New South Wales Supreme Court CITATION : Dr Falamaki v Wollongong City Council [2010] NSWSC 38 HEARING DATE(S) : 3 February 2010, 4 February 2010 JUDGMENT DATE : 16 February 2010 JUDGMENT OF : Schmidt J DECISION : 1. The parties have liberty to apply on 5 days written notice, such liberty to be exercised no later than 28 days after the Federal Court upholds Dr Falamaki's appeal from the orders of Lloyd-Jones FMC of 8 December 2009. Otherwise the proceedings stand dismissed. 2. Costs are reserved. CATCHWORDS : PROCEDURE - Supreme Court procedure - New South Wales - s 60(2) of the Bankruptcy Act 1966 (Cth) - effect of statutory abandonment of proceedings following bankruptcy - effect on claim for personal injury - s 60(4) of the Bankruptcy Act (Cth) - consequence of appeal to Federal Court - BANKRUPTCY - proceedings in connection with sequestration - petition and sequestration order - stay of proceedings - adjournment of hearing pending appeal to Federal Court - proceedings dismissed upon Federal Court's refusal of appeal LEGISLATION CITED : Bankruptcy Act 1966 (Cth) CATEGORY : Principal judgment CASES CITED : Bryant v Commonwealth Bank of Australia (1997) 75 FCR 545 Daemar v Industrial Commission of New South Wales and Anor (No 2) 99 ALR 789 PARTIES : Plaintiff: Dr Masood Falamaki Defendant: Wollongong City Council FILE NUMBER(S) : SC 2002/00069351 COUNSEL : Plaintiff: Dr Masood Falamaki, unrepresented Defendant: Mr B Hodgkinson SC with Mr D Shoebridge, counsel SOLICITORS : Plaintiff: unrepresented Defendant: FCB - Workplace Lawyers and Consultants - 9 - IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION SCHMIDT J TUESDAY, 16 FEBRUARY 2010 2002/000069351 DR FALAMAKI v WOLLONGONG CITY COUNCIL JUDGMENT 1 HER HONOUR: These proceedings are pursued by way of a second further amended statement of claim filed in June 2007. The matter was listed for hearing on 15 February 2010. In December 2009 the plaintiff, Dr Falamaki, was declared bankrupt in proceedings brought in the Federal Magistrate's Court. Dr Falamaki has appealed that decision to the Federal Court. The defendant sought and Dr Falamaki finally agreed that the hearing in this Court had to be adjourned, pending the outcome of Dr Falamaki's appeal. What remained in issue between the parties was what other orders should be made in this matter. 2 While disputed by Dr Falamaki, it is clear that by operation of s 60(2) of the Bankruptcy Act 1966 (Cth), these proceedings were stayed, except in so far as they concerned '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', upon Dr Falamaki becoming a bankrupt. Section 60(3) gave Dr Falamaki's trustee in bankruptcy 28 days within which to make an election as to whether to prosecute or discontinue these proceedings. The trustee made no election. The effect of s 60(3) was that in the absence of an election by the trustee, the trustee is 'deemed to have abandoned the action'. 3 The defendant nevertheless accepted that if Dr Falamaki's appeal in the Federal Court were upheld, Dr Falamaki would then be free to pursue these proceedings. Otherwise, it was submitted, the proceedings would have to be dismissed, following upon the statutory abandonment of the proceedings. Even if Dr Falamaki were later to be discharged from the bankruptcy, the proceedings would not vest in him again. (See s 153 Bankruptcy Act and Daemar v Industrial Commission of New South Wales and Anor (No 2) 99 ALR 789 at 796). 4 Dr Falamaki also claimed, however, that s 60(4) of the Bankruptcy Act preserved one aspect of these proceedings, while otherwise disputing the effect of his bankruptcy on the proceedings. Section 60 provides: 60 Stay of legal proceedings (1) The Court may, at any time after the presentation of a petition, upon such terms and conditions as it thinks fit: (a) discharge an order made, whether before or after the commencement of this subsection, against the person or property of the debtor under any law relating to the imprisonment of fraudulent debtors and, in a case where the debtor is imprisoned or otherwise held in custody under such a law, discharge the debtor out of custody; or (b) stay any legal process, whether civil or criminal and whether instituted before or after the commencement of this subsection, against the person or property of the debtor: (i) in respect of the non payment of a provable debt or of a pecuniary penalty payable in consequence of the non payment of a provable debt; or (ii) in consequence of his or her refusal or failure to comply with an order of a court, whether made in civil or criminal proceedings, for the payment of a provable debt; and, in a case where the debtor is imprisoned or otherwise held in custody in consequence of the non payment of a provable debt or of a pecuniary penalty referred to in subparagraph (i) or in consequence of his or her refusal or failure to comply with an order referred to in subparagraph (ii), discharge the debtor out of custody. (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. Note: See also subsection 5(6). (4A) Notwithstanding paragraph (1)(b), this section does not empower the Court to stay any proceedings under a proceeds of crime law. (5) In this section, action means any civil proceeding, whether at law or in equity. Adjournment 5 As a practical matter, I accepted the parties' agreement that the hearing listed to commence on 15 February would have to be adjourned, pending the determination of Dr Falamaki's appeal in the Federal Court and ordered accordingly. Is any aspect of Dr Falamaki's claim preserved by s 60(4)? 6 The answer to this question lies in Dr Falamaki's statement of claim (see Bryant v Commonwealth Bank of Australia (1997) 75 FCR 545 at 547). 7 The statement of claim suggests that Dr Falamaki has had a long running dispute with the defendant over its consideration and handling of a building application which he made in 1995 for a development on vacant land at Figtree, where he initially intended to build a residence. This dispute has led to much litigation between the parties. The application was initially approved in 1995. Dr Falamaki claims that in 1997 he formed the intention of selling the property, in order to fund an ongoing business of building and selling residential blocks. 8 Dr Falamaki further claims that the defendant owed him a duty of care in and about the consideration of the building application and that it was negligent in various respects. This included in relation to various approvals given. In April 1997, breaches of the 1995 approval were alleged by the defendant which issued a stop work notice. Proceedings were then taken in the Land and Environment Court. Further stop work notices were later issued, in respect of which Dr Falamaki also claims the defendant was negligent in various respects. 9 Dr Falamaki further claims that in May 1997 an engineer engaged by the defendant issued a report in relation to the building work he had undertaken. The report found that the structure would fail and be substantially damaged. Dr Falamaki claims that the report was beyond the author's expertise, was unreliable and wrong, which the defendant either knew or should have known. The defendant relied on the report and was vicariously liable for the acts and omissions of its author. In the alternative, Dr Falamaki claims that the author of the report was negligent. Relying on the report, the defendant obstructed Dr Falamaki's building works and took the matter back to the Land and Environment Court, seeking orders that the building works be demolished. Dr Falamaki further claims that the defendant also negligently provided WorkCover with incorrect and untenable opinions that the building would collapse under wind load. 10 The loss and damage claimed was: 18. PARTICULARS OF LOSS AND DAMAGE 18.1 The costs to the plaintiff of remedial work and repair or replacement of deterioration to the building work since 1997, exacerbated by the more than fourfold increase in costs of materials. 18.2 The defendant's negligence caused the plaintiff to spend many months of lost time and income including time in complying with the stop work notices (including WorkCover notices) and delays to the plaintiff's building work. 18.3 Through the delays the plaintiff lost the income and profits he would otherwise have earned from: 18.3.1 sale of the property and completed residential building; 18.3.2 further sales of similar buildings the plaintiff had planned to construct in the development of his intended business as specialist building on sloping sites, with the further benefit to those sales of: 18.3.3 the publicity from demonstrating his completed Arter Avenue home as a demonstration home. 19. The plaintiff through the negligence of the defendant and in the circumstances suffered stress causing permanent damage to health and deterioration of quality of life. 11 It is the claim made in paragraph [19] which Dr Falamaki argues falls within s 60(4) of the Bankruptcy Act. Against him the defendant relies on the approach of the Full Federal Court in Bryant, where consideration was given to the question of whether a mixed cause of action such as that here advanced by Dr Falamaki may be severed as between a claim which relates to the pecuniary loss to the estate vested in the trustee and the part of the action which the bankrupt is entitled to continue in his personal name under s 60(4) of the Bankruptcy Act, as a personal wrong or injury. 12 In Bryant the assessment which must be undertaken in a situation such as this, was explained at 556 - 557: If, as Mr Bryant has submitted, the action commenced by him before he became a bankrupt (that is, the appeal) is in respect of "any personal injury or wrong" done to Mr Bryant, his spouse or a member of his family he will be free to continue his appeal -- no adverse consequence will flow from the trustee's failure to elect. As to this, Mr Bryant has claimed in the course of his written and oral submissions that there has been such personal injury and wrong. He has submitted that by reason of the wrongful conduct of the Bank he has suffered mental deterioration, stress, a breakdown in his family relationships as well as "immense personal damage" to him, his wife, his children and his grandchildren. But if, notwithstanding these submissions, the appeal is in respect of financial or property rights rather than personal injury or wrong, then the failure to elect will, by virtue of the provisions of s 60(3) of the Act be deemed to be an abandonment of the appeal. In that case, it would be appropriate for this Court to make an order dismissing the appeal. 13 In Bryant it was confirmed that 'damages for personal injuries that resulted from the alleged negligence' would fall within s 60(4) (at [557]). Dr Falamaki argued that his case should be so understood. At 563 - 564 it was explained by the Full Federal Court, however that: The plaintiffs claimed damages for their economic loss and under s 17(e), (f), (g) of their statement of claim, sought damages for loss of credit and reputation, for inconvenience, mental distress and strain as well as for injury to their physical and mental health. Subsequent to the issue of proceedings, both plaintiffs became bankrupt but obtained their discharge before the case was called on for hearing. The defendants applied to the trial judge for a determination (as a separate question) that the causes of action sued upon had passed to the plaintiffs' trustee in bankruptcy on the making of the sequestration orders. The trial judge upheld the defendants' submission and summarily dismissed the plaintiffs' action. The Court of Appeal noted that the trustee in bankruptcy had not been called upon to elect and concluded that the correct order should have been an order staying the proceedings until an election to prosecute or discontinue the action had been made. The appeal was allowed for that limited purpose; in all other respects the Court of Appeal upheld the decision of the trial judge. Handley JA (with whom Kirby P and Meagher JA agreed) at pp 4-5 described the plaintiffs' claim for damages in these terms: "The plaintiffs claimed damages in the proceedings in the manner particularised in s 17(e), (f) and (g) of their amended statement of claim but these claims were consequential upon alleged breaches of professional duty owed to them by the defendants in relation to the purchase of the land and the contract by the vendor to erect a dwelling house on it. The plaintiffs' claims for damages for loss of credit, for mental distress, inconvenience and for injury to their physical and mental health therefore were not claims `without reference to their rights of property' within the principle stated by Dixon J. On the contrary those claims were consequential on damages to the plaintiffs' financial and property interests as a result of alleged breaches of professional duty by the solicitors." 14 Given what is here claimed by Dr Falamaki, it is not apparent that his claim falls into any different category. There is no question that he sincerely holds a strong belief in the matters which he wishes to advance in these proceedings. He undoubtedly believes himself to be the victim of a great wrong done to him by the defendant and those who have worked on its behalf, in relation to his development of his property. His claim is in part that the result has been personal suffering and injury, although the nature of such injuries has apparently not been particularised. 15 Even so, on the approach of these authorities, it must be concluded that the concluding remarks of the Full Court in Bryant apply equally to the case which Dr Falamaki wishes to advances in these proceedings. There it was said at 564: The remarks of Handley JA are apposite to and fairly summarise Mr Bryant's position. Mr Bryant's causes of action, as pleaded in his statement of claim, are essentially claims which are referable to his financial and property rights. That is not to deny him his right to allege "personal injury or wrong done to" him or members of his family. But if the injury that was suffered or the wrong done arose as a direct result of the alleged infringements of his financial or property rights, as was the case in Faulkner v Bluett , then "the primary and substantial right of action is direct pecuniary loss to the property or estate of the bankrupt". (at 119) To apply the language of Handley JA in Manningel v Hewlett to Mr Bryant's circumstances his claims for stress and suffering were "consequential upon alleged breaches" of duty said to be owed to him by the Bank as a mortgagee or secured creditor and were not claims "without reference to [his] rights of property", within the principle stated by Dixon J in Cox v Journeaux . 16 In this case there can be no question that the claims in relation to personal injury which Dr Falamaki wishes to pursue are also all consequential upon the alleged duties which he claims the defendant owed him in relation to the building works undertaken on his property. That is the primary and substantial cause of action resulting in the pecuniary loss which Dr Falamaki claims. It follows that, like in Bryant, it must be concluded that s 60(4) of the Bankruptcy Act cannot be relied upon to sever Dr Falamaki's claim in the manner which he seeks. The result is that unless Dr Falamaki's appeal to the Federal Court succeeds, the effect of s 60(3) is that the entirety of these proceedings have been abandoned and that accordingly, they must be dismissed. It is appropriate, accordingly to order that in the event that the appeal does not succeed, that these proceedings stand dismissed and that if the appeal is upheld that the parties may approach to have the matter relisted. Orders 17 For these reasons, I make the following orders, in addition to the adjournment of the hearing: 1. The parties have liberty to apply on 5 days written notice, such liberty to be exercised no later than 28 days after the Federal Court upholds Dr Falamaki's appeal from the orders of Lloyd-Jones FMC of 8 December 2009. Otherwise the proceedings stand dismissed. 2. Costs are reserved. ********** 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.