Barlaw Pty Ltd v Crouch

Case [2013] FCA 961

FEDERAL COURT OF AUSTRALIA

Barlaw Pty Ltd v Crouch [2013] FCA 961

Citation: Barlaw Pty Ltd v Crouch [2013] FCA 961
Appeal from: Barlaw Pty Ltd v Crouch [2011] FMCA 384
Parties: BARLAW PTY LTD TRADING AS BARRAK LAWYERS v NICHOLAS CROUCH AS TRUSTEE OF THE ESTATE OF MARK ANTHONY BARTOLO
File number: NSD 1387 of 2011
Judge: NICHOLAS J
Date of judgment: 25 September 2013
Catchwords:

APPEAL AND NEW TRIAL – appeal against order made by primary judge accepting registered trustee’s resignation pursuant to s 180 of Bankruptcy Act 1966 (Cth) (the Act) – where appellant major unsecured creditor – where bankrupt’s family members claimed to be secured creditors – where appellant alleged registered trustee lacked independence, was actually biased and partial to interests of bankrupt and bankrupt’s family – where no challenge to primary judge’s rejection of such allegations – whether open to appellant to contend that registered trustee should have been removed from office pursuant to s 179 of the Act on account of reasonable apprehension of bias – whether open to appellant to advance such contention on appeal – whether such contention advanced below – whether appellant should be granted leave to advance such contention on appeal – possibility that other evidence might have been called by registered trustee – other relevant considerations – interests of justice.

Held:  Leave refused.

BANKRUPTCY AND INSOLVENCY – where appellant alleged registered trustee guilty of misconduct on multiple grounds – where primary judge rejected such allegations – where registered trustee offered to resign after appellant commenced proceeding seeking order for removal – where appellant also sought order denying registered trustee indemnity – where primary judge rejected allegations of misconduct – where primary judge accepted registered trustee’s resignation – whether registered trustee’s offer to resign should have been rejected by primary judge and order for removal made instead – whether primary judge should have made order denying registered trustee indemnity – whether primary judge erred in refusing relief sought by appellant.

Held:  No material error by the primary judge – appeal dismissed.   
Legislation: Bankruptcy Act 1966 (Cth) ss 64, 64D, 64Z, 84, 101, 122, 179, 180, 188, 189AAA, 207
Cases cited:

Balfour v Balfour [1919] 2 KB 571
Branir Pty Ltd v Owston Nominees Pty Ltd (No 2) (2001) 117 FCR 424
The Commonwealth v Verwayen (1990) 170 CLR 394
Coulton v Holcombe (1986) 162 CLR 1
House v The King (1936) 55 CLR 499
Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar The Diocesan Bishop of The Macedonian Orthodox Diocese of Australia and New Zealand (2008) 237 CLR 66
Rondo Building Services Pty Ltd v Starkey [2005] FMCA 275
Suttor v Gundownda (1950) 81 CLR 418
Sydneywide Distributors Pty Ltd v Red Bull Australia Pty Ltd (2002) 55 IPR 354
University of Wollongong v Metwally (No 2) (1985) 59 ALJR 481
Wingate Marketing Pty Limited v Levi Strauss & Co (1994) 49 FCR 89
Young v Queensland Trustees Limited (1956) 99 CLR 560

Young PW, Declaratory Orders

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Barlaw Pty Ltd v Crouch [2013] FCA 961
Case
[2013] FCA 961
Decision Date

CaseChat Overview and Summary

In Barlaw Pty Ltd v Crouch, the appellant, Barlaw, sought to appeal against the decision of the primary judge who had accepted the resignation of Mr Crouch, the registered trustee of the bankrupt's estate. Barlaw alleged that Mr Crouch was biased and had acted improperly, which led to the appellant's contention that he should have been removed from office rather than allowed to resign. The case also involved disputes over claims by Mr Bartolo's family members to be secured creditors and allegations that Mr Crouch had acted contrary to the interests of other creditors.

The court had to determine whether it was open to Barlaw to argue on appeal that Mr Crouch should have been removed from office due to an apprehension of bias, despite the fact that this argument was not raised during the original proceedings. The court also needed to assess whether the primary judge made any material errors in rejecting Barlaw's allegations of misconduct against Mr Crouch and in accepting his resignation.

The court held that Barlaw could not raise the issue of apprehended bias on appeal as it was not argued below, and therefore, Barlaw was not entitled to make this contention for the first time on appeal. Furthermore, the court found that the primary judge did not make any material errors in dismissing Barlaw's claims of misconduct against Mr Crouch. The court concluded that the primary judge's decision to accept Mr Crouch's resignation was not erroneous, and therefore, the appeal was dismissed.

The court ordered that the appeal be dismissed, that Barlaw pay the costs of the appeal and the costs of the proceeding below, and that Mr Crouch be granted liberty to apply for an order authorizing the release of any money paid by Barlaw to the Registrar by way of security for costs of the appeal.

Orders

Orders of the court

1. The appeal be dismissed.

2. The appellant pay the respondent’s costs of the appeal and the costs of the proceeding below.

3. The respondent have liberty to apply on 7 days’ notice for an order authorising the release to the respondent of any money paid by the appellant to the Registrar by way of security for costs of the appeal.

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

Background

Background to the litigation

Proper consideration of the appeal requires close analysis of the history of the FMC proceeding, the relief claimed, the evidence called and the submissions that were made to the primary judge. I say this because Mr Crouch contends, with justification, that Barlaw has sought to raise various matters that were not argued below, and which it is not open to Barlaw to raise in its appeal. BACKGROUND TO THE FMC PROCEEDING On 6 August 2010 Barlaw obtained a judgment against Mr Bartolo for $184,511.31 in the District Court of New South Wales. This was the amount owed by Mr Bartolo to Barlaw in respect of unpaid legal fees after allowance was made for a payment by Mr Bartolo to Barlaw on 24 June 2010 in the amount of $44,597.54. The latter payment is of particular relevance because, as will be seen, one of the complaints made by Barlaw against Mr Crouch is that he made a demand for the repayment of that amount on the basis that it was caught by the operation of s 122 of the Act in circumstances where, Barlaw contends, Mr Crouch had no reasonable grounds for believing that the section applied. Barlaw caused a bankruptcy notice to be issued that was served upon Mr Bartolo. The bankruptcy notice was not complied with by Mr Bartolo. The date of the act of bankruptcy was 30 August 2010. Barlaw caused a Creditor’s Petition to be filed on 31 August 2010 returnable before the Federal Magistrate’s Court of Australia (the FMCA) on 6 October 2010. On the day before the return date, Mr Bartolo, then represented by Mr Chenoweth, solicitor, of O’Neill Partners, obtained an ex parte order staying enforcement of the judgment obtained by Barlaw against Mr Bartolo. On 15 October 2010 the notice of motion seeking the stay (or an extension of that which had been granted) was dismissed by Judge Truss. Her Honour also made an order that Mr Bartolo pay the costs of the application on an indemnity basis. In the meantime, the Creditor’s Petition issued by Barlaw had apparently been stood over until 19 October 2010. On 18 October 2010, the day prior to the further return of the Creditor’s Petition, Mr Chenoweth, no doubt acting on Mr Bartolo’s instructions, consulted Mr Crouch about appointing him as controlling trustee of Mr Bartolo’s affairs pursuant to s 188 of the Act. On the same day Mr Bartolo signed an authority appointing Mr Crouch as his controlling trustee. By reason of s 189AAA of the Act, the signing of this authority resulted in a stay of the Creditor’s Petition until the earlier of the conclusion or the adjournment of the creditors’ meeting called pursuant to s 188 of the Act. This led to the Creditor’s Petition being adjourned yet again until 23 November 2010. Mr Bartolo’s Statement of Affairs was prepared and filed on or about 22 October 2010. Mr Barrak, the sole director and shareholder of Barlaw, a solicitor, and the solicitor for Barlaw in the FMC proceeding and in this appeal, obtained a copy of the Statement of Affairs (excluding Part A) on or about that date.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

It will be necessary to return to the matter of the Quakers Hill property later in these reasons. However, the proposition that, in agreeing to sell Mr Bartolo’s half share to Mrs Bartolo on the terms agreed, Mr Crouch was accepting that the claims of the related party creditors were valid is based upon a misconception: viz Mr Bartolo has, or at least had, substantially more than $100,000 worth of equity in the Quakers Hill property even if the related party claims are assumed to be invalid. This view of Mr Bartolo’s equity position in relation to the Quakers Hill property is not supported by the evidence. THE PRIMARY JUDGE’S REASONS FOR JUDGMENT After referring to various background facts the primary judge observed, quite correctly given what had been put to him, that the essential ground upon which Barlaw sought to have Mr Crouch removed as trustee was that Mr Crouch had “shown an undue partiality to the bankrupt (Mr Bartolo) and creditors said to be closely related to him, to the disadvantage of other creditors …”. Later in his reasons, and after referring to the evidence, particularly the affidavit evidence of Mr Barrak, the primary judge said:[29]Virtually from the date of the appointment, Mr Barrak, the principal of Barlaw, had grave reservations about the debtor’s conduct. He believed he had information available to him which established that, contrary to statements made in the debtor’s statement of affairs, debts allegedly owed by Mr Bartolo to related parties were not genuine. Further, he apparently believed he had information showing that the debtor had been engaged in conduct whereby assets were disposed of prior to the appointment of the controlling trustee. For reasons which are not known, Mr Barrak did not share that information with Mr Crouch. Further, and notwithstanding the request by the trustee that creditors lodge their statements of claim for the purpose of attending and voting at the creditor’s meeting not less than 24 hours before that meeting, Barlaw did not submit its claim documents until 7.09pm on the evening before the meeting was due to be held. Those documents exceeded 100 pages in length. Mr Crouch asserts that delivery of that material to the trustee’s office at that time, and in such proximity to the creditor’s meeting, caused substantial disruption in the trustee’s preparations for the meeting.[30]The trustee had been provided with details of the claims to be made by the various related parties. He had spent some time, before 19 November 2010, reviewing that material and, in respect of one aspect of the claims by the debtor’s parents, had sought legal advice. Prior to the meeting commencing Mr Crouch had formed the view that he would admit the related party claims in full although no occasion for formally deciding that question would arise until the meeting was underway [See s.64ZA(8) of the Bankruptcy Act].[31]As it happened, the trustee was never called upon to formally rule upon the claims of the related parties or to make a decision as to whether they should or should not be admitted for the purposes of voting at the meeting. That is because the statements of claim which had been lodged pursuant to s.64D of the Bankruptcy Act were withdrawn before the question of any ruling arose. Thus, the debtor’s proposal for a PIA failed, and the only resolution, apart from a resolution as to fees, which was passed at the meeting was that the debtor’s affairs no longer be subject to control under Part X of the Bankruptcy Act.[32]Although there was no decision made by the trustee at the meeting, Mr Barrak formed an adverse view of Mr Crouch’s conduct and in particular of his indication that he was proposing to accept the related party claims. Mr Crouch submits that, viewed objectively, no flaw can be detected in the manner in which he dealt with the claims (both of Barlaw and of the related parties) nor in respect of his, admittedly preliminary, view about those claims. However, in Mr Crouch’s view, one thing is clear; the adverse view formed by Barlaw has infected Mr Barrak’s assessment of every other aspect both of the controlling trusteeship and the bankruptcy administration.

Ratio Decidendi

Legal Principle Established

Even if the assertions made by Mr Barrak in the correspondence concerning Mr Crouch’s contact with ITSA after his resignation are correct, the further evidence could only be relevant to grounds of appeal no longer pressed (actual bias) or grounds of appeal raising an issue not run below and which Barlaw has been refused leave to rely upon on appeal (reasonable apprehension of bias). The application to call further evidence is therefore refused. MR CROUCH’S REMUNERATION There are some additional observations to make concerning Barlaw’s application for an order that would have, if it had been made by the primary judge, or made on appeal, deprived Mr Crouch of his entitlement to remuneration. Given that Barlaw failed to establish that Mr Crouch was guilty of misconduct (including, but not limited to, acting, or continuing to act, as trustee of Mr Bartolo’s estate in circumstances where he was actually biased) there is, of course, no occasion for making any such order. However, even if Barlaw had been permitted to argue that Mr Crouch should not have acted, or continued to act, as Mr Bartolo’s trustee in bankruptcy on the basis that his conduct, whether engaged in prior to or following his appointment, may have given rise to a reasonable apprehension of bias, and that Mr Crouch should have resigned or not accepted appointment in the first place, I still do not think an order depriving him of his entitlement to remuneration would be an appropriate order to make. In this regard, Barlaw’s submissions did not explain why it would be appropriate to make such an order simply because a trustee found to be innocent of any misconduct decides to resign due to a perceived conflict of interest or, as Barlaw would put it, because of a reasonable apprehension of bias. Of course, that is not why Mr Crouch resigned, but the point I make is that even if Barlaw had relied upon apprehended bias below, and even if it had been successful on that issue, it does not follow that an order for removal would be appropriate in circumstances where the trustee had already offered to resign, much less an order depriving the trustee of his or her remuneration for work done prior to the Court accepting such resignation. DISPOSITION The appeal will be dismissed with costs. As I previously mentioned, the primary judge did not consider the question of who should pay the costs of the FMC proceeding. Both Barlaw and Mr Crouch invited me to determine that question. In the FMC proceeding Barlaw alleged that Mr Crouch was unsuitable to act as trustee of Mr Bartolo’s estate because Mr Crouch was biased and had been guilty of misconduct. That case was rejected by the primary judge in a judgment that has been upheld on appeal. I am mindful that Mr Crouch resigned as trustee. However, the reasons for him doing so did not involve any concession on his part that he was biased or that he was guilty of any misconduct. In my view the costs of the FMC proceeding should be paid by Barlaw.