BANKRUPTCY – review of the decision of the trustees of a bankrupt estate not to pursue litigation in which the bankrupt was involved – nature of review.
GREGORY HARRISON HEALEY v MAXWELL WILLIAM PRENTICE & ORS N 7835 of 1999
MADGWICK J 2 NOVEMBER 2000 SYDNEY
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
N7835 of 1999
BETWEEN:
GREGORY HARRISON HEALEY APPLICANT
AND:
MAXWELL WILLIAM PRENTICE AND MARK JULIAN ROBINSON FIRST RESPONDENTS
COMMONWEALTH BANK OF AUSTRALIA SECOND RESPONDENT
JUDGE:
MADGWICK J
DATE OF ORDER:
2 NOVEMBER 2000
WHERE MADE:
SYDNEY
THE COURT ORDERS THAT:
1.The application be dismissed.
2.The applicant pay the respondent's costs of the motion and those costs be regarded as costs of the administration for the purposes of s 109 of the Bankruptcy Act 1966 (Cth).
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
N7835 of 1999
BETWEEN:
GREGORY HARRISON HEALEY APPLICANT
AND:
MAXWELL WILLIAM PRENTICE AND MARK JULIAN ROBINSON FIRST RESPONDENTS
COMMONWEALTH BANK OF AUSTRALIA SECOND RESPONDENT
JUDGE:
MADGWICK J
DATE:
2 NOVEMBER 2000
PLACE:
SYDNEY
REASONS FOR JUDGMENT (revised from transcript)
HIS HONOUR:
The applicant in this application is a bankrupt solicitor and the first respondents are the Trustees of his estate. The second respondent was the petitioning creditor, and by far the applicant's largest creditor, and at its behest, the applicant was made bankrupt. The interests of the second respondent were inextricably involved with the outcome of this application and as the hearing proceeded, the fictional quality of the Bank not being party to the application became apparent. By consent the Bank was joined as a party.
By his application, the applicant claims as follows:
“1.An Order, pursuant to s178 of the Act that the decision of the Trustee dated 16 July 1999 to not pursue litigation in which the bankrupt was involved prior to the date of bankruptcy be set aside.
2.An Order that the bankrupt be permitted to continue with the litigation in respect of the Commonwealth Bank of Australia namely:
(i)Proceedings No 50005 of 1999 in the Commercial List of the Equity Division of the Supreme Court of New South Wales.
(ii)Proceedings No 11769 of 1998 in the Common Law Division of the Supreme Court of New South Wales.
(iii)Proceedings No S194 of 1996 in the High Court of Australia.
3.In the alternative to Order 2 herein, an Order that the matter be remitted to the Trustee for further consideration.”
Section 178 of the Bankruptcy Act 1966 (Cth) (“the Act”) provides:
“If the bankrupt, a creditor or any other person is effected by any act, omission or decision of the trustee, he or she may…
Grounds of appeal
[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.
[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.
[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.
Consideration
[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.
[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.
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Details
AGLC
Healey v Prentice (No 2) [2000] FCA 1598
Case
[2000] FCA 1598
Decision Date
CaseChat Overview and Summary
In the case of Healey v Prentice (No 2), the parties involved were the applicant, a bankrupt, and the respondents, trustees in bankruptcy. The dispute centred around the trustees' decision not to pursue discovery and to discontinue certain proceedings against the applicant, as well as the adequacy of the trustees' decision-making process. The matter was ultimately heard by the High Court of Australia.
The primary legal issue before the court was whether the trustees had the power to discontinue the High Court proceedings and whether their decision not to pursue discovery was appropriate. Additionally, the court had to consider whether there was any wrongful suppression of documents by the bank officers and whether the trustees had acted within their powers in discontinuing the proceedings.
The court found that the trustees had the power to discontinue the High Court proceedings under section 60 of the Bankruptcy Act 1966 (Cth), which provides that an action commenced by a person who subsequently becomes a bankrupt is stayed until the trustee makes an election, in writing, to prosecute or discontinue the action. The court also held that the trustees' decision not to pursue discovery was reasonable and not flawed on the merits. Furthermore, the court found no evidence of wrongful suppression of documents by any bank officer and considered that there was no serious prospect that any further documents would appear that could affect the result of the litigation or justify the grant of a new trial.
The court dismissed the applicant's application and ordered that the applicant pay the respondents' costs of the motion, which were to be regarded as costs of the administration for the purposes of section 109 of the Bankruptcy Act 1966 (Cth).
Orders
Orders of the court
1. The application be dismissed.
2. The applicant pay the respondent's costs of the motion and those costs be regarded as costs of the administration for the purposes of s 109 of the Bankruptcy Act 1966 (Cth).
Background
Background to the litigation
Section 178 of the Bankruptcy Act 1966 (Cth) (“the Act”) provides:“If the bankrupt, a creditor or any other person is effected by any 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.”Background The litigation referred to above arises out of three cases in the New South Wales Supreme Court. The first of these was matter No. 50226 of 1996 brought in the Commercial Division of the Court and ultimately heard by Rolfe J. In that proceeding, the Bank sued the applicant for debt, claiming some millions of dollars in unpaid and overdue loans and interest. It will be convenient to refer to that action as the debt proceedings or the action for debt, or similar phrases. Secondly, there was proceeding No. 11769 of 1998 brought in the Common Law Division of the Court, whereby the Bank sought possession of certain parcels of real property owned by the applicant. Thirdly, in proceeding No. 50005 of 1999 brought in the Equity Division, the Bank sought possession of some other properties, as I understand it, by the assertion of equitable claims. In respect of these properties, the applicant's mother was either the lawful titleholder or one of the lawful titleholders; the applicant was also a party to the proceedings. In the debt proceedings, the principal matter of present relevance which was litigated, was the applicant's defences that the loan moneys and interest claimed were not presently due and payable. Firstly, it was said that an agreement had been reached between the Bank and the applicant on arrangements for the applicant to "work out" his indebtedness by staged sales of certain properties and then a review of what would still be a substantial excess of debt over the anticipated proceeds of those sales. This alleged agreement, apparently in the nature of an alleged novation or compromise agreement as to earlier loan agreements, was referred to as the alleged "work out" agreement. Alternatively, it was said that there had been reached an agreement, to which legal effect should be given, between the parties that, in substance, before any irrevocable steps were taken to enforce the Bank's rights against the applicant, the parties would negotiate in good faith to find a mutually acceptable scheme of repayment and/or of rescheduling and/or of partial waiver of the debts. The case was that this agreement was not express but should be implied as a matter of law from a long course of negotiations between the Bank and its solicitor/customer over sizeable commercial loans. Rolfe J rejected these claims, finding as a fact, that no such agreements had been reached. Apparently accepting that the applicant may have acted on the assumption that one or other of these agreements had been reached, his Honour held that there was no evidence that the Bank had ever acted in a way which showed an acceptance of any such obligations by it. Further, as I understand it, Rolfe J held, in substance, that the circumstances were not such as to give rise to the allegedly implied agreement to negotiate in good faith. The decision of Rolfe J at first instance was given after a long and detailed hearing and examination of relevant documents. The applicant was a specialist in common law litigation, fighting for his commercial life. He may be taken to have known all the rules of litigation and how to assert them. He was represented by experienced counsel.
Evidence
Evidence Before The Court
Full text does not contain this section.
Decision
Reasons for decision
MADGWICK J
It follows that, if they had enough time, there can be no substance in the criticism that the trustees should have sought further time. The decision of the trustees not to pursue discovery - whether flawed on the merits On the face of it, to a non-banker it looks surprising that there were not more intra-Bank written communications in the period of approximately a year before the final notification by the Bank to the applicant that the Bank was intent on suing him. However, an explanation by a seemingly credible senior bank officer was given in evidence, and the apparent dearth of documents is, on examination, neither as extensive nor as surprising as might at first appear. Even with the benefit of an extensive investigation of the matter, it does not seem to me now to be warranted that the matter should be further investigated. There is, in my opinion, no serious prospect that any further document would appear which could affect the result of the litigation or justify the grant of a new trial as to the debt action; nor is there any serious prospect, in my view, that facts will otherwise be revealed by reactivating any of the litigation which would ultimately assist the applicant. In particular, I should say that, in my view, no inference arises, from all the circumstances, of any wrongful suppression of documents by any bank officer, known or unknown. There is a further aspect to this, as pointed out by counsel for the respondents. The prospect that there might have been express acknowledgement by anyone in the Bank that the Bank had a duty to continue to negotiate in good faith, is at odds with the very case put before Rolfe J. This was that, there being no express agreement to negotiate in good faith, by operation of law in all the other circumstances, such an agreement ought to be implied. This is perhaps another reason for considering that there was nothing wrong with the trustees’ decision on the merits.The special leave application in the High Court Argument was put that the trustees did not have the power to discontinue the High Court proceedings. As I apprehend this argument, it rests on the High Court proceedings having actually been discontinued rather than simply having been left to be "deemed to have [been] abandoned" under subs (3) of s 60 of the Act. The argument would appear to assume that there was no power under s 60 to discontinue the action and that the only power the trustees had was that of dealing with the bankrupt's property. However, subs (2) of s 60 provides that:“An action commenced by a person who subsequently becomes a bankrupt is, upon him or her becoming a bankrupt, stayed until the trustee makes election, in writing, to prosecute or discontinue the action.” (emphasis added)Thus s 60 itself seems to contemplate an actual discontinuance. It appears that an application for special leave falls within section 60: see Cummings v ClarementPetroleum NL & Anor (1996) 185 CLR 124 at 130. It seems to me, therefore, that this argument was founded on something of a misconception.