Supreme Court New South Wales Medium Neutral Citation: In the matter of St Gregory's Armenian School Inc (in liq) (No 2) [2020] NSWSC 1601 Hearing dates: 9 November 2020 Date of orders: 13 November 2020 Decision date: 13 November 2020 Jurisdiction: Equity - Corporations List Before: Gleeson J Decision: (1) Declare that the claims for relief by the applicants, Michael Ghougassian and Daniel Ghougassian, in the interlocutory processes filed 2 March 2020 and 17 August 2020 are stayed by operation of s 60(2) of the Bankruptcy Act 1966 (Cth). (2) Dismiss the applicants' interlocutory process filed 11 October 2020. Catchwords: BANKRUPTCY – where applicants challenge distribution of surplus property of incorporated association in liquidation – Associations Incorporation Act 1984 (NSW) s 53 – where applicants subsequently become bankrupts – whether applicants' interlocutory processes stayed by Bankruptcy Act 1966 (Cth), s 60(2) – whether s 60(2) subject to implied limitation that the action must have necessary connection to bankrupt's estate – Bankruptcy Act 1966 (Cth), s 60(4) – whether wrong done to the bankrupts – declaration made PRACTICE AND PROCEDURE – where bankrupts apply to remove themselves as parties and join new party to interlocutory processes – whether removal of parties appropriate – whether joinder of new party proper or necessary – Uniform Civil Procedure Rules 2005 (NSW) r 6.24 – application dismissed Legislation Cited: Associations Incorporation Act 1984 (NSW), ss 51, 53 Associations Incorporation Act 2009 (NSW), s 65 Bankruptcy Act 1924 (Cth), s 63 Bankruptcy Act 1966 (Cth), ss 5, 52, 53, 58, 60, 116 Corporations Act 2001 (Cth), ss 482, 488 Judiciary Act 1903 (Cth), s 39B Legal Profession Uniform Law Application Act 2014 (NSW), s 71 Passenger Transport Act 1990 (NSW) Supreme Court Act 1970 (NSW), s 23 Uniform Civil Procedure Rules 2005 (NSW), r 6.24 Cases Cited: Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485; [1993] HCA 15 Cox v Journeaux (No 2) (1935) 52 CLR 713; [1935] HCA 48 Cummings v Claremont Petroleum NL (1996) 185 CLR 124; [1996] HCA 19 Daemar v Industrial Commission of New South Wales (1988) 12 NSWLR 45 Duckworth v Watercorp (2012) 261 FLR 185; [2012] WASC 30 Fisher v Transport for New South Wales [2016] NSWSC 1888 Fletcher v Westpac [2012] WASCA 154 Fuller v Beach Petroleum NL; Cummings v Beach Petroleum NL (1993) 43 FCR 60 Garrett v Commissioner of Taxation (2015) 233 FCR 226; [2015] FCA 665 Griffiths v Civil Aviation Authority (1996) 67 FCR 301; [1996] FCA 1502 In the matter of St Gregory's Armenian School In (in liq) [2011] NSWSC 936 In the matter of St Gregory's Armenian School Inc; Ghougassian v Arnautovic in his capacity as liquidator of St Gregory's Armenian School Inc [2018] NSWSC 1022 John McInerney and Phillip Campbell-Wilson in their capacity as liquidators of St Gregory's Armenian School Inc v Michael Ghougassian & Anor [2020] NSWSC 197 John Alexander's Clubs Pty Ltd v White City Tennis Club Ltd (2010) 214 CLR 1; [2010] HCA 19 John v Neiman Holdings Pty Ltd (1986) 84 FLR 84 McInerney, in the matter of Ghougassian v Ghougassian [2020] FCA 1230 Moss v Eaglestone (2011) 83 NSWLR 476;[2011] NSWCA 404 Nugawela v Deputy Commissioner of Taxation [2018] FCA 1457 Owens v Comlaw [2006] VSCA 151; (2006) 201 FLR 75 Re Brashs Pty Ltd (1994) 15 ACSR 477 Re Lofthouse (2001) 107 FCR 151; [2001] FCA 25 Want v Moss (1889) 10 LR NSW 274 Category: Principal judgment Parties: John McInerney in his capacity as a liquidator of St Gregory's Armenian School Inc (First plaintiff) Phillip Campbell-Wilson in his capacity as a liquidator of St Gregory's Armenian School Inc (Second plaintiff) Michael Ghougassian (First defendant) Daniel Ghougassian (Second defendant) David John Kerr as trustee of the bankrupt estates of Michael Ghougassian and Daniel Ghougassian Representation: Counsel: N Newton (Plaintiffs / Respondents) P King (Defendants / Applicants) H Hitch (Trustee in bankruptcy) Solicitors: Hegarty Legal (Plaintiffs / Respondents) Robert Balzola & Associates (Legal) (Defendants / Applicants) Matthews Folbigg (Trustee in bankruptcy) File Number(s): 2019/299647 Judgment 1. GLEESON J: Application is made by the defendants, Michael Ghougassian and Daniel Ghougassian (together, the Ghougassians), by interlocutory process filed 11 October 2020 for orders that Hrair (Harry) Badelian be joined as a party and that each of the Ghougassians be removed as a party to these proceedings. Background 1. The application arises under the following circumstances. 2. Mr John McInerney and Mr Phillip Campbell-Wilson are the present liquidators of St Gregory's Armenian School Inc (the Association) which was wound up by order of the Court on 21 June 2010 under s 51(1) of the Associations Incorporation Act 1984 (NSW) (the 1984 Act). 3. On 9 July 2018, Emmett AJA dismissed a second further amended originating process in which the Ghougassians sought an order under s 482 of the Corporations Act 2001 (Cth) that the winding up of the Association be terminated and an order that five named persons, including each of the Ghougassians, be appointed as directors of the Association. His Honour ordered the Ghougassians to pay the liquidators' costs: In the matter of St Gregory's Armenian School Inc; Ghougassian v Arnautovic in his capacity as liquidator of St Gregory's Armenian School Inc [2018] NSWSC 1022. His Honour expressed his conclusion at J [73]: For the reasons outlined above, I do not consider that an order should be made under s 482 of the Corporations Act in relation to the winding up of the Association. There is every justification for the winding up to be completed and the surplus property of the Association being distributed in accordance with s 53 of the 1984 Act. The Current Process should be dismissed. Michael and Daniel should pay the Liquidators' costs of the proceedings. 1. Section 53 of the 1984 Act provides: 53 Distribution of surplus property (1) In this section, a reference to the surplus property of an incorporated association is a reference to that property of the association remaining after satisfaction of the debts and liabilities of the association and the costs, charges and expenses of the winding up of the association. (2) In a winding up of an incorporated association, the surplus property of the association is to be distributed in accordance with a special resolution of the association. (2A) Any such distribution of surplus property: (a) must be approved by the Director-General, and (b) is not to be made to any member or former member of the association, or to any person to be held on trust for any member or former member of the association, unless the member or former member is an association (whether incorporated or unincorporated) that, at the time of the distribution, has rules preventing the distribution of property to its members, and (c) is subject to any trust affecting that property or any part of it. (2B) Surplus property or any part of it that consists of property supplied by a government department or public authority, including any unexpended portion of a grant, must be returned to the department or authority that supplied it or to a body nominated by the department or authority. (3) A person aggrieved by the operation of this section in relation to the surplus property of an incorporated association may apply to the Court which may make such orders as to the disposal of the surplus property as to the Court appears just. 1. The 1984 Act was repealed and replaced on 1 July 2010 by the Associations Incorporation Act 2009 (NSW) (the 2009 Act). Before Emmett AJA, it was common ground that the 1984 Act applied: see J [4]. It is common ground that s 65 of the 2009 Act is in similar terms to s 53 of the 1984 Act. 2. On 25 September 2019, the liquidators commenced these proceedings by filing a costs certificate in the amount of $332,187.21 based on the order for costs made by Emmett AJA. By virtue of that filing, the costs certificate was taken to be a judgment of the Court: Legal Profession Uniform Law Application Act 2014 (NSW), s 71(3). 3. In November 2019, the liquidators sought to enforce that judgment by filing notices of motion seeking the issue of a writ for the levy of property and garnishee orders against the Ghougassians. On 2 December 2019, the Ghougassians filed a notice of motion seeking, among others, a stay of enforcement of the judgment. The motion also sought orders 3 and 4 as follows: 3. Order under s 53(2) of the Association Incorporation Act 1984 as it was in force in June 2010 (the Act), that the surplus property of the Association be distributed in accordance with Special Resolution 43 of the Association made on 1 July 2018 (the Resolution) within 28 days or such other date as the Court may determine; 4. Order under s 53(2A) of the Act, that the resolution in [2] (sic) be referred to the Director-General within the meaning of the 1984 Act or its equivalent authority for authorisation or otherwise. 1. On 18 February 2020, Ward CJ in Eq made a direction that the Ghougassians file and serve an originating process seeking the relief in prayers 3 and 4 of the motion filed 5 December 2019, to be made returnable in the Corporations List on 2 March 2020. The Ghougassians did not file any originating process. On 2 March 2020 counsel for the Ghougassians informed the court that this relief had become "otiose" (T 14 (5-7)). 2. On 9 March 2020, I ordered a partial stay of enforcement of the judgment (John McInerney and Phillip Campbell-Wilson in their capacity as liquidators of St Gregory's Armenian School Inc v Michael Ghougassian & Anor [2020] NSWSC 197) as follows: (1) Subject to the first defendant [Michael Ghougassian] undertaking to the Court and to the plaintiffs [the liquidators] to take all necessary steps to commence and pursue with due expedition the assessment of the costs order in his favour in proceedings 2013/386207, being order 6 made on 16 November 2015, order that execution on the judgment dated 27 September 2019 for all amounts in excess of $240,000 be stayed pending the assessment of the costs order in proceedings 2013/386207 or earlier further order. (2) There be no order as to costs of the applicants' notice of motion filed 5 December 2019. 1. Although the liquidators are the plaintiffs and the Ghougassians are the defendants, in practical terms the moving parties in these proceedings are the Ghougassians, who have filed two interlocutory processes seeking relief directed to the distribution of the surplus property of the Association as follows: 1. by interlocutory process filed 2 March 2020, the Ghougassians seek an order: 3. Further or alternatively, Order pursuant to s 23 of the Supreme Court Act 1970 (NSW) and or s 488(2) Corporations Act 2001 (Cth) that the Liquidator proceed to seek judicial approval of the distribution of the surplus property in accordance with the special resolution of the incorporated association and/or under s 488(2) Corporations Act. 1. by interlocutory process filed 17 August 2020, the Ghougassians seek orders: 1 ORDER that the surplus property of the Association being St Gregory's Armenian School Inc (in liq) be distributed to the Association 2 ORDER restraining the Plaintiffs from distributing the surplus property pursuant to Corporations Act 2001 (Cth) section 488 or otherwise than in accordance with Associations Incorporated Act 1984 section 53. 1. On 27 August 2020, sequestration orders under s 52(1) of the Bankruptcy Act 1966 (Cth) were made in the Federal Court of Australia against the estates of both of the Ghougassians: McInerney, in the matter of Ghougassian v Ghougassian [2020] FCA 1230. 2. On 11 October 2020 the Ghougassians filed the interlocutory process seeking the relief indicated in [1] above. It is that application which is presently before the Court. Notice of this application has been given to Mr David Kerr the trustee of the Ghougassians' bankrupt estates. 3. On 12 October 2020, Black J made the following order: Direct each party to file and serve its submissions-in-chief as to the application or non-application of s 60 of the Bankruptcy Act and as to the question whether or not the interlocutory process filed on 11 October 2020 should be permitted to proceed by 4 pm on 19 October 2020. 1. The Court has now received the parties' written submissions, supplemented by oral argument on 9 November 2020. The issues 1. There are two issues for determination: 1. whether given their bankruptcy, the interlocutory processes filed by the Ghougassians on 2 March 2020 and 27 August 2020 are stayed by operation of s 60(2) of the Bankruptcy Act; 2. the removal of the Ghougassians and joinder of Mr Badelian as parties to this proceeding. A. The scope of the stay effected by s 60(2) Bankruptcy Act 1. The first issue concerns the scope of the stay effected by s 60(2) of the Bankruptcy Act which provides: 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. 1. Section 60(3) provides: 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. 1. Section 60(4)(a) is also relevant as it provides an exception to s 60(2) by allowing a bankrupt to continue an "action" "in respect of a personal injury or wrong done" to the bankrupt. The word "action" is defined in s 60(5) of the Bankruptcy Act for the purposes of the section to mean "any civil proceeding, whether at law or in equity". 2. The word "property" is defined in s 5(1) to mean: real or personal property of every description, whether situate in Australia or elsewhere, and includes any estate, interest or profit, whether present or future, vested or contingent, arising out of or incident to any such real or personal property. 1. Section 58(1) provides: 58 Vesting of property upon bankruptcy—general rule (1) Subject to this Act, where a debtor becomes a bankrupt: (a) the property of the bankrupt, not being after‑acquired property, vests forthwith in the Official Trustee or, if, at the time when the debtor becomes a bankrupt, a registered trustee becomes the trustee of the estate of the bankrupt by virtue of section 156A, in that registered trustee; and (b) after‑acquired property of the bankrupt vests, as soon as it is acquired by, or devolves on, the bankrupt, in the Official Trustee or, if a registered trustee is the trustee of the estate of the bankrupt, in that registered trustee. 1. The expression "property of the bankrupt" is defined relevantly in s 5(1) as: the property of the bankrupt, in relation to a bankrupt, means: (a) except in subsections 58(3) and (4): (i) the property divisible among the bankrupt's creditors; and (ii) any rights and powers in relation to that property that would have been exercisable by the bankrupt if he or she had not become a bankrupt; and … 1. The Ghougassians say that s 60(2) of the Bankruptcy Act does not effect a stay of their interlocutory processes because the word "action" in s 60(2) is limited to litigation involving "property of the bankrupt" that is vested in the trustee under s 58(1) of the Bankruptcy Act, and that the statutory right given to an "aggrieved person" by s 53(3) of the 1984 Act concerning the operation of s 53 in relation to the surplus property of the Association is not "property of the bankrupt". Reliance was placed on certain obiter remarks by Kirby P in Daemar v Industrial Commission of New South Wales (1988) 12 NSWLR 45 (Daemar) at 53 and Cooper J in Griffiths v Civil Aviation Authority (1996) 67 FCR 301; [1996] FCA 1502 (Griffiths) at [17]-[21] and [31]. 2. Alternatively, the Ghougassians say that the exception in s 60(4)(a) of the Bankruptcy Act applies to their interlocutory processes because they are claiming in relation to a wrong done to them indirectly through their membership of the Association. 3. The liquidators did not dispute that the statutory right given to an "aggrieved person" by s 53(3) of the 1984 Act is not "property of the bankrupt" that is vested in the trustee by s 58(1) of the Bankruptcy Act. Although the precise basis on which the Ghougassians claim to be an "aggrieved person" was not clearly identified in their submissions, I am prepared to proceed on the assumption, favourable to them, that the statutory right they seek to invoke is a personal right that is not vested in their trustee. 4. The liquidators submitted that the scope of the stay effected by s 60(2) of the Bankruptcy Act includes the Ghougassians' interlocutory processes filed before their bankruptcy and that the exception in s 60(4)(a) of the Bankruptcy Act does not apply. Reasoning 1. The word "action" in s 60(2) of the Bankruptcy Act is broadly defined by s 60(5) to signify "any civil proceeding". In Cummings v Claremont Petroleum NL (1996) 185 CLR 124; [1996] HCA 19 (Cummings), the High Court gave the word "action" in s 60(5) of the Bankruptcy Act a wide meaning as including the institution of an appeal: at 130 (Brennan CJ, Gaudron and McHugh JJ) and 142 (Dawson and Toohey JJ). Prima facie, the Ghougassians' interlocutory processes filed 2 March 2020 and 17 August 2020 answer the description of an "action". 2. Accepting that there are statements in some authorities, such as Daemar and Griffiths, which raise the possibility of a constructional choice, the question is whether by reference to text, context and purpose, s 60(2) of the Bankruptcy Act contains an implied limitation that an "action" must have a necessary connection with the bankrupt's estate. That is, whether an "action" must have a connection to property of the bankrupt that is vested in the trustee pursuant to s 58(1). 3. Garrett v Commissioner of Taxation (2015) FCR 226; [2015] FCA 655 (Garrett) involved an applicant who was the subject of a vexatious proceedings order and had applied for leave to appeal against that order, but was subsequently made a bankrupt. The applicant/bankrupt argued that the application for leave to appeal was not an "action" within the meaning of s 60(2) of the Bankruptcy Act because it lacked the necessary connection with the applicant's bankrupt estate. After carefully reviewing the authorities, Kenny J rejected the existence of any such requirement in s 60(2). 4. Daemar involved an applicant for prerogative relief who after the commencement of proceedings became a bankrupt. The Court of Appeal unanimously held that the action was stayed by operation of s 60(2) of the Bankruptcy Act, however Kirby P acknowledged at 53: There may be cases where an "action" commenced by a person who subsequently becomes a bankrupt, and who is seeking relief prerogative in nature, would indeed fall outside the provisions of s 60(2), as that sub-section was intended by the parliament to operate. 1. Three things should be noted about this statement. First, it was obiter. Second, the possible qualification was limited to applications for judicial review, which is not the present case. Third, Kirby P did not have regard to the policy underlying s 60(2), nor the temporal limits of the provision, in particular, that s 60(2) says nothing about proceedings commenced by a bankrupt after the person becomes a bankrupt: see [36]-[37] and [41]-[42] below. 2. Griffiths involved an appeal after the applicant became bankrupt challenging the decision of an administrative tribunal as to the conditions to be imposed on his commercial pilot's licences. At issue was the application of s 116(1) of the Bankruptcy Act, not s 60(2). The effect of s 116(1) is to vest everything answering the description of "property" in the trustee, including property acquired after the bankruptcy. Spender, Einfeld and Cooper JJ held that since a commercial pilot's licence is personal to the holder it was not "property" as defined in s 5 of the Bankruptcy Act and did not fall within "after acquired" property under s 116(1) of the Bankruptcy Act. Accordingly, the pilot's right to appeal to the Federal Court did not vest in the trustee. 3. Spender J specifically said at 304 that he derived no assistance from arguments about the application of s 60 of the Bankruptcy Act. Only Cooper J made remarks that suggested support for the proposition that s 60(2) may not apply to an action that lacks the necessary connection with a bankrupt's estate. Cooper J said at 324 that "[c]laims by or against the bankrupt which do not affect the estate of the bankrupt in any way … are of no interest to the trustee", and cited, among others, a statement of Young J in John v Neiman Holdings Pty Ltd (1986) 84 FLR 84 at 85 that "action" in s 60(2) of the Bankruptcy Act had to be read down to mean a civil proceeding at law in equity which must relate to the property of the bankrupt. 4. In Garrett, Kenny J distinguished the remarks of Cooper J in Griffiths at 324, explaining at [17]: [17] … Secondly, the issues in John v Neiman Holdings Pty Ltd (1986) 84 FLR 84 were very different from those that presently arise. This is clear from reading the judgment in John v Neiman Holdings as a whole. Young J said, non-controversially, that s 60(5) "makes it clear that 'action' means any civil proceedings, whether at law or in equity" and then added (at 85) the words to which Cooper J referred, instancing the situation "where the bankrupt is only involved in the action because, for instance, he is a proper but not a necessary party in an equity suit". Significantly, however, his Honour went on to say (at 86): … in my view, apart from these two exceptions, viz: (1) where the bankrupt's property is not affected because he is merely added to the litigation as a party for more abundant caution; or (2) where the litigation has progressed beyond the stage where the trustee's decision as to what he will do about it is still material, the effect of s 60(2) is to prevent any activity in litigation in which the bankrupt is a plaintiff … until the election has been made. Young J was not concerned with stating any broader principle than that set out above, which has no application in the present case. Furthermore, Cooper J himself was not deciding the scope of s 60(2) and was alone in saying anything that indicated that the operation of s 60(2) might depend on there being a connection between the action and the bankrupt estate beyond the fact that the bankrupt had commenced the action before becoming a bankrupt. 1. Kenny J concluded the word "action" should be broadly construed such that, save only for actions to which s 60(4) applies, s 60(2) covers all actions commenced by a bankrupt whether or not the action has a connection to the estate beyond the fact that the bankrupt commenced the action before becoming a bankrupt: at [21], [31]-[35]. 2. Turning to the purpose of s 60(2), Brennan CJ, Gaudron and McHugh JJ said in Cummings at 130, in the context of appeals against a judgment which created or evidenced a provable debt, where the appeals were commenced after the bankruptcy of the applicants', that if the appeals had been commenced prior to the applicants' bankruptcy, they would have been stayed automatically pursuant to s 60(2) of the Bankruptcy Act. The joint judgment referred to the purpose of s 60(2) as protecting a defendant or other party to a pending proceeding against a person who has no means of paying costs, citing at 130-131 the statement of Manning J in Want v Moss (1889) 10 LR NSW 274 at 279: It could never have been contemplated that a bankrupt, who can have no means to pay costs if he fails, should be allowed to go on and put the plaintiff to trouble and expense. Similarly the joint judgment referred at 131 to the statement of Gummow and Whitlam JJ in Fuller v Beach Petroleum NL; Cummings v Beach Petroleum NL (1993) 43 FCR 60 at 68: It is consistent with the policy of the Act that after sequestration of the estates of unsuccessful litigants the successful party not be put at the risk of sustaining further costs of appellate litigation. 1. The same point was made in Re Lofthouse (2001) 107 FCR 151; [2001] FCA 25, which involved a proceeding commenced by a plaintiff as trustee who subsequently became a bankrupt. Gray J held, assuming the plaintiff/bankrupt was successful and therefore his bankrupt estate would have no entitlement to any of the proceeds of the litigation, that it did not follow that s 60(2) must be construed as excluding proceedings brought by the bankrupt as a trustee. Gray J said at [19]-[20]: … [19] Section 60 is not the provision that vests the right of action in the trustee in bankruptcy. It has a different, and in some respects wider, role. It operates to stay pending proceedings unless the trustee elects to prosecute or discontinue them. It also provides the machinery for a defendant or other party to a pending proceeding to force the making of an election. It is directed towards the protection of the bankrupt's creditors, by preventing the unnecessary dissipation of the assets of the estate in fruitless litigation. In my view, s 60 also has the purpose of protecting a defendant or other party to a pending proceeding. A defendant or other party to a pending proceeding suffers an immediate detriment upon the plaintiff becoming a bankrupt. The detriment is that if the defendant or other party should be successful in the proceeding, and should obtain an order that the plaintiff pay the costs of the proceeding, the order will be effectively unenforceable because of the bankruptcy. The rationale behind s 60(2) and (3) is therefore, at least in part, to protect those whom the bankrupt has been suing. Such protection would be lost if the word "action" in s 60 were to be construed as excluding a proceeding in which the bankrupt has sued as a trustee for someone else. [20] In my view, s 60 has been enacted deliberately as a broad provision, so as to encompass any proceeding brought by a bankrupt before bankruptcy. The exceptions have been expressed quite narrowly. The intention is that, once a bankruptcy occurs, no further costs should be incurred in a proceeding unless the trustee in bankruptcy makes an election to continue the proceeding. (Emphasis added.) 1. Re Lofthouse was followed and applied by Edelman J (as his Honour then was) in Duckworth v Watercorp (2012) 261 FLR 185; [2012] WASC 30 (Duckworth), another case where an action commenced by a plaintiff as trustee for a trust was stayed when the plaintiff subsequently became a bankrupt. 2. In Fletcher v Westpac [2012] WASCA 154, yet another case involving an action commenced by a plaintiff as trustee who subsequently became a bankrupt, as well as an appeal commenced by the bankrupt after his bankruptcy, the Court of Appeal of Western Australia cited with approval at [15] both Re Lofthouse and Duckworth, although there was no issue in that case that s 60(2) applied to the action. 3. The approach in Garrett to the scope of s 60(2) has been followed and applied in other cases, including Nugawela v Deputy Commissioner of Taxation [2018] FCA 1457 (Nugawela) at [13] (Colvin J), involving an appeal against the dismissal of an application brought by a bankrupt taxpayer against the Deputy Commissioner of Taxation under s 39B of the Judiciary Act 1903 (Cth); and Fisher v Transport for New South Wales [2016] NSWSC 1888 (Fisher) at [9]-[18] (McCallum J), involving an application by a bus driver who later became a bankrupt for judicial review of the cancellation of his authority under the Passenger Transport Act 1990 (NSW). 4. The argument for a limitation on the scope of s 60(2) is said by the Ghougassians to find support in the potential injustice that would occur if a bankrupt was precluded from continuing an action involving a personal right commenced before bankruptcy which is not property that is vested in the trustee by virtue of s 58(1) of the Bankruptcy Act. The short answer to this argument is that s 60(2) only applies to actions commenced by a bankrupt before the bankruptcy and says nothing about actions commenced after the bankruptcy. 5. As Cummings makes clear, some rights created by statute can constitute property, but some such rights do not (at 133). Assuming the bankrupt has the requisite interest to confer standing, an action involving a personal right which is not property that is vested in the trustee pursuant to s 58(1), is not stayed by s 60(2) if the action is commenced after the bankruptcy: see Griffiths. Of course, the defendant or respondent to such an action might make an application for security for costs against the bankrupt. 6. Counsel for the Ghougassians submitted that Garrett is distinguishable. I do not agree. Whilst Kenny J gave an alternative reason for her decision (at [62]), namely that, if it were necessary to decide, there was a connection sufficient between the action and Mr Garrett's bankrupt estate to satisfy an implied limitation of the kind contemplated by Kirby P in Daemar, Cooper J in Griffiths and Ashley JA in Owens v Comlaw [2006] VSCA 151; (2006) 201 FLR 75, Garrett is authority directly in point on the scope of the stay effected by s 60(2). 7. Counsel for the Ghougassians also submitted that "it is not the purpose of the Bankruptcy Act to defeat a claim which is philanthropic in nature brought by an applicant, or a respondent for that matter, which is for the benefit of a third person" (T 11(7-9)). I do not agree. There is no basis in the text, context or purpose of s 60(2) for finding such an implied limitation on the operation of s 60(2). 8. Sitting as a single judge I should follow a decision of another single judge of this Court, relevantly Fisher, and a decision of a first instance judge of an equivalent court on Commonwealth law, unless persuaded the decision is plainly wrong: Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485; [1993] HCA 15; Re Brashs Pty Ltd (1994) 15 ACSR 477 at 483. For my part, I respectfully agree with the detailed and careful reasoning of Kenny J in Garrett, and the cases which have followed and applied it, including Re Lofthouse, Duckworth, Fisher and Nugawela. 9. It remains to consider the Ghougassians' reliance upon the exception in s 60(4) of the Bankruptcy Act. The exception in s 60(4) 1. In Cox v Journeaux (No 2) (1935) 52 CLR 713; [1935] HCA 48, Dixon J, sitting as a single judge of the High Court, stated the test for determining whether an "action" falls within the exception provided by s 63(3) of the Bankruptcy Act 1924 (Cth), the predecessor provision to s 60(4)(a) of the 1966 Bankruptcy Act, as providing: … 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. 1. In addition to personal injury claims, the type of claims that fall within the except in s 60(4)(a) are claims involving damage to the bankrupt's person, such as defamation and other claims involving damage to reputation, dignity or annoyance to feelings: Moss v Eaglestone (2011) 83 NSWLR 476; [2011] NSWCA 404 at [8]. 2. Plainly, the Ghougassians' interlocutory processes do not involve any claim of an injury to their person. I reject the argument that the Ghougassians' claims for relief involve a wrong done to them indirectly through their membership of the Association. In this regard, it is to be borne in mind that the Association is incorporated under statute and has a separate legal personality to its members. The so-called indirect wrong done to the Ghougassians does not fall within the exception in s 60(4)(a) of the Bankruptcy Act. Conclusion 1. The Ghougassians' interlocutory processes filed 2 March 2020 and 17 August 2020 are stayed by operation of s 60(2) of the Bankruptcy Act. However, the stay effected by s 60(2) does not apply to the interlocutory process filed 11 October 2020, because this "action" was commenced by the Ghougassians after their bankruptcy. I now turn to this application. B. Removal and joinder of parties 1. It is not appropriate to remove the Ghougassians as defendants given the nature of the proceedings as a deemed judgment in favour of the liquidators upon filing of a costs certificate consequent upon the assessment of a costs order against the Ghougassians. 2. In oral argument, counsel for the Ghougassians clarified that it is not sought to remove the Ghougassians as defendants, nor join Mr Badelian as a defendant, but rather to remove the Ghougassians as applicants on the interlocutory processes and to join Mr Badelian as the applicant in their place. 3. The removal of the Ghougassians as applicants on their interlocutory processes is unnecessary, given the stay effected by s 60(2) of the Bankruptcy Act. And since Mr Badelian has no rights or legal interest in relation to the subject matter of the judgment based on the costs orders the liquidators obtained against the Ghougassians, he is not a proper or necessary party to the proceedings under the Uniform Civil Procedure Rules 2005 (NSW) (UCPR), r 6.24: cf, John Alexander's Clubs Pty Ltd v White City Tennis Club Ltd (2010) 214 CLR 1; [2010] HCA 19 at [131]. 4. In addition, the proposed joinder of Mr Badelian as the applicant on the interlocutory processes, without him becoming a party to the proceedings as a defendant, is not appropriate as it would permit a third party to bring a claim in proceedings which do not concern him in relation to a different subject matter. Further, it is also not proper or necessary to join Mr Badelian as an applicant on the Ghougassians' interlocutory processes when those interlocutory processes are stayed by operation of s 60(2) of the Bankruptcy Act. 5. Assuming that Mr Badelian has standing to bring proceedings as an "aggrieved person" within s 53(3) of the 1984 Act to challenge how s 53 operates in relation to the surplus property of the Association (as to which I express no view), and presupposing the existence of a surplus (see In the matter of St Gregory's Armenian School Inc (in liquidation) [2011] NSWSC 936 at [20] (Hammerschlag J)), he should do so by originating process, not by interlocutory process in proceedings which do not concern him. Orders 1. It is appropriate that a declaration be made to recognise the stay effected by s 60(2) of the Bankruptcy Act and that an order be made dismissing the interlocutory process filed 11 October 2020, being an action commenced after the bankruptcy of the Ghougassians to which s 60(2) does not apply. 2. Accordingly, the Court makes the following declaration and orders: 1. Declare that the claims for relief by the applicants, Michael Ghougassian and Daniel Ghougassian, in the interlocutory processes filed 2 March 2020 and 17 August 2020 are stayed by operation of s 60(2) of the Bankruptcy Act 1966 (Cth). 2. Dismiss the applicants' interlocutory process filed 11 October 2020. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 13 November 2020