FEDERAL COURT OF AUSTRALIA

Wenkart v Pantzer [2003] FCA 315

BANKRUPTCY – trustee’s remuneration and costs – annulment of bankruptcy – effect of consent orders vesting in trustee a charge over property.

Bankruptcy Act 1966 (Cth) s74

National Trustees Executors and Agency Co of Australasia Ltd v Barnes (1941) 64 CLR 268

Re Macks;  Ex parte Saint (2000) 204 CLR 158

Harvey v Phillips (1956) 95 CLR 235

Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537

THOMAS RICHARD WENKART V WARREN PANTZER

NO. N 7051 OF 2002

BEAUMONT J

9 APRIL 2003

SYDNEY

THE COURT ORDERS THAT:

1.                  The separate question ordered on 27 March 2003 be answered as follows:

Q:        Do the matters relied upon by the applicant in pars 1 – 20 of his notice of intention to oppose the respondent’s application made by his notice of motion filed on 31 October 2002, constitute an answer to the respondent’s application?

A:         The matters stated in pars 1 – 17 of the applicant’s notice of intention to oppose do not constitute any such answer;  and the matters stated in pars 18 – 20 do not purport to make such answer.

2.         The applicant pay the respondent’s costs of the separate question.

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

REASONS FOR JUDGMENT

(ON THE EFFECT OF THE ANNULMENT OF THE BANKRUPTCY UPON SECURITY PROVIDED TO SECURE THE TRUSTEE’S REMUNERATION)

BEAUMONT J:

Introduction

1                     The applicant’s estate was sequestrated by order made on 28 October 1999.  The respondent was appointed the Trustee in bankruptcy.  By force of the provisions of s 74(5) of the Bankruptcy Act 1966 (“the Act”), the bankruptcy was annulled on 15 March 2002, upon the passing of a special resolution at a meeting of creditors.  (Section 74(5) provides that upon the passing of such a resolution, “the bankruptcy is annulled, by force of [s 74(5)], on the date on which the special resolution was passed”).

2                     On 11 March 2002, that is, shortly before this resolution was passed, the Court made orders in these terms:

“1.       Warren Pantzer as Trustee of the estate of Thomas Richard Wenkart may recover his remuneration, costs, charges and expenses to which he is lawfully entitled or may become lawfully entitled from Thomas Richard Wenkart and Thomas Richard Wenkart agrees to pay the same within 28 days of determination of the quantum of the same or at such other time as the parties may agree.

2.                  Thomas Richard Wenkart forthwith charges the land and improvements in folio identifier G/33817 and known as 47 Union Street, Paddington in favour of Warren Pantzer to secure the amount in paragraph 1.

3.                  Hapday Holdings Pty Ltd ACN 001 185 253 hereby postpones mortgage 3965299 over the land in paragraph 2 in favour of the interest of Warren Pantzer pursuant to the charge in paragraph 2.

4.                  The orders and agreement in paragraphs 1, 2 and 3 are only to have effect if the bankruptcy of Thomas Richard Wenkart is annulled pursuant to s74 of the Bankruptcy Act on 15 March 2002.

5.                  Thomas Richard Wenkart consents to Warren Pantzer lodging a Caveat over the property in paragraph 2 for the purpose of securing the charge in paragraph 2 and Warren Pantzer will upon payment of the remuneration, costs, charges and expenses in paragraph 1 provide a Withdrawal of Caveat forthwith.”

3                     By his notice of motion filed on 31 October 2002, the respondent has applied for orders in aid of the orders made on 11 March 2002, including these orders:

·                    An order authorising (a) the sale of the property charged;  and (b) the deduction from the proceeds of sale of the respondent’s remuneration, charges, and other costs and expenses.

·                    The issue of a Writ of Possession of the property charged.

4                     By his notice of intention to oppose the making of these orders filed on 19 November 2002, the applicant relies (in pars 1 – 20) upon the relevant provisions of s 74 (to be explained shortly) as constituting a complete answer to the respondent’s application.

5                     In my opinion, this issue should be determined as a preliminary point of law.  Accordingly, on 27 March 2003, I ordered that there be decided as a separate question whether the matters relied upon by the applicant in pars 1 – 20 of his notice of intention to oppose the respondent’s application made by his notice of motion filed on 31 October 2002, constitute an answer to the respondent’s application?

THe relevant provisions of section 74

6                     The relevant provisions are s 74(5) and (6).

7                     As mentioned, s 74(5) provides that upon the passing of the special resolution under s 73(4), the bankruptcy is annulled, by force of s 74(5), on the date on which the special resolution is passed.  (Section 73(1) provides that a bankruptcy may lodge with the trustee a proposal for a composition or for a scheme of arrangement.  By s 73(4), the creditors may, by special resolution, accept the proposal.)

8                     Section 74(6), which is central to the applicant’s argument here, relevantly provides:

“(6)     Where a bankruptcy is annulled under [s 74], all ... dispositions of property ... by the trustee ... or the Court before the annulment shall be deemed to have been validly made ... but ... the property of the bankrupt still vested in the trustee vests in such person as the Court appoints or, in default of such an appointment, reverts to the bankrupt for all his ... estate or interest in it, on such terms and subject to such conditions (if any) as the Court orders.”

The statutory scheme for a trustee’s remuneration

9                     Where (as here) the trustee’s remuneration is not fixed by the creditors or the committee of inspection, the trustee is to be remunerated as prescribed by the regulations (s 162(4)).

10                  For the purposes of s 162(4) remuneration is to be (a) in accordance with the scale of charges that is (i) set out in the IPAA Guide; and (ii) applicable to the work to be remunerated;  and (b) at the level of 85 per cent thereof (reg 8.08).

11                  (The statutory scheme should be viewed against the background of the general law that, as a rule, a trustee is entitled to be reimbursed out of trust property for expenses incurred in the execution of the trust (see National Trustees Executors and Agency Co of Australasia Ltd v Barnes (1941) 64 CLR 268 at 274, 277).)

The grounds of the applicant’s objection

12                  As mentioned, for present purposes, the applicant relies upon the following grounds in his notice filed on 18 November 2002.

“1.       On 15 March 2002, the creditors of the Applicant passed a special resolution accepting a proposal by the Applicant pursuant to section 73(4) of the Bankruptcy Act, 1966 (“the Act”).

2.                  By virtue of the matters pleaded in paragraph 1 above, pursuant to section 74(5) of the Act, the bankruptcy of the Applicant was annulled upon the passing of the aforesaid special resolution.

3.                  By virtue of section 74(6) of the Act, the property of the Applicant which was formerly vested in the Respondent reverted to the Applicant subject to the terms and conditions of any order of the Court.

4.                  By virtue of the aforesaid, the annulment of the bankruptcy of the Applicant pursuant to section 74(5) on 15 March 2002 was retrospectively effective to annihilate the Applicant’s bankruptcy and its consequences except as otherwise provided by the Act, notably section 74(6) referred to above and prima facie, therefore, the Applicant was, in law, never bankrupt.

5.                  Therefore as and from 15 March, 2002, the Respondent was not a trustee under the Act, there was no trust estate of the Applicant under the Act, there was no trust estate out of which the Respondent might be indemnified for any remuneration, costs, charges and expenses and there was no bankruptcy under the Act. 

6.                  The annulment of the bankruptcy of the Applicant under section 74(5) of the Act was made under Part IV Division 6 of the Act and not Part VII Division 5 of the Act and therefore section 154 of the Act has no application to the annulment of the bankruptcy of the Applicant.

7.                  As distinct from Part VII Division 5 of the Act, there is no provision in Division 2 of Part IV of the Act that enables or entitles a trustee in bankruptcy or former trustee in bankruptcy to receive payment of or recover remuneration, costs, charges and expenses of the administration of the bankruptcy from the property of the bankrupt or former bankrupt once an annulment occurs under section 74(5) of the Act.

8.                  By virtue of the matters pleaded above, there is no means within the provisions of the Act that gives a right to or to otherwise entitles the Respondent to claim any remuneration, costs, charges and expenses from the Applicant after the annulment of the bankruptcy pursuant to section 74(5) of the Act.

9.                  Further or in the alternative to paragraph 8 above, the Act confers no right on a trustee of an estate of a bankrupt to be reimbursed in respect of costs, charges or expenses incurred in the administration of the estate but such right is that provided under general law namely the right to a full indemnity out of the trust estate. 

10.              Therefore the right of the Respondent to be reimbursed in respect of costs, charges or expenses under the general law ceased upon the annulment of the bankruptcy of the Applicant pursuant to section 74(5) of the Act because upon such annulment there was no trust estate out of which an indemnity could arise.

11.              Further or in the alternative to paragraph 8 above, the remuneration as a trustee of an estate of a bankrupt is determined by the Act because a trustee has no common law right to claim for remuneration and in addition, the right of a trustee to recover remuneration is only against the estate of the bankrupt in the due course of administration save where otherwise provided by the Act.

12.              The Act does not otherwise provide a means for payment of any remuneration of a former trustee of a former bankrupt in the case of an annulment under section 74(5) of the Act as distinct from an annulment under Division 5 of Part VII of the Act.

13.              Therefore the right of the Respondent to be paid remuneration under the Act ceased upon the annulment of the bankruptcy of the Applicant pursuant to section 74(5) of the Act because upon such annulment there was no trust estate out of which the Respondent could be indemnified for such remuneration and the Act makes no other provision for payment of such remuneration upon such annulment under section 74(5) of the Act.

14.              By virtue of the matters pleaded above, the Respondent has no right under the Act or at common law to be paid or recover from the Applicant any remuneration, costs, charges and expenses.

15.              Therefore the Respondent’s reliance upon section 162 of the Act and regulations 8.08 and 8.09 of the Bankruptcy Regulations (‘the Regulations’) to determine the quantum of any remuneration, costs, charges and expenses is misconceived because the Act and Regulations have no application after the annulment of the bankruptcy of the Applicant pursuant to section 74(5) of the Act.

16.              Further by virtue of the annulment, the Court does not have any jurisdiction to deal with the Motion under the Act and in particular section 30 of the Act.

17.              Further by virtue of the aforesaid the Respondent is not lawfully entitled to any remuneration, costs, charges and expenses under the Act or the Regulations.

18.              The Respondent’s right to remuneration, costs, charges and expenses, if any, is founded in the orders made by this Honourable Court on 11 March 2002 (‘the Orders’) and not in the Act and Regulations.

19.              Pursuant to order 1 of the Orders the Respondent is only entitled to recover remuneration, costs, charges and expenses to which he is lawfully entitled or may become lawfully entitled from the Applicant.

20.              Unless and until the Respondent is lawfully entitled to recover remuneration, costs, charges and expenses he therefore cannot recover any such remuneration, costs, charges and expenses from the Applicant.”

Conclusions on the separate question

13                  By virtue (at least) of the provisions of s 30 of the Act, it is plain that this Court has jurisdiction to determine the issues tendered by the respondent’s notice of motion.

14                  It is necessary to construe the meaning and operation of the consent orders made on 11 March 2003, and, in that connection, to be satisfied that the orders made are within power in the light of the relevant provisions of the Act.

15                  It will be recalled that par 4 of the consent orders states that the anterior provisions, including par 2, whereby the applicant grants the charge to secure the respondent’s remuneration (etc), “are only to have effect if the [applicant’s] bankruptcy ... is annulled pursuant to s74 ... on 15 March 2002”.

16                  These provisions have a dual aspect – (i) as a court order and (ii) evidencing an agreement between the parties.  Viewed as an order, the consent orders are to be regarded as valid, unless set aside (see Re Macks;  Ex parte Saint (2000) 204 CLR 158 at 177).  Viewed as a contract (the orders having been duly entered) the question whether the compromise is to be set aside by a court “depends upon the existence of a ground which would suffice to render a simple contract void or voidable or to entitle the party to equitable relief against it ... .” (Harvey v Phillips (1956) 95 CLR 235 at 243).

17                  No attempt has been made to set aside the orders or the agreement they record.

18                  Moreover, the operation of par 4 is to make the performance of the obligation evidenced in par 2 (specifically) conditional upon annulment on 15 March 2002;  and, as Brennan J observed in Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537 at 565 – 566:

“Though the stipulation specified the event upon the occurrence of which the obligations to complete cease to be contingent, the stipulation contains no promise that the event will occur.  Until the event occurs or the purchasers waive the benefit of the stipulation (Gange v Sullivan [(1960) 105 CLR 521]) neither party is entitled to a decree of specific performance of their respective obligations to complete the sale (Brown v Heffer [(1967) 116 CLR 344]) and the purchases have no equitable interest in the property which is the subject of the contract (McWilliam v. McWilliams Wines Pty. Ltd. [(1964) 114 CLR 656]).”

19                  It must follow, in my opinion, that although the agreement evidenced in the consent orders was made during the bankruptcy, it had no dispositive effect until the annulment occurred by force of s 74(5) on 15 March 2002.  In any event, even if the consent orders had some inchoate or quasi-dispositive effect, their operation was both validated and sanctioned by virtue of the provisions of s 74(6), whereby, as has been noted, (1) all ... dispositions of property ... by ... the trustee ... or the Court before the annulment shall be deemed to have been validly made”;  but (2) whilst the property of the bankrupt still vested in the trustee “vests in such person as the Court appoints or, in default of appointment, reverts to the bankrupt for all his ... estate or interest in it, on such terms and subject to such conditions (if any) as the Court orders”.

20                  The effect of the consent orders (doubtless made with a view to achieving acceptance of the applicant’s s 73 proposal) was to defer the resolution of any dispute as to the amount of the respondent’s remuneration, but upon terms that the respondent would receive security for that amount.  The Court sanctioned that arrangement in the form of an order made under the reservation reserved by the concluding words of s 74(6) – “reverts ... on such terms and subject to such  conditions ... as the Court orders”.

21                  Given that conclusion, it must follow, in my opinion, that the consent orders were within power and operated to vest in the respondent the charge created by par 2 thereof.

22                  Accordingly, I will respond to the separate question by the answer that pars 1 – 17 of the applicant’s objection do not constitute any answer to the respondent’s present claims.  I will add that, pars 18 – 20 do not purport to answer the respondent’s present claims, merely stating, as par 1 of the consent orders provides, that the respondent can recover only the remuneration (etc) to which he is “lawfully entitled”.  The costs of the separate question must follow the event.

Orders

23                  I make the following orders:

1.         Order that the separate question ordered on 27 March 2003 be answered as follows:

Q:        Do the matters relied upon by the applicant in pars 1 – 20 of his notice of intention to oppose the respondent’s application made by his notice of motion filed on 31 October 2002, constitute an answer to the respondent’s application?

A:         The matters stated in pars 1 – 17 of the applicant’s notice of intention to oppose do not constitute any such answer;  and the matters stated in pars 18 – 20 do not purport to make such answer.

2.                  Order that the applicant pay the respondent’s costs of the separate question.

24                  I will hear further argument on 14 April 2003 on the way in which the matter should now be managed.

Associate:

Dated:              9 April 2003