FEDERAL COURT OF AUSTRALIA

Health Services Union v Jackson (No 3) [2015] FCA 694

THE COURT ORDERS THAT:

1.    The trustee of Ms Jackson’s bankrupt estate forthwith file and serve on the Health Services Union a copy of the statement of affairs lodged by her and dated 23 June 2015.

2.    The subpoena to give evidence directed to Olga Gountras, which required her attendance on 29 June 2015 be set aside.

3.    If and to the extent that it is necessary by reason of the provisions of s 58(3) of the Bankruptcy Act 1966 (Cth), the Health Services Union be granted leave to take fresh steps in and to continue with Federal Court of Australia proceedings VID 1042 of 2013 and NSD 1501 of 2013, including any further interlocutory applications made in those proceedings.

4.    The trial be fixed to commence on 7 July 2015 at 10.15 am.

5.    Costs reserved.

6.    Liberty to apply.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

THE COURT ORDERS THAT:

1.    The trustee of Ms Jackson’s bankrupt estate forthwith file and serve on the Health Services Union a copy of the statement of affairs lodged by her and dated 23 June 2015.

2.    The subpoena to give evidence directed to Olga Gountras, which required her attendance on 29 June 2015 be set aside.

3.    If and to the extent that it is necessary by reason of the provisions of s 58(3) of the Bankruptcy Act 1966 (Cth), the Health Services Union be granted leave to take fresh steps in and to continue with Federal Court of Australia proceedings VID 1042 of 2013 and NSD 1501 of 2013, including any further interlocutory applications made in those proceedings.

4.    The trial be fixed to commence on 7 July 2015 at 10.15 am.

5.    Costs reserved.

6.    Liberty to apply.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

1    There is before the Court an interlocutory application in both proceedings that the Court grant leave “to proceed” against Ms Katherine Jackson. The Health Services Union (“the Union”) is the applicant in VID 1042 of 2013. Ms Jackson is the respondent and the cross-claimant in that proceeding. In proceeding NSD 1501 of 2013 Ms Jackson is a cross-respondent and the Union is the respondent and cross-claimant.

2    In earlier reasons for interlocutory judgment, in Health Services Union v Jackson [2014] FCA 1215 at [1]-[11], I outlined the nature of the two proceedings and the issues to which they gave rise.

3    The procedural history of the two proceedings has been outlined in other interlocutory judgments and it is not necessary, at the moment, to pause to rehearse that history. Suffice it to say that, following a number of adjournments, the trial of both proceedings was fixed to commence on 29 June 2015. When the proceedings were called on that morning, counsel appearing for Ms Jackson advised the Court that she had filed a debtor’s petition under s 55 of the Bankruptcy Act 1966 (Cth) (“the Act”). The document which certified the appointment of Mr Paul Leroy as trustee of her estate was sent to the Court by the solicitor who had been acting for Ms Jackson. The solicitor advised the Court that, as a result of this development, he would shortly be filing a Notice of ceasing to act for her. He has since done so.

4    Counsel for the Union, who had had no notice of Ms Jackson’s bankruptcy, sought an adjournment so that the Union could consider its position. That application was granted. The hearing resumed in the afternoon and counsel foreshadowed the making of the present application.

5    I directed that, when the application was made, it should be served on Ms Jackson and her trustee. Counsel advised the Court this morning that this had been done.

6    Both the Union and the trustee were represented at this morning’s hearing. Ms Jackson did not appear.

7    Subject to some qualifications the trustee supported the Union’s interlocutory application.

8    Section 58(3) of the Act provides that:

“Except as provided by this Act, after a debtor has become a bankrupt, it is not competent for a creditor:

(a)    to enforce any remedy against the person or the property of the bankrupt in respect of a provable debt; or

(b)    except with the leave of the Court and on such terms as the Court thinks fit, to commence any legal proceeding in respect of a provable debt or take any fresh step in such a proceeding.”

9    Although the Union’s interlocutory application seeks a grant of leave “to proceed” against Ms Jackson, the substance of its application is that it be granted leave to continue to prosecute each proceeding. Both proceedings have long since been commenced and what the Union wishes to do is to take fresh steps in them in the wake of Ms Jackson’s bankruptcy.

10    The Union must obtain such leave if either of the proceedings is a “proceeding in respect of a provable debt.”

11    Section 82(1) of the Act relevantly provides that:

“… all debts and liabilities, present or future, certain or contingent, to which a bankrupt was subject at the date of the bankruptcy, or to which he or she may become subject before his or her discharge by reason of an obligation incurred before the date of the bankruptcy, are provable in his or her bankruptcy.”

12    Section 82(2) qualifies this provision. It provides that demands in the nature of unliquidated damages “arising otherwise than by reason of a contract, promise or breach of trust” are not provable in bankruptcy.

13    The claims made by the Union against Ms Jackson are founded, substantially, on alleged breaches by her of obligations imposed on her under the Union rules and claims for compensation under s 1317H of the Corporations Act 2001 (Cth) (“the Corporations Act”) and s 307 of the Fair Work (Registered Organisations) Act 2009 (Cth).

14    The purpose served by s 58(3) was explained by Hill J in Re Rose; Ex parte Devaban Pty Ltd, an unreported judgment of his Honour which was quoted by Flick J in 7Steel Building Solutions Pty Ltd v Wright [2011] FCA 328 at [10]:

“The obvious policy behind s 58(3) of the Act was that any proceedings in force at the time of bankruptcy should be stayed and no further proceedings should be commenced so far as they relate to the period prior to bankruptcy unless the Court gives leave. In this way the bankrupt is freed from any claims that might be made in respect to the period prior to bankruptcy and the Trustee in bankruptcy can, if the Trustee accepts the proof of debt, treat a claim against the estate like the claim of all other creditors, so that the assets of the estate are, in due course, divided pro rata among the creditors.

Another reason for staying proceedings or preventing new proceedings from being commenced is to ensure that the Trustee of a bankrupt estate is not put to expense in defending proceedings which the Trustee has no money to defend. On the other hand, the Act does contemplate that the Court will, in an appropriate case, grant leave. In that respect a case would be an appropriate case where the proceedings proposed against the bankrupt are proceedings to which other parties are involved and for the proper conduct of which it may be necessary for the bankrupt to become a party.”

15    Leave is required under s 58(3) in respect of claims of breaches of fiduciary duties. There is some uncertainty as to whether claims for compensation arising from contraventions of the Corporations Act and similar laws are provable debts: see SBA Music Pty Ltd v Hall (No 2) [2014] FCA 1116 at [23]-[24] (Wigney J).

16    I am, however, prepared to assume that some of the claims made by the Union are caught by s 58(3)(b) of the Act and that the Union requires leave to continue with the prosecution of the two proceedings.

17    The discretion conferred on the Court by s 58(3) is unfettered. In SBA Music Wigney J was called on to exercise the discretion in a case, which, like the present, was ready for trial at the point at which the defendant presented a debtor’s petition under s 55 of the Act.

18    In dealing with the application his Honour said that:

“26    A consideration relevant to the exercise of the discretion to grant leave is whether the facts and issues the subject of the relevant proceedings are sufficiently complex that it would be preferable for the facts and issues to be resolved at a hearing, rather than by the trustee considering a proof of debt. In Allanson, Bowen CJ, Riley and Deane JJ said (at 48):

The facts are complex. The claim of Midland Credit is not only against Mr Allanson but against other current defendants who, in some respects, may be jointly and severally liable with him. There is also the question of the defences, some of which form the basis of the cross-claim. It would seem that all of these issues would be better and more comprehensively dealt with by a contested trial of the action in the Supreme Court than could possibly be the case if Midland Credit were required to lodge a proof of debt in respect of its claim against Mr Allanson alone. Such a proof of debt would be in the form of an affidavit and determined by the Official Receiver at such time as the stay ceased to operate. If the Official Receiver disallowed the claim in whole or in part, an appeal on this isolated issue could be brought to the Bankruptcy Court. But in these circumstances, the issues would have been determined in a less satisfactory way and questions between Mr Allanson and the other parties to the action would not be resolved.

27    The nature and state of the relevant proceedings is also likely to be a relevant consideration. Where, as here, all the evidence has been filed and the matter is effectively ready for hearing, it is difficult to see why unsecured creditors would be prejudiced if the proceedings were permitted to continue: see for example Pedersen v Delaveris [2010] FCA 536.

28    The circumstances of SBA’s substantive proceedings against Mr Hall favour the grant of leave. The proceedings were commenced some considerable time ago and are now ready for hearing. The facts are undoubtedly complex. There would be no disadvantage, and indeed there would be considerable advantage, to the trustee and unsecured creditors in having the facts and issues resolved by the Court as opposed to by the trustee by way of a proof of debt. It is also relevant that neither the Official Trustee nor Mr Hall have actively opposed the grant of leave.”

19    Many complex issues are raised in the present proceedings. The trustee has candidly advised the Court that he lacks the resources to deal with such complex claims were they to be advanced by the Union as a creditor in Ms Jackson’s bankrupt estate and the Union then sought to prove those claims. The trustee has not opposed the application.

20    It seems to me that, given the fact that the trial has been fixed for hearing and all necessary preparations made for that hearing, and having regard to the complexity of the issues involved, it is preferable that the Court resolve those issues rather than that they fall for determination by an under-resourced trustee in the course of his dealing with Ms Jackson’s estate. There is no suggestion that the Union is seeking to gain some advantage over Ms Jackson’s other creditors.

21    Accordingly, I will accede to the application made by the Union.

Associate:

Dated:    8 July 2015