Hunter, Kenneth Raymond v The Offical Reciever in Bankruptcy of the Southern District of the State of Queensland

[1980] FCA 171

Re: KENNETH RAYMOND HUNTER; JOHN ROBERT HUNTER; and GEOFFREY GRAHAM HUNTER
And: THE OFFICIAL RECEIVER IN BANKRUPTCY OF THE SOUTHERN DISTRICT OF THE STATE
OF QUEENSLAND (1980) 50 FLR 168
Nos. G7-9 of 1980
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA

QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION
Bowen C.J.(1), Franki(1) and Brennan(1) JJ.

CATCHWORDS

Bankruptcy - Discharge by the Court - Whether power to order immediate discharge subject to conditions - Official Receiver as respondent to appeal to Full Court - Liability for costs.

Bankruptcy Act 1966, s.150.

Bankruptcy - Application for discharge - Powers of court - Whether court can order immediate discharge subject to conditions - Express or implied power - Bankruptcy Act 1966 (Cth), ss. 37, 150 (5), (6), (7). Bankruptcy - Application - Official receiver as respondent - Appearance of official receiver in exercise of his discretion - Respondent unsuccessful - Liability for costs.

HEADNOTE

Each of the appellants had been declared bankrupt in similar circumstances. They had been called upon to honour certain directors' guarantees entered into by them in respect of a number of companies which had subsequently failed. The dividend paid to unsecured creditors in each estate was only one or two cents in the dollar. No conduct within s. 150 (6) of the Bankruptcy Act 1966 was alleged. On application for discharge by each bankrupt, the official receiver, the trustee in each case, attended and made submissions inviting the court to grant orders of discharge subject to conditions. The judge at first instance acceded to the submission of the official receiver and made orders of discharge subject to conditions designed to prohibit each bankrupt from engaging in business as a partner, director or substantial shareholder in a company without the leave of the court for a period of two years.

On appeal,

Held: (1) Statutory authority is necessary to empower the court to make an order subject to conditions.

Ex parte Powell (1901), 1 SR (NSW) 150; Re Huggins; Ex parte Huggins (1889), 22 QBD 277; Re Atwill (A Bankrupt), (1958) NZLR 873, referred to.
(2) Where no conduct falling within s. 150 (6) of the Bankruptcy Act 1966 is alleged or established, the power of the court to make an order of discharge is derived from sub-s. (7) of s. 150 only. Under this subsection the court is empowered to either grant or refuse to grant an unconditional order of discharge.

Re Mallan (1975), 25 FLR 20; Mallan v. Official Receiver (1975), 50 ALJR 1, distinguished.

Re Reilly; Ex parte The Debtor (1979), 36 FLR 268, disapproved.
(3) The specific limited statutory authority conferred on the court by s. 150 (7) cannot be circumvented by resorting to the provisions of s. 37 of the Bankruptcy Act 1966.

Re Reilly; Ex parte The Debtor (1979), 36 FLR 268, disapproved.
(4) Where the official receiver becomes an active litigant in the exercise of his discretion rather than in the performance of his statutory duty he is exposed to the same risks as any other litigant and if unsuccessful is liable to pay the costs of the successful party.

Scott Fell v. Lloyd (1911), 13 CLR 230, followed.

Re Arthur Williams & Co.; Ex parte Official Receiver, (1913) 2 KB 88, referred to.

Nassoor v. Nette (1937), 58 CLR 446, explained and distinguished.
(5) Appeals allowed.

HEARING

Sydney, 1980, September 9; November 26. #DATE 26:11:1980

APPEAL.

Appeal from a decision of the Supreme Court of Queensland (Dunn J.).

J. A. Dowsett, for the appellants.

J. G. Crowley, for the respondent.

Cur. adv. vult.

Solicitors for the appellants: John M. O'Connor & Co.

Solicitor for the respondent: Alan R. Neaves, Commonwealth Crown Solicitor.

D. LEVIN

ORDER

1. Each of the appeals be allowed.

2. The order of the Supreme Court of Queensland of 29 April 1980 in matter number 254 of 1977 be varied by inserting an order that the public examination of the bankrupt be deemed to have been concluded on 28 April 1980 and by deleting the condition and the provision granting liberty to apply.

3. Each of the orders of the Supreme Court of Queensland of 1 May 1980 in matters number 255 and 256 of 1977 be varied by inserting an order that the public examination of the bankrupt be deemed to have been concluded on 30 April 1980 and by deleting the condition and provision granting liberty to apply.

4. In each appeal the respondent pay to the appellant his costs of the appeal.

JUDGE1

The appellants, who are brothers, were made bankrupt on 8 September 1977 and each applied for an order of discharge from his bankruptcy pursuant to s.150 of the Bankruptcy Act 1966.

The applications for discharge came on for hearing before a judge of the Supreme Court of Queensland exercising federal jurisdiction in bankruptcy. In each case the bankrupt was represented by counsel, and the Official Receiver in Bankruptcy attended the hearing. In each case the Official Receiver, who was the trustee, made a report and attended to answer questions, and the applicant filed and read an affidavit.

It was not in contest that each bankrupt was entitled to apply for discharge. Although public examinations had been held, they had been adjourned without any formal conclusion. It appears to us that in the circumstances it would be appropriate to make orders that such examinations be deemed to be concluded.

The circumstances of each bankruptcy were similar: the bankrupt had been a director of a number of companies which had failed and he had been called upon to honour the guarantees of the companies' debts to their bankers. The debts owing to the bankers were the principal liabilities in each bankruptcy, exceeding $1,000,000. We were informed that a security held by a bank had been realised for $450,000 or thereabouts, but the dividend to be paid to unsecured creditors in each estate would not exceed one or two cents in the dollar. Although each bankrupt had been a director of more than one company which had failed, the Official Receiver did not allege any conduct falling within s.150(6) of the Act; nor was there any other evidence of the matters specified in that sub-section. It was nevertheless submitted that financial ineptness was shown by each of the bankrupts.

When the first application was heard, the Official Receiver made a submission in the following terms:

"My first submission to your Honour is that it is not appropriate for the applicant to get a discharge until at least 8 September 1980 and my further submission is this: that having regard to what I suggest I may refer to as a maze of companies in which the bankrupt has been interested, it appears to me that it would be appropriate if, should your Honour grant a discharge, your Honour attached a condition and the condition which I suggest to your Honour is that for two years or, rather, that the bankrupt should file an affidavit setting out that for 2 years after his discharge becomes operative, that is on 8 September 1980, he will not go into business either directly or indirectly. By that I mean, your Honour, he will not go into business either on his own account, in partnership, or by means of proprietary companies."

His Honour enquired whether the Official Receiver had heard of such an order being made, and the Official Receiver assured him that he had. He later referred to the High Court decision in Mallan v. Official Receiver (1976) 50 A.L.J.R. 1 and to sub-s.73(2) of the Bankruptcy Amendment Act 1980 which had not then and has not yet been proclaimed. The Official Receiver at no time suggested on this application the making of an immediate order of discharge subject to conditions. His Honour gave some consideration to the question of suspension of the order of discharge, but he thought that the conduct of the bankrupt did not merit such a manifestation of curial disapproval. He, therefore, made an order for the immediate discharge of the bankrupt, imposing conditions of the kind suggested by the Official Receiver. The order of the Supreme Court reads:

"IT IS ORDERED THAT the bankrupt be discharged from his bankruptcy

IT IS FURTHER ORDERED that the discharge be subject to the following conditions:-

(a) That until September 8th, 1982 the bankrupt do not engage in business either as an individual partner director or substantial shareholder in a company without the leave of this Court

(b) That the bankrupt file on or about the 18th September in 1980, 1981 and 1982 in the Bankruptcy Registry, Brisbane an Affidavit showing his compliance with the foregoing conditions and the nature of his activities as a salary earner or as a businessman.

IT IS FURTHER ORDERED that the parties be at liberty to apply."

When the second and third applications were heard, the circumstances of each bankruptcy were shown to be similar to those which had led his Honour to make a conditional order of discharge in the first case, and accordingly he made orders in the second and third cases in like terms to the orders in the first case. If there be power to make, as his Honour made, an order of discharge subject to conditions, the operation of the order would present some difficulties. Assumedly, a breach of a condition of the kind imposed by his Honour would lead to a possible revocation under s.37 of the order of discharge. Those who traded with an appellant during the time when the condition operated would not know whether, on the morrow, he might revert to his status as a bankrupt.

It is noted that in Re Mallan (1975) 6 A.L.R. 161, White J. in granting a suspended order of discharge imposed conditions having an effect similar to those imposed in the present cases upon the discharge of a bankrupt in the exercise of the powers conferred by s.150(5) and these conditions extended beyond the period of suspension. He said (at p.166):

"I am satisfied that the power to impose conditions in connection with a suspended order for discharge is unfettered and that the duration of the operation of any condition is not necessarily limited by the duration of the period of suspension.

I propose to impose a condition to ensure that the bankrupt does not return to business activities, directly or indirectly, alone or with others, or as a member, manager, secretary, officer, director or shareholder of any company which is carrying on any form of business whatsoever. Nor should he act as a consultant or adviser to others for any fee or reward of any kind. I am of the opinion that he is entirely unsuited to return to business or to give advice to others in business. The condition will also require him to provide the Official Receiver and the Registrar of this court with evidence of his continuing compliance with the said condition by filing an affidavit to that effect in the months of June, September, December and March each year for the next five years."

The bankrupt sought leave to appeal to the High Court, but leave was refused (Mallan v. Official Receiver (1976) 50 A.L.J.R. 1), the Court holding that the power to impose conditions under s.150(5)(b) is not restricted to the period of suspension.

Though Mallan v. Official Receiver binds this Court as to the meaning and operation of s.150(5)(b), it has no application to the present cases. Section 150(5) does not apply to the present cases, for they are not cases in which any of the matters specified in s.150(6) has been established. Section 150(5) reads:

"(5) The Court shall, if any of the matters specified in the next succeeding sub-section is established -

(a) refuse to make an order of discharge; or

(b) make an order of discharge but suspend the operation of the order as the Court thinks proper, either unconditionally or subject to conditions."

The only source of power to make an order of discharge in the present cases is to be found in s.150(7) which reads:

"(7) Where none of the matters specified in the last preceding sub-section is established, the Court may make an unconditional order of discharge."

This provision stands in marked contrast to its statutory predecessors. Earlier statutes empowered the Court to impose conditions relating to future earnings and after acquired property or requiring the bankrupt to consent to judgment being entered against him for a balance of debts provable under the bankruptcy which had not been satisfied; but none of the earlier statutes empowered the Court to impose conditions relating to future business activity (see, e.g., the Bankruptcy Act 1924 (Cth.) s.119(5); Bankruptcy Act 1898 (N.S.W.) s.39; Insolvency Act 1874 (Qld.) s.170; and the United Kingdom Bankruptcy Acts of 1890 (s.8(2)), and of 1914 (s.26(2)). An order imposing conditions must be supported by a statutory grant of power in that behalf (Ex parte Powell (1901) 1 S.R. (N.S.W.) (L) 150; In re Huggins, Ex parte Huggins (1889) 22 Q.B.D. 277; In re Atwill, a Bankrupt (1958) N.Z.L.R. 873), but in the present cases the statute, far from conferring the power to make a conditional order of discharge, confers power to make only an unconditional order. The conditions set out in each order are thus unsupported by an express grant of power. However, it was submitted that the power must be implied, for reasons which appear in dicta of Lockhart J. in Re Reilly; Ex parte the Debtor (1979) 23 A.L.R. 357. In that case, his Honour said (at p.364):

"I turn to the argument that s.150 is an exclusive code as to applications for discharge. In my opinion, the language of sub-ss.(5), (6) and (7) and the juxtaposition between sub-ss.(5) and (7) of sub-s.(6) establishes that the court has power:-

(i) to make an unconditional order of discharge (sub-s.(7));
(ii) to refuse to make an order (sub-s.(5)(a)); or
(iii) to make an order but suspend its operation either conditionally or unconditionally (sub-s.(5)(b)).

If any of the matters specified in sub-s.(6) is established, the power of the court is confined to a choice between (ii) and (iii). If none of the matters specified in sub-s.(6) is established, the court has a choice between (i), (ii) and (iii).

My view is supported by s.37 of the Act which empowers the court to rescind, vary or discharge an order made by it under the Act or to suspend the operation of such an order.

. . . Is it to be suggested that if none of the matters specified in sub-s.(6) is established, the court can do no more than make an unconditional order of discharge; yet as soon as the order is taken out (see Re McDonald (1893) 14 L.R. (N.S.W.) B & P 11) the court may vary that order or suspend its operation?

In my opinion the power to vary an order carries with it the power to vary by imposing conditions. Also, it is inherent in the power conferred by s.37 to suspend the operation of an order that the court may do so by reference to the passage of time or to the happening of a particular event or both. Implicit in that power is the power to make a conditional order."

With great respect to his Honour's reasons, we are not persuaded that s.37 can be prayed in aid of the construction of s.150(7). If Parliament has limited the powers conferred upon the Court by s.150(7), the limitation cannot be circumvented by varying an order to remove the limitation. Section 37 is concerned not with the dimensions of a power conferred by other sections of the Act, but with the occasions of the exercise of that power. Section 37 ensures that the Court does not become functus officio by the first exercise of a power conferred upon it by some other section; but s.37 does not expand or modify a power elsewhere conferred. If sub-s.(7) of s.150 does not permit the Court to impose conditions on an order of discharge made under that sub-section, s.37 does not confer a wider power for exercise on reconsideration of the matter. We are not persuaded that, if none of the matters specified in s.150(6) is established, the Court "has a choice between (i), (ii) and (iii)". However, that is not the question which arises in the present cases and any importance attaching to the question is likely to be short-lived. Section 73(2) of the Bankruptcy Amendment Act 1980, which was assented to on 8 April 1980 and is to come into force on a date to be proclaimed will amend s.150 of the Act by inserting a new sub-section (9), conferring wider powers upon the Court.

Earlier in his judgment, Lockhart J. (at pp.363-364) said:

"One would not readily construe s.150 so as to limit the court's powers on hearing an application of discharge, where none of the matters specified in sub-s.(6) is established, merely to making an order of discharge unconditionally. Notwithstanding that the bankrupt may not have engaged in any of the conduct specified in sub-s.(6), there may be good reasons why, on the facts of a particular case, a discharge ought to be granted subject to conditions or where the order of discharge ought to be suspended either conditionally or unconditionally.

In my opinion the very structure and language of s.150, imperfect though it is, leads to the conclusion that a power to make a conditional order of discharge or to suspend the operation of an order of discharge or to refuse the application for discharge is to be implied from the fact that the court is not bound to make an unconditional order."

These views expressed by his Honour were not strictly necessary for his decision, since he made an an unconditional order of discharge.

But it is necessary now to determine whether there is power to make an immediate order of discharge subject to conditions. We are of opinion there is no power to do so. Where none of the matters specified in sub-s.(6) is established, the sole source of the court's power is, by the language of sub-s.(7), to be found in that sub-section. And to find power in sub-s.(7) to support an immediate order of discharge subject to conditions would require that sub-section to be read as if the words "or conditional" were inserted after the word "unconditional". We see no context which would require or justify the implication of these words in the statute. Our conclusion is that the appeals must be allowed. The order which should have been made in the circumstances of each case was an unconditional order of discharge, and we apprehend that the learned primary Judge would have made that order if he had appreciated the limitations upon his power under s.150. The formal orders of the Supreme Court should be varied by deleting the conditions imposed and the consequential grant of liberty to apply.

The appellants seek an order for costs against the Official Receiver in this Court. He is the respondent to the appeals, and he has actively though unsuccessfully opposed the allowance of them.

The Official Receiver submitted that the judgments in In re Arthur Williams & Co; Ex parte the Official Receiver (1913) 2 K.B. 88, protected him against such an order, but that case draws a clear distinction between cases where the Official Receiver is performing a quasi-judicial function under a statutory obligation and cases where he engages in litigation in exercise of a discretion to do so. In the present cases the Official Receiver's appearance to oppose the appeal was neither in discharge of a statutory obligation nor the performance of a quasi-judicial act.

In Nasoor v. Nette (1937) 58 C.L.R. 446, the High Court did not make an order in favour of a successful appellant against the respondent Official Receiver in an appeal concerned with the suspension of the appellant's discharge until a dividend of twelve shillings and sixpence in the pound had been paid to creditors. But the litigation in that case affected the estate of which the Official Receiver was trustee, for the suspension ordered by the judge at first instance, and the condition ultimately imposed (consenting to judgment for five hundred pounds being entered in favour of the Official Receiver), were calculated to augment the estate available for distribution. As the Official Receiver was entitled to his costs out of that estate (see at p.477), the condition which the Court ultimately imposed upon the bankrupt was determined after taking into account the consequences to his estate of an order for costs in his favour - an order which might have been made directly against his estate. So no order was made against the Official Receiver in that case.

The present cases are quite different: the Official Receiver in these cases will not be entitled to an indemnity out of the appellants' estates for any costs which he is ordered to pay, for the present cases are not concerned with the administration of the appellants' estates but with the protection of the public against the possible effects of the appellants trading ineptly in the future. The right of a trustee to be indemnified out of the trust estate for costs incurred by him depends upon whether the costs are incurred as an incident of his administration of the estate (per Williams J. in National Trustees Executors and Agency Co. of Australasia Ltd. v. Barnes (1941) 64 C.L.R. 268 at p.279), and the Official Receiver has not incurred costs in these cases as an incident of estate administration. The Official Receiver, acting in good faith, proposed and defended conditions calculated to give protection to the public; but that is not an incident of the administration of the appellants' estates. He was not seeking to defend the creditors' interests. Nassoor v. Nette (supra), thus furnishes no reason for declining to make an order for payment of the costs of the successful appellants.

A case consistent with the Official Receiver's submission is In re Huggins (supra), where no order was made against the Official Receiver, Cave J. observing that the Official Receiver was present "only in his official capacity". But that case cannot prevail over the only authority binding on this Court which deals with an order for payment of costs by the Official Receiver who failed as an active litigant in his opposition to an appeal. In Scott Fell v. Lloyd (1911) 13 C.L.R. 230, Griffith C.J., with whom Barton J. agreed, expressed the principle (at p.244):

". . . when an Official Assignee becomes an active litigant he is exposed to the same risks as any other litigant."
O'Connor J., although expressing no unfavourable view of the Official Assignee's conduct in opposing the appeal, said at p.247:

"The view I take is that, having contested this matter, and having failed, he must be made subject no the penalty of paying costs just as any other unsuccessful litigant would be made subject."

Accordingly, each of the appeals is allowed, and in each case the order of the Supreme Court of Queensland is varied by deeming the public examinations of the bankrupt to have been concluded and by deleting the conditions imposed. The Official Receiver must pay each appellant his costs of the appeal.