Foots v Southern Cross Mine Management Pty Ltd

• Jurisdiction: Australia Federal only
• Judge: Gleeson CJ,Gummow,Hayne,Crennan JJ,Kirby J.
• Judgment Date: 07 December 2007
• Neutral Citation: [2007] HCA 56,2007-1207 HCA A
• Court: High Court
• Docket Number: B26/2007
• Date: 07 December 2007

Kenneth John Foots

Appellant

and

Southern Cross Mine Management Pty Ltd & Ors

Respondents

[2007] HCA 56

Gleeson CJ Gummow, Kirby, Hayne and Crennan JJ

B26/2007

HIGH COURT OF AUSTRALIA

Foots v Southern Cross Mine Management Pty Ltd

Bankruptcy — Provable debt — Costs order — Trial judge gave judgment and awarded damages in favour of second respondent against first respondent and appellant — After judgment appellant became bankrupt upon presentation of own petition — After appellant's bankruptcy trial judge made order for indemnity costs against appellant — Whether costs order was a provable debt within the meaning of s 82 of the Bankruptcy Act 1966 (Cth) — Whether costs order was a debt or liability arising from an obligation before bankruptcy — Whether costs order was a contingent liability — Whether costs order was ‘incidental’ to a provable debt.

Bankruptcy — Stay of proceedings — Whether proceedings in which costs order was sought should have been stayed pursuant to s 58(3) of the Bankruptcy Act 1966 (Cth) — Whether leave to proceed should have been granted pursuant to r 72(1) of the Uniform Civil Procedure Rules 1999 (Q).

Statutes — Interpretation — Relevance of legislative history and antecedent statutes — Relevance of decision in In re British Gold Fields of West Africa[1899] 2 Ch 7.

Words and phrases — ‘contingent liability’, ‘costs order’, ‘incidental’, ‘liability’, ‘provable debt’.

Bankruptcy Act 1966 (Cth), ss 58(3), 82, 153.

Uniform Civil Procedure Rules 1999 (Q), r 72(1).

Representation

P J Dunning SC with S A McLeod and S J Williams for the appellant (instructed by Conroy & Associates)

No appearance for the first and third to tenth respondents

W Sofronoff QC with A M Pomerenke for the second respondent (instructed by Allens Arthur Robinson)

ORDER

Appeal dismissed with costs.

1 Gleeson CJ, Gummow, Hayne and Crennan JJ. This appeal from the Queensland Court of Appeal concerns the interrelationship between federal bankruptcy law and the civil procedure of the courts of that State. The litigation arises out of a costs order made by the Supreme Court of Queensland on 3 February 2006 in favour of the second respondent, Ensham Resources Pty Ltd (‘Ensham’), against the appellant, Mr Foots. He had become bankrupt on 15 September 2005, upon his own petition. Other respondents were joined in the appeal to this Court but Ensham was the only active participant.

2 A significant part of the argument in this Court concerned the authority to be accorded in Australia to a 19th century English decision, In re British Gold Fields of West Africa1. The English case law concerning the bankruptcy statutes as they were developed in that century is part of the context for an understanding of the modern legislation in this country, using the term ‘context’ in the wide sense spoken of in CIC Insurance Ltd v Bankstown Football Club Ltd2. Nonetheless, this should not obscure the consideration that the appeal essentially turns upon the construction of s 82 of the Bankruptcy Act 1966 (Cth) (‘the Bankruptcy Act’) in particular the identification of the debts and liabilities which are provable in bankruptcy. When s 82 is construed it is apparent that in Australia British Gold Fields does not retain the significance for which the appellant contends.

3 Atypically, this case does not involve an attempt by a creditor to bring its claim within s 82 so as to prove in the bankruptcy of the debtor. Rather, it is the bankrupt debtor, Mr Foots, who wishes to bring a claim against himself within the statutory definition. He does so apparently for two reasons. First, if the costs order made by the Supreme Court were a debt or liability provable in his bankruptcy within the meaning of s 82, the proceedings in which the costs order was made would have been subject to s 58(3) of the Bankruptcy Act. This requires the leave of the Federal Court or Federal Magistrates Court before a creditor takes any fresh step in such a proceeding and that leave was neither sought nor given. Conversely, if the costs order did not give rise to a provable debt, the Supreme Court was free to proceed, subject only to the requirements of Queensland procedure contained in r 72 of the Uniform Civil Procedure Rules 1999 (Q) (‘the UCPR’). Secondly, if the costs order did produce a provable debt or liability, then Mr Foots would be free of it upon his discharge from bankruptcy. This is because the release provided by s 153 of the Bankruptcy Act

releases a bankrupt from debts which were provable in the bankruptcy, but not otherwise.

4 The appellant fails to attain these objectives and his appeal should be dismissed.

The facts

5 In the Supreme Court of Queensland Chesterman J heard a complex multi-party action concerning the ownership of machinery at an open-cut coal mine. There were many claims and cross-claims, but the relevant outcome was that Ensham succeeded in its cross-claim against the appellant, Mr Foots, who was formerly its Chief Executive Officer. On 26 August 2005, Chesterman J gave his reasons for judgment, and found that Mr Foots breached his fiduciary and contractual duties of good faith towards Ensham, and that he was also liable pursuant to s 75B(1) of the Trade Practices Act 1974 (Cth) for breaches of s 52 of that Act by the first respondent, Southern Cross Mine Management Pty Ltd (‘Southern Cross’) 3. At that stage, Chesterman J did not make any orders against Mr Foots, although he did do so in respect of other unsuccessful parties.

6 On 1 September 2005, the matter returned before Chesterman J. He gave judgment for Ensham against Southern Cross and Mr Foots, and awarded damages in the sum of $2,460,000. As noted above, on 15 September 2005 Mr Foots entered bankruptcy. Thereafter, on 3 February 2006, the matter was again listed before Chesterman J. His Honour gave detailed reasons 4, and ordered that Mr Foots pay Ensham's costs on an indemnity basis of its successful counter-claim against him. It appears that the costs order has not been taxed.

The legislation

7 In this Court, Mr Foots argues that the costs order made against him was a provable debt within the meaning of s 82 of the Bankruptcy Act as it was a debt or liability arising out of an obligation incurred before his bankruptcy. That ‘obligation’ was said to arise from the judgment against him for the money sum awarded on 1 September 2005. Alternatively, Mr Foots submitted that the phrase ‘all debts and liabilities’ in s 82 is broad enough to encompass an obligation that

is incidental to a provable debt, even if the incidental obligation was not a necessary concomitant in law of the provable debt. However, Mr Foots did not submit that the costs order itself was a relevant ‘obligation’ or that it was a ‘contingent’ liability within the meaning of s 82.

8 The soundness of the arguments advanced in support of the appeal must ultimately be tested against the requirements of the statute itself. Section 82 introduces Div 1 of Pt VI of that Act which is headed ‘Proof of Debts’. The section identifies those debts and liabilities which are provable and relevantly provides:

‘(1) Subject to this Division, all debts and liabilities, present or future, certain or contingent, to which a bankrupt was subject at the date of the bankruptcy, or to which he or she may become subject before his or her discharge by reason of an obligation incurred before the date of the bankruptcy, are provable in his or her bankruptcy.

…

(2) Demands in the nature of unliquidated damages arising otherwise than by reason of a contract, promise or breach of trust are not provable in bankruptcy.

…

(3B) A debt is not provable in a bankruptcy in so far as the debt consists of interest accruing, in respect of a period commencing on or after the date of the bankruptcy, on a debt that is provable in the bankruptcy.

(4) The trustee shall make an estimate of the value of a debt or liability provable in the bankruptcy which, by reason of its being subject to a contingency, or for any other reason, does not bear a certain value.

(5) A person aggrieved by an estimate so made may appeal to the Court not later than 28 days after the day on which the person is notified of the estimate.

(6) If the Court finds that the value of the debt or liability cannot be fairly estimated, the debt or liability shall be deemed not to be provable in the bankruptcy.

(7) If the Court finds that the value of the debt or liability can be fairly estimated, the Court shall assess the value in such manner as it thinks proper.

(8) In this section, liability includes:

• (a) compensation for work or labour done;

• (b) an obligation or possible obligation to pay money or money's worth on the breach of an express or implied covenant, contract, agreement or undertaking, whether or not the breach occurs, is likely to occur or is capable of occurring, before the discharge of the bankrupt; and

• (c) an express or implied engagement, agreement or undertaking, to pay, or capable of resulting in the payment of, money or money's worth, whether the payment is:

  • (i) in respect of amount— fixed or unliquidated;

  • (ii) in respect of time— present or future, or certain or dependent on a contingency; or

  • (iii) in respect of the manner of valuation— capable of being ascertained by fixed rules or only as matter of opinion.’ (emphasis in original)

9 Two aspects of s 82 should be noticed at once. First, not all of the debtor's debts and liabilities are provable in bankruptcy. Notably, the classes of provable debts are narrower than those encompassed by s 553 of the Corporations Act 2001 (Cth) as regards corporate insolvency 5; the most obvious omission is of claims in the nature of unliquidated damages which arise ‘otherwise’ than by reason of a contract, promise or breach of trust (s 82(2)). It was that sub-section which was at stake in Coventry v...