FEDERAL COURT OF AUSTRALIA
Frost v Sheahan [2008] FCA 1073
Held: application for withdrawal of objections dismissed
Family Law Act 1975 (Cth)
Federal Court Rules
Ascot Investments Pty Ltd v Harper (1981) 148 CLR 337 referred to
Cummings v Claremont Petroleum NL (1996) 185 CLR 124 referred to
Eshelby v Federated European Bank Ltd [1932] 1 KB 254 referred to
In re Condon; Ex parte James (1874) LR 9 Ch App 609 referred to
Frost v Sheahan [2005] FCA 1014 referred to
Inspector-General in Bankruptcy v Nelson (1998) 86 FCR 67 referred to
Macchia v Nilant (2001) 110 FCR 101 referred to
McGoldrick v Official Trustee in Bankruptcy (1993) 47 FCR 547 referred to
Prentice v Wood (2002) 119 FCR 296 referred to
Re Tyndall; Ex parte Official Receiver (1977) 30 FLR 6; 17 ALR 182
Re Clark (a bankrupt); Ex parte the trustee of the property of the bankrupt v Texaco Ltd [1975] 1 All ER 453; [1975] 1 WLR 559 referred to
Stevens and Stevens [2007] FamCA 680 referred to
Thomas v Donnelly [1997] FCA 1142 referred to
Van Reesema v Official Trustee in Bankruptcy (1983) 69 FLR 424
Wharton v Official Receiver in Bankruptcy (2001) 107 FCR 28
ALLEN GORDON FROST v JOHN SHEAHAN, AS TRUSTEE OF THE BANKRUPT ESTATE OF ALLEN GORDON FROST
SAD 128 OF 2007
BESANKO J
25 JULY 2008
ADELAIDE
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IN THE FEDERAL COURT OF AUSTRALIA |
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SOUTH AUSTRALIA DISTRICT REGISTRY |
SAD 128 OF 2007 |
in the matter of the bankrupt estate of allen gordon frost
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BETWEEN: |
ALLEN GORDON FROST Applicant
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AND: |
JOHN SHEAHAN, AS TRUSTEE OF THE BANKRUPT ESTATE OF ALLEN GORDON FROST Respondent
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BESANKO J |
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DATE OF ORDER: |
25 JULY 2008 |
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WHERE MADE: |
ADELAIDE |
THE COURT ORDERS THAT:
1. The application be dismissed.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
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IN THE FEDERAL COURT OF AUSTRALIA |
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SOUTH AUSTRALIA DISTRICT REGISTRY |
SAD 128 OF 2007 |
in the matter of the bankrupt estate of allen gordon frost
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BETWEEN: |
ALLEN GORDON FROST Applicant
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AND: |
JOHN SHEAHAN, AS TRUSTEE OF THE BANKRUPT ESTATE OF ALLEN GORDON FROST Respondent
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JUDGE: |
BESANKO J |
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DATE: |
25 JULY 2008 |
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PLACE: |
ADELAIDE |
REASONS FOR JUDGMENT
1 On 4 September 2000 a sequestration order was made by the Federal Magistrates Court against the estate of Mr Allen Frost, and Mr John Sheahan, a registered trustee, was appointed the trustee of Mr Frost’s estate. Mr Frost filed his statement of affairs on 29 June 2001 and in the usual course he would have been discharged from bankruptcy on 29 June 2004 by operation of law: s 149 of the Bankruptcy Act 1966 (Cth) (“Act”). However, Mr Frost was not discharged from bankruptcy on 29 June 2004 because Mr Sheahan filed notices of objection which had the effect of extending his bankruptcy under s 149B. Absent an order of the Court in this proceeding, Mr Frost will not be discharged from his bankruptcy until 29 June 2009.
2 On 8 August 2007, Mr Frost issued a proceeding in this Court against the trustee seeking a number of orders. Two orders originally sought by the applicant are no longer relevant. He abandoned before the trial his claim for an order under s 153B of the Act annulling his bankruptcy. He abandoned during the trial his claim for an order under s 33A of the Act that his statement of affairs be treated as having been filed at a time before it was actually filed. The applicant pursues an order under s 178 of the Act requiring the respondent to withdraw his objections to the applicant’s discharge from bankruptcy.
3 Section 178 of the Act is in the following terms:
178 Appeal to Court against trustee’s decision etc.
(1) 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.
(2) The application must be made not later than 60 days after the day on which the person became aware of the trustee’s act, omission or decision.
4 The applicant contends that in the circumstances it is just and equitable that the respondent be ordered to withdraw his objections to the applicant’s discharge from bankruptcy.
5 The respondent’s power to withdraw his objections to the applicant’s discharge from bankruptcy is contained in s 149J of the Act. That section is in the following terms:
149J Withdrawal of objection
(1) 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 of the objection and give the bankrupt a copy of the notice.
(3) The withdrawal takes effect at the beginning of the day when details of a notice under subsection (1) are entered in the National Personal Insolvency Index.
6 The applicant has previously made an application for an order under s 178. That application was made on 13 December 2004. It was dismissed by Lander J on 28 July 2005: Frost v Sheahan [2005] FCA 1014.
Facts
7 The applicant is an accountant. He has tertiary qualifications and considerable experience. He worked as an accountant both before and after he was made bankrupt. As I understand it, he continues to practise as an accountant.
8 At the time of his bankruptcy, the applicant was the joint owner with his wife, Mrs Robyn Frost, of a residential property at Mayfield Crescent, Hallett Cove, South Australia (“Mayfield Crescent property”). He and Mrs Frost have since divorced. At the time of the applicant’s bankruptcy, the Mayfield Crescent property was subject to a number of mortgages and it remains subject to those mortgages. There is a first registered mortgage in favour of Australian Finance Company Pty Ltd which secures a debt of approximately $185,000. There are also two registered mortgages in favour of the applicant’s solicitor, Mr Paul Richardson, each securing a sum of $50,000 alleged to be unpaid legal fees owed by the applicant to Mr Richardson.
9 At the time of his bankruptcy the applicant owned a serviced apartment at Marina Boulevard, Cullen Bay, Northern Territory (“Cullen Bay property”). The property was purchased by the applicant in September 1997 for a sum of $239,950 and it was part of a serviced apartment complex. The Cullen Bay property was subject to a mortgage in favour of the Australian and New Zealand Banking Group Limited (“ANZ Bank”) and a second mortgage in favour of Hurldeb Pty Ltd. The respondent claimed that the mortgage in favour of Hurldeb Pty Ltd was not a valid and enforceable mortgage. In 2004, the Cullen Bay property was sold and the ANZ Bank was repaid the debt owed to it, or at least the greater part of the debt. A relatively small amount was paid to Hurldeb Pty Ltd pursuant to an agreement between the respondent and that company. The applicant’s estate received a return from the sale of the Cullen Bay property of about $28,000. At the time of his bankruptcy the applicant had a bank account with the ANZ Bank and there was an arrangement between the applicant and the ANZ Bank whereby the rental income from the unit was paid into the account and the ANZ Bank would take its loan or mortgage repayments from the account. In early February 2001 the respondent contacted the ANZ Bank and advised it of the applicant’s bankruptcy and asked it to put in place arrangements which would prevent the applicant from using the bank account. For some reason that did not occur and between April and October 2003 the applicant diverted from the account to his own use sums totalling $10,560. The respondent made a claim for that sum from both the applicant and the ANZ Bank. He reached a settlement with the ANZ Bank which I will describe later.
10 The applicant has and continues to carry out his practice as an accountant from premises at 252 Angas Street, Adelaide (“Angas Street property”). The registered proprietor of that property is Ambrose Baker and Partners (Holdings) Pty Ltd. There are two shares on issue in that company, one held by the trustee and the other held by Mrs Frost. The shareholders contend that the company owns the Angas Street property both legally and beneficially, whereas the applicant claims that the company holds the Angas Street property subject to the provisions of the Frost Family Trust and, as a result, the property is not part of the assets of the company.
11 From time to time during the course of the bankruptcy the respondent has, under s 139W of the Act, made an assessment of the income the applicant derived or was likely to derive during a contribution assessment period (“CAP”) and the actual income threshold amount that is applicable in relation to the applicant and the contribution the applicant is required to pay in relation to that period under s 139S. There have been seven completed CAPs during the period from the commencement of the bankruptcy on 4 September 2000 to 3 September 2007. A trustee’s assessment may be reviewed by the Inspector-General in Bankruptcy and there is a further right of review by the Administrative Appeals Tribunal: Part VI, Division 4B, Subdivision G.
12 Since the applicant’s bankruptcy the respondent has filed five objections to the applicant’s discharge from bankruptcy. Four notices were filed before the previous proceeding before Lander J was commenced (that is, 13 December 2004) and one was filed after the commencement of the present proceeding on 8 August 2007.
13 The details of the four notices of objection filed by the respondent before the date the previous proceeding was commenced are as follows:
1. The first notice of objection is dated 4 February 2002 and the grounds of the objection were that the applicant had failed to provide to the respondent information in relation to his income and he had failed to disclose in his statement of affairs his interest in the Cullen Bay property. On an application for review the Inspector-General upheld the first ground, but decided to cancel the second ground. On 13 May 2002 the applicant lodged an income questionnaire with the Official Receiver and on 4 June 2002 the respondent filed a notice withdrawing the first notice of objection under s 149J.
2. The second notice of objection is dated 14 June 2002 and the grounds of the objection were that the applicant failed to make income contribution payments pursuant to s 139ZG of the Act. On an application for review, the Inspector-General varied the assessments for CAP1 and CAP2. The Tribunal upheld the Inspector-General’s decision on a further application for review and on 20 December 2002 the Official Receiver advised that the objection had been upheld and entered on the National Personal Insolvency Index. Lander J found that this objection was appropriate when made, but had been attended to before his decision. However, Lander J held that the respondent had not erred in refusing to withdraw the second objection even though the applicant had fully responded to it because there were proper reasons for the administration of the estate to continue.
3. The third notice of objection is dated 2 December 2003 and the ground of the objection was that the applicant had engaged in misleading conduct in that he had improperly diverted funds from the bank account relating to the Cullen Bay property to his own use. On an application for review, the Inspector-General decided that the applicant’s conduct did not constitute misleading conduct and he cancelled the objection. On 23 July 2004 the Inspector-General advised that the objection was cancelled.
4. The fourth notice of objection is dated 14 July 2004 and the grounds of the objection were that the applicant failed to disclose any particulars of income or expected income as he was required to do by s 139U, and he failed to make payments for which he was liable under s 139ZG. On an application for review the Inspector-General upheld the grounds of objection. Lander J found that the objection was appropriate when filed; he said that he was unable to make a finding as to whether the applicant had satisfied the objection insofar as it relied on the applicant’s failure to make payments for which he was liable. However, he found that even if the applicant had made the payments he was required to make, there were proper reasons for the administration of the estate to continue.
14 As I have said, this proceeding was commenced on 8 August 2007. On 12 November 2007 the respondent filed a fifth notice of objection to the applicant’s discharge from bankruptcy. The ground of the objection in that notice is the applicant’s failure to disclose particulars of income or expected income as required by s 139U. The objection relates to the CAPs commencing on 4 September 2004, 4 September 2005, 4 September 2006 and 4 September 2007 respectively.
15 On 6 March 2008 the applicant filed and served an affidavit sworn by him which annexed his income tax returns for the financial years ended 30 June 2001 to 30 June 2007 inclusive. That was done after this proceeding had been commenced and was done, it seems, to overcome a submission that the applicant had still not provided the information he was required to provide by reason of s 139U.
16 The applicant claims that he has complied with the grounds in the fourth and fifth notices of objections and there are no proper discretionary reasons for refusing to discharge him from bankruptcy. He also claims an order that will have the effect of requiring the respondent to withdraw the second notice of objection.
17 The respondent claims that the applicant has not complied with the grounds in the fourth and fifth notices of objection and, in any event, there are proper discretionary reasons for allowing the administration of the estate to continue.
Relevant statutory provisions and legal principles
18 In the usual case, a bankrupt is discharged from bankruptcy by operation of law after a period of three years from the date on which the bankrupt filed his statement of affairs: s 149. In this case, the application of that section would have led to the applicant being discharged from bankruptcy on 29 June 2004. However, the automatic discharge is subject to the extension of the bankruptcy when a trustee has filed a notice of objection. There have been some amendments to the objection provisions in the Act since the applicant was made bankrupt, but neither party suggested that anything turns on whether a particular amendment applies. As the Act presently stands, the notice of objection must set out one or more of twenty-one grounds of objection identified in s 149D(1) of the Act. The relevant grounds for the purposes of this case are (e) and (f). They are in the following terms:
149D (1) The grounds of objection that may be set out in a notice of objection are as follows:
…
(e) the bankrupt failed to disclose any particulars of income or expected income as required by a provision of this Act referred to in subsection 6A(1) or by section 139U;
(f) the bankrupt failed to pay to the trustee an amount that the bankrupt was liable to pay under section 139ZG.
19 Of the twenty-one grounds, twelve, including (e) and (f), lead to an extension of the bankruptcy for five years, namely, a total of eight years, and the other nine lead to an extension of two years, namely, a total of five years: s 149A(2). Of the twelve grounds, there is a sub-group of ten grounds, including (e) and (f), with respect to which the trustee need not give reasons in his notice of objection (s 149C(1) and (1A)) and which are special grounds within s 149N(1A).
20 A common feature of eight of the sub-group of ten grounds, being the grounds in (d), (da), (e), (f), (g), (ha), (k) and (ma), is a failure by the bankrupt to provide accurate information to a trustee, or to co-operate with a trustee, or otherwise to discharge an obligation the bankrupt has involving the trustee.
21 Section 149A(1) is in the following terms:
If an objection to the discharge of a bankrupt has taken effect in accordance with section 149G, then, unless the objection is withdrawn or cancelled, the reference in whichever of subsections 149(2), (3) and (4) applies in relation to the bankrupt to the period of 3 years from the date on which the bankrupt filed his or her statement of affairs is taken to be a reference to the prescribed number of years from the prescribed date.
22 Section 149B sets out the trustee’s power to file a notice of objection. It is in the following terms:
149B (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.
23 Section 149C deals with the form of a notice of objection, s 149F deals with a copy of a notice of objection being given to the bankrupt and s 149G provides for the date of effect of an objection. In s 149H the trustee’s power to cease to object on a particular ground is referred to and in s 149J (set out in [5]) the trustee’s power to withdraw an objection is identified.
24 Part VII, Division 2, Subdivision C deals with the review of an objection by the Inspector-General in Bankruptcy. Section 149K(1) is in the following terms:
(1) The Inspector-General may review a decision of the trustee to file a notice of objection:
(a) on the Inspector-General’s own initiative; or
(b) if requested to do so by the bankrupt for reasons that appear to the Inspector-General to be sufficient to justify such a review.
25 Section 149N deals with the circumstances in which the Inspector-General must and must not cancel an objection.
149N Decision on review
(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.
26 Section 149Q provides for the making of an application to the Administrative Appeals Tribunal for a review of a decision of the Inspector-General.
27 As I have said, the Act makes provision for a bankrupt to make contributions from income earned by him while bankrupt. The key section is s 139W which is in the following terms:
139W Assessment of bankrupt’s income and contribution
(1) As soon as practicable after the start of each contribution assessment period in relation to a bankrupt, the trustee is to make an assessment of the income that is likely to be derived, or was derived, by the bankrupt during that period, of the actual income threshold amount that is applicable in relation to the bankrupt when the assessment is made and of the contribution (if any) that the bankrupt is liable to pay in respect of that period under section 139S.
(2) If at any time, whether during or after a contribution assessment period, any one or more of the following paragraphs applies or apply:
(a) the trustee is satisfied that the income that is likely to be derived, or was derived, by the bankrupt during that period is or was greater or less than the amount of that income as assessed by the last preceding assessment in respect of that period;
(b) the base income threshold amount increased or decreased after the making of the last preceding assessment in respect of that period and before the end of that period;
(c) the trustee is satisfied that the number of the bankrupt’s dependants increased or decreased after the making of the last preceding assessment and before the end of that period;
the trustee is to make a fresh assessment of the income that is likely to be derived, or was derived, by the bankrupt during that period, of the actual income threshold amount that is applicable in relation to the bankrupt when the assessment is made and of the contribution (if any) that the bankrupt is liable to pay in respect of that period.
(3) The powers of the trustee under subsection (2) may be exercised on the trustee’s own initiative or at the bankrupt’s request, but the trustee is not required to consider whether to exercise those powers at the bankrupt’s request unless the bankrupt satisfies the trustee that there are reasonable grounds for the trustee to do so.
(4) As soon as practicable after the making of an assessment the trustee must give to the bankrupt written notice setting out particulars of the assessment and informing the bankrupt about the possibility of a variation under section 139T.
28 There is no time limit on the making of an assessment and it may be made after the bankrupt has been discharged from bankruptcy: s 139WA. The liability of a bankrupt to pay a contribution is dealt with in ss 139P and 139Q and the amount of the contribution to be paid is dealt with in s 139S. A bankrupt has an obligation to provide information to the trustee about his income and that is dealt with in s 139U. That section is in the following terms:
139U Bankrupt to provide evidence of income
(1) A bankrupt must, as soon as practicable, and in any event not later than 21 days, after the end of a contribution assessment period, give to the trustee:
(a) a statement:
(i) setting out particulars of all the income that was derived by the bankrupt during that contribution assessment period; and
(ia) setting out particulars of all the income that was derived by each dependant of the bankrupt during that contribution assessment period; and
(ii) indicating what income (if any) the bankrupt expects to derive during the next contribution assessment period; and
(iii) indicating what income (if any) the bankrupt expects each dependant of the bankrupt to derive during the next contribution assessment period; and
(b) such books evidencing the derivation of the income referred to in subparagraph (a)(i) as are in the possession of the bankrupt or the bankrupt can readily obtain.
Penalty: Imprisonment for 6 months.
(2) The particulars that a bankrupt is required to include in a statement given to the trustee under subparagraphs (1)(a)(i) and (ia) are all the particulars that are known to the bankrupt and any particulars that the bankrupt can readily obtain.
(3) Without limiting the generality of paragraph (1)(b), the books that a bankrupt is required to give to the trustee under that paragraph in respect of a contribution assessment period include:
(a) if the bankrupt received from his or her employer one or more pay slips or other documents evidencing salary or wages paid to him or her by that employer during that period—that document or each of those documents; and
(b) any copy of a group certificate or payment summary (within the meaning of section 16-170 in Schedule 1 to the Taxation Administration Act 1953) in the possession of the bankrupt that relates in whole or in part to that period; and
(c) any statement provided to the bankrupt by an ADI or other financial institution that shows periodic payments made during that period to an account kept by the bankrupt (either alone or jointly with any other person) with that institution; and
(d) any notice of assessment issued to the bankrupt under the Income Tax Assessment Act 1936 in respect of a year of income in which that period is included; and
(e) if the bankrupt is in receipt of a pension, allowance or other benefit under a law of the Commonwealth, of a State or of a Territory—any letter or other document sent or given to the bankrupt by the Department or authority that administers the legislation or scheme under which the benefit is provided.
The term “books” is widely defined in s 5 of the Act.
29 If the trustee has reasonable grounds to suspect that information he has been given is inaccurate, then he may request by notice such information or books as he specifies in the notice: s 139V.
30 Section 139U operates in a context in which a trustee can issue an assessment at or about the beginning of an assessment period, that is, an original assessment (s 139P and s 139W(1)) and then, if appropriate, an assessment at or about the end of the same period, that is, a subsequent assessment (s 139Q and s 139W(2)) and an assessment may be made at any time including at a time after the bankrupt has been discharged from bankruptcy.
31 The trustee’s assessment is subject to review by the Inspector-General: Part VI, Division 4B, Subdivision G.
32 Section 139ZG which is referred to in s 149D(1)(f) provides for the time or times at which contributions are payable.
33 The relevant legal principles are not in dispute and for the most part are well known. I will summarise them briefly.
34 The principles which govern an application under s 178 are as follows:
1. Section 178 confers a “supervisory jurisdiction over the conduct of the trustee”: Cummings v Claremont Petroleum NL (1996) 185 CLR 124 at 132 per Brennan CJ, Gaudron and McHugh JJ. The section confers on the Court a very wide discretion: McGoldrick v Official Trustee in Bankruptcy (1993) 47 FCR 547 at 552-553.
2. It is not necessary for an applicant for relief under the section to show that the trustee’s decision was absurd, or unreasonable or taken in bad faith. The Court has a wide discretion to make such order as seems appropriate in the circumstances of the case: Re Tyndall; Ex parte Official Receiver (1977) 30 FLR 6 at 9-10; 17 ALR 182 at 186 per Deane J. At the same time, the Court will be slow to make orders which will have the effect of interfering in the day-to-day administration of a bankrupt’s estate and, in cases involving an exercise of business or commercial judgment, will place considerable weight on the trustee’s decision. Furthermore, a Court will not intervene under s 178 simply because the Judge forms a different view from that of the trustee.
3. An order may be made under s 178 even if the trustee’s decision was correct on the material before him, if, for example, additional material is put before the Court.
4. The power to make orders under s 178 is not necessarily ousted by the presence of an alternative remedy. In any particular case, the presence of an alternative remedy may lead to an argument that the alternative procedure is a code for correcting alleged errors by a trustee. That was a possibility discussed by the Full Court of this Court in McGoldrick, although the argument did not succeed in that case. In almost all cases, the presence of an alternative remedy will be relevant to the exercise of a discretion under s 178 not to make an order. There is, with respect, an illuminating discussion of the relevant principles by French J in Macchia v Nilant (2001) 110 FCR 101.
Counsel for the respondent in this case referred to McGoldrick and the argument that an alternative review procedure might be construed as a code excluding relief under s 178, but by the time of their respective closing submissions both parties accepted that there is no alternative review procedure which might affect this application either as a matter of law or as a matter of discretion. The position taken by the parties is correct because the review procedure in Part VII, Division 2, Subdivision C relates to a trustee’s decision to file a notice of objection (s 149K(1)); not a decision (or act or omission) by a trustee not to withdraw an objection.
35 As far as the objection provisions in the Act are concerned, although a number of the authorities deal with provisions which have since been amended, it seems the basic principles remain the same. They are as follows:
1. The power to prevent a discharge from bankruptcy by operation of law by filing a notice of objection is “a great power”: Van Reesema v Official Trustee in Bankruptcy (1983) 69 FLR 424 at 430-431; 50 ALR 253 at 260; Prentice v Wood (2002) 119 FCR 296 at 300 [19]-[21].
2. In Inspector-General in Bankruptcy v Nelson (1998) 86 FCR 67 the Court referred to s 149C as it then was and concluded that to make an objection a trustee would need to have reasons directed to the purposes and objects of the Act and that the existence of a permissible ground supported by sufficient evidence was a threshold and that there must also be reasons justifying the making of the objections in the particular case. Section 149C has since been amended to insert subs (1A) which excludes the sub-group of ten grounds to which I have previously referred from the operation of s 149C(1)(c) (see [21] above). It is not necessary for me to consider whether this amendment might affect the question of whether all the reasoning in Nelson should be applied to the amended provisions because there is no challenge in this case to the respondent’s decision to make the objections or the notices of objections themselves.
3. Unlike this case, in Wharton v Official Receiver in Bankruptcy (2001) 107 FCR 28 there was a challenge to a trustee’s decision to file a notice of objection and at the time relevant to Weinberg J’s decision there were fourteen, not twenty-one, grounds of objection in s 149D(1). Nevertheless, with respect, his Honour’s observations at 41 [77] give an insight into the objection procedure:
Section 149A is an important provision. It provides a strong incentive to bankrupts to cooperate 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.
4. In Thomas v Donnelly [1997] FCA 1142, Emmett J considered the trustee’s discretionary power under s 149J to consider and make a decision as to whether, in particular circumstances, he should withdraw an objection which he has lodged. His Honour made the point that a trustee is an officer of the Court and that in exercising his powers and functions, he is required to take into account not only the interest of creditors but also the interest of the bankrupt and of the community generally. His Honour also 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.
In Macchia, French J cited with approval authority to the effect that trustees are appointed to administer the estates of bankrupts in the interests of creditors and, in so doing, to have regard also to the interests of bankrupts (at 116 [38]).
5. In a case such as the present one where there has been a failure to provide information or material and to pay money and there is no challenge to the decision to make objections on those grounds, a trustee, on being asked to consider a withdrawal of objections, will consider the following:
(1) Whether the obligation has now been complied with or, at least, substantially complied with. Literal compliance may not in fact be possible. The ground in s 149D(1)(e) provides an example. The twenty-one day period referred to in s139U(1) is likely to have expired long ago. I will refer to substantial compliance as embracing the concept of compliance in a practical sense with the relevant obligation. It is difficult to see how a trustee could be criticised for refusing to withdraw an objection that had not been substantially complied with.
(2) Even if an objection has been substantially complied with, the trustee has a discretion not to withdraw it. That discretion must be exercised having regard to the interests of the bankrupt’s creditors and the interest of the bankrupt and the community generally. The discretion should not be exercised to punish the bankrupt. Despite legislative amendments since Nelson the principle that a notice of objection should not be filed to penalise a bankrupt (at 82) remains valid and in the same way a trustee should not refuse to withdraw an objection for the purpose of penalising a bankrupt.
The most important consideration in the exercise of the discretion whether to withdraw an objection will be whether there is utility in the administration of the estate continuing. If there is utility in the administration of the estate continuing, then even though a properly based objection has been substantially complied with it may be appropriate for the trustee to refuse to withdraw the objection. In exercising the discretion it is likely that it will be appropriate for a trustee to consider a range of matters. It is not possible to state those matters exhaustively. Some of the matters which seem to me to be relevant are the nature and extent of the benefit which may accrue to the estate if the administration continues, any connection between the ground of objection and delay in the timely administration of the estate, delay by the trustee in the timely administration of the estate for reasons unrelated to the ground of objection and any connection between the ground of objection and a need by the trustee to conduct further inquiries and investigations. It would also be appropriate for the trustee to have regard to the interests of the bankrupt and the overall period of the bankruptcy. In a proper case, it will also be appropriate for the trustee to take into account the fact that he retains certain powers, or is owed certain obligations by a bankrupt, even after the bankrupt’s discharge from bankruptcy. Examples are the power to examine and require the production of books in s 81, and the obligation in s 152 of the Act. Section 152 is in the following terms:
s 152 A discharged bankrupt must, even though discharged, give such assistance as the trustee reasonably requires in the realization and distribution of such of his or her property as is vested in the trustee.
Penalty: Imprisonment for 6 months.
One factor which the respondent advanced as a factor he could rely on to support his decision not to withdraw the objections was the fact that, if not discharged, there will be a further CAP and it was said that that might produce a contribution for the benefit of creditors. The CAPs cease at the end of bankruptcy although an assessment may be made at any time: s 139WA. The discharge of a bankrupt from a bankruptcy does not release the bankrupt from liability to pay an amount to the trustee under s 139ZG(1). In my opinion, the fact that there will be a further CAP is not a factor to be taken into account. It is a consequence of an administration continuing, but not a reason to continue it. I do not think the Full Court of this Court said anything to the contrary in Prentice v Wood (2002) 119 FCR 296.
36 I have not been able to find any authority which deals with s 139U of the Act. Two matters, however, should be noted. First, the reference in s 149D(1)(e) to s 139U may only be a reference to the obligation in subs (1)(a) to provide a statement containing certain particulars and other matters and not (in addition) the obligation in subs (1)(b) to provide books. That would seem to follow from the fact that s 149D(1)(e) refers only to a bankrupt’s failure to disclose “any particulars of income or expected income as required by … section 139U”. Secondly, there was no debate before me as to whether a bankrupt only complied with s 139U if the statement containing certain particulars and other matters and the books are accurate. That type of issue was discussed by Weinberg J in Wharton in a different context, namely, an objection based on s 149D(1)(d). The important word used in paragraph (d) is “information”. For reasons I will give I do not need to consider the issue in the context of s 149D(1)(e) and s 139U.
Issues on the application
37 It was common ground between the parties that there had been an act, omission or decision of the respondent within s 178 and that that related to the non-withdrawal of the objections under s 149J. The applicant submitted that that occurred before the proceeding was commenced on 8 August 2007. First, he submitted that he wrote to the respondent by letter dated 6 August 2007 and asked him to withdraw the objections. The respondent submitted that he did not receive the letter at about this time. It is not necessary for me to resolve this factual dispute because on any view the respondent was entitled to a reasonable time to consider the request and he was not given it. Secondly, the applicant submitted that the fact that the respondent had not withdrawn the objections before the proceeding was commenced was an omission within s 178. I doubt whether that can be so in circumstances where there is no evidence of a request by the applicant or of a decision by the respondent under s 149J. The respondent submitted that he made a decision not to withdraw the objections on or about 13 March 2008 and that is evidenced by his affidavit sworn on that date. That was after the applicant had sworn his affidavit on 6 March 2008 exhibiting his income tax returns for the financial years ended 30 June 2001 to 30 June 2007 inclusive and filed and served that affidavit. In my opinion, that submission is correct. I do not think there is a problem with the rule in Eshelby v Federated European Bank Ltd [1932] 1 KB 254 bearing in mind the rules of this Court (Federal Court Rules O 13, rr 2(8) and 3A).
38 I should record also that neither party suggested that the respondent could not file the fifth notice of objection or that I could not take it into account even though it was filed after this proceeding was commenced. Nor was it suggested by either party that I could not take into account the fact that the applicant provided the income tax returns previously referred to on or about 6 March 2008.
39 As I have said, the applicant did not challenge the decision of the respondent to file the fourth and fifth notices of objection and his application proceeded on the basis that there were proper grounds for the objections in the fourth and fifth notices of objection at the time they were made.
40 The first issue is whether the applicant has now substantially complied with the grounds of objection in the fourth and fifth notices of objection.
41 The first ground in the fourth notice of objection and the ground in the fifth notice of objection are both based on s 149D(1)(e) and it is convenient to deal with them together. The first ground in the fourth notice of objection relates to the period before that notice or thereabouts, that is, the period from 2000 to 2004 and the ground in the fifth notice of objection relates to the period thereafter, that is, the period from 2004 to 2007.
42 I start with the first ground in the fourth notice of objection. The evidence is quite unclear as to the precise information which the applicant has provided to the respondent in relation to the relevant period. As I understand it, he has been assessed for the first four CAPs (that is, 4 September 2000-3 September 2004) and, indeed, those assessments were reviewed by the Inspector-General in Bankruptcy and, in part at least, by the Administrative Appeals Tribunal. As I understand it, that does not mean that fresh or subsequent assessments cannot be issued in appropriate circumstances under s 139W(2) and there is, as I have said, no time limit on the making of assessments and that may be done even after the bankrupt has been discharged from bankruptcy.
43 The most precise evidence before me as to the information the applicant has provided to the respondent in relation to the period 2000-2004 is set out in a letter from the respondents’ solicitors dated 4 September 2007. The solicitors summarised the position in the following way:
Your client was bankrupted on 4 September 2000. Accordingly each contribution assessment period (“CAP”) runs from 4 September to 3 September of the following year. CAP1 is thus 4 September 2000 through to 3 September 2001. CAP1 ended in 2001, CAP2 in 2002 etc. CAP7 ended yesterday.
We are instructed that your client’s statement of affairs contains some information in relation to CAP1. On 23 July 2003 our client asked your client for a statement in relation to CAP2 and estimates for the then current CAP3. On 26 September 2003 our client asked for statements for CAP2 and CAP3. On 28 May 2004 our client assessed your client for CAP3 on the basis of the income previously found by the Inspector-General and asked him to advise if it was disputed. On 9 July 2004 our client did the same thing for CAP4. On 13 July 2004 our client asked for income details for CAP’s 1, 2, 3 and estimates for not-yet-completed CAP4. On 9 September 2004 our client asked for details of income for CAP’s 1, 2, 3 and 4 and estimates for CAP5.
On 6 October 2004 Mr Frost sent our client a notice of his income tax assessments for the financial years 2001 and 2002. On 11 October 2004 ITSA sent our client a completed income questionnaire for CAP3 and CAP4 that had been sent to them by Mr Frost. On 28 November 2004 Mr Frost sent our client an income questionnaire for the same periods with different numbers to those on the version sent to ITSA and a copy of his PAYG payment summary for the financial year ended 2004.
In summary, Mr Frost has provided our client with little information in relation to CAP’s 1, 2, 3 and 4, and precious few supporting documents.
44 In the absence of clear evidence to the contrary, I accept those statements as accurate statements of the information provided by the applicant to the respondent in relation to the period from 2000 to 2004.
45 When the matter was before Lander J in the middle of 2005, the question of compliance with the first ground in the fourth notice of objection appears, so far as can be gleaned from his Honour’s reasons, to have been given little, if any, prominence by the parties. His Honour did not make an express finding on the matter. Having said that, I note that in the context of considering whether there were proper discretionary reasons for allowing the administration of a bankrupt estate to continue, his Honour found that ongoing inquiries may be made into whether income contributions that had been made to date had been adequate and he said (at [133]):
Those investigations may reveal that increased contributions should be made.
46 As I understand it, the applicant submits that the provision of his income tax returns on 6 March 2008, including those for the financial years ended 30 June 2001 to 30 June 2004 inclusive, puts the question of whether he has substantially complied with s 139U in relation to the period from 2000 to 2004 beyond doubt.
47 The position in relation to the period from 2004 to 2007 is clearer than it is in relation the earlier period. As I understand it, the applicant did not provide any information in relation to that period before 6 March 2008 when he provided income tax returns for the financial years ended 30 June 2005 to 30 June 2007 inclusive, and an estimate of his income for the financial year ended 30 June 2008.
48 The applicant submitted that by providing his income tax returns he has substantially complied with his obligation in s 139U. He referred to the fact that substantial penalties attend the making of false statements in income tax returns. In one sense there can never be even substantial compliance with s 139U by the provision of income tax returns because, leaving aside the time limit, the information is not being provided in a manner and form contemplated by the section. Once the obligation in the section has not been met, substantial compliance may be viewed as requiring a bankrupt to provide sufficient information for the purposes for which the obligation is imposed in the first place and that is to facilitate a proper assessment by a trustee. I do not think that the applicant has done that and therefore I do not think there has been substantial compliance. If I am wrong and the provision of the income tax returns constitutes substantial compliance, nevertheless there are good discretionary reasons, based on the failure of the applicant to provide information as to his income to the respondent, in favour of a decision refusing to withdraw the objections.
49 In order to explain my reasons for reaching these conclusions it is necessary to consider the respondent’s reasons for refusing to withdraw the objections and the evidence given by the applicant.
50 The respondent has given evidence that he wishes to conduct further investigations into the income earned by the applicant from the date of bankruptcy to the present. In particular, he wishes to examine Mr Richardson and Mr Jennings concerning the employment arrangements in place between the applicant and Ambrose Baker Taxation Pty Ltd. Mr Richardson is a director of Ambrose Baker Taxation Pty Ltd and he conducts his legal practice from the Angas Street property, being the same property from which the applicant practises. Mr Frederick Jennings is the other director of Ambrose Baker Taxation Pty Ltd. The respondent also wishes to investigate the nature and question of the accountancy fees charged by the company and the profits it has earned after legitimate overheads of the accountancy practice are met. He also intends to seek relevant documentation, including the financial returns of the company, through a summons issued under s 81 of the Act. He states that depending on the answers given by Mr Richardson or Mr Jennings and the documents produced, he may need to re-examine the applicant. He states that he has grounds to suspect that the applicant may not have disclosed the true level of his income.
51 The applicant gave his evidence in chief by way of a number of affidavits. He was cross-examined at length on a number of topics. There are features of his evidence and conduct which lead me to conclude that I cannot be confident that his evidence, or at least his evidence on significant points, was reliable. Before setting out these features, I should say something about the background.
52 The applicant is deeply resentful about the fact that he is bankrupt. He attributes the fact of his bankruptcy to the conduct of his solicitor in two Supreme Court actions. In 1994, he and others were sued in two actions in the Supreme Court of South Australia. It is unnecessary to set out the details of the two actions which were brought by people I will call the “Micarones” and the “Becahras”, respectively. It was alleged by the plaintiffs in those actions that the applicant had failed in his professional duty in various respects. The applicant had a professional indemnity insurance policy with FAI General Insurance Company (“FAI”). He was represented by the firm Minter Ellison Baker O’Loughlin and, in particular, by Mr P Heinrich. After a long trial, the applicant was found liable for a sum of about $1 million. He claims that Mr Heinrich did not represent him properly and that, had he done so, he, the applicant, would not have been held liable. The insurer did not indemnify the applicant. An appeal to the Full Court of the Supreme Court failed, as did an application for special leave to appeal to the High Court. At some point in the appeal process, the applicant engaged Mr Paul Richardson to act as his solicitor. Mr Richardson is the applicant’s solicitor in this proceeding and he is also the applicant’s friend. Eventually, the applicant was made bankrupt on a creditor’s petition presented by the Micarones.
53 In 2003, the applicant issued a proceeding against Mr Heinrich and the other partners of the firm of which he was a member in the Supreme Court of South Australia. The claim he made was for professional negligence and it was not limited to loss and damage for personal injury or wrong done to the applicant (see s 116(2)(g) of the Act). Eventually, it was so limited and the claim has recently been settled. The applicant claims that some time in the year 2000, and before his bankruptcy, he assigned to Mr Richardson the cause of action against Mr Heinrich and others for loss and damage not consisting of personal injury or wrong done to him. He claims that he intends to repurchase that cause of action from Mr Richardson.
54 The applicant is also involved in legal proceedings in the Family Court of Australia. The other parties are his former wife and the respondent. The dispute concerns, among other things, two properties, the Angas Street property and the Mayflower Crescent property. As I have said, the applicant asserts that the Angas Street property is held on trust by Ambrose Baker and Partners (Holdings) Limited for the Frost Family Trust. The shareholders claim that the company holds the Angas Street property both legally and beneficially. Alternatively, Mrs Frost claims that the trust is the “alter ego” of the applicant and does not stand in the way of appropriate orders under the Family Law Act 1975 (Cth). Mrs Frost also claims that the mortgages over the Mayflower Crescent property in favour of Mr Richardson should be set aside.
55 With this background in mind, my reasons for concluding that I cannot be confident that the applicant’s evidence was reliable, at least on significant points, are as follows. First, as a general observation the applicant was not forthcoming in his evidence and he was guarded in a number of his answers. Secondly, the applicant’s letter to the respondent dated 6 August 2007 was not sent by the applicant with the intention of giving the respondent a genuine opportunity to withdraw his objection, bearing in mind that the applicant instituted this proceeding on 8 August 2007. Thirdly, the applicant was closely questioned about his action in the Supreme Court against Mr Heinrich and others. He was asked about the unexecuted and undated (except for a reference to the year 2000) Deed of Assignment of Chose-in-Action between himself and Mr Richardson. He was asked about his understanding of the scope of the deed, its purpose, its relevance to the proceeding in the Supreme Court against Mr Heinrich and others and his future intentions. In my opinion, the applicant’s evidence on those matters raised more questions than it answered. Fourthly, the applicant did not explain in a satisfactory way the reasons he did not attempt to obtain his income tax returns between his examination on 31 August 2006 and October 2007. Nor was the applicant’s evidence as to when and how he received his income tax returns from the Australian Taxation Office at all convincing. Fifthly, the applicant’s reasons for taking the funds from the ANZ Bank account were unconvincing, and I think he took the funds knowing that it may cause difficulties for the respondent in terms of compliance with the ANZ Bank’s mortgage over the Cullen Bay property. Finally, the applicant’s evidence as to the identity of the trustee of the Frost Family Trust was confusing.
56 The applicant was cross-examined about his income. His income tax returns, leaving aside rent and deductions in relation to the Cullen Bay property in the early part of his bankruptcy, reveal the receipt of consulting fees in the financial years ended 30 June 2001 and 2002, and for the financial years ended 30 June 2003 to 30 June 2007 inclusive, wages from Ambrose Baker Taxation Pty Ltd and consulting fees. The applicant’s annual taxable income for the first two years of the period was around the $6,500 mark and for the last five years around the $25,000 mark.
57 The income shown in the income tax returns is a low, if not a very low, income for a man of the applicant’s qualifications and experience.
58 There was considerable cross-examination of the applicant about his expenses. No precise finding is possible, but it is true to say that the applicant has, and has had, a number of expenses of a type to be expected together with some expenses associated with the legal actions in which he has been or is involved. It is not for me to determine if the applicant has not disclosed his true income in his income tax returns; it is sufficient for me to conclude that there are reasonable grounds to think that he may not have done that and I so conclude. I think the manner in which he has been paid his salary and consulting fees reinforces this conclusion. Initially, it was unclear from the applicant’s evidence whether he was saying that he was paid in cash or by cheque made payable to cash. He clarified that and said that he had been paid by way of cheques, that is, cheques that he had cashed and that he had never paid the cash into a bank account. He agreed that there was no record kept of the amount of cash he had been paid over the last three years. That evidence of the applicant was given in a context where it is apparent that he has received a sum of about $100,000 over a period of four years.
59 The applicant sought to meet the argument that there was a proper basis for concluding that further investigations into his income were necessary by making a number of submissions. First, he submitted that the respondent’s powers do not end on the applicant’s discharge from bankruptcy and he referred, by way of example, to the power of examination in s 81 of the Act, and the continuing obligation on the applicant to assist the respondent under s 152 of the Act. Those matters may be acknowledged, but they are insufficient to suggest that in not withdrawing his objections the respondent should be subject to an order of the Court under s 178. Secondly, the applicant submitted that the respondent had not administered the estate with the diligence required of a reasonably competent trustee in bankruptcy. In the previous proceeding, Lander J made a number of observations about the applicant’s failure to co-operate with the respondent in a way which would facilitate the timely administration of his estate (at [5]-[21] and [73]-[92]). I refer to and rely on those findings. Since the previous proceedings the applicant took no steps to provide his income tax returns until 6 March 2008 and he has not provided any group certificates or assessments to the respondent for the financial year ended 30 June 2005 or since. He has been examined on a number of occasions, and on the last occasion, being 31 August 2006, the respondent was still asking the applicant for details of his income. Thereafter, the applicant made no immediate inquiries for his income tax returns allegedly because of health problems. In those circumstances, the greater part of any delay has been caused by the applicant, and, if there has been any delay by the respondent, it is not of such a nature to overcome the other reasons supporting the respondent’s decision not to withdraw the objections.
60 In conclusion, the first ground in the fourth notice of objection and the ground in the fifth notice of objection have not been substantially complied with. In those circumstances, the application should be dismissed. In the alternative, further investigations into the applicant’s income since the commencement of his bankruptcy, or at least from 2004 to date, are warranted and that conclusion, when considered with other discretionary matters, in turn leads to the conclusion that the application should be dismissed. Before identifying those other discretionary considerations, I should deal with the second ground in the fourth notice of objection.
61 The second ground of objection in the fourth notice of objection is based on s 149D(1)(f) of the Act and is the failure by the applicant to make payments he was liable to pay under s 139ZG. This ground was the subject of a good deal of evidence but only brief submissions from counsel for the respective parties. As I understand it, it is common ground that as at the date of the fourth notice of objection, that is, 14 July 2004, the applicant was liable to pay the respondent the sum of $4,217.67 by way of income contribution, that is, under s 139ZG. It is common ground that by letter dated 28 November 2004 the applicant forwarded the sum of $4,217.67 to the respondent stating that he wished to discharge that liability. The respondent accepted the payment and the applicant submitted that the liability was thereby discharged. The respondent contended that he was entitled to and did apply the money in partial discharge of the applicant’s liability to the respondent in the sum of $10,560 and that the liability for $4,217.67 for income contribution remains extant.
62 These contentions raise a number of issues. The first issue is whether the applicant was at any time liable to the respondent for the sum of $10,560. The second issue, assuming the answer to the first question is yes, is whether the liability was satisfied, in whole or in part, by the settlement between the respondent and the ANZ Bank. The third issue, assuming the answer to the second question is no, is whether the respondent was entitled to “allocate” the payment of 28 November 2004 to the sum of $10,560 rather than to outstanding income contributions.
63 As to the first issue, there is no dispute that the applicant caused a transfer of the sum of $10,560 from the ANZ Bank account to his own bank account. The applicant proffered various reasons for doing that including some matters relevant to taxation and a belief that the respondent had abandoned his claim over the Cullen Bay property. It was not suggested that those reasons constituted a legal justification for the applicant’s conduct and it is difficult to see how they could. On the balance of probabilities, I find that there was no justification for the applicant’s conduct and that the conduct gave rise to liability in the applicant to repay the sum of $10,560 to the respondent.
64 As to the second issue, there is no doubt the respondent made a claim for $10,560 from the ANZ Bank on the basis that he had advised the ANZ Bank that the applicant was bankrupt and should not be permitted to deal with funds in the ANZ Bank bank account and yet the applicant was able to transfer the sum of $10,560 from the account. As I understand it, the transfer of those funds by the applicant caused the mortgagor to default in payments under the mortgage. The ANZ Bank denied liability for the amount. Eventually, there was a settlement between the ANZ Bank and the respondent concerning the proceeds of the sale of the Cullen Bay property. A Deed of Settlement and Release between the ANZ Bank and the respondent dated 10 May 2004 was put in evidence. The recitals to the Deed include the following:
G. The Trustee maintains that ANZ is not entitled to the full balance owing in respect of the Loan Agreement and the Mortgage as ANZ has permitted Frost access to funds that were otherwise available to make payments due in respect of the Loan Agreement and the Mortgage without the authorisation of the Trustee. The Trustee maintains that the defaults alleged by ANZ in respect of the Loan Agreement and Mortgage arose as a consequence of ANZ’s own actions and that consequently ANZ should bear any losses associated with those actions.
H. ANZ maintains that it would be successful in any proceedings issued for possession of the secured premises and that it is entitled to the full balance owing in respect of the Loan Agreement and the Mortgage. ANZ denies that it is liable to the Trustee for the losses claimed by the Trustee in respect of the alleged unauthorised withdrawals.
I. When reaching the terms of settlement of the dispute between the parties to this deed as set out in Recitals F – H inclusive, it was agreed between the parties to this deed that:
1. ANZ would accept the sum of $173,500.00 from the Trustee in full and final satisfaction of the total liabilities owed by Frost under the Mortgage and Loan Agreement; and
2. in exchange, ANZ would provide to the Trustee a discharge of the Mortgage, …
65 Clause 6 provides as follows:
6. PAYMENT TO DISCHARGE MORTGAGE ON OR BEFORE 11 MAY 2004
6.1 The Trustee will pay to ANZ the sum of $173,971.80 by bank marked cheque made payable to “ANZ Bank – Account of Allen Gordon Frost” on 11 May 2004, by delivering it to ANZ’s solicitors, Kelly & Co Lawyers, or any other person as directed by Kelly & Co Lawyers.
6.2 Subject to payment of the amount referred to in sub-clause 6.1 of this deed by the time referred to in that sub-clause, ANZ agrees to accept the sum of $173,971.80 inclusive of interest and costs from the Trustee in full and final satisfaction of the total liabilities owed by Frost under the Mortgage and Loan Agreement.
6.3 Upon delivery to ANZ of the bank marked cheque referred to in sub-clause 6.1 of this deed by the time and the means referred to in that sub-clause, ANZ will hand to the Trustee or any other person as directed by the Trustee a duly executed discharge of the Mortgage.
66 Clause 10 deals with mutual releases and discharges. It provides as follows:
10. RELEASE AND DISCHARGE
10.1 Subject to ANZ receiving payment to discharge the Mortgage in accordance with the terms and conditions provided for in either clause 6 or clause 7 of this deed, whichever is the earlier, the Trustee and Frost hereby release and forever discharge ANZ from all claims, complaints, demands, debts, suits, actions, costs and other liabilities of any nature and which the Trustee has or might have or might assert either in the past, present or future at law or in equity against ANZ in relation to the facts set out above in the Recitals.
10.2 Subject to ANZ receiving payment to discharge the Mortgage in accordance with the terms and conditions provided for in either clause 6 or clause 7 of this deed, whichever is the earlier, the ANZ hereby releases and forever discharges the Trustee and Frost from all claims, complaints, demands, debts, suits, actions, costs and other liabilities of any nature and which ANZ has or might have or might assert either in the past, present or future at law or in equity against the Trustee in relation to the facts set out above in the Recitals.
67 Clearly, the respondent could not recover the sum of $10,560 twice and he would have to account for any recovery made from the ANZ Bank.
68 Both parties made submissions as to whether the respondent had received some or all of the sum of $10,560 as a result of the settlement with the ANZ Bank. The applicant submitted that I could be satisfied that the major part of it had been recovered from the ANZ Bank, whereas the respondent submitted that I could be satisfied that none of it had been recovered from the ANZ Bank.
69 The applicant referred to a Report to Creditors in the administration dated 24 May 2004 wherein Mr Ian Lock, who is one of the respondent’s partners, said, in discussing settlement with the ANZ Bank, that:
I considered that, given that the diversion of funds had been made possible by the ANZ Bank’s failure to prevent the bankrupt’s access to the account, the bank was liable to make good the loss. The bank disagreed. …
In discussions with the representatives of the ANZ, it was agreed that the bank would accept an amount of $173,500 in full and final satisfaction of the liability on the loan account (with adjustments for late settlement to reflect interest on the above). This agreed position essentially meant that the bank agreed to bear the majority of the loss on the funds withdrawn by the bankrupt. I was happy to accept that payout figure on the basis that it would avoid any further legal dispute with the ANZ.
70 At the same time, Mr Lock goes on to say that the respondent had demanded the return of the moneys withdrawn by the applicant.
71 The evidence does not enable me to make a precise finding on whether the respondent recovered all or any part of the sum of $10,560 from the ANZ Bank. I was not referred to any authorities which bear on how this particular problem is to be resolved. On the evidence it would seem fairly clear that the whole of the amount of $10,560 was not recovered from ANZ Bank. At the same time, I cannot rule out the possibility that in some way there would need to be an allowance in terms of the amount which can now be recovered by the respondent from the applicant by reason of the settlement with the ANZ Bank.
72 The respondent said in evidence that although the ANZ Bank had accepted a discounted sum in settlement but he did not think the sum of $10,560 had been recovered from the ANZ Bank. When asked for the reasons the Court in the previous proceeding was not told of the settlement the respondent said:
Sitting here now, I can’t answer that question probably because it’s not relevant.
73 It seems to me that it is plainly unsatisfactory that the respondent’s firm should report to creditors in a way which meant – and I do not think anyone would dispute this – that the settlement with the ANZ Bank should have been disclosed to the Court in the previous proceedings and yet the trustee himself take the view that there was no obligation to disclose the settlement because the money had not been repaid under the settlement. It seems to be a case where either the creditors were misinformed or the evidence put before the Court did not reveal the full picture. On the evidence, it seems to me that the settlement with the ANZ Bank should have been disclosed because I think the obligation on the respondent was to disclose all matters which may be relevant.
74 As to the third issue, neither counsel made submissions about whether the respondent was entitled at law to use the sum of $4,217.67 to discharge a liability other than the liability identified by the payor. It is far from clear that he was: Halsbury’s Laws of England (4th ed) Vol 9 [956]-[960]. The applicant’s counsel put a different argument and that was that even if the respondent was legally entitled to do what he did the respondent as an officer of the Court was bound to act fairly and he had not acted fairly by purporting to allocate the payment to a liability other than that identified by the payor. The applicant’s counsel sought to invoke the principle in In re Condon; Ex parte James (1874) LR 9 Ch App 609 (see Re Clark (a bankrupt); Ex parte the trustee of the property of the bankrupt v Texaco Ltd [1975] 1 All ER 453; [1975] 1 WLR 559). I do not think that there is any room for the application of that principle in this case. The payment was not made by a third party but by the bankrupt and the payment was not made in circumstances of unfairness leading to the enrichment of the estate.
75 All these difficulties with the second ground of the fourth notice of objection were acknowledged by counsel for the respondent who said that because of them he put most emphasis on the first ground of the fourth notice of objection and the ground in the fifth notice of objection. If those objections have been satisfied and there were no discretionary reasons in favour of allowing the administration of the estate to continue it seems to me that there is so much uncertainty associated with the second ground of the fourth notice of objection that it should not stand in the way of the applicant’s discharge from bankruptcy. I note that the respondent has not taken any legal action to recover what he says is the balance of the sum of $10,560. Nor is he precluded from recovering the sum of $4,217.67 from the applicant by the latter’s discharge from bankruptcy: s 139ZG.
76 As far as other discretionary reasons are concerned, the respondent submitted that one possible result of the proceedings in the Family Court is that that Court will make orders with respect to the Angas Street property that will only benefit the applicant’s estate and, therefore, the creditors of the estate, if the applicant is bankrupt at the time the orders are made. Counsel for the respondent referred to authorities dealing with the Family Court’s power to make orders affecting third parties. He referred to Ascot Investments Pty Ltd v Harper (1981) 148 CLR 337. Gibbs J (as his Honour then was) said (at 354-355):
The position is, I think, different if the alleged rights, powers or privileges of the third party are only a sham and have been brought into being, in appearance rather than reality, as a device to assist one party to evade his or her obligations under the Act. Sham transactions may always be disregarded. Similarly, if a company is completely controlled by one party to a marriage, so that in reality an order against the company is an order against the party, the fact that in form the order appears to affect the rights of the company may not necessarily invalidate it.
77 He also referred to the decision of the Court of Appeal of the Family Court of Australia in Stevens and Stevens [2007] FamCA 680 at [100] per Finn J and at [255] per Warnick J.
78 The submission seems to me to depend on a number of assumptions, not all of which were addressed in submissions. However, I cannot rule it out as a possibility and it seems to be a discretionary reason in favour of allowing the administration of the estate to continue.
79 I summarise my conclusions as follows. The applicant has not substantially complied with the first ground in the fourth notice of objection and the ground in the fifth notice of objection. In addition, discretionary reasons favour allowing the bankruptcy to continue. In the alternative, the applicant has not provided to the respondent sufficient information to enable him to perform properly his obligations to make income contribution assessments and the evidence establishes that further inquiries and investigations are warranted particularly for the period from 2004 to date. The Family Court proceedings mean that there is a prospect of a dividend being paid to creditors. It is true that the applicant will remain bankrupt for eight years and that is a matter which must be taken into account. Nevertheless, as the reasons for judgment of Lander J in the previous proceeding indicate, the delay has largely resulted from the applicant’s own conduct. In my opinion, this is not a proper case for an order under s 178.
Conclusion
80 For the above reasons, the application is dismissed. I will hear the parties as to costs and any other orders.
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I certify that the preceding eighty (80) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Besanko. |
Associate:
Dated: 25 July 2008
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Counsel for the Applicant: |
Mr G Dart |
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Solicitor for the Applicant: |
Mr P A Richardson |
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Counsel for the Respondent: |
Mr G Gretsas |
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Solicitor for the Respondent: |
Gretsas & Associates |
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Date of Hearing: |
17, 18, 19 March 2008 |
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Date of Judgment: |
25 July 2008 |
