Fewin Pty Ltd v Burke

Case [2016] FCA 503

FEDERAL COURT OF AUSTRALIA

Fewin Pty Ltd v Burke [2016] FCA 503

File number: NSD 1222 of 2015
Judge: MARKOVIC J
Date of judgment: 12 May 2016
Catchwords: PRACTICE AND PROCEDURE – proceedings for an inquiry into the conduct of trustees of the estate of a bankrupt and the conduct of the Official Trustee in Bankruptcy in appointing a trustee – application for joinder of the Inspector-General in Bankruptcy – application for summary dismissal of proceedings against the Official Trustee – application to set aside a subpoena for production of documents in the custody of a court
Legislation:

Bankruptcy Act 1966 (Cth) ss 18, 18A, 19(1), 154A, 155, 155A, 155B, 155C, 155D, 155E, 155F, 155G, 155H, 155I, 155J, 157, 179, 181A

Federal Court of Australia Act 1976 (Cth) s 31A

Federal Court Rules 2011 rr 9.05(1), 9.05(1)(b)(ii), 9.05(1)(b)(iii), 24.12(2)(b), 24.15(1), 24.24, 26.01(1)(a)

Cases cited:

Adsett v Berlouis and Others (1992) 37 FCR 201

Australian Securities and Investments Commission v Cassimatis (2013) 220 FCR 256

Boensch v Pascoe [2007] FCA 1977

Campaign Master (UK) Ltd v Forty Two International Pty Ltd (No 4) (2010) 269 ALR 76

Comcare v John Holland Rail Pty Ltd (2009) 185 IR 191

Coshott v Coshott (2010) 184 FCR 495

Crocker v Toys ‘R’ Us (Australia) Pty Ltd [2015] FCA 588

Crocker v Toys ‘R’ Us (Australia) Pty Ltd (No 3) [2015] FCA 728

Ferella v Official Trustee in Bankruptcy (2010) 188 FCR 68

Graham v Colonial Mutual Life Assurance Society Ltd (2013) 216 FCR 458

Harman v Secretary of State for Home Department [1983] 1 AC 280

Hearne v Street (2008) 235 CLR 125

International Litigation Partners Pte Ltd v Commissioner of Taxation [2014] FCA 671

Keenan v Bundaberg Port Authority [2016] FCA 134

Krajniw v Newman (No 2) [2015] FCA 673

Oliver v Commonwealth Bank of Australia (No 1) [2011] FCA 1440

Spencer v The Commonwealth (2010) 241 CLR 118

Warner Music Australia Pty Ltd v Swiftel Communications Pty Ltd (2005) 67 IPR 27

Date of hearing: 10 March 2016
Registry: New South Wales
Division: General Division
National Practice Area: Commercial and Corporations
Sub-area: General and Personal Insolvency
Category: Catchwords
Number of paragraphs: 88
Counsel for the Applicants: Mr A P Cheshire SC
Solicitor for the Applicants: Martin Place Lawyers
Counsel for the Respondents: Mr M J Heath
Solicitor for the Respondents: Australian Government Solicitor

ORDERS

NSD 1222 of 2015
BETWEEN:

FEWIN PTY LTD ABN 64 051 132 453

First Applicant

RONALD MICHAEL COSHOTT

Second Applicant

LJILJANA COSHOTT (and another named in the Schedule)

Third Applicant
AND:

JOHN BURKE

First Respondent

OFFICIAL TRUSTEE IN BANKRUPTCY

Second Respondent

MAXWELL WILLIAM PRENTICE

Third Respondent

JUDGE:

MARKOVIC J

DATE OF ORDER:

12 MAY 2016

THE COURT ORDERS THAT:

1.The second respondent’s application for summary judgment filed on 18 November 2015 be dismissed.

2.The second respondent pay the applicants’ costs of the second respondent’s application for summary judgment filed on 18 November 2015.

3.The applicants’ application for joinder of the Inspector-General in Bankruptcy filed on 26 November 2015…

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Details
AGLC
Fewin Pty Ltd v Burke [2016] FCA 503
Case
[2016] FCA 503
Decision Date

CaseChat Overview and Summary

Fewin Pty Ltd initiated proceedings against the Official Trustee in Bankruptcy, John Christopher Burke, and the Inspector-General in Bankruptcy in the Federal Court of Australia, seeking an inquiry into the conduct of Mr Burke as a trustee and the conduct of the Official Trustee in appointing Mr Burke as trustee of the Estate of a bankrupt. The applicants also sought to join the Inspector-General as a party to the proceedings, to set aside a subpoena seeking the production of documents in the Inspector-General's custody, and for summary judgment against the Official Trustee. The Official Trustee applied for summary judgment, while the Inspector-General applied to have the subpoena set aside and for costs. The primary legal issues were whether the applicants had reasonable prospects of successfully prosecuting their claims against the Official Trustee and whether the subpoena should be set aside as it was not personally served on the Inspector-General.

The Court found that the applicants did not have reasonable prospects of successfully prosecuting their claims against the Official Trustee because there were no substantial grounds to believe that the Official Trustee had erred in the administration of the Estate. The Court also found that the subpoena should be set aside because it was not personally served on the Inspector-General, despite the requirement under rule 24.16 that a subpoena must be personally served on the addressee. The Court noted that, under rule 24.17(3), an addressee must still comply with the requirements of a subpoena even if it has not been served personally, provided the addressee has actual knowledge of the subpoena and its requirements by the last date for service. However, in this case, the Inspector-General did not have actual knowledge of the subpoena until after the return date, and therefore, the subpoena should be set aside.

The Court dismissed the Official Trustee's application for summary judgment, dismissed the applicants' application to join the Inspector-General as a party, set aside the subpoena, and ordered that the proceedings be listed for a directions hearing to allocate a hearing date and make orders for the preparation of the matter for hearing. The Court also ordered that the Official Trustee pay the applicants' costs of their summary judgment application, and that the applicants pay the Inspector-General's costs of their application to join her and their interlocutory application to set aside the subpoena.

Orders

Orders of the court

1. The second respondent’s application for summary judgment filed on 18 November 2015 be dismissed.

2. The second respondent pay the applicants’ costs of the second respondent’s application for summary judgment filed on 18 November 2015.

3. The applicants’ application for joinder of the Inspector-General in Bankruptcy filed on 26 November 2015 be dismissed.

4. The applicants pay the Inspector-General in Bankruptcy’s costs of their application to join her filed on 26 November 2015.

5. The subpoena to produce documents issued on 18 December 2015 at the request of the applicants to the Inspector-General in Bankruptcy in bankruptcy be set aside.

6. The applicants pay the Inspector-General in Bankruptcy’s costs of the interlocutory application filed on 26 January 2016 to set aside the subpoena to produce documents issued on 18 December 2015 at the request of the applicants.

7. The proceedings be listed for a directions hearing on 19 May 2016 at 9.30 am at which time a hearing date will be allocated and orders made for the preparation of the matter for hearing. The applicants are to notify the second and third respondents in writing of the listing and of the terms of this order by 4 pm on 13 May 2016.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

Also of relevance in the context of the current application are:(1)rule 24.16 which requires that a subpoena must be personally served on the addressee and that the issuing party must serve a copy of the subpoena to produce on each other party as soon as practicable after the subpoena has been served on the addressee; (2)rule 24.17(3) which provides that, despite r 24.16(1) requiring personal service of a subpoena on the addressee, an addressee must comply with the requirements of a subpoena even if it has not been served personally if the addressee has, by the last date for service of the subpoena, actual knowledge of the subpoena and of its requirements;(3)rule 24.12(2)(b) which provides that an issuing officer must not issue a subpoena requiring the production of a document or thing in the custody of the Court or another court. A related rule is r 24.24 which provides an alternative procedure to the issuing of a subpoena where the relevant documents are already in the custody of the Court or another court. Rule 24.24(1) provides that a party who seeks production of a document or thing in the custody of the Court or another court may inform the Registrar in writing, identifying the document or thing. Rule 24.24(3) provides that if the document or thing is in the custody of another court the Registrar must ask the other court to send the document or thing to him or her and after receiving it must produce the document or thing in Court or to any person authorised to take evidence in the proceedings as required by the party or as the Court directs.Facts The Subpoena was filed on 18 December 2015 and was initially returnable on 20 January 2016 at 9.30 am. It came to the attention of the Inspector-General when, on 21 December 2015, Mr Dean, the AGS lawyer with carriage of the matter, on reviewing the Commonwealth Courts Portal observed that it had been issued at the request of the applicants. The Subpoena has not been personally served on the Inspector-General and, at least as at 28 January 2016, no conduct money had been handed or tendered to the Inspector-General. The Subpoena seeks documents in 15 categories as follows:1. all Consents to Act lodged with the Official Trustee by John Christopher Burke between 1st January, 2005 and 31st December, 20132.all Inspection Reports by or on behalf of the Inspector-General in Bankruptcy relating to John Christopher Burke3.all correspondence between the Inspector-General in Bankruptcy and John Christopher Burke in the period 1st January, 2005 and 26th November, 20144.all correspondence between the Official Trustee and John Christopher Burke in the period 1st January, 2005 and 26th November, 20145.all correspondence between the Official Receiver and John Christopher Burke in the period 1st January, 2005 and 26th November, 20146.the annual returns listing all administrations for which John Christopher Burke was the trustee for the years 2005 to 2013 inclusive7.all Finalisation Notices lodged with the Official Receiver by John Christopher Burke in the period 1st January, 2005 and 31st December, 20138.all Form 2 Distribution Notices lodged by John Christopher Burke in the period 1st January, 2005 and 31st December, 20139.all notifications of appointment of John Christopher Burke as trustee received in the period 1st January , 2005 and 31st December, 201310.all notifications of appointment of Allan Richard Nicholls and/or Mark Damian Charles Roufeil in administrations in which John Christopher Burke was trustee11.all notices given by the Official Trustee in the period 1st January, 2005 to 31st December , 2013 to creditors nominating John Christopher Burke as the new trustee of bankrupt estates12.all Annual Estate Returns lodged by John Christopher Burke for the years 2005 to 201313.all records of complaints lodged with the Inspector-General against John Christopher Burke and the Inspector-General's responses thereto14.all records of charges under the Bankruptcy (Estate Charges) Act 1997 owed by John Christopher Burke and of the payment of such charges by John Christopher Burke15.list of creditors in each estate administered by John Christopher Burke in the period 1 January , 2005 to 31 December, 2013

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

Full text does not contain this section.

Ratio Decidendi

Legal Principle Established

Finally the applicants submit that there is an alternate way in which they put their case. That is by the ordinary remedies against a trustee where a trustee has acted other than in the best interests of the estate.Consideration As the Official Trustee submitted, the Court invokes a two stage process when considering an application under s 179 of the Act. This was recognised in Boensch v Pascoe [2007] FCA 1977 (Boensch) by Buchanan J at [5]–[7] where he observed that the Court’s power to supervise the conduct of a trustee under s 179 is broad and that, when s 179 is invoked, it is usual to first consider whether an inquiry should be held into a trustee’s conduct. In Boensch, Buchanan J considered the “quality of the case” necessary to order an inquiry under s 179, referring to the need for a clear case to be made out to warrant an inquiry. At [11]–[12] and [15] his Honour said:11In this Court, when s 179 of the Act is invoked, the question is usually posed whether a trustee has erred in the administration of the estate or failed to act as required by the Act or the general law. Sometimes the issue is focussed or decided by reference to whether ‘misconduct’ has occurred.12 In Re Gault; Gault v Law (1981) 57 FLR 165 Ellicott J said (at 173):‘the court should be loath to order an inquiry unless it considers that on the evidence before it there are substantial grounds for believing that the trustee erred in his administration. If the court considers that an inquiry is unlikely to reveal misconduct it should not make an order and put the respondent and possibly the creditors to the expense and trouble involved.’…15A matter of central importance is to assess, therefore, whether there is any real likelihood that the administration of the estate has miscarried so that creditors, and eventually perhaps Mr Boensch, have been denied the opportunity of an adequate return (or surplus) from the bankrupt estate after the necessary and reasonable costs of administration have been met. The question before me on the current application is whether the applicants have reasonable prospects of successfully prosecuting the proceedings against the Official Trustee. The Official Trustee submits that this question should be answered in the negative because the applicants could not satisfy the Court that an inquiry should be ordered. The particular relief sought in the originating application is for an inquiry pursuant to s 179 of the Act into the Official Trustee’s conduct in appointing Mr Burke as trustee of the Estate. It is the case that the Official Trustee did not appoint Mr Burke. By operation of s 181A(5), Mr Burke was appointed by the creditors. However, the process of nomination was a step leading to the appointment and is the step on which the applicants, in their statement of claim and by their submissions, are focussed. For the Official Trustee to succeed on this application I need to be satisfied that the argument that the Official Trustee was acting in the capacity of a trustee administering the Estate in making the nomination under s 181A and owed certain duties in that capacity has no reasonable prospects of success. I cannot be so satisfied.