Clyne, Peter Leopold v The Deputy Commission of Taxation

[1985] FCA 364

Re: PETER LEOPOLD CLYNE
Ex Parte: THE DEPUTY COMMISSIONER OF TAXATION
NSW No. 929 of 1983
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA
GENERAL DIVISION, BANKRUPTCY
DISTRICT OF NEW SOUTH WALES AND
THE AUSTRALIAN CAPITAL TERRITORY
Beaumont J.

CATCHWORDS

Bankruptcy - application by trustee to make allowance to bankrupt for cost of legal representation at public examination - Bankruptcy Act, 1966, s.135(1)(j).

Words and Phrases - "allowance".

HEARING

SYDNEY
#DATE 1:8:1985

ORDER

1. Leave be granted to the trustee to make an allowance to the bankrupt in the sum of $20,000.00 for the purpose of the bankrupt's retainer of counsel and solicitors at his public examination.

2. Reserve liberty to the trustee to apply on such notice as a judge shall allow for leave to make a further allowance to the bankrupt for the aforesaid purpose.

3. That the Deputy Commissioner of Taxation pay the costs of the trustee and of the bankrupt of the application.

Note: Settlement and entry of orders is dealt with in Order

36 of the Federal Court Rules.

JUDGE1

Mr. J.W. O'Brien, the trustee of the bankrupt estate of Mr. Clyne, seeks the leave of the Court to make an allowance to the bankrupt of not more than $41,000.00 for the purpose of the retainer by the bankrupt of senior and junior counsel and a solicitor to represent him at his forthcoming public examination. The leave is sought pursuant to s.135 (1)(j) of the Bankruptcy Act 1966 ("the Act") which, so far as relevant, provides:-

"135 (1) The trustee may, with the permission of the creditors granted by resolution passed at a general meeting or of the committee of inspection or with the leave of the Court.....

(j) make such allowance out of the estate as he thinks just to the bankrupt, the spouse of the bankrupt or the family of the bankrupt;"

1. The background to the application is as follows. Only two creditors have proved in the bankrupt's estate: the Deputy Commissioner of Taxation who claims a debt in excess of $1,000,000.00; and Mr. W.E. Andrew, as trustee of a previous bankrupt estate, who claims some $11,000.00 being the balance of a debt owed under a composition approved by the Court. A meeting of these creditors was convened by the trustee and held on 31 May 1985. The purpose of the meeting was to consider an application by the bankrupt for an allowance for the payment of costs to be incurred by the bankrupt in securing representation at his public examination which is estimated to last nine days. Those costs were anticipated to be in the order of $43,000.00 and the bankrupt offered to contribute $2,000.00. At the meeting, the Deputy Commissioner opposed the making of any allowance, although he proposed to retain senior and junior counsel to represent him at the examination. On the other hand, Mr. Andrew indicated that, in his view, the bankrupt should be allowed to retain junior counsel if the Deputy Commissioner retained junior counsel only; but that, if the Deputy Commissioner employed senior counsel at the examination, the bankrupt should be permitted to match that representation by the grant of an appropriate allowance.

2. The present application proceeded on the footing that, although both the trustee and Mr. Andrew consented to the grant of the allowance sought, the Deputy Commissioner opposed it.

3. In his opposition, the Deputy Commissioner advanced a number of contentions. In the first place, he submitted that s.135 (1)(j) had no application to a payment of the kind now sought. Rather, he said, the type of allowance contemplated by s.135 (1)(j) was of a restricted character only. He argued for a reading down of the provision, construing it as limited to payments by way of periodical allowances for the maintenance of the bankrupt and his family.

4. In my opinion, the provision should not be read down in the manner suggested.

5. Uninstructed by authority, one would think that the payment now proposed would fall within the ordinary meaning of the term "allowance". According to the Macquarie Dictionary, one of its primary meanings is -
   
   

"A definite sum of money allotted or granted to meet expenses or requirements: an allowance of pocket-money."

1. In Mutual Acceptance Company Limited v. The Federal Commissioner of Taxation (1944) 69 CLR 389, a question arose as to the meaning of "allowances" in a statutory definition of wages for payroll tax purposes. Although the context is far removed from the present case, Latham, C.J. (at p.396) relied upon a dictionary definition of "allowance" which included, as an illustration, "an allowance for costs". A similar question arose in an employment situation in V.I.P. Insurances Ltd. (In Liq.) and the Companies Act (1978) 2 N.S.W.R. 297. Needham J. thought that "allowance....is, generally speaking, a periodical payment paid in addition to wages or salary..." (at p. 299).

2. More pertinent for present purposes are some observations made by Wright, J. in In re Charlwood; Ex parte Masters (1894) 1 QB 643 in upholding an agreement made between a solicitor and his client, who was charged with murder, by which agreement, in consideration of a lump sum paid, the solicitor consented to conduct the defence. Shortly after payment of money under the agreement, the client committed an act of bankruptcy. His Lordship said (at p.646) -
   
   

"As to the consideration urged on behalf of the respondent, that unless such an agreement were upheld it would be impossible for a bankrupt who was being prosecuted on a criminal charge ever to be defended, I think that rule 325 of the rules under the Bankruptcy Acts, 1883 and 189O, would enable the official receiver to make such allowance as might be right, subject to the directions of the Board of Trade, or, possibly, under rule 334, the official receiver might apply to the Court for directions."

1. Bankruptcy Rule 325 relied on by Wright, J. empowered the making of an allowance "for the support of (the bankrupt) and his family" (see Wace The Law and Practice of Bankruptcy 1st ed. 19O4 p.506; cf. Bankruptcy Act, 1849 (U.K.) s.194). The notion of "support" is no longer reproduced in the local version of this provision. This omission suggests that s.135 (1)(j) should not be read down, as contended by the Deputy Commissioner, to mean little more than an allowance by way of daily subsistence for a bankrupt and his family.

2. It is true, as Dixon, J. noted in Mutual Acceptance (at p.402) that "allowance" is a word which takes its meaning from a context rather than affecting or controlling the meaning of other words in the context in which it occurs:-
   
   

"For, considered alone and at rest rather than at work with other words, it means the allowing of a thing or a thing allowed. It is only by its application that you discover the kind of thing in mind."

1. But, even if one accepts the neutrality of the term in that sense, it does not follow that the present context in which the word is found provides a reason for restricting its meaning in the way suggested by the Deputy Commissioner. On the contrary, given the safeguard built into the exercise of the powers conferred on the trustee by s.135 (1) in terms of requiring the consent of creditors or the leave of the Court, there is no reason to suppose that the legislature intended to limit the application of s.135 (1)(j) to any particular kind of allowance. In my view, the provision permits an allowance to be made for any appropriate purpose, including legal costs.

2. It follows, in my opinion, that as a matter of power, s.135 (1)(j) extends to the present case. The exercise of the discretion of the Court is, of course, a different question.

3. The Deputy Commissioner submitted that the application should be refused in the Court's discretion because of the bankrupt's expensive lifestyle. There was evidence that the bankrupt appears to live at an extremely comfortable level but none of the parties made any serious attempt to explore this issue in any depth. This application is not an appropriate vehicle to adjudicate upon the extravagance or otherwise of the bankrupt. Such an issue is more properly to be resolved by an application under s.131(2) of the Act.

4. Finally, the Deputy Commissioner argued that the bankrupt should be entitled to the costs of a junior barrister only. In my view, this course would unfairly disadvantage the bankrupt. It cannot be doubted that the bankrupt's affairs are extremely complicated, and despite the limited role of counsel appearing for a bankrupt on public examination, there would nonetheless seem to be a real prospect in the present case that counsel would wish to challenge the propriety of some of the questions to be put at the examination (see s.69(11)) or to claim and argue for privilege against self-incrimination on behalf of the bankrupt so far as such privilege is available (see s.69(12)); cf. Clyne v. Scott (1983) 52 ALR 405 at p 413). The very making of such a claim can raise complex legal questions which, in my opinion, justify the retainer of senior counsel, given that the liberty of the subject may be at risk.

5. I propose, in principle, to accede to the application.

6. The amount of the allowance presents some difficulty. Since the duration of the public examination cannot reliably be estimated, it is impossible to predict with any degree of confidence what the costs of the bankrupt's representation will be. In the circumstances, having regard to the amount involved, the appropriate course is to grant leave to the trustee to make an allowance of $20,000.00 at this stage and to reserve liberty to apply for leave to make a further allowance should that be necessary. It is possible that the examination may not take as long as suggested. Moreover, once the examination is under way, the legal representatives of the parties may agree upon a modus operandi permitting senior counsel for the bankrupt to be absent for some part at least of the examination. Whilst it is not appropriate that the Court force any such procedure upon the parties, at least at this early stage, nonetheless some flexibility could be achieved by co-operation between the parties when the preparation of the matter is further advanced.

7. I should note that no attempt was made, in evidence or in argument, to challenge the reasonableness of the fees proposed to be charged by those retained to represent the bankrupt at his examination.

8. Since the Deputy Commissioner has been, on the whole, unsuccessful in his opposition to the application, he must bear the costs of the other parties.

9. I make the following orders:-
   
   

1. That leave be granted to the trustee to make an allowance to the bankrupt in the sum of $20,000.00 for the purpose of the bankrupt's retainer of counsel and solicitors at his public examination.

2. Reserve liberty to the trustee to apply on such notice as a Judge shall allow for leave to make a further allowance to the bankrupt for the aforesaid purpose.

3. That the Deputy Commissioner of Taxation pay the costs of the trustee and of the bankrupt of the application.