Khadpekar v Official Trustee in Bankruptcy
[2009] FMCA 936
•10 September 2009
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| KHADPEKAR v OFFICIAL TRUSTEE IN BANKRUPTCY | [2009] FMCA 936 |
| BANKRUPTCY – Discretionary review of trustee’s decision. PRACTICE & PROCEDURE – Summary dismissal – appropriate test. |
| Bankruptcy Act 1966, s.178 Federal Court of Australia Act 1976, s.31A Federal Magistrates Act 1999, s.17A Migration Litigation Reform Act 2005 Federal Magistrates Court Rules 2001, r.13.10 |
| Khadpekar v Official Trustee in Bankruptcy (No.2) (2009) 175 FCR 247 General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 Boston Commercial Services Pty Ltd v GE Capital Finance Australasia Pty Ltd (2006) 236 ALR 720 Hocking v Bell (1947) 75 CLR 125 Commonwealth Bank of Australia v ACN 000 247 601 Pty Ltd (in liq)(formerly Stanley Thompson Valuers Pty Ltd) [2006] FCA 1416 White Industries Australia Ltd v Assistant Commissioner of Taxation (2007) 240 ALR 792 Rogers v Asset Loan Co Pty Ltd [2007] FCA 195 Jefferson Ford Pty Ltd v Ford Motor Co of Australia Ltd (2008) 246 ALR 465 Adnunat Pty Ltd v ITW Construction Systems Australia Pty Ltd [2009] FCA 499 |
| Applicant: | MANGALA KHADPEKAR |
| Respondent: | OFFICIAL TRUSTEE IN BANKRUPTCY |
| File Number: | BRG 841 of 2007 |
| Judgment of: | Cameron FM |
| Hearing date: | 10 September 2009 |
| Date of Last Submission: | 10 September 2009 |
| Delivered at: | Perth |
| Delivered on: | 10 September 2009 |
REPRESENTATION
| The Applicant appeared in person |
| Solicitors for the Respondent: | Rodgers Barnes & Green |
ORDERS
The proceedings not be dismissed pursuant to s.17A of the Federal Magistrates Act 1999 and r.13.10 of the Federal Magistrates Court Rules 2001.
The costs of and incidental to today be reserved.
The matter stand over for further directions to 23 October 2009 at 10:15am.
There be liberty to apply.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT PERTH |
BRG 841 of 2007
| MANGALA KHADPEKAR |
Applicant
And
| OFFICIAL TRUSTEE IN BANKRUPTCY |
Respondent
REASONS FOR JUDGMENT
The applicant, Ms Khadpekar, commenced these proceedings on 1 October 2007 seeking a review of the decision of the trustee of her bankrupt estate to not pursue an appeal against a 1997 decision of the Magistrates Court in Cairns to enter judgment against her. The relevant history of the matter is set out at [5]-[14] of the judgment of Siopis J in Khadpekar v Official Trustee in Bankruptcy (No.2) (2009) 175 FCR 247:
5.Ms Khadpekar is a qualified architect and town planner. In 1995, Ms Khadpekar, who was then carrying on business as a town planning consultant, entered into an agreement with the Kowanyama Aboriginal Council to prepare a report on the formulation of a five‑year plan for upgrading the existing safe storage facilities at the Council. In September 1995 and December 1995, the Council paid Ms Khadpekar advances on the professional fees and disbursements.
6.In 1997, the Council commenced a proceeding in the Queensland Magistrates Court in Cairns whereby it alleged that Ms Khadpekar had breached or alternatively repudiated the consultancy agreement by failing to provide either a draft report or final report in accordance with the terms of the agreement. Ms Khadpekar entered an appearance and filed a defence and cross‑claim.
7.On 17 July 1997, Nunan SM, on the application of the Council, ordered that Ms Khadpekar “make discovery on oath of the documents which are or have been in her possession or power relating to the matters in question in this proceeding”. No time limit for compliance was contained in the order.
8.On 6 August 1997, the Council applied for a judgment on the ground that Ms Khadpekar had failed to comply with the order of 17 July 1997. The motion was listed for 11 September 1997. Ms Khadpekar did not attend the hearing on that date. Pollock SM made the following orders:
1. (a) Pursuant to Rule 171 the Defendant, failing to appear and failing to otherwise take any steps in the matter that the Defendant be debarred from defending the proceedings herein altogether;
(b)Pursuant to Rule 95, the Plaintiff be at liberty to enter judgment against the Defendant.
9.Judgment was entered against Ms Khadpekar on 16 September 1997 for $45,466.56.
10.It was this judgment that formed the basis of the bankruptcy notice and creditor’s petition on which the sequestration order was made by Federal Magistrate Coker on 3 February 2004. The bankruptcy notice founding that creditor’s petition was in fact the second notice issued on the basis of the judgment in the Cairns Magistrates Court.
11.Between the entry of the judgment in September 1997 and the making of the sequestration order in February 2004, Ms Khadpekar had undertaken a number of unsuccessful attempts to set aside the judgment of the Cairns Magistrates Court and the two bankruptcy notices which the Kowanyama Aboriginal Council had issued based upon the September 1997 judgment. It is apparent from the voluminous affidavit material which was before the federal magistrate, that Ms Khadpekar had obtained advice and used the services of a number of legal practitioners in relation to these various proceedings.
12.On 19 July 2007, Ms Khadpekar, by her solicitors (she was then represented), sought the respondent’s consent to appeal against the September 1997 judgment. The letter referred to potential grounds of appeal based on defects in the process whereby judgment was obtained in her absence. Further, the respondent was supplied with affidavits which referred to Ms Khadpekar’s ill health at the time the judgment was entered. The letter also stated that Ms Khadpekar accepted that she may be required to provide an indemnity as to the respondent’s costs of prosecuting the application for leave to extend time to appeal and any subsequent appeal.
13.By a letter dated 27 July 2007, the respondent replied to Ms Khadpekar’s letter in the following terms:
I refer to your correspondence dated 19 July 2007 and discussions you have had with Mr Paul Eric of the Townsville ITSA office. I have had the opportunity to discuss your request with our Legal and Practice Support department and hereby advise that the Official Trustee in Bankruptcy will not be lending its name to the appeal.
The following factors were taken into consideration when evaluating your request:
(a) as a result of the bankruptcy your client has no standing to prosecute an appeal,
(b) there is no property in defending an action of this kind which is capable of vesting in the trustee, therefore the Official Trustee is unable to assign any right to prosecute the appeal, (see the decision in Cummings v Claremont Petroleum),
(c) it is the view of ITSA that the bankrupt in these circumstances is not an “other party to the action” as per s 60(3) and therefore is unable to compel the trustee to make the election,
(d) there is no possibility of a realisation in the estate that would benefit creditors if the trustee were to seek the appeal in its own name, and
(e) the ultimate purpose of this action seems to be to overturn the sequestration order made against your client, so in taking this action the trustee would effectively be acting on behalf of the bankrupt against the petitioning creditor. This action would be inconsistent with the trustee’s role to act impartially.
If your client is dissatisfied with the trustee’s decision as outlined above she may appeal to the Court in accordance with s 178 of the Bankruptcy Act 1966.
I have attached for your easy reference an extract highlighting the relevant points of the decision in Cummings v Claremont Petroleum.
14.On 1 October 2007, Ms Khadpekar commenced an application in the Federal Magistrates Court whereby she sought a review of the respondent’s decision pursuant to
s 178 of the Act.
The applicant’s application to this Court was initially dismissed by Burnett FM on 23 May 2008. Ms Khadpekar appealed that decision and on 19 March 2009 Siopis J allowed that appeal and remitted the matter to this Court to be reheard.
Since then Ms Khadpekar’s attitude to the prosecution of these proceedings appears to have varied, affected significantly it seems by the fact that not long ago she was discharged from bankruptcy. The matter was listed today to consider whether the proceedings should be dismissed or whether Ms Khadpekar should be granted leave to discontinue them.
Today she elected not to seek leave to discontinue the proceedings so the question now is whether the proceedings should be dismissed.
The issue then is whether summary dismissal should be ordered. That question will be determined by reference to s.17A of the Federal Magistrates Act 1999 and r.13.10 of the Federal Magistrates Court Rules 2001.
Relevantly, s.17A of the Federal Magistrates Act provides:
(2) The Federal Magistrates Court may give judgment for one party against another in relation to the whole or any part of a proceeding if:
(a) the first party is defending the proceeding or that part of the proceeding; and
(b)the Court is satisfied that the other party has no reasonable prospect of successfully prosecuting the proceeding or that part of the proceeding.
Rule 13.10 of the Rules provides:
The Court may order that a proceeding be stayed, or dismissed generally or in relation to any claim for relief in the proceeding, if the Court is satisfied that:
(a) the party prosecuting the proceeding or claim for relief has no reasonable prospect of successfully prosecuting the proceeding or claim; or
(b) the proceeding or claim for relief is frivolous or vexatious; or
(c) the proceeding or claim for relief is an abuse of the process of the Court.
Section 17A was inserted into the Federal Magistrates Act by the Migration Litigation Reform Act 2005 and commenced on 1 December 2005. It was designed to have general application and to strengthen the power of the Court to deal with unmeritorious proceedings by broadening the grounds on which the Court can summarily dispose of them.
The fact that the purpose of the section is to make obtaining summary dismissal earlier than previously has been recognised in a number of cases. Previously, an application for summary dismissal would be brought on the basis that no reasonable cause of action was disclosed such as was considered in General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125. However, by reason of the amendment of the Court’s statute, that is not the test which now applies.
In Boston Commercial Services Pty Ltd v GE Capital Finance Australasia Pty Ltd (2006) 236 ALR 720 Rares J considered s.31A of the Federal Court of Australia Act 1976, which is equivalent to s.17A of the Federal Magistrates Act. After considering the authorities, his Honour concluded that where there is a real issue of fact to be decided it is appropriate that the matter goes to trial. His Honour described the situation of there being a real issue of fact as being where the evidence is not all one way so that only one conclusion can be said to be reasonable, as considered in Hocking v Bell (1947) 75 CLR 125 at 130-131. His Honour also suggested that the matter ought to go to trial where there is a real issue of law of a similar kind. In his Honour’s view:
…in assessing what reasonable prospects of success are for the purposes of s 31A, the court must be very cautious not to do a party an injustice by summarily dismissing the proceedings where, in accordance with the principles in Hocking (1947), contested evidence might reasonably be believed one way or the other so as to enable one side or the other to succeed. As soon as the evidence may have such an ambivalent character prior to a final determination, I am of opinion that then, as a matter of law, at that point there are reasonable prospects of success within the meaning of s 31A. Unless only one conclusion can be said to be reasonable, the moving party will not have discharged its onus to enliven the discretion to authorise a summary termination of the proceedings which s 31A envisages. (at 731 [45])
Those principles were summarised by Jacobson J in Commonwealth Bank of Australia v ACN 000 247 601 Pty Ltd (in liq)(formerly Stanley Thompson Valuers Pty Ltd) [2006] FCA 1416 at [30] in the following terms:
· In assessing whether there are reasonable prospects of success, the court must be cautious not to do an injustice by summary dismissal.
· There will be reasonable prospects of success if there is evidence which may be reasonably believed so as to enable the party against whom summary judgment is sought to succeed at the final hearing.
· Evidence of an ambivalent character will usually be sufficient to amount to reasonable prospects.
· Unless only one conclusion can be said to be reasonable, the discretion under s 31A cannot be enlivened.
His Honour also noted that it would be wrong to determine an application to dismiss proceedings on a narrow approach to the pleadings where the evidence was incomplete and perhaps ambivalent, but that is not this case. This is not a case where deficiencies in the pleadings are asserted. The question here is whether Ms Khadpekar has any reasonable prospect of successfully prosecuting the proceedings or part of the proceedings in issue.
In White Industries Australia Ltd v Assistant Commissioner of Taxation (2007) 240 ALR 792 at [50] Lindgren J said that:
Section 31A of the FCA Act… is concerned with the bringing and defending of proceedings, not just with pleadings; with substance, not just with form.
In Rogers v Asset Loan Co Pty Ltd [2007] FCA 195 Greenwood J was satisfied that there was no prospect of the applicant succeeding in the proceedings were they allowed to go to trial in the ordinary way and thus there was a high degree of certainty as to the ultimate outcome. That degree of certainty was informed not just by deficiencies in the pleading but by reason of the weight to be given to factors discussed in the reasons for judgment. His Honour described his conclusions at [64] in the following terms:
Perhaps the test in determining a reasonable prospect of successful prosecution of a proceeding is whether there is a demonstrated ‘real (as opposed to fanciful) issue of fact to be decided’ (Boston Commercial Services Pty Ltd v GE Capital Finance Australasia Pty Ltd [2006] FCA 1352, per Rares J [31]–[48]). However, the ‘real issue of fact’ must be framed within a comprehensible cause of action (in respect of which the applicant has standing) so that findings of fact in favour of the applicant give rise to a recognised remedy.
The decision of Rares J in the Boston Commercial Services case has subsequently been considered by the Full Court of the Federal Court in Jefferson Ford Pty Ltd v Ford Motor Co of Australia Ltd (2008) 246 ALR 465 and by numerous single judges of the Federal Court. Those judgments indicate to me that I am, in effect, bound by Rares J’s judgment in the Boston Commercial Services case as to the circumstances which will enliven the Court’s discretion to dismiss a proceeding on a summary basis.
In this particular case, the issue for determination is framed by the terms of s.178(1) of the Bankruptcy Act 1966 which states:
(1) If the bankrupt, a creditor or any other person is affected by an 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.
Clearly the Court is called upon to exercise a discretion. It is a discretion which has to be exercised with regard to the justice and equity of the case and regard must be had not only to the interests of the bankrupt but also to the obligations and duties required to be discharged by the trustee. In all cases it is a question of judgment. In this case the trustee has mounted a strong and cogent argument in defence of its decision not to pursue the appeal in the District Court of Queensland. It is an argument which may convince a Federal Magistrate not to exercise the s.178(1) discretion. However, I cannot predict how any individual Justice of this Court will exercise his or her discretion in a given situation.
That being so, I cannot say that the application in this case has no reasonable prospects of convincing a Federal Magistrate to exercise his or her discretion in the applicant’s favour. As Sundberg J said in Adnunat Pty Ltd v ITW Construction Systems Australia Pty Ltd [2009] FCA 499 at [37]:
... s 31A requires in effect a prediction as to the outcome of a claim ...
I cannot in the circumstances of these proceedings predict what the ultimate resolution of the claim will be. For those reasons, at this point in the proceedings, they will not be dismissed on a summary basis. They will have to stand over for further directions with a view to their continuation.
I certify that the preceding nineteen (19) paragraphs are a true copy of the reasons for judgment of Cameron FM
Associate:
Date: 22 September 2009
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