`CATCHWORDS
BANKRUPTCY - whether there should be an inquiry into Trustee’s conduct - annulment of bankruptcy
Bankruptcy Act1966 ss 178, 179, 115, 139 and 305
Re Alafaci (1976) 9 ALR 262 Foll
Re Gault; Gault v Law (1981) 57 FLR 165 Refd
Re: Peter Alexander Gargan ex parte The Official Trustee in Bankruptcy
No QB 697 of 1993
Kiefel J Brisbane 23 August 1996
IN THE FEDERAL COURT OF AUSTRALIA
GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE
STATE OF QUEENSLAND
No QB 697 of 1993
RE:
PETER ALEXANDER GARGAN
EX PARTE:
PETER ALEXANDER GARGAN
Applicant
AND:
THE OFFICIAL TRUSTEE IN BANKRUPTCY
Respondent
JUDGE MAKING ORDER: Kiefel J
DATE OF ORDER: 23 August 1996
WHERE MADE: Brisbane
MINUTES OF ORDERS
THE COURT ORDERS THAT:
1. The application under s 178 Bankruptcy Act 1966 for an inquiry into the Official Trustee’s conduct be dismissed.
2. The application for annulment be adjourned to a date to be fixed and subject to directions following.
THE COURT DIRECTS THAT:
3. Unless Mr Gargan informs the district Registrar in writing by 4.00 pm on 30 August 1996 that he wishes to proceed with the application for annulment, that the application stand dismissed.
4. In the event that the application proceeds:
(i) the Registrar is to fix dates for hearing before me, and the hearing is to proceed by video link;
(ii) the applicant Peter Alexander Gargan is to file any further affidavits upon which he intends to rely together with written submissions in support of the application within seven (7) days from 30 August 1996 and no later;
(iii) in the event that the trustee seeks to rely upon affidavit material or to make submission, such documents are to be filed by 13 September 1996;
(iv) any affidavits in reply or submissions in response by Mr Gargan to the trustee’s material is to be filed by 20 September 1996.
5. The applicant Peter Alexander Gargan pay the Official Trustees’ costs of and incidental to the application to be taxed.
Note: Settlement and Entry of Orders is dealt with in Rule 124 of the Bankruptcy Act.
IN THE FEDERAL COURT OF AUSTRALIA
GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE
STATE OF QUEENSLAND
No QB 697 of 1993
RE:
PETER ALEXANDER GARGAN
EX PARTE:
PETER ALEXANDER GARGAN
Applicant
AND:
THE OFFICIAL TRUSTEE IN BANKRUPTCY
Respondent
CORAM: Kiefel J
DATE: 23 August 1996
PLACE: Brisbane
REASONS FOR JUDGMENT
An order sequestrating the estate of
Mr Gargan was made on 22 March 1993.
Some ten days prior to that judgment had been delivered by Thomas J in
the Supreme Court of Queensland in an action brought by Mr Gargan’s brother
with respect to dealings principally concerning land owned by them. Mr Peter Gargan, the applicant here,
counterclaimed in those proceedings for a declaration that the partnership
between himself and his brother continued after the execution of a deed of
dissolution of partnership in 1984. His
Honour found that the parties had agreed to dissolve their partnership and,
whilst the deed of dissolution did not deal with everything that needed to be
attended to (a situation his Honour attempted to redress), the only matter
which remained outstanding under it was the clearance of a debt assumed by John
Gargan in the division of assets and liabilities. His Honour found that the
parties and,
with respect to financial transactions undertaken by him affecting the land in
question, the applicant, could not be said to have acted for the partnership
for some years prior to the action being brought in 1990. His Honour declined to make the declaration
as to continuance of the partnership, ordered that Mr Gargan transfer property
which he held on trust for his brother and pay damages. A detailed overview of that action, the
issues raised by it and the findings of Thomas J thereon, is contained in the
reasons for judgment of Drummond J with respect to the first part of that
application filed by Mr Gargan. A
substantial part of this application seeks to re-litigate those issues and it
seems clear enough, Mr Gargan does not accept that they were resolved, firstly,
by Thomas J and then, with respect to the prospects of any appeal therefrom, by
Drummond J on 18 August 1995. An appeal
from the decision of Drummond J was dismissed.
On 7 July 1995 Mr Gargan filed an application seeking the determination of three issues: firstly, that his Trustee in Bankruptcy be directed to assign to him a number of causes of action; secondly, that there be an inquiry under s 179 into the conduct of the trustee in bankruptcy to determine “whether the allegations of negligence and breach of contract raised against the Official Trustee have merit” and lastly that his bankruptcy be annulled. The actions sought to be assigned included the right of appeal with respect to the Supreme Court action and extended to other actions concerning the partnership and against other companies who were associated with the land dealings. As part of that inquiry Drummond J considered whether there were any prospects of success and concluded in each respect that there was not. His Honour observed, in conclusion:
“While I will adjourn his application, insofar as it seeks an inquiry into the conduct of the trustee and an order that the court grant annulment of his bankruptcy on the ground that the sequestration order was wrongly made, it would follow, for the reasons I have given in dismissing the first part of Mr Gargan’s application, that his claim for an enquiry into the conduct of the trustee must also fail, at least insofar as it involves complaints by Mr Gargan about the trustees’ refusal to pursue any of these causes of action.”
I respectfully concur with his Honour’s observation. Where his Honour has determined that an action or appeal had no real prospects of success, I do not propose to revisit the grounds for such a conclusion. In those circumstances it is difficult to see what with respect to the trustee’s conduct in not pursuing those proceedings remains of relevance and as providing any basis for warranting the inquiry under s 179 which Mr Gargan seeks. In some respects however Mr Gargan did cast aspersions upon the conduct of the Official Trustee and those acting for him although, as will be seen, I consider they were not warranted.
Section 179 Bankruptcy Act 1966 provides:
“(1) The Court may, on the application of the Registrar, the Inspector-General, a creditor or the bankrupt inquire into the conduct of a Trustee in relation to a bankruptcy and may do one or both of the following -
(a) remove the Trustee from office; and
(b) make such order as it thinks proper.”
In Re Alafaci (1976) 9 ALR 262 (followed Re Gault; Gault v Law (1981) 57 FLR 165), Riley J (268) was of the view that such an application requires a preliminary question to be determined by the Court - namely “on the grounds and facts before it, has a case been made for inquiry into the trustees’ conduct?”. If the answer were in the affirmative, the next question would then be: what was the scope of the inquiry?
By reason of the nature of the submissions made by Mr Gargan it may be observed that, in some respects, the consideration here undertaken is in the nature of an enquiry itself into aspects of the trustee’s conduct. That is partly because the inquiry I understood Mr Gargan to seek under s 179 was one with respect to the administration generally of his estate. For present purposes though the terms of the order sought are not relevant. I turn to deal with the matters raised by Mr Gargan as warranting any enquiry.
Initially, it seemed to me, Mr Gargan’s complaints were diffuse. In an attempt to promote some order a written outline of argument was filed and which was to identify the evidence upon which the contentions were said to depend. I have followed that outline, attempting to distil from the affidavit material referred to, points of relevance in addition to those advanced in oral argument. At the time of the hearing Mr Gargan sought to rely further on written submissions. The matters contained in them, so far as they were of relevance, are dealt with in my brief observations concerning the dissolution of the partnership.
That the Official Trustee did not observe the Rules of Legal Investigation before making Decision with regard to the assets and liabilities of the Estate
The main thrust of this
claim relates to the appeal from the decision of Thomas J. With respect to it Mr Gargan raises two
issues: that the Trustee should have
either obtained adequate instructions in relation to an appeal or should have
simply ignored the decision. The latter
point raises a question different from that resolved by the findings of
Drummond J. The first, however, whilst
given the appearance of a new
issue (alleged denial of natural justice), is to be resolved by that means.
The trustee sought the advice of Mr Heap of the Australian Government Solicitor regarding any appeal. Mr Heap advised that, in his view, the prospects of success were not good, largely because of the trial Judge’s finding adverse to the credit-worthiness of Mr Gargan. This view of the judgment was later also reached by Drummond J. Nevertheless Mr Heap also advised that he would consider any particular grounds Mr Gargan raised. Mr Gargan’s point is that he had raised them and the Trustee had been wrong in not referring them to Mr Heap. Whether a Trustee’s decision not to do so is reviewable on the ground put forward by Mr Gargan, is not to the point. It is necessary only to make two observations: firstly, nothing contained in them could be said to weigh against the conclusion reached by Drummond J nor to have affected that reached by the trustee’s adviser, Mr Heap; secondly, the failure to do so does not cast doubt upon or raise questions as to the conduct of the trustee, or those acting for him. There is not, in my view, conflict in the judgment of Thomas J as to whether the partnership was dissolved. This was, as I have said, the issue to which Mr Gargan continually returned. Mr Gargan appears to be of the view that the partnership could not be said to be dissolved until each step agreed to be undertaken had been completed. But that is not what Thomas J found to have been agreed. And it may be that partners can continue to act for and on behalf of the partnership following dissolution, but this is only so far as is necessary to complete the winding up. And again, Thomas J found that the partners, in particular Mr Gargan, had no such authority with respect to dealings undertaken prior to the action being brought.
It was also submitted in oral argument by Mr Gargan that the trustee ought to have undertaken examinations of his brother, those associated with the company SAM Industries Pty Ltd, with a horse-riding partnership and the money lender Jue Sue Co, whom he described as “associated entities”. It is not necessary to deal with that point. There was no warrant for any such course, which would have been to go over issues litigated in the Supreme Court in the hope that some further evidence or admissions might be forthcoming.
Mr Gargan referred to claims against SAM Industries Pty Ltd which, he says, should have been pursued. These were not dealt with by Thomas J and so were not relevant to the trustees’ consideration of that appeal. However Mr Gargan had instituted proceedings against that company and this litigation was gone into by Drummond J who once again concluded that there was little prospect of success in it.
There was also, Mr Gargan argued, monies earned by a horse-riding business conducted by his brother and sister-in-law, but formerly conducted by him, which should have been pursued by the trustee. The basis for this is vague. A memo in the trustee’s records shows that Mr Gargan maintained that either a profit-sharing agreement had been entered into or that rent was to be paid. Drummond J refers to an action brought by the brother claiming unlawful interference with the business. In that action Mr Gargan counter-claimed on the basis of an agreement said to have been reached in 1990 to the effect that the land upon which the business was conducted was to be assigned to him. This may be the foundation for the claim to rent. None other is apparent. But, in any event, as Drummond J observed, Thomas J had found there was no such agreement. There does not seem to me to be any other basis disclosed to require the trustee to take the matter further.
The other submission, that the trustee should have simply ignored the decision in the Supreme Court action, has two aspects to it, both of which are misconceived. It was submitted that the sequestration order took effect at an earlier time. The act of bankruptcy, to which s 115 might refer, occurred on 6 January 1992. But Mr Gargan’s argument misunderstands the effect of the doctrine of relation-back. It was his submission that, because the sequestration order was effectively “backdated”, the trustee was only bound by what occurred prior to that time and, could therefore ignore the Supreme Court judgment in 1993. It was further submitted that the Commonwealth legislation “covered the field”. With respect to personal bankruptcy I have no doubt that it does but this does not have the effect for which Mr Gargan contended, namely that “anything that occurs in a State Court is of no consequence”. There is no relevant conflict.
The Official Trustee has relied upon solicitors of associated entities of the bankrupt who misled the Trustee and the Trustee ignored his Statutory Duty to investigate their claims and ignored his own officer’s recommendations
Mr Gargan referred to two
letters from his brother’s solicitors to the Australian Government Solicitor in
March 1993 but it is not apparent to me what I was to draw from them adverse to
the conduct of the trustee, unless Mr Gargan is saying that whatever was
claimed in them ought to have been investigated or that they had some real
influence on the decisions not to proceed with actions. The solicitors for the brother did refer to
the substantial costs owed to him by Mr Gargan out of the
extensive litigation brought (some twenty three proceedings were said to have
been brought by Mr Gargan against his brother and his family). And the brother proved in the bankruptcy for
sums in excess of $150,000. But these
assertions, and a warning that security for costs might be sought if any
proceedings were pursued, are not shown to have had any influence on the
trustee’s decisions. Nevertheless it
seems that the trustee undertook some investigation. Mr Gargan also refers, under this heading, to
claims against a Mr Mohammed and with respect to the horse-riding business,
which I have already dealt with. The
material discloses the steps taken with respect to Mr Mohammed and there seems
to me no basis for further inquiry. I
have also dealt with Mr Gargan’s claim that certain persons or entities which
he described as “associated entities”
should have been examined under s 139 Bankruptcy Act 1966.
A matter raised by Mr Gargan, was that his brother owed him or the partnership $50,000. If that were the case the reason why no action was taken may be that the trustee did not, faced with the brother’s likely cross-claims or set-offs at least with respect to the debts for which he had proved consider that the outcome would benefit creditors. And, it is to be recalled the creditors had declined to provide funds for litigation. But it is not, in any event, clear to me that the sum was owed. Mr Gargan, as I understand it, places reliance on a memo by Mr Visser (the officer then having the conduct of the file) of 27 May 1993 which notes that $50,000 paid by the bankrupt to Jue Sue & Co for $50,000 in 1984 reducing the loan balance “seems to be a valid debt owing by John to the estate. Although paid in 1984, the judgment on 12 March 1993 determined that the loan was John’s debt only. For this reason the transactions on the loan are current and the amount should be claimed from John Gargan.” I have some difficulty with these comments. It may well be that the memo, entitled “summary of issues” does not record the officer’s own view, but matters raised by Mr Gargan. In the judgment Thomas J finds that the agreement between the brothers was that, of the $230,000 owed by the partnership to the money lender Jue Sue & Co, liability for repayment of $180,000 of it was to be assumed by John Gargan. This was the amount which had not been paid when the matter was heard - partly because the brother had not had other property available to him to bring that about. The $50,000 spoken of was, his Honour found, to have been paid by the partnership. If it was paid by Mr Peter Gargan alone and not out of partnership funds there might be some argument that some of it was repayable to him - but this is not what is suggested by the note.
Mr Gargan also refers to a note contained in the memo which records “Book debts, owed by Michael & Simon Gargan for agistment for a number of years seems a valid debt. Agistment has been on land which was designated for use by B/rupt. Charge was $1.00 per head per week for approximately 300 cattle. The amount of debt needs calculation as the cattle have been on the land for a number of years and are still there now.” Again, the difficulty with the note is that it is unclear whether it represents views held by the officer having conduct of the file or simply records Mr Gargan’s claims which may or may not be considered worth while investigating. The only other reference to the claim in the material is with respect to agistment occurring in 1990. Whilst it is therefore unclear what sums are said to be in question and why no steps were taken to demand the sums of itself I do not consider it warrants an enquiry into the trustee’s conduct.
Competency of staff and solicitors employed by the Official Trustee who have colluded with or preferred creditors
I have not set out this heading in full. It and the affidavit material filed by Mr Gargan in support allege wrongful conduct amounting to corruption without, it seems to me, any basis.
Apart from the matters relating to the claims against SAM Industries, the Jue Sue Co and his brother, which I have referred to above, Mr Gargan points to a meeting of creditors held in November 1994. The request for the meeting was received much earlier, in April 1993. It was then circulated to creditors. Whether it amounts to a proposal is not a matter which needs be addressed. By it Mr Gargan proposed that all the choses in action be revested in him and that the creditors fund the litigation - the appeal and other proceedings dealt with by Drummond J. Mr Gargan’s point seemed to be that there had been attached to the request an account of monies owed by his brother and a statement detailing the legal steps needed to administer the estate and that this was not circulated to creditors. The trustee says this information was not received. Mr Gargan does not explain what, in that advice, would have likely altered the creditor’s views. Given the submissions he has otherwise made with respect to the litigation it is difficult to see that creditors might have elected to commence or continue it.
An allegation of conspiracy was also
raised with respect to the creditors meeting.
It is alleged that proofs of debt were admitted when they should not
have been. Insofar as it is sought to
impugn the trustee’s decision-making power with
respect to admission of proofs of debt, no basis has been shown for this. These proceedings are not in any event a
review of those decisions. So far as the
general allegations touch upon the conduct of the meeting itself, a review of
the minutes does not disclose anything untoward. Mr Gargan’s point, and the
basis for the adjournment he sought of that meeting, seems to be that the Court
and not the President of the meeting should determine whether the proofs were
to be accepted. That would not have
prevented an application to the Court.
For the purposes of this application as to the conduct of the trustee,
it seems to me to be irrelevant.
The other matter raised by Mr Gargan was the failure of the trustee to apply for the provision of funds by the Commonwealth under s 305 Bankruptcy Act to enable investigations and proceedings to be pursued. There seems to me however to have been almost no prospect that funds would have been provided. The relevant policy or guidelines issued by the Inspector-General in Bankruptcy provide that in the absence of an issue of public interest, funding will not ordinarily be provided where creditors could afford to give an indemnity but have made a conscious decision not to do so. And, in any event, it required that there be good prospects of recovery.
Annulment
The third aspect of Mr Gargan’s
application, which seeks an order for annulment was left, at the conclusion of
submissions with respect to the s 178 application, on the basis that directions
would be given to enable its determination, although it was not clear to me what
Mr Gargan would seek to rely upon in addition to his basic allegation that the
debt upon which the bankruptcy notice had been founded
was a partnership debt, for which he was not liable.
This raises, once again, the difficulty that it has been found that he had not acted on behalf of the partnership in dealings after the deed of dissolution. And, it would seem, the judgment in favour of the petitioning creditor F R Ireland Pty Ltd, was incurred in this later period. But there are other problems with respect to the application, or so it presently seems to me. Judgment was entered against Mr Gargan in November 1991 for the sum of $16,061.76. Mr Gargan filed a notice of opposition raising the matter now sought to be gone into. The hearing of the petition and Mr Gargan’s contentions appear to have been put over until the conclusion of the Supreme Court action. On 22 March 1993, when the matter came back before this Court following judgment in the action, an affidavit by Mr Gargan filed in Court was to this effect:
“1. I am the respondent to the above Bankruptcy Petition and I am no longer opposing the making of a sequestration order.
2. Action No 101/90 has been resolved against me and while I believe the judge has erred in law I am unable to appeal with a Bankruptcy petition against me.”
A sequestration order was made that day.
Were Mr Gargan to proceed with his
application for annulment he would need to explain why such an application
ought be entertained by the Court when sequestration was not, apparently,
opposed. Nevertheless since the
procedure adopted to this point contemplated the receipt of further submissions
I shall hear from Mr
Gargan should he advise the Court that the application is persisted in.
Conclusion on paragraph 2 of the Application
No ground has been shown to warrant an inquiry into the trustee’s conduct. That part of the application will be dismissed
I certify that this and the preceding twelve pages are a true copy of the reasons for judgment herein of the Honourable Justice Kiefel.
Associate
Date: 23 August 1996
The applicant: In Person
Counsel for the respondent: Mr DGH Turnbull
Solicitors for the respondent: Australian Government Solicitor
Date of Hearing: 25 March 1996
Place of Hearing: Brisbane
Place of Judgment: Brisbane
Date of Judgment: 23 August 1996
