Foyster v Prentice

[2008] FMCA 757

FEDERAL MAGISTRATES COURT OF AUSTRALIA

FOYSTER v PRENTICE [2008] FMCA 757

BANKRUPTCY – Trustees – application for review of trustee’s conduct – principles involved.

BANKRUPTCY – Property divisible amongst creditors – protected money – characterisation of property – whether property can lose its protected character.

BANKRUPTCY – Trustees – duties of trustee considered.

Bankruptcy Act 1869, s.25
Bankruptcy Act 1966, ss.5, 19, 30, 54, 60, 73, 77, 116, 134, 135, 170, 176, 178, 179
Legal Profession Act 2004 (NSW), ss.319, 325

Watson v Healey (1996) 64 FCR 301
Re Cheesman (1997) 143 ALR 78
Macchia v Nilant (2001) 110 FCR 101
Re Gillies; ex parte Official Trustee in Bankruptcy v Gillies (1993) 42 FCR 571
Trustee of the property of O’Reilly v Law Society of New South Wales (2001) 110 FCR 574
Clayton’s case (1816) 1 Merc. 572; 35 ER 781
De Robillard v Carver [2007] FCAFC 73
Nilant v Macchia [2000] FCA 1528; (2000) 104 FCR 238
Beckham v Drake (1849) 2 HLC 579
Cox v Journeaux (No 2) (1935) 52 CLR 713
Re Iskenderian; ex parte Iskenderian Bros Pty Ltd (1990) 21 FCR 363
Union Fidelity Trustee Company of Australia Ltd v Dodds (1967) 10 FLR 111
Re Manivilovski; ex parte Official Trustee in Bankruptcy (1993) 45 FCR 358
Turner v Official Trustee in Bankruptcy (1996) 71 FCR 418
Re Jemielita; ex parte Official Trustee in Bankruptcy (1996) 63 FCR 141
Tyler v Thomas (2006) 3 ABC (NS) 773
Re Simersall; Blackwell v Bray (1992) 35 FCR 584
Cummings v Claremont Petroleum NL (1996) 185 CLR 124
Re Tyndall (1977) 30 FLR 6
Healey v Prentice (No. 2) [2000] FCA 1598
Re Dingle; ex parte Westpac Banking Corporation v Worrell (1993) 47 FCR 478
McGoldrick v Official Trustee in Bankruptcy (1993) 47 FCR 547
Health Insurance Commission v Trustee in Bankruptcy of the estate of Alekozoglou (2003) 1 ABC (NS) 365
Freeman v National Australia Bank Ltd (2003) 2 ABC (NS) 51
Jones v Daniel (2004) 141 FCR 148
Pridmore v Magenta Nominees Pty Ltd & Ors (1998) 161 ALR 458
Re Neville; ex parte Pike (1896) 17 LR (NSW) B & P 24
Brown v Amor Holdings Australia Pty Ltd [2006] QSC 393
Re Nguyen; ex parte Official Receiver in Bankruptcy (1992) 35 FCR 320
Kitson v Hardwick (1872) LR 7 CP 473
Guy v Churchill (1884) 40 Ch D 481
Citicorp Australia Ltd v Official Trustee in Bankruptcy (1996) 71 FCR 550
Willoughby v Official Receiver in Bankruptcy [2001] FCA 753; [2001] FCA 1345
Re Cirillo; ex parte Official Trustee in Bankruptcy (1996) 65 FCR 576
Freeman v Joiner [2005] FCAFC 149
Re Gargan; ex parte Gargan v Official Trustee in Bankruptcy [1995] FCA
J Foyster v Foyster Holdings Pty Ltd [2003] NSWSC 925
Re Arthur Williams & Co; ex parte Official Receiver [1913] 2 KB 88
Mannigel v Aitken (1983) 77 FLR 406
Re Hurt; ex parte Hurt (1988) 80 ALR 236
Adsett v Berlouis (1992) 37 FCR 201
Ex parte James; re Condon (1874) LR 9 Ch 609
Re Wyvern Developments Ltd [1974] 1 WLR 1097
Wakim v HIH Casualty & General Insurance Ltd (2001) 111 FCR 58
Pitts v La Fontaine (1880) 6 App Cas 482
Re Driller (1972) 21 FLR 159
Hunt Bros v Colwell [1939] 4 All ER 406
Kennedy v Australian Mutual provident Society [1996] FCA 1045
RWG Management Ltd v Commissioner of Corporate Affairs [1985] VR 385
Re Grimthorpe (Dec’d) [1958] 1 Ch 615
Re Whitley; Lloyds Bank Ltd v Whitley [1962] 1 WLR 922
Re Ladyman (1981) 55 FLR 383
Registrar in Bankruptcy v Bradley (1983) 72 FLR 231
Alafaci; Registrar in Bankruptcy v Hardwick (1976) 9 ALR 262
Gao v The Official Trustee in Bankruptcy [2003] FCAFC 84
Re Gault; Gault v Law (1981) 57 FLR 165
Gray v Clout (1990) 27 FCR 141
Haskins v Official Trustee in Bankruptcy [2000] FCA 691

Applicant: LLOYD FOYSTER

Respondent: MAXWELL WILLIAM PRENTICE AS TRUSTEE OF THE BANKRUPT ESTATE OF LLOYD FOYSTER

File Number: BRG 793 of 2005

Judgment of: Wilson FM

Hearing date: 31 October 2006

Date of Last Submission: 31 October 2006

Delivered at: Brisbane

Delivered on: 11 June 2008

REPRESENTATION

Counsel for the Applicant: N/A

The Applicant in person: Mr Foyster

Counsel for the Respondent: N/A

Solicitors for the Respondent: James Conomos Lawyers

ORDERS

1. The application filed 13 December 2005 and the amended application filed 3 April 2006 each be dismissed.

2. The applicant shall pay the respondent’s costs of and incidental to each application, to be taxed.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
BRISBANE

BRG 793 of 2005

LLOYD FOYSTER

Applicant

And

MAXWELL WILLIAM PRENTICE AS TRUSTEE OF THE BANKRUPT ESTATE OF LLOYD FOYSTER

Respondent

REASONS FOR JUDGMENT

1. The applicant was made bankrupt on 31 March 2000, on the petition of the ANZ Banking Group Ltd. The respondent was the applicant’s trustee in bankruptcy. The applicant was automatically discharged from bankruptcy on 25 January 2005.

2. The applicant’s bankruptcy was brought about as a result of adverse costs orders made against him in proceedings brought by him (and a company of which he was the controlling mind) against the bank for damages said to be consequent upon the entry into a foreign currency loan in the mid to late 1980s. The applicant sought to oppose the making of a sequestration order, inter alia on the grounds that he was solvent. Hely J made such an order: [2000] FCA 400. An appeal was dismissed: [2000] FCA 1254. Special leave to appeal to the High Court was refused on 15 December 2000.

3. The applicant appeared in person. He filed voluminous affidavits in support of his application, one of which had exhibited to it two ring binders containing 851 pages of documents. Much of the material relied upon by the applicant was objected to by the respondent, often on the grounds of relevance. Some 219 separate objections to evidence were taken many involving multiple pages of documents. Many of these were able to be ruled on at commencement of the hearing, but others were reserved.

4. Whilst individual documents may be ruled to be inadmissible because of no apparent relevance, or because they were unable to be proved by the applicant, nevertheless the court is left with the clear impression, given the entirety of the material put before it by the applicant, of three matters. First, the applicant was a difficult person to deal with. There is palpable antipathy between the applicant and the respondent. The applicant regularly deluged the trustee with correspondence and documents endeavouring to persuade the trustee to his way of thinking. The applicant plainly resented his bankrupt status. Secondly, the applicant has had great difficulty with the notion that he is no longer in control of his own affairs or of companies with which he was previously associated. The applicant also has had difficulty with the notion that his trustee in bankruptcy does not answer to his beck and call, but acts independently, and sometimes makes decisions with which he does not agree. Thirdly, underlying the dispute between the applicant and the respondent is a complex corporate dispute involving at least two companies with which the applicant was, prior to his bankruptcy, heavily involved. One of the applicant’s principal complaints was that the trustee acted in a certain way regarding this underlying dispute.

5. Although the applicant is no stranger to litigation, his appearance for himself in these proceedings made the court’s task more difficult. The applicant often had difficulty focussing on the relevant. He had difficulty in extracting from the extensive affidavits filed by both parties succinct statements of what his complaints really were. These reasons are somewhat lengthier than I would ordinarily deliver, in an effort to deal fully with the applicant’s various arguments, and hopefully to demonstrate to the applicant why his applications must be dismissed.

6. By application filed 13 December 2005, the applicant sought orders:

   a)That the respondent pay him $42,000 being the amount of a settlement belonging to him following a compensation claim by him in respect to a personal accident and injury claim;

   b)That the respondent pay to the applicant fair and equitable interest in respect to the amount of $42,000 for the period from 15 December 2000 to the date of this order;

   c)That the respondent compensate the applicant for injury harm loss and damage suffered by the applicant as a consequence of circumstances relating to the orders sought herein;

   d)That the respondent’s decision dated 27 October 2005 not to accept the applicant’s offer to purchase certain assets belonging to his bankrupt estate be reversed;

   e)That the respondent’s decision dated 23 November 2005 not to allow or recognize the assignment by Michael Evans to the applicant of a proof of debt in the applicant’s bankrupt estate be reversed;

   f)A declaration that the respondent has not acted impartially during the conduct of his duties and administration of the applicant’s bankrupt estate;

   g)A declaration that the respondent has engaged in a conflict of interest and or breached his fiduciary duty owed to him by the applicant during the conduct of his duties and administration of the bankrupt estate;

   h)A declaration that the respondent has acted negligently during the conduct of his duties and administration of the bankrupt estate;

   i)That the respondent be removed from his position as the trustee of the bankrupt estate and someone else be appointed to replace him;

   j)Costs;

   k)Any other orders the Court may deem fit and proper

7. By his amended application filed 3 April 2006, the applicant sought the following orders:

   (1)A declaration pursuant to s.116 and s.178 that money received by the applicant from an Insurance Company during or about March 2000 and being in the amount of approximately $42,000.00, represented a settlement payout to the applicant pursuant to Court orders by consent, in respect to a personal accident and injury claim by the applicant against the Insurance Company.

   (2)A declaration that the settlement payout money received by the applicant from the Insurance Company is subject to s.116 and therefore not property divisible amongst the creditors of the bankrupt or available for use by the respondent.

   (3)A declaration that the money deposited into the trustee’s trust account at the ANZ Bank operated on by the respondent during about late 2000, did include the settlement payout money in the sum of approximately $42,000.00, received by the applicant as referred to in paragraph 1 and 2 and that money should not have been claimed and or used by the respondent.

   (4)In the alternative to paragraphs 1, 2 and 3 an order pursuant to s.116 and s.178 that the respondent pay or in the alternative is liable to pay or make good to the applicant an amount equal to the full amount of the Insurance settlement payout which was collected by or taken control of by the respondent plus interest in the sum as the court thinks just and equitable.

   (5)An order pursuant to s.116 and s.178 that the respondent pay damages or make good to the applicant, in such sum as the court thinks just and equitable, for unlawfully depriving the applicant of the use of money for a period of six years as identified in paragraphs 1, 2, 3 and 4, while the applicant was in need of the money but without it when required to seek medical treatment and support to help reduce exposure to on ongoing pain and suffering.

   (6)A declaration pursuant to or s.176 and or s.178 and or s.179 to review and reverse the respondent’s decisions made on 23 November 2005 in respect to;

   (a)Refusing and continuing to refuse to accept the Proof of Debt claimed by Michael Evans, in the amount of $5,500.00, which was verified and presented by Michael Evans in respect to legal fees and;

   (b)Refusing and continuing to refuse to abide by or act on the assignment by Michael Evans of the benefits of his Proof of Debt to the applicant.

   (7)A declaration pursuant to s.170 and or s.176 and or s.178 and or s.179 causing the court to inquire into the conduct of the respondent trustee in relation to the applicant’s bankruptcy and affairs and do one or all of the following:

   (a)Find that in breach of s.170 the trustee refused to comply with the bankrupts request to furnish to the bankrupt information reasonably required by the bankrupt concerning his property or affairs.

   (b)Find that the trustee has not acted impartially and or has become involved in a conflict of interests concerning the property and affairs of the bankrupt.

   (c)Find that the trustee has mislead the bankrupt concerning his administration of the property and affairs of the bankrupt.

   (d)Find that the trustee has not properly carried out his duty or acted in a proper manner to achieve the maximum realization of the value of the assets of the bankrupt or to pursue special opportunities which had promise to realize funds sufficient to pay creditors in full with a remaining surplus for the benefit of the bankrupt.

   (e)Find that the trustee has withheld or concealed information from the applicant that ought not have been withheld or concealed in breach of his duty owed to the applicant.

   (f)Review and reverse the decision of the trustee made by letter dated 27 October 2005 not to accept the letter of offer made by the applicant during February 2005 to purchase assets from the trustee, for the benefit of creditors and the bankrupt.

   (g)Find that the trustee has been guilty of breach of duty in relation to the bankrupt’s estate and or affairs and direct that the trustee make good the loss that the bankrupt’s estate has sustained because of the trustee’s breach of duty.

   (h)Remove the trustee from office and

   (i)Make such orders as it thinks proper

   (8)Any other orders the court thinks proper.

8. I think that the applicant’s grievances can be considered under four principal headings:

   a)His entitlement to be reimbursed monies allegedly received by him as damages for personal injury, which were paid to the petitioning creditor, and in turn to the respondent;

   b)The trustee’s alleged refusal to admit a proof of debt from Michael Evans, that was purportedly assigned to the applicant;

   c)The trustee’s refusal to assign to the applicant various causes of action that the applicant wished to pursue;

   d)A request that there be an inquiry into the respondent’s conduct as trustee.

9. In a number of respects the applicant bases his claim to relief on s.178 Bankruptcy Act 1966 (“the Act”), which provides:

   (1)     If the bankrupt, a creditor or any other person is affected by an act, omission or decision of the trustee, he or she may apply to the Court, and the Court may make such order in the matter as it thinks just and equitable.

   (2)     The application must be made not later than 60 days after the day on which the person became aware of the trustee’s act, omission or decision.

10. Subsection (2) was introduced by 2002 amendments to the Act, which became effective on 5 May 2003. Given that the applicant’s bankruptcy spanned this date, care must be taken in deciding whether the time limitation imposed by the legislation applies to potentially deny the applicant relief.

11. The applicant’s standing to bring the present application must be briefly considered. There is authority (Watson v Healey (1996) 64 FCR 301) that a discharged bankrupt has no standing to seek relief under s.178 of the Act. However, subsequent authority has taken a different view: Re Cheesman (1997) 143 ALR 78; Macchia v Nilant (2001) 110 FCR 101. In my respectful view the construction of s.178(1) which allows for a discharged bankrupt to seek review is to be preferred, as it accords not only with the plain language of the definition of ‘bankrupt’ in s.5(1) of the Act (which contains no temporal element), but also with practical common sense. It is easy to envisage a wide range of circumstances where a trustee might take action, or make a decision, after the bankrupt’s discharge that the discharged bankrupt may wish to challenge.

12. I conclude, therefore, that the applicant has standing to bring the present applications. The respondent did not submit otherwise. Whether or not s.178(2) present a further hurdle to the success of the application is, of course, a different question.

13. It is convenient to deal first with the applicant’s claim in relation to monies he says are exempt from his bankrupt estate.  In resolving this issue, the applicant has not helped himself, and I will in due course have regard to the various inconsistencies in the applicant’s evidence touching upon this issue.

14. Section 116(1) of the Act provides for what property is divisible among a bankrupt’s creditors. Section 116(2)(g) and (n) provide that the following property is not divisible amongst the bankrupt’s creditors:

    (g)     any right of the bankrupt to recover damages or compensation:

    (i) for personal injury or wrong done to the bankrupt, the spouse of the bankrupt or a member of the family of the bankrupt; or

    (ii)     in respect of the death of the spouse of the bankrupt or a member of the family of the bankrupt;

    and any damages or compensation recovered by the bankrupt (whether before or after he or she became a bankrupt) in respect of such an injury or wrong or the death of such a person;

    …

    (n)     property to which, by virtue of subsection (3), this paragraph applies;

15. Sections 116(2D) and 116(3) provide:

    (2D)  In subsections (3) and (4):

    exempt loan money, in relation to a particular time, means so much of the principal sum of a loan to the bankrupt, or to the bankrupt and another person or other persons, as was repaid, before that time, out of exempt money.

    exempt money means money of any of the following kinds:

    (a)     an amount to which subsection (1) does not extend because of subparagraph (2)(d)(ii) or (iv);

    (b)     damages or compensation of a kind referred to in paragraph (2)(g);

    (c) amounts of a kind referred to in paragraph (2)(k), (m) (ma), (mb), (mc), (mca), (mcb) or (md).

    outlay, in relation to property, in relation to a particular time, means all of the following:

    (a)     the money paid for the purchase, or used in the acquisition, of the property;

    (b)     the money paid before that time in respect of the extensions, alterations and improvements, if any, of the property constructed or made since that purchase or acquisition.

    protected money, in relation to a particular time, means:

    (a)     exempt money; or

    (b)     exempt loan money in relation to that time.

    (3)     Where, at any time, the whole, or substantially the whole, of the money paid for the purchase, or used in the acquisition, of particular property is protected money, paragraph (2)(n) applies to the property.

16. The applicant asserts that in February 2000 (before he was made bankrupt) he received compensation protected by s.116(2)(g) of the Act. He claims that the compensation monies were paid to the petitioning creditor, as part of a larger payment, in an effort to stave off bankruptcy, and have found their way to the trustee. Necessarily, the applicant contends that these monies have retained their character as compensation monies, and are therefore not divisible amongst his creditors.

17. It is first necessary to consider whether or not the applicant has in fact received compensation monies, as he asserts.

18. In his affidavit filed 26 June 2006, the applicant deposed, at paragraphs 5 and 6:

    “During about June 1997, I had an accident at the town of Mudgee NSW and as a result I sustained serious back, spinal and shoulder injuries of a permanent nature. Pursuant to the said injuries I engaged de Mestre and Company solicitors to make a compensation claim on my behalf against GIO Insurance Company.

    During about early February 2000 my personal injury insurance claim against GIO was settled for a lump sum payment of approximately $100,000. I expected to receive about half of the payout but eventually I only received $41,000 clear to me after paying legal and all other expenses. Centrelink became aware of my insurance settlement and they collected $22,930.30 from GIO.”

1. It was not put to the applicant in express terms that he was not injured as alleged, or that he did not receive compensation as alleged.

2. Copies of two letters were produced that corroborate the version set out above. There is a letter from de Mestre and Company solicitors addressed to the applicant dated 16 February 2000 which is headed “Re: Your occupier’s liability claim”. The letter reads, in part:

   “We refer to the settlement of your Occupier’s Liability claim and confirm that we have deposited your settlement cheque in the amount of $18,069.70 into your bank account as advised by you.”

3. There is another letter from de Mestre and Company addressed to the applicant dated 17 February 2000 which is also headed “Re: Your occupier’s liability claim”.  That letter reads, in part:

   “We refer to the settlement of your matter and enclose herewith a copy of a letter received from Centrelink dated 15 February 2000.

   You will note that Centrelink will refund the amount of $22,930.30 directly to you.”

4. At the time the settlement payments were made the applicant had an account with the Commonwealth Bank that he used for his day to day financial affairs. The trustee obtained the bank records for 15 July 1999 to 2 May 2000. An examination of the applicant’s Commonwealth Bank statements confirms that on 16 February 2000 a deposit was made into the account of $18,069.70. This took the account balance to $27,938.85. On 24 February 2000 a further deposit was made by Centrelink of $22,930.30 which took the account balance to $48,041.95.

5. So far, this evidence all tends to support the applicant’s version. Thereafter the position becomes murkier.

6. In his first Statement of Affairs, dated 9 February 2001, the applicant stated, in answer to question 12 which asks for a summary of his income for the previous 12 months, under the heading “any other source”:  “Received from Injury Insurance claim $50,000”.

7. In answer to question 23 which asked “how much cash do you have” the applicant has answered $1,000.  In answer to question 38 he disclosed that he had paid $100,000 to the ANZ Bank.

8. The answers in the first Statement of Affairs were, at least in part, misleading. The applicant did not receive $50,000 in compensation. At most he received $41,000. The receipt of compensation was not income. The applicant provided no documents establishing that it was injury compensation.

9. In his affidavit filed 10 May 2006, the applicant says:

   “My recollection is that the settlement with the insurance company was for an amount of $100,000, however about half of that amount was absorbed by legal fees and other expenses, so the $50,000 was overstated by about $8,000 but not intentionally. At the time I did not understand my rights in relation to retention of accident insurance funds.”

10. I will revisit the applicant’s knowledge in due course.

11. The Bankruptcy Act draws a distinction between property and income. Any income which a bankrupt receives prior to the commencement of the bankruptcy, to the extent that it remains unexpended will be part of the property of the bankrupt that vests in the trustee: Re Gillies; ex parte Official Trustee in Bankruptcy v Gillies (1993) 42 FCR 571 at 577; Trustee of the property of O’Reilly v Law Society of New South Wales (2001) 110 FCR 574 at 577.

12. Thus, to describe the monies received as income was to potentially mislead the trustee.

13. An examination of the applicant’s bank records shows that by 20 March 2000 the balance of the applicant’s account has gone down to $44,902.77.  However, applying an inelegant analogy of the rule in Clayton’s case (1816) 1 Merc. 572; 35 ER 781, I would be prepared to accept that the applicant first used monies that were already in the account before drawing on the two deposits to which reference has been made. On 21 March the applicant made a withdrawal of $40,000, reducing the account balance to $4,402.77.

14. The hearing of the application for a sequestration order was on 22 March 2000. The applicant says that he took $50,000 in cash to court in an effort to persuade the petitioning creditor not to proceed. At T127 the applicant gave evidence that the other $10,000 came from Foyster Holdings Pty Ltd, a company in which the applicant had a substantial shareholding.

15. The applicant accepts that he did not tell the court, or the petitioning creditor, or it seems his own legal representatives, that 80% of the monies offered came from a compensation payment (T127.5). Indeed at page 7 of the judgment of Hely J reference is made to the applicant’s evidence that of the $50,000 he brought to court $10,000 of that amount belonged to Foyster Holdings Pty Ltd and that the balance of $40,000 was paid to him by Tasmanian Titanium Pty Ltd pursuant to a project Purchase Agreement.

16. The petitioning creditor refused the tender. The sequestration order was made. $47,000 of the monies was redeposited to the applicant’s own account (including the $10,000). The applicant says he retained $3,000 for “spending money”. It is not clear whether this $3,000 or an aliquot share of it was compensation money. This deposit of $47,000 took the balance of the account to $51,402.77.

17. Then, on 6 April 2000 a further deposit of $20,000 was made into the applicant’s account, taking the balance to $70,568.04.  The applicant claims that this deposit was a loan from two shareholders of Tasmanian Titanium Pty Ltd that were sympathetic to him.  I observe that this loan is not referred to in the Statement of Affairs.

18. Although the applicant stated that he has no recollection of telling his solicitor the source of the funds (T131.15), in an affidavit of Mr King (the applicant’s former solicitor) filed in support of an application for a stay of the sequestration order, there is reference to a conversation between the applicant and his solicitor on 6 April in which the applicant told him: “My company has made further moneys available to me as more of the proceeds of the share sales have come in”.

19. Whilst read in isolation this statement may be equivocal, in the context of what was occurring (and in the absence of any indication to the solicitor of the contrary) it is fair to read this as meaning that all of the monies put up for the creditor had come from the applicant’s corporate interests.

20. On 7 April 2000 $70,000 was withdrawn from the applicant’s account.  He purchased a bank cheque made payable to the petitioning creditor.  The cheque was given to the solicitor for the petitioning creditor.

21. On 11 April there was a further deposit of $24,300 into the applicant’s account.  On 12 April there was a further deposit of $2,500.  Both of these deposits were made from Tasmania, where Tasmanian Titanium Pty Ltd carries on its business.

22. On 19 April there was a withdrawal of $27,341.  Again the applicant purchased a bank cheque which was given to the solicitors for the petitioning creditor.

23. Thus, cheques totalling $97,341.00 were paid to the solicitors for the petitioning creditor. $41,000 or perhaps a slightly lesser sum (given the retention of the spending money) of this came from the alleged compensation monies.

24. At paragraph 20 of his written submissions at the conclusion of the hearing, the applicant confuses the position further by asserting:

    “During April 2000 a total amount of $97,341 was procured for payment to the ANZ Bank on the understanding that this amount would satisfy the banks claim and cause the sequestration order to be set aside or the bankruptcy annulled. The amount of $97,341 must be treated as a FH [Foyster Holdings Pty Ltd] debt (pursuant to arrangements stated above in paragraphs 16, 17 and 18) made up from a loan to FH by the applicant of $41,000, a loan to FH by shareholders of TT [Tasmanian Titanium Pty Ltd] of $25,000 and the balance belonging to FH”.

25. And at paragraph 22 he states:

    “The said $41,000 loaned by the applicant to FH was included in a proof of debt claim dated 10 April 2003 by the respondent against FH (in liquidation) for the total amount of $330,000. However when the claim was made FH was in the realms of liquidation, as a result FH has (sic) not able to pay out the proof of debt”

26. Yet, the applicant refers to the $41,000 as “accident compensation money” in paragraph 25 of the same submissions.  These discrepancies remain unexplained.

27. The $97,341.00 was received by the respondent on 21 December 2000.

28. As I have said, the first Statement of Affairs was produced on 9 February, 2001.  The respondent rejected it, claiming that it did not comply with the requirements of the legislation.  In my view, he was justified in doing so.  That is not a view shared by the applicant.  At paragraph 11 of his affidavit filed 2 October 2006 the applicant refers to the trustee’s rejection of his first Statement of Affairs and continues:

    “I have expressed my opposition to the respondent regarding his reaction to my statement of affairs. In view of the circumstances I am of the opinion that from day one the respondent was motivated to adopt an unreasonable hard line attitude towards me, contrary to his duty to act impartially. . . “

29. The applicant says, correctly, that he was never expressly asked by the trustee for an explanation of his entry in the first Statement of Affairs relating to his receipt of $50,000. However, that highlights one of the impressions that I earlier set out. It is not for the applicant, as bankrupt, to sit back and wait for his trustee to drag information out of him. The applicant was obliged by s.54(1) of the Act to submit a proper and complying Statement of Affairs within 14 days of becoming bankrupt. By s.77 of the Act the bankrupt is required to give assistance to the trustee.

30. In De Robillard v Carver [2007] FCAFC 73 at [136] Buchanan J said:

    The policy behind s 54 was described by Hill J in Nilant v Macchia [2000] FCA 1528; (2000) 104 FCR 238 as follows (at 245):

    ‘Given the penal nature of the obligation created by s 54, it is difficult to see that breach of the section, no matter how inadvertent, could be categorised as merely formal. The policy behind s 54 is clear. The obligation to file a statement of affairs in a public register is intended to make information concerning the bankrupt’s affairs available to creditors and, for that matter, members of the public. The former may inspect without payment of a fee, the latter only on payment of a fee. But it is in the interests of the public in the encouragement of morality in trading that the financial situation of a bankrupt debtor be open to inspection. Because, ordinarily, the administration of the estate and ultimate distribution of dividends from the estate, will be dependent upon the trustee having full details of the trade dealings and debts of a debtor, the statement is to be made available as well to the trustee in bankruptcy. Given the scheme of the legislation and the important role that the statement of affairs plays in it, there is considerable difficulty in seeing that Parliament would have intended that the Court, through s 306, have the ability to treat non-compliance with the statutory obligation as merely formal.’

31. In my view, the applicant was obliged to fully disclose in his Statement of Affairs if he claimed that any of his property was exempt from division amongst his creditors.  Here the applicant did not do so.

32. The applicant gave the respondent no documents to suggest that $41,000 of the monies provided to the ANZ Bank may be protected monies exempt from his divisible estate.

33. The applicant says that he was ignorant of his right to retain compensation monies until mid 2002.  I reject the applicant’s evidence in that regard.

34. In exhibit R4 being the respondent’s letter to the applicant dated 18 December 2000, in the course of explaining the applicant’s obligations as a bankrupt, there is the following under the heading “Your rights and entitlements” at subparagraph 4:

    “You are entitled to retain any compensation money received from personal injury to yourself or immediate family”

35. I accept that the respondent sent this letter to the applicant.

36. Therefore, when he received the monies, the trustee was not put on notice that part of the monies may be exempt monies.  He was not helped by the applicant’s first Statement of Affairs which stated that he had received income of $50,000 (an incorrect figure).  The applicant did not say that part of the $97,341 was this “income”.

37. In a notice to creditors dated 14 May 2001 the respondent stated that:

    a)he regarded the Statement of Affairs dated 9 February 2001 as a materially incomplete draft;

    b)at paragraph 1.1 “I note that during the period after the Sequestration Order was stayed, approximately $70,000 (non-pension funds) was deposited to this account, some of which was paid to the Petitioning Creditors solicitors during the stay.  Those funds, together with other funds paid by the Bankrupt were held in Trust until 15 December 2000.  I have since secured those funds totalling some $97,000.  The source of these funds has yet to be determined.

38. The applicant was asked to produce documents filed on his behalf in the District Court of New South Wales. He could not do so. In his amended application, the applicant refers to consent court orders. These were not produced. He was asked to produce medical reports or other documents to support his claim. He could not do so. The applicant referred in his evidence to a written settlement agreement. It was called for and could not be produced (T121). I find the applicant’s explanation of why he could not produce these documents unconvincing. The applicant says the documents were probably taken during a Federal Police execution of a search warrant obtained by the respondent (T115). If this was so, it does not explain why the applicant retained the two letters from his former solicitors.

39. Mr de Mestre was not called to give evidence. The applicant said that he had only requested a copy of his file from his former solicitor some six weeks prior to the final hearing. On the morning of the second day of hearing the applicant sought leave to adduce evidence from his former solicitor that he had asked for documents to be produced and they hadn’t been yet. I refused leave, on the basis that the matter had twice before been set down for hearing, and no affidavit was produced from Mr de Mestre, in contravention of directions of the court. No explanation was given as to why Mr de Mestre could not have been contacted earlier.

40. Not without some hesitation, and having taken into account the various inconsistencies in the applicant’s own evidence, and lack of supporting documentation, I accept that the applicant received $41,000 in February 2000 being the balance of settlement monies received by him for personal injuries sustained during 1997. I do so primarily having regard to the two letters from the applicant’s former solicitors and the consistency of those letters with the applicant’s bank statements, coupled with the lack of any meaningful challenge to the applicant’s account of his injury.

41. As McQuade points out in his Guidebook to Australian Bankruptcy Law at [41.1270] the protection afforded to damages or compensation recovered for personal injuries arises out of the longstanding principle that a right of action in a bankrupt does not pass to the trustee where the damages are to be estimated by immediate reference to pain felt by the bankrupt in respect of her or his body, mind or character: Beckham v Drake (1849) 2 HLC 579 at 604; Cox v Journeaux (No 2) (1935) 52 CLR 713 at 721.

42. Having determined that the monies ($41,000 or approximately that sum) bore the characteristics of compensation when received by the applicant, the more difficult question is whether the subsequent use made of the monies and their withdrawal and redeposits in some way changes the character of the monies so that it becomes available to the trustee.

43. In Re Iskenderian; ex parte Iskenderian Bros Pty Ltd (1990) 21 FCR 363 Neaves J had to consider a case where:

    a)In 1983 the bankrupt received $159,447.40 by way of damages in personal injuries proceedings;

    b)The bankrupt purchased a property at 54 Prahan Avenue for $124,000 using her damages;

    c)The bankrupt effected improvements costing $30,000 also using her damages;

    d)The bankrupt and her husband borrowed monies from a bank, which took a mortgage over the property;

    e)The property was sold in July 1987 for $194,000, from which the bank was repaid almost $120,000;

    f)The bankrupt received approximately $61,000 from the proceeds of sale;

    g)The bankrupt then purchased vacant land at Bonnells Bay for $36,000;

    h)The bankrupt and her daughter purchased an adjoining parcel of vacant land, to which the bankrupt contributed $7,000;

    i)In June 1988 the bankruptcy order was made.

44. It was contended that the bankrupt’s interest in the two parcels of land was property divisible amongst the creditors of the bankrupt.

45. His Honour made reference to ss.116(2)(g), 116(2)(n), 116(2D), 116(3) and 116(4) of the Act. His Honour recorded counsel for the applicants as conceding that the monies originally received by the bankrupt were not divisible amongst her creditors, and had she retained the Prahan Avenue property that would not have been divisible among the creditors. However, it was submitted that the proceeds of sale of the Prahan Avenue property did not answer the description of damages or compensation falling within s.116(2)(g) of the Act.

46. His Honour reviewed the development of the bankruptcy legislation and observed that the 1924 Act did not protect the proceeds of a personal injuries action from being divisible as part of the bankrupt’s estate: Union Fidelity Trustee Company of Australia Ltd v Dodds (1967) 10 FLR 111. This position was ameliorated by the 1966 Act, which introduced s.116(2)(g) and the 1980 amendments which introduced ss.116(2)(n), (3) and (4). These latter provisions were further amended in 1987. His Honour concluded, at p 370:

    “That history indicates an intention on the part of the legislature progressively to limit, in the event of supervening bankruptcy, the property available for distribution amongst the bankrupt’s creditors with a consequential expansion of the property which a bankrupt may retain for his own benefit. The relevant provisions, therefore, are to be construed, within the limits which the language used will allow, so as to give effect to that evident intention. The language of s. 116(3), however, when read with the definition set out in s. 116(2D), gives rise to some difficulties stemming, perhaps, from the desire of the draftsman to deal in the one short subsection with a number of diverse situations.”

47. His Honour then reasoned that, because of the requirement in s.116(3) to be looked at “as at the time when the bankrupt becomes a bankrupt” it is necessary to characterise the money or property as at the date the sequestration order is made. His Honour thought it was implicit in s.116(3) of the Act that circumstances may exist in which the question which the subsection poses will admit of a different answer depending upon whether it is asked as at the date of purchase or acquisition of the property or as at the time when the bankrupt becomes a bankrupt.

48. At page 372, his Honour said:

    “The argument presented on behalf of the applicants requires the language of s. 116(3) to be read as fastening upon, to the exclusion of all other considerations, the immediate source of the money used in the purchase or acquisition of the property in question. I am unable to accept that approach. Notwithstanding the difficulties to which the language of the provisions gives rise, I am of opinion that s. 116(2)(g) and (n) and subs (3) sufficiently reflect a legislative intention that a bankrupt, notwithstanding his bankruptcy, is to continue to have the benefit not only of any damages or compensation of the kind referred to in s. 116(2)(g) recovered by him, but also of any property which can, as at the time when he becomes a bankrupt, properly be described as representing such damages or compensation. Those provisions are, therefore, to be construed accordingly. In the light of that evident legislative intention, I can see no basis for concluding that the protection is to extend only to the damages or compensation and to property initially purchased or acquired with the money recovered by way of damages or compensation: see Leach v Official Assignee [1975] 1 NZLR 83 at 87-88. In my opinion, s. 116(3) requires that the totality of the circumstances be considered and the question asked whether the property, in truth, represents such damages or compensation. In the circumstances of a particular case, where properties have been bought and sold, it may well be difficult for a bankrupt to establish that property of which he is the beneficial owner as at the time when he becomes a bankrupt does, in truth, represent damages or compensation of the kind referred to in s. 116(2)(g), which he recovered at some earlier time. That circumstance, however, provides no reason for reading the provisions in the limited way contended for by the applicants and as protecting only the money received by way of damages or compensation and the property first purchased therewith. The question is ultimately one of fact.”

1. This decision was followed in Re Manivilovski; ex parte Official Trustee in Bankruptcy (1993) 45 FCR 358 and approved by the Full Court in Turner v Official Trustee in Bankruptcy (1996) 71 FCR 418 at 422. In the latter case, their Honours alluded, in passing, to the potential need in particular cases to a tracing exercise to see what has become of compensation money.

2. In Re Jemielita; ex parte Official Trustee in Bankruptcy (1996) 63 FCR 141 RD Nicholson J considered an application by a bankrupt to recoup monies from his bank account transferred to his trustee in bankruptcy, in circumstances where:

   a)The applicant became bankrupt on 8 March 1994;

   b)The bank account was opened on 10 May 1994;

   c)On 28 August 1995 the balance of the account then $11,779.99 was transferred to the trustee;

   d)It was agreed that monies deposited into the account were the proceeds of a superannuation benefit paid on 22 April 1994.

3. At 144 his Honour rejected the submission that s.116(4) applied to the money. His Honour held that prima facie, the payment of money out of the bank account does not come within the description “realises particular property”.

4. After referring to both Re Iskenderian and Re Manivilovski his Honour noted that the monies in the bank account may be protected under s.116(2) but if they are withdrawn, that withdrawal may not constitute an “outlay” within s.116(4). To do so would require evidence of the purchase or use of the monies in the acquisition of property. His Honour said, at 145:

   “On any reading of that definition in conjunction with s. 116(4) it is apparent that a withdrawal of money from the bank account for the purpose of transferring control of it to the Trustee is not a relevant outlay. Furthermore, reference to the definition of “outlay” is confirmatory that the word “property” as it appears in s. 116(4) is a reference to property which has been acquired or purchased or otherwise dealt with as provided in the definition, none of which is the case in relation to a withdrawal of money from the bank account for the purpose of transferring that money to the Trustee.”

5. His Honour concluded that s.116(4) did not apply to the withdrawal of money from a bank account.

6. That is what occurred in the present case, but with two additional features that make the case worse for the applicant.  First, the money was not transferred to the trustee but to a third party creditor.  Secondly, the money was intermingled with other funds, including monies borrowed by the applicant from related corporate entities.

7. If one stands back, as Neave J invited and asks the question whether the property ($97,341.00 or part thereof), in truth, represents damages or compensation, in my view it does not. It represents an amalgam of funds used by the applicant as an attempt to purchase a compromise. In doing so, in my view, the monies lost their character as compensation.

8. It follows that I would decline to make the first declaration sought by the applicant.

9. In any event, I would decline relief even if it was found that $41,000 of the monies paid to the petitioning creditor retained their character as compensation, for the reasons that follow.

10. It was not clear whether the applicant based his claim in relation to the $41,000 on s.30(1) of the Act or s.178(1) despite the terms of the amended application. Both sections confer discretion on the court to grant relief, in circumstances where it would be just and equitable to do so, including orders that a trustee make good a loss caused by his default.

11. Section 30(1) of the Act provides:

    (1)     The Court:

    (a)     has full power to decide all questions, whether of law or of fact, in any case of bankruptcy or any matter under Part IX, X or XI coming within the cognizance of the Court; and

    (b)     may make such orders (including declaratory orders and orders granting injunctions or other equitable remedies) as the Court considers necessary for the purposes of carrying out or giving effect to this Act in any such case or matter.

12. I have already set out s.178(1) of the Act.

13. In either case, declaratory relief is discretionary.  In Tyler v Thomas (2006) 3 ABC (NS) 773 at [13], [78] and [208] the members of the Full Federal Court concluded that s. 30(1) of the Act should not be used as a source of power to override express provisions of the Act. Whilst I do not suggest that is what is being attempted in this case, nevertheless I am not persuaded that if the applicant fails to obtain relief under s.178(1) of the Act, he should succeed under s.30(1) of the Act. That is, s.178 expressly deals with the court’s control over trustees. It is difficult to conceive of circumstances where the court would decline to grant relief under s.178, but would do so under s.30(1).

14. In Re Simersall; Blackwell v Bray (1992) 35 FCR 584 at 591 Gummow J said that “necessary” in s.30(1) of the Act means if it is in the interests of justice having regard to the purposes of the Act. I ask rhetorically when it would ever be necessary to grant relief under s.30(1) if the court declines to grant relief under s.178.

15. I therefore proceed to consider the applicant’s claim in relation to the $41,000 primarily by reference to s.178(1) of the Act.

16. Section 178 of the Act confers a supervisory jurisdiction over the conduct of the trustee: Cummings v Claremont Petroleum NL (1996) 185 CLR 124 at 133. There have been many expressions of the approach the court should take under s.178.

17. In Re Tyndall (1977) 30 FLR 6 at 9-10 Deane J said:

    “In my view, the wording of s. 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 case and is quite inconsistent with the approach that, upon an application made pursuant to the section by a bankrupt, creditor or other person affected by an act, omission or decision of the trustee, the court is only empowered to interfere with the trustee’s act, omission or decision if it is of the view that the trustee has acted absurdly or unreasonably or in bad faith. Once the matter is properly before the court, the court is, by the express words of s. 178, empowered (and, as I have said, obliged) to make such order as it thinks just and equitable.

    This is not, of course, 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 be business or commercial decisions in which the business or commercial experience of the trustee would itself provide a basis for arguing that, unless it were shown that the trustee’s decision was perverse or clearly wrong, it would be inappropriate and unjust for the court to interfere. Again, under the present legislation, the trustee will ordinarily be the official receiver and the court must be conscious 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 demands that the Court take into account, in exercising its functions under the provisions of s. 178 of the Act, the opinion of the official receiver, as trustee, as to what is expedient in the interests of the prompt and efficient administration of a particular bankrupt estate. That is, however, a completely different thing to saying that the court can only interfere with an act, omission or decision of the official receiver, as such trustee, when it is 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.”

18. In Healey v Prentice (No. 2) [2000] FCA 1598 Madgwick J said at [20] – [22]:

    “[20]    The Court is given a very broad supervisory role. The only constraint is that it must be made to appear to the Court that it is just and equitable to make some proposed order. While, for historical reasons, its is well settled that such a broad review jurisdiction in insolvency matters falls within the judicial power of the Commonwealth, in truth, the Court's role has aspects not unlike those more commonly found in administrative reviews. The Court is, after all, reviewing administrative actions of a trustee.

    [21]  It would be enough to excite the court to intervene if it be shown that the impugned conduct of the trustee was incorrect or that other conduct was, or on the material before the Court would be, preferable and that justice and equity require the Court's intervention. An applicant no doubt carries the onus of establishing this. It is plain that the Court should not be too ready to intervene for fear of making the role and work of a trustee unmanageable. That the judge who hears a review application might have acted differently from the way a trustee did is not to the point. The question is whether it is just and equitable that the Court should afterwards intervene in some fashion.

    [22]  This view I think is in accord with what RD Nicholson J said in Bethune v Newman (1996) 19 ACSR 99 and of the approach of Lee J in Re Wheeler; ex parte Wheeler v Halse (1994) 54 FCR 166 at 170. “

19. In Macchia v Nilant (2001) 110 FCR 101 French J held that the supervisory jurisdiction conferred by s.178 extends to the conduct of the trustee after discharge of the bankrupt, and can be invoked by a person who has been discharged. At paras [30] ff French J traces the historical development of s.178 of the Act. French J observed that the words of Deane J about the width of the discretion under s.178 were approved by the Full Court in Re Dingle; ex parte Westpac Banking Corporation v Worrell (1993) 47 FCR 478 at 485. The Full Court emphasised that the powers under s.178, like those under s.30 of the Act, are discretionary and “it should not be thought that the Court will always intervene”.

20. This approach to s.178 was endorsed in McGoldrick v Official Trustee in Bankruptcy (1993) 47 FCR 547 at 552. Under s.178 the court’s powers are conditioned by reference to the concepts of justice and equity and as a result the conduct of an applicant for relief such as considerable delay in exercising its rights can be relevant in determining whether it would be just and equitable to make the orders sought, irrespective of the correctness or otherwise of the act omission or decision in question: Health Insurance Commission v Trustee in Bankruptcy of the estate of Alekozoglou (2003) 1 ABC (NS) 365.

21. The court should not be too ready to intervene for fear of making the role and work of the trustee unmanageable. It is not enough that the judge might have acted differently: Healey v Prentice (No 2) [2000] FCA 1598; Freeman v National Australia Bank Ltd (2003) 2 ABC (NS) 51 at [11-13]

22. It has been held that s.178 enables the court to make declarations and orders as to the ownership of property claimed by the trustee: Jones v Daniel (2004) 141 FCR 148. That reinforces my view that the application should primarily be considered under s.178 rather than under s.30(1).

23. As I have concluded, the trustee was given little assistance at the outset as to the source of the $97,341. There is no evidence of enquiries made by the trustee to try and resolve the matter. The applicant certainly didn’t assist.

24. When the applicant submitted his second Statement of Affairs on 19 January 2002 it included no reference at all to the compensation monies, nor to the $50,000 referred to in the first document.

25. At paragraph 19 of his affidavit filed 2 October 2006 the applicant says:

    “On the 19 January 2002 I reluctantly complete a second Statement of Affairs Form and sent it to PPB. When completing the second Form I made no reference to the February 2000 income of 50,000/$41,000 from GIO because it was income received prior to 12 months from the date on which I completed the second form and this must have been obvious to the trustee.”

26. The applicant’s second Statement of Affairs is exhibited to the affidavit of D Gorney filed 3 August 2006. It contains no reference to the compensation payment.

27. I accept that prior to receiving the applicant’s letter of 3 July 2002 the respondent trustee was not aware that the funds voluntarily paid by the applicant to the ANZ Bank during the bankruptcy proceedings and then subsequently to him as trustee in bankruptcy allegedly contained funds obtained by the bankrupt from a personal injury compensation payment.

28. In his letter to the respondent of 3 July 2002 the applicant set out his assets, which did not include the asserted proceeds of a compensation claim (or the difference between those proceeds and the monies sent by the bank).  At paragraph 2.2 of his letter, the applicant said:

    “Please be informed that during early 2000 I received payment of compensation as settlement of a personal accident and injury claim amounting to approx. $42,000.00. These funds do not come under the category of divisible assets for the purpose of your administration under the Bankruptcy Act. This money has to some extent been absorbed by the Trust account funds in your control and the business arrangements of FH. Enclosed please find copies of letters to me dated 16 and 17 February 2000 from de Mestre and Company Solicitors who represented me in this matter.

    You will appreciate that I must have this money to cover the ongoing needs arising from the injury I have suffered. Therefore would you please assist me to access my personal injury settlement funds as soon as possible?”

29. There has been no explanation forthcoming as to why the two letters from the applicant’s former solicitors were not provided at an earlier time.

30. On 10 July 2002 the respondent trustee wrote to the applicant a letter which included:

    “In relation to your claim that you have received funds from a pre-bankruptcy personal injury compensation claim, I will review my copies of your bank statements to identify these funds. However, would you please provide me with further information in relation to that particular claim?”

31. In his letter in reply of 15 July 2002 the applicant refers the trustee to the correspondence he has already been given and stated:

    “I am sure you will not hesitate to promptly contact Centrelink and or Paul de Mestre if you need further confirmation from either of these parties.

    It is a very simple task for you to review my Bank Statements in your possession and identify the said payments into my Bank Account with the Commonwealth bank. You will also see drawings from my account utilising the $41,000 that went towards a settlement proposal put to the ANZ Bank to terminate Bankruptcy proceedings against me. The proposal was not accepted and the funds lawfully remain my property pursuant to Section 116 2g of the Bankruptcy Act.

    I should mention that I have only recently become aware of a Bankrupt’s Legal rights in respect of compensation for personal injury as applicable in my circumstances. I am surprised that you did not trace the $41,000 paid into my account during February 2000 as being subject to Section 116 2g of the Bankruptcy Act. I would appreciate an explanation as to how this obvious oversight escaped your attention as I have been deprived form the benefit of these funds for a long time and as a consequence I have suffered a great deal of discomfort and hardship.

    Please note that I also wish to claim interest (on a normal benchmark rate) calculated monthly in respect to the $41,000 for the period commencing on the date on which the money was lodged in the trust account of Blake Dawson Waldron to date. I insist that you will immediately consent to provide me with the funds claimed herein.”

32. The applicant in his evidence accepted that he gave the trustee no further information (T153).

33. On 23 July 2002 the respondent trustee notified the applicant of his decision not to refund any money. The applicant sought no review of this decision. Whilst the time limit in s.178(2) does not apply to a review of the decision of 23 July 2002, it is still relevant to note that no application was made to the court for a further three and a half years. That delay is simply not explained.

34. On 25 July 2002 the solicitors for the ANZ Bank advised the trustee that the applicant had not at any time advised it or them that the source of funds was the settlement of a personal injuries claim.

35. On 7 November 2003 the trustee again wrote to the applicant asserting that the $50,000 he was claiming was not repayable, and would not be repaid. That decision was not sought to be reviewed within the time prescribed by s.178(2) of the Act.

36. In my view, where the applicant has not given the trustee full details of the origin of the monies he used to pay the ANZ Bank, where the applicant has not properly completed his first Statement of Affairs so as to properly disclose the compensation monies, where the applicant has deliberately omitted reference to the compensation monies in his second Statement of Affairs, where the applicant has not raised the matter directly with his trustee until mid 2002, and when advised that the monies would not be refunded, did not seek relief from the court until December 2005, it is difficult to conceive of why any discretion should be exercised in the applicant’s favour.

37. In addition to the matters referred to in paragraph 102, there is the additional fact that the trustee has acted on the basis that there were not compensation monies, and that no timely challenge was made to his decision. The compensation monies have been expended by the trustee. Further, and perhaps because of the deluge of correspondence from the applicant to which he has been subjected, the trustee has no funds to further administer the estate, and has unpaid remuneration of some $60,000.

38. In Pridmore v Magenta Nominees Pty Ltd & Ors (1998) 161 ALR 458 RD Nicholson J considered whether the Bankruptcy Act provided an exclusive code to the exclusion of equitable claims. His Honour at [30] accepted that the Act provides an exclusive code as to the circumstances and conditions under which a bankrupt can enter into a binding and effective composition with his or her creditors. However, his Honour said at [47] that the provisions of the Act do not have the consequence of excluding by necessary implication the possible application of common law or equitable principles to the conduct of a creditor at a creditor’s meeting which is said to give rise to liability independently of the binding and effective quality of any composition made at that meeting. At [49] his Honour did not consider that the provisions of the Act can exclude the potential application of principles of equity to the conduct of a person involved in the execution of proceedings purportedly in accord with the Act. His Honour also did not rule out the application of the principles of estoppel and waiver at [69-73].

39. By his conduct, the applicant could be found to have waived his entitlement to the compensation monies, or be estopped from claiming them by reason of his conduct.

40. However, it is not necessary to resolve those interesting questions.  It is sufficient for me to decline, in the exercise of my discretion, for the reasons I have stated, to grant the declaratory relief the applicant seeks vis a vis the compensation monies.

41. That conclusion is sufficient to dispose of the applicant’s claims for interest and damages as a result of the trustee dissipating the compensation monies.

42. In Macchia v Nilant, supra at [44] French J said:

    “In my opinion, however, ss 178 and 179 do not extend to provide statutory mechanisms for pursuing claims for damages for torts said to have been committed against a bankrupt in the administration of the estate or otherwise under the general law.”

1. Accordingly, the relief sought at paragraphs 1 to 5 of the amended application is refused.

2. Next, I consider the applicant’s claim that the trustee acted inappropriately in refusing to accept a proof of debt from Michael Evans, barrister, which was purportedly assigned to the applicant. Such a claim can also be considered under s.178 of the Act: Health Insurance Commission v Trustee in Bankruptcy of the estate of Alekozoglou (2003) 1 ABC (NS) 365.

3. Mr Evans apparently acted for the applicant at some stage in the past. Exactly what work Mr Evans carried out was not particularised in the evidence. I observe that Mr Evans appeared for Mr David Foyster (the applicant’s son) in the Supreme Court of New South Wales proceedings brought against Foyster Holdings Pty Ltd by Jacqueline Foyster (the applicant’s former wife). Of course, the applicant would not be indebted to Mr Evans for that work, as it was carried out for someone else.

4. No documents were produced in support of the claim. A fee note was not produced (T96.15). A costs agreement was called for but not produced (T119). Mr Evans did not give evidence. I infer that his evidence would not have assisted the applicant.

5. A proof of debt from Mr Evans is exhibit L to the applicant’s affidavit filed 3 December 2005.  It is dated 23 November 2005 and is in the sum of $5500.

6. I doubt whether a barrister without a fee agreement can sue to recover fees, or submit a proof of debt.  Such a proof was not admitted in Re Neville; ex parte Pike (1896) 17 LR (NSW) B & P 24.

7. Further, the applicant said that Evans worked on a contingency basis. Contingency fees are made unlawful by s.325 Legal Profession Act 2004 (NSW). By s.319(1)(c) of that Act the fair and reasonable value of legal services can be recovered, in the absence of a costs agreement.

8. The circumstances in which the “debt” was assigned are also unsatisfactory.

9. In a letter sent to the respondent and dated 21 November 2005 the applicant said “You are hereby notified that I have finalized an agreement with Mr Michael Evans in respect of my purchase from him of his proof of debt entitlement and creditor’s status in respect to my Bankrupt estate.  Please amend your records accordingly”

10. This letter is in direct contradiction of the applicant’s oral evidence which was to the effect that his agreement with Evans was made on 23 November, two days after the letter was sent.

11. The applicant’s oral evidence was itself inconsistent.  The applicant referred (at T97.35) to a conversation in which Mr Evans apparently said “Lloyd you buy me lunch, and you undertake to give me 50% of what you get, pro rata, to my entitlement, and I will assign you my proof of debt or my rights to my proof of debt”.  I doubt very much that Evans would have made such an agreement, which amounts to an unlawful contingency agreement.

12. When pressed about the actual terms of the agreement at T122 the applicant’s evidence became vague. He said there was a discussion a couple of days before 23 November in which Evans said “If you take me out for lunch we will discuss this and see what happens”. At T124.20 when asked what were the terms of the agreement, the applicant said that he said to Evans “What compensation do you want for the purchase of the assignment of the shares - the proof of debt to me” and Evans said “Well, if you’re successful with what you said, I would want, say half of what I would receive if you had success in acquiring funds for the estate.” Again, for the reasons I have given, I very much doubt that Evans would have made such a statement. Further, it beggars belief that the applicant would agree to give Evans half of the proceeds of claims that the applicant thought were worth a considerable amount of money, in exchange for the assignment of a debt of $5,500.

13. Ex R3 proves that the applicant paid for a meal on 23 November 2005 in Sydney, at the place he says he took Evans.  No other corroborating evidence was forthcoming.

14. The original proof of debt of Michael Evans is dated 23 November 2005 and is endorsed on the reverse “I hereby assign the benefit of this debt to Lloyd Foyster”.

15. The respondent was prepared to accept, for the purpose of the argument, that a creditor could assign a debt to a bankrupt.  I have difficulty with that proposition.  If A owes B money, and B assigns that debt to A, is the debt not extinguished?

16. In any event, having regard to the paucity of evidence, I do not accept the applicant’s evidence that he was indebted to Michael Evans for $5,500 or any sum.  I do not accept that Michael Evans was entitled to prove for that sum, in the absence of any fee note, fee agreement or any document showing that he had performed work for the applicant.  I do not accept that even if a fee was rendered and remained outstanding, that it could be assigned to the applicant.

17. It follows that the trustee would have been justified to reject Mr Evans’ proof of debt.  But the case gets worse for the applicant.  The trustee says he has not called for proofs of debt for the purpose of declaring a dividend (Gorney T46.8 on 31 October 2006).  Therefore no decision has been made whether to accept or reject Mr Evans’ proof of debt.  At T99 the applicant accepted that he has not lodged a proof of debt in reliance on the purported assignment.

18. The trustee is unlikely to call for proofs because there is no prospect of a dividend from the estate.

19. It is not clear, in those circumstances, what conduct of the trustee warrants review. The trustee did call for proofs by notice dated 4 November 2002, but that was in relation to a proposed s.73 composition that never materialised.

20. In the absence of any conduct by the trustee in relation to the proof of debt, I decline to accede to the application for relief, because there is no act, omission or decision to review.

21. I should point out, as a matter of completeness that the applicant relies, in part, on s.176 of the Act. Even a cursory reading of that section shows that it does not apply to the applicant.

22. Next, I consider the applicant’s claim that the trustee acted inappropriately in refusing his offer to acquire causes of action from the estate.  In his second report to creditors dated 14 December 2001 the trustee reported that “this administration continues to be a time consuming and frustrating matter.”  His remarks proved prescient.

23. At [3.1.500] the learned authors of the Laws of Australia cite Blackstone’s Commentaries on the Laws of England (5^th ed. Clarendon Press 1773) for the proposition:

    “The essence of bankruptcy is the surrender or delivery up of the debtor’s assets, their administration and realisation for the benefit of the creditors as a body, and the distribution of the proceeds to the creditors rateably in proportion to the debts owed to them”

24. That is, all causes of action, with limited exceptions, vest in the trustee on the making of a sequestration order.  However, the learned authors go on, at [3.8.990] to state that where a right of action has become vested in the trustee, but the trustee does not wish to prosecute the action or appeal, the trustee may assign that right to a third party, either during the bankruptcy, or after the bankrupt has been discharged (citing Brown v Amor Holdings Australia Pty Ltd [2006] QSC 393). It has been held that it is not contrary to the policy of the Bankruptcy Act for the trustee to assign the cause of action back to the bankrupt: Re Nguyen; ex parte Official Receiver in Bankruptcy (1992) 35 FCR 320.

25. In that case the Official Receiver sought leave under s.135(1)(b) of the Act to assign causes of action against a bank to the bankrupts. The bankrupts had been discharged. It was held that the general power of sale (for less than $20,000) includes a power to sell to the bankrupt. French J noted that in Kitson v Hardwick (1872) LR 7 CP 473 Willes J rejected a submission in respect of s.25(5) of the Bankruptcy Act 1869 that such a transaction was contrary to the policy of the Act or that property so sold would be immediately revested in the trustee. His Honour also observed that in Guy v Churchill (1884) 40 Ch D 481 an assignment of a chose of action (in that case to a creditor) on the basis that he would receive an agreed proportion of the ultimate recovery was held to be neither maintenance nor champerty.

26. It has been held that the power of the trustee to sell property under s.134 of the Act includes the power to sell or assign a chose in action: Citicorp Australia Ltd v Official Trustee in Bankruptcy (1996) 71 FCR 550.

27. A decision by the trustee to assign, or not to assign a cause of action may be reviewed by the court under s.178 of the Act: Willoughby v Official Receiver in Bankruptcy [2001] FCA 753; [2001] FCA 1345.

28. In Re Cirillo; ex parte Official Trustee in Bankruptcy (1996) 65 FCR 576 Branson J said at [24 – 25]:

    “In my view, in considering the issue of sale of the property of a bankrupt, including any sale which involves the assignment of a cause of action, the principal duty of the trustee is to consider the interests of the creditors of the bankrupt estate in question as a whole. Consideration may also, in my view, properly be given to the legitimate interests of the bankrupt and to the legitimate interests of other parties likely to be affected by the trustee’s decision

    It is not to be forgotten, however, that a trustee in bankruptcy, as an officer of the court, is one from whom high standards of conduct are to be expected (ex parte James; in re Condon (1987) 9 LR Ch App 609). In my view, it would not be proper for a trustee in bankruptcy to assign to any person a cause of action, which demonstrably had no prospects of success. This would be even more strongly the case should he or she be alert to the possibility that such cause of action might be utilised to cause embarrassment to a third party”

29. In Freeman v Joiner [2005] FCAFC 149 the Full Federal Court considered the decision of trustee not to assign causes of action to a bankrupt. The applicant sought review of the trustees’ decision requiring them to be put in funds before they determined whether to assign the causes of action to him, pursuant to s.178 of the Act. At paragraphs [14 – 18] their Honours said:

    “The position is that, whilst the proceedings brought by the bankrupt are deemed to have been abandoned by the trustee, the cause of action remains. The provision, properly construed, operates only upon the trustee. There is no bar to the trustee commencing a fresh proceeding on the same cause of action or a bankrupt, on discharge, doing so whether there has been no determination of the issues.  . . .

    Technically the trustee would have been correct in rejecting the applicant’s request for an assignment of the proceedings. They had been abandoned. What the appellant in reality seeks, and what the trustee’s letter to him appears to comprehend, is an assignment of the underlying causes of action. The question then is what was the trustee’s duty with respect to such a request.

    The duties of a trustee in bankruptcy were referred to in some detail by a Full Court in Adsett v Berlouis (1992) 37 FCR 201 at 208-9. A trustee has a dual function: to administer the estate in the interests of the creditors and the bankrupt; and to exercise the powers given and duties imposed by the Act as a public duty and for the public welfare. A trustee in bankruptcy has historically been regarded as an officer of the court. The court went on to say:

    “The discharge of a public duty imposed by the Act is to be performed conformably with the requirements of that duty, but also conformably with the trustee’s obligation to administer the estate in such a manner as to maximise the return from estate assets, and thereby to maximise satisfaction of the creditors’ claims and any possible surplus for the bankrupt”

    In Citicorp v Official Trustee (at 561) the Full Court emphasised the practical and commercial approach which a trustee should adopt in considering whether to authorise an assignment of a chose in action. This approach has been followed in Re Cheesman v Waters (1997) 143 ALR 78 at 108. A trustee is not obliged to take steps which would be unrealistic or expensive: Citicorp v Official Trustee at 561. The fact that a trustee has no funds which would permit a particular course to be taken is a relevant consideration to weigh: Seear v Lawson (188) 15 Ch D 426 at 433; Stein v Black [1996] 1 AC 243. Those cases dealt with the question as to whether a trustee should have pursued litigation commenced by the bankrupt when they had no funds to do so, but the principle is obviously one of common sense and general application. . .

    Citicorp v Official Trustee holds that it is not incumbent upon a trustee to make enquiries about the prospects of success of an action when deciding whether to assign a cause of action (at 561). In many cases it will be more practical simply to assign it for a consideration, leaving the purchaser to risk costs. On the other hand it is an aspect of the trustee’s public duty that a claim with no reasonable prospect of success, the prosecution of which would be frivolous and vexatious, should not be assigned: Citicorp v Official Trustee at 565. Their Honours went on to observe that in most cases it will not be clear that a claim has no reasonable prospects. Where it is clear, however, the trustee as an officer of the Court, and the Court itself, should not allow the assignment to occur even where money is offered for it.

    It does not follow from Citicorp v Official Trustee that in a case where trustees are not certain about the prospects of a claim’s success that an assignment should follow. Principles about what a trustee should do in a particular case cannot be stated as universal. Trustees will be faced with different factual scenarios to which the general principles relating to their duty and to practical issues will need to be addressed. The present case is unusual in that there are strong indications that the further pursuit of the actions may well be frivolous and vexatious”

30. The question of challenging the trustee’s decision not to assign causes of action was also considered by Drummond J in Re Gargan; ex parte Gargan v Official Trustee in Bankruptcy [1995] FCA. In that case, the assignment was sought on terms that any money recovered would be applied in payment of the creditors. Drummond J said that court has to consider first whether the bankrupt has an arguable case in relation to each cause of action which he wants to have assigned to him. Unless he can satisfy the court of that, his application must fail.

31. When pressed (at T161 ff), the applicant identified causes of action that he wished to pursue:

    a)The claim against the ANZ Bank that had been abandoned under s. 60 of the Act (relating to the foreign currency loan);

    b)A claim by Foyster Holdings Pty Ltd against the respondent, apparently grounded in misrepresentation;

    c)A claim in fraud against the respondent in relation to his conduct of the bankrupt’s affairs;

    d)A claim against the provisional liquidator of Foyster Holdings Pty Ltd for a fraudulent conspiracy;

    e)A claim against Foyster Holdings Pty Ltd for the amount of the proof of debt lodged ($330,000) by the respondent;

    f)A claim against the directors of Tasmanian Titanium Pty Ltd;

    g)A claim in conspiracy involving the applicant’s ex-wife, his former solicitor Peter Hopkins and others who allegedly fraudulently procured the winding up of Foyster Holdings Pty Ltd.

32. No evidence was adduced as to how these actions would be prosecuted.  Despite a request from the respondent trustee, no legal advice on these causes of action was ever provided to the trustee.

33. The trustee by letter 25 July 2005 reasonably requested details of the choses in action that the applicant was wanting assigned to him. The applicant then delivered a “Letter of Notice” to a number of recipients including the trustee (exhibit F to the applicant’s affidavit filed 13 December 2005).

34. I reserved the question of admissibility of the “Letter of Notice” and the draft statement of the applicant.  In my view the Letter of Notice is not admissible as evidence of its contents.  It is a series of assertions by the applicant directed against the named recipients.  I will receive the document simply as evidence that a series of complaints was made by the applicant to, inter alia, the respondent on 2 October 2005.  The draft statement of the applicant presents more difficulties.  Paragraphs 2 - 5 are not, in my view, relevant to these proceedings, as it is not show that these facts were known to the trustee.  Further it is not demonstrated how the trustee acted in relation to the dispute between shareholders in underlying companies.  In my view, none of the draft statement is relevant and I uphold the objection to its receipt into evidence.

35. Mr Gorney in his affidavit filed 28 April 2006 swears that he has not received any of the material requested from the applicant in his letter of 25 July 2005.

36. The applicant attached as exhibits to his affidavit of 26 June 2006 two lever arch folders containing documents.  He states at paragraph 14 of the affidavit:

    “The contents of the said documents and evidence will be substantially relied upon to support my later submissions relevant to my application, pursuant to existing court orders already made.”

37. 821 pages of documents are attached.  No attempt is made to distil the relevant from the irrelevant, the admissible from the non-admissible.  The truth of the contents is not sworn to, nor could it be in respect of many of the documents, of which the applicant is not the author or in some cases the recipient.

38. The claim by the applicant against the ANZ Bank has been the subject of litigation and decisions. The applicant has suffered multiple adverse costs orders. The applicant’s claim in negligence has been dismissed. He was left with a potential claim in fraud against the bank. The claim was deemed abandoned when not pursued by the trustee: s.60(2) of the Act.

39. The applicant has not put before the court any evidence to show that a claim against the ANZ Bank has any prospects of success, or that it would not be met with an insuperable limitations defence. In fact, I think it is fair to say that no evidence at all was put before the court concerning the claim against the ANZ Bank. In my view, the trustee was quite justified in not assigning this cause of action to the applicant.

40. It was not made apparent how the trustee could assign a claim by Foyster Holdings Pty Ltd to the applicant. That company is in liquidation, so any assets or causes of action that it has are vested in its liquidator, Mr Hancock. If the liquidator was advised to bring a claim against the respondent, he could do so. The applicant has not shown any basis or capacity for the respondent to transfer a cause of action to him.

41. The respondent could not transfer a claim by the applicant against the respondent for damages for fraud. There is no evidence adduced by the applicant that comes close to showing that there is an arguable case against the trustee in fraud.

42. The other claims were very much tied up with the applicant’s complaint that the respondent had allied himself with interests in Foyster Holdings Pty Ltd and Tasmanian Titanium Pty Ltd that were opposed to the applicant and his son. I will defer consideration of that matter, to my consideration of whether there should be an inquiry as contemplated by s.179 of the Act.

43. It seems from his evidence that the applicant would either litigate actions on his own, or seek a lawyer who was prepared to act on a speculative basis. No evidence was put before the court that any lawyer had advised the applicant that he or she was prepared to do so.

44. In my view, the causes of action proposed by the applicant are hopeless and without merit.  The trustee acted quite appropriately in refusing to assign them, without full particulars and supporting legal advice, which was asked for but never provided by the applicant.

1. The duties and conduct of a trustee in a general sense were examined by the Full Federal Court in Adsett v Berlouis (1992) 37 FCR 201 at 208-9.

2. A trustee’s duty to recover, secure and apply the assets of a bankrupt estate is not unqualified or absolute, in the sense that the non-performance of that duty cannot be excused by an honest and reasonable exercise of judgment. Rather, the scope of the trustee’s duty to the estate is to act as an ordinary prudent person of business would in the circumstances. This standard requires of the trustee good faith and reasonable diligence in the performance of its function: Wakim v HIH Casualty & General Insurance Ltd (2001) 111 FCR 58

3. At [50] his Honour said:

   “A trustee in bankruptcy is governed by the general law relating to trustees except where the Bankruptcy Act, Bankruptcy Regulations or Bankruptcy Rules otherwise provide: Adsett v Berlouis (1992) FCR 201 at 209. At the commencement of the bankruptcy, the trustee’s principal statutory duties were two (s. 19(1):

   “ . . .

   determining whether the estate includes property that can be realised to pay a dividend to creditors;

   . . .

   taking appropriate steps to recover property for the benefit of the estate.”

   In Mannigel v Aitken (1983) 77 FLR 406 Smithers J described the standard of conduct expected of trustees in bankruptcy in the performance of their duties to bankrupt estates (at 408-409):

   “In the case of bankruptcy the Trustee is in charge of the assets of the bankrupt and those assets are to be applied for the benefit of the creditors and if there be any surplus for the benefit of the bankrupt. It is clear that the minimum standard required of the Trustee is that he shall handle the assets with a view to achieving the maximum return from the assets to satisfy the claims of the creditors and to provide the best surplus possible for the bankrupt. Obviously a great deal of discretion and judgment is to be exercised by the Trustee. It was said by Rogerson J in Re Ladyman (1981) 55 FLR 383 at 394-6 that the standard of conduct required of the Trustee will ordinarily be the standard required of a professional man and perhaps higher. The learned judge referred to ‘the high standard of conduct required of trustees’.

   In Re Brogden (1888) All ER 927 Fry LJ said (at 935):

   “a trustee undoubtedly has a discretion as to the mode and manner, and very often as to the time in which or at which, he shall carry his duty into effect. But his discretion is never an absolute one. It is always limited by – the dominant duty – the guiding duty of recovering, securing and duly applying the trust fund; and no Trustee can claim any right of discretion which does not agree with that paramount obligation”

   Where an order is sought that the Trustee be removed and to make good the losses suffered by the estate, it must be established that the Trustee has been guilty of a breach of duty to act diligently and prudently in regard to the business of the trust. See Riley J in Re Alafaci; Registrar in Bankruptcy v Hardwick (1976) 9 ALR 262 at 285.”

   Mannigel was approved by the Full Court of this Court in Adsett at 208 (Northrop, Wilcox and Cooper JJ) and Citicorp Australia Ltd v Official Trustee in Bankruptcy (1996) 71 FCR 550 at 560 (Foster, von Doussa and Sundberg JJ).”

4. Another consideration must also be borne in mind. In Adsett v Berlouis (1992) 37 FCR 201 the Full Federal Court held that the obligation of a trustee in bankruptcy to pay costs to another party involved in litigation unsuccessfully instituted or defended by the trustee is a matter distinct from the trustee’s entitlement to recoupment out of the bankrupt’s estate (citing Pitts v La Fontaine (1880) 6 App Cas 482 at 486; Re Driller (1972) 21 FLR 159 at 175. It is a personal obligation, whereupon the question separately arises in the administration of the bankruptcy as to the trustee’s right to reimbursement out of the trust estate. The trustee in bankruptcy is personally liable for all debts incurred in his or her capacity as trustee of the estate of the bankrupt (Hunt Bros v Colwell [1939] 4 All ER 406; Kennedy v Australian Mutual provident Society [1996] FCA 1045) with a right on indemnity against the estate for the costs and expenses properly incurred in administering the estate: RWG Management Ltd v Commissioner of Corporate Affairs [1985] VR 385 at 396.

5. Here the trustee has an unfunded estate. In my view, he was not required to embark on litigation at his own cost, when the benefit of doing so has not been demonstrated.

6. Indeed, virtually all of the applicant’s contentions can be answered by pointing to the complete dearth of evidence that his shares in Foyster Holdings Pty Ltd, and that company’s shares in Tasmanian Titanium Pty Ltd were ever worth anything.

7. In Adsett v Berlouis at page 208 the court said that a trustee under the general law must exercise judgment so as to save the estate unnecessary expenditure of money (citing Re Grimthorpe (Dec’d) [1958] 1 Ch 615 at 623; Re Whitley; Lloyds Bank Ltd v Whitley [1962] 1 WLR 922 at 931). Their Honours said a trustee in bankruptcy is in no different position. Their Honours adopted as a correct statement of the duty of a trustee and the proper manner of its performance the words of Smithers J in Mannigel v Aitken (1983) 77 FLR 406 at 408-9 set out above.

8. In my view, intervening in the companies litigation would have involved an unnecessary and unwarranted expenditure of money by the trustee, and one for which he would have been personally responsible and potentially liable for other parties’ costs if he was unsuccessful.

9. In the present case two things ought to have been evident to the respondent trustee at a fairly early stage. First, that the dispute between the warring factions in Tasmanian Titanium Pty Ltd was likely to be ongoing and bitterly fought. Secondly, he had very limited funds to finance an ongoing involvement in the underlying litigation.

10. The trustee would have exposed himself and the estate to potentially significant costs if he actively took part in the proceedings between Jacqueline Foyster and Foyster Holdings Pty Ltd, and between that company and Tasmanian Titanium Pty Ltd. The trustee is not obliged to take steps which would be unrealistic or expensive: Citicorp Australia Ltd v Official Trustee in Bankruptcy (1996) 71 FCR 550 at 561.

11. It is evident that Tasmanian Titanium Pty Limited was in correspondence with the trustee (eg letter at pages 20-25 of ex LF1 to applicant’s affidavit filed 26 June 2006). It is quite plain from this letter that there were disputes between the shareholders in Tasmanian Titanium Pty Ltd. It was asserted that the relationship between the applicant and his son on the one hand and the other directors of the company had broken down. Hopkins was lobbying the trustee to have the applicant’s shares in Foyster Holdings Pty Ltd registered in his name so he could appoint a new board to that company, which would then in turn enable proper control of Tasmanian Titanium Pty Ltd to be implemented.

12. In my view, the trustee acted entirely appropriately in deciding to stay out of the conflict.  He acted as a reasonably prudent business person would have done in the circumstances.

13. There is no evidence that the trustee acted in any way inappropriately by meeting Struthers or Hopkins. He was entitled to do so, if only for the purpose of gathering information to enable him to make an informed decision whether it was appropriate to expend his scarce resources in embarking on an attempt to extract monies from Foyster Holdings Pty Ltd.

14. There is authority that a trustee in bankruptcy is required to act as a fiduciary in relation to the estate of the bankrupt except where the Bankruptcy Act provides otherwise: Re Ladyman (1981) 55 FLR 383; Pridmore v Magenta Nominees Pty Ltd (1998) 161 ALR 458. However, in my view the trustee does not act as a fiduciary vis a vis the bankrupt in the widest sense of that word in equity. As the cases extracted show, the trustee has public duties to efficiently administer the bankrupt estate.

15. The applicant complains that trustee went to a meeting on 5 September and acted against the best interests of the estate. However, when that allegation was tested in cross examination (T147ff) it transpired that the trustee abstained from voting at the meeting. There was no substance to the applicant’s complaint.

16. The applicant was referred to letter from the trustee dated 22 August 2002 to Mr Hancock (the liquidator of Foyster Holdings Pty Ltd) in which it is said “In relation to your proposal to sell down the company shares in Tasmanian Titanium to fund your investigation, I confirm I have no objection to you doing so if you believe it is in the best interests of creditors and shareholders.” The applicant complained about this in the following terms (at T156.15):

    “Because I believe that at that particular time Mr Prentice was in possession of a considerable amount of information concerning the affairs and undertakings and the involvements and the potential asset value of Foyster Holdings and that had he acted diligently he could have changed the course of those events. I believe that his actions promoted the events that took place to the detriment and loss of Foyster Holdings”.

17. There is simply no evidence that was put before this court that supports the belief expressed by the applicant.

18. The applicant alleges that the respondent has meddled in the business affairs of Foyster Holdings Pty Ltd and Tasmanian Titanium Pty Ltd on “a grand scale” and says that a significant amount of his total administration and outlays has been attributed to the activities in this regard. I think the admissible evidence demonstrates the converse of this proposition. Despite being repeatedly cajoled by the applicant, the trustee declined to become involved in the underlying disputes. There is no evidence to support the applicant’s assertions in this regard.

19. Indeed, when the applicant was pressed during his cross examination to flesh out his allegations against the trustee on a number of occasions the applicant was content to rely on the contents of his correspondence.  However, that correspondence consists of assertions by the applicant.  It does not provide any evidence to support those assertions.

20. The trustee made himself available for cross examination.  None of the matters complained of by the applicant in his correspondence were strongly put to the trustee. I thought the trustee, and his employee Gorney, gave their evidence in a straightforward and honest fashion, although it was evident that they had little time for the applicant. I have no hesitation in accepting their evidence.

21. In my view, the applicant has simply not established that the trustee acted in a manner that warrants review by the court.

22. The question then arises as to whether the court should order an inquiry, pursuant to s.179 of the Act which provides:

    (1)     The Court may, on the application of the Inspector‑General, a creditor or the bankrupt, inquire into the conduct of a trustee in relation to a bankruptcy and may do one or both of the following:

    (a)     remove the trustee from office; and

    (b)     make such order as it thinks proper.

    (2)     The Inspector‑General or a creditor may at any time require a trustee to answer an inquiry in relation to the bankrupt’s estate or affairs.

23. McDonald Henry and Meek, Australian Bankruptcy Law & Practice, at [178.1.15] states:

    “Section 178 together with s 179 play an important role in the court’s armoury of powers and control of trustees. However, the roles of those provisions are not the same. Section 178 contemplates orders concerning the administration of a particular act, omission or decision of an estate. Section 179 deals with the trustee’s conduct in relation to the application under s. 178 to challenge conduct of a trustee by seeking a review by the court of an act omission or decision of the trustee: Wilson v Commonwealth [1999] FCA 219

24. In Registrar in Bankruptcy v Bradley (1983) 72 FLR 231 Beaumont J endorsed the approach that there should be a preliminary inquiry to determine whether it was appropriate to hold an inquiry under the Act. This was also the approach followed in Alafaci; Registrar in Bankruptcy v Hardwick (1976) 9 ALR 262. In the latter case it was held that the power of the court to make such order as it thinks proper on an application for an inquiry into the conduct of a trustee under s.179(1) extends to making an order on a trustee to make good loss caused by misfeasance, negligence or wilful default on his part. See also Gao v The Official Trustee in Bankruptcy [2003] FCAFC 84 at [28].

25. In Re Gault; Gault v Law (1981) 57 FLR 165 it was held by Ellicott J that a court is not obliged to order an inquiry pursuant to s.179 Bankruptcy Act unless it is satisfied that sufficient grounds in support of the application to hold the inquiry have been made out. In considering whether to order an inquiry the court make take into account: (a) whether substantial allegations are made of misconduct in the administration of the trustee; (b) that the applicant has other remedies which are open to him to pursue; and (c) the extent of any delay and the effect of such delay upon any inquiry.

26. Having regard to what I have already said, it must be evident that there is no basis for an inquiry in this case. The proceedings before me occupied three days. The applicant put on seven affidavits and lengthy exhibits. I have not been persuaded that there is any substance to the applicant’s allegations of misconduct by the trustee.

27. Further, the applicant delayed in bringing his application. The applicant was concerned about the trustee’s conduct from 2002. His application was not filed until December 2005.

28. If the applicant genuinely believes that he has a cause of action against the respondent for damages, whether in negligence, deceit or otherwise, then the applicant has remedies available to him for that purpose. As Macchia v Nilant makes clear, ss.178 and 179 of the Act do not create a cause of action against the trustee. I observe that the applicant has brought proceedings in the Supreme Court of Queensland against various parties, including the respondent, in which he seeks damages.

29. Other considerations are relevant. The respondent has retired from his partnership. He remains a registered trustee, but seems to have withdrawn from active practice. An inquiry would be time consuming and expensive for the respondent and his employees and former employees. An inquiry may require evidence from the various players in the companies litigation. That would expose those parties to inconvenience and expense.

30. In my view, no useful purpose is served by the ordering an inquiry.

31. The applicant complains that his requests for information and documents were ignored by the respondent or not complied with.

32. Section 170(2) of the Act provides:

    (2)     The trustee shall, at the request of the bankrupt, furnish to the bankrupt information reasonably required by the bankrupt concerning his or her property or affairs.

33. Gray v Clout (1990) 27 FCR 141 is authority for the proposition that there is no universal right to reasons from the trustee.

34. In his affidavit filed 3 December 2005, the applicant submits:

    “I believe that the Respondent has purposely acted in a manner designed to frustrate and stifle my endeavours to obtain reasonable access to all of the required information and records which ought to be made available to me, with the intentions of concealing that information from me for his own protection and to make my task more difficult to procure the orders sought.”

35. On 29 July 2002 the applicant requested the trustee to give him specific information including

    a)Copies of correspondence between the trustee and the solicitors for the ANZ Bank;

    b)Copies of file notes and diary notes regarding access of funds including any telephone conversations or meetings between representative of my trustee, the solicitors for the ANZ Bank and the ANZ Bank relating to trust account funds

    c)Copy of bankrupt’s bank statements (Commonwealth Bank Tweed Heads Branch) for the year 2000 together with details of drawings and deposits information records acquired by trustee

    d)Trustee’s requested copy of all deposit slips and other documents relating to movement of $97,000 from the solicitors for the bank to the trustee

36. The trustee declined to provide copies of any documents other than the applicant’s own bank statements.

37. A request for information was considered in Haskins v Official Trustee in Bankruptcy [2000] FCA 691. There Finkelstein J declined to make any order because the applicants had sufficient information. In my view, that is the position with the present applicant. He now knows what happened with the monies he paid to the ANZ Bank.

38. I decline to make any order pursuant to s.170(2) of the Act.

39. It remains to formally rule on the reserved objections to evidence. I think it is fair to say that the applicant’s affidavits are replete with submission, hearsay and other inadmissible material. I was initially of the view that many of the letters referred to by the applicant could be received, not as truth of their contents, but as evidence that particular requests or statements were made on the days the letters were sent. However, the applicant expressly stated that he did rely on the letters as evidence of their contents.

40. Page 15 of exhibit LF1 to the applicant’s affidavit is a letter from the applicant’s son to the trustee’s employee. It contains no relevant evidence. It refers to actions against the ANZ Bank and asserts that the applicant can pay his debts. That is an issue that has already been decided. I uphold the objection to this document.

41. Pages 27 – 8 of the same exhibit are a letter written by the applicant’s son on behalf of Foyster Holdings Pty Ltd to Tasmanian Titanium Pty Ltd and others (but not the respondent). This is not the applicant’s document. There is no evidence the document was ever brought to the attention of the respondent. The objection is upheld.

42. The objection to page 68 of the same exhibit is upheld.  The document is not relevant to any issue that I am required to decide.

43. The objection to pages 71-78, 79 and 80-84 of the same exhibit is upheld.  The documents are not relevant and there is no evidence that they ever came to the attention of the respondent.

44. Objection was taken to the letter from the applicant to his former wife at pp 136-148 of the same exhibit, in which numerous allegation of improper conduct are made.  Again, the document has no probative value, is not relevant evidence and there is no evidence it came to the attention of the respondent.

45. On 25 June 2003 the applicant wrote to the respondent:

    “I reaffirm that I have put you on notice to intervene on behalf of my estate in respect to the agreements between the liquidator of Foyster Holdings Pty Limited and Debra Joy Russell and others dated 12 May 2003 . . .

    I take the view that the information referred to in the above mentioned memorandums (sic) justify’s (sic) the need for you to take the necessary steps through the court to prevent the liquidator from causing harm to my estate by selling all of FH assets at an under value, given that, among other things, my estate owns 45.9% of the issued capital in FH and that you have a proof of debt filed against FH for the amount of $330,229.89. Should you wish to obtain any further information from me to support your taking the necessary action referred to, I am readily available to attend to your request and assist in every way possible.

    Would you please confirm as soon as possible that you will take action pursuant to the circumstances. If you decide not to do so would you please confirm that in writing to me urgently, also providing me with your reasons for such a decision.”

46. I reserved the admissibility of the memorandum attached to that letter (ex LF1 pp 435-50).  It is from the applicant to members of his family.  It provides no probative evidence and is not relevant to the matters I have to decide.  I uphold the objection to that document.

1. I also reserved an objection to exhibit LF1 pp 452-471 which seems to be a duplicate of the document referred to at paragraph 207 of these reasons.

2. I reserved the admissibility of a statutory declaration sworn by the applicant that appears at pp 616-668 of ex LF1. It provides a detailed history of his dealings in the two companies to which repeated reference has been made. The truth of the document is not relevant and cannot be determined by this court. The trustee was provided with information and decided not to do anything on behalf of the applicant. The document is not evidence but assertion against the trustee. It also includes material regarding an unrelated and irrelevant matter, namely a complaint to a Law Society about Mr Hopkins. I uphold the objection to the admissibility of the document.

3. I also reserved the admissibility of the document at pp 670-7 of exhibit LF1, which is a draft notice of meeting for Tasmanian Titanium Pty Ltd sent from Hopkins to Rudi Anneveld. It is irrelevant. I uphold the objection.

4. I also uphold the objection to the document at page 820 of the exhibit, which is irrelevant.

5. For the reasons I have given I consider it neither just nor equitable to grant the relief sought by the applicant in either the original or amended applications. Those applications will be dismissed, with costs.

I certify that the preceding two hundred and thirty-nine (239) paragraphs are a true copy of the reasons for judgment of Wilson FM

Associate:  Lynnette Chin

Date:  11 June 2008