State of Western Australia v Southern Equities Corp Ltd (in liq) & Ors [1997] FCA 875

FEDERAL COURT OF AUSTRALIA PRACTICE AND PROCEDURE - deceased party - pending proceedings - bankrupt estate - proceeding continued - Order 6 rule 15(1) - some useful purpose must be served - no useful purpose identified - order refused - no legal personal representative - cross-claim dismissed. Trade Practices Act 1974 s 52 Bankruptcy Act 1966 s 60 Federal Court Rules Hayward v Pile (1872) 7 LR Ch App 634 Crossley v City of Glasgow Life Assurance Co (1876) 4 Ch D 421 Curtius v Caledonian Fire and Life Assurance Co (1881) 19 Ch D 534

STATE OF WESTERN AUSTRALIA v SOUTHERN EQUITIES CORPORATION LTD (IN LIQUIDATION) AND OTHERS NOS WAG 115, 116 AND 118 OF 1990 FRENCH J PERTH 3 SEPTEMBER 1997

IN THE FEDERAL COURT OF AUSTRALIA

WESTERN AUSTRALIA DISTRICT REGISTRY WAG No. 115, 116 and 118 of 1990

BETWEEN: STATE OF WESTERN AUSTRALIA

Applicant

AND: SOUTHERN EQUITIES CORPORATION LIMITED (In liquidation)

First Respondent

WARDLEY AUSTRALIA LIMITED

Second Respondent

LAWRENCE ROBERT CONNELL

Third Respondent

WARDLEY AUSTRALIA SECURITIES LIMITED

FOURTH RESPONDENT

ROTHWELLS LIMITED (IN LIQUIDATION)

FIFTH RESPONDENT

and

JAMES PHILLIP YONGE

Sixth Respondent

and

cross claimants

JUDGE: FRENCH j

DATE OF ORDER: 3 SEPTEMBER 1997

WHERE MADE: PERTH

THE COURT ORDERS THAT: On the Applicant's motion filed 18 August 1997: 1. The motion be dismissed. 2. The applicant's claim against the Third Respondent be dismissed. On the Fifth Cross-Respondent's motion filed 7 August 1997: 1. The Third Respondent's cross-claim against the Fifth Cross-Respondent be dismissed. 2. The Third Respondent pay the costs of the motion and of the cross-claim including any reserved costs. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA

WESTERN AUSTRALIA DISTRICT REGISTRY nO. WAG 115, 116 AND 118 of 1990

BETWEEN: STATE OF WESTERN AUSTRALIA

Applicant

AND: southern equities corporation limited (in liquidation)

First Respondent

wardley australia limited

Second Respondent

lawrence robert connell

Third Respondent

wardley australia securities limited

fourth respondent

rothwells limited (in liquidation)

fifth respondent

AND james phillip yonge

sixth respondent

and

cross claimants

JUDGE: FRENCH j

DATE: 3 SEPTEMBER 1997

PLACE: PERTH

REASONS FOR JUDGMENT ON MOTIONS RELATING TO THE BANKRUPT ESTATE OF LAWRENCE ROBERT CONNELL In these proceedings, instituted in 1990, the State of Western Australia claims damages against a number of parties including Lawrence Robert Connell. The damages claimed are for misleading or deceptive conduct in contravention of s 52 of the Trade Practices Act 1974 and for fraudulent misrepresentation. Mr Connell died on 27 February 1996. Mr Geoffrey Totterdell was named as Executor of his will but probate was not granted and Mr Totterdell was never appointed as legal personal representative of the deceased estate. On 9 July 1996 the estate, being adjudged bankrupt, Ross Norgard was appointed as his Trustee. A report to creditors prepared by him disclosed assets of $34,182 against liabilities estimated at approximately $341,212,459. A proof of debt has been lodged with the estate by Wardleys and Yonge. On 13 February 1997, orders were made by consent dismissing motions by Wardley and Yonge for leave to proceed against the Trustee. It was a term of those orders however that the dismissal of the motions would not constitute a bar to the making of a further application seeking a stay or substantially the same orders. The State of Western Australia now moves for an order that its proceedings against the estate continue in the absence of a person representing that estate. Orders are sought under O 6 r 15 of the Federal Court Rules. That rule provides: "15(1) Where in any proceeding it appears to the Court that a deceased person was interested, or that the estate of a deceased person is interested, in any matter in question in the proceeding and that he has no personal representative, the Court may, on the application of any party - (a) order that the proceeding continue in the absence of a person representing the estate of the deceased person; or (b) by order (with the consent of the person appointed) appoint a person to represent that estate for the purposes of the proceeding. (2) An order under sub-rule (1), and any judgment or order subsequently pronounced or made in the proceeding shall bind the estate of the deceased person to the same extent as the estate would have been bound had a personal representative of the deceased person been a party to the proceeding. (3) Before making an order under this rule, the Court may require notice of the application for the order to be given to such (if any) of the persons having an interest in the estate as it thinks fit."

In an affidavit filed in support of the motion it is said, on behalf of the State, that it does not assert that it has the right to prove in the administration of the deceased estate in bankruptcy in respect of the claims which are for unliquidated damages. In brief argument in support of the motion, counsel for the State accepted that its claim against the estate is a claim which, were it to be successful, would only ever be satisfied were the bankruptcy of the estate to be annulled after payment of debts. Nevertheless it was said: "....we would like to continue against Mr Connell's estate." Neither the Trustee in bankruptcy nor the executor named in the will wish to be represented. Given the vanishingly small probability that the estate will ever satisfy its debts, it does not appear that the order sought would serve any useful purpose at all. There is little reported authority on the operation of the rule. An order allowing a proceeding to continue in the name of a deceased plaintiff with no personal representative was made by the Court of Appeal in Chancery in Hayward v Pile (1872) 7 LR Ch App 634. The proceedings were an administration suit brought by the Plaintiff from which his estate might benefit. A residuary legatee,who was a defendant to the suit, persuaded the court to make the order albeit without prejudice to the right of a personal representative to intervene when constituted. The power to make such an order derived from s 44 of the Chancery Amendment Act 1852 (15 and 16 Vict c. 86). Other cases in which such orders were made involved the equitable beneficiaries of insurance policies where the assured had no legal personal representative. The reasoning in such cases was pragmatic. In Crossley v City of Glasgow Life Assurance Co (1876) 4 Ch D 421, Jessell MR, speaking of the equitable beneficiary who sought recovery under the policies, said: "Then he comes here and brings an action, which he was quite entitled to bring, and there I think I can help him, because, under the power conferred on me by the Legislature, and under the circumstances of the case, seeing that it is sufficiently proved that the money is really due, I can do without the legal personal representative." (at 426-427) And in Curtius v Caledonian Fire and Life Assurance Co (1881) 19 Ch D 534, Lord Coleridge CJ, speaking of s 44 of the Chancery Amendment Act 1852 said at 536: "I cannot conceive a case more clearly within the terms of the section than one in which a person interested in a policy of insurance assigns it to another person and the company asks the protection of the Court in payment of the money. It is clear in the present case that the debt is largely in excess of the policy money; the estate is insolvent, and the widow and the near relatives of the intestate have disclaimed all interest." Baggallay LJ characterised the power under s 44 as "perfectly general", the only restriction being that there must be no representative of the deceased person in existence. The power conferred by O 6 r 15(1) is general in its terms and applicable to a variety of situations where either applicants or respondents have died in which proceedings are pending and there is no personal legal representative. The rule does involve exercise of a discretion. A critical factor in the exercise of the discretion it confers is that any order made under the section must serve a useful purpose. It is for the party moving for such an order to satisfy the Court that there is some useful purpose to be served by making it. In the present case such satisfaction is not to be achieved by remote or speculative possibilities that the estate will undergo a miraculous recovery from its present position. In my opinion the order would merely leave on foot proceedings which serve no useful purpose. The order sought will be refused. And in the circumstances the claim against the estate should be dismissed, albeit it should be clear that the dismissal does not go to the merits of the claim. Connell had, before his death, commenced proceedings by way of cross-claim against KMG Hungerfords. By a motion filed on 7 August 1997, KMG Hungerfords sought an order that the cross-claim be struck out. In an affidavit in support of the motion it was pointed out that since Mr Connell's death it has received no notice from or on behalf of the executor of his will or the Trustee in bankruptcy of his estate that the cross-claim would be pursued. At the time of his death, the solicitors on the record were Messrs. Jackson McDonald. On 28 April 1997, the solicitors for KMG Hungerfords were given a Notice of Removal of Solicitor, signed on behalf of Jackson McDonald. Their notice of motion to strike out the cross-claim was served on the executor named in the will and Messrs Hely Edgar who acted for the Trustee in bankruptcy albeit they have never been on the record in these proceedings. The executor of the will, Mr Totterdell, wrote to the solicitors for KMG Hungerfords on 8 August 1997 advising that his involvement with the estate had terminated with Mr Norgard's appointment as Trustee as he had never obtained probate. The solicitors for the Trustee informed the solicitors for KMG Hungerfords orally on 15 August 1997 that no-one from their office would be attending the Court to oppose the application and that the Trustee would not be opposing the application. In its submission in support of the application, KMG Hungerfords note that Mr Connell died almost eighteen months ago and that since that date nothing has happened to advance the cross-claim on behalf of his estate or its creditors. The Trustee in bankruptcy had received notice of the existence of the cross-claim by at least March 1997. Reliance was placed upon s 60 of the Bankruptcy Act 1966, which provides: "60(2) An action commenced by a person who subsequently becomes a bankrupt is, upon his or her becoming a bankrupt, stayed until the trustee makes election, in writing, to prosecute or discontinue the action. (3) If the trustee does not make such an election within 28 days after notice of the action is served upon him or her by a defendant or other party to the action, he or she shall be deemed to have abandoned the action. (4) Notwithstanding anything contained in this section, a bankrupt may continue, in his or her own name, an action commenced by him or her before he or she became a bankrupt in respect of: (a) any personal injury or wrong done to the bankrupt, his or her spouse or a member of his or her family; or (b) the death of his or her spouse or of a member of his or her family." It is clear that the estate has failed to prosecute the action. There are no solicitors on the record for Mr Connell or the estate and neither the cross-respondent nor their solicitors have received any communications on behalf of the estate. Although the cross-claim remains on the record, it is not being prosecuted. In the circumstances it is merely vexatious and, in my opinion, can and should be struck out upon that basis under O 20 r 2(1)(b) of the Federal Court Rules. KMG Hungerfords seeks an order for costs on the motion. The utility of such an order is questionable having regard to the general condition of the estate. However, I will make an order in terms of the motion. I certify that this and the preceding five (5) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice French

Associate: Dated: 3 September 1997

Counsel for the Applicant: Mr J.D. Allanson

Solicitors for the Applicant: State Crown Solicitor

Counsel for Rothwells: Mr C. Thompson

Solicitors for Rothwells: Blake Dawson Waldron

Counsel for KMG Hungerfords Mr S. Penglis

Solicitors for KMG Hungerfords Freehill Hollingdale & Page Date of Hearing: 26 August 1997

Date of Judgment: 3 September 1997