FEDERAL COURT OF AUSTRALIA

Dobrinski v Shepard (Trustee); in the matter of Slade (No 2) [2020] FCA 197

ORDERS

THE COURT ORDERS THAT:

1.    The proceeding is dismissed.

2.    Any application for an order for costs is to be made within 28 days.

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

REASONS FOR JUDGMENT

FLICK J:

1    The Applicant in the present proceeding, Ms Irene Dobrinski, is a former judgment creditor in the bankrupt estate of her daughter, Ms Roslyn Slade. Ms Dobrinski had obtained a judgment in the District Court of New South Wales against her daughter in the sum of $514,914.60: Dobrinski v Slade [2010] NSWDC 297. That proceeding had been instituted by Ms Dobrinski’s son, Mr Barry Goldman, acting pursuant to a Power of Attorney that had been executed in June 2006. A certificate had been issued under s 19 of the Powers of Attorney Act 2003 (NSW) independently certifying that Ms Dobrinski “appeared to understand the effect of this power of attorney”. The judgment debt was not satisfied.

2    Ms Slade filed a Debtor’s Petition on 1 April 2011. Her Statement of Affairs was filed on the same date. Ms Slade was automatically discharged from bankruptcy three years later pursuant to s 149 of the Bankruptcy Act 1966 (Cth) (the “Bankruptcy Act”).

3    The present proceeding in this Court was commenced in May 2018. Difficulties emerged because it was common ground that Ms Dobrinski lacked capacity to either commence the proceeding or to further prosecute the proceeding. Some delay was encountered by reason of the proposed need for a litigation representative for Ms Dobrinski to obtain independent advice. In June 2019, orders were ultimately made pursuant to r 9.63 of the Federal Court Rules 2011 (Cth) for the appointment of Ms Sarah Winter to be Ms Dobrinski’s “litigation representative”: Dobrinski v Shepard (Trustee); In the matter of Slade [2019] FCA 843. In that judgment it was said that the facts giving rise “to the dispute essentially emerge out of a sadly fractured family and a trustee who became embroiled in the family disharmony”. Nothing has changed.

4    The Respondent to the proceeding is Mr Adam Shepard, the trustee in bankruptcy of the estate of Ms Slade (the “Respondent Trustee”).

5    In the present proceeding, Ms Dobrinski via her litigation representative, seeks to call in question the conduct of Mr Shepard in respect to his administration of the bankrupt estate. It is claimed that Mr Shepard breached (inter alia) the duties imposed by his position as a fiduciary and by s 19(1)(j) and (k) of the Bankruptcy Act. An order is sought pursuant to s 30 of that Act.

6    The factual background giving rise to the family dispute and the proceeding in the District Court form the necessary backdrop to the issues presented for resolution in the immediate case.

7    On behalf of the Applicant, attention was forensically sought to be placed upon a series of five discrete matters extracted from that broader factual background. Those five matters were said to have imposed upon Mr Shepard a duty to make inquiries as to whether Ms Dobrinski genuinely wished to recover her debt as a creditor of the bankrupt estate of her daughter. If she did not wish to do so, so the argument ran, there would have been no other creditor of any moment such that Ms Slade’s property should be returned to her. Facts going beyond the five matters relied upon were, on the Applicant’s approach, in substance, an unnecessary distraction. On this approach, Mr Shepard either breached his duty as a trustee by not making inquiries or he did not.

8    Counsel on behalf of the Respondent Trustee adopted a different approach. On his approach:

    the case sought to be advanced by the Applicant was a case fundamentally divorced from, and contrary to, the reality of the facts.

Irrespective of whether or not this be correct, it was further submitted on behalf of the Respondent Trustee that:

    none of the five matters relied upon, either taken in isolation or cumulatively, evidenced any breach of duty on the part of the trustee; and/or

    the Applicant retained no interest in the proceeding, having signed a Deed of Assignment in November 2013.

9    It is concluded that the case advanced by the Applicant should be rejected. The submissions of the Respondent Trustee are accepted. The proceeding should be dismissed. The question of costs is reserved. It is noted that since the conclusion of the hearing Ms Dobrinski has died.

The evidence

10    The evidence relied upon by the Applicant included affidavits either sworn or affirmed by:

    Ms Roslyn Slade;

    Ms Amanda Garlick, a daughter of Ms Slade and a granddaughter of Ms Dobrinski;

    Mr Rene White; and

    Mr Graham Brooke (albeit the ruling on whether this affidavit was to be read was deferred).

The Applicant also sought to read:

    a Statutory Declaration prepared by Ms Dobrinski on 29 September 2015.

Objection was taken by Counsel on behalf of the Respondent Trustee as to the Statutory Declaration. Although it has been concluded that it may be admitted as evidence, it has been further concluded that the weight to be given to its contents is minimal.

11    The evidence relied upon by the Respondent Trustee included affidavits either sworn or affirmed by:

    Mr Adam Shepard; and

    Mr Jason Porter.

12    The evidence of Ms Slade warrants particular attention. With respect, her evidence was unreliable. Her evidence lacked credibility. For example, an instance which occasioned caution in respect to her evidence more generally, was her account as to how her affidavit came to be prepared.

13    On her account, she and Mr Hall sat down and started with a blank sheet of paper. She denied having used earlier accounts of the events to which she deposed, and denied having “cut and pasted” parts of those earlier accounts into her affidavit as filed in the present proceeding.

14    But that evidence is contradicted by the fact that significant parts of her affidavit as filed in the present proceeding were either “word for word”, or substantially the same as evidence she had previously given in other proceedings. Thus, for example, in June 2013, Ms Slade had filed an affidavit in a Federal Circuit Court proceeding commenced by her husband against Mr Shepard, in which:

    paragraphs [7] to [17] of that affidavit were the same or substantially the same as paragraphs [15] to [26] of the affidavit filed in this proceeding; and

    paragraph [128] of that affidavit was an account of a statement made by Ms Dobrinski in May 2009, which was the same or substantially the same as paragraph [115] of the affidavit filed in this proceeding.

That proceeding in the Federal Circuit Court, heard with another proceeding commenced by Ms Slade, sought (inter alia) an order against the trustee pursuant to s 178 of the Bankruptcy Act. Both proceedings were unsuccessful: Slade v Shepard [2013] FCCA 1237.

15    Similarly, if reference is made to an affidavit filed by Ms Slade in May 2014 in another proceeding she commenced in this Court:

    paragraph [37] of that affidavit is substantially the same as paragraph [98] of Ms Slade’s affidavit filed in the present proceeding.

An appeal from that decision, together with claims later made in a separate proceeding commenced in this Court, were settled by way of a Deed of Settlement and Release executed in May 2014. The Federal Court proceeding was discontinued in June 2014.

16    The statement said to have been made in May 2009 by Ms Slade’s mother, the Applicant in the present proceeding, also warrants further attention. The account of that statement provided by Ms Slade in the Federal Circuit Court was as follows:

My mother answered with words to the effect: - “Because I wouldn’t give him the authority. It would have to be in my will. And it’s not. I can tell you something. It’s been going on in my mind. I never gave it a thought. It would have to be in my will and believe me I never gave it a thought. Look as long as I’m alive and you can give me a little bit of money now and a little bit again, forget it. My word is my bond. I can tell you. Barry won’t do anything, no not at all. I can tell you something. I have got the last say about that. I can tell you something, it was all wrong. The whole thing started when I lent him money from my Unit and I had to pay the bloody thing back.”

Again, substantially the same account was given in the affidavit filed in this proceeding. The statement assumed importance to the factual merits of the Applicant’s version of events because it was said to evidence a commitment on the part of Ms Dobrinski that “Barry won’t do anything…”. Notwithstanding the importance of the statement for the purposes of the District Court proceeding and the proceeding in the Federal Circuit Court, a transcript of the conversation only emerged in this Court. It is surprising that any transcript was not made available earlier when the same statements were relied upon in other proceedings. But reasons to question the transcript may be placed to one side. The transcript only invited further reason for reservation, in that the transcript departed in significant respects from the account given by Ms Slade in either of her affidavits.

17    Ms Slade had no satisfactory explanation as to how it came to be that she started with a “blank” sheet of paper when preparing her affidavit in the present proceeding, and yet the very same account had been given in the same terms, some five years earlier in the Federal Circuit Court. When asked to explain, there was the following exchange with her cross-examiner:

Now, this is replete throughout these two affidavits, and I just bring it to your attention to revisit your earlier evidence about you starting from scratch when you prepared your 2018 affidavit? ––Well, it’s the same story over and over again. I’m not going to change the story.

So …?––That’s what happened.

Right. So is your evidence, then, that you’ve told it in the exact the same way and it’s by coincidence it has come out the same way, or are you saying you used the earlier document to create …?––No, I didn’t …

… the later one?–– –– use the earlier document at all. That’s exactly what happened.

Yes. So you’re asking his Honour ––?––The same story over and over again. I’ve repeated it since 2009, and we’re – and we’re already 10 years down the track. And it’s still the same story.

And so you’re suggesting that it’s coincidental that you have given an affidavit five years apart and the paragraphs are largely identical?––That’s what it is.

And this 2013 affidavit wasn’t used at all in the preparation of the 2018 affidavit?––Not that I know.

That evidence of Ms Slade is rejected. When considering Ms Slade’s account of the correlation in evidence she has given in other proceedings, and the repetition of very much the same evidence in an affidavit she filed in this proceeding, any suggestion that she commenced with a “blank” sheet of paper is disingenuous. If an explanation for having given the same account as to the statement made by her mother with respect to Mr Goldman not “do[ing] anything” is to be found in the transcript recently provided, Ms Slade’s evidence of that statement in 2013 was equally as “selective” in 2013 as it was in the present proceeding.

18    Her explanation for the comparability of evidence was that it is “coincidence”, or arose because she had been giving the same account of the events over a long period of time. Some comparability of accounts given over a span of years may, perhaps, be accepted. But comparability which in very many cases was the same “word for word” account is so highly unlikely that it must be summarily rejected.

19    Ms Slade, it is respectfully concluded, was an unreliable witness, whose evidence was flawed by her lack of credibility. She presented as a witness committed to only giving an account which she knew to be consistent with her claims. That assessment is based not only upon her evidence as to the circumstances in which her affidavit was prepared, but also by reference to other matters, including:

    her largely unsubstantiated assertions as to the various signatures of her mother on a myriad of documents being forgeries, with no attempt being made by her to have the signatures in question referred to an expert in forensics; and

    her repeated assertions as to any contrary evidence given by her mother in other proceedings simply being “lies”, the prospect of perhaps different understandings of what had been said or done simply being and universally dismissed by Ms Slade on the basis that her mother was “lying”.

20    Reservation may also be expressed as to the reliability of the evidence given by Ms Garlick. Those reservations arose out of the account given by Ms Garlick of the statement made by Ms Dobrinski in May 2009. The account given by Ms Garlick corresponded with that given by Ms Slade. No explanation could be given as to why the account provided in her affidavit selected some parts of the transcript of that statement, and omitted others. Ms Garlick, it may be noted in passing, also gave evidence in the District Court proceeding. The Court in that proceeding found her evidence to disclose “inconsistencies”: Dobrinski v Slade [2010] NSWDC 297 at [97], [99] and [103]. But it is unnecessary to express any firm conclusion as to the reliability of her evidence in the present proceeding.

The factual background

21    Although the solicitor who represented the Applicant was correct to submit that the issues in need of resolution focussed primary attention on the duties owed by a prudent trustee and the five matters which manifested a breach of those duties, the factual background necessarily provided the context in which the trustee was being called upon to administer Ms Slade’s estate.

22    And, even if it were assumed that Mr Shepard, as trustee, was required to make inquiries during the course of the administration of the bankrupt estate, the factual background provides a fairly certain guide as to the manner in which those inquiries would have been answered.

23    That factual background should thus be briefly set forth – including, in particular, the claim repeated by Ms Slade in this Court (and other Courts) that she was not indebted to her mother.

24    Fundamental to the factual merits of the Applicant’s case was the claim made by Ms Slade that Ms Dobrinski had given Ms Slade monies, and that she was not obliged to repay those monies. The reasons advanced as to why there was no such obligation varied from a claim that the monies had been “given to my children”, to a claim that the monies had been gifted as part of her “inheritance”. If that be the case, the steps taken by Mr Goldman when exercising the power of attorney to bankrupt Ms Slade, in an attempt to recover those monies, would certainly be contrary to Ms Dobrinski’s intentions.

25    The claim made by Ms Slade fails at the outset because it is concluded that the monies advanced by Ms Dobrinski to Ms Slade were provided by way of a repayable loan.

26    The evidence of Ms Slade has been found to be unreliable. It is largely uncorroborated and contrary to such other evidence as surrounds the circumstances in which the monies were provided.

27    If any of the steps taken either by Mr Goldman when exercising the power of attorney or by Ms Dobrinski are placed to one side, Ms Slade’s claim that the monies provided were a “gift” and not repayable does not sit comfortably with:

    Ms Slade, after having received both legal and accounting advice, going into voluntary bankruptcy in April 2011; and

    a Statement of Affairs, prepared by and signed by Ms Slade in April 2011, identifying as Ms Dobrinski as an “unsecured creditor” in the sum of $514,000. The “nature of the debt” was there described by Ms Slade as a “refundable gift” and was stated not to be a “joint debt” – yet in her cross-examination Ms Slade could not explain why she described the debt as a “refundable gift” and maintained that the debt was not hers but a debt owed by her daughters. Ms Slade at the end of the Statement “declare[d] that the particulars set out in [the] statement are correct”.

28    Ms Slade’s account of the provision of monies by her mother as a “gift”, or a “refundable gift”, is also inconsistent with such other evidence that demonstrates repeated claims being made by Ms Dobrinski that the monies remained repayable, and repeated steps being taken by Ms Dobrinski to assert her entitlement to the monies advanced (less some amounts which had been repaid by Ms Slade), that evidence including:

    the very fact that Ms Dobrinski had herself commenced a proceeding in the New South Wales District Court in August 2009, seeking recovery of monies which had been advanced by a series of 36 transactions between May 2002 and December 2006. Ms Dobrinski there claiming that the monies were advanced by way of loan. After a four day hearing, that proceeding was resolved in December 2010 in favour of Ms Dobrinski, and judgment entered in the sum of $514,941.60 plus interest: Dobrinski v Slade [2010] NSWDC 297. In the course of providing reasons, the District Court observed (at para [18]) that “Mrs Dobrinski gave her evidence in a clear and straightforward manner, despite her age, and showed a good recall of events. Although physically very frail, deaf and only able to walk very slowly with a stick, she remains mentally alert and was able to answer questions succinctly and in a straightforward manner…”;

    a caveat Ms Dobrinski lodged on the title to a property at Homebush jointly owned by Ms Slade on 28 February 2011;

    a letter sent by Ms Dobrinski to the former trustee in bankruptcy, Mr Steven Nichols, on 14 October 2011 claiming that she was “a major creditor of the estate” and seeking the appointment of Mr Adam Shepard as trustee;

    a Notice to Creditors dated 27 October 2011, which was completed by Ms Dobrinski, voting in favour of the resolution appointing Mr Adam Shepherd as trustee;

    a Proof of Debt signed by Ms Dobrinski in November 2011, claiming an amount of $1,046,613.72 comprising (in part) the judgment debt of $514,941.60 and “agreed interest” of $342,838.87; and

    a Meeting of Creditors held on 23 November 2012, which Ms Dobrinski attended via Mr Goldman, exercising his power of attorney.

There is, moreover, as late as November 2013, a further recognition on the part of Ms Dobrinski of her entitlement to make a claim upon the bankrupt estate, as evidenced by:

    clause 3.1(b) of the Deed of Assignment, where Ms Dobrinski “covenants, warrants and represents … that the Debt is due and payable and enforceable without set-off or counterclaim”.

29    In summary form, the claim advanced by Ms Slade that Ms Dobrinski had given her the monies as a gift or as part of her future inheritance is rejected.

30    It is concluded that at all material times Ms Dobrinski intended to recover as a debt the monies she had advanced to Ms Slade.

31    It is this factual background against which the alleged breaches of duty on the part of the trustee in bankruptcy is to be assessed.

The duties relied upon & power

32    The source of the duty imposed upon Mr Shepard as trustee, to “go behind” the information available to him, and to make inquiries as to whether Ms Dobrinski did in fact wish to participate in the bankruptcy of her daughter as a creditor, was said by the solicitor for the Applicant to be founded in either or both:

    section 19(1)(j) and/or (k) of the Bankruptcy Act; and/or

    the fiduciary duties owed by a trustee to – not only the creditors – but also to the bankrupt.

Although the Application and Statement of Claim in the proceeding set forth a more expansive claim and sought wide-ranging relief, at the hearing the solicitor for the Applicant narrowed the grounds being pressed. The oral submissions made by the solicitor for the Applicant provided more assistance in clarifying the parameters of the claim than the various written submissions and pleadings filed.

33    It was common ground that a trustee in bankruptcy may be exposed to a duty to make inquiries in certain circumstances. The source of the power of the Court to make the orders sought was identified as that conferred by s 30 of the Bankruptcy Act.

34    Section 19(1) of the Bankruptcy Act provides in relevant part as follows:

Duties etc. of trustee

(1)    The duties of the trustee of the estate of a bankrupt include the following:

...

(j)    administering the estate as efficiently as possible by avoiding unnecessary expense;

(k)    exercising powers and performing functions in a commercially sound way;

…

Section 5 of that Act defines a “breach of duty” as meaning “malfeasance, misfeasance, negligence, willful default or breach of trust”.

35    The duties set forth in s 19 are not an exhaustive statement of the duties of a trustee but are “inclusive”: Trustee of the Property of Shane L Fuz v NSW Trustee and Guardian [2019] FCA 1311 at [12] per Flick J. In addition to the duties imposed by s 19, a trustee in bankruptcy is thus also governed by the general law relating to trustees – subject to the extent to which the duties imposed by s 19 may modify the more generally expressed duties. As such, a trustee in bankruptcy is to exercise due diligence, care and prudence, and to conduct the administration of the estate in the same manner as an ordinary prudent businessperson would conduct their own affairs: Adsett v Berlouis (1992) 37 FCR 201 at 209. Northrop, Wilcox and Cooper JJ there summarised these duties as follows:

… The Trustee 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. But beyond this he is not bound to adopt further precautions. It was said by their Honours Dixon CJ, McTiernan and Windeyer JJ in Elder's Trustee and Executor Co Ltd v Commissioner of Taxation (Cth)… (1963) 113 CLR 42 that:

‘We are not to judge what the trustee then did or failed to do by the light of later events ... The duty of the trustee was to exercise due diligence, care and prudence in the conduct of the business, bearing in mind the need to preserve the capital of the Testator's estate ... The argument that the trustee having, it was said, exercised a discretion, its conduct is now unchallengeable is sufficiently answered by a passage from the judgment of Fry LJ in Re Brogden... Whether or not one calls [the trustee's action] an exercise of discretion, the question remains was it the act of a prudent trustee.'''

A trustee in bankruptcy is governed by the general law relating to trustees save where the position of the trustee is modified by the Bankruptcy Act or Rules: …

Their Honours had there also previously cited (at 208-209) with approval the following observations of Smithers J in Mannigel v Aitken (1983) 77 FLR 406 at 408:

In the case of bankruptcy the trustee is in charge of the assets of the bankrupt and those assets are to be applied for the benefit of the creditors and if there be any surplus for the benefit of the bankrupt. It is clear that the minimum standard required of the Trustee is that he shall handle the assets with a view to achieving the maximum return from the assets to satisfy the claims of the creditors and to provide the best surplus possible for the bankrupt. Obviously a great deal of discretion and judgment is required to be exercised by the Trustee. It was said by Rogerson J in Re Ladyman (1981) 55 FLR 383 at 394-396 that the standard of conduct required of the trustee will ordinarily be the standard required of a professional man and perhaps higher. The learned judge referred to 'the high standard of conduct required of trustees.

36    In Young v Thomson [2017] FCAFC 140, (2017) 253 FCR 191 at 217, Siopis and Rares JJ similarly summarised the law as follows:

[110]    A trustee in bankruptcy is a trustee with all the fiduciary duties of a trustee under the general law, save to the extent that any such duty is modified or excluded by the Act: Re Fuller; Fuller v Wily [1996] FCA 523 (Austlii MNC [1996] FCA 1593) at [58] per Sheppard, Spender and Hill JJ. Importantly, as their Honours explained, in reliance on Jacobs’ Law of Trusts in Australia (Butterworths, 5th ed, 1986) at p 375 [1609] (a passage repeated in the 7th edition at [1608]), because the trustee is exercising a fiduciary power, he or she has a duty to do so honestly (ie in good faith), to act upon genuine consideration, “that is to take an informed view of whether or not to exercise his [or her] discretion, and not to act irresponsibly capriciously or wantonly”, and to exercise the relevant power with due consideration for the purpose for which it was conferred and not for some ulterior purpose.

[111]    A professional trustee should be particularly careful to act strictly within the line of the trustee’s duty: Partridge v Equity Trustees Executors and Agency Company Ltd (1947) 75 CLR 149 at 165 per Starke, Dixon and Williams JJ. They held (at 164) that where a trustee had a statutory discretion to allow time for payment of a debt without being liable for any loss occasioned by doing so in good faith, the power:

“involves the exercise of an active discretion, not the mere passive attitude of leaving matters alone, and no relief is afforded where (as here) loss has arisen from carelessness or supineness”: Re Greenwood; Greenwood v. Firth [(1911) 105 LT 509]; Godefroi on Trusts, 5th ed. (1927), p. 258.

[112]    Where a statutory trust exists, such as that created by the Bankruptcy Act, the trustee’s powers and duties fall to be exercised in accordance with, or having regard to, the requirements of the legislation. …

(emphasis in original)

37    It was common ground that the duties of a trustee in bankruptcy may extend beyond reliance upon the information presently available and may impose a duty to make further inquiries.

38    The power of the Court which the Applicant seeks to invoke is that conferred by s 30 of the Bankruptcy Act. Section 30(1) provides as follows:

The Court:

(a)    has full power to decide all questions, whether of law or of fact, in any case of bankruptcy or any matter under Part IX, X or XI coming within the cognizance of the Court; and

(b)    may make such orders (including declaratory orders and orders granting injunctions or other equitable remedies) as the Court considers necessary for the purposes of carrying out or giving effect to this Act in any such case or matter.

39    The section has been described as conferring a broad general power upon the Court, which should be generously construed: Vale v Sutherland [2009] HCA 26, (2009) 237 CLR 638 at 645-646. Gummow, Hayne, Heydon, Crennan and Kiefel JJ there observed:

[19]    ... [Section 30(1)] endows courts of bankruptcy with “full power to decide all questions, whether of law or of fact, in any case of bankruptcy” and to make “such orders ... as the Court considers necessary for the purposes of carrying out or giving effect to this Act ...”. Section 30 has a provenance which includes s 72 of the Bankruptcy Act 1869 (UK), s 105 of the Bankruptcy Act 1914 (UK) and s 25 of the Bankruptcy Act 1924 (Cth). It is to be generously construed, but, consistently with the reasoning in cases such as Anthony Hordern & Sons Ltd v Amalgamated Clothing and Allied Trades Union of Australia, it does not authorise the making of an order which would bring about a result which differs from that prescribed elsewhere in the Act. …

(footnotes omitted)

See also: Tyler v Thomas [2006] FCAFC 6 at [13], [78] and [208], (2006) 150 FCR 357 at 361 per Branson J, at 373 per Bennett J, and at 393 per Graham J.

40    In Skalkos v Nicols [2009] FCA 346, (2009) 175 FCR 547 at 556, Buchanan J (“Skalkos”) observed in relevant part as follows:

[42]    I also agree with submissions made by counsel for [the trustee] that the Court should be slow to use any facility provided by s 30 of the Act in a way which would avoid the need for compliance with the times fixed by s 178 of the Act or s 139ZA of the Act or, alternatively, the need to provide a clear and persuasive explanation why those time limits had not been complied with. As counsel for [the bankrupt] correctly accepted the relief which he sought is discretionary …

The facts giving rise to the duty to inquire

41    On behalf of Ms Dobrinski, it was accepted that Mr Shepard was under no duty to make any inquiry as at November 2011, when he was first appointed as trustee in lieu of the former trustee (Mr Steven Nichols), and when Mr Nichols sent to him documents including:

    Ms Slade’s Statement of Affairs;

    proofs of debts lodged to that date; and

    a valuation report for the Homebush property valuing it at $620,000.

42    The failure to make inquiries was said to arise later.

43    On behalf of the Applicant it was claimed that:

    events as between February 2012 and November 2013 imposed upon Mr Shepard a duty to make inquiries as to whether or not Ms Dobrinski wished to recover, as part of the administration of the bankrupt estate of Ms Slade, her judgment debt secured in the District Court of New South Wales in December 2010. Irrespective of whether or not Ms Dobrinski had evidenced an intention to seek to recover her debt when commencing the District Court proceeding, the question raised for resolution on behalf of Ms Dobrinski in this proceeding was whether she continued to seek the recovery of her debt as part of the bankruptcy administration; and

    Mr Shepard breached that duty by not making such an inquiry.

It was, however, accepted on behalf of the Applicant that:

    had such an inquiry been made, Mr Shepard would have discharged his duties and that the response provided would have brought the present proceeding to an end – irrespective of whether Ms Dobrinski affirmed her desire to recover her debt, or so much of it as was available for distribution from the estate, or abandoned her claim to recover the debt.

44    A Statutory Declaration provided by Ms Dobrinski in September 2015, it is considered, throws little light on whether the events between February 2012 and November 2013 imposed upon Mr Shepard any duty to make inquiries of Ms Dobrinski. An objection to the tender of this Statutory Declaration was founded upon s 138 of the Evidence Act 1995 (Cth). Although it was concluded that the Statutory Declaration could be admitted, little weight is to be placed upon its contents – even if relevance be assumed in favour of the Applicant.

45    Between February 2012 and November 2013, there were five matters which were otherwise said, on behalf of the Applicant, to impose upon Mr Shepard a duty to make an inquiry. But it is concluded that none of these matters – taken either individually or cumulatively – imposed any duty to make further inquiries going beyond the information then available to the trustee. Each should nevertheless be considered.

46    First, in February 2012, there was the first meeting between Mr Shepard and Ms Slade. Although there was but unclear evidence as to what transpired at that meeting, it is relatively clear that Mr Shepard only attended for a brief period of time and that the meeting thereafter was continued, on his behalf, by Mr John Faint, a person described in emails as a “Supervisor”. That meeting, it was said on behalf of the Applicant, was an opportunity for Ms Slade to raise such concerns as she wished in respect to the administration of her bankrupt estate and (in particular) the existence of any debt owing to her mother. During the course of that meeting, and whilst Mr Shepard was present:

    Ms Slade maintains that she told Mr Shepard that her “family [was] a completely dysfunctional family and this debt does not belong to [her]”. Mr Shepard is said to have replied that “your family situation is not my issue. I am here to recover a debt and to deal with your bankruptcy”;

    Mr White, an accountant in private practise, and one of the people advising Ms Dobrinski who attended the meeting, gave an account similar to that given by Ms Dobrinski and further maintains that Ms Dobrinski told Mr Shepard that “you need to look into this”; and

    in cross-examination, Mr Shepard recalled Ms Slade saying words to the effect at this meeting that her “family [was] dysfunctional” but could not recall Ms Slade saying words to effect that he needed to look into who the debt was owing to.

Reliance is also placed by the Applicant upon the Statement of Affairs that had been completed by Ms Slade in April 2011, which was provided to Ms Shepard in advance of the meeting and disclosed (inter alia):

    that the description as to the “nature of the debt” was as a “refundable gift”.

47    Those facts, it is respectfully concluded, would not have imposed upon Mr Shepard any duty to make any further inquiries as to whether any monies were in fact owing or were monies which Ms Dobrinski sought to recover, especially given:

    the existence of the judgment debt;

    the Statement of Affairs completed by Ms Slade; and

    the fact that Ms Slade had herself presented her own Debtor’s Petition.

Rather than an “opportunity missed”, as the solicitor for the Applicant would have it, it was an opportunity (albeit brief) extended by Mr Shepard to Ms Slade (and accepted by her) to urge the trustee go beyond the facts available and to “look into this”. But there was, however, no necessity for the trustee to do so.

48    Although the District Court judgment was obtained in December 2010, and in advance of the five matters now sought to be relied upon on behalf of the Applicant as giving rise to a subsequent duty on the part of the trustee to make inquiries, the existence of that judgment played a large part in the deliberations of the trustee. But the trustee placed reliance not only upon the existence of the judgment debt but also upon the fact that he had had discussions with Ms Dobrinski’s lawyer. So much is evident from the following exchange during his cross-examination (without alteration):

And you made no attempts to establish whether, in substance or in fact, she wished to remain a creditor in the bankrupt estate, or wished to have the debt that is the subject of the bankruptcy recovered on her behalf; is that correct?––No, I would have looked at the documents which I had which indicated that she was a creditor for a large amount of money.

Yes. And you relied on those documents which included the documents that Mr Goldman brought to you that you refer to earlier in your affidavit; is that correct?––The judgment debt and speaking to Mrs Dobrinski’s lawyer, yes.

Yes. And that was a gentleman named Mr Pemeri; is that correct?––That’s correct.

The reference to Mr Pemeri should be a reference to Mr Franco Pomare. A little later there was also the following exchange:

… you made no attempt to contact Mrs Dobrinski or to speak to her as to whether or not she intended that her debt in this estate be the subject of a recovery; is that correct?––No. She wrote me a letter asking for me to act as the trustee. I looked at the judgment debt and I understood the judgment debt and I spoke to her lawyer.

The reliance placed by the trustee upon his contact with Ms Dobrinski’s lawyer was a matter to which he repeatedly returned.

49    The initial reliance on the judgment on the part of the trustee and his continued reliance upon that judgment was, with respect, well justified.

50    Second, reliance is placed on behalf of the Applicant upon an email sent by Mr Goldman to Mr Shepard on 21 June 2012, asking whether he could “obtain a letter confirming that Mrs Dobrinski is the only creditor from the Slade bankruptcy and that she is owed an amount of $1,117 million approx”. The “need” for such a letter was said to be “for the bank as she is helping me with some refinancing matters”. The making of such a request in circumstances where there were said to be two principal creditors – namely Ms Dobrinski and Mr Abraham Slade (Ms Slade’s husband) – and where Mr Goldman was the power of attorney – was said on behalf of the Applicant to be both improper and a conflict of interest in that the power of attorney was “seeking a letter … for a private advantage or private benefit of his to raise finance”. Viewed in isolation the email invites scrutiny. In context, however, the email is unexceptional. That context includes a subsequent e-mail from Mr Goldman to Mr Shepard on 25 June 2012 stating (in part):

Re the statement of affairs, I understand Les Slade is not a creditor as he has not produced any evidence. Please confirm if this is correct.

Mr Faint, copying in Mr Shepard, responded on 25 June 2012 declining to write the letter sought by Mr Goldman.

51    Although the 21 June 2012 email could certainly have been written with far greater precision, this further matter does not either of itself, or in combination with the earlier February 2012 meeting, provide any reason for a prudent trustee in bankruptcy to go back and further question the debt to Ms Dobrinski as disclosed in the Statement of Affairs.

52    The next matter relied upon by the Applicant occurred on 26 October 2012. On that date Mr Goldman offered to purchase the Homebush property for $380,000. The offer made by Mr Goldman was said by him to have been “based … on the valuation you had carried out if the property were to be sold as a forced sale”. That valuation was understood to be one provided by Paul McNeilly Valuers in March 2012. Mr Shepard responded by saying that the offer was “below valuation” and would not be accepted. On 31 October 2012, Mr Goldman, on behalf of a family trust, offered to purchase the property for $425,000.

53    Other offers to purchase the property were also received in November 2012 – one offer being to purchase at $400,000 and another at $455,000. An earlier offer to purchase the property for $180,000 had also been received from Ms Slade’s husband in May 2012. In making that offer, Mr White, on behalf of Mr Slade, asserted that a car had “ram[med] into the building some time ago” and that the building was “on a slight angle” and was “uninsurable”.

54    An appraisal obtained by the Trustee in September 2012 was that “this property should sell in the range of around $600,000 to $650,000”. A further marketing proposal conducted in December 2012 estimated “buyer interest in the range of $ 900-$950,000”.

55    A meeting of creditors was held on 23 November 2012. It was then resolved to place the property “on the open market with a view to concluding the sale before Christmas, if possible”. That was a resolution supported by Mr Goldman on behalf of Ms Dobrinski. And, as noted during the following exchange between Mr Shepard and his cross-examiner, Mr Goldman could have – but did not – oppose that resolution:

... In relation to this valuation of $380,000, certainly that was the lowest of all figures that had been suggested to you as an appropriate selling price for the property; is that correct?––That’s correct.

And on 26 October 2012 Mr Goldman made an offer to you to acquire the property out of the estate for that value; is that correct?––That’s correct.

And did it occur to you at all that in this situation you were dealing with an attorney who firstly had asked you for assistance to write a letter that was false to assist him in getting credit on the strength of his mother’s claim in the bankruptcy and, secondly, who was then trying to acquire the Homebush property out of the bankruptcy estate for himself at the lowest possible value?––It just didn’t.

It didn’t occur to you?––At that point in time we held a creditor’s meeting three weeks later or four weeks later and Mr Goldman agreed with my recommendation to send it to public auction.

Yes. And what I suggest to you is that Mr Goldman agreed with that because he had no choice?––Well, he could have. He was – he was the largest creditor. He could have challenged my decision as a major creditor and called for a special resolution.

Yes. And …?––And challenge my decision to send it to a public auction.

56    The resolution passed on 23 November 2012 to place the Homebush property on the open market, by way of auction, was consistent with the duty of a trustee in bankruptcy to “achiev[e] the maximum return from the assets to satisfy the claims of the creditors and to provide the best surplus possible for the bankrupt”: cf. Mannigel v Aitken (1983) 77 FLR at 408-409; Adsett v Berlouis (1992) 37 FCR at 209. The property was sold in February 2013 at public auction for $705,000. The manner in which the trustee obtained possession of the property for the purposes of sale does not impact upon its sale and the realisation of an asset for the purposes of distribution amongst creditors.

57    On behalf of the Applicant it was contended that the “low-ball” offers made by Mr Goldman should have alerted a prudent trustee to make further inquiries. Again, however, the offers made by Mr Goldman would not have occasioned a prudent trustee to go behind what he was being told, and the information available to him regarding the creditors seeking to pursue their entitlements in the administration of the bankrupt estate, in circumstances where (inter alia):

    the offers made by Mr Goldman remained in the range being offered by others; and

    Mr Goldman voted in favour of putting the property on the open market – a course which facilitated the obtaining of the best price for the property.

58    The fourth matter relied upon by the Applicant is the participation by the Respondent Trustee in the proceeding in the Federal Circuit Court in which Ms Slade was the Applicant and he was the Respondent. In June 2013, Ms Slade had filed in that proceeding an affidavit in which she stated (inter alia):

    that Mr Goldman had “lunged at my mother with a knife” which was “about 3 – 4 inches” long – although the date upon which this was said to have taken placed was not specified and the age of Mr Goldman at the time was unknown (at para [36] of that affidavit); and

    that Ms Dobrinski, in May 2009, had a conversation with Ms Slade in which Ms Dobrinski is said to have told her that “Barry won’t do anything, no not at all”, that being the statement more fully set forth at para [128] of the affidavit.

The last conversation assumed importance at various stages throughout the hearing in this Court. It was relied upon as evidencing a commitment – or at least an understanding – on the part of Ms Dobrinski that Mr Goldman would not be seeking to recover monies. Ms Slade’s evidence in the present proceeding has been found to be unreliable and reservation has been expressed as to the reliability of Ms Garlick’s evidence.

59    An issue in the Federal Circuit Court proceeding was again sought to be pursued in the present proceeding, namely the failure on the part of the trustee to “satisfy himself that the primary creditor … had intended to and still wished to seek recovery of the alleged debt”: Slade v Shepard [2013] FCCA 1237 at [9].

60    The trustee’s knowledge of the contents of the affidavit filed by Ms Slade in the Federal Circuit Court, with respect, provides no reason of itself or in combination with any of the other four matters relied upon to occasion Mr Shepard to go back and speak to Ms Dobrinski (or Mr Goldman), or to make any further inquiries. The orders sought by Ms Slade (and her husband) in the Federal Circuit Court pursuant to ss 178 or 179 of the Bankruptcy Act were “entirely unsuccessful”: Slade v Shepard [2013] FCCA 1237 at [59]. Indeed, the trustee rightly viewed the judgment of Judge Altobelli of the Federal Circuit Court as providing “guidance” to him. The Respondent was taken expressly to paragraphs [127] to [129] of Ms Slade’s affidavit, and there was thus the following exchange during cross-examination:

… And you agree with me that – paragraph 128, the words are there:

Barry won’t do anything. No, not at all. I’ve got the last say about that. It was all wrong. I can tell you something, it was all wrong.

Words to that effect were said in that affidavit?––I – I can read that in the affidavit.

Right. Now, you would agree with me that if that statement were true, there would be a need to contact the attorney to ascertain if it was, in fact, her informed wishes that this debt, subject of the District Court judgment, be recovered as part of the claim in the bankrupt estate?

…

I suggest to you that the material in paragraph 127 through to 128 of that affidavit should have motivated you to go and speak with Irene Dobrinski and to ascertain what her true wishes were?––In the context of the affidavit, I – I didn’t believe it to be the case.

…

You took no steps to follow-up the possibility that what is set out at paragraph 127 to 128 of that affidavit is true; that’s correct, isn’t it?––Well, I read the – the judgment of Altobelli, and I thought that was giving me guidance on how I should approach the case.

Right. When you obtained this affidavit and you read this affidavit for the first time, you took no steps to follow-up whether paragraph 127 and 128 were true, did you?––No, because I relied on the – the judgment of Altobelli.

But that judgment didn’t come till some several months later, did it?––No, but it was before the court. I knew it was going to be – I didn’t think it was appropriate to do things while it was being decided before the court.

The contents of the affidavit filed by Ms Slade in the Federal Circuit Court, it is concluded, provided no reason for the trustee to make inquiries of Ms Dobrinski. His reliance upon the decision of the Federal Circuit Court, and the “guidance” that decision provided to him, were soundly based.

61    The fifth and final matter relied upon by the Applicant is the Deed of Assignment itself. This, again, needs to be separately considered.

62    In summary form, it is nevertheless concluded that there was no requirement imposed upon Mr Shepard as a prudent trustee to make further inquiries. From time to time that requirement was expressed as a duty to make inquiries of Ms Dobrinski; on other occasions it was expressed as a duty to make inquiries of Mr Goldman. Although there was less reason to question the mental capacity of Ms Dobrinski during the period from about February 2012 through to November 2013, there came a point of time at which her capacity to provide instructions may well have been open to question. But it is concluded that there was no duty imposed upon Mr Shepard to make inquiries of either Ms Dobrinski or Mr Goldman.

The Deed of Assignment of Debt

63    Irrespective of the former conclusion, stands a second basis upon which the present application should be dismissed. This alternative basis upon which the trustee submits that the proceeding should be dismissed centres upon the execution of the Deed of Assignment of Debt on 20 November 2013.

64    The background to the execution of this Deed may be traced back to October 2013 when Ms Dobrinski had been hospitalised after a fall. Mr Goldman emailed Mr Shepard stating that Ms Dobrinski “urgently need[ed] funds from this court case as a bond for nursing home accommodation”.

65    The Deed of Assignment provided in summary form for the assignment of Ms Dobrinski’s debt in the bankrupt estate for consideration in the sum of $150,000 plus the prospect of a further $50,000. The debt was assigned to Macquarie National Group Pty Limited (“Macquarie National Group”).

66    The Deed was signed by (inter alia) Ms Dobrinski and also by Mr Goldman as her attorney and provided in part as follows:

RECITALS

A.    The Assignor is a creditor in the bankruptcy administration of Roslyn Elaine Slade (Bankrupt), being Bankruptcy Administration NSW 2098/11/5 (Bankruptcy Administration) for an amount of $1,026,063.23 plus interest accrued from 23 December 2010 up to the date of bankruptcy being 6 April 2011 (Debt).

B.    The trustee of the Bankruptcy Administration is Adam Shepard of Farnsworth Shepard (Trustee).

C.    The Debt arises pursuant to a judgment obtained by the Assignor against the Bankrupt on 23 December 2010 in District Court of New South Wales Proceedings 3901 of 2009 being Dobrinski v Slade [2010] NSWDC 297 (Proceedings).

D.    Goldman is the duly appointed attorney of the Assignor and enters into this deed in his own right and as the duly appointed attorney of the Assignor.

E.    The Assignor has agreed to assign the Debt to the Assignee, and the Assignee has agreed to pay the Consideration (as defined in clause 2 below) to the Assignor in accordance with terms of this Deed.

…

2.    CONSIDERATION                            

2.1    In consideration of the Assignment of the Debt, the Assignee agrees to pay to the assignor, or as she may direct, the Consideration.

2.2    The Consideration is payable by the Assignee to the Assignor as follows:

(a)    payment of $150,000.00 on the date of this Deed; and

(b)    provided any dividends paid to the Assignee by the Trustee out of the Bankruptcy Administration exceed $300,000 (Threshold Amount), a further payment equal to one-half of the amount paid to the Assignee which exceeds the Threshold Amount capped to a maximum payment of $50,000.

2.3    Despite any other provision of this deed, the Assignor and Goldman covenant and agree that if the dividend paid to the Assignee out of the Bankruptcy Administration is less than $300,000, then the Assignor and Goldman must jointly and severally repay to the Assignee one-half of the amount of any shortfall between the sum of $300,000 and the actual amount of the dividend paid to the Assignee.

(emphasis in original)

On 19 November 2013, Ms Dobrinski also signed an Irrevocable Authority and Direction to Pay. That document was a direction to Mr Shepard “to pay all dividends otherwise payable to Irene Dobrinski out of the bankruptcy administration of Rosyln Elaine Slade … to Macquarie National Group Pty Ltd…”. A Notice of Assignment was also signed on that day by Ms Dobrinski and provided to Mr Shepard.

67    The Deed of Assignment secured the monies available to Ms Dobrinski which she “urgently needed”.

68    Although there is no challenge in this proceeding to the validity of this Deed, it was submitted on behalf of the Applicant that reason to question the conduct of Mr Shepard arises because of his association with the assignee of the debt, namely the Macquarie National Group. Ms Slade asserts that the ACN stated in the Deed is not the “proper ACN” and that Mr Shepard was the liquidator of the company having that ACN. Ms Slade also asserts that a Mr Marcell Pavlovec was a director of both the company of which Mr Shepard was the liquidator and the assignee company.

69    As events turned out, the final distribution from the bankrupt estate provided for the payment to Macquarie National Group of $245,999.86 – a distribution which provided no reason of itself to question the quantum of the consideration paid to Ms Dobrinski.

70    The association of Mr Shepard as liquidator with another company linked to the assignee company provides no reason to question the manner in which he administered the bankrupt estate of Ms Slade.

71    Left unresolved is a submission advanced on behalf of the trustee that the Applicant, by invoking the powers conferred by s 30 of the Bankruptcy Act, was circumventing the standing requirements otherwise imposed by sections such as the former s 178. Given the assignment of all interest in the bankrupt estate of Ms Slade, the submission was that Ms Dobrinski no longer had standing to now question the conduct of the trustee. Although there is much to be said for that submission, and even if it were to be assumed that s 30 could be invoked, s 30(1)(b) clearly confers a discretion by the use of the statutory phrase “the Court may make such orders…”. See also: Skalkos [2009] FCA 346 at [42], (2009) 175 FCR at 556 per Buchanan J.

72    On the facts of the present case, the discretion conferred by s 30(1)(b) would have been exercised adversely to the Applicant and relief would have been refused. Any claim founded upon Ms Slade not owing monies to Ms Dobrinski is rejected. Any submission that Mr Shepard as trustee should have made inquiries of Ms Dobrinski (or Mr Goldman) is rejected. The written supplementary closing submission advanced on behalf of the Applicant settled upon the nature of the suggested inquiry to be made of Ms Dobrinski as follows:

Hello Mrs Dobrinski, my name is Mr Shepard and I am looking after your debt against your daughter, are you okay with that debt, and is there anything you want to tell me?

The failure to make any such inquiry does not expose any breach of duty on the part of the trustee. At all materials times the trustee was being presented with information consistent with Ms Dobrinski maintaining her entitlement to recover the debt or so much of it as was ultimately available for distribution to creditors. And after the execution of the Deed of Assignment in November 2013, any interest in pursuing the debt had been assigned to Macquarie National Group and Ms Dobrinski had no residual interest left to pursue.

CONCLUSIONS

73    Although the parties to the present dispute, namely Ms Dobrinski and Mr Shepard, are different to the parties to earlier proceedings, it should nevertheless be finally noted that the factual background to the present dispute has spurned much litigation in other Courts. The first of these proceedings is the proceeding in the District Court in which Ms Dobrinski was successful in recovering judgment against her daughter, Ms Slade: Dobrinski v Slade [2010] NSWDC 297. Another proceeding was the proceeding commenced in the Federal Circuit Court by Ms Slade’s husband in April 2013, and the subsequent proceedings commenced in July 2013 in the same Court by Ms Slade. The Respondent to those proceedings was Mr Shepard. An order (inter alia) was sought pursuant to s 178 of the Bankruptcy Act into the conduct of Mr Shepard. These two proceedings were heard together and judgment was entered in favour of the Respondent: Slade v Shepard [2013] FCCA 1237. An appeal was heard in February 2014 and judgment was reserved. A further proceeding was commenced in this Court in May 2014.

74    Notwithstanding this myriad of litigation, the present proceeding has, obviously enough, been resolved by reference to the evidence now available and the issues now sought to be litigated. Stripped to its essence, the present proceeding fails simply because no facts have emerged which imposed upon Mr Shepard any duty to make any further inquiries of Ms Dobrinski. The evidence before this Court has not given rise to any findings of fact being made which expose any breach by Mr Shepard of any duty imposed upon him in his capacity as a trustee.

75    The result of the present proceeding, however, has led to no different conclusion than that reached in other litigation. No reason has emerged to question the manner in which the bankrupt estate of Ms Slade has been administered.

76    It has presently proved unnecessary to resolve a suggestion advanced on behalf of the trustee that the dispute now resolved is yet in substance another attempt made at the behest of Ms Slade to vindicate her long-held contention that she was never indebted to her mother. The present dispute has been resolved by reference to the submissions advanced on behalf of Ms Dobrinski.

77    The proceeding should be dismissed.

78    It has proved unnecessary to place any reliance upon the views expressed by the “expert”, namely Mr Porter. Nor was it necessary to place any reliance on the affidavit of Mr Brooke. Even if admitted, it would have led to no different result.

79    The question of costs has been reserved for future consideration.

THE ORDERS OF THE COURT ARE:

1.    The proceeding is dismissed.

2.    Any application for an order for costs is to be made within 28 days.

Associate:    

Dated:    27 February 2020