annulment is justified by reason of an event occurring after sequestration. There is no ground in my view for	differentiating between the consequences of annulment in these
two situations. It follows that there is no warrant for
giving to an annulment under a. 74(5) of the Act, which, like an annulment under old s. 154(l)(b) and new 6. 153B, is founded on events occurring after the commencement of an unchallenged eequestration order, the limited effect.

I observe that in BB Oates: Ex Darte De~uty

oner of T m (1987) 17 F.C.R. 402, Sheppard J

expressly held at p. 405 that old 8. 154(l)(a) had the same

operative effect as old s. 154(l)(b). In (1993) 42

F.C.R. 72, I reached the same conclusion as to the effect of the new ss. 153A and 153B. I said at 76-77:

"Section 153A(1) identifies the date on which an annulment under that section occurs, something for which it is unnecessary to provide, in relation to annulments under S. 153B. But whether the annulment is under 8. 153A or 153B, the effect of the annulment and, in particular, whether it operates ab initio or only prospectively, is not dealt with by either provision. The reasoning in v

ssioner of Taxat- (supra) is applicable to

the new provisions. The new S. 154 operates to protect certain transactions that have taken place prior to the making of an order annulling a bankruptcy, irrespective of whether the order is made under S. 153A or 153B. There can be no difference in the consequence that follows whether annulment is under the former or latter section:

cf. v m s s i o n e r of Taxation at 301-302.

In my view, the effect of annulment under S. 153A and a. 153B will generally be that the bankruptcy is set aside ab initio and the annulled bankruptcy will be treated as never having taken place for any purposes, save those set out in 6. 154 and save in other special situations of the kind referred to in

m v - r e of Taxation at 297."

Far from feeling any doubt about the correctness of the decision in v the decision is, in my respectful opinion, plainly right. I will therefore order that the applicants be substituted for Mr. Worrell as applicants in the proceedings commenced by him by amended statement of claim dated 11 November, 1991 and filed 12 November, 1991.

I certify that the preceding
six pages are a true copy of the
reasons for judgment herein of the

Honourable Mr. Justice Drummond.

Date r 14 July, 1994

Couneel for the applicant:  F.W. Redmond

Solicitors for the applicant:  Whitman & Co.

Couneel for the respondente:	R.N. Chesterman Q.C.
Solicitors for the respondents:	Feez Ruthning
Date of Hearing:	13 July, 1994