FEDERAL COURT OF AUSTRALIA
BANKRUPTCY - examination of bankrupt under Bankruptcy Act 1966 (Cth) s 81 - admissibility of transcript of examination - whether transcript of examination admissible in evidence against a party other than the bankrupt.
EVIDENCE - Evidence Act 1995 (Cth) ss 135, 136 - whether probative value of transcript of examination was outweighed by a danger that the evidence might be unfairly prejudicial to a party other than the bankrupt.
Bankruptcy Act 1966 (Cth), ss 31, 58, 81, 120, 255.
Bankruptcy Amendment Act 1985 (Cth), s 22.
Bankruptcy Legislation Amendment Act 1996 (Cth).
Conveyancing Act 1919 (NSW), s 37A.
Evidence Act 1995 (Cth), ss 38, 135, 136.
Financial Transaction Reports Act 1988 (Cth), s 16(5D).
Apps v Pilet (1987) 11 NSWLR 350 (NSW CA), cited.
Bourke v Beneficial Finance Corporation Limited (1993) 47 FCR 264 (FCA/FC), cited.
Cole v The Commonwealth [1962] SR (NSW) 700 (S Ct NSW/FC), cited.
Commonwealth v Pharmacy Guild of Australia (1989) 91 ALR 65 (FCA/FC), cited.
Douglas-Brown v Furzer (1994) 13 ASCR 184 (S Ct WA/FC), cited.
Hannpost Pty Ltd v MITA Copiers Australia Pty Ltd (1996) 137 ALR 701 (FCA/FC), cited.
Housing Commission of New South Wales v Tatmar Pastoral Co Pty Ltd [1983] 3 NSWLR 378 (NSW CA), cited.
Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 110 ALR 449 (H Ct), cited.
News Ltd v Australian Rugby Football League Ltd (1996) 64 FCR 410 (FCA/FC), cited.
Pettitt v Dunkley [1971] 1 NSWLR 376 (NSW CA), cited.
R v Lozano 10 June 1997, NSW CCA, unreported, cited.
R v Souleyman (1996) 40 NSWLR 712 (S Ct NSW/Smart J), cited.
Re Gear (Dec’d) [1964] Qd R 528 (S Ct Qd/FC), cited.
Re Schofield; Ex parte Ragnott v P & B Barron Pty Ltd (1997) 143 ALR 185 (FCA/Finn J), cited.
Rodway v The Queen (1990) 169 CLR 515, cited.
Soulemezis v Dudley (Holdings) Pty Ltd (1987) 10 NSWLR 247 (NSW CA), cited.
Steinberg v Federal Commissioner of Taxation (1975) 134 CLR 640, cited.
Webb v The Queen (1995) 13 WAR 257 (S Ct WA/FC), cited.
K Mason and J W Carter Restitution Law in Australia (1995).
THE COLONIAL MUTUAL LIFE ASSURANCE SOCIETY LIMITED V MAX CHRISTOPHER DONNELLY AS TRUSTEE OF THE BANKRUPT ESTATE OF T C MORRIS
NG 822 OF 1997
WILCOX, O’CONNOR, SACKVILLE JJ
SYDNEY
15 APRIL, 1998
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BETWEEN: |
THE COLONIAL MUTUAL LIFE ASSURANCE SOCIETY LIMITED ApPELLant
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AND: |
MAX CHRISTOPHER DONNELLY AS TRUSTEE OF THE BANKRUPT ESTATE OF T C MORRIS Respondent
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JUDGES: |
WILCOX, O’CONNOR, SACKVILLE JJ |
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DATE OF ORDER: |
15 APRIL, 1998 |
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WHERE MADE: |
SYDNEY |
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THE COURT ORDERS THAT:
1. The appeal be dismissed.
2. The appellant pay 90 per cent of the respondent’s costs of the appeal.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
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IN THE FEDERAL COURT OF AUSTRALIA |
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APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA
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BETWEEN: |
THE COLONIAL MUTUAL LIFE ASSURANCE SOCIETY LIMITED AppELLANT
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AND: |
MAX CHRISTOPHER DONNELLY as trustee of the Bankrupt ESTATE of T C Morris Respondent
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JUDGES: |
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DATE: |
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PLACE: |
REASONS FOR JUDGMENT
THE COURT:
INTRODUCTION
This is an appeal from a judgment of a Judge of this Court ordering the appellant (“CML”) to pay to the respondent (“the trustee”) the sum of $545,000. The trustee is the trustee of the bankrupt estate of T C Morris (“the bankrupt”). The sum of $545,000 was paid to CML as part of a deposit of $1.06 million (being 20 per cent of the contract price) on the purchase of a hotel, which CML was selling as mortgagee in possession. CML forfeited that portion of the deposit as did not exceed 10 per cent of the contract price when the purchaser, a company associated with the bankrupt or with members of his family, did not proceed with the purchase.
The primary Judge’s order was based on a finding that the sum of $545,000 had been paid to CML out of moneys which were the property of the bankrupt. His Honour held that those moneys had vested in the trustee on the date the bankrupt’s estate was sequestrated, pursuant to s 58(1)(a) of the Bankruptcy Act 1966 (Cth) (“the Bankruptcy Act”). Accordingly, the trustee was entitled to recover the deposit paid to CML on principles of restitution or unjust enrichment.
THE PROCEEDINGS AT FIRST INSTANCE
The proceedings were instituted by the trustee against CML and seven other respondents. The seven other respondents were:
· the bankrupt;
· the bankrupt’s daughter, Yianoula Morris;
· the bankrupt’s sister, Helen Anastopoulos;
· the bankrupt’s brother, Louis Morris;
· the bankrupt’s former secretary, Ms Whitbread;
· Monarth Pty Ltd (“Monarth”), a company in which the bankrupt and his brother were shareholders;
· Cedrim Pty Ltd (“Cedrim”), a company in which the bankrupt, Ms Anastopoulos and Ms Whitbread were shareholders;
In its original form, the statement of claim sought declarations and orders relating to shares held in Monarth and Cedrim by parties other than the bankrupt. This relief was not, however, pursued by the trustee. Moreover, Monarth and Cedrim were dissolved before the matter came to trial. In these circumstances, the primary Judge made orders removing Monarth, Cedrim, Louis Morris and Ms Whitbread from the proceedings.
The proceedings continued against the remaining parties, that is, CML, the bankrupt, Yianoula Morris and Ms Anastopoulos. However, the relief sought by the trustee was limited, in substance, to a declaration that CML held the sum of $545,000 paid to it on trust for the trustee and an order that CML pay that sum to the trustee. Of the remaining parties only CML appeared at the hearing, although prior to the hearing the bankrupt appeared in order to request an adjournment for the purpose of arranging representation.
THE FACTS
The case presented by the trustee was largely a documentary one. As his Honour observed, most of this material was uncontroversial, and included contractual and conveyancing documents, solicitors’ correspondence and bank records. The bankrupt did not give evidence but, as will be seen, the primary Judge admitted into evidence a transcript of the examination of the bankrupt that took place under s 81 of the Bankruptcy Act.
The primary Judge set out the background facts, as to which he said there could be little room for serious dispute, as follows:
· On 6 February 1991, the bankrupt, as the registered proprietor of a hotel situated at the corner of Park and Castlereagh Streets, Sydney (“the Windsor Tavern property”), mortgaged the hotel to CML on an “all moneys” basis.
· In about July 1992, the bankrupt and his brother, James Morris, sold a property at Church Street, Parramatta to Lucky Team Pty Ltd. The transaction was at arm’s length. It yielded the bankrupt, who held an interest in the property as joint proprietor, proceeds in excess of $500,000. The documentary evidence revealed the following:
(i) On 17 July 1992, Lucky Team Pty Ltd drew a cheque in the amount of $250,000 in favour of the bankrupt.
(ii) On 20 July 1992, the amount was deposited by the bankrupt into an account in his name at the 260 Castlereagh Street branch of the State Bank.
(iii) On 10 August 1992, the bankrupt withdrew $260,000 from that account. The withdrawal was made in the form of a cheque payable to cash.
(iv) On settlement of the sale of the Parramatta property, the bankrupt received a further cheque for $292,435.
· By instrument of lease between the bankrupt as lessor and Monarth as lessee, entered into in or about September 1993, the bankrupt leased to Monarth the whole of the basement and part of the ground floor of the Windsor Tavern property for a term of three years, with an option for a further six year term. The lease was unregistered.
· The bankrupt was a director of Monarth. He and his brother, Louis Morris were the sole shareholders of Monarth, although the bankrupt held only one of the 4,000 shares. The primary Judge drew the inference that the bankrupt, either alone or in conjunction with Louis Morris, controlled Monarth.
· On 24 November 1993, a sequestration order was made against the estate of the bankrupt, and the trustee was appointed. At that date the bankrupt owed CML some $9 million. His liabilities exceeded his assets by about $120 million.
· On 1 December 1993, CML took possession of the Windsor Tavern property. On 13 May 1994, Monarth and Vanfair Pty Ltd (“Vanfair”), a company his Honour regarded as apparently related to Monarth, entered into a contract to purchase the Windsor Tavern property from CML for $5.3 million.
· Under the terms of the contract, provision was made for the payment of a deposit of 20 per cent of the purchase price. By letter dated 13 May 1994, Blake Dawson Waldron, solicitors, wrote to Minter Ellison, solicitors for CML, in respect of the proposed sale as follows:
“Property: 48 Park Street, Sydney
We act for Vanfair Pty Limited and Monarth Pty Limited, the proposed purchasers of the above property for and on behalf of Votraint No 849 Pty Ltd yet to be formed.
We enclose Agreement for Sale duly executed by a director of each of Vanfair Pty Limited and Monarth Pty Limited. Time has not permitted the seal of each company to be affixed nor a counter signatory to be available.
We also enclose a Bank cheque for $515,000.00 together with a company cheque for $545,000.00 making up a 20% deposit payable on exchange.
If your client desires a Bank cheque for the sum of $545,000.00 or the seal of each company to be affixed with a counter signatory then this can be effected immediately on Monday, contemporaneously with a formal exchange of the contract taking place
.
Please note that the purchase price of $5,300,000.00 has been inserted.”
The cheque enclosed with the letter was drawn by Monarth on its account with the State Bank at 260 Castlereagh Street, Sydney. The signatory on the cheque, on behalf of Monarth, was Ms Whitbread, who was a director of the company.
· As was foreshadowed in Blake Dawson Waldron’s letter, Minter Ellison, in a letter dated 16 May 1994, requested a bank cheque for the sum of $545,000.
· By letter dated 17 May 1994, Blake Dawson Waldron wrote to Minter Ellison forwarding three bank cheques totalling $545,000 “in replacement of the company cheque provided to you on 13 May 1994”. Each bank cheque was dated 17 May 1994. One bank cheque was drawn by the Australia and New Zealand Banking Group Ltd (“ANZ”) and was for $190,000; the second was drawn by the State Bank of New South Wales (“State Bank”) and was for $200,000; the third was also drawn by the State Bank and was for $155,000.
· By facsimile to Blake Dawson Waldron dated 16 November 1994, Minter Ellison served notice of termination of the contract between CML and Vanfair and Monarth, on the ground that the purchasers had failed to comply with a notice to complete. The notice purported to terminate the contract and to forfeit the deposit, except so much as exceeded 10 per cent of the purchase price. It further purported to hold any other money paid by the purchaser under the contract as security for anything recoverable by the vendor under the contract or pursuant to a claim for breach of contract.
· By letter dated 1 December 1994, Minter Ellison wrote to the solicitors for the trustee confirming that, of the 20 per cent deposit paid by Vanfair and Monarth, $530,000 or one-half, had been forfeited, and that the balance was being held as security for any loss on resale. Minter Ellison then undertook that it would only disburse the 20 per cent deposit paid under the Monarth/Vanfair contract to CML, and would give the trustee seven days notice of its intention to disburse any of the security portion to Monarth and Vanfair.
· On 18 November 1994 and 7 December 1994, Minter Ellison remitted the 20 per cent deposit under the Monarth/Vanfair contract to CML in two transfers, each of $530,000. By facsimile dated 6 January 1995, Minter Ellison wrote to Blake Dawson Waldron:
“We refer to your letter of 5 January 1995.
As previously advised, the contract for sale has been terminated. The notion of proceeding to completion is therefore inappropriate since the contract is at an end.
If those that you represent wish to make an offer to purchase the property, then they should do so in writing and as soon as possible.”
· In April 1995, litigation took place in the Common Law Division of the Supreme Court of New South Wales between Monarth and Ms Anastopoulos as plaintiffs and CML as defendant.
· By short minutes of order, dated 10 April 1995, the Supreme Court made orders by consent, inter alia, that there be judgment for possession of the subject premises in favour of CML against the plaintiffs. The Court noted the agreement of the parties on a number of matters related to the proposal to settle the purchase, by Monarth and Vanfair, of the Windsor Tavern property, for the sum of $5.3 million. Clause 2 of the agreement was in these terms:
“2. Monarth and the Purchaser on the one hand and CML on the other shall engage in bona fide negotiations with each other to settle the terms of a contract for sale of the land (with a view to the said contract being exchanged within 49 days from today), within the following parameters:
(i) the purchase price shall be $5.3m.
(ii) there shall be no deposit.
(iii) completion of the contract will take place on or before a date 91 days from today.
(iv) the sale shall be subject to such tenancies as are notified to CML by Monarth.
(v) upon completion the purchase price may be satisfied as to the sum of $1,060,000 by the delivery of a deed executed by Vanfair, Monarth and Votraint No 849 Pty Limited releasing their respective rights to receive back or make any claim in relation to the deposit of $1,060,000 paid by Vanfair and Monarth under a contract dated 13 May 1994 with CML, make any other claim in relation to that contract.
(vi) the vendor will be CML.
(vii) the Purchaser will be the purchaser.
(viii) the contract shall be entered into in the form of the 1992 edition of the contract for sale of land approved by the Law Society of New South Wales and the Real Estate Institute, with such amendments and alterations:
(a) as shall be necessary to give effect to the provisions of this agreement.
(b) as place the Purchaser under the contract in a position no less favourable than the purchaser was under the terms and conditions of the contract dated 13 May 1994.
(c) as shall otherwise be agreed upon by the Purchaser.”
· On 1 May 1995, Cedrim was registered as a company. The shares were allotted on 26 May 1995 to Ms Anastopoulos and to a Ms Sivell (whom the primary Judge regarded as the same person as Ms Whitbread).
· By contract dated 5 June 1995, Cedrim entered into a contract with CML to purchase the Windsor Tavern property for the sum of $5.3 million. No provision was made in the contract for sale for the payment of any deposit. By letter dated 26 June 1995, Proctor Phair & Associates, solicitors acting for Cedrim, wrote a letter in these terms:
“We refer to the above matter and are instructed that the shareholding of Cedrim Pty Limited and Monarth Pty Limited is identical.
As at the 1st June 1995 all the assets of Monarth Pty Limited have been transferred to Cedrim Pty Limited. The directors’ loan of $503,529 and $197,00 have also been transferred to Cedrim Pty limited.
The deposit of 20% payable under the contract for sale between Cedrim Pty Limited and [CML] for the property at 48 Park Street, Sydney, is presently being held in the trust account of Minter Ellison, solicitors for the vendor [CML].”
· On 5 August 1995, Monarth gave up possession of the basement and part of the ground floor of the Windsor Tavern property. Cedrim did not complete the purchase of the property. In the exercise of the power of sale under the mortgage granted by the bankrupt, CML, by transfer dated 8 November 1995, transferred the property to Policy Pty Ltd, a party not connected with the bankrupt, for a consideration of $5,540,000.
· The present proceedings were instituted by an application filed on 27 September 1995.
· The hearing before the primary Judge commenced on 6 August 1997.
THE PLEADED CASE
The facts that we have set out were substantially in accordance with the case pleaded by the trustee. In addition, the trustee pleaded as follows:
“24. The money used by Theodore Morris to purchase the three bank cheques was, at the date of the sequestration order, (23 November 1993), the property of Theodore Morris within the meaning of section 58 of the Bankruptcy Act which vested in Max Donnelly as trustee of the bankrupt estate of Theodore Morris on the date on which the sequestration order was made.
25. Theodore Morris did not disclose the existence of the money used by him to purchase the three bank cheques to Max Donnelly and did not account to Max Donnelly for that money.
26. In the circumstances the three bank cheques were purchased with money, the property of the bankrupt which vested in Max Donnelly as his trustee in bankruptcy on 23 November 1993.
27. In the circumstances, Theodore Morris had no title to the three bank cheques to pass to Colonial Mutual or its solicitors, Minter Ellison Morris Fletcher.”
...
34. By virtue of the matters particularised in paragraph 19 to 33 above, Colonial Mutual has no entitlement to retain $545,000 being that part of the deposit paid under the Monarth Vanfair contract, later applied to the Cedrim contract which was the subject of the three bank cheques.
35. Colonial Mutual has failed and refused to refund the $545,000, the subject of the three bank cheques, to Max Donnelly in his capacity as trustee of the bankrupt estate of Theodore Morris.
36. In the circumstances, Colonial Mutual has unlawfully detained and or converted the $545,000 to its own use.”
The trustee pleaded two further causes of action. The first of the alternatives was a claim that the provision of the three bank cheques by the bankrupt to Monarth was a “settlement of property” within s 120 of the Bankruptcy Act. Since (so it was alleged) the settlement was not made in favour of a purchaser, in good faith for valuable consideration, it was void as against the trustee. The second alternative cause of action was pleaded under s 37A of the Conveyancing Act 1919 (NSW). The trustee alleged that the provision of the three bank cheques by the bankrupt to Monarth was an alienation of property with intent to defraud his creditors and was voidable pursuant to s 37A. The primary Judge did not consider it necessary to deal with these alternatives and nothing turns on them.
The principal forms of relief ultimately sought by the trustee were as follows:
“6. A declaration that [CML and/or its solicitors], hold $545,000, being the deposit paid pursuant to -
a. the contract for sale date 13 May 1994 made between [CML] as a vendor and Vanfair...and Monarth pursuant to which Monarth and Vanfair agreed to purchase the Windsor Tavern;
or alternatively pursuant to
b. the contract for sale dated 5 June 1995 made between [CML] as vendor and Cedrim...pursuant to which Cedrim agreed to purchase the Windsor Tavern
(‘the deposit money’) on trust for the [trustee].
7. An order that [CML] pay the deposit money to the [trustee].”
The Legislation
The relevant provisions of the Bankruptcy Act are these:
“58(1)Subject to the Act, where a debtor becomes a bankrupt:
(a) the property of the bankrupt, not being after-acquired property, vests forthwith in the Official Trustee or, if, at the time when the debtor becomes a bankrupt, a registered trustee becomes the trustee of the estate of the bankrupt by virtue of section 156A, in that registered trustee....
...
81(1) Where a person (in this section called the relevant person) becomes a bankrupt, the Court or a Registrar may at any time (whether before or after the end of the bankruptcy), on the application of:
(a) a person (in this section called a creditor) who has or had a debt provable in the bankruptcy;
(b) the trustee of the relevant person’s estate; or
(c) the Official Receiver;
summon the relevant person, or an examinable person in relation to the relevant person, for examination in relation to the bankruptcy.
(2) An examination under this section shall be held in public.
...
(11) A person being examined under this section shall answer all questions that the Court, the Registrar or the magistrate puts or allows to be put to him or her.
(11AA) Subject to any contrary direction by the Court, the Registrar or the magistrate, the relevant person is not excused from answering a question merely because to do so might tend to incriminate the relevant person.
...
(15) The Court, the Registrar or the magistrate, as the case may be, may cause such notes of the examination of a person under this section to be taken down in writing as the Court, the Registrar or the magistrate, as the case may be, thinks proper, and the person examined shall sign the notes.
(17) Notes taken down and signed by a person in pursuance of subsection (15), and the transcript of the evidence given at the examination of a person under this section:
(a) may be used in evidence in any proceedings under this Act in which the person is a party; and
(b) ...”.
“255(1) A transcript or magnetic recording that purports to be a record of proceedings under section..., or of proceedings before a court, is to be taken to be a record of that kind, unless the contrary is proved.
(2) The transcript or recording is admissible as evidence of the matters described by a person whose words are recorded in the transcript or recording, unless the Court or a court in which the transcript is sought to be introduced, makes an order to the contrary.”
It should be noted that s 255 in the form reproduced above, was inserted into the Bankruptcy Act by the Bankruptcy Legislation Amendment Act 1996 (Cth) (the “Amendment Act”), which came into force on 16 December 1996: see Re Schofield; Ex parte Rangott v P & B Barron Pty Ltd (1997) 143 ALR 185 (FCA/Finn J), at 188-190. Prior to the Amendment Act coming into force, s 255 provided, insofar as relevant, as follows:
“255(9)Where evidence given by a person before the Court, the Registrar or a magistrate is admissible in proceedings under this Act, the evidence may be proved by the production of a transcript of the evidence, being a transcript certified, or certified, signed and sealed, as prescribed.”
The Amendment Act also removed from s 81(17) the following words, which appeared after the words “under this section”:
“(being a transcript certified, or certified, signed and sealed, in pursuance of section 255)”.
THE PRIMARY JUDGE’S REASONS
The Evidentiary Ruling
In the course of the proceedings before the primary Judge, the trustee tendered the transcript of the examination of the bankrupt conducted under s 81 of the Bankruptcy Act. The transcript recorded that the bankrupt, after considerable prevarication, admitted that he had purchased the three bank cheques and had done so for cash. It also recorded his explanation that the cash had been provided by his fourteen year old daughter and his sister, and the cross-examination on that explanation. The trustee relied on s 81(17) of the Bankruptcy Act to support the tender of the transcript, which was opposed by CML. His Honour delivered a separate judgment on the admissibility of the transcript.
His Honour pointed out that s 81(17) of the Bankruptcy Act, in an earlier form, provided that the transcript of evidence could be used in evidence in any proceedings under the Bankruptcy Act against the person examined. However, in 1985, the subsection was amended to provide that the transcript can be used in any proceeding under the Bankruptcy Act in which the person examined is a party: see Bankruptcy Amendment Act 1985 (Cth), s 22. The trustee had submitted that s 81(17), in its post-1985 form, made the transcript of the bankrupt’s s 81 examination admissible not only as against the bankrupt but against CML.
The primary Judge held that the transcript was admissible against the bankrupt, as material in the nature of an admission by a party to the litigation. However, he rejected the trustee’s submission that the transcript was necessarily admissible against CML. His Honour said this:
“It may be, when the whole of the evidence is considered, that the material in the transcript, or part of it, may be relied upon by the [trustee] in seeking to make out the cause or causes of action against [CML]. That is a substantive question which is the ultimate issue in the proceedings and need not, of course, be addressed at this point. However, in my opinion, the operation of s 81(17)(a) is limited only. It will be noted that in its terms, s 81(17)(a) does not speak of admissibility of evidence, rather it speaks of the use of the transcript in evidence. These issues are different conceptually and in principle.
In my view, the purpose of s 81(17)(a) and its language, when taken literally, both serve to indicate that this provision is intended to ensure that there should be no bar or prohibition placed upon the legitimate use of a transcript in other proceedings. The policy underlying the provision is firstly, to eliminate any uncertainty that may be thought to arise, by reason of the circumstances that the examination was inquisitorial in nature and conducted compulsorily, which considerations might be thought to lead to possible limitations on the use to which such material could be put; and secondly, by the omission of the words which previously limited the use of the transcript against the person examined, to enable a more flexible and less rigid application of the evidence contained in the transcript, where that is appropriate.
[His Honour referred to Douglas-Brown v Furzer (1994) 13 ACSR 184 (S Ct WA/FC), and continued:]
I propose to admit the transcript into evidence as an admission made by [the bankrupt]. As I have said, the ultimate significance of this admission in the proceedings and in particular, its significance so far as any cause of action is sought to be made as against [CML], will depend upon the whole of the evidence and the submissions made in that connection. I say nothing about that matter at this stage.”
His Honour then rejected a submission by CML that the tender of transcript should be rejected, even as an admission by the bankrupt, by virtue of s 135 of the Evidence Act 1995 (Cth) (“Evidence Act”). That section empowers the Court to refuse to admit evidence if its probative value is substantially outweighed by the danger that the evidence might (inter alia) be unfairly prejudicial to a party. CML supported its submission by pointing to doubts, appearing on the face of the transcript, as to the credibility of some of the statements made there. His Honour considered it important to have regard to the context in which the tender was made:
”[The trustee] is virtually entirely dependent upon others for the provision of information and evidence in the pursuit of any proper claim that may be made in the winding up of the affairs of [the bankrupt]. Moreover, as has been noted, [the bankrupt] has not appeared at this hearing and none of the respondents, including [CML] itself, has indicated a willingness to give evidence. I do not think this is an appropriate situation for the application of s 135. In these circumstances, given the inevitable paucity of evidence or even information, I propose to admit the transcript on the limited basis earlier indicated.” (Emphasis added.)
The Principal Judgment
The primary Judge, after setting out the largely uncontroversial facts, considered the evidence relating to the circumstances in which the bank cheques were procured. His Honour set out at length the uncontradicted evidence of an officer of the ANZ, Ms Johnson, who testified that she was present when the bankrupt purchased for cash a bank cheque for $190,000 on 17 May 1990. His Honour also set out at length extracts from the bankrupt’s s 81 examination. As we have noted, in the course of that examination, the bankrupt admitted purchasing all three bank cheques for cash, but claimed that the cash had been provided by his daughter and his sister. His Honour observed that no evidence had been adduced from the State Bank to elucidate the circumstances in which the two bank cheques totalling $355,000 had been obtained.
On the basis of this evidence and certain evidence given by the trustee, his Honour made the following findings:
“In all the circumstances disclosed in the evidence, I think that an inference should be drawn, on the balance of probabilities, that [the bankrupt] and not members of his family, found the cash necessary to fund the purchase of the three bank cheques. This inference is supported by the circumstances that [the bankrupt] controlled the financial affairs of his family and that, through various entities, he controlled the disposition of substantial assets. The inference is also supported by Ms Johnson’s evidence.
I find that [the bankrupt] bought the three bank cheques from his own funds. In the absence of any suggestion that such a large amount could have been after-acquired property, I find that the funds in question were assets of [the bankrupt] at the time of the sequestration order. It appears that the probable source of the funds was his share of the proceeds of the Parramatta property. Although that transaction took place in 1992, it did generate substantial liquid funds and, on the evidence, appears to me to the probable source of the cash that was needed to buy the three bank cheques.”
Although par 36 of the statement of claim pleaded that the bank cheques had been converted, the primary Judge considered that the trustee’s claim was more appropriately seen as founded on restitution or unjust enrichment. This presented no pleading or natural justice problem, since the facts had been fully pleaded and the parties had had the opportunity to present argument on the doctrine of unjust enrichment.
His Honour took the view that, given the finding that the funds used to purchase the bank cheques were the property of the bankrupt, CML was liable, prima facie, to make good the amount received by it. He was prepared to assume, without deciding, that the defence of bona fide purchaser was available to a claim for what his Honour described as personal rather than proprietary restitution. On that assumption, the primary Judge was not satisfied that CML was a bona fide purchaser. On the contrary, it was well aware of the facts entitling the trustee to restitution. His Honour summarised the relevant circumstances as follows:
“First, CML, as I have said, made no attempt to call evidence to establish its position. Secondly, there is no explanation given of how it could make good its entitlement to the full 20 per cent deposit. There is no suggestion that either Monarth or Vanfair was repaid and, as has been seen, we know that, in November 1995, CML was able to sell the property to another party at an amount greater than that contracted for previously. Thirdly, by May 1994, if not much earlier, CML was well aware of the financial difficulties, indeed, at that stage, impossibilities, of Mr Morris and his former ‘empire’.”
Accordingly, his Honour entered judgment for the trustee against CML in the sum of $545,000.
Costs
The primary Judge delivered a brief judgment on costs, in which he ordered CML to pay 70 per cent of the trustee’s costs of the proceedings. He did not consider it appropriate to deal separately with costs in relation to CML’s motion to strike out the proceedings, questions of admissibility of evidence and the final hearing. His Honour pointed out each party had had a measure of success and failure on procedural and evidentiary points. In the circumstances, he thought that an order that CML pay 70 per cent of the trustee’s costs reflected “the reality of the success of the parties in an overall sense”.
ADMISSIBILITY OF THE S 81 TRANSCRIPT
The principal ground relied on by CML to attack the primary Judge’s findings was that his Honour erred in admitting into evidence, as against CML, the transcript of the bankrupt’s examination conducted under s 81 of the Bankruptcy Act. Mr Weber, on behalf of CML, pointed out that, although Ms Johnson had given evidence that the bankrupt had purchased with cash a bank cheque from ANZ for $190,000, there was no evidence, documentary or otherwise, to link the bankrupt with the purchase of the two bank cheques issued by the State Bank, other than the transcript of his s 81 examination. Mr Weber submitted that neither s 81(17) nor s 255 of the Bankruptcy Act authorised the primary Judge to admit the transcript into evidence against CML and that, indeed, the primary Judge had never specifically ruled that the transcript was admissible. In these circumstances, there was no foundation for the finding that the bankrupt had purchased the two bank cheques issued by the State Bank, let alone that he had purchased them with his own money.
Mr Weber was correct, in our view, in contending that, unless the transcript of the bankrupt’s examination was admitted into evidence, there was nothing to connect the bankrupt with the purchase of the two bank cheques acquired from the State Bank on 17 May 1994 and forwarded on that day to the solicitors for CML. The trustee adduced no documentary evidence of any written requests that may have been made to the State Bank for the issue of the two bank cheques. Nor was any officer from the State Bank called to explain the circumstances in which the bank cheques came to be issued. Thus, if the transcript of the bankrupt’s evidence should not have been admitted into evidence, the primary Judge could not have found that the two State Bank cheques were purchased by the bankrupt. A fortiori, no finding could have been made that the bankrupt had purchased those cheques with his own money.
Mr Weber rather faintly submitted that, even if the transcript of the bankrupt’s examination were correctly admitted into evidence, it did not establish that the bankrupt had purchased the two bank cheques for cash. It is true that the transcript records answers by the bankrupt that are confusing, evasive and self-serving. Nonetheless, it is clear enough that the bankrupt ultimately acknowledged that, in addition to purchasing the bank cheque for $190,000 drawn by the ANZ, he purchased two other bank cheques for cash, one in the sum of $200,000 and the second in the sum of $155,000. If correctly admitted into evidence as against CML, these statements by the bankrupt supported the primary Judge’s finding that the bankrupt had obtained all three bank cheques in return for cash. That finding, in turn, goes a long way towards supporting the inference drawn by the primary Judge, namely that the bankrupt had paid for the three bank cheques from his own funds.
Calling an Unfavourable Witness
Before considering whether the primary Judge wrongly admitted the transcript of the bankrupt’s examination into evidence against CML, we should observe that the trustee might well have adopted other means of proving that the bankrupt had purchased the two bank cheques from the State Bank (assuming that no evidence on that topic was available from the State Bank itself). Mr Lever, who appeared for the trustee, suggested that, from a practical forensic point of view, the trustee could not have contemplated taking the risky course of calling the bankrupt. He pointed out that the bankrupt could have been expected to be an unco-operative witness and, in the light of his s 81 examination, unreliable and unpredictable in giving evidence.
So much might be conceded. But Mr Lever’s suggestion tends to overlook the fact that the Evidence Act has considerably expanded the circumstances in which an “unfavourable witness” may be cross-examined by the party calling that witness. Section 38(1) of the Evidence Act provides as follows:
“A party who called a witness may, with the leave of the court, question the witness, as though the party were cross-examining the witness, about:
(a) evidence given by the witness that is unfavourable to the party; or
(b) a matter of which the witness may reasonably be supposed to have knowledge and about which it appears to the court the witness is not, in examination in chief, making a genuine attempt to give evidence; or
(c) whether the witness has, at any time, made a prior inconsistent statement.”
The party questioning the witness may also, with the leave of the Court, question the witness about matters relevant only to credit: s 38(3). In determining whether to give leave under s 38, the Court is to take into account whether the party gave notice at the earliest opportunity of the intention to seek leave: s 38(6).
Section 38 was intended to abrogate the pre-existing law relating to “hostile” witnesses: Australian Law Reform Commission, Evidence (Report No 26), vol 1, par 625. The courts have given effect to this intention by adopting a broad construction of s 38. For example, the word “unfavourable” in s 38(1)(a) has not been construed as meaning “adverse”, but merely “not favourable”: R v Souleyman (1996) 40 NSWLR 712 (S Ct NSW/Smart J), at 715; R v Lozano, 10 June 1997, NSW CCA, unreported, at 6, per Hunt CJ at CL (with whom Barr J agreed). As a consequence, a party calling a witness has been permitted to cross examine that witness in circumstances where such a course could not have been followed under the earlier law.
Had the trustee called the bankrupt and had the bankrupt denied purchasing the two State Bank cheques, the trustee would have been able to invoke s 38(1)(c) of the Evidence Act on any application for leave to cross-examine on that issue. It is unlikely that, having regard to the (hypothetically) prior inconsistent evidence given by the bankrupt during the s 81 examination, leave would have been denied. If the bankrupt, in the course of his evidence in chief, had persisted in his apparently far-fetched account that his fourteen year old daughter had provided the cash for one of the bank cheques, there is little doubt that such evidence would have been regarded as “unfavourable”. This would have opened the way to an application for leave to cross-examine under s 38(1)(a) of the Evidence Act. In short, it should not be assumed that the limitations imposed by the common law on a party cross-examining his or her own witness continue under the Evidence Act.
The Evidentiary Ruling
It must be said that the primary Judge’s approach to the admissibility of the s 81 transcript against CML presents some difficulties. In the separate judgment on the evidentiary question, his Honour ruled that the transcript was admissible only as against the bankrupt, but observed that the ultimate significance of the admissions made by the bankrupt for any cause of action against CML would depend on “the whole of the evidence and the submissions made in that connection”. However, in the course of the separate judgment, his Honour explicitly agreed with the following passage, concerning an analogous statutory provision, from the judgment of Malcolm CJ (with whom Ipp and Anderson JJ agreed) in Douglas-Brown v Furzer (at 194):
“At one stage in the argument a suggestion was canvassed that s 597(14) [of the Corporations Law], which provides that a written record signed by the person examined or an authenticated transcript ‘may be used in evidence in any legal proceedings against the person’, imported a discretion on the part of the court to include a direction to the contrary in the order for the examination. In my opinion, the provision is facilitative only and does no more than provide that both a signed written record and an authenticated transcript may be used in evidence in any legal proceedings. The provision does not confer any relevant discretion on a court to determine at the stage of making the order for examination whether or not the record or transcript is admissible. The provision does not have the effect that the whole of the record or transcript is necessarily admissible as evidence in the court or tribunal before which it is sought to be used in other legal proceedings. Clearly, it would be for that court or tribunal to determine whether all or any part of the record or transcript was admissible according to the ordinary rules of evidence: Re Norman Baker Pty Ltd (1981) 6 ACLR 257 at 260-1; (1982-83) 1 ACLC 79 at 81-82 per Brinsden J (with whom Burt CJ and Jones J agreed). In my opinion, s 597(14) simply has nothing to say on the subject of admissibility. It is concerned only with proof of the answers in other legal proceedings. The question of admissibility, including any question of relevance or oppression, is a matter for the court or tribunal in those other proceedings.” (Emphasis supplied by the primary Judge.)
The primary Judge’s approval of the reasoning in Douglas-Brown v Furzer indicates that he took the view that s 81(17) of the Bankruptcy Act was merely “facilitative” and conferred no relevant discretion to admit an authenticated transcript of the s 81 examination. Rather, the admissibility of the transcript depended on the “ordinary rules of evidence”.
The ordinary rules of evidence permit an admission by a party to proceedings to be tendered as evidence against that party. However, those rules do not usually allow an admission by one party to be used against another party to the same proceedings who has not authorised or adopted the admission. His Honour did not explain in the separate judgment on what basis the transcript of the bankrupt’s s 81 examination could have been admissible against CML. In particular, he made no reference to s 255 of the Bankruptcy Act and did not suggest that that section might be the source of the Court’s power to admit the transcript of the matters stated therein, as evidence against CML. It may well be that the absence of any such reference in his Honour’s judgment is attributable to the fact that, although the trustee made passing references to s 255 in submissions, he did not explicitly contend that s 255, as amended in 1996, empowered the Court to admit the transcript against CML. Be that as it may, the separate judgment delivered by the primary Judge did not explain the criteria he would later take into account in determining whether or not to admit the transcript against CML.
In the principal judgment, the primary Judge plainly intended to admit the transcript of the bankrupt’s s 81 examination against CML as evidence of its contents. He quoted at length from the transcript and clearly relied on it in order to make the crucial finding that the bankrupt procured the three bank cheques, including the two obtained from the State Bank, in return for cash payments. His Honour also specifically rejected the explanation put forward by the bankrupt in his s 81 examination, that the cash used to acquire the bank cheques had been made available to him by his daughter and his sister. However, his Honour gave no reasons for his decision to admit the transcript into evidence against CML and to rely on it when making findings of fact.
The Need for Reasons
It was common ground between the parties on the appeal that the admissibility of the transcript was a vigorously contested issue at the trial. The giving of reasons is, of course, a normal incident of the judicial process: Pettitt v Dunkley [1971] 1 NSWLR 376 (NSW CA); Bourke v Beneficial Finance Corporation Limited (1993) 47 FCR 264 (FCA/FC), at 280. This does not mean that a judge must make an express finding in respect of every fact relevant to the ultimate conclusion; it is necessary only to apprise the parties of the essential ground or grounds of the decision: Soulemezis v Dudley (Holdings) Pty Ltd (1987) 10 NSWLR 247 (NSW CA), at 271, 280, per McHugh JA. The courts have also recognised that reasons need not always be given in relation to procedural matters: Housing Commission of New South Wales v Tatmar Pastoral Co Pty Ltd [1983] 3 NSWLR 378 (NSW CA), at 386, per Mahoney JA.
Evidentiary rulings are often required in the course of a trial. They usually must be given with little opportunity for reflection. It would impose an undue burden on trial Judges, and impede the orderly conduct of litigation, if detailed reasons were required for every such ruling. It will obviously be appropriate in many cases for the Judge simply to indicate whether or not the tendered material is admissible, perhaps with the very briefest statement of the ground for the ruling.
In this case, however, the admissibility of the transcript of the bankrupt’s s 81 examination was not only vigorously contested, but it went to the heart of the trustee’s case. If the transcript were admitted against CML as truth of its contents, the trustee had filled what was otherwise a critical gap in the evidence. If the transcript were rejected as evidence against CML, as we have already explained, the trustee could not have established against CML that the bankrupt had purchased the two bank cheques acquired from the State bank, nor that he had paid cash for them. Furthermore, the primary Judge had specifically stated in the separate judgment that he proposed to admit the transcript only against the bankrupt and that he would consider the question of admissibility against CML at a later stage in the proceedings. He said he would do so in the light of further submissions.
It may be that his Honour gave no reasons in the principal judgment for admitting the transcript as evidence against CML because he considered that the reasons could be implied from his earlier judgment or, perhaps (although Mr Lever did not suggest that this was the case) from the course of argument. But the absence of reasons meant that the source of the Court’s power to admit the transcript against CML was never specified. It also meant that the factors taken into account by his Honour, in the exercise of any discretion available to him, were neither identified nor explained. CML, as a party to the litigation, was therefore not informed of a critical aspect of the Court’s reasoning process in support of the ultimate conclusion in the proceedings: cf Commonwealth v Pharmacy Guild of Australia (1989) 91 ALR 65 (FCA/FC), at 88, per Sheppard J; Apps v Pilet (1987) 11 NSWLR 350 (NSW CA), at 353, per Kirby P. The fact that the ruling was on an evidentiary issue does not detract from this conclusion: cf Webb v The Queen (1995) 13 WAR 257 (S Ct WA/FC) (where it was held that the trial Judge was obliged to give reasons at the conclusion of a voir dire concerning the admissibility of confessional evidence). It follows, in our opinion, that in the unusual circumstances of this case, the absence of reasons for the decision to admit the s 81 transcript as evidence against CML constituted an error of law.
Admissibility of the Transcript: s 255
Both Mr Weber and Mr Lever asked the Court, if it formed the view that the primary Judge had erred in law, not to send the matter back for a retrial, but to resolve any outstanding issues. In the interests of achieving finality in the litigation and of minimising costs, this is the appropriate course. Accordingly, we have considered afresh whether the transcript of the bankrupt’s s 81 examination should have been admitted into evidence against CML. In our view, s 255 of the Bankruptcy Act, but not s 81(17) of that Act, empowers the Court to admit the transcript into evidence against CML, as evidence of the matters stated therein. We will state our reasons for this conclusion and for holding that the transcript should have been admitted.
In our opinion, the primary Judge was correct in holding that s 81(17) was not intended to provide for the admissibility of a transcript of an examination in subsequent proceedings as evidence of the matters stated therein. The sub-section was merely intended to remove a barrier that otherwise might have prevented a transcript of a s 81 examination being received in evidence, if otherwise admissible, for example, as an admission. As the primary Judge pointed out, a s 81 examination is inquisitorial in nature and is conducted under powers of compulsion. But for a provision such as s 81(17), these circumstances might have led to restrictions on the use that could have been made of the transcript in other proceedings under the Bankruptcy Act. Like s 597(14) of the Corporations Law, considered in Douglas-Brown v Furzer, s 81(17) does not explicitly address the question of admissibility of a s 81 transcript in subsequent proceedings. The admissibility of such a transcript must be determined by reference to the law of evidence, including any statutory provisions bearing on the question.
In addition to removing a barrier to the admissibility of a s 81 transcript in subsequent proceedings, s 81(17) imposes an important restriction on the use of such a transcript. Section 81(17) provides that a transcript may be used in proceedings under the Bankruptcy Act in which the examinee is a party. Although not framed negatively, the evident intention of s 81(17) is to restrict the use of transcripts, if otherwise admissible, to the proceedings identified in the sub section. As Finn J remarked in Re Schofield, at 189, s 81(17) reflects a longstanding Parliamentary intention that the use of a transcript of an examination in later proceedings should be “quite circumscribed”. Section 81(17), in its current form, is less restrictive than its predecessor, since the transcript is not now limited to use against the examinee. Nonetheless, it continues to reflect the longstanding Parliamentary intention to which Finn J referred.
Until the new s 255 was inserted into the Bankruptcy Act in 1996, the legislation simply did not provide for the admissibility into evidence of the transcript of a s 81 examination. In its earlier form, s 255(9) merely provided for the means by which a transcript of evidence, if otherwise admissible, could be proved. It follows that the admissibility of such a transcript fell to be determined by the general law of evidence, including the rules governing the admissibility of hearsay evidence. However, s 255(2) now provides that the transcript of an examination under s 81 “is admissible as evidence of the matters described by a person whose words are recorded in the transcript”, unless the court makes an order to the contrary.
In our view, this provision was intended to make the transcript of evidence admissible as evidence not merely of the words spoken by the examinee, but of the matters described by the examinee in his or her evidence. If there were any doubts that this was the intended effect of the sub-section, they are resolved by the Explanatory Memorandum accompanying the 1996 Bill. The Memorandum (par 182.2) states that the
“provision is designed to overcome the common law rules excluding hearsay evidence, and to enable evidence given at examinations and recorded interviews to be put on the record in proceedings in a court without the need for witnesses to repeat their account of events.”
This does not mean that the contents of a transcript of a s 81 examination are automatically admissible in subsequent proceedings. First, s 255(2) itself provides that the court in which the transcript is sought to be introduced may make an order to the contrary. Secondly, s 255(2) must be read together with s 81(17). As we have said, s 81(17) is intended, in part, to impose a restriction on the use to which a s 81 transcript can be put in subsequent proceedings. Thus the apparently broad terms of s 255(2) must be qualified so as to make a s 81 transcript admissible (subject to the power of the court to make an order to the contrary) only in proceedings under the Bankruptcy Act to which the examinee is a party.
Applicability of s 255 to the Present Proceedings
Section 255 in its current form came into force after the trustee commenced the present proceedings, but before the trial. It is clear that s 255(2) applied to the tender of the transcript of the bankrupt’s s 81 examination in the present proceedings. The amendment brought about by the enactment of s 255(2) concerned the practice and procedure of courts and was not within the presumption against retrospectivity: Rodway v The Queen (1990) 169 CLR 515, at 521, per curiam. As the Court said in Rodway, no-one has a vested right in any form of procedure, including the rules governing admissibility of evidence and the effect to be given to evidence.
We should add that there was no dispute, either at the trial or on appeal, that the proceedings brought by the trustee were “proceedings under [the Bankruptcy Act]”, for the purposes of s 81(17) of the Bankruptcy Act: see Bankruptcy Act, s 31(1)(f). Thus the admissibility of the transcript of the bankrupt’s s 81 examination falls to be determined under s 255(2) of the Bankruptcy Act.
Should the Transcript Have Been Admitted Against CML?
Section 255(2) of the Bankruptcy Act, as has been seen, provides that the transcript of the bankrupt’s s 81 examination is admissible in the present proceedings unless the Court makes an order to the contrary. Section 255(2) does not specify the matters that are to be taken into account in determining whether the Court should make “an order to the contrary”. Nor does the sub-section address, in terms, the relationship between the Court’s power to make a contrary order and the provisions of the Evidence Act. These questions were not the subject of argument.
CML submitted that the probative value of transcript of the s 81 examination, as against it, was substantially outweighed by the danger that the evidence might be unfairly prejudicial to it. In those circumstances, Mr Weber contended that the Court should exercise its discretion under s 135 of the Evidence Act to refuse to admit the evidence. Alternatively, he submitted that the Court should limit the use to be made of the evidence, by allowing it to be used only against the bankrupt, pursuant to s 136 of the Evidence Act (which permits the Court to limit the use to be made of evidence if there is a danger that a particular use might be unfairly prejudicial).
In the absence of argument concerning the relationship between s 255(2) of the Bankruptcy Act and the provisions of the Evidence Act, we are content to assume that circumstances warranting the exclusion of evidence under ss 135 and 136 of the Evidence Act justify (if not require) the Court to exclude evidence otherwise admissible under s 255(2). Making that assumption, which accords with the submissions made by CML, we think that the transcript of the bankrupt’s evidence nonetheless should have been admitted into evidence against CML.
The unfair prejudice relied on by CML in the present case is based on the failure of the trustee to call the bankrupt, while seeking to rely on the bankrupt’s evidence in the examination under s 81 of the Bankruptcy Act. The critical evidence given by the bankrupt in the course of his examination was that he obtained all three bank cheques in return for cash. The trustee did not need that evidence in relation to the ANZ cheque, because Ms Johnson was able to give a firsthand account of the particular transaction. She was able to do so because, as it happened, she filed a contemporaneous report concerning the transaction, a fact that became known when the ANZ produced documents in response to a subpoena issued by the trustee. No similar documentary evidence was produced on subpoena by the State Bank.
While much of the evidence given by the bankrupt in the course of his examination appears to have been self-serving and improbable, there is little reason to doubt the probative value of his evidence that he had purchased all three bank cheques for cash. On the contrary, the bankrupt’s striking reluctance to make the admissions strongly suggests that his evidence on this issue was reliable. As the primary Judge remarked when ruling that the transcript of the bankrupt’s evidence could be admitted against him, the trustee was virtually entirely dependent on others for the information and evidence necessary to establish his case. It is true, as we have pointed out, that the trustee would have encountered fewer forensic hazards than he apparently expected, had he called the bankrupt to give direct evidence of the purchase of the cheques. But CML adduced no evidence on this or any other issue. It was open to CML to call the bankrupt or members of his family if it wished to adduce direct evidence of the source of funds used to acquire the bank cheques. Just as the trustee could have taken advantage of s 38 of the Evidence Act in appropriate circumstances, so could CML. While there is no particular reason to think that the bankrupt or, for that matter, members of his family would have been sympathetic to CML’s cause, they are unlikely to have been more sympathetic to the trustee.
In these circumstances, we do not think that CML has made out a case for the exercise of the Court’s discretion under either s 135 or s 136 of the Evidence Act. Some of the evidence sought to be adduced through the transcript was of considerable probative value and was not readily available from other sources. Much of the remaining evidence, such as the bankrupt’s account of the sources of the cash, was, to say the least, of dubious probative value. But that evidence, if accepted, was unfavourable to the trustee and favourable to CML. Accordingly, the appropriate course was to admit the whole of the transcript against CML pursuant to s 255(2) of the Bankruptcy Act.
FURTHER SUBMISSIONS
Mr Weber made a number of further submissions on behalf of CML. In our opinion, each is without substance and can be dealt with briefly. We will also deal briefly with a submission on costs made by the trustee.
The “Logical Flaw”
Mr Weber submitted that the primary Judge’s reasoning contained a “logical flaw”. This was said to be that his Honour, having rejected the bankrupt’s evidence that the source of the cash was his daughter and sister, had impermissibly assumed that the bankrupt himself had supplied the cash from his own resources. As Mr Weber pointed out, the fact that a witness is not accepted on an issue does not necessarily establish that the opposite of what the witness says is correct: cf Steinberg v Federal Commissioner of Taxation (1975) 134 CLR 640, at 694, per Gibbs J.
The primary Judge’s conclusion about the source of the cash for the purchase of the bank cheques did not rest on a logical flaw of the kind identified by Mr Weber. His Honour drew an inference from all the circumstances disclosed in the evidence. Those circumstances included that the bankrupt had personally purchased the three bank cheques and had paid cash for them; that he had controlled the financial affairs of his family and the various entities comprising his “empire”; that the bankrupt had an interest in (whether or not he controlled) at least one of the companies named as a purchaser in the first contract of sale, and that there was no evidence of any claims having been made by the bankrupt’s daughter or sister to the portion of the deposit not forfeited by CML. (In relation to the last point, the bankrupt’s daughter and sister were joined as parties to the proceedings, yet filed no cross-claims asserting an entitlement to the money.) In our opinion, in the absence of any other evidence, the primary Judge was entitled to infer that the bankrupt had supplied the cash for the bank cheques from his own funds. His Honour was entitled to reject the account as to the source of the funds, given by the bankrupt in his s 81 examination, as inherently improbable, notwithstanding that the evidence was not directly contradicted by witnesses called by the trustee: see Cole v The Commonwealth [1962] SR (NSW) 700 (NSW S Ct/FC), at 704, per Else-Mitchell J; Re Gear (Dec’d) [1964] Qd R 528 (S Ct Qd/FC), at 534-535, per Hart J.
Mr Weber criticised the primary Judge for making a finding that the “probable source of the funds was [the bankrupt’s] share of the Parramatta property”. That finding was not necessary to the conclusion that the bankrupt provided the cash for the purchase of the bank shares. The significance of the Parramatta transaction was that it demonstrated that the bankrupt had substantial cash available to him, from which the payment for the bank cheques could have been made had he so desired. This, in turn, added further support to the inference drawn by the primary Judge. It is not necessary to consider whether the specific finding made by the primary Judge, that the money came from the sale of the Parramatta property, was warranted. Even if it was not, it made no difference to the ultimate finding.
Parties
CML sought leave to file an amended notice of appeal, specifying as a ground of appeal that the primary Judge had erred in refusing to strike out the proceedings against all parties other than CML. No written submissions were filed in support of this ground. However, Mr Weber submitted that the trustee’s joinder of the bankrupt, Ms Morris (his daughter) and Ms Anastopoulos (his sister) was an abuse of process, designed only to provide a mechanism for securing the admission of the transcript of their s 81 examinations into evidence pursuant to s 81(17) and s 255 of the Bankruptcy Act.
Mr Weber did not direct the Court to any evidence which lent support to the abuse of process argument. Nor did he refer to authorities which provide guidance as to the circumstances in which a person should be joined as a party, or in which a person joined should remain a party. These were canvassed by a Full Court of this Court in News Ltd v Australian Rugby Football League Ltd (1996) 64 FCR 410 (FCA/FC), at 523-525.
In our opinion, nothing has been shown to suggest that his Honour erred in declining to remove the bankrupt, Ms Morris and Ms Anastopoulos as parties to the proceedings. On the basis of the s 81 transcripts, it was clear that claims were being made by the bankrupt and by Ms Morris and Ms Anastopoulos that the funds for the bank cheques were provided by Ms Morris and Ms Anastopoulos. The declaration sought by the trustee plainly affected their rights, in the sense that it was inconsistent with the claims they put forward or which the bankrupt put forward on their behalf. So far as the bankrupt is concerned, the trustee’s case rested on serious allegations against the bankrupt which, if established in criminal proceedings, would expose him to a penalty of imprisonment: see: Bankruptcy Act, s 265(1). Indeed, one of CML’s written submissions was to the effect that the primary Judge had failed to require clear and cogent proof of the trustee’s allegations, having regard to the fact that, if the allegations were true, then “[the bankrupt], his daughter and his sister had committed offences under the Bankruptcy Act”. In these circumstances, it was not an incorrect exercise of the Judge’s discretion to permit the bankrupt, Ms Morris and Ms Anastopoulos to continue as parties to the proceedings.
Standard of Proof
Mr Weber submitted that the primary Judge had erred in failing to apply the correct standard of proof. In written submissions, he contended that, in the circumstances of the present case, the civil standard of proof required “cogency of proof without doubt”. The well-known authorities, which are conveniently referred to in Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 110 ALR 449 (H Ct), do not support any such proposition. The primary Judge clearly bore the correct principles in mind, as shown by his citation of passages from the joint judgment in Neat Holdings. We, too, have borne those principles in mind in considering whether his Honour erred in finding that the bankrupt had supplied the funds for the bank cheques from his own moneys.
Financial Transactions Report Act
The primary Judge admitted into evidence, without objection, annexures to the affidavit of Ms Johnson, including a report on a “suspect transaction” made by her under the Financial Transaction Reports Act 1988 (Cth) (the “FTR Act”). That report, which was made to the Director of AUSTRAC (the Australian Transaction Reports and Analysis Centre), recounted the circumstances of the transaction by which the bankrupt purchased a bank cheque for $190,000 from the ANZ. Section 16(5D) of the FTR Act provides as follows:
“(5D) In any legal proceeding other than a prosecution for an offence against subsection 29(1) or 30(1):
(a) none of the following is admissible in evidence:
(i) a report prepared (whether before or after the commencement of this subsection) under subsection (1);
(ii) a copy of such a report;
(iii) a document purporting to set out information contained in such a report;
...
(b) evidence is not admissible as to:
(i) whether or not a report was prepared (whether before or after the commencement of this subsection) under subsection (1);
...”.
It is clear, as Mr Lever conceded, that evidence of the report made by Ms Johnson should not have been admitted into evidence. Nor should evidence have been admitted that Ms Johnson had made a report under the FTR Act. Doubtless, the evidence would not have been admitted had his Honour’s attention been directed to the relevant provisions of the legislation. However, nothing turns on the incorrect admission of this evidence, since the primary Judge did not rely on Ms Johnson’s report under the FTR Act in making his findings, but on Ms Johnson first-hand account of the transaction in which she participated.
Mr Weber submitted that the entirety of Ms Johnson’s evidence should have been excluded under s 16(5D)(a)(iii) of the FTR Act. In our view, s 16(5D)(a)(iii) is intended to exclude a document purporting to recount what has been said in a report under the FTR Act. That is, it is intended to supplement sub-pars (1) and (ii) of s 16(5D)(a), which exclude the report and any copy of the report, by making inadmissible secondary evidence of the contents of any report. The legislation is not intended to preclude a person giving direct evidence of what he or she saw or did, simply because some of that evidence happens to recount the same events referred to in a report under the FTR Act. Thus, the direct evidence given by Ms Johnson was not rendered inadmissible by s 16(5D)(a)(iii) of the FTR Act.
Bona Fide Purchaser
Mr Weber submitted that the trustee’s claim was to be regarded as an equitable tracing claim, to which a plea of bona fide purchaser for value was available as a defence. He challenged the primary Judge’s finding that CML had failed to establish that it was a bona fide purchaser in relation to the three bank cheques forwarded to it by the solicitors acting for the purchasers on 17 May 1994.
Mr Weber ultimately conceded that, if the trustee were to be regarded as making an equitable tracing claim, CML bore the onus of proving that it was a bona fide purchaser: see K Mason and J W Carter, Restitution Law in Australia (1995), par 2504. Once this concession is made, it is difficult to see how his Honour could have reached any conclusion other than the one he did. CML called no evidence to establish that the relevant officers were unaware that the bank cheques came or might have come from moneys of the bankrupt. Nor did CML provide any explanation for the unusual circumstance that the first contract of sale provided for the purchasers to pay a deposit of 20 per cent of the purchase price. Even if CML did not bear the onus of proof, that circumstance might well have warranted an inference (in the absence of other evidence) that CML was aware that the funds for the bank cheques might have been provided by the bankrupt from his own moneys. The evidence was consistent with CML understanding that it was dealing with entities associated with and perhaps controlled by the bankrupt. It was also not in dispute that CML was generally aware of the events surrounding the collapse of the bankrupt’s “former empire”, including the extent of the bankrupt’s debts.
Having regard to these circumstances, the trial Judge’s finding on the bona fide purchaser issue is not open to challenge.
Costs
The trustee challenged the costs order made by the primary Judge. He did so by way of a notice of contention, supplemented by written submissions. No procedural point was taken about the use of a notice of contention for this purpose: cf FCR O 52, r 22(3); Hannpost Pty Ltd v MITA Copiers Australia Pty Ltd (1996) 137 ALR 701 (FCA/FC), at 712, per Branson J.
In his written submissions, the trustee argued that CML’s motion to strike out the proceedings had been largely unsuccessful and that his Honour had given insufficient weight to the degree of success enjoyed by the trustee. The trustee also submitted that CML’s failure to call any evidence should lead to an order for indemnity costs against it. These contentions were not developed in oral argument.
In our view, no error of principle has been shown that would vitiate the exercise of his Honour’s discretion on costs. CML’s strike out application took some time to determine and it succeeded, at least in part, on that application. It was a matter for his Honour to determine what allowance should be made for CML’s success and for the trustee’s decision not to pursue some of the relief sought in the statement of claim. Similarly, the failure of CML to call evidence did not, of itself, require the primary Judge to award costs to the trustee on an indemnity basis. Accordingly, there is no basis for interfering with his Honour’s order as to costs.
CONCLUSION
The appeal should be dismissed. Having regard to the trustee’s unsuccessful argument on costs, CML should pay 90 per cent of the trustee’s costs of the appeal.
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I certify that this and the preceding twenty-nine (9) pages are a true copy of the Reasons for Judgment herein of the Court. |
Associate:
Dated: 15 April, 1998
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Counsel for the Appellant: |
Mr R. Weber |
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Solicitor for the Appellant: |
Minter Ellison |
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Counsel for the Respondent: |
Mr F.G. Lever |
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Solicitor for the Respondent: |
Swaab Associates |
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Date of Hearing: |
16 March, 1998 |
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Date of Judgment: |
15 April, 1998 |
