FEDERAL COURT OF AUSTRALIA

Bertram v Naudi (No 2) [2024] FCA 1239

ORDERS

THE COURT ORDERS THAT:

1.    The application is dismissed.

2.    There will be judgment for the respondent on the cross-claim in the sum of ONE HUNDRED AND SIXTY TWO THOUSAND, NINE HUNDRED AND SIXTY EIGHT DOLLARS AND THIRTY FOUR CENTS ($162,968.34) plus pre-judgment interest to be calculated.

3.    The parties are to provide orders reflecting these reasons within 7 days.

4.    I will hear the parties on the question of costs.

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

REASONS FOR JUDGMENT

O’SULLIVAN J

1    Mr David Bertram, (or the applicant) was declared bankrupt on 16 December 2017 and was discharged from bankruptcy on 23 December 2020 by reason of the operation of s 149 of the Bankruptcy Act 1966 (Cth).

2    Apart from the applicant, these reasons also make reference to his brother, Mr Richard Bertram, his mother, Ms Chaya Bertram (“together the Bertram family”) and Darisha Holdings Pty Ltd, a company controlled by Richard.

3    No disrespect is intended by referring to the various parties associated with the applicant by their first names.

4    The respondent, Mr Robert William Naudi, is a registered trustee in bankruptcy and as from 21 December 2018 until the applicant’s discharge from bankruptcy on 23 December 2020, was the Trustee of his estate.

5    CCK Lawyers was retained by the applicant on or about 20 July 2018 in relation to an examination summons issued out of the District Court of South Australia (District Court proceedings) by judgment creditors who had obtained various judgments against companies with whom the applicant had been involved in relation to a property development. As a result of those instructions, CCK opened file no. 261894-1 in David’s name (David’s file).

6    On 13 June 2019, on the instructions of Richard, CCK opened file no. 262261- 2 in Richard’s name (Richard’s file).

7    Pursuant to Division 4B of Part VI of the Act, there were three contribution assessment periods (CAP) during the course of the applicant’s bankruptcy. The first ran from 16 December 2017 to 15 December 2018 (CAP 1); the second from 16 December 2018 to 15 December 2019 (CAP 2); and the third from 16 December 2019 to 15 December 2020 (CAP 3).

8    After a long series of interactions between Mr Naudi, the applicant and CCK, on or about 14 July 2020 Mr Naudi applied to this Court for an examination summons to be issued, directed to Richard, Chaya, Mr Lachlan Paterson, the applicant, and Mr James Cudmore, who is a partner at CCK.

9    On 1 September 2020, the Court ordered that the examination summons be issued.

10    The Bertram family applied to set aside the examination summons. That application was resolved as between the Bertram family on the one part and Mr Naudi on the other part, by the parties entering into a Settlement Memorandum.

11    One of the conditions of the Settlement Memorandum was that the Trustee would agree to the examination summons against each of Mr Paterson, Richard and Chaya being discharged and would not object at any time to the discharge of the bankrupt on 17 December 2020.

12    As a part of the obligations under the Settlement Memorandum, CCK wrote to Mr Naudi on 7 December 2020 providing documentation, including an electronic file comprising an Excel spreadsheet setting out by reference to dates, narrative description and other data, time entries for work performed by CCK on David’s file and Richard’s file.

13    On 11 February 2021, Mr Naudi wrote to the applicant informing him he had made 3 CAP assessments in which he had assessed the applicant as being in receipt of income during each of the three CAP periods and enclosing the CAP assessments.

14    Following correspondence from CCK dated 4 March 2021, on 18 March 2021 Mr Naudi wrote to the applicant informing him that pursuant to s 139W of the Act, he had made a revised assessment of the applicant’s income for CAP 1, CAP 2 and CAP 3 in the amounts of $23,804.75, $86,480.67 and $77,537.84 respectively. The 18 March 2021 letter enclosed:

(a)    The three revised CAP assessments;

(b)    A Certificate of outstanding contribution in the sum of $178,401.76; and

(c)    An electronic file comprising an Excel spreadsheet which replicated in its entirety the content, narrations and other data included in the WIP records provided by CCK but included in it breaks referable to 22 November 2019, 20 December 2019 and 2 December 2020 in which the total amount for the WIP for each respective CAP was set out: annexure HJG-16 to the first Gillis affidavit pp 341-346, 347-359.

15    In these reasons, both the electronic file provided by CCK in its letter dated 7 December 2020, and the electronic file accompanying Mr Naudi’s letter dated 18 March 2021, are referred to as the WIP records.

16    It is the three revised CAP assessments made on 18 March 2021 with which this matter is concerned and a reference to the CAP 1, CAP 2 and CAP 3 assessments in these reasons is a reference to those revised assessments.

17    The applicant seeks a number of orders in its Originating Application. It is important to recognise that amongst other things, the primary relief the applicant seeks in its OA (to which the applicant refers in the Amended Statement of Claim), is that the CAP 1, 2 and 3 assessments be set aside on the basis they are void or invalid. There is no relief claimed that the quantum of the assessed income in any of CAP 1, 2 or 3 be varied. To that extent, the relief the applicant seeks is an all or nothing proposition.

The applicant’s pleaded case and orders sought

18    The applicant pleads a number of factual matters at [1]-[23] of the ASoC to which the respondent pleads but the gravamen of the applicant’s case commences at [24].

19    In summary, the applicant pleads from [24] that:

(a)    In issuing the revised CAP 1, CAP 2 and CAP 3 assessments, Mr Naudi was not and could not have been satisfied for the purposes of s 139W(2) that the applicant had derived income within the meaning of s 139L(1)(a)(v) of the Act: ASoC [24];

(b)    In issuing the revised CAP 1, CAP 2 and CAP 3 assessments, Mr Naudi was not and could not have been satisfied for the purposes of s 139W(2) that the applicant had derived income within the meaning of s 139L(1)(a)(vi) of the Act: ASoC [25], [26];

(c)    Mr Naudi knew or ought to have known that:

(i)    No amount of money had been paid to the applicant or at his direction by reference to all of the data set out in the WIP records;

(ii)    Not all of the work in progress described in the WIP records had been charged to any person or invoiced by CCK (with the consequence that no person was liable to pay any amount of money to CCK referable to unbilled work in progress); and

(iii)    Mr Naudi could not, therefore have been satisfied for the purpose of s 139W(2) of the Act that any amount of money had been paid to the applicant or at his direction by reference to the WIP records: ASoC [27];

(d)    As a consequence of the matters pleaded, Mr Naudi was not authorised to make the CAP 1, CAP 2 and CAP 3 assessments, each of which is invalid, void and of no effect and the Certificate is invalid, void and of no effect: ASoC [28];

(e)    Further or in the alternative, each of the CAP 1, CAP 2 and CAP 3 assessments did not comply with the requirements of s 139W(4) of the Act, such that it was not possible for the applicant to know or understand by reference to each of the CAP assessments the basis upon which the Trustee had made the assessment, nor was it possible for the applicant to be in a position to exercise any rights to challenge or seek a review of the revised CAP 1, CAP 2 and CAP 3 assessments, whether under s 139ZA of the Act or otherwise: ASoC [29]; and

(f)    Mr Naudi failed to comply with various rules within the Insolvency Practice Rules, (Bankruptcy) 2016 (Cth): ASoC [29A]-[29C].

20    The applicant then pleads a number of further matters against Mr Naudi:

(a)    First, a want of good faith in issuing the CAP assessments: ASoC [30], [31];

(b)    Second, that none of the amounts in the CAP assessments, which were described as “non-cash benefits (legal)” were a benefit or a benefit of any value within the meaning of s 139L(1)(a)(v) provided to the applicant by any other person for the purposes of that section. That is alleged to be because the legal services provided by CCK, which were the subject of the amounts set out in the WIP records, were performed for the purpose of vindicating and protecting the vested rights of the applicant, Richard, Chaya and Darisha, which is not a benefit to the holder of that right nor a benefit of any value within the meaning of s 139L(1)(a)(v): ASoC [32];

(c)    Third, to the extent that the applicant has received any benefit or the value of any benefit by reason of his having had legal advice and representation from CCK:

(i)    That benefit is not a benefit within the meaning of s 139L(1)(a)(v); and/or

(ii)    Sections 139L(1)(a)(v) and 139W(2) do not impose a liability on the applicant to make any contribution under Part 4B of Division VI of the Act for any amounts described as “non-cash benefits (legal)” in each of the revised CAP assessments: ASoC [33].

21    At [34] of the ASoC, the applicant alleges that:

(a)    To the extent that the applicant has received any benefit or the value of any benefit within the meaning of s 139L(1)(a)(v), the value of the benefit or benefits represented by data provided by CCK is to be worked out in accordance with the provisions of the Fringe Benefits Tax Assessments Act 1986 (Cth) as in force on 1 July 1992, as modified by provisions of the Act and the Bankruptcy Regulations (now repealed) such that any benefits received are residual benefits within the meaning of s 45 of the FBTA Act;

(b)    The legal services referable to the WIP records (contrary to the applicant’s case) are residual benefits with the value of the residual fringe benefit to be a cost to the provider: ss 45, 50 FBTA Act:

(c)    The applicant is the recipient of the benefit; the provider of the benefit is CCK; no one had paid CCK for any benefit provided by it to the applicant, the value of the benefit provided by CCK is the cost to it in providing the benefit and not the amount or amounts which CCK may have, but did not charge for the provision of that benefit;

(d)    Mr Naudi did not work out the value of the benefit in accordance with s 139L(1)(a)(v); and

(e)    Mr Naudi did not attend to his duties as Trustee under the Act, act in good faith, nor satisfy himself to the extent required in s 139W(2).

22    The applicant pleads that as a consequence of the matters pleaded in [34], each of the CAP assessments is invalid, void and of no effect: ASoC [35].

The respondent’s cross-claim

23    By Mr Naudi’s amended statement of cross-claim, he claims that the applicant is liable to pay the sum of $174,901.76 together with pre-judgment interest on that sum. That sum is the total of the amounts alleged to be due for CAP 1 ($23,804.75), CAP 2 ($86,480.67), and CAP 3 ($77,537.84) less amounts paid by the applicant on 18 March 2021 and 11 October 2021 totalling $12,951.50. During the closing submissions, the respondent conceded as not being assessable properly as income for the purposes of s 139L, the sum of $11,933.42 such that before interest, the amount sought by Mr Naudi is $162,968.34.

Legislation

24    The applicant’s pleadings rely, in particular, on two provisions in the Act: s 139L(1)(a)(v), and (vi) and s 139W.

Section 139L(1)(a)(v) and (vi) of the Act

25    Section 139L(1) defines income for the purposes of Division 4B. Relevant for the purposes of this matter are ss 139L(1)(a)(v)(A) and (B) and 139L(1)(a)(vi)(A) and (B):

139L Meaning of income

(1)    In this Division:

income, in relation to a bankrupt, has its ordinary meaning, subject to the following qualifications:

(a)    the following are income in relation to a bankrupt (whether or not they come within the ordinary meaning of “income”):

…

(v)    the value of a benefit that:

(A)    is provided in any circumstances by any person (the provider) to the bankrupt; and

(B)    is a benefit within the meaning of the Fringe Benefits Tax Assessment Act 1986 as in force at the beginning of 1 July 1992 (other than a benefit that would be an exempt benefit for the purposes of that Act if the provider were the employer of the bankrupt as an employee and the provider had provided the benefit in respect of the employment of the bankrupt);

being that value as worked out in accordance with the provisions of that Act but subject to any modifications of any provisions of that Act made by the regulations under this Act;

(vi)    the value of a loan made to the bankrupt by an associated entity of the bankrupt, including:

(A)    a loan under which the loan money is not paid to the bankrupt, but is paid or applied at the bankrupt’s direction; and

(B)    a loan that is not enforceable at law or in equity.

Section 139W of the Act

26    Section 139W forms part of Division 4B of the Act which deals with contribution by the bankrupt and recovery of property. It provides:

Assessment of bankrupt's income and contribution

(1)    As soon as practicable after the start of each contribution assessment period in relation to a bankrupt, the trustee is to make an assessment of the income that is likely to be derived, or was derived, by the bankrupt during that period, of the actual income threshold amount that is applicable in relation to the bankrupt when the assessment is made and of the contribution (if any) that the bankrupt is liable to pay in respect of that period under section 139S.

(2)    If at any time, whether during or after a contribution assessment period, any one or more of the following paragraphs applies or apply:

(a)    the trustee is satisfied that the income that is likely to be derived, or was derived, by the bankrupt during that period is or was greater or less than the amount of that income as assessed by the last preceding assessment in respect of that period;

(b)    the base income threshold amount increased or decreased after the making of the last preceding assessment in respect of that period and before the end of that period;

(c)    the trustee is satisfied that the number of the bankrupt's dependants increased or decreased after the making of the last preceding assessment and before the end of that period;

The trustee is to make a fresh assessment of the income that is likely to be derived, or was derived, by the bankrupt during that period, of the actual income threshold amount that is applicable in relation to the bankrupt when the assessment is made and of the contribution (if any) that the bankrupt is liable to pay in respect of that period.

(3)    The powers of the trustee under subsection (2) may be exercised on the trustee's own initiative or at the bankrupt's request, but the trustee is not required to consider whether to exercise those powers at the bankrupt's request unless the bankrupt satisfies the trustee that there are reasonable grounds for the trustee to do so.

(4)    As soon as practicable after the making of an assessment the trustee must give to the bankrupt written notice setting out particulars of the assessment and informing the bankrupt about the possibility of a variation under section 139T.

Issues

27    The matter has been made difficult and more complicated than need be by the applicant conflating two different concepts. The first concept concerns the issue of whether the applicant was in receipt of income within the meaning of ss 139L(1)(a)(v) and/or (vi). It raises a question of law and/or fact as to whether a benefit and/or a loan was provided to the applicant as a consequence of legal work being carried out for the applicant by CCK. If so, the issue that arises is the value of that benefit and/or loan. The second concept is whether the Trustee had the required state of satisfaction within the meaning of s 139W.

28    Accordingly, the following issues arise in this matter:

(a)    Did the Trustee err in law and/or in fact in concluding that legal services provided by CCK to the applicant and paid for by a third party, and to the extent CCK’s work was unbilled or unpaid, a third party had assumed an obligation to meet those unbilled/unpaid fees, comprises income within the meaning of s 139L(1)(a)(v) and/or (vi)?

(b)    If yes to (a) above, was the Trustee satisfied within the meaning s 139W that the applicant had derived income during the three CAP periods? and

(c)    Are the CAP 1, CAP 2 and CAP 3 assessments void or invalid?

29    It is for the reasons which follow that:

(1)    The application is dismissed.

(2)    There will be judgment for the respondent on the cross-claim in the sum of $162,968.34 plus pre-judgment interest to be calculated.

The nature of the application

30    The applicant framed his case in the following terms:

(a)    First:

(i)    In purporting to make fresh assessments (as that term is used in subsection 139W(2) of the Act) for each of the relevant contribution assessment periods, Mr Naudi acted without authority;

(ii)    This was so because Mr Naudi, as a trustee holding office under the Act, did not satisfy himself, and could not have satisfied himself, in a manner that a reasonable trustee who correctly understood the meaning of the power conferred by subsection 139W(2) (when considered with s 139L(1)(a)) could be satisfied such as to permit him to make a fresh assessment; and

(iii)    The purported fresh assessments were therefore not made within authority and were not valid;

(b)    Second:

(i)    Mr Naudi made no attempt, or no proper attempt, to identify the “benefit” (which he described as a “non-cash benefit”) said to be received by the applicant, and had not made any proper attempt to attend to the requirements of s 139L in identifying and assessing the value of any benefit;

(ii)    In particular, Mr Naudi did not work out, and made no attempt to work out, the value of the benefit in accordance with s 139L(1)(a)(v), which required that the value be worked out in accordance with the FBTA Act as in force at the beginning of 1 July 1992 but subject to any modifications of any provisions of that Act made by the regulations under the Bankruptcy Act 1966 (Cth) (the Act); and

(iii)    Instead, Mr Naudi had merely aggregated the whole of the time records maintained by CCK and treated the whole of that aggregate amount as an assessment of income.

31    The following points arise out of the way in which the applicant frames his case:

(a)    The description of the applicant’s case in (a)(i) and (ii) above demonstrates the flaw in the applicant’s approach and the conflation of the two concepts to which I have referred earlier. “Satisfaction” and whether Mr Naudi was “satisfied” for the purposes of s 139W is a different concept from whether the services provided to the applicant by CCK was income within the meaning of s 139L, which is a question of law and/or mixed fact and law;

(b)    The contention in (b)(i) above, when taken with the absence of any relief sought by way of a re-assessment of the quantum of the income, demonstrates the applicant taking an “all or nothing” approach;

(c)    The contention in (b)(ii) above is directed to whether Mr Naudi erred in law or in fact and/or law; and

(d)    The contention in (b)(iii) above raises the same factual/legal issue as in (b)(ii), which is whether Mr Naudi erred in law or in fact and/or law for the purposes of s 139L(1)(a)(v) and/or (vi). The applicant does not put a specific dollar value of that income in issue, other than to say the Trustee erred in the total assessment.

32    The applicant contends these proceedings were never intended by the applicant to be analogous to a “merits review” of the purported assessments. Whether or not that was intended, it is not reflected in the matters raised in the ASoC, the evidence called, and the relief claimed.

Internal review available

33    An internal review by the Inspector-General pursuant to s 139ZA of the Act was available to the applicant.

34    Section 139ZA provides for an administrative review by the Inspector-General in Bankruptcy of a trustee’s decision to make a CAP assessment. That right may be exercised either on the Inspector-General’s own initiative or upon request by a bankrupt, subject to the Inspector-General considering the reasons advanced by the bankrupt being sufficient to justify such a review. The Inspector-General’s review is itself subject to review by the Administrative Appeals Tribunal: s 139ZF.

35    The applicant contended further that these proceedings were brought by him because it was considered that any application for a review by the Inspector-General pursuant to s 139ZA would not resolve the question of the validity of the CAP assessments but assume their validity. It is not clear why that would be so.

36    In any event, on 17 May 2021, Mr Cudmore sent an email to the Inspector-General advising that an application had been made to this Court on 17 March 2021 seeking relief and to the extent necessary, the email should be treated as a request for the purposes of s 139ZA(3) for a review of the decisions of Mr Naudi in making the CAP assessments. No response to the email had been received from the Inspector-General and no party submitted that anything of consequence arose from that exchange.

The Court’s power to review an assessment

37    There is no doubt the Court may review a decision of the AAT reviewing a decision of the Inspector-General in Bankruptcy following a review under s 139ZA of the Act: s 44 Administrative Appeals Tribunal Act 1975 (Cth).

38    The applicant applies for relief pursuant to s 90-15 of Schedule 2, Insolvency Practice Schedule (Bankruptcy) (Schedule 2) of the Act.

90‑15 Court may make orders in relation to estate administration

Court may make orders

(1)    The Court may make such orders as it thinks fit in relation to the administration of a regulated debtor’s estate.

Orders on own initiative or on application

(2)    The Court may exercise the power under subsection (1):

(a)    on its own initiative, during proceedings before the Court; or

(b)    on application under section 90‑20.

Examples of orders that may be made

(3)    Without limiting subsection (1), those orders may include any one or more of the following:

(a)    an order determining any question arising in the administration of the estate;

(b)    an order that a person cease to be the trustee of the estate;

(c)    an order that another person be appointed as the trustee of the estate;

(d)    an order in relation to the costs of an action (including court action) taken by the trustee of the estate or another person in relation to the administration of the estate;

(e)    an order in relation to any loss that the estate has sustained because of a breach of duty by the trustee;

(f)    an order in relation to remuneration, including an order requiring a person to repay to the estate of a regulated debtor, or the creditors of a regulated debtor, remuneration paid to the person as trustee.

Matters that may be taken into account

(4)    Without limiting the matters which the Court may take into account when making orders, the Court may take into account:

(a)    whether the trustee has faithfully performed, or is faithfully performing, the trustee’s duties; and

(b)    whether an action or failure to act by the trustee is in compliance with this Act and the Insolvency Practice Rules; and

(c)    whether an action or failure to act by the trustee is in compliance with an order of the Court; and

(d)    whether the regulated debtor’s estate or any person has suffered, or is likely to suffer, loss or damage because of an action or failure to act by the trustee; and

(e)    the seriousness of the consequences of any action or failure to act by the trustee, including the effect of that action or failure to act on public confidence in registered trustees as a group.

Costs orders

(5)    Without limiting subsection (1), an order mentioned in paragraph (3)(d) in relation to the costs of an action may include an order that:

(a)    the trustee or another person is personally liable for some or all of those costs; and

(b)    the trustee or another person is not entitled to be reimbursed by the regulated debtor’s estate or creditors in relation to some or all of those costs.

Orders to make good loss sustained because of a breach of duty

(6)    Without limiting subsection (1), an order mentioned in paragraph (3)(e) in relation to a loss may include an order that:

(a)    the trustee is personally liable to make good some or all of the loss; and

(b)    the trustee is not entitled to be reimbursed by the regulated debtor’s estate or creditors in relation to the amount made good.

Section does not limit Court’s powers

(7)    This section does not limit the Court’s powers under any other provision of this Act, or under any other law.

39    Section 90-15 of Schedule 2 replaced s 178 of Act which was a provision permitting the bankrupt, a creditor, or any other person affected by an act, omission or decision of a trustee to apply to the Court, and the Court to make such order in the matter as it thinks just and equitable. Accordingly, the scope of the power of s 90-15 would seem to be similar to the repealed s 178: Frost v Sheahan [2009] FCAFC 20 at [8] (Ryan, Mansfield and Jagot JJ) and the decisions under the former s 178 are applicable to applications to review decisions under s 90-15.

40    In Re Ellis, ex parte Jefferson and Stevenson [1995] FCA 81, Drummond J left open the question of whether under s 178 of the Act, the Court could review an income contribution assessment by a trustee. In an observation which is obiter, his Honour considered that as:

[A]n appeal lies to the Federal Court, on questions of law only, from the AAT under s 44 of the Administrative Appeals Tribunal Act 1975 (Cth); it is therefore unlikely that, having enacted Div 4 B, the Legislature intended that there would co-exist with the power to review a trustee’s decision with respect to a contribution assessment vested in the Inspector-General and the AAT, power in the Court to review the trustees decision under s 178 on both fact and law.

41    With the greatest of respect to Drummond J, subsequent decisions of the Court are at odds with his Honour’s observations, and I am unable to agree with his Honour’s obiter observation.

42    In Kelly (as joint and several liquidators of Halifax Investment Services Pty Ltd (in liq) v LOO (No 8) [2020] FCA 533 at [51] Gleeson J (as a member of this Court) observed that by use of the language “such orders as it thinks fit”, s 90-15 confers a very broad power on the Court. The power of the Court to make such orders as it thinks fit under s 90-15 “is at large” and “must be exercised … in the particular circumstances of each case”: Mehajer v Weston [2020] FCA 924, at [21] (Rares J).

43    In Re Tyndall; Ex Parte Official Receiver [1977] FCA 15; (1977) 17 ALR 182 at p 186, Deane J (as a member of this Court) said:

In my view, the wording of s. 178 of the Act is such as to confer upon the court the widest possible discretion as to the appropriate order which should be made in the particular case and is quite inconsistent with the approach that, upon an application made pursuant to the section by a bankrupt, creditor or other person affected by an act, omission or decision of the trustee, the court is only empowered to interfere with the trustee's act, omission or decision if it is of the view that the trustee has acted absurdly or unreasonably or in bad faith. Once the matter is properly before the court, the court is, by the express words of s. 178, empowered (and , as I have said, obliged) to make such order in the matter as it thinks just and equitable.

This is not, of course, to say that the court should either disregard the relevant decision of the trustee or ignore the well-established policy under bankruptcy legislation that the court should not unduly interfere with the day-to-day administration of a bankrupt's estate by a trustee. The trustee is made responsible for the administration of the bankrupt estate under the general provisions of the Act. He must, in the course of that administration, make a variety of decisions aimed at enabling the administration to be carried out with promptness and efficiency. Some of these decisions will be business or commercial decisions in which the business or commercial experience of the trustee would itself provide a basis for arguing that, unless it were shown that the trustee's decision was preverse or clearly wrong, it would be inappropriate and unjust for the court to interfere. Again, under the present legislation, the trustee will ordinarily be the official receiver and the court must be conscious of the fact that the official receiver will be made responsible for the administration of an extraordinarily large number of estates. In such circumstances, the administration of the Bankruptcy Act demands that the court take into account, in exercising its functions under the provisions of s. 178 of the Act, the opinion of the official receiver, as trustee, as to what is expedient in the interests of the prompt and efficient administration of a particular bankrupt estate. That is, however, a completely different thing to saying that the court can only interfere with an act, omission or decision of the official receiver, as such trustee, when it is of the view that the official receiver has acted unreasonably, absurdly or in bad faith in so acting or failing to act or in reaching that decision.

(emphasis added)

44    Deane J’s observation in Re Tyndall above concerning the width and discretion under s 178 were approved by the Full Court in Re Dingle: Westpac Banking Corporation v Worrell (1993) 47 FCR 478, 485.

45    In Tinkler v Melluish [2017] FCA 52 at [18]-[22], Nicholas J discussed a number of the authorities from this Court, including the decisions of French J in Macchia v Nilant [2001] FCA 7; (2001) 110 FCR 101, Deane J in Re Tyndall and Bowen CJ in Weiss v Official Trustee in Bankruptcy (1983) 1 FCR 40. See also the decision of Beach J in Miao v Michell [2015] FCA 22 at [31]. In Moore v Macks [2007] FCA 10 at [28], Besanko J noted the following about s 178:

1.    Under the section, the court is fulfilling a supervisory role judicially, rather than an administrative role standing in the shoes of the trustee. As such, grounds for judicial review must be established by an applicant Re Wheeler; Ex parte Wheeler v Halse (1994) 54 FCR 166 (‘Wheeler’) at 170 per Lee J, and the exercise of the court’s power is wholly in its discretion. The court has the ‘widest possible discretion as to the appropriate order which should be made in the particular case’ (Re Tyndall; Ex parte Official Receiver (1977) 17 ALR 182 (‘Re Tyndall’) at 186 per Deane J).

2.    The impugned act, omission or decision of the trustee in bankruptcy need not be absurd, unreasonable, or taken in bad faith before it is subject to review or a resultant order of the court under the section (Re Tyndall at 186 per Deane J). Indeed, the act, omission or decision of the trustee may be subject to review even though it was commercially sound at the time it was made: Macchia at 116 per French J. At the same time the trustee’s opinion will be a relevant factor in the exercise of the court’s discretion, and there is no presumption that the court will intervene in a given case. The fact that the court might have taken a different course to the trustee in bankruptcy at the relevant time is not, without more, a basis to disturb the trustee’s decision: Re Tyndall at 186 per Deane J; Macchia at 116 per French J.

3.    The court is able to take into account information which was not available to the trustee at the time of an impugned act, omission or decision (Gray v Clout (1990) 27 FCR 141, 144 per Pincus J).

4.    The exercise of the discretion is subject to the principle that the court will not unduly interfere with the day-to-day administration of a bankrupt’s estate by a trustee in bankruptcy: Re Tyndall at 186 per Deane J.

5.    The section does not provide an avenue for a bankrupt to pursue his or her personal interests at the expense of creditors (Cummings v Claremont Petroleum NL (1996) 185 CLR 124 at 139 per Brennan CJ, Gaudron and McHugh JJ) nor does it ‘create a cause of action which sounds in damages’, either in tort or under the general law (Macchia at 119). Both of these propositions reflect the purpose of the section which is to give the court a supervisory role with respect to a trustee in bankruptcy in the administration of the bankrupt’s estate.

6.    Ultimately the question is what result would be ‘just and equitable’ in the circumstances of the case.

46    An application to the Court without utilising the mechanism of a review by the Inspector-General (and the AAT on an application for review from the Inspector-General’s review), is a matter which may be taken into account in the exercise of the discretion.

47    I am satisfied that the Court has jurisdiction to review the Trustee’s decision to issue CAP 1, 2 and 3 and that the Court in the exercise of its discretion under s 90-15 may make such orders as it considers just and equitable.

The applicant’s witnesses

48    None of the applicant, Richard or Chaya gave evidence, with the only witnesses being called for the applicant being members of CCK. Each of the witnesses called by the applicant gave their evidence in chief by way of affidavit with those affidavits being received into evidence.

49    Hamish John Gillis became a partner of CCK on 7 December 2020, but at the relevant time was a senior associate. Mr Gillis swore three affidavits:

(a)    Sworn 17 May 2021, filed 21 May 2021 (first Gillis affidavit);

(b)    Sworn 15 October 2021, filed 15 December 2021 (second Gillis affidavit); and

(c)    Sworn and filed 20 March 2022 (third Gillis affidavit).

50    Overall, Mr Gillis was a satisfactory witness, although on occasions defensive when giving evidence in relation to the payment of money into trust by Darisha on account of CCK’s fees and statements made by the applicant to the Trustee in relation to the payment of CCK’s fees. He worked under the supervision of Mr Cudmore on David’s file, file no. 262261-1 opened in Darisha’s name (Darisha’s file) and Richard’s file. I treat those parts of his evidence where he was being defensive with caution.

51    James Michael Cudmore is a partner at CCK. He swore one affidavit on 9 August 2022, filed 10 August 2022 (Cudmore affidavit). Mr Cudmore was the partner responsible for the conduct of David’s, Richard’s and Darisha’s files.

52    As with Mr Gillis, Mr Cudmore was a satisfactory witness for part of his evidence, but in giving his evidence he was also defensive when giving evidence in relation to the payment of money into trust by Darisha on account of CCK’s fees about statements made by the applicant to the Trustee in relation to payment of CCK’s fees and the opening of Richard’s file.

53    In that context, Mr Cudmore is a very experienced practitioner and was clearly aware of the potential consequences for, at least the applicant, of the position taken by CCK both in relation to the payment of CCK’s fees from money paid into CCK’s trust account by Darisha but not transferred to CCK’s firm account, and CCK’s assertions in correspondence with the Trustee in relation to the payment of those fees. I treat those parts of his evidence where he was being defensive with caution.

54    Adam Rosser was a partner at CCK at the relevant time. He swore one affidavit on 16 August 2022. He is no longer a partner of CCK.

55    Mr Rosser was not generally involved in the conduct of David’s, Richard’s and Darisha’s files, but had primary conduct of the matter in Mr Cudmore’s absence throughout the period late May 2019 to early July 2019. His evidence reflected his limited involvement with the files, but again, as with Mr Gillis and Mr Cudmore, he was defensive on the topic of money paid into trust by Darisha. As with Mr Gillis and Mr Cudmore, I treat his evidence on that issue with caution.

The respondent’s witness

56    Mr Naudi gave his evidence in chief by way of affidavit sworn 20 August 2021 which was received into evidence.

57    Mr Naudi was an impressive witness. He understood that his primary obligation as a trustee was to act honestly, fairly and impartially towards the bankrupt and that he had obligations both as an Officer of the Court and as a model litigant. Mr Naudi answered questions directly, succinctly and made appropriate concessions. He was a truthful witness whose evidence I have no hesitation in accepting.

Factual narrative

58    This factual narrative contains the findings I have made and which are relevant to the exercise of the Court’s discretion.

59    In setting out the factual narrative it must be firmly borne in mind that there is no allegation of fraud on the Trustee. Rather, the respondent puts his case on the basis that given the overall circumstances he was entitled to treat the information with which he was provided by the bankrupt as incorrect and unreliable: s 139X. He invites the Court to reject the evidential foundation put forward by the applicant and find the work done by CCK was always done for the applicant, that I should infer that was the case, and that the value of the benefit received by the applicant was income within the meaning of s 139L(1)(a)(v) or (vi).

60    As to s 139W, the Trustee contends there is no basis to find that he was not satisfied within the meaning of s 139W(2) and that the claim should be dismissed.

61    I keep in mind that I am able to take into account information which was not available to the Trustee at the time he issued the CAP assessments: Gray at p 144.

62    The applicant became bankrupt on 16 December 2017 when he presented his own debtors petition. The initial trustees of his estate were replaced by an order of White J on 21 December 2018 at which time Mr Naudi became his Trustee: Borg v de Vries (Trustee), in the matter of the Bankrupt Estate of David Morton Bertram [2018] FCA 2116. The applicant was discharged from bankruptcy on 23 December 2020.

63    At the relevant time, Mr Gillis was a senior associate working on Mr Cudmore’s team and under his supervision. CCK had a general policy that any correspondence of substance would be reviewed by a partner.

David’s file

64    Mr Cudmore was the CCK partner with primary conduct of the matter and took the initial instructions from the applicant in relation to the District Court proceedings as well as other matters to do with the applicant’s bankruptcy. He signed a retainer letter from CCK on 20 July 2018: exhibit R4, p 1. Mr Gillis worked on David’s file under Mr Cudmore’s supervision.

65    The retainer letter refers to CCK continuing to act only upon ongoing arrangements being made to secure its anticipated fees. That came to involve a tripartite arrangement between CCK, the applicant and Richard/Darisha, whereby Darisha would pay funds into CCK’s trust account on account of CCK’s fees. The retainer letter enclosed CCK’s standard terms which included at clause T9.2, that CCK had a lien over any funds held in trust for the payment of its fees or disbursements.

66    On 26 July 2018, Richard sent an email to Mr Cudmore: exhibit R24, confirming that he had placed $8,000 in trust “for the work for David but before you commence anything I’d like to have a brief chat with you as we are providing the funds.” The payment submission accompanying that email was described as “D Bertram Loan 4 legals”.

67    Mr Cudmore knew that Richard, in his capacity as a Director of Darisha, “… was arranging payment of fees and providing instructions to my firm, including in connection with protecting his family interests and the interests of [David] …”: Cudmore affidavit [60].

68    Apart from the District Court proceedings, CCK was also advising the applicant about his rights to retain artwork as against Mr Naudi, about numerous other entitlements or rights and obligations he had in respect of property vis-à-vis his dealings with Mr Naudi, and with inquiries being made by Mr Naudi in connection with the administration of the bankrupt estate. Until June 2019, CCK dealt with whatever bankruptcy issues that arose in connection with the applicant’s dealings with his Trustee on David’s file.

69    The District Court proceedings were struck out on 26 July 2019. A Master of the District Court ordered the judgment creditors, who had sought to examine the applicant, pay his costs fixed at $23,866.84. That cost order was satisfied by a payment in favour of the applicant of $23,866.84.

70    The time spent on the District Court proceedings and advice the applicant might need in connection with his bankruptcy were matters that were recorded in CCK’s WIP records on David’s file. There was much heated correspondence between Mr Naudi seeking information and the applicant deflecting Mr Naudi’s requests.

Darisha’s file

71    A meeting of creditors of the applicant’s bankrupt estate was held in Sydney on 26 July 2018. Mr Rowley, of Charlton Rowley Solicitors, was acting for the judgment creditors and attended the meeting. He challenged the admission of Darisha’s proof of debt by the then trustees of the applicant’s bankrupt estate, which was in an amount exceeding $9 million. Darisha’s proof of debt was admitted for voting purposes.

72    Following the meeting in Sydney, Mr Rowley’s clients commenced proceedings in this Court - SAD 241 of 2018, seeking an order removing the existing trustees of the applicant’s bankrupt estate and the appointment of Mr Naudi as the Trustee. They also sought an order setting aside Darisha’s proof of debt.

73    On 30 October 2018, CCK was retained by Richard on behalf of Darisha to intervene in the proceedings in this Court for the purpose of opposing the orders sought by Mr Rowley’s clients as a consequence of which CCK opened Darisha’s file. The applicant did not seek to intervene in the proceedings.

74    Ultimately, Mr Rowley’s clients abandoned the application to challenge Darisha’s proof of debt, with no order as to costs being made. Mr Naudi was appointed in place of the existing trustees. Charlton Rowley acted for Mr Naudi in his role as the Trustee.

75    Darisha’s file was not solely concerned with challenging the refusal of Darisha’s proof of debt in the applicant’s bankruptcy, but was also for general advice.

Richard’s file

76    During Mr Cudmore’s absence on leave from late May 2019 to early July 2019, Mr Rosser was the CCK partner with the conduct of David’s file.

77    On 11 June 2019, Mr Rosser had a telephone conversation with Richard which included Mr Gillis. That telephone conversation also included the applicant, however Mr Rosser did not depose to that fact in his affidavit of evidence-in-chief. In cross-examination, he said that the applicant was on the call but did not recall him saying anything during the call.

78    Mr Rosser was instructed by Richard to open Richard’s file, “to deal with matters relating to the effect of the trustee’s conduct on the interests of members of the wider Bertram family other than Mr David Bertram”: Rosser affidavit [13].

79    Richard’s file was described as for “General Advice”: exhibit R15.

80    When asked in cross-examination about the topic for which the file in the name of Richard was opened on 13 June 2019, Mr Rosser’s evidence was that: T 157.35 - 38

“… practically in relation to the - you know, the knock-on effects, if I can call it that, of David’s bankruptcy and his dealings on the other members of the family.

81    I do not accept Mr Rosser’s evidence that the file was entered in Richard’s name to deal with matters which related to the “trustees conduct on the interests of members of the wider Bertram family other than Mr David Bertram”.

82    The very conversation in which Mr Rosser was instructed by Richard to open a new matter in Richard’s name to deal with matters affecting members of “the wider Bertram family other than David”, had the applicant as a party to the telephone conversation, albeit it would seem listening rather than actively participating.

83    Further, it would be very unusual to, in effect, quarantine the applicant from Richard’s file.

84    Still further, Mr Gillis worked on Richard’s file under the supervision first of Mr Rosser and upon his return from leave, Mr Cudmore. Mr Gillis said that some, but not all, of the general advice provided on Richard’s file dealt with the applicant’s bankrupt affairs: T 102.45 – 103.9.

85    Mr Gillis said in his evidence, that as from mid-2019, Richard wanted CCK to review correspondence from the Trustee, advise the applicant about it, prepare draft responses and have those draft responses provided back to the Trustee. That work was to be done on Richard’s file.

86    It was the impact of Mr Naudi’s interactions with the applicant on the balance of the Bertram family that was a major concern for Richard and CCK. Mr Gillis said that the work done on Richard’s file was previously conducted on David’s file and Mr Gillis kept recording some of his time until the end of July 2020 on David’s file through inadvertence.

87    Mr Gillis’ evidence was also that after Richard’s file was opened, nothing changed in terms of the nature of the legal services that Mr Gillis was providing to the applicant, but simply the legal services were provided under a new file number (Richard’s file). Mr Gillis did not recall turning down any work that the applicant needed in respect of his bankruptcy and the applicant still engaged extensively in communications with his Trustee throughout 2019. Further, a preponderance of the applicant’s correspondence with the Trustee was authored by CCK, in the order of 120 email exchanges, many of which had attachments.

88    Further, CCK regarded the applicant and the Bertram family as having a common interest and that there appeared to be cohesion within the Bertram family sufficient to be able to use one law firm: T 207.7 – 45.

89    That indicates to me there was a very close alignment between the matters the subject of David’s file and Richard’s file, such that there was no appreciable difference between the work that had been done on David’s file and the work that was being done on Richard’s file.

90    Mr Naudi had written to the applicant on 7 May 2019: exhibit R6, in which Mr Naudi asked, “please advise what payments have been made to each of these lawyers and any others either by you or on your behalf from and including 16 December 2019” (sic 2016). The reference to “these lawyers” was a reference to CCK and Mills Oakley. There is no suggestion Mills Oakley is involved in this matter.

91    Prior to going on leave at the end of May 2019, Mr Cudmore was aware that Mr Naudi was mooting a revised assessment of income for the applicant, including by an inquiry as to the circumstances of the payment of CCK’s fees since December 2016. As a consequence, Mr Cudmore considered the issue about what constituted a benefit under s 139L of the Act but was unable to say whether that consideration occurred before he went on leave or after he returned.

92    I deal with the 7 May 2020 letter in detail later in these reasons, but Mr Cudmore denied that the decision to open Richard’s file on 13 June 2019, and to thereafter perform the same legal services as being provided on the applicant’s file, was causally related to the enquiries being made by the Trustee concerning the levying of an income assessment based on the provision of a benefit to the applicant.

93    Mr Cudmore accepted that rather than changing file numbers, another letter of retainer could have been written on David’s file addressing responsibility for CCK’s fees, but denied that opening a new file was a wrongful or manipulative endeavour to put a barrier between the applicant and the Trustee. He said that opening Richard’s file was for billing purposes: T 206.20 – 24.

94    I do not need to determine whether or not the decision to open Richard’s file, and thereafter to perform the same legal services as provided on David’s file, was causally related to the inquiries by the Trustee so as to put a barrier between the applicant and the Trustee. However, on the basis of Mr Gillis’ evidence and also that of Mr Cudmore, which I set out later in these reasons, the work done for the applicant by CCK did not appear to change with the change in file.

The work done for the applicant from 27 May 2019

95    As at May 2019, the applicant was having extensive contact with CCK in relation to the dealings he was having with his Trustee.

96    As at 13 June 2019, CCK was doing work for the applicant on David’s file and Darisha had paid money into CCK’s trust account for the purpose of meeting CCK’s fees incurred on Darisha’s file.

97    By June 2019, Mr Gillis was aware that it was Darisha that was providing CCK with funds relating to the legal services provided by CCK on David’s file.

98    The last work recorded on David’s file in the WIP records was on 16 November 2020, but save for work done between 27 July 2020 and 16 November 2020, all the time recorded on David’s file between 27 May 2019 and 27 July 2020 was transferred to Richard’s file.

99    Apart from the WIP recorded on David’s file after 28 May 2019, some of which was transferred to Richard’s file, the applicant’s dealings with the Trustee, and in relation to which CCK assisted the applicant, were recorded in a time recording sense on Richard’s file.

100    Annexure HJG-16 to the first Gillis affidavit comprises the WIP records for Richard’s file. On p 349, the records commence on 15 July 2019 and on p 351, the last entry for 2019 is on 23 December 2019. Mr Gillis agreed that although these WIP records were recorded on Richard’s file, the vast preponderance of the communications in that approximate six-month period were between CCK and the applicant, and not CCK and Richard. Further, he agreed that during that period, there were repeated issues being pressed by the Trustee in relation to the applicant’s bankruptcy. Mr Gillis also agreed that Richard’s file was unrelated to the Darisha proof of debt matter in the applicant’s bankruptcy but related to the broader issues connected with the applicant’s bankruptcy.

101    Throughout June and July 2019, the applicant was engaging with CCK on a very frequent basis in relation to his bankruptcy. Mr Gillis said that:

(a)    The invoicing on David’s file stopped on 21 May 2019, as recorded in invoice no. 36447, dated 28 May 2019, (as to which see later in these reasons) however there was no reason for it to have ceased at that time;

(b)    The role performed by CCK throughout June and July 2019 continued unabated in the same way as it had in the period leading up to 21 May 2019, which was the last entry on the last invoice issued on David’s file - invoice no. 36447; and

(c)    By the end of July 2019, there was a recognition by CCK that the Trustee was contending that the provision of legal services to the applicant with payment of the fees for those services being made by a third party gave the Trustee the basis of a claim against the applicant.

102    Mr Gillis disagreed that from the point of opening Richard’s file, he continued to take instructions from the applicant largely to the exclusion of Richard. Having said that, he accepted that CCK was working with the applicant day-to-day but regarded Richard as the client. He denied the reason CCK was working with the applicant day-to-day was because the legal services that were being provided related to the applicant’s legal affairs. However, Mr Gillis also said that the applicant was the one being attacked “day in, day out by the trustee” and that most of the communications were with the applicant because he was the person that CCK were dealing with day in, day out “on the front line”: T 99.16 - 100.12.

103    No oral evidence was called by the applicant as to the work that was done on Richard’s file. Whereas I accept that both the applicant and Richard would have been entitled to claim legal professional privilege over the content of the legal advice given by CCK, that would not prevent them from giving evidence as to the non-privileged matters, such as for example, who gave instructions and perhaps in relation to which broad topic, without comprising any claim for legal professional privilege.

104    Mr Naudi made a Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298 submission that an inference should be drawn against the applicant that evidence from the applicant and Richard would not have assisted the applicant’s case.

105    No explanation has been forthcoming as to why the applicant and/or Richard was unavailable to give evidence.

106    In the circumstances, an inference is readily available that the applicant’s case would not be assisted by evidence given by the applicant or by Richard. I draw that inference.

107    The prime focus of the work done on Richard’s file was for the applicant. So much so is abundantly clear from the WIP records annexed as part of annexure HJG-12 to the first Gillis affidavit, which has numerous references to communications with the applicant, or the applicant and Richard, on Richard’s file. That is because what happened to the applicant directly impacted Richard, Chaya and Darisha.

108    Whereas I accept Richard, Chaya and Darisha had an interest in what happened in the applicant’s bankruptcy, that does not mean that advice given to the applicant and paid for by Richard or Darisha was exclusively for the assistance of Richard, Chaya and Darisha. On the contrary, the applicant was the point from which Richard, Chaya and Darisha’s relevant interests could be protected. By protecting the applicant’s interests vis-à-vis the Trustee, so too, could the interests of the others be protected. The fact that Richard was the client was, as Mr Cudmore said in evidence, for billing purposes.

109    Clearly, the applicant was seeking legal advice from CCK in connection with how he should be dealing with the Trustee, and CCK was providing legal advice or legal assistance to him in connection with those dealings. Although CCK had broad instructions from Richard in connection with the applicant’s bankruptcy, nonetheless the person who was “on the front line and dealing with the trustee” was the applicant: T 63.28 - 64.4.

Mr Naudi’s attempts to get information

110    Mr Gillis described that what would occur on many occasions in relation to the communications between Mr Naudi and the applicant, was that the applicant would send the communication to CCK, who would consider the matter and then discuss them with the applicant before providing him with a draft communication for sending back to the Trustee.

111    Mr Naudi made a number of attempts to obtain information from the applicant as to who was paying for his legal fees from CCK.

112    There is no doubt that throughout the period May to July 2019, individuals within CCK were providing legal services to the applicant and were aware of the potential for the Trustee to render an income contribution in respect of services being performed on the applicant’s file.

Mr Naudi’s letter dated 7 May 2019

113    On 7 May 2019, Mr Naudi wrote to the applicant with a series of questions: exhibit R6. Question 14 in that letter reads:

From the commencement of your bankruptcy, being 16 December 2016, you have engaged lawyers being Mills Oakley and CCK Lawyers.

14    Please advise what payments have been made to each of these lawyers and any others either by you or on your behalf from and including 16 December 2019.

114    Exhibit R9 is the applicant’s email in response, sent on 13 June 2019 at 6:04pm. It reads:

Question 14

We note your letter incorrectly refers to 2019. We assume you meant 2016. No payments have been made by me or on my behalf from and including 16 December 2016.

Mr Gillis’ evidence on the 13 June 2019 response

115    Mr Gillis was cross-examined on the applicant’s email sent 13 June 2019. The following exchange occurred: T 45.44 – 43.

Q.    Then says this:

No payments have been made by me or on my behalf from and including 16 December 2016.

Now, that, I suggest, is something that, if I had seen this email at the time, you would have regarded as a dishonest statement being made by David Bertram to his trustee? ---

A.    Perhaps.

Q.    Well, you say “perhaps”. You knew, at that time, that payments had been made to your firm in respect of legal fees being incurred by David Bertram preceding this email of 13 June 2019; you agree? ---

A.    Yes, I agree.

Q.    Payments were being made on his behalf from and including 16 December 2016 in respect of legal fees being provided by CCK Lawyers; you agree? ---

A.    That’s my recollection, yes.

Q.    And a statement to the effect made by David Bertram in that email would, at the very least have been a misleading statement; do you agree? ---

A.    It appears to be, yes.

Q.    Now, I want to suggest, Mr Gilles, that your firm was ultimately involved in the authorship of this email from David Bertram to Mr Naudi. To do that, I need to take you to --- ? ---

A.    Just reflecting on that, Mr Roberts, it is possible that payments may have been made into our trust account but not actually made by fees by that stage. I cannot recall now ---

I was --- ? --- whether that may have been the case.

Q.    I was going to suggest that very thing, Mr Gilles. And you agree that a statement:

No payments have been made on my behalf from and including 16 December 2016

Would, at the very least, be a misleading and incomplete statement insofar as payments have been made by Darisha into your firm’s trust account referable to legal services provided by your firm to David Bertram? ---

A.    It’s perhaps walking a fine line. I would not agree that it is misleading, no. If that was the case, if money had only been paid into the trust account and not to the lawyers.

Q.    Paid to the lawyers held in their trust account you would regard as a sufficient basis for a statement being made that no payments have been made from and including 16 December 2016; is that your evidence? ---

A.    My evidence is that is walking a fine line but, on a technical basis, I think he has answered the question correctly if it is the case that money was only in the trust account and hadn’t been paid in satisfaction of the lawyers’ fees.

Q.    And was that a fine line that your firm tactically took as at 13 June 2019? ---

A.    I can’t recall.

116    Mr Gillis accepted that he knew a trustee could assess certain things such as income but was unsure whether he knew that as at June 2019. He accepted that the role he was performing in June 2019 was running a “blocking stake trying to fend off the trustee in relation to that issue” [of an income assessment]. He understood that what the Trustee was asking for was how much has been paid by third parties in respect of legal services to the applicant, as well as other things. He accepted that what comprises income (for the purposes of the Act) was a question he researched on many occasions but was not sure when he commenced doing that: T 107.37 - 108 .46.

117    A common theme throughout Mr Gillis’ evidence in relation to the issue of whether the Trustee had a legitimate basis to enquire as to whether the applicant’s legal fees were being paid by a third party, was that the applicant was continuing to “fob off” those enquiries: T 112.7 – 8.

118    It was put to Mr Gillis in cross-examination that the applicant’s answer was dishonest. That is not something that I need to determine. Nonetheless, the response by the applicant sent 13 June 2019 was at best misleading, if not false. That is because by 13 June 2019, Darisha had paid money into trust on account of fees on the applicant’s file: exhibit R17, and CCK’s retainer terms specifically claimed a lien over money in trust.

119    So too, the extent of Mr Gillis and Mr Rosser’s roles in drafting and settling the email sent by the applicant to the Trustee on 13 June 2019, is not something I need to determine.

Mr Cudmore’s evidence on the 13 June 2019 response

120    In cross-examination, Mr Cudmore was shown the email sent on 13 June 2019 from the applicant to Mr Naudi in reply to Mr Naudi’s letter dated 7 May 2019. Mr Cudmore was on leave at the time this email was sent, nonetheless, he agreed he would have reviewed emails upon his return in early July 2019.

121    Mr Cudmore was directed to the applicant’s answer to question 14 in Mr Naudi’s letter dated 7 May 2019 (exhibit R6) in which the answer is given:

We note your letter incorrectly refers to 2019. We assume you meant 2016. No payments have been made by me or on my behalf from and including 16 December 2016.

122    Mr Cudmore did not accept that the statement by the applicant in the 13 June 2019 email that, “No payments have been made by me or on my behalf from and including 16 December 2016” was misleading to the Trustee because although Darisha had paid money into CCK’s trust account on account of those fees, at that stage it had not been applied against CCK’s fees.

123    I do not accept that evidence for the reasons I have set out above.

Mr Naudi’s letters dated 19 June 2019 and 25 June 2019

124    On 19 June 2019, Mr Naudi sent a letter to the applicant by email: exhibit R10. The email was copied to Mr Cudmore, who was still on leave. He did not see it until his return from leave in early July 2019.

125    On page 2 of that letter, Mr Naudi poses the question:

Have CCK lawyers been involved in any way on matters relating to your bankruptcy to date, including matters relating to the change in Trustee, where they are remunerated or expected to be remunerated or written-off or carry forward work in progress?

The letter continues on page 3:

By default only one of two positions can represent the circumstances at hand. Either CCK Lawyers are assisting you for free, or CCK lawyers are yet to invoice someone or some entity for services rendered to date ...

Please explain in detail the arrangements with CCK lawyers …

126    Not having received a response to those questions, on 25 June 2019, Mr Naudi wrote to the applicant: exhibit R11, in which, amongst other things, Mr Naudi referred to an email from the applicant sent on 21 June 2019 at 3.04pm. In reference to his letter dated 19 June 2019, Mr Naudi asked:

CCK Lawyers

…

… You have not responded to the matters raised in my letter of CCK Lawyers Fees …. Given these issues impact my reassessment of your income contributions I request this information be provided no later than Friday 5 July at 5 PM.

127    The applicant’s response to Mr Naudi was sent by email on 11 July 2019: exhibit R12. It responded to Mr Naudi’s letters dated 19 June 2019 and 25 June 2019. Paragraph 26 of that email contains a statement:

… however I have already informed you that CCK Lawyers has received no payment from me, David Bertram, or from anyone else on my behalf. What legitimate purpose could you then have to ask those further questions?

128    As I have noted, at that time (i.e. July 2019), money had been paid into CCK’s trust account by Darisha on account of the applicant’s outstanding fees on David’s file totalling $26,186.07: exhibit R4, p 93 and CCK had a lien over the funds. That sum was transferred from trust on 23 December 2019.

129    In view of those payments by Darisha into trust on account of CCK’s fees, the applicant’s response was at best misleading if not false.

Mr Naudi’s letter dated 23 August 2019

130    On 23 August 2019, Mr Naudi wrote yet again to the applicant: exhibit R18, in which, on page 4, under the heading “Clarification regarding Lawyers Engaged”, Mr Naudi explained the purpose of seeking the information requested was for the assessment of the applicant’s income.

131    Exhibit R19 is the applicant’s response by email to Mr Naudi’s letter in which he responds, “again, your letter of 23 August 2019 is, in many respects, inappropriate. It requires further, unnecessary time and trouble in dealing with your repeated requests.”

132    Self-evidently, by that response, the applicant was avoiding answering Mr Naudi’s request for clarification.

CCK’s bills rendered on David’s file and Richard’s file

133    At the relevant time, CCK used a time recording system using accounting software, although, it is possible that at the early days of acting for the applicant in relation to the District Court proceedings, Mr Cudmore handwrote on a daily time sheet his attendances, which were entered into the accounting system by administrative assistants.

134    Generally, it was not Mr Cudmore’s practice to record an entry on his timesheet for settling email correspondence prepared by Mr Gillis.

135    As a part of the billing process, accounts would print out a draft invoice and upon examination of that invoice, if time had been incorrectly recorded on a matter and should have been recorded on another matter, there would be an instruction from the partner responsible for the matter to the accounts team to transfer it to the correct file.

136    It was not uncommon for time recorded in one matter to be changed to another file number if the billing arrangements necessitated that change. Partners are responsible for billing which is assisted by the time recording made on a matter, but the partner responsible for billing on a particular matter may make amendments to time entries and descriptions to ensure accuracy and that only properly billable work is billed.

137    Exhibit R14 is a draft invoice dated 25 July 2019 addressed to the applicant concerning his bankruptcy. On that draft invoice, there is a notation “transfer all to file no. 262261-2 as per JMC - then make changes on new draft for file no. 262261-2”. File no. 262261-2 is Richard’s file. The words “OK” at the top of that page are in Mr Cudmore’s writing. The balance of the notice was written by a CCK staff member.

138    CCK sent 16 invoices on David’s file and Richard’s file over the period 10 August 2018 to 30 October 2020. Each of those invoices form part of annexure HJG-12 to the first Gillis affidavit and are as follows, with the amount being the total amount of the bill, including office expenses, any disbursements and including GST:

[This table excludes invoice no. 36447 which was not in annexure HJG-12 but referenced to in Mr Cudmore’s affidavit of 9 August 2022 at [107]. The details of that invoice are found in the letter dated 7 December 2020 at [1.2] – p 226 of the first Gillis affidavit]

139    On 26 May 2020, Richard sent an email to Mr Cudmore in which he proposed a regime for the payment of CCK’s fees and which attached a number of documents: exhibit R17.

140    The proposal was not accepted.

141    The attachments to the 26 May 2020 email include a bill history for David’s file, a bill history for Richard’s file, a trust statement for David’s file, and a trust statement for Richard’s file. Those attachments reveal:

(a)    On David’s file:

(i)    Eight invoices had been rendered during the period 10 August 2018 to 28 May 2019 for professional fees totalling $58,129 (excluding GST). As at 26 May 2020, there remained outstanding fees for professional services of $34,921 (excluding GST); and

(ii)    As at 24 February 2020, during the period 27 July 2018 to 1 March 2019, Darisha had paid $26,106.07 into CCK’s trust account on account of CCK’s fees and disbursements on David’s file. That sum was not transferred to CCK in payment of its first four invoices rendered between 1 August 2018 and 31 January 2019 until 23 December 2019;

(b)    On Richard’s file:

(i)    Five invoices had been rendered during the period 31 July 2019 to 31 January 2020 for professional fees totalling $64,863 (excluding GST). As at 26 May 2020, there remained outstanding fees for professional services of $37,334 (excluding GST); and

(ii)    On 16 September 2019, Darisha had paid $30,962.63 into CCK’s trust account on account of CCK’s fees and disbursements on Richard’s file. That sum was transferred to CCK in payment of its invoice no. 36963 and part payment of invoice no. 37010 on 23 December 2019.

142    In each case, Mr Cudmore deposed that not all of the time recorded on the printout for the work in progress was included in the invoice because a decision was made not to charge for that time when the bill was prepared and then signed. That may, or may not, have been the case but in the absence of a claim for a varied assessment of quantum, it is irrelevant and in the absence of any evidence as to what was written off (if at all), it is of no or very limited weight.

Invoices on David’s file

143    In the case of David’s file, save for the first and last invoices sent on that file, being invoices no. 34732 and no. 36447 respectively, which were addressed only to the applicant, on each of the remaining six invoices (as from 27 September 2018), the client was named as “Mr D M Bertram Darisha Holdings Pty Limited”. That was done on the instructions from Richard because Darisha was responsible for payment of the invoices issued against David’s file.

144    CCK’s last invoice on David’s file is dated 28 May 2019. The narration to that bill showed that the last work done on the file and reflected in the invoice was performed on 21 May 2019 by Mr Gillis. To that point, the work being undertaken by CCK for the applicant concerned the District Court proceedings, as well as any advice that the applicant might require in connection with his bankruptcy.

Invoice no. 36963 on Richard’s file

145    CCK invoice no. 36963 for the sum of $30,603.65 is dated 31 July 2019 and issued on Richard’s file. It contains time recorded on David’s file which had been transferred to Richard’s file. Mr Cudmore said it was addressed to Richard because he had requested the bill to be designated, “… because my firm regarded [Richard] to be, and [Richard] had agreed to be, responsible for the payment of fees being charged by my firm in connection with the work then being undertaken on instructions from [Richard]”: Cudmore affidavit [108].

146    Whatever Mr Cudmore and CCK may or may not have considered, that does not change the character of the work or for whom, in reality, the work was done.

Payment on both files

147    CCK was receiving payments into trust from Darisha on both David’s and Richard’s files and Mr Cudmore wanted to ensure Richard was liable for payment of CCK’s fees. He said: T 206. 20 - 24

Very simply put, we were performing legal services in connection with a bankruptcy and we wished for our client to be a person who was responsible for the payment of the fees contractually, not by some informal telephone/email arrangement.

148    Exhibit R16 is an email from Richard to Mr Cudmore dated 23 December 2019 listing payments made to date totalling $100,736.74 over the period 29 August 2018 to 30 September 2019. The email does not allow for any reconciliation of amounts paid against invoices issued on either file, but it continues:

We are not in a position to keep paying David’s legal fees as that we have other obligations to meet and I kindly ask that you do no further work under Darisha’s name without seeking approval.

The examination summons issued out of the Federal Court

149    In July 2020, Mr Naudi applied in this Court for orders under s 81 of the Act for the examination of a number of persons in connection with the applicant’s bankrupt estate, including the applicant, Richard, Chaya and Mr Cudmore. The orders and examination summons were issued on 1 September 2020.

150    The examination summons sought information from Richard in relation to CCK’s representation of the applicant and who was paying the fees for that representation. The same information was sought from Chaya and the applicant.

151    On 5 November 2020, Mr Naudi wrote to the applicant: annexure HJG-29 to the second Gillis affidavit sworn 15 October 2021, in which he says:

As you are aware there has been a great deal of correspondence with you and your lawyers (CCK lawyers) where I have been attempting to ascertain the benefit of the value of legal services received by you.

At every step I have been met with a claim of Legal Professional Privilege as a reason why documents or information cannot be provided to me. While I concede that some documentation and information I have requested may be subject to claims of Legal Professional Privilege, no such privilege can be claimed over financial information and matters that have been the subject of requests by me and otherwise form part of your examinable affairs.

I am now aware that you and your lawyers are resisting my attempts to publicly examine you.

As such my ability to provide transparency as to the benefits received by you is now impossible.

I am now in a position that I am not capable of performing my obligations in relation to these matters before the cessation of your bankruptcy. This is an untenable position.

As such I provide you a final opportunity to provide sufficient documentation and information to enable me to properly assess the benefits you have received by way of legal services provided to you.

The requested information is strictly required by 4:00PM, 19 November 2020. Please be aware, NO further extensions will be granted and you should prioritise your response rather than leave it to the last minute in such circumstances. If I have not received information to enable me to make a proper evaluation of the benefit received together with substantiating evidence then your bankruptcy will be extended pursuant to s149D(1 )(d), (e) of the Bankruptcy Act 1966 (Cth).

To avoid confusion, the benefit you have received by way of legal service constitutes income by virtue of s139L(1)(v) or subject to the details of any arrangement which to date is denied by you, s139L(1)(vi).

It remains my view that a detailed record of time spent by your lawyers assisting you in any legal matter or in your conduct as a Regulated Debtor or responding to my queries are what is required together with your lawyer's standard charge rates, or such agreed rates as may apply.

152    The text of this letter makes abundantly clear the difficulty Mr Naudi was experiencing in getting information both from the applicant and from CCK and also reveals that he did not accept what he had been told.

153    CCK applied to set aside the examination summons for the applicant, Richard, Chaya and Mr Cudmore.

154    A component of the legal work done by CCK on Richard’s file was in connection with the application to set aside the examination summons.

155    The application to set aside the examination summons was settled by agreement between the parties which was recorded in the Settlement Memorandum: annexure JMC-9 to the Cudmore affidavit. Amongst other things, the Settlement Memorandum provided that the examination summonses addressed to the applicant, Richard, Chaya and Mr Cudmore would be set aside. It was a further term of the Settlement Memorandum that Mr Naudi would not object under s 149B of the Act to the discharge of the applicant from bankruptcy on 17 December 2020.

156    There were a number of conditions precedent recorded in the Settlement Memorandum. Clause 1.2 provided that as a condition precedent:

CCK providing disclosure to the Trustee of documentation to enable to Trustee to:

1.2.1.    Calculate or otherwise assess the benefit of legal services received by the Bankrupt during the period of his bankruptcy (including but not limited to retainer agreements, fee invoices and WIP ledger reports).

1.2.2.    Calculate or otherwise assessing any direct or indirect benefit provided by Chaya and Richard to the Bankrupt from [last reporting date].

CCK’s 7 December 2020 letter

157    On 7 December 2020, CCK wrote to Mr Naudi: first Gillis affidavit annexure HJG-12, p 225. As at that date, CCK was holding $60,000 in its trust account. That sum was referable to invoices that had been issued to the applicant or Richard on their respective files: exhibit R20.

158    Mr Cudmore was responsible for drafting and settling the 7 December 2020 letter. He regarded the 7 December 2020 letter as sufficient to satisfy cl 1.2.1 of the conditions precedent and also understood that what was required, was a full and frank disclosure, whether it be good or bad.

159    In the letter, CCK identifies outstanding invoices both on David’s file ($26,023.29) and Richard’s file ($58,465.12) totalling $84,488.41.

160    CCK also provided to Mr Naudi, amongst other things, CCK’s WIP records setting out time recorded as work in progress against both David’s and Richard’s files.

161    Mr Gillis resisted the suggestion that these two WIP records were provided for the purposes of enabling Mr Naudi to calculate or otherwise assess the benefit of legal services received by the applicant during the period of his bankruptcy, on the basis that the settlement was conditional on documents being provided “including … WIP ledger reports” and that they had been provided because they were specifically requested: T 22.11 – 39.

162    That is not so. The purpose for which the documentation was provided was clearly set out in clause 1.2 of the Settlement Memorandum.

163    On 18 December 2020, White J made orders discharging the examination summons against the applicant, Richard, Chaya and one other. No order was made in relation to the examination order for Mr Cudmore.

Paragraphs 5 to 14 of the 7 December 2020 letter

164    Paragraphs 5 to 14 inclusive of the 7 December 2020 letter state:

5.    We opened our matter 261894-1 [David’s file] at that time. That is the only matter which we have ever opened for Mr David Bertram. As can be seen from the enclosed invoices, we have sent invoices addressed to Mr David Bertram. To the extent that these invoices have been paid, they have been satisfied:

5.1    first, from the costs ordermade by Master Blumberg against the plaintiffs in District Court proceedings 1214 of 2017, in which we acted for Mr David Bertram in connection with the examination order made in those proceedings, which costs order was taxed and paid in the amount of $23,866.84; and

5.2    secondly, from limited funds paid into our trust account by Darisha.

Subparagraph 1.2.1: Our retainer to act for Chaya Bertram, Richard Bertram and Darisha

6.    In about October 2018, we were retained by Richard Bertram to act for Darisha. We were initially instructed in relation to the challenge to Darisha's proof of debt which had been admitted for voting purposes in David's bankruptcy by his former trustees, Messrs de Vries and Solomon. We opened our matter 262261-1 [David’s file] in connection with our representation of Darisha in relation to these issues in the Federal Court.

7.    Subsequently, on instructions from Richard Bertram, we have also commenced to act for Richard Bertram in his personal capacity, and for his and David's elderly mother, Chaya Bertram, in connection with David's bankruptcy and the effect of that bankruptcy on his family. We opened our matter 262261-2 [Richard’s file] for that purpose.

8.    In relation to each and every attendance which has been recorded in connection with our matter 262261-2, we have acted on instructions from Richard Bertram, and not on instructions from David Bertram. Our concern has been, in relation to that matter, to protect the interests of Richard and his family. That is why Richard, Chaya and Darisha are our clients in that matter.

9.    Clearly enough, it is in the interests of Richard, Chaya and Darisha that David's bankruptcy be managed appropriately, and that they receive, where necessary, legal advice and representation. Clearly, also, the interests of Richard, Chaya and Darisha on the one hand, and David on the other hand, are closely aligned. This is because, as would be well known to Mr Naudi, the financial and other interests of all members of the Bertram family are connected.

10.    In this regard, our clients in relation to this matter are Chaya, Richard and Darisha, and not David. We note that the definition of 'client' in the Australian Solicitor's Conduct Rules is in the following terms:

“client” with respect to the solicitor or the solicitor's law practice means a person (not an instructing solicitor) for whom the solicitor is engaged to provide legal services for a matter.

11.    It follows that our services as recorded in our matter number 262261-2 were for the benefit of Chaya, Richard, and Darisha, notwithstanding that David's interests may also, on occasion, have aligned with theirs.

12.    It should be recalled, and is not without significance, that the first documents which were ordered to be produced by David in connection with the examination order made in the District Court proceedings were documents which related to the testamentary arrangements of the late Michael Bertram.

As set out above, we performed work on behalf of David Bertram in those District Court proceedings. However, the interest of Chaya, Richard and Darisha in those proceedings, and the reason for them to agree to meet David's costs in respect of those proceedings (quite apart from their familial relationship with David and desire to provide him with support), ought be plain to see.

13.    The position in relation to our matter 262261-2 is likewise. On occasion, as can be seen from the narrations of individual time entries made in relation to our matter 262261-2, we have performed legal work in consultation with David, and have included David in confidential and privileged communications. In doing so we have at all times acted on instructions from Richard, and on the basis that our firm has been retained in that matter for the purpose of providing representation, advice and assistance in connection with protecting the interests of Chaya, Richard and Darisha. Of course, we do not waive privilege over any communications we have had with any member of the Bertram family.

14.    It follows that our view is that no benefit of the kind contemplated by s139L of the Bankruptcy Act has been provided to David Bertram by reason of our retainer to act for Chaya, Richard and Darisha.

(Square brackets provided)

165    Mr Cudmore had agreed with the proposition in cross-examination that Richard’s file, “… was still a file constituting the provision of legal services to David but where CCK now wanted to make sure that it had a direct financial relationship with Richard” adding that, “… the billing arrangements organised through the software reflected that in the preparation of the bill, it was to be billed to [Richard].”: T 204.40.

166    Accordingly, the statement in [7] of the letter dated 7 December 2020, that Richard’s file was opened for the purpose of acting for Richard in his personal capacity and Chaya in connection with the applicant’s bankruptcy, and the effect of that bankruptcy on his family, was at the least inaccurate. Richard’s file was opened for the purposes of making Richard personally liable for CCK’s fees, but the work done on that file was in relation to the applicant’s dealings with his Trustee. To the extent Richard, Chaya and Darisha’s interests benefited from the work done by CCK for the applicant, that is because, as CCK says in [11] of the letter, those interests aligned with the applicant’s.

167    The first sentence in [8] of the letter reads, “In relation to each and every attendance which has been recorded in connection with our matter 262261-2, we have acted on instructions from Richard Bertram, and not on instructions from David Bertram”. To the extent that sentence conveys by implication the work was done for Richard, it is also inaccurate given the work CCK was doing for the applicant on Richard’s file. So much so is apparent when the WIP records on Richard’s file are considered.

168    Further, the letter dated 7 December 2020 refers in [5.2] only to “limited funds paid into our trust account by Darisha”. There is no reference in the letter to payment into trust of money by Darisha on account of CCK’s fees on Richard’s file. That is a further indication that what was being conveyed in the 7 December 2020 letter was that legal work done on Richard’s file was not legal work done for the applicant.

169    Mr Cudmore concludes, in part, at [14] of the 7 December 2020 letter, that it was CCK’s view that, “… no benefit of the kind contemplated by s 139L of the Bankruptcy Act has been provided to David Bertram by reason of our retainer to act for Chaya, Richard and Darisha”.

170    On an ordinary reading of the 7 December 2020 letter, the overall impression is that the work done on Richard’s file was only for the benefit of Richard, Chaya and Darisha. That is contrary to the oral evidence given in this matter and contrary to what is revealed by the WIP records.

171    Mr Cudmore denied he was endeavouring to convey that legal services provided in respect of Richard’s file did not reflect the provision of legal services to the applicant: T 228. 31 – 34, but went on to explain the reason why work on Richard’s file was billed to Richard. He explained that apparent anomaly by referring to [13] of the letter at [129] of the Cudmore affidavit:

I now observe, in light of the cross-examination of Mr Gillis, that the statement made at paragraph 8 might be read so as to convey that the time recorded was only in connection with instructions provided directly by Richard Bertram, and not in connection with my firm assisting Mr David Bertram. That statement needs to be read in the context of what is written in paragraphs 9 to 13 which follow, but what I intended to convey was that Mr Richard Bertram was the client of CCK Lawyers who was instructing us to act in connection with issues arising in connection with the bankruptcy of Mr David Bertram. It is apparent from the descriptions to the particulars in the bills, and as set out in the time recording data that were provided to Mr Naudi in the form of the Excel Spreadsheets, that many attendances were for the purpose of assisting Mr David Bertram on the instructions of Mr Richard Bertram, in the management of Mr David Bertram's bankruptcy, Mr David Bertram's dealings with Mr Naudi, and also the dealings with Mr Rowley's clients in the District Court proceedings. Of course, also at times, and in particu1ar from July 2020, when my firm first learnt that Mr Naudi was seeking examination orders against members of Mr Richard Bertram's family, our instructions clearly extended to protecting their interests. The fact that time was being recorded on the CCK software in connection with that particular matter number was a matter of expedience, because the bills were to be addressed to and paid by Mr Richard Bertram through his company, Darisha Holdings.

172    Whereas Richard’s file may well have been opened on instructions from Richard, and whereas advice may have been provided to Richard on that file in relation to his, Chaya and Darisha’s interests arising out of the applicant’s bankruptcy, ultimately it was the applicant who was being advised by CCK in his dealings with his Trustee, whether that be on David’s file and/or Richard’s file. Although Richard’s, Chaya’s and Darisha’s interests may have been affected by the applicant’s dealings with the Trustee, ultimately it was those dealings which were the primary focus of the work done on David’s file and Richard’s file.

173    Later, on 15 December 2020, Mr Naudi’s solicitors, Charlton Rowley, wrote to CCK: annexure JMC-10 to the Cudmore affidavit in which at [5.2] they asked CCK to confirm that, “Richard (or entities controlled by him) has never made any payment to or for the benefit of David during the Bankruptcy.”.

174    CCK responded to that letter by its letter dated 16 December 2020: annexure JMC-11 to the Cudmore affidavit, in which it responded that apart from three loans to the applicant identified at [12] of the letter, between 30 December 2019 and 11 February 2020:

We confirm that neither Mr Richard Bertram nor any entity controlled by him has made any payment to or for the benefit of David Bertram during the current contribution assessment period. Our letter of 7 December 2020 explained that Darisha Holdings Pty Limited had paid funds to our trust account from which payment of some, but not all, of our invoices was satisfied, as fully explained in our letter of 7 December 2020.

175    That response refers to the “current contribution period”, which was not the question asked by Charlton Rowley. Further, $60,000 had been paid into CCK’s trust account by Darisha and remained there as at 7 December 2020. That money had been paid into trust by Darisha on account of CCK’s fees.

No trust account statements

176    The material provided by CCK in the 7 December 2020 letter did not include CCK’s trust account statements nor refer to the fact that at the time the letter dated 7 December 2020 was written, CCK was holding $60,000 in its trust account on account of its fees for David’s file and Richard’s file.

177    Had CCK’s trust account statements been provided to Mr Naudi, it would have revealed not only payments made by Darisha into trust but also the fact that there was a substantial sum sitting in trust against CCK invoices, which as at 7 December 2020 remained unpaid. They would also have revealed that prior transfers had been made from funds deposited by Darisha into CCK’s trust account in satisfaction of fees raised on David’s file and on Richard’s file.

178    Mr Cudmore deposed at [140] that no request was made by Charlton Rowley for copies of the trust account details. However, the obligation under the Settlement Memorandum was to provide disclosure to the Trustee, documentation to enable the Trustee to calculate or otherwise assess the benefit of legal services received by the applicant.

179    By 7 December 2020, CCK was well aware Mr Naudi was investigating whether the applicant’s fees were being paid by another party and the potential for that to comprise income under s 139L. If, as Mr Cudmore asserted in evidence, the purpose of opening a file in Richard’s name was to make him personally responsible for CCK’s fees, that does not obviate the need to provide to Mr Naudi CCK’s trust account statements on that file, in circumstances where according to Mr Gillis and Mr Cudmore, work was being done by CCK on Richard’s file for the applicant in relation to his bankruptcy.

180    On any view, the trust account statements were critical to an understanding of what had been paid by Darisha on account of CCK’s fees on David’s file and what had been paid by Darisha on Richard’s file.

181    CCK’s letter dated 7 December 2020, should have included trust account statements. To the extent cl 1.2 of the Settlement Memorandum made reference to specific documents, that was in the context of “including but not limited to …”. It is not an answer to say the Trustee did not ask for them.

182    In any event, at a hearing on 18 December 2020 before White J, a solicitor employed by Charlton Rowley agreed that the required information had been supplied, and that his Honour then discharged the examination orders. On 23 December 2020, Mr Naudi withdrew a notice of objection to the discharge of the applicant’s bankruptcy pursuant to s 149J of the Act.

183    Mr Naudi accepted that CCK’s letter to his solicitors dated 16 December 2020 stated that if further information was required, it was very likely they would be instructed to provide it. Mr Naudi did not agree that there was an ongoing exchange between the respective solicitors about what should be provided, but did accept there was an offer in that letter to provide further information which he did not take up. Instead, he chose to proceed with the CAP assessments based on the information he had.

184    Mr Naudi contended at trial that CCK had not complied with the terms of the Settlement Memorandum. Whether or not that is correct, nonetheless Mr Naudi elected to proceed on the basis of the information with which he had been provided. In the circumstances, he was entitled to do so.

The CAP assessments

185    Mr Naudi had written to the applicant on 5 November 2020 in terms I have set out above and accepted that he had decided sometime before 7 December 2020 how he was proposing to proceed under s 139L(1)(a)(v) or (vi) to assess an income contribution and what information he needed: T 358 44 - 46.

186    On 11 February 2021, Mr Naudi issued three CAP assessments pursuant to s 139W of the Act.

187    On 4 March 2021, CCK wrote to Mr Naudi’s solicitors, Charlton Rowley, asserting that Mr Naudi’s letter dated 11 February 2021 and the attachments, comprising the three CAP assessments, did not comply with the requirements of s 139W and were invalid.

188    It was in that context that on 18 March 2021, Mr Naudi sent a letter to the applicant by email. The letter dated 18 March 2021 informed the applicant that pursuant to s 139W of the Act, he had made a revised assessment of the applicant’s income for CAP 1, CAP 2 and CAP 3 in the amounts of $23,804.75, $86,480.67 and $77,537,84 respectively: Annexure HJG-15 to the first Gillis affidavit.

189    On 18 March 2021, Mr Naudi also sent the applicant the Certificate informing the applicant that by reference to Mr Naudi’s assessment dated 18 March 2021, he was liable to pay the amount of $178,401.76 pursuant to ss 139W(1) or (2) of the Act.

190    The difference between the three CAP assessments issued on 11 February 2021 and those issued on 18 March 2021 is the internal notes and the link to the CCK WIP records on each of the CAP assessments, as well as the workings. In the case of CAP 1, there is a different total for the period between February and March 2021.

191    Annexure HJG-16 to the first Gillis affidavit includes a summary sheet explaining how the results for the CAP 1, 2 and 3 assessments were calculated. There are two lines at the commencement of the summary, one for the applicant and one for Richard, that represent David’s file and Richard’s file respectively. Each of those were in turn taken from CCK’s WIP records which were put into an Excel format and totalled. It was that information which was added into the CAP assessments issued on 18 March 2021 and which demonstrates how Mr Naudi arrived at the dollar figures in each of the CAP assessments for “non-cash benefits (legal)”.

192    Mr Naudi said he did not simply accept the dollar figures from the WIP records as “non-cash benefits” when making the amendments. Apart from the WIP entries, Mr Naudi looked at the discrepancies between what he was told in CCK’s letter dated 7 December 2020, which is what the applicant was telling him, and then determined that the entries for Richard reflected the work done for the applicant.

193    Mr Naudi undertook that approach because he considered that an appropriate way to approach the assessment under s 139L was in conjunction with both ss 139W and 139X.

194    While accepting that he had been provided with documents in accordance with the Settlement Memorandum, nonetheless, Mr Naudi asserted that he had not been provided with documents “to enable [him] to calculate or otherwise assess the benefit of legal services received by [David] during the period of [David’s] bankruptcy”: Naudi affidavit [5.2.4.4]. In particular, Mr Naudi deposed that he had not been given access to the following categories of documents: Naudi affidavit [5.2.4.4 (b)-(f)]

(a)    Trust statements or ledgers;

(b)    Copies of documents disclosing who provided instructions to CCK in respect of what matters;

(c)    Communications between the applicant, Chaya, Richard, Darisha or CCK in relation to arrangements as to fees or their payment; and

(d)    Documents disclosing the terms on which CCK act or have acted for Chaya.

195    Mr Naudi explained the process he adopted when he received the information from CCK in its letter dated 7 December 2020 in the following terms: T 282.4 - 283.3.

Q    Well, if you’re engaged in some intellectual activity that had a bearing upon your CAP assessments, please tell me?---

A    Okay. So I think – when I received information on 7 December – it was part of that 7 December I was given. Mr Cudmore’s email was forwarded to me by – I think it was Mr Rowley, which gave me a position that I was given very limited information to what I expected to receive. So I had to make a decision on do I keep expending creditor money on what seemed to be a futile program of trying to get all the information I needed to make an assessment and have the debtor comply with his obligations to disclose things to me. So I decided at that point in time – and this is in part also driven by the fact that there was this settlement that I had received everything I needed, that I had to draw a line in the sand. So I did. That left me with WIP records, it left me with some invoices. I had no idea other than an assertion made in Mr Cudmore’s letter that some of those had been paid and there was the application of some cost order money but nothing supporting that. I had a difference between invoices supplied, and I think there was one that was missing out of the series, and the WIP records. So I – sorry, I was also presented with a situation where in my view – and I say this specifically because I’ve been in this court room the whole time – that the way I read Mr Cudmore’s letter was he was trying to assert that the work done under the first code ending in 4 was for David, and all of the work done after that time on the new code ending in 2 was for Richard, Chaya and/or Darisha in some form, one of those parties. So I set about looking through the WIP records together with Tom, Mr Berry, and I ..... this just – it appears a nonsense, because all of these times – part of it is a transfer of what was being done under one code to a new code, and all of the time, to me, principally relates to legal services being provided to Mr Bertram

…

Q    So - - -?---

A    Okay. So, on the best – on the evidence that I was given and other things that I knew – for instance, Mr David Bertram has assisted throughout the course of the bankruptcy that CCK are his lawyers, and that goes over the time of the code ending in 4 and the code ending in 2. There – there is – I was faced with a discrepancy between what had been on the WIP record and what was on the invoices, but I was not presented with anything that indicated there was any write-off of WIP time. I was not presented with anything that showed how invoices were derived at. I was not prevented – presented with any trust statements, any – any which would, of . course, show the application of, for instance, the cost order money against certain invoices. So I had to make my best effort to assess what were the services provided to David.

196    Mr Naudi formed the view that the applicant had received the benefit from the provision of legal services by CCK on David’s file and Richard’s file for a number of reasons: Naudi affidavit [5.2.5]

(a)    The applicant consistently referred to CCK and his lawyers in communications with Mr Naudi;

(b)    David’s file related to legal services provided to the applicant under a retainer letter dated 20 July 2018: annexure RWN-2 (sic 1) pp 10-16;

(c)    The majority of invoices on David’s file refer to the applicant care of Darisha and on David’s file the only amount paid was in the order of $15,000, which had been paid by Darisha. There was another payment of approximately $23,000 paid by creditors under a cost order in the District Court of South Australia proceedings;

(d)    Mr Naudi dealt with the applicant directly and extensively in relation to general matters associated with his bankruptcy which were the subject of legal services under both David’s file and Richard’s file;

(e)    It was clear to Mr Naudi from the documentation provided in the letter dated 7 December 2020, that a significant amount of work had been done by CCK under direct instructions from the applicant or in direct concert with him and that legal services had been provided by CCK in defending proceedings issued to or against him directly in the District Court and the examination summons issued in this Court;

(f)    CCK conceded the interests of the applicant aligned on occasion with the interests of Richard, Chaya and Darisha;

(g)    CCK conceded there were contentious communications between the applicant and Mr Naudi which they described as disputes between the applicant and the Trustee; and

(h)    Mr Naudi was not obliged to accept the position set out by CCK in the 7 December 2020 letter given the provisions of s 139X of the Act.

197    Mr Naudi was also taken to the WIP entries on p 358 of the first Gillis affidavit, forming part of annexure HJG-16, and asked to consider the number of entries referring only to Richard. He accepted that approximately two thirds of the entries referred to Richard only. So too, on p 357 Mr Naudi accepted that the majority of entries related to Richard, however he observed, correctly, that there were a number of entries that named no individual.

198    Mr Naudi was also aware that the applicant was earning $60,000 per year but never had the expectation the applicant would be paying for CCK’s legal services because he was of the view that he would not be able to afford to do so. In his experience, it is extremely rare that bankrupts seek assistance from lawyers.

199    In making a CAP Assessment, Mr Naudi referred to a guidance note in the form of a checklist. The document is titled “Official Trustee Practice Statement 1 income contributions”: exhibit A31.

200    Each year, during the currency of the bankruptcy, the questionnaire was issued to the applicant. Bank statements were reviewed and because the applicant was a contractor, Mr Naudi tried to obtain copies of invoices and check them against receipts into the applicant’s bank account, finding there was no correlation between the two. Part of Mr Naudi’s investigations involved communications with the applicant for the arrangements for the payment of his legal fees in relation to which there was, what Mr Naudi described as, “pushback” and a denial that there were any payments for his benefit. Since Mr Naudi did not have sufficient information about particular issues, he embarked upon a process of trying to get that information, including by issuing the examination summons which were ultimately set aside in the context of the Settlement Memorandum that the applicant would provide everything to make an assessment.

The invoices

201    Mr Naudi accepted that he was aware that invoices had been issued in respect of the files which covered a period of WIP entries for an amount less than the total WIP entries, but he was not aware of a practice of, in effect of, writing down bills against those entries, although he was aware of that practice in the law generally. That was because he was not provided with anything to indicate that it had happened.

202    Mr Naudi was then referred to CCK’s letter to Charlton Rowley dated 4 March 2021: annexure HJG-14 to the first Gillis affidavit, and in particular paragraph 5 of that letter which complains that the CAP assessments issued on 11 February 2021 did not satisfy the requirement that the written notice must give sufficient particulars to enable the recipient of the notice to understand how the amount had been assessed. Mr Naudi said that he addressed that complaint by issuing the revised CAP assessments on 18 March 2021. He denied that he simply relied upon the WIP records. However, Mr Naudi said that the WIP records were what he used in his calculations. Those calculations did not include any disbursements paid to Mr Hoffman KC who had been retained on the examination summons issued out of this Court, although he accepted that was not correct in principle.

203    At a general level, the applicant refers to Mr Naudi’s concession that he did not have access to the FBTA Act but was generally aware of its effect, to submit that Mr Naudi’s approach was not in conformance with that required by legislation. It submits that there is nothing in Mr Naudi’s firm work records which would allow the inference that Mr Naudi give any sufficiently detailed or appropriate consideration to the operation of either the Act or the FBTA Act.

204    Mr Naudi’s evidence was that his understanding was there is not a great deal of difference between the principal types of fringe benefits: T 291.41 – 47, and made a distinction between an expense fringe benefit where legal costs have been paid and a residual fringe benefit where legal costs had not been paid.

Inferences sought by the applicant

205    The applicant also asks the Court to draw a number of inferences.

206    First, there was clear evidence that Mr Naudi’s employees worked on the CAP assessments, particularly Mr Thomas Berry and Mr Jay Gandi, but that work was done under Mr Naudi’s supervision. Neither were called to give evidence and there is an oblique reference in the applicant’s submissions to what I take to be a submission that I should draw a Jones v Dunkel inference, although that was not developed.

207    I accept Mr Naudi’s evidence that the work was done by his employees under his supervision, however I do not consider that it would reasonably have been expected that one or both of these individuals would be called to give evidence. In the circumstances, I am not prepared to draw an inference that the calling of Mr Berry and/or Mr Gandi would not have assisted the respondent’s case.

208    Second, the applicant refers to a letter dated 5 November 2020 from Mr Naudi to the applicant: second Gillis affidavit, annexure HJG-29, and submits that the letter permits an inference to be drawn that Mr Naudi considered at that stage that the benefit of legal services provided to the applicant in connection with his affairs as a bankrupt or in response to the requirements of the Trustee in circumstances where the bankrupt had not paid or been in the position personally to pay such services, would result in assessable income.

209    On a related point, the applicant submits the overarching inference on all the evidence is that Mr Naudi’s intention at the time he wrote his letter dated 5 November 2020 was to obtain CCK’s WIP records for David’s and Richard’s files, accumulate and cost the work entries and simply treat the resultant aggregate dollar figure as a value of the benefit of legal services and hence, income derived by the applicant to the provision of those services.

210    Taking each of the two inferences in turn, the first inference is that Mr Naudi considered the benefit of legal services provided to the applicant would result in assessable income. In his letter dated 5 November 2020, Mr Naudi makes it clear to the applicant that he has been attempting to ascertain the benefit of the value of legal services received by him. That, however does not lead to an inference that the provision of legal services would necessarily result in assessable income. Accordingly, I am not prepared to draw that inference.

211    As to the “overarching inference” I am asked to draw, that inference is contrary to the evidence from Mr Naudi as to the process he adopted in making his assessment and to which I refer later. Accordingly, I am not prepared to draw the overarching inference either.

212    Mr Naudi accepted that he made no attempt to consider whether the time recording entries directly related to Richard consisted of work done for the applicant or work done for Richard. That is not surprising given Mr Naudi was not given that information.

213    Mr Naudi was cross-examined at length about his time records: exhibits A33 and A34. He accepted that there was no record of him reviewing provisions of the Act or giving consideration to how they applied to the evidence or the material received on 7 December 2020. He explained that that was because generally he does not charge for any research.

214    He gave the following evidence: T 409 3 – 46.

A.    … I had been told numerous times that there was no time being – or no – no expenses being paid in relation to work being done by CCK for Mr Bertram. I had also Mr Bertram telling me that CCK were his lawyers. I had written numerous times requesting information over a long period. I don’t want to go over what I said before, but I had. And I had also written to say, well, are they – is CCK working – effectively on a pro bono basis was my thought, but for free, etcetera. So in the absence of there being invoices or anything, I thought my starting point has to be there is time being spent, so there must be a WIP record, and that is what’s driving me to request the WIP there.

Q.    And what did you intend to do with the WIP then?

A.     To prove that CCK were working for David.

Q.     Yes. And you can’t now say on oath, can you, that you ever yourself reviewed the WIP record provided?

A.     Yes, I did.

Q.     Right. And review it closely?

A.     Yes.

Q.     Over how many minutes?

A.     It was – it was quite considerable time. I – I was with Tom doing it as well.

Q.     …

Q.     Either before 5 November 2020 …or between the period 5 November 2020 to 11 February 2021. You determined simply to aggregate the time entries and the cost rates in the WIP record and treat that all as income attributable to the bankrupt?

A.     That decision was made between, I think, about 7 January when we come back after I had been provided with all the information in December and after I decided to release the bankrupt, which I think occurred on 23 December. I – I’m not 100 per cent sure on that date. But between that date and my actual assessment. So it was some time before, so probably in January I made that decision.

Q.     Yes. And you decided to treat income as the summation of WIP entries by charge-out rates-?

A.     Yes.

Q.     as income on a non-cash basis, didn’t you?

A.     Yes.

215    As a result of an exercise undertaken by Mr Gillis on the materials from Mr Naudi’s office relating to work done on the applicant’s bankruptcy, Mr Gillis observed there were no entries relating to a consideration of the provisions of s 139L of the Act or the FBTA Act for the purposes of the CAP assessments. As a consequence, the applicant submits that it is unlikely that Mr Naudi engaged upon that exercise.

216    I do not accept that submission. As I have already noted, Mr Naudi did not record his time on research and I am not prepared to conclude that no one from Mr Naudi’s office, including Mr Naudi, considered the provisions of s 139L of the Act or the FBTA Act in making the assessments. Indeed, the distinction Mr Naudi makes between an expense payment benefit and a residual benefit reveals a consideration of the provisions of the FBTA Act.

CONSIDERATION

Income Assessment Provisions of the Act

217    These proceedings raise questions concerning the application of Div 4B of Pt VI of the Act, introduced by the Bankruptcy Amendment Act 1991 (Cth) which took effect on 1 July 1992. After the amendments, it has become accepted that there will be both realisation of property of a bankrupt together with the possibility of a proportion of his or her income being contributed towards the estate in the manner now regulated by Div 4B.

218    The possibility of a contribution does not detract from the underlying principle that income in itself does not vest in a trustee. Under the provisions now contained in Div 4B, a trustee in bankruptcy is to assess the income likely to be derived or actually derived by the bankrupt during a CAP. The trustee will then determine the income threshold amount and the contribution, if any, that the bankrupt is required to pay under s 139W.

219    Sections 139X and 139Z are important provisions which allow a trustee to disregard information provided by a bankrupt and to proceed to assess income of a bankrupt during any contribution assessment period.

139X Basis of assessments

(1)    In making an assessment of the income that is likely to be derived, or was derived, by a bankrupt during a contribution assessment period the trustee may have regard to any information provided by the bankrupt or any other information in the trustee's possession.

(2)    If the trustee considers that any information provided by the bankrupt is or may be incorrect, the trustee may disregard that information and may make an assessment on the basis of what the trustee considers to be the correct information.

139Z If bankrupt claims not to be in receipt of income

(1)    If a bankrupt:

(a)    does not provide information about whether he or she is likely to derive, or derived, income or a particular class of income during a contribution assessment period; or

(b)    claims not to be likely to derive, or not to have derived, any income or a particular class of income during a contribution assessment period;

(2)    but the trustee has reasonable grounds for believing that the bankrupt is likely to derive, or derived, income, or income of that class, during that period, then, for the purpose of making an assessment, the trustee may determine that the bankrupt is likely to derive, or derived, income, or income of that class, during that period and may also determine the amount of that income.

(3)    Without limiting the matters that a trustee may take into account for the purpose of making an assessment as mentioned in subsection (1) in respect of a contribution assessment period, the trustee may have regard to any employment or other work or other income producing activities that were engaged in by the bankrupt before that period and may determine whether the bankrupt is likely to engage, or to have engaged, in similar employment, work or other income producing activities during that period.

First issue – s 139L(1)(a)(v) and (vi)

220    This issue resolves into two sub-issues. The first sub-issue is whether the Trustee erred in law and/or in fact in concluding that legal services provided by CCK to the applicant, which were paid for by a third party, comprised a benefit to the applicant such that the value of that benefit constituted income within the meaning of s 139L.

221    The second sub-issue is to the extent CCK’s work was unbilled or its invoices unpaid, in circumstances where a third party had assumed an obligation to meet the unbilled or unpaid fees, does that obligation comprise a benefit to the applicant such that the value of that benefit constitutes income within the meaning of s 139L(1)(a)(v) or (vi).

222    In his opening submissions, the applicant referred to the principle of legality, referring to the explanation of the principle by French CJ, Kiefel and Bell JJ in North Australian Aboriginal Justice Agency Ltd v Northern Territory [2015] HCA 41; (2015) 256 CLR 569, at [11]:

… the principle of legality favours a construction, if one be available, which avoids or minimises the statute's encroachment upon fundamental principles, rights and freedoms at common law. That presumption, which is well established, has been called "a working hypothesis, the existence of which is known both to Parliament and the courts, upon which statutory language will be interpreted". It is a presumption whose longstanding rationale is that it is highly improbable that parliament would "overthrow fundamental principles, infringe rights, or depart from the general system of law, without expressing its intention with irresistible clearness". Its object was set out in the joint judgment of Mason CJ, Brennan, Gaudron and McHugh JJ in Coco v The Queen (1994) 179 CLR 427 at 437–438:

"curial insistence on a clear expression of an unmistakable and unambiguous intention to abrogate or curtail a fundamental freedom will enhance the parliamentary process by securing a greater measure of attention to the impact of legislative proposals on fundamental rights."

It is a principle of construction which is not to be put to one side as of "little assistance" where the purpose of the relevant statute involves an interference with the liberty of the subject. It is properly applied in such a case to the choice of that construction, if one be reasonably open, which involves the least interference with that liberty. As TRS Allan has written:

"Liberty is not merely what remains when the meaning of statutes and the scope of executive powers have been settled authoritatively by the courts. The traditional civil and political liberties, like liberty of the person and freedom of speech, have independent and intrinsic weight: their importance justifies an interpretation of both common law and statute which serves to protect them from unwise and ill-considered interference or restriction."

(citations omitted)

223    So too, in his closing submissions, the applicant referred to the principle of legality, submitting that in a case such as the present, caution should be exercised in distinguishing between legal services rendered to the bankrupt and legal services rendered to others as a result of demands or threats to their interest arising in the bankruptcy administration. He submits that adverse consequences should not be visited upon the bankrupt by reason of other persons seeking legal advice in connection with the bankruptcy.

224    The respondent submits that the applicant’s submission should be rejected on the basis that s 139L of the Act, as well as the definition of “benefit” in s 136 of the FBTA Act, do not restrict the bankrupt obtaining legal advice. Rather, it is that legal advice for which the bankrupt does not pay which comprises a benefit, the value of which is treated as income.

225    I accept the respondent’s submission. There is no suggestion that the applicant was precluded in any way from obtaining legal advice.

226    As an overarching submission, the applicant submits that Mr Naudi was required to make a rational and reasonable CAP assessment based upon a correct understanding of the applicable law as applied to all the information available to the Trustee.

227    So much so may be accepted as a statement of principle.

228    However, Mr Naudi was entitled to have regard to any other information in his possession as well as information provided by the applicant. He was also entitled to disregard any information provided by the applicant (or CCK on his behalf) if he considered that any of that information is or may be incorrect. As the Trustee, the respondent was authorised to make an assessment on the basis of what he considered to be the correct information: s 139X.

229    Nonetheless, a decision by the trustee to accept or reject information “… must be exercised rationally (or, at least, not irrationally”) and reasonably on the basis of relevant information and not capriciously or out of prejudice”: Thomas on Powers (2nd ed) [1.64]

Section 139L(1)(a)(v)

230    Section s 139L(1)(a)(v) was amended in 1996 to overcome the effect of the judgment in Bond v Trustee of Property of Bond (a bankrupt) (1994) 52 FCR 304; (1994) 34 ALD 385. In that matter, a majority of the Full Court (Cooper and Carr JJ, French J – as a member of this Court – dissenting), held that in the absence of an employment relationship, a benefit received by a bankrupt could not be assessed as income of the bankrupt.

231    Each of the CAP assessments refer to “Non-cash Benefits (legal)” and refers the reader to note 5, which reads:

Note 5

Non-cash benefit received by RD i.e. Legal costs paid/to be paid by related parties.

Pursuant to section 139 L (v) or (vi) of the Bankruptcy Act 1966

Source: documentation provided by CCK Lawyers

232    The applicant submits, and I accept, that it is evident from that that Mr Naudi has exercised his power under s 139W(2) of the Act using the definition of income in s 139L(1)(a)(v) or (vi).

233    Mr Naudi’s reasoning in [5.2.5] of his affidavit and summarised above, as well as his oral evidence at T 282.4 - 283.3, provides the basis for his conclusion that the applicant had received a benefit from the provision of legal services by CCK within the meaning of s 139L(1)(a)(v).

234    It is apparent that Mr Naudi experienced great difficulty in getting information from the applicant in relation to the services being provided to him by CCK in the period leading up to the letter dated 7 December 2020 and what he considered was, for want of a better expression, a blocking position taken by the applicant and/or CCK. It is for the reasons I have set out, that that position is entirely understandable.

235    Mr Naudi was not obliged to accept the position set out by CCK in its letter dated 7 December 2020 when addressing the question of whether the legal services provided by CCK on both David’s file and Richard’s file comprised income of the applicant for the purposes of the Act: s 139X.

236    In assessing the applicant’s income for the purposes of each of the CAP periods, Mr Naudi agrees that he added up all of the amounts recorded as work in progress on both David’s file and Richard’s file and treated the total as the applicant’s income. Mr Naudi also asserts that the applicant failed to provide him with the required documentation.

237    The applicant contends that on no view of the facts or law could the assessments made in CAPs 1, 2 and 3 reflect the applicant’s income for those periods such that they must be set aside. On one view, that issue goes to quantum, which is not a matter the applicant puts in issue in this application. On another view, the applicant’s contention is that he did not receive income within the meaning of s 139L. I proceed on that basis.

238    In order to determine whether the bankrupt has received income within the meaning of s 139L(1)(a)(v), the following matters arise for consideration:

(a)    What was provided to the bankrupt which potentially comes within the meaning of the section?

(b)    Did the bankrupt receive a benefit within the meaning of the FBTA Act as in force at the beginning of 1 July 1992 (other than an exempt benefit)?

(c)    Who provided that benefit? and

(d)    What is the value of the benefit, worked out in accordance with the provisions of the FBTA Act as in force at the beginning of 1 July, but subject to any modifications made by the regulations under the Act?

A.    What was it that was provided to the applicant which potentially comes within the meaning of the section?

239    There is no issue that the dispute between the parties concerns whether CCK’s legal services provided to the applicant on David’s file and Richard’s file, and the payment for those legal services or the obligation to pay for those legal services, comprises a benefit within the meaning of s 139L(1)(a)(v) such that the value of that benefit comprises income.

240    The applicant submits that question must be determined based on the information Mr Naudi had at the time at which the CAP assessments were issued. That is not so: Moore at [28].

241    Relevant to that submission is s 139X.

242    The applicant submits s 139X does not authorise the Trustee to make an assessment unsupported by such material as is available to the Trustee. I do not accept that submission, insofar as it is intended to submit that a trustee is bound by what has been put before it by the bankrupt. That is contrary to the clear text of s 139X(2).

243    The applicant submits that since Mr Naudi considered all of the retainers were for the applicant’s benefit and that Richard and/or Darisha were funding the services received by the applicant from CCK, he considered the applicant had been provided with a benefit, pursuant to either ss 139L(1)(a)(v) or (vi).

244    The applicant submits that Mr Naudi took no account in his CAP assessments of the statement by Mr Cudmore in the letter dated 7 December 2020 that CCK was acting for others in addition to the applicant.

245    I have dealt with the letter dated 7 December 2020 above. At the least, the passages I have identified in [7] and [8] of that letter were inaccurate, such that the submission does not assist the applicant. Further, clearly Mr Naudi did not accept what was in the 7 December 2020 letter and was entitled to disregard that information: s 139X.

246    Ultimately, the applicant submits that Mr Naudi proceeded by equating legal services provided to Richard, Chaya and Bertram entities with those provided for the benefit of the applicant. He contends that is not caught by s 139L(1)(a)(v).

247    The respondent submits that the assessments were issued by the Trustee by reference to the information provided to him by the applicant. He refers to the applicant’s failure to comply with his statutory obligations to provide information to the Trustee and that the scheme under the Act provides a broad latitude to make income assessments in those circumstances. The respondent submits that there is no demonstrated error in Mr Naudi’s approach.

248    I accept the respondent’s submissions and do not accept the applicant’s submissions.

249    Although Mr Naudi aggregated the entirety of CCK’s WIP records in arriving at his CAP assessments, that was because Mr Naudi saw in the WIP records that time recorded on the applicant’s file had been transferred to Richard’s file, such that in his view the assertion that the work done on Richard’s file was for Richard and not the applicant was a nonsense.

250    On the basis of the information available to him, Mr Naudi concluded that the applicant had received a benefit through the payment of CCK’s fees by Darisha and that there existed an obligation on the part of Richard and/or Darisha to pay unbilled work in progress as well as unpaid invoices, whether under David’s file or Richard’s file.

251    Not only was that factual conclusion open to Mr Naudi on the material made available to him, his conclusion accords with the evidence put before the Court.

252    It was in that context that after reviewing the WIP records and other information available to him, Mr Naudi concluded that CCK was providing legal services to the applicant in relation to his bankruptcy, with those services being paid for by Richard and/or Darisha.

253    Based on the material made available to him, Mr Naudi also concluded that:

(a)    Darisha had paid part of CCK’s fees on David’s file, and that there was an obligation on the part of Richard and/or Darisha to pay any unpaid invoices as well as any unbilled work on David’s file; and

(b)    Darisha had paid part of CCK’s fees on Richard’s file, and that there was an obligation on the part of Richard and/or Darisha to pay any unpaid invoices as well as any unbilled work on Richard’s file.

254    The evidence put before the Court confirms Mr Naudi was justified in not only not accepting the information that had been provided to him by or on behalf of the applicant, but that his factual conclusions were open to him.

B.    Did the applicant receive a benefit within the meaning of the FBTA Act as in force at the beginning of 1 July 1992 (other than an exempt benefit)?

255    “benefit” is defined in s 136 of the FBTA Act, the relevant part of which is all in the following terms:

‘benefit’ includes any right (including a right in relation to, and an interest in, real or personal property), privilege, service or facility and, without limiting the generality of the foregoing, includes a right, benefit, privilege, service or facility that is, or is to be, provided under:

(a)    an arrangement for or in relation to:

(i)    the performance of work (including work of a professional nature), whether with or without the provision of property;

(ii)    …

256    The definition of benefit is broad and overarching. Within the FBTA Act, there are different types of benefit. Before those different types of benefits can be considered, what is asserted to have been provided as a benefit must come within the overarching definition.

257    Insofar as the legal services provided by CCK constituted a service provided under an arrangement for the carrying out of work of a professional nature for the applicant, whether under David’s file or Richard’s file, the applicant received a benefit within the meaning of s 136 of the FBTA Act.

258    As to the type of benefit received, Mr Naudi made the distinction between an expense payment benefit (s 20 FBTA Act) and a residual benefit (s 45 FBTA Act). In short, if CCK’s costs had been paid, it was an expense fringe benefit but if they had not been paid, it was a residual fringe benefit.

259    Sections 20 and 45 provide:

20 Expense payment benefits

Where a person (in this section referred to as the provider):

(a)    makes a payment in discharge, in whole or in part, of an obligation of another person (in this section referred to as the recipient) to pay an amount to a third person in respect of expenditure incurred by the recipient; or

(b)    reimburses another person (in this section also referred to as the recipient), in whole or in part, in respect of an amount of expenditure incurred by the recipient;

the making of the payment referred to in paragraph (a), or the reimbursement referred to in paragraph (b), shall be taken to constitute the provision of a benefit by the provider to the recipient.

45 Residual benefits

A benefit is a residual benefit for the purposes of this Act if the benefit is not a benefit by virtue of a provision of Subdivision A of Divisions 2 to 11 (inclusive).

260    There is no suggestion that Mr Naudi’s classification of what comprises an expense payment benefit or residual benefit within the meaning of the FBTA Act was in error.

261    There is no issue that CCK’s fees incurred on David’s file and invoiced were paid, at least in part by Darisha. Mr Naudi considered those payments to be an expense payment benefit within the meaning of the FBTA Act. He was correct to do so.

262    Insofar as there was unbilled work recorded in the WIP records on David’s file and unpaid invoices, Mr Naudi considered that unbilled work and those unpaid invoices to be a residual benefit within the meaning of the FBTA Act. He was correct to do so.

263    Mr Naudi was not provided with any information as to who had paid the fees on Richard’s file referred to in CCK’s letter dated 7 December 2020. However, he had available to him CCK’s retainer letter addressed to “Mr Richard Bertram Darisha Holdings Pty Ltd” which imposed an obligation to pay CCK’s fees. Under those circumstances, and in circumstances where Mr Naudi had formed the view, correctly, that under Richard’s file, CCK was providing legal services to the applicant relating to his bankruptcy, Mr Naudi’s classification of the fees paid for CCK’s legal services on Richard’s file as being an expense payment benefit within the meaning of the FBTA Act was correct.

264    Insofar as there was unbilled work recorded in the WIP records on Richard’s file and unpaid invoices, Mr Naudi considered that unbilled work and those unpaid invoices to be a residual benefit within the meaning of the FBTA Act. He was correct to do so.

C.    Who provided the benefit?

265    Mr Naudi considered that Richard and/or Darisha were the “provider” for the purposes of s 139L(1)(a)(v).

266    The applicant submits that the “provider” was CCK. I do not accept that submission.

267    Section s 139L(1)(a)(v) provides a definition of “provider”. It refers to the value of the benefit that “(A) is provided in any circumstances by any person (the provider) to the bankrupt; and …”.

268    Given the benefit was either an expense payment benefit or a residual benefit and that the benefit was provided by Richard and/or Darisha, it follows that Richard and/or Darisha were the provider for the purposes of s 139L(1)(a)(v).

269    I note in passing that s 136 of the FBTA Act contains definitions of “provide” and “provider”. Those definitions are amended by cl 30 of Schedule 4 to the Bankruptcy Regulations and are in the following terms:

provide:

(a)    in relation to a benefit—includes allow, confer, give, grant or perform; and

(b)    in relation to property—means dispose of (whether by sale, gift, declaration of trust or otherwise):

(i)    if the property is a beneficial interest in property but does not include legal ownership—the beneficial interest; or

(ii)    in any other case—the legal ownership of the property.

provider, in relation to a benefit, means the person who provides the benefit.

270    Since the “benefit” in question was either an expense payment benefit or a residual benefit, whether the definition of “provider” is that in s 139L or s 136 of the FBTA Act as amended by Schedule 4 to the Bankruptcy Regulations, Mr Naudi was correct to conclude that Richard and/or Darisha were the provider.

D.    What is the value of the benefit?

271    The benefit was the payment of CCK’s invoiced fees, or to the extent unpaid or unbilled, the obligation to meet those unpaid or unbilled fees, in the absence of which CCK would not have provided the legal services to the applicant.

272    Mr Naudi considered the value of the expense payment benefit as being the amount of the payment referred to in s 20(a) of the FBTA Act and s 23 of the FBTA Act as varied by s 12 of Schedule 4 to the Bankruptcy Regulations.

273    As to the residual benefit, Mr Naudi was aware of s 50 of the FBTA Act as amended by s 25 of Schedule 4 to the Regulations, which provides that s 50 is omitted and substituted as follows:

50 Value of residual fringe benefits

Subject to this Part, the value of a residual fringe benefit in relation to a contribution assessment period is the cost to the provider of providing the benefit, reduced by the amount of the recipient’s contribution.

274    Richard and/or Darisha remained obliged to pay CCK’s fees, whether under David’s or Richard’s file. Accordingly, there is no difference between the value of the benefit calculated as an expense payment benefit under s 23 of the FBTA Act or the amount of the benefit calculated as a residual benefit under s 25 of Schedule 4 to the Bankruptcy Regulations.

275    For the purposes of s 139L(1)(a)(v), in determining the value of the benefit it provided to the applicant, Mr Naudi was obliged to work out the value of the benefit in accordance with the provisions of the FBTA Act.

276    Mr Naudi did not have all the information he needed but considered he had sufficient material to enable him to work out the value of the benefit to the applicant.

277    The applicant submits that Mr Naudi chose not to seek any further information and that it is not now available for him to argue at trial that he was denied records which he claims were necessary to his assessments and that he now wishes he had asked for something more.

278    With respect, Mr Naudi does not make that argument. Rather, Mr Naudi advances a case that he considered the applicant had a benefit with a value such that it comprised income within the meaning of s 139L(1)(a)(v). That conclusion was based on such documentation and information which had been provided to him by the applicant in the course of his dealings with the applicant. He was entitled to proceed on that basis and the applicant cannot now be seen to complain about Mr Naudi not acting on information which it failed to provide.

279    In particular, it does not sit well for the applicant to criticise Mr Naudi for complaining about the lack of information made available to him in circumstances where for reasons which were entirely unexplained, no trust account statements were provided with the information that accompanied the CCK letter dated 7 December 2020, and the bankrupt had not only been obstructive, he had breached his obligation to provide information to the Trustee: s 77 of the Act.

280    It may be accepted that in making the assessment, the Trustee must have acted in good faith, reasonably and rationally. The Trustee may be wrong, but that does not necessarily mean that the Trustee has acted with an absence of good faith or unreasonably or irrationally.

281    There was an allegation of an absence of good faith made in the ASoC. However, that allegation was withdrawn in the applicant’s closing submissions.

282    Accordingly, the question becomes whether Mr Naudi acted reasonably or rationally in assessing the quantum of that income.

283    Although in a different context, in Minister for Immigration and Citizenship v SZMDS [2010] HCA 16; (2010) 240 CLR 611, at [131] Crennan and Bell JJ described the test for illogicality or irrationality as being to ask whether logical or rational reasonable minds might adopt different reasoning or might differ any decision or finding to be made on the evidence upon which a decision is based. Their Honours said:

… if logical or rational or reasonable minds might differ in respect of the conclusions to be drawn from that evidence, the decision cannot be said by a reviewing court to be illogical or irrational or unreasonable simply because one conclusion has been preferred to another possible conclusion.

284    Mr Naudi submits the issue of the assessments was valid and lawful by which I understand that the assessment of the value of the benefit was both reasonable and/or rational.

285    The respondent submits that:

(a)    The Trustee was not bound to accept what had been submitted by the applicant and was also entitled to have regard to other information in his possession: s 139X. I accept that submission for the reasons I have set out above; and

(b)    The Trustee was under no obligation to seek further information from the applicant before proceeding to make the revised CAP assessments, and cannot be criticised for not having done so when the limited information provided was produced, (a) only after examination summonses were issued; and (b) in circumstances where the applicant knew that the information was sought to assess the benefit that he received from legal advice with which he was provided but did not pay for. I accept that submission for the reasons I have set out above.

286    Next, the applicant submits that regarding Mr Naudi’s reference to the assertion in CCK’s letter dated 7 December 2020 that not all invoices on David’s file had been paid, Mr Naudi took no steps to undertake the “undemanding exercise of reconciling invoices to WIP records”. The applicant submits further that notwithstanding the lack of information that showed how invoices were derived and trust account statements, Mr Naudi made no request for any further information and the only information which might conceivably be said that Mr Naudi thought was incorrect was the opening of Richard’s file and the reasons for it.

287    The applicant refers to that part of Mr Naudi’s evidence at T 282.26 where he said, “all of the time, to me, principally relates to legal services being provided to [David].” The applicant asserts that if Mr Naudi were to rely on s 139X to identify incorrect information on any rational or reasonable basis, it would amount to an abdication of Mr Naudi’s responsibility.

288    A number of points may be made about that submission. First, it is simplistic to describe that Mr Naudi thought the opening of Richard’s file and the reasons for it were incorrect. Certainly, that may have raised a suspicion in Mr Naudi’s mind but that is not where the matter rested. The material made available to Mr Naudi, incomplete as it may have been and in the overall circumstances of his dealings with the applicant, caused him to consider that the information provided by the applicant was incorrect: s 139X.

289    Second, it is important to consider the context in which the part-sentence extracted in the applicant’s submissions appears. Whereas it is part of a much longer answer, the context is that Mr Naudi was referring to CCK’s letter dated 7 December 2020: T 282.18 - 27

… So I – sorry, I was also presented with a situation where in my view – and I say this specifically because I’ve been in this court room the whole time – that the way I read Mr Cudmore’s letter was he was trying to assert that the work done under the first code ending in 4 was for David, and all of the work done after that time on the new code ending in 2 was for Richard, Chaya and/or Darisha in some form, one of those parties. So I set about looking through the WIP records together with Tom, Mr Berry, and I ... this just – it appears a nonsense, because all of these times – part of it is a transfer of what was being done under one code to a new code, and all of the time, to me, principally relates to legal services being provided to Mr Bertram.

290    In circumstances where Mr Naudi had considered the time recording entries in the WIP records on more than one occasion, the opening of Richard’s file and the unexplained transfer of WIP from David’s file to Richard’s file, the submission that Mr Naudi abdicated his responsibilities by relying on s 139X cannot be accepted.

291    Next, the applicant submits that Mr Naudi adopted a process whereby he:

(a)    Arrived at a total of the value of the WIP records on both David’s file and Richard’s file (that is, time entries by charge-out rates, and divided into annual periods);

(b)    Treated the WIP result as a non-cash benefit provided entirely and exclusively to the applicant for each CAP; and

(c)    Arrived at a value for the benefit received by the applicant whether under s 139L(1)(a)(v) or (vi).

292    The applicant submits that in adopting that process, Mr Naudi agreed that he made no attempt to identify work entries directly related to Richard or involving work to be done for Richard as opposed to work done for the applicant: T 375.34 - 36. However, Mr Naudi continued in his evidence that notwithstanding that position, nonetheless he made a genuine assessment of the value of the benefit of CCK’s legal services.

293    The applicant adduced no evidence to support his contention that the work on Richard’s file was done for Richard. As I have noted, neither the applicant nor Richard were called and I have drawn a Jones v Dunkel inference accordingly.

294    I accept that Mr Naudi made a genuine assessment of the value of the benefit of CCK’s legal services.

Amounts paid – David’s file

295    CCK’s fees for work done on David’s file were paid for by Darisha. To that extent, the applicant received a benefit in the form of payment of those fees by Darisha who was the provider of the benefit to the value of $26,186.07 as at 24 February 2020: exhibit R17.

296    It follows that the amount of $26,186.07 comprises an expense payment benefit to that value within the meaning of s 20 of the FBTA Act and thereby income of the applicant within the meaning of s 139L(1)(a)(v).

297    Other than the sum of $26,186.07, it not clear how much more (if any) has been paid against outstanding bills on David’s file although, as I have noted, as at 9 December 2020, the balance in the CCK trust account on Richard’s file was $60,000: exhibit R20.

298    In the event Richard and/or Darisha paid CCK’s fees on David’s file in addition to the amounts I have identified, whether directly or by paying money into trust on account of those fees, given that the Trustee considered work done on David’s file was done in relation to the applicant’s bankruptcy, then subject to an adjustment for the District Court costs order with which I deal below, Mr Naudi was correct to conclude that the applicant received an expense payment benefit to that value within the meaning of ss 20 and 23 of the FBTA Act and thereby received income to that value within the meaning of s 139L(1)(a)(v).

299    The applicant has not demonstrated that Mr Naudi erred in law and/or fact.

Outstanding amounts and unbilled work – David’s file

300    The information provided in the 7 December 2020 letter asserted an amount outstanding on David’s file as at 28 May 2019 totalling $26,023.29, whereas CCK’s full bill history – exhibit R17, reveals that as at 24 February 2020, the amount outstanding on David’s file for bills issued to 28 May 2019, totalled $38,871.52 (including GST, office expenses and disbursements) or $34,921 (ex-GST) solely for professional services.

301    In any event, to the extent that invoices remain unpaid on David’s file, Mr Naudi concluded that those amounts comprised a residual benefit under s 45 of the FBTA Act to that value and thereby income of the applicant to that value within the meaning of s 139L(1)(a)(v). He was correct to do so.

302    So too, Mr Naudi concluded that unbilled work on David’s file comprises a residual benefit under s 45 of the FBTA Act to that value and thereby income of the applicant to that value within the meaning of s 139L(1)(a)(v). He was correct to do so.

303    The applicant has not demonstrated that Mr Naudi erred in law and/or fact.

Amounts paid – Richard’s file

304    Mr Naudi concluded that work done on Richard’s file was done in relation to the applicant’s bankruptcy. That conclusion was open to him on the basis of the information available to him.

305    CCK’s fees for work done on Richard’s file were paid for by Darisha to the extent of $30,962.63 as at 24 February 2020. That amount was applied to CCK’s invoice no. 36963 and part payment of invoice no. 37010: exhibit R17. To that extent, the applicant received an expense payment benefit to that value within the meaning of ss 20 and 23 of the FBTA Act and thereby received income to that value within the meaning of s 139L(1)(a)(v).

306    It is not clear how much more (if any) has been paid against outstanding bills on Richard’s file although, as I have noted, as at 9 December 2020, the balance in the CCK trust account on Richard’s file was $60,000: exhibit R20.

307    In the event Richard and/or Darisha paid for CCK’s fees on Richard’s file in addition to the amounts I have identified, whether directly or by paying money into trust on account of CCK’s fees, given that Mr Naudi concluded the work done on Richard’s file was done in relation to the applicant’s bankruptcy, the applicant received an expense payment benefit to that value within the meaning of ss 20 and 23 of the FBTA Act and thereby received income to that value within the meaning of s 139L(1)(a)(v).

308    The applicant has not demonstrated Mr Naudi erred in law and/or fact.

Outstanding amounts – Richard’s file and unbilled work

309    As to Richard’s file, the information provided in the 7 December 2020 letter asserted an amount outstanding on Richard’s file as at 30 October 2020 totalling $58,465.12, whereas CCK’s full bill history: exhibit R17, reveals that as at 24 February 2020, the amount outstanding on Richard’s file for invoices issued to 31 January 2020 totals $40,945.59 (including GST, office expenses and disbursements) or $37,334 (excluding GST) solely for professional services.

310    To the extent the amounts set out in CCK’s letter dated 7 December 2020 in relation to Richard’s file differ from those in the full bill history, that is explicable by a typographic error whereby invoice no. 37288 has been included twice in [1.4] of the 7 December 2020 letter, but attributed to two different amounts such that the invoice numbers that follow do not match with amounts the subject of those invoices.

311    In any event, Mr Naudi concluded that invoices which remain unpaid on Richard’s file comprise a residual benefit under s 45 of the FBTA Act to that value and thereby income of the applicant within the meaning of s 139L(1)(a)(v). He was correct to do so.

312    So too, Mr Naudi concluded that unbilled work on Richard’s file comprises a residual benefit under s 45 of the FBTA Act to that value and thereby income of the applicant to that value within the meaning of s 139L(1)(a)(v). He was correct to do so.

313    The applicant has not demonstrated Mr Naudi erred in law and/or fact.

Work that was alleged to have been written off

314    It was put to Mr Naudi in cross-examination that he had not considered work in the WIP records that had been written off, a proposition with which he agreed.

315    The applicant submits that Mr Naudi ignored the fact that invoices were issued for work periods covered by the WIP entries in amounts less than the amount of the WIP. I proceed on the basis that that submission is directed at a failure by Mr Naudi to account for work that had been written off.