Downey, P.C. v The Official Trustee in Bankruptcy

[1992] FCA 910

JUDGMENT No. ...?. !..Q ..... I ...2.k

IN THE FEDERAL COURT OF AUSTRALIA )

GENERAL DIVISION	)
BANKRUPTCY DISTRICT OF	)
THE STATE OF VICTORIA	) No. VB 1253 of 1991
B E T W E E N :

PATRICK CORNELIUS DOWNEY

Applicant

- and -

THE OFFICIAL TRUSTEE IN BANKRUPTCY (as trustee

of the bankrupt estate of PATRICK CORNELIUS DOWNEY)

Respondent

Coram:	Olney J
Place:	Melbourne
Date:	30 November 1992

THE COURT ORDERS:

1. That the application be dismissed;

2. That the costs of the respondent including any reserved costs be taxed and paid by the applicant;

NOTE:	Settlement and entry of orders is dealt with in
Order 36 of the Federal Court Rules.

1. That the costs of Browning-Ferris Industries (Australia) Pty Ltd including any reserved costs be taxed and paid by the applicant.

IN THE FEDERAL COURT OF AUSTRALIA	)
GENERAL DIVISION	)
BANKRUPTCY DISTRICT OF	)
THE STATE OF VICTORIA	1 No. VB 1253 of 1991
B E T W E E N :

PATRICK CORNELIUS DOWNEY

Applicant

- and -

THE OFFICIAL TRUSTEE IN BANKRUPTCY (as trustee

of the bankrupt estate of PATRICK CORNELIUS DOWNEY) -

Respondent

Coram:	Olney J
Place:	Melbourne
Date:	30 November 1992

REASONS FOR JUDGMENT

The applicant in these proceedings (the bankrupt) was made	bankrupt on the petition of the Browning-Ferris Industries
(Australia) Pty Ltd (BFI) on 15 May 1991 whereupon the respondent in these proceedings (the Official Trustee) became the trustee of his estate.
On 18 June 1992 the applicant applled to the Court "under section 178 of the Bankruptcy Act" for orders:

Quashing or setting aside the decision of the Official Trustee to transfer a share held by the bankrupt's estate in Browning-Ferris Industries (SA) Pty Ltd (BFISA) (the share) to BFI;

Directing the Official Trustee to take whatever steps are necessary to recover the share at no cost to the bankrupt or his estate;

Directing the Official Trustee to refrain from

negotiating with any party in respect to the transfer or

sale of the share until its true value has been established and all aspects relating to a proposed sale or transfer have been discussed with the bankrupt;
Declaring that the share is owned by the bankrupt or his
estate;
Requiring the Official Trustee to take necessary action
to secure the return to the bankrupt or his estate of
personal property belonging to the bankrupt or his estate
said to have been misappropriated by BFI;

Joining BFI as a second respondent;

Joining BFISA as a third respondent;

Directing the Official Trustee to discontinue to act, or to resign as trustee of the bankrupt's estate and to take steps necessary to have an alternative trustee appointed.

The bankrupt supported his application by an affidavit sworn by him on 18 June 1992.

The record shows that the application was initially returnable

on 8 July 1992 when it came before Registrar Agnew. On that occasion the Official Trustee and both BFI and BFISA were legally represented and the applicant appeared in person. Prior to the first return date the Official Trustee had given notice of intention to appear and to oppose the making of the orders sought in the application on the ground that the decision by the Official Trustee to transfer the share to BFISA was correct and in the interests of the creditors of the estate. BFI and BFISA gave notice of intention to appear end to oppose the making of the orders sought in paragraphs 6 and 7 of the application on the grounds that neither BFI nor BFISA ought to be joined and/or is a person whose joinder as a party is necessary to ensure that all matters in dispute between the bankrupt and the Official Trustee may be effectively and completely determined and adjudicated upon.

On 8 July 1992 Registrar Agnew ordered that:

1.    The bankrupt file and serve on the Official Trustee and BFI by 22 July 1992 any further affidavits on which he

intended to rely;

2.    Any affidavit in reply by the Official Trustee or BFI be filed and served on the bankrupt by 5 August 1992;

3.    The application be adjourned for further directions on 12 August 1992;

4.    The costs of the Official Trustee and BFI be reserved.

In accordance wlth the Registrar's order the bankrupt filed an extensive affidavit sworn by him on 20 July 1992. The

Official Trustee filed an affidavit sworn by Ann Maria Dujela (MS Dujela) on 4 August 1992 and BFI filed affidavits sworn by Donald Ralph Barrett on 4 August 1992, by Christopher John Townsend on 4 August 1992 and Girish Patel (Patel) on 6 August 1992.

The application came before Sweeney J for directions on 12 August 1992 when orders were made setting the matter down for hearing and directing that the Official Trustee within 7 days make available to the bankrupt correspondence between the Official Trustee and BFI.

Subsequently, on 13 November 1992 and on 18 November 1992, the bankrupt filed further affidavits sworn respectively on 12 and 17 November 1992 although no provision for same had been made in any of the directions that had been given. At the hearing, objection was taken to the affidavit sworn on 12 November 1992 on a number of grounds, not the least of which was its relevance, and I ordered that it be not read. No objection

was read as part of the evidence.	was taken to the affidavit sworn on 17 November 1992 and it	On 18 November 1992 BFI filed a further notice of intention to appear at the hearing. The notice indicated that BFI would oppose the making of the orders sought in paragraphs 1 to 4 (inclusive), 6 and 7 of the application on the grounds that the Official Trustee acted properly and correctly in
transferring the legal interest in the share to BFI and at all
relevant times the bankrupt held the share on trust for BFI.
At the commencement of the hearing of the application on 19 November 1992 counsel for BFI and BFISA sought leave to appear. The bankrupt opposed the appearance of those parties in the proceedings and sought to withdraw paragraphs 6 and 7 of the application. It being my opinion that both BFI and BFISA had a real interest in the proceedings, and that their interest was not necessarily the same as that of the Official Trustee, I granted the leave sought. I did not specifically join them as respondents as had been sought in the application but nevertheless the proceedings were conducted as if they were in fact respondents.
The relief sought in the application is specifically claimed "under section 178 of the Bankruptcy Act". That section provides :

178. If the bankrupt, a creditor or any other person is affected by any act, omission or decision of the trustee, he

the matter as it thinks just and equitable. may apply to the Court, and the Court may make such order in

The removal of a trustee in bankruptcy is specifically dealt with in section 179(1) which provides:

179(1) The Court may, on the application of the Regi~trar, the Inspector-General, a creditor or the bankrupt, lnqulre Into the conduct of a trustee in relatlon to a bankruptcy and may do one or both of the fol1owrng:-

(a)	remove the trustee from office; and
(b)	make such order as ~t thinks proper.

Before the bankrupt opened his case counsel for the Official Trustee indicated that the Official Trustee would submit that the Court had no power upon an application under section 178 to make an order removing a trustee from office nor indeed to make an order of the type contemplated by paragraph 8 of the application. The bankrupt did not seek to amend the application and the hearing proceeded on the basis that the relief was sought under section 178.

In my opinion, on any reading of the Act, the relief sought in paragraph 8 of the application is not within the Court's authority to grant on an application specifically made under sectlon 178 and I do not propose to further consider that aspect of the application.

The bankrupt's affidavit sworn 18 June 1992 which he filed in support of the application contains mere assertions more in the nature of a pleading and is of no assistance in

determining the facts of the case. However, the bankrupt's	affidavit sworn on 20 July 1992 does lay the factual basis of
his application. The bankrupt's affidavit sworn 17 November
1992 deals specifically with questions relating to the
authenticity of two sets of minutes referred to in the evidence. At the hearing I granted the bankrupt leave to call oral evidence from 3 witnesses he had subpoenaed. Each was an employee or officer of BFI. The bankrupt, as a layman not versed in the rules of evidence, encountered some difficulty

in examining these witnesses but despite some assistance from the bench in examining the witnesses their evidence did nothing to advance the bankrupt's case.

The following facts are not in issue. BFI was formerly known as TransWaste Pty Ltd (TW). From 1 October 1979 to 21 March 1988 the bankrupt was Group General Manager of TW (later BFI) and its subsidiaries. Until 25 September 1985 the bankrupt had been a director of TW but resigned his directorship on that day following the acquisition of a 50% share in TW by an American company, Browning-Ferris Industries Inc. It appears that subsequently the bankrupt held the position of an alternate director of TW. On 1 October 1986 BFI acquired all the shares in a South Australian company Rodgers & Brewster Pty Ltd (now BFISA) from members of the Dangerfield family. At settlement the vendor shareholders signed blank share transfers and subsequently all but 2 of the shares were registered into the name of TW whilst the remaining 2 were registered in the names of William Lyle Ross (Ross) and the

bankrupt respectively. The completed share transfer documents	and the company's share ledger show these two shares as being
held on trust for TW. The bankrupt says that when he signed the share transfer it was still in blank and further that the share was given to him and was not held in trust.
On 21 March 1988 the bankrupt was dismissed without notice. On the same day he applied to the Industrial Relations Commission of Victoria (IRCV) claiming re-instalment on the

ground he had been unfairly dismissed. TW argued that the IRCV had no jurisdiction in the matter but the Commission held to the contrary. TW's appeal to the Supreme Court of Victoria was unsuccessful but on appeal to the High Court the original decision was set aside. As a result of this litigation costs orders were made against the bankrupt in favour of BFI and it was that liability which was the basis for BFI's subsequent petition which resulted in a sequestration order being made against the bankrupt on 15 May 1991.

In June 1989 the bankrupt made a complaint to the Victorian Equal Opportunity Commission (EOC) claiming discrimination on the ground of race. Presumably his complaint was that he had been discriminated against as an Australian by an American company. Hls complaint was heard by the Equal Opportunity Board in October and November 1990 and on 18 February 1991 the board gave its decision dismissing the complaint.

In February 1990 BFI took proceedings against the bankrupt in

the Magistrates' Court of Victoria at Melbourne seeking to	have the share in BFISA transferred to it on the basis of its
claim that the bankrupt held it upon trust for BFI. In the same proceedings BFI claimed $1,336.50 which sum it said represented the cost of telephone calls debited to BFI on a Telecom credit card used by the bankrupt following his dismissal. The bankrupt defended these proceedings and counterclaimed for $1,428 which sum he said had been taken from his personal fillng cabinet left behind at BFI's premises and also for the return of the cabinet and other property said to have been in it. The proceedings were adjourned pending resolution of the IRCV and EOC matters and later, following the bankruptcy, they were again adjourned at the bankrupt's request. Later, the claim and the counterclaim were discontinued. The decision to discontinue the counterclaim was made by the Official Trustee apparently without consultation with the bankrupt and this decision is the basis of the claim for relief in paragraph 5 of the application.
Following some correspondence between the Official Trustee and BFI's solicitors, the Official Trustee accepted that the share held in the bankrupt's name in BFISA was in fact held upon trust for BFI and on 11 February 1992 the Official Trustee transferred the share to BFI without consideration.
The bankrupt then took proceedings in the Federal Court pursuant to the Administrative Decisions (Judicial Review) Act (the ADJR proceedings) but these were dismissed on 7 May 1992.
The present proceedings were commenced on 18 June 1992. The
bankrupt has exhibited to his affidavit sworn 20 July 1992, copies of affidavits sworn in the ADJR proceedings by MS Dujela on 6 April 1992 and by Antoine Joseph Pace (Pace) on 6 May 1992. MS Dujela was then, and now is acting Official Receiver in Bankruptcy and Pace was, and is, a solicitor employed by BFI's solicitors. At the relevant time MS Dujela had delegated authority under section 18 of the Bankruptcy Act to exercise the discretion of the Official Trustee as to whether the trustee should defend any action relating to the administration of the bankrupt estate. In her affidavit sworn
4 August 1992 in these proceedings MS Dujela does not resile
from anything in her former affidavit.
The contract between the shareholders of Rodgers & Brewster Pty Ltd (as it then was) (R & B) and TW provided for the acquisition by TW of the whole of the shares in R & B. At the time the Comuanies Code of South Australia required there to be at least 2 shareholders in a proprietary company. It necessarily followed that to give effect to the contract it would be necessary for at least 1 share to be held by a party other than TW. The contract made no specific provision in this respect and it was quite consistent with the obligations of the vendor shareholders and with commercial practice that transfers in blank be signed. There is no doubt that this was done. In his affidavit of 20 July 1992 the bankrupt refers to a copy of a share transfer exhibited to MS Dujela's affidavit
dated 14 January 1987 and which purports to indicate that the in the ADJR proceedings which was signed by the bankrupt and
transferee (the bankrupt) acquired the share as trustee for TW. As to this the bankrupt says that the details typed in on the share transfer form were incorrectly inserted without his knowledge at some time after 1 October 1986 being the date on which he says the transfer form was slgned. The necessary inference from this statement is that the bankrupt is asserting that he signed the transfer form on 1 October 1986 and that the transfer form was blank when he signed it.
I am firmly of the view that the evidence establishes without a doubt that not only did the bankrupt not sign the share transfer in blank but also it is not true that any details were added to the document after he signed it. I base this conclusion on the affidavit evidence of Patel.
Patel practices as a solicitor in Adelaide and during 1986 and
1987 he was a commercial consultant to the firm of Ross
McCarthy & Nosworthy which acted for TW in relation to its acquisition of R & B. He says that at the time the share purchase agreement was executed the vendor shareholders executed 10 transfer forms for the transfer of their shares in the company. When the vendors signed the transfers the names of the transferees had not been filled in. The transfer forms were held on Patel's file until January 1987 when they were sent to TW. On or about 23 October 1986 Leslie Graham Fraser (Fraser), the secretary of TW, instructed Patel that two of
bankrupt) and Ross were each to hold a share as trustee for the proposed new directors of R & B namely Downey (the
TW. Patel made a file note of the conversation and a copy of his note is exhibited to his affidavit. The note shows the file name as "TransWaste Pty Ltd" and is dated "23-10-86".
The note contains the following:

T/O Fraser - Re transfer of shares to trustee Directors
Wrllram Lyle Ross
Patrlck Cornelrus Downey.

Subsequently Patel caused the names of Ross and Downey to be inserted in two of the share transfer forms and in each case they were shown as holding the share on trustee for TW. His evidence is that at that time none of the transfer forms had been executed by the transferees. By letter dated 15 January

1987 Patel forwarded all of the transfer forms to Fraser for

execution and return. Patel exhibits to his affidavit copies of both the letter of 15 January 1987 and copies of 10 share transfer forms relating to shares in R & B all of which forms are signed by one or other of the members of the Dangerfield family. None has the signature of a transferee. Eight of the transfer forms are made out in favour of TW as transferee. Of the remaining 2 forms, one shows the transferee as:

ROSS

W i l l i a m L y l e as T r u s t e e of TransWaste P t y L t d

and the other as:

Downey

P a t r l c k C o r n e l i u s as trustee of TransWaste P t y L t d

There is no question that the copy share transfer signed by the bankrupt which is exhibited to the affidavits of both MS Dujela and Pace in the ADJR proceedings are copies of the same document as the last-mentioned share transfer form referred to above. The only difference is that the copies exhibited by MS Dujela and Pace have been signed by the bankrupt and bear the impression of South Australian stamp duty. In his evidence

Ross (who was one of the witnesses called by the bankrupt) said quite positively that the share transfer he signed was filled in before he signed it and that it showed him as transferee in trust for TW. He particularly recalled the document as it contains a typographical error in the name of the street in which he lives which he recalled noticing at the time.

The bankrupt did not call Pate1 for cross-examination. He did however call both Fraser and Ross. Both asserted that it was both the intention of the company (TW) and the understanding of all concerned that the two shares in R & B not registered in the name of TW should be held in trust for TW. This would be consistent with the acquisition agreement under which TW acquired all of the vendors' shares and with the need to have more than one shareholder.

The bankrupt adduced evidence that on a previous occasion when he held a share in a TW subsidiary he signed a declaration of

no such declaration was required in the case of R & B that it

trust and asks that the inference be drawn from the fact that

was not held on trust but was a gift to him. This argument is something of a two-edged sword. Taken in isolation it is equally probative of the existence of a practice on TW's part that where necessary a director of a subsidiary would hold a share on trust for the parent company. But taken in the context of flrst the form of the share transfer and second the evidence of Ross and Fraser that the understanding of all

concerned was that the share be held in trust, the inference cannot be drawn. The absence of a trust deed is no more compelling evldence of the absence of a trust than the absence of a deed of gift is evidence that the share was not given.

Much of the affidavit evidence and most of the oral testimony had to do with what purported to be the minutes of a meeting of R & B shareholders held on 1 October 1986. The minutes purport to record the proceedings of "The Combined Inaugural Meeting of the Shareholders and Directors of Rodgers & Brewster Pty Ltd held at 123 Whitehorse Road, Deepdene in the State of victoria on the 1st day of October 1986". The document records that those present were Ross, Webb and the bankrupt, and is signed by Ross as chairman and dated 1st October 1986. The form of the minutes is entirely appropriate to the first meeting of shareholders of a newly incorporated company although many of the resolutions recorded are equally appropriate to a meeting of the shareholders of a company in which all the shares have recently been acquired by new

place on 1 October 1986. There is overwhelming evidence that	interests. It is beyond question that no such meeting took
on 1 October 1986 the bankrupt was in Adelaide, he having left Melbourne on 30 September 1986 and on 2 October 1986 flown to Perth. He did not return to Melbourne until 12 October 1986. And neither Ross nor Webb were in Adelaide on 1 October 1986. Whatever may be the explanation for these minutes, and it is possible to speculate how they came to be prepared, they do not serve the purpose to which the bankrupt seeks to put them, namely to establish that Tw/BFI and its executives have engaged in a course of conduct involving the fabrication of documents for the purpose of defeating the bankrupt's present claim. Had this been their intention one would have thought that some reference could have been inserted in the 1 October
1986 minutes to the 2 shares not held by TW as being held in
trust for TW. Be that as it may, I accept Patel's evidence as factual and therefore any speculation about the 1 October 1986 minutes is quite irrelevant. The same comments apply in respect of the share transfer journal of the company which records the transfer of shares from the Dangerfield interests as having occurred on 1 October 1986.
And the same also applies to the minutes of a meeting of R & B which indicate that the annual general meeting was held on 17 December 1987. The bankrupt says he was not given notice of this meeting, and further he queries why they are signed by a Mr Johnson, a senior executive of BFI's American parent company and dated 24 February 1988. It is entirely
unnecessary and quite unhelpful in the present proceedings to speculate about whether this meeting was in fact held at the
time and place indicated. The important point to be made is that no attack has been made upon the credibility of Pate1 nor upon the authenticity of the documents exhibited to his affidavit. That being so the bankrupt's credibility on the twin issues of whether he signed the share transfer in blank and of whether the share was a gift to him, is entirely destroyed. Having regard to the foregoing I am satisfied that the share in BFISA registered in the bankrupt's name at the date of his bankruptcy was held by him in trust for BFI and that the Official Trustee acted properly and in accordance with law in transferring that share to BFI without consideration. It follows that paragraphs 1 to 4 of the application must be dismissed.
It remains only to deal with paragraph 5 of the application.
In paragraph 10 of his affidavit sworn 20 July 1992 the bankrupt says:

At the time of my dismissal I had a personal two drawer lockable flling cabinet located in my office at the Head Office of TW located at 123 Whltehorse Road, Deepdene. This was locked at the tune of my dismissal. My dismissal took place at the offlces of Arthur Robinson & Hedderwicks, Melbourne, and I have never returned to my office. The cabinet was subsequently broken into by Mr. Vlctor Webb an American employee of BFI, and a director of TW. Certain of the contents, together with other personal belongings from my office were later delivered to the offlces of Phillip Fox, who were acting on my behalf at the tlme. However, other flles, some money, and other personal belongings were misslng, and have never been returned to me, as is the case with the actual filing cabinet from which these were removed without permission.

This issue was raised by the bankrupt by his counterclaim in	the Magistratesr Court proceedings. At the time he alleged
that $1,428 in cash had been removed from the filing cabinet. But his assertion is the only evidence of that fact. Considerable doubt must attach to the credibility of the assertion in that the claim in respect of the money does not appear to have been made until after BFI had commenced proceedings inter alia, to recover $1,336.50 in respect of the Telecard account said to have been wrongfully used by the bankrupt. And this nearly two years after the bankrupt's dismissal by BFI. The issues raised by paragraph 5 are essentially the same as were raised in the counterclaim in the Magistrates' Court proceedings. After 15 May 1991 the Official Trustee had the conduct of those proceedings and decided that in the interests of the creditors it was not appropriate to continue the counterclaim. Accordingly the decision to discontinue the counterclaim was made.
Nothing has been put to the Court to suggest other than that the decision by the Official Trustee to discontinue the counterclaim was entirely justified. The cost involved in pursuing what can only be described as a highly suspect counterclaim would not have been warranted. Paragraph 5 of the application will be dismissed.
It is not difficult to understand the hurt that the bankrupt
must have suffered when he was summarily dismissed from a senior position after nearly 10 years' service with the
company, and particular so when the dismissal has occurred following the taking over of the company by foreign interests. The bankrupt has now spent more than 4 years endeavouring to obtain what he considers is his just entitlement. This has led him into virtually every court in the land and has resulted in his bankruptcy. This most recent excursion into the field of litigation has met the same end as all its predecessors. The bankrupt has come to this Court with an entirely unmeritorious case and in pursuing it has been shown to lack credibility. Nothing said now is likely to erase his sense of injustice but so far as the present case is concerned the bankrupt's perception of justice and the reality of the situation do not coincide.
The application will be dismissed.

I certify that this and the preceding 17 pages are a true copy of the Reasons for Judgment of the Honourable Mr Justice Olney

- n

Associate:  ,,, />-,([-l - c

- --_

Dated:  30 November 1992

The applicant appeared in person.

Mr R. Frazzetto (instructed by Australian Government

Solicitor) appeared for the respondent.

Mr M.D. Wyles (instructed by Arthur Robinson & Hedderwicks)

appeared for Browning-Ferris Industries (Australia) Pty Ltd

and Browning-Ferris Industries (SA) Pty Ltd.

Date of Hearinq:	19 November 1992
Place:	Melbourne
Date of Judament:	30 November 1992