CATCHWORDS

BANKRUPTCY - Action commenced by person who subsequently becomes bankrupt - Action stayed upon bankruptcy - Action deemed abandoned 28 days after notice of action served by defendant in default of election of trustee to prosecute - Notice of action - Minimum requirements of notice.

Bankruptcy Act 1966, s60(2), (3)

Re Collins (1986) 10 FCR 209

Welinski v Temple (Federal Court of Australia, unreported, 8 April 1997)

AWARE INDUSTRIES LIMITED, CHRISTOPHER AVERY, PETER McCLOSKEY, JAMES JOHNSON, WILLIAM STERLING and ALLAN BOUNADER v DAVID CHARLES ROBINSON VG 166 of 1997

COURT:                       Northrop, Davies and Sundberg JJ

PLACE:                       Melbourne

DATE:              30 June 1997

IN THE FEDERAL COURT OF AUSTRALIA                   )

VICTORIA DISTRICT REGISTRY                                    )           No VG 166 of 1997

GENERAL DIVISION                                                          )

                  On Appeal from the Federal Court of Australia constituted by a single Judge

                                                            BETWEEN:     AWARE INDUSTRIES LIMITED, CHRISTOPHER AVERY, PETER McCLOSKY, JAMES JOHNSON, WILLIAM STERLING and ALLAN BOUNADER

                                                                                    Appellants

                                                            AND:               DAVID CHARLES ROBINSON

                                                                                    Respondent

COURT:                       Northrop, Davies and Sundberg JJ

DATE:              30 June 1997

PLACE:                       Melbourne

                                                       MINUTES OF ORDER

The Court orders that:

1.         The appeal be dismissed.

2.         The appellants pay the respondent's taxed costs of the appeal.

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

IN THE FEDERAL COURT OF AUSTRALIA                   )

VICTORIA DISTRICT REGISTRY                                    )           No VG 166 of 1997

GENERAL DIVISION                                                          )

                  On Appeal from the Federal Court of Australia constituted by a single Judge

                                                            BETWEEN:     AWARE INDUSTRIES LIMITED, CHRISTOPHER AVERY, PETER McCLOSKY, JAMES JOHNSON, WILLIAM STERLING and ALLAN BOUNADER

                                                                                    Appellants

                                                            AND:               DAVID CHARLES ROBINSON

                                                                                    Respondent

COURT:           Northrop, Davies and Sundberg JJ

DATE:  30 June 1997

PLACE:           Melbourne

                                                  REASONS FOR JUDGMENT

THE COURT:

On 22 April 1996 the respondent commenced a proceeding against the appellants for damages and other relief ("the action").  The detail of the claim is not material to the present appeal.  On 15 May the respondent became a bankrupt and the Official Receiver became trustee of his estate.  As a consequence of the bankruptcy all the respondent's rights in the action vested in the trustee (s58 of the Bankruptcy Act 1966), and the action was stayed by force of s60(2).

At some time between 15 May and 19 June the trustee became aware of the action.  It was on 19 June that the trustee wrote to the appellants' solicitors informing them that the respondent had advised him of it.  On 10 July the trustee assigned his rights in the action to the respondent pursuant to s135.  On 13 November the trustee informed the appellants that he had elected to prosecute the action.  On 10 January 1997 the respondent filed a notice of motion seeking a "relisting" of the action.  The motion was heard by Ryan J on 20 February.

Before recounting the proceedings before his Honour it is desirable to mention the provisions of the Act which form the background to the issue with which he was concerned.   Section 60(2) provides

                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.

Sub-section (3) provides:

                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.

Before the trial judge the appellants contended that the action was deemed to have been abandoned by force of s60(3) at the latest on 17 July 1996, so that it was not competent for the trustee to elect to prosecute it in November 1996.

The respondent contended that there had been no abandonment because notice of the action had never been served on the trustee by a party to it as required by s60(3).  Knowledge of the action had come to the trustee from the respondent, and the expression "other party" in s60(3) does not include a bankrupt plaintiff: Re Collins (1986) 10 FCR 209.

Ryan J accepted the respondent's contention.  He said that s60(3) required the defendant or other party to the action (other than the bankrupt) to serve notice on the trustee.  He regarded sub-s(3) as "a facility for defendants or other parties to the action to reach a state of certainty by giving notice, and seeing whether the 28 days elapses or not".

The appellants had contended that a letter from their solicitors to the trustee of 21 June 1996 constituted a notice of the action for the purpose of s60(3).  The letter was written in response to the trustee's letter of 19 June, to which reference has already been made, in which the trustee informed the solicitors that the respondent had advised him of the action.  The solicitors' response was that "the claim of the bankrupt is rejected".

His Honour did not, in expressing his conclusion, refer to this particular contention, but it is obvious that he rejected it.  His Honour gave directions for the further conduct of the case, but did not expressly order that the matter be relisted.  At a later date his Honour granted the appellants leave to appeal to the Full Court.  In their Notice of Appeal the appellants appeal from the whole of the trial judge's "ruling".  When the appeal was called on, the Court drew counsel's attention to the fact that the trial judge's order did not direct that the matter be relisted, which was the relief sought in the motion before him.  The
hearing of the appeal proceeded on the undertaking of the appellants' counsel that the appellants would seek an amendment by the trial judge of the order of 20 February 1997 by adding a direction that the matter be relisted.

Section 60(3) cannot be read as if the 28 day period runs from the day on which the trustee becomes aware of the existence of an action.  That is not what the sub-section says, and the two concepts - becoming aware of the existence of an action and being served with notice of it - are quite different.  The second is a formal concept involving the notions familiar to lawyers of "notice" and "service".  The word "notice" is used in its strict sense.  There must be a document which is a notification, and it must be served upon the trustee.

What happened in the present case is that the respondent informed the trustee of the existence of the action.  The manner in which he passed the information to the trustee is not apparent.  It is certainly not proved that he did this by serving a notice.  But even if he did, a bankrupt plaintiff or applicant is not an "other person" for the purposes of the sub-section: Re Collins referred to above.

Nor does the solicitors' letter of 21 June 1996 constitute a notice of the action for the purposes of s60(3).  It amounts to no more than a statement that the respondent's claim is rejected.  It is no answer to this to say, as the appellants submitted, that it would have been otiose for their solicitors to have informed the trustee of the existence of an action of which he was aware.  The question is not whether the trustee already knew of the action.  It is whether notice of the action has been served on him.  The 28 day period is not set
running by the trustee's acquisition of information about the action, but by a notice which satisfies the description in s60(3).  If in order to start time running a defendant must notify the trustee of something of which the trustee is already aware, so be it.

The function to be performed by s60(3) is similar to that served by s33 of the Trustee Act 1958 (Vict) and s30 of the Administration and Probate Act 1958 (and comparable legislation in other States).  A trustee or personal representative who desires to distribute the trust fund or the deceased's estate needs to be satisfied as to whether he can safely do so.  In substance those sections enable the trustee or representative to publish a notice inviting claims, and if no claims are made within a specified period after publication, the fund or estate can be distributed free of any later claims.  Similarly, the service of written notice is a condition precedent to the running of time under s60(3).

As the trial judge said, sub-s(3) is a facility for defendants to reach a state of certainty by giving notice and waiting until the expiration of the 28 days.  At the expiration of that period the trustee is deemed to have abandoned the action if the trustee has not by then made an election under s60(2) to prosecute or discontinue the action.

It might be thought that the requirements of s60(3) would be satisfied by service of a document which said no more than that an action in an identified court had been commenced by the bankrupt to which the person serving the notice was a defendant.  But we do not regard the notice contemplated by s60(3) as a mere provision of the details of the action.  The consequences of the effluxion of time without an election to prosecute are serious.  An action which may have value will be lost.  The purpose of the notice is to
alert the trustee to the need to consider whether to prosecute or discontinue the action.  In those circumstances it is appropriate to read s60(3) as requiring that the notice contain sufficient information to draw the trustee's attention to the fact that time will run against the trustee upon service of the notice.  Ideally a notice will be in the form of that served in Welinski v Temple (Federal Court of Australia, unreported, 8 April 1997).  The document served in that case was described as a notice pursuant to s60.  It recited the existence of the action and that the persons on whose behalf it was given were the defendants in the action, required the trustee within 28 days of service to provide in writing an election advising the defendants of the trustee's intention to prosecute or discontinue the action, and stated that in default of such advice the trustee would be deemed to have abandoned the action.  That notice expressly drew attention to the fact that time ran from the date of service, and that the action would be deemed to have been abandoned at the expiration of the 28 day period in default of an election to prosecute it.  But given that a notice will be directed to a registered trustee, it need not have all the attributes of that served in Welinski so long as, on a fair reading, it draws the trustee's attention to the fact that time runs against him from the date of service.

The letter relied on as notice in the present case does not possess the minimum attributes to which we have referred, and the appeal should be dismissed.

                                                                                    I certify that this and the preceding six pages are a true copy of the reasons for judgment of Justices Northrop, Davies and Sundberg JJ

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

                                                                                                            Associate

                                                                                                            30 June 1997

Counsel for the Appellants:                                            P D Santamaria

Solicitors for the Appellants:                                          Dick & Williams

Counsel for the Respondent:                                         R Cameron

Solicitors for the Respondent:                            Meltzer Green

Date of Hearing:                                                           4 June 1997

Place of Hearing:                                                          Melbourne

Date of Judgment:                                                         30 June 1997