Lofthouse (In the matter of Guss) [2001] FCA 25 (25 January 2001)

Last Updated: 29 January 2001

FEDERAL COURT OF AUSTRALIA

Lofthouse (In the matter of Guss) [2001] FCA 25

BANKRUPTCY - application by trustee in bankruptcy for directions - form of directions sought - whether appropriate to make directions in declaratory form

BANKRUPTCY - stay of pending proceeding commenced by the bankrupt - election by the trustee in bankruptcy whether to prosecute or discontinue proceeding - whether applicable to proceedings brought by bankrupt as a bare trustee - whether valid election

WORDS & PHRASES - "action", "election"

Bankruptcy Act 1966 (Cth), ss 30, 58, 60(2), 60(3), 60(4), 60(4A), 60(5), 134(4)

Sutherland (In the matter of Scutts) [1999] FCA 147, considered

Re Duckworth; Ex parte Official Trustee in Bankruptcy (R D Nicholson J, 20 October 1995, unreported), considered

Forster v Jododex Australia Pty Ltd [1972] HCA 61; (1972) 127 CLR 421, cited

McLeish v Faure (1979) 40 FLR 462, cited

John v Neiman Holdings Pty Ltd (1986) 84 FLR 84, considered

Daemar v Industrial Commission of NSW (1988) 79 ALR 591, considered

Faulkner v Bluett (1981) 52 FLR 115, considered

Lamru Pty Ltd v Kation Pty Ltd (1998) 44 NSWLR 432, cited

Holmes v Goodyear Tyre & Rubber Co (Aust) Ltd (1984) 55 ALR 594, distinguished

Re: Collins; Ex parte Official Trustee in Bankruptcy and Bracher (1986) 65 ALR 338, followed

LOFTHOUSE (IN THE MATTER OF GUSS A BANKRUPT)

VG 7353 OF 1997

JUDGE: GRAY J

PLACE: MELBOURNE

DATE: 25 JANUARY 2001

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VG 7353 OF 1997

IN THE MATTER OF:

JOSEPH GUSS

BANKRUPT

DAVID LOFTHOUSE

(AS TRUSTEE OF THE ESTATE OF JOSEPH GUSS, A

BANKRUPT)

Applicant

JUDGE:	GRAY J
DATE OF ORDER:	25 JANUARY 2001
WHERE MADE:	MELBOURNE

THE COURT ORDERS THAT:

1. The application the subject of the notice of motion filed on 15 January 2001 be dismissed.

2. The applicant pay the costs of the bankrupt and the Geelong Building Society (in liquidation) of the application.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VG 7353 OF 1997

IN THE MATTER OF:

JOSEPH GUSS

BANKRUPT

DAVID LOFTHOUSE

(AS TRUSTEE OF THE ESTATE OF JOSEPH GUSS, A

BANKRUPT)

Applicant

JUDGE:	GRAY J
DATE:	25 JANUARY 2001
PLACE:	MELBOURNE

REASONS FOR JUDGMENT

1 On 21 December 1998, the Federal Court of Australia made a sequestration order with respect to the estate of Joseph Guss, pursuant to the Bankruptcy Act 1966 (Cth) ("the Act"). On that date, the Official Trustee became the trustee in bankruptcy of Mr Guss. By order of the Court made on 21 December 1998, the sequestration order was stayed until 13 January 1999. On that date, the Court rejected Mr Guss's application for a further stay. By resolution of a meeting of Mr Guss's creditors on 2 February 1999, the applicant in this proceeding, David Lofthouse, was appointed trustee in bankruptcy of Mr Guss.

2 At the time when the sequestration order was made there was pending in the Supreme Court of Victoria a proceeding, commenced by writ and statement of claim, in which Mr Guss and his daughter were the plaintiffs ("the Supreme Court proceeding"). The defendant in the Supreme Court proceeding is the Geelong Building Society (in liquidation) ("GBS"). So far as the material before me shows, the statement of claim alleged that Mr Guss and his wife were the registered proprietors of real property at Portsea and that they held the property on trust for their three children. They mortgaged the property to GBS, which subsequently exercised its power of sale and sold the property. The statement of claim alleged that GBS owed to the plaintiffs a duty of care to act reasonably, fairly and in good faith in respect of the sale of the property, having regard to the interests of Mr Guss as mortgagor and trustee and of his daughter as beneficiary, and that GBS sold the property at an undervalue in breach of that duty. The Supreme Court proceeding has since been consolidated in the Supreme Court of Victoria with another proceeding in which the plaintiffs are Mr Guss's wife and one of their sons ("the consolidated proceeding"). Mr Guss's daughter has ceased to be a plaintiff in the consolidated proceeding.

3 Section 60 of the Act provides relevantly as follows:

"(2) An action commenced by a person who subsequently becomes a

bankrupt is, upon his or her becoming a bankrupt, stayed until the

trustee makes election, in writing, to prosecute or discontinue the

action.

(3) If the trustee does not make such an election within 28 days after

notice of the action is served upon him or her by a defendant or other

party to the action, he or she shall be deemed to have abandoned the

action.

(4) Notwithstanding anything contained in this section, a bankrupt may

continue, in his or her own name, an action commenced by him or her

before he or she became a bankrupt in respect of:

(a) any personal injury or wrong done to the bankrupt, his or her

spouse or a member of his or her family; or

(b) the death of his or her spouse or of a member of his or her

family.

(4A) Notwithstanding paragraph (1)(b), this section does not empower the

Court to stay any proceedings under the Proceeds of Crime Act 1987

or a corresponding law.

(5) In this section, "action" means any civil proceeding, whether at law or

in equity."

Subsection (4A) was inserted into the Act by the Proceeds of Crime (Miscellaneous Amendments) Act 1987 (Cth).

4 On 15 January 1999, the solicitors for GBS in the Supreme Court proceeding wrote to the Official Trustee, notifying him for the purposes of s 60(3) of the fact that the Supreme Court proceeding was pending. Mr Lofthouse became aware of this notice on or about 5 February 1999, when the Official Trustee passed to him a copy of a letter written by Mr Guss to the Official Trustee dated 4 February 1999, concerning the Supreme Court proceeding and the notice. Mr Guss subsequently wrote directly to Mr Lofthouse on 11 February 1999, suggesting that the twenty-eight day period referred to in s 60(3) ran from the date on which the Official Trustee received the notice from the solicitors for GBS and that it was likely to expire on 13 February 1999.

5 By letter dated 12 February 1999, Mr Lofthouse wrote to the solicitors for GBS in the following terms:

"I refer to previous communications and advise that I became the trustee of the bankrupt estate on 2 February 1999.

I am informed that on the 15 January 1999, Minter Ellison, on behalf of The Geelong Building Society (In Liquidation) provided correspondence which placed the Official Trustee on notice regarding the above Supreme Court action for the purposes of Section 60 of the Bankruptcy Act 1966.

Section 60 (2) of the Bankruptcy Act 1966 provides that an action commenced by a person who subsequently becomes bankrupt is upon his becoming a bankrupt stayed until the trustee makes election in writing to prosecute or discontinue the action and Section 60 (3) provides if the trustee does not make such election within 28 days after notice of the action is served upon him by a defendant (or other party to the action) he shall be deemed to have abandoned the action.

As I was not made aware of my appointment until some days after the meeting of creditors and have not been provided with information regarding the proceedings I have had insufficient time to review the merits of the proceedings.

Under these circumstances I have little choice except to now give notice of my election to continue the proceedings. This matter will be reviewed once I am in a position to properly assess the proceedings.

I believe that the present proceedings are due to be heard on Thursday, 18 February 1999 in order to obtain directions from the court. Given all the circumstances I seek to have this hearing adjourned, by consent. Please advise me of your views in this regard.

Please contact my office to discuss this matter."

Mr Lofthouse subsequently consented to the making of orders by a Master of the Supreme Court in respect of the consolidation of the Supreme Court proceeding and a timetable for the taking of interlocutory steps. The consent orders were made on 25 March 1999.

6 On 20 May 1999, the Full Court of the Federal Court of Australia made an order staying the sequestration order until the hearing and determination of an appeal that had been lodged by Mr Guss in respect of that sequestration order. In effect, the sequestration order remained stayed until 8 November 2000. The consolidated proceeding is set down for trial in the Supreme Court of Victoria on 2 February 2001.

7 By notice of motion filed on 15 January 2001, Mr Lofthouse applied to this Court purportedly for directions pursuant to s 134(4) of the Act. Section 134 sets out the powers of a trustee in bankruptcy. Subsection (4) provides:

"The trustee may at any time apply to the Court for directions in respect of a matter arising in connexion with the administration of the estate."

The directions sought in the notice of motion were largely in a form that was intended to be declaratory. Mr Lofthouse sought "directions" that his purported election dated 12 February 1999 to continue the Supreme Court proceeding was ultra vires, alternatively invalid, and of no effect. In the alternative, he sought "directions" that the election is rescinded or otherwise discharged, or that he is not bound by the election. The notice of motion was served on Mr Guss and on GBS.

8 On 24 January 2001, counsel for Mr Lofthouse moved the Court on the notice of motion. Each of Mr Guss and GBS was represented by counsel. Counsel for Mr Lofthouse handed up minutes of directions which he invited the Court to make. The first two of these directions were expressly in the form of declarations. The Court was invited to declare that the consolidated proceeding is not a proceeding within the meaning of s 60(2) of the Act requiring the election of the applicant to prosecute or discontinue it, and that the purported election of Mr Lofthouse dated 12 February 1999 to continue the Supreme Court proceeding was invalid and of no effect. The only directions sought in the minutes were that the applicant give notice of the declarations and orders to the Supreme Court of Victoria and to the parties to the consolidated proceeding and take such steps as necessary to withdraw as a party in the consolidated proceeding.

9 The nature of the power exercised by the Court pursuant to s 134(4) of the Act has been the subject of considerable discussion in the authorities. For convenience, counsel for Mr Lofthouse referred to the examination of some of the relevant authorities by Sackville J in Sutherland (In the matter of Scutts) [1999] FCA 147. At [9], his Honour referred to the similarities between s 134(4) of the Act and the equivalent power with respect to the liquidator of a corporation under the Corporations Law. His Honour then proceeded to examine authorities under both provisions on the question whether the Court is able to make orders binding on persons other than the bankrupt or the corporation in liquidation as the case may be. As his Honour's judgment makes clear, when a trustee in bankruptcy seeks directions pursuant to s 134(4) of the Act as to the manner in which property of the bankrupt estate is to be dealt with or the estate is to be distributed, it will be necessary for the Court to make determinations as to the rights of other persons who claim interests in the property concerned, or as to the rights of particular creditors or classes of creditors. In so doing, the Court is given power by s 30(1) of the Act to decide all questions, whether of law or fact, in any case of bankruptcy and to make such orders (including declaratory orders and injunctions or other equitable remedies) as the Court considers necessary for the purposes of carrying out or giving effect to the Act in any such case. Sackville J at [14] said:

"...an application under s 134(4) of the Bankruptcy Act is not an appropriate vehicle, of itself, to determine the substantive rights of creditors as against a trustee in bankruptcy or of creditors among themselves."

His Honour did proceed to consider the proper distribution among the various classes of creditors of certain moneys and assets of the estate of the bankrupt concerned. He did so by way of a direction that the trustee would be justified in distributing the estate in a particular way. In Re Duckworth; Ex parte Official Trustee in Bankruptcy (R D Nicholson J, 20 October 1995, unreported), the Court held that determinations whether certain sums paid pursuant to an insurance policy were "income" within the meaning of s 139L of the Act or were "divisible property" within s 116(1) of the Act were not appropriate subjects for the exercise of the power to give directions pursuant to s 134(4). Although it will sometimes be necessary for the Court to determine issues of law and fact in applications by trustees in bankruptcy for directions pursuant to s 134(4) of the Act, such issues will only be determined incidentally to the giving of directions. Section 134(4) is not to be used as the vehicle for the primary determination of such issues.

10 In addition, the remedy of declaration is a discretionary one. In its terms, a declaration purports to bind the whole world to recognise that a certain state of affairs exists, whereas as a matter of law the order can only bind parties to the particular proceeding in which it is made. There are particular considerations in the exercise of the discretion to grant or refuse a declaration when the issue in respect of which the declaration is sought has arisen or may arise in a proceeding in another court or tribunal. See Forster v Jododex Australia Pty Ltd [1972] HCA 61; (1972) 127 CLR 421 and McLeish v Faure (1979) 40 FLR 462, at 473 - 476.

11 Given these considerations, the giving of directions pursuant to s 134(4) of the Act expressed in declaratory form must be rare. A declaration as to the rights of others ought only to be made in a proceeding in which those others are parties. In that context, it is relevant to note that not all of the parties to the consolidated Supreme Court proceedings have been given notice of this motion or have had any opportunity to participate in the application for directions.

12 For these reasons, I do not regard it as appropriate to make declarations as to the validity of the election made by Mr Lofthouse by his letter of 12 February 1999. In my view, declarations of that kind are inappropriate under s 134(4). This is so, whether or not they are disguised as "directions". The fact remains, however, that Mr Lofthouse has invoked the jurisdiction given to the Court by s 134(4) to give directions in respect of a matter arising in connection with the administration of the estate. The question of the role, if any, to be played by Mr Lofthouse with respect to the consolidated proceeding is such a matter. For the purposes of determining whether to give directions, it is necessary for the Court to reach a conclusion as to whether that proceeding remains on foot, or whether, so far as the involvement in it of Mr Guss is concerned, it is deemed by s 60(3) to have been abandoned. Two issues arise. The first is whether the Supreme Court proceeding was an "action" for the purposes of s 60, as to which the requirement to make an election arose. If the Supreme Court proceeding was an "action", the second issue is whether Mr Lofthouse made a valid election to prosecute the Supreme Court proceeding.

13 As to the first issue, counsel who appeared for Mr Guss sought an adjournment of the motion, so that Mr Guss could brief senior counsel to argue the question. He claimed that Mr Guss had been unaware until the eve of the hearing of the motion that the applicability of s 60 to the Supreme Court proceeding was an issue that might be dealt with in that hearing. It was on the eve of the hearing of the motion that the solicitors for GBS filed and served an affidavit making it clear that GBS proposed to argue before this Court that s 60 was applicable. I refused the application for an adjournment. In January and February 1999, Mr Guss himself was writing letters to the Official Trustee and to Mr Lofthouse, urging the making of an election with respect to the Supreme Court proceeding. As a matter of simple logic, it has been obvious to Mr Guss ever since he received service of the notice of motion that the relationship between s 60 and the Supreme Court proceeding was of the very essence of the application for directions. Even if GBS had not opted to appear by counsel to put argument about the issue, the Court would have been obliged to satisfy itself as to whether Mr Lofthouse had relevantly elected under s 60(3), in order to decide what directions could and should be given. Plainly, an essential element in the process was the need to consider whether the Supreme Court proceeding fell within s 60. If Mr Guss wished to brief senior counsel to argue that s 60 has no application to the Supreme Court proceeding, he has had ample opportunity to do so.

14 In the material filed on behalf of GBS, the question is raised whether Mr Guss is a plaintiff in the consolidated proceeding purely as a trustee or whether his estate will in fact benefit from success in that proceeding. Mr Guss has had no real opportunity to respond to this material. Even if he had, it would not have been a question that I would have been able to determine as a matter of urgency on conflicting affidavits. It is therefore a question with which I do not deal. I determine the question of the application of s 60 to the Supreme Court proceeding entirely on the assumption that Mr Guss is a plaintiff in the Supreme Court proceeding in his capacity as a bare trustee and that, even if he is successful in that proceeding, he (and therefore his bankrupt estate) will have no entitlement to any of the proceeds of that litigation.

15 All counsel informed me that they have been unable to find any authority on the question whether the word "action" in s 60 includes a proceeding brought as trustee for another by a person subsequently made bankrupt. The researches of my associate in the short time available to me for the preparation of these reasons for judgment tend to confirm that no such authority exists. It is necessary, therefore, to determine the question in reliance upon the terms of s 60, the purpose of the provision, and such authorities as provide assistance with respect to its construction in general terms.

16 In s 60(5), the legislature has defined "action" for the purposes of the section as meaning any civil proceeding, whether at law or in equity. This is plainly a definition of great width. It has been recognised to be so in several contexts. In John v Neiman Holdings Pty Ltd (1986) 84 FLR 84, Young J of the Supreme Court of New South Wales held that s 60(2) operated to stay the whole of a proceeding, even though the bankrupt concerned was only one of several plaintiffs, whose claim was separate from those of the other plaintiffs, although raising common questions of law and fact. In Daemar v Industrial Commission of New South Wales (1988) 79 ALR 591, the Court of Appeal of New South Wales held that an application for relief in the nature of prerogative writs directed to the Industrial Commission of New South Wales was an "action" for the purposes of s 60(2). At 596, after referring to ss 58, 60 and 116 of the Act, Kirby P (as his Honour then was, and with whose judgment the other two members of the Court of Appeal expressed agreement) said:

"These provisions make it clear that the scheme and purpose of the Act is, upon the debtor's becoming a bankrupt, to transfer property rights, including certainly the right to sue in respect of claims to property, from the bankrupt to his trustee. This is so, notwithstanding that it involves personal inconvenience to the bankrupt: see Faulkner v Bluett (1981) 52 FLR 115 at 119. Indeed, it is so notwithstanding the fact that it deprives the bankrupt of important civil rights which he or she would otherwise normally enjoy. It is of the essence of bankruptcy, as provided for by the Act, that property which belongs to the bankrupt, including choses in action (other than those which are specifically exempted) are vested upon bankruptcy in the bankrupt's trustee. The trustee has the charge of the estate of the bankrupt. It is then for the trustee to distribute that property as the Act provides, principally for the benefit of the creditors. To secure the benefits and protections which the Act provides to a debtor, the debtor's status is changed, rights are diminished and property is controlled. It could scarcely be otherwise for if it were, valuable interests which a bankrupt might have, in the form of choses in action would not be caught in the net cast by the very wide language of s 116(1). This would be so despite the specific and limited terms of the exemption in the case of rights to recover damages or compensation provided by s 116(2) and the very purposes of gathering in the bankrupt's property."

It is clear from these authorities that the approach of the courts has been to regard the word "action" in s 60 as casting a net widely.

17 It is also important to note the specific exceptions found in s 60(4) and, more recently, in subs (4A). In Faulkner v Bluett (1981) 52 FLR 115, Lockhart J examined the nature of these exceptions. His Honour catalogued the types of claims which, at common law, had been regarded as exceptions to the rule that rights of action in respect of proceedings already commenced by a person who subsequently was made bankrupt passed to the trustee of the bankrupt's estate. Nothing in those common law exceptions indicates that the common law recognised any exception in cases where the bankrupt had sued as a trustee. Each exception involved a cause of action based on injury done to the person or feelings of the bankrupt. There is no analogy between such cases and the bringing of a proceeding as a trustee. As Lockhart J pointed out at 120, citing s 60(4) of the Act as an example, to some extent the common law of bankruptcy has been embodied in the legislation. More recently, in subs (4A), Parliament has created an exception not based on the common law. It has not created an exception with respect to cases in which the bankrupt has sued as a trustee.

18 Section 60 is an adjunct to the scheme of the Act whereby the property of a bankrupt passes to the bankrupt's trustee consequent upon a sequestration order. By s 58 of the Act, the property of a bankrupt vests forthwith in the Official Trustee or a trustee in bankruptcy when a debtor becomes a bankrupt. That section has the effect of vesting in the trustee in bankruptcy all rights of action in pending proceedings commenced by the bankrupt. Even if it be the case that property of which a bankrupt is a bare trustee for someone else does not pass to the trustee in bankruptcy (because such property is not available for distribution to the bankrupt's creditors), it does not follow that s 60 must be construed as excluding proceedings brought by the bankrupt as trustee.

19 Section 60 is not the provision that vests the right of action in the trustee in bankruptcy. It has a different, and in some respects wider, role. It operates to stay pending proceedings unless the trustee elects to prosecute or discontinue them. It also provides the machinery for a defendant or other party to a pending proceeding to force the making of an election. It is directed towards the protection of the bankrupt's creditors, by preventing the unnecessary dissipation of the assets of the estate in fruitless litigation. In my view, s 60 also has the purpose of protecting a defendant or other party to a pending proceeding. A defendant or other party to a pending proceeding suffers an immediate detriment upon the plaintiff becoming a bankrupt. The detriment is that if the defendant or other party should be successful in the proceeding, and should obtain an order that the plaintiff pay the costs of the proceeding, the order will be effectively unenforceable because of the bankruptcy. The rationale behind s 60(2) and 60(3) is therefore, at least in part, to protect those whom the bankrupt has been suing. Such protection would be lost if the word "action" in s 60 were to be construed as excluding a proceeding in which the bankrupt has sued as a trustee for someone else.

20 In my view, s 60 has been enacted deliberately as a broad provision, so as to encompass any proceeding brought by a bankrupt before bankruptcy. The exceptions have been expressed quite narrowly. The intention is that, once a bankruptcy occurs, no further costs should be incurred in a proceeding unless the trustee in bankruptcy makes an election to continue the proceeding. If such an election is made, the trustee in bankruptcy will ordinarily become substituted as plaintiff in the pending proceeding, in the capacity of trustee in bankruptcy for the former plaintiff. The trustee in bankruptcy will thereby become liable for the costs of the proceeding in the event that it is unsuccessful and a costs order is made in favour of the defendant in the proceeding or some other party to it. The trustee in bankruptcy may be entitled to an indemnity in respect of those costs out of the bankrupt estate, as expenses of the administration of the estate, to the extent to which the estate has assets. The trustee in bankruptcy will obviously consider whether continuing to prosecute the proceeding will be likely to have any benefit to the estate of the bankrupt, and therefore to the bankrupt's creditors. One of the elements that the trustee in bankruptcy will take into account is whether the bankrupt is suing in a personal capacity or some other capacity, particularly that of trustee for someone else. If the bankrupt has sued as trustee for another person, and the estate will not benefit, the trustee in bankruptcy would no doubt usually elect not to continue to prosecute the proceeding. This would protect any defendant, and perhaps other parties to the proceeding, with respect to costs. Of course, it may impact on the beneficiary of the trust of which the bankrupt claims to be trustee. The beneficiary may be forced to institute proceedings in his or her own right to enforce the trustee's legal right, as can be done where there are "exceptional circumstances". See Lamru Pty Ltd v Kation Pty Ltd (1998) 44 NSWLR 432.

21 I am therefore of the view that the Supreme Court proceeding was stayed by the operation of s 60(2) of the Act upon the making of the sequestration order with respect to the estate of Mr Guss. In those circumstances, it was not disputed that the letter written by the solicitors for GBS to the Official Trustee, dated 15 January 1999, was an effective notice for the purposes of s 60(3). The only remaining question is whether the letter of Mr Lofthouse dated 12 February 1999 was an election for the purposes of s 60.

22 Counsel for Mr Lofthouse contended that the letter of 12 February 1999 did not amount to a valid election. At the time it was written, Mr Lofthouse did not have knowledge of the nature of the Supreme Court proceeding. He had been the trustee in bankruptcy only since 2 February and had been aware of the existence of the proceeding since 5 February. It is legitimate to be critical of the fact that Mr Lofthouse had taken no step to obtain any information, or any legal advice, about his position with respect to the Supreme Court proceeding. His counsel conceded that he could have inspected the file of the proceeding in the Supreme Court to ascertain what the pleadings contained, and he could have engaged a solicitor for advice about his position. Instead, he chose to wait until the day before he believed that the time limited by s 60(3) was due to expire, and then to act without knowledge or advice.

23 The principal ground on which counsel for Mr Lofthouse sought to establish that the letter of 12 February 1999 did not amount to a valid election was that it was a qualified election. The argument relied on Holmes v Goodyear Tyre & Rubber Co (Aust) Ltd (1984) 55 ALR 594. In that case, after a proceeding had been instituted in the Supreme Court of Queensland, the plaintiff became bankrupt. Subsequently, one of the trustees of the plaintiff's bankrupt estate wrote to the plaintiff's solicitors a letter advising that the trustee of the bankrupt estate was prepared to allow the plaintiff to pursue the claim "only on the basis that there are no funds required to be expended by the bankrupt estate in respect of the litigation thereof". By a subsequent letter, the plaintiff's solicitors were instructed to proceed in the action "provided the trustee is not called upon to provide funds by the bankrupt estate in respect of such litigation". Shepherdson J of the Supreme Court of Queensland held that the trustees of the plaintiff's bankrupt estate had not elected to prosecute the action. At 597, his Honour said:

"I must say that I consider the letter dated 22 November 1983 signed by the trustee, Mr Ahern, was intended to be an election to continue, but in a qualified way. That qualification seems to me to have been that the trustee did not wish to incur costs or (sic) prosecuting the action further."

In my view, that case is clearly distinguishable from the present. The letter of 12 February 1999 did not seek to impose any condition upon the continuation of the proceeding, as did the letter in Holmes. The letter in the present case was written to the solicitors for GBS. It made clear that Mr Lofthouse felt that he was not in a good position to make an election and that the circumstances were pressing him to do so. Nevertheless, the letter made it clear that Mr Lofthouse was electing to prosecute the Supreme Court proceeding. The use of the words "to now give notice of my election to continue the proceedings" made this clear. The solicitors for GBS could not reasonably have construed this letter to mean anything other than that Mr Lofthouse was electing to prosecute the Supreme Court proceeding. The sentence which followed, indicating an intention by Mr Lofthouse to review the matter once he was in a position to make a proper assessment, could not be construed as a qualification, in the way in which the condition as to costs was construed in Holmes. Section 60 of the Act gives no express right to revoke an election. It is in the nature of an election that it is irrevocable. Even if Mr Lofthouse were purporting to reserve some right to revoke the election, the solicitors for GBS were not bound to recognise the existence of such a right. In any event, I do not think that the sentence in which Mr Lofthouse referred to the possible future review of the matter amounts to an attempt to reserve a right to revoke the election. On its proper construction, it is simply a statement that Mr Lofthouse intends to consider whether he, as the person now in control of the Supreme Court proceeding, will allow it to continue to conclusion.

24 In my view, the letter dated 12 February 1999 "does evince a clear election made by the Trustee to prosecute the action." These words are taken from the judgment of Burchett J in Re: Collins; Ex parte Official Trustee in Bankruptcy and Bracher (1986) 65 ALR 338, at 340. Accordingly, I am of the view that, by the letter dated 12 February 1999 Mr Lofthouse elected to prosecute the Supreme Court proceeding.

25 Because, on any view, the election was made within twenty-eight days after notice of the action had been given by the solicitors for GBS, Mr Lofthouse is not deemed to have abandoned the action. The effect of the election was to lift the stay pursuant to s 60(2). The interlocutory steps which have occurred in the Supreme Court proceeding since the letter of 12 February 1999 cannot be regarded as having been invalidated by the operation of s 60 of the Act.

26 I have already stated my reasons for declining to grant relief of a declaratory kind on the motion. The notice of motion also sought a direction that Mr Lofthouse abandon or discontinue the consolidated proceeding. The minutes of directions handed up by counsel for Mr Lofthouse sought a direction that Mr Lofthouse take such steps as may be necessary to withdraw as a party in the consolidated proceeding. In the course of argument, however, Mr Lofthouse gave fresh instructions to his counsel to the effect that he may not wish to discontinue, or to withdraw from, the consolidated proceeding. In my view, it would have been inappropriate to make directions in those terms in any event. I informed counsel for Mr Lofthouse that I would only consider giving directions of those kinds if I were also to give a direction that Mr Lofthouse accept responsibility for any consequences with respect to costs which might flow from the discontinuance of the consolidated proceeding or from the withdrawal of a party to it. So far as the material before me discloses, the Supreme Court proceeding does appear to have been speculative. That material, however, does not enable me to make any concluded finding about any of the issues raised in the consolidated proceeding. It would therefore be improper of me to determine the outcome of the consolidated proceeding, even so far as the participation of Mr Lofthouse in it is concerned.

27 For these reasons, it appears to me that there are no directions that the Court can make at the present time. The application for directions must therefore be dismissed. Having served the notice of motion on Mr Guss and on GBS, having failed to persuade the Court to make any directions, and having lost on the issue of the validity of the election, Mr Lofthouse should pay the costs of Mr Guss and of GBS of the motion.

I certify that the preceding twenty-seven (27) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gray.

Associate:

Dated: 25 January 2001

Counsel for the Applicant:	Mr S Minahan
Solicitor for the Applicant:	Logie-Smith Lanyon
Counsel for the Bankrupt:	Mr J Moore
Solicitor for the Bankrupt:	Joseph Guss
Counsel for the Geelong Building Society (in liquidation): Solicitor for the Geelong Building Society (in liquidation):	Mr J Delany Minter Ellison
Date of Hearing:	24 January 2001
Date of Judgment:	25 January 2001