FEDERAL COURT OF AUSTRALIA

Bell v Taylor [2015] FCA 687

THE COURT ORDERS THAT:

1.    The applicant’s application filed on 23 July 2014 and amended on 5 September 2014, is dismissed.

2.    The applicant is to pay each of the respondent’s costs, and the first respondent’s costs are to be paid from the bankrupt estate.

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

REASONS FOR JUDGMENT

1    The applicant, Mr Carl William Bell, was a director of a company, Rosmill Pty Ltd (Rosmill). Rosmill was the owner of three properties located in York, Western Australia, at 25 Wheeler Street, 13 Henrietta Street and Lot 3 Great Southern Highway. Rosmill entered into a loan facility agreement with the Bank of Western Australia Limited (BankWest) and granted security over the three properties. BankWest advanced Rosmill monies under the loan facility agreement.

2    In December 2004, Mr Bell entered into a guarantee of Rosmill’s repayment obligations under the loan facility agreement.

3    Mr Bell was the owner in his own right of a property at 1 and 3 William Street, York.

4    In June 2007, Mr Bell provided to BankWest a first registered mortgage over his property at 1 and 3 William Street to secure the repayment of all monies owed by Rosmill to BankWest. That mortgage was registered as a first registered mortgage over the William Street property on 11 June 2007.

5    On 18 February 2011, acting pursuant to its powers under the security granted by Rosmill, BankWest appointed Mr Matthew Donnelly as receiver and manager of the assets and undertaking of Rosmill. The property subject to the control of the receiver and manager included the three properties owned by Rosmill.

6    On 16 August 2011, BankWest commenced an action in the Supreme Court of Western Australia (CIV 2512 of 2011) against Mr Bell as guarantor for the amount due under the loan facility agreement between Rosmill and BankWest. Mr Bell defended the claim made by BankWest.

7    On 1 December 2011, Master Sanderson granted summary judgment and ordered that Mr Bell pay to BankWest the sum of $1,011,947 together with interest and indemnity costs.

8    Mr Bell did not meet the judgment debt.

9    BankWest then issued a bankruptcy notice to Mr Bell in respect of the judgment debt arising from the order made by Master Sanderson on 1 December 2011. Mr Bell did not comply with the bankruptcy notice.

10    On 8 June 2012, BankWest commenced bankruptcy proceedings (PEG 126 of 2012) against Mr Bell in the Federal Magistrates Court of Australia (now the Federal Circuit Court of Australia) based on his failure to comply with the bankruptcy notice.

11    On 15 January 2013, Registrar Stanley made a sequestration order in relation to Mr Bell’s estate. The Official Trustee in Bankruptcy was appointed as the trustee of Mr Bell’s bankrupt estate.

12    On 4 April 2013, the first respondent, Mr Barry Anthony Taylor, was appointed as trustee in bankruptcy of Mr Bell’s bankrupt estate to replace the Official Trustee in Bankruptcy.

13    By this proceeding the applicant, Mr Bell seeks an order for an inquiry into the conduct of Mr Taylor and consequential orders, including an order that Mr Taylor be removed as his trustee in bankruptcy. Mr Bell relies upon s 178 and s 179 of the Bankruptcy Act 1966 (Cth). The second respondent to this application is the Commonwealth Bank of Australia which on 1 October 2012 succeeded to BankWest’s entire business pursuant to the Financial Sector (Business Transfer and Group Restructure) Act 1999 (Cth).

14    In his application, Mr Bell also complains about a decision of Registrar Trott of 28 August 2014 refusing to accept Mr Bell’s application for an extension of time and for leave to appeal against a decision of a judge of the Federal Circuit Court. I have taken that complaint to amount to an application to review the decision of Registrar Trott under s 35A(5) of the Federal Court of Australia Act 1976 (Cth) (the Federal Court Act).

BACKGROUND

15    Before dealing with the merits of Mr Bell’s application, it is necessary to set out by way of background, a brief account of some of the litigation in which Mr Bell has been involved. In this regard, I have been assisted by the reasons for decision of Principal Registrar Gething of the Supreme Court of Western Australia in Commonwealth Bank of Australia v Bell [2014] WASC 201.

16    On 1 March 2013, Mr Bell commenced a proceeding in the Federal Magistrates Court (PEG 36 of 2013) for an extension of time within which to review, and to review, the sequestration order made by Registrar Stanley on 15 January 2013. Mr Bell’s challenge to Registrar Stanley’s decision was based on the contention that the registrar did not have authority to make the sequestration order because a registrar of the Federal Magistrates Court did not have authority to exercise judicial power. On 19 April 2013, those applications were dismissed by Judge Reithmuller in the Federal Circuit Court.

17    On 18 July 2013, Mr Norman Gianatti commenced an action in the Supreme Court of Western Australia against Rosmill (receiver and manager appointed), Mr Bell, Mr Donnelly, BankWest and the Commonwealth Bank. The application was, relevantly, for the extension of the operation of a caveat (L555728) over the William Street property. On 9 August 2013, Justice Edelman dismissed Mr Gianatti’s application to extend the operation of the caveat.

18    However, Mr Gianatti’s application and the fact that it was dismissed, is of significance because it is a fundamental contention by Mr Bell underlying his complaints in this application that each of the William Street property and the three Rosmill properties, was the subject of a security interest in favour of Mr Gianatti which had priority to the securities granted by Rosmill and Mr Bell to BankWest.

19    On 16 October 2013, the Commonwealth Bank commenced an action in the Supreme Court of Western Australia (CIV 2567 of 2013) seeking an order that Mr Bell deliver up vacant possession of the William Street property.

20    On 12 December 2013, the Commonwealth Bank brought an application for summary judgment for the delivery up of possession of the William Street property. The Commonwealth Bank claimed that as at 11 December 2013, the amount then owing by Mr Bell to the Commonwealth Bank under the mortgage, was $1,493,561.06.

21    On 22 April 2014, Master Sanderson granted the Commonwealth Bank summary judgment and ordered that Mr Bell deliver up vacant possession of the William Street property to the Commonwealth Bank within 21 days.

22    On 8 May 2014, Mr Bell filed a notice of appeal in the Supreme Court of Western Australia against the summary judgment of Master Sanderson on 1 December 2011 (CIV 2512 of 2011) and the summary judgment for vacant possession on 22 April 2014 (CIV 2567 of 2013).

23    On 9 May 2014, Mr Bell filed an application in the Supreme Court of Western Australia for an order suspending enforcement of the two summary judgments of Master Sanderson.

24    On 13 May 2014, Mr Bell filed an application in the Federal Circuit Court seeking among other relief, an order that the sequestration order made against him on 15 January 2013, be annulled on the grounds that the petitioning creditor had no standing and was not his creditor.

25    On 19 May 2014, Registrar Gething heard and, on 3 June 2014, dismissed Mr Bell’s application on the basis that Mr Bell’s trustee in bankruptcy, who was then Mr Taylor, had not consented to Mr Bell defending the action for vacant possession, nor consented to him bringing the application for the orders seeking to suspend the previous orders for summary judgment. Further, Registrar Gething found that, in any event, there would be no stay of the enforcement of the judgments because Mr Bell had not paid the judgment sum into court and there were no special circumstances which permitted a stay to be granted in the absence of the payment into court of that sum.

26    On 12 June 2014, Judge Jarrett of the Federal Circuit Court summarily dismissed Mr Bell’s application for the annulment of his bankruptcy. Mr Bell filed in this Court, a notice of appeal from that decision. I will discuss this matter further later in these reasons when considering the review of Registrar Trott’s decision.

27    On 23 June 2014, the Western Australian Court of Appeal dismissed Mr Bell’s appeal against the summary judgments of Master Sanderson in respect of the debt owed by Mr Bell and the order for delivery up of the William Street property.

mr bell’s application for an inquiry

28    Mr Bell brings this application relying upon s 178 and s 179 of the Bankruptcy Act. These sections read as follows:

178(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.

179(1)    The Court may, on the application of the Inspector-General, a creditor or the bankrupt, inquire into the conduct of a trustee in relation to a bankruptcy and may do one or both of the following:

(a)    remove the trustee from office; and

(b)    make such order as it thinks proper.

(2)    The Inspector-General or a creditor may at any time require a trustee to answer an inquiry in relation to the bankrupt’s estate or affairs.

29    In his amended originating application Mr Bell sets out his complaints in relation to the conduct of Mr Taylor. Mr Bell has not, in setting out his complaints, sought to distinguish between s 178 and s 179.

30    The complaints made by Mr Bell use florid and extravagant language but in substance, so far as I can discern, comprise the following complaints.

31    First, Mr Taylor has not made his own assessment of the Commonwealth Bank’s right to appoint the receivers and managers to Rosmill to take possession of the three Rosmill properties.

32    Secondly, Mr Taylor has failed to conduct his own independent assessment of the Commonwealth Bank’s claim to the judgment debt against Mr Bell and its claim to take possession under the mortgage of the William Street property. In this regard, Mr Bell claims specifically that Mr Taylor has failed to “check the integrity of the proofs of debt” of the Commonwealth Bank.

33    In his originating application and submissions Mr Bell refers to the properties owned by the company as “the three properties” and his own property as “the fourth property”.

34    Thirdly, Mr Bell complains that Mr Taylor has not contested the validity of the claims made against him by the Commonwealth Bank in the litigation in the Supreme Court of Western Australia. In Mr Bell’s words, Mr Taylor has “acquiesced” in the claims made by the Commonwealth Bank against Mr Bell.

35    In his affidavit of 19 September 2014, Mr Taylor deposed that the William Street property was the subject of a first registered mortgage in favour of the Commonwealth Bank. Mr Taylor also exhibited a letter from Mr Donnelly, advising that he had been appointed as receiver and manager of Rosmill which owned the three properties, and that he had been appointed “Agent for the Bank” over the William Street, York property owned by Mr Bell. Mr Donnelly went on to say that:

Please note that subsequent to the disposal of all property and other assets I estimate a shortfall to the bank, as such no dividend will be available to other creditors.

36    Mr Taylor went on to depose that he was aware of nine unsecured creditors in the estate of Mr Bell including a number of finance companies. Mr Taylor then said at para 21 of his affidavit that at the date of swearing the affidavit, he had not formally adjudicated any proof of debt lodged by any creditor in the bankrupt estate of Mr Bell.

37    At para 12 of his reply submissions, Mr Bell summarised his complaint. Mr Bell said that the four properties in respect of which the Commonwealth Bank has exercised its powers as mortgagee (which Mr Bell refers to as the “stolen” properties) were never the “secured properties of [Mr Bell] and his body corporate Rosmill” because “he has already informally secured them to one Norm Gianatti (the one and only true and lawful secured creditor)…”

38    Mr Bell went on to submit that it “is a legal impossibility for the existence of any other genuine secured creditors other than Norm Gianatti”. Further, Mr Bell contended that the Commonwealth Bank and Mr Taylor could not “lawfully dispossess Mr Bell and his body corporate, Rosmill, from the four properties unless they are genuine secured creditors and can prove their s 97 proof of debt claim”.

39    Also, Mr Bell has interpreted Mr Taylor’s statement in his affidavit that he has not formally adjudicated any proof of debt, as an acknowledgement by Mr Taylor of Mr Bell’s claims that the Commonwealth Bank’s security did not entitle it to take possession of Mr Bell’s property, nor the three properties owned by Rosmill.

40    In the case of Ferella v Official Trustee in Bankruptcy (No 2) [2011] FCA 619 at [11]-[28], Yates J summarised the principles to be applied in determining whether there should be an inquiry into the conduct of a trustee in bankruptcy. One of the requirements referred to by Yates J is a requirement that the person seeking the inquiry should normally be required to establish substantial grounds for believing that the trustee in bankruptcy has erred in the administration of the bankruptcy or has engaged in misconduct (Re Gault; Gault v Law (1981) 57 FLR 165 at 173).

41    In my view, for the following reasons, Mr Bell has failed to meet that requirement.

42    Mr Bell’s first complaint is without substance. Mr Bell’s contentions do not distinguish between the properties which were owned by Rosmill and the property he owned personally, namely, the William Street property. The three properties owned by Rosmill plainly do not form part of the bankrupt estate of Mr Bell and, therefore, are not property which vested in the trustee in bankruptcy pursuant to s 58 of the Bankruptcy Act. It is no part of Mr Taylor’s role as trustee in bankruptcy to investigate the right of the Commonwealth Bank to appoint a receiver and manager to Rosmill or to inquire into the exercise by that person of the powers granted by Rosmill under the security given by Rosmill.

43    The second complaint is that Mr Taylor has not investigated the validity of the Commonwealth Bank’s debt claim against Mr Bell and its entitlement under the mortgage to take possession of the William Street property.

44    In this regard, Mr Bell has misconceived the import of Mr Taylor’s statement in his affidavit that he has not yet adjudicated any proof of debt by any creditor. In essence, what Mr Taylor is saying is that the stage in the administration of Mr Bell’s bankruptcy has not yet been reached when the proofs of debt may be adjudicated.

45    Further, the William Street property is subject to a mortgage in favour of the Commonwealth Bank, which is, therefore, a second creditor. Section 58(5) of the Bankruptcy Act provides that nothing in this section affects the right of a second creditor to realise or otherwise deal with his or her security.

46    Section 90 of the Bankruptcy Act deals with the lodging of proofs of debt by secured creditors in a bankrupt estate. Section 90(3) provides for the circumstance of a secured creditor first realising the security, and proving in the estate of the debtor for the balance. Mr Donnelly’s letter suggests that the Commonwealth Bank intends to realise the security by selling the William Street property. Whether it then decides to lodge a proof of debt for any balance of its debt is a matter for the Commonwealth Bank.

47    However, until the stage in the administration of the estate is reached, where it is appropriate for Mr Taylor to adjudicate upon proofs of debt; and until such time, if ever, that the Commonwealth Bank files a proof of debt, no criticism can be made that Mr Taylor has not adjudicated any proof of debt by the Commonwealth Bank.

48    The third complaint is that Mr Taylor has not, in the litigation involving Mr Bell, challenged the security interests asserted by the Commonwealth Bank in the William Street property, or the three properties owned by Rosmill.

49    As previously mentioned, the basis on which Mr Bell contends that the challenge should be made, is that the security in all four properties is held by Mr Norm Gianatti and not the Commonwealth Bank. In my view, Mr Taylor cannot be criticised for failing to challenge the Commonwealth Bank’s security interest on the basis suggested by Mr Bell for the following reasons.

50    First, as previously mentioned, Mr Taylor’s powers only extend to the William Street property. Mr Bell’s claim that Mr Gianatti has a beneficial interest in the William Street property, has already been the subject of judicial determination. As previously mentioned, Mr Gianatti brought an application to extend a caveat over that property before the Supreme Court of Western Australia. Justice Edelman dismissed Mr Gianatti’s application for the extension of the caveat.

51    Secondly, and in any event, it is Mr Bell’s argument that by reason of the existence of Mr Gianatti’s beneficial interest in the William Street property, that property does not vest in the bankrupt estate. In those circumstances, there is no benefit to the bankrupt estate in Mr Taylor challenging the Commonwealth Bank’s security interest with a view to establishing the existence of Mr Gianatti’s interest. Therefore, Mr Taylor cannot be criticised for failing to embark on this litigation.

52    Accordingly, Mr Bell’s application for an inquiry into the conduct of Mr Taylor is dismissed.

review of the decision of deputy registrar trott

53    Mr Bell also complained in his amended originating application about the decision of Registrar Trott of 28 August 2014 not to permit Mr Bell to file an application for an extension of time and for leave to appeal against the summary judgment of Judge Jarrett of the Federal Circuit Court dismissing Mr Bell’s application to annul his bankruptcy. As mentioned, I have treated that complaint as an application to review the decision of Registrar Trott under s 35A(5) of the Federal Court Act.

54    The background circumstances, in brief, are the following.

55    On 12 June 2014, Judge Jarrett summarily dismissed Mr Bell’s application for the annulment of his bankruptcy which Mr Bell had filed on 13 May 2014 (Bell v Commonwealth Bank of Australia [2014] FCCA 1313).

56    Mr Bell then filed in this Court a notice of appeal dated 3 July 2014 against the summary dismissal by Judge Jarrett of his application to annul his bankruptcy. The Australian Government Solicitor, representing two of the respondents named in the appeal, filed an objection to competency on the basis that Judge Jarrett’s order was an interlocutory order and not a final order; and Mr Bell had not obtained leave to appeal and was also out of time to make such an application.

57    On 1 August 2014, Mr Bell filed an interlocutory application in the appeal seeking, among other relief, to enjoin the Commonwealth Bank, the first respondent to the appeal, from taking possession of the William Street property.

58    On 8 August 2014, before Mr Bell had filed any application for an extension of time or for leave to appeal against Judge Jarrett’s order, Gilmour J dismissed the interlocutory application on the grounds that Mr Taylor had not given his consent to the bringing of that application; and also on the grounds that it was an abuse of process as Mr Bell had sought, and had failed to obtain the same relief before Registrar Gething in the Supreme Court of Western Australia.

59    Gilmour J also dismissed the appeal on the grounds that Mr Bell had not obtained the consent of his trustee in bankruptcy to bring the appeal (Bell v Commonwealth Bank of Australia [2014] FCA 934).

60    On 27 August 2014, Mr Bell sought to file at the Western Australia District Registry an application to extend the time to appeal and for leave to appeal against the decision of Judge Jarrett of 12 June 2014. On 28 August 2014, Registrar Trott refused to accept these documents for filing on the basis that the appeal had been finally determined by Gilmour J and there was no longer any basis upon which Mr Bell could re-agitate the appeal by seeking to apply to extend time to appeal and for leave to appeal.

61    More specifically, Registrar Trott said in his letter to Mr Bell:

It appears to me that, by seeking to file each of the documents referred to above, you wish to re-agitate issues that are no longer before the Court, following his Honour’s pronouncement of judgment on 8 August 2014.

Pursuant to rule 2.26 of the Federal Court Rules 2011 (Cth), I have decided to refuse to accept your documents for filing. I am satisfied that each of the documents sought to be filed is an abuse of process of the Court, or is frivolous or vexatious.

62    In my view, Registrar Trott did not err in the decision to which he came. Once the appeal against Judge Jarrett’s judgment had been determined, as it had been before Gilmour J on 8 August 2014, it was not possible for Mr Bell to revive the matter by making an application to extend time and for leave to appeal. Accordingly, the review of Registrar Trott’s decision is dismissed.

63    Mr Bell is to pay the costs of this application, and Mr Taylor’s costs are to be paid from the bankrupt estate.

Associate:

Dated:    7 July 2015