Boensch v Pascoe - [2006] FMCA 1396

FEDERAL MAGISTRATES COURT OF AUSTRALIA

BOENSCH & ANOR v PASCOE

[2006] FMCA 1396

BANKRUPTCY – PRACTICE & PROCEDURE – Application to transfer proceedings to the Federal Court – application dismissed.

Bankruptcy Act 1966 (Cth), ss.120, 121
Evidence Act 1995 (Cth), s.125
Federal Magistrates Act 1999 (Cth), s.39
Federal Magistrates Court Rules 2001 (Cth), r.8.02

Bond v Tuohy (1995) 56 FCR 92
Griffin v Pantzer [2004] FCAFC 113
Marchesi v Apostoulou [2006] FCA 1122
Milroy v Lord (1862) 4 De GF & J 264
R v Dunwoody [2004] QCA 413
Re Bond; ex parte Ramsay (1994) 54 FCR 394
Re Steele; ex parte Official Trustee in Bankruptcy v Clayton Utz (1994) 48 FCR 236
Worrell v Woods (1999) 90 FCR 264

First Applicant:

FRANZ BOENSCH

Second Applicant:

SABINE BOENSCH

Respondent:

SCOTT DARREN PASCOE

File Number:

SYG1995 OF 2006

Judgment of:

Lloyd-Jones FM

Hearing date:

14 September 2006

Delivered at:

Sydney

Delivered on:

25 September 2006

REPRESENTATION

Counsel for the Applicants:

Mr M Heath

Solicitors for the First Applicant:

Mr M Wright of Pavuk Lawyers

Solicitors for the Second Applicant:

Mr D Rutherford of
Shanahan Tudhope Lawyers

Counsel for the Respondent:

Mr B Skinner

Solicitors for the Respondent:

Ms K McLean of McLean & Associates

ORDERS

The amended interim application filed on 8 September 2006 is dismissed.
Costs to be reserved.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
SYDNEY

SYG1995 of 2006

FRANZ BOENSCH

First Applicant

SABINE BOENSCH

Second Applicant

And

SCOTT DARREN PASCOE

Respondent

REASONS FOR JUDGMENT

The Proceedings

An interim application was filed in the Federal Magistrates Court of Australia by Mr Franz Boensch (“the bankrupt”), the first applicant for interim orders, and Ms Sabine Boensch, the second applicant for interim orders, on 6 September 2006. Mr and Ms Boensch also filed an amended interim application on 8 September 2006 seeking the following order:
a)An order pursuant to s.39(2) of the Federal Magistrates Act 1999 (Cth) that the whole of the proceedings including any interlocutory application be transferred to the Federal Court of Australia.
Mr Boensch was made bankrupt pursuant to a sequestration order dated 23 August 2005. Mr Scott Darren Pascoe (“the trustee”), the applicant in the main proceedings and the respondent in these interim proceedings, was appointed as trustee to the bankrupt estate of Franz Boensch on 25 August 2005 by the Insolvency and Trustee Service, Australia. During Mr Pascoe’s administration, he undertook investigations into the examinable affairs of the bankrupt. The bankrupt, with his former wife Sabine Boensch, are the registered proprietors of a property being the whole of the land being contained in a certificate of title, Volume 7366 Folio 5, and commonly known as 255 Victoria Road, Rydalmere, New South Wales (“the Rydalmere property”). The property was acquired by Franz and Sabine Boensch on or about 16 August 1991. Documents obtained by Mr Pascoe in the course of his investigations reflect that the bankrupt sought advice in relation to the effect that a family trust would have on a writ of execution issued by a creditor against him.(Affidavit of Scott Darren Pascoe sworn on 17 July 2006)
In or about April or May 1998, an application was made to the Family Court of Australia for consent orders regarding Franz and Sabine Boensch. In April 1998, an agreement was apparently reached Franz and Sabine Boensch in relation to child support. On or about 18 May 1998, the parties executed orders effecting a property settlement between them. A transfer effecting transfer of the Rydalmere property from joint names into the sole name of Mr Boensch was executed on or about 9 June 1999.(Affidavit of Scott Darren Pascoe)
On or about 23 August 1998, Mr Boensch purported to enter into and execute a Memorandum of Trust. At the time of entry into this document, the transfer pursuant to the terms of the Family Law orders had already been signed and the orders of that Court entered. Therefore Sabine Boensch did not have any estate or interest in the Rydalmere Property, other than a legal estate pending the registration of the transfer executed on or about 9 June 1999. A further transfer effecting transfer of the Rydalmere Property from the joint names into the sole name of Mr Boensch was executed on or about 21 March 2004.(Affidavit of Scott Darren Pascoe)
On 19 July 2006, the trustee filed an application in the Federal Magistrates Court seeking the following orders:
1.A declaration that the document purporting to be a Memorandum of Trust dated 23 August 1999 executed by each of the respondents is of no force or effect at law or in equity so as to convey any interest in the property known as 255 Victoria Rd Rydalmere for the purposes set forth therein.
2.A declaration that the document entitled Deed of Trust dated 18 March 2004 executed by each of the respondents is of no force or effect at law or in equity so as to convey any interest in the property known as 255 Victoria Rd Rydalmere for the purposes set forth therein.
3.A declaration that the document entitled Transfer dated 21 March 2004 entered into between the respondents as transferor and the first respondent as transferee is of no force or effect at law or in equity.
4.In the alternative, a declaration pursuant to section 121 of the Bankruptcy Act 1966 that the document entitled Memorandum of Trust dated 23 August 1999 is void as against the applicant as trustee of the property of the first respondent.
5.In the alternative, a declaration pursuant to section 120 of the Bankruptcy Act 1966 that the document referred to in paragraph 1 above being the document entitled Deed of Trust dated 18 March 2004 executed by each of the Respondents is void as against the applicant as Trustee of the Property of the first respondent.
6.In the alternative, a declaration pursuant to section 121 of the Bankruptcy Act 1966 that the document entitled Deed of Trust dated 18 March 2004 executed by each of the Respondents is void as against the applicant as Trustee of the Property of the first respondent.
7.In the alternative, a declaration pursuant to section 120 of the Bankruptcy Act 1966 that the document entitled Transfer dated 21 March 2004 entered into between the respondents as transferor and the first respondent as transferee is void as against the applicant as Trustee of the Property of the first respondent.
8.In the alternative, a declaration pursuant to section 121 of the Bankruptcy Act 1966 that the document entitled Transfer dated 21 March 2004 entered into between the respondents as transferor and the first respondent as transferee is void as against the applicant as Trustee of the Property of the first respondent.
9.Costs.
10.Such further or other order as to the Court seems fit.
I was listed to hear arguments in respect of the first order sought in the amended interim application: at [1] above. It was explained to the parties that I would hear arguments in respect of this item only, with the balance to be referred to the federal magistrate listed to hear the matter after the first issue is resolved.
Section 39 of the Federal Magistrates Act and Part 8 of the Federal Magistrates Court Rules (2001) (Cth) deal with transfer of proceedings from this Court to the Federal Court. When considering a transfer, I am obliged to have regard to r.8.02 of the Federal Magistrates Court Rules and other matters, including the interests of the administration of justice: s.39(3) of the Act.
Nothing has been put before this Court to indicate that there are other proceedings in the Federal Court which raise any of the issues arising in these proceedings. Hence the proceedings do not enliven s.39(3)(b) of the Federal Magistrates Act.
The issue of transfer is more directly influenced by r.8.02(4) of the Federal Magistrates Court Rules which states:
8.02(4) [Relevant factors]…
(a) whether the proceeding is likely to involve questions of general importance, such that it would be desirable for there to be a decision of the Federal Court or the Family Court on one or more of the points in issue;
(b) whether, if the proceeding is transferred, it is likely to be heard and determined at less cost and more convenience to the parties than if the proceeding is not transferred;
(c) whether the proceeding will be heard earlier in the Federal Magistrates Court;
(d) the availability of particular procedures appropriate for the class of proceedings;
(e) the wishes of the parties.
In both the interim and amended interim application, Mr Boensch wished for the proceedings to be transferred to the Federal Court. Mr Heath of counsel, in both written and oral submissions, contends that these proceedings raise issues of general importance such that it is desirable that they are dealt with by the Federal Court.
Mr Heath moved on the amended interim application filed 8 September 2006 and sought to read the following affidavits:
a)Franz Boensch, sworn and filed on 12 September 2006;
b)Malcolm John Wright, sworn and filed on 7 September 2006;
c)
Malcolm John Wright, sworn on 5 September 2006 and filed on

6 September 2006;
d)
Malcolm John Wright, sworn on 4 September 2006 and filed on

6 September 2006.
Mr Sutherland did not rely on any affidavit material.
Mr Rutherford, solicitor for the second applicant in this interim application, authorised and instructed the solicitors for Mr Boensch to act on behalf of his client. The second applicant in this interim application relies on the submissions of Mr Heath. Mr Heath indicated that present in Court on the date of this hearing was counsel for

Mr Christopher Bevan in the capacity of observer. Mr Bevan is the barrister who gave advice to Mr and Ms Boensch in relation to the substantive matter of these proceedings. Certain allegations are made against Mr Bevan which has caused him to seek independent advice. Also present in Court was a solicitor on behalf of Mr Leung, again in an observing capacity. Mr Leung is the solicitor who also gave advice to Mr and Ms Boensch in relation to the substantive matter in these proceedings.
Mr Heath indicated that he wished to develop two further issues in addition to those referred to in his written submissions. The first relates to privilege and arises in a number of ways. There was initially a suggestion that privilege over the documents sought to be adduced by the applicant in these proceedings had been waived by the conduct of the solicitor, Mr Leung, in providing them to the trustee. This raises the question of whether privilege has been waived by reason of that act. The second issue is an allegation made pursuant to s.125 of the Evidence Act1995 (Cth). The substance of that argument is that any privilege there may have been is now lost pursuant to either s.125(1)(a) or s.125(1)(b) of the Evidence Act. The argument includes the commission of a fraud, an abuse of power or a civil penalty, all serious allegations against the two legal practitioners. A s.125 claim was also made against the bankrupt. Mr Heath indicates that he is not aware of any allegation against Sabine Boensch. There may also be the issue of the status of the privilege, being something personal to the bankrupt, such that the bankrupt is entitled to maintain the claim if a valid claim exists or if such claim passes to the trustee.
Mr Heath referred to R v Dunwoody [2004] QCA 413 per McMurdo P, McPherson JA and Holmes J, where the Court of Appeal of the Queensland Supreme Court had cause to consider the issue of whether privilege remains personal to a bankrupt. After an analysis of the relevant authorities, the Court found at 267:
Each case will turn on its facts and the terms of any relevant statute but a number of single judge decisions from the Federal Court support the respondent's concession that legal professional privilege in this case remains with Mr Dunwoody.
The Court then referred to Re Steele; ex parte Official Trustee in Bankruptcy v Clayton Utz (1994) 48 FCR 236 per Ryan J, Bond v Tuohy (1995) 56 FCR 92, Re Bond; ex parte Ramsay (1994) 54 FCR 394 and Worrell v Woods (1999) 90 FCR 264. After a review of these authorities the Court referred to the observations of Finn J in Worrell v Woods at 268:
…that in none of those cases did the Court consider that maintenance of legal professional privilege would frustrate the purposes to be served by the statutory investigative power and conclude that a bankrupt is entitled to assert a claim of legal professional privilege.
Mr Heath drew the Court’s attention to the gravamen of his submissions where McMurdo P stated in R v Dunwoody at [25]:
Whether legal professional privilege remains with the Bankrupt is perhaps not beyond doubt.
Mr Heath submits that the Queensland Court of Appeal was inclined to follow the Federal Court on this issue and was of the view that the matter was not beyond doubt. Mr Heath submits that in the matter before this Court if there is some issue about privilege which the trustee intends to pursue, then consideration by the Federal Court is important in terms of the precedence it will set.
Mr Heath then refers the Court to Worrell v Woods at 202 where Finn J considered privilege personal to a bankrupt and made the following observation:
While not referring to the English rule as such, Ryan J in Re Steele made the following observations on the significance of the vesting provisions of the Bankruptcy Act to the question of a claim for legal professional privilege (at FCR 245; ALR 725):
I do not regard the provisions of the Act which vest the property of the bankrupt in his trustee as affecting the conclusion that I have reached nor do I regard them as vesting the privilege itself in the Official Trustee. This is not to say that there may not be communications between a bankrupt and his or her legal advisers which are so closely connected with the property of the bankrupt which vests in the trustee that the bankrupt is precluded from asserting legal professional privilege against the trustee.
Whatever the force of the last sentence in this quotation – and I mean no disrepspect in saying its burden is not altogether self-explanatory – the quotation itself does not lend support for the theory supporting the English rule. For my own part I am unable to discern the precise rationale at common law for the exceptional case to which his Honour refers in which a bankrupt would be precluded from asserting privilege. His Honour seems to have expressly rejected a rationale based on the trustee being a successor in title to the property in question. I would add, furthermore, that without the assistance of submissions from the trustees on the justification for, and scope of, the exceptional case, I do not consider that it is of assistance in resolving the present application.
Mr Heath submits that the nature of personal privilege and its extent is unresolved in this jurisdiction. This is a legal issue arising in this matter and is best determined by the Federal Court.
Mr Heath also refers to Griffin v Pantzer [2004] FCAFC 113 where Ryan, Heerey and Allsop JJ found that there was no privilege against self-incrimination in relation to the provision of documents. Mr Heath acknowledges that the issue in that case is different to this case as
Mr Boensch had no personal entitlement to claim privilege against self-incrimination. However, the authorities raise a conceptual question about why a bankrupt may be entitled to make a claim for privilege that is personal to him, yet on the other hand the privilage cannot include privilege against self-incrimination. Mr Heath submits that these are legal issues which would be of considerable precedent value to those that fall in such a situation which Mr Heath contends to force the application for the transfer.
Mr Heath submits that the more difficult matter is that of the advice given by Mr Bevan and Mr Leung, who are now each accused of acts falling within s.125 of the Evidence Act in relation to advice given to the bankrupt and Sabine Boensch. The allegations are of the most serious kind such that Mr Bevan and Mr Leung seek to be separately represented in the proceedings. By reason of the position that these two people are now put in, they will be required to give evidence and be cross-examined. The cross-examination, would not only attacking their personal integrity but also consider conflicting factual and legal matters relating to the first instrument created on 1 August 1999 and the second instrument sought to be impugned and dated 18 March 2004.Mr Heath contends that the position and issue relating to these two practitioners make it desirable that they are dealt with by a decision of the Federal Court. First because of the experience that the Federal Court would bring to the serious issue raised. Secondly, the significance of the decision at the completion of these proceedings which would have considerable importance to practitioners generally.
Mr Heath also brought my attention to s.39(3)(d) of the Act which requires this Court to have regard to the “interests of the administration of justice”. He submits that an attack on legal practitioners goes to the core issue of the administration of justice and the provision of legal advice; therefore the matter should be dealt with by the Federal Court.
Mr Heath then considers the legal and factual issues surrounding the position of the bankrupt and the acts he is said to have done within the meaning of s.125 of the Evidence Act which give rise to a loss legal professional privilege. He acknowledges the position of the bankrupt to that of the legal practitioners in terms of seriousness of the allegations made and that the assets, the subject of the instrument sought to be impugned, were to be for the benefit of his children. Mr Heath argues that this makes it desirable in conjunction with the other matters made that the experience of the Federal Court judge purport to bear on this issue.
Mr Heath then raised the legal and factual issues surrounding the circumstances in which the former solicitor of the Mr and Ms Boensch provided the trustee documents. These documents are the subject of legal professional privilege: Exhibit SDP6 of the Affidavit of Scott Darren Pascoe. This requires the resolution of whether there has been a waiver of the privilege. The applicant asserts a waiver of any privilege by the provision of the documents to him by the Mr and Ms Boensch’s former solicitor. Mr Heath contends that the matter would be of general importance to practitioners dealing with trustees in bankruptcy and it would be desirable that there be a precedent of the Federal Court relating to it.
In respect of the trust instrument issued, Mr Heath submits that the application is not a merely a matter under s.120 or s.121 of the Bankruptcy Act 1966 (Cth). The first three prayers of relief are discreet prayers of relief relating to the validity of two instruments sought to be impugned. Mr Heath submits that assuming there is jurisdiction to hear such claims in this Court (which he does not concede to), there are complex legal and evidentiary issues which go to the validity of these instruments. Mr Heath argues that the complexity of the problem is evident from the application, points of claim and supporting correspondence. In support of this contention, Mr Heath draws the Court’s attention to the declaration sought in Prayer 1, that the 1999 instrument has no force and effect in law or equity. Mr Heath contends that the requirement of detailed consideration of legal and evidentiary issues is a matter of importance, making it desirable that there be a Federal Court decision on the question.
Mr Johnson prepared written submissions on behalf of the trustee in these proceedings. Due to the unavailability of Mr Johnson on the day of this hearing, Mr Skinner appeared and made oral submissions in response to the application for the transfer to the Federal Court. This was in respect of the trust, privilege and security of costs issues.

In relation to the trust issue, Mr Skinner submits it is an issue of fact to be decided on the construction of the documents and the background of evidence. He submits that there is nothing unusual about the trust issue which cannot be dealt with in this Court.

In respect of the privilege issue, Mr Skinner submits that the position in R v Dunwoody and the Federal Court decisions are relatively clear.

In the absence of any Full Federal Court authority, the position on the privilege issue remains neutral. In respect of the security for costs issue, Mr Skinner submits that the law on this subject is settled and the issue can be dealt with on an interlocutory basis by either Court.
The written submissions filed by Mr Johnson on behalf of the trustee (at paragraph 19) contend that issues similar to the present case were considered in Marchesi v Apostoulou [2006] FCA 1122 per Weinberg J (“Marchesi”). Mr Heath contends that Marchesi together with Milroy v Lord (1862) 4 De GF & J 264 (cited in Marchesi) are both distinguishable from this case. Although Mr Heath acknowledges that Marchesi is broadly factually similar to the matter before this Court, he says that there are also material differences which are significant. In Marchesi, the property transfer in question was undated and remained unstamped and unregistered, which is not the case here. It is for that reason that Weinberg J applied Milroy v Lord and the gift in Marchesi was not effective. Mr Heath argues that in this case, there had not been a gift because there was consideration for the transfer of the property. Therefore, Milroy v Lord is irrelevant in these circumstances and there are a range of issues relating to the instruments that are in question.
I accept the argument submitted by Mr Heath that the matter before this Court will not be resolved by reliance on these two authorities alone, as there are significant differences in the factual matrix between them. However, these authorities must be seen as examples of similar circumstances that have been considered and decided by superior Courts. I must assume that the obvious deficiencies in certain aspects of the authorities relied upon for this application would be explored further and formally argued at a final hearing.
Mr Heath indicated to the Court that at present only two provisional hearing dates in November 2006 had been allocated but were insufficient. A separate hearing on the privilege issue would take a day or more considering that there would be evidence from the first respondent, second respondent, Mr Leung and Mr Bevan, each of whom are separately represented. The hearing on the remaining matter could take more than two days and issues such as costs applications are yet to be heard.
My understanding is that the dates allocated in November 2006 are provisional only and subject to confirmation at a further directions hearing to be held on 17 October 2006. At that time, counsel can make submissions, as they have before me, with a more accurate estimate of the length of time required to ventilate all the issues necessary. I do not believe this has any bearing on which forum this hearing is held in. These requirements need to be addressed regardless of which Court the final hearing takes place.
In respect of r.8.02(4)(b), Mr Heath, representing the parties seeking the transfer, indicated that the costs of proceedings are likely to be the same whether the matter is heard in the Federal Magistrates Court or the Federal Court.. I am satisfied that the costs rules for both Courts are clearly articulated, ensuring that parties are able to make an informed judgment on the amount spent on litigation. I am also satisfied that costs is not a significant factor in determining whether the matter should be transferred.
In respect to r.8.02(4)(c) Mr Heath concedes that if the matter could proceed on the dates provisionally set by the Federal Magistrates Court then it would clearly be heard earlier than it is possible to do so in the Federal Court. However Mr Heath submits that due to the complexity of the matter the provisional timetable is unrealistic. The seriousness of the issues raised require a more extensive period of preparation prior to a hearing.
Again, these are issues that will have to be decided by either Court. The appropriate timetable will have to be set, subject to submissions by the parties at the relevant directions date. I acknowledge that there may need to be an extensive period of preparation prior to the final hearing, but I do not believe that this has any significant bearing on which Court the matter should ultimately be heard. Both Courts have relevant procedures to deal with the preparation of a timetable, subject to the requirements of all parties, in order for them to adequately present their arguments to the Court.
Mr Heath argues that the Federal Court’s docket system may be an important case management tool in these proceedings. I am not satisfied that this submission carries significant weight. Both Courts in question have a similar docket system, however the case management style can vary depending on the individual docket judicial officer.
Rule 8.02(4)(e) stipulates that the wishes of the parties are relevant in considering a transfer. The affidavit of Malcolm John Wright sworn on 4 September 2006 and filed in the Court registry on 6 September 2006 states that he is the solicitor for the bankrupt and has received instructions that Mr Boensch wishes that the matter be heard in the Federal Court. I have reviewed that affidavit and am satisfied that all the issues raised in that document have been adequately ventilated before me by his counsel, Mr Heath.
The Federal Magistrates Court is a Court of original jurisdiction in all matters arising under the Bankruptcy Act. When the Court was created, the objects set out in the Act state that the Court is to “operate as informally as possible in the exercise of judicial power”, use “streamlined procedures” and operate without undue formality. In other words, it was established to deal quickly, simply and cheaply with less complex litigation. However, this does not mean that the Court should avoid or be excluded from dealing with novel or difficult issues. Although Mr Heath was invited, he has been unable to identify a lack of jurisdiction of this Court to hear issues likely to arise in the proceedings. I cannot accept that the evidence and cross-examination of Mr Leung and Mr Bevan in respect of the alleged breach of s.125 of the Evidence Act would only be adequately dealt with in the Federal Court and not in the Federal Magistrates Court.The significance and seriousness of their actions are more likely, if established, to be the issue of separate proceedings and not form a substantial part of these proceedings. In my view there is only one principal issue to be considered. That is whether the importance of the privilege and trust instrument issues in themselves warrant a transfer to the Federal Court. I am not satisfied that any other issue has significant bearing on this decision. These are not new legal principles and they have been well considered in numerous decisions in State and Federal superior Courts. The task of this Court is to make findings of fact and apply those established legal principles to the facts. Having regard to all of the considerations required by s.39 of the Federal Magistrates Act and r.8.02 of the Federal Magistrates Court Rules, I am not persuaded at this point of the proceedings that the matter should be transferred to the Federal Court. That is not to say that the position may not change depending on the course of litigation.
I will return this file to the docket of Raphael FM and direct the parties to contact His Honour’s Associate to obtain a date for further directions to resolve issues 1B, 1C, 2 to 8 of the amended interim application and to obtain directions for the future carriage of this matter.

I certify that the preceding thirty-four (34) paragraphs are a true copy of the reasons for judgment of Lloyd-Jones FM.

Associate:

Date: 25 September 2006