FEDERAL COURT OF AUSTRALIA

Deputy Commissioner of Taxation v Prentice (Trustee) [2011] FCA 1535

THE COURT ORDERS THAT:

1.    The application is dismissed.

2.    The applicant is to pay the respondent’s costs of and incidental to the application.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011

REASONS FOR JUDGMENT

1    On 29 November 2011, Collier J ordered that Mr Maxwell William Prentice in his capacity as the trustee of the personal insolvency agreement of Mr Craig Kirrin Gore be restrained from holding or putting a motion to a meeting of creditors under s 181 of the Bankruptcy Act 1966 (Cth) (Bankruptcy Act) pursuant to and in reliance on the request of Mayfair Limited, Chintz Consulting Inc or Guilliam Consulting Group Limited until 4 pm on 31 January 2012.

2    Her Honour further ordered “pursuant to s 30(1)(b) and s 33(1)(c) of the Bankruptcy Act”, that a meeting of creditors scheduled to occur on 2 December 2011 be adjourned to a date, time and place to be fixed by Mr Prentice and notified to all persons entitled to receive that notice, being a date not earlier than 7 February 2012 and not later than 14 February 2012. Her Honour also made ancillary orders and directions adjourning the application before her to 10.15am on 31 January 2012 for hearing.

3    That application was made against the background of a controversy concerning particular proofs of debt. Thereafter, the Commissioner of Taxation, who is responsible for the collection of various sums owed to the Commonwealth pursuant to Commonwealth revenue law, and in his official capacity, a creditor of Mr Gore, made a separate requisition of Mr Prentice for the holding of a meeting of Mr Gore’s creditors.

4    That requisition was not one restrained by the orders made by Collier J on 29 November 2011. Mr Prentice took advice in relation to the Commissioner’s requisition. Given the antecedent controversy and the terms of the requisition, it is understandable that Mr Prentice took this course. Having so done, he responded on 6 December 2011 to the Commissioner, foreshadowing that he would, on 9 December 2011, call the requested meeting. Shortly after 5pm on Friday 9 December 2011, the Commissioner was sent, by email, by those acting for Mr Prentice a notice of meeting. That notice provided for a meeting of creditors to be held on 23 December 2011.

5    In the meantime, in case Mr Prentice did not act in the way that he foreshadowed on 6 December 2011 that he would, much work was occurring in what is termed the Australian Taxation Office Legal Practice. That work was to the end of preparing an application and supporting affidavit for the purpose of seeking orders from the Court in respect of a requirement for a meeting to be held.

6    The notice from Mr Prentice in respect of the meeting for 23 December 2011 was received by a Mr John Lynn of the Commissioner’s office. He works at the same office within the premises of the Australian Taxation Office as Ms Rebecca Lee van Hoeyen. She is described in the material as a “Litigator, Debt Litigation, Legal Services Branch, Australian Taxation Office”. Some 10 minutes after the email was received, steps were taken by Ms van Hoeyen to initiate the electronic filing of the application. In the result, both because of the time of day and also because of a need to complete the scanning of supporting affidavit material, the electronic filing of the application in its original form and the supporting affidavit did not occur until 12 December 2011, ie, the following Monday.

7    That application, while it sought further or other relief, did not explicitly seek the review of the decision by Mr Prentice not to appoint a representative to attend the meeting fixed for 23 December 2011, in the event that he was unable so to do personally. It had been made known to the Commissioner that Mr Prentice was to proceed overseas on leave on 10 December, returning to Australia on 22 December 2011. At the time when the application was filed on 12 December, there had been no request made of Mr Prentice to appoint a representative. That occurred later in the week which commenced on 12 December 2011. In the meantime, it had been put to the Commissioner by Mr Prentice’s solicitors that there was, given the calling of the meeting by Mr Prentice for 23 December, an absence of utility in the application in the form in which it was filed. That seems to have prompted the Commissioner, via the Legal Services Branch, to raise a suggestion that a representative should be appointed.

8    On 12 December, the Commissioner, via his solicitor in the Legal Services Branch, had taken issue with the suggestion on behalf of Mr Prentice that there was an absence of utility in the application. He put it that:

… it is our position that it is appropriate that this matter be listed before the court this week (subject to availability) to ensure appropriate relief can be sought to minimise the risk that the said meeting of creditors will be delayed and/or frustrated.

9    Some greater particularity to the types of orders which might be sought, nonetheless, pursuant to the reservation in respect of the seeking of further or other relief, came eventually to be put in a letter of 14 December 2011 from the Commissioner’s solicitor within the Legal Services Branch to those acting for Mr Prentice. In that letter, notice was given that, at today’s hearing, the Commissioner intended to seek a direction that Mr Prentice execute an authority to appoint a person to represent him at the meeting of creditors on 23 December, in the event that he was unable personally to be present at that meeting for any reason. The request was that the appointment be made pursuant to s 63B of the Bankruptcy Act, and that the trustee be directed to make such an appointment by the court. It was put to Mr Prentice’s representatives in this letter that a consent order which embraced an undertaking by him to appoint such a representative should be made.

10    Section 63B provides:

(1)    The trustee of a bankrupt may, by signed writing, appoint a person to represent the trustee at a meeting.

(2)    If the trustee is not personally present at a meeting, then, unless the contrary intention appears, a reference in this Division to the trustee, in respect of the matters occurring at that meeting, is a reference to a person so appointed to represent the trustee at that meeting.

11    It can be seen from the terms of s 63B that it vests a discretion in a trustee. It follows that the Commissioner’s letter of 14 December 2011 evidences a misconception as to the meaning and effect of that section. Assuming that a direction could be made, the direction could do no more than require that a discretion be exercised, but not exercised in any particular way. If, however, the discretion were exercised, this Court would have jurisdiction to review the exercise of that discretion pursuant to s 178 of the Bankruptcy Act.

12    At the time when the Commissioner’s letter of 14 December 2011 was written, there had been no prior exercise by Mr Prentice of a discretion under s 63B. That was because before then, he had not been requested explicitly to exercise that discretion, nor had he turned his mind himself, so it seems, to whether, of his own motion, to exercise the discretion and communicate that result to creditors.

13    When the Commissioner came to send the letter of 14 December to those acting for Mr Prentice, he had the benefit, because Mr Prentice had conferred it upon him by a very particular waiver of privilege, of seeing advice which had been given to Mr Prentice Notwithstanding that, the Commissioner, by his solicitor, chose to make the request. Misconceived though it was as to the meaning and effect of section 63B, the letter can be viewed as a request for an exercise of the discretion.

14    The following day, by his solicitors, Mr Prentice responded to the letter of 14 December 2011. In that response, he stated by his solicitors that he did not agree to the making of the proposed consent orders, and:

… is of the view that, as required of him by the creditors and an order to answer questions put to him, the Trustee needs to personally attend the meeting on 23 December 2011, and intends to do so.

15    Mr Prentice’s legal representatives, by this letter, again requested the Commissioner to consent to the proceedings, ie the application in its original form, being dismissed on the basis of a payment of the trustee’s costs.

16    The Commissioner was put on notice that counsel had been briefed for the hearing of the application. The Commissioner this morning sought to file an amended originating application, the effect of which was that, by amendment, an order was sought that Mr Prentice be directed, pursuant to s 178 of the Bankruptcy Act, or further or alternatively, s 30 of the Bankruptcy Act, to execute an authority to appoint a person to represent him at the meeting called for 23 December 2011, pursuant to s 63B.

17    Objection was taken to the filing of the application in that amended form. The basis for the objection in substance was whether there existed a decision to be reviewed. This was apart from questions of form, form in the sense that it sought relief which could be regarded as beyond further or other relief.

18    It seems to me that the interests of justice require leave to be given for the filing of the application in that amended form. That is because Mr Prentice’s response by his solicitors on 15 December 2011 is, in my opinion, to be regarded as a decision not to execute in writing a document to appoint a representative pursuant to s 63B. Whilst the hearing of a review of that decision the following day is, to say the least, peremptory, it does, in the circumstances, do no injustice to Mr Prentice, given the circumstances of the case, to hear the application in the amended way today.

19    As amended, the application still has about it what I regard as a misconception as to the effect of s 63B. The discretion having been exercised, it would fall to the Court on review to decide the matter itself and to order the appointment of a representative on the review. That, though, does not detract from the substance of the issue which the Commissioner has sought to ventilate, which is whether or not to make such an order on the review of Mr Prentice’s decision as communicated on 15 December by his solicitors.

20    As to that I have been helpfully taken by counsel for each of the parties to cases which set out questions of principle which attend the exercise of the review jurisdiction conferred by s 178 of the Bankruptcy Act. In Frost v Sheahan (Trustee) [2009] FCAFC 20 at paragraph 8, a Full Court of this Court accepted without reservation a summary which had been given by the learned primary judge in that case of principles applicable to s 178 of the Bankruptcy Act. As set out by the Full Court at paragraph 8, these included the following:

1.    Section 178 confers a “supervisory jurisdiction over the conduct of the trustee”: Cummings v Claremont Petroleum NL [1996] HCA 19; (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] FCA 636; (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; [1977] FCA 15; 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.

See also as to relevant principles Willoughby v Official Trustee in Bankruptcy [2001] FCA 753 at [27].

21    The Commissioner’s particular concern is that a meeting be held on 23 December 2011 and that nothing occur which would prevent the holding of such a meeting. It is put on behalf of the Commissioner that there has been an absence of co-operation in the past, ie, before the orders of 29 November 2011, on the part of Mr Prentice such that he has concerns about the holding of the meeting. Those concerns, though, much be weighed against the fact that it is not for me today to judge events which motivated the making of orders on 29 November 2011.

22    Further, though the Commissioner is, on behalf of the Commonwealth, a creditor he is but one creditor. Mr Prentice has, under the Bankruptcy Act, as trustee of the personal insolvency agreement, responsibilities to all of Mr Gore’s creditors. Yet further, Mr Prentice’s conduct on and from the request made of him for the holding of a meeting by the Commissioner has, it seems to me, been nothing other than responsible. Whilst one might have wished for a response from him on 9 December prior to the ordinary close of business, it remains the case that he did respond that day and that the Commissioner was well aware of the response on that day. It is also apparent that the business for the meeting of 23 December is no ordinary business. What is proposed is the removal of the trustee. It is understandable in those circumstances that a trustee might see it as his singular responsibility to attend that meeting for the purpose of answering such questions as the creditors who choose to attend may choose to put to him. He is hardly to be criticised for taking that approach.

23    Of course there is a contingency that Mr Prentice may, like any overseas traveller, face some unforeseen and perhaps unforeseeable difficulty in returning to Australia but there is no event on the evidence which gives substance to that bare, theoretical contingency. Yet further, and unfortunately notoriously in years past, industrial disputation has been want to occur in the period proximate to public holidays such as Christmas in respect of industries involved in air transport or the processing of passengers. Again, though, there is nothing on the evidence which, at present, suggests that such an event will come to pass this year and more particularly, on 22 December.

24    Whilst Mr Prentice’s status as the holder of the statutory office of trustee does not, axiomatically, remove him from scrutiny on review of his decisions, it remains the case that the Bankruptcy Act consigns, in the first instance, to persons qualified to be trustees the making of particular value judgements in respect of various duties cast on trustees by the Bankruptcy Act. One of those duties is the making of a discretionary value judgement in relation to whether to appoint a representative.

25    Having regard to the principles which govern the review under s 178 of a trustee’s decision, I find no reason why I should make a direction under s 178 and perhaps, also, s 30 of the Bankruptcy Act for the appointment of a representative. There is nothing in the material before me which gives me cause for concern that Mr Prentice would do other than that which he has in writing said he will do, which is to attend that meeting. It follows from the foregoing that the application as amended must be dismissed.

26    There was initially foreshadowed on behalf of Mr Prentice, the contingency that costs on an indemnity basis might be sought in the event of the dismissal of the application in its amended form, ie, in a form which included a review of a s 63B discretionary decision. The making of such a special order was, quite properly, not pressed by counsel on behalf of Mr Prentice. I should record, though, that I can well see why the minds of those advising Mr Prentice were turned to the seeking of such an exceptional costs order. It is a matter of concern to me in this case that the objective detachment which is an incident of a truly independent solicitor acting for the Commissioner has not been apparent. That is not in any way to criticise counsel but, rather, to emphasize the singular importance of an independent solicitor acting for a client. That role is to act as something of a reality check for a client. Where a solicitor is in house, and Mr Tanna [the Australian Taxation Office Solicitor] has that status, there is a risk which must constantly be guarded against of client capture. I was left to wonder on the hearing of this application, having regard to the material before me, whether that particular phenomenon had occurred here.

Associate:

Dated:    18 January 2012