Fuller v Claremont Petroleum NL & Anor A52/1994 [1995] HCATrans 277 (22 August 1995)

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Adelaide No A51 of 1994

B e t w e e n -

JOSEPH PATRICK CUMMINGS

Appellant

and

CLAREMONT PETROLEUM NL AND BEACH PETROLEUM NL

Respondents

Office of the Registry

Adelaide No A52 of 1994

B e t w e e n -

MICHAEL JOHN FULLER

Appellant

and

CLAREMONT PETROLEUM NL AND BEACH PETROLEUM NL

Respondents

BRENNAN CJ

DAWSON J

TOOHEY J

GAUDRON J

McHUGH J

TRANSCRIPT OF PROCEEDINGS

AT ADELAIDE ON TUESDAY, 22 AUGUST 1995, AT 10.21 AM

Copyright in the High Court of Australia

_______________

MR M.J. FULLER: If the your Honour pleases, my name is Fuller. I am the second appellant and I am appearing in person. May I sit at the bar table.

MR J.P. CUMMINGS: May it please the Court, my name is Cummings. I appear in person, your Honours.

BRENNAN CJ: You are the appellant?

MR CUMMINGS: I am, your Honour.

MR T.A. GRAY, QC: May it please the Court, I appear with my learned friends, MR C.N.H. BAGOT and MR G.S. DAVIS for the respondent in each appeal. (instructed by Piper Alderman)

BRENNAN CJ: Yes.

MR GRAY: May it please the Court, we provided a book of references and I understand the Court has it on the bench. That book includes both the references we have given and that the appellants in person have given so the Court has all references that we understand are going to be referred to in the one book.

BRENNAN CJ: Yes, thank you, Mr Gray. Mr Cummings and Mr Fuller, do you have a copy of this book?

MR FULLER: Yes, your Honour.

BRENNAN CJ: So you will be able to refer to it?

MR FULLER: Yes, your Honour. Your Honour, we have already handed to the Registrar this morning a brief outline of argument. I do not know whether your Honours have that at the moment.

BRENNAN CJ: Yes, we have it here.

MR FULLER: That is essentially the argument that was submitted on the application for special leave. We have just simply regurgitated it for the purposes of a guide to the argument that I will be addressing to your Honours this morning.

BRENNAN CJ: You should give us a few minutes to have a look at it. Yes, Mr Fuller. Are you presenting the argument on behalf of both of the appellants, Mr Fuller?

MR FULLER: Yes, if your Honour pleases. Mr Cummings has indicated to me that he would prefer me to speak first and that it is unlikely that he would have anything to add to my arguments, but, he nevertheless reserves the right in case there is something that I inadequately advance or that he disagrees with. He may wish to put to your Honours or he may wish to refer to an authority that I have neglected to refer to.

BRENNAN CJ: Yes, well, you proceed then.

MR FULLER: Thank you, your Honour.

TOOHEY J: Mr Fuller, what you refer to in your outline as the application book is, in fact, the joint appeal book, is it not?

MR FULLER: Yes, it is.

TOOHEY J: It is just a matter of identifying the references.

MR FULLER: Unfortunately, your Honour, in patching that together from the application itself the word "application" was left in. If your Honours just treat that as the appeal book. It is actually the appeal book reference that is handwritten in the outline of argument.

TOOHEY J: Yes.

MR FULLER: Your Honours, at the outset if I can say, as Justice Hill in a minority in the judgment below observed, that the matters in issue in this appeal are small in compass and if I could invite your Honours to turn to ground 7 of the notice of appeal which appears at page 98 of the appeal book. It is our submission, your Honours, that there are two points of departure between the majority in the court below and the dissenting judgment in the court below, and they relate to the interpretation to be placed upon section 60 in so far as it stays proceedings either brought by a bankrupt or brought against a bankrupt, and, secondly, in relation to that which constitutes property divisible amongst creditors of a bankrupt.

And for reasons which I will advance as I go along, I hope, your Honours, it is those two points that actually identify the difference in the result of the judgments. The majority took the view that in relation to the provisions of section 60 it was an odd result that in the circumstances of this particular case the sequestration order having preceded the judgment which was sought to be appealed against did not somehow result in a stay by reason of the fact that the provisions of section 60 stayed proceedings brought by a bankrupt prior to a sequestration order.

And their Honours in the majority placed some considerable emphasis on that oddity of a result, that we should we be able to rely on the absence of any clear indication in section 60 that proceedings brought after the date of a sequestration order would not be stayed by virtue of the clear language of section 60 of the Bankruptcy Act. So that is one point of departure.

The other point was whether or not all rights of action were property within the meaning of the Bankruptcy Act 1986 , within the meaning of section 5 of the Bankruptcy Act and there is considerable debate between the majority judgment and the decision judgment as to whether all rights of action are property, including a right of appeal in the instant case, or whether only rights which result in property or are rights to property are property within the meaning of section 5.

What we endeavoured to do in the special leave application and in the submissions before your Honours now is to identify those rights of action or categories of rights of action we are able to identify, which are personal to a bankrupt and which have historically been held by courts in England and in Australia as being not property devolving upon a trustee in bankruptcy.

And we have identified, as we see it, at least three categories of those rights which are not, and I say, not specifically exempted by virtue of a provision in the Bankruptcy Act. We have identified three categories of rights of action which we say have been held at various time to be not property devolving upon a trustee or assignee in bankruptcy. And to shortly state the argument - - -

BRENNAN CJ: Mr Fuller, why does not section 60(1)(b) apply?

MR FULLER: That, your Honour, does not apply in this case because that deals with an action brought against a bankrupt.

BRENNAN CJ: Against the person?

MR FULLER: In this case, your Honour, the action that is the subject of this appeal is the institution of an appeal by Cummings and myself against a judgment entered against us.

TOOHEY J: The paragraph would clearly have applied to the action that is the subject of the appeal up to the point where judgment was obtained against you.

MR FULLER: Yes, your Honour.

TOOHEY J: There is a question whether paragraph (b) applies in relation to the institution of the appeal against that judgment.

MR FULLER: That is correct. By virtue of section 60(1)(i) the Court is empowered to stay actions by virtue of section 60(2):

An action commenced by a person who subsequently becomes a bankrupt is, upon his becoming a bankrupt, stayed until the trustee makes election -

So that in the case of actions commenced by a person who subsequently becomes bankrupt there is a stay by virtue of operation of the Act of provisions of section 60(2), whereas under section 60(1) in the case of proceedings brought against a bankrupt, the stay is not by virtue or by operation of the Act but by virtue of an application made, presumably by the bankrupt, and it is a matter of the discretion of the court to stay that action.

So to answer your Honour's question, the issue in this case involves an action by myself and Cummings as bankrupts purporting to lodge a notice of appeal as of right against a judgment entered against us some three weeks after sequestration orders were made in our respective estates.

BRENNAN CJ: I understand that that is the subject of the debate, but for myself at the moment, I do not understand why that appeal is not part of the legal process which has been brought against you.

MR FULLER: Your Honour, the appeal is clearly part of the action. It is a right that arises as a result of the judgment. I suppose I might have made an application to stay the judgment being entered against me, but I did not do so. I waited until the judgment was delivered and then, upon the judgment being delivered, purported to lodge a notice of appeal. The notice of appeal is a right that arises by virtue of the Federal Court Act and Rules, and it is something that comes into being as a result of the judgment being entered.

So it is a new right that arises following the entry of a judgment against me. And even though it is in connection with proceedings that could have been stayed pursuant to section 60(1) of the Bankruptcy Act, nevertheless, it is a new right of action that has arisen and we submit vests in us, and by reason of the nature of that right, and the nature of that right being not property divisible amongst creditors.

TOOHEY J: Well, that perhaps is another question again, is it not. I notice there is a definition of "action" in section 60(5). Is the term "legal process" defined or referred to anywhere else in the Act?

MR FULLER: Not that I am aware of, your Honour. Can I say shortly in answer to the proposition that is inherent in what your Honour is putting to me - - -

TOOHEY J: There is no proposition "inherent". It is just a question, Mr Fuller.

MR FULLER: In the event that it is a question, your Honour, can I say this in answer to it, that it would be part of our argument that there is a necessary interrelationship between that which is property divisible amongst creditors and an action which is capable of being stayed by operation of section 60(2). There has, necessarily, to be that interrelationship so to the extent that the language in section 60(2) is very wide and is apt to cover and to include every type of action, nevertheless, it must be read in conjunction with the sections dealing with property divisible amongst creditors, section 116, et seq.

So that when one comes to consider what action may be stayed by virtue of the operation of the Act, it is not all actions. It is, notwithstanding the language in section 60(2), but actions of those types which may result in property vesting in the trustee in bankruptcy.

BRENNAN CJ: Before you get onto that argument and develop it fully, may I just say that the problem which is concerning me at the moment, which you should be aware of, is this, that subsection (1) seems to be addressing the question of proceedings against a bankrupt, subsection (2) proceedings by a bankrupt, and that if one construes those two subsections as exhausting the whole of the kind of proceedings that may exist involving a bankrupt one then gives to subsection (1) and subsection(2) together an exhaustive operation.

So that one sees that under subsection (1) the Court has control of all proceedings against bankrupts and under subsection (2) the jurisdiction to stay exists in respect of actions brought by bankrupts. Well, now, if that is so, this action would fall under subsection (1) because it is an action brought against you. Now, I appreciate that you are putting an argument on the nature of a right of appeal. My question is directed to rather a different proposition, namely, whether the right of appeal is none the less a right which is exercisable in legal process. And if it is, does it not fall under subsection (1)?

McHUGH J: One answer that you could make to that, Mr Fuller, is that appeal was not a common law remedy. The common law did not know the institution of appeal. Appeal is the product of statute, and if one wanted to challenge a judgment before statutory rights of appeal were conferred one had to institute an original proceeding by way of writ of error and so on. So, in so far as one has a right of appeal, it is a new right given by statute. It is not part of the action in any sense. It is a new and independent right. That is one argument that you may wish to use.

MR FULLER: I am indebted to your Honour for that assistance. May I say that I was perhaps somewhat incoherently striving towards that argument when I answered initially to the proposition put by his Honour the Chief Justice that this was a right that arose as a result of the Federal Court Act and Rules, it was a statutory right, so that is the only argument that I can adduce at the moment on my feet in answer to your Honour's proposition.

BRENNAN CJ: Well, it may be a perfectly good answer.

MR FULLER: Time will tell, your Honour. It is certainly not something that occurred for consideration in the court below. The court below, I think, on all hands accepted the view that there was a difference between the right of appeal and the action itself and that the operation of subsection (2) was distinct in relation to the appeal from the operation of subsection (1) of section 60 in relation to the action, and I do not think it ever arose in the terms that your Honour has put to me, so that my answer to it is somewhat difficult to advance at the moment, other than to recite what I have said before.

I simply add this in answer to it, your Honour, that I think there is a necessary connection that has some impact on your Honours' view of the connection, if any, between subsection (1) and subsection (2) of section 60, and that is, if there are some rights which are not property then it is difficult to conceive, I submit with respect, that those rights which are not property and do not devolve upon the trustee in bankruptcy should be stayed by operation of subsection (2) because if that is the case they are of no consequence to the trustee as a matter of legal interpretation by the courts of various matters that have been brought before them.

So it is difficult to believe, and I would have said, adopting a phrase used by the majority in the court below, it would be an odd result that section 60(2) could operate to stay proceedings which were not of any concern to the trustee in bankruptcy because, by virtue of legal precedent, and the nature of the right of action, they were not vested in the trustee. So I say there is a necessary relationship between that which is stayed, or stayable under section 60(2), and that which is or is not divisible property under section 116 of the Bankruptcy Act.

TOOHEY J: Mr Fuller, is it your argument that the right of appeal which has been exercised is entirely free from the operation of the Bankruptcy Act?

MR FULLER: Yes, your Honour. Yes, I say that that right is a right as comprehensively described by Justice Hill in his minority judgment which is a right which does not result in property - is not a right to property being exercised - - -

TOOHEY J: No, I was trying to steer clear of the property aspect of it for the moment, but just to see how far the argument went.

MR FULLER: If my argument is correct it is this, that the right of appeal is not in any way capable of becoming property and did not become property at the date of the sequestration order or upon the right of appeal arising did not devolve on the trustees after acquiring property because by virtue of its nature it could not become so.

TOOHEY J: Well, on that argument, I take it, your next step would be that the right of appeal may be pursued subject only, I suppose, to the power of the Court to make an order for security for costs.

MR FULLER: That is, in its essential, my argument, yes.

TOOHEY J: I am not saying it is right or wrong, I am just trying to see where the argument leads.

MR FULLER: Yes, well, the argument leads in that direction because of the categories that I have been able to identify, I submit, of rights of action which courts have said do not devolve upon the trustee in bankruptcy, whether a rights of action existed before the sequestration order was made or they are rights of action that arise after the sequestration order is made, and I am referring particularly to Testator's Family Maintenance Act rights of actions and I am referring also to the family law rights of action for property settlement and maintenance.

And there are two cases which are referred to in the list of authorities upon which I rely as examples of classes of right of action which the courts have accepted in the past as not being rights of action equating to property divisible amongst creditors under the current legislation. And the other class of right that exists and has historically been exempted from the operation of bankruptcy provisions is a right to recover damages for personal injury or defamation of character.

Now, I draw a distinction between the way that has been treated historically by the courts and is now specifically treated in the Bankruptcy Act and those other rights of action such as Testator's Family Maintenance Act rights, Family Law Act rights and the rights identified in the case of Davies v E.S. & A. Bank which we rely on which is the recitation of that class of right which is personal to the bankrupt and which does not result in any property or any property which is divisible amongst creditors.

Your Honours will observe that in the Bankruptcy Act itself in two circumstances the right of a bankrupt to, firstly, continue proceedings or to institute proceedings to recover damages for personal injury or defamation of character is preserved. But, more importantly, and the reason for that preservation is that it is the result of that action which is directed towards the recovery of moneys by way of compensation.

It is the result of that action, if successful, which is in term as well exempted from property divisible amongst creditors. I say in relation to that which is specifically exempted in the Bankruptcy Act it is specifically exempted because it differs from the class of rights that have been examined by courts in relation to Testator's Family Maintenance Act and the Family Law Act in that the result of that action of a personal nature related to injury to the body or to the reputation has been that clearly there will be property, after acquired property, which will arise as a result of the successful prosecution of that action.

The courts have held that because of the nature of that right that property will not, in fact, devolve upon the trustee in bankruptcy for reasons of hardship, et cetera, which are expressed in the cases. And that has been brought forward into the Bankruptcy Act, but what has not been brought forward into the Bankruptcy Act and which is in accord with common law is that those actions which are personal to the bankrupt which may incidentally result in property arising as a result of the taking of those actions, that property, if it arises, will fall into the estate, probably of the bankrupt, and be after acquired property.

But that does not mean to say that because as an incidental consequence of the taking of an action under the Testator's Family Maintenance Act or taking an action under the Family Law Act that property will result means that it is the right of action itself is property within the meaning of the Bankruptcy Act. And in fact a clear distinction is drawn by the courts in the cases to which we have referred between the right to take the action and the possible result of an action being that money is derived and that falling into the estate, but there is a clear distinction between the right and the result.

And what we say, in short, in our argument in support of the appeal is this, that the nature of the right we were seeking to exercise was a right of appeal against a monetary judgment entered against us and in proceedings in which there was no claim to set-off or cross claim, and in respect of which we were defendants only and in respect of which there was no claim to any money or property.

DAWSON J: You were found to have committed a breach of trust, were you?

MR FULLER: Yes.

DAWSON J: So it was a provable debt?

MR FULLER: Yes, that was one issue that made it a provable debt, that there was a finding of breach of trust. So that in relation to the right that we were seeking to exercise - - -

DAWSON J: So that you fall within section 60(1)(b) so far as the action is concerned?

MR FULLER: Yes, I would say so, your Honour.

DAWSON J: But I understand you make a distinction between the action and the appeal.

MR FULLER: Yes, yes. And what I was trying to put most recently was this, that the right of appeal that we are seeking to exercise, we say, fits that class of right which is a bare right and a right arising under statute, which does not have as its focus the recovery of property or the getting into possession of money or property. It has as its focus the setting aside of a liability, that is a judgment debt, and as such is not property either colloquially or within the meaning of the Bankruptcy Act.

And the fact that, if we were successful in the prosecution of an appeal, there might be an order reversing an order for costs and, in fact, an order for costs in our favour, simply means that there would arise property incidentally to the exercise of that right of appeal which would devolve upon our trustee as property divisible amongst creditors. But that would not have the effect as an incidental consequence of assigning to the right of appeal under the statute an attribute of property divisible amongst creditors by virtue of having the right.

And I say that because that is the same treatment that has been accorded the rights taken in Coffey v Bennett and in Audet v Audet, the treatment has been that the rights are personal and are not property and may result in property divisible amongst creditors and that may fall into the estate as after acquired property but, nevertheless, it does not change the nature of the right and make the right itself property, notwithstanding the very wide definition under section 5 of property.

So that the nub of the case this morning is really this, whether we have rightly identified and argued that the statutory right of appeal is a bare right of action and is not one that is property as such, and it does not become property simply because, as an incident of the successful exercise of that right, there may become property which devolves as after acquired property, on our trustee.

DAWSON J: Would that be so in your case if you were successful in your appeal?

MR FULLER: If we were successful, there is a prospect that an order for costs would be made in our favour. It depends upon how successful we were in relation to what issues and it is an exercise of discretion by the Court as to whether costs are awarded and, if so, on what issues and to what extent. So that there is no necessary nexus between a successful outcome on appeal and property coming into being divisible amongst creditors; it is possible. I would say that if we were successful on every ground and overturned every finding against us, then one would normally expect an order of costs to follow the event.

But I say, notwithstanding that, that because costs follow the event in most cases, and costs would ordinarily be property by anybody's definition devolving on your trustee as after acquired property, that does not make the right to appeal property.

TOOHEY J: Your argument does have this consequence, I suppose, that the judgment itself - it is against you - you accept as involving property, do you?

MR FULLER: The judgment is not property. It is a liability. The judgment against me is not property in any sense of mine that could devolve on my trustee, it is a liability.

TOOHEY J: So I take it then, your argument is that in the administration of the bankrupt estate, the trustee simply ignores the proceedings against you that culminated in the judgment which you now seek to set aside on appeal?

MR FULLER: No, I do not advance that argument at all.

TOOHEY J: Do you not?

MR FULLER: The trustee has a duty to determine whether or not to admit that debt in the estate, and notwithstanding my argument that I have the right to appeal, and it is not property and did not devolve upon my trustee, my trustee has rights under the Bankruptcy Act which were identified by Justice Hill.

McHUGH J: Under section 82(2), that would be - - -

MR FULLER: He can take whatever action he likes under the Bankruptcy Act, even to set aside the judgment. So that he has a de facto right of appeal under the - it was a de jure right of appeal under the Bankruptcy Act by virtue of the sections of the Bankruptcy Act just to apply to set aside a judgment obtained. So there are rights that the trustee has quite independently of any right that I might have to appeal the judgment.

TOOHEY J: But his administration of the estate, if he chooses not to set aside the judgment, or to apply to set it aside, will, in the end, be affected if the appeal succeeded.

MR FULLER: Yes. If the appeal succeeds, then there will be a disappearance of a liability.

TOOHEY J: Well, that is really what I was putting to you a while ago. What implications does your argument have for the trustee's administration of the bankrupt estate?

MR FULLER: It probably has much the same implication as would be the case if there was a right being exercised to a settlement of property under the Family Law Act. It would be more an action taken against a bankrupt where a bankrupt, and I think this is actually illustrated in our debts case. An example that I can give your Honour is this, that if a bankrupt had taken an application under the Family Law Act for settlement of property and obtained it prior to his bankruptcy and it had become an asset in the estate, nevertheless, on the case that I have referred to, it is clear that the Family Law Act contemplates, and indeed the Family Court contemplates, that the wife could vary that and remove that from property having devolved upon the bankrupt.

So that the trustee only takes that which the bankrupt has and it can be removed from him. I say to you conversely that a liability in the estate can be removed by action of the bankrupt. That has a consequence, obviously, to other creditors in the estate. It does not have a consequence to the trustee as such as trustee. The trustee's duty is to admit or not admit a debt, and to the extent that he chooses to challenge it, he can challenge it under the Bankruptcy Act or he could, with my co-operation, prosecute an appeal. There is no reason why a right vesting in me could not be pursued through me by my trustee.

TOOHEY J: Yes, thank you.

MR FULLER: So if I can suggest to your Honours that the majority in the court below, when considering what was stayed by virtue of the operation of the Act, had regard to what they saw as an odd result from the language of section 60, expressed as it is, to deal with actions commenced by a bankrupt before the sequestration order. They suggested it would be an odd result if, by virtue of that language, actions could be commenced by a bankrupt after sequestration. Now, it is not part of our argument, and was not part of our argument, that there was any necessary difference, and there indeed is not now any difference between a right of appeal arising before a sequestration order is made or a right of appeal after a sequestration order is made.

It so happens that section 60 seems only to deal with actions commenced or arising prior to bankruptcy, but we say, in any event, it is not an odd result that because of that language there should appear to be an avenue through which a bankrupt can institute an appeal if it arises after the sequestration order. We say that is a wrong interpretation of the nature of the right that we were putting forward as being vested in us as opposed to the trustee. It just so happens that that is the language of the section, but we say that even if the section had dealt with rights arising after the sequestration order, it would not have the effect of negativing the argument we adduce now, which is that the right is such that it could never have been considered property, and because there is a necessary relationship, we say, between that which is interpreted to be an action stayed under section 60 and that which is property under the remaining sections dealing with the property of the bankrupt that, regardless of when our right of appeal arose, whether it was before or after the sequestration order, the argument would be the same. It is not stayed by operation of section 60 and it is not property.

BRENNAN CJ: Why are we concerned under section 60 with the notion of property at all?

MR FULLER: Well, I think your Honours have to be concerned with it, because the language of section 60 is apt to cover every kind of proceeding and apt to cover an appeal such as this, and my argument proceeds on the basis that notwithstanding the very wide language employed in section 60 that needs to be interpreted, having regard to that which the trustee has an interest in as property.

DAWSON J: The action which was commenced was an action in respect of the non-payment of a provable debt, was it not, because it was a breach of trust.

MR FULLER: Yes.

DAWSON J: So the action fits within the description in section 60(1)(b). It was a legal process instituted, in this case, before the commencement of the subsection, and it was in respect of the non-payment of a provable debt. The action, when it was commenced, was legal process within the meaning of section 60(1)(b)(i), was it not?

MR FULLER: That is the action brought by the respondent to our purported appeal.

DAWSON J: Yes. Now, that was legal process, the action, was it not?

MR FULLER: Yes.

DAWSON J: And you now wish to appeal against a judgment against you which is part of the same legal process, is it not?

MR FULLER: It is in the broadest possible sense of that word. It is part of the same legal process.

DAWSON J: Well, in any sense of the word it is part of the legal process, is it not?

MR FULLER: Well, it can be described, I would suggest, as a new process arising as a result of the provisions of the Federal Court Act and Rules.

DAWSON J: It is hardly a new process when it is the result of a judgment in the action against you in respect of a provable debt. It is hardly a new process, is it?

MR FULLER: No, but it is a new right.

DAWSON J: Well, I do not know whether it is a new right or not. It is part of the same legal process, is it not?

MR FULLER: Yes. Well, I am not arguing with you about whether or not it is part of the same process - - -

DAWSON J: And it can be stayed, the Court can stay it.

MR FULLER: The Court can stay - - -

DAWSON J: And if iit has not been stayed, it is not stayed.

MR FULLER: And I am not debating that point, I do not think.

DAWSON J: Yes. Well, where do we get the property in all of that?

MR FULLER: Where do we get what, your Honour?

DAWSON J: Notions of property.

MR FULLER: We do not in the sense of an action brought against a bankrupt, because those actions are, generally speaking, liabilities, and liabilities are not, by anybody's definition, property, I do not think.

BRENNAN CJ: But if you go then to subsection (2), and you see that "action" means, that is it is defined exhaustively to be "any civil proceeding", you have subsection (1) deals with any legal process. Subsection (2) deals with any civil proceeding. Subsection (1) defines the legal process by reference to the person or property of the debtor against whom it is brought. Subsection (2) defines the civil proceeding by reference to the person who brings it. Neither subsection refers to property.

MR FULLER: I agree.

BRENNAN CJ: But the consequence - and I am afraid this comes back to a question that I asked you initially - is that this action, if it falls under either provision, would fall under subsection (1) rather than under subsection (2). I take the force of your argument with regard to subsection (2). You say that this simply is not an action which falls within that subsection, but if it falls within subsection (1), another question arises. That is, does the power to stay under subsection (1), is that a power which is exercisable in protection of the bankrupt and his property, or is it exercisable as against the bankrupt as in the present situation.

MR FULLER: Your Honour, the only way I can answer that, I think, is this, that the stay of proceedings is something that is discretionary.

McHUGH J: Well, may not you be making a mistake in equating process with proceedings? May not your real argument be that "process" is talking about a writ, a sequestration order, a notice of appeal, but it is legal process as opposed to proceedings or opposed to an action and, therefore, (1)(b) will enable you to stay a writ or stay an appeal in a particular case, but it is not talking about proceedings, and from your point of view, I imagine you would argue that this is an appeal as a new legal process, but this is not a legal process against you or your property. It is a legal process instituted by you.

MR FULLER: I am indebted, your Honour. I will adopt that argument, once again. Yes, there clearly is a distinction in the terminology employed in subsections (1) and (2).

TOOHEY J: I rather thought that your references to property were not so much to support your own argument, but to meet an argument by the respondents that section 60 aside, the right of appeal constituted property which vested in the trustee under section 58 and, therefore, quite apart from section 60, it was for the trustee, and the trustee alone, then to deal with that right of appeal as the trustee may deal with any property of the bankrupt.

MR FULLER: Yes.

TOOHEY J: In other words, it is - and perhaps I am quite wrong in this - but I rather thought that your reliance upon the right of appeal not being property was to meet an argument against you rather than to bolster any argument that you had under section 60.

MR FULLER: That is right.

TOOHEY J: Because it might be argued against you that you do not get to section 60 because the right of appeal is property; it vests in the trustee and it is then a matter for the trustee to determine how to deal with that property, along with any other property of the bankrupt.

MR FULLER: Well, I think your Honour has rightly directed my attention to where the focus of my argument started, which is to meet an argument that a bare right of appeal arising under statute was nevertheless property, and I was addressing that issue initially to show that there were classes of rights of action, recognised by legal precedent, that were not property within the meaning of section 58 or section 116. So that I was directing my attention initially to that issue because, at the end of the day, that is the central issue as to whether or not this is or is not property devolving upon my trustee as soon as the judgment was entered and the right arose.

I have been arguing that the nature of the right is such that it does not, and did not, become property in the sense as used in section 58 and defined in section 5 of the Bankruptcy Act. The only connection that I was seeking to draw between my argument on that issue as to what the property devolving on my trustee under section 58 and the issue of whether or not proceedings were stayed, was because that matter was dealt with in the judgment below and some comfort was drawn from the fact that this was a right that was effectively stayed by operation of section 60(2). There was a clear assumption by the majority without any real exposition as to the reasons for that.

They assumed, quite straightforwardly, that had the judgment been entered prior to sequestration, it would have been automatically stayed - that is a right of appeal, if I had instituted it prior to sequestration order, would have automatically been stayed by operation of section 60(2). That is what the majority say quite straightforwardly. What I was trying to argue, perhaps inelegantly and inadequately, was that that proceeded on the assumption that all actions were automatically stayed, and I was endeavouring to show that there is a necessary relationship for the Court to consider when coming to a view about what is stayed by virtue of the operation of section 60(2) and that which is property, because if there is a right of action which is not property and, therefore, not devolving upon the trustee at bankruptcy, then it is not every action that is stayed by virtue of the operation of section 60(2), because if that was a result, then you would have actions personal to a bankrupt being not property devolving upon the trustee, but automatically stayed by virtue of the operation of section 60(2).

What I was endeavouring to say before, and perhaps has led me to confuse some of the issues in your Honours' minds, is that when you are looking at the operation, how wide is the ambit of section 60(2), what actions are stayed, then they can only be those that affect the estate of the bankrupt, that is, actions which relate to property.

So the main focus is necessarily on that which is property divisible amongst creditors, but to the extent that an argument is sought in aide of a proposition that a bare right of appeal is property because it is stayed by virtue of section 60(2), I say that is an argument that proceeds on a false premise but ignores a line of authority which, admittedly, is not dealing with an issue of stay or not stay, but is rather dealing with issues as to property or not property, but they all proceed on the assumption that there is no bar or impediment to the bankrupt proceeding with the relevant action, whether it be a Family Law Court action or whether it be Testator's Family Maintenance action, or whether it be the type of action that is referred to in Davies v E.S. & A. Bank. They all proceed on the assumption that if it is not property, then the bankrupt is free to proceed to take the action, and that clearly involves an assumption that there is no necessary operation of a provision like section 60(2) to stay such a proceeding. It has never arisen.

But, nevertheless, the majority in the court below took some comfort from the fact that this was a proceeding that, had it been brought before the bankruptcy, would have been automatically stayed, and they tended to relate, even if inferentially, the operation of section 60(2) to that which is said to have been property. They paid particular attention to the exemption from the stay of proceedings commenced by a bankrupt in connection with personal injuries and defamation of character, and their Honours took the view that this exemption of an action commenced by a bankrupt to recover damages for personal injury or defamation showed that a bare right of action would ordinarily have been property, but for that exemption.

Now, that was the nexus that was drawn by their Honours between that which they considered would have been stayed under section 60(2) and that which was property. Now, I did seek at the outset to draw a distinction between the common law exemption of some proceedings to recover damages for personal injury and defamation, and the incorporation of that into the relevant bankruptcy legislation from the way in which the common law has treated actions to enforce bare rights or to take proceedings under the Testator's Family and Maintenance Act or the Family Law Act.

What is significant about the treatment at common law and in the bankruptcy provisions with respect to personal actions for injury to the body or to the character is that it is the proceeds of such an action which are also exempted from the operation of bankruptcy laws. So there is a statutory exemption of the proceeds of such an action from devolving upon a trustee as after acquired property in connection with that type of action, which there is not in the case of other actions which the courts have considered to be not property but have not ever said, nor has the Bankruptcy Act incorporated, a provision which says that the proceeds of taking such action do not fall into the estate.

So the fact that there is an exemption of personal injury claims and the proceeds of those claims incorporated in the Act is not support for a proposition that, but for that, the right to bring an action would have been considered to have been stayed and is, therefore, some support for a proposition that the Act is dealing with all actions and all rights of action which are property. So rather than being support, I say it is not support at all and his Honour Justice Hill, in the minority, identified that as not being capable of widening the ambit of the definition of "property" in section 5, and I adopt his view of that.

MR FULLER: Have your Honours had occasion to read the judgment in Coffey v Bennett behind part 2, tab 4 in the book of documents provided by the respondents?

BRENNAN CJ: I think you had better take us to it if you wish us to derive some benefit from it.

MR FULLER: Yes, your Honour. It is behind tab 4.

BRENNAN CJ: Yes.

MR FULLER: As your Honours will see that is an application where - just reading from the headnote initially - your Honours will see that in the second paragraph of the headnote, the paragraph beginning:

The right to apply for relief under Part IV is personal, and if the applicant be a bankrupt such right does not vest in the official receiver.

Then a number of cases are referred to, Beckham v Drake amongst those. If your Honours turn to the judgment itself on page 266 at the top, your Honour will see an illustration of the distinction that I was seeking to draw:

It -

I presume the word "is" is missing -

my judgment, for reasons which I shall proceed to state, an undischarged bankrupt can alone make application for maintenance under the Act, and the official receiver cannot do so; though if the applicant obtains an order, and money or property comes to him thereunder in a form which the official receiver can reach, the latter may claim upon it, as he may in certain circumstances upon the proceeds of other proceedings which a bankrupt alone is entitled to take.

That is an encapsulation of what I have been trying to put to your Honours this morning, that there is a distinction drawn between the right to bring the proceeding and the possible proceeds of those proceedings and while it is accepted that the proceeds of those proceedings may fall into the estate that does not make the right to take the action a right which vests in the estate. Then there is in the next paragraph:

In Williams on Bankruptcy, 17th ed., 1958, pp 295-9, to which Mr. Stephen referred me, there is a discussion of property excepted, by what the author calls "the common law of bankruptcy", from vesting in the trustee. For notwithstanding the wide terms of s. 91 of the Commonwealth Bankruptcy Act, which deals with the property of the bankrupt divisible among his creditors and the statutory exceptions thereto, there are limitations which have been placed by the courts upon the literal construction of such bankruptcy legislation; see also on this matter McDonald Henry and Meek, Australian Bankruptcy Law and Practice, 3rd ed., 1953, pp 279 et seq. Section 99(4) of the Bankruptcy Act provides that where any part of the property of the bankrupt (that is to say as defined by s. 91) consists of things in action, they shall be deemed to have been duly assigned to the trustee. But the rights of action which are so transferred are "all such as would be assets in his hands for the payment of debts, and no others; all which could be turned to profit"- per Parke, B., speaking of the Bankrupts Act 1825, in Beckham v. Drake.

It then follows:

Thus rights of action for torts which would die with the testator, and actions of contract affecting the person only, did not pass; nor rights of action for an injury to the person, character or feelings of the bankrupt; McDonald Henry and Meak, loc. cit. The right of a husband to sue under the fatal accidents legislation for compensation for pecuniary loss suffered through the death of his wife has been held not to pass to his trustee in bankruptcy, and the trustee has been held unable to claim the damages when received by the bankrupt; see Re Richter, [1929] N.Z.L.R. 364. How far some of these examples may be affected by modern legislation relating to the survival of actions, may be an interesting question. But even if in some of those cases the right of action would now pass to an executor or administrator, it does not follow that such a right would pass in such a case to a trustee in bankruptcy, for the analogy was never complete. But in any case, these are only examples of a principle; and, in my opinion, the right to sue for maintenance out of an estate is, notwithstanding the possible implications of a New Zealand decision and a New South Wales decision to which I was referred by Mr. Stephen, a personal right not capable of assignment by a statutory claimant or of assignment by operation of law to his trustee in bankruptcy at any rate. No one, I venture to think, ever heard of a stranger to the testator coming to the court as an applicant for testator's family maintenance and suing for such as the assignee of a right vested by the Administration and Probate Act in the widow or a child of the testator, any more than anyone ever heard of an assignee of the rights of a deserted wife or child suing as such assignee for maintenance under the Maintenance Act or under the Marriage Act. No one, I say, has ever heard of a stranger (such as a money lender or an insurance company lending on the security of proprietary rights) taking any such proceedings, either in the name of the person having the statutory right or in the assignee's own name. These are cases of provisions made by the Legislature through the courts, as a matter of public policy, in order to protect persons from hardship or possible destitution.

All of those passages which I read to your Honour are encapsulations of the basis of my proposition to your Honours that there has been long recognised in the common law of bankruptcy a category of exemptions from the operation of bankruptcy legislation and I suggest, with respect, that that category is not closed by any means but that, apart from the statutory examples of Testators' Family Maintenance Act proceedings, there are clearly examples of rights which are bare rights which would not be assets in the hands for the payment of debts or which could be turned to "profit". And that those kinds of rights which are not assets in the hands or can be turned to "profit" are rights which have historically been treated as not property within the context of the relevant bankruptcy legislation.

So that, I put to your Honours that if in this case, as I say is the case, the right of appeal is a statutory right arising by operation of law and which carries with it only the intention and operation of removing a liability from the estate and not the getting in of any property except,perhaps consequently, an order for costs, that in itself does not make it a right of property which devolves on my trustee.

That is the kernel of my argument and the case of Audet v Audet which is tab 5, the next tab, your Honours, is the Family Law Court case but, interestingly enough, it refers to Coffey v Bennett on page which is numbered 82,051 at the top. Your Honours will see in the right-hand column of 82,051 about the middle of the right-hand column, his Honour has the heading "Second Preliminary Issue", paragraph no 22:

The second issue which is related to the first, is whether the Bankrupt's right to bring, subsequent to his bankruptcy, proceedings under s 79A of the Family Law Act, or to defend such proceedings instituted by the Applicant, passed to the Intervener -

And the intervener in this case was the trustee in bankruptcy -

pursuant to s. 58(1)(aa) or s. 116(1)(a) or (b) -

clearly, the sections we are dealing with this morning -

of the Bankruptcy Act? There is, in my opinion, clear authority to the effect that such rights did not pass to the Intervener, but remain vested in the Bankrupt himself.

23. In Coffee v. Bennett [1961] VicRp 41; [1961] VR 264 Sholl J. held that the right of a bankrupt to make an application under testators' family maintenance legislation was a personal right not capable of assignment by operation law, so that the Bankrupt alone was entitled to make such application, although if successful the fruits of the action may be liable to be taken by the Bankrupt's assignee in bankruptcy.

24. After explaining the principle which underpins the retention of such choses in action in the person of the Bankrupt, the learned Judge offered the following illustrations of the principle which, in my opinion, have some relevance to the circumstances before me and, in particular, to claims made under s. 79 or s. 79A of the Family Law Act:-

And he recites the passage that I have read to your Honours from Coffey v Bennett. Then, on the right-hand column on page 82,052, paragraph 28:

Coffee v Bennett (supra) was referred to in Luxton and, in several subsequent cases -

And he gives examples McLeod v Johns (1981) 1 NSWLR 347, Deputy Commissioner of Taxation v Swain [1988] FCA 238; (1988) FLC 91-976 -

the Full Court of the Federal Court appears to have accepted both Coffey and Luxton as authorities for the proposition that bankruptcy is no bar to the maintenance by a bankrupt of a claim on his own behalf under the Family Law Act.

And then, very interestingly:

See also Fuller v. Beach Petroleum & Anor [1993] FCA 453; (1993) 117 ALR 235 at 247 (per Hill J.)

At paragraph 29:

In the light of these decisions it seems to me clear that at least in the circumstances of this case the bankrupt's right to make an application pursuant to s. 79A in respect of the Consent Orders, or to defend such an application at the suit of the Applicant, did not pass from the Bankrupt on and by reason of the bankruptcy and remains vested in him.

I put the argument to your Honours on the basis that that case, Audet and, indeed, Coffey v Bennett are examples of categories of rights of action which have not been regarded historically as property and that Davies v English and Scottish Australian Bank is another one quite different from that but it is the major case from which I rely.

It is quoted at lengths by Justice Hill in his dissenting judgment as support for the proposition that I put to the Court this morning and, indeed, put to the court below that the categories are not closed and that on the basis of those decisions it is proper to argue that the nature of the right sought to be exercised by me and Cummings, that is a right to appeal against a judgment entered against us, was a right such as described in the various cases which does not devolve upon the trustee and, therefore, is exercisable by me and by Cummings and that the majority decision in the court below was wrong and that the judgment of Mr Justice Hill, although the dissenting judgment, is to be preferred for all of the reasons he himself set out. Indeed, I adopt his reasons in support of my appeal this morning.

Is there anything else that your Honours wish me to canvass?

BRENNAN CJ: Thank you, Mr Fuller. Mr Cummings do you wish to add to that. If so, would you come and speak into the microphone.

MR CUMMINGS: Your Honours, I adopt those submissions and I have nothing further to add.

BRENNAN CJ: Yes, thank you. Mr Gray?

MR GRAY: May it please the Court, could I just start briefly with something of a chronology which is important when one comes to consider the application of the various sections of the Act. Justice von Doussa in the primary trial reserved his judgment in April of 1993. The sequestration order was made in respect of a debt from other proceedings in May of 1993; the 20th as far as Mr Fuller is concerned and the 21st as far as Mr Cummings is concerned.

Then, on 10 June 1993, two orders were made by his Honour Justice von Doussa and they appear in the appeal book. The first appears at pages 3 and 4 of the appeal book and in particular at page 4. On 10 June, Justice von Doussa on the application of Beach and Claremont gave:

leave to proceed in the within actions against the respondents Michael John Fuller and Joseph Patrick Cummings to the point of entering judgment.

That order was made pursuant to his Honour's powers under section 58 of the Bankruptcy Act.

Then, his Honour proceeded - - -

TOOHEY J: I am sorry, just before you leave that, Mr Gray, you say pursuant to section 58?

MR GRAY: Yes, because by that date, there had been an order of sequestration.

TOOHEY J: Yes, but where is the power to order a stay under section 58?

MR GRAY: Under section 58(3). The applicants were unable to proceed without the leave of the Court. It is under section 58(3)(b).

TOOHEY J: But that relates to creditors, does it not?

MR GRAY: Yes, his Honour was about to enter judgment.

DAWSON J: That was the fresh step, was it?

MR GRAY: Yes, and his Honour gave permission to the applicants to enter judgment but do nothing further as far as enforcement was concerned and at the same time his Honour entered judgment against Mr Cummings and that judgment appears at page 2. So the position was that there were proceedings on foot against Mr Fuller and Mr Cummings, that they become bankrupt in the course of those proceedings, and his Honour, at the time of entering judgment, granted to the applicants leave to take the step of entering judgment against Mr Fuller and Mr Cummings but going no further.

The effect of his Honour's judgment was to obviously crystalise rights and part of his Honour's judgment led to a provable debt - - -

DAWSON J: For 44,450,000?

MR GRAY: Referable to breach of fiduciary duty and in addition the applicants have a right to prove for the costs that have subsequently been taxed and are provable and are within section 82 of the Bankruptcy Act?

TOOHEY J: What would have been the position, Mr Gray, if that order had not been made, that is the order staying further action?

MR GRAY: The entry of judgment would have been inappropriate because it would have been the taking of a further step in proceedings, for example had the - - -

TOOHEY J: I was really focusing on paragraph 2 of the order on page 4. Paragraph 1 gives the applicants leave to proceed to the point of judgment. If paragraph 2 had not been part of the order, what would have been the position of the applicants?

MR GRAY: It would have been the same. It would have been unable to proceed without leave.

TOOHEY J: Why is that?

MR GRAY: As a combination of section 58 and section 60. Section 60 deals with the position, the court's powers between the time of the presentation of the petition and the sequestration order. Section 58 deals with the matter upon sequestration. The starting point to our submission is that, we say that overall scheme of the legislation is that, that the legislation recognises that on a petition being presented, there is a change in the status quo and section 60 deals with that.

Section 60 addresses on the one hand actions against the bankrupt, and on the other, actions by the bankrupt. Then, when the sequestration order is made, section 58 comes into play and section 58 governs the situation. One of the essential differences between section 60 and section 58 is that under section 60 process may continue, but the court has a power to stay, whereas under section 58, once sequestration is ordered, then matters are stayed unless the court otherwise orders.

BRENNAN CJ: What is stayed?

MR GRAY: Any further activity except through the administration.

BRENNAN CJ: Activity by whom?

MR GRAY: Under section 58 by the creditor.

BRENNAN CJ: We are not concerned with that.

MR GRAY: No, if the Court pleases, but the point for raising this is that section 60 is not the relevant section to be focusing on, it should be section 58, because sequestration had occurred in May.

BRENNAN CJ: We are not concerned with action by the creditor.

MR GRAY: No.

BRENNAN CJ: Section 58 is the only applicable section.

MR GRAY: Yes.

BRENNAN CJ: We have got nowhere.

MR GRAY: If the Court pleases, section 60 does not apply because the appeal was lodged after the sequestration order. Section 60's application is dealing with a situation between petition and sequestration.

BRENNAN CJ: I hear you say so, but I just do not understand what is the provision under which the present order now under appeal was made.

MR GRAY: The application was made that the appellants had no locus standi because they had no relevant interest in the matter.

BRENNAN CJ: No relevant interest in the matter?

MR GRAY: Yes, because any right of appeal had vested in the trustee, being property of the estate.

McHUGH J: That must have been after acquired property then, was it?

MR GRAY: Yes, but perhaps I could enter this thicket through the Court of Appeal decision in Heath v Tang which focuses directly on the position and it is a judgment that was handed down at about the time the Full Court argument was taking place and it was not drawn to the attention of the Full Court.

TOOHEY J: But just before you do that, if you go to page 90, you see the orders that were made by the Full Court of the Federal Court from which this appeal is brought. Now, those orders were in each case that:

The appeal be dismissed as incompetent.

Now, what power was the court exercising in dismissing each appeal as incompetent?

MR GRAY: It was an inherent power; the appellants having no locus standi to lodge the appeal. The right of appeal lay in somebody else, namely the trustee in bankruptcy, and the trustee in bankruptcy was the only party with the ability to bring a right of appeal, and if the - - -

BRENNAN CJ: That is because the right became vested in the trustee.

MR GRAY: Yes, by reason section 58.

McHUGH J: At what point of time did the right become vested; when they attempted to lodge a notice of appeal or the moment judgment was given against them?

MR GRAY: At the time of judgment. That is when the right of appeal arose.

McHUGH J: So, does that mean any right of appeal is a right of property?

MR GRAY: Yes.

McHUGH J: What about a right of appeal against a refusal of a bail application? Is that a right of property?

MR GRAY: No, because there is an exception, that is, there are certain rights that are identified being of so personal a nature that they are not relevant property for the purposes of the Bankruptcy Act.

McHUGH J: What about a right of appeal against an injunction against a person?

MR GRAY: Yes. It depends on the nature of injunction. The injunctions are not treated as a separate case. If the Court pleases, there is a long history of this both in common law and chancery prior to the attempts to deal with the matter through statute.

McHUGH J: But not by way of right of appeal.

MR GRAY: No.

McHUGH J: You cannot point to any case apart from this case where it has ever been held that a right of appeal is property -.....acquired property for the purpose of bankruptcy.

MR GRAY: Some of the early cases certainly do treat the right of appeal as being - - -

McHUGH J: They were not rights of appeal. You are talking about the New South Wales cases?

MR GRAY: No. I am talking about the early English cases that are picked up and referred to by Lord Justice Hoffman in Heath v Tang.

McHUGH J: But are they right of appeal cases or are they original proceedings by way of writs non obstanto veredicto, or writs of error?

MR GRAY: No, they are rights of appeal cases. Perhaps I could go to Heath v Tang because these are - - -

TOOHEY J: I seem to be heading you off each time you do, Mr Gray, but I am still a little bit intrigued as to what happened in the court below, but the motion in each case was a motion that the notice of appeal be set aside or, in the alternative, dismissed.

MR GRAY: Yes.

TOOHEY J: That was not, strictly speaking, the order made in each case by the court, but it was an order that the appeal in each case be dismissed as incompetent.

MR GRAY: Yes.

TOOHEY J: Now, do I understand you to say that that order was not made pursuant to section 60?

MR GRAY: Yes, well, it is unexpressed as to source of power. We would say the primary position was it was an inherent jurisdiction of the court to dismiss as incompetent a purported appeal being lodged by somebody without the right to lodge it.

BRENNAN CJ: What source of power do you point to to support the orders that were made?

MR GRAY: If the Court pleases, we would have said the first inherent jurisdiction; that is that only a party who has the right of appeal can exercise it, and any attempt by a person without the right to exercise it would be declared to be incompetent. We had not taken the view that section 60 would apply to that, but - - -

BRENNAN CJ: It is a question of what powers you point to in order to support the judgment in the court below.

MR GRAY: The inherent power.

BRENNAN CJ: The inherent power, and that in turn depends upon the statutory assignment of the right of appeal at the moment when the judgment is given to the trustee, pursuant to what provision of the Act?

MR GRAY: Section 58.

BRENNAN CJ: Section 58.

MR GRAY: Section 58(1) vests the property of the bankrupts in the trustee and then there are two sections that throw guidance on what "property" means; it is the definition in section 5 and the section dealing with divisible property, section 116.

BRENNAN CJ: Now, you do not rely upon section 60?

MR GRAY: Yes - I hesitate because, rereading the section, on one view it could still apply, so I do not wish to abandon that.

BRENNAN CJ: It is a matter for you what argument you wish to advance, Mr Gray.

MR GRAY: Could I just leave that point and develop that a little later, if the Court pleases, if it is not inconvenient to the Court?

BRENNAN CJ: Yes.

MR GRAY: We certainly say it was within the inherent jurisdiction of the court to declare incompetent a purported notice of appeal being lodged by a party who did not have that right, and if I could just return to that other point a little later in the argument if the Court pleases. That, in turn addresses the proper construction of section 58 of the Act, which in turn involves the consideration of what is meant by "property" in section 58.

If the Court pleases, could I take the Court to Heath v Tang; it is behind card 7 in the book of authorities, and there were two matters heard at the same time by the Court of Appeal, and they both raised the question as to whether a bankrupt is entitled to pursue an appeal from a judgment. A difference between Heath v Tang and the case at Bar is that the bankruptcy order here related to a different judgment, in the judgment of Justice von Doussa, whereas in the case of Heath v Tang, the very judgment on which the bankruptcy order was founded was in issue. So we say that this case should be a fortiori as a matter of reasoning.

The circumstances of the two cases were slightly different. In Heath's Case judgment was given against him and he was ordered to pay damages on a counter-claim, and in Stevens' Case he suffered a judgment in costs. The other difference between them was that Heath's estate did have a trustee appointed, whereas in Stevens' Case there was yet to be a trustee appointed, although the official receiver had certain responsibilities. Lord Justice Hoffmann dealt with the two situations; the first, the case of a bankrupt as plaintiff, and he deals with that at page 697, and secondly at page 698 he deals with the case of a bankrupt as a defendant, and, of course, it is the latter circumstance that is directly apposite to the case at Bar. If I could just start at page 697, when his Honour deals with the bankrupt as plaintiff, and the first point being made at paragraph b, is:

The property which vests in the trustee includes `things in action' -

and section 436 of the 1986 Act was a definition section in regard to property providing a wide definition, and the exception that is being referred to:

Despite the breadth of this definition, there are certain causes of action personal to the bankrupt which do not vest in his trustee.

That is picking up what section 116(2)(g) of the Bankruptcy Act deals with, and there is an important matter in that definition, referring back to Beckham v Drake's Case:

the damages are to be estimated by immediate reference to pain felt by the bankrupt in respect of his body, mind, or character, and -

and we give emphasis to that word -

without immediate reference to his rights of property.

So the types of personal actions being excluded from the definition are not only actions giving rise to matters affecting the person, but actions that at the same time are without immediate reference to his rights of property. And then his Lordship goes on to give some obvious examples of those rights of action, and he cites defamation and assault. At point 8 on the page, paragraph h, his Lordship says:

The rule that the bankrupt could not sue on a cause of action vested in his trustee was enforced with such rigour that he could not even bring proceedings claiming that the intended defendant and the trustee were colluding to stifle a claim due to the estate and which, if recovered, would produce a surplus.

He had his rights to deal with the trustee separately. If I could then move to page 698 and pick up the references perhaps more pertinent to the case at Bar, the bankrupt as defendant, paragraph g:

In cases in which the bankrupt is defendant, there is of course usually no question of the cause of action having vested in the trustee. Unless the defence is set-off.....the bankrupt will not be asserting by way of defence any cause of action of his own. But, in cases in which the plaintiff is claiming an interest in some property of the bankrupt, that property will have vested in the trustee. And, in claims for debt or damages, the only assets out of which the claim can be satisfied will have likewise vested. It will therefore be equally true to say that the bankrupt has no interest in the proceedings. As we have seen, s 285(3) -

that is the equivalent of section 58(3) of the Bankruptcy Act in this country -

of the 1986 Act deprives the plaintiff of any remedy.....and confines him to his right to prove.

BRENNAN CJ: But that cannot be right, can it, that the bankrupt has no interest? What if the cause of action which sounded in a judgment was such that if the judgment was set aside the bankruptcy will result in the payment of a full dividend and something over besides? The bankrupt has a very real interest.

MR GRAY: Yes, and that is all protected through the bankruptcy legislation and how a surplus is dealt with.

BRENNAN CJ: It certainly indicates the interest that the bankrupt has in the setting aside of a judgment against him.

MR GRAY: Yes, if the Court pleases, we say that the dealing with that matter is all covered by section 178 of the Bankruptcy Act which - - -

BRENNAN CJ: It may be covered by it, but his Lordship's observation there is patently dubious, is it not?

MR GRAY: If the Court pleases, we would say that by reason of the section, there is a vesting of the property at that point of time in the trustee - yes, in a sense there is an interest - it is possible to comprehend a surplus and one can see how then, by reason of the legislation, that matter would flow a benefit to the trustee, yes.

BRENNAN CJ: Yes, and at any meeting of creditors, for example, it may be that the judgment creditor in the judgment in which the bankrupt has an interest is virtually the controlling creditor, so that what happens, if your argument is right, is that it may be that the administration of the estate is not only taken out of the hands of the bankrupt, but that the interests of the judgment creditor prevail over his.

MR GRAY: If the Court pleases, that has always been controlled by the trustee being accountable to the court at the instance of the bankrupt. This matter is addressed specifically by his Lordship a little later in these reasons, at page 698, on the same page when, having dealt with the bankrupt as plaintiff, the matters of the supervision of the bankruptcy is dealt with, in fact, it starts at the foot of page 697 and continues to 698f, in particular, perhaps starting at the foot of 697, three or four lines from the bottom::

The jurisdiction of the bankruptcy judge to give such directions is now conferred by statute. Section 303(1) -

that is the equivalent of section 178 of the Australian legislation, and it sets out the bankrupt's right to apply to the courts, and then his Lordship goes back to deal with how that jurisdiction existing anyway pre the statute, and concludes at paragraph f with the statement:

Thus the supervision of the insolvency administration by the bankruptcy judge protects the bankrupt from injustice which might otherwise be caused by his inability to bring proceedings outside the bankruptcy jurisdiction.

It has long been accepted, if your Honour pleases, the effect of a sequestration order is to erode rights and civil rights to a degree and, in the scheme of the legislation, is to protect the bankrupt's position through such a provision as 678 which, in turn, simply was giving legislative expression to the old common law and equity rules.

TOOHEY J: Is it right to say, Mr Gray, that your argument stands or falls on the question whether the right of appeal constitutes property or answers the description of property?

MR GRAY: In essence it does, if the Court pleases. Although the English court has approached the matter in a different way to the court below, the English court has looked at this as a matter of principle, but inherent in the reasoning is that the property has vested and hence the - - -

McHUGH J: Is that right? I rather thought that in so far as you rely on Heath v Tang, it has got nothing whatever to do with the Bankruptcy Act.

MR GRAY: No.

McHUGH J: What Heath v Tang seems to say is that the bankrupt has got no interest that gives him any right of appeal.

MR GRAY: Yes.

McHUGH J: Therefore it has got nothing to do with a construction of the Act at all; it looks at the process that he has instituted in the Federal Court and says, "You have no right of appeal within the meaning of that Act because you cannot point to any interest in property that you have got in any way that is in any way affected". Now, if that is wrong, these cases do not help you, do they?

MR GRAY: One would think that it is implicit in the reasoning being adopted by the Court of Appeal that the reason why the bankrupt has no interest is because in fact the property is vested.

TOOHEY J: That is why I put the question to you. It seemed to me that your argument necessarily depended upon the proposition that the right of appeal constituted property which vested in the trustee. If you made good that proposition then certain consequences no doubt follow. If you do not make good that proposition it may be that the appeal should be allowed.

DAWSON J: But is he not, in turn, saying not that the right of appeal is property but because the bankrupt's property is vested in the trust deed, he has no interest in any of the - - -

McHUGH J: Exactly; that is the point.

MR GRAY: Precisely, yes. And he has no interest in the property because the property lies in somebody else, namely the trustee.

TOOHEY J: But is that your argument? I am just having a bit of difficult in identifying what the proposition is.

MR GRAY: It may be a semantic matter.

McHUGH J: I do not think it is.

DAWSON J: You do not get, only in a superficial sense, to the Bankruptcy Act if that is so.

MR GRAY: It is that reason why, in the outline of argument, we have proffered, we have adopted the first matter by saying that as a matter of principle the decision is right and we call in aid Heath v Tang because it approaches the matter as a matter of principle. Behind that principle lies, really, the concept that not only can the bankrupt not appeal but likewise, the creditor cannot pursue his judgment, otherwise his judgment is stayed; his rights are left to the administration and, of course, the trustee might reject the proof of debt.

TOOHEY J: But if you look at the outset at the judgment of the majority on page 46, they refer immediately to Order 53 rule 18 of the Federal Court Rules which provide:

that a respondent may move on notice at any time for an order dismissing an appeal as incompetent.

MR GRAY: Yes.

TOOHEY J: That, of course, explains why the Full Court made the order in the form in which it did which was not, strictly speaking, the order which had been sought in the notice of motion. But, having said that, of course the question still has to be answered as to whether the appeal was competent or not. You say it is incompetent and, as I said earlier, I am having a little difficulty in identifying precisely why you say it was incompetent.

MR GRAY: It was incompetent because the parties purporting to lodge it did not have the right to lodge the appeal. A right of appeal lay but it lay in the trustee.

McHUGH J: You do not get any assistance out of Heath v Tang on that basis, do you? Heath v Tank seems to say the bankrupt has no interest in the property and as the Chief Justice pointed out to you, if he has got an interest in property in a particular case, even if he is bankrupt, then Heath v Tang is not going to help you.

MR GRAY: The reason Heath v Tang is that there is no locus standi for the reason that the bankrupt has no interest in the proceedings.

McHUGH J: Exactly.

MR GRAY: And the rationale behind this is the English equivalent to section 58, that is that property is vested in the trustee. So, our primary submission to the court below - - -

McHUGH J: You would be hard pressed to say that the present appellants did not have any interest in this appeal and from their point of view - - -

MR GRAY: Yes, they had an interest in it in the sense that a third party may have an interest in something, but the right of appeal vests in another.

DAWSON J: They have been found guilty of fraud, for instance.

MR GRAY: Yes, there was a finding of deceit.

DAWSON J: Yes, why does that not give an interest? I mean, they would have an interest in an appeal in a defamation action, would they not?

MR GRAY: Yes, but the defamation action would not, in the ordinary course, touch the administration of the estate. Otherwise where would it end? For example, a professional man might say, "Well, I've been found guilty of gross negligence and I've got a great interest in that finding from my professional point of view. I treat it as my right of appeal because I've got a personal interest in it, despite the fact that there is a bankruptcy". There would always be the case in regard to a cause of action involved in any emotive aspect, there would always be the ability in the bankrupt to say, "Well, I've got a personal interest in that".

McHUGH J: But why, as a matter of policy, does the Act strike at this? For example, there would be nothing to stop the appellants commencing proceedings tomorrow for a breach of a contract which they made yesterday. They could sue on it and there is nothing that could stop them. Now, if you take the view that the right of appeal is a new action, if you like, a new right that they got after sequestration, then what is there in the policy of the Act to stop it unless, as you say, it is a right of property which becomes after acquired property immediately upon the judgment being given against them.

MR GRAY: In answer to your Honour, the situation of later activity and later contracts, of course, is - the Bankruptcy Act does not tie the bankrupt's hands for all time. He must get on and deal with matters in the way that he is allowed to do.

McHUGH J: I appreciate that but if they sue on that hypothetical contract and they recover, then what they recover is after acquired property, but the right to sue is not after acquired property. But you say that a right of appeal which arises after sequestration is a right of property.

MR GRAY: Yes, we say it is a chose in action that, of its nature, touches the administration of the estate and as such is well and truly within the definition of property. For example, plainly the estate has an interest in the proceeding. The fact that the nature of the creditor may change is equally relevant to the fact that the size of the estate may change. In a sense, it is just the other side of the coin. We are talking about the division of property amongst creditors and the amount of the property and the nature of the creditors both have an effect on the administration. That is what the majority found below.

If the Court pleases, as we say, we put the submission in the court below essentially on section 58(1) saying that the right of appeal was in the nature of property that had passed to the trustee and, therefore, those purported to lodge the appeal did not have the necessary locus and, therefore, the appeal should be dismissed as incompetent. The court had the power under the rules, but essentially it is a power to regulate its own proceedings to strike down an incompetent appeal.

BRENNAN CJ: What is the strongest case you have to say that a right of appeal of this kind is property?

MR GRAY: If the Court pleases, we would say that the starting point is the definition of "property" under the Act and, in particular, section 5 defining "property" as meaning:

real or personal property of every description.....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.

We say that "property" has been given the widest definition there. One then turns to section 116 and one has property divisible among creditors identified. It is subject to this Act, section 1(a):

all property that belonged to, or was vested in, a bankrupt at the commencement of the bankruptcy -

is divisible property, so one then picks up the definition from section 5. I should just deal with section 116(1)(b). It includes:

the capacity to exercise, and to take proceedings for exercising, all such powers in over or in respect of property as might have been exercised by the bankrupt -

and we say plainly language designed to pick up rights of action. Then section 116(2)(g) excludes certain property:

Subsection (1) does not extent to the following property:

and coming down as far as (g):

any right of the bankrupt to recover damages or compensation:

(i) for personal injury or wrong done to the bankrupt.....or

(ii) in respect of the death of the spouse of the bankrupt -

So that we would say the clear intent of the legislation was to include rights of action, chose in action as property. Otherwise there would have been no need to have the exclusion 116(2)(g).

TOOHEY J: Is it all that easy to apply paragraph (b) of section 116(1) to this situation, because paragraph (b) indicates that there is a capacity to exercise or take proceedings "in over or in respect of property", so it would be necessary, first, to identify the property and then to ask about the capacity to exercise or take proceedings for exercising powers over that property. But the property upon which you rely here is the right of appeal itself. How does one then - what do you say, the capacity to exercise the right of appeal?

MR GRAY: Yes, it may be held indirectly, for example.

TOOHEY J: I can see how you would argue that it falls within paragraph (a). I just have a bit of difficulty with seeing, even on your argument, that paragraph (b) is applicable.

MR GRAY: If paragraph (a) was read narrowly and property did not include right of action, then paragraph (b) would pick it up. But our primary submission is that property is defined so broadly that it does include rights of action, choses in action. Paragraph (b) would still have some work to do in that respect in regard to where the right of action was not directly held but that in some way there was a capacity to bring it through, for example, a nominee company, something of that nature.

BRENNAN CJ: Is there any case which holds that a litigant's right of appeal is a chose in action?

MR GRAY: The majority in the court below deal with that matter and refer to a number of older cases that they say support that proposition.

BRENNAN CJ: Do you say that any of them support it?

MR GRAY: Yes, we do. We adopt that section of the reasons as being a correct statement of the position. It commences at page 51. The majority start out with the proposition that:

The institution of appellate process is the commencement of an action within the meaning of provisions such as s 60.

They trace there a number of authorities that deal with that.

BRENNAN CJ: Yes, but my proposition was the more general one. Is there any case which holds that a right of appeal is a chose in action? That is not a question which turns upon statutory interpretation; it is a question of common law.

MR GRAY: We cannot identify an authority directly on that point.

BRENNAN CJ: For the reason that Justice McHugh said earlier, it seems to me to be incomprehensible that it could be.

MR GRAY: If the Court pleases, accepting that, the issue is not whether it is a chose in action; the issue is whether it is property within the definition of the Act.

BRENNAN CJ: That is right. Now, is there any case which holds that a right of appeal is property?

MR GRAY: No, there is no case that we can point to that expressly holds that in regard to this Act.

BRENNAN CJ: There is no case, then, which establishes either that the right of appeal is property or that it is a chose in action. So that this must be a new departure. The judgment in the court below, if it is upheld on the basis for which you are contending, is a new departure in the sense that it holds that it is property which is divisible amongst the creditors.

MR GRAY: Yes, we say that this is the first application we can find direct on this point under section 58. The majority put it this way at page 49 of the reasons. At page 48 they have dealt with the proposition that under section 82 of the Act the applicants can prove in respect of a judgment debt founded on a breach of fiduciary duty and then, over the page:

It follows that the fate of an appeal against the order creating the judgment debt against Messrs Fuller and Cummings is one in which their bankruptcy administration has a real interest. This is in addition to the costs orders made against the bankrupts by the primary Judge.

So, the bankruptcy administration has a real interest in that judgment and, hence, in regard to any right of appeal that may flow from it.

BRENNAN CJ: That can be accepted without question. The question is not whether the estate has an interest; the question is whether or not the bankrupt has no interest.

MR GRAY: If the Court pleases, that would then lead to the conclusion that there would be a right of appeal exercisable by the estate or by the bankrupt and in circumstances when the creditor's rights to pursue the bankrupt were frozen but only a right to seek to prove in the administration.

McHUGH J: But, if you are right, any right of appeal arising out of a cause of action arising after sequestration but before discharge, any right of appeal in that time concerned with money in any event would be property and would be after acquired property.

MR GRAY: Yes, we would say that that would come within the definition of "property".

McHUGH J: So, if tomorrow the appellant has entered into a contract, in a year's time sued for breach, lost their case and then wanted to appeal, on your argument, the right of appeal would be after acquired property.

MR GRAY: Yes, we say the definition of "property" is wide enough to cover that. But in the case at Bar, of course, we are dealing with a right of appeal following a pre-existing action.

McHUGH J: I appreciate that, but it seems to me that your argument has to face up to problems about after acquired property.

MR GRAY: If the Court pleases, it is difficult to imagine a more widely expressed definition of "property' than that which appears and we repeat the submission that, why would the legislation have seen fit to enact section 116(2)(g) to specifically exclude from property a right of action of a personal nature?

BRENNAN CJ: Because it is a chose in action.

MR GRAY: We would put the submissions that absent that limitation, that it would have been recognised that that right to sue was property within the meaning of the Act. The need to exclude it has been recognised because of the breadth of the definitions. It follows that other rights of action, we would say, are within the definitions.

McHUGH J: Suppose under the Federal Court Act you had to get leave to appeal, would the application for leave to appeal be property vested?

MR GRAY: That would arise in regard to any interlocutory matter. It is true to say if it is purely in the context of a procedure, it would not necessarily be property. Again, it would be a question of the application of definition of property as costs orders would well follow that. This obviously has a direct relationship with the administration of the estate. We say that, too, would be caught. But what we would exclude, if the Court pleases, would be those rights of action formerly protected by the common

law, for example, in regard to contempt proceedings or bail, to take some extreme examples, or in regard to assault and defamation. Those types of activities have now been specifically protected by 116(2)(g) and we say that is the rationale behind that particular section. There is one - - -

McHUGH J: I suppose in a practical sense this whole issue is maybe academic because, if the appellants succeed, you would then seek security for costs I suppose, which may mean - of course somebody else might put up that security.

MR GRAY: It is academic for that reason; it is academic for another reason. The other reason is that Messrs Fuller and Cummings have suffered an order at the hands of some other respondents in these proceedings. The defendants Spargos and Enterprise obtained a full indemnity on cross-claims against the current appellants, and those matters are not subject of appeal. So, if we went through that this appeal was allowed and the appeal proceeded and the security for costs hurdle was overcome and the appeal then went to the Full Federal Court and succeeded, it would not assist these appellants because they would still suffer and face a judgment at the instance of the respondents Spargos and Enterprise in a like amount, that is not the subject of appeal. This point was picked up by the majority at page 47 line 25 or thereabouts:

On 1 July 1993, Mr Fuller and Mr Cummings each filed notices of appeal in similar form. The only respondents joined on the appeals were Beach and Claremont.

The judgment of Justice von Doussa is reported in [1993] FCA 283; 115 ALR 411 and we have some copies of some extracts from that judgment; it is a very lengthy judgment and we have not copied the lot, but I will just pass those extracts to the Court.

TOOHEY J: It does not really affect the appeal though, does it?

MR GRAY: No, it is really just to - no, it does not affect the appeal, but your Honour Justice McHugh's point - - -

TOOHEY J: I mean you could see that this could be a factor in relation to an application under section 116 it might prove to be relevant, but at the moment I cannot see how it affects the success or failure of the appeal.

MR GRAY: It was really only to take up Justice McHugh's point that in a sense it is academic because of the security for costs and we say there is another reason why it is academic and that is that there is a judgment for this precise amount against these appellants at the instance of Enterprise and Spargos from Justice von Doussa that has not been appealed.

McHUGH J: Yes, I know. When I was originally thinking about it I was thinking about it in general terms as to what the effect would be and then I must say, when I asked the question I dropped down to the particular in this particular case, but I was rather looking at it from a more general point of view. But the short answer is, I suppose, that although you could get an order for security for costs, frequently, or perhaps sometimes anyway, a bankrupt will get somebody else to fund the litigation, so it is not an academic issue.

MR GRAY: Yes, that obviously is a fact of life, but having gone down the route of just looking at the reality here, the particular orders that Justice von Doussa made, as far as Enterprise is concerned, is identified in his reasons at paragraph 22.105 at page 595 line 25; and Spargos is at paragraph 23 point 4 page 601 line 30.

TOOHEY J: But if the appellants made good their appeal otherwise, it would be difficult to refuse them the relief sought simply because it might turn out to be academic in the long run. I mean, that might be an argument for refusing special leave, but special leave having been granted we have really passed that, have we not?

MR GRAY: Yes, well we accept that and we thought we should draw that to the Court's attention, particularly as a question of whether this is academic has been raised. We do accept that it does not in any way deal with the issues of principle involved.

The one authority that we did cite in particular supporting a proposition that the right of appeal was property was Loxton v Moir in the High Court, referred to on page 5 of the outline of argument and dealt with - it is behind card 23 in the book of authorities, and the particular passage is at page 379 in the judgment of Justice Rich. Again a different context, we accept:

The phrase "chose in action" is used in different senses, but its primary sense is that of a right enforceable by an action. It may also be used to describe the right of action itself, when considered as part of the property of the person entitled to sue.

In this instance the right of action is the right of appeal and, in that language, would fall, within ordinary parlance, part of the property of the person entitled to sue. So we do seek to gain some assistance from that particular expression in that different context.

Perhaps just before leaving Heath v Tang, the other references we provide in the book of authorities - I do not propose to go to them all - consist of a number of unreported English decisions that have since Heath v Tang applied that decision. Some are Court of Appeal decisions and some are single judge decisions, but essentially they all accept and adopt the position of Heath v Tang. They lie behind cards 15 through to 22 and they are simply applications of Heath v Tang of recent times.

The other authority that might be of assistance to the Court comes from New Zealand. It is behind card 9, Ryan v Hallam. The position in Ryan v Hallam was that there was a contractual dispute and Ryan had suffered a judgment for over $6 million based on contract and he was proceeding through the appeal process and had obtained conditional leave to appeal to the Privy Council, and he is entitled to that conditional leave because the amount of money involved exceeded the threshold in those days of $5,000 as being the monetary hurdle to get over. At that point he was refused a stay of execution and was made bankrupt. He then sought to appeal against the bankruptcy adjudication, and in the context of that hearing the New Zealand Court of Appeal made some remarks that we think are of some assistance. At page 701 line 10 there is a paragraph:

The judgment debt arises from the judgment of Justice Smellie in the High Court.....awarding the present respondent damages of over $6.4 million.....for breach on Mr Ryan's part of a contract.....An appeal to this Court was dismissed on 30 August 1990. On 1 October 1990 Mr Ryan was given conditional leave to appeal to the Privy Council but was refused a stay of execution and Mr Hallam's application for a direction that the judgment be carried into execution was granted. While the applicant remains bankrupt he cannot continue the appeal to the Privy Council....and although the assignee is entitled, with leave of the Court, to do so, we were advised at the hearing on 5 December that the assignee did not propose to pursue that appeal.

Then dropping down to line 45 or thereabouts - perhaps line 36:

The only question sought to be raised concerns the judgment debt in favour of Mr Hallam upon which the bankruptcy notice and petition were founded. Mr Ryan can no longer raise any question in relation to that debt and the assignee, who could, does not wish to do so. The property and powers of the bankrupt specified in section 42(2) are vested in the assignee and in terms of section 42(2)(b) the capacity "to take proceedings for exercising all such powers in or over or in respect of any property whatsoever and wheresoever situated as might have been exercised by the bankrupt for his own benefit at the commencement of the bankruptcy" is vested in the assignee. Bankruptcy is a proceeding by which an insolvent debtor's property is brought under judicial administration. It involves a modification of status. The order of adjudication changes the status of the person concerned in relation to property and gives rise to certain restrictions on commercial activity and civil liberties.

So, although it is dicta, it is making it plain that the right of appeal that had previously existed on sequestration vested in the assignee and the bankrupt was not able to pursue that. So that that New Zealand legislation is broadly equivalent to the United Kingdom and the Australian scheme.

So we say that both the Court of Appeal in New Zealand and the Court of Appeal in the United Kingdom have reasoned that the right of appeal vests in the trustee and the bankrupt is not able to exercise that right of appeal because it is caught up under the scheme. So we call in aid, if the Court pleases, both the Heath v Tang and Ryan v Hallam as being of useful assistance to this Court in regard to the construction of the Act in question. We say behind the reasoning of the Court of Appeal in New Zealand must lie the proposition that the right of appeal are vested in the trustee and no longer remain with the bankrupt.

If the Court pleases, there is one further section that is of assistance: it is section 134(1)(j) of the Bankruptcy Act and it is dealing with the powers of the trustee:

Subject to this Act, the trustee may do all or any of the following things:

.....

(j) bring, institute or defend any action or other legal proceeding relating to the administration of the estate;

And we would say that that is another indication of the legislative intention that it was the trustee who was to be dealing with these matters in the event that the matter related to the administration of the estate and we say that, on any view, this right of appeal relates to the administration of the estate - would directly affect the administration of the estate. They are the relevant sections that we draw attention to as assisting the Court in regard to this matter.

Could I turn now to an aspect of the judgment of Justice Hill, when his Honour discussed the policy of the legislation. It is at page 82 of the appeal book at line 19:

Thus the proceedings before Justice von Doussa against Messrs Fuller and Cummings were not stayed by the operation of section 60 upon their respective bankruptcies, although it remained open to the Court to order a stay if it thought fit. One may ponder at the policy which would not require a stay of the proceedings before judgment and would not entrust the subsequent disposition of those proceedings at first instance to the discretion of the trustee, but would place the institution of an appeal in those proceedings in the hands of the trustee, particularly when the trustee would not be liable for the costs of the appeal.

Now we have some difficulty with the first sentence of that passage because as the sequestration order occurred in May, the effect of that was, without the leave of the court being granted, to stay the action, because their respective bankruptcies occur in May and the judgment is then dealt with in June. But, if the Court pleases, this really does come back to the overall scheme of the Act and what is intended to be achieved and, in our respectful submission, the scheme of the Act is clear that on the presentation of a petition and between petition and sequestration, the court has a discretion to control the proceedings and to order a stay. On the order of sequestration being made, the position changes and everything is frozen, absent an order of the court, and consistent with that scheme, the position of the bankrupt's property is that it vests in the trustee and that includes any rights of appeal that might exist in regard to proceedings commenced prior to the sequestration order. Once that scheme is understood, the problem that Justice Hill identifies is not there.

The other cases that deal with matters akin to rights of appeal are also of assistance. The first that we identify is behind card 27, a case of Henry v Hodge. It was one of the cases that was referred to by the majority below. Picking up, if the Court pleases, at page 112 at about point 3 on the page:

At first sight it would not appear obvious, perhaps, that a right or claim to have a judgment against one set aside came within the definition of "property" -

And we are equating for this purpose right of appeal with right to seek to have a judgment set aside.

But as to this I consider that the decision of the Court of Appeal in Boaler v Power, is conclusive, and that it is a decision which I should follow. So far as material the language of the English Act defining the property of a bankrupt which passes to the official receiver is identical with that in our own Bankruptcy Act.

And then it goes on to deal with Boaler v Power and Boaler v Power was approved in Heath v Tang by the Court of Appeal.

In Boaler v Power, a defendant bankrupt took proceedings to have set aside three judgments which had been given against him.....His claim was that all three judgments had been obtained by fraud. He claimed to have them set aside in a fresh action commenced in the King's Bench Division.

The conclusion in Boaler's Case was that he was unable to pursue that right in those separate proceedings. And in particular at point 8 on the page, reading from the end of that penultimate paragraph:

But this is the only way in which the bankrupt can contest it: the adjudication, while it stands, is conclusively binding on him: he cannot contest it in any other court on the ground of fraud or any other ground. The right to continue these three actions is a chose in action vested in the trustee and the bankrupt has no locus standi.

So although it was not strictly a right of appeal, it was the exercising of a procedure in the nature of a review, because of the fraud allegation being done in separate proceedings.

Boaler v Power is found behind card 28, and if I might read on this occasion first from the headnote - it is a judgment of the Court of Appeal in the United Kingdom:

Where a person who has been adjudicated a bankrupt in consequence of his failure to comply with a bankruptcy notice to pay a judgment debt alleges that the petitioning creditor's judgment was obtained by fraud, he may apply to the Court in bankruptcy to be allowed to contest the validity of the judgment. He cannot, however, while the adjudication remains in force, bring an action to set aside the judgment on the ground that it was obtained by fraud, and the High Court has no jurisdiction to entertain such an action.

So again, the proposition being that he has got his rights through the bankruptcy scheme to make his complaint. In terms of jurisdiction he has not got the right to pursue the matter through the courts. Then at page 232, about halfway down the page, starting at -perhaps if we just put it in its context, reading from the judgment of Lord Justice Farwell at the foot of page 231:

the appellant commenced an action to have an order made in the Chancery Division.....an order made in the Court of Appeal.....and an order made in the Chancery Division.....all set aside on the ground of fraud.

Then:

a petition in bankruptcy was presented.....he was duly adjudicated a bankrupt. The official receiver, who is trustee in the bankruptcy, has declined to proceed with the action, and the defendants applied on January 13, 1910, that the actions be dismissed -

And that application was successful and there was an appeal by the bankrupt. And at point 8 on page 232:

I am of opinion that this contention is untenable. It is open to the Court in bankruptcy, if it things fit, to allow the debtor to contest in the Bankruptcy Court the validity of the petitioning creditor's judgment on the ground of fraud, collusion, or for any other sufficient reason. But this is the only way in which the bankrupt can contest it: the adjudication, while it stands, is conclusively binding on him: he cannot contest it in any other Court on the ground of fraud or on any other ground. The right to continue these three actions is a chose in action vested in the trustee, and the bankrupt has no locus standi:

Now in Heath v Tang, if I might just revert to that for a moment, behind card 7, at page 697 at paragraph f, the Court of Appeal deal with the matter:

Since the Supreme Court of Judicature Act 1875, the cause of action does not abate but the action will be stayed or dismissed unless the trustee is willing to be substituted as plaintiff: see Jackson's Case. An illustration of the incapacity of the bankrupt to bring proceedings is Boaler v Power, in which an action brought by the bankrupt had been dismissed with costs. The bankrupt then commenced another action to have the judgment set aside on the ground of fraud. The successful party presented a bankruptcy petition based on the unsatisfied order for costs and the bankrupt was adjudicated on the petition. The trustee declined to proceed with the second action. The petitioner then applied.....Lord Justice Farwell said'.....no locus standi -'

And then the court continues:

The rule that the bankrupt could not sue on a cause of action vested in his trustee was enforced with such rigour -

et cetera. And so the court in England has approved the earlier very clear statement in Boaler v Power. Again, not strictly a case of right of appeal, but we say for the purposes of reasoning and logic to be treated as something on all fours.

And then just going over the page to pick up the point that your Honour Justice McHugh made with regard to injunctions, at page 698 paragraph j, the issue of injunctions that went against the bankrupt personally and did not concern his estate. He could maintain those proceedings, because they do not touch the administration. And then he continues on with reference to Dence v Mason:

This distinction was the basis of the decision of the Court of Appeal in Dence v Mason, in which a bankrupt wished to appeal against an order made before the bankruptcy granting an injunction to restrain passing-off and ordering him to pay costs. His trustee declined to appeal but the court said that the bankrupt himself could appeal against the injunction -

`which was a personal order against him, notwithstanding the bankruptcy, though he had no interest in the order as to costs, his estate being now vested in the trustee.'

This implies that the bankrupt would not have been entitled to appeal against an order which was enforceable only against his estate.

And then the second of the English cases that I indicated that deal with rights of appeal.

This appears clearly from the decision of the House of Lords in Rochfort v Battersby.....The bankrupt was entitled to estates in Ireland subject to an annuity in favour of his mother. He had mortgaged the estates to a creditor who brought foreclosure proceedings.....The action raised the question of whether the mortgage had priority over the annuity and Lord Chancellor Sugden decided in favour of the annuitant. The bankrupt alone appealed to the House of Lords, which dismissed his appeal on the ground that he had no locus standi. Lord Cottenham LC said that the question was whether he had `that interest in the subject-matter which would entitled him to appear here as a party questioning the propriety of the decision below'. The bankrupt did not.

`... the Courts have always considered these acts of Parliament as divesting the insolvent of all title and interest in the property, which would authorise and justify him in entering into any litigation respecting it.'

So we say that they are two examples of where the rights of appeal have been dealt with. And then, at the top of the next page, having been through - - -

TOOHEY J: Perhaps you might take us there at 2.15 pm, Mr Gray.

AT 12.45 PM LUNCHEON ADJOURNMENT

UPON RESUMING AT 2.19 PM

BRENNAN CJ: Yes, Mr Gray.

MR GRAY: Could I just deal with some discrete points that arose in the course of the morning that we have reflected on over lunch, if the Court pleases. In answer to the Chief Justice we do not rely on section 60 as being a source of power for the dismissal of the appeals. Our case is that the relevant section to be analysed is section 58. Secondly, the issue arose as to the power that Justice von Doussa exercised when he made his order allowing the applicants to proceed to the point of entering judgment - that is his Honour's order at page 4 of the appeal book and it is order 1. We say this his Honour there was acting under section 58(3) and to understand how that worked in this particular case it is important to recognise that the applicants were creditors under a previous judgment. The judgment that led to the sequestration order was in a different cause of action relating to a different breach of directors' duties. So looking at section 58(3) it was a case where there was a creditor in regard to another judgment debt, taking a fresh step in a legal proceeding in respect of a provable debt, and here the provable debt was the claim for damages of breach of fiduciary duty, and as such the step of entering judgment was a fresh step and leave was required under section 58(3). That is the source of power that we say was called in aid in the making of that order.

If the Court pleases, there appears to be some misconception about Heath v Tang, and I just wish to revisit that if I might, just for a moment. The Court will find, as I have indicated, Heath v Tang behind card 7, and the relevant English legislation that was being considered is behind cards 10, 11, 12, 13 and 14. So the Court is able by reference to those extracts in the English legislation understand the legislative scheme that Heath v Tang was dealing with. In a sense, I started too far into the judgment earlier in the morning. If I could just take the Court to the start of the judgment of Lord Justice Hoffmann at page 696, because the later comments that his Lordship makes are within the context of an equivalent statutory framework to the Australian legislation. The last two lines on page 696:

By s 306 of the Insolvency Act the bankrupt's estate vests in his trustee -

Section 306 is the equivalent of section 58(1) of the Australian legislation except it used the word "estate" rather than "property". He continues on:

and by s 285(3), no creditor has after the making of a bankruptcy order any remedy against the property or person of the bankrupt in respect of any debt provable in the bankruptcy.

That is the equivalent of section 58(3). Under the English legislation, the definition of "estate" is first picked up in section 283 which the Court finds behind card 10. The English section 283(1) treats the bankrupt's estate as comprising "all property", and "property" is defined in the English legislation under section 436, the Court finds behind card 14.

DAWSON J: Also section 283(4) seems relevant.

MR GRAY: Yes, indeed, it includes the reference to powers. The primary definition of "property" is contained in section 436 behind tab 14 which has a definition of wide import, and we would say comparable to section 5 of the Commonwealth legislation. So, when that legislative scheme is understood it is seen that section 306 when it speaks of the bankrupt's estate vesting in the trustee when appointed is having a parallel effect to section 58.

McHUGH J: I know you can rely on this but the judgment in Heath does not track your argument. The reasoning appears to be the bankrupt has no interest in the action by reason of the bankruptcy legislation, therefore he has no right to appeal. Whereas your argument seems to be that the right of appeal itself vested in the trustees.

MR GRAY: If the Court will just bear with me for a moment, I will take the Court through Heath v Tang and show where the two merge. I start off identifying that Lord Justice Hoffmann's address in the equivalent of section 58 and the vesting of the estate in the trustee. He then continues on the top of page 697 to take up the point that your Honour the Chief Justice identified, "What about the surplus?". He says this:

The effect -

that is the effect of the English legislation -

is that the bankrupt ceases to have an interest in either his assets or his liabilities except in so far as there may be a surplus to be returned to him upon his discharge.

So, there the English court has identified the very point your Honour the Chief Justice raised, "What about the surplus?".

McHUGH J: This seems to me to be the problem about your relying on this reasoning because, like the Chief Justice, I have great difficulty in accepting that he has not got a sufficient interest to give him locus standi.

MR GRAY: I understand the point. The answer to it is this: his Honour then poses the question, "What effect does this have upon legal proceedings to which he is a party?". So there is the question. What effect does it have on legal proceedings that he has this exception interest in the surplus but otherwise it vests. He then proceeds to consider the two cases. First with the bankrupt as plaintiff; and then when the bankrupt is defendant. In each case he considers this question about the surplus and he identifies it in regard to the bankrupt as plaintiff in the passage I read at the foot of 697 through to 698, and it culminates at 698 paragraph f in the conclusion:

Thus the supervision of the insolvency administration by the bankruptcy judge protects the bankrupt from injustice which might otherwise be caused by his inability to bring proceedings outside the bankruptcy jurisdiction.

That is, if, in the case where the bankrupt is a plaintiff, if he says that this action should be pursued to swell my estate so there is a surplus, and the trustee refuses to do so, he takes the trustee to the Bankruptcy Court and has his remedy. Under the English scheme that is how injustice to the bankrupt is avoided when he is a plaintiff.

Then his Lordship considers the bankrupt as a defendant and his first point is of course - we are not now talking about a cause of action having vested - because we are in the reverse situation and he goes on to discuss that. At page 699 paragraph g he addresses the question of a situation where the bankrupt has a complaint. So, a case such as this, where the bankrupt say this judgment should be set aside, that will reduce the claims on the estate and perhaps lead to a surplus. His Lordship says this at the middle of paragraphs f and g.

But the reasoning would equally have precluded him from appealing if bankruptcy had supervened after the Irish proceedings had been concluded. As in the case -

these are the important words -

As in the case of a trustee's refusal to bring proceedings as plaintiff, the bankrupt may in such a case apply to the court exercising bankruptcy jurisdiction to direct the trustee to appeal or to allow the bankrupt, on providing suitable security, to use the trustee's name.

That is where his Lordship identifies and addresses how any injustice might be resolved. He then addresses the matter again at page 701, paragraphs c and d, when he looks at the matter from the point of view of overall principle in the bankruptcy scheme. Paragraph c:

The insolvency law has of course changed a great deal since the time of Lord Eldon LC, and Smith v Braintree is authority for taking a fresh look at the construction of the 1986 Act in modern conditions. Nevertheless, the principle that the bankrupt is divested of an interest in his property and liability for his debts remains fundamental in the new code. The consequences for the bankrupt's right to litigate do not seem to us inconvenient or productive of injustice. The bankruptcy court acts as a screen which both prevents the bankrupt's substance from being wasted in hopeless appeals and protects creditors from vexatious challenges to their claims.

We say that seen in that context the Court of Appeal has approached the matter through the legislation, in particular the equivalent of section 58, the fulcrum of their reasoning is a vesting of the estate and the relevant property in the trustee, a recognition that there is, in a sense, an interest that the bankrupt has, for example in the surplus, and identifies the legislative mechanism for protecting that through the bankruptcy jurisdiction. So we say that Heath v Tang is to be understood in that light.

DAWSON J: That is a change from the way you put your case originally, is it not? You put it that the right of appeal was property. That is not what this case says. What this case says is there may be a right of appeal but the bankrupt does not have a sufficient interest to support it because his property is vested in the assignee.

MR GRAY: It does not have a locus standi.

DAWSON J: It does not have a locus standi because he does not have a sufficient interest.

MR GRAY: Because, we add, section 58 or its English equivalent vested his estate in the trustee and hence he does not have the interest.

DAWSON J: But not the right of appeal.

MR GRAY: If there be a difference, if the Court pleases, we say both lines of reasoning are available to us; either the principle in Heath v Tang is available, or alternatively under the Australian legislation, the right of appeal is property within the meaning of section 58(1).

TOOHEY J: Can the bankrupt's estate be affected adversely by the bringing of an appeal such as is contemplated here?

MR GRAY: Yes, if the Court pleases. It would lead to an order for costs that would go to swell the estate.

McHUGH J: Why? Like I put to you this morning, what is the difference between an order for costs in proceedings instituted after sequestration and the action on the contract that is entered into after sequestration? It would not be an order against his estate, would it?

MR GRAY: It has to be found from somewhere.

TOOHEY J: It can only be found from some proper source and if the bankrupt estate is immune from an order for costs, then the point that is make in the sentence in the judgment to which you just took us disappears, does it not? There is a big if involved here. I am not sure what the answer is but you have not indicated anything which would suggest that the bankrupt estate is itself liable for costs if an appeal is pursued by the bankrupt in these circumstances.

MR GRAY: Can we say at least this: that that part of that sentence that deals with the creditors being protected from vexatious challenges to their claims is entirely apposite.

TOOHEY J: But even that is not apposite, is it? The creditors are protected by security for costs.

MR GRAY: The point that is made by the majority below is the security for costs as a protection are often of very limited value.

TOOHEY J: Of course that is so, but that is so in the whole range of cases that come before the courts.

MR GRAY: Yes, but the reality is that the creditors are put in an invidious position, one of which security for costs would only provide part protection. That is the reality of it. That is the point being made by the English court, and their rights are impaired. They cannot pursue the judgment debt. They are frozen. Yet the debtor who suffered the judgment is free to continue and expose them to an exposure in regard to costs and all the other problems that come with litigation.

But, can I just get back to your Honour Justice McHugh's point about after acquired property. We say that that problem is dealt with quite specifically by the legislation. The legislation looks at property that vests at the time of bankruptcy, and that would include causes of action that existed at that time, and rights of appeal that existed at that time. Then one contemplates a cause of action arising later that is not of a personal nature - - -

McHUGH J: The point I was putting to you is that the respondents to the appeal could not claim in the bankruptcy for the costs.

MR GRAY: No. There would be a personal exposure.

McHUGH J: Yes, so it does not affect the bankrupt's estate?

MR GRAY: It does in this sense that if it was the trustee who had to bring the appeal he would have to provide the prediction, so there would be a great advantage to the creditor facing a trustee of substance taking an appeal than - - -

McHUGH J: It might be for the advantage of other creditors that the debtor should be able to bring it.

MR GRAY: Perhaps I misunderstood your Honour's point before lunch, but in regard to after acquired property, if a cause of action arises after bankruptcy but before annulment and it otherwise meets the definition of property, it will form part of the estate and will be subject to the trustee's control, both in regard to a primary cause of action or any appeal. So we say that there is nothing inconsistent in that approach with anything we have put.

If the Court pleases, we were concerned in regard to Heath v Tang to say this, that we view Heath v Tang as starting out from the premise that the estate has vested in the trustee, estate means property, property under the English definition includes things in action. That is the way Lord Justice Hoffmann set out, and he had in mind that the cause of action, the right of appeal, had vested. At the same time he was saying, "Nothing surprising about that because the bankrupt had no interest in the estate save except for the surplus. And certainly his interest with regard to the surplus is protected through the scheme". If the Court looks at the Australian scheme - - -

BRENNAN CJ: If we just stop there as a matter of principle, what that is saying is that the court, in the exercise of an inherent jurisdiction to prevent an abuse of process, is entitled to look at a statutory mode of the distribution of assets. That is an extraordinary proposition in itself, is it not, when the abuse of process postulated is the bringing of an appeal by a party who has no interest in the subject matter of the litigation and the answer to it is, "Well, that is all right. We will nonetheless stay as an abuse of process because there is a statute that looks after the surplus problem".

MR GRAY: We would answer that problem this way: in Australia, because the Federal Court is invested with bankruptcy jurisdiction, quite apart from its general jurisdiction, and what the Federal Court would say to Mr Cummings is, "You have come to us in the wrong manner. You cannot come and exercise a right of appeal. If you claim you have an interest in that, your way of doing it is to bring your trustee, who refuses to sue, before the court and either get an order that he sues, or provide indemnity and pursue a derivative action - - -

BRENNAN CJ: And what that means is; because there is a statutory provision which allows you to bring your trustee before the court we will not allow you to exercise your general rights of appeal which is conferred by the section of the Federal Court Act, and pursuant to the inherent jurisdiction of this court to prevent an abuse of its process under the Federal Court Act we will deny you the right to bring these proceedings. The reason why we say we are going to deny you the right to bring these proceedings is because there is another statutory provision which allows you to bring your trustee here.

MR GRAY: We would say that that misses one step.

BRENNAN CJ: What is it?

MR GRAY: The step is that there is a statutory provision that has devolved your right to your trustee and you have an alternative remedy if you have a complaint about how your trustee is handling the affairs.

BRENNAN CJ: The first of those steps is the question of whether or not it is property or not.

MR GRAY: Which really comes back to Justice Toohey's point earlier that the fundamental question in this case is whether the right of appeal is property within the meaning of section 58(1).

BRENNAN CJ: Yes.

TOOHEY J: It is not an alternative as you propose it. You say it is the only course open to the bankrupt in these circumstances is to bring the trustee before the court.

MR GRAY: Yes, under section 178.

TOOHEY J: That may be right, but all I am saying is it is not an alternative. On your argument it is the only avenue available.

MR GRAY: If I can make our submission very plain - I do not wish to hedge on the matter - our position is that the bankrupt does not have a relevant interest in the appeal. He has an interest, for example, through a possible surplus and if he wishes to protect that interest the legislative scheme allows him to do so through section 178. That is the scheme and that is how he is protected. There is no injustice for the reasons expressed by Lord Justice Hoffmann in Heath v Tang. It is not a case where the bankrupt is left without remedy. He can come to the same court but as a person interested in the estate being administered by the trustee.

BRENNAN CJ: Just assist me with one further matter. When you say he has no interest in the subject matter, are you saying that because the right of appeal is, in your argument, property which has passed to the trustee, or are you saying it for some other reason?

MR GRAY: We say it for the former - the reason I hesitate is that obviously the Court treats my reading of Heath v Tang as being inappropriate and if in Heath v Tang they are recognising another route to the same goal, we wish to adopt it. We have read Heath Tang as relying critically on the equivalent section 58(1) and the devolving of property. If we are wrong in that analysis of the case, then plainly we would wish to call Heath v Tang in aid.

Can I take the Court to one further Court of Appeal decision in England? It does perhaps take this matter a little further, and really take up the Chief Justice's inquiry about a case dealing with appeal specifically. If the Court goes behind tab 21 there is the unreported decision of the Court of Appeal in Dixon v Wordsworth. Lord Justice Hoffmann was a member of the bench, along with the Master of the Roles and Lord Justice Waite. I will not trouble to go through the rather comminuted facts. On the second page of the unreported judgment the matter is simply stated in the middle of the page. The paragraph:

There are effectively two questions which have to be resolved. The first is whether, having regard to Mr Trevor William Dixon's intervening bankruptcy, it is any longer open to him to pursue his application for leave to appeal against the order of Mr Justice Turner. He has been referred to the very recent authority of this court in Heath v Tang and that clearly establishes that on the vesting of a bankrupt's estate in the trustee, the right to challenge a judgment which would take effect against the estate vests in the trustee. That means that the right to seek leave to appeal against the order of Mr Justice Turner vests in Mr Trevor William Dixon's trustee, and by a letter of 2 December -

et cetera, the matter will not proceed. We say, in dealing with a parallel situation, the Court of Appeal has treated the right of appeal as vesting in the trustee. He can only do that if it forms part of the estate, and by definition can only do that if it comes within the definition of "property". So, in answer to your Honour the Chief Justice, we would say that that is an authority directly in point to the question your Honour the Chief Justice posed. I am sorry I did not have that at my fingertips earlier.

If the Court pleases, could I just then list the authorities that we say either directly or indirectly support that proposition. Obviously Dixon's Case is directly to the point and we say that Heath v Tang was also to that point, particularly as Lord Justice Hoffmann was also a member of the Dixon bench. It is plain that is what he intended to say in Heath v Tang.

TOOHEY J: There is a certain irony in swamping us with unreported decisions of English courts which the House of Lords, I think, would not allow you to cite without leave.

MR GRAY: Yes.

TOOHEY J: I am not suggesting that as things stand you are not entitled to.

MR GRAY: Your Honour, that would be a harsh criticism of those who have actually been very industrious in obtaining those authorities to assist your Honours, and we would suggest this Court be advantaged by this material, and it is as yet unreported, and we wish the Court to understand that Heath v Tang is talking about vesting of a right of appeal in the trustee. With respect, if we are wrong in that submission, so too is that court.

The New Zealand case I took the Court to of Ryan v Hallam is again directly dealing with a right of appeal. Although it was but dicta in that case we do say that it does show a concurrence of view in common law jurisdictions. Then there are the cases of Boaler; and Henry I referred to just before lunch. Then the three cases that are mentioned in Heath v Tang itself, Dence v Mason, Rochfort and a case of Smith v Moffatt. Of those cases it is only Smith v Moffatt that I have not taken the Court to, and I will be brief in doing so. The Court will find it referred to in Heath v Tang in an appropriate way at page 699 commencing at paragraph h. It is from that passage I just read to the Court about the court's jurisdiction over the trustee protecting the bankrupt, and it continues:

This procedure -

that is the procedure of controlling the trustee -

was alluded to by Page Wood Vice-Chancellor in Smith v Moffatt where a person who had become bankrupt under the law of the colony of the Gold Coast wanted to appeal to the Privy Council against a judgment against him in the colonial court. He applied for an order requiring his assignees to bring such an appeal. Page Wood Vice-Chancellor said that he had no jurisdiction over assignees in the Gold Coast. The bankrupt should seek directions from the court exercising bankruptcy jurisdiction in the colony. but he added (at 401):

`It is quite clear what would have been done if the case had

been one of bankruptcy or insolvency in this country. The decision of Lord Eldon in Benfield v Solomons following that of Lord Alvanley in Slpragg v Binkes, shews that the application must have been to the Court of Bankruptcy or of Insolvency, the applicant offering a sufficient indemnity.

Over the page:

These authorities in my judgment demonstrate that in principle a bankrupt cannot in his own name appeal from a judgment against him which is enforceable only against the estate vested in his trustee.

When one puts that together with Dixon's Case we say the reasoning is plain and plainly proceeds on the basis that there has been a vesting of the right of appeal in the trustee.

That run of cases supports the proposition we put. The other unreported English cases do not add weight, with respect. They simply apply Heath v Tang and do not separately add any weight to the point.

BRENNAN CJ: Why is the result in Heath v Tang not able to be achieved by an application of section 60?

MR GRAY: Because section 60, we say, is directed to a period of time between petition and bankruptcy.

BRENNAN CJ: Well, that cannot be so having regard to the opening words of section 60(1), can it?

MR GRAY: We accept that those words are not confined, your Honour, but we say that one must read section 60 together with section 58 and, when read together, the scheme is that the Court has a jurisdiction pending the decision about sequestration, and that is a jurisdiction to control matters touching the estate in its discretion.

BRENNAN CJ: No doubt that is so but, for my part at the moment, I do not see why it is that section 58 does not deal with that which it is said to deal, namely, the vesting of property upon bankruptcy, and section 60 deals with the regulation of litigation by or against the bankrupt.

MR GRAY: Yes, with one exception, your Honour, that section 58(3) introduces into section 58 the leave of the court to commence any legal proceeding, and that is the imbalance between the two. Why is section 58(3) talking about "leave to proceed", when section 60 is talking about "stays"? If all section 58 was concerned with was divesting of property alone, there would be no reason to have section 58(3)(b), or (a) for that matter, because the matter would be controlled under section 60 and the Court's power to deal with a stay.

BRENNAN CJ: I see, yes.

MR GRAY: So we would suggest, although the opening words of section 60, as your Honour the Chief Justice has said, are unlimited, the reality of the position is that it is simply designed to deal with that interim period between petition and the Court than adjudicating, and then section 58 takes over all relevant property vested in the trustee and any creditor who wants to proceed outside the administration must make out a good case to do so. So, for example, if my client wished to pursue the money, as in tort, it would need to somehow make out a case under 58(3) to do so.

BRENNAN CJ: Well, the response might be that 58(3) deals with commencement of the legal proceedings and 60(1)(b) deals with the staying of proceedings.

MR GRAY: Yes. The difficulty with that, your Honour, is that 58(3)(b) also talks about taking any fresh step in such a proceeding. So it does contemplate commencement and anything during the process of it, and 58(3) is confined to a creditor, whereas 60 is wider in import, for example, somebody who was not a creditor.

BRENNAN CJ: Yes.

MR GRAY: We accept immediately, if your Honour pleases, that section 60, because the opening phrase is unlimited, cannot sit entirely in harmony with section 58 without there being some form of adjustment. The adjustment that we suggest is necessary is to have section 60 applying to that interim period. But if the Court pleases, if we be wrong in that, we say that does not, in any event, detract from our argument under section 58. We do not rely on section 60 as being a source of power for the order made dismissing the appeals.

Could I just turn to that question again that was raised before lunch of this right of appeal? I did say to the Court it was within the inherent jurisdiction of the Court. I think that was probably an inappropriate expression. It is certainly part of the power of the court necessarily by implication, I think, is a better way to put it. Section 24 of the Federal Court Act deals with the jurisdiction to entertain appeals, and there is an authority of the Federal Court referred to in the majority judgment of Sen v The Queen that stands for the proposition that that confines the right of appeal to a party.

As the majority note in the judgment, in the argument below it was accepted that that could be assigned to the trustee. That was not an issue. We say that it is an incident of section 24 that the right of appeal is a valid right of appeal, that is, being made by somebody with locus, and so it is necessarily implicit in section 24 that the Federal Court has the power to stop a purported appeal proceeding which is not a valid appeal, and that is where the jurisdiction lies to make the order that was made. It is, in effect, declaring the notice of appeal a nullity because it is being made without authority of a person with locus.

So we say that that is where the jurisdiction lies and I withdraw the submission that it is part of the inherent jurisdiction and put it in the way that it is implicit behind section 24.

BRENNAN CJ: What you are saying is it may not be inherent, but it is incidental?

MR GRAY: Yes.

BRENNAN CJ: In neither event do you rely upon any express conferring of the jurisdiction as such.

MR GRAY: No. Could I just develop this point very shortly? I have discussed the English legislative scheme. We come to the Australian scheme. The Federal Court is invested with the bankruptcy jurisdiction under sections 27 and 28 of the Bankruptcy Act invest that jurisdiction in the Court and, hence, we say that this issue is really one of jurisdiction. If the bankrupt wishes to seek to pursue an appeal as a matter of jurisdiction, they can do so, but they must do so through the bankruptcy jurisdiction of the Court and not through the general jurisdiction, and it is no different than any other person interested in a trust estate. When a trustee refuses to sue, there was always the old jurisdiction in Chancery for the beneficiary or other person interested to go to the court and say, "The trustee won't sue. I want an order to sue", and then the matter, if it was appropriate, would proceed.

TOOHEY J: But that really begs the whole question, does it not, Mr Gray? I mean, if the right of appeal is not property, if the bankrupt is not obliged to invoke some power that brings the trustee into the picture, then we are not really talking about bankruptcy jurisdiction, are we?

MR GRAY: Yes, we are, because this right to bring the trustee in is section 178. It is part - - -

TOOHEY J: Yes, I know that, but, I mean, if those are cleared out of the way and the bankrupt is free to pursue the notice of appeal, then it is a notice of appeal and an appeal under the ordinary provisions of the Federal Court Act. Now, the court is not exercising bankruptcy jurisdiction, is it?

MR GRAY: The court determines the way in which an appeal will proceed through section 178 of the Bankruptcy Act.

TOOHEY J: Well, yes, if you are right about that. All I am saying is it seems to me that that adds nothing, and if you are right in the submissions that you put to us, well, then, the conclusion for which you contend no doubt follows, but if in fact the bankrupt's right of appeal is not property and is not caught by section 58 and does not require the presence of the trustee, then in what sense are you talking about the Federal Court exercising bankruptcy jurisdiction?

MR GRAY: If we are wrong on the primary point, we accept that.

TOOHEY J: That is all I am saying. It just does not seem to me to add anything to the debate, really.

MR GRAY: Yes. The reason why we refer to it is it is by that means, in our respectful submission, that any injustice to the bankrupt is overcome on the construction we contend for. Absent section 178, given our construction, one could say it was an injustice to the bankrupt because he cannot, in effect, look after any service that might be there, and the answer in Heath v Tang and the answer we put is: yes, there is no injustice, there is another jurisdiction that allows for his protection. The Court of Appeal in England was at pains to spell out that it was dealing with it in a way that did not cause an injustice to the bankrupt; that the bankrupt did have his remedy in that way.

The section of the Act that deals with the treating of a surplus is section 154, just simply indicating that any surplus ultimately passes to the bankrupt. If the Court pleases, I did not wish to go to the authorities that Mr Fuller took the Court to in any great detail. We do distinguish them in so far as dicta in them might be seen to be adverse to the construction we contend for. Could I make this general point? They all deal with legislation in earlier point of time that is materially different.

Sections 58 and 116 came into the Act in 1966. The earlier version of 1924 is materially different in regard to both sections and so, therefore, there is obviously a risk in drawing too much on old authorities. The second point is that in reference to Coffey v Bennett that Mr Fuller read from at length, he drew attention to page 266 which, in turn, was discussing section 99 of the then Bankruptcy Act, and reference was made to some remarks of Baron Parke in Beckham v Drake. There is another passage in Beckham v Drake that is approved of in Heath v Tang, and in particular the speech of Lord Eldon and we just simply draw attention - that is picked up in Heath v Tang at page 697, where it is quoted in full, and is in different terms to the passage being quoted by Justice Sholl in Coffey v Bennett. The passage in Coffey v Bennett excludes the reference to not only being:

in respect of his body, mind, or character, and without immediate reference to his rights of property.

The case of Davies we distinguish on a number of grounds: first, the legislation is different, but secondly, the point in Davies' Case was the interpretation of a deed of assignment and the judge there was having regard to the provisions of the Bankruptcy Act to guide him in his interpretation of the deed of assignment. So, it is not really a decision on the Bankruptcy Act, it is on the terms of the deed. Then, by reference to an Act, different, and significantly different, in terms of today's legislation. So, we would say that the Court would not gain assistance from Davies for that reason.

May it please the Court, they are our submissions.

BRENNAN CJ: Thank you, Mr Gray. Mr Fuller, do you wish to reply?

MR FULLER: Your Honour, if I could briefly make some observations in reply on Heath v Tang.

BRENNAN CJ: Yes.

MR FULLER: I draw your Honours' attention to pages 697 through to 699 of Heath v Tang, to which Mr Gray has referred in part. Your Honours will see on page 697 under the heading "The bankrupt as plaintiff", there is the passage just referred to in Beckham v Drake by Mr Gray, but below that is the statement of Lord Justice Hoffmann that, despite the breadth of the definition - that is of property:

there are certain causes of action personal to the bankrupt which do not vest in his trustee. These include cases in which -

and then he refers to Beckham v Drake, and you can see from the quote there, in Beckham v Drake, that:

the damages are to be estimated by immediate reference to pain felt by the bankrupt in respect of his body, mind, or character, and without immediate reference to his rights of property.

May I make the observation that in this passage, headed "The bankrupt as plaintiff" right through to page 698, to the passage, "The bankrupt as defendant", there is no reference to any equivalent type of action or personal right of action on the part of a bankrupt equivalent to a Testator's Family Maintenance Act application or a Family Law Act application. So that, those types of exceptions are not adverted to in this judgment.

Under the heading, "The bankrupt as defendant", in the last paragraph j:

On the other hand, there are actions seeking relief such as injunctions against the bankrupt personally which do not directly concern his estate. They can still be maintained against the bankrupt himself and he is entitled to defend them and, if the judgment is adverse, to appeal.

So that we have there a statement in relation to a defendant as bankrupt, but there are still actions of a personal kind which the bankrupt can carry on and defend, notwithstanding his bankruptcy.

Then, on page 698, there is an examination of the particular proceeding which has led to this judgment which is the subject matter of the proceeding, and your Honours can see that it is dealing with property. It is dealing with interests in real property and, if one goes over the page to page 700, and the first paragraph at the top of page 700, after his Lordship has discussed the authorities on the preceding page, he summarises the authorities as:

These authorities in my judgment demonstrate that in principle a bankrupt cannot in his own name appeal from a judgment against him which is enforceable only against the estate vested in his trustee.

Then, if I can ask your Honours to go down to the bottom of the next paragraph, at about point e, second to last line, the last sentence beginning:

So in my view there is nothing sufficiently special about the petitioner's judgment to take it out of the general principle.

Now, that is referring to the examination of the actual basis of the judgment against the applicant in this case, in which he had sought to appeal, and there is a reference to it not being sufficiently "special":

there is nothing sufficiently special.....to take it out of the general principle.

So, I would ask your Honours to accept a submission that this still allows for - notwithstanding my submissions that your Honours ought not to follow this decision - the decision itself still allows the proposition that if there is something in the nature of the judgment sought to be appealed against which is special, that is, related to the personal rights of the particular individual, and those examples that I have referred to previously in the judgment, that it may be that it is taken outside of the general principle that the Lord Justice is referring to, and if I can, therefore, direct your Honours' attention to the nature of the notice of appeal, which is, in fact, lodged by both Cummings and I, and the sort of findings that are sought to be overturned, and I would ask your Honours simply to refer to the grounds of appeal in my case, which are set out on pages 15 through to 20 of the appeal book, and in particular on page 16, ground No 2, and that ground is:

That His Honour erred in holding that the appellant conspired with Messrs Johnson, Main and Cummings to defraud the Respondents.

So that the appeal contains within the grounds an application to set aside a finding as to conspiracy to defraud. And again, if I can refer your Honours to paragraph 22 of my grounds of appeal on page 20, the ground is:

That His Honour erred in finding that the Appellant intended to cause any detriment to the Respondents -

that is, the companies Beach and Claremont -

or in the alternative intended to confer a benefit on any person other than the Respondents -

and that is tracking the language of what used to be section 229(4) -

and that His Honour erred in holding that the Appellant acted in fraud of the Respondents or recklessly or negligently in relation to the interests of the Respondents or either of them.

Now, it is my contention, and I think it is the same with Cummings - Cummings has similar provisions in his notice of appeal - which are grounds 33 and 34 on pages 12 and 13 of the appeal book, in which he is, in substantially the same terms, seeking to overturn two findings which involve findings of fraud and illegality. So that the notice of appeal is seeking to overturn findings which are findings very personal to both of the appellants in this case. So that there is a personal element to the prosecution of the appeal which is not simply to overturn a money judgment, but it is to overturn trenchant findings of essentially criminal conduct.

In that sense, it is our submission, your Honours, that the element of a personal nature going to the personal aspects of the appellants prior to and, if you like, in priority to the overturning of the money judgment, is that element which, notwithstanding Heath v Tang, is present and which should, on any view of the authorities, we submit, allow for the prosecution of an appeal by us as a matter of right and not being properties, because of the sufficiency of the personal connection and the fact that it is not property, as we have said before, that vests in the trustee.

Those are our submissions, your Honour.

BRENNAN CJ: Mr Fuller, before you sit down, could I just ask you this question which does not bear directly on the argument that was put by your opponent, but is there any reason why the policy that his Lordship was referring to in Heath v Tang is not a policy which could be implemented by the bankruptcy jurisdiction in exercise of its powers under section 60, that is, preventing a person in a position such as yourself from pursuing an appeal?

MR FULLER: I would argue to your Honour that such a policy cannot apply if there are examples of rights of action, such as I have elucidated, that do not fall within the definition of "property". One cannot talk about a policy of the Bankruptcy Act which prevents a right of appeal in a bankrupt, if - - -

BRENNAN CJ: Let me put it to you more expressly. At page 700 of Heath v Tang there is a proposition that the judgments:

demonstrate that in principle a bankrupt cannot in his own name appeal from a judgment -

Now, that is the proposition which is really in issue in this case, but the policy which is said to underly this is one which, on page 701, is expressed in these terms:

The bankruptcy court acts as a screen which both prevents the bankrupt's substance from being wasted in hopeless appeals and protects creditors from vexatious challenges to their claims.

Why is that not a factor which might be taken into account by a court on an application under section 60(1), to prevent the further prosecution of an appeal?

MR FULLER: It could be taken, with respect, your Honour, if the nature of the right of appeal being sought to be exercised was such that it was arguably property vesting in the trustee.

BRENNAN CJ: No. Forget all about that. The property is not vested in the trustee in any relevant sense. There is a cause of action which somebody has pursued against the bankrupt; judgment is recovered; bankrupt wants to appeal in the ordinary way, and then he is met by an application under section 60(1) to stay the proceeding which he wishes to bring. Why would the court not be entitled to take that factor into account and to make an order under section 60(1)?

MR FULLER: With respect, your Honour, I would see that as being an allowance of the fact that the appeal could be instituted, but nevertheless in the exercise of the discretion - - -

BRENNAN CJ: That is right.

MR FULLER: - - -of the court, being restrained from proceeding.

BRENNAN CJ: I just wish to have your comment on that in case it should affect the construction that is placed on the Act overall.

MR FULLER: Can I put this to your Honour? That would involve an examination of the nature of the subject matter of the judgment which was being sought to be appealed against, which was the very sort of exercise that was gone through in Heath v Tan. There was an examination of the judgment, and the Lord Justice delivering the judgment of the court was considering whether there was anything in the nature of the judgment which took it outside of the general principle that frivolous and vexatious appeals should be screened off under the policy of the Act.

What I am putting to your Honour, therefore, is that if your Honour was to look at this from the point of view that there was a discretion in the court to refuse, or to restrain, an appeal, even if it was viewed that it was an appeal as of right, and which vested in or remained in the bankrupt and did not vest in the estate, that nevertheless the court had a residual discretion under the bankruptcy legislation to restrain that from proceeding, I would say that necessarily involves a consideration of the material leading to the judgment and what is being sought to be appealed against, and I would say that what I have said in reply in relation to Heath v Tang has particular relevance, namely that there would be a consideration of the personal effects of the judgment on the defendant - the connection between the person of the defendant and the judgment and what he was seeking to set aside.

BRENNAN CJ: I understand that. I have not made it quite clear. Do you accept that there would be jurisdiction in the present case to make an order under section 60(1) to stay the proceedings which you have sought to commence?

MR FULLER: My first proposition in answer to that is, no.

BRENNAN CJ: Why not?

MR FULLER: Simply because I would say that the cases that I have put before the Court show that if it is a matter to be prosecuted as of right, then it is not a proceeding under section 60 that could be restrained, and I have endeavoured to put, as my primary argument, there is a clear relationship between section 60 and its subsections and what is or is not property under section 116, and I think I put very early in my argument that it would be an odd result if the Court could restrain, or that there would be some right to restrain or stay, as a matter of the effect of section 60 itself, such a right of appeal if it did not, and was not, property.

So, my principal argument has been at the outset that, no, the Court does not have that discretion; that it is related to the fundamental issue of whether it is property or not property, and if the Court finds it is not property vesting in my trustee, then there is no discretion to restrain. But, if I am wrong about that - - -

BRENNAN CJ: Yes.

McHUGH J: Would you accept, as an alternative to that, that the only relevant legal process here is a notice of appeal and that a notice of appeal is not against the personal property of the debtor?

MR FULLER: Yes. Those are my submissions.

BRENNAN CJ: Yes. Thank you. The Court will consider its decision in this matter.

AT 3.15 AM THE MATTER WAS ADJOURNED