Cohen v Prentice - [2002] FMCA 227

FEDERAL MAGISTRATES COURT OF AUSTRALIA

COHEN & ANOR v PRENTICE

[2002] FMCA 227

BANKRUPTCY – Public examination – whether the examination should be deferred pending the hearing of criminal proceedings.

Bankruptcy Act 1966 (Cth), ss.19, 81
Evidence Act 1995 (Cth), s.128
Crimes Act (Vic)

Barton v Official Receiver (1977) 13 ALR 283
Karounos v Official Trustee (1988) 19 FCR 330; 80 ALR 626
R v West (1971) 18FLR 333
R v Zion [1986] VR 609
Re Weiss; ex parte Official Trustee (1983) 52 ALR 167

First Applicant:

Second Applicant

PHILLIP BARRY COHEN

SOMPORN CHONGPRASITH

Respondent:

MAXWELL WILLIAM PRENTICE
as trustee

File No:

SZ786 of 2002

SZ787 of 2002

Delivered on:

25 September 2002

Delivered at:

Sydney

Hearing Date:

25 September 2002

Judgment of:

Driver FM

REPRESENTATION

Counsel for the Applicant:

Mr A Lucas

Solicitors for the Applicant:

The Law Practice, Solicitors

Counsel for the Respondent:

Mr D Pritchard

Solicitors for the Respondent:

Henry Davis York

ORDERS

The motions are dismissed.
The first applicant is to pay the costs and disbursements of the respondents to the motions, including any reserved costs and including costs thrown away by reason of the delay in the conduct of the examinations fixed for 24-26 September 2002, in accordance with the Bankrupcty Act 1966 (Cth).
The second applicant is to pay the respondents’ costs and disbursements of the motion in proceedings SZ787 of 2002, fixed at $500.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
SYDNEY

SZ786 of 2002

SZ787 of 2002

PHILLIP BARRY COHEN

First Applicant

SOMPORN CHONGPRASITH

Second Applicant

And

MAXWELL WILLIAM PRENTICE

Respondent as trustee of the bankrupt estate of Phillip Cohen

REASONS FOR JUDGMENT

I have before me for ex tempore judgment two notices of motion in identical terms in the two matters before the Court. The notices of motion seek orders setting aside and/or adjourning summonses issued by this Court at the request of Henry Davis York and served on Phillip Barry Cohen, a bankrupt. The summonses require the attendance of Mr Cohen at a public examination to be conducted by a Registrar of the Court under delegated power pursuant to s. 81 of the Bankruptcy Act 1966 (Cth) (“the Bankruptcy Act”).
The notices of motion are supported by a solicitor's affidavit by Linda May Barnes, repeated in both proceedings. Although the notices of motion were also, as filed, seeking the setting aside or adjournment of a summons directed to the bankrupt's wife, the motions were not pressed in relation to her. The motions are opposed by the respondent trustee.
Mr Lucas, who appeared for the applicants on the motions, made oral submissions to the effect that the summons to the bankrupt should be at least adjourned until the conclusion of criminal proceedings against the bankrupt which are pending. The circumstances of the bankruptcy are that civil proceedings were instituted against the bankrupt by a bank, which were settled. The terms of the settlement were not carried through and in light of that failure bankruptcy proceedings were ultimately taken against Mr Cohen.
Serious allegations of fraud and money laundering were made against the bankrupt in the civil proceedings. Essentially the same allegations have led to the pending criminal proceedings. Annexed to the affidavit of Ms Barnes is a New South Wales Police Service facts sheet which sets out the alleged offences. I am told by Mr Lucas that no date has been set for the hearing of these charges but that the preparation of the criminal proceedings is going forward. It is most likely that the charges will be heard in the latter part of 2003. It follows that if I were persuaded to grant the motion to adjourn the summons it would have to be adjourned for at least 12 months.
Although the motion seeks the setting aside of the summonses, no submission was made to me that the summonses represent an abuse of process. In the circumstances, I indicated during the course of the proceedings before me today that I was not persuaded that the summonses should be set aside. The real issue is whether they should be adjourned.
Mr Lucas submits to me that Mr Cohen is placed at grave risk if the examination proceeds in advance of the criminal proceedings because he may be compelled to answer questions that could incriminate him in the criminal proceedings, in the light of the obligation imposed by s. 81(11AA) of the Bankruptcy Act. That subsection provides that subject to any contrary direction by the Court, the Registrar or the Magistrate, the relevant person, being the bankrupt, is not excused from answering a question merely because to do so might tend to incriminate the relevant person.
In addition, subsection (11) provides that a person being examined under s. 81 shall answer all questions that the Court, the Registrar or the Magistrate puts or allows to be put to him or her. It follows that prima facie Mr Cohen may have questions put to him in the public examination which he is compelled to answer, which might tend to incriminate him in connection with the pending criminal proceedings. At the same time, Mr Lucas did not rule out the possibility that Mr Cohen may be able to object to the answering of a question in reliance upon s.128 of the Evidence Act 1995 (Cth) (“the Evidence Act”) dealing with the granting of certificates.
This is a matter that I will refer to later, but in relation to that issue it seems to me that the Evidence Act applies subject to other legislation and the specific provisions of ss.81(11) and 81(11AA) must be taken, in my view, to prevail over the general provisions of the Evidence Act. I find, for the purposes of these proceedings, that Mr Cohen could be compelled to answer questions in a public examination under s.81 even if answering those questions may tend to incriminate him in connection with pending criminal proceedings.
Mr Lucas submits further that even if the answers given in the public examination were not admissible in subsequent criminal proceedings, the transcript of those proceedings would be available and could be used by prosecuting authorities to undertake a course of inquiry to gather the same or other evidence to be used in the criminal proceedings. Mr Lucas submits that the conduct of the public examination in these circumstances, which in his submission, will necessarily traverse the matters to be dealt with in the criminal proceedings, puts at severe prejudice the rights of an accused person. For that reason Mr Lucas submits that the public examination should be deferred.
In reply, Mr Pritchard submits that there are legitimate areas of inquiry to be pursued in the public examination and that the public examination, not being an abuse of process, should be permitted to continue. Mr Pritchard refers to the obligations on the trustee to pursue information for the benefit of creditors. He points to the prejudice that would be suffered by creditors if there were a significant delay in the discovery of information as to what has become of the bankrupt's property.
I am indebted to the learned authors of the Butterworths Bankruptcy Service for their helpful discussion on the operation of s.81. At page 17,149 and following the learned authors say that the power to examine a person in relation to the bankrupt or his or her examinal affairs is unusual and far-reaching. The power is inquisitorial and when exercised by a Registrar administrative and not judicial Re Weiss; ex parte Official Trustee (1983) 52 ALR 167. The person examined is not in the position of an ordinary witness but is, so to speak, the witness of the Court.
Although the affidavit in support of the notices of motion objects to the summonses as a fishing expedition, it is clear to me that a public examination conducted under s.81 is, of its nature, a fishing expedition, given that its purpose is to discover information reasonably required for the performance by the trustee of his or her duties. Section 81 is, in my view, a licence to go fishing although there are some limits on that licence.
The learned authors of the Butterworths Service state that the purpose or the power to examine is to assist the trustee to gather information so that the trustee can discharge his or her duties more effectively. Those duties are set out in s.19 of the Bankruptcy Act. A number of the trustee's duties relate to the discovery and realisation of assets of the bankrupt estate. The duties, however, extend to consideration whether any offences have been committed against the Bankruptcy Act and whether and when the bankrupt should be released from bankruptcy.
The learned authors go on to say that the question of whether a public examination can be used to gather information relating to the possible commission of offences has been the subject of some debate. In R v Zion [1986] VR 609, his Honour Murphy J indicated that one of the purposes of the power to examine was to see whether any offences had been committed by the bankrupt and on that basis admitted answers given on oath in an examination on the trial of the bankrupt on charges of theft and obtaining property by deception. That case concerned offences under the Victorian Crimes Act, not the Bankruptcy Act.
On the other hand, in R v West (1971) 18 FLR 333, his Honour White J held that the purpose of the power under s. 81 of the Bankruptcy Act was to determine the nature and extent of the property of the bankrupt and not to aid in the prosecution of offences under that Act. His Honour ruled that the transcript of an examination conducted for the purposes of discovering offences under the Act was not admissible on the trial of the offences. It might have been relevant in that case that while the offences were under the Bankruptcy Act they were not those of the bankrupt. The decision has been followed subsequently.
The learned authors also go on to say that there is no presumption that a summons should be set aside or adjourned just because the information sought relates to or could affect other litigation. One of the purposes of the examination procedure is to establish whether action should be instituted or continued to recover the bankrupt's assets. For these reasons, the trustee is entitled to inquire into the very matters the subject of existing or contemplated proceedings.
Nevertheless, discharge or adjournment of a summons may be appropriate where the summons is being improperly used as an aid to litigation or where it would be just and equitable to defer the examination until after the litigation. The Court will normally only set aside the summons if there is an improper motive behind the summons. The learned authors refer to Karounos v Official Trustee (1988) 19 FCR 330; 80 ALR 626. That case is an important and binding authority on the question of whether I should adjourn the summons in issue. The decision was one of the Full Federal Court. Their Honours set out a list of considerations relevant in deciding whether to set aside or adjourn a summons. These include:
a)the power given by s.81 is an unusual and far-reaching one and its use could easily become oppressive and vexatious if not approached responsibly by applicants and controlled carefully by the Registrar;
b)the power is exercised in the interests of creditors and those interests should not be defeated by an unduly technical and restrictive approach;
…
g)if a person summoned believes that compliance with the summons would be oppressive or vexatious he can apply to the Court to have the summons set aside or adjourned to a more convenient time. Such an application will usually be determined on a broad view of the issues in the case and a weighing of competing principles;
h)discharge or adjournment of a summons may be appropriate where there is litigation pending or likely to be instituted and it is alleged that the summons is being improperly sought as an aid to that litigation and ordinary procedures of discovery, interrogation or subpoena would be fairer and more appropriate, or that it would be more just and equitable to defer the examination under s.81 of the Act until the particular piece of litigation has been disposed of;
i)if such an application is made to the Court, the Court must consider afresh on the material before it whether the summons should be set aside or adjourned. It is not merely deciding whether on the material before the Registrar he or she correctly exercised a discretion;
j)there is no difference in principle between cases where proceedings have been instituted and where they are merely in contemplation, but where litigation is afoot the issues will be clearer, procedures of discovery, inspection and subpoena will be available and the time of the hearing may be more certain;
k)there is no presumption in either case that the summons will be set aside or adjourned. It would normally only be set aside if the application was defective or some improper motive was found behind it. It would be adjourned if the balance of justice and convenience in the particular case so required. In some cases it might be appropriate to defer examination on a particular topic. In all cases the Registrar of the Court will be careful to see that injustice is not occasioned in the course of examination by the particular questions asked.
In this matter, as I have already noted, there is no real issue as to whether I should set aside the summons. The real question is whether I should adjourn it. There are known to be criminal proceedings on foot and the subject matter of those criminal proceedings is strongly connected to the matters sought to be explored in the public examination. It is therefore inevitable that in the course of the public examination questions will be asked which will have a bearing on the criminal proceedings. It seems inevitable that questions will be asked which could incriminate the bankrupt in those criminal proceedings.
That is a matter to be taken seriously. The protections available to an accused person in criminal proceedings are part of the life blood of a democratic society and should be respected. The inquisitorial procedures permitted by s.81 should not provide an opportunity to circumvent the ordinary protections available to an accused person. That said, where it is open to the person conducting the public examination to give appropriate protections to the person being examined, the Court should not lightly prejudice the interests of creditors by requiring the examination to be deferred.
Some consideration was given in submissions to me today as to whether it was open to me or appropriate for me to seek myself to control the conduct of the public examination. I accept that I probably cannot and, in any event, should not. It seems clear from the scheme of s.81 that the issue of whether a person being examined should be compelled to answer questions or should be excused is an issue properly to be determined by the Court, Registrar or Magistrate conducting the public examination. It is clear from the terms of ss.81(11AA) and 81(11A) that that issue needs to be addressed at the time on a question-by-question basis. I am persuaded that I should not seek to fetter the discretion of the Registrar conducting this examination by imposing any restrictions by reference to any class of questions. I note that that is consistent with the approach taken by his Honour Sweeney J in Barton v Official Receiver (1977) 13 ALR 283.
The real question for me, in the circumstances, is whether I can be satisfied that the public examination of the bankrupt can properly proceed without unfairly trespassing on the rights of the bankrupt as an accused person the subject of pending criminal proceedings. There is no suggestion of any collusion between the trustee and the prosecuting authorities. There was nothing before me to indicate that the public examination is being used as an aid to the prosecution. There is, nevertheless, a risk that matters dealt with in the public examination may involve the self-incrimination of the bankrupt.
It is of course a matter for the Court conducting the criminal proceedings to decide whether or not answers given in the public examination should be admitted as evidence in the criminal proceedings. However, as pointed out by Mr Lucas, the investigating and prosecuting authorities may be assisted in any event by reference to the transcript of the public examination in conducting their inquiries and preparing for the trial of the criminal proceedings. That seems to be an inevitable risk in any case where there are pending criminal proceedings at the time of a public examination. I am not persuaded that that in itself is a reason for adjourning the public examination.
Earlier in these reasons I referred to s.128 of the Evidence Act. That section provides that a certificate may be granted, preventing another court from receiving in proceedings in that court, evidence given in the proceedings the subject of a certificate, in circumstances of self-incrimination. There is a question whether it would be open to the Registrar to give protection to the bankrupt by the granting of such a certificate.
The learned authors of the Butterworths Bankruptcy Service state that where the examination is being conducted by the Court, or the Registrar sitting as the Court, s.128 of the Evidence Act would probably apply. There are two questions in this connection, it seems to me. One is whether the proceedings before the Registrar are administrative, or judicial. The other is whether s.128 of the Evidence Act has any application in the conduct of an examination under s. 81 in any event. By the time submissions were completed today there appeared to be a level of agreement between Mr Lucas and Mr Pritchard that s.128 may not apply.
Mr Lucas submits that the conduct of a public examination is administrative, rather than judicial. He refers, in particular, to the inquisitorial nature of the examination. I have already referred to authority that the conduct of an examination by a Registrar has been taken to be administrative. I think it likely that if the examination were to be conducted by the Bankruptcy Court, or by a Federal Magistrate, that the proceedings would be judicial, given that the Court, and a Federal Magistrate, unless acting as a persona designata, must exercise the judicial power of the Commonwealth. It is not part of the function of the Bankruptcy Court or a Federal Magistrate to exercise administrative power, although it seems that that may be the nature of proceedings conducted by a Registrar, unless acting under delegated power as the Court. That may be the subject of some further debate.
Mr Pritchard submits that s.128 has no application in any event in the conduct of a public examination because it is clear from the terms of s.81 of the Bankruptcy Act, in particular, s.81(11AA), that the bankrupt being examined would have no right to refuse to answer a question on the ground of self-incrimination. Section 128 presupposes the existence of such a right.
While there is some force, I concede, in that submission, in my view, the power of direction conferred by s.81(11AA) ought logically to extend beyond the simple direction as to whether a question should or should not be answered and should logically extend to the consideration of whether a certificate should be granted pursuant to section 128, notwithstanding that the general precondition to the granting of a certificate in that section would not apply in its strict terms.
That is a matter that could be left to the Registrar. The Registrar would need to consider whether the proceedings being conducted were administrative or judicial for the purposes of considering whether a certificate would be granted. Subject to that, it seems to me that it is sufficient in this matter if the Registrar gives proper and careful consideration to whether the bankrupt, Mr Cohen, should be excused from answering particular questions relating to matters which may lead to him incriminating himself to his prejudice in the pending criminal proceedings.

I am satisfied that the summons relates to matters which are properly the subject of inquiry pursuant to s.81. I am satisfied that the inquiry properly extends wider than the matters the subject of the pending criminal proceedings. While it seems inevitable that questions will traverse facts and circumstances relevant to those criminal proceedings and while it seems inevitable that the bankrupt will, at an early stage and probably frequently, call upon the Registrar to give a direction that he be excused from answering particular questions, it does not necessarily follow that the conduct of the public examination in advance of the criminal proceedings is futile. It does not necessarily follow that the Registrar could not give proper and adequate protection to the bankrupt by excusing him from answering particular questions that unfairly prejudice his interests as an accused person in known proceedings. In all the circumstances, therefore, I am not persuaded that I should adjourn the conduct of the public examination at issue in these proceedings and I will, therefore, dismiss the motions.
Mr Pritchard has sought a costs order against both the bankrupt Mr Cohen and his wife Somporn Chongprasith, including costs thrown away by reason of delays in the conduct of the examinations, which were fixed for 24 to 26 September 2002.
The notices of motion in their terms sought orders both on behalf of Mr Cohen and his wife, although it was apparent today that the issues to be resolved related only to Mr Cohen and the motions were not pressed in relation to his wife. In addition, only one summons in matter number SZ787 of 2002 relates to his wife.
Inevitably, some preparation would have been required by the trustee in relation to the motions to the extent that they were apparently being pursued by the bankrupt's wife and the trustee is entitled to some compensation for that preparation. I do not think, however, that it would be just to make a costs order which permitted the trustee to place on Somporn Chongprasith the full burden of the costs incurred in the proceedings, even limited to the conduct of the proceedings up to 10.15 am today.
I will, therefore, order that subject to the Bankruptcy Act, Phillip Barry Cohen pay the costs of the trustee of the notices of motion heard today, including any costs thrown away by reason of delays in the conduct of the examinations fixed for 24 to 26 September 2002 by the bringing and hearing of the notices of motion. I further order that Somporn Chongprasith pay the costs of the trustee of and incidental to preparation of proceedings in matter number SZ787 of 2002, which I fix in the sum of $500.

I certify that the preceding thirty-three (33) paragraphs are a true copy of the reasons for judgment of Driver FM

Associate:

Date: 11 October 2002