Federal Court of Australia
Porter as former trustee of the estates of Ghasemi and Kakhsaz v Ghasemi [2021] FCAFC 144
ORDERS
DATE OF ORDER: |
THE COURT ORDERS THAT:
1. There be an extension of time to seek leave to appeal out of time.
2. There be leave to appeal.
3. There be leave to the appellant to amend the grounds of appeal in terms of the further amended notice of appeal dated 21 May 2021.
4. The appeal be dismissed.
5. The appellant do pay the respondents' costs of the appeal to be assessed if not agreed.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
THE COURT:
1 Druin Pty Ltd as trustee for the Druin No 3 trust trading as Harvey Norman Commercial (Harvey Norman) petitioned for the bankruptcy of Mr Ali Ghasemi and Ms Haleh Kakhsaz (together, the Debtors). Sequestration orders were made on the creditor's petition by a registrar of the Federal Circuit Court exercising delegated judicial power. Mr Jason Porter (Trustee) assumed responsibilities as trustee under the Bankruptcy Act 1966 (Cth) for the administration of the bankrupt estates of the Debtors.
The Debtors' application for review in the Circuit Court
2 The Debtors applied for a review by a judge of the Circuit Court under s 104(2) of the Federal Circuit Court of Australia Act 1999 (Cth) (FCCA Act) of the orders made on the creditor's petition. The review satisfies a constitutional imperative concerning the manner in which judicial power may be delegated: Bechara v Bates [2021] FCAFC 34; (2021) 388 ALR 41 at [2], [27]-[30]. As was there observed, the review takes the form of a fresh hearing in which Harvey Norman as the petitioning creditor must prove afresh all matters required to succeed on the petition.
3 On the review, Harvey Norman and the Debtors presented a consent to the making of the following orders:
The Sequestration Order made as against the First and Second Respondents on 23 April 2020 be set aside.
The Court maintain the order that the First and Second Respondents pay the Applicant Creditor's costs of the Creditor's Petition fixed in the sum of $7,970.00.
The First and Second Respondents pay the Applicant's costs of the Review Application in the fixed sum of $6,846.30.
A copy of this Order be provided to the Official Receiver in Sydney within 2 days.
4 The consent implicitly dealt with the creditor’s petition by dismissal of it.
5 The consent did not include the Trustee who sought to intervene on the review application in order to apply for the following orders:
That the Trustee … be granted leave to intervene in this matter.
In the alternative to order 1 the Trustee … is given leave to join the proceedings under rule 43.06(2)(e) Federal Circuit Court Rules 2001.
That the Court exercise its discretion to make an order for annulment of the respondents bankrupt estate pursuant to section 153B(1) of the Bankruptcy Act 1966 and consequently costs paid in accordance with section 154 of the Bankrupcy Act 1966.
In the alternative to order 3 that the [Debtors] pay the Trustee's costs and disbursements of the Trustee, to the extent they have not otherwise been recovered from the bankrupts estate, in priority pursuant to section 109(1) of the Bankruptcy Act 1966.
The respondents pay the costs of this application on an indemnity basis.
6 The Trustee was allowed to intervene for the purpose of making submissions in order to protect the Trustee's position as to costs, but was not joined as a party.
7 The evident significance for the Trustee of an order for the annulment of the bankruptcy under s 153B of the Bankruptcy Act was that if there was an annulment order then the Trustee would be entitled to reasonable remuneration, costs and expenses of the administration pursuant to s 154. However, an annulment would have been contrary to the terms of the consent as between the parties to the proceedings, namely Harvey Norman and the Debtors. They contemplated that the sequestration order would be set aside, not annulled. There was also an issue as to whether such an order was appropriate in circumstances where there was no application by the Debtors for an annulment order and the creditor's petition was to be dismissed. An alternative order was sought by the Trustee to the effect that the Debtors pay the Trustee's 'costs and disbursements' to be recovered from the estate of the Debtors (as bankrupts) under s 109(1) of the Bankruptcy Act.
8 As to the Trustee's costs, the Debtors proposed an order that they be required to pay the Trustee's costs properly and reasonably incurred between the date of sequestration and the date of notification of the application to review and the costs of a hearing on 12 June 2020 and that they do 'indemnify the Trustee in respect of any disbursements properly and reasonably made for the benefit of their estates, including insurance on [their] properties'.
9 For the Debtors it was submitted to the primary judge that:
(1) as the creditor's petition was to be dismissed on review, there was no discretion to order an annulment of the bankruptcy;
(2) as the Debtors are solvent and Harvey Norman held an equitable charge over the real property of the Debtors the sequestration order should not have been made;
(3) the sequestration order was made in the absence of the Debtors;
(4) the Debtors applied promptly for a review of the registrar's decision within time and received an undertaking from the Trustee to keep his costs to a minimum;
(5) the Trustee was bound to administer the estate as efficiently as possible; and
(6) the Trustee did not appear to have administered the estate with due caution as was required in circumstances where there was an application to review a sequestration order made in the exercise of delegated judicial power.
10 The Debtors submitted that the orders they proposed could be made pursuant to s 104(3) of the FCCA Act. Section 104(3) forms part of the statutory provision concerned with the exercise of delegated judicial power by a registrar of the Circuit Court and provides for the review and the orders that may be made on review. Relevantly for present purposes, s 104 of the FCCA Act provides:
(2) A party to proceedings in which a Registrar has exercised any of the powers of the Federal Circuit Court of Australia under subsection 102(2) or under a delegation under subsection 103(1) may:
(a) within the time prescribed by the Rules of Court; or
(b) within any further time allowed in accordance with the Rules of Court;
apply to the Federal Circuit Court of Australia for review of that exercise of power.
(3) The Federal Circuit Court of Australia may, on application under subsection (2) or on its own initiative, review an exercise of power by a Registrar under subsection 102(2) or under a delegation under subsection 103(1), and may make any order or orders it thinks fit in relation to the matter in respect of which the power was exercised.
11 In the result, the Circuit Court judge made orders in terms of the consent, made an order that the creditor's petition be otherwise dismissed and made orders as to the Trustee's costs and disbursements as proposed by the Debtors. The judge also made orders as to the costs of the proceedings.
The Trustee's appeal and the Debtors' notice of contention
12 Thereafter, the Trustee (who was by then the former trustee of the estates of the Debtors) commenced an appeal in this Court in respect of that part of the decision by the Circuit Court that affected the remuneration of the Trustee. The appeal as commenced would have been within time but for the fact that the Trustee was not a party to the proceedings in the Circuit Court and therefore needed leave to appeal. A belated application was brought for an extension of time in which to seek leave to appeal. Leave is opposed by the Debtors but not by Harvey Norman. The Trustee also seeks leave to amend the grounds which it seeks to advance if leave is granted. In certain respects that leave is opposed by the Debtors.
13 The Debtors have filed a notice of contention in the appeal. By their notice they contend that a discretionary power to order an annulment upon the review of the exercise of delegated judicial power to make a sequestration order would be unconstitutional. In essence, they contend that in order for there to be a valid delegation of judicial power there must be a right to a de novo hearing before a judge who must determine the same application as was before the delegate (in the present case the registrar). As the application to the registrar was a creditor's petition, the judge on review must deal with the same application. They submit that if s 104(3) operated in a manner that allowed the judge on review to annul the bankruptcy than that would be to deprive the applicant of a de novo hearing as to whether the sequestration order should be made on the creditor's petition. It would burden the review with the possibility of an order that could not have been sought before the registrar. In effect, it was submitted that a review de novo could not produce an outcome of a kind that would not have been possible when the judicial power was exercised by the delegate.
14 The application for leave to appeal and the appeal in this matter was heard by the same five member bench as was constituted for Robson as former trustee of the estate of Samsakopoulos v Body Corporate for Sanderling at Kings Beach CTS 2942 [2021] FCAFC 143, the decision in which appeal was delivered immediately before delivery of these reasons. Key issues in the present appeal were also raised in Robson. A five member bench was constituted because of the challenges to existing authority in Robson, the relevance of those challenges to this appeal, and the Constitutional point to which we have referred.
15 For reasons to be given in Robson:
(1) the decision by the Circuit Court made on the review conducted under s 104(2) to dismiss the creditor's petition brought to an end the administration of the bankruptcy pursuant to the order made by the registrar in the exercise of delegated judicial power;
(2) the Court on review had broad powers under s 104(3), as described in Robson, to make consequential orders to address what had occurred in the period between the making of the sequestration orders in the exercise of delegated power and the performance of the condition attaching to that delegated authority in the form of the review;
(3) the power conferred by s 104(3) did not include power to annul the bankruptcy which had already been brought to an end by the decision on review that the creditor's petition be dismissed; and
(4) the power conferred by s 104(3) included a power to make orders to undo the effect of the earlier orders (noting the divergence of views expressed in Robson as to the form which such an order might take).
16 Therefore, to the extent that the Trustee seeks to advance grounds in the present appeal based upon contentions that the primary judge had a discretion to order annulment on the hearing, upon review, of the creditor's petition and erred in failing to accept the existence of that discretion and in failing to order annulment those grounds are not made out for reasons given in Robson. Therefore, the issues raised by the notice of contention do not arise.
The Trustee's grounds of appeal
17 The appeal grounds (including proposed amendments) are expressed in the following terms:
1. [The primary judge] erred in law in the exercise of his discretion in that he failed to take into account, or alternatively failed to accord sufficient weight to a relevant factor, namely that the [Trustee's] claim for remuneration, costs, charges and expenses included:
(a) attendances and costs, charges and expenses incurred at the request of [the Debtors]; and
(b) attendances made necessary and costs, charges and expenses necessarily incurred, by reason of the conduct of [the Debtors] after the sequestration order was made.
2. [The primary judge] should have taken the above into account and ordered:
(a) that the bankruptcies of the [Debtors] be annulled pursuant to s 153B of the Bankruptcy Act 1966;
(b) that [the Debtors] pay a just proportion of the [Trustee's] remuneration, costs, charges and expenses.
18 The orders sought by the Trustee in the appeal (assuming an extension of time and leave to appeal is granted) are:
1. An order setting aside the orders made [by the Circuit Court].
2. An order pursuant to s 153B of the Bankruptcy Act 1966 or s 28 [of the] Federal Court of Australia Act 1976, annulling the bankruptcies of the [Debtors].
3. An order that the [Debtors] pay such proportion of the Trustee's remuneration, costs, charges and expenses as the Court deems just.
4. Alternatively, that the proceedings be remitted to the [Circuit Court] so that it may determine the just proportion of the Trustee's remuneration, costs, charges and expenses which should be paid by the [Debtors].
19 For reasons that have been given, the claim that an order for annulment should have been made should not be upheld.
20 An issue arises as to the extent to which the appellant should be allowed to claim that an order for remuneration of the Trustee should be made on some basis other than by way of an order for annulment. As will emerge, the Debtors contend that the Trustee did not seek orders for remuneration before the primary judge. They say the Trustee's claim before the primary judge was that annulment should be ordered so that the Trustee would have the statutory right to remuneration afforded by s 154 of the Bankruptcy Act or that there could be an order which would allow payment out of the estates under s 109 of the Bankruptcy Act. The latter claim was not pursued on appeal and rightly so. It was misconceived. For reasons given in Robson once the creditor's petition was determined on review without making a sequestration order there was no administration to be undertaken (and therefore no estate to which the provisions of s 109 might apply).
21 In written submissions in support of the appeal, the Trustee contended that the primary judge erred by declining, in the exercise of discretion, to order an annulment. The submission proceeded on the basis of an assumption that there was such a discretion. As has been indicated, for reasons expressed in Robson that assumption was not correct.
22 The written submissions for the Trustee also complained separately about the orders made by the primary judge that only allowed the Trustee to recover costs for limited periods and disbursements. The Trustee submitted that the orders made by the primary judge 'must be compared to the effect that an annulment under s 153B would have had on the [Trustee's] remuneration, costs, charges and expenses'. It was submitted, in effect, that those orders were not appropriate in a case where an annulment order should have been made. Rather, consequent upon an annulment the Trustee would bring an application to recover remuneration and at that point the Debtors as necessary parties would be able to challenge the reasonableness of the amounts claimed. Therefore, on the basis that an annulment order was made, the orders as to costs, changes and expenses made by the primary judge should not have been made.
23 Notably, what was not submitted for the Trustee in written submissions was a claim that there was a power under s 104(3) whereby consequential orders may be made in respect of the remuneration of the Trustee where a decision is made to dismiss a creditor's petition on review of a sequestration order made in the exercise of delegated judicial power. No such claim was made by the Trustee before the primary judge. The claim to the effect that there was power under s 104(3) was made by the Debtors.
24 By his written submissions in reply in the appeal, the Trustee explained that proposed order 3 (set out above) was sought on the basis of this Court being satisfied on appeal that an annulment order should have been made, 'but that such order might not now be made due to the effluxion of time since the hearing'. Therefore, it was an order that was to be made in the exercise of this Court's power on appeal to deal with the consequences of the effluxion of time if it determined that there should have been an order for annulment. It was not a claim that the primary judge should have made such an order even if there had not been an annulment.
25 Therefore, before the hearing of the appeal it appeared that the Trustee sought only an order for annulment and, if such an order was made, an order as to the proportion of the Trustee's remuneration, costs and expenses (to which the Trustee would have a statutory entitlement by reason of the annulment) that should be borne by the Debtors. Otherwise, the Trustee contended that his right to seek remuneration in an amount approved by the Court should be unfettered by orders made by the Court.
26 In oral submissions, counsel for the Trustee outlined the case for the Trustee by advancing the following propositions:
(1) Before the primary judge the Trustee put his entitlement to be paid on two bases.
(2) The first basis was that there should be an order for annulment with the consequence that the Trustee would have a statutory entitlement to payment of remuneration, costs and expenses in undertaking the administration up until the order of the primary judge.
(3) The second basis was that where Harvey Norman (as the petitioning creditor) and the Debtors had entered into consent orders, the primary judge had a discretion the scope of which included setting aside the sequestration order with orders which determined what, if any amounts, to which the Trustee might be entitled in that event.
(4) The primary judge had a discretion which he should have exercised in favour of annulment rather than setting aside the sequestration order that had been made or, if annulment was not ordered, by ordering the Debtors to pay an amount calculated by the primary judge as representing a just proportion of the Trustee's remuneration, costs, charges and expenses, without making an annulment order.
27 It can be seen that consistently with the written submissions, the argument for the Trustee was not cast by reference to the terms of s 104(3) of the FCCA Act. Rather, there was said to be a discretion that arose by reason of the dismissal of the creditor's petition by consent. In that respect it reflected the case that had been advanced before the primary judge. However, later the argument was put by reference to 'what sort of order the [primary] judge should have made' under s 104(3) of the FCCA.
28 As has been noted, the position of the Trustee was that he sought no order for Harvey Norman to bear the whole or any part of the Trustee's remuneration, costs and expenses incurred in the administration prior to the orders by the primary judge on review. Counsel for the Trustee accepted that when it came to the exercise of any discretion as to remuneration orders, it was appropriate to bring to account the extent to which Harvey Norman may be said to be responsible for the circumstance whereby there had been a sequestration order made in the exercise of delegated judicial power with a consequent administration by the Trustee only for Harvey Norman to consent on review by a judge to the dismissal of its creditor's petition.
29 Counsel then developed the Trustee's case by reference to those aspects of the work that had been undertaken by the Trustee and the circumstances in which it had been undertaken that supported the claim that there should have been an annulment. The following matters were said to be of significance:
(1) at the time that the Trustees commenced the administration, a property in Darlington that formed part of the administration was under contract and the purchasers had been allowed into possession without an occupation fee and insurance for the property had lapsed so it had to be arranged;
(2) another property in Seaforth was being actively marketed and an agent had been appointed to conduct the sale;
(3) the Seaforth property was tenanted and steps were taken by the Trustee to direct rents to be paid to the Trustee;
(4) insurance for the Seaforth property also had to be arranged;
(5) the sale of the Seaforth property proceeded leading to negotiations between lawyers and a direction pursuant to s 77(e) of the Bankruptcy Act to allow the sale to proceed as was requested by the Debtors and eventually a contract was executed;
(6) another property in Vaucluse was tenanted and steps were taken to arrange for rents to be paid to the Trustee and for insurance to be arranged;
(7) there were dealings concerning another property in Holt when the mortgagee entered into possession and decided to sell the property; and
(8) pursuant to s 19 of the Bankruptcy Act the Trustee was required to report to creditors within three months of the sequestration order which period expired on 23 July 2020. The report was completed on 7 July 2020.
30 It will be necessary to return to these matters and whether they have significance for the appropriate orders as to the Trustee's remuneration, costs and expenses. However, at this point, it is sufficient to note that the Trustee relied on the above matters to support a claim that considerable steps had been taken to protect the properties and effect their sale at the instigation and insistence of the Debtors.
31 There was also an issue raised by the Debtors as to whether evidence might be received on the appeal that was not before the primary judge which evidence dealt with the detail of the costs incurred by the Trustee and the process that might be available to the Trustee to submit costs for approval by the Court. In the view which we take of the legal principles that bear upon the circumstances in which the Debtors might be ordered to bear the costs of the administration the additional evidence is not relevant and for that reason will not be received on the appeal.
32 Finally, Harvey Norman appeared on the appeal. It noted that it had been joined as a respondent to the appeal even though it took no position as to the costs of the Trustee before the primary judge and that the Trustee sought no order on appeal as against Harvey Norman. Submissions were advanced against the possibility that the Court on appeal may make different orders to those made by the primary judge. It was submitted that the nature of the appeal was such that the Court did not have power to make consequential orders on appeal as was done in Flint v Richard Busuttil & Company Pty Ltd [2013] FCAFC 131; (2013) 216 FCR 375. It was further submitted that in the event that the Court allowed the appeal in Robson on a basis that recognised the existence of a power on the part of the primary judge to make consequential orders as to the Trustee's costs under s 104(3) then no such order should be made on appeal. Amongst other things, it relied upon the way in which the case had been conducted before the primary judge. As no party suggested that an order should be made by which Harvey Norman should bear any liability for the remuneration, costs and expenses of the Trustee and, for reasons to be given, no error has been demonstrated as to the result ordered by the primary judge, there is no occasion to consider the matters raised by Harvey Norman which would only arise if there was to be a reconsideration of the orders to be made.
Remaining issues for determination
33 Therefore, the issues which remain in the appeal are these:
(1) Should there be an extension of time in which to seek leave to appeal?
(2) Should leave to appeal be granted?
(3) Should there be leave to the Trustee to amend the (proposed) grounds of appeal?
(4) If it is open on appeal for the Trustee to seek remuneration as a consequential order under s 104(3) of the FCCA Act, what is the proper approach by a judge on review when considering the exercise of the power to make consequential orders as conferred by s 104(3) in cases like the present?
(5) Did the primary judge err in law, including as to the consideration of any discretion, when it came to the exercise of any power to make orders as to the remuneration, costs and expenses of the Trustee?
(6) If error is demonstrated, what is the appropriate order?
The proceedings before the primary judge
34 The primary judge made unchallenged findings as to the relevant timeline as follows:
(1) On 23 April 2020, the sequestration order was made by a registrar of the Circuit Court.
(2) On 6 May 2020, the Debtors received notification of the appointment of the Trustee.
(3) The following day, on 7 May 2020, the Trustee was notified of the Debtors' intention to seek review of the registrar's decision.
(4) On the next day, 8 May 2020, the Trustee undertook to keep the costs of administration at a minimum.
(5) On 21 May 2020, the Debtors sought the consent of the Trustee for the sale of a property at Seaforth.
(6) On 7 July 2020, the Trustee issued a 110 page report to creditors estimating a dividend of 100 cents in the dollar.
(7) On 15 July 2020, Harvey Norman and the Debtors reached agreement as to consent orders to set aside the sequestration orders.
(8) On 15 July 2020, the Trustee advised that he objected to the orders as agreed and that the costs of the administration to date were $49,853.63.
35 The primary judge recorded submissions by the Debtors (at [17]-[18]) to the effect that:
(1) The Trustee should be given leave to intervene, but his application for annulment should otherwise be dismissed.
(2) The appropriate course for the Trustee was to seek orders for costs of the administration that were consistent with his undertaking (and obligation under general principles) to keep costs to a minimum in circumstances where he had been notified of the review application the day after his appointment.
(3) The orders proposed by the Debtors gave adequate protection to the Trustee in the circumstances.
(4) The orders proposed by the Debtors could be made under s 104(3).
36 The primary judge recorded the following submissions by the Trustee (at [24] and [26]):
The Trustee firstly submits that there is a deficiency including contingent creditors, of $115,586.74 in the respondents' bankrupt estate. It is submitted that upon the request of the respondents, the Trustee completed a sale of the property at Darlington and that a Seaforth property is due to settle on 11 September 2020.
…
It is submitted that the consent orders filed by the parties, does not address the fault of the respondents. It was submitted that the Trustee was validly appointed by the Court and has incurred costs in administering the bankrupt estate, which could have been prevented on multiple opportunities by the respondents. It is submitted that the respondents are effectively indemnifying the applicants but refusing to pay the Trustee's costs in administering the estate. It is submitted that this position is unfair to the Trustee.
37 The primary judge noted that the Trustee claimed $98,591.45 for fees, costs and disbursements (including legal costs): at [31].
38 The primary judge considered whether, on the evidence, there had been compliance with the Bankruptcy Act in relation to service of the bankruptcy notice. The unchallenged finding of the primary judge in that regard was expressed as follows at [41]:
The Court is left with a position whereby it has two opposing versions of events, which cannot stand together. Given the weight of the evidence, together with the independent verification by the respondent's friends that the respondents' were not at home when the alleged bankruptcy notices were served, the Court cannot be satisfied that it should prefer Mr Vitanza's version of events, over that of the respondents. In these circumstances, the Court is reasonably satisfied that the sequestration order ought not to have been made, as the bankruptcy notices were not served as required.
39 As to the orders that should be made concerning the Trustee, the primary judge reasoned as follows at [42]-[45]:
As discussed above, in circumstances where the order ought not to have been made, the preferable course is for the sequestration order to be set aside, as compared to being annulled.
While that has certain consequences for the Trustee, the Court is satisfied that the Trustee can be reasonably protected, by the making of orders as set out by the respondents, that they pay the Trustees costs properly and reasonably incurred between 23 April 2020 and 7 May 2020, being the day when they were put on notice of the respondents' intention to seek a review of the Registrar's decision.
The Trustee was under an obligation after that period of time to keep costs to a minimum. Notwithstanding the complexities of the case, the Trustee was under a duty to do so. The Court is reasonably satisfied that the Trustee should be protected, in relation to any disbursements properly and reasonably made, for the benefit of the respondents' estates, including an insurance on the respondents property. Noting the concession by the respondents', it is reasonable that they pay the Trustees costs properly and reasonably incurred, in relation to the 12 June 2020 hearing.
In relation to the balance of the costs said to be incurred by the Trustee, the Court notes that the Trustee is at liberty to seek those costs at general law, subject to the limitation of the Trustee being able to show that they were properly and reasonably incurred.
Issues (1) and (2): Extension of time and leave to appeal
40 As to the extension of time, the court has a power to extend which it exercises in the interests of justice. The matters that are usually considered on such applications are well known. They were summarised by Wilcox J in Hunter Valley Developments Pty Ltd v Cohen, Minister for Home Affairs and Environment [1984] FCA 186; (1984) 3 FCR 344 at 348-349 in terms that were adopted by the Full Court in Parker v The Queen [2002] FCAFC 133 at [6]. In all cases there must be a proper basis for the extension and therefore an acceptable explanation for delay. The Court will take into account any prejudice to the respondent and the merits. In most instances the Court undertakes a rough and ready assessment of the merits in considering whether to grant leave. It does so for the reasons explained in Jackamarra v Krakouer [1998] HCA 27; (1998) 195 CLR 516. However, the degree to which there is close consideration of the merits will depend on the circumstances. A determination of a different character is made where the application is for an extension of time in which to review whether administrative action exceeds the bounds of statutory authority: see BJM15 v Minister for Immigration and Border Protection [2021] FCA 786 at [43]. In such cases, the party has not had the benefit of a judicial determination with its attendant characteristic of finality, an aspect which may affect the approach to both merit and delay in deciding whether it is in the interests of justice to extend time.
41 Leave to appeal will only be granted where an applicant can demonstrate that the orders in question are attended by sufficient doubt that reconsideration on appeal is warranted and that substantial injustice would result if the orders were left uncorrected: Décor Corporation Pty Ltd v Dart Industries Inc [1991] FCA 844; (1991) 33 FCR 397.
42 There is an adequate explanation provided by the Trustee for the delay in bringing the leave application. It arose from a misunderstanding concerning the status of the applicant in the proceedings before the primary judge. The appeal itself, though commenced irregularly, was commenced promptly. There is no evident prejudice to any party. Indeed, for some time the respondents appear to have participated in the appeal without objection. For reasons that will emerge there is merit in the matters raised. If the orders were left uncorrected then on the premise advanced in support of the appeal the Trustee has been deprived of remuneration in circumstances in which trustees should generally be entitled to remuneration. The amounts involved are sufficient that there would be an injustice if indeed the Trustee is able to demonstrate that the appropriate order was one which provided for the Trustee to recover some or all of the costs from the Debtors. More significantly, for the Trustee it is said that the approach adopted by the primary judge, if followed in future cases, will leave the Trustee without adequate protection when administering estates pursuant to Court orders. The matters raised are of general importance concerning the nature of the review of the exercise of delegated judicial power to determine creditor's petitions and the consequential orders to be made if a sequestration order has been made by a delegate but, on review, the creditor's petition is dismissed. Before the primary judge the Trustee participated as a party with an interest in the proceedings who sought to be joined as a party. The only substantive issues that were determined by the primary judge concerned orders that would affect whether the Trustee could be paid remuneration and be reimbursed for costs and expenses.
43 Against the applications, it was submitted for the Debtors that there were other steps that might have been taken, such as seeking indemnity from Harvey Norman prior to appointment, questioning whether it was more appropriate for the a receiver to be appointed, pointing the creditor to taking steps by realising an available equitable charge and, in effect, holding the administration in abeyance once the review application was notified. It was said that taking account of these matters any prejudice to the Trustee should be seen, in effect, of its own making. However, these submissions presume that the proper outcome is to be adjudged by reference to such considerations. They are not an answer to the claimed injustice upon which the Trustee relies in supporting the application for an extension of time and for leave to appeal.
44 For those reasons there should be an extension of time in which to seek leave to appeal and there should be leave to appeal.
Issue (3): Leave to the Trustee to amend the (proposed) grounds of appeal
45 The Debtors oppose the proposed amendments to the Trustee's grounds of appeal to the extent that they seek to raise issues concerning payment of remuneration (as distinct from the payment of costs and expenses) and the fixing of remuneration. They say that before the primary judge the Trustee sought annulment and, in consequence, an entitlement to remuneration. They contend that there was no other claim to remuneration (as distinct from costs and expenses). For reasons that have been given, those submissions should be accepted. However, that does not mean that the issue as to the form in which consequential orders might be made based upon s 104(3) of the FCCA Act was not a live issue before the primary judge. The Debtors' submissions were advanced on the basis that the orders that they proposed could and should be made under s 104(3). The primary judge accepted that submission.
46 The issue that then arises is whether, in substance, the issue before the primary judge included the nature and extent of orders that should be made under s 104(3) if annulment was not to be ordered. We are inclined to the view that the parties were joined as to the appropriate orders that should be made as to the remuneration, costs and expenses of the Trustee. Therefore, it is open to the Trustee to advance on appeal a claim, in the alternative to its claim that there should be annulment, that there should be an order providing for the Trustee's remuneration as a consequential order under s 104(3). Given the status of the decision in Pattison v Hadjimouratis [2006] FCAFC 153; (2006) 155 FCR 226 at the time of the hearing before the primary judge and the reliance upon that authority by the Trustee, it is open to the Trustee to now advance its appeal by reference to s 104(3).
47 Therefore, we do not accept the basis for the objection to the application for leave to amend and the amendments sought should be allowed. It follows that Issues (4) and (5) fall for determination.
Issue (4): The proper basis for considering consequential orders under s 104(3) as to the Trustee's costs
48 For reasons given in Robson, the Court has a broad power under s 104(3) to make consequential orders which include allowing a trustee in the position of the Trustee to recover reasonable remuneration (as subsequently approved by the Court) and costs and expenses. The following matters of general approach should be seen as relevant to help guide the determination of the terms of the appropriate order in any particular case:
(1) there should be appropriate recognition that the trustee has acted to give effect to the sequestration order, being an order that was not sought by the trustee;
(2) there should also be appropriate recognition that the trustee must perform the obligations imposed by the Bankruptcy Act once appointed;
(3) in the absence of special considerations pertaining to the conduct of the debtor or the trustee in circumstances where the creditor's petition is dismissed on review, the petitioning creditor, as the unsuccessful moving party should generally be responsible for the remuneration, costs and expenses reasonably incurred by the trustee in the conduct of the administration;
(4) when informed of an application for review, the trustee should exercise caution in undertaking further work and incurring costs and expenses where the validity of the sequestration order is in issue, and work undertaken and in the usual case costs and expenses incurred contrary to such caution should be borne by the trustee;
(5) the caution to be exercised by the trustee may include seeking an extension of time to comply with statutory obligations such as providing a report to creditors;
(6) where the debtor is the party who may be seen to be the party primarily responsible (at least in a practical sense) for the making of the sequestration order before the registrar (such as where the debtor failed to appear before the registrar who made the order despite adequate notice of the hearing or succeeded on review on grounds that had not been advanced before the registrar) it may be that the debtor ought be responsible for the reasonable remuneration, costs and expenses of the trustee;
(7) where particular work done by the trustee or the costs and expenses incurred were requested by and were for the benefit of the debtor then the remuneration, costs and expenses for that particular work should be borne by the debtor;
(8) general work done and costs or expenses incurred in the administration such as to take possession of property or to collect rents or to assume the conduct of a business are not for the benefit of the debtor in the relevant sense because they are consequences of the sequestration order; and
(9) work done and costs or expenses incurred in dealing with the debtor in the course of the administration (including to answer questions raised by the debtor, correspond with the debtor as to the conduct of the administration and to do things at the debtor's request) will generally not have been for the benefit of the debtor because they also are caused by the existence of the sequestration order and, in the absence of unreasonable behaviour by the debtor in dealing with the trustee those costs should not be borne by the debtor.
49 The above list of considerations is not intended to be either rigid or exhaustive or to detract from the broad nature of the power to make consequential orders under s 104(3) as explained in Robson. Rather, it is intended to explain why, in many instances the appropriate consequential order will be to the effect that the creditor is responsible for the reasonable remuneration of the trustee and for the costs and expenses of the administration and that usually there will need to be particular reasons why the debtor as the party who successfully opposes the making of a sequestration order on review should have to bear some or all of the costs of the administration or why some or all of the costs should fall on the trustee.
Issue (5): Did the primary judge err?
50 The oral submissions for the Trustee relied upon the following different types of instances where work was done and costs and expenses were incurred by the Trustee in administering the estates of the Debtors pursuant to the sequestration orders made in the exercise of delegated judicial power:
(1) Instances, such as arranging insurance, where matters were attended to which were of benefit to the Debtors irrespective of whether there had been sequestration.
(2) Instances, such as facilitating the sale of the Seaforth property, that were undertaken at the request of the Debtors (albeit that the request was only required to be made because of the administration of the sequestration order).
(3) Instances, such as the preparation of the report to creditors, where work was done in order to fulfil statutory requirements.
(4) Instances, such as securing rents and investigating the affairs of the Debtors, where matters were attended to that were otherwise part of the administration.
51 For the Trustee reliance was placed on the fact that the sequestration order was valid until the decision was made on review. In those circumstances, so it was submitted, the Trustee should not be left without being compensated for work done and reimbursed for expenses incurred.
52 In the present case, the Trustee sought to recover all (or a proportion) of his remuneration, costs and expenses from the Debtors. As has been noted, no contribution was sought from Harvey Norman. The choice by the Trustee not to pursue any consequential order against Harvey Norman as the party who was unsuccessful on the petition is not a reason why, as a matter of principle, a different approach should be adopted in determining the extent to which the Debtors should bear those costs.
53 In our view, on the evidence, for the following reasons no error has been demonstrated as to the appropriateness of the orders made by the primary judge having regard to the nature and extent of the power conferred by s 104(3) to make consequential orders on review in a case like the present.
54 First, the trustee has failed to demonstrate any unreasonable behaviour by the Debtors in their dealings with the Trustee. Most of those dealings (and consequent costs) were made necessary by the existence of the sequestration order, the operation of which was brought to an end by the orders made on the review.
55 Secondly, in the appeal there was no challenge to the finding by the primary judge that his Honour was reasonably satisfied that the sequestration order ought not to have been made, as the bankruptcy notices were not served as required. Proceeding with the creditor's petition based on failing to comply with the bankruptcy notices in circumstances where those notices had not been served was conduct attributable to Harvey Norman as petitioning creditor and not to the Debtors.
56 Thirdly, the review application was foreshadowed promptly by the Debtors and brought within time. The reason that the administration continued for some time was due to the time taken to hear the review application and deliver a decision. Despite the consent to orders filed by Harvey Norman and the Debtors the orders were not made until after the primary judge considered the submissions advanced for the Trustee and delivered reasons. The reason that course was followed was due to a submission for the Trustee to the effect that orders in terms of the consent should not be made. Therefore, none of the delay that led to the duration of the administration can be laid at the feet of the Debtors.
57 Fourthly, upon being notified of the Debtors' intention to bring the review application and in circumstances where it was then brought within time, the Trustee was required to exercise caution: Flint at [58]; and Boensch v Somerville Legal [2021] FCAFC 79 at [165].
58 Fifthly, the Trustee was involved in the steps taken to effect the sale of property. However, that was only required because of the making of the sequestration order. The involvement of the Trustee in the sale of the properties was not additional to the usual administration responsibilities that the Trustee was required to undertake by reason of the existence of the sequestration order. It is not otherwise relevant to evaluate the competing characterisations as to whether the Trustee conferred a benefit on the Debtors by arranging the sale. The Trustee's involvement was a consequence of the sequestration which came to an end as a result of the orders made on review.
59 Finally, the evidence does demonstrate that there were costs and expenses (including the insurance costs) that were incurred by the Trustee for the benefit of the Debtors. However, the primary judge made provision for the Debtors to indemnify the Trustee in respect of any disbursements properly and reasonably made for the benefit of the estates of the Debtors. Indeed, an order in those terms was proposed by the Debtors. The Trustee made no attempt before the primary judge to establish that there had been a significant amount of time spent in relation to arranging such matters. There was no evidence to the effect that there was work of a particular character that was done by the Trustee that preserved or protected the property of the Debtors in a manner that avoided the need for the Debtors to incur costs if their estates had remained under their control.
60 For these reasons no error has been demonstrated as to the orders made by the primary judge.
Issue (6): Relief
61 As error has not been demonstrated in the orders made by the primary judge no issue arises as to the terms in which relief should have been granted.
Costs
62 The Trustee has been unsuccessful in the appeal and there is no evident reason why costs should not follow the event. Therefore, there should be orders for an extension of time in which to seek leave to appeal, there should be leave to appeal and there should be orders allowing the appellant to amend the grounds of appeal. The appeal should be dismissed with costs.
Associate:
