FEDERAL COURT OF AUSTRALIA

Shaw v The Official Trustee in Bankruptcy Vic 1697/14/1 of Australian Financial Security Authority [2019] FCA 1412

ORDERS

THE COURT ORDERS THAT:

1.    The interlocutory application of 6 August 2019, to the extent that the applicant sought thereby orders that the respondent’s lawyers be restrained from further acting in this proceeding, is dismissed.

2.    The costs of and pertaining to that application are reserved.

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

REASONS FOR JUDGMENT

SNADEN J:

1    The respondent is the trustee of the applicant’s bankrupt estate. On or about Friday, 5 July 2019, it made a decision under s 102(1) of the Bankruptcy Act 1966 (Cth) (hereafter, the “Act”) to admit a particular proof (or possibly proofs) of debt in respect of that estate. By his originating application of Wednesday, 24 July 2019, the applicant mounts a challenge under s 104(1) of the Act to that decision.

2    The respondent has retained the services of a law firm (hereafter, the “Respondent’s Lawyers”) to assist it in the administration of the applicant’s bankrupt estate. The Respondent’s Lawyers are also retained to represent the respondent in the present proceeding.

3    By an interlocutory application dated 6 August 2019, the applicant moves the court for orders that the Respondent’s Lawyers be “restrain[ed]…from further acting in this proceeding”. That application (hereafter, the “Restraint Application”) was the subject of discussion at a case management conference conducted on Friday, 9 August 2019. The parties were, on that date, directed to file written submissions about whether or not any relief should be granted in respect of the Restraint Application. They did so and the court was assisted by what was received.

4    The court’s preference, expressed at the case management conference on 9 August 2019, was for the Restraint Application to be determined on the papers after receipt of those written submissions. However, at his request, the applicant was given until Tuesday, 27 August 2019 to indicate whether it was appropriate for that course to ensue, or whether, instead, he felt that the question required ventilation at an oral hearing.

5    On Monday, 26 August 2019, the applicant indicated that he did not consent to the court determining the Restraint Application on the papers. The matter was heard before me on the afternoon of Thursday, 29 August 2019. The applicant appeared by telephone. He relied upon two affidavits—one that he affirmed on 24 July 2019; and another that he affirmed on 6 August 2019—both of which, in the absence of objection, the court has treated as read for the purposes of the Restraint Application. At the conclusion of the hearing, I dismissed the Restraint Application, reserved costs and indicated that I would publish written reasons for my decision.

6    These are those reasons.

The court’s power to make orders of the kind that are sought

7    Both sides accept—and the authorities in any event make clear—that the court has the power to grant relief of the kind sought by means of the Restraint Application. An order of the nature sought is an “exceptional one” and will not lightly be granted: Kallinicos v Hunt (2005) 64 NSWLR 561, 582-583 [76] (Brereton J); Dealer Support Services Pty Ltd v Motor Trades Association of Australia Ltd (2014) 228 FCR 252, 276 [97] (Beach J). In Bahonko v Nurses Board of Victoria (No 3) [2007] FCA 491 (“Bahonko”, Middleton J), this court recognised (at [3]) the need to be mindful that:

…sometimes applications for restraining legal practitioners may be misused or quite inappropriately pursued by a party to proceedings. In Freeman v Chicago Musical Instrument Co 689 F2d 715 (1982), the Court observed at 722:

We do not mean to infer that motions to disqualify counsel may not be legitimate, for there obviously are situations where they are both legitimate and necessary; nonetheless, such motions should be viewed with extreme caution for they can be misused as techniques of harassment.

8    In Spincode Pty Ltd v Look Software Pty Ltd (2001) 4 VR 501, Brooking JA (with whom Ormiston and Chernov JJA agreed) identified (at 521-525 [52]-[58]) the circumstances in which a court might order that a litigant’s preferred representative should cease to act in a matter. In Geelong School Supplies Pty Ltd v Dean (2006) 237 ALR 612 (“Dean”, Young J), this court (at 617 [24]) distilled his Honour’s observations into three categories, namely:

(1)    where an order is necessary to prevent the misuse of confidential information;

(2)    where an order is necessary to prevent a breach by a lawyer of his or her fiduciary duty not to act against a client or former client in the same matter, or in a closely-related matter; and

(3)    where an order is necessary for the court to control the conduct of legal practitioners as officers of the court,

(see also Fogerty-Young v Jason [2013] VSC 570, [32] (Elliott J)).

9    In the present case, the applicant relies upon the third category. He maintains that an order of the kind sought is necessary in aid of the administration of justice, or that it is otherwise in the interests of justice that one be made.

10    The third category, by its nature, is broad; but it is at least wide enough to cover situations in which the subject matter of litigation is likely to involve an evaluation of the conduct of particular legal practitioners: Holborow v MacDonald Rudder [2002] WASC 265, [23] (Heenan J). Alternatively, it might cover situations in which a legal practitioner might feel compelled to justify or defend his or her conduct in representing a client, or where the practitioner’s credibility is at stake as a potential witness: Bowen v Stott [2004] WASC 94, [53], [55] (Hasluck J).

11    In Bahonko, Middleton J, speaking of the third ground that Young J described in Dean, observed (at [11]):

The crucial question is whether, on the evidence before the Court, a fair-minded, reasonably informed member of the public would conclude that the proper administration of justice requires that the legal practitioner be restrained from acting for its client in the proceedings…

The case for and against restraint

12    The applicant raises a number of complaints about the conduct of the Respondent’s Lawyers. In summary form, they are that:

(1)    the “attitude” of the Respondent’s Lawyers is unnecessarily adversarial, and not in accordance with (or reflective of) the respondent’s duties as an officer of the court;

(2)    the respondent (presumably on the advice of the Respondent’s Lawyers) has “obstruct[ed]” the court and the applicant; and

(3)    the Respondent’s Lawyers are “too close to the [respondent and have been] for too long” and have “acted in previous related proceeding[s] for [it]”.

13    In the submissions that he filed in support of his Restraint Application, the applicant particularised his complaints against the Respondent’s Lawyers as follows (errors in the original):

7. …[The Respondent’s Lawyers] should be restrained from acting as:

a.     They have already profited from the estate ($72499) when a director of the firm…appeared for the Trustee as an observer during my previous (unsuccessful) annulment proceedings…& appeal and therefore are not independent.

b.     Their involvement as observers in those proceedings was an unnecessary waste of the estates resources. I believe that they have should put the interests of the estate ahead of their own as daily attendance was not required. I have asked for clarification from the solicitor as to why they appeared and am waiting for a response.

…

c.     …It is reasonable to assume that the solicitors have formed an opinion of the merits of my claims by appearing in those proceedings and have not been objective…. This may explain why they (& the Trustee) have not explained the basis for their advice.

d.     They have a vested interest in the sale of [a property “A”] as they are the conveying solicitors for the Trustee & have prepared the contract of sale

e.     It is reasonable to assume that the solicitors also acted for the Trustee in the sale of [another property] which I allege was sold improperly without good reason & at well under market value before any proofs of debt were admitted. (I intend to support this allegation with evidence although the respondent solicitors should at least confirm if they acted in the sale).

f.     AFSA is a beaurocracy & it is reasonable to assume its officers acting for the Trustee would form close relationships with, & heavily rely on, the solicitors that they have an ongoing working relationship with. (particularly when decisions need to be justified)

g.     It is in the interests of the solicitor to cultivate & maintain those relationships so there is a real risk that over time they lose independence & objectivity & can become “mere mouthpiece for their client” or reluctant to “rock the boat”

I.e. They have a vested interest in supporting the AFSA Trustee and the individuals in that organisation that routinely engage (feed) them.

h.     They are complicit in one of the grounds of my review application in as much as it took 6 months to get the legal opinion from the Trustee.

i.     Although I offered to meet and/or provide information to clarify my objections the solicitor’s did not ask me a single question over a period of 6 months.

j.     After months of requests they provided me the “legal “opinion” for the Trustee only the day before the auction of [Property A]. I have already complained to the Trustee about this & am awaiting the outcome on an investigation.

…

k.     The “legal opinion” is essentially just a brief commentary of a select few of the findings in previous judgements and does not refer to any relevant evidence at all. The response is totally inadequate and fails to independently address my fundamental objections.

I.e. No acknowledgement or forensic analysis of the facts outlined in my objection.

…

l.     Their unreasonable refusal to provide clarification on the reasons & failure to advise the Trustee that privilege only applies to advice that can reasonably be contemplated to have been given for the primary purpose of litigation & failing to consider that sharing such advice might be beneficial to resolve this dispute.

…

m.     It is reasonable to assume that they have a vested interest in proving to their client the Trustee that their opinion is correct. In a robust & adversarial civil dispute this might be understandable but when the opinion itself is the basis for a review of a Trustee’s decision there is a conflict of interest.

n.     The response to my request to consider recusal in their email of 6 Aug simply stating that “there is no conflict” & failure to address my points is indicative of their inability to remain independently objective.

…

o.     Other reasonable questions & requests in emails from 29 July to 6 Aug have not been acknowledged

…

p.     The solicitors approach is unnecessarily adversarial rather than objective & conciliatory and is simply not appropriate for them to advise the Trustee in a judicial review of its own decisions made in part due to their legal advice that is in question.

q.     Their ongoing refusal to engage and promptly respond to reasonable questions or requests demonstrates a disturbing lack of respect for the process.

r.     They have not acted in good faith in accordance with the Civil Dispute Resolution Act by not advising the Trustee to act in an impartial manner, failing to respond to correspondence or attempting to resolve this dispute by open discussion

14    Before me, the applicant reiterated what was at “the heart” of his complaint: namely, that the Respondent’s Lawyers are too adversarial, or have otherwise conducted themselves adversarially in circumstances where that is not the nature of the proceeding in which they are acting. The proceeding that he has commenced, so he maintains, is not designed to prove that the respondent was wrong to admit the proof (or proofs) in question; it is simply a re-hearing upon which the court determines whether such admission is appropriate. As I followed the contention, the applicant submitted that the respondent and its lawyers were, in that circumstance, obliged to act toward him in a conciliatory or constructive manner—or, in any event, otherwise than in an antagonistic or adversarial manner. The order that he sought on the Restraint Application was, he maintained, necessary in order to achieve that state, because the Respondent’s Lawyers, for whatever reason, have not acted toward him in the manner that he says that they ought to have.

15    The respondent resisted the Restraint Application. In answer to the 18 complaints reproduced at [13] above, it submitted that “[n]one of the tasks are other than what any observer would expect a solicitor to undertake on behalf of their client and [none affects the Respondent’s Lawyers’] ability to act in this proceeding and in the best interests of its client, the [r]espondent”.

Consideration

16    There is no substance to the applicant’s complaints. For all of their particulars, they distil to a recognition that the applicant does not like the advice upon which he presumes (probably with good reason) that the respondent has acted in administering his bankrupt estate; and, more broadly, the way that it and its representatives have addressed (or not addressed) his concerns about the manner in which his bankrupt estate has been administered. That is not a basis upon which this court might order that a solicitor should be prevented from representing a party in a proceeding for a review concerning a proof of debt under the Act.

17    Whether or not the applicant has grounds to impugn that advice or, more broadly, the manner in which the respondent has conducted itself in that administration, is not something upon which it is necessary for me to venture an opinion. It is sufficient that I should note that the applicant’s complaints proceed upon an assumption that he is entitled to certain things from the Respondent’s Lawyers: prompt responses to his inquiries, explanations in answer to his questions, compliance with his demands, acceptance of his criticisms, consideration of his suggestions, and so on. He has not adequately identified the source of those entitlements and I do not accept that he enjoys them. The applicant appears to think that he is entitled to expect that the Respondent’s Lawyers will act independently, or otherwise than in the manner that they feel aligns with the best interests of their client. Again, no such entitlement exists. His grievances, if any of them are legitimate (a point upon which, again, I volunteer no opinion), lie not with the Respondent’s Lawyers but with the respondent itself; and more in respect of the way in which his bankrupt estate has been administered than with this proceeding.

18    The fact that the Respondent’s Lawyers have had some familiarity with the subject matter of the proceeding is irrelevant. It is commonplace that solicitors, having given advice about a particular transaction or circumstance, might later be retained to represent their client in litigation arising from that same transaction or circumstance. Representatives in that position cannot be impugned as “too close” to their client (whatever that means).

19    Likewise, the applicant’s dissatisfaction with the way that the Respondent’s Lawyers have treated him is not a proper basis upon which relief of the nature sought might be granted. The only party to this proceeding whose satisfaction with the Respondent’s Lawyers matters is the respondent. I do not accept that this proceeding—the proceeding from which the applicant seeks an order that the Respondent’s Lawyers be ejected—is anything other than adversarial in nature. The applicant seeks to impugn a decision and the respondent, as it is entitled to, defends it. In my view, the proceeding is obviously adversarial; indeed, I cannot conceive of any other way to describe it.

20    There is authority supportive of that proposition, at least insofar as concerns the realm of corporate insolvency: Tanning Research Laboratories Inc. v O’Brien (1990) 169 CLR 332, 338-339 (Brennan and Dawson JJ). The applicant contends that that ought not translate into the personal insolvency arena because a liquidator does not owe to an insolvent company the same duties as a trustee in bankruptcy owes to a bankrupt. Even if that were so, it is no answer to the proposition. A trustee in bankruptcy is plainly entitled to defend, in the interests of a bankrupt’s creditors, a decision that has been made to admit a proof of debt. It is no less so entitled in that circumstance than it is entitled to defend from challenge by an alleged creditor a decision not to admit a proof of debt. In either case, at issue is the correctness of the decision (which, under the statutory scheme, it falls to the court on review to determine afresh). Inevitably, that will be a matter about which competing views will exist—an applicant’s, on one side, and a respondent’s, on the other—and those views will be the subject of competing submissions, much as occurs in every other species of adversarial civil proceeding with which the court routinely deals.

21    The applicant’s submission was that the court, in a review of the present kind, does not direct itself to the correctness of the trustee’s decision to admit the proof of debt. Insofar as the process involves a hearing de novo (where the admission is considered afresh, upon whatever evidence is put before the court) rather than a rehearing (where the search is or would be for error on the part of the trustee), that proposition can be accepted: BDT Holdings Pty Ltd v Piscopo [2009] FCA 151, [4] (Rares J). It is not, however, to the point: at issue always is whether the court should make the same decision to admit the proof (or proofs) as the trustee did. That, inevitably, will involve a contest—between an applicant and a respondent—decided upon competing submissions advanced in the normal (which is to say, adversarial) way. The respondent is entitled to defend the proceeding—that is, to advocate in favour of the same admission that it itself oversaw—with its preferred legal representation.

22    None of the circumstances to which the applicant points would prompt a fair-minded and reasonably-informed member of the public to conclude that the proper administration of justice requires that the Respondent’s Lawyers be restrained from acting for the respondent in this proceeding.

23    The Restraint Application is, therefore, dismissed. Given that the matter will be heard in only a few weeks’ time, the respondent indicated that it was content for the issue of costs to be reserved.

Associate:

Dated:    30 August 2019