FEDERAL COURT OF AUSTRALIA

McKellar v Container Terminal Management Services Ltd (No 4)

[2002] FCA 185

BANKRUPTCY – application by respondents for orders that proceedings be stayed pending payment of costs orders earlier made and for security for future costs – belated discovery that second applicant an undischarged bankrupt – whether s 60(2) of the Bankruptcy Act 1966 (Cth) operates to stay action by both applicants

Bankruptcy Act 1966 (Cth) ss 60(2), (3) and (4)

McKellar v Container Terminal Management Services Ltd (1999) 165 ALR 409 referred to

McKellar v Container Terminal Management Services Ltd [1999] FCA 1639 referred to

McKellar v Container Terminal Management Services Ltd (No 2) [2000] FCA 1608 referred to

McKellar v Container Terminal Management Services Ltd (No 3) [2001] FCA 11 referred to

Beckham v Drake (1849) 2 HLC 579 at 604; 9 ER 1213 at 1222 referred to

Cox v Journeaux (No 2) (1935) 52 CLR 713 at 721 referred to

Faulkner v Bluett (1981) 52 FLR 115 at 119 referred to

Daemar v Industrial Commission (NSW) (1988) 12 NSWLR 45 referred to

Manningel v Hewlett (unreported, New South Wales Court of Appeal, 12 June 1991)

Re:  Dosanjh;  Ex parte Duus (1995) 56 FCR 521 referred to

Bryant v Commonwealth Bank of Australia (1997) 75 FCR 545 referred to

Re  Lofthouse (2001) 107 FCR 151 followed

John v Neiman Holdings Pty Limited (1986) 84 FLR 84 followed

Campbell v Metway Leasing Ltd [2001] FCA 1311 referred to

ANDREW McKELLAR and ANOR v CONTAINER TERMINAL MANAGEMENT SERVICES LIMITED and ORS

VG 555 of 1998

WEINBERG J

5 MARCH 2002

MELBOURNE

THE COURT ORDERS THAT:

1.                  Each notice of motion filed on behalf of the respondents on 18 January 2002 be dismissed. 

2.                  The applicants pay the respondents’ costs of and incidental to the hearing on 1 February 2002, including any costs associated with the filing of the respondents’ notices of motion.

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

REASONS FOR JUDGMENT

1                     This proceeding was instituted by the applicants, Andrew McKellar and Christopher Murray, on 13 October 1998.  It has had a somewhat unfortunate history. 

2                     The applicants were two of a number of individuals who had responded to advertisements seeking to recruit servicemen and ex-servicemen to be trained in Dubai.  Their primary claim was that they had been induced to enter into contracts with one or more of the respondents by various representations which were misleading or deceptive, and thereby contravened the provisions of the Trade Practices Act 1974 (Cth) (“the Act”).  They also brought claims for breach of contract, conspiracy, misfeasance in public office and negligence. 

3                     Shortly after the initial application and statement of claim were filed with the Court, the applicants sought and were granted leave to file an amended statement of claim.  An amended statement of claim was filed on 29 January 1999.  It purported to name thirty-three respondents (divided into three groups which may for convenience be designated as the “Lang respondents”, the “PCS respondents” and the “Commonwealth respondents”), although the initial application (which was not amended) had been brought against eleven respondents only.  The amended statement of claim extended over some ninety pages, and contained literally hundreds of paragraphs, many of which were numbered in an idiosyncratic manner. 

4                     Subsequently the respondents moved the Court for orders striking out the amended statement of claim.  On 13 August 1999 I made orders to that effect, but granted leave for the filing of a further amended statement of claim.  My reasons for ordering that the amended statement of claim be struck out are to be found in McKellar v Container Terminal Management Services Ltd (1999) 165 ALR 409. 

5                     On 26 November 1999, I ordered that the costs of the earlier interlocutory proceeding be taxed and paid forthwith.  My reasons for departing from the usual course of allowing costs of interlocutory proceedings to be paid at the conclusion of the litigation are set out in McKellar v Container Terminal Management Services Ltd [1999] FCA 1639 (“the first costs judgment”).

6                     On 9 November 1999 the applicants filed an amended application and further amended statement of claim.  On 10 February 2000 each of the three separately designated sets of respondents filed notices of motion seeking to strike out both that amended application and that further amended statement of claim. 

7                     On 10 November 2000 I delivered judgment in relation to these further strike-out proceedings.  I ordered that the applicants’ claims against the Commonwealth respondents be dismissed.  I further ordered that the claims against the Lang respondents and the PCS respondents be struck out.  However, I granted leave to the applicants to file a further amended application and a second further amended statement of claim against the Lang respondents and the PCS respondents.  My reasons for judgment are to be found in McKellar v Container Terminal Management Services Ltd (No 2) [2000] FCA 1608.

8                     On 17 January 2001 I ordered that the costs of the second strike-out proceedings be taxed and paid forthwith.  My reasons for adopting that course are to be found in McKellar v Container Terminal Management Services Ltd (No 3) [2001] FCA 11 (“the second costs judgment”).

9                     Throughout much of 2000 and 2001 the respondents made a number of attempts to enforce the costs orders which I had made in the first costs judgment.  For example, on 28 April 2000 the Lang respondents filed a bill of costs in taxable form relating to those orders.  In accordance with the usual practice of the Court, a Deputy Registrar provided an estimate on the bill of costs in the amount of $87,431.  The applicants filed a general notice of objection to that amount.  There was then a lengthy delay while debate ensued as to whether it was the applicants or the respondents who were responsible, pursuant to reg 2(1A) of the Federal Court of Australia Regulations, for the payment of filing fees for the determination of that objection.  That issue was referred to a Full Court which had not yet resolved it when reg 2(1A) was amended, making the issue moot.

10                  During the course of the lengthy delay it became increasingly apparent to the respondents that both applicants were impecunious.  Neither had any realistic prospect of meeting the costs orders which I had made in either the first or second costs judgment. 

11                  Finally, on 5 November 2001, in the absence of any further submissions in support of the general objection to the initial assessment, a Deputy Registrar signed a Certificate of Taxation in favour of the Lang respondents for the amount previously estimated.  On 26 November 2001 the applicants were ordered by the Court to pay that sum to those respondents. 

12                  In the meantime, on 7 February 2001, while the question of costs was still unresolved, the applicants filed a further amended application and second further amended statement of claim.  The respondents elected not to file a defence to that second further amended statement of claim apparently taking the view that the outstanding orders as to costs ought to be met before they were put to any additional expense. 

13                  On 29 November 2001 the matter was mentioned before me.  Counsel for the applicants made it plain that his clients were unable to pay any of the costs ordered in either of the costs judgments.  However, he foreshadowed that his instructing solicitors would be filing a motion on the applicants’ behalf requiring the respondents to file their defences to the second further amended statement of claim forthwith.  He also foreshadowed that the applicants would seek discovery, and apply for a date for the trial to be fixed.  Counsel for the respondents foreshadowed that they would be filing motions seeking orders that the proceedings be stayed until the applicants had met the costs ordered in the earlier costs judgments.  They also foreshadowed that they would seek an order for security for future costs.

14                  On 18 January 2002 notices of motion were filed on behalf of both the Lang respondents and the PCS respondents.  The relief sought was that the proceeding be stayed until the applicants met the orders for costs previously made against them and/or provide security for future costs.

15                  The notices of motion were fixed for hearing on 1 February 2002.  However, on 30 January 2002, the solicitor who had represented the applicants from the commencement of the proceeding swore an affidavit which was filed with the Court and served upon the respondents on the following day.  In that affidavit she deposed generally to the impecuniosity of each applicant.  That of itself was hardly surprising.  However, what was astonishing was the revelation that the second applicant, Christopher Murray, was and had, since 23 May 2000, been an undischarged bankrupt. 

16                  I was informed by counsel for the applicants that neither their counsel nor their solicitors had any inkling of the fact that Mr Murray was an undischarged bankrupt until 29 January 2002.

17                  The respondents then put to one side, at least for the moment, their applications that the proceedings be stayed pending payment of their costs and/or security for future costs.  They focussed instead upon the operation of s 60 of the Bankruptcy Act 1966 (Cth) (“the Bankruptcy Act”) and its effect upon the action as it stood.  They submitted that the effect of that section was to stay the action commenced by Mr Murray, and therefore the action brought by Mr McKellar, as well.  They referred, in particular, to ss 60(2), (3) and (4) of that Act which provide:

“(2)     An action commenced by a person who subsequently becomes a bankrupt is, upon his or her 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 or her by a defendant or other party to the action, he or she shall be deemed to have abandoned the action.

(4)       Notwithstanding anything contained in this section, a bankrupt may continue, in his or her own name, an action commenced by him or her before he or she becomes a bankrupt in respect of:

(a)               any personal injury or wrong done to the bankrupt, his or her spouse or a member of his or her family; or

(b)               the death of his or her spouse or of a member of his or her family.”

18                  There can be no doubt that subject to the possible operation of s 60(4) of the Bankruptcy Act, the effect of the second applicant’s bankruptcy is to stay the action commenced by him until his trustee makes election, in writing, to prosecute or discontinue that action.  There is nothing in the evidence before me to indicate that the trustee has any knowledge of this proceeding, still less that he has made, or is in the process of making, such an election.

19                  At one point counsel for the applicants was disposed to argue that the proceeding brought by Mr Murray could be characterised as an action commenced by him in respect of “any personal injury or wrong done to the bankrupt” within the meaning of s 60(4) of the Bankruptcy Act.  That was because one of the heads of Mr Murray’s claim for damages involved post traumatic stress allegedly suffered by reason of the respondents’ contraventions of the Act.  However, when counsel’s attention was drawn to the authorities dealing with the construction of that subsection, and its legislative precursors (Beckham v Drake (1849) 2 HLC 579 at 604; 9 ER 1213 at 1222, Cox v Journeaux (No 2) (1935) 52 CLR 713 at 721, Faulkner v Bluett (1981) 52 FLR 115 at 119, Daemar v Industrial Commission (NSW)  (1988) 12 NSWLR 45, Manningel v Hewlett (unreported, New South Wales Court of Appeal, 12 June 1991), Re: Dosanjh; Ex parte Duus (1995) 56 FCR 521 and Bryant v Commonwealth Bank of Australia (1997) 75 FCR 545) he resiled from his earlier submission and accepted that Mr Murray’s action must be regarded as having been stayed. 

20                  That concession by counsel for the applicants was obviously correct.  Upon a fair reading of Mr Murray’s various applications and statements of claim, it is plain that his claim for damages for post traumatic stress is consequential upon his primary claims.  Insofar as he is said to have suffered stress, that condition is alleged to have been brought about by reason of his having ceased to be employed, and having thereafter become unemployable, because of the actions which he took against the interests of the Maritime Union of Australia.  His claim for damages for personal injury cannot be severed from his claim for damages arising out of the alleged breaches of the Act. 

21                  That leaves Mr McKellar’s position to be resolved.  He is impecunious.  He is not, however, a bankrupt. 

22                  Re Lofthouse (2001) 107 FCR 151 is authority for the proposition that where one of several applicants is made bankrupt, the effect of s 60(2) of the Bankruptcy Act is to stay the entire action, and not just the claims brought by the bankrupt.  In that case Gray J noted that s 60(5) of that Act defined the term “action” to mean any civil proceeding, whether at law or in equity.  That was plainly a definition of great width.  His Honour referred to John v Neiman Holdings Pty Limited (1986) 84 FLR at 84 where Young J of the Supreme Court of New South Wales had similarly held that s 60(2) operated to stay the whole of a proceeding even though the bankrupt concerned was one of several plaintiffs, and his claim was separate from those of the others.  Both John v Neiman and Re Lofthouse were cited with approval by Katz J in Campbell v Metway Leasing Ltd [2001] FCA 1311.

23                  Counsel for the applicants asked for some time to consider the position of Mr McKellar.  I gave directions for the filing of written submissions on the issue of whether I should follow the above authorities.  In those submissions, he accepted that, for the reasons set out in John v Neiman Holdings Pty Limited and Re Lofthouse:

“… the proceedings must be stayed in total until the Trustee makes an election in writing to prosecute or discontinue the action and that involves not just Mr Murray but also the proceedings brought by Mr McKellar.”

24                  By reason of the operation of s 60(2) of the Bankruptcy Act the proceeding in its entirety is stayed.  There is therefore no need for the Court to make any orders upon the respondents’ notices of motion and it is appropriate that they be dismissed.  There remains to be determined an issue as to costs. 

25                  Counsel for the applicants submitted that the respondents had had sufficient time to withdraw their notices of motion once they had become apprised of the fact that Mr Murray was an undischarged bankrupt and that the entire proceeding was therefore stayed.  He submitted that the orders sought by the respondents should not thereafter have been pursued.  Each notice of motion should be dismissed and, in accordance with the usual practice whereby costs follow the event, the respondents should be ordered to pay the costs of and incidental to the hearing conducted on 1 February 2002. 

26                  The respondents contended that they had been put to the unnecessary expense of issuing each notice of motion because of the applicants’ failure to inform them of the fact that Mr Murray had been declared bankrupt. They also reminded me that during the course of argument on 1 February 2002 counsel for the applicants had effectively conceded that, unless he could persuade me that Mr Murray’s bankruptcy did not operate to prevent Mr McKellar’s claim from proceeding, his clients must pay the costs of that hearing.

27                  It is true that the respondents did not pursue the relief sought in each of their notices of motion.  That was because that relief was no longer appropriate having regard to the effect of s 60(2) upon the proceeding.  It is also true that I have ordered that each notice of motion be dismissed.  However, that has nothing to do with the merits of the respondents’ claims which were not the subject of any argument before me. 

28                  In my view the respondents acted entirely reasonably in filing their notices of motion on 18 January 2002.  The relief which they sought was not only appropriate, but highly likely to have been granted.  The last minute disclosure of Mr Murray’s bankruptcy obviated the need to pursue that relief.  The respondents were in no way responsible for the fact that the relief which they had properly sought was no longer necessary.  The applicants ought, in my view, to pay the respondents’ costs associated with the hearing on 1 February 2002.  These costs include the costs associated with each notice of motion. 

Associate:

Dated:              5 March 2002