Clout (Trustee), in the matter of Dexter (Bankrupt)
[2000] FCA 1847
•11 DECEMBER 2000
FEDERAL COURT OF AUSTRALIA
Clout (Trustee), in the matter of Dexter (Bankrupt) [2000] FCA 1847
IN THE MATTER OF GEOFFREY ROBERT DEXTER (A BANKRUPT)
THE APPLICATION OF DAVID LEWIS CLOUT (AS THE TRUSTEE IN BANKRUPTCY OF THE ESTATE OF GEOFFREY ROBERT DEXTER)
Q 7302 OF 2000DRUMMOND J
BRISBANE
12 DECEMBER 2000
IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
Q 7302 OF 2000
IN THE MATTER OF GEOFFREY ROBERT DEXTER (A BANKRUPT)
THE APPLICATION OF DAVID LEWIS CLOUT (AS THE TRUSTEE IN BANKRUPTCY OF THE ESTATE OF GEOFFREY ROBERT DEXTER)
JUDGE:
DRUMMOND J
DATE OF ORDER:
11 DECEMBER 2000
WHERE MADE:
BRISBANE
THE COURT ORDERS THAT:
1.Each of the notices of motion be dismissed.
2.The applicant on each notice of motion pay the respondent’s costs of and incidental to the notices of motion.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
Q 7302 OF 2000
IN THE MATTER OF GEOFFREY ROBERT DEXTER (A BANKRUPT)
THE APPLICATION OF DAVID LEWIS CLOUT (AS THE TRUSTEE IN BANKRUPTCY OF THE ESTATE OF GEOFFREY ROBERT DEXTER)
JUDGE:
DRUMMOND J
DATE:
12 DECEMBER 2000
PLACE:
BRISBANE
REASONS FOR JUDGMENT
Yesterday, I dismissed three notices of motion to set aside summonses issued by the trustee in bankruptcy of one Dexter, under s 81 the Bankruptcy Act 1966 (Cth) (“the Act”), for the examination of three persons who were also summonsed to produce certain documents. I now give my reasons for making those orders.
Mrs Corbett, the ninth respondent in the principal action, is summonsed under s 81 of the Act in her own capacity and in her capacity as a director of Anscor Pty Ltd and Croftby Downs Pty Ltd, Thornville Pty Ltd as trustee for the Thornville Executive Incentive Trust and Anscor Investments Pty Ltd, the first respondent and the tenth to twelfth respondents. She is required to give evidence in relation to the examinable affairs of the bankrupt. The summons also requires her to produce the following documents at the examination:
(a)The bank statements for the period 26 March 1996 onwards of Anscor Pty Ltd, Croftby Downs Pty Ltd, Anscor Investments Pty Ltd, Thornville Pty Ltd (in its own capacity and in its capacity as trustee of the Anscor Executive Incentive Trust and the Thornville Executive Incentive Trust) and Anne Shirley Corbett;
(b)The financial statements for the period 26 March 1996 onwards of Anscor Pty Ltd, Croftby Downs Pty Ltd, Anscor Investments Pty Ltd, Thornville Pty Ltd (in its own capacity and in its capacity as trustee of the Anscor Executive Incentive Trust and the Thornville Executive Incentive Trust) and Anne Shirley Corbett including the balance sheets, profit and loss statements and receipts and payments journals;
(c)The taxation returns for the period 26 March 1996 onwards for Anscor Pty Ltd, Croftby Downs Pty Ltd, Anscor Investments Pty Ltd, Thornville Pty Ltd (in its own capacity and in its capacity as trustee of the Anscor Executive Incentive Trust and the Thornville Executive Incentive Trust) and Anne Shirley Corbett; and
(d)The books, deeds, papers, writings and other records of the assets of Anscor Pty Ltd, Croftby Downs Pty Ltd, Anscor Investments Pty Ltd, Thornville Pty Ltd (in its own capacity and in its capacity as trustee of the Anscor Executive Incentive Trust and the Thornville Executive Incentive Trust) and Anne Shirley Corbett as at the time of the examination.
The second summons is to “The Director, Graham Scott and Co Pty Ltd”. Graham Scott and Co are the accountants to the ninth to twelfth respondents in the action. The summons to the Director is in the same terms as that to Mrs Corbett. The third summons is to Mr John McDonald McAuley, a taxation and accountancy adviser to the first and the ninth to twelfth respondents. The summons to Mr McAuley is in the same terms as the other two summonses save that it calls on him to produce the following additional classes of documents:
(e)The books, files, papers, writings and other records of any accounting, taxation, financial planning, corporate structure, trust, superannuation or other professional advice provided by you to Anscor Pty Ltd, Croftby Downs Pty Ltd, Anscor Investments Pty Ltd, Thornville Pty Ltd (in its own capacity and in its capacity as trustee of the Anscor Executive Incentive Trust and the Thornville Executive Incentive Trust) and Anne Shirley Corbett including, without limitation, any advice in relation to the engagement of Pacific International Asset Management Ltd (‘PIAM’) as trustee of a superannuation fund set up for the benefit of employees of the Anzcorp Trust and your involvement in the granting of mortgages by any of these entities in favour of PIAM in March 1998.
The s 81 summonses were issued on 23 October and served on Graham Scott and Co on 2 November and on Mrs Corbett and Mr McAuley on 10 November. The motions to set aside summonses were not filed until 6 December, ie, five days before the time appointed for the commencement of the s 81 examinations (although it appears that at the end of November complaint was made on behalf of various of the proposed examinees in relation to the summonses).
The trustee in proceedings he has brought against the first respondent, Mrs Corbett, and the tenth to twelfth corporate respondents seeks relief under s 120 the Act in respect of commission moneys paid by the bankrupt to the first respondent, to Mrs Corbett, and to the tenth to twelfth respondents. In the action, the trustee also seeks relief by way of tracing orders against these four last mentioned entities which are said to have received part of the commission moneys paid by the bankrupt to the first respondent. The trustee also contends that if commission moneys received from the bankrupt by the first respondent were paid by way of loans by it to the ninth to twelfth respondents, the trustee is entitled to that part of the first respondent’s property that consists of the choses in action in the form of the debts due by those respondents to the first respondent in respect of any such loans as may have been made.
Mr McAuley was responsible for engaging Pacific International Asset Management Limited, the thirteenth respondent in the principal action, to establish an offshore employee superannuation fund for employees of the trust of which the first respondent is trustee. These employees include Mrs Corbett and her husband. Funds have flowed from the first respondent to the thirteenth respondent and back to the first respondent, which the trustee says originate in commissions paid by the bankrupt to the first respondent. The thirteenth respondent has also taken securities over certain property of Mrs Corbett and the tenth respondent and the first respondent, the validity of which the trustee attacks in the litigation. The trustee also claims an account from the thirteenth respondent in respect of $800,000 paid to it by the first respondent.
At the hearing of the motions, counsel for the recipients of the three summonses refined his argument attacking the validity of the summonses to two grounds. Focusing on the letter from the trustee’s solicitors of 1 December 2000, he submitted firstly that the trustee was seeking to use the examination power in circumstances in which that was an abuse of the power. It was said that the trustee, on his own admission, was seeking to use the examination power to obtain discovery which he had not obtained in the litigation against the ninth to twelfth respondents.
However, Australian law long ago recognised that a trustee in bankruptcy, like the liquidator of a company, has special powers not possessed by ordinary litigants which enables such an official to make use of the public examination power, firstly, to assist in gathering evidence for use in possible or existing litigation; secondly, for gathering information as to the strength of the case that can or has already been mounted for the purpose of gathering in funds for the administration and thirdly, for the purpose of obtaining information needed by the trustee to assess the worth of the causes of action relied on by the trustee, ie, to assess what is likely to be recovered for the benefit of the administration from any such litigation.
The starting point for the development of the modern Australian law and its divergence from English law is Street J’s judgment in Re Hugh J Roberts Pty Ltd (in liq) and The Companies Act (1970) 91 WN(NSW) 537. The principles have been developed in Re Rothwells Ltd (No 2) (1989) 7 ACLC 576, Grosvenor Hill (Qld) Pty Ltd v Barber (1994) 48 FCR 301 and Re Excel; Wortherley v England (1994) 52 FCR 69. There may in some respects be a difference in emphasis on when it may be improper for a trustee in bankruptcy to use the examination power in aid of litigation brought by the trustee between Karounos v Official Trustee (1988) 19 FCR 330, and decisions of which Grosvenor Hill is an example. Such decisions more accurately, in my opinion, encapsulate the modern approach.
It is only if the trustee can be seen to be seeking to abuse the statutory power of examination that he will be denied his right to pursue such a course against examinable persons in relation to the examinable affairs of the bankrupt. It is not possible to state in a definitive way all the circumstances in which that will be so. But by way of example only, the statutory power of examination is likely to be abused where it is invoked simply for the purpose of destroying the credit of the defendant’s witnesses to be called in proceedings brought or contemplated by the trustee, or where it is invoked to circumvent limitations on discovery imposed by the court in the trustee’s action: see Re Excel at 91.
I do not, however, accept that the trustee is using the examination power here improperly. The trial date for this complex litigation has been set for May 2001. A quite tight timetable was fixed by the directions I gave on 20 October last. The first and ninth to twelfth respondents are now in substantial and unexplained default in complying with directions for the delivery of, in some cases, their defence and, in other cases, their amended defence. These respondents have had detailed knowledge of the trustee’s claims against them since about the middle of the year. They are also in default in complying with orders made in the litigation for discovery.
For the trustee, in these circumstances, now to seek public examination and access to documentation held by the various respondents and by their advisers in circumstances where it is not suggested that any are outside the scope of the expression “examinable persons” in relation to the bankrupt, and in circumstances where, save for one qualification, there is no challenge to the range of documentation demanded being relevant to the “examinable affairs” of the bankrupt, is, in my opinion, a permissible use of the statutory power.
The qualification I have mentioned forms the subject matter of the second ground now relied on to attack the summonses. Counsel for the examinee submits that the summons to each is oppressively wide in so far as it calls for production of documents not confined to documents held by each which can be seen to relate to issues in the litigation, and thus to what is conceded to be to the examinable affairs of the bankrupt. This submission is made in relation to pars 2(a), (b), and (c) of each of the summonses. Counsel for the examinees accepts that the wide range of documents sought by par 2(d) of each summons is justifiable on the basis that such documents are relevant to the assessment of the likely recoveries, ie, the worth of the proceedings the trustee has brought against the entities whose documents are the subject of this demand for production.
As to the documents sought by pars 2(a), (b) and (c), the bank statements, financial statements and taxation returns of each of the corporate respondents from 26 March 1996 onwards, without other limit, counsel submits the demands here made are oppressively wide even if it be accepted that the current financial position of each of these respondents may be relevant to the trustee’s assessment of the worth of the proceedings he has brought against each.
However, the litigation in which relief under s 120 of the Act and tracing orders are sought will involve an examination of the flows of money received by Anscor from the bankrupt through the bank accounts and books of each corporate respondent and also into the control of the thirteenth respondent. The documents sought are relevant to that exercise which is concerned with Dexter’s “examinable affairs”. The trustee has to date only been able to identify what has become of only a relatively small part of the very large sums paid by the bankrupt to Anscor by way of commissions. See the judgment I gave in this matter on 31 May 2000. Quite apart from the possible relevance of the documents now in question to the trustee’s case as presently framed the trustee can, I think, say that the entirety of the documents now in contention relate to the bankrupt’s examinable affairs, ie, to his dealings, transactions and affairs: they may enable the trustee to identify other moneys of the bankrupt that passed into the control of the recipients in respect of which the trustees may have claims against those recipients.
I certify that the preceding fifteen (15) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Drummond. Associate:
Dated: 12 December 2000
Counsel for the Trustee: PD McMurdo QC and DA Quayle Solicitor for the Trustee: Mallesons Stephen Jacques Counsel for the First, Ninth, Tenth, Eleventh, Twelfth Respondents: IR Perkins Solicitor for the First, Ninth, Tenth, Eleventh, Twelfth Respondents: Shand Taylor Solicitor for the Seventh Respondent: Bateman Makridakis Solicitor for the Eighth Respondent: Clarke & Kann Dates of Hearing: 11 and 12 December 2000 Date of Judgment: 12 December 2000
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