Yap v Bailiff

JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CHAMBERS

LOCATION: PERTH

CITATION: YAP -v- BAILIFF [2006] WADC 119

CORAM: MACKNAY DCJ

HEARD: 29 APRIL 2005 & 3 APRIL 2006

DELIVERED : 10 AUGUST 2006

FILE NO/S: CIV 2889 of 1994

BETWEEN: CHENG SEE YAP
Plaintiff
AND
BAILIFF
Defendant

Catchwords:

Practice and procedure - Western Australia - Effect of bankruptcy on action - Election by trustee - Whether action ought be further stayed or dismissed - Disposition of costs of action

Legislation:

Bankruptcy Act 1966 (Cth), s 60

Result:

Action be dismissed

Plaintiff pay the costs of the application to be taxed; otherwise each party pay their own costs of the action

The sum of $7,500 paid into Court by the plaintiff on 20 August 2004 be paid out to her forthwith

Representation:

Counsel:

Plaintiff: In person
Defendant: Mr S M Murphy

Solicitors:

Plaintiff: Not applicable
Defendant: State Solicitor for Western Australia

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

Anderson v Liddell (1968) 117 CLR 36
Arnoya Holdings Pty Ltd v Metway Leasing Ltd [1999] NSWCA 120
Bride v Peat Marwick Mitchell [1989] WAR 383
Finikiotis v Knight Frank (SA) Pty Ltd [2001] FCA 1733
Pridmore v Magenta Nominees Pty Ltd (1999) 161 ALR 458
Stevens v Young & Ors (1973) 2 NSWLR 750
Temsign Pty Ltd v Biscen Pty Ltd (1998) 20 WAR 47
Voskuilen v Morisset Mega Markets [2005] NSWSC 34

Case(s) also cited:

Bronzel v State Planning Authority (1979) 44 LGRA 34
Granich & Associates v Yap [2004] FCA 1567
Granich Partners v Yap [2003] WASC 206
Minister for Immigration and Ethnic Affairs; ex parte Lai Qin (1997) 186 CLR 622
Noye v Gwilliam [2002] WASC 227
Pinto v Kinkela [2003] WASC 126
State of Queensland v Beames [2004] 2 Qd R 99
Stobbart v Mocnaj (1996) 16 WAR 318
Tsaprazis v Goldcrest Properties Pty Ltd [2000] NSWSC 765

MACKNAY DCJ:

Relevant history

In 1993 the defendant Bailiff sold land belonging to the plaintiff at 449 Canning Highway, Melville.
In so doing the defendant was purporting to act under a Writ of Fieri Facias issued pursuant to a judgment obtained against the plaintiff by other parties.
In 1994 the plaintiff then brought this action, in which she claims the defendant "acted negligently and was thereby in breach of his duties in connection with the sale of the property", and that she suffered loss and damage as a result.
The action has a long history.
That includes the bringing of an application by the defendant in November 1995 for summary judgment, or alternatively an order that the plaintiff provide security for costs.
On 16 May 1996 a judge of the Court made orders that included that:
"The plaintiff do give security for the defendant's costs of the action in the sum of $7,500 by payment of that amount into court, and that in the meantime all further proceedings be stayed."
Although the plaintiff did not make the required payment she endeavoured to take further steps in the action, but was unsuccessful.
On 17 August 2004, a little over eight years after the order was made, the plaintiff paid the sum of $7,500 into court, in purported satisfaction of the order.
The present application, which was filed on behalf of the defendant in September 2004, began as one to strike out the plaintiff's statement of claim, and in "addition or in the alternative", one that the action be dismissed, and that the plaintiff pay the costs thereof.
By the time the matter first came before me in April 2005, as appears from the outline of submissions filed on behalf of the defendant in February 2005, the defendant's application had effectively become one for dismissal of the action and payment of the costs thereof by the plaintiff.
The grounds on which those orders are sought were set out in the application as follows:
"2.The Trustee is deemed to have abandoned these proceedings, by reason of its failure to make an election within 28 days of being notified of these proceedings, pursuant to of section 60(3) of the Bankruptcy Act 1960 (Cth), and
3.The defendant seeks its costs of the action on the basis that the plaintiff's conduct in bringing and pursuing this action is plainly unreasonable and the defendant would most certainly have succeeded at final hearing."
The reference to the "trustee" was apparently intended as a reference to the Official Trustee in Bankruptcy ("the Official Trustee") constituted under the Bankruptcy Act 1966 (Cth) ("the Act").
In that regard it appears from a letter from a representative of the Official Trustee of August 2004 that the plaintiff was the subject of a sequestration order made on 10 December 1998, as a result being declared bankrupt and her property vesting in the Official Trustee.
The effect of that on this action was as described by the Act s 60(2) and (3):
"(2)An action commenced by a person who subsequently becomes a bankrupt is, upon his becoming a bankrupt, stayed until the trustee makes election, in writing, to prosecute or discontinue the action.
(3)If the trustee does not make such an election within 28 days after notice of the action is served upon him by a defendant or other party to the action, he shall be deemed to have abandoned the action."
It appears from the same letter that the Official Trustee was given formal notice of the action on 23 July 2004 by the defendant.
The Official Trustee, it is said, "decided to abandon the…action; but did not communicate an election…by the…due date."
No notice of any discontinuance was filed, it is then said on behalf of the Official Trustee, as the action was "effectively cancelled automatically by the operative nature of s 60(3) of the Act."
The plaintiff had been discharged from bankruptcy on 26 October 2003.
However the communication from the Official Trustee also makes it plain that he did not intend to make any assignment of the action to the plaintiff.
The defendant's present application came on for hearing before Commissioner Stavrianou (as he then was) on 28 February 2005 when it was noted that the plaintiff had made an application in the Federal Court for leave to make an application to set aside the sequestration order, returnable in that court on 4 March 2005.
As a result an adjournment was granted to the plaintiff.
The application was re‑listed before me on 29 April 2005 at which time it was not suggested that any annulment of the sequestration order had occurred or was in prospect.
On that day, after discussion, the application was adjourned sine die, to provide an opportunity for the defendant to give further consideration to a number of issues, including questions as to the effect of abandonment of the action by the trustee, the right to pre‑bankruptcy costs and whether the payment into court ought be returned to the plaintiff, the last having been raised by me.
A further outline of submissions was not lodged by the defendant's solicitors until 25 January 2006, and the matter was then listed for further hearing on 3 April, following which I reserved my decision.
The matters which the application throws up for consideration, and my views as to such, are as follows.

Whether plaintiff has standing

The starting point is the Act, s 58(1)(a), which relevantly provides:
"the property of the bankrupt, not being after – acquired property, vests forthwith in the Official Trustee…"
"Property" is defined by the Act, s 5 as meaning in part "real or personal property of every description…"
The learned authors of McDonald, Henry and Meek "Australian Bankruptcy Law and Practice" cite (par 58.1.10) Pridmore v Magenta Nominees Pty Ltd (1999) 161 ALR 458 where it was said (p 464) that the definition of property is broad "enough to encompass choses in action and thus a right or entitlement to pursue an action or recover damages by suit."
In Bride v Peat Marwick Mitchell [1989] WAR 383 Malcolm CJ (with whom Wallace and Brinsden JJ agreed), said (pp 390‑391):
"Under s 58(1) of the Act 'the property of the bankrupt, not being after‑acquired property, vests forthwith' in the trustee and 'after‑acquired property of the bankrupt vests, as soon as it is acquired'. By s 5 'property' is defined to mean (inter alia) 'personal property of every description' which would include any chose in action or damages for a tort to which the bankrupt was entitled. The expression 'the property of the bankrupt' is relevantly defined by s 5 to mean:
'(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…'
The property which is divisible among the bankrupt's creditors is that referred to in s 116(1) to which reference is already been made. Clearly, such property would include the benefit of any chose in action, including an action for damages for tort. The effect of the statutory provisions is that there is a notional assignment of the chose in action which vests it in the trustee in bankruptcy: Starke J G, Assignment of Choses in Action in Australia (1972) par 105."
The learned Judge later said (p 393):
"In my opinion, it is clear beyond doubt that any chose in action for damages reflecting any diminution of the appellant's bankrupt estate in respect of the cause of action the subject of the appellant's allegations against the respondents vested in the trustee in bankruptcy pursuant to s 58.
In my view, such chose in action remained vested in the trustee, notwithstanding the appellant's subsequent discharge from bankruptcy by an order made on 24 February 1986 pursuant to s 150 of the Act. Thus, s 152(1) of the Act provides that:
'A discharged bankrupt shall, notwithstanding his discharge, give such assistance as the trustee reasonably requires in the realisation and distribution of such of his property as is vested in the trustee.'
Under s 150 it is possible, for example, for a bankrupt to obtain an order of discharge at any time after his public examination has been concluded or after the expiration of a period of 12 months from the commencement of the bankruptcy. Clearly the administration of the bankrupt's estate may well continue for some time after discharge. Hence, property vested in the trustee continues to be so vested even after discharge: Pegler v Dale (supra) and Piwinski v Corporate Trustees of the Diocese of Armidale (supra). It follows that any chose in action which the appellants had against the respondents before they became bankrupt or to which they became entitled after they became bankrupt vested in and remained with the trustee notwithstanding their discharge. For this reason they would have no standing to sue the respondents. In Bride v Australian Bank Ltd and Stewart, (unreported; Federal Court, French J, 26 July 1988) it was held that a claim by the appellants against the bank and Stewart for damages for conspiracy and false, misleading and deceptive conduct and a claim to set aside the sale of the business of Oatmilling of Katanning was a chose in action which had vested in the trustee and remained so vested, notwithstanding discharge. The claim for damages in that case was based upon similar allegations to those made by the appellants in the present case. The decision of French J was affirmed by the Full Court of the Federal Court in Bride v Australian Bank and Stewart; (unreported, Federal Court, Beaumont, Burchett and Lee JJ, 5 December 1988). Thus, both at first instance and on appeal the Federal Court reached the same conclusion on the standing point."
The Court then dismissed the formerly bankrupt plaintiffs' appeal against dismissal of the action by a Master on the "standing point".
Bride was a case in which any claim arose prior to the bankruptcy but the action itself was commenced after the plaintiffs had been discharged from bankruptcy.
Temsign Pty Ltd v Biscen Pty Ltd (1998) 20 WAR 47 did however concern an action where some of the plaintiff's had become bankrupt after the action was commenced.
As a result, at trial the action was, insofar as it concerned those plaintiffs, stayed.
On those plaintiffs purporting to take an assignment of the action from the trustee, but the trustee not electing to proceed with the action, Wheeler J dismissed the same.
The learned Judge held that the failure to make an election resulted in a deemed abandonment of the action.
An abandonment of the action did not result in destruction of the underlying cause of action, the Judge held, and the trustee could bring a fresh action, or alternatively the bankrupts could proceed with it if the bankruptcy was annulled.
Her Honour found that it was open to the Court to either stay or to dismiss the action, but as there was nothing to indicate any early end to the bankruptcy the defendants may suffer substantial prejudice from a stay, so that subject to hearing from the parties, the action might be dismissed, which the head note to the report indicates duly occurred.
The solicitors for the defendant here cite a number of decisions of Courts in other states, and of the Federal Court, in which actions or appeals were dismissed, whilst in other cases a stay was ordered.
In Arnoya Holdings Pty Ltd v Metway Leasing Ltd [1999] NSWCA 120 the NSW Court of Appeal dismissed an appeal whilst in Voskuilen v Morisset Mega Markets [2005] NSWSC 34 Gzel J dismissed an action.
In Finikiotis v Knight Frank (SA) Pty Ltd [2001] FCA 1733 Dowsett J (with whom Gray and Stone JJ agreed) said, on an appeal from the dismissal of an action, in circumstances where the appellant's had subsequently become bankrupt:
"8.Given that neither of the appellants has standing to prosecute the action and, therefore, any appeal in connection with the action, it follows that only the trustee may do so. The trustee has not elected to adopt the action pursuant to subs 60(3). In those circumstances, I consider that the action has been abandoned. Were that the only relevant circumstance, it would be appropriate to dismiss the appeal. However the existence of appeals concerning the validity of the sequestration orders poses special problems. Should the bankruptcies be annulled or set aside, any election pursuant to subs 60(3) would presumably be of no effect. If the present appeal is dismissed, it may be that there would be no mechanism readily available to reinstate it so as to enable the appellants to prosecute it. I consider that it would be better if the appeal were to be stayed until further order so that, in the event that the sequestration orders are set aside for any reason in the future, the action will still be capable of prosecution. This raises the question of how and when these proceedings will ultimately be disposed of. I see no reason why any of the respondents could not apply, once it became clear that there was no prospect of any further successful appeal in connection with the sequestration orders."
It would seem clear from the authorities that the deemed abandonment by a trustee of an action has been regarded by courts in Australia as giving rise to a right in the other party to seek a dismissal of the action, and that there is a discretion in a court to grant such relief.
Alternatively, a stay can be granted.
A number of criteria are suggested by the defendant here as being relevant to the exercise of discretion.
Those include the merits of the action, the degree of any likelihood of annulment of the bankruptcy, the degree of any likelihood that the trustee will assign the cause of action to the former bankrupt, prejudice to the parties interests, whether fresh proceedings are time‑barred, whether the parties are responsible for any delay and whether bankrupt has any prospects of meeting the costs of the other party.
In the present case, and assuming the cause of action to be arguable, I consider that it is appropriate to still dismiss the same.
In that regard there would appear no prospect of any revival, the Official Trustee having elected not to proceed with it, and the plaintiff not having any apparent prospect of obtaining an annulment of her bankruptcy.
Further, there is also no apparent prospect of any assignment of the action to the plaintiff.
In those circumstances, and although a further action by the plaintiff would be likely to be statute‑barred through the effluxion of time, there would seem no point in preserving the action, as the plaintiff will not be able to resume the conduct of it, and presently has no standing, and I consider the action ought therefore be dismissed.

Costs of the action

At the first hearing counsel for the plaintiff said to me that "the rule ordinarily should be that parties bear their own costs because we would say there is a supervening event, not necessarily due to the fault of any party, and so ordinarily the law would be that parties bear their own costs."
In the defendant's initial outline of submissions, the following was also put forward:
"When a supervening event renders the litigation between the parties moot, the usual order is that each party bear their own costs. However, in rare cases, it may be appropriate for the Court to assess the merits in cases involving the resolution of questions of law or, where the facts are clear, questions of fact. Where a Court is able to conclude that one party was almost certain to have succeeded if the matter had been fully tried, the Court may award that party its costs of the action:
Tsaprazis v Goldcrest Pty Ltd [2000] NSWSC 765 at paras [21], [33] – [38] (per Hodgson CJ in Eq);
Pinto v Kinkela [2003] WASC 126 at paras [33] – [35] (per Commissioner Johnson QC) and the cases there cited. Most importantly, Re the Minister for Immigration and Ethnic Affairs of the Commonwealth of Australia; Ex parte Qin (1997) 186 CLR 622 at 624 (per McHugh J)."
It is then submitted that "on the clear facts of the case, the defendant would almost certainly have succeeded had the matter proceeded…"
In a supplementary outline the defendant submitted that a contingent liability to pay costs was not a debt provable in a bankruptcy, and the Act s 153 only operated to release a bankrupt on discharge from debts that were provable in the bankruptcy.
A former bankrupt was not therefore protected from subsequent liability based on a costs order that related to the pre‑bankruptcy conduct of an action, it was said.
In regard to the history of the sale it appears that the judgment against the plaintiff, the subject of the Writ of Fieri Facias, was for a sum, including costs, of about $56,000, and that the writ was issued in April 1993.
The value of encumbrances on the land was approximately $100,000.
According to an affidavit sworn by the then bailiff in August 1995 a valuation was obtained from the office of the Valuer General in June 1993 to the effect that the then current market value of the land was $200,000.
A copy of that document reveals that it was a further valuation for the defendant and that the basis of the expression of opinion was a statement that the potential use of the land was as "a multi‑residential site for five dwelling units."
The defendant was instructed by the judgment creditor to sell the land in September 1993, it is said, and the day before the sale on 5 November 1993, placed a reserve of $90,000 on the plaintiff's interest in the land.
At auction, the plaintiff's interest was then sold to Rural and Resorts Pty Ltd for $142,000.
To that must be added the value of the encumbrances, the defendant says, and it follows that the price obtained for the land as a whole was about $242,000.
Anderson v Liddell (1968) 117 CLR 36 is cited by the defendant as setting out the duties of a sheriff or bailiff on sale of a judgment debtor's real property, along with Stevens v Young & Ors (1973) 2 NSWLR 750.
The defendant also makes reference to the present statement of claim and to an affidavit sworn by the plaintiff in November 1995, to which two valuations were annexed.
One valuation, by Mr R G Pember, valued the land as at March 1993 at $390,000, on the basis that there could be five group dwellings and also two aged person's villas, the City of Melville permitting "a 50 per cent R Code bonus in which special purpose dwellings are able to be amalgamated within the original R Coding to accommodate Aged Persons, Disabled, or Single Bedroom accommodation."

The second valuation, apparently prepared by Bonavita and Associates, valued the land as at February 1994 at $410,000.
This valuation also made reference to a permitted development of five group dwellings and "a bonus of two special purpose dwellings."
None of the above assertions has been subjected to scrutiny, and I am able to proceed only on the basis that if a particular assertion made on behalf of the plaintiff appears plausible and is not self evidently false, illogical or otherwise unreasonable, it may have been able to have been established at a trial.
I say an assertion made on behalf of the plaintiff because it is of course the defendant which asserts that the plaintiff's claim must surely have failed.
In relation to the valuation evidence if, as asserted by the plaintiff's two valuers, a development under the local authority planning scheme could have incorporated not merely the number of dwellings indicated by its R Coding, in the light of the land area, but could also have contained two additional units of a particular type, then the valuation provided on behalf of the Valuer General was apparently based on an incorrect premise that the R Coding was the only relevant planning control.
Such a valuation might well have been regarded by a court as one which showed a lack of due care.
The plaintiff's claim is of course made against the defendant bailiff, not the office of the Valuer General, and unless there was something in a valuation which put, or ought to have put, the defendant on notice of an error, it would not be liable for an error in a valuation, or unless it had an obligation to make independent enquiry, and failed to do so.
The defendant refers to, inter alia, the following statement of Barwick CJ in Anderson (pp 44‑45) as illustrating the pre‑auction obligations of a bailiff:
"It was said that the sheriff ought to have obtained a valuation by an expert as to the value – presumably the market value – of the land. No doubt the sheriff should know what he is selling to the point that he can decide whether or not a bid at the auction is illusory or unfair: but, in my opinion, he is not required to obtain a valuation of the market value of the land. Clearly he is not required to refuse to accept a bid which is less than the market value of the land. Provided the sale conforms to the statutory requirements, generally speaking the amount bid by members or a member of the public will indicate what the property will bring in the circumstances of such a sale. It seems to me that the sheriff is entitled to accept at the auction any bid which is genuinely made and which bears a fair relationship to what is being sold. It is in this connexion that the sheriff must know what he is selling for it is rightly said, in my opinion, that he must obtain a reasonable price for what he sells: se Keightley v Birch (1814) 3 Camp. 521 [170ER 1467]."
The land here was known to be a development site.
As appears from each of the valuations, a parcel of that kind is valued largely on its potential, that to be in part determined by reference to relevant planning controls.
A local authority planning scheme would be the starting point on any enquiry of that kind.
In the circumstances here, it would seem not beyond argument that Barwick CJ's statement that the sheriff should know what he is selling could extend to a need to ascertain what development might be permitted under the planning scheme in force for the land.
I am not therefore able to say that the plaintiff's claim must necessarily have failed.
I should add that I note the plaintiff's statement of claim was drawn on her behalf by solicitors instructed for the purpose, and who were on the record for a time.
Further, there is a substantial disconformity between the price realised at auction, after adding back the value of the encumbrances, and the two values offered by the plaintiff's experts.
Finally as to the question of the strength of the plaintiff's claim, complaint is also made in the statement of claim about the conduct of the auction, in regard to what ought to have been drawn from the alleged nature of the bidding there, and I am not in a position to say that is without substance.
It is true that there was delay in the prosecution of the action, on the part of the plaintiff.
However, the defendant was content to obtain a stay, in default of security for costs, as an alternative to listing the action for trial, when its application for judgment failed.
The delay between issue of the writ and that order was not such as to warrant the costs order sought.
I accept for present purposes that the general rule in a case of this kind is as postulated by the defendant, and in all the circumstances I am of the view that it ought apply, and the litigation having been effectively brought to an end by the sequestration order made against the plaintiff, that each party ought bear their own costs, with one exception.
That exception is in relation to the costs of the present application, which I consider the plaintiff ought bear, the substantive order sought being one for dismissal, and the defendant being successful in relation to that.

Payment into Court by plaintiff

In the course of the hearing the plaintiff sought payment out of the sum of $7,500 paid into court by her.
A question arises as to whether the Official Trustee ought be given notice of the request.
I am of the view that is not necessary, the Official Trustee having elected to abandon the action and the payment having occurred after the plaintiff had been discharged from bankruptcy so that the funds would not be those in which the trustee would have any interest.
The defendant acknowledges that the plaintiff is entitled to payment out of the funds.
I am also of that view.
In that regard, and as I have already found, the plaintiff following the sequestration order had no standing in the action hence no right to take any step in furtherance of it.
Further, the action was the subject of a statutory stay under the Act, and the payment into Court was a step which ought not to have been permitted under that stay.
In reality the funds ought not therefore have been accepted, and the plaintiff's attempt to revive the action was necessarily nugatory.
In those circumstances I direct that the sum of $7,500 paid in by the plaintiff be paid out to her forthwith.

Orders

I make orders as follows:
1.The action be dismissed.
2.Plaintiff pay the costs of the application to be taxed; otherwise each party pay their own costs of the action
3.The sum of $7,500 paid into Court by the plaintiff on 20 August 2004 be paid out to her forthwith.

[2006] WADC 119

10 August 2006