Hacker v Weston

Case [2015] FCA 363

FEDERAL COURT OF AUSTRALIA

Hacker v Weston [2015] FCA 363

Citation: Hacker v Weston [2015] FCA 363
Parties: SUSANNE HACKER AKA SUSANNAH HACKER, SUSIE HACKER, SUSIE SHOSHAMMA GISELA & SUSANNAH SHOSHANNA GISELLA HACKER v PAUL GERARD WESTON
File number: NSD 368 of 2014
Judge: FLICK J
Date of judgment: 22 April 2015
Catchwords:

BANKRUPTCY – trustee seeking discharge – duties of trustee – alleged breach of duty in failing to secure property – fiduciary duty owed by trustee – trustee to make good the loss occasioned by his conduct

BANKRUPTCY – annulment of sequestration order – discretionary considerations to be taken into account

BANKRUPTCY – discharge from trusteeship – power to impose conditions
Legislation: Bankruptcy Act1924 (Cth), s 124
Bankruptcy Act 1966 (Cth), ss 19, 19(1)(a)-(k), 19(2), 30, 30(1), 30(1)(b), 54, 134(4), 149, 153A, 153A(1)-(6), 153 153B(1)-(4), 154, 155H, 179, 179(1)(b), 183, 183(1)-(7)
Bankruptcy Regulations 1996 (Cth), regs 8.34A, 16.03, Sch 4A items 2.6, 2.8, 2.9, 4.3
Cases cited:

Adsett v Berlouis (1992) 37 FCR 201
Re Bilen; Ex parte Sistrom (unreported, Federal Court of Australia, Neaves J, 11 April 1985)
Breen v Williams (1996) 186 CLR 71
Bulic v Commonwealth Bank of Australia Ltd [2007] FCA 307
Cameron v Cole (1944) 68 CLR 571
Citicorp Australia Ltd v Official Trustee in Bankruptcy (1996) 71 FCR 550
Re Deriu (1970) 16 FLR 420
Re Driller (1971) 21 FLR 159
Dubow v Official Receiver (NSW) [2013] FCA 709
Ferella v Official Trustee in Bankruptcy (No 2) [2011] FCA 619
Francis v Eggleston Mitchell Lawyers Pty Ltd [2014] FCAFC 18
Malec v J C Hutton Pty Ltd (1990) 169 CLR 638
Mills v Sheahan [2007] SASC 365, (2007) 99 SASR 357
Nikolaou v Papasavas, Phillips & Co (1989) 166 CLR 394
Re Oates; Ex parte Deputy Commissioner of Taxation (1987) 17 FCR 402
Re Powell; Ex parte Official Trustee in Bankruptcy (unreported, Federal Court of Australia, Northrop J, 13 November 1990)
Quinn v Official Trustee (1996) 63 FCR 136
Stankiewicz v Plata [2000] FCA 1185
Stankovic v Hills Shire Council [2013] FCA 652
Talacko v Talacko [2010] FCAFC 54, (2010) 183 FCR 311
Tapp v LawCover Insurance Pty Ltd [2013] FCA 35
Thredgold v Fyfe Pty Ltd [2013] FCA 1363 Vale v Sutherland [2009] HCA 26
Verge, Re Underdown (a bankrupt) v Fazio [2013] FCA 1 Re Williams (1968) 13 FLR 10
Re Young; In the matter of Macryannis [2011] FCA 1272, (2011) 124 ALD 28

Hassall, ‘Annulment of Bankruptcy and Review of Sequestration Orders’, (1993) 67 ALJ 761

Date of hearing: 10 March 2015
Place: Sydney
Division: GENERAL DIVISION
Category: Catchwords
Number of paragraphs: 186
Counsel for the Applicant: Mr M Sneddon with Ms T Phan
Solicitor for the Applicant: Carrolls Lawyers
Counsel for the Respondent: Mr J Baird
Solicitor for the Respondent: Goldrick Farrell Mullan

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

GENERAL DIVISION

NSD 368 of 2014
BETWEEN:

SUSANNE HACKER AKA SUSANNAH HACKER, SUSIE HACKER, SUSIE SHOSHAMMA GISELA & SUSANNAH SHOSHANNA…

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AGLC
Hacker v Weston [2015] FCA 363
Case
[2015] FCA 363
Decision Date

CaseChat Overview and Summary

In the matter of Hacker v Weston, the court was tasked with examining the conduct of Mr Weston, the trustee in bankruptcy, in relation to the administration of Ms Hacker's bankrupt estate. The primary issues before the court were whether Mr Weston had breached his statutory duties under the Bankruptcy Act 1966 (Cth) and the Bankruptcy Regulations 2005 (Cth), and whether he had failed in his fiduciary duty to Ms Hacker. The court further considered whether any breach warranted annulment of the sequestration order and the imposition of conditions upon Mr Weston's discharge from his role as trustee.

The court held that Mr Weston had indeed failed to properly discharge his duties under the Bankruptcy Act and the regulations. Notably, he did not secure personal property as required and did not file an inventory of such property. Additionally, the court found that Mr Weston breached his fiduciary duty by placing himself in a position where his personal interests conflicted with his duties to Ms Hacker. The court emphasised that trustees must act with undivided loyalty and cannot pursue personal interests that conflict with their fiduciary obligations. Given these findings, the court ruled that Mr Weston should compensate Ms Hacker for the losses she incurred due to his inadequate administration of the estate.

The court ordered that Mr Weston must pay into the estate any identified monies prior to being discharged under s 30(1)(b) of the Bankruptcy Act. Furthermore, Mr Weston was barred from receiving remuneration from 1 January 2011, although legal expenses incurred were to be paid out of the estate. The court granted the parties fourteen days to apply to reopen the case for additional evidence on the value of the missing personal property and to bring in short minutes of orders within the same period.

In conclusion, the court's decision underscores the stringent obligations trustees have in administering a bankrupt's estate, particularly the necessity of avoiding conflicts of interest and fulfilling fiduciary duties. The ruling serves as a reminder of the high standard of conduct expected from trustees to ensure the protection and fair administration of the assets of the bankrupt.

Orders

Orders of the court

1. Any application to re-open to adduce evidence as to the value of any personal property is to be made within 14 days.

2. The parties are otherwise to bring in Short Minutes of Orders to give effect to these reasons within 14 days.

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

Background

Background to the litigation

Full text does not contain this section.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

If there be any question as to whether the Court has power to make an order that Mr Weston pay certain monies into the estate of Ms Hacker prior to his being released pursuant to s 30(1)(b) of the Bankruptcy Act, any order releasing Mr Weston would only be made on the condition that those monies which can be identified must first be paid. CONCLUSIONS The administration of the bankrupt estate of Ms Hacker has not been undertaken in a manner which has proved easy. To some extent Ms Hacker has brought difficulties upon herself – she has not been an easy person to locate. There is reason to question the time at which she first became aware of the making of the sequestration order and whether a “Statement of Affairs” could have been – and should have been – filed much earlier than April 2009. To some extent, Mr Weston has brought difficulties upon himself by failing properly to discharge the fundamental responsibilities of a trustee – including the duty properly to secure personal property and to make, sign and date an inventory of such property. Despite the difficulties occasioned by Ms Hacker’s conduct, Mr Weston has failed properly to discharge the duties imposed by s 19 of the Bankruptcy Act and reg 16.03 of the Bankruptcy Regulations. He has also breached the fiduciary duty he owed to Ms Hacker. Properly conducted, the administration of the estate should have been concluded shortly after November/December 2010. As the proper administration of the estate wound to a close, the trustee’s concern over his personal liability for the loss of Ms Hacker’s personal property became more pressing. By no later than the beginning of 2011 Mr Weston had placed himself in a position of conflict, whereby he could not properly discharge either the duties imposed by s 19 or the fiduciary duty he owed to Ms Hacker. The manner in which Mr Weston has administered the estate has unquestionably occasioned loss to Ms Hacker which he should make good. Neither the extent of the personal property which has gone missing nor its value can be determined with any greater reliability than an approximation based upon limited evidence. The parties should have liberty to adduce further evidence of its value if they see fit. Moreover, Mr Weston has administered the bankrupt estate in such a manner that he should not be entitled to remuneration from 1 January 2011. Legal expenses incurred, however, remain payable out of the estate. THE ORDERS OF THE COURT ARE:1.Any application to re-open to adduce evidence as to the value of any personal property is to be made within 14 days. 2.The parties are otherwise to bring in Short Minutes of Orders to give effect to these reasons within 14 days.

Ratio Decidendi

Legal Principle Established

In addition to these statutory duties, the trustee in bankruptcy is – of course – a trustee. As such he and other trustees owe a fiduciary duty to “give undivided loyalty to the persons whom they serve”: Breen v Williams (1996) 186 CLR 71 at 108. Gaudron and McHugh JJ there observed: The law of fiduciary duty rests not so much on morality or conscience as on the acceptance of the implications of the biblical injunction that “[n]o man can serve two masters”. Duty and self-interest, like God and Mammon, make inconsistent calls on the faithful. Equity solves the problem in a practical way by insisting that fiduciaries give undivided loyalty to the persons whom they serve. In Bray v Ford (143), Lord Herschell said:“It is an inflexible rule of a Court of Equity that a person in a fiduciary position, such as the respondent's, is not, unless otherwise expressly provided, entitled to make a profit; he is not allowed to put himself in a position where his interest and duty conflict. It does not appear to me that this rule is, as has been said, founded upon principles of morality. I regard it rather as based on the consideration that, human nature being what it is, there is danger, in such circumstances, of the person holding a fiduciary position being swayed by interest rather than by duty, and thus prejudicing those whom he was bound to protect. It has, therefore, been deemed expedient to lay down this positive rule.”Similarly, Gummow J observed at 135 to 136: … the discussion of the principle by Deane J in Chan v Zacharia [(1984) 154 CLR 178 at 198-199] identifies the fundamental objection by equity to the pursuit by the fiduciary of personal interest in conflict with the interests of those whom the fiduciary is bound to protect. Likewise, the fiduciary is obliged not to enter upon conflicting engagements to several parties. This is because the fiduciary (for example, a solicitor acting for vendor and purchaser) may be unable to discharge adequately the one obligation without conflicting with the requirement for observance of the other obligation. As indicated earlier in these reasons, one answer to what otherwise would be breach of duty is the presence of informed consent. Further, a court of equity has inherent jurisdiction or power to authorise, at least in some cases, entry into transactions which otherwise would be in breach of duty. The fiduciary will be brought to account for any benefit or gain which (1) has been obtained or received in circumstances where a conflict or significant possibility of conflict existed between the fiduciary duty and personal interest in the pursuit or possible receipt of the benefit or gain or (2) was obtained or received by use or by reason of the fiduciary position or opportunity or knowledge resulting from it. Where the breach of duty produces not a gain to the fiduciary but a loss to the party to whom the fiduciary duty was owed, then the judgments of Viscount Haldane LC in Nocton v Lord Ashburton (245) and of Sir Owen Dixon in McKenzie v McDonald (246) show that there is an obligation to account for the loss by provision of equitable compensation. An annulment of the sequestration – ss 153A & 153B