Bendigo Bank Ltd v Demaria [2001] VSC 218 (21 June 2001)

Last Updated: 26 July 2001

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION

No. 7059 of 1998

BENDIGO BANK LTD (ACN 069 049 178)	Plaintiff
v
FRANCESCO DEMARIA & ORS	Defendants

---

JUDGE:	McDonald J
WHERE HELD:	Melbourne
DATE OF HEARING:	21 June 2001
DATE OF JUDGMENT:	21 June 2001
CASE MAY BE CITED AS:	Bendigo Bank Ltd v Demaria & Ors
MEDIUM NEUTRAL CITATION:	[2001] VSC 218

---

PRACTICE AND PROCEDURE - counterclaim by defendant, bankruptcy of defendant, standing of defendant in proceedings - Official Trustee electing to discontinue counterclaim - counterclaim not dismissed, but stayed until further order.

---

APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr J Kewley	Hall & Wilcox
For the Defendant	No appearance

HIS HONOUR:

1. On 2 September 1998, these proceedings were issued on behalf of the plaintiff, Bendigo Bank Ltd, against Francesco Demaria and Francesca Demaria. On 20 August 1999, the plaintiff filed an Amended Statement of Claim. By the Amended Statement of Claim the plaintiff sought possession of land being Lot 2, Etiwanda Avenue, Mildura South and possession of land situate at and known as 16 Cureton Avenue, Mildura, together with payments of monies as set out in the amended pleading. The plaintiff alleged that by an agreement made on 27 October 1997 between it and F. Demaria Pty Ltd, it provided a commercial business overdraft facility to that company which it conducted and managed through an account of the company with it.
2. The plaintiff alleged that it also agreed to provide to the first and second defendants a business facility and overdraft facility to be provided to them and conducted and managed in accounts of those defendants with the plaintiff bank. The plaintiff alleged that by an instrument of mortgage registered over the land owned by those defendants and being Lot 2 Etiwanda Avenue, Mildura South, those defendants had secured to the plaintiff loans made by the plaintiff to F. Demaria Pty Ltd or those defendants and agreed to pay to the plaintiff monies due and owing by them and the company to the plaintiff.
3. The plaintiff alleged that at all material times the second defendant was the registered proprietor of the land at 2 Cureton Avenue, Mildura, and that by a registered mortgage, the second defendant had secured repayment to the plaintiff of any monies advanced by it for which the first and second defendants were indebted to the plaintiff.
4. The plaintiff further alleged that by a guarantee in writing, dated 19 November 1997, the first and second defendants guaranteed to the plaintiff payment of all monies owed by F. Demaria Pty Ltd to it. The plaintiff alleged that the company was in debt to it and that in breach of the guarantee and the mortgages, the first and second defendants had failed to pay the money due and owing.
5. The plaintiff alleged that the first and second defendants were indebted to it in the sums set out in the Statement of Claim and that it was entitled to possession of each piece of land.
6. By her Amended Defence and Counter-Claim, the second defendant disputed the plaintiff's claim and denied that she was liable to the plaintiff and/or that it was entitled to possession of either piece of land. By Counter-Claim the second defendant sought a declaration that each mortgage was not enforceable against her and that she be released from any liability to the plaintiff.
7. On 2 May 2000, the solicitors for the second defendant filed a notice that they had ceased to act as solicitors for her. On 11 May 2000, other solicitors filed a Notice of Appearance on behalf of the second defendant, however on 7 June 2000, those solicitors filed a Notice of Ceasing to Act for the second defendant. Thereafter it appears that the second defendant has acted on her own behalf in the proceedings.
8. On 22 September 2000 it was ordered that until 26 September 2000, the second defendant be restrained from demolishing and/or making alterations to structures on the land being Lots 2 and 5 Etiwanda Avenue, Mildura South, and from removing any structures or other matters erected on that land. On 26 September 2000 it was ordered that until further order, the second defendant be restrained from demolishing, altering or removing from the land, being Lots 2 and 5 Etiwanda Avenue, Mildura South, any structure, buildings, erections or fences on that land.
9. On 12 October 2000, the plaintiff issued a summons against the second defendant seeking orders, (1) that the second defendants amended counter-claim be dismissed, (2) that the second defendant's amended defence by struck out and (3) that there be judgment for the plaintiff against the second defendant.
10. On 31 October 2000, the second defendant appeared in person on the return of that summons. It was ordered that day that the time for the second defendant to comply with an order made on 2 September 2000 be extended and the summons be adjourned until 16 November 2000.
11. On 16 November 2000 it was ordered that the plaintiff recover possession against the first defendant of land being Lot 2 Etiwanda Avenue, Mildura South. On that day, orders were also made against the second defendant for her to furnish and better particulars of her amended defence.
12. On 5 December 2000 it was ordered that the proceedings be fixed for trial on 8 June 2001. On 16 May 2001 an application was made on behalf of the plaintiff for orders that the "Insolvency Trustee Service of Australia" be substituted in place of the second defendant in the proceedings.
13. In an affidavit sworn on 16 May 2001 by Penny Limperis, she deposed inter alia that on 29 October 2000 a sequestration order had been made against the first defendant and that Peter Vince had been appointed as trustee of his bankrupt estate; that on 5 December 2000 the plaintiff received possession of the "Etiwanda Avenue property" and that on 21 February 2001 that the property was sold. She further deposed that on 10 April 2001 a sequestration order was made against the second defendant and that the "Insolvency Trustee Service of Australia" was appointed as the trustee of the bankrupt estate of the second defendant. She deposed that on 23 April 2001 she wrote to the Insolvency Trustee Service of Australia providing copies of all relevant pleadings and advising that the trial of the proceedings was fixed for 8 June 2001. To this letter I shall later return.
14. An order was made on 25 May 2001 that the Official Trustee in Bankruptcy as the trustee of the estate, of the bankrupt estate of the second defendant, be added as the third defendant to the proceedings. Orders were made granting leave to the plaintiff to further amend its Statement of Claim. Further orders were made as to the service of that Further Amended Statement of Claim.
15. On 5 June 2001, judgment was entered against the third defendant in default of an appearance in the proceedings being entered on behalf of the third defendant. It was ordered further that the plaintiff have possession of the land being 16 Cureton Avenue, Mildura. On that day a Warrant of Possession issued directed to the Sheriff to take possession of 16 Cureton Avenue, Mildura.
16. On 8 June this year, on the trial, the plaintiff appeared by counsel. No appearance was made by or on behalf of any defendant to the proceedings. Counsel, on that day, sought, on behalf of the plaintiff, an order that the amended counter-claim of the second defendant be dismissed. No further order was sought. On that day it was ordered:

(1) that the further hearing of the trial of the proceedings and the application of the plaintiff to have dismissed the counter-claim of the second defendant, be adjourned until 14 June 2001 at 9.30 a.m. in court 7B. (2) that written notice be given to the second and third defendants of the following matters; (a) that the trial of the proceedings and the application of the plaintiff for an order dismissing the counter-claim of the second defendant be adjourned until 9.30 a.m. on 14 June 2001 at court 7B of the Supreme Court at Melbourne; (b) that on 5 June 2001, there was entered against the third defendant judgment in default of appearance of the third defendant in the proceedings wherein it was ordered that the plaintiff recover possession of the land described in the endorsement of the claim on the writ and being the land described in Certificate of Title 8184 Folio 143 and known as 16 Cureton Avenue, Mildura, and that on 5 June a Warrant of Possession of that land was issued to the sheriff. (3) that such written notice be served on each of the second and third defendants by posting the same in a prepaid envelope this day and addressed respectively to (a) the second defendant at 16 Helen Street, Mildura, (b) the third defendant at 360 Elizabeth Street, Melbourne. (4) That the cost of the day be reserved."

On 14 June 2001, on the resumed hearing of the trial of the proceedings, none of the defendants appeared either by counsel, legal practitioner, or personally. On that day there was filed with the court two affidavits sworn by Michelle Kinden on 12 June 2001 to which there was exhibited copies of letters addressed to the second and third defendant and posted on 8 June 2001. Having regard to that affidavit I am satisfied that the orders made on 8 June 2001 have been complied with.

17. I am also satisfied on material put before the court, that a sequestration order has been made against the second defendant and that the third defendant is her trustee in bankruptcy.
18. Section 58(1)(a) and (2) of the Bankruptcy Act 1966 (C'th) provides:

"(1) Subject to this Act, where a debtor becomes bankrupt; (a) The property of the bankrupt, not being after-acquired property, vests forthwith in the Official Trustee or, if, at the time when the debtor becomes a bankrupt, a registered trustee becomes the trustee of the estate of the bankrupt by virtue of s.156A, in that registered trustee; and (2) Where a law of the Commonwealth or a State or Territory of the Commonwealth requires the transmission of property to be registered and enables the trustee of the estate of a bankrupt to be registered as the owner of any such property that is part of the property of the bankrupt, that property notwithstanding that it vests in equity in the trustee by virtue of this section, does not vest in law until the requirements of that law have been complied with."

On the second defendant becoming bankrupt, she had no more than a bare legal interest in the land being 16 Cureton Avenue, Mildura, which she held for the benefit of her trustee in bankruptcy, the third defendant. She has no interest in the proceedings brought against her for the recovery of that land and she therefore would have had no standing to be heard in that proceeding, if she had sought the same, in the defence of the plaintiff's claim; Farrow Mortgage Service v. Winfield (1992) 2 QLR 282. Further, the second defendant as a bankrupt has no right to prosecute proceedings to protect property of which she has been divested on bankruptcy. Cummings v. Claremont Petroleum (1996) 185 CLR 124 at 135-6, Brennan CJ, Waldron and McHugh JJ. Therefore, the second defendant has no standing to continue to defend the plaintiff's claim against her for possession of 16 Cureton Avenue, Mildura.

19. However, in the events that have occurred, the plaintiff no longer seeks relief against the second defendant. The only order that the plaintiff seeks against the second defendant is that her counter-claim be dismissed.
20. Section 60(2)(3) of the Bankruptcy Act provide:

"(2) An action commenced by a person who subsequently becomes a bankrupt is, upon his or her becoming a bankrupt, stayed until the trustee makes election in writing, to prosecute or discontinue the action. (3) If the trustee does not make such an election within 28 days after notice of the action is served upon him or her by a defendant or other party to the action, he or she shall be deemed to have abandoned the action."

In the affidavit of Penny Limperis sworn 14 June 2001, she deposed that subject to the supervision by her principals, she has had the care and conduct of this action on behalf of the plaintiff. She exhibited to her affidavit a copy of the sequestration order made on 10 April 2001 to which I have previously referred. Penny Limperis also exhibited to her affidavit copies of correspondence between the plaintiff's solicitors and one Kevin Ayres of the Insolvency and Trustee Service of Australia, Victorian branch. He has signed such letters as referred to on behalf of "the Official Receiver". Miss Limperis, on 14 June 2001, gave evidence that the affidavit sworn by her was true and correct and that she had received no further correspondence from the Official Trustee other than that exhibited to her affidavit.

21. In the letter from the plaintiff's solicitor of 23 April 2001 addressed to Kevin Ayres and sent by facsimile transmission on that day, it was said inter alia - "We act on behalf of the Bendigo Bank Ltd (the bank) and have been informed by the solicitors acting on behalf of the petitioning creditor CBT Refrigerated Transport Ltd that on 10 April 2001 a sequestration order was made by the Federal Magistrates' Court against Mrs Francesca Demaria's estate." It was further stated in the letter:

"We also advise that: (1) On 2 September 1998, a Supreme Court Writ was issued on behalf of the Bank against Mrs Francesca Demaria and Mr Franceso Demaria (a copy of which is enclosed) after default in the payment of monies due under the various accounts. The Bank claimed, amongst other things, possession of the Etiwanda Avenue property pursuant to the Bank's mortgage No. V137810J. In June 1999, the Bank amended its statement of claim to also seek possession of the Cureton Avenue property pursuant to its mortgage No. V137809J. (2) Ms Demaria filed a defence and counterclaim to the Bank's claim (a copy of which is enclosed) in which she denied she is liable to the Bank at all. Her counterclaim seeks declarations that the Bank's mortgages are unenforceable against her and that she be released and discharged from any liability to the Bank. She does not currently have legal representation."

It was further said in the letter:

"On 29 June 2000, Mr Demaria was declared bankrupt and Mr Peter Vince of Ferrier Hodgson was appointed as trustee of his bankrupt estate. In a letter to us dated 30 October 2000, Mr Vince in his capacity as trustee of Mr Demaria's estate provided his consent to the Bank being granted possession of the Etiwanda Avenue property. Subsequently, on 16 November 2000, Master Evans of the Supreme Court ordered that the Bank recover possession against Mr Demaria of the Etiwanda property. No further action has been taken by the Bank against Mr Demaria."

It was further said in the letter:

"On 5 December 2000, the Bank recovered possession of the Etiwanda Avenue property and on 21 February 2001 sold the Etiwanda Avenue property, pursuant to its rights under mortgage No. V137810J for a purchase price of $470,000. On 23 February 2001, the proceeds from the sale of the Etiwanda Avenue property were applied by the Bank to pay out Mr and Mrs Demaria's Account No. 04590337/6301 and in part satisfaction of amounts owing under two other accounts."

It was further said in the letter:

"On 19 February 2001, a mediation was held between Mrs Demaria and the Bank however the matter was not settled."

Again, it was further said in the letter:

"We request your urgent advice within the next seven days as to the following: (1) Whether ITSA in its capacity as Mrs Demaria's trustee in bankruptcy, is prepared to consent to the following orders: (a) The Bank recover possession against Mrs Demaria of the Cureton Avenue property. (b) The trial date 8 June 2001 be vacated. (c) The Bank's claim against Mrs Demaria's defence and counterclaim be dismissed with no order as to costs; or, (2) Whether ITSA intends to be substituted as second defendant in the proceedings, so as to defend the Bank's claim and prosecute the counterclaim."

22. On 5 May 2001 in a letter from Ayres signed for the "Official Receiver" to the plaintiff's solicitors, it was said:

"I refer to your letter dated 23 April 2001. Please be advised that the Official Trustee is not in a position to consider your client's request for consent orders at this point of time, nor before the callover of the matter. The bankrupt has not as yet provided a Statement of Affairs. In this regard, the bankrupt has only just been notified of the bankruptcy. At best, the trustee estimates that a Statement of Affairs would not be received for at lest two weeks. Furthermore, the trustee obviously has not had the opportunity to discuss this matter with the bankrupt."

Further, it was stated in that letter:

"Accordingly, it is suffice to say that at the earliest and on the assumption that the bankrupt files a Statement of Affairs within the prescribed time, the trustee would require at least six weeks before a finite decision could be made on its position. However, in the interim, the trustee does not propose to attend the callover of the matter nor actively oppose your client's action."

In a letter by the plaintiff's solicitors to the Insolvency Trustee Service dated 11 May 2001, it was said:

"We refer to your letter dated 4 May 2001. We confirm that an order was made at today's callover by Master Kings that the above proceedings be set down for trial on 8 June 2001. We advise that we have instructions to make an application on behalf of our client to substitute ITSA in the place of Mrs Demaria as second defendant in the proceedings and anticipate to file that application early next week."

In a letter signed by Ayres "For the Official Receiver" and dated 29 May 2001, it was said:

"I refer to previous correspondence on the above. The Official Trustee acknowledges service of your letters, and enclosures, dated 24 and 28 May 2001. In this matter, and in the absence of the trustee receiving a Statement of Affairs, your client may wish to consider the options contained in s.60 of the Bankruptcy Act 1966."

In a further letter signed by Ayres for the "Official Receiver" and dated 13 June 2001, it was said:

"The Official Trustee acknowledges receipt of your letter dated 8 June 2001, and notes the contents therein. I confirm that, at this stage the Official Trustee will not be attending the hearing on 14 June 2001, nor will be actively defending the bankrupt's action."

23. The letter dated 8 June 2001 referred to, was that sent in compliance with the order made on that day. Not only did that letter set out the orders made that day which required the plaintiff to give notice to the Official Trustee in bankruptcy, the trustee of the second defendant's bankrupt estate, of the matters set out and referred to in it, but it also stated:

"Given that this matter is returnable before the court next Thursday, 14 June 2001, you may wish to advise us of your intentions in relation to the proceedings for that day. We note in that regard, on the basis of the reasons that you have previously advised in your letters to us 4 and 29 May 2001, it is unlikely that you will elect to prosecute the second defendant's counterclaim against the Bank."

24. Pursuant to s.60(2) of the Bankruptcy Act, the counterclaim of the second defendant in the proceedings is stayed until the Official Trustee, the trustee of the second defendant's bankrupt estate, elects in writing to prosecute or discontinue that action. However, pursuant to s.60(3) of the Act, the Official Trustee had a period of 28 days after notice was served on him of the action of the second defendant to elect to prosecute the second defendant's counterclaim or discontinue the action. It is only after that period elapsed without an election being made that it is deemed that the Official Trustee has abandoned the action.
25. In these proceedings, it was submitted on behalf of the plaintiff, that by the letter dated 23 April 2001 from the plaintiff's solicitors addressed to the Insolvency Trustee Service of Australia, the receipt of which was acknowledged on behalf of the Official Trustee by the letter of 4 May 2001, that on 23 April 2001 there was served on the Official Trustee, notice by the plaintiff of the action of the second defendant in these proceedings being her action by counterclaim.
26. In Aware Industries Ltd v. Robinson [1997] FCA 571; (1997) 75 F.C.R. 600, at 602, the Full Court of the Federal Court of Australia held that pursuant to s.60(3) of the Act more than "mere provision of the details of an action" is required to be served by "notice" on a trustee in bankruptcy to satisfy service on the trustee of a "notice of the action."
27. It was further held by the court in Aware Industries that to constitute a "notice of the action" under s.60(3) of the Act, there needs to be shown, from a fair reading of the notice served on the trustee, that notice was given to the trustee that time will run against the trustee, under that section, from the time of service of the notice.
28. From a reading of the letter of 23 April 20001, although it gave to the trustee, notice of the second defendant's counterclaim in these proceedings, it did not draw attention to the trustee that time under s.60(3) of the Act had commenced to run from the receipt of that letter.
29. If it was sought to be now contended that such letter delivered on 23 April 2001 constituted service of notice, as relevant to s.60(3) of the Act, it would be my view that the letter dated 23 April 2001 did not constitute a "notice" as required by that provision. In my view that letter did not specifically identify the fact that from the time of the receipt of that letter, time, as relevant under s.60(3) of the Act had commenced to run against the trustee. Whereas previously the plaintiff had sought to rely on s.60(3) of the Act to give foundation to the order sought, this was not the course pursued this day. There was filed a further affidavit of Penny Limperis sworn 20 June 2001.
30. On the resumed hearing this day there was no appearance by or on behalf of either of the second or third defendants.
31. Penny Limperis has given evidence before the court this day that the contents of her affidavit are true and correct.
32. Exhibited to that affidavit are letters which have passed between her and an officer of the Official Trustee. She has sworn that these letters were sent at the times deposed to in her affidavit.
33. In the letter of 20 June 2001 sent by the plaintiff's solicitors to the Official Trustee in Bankruptcy care of the Insolvency and Trustee Service of Australia, "attention Mr Clem Michel", it stated as follows:

"Dear Clem, Bendigo Bank Limited("the Bank") and Francesco Demaria, Francesca Demaria ("Mrs Demaria") and the Official Trustee in Bankruptcy ("the Official Trustee") Supreme Court of Victoria Proceedings No.7059 of 1998. We refer to the telephone conversation between you and the writer this morning, and confirm your advice that: (1) the Official Trustee has elected in accordance with section 60(2) of the Bankruptcy Act 1966 (C'th) to discontinue the second defendant's action against the Bank as constituted by her Amended Counterclaim; and (2) the Official Trustee will take whatever steps are necessary to give effect to that election."

In reply to that letter there was received a letter purporting to be signed by C. Michel by the Insolvency and Trustee Service of Australia, which letter was transmitted by facsimile transmission on 20 June 2001. The content of that written letter is as follows:

"I refer to your facsimile of 20 June 2001 and advise that pursuant to s.60(3) of the Bankruptcy Act 1966 the Official Trustee has elected to discontinue the action."

34. Although in the letter of Michel dated 20 June 2001 the writer refers to the fact that under s.60(3) of the Bankruptcy Act, the Official Trustee has elected to discontinue the action which, by reference to the previous letter written to him by Ms Limperis, is the second defendant's counterclaim, I accept that the reference to sub-s.(3) in that letter is probably a typographical error. I am satisfied that the Official Trustee in Bankruptcy, the trustee of the second defendant's bankrupt estate and in whom her counterclaim is vested, has elected in writing to discontinue that action.
35. The question that must now be addressed is whether it should be ordered as sought by the plaintiff that the counterclaim of the second defendant be dismissed. In Milane v. The President etc of the Shire of Heidelberg [1928] VicLawRp 7; (1928) V.L.R. 52 Irvine C.J. held:

"Where an assignee in insolvency elects, under s.176 of the Insolvency Act (1915), to abandon a common law action commenced by the insolvent prior to his insolvency, the action should be stayed until further order by the Court, but should not be dismissed.

In reaching that conclusion, the Chief Justice at p.53 said that a

"dismissal [of the action] may be pleaded in bar as res judicata and may prevent the plaintiff if he obtains his certificate from continuing this action should he so desire."

The decision of the Official Trustee in this case, to elect to discontinue the proceedings is able to be reviewed by the court under s.178 of the Bankruptcy Act:- see Cummings v Claremont Petroleum N.L. at p.132. If the proceedings against the second defendant were dismissed by order of the court, it may hereafter be contended that such dismissal in some manner infringed upon the right of the second defendant to apply to the court to review the decision of the Official Trustee in Bankruptcy to elect to discontinue the counter claim of the second defendant.

36. In my view in such circumstances, it is not appropriate to dismiss the second defendant's counterclaim and I do not propose to make such order.
37. However, in my view, the appropriate order to be made in the circumstances of this case is that the counterclaim of the second defendant be stayed until further order.
38. I propose to order and do order that the counterclaim of the second defendant in the proceedings, be stayed until further order.
---