FEDERAL COURT OF AUSTRALIA

Conway v Insolvency & Trustee Service Australia [2003] FCA 943

RICHARD PETER CONWAY v INSOLVENCY AND TRUSTEE SERVICE AUSTRALIA

N 437 of 2003

ALLSOP J

4 SEPTEMBER 2003

SYDNEY

THE COURT ORDERS THAT:

1.                   The appeal under s 44 of the Administrative Appeals Tribunal Act 1977 (Cth) be allowed.

2.                   The decision of the Administrative Appeals Tribunal (the Tribunal) in this matter on 19 December 2002 be set aside. 

3.                   The matter be remitted to the Tribunal for re-hearing in accordance with law.

4.                   There be no order to costs save and except that the respondent pay any proper out of pocket expenses of the applicant arising from the proceeding.

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

REASONS FOR JUDGMENT

1                     I have reached a view in this matter and I do not propose to put the parties to any further expense or delay by reserving.  Another reason not to reserve is that I think Mr Conway is entitled to understand his position as soon as possible.

2                     The facts of this case are most regrettable.  In saying that I do not criticise the Trustee, the Official Receiver or the Insolvency and Trustee Service of Australia. 

3                     Mr Richard Peter Conway, the applicant, is a bankrupt.  He presented his own petition on 13 August 2001.

4                     The evidence before me and what I have learned about this matter in the conduct of the interlocutory matters in this Court, have indicated the following, none of which I think is disputed.  Mr Conway apparently began a personal injuries action against the franchised food outlet, McDonalds, prior to his bankruptcy.  It was apparently on the basis of a no win no fee arrangement.  He lost.  His then solicitors did not charge him.  However, his loss in the District Court came with the usual costs order. 

5                     On a previous occasion, Mr Conway, from the bar table, told me of his then fears for his personal circumstances.  These matters have not been the subject of evidence before me but I include them by way of human background to the case, and to explain some comments I will make later.  Mr Conway indicated to me that his former solicitors indicated to him that he could owe Hunt and Hunt up to $60,000 in costs in a worst case scenario.  Mr Conway is a pensioner, who currently looks after an adult suffering from Down Syndrome, which adult Mr Conway took custody of as a foster child.  Mr Conway indicated to me on a prior occasion from the bar table, that upon learning of these potential difficulties with Hunt and Hunt, he thought the best way forward on the advice of his then solicitor was to file his own petition.

6                     As I said in paragraph 7 of my reasons handed down on 8 April 2003, Mr Conway, of course, owed no money whatsoever to Hunt and Hunt.  There was an order that he pay the costs of McDonalds.  In his statement of affairs, which is in evidence before me, Mr Conway indicated that his expected income in the next 12 months was $203 per week by way of an invalid pension.  He also indicated that he had some $150 in a Commonwealth Bank account and a car worth $3000.

7                     His statement of affairs identifies unsecured liabilities in the sums of $3700 to Grace Bros, $750 to a Ms Donahue, and an unspecified sum to Harvey Norman, as well as a sum of $60,000 to Hunt and Hunt. 

8                     Mr Conway applied not long after the commencement of his bankruptcy for an early discharge.  The application was refused by the trustee, on the basis that the bankrupt's position did not enable the trustee, under s 149Y to grant that early discharge.  Section 149Y is in the following terms:

(1)   Subject to subsection (2), a bankrupt is disqualified from early discharge if the bankrupt’s unsecured liabilities exceeded 150% of the income that the trustee determines to have been derived by the bankrupt during the year immediately before the date of the bankruptcy.

(2)   Subsection (1) does not apply where:

(a)     the unsecured liabilities were wholly or principally attributable to a tort committed by the bankrupt; and

(b)     the bankrupt was not insured against liability for that tort.

(3)   The trustee may determine any matter referred to in subsection (1) on the basis of the information provided to the trustee by the bankrupt, whether in the bankrupt’s statement of affairs or otherwise.

(4)   The trustee may also have regard to any other information in the possession of the trustee but is not required to seek any such information.

9                     The reason that Mr Conway failed this test in the view of Mr Sullivan, the Deputy Official Receiver for the Official Trustee in Bankruptcy, was that, based on the information available to the trustee, Mr Conway's income was $13,041 in the 12 months prior to the date of bankruptcy, and his total unsecured liabilities were $64,641.  These liabilities were the liabilities to which I have already referred, with the Harvey Norman debt identified as $860.  Plainly Mr Conway failed the statutory test laid down in s 149Y(1). 

10                  That notice of rejection of early discharge was dated 18 March 2002.  On 20 March 2002, Mr Jones, for the Official Receiver, made some inquiries by letter, of the Public Trustee and Hunt and Hunt, solicitors.  The inquiry of the Public Trustee does not matter as to its detail, except to say that it was seeking information as to the beneficial interest from the deceased estate of Mr Conway's mother to which Mr Conway would be entitled.  Mr Conway's  mother passed away on 10 September, 2001.

11                  The inquiry of Hunt and Hunt of 20 March 2002 was relevantly in the following terms:

I advise that the above named became bankrupt on 13 August, 2001 and the Official Trustee in Bankruptcy is trustee of the bankrupt estate.

I am presently attempting to quantify the total amount of debts in the bankrupt estate in order to assess his application for early discharge from bankruptcy.

The bankrupt disclosed a debt to your firm as follows:  “Legal Costs – Ref: 8066901 – date incurred 13 July, 2001 – approximately $60,000.”

He has advised further that it relates to an injury claim he made against McDonalds Family Restaurants.  His solicitors were Malouf Gerard Partners Solicitors.  The bankrupt lost the case.  Costs were awarded against him (to Hunt & Hunt).  He now also claims that he has been advised that the debt for costs will not be pursued, and therefore he owes no debt to Hunt & Hunt.

I will be grateful if you would please confirm whether the bankrupt has a debt to your firm, and the amount of that debt.

Thank you for your assistance.

12                  Hunt and Hunt shortly thereafter replied on 26 March 2002 in the following terms:

Thank you for your letter of 20 March 2002.

We confirm our client’s instructions that they will not be pursuing costs and therefore there is nothing owing to this firm.

13                  Mr Conway shortly thereafter on 22 March 2002 sought an application for review of the decision of the Trustee in the Administrative Appeals Tribunal (the Tribunal).  The reasons for making the application were set out in the relevant application form.  In essence they were that when he, Mr Conway, applied for his early discharge he did not know that he was "not bankrupt with Hunt and Hunt".  He went on to say that when he filed for early discharge in effect he did not appreciate this, but by the time of the making of the application for review in the Tribunal he had come to appreciate that he was not "bankrupt with Hunt and Hunt". 

14                  By this I take Mr Conway to be referring to his realisation by this time that McDonalds and Hunt & Hunt would not pursue any order for costs.  The position of Hunt and Hunt was made clear in answer to letters to the Registrar of the Tribunal on 7 August 2002 and to Ms Boyce of the Australian Government Solicitor on 18 October 2002 which latter letter was put to the Tribunal in evidence.  Those two letters of 7 August 2002 and18 October 2002 were in the following terms:

7 August 2002

We refer to our Linda Bushell’s telephone conversation with Sandra and confirm that on 27 August 2001, we received instructions on behalf of our client, McDonalds Australia Pty Limited not to proceed to recover costs from the plaintiff, Richard Conway.

18 October 2002

We refer to your Donna Boyce’s telephone conversations with Linda Bushell of our office and as requested set out below an estimate of our client’s costs and disbursements which Mr Conway was ordered to pay.  We note that recovery was not pursued:

            Professional costs:      $12,203.00

            Disbursements:           $11,391.16

            Total                            $23,594.16

15                  Of course, if one ignored the order for costs in favour of McDonalds there would be no apparent reason why Mr Conway was not entitled to an early discharge.  That would of course be a matter for the trustee to decide, but there was no suggestion that Mr Conway had in any way misled the Trustee or otherwise hidden assets.  Indeed, it would appear that his decision to file his own petition would not have occurred had it not been for what his former solicitors told him.  If that is indeed the substance of what was said to him, which I make no finding about, they have not had the opportunity to explain what happened in that relationship with Mr Conway as their client.

16                  However, the Tribunal affirmed the decision of the Trustee.  The reasons of the Tribunal were as follows:

In this matter the applicant was made bankrupt on his own debtors petition on 13 day of August 2001.  Normally, in accordance with section 149 of the Bankruptcy Act 1966, a bankrupt is discharged from bankruptcy at the end of three years from the date on which the statement of affairs if filed.  In this matter the respondent filed a statement of affairs on 13 August 2001.   Therefore, he would be entitled to be discharged from bankruptcy on 13 August 2004.

On 13 March 2002, the applicant filed with the official receiver, pursuant to section 149S Bankruptcy Act, an application for earlier discharge from bankruptcy.  At the time the applicant filed his statement of affairs the major creditor was Messrs Hunt & Hunt Lawyers who have outstanding costs, being costs which were awarded against the applicant in respect of an unsuccessful action he took against the well known franchised fast food outlet McDonalds.

It would appear that the applicant in taking that action was the victim of a no win, no fee invitation by a firm of solicitors but of course having lost the action he was liable for the successful defendant’s costs.  The applicant on the advice of his solicitor having an award of costs made against him promptly filed his own petition for bankruptcy.  The amount owed to the solicitors has been nominated by them in a letter to the Australian Government Solicitor dated 18 October 2002, see document 20 in the exhibit R2, in the sum of $23,594.16.

There are also debts owed to Grace Bros in the sum of $3700 and to a Patricia Donohue also being an award of costs in the sum of $750.  All up this gives a sum of $28,044.69.  The applicant at all relevant times has been in receipt of a disability support pension.  In the period of 12 August 2000 to 12 August 2001, the income derived by him from that source was $13,041.  Subsection 1 of section 149Y of the Bankruptcy Act 1966 reads:

Subject to subsection 2 a bankrupt is disqualified from early discharge if the bankrupt’s unsecured liabilities exceed 150 per cent of the income that the trustee determines to have been derived by the bankrupt during the year immediate before the date of the bankruptcy.

Subsection 2 has no application in this particular circumstance.  Applying Subsection 149Y(1) to the applicant’s circumstances the situation is that the trustee determined that the income derived by the bankrupt during the year immediately before the date of bankruptcy was the sum of $13,041.  The total unsecured debts amount to $28,044.69.  It is true that Messrs Hunt & Hunt have indicated that they do not intend to pursue the award of costs.  That is no doubt a commercial decision on their part but as I pointed out to the applicant in the course of argument the debt remains and if his circumstances were to materially improve for example, by a windfall, the attitude of Messrs Hunt & Hunt would no doubt change.

Suffice to say that until the date of his normal discharge from bankruptcy debts to Hunt & Hunt, Grace Bros and Ms Donohue remain debts which would be provable against the applicant.  The situation is in round figures therefore, that in 12 months prior to bankruptcy he earned the sum of $13,000, his debts amount to $28,000 and on my mathematics the debts certainly exceed his income by 150 per cent.  In these circumstances, therefore, notwithstanding that the creditors apparently will never get their money.  The situation is that under section 149Y the applicant is prevented from being granted an early discharge.  Consequently, the decision under review is affirmed.’

17                  I fully appreciate that I should not view the reasons of the Tribunal with an eye keenly attuned to the finding of error and I fully take into account the terms and substance of what the High Court said in Minister for Immigration and Ethnic Affairs v Wu Shan Liang (1996) 185 CLR 259, 271-72. 

18                  If I may say so, in a matter of this kind, the Tribunal commendably dealt with the matter shortly and promptly.  However, the difficulty I have with the Tribunal's reasons is that they display no appreciation of the specific task at hand.  What was necessary to deal with was the task laid out by s 149Y(1). 

19                  I reject the proposition put forward by Mr Fury on behalf of Mr Conway that that subsection and the section generally did not empower or authorise the Trustee to make a determination of unsecured liabilities other than by way of mathematical addition and subtraction.  What is required by s 149Y(1) is an assessment of all the unsecured liabilities of the bankrupt in a determination by the Trustee.  If that requires some estimation or valuation, that has to be done.  It seems to me that subss 149Y(3) and (4) militate against, not in favour of, Mr Fury's argument in that regard.  Further, the terms of subs 149Y(2) also militate against that argument.  Whilst the Trustee and the Tribunal are only required to assess the unsecured liabilities, what they need to do as a matter of law and fact in any particular case depends upon the nature of the liability.

20                  The liabilities will be generally, if not always, some form of chose or choses in action, whether arising under statute, common law, equity or other foundation for legal liability in our legal system.   Subsections 149Y(3) and (4) have plainly been put into the provision to ensure that the trustee is not obliged to go beyond material which the trustee thinks is appropriate to have regard to.  However, the terms of subss 149Y(3) and (4) do not change the task statutorily required of the trustee.  That task is determined by reference to the chose: to determine what the amount of the unsecured liability is, or an estimate thereof.

21                  The legal right held by McDonalds in this case derived from the order of the District Court that Mr Conway pay McDonalds’ costs.  The provisions of the District Court Act 1973 (NSW) and the Legal Profession Act 1987 (NSW) to which Mr Fury has made reference in his submissions make it plain that the legal nature of that liability is one which can only be estimated by reference to the agreement of the parties or the assessment of the costs pursuant to those statutes.

22                  All the Tribunal did in this case was to look to the letter of Hunt and Hunt which was in the terms I have identified.  It is not clear, I think, from Hunt and Hunt's letter as to whether that is a statement of what their costs were for which their client no doubt paid them, or their estimate, having gone through some intellectual process based on experience and the relevant District Court scales, of what they thought their client might receive or would receive on taxation or assessment.

23                  I do not think the language of the letter is conclusive either way and especially in the light of the plain factual circumstance that their client was not pursuing this matter, I think it unlikely that any time would have been spent by Hunt and Hunt identifying with precision what they would put before an assessing officer.  Leaving that last consideration to one side, it is not clear to me from the letter whether it was a statement of what their costs were or what they might have been on taxation.

24                  More importantly, reading the reasons of the Tribunal and taking full account of what the High Court said in Wu Shan Liang, I am unable to reach any satisfaction at all that the Tribunal has appreciated that its task was to make a determination of the amount of the liability for costs in an assessment.  The third paragraph of the reasons is the only clue as to what the approach of the Tribunal was and I read it as merely a statement that the Tribunal simply relied upon what the solicitors said as the only nomination before it of what the costs were.  This ignores the fact that the real question to ask was what are the assessed costs or what would be the assessed costs in any assessment.

25                  Mr Fury propounded another argument that as a matter of law the Tribunal should have approached the matter on the basis that McDonalds had abandoned the chose or was estopped from pursuing the chose, that is, the underlying order for costs, in all the circumstances.

26                  As to estoppel, I think it has a difficulty in that the relevant time for assessment is the date of the bankruptcy.  At this time, I do not think Mr Conway had acted to his detriment at all.  He did not know of the position of McDonalds because if he had he wouldn't have filed his own petition.  If there is an estoppel it is said to arise from the change of position by pursuing the Tribunal hearing.  I do not need to decide whether that is a sufficient body of conduct to create an estoppel for two reasons.  First, I think on an examination of the terms of s 149Y(1) it is the date of the bankruptcy which is important.  Secondly, and more importantly, my views as to the failure of the Tribunal to direct its attention to the correct question makes coming to a conclusion about any other defect unnecessary.

27                  As to whether McDonalds had abandoned, as a matter of law, the chose, it is unnecessary for me to deal with that argument and I do not propose to do so.  Questions of abandonment, release, substantive estoppel and, waiver are difficult questions which I do not think should delay the parties in this case.  I have grave doubts as to whether the evidence would amount to such abandonment or other legal consequence.  This is especially so since the petition was filed on 13 August 2001 and the Hunt and Hunt letter of 7 August 2002 indicated that McDonalds gave them instructions not to pursue the order for costs on 27 August 2001.

28                  In saying that I should not be taken to agree with the conclusion that the Tribunal drew about why McDonalds was not pursuing these costs.  There was no evidence before the Tribunal, in my view, for it to conclude that at the time that it gave the instructions to Hunt and Hunt not to pursue the costs, which was apparently 27 August 2001, it knew of Mr Conway's petition being filed.  There are a number of other very powerful commercial considerations which I could well see attending a very wise decision of a company such as McDonalds not to pursue someone such as Mr Conway for costs.  In any event, I do not need to finalise any views on those questions of abandonment and related or cognate notions.

29                  In my view, the Tribunal did not direct its attention to the very question it was obliged to, though in one sense, at a more general level, it did direct itself to attempting to answer what was the amount of the unsecured liabilities.  What it did not do was, in the light of the legal nature of the underlying liability, address the necessary attention, any attention which was legally necessary to value that amount: the amount of the costs that would be assessed as recoverable under the relevant statutes.  In those circumstances the decision of the Tribunal was one which was vitiated by a jurisdictional error in its failure to address the correct question.  In those circumstances I would allow the appeal and I would set aside the decision of the Tribunal and remit the matter to the Tribunal for re-hearing in accordance with law. 

30                  The question of costs arises. Within those questions of costs I need to make some more general statements which, if the parties would permit me to do so, I will direct slightly more widely than I otherwise would. 

31                  First, Mr Fury appears today pursuant to an order made under Order 80 of the Federal Court Rules.  Mr Fury answered the request of the Registrar of this court to provide legal assistance to Mr Conway.  May I say in relation to the approach of the members of the New South Wales Bar Association and in particular in relation to Mr Fury in this case, the Court is profoundly grateful for the assistance it receives from the bar in these circumstances of requests for pro bono assistance.  I am particularly grateful for Mr Fury's assistance today, and in so expressing the manner I should not be seen to be denigrating in any way from the assistance I have received from Mr Wigney. 

32                  I do not propose to make an order for costs against the respondent to this application save and except for any out of pocket expenses that Mr Conway may have incurred.  Mr Fury has appeared pro bono and there has been no solicitor appearing.  Therefore the absence of an order for costs perhaps is of no practical matter. 

33                  The remitter of the matter to the Tribunal should be seen, if I may respectfully say so, by the parties, and in particular Mr Conway, in its true context.  It may well be that as a matter of law there has been no abandonment by McDonalds of its rights.  It may now be estopped from enforcing them but the position is to be judged as at the date of the bankruptcy.  If the $23,000 is an estimate by Hunt and Hunt as to what their recoverable assessed costs would be there may be little point in further pursuing the matter.  Even if that $23,000 is solicitor/client costs it may be very doubtful whether that sum would be reduced sufficiently to enable the trustee to exercise his discretion. 

34                  Unfortunately, Mr Conway is in this position not because of any wrong done to him by the Trustee but because of his own decision to place himself in a bankruptcy.  I appreciate the reasons why he did that.  I would only urge Mr Conway to look at his position and recognise that the modest sum from his mother's estate may well already have been lost in a way that no further litigation can retrieve, since the sum involved in that estate is exceeded by even a proportion of the costs of the Trustee, which costs have probably simply been brought about by the ordinary administration of the estate, it having been begun by Mr Conway himself.

35                  As I said, it is a deeply regrettable situation in which Mr Conway finds himself.  If there was a discretion I could properly exercise to relieve him of it, I would.  In my view of the material, the only orders that I should properly make are the setting aside of the Tribunal’s decision and the remitter of the matter to it.  I make no further comment about the nature or quality of the advice Mr Conway received which led him to file his own petition.  I stop short of saying anything more because relevant parties to that advice are not present and I should not draw any conclusions about how matters reached the state they did in August 2001 without hearing from other people. 

36                  For the above reasons the orders of the court are:

1)         The appeal be allowed.

2)         The decision of the Administrative Appeals Tribunal (the Tribunal) in this matter on 19 December 2002 be set aside. 

3)         The matter be remitted to the Tribunal for re-hearing in accordance with law.

4)         There be no order to costs save and except that the respondent pay any proper out of pocket expenses of the applicant arising from the proceeding.

Associate:

Dated:              16 September 2003