FEDERAL COURT OF AUSTRALIA Ashdown v Spargo [2007] FCA 1399 BANKRUPTCY – leave to take fresh steps in proceedings in respect of a provable debt subsequent to bankruptcy of debtor. Held: application allowed Bankruptcy Act 1966 (Cth) ss 5, 58(3)(b), 82 Allanson v Midland Credit Ltd (1977) 16 ALR 43 applied Re McMaster; ex parte McMaster (1991) 33 FCR 70 referred to Re Veghelyi; Smith and Others v Official Trustee in Bankruptcy (1993) 45 FCR 413 followed Trustees Executors and Agency Company Ltd v Reilly [1941] ALR 105 referred to EDITH LILLAH MARIE ASHDOWN v LESLIE JOHN SPARGO AND ANDREW ARAVANIS NSD1780 OF 2007 COWDROY J 5 SEPTEMBER 2007 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NSD1780 OF 2007 BETWEEN: EDITH LILLAH MARIE ASHDOWN Applicant AND: LESLIE JOHN SPARGO First Respondent ANDREW ARAVANIS Second Respondent JUDGE: COWDROY J DATE OF ORDER: 5 SEPTEMBER 2007 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. Pursuant to s 58(3)(b) of the Bankruptcy Act 1966 (Cth), leave be granted to the applicant to take fresh steps in, and continue with, Supreme Court of New South Wales Equity Division matter no. 3897 of 2006. 2. For the purposes of order 1, leave to continue the said proceedings be deemed to have been granted on 29 August 2007. 3. Each party pay its own costs. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NSD1780 OF 2007 BETWEEN: EDITH LILLAH MARIE ASHDOWN Applicant AND: LESLIE JOHN SPARGO First Respondent ANDREW ARAVANIS Second Respondent JUDGE: COWDROY J DATE: 5 SEPTEMBER 2007 PLACE: SYDNEY REASONS FOR JUDGMENT 1 By application filed on 3 September 2007 the applicant, Ms Marie Ashdown, seeks leave pursuant to s 58(3)(b) of the Bankruptcy Act 1996 (Cth) ('the Act') to take fresh steps in and to continue with Supreme Court of New South Wales Equity Division proceedings no. 3897 of 2006 ('the Supreme Court proceedings'). Ms Marie Ashdown also seeks an order that such leave be deemed to have been granted from 29 August 2007. An order is also sought that each party pay its own costs. 2 Ms Marie Ashdown and her sister Ms Dulcie Ashdown ('the Ashdowns') were the registered proprietors of land known as 49 Goodlands Avenue, Thornleigh ('the Thornleigh property'). Such property was owned by the sisters as joint tenants. Ms Dulcie Ashdown died on 9 January 2005. 3 During 1997 the Ashdowns granted a power of attorney to the first respondent, Mr Spargo, who is the first defendant in the Supreme Court proceedings. Prior to 27 July 2001, the Thornleigh property was the subject of a series of mortgages to Wygoss Pty Limited, which is the second defendant in the Supreme Court proceedings. It appears that Mr Spargo exercised his power of attorney in executing at least one of the mortgages in the names of the sisters. 4 On 26 June 2002 by way of Financial Management Order in the New South Wales Guardianship Tribunal the estate of Ms Marie Ashdown was subject to management under the provisions of the Protected Estates Act 1983 (NSW) and such management was committed to the Protective Commissioner. On 25 July 2006, Ms Marie Ashdown by her tutor the Protector Commissioner, instituted the Supreme Court proceedings. On 31 July 2007, Mr Spargo was made bankrupt. Accordingly it is necessary for leave to be granted to enable Ms Marie Ashdown, through the Protective Commissioner, to continue with the Supreme Court proceedings. 5 The affidavit of Mr Christopher Matthew Zucker sworn 3 September 2007 attaches the existing Statement of the Claim in the Supreme Court proceedings, and the proposed Amended Statement of Claim. It is not necessary to consider in detail the claims made on behalf of Ms Marie Ashdown against each of the three defendants namely Mr Spargo, Wygoss Pty Limited and Mr Prior except to observe that there are allegations of undue influence in relation to the mortgages granted to Wygoss Pty Limited, unconscionable conduct, a claim for relief under the Contracts Review Act 1980 (NSW), and a claim for relief for breach of trust and breach of fiduciary duty. Alternatively there are claims in debt and other causes of action. In essence it is alleged that Mr Spargo received all of the funds that were secured by the mortgages and held them on trust for Ms Marie Ashdown. The assertion made by Mr Spargo that part of the funds were spent by him in support of the Ashdowns and in the maintenance and upkeep of the Thornleigh property is disputed. The second respondent, Mr Avavanis, is the trustee of the bankrupt estate of Mr Spargo. He is represented today in Court but takes no position either to accede to or oppose the orders sought. 6 The Supreme Court proceedings are fixed for hearing on 4 December 2007, but an interlocutory application for leave to amend the Statement of Claim in the Supreme Court proceedings is scheduled to be heard before Nicholas J on 12 September 2007. Accordingly the application for leave under s 58(3)(b) of the Act has been brought as a matter of urgency. FINDINGS 7 Section 58(3)(b) of the Act relevantly provides: 3) Except as provided by this Act, after a debtor has become a bankrupt, it is not competent for a creditor: (b) except with the leave of the Court and on such terms as the Court thinks fit, to commence any legal proceeding in respect of a provable debt or take any fresh step in such a proceeding. 8 A provable debt is defined in s 5 of the Act as 'a debt or liability that is under this Act, provable in bankruptcy'. Section 82 of the Act provides for the nature of debts provable in bankruptcy and relevantly states: (1) Subject to this division, all debts and liabilities, present or future, certain or contingent, to which a bankrupt was subject at the date of the bankruptcy, or to which he or she may become subject before his or her discharge by reason of an obligation incurred before the date of the bankruptcy, are provable in his or her bankruptcy. … (2) Demands in the nature of unliquidated damages arising otherwise than by reason of a contract, promise or breach of trust are not provable in bankruptcy. 9 The words 'in respect of' which appear in s 58(3)(b) have been considered judicially: see for example Re McMaster; ex parte McMaster (1991) 33 FCR 70 at 72 and in Trustees Executors and Agency Company Ltd v Reilly [1941] ALR 105 at 106. Such authorities refer to the wide scope of the words 'in respect of' as contained in the relevant subsection. The Court is satisfied that for the purposes of s 58(3)(b) of the Act the claim the subject of the Supreme Court proceedings falls within the purview of s 82 and that the Supreme Court proceedings are in respect of a provable debt. As such this is a proper case for an application for leave under s 58(3)(b) of the Act. 10 The circumstances which a Court must consider when asked to grant leave have been set out in Allanson v Midland Credit Ltd (1977) 16 ALR 43. In that Full Court decision their Honours observed at 48 that if the issues involved would be better and more comprehensively dealt with in a contested trial of the action in the Supreme Court than if a creditor was required to lodge a proof of debt, a grant of leave should follow. 11 The issues as outlined in the Statement of Claim and in the proposed Amended Statement of Claim establish that there are complex factual issues to be determined which, it is apparent, could be determined more effectively in the Supreme Court proceedings. 12 As the Supreme Court proceedings were last before that Court for directions on 29 August 2007, an order is sought for leave to be granted effective from that date. The power of the Court to grant leave pursuant to s 58(3)(b) of the Act includes the power to grant such leave nunc pro tunc: see Re Veghelyi; Smith and Others v Official Trustee in Bankruptcy (1993) 45 FCR 413 at 417. 13 Accordingly the Court considers that the orders sought by Ms Marie Ashdown should be made forthwith and the Court makes the orders as set out above. I certify that the preceding thirteen (13) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Cowdroy . Associate: Dated: 5 September 2007 Counsel for the Applicant: A. McInerney Solicitor for the Applicant: Lee & Lyons Lawyers Solicitor for the Second Respondent: D. A. Jabbour Date of Hearing: 5 September 2007 Date of Judgment: 5 September 2007