FEDERAL COURT OF AUSTRALIA

Psevdos v Commonwealth Bank of Australia [2016] FCA 844

ORDERS

THE COURT DECLARES THAT:

1.    This action was, on 6 June 2016, stayed by the operation of s 60(2) of the Bankruptcy Act 1966 (Cth).

2.    This action is, by the operation of s 60(3) of the Bankruptcy Act 1966 (Cth), deemed to have been abandoned as at the expiry of 18 July 2016.

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

REASONS FOR JUDGMENT

CHARLESWORTH J:

1    This is an appeal against a judgment of the Federal Circuit Court pronounced on 28 April 2016: Psevdos v Commonwealth Bank of Australia [2016] FCCA 978. The primary Judge dismissed the appellant’s application for review of a decision of a Registrar of the Federal Circuit Court to refuse to set aside a bankruptcy notice served upon him by the respondent. The appeal against the judgment of the Federal Circuit Court was filed in this Court on 19 May 2016.

2    On 6 June 2016, a sequestration order was made against the appellant pursuant to s 43 of the Bankruptcy Act 1966 (Cth) (Act) on a petition presented by the respondent: Commonwealth Bank of Australia v Psevdos [2016] FCCA 1480. The petition was founded upon the appellant’s failure to comply with the same bankruptcy notice that forms the subject matter of this appeal. The appellant commenced an appeal against the sequestration order on 27 June 2016. I will refer to that appeal as the Second Appeal.

3    The respondent submits that this appeal was, upon the appellant becoming a bankrupt, stayed by the operation of s 60(2) of the Act and that the appeal is deemed to have been abandoned by the appellant’s trustee in bankruptcy as and from the expiry of 18 July 2016. The respondent seeks orders with declarations to that effect.

4    The respondent also submits that the appeal is rendered futile by reason of the making of the sequestration order against the appellant and seeks an order dismissing the appeal on that alternative ground.

5    For the reasons given below, the declaratory relief should be granted. I will not, however, make any order dismissing the appeal.

CONSIDERATION

6    Section 60 of the Act relevantly provides:

60 Stay of legal proceedings

…

(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 became a bankrupt in respect of:

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

(b)    the death of his or her spouse or de facto partner or of a member of his or her family.

Note:    See also subsection 5(6).

…

(5)    In this section, action means any civil proceeding, whether at law or in equity.

7    A consequence of the sequestration order was that, subject to certain exceptions, the property of the appellant vested in the trustee of the appellant’s bankrupt estate: see s 58(1) of the Act. The property divisible between the appellant’s creditors does not, however, include (among other things) any damages or compensation for personal injury or wrong done to the bankrupt: s 116(2)(g) of the Act.

8    Three issues arise:

(1)    whether this appeal is an action to which s 60(2) of the Act applies;

(2)    whether this appeal meets the description in s 60(4)(a) such that the appellant would be entitled to continue the appeal in his own name notwithstanding anything in s 60;

(3)    whether this appeal is, by the operation of s 60(3) of the Act, deemed to have been abandoned as and from the expiry of 18 July 2016.

Section 60(2)

9    Section 60(2) of the Act applies to an “action” falling within the statutory definition of that word in s 60(5).

10    In my opinion, the right to appeal exercised in the present case is not a chose in action that is properly characterised as property vested in the appellant’s trustee in bankruptcy. As to the nature of a chose in action see Stephen John Williams (liquidator of GP Aviation Group) v Glover and Pearson [2013] EWCH 1447 (Ch); [2014] 1 WLR 166. The appeal is, however, a “civil proceeding” and therefore falls within literal meaning of s 60(5). In its literal meaning, the definition of the word “action” encompasses all civil proceedings, whether or not the right to sue is a chose in action, that is, proprietary in nature and whether or not the right of action is one that is vested in the appellant’s trustee in bankruptcy under s 58(1) of the Act.

11    An issue nonetheless arises as to whether the definition of the word “action” should, by necessary implication, be read down so as to exclude from its ambit a civil proceeding of this kind, namely an appeal concerning the legality of the very bankruptcy notice founding the sequestration order by which the appellant subsequently became a bankrupt. In their literal meaning, s 60(2), s 60(3) and s 60(5) operate to confer upon a person’s trustee in bankruptcy a discretion as to whether or not to prosecute an appeal in which the relief sought may affect a jurisdictional fact upon which the making of the sequestration order and the trustee’s own appointment may depend. I can conceive of no case in which a trustee of a bankrupt’s estate would exercise his or her discretion in favour of prosecuting such an appeal. When that circumstance is considered together with the circumstance that the right of appeal is not a chose in action vesting in the trustee under s 58, the practical operation of the Act invites the question as to whether or not a stay, discontinuance or deemed abandonment of an appeal of this kind is a consequence that could have been intended by the legislature.

12    Whether or not the Act is intended to have a meaning other than its literal meaning is to be decided by applying the principles of statutory construction explained by Mason and Wilson JJ in Cooper Brookes (Wollongong) Pty Ltd v Commissioner of Taxation (1981) 147 CLR 297 at 320 – 321 (Cooper Brookes):

The fundamental object of statutory construction in every case is to ascertain the legislative intention by reference to the language of the instrument viewed as a whole. But in performing that task the courts look to the operation of the statute according to its terms and to legitimate aids to construction.

The rules, as D.C. Pearce says in Statutory Interpretation, p.14, are no more than rules of common sense, designed to achieve this object. They are not rules of law. If the judge applies the literal rule it is because it gives emphasis to the factor which in the particular case he thinks is decisive. When he considers that the statute admits of no reasonable alternative construction it is because (a) the language is intractable or (b) although the language is not intractable, the operation of the statute, read literally, is not such as to indicate that it could not have been intended by the legislature.

On the other hand, when the judge labels the operation of the statute as ‘absurd’, ‘extraordinary’, ‘capricious’, ‘irrational’ or ‘obscure’ he assigns a ground for concluding that the legislature could not have intended such an operation and that an alternative interpretation must be preferred. But the propriety of departing from the literal interpretation is not confined to situations described by these labels. It extends to any situation in which for good reason the operation of the statute on a literal reading does not conform to the legislative intent as ascertained from the provisions of the statute, including the policy which may be discerned from those provisions.

Quite obviously questions of degree arise. If the choice is between two strongly competing interpretations, as we have said, the advantage may lie with that which produces the fairer and more convenient operation so long as it conforms to the legislative intention. If, however, one interpretation has a powerful advantage in ordinary meaning and grammatical sense, it will only be displaced if its operation is perceived to be unintended.

13    In Boensch v Pascoe [2007] FCA 1977 (Boensch) a bankrupt, Mr Boensch, applied for an order for an enquiry under s 179 of the Act as to whether the trustee of his bankrupt estate, Mr Pascoe, should be removed. An issue arose as to whether an appeal that had been commenced by Mr Boensch prior to his becoming a bankrupt was an action to which s 60(2) of the Act applied. The relevant appeal was an appeal to the Federal Court against a judgment that was itself made on an appeal against a refusal to set aside a bankruptcy notice. The same bankruptcy notice was served upon Mr Boensch and his failure to comply with it constituted the act of bankruptcy upon which the order sequestrating his estate was founded. Buchanan J said (at [22] – [23]):

[22]    Counsel for Mr Boensch argued that the appeal was not ‘property’ and therefore did not vest in the trustee under s 58 of the Act. He relied on Jury v Westpac Corporation [1997] FCA 1277 (‘Jury’) and Kellow v Dudzinski [2003] FCA 238 (‘Dudzinski’). However the proposition is misdirected. Sections 58 and 60 of the Act have different work to do. In particular, s 60 applies only to proceedings on foot when a bankruptcy commences. It had no application in Jury or Dudzinski. By contrast in Moore v Macks [2007] FCA 10 (which counsel for Mr Boensch suggested was decided contrary to Jury and Dudzinski and without referring to them) Besanko J considered an appeal instituted before the appellant was made bankrupt. Section 60 applied directly. There was no occasion to refer to Jury or Dudzinski which each proceeded from different statutory foundations. The reasoning in Moore v Macks is against the proposition argued by Mr Boensch.

[23]    The challenge which Mr Boensch wished to pursue, in the appeal before Lindgren J, related to the bankruptcy notice upon which the sequestration order was founded, the dismissal of his application to set it aside and dismissal of one earlier appeal against that decision. Subject to the operation of s 60(4) I see no reason to doubt that the appeal brought by Mr Boensch to this Court was an ‘action’ as defined by s 60(5) and was in the control of his trustee from 23 August 2005.

14    The nature and subject matter of the action there under consideration by Buchanan J is not relevantly different from the nature and subject matter of this appeal. It is implicit in Buchanan J’s reasons that the literal meaning of the Act has a powerful advantage in the sense referred to by Mason and Wilson JJ in Cooper Brookes which is not displaced by the considerations to which I have referred in paragraph 11 of these reasons.

15    The appellant referred to the judgment of Edelman J, then of the Supreme Court of Western Australia, in Duckworth v Water Corporation (2012) 261 FLR 185; [2012] WASC 30 (Duckworth). He acknowledged that the decision did not assist him, but made submissions to the effect that I should not follow it. In that case a question arose as to whether s 60(2) of the Act operated to stay an action commenced by a bankrupt in his capacity as a trustee. The trust property was not property that vested in the trustee of the bankrupt’s estate under s 58(1) of the Act. Edelman J referred to the decision of this Court in Re Lofthouse (2001) 107 FCR 151; [2001] FCA 25 (Re Lofthouse) in which Gray J concluded that proceedings commenced by a person in his capacity as a bare trustee were stayed upon that person subsequently becoming a bankrupt. After acknowledging that the question was one in respect of which there was “very little authority”, Edelman J determined that, in accordance with a long standing rule of precedent, he should follow the decision of Gray J Re Lofthouse because it was not plainly wrong: see Farrah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89 at 151-152 [135] (Farrah Constructions). Both Edelman J and Gray J held that s 60(2) operated to stay the actions before them notwithstanding that the trust property forming the subject matter of the action was not property vesting in the bankrupt’s trustee in bankruptcy. In so concluding, Edelman J identified the policy said to underlie s 60(2) of the Act as follows:

[43]    It has often been repeated that one rationale behind s 60(2) is ‘to protect those whom the bankrupt has been suing’: Re Lofthouse (at [19]); Owens v Comlaw (No 62) Pty Ltd (at [40]) (Ashley JA; Redlich JA agreeing). In Want v Moss (1889) 10 LR (NSW) 274 at 279, Manning J said that ‘it would be monstrous if … a bankrupt, who can have no means to pay costs if he fails, should be allowed to go on and put the plaintiff to trouble and expense’.

[44]    The reason why those whom the bankrupt has been suing need protection is because ‘if the defendant or other party should be successful in the proceeding, and should obtain an order that the [bankrupt] pay the costs of the proceeding, the order will be effectively unenforceable because of the bankruptcy’: Re Lofthouse (at [19]); Owens v Comlaw (No 62) Pty Ltd at [40] (Ashley JA); Temsign Pty Ltd v Biscen Pty Ltd (at 54; at 183) (Wheeler J).

16    The decisions in Duckworth and Re Lofthouse have the consequence that actions of the kind described in them will be stayed by the operation of s 60(2) in circumstances where they are commenced by a person who subsequently becomes a bankrupt, and yet proceedings of the same nature commenced after the person becomes a bankrupt may be continued, provided that the bankrupt otherwise has standing to commence them and continue them. Cases of the latter kind may well be rare, but the Act does not contain any express provision protecting a bankrupt’s opponents in such actions from the “monstrous” consequence that costs orders made against the bankrupt might remain wholly or partially unsatisfied. When viewed in that light, it is difficult to discern any consistent legislative policy underlying the Act in its application to legal proceedings commenced by a person before or after the person becomes a bankrupt insofar as the costs consequences of litigation are concerned.

17    Notwithstanding my doubts as to the policy underlying s 60(2) as expressed in Duckworth and Re Lofthouse, the decisions are consistent with the express wording of the provision. Like the judgment of Buchanan J in Boensch, the decisions are not plainly wrong. It is appropriate that I follow them: Hicks v Minister for Immigration & Multicultural Indigenous Affairs [2003] FCA 757 (at [75]).

18    In expressing that view, I have proceeded on the basis that the Act ought not to be interpreted in a way that would preclude review by this Court of the lawfulness of a bankruptcy notice issued by the Official Receiver under s 41 of the Act. In my opinion, the Act does not operate to preclude such a review, even in circumstances where there has been an unsuccessful application to have the bankruptcy notice set aside and an unsuccessful application for review of such a refusal before the Federal Circuit Court and then an appeal from that decision to this Court stayed pursuant to s 60(2). A challenge to the legality and validity of a bankruptcy notice is one that may be made collaterally in an appeal against the sequestration order itself, notwithstanding the stay of this appeal. Counsel for the respondent acknowledged that the operation of s 60(2) and s 60(3) of the Act on this appeal would not preclude a collateral challenge to the validity of the bankruptcy notice being made by the appellant in the context of the Second Appeal. He confirmed his instructions that the respondent would not make a submission to the contrary in that action, whether by raising an estoppel or otherwise.

19    I am satisfied that this action is one that was, as at 6 June 2016 stayed by the operation of s 60(2) of the Act, subject to the application of s 60(4).

Section 60(4)

20    The appellant submitted that this appeal was an action in respect of a personal wrong done to him within the meaning of s 60(4)(a). He elaborated on that submission by reference to the effect of the sequestration order on his personal and professional character and status, including his disqualification from acting as a financial advisor. The appellant’s submissions did not distinguish between the effect of the issue of the bankruptcy notice and the effect of the making of the sequestration order, although nothing ultimately turns on that distinction.

21    In his recitation of orders sought on the appeal, the appellant claims “Compensation for Loss and Damage sustained”. It does not fall within the appellate jurisdiction of this Court to grant relief of that kind. The relief properly sought on the appeal is an order setting aside the bankruptcy notice and an order for costs.

22    In Cox v Journeaux (No 2) (1935) 52 CLR 713 at 721, Dixon J identified the test under a provision equivalent to s 60(4)(a) as being (emphasis added):

… whether the damages or part of them are to be estimated by immediate reference to pain felt by the bankrupt in respect of his mind, body or character and without reference to his rights of property.

23    Even accepting the appellant’s submission that the issue of the bankruptcy notice and the sequestration order founded upon it were damaging to his personal reputation, and even if this Court, in the exercise of its appellate jurisdiction, may grant compensatory relief in respect of that damage, the damage is not capable of being estimated without reference to the appellant’s status as a bankrupt and the legal effect of that status on his property rights. As observed by Buchanan J in Boensch (at [24] – [25]):

[24]    Section 60(4) has been held to apply only where the relief sought is to be assessed ‘by immediate reference to pain felt by the bankrupt in respect of his mind, body or character and without reference to his rights of property’ (see Cox v Journeaux (No 2) (1935) 52 CLR 713 at 721; Faulkner v Bluett (1981) 52 FLR 115 at 119; and Rogers v Asset Loan Co Pty Ltd [2006] FCA 434 at [44] – [45]).

[25]    At the heart of Mr Boensch’s challenge to the bankruptcy notice was an issue concerning his property. His property was directly affected both by the judgment [the petitioning creditor] obtained and by the various costs orders made against him. Those matters did not involve personal interests severable from his property (see Daemar v Industrial Commission of New South Wales (1988) 12 NSWLR 45 at 55 – 56). Section 60(4) did not apply in my view.

24    The view expressed by Buchanan J is, with respect, the correct one. This appeal is not an action to which s 60(4)(a) applies.

Abandonment

25    On 20 June 2016, the respondents’ solicitors served on the appellant’s trustee in bankruptcy a notice pursuant to 60(3) of the Act in respect of this appeal. The 28 day period specified in s 60(3) of the Act ended at the expiry of 18 July 2016: see Item 6 of s 36(1) of the Acts Interpretation Act 1901 (Cth).

26    On 19 July 2016, the appellant’s trustee in bankruptcy made an election in writing “not to prosecute” the appeal. At the time that the trustee’s election was made, the appeal was already deemed to have been abandoned by the operation of s 60(3) of the Act. The election is one having no legal effect on the status of this appeal.

Utility

27    In the circumstances, it is unnecessary to consider the respondent’s alternative submission that the appeal should be dismissed on the ground that there is no utility in the relief sought. On that question, the appellant submitted that the dismissal of the appeal would preclude him from pursuing his appeal against costs orders made by the Federal Circuit Court. However, the effect of my reasons is that this appeal was, from 6 June 2016, stayed by the operation of s 60(2) of the Act and, at the expiry of 18 July 2016, abandoned by the appellant’s trustee in bankruptcy by the operation of s 60(3) of the Act. There is no appeal on foot in which the Court may order that the appeal be dismissed on the ground of futility.

RELIEF

28    The respondent seeks declaratory relief concerning the operation of the Act on this appeal. I am satisfied that the matter is one in which the making of declarations is appropriate. I will make declarations pursuant to s 21 of the Federal Court Act 1976 (Cth) specifying the date upon which the appeal was stayed by the operation of the Act and the date from which the appeal is deemed to have been abandoned by the appellant’s trustee in bankruptcy.

Associate:

Dated:    27 July 2016