Muir v Angeles

HIS HONOUR: The main legal issues in this case stem from the death of Brian Thomas Gregory Muir (the deceased), who died on 30 November 2017, and the bankruptcy of John Dondi Angeles, the Defendant in these proceedings. The Plaintiff in the proceedings is Caitlin Stanmore Muir, one of the three, now adult, children of the deceased. The relationship of the Defendant and the deceased is the subject of dispute.

The aspect of the proceedings with which I am dealing in these reasons concerns a notice of motion filed on 23 April 2020 by the Plaintiff to which I shall refer later in these reasons.

The Plaintiff commenced the substantive proceedings by Summons filed on 28 December 2018, which was made returnable on 15 February 2019. In the intervening period, on 25 January 2019, the Plaintiff filed an amended Summons seeking, relevantly, a family provision order under s 59 of the Succession Act 2006 (NSW), an order under s 91 of the Succession Act for a grant of administration in respect of the estate of the deceased for the purposes only of permitting the application concerned to be dealt with, the designation of property as notional estate of the deceased, an order extending the time for the making of her application, and an order for her costs.

On the first return date of the amended Summons, being 15 February 2019, Mrs K Leotta of counsel appeared for the Plaintiff and Mr C J Dibb of counsel appeared for the Defendant. The Court made directions for the filing and service of the Plaintiff’s evidence in chief and the proceedings were adjourned until 25 March 2019.

On 25 March 2019, appearances were as on the prior occasion. Counsel indicated that the Plaintiff intended to seek other relief, including declarations of trust (constructive or resulting), in relation to land situated at East Kangaloon, a locality in the Southern Highlands of New South Wales (the East Kangaloon property). The Court then ordered that the matter proceed by way of pleadings. The Court also noted that the Defendant was “the appropriate Defendant as he may be the holder of property sought to be designated as notional estate”.

The Plaintiff filed a Statement of Claim on 15 April 2019. An amended Statement of Claim was filed on 4 July 2019, in which the Plaintiff sought, amongst other things, a declaration that the deceased “intended the document signed by him on 27 November 2017 to be his will”; consequential relief going to the construction of that document; a declaration that the East Kangaloon property, which had been registered in the sole name of the Defendant, was held on a common intention constructive trust as to a one half share, or that he held one half of the proceeds of sale on trust, for the deceased; alternatively, that there was a resulting trust created by the deceased’s contribution of $155,000, or $70,843.41, or such other sum as the Court determined, in respect of the proceeds of sale of the property; as well as other relief relating to the East Kangaloon property, or relating to the proceeds of sale thereof. In addition, the Plaintiff maintained the claim for a family provision order and an order designating half of the proceeds of sale of the East Kangaloon property as the notional estate of the deceased.

The Defendant filed a Defence to the Amended Statement of Claim on 31 July 2019 and a Cross-Summons on 2 August 2019, in which he, also, sought a family provision order. In addition, he sought an order that the time for making his application be extended up to and including the date of filing the Cross-Summons.

In his Defence to the amended Statement of Claim, the Defendant asserted that he had been the spouse of the deceased at the time of his death; he admitted that he had become the registered proprietor of the East Kangaloon property on, or about, 24 March 2017; he asserted that he had sold the East Kangaloon property on, or about, 19 March 2019; he denied that he had held any part of that property on trust for the deceased. He also asserted that any amounts paid by the deceased were by way of a gift, made by the deceased, to him.

The matter was listed in the Family Provision List (as it then was) a number of times for procedural, and other, directions. It was listed for a judicial settlement conference on 12 August 2019, in which the parties and legal representatives participated, but which, regrettably, was unsuccessful.

On 29 November 2019, the matter was listed in a Callover on 21 February 2020, in order to obtain a hearing date, with an estimated duration of three days.

On 20 February 2020, the Defendant filed a document headed “Submitting Appearance”, which stated:

On 21 February 2020, there was no appearance by, or on behalf of, the Defendant, and the purported “Submitting Appearance” did not come to the Court’s attention on that day as it had not been e-filed. The matter was adjourned until 27 March 2020. However, before the hearing date was allocated, the Defendant was declared bankrupt on 25 February 2020.

On each occasion after 29 November 2019, that the matter was listed, there had been no appearance by, or on behalf of, the Defendant.

The Plaintiff in the notice of motion to which reference has been made, relevantly, sought the following orders:

In support of the notice of motion, the Plaintiff relied upon her affidavit sworn 23 April 2020; her affidavit sworn 8 March 2019; and two affidavits of service to which I shall refer.

Annexed to her affidavit sworn 23 April 2020, was a copy of a letter dated 28 February 2020, addressed to her, from Jones Partners, Chartered Accountants, stating that Bruce Gleeson (the author of the letter) had been “appointed Trustee of the … Bankrupt Estate [of the Defendant, John Dondi Angeles] on 25 February 2020”. It stated that the Defendant had been declared bankrupt as a result of lodging a Debtor’s Petition.

The letter from Mr Gleeson went on:

How the Trustee in Bankruptcy came to be aware of these proceedings is not revealed in the evidence read on the notice of motion. One, however, suspects that the Defendant made his Trustee in Bankruptcy aware by delivering relevant documents to him, or that somehow, otherwise, the Trustee learned of the proceedings through his investigations into the Defendant’s bankrupt estate.

Other than what is set out in the letter from the Trustee in Bankruptcy, the circumstances in which the Defendant’s bankruptcy arose were not disclosed. How much the creditors of the Defendant’s bankrupt estate were said to be owed is also not known. Nor does any Report to Creditors form part of the evidence read on the notice of motion.

There is no evidence of any election having been made by the Defendant’s Trustee in Bankruptcy in relation to the Cross-Claim since the letter sent to the Plaintiff. That is a matter upon which the Plaintiff relies.

The Plaintiff sent a letter, dated 16 April 2020, to the Trustee in Bankruptcy, which stated:

Again, there is no evidence of any response from the Trustee in Bankruptcy to this letter.

The notice of motion filed by the Plaintiff was first returnable in the Succession List on 11 May 2020. Once again, there was no appearance by, or on behalf of, the Defendant. Nor was there any appearance by, or on behalf of, his Trustee in Bankruptcy.

Mrs Leotta, counsel for the Plaintiff, who again appeared, lodged a written Outline of Submissions, comprising four pages, in support of the notice of motion. Because the matter was likely to require some consideration, I referred it to Chambers to be determined on the papers.

Before doing so, I read an affidavit of the Plaintiff sworn 6 May 2020, in which she stated that on 24 April 2020, she had sent, by email, addressed to the Defendant, a sealed copy of the notice of motion and an affidavit in support thereof. There was no evidence that she had received any response from the Defendant.

Upon considering the documents in Chambers, I came to the view that there were a number of matters that required further submissions from counsel for the Plaintiff, and the matter was listed, administratively, for oral submissions, at 2:00 p.m. on 18 June 2020.

On 18 June 2020, once again there was no appearance by, or on behalf of, the Defendant, or by, or on behalf of, the Trustee in Bankruptcy. Counsel for the Plaintiff read an affidavit of service which satisfied me that the Plaintiff, herself, had given written notice of the adjourned date for the hearing of the notice of motion on 16 June 2020, and had received a response from a representative of the Trustee in Bankruptcy, in which it was confirmed that there would be no appearance, by him, or by any legal representative on his behalf. The author of the reply provided no reasons for the non-appearance by the Trustee in Bankruptcy.

The affidavit also stated that on that day, she had sent, by email, addressed to the Defendant, notification of the date and time of the hearing of the notice of motion. Of course, that was only one day before the matter was listed. Again, there was no evidence that she had received any response from the Defendant.

Despite the closeness of the date of the email sent to the Defendant to inform him that the matter was listed, the evidence, overall, makes it tolerably clear that he would have been unlikely to have participated in any event. Certainly, his Trustee in Bankruptcy appears to have chosen not to do so.

The Uniform Civil Procedure Rules 2005 (NSW) r 18.7 provides that “[i]f service of a notice of motion on any party is required by these rules, and notice of motion has been duly served on that party, the court may hear and dispose of the motion in the absence of that party”.

There was no evidence of any correspondence from the Defendant to the Plaintiff, or for that matter, to the Court, providing any basis for his non-appearance at any time after November 2019 (other than what was stated in the “Submitting Appearance”). Nor was there any explanation for his Trustee in Bankruptcy choosing not to appear. There was evidence that each had been made aware of the notice of motion and of the date on which the matter was before the Court.

There are few authorities considering the effect of r 18.7. I respectfully agree with the views expressed by Hamill J in Jensen v State of New South Wales [2014] NSWSC 682 at [9], to the effect that the discretion given in the rule is to be governed by the general principles contained in ss 56 and 57 of the Civil Procedure Act 2005 (NSW). His Honour also stated:

Thus, whilst the clear purpose of r 18.7 is the efficient dispatch of court business, the court, in dispatching court business, does not ignore the right of the respondent to be informed, or, at least, to be made aware, of the date on which the notice of motion is to be heard.

It is a fundamental principle that a party who may be adversely affected by the making of court orders has a right to be heard: Cameron v Cole (1944) 68 CLR 571; [1944] HCA 5, in which Rich J wrote at 589:

The history of the proceedings is lengthy, and the proceedings have been before the Court on many occasions. I was satisfied that the Defendant was made aware of the proceedings generally and of the notice of motion, as was his Trustee in Bankruptcy.

Of course, I considered whether I should adjourn the hearing of the notice of motion again, to give the Defendant a further opportunity to appear. However, it seemed to me that there would be no utility in doing so, in the absence of any reasons why neither he, nor his Trustee in Bankruptcy, failed not appear at the hearing of the notice of motion. I also remembered the terms of the “Submitting Appearance”. There was simply no reason to believe that either would be more likely to appear on any adjourned date.

In all the circumstances, I was satisfied that the Defendant and his Trustee in Bankruptcy had been given notice of the date of the hearing of the notice of motion and that each determined not to participate. Therefore, I proceeded to hear the notice of motion in their absence.

It is next convenient to refer to the factual background of the present application. I have taken what follows from the affidavit sworn by the Plaintiff on 8 March 2019. Whilst the contents of the affidavit have not been tested, the following facts appear to me, unlikely to be disputed.

The Plaintiff is the daughter of the deceased. She was born in May 1970. She has two sisters, Gabriella Muir and Marie-Claire Muir. Their parents divorced in the late 1980s, or early 1990s, and there was a property settlement made between them in the 1990s.

The deceased died intestate. However, the Plaintiff asserts that a document dated 27 November 2017 (the 2017 document), to which I shall refer, was a document which has testamentary effect. It is not presently necessary to determine whether that is so.

The Plaintiff does not set out details of her understanding of the deceased’s assets and liabilities at the date of his death. I have referred to her assertion concerning the East Kangaloon property as notional estate of the deceased.

By Transfer, which appears to have been registered in May 2017, the Defendant came to be the registered proprietor of the East Kangaloon property. The consideration shown on that Transfer, the receipt of which was acknowledged by the Transferor, was $550,000.

There was a Mortgage dated 24 March 2017, also, apparently, registered on the title to the East Kangaloon property, in May 2017, between the Defendant and the Australia and New Zealand Banking Group Limited. The amount secured by the Mortgage is not disclosed on the copy of the Mortgage document in evidence.

The Plaintiff asserted that the deceased had contributed to the purchase price of the East Kangaloon property. She referred to a conversation with the deceased which was stated to be as follows:

The 2017 document is in the following terms:

The document was said to have been signed by the deceased, and witnessed by the Plaintiff and Michael Murray, a friend of the deceased.

I shall not, in these reasons, repeat the Plaintiff’s evidence of the nature of the correspondence with the Defendant following the death of the deceased. However, there is little doubt that, in an email dated 2 December 2017, she sent a photograph of the 2017 document to him.

I am unable to refer to the contents of the Defendant’s affidavits as they were not referred to by counsel for the Plaintiff as part of the evidence on the notice of motion.

In her written submissions, Mrs Leotta did not address, at all, the question whether s 60(2) of the Bankruptcy Act 1966 (Cth) operates to stay a claim made by an eligible person for a family provision order, in circumstances where he, or she, was made bankrupt after the commencement of the proceedings.

At the hearing, the following exchange occurred (Tcpt, 18 June 2020, p 5(01–23)):

Mrs Leotta’s submission, thus, seemed to be that, unless there was some language in s 60 of the Bankruptcy Act to the contrary, the meaning of “action” included a claim for family provision relief: Tcpt, 18 June 2020, p 5(46) – p 6(02). She did not refer to any authority for the submission that she had advanced.

Mrs Leotta then turned to what would occur, assuming s 60(2) applied to stay the Defendant’s Cross-Claim. She submitted that by operation of s 60(3) the Trustee in Bankruptcy may be deemed to have abandoned the action. She submitted in her written submissions at pars 2, 4 and 5:

Mrs Leotta submitted that, in those circumstances, the Defendant’s Cross-Claim ought to be dismissed for want of prosecution: Outline of Submissions at par 6. In support of that submission, she referred to the recent decision of Hill J in Frigger v Rowe Bristol Lawyers Pty Ltd [2020] WASC 5 at [66]–[67]. There, her Honour had held that if proceedings were deemed to be abandoned pursuant to s 60(3), it was open to the respondent (or in this case the Plaintiff) to make an application for the proceedings to be dismissed for want of prosecution.

Following the submissions made by counsel for the Plaintiff, I reserved my decision.

I have referred to the relief that the Plaintiff seeks earlier in these reasons. Regrettably, the written Outline of Submissions dated 11 May 2020, filed by counsel, only dealt with par 1 of the notice of motion, namely, whether the Defendant’s Trustee in Bankruptcy was “deemed to have abandoned the cross-claim brought by the defendant” and “an order that judgment be entered in favour of the plaintiff cross-defendant”.

The determination of the questions raised by the notice of motion requires a consideration of the statutory scheme that applies.

Section 58(3) of the Bankruptcy Act vests the property of the bankrupt upon the trustee in bankruptcy forthwith upon the debtor becoming a bankrupt. There is long-standing authority that holds that a bankrupt’s claim for family provision is not a chose in action that vests in a trustee in bankruptcy by the operation of s 58 of the Bankruptcy Act. A family provision claim is a personal, or bare, right and, therefore, falls outside the ambit of s 58: see, for example, Coffey v Bennett [1961] VR 264 at 265–267 (Sholl J); McLeod v Johns [1981] 1 NSWLR 347 at 349 (Kearney J); Collicoat v McMillan [1999] 3 VR 803 at 822 [51] (Ormiston J).

However if, whilst the applicant for a family provision order remains an undischarged bankrupt, he, or she, receives a lump sum, or other property through such proceedings, by way of a family provision order, such lump sum, or other property, will be available to the trustee for distribution to creditors.

In Official Receiver in Bankruptcy v Schultz (1990) 170 CLR 306 at 316–317; [1990] HCA 45, Mason CJ, Brennan, Deane, Dawson and Gaudron JJ held, in dealing with a claim under s 41 of the Succession Act 1981 (Qld) that:

However, that is not a relevant matter in the present case. The first question to be determined is whether a claim for a family provision order is an “action” within the meaning of s 60(2) of the Bankruptcy Act, or put another way, does the Cross-Summons brought by the Defendant for a family provision order fall within the definition of an “action”? If it does not, it is not governed by s 60 at all.

Section 60(2) of the Bankruptcy Act provides:

The sub-section applies only to an action commenced prior to the bankruptcy: Coyne v Commercial Equity Corporation Ltd (1998) 20 WAR 109 at 116 (Kennedy J, Franklyn J agreeing), 125 (Walsh J); Jandric v Jandric (No 2) [2007] WASC 273 at [9] (E M Heenan J); Watson v National Australia Bank [2017] FCA 128 at [41] (Greenwood J). (In this case, the Cross-Claim was filed and served well before the bankruptcy.)

The terms of s 60 apply to an “action” which is defined to mean any civil proceeding, whether at law or in equity: Bankruptcy Act, s 60(5). In the Civil Procedure Act, s 3(1), civil proceedings means “any proceedings other than criminal proceedings”.

Section 60(2) confers no discretion on the court. If the section applies, then the action is stayed until a written election is given by the trustee of the estate of the bankrupt to prosecute, or to discontinue, the action: Temsign Pty Ltd v Biscen Pty Ltd (1998) 20 WAR 47 at 57 (Wheeler J), or alternatively, the action is deemed abandoned in the absence of an election: s 60(3) of the Bankruptcy Act.

The word “action” has been construed broadly and the definition in s 60(5) is an extremely wide one. In Daemar v Industrial Commission of New South Wales (1988) 12 NSWLR 45, the Court of Appeal held that an action by summons for orders for relief in the nature of prerogative writs directed to the respondent Industrial Commission, was stayed by operation of s 60(2) of the Bankruptcy Act. The Court rejected the claimant’s contention that the action did not fall within s 60(2).

Although the Court accepted that the claimant’s arguments were not “without force”, Kirby P (as his Honour then was) (Samuels and Clarke JJA agreeing), held, at 54, that s 60(2) applied to the claimant’s summons, stating that “‘action’, particularly as defined in the [Bankruptcy] Act, is a word of wide meaning” and that “[i]ts width is emphasised by the very limited exceptions which Parliament has specifically provided for in s 60(4)”.

Young JA endorsed the approach of Kirby P in Savage v Australian Unity Funds Management Ltd [2011] NSWCA 270 at [15].

In Re Lofthouse (In the matter of Guss) (2001) 107 FCR 151 at 157–158 [18]–[20]; [2001] FCA 25 at [18]–[20], Gray J considered the effect of s 60 and the breadth of the definition of “action”. His Honour wrote at [18]–[20]:

His Honour’s remarks on the effect of s 60 on a claim brought by a bankrupt, as trustee, are not presently analogous. However, his Honour’s more general remarks on the scope of s 60(2) would suggest a reading of “action” that is not confined to choses in action which would vest in the Trustee in Bankruptcy by operation of s 58.

That the application of s 60(2) does not depend on the right of action being property which vests in the trustee in bankruptcy under s 58(1) of the Bankruptcy Act has also been the view of the Court of Appeal in Victoria in Owens v Comlaw (No 62) Pty Ltd (2006) 201 FLR 275 at 285 [42]; [2006] VSCA 151 at [42] (Ashley JA, Redlich JA agreeing). (Ashley JA, at [40], referred to Re Lofthouse, as “an authority not cited by counsel, but which I mentioned in the course of argument”).

The conclusion of Gray J in Re Lofthouse was followed by Edelman J (as his Honour then was) in Duckworth v Water Corporation (2012) 261 FLR 185 at 191–194 [32]–[48]; [2012] WASC 30. His Honour articulated seven reasons in support of the decision to do so at [32]–[48]. I shall not repeat those reasons other than to note that his Honour identified, at [43]–[44], the policy said to underlie s 60(2) of the Bankruptcy Act as follows:

In Deputy Commissioner of Taxation v Garrett [2015] VSC 347 at [19], Riordan J wrote:

However, there is some suggestion both in the academic commentary and the authorities, that s 60(2) will not stay a claim for a family provision order. The learned editors of PP McQuade and MGR Gronow, McDonald, Henry & Meek: Australian Bankruptcy Law and Practice (2020, Lawbook Co) write at [60.2.05]:

As stated, the learned editors appear to exclude family provision claims from the ambit of s 60 on the basis that such claims do not vest in a trustee in bankruptcy by the operation of s 58. Because such a view is ostensibly contrary to the authorities to which I have made reference above, it is necessary to examine the authorities upon which the learned editors rely.

I begin, with Hollingworth J’s decision in Menzies v Marriott [2009] VSC 345. That was a case where the plaintiff made an application for an extension of the time in which to bring a claim for provision under Administration and Probate Act 1958 (Vic). In considering that application, Hollingworth J turned to the merits of the plaintiff’s claim. Her Honour considered it relevant that the plaintiff was, at the time of the application, an undischarged bankrupt. Her Honour wrote at [46]:

There can be no disagreement with her Honour’s statement of the relevant principles. Importantly, nowhere in her Honour’s reasons did she refer to s 60 of the Bankruptcy Act. It may well have been unnecessary to do so. Had the plaintiff been an undischarged bankrupt at the time of filing his application, s 60 would have no application. It is not clear from her Honour’s reasons when, precisely, the plaintiff was made a bankrupt.

In my view, Menzies v Marriott does little more than repeat the oft-cited principle that a claim for family provision relief is personal to the bankrupt. It does not, in terms, go as far as the learned editors of McDonald, Henry & Meek suggest.

Turning then to two other decisions cited by the learned editors: Coffey v Bennett and McLeod v Johns. I have already referred to those decisions as standing for the proposition, much like Menzies v Marriott, that a claim for family provision is personal to the bankrupt. Kearney J, in McLeod v Johns, made no reference to s 60 in the judgment. The report of the decision makes it plain, at 348, that the plaintiff was an undischarged bankrupt at the date of the deceased’s death and, consequently, was bankrupt prior to the commencement of the proceedings. Section 60 could, therefore, have no application.

Coffey v Bennett was decided prior to the enactment of the Bankruptcy Act. However, the Bankruptcy Act 1924 (Cth), then in force, contained a materially similar provision to s 60(2) of the current Act in s 63(3). Sholl J did not refer to s 63 or the possibility of a stay. Again, this is unsurprising as the plaintiff in that case was made bankrupt nearly 12 months before he filed his summons for family provision relief.

That then leaves the decision of Derham AsJ in Poesch v Grosvero [2013] VSC 596. In that case, his Honour squarely considered whether s 60(2) covers a claim for a family provision order. His Honour wrote at [10]:

Then, having considered the relevant provisions and the authorities, at [11]–[28], his Honour concluded at [29]:

His Honour added, at [34]:

As I have stated, it cannot be doubted that the Defendant’s right to claim a family provision order is not a chose in action, or other species of property, that vests in his Trustee in Bankruptcy. The majority of the High Court in Cummings v Claremont Petroleum NL (1996) 185 CLR 124 at 136 (Brennan CJ, Gaudron and McHugh JJ); [1996] HCA 19, referred, without apparent disapproval, to Coffey v Bennett illustrating an example of “rights of action which do not pass to a trustee on bankruptcy because they are personal to the bankrupt and do not affect the quantum of the bankrupt estate”.

But it is Derham AsJ’s subsequent conclusions with which I must, respectfully, disagree. The conclusion at [34(b)] (referred to above) does not accord with the authorities following from Re Lofthouse where it has been held that s 60 is not to be constrained by s 58. I have referred to these authorities earlier.

There has been little subsequent consideration of Derham AsJ’s decision directly on this issue. However, the case was cited before Kunc J in Steiner v Strang (No 2) [2017] NSWSC 891 at [43]. Although, as his Honour wrote, he did not have to decide the point, he continued, at [67]:

I respectfully agree with the doubts expressed by Kunc J.

In my view, the plain words used in s 60(2) encompass all actions “commenced by a person who subsequently becomes a bankrupt”. The claim for a family provision order clearly falls within the definition of “civil proceedings” in the Civil Procedure Act and it does not matter whether that claim is one that is vested in the bankrupt’s trustee in bankruptcy.

To conclude otherwise would, in my opinion, run afoul of the purpose behind s 60 as elucidated by Edelman J in Duckworth v Water Corporation. As long ago as 1889 it had been written by Manning J in Want v Moss (1889) 10 LR (NSW) 274 at 279:

I see no reason why that logic does not equally apply where a plaintiff, or in this case the Cross-Claimant, has commenced a family provision claim as distinct from other actions at law or in equity.

Thus, I conclude that the meaning of the term “action” is not to be confined to the property of the bankrupt to which s 58 applies. Instead, “action” must be given the meaning set out in s 60(5), a meaning that is broad enough to encompass a claim for a family provision order as sought by the Defendant in the Cross-Claim.

The effect of s 60(2) of the Bankruptcy Act, therefore, is that there is a statutory stay of the proceedings by way of Cross-Summons, upon the Defendant becoming bankrupt. As Young J (as his Honour then was) explained in John v Neiman Holdings Pty Ltd (1986) 84 FLR 84 at 86, all that is meant by a stay is that “nobody can take any step in the proceedings, nobody can make any order in the proceedings”. In other words, “a stay is a procedural phenomenon that suspends, as it were, a legal proceeding”. The action remains stayed until the trustee in bankruptcy elects in writing to prosecute or to discontinue it: Feiglin v Ainsworth (No 3) (2013) 280 FLR 24 at 30 [26]; [2013] VSC 560 at [26] (Mukhtar AsJ).

Section 60(4) of the Bankruptcy Act “creates a limited exception to the scheme enshrined in s 60. Relevantly, it permits a bankrupt to continue an action commenced by him, or her, before he or she became bankrupt, in respect of ‘any personal injury or wrong done to the bankrupt’”: Psevdos v Commonwealth Bank of Australia [2018] SASC 9 at [37] (Stanley J). There is no suggestion that the claim in the Defendant’s Cross-Summons falls within any of the exceptions.

Having concluded that the Cross-Claim has been automatically stayed, by operation of law, the next question is whether the Defendant’s Trustee in Bankruptcy, has failed to make an election to prosecute, or discontinue, the Cross-Claim within 28 days after notice of the action was served upon him. If so, he will be deemed to have abandoned the action. Importantly, it is the Trustee who bears the responsibility to make the election to prosecute or to discontinue. As stated, there is no evidence that the Defendant’s Trustee in Bankruptcy has made an election in this case.

The Act does not express the manner in which the election must be made and no formality of an election is required, except that it should be in writing and, implicitly, it should be communicated to the other parties in the action and to the court.

In this regard, s 60(3) of the Bankruptcy Act provides:

Regrettably, the Court also did not have the benefit of detailed argument and submissions on this point.

The sub-section confers on “a defendant or other party to the action” an entitlement to a particular judicial order on the trustee in bankruptcy’s omission to make an election within the required period of time following the service on the trustee in bankruptcy of a notice and to attach to that omission is the description of a “deemed” abandonment of the action.

However, the 28 day period provided for in s 60(3) does not commence to run until the trustee in bankruptcy has been served with the requisite notice. It is the service of a notice of the action that is a condition precedent to the running of time under s 60(3).

The Bankruptcy Act does not prescribe a form for the notice of the action for the purposes of s 60(3).

In Liristis v Gadelrabb [2012] NSWCA 327, Basten JA (sitting alone in the Court of Appeal to determine a motion) considered the submission of the respondent that the proceedings should be deemed abandoned by operation of s 60(3). His Honour described a deemed abandonment, at [4]:

The question whether knowledge of the action could constitute notice pursuant to s 60(3) was considered by the Full Court of the Federal Court of Australia in Aware Industries Ltd v Robinson (1997) 75 FCR 600, in which case, the knowledge of the proceedings, or the notice thereof, had come to the trustee from the bankrupt party. The Court (Northrop, Davies and Sundberg JJ) held at 602:

Their Honours went on, at 602–603, to describe what would constitute sufficient notice:

The Full Court agreed with the trial judge that s 60(3) did not contemplate the provision of notice by anyone other than a party to the action excluding the bankrupt party: Re Collins; Ex parte Official Trustee in Bankruptcy v Bracher (1986) 10 FCR 209 at 212–213 (Burchett J).

From the above, it can be seen that the sort of notice contemplated by the section is one that would provide the description of being a notice under s 60; recite the existence of the action in which the bankrupt was involved; identify the notice-giver as being a particular party in that action; require the trustee in bankruptcy to make a written election within 28 days of service; and state that in default of such election, the trustee in bankruptcy would be deemed to have abandoned the action.

It appears that no formal notice triggering s 60(3) was given by “[an] other party to the action” (the Plaintiff). Yet, at least some of the “documents filed in the proceedings” were provided to the Trustee in Bankruptcy otherwise than by the Plaintiff. He was aware of the Cross-Summons filed by the Defendant, and also of the need to make an election. He acknowledged that the “Bankrupt has filed a cross-claim in the proceedings. This cross-claim is stayed until I elect to prosecute or discontinue the action pursuant to Section 60 of the Act. I am currently reviewing the documents filed in the proceedings and will advise of my election”.

There was, then, also the Plaintiff’s letter dated 16 April 2020 to the Trustee in Bankruptcy, to which I have earlier referred, to which no response was, apparently, received.

In any event, the “notice of the action” required by s 60(3) was acknowledged by the Trustee in Bankruptcy when he stated he was “currently reviewing the documents filed in the proceedings and will advise of my election”. It must be borne in mind that the purpose of notice pursuant to s 60(3) is to alert the Trustee in Bankruptcy of the need to make an election.

In Voskuilen v Morisset Mega Markets [2005] NSWSC 34, Gzell J dealt with a similar situation to the present case. In that case, the Official Trustee in Bankruptcy declined to participate in the proceedings, and did not appear before his Honour. Relevantly to the issue of service under s 60(3), his Honour wrote, at [5]:

His Honour concluded, at [14], that the correspondence from the Official Trustee constituted an election to abandon the proceedings or, if not an election, it resulted in a deemed abandonment.

Whether there is an election to discontinue, or a deemed abandonment, is not of significance, but the terms of any decision to abandon should be made clear: Cole v Challenge Bank Limited [2002] FCAFC 200 at [22] (Emmett J).

In the circumstances of this case, I am satisfied that the requirements for notice under s 60(3) have been met. Although the letter dated 16 April 2020 was irregular in form, it met the purpose of alerting the Defendant’s Trustee in Bankruptcy, to the need to make an election. In any event, he was aware of, and had acknowledged, the need to do so in late February.

In my view, the Defendant’s Trustee in Bankruptcy has had ample opportunity to consider his position, and as well, has had ample opportunity to (remotely) appear before the Court, or to make an application to another court for an extension of time to make the election if he felt it necessary to do so. Since the letter of 16 April 2020, more than 28 days have passed. As he has not made any election, I am satisfied that the Trustee in Bankruptcy should be deemed to have abandoned the Defendant’s Cross-Claim.

The effect of the deemed abandonment of the Cross-Claim was stated by the unanimous Full Court of the Federal Court in Freeman v Joiner [2005] FCAFC 149 at [14]:

The practical consequences of a deemed abandonment were described by Wheeler J (as her Honour then was) in Temsign Pty Ltd v Biscen Pty Ltd at 58:

Those remarks received at least the implicit approval of Edelman J in Duckworth v Water Corporation at [91].

A separate question, then, arises whether there ought to be a dismissal of the Cross-Claim. The answer will depend on all the relevant circumstances at the time of the application: Nugawela v Commissioner of Taxation [2018] FCA 1458 at [11] (Colvin J); Frigger v Rowe Bristol Lawyers Pty Ltd at [4] (Hill J).

McMurdo J (as his Honour then was) wrote in State of Queensland v Beames [2004] 2 Qd R 99 at 103 [16]; [2003] QSC 399 at [16]:

I also bear in mind the remarks of Young JA in Savage v Australian Unity Funds Management Ltd at [17]:

In Millane v President of Shire of Heidelberg [1928] VLR 52, Irvine CJ was concerned that if he dismissed the action then “that dismissal may be pleaded in bar as res judicata …”: at 53.

Presently, however, s 91(1) of the Civil Procedure Act applies. Should I dismiss the Cross-Claim for want of prosecution, that dismissal would not prevent the Defendant from bringing fresh proceedings or claiming the same relief in fresh proceedings. (That, of course, does not mean his application would be successful.)

In my opinion, this is an appropriate case for dismissal. Neither the Defendant, nor his Trustee in Bankruptcy, has expressed any interest in continuing with the Cross-Summons. Indeed the Defendant, by his Submitting Appearance, has expressly disclosed an active disinterest in prosecuting the Cross-Claim.

Counsel made no submissions on whether, in the circumstances, an order for costs could be made against the Defendant in the event that the Cross-Summons was stayed or dismissed. As stated, however, the Plaintiff did seek costs of the notice of motion.

It seems to me that an order for costs can be made. In this regard, I refer to the decision of the Victorian Court of Appeal in Zhao v Suzhou Haishun Investment Management Co Ltd [2020] VSCA 34, in which the Court noted at [19]–[20]:

However, I do not propose to make an order for the Plaintiff’s costs because, in all the circumstances, such an order is likely to be futile. Section 82 of the Bankruptcy Act makes clear that liability for a costs order, having not been in existence at the date of bankruptcy, is not a provable debt. Such an interpretation is supported by the High Court’s decision in Foots v Southern Cross Mine Management Pty Ltd (2007) 234 CLR 52; [2007] HCA 56. Gleeson CJ, Gummow, Hayne and Crennan JJ said at 65 [35]:

Their Honours continued at 66 [36]–[37]:

Their Honours concluded at 75–76 [65]:

In view of the relief sought in the notice of motion, it is strictly unnecessary for me to assess what, if any, effect the bankruptcy of the Defendant has on the Plaintiff’s claim. When the matter is next before the Court, it will be necessary to raise this matter with counsel for the Plaintiff, as it may very well be that there will be no property of the Defendant, and no actual or notional estate of the deceased, that will be available to the Plaintiff, even if she were successful.

(On the notice of motion, the Court was given no details of any steps the Trustee in Bankruptcy has taken, or could take, to gather in the Defendant’s property or the debts the subject of valid proofs of debt.)

In all the circumstances, the Court: