Coyle & Coyle v Cassimatis [1993] QCA 442

IN THE COURT OF APPEAL [1993] QCA 442 SUPREME COURT OF QUEENSLAND Appeal No. 114 of 1993 Before The President Mr Justice Thomas Mr Justice MacKenzie [Coyle v. Cassimatis] BETWEEN: ALEXANDER GEORGE COYLE and SIDNEY MARIE COYLE (Plaintiffs) Appellants v. GERRY CASSIMATIS (Defendant) Respondent REASONS FOR JUDGMENT - THE COURT Judgment delivered 01/11/93 This is an appeal from an order made in the Trial Division on 26 May 1993 striking out the appellants' action for breach of contract and/or negligence against their former solicitor, which they commenced on 5 July 1991. It is not disputed that the limitation period in respect of the appellants' cause of action has expired and that it is now too late to bring a fresh action. The respondent's principal point is that any cause of action which the appellants previously had became vested in their trustee in bankruptcy, Stephen Leonard Denby, pursuant to section 58 of the Bankruptcy Act 1966 (Commonwealth), on 15 April 1991, when the appellants became bankrupt on their own petition, and remains vested in Mr Denby. According to the appellants, their bankruptcy was annulled with retrospective effect on 14 May 1993. On that day, a proposal by the appellants for a composition in satisfaction of their debts was accepted by a special resolution of their creditors at a meeting called for that purpose (Bankruptcy Act, s.73), whereupon the bankruptcy was annulled on that date by force of subsection -- 1 of 10 -- 2 74(5) of that Act. It is necessary to set out the terms of subsection 74(6) of the Act, which provides: "74. (6) Where a bankruptcy is annulled under this section, all sales and dispositions of property and payments duly made, and all acts done, by the trustee or any person acting under the authority of the trustee or the Court before the annulment shall be deemed to have been validly made or done but, subject to subsection (7), the property of the bankrupt still vested in the trustee vests in such person as the Court appoints, or, in default of such an appointment, reverts to the bankrupt for all his estate or interest in it, on such terms and subject to such conditions (if any) as the Court orders." No order was made by a Court vesting the appellants' property in a person appointed by the Court. It would be consistent with the decision of this Court in Thiessbacher v. MacGregor Garrick and Co. (1993) 2 Qd.R. 223 to conclude that, although only annulled "on" the day of the creditors' special resolution, the annulment was retrospectively effective to annihilate the appellants' bankruptcy and its consequences except as otherwise provided by the Act, notably subsection 74(6). Prima facie therefore, the appellants were, in law, never bankrupt, and accordingly their cause of action against the respondent remained, in law, vested in them and did not at any time vest in Mr Denby. Further, although it might have been an abuse of the Court's process for the appellants to commence their action against the respondent in the circumstances in which they did so (eg. Metropolitan Bank Limited v. Pooley (1885) 10 App. Cas. 210), in the circumstances according to the law consequent upon the annulment it was not an abuse for them to do so. However, the respondent asserts that the prosecution of the action by the appellants is an abuse of process because title to the appellants' cause of action had nonetheless become vested in Mr Denby at the time when the order under appeal was made. To deal with this question, it is necessary to set out portions of the composition accepted on 14 May 1993 by the appellants' creditors. -- 2 of 10 -- 3 Clause 1 provided for the appointment of Mr Denby as "the Trustee under this Composition" and clause 7 provided for his remuneration. Clause 6 provided for the release by the creditors of their debts. Clauses 2, 3 and 8 provided: "2. All our property currently vested in STEPHEN LEONARD DENBY as Trustee in Bankruptcy shall vest in him as Trustee under this Composition. 3. We propose that we continue for the benefit of our creditors generally our action for damages claimed in excess of one million dollars ($1,000,000.00) for negligence against our former solicitor currently before the Supreme Court of Queensland Brisbane Registry pursuant to Writ of Summons 1150 of 1991 and estimated to be completed before 30 June, 1996 (hereinafter called "the action") in that the entire proceeds of that claim (including any costs or interest awarded) be vested with such other property referred to in clause 2 hereof in STEPHEN LEONARD DENBY this Composition and be distributed by him in priority as follows: (a) In payment of our legal costs and outlays associated with the action as taxed or agreed to by my Trustee including any costs necessarily refundable to the Legal Aid Office Queensland associated with the action to date. (b) In payment of our Trustee's costs in relation to the administration of our bankruptcy to date and the administration of his Trusteeship pursuant to this Composition; (c) Subject to the provisions of the Bankruptcy Act, 1966 (as amended) as to priorities (which provisions are to apply to the administration of this composition mutatis mutandis), in payment of the debts of our proven creditors in full, unless there be insufficient monies to make payment in full and in that event, in payment of our proven creditors debts on a pro rata by way of final dividend among proven creditors in satisfaction of their respective claims; and (d) Payment of the balance of any funds remaining after payment in full of our proven creditors' debts to us or at our direction. 8. In the event that the Bankrupt fails to observe any of the covenants herein contained then the Creditors may by special resolution passed at a meeting called for this purpose terminate this Composition and in the event that the annulment of the Bankruptcy affected by this composition fails to validate the action or for any other reason the bankrupt fail to -- 3 of 10 -- 4 prosecute the action, then the debtors will again petition for their own bankruptcy within four days from the date of that termination." The first submission made for the respondent was that the provision in subsection 74(6) for the revesting of a bankrupt's property is subject to an unexpressed exception in favour of property for which a composition makes different provision; eg., property which a composition provides is to be vested in a trustee for creditors. Such a construction of the sub-section appeals to common sense, but seems unwarranted by its terms. In any event, the approach advocated by the respondent still leaves the question of where the property is vested to be decided by reference to the meaning of the composition. That is the central point in dispute between the parties. It was impliedly accepted by the appellants that the cause of action was assignable to Mr Denby as trustee for the appellants' creditors: see Trendtex v. Credit Suisse (1982) AC 679; Fleming "The Law of Torts", 7th Ed., p.593; Carter and Harland "Contract Law in Australia", 2nd Ed., p.497, para 1 629. Nor was it argued that the composition was not effective as an assignment, or a complete assignment, of the property which it purported to assign. However, the appellants argued that, on its proper construction, the composition did not assign their cause of action against the respondent to Mr Denby but only provided for the "entire proceeds of the claim" (clause 3) to be vested in Mr Denby, when recovered. Both sides relied upon the contents of a report provided to the appellants' creditors by Mr Denby pursuant to subsection 73(2) of the Bankruptcy Act prior to the meeting of the creditors which accepted the appellants' proposal, and the appellants also sought to rely upon a variety of other material as evidence of background facts to the entry into the composition. It is not necessary to discuss this other material in detail. Suffice it to say that none of it is admissible, or for that matter helpful, in arriving at the meaning of the composition. -- 4 of 10 -- 5 The appellants relied on paragraphs 10 to 12 of the trustee's report which were in the following terms: "(10) GENERAL The action against Mr. Cassimatis, the Bankrupts' former Solicitor, was commenced in the names of the Bankrupts after their Debtors' Petition being accepted. As previously mentioned in this report, there have been no realisations in the administration and I am therefore without funds. To date, no creditor has indicated its preparedness to fund the action and I do not consider an application for funding pursuant to Section 305 of the Act would be appropriate in these circumstances as the Commonwealth is not a creditor. (11) BANKRUPTS' PROPOSAL The Bankrupts propose that they continue for the benefit of their creditors generally their action for damages claimed in excess of one million dollars ($1,000,000.00) for negligence against their former solicitor GERRY CASSIMATIS currently before the Supreme Court of Queensland Brisbane Registry pursuant to Writ of Summons 1150 of 1991 and estimated to be completed before 30 June 1996 (hereinafter called "the action") in that the entire proceeds of that claim (including any costs or interest awarded) be vested with such other property referred to in clause 2 hereof in STEPHEN LEONARD DENBY pursuant to this Composition and be distributed by him in priority as follows:- . . . . . . (12) TRUSTEE'S OPINION In my opinion, as there will be no dividend to creditors in the bankrupt estates, the Bankrupts' proposal is in Creditors' best interest as it may result in a dividend if the Bankrupts' action for damages is successful." The appellants also relied upon parts of the language of clauses 3 and 8, namely: (a) "We propose that we continue for the benefit of our creditors our action for damages ...: (clause 3) (b) "... the entire proceeds of that claim including any costs or interest awarded be vested with such -- 5 of 10 -- 6 other property referred to in clause 2 hereof in Stephen Leonard Denby pursuant to this Composition ..." (clause 3); (c) "... payment of our legal costs and outlays associated with the action as taxed or agreed to by my Trustee ..." (Clause 3); (d) "... in the event that the annulment of the bankruptcy affected by this Composition fails to validate the action ..." (clause 8); and (e) "... for any other reason the bankrupt fail to prosecute the action" (clause 8). The respondent did not submit that an assignment of any future proceeds of the action was, or would be, ineffectual (see Meagher, Gummow and Lehane "Equity Doctrines and Remedies", 2nd Ed., Chapter 6) and that, for that reason, could not have been intended. Rather, it placed emphasis upon the generality of clause 2 of the composition, which it argued was plainly wide enough to include the appellants' cause of action against the respondent and must have been intended to do so since, as shown by the Trustee's report to creditors prior to the meeting which accepted the composition, it was the only asset within the bankrupts' estate available to the creditors. It was said by the respondent that the primary judge was correct when, after referring to clause 3 of the composition, he said: "It is submitted that this shows a clear intention that the cause of action not vest in Mr Denby. I am unable to so construe the composition. The clear intention of paragraph 3 is that the benefit of the action go to the trustee. The statement to the effect that, "We propose that we continue" the action is consistent with an intention to co-operate and to be the moving spirit behind the litigation without derogating from the general vesting of property referred to in clause 2. In those circumstances, the cause of action is still vested in the trustee legally and he is therefore the proper plaintiff in any litigation to enforce it, just as he was when the writ was first issued in 1991." While there is force in these observations, and -- 6 of 10 -- 7 although clause 2, in isolation, is undoubtedly wide enough to encompass the appellants' cause of action against the respondent, the features of clauses 3 and 8, referred to above, strongly favour a qualification of clause 2 by clause 3. Although the composition is poorly drafted, the better construction is that the appellants' cause of action against the respondent is to continue to remain in the appellants and the action is to continue to be pursued by them in their name, with the proceeds, when received, to be vested in Mr Denby as trustee for the creditors in accordance with the composition. In summary, the making of the composition annulled the bankruptcy, and with it the incompetence of the bankrupt to bring or maintain the action. The effect of the composition was that the cause of action, and the right to bring it in their own names, remained with the appellants. The pending action, although capable of being attacked as an abuse of process during the pendency of the bankruptcy, was not so attacked. Upon the making of the composition and the annulment of the bankruptcy, the bankrupt's competence to bring and maintain the action was fully restored. In these circumstances the pending action should not be regarded as a nullity, and the appellants are now competent to maintain it. It should not have been struck out. Accordingly, the appeal should be allowed and the orders made below set aside. The respondent must pay the appellant's taxed costs of the application and this appeal. -- 7 of 10 -- 8 IN THE COURT OF APPEAL SUPREME COURT OF QUEENSLAND Appeal No.114 of 1993 Brisbane [Coyle v. Cassimatis] BETWEEN: ALEXANDER GEORGE COYLE and SIDNEY MARIE COYLE (Plaintiffs) Appellants v. GERRY CASSIMATIS (Defendant) Respondent The President Mr Justice Thomas Mr Justice MacKenzie Judgment delivered 01/11/93 Judgment of the Court APPEAL ALLOWED. SET ASIDE ORDERS MADE BELOW. RESPONDENT TO PAY THE APPELLANT'S TAXED COSTS OF THE APPLICATION AND THIS APPEAL. CATCHWORDS: BANKRUPTCY - composition in satisfaction of debts annulling bankruptcy - whether composition vested appellants cause of action in trustee. Counsel: Mr. K.C. Fleming Q.C. with him Mr. A.P.J. Collins for the appellant Mr. P.D. McMurdo Q.C. with him Mr. T.D. Linkalter for the respondent -- 8 of 10 -- 9 Solicitors: Grays for the appellant Clayton Utz for the respondent Hearing Date:21/10/93 -- 9 of 10 -- 10 -- 10 of 10 --