Fuller v Wily

[1999] FCA 656

FEDERAL COURT OF AUSTRALIA

Fuller v Wily [1999] FCA 656

BANKRUPTCY – discharge and annulment – discharge by operation of law – objections to discharge – appeal from review of decision to object – objection decision affirmed – whether review an error of law because necessarily involved disturbing or affecting third party rights

Bankruptcy Act 1966 (Cth) s149D

Australian Broadcasting Tribunal v Bond (1990) 170 CLR 321 applied

MICHAEL JOHN FULLER v HUGH JENNER WILY

NO. SG 110 of 1998

HEEREY, R D NICHOLSON AND FINN JJ
11 MAY 1999
ADELAIDE

IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY	SG 110 of 1998

BETWEEN:	MICHAEL JOHN FULLER Applicant
AND:	HUGH JENNER WILY Respondent
JUDGES:	HEEREY, R D NICHOLSON and FINN JJ
DATE OF ORDER:	11 MAY 1999
WHERE MADE:	ADELAIDE

THE COURT ORDERS THAT:

1.        The application is dismissed with costs, including reserved costs.

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

IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY	SG 110 OF 1998

BETWEEN:	MICHAEL JOHN FULLER Applicant
AND:	HUGH JENNER WILY Respondent

JUDGE:	HEEREY, R D NICHOLSON AND FINN JJ
DATE:	11 MAY 1999
PLACE:	ADELAIDE

REASONS FOR JUDGMENT

THE COURT:

1. This is an appeal against a decision of the Administrative Appeals Tribunal which affirmed a decision of the respondent to file a notice of objection to the discharge of the applicant under s 149A of the Bankruptcy Act  1966 (Cth) (“the Act”).

2. On 20 May 1993 a sequestration order was made against the estate of the applicant.  On the following day the respondent was appointed trustee of his estate.  The respondent's notice of objection was dated 5 June 1996.  It set out five grounds of objection which relied on two paragraphs of subsection 149D(1) as follows: 

   “149D(1)The grounds of objection that may be set out in a notice of objection are as follows: 

   …

   (g)at any time during the period of five years immediately before the commencement of the bankruptcy, or at any time during the bankruptcy, the bankrupt: 

   (i)

   …

   (ii)disposed of property but failed to explain adequately to the trustee why no money was received as a result of the disposal or what the bankrupt did with the money received as a result of the disposal;

   …

   (n)the bankrupt failed, whether intentionally or not, to disclose to the trustee the bankrupt's beneficial interest in any property.”

   The notice of objection referred to the applicant’s dealings with a trust called the Vilnius Trust which was established in the Channel Islands on 15 October 1986.  The trustee of that trust was the St Helier Trust Company Limited (“St Helier”).  A sum of US$1 million was settled on the trust.  St Helier made various dispositions of money at the request of the applicant. A 6.1-metre hydrofoil boat, furnishings and fixtures in a unit at the Hyatt Resort, Coolum and a property at 46 Katoomba Road, Beaumont, in South Australia, the title of which is in the name of the applicant's wife, were said to have been acquired with money provided directly or indirectly by the Vilnius Trust.

3. After a thorough review of the evidence the Tribunal made the following findings as to the Vilnius Trust :

   “73. …the Tribunal finds that the Vilnius Trust was merely a disguise, a facade, a false front, a mask and ultimately a sham in that it was a legal cloak designed and administered for the purpose of obscuring the truth of the relationship between the applicant and the funds settled on the Vilnius Trust, which was ultimately expressed via the applicant's wishes and the trustees’ capitulation to them.  Expressed another way, the Tribunal's considered opinion is that there is nothing in fact to reconcile the outward appearances created by the trust documents (whereby the trustees appear as the sole controlling force of the funds and the applicant appears ultimately powerless with respect to the administration of the trust and application of trust funds) with the substantial conduct of the parties.  In fact, they are in direct contradiction.  The Tribunal is of the opinion that the Vilnius Trust falls to be described as a sham under any of the definitions of a sham cited by the parties in their submissions.

   74.In making this finding the Tribunal would indicate that it rejects the submission of the applicant to the effect that it is in some way prevented from considering the issue of sham by virtue of there being proceedings on foot elsewhere to have this issue finally determined.  The applicant could find no authority for this proposition and the tribunal finds no merit in it.  The Tribunal would restate that its task is to make the correct or preferable decision on the material placed before it, and except where material relating to other proceedings is placed before it, such material will have no bearing upon the Tribunal's task.

   75.Having found that the Vilnius Trust is a sham the inescapable conclusion is that the sum of US$1 million settled on the Vilnius Trust was at all times "property" of the applicant within the very broad definition of "property" contained in s 5 of the Act. The Tribunal finds that clearly, the applicant had a beneficial interest in those funds at all material times which he had an obligation to disclose to the respondent. Having intentionally failed to do so, the Tribunal finds that on the evidence before it a ground of objection pursuant to s 149D(1)(n) is established. If the Tribunal was to exercise its discretion in favour of the objection being filed, the effect of this ground is that the applicant's bankruptcy would be extended to a period of 5 years.”

4. The Tribunal found that the applicant had a beneficial interest in the boat, it being purchased from funds emanating either directly or indirectly from the Trust.  Likewise as to the Beaumont property, the Tribunal found that the funds used for the purchase emanated from the Trust.  The Tribunal noted that there had been a decision of Sundberg J on an interlocutory application rejecting a claim that the property was held on a resulting trust and relying on the presumption of advancement.  The Tribunal said:

   “The Tribunal does not know what evidence the court had before it and must make its own findings based on the evidence before it. The Tribunal thus finds that, intentionally, the applicant did not disclose his beneficial interest in the Beaumont property which was his duty under the Act, establishing a further ground of objection, pursuant to section 149D(1)(n).”

5. The Tribunal further found that the objection related to the non-disclosure of the interest in the Coolum property was established, as was conceded by the applicant.  However, as the Tribunal subsequently noted, this is a minor matter and of itself would not have founded a notice of objection.

6. The questions of law raised by the notice of appeal were as follows: 

   “2.Whether a trustee in bankruptcy can be satisfied that grounds of objection exist to the discharge of a bankrupt pursuant to sections 149D(1)(g)(ii) and 149D(1)(n) of the Bankruptcy Act 1996 as amended, where:

   2.1the alleged fact or facts are disputed by the bankrupt;

   2.2the alleged fact or facts are that an entity or transaction is a sham;

   2.3inter partes proceedings are contemplated to be instituted or have been instituted by the trustee in bankruptcy;

   2.4the allegation of sham depends for its resolution upon the finding of an agreement between the bankrupt and another or others;

   2.5as a fact the allegation of sham may only be established by declaration or finding of a court of competent jurisdiction in proceedings in which the parties as to the alleged sham are joined.”

7. As put by the applicant to the Court, these grounds contend only that error is involved in the decision of the Tribunal because that decision necessarily involves disturbing or affecting legal rights or title in a third party. The applicant accepted that a mistake of law not involving a third party interest by the Tribunal in reaching a decision on a ground of objection under s 149D(1) would not alone be sufficient.

8. A proceeding was commenced in the South Australian District Registry of the Federal Court on 20 May 1997.  The applicants are the present respondent and a company associated with the applicant, M.J. Fuller Services Pty Ltd in liquidation.  The present respondent is the liquidator of that company.  The respondents are the wife and two daughters of the applicant, a Mr and Mrs Wilkinson, who were associated in transactions with the Vilnius Trust, a company called Fidex International Trust Co Ltd, also involved in such transactions, St Helier, and the present applicant.  The application seeks in substance to recover property held by the various respondents, including the Beaumont property and property of the Vilnius Trust.  This matter has not yet come to trial. 

9. In exercising anew the discretion reposed on the respondent the Tribunal had to consider all the facts and circumstances before it.  In particular, there was no pre-existing and unchallengeable “fact” that the Vilnius Trust was what it purported to be.  There was, in our view, abundant evidence before the Tribunal to support its finding that the Trust was a sham.  Any decision of the Tribunal could, of course, not bind St Helier or any other third party.  The decision of the Tribunal did not disturb or affect the legal title of St Helier, but that did not prevent the Tribunal from making findings on the material before it as to the relationship between the applicant and St Helier and the Trust assets.  On the contrary, the Tribunal was bound to do so. 

10. An analogous situation was considered by the High Court in Australian Broadcasting Tribunal v Bond (1990) 170 CLR 321 at 352. That case concerned the fitness of companies connected with Mr Bond to be the holders of television licences. One of the issues before that Tribunal concerned a payment of $400,000 made by Mr Bond to the Premier of Queensland in settlement of a defamation claim but alleged to be in fact a bribe extorted or solicited by the Premier.

11. The Australian Broadcasting Tribunal arguably proceeded on the basis that it could not make a finding on this issue because the Premier was not a party to the proceeding before it.  Mason CJ (with whom Brennan J concurred) said (at 352):

    “If the Tribunal approached the matter on the footing that, because the Premier was not amenable to its jurisdiction, it could not make findings as to the nature of the transaction - and it is by no means clear that the Tribunal accepted that limitation upon its function - then the Tribunal was in error and that error was an error of law in that the Tribunal took too narrow a view of its own jurisdiction or powers.”

12. We note (and the applicant accepted) that many of the other grounds under s 149D(1) require the trustee to make findings of law or fact or mixed law and fact as to transactions or property in which third parties are involved - for example, s 149D(1)(b),(c) and (i).

13. The applicant, who appeared in person and presented a thorough and courteous argument, contended that even if subsequent litigation produced a different result he would be fixed with an erroneous legal judgment on third party rights by the respondent or the Tribunal.  However, a trustee can always cease to object under s 149H or withdraw an objection under s 149J.  It seems, practically speaking, unlikely that a trustee would not exercise one or other of those powers if a court reached a conclusion, after a contested hearing, differing from that on which the trustee had acted.  But even if that happened a bankrupt would have a right to apply to the court under s 178.

14. Conversely, if the trustee did not object and a court subsequently found that a subsection 149D(1) ground did exist, the trustee could be validly criticised for not filing a notice of objection. 

15. It also needs to be emphasised that a bankrupt on an application for review of the trustee's decision has a complete right of rehearing before the Tribunal.  He or she can adduce relevant evidence, including evidence from the holder of legal title to property which the trustee claims is property of the bankrupt or property divisible among creditors:  see ss 5(1) and 116(1).

16. The application will be dismissed with costs, including reserved costs.

I certify that the preceding sixteen (16) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Heerey, R D Nicholson and Finn.

Associate:

Dated:             11 May 1999

Counsel for the Applicant:	Appeared in person
Counsel for the Respondent:	Mr I K Chippindall
Solicitor for the Respondent:	M.D. Nikolaidis & Co
Date of Hearing:	11 May 1999
Date of Judgment:	11 May 1999