FEDERAL COURT OF AUSTRALIA

Nguyen v Pattison [2005] FCA 650

BANKRUPTCY – Decision by trustee not to withdraw notice of opposition to discharge from bankruptcy – Application by bankrupt to Federal Magistrates Court to review decision under s 178 of Bankruptcy Act 1966 (Cth) – Whether Federal Magistrate precluded by s 149N(1B) from taking notice of remedial steps taken by bankrupt prior to hearing – Nature of supervisory jurisdiction under s 178 – Whether irrelevant considerations taken into account – Whether rejection of application under s 178 gives rise to issue estoppel or res judicata

Bankruptcy Act 1966 (Cth) s 149J

Federal Court of Australia Act 1976 (Cth) s 25(1A)

Nguyen v Pattison [2004] FMCA 517 affirmed

Macchia v Nilant (2001) 110 FCR 101 referred to

Thomas v Donnelly (No. 2) [1997] FCA 1142 referred to

Re Ansett (1995) 56 FCR 526 discussed

Inspector-General in Bankruptcy v Nelson (1998) 86 FCR 67 discussed

Wharton v Official Receiver in Bankruptcy (2001) 107 FCR 28 discussed

Pollack v Lombe [2004] FCA 362 referred to

Re Tyndall (1977) 17 ALR 182 at 186 referred to

Bethune v Newman (1996) 19 ACSR 99 at 102 referred to

House v The Queen (1936) 55 CLR 499 referred to

Rawson v Hobbes (1961) 107 CLR 466 at 485 cited

Administration of Papua and New Guinea v Daera Guba (1973) 130 CLR 353 at 453 referred to

Department of Aviation v Ansett Transport Industries Ltd (1987) 72 ALR 188 referred to

Cachia v Isaac (1985) 3 NSWLR 366 referred to

Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 459 referred to

Commissioner for Corporate Affairs v Harvey [1980] VR 669 discussed

THAN SON NGUYEN v PAUL ANTHONY PATTISON (trustee of the Bankrupt Estate of THAN SON NGUYEN)

VID1123 of 2004

WEINBERG J

24 MAY 2005

MELBOURNE

ON APPEAL FROM THE FEDERAL MAGISTRATES COURT OF AUSTRALIA

THE COURT ORDERS THAT:

1.         The appeal be dismissed.

2.         The appellant pay the respondent’s costs.

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

ON APPEAL FROM THE FEDERAL MAGISTRATES COURT OF AUSTRALIA

REASONS FOR JUDGMENT

introduction

1                     This is an appeal from a decision of a Federal Magistrate given on 20 August 2004: Nguyen v Pattison [2004] FMCA 517.  His Honour dismissed an application to review a decision of the Trustee in Bankruptcy (“the trustee”) not to withdraw an objection to the appellant’s discharge from bankruptcy, a course that was open to the trustee pursuant to s 149J of the Bankruptcy Act 1966 (Cth) (“the Act”).  The appellant contends that his Honour erred in both fact and law in failing to allow the application to review.  On 26 October 2004, the Chief Justice directed, pursuant to s 25(1A) of the Federal Court of Australia Act 1976 (Cth) (“the Federal Court Act”), that a single judge of the Court hear and determine this appeal. 

the background

2                     The background to this matter may be briefly summarised.  The appellant was made bankrupt on 25 July 2000.  However, he did not file his statement of affairs until 17 October 2000.  The trustee’s objection to discharge, dated 2 September 2003, was based upon the appellant’s failure to provide details of his income, and to pay the sum of $4495. 

3                     The appellant applied to the Inspector-General in Bankruptcy to review the objection.  On 11 February 2004, the Inspector-General determined that the objection should be upheld.  Subsequently, on 14 April 2004, the appellant provided details of his income to the trustee.  On 17 May 2004, the appellant paid the sum of $4495 to the trustee.  Notwithstanding this, the trustee refused to withdraw the objection.

4                     On 7 June 2004 the appellant brought an application in the Federal Magistrates Court seeking to review the trustee’s decision.  It was the Federal Magistrate’s dismissal of that application that has led to this appeal.

the relevant legislative scheme

5                     It is necessary to refer in some detail to the legislative provisions that are relevant in this appeal.  The application before the Federal Magistrate was brought under s 178 of the Act.  Sub-section (1) relevantly provides:

“If the bankrupt, a creditor or any other person is affected by an act, omission or decision of the trustee, he or she may apply to the Court, and the Court may make such order in the matter as it thinks just and equitable.”

6                     Section 149 of the Act provides that the bankrupt is, by force of that section, discharged from bankruptcy at the end of the period of three years from the date on which the bankrupt filed his or her statement of affairs.  However, s 149 must be read subject to the filing by the trustee of an objection to discharge, pursuant to s 149B.  That section provides as follows:

“(1)     Subject to the following provisions of this Subdivision, at any time before a bankrupt is discharged from bankruptcy under section 149, the trustee may file with the Official Receiver a written notice of objection to the discharge.

(2)       The trustee of a bankrupt's estate must file a notice of objection to the discharge if the trustee believes:

(a)   that doing so will help make the bankrupt discharge a duty that the bankrupt has not discharged; and

(b)    that there is no other way for the trustee to induce the bankrupt to discharge any duties that the bankrupt has not discharged.”

7                     Section 149A(1) provides that a bankruptcy will be extended when an objection to discharge is filed by the trustee, “unless the objection is withdrawn or cancelled”.  Section 149A(2) provides that, for the purposes of sub-section (1), the prescribed number of years for which the bankruptcy will be extended is either eight years (if the objection is made on a ground, or on grounds, specified in s 149D(1)(ab), (d), (da), (e), (f), (g), (h), (ha), (k) or (ma)), or in any other case, five years.

8                     Section 149D sets out the grounds of objection that may be taken.  Relevantly, these include the failure of the bankrupt to disclose any particulars of income or expected income as required by the Act, and matters of a similar kind. 

9                     Section 149J provides that if at any time before a bankrupt is discharged the trustee withdraws the objection, the trustee must give the Official Receiver a notice of the withdrawal, and give the bankrupt a copy of the notice.

10                  Section 149K makes provision for internal review by the Inspector-General of a trustee’s decision to file a notice of objection.  Section 149M provides for the Inspector-General to request further information from the bankrupt, and also from the trustee.

11                  Section 149N sets out the powers of the Inspector-General on review.  The section is in the following terms:

“(1)     On a review of a decision, if the Inspector-General is satisfied that:

(a)              the ground or grounds on which the objection was made was not a ground or were not grounds specified in subsection 149D(1); or

(b)              there is insufficient evidence to support the existence of the ground or grounds of objection; or

(c)               the reasons given for objecting on that ground or those grounds do not justify the making of the objection; or

(d)              a previous objection that was made on that ground or those grounds, or on grounds that included that ground or those grounds, was cancelled;

the Inspector-General must cancel the objection.

(1A)     An objection must not be cancelled under subsection (1) if:

(a)              the objection specifies at least one special ground; and

(b)              there is sufficient evidence to support the existence of at least one special ground specified in the objection; and

(c)               the bankrupt fails to establish that the bankrupt had a reasonable excuse for the conduct or failure that constituted the special ground.

For this purpose, special ground means a ground specified in paragraph 149D(1)(ab), (d), (da), (e), (f), (g), (h), (ha), (k) or (ma).

(1B)     In applying subsection (1A), no notice is to be taken of any conduct of the bankrupt after the time when the ground concerned first commenced to exist.

(2)       The cancellation does not take effect until:

(a)              the end of the period within which an application may be made to the Administrative Appeals Tribunal for the review of the decision of the Inspector-General; or

(b)              if such an application is made—the decision of the Tribunal is given.

(3)       If the Inspector-General is not satisfied as mentioned in subsection (1), the Inspector-General must confirm the decision.”

12                  The special grounds to which s 149N(1A) refers are those that assert that:

·                    a transfer is void against the trustee because of s 120 or 122 (s 149D(1)(ab));

·                    the bankrupt, when requested in writing by the trustee to provide written information about the bankrupt’s property, income or expected income, failed to comply with the request (s 149D(1)(d));

·                    after the date of the bankruptcy, the bankrupt intentionally provided false or misleading information to the trustee (s 149D(1)(da));

·                    the bankrupt failed to disclose particulars of income or expected income as required by a provision of the Act (s 149D(1)(e));

·                    the bankrupt failed to pay to the trustee an amount that he or she was liable to pay under s 139ZG (s 149D(1)(f));

·                    at any time during the period of five years immediately preceding the bankruptcy, or at any time during the bankruptcy, the bankrupt spent money, but failed to explain to the trustee the purpose for which the money was spent, or disposed of property but failed to explain adequately why no money was received as a result of the disposal, or what the bankrupt did with the money so received (s 149D(1)(g));

·                    the bankrupt failed to return to Australia in response to a request by the trustee to do so (s 149D(1)(h));

·                    the bankrupt intentionally failed to disclose to the trustee a liability that existed at the date of the bankruptcy (s 149D(1)(ha));

·                    the bankrupt refused or failed to sign a document after being lawfully required by the trustee to do so (s 149D(1)(k)); or

·                    the bankrupt intentionally failed to disclose to the trustee his or her beneficial interest in any property (s 149D(1)(ma)).

13                  Accordingly, where a notice of objection is filed the effect is to increase the period of bankruptcy from three years to five years, or even up to eight years in the event that the objection is based upon any of the matters referred to in s 149D(1)(ab), (d), (da), (e), (f), (g), (h), (ha), (k) or (ma).  More importantly, at least for present purposes, where the trustee relies upon a “special ground”, as defined, the Inspector-General is expressly precluded from taking any notice of any conduct of the bankrupt after the time when the ground concerned first commenced to exist. 

14                  Section 149N(1B) was introduced into the Act by the Bankruptcy Legislation Amendment Act 2002 (Cth).  The Explanatory Memorandum to the Bankruptcy Legislation AmendmentBill discusses the various amendments to s 149D, noting that each ground in the new list would constitute a “special ground” of objection.  The amendments to the Act are explained as follows:

“Objections to discharge

       - Background

163       The objection-to-discharge provisions of the Act allow a trustee to file an objection to the bankrupt's discharge from bankruptcy. A successful objection extends the standard period of bankruptcy by either 2 years or 5 years, depending on the grounds of the objection. The grounds are specified in the Act. They relate to various means by which a bankrupt's non-cooperation with the trustee can frustrate the trustee's efforts to administer the bankruptcy.

164       When filing an objection, the trustee must set out the ground of objection, the facts relied on to support the ground and the reasons for filing an objection. Case law establishes that punishing the bankrupt, of itself, is not a lawful reason. The only valid reason for filing an objection has been held to be to advance the trustee's administration of the bankruptcy. This approach does not encourage bankrupts to cooperate with trustees.

-         Special grounds of objection

165       The amendments propose to address this weakness in the present law by identifying some existing grounds, and adding some new grounds, as "special grounds". In these special ground cases, the trustee will not need to show that filing the objection will advance the administration, only that the special ground existed. Therefore, if the grounds of objection include a special ground, only the facts supporting that special ground need to be established. The special grounds are specified in paragraphs 149D(1)(ab), (d), (da), (e), (f), (g), (h), (ha), (k) and (ma). Item 109 proposes that paragraph 149C(1)(c), which requires a trustee to state the reasons for objection to discharge, not apply regarding objections filed on special grounds.” (emphasis added)

15                  There then follows a detailed analysis of the new grounds of objection, including “special grounds”.  The Explanatory Memorandum continues:

“173       Item 123 proposes a new subsection 149N(1A), under which an objection must not be cancelled if it specifies at least one special ground and there is sufficient evidence to support the existence of at least one such ground.

Bankrupt's conduct after ground commenced to exist must be ignored on review of objection

174       Trustees understandably are disconcerted when an objection filed by them has been cancelled by the AAT or the Court because, for example, immediately prior to a review hearing, the bankrupt has provided information long sought by the trustee. By proposed new subsection 149N(1B), no notice is to be taken by a review tribunal or the Court when applying proposed new subsection 149N(1A), of any conduct of the bankrupt after the time when the ground concerned first commenced to exist.

175       However, as a bankrupt may fail, for reasons beyond the bankrupt's control, to comply with a duty imposed under the Act, the proposed amendment permits the Inspector-General to cancel an objection made on a special ground if the bankrupt establishes that there was a `reasonable excuse' for the conduct or failure that constituted a special ground.”

the proceeding before the Federal Magistrate

16                  The evidence before the Federal Magistrate was initially at least largely uncontentious.  Although the appellant filed a statement of affairs on 17 October 2000, he did not provide a completed statement of annual income until 15 March 2001.  It was essentially that statement that resulted in the trustee issuing a contribution assessment notice on 10 April 2001.  It required the bankrupt to pay the sum of $4595 with respect to the year 25 July 2000 to 24 July 2001.  As previously indicated, that demand was simply ignored. 

17                  Thereafter the trustee continued to issue notices to the appellant requesting information.  The trustee sought annual statements of income.  The appellant ignored these notices until April 2004, when his solicitors returned completed questionnaires with respect to all past arrears, and forwarded the appellant’s cheque for $4595, finally satisfying the earlier notice of contribution.

18                  The appellant’s failure to complete the annual statements of affairs led his trustee to object to his discharge from bankruptcy, on 2 September 2003.  The trustee also objected to the appellant’s discharge on several alternative grounds.  However, those objections were not upheld, and nothing further need be said about them.

19                  It was conceded by the appellant, before the Federal Magistrate, that he had failed to provide the requisite information.  There was no challenge to the validity of the trustee’s notice of objection which resulted in the period of his bankruptcy being extended to eight years.  Instead, the appellant simply relied upon the fact that, prior to the hearing of his application for review, he had remedied all his earlier failures, having supplied the information requested by the trustee, and made payment to the trustee of the contribution amount assessed. 

20                  As a consequence the appellant sought to have the trustee withdraw his notice of objection, thereby bringing his bankruptcy to an end.  It was common ground, before his Honour, that the trustee had the power to withdraw the objection, pursuant to s 149J. 

21                  However, the trustee declined to withdraw the objection.  He provided written reasons for his decision.  He said, inter alia:

“The fact that the bankrupt has since lodged the requested annual statement of income questionnaires and paid the income contribution owing does not change the fact that my objection was valid and reasonably based.”

22                  The Federal Magistrate noted that s 178 had been discussed in some detail by French J in Macchia v Nilant (2001) 110 FCR 101 (“Macchia”).  In that case, French J examined the statutory framework for the control of trustees in bankruptcy.  In any event, it was accepted by both sides, in the present case, that the Federal Magistrate had power, pursuant to s 178, to direct the trustee to withdraw his notice of objection. 

23                  His Honour then turned to the principles that governed the application before him.  He observed that there was one case to which he had been referred where an application had been made pursuant to s 178 with respect to a trustee’s discretion under s 149J: Thomas v Donnelly (No. 2) [1997] FCA 1142 (per Emmett J) (“Thomas v Donnelly”).  In that case, the notice of objection had relied upon four separate grounds.  These were that the bankrupt:

·                    had continued to manage a corporation without having been given leave to do so (s 149D(1)(b));

·                    had failed to provide written information regarding his income in response to a request by the trustee (s 149D(1)(d));

·                    had failed to disclose a liability that existed at the date of the bankruptcy (s 149D(1)(i); and

·                    had failed to disclose a beneficial interest in property (s 149D(1)(n)). 

24                  Under the Act as it then stood, the first two grounds had the effect of extending the bankruptcy to December 1999.  The second two grounds had the effect of extending the bankruptcy to December 1996.  There were no “special” grounds designated as such.

25                  Emmett J observed that it was clear that s 149J conferred on a trustee discretionary power to consider and make a decision as to whether, in particular circumstances, he should withdraw an objection that he had lodged.  His Honour noted that a trustee was, of course, an officer of the court.  In the exercise of his powers and functions, he was required to take into account not only the interests of creditors, but also the interest of the bankrupt and of the community generally.  He said:

“In exercising his powers, the trustee should have in mind the object of enforcing careful and moral conduct on the part of the debtor and to uphold the commercial morality of the community.”

26                  It appears that in Thomas v Donnelly, the bankrupt offered to pay an amount of just over $75,000 in relation to arrears of in excess of $100,000 if the trustee were prepared to withdraw his objection.  However, after initially indicating agreement in principle, the trustee changed his mind.  This was largely the result of a meeting of creditors, which voted against the trustee’s proposal to accept the bankrupt’s offer. 

27                  Emmett J observed that the question of withdrawal of objection was a matter for the trustee.  It was not a matter for the creditors.  An issue arose as to whether s 177 of the Act would apply to such a question.  That section requires the trustee to have regard to any lawful directions given by resolution of the creditors, but only “in the administration of the estate of a bankrupt”.  Counsel for the bankrupt argued that the decision to withdraw a notice of objection to discharge did not fall within that description.  Emmett J rejected that contention.  However, he concluded that the meeting of creditors had not relevantly resolved to direct the trustee not to withdraw his objection. 

28                  Ultimately, his Honour concluded, the trustee had been entitled to have regard to the attitude of the creditors, but not to give that factor decisive weight.  On the evidence before the Court, the trustee had given too much weight to the views of the creditors, and should be required to reconsider the matter afresh, in accordance with the reasons for judgment. 

29                  Returning to the Federal Magistrate’s decision in the present case, his Honour noted that the primary basis relied upon by the trustee for opposing the orders sought by the appellant was that the proper decision had been taken at the time the notice of objection was lodged, and that subsequent events should have no impact upon that fact.  However, his Honour appears not to have accepted that submission.  He said, at [21]:

“It appears to me that a proper reading of the relevant part of the Bankruptcy Act shows that section 149J has a purpose of providing a mechanism whereby a decision under section 149A, which may have been clearly appropriate at the time, can be reversed if it is subsequently concluded that it is appropriate to bring the period of bankruptcy to an end.”

30                  The Federal Magistrate then proceeded to consider the scheme of the Act.  He noted that its primary purpose was to enable a debtor’s property to be taken, and used to pay creditors.  To the extent that there was a shortfall, the debtor would be freed from the burden of accumulated debts.  The scheme was not intended to be punitive, though there would necessarily be some punitive aspects to it in order to provide appropriate incentives for bankrupts to comply with their statutory obligations. 

31                  His Honour referred to the history behind the introduction of ss 149A to 149N.  He noted that earlier versions of those provisions had been considered by this Court in Re Ansett (1995) 56 FCR 526 (“Ansett”), Inspector-General in Bankruptcy v Nelson (1998) 86 FCR 67 (“Nelson”), and Wharton v Official Receiver in Bankruptcy (2001) 107 FCR 28 (“Wharton”). 

32                  In Ansett, Olney J said:

“The legislative policy seems to be clear enough.   Section 149D(1) sets out some 14 grounds upon which an objection may be based.   The mere existence of an available ground does not automatically give rise to an extension of the bankruptcy.   To achieve that end the trustee must give notice setting out the ground he relies upon, the evidence which establishes that ground and the reason why he objects to the discharge on that ground.   The latter requirement suggests that the trustee must address the relevance of the bankrupt's conduct in relation to the ground of objection in the context of the administration of the estate and to make a judgment as to whether that conduct provides a basis or reason for the bankruptcy to be extended.   Further, the trustee is required to expose his reasoning in the notice.”

33                  In Nelson, it was determined that the trustee was required to consider whether there was any reason to object to discharge, beyond the mere fulfilment of one or more of the grounds upon which objection could be taken. 

34                  In Wharton, I referred to the provisions dealing with objections to discharge, as they then stood, in the following terms:

“[77] Section 149A is an important provision.  It provides a strong incentive to bankrupts to co-operate with their trustees during the administration of their estates.  In some circumstances, an incentive of that type is plainly necessary.  However, unless the section is construed in a sensible manner, it is capable of operating oppressively.  It is reasonable to assume that trustees who make requests for information from bankrupts, including those concerning their income, will make due allowance for what might be regarded as the ordinary exigencies of life.  Requests for information are often not met in as timely a manner as they ought to be.  Some delays may be regarded as excusable while others will properly give rise to the filing of notices of objection.  A bankrupt cannot ignore requests from his or her trustee.  A particularly lengthy delay in responding to a request may trigger a notice of objection to discharge which is entirely justifiable.  A relatively short delay in answering a request may be a different matter.  Section 149D(1)(d) must be construed in the light of the requirement in s 149B(2)(b) that the trustee must believe that the filing of a notice of objection is the only way to induce the bankrupt to discharge his duties under the Act.  It is plainly a course of last resort. 

[78] The fact that the trustee may cease to object or withdraw an objection prior to the expiry of that eight year period offers scant comfort to a bankrupt who may be involved in a bitter and protracted dispute with the trustee about a host of matters connected with his bankruptcy.  The proper approach to the construction of s 149A is to ensure that the grounds upon which a notice of objection is filed are sufficient to justify taking that course.”

35                  After referring to these authorities, his Honour observed that the current version of these provisions had been enacted in 2002.  The amendments created a special category of grounds of objection, namely “special grounds”.  Those grounds, if made good, would result in an objection to discharge being upheld without any additional justification being provided for continuation of the bankruptcy.

36                  In discussing the purpose of the amendments, the Federal Magistrate noted that before their enactment, trustees had often found it difficult to maintain objections.  Frequently, the Inspector-General, the Administrative Appeals Tribunal, and the Federal Court had cancelled objections on review.  The reasons varied.  Some trustees had found it difficult to differentiate clearly between the grounds of an objection, and the reason for filing the objection.  Moreover, on occasion, a bankrupt’s challenge to an objection had been upheld simply because either during a hearing, or just before it occurred, the bankrupt eventually had supplied information long sought by the trustee, the non-supply of which had formed the basis of the objection.  Such decisions had been thought to undermine a prime purpose of the objection regime which was to induce a bankrupt to cooperate, promptly, with his or her trustee.

37                  His Honour referred to several commentaries regarding the amendments to the Act, all of which noted that the aim was to tighten the obligations imposed upon the bankrupt, and to strengthen the trustee’s hand.  Indeed, the Explanatory Memorandum, to which reference has already been made, stated that one of the objects of the Bill was to:

“strengthen the objection-to-discharge provisions of the Bankruptcy Act 1966 (the Act) by making it easier for trustees to lodge objections to a person's discharge from bankruptcy and harder for bankrupts to sustain challenges to objections”.

38                  The Federal Magistrate said that there appeared to be no reported case on the operation of the “special grounds” provisions in the Act.  That is correct, so far as I can tell, though Beaumont ACJ briefly alluded to those provisions in Pollack v Lombe [2004] FCA 362.  In any event, the Federal Magistrate observed at [36]:

“It appears clear that the legislature intended that establishing a ‘special ground’ for giving a notice objecting to a bankrupt’s discharge is now intended to be sufficient evidence to demonstrate that it is appropriate to continue a bankruptcy beyond 3 years.  It appears that the intention of the amendments is to deem a ‘special ground’ sufficient evidence of the basis for continuing a bankruptcy, without reference to the considerations discussed in Wharton and Nelson (supra).  Whilst section 149J was said to offer scant comfort (see Wharton, supra), it now remains the only comfort for a bankrupt the subject of an objection on a ‘special ground’, such as the applicant.”

39                  His Honour continued at [39]:

“Appropriate considerations under section 149J must be based upon considerations relevant to the achievement of a purpose of the law of bankruptcy.  This will usually require (although not necessarily be limited to) consideration of the following:

a)        the utility of continuing the administration of the estate for the purpose of recovering or potentially recovering assets or funds for the creditors;

b)        the importance of continuing the administration of the estate for a sufficient period of time to allow for appropriate inquiry to be made in the circumstances of the particular case (having regard to the circumstances of the case and the conduct of the bankrupt);

c)         maintaining public confidence by ensuring that adequate time is provided to allow for careful scrutiny of the bankrupt’s conduct and enforcement of his or her obligations; and

d)        the interests of the bankrupt in being released from bankruptcy in a timely manner.”

40                  His Honour ultimately concluded that, by declining to withdraw the objection to the appellant’s discharge from bankruptcy, the trustee had erred in the exercise of his discretion.  The error lay in the fact that the trustee had focussed exclusively on the past conduct of the bankrupt, without reference to the fact that he had subsequently remedied his non-compliance by providing information and payment of funds.  That meant that his Honour had to determine whether or not to require the trustee to withdraw the objection, or merely remit the matter for his further consideration. 

41                  The evidence before his Honour was that the appellant had now provided all the information requested by the trustee, including a statement of affairs covering the year ending 25 July 2004.  The various statements provided showed no significant income, and no significant assets or interests which were likely to lead to the recovery of funds or assets for the benefit of creditors.  The previous breaches of the Act had been ameliorated by compliance.  The appellant had already suffered from having his bankruptcy extended, an effective punishment for his past conduct. 

42                  On the other hand, the bankruptcy in this case involved debts in excess of $1.44 million.  The trustee, in his affidavit, had provided no evidence upon which it could be concluded that there was any purpose to be served by continuing the bankruptcy.  Indeed, he had not even alleged that there were extant avenues of inquiry available.  There was no evidence to suggest that he had taken any steps to pursue the appellant in relation to his non-compliance. 

43                  During the course of argument, his Honour indicated his views to counsel for the trustee, and asked him what further steps, if any, the trustee proposed to take in investigating the appellant’s affairs.  He was told, from the bar table, that the trustee would seek to examine the appellant pursuant to s 81 of the Act.  As a result, and with the consent of both parties, an examination of the appellant was set down for the following day.  Somewhat unusually, the examination was conducted before the Federal Magistrate.  It was agreed by both parties that whatever emerged during the course of the examination would be treated as evidence in the application before the court.

44                  His Honour then summarised the effect of the evidence given under the s 81 examination.  He said at [47] that evidence of the following had emerged:

“a)      the applicant has been working for a company owned and controlled

            by his de facto spouse;

b)             the applicant has been paid a very low wage;

c)              the applicant has been involved in assisting his de facto in the

operation of the company, including attendances upon professional advisors;

d)         the applicant has been buying fruit and vegetables for the company (which operates a grocery shop) at the markets;

e)         the wages paid to the applicant, being less than $27,000.00 per annum, may well be less than appropriate remuneration for the tasks he has been undertaking;

f)         the applicant was offered a loan of $50,000.00 by a business associate to enable him to attempt to negotiate a discharge from bankruptcy so that he could work with the associate in the operation of a shopping centre he had a 30% share in before bankruptcy; and

g)         the applicant has operated businesses importing goods from Vietnam before his bankruptcy.”

45                  As a result of the evidence flowing from the s 81 examination, and in the light of the previous conduct of the appellant, the trustee sought more time to investigate his income, and his earning capacity.  The trustee argued that he had lost approximately two and a half years in which to pursue the appellant as a result of his failure to comply with various requests.  However, the trustee had never summonsed the appellant to attend an examination during that period, and appeared to have done little to secure compliance with the requirements of the Act. 

46                  His Honour stated his conclusions as follows:

“50.     If one analyses this case in terms of the factors identified above the results are as follows:

a)         The utility of continuing the administration: There appears to be prima facie evidence that the applicant has a greater income and earning capacity than presently being exercised.  It is not possible to determine definitively if there is in fact utility in continuing the administration of the estate;

b)         Sufficient time to allow for appropriate inquiry:  Whilst the trustee has had significant time to make enquires, there is now evidence which would warrant further inquiry; at least another few months would be needed in this regard.  It is difficult to see why a trustee should have more than 9 to 12 months after a bankrupt has complied, if the trustee is not actively pursuing the administration of the estate;

c)         Maintaining public confidence:  There has been a significant period of bankruptcy, in excess of the minimum 3 years.  The applicant has suffered a significant lengthening of his period of bankruptcy due to his default.  The lack of interest in the applicant by the trustee to date would do little to maintain public confidence, although the fault in this regard lies with both applicant and trustee.  However, to discharge the applicant without ensuring that a reasonable opportunity is provided to follow up the matters arising from the applicant’s section 81 examination would not be likely to maintain public confidence. 

d)         The interests of the Bankrupt:  The applicant has a strong interest in discharge from bankruptcy.  He is entitled to expect that the trustee would act in a timely fashion if the trustee wishes to pursue him further.  However, his failure to maintain any contact with the trustee has also contributed to the current circumstances.

51.       It was submitted by both parties that I could make orders requiring the trustee to withdraw the objection (and effectively discharge the applicant), but stay the operation of those orders until the end of the year to allow the trustee to pursue the applicant over the next few months.  It was argued that the trustee could then apply to have my orders discharged if the trustee could establish further grounds for continuing the bankruptcy. That would really amount to a provisional or conditional judgment.  I am not satisfied that I have power to make such orders, nor that it would be appropriate to do so in the context of this case. 

52.       On balance I am not satisfied that it would be just and equitable to make orders under section 178 requiring the trustee to exercise his power to withdraw the objection under section 149J (effectively discharging the applicant from bankruptcy).  However, the trustee ought to actively pursue the administration of this estate, and if he does not do so, it is difficult to see why he ought not exercise his discretion under section 149J in the near future.

53.       I therefore dismiss the application.”

47                  It is important to note his Honour’s final observation.  When dealing with the matter of costs, he said at [54]:

“I am of the view that whilst the applicant has failed in the application it is only on the basis of evidence elicited during the application, which could have been obtained by the trustee before the applicant was put to the costs of the proceedings.  The initial reasons given by the trustee were such that it was reasonable for the applicant to bring the application.  Therefore I do not propose to make any orders for the costs of the application, other than the costs thrown away by an earlier adjournment (agreed by the parties to be in the sum of $300.00 and payable by the respondent to the applicant).” (emphasis added)

The appellant’s submissions

48                  By notice of appeal filed on 10 September 2004, the appellant challenges the decision of the Federal Magistrate dismissing his application to review the trustee’s refusal to withdraw his objection.  The grounds of appeal are numerous.  In substance, the appellant contends that, in exercising his discretion under s 178 of the Act, his Honour:

·                    took into account a series of irrelevant considerations;

·                    failed to give appropriate weight to the appellant’s right to have the objection withdrawn given the expiration of the normal three year period of bankruptcy, and the grounds for the objection having been remedied;

·                    failed to give weight to the fact that the appellant had consented to a s 81 examination being conducted as part of the application for review;

·                    erred in holding that he had no power to order the trustee to withdraw the objection, but stay the operation of that order for a time sufficient to enable additional inquiries to be made; and

·                    failed to have regard to the fact that an order dismissing the application would create a res judicata, or an issue estoppel, barring the appellant from making a further application to review even if the s 81 examination proved nothing.

49                  Counsel for the appellant, Mr Irlicht, also appeared before the Federal Magistrate.  He submitted that his Honour had erred in concluding that the amendments to the Act introduced in 2002 had altered significantly the discretionary factors to be taken into account in determining whether it was “just and equitable” to require the trustee to withdraw his objection.  The purpose of the procedure relating to objection to discharge was to promote compliance with the duties referred to in s 149D, and not to punish a bankrupt for any breaches of those duties. 

50                  More particularly, Mr Irlicht submitted that none of the facts identified in [47] of the Federal Magistrate’s reasons for decision (set out at [44] above) were in any way relevant to the exercise of his Honour’s discretion under s 178, and had not, in any event, been raised by the trustee in his notice of intention to oppose the appellant’s application.  In addition, it was clear from the reasoning below that it was only the evidence given by the appellant during his s 81 examination which had resulted in his application being dismissed. 

51                  With regard to his Honour’s conclusion that he had no power to order the trustee to withdraw his notice of objection, but to stay that order, Mr Irlicht simply submitted that this was manifestly incorrect.  Under s 30(1) of the Act, the Federal Magistrates Court, exercising its jurisdiction in bankruptcy, had “full power to decide all questions, whether of law or of fact, in any case of bankruptcy”, and to “make such orders … as the Court considers necessary for the purposes of carrying out or giving effect to this Act …”.  In any event, his Honour could simply have adjourned the application to a given date to enable the trustee to complete his inquiries, without peremptorily dismissing the application.  The course taken by his Honour meant that no matter what the further inquiries revealed, and even if they revealed nothing, the appellant could not return to court in order to compel the trustee to withdraw his objection.

The respondent’s submissions

52                  Counsel for the trustee, Mr Agardy, submitted that the Federal Magistrate had been entirely justified in dismissing the application.  He noted that the evidence upon which that decision had been taken included the evidence given by the appellant at his s 81 examination, conducted before his Honour concurrently with the application for review.  The appellant had expressly consented to that course, and also to the use of the evidence thereby obtained as part of that application.  He could hardly be heard to complain about what he had specifically agreed to below.

53                  Mr Agardy submitted that the application before his Honour, having been brought under s 178, involved the exercise of a broad discretion.  The expression “just and equitable”, in the context of that section, conferred upon the court extremely wide powers.  See generally Re Tyndall (1977) 17 ALR 182 at 186 (“Re Tyndall”), and Macchia.

54                  Mr Agardy referred, in particular, to Bethune v Newman (1996) 19 ACSR 99 at 102, where RD Nicholson J observed at 102:

“…the court is required to consider the application by way of review under s 178.  That is the exercise of a discretionary power in the court and the court must take into account all matters that go to the making of orders thought to be just and equitable.  The broad discretion given to the court under s 178 requires it, in my view, to be put in possession of all facts that might be relevant.”

55                  Mr Agardy next submitted that although this Court heard the appeal from the Federal Magistrate by way of “rehearing”, it was not a hearing de novo, but confined to the evidence before the court below.  Nonetheless, additional evidence was available, under s 27 of the Federal Court Act, which demonstrated that the Federal Magistrate had determined correctly that it would not be “just and equitable” to direct the trustee to withdraw his objection.  The additional evidence upon which he sought to rely was that given by the appellant, and his de facto, pursuant to s 81, which was obtained after I initially heard this case, and adjourned it to a later date.  I shall have something further to say about this additional evidence later in these reasons for judgment.

56                  Mr Agardy then argued that the Court should be mindful of the principles laid down by the High Court in House v The Queen (1936) 55 CLR 499.  The question on appeal was whether the Federal Magistrate had erred in the exercise of his discretion, and not whether the court hearing the appeal would have exercised the discretion in a different manner.  The appellant had to point to some error of principle, or at least some substantial injustice that would result from his Honour’s decision.  According to Mr Agardy, he had failed to do so.

57                  Turning to the central grounds of appeal, Mr Agardy submitted that the fact that the appellant had remedied his earlier defaults was not relevant because the notice of objection had specified at least one “special ground”.  Section 149N(1B) of the Act provided that no notice was to be taken of any conduct of the bankrupt after the time when the ground concerned had first commenced to exist.  However, he acknowledged that this sub-section was prefaced by the expression “In applying subsection (1A)”.  Sub-section (1A) was specifically directed to review by the Inspector-General, and had no direct application to further review by the Administrative Appeals Tribunal, or the court.  

58                  In response to Mr Irlicht’s contention that the Federal Magistrate had taken into account a series of irrelevant matters when exercising his discretion, Mr Agardy submitted that this was not so.  His Honour was not confined to matters raised in the notice of opposition.  That notice was not a formal pleading.  The court was entitled to grant such relief as was appropriate on the facts as found: Rawson v Hobbes (1961) 107 CLR 466 at 485.

59                  Mr Agardy submitted that it was plainly relevant to the exercise of the Federal Magistrate’s discretion that the appellant had been working for a company owned and controlled by his de facto.  So too was the fact that he had been paid a very low wage, despite his having played a major role in running the company.  In addition, the offer of a loan of $50,000 by a business associate in order to enable him to negotiate a discharge from his bankruptcy so that he could work with that associate in the operation of a shopping centre that he had previously had a 30% share in, prior to his bankruptcy, could not be regarded as irrelevant.  All of these matters, whether considered separately, or in conjunction with each other, bore upon the question whether the bankrupt had been concealing income or assets from his trustee during the course of his bankruptcy.

60                  In addition, Mr Agardy submitted that there was utility in extending the period of the bankruptcy in the present case.  The s 81 examination raised a number of suspicious matters that warranted further investigation.  The additional evidence had added to those matters.  For example, the appellant’s daughter’s university fees had been paid by a cheque drawn on the de facto’s company.  This too raised further suspicions.

61                  Mr Agardy acknowledged that even if the appellant were discharged from bankruptcy, that would not preclude the trustee from continuing to investigate his affairs, with a view to levying contribution assessments for past years upon him.  He submitted, however, that the trustee would be better placed to carry out his investigations if the appellant remained in bankruptcy.  For one thing, his travel movements would be restricted because he would not have access to his passport without the trustee’s consent.  For another, the trustee would be kept informed of the appellant’s movements, and his income, and any assets that he might acquire.  In addition, there was always the possibility that the appellant would gain a windfall which, having regard to his past conduct, ought properly to be available to his creditors as part payment of a very large debt.

62                  Finally, Mr Agardy dealt with the two remaining grounds of appeal.  He submitted that the fact that the appellant had consented to the s 81 examination was of no consequence.  The trustee had a statutory right to examine the bankrupt, and the evidence obtained at such an examination was plainly relevant and admissible.  As for the Federal Magistrate’s conclusion that he had no power to stay an order directing the trustee to withdraw his objection, that view was clearly wrong.  Both s 30 and s 37 of the Act conferred such a power upon the court.  However, it did not follow that the decision to dismiss the application was itself wrong.  It was clear from [52] of his Honour’s reasons that he was not satisfied that it would be just and equitable to require the trustee to withdraw the objection.  He considered that the appellant should remain a bankrupt until the investigation into his affairs had been completed.  That should of course be done expeditiously.  It was implicit in his reasons that if the trustee did not pursue his inquiries with sufficient vigour, the appellant could renew his application by filing a fresh proceeding, based on changed circumstances.

conclusion

63                  I propose to deal firstly with ground 2(a) of the appellant’s notice of appeal.  By that ground he contends that the Federal Magistrate’s discretion miscarried because he took into account a series of irrelevant considerations, and matters that were not raised by the trustee’s notice of intention to oppose. 

64                  In my view, there is no substance in that contention.  The matters said to be irrelevant were all plainly relevant when considering whether it was just and equitable to direct the trustee to withdraw his objection.  The fact that the appellant had been working for a company owned and controlled by his de facto throughout the period of his bankruptcy was obviously a consideration to be taken into account. 

65                  Division 4B of the Act, introduced in July 1992, requires a bankrupt to pay contributions to the trustee of his or her bankrupt estate where the bankrupt’s income, as assessed by the trustee, exceeds a given threshold level.  Pursuant to s 139S, the amount of contributions payable is equal to 50% of all income exceeding the threshold level.  Income is taken to be derived by a bankrupt for the purposes of Division 4B even though it is not actually received by the bankrupt.

66                  Section 139Y(1)(b)(ii) of the Act enables the trustee to treat the bankrupt as having received reasonable remuneration.  That includes any amount that might reasonably be expected to be, or to have been received, by a person who engaged in similar employment in circumstances where there was no relationship or other connection between that person and the employer.  Clearly, a bankrupt who is employed by a company owned and operated by his de facto may find himself being the subject of a reasonable remuneration assessment under these provisions.  The relevance of the employer’s identity is made even clearer when one considers that the appellant was paid “a very low wage”, even though he carried out important and responsible tasks on behalf of the company. 

67                  The fact that the appellant was offered a loan of $50,000 by a business associate to enable him to negotiate a discharge from his bankruptcy so that he could return to manage the shopping centre he had previously partly owned, before his bankruptcy, also gives rise to suspicion that he had not been completely frank with his trustee regarding his assets. 

68                  Of less importance was the fact that the appellant had been in the business of importing goods from Vietnam before his bankruptcy.  However, in the overall context, this played little, if any, role in the Federal Magistrate’s reasoning.  Even if it had been erroneously taken into account, and it was only marginally relevant at best, it did not materially affect his Honour’s decision, and accordingly did not vitiate it. 

69                  I accept Mr Agardy’s submission that the Federal Magistrate was entitled to have regard to these matters, even though they were not set out in terms in the notice of intention to oppose.  It is of no consequence that the trustee knew about a number of these matters all along. 

70                  The next ground upon which the appellant relied was that his Honour failed to give adequate weight to the bankrupt’s right to have the objection withdrawn given that the normal three year period had elapsed, and each of the grounds of objection had been remedied prior to the hearing. 

71                  I should say that I do not accept Mr Agardy’s contention that his Honour was precluded from having regard to the remedial steps that had been taken, prior to the hearing of the application, because those steps were taken after the grounds of objection “first commenced to exist”: s 149N(1B).  In my view, it is clear that the subsection is directed only to review of a decision by the Inspector-General, and not to review by a court. The opening words to s 149N(1B) are “In applying subsection (1A)”.  That subsection has no application whatsoever to the process of review under s 178.  In my view, it is always open to the court, exercising its supervisory jurisdiction under s 178, to have regard to the utility of extending the bankruptcy in circumstances where the basis upon which the trustee originally objected to discharge no longer exists.  If the legislature had intended to prevent a court, exercising its powers under s 178, from having regard to such matters, it would certainly have used clearer language to bring about that end. 

72                  I see nothing in the amendments to the Act, introduced in 2002, that detracts from the force of what Deane J said in Re Tyndall.  His Honour concluded at 186 that the wording of s 178 was such as to confer upon the court the “widest possible discretion” as to the appropriate order that should be made in the particular case. 

73                  That is not to say, as Deane J noted in Re Tyndall, that the court should either disregard the relevant decision of the trustee or ignore the well-established policy under bankruptcy legislation that the court should not unduly interfere with the day-to-day administration of a bankrupt’s estate by a trustee.  The trustee is made responsible for the administration of the bankrupt estate.  He or she must, in the course of that administration, make a variety of decisions aimed at enabling the administration to be carried out promptly and efficiently.  Some of these decisions involve business or commercial considerations in which the trustee’s own background in such matters would itself provide a basis for the court declining to interfere unless the decision was perverse or clearly wrong. 

74                  Nor would it be proper for the court to give no weight, or inadequate weight, to the fact that some of the grounds upon which the objection was based are designated “special grounds”.  That of itself is a matter of some significance, and tends against automatically lifting such an objection even where remedial steps have been taken. 

75                  The Federal Magistrate plainly considered that he was entitled to have regard to any remedial steps that the appellant had taken prior to the hearing of the application before him.  Ultimately, he considered, in the exercise of his discretion, that those remedial steps did not outweigh the factors rendering it just and equitable to extend the bankruptcy.  It is that decision that is the subject of this appeal. 

76                  Mr Agardy tendered additional evidence on the appeal, pursuant to s 27 of the Federal Court Act.  That evidence consisted of transcripts of further s 81 examinations, conducted in relation to the appellant and his de facto.  These examinations took place after the Federal Magistrate delivered his decision, and while the appeal was part heard before me.  Although the transcripts may be viewed as heightening suspicions of the appellant’s conduct during the period of the bankruptcy, I have deliberately avoided taking them into account in determining this appeal.  It seems to me that the Federal Magistrate’s decision can be supported without recourse to such further evidence.  I therefore propose to say nothing more about it.

77                  There is obvious utility in the appellant’s bankruptcy being extended.  The Federal Magistrate considered, on the basis of the material adduced before him, and in particular the s 81 examination, that the appellant’s conduct warranted further and more detailed investigation.  It is true that such investigations can take place even if a bankrupt has been discharged.  However, as Mr Agardy pointed out, there are distinct advantages in keeping the bankruptcy on foot while they take place.  Otherwise, a contribution assessment issued after discharge might require a fresh bankruptcy notice to issue, and a completely new sequestration proceeding to be commenced.  Moreover, there is a level of control that can be exercised by a trustee over a bankrupt that is not available in relation to a former bankrupt. 

78                  There is no substance in any of the other grounds of appeal, save that which contends that the Federal Magistrate erred in holding that he had no power to stay an order requiring the trustee to withdraw his objection.  It was accepted by Mr Agardy that his Honour had taken too narrow a view of his powers under the Act, and in general.  However, even if that is so, and I am inclined to think that Mr Agardy’s concession was correct, the error was not material.  It did not in any way vitiate the exercise of his Honour’s discretion under s 178. 

79                  I should add that I reject Mr Irlicht’s submission that the effect of the Federal Magistrate’s judgment, dismissing the appellant’s application, was to create a res judicata, or issue estoppel, barring him forever from making any further application to review the trustee’s decision not to withdraw his objection. 

80                  Section 178 involves an exercise of supervisory jurisdiction, which is inherently fluid, and necessarily flexible.  The power that is conferred upon a court under that section may be exercised at any time.  I accept, of course, that a bankrupt would almost certainly have to point to significantly changed circumstances, or additional facts, in order to persuade a court to make a different order under that section from the order that was originally made.  However, to invoke res judicata, or issue estoppel, as a basis for declining to exercise the supervisory jurisdiction would be to put the interests of finality, important as they are, above the need to ensure that a trustee carries out his duties in a lawful, and proper manner.  It would prevent an applicant, who could point to genuine wrongdoing on the part of a trustee that had not previously been disclosed when the initial application was heard and determined, from having his genuine and valid grievances considered.

81                  It is clearly established that the doctrine of estoppel extends to the decision of any tribunal that has jurisdiction to decide finally a question arising between the parties: Administration of Papua and New Guinea v Daera Guba (1973) 130 CLR 353 at 453 per Gibbs J (“Guba”).  It has also been held that an application for judicial review of an administrative decision is capable of supporting an estoppel: Department of Aviation v Ansett Transport Industries Ltd (1987) 72 ALR 188.  There is authority for the proposition that the fact that the tribunal was to be “guided by the principles of equity and good conscience and shall not be bound by rules of evidence or legal procedure” did not mean that the tribunal’s determination could not give rise to an estoppel: Guba at 402 and 405.

82                  Nonetheless, there are some indications in the authorities that decisions by bodies that do not determine causes of action, or rights, are not capable of giving rise to an estoppel or res judicata: Cachia v Isaac (1985) 3 NSWLR 366.  The exercise of supervisory jurisdiction under s 178 has some analogy with this principle.

83                  In any event, even if one or other of these doctrines can apply to a decision under s 178, there must be a coincidence of issues or causes of action before the doctrines can have any application. And as far as res judicata is concerned, it is also clear that if the facts in issue are different, a judgment arising out of the earlier facts gives rise to no such bar.  The doctrine of issue estoppel is also of limited application in this context because it applies only where there has been a judicial determination directly involving an issue of fact or of law.  A refusal to grant relief under s 178, in circumstances where no remedial steps have been taken, and there is demonstrated utility in continuing a bankruptcy, can hardly be said to raise the same issues of fact or of law as arise where those steps have been taken, and there is no longer any such utility. 

84                  Plainly it would contrary to public policy to permit a party to litigate again an issue that has already been finally determined, at least where there are no new facts and circumstances that might justify that adopting that course.  Indeed, it might well be an abuse of process to seek to do so.  Of course, there may also be scope for invoking what today is colloquially described as “Anshun estoppel” (Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 459) where an applicant does not raise all of the contentions readily available during the course of a hearing, and then seeks to rely upon those held in reserve in a subsequent application. 

85                  The trustee’s refusal to withdraw his objection to discharge was, and is, a continuing act.  Yet circumstances change.  What might be appropriate at one point may be rendered inappropriate by the effluxion of time, and changed circumstances.  A court exercising supervisory jurisdiction, whether it be over a trustee in bankruptcy, a liquidator, or an arbitrator, cannot take too narrow a view of its powers to ensure that those persons discharge their duties according to law. 

86                  In the case of trustees in bankruptcy and liquidators, they are officers of the court.  In Commissioner for Corporate Affairs v Harvey [1980] VR 669, a liquidator, in a compulsory winding up, was described as a “representative” of the court.  The decisions of the liquidator made from time to time are in effect made under the authority of the court itself.  As such the liquidator is entrusted with the reputation of the court for impartial and proper despatch of duties.  No lesser standard is to be expected of them than of a court or judge. 

87                  If a bankrupt seeks, unsuccessfully, to have a trustee removed, alleging some impropriety, he can hardly be prevented by res judicata or issue estoppel from bringing a further application based upon a different set of circumstances.  To hold otherwise would be to confer a blanket immunity upon any trustee who has managed to stave off a single challenge to his or her administration of the estate.  That cannot be in the public interest.

88                  It is not necessary to come to any concluded view about these matters.  The Federal Magistrate’s decision was either correct, or incorrect, as a matter of law.  If no appealable error is demonstrated, the appeal to this Court must be dismissed.  If circumstances change, and it becomes apparent at some stage that not only have all remedial steps been taken, but there is absolutely no utility in continuing the bankruptcy, and it is being maintained solely because the trustee is being vindictive, and wishes to punish the bankrupt for past breaches of his obligations, the bankrupt can approach the court again for relief under s 178.  Mr Agardy expressly acknowledged that this must be so, though the appellant would plainly have to point to new facts and circumstances if he were to be successful in obtaining relief under that section on a further attempt. 

89                  It follows that in my opinion the appeal should be dismissed.  The appellant must pay the respondent’s costs. 

Associate:

Dated:              24 May 2005