FEDERAL COURT OF AUSTRALIA

Unal v Cetinkaya [2015] FCA 270

THE COURT ORDERS THAT:

1.    The appeals in each of proceedings Nos VID 407, 408 and 409 of 2014 be dismissed.

2.    The appellant pay the respondents’ costs of and incidental to each of the appeals.

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

REASONS FOR JUDGMENT

1    By three notices of appeal filed on 22 July 2014, the appellant Mr Metin Unal (Unal) appeals the orders made by her Honour Judge Whelan of the Federal Circuit Court of Australia on 1 July 2014 in each of three proceedings before that Court.

2    The appeals arise out of a dispute between former bankrupts Mr Recep Cetinkaya and Mrs Bahar Cetinkaya (the first and second respondent, being husband and wife) (the Cetinkayas) and an accountant Unal regarding a property at 75 Colebrook Street, Brunswick (the property) being the site of the Cetinkayas’ former panel beating business. The Official Trustee in Bankruptcy was appointed as the trustee of each of the Cetinkayas’ bankrupt estates following sequestration.

3    In essence, Unal seeks a review of her Honour’s decision that the Official Trustee should assign to the Cetinkayas subsisting cause(s) of action against Unal for recovery of the property. The underlying claims and cause(s) of action of the Cetinkayas against Unal vested in the Official Trustee on the Cetinkayas’ bankruptcies.

4    In dealing with these appeals as a single judge of this Court, I am exercising appellate jurisdiction under s 25(1AA)(a) of the Federal Court of Australia Act 1976 (Cth).

5    For the reasons that follow, each of the appeals should be dismissed.

Background facts

6    The background to the present appeals is protracted and convoluted. Her Honour set out a summary of some of the background facts in her reasons at [7] to [34] which I have substantially drawn upon and are not disputed, save for various allegations made by the Cetinkayas that I have identified as such.

7    Each of the Cetinkayas are of Turkish extraction and neither read nor write in English. Mr Recep Cetinkaya speaks and understands some English, but Mrs Bahar Cetinkaya does not.

8    On 18 September 1984, the Cetinkayas became joint proprietors of the property along with two others. On 3 July 1986, the Cetinkayas became directors and shareholders of Brunswick Motor Body Repairs Pty Ltd (ACN 006 598 358) (the company). The company operated a panel beating business from the property. From about 1994, the Cetinkayas were the sole registered proprietors of the property.

9    On 10 May 1994, the Cetinkayas gave a mortgage over the property to the ANZ Banking Group Ltd (ANZ Bank). The mortgage secured, inter-alia, all moneys owed by them to the ANZ Bank on any account whatsoever. On 10 August 1994, they also gave a separate guarantee in favour of the ANZ Bank in relation to the indebtedness of the company and also a letter of acknowledgment confirming that the mortgage also secured their obligations under the guarantee.

10    On 6 February 1996, ANZ Bank issued a demand to the Cetinkayas pursuant to the guarantee for the moneys owed by the company.

11    On 14 May 1996, the ANZ Bank obtained judgment against the Cetinkayas for a debt of approximately $145,000 and for possession of the property. By letter dated 27 June 1996, the Sheriff required the Cetinkayas to vacate the property by 2 August 1996. The Cetinkayas claimed that they then sought assistance from an accountant, being Unal. The Cetinkayas claimed that from about 1993 to 2007, Unal acted as their accountant and financial advisor.

12    On 1 August 1996, the Cetinkayas entered into a contract to sell the property to Unal for $131,000. The sale was settled on 11 December 1996. A transfer of land was registered on 31 December 1996 and Unal became the registered proprietor (the transfer). The mortgage to the ANZ Bank was discharged at the same time. Unal then gave a mortgage over the property to the Commonwealth Bank of Australia.

13    The Cetinkayas have alleged that at that time, rather than transferring the property to Unal, they believed that a family trust had been set up with the property transferred to the trustee of that trust. They also alleged that the property was worth $300,000 at the time of the 1996 transfer.

14    Each of the Cetinkayas became bankrupt pursuant to debtor’s petitions lodged on 14 October 1997. They filed statements of affairs allegedly with the assistance of their then solicitor, Mr Chiodo Madafferi. The Cetinkayas claimed that they were referred to Madafferi by Unal, and that their statements of affairs were completed with the assistance of Madafferi but without an interpreter. The Official Trustee was appointed trustee of each of their estates.

15    The Cetinkayas claimed that on 26 August 1998, and notwithstanding the transfer to Unal, they entered into a lease with Farmane Nominees Pty Ltd (trading as Wisco Manufacturing Co) to allow Wisco to rent the property from about mid-late 1998 to October 2001 (the Cetinkayas believing that the property was held by the family trust). The Cetinkayas alleged that they paid the amounts they received under the lease to Unal in order to service the mortgage over the property. On or around October 2001, the Cetinkayas claimed to have provided written authority to their real estate agent to pay amounts they received under the lease directly to Unal. The Cetinkayas claimed to have paid the relevant rates for the property at all times.

16    The Cetinkayas were automatically discharged from their bankruptcies on 15 October 2000.

17    On 8 December 2003, Unal’s mortgage to the Commonwealth Bank was discharged.

18    By writ and statement of claim dated 11 December 2008, the Cetinkayas commenced Victorian County Court proceeding CI-08-05385 against Unal. The statement of claim alleged that the transfer of the property to Unal was voidable pursuant to s 172 of the Property Law Act 1958 (Vic) (PLA (Vic)) for misrepresentation, fraud and mistake of fact.

19    The Cetinkayas claimed that in November 2007, Unal told their son (Ersoy Cetinkaya) that the Cetinkayas had transferred the property to Unal in 1996. They claimed that until this time, they were not aware that Unal was the registered proprietor of the property. Unal remains the registered proprietor of the property.

20    The statement of claim filed in the County Court alleged that Unal told Recep Cetinkaya in 1996 that:

    Unal would arrange for the property to be transferred to a family trust so that it would not form part of the estate of the Cetinkayas in any subsequent bankruptcy;

    Recep Cetinkaya would pay Unal $20,000 and Unal would obtain funds to refinance the property; and

    Recep Cetinkaya would pay Unal $1,400 per month to service the interest on the mortgage.

The statement of claim further alleged that Recep Cetinkaya did not know that he was signing the transfer. It alleged that he thought that he was signing documents to create a family trust. The statement of claim also alleged that Bahar Cetinkaya did not sign the transfer in relation to the property. In essence it was alleged that her purported signature on the transfer was a forgery.

21    On 9 February 2009, Unal filed a defence and counterclaim (later amended). The matter proceeded in the County Court in the usual way until approximately September 2009. At that time, Unal’s solicitor notified the Official Trustee of the proceeding.

22    It is common ground that the relevant cause(s) of action of the Cetinkayas against Unal vested in the Official Trustee pursuant to s 58 of the Bankruptcy Act 1966 (Cth) (the Act) at the time of the sequestration of the Cetinkayas’ estates, despite the County Court proceeding being commenced by the Cetinkayas after the date of their discharge from bankruptcy. The question then arose for the Official Trustee as to how it would deal with or otherwise dispose of such an asset (s 134(1)(a)).

23    On 3 September 2009, Unal’s solicitor requested by letter to the Official Trustee that it not assign such a cause(s) of action in relation to the property to the Cetinkayas. The solicitor also noted that the Cetinkayas had made false statements in their statements of affairs, namely their statements that they had not:

    disposed of any assets within the two years prior to the commencement of their bankruptcies, when in fact they had disposed of the property;

    paid any creditor more than $1,000 in the 12 months prior to such commencement as a result of pressure for payment, when in fact they had repaid their liability to the ANZ Bank following receipt of a demand to vacate from the Sheriff; and

    been directors, shareholders or involved in the management of a private company in the 10 years prior to such commencement, when in fact they had ceased to be directors of the company on 13 June 1996, approximately one year before becoming bankrupt.

24    At this point I should note that on or about 24 August 2009, Unal filed an application in the County Court proceeding for the Cetinkayas’ claims to be dismissed as an abuse of process. On 23 November 2009, that application was dismissed by Judge Anderson ([2009] VCC 1396). Unal subsequently filed an application for leave to appeal that decision in the Court of Appeal of the Supreme Court of Victoria. On 12 March 2010, the Court of Appeal dismissed that application but referred a question of jurisdiction back to his Honour for determination.

25    On 25 September 2009, the Cetinkayas transferred to the Official Trustee $3,000 to cover the costs of it obtaining legal advice on the prospects of success of the County Court proceeding.

26    On 14 October 2009, the Official Trustee obtained legal advice to the effect that the County Court proceeding was not “demonstrably without prospects of success”.

27    On 20 October 2009, the then solicitors for the Official Trustee wrote to the solicitors for the Cetinkayas and the solicitors for Unal inviting offers for the assignment of the claims and the cause(s) of action embraced by and pleaded in the County Court proceeding. Without prejudice offers were received from each of the parties by the Official Trustee in late 2009. The Official Trustee then sought the views of creditors on whether either offer should be accepted. The Official Trustee did not accept either offer at that time.

28    In June 2010, the Cetinkayas filed a proceeding in the then Federal Magistrates’ Court under s 178 of the Act seeking to review the conduct of the Official Trustee in failing to assign the County Court cause(s) of action to them and seeking to compel the Official Trustee to assign such cause(s) of action to them. That proceeding was dismissed by Connolly FM (as his Honour then was) on 20 May 2011 (Cetinkaya v Official Trustee in Bankruptcy and Anor [2011] FMCA 288). The principal reason for that decision was that the application had been brought outside the 60 day time limit prescribed by s 178 of the Act.

29    On 7 June 2011, the Cetinkayas filed an appeal in this Court from the decision of Connolly FM. Whilst that appeal was pending, the then new solicitors for the Official Trustee (Australian Government Solicitor (AGS)) sent letters dated 27 February 2012 to the solicitors for both the Cetinkayas and Unal stating that the Official Trustee rejected the offers made by both parties and that it would not entertain any further offers from either of them as:

In circumstances where there appears to have been serious breaches of the Act, it is not appropriate for the Official Trustee, as both a statutory officer and officer of the Court to entertain negotiations with parties who may have committed those breaches. Any further application by either party seeking to force an assignment of the cause of action will be resisted on this basis.

The letters further stated that the Official Trustee intended to investigate under s 77C of the Act whether there was a proper basis to bring proceedings under s 121 of the Act to recover the property.

30    On 23 March 2012, the Cetinkayas filed notices of discontinuance in relation to their Federal Court appeal from the decision of Connolly FM. However, the issue of the costs of such a discontinued appeal still needed to be resolved. On 13 June 2012 Bromberg J determined that there should be no order as to the costs of that appeal (Cetinkaya v Official Trustee in Bankruptcy [2012] FCA 611). In his reasons, Bromberg J stated at [34] that:

The Official Trustee’s changed position is not unreasonable. Far from it, the position now taken by the Official Trustee appears to be the proper course for the Official Trustee to have taken. What may be regarded as unreasonable, is the failure of the Official Trustee to have taken that course from the outset, when it first became aware of the County Court claim. But neither the Cetinkayas nor Unal have contended that it was unreasonable for the Official Trustee to treat with them in relation to an assignment of the County Court claim. Both actively encouraged the Official Trustee to do so and continued to actively encourage the Official Trustee right up until the Official Trustee’s decision to change course.

31    On 16 August 2012, the County Court proceeding was struck out with a right of reinstatement for failure by the parties to respond to an administrative warning notice from the County Court.

32    Between September and November 2012, the Official Trustee conducted examinations of various persons under s 77C of the Act in relation to the transfer of the property. The Official Trustee obtained a detailed analysis of the available evidence and its position from AGS.

33    In a report dated 19 February 2013, AGS advised that any action in relation to the property under s 120 of the Act was statute barred and that any action under s 121 was unlikely to succeed because the property would not have formed part of the Cetinkayas’ estates (the report). The reason for that view appears to have been that, if the property had not been transferred to Unal, the ANZ Bank would have recovered it pursuant to its mortgage and therefore it would not have formed part of the bankrupt estates in any event. In the report, AGS also advised that the Official Trustee should take no further action in relation to the County Court proceeding.

34    The Official Trustee accepted that advice and communicated its decision to the Cetinkayas and Unal by letter dated 30 May 2013. That letter also advised that the Official Trustee would not be taking any action under s 121 of the Act in relation to the property. On 20 June 2013, the Cetinkayas by way of letter from their solicitors again asked the Official Trustee to assign the County Court cause(s) of action to them.

35    On 26 July 2013, the Cetinkayas filed an application in the Federal Circuit Court seeking a review of the conduct of the Official Trustee under s 178 of the Act (MLG 1165 of 2013) (see further below).

36    On 18 September 2013, the Official Trustee advised the Cetinkayas and Unal that it had decided to assign the County Court cause(s) of action to the Cetinkayas. In a subsequent exchange of emails, the Cetinkayas and solicitors for the Official Trustee agreed to enter into a deed reflecting that arrangement. The Official Trustee’s reasons for deciding to assign the County Court cause(s) of action to the Cetinkayas were in summary that:

    there was no longer any prospect of pursuing s 121 proceedings;

    there was merit in having the circumstances of the transfer of the property to Unal examined in the County Court and a public interest in having the serious allegations against Unal judicially determined; and

    there was a possibility that the assignment of the County Court cause(s) of action might ultimately result in funds being paid into the bankrupt estates of the Cetinkayas and being distributed to creditors.

37    On 8 November 2013, Unal filed an application in the Federal Circuit Court seeking to review the conduct of the Official Trustee under s 178 of the Act (MLG 1946 of 2013) (see further below).

38    At this point I should note that on 21 November 2013, the Cetinkayas filed a fresh writ in the County Court (proceeding CI-13-06025) in the same terms as the original writ filed in proceeding CI-08-05385 (see her Honour’s reasons at [56]). No doubt that was a consequence of the events described in [31] above. That writ had not been served at the time of the hearing before her Honour.

39    On 20 December 2013 the Official Trustee filed a related application in the Federal Circuit Court seeking directions under s 134(4) of the Act (MLG 2307 of 2013) (see further below).

40    All three proceedings were heard by her Honour on 6 March 2014. Judgment was delivered on 1 July 2014.

Federal Circuit Court proceedings

41    On 1 July 2014, her Honour made final orders in respect of the three applications before her: MLG 1165 of 2013 filed by the Cetinkayas; MLG 1946 of 2013 filed by Unal; and MLG 2307 of 2013 filed by the Official Trustee. Those orders were inconsequentially amended on 17 July 2014.

MLG 1165 of 2013

42    In the first application, the Cetinkayas sought to review the conduct of the Official Trustee pursuant to s 178 of the Act. Section 178 provides:

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.

43    The Cetinkayas sought orders that, inter alia, the Official Trustee “assign to [the Cetinkayas] all its interest[s] in the causes of action as pleaded in… County Court proceeding CI-08-05385”. As I have said, that proceeding was commenced by the Cetinkayas against Unal seeking to set aside their transfer of the property to Unal on the grounds of fraud and mistake of fact. The transfer occurred prior to the Cetinkayas being made bankrupt on 14 October 1997.

44    In support of their application the Cetinkayas filed affidavits of Bojana Balen (their solicitor) affirmed on 26 July and 3 December 2013, the affidavit of Recep Cetinkaya sworn on 6 December 2013, the affidavit of Bahar Cetinkaya sworn on 6 December 2013 and the affidavit of John Patrick Kennedy (Senior Case Manager at the Australian Financial and Security Authority) sworn on 15 January 2014. Unal relied upon the affidavits of Peter Anthony Brown (solicitor for Unal) sworn on 26 September and 10 December 2013.

45    As I have said, the relevant cause(s) of action of the Cetinkayas against Unal vested in the Official Trustee at the time of sequestration. However, the Official Trustee was not made aware of the County Court proceeding until September 2009. As set out above, since that time the Cetinkayas and Unal have been in dispute about the assignability of the cause(s) of action by the Official Trustee and the conduct of the Official Trustee with respect to the assignment.

46    In respect of this application, her Honour ordered that the Official Trustee assign to the Cetinkayas all its interest in the causes of action as pleaded in County Court proceeding CI-08-05385. Her Honour ordered, by way of consideration for such assignment, that in the event that the Cetinkayas were successful in pursuing their cause(s) of action, whether in that proceeding or new/substituted County Court proceedings, they were to pay to the Official Trustee out of the fruits of the cause(s) of action such sum as was required to pay in full all claims proved in their bankruptcies up to the limit of the recovery, minus their legal costs and the Official Trustee’s costs reasonably incurred in the administration of the bankrupt estates. The prosecution of the County Court proceeding was to be at the expense of the Cetinkayas.

MLG 1946 of 2013

47    In the second application, Unal sought to review certain decisions of the Official Trustee under s 178 of the Act made in respect of the assignment.

48    In particular, Unal sought to review the Official Trustee’s decisions to not invite offers from Unal for the assignment of the County Court cause(s) of action, to assign the County Court cause(s) of action to the Cetinkayas and to confirm that decision without first inviting offers from Unal.

49    Unal sought orders restraining the Official Trustee from assigning the cause(s) of action to the Cetinkayas, alternatively restraining the Official Trustee from so assigning until the Official Trustee had called for proofs of debt, determined whether to admit or reject any proofs of debt lodged, determined the amount of any admitted proofs of debt and informed Unal of the amount of the admitted proofs of debt and invited and considered offers for the assignment of the County Court cause(s) of action from Unal.

50    In support of his application Unal filed the affidavit of Peter Anthony Brown sworn on 7 November 2013. At the hearing before her Honour, Unal’s counsel also relied on various other documents, including the contract of sale between Unal and the Cetinkayas dated 1 August 1996. The Cetinkayas relied on the affidavit of Bojana Balen affirmed on 15 January 2014 and the affidavit of John Patrick Kennedy sworn on 15 January 2014.

51    Her Honour dismissed that application.

MLG 2307 of 2013

52    In the third application, the Official Trustee sought directions from the Court under s 134(4) of the Act as to whether the Official Trustee was empowered to assign the County Court cause(s) of action to a third party, whether it would be justified in assigning the cause(s) of action to a third party, whether it would be justified in assigning the cause(s) of action to the Cetinkayas or Unal and whether it would be justified in assigning the cause(s) of action to the Cetinkayas in the terms proposed by them in proceeding MLG 1165 of 2013.

53    The Official Trustee filed four affidavits in support being the affidavits of John Patrick Kennedy sworn on 20 December 2013, 15 January and 3 March 2014 and the affidavit of Nadia Angelo (solicitor for the Official Trustee) sworn on 15 January 2014. In his latest affidavit, Mr Kennedy deposed that no creditors had lodged proofs of debt in the bankrupt estates of the Cetinkayas and that the costs and expenses of the bankrupt estates to 3 March 2014 totalled $327,725.84.

54    Her Honour determined that, pursuant to s 134(4) of the Act, the Official Trustee was empowered to assign the causes of action to a third party, that it would be justified in assigning the causes of action to a third party, that it would be justified in assigning the causes of action to the proposed plaintiffs or defendant to the causes of action and that it would be justified in assigning the causes of action to the Cetinkayas.

The present appeals

55    On 22 July 2014, Unal filed three notices of appeal appealing from the whole of the judgment and the orders of her Honour in each of the three proceedings.

56    The four grounds of appeal with respect to each of the three appeals were identical and provided as follows:

1.1    The learned primary judge erred in law, in failing to consider whether or not the statement of claim in County Court proceeding No CI-08-05385 (CCP) disclosed a cause of action;

1.2    Further and alternatively, the learned primary judge erred in law and fact, in finding (at [67]) that the CCP is not without reasonable prospects of success; and

1.3    Further and alternatively, the learned primary judge erred in fact in finding (at [83]) that if the CCP be successful, there is likely to be some return to their bankrupt estates;

in circumstances where:

(a)    Her Honour found:

(i)    At [11], on 14 May 1996, the ANZ Bank obtained judgment against the Respondents (Cetinkayas) for $145,000 (not $95,000 as alleged at [7] of the statement of claim) and possession of the property;

(ii)    At [11], by letter dated 27 June 1996, the Sheriff required the Cetinkayas to vacate the property by 2 August 1996;

(iii)    At [13]:

(1)    On 1 August 1996, the Cetinkayas appear to have entered into a contract to sell the property to the Appellant (Unal) for $131 ,000;

(2)    On 11 December 1996, the sale (to Unal) was settled and the mortgage to the ANZ Bank discharged;

(3)    on 31 December 1996, a transfer (to Unal) was registered; and

(b)    As was disclosed in uncontested evidence and as Her Honour ought to have found:

(i)    In 1997, the property had a 'capital improved value' of $120,000;

(ii)    Unal paid the price of $131,000 for the property;

(c)    If the property had not been sold and transferred to Unal, the ANZ Bank would have recovered it pursuant to its mortgage and the said judgment and the ANZ Bank would have suffered a shortfall provable in the Cetinkayas' bankruptcy; and

(d)    Her Honour ought to have found that no relevant justiciable loss or damage had been sustained by the Cetinkayas.

2.    The learned primary judge erred in law, in finding at [54] that s. 21(2) of the Limitation of Actions Act 1958 is not relevant in circumstances where:

2.1    The statement of claim in the CCP, alleges that the Cetinkayas learned that instead of the property being held on trust for them as beneficiaries of that trust, it was held by Unal on his own behalf (or more accurately, on behalf of a trust for his family members), in about November 2007;

2.2    More than 6 years had elapsed since November 2007.

3.    The learned primary judge erred in law in finding at [82] that the situation had changed significantly since the Honourable Justice Bromberg made his decision, in circumstances where:

3.1    His Honour's observation, which was determinative of the costs application in respect of which it was made (as found by Her Honour at [25]-[27]), was that the proper course for the Official Trustee to take as a statutory officer and officer of the Court, was not to entertain negotiations with parties (in this case, a reference to the Cetinkayas and Unal), who may have committed breaches of the Bankruptcy Act 1966;

3.2    At [73] and [80], Her Honour found that, on their own case, the Cetinkayas attempted to transfer the property to a family trust to defeat their creditors and that Unal may have been complicit in that attempt; and

3.3    Her Honour ought to have found that the Official Trustee's decisions not to prosecute nor sue the Cetinkayas provided no point of distinction from the circumstances considered by His Honour.

4.    The learned primary judge erred in law and fact in finding at [80] that Unal had a conflict of interest between his interest and those of his clients, in entering into negotiations with the Cetinkayas to purchase the property, in circumstances where:

4.1    At [12] Her Honour found that the Cetinkayas sought assistance from an accountant Unal;

4.2    Her Honour did not find that Unal was accountant for either or both of the Cetinkayas; and

4.3    The statements of affairs referred to by Her Honour at [14], named the Cetinkayas’ accountants as Taylor Singer & Partners; and

4.4    As was disclosed in uncontested evidence and as Her Honour ought to have found:

(a)    In the sale of the property to Unal, the Cetinkayas were represented by solicitors, Bourke Law Offices of Prahran; and

(b)    The statements of affairs referred to by Her Honour at [14], named the Cetinkayas' then solicitors as Chiodo Madafferi of North Melbourne.

57    Ultimately, Unal abandoned ground 2 of each of his notices of appeal.

58    On the basis of the remaining grounds, Unal sought separate orders in each appeal as follows:

MLG 1946 of 2013

1.    The appeal be allowed;

2.    The Order made by Whelan J on 1 July 2014 in Federal Circuit Court of Australia proceeding No. MLG 1946 of 2013, be set aside and in lieu thereof, order:

2.1    Any decision of the Official Trustee in Bankruptcy as the trustee of the bankrupt estates of Recep Cetinkaya and Bahra Cetinkaya, to assign to any party any cause of action vested in it, be set aside; and

2.2    The applicant's costs of the application be paid by the respondents.

3.    The appellant's costs of the appeal be paid by the respondents.

MLG 1165 of 2013

1.    The appeal be allowed;

2.    The Orders made by Whelan J on 1 July 2014 in Federal Circuit Court of Australia proceeding No. MLG 1165 of 2013, be set aside and in lieu thereof, order that:

a.    The application dated 26 July 2013 be dismissed; and

b.    The respondents' costs of the application be paid by the applicants.

3.    The appellant's costs of the appeal be paid by the respondents.

MLG 2307 of 2013

1.    The appeal be allowed;

2.    The Orders made by Whelan J on 1 July 2014 in Federal Circuit Court of Australia proceeding No. MLG 2307 of 2013, be set aside and in lieu thereof, order:

2.1    The Official Trustee would not be justified in assigning the causes of action (Causes of Action) referred to in County Court proceeding No. Cl -08-05385 to Recep Cetinkaya and Bahar Cetinkaya on the terms proposed by them in application MLG 1165 of 2013, filed 26 July 2013, or at all;

2.2    The Official Trustee would not be justified in assigning the Causes of Action to Metin Unal, or to any other party; and

2.3    The respondents ' costs of the application be paid by the applicant.

3.    The appellant's costs of the appeal be paid by the respondents.

59    The three appeals were heard together on 19 November 2014.

60    In general terms, Unal has challenged her Honour’s exercise of power under ss 134(4) and 178 of the Act. It is appropriate to make some preliminary observations on these provisions before addressing the detailed grounds of appeal.

Section 134(4)

61    A trustee in bankruptcy can apply to the Court for directions under s 134(4) of the Act. Section 134(4) provides:

134    Powers exercisable at discretion of trustee

…

(4)    The trustee may at any time apply to the Court for directions in respect of a matter arising in connexion with the administration of the estate.

There are a number of principles that can be distilled from Bufalo v Official Trustee in Bankruptcy [2011] FCAFC 111 at [9] to [11] per Mansfield, Besanko and Flick JJ and the cases they referred to.

62    First, s 134(4) should be read together with s 30(1).

63    Second, s 134(4) is not by itself an appropriate mechanism to determine the substantive rights of creditors as against a trustee.

64    Third, the fact that a trustee invokes s 134(4) because he has a doubt “in respect of a matter arising in connexion with the administration of the estate” does not oblige the Court to give the directions sought.

65    Fourth, generally, a proper subject matter for directions is the manner in which a trustee should act in carrying out his statutory functions and exercising or not exercising his powers under the Act. But the power to give a direction should be exercised with considerable care.

66    Fifth, the Court will generally not give an advisory opinion divorced from a concrete issue between the trustee and creditors, the trustee and the bankrupt, the trustee and third parties or otherwise decontextualised from an actual transaction or course of conduct.

67    Sixth and relatedly, the Court may decline to give a direction where:

(a)    the relevant issue has not been appropriately crystallised, including where its factual or legal foundation is still evolving;

(b)    the trustee has not yet obtained legal or other expert opinion on the matter in doubt so that the trustee can then consider and act on such an opinion thereby obviating the need to approach the Court;

(c)    there is a more suitable mechanism for addressing the issue;

(d)    relatedly, s 134(4) (and the protection it may provide) is being used for the purpose of avoiding a more suitable inter-partes dispute resolution mechanism; or

(e)    an opinion is being sought from the Court on a decision whose character, say a purely commercial decision, is more appropriate for the trustee to make, subject to the review mechanisms of s 178; s 134(4) and its counterparts in ss 424(1), 447D and 479(3) of the Corporations Act 2001 (Cth) do not justify juridical commercial proxies for what the trustee should decide.

68    Seventh, if a trustee has made full disclosure of all material facts he may be protected from liability for a breach of at least his statutory duty for things done in accordance with the direction.

69    In my opinion, in relation to her Honour’s orders concerning proceeding MLG 2307 of 2013, her Honour appropriately applied these principles. Apart from the specific grounds of appeal that were pressed before me, no other issue has been raised concerning her Honour’s exercise of power under s 134(4). First, the relevant issue was appropriately crystallised. Second, the Official Trustee had made detailed investigations and sought advice. Third, no party suggested that another more appropriate mechanism should be used. Fourth, directions as to whether a trustee should assign a cause of action have been considered to be an appropriate subject matter for a s 134(4) direction. And in this context, there is little doubt that s 134(1)(a) empowers the Official Trustee in its discretion to assign the cause(s) of action discussed earlier. Moreover, such cause(s) of action can be assigned to the Cetinkayas. The breadth of s 134(1)(a) so permits. Further, s 134(1)(a) has always overridden any prior rule against maintenance and champerty.

Section 178

70    A trustee in bankruptcy is an officer of the Court and accordingly high standards of conduct are both expected and required (Re Cirillo; Ex parte Official Trustee in Bankruptcy (1996) 65 FCR 576 (Re Cirillo) at 585 per Branson J). Any review mechanism implicitly proceeds on that foundation.

71    One of the review mechanisms is embodied in s 178 of the Act. Section 178 provides:

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.

72    It is appropriate to say something concerning the nature and scope of the s 178 review. The wording of s 178 is such as to confer upon the Court the widest possible discretion as to the appropriate order which should be made in the particular case. It is not necessary, for example, to show that the trustee’s decision was unreasonable, absurd or made with an absence of good faith. Indeed, it is not necessary to show that the trustee has done anything wrong as such. The trustee’s decision may, on the material before him, have been quite correct and reasonable, yet the Court has a wide ranging supervisory jurisdiction on the material before it to substitute its own decision if appropriate. See generally Re Tyndall; Ex parte Official Receiver (1977) 17 ALR 182 and also the discussion in Macchia v Nilant (2001) 110 FCR 101 at [36]–[38] per French J (cf Healey v Prentice (No 2) [2000] FCA 1598 at [20] to [21] per Madgwick J). Nevertheless, the Court ought not unduly interfere with the day to day administration of a bankrupt’s estate. Moreover, the opinion of the trustee will be a relevant factor in the exercise of the Court’s discretion and there can be no presumption that the Court will intervene (Moore v Macks [2007] FCA 10 at [28] per Besanko J).

Ground 1

73    This ground concerning the “no equity” argument was not raised below. Alternatively, if it was raised in some form, it was not raised in the manner that it is now expressed.

74    The primary judge’s reasons below did not discuss this matter. This is symptomatic of Unal’s failure to squarely raise this below. True it is that the primary judge discussed ([50] and following) whether the relevant claim(s) or cause(s) of action had reasonable prospects of success. But in that context her Honour did not discuss the matters embraced by ground 1. There is discussion by her Honour at [57] to [67], but nothing in terms of the “no equity” argument leading to the consequence that no damages could be recovered in the County Court proceeding.

75    Unal’s written and oral submissions below do not demonstrate any specific identification of this “no equity” argument leading to the “no recoverable damages” argument, as frankly conceded by Unal’s counsel before me.

76    Unal’s outlines of facts and contentions dated 24 February 2014 and 3 March 2014 made no reference to this “no equity” argument. They did however generally assert that the claim had no reasonable prospects of success and that “the Cetinkayas transferred their legal and beneficial interest to Unal for appropriate valuable consideration” (see for example [8.1(a)] of the outline dated 24 February 2014). Moreover, they did refer to the ANZ Bank’s judgment for possession and the foreshadowed sheriff’s action. The case put by Unal was captured in cl 8.1 of its outline dated 24 February 2014 in terms:

The cause of action is frivolous and vexatious and demonstrably has no prospects of success, by reason of the following:

(a)    Unlike many such cases, the OT has investigated the evidence and has concluded that a court is likely to find that the Cetinkayas transferred their legal and beneficial interest to Unal for appropriate valuable consideration;

(b)    By reason of the serious allegation of fraud, the Cetinkayas evidence will need to be more probative and stronger than for a debt or damages claim;

(c)    If found to have been acting as trustee for the Cetinkayas, rather than for members of his own family, having expended his own money in the acquisition of the asset, Unal is entitled to be reimbursed/indemnified from [the property];

(d)    On its face, the cause of action is statute barred.

77    In Unal’s oral submissions below, Unal emphasised that the claim had no reasonable prospects of success because of the following matters:

(a)    All causes of action were statute barred (see T 42 line 5);

(b)    No strong evidence of fraud had been adduced (see T 42 line 45 to T 44 line 35);

(c)    If the Cetinkayas were correct that Unal acted as trustee, then they were obliged to reimburse or indemnify him for the money he provided and the use thereof. In that context it was said that the money then laid out was equal to the value of or exceeded the value at the time of the transfer (T 45 line 38); then the submission proceeded to refer to current value and Unal’s assertion that there should be “reimbursement” of the current value.

78    In terms of value, it was the Cetinkayas who put the rate notice(s) into evidence and for other purposes. This appears to have been done for the purposes of showing that the Cetinkayas paid the rates at the time of the transfer and thereafter (T 64 line 36 to T 65 line 36). Nevertheless, in the middle of the address of Cetinkayas’ counsel, Unal’s counsel said that he did not object to the rate notices going into evidence and said that they were evidence of value (T 65 line 38 to T 66 line 4). Then a short debate took place concerning using a notice of rateable value as evidence of market value and then the Cetinkayas’ counsel proceeded with his submissions. I should say though that Unal’s counsel had briefly referred to value at T 33 to 37 and the indebtedness to the ANZ Bank (which was more than the consideration expressed in the transfer) when touching on various factual matters, but never referred to the “no equity” argument in terms to link it with the Cetinkayas not suffering any damage that could be recovered in the County Court proceeding.

79    In summary, neither in written nor oral submissions did Unal articulate the “no equity” argument with a link to the recoverability of damages in the County Court proceeding. True it was that such an argument followed from the evidence and other points advanced below. But the complexion now put by Unal was not advanced below. Moreover, evidence of value of the property at the time of the transfer was left in an unsatisfactory state, with assertion and counter-assertion.

80    In my view, Unal ought not be permitted to raise this ground on appeal (see O'Brien v Komesaroff (1982) 150 CLR 310 at 319 per Mason J). This is a case where further evidence may have been filed with the course of proceedings before her Honour potentially proceeding differently. The relevant facts were not admitted; they were not beyond controversy. The specific point now sought to be raised was not made an issue by the conduct of the parties below, although there was some discussion of value. But even if this ground was permitted to be raised, on the evidence adduced before her Honour it fails in any event.

81    It may be accepted that a claim with no reasonable prospects of success ought not to be assigned by the Official Trustee (see Freeman v National Australia Bank Ltd [2004] FCAFC 318 at [35] per Lee, Merkel and Hely JJ and Citicorp Australia Ltd v Official Trustee in Bankruptcy (1996) 71 FCR 550 (Citicorp) at 565 per Foster, von Doussa and Sundberg JJ. So much was accepted by her Honour (see at [50]).

82    But one aspect needs to be emphasised. What is said to be inappropriate for a trustee in bankruptcy to assign is a cause of action which demonstrably has no prospects of success (Freeman at [35] per Lee, Merkel and Hely JJ). It must be a clear case of there being no reasonable prospects of success. If it is not clear that an alleged claim has no reasonable prospects of success, then it cannot be said that it is inappropriate for the trustee to so assign. So much has been emphasised by Citicorp at 565, which was endorsed in Freeman. And so much was emphasised by the decision at first instance in Citicorp.

83    Justice Branson in Re Cirillo at 585, which was the first instance decision in Citicorp, also accepted that it would not be proper for a trustee to assign to any person a cause of action which demonstrably had no prospects of success. But contrastingly, her Honour pointed out that:

I conclude that it is not the law that a trustee can only assign a cause of action if he or she is satisfied that it has a realistic chance of success. In circumstances in which insufficient funds are available to the trustee to allow a proper consideration of the likelihood of success of a cause of action asserted by the bankrupt to form part of his or her property, the appropriate course for the trustee to follow may well be to assign such causes of action to the bankrupt for a consideration which the trustee regards as appropriate in the light of such information as is available. Such a course may well result in some benefit to the creditors and will not place the estate at risk for legal costs. Similarly, where the trustee is unwilling to risk the funds of the bankrupt estate upon litigation with uncertain prospects of success, and no creditor is willing to fund such litigation, it may well be appropriate for the trustee to assign the relevant cause of action to the bankrupt, again for a consideration regarded by him or her as appropriate in all of the circumstances.

In my view, in considering the issue of sale of the property of a bankrupt, including any sale which involves the assignment of a cause of action, the principal duty of the trustee is to consider the interests of the creditors of the bankrupt estate in question as a whole. Consideration may also, in my view, properly be given to the legitimate interests of the bankrupt and to the legitimate interests of other parties likely to be affected by the trustee's decision.

84    The Full Court’s reasons are compatible therewith. If it is demonstrable that the cause of action has no prospects of success, it should not be assigned. But it does not follow, and it would be erroneous to assert, that assignment can only occur if the trustee is positively satisfied that it has realistic prospects of success. Uncertainty as to prospects is no bar to assignment. But if it demonstrably has no prospects, it should not be assigned.

85    Of course, one has to be careful of absolutes. The statutory power in s 134(1)(a) is expressed broadly, and a discretion is involved.

86    The onus lies upon Unal to establish that the cause(s) of action demonstrably had no prospects of success. Unal has not demonstrated that there was no equity. Moreover, Unal has not demonstrated that the Cetinkayas would not be entitled to any relief arising from the cause(s) of action. I say this for a number of reasons.

87    First, there is no convincing evidence of the value of the property at the time of the transfer. Unal’s contention depends upon him establishing that the amount due to the ANZ Bank was equal to or exceeded the value of the property. In other words, Unal must demonstrate that the property was worth only $131,000 (or at least less than $145,000) at the time of the transfer. But there was insufficient evidence to establish this before the Official Trustee or her Honour.

88    Second, the Cetinkayas point to evidence to establish the opposite conclusion, for example, evidence that the Cetinkayas purchased a half interest in the property in 1994 for $90,000 (see the affidavit of Ravak Ahmad sworn 3 June 2010 at [8(e)]).

89    Third, although Unal points to a rate notice for the property for the 1997/1998 financial year stating that the capital improved value of the property was $120,000, that provides little if any evidence of market value; further, that valuation was made 2 years prior to the rate notice. Alternatively, at best it is only one piece of evidence. Unal’s present reliance upon this notice as the principal evidence of market value demonstrates the unsatisfactory and piecemeal way in which this point is now sought to be developed.

90    Fourth, Unal’s written submissions before me at [12] and [13] asserted that:

12.    It is to be inferred that the price for Colebrook in the contract of sale of $131,000 was accepted by the ANZ Bank on account of the amount secured by its mortgage. (No proofs of debt have apparently been received by the OT. Presumably the ANZ Bank wrote off the shortfall it suffered).

13.    Had Unal not purchased Colebrook, the Cetinkayas could not have resisted the ANZ Bank taking possession of Colebrook and dealing with it pursuant to its powers under its mortgage, with the result that the property would not have formed part of the bankrupt estates of the Cetinkayas.

91    But this is all a matter of assertion. At most, a reasonable inference may be raised to this effect. Moreover, as the Cetinkayas pointed out, the counterfactual proposition that had Unal not purchased the property, the ANZ Bank would have taken possession and applied the entire proceeds of sale to discharge the mortgage is part of the controversy between the parties. The Cetinkayas assert that they approached Unal for advice to protect them from repossession and paid $20,000 in that regard.

92    Fifth, if Unal’s point was good, one might have expected him to apply for summary dismissal of the County Court proceeding on this particular basis, but this did not occur.

93    Sixth, in any event, this “no equity” ground said to support the “no recoverable damages” argument does not take Unal far for other reasons.

94    It was generally put that any damages claim of the Cetinkayas would fail if the point was good. But that is not clear at all. Remedies were also sought by way of declaratory relief, orders for “rescission” or “setting aside” the transfer, “revesting the property”, rectification of the Register and the like. Further, the damages claim was sufficiently broad to include common law and equitable damages. Further, restitutionary remedies also appear to have been embraced. Indeed, one remedy open may have involved looking at the current value of the property with a subtraction of the amount paid by Unal in 1996 including an amount for loss of use thereof. It is not clear at all that Unal’s simplistic calculus or methodology would have entailed no recovery by the Cetinkayas, even assuming the “no equity” argument to be good. Moreover, ultimately that was all a matter for adjudication by a County Court judge (see Citicorp at 561 to 562). It could not be said that the cause(s) of action demonstrably had no prospects of success.

Ground 2

95    As I have said, Unal has abandoned ground 2.

Ground 3

96    This ground seeks to rely upon what Bromberg J said on the costs application referred to at [30] above. Upon this premise, it is then said that there had been no changed circumstances since his Honour’s decision. It is then concluded that “(t)he learned primary judge erred in law in finding at [82] that the situation had changed significantly since the Honourable Justice Bromberg made his decision”.

97    I must say that I found Unal’s submissions on this ground unpersuasive on a number of levels.

98    First, his Honour’s decision on costs and his underpinning reasoning had little to do with the exercise her Honour was required to perform, which was to adjudicate on the three proceedings before her, based upon the issues raised and the evidence tendered. Contrastingly, the issue before his Honour was a costs question, with his Honour’s costs determination and his exercise of discretion based upon the usual impressionistic synthesis of various complementary and competing factors.

99    Second, and as a corollary, his Honour’s observations were not binding upon her Honour. This is not to say that they should have been completely put to one side. But it is to say that her Honour, as she rightly did, was obliged to consider and rule upon the issues before her for herself.

100    Third, and as a further corollary, to suggest that her Honour could only depart from his Honour’s observations if changed circumstances had been established is untenable. The situation that her Honour was dealing with did not involve successive identical or analogous interlocutory applications made by the same party or its privies. Now her Honour did say at [82] of her reasons that “[i]t seems to me that the situation has changed significantly since Bromberg J made his decision”. But such an observation was not strictly necessary. Moreover, such an observation did not amount to any tacit acceptance of any legal principle that changed circumstances had to be demonstrated. And if it did, the implicit endorsement of such a principle would have been incorrect. But I do not consider that her Honour’s etiquette can be transmogrified into any such error.

101    Fourth, one ought not overstate what Bromberg J said at [33] and [34]. At [33] his Honour said:

In my view, the changed course now taken by the Official Trustee is the result of a belated recognition by the Official Trustee that the previous course pursued by it was wrong. That is made abundantly clear in the letter of 27 February 2012 to the solicitors for the Cetinkayas and for Unal, where the solicitors for the Official Trustee stated:

We now advise both parties that the Official Trustee will not be entertaining any offer by either party to assign the chose in action arising from the County Court proceedings. In circumstances where there appears to have been serious breaches of the Act, it is not appropriate for the Official Trustee as both a statutory officer and officer of the Court to entertain negotiations with parties who may have committed those breaches. Any further application by either party seeking to force an assignment of the cause of action will be resisted on this basis.

102    Then he said at [34]:

The Official Trustee’s changed position is not unreasonable. Far from it, the position now taken by the Official Trustee appears to be the proper course for the Official Trustee to have taken… [my emphasis]

103    His Honour’s position is not as definitive as Unal would wish it to be. In any event, it would appear that it was unnecessary for his Honour to decide the point in relation to the costs application. He was only required to conclude that the Official Trustee’s change in position was reasonable. He did not need to conclude that the initial position was wrong.

104    Unal’s submissions metastasised into a further position. At [11] it was contended:

The OT “is bound to execute the trust with fidelity and reasonable diligence and ought to conduct its affairs in the same manner as an ordinary prudent man of business would conduct his own affairs”. Acting with fidelity and prudence must include not resiling from a position relied upon in earlier Court proceedings between the same parties and involving the same issues.

105    Such an argument is even less meritorious. One would expect that a trustee, upon a reappraisal of his position, acting with fidelity and prudence and in the interests of the creditors of the bankrupt’s estate, would take the most correct position and act on it or seek the directions of the Court if in doubt, as the Official Trustee did in the present case.

106    Fifth, underpinning this ground of appeal appears to be the premise that a trustee is prohibited from assigning a cause of action to a person who has or may have committed breaches of the Act. There is no such principle. Alternatively, it appears to be put that a powerful discretionary reason against the Court directing the trustee to assign is the circumstance that the potential assignee has or may have committed breaches of the Act. True it is that this is a factor to be taken into account, as her Honour did (see [50] to [67], [69], [74] to [79] and [82]), but there is no warrant for so elevating the status of such a circumstance.

107    This is not a case where the doctrine of ex turpi causa non oritur actio could or would apply. That doctrine would not have prevented the Official Trustee from pursuing a claim against Unal, even if based on a “dishonourable” cause of action formerly vested in the bankrupt. Say a bankrupt settles property on a third party, who agrees to hold the property on a bare trust for the bankrupt upon an understanding that the trust was to be concealed from a future trustee in bankruptcy. The bankrupt's beneficial interest in the property the subject of the trust would vest in the trustee despite the dishonourable purpose of the agreement. Public policy would be consistent with its realisation for the benefit of creditors, rather than preventing a trustee from pursuing the cause of action.

108    Generally, the additional element of the assignment by a trustee to a participant who may have committed breaches of the Act ought not to affect the ability of the trustee to realise the property. This is particularly so where the assignee is the one best placed to prosecute the claim by reason of knowledge and the assignee’s entitlement to any surplus upon the bankruptcy being paid out. This position is fortified if the claim is to be pursued at the assignee’s expense.

109    There is a further difficulty. If the proposition is that a trustee must not assign a cause of action to a person who has or may have committed breaches of the Act, then:

(a)    what types of breaches give rise to the prohibition and how are they to be causally linked to the cause of action?

(b)    what is the extent of involvement by the proposed assignee that would give rise to such a prohibition?

(c)    what is the extent of investigation to be undertaken by the trustee into alleged breaches of the Act prior to the envisaged assignment?

(d)    what is the strength of proof or state of satisfaction as to a breach of the Act that a trustee would need to have before determining that such an assignment ought not to take place?

110    The illegality argument has even further problems. Let me mention a few. First, there is little authority for the proposition; Freeman and Citicorp are silent on the point. Further, there is nothing on the face of s 134(1)(a) that supports it. Moreover, reference to nebulous public policy questions does not really carry the day; the Official Trustee has a public duty to exercise its powers under the Act to maximise returns in circumstances that do not involve engaging in unauthorised conduct. Second, the point seems misconceived. How is it said that illegality goes to the question of assignability of the cause of action by the Official Trustee or its exercise of discretionary power in that respect? If there was any illegality, it might have an impact on the cause of action, defences thereto and the relief that might be granted in the County Court proceeding at the suit of the Cetinkayas. And if there was a knock out point, that may go to another issue (see earlier) as to whether the claim had reasonable prospects of success. But it hardly speaks to assignability per se or whether the Official Trustee is precluded from assigning, although of course it may affect the value of the cause of action. If illegality bites, it will bite on the claim and the relief. If the point is good, there will be no recovery in the proceeding. If the point is bad, then the illegality will be superfluous. But this can only be determined within the County Court proceeding itself. It is difficult to see how it could be said that the Official Trustee should anticipate and effectively decide the point for itself now. Third, and relatedly, given Bahar Cetinkaya’s language difficulties, there is no good case that she somehow knowingly or intentionally engaged in illegal conduct. Accordingly, it is difficult to see how illegality could affect her claim or its assignability. And if that be so, there is no impediment to the assignment of her claim. And if that be so, it is also appropriate, if not necessary, to assign Recep Cetinkaya’s claim as it is effectively not severable from her claim. Fourth, even if the property transfer implicated the Cetinkayas in contraventions of the Act, on their evidence, Unal was also implicated. On one view, this was not a case of a wrongdoer pursuing an innocent party. Fifth, if there were to be no assignment (it was not viable to assign to anyone other than the Cetinkayas or Unal) or indeed an assignment to Unal, then:

(a)    there would have been no potential recovery for the creditors (or only some modest amount if Unal purchased it);

(b)    there would have been no investigation of Unal’s conduct and his alleged role and involvement in the property transfer or any adjudication thereon.

111    In my view, no error has been demonstrated in either the Official Trustee’s consideration of this question or her Honour’s consideration of the matter. Her Honour considered both Bromberg J’s observations and the illegality question as it was said to apply to the position of both the Cetinkayas and Unal. Nothing that has been said by Unal in any way impugns her Honour’s consideration as set out at [82].

112    In summary, one can accept that public policy is relevant to the exercise of discretion by a trustee in relation to an assignment. No doubt the rule against assignment of an unmeritorious cause of action derives from "the question whether the proposed assignment would visit a mischief or injustice on the community" (Citicorp at 558 to 559). But in the present case, the primary judge took into account various matters that were identified as arising from public policy (see at [82] to [84]). No error is established.

113    For completeness, Unal in written reply submissions sought to resile from suggesting that he was relying upon any public policy position and that he was merely advancing the more prosaic proposition that the Official Trustee ought not to be allowed to resile from its earlier position before Bromberg J. I have dealt with that argument at the outset. But it seems to me to be unrealistic for Unal to seek to divorce such a superficial argument from its flawed explicit or implicit foundations.

Ground 4

114    This ground of appeal has a number of problematic features for Unal.

115    First, it was not for her Honour to engage in a detailed forensic analysis of the underlying cause(s) of action and the asserted factual elements on which it depended. Rather, such matters were the task of the Court whose jurisdiction had been invoked to adjudicate on such a claim.

116    As the Official Trustee pointed out before me, it would have been wasteful to have two detailed hearings into the merits of an assigned or to be assigned claim: one on the review of the trustee’s decision to assign; the other on the hearing of the assigned claim itself.

117    Second, even if her Honour had erred in so finding that Unal had a conflict of interest, alternatively ought to have found that there was insufficient evidence before her to so conclude, that would not in and of itself have entailed that there should have been no assignment. An absence of evidence to definitively establish a conflict of interest would not have entailed that the claim against Unal demonstrably had no reasonable prospects of success. Moreover, the relevant cause(s) of action embraced broader claims of fraud and misrepresentation that did not strictly require a conflict of interest to be established.

118    Third, even accepting for the moment that at the time of the property transfer to Unal the Cetinkayas had independent solicitors and even assuming for the moment that Unal had not been formally retained as their accountant, the conclusion by her Honour that the Cetinkayas sought assistance and advice from Unal, who then gave it, a finding more than adequately supported by the evidence before her Honour, was more than sufficient to find a prima facie case of conflict of interest.

119    In an affidavit of Bojana Balen sworn on 26 July 2013, reference is made to the Cetinkayas taking advice from Unal. Annexed to her affidavit is also an affidavit of Ravak Ahmad sworn on 3 June 2010 similarly so deposing. Both are hearsay. But there was also an affidavit of Recep Cetinkaya sworn on 30 June 2010 that deposed at [6]:

In addition, I say that Unal had acted as my business advisor and an accountant since about 1993... In addition I say that I had a conversation with Unal in or around 1997 in which he advised me that Bahar and I should file for bankruptcy and that the property (the subject of the County Court Proceeding) would not form part of our estate. I have only a rudimentary grasp of the English language. My wife has virtually no capacity to communicate in English at all. On the other hand, Unal can communicate freely in both my native tongue, Turkish, and in English. I was in the habit of relying on Unal to advise me as to my financial affairs and well being. I cannot specifically recall how I came to be referred to Chiodo Madaferi. I had never dealt with that firm of solicitors before. Nor have I dealt with them since. Having regard to the fact that I relied completely on Unal to advise me as how to best structure my affairs, I believe that Unal referred me to Chiodo Madaferi although I have no specific recollection of this happening.

120    Reference has been made by Unal to the Cetinkayas’ statement of affairs made on 13 October 1997. But the fact that they might have had a different accountant at that later time says nothing about whether Unal acted at an earlier time. Indeed the statement of affairs refers to Unal preparing the Cetinkayas’ prior year tax returns.

121    Finally and for completeness, it is worth making some brief observations concerning s 172 of the PLA (Vic). It will be apparent that s 172 provides for alienations of property to be voidable at the instance of “any person thereby prejudiced” for example a creditor. Contrastingly, s 121 of the Act provides for transfers of property to be void as against the trustee in bankruptcy. No s 109 problem arises and there is no difficulty of s 172 operating where s 121 is not sought to be invoked (as in the present case); see Zaravinos v Houvardas (2004) 32 Fam LR 490; [2004] NSWCA 421 at [37] to [44] per Handley, Sheller and Ipp JJA. But query whether s 172 can operate in favour of the Cetinkayas as “any person thereby prejudiced” given that they are the ones alleged to have alienated property with intent to defraud creditors. And if the Official Trustee is “any person thereby prejudiced” (assuming no s 109 problem), it would be a direct claim of the Official Trustee rather than property being disposed of under s 134(1)(a) of the Act. But these issues can be put to one side as the fraud claims of the Cetinkayas could bite under s 42(1) and s 44(1) of the Transfer of Land Act 1958 (Vic). Such claims would be property capable of being assigned under s 134(1)(a).

122    In summary, this ground of appeal is not made out. But even if it was made out, it would not justify setting aside her Honour’s orders in any event. To have established ground 4 would not of itself have established that the cause(s) of action demonstrably had no prospects of success.

Conclusion

123    In my view, her Honour’s decision concerning the appropriateness of the Official Trustee entering into the proposed assignment has not been demonstrated as being affected by any error.

124    Indeed, in my opinion her Honour’s decision was correct.

125    Each appeal will be dismissed with costs.

Associate:

Dated:    27 March 2015