Mannigel v Aitken

CATCii?ORDS

Bankruptcy - trustee - application for removal of trustee - trustee's discretion in administration f estate - seizure of partnershp assets - dissolution of partnership by bankruptcy

- interest in partnership of assignee in bankruptcy.

_ .

. I.	-_	.	-.
-

B a n k r u p t c y Act

L966

ss -179,-

129.

. .

.-.

. i

New South Wales Partnership Act

1892 ss-31 ,

3 3 .

No. W 1060 of 1979

No- W 1061 of 1979

No. W

74 of 1979

Carolyn Nancy Mannigel

v. Lindsay Roberr Aitken

Gunther Hen??,' Frederick Macnigel v. Lindsay Robert Aitken Heinrich Oswald Herman Mannigel v. Lindsay Robert Altken

Smithers J-

15 August 1983

S ydnzy .

I N THE	FEDERAL	COURT	O F AUSTRALIA)	)
1

BANKRUPTCY

D I S T R I C T

O F

THE

STATE

)	N o . W 1060 of 1979

OF NEW SOUTH WALES

AND

THE

AUSTRALIAN	CAPITAL	TERRITORY	.	)
1

GENERAL	D I V I S I O N	1
I N THE MATTER O F The Bankruptcy
Act 1966
-

CAFiDLYLi NANCY

MANNIGEL

THE BANKRUPT (applicant)

Judge Making Order:

Smithers S.

Date of Order:

16 August 1983

$Where

;lade :

Sydney.

O R D E R

THE COURT

ORDERS

THAT:

There be a declaration that no ground has

been

.shown for

inquiry

rnto

the conduct of the

respondent in relation	to	the	applicant's
bal3.kKUptCy.

, z.-

me application dated 22 June 1982 in action No.

NSW 1060 of 1979 be dismissed.

3. The applicant pay the respondent's costs.

I N THE

FEDERAL

COURT

O F

AUSTRALIA)

BANKRUPTCY

D I S T R I C T

O F THE.STATE

N o . W 1061 of 1979

O F NEW SOUTH WALES AND THE

AUSTKALIAN

CAPITAL

TERRITORY

GFXERAL

D I V I S I O N

I N THE MATTER OF The Bankruptcy

-.-

Act 1966

APPLICATION

FOR

THE

'REMOVAL O F

TRUSTEES AND OTHZR

ORDERS

GUNTHER HENRY FREDERICK MANNIGEL

THE BANKRUPT

( app l i can t )

Judge MakinF Order:

Smithers J.

D a t e o f Order=

16 August 1983

Where Made:

Sydney--

O R D E R

T E

COURT

ORDERS

THAT:

There

dec lara t ion

tha t

ground has

been

shown

for

inquiry

into

the

conduct

the

respondent	i n	r e l a t i o n	t o	t h e	a p p l i c a n t '	s
bankruptcy -

. _	-	_	L
- .

The appl icat ion

dated

2 2 June

L982

i n ac t lon No,

NSW 1061 of 1979 be dlsrnissed.

3 .

The applicant pay the respondent 's

costs .

I N THE	FEDERAL	COURT OF AUSTRALIA)	)
)

BANKRUPTCY

D I S T R I C T

O F

THE

STATE

1 No. W 74 of 1979

OF NEW SOUTH WALES AND THE	I
1

AUSTRALIA!. CAPITAL

TERRITORY

- 1

GENEFAL

D I V I S I O N

I N THE MATTER OF The B a n k r u p t c y

--	A c t 1966

APPLICATION

FOR

THE

REMOV?.L

O F

TRUSTEES AND OTHER ORDERS

HEINRICH OSVlALD

HERMAN

MANNIGEL

THE BANKRUPT

( a p p l i c a n t )

Judge Making Order:

Smithers J.

Date o f Order:

16 A u g u s t 1983

Where Made L

Sydney-

O R D E R

THE COURT ORDERS

THAT:

The

application d at

.ed 22 J u n e 1982 in

ac t io 'n

N o .

NSW 74 of 1979 be dismissed.

2-	The applicant pay the respondent' S costs -

IN THE FEDERAL COURT OF AUSTRALIA

)

BANKRUPTCY DISTRICT OF THE STATE

1	No. W 1060 of 1979
1	No. W 1061 of 1979

OF NEW SOUTH WALES AND THE

No. W

74 of 1979

AUSTRALIAN CAPITAL TERRITORY

GENERAL DIVISION

APPLICATION FOR THE REMOVAL OF

TRUSTEES AND OTHER ORDERS

CAROLYN NANCY MANNIGEL

TIE BANKRUPT (agplicant)

APPLICATION FOR THE REMOVAL

TRUSTEES AND OTHER ORDERS

GUNTHER HENRY FREDERICK MANNIGEL

THE BANKRUPT (applicant

APPLICATION FOR THE REMOVAL OF

TRUSTEES AND OTHER ORDERS

ilEINRICH OSWALD HERMAN EIPdNIGEL

THE BANKRUPT (applicant)

LINDSAY ROBERT AITKEN

(Respondent)

Coram: Srnithers J.

16 August 1983

REASONS FOR JUDGMENT

Before the Court are applications brought pursuant to

s.179(1) of the Bankruptcy Act

1966 (the Act) by Gunther

Henry Frederick Mannigel (GM),. (Bankruptcy No.

1061 o€ 1979)

a m application; by his father Heinrich Oswald Heman Mannigel

(HM) (Bankruptcy No.

74 of 1979) as assignor under Part

X of

the Act of his estate- The respondent is the trustee

of the

bankrupt estates of GM and CM and the controlllnq trustee

the estate

of HM under a deed

of assignment.

Orders are sought against the trustee for alleged

failure of duty in that capacity. First, an order is sought

that an inquiry be held into the conduct

of the respondent as

,trustee. Secondly, an order is sought that the respondent be

removed f r o m the position of trustee and that another person

be appointed tu that position.

Thirdly an assessmen'c is

sougM of the damages suffered. by the estates by reason

alleged breach

of duty of the respondent in

the management of

the estates and an order that the respondent make good the

loss that the estates have sustained. It is alleged by the

appllcants that the

loss suffered by reason of the conduct

the respondent 1s such that the damages recoverable would be

so high tnar the bankruptcles would

be annulled. Finally,

3 .

there	are	appl icat lons	for	*ischarge	from bankruptcy	of	GM
and CM-

T h e

Legal Foundatlon of

the

Proceedings

Section 179(1) of the Act provides as follows:-

- - :--- 1.

.- . .

. -

? _ X - _ ? -

r .

- "'I!€K~

Caurt

map,

the

a p p l i c a t i o m

o f

the

Registrar,

c r e s i t o r o r t he bankrupt,

inquire

- _

F -

inta

the

conduct

of a

t r u s t e e

i n r e l a t i o n t o

bznkruptcy an6 m a y do

o r

bo th

o f

t h e

. - -

following I-

( a)

remove the t r u s t e e from

o f f i ce :

and

(b)

m a k e

such

order

it thinks

proper."

The circumstances

in which

the Court may proceed t Q

an enquiry under s.179 were discussed by M r . Justice Riley i n

R e Alafaci (1976) 9 ALR 262.

H i s Honour approached

the

problem under

s.179 i n the following wayr-

(v)

The

court may

inqu i r e in to

any aspect of the

conduct of

t r u s t e e I n r e l a t i o n

t o a

bankruptcy,

and

i s

enabled

t o d e a l

w i t h

the

s i t u a t i o n

which

it f inds by making such order

it thinks

proper-

A case o f misfeasance,

negligence o r

, .

w i ; l f u l

d e f a u l t

the

p a r t

o f

the

t r u s t e e

may

emerge otherwise than from the accounts submi t ted

-	hy Irinr. LE accordance w i t h S -175 of t h e Bankruptcy Act or a u a u d i t of those accounts; i f it does, o r

it a p p e a r s

t h a t

for any other reason

the

trustee' S conduct

should

inqu i r ed

i n to ,

there

is no reason why S .l79 should

not

s e t i n

motion, or why the court cannot

under s.179

order

the t rustee t o make

good,

i f the cour t t h i n k s

such an o r d e r t o

Se propar.

( v i )

Where the Reglstrar

wlshes

proceed

under

s.179 of the

Bankruptcy

A c t he should make

app l i ca t ion

( a )

fo r

o rde r

t ha t

Inquiry be

made

the

cour t In to

the conduct of the

t ru s t ee

i n r e l a t i o n t o

the bankruptcy,

and

( b ) such other

orders

a s he

t h i n k s

f i t .

T h i s

r e q u i r e s

preliminary o_uestlon

t o be decided by the cour t ,

namely on the

grounds

and

fac ts

pu t

before

It:

H a s

t h e

c a s e

been made

fo r

i nqu i ry

i n to

the

t r u s t e e ' S

conduct?

t h e

answer

t o

t h a t

quest ion is " Y e s " ,

the nex t question is:

What

i s

the scope of the

Inquiry?

Then the

court

should

give

d i r e c t i o n s

b e f o r e

a n y

p r o c e e d i n g s

t o

i n q u i r e ,

e n s u r i n g

t h a t

t h e

t r u s t e e

g iven

proper	oppor tuni ty	to	p repare	and	present	his
..

- czse on those matters.

. -

At p.268' his Honour said F

'"IT do not wish t o be taken

presuming

t o

l a y

down any r u l e a s t o	the procedure t o be followed
i n , o r the approach	to be made by the Court t o , a

case

o f

t h i s

s o r t :

b u t it

seems

t o m e t h a t

i n

such a case there I s - a p r e l m i n a r y q u e s t i o n t o be

decided by the Court - namely on t h e grounds and

f a c t s b e f o r e i t , has a case been made for enqui ry

i n t o

the

t rus tee ' s conduct . "

considering

the procedure

be followed i n this

case it

emerged t h a t i n d e a l i n g

i n a

preliminary way

w i t h the

question as to whether an enquiry should be held the very conduct of the Trus tee which is i n question would have t c be substant ia l ly invest igated. So apparent w a s this t h a t M r .

met

for t h e respondent

s ta ted

tha t

it may be

convenient

t h a t the

Court Launch

into an enquiry without

f u r t h e r

delay.

B u t he submFtted tha t the- adoption

of this course should not

preclude the Court from ul t imately

f inding,

if thought f i t ,

t h a t no basis for an

e qulry

had

been

establ ished.

I t

appeared

that

each

party

wles

f u l l y prepared

t o

l i t i g a t e

t h e

Issues In f u l l .

9 s a resui': I enrrered upon the

conslderatlon

5 .

of the issues and	i n the event a l l the evidence desired to	be
called by each of	the p a r t i e s w a s ca l l ed .

In the- case of bankruptcy the Trustee

is i n charge of

the assets of

the bankrupt and

t h o s e a s s e t s a r e t o

applied

for the b e n e f i t o f

the

creditors and

i f there be any surp lus

- . foq;..the henefLt o f the bankrupt.

It is c l e a r t ha t t h e

-.. - -I -. ." ,-. 1 _.

. . . .

c.f

nc'urimunt standard reqire-5 o f the Trus tee is. that he

shal l

. , - _

. -- . .-

- -

.	.hadIe the assets w i t h a view to. achieving t h e maXimW r e t u r n

from the assets t o satisfy the claims of t h e creditors and t o p r o v i d e t h e best s u r p l u s p o s s i b l e f o r the bankrup t -

Obviously a g rea t deal of d i scre t ion and

judgment

is required

t o b e -exercised by the Trus t ee -

It w a s said by

Rogerson

I n R e Ladyman (1981) 38 ALR 631 a t pp.

641 and 642 t h a t the

standard of conduct

required

the Trustee w i l l o r d i n a r i l y

be the

standard

required

a professional man and perhaps

higher-

The

learned Judge

r e fe r r ed

" the h igh

stand'ard

conduct required

t r u s t e e s " .

In Re- Brogden (1888) All E.R.

927 Lord Just ice

Fry

a t p-935: E

I .

- -

. .

. . .

. - 1 ->

- .-

- - - -

1 "P; T r u s t e e undoubtedly has a

d i s c r e t i o r r a s t o the

mode

and manner, and very often

a s t o the

time

i n

which

o r a t which,

h e sha l l ca r ry

h i s

duty

into

e f f ec t .

B u t

h i s

d i sc re t ion

never

absoluce

one.

It i s always l imited by - the domlnant

duty

- the

guiding

duty

recovering,

securing

aod

duly

applymg

the t r u s t fund:

and no Trustee

car.

claim

any

right

d l sc re t ion whlch

does

n c t

agree witin

t h a t paramount

obl lga t ion . "

6 . -.

Where an o rde r is sought that the Trustee be removed and t o make good t h e losses suffered by t h e es ta te , it must b e

e s t a b l l s h e d t h a t

the

Trus t ee has been gu i l ty o f

breach of

duty

t o

a c t

"di l igent ly

and

prudent ly

i n

r e g a r d

t o

t h e

business

the Trus t"

See Riley- J - In I n re Alafacl

(supra)

at p-285

. -.

. .

' According. t o H e l s b u r y L a w s of

England

3 r d

Ed.

Vol.38

p . 9 6 7 , - A crustee must take

a l l reasonable and proper

measures

obtain posesssion of

the

t r u s t property

...

and

t o g e t

i n

all

debts and funds due to

the

t r u s t

e s t a t e ,

and

t o

preserve

it, and t o secure it from loss.

H e must take

reasonable

precaut ions

see the

property

i s

not

s t o l e n

o r

l o s t

defaulE.

The Trustee is bound to

execute

the

t r u s t

with

f i d e l i t y

and

reasonable

dll lgence

and

ought t o conducr

i t s

a f f a i r s

i n

the same manner as an ordinary

prudent

man

business

would

conduct h i s own a f f a i r s .

B u t beyond

this he

is not bound t o adopt

further

precautions.

I t

w a s

s a id

their Honours

Dixon C J , McTiernan and Windeyer

JJ i n E l d e r ' s

Trustee- and. Executor CO- L t d . v. Hlggins & Ors

( 1 9 6 3 )

113

C L - R -

426

that:-

" W e

a re n o t t o

judge what

the Trustee then

d i d or

f a i l e d t o

t h e l i g h t

l a t e r even t s

. . . .

The duty

the

Trustee

was

t o

e x e r c l s e

due

d l l igence ,

care

and

prudence i n

t h e

conduct

t h e

b u s l n e s s ,

b e a r i n g

i n

mind

t h e

n e e d

t o

preserve the capl ta l of t he Tes t a to r ' S esca te . . .	. . . The argument t h a t tine Trustee havlng, 1c was
sa ld , exerclsed a discreclon. ics ccnducr i s now

unchallengeable

i s

s u f f i c l e n t l y

answered

. passage from the judgment of Pry L - J .

I n R e

Bro den

(supra)

.-- Whether o r

n o t

one

c a l l s

the

t rus t ee ‘ s ac t ion ] an

exercise of

d i sc re t ion ,

the questlon	remalns	was it the act of a prudent
Trustee. “

It is

n o t the r o l e of

the

Court

t o d e c i d e

whether

the pa th

chosen

the

Trus tee

led

t o t h e r e a l i z a t i o n o f

the

g r e a t e s t

U & U ~ for the assets

o f the e s t a t e .

The Court is i n a

- .

. .

_ -

_i -

,. - \ __ .

-. -

- - . -

pusikion, from thzt of the Trustee.

The Court can

- 1

~ .-,

.r - ~.

examfne: the- facts w L t h h inds ight	and- w i t h the b e n e f i t of	the
. .

evidence OIL oath of t he

r e l evan t

debtors and

credi

tors

and

witnesses

c a l l e d

i n

t he i r support.

The Trustee is required

t o

a c t

d i l i g e n t l y

and

prudent ly

the

xerc i se

o f

h i s

d i sc re t ion

deciding matters as they ar ise

i n the

course

adminis t ra t ion o f the- state.

Re may

c o n s t r a i n e d t o a c t

reference t o the knowledge

which

he has

of the circumstances

balancing

t h e benefi t

fur ther

enqui ry

aga ins t

fur ther

delay and

the

Zurther expense

t o the

e s t a t e , t o t h e c r e d i t o r s

and

poss ib ly

t o

the

d e b t o r

i f

t h e r e

i‘s

surplus

i n the

e s t a t e .

B e t w e e n 1971 and

1979

the

three

app l i can t s ca r r i ed

a r e t a i l Centre‘”& TIre bus iness trade& i n the sale of

b u s i n e s s

Noma known

a s t h e “Noma Camera

cameras and

accgssor ies , repa i r

work,

t he p r o v i s i o n o f f a c i l i t i e s f o r

the

development

photographic

filin and

re la ted

se rv ices .

The

b u s i n e s s

was

c a r r i e d

under

pa r tne r sh ip

ag reemen t ,

wherew HM had a 50% i n t e r e s t and GH and CM each	had	a 25%
i n t e r e s t .

By 1978 the buslness was in serious financial difficulties and those difficulties intensified ln 1979. On

18 May 1979 HM executed a deed of ‘assignment under Part

X of

the Act and the respondent was appointed Trustee. On 3 December 1979 sequestration orders were made in respect of

the- estates of GM and W and the Offici&

Trustee became the

~rUStee

O f theic estates-

On 11 M a y 1980 the respondent

became the Trustee in respect of their .estates.

-..

The

applicacions before this Court arise out of

’

dissatisfaction

the applicants with the conduct of the

respondent in the management of their estates. In relation

to the Camera business	it is their contentisn that the
respondent:

(a)

took

possession of the

assets of the

business

without legal justiflcation;

(b)

negligently or otherwise improperly adopted a

procedure for realization of those assets

as a

resuLt of whicb the value of the goodwill of the

business. was I o s t and the stock was sacrificed,

ar,d

debts due

to the business were not collected.

It is also contended thst

the respocdent has wrongfully

falled to “cake steps to enforce an alleged rlght

of action in

GM and CM against a firm of solicitors for alleged negligence

in advising them in relation

to a building contract in

respect of which they suffered losses.

It is a further contention thar the respondent

. wrongfully failed.

to realize the interest of GN in a company,

. .MannigeL. Broadcasting Pty- Ltd- whick purchased an& later

Sd& Zi

ttansmitting licence and. business known as 4VL

CharleviITe. . Alternatively it is said that the respondent has failed to pursue a claim against the directors of that

compny- f o r disposinT	of the licence and business	at an
undervalue.

The sequestration orders

of 3 December 1979 were made

on the petition of the respondent on the ground that GM and CM had failed to execute a deed of assignment pursuant to a

resolution of creditors under

s . 2 0 4 of the Act.

Circumstances leading to sequestration and the asslgnrnent under Part X

On 1 March L979 at the request of Mesas Hunt & Hunt,

. .

SolicLtors. for the partners, the respondent attended a

meeting at which EM,

CM and Mrs. Frieda Mannigel, Heinrich

Mannigel's

wife

and

their

sollcitor

were

present.

The

financial position of the Fzrtners was discussed. Creditors

were pressing, ~udqments

h25 been obtained and a bankruptcy

10.

notice had already been

served

on GN.

The

r e t u r n s from the

b u s i n e s s were diminishing.

The

respondent was

shown

balance

sheets of

years

and the

pa r tne r s

t ax

r e t u r n s .

appeared t h a t GM

had personal

deb-cs of approximately $79,000:

had

no a s s e t s or debts

apar t

from those owned

o r owed

jointly w i t h . GM-

had

personal

debts

o f

$51,000

aga ins t

assets a€ $84.,00(5.- It =S

said t h a t the .par tnersh ip had

debts of approximately $50,000 and there

were debts owed t o

it of approximately $Z,OOO.

The respondent gave the partners

adv ice a s

t o

what

i n h i s op in ion

were

the opt ions avai lable

t o them.

The options were a l so expla ined

and

his wife

by l e t t e r opt ions were, kf bankruptcy was t o be avoided, to

from

t h e i r

s o l i c i t o r s

d a t e d

March

1979.

Those

a r range

wi thr the c red i tors for the execut ion

deed

arrangement

o r a deed of

assignment under Part

X of the A c t .

Bccordmg t o GM there was a meeting on 2 2 March 1979

between himself, h is parents and the

r spondent

and

h i s

s o l i c i t o r where

he urged

upon

the respondent the desirabl l i ty

s e l l i n g the b u s i n e s s a s a

going concern

and

the respondent

made it

c l e a r

t h a t

it was. the respondent’ S view t h a t

t h e

assets; of t he

bus iness

would have to be sold a t auction-

Although

the Trus tee denies

tha t

t h e r e was

meeting

”

March

s a t i s f i e d t h a t

GT4

was

made

aware before

30 March

1979 t h a t the respondent saw

p o s s l b l l l t y

s e l l i ng

t he

business as a going

concern.

t h a t day

the

r spondent

v i s l t e d

t h e

Camera

Centre

and

in spec ted

t he

stock and

premises .

After

discussion,

each

the

appl icants

lgned

ins t rumen t s of

au tho r i ty t o the respondent under

s.188

o f t h e

A c t .

The Respondent

asked

f o r a l i s t o f

c r ed i to r s

and GM

handed t o him a copy of

a t e l ex da t ed

9 January 1979 s e n t by

to- his

own

s o l i c i t o r which

se t out

number

o f c r ed i to r s

- -

arra=ge& for ar tnformal meeting of the four major

suppliers

t u . the

Cene.e t o be

he ld on

19 Apr i l 1979.

Although

r eques t ed . to

attend,

G.¶

f a i l e d ,

q u i t e

w i l f u l l y ,

t o

so.

The question of w k t h the four creditors who attended.

the Centre continuing

t o

t r ade

w a s

d iscussed

One such

creditor

w a s

prepared

cont inue t rading but the other three

had decided

t h a t t h e y

would

not supply fur ther

goods

t o the Centre on

any

terms.

The respondent

telephoned C4 and he

xplained

that

t h e c r e d i t o r s

w e r e l a rge ly

i n onposi t ion to cont inued t rading

and that he ‘4as not

op t imis t -c

tha t

a deed of arrangement

would

acceptable ‘-3 credxtors genere l ly .

O n 19 April 1979. the respondent wrote t o G4 advis ing

l - r h t h a t a

formaL meet ing o f

c r ed i to r s would

be held

ApriT 1979 and- requi r ing h i m to attend- and t o supply a

writteh and ver i f ied s ta tement of a f f a i r s . The respondent

also advised

C2l

t h a t i f h e f a l l e d

CO attend the meeting or

supply

the

documents

requested

t3c

c red i to r s might

requlre

=he respondent

presect a

pe t r i i un

fo r

seques t ra t lon

12.

order in respect of G4 ' S estate. The meetlng was held and

resolved to require the debtor to execute a deed

assignment and that the respondent, be nominated as trustee.

GH	arrived at the meeting lust as it was coming to an end.

He had

been delayed waiting for

an aircraft on which one

Kirton, a business associate, was travelling, his erroneous

idea being that Mr- Kirtorr could contribute something

. .

valu&'to:-th& meeting- GX did: address the meeting but did not

induce: the creditors to depart from their resoltuion-

Similar resolktions were pzssed at meetings

of the creditors

of CM and E91 also held on

27 April 1979.

May E N executed-a deed of assignment. On the same- day the respondent -was. advised by Mr. B. Sharpe from the

On 18-

firm of Messrs Stephen, Jacques and Stephen, who had become

the Solicitors for (34 and a,

that his clients would only

sign a deed of asslgnment on condition that they be given five months to sell the buslness and that no sale of the

interests of G4 in Mannigel Broadcasting

Co. Pty. Ltd. be

held for two years. The respondent called

a formal meeting

of creditors w ~ t h

a view to obtaining the creditors' views

conceruing a deed of assignment subject to these conditions.

The rneeti.nq was held

on 30 M a y 1979 and although neither

the applicants attended the meeting

Mr. Sharpe did. Mr.

Sharpe urged creditors to agree to the stated conditions and he submitted a memorandum from counsel statlng that subject to E4 and C1 being believed, ?:?e prospects of success 1n the

13.

Supreme Court action

for negligence brought by them against

the applicants' former solicltors, Messrs Marriot Oliver & CO- were- good w-d approximately $40,000 might be realized

from it-

The creditors rejected <he conditions and resolved

that the respondent as controlling trustee apply to the Court for a sequestration order agalnst the estates of the

aptpPlLcalts-

.. -- - - -

- . . - ,

. .

-S- . _ _

: _ . .

... I . . .

.- - . .

_ .

-. .

. . ._

Irr July. 1979 GM consulted Hooker &. CO- wkth a

view tu

. -

selIing -the business.

Mr. Wilson of Hookers' Agency

considered that he

could sell the business satisfactorily but

nothing came

of it.

In early Suly the respondent received a letters from

Messrs Stephen Sacques & Stephen alleging that not all the

creditors of the applicants had been advised

the two

creditors meetings and requesting that the debtors be allowed

a period of five months to negotiate a sale

of the Centre

and

fifteen months to negotiate sale of the shares in the radio

station.

The respondent called a further formal meetlng

creditors.

It was held 1 August 1979 and the credltors

adhered ta their prevlous decision. The respondent then

commenced proceedings

to have the estates

of GN and his wife

. seques'trated. He became

lncreasingly

concerned

that

the

Nowra Camera Centre was not viable and that it would be in

the best interests

of the credltors that the Centre be closed

as soon as possible. In early Xovember the respondent was

14.

informed by

the landlord

the Centre that the par tners

were

subs t an t i a l ly

i n

arrears

with

r e n t ,

t h a t

t h e

l e a s e

would

expire

December

and

that he intended taking act ion to have

the pa r tne r s

removed.

’The appl ica t ions for seques t ra t ion

were

contested

GSf and c” on the ground t h a t the meeting a t which tbe

. -

resolutions. requiring

them t o execute the deeds of assignment

were passed were

cot

attended by

a l l c r e d i t o r s e n t i t l e d t o

meet ings- t h e deed of assigrment

addi t ion

app l i ed

fo r

o r d e r

t h a t

a t

such

executed

him

18 May 1979 be

dec la red

vo id

t he

g round

t ha t

had

been

signed

c o n d i t i o n a l l y

the

a p p l i c a n t s

e x e c u t i n g

s i m i l a r

assignments..

After

lengthy

earing

M r .

Justice

Lockhart

rejected

the

submissions

of HM, Gi4 and CM and on 3 December

1979

ordered tha t the appl ica t ion

be dismissed

and

the

es ta tes

GM and CM be

seques t ra ted

tha t

cos ts

t he

proceedings

taxed

and

paid according to the

A c t .

Realizat ion of

t h e Assets of

the Nowra Camera

Centre

FdIowinq the o rde r s

made

by M r .

J u s t i c e Lockhart the

respondent conferred

w i t h the Off ic ia l Receiver

and

arranged

”

appointment handling the e s t a t e s of GM and CM.

with

Mr.

C r u i k s h a n k ,

t h e

o f f i c e r

f o r

On 7 December 1979 t h e

respondent

advlsed

Mr.

Cruickshank t h a t he

considered

that

the

Centre

was runn lng a t a loss and ch+r the

possesslon

15.

the assets of the business and an auction thereof should

arranged as soon as possible.

The respondent indicated that

it was his view that while the business continued and the

stock was- being

sol& the moneys reakized were belng used for

the living expenses of GM and CM. He indicated his view that it was. not practicable to cany on the business profitably znlf tfralz tlre prospects of sale of the. business as a going

. . .

concern

- were nil- He indicated- thab

he would like to take

charge of the assets. of the business forthwith and

se l l

them

at auction f o r the benefit of the creditors of the business. hr. Cruikshank concurred and it was agreed that the

respondent would take the necessary action to

take

possession,

the Centre

and

sell

the

stock.

The

Official trustee wrote to the respondent a letter confirming

' that he "had no objection to t h e respondent taking charge of

the assets of the business and selling them".

The respondent refrained from giving notice to the

partners.as he felt that GM might cause difficulties. It w.is

important to have access to the premlses wlthout having to

use force. There w a 5 a. history of a lack of co-operation by

GM including hks refusal to sign a deed of assignment, his

f&Lure to prepare

or certify a Statement of Affairs for the

creditors meeting and his non-attendance at meetings.

The respondent acted

promptly and on 10 Decenber 1970

sent his employee MT. Starr and one b l r . Byrne an auctioneer

16.

t o Nowra

take possession

a l l ths stock and

f i t t i n g s of

the business advised by telephone from M r .

w i t h a

view

t o

t h e i r

s a l e -

The

respondent

was

S t a r r a t Noma

tha t t he re

were

a g r e a t number t o l ist a l l t h e s t o c k and r e tu rn it i n one day and t h a t CM

i t ems , t ha t

it wouid

ex t remely d i f f icu l t

woulrT not al low them access t o one of tfie rooms o f t h e shop

beIfk=veC t w conthirr records-,

in p e r t i c u l a r

o f

the

radio

s t a t i o n

.The respondent

states that

he to ld

M r -

S t a r r t o t a k e

possession o f what he could and tu- arrange with Mr.

Byrne t o

make an 'iEventory

thereof

i t s a r r i v a l i n Sydney.

Mr.

Byrne p u t the more valuable

items

stock i n h i s

c a r

and

took them t o Sydney.

The other

i tems were packed in

boxes,

sealed arld taped down,

and de l ive red

c a r r i e r chosen by

M r . S t a r r Sydney. The number of

for

t ransport

the

premises

Mr.

Byrne i n

boxes

was

not

recorded

and

t h e

inventory was not made unt i l

ear ly

January

1980 some four

weeks

a f t e r t h e

goods

a r r ived in

Sydney.

On 1 2 December 1979 the respondent wrote

t o GM and CM

request ing advice as

t o

whether

there

were any a s s e t s books

o r records

o f

the bus iness o ther

than

those obta ined

December-

They did. not reply.

On 1 7 December 1979 he was

advised by one- Cook t h a t on behalf

the

landlord,

had

taken

possession

t he Centre and changed the

locks.

1 6

January 1980 the

respondent

wrore

GM and CH encloslng a

copy of rhe

inventory

of goods selzed and advislEg them t h a t

certain

Items

f u r n i t u r e ard equlprr.snt of

the

Csntre

were

17.

i n the custody of M r - Cook.

H e fur ther advised

them t h a t the

i tems seized

would

so ld a f te r four teen days .

M r . Byrne arranged

auction

o f the stock o f the

b u s i n e s s

t o

b e held on 31 January 1980.

GH attended the

auctiom-

He said that cer tai r r items of equipment a t the

-impen&nq

zuct iou beIong.eed

t o certain c l i e n t s of the Centre.

Various Ltetems cIaimed were - del ivered ta him-

The auct ion

_ -

re.aIized' B g r o s s amaunt o f $10,656. SD and	a ' n e t amount	of
$7,847.27.

Following the seizure and sale of the stock @l

deve loped g rea t hos t i l i t y t o

the

respondent.

e n l i s t e d

t h e

aid and sympathy

of h i s Federal member of Parliament who took

up h i s c a s e

w i t h enthusiasm-

OK 3 June 1980 the respondent

wrote

t o GM

advismg

GM t h a t he convenient time and seeking from them information

c o u l d

i n s p e c t

t he

r e c o r d s

a t

a n y

m u t u a l l y

regarding

any o t h e r of. h i s assets,

all books, documents,

papers

and

w r i t f n g s r e l a t i n q ta his

t rade dea l ings , p roper ty

o r a f f a i r s ,

h i s passport and. a

statement

a f f a i r s i n

the appropriate

form-

There was no. response to this.

On 17 June 1980 GX and CM, having

arranqed

for

press

coverage ,

a t tended

t h e

r e s p o n d e n t ' s

o f f l c e s

I n

t h e

APA

Building,

Mart in

Place

and

chained

themselves

t o

t h e

reception desk.

stated to the respondent and reporters

present that “I have to do this to

get the lnformation

require“. He distributed

a press release statlng that his

difficult financial circumstances were a result

of losses

incurred through dealing wlth an unlicensed builder, and

he ,

was making a claim f o r damages agalnst his solicitors for

- prufessiond neqIigence, that the respondent had given false-

evtdence in court, - had failed to take an inventory of goods sekzed, had refused to return shop records and goods

belonging

customers, and had refused him information

relating to his company interests in Queensland. The police

rescue squad were called

by the respondent to cut the chains.

Shortly thereafter GM, the police and the respondent

inspected the records in the

respondent’s possession.

took certain personal items and left.

On 1 May 1980 the first meeting

of the creditors was

held and as a result

of resolutions passed, the respondent

was appointed Trustee of the estates of GM and CM.

At the

request of the creditors, GM and CH were not invited to

attend the meeting.	On 6 May 1980 ‘the respondeiit consented
to act as Trustee.

Authority to seize the assets

of the Nowra Camera Centre

The appllcants’ flrrt conzentlon

1 s that on 10

December 1979 the respondenr

had no zuthorlty CO move Egal.nsr

19.

the assets

of the Nowra Camera Centre on behalf of

the

creditors of GM,

0 1 and HM.

This contention was based on

clause 20 of the Partnership Agreement and ss.31 and 3 3 of

the ;

1892.

Clause 20 of the deed of partnership provides

-I

-	'Tf eitger partner shall assign charge or

. encumber his share

irr the partnership or any part

thereof or shall suffer the same be charged for

his separate debt under the

Partnershp Act or

shall become bankrupt or insane or otherwise

permanently incapable of attending to the

partnership business or shall act in any manner

inconsiktent with the good faith observable

.between the partners or shall be guilty of any conduct which would be a ground of dissolution of

the partnership by

the Court then and in any such

case it will be lawful for the other partner by notice in writing to the offending or incapacitated partner to determine the partnership so far as concerns such partner where

upon

the

interest of

such

offending or

incapacitated partner in the partnership shall

cease and the provisions contained herem for the

determinatlon of the agreement shall apply."

Section 31 of the Partnerskip Act provides that an assignee

of the interest of a partner

is not entitled:-

_ - -	'*to.	i'rrte-rfere irr t h e management or administration
r ..

. .	of the partnership business or affairs or to

" require any account of the partnership

transactions or to inspect the partnership

books.

It 1s said that thls restrictlon on the authority of an assigoee accores with prlnclcle because when a partner

assigns his interest in

a partnershlp he does not transfer to

the assignee any interest in any particular item of partnership property. What is assigned is a chose in action

consisting "of a right to

a portion of the surplus aEter the

realization

the assets and payment of the debts and

liabilities of the partnership

.'* See Federal Commissioner

T;rxat?om P- Everett C1980) L4X CLR 440 at.

446,

"A mortgage

o r z cbarge [ o r a partner's interest in a partnership]

considered ta vest rights over that chose in action but is

no< considered to carry

any title to the specific assets

until dissolution", per Mason

J. in United Builders Pty. Lcd.

& Anor v. Hutual Acceptance Ltd. (1980) 144 CLR 673 at 688.

And it is also contended accordingly that the acquiescence

the bankrupt's trustee contributed nothing by way of

authority to the respondent to make the seizure and sale.

was arguea that it is apparent from the provisions

of ss.61

and 177 of the Act that the trustee in bankruptcy could not

take action by himself or by authorising another person to

take possession of the actual ltems of property constitutmg

assets of the partnership. All that the trustee had was the

interest of each partner

in the partnership camely a right to

a. share of the surplus on realization upon a dissolution

the partnership.

.Et was contended by Mr. Tuckfield that the

partnership was not dissolved by the

assignment by HM to the

respondent of his estate under Part	X of the Act nor by the
bankruptcy of the other partners.

21.

However

c l e a r l y was

the duty

bo th the Off ic la l

Receiver and the

respondent

acquire

possesslon

the

par tnership property

and

to dea l w i th

f o r

t h e b e n e f i t

t h e c r e d i t o r s -

The

r e s t r i c t i o n s

t h e r i g h t s

of an assignee

t h e interest

par tner conta ined in the Par tnersh ip

A c t

a r e d e s i g n e d t o p r o t e c t

t h e o t h e r p a r t n e r s

from

assignee

who-- seeks t o exercfse

r i g h t s i n the management

t h e

. _

I -.

p h e r s h i p contrary

t u

the:

w i l l 'of

t h o s e o t h e r p a r t n e r s -

. .

B u t n a matter how

strict a view

t a k e n t h a t t h e i n t e r e s t

a. p a r t n e r in

t he pa r tne r sh ip

assets

i s only to

his

share o f

the

zxrplus

d i s so lu t ion ,

i s

c l e a r t h a t a l l t h e p a r t n e r s

act ing

together

can

deal

w i t h

p a r t i c u l a r

a s s e t s

the

pa r tne r sh ip

any

way

t h a t

t h e y

a g r e e

upon.

At any

p a r t i c u l a r

time

the par tners act ing together can

agreement

convert what might

cal led

their

f loat ing

and

separate

i n t e r e s t s

i n

p a r t i c u l a r

p a r t n e r s h i p

a s s e t s

t o

f i x e d

i n t e r e s t

i n

which

t h e

l e g a l

and

e q u i t a b l e

t i t l e

t o

the

par t icu lar

asse

ves t s ,

accord

ing

the

agreement

them

j o in t

p rop r i e to r s ,

i n

one

par tner

only,

i n

t h l r d

par ty ,

and may be

dea l t

w i t h accordingly.

Thus

upon

assignment e i ther by deed or by bankruptcy

the interest of

p a r t n e r his

ass ignee

has

fu l l

c apac i ty

t o

j o in

w i t h

t h e

ather

pz r tne r s

dea l ing

accord

ing

the l r

combined

w i l l

w i t h -any

a s s e t

o r

a l l

t h e

a s s e t s

t h e

p a r t n e r s h l p .

Accordingly,

when

the t r u s t e e i n bankruptcy

concurred

w i t h

the

proposal

tha

respondent

t o

se ize

the

par tnersh lp

property of t he Centre and s e l l lt at

aucclon,

thac

was

22.

exercise by the owners of every interest, legal and

equitable, in

those

assets.

The

decision

Palmer

Thompson (1879) 0

. B .

and F

(S .C.

) 182 shows the capacity of

partners acting together to transmit interests in specific

partnership assets- See also Rowe v. Wood (1822) 2 Jac & W

554, 3 7 E.R.

740.

. .

- . -. . .

- .

AccorclinqLy the respondent states that he took possession of and dealt with the partnership stock in the capacity of assignee of the interest in the partnership of one partner, BM, with the consent of the Trustee in

' bankruptcy of GM and CM in whom the interest of every other

partner in the partnership property had vested

by reason of

the sequestration order. In my view, the suggestion that this was an unlawful proceeding cannot be supported.

It lacked authority to take action to obtain possession

was also argued that the Truscee In bankruptcy

assets in the bankruptcy in the interests

of the creditors

pending instructions from creditors at the first meetlng.

Section 64 of the Act was relied upon-

I do not conslder

this argument tcr b e sound. It was the plain duty of the

trustee tu gzin possession of the assets of the bankrupts.

See section 129 of the Act.

23.

The Decision

to Close Down the Business

It is said that the decision to close the business

and seize the stock was not a reasonable or prudent decision. termination of the business destroyed a valuable asset

namely, the qoodwill of the business and led. to the sale

. -

the. stock at an undervalue-

Lt was submitted that the

- -

respondent acted negligenty

or incompetently in acting on

the

view that the business had no goodwill.

I do not accepted

this submission. The evidence is against It.

The respondent had been directly involved in

assisting in the resolution of the financial problems

of GM,

CM and HM and the partnership for approximately eight months.

He had held meetings and had conversations with the creditors

and the applicants. He had been trustee of the estate

of HM

since 18 May 1979.

He knew that the previous two years of

trading by the partnership had produced surpluses before

provision of remuneration of GM and CM for their work in the

business of $11,800 and $9,595,

The- turnover for those

y ars

had- fallen from: $LT0,000, to $55,000. CM worked in the business full time throughout the two years and GM had devotgd a substantial por" don of his time to the business.

Thus for some years the profits

dld not sustain an adequate

wage for the work involved in running the

5usmess.

The

respondent knew that the ippllcants and

the busu?ess had

24.

s e r i o u s

a n d

i n c r e a s i n g

liquidity

p r o b l e m ,

t h a t

s e v e r a l

important

suppliers

were

r e fus ing

supp l i e s ,

t ha t

va r ious

c red i to r s

had

taken

l e g a l

a c t i o n

and

tha t

t he

bus iness

w a s

subs i s t ing

on ly

hand

t o mouth basis.

There

was

h i s t o r y

dishonoured cheques.

,_ H&

krrew thatz the business- had been

on the market

- .

- ..

h 1 9 7 8 and in. N79 and that there had been

no i n t e r e s t shown

in! it.

He knew tkat t h e lease w a s due to expire on 9

December-1979 and t h a t the landlord had

ind ica t ed tha t he

was

not prepared to extend the

lease

and

wanted vacant possession

o f the premises

tha t day .

In 1979 it appears that the

business

earned

* remuneration for t he

pa r tne r s .

Thus

t o

a t tempt

car ry

the business

would

have

meant

rev iva l of the bus lness in

new

premises

l iab i l i ty

the

respondent

for

ren t ,

wages

s t a f f ,

and

other

outqolnqs,

and

for

the

purchase

new

s tock, in c i rcumstances in

which

the re

w a s

reason to th lnk

t h a t such a venture

could

succeed.

the

partners,

who

appear t o have been

reasonab1y

efficient

i n

t h e

a c t u a l

carrying- orr o f the business

could

not

prevent

the

business

front	faiIinT,	t h e chance o f t h e respondent	reviving	it
r

successful ly

w a s

sure ly less than

n i l .

1s c lear

tha t

the

scage

when

the

respondenc

decided to close the

business It was hopelessly insolvent

and

' -_-.-,

I '

running

a t a

s i g n i f i c a n t

loss.

Although

the respondent

drd

not have before	$him	the	prec ise f igures for	the	l a s t e i g h t e e n
I

months

t radiqg

it is c l e a r

t h a t

h i s

~udgment

the

s i t u a t i o n was

sourld-

The

evidence given

these proceedings

revea ls that for the

twelve

months,

June

1979 there was a

loss.

about $ i O ,

000- without

allowing

any

remuneration

l	\
G

p x - e ~ s - .

the. following

s ix months

the pos i t i on

- .'

. .. .. =

. .

- 7 .

deterixrrzted fuktl~er-

The

t ak ings for 1979 appea r t o

have

I '	-- ... C-	>
i

the

d e b t s o f

the

par tnership,

including

$31, 900 due t o HM,

had

reached

a t o t a l o f $94,000.

And the s tock was

c. \

materially reduced.

c<-. -.> ,.

the

handling- -of an

e s t a t e

a s

t r u s t e e

;

necessary on, occas ion to exerc ise a judgment on

facts:,

I I

avai lab le

s l thougb

those

facts

may

not

i n c l u d e a l l

t h a t

i s

1. _.

re levant .

The respondent was faced wi.th an exercise of

bus iness judgment i n December

1979.

Be decided it w a s

impractical t o attempt CO sel l the bus iness a s a golng

. .

Concern-

It is c l e a r

a t

t h i s

s t a g e

t h a t

h e

made

the

co r rec t

decis ion-

f do- n o t accep t the evidence o f Mr.

Miller

o r 'Mr.

wilson insqfar is it carries an as se r t ion mat a t

h s

-1-

r e l evan t time,

n m e l y December L979

t h e goodwill was of

any

value,

o r t h a t ,

i n the

ordinary

course

of business done

l	the	bas i s	of	f u l l d i s c l o s u r e ,	It	could have been sold	for	any
I

material sum.

I think t l ie i r views

were

formed befcre they

26.

: ',

knew of the ser ious dec l ine

i n takings of 1979 la&

that they

never adequately appreciated

the

ex ten t

t ha t dec l ine .

)

w a s

a r g u e d

t h a t

t h e

respondent\

acted

i n

negligent

maimer

in dec id ing

to auc t ion

the

S 'ock i n Sydney

r a t h e r

t h a n

i n

Nowra-

I t was contended thJ t , being the

ChrL%tmas--

season such i~ sa& would

have

. a t t r ac t ed

many

members of ther pU?SLic and

achieved

hiThe3'

prices.

The

. .

rr,

1 - &+A--

respondent

considered

thQ-= m the circumstances a sale by

-. . - _

~	l
l

auc t ion in

SYa??:

was. the sounder course.

He considered that

I ,

a Local sale,:,;

involved overheads, not warranted

the

Volume

and value,,oC:'

the goods.

H e considered t h a t a sale i n Sydney

stock as a l a rge lot would be economical and would

at+-ra.ct t h e kind

purchasers

Interested

the

kind

/' ,Stack for sa l e .

Mr.

By&

s t a t e d

t h a t

a sale at the premises

I I

in Nawa,

a small

c o a s t a l

t o m ,

wouid

not

have

a t t racted

camera dea lers and although certain items

of stock would have

been bought by the general publ ic

many accessorles and other

less popular

items

would have had

very l i t t l e o r no ordinary

public

appeal.

I do

cons ider

tha t

the

dec

ion

s e l l

the-	s tock by	a u c t i o n	i n	Sydney	ra ther	than	to	a t tempt	to
-.-

l , _-_.

-fiLspose of it

in ~ o w r a

was erroneous.

It w a s certainly no t a

uegl igent

o r incompetent decision.

I	"	_ .
I

27.

Method of Removal of Stock

It i5

said tha t the removal of the goods w a s c a r r i e d

out i n a manner

which

was

careless

and

without proper regard

t o the CertaFrrIy. tkere .is room' f o r

i n t e r e s t s

the

c r e d l t o r s

a n d

the

a p p l i c a n t s .

criticism-

T h e r e sponden t

- >.

I _

. .

e u t r u s t e & t h i s to

MS,

Star

anti M r -

Byrne, both.

experienced

mem w f t h whom Nevertheless it

the respondent had- pr ior bus iness assoc ia t ion .

w a s no t w i s e t o postpone

the

taking

the

inventory u n t i l the

goods

a r r ived

i n Sydney.

B u t the

r a t h e r

lengthy

delay

taking

the inventory was the f a u l t of M r .

Byrne rakher than

t ha t of

the respondent.

The

resjondent was

w e l l j u s t i f i e d however,

i n l e a v i n g t o

M r .

Byrne

the procedure

for t r ans fe r r ing the goods

t o Sydney.

The

most

valuable

items of s tock were taken to Sydney by

him personal ly i n h l s

own car.

The o ther items were placed i n boxes which were

sealed down.

They were

de l ive red

a c a r r i e r chosen by M r .

S tarr . .

.No rece ip ts were

obtained from che

car r ie r

and

the

boxes were n o t counted.

It appears tha t the goods

were

transferre& ta a second	c a r r i e r and spent several	n i g h t s	i n
s t o r e irr Nowra..

M r . Byrne was an experienced business

man accustomed

t o p a r t i c i p a t e i n a c t l v i t i e s

such as

the

removal

the

stock

i n question from Noma and Sydney.

Re regarded

the steps

taken

a p p r o p r i a t e .

O b ] e c t l . ~ e l y

t h e y

w e r e

open

t o

2 8 .

criticlsm. Although it is not certain

that there was no loss

there is no evidence that any loss was incurred and

the

probability is that there was no

loss.

Ideally the inventory

ought to have: been made at the time of the seizure of the

stock- So to take it

may have involved material expense but

the proper course would have been to incur that expense.

Hawever, the decisiolr to permit Mr. Bprne to make the kventory in Sydney was ta my mind an error of ludgment

rather than misconduct-

Having regard to the respondent's

knowledge of the experience and efficiency of Mr. Byrne the

respczdent would not anticipate that Mr. Byrne would have

failed to take appropriate steps for the security of the

transfer of the goods from

Noma to his Sydney premises. Mr.

Byrne was a most impressive person,

a man of practical

outlook with many years experlence in the type

of operation

in hand.

He said there was nothing unusual or improper or

unduly risky in handling the matter as he did. There can be

no question of his integrity. He was obviously the type

man that a businessman like the respondent would choose with

confidence to carry

out the operation. GM was present at the

auction, He gave attention to the stock and polnted out that various items belonged to customers. Those ltems were taken by k r i m to return to the persons concerned. No suggestion was

made b? him then or in any

of his subsequent voluminous

communications that ltems	of	stock were misslng from those
sold.

30.

h i s du ty a s t ru s t ee f a i l ed to ga the r

i n

the debts

owed

t o t h e

par tnersh ip

December

1979 and

t h a t

h e

s t a t e s

t h e

a p p l i c a n t s

s u f f e r e d

l o s s e s

a c c o r d i n g l y .

The

respondent

states

tha t he sought advice

many

times

from

the appl icants

regarding

assets

of the partnership and w a s not

advised

outstanding

debts.

H e

s t a t e d

t h a t

bel

ieved

that

view

the

fhanckaL s i t u a t i o n of

the partners--every effor t would.

. -

- .

have.been made by the appI icants

ta g e t irr

a l l cash owinq t o

the business during

the I a s t months of t r ad ing and t h a t any

deb t s

no t

pa id

u r ing

t ha t

t i ne

would

old

and

n o t

recoverable.

When

the

takings

of the

business

had

been

i n

excess o f $100,000

the

deb t s

ou t s t and ing

t he

end

t h e

year were

o f t he o rde r

o f $3,000-

They would

have

been

a t

most b very small

sum at t h e end of 1979

when the takings had

fal len dramatical ly . development are

fa r

cur ren t

i t ems

f i lm

concerned

there

eve ry poss ib i l i t y

t ha t

retained and dea l t

wi th

them.

claim was

made

anybody

respondent. du ty in th i s r e spec t

I am n o t

s a t l s f i e d

t h a t

any

breach

the

i s

revealed

the evidence.

Lt is m y view therefore- that

is not established by

t h e a p p l i c a n t s t h a t

there

w z s

any breach of duty as t rustee

in his handling of	t h e a s s e t s	o f the business	o f t h e Nowra
Camera' Centre.

. ..

31.

The interest in Mannigel Broadcasting Pty. Ltd.

It is alleged that the respondent acted negligently and failed to protect the interest of GM in Mannlgel

Broadcasting Pty. Ltd. and. thereby caused

loss to the estate.

Lt is claimed by a.

that he held sixty five percent

of the

- I

. .

-- - .

- _ _ -

I - .-

_ _ -

. -sharekoEc3Zn& in thts Company- He said that he had acquired

_ .

1 ..

thts-interest b& B payihent of $20,000 to the company.. The

evidence fiscloses that nu such payment was ever made. A sum

of $20,000 was paid to

the Compzny by Mrs. Frieda Mannigel by

way of loan to assist the company in

the purchase of the

broadcasting licence of station 4VL. GM was a guarantor of

this loan- Although the guarantee is in writing and

unambiguous in its terms,

GM maintained that

it did not

represent the true situation which was that the loan had been

made to him to purchase shares-

I do not accept this. It is

not the on ly occasion on which GM maintained that documents

prepared by

his solicitor and signed by him failed

to reflect

the

true-

situation.

This happened

wlth

respect

the

Partnership Agreement prepared. by the applicants' previous solicitors- h& he- has an unfortunate propensity fqr deallng

w i t k peaple- whm- o n e *er

another according to

him, let him

-downcr L am satisfied that GM had no shareholding in the evidence upon which the respondent could act that he had any enforceable legal rights in the ccmpany or agalnst any person

c .

32.

' 2

connected with the company. In the end it appeared that

claimed that the directors

of the company had sold

the

broadcasting licence to a company, in which they had an

interest, at an undervalue, and that in some way this was

breach of duty to him- This claim is unsupported by evldence

of any significance.

- .-. The respondent was informed that GM had a shareholding. of some significance in the company in

1978-

Two days after

he became a trustee of the bankrupt estate he

wrote to the company seeking a transfer

o GM'S shares. That

letter was not answered. He then engaged Messrs P. A - Somerset & CO- solicitors 05 Sydney who are experienced practitioners in compary situations to take the matter up.

As a result of their efforts

i was ascertained that only two

shares had been issued and neither to

GM.

It appeared

further that a statement

of affairs had been prepared which

indicated that the compaany was hopelessly insolvent. The

respondent

was so advised

Somerset

& Co. From

the

evidence given by

in these .proceedings there can be no

doubt that this advice was quite sound.

The suggestion that

it h== been show in? these proceedlngs that a responsible trustee toad possibIy have taken proceedings or any action

at the expense

of the creditors,

or at all, to establish that

GM had some interest in the company is quite unsupportable.

Not only

1 s there no reasonable

basls

on which such an

Interest could be sup~orted but, having regard to

the

* .

3 3 .

Company's

f i nanc ia l pos i t i on

any

shareholding

would be qui te

valueless.

The

suggestion

t h a t

there

has

ever

been

any

viable

ground

to r equ i r e the

respondent

p u r s u e

o r j u s t i f y

h i m in pursuing

the vague

and

unformulated claim against

the

d i r e c t o r s

f o r

s e l l i n g

t h e

l l c e n c e a t

undervalue

i s q u i t e

unrea l i s t ic .

. .. _._ - .

- . .I._ .

The

Legal:

Pruceedings

a c r a i n s t

the

A p p l i c a n t s ' F o r m e r -

S o l i c i t o r s

...

I come negligence o r misconduct of the respondent

now

the

a l lega t ion

concern lng

a l leged

i n connection with

t h e c l a i m

and

a g a i n s t t h e s o l i c i t o r s

Messrs

Mariott

Oliver & Co.

At a l l m a t e r i a l

times it has

been

c lear

that

. the

bankrupt and his

wife

have

claimed

that

they

have

suffered damage because

negl igence

their

sol ic i tors .

The

substant ia l

c la im

seems

t o be

that

before

s igning

contract

with

the vendors,

who

were bui lding a house for

the

a p p l i c a n t s ,

t h e y

c o n s u l t e d

M a r r i o t t

O l i v e r

Co.

T h e

t ransac t ion

w a s

one

i n which

payments

were

t o be made

from

t i m e ta t i m e as. the bui ld ing was

constructed. There

seem

t o

have been t w a payments made, one of $18,000 and one of $2,000

and- irr r e spec t a€ both of these GX

and CM

authorized the bank

t o maze the payments.

Counsel

has

advised

that

w i t h respect

t o these he informed M r . Bevan t h e member of the

payments there seems t o be no claim.

GN s t a t e s

t h a t

firm who handled

che

t ransac t ion

tha t

ciesired

5x11 "CO do everyrhlng

ensure

3 4 .

t h a t I I t is said that

fu l ly pro tec ted

and

that everything goes smoothly".

Marr

iot

Ol iver

Co.

undertook

t o

a c t

t h i s b a s i s undertaken it was necessa ry

and

t h a t

pe r fc rm

t h e

r e s p o n s i b i l i t y

fo r

t he

so l i c i to r s

t o

give

consideration

whether

the

builder

proposed

was

licenced

bui lder .

The- a l l e g a t i o n i s . t h a t

t h e s o l i c i t o r s g a v e

no-

t h o u g k

t o

the ques t ion

a s

t u whetlier

the

bu i lde r

w a s

Licence3 o r not, gsue GM nu advice as t o the consequences

. h i s not being Ifcenced.	.
,.,

The

b u i l d e r w a s

not

l icenced, he did

make

d e f a u l t

i n ca r ry ing ou t h i s

work

and

was

without

means

t o compensate GM and CM.

The appl icants would seem t o have

had a claim which would have	been	covered	by	insurance	had
-

the bui lder been

l icenced bui lder .

I t would

seem the re fo re

that

i f

could prove that he s t ipulated to be protected in

a general purchase on bullding terms,

sor t

way

aga ins t

a l l

bus iness

r i sks

o f

the

then the failure

t h e s o l i c i t o r

t o

a d v i s e

t h a t

u n l e s s

the

bui lder

were

l icenced

there

would

be no was a licenced

insurance

and

to ascer ta in whether

i n

f a c t t h e b u i l d e r

builder

could

the basis

successful

ac t ion for negl igence .

Messrs Hunt & Hunt commenced proceedings

against

Hariott Oli 'ver

Cu- irr

the

Distr ic t Court c la lminq

$20,000-

A f t e r * G M

discovered

this

f a c t he

changed

h i s

s o l l c i t o r s

and

ar ranged for

the

l i t iga t ion

t o

t r ans fe r r ed to

the

Supreme

Court and a claim made for $100,000.

Thls claim

appears

t o

be made up of

t w o elements.

F l r s t the loss due t o bad

35.

workmanship and secondly, mental and nervous pain and

suffering on the part

of GM and CM.

Looking at the matter realistically and in the light

of counsel's final Statement of Claim and the particulars

loss stated by GM in his letter of

26 April 1979to his

saliutors the rea1 claim might reasonably. be contemplated

- . .-. . .

possiBly' in tlre order of $IU,OOOc

The respondent has.

always

I .

_ .

reqardedr the cl&

as one that ought to be pursued when

finance was available to him to sustain

the proceedings-

has not been available. However one

of the assets of the

estate of HM is a joint interest of HM with his wife in certzin real property- The returns from m ' s interest in

this property wouId be adequate to sustain the proceedings

. against the solicitors.

and his wife have resisted the

realization of the value of the share of HM in this joint property. Thus it was necessary for the trustee to proceed

in the Supreme Court pursuant to

s.66G

of the Conveyancing

Act

of New South Wales. This

he did but was met by a

successful application for a stay of proceedings on the

ground that there-

was an

application on foot in this Court to

remove the respondent from the position of trustee- It was

.	the consequence of this that pending the decision in these-

proceedings there is no source of funds which can support the

action of

GM and CM against their former solicitors. Due

largely to the expense occasioned

by the opposltlon of

GM and

CN to c'ne sequestration proceedings and the applicaclon

of H!,!

to	set aside his deed of assignment and also to other

expenses of the administration of the estate including the

trustee's remuneration there has never been finance adequate

to sustain the Supreme Court proceedlngs against the

solicitors- There is of course

risk that the actlon,

because of its nature may be

lost.

. . 1

- . &e tkYee finenciaI summaries of the- debts of the

businessr the income and expenditure thereof and the takings f o r 19.78 and 1979, the- contents of which I accept, i take

into evidence as exhibits	2 5 , 26 and 27 respectively.
Conclusion

In the result 1 am satisfied that the applications of

GM and CM have no foundation.

I conslder that 1 should

declare that no ground has been shown for an inquiry by the

C o u r t pursuant to s.179 (1) into the conduct of the trustee.

I have formed the opinion that,

so far as matters

of business

are concerned, GM has no proper appreciatlon of t3e

relationship between himself and the actual circumstances In

which he- is placed-

As a result his attitude is frequently

quite unreasonable and his evidence is unreliable.

Where he

is in'conflict with the respondent

I accept the evidence of

the respondent. GM is prone erroneously to lrnaglne bad faith

on the part of others. In certain ways there is a degree of

pleuslbllity in hls exposltlons. They somermes have 2

* ; c

3 7 .

-7

superficial attractiveness llkely to evoke a sympathetic

response. But fundamentally he is unable to see the reallty

of situations.	His assertions are thus in many respects
without value,	It is my view that it is his unrealistic

approach which led to

the expensive proceedings in

the

opposed bankruptcy proceedings and also to these proceedings

irr th&r	F€urtunate magnitude, daubly unfartunate;	as however
-.

r .I.. ,

. - - . _ _

- .-

. -

_ . .

- _

the decisiorr went there w a s never any likelihood af a. surplus

-	which would have benefited the applicants.

- ,

In the event the applications of GM and CM must be

dismissed with costs.

By order of Lockhart J. made on 19

October I982 it was directed €hat the applications of GM, CM

and FiM b e heard togethgr. In the course of the proceedings

little express reference was made

to the applications of W.

However the fate of that applicant depends upon the

considerations discussed above.

It is clear that HM has not

established

any

grounds

for

the

orders

he seeks.

That

application also

must be dismissed with costs.

m each of the applications before the Court:

in this

concurrent hearing

I regara each

of the applicants as having

reEed; upon the whole of the evidence called- The costs

incurred by the- respondent clearly relate equally to each

application and were not increased by the clrcumstance that

the three. applications were heard togecher. I conslder each

applicant 1s responsible for the xhole of those costs and

38.

order

each

applicanc

pay

t h e same.

O f course so

f a r

a s

any p a r t of others of them w i l l be pro tanto rel ieved.

such costs are paid

any

t he appl icants the

[1983] FCA 206

15 Aug 1983