Fenner, S. v Official Trustee in Bankruptcy

[1991] FCA 753

7s3/ 9\

JUDGMENT . . . No . . . . . -

FEDERAL COURT OF A U S T U	1
) No. VB397 of 1990

TH 1

OF VICTORIA 1

-	( a
Bankrupt) and D- BRAITHWAIW

Applicants

THE OFFICIAL TRUSTEE IN BANKRUPTCY and NATHAN BRENNER

Respondents

Ryan J.
Melbourne

3      DEC 1991

30 October, 1991 +ZDERAL COURT OF

AUSTRALIA PRINCIPAL

\ REGISTRY

NS FOR J U D W

.By this application the applicant, Daryl Braithwaite

seeks the following orders:

+,----A _---- -..=__--. -..-.. ..-- - . . . . . - . - . - . . - . - . .

- . - .---P- - ---P .. .. . - -

- - - -

"- *p'&.L.-.:. -. - --. - . - . - . . -. ... . . .

-

- -. - -

"l. Pursuant to section 178 of the BankrIJDtCv Act

. . -	1966, the court set aside the decisions of the Official - Trustee in Bankruptcy as Trustee of the Estate of Simon
~.	Penner
-, -
(a) to enter into an Agreement made 23 May 1991 between Alistair Ashley Page in his capacity as Official Receiver in the Bankruptcy District of Victoria of the one part and Nathan Brenner of the other part.
-

r- ..--. A------- - , . " . - - - -.

to c6nce proceedhg ‘rider- 1'1,677 of'1991 in the supreme Court of Victoria- wherein the Official Trustee in Bankruptcy is Plaintiff and the Applicant herein, Daryl Braithwaite, is the Second-named Defendant.

2.        That the Official Trustee forthwith discontinue

the said proceedings.

,:- ........ -. ........ . .

. . . .

- - - . . I have ruled in the course of argument that the applicant has

standing to bring the application, being a defendant to an

.E,

action which is prosecuted by the trustee of the estate of the

'2.	I
.U

bankrupt. It is common ground that action No. 11,677 of 1991 in the Supreme Court has been consolidated with another action

.L	in which dne Nathan Brenner and Nezdeb Pty. Limited are
% .	plaintiffs against the same defendants, the applicant, Mr.
k ,
,3	;F, ,
S?-	Braithwaite, and a company, First Artists Management Pty.
,,
Limited. That consolidated action is to be heard, I have been
.P
told, in the Supreme Court of Victoria commencing next ~ednesday, 6 November 1991.
. .	.
1
A ,

c .- .. - -

., ,	The focus- of the application has been on a deed of
F

5- a"*. indemnity dated 23 May 1991 between Mr. Brenner and the

* .- - -. . . . - . . - . -. . . . . - . .

t. . : -

$-!	Official Trustee.	The operative part of that deed recites
.!:

2'	that Mr. Brenner is to provide to the trustee an indemnity for
. - -	the reasonable legal costs .of the trustee incurred as the
I	,

.--.@?mLt	.-..	o,f-.-makir?g99a~PPe~.e~ttionnnnt	-.pFos!en+e th~_.action._in__.
W-::	A-	- .	.

.--:  " -accor&ance with- S. 60 =of=the m u ~ t c v Act. Th'e deed goes o n

-. ....

. .

,"-. .. - -.

:~,.	L .
.	..- .- to recite that:

-	:	-	.	--
'!
I,. .-
~4

L,. "The indemnity s h a l l cover par ty pa r ty and s o l i c i t o r

c l i e n t c o s t s and a l l associated c o s t s incurred through

t h e prosecution of t h e Action, which c o s t s but f o r t h e

! - - -. - Indemnity t h e Trumtee would be l i a b l e a t l a w t o pay. I n

t h i s c l a u s e associa ted cos t s means those cos ta incurred

7 1 .~. by the--Tg.u.~te~ .eking-laave.-to intervene i n t h e Action

- ---- -

- - - =

.I-	_	-	whether o r not l e a v e is granted ...
,:	.. t h e Indemnity  w i l l cover a l l i n t e r locu to ry and o t h e r
mtepm  i n t h e Action including t h e c o s t s of any appeals,
16
i f inmt i tu ted by  any party.
r,
..
f	It is further recited that the indemnity is to be

I_ _ .- . .__. .._ . . . . . .

:+ - -

I-	limited to an amount of $50,000 unless further increased with
L -	-. - - .

the consent of all parties to the deed. The trustee is bound to use exclusively the services of the firm of solicitors who have been retained by the trustee's CO-plaintiffs, Mr. Brenner and Neadeb Pty. Limited, Clause 6 of the deed then recites:

"In the event that the Action is settled in favour of the plaintiffs, either by judgment or by compromise it is agreed that of the total amount awarded in favour of the plaintiffs, the sum of 20% of the "net amount" shall be due and payable to the trustee. The net amount shall be the mum left after deducting solicitor client costs of tWe action."

8 >

:, 3

t r	Provision is made at the conclusion of the deed for a charge
.'.
by Mr. Brenner over two identified parcels of land to secure
.*	- ---.
-	payment of moneys pursuant to the indemnity.
.	.
, .
n;)	-.	It also seems to be undisputed that neither Mr. Brenner nor his CO-plaintiff company is a creditor of the bankrupt and that creditors of the bankrupt have declined to
.. .
I -
$-

- -. - -- . - -.. -- . . . . . . .- . .- - . L - -. . - -.

.. - provide aniXdiSKity- $ o r thepFoSecution -df any- 5 T Z h -against

-	.
*-t:	..

~-	~	.
I._,.	-

:.	-+ -,	-	Mr. Braithwaite or First Artists Management Pty. -Limited.--The
--.. -

.- - - . <

estate' has no funds from which - to prosecute the action and no

> -
--
...
:* -	meeting of creditors has been called to consider either
,	,
,'+
whether the action should proceed or whether the deed of
.., .
indemnity should have been entered into.
r

.C..-- --.- I-,---. - ---- . -. -. . ..-- - - a - - . - - - - .. . -.

..-.	- - . .
.Z
:.:,
d	I accept that the approach which should take to this

ex application is that outlined by Deane J. in - : 1 E*

parte Official Receiver, (1977) 17 A.L.R. 182, where his

- . Honour observed at 186:

-..- -

'In my view, the wording of 0.178 of the Act is such as to confer upon the court the widest possible discretion as to the appropriate order which should be made in the particular came and is quite inconsistent with the approach that, u p n an application made pursuant to the section by a bankrupt, creditor or other person affected by an act, omismion or decision of the trustee, the court is only .mpo*nrod to interfere with the trustee's act, omimaion or docision if it is of the view that the trumtee had acted absurdly or unreasonably or in bad faith. Once the matter is proporly before the court, the court is, by the express words of s.178, empowered (and, as I have said, obliged) to make euch order in the matter as it thinks just and equitable.

Thia im not, of courme, to say that the court should either disregard the relevant decision of the trustee or ignore the well established policy under bankruptcy legislation that the court should not unduly interfere with the day-to-day administration of a bankrupt's estate by a trustee. The trustee is made responsible for the administration of the bankrupt estate under the general provisions of the Act. He must, in the course of that administration, make a variety of decisions aimed at enabling the administration to be carried out with promptness and efficiency. Some of these decisions will h bumineas or c-rcial docisions in which the business or commercial experience of the trustee would itself provide a basim for arguing that, unless it were shown that the trustee's decrsion was perverse or clearly

c;. - - -- -- - .- . - ., . . _- - - .-

?.	wrong, it would be inappropriate and unjust for the court
.r.
to interfere. Again, under the present legislation, the trustee will ordinarily be the Official Receiver and the court must be conscioum of the fact that the Official Receiver will be made responsible for the administration of an extraordinarily large number of estates. In such circumstances, the administration of the Bankruptcy Act demand. that the court take into account, in exercising it* functions under the provisions of 9.178 of the Act,

-th-opinion of -+heOffkt& -Receiver,-a= trust-, am to what im expedient in the interests of the prompt and -efficient admfnimtrition 02 a particular bankrupt emtate. - . .

That is, hOvCvmr, a completely different thing to saying that the court can only interfere -with an act, omission

or docision of the Official Receiver, as such trustee, .

when it im of the view that the Official Receiver has acted unreasonably, absurdly or in bad faith in so acting or failing to act or in reaching that decision."

.i.. As I understand the effect of that decision, it

C . - - . - - - - . - S - - . . -. .

!L	requires the court, on an application of this kind, to put
i	itself in the position of the Official Trustee and to decide
b
.-	whether it would make the decision complained of, although
5	&. .

.

.I	giving proper but not undue weight to the independent decision
.k--

..,-	-	of -the .Official Trustee.	The basis on which the-court has
I

been -invited to exercise its discretion differently from that

of the Official Trustee is that (it is said) the Official

G.	Trustee has simply lent his name as plaintiff in the litigation in an entrepreneurial way and has so acted improperly.
In support of that submission I have been referred to some observations made in the Supreme Court by Nathan J.,
-
.,, ,	when his Honour was deciding whether to permit the Official
*3
.* .
f.	Trustee to be substituted as a CO-plaintiff in lieu of the bankrupt in the earlier action with which the subject action
*	has now been consolidated. In the course of declining to
a. . - - - .	-

permit that- substitution, his Honour referred to the terms of
the deed of indemnity which I have set out and went on to say:

"Another issue of principle is this: litigation is not a g m , it is a process provided by the community for the despatch of legitimate disputes. In this case, I have come to the view that the official receiver has been enticed into bringing and prosecuting these proceedings

- . . comforted .by .the; ..indemnity. They bear the mark of. the

.. - . -.	official receiver being used as a dummy, or a front for
the rauaining~plaintiffs. -
I have no concluded view, and I draw no conclusions, but it is an extrunely unsatimfactory state of affairs to
receive only 20 per cent of the proceeds of a successful find that the official receiver is, under-the terms, to
action. That far from the ordinary creditors being protected, and their interests sustained, one is left with the impresmion, distinct and clear, that the proceedings, and the official receiver's intervention therein, is really designed to assist the remaining plaintiffs.

- - .. . -

' That -indemnity. is. a matter I am entitled to consider in - -

- the exercise of my discretion under the terms of Order

9.09, and I have come to the view that I ehould not

exercise it in favour of the official receiver."

$- With respect, I am unable to share the reservations

. - that his Honour has there expressed about the terms of the

L- - -.-	...	indemnity. It is by no means clear to me that a net share of
, .
f	20 per cent in the prospective fruits of the action, is an inappropriate dividend for the Official Receiver to receive, having regard to what appears on its face to be an ample and fully secured indemnity. Indeed, Mr. Hansen Q.C. who appeared with Mr. Hardy for the applicant did not attack the
>	nuf f iciency, either in amount or security, of the indemnity, although he did suggest that the amount may be insufficient to
$
5	cover the costs of both sides when the litigation has been
i	fought to a conclusion. That may be so but that is not a
"h%*.,
"--	consideration which persuades me to accede to this application

C	,
+	because, as presently advised, I take the view that the
I
- -... .- -	Official Trustee will attract personal liability. for any excess of the costs over the amount of the indemnity.

)----.. - - - . .- -- - - - - - - - - -

v:	.	.
t
'. ,

f - For those reasons the application is refused.

I certify that- this -and the 5

- preceding pages are a true copy- of the Reasons for Judgment of the

- Honourable Mr. Justice Ryan.

Dated: 30 October, 1991

?

---, - ..- . - - - - . . . .--.

7

. .

.'I

i Counsel for Applicant : Mr. H.R. Hansen Q.C.

.m with Mr. G.A. Hardy

~W	2
;, Solicitor for Applicant : Ian Baillieu & Co.
If.. i .
-	<

: Mr. A. Ellis

.. .	Counsel for Respondents
Solicitor for Respondents : Roth Warren & Menzies
I
..-
~.	Date of Hearing : 30 October, 1991
.,

30 October, 1991

- Date of Judgment

- - - d .-