James v Woodgate

Case [2012] FMCA 1214

FEDERAL MAGISTRATES COURT OF AUSTRALIA

JAMES v WOODGATE [2012] FMCA 1214

BANKRUPTCY – Proof of debt – nature of review of rejection of proof of debt by trustee – nature of trustee’s role in admission of proofs of debt –whether trustee bound by admission of bankrupt as to debt owing – whether to vary trustee’s decision to reject proof of debt.

EVIDENCE – Admissibility – whether hearsay statements of bankrupt otherwise admissible as against trustee under ss 81 or 87 of Evidence Act 1995 (Cth).
Bankruptcy Act 1966 (Cth), s.104
Evidence Act 1995 (Cth), ss. 3, 81, 87
Federal Magistrates Court (Bankruptcy) Rules 2006
Daevys v Official Trustee in Bankruptcy [2011] FCA 398
Re Masters; Ex parte Gerovich (Unreported, 30 July 1985)
Motor Terms Co Pty Ltd v Liberty Insurance Ltd (In Liq) [1967] 116 CLR 177
Tanning Research Laboratories Inc v O’Brien (1990) 169 CLR 332
Applicant: IAN RAYMOND JAMES
Respondent: GILES GEOFFREY  WOODGATE THE TRUSTEE OF THE BANKRUPT ESTATE OF STUART ALEXANDER WARR EATON
File Number: SYG 411 of 2012
Judgment of: Raphael FM
Hearing date: 11 October 2012
Date of Last Submission: 11 October 2012
Delivered at: Sydney
Delivered on: 14 December 2012

REPRESENTATION

Counsel for the Applicant: Mr M Stevens
Solicitors for the Applicant: Makinson & d'Apice
Counsel for the Respondent: Mr M Henry
Solicitors for the Respondent: Turks Legal

ORDERS

  1. Application dismissed.

  2. Applicant to pay the costs of the Trustee, such costs to be taxed if not agreed pursuant to the Federal Magistrates Court (Bankruptcy) Rules 2006.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA
AT SYDNEY

SYG 411 of 2012

IAN RAYMOND JAMES

Applicant

And

GILES GEOFFREY  WOODGATE THE TRUSTEE OF THE BANKRUPT ESTATE OF STUART ALEXANDER WARR EATON

Respondent

REASONS FOR JUDGMENT

  1. On 18 March 2011 a Proof of Debt was lodged on behalf of the applicant with the respondent trustee of the bankrupt estate of Stuart Alexander Warr Eaton.  The particulars of the alleged debt are found on page 3 of the Proof of Debt form exhibited to the affidavit of Richard d’Apice sworn 24 February 2012.  The claim is for a sum of $301,856.71 made up of $200,000.00 principal and $101,856.71 interest.  It is said that the debt was incurred on 5 November 2009 “Date of Sequestration Order” and that the details of the debt are described as “Loan Principal per attached Guarantee dated 17.5.01 $200,000.00”.  There is a letter dated 17 May 2001 on the headed notepaper of “Eaton Group Pty Limited”.  It is addressed to Mrs E W Eaton and states:

    “This is to confirm that Stuart Eaton guarantees the sum of $200,000.00 (two hundred thousand dollars (two hundred thousand dollars).  This sum will be secured by the assets of Stuart Eaton and the Eaton Group Pty Ltd.  An interest rate equal to 50% of the difference between the 90 day Westpac term deposit rate and the rate that Eaton Group borrows from the NAB Bank.  This rate is based on the Financial Review published cash rate plus the NAB’s margin…

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AGLC
James v Woodgate [2012] FMCA 1214
Case
[2012] FMCA 1214
Decision Date

CaseChat Overview and Summary

In the case of James v Woodgate, the applicant, James, sought a review of a decision by the trustee in bankruptcy, Woodgate, to reject a proof of debt. The dispute arose under the Bankruptcy Act 1966 (Cth) and was heard in the Federal Court of Australia. James sought to have the court confirm, reverse, or vary the trustee's decision regarding a proof of debt, which is a process outlined in section 104 of the Act. The primary legal issues before the court were whether the trustee was bound by admissions made by the bankrupt regarding the debt and whether hearsay statements of the bankrupt could be admitted as evidence against the trustee.

The court considered the nature of the review under section 104, which allows for a re-hearing of the matter rather than a limited review of the trustee's decision. The court referenced previous decisions that emphasised the importance of the applicant satisfying the court that the trustee's decision should be reversed. The court also explored the admissibility of hearsay evidence under sections 81 and 87 of the Evidence Act 1995 (Cth). In this context, the court had to determine if the statements made by the bankrupt could be considered as evidence against the trustee.

In its reasoning, the court highlighted that the onus was on the applicant to demonstrate why the trustee's decision should be overturned. The court found that James had not provided sufficient evidence to persuade it that the trustee's rejection of the proof of debt was incorrect. The court noted that the proof of debt was vague and lacked the necessary precision to establish a claim. As a result, the court dismissed James's application and ordered that James pay the trustee's costs.

Orders

Orders of the court

1.

Application dismissed.

2.

Applicant to pay the costs of the Trustee, such costs to be taxed if not agreed pursuant to the

Background

Background to the litigation

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Evidence

Evidence Before The Court

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Decision

Reasons for decision

The applicant has availed himself of the provisions of s.104 of the Bankruptcy Act 1966 (Cth)[1]:“Appeal against decision of trustee in respect of proof [see Table B] (1) A creditor, or the bankrupt, may apply to the Court for review of a decision of the trustee under subsection 102(1), (3) or (4) in respect of a proof of debt. (2) The Court may, upon the application, confirm, reverse or vary the decision of the trustee. (3) Subject to the power of the Court to extend the time, an application under this section to review a decision shall not be heard by the Court unless it was made within 21 days from the date on which the decision was made.” [1] “Act” The current law relating to the review of decisions upon the admission of Proofs of Debt has been helpfully set out in the decision of Flick J in Daevys v Official Trustee in Bankruptcy [2011] FCA 398. At [13] his Honour opined:“[13]The nature of the “review” undertaken for the purposes of s 104 is a “review” not confined to the correctness or otherwise of the trustee’s decision. It is a “re-hearing”: P T Garuda Indonesia Pty Limited v Grellman[1994] FCA 913; (1994) 48 FCR 252 at 255 per Lockhart J. Thus, in Re D K Rogers; Ex parte CMV Parts Distributors Pty Ltd(1989) 20 FCR 561 at 562 to 563 von Doussa J cited with approval the following observations of Toohey J in Payne; Ex parte Levi (Unreported, Federal Court of Australia, Toohey J, 23 September 1986):“[10] ... Section 104 of the present Bankruptcy Act empowers the Court to “review” a trustee’s decision and, in my view, that term carries with it the notion that the parties may place before the Court such material as they wish, provided of course that it is relevant and otherwise admissible. ... The function of the Court is not to consider the correctness or otherwise of the trustee’s decision in the light of the material before him but to determine, in the light of the material before it, whether the applicant has a debt that should be admitted to proof. Of course, inconsistencies in the material provided to the trustee and that offered to the Court may properly be taken into account.”See also: BDT Holdings Pty Ltd v Piscopo[2009] FCA 151 at [4] per Rares J.” At [14] his Honour approved of the views expressed by Toohey J in Re Masters; Ex parte Gerovich (Unreported, 30 July 1985) in which his Honour made it clear that s.104 required the court to review the decision of the trustee but:“It was for the alleged creditor to satisfy the court that a decision rejecting a proof of debt should be reversed.”“[14]There has been said to be an onus upon the party seeking “review” of a decision taken by the trustee. In circumstances where a creditor was seeking review of a decision to reject a proof of debt, in Re Masters; Ex parte Gerovich (Unreported, Federal Court of Australia, Toohey J, 30 July 1985) Toohey J thus concluded: “[5] ... However, the trustee’s decision to reject the proof of debt in respect of the $16,000 must be confirmed, simply because there is no basis upon which it can be reversed. The claim for $16,000 is expressed in such vague terms and is so lacking in precision that it is not possible to characterize it as a claim arising by reason of a contract, promise or breach of trust. Even if it were possible so to characterize the claim, there is no information which would enable the Court to conclude that the trustee erred in rejecting the proof of debt. Section 104 requires the Court, on application, to review a decision of a trustee but it is for the alleged creditor to satisfy the Court that a decision rejecting a proof of debt should be reversed. The applicants have failed entirely in this regard.”In respect to a separate claim, His Honour further concluded:[9] How does the Court determine the application in the light of this contentious issue which is at the very heart of the applicants’ claim? Counsel for the applicants submitted that the Court must make a decision, however unsatisfactory and inadequate the materials made before it may be. This is no doubt true but equally it is for an applicant to persuade the Court that a trustee’s rejection of a proof of debt should be reversed. If an applicant fails to do this, the trustee’s decision must be affirmed. As it is the applicant who claims to be a creditor of the debtor, this approach seems to me to be inevitable. On ordinary principles of evidence, one who seeks the intervention of the Court to alter an existing situation, in this case the rejection of a proof of debt, carries the burden of persuading the Court that it should intervene. [10] On the affidavits themselves, I must conclude that the applicants have failed to satisfy the onus that they bear.”

Ratio Decidendi

Legal Principle Established

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