FEDERAL COURT OF AUSTRALIA Watson v National Australia Bank [2016] FCA 1334 File number: QUD 633 of 2016 Judge: DOWSETT J Date of judgment: 27 October 2016 Catchwords: BANKRUPTCY AND INSOLVENCY – where applicants bankrupt – where claims brought by applicants vested in trustee in bankruptcy – whether claims for undue stress or injury to health, reputation, credit or character arising out of property vested in trustee are personally enforceable by bankrupt Legislation: Bankruptcy Act 1966 (Cth) ss 5(1), 58(1), 116, 116(1), 116(2)(g) Federal Court Act 1975 (Cth) s 31A Federal Court Rules 2011 (Cth) r 1.39, 13.01, 26.01 Cases cited: Bryant v Commonwealth Bank of Australia (1997) 75 FCR 545 Moss v Eaglestone (2011) 257 FLR 96 Date of hearing: 27 October 2016 Registry: Queensland Division: General Division National Practice Area: Commercial and Corporations Sub-area: General and Personal Insolvency Category: Catchwords Number of paragraphs: 10 Counsel for the First and Second Applicants: The First and Second Applicants appeared in person Counsel for the Respondent: Mr P O'Higgins Solicitor for the Respondent: Dibbs Barker ORDERS QUD 633 of 2016 BETWEEN: WEZLEY BRIAN WATSON First Applicant GLORIA LORRAINE WATSON Second Applicant AND: NATIONAL AUSTRALIA BANK Respondent JUDGE: DOWSETT J DATE OF ORDER: 27 OCTOBER 2016 THE COURT ORDERS THAT: 1. leave to amend the originating application be refused; 2. the proceedings be dismissed; and 3. the applicants pay the respondent's costs. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT DOWSETT J: 1 By originating application filed on 9 August 2016, the applicants, Wezley Brian Watson and Gloria Lorraine Watson, claim the following relief: 1. In the event that the Judge finds the National Australia Bank loan wronged the Watsons in the loan approval on 60 Bold Street, Laurieton, ... an order for Wezley Brian Watson and Gloria Lorraine Watson to be put back into a financial position prior to the loan approval. 2. In the event the Judge finds the National Australia Bank loan wronged the Watsons in the loan approval process on 30 The Anchorage, Port Macquarie, ... an order for Wezley Brian Watson and Gloria Lorraine Watson to be put back into a financial position prior to the loan approval. 3. In the event the Judge finds the National Australia Bank loan wronged the Watsons by disclosing private information, [compensation for] the Watsons for the undue stress caused by the negligence of the bank manager. 4. In the event the Judge finds the National Australia Bank loan wronged the Watsons in the settlement negotiations by not allowing the Watsons to sell and lease parts of 60 Bold Street, Laurieton, [compensation for] the Watsons for the loss causing bankruptcy. 5. In the event the Judge finds the Watsons were not allowed natural justice or procedural fairness in their bankruptcy hearing, [annulment of] the bankruptcy ... . 2 By interlocutory application filed on 30 August 2016, the respondent applies for the following orders: 1. Pursuant to rule 13.01 of the Federal Court Rules 2011 (Cth) ('the Rules'), the originating application filed on 9 August 2016 be set aside. 2. In the alternative, pursuant to rule 26.01 of the Rules, summary judgment in favour of the Respondent. 3. Pursuant to rule 1.39 of the Rules, the time provided for by rule 26.01 of the Rules be abridged. 4. In the further alternative, pursuant to section 31A of the Federal Court Act 1975 (Cth), summary judgment in favour of the Respondent; 5. Costs. 6. Such further or other order as the Court considers appropriate. 3 Thereafter, the parties gave limited discovery. The interlocutory application was listed for argument today. In the meantime, on 11 October 2016, and without leave, the applicants filed a further proposed amended originating application (the "proposed amended application"). The parties agree that I should proceed upon the basis that the applicants have made an application to amend the originating application in terms of the proposed amended application. 4 In the proposed amended application the relief to be sought is as follows: 1. In the event the Judge finds the National Australia Bank loan wronged the Watsons in the loan approval on 60 Bold Street, Laurieton in 2005, ... an order for Wezley Brian Watson and Gloria Lorraine Watson to be put back into a financial position prior to the loan approval. 2. In the event the Judge finds the National Bank loan approval on 60 Bold Street, Laurieton in 2007 unconscionable and unjust ... an order for Wezley Brian Watson and Gloria Lorraine Watson to be put back into a financial position prior to the loan approval. 3. In the event the Judge finds the National Australia Bank wronged the Watsons in the loan approval process on 30 The Anchorage, Port Macquarie, ... an order for Wezley Brian Watson and Gloria Lorraine Watson to be put back into a financial position prior to the loan approval. 4. ... 5. In the event the Judge finds the National Australia Bank wronged the Watsons in the settlement negotiations by not allowing the Watsons to sell and lease parts of 60 Bold Street, Laurieton, [an order compensating] the Watsons for the loss causing bankruptcy. 6. In the event the Judge finds the Watsons were not allowed natural justice or procedural fairness in their bankruptcy hearing, ... [an order annulling] the bankruptcy. 7. In the event the Judge finds the National Australia Bank caused injury to the Watsons' health, reputation, credit and character, ... [an order compensating] the Watsons. 5 The proposed amended application and Mr Watson's affidavit material, filed on 11 October 2016 and 17 October 2016, indicate that the applicants' complaints against the respondent arise out of banking transactions concerning the properties mentioned in the originating application. Since 5 April 2016, both applicants have been bankrupt, with the effect prescribed by s 116 of the Bankruptcy Act 1966 (Cth) (the "Bankruptcy Act"). Save possibly for claim 3 of the originating application and claim 7 of the proposed amended application, whatever claims the applicants had against the respondent prior to their bankruptcy, arising out of those banking transactions, was property divisible amongst their creditors. Pursuant to s 58(1) and the definition of the term "the property of the bankrupt" in s 5(1) of the Bankruptcy Act, such property vested in the relevant trustee or trustees. 6 In those circumstances the claims sought in paras 1, 2 and 4 of the originating application and paras 1, 2, 3 and 5 of the proposed amended application are now vested in the trustee. The claims of want of procedural fairness in para 5 of the originating application and in para 6 of the proposed amended application relate to the proceedings leading to the sequestration orders. The proper respondents to an application to annul the bankruptcies for want of procedural fairness would be the petitioning creditor or creditors and/or the trustee or trustees. Any absence of procedural fairness is not a matter to be established as against the present respondent. 7 That leaves for consideration only the claim in para 3 of the originating application, that the bank manager's conduct in connection with the relevant transactions caused undue stress to the applicants, and the claim in para 7 of the proposed amended application that the respondent caused injury to each of the applicants' health, reputation, credit and character. The proposed amended application makes it clear that those claims also arise out of the same banking transactions. The applicants submit that such claims come within the exception to s 116(1) contained in s 116(2)(g). Section 116(2)(g) effectively provides that s 116(1) does not apply to: 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; 8 The respondent submits that there is a strong line of authority which suggests that where claims for damages for matters such as undue stress or injury to health, reputation, credit or character arise out of transactions which otherwise concern rights in respect of property, which rights would otherwise vest pursuant to s 116(1), the damages claims also vest and do not continue as rights personally enforceable by the bankrupt. The most enlightening discussion of the principle appears in the decision of the New South Wales Court of Appeal in Moss v Eaglestone (2011) 257 FLR 96. In that case Allsop P (as his Honour then was) considered a wide range of authorities. At [73], his Honour effectively summarized the law by reference to the decision in Bryant v Commonwealth Bank of Australia (1997) 75 FCR 545 as follows: In Bryant, Lockhart J held (at 554) that general damages for loss of business reputation, loss of standing in the community, loss of amenities of family life, stress and suffering and exemplary damages were "consequential upon the loss or damage … which is referable to the proprietary claims" and thus passed to the trustee. O'Loughlin J and Merkel J likewise (at 564) said that injuries arising as a direct result of infringements of financial or property rights passed to the trustee. 9 It follows that the claim identified in para 7 of the proposed amended application vested in the trustee pursuant to s 116(1). It occurred to me that the position may be somewhat different with respect to the claim made in para 3 of the originating application, which claim was for undue stress caused by the negligence of the bank manager. In the originating application, there is no plea of agency as between the respondent and the bank manager so that the claim, on its face, might be read as a claim against the bank manager personally. However that person is not a party, and so I infer that the claim is against the respondent, arising out of the alleged conduct of its servant or agent. It follows that such claim also vests in the trustee. 10 Leave to amend the originating application should be refused. The originating application should otherwise be dismissed. The applicants are to pay the respondent's costs of the proceedings, including reserved costs. I certify that the preceding ten (10) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Dowsett. Associate: Dated: 10 November 2016