Citicorp Australia Ltd & Ors v Official Trustee in Bankruptcy & Anor [1996] FCA 1115

CATCHWORDS

BANKRUPTCY - appeal against order granting leave to the Official Trustee pursuant to s.135(1)(b) of the Bankruptcy Act 1966 (Cth) to sell and assign to the bankrupt choses in action vested in the Official Trustee as trustee of the bankrupt estate of the bankrupt and his wife - whether the Court may grant leave in terms which do not identify the precise causes of action to be assigned - whether trustee is to be satisfied that the causes of action to be assigned have a reasonable prospect of success - whether trustee or the Court should refuse to authorise sale and assignment of choses in action that plainly have no prospect of success - whether assignment of choses in action vested in a bankrupt estate may be sold and assigned where the proposed defendant asserts a cross-claim against the bankrupt

Bankruptcy Act (Cth) ss 5, 60(3), 68, 134, 135, 178

Bankruptcy Rules (Cth) r 45AA

Limitations of Action Act 1936 (SA)

Seear v Lawson (1880) 15 Ch D 426

Guy v Churchill (1888) 40 Ch D 481

Ramsey v Hartley [1977] 1 WLR 686

Re Nguyen; Ex parte Official Trustee in Bankruptcy (1992) 35 FCR 320

Cotterill v Bank of Singapore (Australia) Ltd (1995) 37 NSWLR 238

Kitson v Hardwick (1872) LR 7 CP 473

Gould and Anor v Vaggelas and Others (1985) 157 CLR 215

Adsett v Berlouis (1992) 37 FCR 201

re Park Gate Waggon Works Company (1881) 17 Ch D 234

re Gargan v The Official Trustee (unreported, Federal Court, Drummond J, 18 August 1995)

re Gargan v Official Trustee (unreported, Full Federal Court, 9 November 1995)

Stein v Blake [1993] 3 WLR 718

Stein v Blake [1996] 1 AC 243

Genman Pty Ltd and Anor v Beneficial Finance Corporation Ltd (unreported, Federal Court, 2 July 1991)

Gye v McIntyre (1991) 171 CLR 609

Re Capel; Ex parte Marac Finance Australia Ltd v Capel (1994) 48 FCR 195

Re Turner; Ex parte Mulley (unreported Federal Court, 22 June 1995)

Matter No. SG 40 of 1996

CITICORP AUSTRALIA LIMITED, JOHN HAROLD HEARD and STEPHEN ELLIOTT YOUNG v OFFICIAL TRUSTEE IN BANKRUPTCY and VINCENZO CIRILLO

Foster, von Doussa & Sundberg JJ

Adelaide

16 December 1996

IN THE FEDERAL COURT OF AUSTRALIA )

)

SOUTH AUSTRALIA DISTRICT REGISTRY)

) No. 40 of 1996

GENERAL DIVISION )

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:

CITICORP AUSTRALIA LIMITED, JOHN

HAROLD HEARD and STEPHEN ELLIOTT

YOUNG: The Receivers and

Managers of C.W. CONSTRUCTION

PTY LTD (Receivers and Managers

Appointed) (In Liquidation)

Appellants

AND:

OFFICIAL TRUSTEE IN BANKRUPTCY

First Respondent

AND:

VINCENZO CIRILLO

Second Respondent

MINUTES OF ORDER

JUDGES MAKING ORDER : FOSTER, VON DOUSSA & SUNDBERG JJ

WHERE MADE : ADELAIDE

DATE MADE : 16 DECEMBER 1996

THE COURT ORDERS THAT:

1. The appeal be dismissed.

2. The appellants pay the taxed costs of the appeal of the first and second respondents.

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

IN THE FEDERAL COURT OF AUSTRALIA )

)

SOUTH AUSTRALIA DISTRICT REGISTRY) No. 40 of 1996

)

GENERAL DIVISION )

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:

CITICORP AUSTRALIA LIMITED, JOHN

HAROLD HEARD and STEPHEN ELLIOTT

YOUNG: The Receivers and

Managers of C.W. CONSTRUCTION

PTY LTD (Receivers and Managers

Appointed) (In Liquidation)

Appellants

AND:

OFFICIAL TRUSTEE IN BANKRUPTCY

First Respondent

AND:

VINCENZO CIRILLO

Second Respondent

CORAM: Foster, von Doussa & Sundberg JJ

PLACE: Adelaide

DATE: 16 December 1996

REASONS FOR JUDGMENT

The Court: This is an appeal from the judgment of Branson J, reported as Re Bankrupt Estate of Cirillo and Another; Ex parte Official Trustee in Bankruptcy (1996) 136 ALR 607. Before her Honour were three related applications. The first was by the Official Trustee as the trustee of the separate bankrupt estates of Vincenzo Cirillo ("Mr Cirillo") and Sybille Grieves ("Ms Grieves"). As amended, the application sought orders under s.134 or in the alternative s.135 of the Bankruptcy Act 1966 ("the Act") authorising the
sale and assignment to Mr Cirillo of:

"...every chose in action (and all rights title and interest thereto) which the Official Trustee in Bankruptcy as trustee of the bankrupt estates of Vincenzo Cirillo and Sybille Grieves may have against Citicorp Australia Ltd and the Receivers and Managers appointed by Citicorp Australia Ltd over the assets and property of C W Constructions Pty Ltd (Receivers and Managers appointed) ... howsoever arising (including but not limited to) the causes of action specified in the proceedings commenced in the Supreme Court of South Australia being action number No 80 of 1991 in consideration for the sum of $3,500 plus 10% of any award of damages received by Mr Cirillo and Ms Grieves after deduction of all expenses, inclusive of legal costs, and expenses incurred in funding the cost of litigation subject to a limit of the amount owed to creditors..."

The second and third applications were brought jointly by Citicorp Australia Ltd ("Citicorp"), and by John Harold Heard and Stephen Elliott Young ("the receivers") as Receivers and Managers of C W Construction Pty Ltd (Receivers and Managers Appointed) (In Liquidation) ("the Company") in the bankrupt estates of Mr Cirillo and Ms Grieves respectively for orders pursuant to s.178 of the Act. These applications sought a review of the decision of the Official Trustee to accept an offer of Mr Cirillo to purchase the choses in action described above, and for consequential orders preventing the proposed sale and assignment; or alternatively for a direction that the choses in action be sold and assigned to Citicorp for $10,000. Citicorp had made an offer in that amount after learning of the offer of Mr Cirillo referred to in the Official Trustee's amended application.

On the hearing of the applications the Official Trustee, Mr Cirillo and Ms Grieves, and Citicorp and the receivers were represented by counsel. Each of the parties had filed extensive affidavits. The documentary material ran to nearly seven hundred pages. In the result an order was made granting leave to the Official Trustee pursuant to s.135(1)(b) of the Act to sell and assign the choses of action in the terms set out above to Mr Cirillo, subject however to a limitation contained in paragraph 2 of the order. Paragraph 2 reads:

"In the event that the Applicant has vested in him any legal entitlement to set aside the appointment of Messrs John Harold Heard and Stephen Elliott Young by Citicorp Australia Limited as Receivers and Managers over the assets and property of C.W. Construction Pty. Ltd., no leave is granted for the sale and assignment of any such legal entitlement to Vincenzo Cirillo, BUT such exclusion shall not preclude the sale and assignment to Vincenzo Cirillo of every chose in action consequent upon or arising out of the appointment of Messrs John Harold Heard and Stephen Elliott Young by Citicorp Australia Limited as Receivers and Managers over the assets and property of C.W. Construction Pty. Ltd. (Receivers and Managers Appointed)."

On the applications by Citicorp and the receivers, the decision of the Official Trustee in each estate to accept Mr Cirillo's offer was affirmed.

Citicorp and the receivers now appeal against these orders, again arguing that the sale and assignment to Mr Cirillo should not be authorised.

The Company had conducted the business of a heavy earthmover and contractor. During 1983 Citicorp agreed to advance $500,000 to the Company and to establish performance bonds guaranteeing the performance of certain major contracts by the Company in favour of the Electricity Trust of South Australia to the extent of $306,000 against the security of a registered debenture over the Company's assets and undertaking. The debenture also secured future advances to the Company. The obligations of the Company to Citicorp were guaranteed by Mr Cirillo and Ms Grieves.

The following chronology is largely taken from the judgment of the trial judge. It provides a succinct outline of the background facts which led up to the making of the applications before the Court.

5 March 1981 Vince Cirillo & Associates Pty Ltd incorporated.

Approx November 1981 Vince Cirillo & Associates Pty Ltd changed its name to C.W. Construction Pty Ltd ("the Company").

1981-1982 Citicorp provided financial accommodation to the Company and entered into lease and hire purchase agreements with it.

18 April 1983 Citicorp agreed to advance $500,000 to the Company. Debenture Reg. No. 10141/24 charging undertaking and assets of the Company in favour of Citicorp created ("the Debenture").

Approx April 1983 Mr Cirillo and Ms Grieves became the only shareholders and directors of the Company.

7 December 1984 Citicorp appointed John Harold Heard to investigate the financial affairs of the Company.

14 January 1985 Citicorp served a notice of demand on the Company. Messrs Heard and Young appointed receivers and managers of the undertaking and assets of the Company pursuant to the Debenture.

21 January 1985 Originating summons issued in Supreme Court of South Australia Action No. 169 of 1985. In such action the Company sought to set aside the
appointment of the receivers and sought an injunction restraining them from acting in accordance with their appointment.

7 February 1985 Mohr J of the Supreme Court refused to make any order on the originating summons in Action No. 169 of 1995 other than a costs order in favour of the defendants.

11 March 1985 Order made in the Supreme Court of South Australia for the winding up of the Company.

2 May 1985 Writ issued in Supreme Court of South Australia No. 1481 of 1985. By such Writ the Company and the receivers sought a declaration that a Poclain HC300 Excavator Serial No 77 ("the Poclain") was the property of the Company and charged to Citicorp and an injunction restraining Mr Cirillo from dealing in any way with the Poclain.

24 May 1985 Interlocutory injunction made in Action No. 1481 of 1985 restraining Mr Cirillo from dealing with the Poclain. Undertaking as to damages given by plaintiffs.

14 January 1991 Summons and Statement of Claim filed in Supreme Court Action No. 80 of 1991. By the Statement of Claim Mr Cirillo and Ms Grieves claimed damages from Citicorp consequent upon the appointment of the receivers as receivers and managers to the Company.

13 January 1992 Summons and Statement of Claim in Action No. 80 of 1991 purportedly served on Citicorp by mail.

14 January 1992 Summons and Statement of Claim in Action No. 80 of 1991 purportedly served on Citicorp by delivery to Messrs Finlaysons, solicitors.

5 February 1992 Citicorp applied to the Supreme Court of South Australia to set aside service of the Summons and Statement of Claim in Action No. 80 of 1991.

20 May 1992 Service of Summons and Statement of
Claim in Action No. 80 of 1991 set aside.

4 June 1992 Estate of Mr Cirillo sequestrated.

7 July 1992 Notice of Action No. 80 of 1991 served upon Mr Cirillo's trustee in bankruptcy pursuant to s.60(3) of the Act. No election made by the trustee.

7 October 1992 In Action No. 1481 of 1985 Judge Kelly, a Master of the Supreme Court, caused to be noted on the Court file the following:-

"The plaintiff seeks to discontinue and will if advised, do so in its discretion. The question of costs and the question of the undertakings as to damages, however, remains alive. Having heard plaintiff's counsel, the Official Receiver and Mr Cirillo himself, I now order that if by 31/1/93 Mr Cirillo is still bankrupt and the action has been discontinued, then there will be no order as to costs of that discontinuance and the plaintiff (sic) will automatically be released from the undertakings as to damages given earlier in these proceedings. If, however, at that date the action, having been discontinued, Mr Cirillo has been discharged from bankruptcy, then the question of costs of the discontinuance and the application for release from undertakings is reserved for further consideration upon the application of Mr Cirillo."

5 November 1992 Mr W H Hall, solicitor for the plaintiffs in Action No. 80 of 1991 informed the Official Receiver of that action. Official Trustee responded to Mr Hall declining to adopt the proceedings so far as Mr Cirillo was concerned.

4 February 1993 Plaintiffs in Action No. 1481 of 1985 wholly discontinue the action.

7 April 1993 Estate of Ms Grieves sequestrated.

20 June 1995 Mr Cirillo discharged from bankruptcy by force of law.

10 September 1995 Mr Cirillo offered to purchase from Official Receiver for $2,000 all rights in the chose in action which vested in Official Trustee upon his bankruptcy in respect of Action No. 80 of 1991. Ms Grieves requested Official Receiver to assign to Mr Cirillo the rights in such chose in action which vested in Official Trustee upon her bankruptcy.

20 September 1995 Citicorp advised of the offer to purchase the chose in action against it.

31 October 1995 Messrs Finlaysons, solicitors for Citicorp, advise Official Trustee that Citicorp "vigorously opposes" any sale of rights in Action No. 80 of 1991.

20 November 1995 Official Trustee caused creditors of the bankrupt estate of Mr Cirillo to be advised of his offer of 10 September 1995. Of 38 creditors to whom the advice was sent only 5 responded; creditors with debts to the value of $146,201 were in favour of accepting the offer, 1 creditor was uncommitted, and 1 creditor claiming debts of $463,526 opposed acceptance.

12 December 1995 The Official Trustee by application to the Court sought directions whether he should sell the chose in action in respect of Action No. 80 of 1991 to Mr Cirillo.

9 January 1996 Messrs Finlaysons, solicitors for Citicorp, offered on behalf of their client to pay $3,500 to Official Trustee for the absolute discharge of any claim which Official Trustee may have in his capacity as trustee of the bankrupt estates of Mr Cirillo and Ms Grieves against Citicorp, or alternatively to purchase any such claims.

11 January 1996 Mr Cirillo advised Official Receiver that his offer to purchase extended to:-

"every chose in action (and all rights, title and interest thereto)
which the Official Trustee, as trustee of the bankrupt estate of Vincenzo Cirillo and Sybille Grieves, may have against Citicorp Australia Limited and/or Citibank Limited and the Receivers and Managers appointed by either of them over the assets and property of C.W. Construction Pty Ltd howsoever arising (including, but not limited to, the causes of action specified in the proceedings commenced with the Supreme Court of South Australia, being Action No. 80 of 1991."

Mr Cirillo increased the amount of his offer to $3,500 plus 10% of any award of damages obtained, after deduction of all costs and expenses, to the limit of the amount owed to creditors.

4 April 1996 Messrs Finlaysons, solicitors for Citicorp, advised of their client's willingness to pay $10,000 to Official Trustee to purchase the discharge of the claims, or the claims referred to in their letter of 9 January 1996.

10 April 1996 Official Trustee advised that he had decided to accept Mr Cirillo's offer.

10 April 1996 Amended application filed by Official Trustee seeking authorisation for sale and assignment to Mr Cirillo.

In an affidavit filed on behalf of the Official Trustee in support of his application it is stated that in Mr Cirillo's estate proofs of debt totalling $3.136m have been received, including a proof of debt from Citicorp for $229,498. Of the assets disclosed by Mr Cirillo in his statement of affairs, some were charged to secured creditors and the ownership of others could not be established. In the result there has been no realisation of assets, and there have at no time been funds in the estate with which the Official Trustee could investigate the accuracy of the proofs of debt. As there has so far been no prospect of a dividend the proofs of debt have neither been admitted nor rejected. In her statement of affairs Ms Grieves listed unsecured creditors totalling $20,001 and stated that there was also a shortfall to a secured creditor on the sale of a house property which she could not quantify. She had no significant assets.

In an affidavit filed by Mr Cirillo, he sought to answer the contention of Citicorp and the receivers that he had failed to identify the chose or choses in action that he was offering to purchase from the Official Trustee. He deposed that:

"8. As the investigation of the appointment of the Receivers by Citicorp and the action taken by Citicorp and the Receivers during that receivership has not yet been completed by my solicitors, Marrone & Co., I have sought to put to this Honourable Court all relevant facts known to date by me which establishes:

8.1 The appointment of Receivers was invalid from the outset,

8.2 No moneys were actually owing to Citicorp under the debenture at all at the time of appointment of the Receivers,

8.3 That the action of Citicorp and the Receivers in seizing the property of my company C.W. Construction Pty. Ltd. and selling the same was unlawful, and

8.4 That the action by the Receivers and Citicorp during the period of receivership was unlawful.

9.1 Further I say that Citicorp and the Receivers are well aware that the issues in Supreme Court Action No. 1481 of 1985 ('the Poclain Action') remain still in dispute and unresolved.

9.2 The Poclain Action relates to a dispute between
myself and Citicorp and the Receivers regarding the ownership of a certain Poclain HC300 Excavator Serial No. 77. An injunction was granted at the instigation of Citicorp and the Receivers against me precluding me from using or dealing with the Poclain.

9.3 I have always asserted that the Poclain, the subject matter of the Poclain Action has always been my property.

9.4 In obtaining the injunction Citicorp and the Receivers gave the Supreme Court of South Australia the usual undertaking as to damages. The injunction has not to date been discharged.

9.5 The Poclain still remains situate at 330 Hanson Road, Wingfield and will remain there until such time as the Supreme Court adjudicates on the issues raised in the Poclain Action and which remain to this date unresolved.

9.6 In the Poclain Action certain legal costs were awarded in my favour but have not yet been recovered from Citicorp and the Receivers.

9.7 Insofar as the Poclain itself is concerned I say that:

(i) My title to the Poclain is mine and further is superior to that of Citicorp and the Receivers, and

(ii)That Citicorp and the Receivers are liable to me for substantial damages and legal costs...

10. ...

Further I believe that I have a good and valid claim against Citicorp and the Receivers for at least the economic loss that I have personally suffered as a consequence of the action taken by Citicorp and the Receivers.

The Official Trustee, as trustee of the bankrupt estates of Mr Cirillo and Ms Grieves, has at all times lacked the resources to investigate the asserted claims of Mr Cirillo and Ms Grieves against Citicorp and the receivers, or to pursue the claims asserted by them. In the view of the Official Trustee, as it was only Mr Cirillo's more recent offer which could possibly give rise to a dividend payable to creditors in the two bankrupt estates, that offer should be preferred to the last offer made on behalf of Citicorp.

The sections of the Act invoked by the application read, relevantly:

"134(1) Subject to this Act, the trustees may do all or any of the following things:-

(a) sell all or any part of the property of the bankrupt

. . . . . . . . . . . . . . . . . . . . .

(2) Paragraph (1)(a) does not authorise the trustee to sell by private contract any property having a value exceeding the prescribed amount.

(2A)A reference in sub-s(1) or (2) to the prescribed amount is a reference to $20,000 or, if a greater amount is prescribed for the purposes of this section to that greater amount.

(3) Subject to this Act, the trustee may use his own discretion in the administration of the estate.

(4) The trustee may at any time apply to the Court for directions in respect of a matter arising in connexion with the administration of the estate."

Rule 45AA of the Bankruptcy Rules prescribes the amount of $50,000 for the purposes of s134 of the Act.

"135(1) The trustee may, with the permission of the creditors granted by resolution passed at a meeting of creditors, with the permission of the committee of inspection or with the leave of the Court, do all or any of the following things:-

(a) sell, by private contract, any property of the bankrupt having a net value exceeding $20,000 or such
greater amount as is prescribed for the purposes of s.134;

(b) accept, without terms or conditions, or subject to terms and conditions, a sum of money payable at a future time as the consideration or part of the consideration for the sale of any property of the bankrupt.

. . . . . . . . . . . . . . . . . . . . . . . .

(3) Permission or leave given for the purposes of sub-section (1) shall not be general permission or leave to do all or any of the things referred to in that sub-section, but shall be permission or leave to do only the particular thing for which permission or leave is sought in a specified case."

Section 5 defines "property" and "the property of the bankrupt" as follows:

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

'the property of the bankrupt', in relation to a bankrupt, means:

(a) except in 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; and

(b) in subsections 58(3) and (4):

[not relevant]".

The trial judge said that in her view it is no longer seriously open to question that a transaction of the kind proposed is to be regarded as a sale of the property of a bankrupt within the meaning of s.134(1) and s.135(1)(a) of the Act. Her Honour referred to Seear v Lawson (1880) 15 Ch D 426, Guy v Churchill (1888) 40 Ch D 481, Ramsey v Hartley [1977] 1 WLR 686, Re Nguyen; Ex Parte Official Trustee in Bankruptcy (1992) 35 FCR 320 (Re Nguyen), and Cotterill v Bank of Singapore (Australia) Ltd (1995) 37 NSWLR 238 which hold that the property of a bankrupt includes a chose in action. Guy v Churchill, Ramsey v Hartley and Re Nguyen also hold that ss.134 and 135 authorise the trustee to sell a chose in action in circumstances which would otherwise attract the rule against maintenance and champerty, and in Kitson v Hardwick (1872) LR 7 CP 473, which was followed in Ramsey v Hartley, and Re Nguyen, it was held that the power extends to authorise a sale to the bankrupt. The principles established by these decisions were applied by the House of Lords in Stein v Blake [1996] 1 AC 243 at 258.

Before this Court counsel for the appellants did not dispute her Honour's view. Counsel accepted that the powers of a trustee under ss.134 and 135 of the Act include a power to sell or assign to the bankrupt a bare cause of action vested in the trustee. The issue raised on the appeal was not as to the existence of the power, but as to the circumstances and manner of its exercise.

The order by the trial judge authorising the sale and assignment to Mr Cirillo was made under s.135(1)(b). Her Honour referred to the decision in Re Nguyen where French J at 326 said that he saw merit in the submission that the acceptance by a trustee in bankruptcy of a promise to pay to the trustee a proportion of the proceeds of litigation was not the acceptance of "a sum of money payable at a future date" within the meaning of s.135(1)(b). However her Honour said she inclined to the view that it was, and accordingly made the order under that provision. No party to the appeal has argued that her Honour erred in treating the application as one arising under s.135(1)(b). It is therefore unnecessary to consider whether the net value of the property proposed to be assigned is more or less than the prescribed amount of $50,000 for the purposes of ss.134 and 135(1)(a): cf Nguyen at 327.

Counsel for the appellants contended that the duties which rest on a trustee in bankruptcy require the trustee, before selling or assigning a cause of action, to be satisfied that the cause of action can be identified as one vested in the trustee and its value estimated so that the trustee can, and then does, consider whether it can and should be pursued for the benefit of the estate. Comprehended in the performance of this duty is the need, once the cause of action is identified, to assess the prospects of success of the cause of action. There is a twofold purpose in this requirement; one purpose goes to the assessment of the adequacy of the consideration being offered, and the other to the question whether the proposed assignment would visit a mischief or injustice on the community, including creditors in the bankrupt estate. A mischief or injustice would relevantly arise, so it is contended, if the alleged cause of action had no reasonable prospect of success or is not at least arguable. It would be vexatious or oppressive to the proposed defendant if an attempt were made by the proposed assignee to enforce such a cause of action. The alternative notions that a cause of action has no reasonable prospect of success and that it is not arguable convey the same meaning, and we shall treat the contention as being simply that the cause of action proposed to be assigned must have a reasonable prospect of success.

The express reference to the need for satisfaction as to the axiomatic requirement that the cause of action be vested in the trustee is included in the formulation of the appellants' contention as the appellant argues that the losses alleged by Mr Cirillo are in reality the losses of the Company. In some respects the losses alleged are a reflection of the loss and damage to the assets and undertaking of the Company, but it does not follow that Mr Cirillo and Ms Grieves did not suffer loss personally which gave rise to causes of action by them. As guarantors they became liable to meet the liabilities of the Company after its collapse. Mr Cirillo alleges that the Company's collapse was unnecessarily caused by the wrongful conduct of the appellants. Whilst as shareholders in the Company they cannot recover damages in their own names for the losses of the Company, they can recover any losses suffered by them personally in consequence of them acting in reliance upon deceitful or unconscionable conduct as alleged: Gould v Vaggelas (1985) 157 CLR 215 at 220, 245-246, 253. The allegations made by Mr Cirillo and Ms Grieves assert causes of action for losses suffered personally by them, and those causes of action, if the allegations are substantiated, became vested in the Official Trustee upon their bankruptcies.

The trial judge rejected contentions similar to those made to this Court by the appellants. Her Honour said:

"In this case the affidavit evidence filed on behalf of Mr Cirillo provides considerable detail concerning the claims asserted against Citicorp and Messrs Heard and Young. Such claims flow from the financial dealings between Citicorp and the Company, from the appointment by Citicorp of Messrs Heard and Young as receivers and managers of the Company, and the subsequent conduct of Messrs Heard and Young pursuant to such appointment. In my view further particularity is not required for the purposes of the present application of the Official Trustee." (emphasis added)

Her Honour observed that the justification for a trustee making an assignment expressed in general terms such as those contemplated in the assignment to Mr Cirillo could be that the trustee lacked funds to establish with precision, or at all, the particular causes of action vested in the trustee. In such a case her Honour considered it could well be appropriate for the trustee to assign the causes of action to the bankrupt for a consideration which the trustee regarded as appropriate in light of whatever information was available. That course could result in some benefit to the creditors and would not place the estate at risk for legal costs. Her Honour however added:

"In my view, it would not be proper for a trustee in bankruptcy to assign to any person a cause of action which demonstrably had no prospects of success. This would be even more strongly the case should he or she be alert to the possibility that such cause of action might be utilised to cause embarrassment to a third party."

Counsel for the appellants contended that the trial judge erred in her approach and, further, that it was inconsistent, on the one hand, to authorise an assignment of choses of action not fully and precisely identified, and on the other hand, to say that it would not be proper for a trustee to assign a cause of action that had no prospects of success. Further, counsel contended that her Honour erred by placing, in effect, an onus on the appellants to demonstrate that the choses in action to be assigned had no reasonable prospect of success. Counsel contended that, on the contrary, the trustee, or the court in bankruptcy, as the case may be, had to be positively satisfied that there were reasonable prospects of success, and if the trustee or the court were not so satisfied the assignment should be refused.

It was argued that a trustee with insufficient funds to investigate the existence and nature of an alleged cause of action has a number of practical alternatives:

(a) seek indemnities from creditors;

(b) require the bankrupt and, if necessary, the proposed defendant to provide necessary factual material (the bankrupt must co-operate: s.77 of the Act);

(d) decline to sell the cause of action and allow any affected persons to apply to Court under s.178 of the Act at their own expense for review of that decision.

No authority was cited which directly supported the extent of the duty which counsel contended was imposed on the trustee under ss.134 and 135(1). It was said that the duty arose as a matter of necessary implication from the general duties of a trustee in bankruptcy, summarised by a Full Court of this Court in Adsett v Berlouis (1992) 37 FCR 201 at 208 as follows:

"The trustee has a dual function: first, to administer the estate in the interests of the creditors and the bankrupt; second, to exercise, as a public duty and for the public welfare, certain powers given, and duties imposed, under the Act: see Re Campbell; Ex parte Official Trustee (1987) 13 FCR 326 at 329. The conduct of the trustee is subject to the supervision of the court (eg Div 4 of Pt VIII of the Act) and a trustee in bankruptcy has historically been regarded as an officer of the relevant court: see Ex parte James, Re Condon (1874) 9 Ch App 609 at 614; Scranton's Trustee v Pearse [1922] 2 Ch 87; Downs Distributing Co Pty Ltd v Associated Blue Star Stores Pty Ltd (In liq) (1948) 76 CLR 463 at 482; Re Henderson; Ex parte Tonkin (1934) 7 ABC 273 at 277-278. A trustee in bankruptcy who acts for remuneration is under a duty of care greater than that of a gratuitous trustee: see Re Silver Valley Mines (1882) 21 Ch D 381 CA at 386, 392. The trustee is required to bring reasonable skill to the performance of his or her duties: see Silver Valley Mines (supra) at 392; Re Alafaci; Registrar in Bankruptcy v Hardwick (1976) 9 ALR 262 at 284."

These general principles provide the background setting in which the manner of the exercise of the powers of a trustee under ss.134 and 135 must be judged, but they do not necessarily point to the existence of onerous duties of the kind postulated by the appellants' argument. It is important to have regard to additional principles which impact on the exercise of the powers and functions of a trustee in bankruptcy, which the Full Court referred to in the passages which follow the above quotation. The Court observed that a trustee under the general law must exercise judgment so as to save the estate unnecessary expenditure of money, and that a trustee in bankruptcy is required to discharge the public duty imposed by the Act conformably with the trustee's obligation to administer the estate in such a manner as to maximise the return from estate assets, and thereby to maximise satisfaction of the creditors' claims and any possible surplus for the bankrupt.

As a matter of practical and commercial reality the approach adopted by the trial judge is likely in many, if not most, cases to provide a straightforward and expeditious way for the trustee to administer the estate with the minimum of risk and expense to the estate, whilst at the same time retaining for the estate some prospect of a cost free gain for the creditors. The so called "practical alternatives" urged by the appellants are likely to be unrealistic or very expensive in many cases. Where allegations by the bankrupt give rise to the need to investigate complex commercial dealings it will often be impossible for the bankrupt to demonstrate, or for the trustee or creditors to form a view about, the reasonable prospects of successfully prosecuting a claim until those investigations have been carried out. The impasse faced by the trustee is obvious. In this type of case to suggest that the trustee seek indemnities from creditors is not likely to be fruitful. In an estate with no assets and many creditors the cost involved in going to the creditors could itself be prohibitive.

The kinds of difficulties that could arise for a trustee with the other suggested alternatives can be illustrated by reference to the present case. By the time Mr Cirillo made the offer which the trustee decided to accept, the extensive material which now comprises the Court file had already been filed in respect of the application for directions issued by the Official Trustee on 12 December 1995. The affidavits contain numerous allegations and counter allegations of primary fact and inference, each of the protagonists deposing to the veracity of the account of events advanced by him or her. Allegations of breach of the loan agreement between the Company and Citicorp, failure to comply with the terms of the debenture, unconscionable conduct, sale of assets at undervalue, negligence, misleading and deceptive conduct, and deceit are strenuously advanced and sworn to by Mr Cirillo, and supported by other deponents from whom his solicitors have obtained affidavits, yet are equally strenuously denied in affidavits filed by the appellants. Until issues of credit, and major conflicts in the evidence are resolved, the mass of information now available does not enable a meaningful view to be formed as to which of the factual allegations made by Mr Cirillo and Ms Grieves are well founded. The information does however indicate that if the major allegations of fact made by Mr Cirillo have substance the legal position generally and the precise identification of all available causes of action in particular, is, to say the least, complex. Moreover, the degree of complexity indicates that even at the end of a trial the identification and scope of some possible causes of action could remain difficult to formulate.

The trustee, or the Court on an application for directions or on a review of a decision of the trustee, is not able to resolve conflicts in the evidence in a way that binds the parties in later proceedings instituted to try the alleged causes of action. If the trustee or the Court were to prefer the evidence of one or more deponents over that of others, and to assess prospects of success on that basis, another Court which later hears the claim might come to different conclusions as to the evidence to be accepted. A trial court would have the benefit of a formulated claim pleaded after investigation of the subject transaction, and the benefit of evidence adduced and tested according to the rules of evidence, whereas the trustee or the Court when considering the proposed assignment under ss.134 or 135(1) must proceed on largely untested information selectively put forward by the protagonists. The findings of fact by a trial court bind the parties. Only when those findings are made can the merits of the claim, and its value as an asset, be determined with certainty.

The proceedings in this case illustrate how expense can be run up by seeking to have a preliminary investigation of the merits of a bankrupt's allegations by the trustee and the Federal Court where there are wide ranging conflicts in sworn evidence about the alleged claims. The cases will be few where some decisive point exists on which the trustee or the Court can be satisfied that the claim has no reasonable prospect of success. The more likely result of a review of the evidence will be that the trustee, or the Court, cannot be satisfied that no possible cause of action could be made out, because the possibility cannot be excluded that at trial on properly adduced and tested evidence facts sufficient to support a claim could be established. This was the conclusion of the trial judge in the present case.

The prospects of success of possible claims that could arise out of the facts asserted by Mr Cirillo concerning the appointment of the receivers to the Company, and the related conduct of Citicorp and the receivers, are rendered unusually difficult to assess as those events occurred so long ago that most causes of action would be barred by time limits contained in the Trade Practices Act 1974 (Cth) and the Limitation of Actions Act 1936 (SA). The summons issued on 14 January 1991 in Action No. 80 of 1991 was not validly served before it became stale. It is probable that the stale summons has been dismissed for want of prosecution by administrative action taken in the Registry of the Supreme Court pursuant to Rule 10.06(5) of the Supreme Court Rules 1987 (SA) (the present status of the summons is not established by the information filed in this Court), but in any event the action is deemed to have been abandoned under s.60(3) of the Act as the Official Trustee did not elect to prosecute it after notice of the action was given. To prosecute the claims pleaded in that action, a fresh action will have to be commenced. Insofar as those causes of action are out of time, the plaintiffs would have to obtain an extension of time within which to bring action pursuant to s.48 of the Limitation of Actions Act 1936 (SA). This section authorises a court to extend time for instituting an action "to such an extent, on such terms (if any) as the justice of the case may require" subject however to s.48(3) which provides:

"(3)This section does not -

(a) ...

(b) empower a court to extend a limitation of time prescribed by this Act unless it is satisfied -

(i) that facts material to the plaintiff's case were not ascertained by him until some point of time occurring within twelve months before the expiration of the period of limitation or occurring after the expiration of that period and that the action was instituted within twelve months after the ascertainment of those facts by the plaintiff;

(ii)...

and that in all of the circumstances of the case it is just to grant the extension of time."

The obstacles that face an application under s.48 at this late stage must be considerable, but as Mr Cirillo has deposed that his investigations are still continuing it is possible that material facts sufficient to meet the requirements of s.48(3)(b) may be or may become available to him. The trial judge said that she was unable to conclude that an application by Mr Cirillo for an extension of time, if the assignment were made, would necessarily fail. The possibility of success cannot be dismissed without a trial on the merits of the application for an extension of time made in the context of a properly formulated claim.

The practical approach adopted by the trial judge recognised these difficulties. The result of the assignment would be that Mr Cirillo would have to prosecute his claims in the Supreme Court of South Australia. That is the court with jurisdiction to make a binding determination of claims arising from the undertaking as to damages and for costs in Action No. 1481 of 1985. It is also the appropriate court in which the merits of claims arising in connection with the appointment of the receivers, and an application for an extension of time should be determined.

The question raised by the appellants on this appeal is whether as a matter of law this practical approach was correct, or whether the trustee and the Court were required to carry out the painstaking investigation contended for by the appellants.

A review of decided cases shows a consistent line of authority extending from Seear v Lawson in support of the approach followed by the trial judge.

In Seear v Lawson the validity of an assignment of a chose in action by a trustee in bankruptcy to a purchaser for value was challenged. In holding that the chose in action was "property" of the bankrupt which had vested in the trustee, and was within the power given to the trustee under the Bankruptcy Act "to sell all of the property of the bankrupt..." Jessel MR at 433 said:

"If the trustee gets a right of action, why is he not to realize it? The proper office of the trustee is to realize the property for the sake of distributing the proceeds amongst the creditors. Why should we hold as a matter of policy that it is necessary for him to sue in his own name? He may have no funds, or he may be disinclined to run the risk of having to pay costs, or he may consider it undesirable to delay the winding-up of the bankruptcy till the end of the litigation. Considering these things, it seems to me to be à priori probable that he would be entitled to sell it, but I prefer to rest my decision upon the plain words of the statute."

The chose in action under consideration was identified by reference to an action already commenced by writ of summons, but there is no suggestion in the judgment in that case that the trustee's power of sale was circumscribed by a duty to first ascertain that the action is one with a reasonable prospect of success. To have required the trustee to investigate the prospects of success would have been inconsistent with the observation that the trustee might decide to sell because the estate was without funds or to hasten the winding up of the bankruptcy. The reference to the risk of paying costs also recognised that the cause of action might not succeed.

More than a century later, the same practical approach to the exercise of the trustee's power of sale finds unqualified support in Stein v Blake. Lord Hoffmann, in whose speech the other members of the House of Lords agreed, said at 260:

"It is a matter of common occurrence for an individual to become insolvent while attempting to pursue a claim against someone else. In some cases, the bankruptcy will itself have been caused by the failure of the other party to meet his obligations. In many more cases, this will be the view of the bankrupt. It is not unusual in such circumstances for there to be a difference of opinion between the trustee and the bankrupt over whether a claim should be pursued. The trustee may have nothing in his hands with which to fund litigation. Even if he has, he must act in the interests of creditors generally and the creditors will often prefer to receive an immediate distribution rather than see the bankrupt's assets ventured on the costs of litigation which may or may not yield a larger distribution at some future date. The bankrupt, with nothing more to lose, tends to take a more sanguine view of the prospects of success. In such a case the trustee may decide, as in this case, that the practical course in the interests of all concerned (apart from the defendant) is to assign the claim to the bankrupt and let him pursue it for himself, on terms that he accounts to the trustee for some proportion of the proceeds."

Between the two decisions just mentioned there are others which support the trial judge's approach. For example in Re Nguyen the court granted leave pursuant to s.135(1)(b) of the Act to the Official Trustee "to assign any chose in action which the Official Trustee as trustee of the bankrupt estate of [the bankrupt] may have against the National Australia Bank and Max Goldenberg" without any precise definition of particular causes of action and without an inquiry by the Court as to the prospects of success of the proposed claim for damages. In Ramsey v Hartley an assignment to the bankrupt in the following terms was held to be valid: "all those rights in title to and choses in action relating to or in any wise arising out of the matters giving rise to the claim more particularly set out in the statement of claim ... to the intent that hereafter the assignee shall be solely entitled ... to all proceeds profits damages interest or other monies of whatsoever kind or howsoever arising out of such action". The consideration for the proposed assignment was a percentage of the net proceeds of the proposed claim. In the course of his judgment Megaw LJ observed at 692:

"We are not concerned with the question whether or not that claim is likely to succeed, though it is not suggested that it is frivolous or vexatious or that it could be struck out if it be properly constituted with the plaintiff as the sole plaintiff". (emphasis added)

And Lawton LJ at 698 said:

"To assign the cause of action for good consideration to another person who was willing to try to enforce it could be a sensible way of disposing of the bankrupt's assets."

In Re Turner; Ex parte Mulley (unreported Federal Court, 22 June 1995) Northrop J considered it was within the power vested by the Act in a trustee to assign a claim to the bankrupt even though it was very difficult on the available information to ascertain precisely what the claim was let alone whether it had reasonable prospects of success. His Honour observed at pp.6-7:

"Otherwise, the trustee, if he is required to pursue the claim could waste - and I use the word "waste" intentionally - large amounts of money in the bankrupt's
estate pursuing what may well be a hopeless case at the expense of creditors generally without any real prospect of recovering anything at all."

In Stein v Blake, Lord Hoffmann at 259 adverted to another matter that tends against the appellants' contentions. His Lordship referred to difficulties that could arise if an assignment were made by a trustee of less than the whole of the rights of the bankrupt against the proposed defendant. If the trustee retained part of the claim, the trustee would have to be joined as a party to the proposed action to enforce the claim. If the appellant's contentions were correct, and it was necessary for the cause or causes of action being assigned to be precisely identified, proceedings by the assignee to enforce the claim could run into procedural and other difficulty if at any later time the assignee wished to plead a differently formulated cause of action not plainly within the description of the assignment. Questions could arise whether on its true construction the assignment extended to the new cause of action. The trustee would have to be involved in the resolution of that question. If the trustee's aim in making the assignment were to save expense or avoid delay in winding up the estate, that aim would be frustrated. This difficulty is avoided by an assignment in general terms such as those authorised by the trial judge in the present case. See also re Park Gate Waggon Works Company (1881) 17 Ch D 234, and Cotterill v Bank of Singapore (Australia) Ltd where an assignment by the Official Trustee of "all rights and interests in such choses in action ... as are claimed to have vested in the Official Trustee upon the bankruptcy" of the bankrupt was held to assign all the causes of action (assuming they existed) vested in the bankrupt at the commencement of the bankruptcy even though precise causes of action were not identified.

The foregoing authorities do not deny that in a case where it is clear that the claim sought to be pursued by the bankrupt or other proposed assignee is frivolous or vexatious, the trustee or the court should not allow the assignment to occur. A claim with no reasonable prospect of success would be a frivolous one, and the prosecution of such a claim would be vexatious. As earlier noted, in most cases it will not be clear that an alleged claim has no reasonable prospect of success. However when a clear case arises, the trustee as an officer of the Court, and the Court itself, in the public interest, should not allow the assignment to occur, even where an immediate sum of money is offered as consideration that would benefit the estate of the bankrupt.

Counsel for the appellants relied on the decision of Drummond J in re Gargan v The Official Trustee (unreported, Federal Court, 18 August 1995) as supporting the contention that the Court was under a duty to investigate the prospects of success of claims before authorising an assignment of them. That was an unusual case where the bankrupt sought a direction under s.179 of the Act that his trustee in bankruptcy assign to him a number of causes of action. The application could also be regarded as one under s.178 to review a decision of the Official Trustee to withdraw an application earlier made under s.135(1) to assign the causes of action to the bankrupt, after a meeting of creditors decisively rejected the proposed assignment.

Drummond J said (at 3):

"In dealing with Mr. Gargan's application, I propose to consider, first, whether he has shown that he has an arguable case in relation to each cause of action which he wants to have assigned to him. Unless he can satisfy me of that, his application must fail."

His Honour considered at length material before the Court and concluded that each of the claims which the bankrupt wished to prosecute had no prospect of success, and dismissed the application. It appears that conclusions could be reached about the merits of the claims on undisputed parts of the evidence before the Court. An assessment of the prospects of success did not turn on disputed questions of fact. The case fell into the small class of cases where the Court was able to conclude that the proposed claims were without merit. It was a situation where, to use the language of the trial judge in the present case, the causes of action "demonstrably had no prospects of success".

Taken alone and out of context, the stated approach of Drummond J in the above passage from his judgment could suggest that the Court must be satisfied that there is at the least an arguable case in relation to each cause of action proposed to be assigned before the Court will authorise the assignment, and, moreover, that the proposed assignee has the onus of satisfying the Court. If that is the interpretation intended by the passage, we are unable to agree with it. However we think it is more probable that his Honour intended the statement to be no more than an explanation of how he intended to deal in the particular case and with the large volume of information before the Court, information which plainly posed substantial legal barriers to the successful prosecution of the alleged claims. That his Honour was not intending to apply any general principle, but was dealing with the circumstances of the particular case, gains support from the judgment of the Full Court on appeal from the primary decision. The Full Court in dismissing the appeal said:

"Mr Gargan made some criticism of the procedure adopted below. The procedure adopted, however, was a fair procedure which had been entered into and explained to Mr Gargan and it was a procedure with which Mr Gargan had concurred." (Gargan v Official Trustee in Bankruptcy, unreported, 9 November 1995, at p.3)

Where a creditor or intervening party contends that an assignment should not be authorised because the proposed claim has no prospect of success it is for that party to demonstrate the absence of any prospect of success. This follows from the general principle that a party who asserts a proposition carries the evidentiary onus of establishing the necessary facts to support it. Insofar as the judgment under appeal placed on evidentiary onus on the appellants to demonstrate that the alleged claims proposed to be assigned to Mr Cirillo had no prospects of success, no error occurred as it was the appellants who were asserting that to be the case.

At the conclusion of her judgment, after holding that she could not be satisfied on the evidence before the Court that the pursuit of the allegations made by Mr Cirillo against the appellants would necessarily be vexatious, her Honour said:

"I have given consideration to the issue of unwarranted prejudice which Citicorp and Messrs Heard and Young may suffer by reason of such assignment. The mere fact that litigation against them may result from such assignment is not unwarranted prejudice for present purposes. The prejudice to them flowing from such litigation will only be unwarranted in the relevant sense if the litigation is instituted vexatiously or without reasonable prospects of success."

As her Honour's observations indicate, "unwarranted prejudice" relevantly provides a reason for not authorising an assignment only when the institution of litigation to enforce the claim would be vexatious or without reasonable prospects of success. The reference to "unwarranted prejudice" does not, in our opinion, raise any separate issue not already encompassed in the notion that an assignment should not be authorised when it is demonstrated that the institution of litigation would be vexatious or the proposed claim has no reasonable prospect of success. So understood, her Honour's conclusions in this passage are in accordance with the observations of Lord Hoffmann in Stein v Blake at 260. It is understandable that the appellants, who do not share Mr Cirillo's view of the merits of his allegations, are disappointed to find that notwithstanding his bankruptcy, they now face a claim by him. But had the bankruptcy not occurred they would have been required to defend the claims anyway. As the trial judge observed, the appellants are not without avenues in the courts in which the claims must be litigated to cut short the litigation if the causes of action face the procedural and substantive hurdles which they allege.

In the course of submissions counsel for the appellants referred to the mutual set-off provisions of s.86 of the Act and suggested that the fact that Citicorp had a claim against the bankrupt estates of Mr Cirillo and Ms Grieves provided an obstacle to the authorisation of the proposed assignments.

In Genman Pty Ltd v Beneficial Finance Corporation Ltd (unreported, Federal Court, 2 July 1991) Davies J refused to act on an assignment of choses in action by a trustee in bankruptcy where the proposed defendant had a substantial counter-claim. However, in that case the trustee had already admitted a proof of debt lodged by the proposed defendant. In other cases where a similar point has been raised, the fact that the proposed defendant had a counter-claim against the bankrupt's estate has not been held to be an obstacle to an assignment, although the reasons for decision have not been uniform.

In Re Nguyen French J granted leave to assign choses in action where one of the proposed defendants asserted a cross-claim. His Honour, after quoting from Gye v McIntyre (1991) 171 CLR 609 at 622, said at 327:

"A chose in action subject to set-off by virtue of the section if assigned is assigned, in my opinion, with the right of set-off intact. The Trustee cannot sell more
than he has. What he has in this case at best is a chose in action subject to the right of set-off.

Even if that view were incorrect, the Bank would have available to it the argument that any damages recoverable by Mr Nguyen and Ms Luu must take into account the moneys they received from the Bank. That is not a matter of proving a debt, but rather of assessing damages."

In Re Capel; Ex parte Marac Finance Australia Ltd v Capel (1994) 48 FCR 195 Drummond J also held that a claim by a bankrupt vested in a trustee in bankruptcy against a person who has a cross-claim may be assigned by the trustee either to the bankrupt or to a third party. His Honour, following the decision of the Court of Appeal in Stein v Blake [1993] 3 WLR 718, held that where such an assignment occurred prior to the account having been taken of the mutual claims as required by s.86(1), the assignee took the bankrupt's claim subject to all equities, including the right to set-off. In the House of Lords, the decision of the Court of Appeal in Stein v Blake was affirmed, but on different grounds. The House of Lords held that the bankrupt's claim and the creditor's cross-claim ceased to exist as of the date of the bankruptcy as the statutory set-off is mandatory and self executing, and were replaced by a net balance owing by one party to the other. The notion that the original chose in action of the bankrupt survived, and was capable of assignment, subject to the equity arising from the cross-claim was exposed as fallacious: see Lord Hoffmann at 255.

The decision of the House of Lords in Stein v Blake applied the reasoning of the High Court of Australia in Gye v McIntyre. In our opinion this Court should follow the reasoning of the House of Lords.

Whilst the decision in Stein v Blake upheld the assignment in that case, the present appellants argue that there can be no assignment where it is not possible on the evidence available to the trustee or the Court in bankruptcy to conclude that the net balance after account is in favour of the bankrupt. The argument would require that the trustee or the Court reach conclusions on the information available as to the quantum of both the claim asserted by the bankrupt and the cross-claim. Such a requirement would raise insurmountable problems that would effectively deny any opportunity of assignment in most, if not all, cases. First, the problems already discussed concerning the inability of the trustee or the Court in bankruptcy to resolve disputed questions of fact arise. Secondly, whilst it might be possible for the trustee to invoke the power in s.82(4) of the Act to estimate the value of the proposed defendant's debt or liability, that estimate does not bind the proposed defendant in the event that the claim and cross-claim are litigated in proceedings between the parties in another court. Thirdly, it is notoriously difficult to estimate the quantum of claims in advance of the judgment of the court which must assess them at the end of a trial. With the best efforts and advice possible at the time of the proposed assignment, cases would still arise where, at the time of the assignment, it was considered that the net balance was in favour of the bankrupt estate, but at trial the net balance was held to be in favour of the cross-claimant. These difficulties provide strong practical reasons against the appellants' argument.

In our opinion the appellants' argument based on s.86 is in any event contrary to the decision in Stein v Blake. In that case until the merits and quantum of the claim and cross-claim were litigated the amount of the net balance remained uncertain. Lord Hoffmann (at 255) explained the subsequent litigation as being merely part of the process of retrospective calculation, from which it will appear that from the date of bankruptcy, the only chose in action which continued to exist as an assignable item of property was the claim to a net balance. If as the result of the litigation it is held that the net balance lies in favour of the cross-claimant the action by the assignee would fail. It would be of academic interest only whether the judgment had the consequence that nothing had been assigned in the first place. That same question would arise even in a case where there was no cross-claim and action to enforce an assigned chose in action failed.

It remains to mention two other grounds of appeal. One asserts that the trial judge erred in granting leave to sell and assign the alleged causes of action to Mr Cirillo for the consideration offered by him, rather than to Citicorp for the consideration of $10,000 offered by it. The offer of Mr Cirillo was the offer that held out the only prospect of a return to creditors, and it was a reasonable and appropriate decision for the Official Trustee to prefer that offer.

The consideration offered by Mr Cirillo was also criticised because it provided for the "deduction of all expenses, inclusive of legal costs and expenses incurred in funding the cost of litigation" from a verdict before 10% thereof was paid to the bankrupt estates. It was argued that the trial judge erred in granting approval to the assignment without investigating what this cost would be to ensure that the consideration was not illusory. In our opinion this criticism is unwarranted. The assignment must be construed to mean that "reasonable" costs and expenses are to be deducted. At the end of the day if there were to be a dispute about the costs and expenses, the dispute could be resolved in the same manner as any other dispute over costs and expenses associated with litigation.

Her Honour did not err in granting leave to sell and assign the subject choses of action for the consideration offered by Mr Cirillo.

The other ground of appeal asserts that the trial judge erred in granting leave pursuant to s.135(1) of the Act to sell and assign the alleged causes of action comprised in Action No. 80 of 1991 in the Supreme Court of South Australia as the Official Trustee, after being given notice of the proceedings pursuant to s.60(3) of the Act, failed to make an election to prosecute or discontinue the action. However on the hearing of the appeal, counsel for the appellants conceded that s.60(3) operates only to defeat the particular action, and does not bar a subsequent action by the trustee, or an assignee of the trustee, in respect of the same cause of action. It is therefore unnecessary to further consider this ground.

In our opinion the appeal should be dismissed.

I certify that this and the 37

preceding pages are a true

copy of the Reasons for

Judgment of the Court

Associate:

Dated: 16 December 1996

Counsel for the appellants : Mr WJN Wells QC with

Mr MG Pickhaver

Solicitors for the appellants : Finlaysons

Counsel for the 1st respondent : Ms S Maharaj with

Mr G Gretsas

Solicitors for the 1st respondent: Australian Government

Solicitor

Counsel for the 2nd respondent : Mr D Wicks QC with

Mr RM Marrone

Solicitors for the 2nd respondent: Marrone & Co.

Date of hearing : 15 November 1996

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