Baker, J.A. v The Official Trustee in Bankruptcy

[1990] FCA 565

Re: JAMES ANDREW BAKER
Ex parte: THE OFFICIAL TRUSTEE IN BANKRUPTCY; ART HOLDINGS PTY. LTD. AS
TRUSTEE OF THE CONTEMPORARY ART TRUST and GOODGLINT PTY. LTD. (now known as
The Contemporary Arts Collection Limited)
No. NB72 of 1990
FED No. 565
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA

BANKRUPTCY DISTRICT OF THE SOUTHERN DISTRICT OF THE STATE OF QUEENSLAND
GENERAL DIVISION
Pincus J.(1)

CATCHWORDS

Bankruptcy - question as to title of property said to belong to bankrupt - whether trustee bears onus in regard to the ownership of such property - whether trustee required to plead basis on which asserts title and if so whether required to plead before an opportunity to examine the bankrupt.

HEARING

BRISBANE

#DATE 27:9:1990

Counsel for the applicant: Mr. C. Newton
Solicitors for the applicant Australian Government Solicitor

Counsel for the respondent: Mr. J.D. Batch
Solicitors for the respondent: George Hillhouse and Co.

ORDER

The application made on behalf of the respondents for an order that the trustee deliver a statement of claim be adjourned to a date to be fixed, to be brought on for further hearing on reasonable notice.

NOTE: Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules.

JUDGE1

This matter was before me a few days ago when counsel argued two matters. One was whether the Official Trustee, or someone else, bore an onus with respect to the possession of or ownership of the works of art, and the second one was whether there should be an order for delivery in the near future of a statement of claim.

1. I considered those questions and formed views about them and prepared reasons. Since I did that, as I mentioned, Mr. Batch contacted the associate and asked for a time to be fixed for the making of further submissions, which I heard this morning. Although I found the further submissions and material helpful, I think that they do not affect the reasons I have prepared and I will deliver them now.

2. Mr. J.A. Baker is a bankrupt, having presented his own petition under the Bankruptcy Act 1966 on 16 January 1990; I am not aware of the date on which it was accepted. On 9 August 1990, the Official Trustee applied ex parte for the issue of search warrants and injunctions relating to certain works of art and other chattels. That application was successful, and in consequence of execution of the warrants, some property was seized including a few works of art. On 28 August 1990, I was told by counsel that it had been agreed that the balance of the works in question (of which there is a large number) were to remain in the places in which they were then held and be catalogued. I was told this morning by counsel that there is no agreement as to whose possession they are deemed to be in. The trustee says he needs time to investigate the affairs of the bankrupt relating to these works of art. Mr. Batch, who appeared as counsel for the bankrupt and also for two companies, Art Holdings Pty. Ltd. and Goodglint Pty. Ltd., argued that the trustee should be required to deliver a statement of claim setting out, at least in a general way, the bases on which the trustee asserts that he has a title to any of the works of art. Mr. Newton, counsel for the trustee, does not concede that there is any burden on the trustee to establish a proposition at this stage and says that, in any event, no pleading should be required to be delivered until the trustee has had the opportunity to examine the bankrupt; dates have been set aside for that purpose.

3. The first question is as to the burden of proof. Mr. Batch has foreshadowed an application to set aside the order which I made on 14 August last, but has not yet explained in detail the basis of that application. It is undesirable, the matter not having been argued, to discuss that order, as to do so might seem to prejudge the foreshadowed application to set it aside. Mr. Batch has also informed me this morning that his side is already considering the possibility of asking that I arrange to have another judge hear any application to set the matter aside. He has not asked that I do that, and I do not propose to say anything more about it at present.

4. The ordinary rule is that possession raises a presumption of title in the possessor so that any person seeking to establish title to property in the possession of another carries the burden of proof: Gatward v. Alley (1940) 40 SR NSW 174. If it were shown that, immediately before the warrants were executed, the works were in the possession of persons other than the bankrupt, the onus would seem to lie upon the trustee to establish title against them. It seems plain, however, that no finding could be made as to whether or not the second or third respondents had possession of any of the property in question at any particular time, on the information I presently have. On 15 August, solicitors now instructing counsel for the respondents, wrote a letter saying in effect that the works are "owned by persons other than the person referred to" in one of the warrants; those persons were not identified in the letter. It may eventually emerge that one of the second or third respondents, or perhaps both of them, or some other person, had possession of the works immediately before execution of the warrants, but that is not presently known, as I have mentioned. The question of possession of chattels lying in a building can be a difficult one and all that one can say about the matter is that the works were not, immediately before the execution of the warrants, in the possession of the trustee.

5. I would add that in some cases of this sort the burden of proof may be affected by consideration of whether the trustee had any means of knowing the facts; an old case illustrating this principle is Re Dickson 101 ER 433 per Ashhurst J. at 435.

6. Although, for the reasons I have tried to explain, it is inappropriate to determine whether or not the trustee carries an onus of proof as against the second and third respondents, I am of the opinion that the course suggested by Mr. Batch is the convenient one - i.e. that the trustee should, at some stage, deliver a pleading setting out the basis or bases of his claim to such of the works as he desires to claim. In saying this, I do not express or imply any opinion as to whether or not the second or third respondent has any interest in the works, or ever had possession of them. As I have mentioned, the question of possession of works lying in a building can be difficult, particularly so when the alleged possessor is said to be a company. That point has not been argued. Mr. Batch also submitted that if it were impossible for the trustee at this stage to plead his case in detail, then he should at least be required to plead in such a way as to show the general grounds of his claim.

7. I am of the view that delivery of such a pleading would not be convenient; the trustee's difficulty is not likely to be merely one of giving particulars but of determining which, if any, of these numerous works should be claimed. That is, I agree with Mr. Batch that the trustee should, at an appropriate time, deliver a statement of claim but I do not agree with him that it should be one merely setting out the general grounds of the claim.

8. The other question which was argued was whether a pleading should be required before the trustee has an opportunity to examine the bankrupt concerning the works in question. There is nothing wrong in principle with the trustee's using an examination to obtain evidence with a view to possible pursuit of a claim to property. In Hamilton v. Oades (1988-1989) 166 CLR 486, the High Court decided that under the Companies Code, a liquidator may examine a person actually charged with criminal offences, even where the answer might tend to incriminate that person. In explaining the reason for this view, the Chief Justice pointed out that an examination on behalf of a liquidator under the Companies Code serves two important public purposes, one of which is:
   

"... to enable the liquidator to gather information which would assist him in the winding up; that involves protecting the interests of creditors". (476)

The Court held in that case that orders could be made to prevent an abuse of process.

1. Here, there is no question of conflict between the requirements of criminal justice and the desirability of enabling the trustee to investigate fully. What appears to be suggested is that the trustee should not be allowed to defer framing his case until he has the advantage of such information as the examination of Mr Baker and perhaps others may elicit, with reference to the ownership of these works, which are said to be of considerable value. Mr. Newton pointed out that the trustee had commenced no suit relating to the property in question and that if he were forced to do so, that might inhibit the process of examination. According to Williams on Bankruptcy (19th Edition) p.114:
   

"In the absence of special circumstances, such as refusal to give reasonable information, a trustee who has already commenced an action against a person will not be allowed to examine him".

1. Whether or not that correctly states the law, it seems to me, that in the circumstances of this matter, to require the trustee to deliver a pleading at present would be unjust as well as inconvenient. On the evidence I have in this case, the facts relating to these works appear to be extremely complicated. Mr. Batch does not even suggest that the trustee could now have enough information to plead the matter properly. The stage at which the pleading should be delivered is therefore a matter which I do not propose to determine at present, other than to say it seems to me plain it should not be delivered at this stage.

2. In my view it is desirable to make an order to give effect to the views I have set out. One purpose of doing so is to enable either side to apply for leave to appeal.

3. The order will be that the application made on behalf of the respondents for an order that the trustee deliver a statement of claim be adjourned to a date to be fixed, to be brought on for further hearing on reasonable notice.