Cetinkaya and Anor v Official Trustee in Bankruptcy and Anor and; Unal v Official Trustee in Bankruptcy and Ors and; Official Trustee in Bankruptcy v Cetinkaya and Ors
[2014] FCCA 1389
•1 July 2014
FEDERAL CIRCUIT COURT OF AUSTRALIA
| CETINKAYA & ANOR v OFFICIAL TRUSTEE IN BANKRUPTCY & ANOR and UNAL v OFFICIAL TRUSTEE IN BANKRUPTCY & ORS and OFFICIAL TRUSTEE IN BANKRUPTCY v CETINKAYA & ORS | [2014] FCCA 1389 |
| Catchwords: BANKRUPTCY – Competing applications pursuant to s.178 of the Bankruptcy Act 1966 (Cth) by discharged bankrupts and the defendant in County Court proceedings concerning a decision by the Official Trustee in Bankruptcy to assign a cause of action to the former bankrupts – application by the Official Trustee in Bankruptcy for directions of the Court pursuant to s.134(4) of the Bankruptcy Act 1966 (Cth) – whether proposed assignment is proper and justified. |
| Legislation: Bankruptcy Act 1966 (Cth), ss.77C, 120, 121, 134(4), 178 |
| Bufalo v Official Trustee in Bankruptcy [2011] FCAFC 111 Wakeling v Wade [2011] FCA 1292 |
| First Applicant: | RECEP CETINKAYA |
| Second Applicant: | BAHAR CETINKAYA |
| First Respondent: | OFFICIAL TRUSTEE IN BANKRUPTCY AS THE TRUSTEE OF THE BANKRUPT ESTATE OF RECEP CETINKAYA AND BAHAR CETINKAYA |
| Second Respondent: | METIN UNAL |
| File Number: | MLG 1165 of 2013 |
| Applicant: | METIN UNAL |
| First Respondent: | OFFICIAL TRUSTEE IN BANKRUPTCY AS THE TRUSTEE OF THE BANKRUPT ESTATE OF RECEP CETINKAYA AND BAHAR CETINKAYA |
| Second Respondent: | RECEP CETINKAYA |
| Third Respondent: | BAHAR CETINKAYA |
| File Number: | MLG 1946 of 2013 |
| Applicant: | OFFICIAL TRUSTEE IN BANKRUPTCY AS THE TRUSTEE OF THE BANKRUPT ESTATE OF RECEP CETINKAYA AND BAHAR CETINKAYA |
| First Respondent: | RECEP CETINKAYA |
| Second Respondent: | BAHAR CETINKAYA |
| Third Respondent: | METIN UNAL |
| File Number: | MLG 2307 of 2013 |
| Judgment of: | Judge Whelan |
| Hearing date: | 6 March 2014 |
| Date of Last Submission: | 6 March 2014 |
| Delivered at: | Melbourne |
| Delivered on: | 1 July 2014 |
REPRESENTATION
| Counsel for Recep and Bahar Cetinkaya: | Mr Sowden |
| Solicitors for Recep and Bahar Cetinkaya: | Law 554 |
| Counsel for Metin Unal: | Mr Elder |
| Solicitors for Metin Unal: | Tony Hargreaves & Partners |
| Counsel for the Official Trustee in Bankruptcy as the Trustee of the Bankrupt Estate of Recep Cetinkaya and Bahar Cetinkaya: | Mr Fary |
| Solicitors for the Official Trustee in Bankruptcy as the Trustee of the Bankrupt Estate of Recep Cetinkaya and Bahar Cetinkaya: | Harris Carlson Lawyers |
ORDERS
MLG 1165 of 2013
The First Respondent assign to the First and Second Applicants all its interest in the causes of action as pleaded in the Statement of Claim dated 11 December 2008 in the County Court proceeding
number CI-08-05385, as exhibited to the Affidavit of
RAVAK SEYED AHMED sworn on 3 June 2010 numbered RSA-3, which is exhibited and numbered “BB-1” in the supporting affidavit of BOJANA BALEN sworn on 26 July 2013, in consideration of the following:
(a)
In the event that the First and Second Applicants are successful in pursuing cause(s) of action similar to the County Court proceeding numbered CI-08-05385, after payment/reimbursement of legal costs incurred by the First and Second Applicants in that matter, the First and Second Applicants pay to the
First Respondent out of the proceeds or fruits of the cause(s) of action similar to the County Court proceeding number
CI-08-05385:
(i)Such sum as is required to pay in full all claims proved in the bankruptcy up to the limit of the recovery, net of the First and Second Applicants’ legal costs; and
(ii)The First Respondent’s reasonable costs reasonably incurred in the administration of the bankrupt estates.
(b)
The First Respondent be entitled to place a charge over the property the subject of the County Court proceeding number
CI-08-05385 pending payment in (a) herein.
MLG 1946 of 2013
The Application filed 8 November 2013 be dismissed.
MLG 2307 of 2013
Pursuant to s.134(4) of the Bankruptcy Act 1966 (Cth), the Applicant:
(a)
Is empowered to assign the causes of action referred
to in County Court proceeding number CI-08-05385
(“causes of action”) to a third party;
(b)Would be justified in assigning the causes of action to a third party;
(c)Would be justified in assigning the causes of action to the proposed plaintiffs or the proposed defendant to the causes of action; and
(d)
Would be justified in assigning the causes of action to the
First and Second Respondents on the terms proposed by them in application MLG 1165 of 2013 filed 26 July 2013.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT MELBOURNE |
MLG 1165 of 2013
| RECEP CETINKAYA |
First Applicant
| BAHAR CETINKAYA |
Second Applicant
And
| OFFICIAL TRUSTEE IN BANKRUPTCY AS THE TRUSTEE OF THE BANKRUPT ESTATE OF RECEP CETINKAYA AND BAHAR CETINKAYA |
First Respondent
| METIN UNAL |
Second Respondent
MLG 1946 of 2013
| METIN UNAL |
Applicant
And
| OFFICIAL TRUSTEE IN BANKRUPTCY AS THE TRUSTEE OF THE BANKRUPT ESTATE OF RECEP CETINKAYA AND BAHAR CETINKAYA |
First Respondent
| RECEP CETINKAYA |
Second Respondent
| BAHAR CETINKAYA |
Third Respondent
MLG 2307 of 2013
| OFFICIAL TRUSTEE IN BANKRUPTCY AS THE TRUSTEE OF THE BANKRUPT ESTATE OF RECEP CETINKAYA AND BAHAR CETINKAYA |
Applicant
And
| RECEP CETINKAYA |
First Respondent
| BAHAR CETINKAYA |
Second Respondent
| METIN UNAL |
Third Respondent
REASONS FOR JUDGMENT
(As corrected)
The applications
This matter consists of three separate proceedings that arise under the Bankruptcy Act 1966 (Cth) (“the Act”). With the consent of the parties, the three matters were heard together.
In the first application, MLG 1165 of 2013, filed on 26 July 2013,
the Applicants, two former bankrupts, Mr RECEP CETINKAYA and
Mrs BAHAR CETINKAYA (“Mr and Mrs Cetinkaya”), seek to review the conduct of the First Respondent, the Official Trustee in Bankruptcy as Trustee of the Bankrupt Estate of Mr and Mrs Cetinkaya
(“the Official Trustee”), pursuant to s.178 of the Act.
Mr and Mrs Cetinkaya seek orders that:
·The Official Trustee assign a County Court cause of action to them;
·
After payment of their costs of the County Court proceeding,
they pay to the Official Trustee:
oSuch sum as is required to pay all debts proved in the bankruptcy, up to the amount recovered; and
oThe Official Trustee’s reasonable costs reasonably incurred in the administration of the bankrupt estates, and
·The Official Trustee be entitled to place a charge over the property the subject of the County Court proceeding, pending payment in accordance with the second dot point above.[1]
[1] Application filed 26 July 2013, at p.2.
In the second application, MLG 1946 of 2013, filed on
8 November 2013, the defendant to the County Court proceeding and the Applicant in the application, Mr METIN UNAL (“Mr Unal”), seeks to review certain decisions of the Official Trustee, the First Respondent in the application, pursuant to s.178 of the Act, namely the
Official Trustee’s decision:
·Not to invite offers from Mr Unal for the assignment of the County Court cause of action;
·
To assign the County Court cause of action to Mr and
Mrs Cetinkaya; and
·To confirm the last-mentioned decision without first inviting offers from Mr Unal.[2]
[2] Application filed 8 November 2013, at p.2.
In the second application, orders are sought restraining the
Official Trustee from assigning the cause of action to
Mr and Mrs Cetinkaya, the Second and Third Applicants in the application, or, in the alternative, restraining the Official Trustee from so doing until the Official Trustee has:
·Called for proofs of debt;
·Determined whether to admit or reject any proofs of debt lodged;
·Determined the amount of any admitted proofs of debt; and
·Informed Mr Unal of the amount of the admitted proofs of debt and invited and considered offers for the assignment of the County Court cause of action from Mr Unal to that proceeding.[3]
[3] Ibid.
In the second application, orders were also sought that the
Official Trustee bear, and not seek to recover from the bankrupt estates, its costs in relation to various proceedings and the administration of the estates generally. However, in written submissions filed with the Court,[4] Mr Unal said that he did not press that issue.
[4] Outline of Facts and Contentions of the Applicant filed 4 March 2014, p.6 at para.5.
In the third application, MLG 2307 of 2013, the Official Trustee,
as Applicant, seeks directions from the Court under s.134(4) of the Act as to whether it:
·Is empowered to assign the County Court cause of action to a third party;
·Would be justified in assigning the cause of action to a third party;
·
Would be justified in assigning the cause of action to
Mr and Mrs Cetinkaya, as Respondents to the application,
or Mr Unal; and
·
Would be justified in assigning the causes of action to
Mr and Mrs Cetinkaya on the terms proposed by them in proceeding MLG 1165 of 2013.[5]
[5] Application filed 20 December 2013, at p.2.
Background
The background to the three proceedings is long and convoluted.
The following is a summary of the most significant facts and circumstances.
Mr and Mrs Cetinkaya are Husband and Wife. They are of Turkish origin and neither of them reads or writes English. Mr Cetinkaya speaks, and understands, some verbal English but Mrs Cetinkaya does not.
In 1986, Mr and Mrs Cetinkaya became directors and shareholders of a company called Brunswick Motor Body Repairs Pty Ltd
(ACN 006 598 358) (“the company”). Mr Cetinkaya operated the business of the company at 75 Colebrook Street Brunswick
(“the property”). Mr and Mrs Cetinkaya were the registered proprietors of the property.
In 1994, Mr and Mrs Cetinkaya gave a mortgage over the property to the ANZ Bank. The mortgage secured all monies borrowed by them personally from the bank, as well as monies borrowed by the company from the bank, the repayment of which Mr and Mrs Cetinkaya had guaranteed.
On 14 May 1996, the ANZ Bank obtained judgment against
Mr and Mrs Cetinkaya for a debt of approximately $145,000.00 and for possession of the property. By letter dated 27 June 1996, the Sheriff required Mr and Mrs Cetinkaya to vacate the property by
2 August 1996.
Mr and Mrs Cetinkaya sought assistance from an accountant, Mr Unal.
On 1 August 1996, Mr and Mrs Cetinkaya appear to have entered into a contract to sell the property to Mr Unal for $131,000.00. The sale was settled on 11 December 1996. A transfer of land (“the transfer”) was registered on 31 December 1996. The mortgage to the ANZ Bank was apparently discharged at the same time.
Mr and Mrs Cetinkaya became bankrupt pursuant to debtor’s petitions lodged on 14 October 1997. They filed statements of affairs[6] with the assistance of their solicitor, Mr CHIODO MADAFFERI.
The Official Trustee was appointed Trustee of their bankrupt estates. Mr and Mrs Cetinkaya were discharged from their bankruptcies on
15 October 2000, in the usual way.
[6]Mr and Mrs Cetinkaya commenced proceedings in the County Court against Mr Unal on 11 December 2008. In the statement of claim,[7]
they say that, in about November 2007, Mr Unal told their son,
Mr ERSOY CETINKAYA, that Mr and Mrs Cetinkaya had transferred the property to Mr Unal in 1996.
[7] Ibid, at Annexure “PAB-7”.
The statement of claim alleges that Mr Unal told Mr Cetinkaya in 1996 that:
·
Mr Unal would arrange for the property to be transferred to a family trust so that it would not form part of the estate of
Mr and Mrs Cetinkaya in any subsequent bankruptcy;
·Mr Cetinkaya would pay Mr Unal $20,000.00 and Mr Unal would obtain funds to refinance the property; and
·Mr Cetinkaya would pay Mr Unal $1,400.00 per month to repay the amount borrowed by Mr Unal to refinance the property.[8]
[8] Ibid, Annexure “PAB-7”, p.4 at para.8.
The statement of claim also alleges that Mr Cetinkaya did not know that he was signing the transfer. It says that he thought he was signing documents to create a family trust. The statement of claim further alleges Mrs Cetinkaya did not sign the transfer in relation to the property. It is implied that her purported signature on the transfer was a forgery.
The statement of claim alleges that the transfer is voidable pursuant to s.72 of the Property Law Act 1958 (Vic) for fraud and mistake of fact.
Mr Unal filed a defence. The matter proceeded in the County Court in the usual way until approximately September 2009. At that time,
Mr Unal’s solicitor notified the Official Trustee of the proceedings.
It is common ground that any rights Mr and Mrs Cetinkaya had in the property and in the County Court proceeding had vested in the
Official Trustee.
In September 2009, Mr Unal’s solicitor asked the Official Trustee not to assign any cause of action in relation to the property to
Mr and Mrs Cetinkaya. The solicitor also noted that
Mr and Mrs Cetinkaya had made false statements in their statements of affairs, namely that they had not:
·Disposed of any assets within the last two years, when they had disposed of the property;
·Paid any creditor more than $1,000.00 in the last 12 months as a result of pressure for payment when they had repaid their liability to the ANZ Bank following receipt of a demand to vacate from the Sheriff; and
·Been directors, shareholders or involved in the management of a private company in the last 10 years when they had ceased to be directors of the company on 13 June 1996, approximately one year before becoming bankrupt and completing their statements of affairs.[9]
[9] Affidavit of Peter Anthony Brown filed 8 November 2013, Brown1, FCAffidavit, Annexure “PAB4”, p.2 at para.2.
There were no funds in the bankrupt estates. Mr and Mrs Cetinkaya gave the Official Trustee $3,000.00 to obtain legal advice
on the prospects of success of the County Court proceeding. On
14 October 2009, the Official Trustee received legal advice to the effect that the County Court proceeding was not “demonstrably without prospects of success”.[10]
[10] Affidavit of John Patrick Kennedy filed 23 December 2013, Annexure “JPK-5” at p.80.
On 20 October 2009, the solicitors for the Official Trustee wrote to the solicitors for Mr and Mrs Cetinkaya and the solicitors for Mr Unal inviting offers for the assignment of the County Court proceeding.[11] Without prejudice offers were received by the Official Trustee in late 2009. The Official Trustee sought the views of creditors on whether either offer should be accepted. It seems that the Official Trustee did not accept either offer.
[11] Ibid, at Annexure “JPK-6”.
On 4 June 2010, Mr and Mrs Cetinkaya filed proceedings in this Court under s.178 of the Act seeking to compel the Official Trustee to assign the County Court cause of action to them. That application was dismissed on 20 May 2011 by Connolly FM, as his Honour then was, in the decision of Cetinkaya v Official Trustee in Bankruptcy and Anor [2011] FMCA 288 (“Cetinkaya”). The principal reason for that decision was that the application had been brought outside the 60-day time limit prescribed by s.178 of the Act.
Mr and Mrs Cetinkaya filed an appeal from that judgment to the Federal Court. While that appeal was pending, the solicitors for the Official Trustee sent letters dated 27 February 2012 to the solicitors for both Mr and Mrs Cetinkaya and Mr Unal, stating that the
Official Trustee rejected the offers made by both parties and that he would not entertain any further offers from either of them.[12]
[12] Affidavit of John Patrick Kennedy filed 23 December 2013, at Annexure “JPK-14”.
The letters said further that the Official Trustee intended to investigate under s.77C of the Act whether there was a proper basis to bring proceedings under s.121 of the Act to recover the property.
The letter went on:
We now advise both parties that the Official Trustee will not be entertaining any offer by either party to assign the chose in action arising from the Country (sic) Court proceedings.
In circumstances where there appears to have been serious breaches of the Act, it is not appropriate for the Official Trustee, as both a statutory officer and officer of the Court to entertain negotiations with parties who may have committed those breaches. Any further application by either party seeking to force an assignment of the cause of action will be resisted on this basis.[13]
[13] Ibid, p.3 at para.13.
Mr and Mrs Cetinkaya eventually filed notices of discontinuance in relation to the appeal. However, there remained competing costs applications. On 13 June 2012, in Cetinkaya v Official Trustee in Bankruptcy [2012] FCA 611, Bromberg J ultimately determined that there should be no order as to the costs of the appeal.
In reaching that conclusion, Bromberg J quoted the passage from the letter dated 27 February 2012 set out above and then said:
The Official Trustee’s changed position is not unreasonable.
Far from it, the position now taken by the Official Trustee appears to be the proper course for the Official Trustee to have taken. What may be regarded as unreasonable, is the failure of the Official Trustee to have taken that course from the outset, when it first became aware of the County Court claim. But neither the Cetinkayas nor Unal have contended that it was unreasonable for the Official Trustee to treat with them in relation to an assignment of the County Court claim. Both actively encouraged the Official Trustee to do so and continued to actively encourage the Official Trustee right up until the Official Trustee’s decision to change course.[14]
[14] [2012] FCA 611 at para.34.
On 16 August 2012, the County Court proceeding was struck out administratively for failure by the parties to respond the
County Court’s Warning Administrative Mention Notice.
Between September and November 2012, the Official Trustee conducted examinations of numerous people under s.77C of the Act in relation to the purported transfer of the property. The Official Trustee obtained a detailed analysis of the available evidence from the Australian Government Solicitor (“AGS”).
The AGS advised, in a report dated 19 February 2013 (“the report”),[15]
that any action in relation to the property under s.120 of the Act was, by then, statute barred and any action under s.121 was unlikely to succeed because the property would not have formed part of
Mr and Mrs Cetinkaya’s estates.[16] The reason for that view seems to have been that, if the property had not been transferred to Mr Unal, the ANZ Bank would have recovered it pursuant to its mortgage.
[15] Affidavit of John Patrick Kennedy filed 4 March 2014, at Annexure “JK-2”.
[16] Ibid, Annexure “JK-2”, p.25 at paras.5.29-5.30.
The AGS also advised, in the same report, that the Official Trustee should be taking no further action in relation to the County Court proceeding. The Official Trustee accepted that advice and communicated its decision to Mr and Mrs Cetinkaya and Mr Unal by letter dated 30 May 2013.[17] That letter also advised that the
Official Trustee would not be taking any action under s.121 of the Act in relation to the property.
[17] Affidavit of John Patrick Kennedy filed 23 December 2013, at Annexure “JPK-16”.
On 20 June 2013, Mr and Mrs Cetinkaya again asked the
Official Trustee to assign the County Court cause of action to them.
By letters dated 18 September 2013,[18] the Official Trustee advised
[18] Affidavit of John Patrick Kennedy filed 23 December 2013, at Annexure “JPK-18”.
Mr and Mrs Cetinkaya and Mr Unal that the Official Trustee
had decided to assign the County Court cause of action to
Mr and Mrs Cetinkaya on the basis described in paragraph 2
above. In an exchange of emails concluding on 1 October 2013,
Mr and Mrs Cetinkaya and the Official Trustee agreed to enter into a deed reflecting that arrangement.
The Official Trustee’s reasons for deciding to assign the County Court cause of action to Mr and Mrs Cetinkaya were stated to be, in summary:
·
There was no longer any prospect of pursuing the
s.121 proceedings against Mr and Mrs Cetinkaya;
·There was merit in having the circumstances of the transfer of the property tested in the County Court;
·There was a public interest in having the serious allegations against Mr Unal judicially determined; and
·There was a possibility that the assignment of the County Court cause of action might ultimately result in funds being paid into the bankrupt estates of Mr and Mrs Cetinkaya and being distributed to creditors.[19]
[19] Ibid, p.7-8 at para.37.
In an affidavit sworn on behalf of the Official Trustee on 3 March 2014, Mr JOHN PATRICK KENNEDY said that:
·No creditors had lodged proofs of debt in the bankrupt estates of Mr and Mrs Cetinkaya; and
·The costs and expenses of the bankrupt estates to date were $327,725.84.[20]
[20] Affidavit of John Patrick Kennedy filed 4 March 2014, p.2 at para.4 and Annexure “JK-1”.
The legislation
Subsection 134(4) of the Act provides that:
The trustee may at any time apply to the Court for directions in respect of a matter arising in connexion with the administration of the estate.
Section 178 of the Act provides that:
(1)If the bankrupt, a creditor or any other person is affected by an act, omission or decision of the trustee, he or she may apply to the Court, and the Court may make such order in the matter as it thinks just and equitable.
(2)The application must be made not later than 60 days after the day on which the person became aware of the trustee's act, omission or decision.
The authorities
In relation to s.134(4) of the Act, the Full Court of the Federal Court said in Bufalo v Official Trustee in Bankruptcy [2011] FCAFC 111:
Section 134(4) provides as follows:
The trustee may at any time apply to the Court for directions in respect of a matter arising in connexion with the administration of the estate.
That section should be read together with s 30(1) which provides as follows:
The Court:
(a)has full power to decide all questions, whether of law or of fact, in any case of bankruptcy or any matter under Part IX, X or XI coming within the cognizance of the Court; and
(b)may make such orders (including declaratory orders and orders granting injunctions or other equitable remedies) as the Court considers necessary for the purposes of carrying out or giving effect to this Act in any such case or matter.
The proper subject of “directions” is the manner in which a trustee is to discharge his functions so as to protect him from liability to a creditor for breach of duty: Re Weber [2006] FCA 636, 154 FCR 80. Finn J there relevantly observed:
[2]While s 134(4) of the Act empowers a trustee to seek directions “in respect of a matter arising in connexion with the administration of the estate”, it is well accepted that the Court is not for that reason obliged to give the directions sought: Re Driller (1972) 21 FLR 159. The proper subject of directions, in my view, is the manner in which a trustee should act in carrying out his or her functions as such: cf Re GB Nathan & Co Pty Ltd (in liq) (1991) 24 NSWLR 674 at 679. Their proper effect, if full disclosure has been made to the Court of the material facts, is to protect the trustee from liability to a creditor or a bankrupt for a breach of duty of office for things done in accordance with the directions: see generally the decision of Sackville J in Re Sutherland (In the Matter of Scutts) [1999] FCA 147 at [9] ff. The s 134(4) procedure is not of itself an appropriate vehicle to determine the substantive rights of creditors as against a trustee in bankruptcy or creditors amongst themselves: Scutts at [14]; see also Re Lofthouse (2001) 107 FCR 151 at [9].
In Donnelly (Trustee), in the matter of Hancock v Porteous [2002] FCA 607, Stone J had also said:
[17]Section 134(4) of the Act provides that a trustee may at any time apply to the Court for directions “in respect of a matter arising in connexion with the administration of the estate”. The Court is not under an obligation to give such directions; it is a matter for it to decide in the exercise of its discretion; Re Driller (1972) 21 FLR 159. It is however settled that the Court will not give an advisory opinion in the form of a direction; Willoughby v Official Trustee in Bankruptcy [2001] FCA 1345. It is also said that the duty of the judge on a petition for advice is to advise the trustee on questions of law, but not to tell him how to exercise discretionary powers vested in him; In the Will of Osborne (1863) 2 SCR (NSW) Eq 89.
Instances of situations in which a “direction” has been given pursuant to s 134(4) include cases where a direction is sought as to whether a trustee should be directed to assign causes of action to a particular party (Willoughby v Official Trustee in Bankruptcy [2001] FCA 1345) and directions as to whether a particular person “would be [the] sole trustee of each estate and would be entitled and obliged to act as such” (Condon v Watson [2009] FCA 11 at [37], 174 FCR 314 at 320 per Lindgren J). See also: Re Leask and Trumbich; Ex parte Melsom (1986) 11 FCR 305; Re Hoffman; Ex parte Worrell v Schilling (1989) 85 ALR 145; Re Evans; Ex parte Sweeney v Evans (1995) 61 FCR 556; Sutherland (In the Matter of Scutts) [1999] FCA 258; In the matter of Kenneth Stanley Kitt; Official Trustee in Bankruptcy [2005] FCA 1564. Consistent with the proposition that the Court need not give the direction sought, instances can also be provided where a Court has declined to give the direction sought: e.g., Re Duckworth; Ex parte The Official Trustee in Bankruptcy (Unreported, FCA, Nicholson J, 20 October 1995).
It was the jurisdiction conferred by s 134(4) that was being exercised by the primary Judge. It is an important jurisdiction conferred upon this Court for the benefit of both trustees and creditors. It is a jurisdiction which may fundamentally affect the rights and interests of a bankrupt. It is a jurisdiction to be exercised with considerable care.[21]
[21] [2011] FCAFC 111 at paras.9-11.
In relation to assignment of choses in action, Nicholas J said in Wakeling v Wade [2011] FCA 1292:
A trustee in bankruptcy is in a special position when it comes to the assignment of causes of action. In particular, a trustee in bankruptcy is ordinarily able to assign a bare cause of
action on the basis that he is given the power to do so by statute:
Ramsey v Hartley [1977] 1 WLR 686 ; Stein v Blake [1996]
AC 243 at 258.
In Citicorp Australia Ltd & Ors v Official Trustee in Bankruptcy& Anor (1996) 71 FCR 550 (“Citicorp”), the Full Court of the Federal Court said:
Counsel for the appellants contended that the duties which rest on a trustee in bankruptcy require the trustee, before selling or assigning a cause of action, to be satisfied that the cause of action can be identified as one vested in the trustee and its value estimated so that the trustee can, and then does, consider whether it can and should be pursued for the benefit of the estate. Comprehended in the performance of this duty is the need, once the cause of action is identified, to assess the prospects of success of the cause of action. There is a twofold purpose in this requirement; one purpose goes to the assessment of the adequacy of the consideration being offered, and the other to the question whether the proposed assignment would visit a mischief or injustice on the community, including creditors in the bankrupt estate. A mischief or injustice would relevantly arise, so it is contended, if the alleged cause of action had no reasonable prospect of success or is not at least arguable. It would be vexatious or oppressive to the proposed defendant if an attempt were made by the proposed assignee to enforce such a cause of action. The alternative notions that a cause of action has no reasonable prospect of success and that it is not arguable convey the same meaning, and we shall treat the contention as being simply that the cause of action proposed to be assigned must have a reasonable prospect of success.[22]
[22] (1996) 71 FCR 558-9.
In Freeman v National Australia Bank Ltd [2004] FCAFC 318 (“Freeman”), the Full Court of the Federal Court said:
It would not be proper for a trustee in bankruptcy to assign a cause of action which demonstrably had no prospects of success. In Citicorp Australia Ltd v Official Trustee in Bankruptcy
(1965) 71 FCR 550 the Full Court put the matter in this way (at 56):
‘… in a case where it is clear that the claim sought to be pursued by the bankrupt or other assignee is frivolous or vexatious, the trustee of (sic) the court should not allow the assignment to occur. A claim with no reasonable prospect of success would be a frivolous one, and the prosecution of such a claim would be vexatious. As earlier noted, in most cases it will not be clear that an alleged claim has no reasonable prospects of success. However, when a clear case arises, the trustee as an officer of the Court, and the Court itself, in the public interest should not allow the assignment to occur, even where an immediate sum of money is offered as consideration that would benefit the estate of the bankrupt.’[23]
[23] [2004] FCAFC 318 at para.35.
At first instance, Spender J said in Freeman v National Australia Bank Ltd [2003] FCA 1233:
The position of a trustee in bankruptcy is one of considerable responsibility. The general duties of a trustee in bankruptcy were summarised by a Full Court of the Federal Court in
Adsett v Berlouis (1992) 37 FCR 201 at 208 as follows:
‘The trustee has a dual function: first, to administer the estate in the interests of the creditors and the bankrupt; second, to exercise, as a public duty and for the public welfare, certain powers given, and duties imposed, under the Act: see Re Campbell; Ex parte Official Trustee
(1987) 13 FCR 326 at 329. The conduct of the trustee in subject to the supervision of the court (eg Div 4 of Pt VIII of the Act) and a trustee in bankruptcy has historically been regarded as an officer of the relevant court: see Ex parte James, Re Condon (1874) 9 Ch App 609 at 614; Scranton’s Trustee v Pearse [1922] 2 Ch 87; Downs Distributing Co Pty Ltd v Associated Blue Star Stores Pty Ltd (In liq)
(1948) 76 CLR 463 at 482; Re Henderson; Ex Parte Tonkin (1934) 7 ABC 273 at 277-278. A trustee in bankruptcy who acts for remuneration is under a duty of care greater than that of a gratuitous trustee: see Re Silver Valley Mines (1882) 21 Ch D 381 CA at 386, 392. The trustee is required to bring reasonable skill to the performance of his or her duties: see Silver Valley Mines (supra) at 392; Re Alafaci; Registrar in Bankruptcy v Hardwick (1976) 9 ALR 262 at 284.’
As the court noted in Citicorp Australia Limited v Official Trustee in Bankruptcy (1966) 71 FCR 550 at 560 and 561:
‘... a trustee under the general law must exercise judgment so as to save the estate unnecessary expenditure of money, and that a trustee in bankruptcy is required to discharge the public duty imposed by the Act conformably with the trustee’s obligation to administer the estate in such a manner as to maximise the return from estate assets, and thereby to maximise satisfaction of the creditors’ claims and any possible surplus for the bankrupt.’
…
The fact is that no funding is available from either creditors or the Commonwealth government to conduct a detailed assessment of the proceedings, notwithstanding a request by the trustees for the expression of interest in that respect from the creditors and the Commonwealth government. The estate is without funds. The concern by the trustees about the risks associated with electing to prosecute, or to assign the proceedings, including exposing the trustees to an adverse order for costs, when there were no funds in the estate from which to indemnify the trustees for those costs is a very real consideration.[24]
[24] [2003] FCA 1233 at paras.11-12 and 18.
In relation to s.178 of the Act, French J, as his Honour then was,
said in Macchia v Nilant (2001) 110 FCR 101:Section 178 confers a “supervisory jurisdiction over the conduct of the trustee”: Cummings v Claremont Petroleum NL (1996)
185 CLR 124 at 133 (Brennan CJ, Gaudron and McHugh JJ).
It confers a power to "in substance" review the decision of the trustee: McGoldrick at 556. The power is necessarily judicial:
Re Wheeler; Ex parte Wheeler v Halse (1994) 54 FCR 166 at 170 (Lee J). In the latter case Lee J said that the Court could not,
in an application under s 178, be asked to perform the administrative function of a trustee administering an estate in bankruptcy. It is given original jurisdiction, the exercise of which might entail “orders of a supervisory character insofar as the determination of questions of law raised by the application require those orders to be made” (169). The applicant
“must show a ground on which the trustee's administration of the affairs of the bankrupt is to be reviewed”. That proposition must be read with the generic concept of review in the original jurisdiction of the Court as one which can, according to context, enliven “the jurisdiction of the court in respect of the whole matter” raising issues of either or both law and fact:
Western Australia v Strickland (2000) 99 FCR 33 at 49-50, citing inter alia, Re Tyndall. Some functions which are administrative in character when exercised by an administrator have the chameleon quality of becoming judicial when exercised by a court: Commissioner of Taxation (Cth) v Munro (1926) 38 CLR 153 at 175-179 (Isaacs J); R v Trade Practices Tribunal; Ex parte Tasmanian Breweries Pty Ltd (1971) 123 CLR 361 at 363(Kitto J); Cominos v Cominos (1972) 127 CLR 588 at 606 (Mason J).
In relation to s 178 it is unnecessary, for the purpose of enlivening the court's jurisdiction, to find that the trustee has done anything wrong. His decision may, on the material before him, have been quite correct and reasonable: Gray v Clout (1990) 27 FCR 141 at 144 (Pincus J). On the other hand, it is not to the point that the judge who hears a review application might have acted differently: Healey v Prentice (No 2) [2000] FCA 1598 (Madgwick J). It is not necessary here to discern the outer limits of s 178 but rather to emphasise its importance in providing for wide ranging supervision by the Court of trustees who are appointed to administer the interests of bankrupts in the interests of creditors and, in so doing, to have regard also to the interests of the bankrupts: Haskins v insolvency and Trustee Service Australia (unreported, Federal Court, Full Court, No V6 194, V6 238 and V6 400 of 1996,3 October 1996).
Trustees are, according to the weight of authority, properly to be regarded as officers of the Court: Adsett v Berlouis (1992) 37 FCR 201 at 208. Given the nature and importance of the office, the general supervisory function of the Court is not lightly to be excluded in respect of particular classes of decision notwithstanding that specific provision is made by other parts of the Act for their reversal or modification. The mechanism which s 99 provides for challenging, in the Court, a trustee's decision to accept a proof of debt has been regarded as not excluding the operation of s 178: Madden v Madden (1995) 58 FCR 590 at 596 (Whitlam J) and on appeal in Madden v Madden (1996) 65 FCR 354 at 377 (Einfeld J). Einfeld J was the only judge to express a view on the matter in the Full Court, Foster J, with whom Sheppard J agreed, preferring to leave it open (at 398).
Whatever may be the correct position in respect of challenges to decisions about proofs of debt, the availability of an administrative mechanism to review the trustee's decision to file an objection should not be taken as manifesting, by implication, a legislative intention to preclude judicial challenge under s 178. There are enough examples of such parallel processes in Commonwealth statutes to prevent any argument being mounted that a multiplicity of remedies is so novel or unusual that it could not have been contemplated by the legislature even when provided in the one statute. It is important to bear in mind however that relief under s 178 is discretionary and that the availability of a comparatively speedy and inexpensive means of administrative review in relation to an objection decision will be a factor of considerable importance in deciding whether the Court should entertain an application under s 178 or grant relief thereunder in relation to such a decision.[25]
[25] (2001) 110 FCR 101 at paras.38-40.
In Cetinkaya, Connolly FM, as his Honour then was, adopted the following statement of principles from the Official Trustee’s written submissions:
36.In Moore v Macks [2007] FCA 10 (15 January 2007) Besanko J held, in relation to section 178 of the Act that:
(a)The fundamental purpose of section 178 of the Act is to give the court the power in a supervisory role, to review acts, omissions or decisions of a
Official Trustee in bankruptcy made in the course of the administration of a bankrupt’s estate on the application of any person with appropriate understanding.
(b)Its operation is to be understood in its historical context (Macchia v Nilant (2001) 110 FCR 101 at 119 per French J), and in the context of the broader relationship between the court and the Official Trustee in bankruptcy as an officer of the court
(Macchia at 116). Indeed, section 178 of the Act is typically employed where an allegation of misconduct or error by a Official Trustee in bankruptcy arises (Macchia v Nilant (2001) 110 FCR 101 at 120 per French J; Moore v Macks [2007] FCA 10
(15 January 2007) per Besanko J).
37.For present purposes it is sufficient to note the following points about the scope of the section:
(a)Under the section, the court is fulfilling a supervisory role judicially, rather than an administrative role standing in the shoes of the Official Trustee. As such, grounds for judicial review must be established by an Applicant (Re Wheeler; Ex parte Wheeler v Halse (1994) 54 FCR 166 at 170 per Lee J) and the exercise of the court’s power is wholly in its discretion.
(b)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 at 186 per Deane J).
(c)The exercise of the court’s 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 Official Trustee in bankruptcy (Re Tyndall;
Es (sic) parte Official Receiver (1977) 17 ALR 182 at 120 per French J).
(d)The impugned act, omission or decision of the Official 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; Ex parte Official Receiver (1977) 17 ALR 182 at 186 per Deane J; Frost v Sheahan (Official Trustee) [2009] FCAFC 20).
(e)Indeed, the act, omission or decision of the
Official Trustees may be subject to review even though it was commercially sound at the time it was made (Macchia v Nilant (2001) 110 FCR 101 at 116 per French J).
(f)At the same time the Official 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.
(g)The fact that the court might have taken a different course to the Official Trustee in bankruptcy at the relevant time is not, without more, a basis to disturb the Official Trustee’s position (Re Tyndall; Ex parte Official Receiver (1977) 17 ALR 182 at 186 per
Deane J; Macchia v Nilant (2001) 110 FCR 101 at 116 per French J). It is not enough that a judge might have acted differently (Healy v Prentice (No 2) [2000]
FCA 1598 at [21]).
(h)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).[26]
[26] [2011] FMCA 288 at para.11.
The arguments
It is convenient to begin the consideration of the various applications by addressing the arguments raised by Mr Unal against the assignment of the County Court cause of action to Mr and Mrs Cetinkaya.
Those arguments were set out in Mr Unal’s written submissions[27] and in oral submissions at the hearing on 6 March 2014.
[27] Outline of Facts and Contentions of the Applicant filed 4 March 2014.
Whether the Official Trustee should have followed the recommendations of its legal advisers
Mr Unal submitted that, in accordance with the recommendation
of its legal advisers in the letter dated 27 February 2012 and the
advice following the investigation under s.77C of the Act, the
Official Trustee should not have decided to assign the cause of action to Mr and Mrs Cetinkaya.
The Official Trustee is not bound by that legal advice. The
Official Trustee is entitled to take a different view in the light of further reflection. Whether the proposed assignment is proper depends not on whether it coincides with previous legal advice, but on whether the true facts and circumstances, as they are now understood, indicate that the proposed assignment is proper. There is no substance in this point.
Whether the Official Trustee should have first taken certain steps
Mr Unal submitted that, before deciding to assign the cause of action to Mr and Mrs Cetinkaya, the Official Trustee should have:
·Determined whether it was proper to assign the cause of action to any party;
·Invited any party with an interest in the cause of action to purchase or compromise it;
·Considered any offers received in the light of the best interests of the creditors and Mr and Mrs Cetinkaya by determining:
oThe actual or estimated timing and gross amount of the sum to be received; and
o
The actual or estimated deductions from the gross amount to be received before any distribution to creditors or
Mr and Mrs Cetinkaya.
The Official Trustee obviously has determined, rightly or wrongly,
that it is proper to assign the cause of action to Mr and Mrs Cetinkaya.
The Official Trustee has also, obviously and very reasonably, decided that it would only be proper to assign the cause of action to
Mr and Mrs Cetinkaya. The alternative was to assign it to Mr Unal.
As discussed below, that would not be proper, as the inevitable consequence of so doing is that the very serious allegations of fraud against Mr Unal would never be determined by a court.
In view of the very serious allegations of fraud against Mr Unal,
it was not necessary for the Official Trustee to invite an offer from him, or conduct an auction of the County Court cause of action. As
Mr and Mrs Cetinkaya were the only people to whom the County Court cause of action could realistically and properly be assigned,
it was unnecessary for the Official Trustee to undertake the calculations proposed by Mr Unal. It is apparent that, under the proposed deed,
the bankrupt estates of Mr and Mrs Cetinkaya can only benefit.
Whether the action has no reasonable prospect of success
Mr Unal submitted that the County Court action has no reasonable prospect of success. If that were so, in the light of Freeman and Citicorp, it would not be proper for the Official Trustee to assign the cause of action. However, in Re Cirillo and Anor; Ex parte Official Trustee in Bankruptcy (1996) 65 FCR 576 (“Re Cirillo”), Branson J said:
I conclude that it is not the law that a trustee can only assign a cause of action if he or she is satisfied that it has a realistic chance of success (emphasis added)
. In circumstances in which insufficient funds are available to the trustee to allow a proper consideration of the likelihood of success of a cause of action asserted by the bankrupt to form part of his or her property,
the appropriate course for the trustee to follow may well be to assign such causes of action to the bankrupt for a consideration which the trustee regards as appropriate in the light of such information as is available. Such a course may well result in some benefit to the creditors and will not place the estate at risk for legal costs. Similarly, where the trustee is unwilling to risk the funds of the bankrupt estate upon litigation with uncertain prospects of success, and no creditor is willing to fund such litigation, it may well be appropriate for the trustee to assign the relevant cause of action to the bankrupt, again for a consideration regarded by him or her as appropriate in all of the circumstances.
In my view, in considering the issue of sale of the property of a bankrupt, including any sale which involves the assignment of a cause of action, the principal duty of the trustee is to consider the interests of the creditors of the bankrupt estate in question as a whole. Consideration may also, in my view, properly be given to the legitimate interests of the bankrupt and to the legitimate interests of other parties likely to be affected by the trustee's decision.
It is not to be forgotten, however, that a trustee in bankruptcy,
as an officer of the Court, is one from whom high standards of conduct are to be expected: Ex parte James; Re Condon (1874)
9 Ch App 609. In my view, it would not be proper for a trustee in bankruptcy to assign to any person a cause of action which demonstrably had no prospects of success. This would be even more strongly the case should he or she be alert to the possibility that such cause of action might be utilised to cause embarrassment to a third party.[28]
[28] (1996) 65 FCR 576 at 585-586.
In the present case, Mr Unal submitted that the County Court cause of action has no prospect of success at all because it is statute barred. Section 5 of the Limitation of Actions Act 1958 (Vic)
(“LAA Act”) imposes a six-year time limit on most causes of action, with time beginning when the cause of action accrued. However,
s.23 of the LAA Act extends time in the case of a plaintiff with a disability and s.27 provides that, in cases of fraud or mistake,
the time begins to run when the plaintiff discovered the fraud or mistake, or could with reasonable diligence have discovered it.Mr and Mrs Cetinkaya rely on s.27 of the LAA Act. They stated that they filed the County Court proceeding within six years of becoming aware of the fraud or mistake. That is a question of fact that this Court should not attempt to determine, suffice to say that it is reasonably arguable.
Mr Unal also submitted that s.21(2) of the LAA Act:
… bars any claim by a beneficiary against a trustee who was a party to the fraud, more than 6 years after the beneficiary became aware of it.[29]
[29] Outline of Facts and Contentions of the Applicant filed 4 March 2014, p.13 at para.17.
That is all well and good. However, on Mr and Mrs Cetinkaya’s case, they believed that a trust was being created for them when it was not. On Mr Unal’s case, he was not a trustee for Mr and Mrs Cetinkaya,
but simply purchased their property. Consequently, s.21(2) of the
LAA Actis not relevant.
Mr Unal then noted that the County Court proceeding has been administratively struck out and stated that there is actually no proceeding on foot. Mr and Mrs Cetinkaya pointed out that, under
r.46.08 of the County Court Civil Procedure Rules 2008 (Vic),
a proceeding that has been administratively dismissed can be reinstated in an appropriate case. I accept that that is so. Given the complex history of this matter, it seems to me that there is a reasonable prospect that Mr and Mrs Cetinkaya will be given leave for the County Court proceeding to be reinstated.
In any event, Mr and Mrs Cetinkaya said that they filed another writ on 21 November 2013 in the same terms as the original one. That writ
had not been served at the time of the hearing in this Court.
Mr and Mrs Cetinkaya claimed that the second writ was also issued within time. The second writ was not tendered. However, Counsel for Mr Unal saw it during the hearing and apparently accepted its authenticity and filing date. Because of the existence of the second writ as well, it seems to me to be reasonably arguable that the County Court proceeding is not statute barred.
Mr Unal then argued that the County Court proceeding, on the merits, has no reasonable prospect of success. In this connection,
he firstly submitted that the Official Trustee has investigated
the matter and concluded that the Court is likely to find that
Mr and Mrs Cetinkaya transferred their legal and beneficial interest to Mr Unal for appropriate valuable consideration. However, the test is not what the Court is likely to find; the test is whether the cause of action has no reasonable prospect of success.
Mr Unal then said that, as the case involves an allegation of fraud,
it requires “the strongest probative evidence in order for it to be sustained”.[30] As support for that proposition, Mr Unal relied on
[30] Transcript of Proceedings, 6 March 2014, p.43 at lines 14-15.
Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd and Ors(1992)
110 ALR 449 (“Neat Holdings”). What the High Court actually said in Neat Holdings is as follows:
The ordinary standard of proof required of a party who bears the onus in civil litigation in this country is proof on the balance of probabilities. That remains so even where the matter to be proved involves criminal conduct or fraud (See, eg, Hocking v Bell (1945) 71 CLR 430, at 500; Rejfek v McElroy (1965) 112 CLR 517, at 519-21). On the other hand, the strength of the evidence necessary to establish a fact or facts on the balance of probabilities may vary according to the nature of what it is sought to prove. Thus, authoritative statements have often been made to the effect that clear (Briginshaw v Briginshaw (1938) 60 CLR 336, at 362; Helton v Allen (1940) 63 CLR 691, at 701;
Hocking v Bell (1944) 44 SR (NSW) 468, at 477 (affirmed in Hocking v Bell (1945) 71 CLR, at 464, 500); Rejfek v McElroy (1965) 112 CLR, at 521; Wentworth v. Rogers (No 5) (1986)
6 NSWLR 534, at 539) or cogent (Rejfek v McElroy (1965)
112 CLR, at 521) or strict (Jonesco v Beard [1930] AC 298,
at 300; Briginshaw v Briginshaw (1938) 60 CLR, at 362;
Helton v Allen (1940) 63 CLR, at 711; Hocking v Bell (1944)
44 SR (NSW), at 478 (affirmed in Hocking v Bell (1945) 71 CLR, at 464, 500); Wentworth v. Rogers (No 5) (1986) 6 NSWLR 534, at 538) proof is necessary “where so serious a matter as fraud is to be found” (Rejfek v McElroy (1965) 112 CLR, at 521). Statements to that effect should not, however, be understood as directed to the standard of proof. Rather, they should be understood as merely reflecting a conventional perception that members of our society do not ordinarily engage in fraudulent or criminal conduct (See, eg, Motchall v Massoud (1926) VLR 273, at 276) and a judicial approach that a court should not lightly make a finding that, on the balance of probabilities, a party to civil litigation has been guilty of such conduct. As Dixon J commented in Briginshaw v Briginshaw ((1938) 60 CLR, at 362; and see, also, Helton v Allen (1940) 63 CLR, at 711):The seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding are considerations which must affect the answer to the question whether the issue has been proved …
There are, however, circumstances in which generalisations about the need for clear and cogent evidence to prove matters of the gravity of fraud or crime are, even when understood as not directed to the standard of proof, likely to be unhelpful and even misleading. In our view, it was so in the present case.[31]
[31] (1992) 110 ALR 449 at 449-450.
There is no doubt that a strong case is required to establish a claim of fraud. However, that does not mean that in the present case there is no reasonable prospect of success.
Mr Unal also said, in his written submissions, that, as a trustee, he had a right to be indemnified from trust property. He said that, if he is found to have been acting as a trustee for Mr and Mrs Cetinkaya,
rather than for members of his own family, he is entitled to be reimbursed from the property for the amount of his own money that he has expended.
On neither Mr Unal’s case, nor Mr and Mrs Cetinkaya’s case, did the actual transaction between them involve Mr Unal being a trustee for Mr and Mrs Cetinkaya. On Mr Unal’s case, he simply bought the property from Mr and Mrs Cetinkaya. On Mr and Mrs Cetinkaya’s case, they thought they were putting the property into a trust for their own benefit, but in fact transferred it to Mr Unal. It seems very unlikely that there would be a finding in the County Court that Mr Unal held the property on trust for Mr and Mrs Cetinkaya.
Mr Unal claims that he holds the property for the BR Trust. However, if he obtained the property by fraud, as Mr and Mrs Cetinkaya claim, then the fraud would “unravel everything”[32]. It seems unlikely that there would be any basis on which Mr Unal, as trustee, could be indemnified from the property. This point does not strike me as being a reason for the Official Trustee to refrain from assigning the
County Court cause of action to Mr and Mrs Cetinkaya.
[32] SZFDE & Ors v Minister for Immigration and Citizenship& Anor (2007) 232 CLR 189 at paras.14-15.
On 14 October 2009, the Official Trustee received legal advice that the County Court proceeding was not “demonstrably without prospects of success”. [33] However, the case has developed considerably since that time. Significantly, examinations have been conducted under s.77C of the Act and further documents have been gathered; the original legal advice has been overtaken by events.
[33] Affidavit of John Patrick Kennedy filed 23 December 2013, Annexure “JPK-5” at p.80.
Mr Unal and Mr and Mrs Cetinkaya spent a large part of their submissions seeking to persuade the Court of the merits of their respective positions. Without dwelling on the detail of those submissions, the case is obviously going to turn on the credibility of the different witnesses, in the light of such relevant documents as have been located.
It was suggested that Mr and Mrs Cetinkaya would not be regarded as credible witnesses because the s.77C examinations exposed
certain inconsistencies in their evidence. However, those apparent inconsistencies may prove to be explicable on the basis of
Mr and Mrs Cetinkaya’s poor command of the English language and possibly limited understanding of commercial transactions.
In Citicorp, the Court said:
The cases will be few where some decisive point exists on which the trustee or the Court can be satisfied that the claim has no reasonable prospect of success. The more likely result of a review of the evidence will be that the trustee, or the Court, cannot be satisfied that no possible cause of action could be made out, because the possibility cannot be excluded that at trial on properly adduced and tested evidence facts sufficient to support a claim could be established. This was the conclusion of the trial judge in the present case.[34]
[34] (1996) 71 FCR 550 at 562.
Mr Unal has not identified any decisive point indicating that the County Court cause of action has no reasonable prospect of success. Moreover, it cannot be said that the evidence is all Mr Unal’s way
or so overwhelmingly in his favour that the County Court cause of action has no reasonable prospect of success. Consequently, I reject
Mr Unal’s submissions on this issue.
Whether the proposed assignment is justified and proper
Mr Unal submitted that the Official Trustee should not be seeking directions about whether he is justified in making the proposed assignment but whether the assignment is proper. It seems to me that it is reasonable and appropriate to ask both questions.
Mr Unal submitted that the Official Trustee should not have decided to assign the County Court cause of action to Mr and Mrs Cetinkaya because they have committed offences in breach of the Act. Mr Unal also noted that Bromberg J had said, based on the circumstances as they were then understood, that the Official Trustee’s earlier decision not to assign the cause of action to Mr and Mrs Cetinkaya appeared to be the proper course for the Official Trustee to have taken.
Mr Unal submitted that there were presently a number of issues that led to a conclusion that it would not be proper to assign the County Court cause of action to Mr and Mrs Cetinkaya. Apart from the s.121 action, which will not be pursued, Mr Unal referred to the report from the AGS dated 19 February 2013.
At paragraph 6.28 and following, the report noted that when
Mr and Mrs Cetinkaya filed their statements of affairs, there was a penalty of up to 12 months imprisonment for filing a statement that the person knew to be false. Mr and Mrs Cetinkaya both said in their statements of affairs filed on 13 October 1997 that they had not been directors or shareholders of a company, or held a management position in a private company for five years. That statement was false, as they had both been directors of the company Brunswick Motor Body Repairs Pty Ltd between 3 July 1986 and 13 June 1996.
Mr and Mrs Cetinkaya said in their statement of affairs that they operated the company as a partnership. This tends to suggest that they were not trying to conceal the existence of the business, but were confused about the legal structure under which they operated. In these circumstances, and given their poor command of the English language, it may be doubted that Mr and Mrs Cetinkaya had the requisite knowledge for a successful prosecution. The report appears to reach that conclusion as well at paragraph 6.33.
In their statements of affairs, Mr and Mrs Cetinkaya also said that they had not sold, transferred, given away or otherwise disposed of any assets worth more than $1,000.00 in the previous two years.
That statement was false, because they had transferred the property within that period. Mr and Mrs Cetinkaya now say that they thought the property was transferred to their own family trust. In fact,
the property was transferred to Mr Unal.
There may be complex questions about knowledge and whether a prosecution could be successful where Mr and Mrs Cetinkaya attempted to effect a certain transfer and in fact effected a quite different one. Nevertheless, the report expressed the view that a
prima faciecase existed against Mr and Mrs Cetinkaya in respect of the failure to disclose the transfer.
The report also noted, at paragraph 6.37, that, at the time the s.77C notices were sent, there was a penalty of up to six months imprisonment for prevarication and evasion in giving answers during the examinations. The AGS considered, at paragraph 6.49 of the report, that there was a prima facie case against Mr and Mrs Cetinkaya for prevarication and evasion in the s.77C examinations. The report went on to list a number of examples.
The report, at paragraph 6.58 and following, also discussed whether
Mr and Mrs Cetinkaya had breached s.137 of the Criminal Code Act 1995 (Cth) (“the Code”) by providing false or misleading information. The report discussed three possibly false or misleading items of information given by Mr and Mrs Cetinkaya:
·First, Mr Cetinkaya’s evidence that he was not served with any documents by the ANZ Bank when there is an affidavit of service on the Court file. The report noted that Mr Cetinkaya could call for the process server to identify him and concluded that it was unlikely that the process server would be able to do so;
·Second, Mrs Cetinkaya’s claim that all rate notices for the property were sent to her sister’s house, when the notices for 1997/8 and 1998/9 show the address of the property. However, the report considered this misinformation would be more appropriately dealt with as an example of prevarication; and
·Third, Mrs Cetinkaya’s claim that she did not sign the transfer of land in respect of the property or a letter to Citylink. However, the report noted that the successful prosecution of this matter would require appropriate evidence from a handwriting expert.
All in all, the report did not conclude that any offences under s.137 of the Code were likely to be successfully prosecuted. The report concluded that there were prima facie cases in respect of the transfer of the property and the prevarication and evasion.
However, following consideration of the report, the Official Trustee apparently accepted an internal submission dated 25 March 2013 that no action be taken in relation to the possible offences. The reasons for that recommendation seem to have included the facts that the matters were, by then, over 15 years old, and there were no funds in the estates to pursue the actions.
As mentioned in the background, following Bromberg J’s decision,
the Official Trustee concluded that there was not a sufficient basis to pursue the proposed action in relation to the property under s.121 of the Act.
As the matter now stands, Mr and Mrs Cetinkaya may have committed some offences but that possibility will never be tested in Court.
On their own case, they attempted to transfer the property to a
family trust to defeat their creditors. Mr Unal may have been complicit in that attempt. In any event, by entering into negotiations with
Mr and Mrs Cetinkaya to buy the property, Mr Unal put himself in a position where his interests were in conflict with those of his clients.
If Mr and Mrs Cetinkaya’s claims of fraud are sustained, Mr Unal would have committed an act of gross dishonesty.
Previously, the Official Trustee declined to assign the County Court cause of action to Mr and Mrs Cetinkaya because they were thought to have engaged in “serious breaches of the Act”, [35] in particular, s.121 of the Act. It may also be thought that, at that time, the Official Trustee considered that there would be no need to resort to the County Court proceedings because the Official Trustee would be able to recover the property under s.121 of the Act.
[35] Affidavit of John Patrick Kennedy filed 23 December 2013, at Annexure “JPK-14”, p.3 at para.13.
It seems to me that the situation has changed significantly since Bromberg J made his decision. It has now been decided that no action will be taken against Mr and Mrs Cetinkaya under s.121 of the Act or in respect of any offence that may have been committed by them.
On the other hand, the allegations against Mr Unal are extremely serious. There is a very strong public interest in those allegations being tested and determined in an appropriate forum. The only realistic way for that to happen is if the County Court cause of action is assigned to Mr and Mrs Cetinkaya. That consideration outweighs the concerns arising from Mr and Mrs Cetinkaya’s apparent attempt to defeat their creditors and the possibility that they have committed criminal acts. The County Court cause of action may also result in a payment into the estate. There may then be:
·A payment to creditors, if any surface;
·The payment of some of the Official Trustee’s considerable costs and expenses; and
·A payment to Mr and Mrs Cetinkaya.
In these circumstances, it is proper for the County Court cause of action to be assigned to Mr and Mrs Cetinkaya.
Whether there is any prospect of a return to the bankrupt estates,
the creditors or Mr and Mrs Cetinkaya
Mr Unal submitted that the Official Trustee should have been satisfied that there was no prospect of a return to the bankrupt estates, creditors or Mr and Mrs Cetinkaya. However, if the proceeding is successful, there may be some return. Granted, Mr and Mrs Cetinkaya, under the proposed deed, will be able to deduct their legal costs from any amount recovered. However, the property has been valued at more than $600,000.00. If Mr and Mrs Cetinkaya are successful, there is likely to be some return to the estates.
Even if no creditors lodge proofs of debt, there is a public interest in the repayment of the very large expenditure by the Official Trustee
in this matter. There is also the possibility of a return to
Mr and Mrs Cetinkaya.
Unfair prejudice to Mr Unal by lapse of time
Mr Unal submitted that he would be unfairly prejudiced in his defence of the proceeding by the lapse of time and loss and destruction of documents upon which he could have relied.
I note, in this context, Branson J’s warning in Re Cirillo about embarrassment to third parties. However, it seems to me that the allegations against Mr Unal are so serious that they ought to be considered by the County Court. Of course, Mr Unal would be entitled to raise his arguments about prejudice in that forum and the arguments would no doubt be considered in the light of all of the available information.
Conclusion
In all the circumstances of this case, I consider that the proposed assignment is proper and justified. There will be orders as sought by Mr and Mrs Cetinkaya and the Official Trustee. Mr Unal’s application will be dismissed. I will hear the parties on the question of costs.
I certify that the preceding eighty-seven (87) paragraphs are a true copy of the reasons for judgment of Judge Whelan
Associate:
Date: 17 July 2014
CORRECTIONS
The name “Bahra” has been corrected to “Bahar”.
Affidavit of Peter Anthony Brown filed 8 November 2013, Brown1, CAAffidavit at Annexure
“PAB-5”.
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