FEDERAL COURT OF AUSTRALIA Boensch v Somerville Legal Pty Ltd [2020] FCA 645 File numbers: NSD 2088 of 2019 NSD 2048 of 2019 Judge: ABRAHAM J Date of judgment: 14 May 2020 Catchwords: PRACTICE AND PROCEDURE – where sequestration order made against the estate of the appellant – where application for extension of time and leave to appeal commenced before sequestration order – whether appellant has standing to bring the application on the making of the sequestration order – where s 60 of the Bankruptcy Act 1966 (Cth) is engaged – where Trustees in Bankruptcy have chosen not to prosecute the action – where action deemed abandoned pursuant to s 60(3) – whether Trustees in Bankruptcy should be joined in the bankruptcy appeal Legislation: Bankruptcy Act 1966 (Cth) ss 60, 52 Federal Court of Australia Act 1976 s 24 Cases cited: Cristovao v Tan and Tan Lawyers Pty Ltd [No 2] [2017] WASCA 171 Cox v Journeaux (No 2) [1935] HCA 48; (1935) 52 CLR 713 Gittins v Field (Trustee) [2018] FCA 976 Sheehan v Brett-Young (No 2) [2016] VSC 39 Berryman v Zurich Australia Ltd [2016] WASC 196; (2016) 310 FLR 108 Flint v Richard Busuttil & Co Pty Limited [2013] FCAFC 131; (2013) 216 FCR 375 Evans v Heather Thiedeke Group Pty Ltd (1990) 95 ALR 424 Freeman v National Australia Bank Ltd [2002] FCA 427 Endresz v Australian Securities and Investments Commission [2014] FCA 1139 James v Commonwealth Bank of Australia [2015] FCA 582; (2015) 236 FCR 379 Cummings v Claremont Petroleum NL [1996] HCA 19; (1996) 185 CLR 124 Nolten v Groeneveld Australia Pty Ltd [2011] FCA 1494 Date of hearing: The matter was determined on the papers Date of last submissions: 4 May 2020 Registry: New South Wales Division: General Division National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Category: Catchwords Number of paragraphs: 33 Counsel for the Appellant: The appellant appeared in person Counsel for the Respondent: Mr C Graham of Somerville Legal Solicitor for the Respondent: Somerville Legal Counsel for the Trustees in Bankruptcy: Ms D Naidenov of Daniela Fazio Lawyers Solicitor for the Trustees in Bankruptcy: Daniela Fazio Lawyers ORDERS NSD 2088 of 2019 BETWEEN: FRANZ BOENSCH Appellant AND: SOMERVILLE LEGAL PTY LTD Respondent JUDGE: ABRAHAM J DATE OF ORDER: 14 May 2020 THE COURT ORDERS THAT: 1. Leave is granted for the Trustees in Bankruptcy to intervene in this matter. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. ORDERS NSD 2048 of 2019 BETWEEN: FRANZ BOENSCH Applicant AND: Somerville Legal Pty Ltd Respondent JUDGE: abraham j DATE OF ORDER: 14 May 2020 THE COURT NOTES THAT: 1. The matter has been abandoned. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT ABRAHAM J: 1 On 4 April 2019, a judge of the Federal Circuit Court of Australia dismissed with costs, an application by the appellant in respect to a bankruptcy notice issued on 7 February 2019: Boensch v Somerville Legal Pty Ltd [2019] FCCA 868. The creditor is the respondent in these matters, Somerville Legal Pty Ltd. On 26 April 2019, the appellant filed a notice of appeal pursuant to s 24(1)(d) of the Federal Court of Australia Act 1976 (Cth) (Federal Court Act), challenging the decision of the Federal Circuit Court. On 25 October 2019 this Court concluded that the appeal was incompetent and leave to appeal was refused: Boensch v Somerville Legal Pty Ltd [2019] FCA 1752. 2 On 10 December 2019, the appellant filed an application for an extension of time and leave to appeal against the Federal Circuit Court judgment of 4 April 2019 (matter number NSD2048/2019) (extension of time application). While properly referred to as the applicant in respect to the extension of time application, for consistency he will be referred to as the appellant in these reasons. 3 On 12 December 2019, a sequestration order was made against the estate of the appellant: Somerville Legal Pty Ltd v Boensch [2019] FCCA 3637. 4 On 13 December 2019, the appellant filed a notice of appeal against the sequestration judgment (matter number NSD2088/2019) (bankruptcy appeal). The appellant has a right to appeal this judgment. 5 On 6 March 2020, both matters were listed for a case management hearing. 6 Two matters arise for consideration at this preliminary stage: first, whether by reason of s 60 of the Bankruptcy Act 1966 (Cth) (Bankruptcy Act) the appellant has standing to bring the extension of time application; and second, whether the Trustees in Bankruptcy (Trustees) should be joined as a party in the bankruptcy appeal. Suffice to say, both of the issues were challenged, and the argument proceeded on the papers with each party, and the Trustees, providing written submissions and evidence. Appellant's standing in relation to the extension of time application (NSD2048/2019) 7 In relation to this issue the following material was relied on: (1) written submissions filed by the respondent dated 18 March 2020; (2) written submissions filed by the Trustees dated 18 March 2020, together with the affidavit of Liam Thomas Bailey sworn on 18 March 2020; (3) written submissions filed by the appellant on 2 April 2020 and 6 April 2020. 8 This issue only relates to the extension of time application. 9 For the reasons below, as the Trustees have chosen not to prosecute the matter it is therefore deemed abandoned pursuant to s 60(3) of the Bankruptcy Act. 10 At the case management hearing the respondent submitted that these proceedings ought to be dismissed pursuant to s 60 of the Bankruptcy Act. This issue was raised by the respondent without notice to either the appellant or the Trustees. 11 At the time of the case management hearing the solicitor for the Trustees required instructions on their position in respect to this issue. 12 In written submissions the appellant opposed the order on the basis the respondent and the Trustees were said to have erroneously relied on s 60(2) and (3), whereas the exemption in s 60(4) (and s 116(2)(g)) applied. It was submitted that these proceedings do not vest in the Trustees under s 116(2)(g) of the Bankruptcy Act. Further, he submitted that the exception in s 60(4) applied as in this case there was a bankruptcy obtained by fraud, unconscionable conduct, dishonest and erroneous cost calculation by the respondent which constituted a "wrong done to the bankrupt" for the purposes of s 60(4). 13 The Trustees noted that as a result of the provisions of the Bankruptcy Act, the property (being the chose in action) vested in the Trustees, subject to any existing encumbrances at the commencement of the appellant's bankruptcy. Any action commenced by the appellant after the date of bankruptcy concerning "property" which has vested in his Trustees also vests in his Trustees in Bankruptcy (being the chose in action) unless any such action falls within one of the exceptions set out in s 116(2) of the Bankruptcy Act. The application for an extension of time directly relates to property vested in the appellant's Trustees, and it is not an action that fits within any of the exceptions contained in s 116(2) of the Bankruptcy Act. It was submitted that where a chose in action is vested in the Trustee of a bankrupt estate the bankrupt loses standing to maintain or prosecute an action for enforcement of the rights attaching to that chose in action. Consideration 14 Section 60 is relevantly in the following terms: 60 Stay of legal proceedings … (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 de facto partner or a member of his or her family; or (b) the death of his or her spouse or de facto partner or of a member of his or her family. ... (5) In this section, action means any civil proceeding, whether at law or in equity. 15 The evidence plainly establishes that this application for an extension of time was filed, and the appellant subsequently became a bankrupt. Indeed, the appellant accepts that s 60(2) and (3) "in principle" apply, but submits the exemption under s 60(4) applies. 16 Notice of the action was served on the Trustees by the respondent on 12 December 2019, as evidenced in the affidavit of Mr Bailey. 17 As an election was not made within 28 days after the notice was served, the Trustees are deemed to have "abandoned the action": s 60(3). 18 Section 60(5) defines action to mean any civil proceeding, whether at law or in equity. This application is an "action" for the purposes of s 60 of the Bankruptcy Act: see for example, Cristovao v Tan and Tan Lawyers Pty Ltd [No 2] [2017] WASCA 171 (Cristovao) at [8]. 19 The appellant relies on s 60(4)(a) and s 116(2)(g) which relates to an action in respect of "any personal injury or wrong done to the bankrupt". 20 The test as to what constitutes a "personal injury or wrong" within the meaning of s 60(4) was described by Dixon J in Cox v Journeaux (No 2) [1935] HCA 48; (1935) 52 CLR 713 at 721 as follows: The test appears to be whether the damages or part of them are to be estimated by immediate reference to pain felt by the bankrupt in respect of his mind, body or character and without reference to his rights of property. 21 The meaning of that concept and the relationship between the two provisions is summarised in Gittins v Field (Trustee) [2018] FCA 976 at [24]-[33], and see Sheehan v Brett-Young (No 2) [2016] VSC 39 at [36]-[63]; Berryman v Zurich Australia Ltd [2016] WASC 196; (2016) 310 FLR 108 at [20]-[58]. 22 An application for an extension of time and leave to appeal the judgment of 4 April 2019, on the basis of the costs order and complaints about the merit of the findings as to service and that an act of bankruptcy had occurred, does not fall within that concept: see for example, Cristovao at [7]. 23 Accordingly, the extension of time and leave to appeal application (NSD2048/2019) is deemed to have been abandoned by s 60(3) of the Bankruptcy Act. 24 The effect of that is that these proceedings have been discontinued. Joinder of Trustees to the bankruptcy appeal (NSD2088/2019) 25 This application relates to the bankruptcy appeal. 26 The Trustees applied to be joined as a party in these proceedings. Although the respondent consented to that course, the appellant opposed it. 27 The following written submissions were relied on: (1) written submissions filed by the Trustees on 18 March 2020; (2) written submissions filed by the appellant on 2 April 2020; and (3) written submissions filed by the respondent on 18 March 2020. 28 The appellant's primary bases of opposition are that costs incurred by the Trustees can only be negligible; the Trustees are misleading the Court by purporting that it had work to do under the administration when it knew about the appeal from the outset; the Trustees also misled the Court in relation to assets; the Trustees' submission is irrelevant; a party who appears on an amicus basis or is joined as a party should be impartial and the Trustees are not; the Trustees are trying to "hijack" the appeal proceedings with unrelated issues, relating to its administration work; and the Trustees misused s 60 to prevent the local court looking into its mistake when making flawed final judgment (the judgment underlying the bankruptcy). 29 While it appears that some of the matters referred to in the Trustees' submission are irrelevant to the proceedings, they seek an order that they be joined as a party to these proceedings in circumstances to protect their position as to costs in the event that the appellant is successful on the bankruptcy appeal. 30 The Trustees relied on Flint v Richard Busuttil & Co Pty Limited [2013] FCAFC 131; (2013) 216 FCR 375 (Flint) where the Trustee was given leave to intervene. At [49] the Full Court stated: The trustee was given leave to intervene as a party to protect his position. He submitted that an order annulling the bankruptcy should be made under s 153B of the Bankruptcy Act in order that his costs and remuneration be protected in accordance with s 154. If the sequestration order were set aside, the creditor's petition dismissed and no order annulling the bankruptcy made, the authorities reveal that the trustee would have no statutory basis for any remuneration and his action (and the consequences thereof) would be left to the general law: see the discussions in Austral Brick Company Pty Ltd v Daskalovski [1998] FCA 782, Symons v Bateman [1999] FCA 658, Kyriackou v Shield Mercantile Pty Ltd (No 2) [2004] FCA 1338 ("Kyriackou") and Pattison v Hadjimouratis (2006) 155 FCR 226 ("Pattison"). The exposure of the trustee to that position in this case would be a gross injustice, as we later explain. 31 In light of Flint the Trustees do not articulate why it would need to be joined as a party to protect its interests in respect to the costs incurred in the administration of the estate, should the appellant be successful in his appeal. 32 The protection of its position on costs in relation to the administration of the bankrupt estate is the only interest the Trustees have in the proceedings. The submission that would be made is that which, in effect has already been made in writing about its costs. 33 In those circumstances I grant leave for the Trustees to intervene in this matter for the purpose of making any submission as to the appropriate orders should the appellant succeed on his appeal, in order to protect its position as to costs. I certify that the preceding thirty-three (33) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Abraham. Associate: Dated: 14 May 2020