Batty, J.A. v Official Trustee in Bankruptcy

[1993] FCA 1011

l011 , 93

JUDGMENT NO. ........ ........ .. .,..am.*a.

IN THE FEDERAL COURT OF AUSTRALIA	)
SOUTH AUSTRALIAN DISTRICT REGISTRY )	)
)
GENERAL DIVISION	) No. DB 41 of 1990
)
BANKRUPTCY DISTRICT OF THE	) )
NORTHERN TERRITORY	)
RE:
IN THE BANKRUPT ESTATE OF JAMES XBERT BATTY

RECEIVED	JAMES ALBERT BATTY
FEDERAL COURT OF	Applicant

AUSTRALIA

PRINCIPAL

REGISTRY	AND :
OFFICIAL TRUSTEE IN E3ANKRUPTCY

Respondent

EX TEMPORe REASONS FOR DECISION

Coram: von Doussa J.

Date : 15 December 1993

Application to set aside Summons

On 30 November 1993 two summonses were issued by the Registrar under subs.81(1) of the Bankruptcy Act 1966, addressed to the bankrupt and his wife, Mrs Batty, requiring them to appear on 17 December 1993 to give evidence before a Registrar.

previously known as Acacia Investments Pty Limited, and Pacific Pine Plantations Limited ("Pacific Pine") of wh~ch Mrs

The bankrupt was summonsed to give evidence in connection with his affairs; and Mrs Batty was summonsed to give evidence concerning the involvement of her husband in the management of Pacific Trade Consultants Pty Limited ("Pacific Trade"),

Batty was a director, and her business relationship with the bankrupt.

Application has been made by the bankrupt and his wlfe to set aside those summonses. The grounds stated in the supporting affidavit are said to be that the summonses have been issued for reasons which are oppressive, vexatious and unfair, or for an improper purpose.

It is necessary to look briefly at the hlstory of the matter. A sequestration order was made against the bankrupt on 24 August 1990. A statement of affairs was filed by hlm on 21 September 1990. In the ordinary course, pursuant to s.149(3) of the Bankruptcy Act he would have become entitled to an automatic discharge on 21 September 1993. However, on 9 August 1993, the Official Trustee, being the trustee of the bankrupt estate, filed and served a notice of objection to the discharge on the basis that the bankrupt had been involved in the management of a corporation, namely Centennial Gold, NL.

The effect of the notice of objection is to extend the period	of the bankruptcy pursuant to s.149A for a further period of
five years, to 21 September 1998.
The ground of objection relied upon is that provided in s.l49D(l)(b). The decision to issue the notice of objection has been challenged by the bankrupt in the Administrative Appeals Tribunal ("the AAT"). The application to the AAT was made on 13 September 1993. The bankrupt and a Mr Chrisp have

provided written information to the AAT concerning the involvement of the bankrupt in Centennial Gold NL. The assertions in those written statements are to the effect that the bankrupt had no involvement in the management of the company at any stage after his bankruptcy and, indeed, that as the company had been virtually moribund from the time of the share market collapse in October 1987, there was no management occurring at all.

A conference was held in the AAT between the Officlal Trustee and the bankrupt on 28 October 1993. That conference was adjourned and was to resume on 23 November 1993. Before the adjourned hearing, a statement of reasons pursuant to s.37 of the Administrative Appeals Tribunal Act 1975 was prepared by the Official Trustee and lodged wlth the AAT. I assume a copy was made available to the bankrupt.

In those reasons information is provided that indicates

inquiries by the Official Trustee showed that the bankrupt had

companies, including Pacific Trade, his directorship of which

at the date of his bankruptcy also been a director of other

continued according to the records of the Australian Securities Commission ("the ASC") for some time after the bankruptcy. Further, the ASC records showed that the company Pacific Pine had been incorporated on 10 September 1992, with the bankrupt's wife being one of the directors. It is said that the inquiries showed that the bankrupt was assisting with the preparation of a prospectus for the listing of Pacific

Pine on the Australian Stock Exchange.

It will be noted that although the statement of reasons refer to other companies besides Centennial Gold NL, the notice of objection filed on 9 August 1993, only referred to that company. However, at the resumed conference hearing before the AAT on 23 November 1993, the bankrupt was provided with a further Notlce of Objection dated 22 November 1993, which asserted that after the date of his bankruptcy he had continued to manage corporations, namely, Pacific Trade, Pacific Pine and Lasseter Gold NL. I should mention that Lasseter Gold NL was also mentioned in the statement of reasons under s.37.

On 23 November 1993, application was made to the Registrar of this Court to issue the two summonses in respect of which application is now made to set them aside. A supporting affidavit from the Official Trustee sworn that day was filed, indicating that the subject matter of the inquiry

possible involvement in the management of Pacific Trade and	to be directed to the bankrupt's wife was the bankrupt's	Pacific Pine.
The application to set aside the summonses is based upon inferences which the Court is asked to draw from the outline of the facts which I have given. In particular, because of the written statements given to the AAT by the bankrupt and Mr Chrisp, it is contended that the Court should infer that the

Officlal Trustee realised there was no substance in the first Notice of Objection; therefore he sought to bolster his position by relying on the extension of time gained under the first Notice of Objection to examine the bankrupt and his wife under s.81, to obtain evidence that would support the second Notice of Objection.

It is further asserted that there is no substance in the second Notice of Objection. That argument is based on s.224 of the Corporations Law to the effect that upon the bankrupt becoming insolvent, he ceased to be a director of the relevant companies, and on the fact that there is no evidence mentioned by the Official Trustee in the statement of reasons, apart from the ASC records, that would suggest that he was xn any real sense involved in the management of a company such as to bring him within the definition of a director under s.60 of the Corporations Law.

It is contended therefore, that the real purpose of the Official Trustee in issu~ng these summonses is to embark on a	fishing expedition to explore the possibility that the
bankrupt has been involved in the management of Pacific Trade and Pacific Pine, so as to support the second of the Notices of Objection. The Court was asked to infer that that was being done because the Official Trustee recognised that the first Notice would fail as soon as the AAT considered the merits of the first Notice of Objection.

I am informed from the bar table, and accept as a fact, that there is now a second application before the AAT challenging the decision to issue the second Notice of Objection.

In Karounos v The Official Trustee (1988) 80 ALR 626, at p.632 and following, the Full Court considered the principles which govern the operation of s.81 of the Bankruptcy Act 1966. I read principles numbered 8 and 9:

"(8) Discharge or adjournment of a summons maybe

appropriate where there is litigation pending or

likely to be instituted and it is alleged that:

(a) the summons is being improperly sought as an aid to that litigation, (cf Re Northern Australian Territory CO, supra; Re Bletchley Boat CO Ltd [l9741 1 WLR 630 at 637, where ordinary procedures o f discovery,

interrogatories, or subpoenas would be fairer

and more appropriate, or

(b) it would be more just and equitable to defer the examination under section 81 of the Act until the particular piece of litigation has been disposed of.

(9) If such an application is made to the court by a set aside or adjourned to a more convenient time. It is not merely deciding whether on the material before the Registrar, he correctly exercised his discretion." person summoned the court must consider afresh on

the material before it whether the summons should be In re Csidei (1979) 28 ALR 381, Lockhart J, also dealing with the principles governing the issue of a summons under s.81, said at 387:

"The very fact that the order for examination is made ex

parte; that the examination is a compulsory process with

penal consequences for failing to attend or to improperly answer questions, or to produce documents; and that the transcript of evidence or notes of examination may be used against the witness in proceedings under the Act, all point to the conclusion that the court or the registrar has a discretion to issue the summons . . . and that in the exercise of that discretion the court or the registrar must 'be astute to prevent any oppressive, vexatious or unfair use of this extraordinary process'".

A number of authorities for that proposition are then cited. It seems to me that the issue that I have to decide here is whether there is unfairness in the use which is proposed to be made of the s.81 summons.

It is true, as Mr Gretsas for the Official Trustee was at pains to point out, that the power under s.81 is a very wlde one and one that is to be exercised primarily having regard to the benefit that may result to creditors.

The summonses in their terms are not confined to the
subject matter of management in the companies Centennial Gold

NL, Pacific Trade and Pacific Pine. However, I think it is

reasonable for the Court to infer that the purpose of the
examinations proposed is to investigate just that very

question. I think that inference ought be drawn in the circumstances from the temporal sequence of events which have occurred starting with the first Notice of Objection, the conference in the AAT, the filing of the statements by the bankrupt in Mr Chrisp, the subject matter of those statements, then followed by the second Notice of Objection and a day later by the applications to issue the summonses. However, that inference does not resolve the question, whether the use of the s.81 process, to investigate the true facts, is unfair.

Had the Official Trustee investigated this question at a point in time somewhat earl~er than investigations apparently started, and before the critical date of three years from the filing of the statement of affairs was looming large, a s.81 summons could have been issued to the bankrupt and another to his wife to investigate the very matters that it has now sought to investigate. There is nothing unfair or improper about pursuing that topic. The only question of unfairness which could arise is by reason of the particular timing of the issue of the summons in the circumstances of this case.

In considering the question of unfairness it is relevant, in my opinion, to look at what would happen if I were to dismiss these summonses or to stand them adjourned until after the AAT hearings. The consequence of the Notices of Objection would remain unaltered. The bankrupt would remain bankrupt by

virtue of the extended period of the bankruptcy which flows	from the notices. Those consequences will continue until the
date in 1998 or until the AAT sets aside both Notices of Objection.
The hearings before the AAT are rehearings on the merits of the decisions to file the Notices of Objection. The underlying merits of those Notices concerns whether or not the bankrupt was involved in the management of the companies. So

that very issue will have to be examined in detail before the AAT. That examination will involve at least the bankrupt giving evidence on the relevant topics and if the bankrupt says he was not involved it is hlghly probable that he would need to call his wlfe to substantiate his evidence, as she has been a director of those companies, or some of them, at relevant times and should therefore know what part the bankrupt played in the management of them, if any.

So even if the summonses are set aside, the very matters that are to be pursued will be pursued in proceedings in which the Official Trustee is one of the parties entitled to ask questions in the AAT.

The Official Truscee 1s an independent statutory officer who has statutory functions to fulfil. The Court will assume in the ordinary case that those functions will be discharged fairly and dispassionately. If the evidence adduced on a s.81 hearing showed that the Notices of Objection were in fact

without substance, then it can be expected that the Notlces of

Objection would be withdrawn. Counsel for the Official

Trustee has said as much today. So in a sense there may be advantages to the bankrupt and to the administration of justice to have the summonses proceed so that the real issue can be investigated in these proceedings now, and hopefully save time in the AAT. That however is not necessarily the complete answer to the situation, when the Court has to be certain that the particular way in which issues are being

raised is not causing unfairness in a procedural or other
sense to the bankrupt and to the witness summonsed.

I asked the question of counsel for the bankrupt and his wife whether they were ready to deal with the topics that are intended to be investigated at the proposed return dates of the summonses, and was informed that they were. So no issue of lack of time to prepare arises. When I first looked at this application I thought there could be an element of unfairness in using the s .81 proceedings to, as it were, bolster proceedings in the AAT. However, upon reflection I do not think there is any unfairness in this procedure.

It seems to me to be an appropriate use of statutory
power to investigate a matter which fairly must be

investigated. It is unfortunate perhaps that it was not

not a matter that goes to the fairness of the issue and	investigated sooner but the lateness of the investigation is
proposed use of these summonses. As I have pointed out, even if the summonses are set aslde, the consequences of the late attention to the matter by the Official Trustee will continue unaltered.

In the circumstances I decline to set aside either of the summonses. I make no order as to costs.

I certify that this and the

10 preceding pages are a

true copy of the Reasons for Judgment of Mr Justice von Doussa

Associate: Dated: 15

Counsel for the applicant	: M r Sinclair
Solicltor for the applicant	: Knox & Hargrave
Counsel for the respondent	: W G Gretsas
Solicitor for the respondent	: Australian Goverrment

Solicitor

Date of hearing : 15 December 1993