Federal Court of Australia

Shaw v The Official Trustee in Bankruptcy of the Australian Financial Security Authority (No 2) [2020] FCA 1575

ORDERS

THE COURT ORDERS THAT:

1.    The interlocutory application filed by the applicant on 24 July 2020 is dismissed with costs.

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

REASONS FOR JUDGMENT

(Delivered ex tempore, revised from transcript)

WIGNEY J:

1    On 8 October 2019, the applicant in this matter, Mr John Shaw, a bankrupt, commenced proceedings against the Official Trustee in Bankruptcy who now administers Mr Shaw’s bankrupt estate. The relief sought by Mr Shaw was said to be pursuant to ss 90-10, 90-15 and 90-20 of the Insolvency Law Reform Act 2016 (Cth). That has been taken to be a reference to those sections in the Insolvency Practice Schedule (Bankruptcy), which is Sch 2 to the Bankruptcy Act 1966 (Cth) and, by reason of s 4A of the Act, has effect. Mr Shaw was in due course directed to file a statement of claim in respect of his claims. He did so on 3 February 2020. For its part, the Trustee filed a defence to Mr Shaw’s claim on 3 March 2020.

2    The proceedings have been the subject of many case management hearings, and many orders have been made with a view to progressing the matter towards a final hearing. At a number of the case management hearings, Mr Shaw, who is not legally represented, raised various queries and complaints, including complaints about the conduct of the proceedings by the Trustee and the Trustee’s solicitors. The Court has endeavoured to deal with those queries and complaints and explain the nature of the proceedings to Mr Shaw.

3    Mr Shaw’s apparent dissatisfaction with the conduct of the proceedings by the Trustee and the Trustee’s solicitors ultimately led to him filing the interlocutory application which is the subject of this judgment. In that application, he seeks, in effect, three substantive orders.

4    First, he seeks an order that most, if not all, of the paragraphs of the Trustee’s pleading be struck out pursuant to r 16.21 of the Federal Court Rules 2011 (Cth). He contends, in that regard, that various paragraphs of the Trustee’s defence are frivolous, evasive, cause embarrassment or delay, fail to disclose a reasonable defence or are otherwise an abuse of process.

5    Second, Mr Shaw seeks summary judgment pursuant to r 26.01 of the Rules on the basis that the Trustee has no reasonable prospect of successfully defending the proceeding or part of it.

6    Third, Mr Shaw seeks an injunction restraining the Trustee’s solicitors from participating in “ongoing matters relating to the administration of [his] estate not directly related to or consequential to issues or events in dispute in this proceeding”.

7    Mr Shaw’s interlocutory application was initially made returnable on 13 August 2020. Mr Shaw disputes that it was listed for hearing on that day. In any event, Mr Shaw applied for, and was granted, an adjournment of his application. It was listed for hearing yesterday, 8 October 2020, being the day on which Mr Shaw’s main application was listed for hearing. At the conclusion of the argument in relation to the interlocutory application, I indicated that I proposed to dismiss the interlocutory application on the basis that Mr Shaw had not demonstrated any basis upon which any paragraph of the Trustee’s defence should be struck out, or any basis upon which summary judgment should be entered against the Trustee or any basis upon which the Trustee’s solicitor should be restrained from acting as contended by Mr Shaw. I indicated that I would give my reasons for so finding today. These are my reasons.

MR SHAW’S EVIDENCE AND SUBMISSIONS

8    Mr Shaw relies primarily on an affidavit affirmed and filed by him in support of his application. That affidavit, however, does little more than make a series of general assertions or allegations. It provides little or no factual support for the orders sought by Mr Shaw. He also seeks to rely on previous affidavits and submissions that he has filed and relied on at earlier stages of the proceedings. The Trustee did not object to any of the contents of the affidavit that Mr Shaw affirmed and filed in support of his application, though the Trustee submitted that those parts of the affidavit that obviously read as argument or submission should be read as such. That was, and is, an appropriate approach to take to Mr Shaw’s affidavit.

9    As for the other affidavits, which were numerous and lengthy, Mr Shaw was ultimately permitted to read those affidavits in support of his interlocutory application on a strictly limited basis. The affidavits were not read as evidence of the truth or existence of any of the facts or assertions contained within them. Rather, the evidence in them was admitted on the limited basis that it, or at least part of it, revealed communications between Mr Shaw and the Trustee and, in some instances, the Trustee’s representatives. Those communications were relevant, so it was said, because they showed that Mr Shaw had endeavoured to explain his grievances and complaints concerning the administration of his estate and the conduct of the pleadings. It followed, so Mr Shaw submitted, that there was no basis for the Trustee to plead, in his defence, that various paragraphs of Mr Shaw’s pleading were vague or embarrassing and ought to be struck out.

10    As for Mr Shaw’s application for an injunction against the Trustee’s current solicitors, Mr Shaw tendered print-outs of two email exchanges between him and the Trustee. Those email exchanges were said to set out Mr Shaw’s complaint that he should not be required to communicate with the Trustee through the Trustee’s solicitors, at least in respect of ordinary issues in respect of the administration of his estate. No other evidence was tendered or admitted in respect of this aspect of Mr Shaw’s interlocutory application.

11    I do not propose to refer at length to Mr Shaw’s submissions in respect of his strike out application. It suffices to refer to his submission concerning the objectionable nature of two of the paragraphs of the Trustee’s defence by way of example.

12    The first example relates to paragraph 1 of Mr Shaw’s statement of claim, which pleads as follows:

1.     On or about [11 June 2014] The Official Trustee assumed full responsibility for financially administering the estate of the applicant by virtue of the sequestration order of Gordon J VID 1371 of 2013

13    Paragraph 1 of the Trustee’s defence responds to that pleading in the following terms:

1.    As to the allegations contained in paragraph 1, the Respondent:

a.     admits that on 11 June 2014 (Date of Bankruptcy), a sequestration order (Sequestration Order) was made by against the estate of the Applicant on the petition of Yarranova Pty Ltd (ACN 077 517 616) and Newquay Stage 2 Pty Ltd (ACN 086 482 644) (together, the Petitioning Creditors); and

b.     says further that the Respondent was appointed as Trustee of the Applicant’s bankrupt estate; and

c.    otherwise denies the allegations contained in paragraph 1.

(Emphasis in original.)

14    Mr Shaw submitted that paragraphs 1(a) and 1(b) of the defence were objectionable and should be struck out because they were frivolous and failed to disclose a reasonable defence. That was despite the fact that he did not cavil at all with the factual accuracy of what was pleaded, or contend that those paragraphs were not directly responsive to his pleading.

15    The second example relates to paragraph 6 of Mr Shaw’s pleading, which reads as follows:

6.    The Official Trustee has a statutory & common law fiduciary duty to use due diligence to exercise sound professional forensic judgement [sic] comparable to the standard that would be set by a judge of the court when researching & considering facts & alternatives & making decisions that influence the financial performance & status of an estate with a view to payment of creditors and maximising any surplus to the bankrupts [sic] estate.

16    The Trustee’s defence responds to that allegation as follows:

6.    The Respondent says that paragraph 6 is vague, embarrassing and ought to be struck out. Under cover of that objection, the Respondent:

a.    admits that in its position as trustee of a bankrupt estate, including the Applicant’s bankrupt estate, it owes duties pursuant to the Bankruptcy Act 1966 (Cth) (Act) and at common law; and

   b.    otherwise denies the allegations contained in paragraph 6.

(Emphasis in original.)

17    Mr Shaw contended that paragraph 6(a) should be struck out on the basis that it was evasive or failed to disclose a reasonable defence. He contended that paragraph 6(b) should be struck out on the basis that it failed to disclose a reasonable defence. As best I can gather, Mr Shaw’s contentions concerning these paragraphs of the Trustee’s defence hinged on the proposition that if the Trustee had read and considered his correspondence, or had spoken with him, there would have been no basis for the Trustee to state that paragraph 6 of his pleading was vague and embarrassing.

18    Similar objections were made to most of the other paragraphs of the Trustee’s defence. For obvious reasons, it is unnecessary to rehearse or repeat those submissions.

19    As for the injunction that Mr Shaw sought against the Trustee’s solicitors, Mr Shaw’s submissions were somewhat difficult to comprehend but appeared to amount to a claim that the solicitors had no lawful authority to act for the Trustee. His arguments in that regard may be summarised by the following propositions. First, Mr Shaw claimed that it was the Australian Financial Security Authority (AFSA), and not the Trustee, who had retained the solicitors to act. Second, it was said that AFSA was, apparently by reason of s 13 of the Act, the Trustee’s agent and was engaged by the Trustee to carry out the Trustee’s functions on his behalf. Third, Mr Shaw asserted that AFSA’s powers or functions in that regard do not extend to engaging a solicitor. Fourth, it followed, according to Mr Shaw, that AFSA cannot compel a bankrupt to deal with the Trustee only through the Trustee’s solicitor. Fifth, there was, in any event, no evidence from AFSA as to why it was necessary for it to retain solicitors to carry out tasks or act for it in the conduct of the administration of a bankrupt’s estate.

20    Otherwise, it would appear that Mr Shaw simply asserted that the solicitors had acted unreasonably and that it was unreasonable for the Trustee to incur the cost of retaining solicitors to deal with the administration of his estate.

21    It should also be noted that Mr Shaw challenged the authority of a particular officer of AFSA who has sworn an affidavit for use in these proceedings. It was and is, however, unclear what that has to do with Mr Shaw’s complaints concerning the actions of the Trustee’s solicitors. The suggestion may have been that it was that officer who retained the Trustee’s solicitors, though there was no evidence to that effect.

RELEVANT PRINCIPLES

22    In Faruqi v Latham [2018] FCA 1328 at [88]-[98], I gave detailed consideration to the principles that apply when an application is made to strike out a pleading or parts of it. Following is an adaptation of the principles discussed and considered in that case.

23    Rule 16.02 of the Rules provides, amongst other things, that a pleading, including a defence, must: be as brief as the nature of the case permits; identify the issues that the party wants the Court to resolve; state the material facts on which the party relies that are necessary to give the opposing party fair notice of the case to be made against the party at trial, but not the evidence by which the material facts are to be proved; not contain any scandalous, frivolous or vexatious material; not be evasive or ambiguous or be likely to cause prejudice, embarrassment or delay; not fail to disclose, relevantly, a defence appropriate to the nature of the pleading; and not otherwise be an abuse of the process of the Court. Rule 16.21 provides, in effect, the remedy of striking out a pleading, or any part of it, which fails to meet any of those requirements.

24    Rules 16.02 and 16.21 must also be interpreted and applied in light of s 37M of the Federal Court of Australia Act 1976 (Cth), which provides that the overarching purpose of the civil practice and procedure provisions is to facilitate the just resolution of disputes according to law as quickly, inexpensively and efficiently as possible.

25    The power to strike out pleadings or portions of pleadings is discretionary and should be employed sparingly and only in a clear case: Radisich v McDonald [2010] FCA 762; 198 IR 244 at [20] and the cases cited therein. The Court is careful to ensure that it does not, in striking out a pleading, prevent a party from making a case that it is entitled to make: Trade Practices Commission v Pioneer Concrete (Qld) Pty Ltd (1994) 52 FCR 164 at 175; Murphy v Nationwide News Pty Limited (No 2) [2017] FCA 781 at [20]. In Agar v Hyde (2000) 201 CLR 552, Gaudron, McHugh, Gummow and Hayne JJ said (at 575-576) that “[o]rdinarily, a party is not to be denied the opportunity to place his or her case before the court in the ordinary way, and after taking advantage of the usual interlocutory processes” and that, while the test has been expressed in a number of ways, “all of the verbal formulae which have been used are intended to describe a high degree of certainty about the ultimate outcome of the proceeding if it were allowed to go to trial in the ordinary way”.

26    Normally the power to strike out should be exercised only in plain and obvious cases, where no reasonable amendment could cure the alleged defect or deficiency: Allstate Life Insurance Company v Australia & New Zealand Banking Group Ltd (1994) 217 ALR 226 at 236. Where, however, the reasonableness of the cause of action or defence hinges on a point of law, that point of law can be determined, thereby avoiding the need for and expense of a lengthy trial: Polar Aviation Pty Ltd v Civil Aviation Safety Authority (2012) 203 FCR 325 at [43]-[44].

27    The mere allegation of a scandalous fact does not necessarily render the pleading liable to be struck out as scandalous. Material which is degrading, and therefore scandalous, will not be struck out unless it is also irrelevant: Cavill Business Solutions Pty Ltd v Jackson [2005] WASC 138 at [25]. Scandal, in the context of r 16.21 of the Rules, means “the allegation of anything which is unbecoming to the dignity of the Court to hear or is contrary to good manners or which charges some person with a crime not necessary to be shown in the cause” and “any unnecessary (not relevant to the subject) allegation bearing purely upon the moral character of an individual”: Cavill at [25].

28    A pleading is likely to cause prejudice or embarrassment, for the purposes of r 16.21(1)(d) of the Rules, if it is susceptible to various meanings, contains inconsistent allegations, includes various alternatives which are confusingly intermixed, contains irrelevant allegations or includes defects which result in it being unintelligible, ambiguous, vague or too general: Bartlett v Swan Television & Radio Broadcasters Pty Ltd [1995] FCA 638; ATPR 41-434; Spiteri v Nine Network Australia Pty Ltd [2008] FCA 905 at [22]; Fair Work Ombudsman v Eastern Colour Pty Ltd [2011] FCA 803; 209 IR 263 at [18]; Shelton v National Roads and Motorists Association Ltd [2004] FCA 1393; 51 ACSR 278 at [18]. Such a pleading could equally be characterised as evasive or ambiguous for the purposes of r 16.21(1)(c).

29    A pleading may be considered to be embarrassing if it suffers from narrative, prolixity or irrelevancies to the point that it is not a pleading to which the other party can reasonably be expected to plead to: Fuller v Toms (2012) 247 FCR 440 at [80], [84]. A party cannot be expected to respond to mere context, commentary, history, narrative material or material of a general evidentiary nature: Fuller v Toms at [83].

30    A pleading may also be struck out as embarrassing if it is plain that the pleading party cannot lawfully call any evidence at the hearing to substantiate the pleading: J C Techforce Pty Ltd v Pearce [1996] FCA 599; 138 ALR 522 at 531.

31    A “reasonable cause of action”, for the purposes of r 16.21(1)(e) of the Rules, is a cause of action that has some chance of success having regard to the allegations pleaded: Polar Aviation at [42]-[43]. A cause of action cannot be struck out merely on the basis that it appears to be weak: Allstate at 236. The same principle plainly applies in the case of a pleaded defence.

32    If substantial parts of a pleading are struck out, the Court may strike out the entire pleading on the basis that the residue would be confusing: Trade Practices Commission v Australian Iron & Steel Pty Ltd (1990) 22 FCR 305 at 323; Gold Coast City Council v Pioneer Concrete (Qld) Pty Ltd [1998] FCA 791; 157 ALR 135 at 153-154.

CONSIDERATION

33    For the reasons that follow, Mr Shaw has not demonstrated any factual or legal basis upon which to make any of the orders sought by him in his interlocutory application.

The application to strike out the Trustee’s defence

34    I have reviewed the Trustee’s defence to assess the merits of Mr Shaw’s complaints and contentions concerning it. I am unable to see any merit in any of those complaints or contentions.

35    It is tolerably clear from Mr Shaw’s originating application and statement of claim that he seeks an enquiry into various aspects of the Trustee’s conduct in the administration of his estate. That is the way that the Trustee and the Court have approached the proceedings and Mr Shaw has not, at any point, advanced any cogent submissions which suggest that some other approach is warranted or appropriate. Mr Shaw has attempted to articulate his complaints or allegations about the Trustee’s conduct of the administration of his estate in his statement of claim. Mr Shaw’s main complaint concerning the Trustee’s defence appears to amount to little more than a complaint that the Trustee has not admitted many of the factual allegations he has made in his statement of claim and that some of his allegations have been met by an assertion that his pleading is vague or embarrassing. As noted earlier, Mr Shaw also complains that some of the paragraphs of the Trustee’s defence, including some that admit or partially admit his allegations, do not raise a reasonable defence.

36    The short answer to the first of those complaints is that there is nothing to suggest that the Trustee’s denials, or non-admission, of Mr Shaw’s allegations, are not bona fide or are improper or unreasonable in any, or any material, respect.

37    Mr Shaw has commenced the proceedings and bears the onus of demonstrating a proper legal and factual basis for the relief he seeks. He has the burden of properly pleading and proving the facts sufficient to establish a proper legal basis for that relief. He has made a number of factual allegations in his statement of claim; though, perhaps understandably, his pleading also includes some allegations that appear to amount to little more than argument, submission or conclusions of law. The Trustee is entitled to deny or not admit factual allegations that he has a proper or reasonable basis for denying or not admitting, and thereby putting Mr Shaw to proof of those facts. He is equally entitled to not plead to allegations that amount to submissions or conclusions concerning the applicable law, particularly where those submissions or conclusions of law are somewhat questionable.

38    My assessment of the Trustee’s defence is that the Trustee has made appropriate and reasonable admissions about many factual allegations made by Mr Shaw in his pleading. He has not simply denied or not admitted all of the factual allegations made by Mr Shaw. In many instances, the Trustee’s response to factual allegations has been to clarify, qualify or add to Mr Shaw’s allegations so as to make the Trustee’s position in relation to the relevant factual allegation clear. My assessment is that the Trustee’s responses in that regard, for the most part, appear to be a practical and common sense way to deal with Mr Shaw’s broad allegations. There are some bare denials in the defence, though they tend to be denials to paragraphs that amount to general arguments, submissions or conclusions of law. It should also be noted that Mr Shaw has not filed a reply so as to put in issue any of the factual assertions pleaded by the Trustee in its defence.

39    As for those paragraphs of the defence which allege that allegations made by Mr Shaw should be struck out as they are vague and embarrassing, the Trustee has not in fact applied to strike out any paragraph of Mr Shaw’s pleading. Those parts of the Trustee’s defence are accordingly not particularly helpful. It does not follow, however, that they are objectionable and should be struck out. In almost all instances where the Trustee has contended that Mr Shaw’s allegations are vague and embarrassing, the Trustee has nevertheless endeavoured to engage with and respond to the allegation in some way. There also appears to be some merit at least in the Trustee’s assertion that some of Mr Shaw’s pleaded allegations are in fact vague and embarrassing, in the sense described earlier.

40    Paragraph 6, referred to earlier, is perhaps an example of such an allegation. Paragraph 6 is plainly a submission or conclusion of law. There is some merit in the Trustee’s assertion that it is vague or embarrassing. In any event, the Trustee has responded to it appropriately by admitting that the Trustee has certain duties under the Act and at common law. Having asserted as such, it was in no relevant sense objectionable for the Trustee to otherwise deny Mr Shaw’s attempt to state the relevant principle of law.

41    Finally, I reject Mr Shaw’s submissions that any paragraph of the Trustee’s defence does not raise a reasonable defence. The fact that Mr Shaw does not like the Trustee’s responses to many of his allegations does not mean that it does not raise a reasonable defence. The assertion that paragraphs of the defence which respond to Mr Shaw’s allegations, even uncontentious ones, do not raise a reasonable defence because, in Mr Shaw’s view, they do not add anything, is entirely unmeritorious. If Mr Shaw makes an allegation in his pleading, the Trustee is effectively required to respond to it. That response does not itself in terms have to amount to a defence.

42    On the whole, I am unable to discern anything frivolous, evasive, ambiguous, embarrassing or unreasonable about any of the paragraphs of the Trustee’s defence. Nor do I accept that the defence, or any part of it, should be struck out on the basis that it does not raise a reasonable defence.

43    It follows that Mr Shaw’s application to strike out the Trustee’s defence must be rejected.

The application for summary judgment

44    As for Mr Shaw’s application for summary judgment, it appears to be premised on the striking out of the Trustee’s defence or a substantial part of it. For the reasons already given, there is no sound or proper basis to strike out the defence. Otherwise, the summary judgment application appears to be based on nothing more than a bald assertion that the Trustee has no reasonable prospect of defending the proceeding. I am unable to discern any basis for that contention.

45    It follows that Mr Shaw’s application for summary judgment must be dismissed.

The application for an injunction against the Trustee

46    It is finally necessary to deal with Mr Shaw’s application that the Trustee’s current solicitors be restrained from participating in ongoing matters relating to the administration of his estate not directly relating to the issues or events in dispute in this proceeding. I am unable to discern from the evidence and arguments relied on by Mr Shaw any sound or proper basis upon which to restrain the Trustee’s solicitors from continuing to act for the Trustee in respect of the administration of Mr Shaw’s bankrupt estate generally.

47    As for Mr Shaw’s contentions based on the proposition that the Trustee’s solicitors lack the necessary authority, it is unnecessary for the purposes of this application to examine the precise nature of the relationship between AFSA and the Trustee. It suffices to say that there is no evidence to support Mr Shaw’s apparent assertion that the solicitors have been retained to act for AFSA, as opposed to the Trustee, in relation to the administration of his estate. The fact that, administratively, the solicitors may have been retained or instructed by officers of AFSA is neither here nor there. There is no doubt that the Trustee has the power to retain solicitors to advise and act for it in the administration of a bankrupt estate: see s 134(1)(i) of the Act. There is therefore no basis for the assertion that the solicitors have no authority to act for the Trustee. Finally, it is open to the Trustee, in certain cases or in certain circumstances, to direct that communications between it and the bankrupt take place through solicitors retained by it. That would, for example, be appropriate in a particularly contentious or litigious administration, as would appear to be the case in the administration of Mr Shaw’s estate.

48    As for Mr Shaw’s complaints concerning the conduct of the Trustee’s solicitors, I do not propose to go through Mr Shaw’s catalogue of complaints. In summary, his complaints are: that the solicitors are not providing what he considers to be appropriate responses to all of his queries or complaints; have filed lengthy affidavits and exhibits that, in his view, are “irrelevant and excessive”; have placed themselves between him and the Trustee in respect of “ongoing administrative matters outside of this proceeding”; and have generally not agreed to all of his requests or conceded all of his allegations that he would like them to agree to or concede.

49    The fundamental problem for Mr Shaw is that his case against the Trustee’s solicitors is based on bare assertion. Mr Shaw has not adduced any evidence or otherwise demonstrated a sound factual basis for any of his complaints or allegations concerning the conduct of the Trustee. I am not satisfied on the basis of the materials before me that the solicitors have acted unreasonably or contrary to their duties and responsibilities as the Trustee’s solicitors or as officers of the court.

50    It follows that Mr Shaw’s application for an injunction against the Trustee’s solicitors has no merit and must be dismissed.

51    It should finally be noted that Mr Shaw appeared to challenge the authority of AFSA and its employees to make decisions on behalf of the Trustee. He also challenged the authority of one AFSA employee, Mr Abid Hasan, to swear an affidavit for the purpose of the Trustee’s defence of this proceedings. It is not entirely clear how those allegations relate to the interlocutory application. The allegations were also made at a very high level of generality. These may be issues that arise in relation to the substantive proceeding. It suffices for present purposes to note that even if Mr Shaw was able to demonstrate some proper legal or factual basis for the allegations, they do not in any event provide any support for any of the orders sought in his interlocutory application.

CONCLUSION AND DISPOSITION

52    The interlocutory application filed by the applicant, Mr Shaw, on 24 July 2020 is dismissed with costs.

Associate:

Dated:    9 October 2020