Fitz-Gibbon and the Inspector General in Bankruptcy - [2000] AATA 334

DECISION AND REASONS FOR DECISION [2000] AATA 334

ADMINISTRATIVE APPEALS TRIBUNAL )

) No N99/1204

GENERAL ADMINISTRATIVE DIVISION       )
           Re      PETER GERALD FITZ-GIBBON
  Applicant
           And    THE INSPECTOR GENERAL IN BANKRUPTCY
  Respondent

DECISION

Tribunal Mr B.J. McMahon (Deputy President)

Date1 May 2000
PlaceSydney

Decision The decision under review is affirmed.

(Sgd) BJ McMahon ..............................................
Deputy President
CATCHWORDS
BANKRUPTCY – Bankruptcy Act 1966 section 149N – Trustee's notice of objection to discharge on grounds that there were duties the Bankrupt failed to discharge – failure to disclose Rolex watch and failure to disclose status of bankruptcy to credit provider – whether there was insufficient evidence to support the grounds of objection – whether the reasons given for the objection justify the making of the objection – failure to pay accounts constitute misleading conduct – whether there is utility in extending bankruptcy – sufficient evidence of an inability to manage affairs and possibility of undisclosed property – utility in extension of bankruptcy – decision affirmed
Bankruptcy Act 1966 ss 30, 116, 149B, 149N, 149Q

Hugh Wiley v Peter Gerald Fitz-Gibbon [1998] 121 FCA (2 March 1998)
Peter Gerald Fitz-Gibbon v Hugh Jenner Wiley [1998] 1193 FCA (9 September 1998)
Inspector-General in Bankruptcy v Nelson (1998) 86 FCR 67

REASONS FOR DECISION

1 May 2000 Mr B.J. McMahon (Deputy President)

This is an application brought pursuant to section 149Q of the Bankruptcy Act 1966 to review a decision of a delegate of the Inspector-General which, in part, confirmed the grounds of an objection to discharge lodged by the applicant's trustee.
Objections may be lodged subject to the provisions of section 149B which is in the following terms:
"149B(1) Subject to the following provisions of this Subdivision, at any time before a bankrupt is discharged from bankruptcy under section 149, the trustee may file with the Official Receiver a written notice of objection to the discharge, or the Official Receiver may file such a notice on the Official Receiver's own initiative.
149B(2) The trustee of a bankrupt's estate must file a notice of objection to the discharge if the trustee believes:
(a)that doing so will help make the bankrupt discharge a duty that the bankrupt has not discharged; and
(b)that there is no other way for the trustee to induce the bankrupt to discharge any duties that the bankrupt has not discharged."

In this particular bankruptcy, there is an order outstanding by the Federal Court requiring the bankrupt to discharge a duty to which I will later refer. One of the submissions made on behalf of the applicant was that because of the presence of this order, the notice of objection should not have been filed. In my view, this submission cannot succeed. The Trustee is obliged to file a notice if there is no other way to induce the bankrupt to discharge a duty. He is not precluded from filing a notice if there is such another way. The discretion inherent in paragraph 149B(1) is not displaced by the existence of other remedies.
Four objections were taken by the trustee. On review, at the applicant's request pursuant to section 149N, two of the objections were cancelled and two were confirmed. The basis upon which the Inspector-General must act is set out in section 149 in these terms:
"149N(1) On a review of a decision, if the Inspector-General is satisfied that:
(a)the ground or grounds on which the objection was made was not a ground or were not grounds specified in subsection 149D(1); or
(b)there is insufficient evidence to support the existence of the ground or grounds of objection; or
(c)the reasons given for objecting on the ground or those grounds do not justify he making of the objection; or
(d)a previous objection that was made on that ground or those grounds, or on grounds that included that ground or those grounds, was cancelled;
the Inspector-General must cancel the objection."

In a review of the Inspector-General's decision by this Tribunal, the same four criteria must serve as a guide in determining the legality or justification of any objection.
No issue arises as to paragraphs (a) or (d) of subsection (1) above. The question to be decided in these proceedings is whether firstly there was insufficient evidence to support the existence of the two remaining grounds of objection and secondly, whether the reasons given for objecting on those grounds do not justify the making of the objections.
The first of the objections (which will be referred to as the Citibank objection) was in these terms:
"1 Pursuant to Section 149D(1)(c) of the Bankruptcy Act, the bankrupt, after the date of bankruptcy, engaged in misleading conduct in relation to obtaining credit in excess of $3,000 from Citibank and failed to disclose to Citibank that he was an undischarged bankrupt.
As a result of investigations into the bankrupt's affairs the Trustee became aware that the bankrupt had applied for and received a Citibank credit card. On 17 June 1997 the Trustee wrote to the bankrupt and advised that it was an offence pursuant to section 269 of the Bankruptcy Act to obtain credit in excess of $3,000 without disclosing to the credit provider that he was an undischarged bankrupt.
On 8 July 1997 the trustee received confirmation from Citibank that a credit card had been issued to the bankrupt in February 1996, however, the account remained dormant until it was first used in April 1997 (after the date of bankruptcy). Citibank confirmed that the balance outstanding on the credit card as at 8 July 1997 had accumulated to $11,500 and that recovery action would be taken to reduce that debt as the bankrupt had failed to service the facility within the terms of the agreement. Citibank claim that they were not advised by the bankrupt that he was an undischarged bankrupt.
The Trustee's investigations into the bankrupts affairs has revealed that the bankrupt has engaged in misleading conduct in relation to obtaining credit. The Trustee considers the grounds of objection in paragraph 149D(1)(c) have been established.
The reason this objection has been entered by the trustee is that the bankrupt is obliged to fully disclose to credit providers that he is an undischarged bankrupt. The Trustee considers that further investigation is warranted with regard to the bankrupts financial affairs."

The second objection (which will be referred to as the Rolex objection) was in these terms:
"Pursuant to Section 149D(1)(n) the bankrupt failed, whether intentionally or not, to disclose to the Trustee the bankrupt's beneficial interest in a gold Rolex watch.
On 4 March 1996 the Trustee received from the bankrupt a duly signed Statement of Affairs. The Statement of Affairs detailed assets and property, however made no reference to a gold Rolex watch.
During the investigations into the bankrupt's affairs the Trustee became aware of further property of the bankrupt, including a Gold Rolex watch. The bankrupt attended an interview with the Trustee on 17 June 1997 and at that interview the bankrupt was wearing the gold Rolex watch. During the course of the interview the bankrupt removed and concealed the gold Rolex watch. The trustee demanded the return of that watch however the bankrupt refused to do so.
The Trustee brought proceedings in the Federal Court for orders pursuant to section 30(5)(a) and (c) of the Bankruptcy Act to have that property delivered to him. The matter was heard before His Honour Mr Justice Hill. In the judgment His Honour made the following findings of fact: -
(a) the bankrupt had purchased a gold Rolex watch; and
(b)the bankrupt continued to own the gold Rolex watch up until the date of the meeting with the trustee on 17 June 1997.
His Honour Justice Hill ordered that the bankrupt deliver up to the trustee the gold Rolex watch. To date the bankrupt has not complied with this order.
The bankrupt appealed the order of His Honour Justice Hill. The appeal was heard by the Full Court of the Federal Court and judgment was delivered on 9 September 1998. The appeal was dismissed with costs.
The bankrupt has lodged an application for special leave to appeal to the High Court and the application has been listed for hearing on 14 May 1999.
The ownership of the gold Rolex watch was not disclosed in the bankrupts Statement of Affairs of 29 February 1996 and it was found by His Honour Justice Hill that the bankrupt owned a gold Rolex watch. The trustee considers that the grounds of objection stated in paragraph 149D(1)(n) have been established.
The reason that the objection has been entered by the Trustee is that the bankrupt was required to give the trustee details of his interests in all property including jewellery and further, to deliver to the Trustee, that divisible property pursuant to section 116 of the Bankruptcy Act in particular the gold Rolex watch. The Trustee considers that there maybe further property to be recovered for the benefit of creditors and that further investigation is warranted."

The Inspector-General's review of the evidence in support of the existence of both grounds of objection was in these terms:
"The evidence provided in the Notice of Objection to Discharge is that the trustee became aware that you had made application and received a Citibank credit card. On 8 July 1997, the trustee wrote to you, to inform you that it is an offence of the Bankruptcy Act to obtain credit in excess of $3,000 without disclosing to the credit provider that you are an undischarged bankrupt. On 8 July 1997 Citibank confirmed that you had been issued with a credit card in February 1996, and that the account remained dormant until April 1997. The debt owing as at 8 July 1997 was $11,500. Citibank claims that you did not advise them that you are an undischarged bankrupt.
The evidence that you provided is that you did not contemplate bankruptcy when you applied for the credit card and that you had no obligation to disclose a dormant credit card on your statement of affairs. In addition you state that you advised Citibank of your bankruptcy when you exceeded $3,000.00 in credit.
In your supporting papers there is a copy of a letter to Citibank stating that you are an undischarged bankrupt. This letter is undated, although you state that it was sent to Citibank on 15 May 1996 when you paid the account for that month. This information is in contrast to a copy of a letter dated 25 May 1997, from the trustee to Citibank in which he asked the dates that you applied for and received the card. I am also in possession of a copy of a file note dated 8 July 1997 in which Mr Tony Haynes of Citibank states that you received the card on 22 February 1996 and began using it on 11 April 1997. The outstanding balance as at the date of the file note was $11,500.00.
…
Paragraph 149D(1)(n)
The trustee's evidence for this ground of objection is that you did not disclose a gold Rolex watch in your statement of affairs, and that on 17 June 1997 you attended an interview with Mr. A. Wily and Ms. R. Halpern wearing such a watch.
The trustee brought proceedings to the Federal Court to recover the watch, in which the judge ordered, amongst other orders, that the watch be delivered to the trustee. You appealed to the Full Court of the Federal Court, which dismissed the appeal. The evidence continues to say that you then sought leave to appeal to the High Court which was refused.
The evidence that you have provided refers to the standard of proof required for the trustee to object on this ground. This question was decided by Mr. Justice Hill of the Federal Court in his judgment dated 2 March 1998.
The trustee has provided me with copies of the transcripts of the Federal Court and Full Court decisions.
I am satisfied that there is sufficient evidence to support these grounds of objection."

The Inspector-General's view of the reasons for making the objections were as follows:
"The reason offered by the trustee to support this ground of objection is that the trustee states that he considers further investigation is required with respect to your financial affairs.
The evidence from Citibank is that you began using the card on 11 April 1997, and that on 8 July 1997, the balance owing was $11,500.00. This was at a time that you were either in receipt of unemployment benefits, or if you were working for Australian Wedding Blessings Pty Limited, were in receipt of an annual fee from that company of $20,000.00. In comparison to your earning capacity at that time the amount owing to Citibank in a relatively short time is quite high and I therefore concur that further investigation is required into your financial affairs.
…
The trustee's reason for filing a notice of objection on this ground is that "the bankrupt was required to give to the trustee details of his interests in all property including jewellery and further, to deliver to the trustee, that divisible property pursuant to s116 of the Bankruptcy Act, in particular the Rolex gold watch. The trustee considers that there may be further property to be recovered for the benefit of creditors and that further investigation is warranted."
Firstly I agree with the trustee that there may be further property not disclosed which could be recovered for the benefit of creditors. The trustee has set out briefly in the notice of objection the facts in relation to the Rolex watch. According to the judgement handed down by Mr Justice Hill on 2 March 1998 he accepted evidence that in a conversation between you and a Mr Hudson you mentioned the watch was worth $12,000 and then in a later conversation $20,000.00. Mr Justice Hill also had this to say about your credibility "I have formed the view from these matters and from listening to Mr Fitz-Gibbons evidence in the witness box that I would not lightly accept his evidence except where corroborated".
Because of the extensive litigation arising in this estate the trustee may have had less opportunity to carry out investigations than would usually be the case and May need more time to do so. It is true that the trustee can carry out those investigations whether or not you are bankrupt. However I have taken into account your conduct in relation to the Rolex gold watch which, despite a court order, you have not yet delivered to your trustee. In my opinion there is the possibility that similar problems may arise if the trustee's investigations disclose the existence of further divisible property not disclosed by you. Accordingly it may assist in the administration of the estate if you are not discharged from bankruptcy. Again I invite your attention to s149B (2) of the Act which is set out above.
In the circumstances I consider the reason given justifies the making of the objection."

Reference is made in the Rolex objection to an allegation that the applicant did not declare beneficial ownership in a valuable watch and, indeed, attempted to conceal it from the Trustee. Proceedings were brought in the Federal Court under section 30 seeking an order for delivery of the watch to the Trustee. This application was resisted by the applicant. Extensive evidence was given before His Honour Hill J in a hearing that lasted several days. His Honour came to the following findings of fact:
"In summary, I am of the view that the following findings of fact should be made:
1. Mr Fitz-Gibbon purchased, when on honeymoon with his wife, a gold Rolex watch.
2. At some state he purchased as well a fake Rolex watch.
3. Whatever the circumstances might be when he wore the fake watch as against the solid gold watch (and from his own evidence, these obviously included circumstances of travel) Mr Fitz-Gibbon continued to own the solid gold Rolex watch up until the date of the meeting on 17 June.
4. The watch Mr Fitz-Gibbon wore at the meeting on 17 June and removed in the toilet was a Rolex watch and not the dress watch which Mr Fitz-Gibbon alleged it was.
5. Both Mr Wily and Miss Halpin make it clear that the watch they observed on Mr Fitz-Gibbon's wrist was a Rolex watch.
6. Mr Fitz-Gibbon discussed the possible sale of the Rolex watch with Mr Hudson in 1996, a matter quite antithetical to the evidence of Mr Fitz-Gibbon."

As a result of these findings, he ordered that that the applicant comply with the requirement of his Trustee that he deliver a gold Rolex watch within seven days to his Trustee. This order has not been complied with. An appeal to a Full Court (reported at [1998] FCA 1193) was dismissed and special leave to appeal was refused by the High Court on 14 May 1999.
The principles to be applied in these proceedings were authoritatively stated by another Full Court in Inspector-General in Bankruptcy v Nelson 86 FCR 67. At 78 their Honours said:
"The policy of the current bankruptcy legislation is that, prima facie, a bankrupt is entitled to the benefit of a discharge by operation of law. The sections dealing with objections to discharge are consistent with this policy. By requiring that a notice of objection must not only set out the ground or grounds of objection and refer to the evidentiary material relied upon in support, but also state the "reasons" for objecting, s 149C makes it clear that a trustee filing such a notice must have reasons for doing so, in addition to being satisfied that the evidentiary material establishes one or more permissible grounds. By providing for review by the Inspector-General of the decision to object, s 149K makes it clear that the reasons for objecting were intended to be subject to scrutiny. Finally, by providing for review by the AAT of, inter alia, a decision to file a notice of objection and the Inspector-General's decision on review of such a decision, s 194Q (sic) again makes it clear that the reasons for the filing of a notice of objection are to be the subject of scrutiny.
There is no reason to be found in these provisions for thinking that the considerations relevant to the exercise of the discretion to file a notice of objection are any less extensive than all those conformable to the purpose and objects of the Act. In the absence of any indication of a contrary legislative intention, we would be disposed to think that in order to "keep a person bankrupt" beyond the ordinary period, a trustee would need to have reasons directed to achievement of a purpose of the law of bankruptcy. In fact, although ss 149B-149D do not indicate what will be "sufficient reasons", as distinct from "permissible grounds", to support an objection, s 149N(1) (set out earlier) provides that on review of a trustee's decision to object to the Inspector-General must cancel the objection if, inter alia, he is satisfied that the reasons given by the trustee for objecting "do not justify the making of the objection". Thus, far from giving rise to a prima facie right to object, the existence of a permissible ground supported by sufficient evidence is a threshold: there must also be reasons for justifying the making of the objection in the particular case."

From these observations, it is clear that prima facie, a bankrupt is entitled to the benefit of a discharge by operation of law. By requiring that a notice of objection must not only set out the ground or grounds of objection and refer to the evidentiary material relied upon in support, but also requiring that "reasons" for objecting be stated, the Court confirmed that a Trustee filing such a notice must have reasons for doing so which are reasons in addition to those leading the Trustee to a state of satisfaction that the evidentiary material establishes one or more permissible grounds.
Furthermore, a Trustee would need to have reasons directed to achievement of a purpose of the law of bankruptcy to maintain an objection to discharge. There must be evidence to the effect that there is a reasonable expectation that extending the bankruptcy will be for the benefit of creditors. This may be referred to as the utility consideration.

It is not in dispute that the applicant applied for and obtained a credit card from Citibank prior to the commencement of his bankruptcy. An unsolicited invitation was sent to him to apply for a credit card prior to the commencement of the bankruptcy, which began on 4 March 1996.
Mr Fitz-Gibbon commenced using the credit card on 6 April 1996 in a number of transactions in which he purchased goods from merchants. As at 13 May 1996, credit in excess of $4,054.40 had been obtained, as the relevant statements show. The applicant claims to have sent a letter to Citibank on 15 May 1996 advising it of his bankruptcy. The evidence of Citibank was that it had no record of any such letter. It says that it first became aware of the applicant's bankruptcy on 11 April 1997, when the facility was immediately cancelled. Even on the applicant's evidence, however, there was an amount exceeding $3,000 owing to Citibank prior to the date on which he is said to have advised the company of his status.
The applicant alleges that the ground of objection is not made out. He requested particulars of the misleading conduct alleged and was advised by the solicitor for the Inspector-General that it consisted of "obtaining of credit from Citibank in excess of $3,000 without disclosing your bankruptcy". It was the applicant's contention that he did not obtain credit. He submitted that he was merely using credit, which had previously been provided to him prior to the commencement of the bankruptcy. In approaching a merchant to purchase goods, it was submitted, all credit dealings were then between Citibank and the merchant. It was submitted that in such circumstances it was not possible to conclude that the applicant had engaged in any conduct which was misleading in relation to the obtaining of credit.
In my view, there is no substance in this submission. The numerous statements of account between Citibank and the applicant, which were in evidence, show that a large debt had been accumulated in a short time. Failure to pay the monthly accounts on their due date, without disclosing a state of bankruptcy is, in my view, misleading conduct. The conduct is not merely constituted by silence. It is constituted by the failure to do something which the applicant was legally obliged to do, namely to pay the accounts. It would be reasonable to assume a knowledge on the part of the applicant that Citibank would cease the provision of credit if it knew of his status. In fact, this is what happened. By April 1997, when Citibank commenced recovery action, credit in excess of $28,000 had been obtained, of which some $17,000 remains owing. The course of conduct constituted by the purchase of goods on credit and the persistent failure to pay the credit provider, which could reasonably be assumed to be likely to cease the provision of that credit if it knew the real facts amounts, in my view, to misleading conduct.
The applicant also put forward the utility submission in relation to the Citibank objection saying that there was no statutorily relevant utility to be derived from extending the bankruptcy period, even if the applicant had engaged in misleading conduct. It was submitted that it was impossible to see how a purpose of the law of bankruptcy could be achieved or how creditors might benefit from any extension of the bankruptcy period because the Citibank credit card was cancelled more than three years ago.
It is clear that the object of bankruptcy is not to punish bankrupts, but to protect the public interest and the interests of the bankrupts' creditors. However, where a bankrupt defeats that object by continuing to fail to meet his obligations under the Act, an extension of bankruptcy is warranted. In my view, there is utility is continuing this administration. A sum of approximately $17,000 is still owing to Citibank. On 26 May 1999, the applicant presented a second petition for bankruptcy. The Statement of Affairs lodged with that petition discloses a total or more than $73,000 (including Citibank) in unsecured creditors for debts presumably incurred since the date of the first bankruptcy. The affairs of the applicant had previously been administered under Part X between 1987 and 1990. It is apparent that for some 13 years the applicant has experienced financial difficulties. The evidence is that there are grounds to believe that he may not yet be able to manage his affairs. It is therefore apparent to me that there is relevant utility in continuing the first administration. I find, therefore, that the reasons given by the Trustee justify the making of the Citibank objection. There was clearly sufficient evidence to support the existence of the ground of objection.
The Rolex objection depended upon the failure of the bankrupt to disclose to the Trustee his beneficial interest in the valuable watch. The evidence supporting the existence of that ground is, to my mind, plain from the findings of fact of Hill J. The only question to be decided is whether there are reasonable grounds for the Trustee's apprehension that there may be further property to be recovered for the benefit of creditors and for further investigations to be warranted.
The Inspector-General had regard to the fact that the applicant managed to incur substantial debts in a short period of time, to the fact that the applicant had demonstrably not cooperated with his Trustee in refusing to hand over the gold watch, the fact that Hill J had found the applicant to be untruthful, the fact that the extensive litigation arising in this estate would have given the Trustee less opportunity to carry out investigations than would usually be the case, the possibility that there might be further property available to creditors, the possibility that the applicant might similarly decline to deliver such property to his Trustee and the fact that the administration of the applicant's estate might be assisted if he were not discharged.
I agree that there can be no estoppel arising out of the Federal Court proceedings. The fact that Hill J found that the applicant was untruthful is in no way binding upon me. Nevertheless, I consider it reasonable for the Trustee and for the Inspector-General to take account of that finding in assessing whether the apprehensions referred to above are reasonably based.
There has been extensive litigation, not only in the Federal Court and the High Court relating to the watch, but also in this Tribunal. There were at least two lengthy interlocutory proceedings, in which counsel were briefed, concerning a large number of documents which the applicant had required the Trustee to produce pursuant to a summons. Hearings were held and evidence was prepared. After a lengthy examination of these documents to determine whether any of them were subject to a claim for legal professional privilege or, in the case of the Inspector-General, whether access to the documents should be denied to the applicant on grounds similar to public immunity or on grounds of relevance, the Tribunal gave written reasons for decision in the first case, and oral reasons in the second case. Both of the hearings leading to these decisions were unusually lengthy. The preparation for the hearing of these applications must have occupied considerable time. Yet none of the documents contained in a number of boxes and files, which were the subject of these preliminary hearings, was in fact tendered by the applicant at the substantive hearing. There were, of course, a number of boxes of documents which were not subject to the two preliminary applications. The applicant had free access to those documents. During the whole of the time elapsing between the first application (dealing with the summons itself) and the result in the final application, the Trustee was deprived of access to the documents in question. The Trustee has therefore been prevented, by this extensive litigation, from carrying out investigations to an extent that would normally be expected.
It was submitted that section 149D(1)(n) is directed at cases where the Trustee has evidence to suspect that the bankrupt may not have disclosed assets to him as at the date of the objection to discharge. It was further submitted that there was no suggestion that the Trustee believed there was any other undisclosed or unrecovered property. In my view, the facts recited above are adequate to base a reasonable apprehension on the part of the Trustee that a possibility exists of undisclosed property. Consequently, there is utility in extending the bankruptcy on this ground as well. The Trustee has had considerable dealings with the applicant. On the basis of the above facts, he is, in my view, the person most able to decide if further investigation is necessary to discover hitherto undisclosed property.
For these reasons, the decision under review should be affirmed.

I certify that the 27 preceding paragraphs are a true copy of the reasons for the decision herein of Mr B.J. McMahon (Deputy President)
Signed:       J. Healy
           .....................................................................................
  Jacqueline Healy, Associate
Date of Hearing  13 April 2000
Date of Decision  1 May 2000
Counsel for the Applicant        M Watts
Counsel for the Respondent    M Leeming
Solicitor for the Respondent    Australian Government Solicitor