Wilson v State of Queensland[2015] QSC 56

HIS HONOUR:   The hearing today was set down to decide an application which is essentially one brought by the defendants, the State of Queensland and Mr McGowan, to strike out the statement of claim and to dismiss the proceeding on the footing that the statement of claim is inadequate and that there have been so many prior attempts to formulate a viable pleading that the Court should act to bring an end to the case because the latest version of the pleading is not good enough. 

However, the hearing of that question or application is affected by the circumstance that on 11 June 2014, the plaintiff, Mr Wilson, went into bankruptcy on the presentation of a debtor’s petition and the appointment of Mr Nick Jim Combis and Peter Dinoris as his trustees in bankruptcy.

The proceeding is one that was started a number of years ago and so was an action that had been commenced by Mr Wilson in circumstances where he subsequently became bankrupt.  Section 60(2) of the Bankruptcy Act 1966 provides that 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. 

There is an exception to the operation of subsection (2), which it will be necessary to consider. But for present purposes, the consequence of the plaintiff’s bankruptcy was that the proceeding was stayed under subsection (2). No doubt in the light of that potential question, the plaintiff filed on 29 October 2014 an application seeking leave to proceed.  In paragraph 1 of that application, the plaintiff applicant engaged or sought to invoke rule 72 of the Uniform Civil Procedure Rules 1999. It makes express reference to section 60(4) and (5) of the Bankruptcy Act, which I’ll consider in a moment. 

By the plaintiff’s written submissions filed on 9 March 2015, the plaintiff refers to a letter, not otherwise in evidence, signed by Mr Combis and dated 16 February 2015, in which Mr Combis advised the plaintiff that Mr Combis will not be making an election pursuant to section 60 of the Bankruptcy Act 1996 in relation to the proceeding.  Mr Combis also advised the applicant to seek advice in relation to continuing the action pursuant to section 60(4) of the Act.

The structure of the relevant sections of the Bankruptcy Act really begins, appropriately, with section 116.  Under section 116(1)(a), subject to the Act, all property that belonged to or was vested in a bankrupt at the commencement of bankruptcy is property divisible among creditors of the bankrupt.  That section plainly extends to claims for damages or compensation or a right of the bankrupt to recover damages or compensation.  So much extends or flows from the ordinary meaning of the word “property” in this context, which is reinforced by the circumstance that section 116(2)(g) expressly provides that subsection (1) does not extend to property comprising a right of the bankrupt to recover damages or compensation for personal injury or wrong done to the bankrupt. 

In a complementary way, section 60(4) provides for exceptions to the stay which occurs when a person becomes bankrupt under section 60(2).  Section 60(4) provides that notwithstanding anything contained in section 60, 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 any personal injury or wrong done to the bankrupt. 

In support of his application for leave, the plaintiff relies on section 60(4), as previously mentioned.  However, the refinement of the arguments of the parties as presented to me this morning did not include an exchange of submissions about the operation of section 60(4), and Mr Wilson submits to me that he has, to an extent at least, been caught by surprise about that.  Notwithstanding Mr Wilson’s difficulty, the cases which I have been shown by the defendants’ counsel seem to me to operate fairly clearly in terms of the proper construction of section 60(4) and its non-application to the circumstances of the present case. 

The amended substituted statement of claim (“ASSC”), which was filed on 3 October 2014 by the plaintiff, consequent upon an order by Byrne SJA striking out the prior version of the pleading, claims relief which can be divided into two categories. 

The first is a claim for rescission of a settlement deed made between the plaintiff and the defendants on or about 20 May 1997, described as settlement deed number 2 in the pleading.  The claim for rescission is necessary to the plaintiff’s success in the proceeding because, by a provision of settlement deed number 2, the plaintiff agreed that the defendants could plead that deed in bar to any further claim by him in respect of the subject matter of an earlier proceeding concerning the same underlying complaints as those raised in the present case.

In summary, the plaintiff’s claim to rescission of settlement deed number 2 relies on allegations of innocent misrepresentation by the defendants inducing the plaintiff to enter into settlement deed number 2 in circumstances where the plaintiff claims a right of rescission, presumably in equity, because of the vitiating factor of the innocent misrepresentation.

The second subject matter of the proceeding and the claims made in it are claims or a claim for damages in the amount of $2,022,963.  Although a number of different causes of action are potentially pleaded, the claim for damages or compensation or damages in equity all have in common the claim for wrongful termination of employment as a result of which the plaintiff alleges he suffered loss or damage because of his failure to maintain or advance his standing as a teacher or his professional career as a teacher employed by Department of Education Queensland and his unemployment since termination of his employment with the first defendant. 

Paragraphs 71, 72 and 73 of the ASSC make it clear that the basis of the claim is loss equivalent to the income and other financial benefits that the plaintiff otherwise would have earned had he continued in his profession and career as a teacher with the first defendant.

The meaning of the expression personal injury or wrong done to himself, which appeared in the 1924 Bankruptcy Act as well as now in sections 60(4) and 116 (2)(g)(i) of the current Act, has been considered in a number of cases.  That of highest authority is Cox v Journeaux (No 2) (1935) 52 CLR 713 at page 721, where Dixon J (as he then was) said:

“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.”

The defendants in their written submissions, and orally before me today, referred to a number of other relevant cases.  They include Pelechowski v New South Wales Land and Housing Commission [2000] FCA 233 at [5], Fitzpatrick v Keelty [2008] FCA 35 at [40] – [42] and Duckworth v The Water Corporation [2012] WASC 30 at [85] – [87].  In addition, in the course of argument, reference was made to a decision of the Court of Appeal of Western Australia in Fletcher v Westpac [2012] WASC 154 at [18] – [21]. 

Two points of particular relevance emerge from those cases.  First, Pelechowski was a case in which Justice Madgwick held that a claim for reinstatement for what was unlawful termination of employment was not a claim or action in respect of any personal injury or wrong done to the bankrupt.  There is an obvious analogy between the claim in Pelechowski and that set out in the ASSC in the present case which stems from the first defendant’s termination of the plaintiff in 1994 and his subsequent claims, either for reinstatement or compensation. 

Second, it appears from a decision referred to in Fletcher that in 2011, President Allsop expressed the view that:

“To the extent that damages for personal injury or wrong are inseverable from or directly consequential upon interference with property rights, a claim for them does not survive the stay brought about by s 60(2).” 

See Moss v Eaglestone (2011) NSWCA 404 at [77]. 

Neither of the two categories of claim, as summarised above, in the ASSC is, in my view, an action in respect of any personal injury or wrong done to the plaintiff.  Mr Wilson submitted that, included in the original circumstances, the subject of the statement of facts in the ASSC, was the illness he suffered due to the victimising conduct of identified individuals leading up to his termination of employment. But they are not the basis of his present claim so as to make it one for damages, for personal injury or wrong. 

It follows, in my view, that without any action by me, the operation of section 60(2) of the Bankruptcy Act 1966 is such that the proceeding is stayed and I am unable to proceed to hear the application for determination of whether the ASSC should survive or whether the proceeding should be terminated.

During the course of submissions and as relied upon in the application for leave by the plaintiff, reference was made to rule 72 of the UCPR.  By that rule, if a party to a proceeding becomes bankrupt, a person may take any further step in the proceeding for the party only if the Court gives the person leave to proceed.  The question was raised whether, under rule 72, I could grant leave to proceed notwithstanding the operation of a stay under section 60(2) of the Bankruptcy Act. 

In Beames v The State of Queensland [2010] QSC 4, Margaret Wilson J considered the operation of rule 72 in a similar context.  Her Honour held that the provisions of the rule are subject to the Bankruptcy Act under which the cause of action underlying the relevant claim was vested in the trustees in bankruptcy.  Her Honour’s conclusion was that while that remains so, rule 72 of the Uniform Civil Procedure Rules does not empower the Court to give the bankrupt leave to proceed with the claim without the trustees’ consent. 

In Quazer v Secure Funding Pty Ltd [2010] QCA 251 at [27] it was said:

“Beames v State of Queensland is authority for the proposition that a Court does not have power under UCPR r 72 to give an undischarged bankrupt like Mr Quazer leave to proceed without the consent of his trustees in bankruptcy.  They have not consented to the bringing of this appeal or Mr Quazer's present application.”

In the present case, there is no question of consent to the application for leave having been given by the plaintiff’s trustees in bankruptcy.  Mr Wilson frankly informed me from the bar table that they took the view that it is not a matter for their consent.  It may be that, in this context, the use of the word “consent” is an error because the scheme provided for under section 60 operates in such a way that the proceeding is stayed unless the trustees in bankruptcy elect to the contrary under section 60(2).  However, that is not a matter I need to express any concluded opinion on in order to resolve the position as it appears before me today. 

The outcome is that I am unable to grant the plaintiff’s application for leave to proceed.