Federal Court of Australia

Hurdis v Jones (Trustee), in the matter of Hurdis [2022] FCA 980

ORDERS

THE COURT ORDERS THAT:

1.    The applicant be granted leave to file an amended statement of claim in the form of the draft provided to the Court on 10 August 2022, incorporating the additional change foreshadowed to the Court on 11 August 2022, subject to expressly limiting paragraph 17 to the applicant’s misleading and deceptive conduct claim under the Australian Consumer Law, being Schedule 2 to the Competition and Consumer Act 2010 (Cth), and the deletion of paragraphs 3(x), 11, 13(xv), 14, 15 (first time appearing), 16 (first time appearing) and 18.

2.    The applicant pay 75% of the costs of the Trustee of and incidental to the determination of the applicant’s interim application dated 16 June 2022.

3.    Leave be granted to the applicant to file an amended originating application by 4.30 pm on Monday, 29 August 2022.

4.    The matter be listed for a further case management hearing at 9.30 am on Wednesday, 24 August 2022.

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

REASONS FOR JUDGMENT

HALLEY J:

Introduction

1    By an interim application dated 16 June 2022, the applicant, Mr Mark Hurdis, seeks leave to file an amended statement of claim. The most recent form of the proposed amended statement of claim was provided to the Court on 10 August 2022 (Proposed ASOC) following a hearing that was conducted on 4 and 5 August 2022.

2    The applicant is a discharged bankrupt.

3    The applicant seeks to advance claims against the respondent who is the trustee of his bankrupt estate, Michael Jones, (Trustee). The claims are advanced under the misleading and deceptive and unconscionable conduct provisions of the Australian Consumer Law (ACL), being Schedule 2 to the Competition and Consumer Act 2010 (Cth) (CCA), unconscionability under the general law, deceit and alleged breaches of trust in connection with the administration by the Trustee of the applicant’s bankrupt estate. The applicant seeks damages, declarations, an indemnity, aggravated damages and exemplary damages.

4    The principal underlying concern of the applicant appears to be a representation made by the Trustee to the applicant prior to his appointment as trustee that he would not seek to make any claim against the matrimonial property that was held exclusively in the applicant’s wife’s name. The Trustee has now brought proceedings in this Court, NSD1228/2021, against the applicant’s wife, Dr Frances Chua, seeking a declaration that Dr Chua holds 50% of her interest in the matrimonial home on trust for the applicant (Trustee Proceedings).

5    The numbering of the paragraphs in the Proposed ASOC is unfortunately not sequential. There are two paragraphs numbered 15 and two paragraphs numbered 16 in the Proposed ASOC. In order to avoid unnecessary complexity and confusion, for the purposes of these reasons, I have referred to the paragraphs presently numbered 15, 16, 15, 16, 17, 18, 19 and 20 as paragraphs numbered 15, 16, 15A, 16A, 17, 18, 19 and 20.

6    The Trustee objects to the inclusion of paragraphs 3(x), 9, 11, 12, 13(xv), 14, 15, 16, 15A, 16A, 17 and 18 in the Proposed ASOC.

7    For the reasons that follow, I am satisfied that with the exception of paragraphs 9, 12, 15A and 16A, the paragraphs objected to by the Trustee do not disclose a reasonable cause of action or are otherwise likely to cause prejudice, embarrassment or delay in the proceeding, and leave to file the Proposed ASOC will not extend to the inclusion of those paragraphs in the pleading.

Background

8    In the period between 24 March 2022 and 11 May 2022, the parties exchanged correspondence concerning complaints advanced by the Trustee with respect to the statement of claim, including the adequacy of the particulars supplied. The applicant accepted some of the complaints made by the Trustee.

9    On 18 May 2022, Markovic J made an order on the application of the applicant that the statement of claim be struck out. Her Honour also made orders for the applicant to provide a draft amended statement of claim to the Trustee and if the Trustee did not consent to the filing of that document then the applicant was to file any application for leave to file the draft amended statement of claim, together with any affidavits in support, by 17 June 2022.

10    On 12 June 2022, the applicant served a draft statement of claim. The Trustee did not consent to the filing of the draft statement of claim.

11    On 16 June 2022, the applicant filed the interim application seeking leave to file the draft statement of claim. The interim application was set down for hearing before me on 18 July 2022.

12    On 24 June 2022, the applicant served a revised draft statement of claim.

13    On 18 July 2022, after hearing oral submissions from both parties I adjourned the hearing of the interim application and made orders that the applicant serve a copy of any further revised statement of claim by 27 July 2022, for the filing and service of further written submissions by the parties, and listed the hearing of any application to rely upon a further revised draft statement of claim on 4 August 2022.

14    On 27 July 2022, the applicant served a further revised draft statement of claim.

15    The application to rely upon the further revised draft statement of claim was heard on 4 and 5 August 2022. At the conclusion of the hearing on 5 August 2022, Mr Hall, the solicitor who appeared for the applicant, foreshadowed that the applicant might withdraw allegations concerning the conduct by the Trustee of his administration of the bankrupt estate of Mr Adam Coombs from the further revised draft statement of claim.

16    On 10 August 2022, the applicant informed the Court that he no longer sought to include in the proposed amended statement of claim allegations concerning the Trustee’s administration of the bankrupt estate of Mr Coombs and provided a revised version of the proposed amended statement of claim (being the Proposed ASOC) with those allegations marked up as deleted. The applicant also on that day served a notice of intention to adduce tendency evidence with respect to the administration by the Trustee and his line manager, Ms Nicole Greentree, of the administration of the bankrupt estate of Mr Coombs.

Relevant statutory principles and principles

17    Rule 16.21 of the Federal Court Rules 2011 (Cth) (Rules) provides:

(1)     A party may apply to the Court for an order that all or part of a pleading be struck out on the ground that the pleading:

(a)     contains scandalous material; or

(b)     contains frivolous or vexatious material; or

(c)     is evasive or ambiguous; or

(d)     is likely to cause prejudice, embarrassment or delay in the proceeding; or

(e)     fails to disclose a reasonable cause of action or defence or other case appropriate to the nature of the pleading; or

(f)     is otherwise an abuse of the process of the Court.

(2)     A party may apply for an order that the pleading be removed from the Court file if the pleading contains material of a kind mentioned in paragraph (1)(a), (b) or (c) or is otherwise an abuse of the process of the Court.

18    The power to strike out a pleading pursuant to r 16.21 of the Rules on the ground that it does not disclose a reasonable cause of action, like a power to summarily dismiss a proceeding, should be employed sparingly, with caution and only in a clear case: Morris v IMF Bentham Limited [2018] FCA 1009 (Morris) at [67] (Wigney J), citing Trade Practices Commission v Pioneer Concrete (Qld) Pty Limited (1994) 52 FCR 164 at 175 (Sheppard J, with whom Jenkinson and Drummond JJ agreed).

19    Rule 16.42 of the Rules provides:

A party who pleads fraud, misrepresentation, unconscionable conduct, breach of trust, wilful default or undue influence must state in the pleading particulars of the facts on which the party relies.

20    Any claim for a “wrong” cannot be read in isolation and must be read in the context in which it appears: Daemar v Industrial Commission of NSW and Others (1988) 12 NSWLR 45 at 55 (Kirby P, as his Honour then was). In Cox v Journeaux and Others (No 2) (1935) 52 CLR 713, Dixon J at 721 explained that:

The test appears to be 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.

21    Section 58(1) of the Bankruptcy Act 1966 (Cth) (Bankruptcy Act) provides that property of the bankrupt at the time a debtor becomes a bankrupt and property acquired after the debtor becomes bankrupt vests in the Official Trustee or, if appointed, a registered trustee of the bankrupt’s estate.

22    Section 116(1) of the Bankruptcy Act provides that all property of the bankrupt that vested at the commencement of the property or subsequently vested prior to the discharge of the bankrupt, together with the capacity to take proceedings over, or in respect of property that might otherwise have been exercised by the bankrupt for his or her own benefit at any time between the commencement of the bankruptcy and the discharge of the bankrupt, is divisible property amongst the creditors of the bankrupt.

23     Section 116(2)(g) of the Bankruptcy Act provides that 116(1) does not extend to the following:

(2)    Subsection (1) does not extend to the following property:

…

(g)    any right of the bankrupt to recover damages or compensation:

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

(ii)     in respect of the death of the spouse or de facto partner of the bankrupt or a member of the family of the bankrupt;

and any damages or compensation recovered by the bankrupt (whether before or after he or she became a bankrupt) in respect of such an injury or wrong or the death of such a person;

24    In Moss (aka Miller) v Eaglestone (2011) 285 ALR 656; [2011] NSWCA 404 (Moss), Allsop P, as his Honour then was, after explaining the distinctions drawn in the authorities between damage to property and injuries done personally to a bankrupt, such as injuries to reputation, character, feelings and personal harm, stated at [64]:

Thus, when one comes to the words of ss 60(4) and 116(2)(g) it is to be recognised that the background and context are, through various colonial and state, and later commonwealth provisions, reflective of, and embodying, the notions within the common law of bankruptcy. That assists in appreciating that the distinction (in ss 60(4) and 116(2)(g)) between person and property is a substantive one. It was a distinction made by courts and judges of the highest authority who declared it to be unjust and harsh that the estate of the bankrupt and the participating creditors should be swelled and advantaged by a wrong to the person or reputation of the bankrupt.

25    As Wigney J explained in Morris at [71]:

The test of whether a cause of action seeks damage or compensation “for personal injury or wrong” is “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”: Cox v Journeaux (No 2) (1935) 52 CLR 713 at 721; Daemar v Industrial Commission (NSW) (1988) 12 NSWLR 45 at 55–56; Bryant v Commonwealth Bank of Australia (1997) 75 FCR 545 at 562–563. In Faulkner v Bluett (1981) 52 FLR 115 at 119, Lockhart J said:

The common thread running through these cases is that where the primary and substantial right of action is direct pecuniary loss to the property or estate of the bankrupt, the right to sue passes to the trustee notwithstanding that it may have produced personal inconvenience to the bankrupt … Where the essential cause of action is the personal injury done to the person or feelings of the bankrupt the right to sue remains with the bankrupt.

26    A claim for damages for wrong that is not severable from or directly consequential upon interference with property rights does not survive the stay pursuant to s 60(2) of the Bankruptcy Act: Moss at [77]. The Court concluded in Moss that there was a separate and distinct cause of action for defamation of the appellant’s criminal record but then stated at [77]:

It remains for another occasion to explore how far cases such as these should be taken to deny a bankrupt a substantive claim for non-pecuniary and personal damage which would otherwise fall within the description of the consequence of “personal injury or wrong” because of its connection to an otherwise indivisible cause of action, and whether, and if so to what extent, ss 60(4) and 116(2)(g) can be seen to operate to divide the value of an action between trustee and bankrupt, or the extent to which the approach of the Court of Appeal in Ord is to be, or might be, applied under the Act. In this respect, the following passage from Lockhart J’s reasons in Faulkner at 119 is relevant:

There is still some doubt whether a right of action passes to the trustee where one and the same cause of action results in substantial damage to the property of the bankrupt as well as substantial injury to his person or annoyance to his feelings: Beckham v Drake; Hodgson v Sidney; Morgan v Steble. In England the accepted view seems to be that such a cause of action passes to the trustee so far as it relates to the property of the bankrupt, and remains with the bankrupt so far as it relates to his person or feelings: Wilson v United Counties Bank Ltd. Some of the problems that arise from this notion of a “mixed action” appear from cases such as Wilson v United Counties Bank Ltd and Beckham v Drake.

See also Bride v Peat Marwick Mitchell [1989] WAR 383 at 392–393 and Coyne v Commercial Equity Corporation Ltd (1998) 20 WAR 109 at 116–117 and the cases there cited.

27    In Rogers v Asset Loan Co Pty Ltd [2006] FCA 1708, the bankrupt alleged that the respondent’s conduct was unconscionable (s 51AA) or misleading or deceptive (s 52) under the Trade Practices Act 1974 (Cth) and constituted a personal action that fell within s 116(2)(g). Justice Collier dismissed the proceedings on the basis that the bankrupt lacked standing in almost all counts on account of his bankruptcy. Her Honour concluded that even if the applicant did have standing under s 116(2)(g) of the Bankruptcy Act because he had rights to recover damages or compensation in respect of personal injuries or wrongs, throughout the statement of claim he had consistently failed to particularise the personal injury or wrong done to him and failed to draw a nexus between the conduct of the respondents and any personal injury or wrong done to him.

28    Section 90-15 of Schedule 2 to the Bankruptcy Act, being the Insolvency Practice Schedule (Bankruptcy) (IPS(B)) relevantly provides:

Court may make orders

(1)     The Court may make such orders as it thinks fit in relation to the administration of a regulated debtor’s estate.

...

Examples of orders that may be made

(3)     Without limiting subsection (1), those orders may include any one or more of the following:

(a)     an order determining any question arising in the administration of the estate;

(b)     an order that a person cease to be the trustee of the estate;

(c)     an order that another person be appointed as the trustee of the estate;

(d)     an order in relation to the costs of an action (including court action) taken by the trustee of the estate or another person in relation to the administration of the estate;

(e)     an order in relation to any loss that the estate has sustained because of a breach of duty by the trustee;

(f)     an order in relation to remuneration, including an order requiring a person to repay to the estate of a regulated debtor, or the creditors of a regulated debtor, remuneration paid to the person as trustee.

Matters that may be taken into account

(4)     Without limiting the matters which the Court may take into account when making orders, the Court may take into account:

(a)     whether the trustee has faithfully performed, or is faithfully performing, the trustee’s duties; and

(b)     whether an action or failure to act by the trustee is in compliance with this Act and the Insolvency Practice Rules; and

(c)    whether an action or failure to act by the trustee is in compliance with an order of the Court; and

(d)    whether the regulated debtor’s estate or any person has suffered, or is likely to suffer, loss or damage because of an action or failure to act by the trustee; and

(e)    the seriousness of the consequences of any action or failure to act by the trustee, including the effect of that action or failure to act on public confidence in registered trustees as a group.

Costs orders

(5)     Without limiting subsection (1), an order mentioned in paragraph (3)(d) in relation to the costs of an action may include an order that:

(a)    the trustee or another person is personally liable for some or all of those costs; and

(b)     the trustee or another person is not entitled to be reimbursed by the regulated debtor’s estate or creditors in relation to some or all of those costs.

Orders to make good loss sustained because of a breach of duty

(6)     Without limiting subsection (1), an order mentioned in paragraph (3)(e) in relation to a loss may include an order that:

(a)     the trustee is personally liable to make good some or all of the loss; and

(b)     the trustee is not entitled to be reimbursed by the regulated debtor’s estate or creditors in relation to the amount made good.

Section does not limit Court’s powers

(7)     This section does not limit the Court’s powers under any other provision of this Act, or under any other law.

29    Sections 137C(1) and 137E(1) of the CCA provide:

137C Limits on recovery of amounts for death or personal injury

(1)    A person is not entitled to recover an amount of loss or damage by action under subsection 236(1) of the Australian Consumer Law to the extent to which:

(a)     the action would be based on the conduct contravening a provision of Part 2‑1 or 3‑1 of the Australian Consumer Law; and

(b)     the loss or damage is, or results from, death or personal injury; and

(c)     the death or personal injury does not result from smoking or other use of tobacco products.

137E Limits on compensation orders etc. for death or personal injury

(1)     A court must not make an order under subsection 237(1) or 238(1) of the Australian Consumer Law to compensate a person for loss or damage the person suffers because of the conduct of another person to the extent to which:

(a)     the action would be based on the conduct contravening a provision of Part 2-1 or 3-1 of the Australian Consumer Law; and

(b)    the loss or damage is, or results from, death or personal injury; and

(c)     the death or personal injury does not result from smoking or other use of tobacco products.

30    The applicant seeks to advance the following claims against the Trustee in the Proposed ASOC:

(a)    in or about May 2019, the Trustee made a series of representations to the applicant, including that as he had entered into a financial agreement with his spouse for the purposes of the Family Law Act 1975 (Cth), his circumstances were “bullet proof” and his creditors would not be able to enforce any claim against him (First Representations) (Proposed ASOC at [4]);

(b)    in reliance on the First Representations the applicant appointed the Trustee as his trustee in bankruptcy (Proposed ASOC at [5]);

(c)    following his appointment the Trustee made a series of representations to the applicant to the effect that the bankruptcy was proceeding “passively”, there was no creditor interest in his bankruptcy and with respect to obtaining a valuation of his BMW motor vehicle (Subsequent Representations) (Proposed ASOC at [6]);

(d)    in or about June 2020, the original manager of the Trustee with responsibility for the management of the applicant’s estate was replaced by Ms Greentree (Proposed ASOC at [7]);

(e)    in or about October 2020, the Trustee and Ms Greentree made various demands to the applicant at a meeting including that the applicant should pay an amount of $250,000 to the Trustee and if the payment was not made he would make a claim on the property of the applicant’s wife, Dr Chua (Payment Demand) (Proposed ASOC at [8]);

(f)    the conduct of the Trustee in respect of the First Representations was a wrong done to the applicant for the purposes of ss 58 and 116(2)(g) of the Bankruptcy Act and was misleading and deceptive conduct for the purposes of the ACL (Proposed ASOC at [9]);

(g)    in the context of the First Representations, the Payment Demand was neither fair nor ethical, nor was it honest conduct and it was thereby in breach of the provisions of Division 42 of Schedule 2 to the Bankruptcy Act (Proposed ASOC at [10]);

(h)    further and in the alternative, the First Representations were misleading and deceptive for the purposes of the ACL because at the time they were made, they were a wrong done to the applicant that related to a future matter and the Trustee had no reasonable basis to make them (Proposed ASOC at [11]);

(i)    further and in the alternative, the conduct of the Trustee was a wrong done to the applicant and was unconscionable for the purposes of the ACL, under the general law and in breach of the Trustee’s duty to the applicant to act justly and reasonably in performing his duties as a trustee (Proposed ASOC at [12]);

(j)    in the course of his administration of the applicant’s estate the Trustee;

(i)    failed to act honestly in relation to the administration of the bankrupt estate to which he had been appointed trustee;

(ii)    assisted in the making of and signed documents that he knew, or ought reasonably have known, to be false or misleading in a material particular;

(iii)    failed to behave with integrity and in an honest manner in all professional relationships, and failed to avoid any conduct that would discredit the profession;

(iv)    failed to provide professional services with reasonable care, and with a reasonable and appropriate degree of skill;

(v)    failed to lead by example and act in a way that exemplifies the kind of professional conduct that is expected of others;

(vi)    failed to act in an open and transparent manner;

(vii)    failed to act ethically or to allow fairness to inform his decision making;

(viii)    failed to be attendant, compassionate and responsive to his duties having regard to the vulnerabilities of all relevant stakeholders, including the bankrupt;

(ix)    failed to observe his duties as a trustee in the administration of bankrupt estates;

(x)    failed to preserve and safeguard trust property in the administration of bankrupt estates;

(xi)    failed to act in good faith and to maintain honesty and fidelity to the beneficiaries;

(xii)    failed to properly communicate with the beneficiaries;

(xiii)    was deceitful;

(xiv)    exploited his position for personal gain; and

(xv)    failed to conduct himself as a fit and proper person in the course of his professional practice as an insolvency practitioner, or to carry on the duties of a trustee in bankruptcy properly

(Proposed ASOC at [13]); and

(k)    the conduct of the Trustee was deceitful and was in contravention of his duties as a trustee, contravened Practice Statement No. 19 and was in breach of his duties as a trustee and as a trustee in bankruptcy, including his duties to the applicant and his estate (Proposed ASOC at [14]).

31    In summary, the applicant seeks to advance the following substantive causes of action:

(a)    breaches of fiduciary duty;

(b)    misleading and deceptive conduct under the ACL;

(c)    unconscionability under the general law and the ACL; and

(d)    deceit.

32    The applicant claims the following relief:

(a)    a declaration that the Trustee has failed to properly and faithfully perform the duties of a trustee in Bankruptcy concerning the applicant’s bankrupt estate, and that he is not a fit and proper person to fulfil the role and to perform the duties of a trustee in bankruptcy in relation to the applicant’s bankrupt estate (Proposed ASOC at [15]);

(b)    a declaration that the manner in which the Trustee administered the applicant’s bankrupt estate was a “wrong done” to the Bankrupt, and was in breach of duty and including the fiduciary duties and duties that the Trustee as trustee owed to the applicant (Proposed ASOC at [16]);

(c)    orders pursuant to s 30 of the Bankruptcy Act, clauses 90-15 and 90-20 of the IPS(B) or s 237 of the ACL that the Trustee cease to be the trustee of the applicant’s bankrupt estate (Proposed ASOC at [15A(i)]);

(d)    orders pursuant to s 30 of the Bankruptcy Act, clauses 90-15 and 90-20 of the IPS(B) or s 237 of the ACL that the Trustee indemnify Dr Chua from all claims, losses or costs that have accrued to her or that have arisen or been incurred by her in respect of the Trustee Proceedings (Proposed ASOC at [15A(ii)]);

(e)    general damages for stress and aggravation to which the applicant has been subjected as a consequence of the Trustee’s conduct and behaviour (Proposed ASOC at [16A]);

(f)    aggravated damages on account of the increased distress he suffered as a result of the Trustee’s conduct and the additional humiliation, stress and worry to which he was subjected (Proposed ASOC at [17]);

(g)    exemplary damages (Proposed ASOC at [18]); and

(h)    costs (Proposed ASOC at [20] SOC).

Consideration

33    I turn now to consider the respondent’s objections to the Proposed ASOC.

Paragraph 3(x)

34    It is alleged in the Proposed ASOC at paragraph 3(x) that the Trustee was required to “observe all the obligations and duties as the law recognises as applying to a trustee”. The Trustee submits that a pleading should identify with precision the relevant obligations and duties which are said to arise and to whom they are owed. This is necessary, it is submitted, in order to identify any loss which allegedly flowed from an alleged breach.

35    I am satisfied that the allegation in paragraph 3(x) serves no useful purpose. It does not identify any specific obligation or duty that applies to a trustee. The specific duties that are alleged to be owed by the Trustee, as a registered trustee in bankruptcy, are set out at paragraphs 3(i)-(ix) and (xi)-(xvi).

36    Leave will not be granted to rely on paragraph 3(x) in the Proposed ASOC.

ACL claims

37    The applicant seeks to advance misleading and deceptive conduct and unconscionability claims under the ACL. The misleading and deceptive conduct claims are advanced in the Proposed ASOC at paragraphs 9, 11 and the unconscionability claims are advanced in the Proposed ASOC at paragraph 12.

38    The applicant claims damages and/or compensation under ss 236 and 237 of the ACL (at [16A]) and orders that the Trustee cease to be a trustee of the applicant’s bankrupt estate and an indemnity for Dr Chua in respect of any claims, losses or costs that might have accrued to her by reason of the Trustee Proceedings (at [15A]).

39    The Trustee submits that the ACL claims should not be permitted.

40    First, the Trustee submits that the loss or damage claimed by the applicant is precluded by ss 137C (and although not expressly stated, presumably also 137E) of the CCA. The loss or damage is identified in the particulars to paragraph 16A of the Proposed ASOC as comprising first, suffering insult, humiliation, embarrassment, reduced self-esteem, an inability to deal with his own circumstances and such other injury including psychological injury as the applicant may later particularise, second, loss of dignity and distress and including nervous shock, and psychological injury, of which the Plaintiff may later lead evidence and particularise, and which has been suffered by him, and third, a claim for vexation.

41    The Trustee submits that the loss or damage particularised in the Proposed ASOC falls within the expression “loss or damage” in respect of or arising out of “personal injury” in ss 137C of the CCA. The words “personal injury” for the purpose of those sections is defined in s 130 of the CCA in the following terms:

“personal injury” includes:

(a)     prenatal injury; and

(b)     impairment of a person's physical or mental condition; and

(c)    disease,

but does not include an impairment of a person’s medical condition unless the impairment consists of a recognised psychiatric illness.

42    In my view, given the inclusive definition of “personal injury”, the exclusion of medical conditions other than recognised psychiatric illnesses and the breadth of the particularised non-economic “loss or damage” by the applicant, it is not at all clear the extent to which the expression “personal injury” in ss 137C (and, I note, 137E) of the CCA is synonymous with or otherwise equivalent to “personal injury” for the purposes of s 116(2)(g) of the Bankruptcy Act.

43    I accept that it reasonably arguable that at least some of the applicant’s particularised “loss or damage” might fall within the s 116(2)(g) exclusion from being divisible property and at the same time not fall within the definition of “personal injury” in s 130 of the CCA.

44    Moreover, the exclusion in s 116(2)(g) extends to a “wrong done to the bankrupt”. It is not limited to “personal injury”.

45    Second, the Trustee submits that any claims for general damages are inseverable from or directly consequential upon the applicant’s property rights as a consequence of his bankruptcy. He submits that the claims are therefore divisible property among the applicant’s creditors and fall outside the exclusion in s 116(2)(g) and vest in the Trustee.

46    The Trustee submits that any stress or aggravation that is caused to the applicant is linked to his property rights because on the execution of the debtor’s petition, all of the applicant’s property vested in the Trustee. He submits that in substance the applicant is seeking to advance a claim that he has suffered stress and humiliation by virtue of a trustee exercising his powers as a bankruptcy trustee in recovering assets for the benefit of creditors.

47    The applicant submits that the claims he seeks to advance in the Proposed ASOC are for personal injury to him, divorced from any right to property. He submits that that this is a case concerned with conduct of the Trustee carried out contrary to the manner in which the Trustee had represented that he would administer the estate of the applicant. He submits that the Trustee, by a process of circuitous reasoning, appears to be suggesting that the right to sue a trustee in order to bind him to his promises vests in the trustee.

48    I consider that the ACL claims sought to be advanced in the Proposed ASOC might fairly be characterised as novel and claims that sit on the borderline between property that has or has not vested in the Trustee. Further, causation with respect to the misleading and deceptive conduct claims appears to be limited to a claim that the applicant was induced by the First Representations to agree to the appointment of the Trustee as his particular trustee in bankruptcy, not that he was induced to proceed with his debtor’s petition and file for bankruptcy. I am not satisfied, however, that it is not reasonably arguable that the applicant has standing to bring them.

49    The ACL claims advanced in the Proposed ASOC are directed at the manner in which the Trustee has administered the estate of the applicant, not with property of the applicant that has vested in the Trustee. I am satisfied that the ACL claims are arguably causes of action for personal injury done to the applicant or his feelings falling within s 116(2)(g): Faulkner v Bluett (1981) 52 FLR 115 at 119 (Lockhart J). The loss or damage alleged extends beyond damage to the applicant’s reputation flowing from the applicant’s bankruptcy unlike Morris at [73] (Wigney J).

50    Further, there does appear to be at least, prima facie, a circularity in the proposition that claims that a bankrupt may have against a Trustee in respect of the conduct of the administration of his estate vest in the Trustee because they are inseverable or consequential upon interference with his property rights, given the vesting of all his property in the Trustee.

51    I am not satisfied, however, that leave should be given to include paragraph 11 in the Proposed ASOC. In its present form, it is likely to cause prejudice, embarrassment or delay in the proceeding. The particulars provided of the alleged absence of any reasonable basis simply contend that the Trustee was the person in the position to have determined whether he would have acted in accordance with the First Representations. They are not directed at matters from which it could be determined that there was an absence of reasonable grounds for the making of the representations at the time that they were made.

Unconscionability claims under the general law

52    The unconscionability claim under the general law is advanced in paragraph 12 and relief by way of damages or compensation is alleged in paragraph 16A of the Proposed ASOC.

53    I am satisfied for the same reasons advanced above in relation to the ACL claims that the unconscionability claims under the general law are reasonably arguable.

Paragraph 13(xv)

54    It is alleged in paragraph 13(xv) of the Proposed ASOC that the Trustee:

failed to conduct himself as a fit and proper person in the course of his professional practice as an insolvency practitioner, or to carry on the duties of a trustee in bankruptcy properly, (AFSA Statement, fit and proper requirement for personal insolvency practitioners, 2.2).

55    The Trustee submits that if the Court accepts its contention that the applicant does not have standing to seek the declaration in paragraph 15 of the Proposed ASOC that the Trustee is “not a fit and proper person to fulfil the role and to perform the duties as the Applicant’s Trustee in bankruptcy” then paragraph 13(xv) of the Proposed ASOC that is the breach for which the declaration is sought should be struck out.

56    I am not satisfied that it is reasonably arguable that the applicant has standing to seek declarations that the Trustee is not a fit and proper person to perform the duties of a trustee, even if limited to a declaration concerning the administration of the estate of the applicant. The question of whether the Trustee is a fit and proper person to act as a trustee of a bankrupt estate is a matter for AFSA. As the Trustee submits, there is an established and clear mechanism for the consideration and investigation of complaints and for the discipline of registered trustees by the Inspector General and AFSA, similar in effect to that for legal practitioners: see Huang v Attapallil (No 2) [2017] NSWSC 1382 at [125]-[140] (Garling J).

57    Leave will not be granted to include paragraph 13(xv) in the Proposed ASOC.

Paragraph 14

58    It is alleged in paragraph 14 of the Proposed ASOC that:

The Trustee’s conduct was deceitful and was in contravention of his duties as a trustee, was in contravention of Practice Statement No. 19, and was in breach of his duty as a trustee and as a trustee in bankruptcy, including his duties to the Estates and the Bankrupt.

Particulars

(a)    Refer email to Trustee, Hall Partners, 19 April 2022, 1.19pm.

(b)    Refer paragraphs 4, 8, 9, 10 and 13 (i) – (iv), above.

59    The elements necessary to establish a claim in deceit are well established. In Magill v Magill (2006) 226 CLR 551; [2006] HCA 51, Gummow, Kirby and Crennan JJ stated at [114]:

The modern tort of deceit will be established where a plaintiff can show five elements: first, that the defendant made a false representation; secondly, that the defendant made the representation with the knowledge that it was false, or that the defendant was reckless or careless as to whether the representation was false or not; thirdly, that the defendant made the representation with the intention that it be relied upon by the plaintiff; fourthly, that the plaintiff acted in reliance on the false representation; and fifthly, that the plaintiff suffered damage which was caused by reliance on the false representation. Generally, the elements of the tort have been found to exist in cases which concern pecuniary loss flowing from a false inducement and the need to satisfy each element has always been strictly enforced, because fraud is such a serious allegation.

[Footnotes omitted.]

60    It is readily apparent that the Proposed ASOC does not plead as material facts all of the necessary elements of a cause of action in deceit. It is not alleged in the Proposed ASOC that the Trustee made the First Representations knowing them to be false or with the intention that they be relied upon. Nor does the applicant plead in respect of any of the other conduct relied upon by the applicant as giving rise to a claim in deceit that the Trustee made false representations with the intention that it be relied upon by the applicant, the applicant acted in reliance on the false representations or that the applicant suffered damage which was caused by reliance on the false representations.

61    Paragraph 14 of the Proposed ASOC fails to disclose a reasonable cause of action and is otherwise likely to cause prejudice, embarrassment or delay in the proceeding.

62    Leave will not be granted to include paragraph 14 in the Proposed ASOC.

Declarations

63    The applicant seeks the following declarations in paragraphs 15 and 16 of the Proposed ASOC:

15.    On the grounds set out in paragraphs 4, 8, 9 10, 13 and 14 of this statement of claim, the Applicant claims a Declaration that the Trustee has failed to properly and faithfully perform the duties of a trustee in Bankruptcy concerning the Applicant’s Estates, and that he is not a fit and proper person to fulfil the role and to perform the duties as the Applicant’s Trustee in bankruptcy;

16.    On the grounds set out in paragraphs 4, 8, 9 10, 13, and 14 of this statement of claim, the Applicant claims a Declaration that the manner in which the First Respondent administered the Estates constituted a wrong done within the meaning of Section 58 and 116(2)(g) of the Bankruptcy Act, and was in breach of the duties and obligations that vested in him by consequence of his office as a Trustee in Bankruptcy;

64    For the reasons that I have given above in relation to paragraph 13(xv) of the Proposed ASOC I am not satisfied that it is reasonably arguable that the applicant has standing to seek a declaration to the effect of the declaration sought in paragraph 15 of the ASOC. The Trustee also questions the utility of a declaration that the Trustee is not a fit and proper person to fulfil the role and perform the duties as the applicant’s trustee in bankruptcy given the substantive relief under s 90-15 of the IPS(B) is the removal of a trustee.

65    The Trustee further submits that the Court would not make generalised declarations in the form set forth in these paragraphs of the Proposed ASOC to the effect that the Trustee had breached his duties without specifying the particular duties breached. The Trustee points in particular to the lack of any specificity or content to the expression “wrong done to the applicant”.

66    There is force in that submission. The precise form of any declarations will inevitably depend on the findings ultimately made at any final hearing. The generality with which the proposed declarations are expressed in paragraphs 15 and 16 of the Proposed ASOC means the inclusion of declarations in the Proposed ASOC in that form is of no real utility and embarrassing in a pleading sense.

67    Leave will not be granted to include paragraphs 15 and 16 in the Proposed ASOC.

Paragraph 15A

68    The applicant seeks the following relief in paragraph 15A of the Proposed ASOC:

15.    The Applicant claims an Order for the purposes of Section 90 - 15 and 20 of Schedule 2 to the Bankruptcy Act 1966 (Cth) or Section 30 of the Bankruptcy Act, or the Federal Court Act, or Section 237 of the Second Schedule of the Australian Consumer Law, and / or on such other basis as this Court thinks fit that;

(i).     the First Respondent cease to be the Trustee of the Applicant’s Estate;

(ii).     the Trustee indemnify Dr Frances Chua from all claims, losses or costs that have accrued to her or that have arisen or been incurred by her from the proceedings NSD1228/2021 that the First Respondent carried on against her, before this Court.

69    The Trustee’s complaint with respect to paragraph 15A of the Proposed ASOC is limited to the inclusion of the words “or Section 237 of the Second Schedule of the Australian Consumer Law, and/or on such other basis as this Court thinks fit”.

70    Section 237 of the ACL does not require proof of actual loss, it is sufficient if it is likely that loss or damage will result from the contravention. Nor are the orders that can be made under s 237 of the ACL limited to orders for the payment of compensation. Further, as s 13 of the ACL makes clear, loss for the purposes of s 237 includes injury and loss or damage in respect of an injury. Given that I am satisfied that at least some of the ACL claims sought to be advanced by the applicant are reasonably arguable, the words objected to in paragraph 15A may remain in the Proposed ASOC.

Paragraph 16A

71    The applicant seeks the following relief in paragraph 16A of the Proposed ASOC:

16.    The Applicant claims damages and/or compensation for the stress and aggravation to which the Applicant has been subjected, by consequence of the Trustee’s conduct and behaviour.

Particulars

(a)    The Applicant relies upon the Trustee’s various breaches of duty as a trustee and his unconscionable conduct, and in which the Trustee put his own interests in seeking to procure a financial advantage for himself in administrating the Applicant’s Estate, over and above his interests in honouring the spirit and intent of the First Representations as to how the Applicant’s Estate would be dealt with, and which caused the Applicant to suffer insult, humiliation, embarrassment, reduced self esteem, inability to deal with his own circumstances, and such other injury including psychological injury as the Applicant may later particularise;

(b)    The Applicant brings claim for the loss of dignity and distress and including nervous shock, and psychological injury, such as the Plaintiff may later lead evidence and particularise, and which has been suffered by him;

(c)    The Applicant brings claim for vexation;

(d)    The Applicant relies on the provisions of Sections 236 and 237 of the Second Schedule to the Australian Consumer Law.

72    For the reasons that I explain above in relation to paragraphs 9 and 12 of the Proposed ASOC, I am satisfied that at least some of the ACL claims sought to be advanced by the applicant are reasonably arguable. I am therefore satisfied that it is reasonably arguable that the applicant may maintain a claim for damages or compensation pursuant to ss 236 and 237 of the ACL.

Aggravated Damages

73    In paragraph 17 of the Proposed ASOC the applicant claims an award of aggravated damages in the following terms:

17.    The Applicant claims an award of aggravated damages on account of the fact that he suffered increased distress as a result of the manner in which the First Respondent behaved when committing the wrong done to the Applicant and the manner by which the Applicant administered the bankrupt estate, and the additional humiliation, stress and worry to which the Applicant was subjected.

74    The applicant advances his claim for aggravated damages on the assumption that such a claim is available for unconscionability and breach of trust, relying on State of New South Wales v Corby (2009)76 NSWLR 439; [2010]) NSWCA 27 (Corby).

75    The Trustee submits that Corby is of no assistance to the applicant because it concerned a claim for aggravated damages in respect of an intentional tort.

76    In Corby, Basten JA stated (with Beazley JA, as her Excellency then was, and Tobias JA agreeing):

47    In the present case, the plaintiff sought to contend that even aggravated damages fell outside the concept of “personal injury damages” in the Civil Liability Act. However, to reach that conclusion, it was necessary to adopt a definition of “injury” which did not include matters such as humiliation and injury to feelings. That position is untenable. The general damages available for compensation for tortious conduct include damages for pain and suffering. There is no basis for limiting pain and suffering to physical suffering. Accordingly, there is no ready basis for distinguishing between an assessment of general damages and aggravated damages. As explained in New South Wales v Ibbett, aggravated damages are a form of general damages.

48     For reasons explained below, I would not adopt the limited meaning for the word “damages”, which her Honour accepted. However, even if one did adopt such a definition, there is no reason not to describe aggravated damages as compensatory in their purpose. They are, in effect, compensation for mental suffering falling short of a recognised psychiatric illness. The fact that the liability depends in part upon the defendant’s conduct does not put them in a different category from compensatory damages generally. Accordingly, there is no reason why Pt 2A would not operate with respect to an award of aggravated damages, nor why s 26C would not in its terms cover such an award.

77    These statements of Basten JA in Corby appear to be general statements of principle with respect to tortious conduct and the scope of compensatory damages that extend beyond the specific provision of s 11 of the Civil Liability Act 2002 (NSW). Aggravated damages are essentially compensatory in nature and may extend to providing compensation for pain and suffering, in addition to physical suffering and for mental suffering falling short of a recognised psychiatric illness.

78    I am not satisfied, however, that aggravated damages are available for unconscionability and breach of trust. Corby is directed at tortious conduct and there are very strong statements of principle in authoritative texts that aggravated damages are alien to equitable principle: see Heydon JD, Leeming MJ and Turner PG, Meagher, Gummow and Lehane’s Equity: Doctrines & Remedies (5th ed, LexisNexis Butterworths, 2015) (Equity: Doctrines & Remedies) at [23-595]; [24-075].

79    Moreover, s 87ZB of the CCA expressly precludes an award of aggravated damages in a proceeding to which Part VIB of the CCA applies.

80    Section 87E of the CCA provides that Part VIB applies to proceedings brought under, inter alia, Part 2-2 of the ACL, in which the plaintiff is seeking an award of “personal injury damages”. The expression “personal injury damages” is defined in s 87D of the CCA to mean “damages or compensation for loss or damage that is, or results from, the death of or personal injury to a person”. The expression “personal injury” is not defined for the purposes of Part VIB. For present purposes I am prepared to proceed on the basis that the definition of “personal injury” in s 130, as a matter of statutory construction, would be applicable.

81    Section 87E of the CCA does not provide that Part VIB applies to proceedings brought under Part 2-1 of the ACL

82    The ACL unconscionability provisions are in Part 2-2 of the ACL and the misleading and deceptive conduct provisions are in Part 2-1 of the ACL. Hence s 87ZB precludes aggravated damages from being claimed for contraventions of the ACL unconscionable conduct provisions but not for contraventions of the ACL misleading and deceptive conduct provisions.

83    For the foregoing reasons, I am satisfied that it is reasonably arguable that it is open to the applicant to make a claim for aggravated damages with respect to his ACL misleading and deceptive conduct claims, but not his ACL unconscionability claims nor his unconscionability claims under the general law and for breach of trust.

Exemplary Damages

84    In paragraph 18 of the Proposed ASOC the Applicant claims an award for exemplary damages “so as to send a clear message that conduct of the kind exhibited in these proceedings, is unacceptable and will not be tolerated”.

85    The Trustee submits that leave should not be given to pursue a claim for exemplary damages under the ACL or for breach of trust in circumstances where the applicant has conceded in his written submissions that such relief is not available.

86    It is well settled that exemplary damages are not available under the ACL: Wardley Australia Limited and Another v The State of Western Australia (1995) 175 CLR 514; [1992] HCA 55; Marks and Others v GIO Australia Holdings Limited and Others (1998) 196 CLR 494; [1998] HCA 69.

87    The applicant submits that his claim for exemplary damages is now limited to his claim for common law unconscionability, that is unconscionability under the general law.

88    I am not satisfied that it is reasonably arguable, as the general law currently stands, that a claim for exemplary damages is available as a remedy for a claim of unconscionable conduct. As the learned authors of Equity: Doctrines & Remedies state at [23-595]:

‘[E]quity and penalty are strangers.’ The closest they came to meeting one another was in a number of cases on procedural matters decided in the late Tudor and Stuart periods. Most importantly, no jurisdiction to award equitable compensation in an exemplary measure, nor to award exemplary damages at common law for breach of a purely equitable obligation, exists. Strictly speaking the ratio of Harris v Digital Pulse Pty Ltd is that the Supreme Court of New South Wales lacks power to make a punitive money award (whether that be called exemplary damages, exemplary equitable compensation or something else) for breach of a fiduciary duty arising from a contract of employment. The principles in fact exposed in the case, however, show that it would be misleading to think that such an award might properly be made, consistently with established doctrine, in relation to breaches of fiduciary duty that arise from other types of contract, or for breaches of any other purely equitable obligation generally. Punishment through monetary awards or otherwise is contrary to the basis and purpose of equity. In Australian Consolidated Press Ltd v Morgan, Windeyer J observed that the processes of committal and sequestration had been used to enforce compliance with the decrees of courts of equity. His ground for saying so was the very nature of equity jurisdiction:

[Committal and sequestration] are primarily used to compel obedience rather than to punish disobedience; for equity acts in personam, and historically the purpose of the processes of the Court of Chancery was to rectify and reform the conscience of the wrongdoer. The jurisdiction was, to use Professor Ashburner's phrase, ‘a cathartic jurisdiction’.

The substantive laws which supported the administration of the processes of committal and sequestration were designed to achieve the same cathartic ends, and were apt to achieve them. And so is all equitable relief. For related reasons, while awards of aggravated wrongdoing are an accepted remedy at common law, they are alien to equitable principle.

[Footnotes omitted.]

89    Leave will not to be granted to include a claim for exemplary damages.

Disposition

90    For the foregoing reasons, the applicant will be given leave to file an amended statement of claim in the form of the draft provided to the Court on 10 August 2022, incorporating the additional change foreshadowed to the Court on 11 August 2022, subject to the following amendments:

(a)    the deletion of paragraphs 3(x),11, 13(xv), 14, 15, 16 and 18; and

(b)    expressly limiting paragraph 17 to the applicant’s ACL misleading and deceptive conduct claim.

91    I turn now to consider the question of costs.

92    The applicant on his own initiative agreed to abandon the original statement of claim in response to criticisms levelled at it. Further, the applicant ultimately accepted many of the criticisms advanced by the respondent at the various iterations of the Proposed ASOC and attempted to reflect his acceptance of those criticisms in subsequent iterations of the Proposed ASOC. Further, the applicant has now succeeded in his application for leave to file the Proposed ASOC, subject to the amendments outlined above.

93    The Trustee, however, has been largely successful in his opposition to leave being granted to the applicant to file the disputed paragraphs in the most recent version of the Proposed ASOC. In addition, the Trustee has had to review, raise objections and contest the efficacy of multiple iterations of the Proposed ASOC. Many submissions and much hearing time was directed at proposed amendments that ultimately have not been reformulated or not pressed, particularly the proposed amendments seeking to include allegations with respect to the Trustee’s administration of the bankrupt estate of Mr Coombs.

94    For the foregoing reasons, the applicant is to pay 75% of the costs of the Trustee of and incidental to the interim application.

95    Finally, I note that the applicant has indicated that he proposes to file an amended originating application to reflect the allegations made in the Proposed ASOC. The applicant will be given leave to file an amended originating application that reflects those allegations in the Proposed ASOC for which leave has been granted to include in the pleading.

Associate:

Dated:    22 August 2022