Mokhtar v Piscopo
[2024] FCA 493
•13 May 2024
FEDERAL COURT OF AUSTRALIA
Mokhtar v Piscopo [2024] FCA 493
File number(s): NSD 611 of 2022 Judgment of: PERRY J Date of judgment: 13 May 2024 Catchwords: BANKRUPTCY – application by a bankrupt for order removing trustee pursuant to s 90-15 of the Insolvency Practice Schedule (Bankruptcy), Schedule 2 of the Bankruptcy Act 1966 (Cth) – consideration of principles governing removal of a trustee in bankruptcy – whether relationship between bankrupt and trustee has irretrievably broken down – whether the trustee has lost the objectivity required of a trustee in bankruptcy– where the bankrupt failed in multiple respects to cooperate with the trustee–where trustee filed 17 notices of objection to discharge to bankruptcy in 10 month period – whether proper basis to infer that the notices of objection were filed for an improper purpose - where trustee’s lack of objectivity has exacerbated the breakdown – where “red-flags” evident such that the necessity and prudence of undertaking investigations and protecting the assets of the estate in bankruptcy should have been evident from the commencement of the bankruptcy –whether replacement of the trustee is in the best interests of the bankrupt estate –where outcome is not a vindication of the bankrupt’s conduct - removal of trustee ordered
EVIDENCE – consideration of the impact of the passage of time on the quality of evidence – undesirability of evidence of conversations being given in direct speech in affidavits despite the passage of time and the witness not recalling the precise words used in the conversations – whether there was a failure to comply with the rule in Browne v Dunn with respect to the failure to cross-examine the trustee on certain topics
Legislation: Bankruptcy Act 1966 (Cth), ss 77, 77A, 139W, 139ZL, 149, 149A, 149B, 149C, 149D, 149K, 149N, 149P, 149Q, 160, 179; Schedule 2 (Insolvency Practice Schedule (Bankruptcy), ss 5-15, 5-30, 90-10, 90-15, 90-20
Evidence Act 1995 (Cth), s 140
Insolvency Practice Rules (Bankruptcy) 2016 rr 42-10, 42-15, 42-220, 42-30
Cases cited: Arnautovic & Sutherland t/as Jirsch Sutherland & Co v Cvitznovic (as trustee of the bankrupt estate of Adrian Lawrence Rosee) [2011] FCA 809
Boensch v Pascoe [2007] FCA 1977
Borg v de Vries (Trustee), in the matter of Bankrupt Estate of David Morton Bertram [2018] FCA 2116
Briginshaw v Briginshaw (1938) 60 CLR 336
Browne v Dunn (1893) R 67
Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing & Allied Services Union of Australia v Australian Competition and Consumer Commission [2007] FCAFC 132; (2007) 162 FCR 466
Coshott v Coshott [2013] FCA 156
Domino Hire Pty Ltd v Pioneer Park Pty Ltd (in liq) [2003] NSWSC 496; (2003) 21 ACLC 1330
Doolan v Dare [2004] FCA 682
DPP v Luong [2021] VCC 1482
Duckworth v Field [2023] FCA
Frigger v Trenfield (No 10) (2021) 397 ALR 24
Gan v Xie [2023] NSWCA 163
Griffin v Pantzer [2004] FCAFC 113; (2004) 137 FCR 209
In Re Kit Digital Australia Pty Ltd (in liq) [2014] NSWSC 1547
Kane’s Hire Pty Ltd v Anderson Aviation Australia Pty Ltd [2023] FCA 381
Lehrmann v Network Ten Pty Limited (Trial Judgment) [2024] FCA 369
Liprini v Pascoe as Trustee of the Bankrupt Estate of Liprini [2012] FCA 886; (2012) 292 ALR 778
Miller v Cameron (1936) 54 CLR 572
O’Brien v Sheahan [2004] FCA 608
Pioneer Australia Pty Ltd v Bettles as Trustee of the Bankrupt Estate of Quinn [2020] FCA 1788
Quintis Ltd (Subject to Deed of Company Arrangement) v Certain Underwriters at Lloyd’s London Subscribing to Policy Number B0507N16FA15350 [2021] FCA 19; 385 ALR 639
Rejfek v McElroy [1965] HCA 46; (1965) 112 CLR 517
Scott (Trustee), Stolyar (Bankrupt) v Stolyar [2022] FCA 691
Shaw v The Official Trustee in Bankruptcy (No 3) [2021] FCA 1569
Sullivan v Civil Aviation Safety Authority [2014] FCAFC 93; (2014) 226 FCR 555
Trkulja v Morton [2005] FCA 659
Watson v Foxman and Others (1995) 49 NSWLR 315
West v Mead [2003] NSWSC 161
Division: General Division Registry: New South Wales National Practice Area: Commercial and Corporations Sub-area: General and Personal Insolvency Number of paragraphs: 237 Date of hearing: 18–20 July 2023 Counsel for the Applicant: Mr MA Karam and Mr M Noakhtar Counsel for the Respondent: Mr S Sher Solicitor for the Respondent: Drayton Sher Lawyers ORDERS
NSD 611 of 2022 BETWEEN: AHMAD SHAIB MOKHTAR
ApplicantAND: SAMUEL PISCOPO
Respondent
ORDER MADE BY:
PERRY J
DATE OF ORDER:
13 MAY 2024
THE COURT ORDERS THAT:
1.Pursuant to s 90-15 of the Insolvency Practice Schedule (Bankruptcy) to the Bankruptcy Act 1966 (Cth) the Respondent cease to be the trustee of the bankrupt estate of Ahmad Shaib Mokhtar.
2.On or before 4pm on 3 June 2024, the parties are to indicate to the Court whether they wish to be heard separately on costs.
3.In the event that agreement between the parties as to the appropriate orders for costs is not reached:
(a)the parties are to agree a timetable by 4pm on 5 June 2024 in which short submissions on, and any evidence with respect to, costs are to be filed and served; and
(b)subject to further order of the Court, any issue as to costs is to be determined on the papers.
4.Liberty to apply.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
PERRY J:
1 INTRODUCTION
[1]
2 SUMMARY OF KEY FINDINGS
[18]
3 STATUTORY FRAMEWORK AND RELEVANT PRINCIPLES
[23]
4 EVIDENCE
[43]
4.1 Approach to evidence: general principles
[43]
4.2 Mr Mokhtar’s evidence and findings as to credit
[51]
4.3 Trustee’s evidence
[59]
4.4 Was there a failure to comply with the rule in Browne v Dunn with respect to the failure to cross-examine the Trustee on certain topics?
[72]
5 FACTUAL FINDINGS
[80]
5.1 Pre-bankruptcy transfer of the Strauss Road Property
[80]
5.2 The debtor’s petition filed on 9 March 2018 and alleged concealment of assets (issue 1)
[87]
5.2.1 Events leading up to the bankruptcy
[87]
5.2.2 The debtor’s petition and statement of affairs
[93]
5.2.3 Did Mr Mokhtar conceal information about his assets and liabilities?
[99]
5.3 April 2018: The Trustee’s first report to creditors and the reassessment of income contributions
[123]
5.4 Entry into the agreement on 11 January 2019, with respect to the Strauss Road property
[127]
5.5 Filing of the first notice of objection to discharge from bankruptcy on 19 January 2021
[131]
5.6 The meeting at the Top Ryde Shopping Centre on 20 March 2021 (issue 2)
[135]
5.7 The Trustee’s letter of 3 May 2021 (issue 3)
[143]
5.8 Termination of the Property Agreement by the Trustee on 21 July 2021
[154]
5.9 Sale of the Strauss Road Property on 3 November 2021 and receipt by the bankrupt estate of $125,281.67
[157]
5.10 The Update Report to Creditors on 11 November 2021
[161]
5.11 The complaint by Mr Mokhtar against the Trustee on 30 November 2021 to AFSA regarding the 3 May letter and the tone of the Trustee’s correspondence
[162]
5.12 The complaint by Mr E Seyfarth to AFSA made on 19 May 2022 with respect communications from the Trustee
[169]
5.13 The tone of correspondence with Mr Mokhtar’s former spouse
[176]
5.14 The filing of 17 objection notices by the Trustee between December 2021 and October 2022 (issue 4)
[181]
5.14.1 The statutory regime for the filing of notices of objection
[181]
5.14.2 The 17 notices of objection
[190]
5.14.3 The decision on 9 August 2022 to cancel the notice of objection dated 29 April 2022
[196]
5.15 The garnishee of Mr Mokhtar’s salary by the Trustee on 29 June 2022
[200]
6 THE PARTIES’ SUBMISSIONS
[201]
7 DISPOSITION OF THE ISSUES
[207]
7.1 The Trustee’s investigations and objection notices between 16 December 2021 and 16 October 2022
[207]
7.1.1 The “red flags” evident from the start of the bankruptcy
[207]
7.1.2 The 3 May letter
[211]
7.1.3 Why did the Trustee change his approach to administration of the bankruptcy and file multiple objection notices between December 2021 and October 2022?
[212]
7.1.4 The reasons for the filing of the objection notices between December 2021 and October 2022
[224]
7.2 Has there been an irreparable breakdown in the relationship between the Trustee and Mr Mokhtar?
[227]
7.3 Is it in the best interests of the bankruptcy to remove the Trustee?
[231]
8 CONCLUSION
[234]
1. INTRODUCTION
The applicant, Mr Ahmad Shaib Mokhtar, has been bankrupt since 14 March 2018, when a debtor’s petition was filed on his behalf by his financial adviser and accepted by the Official Receiver. The respondent, Mr Samuel Piscopo (the Trustee), is a former solicitor and has been a bankruptcy trustee since 26 August 2003. He has been an insolvency practitioner since 1996. He was appointed as trustee of the applicant’s bankrupt estate on 14 March 2018. By orders made on 10 July 2023, the (then) second respondent, the Inspector General Bankruptcy, was disjoined from the proceeding.
On 24 August 2022 and before the first case management hearing, Mr Mokhtar (who was then unrepresented) filed an Amended Originating Application which sought final relief against the Trustee, and interim orders against the Trustee and the Official Receiver. The application for interim relief was never prosecuted and the Official Receiver did not participate in any way in the proceedings although he filed a notice of acting on 9 May 2024, being a couple of days before judgment delivery. I also note that, while the Administrative Appeals Tribunal (AAT) was originally joined as the third respondent in the originating application, the amended originating application omitted the AAT and any prayer for relief against it. In those circumstances and given that the AAT did not file a notice of acting and has taken no part in the proceedings, I have assumed that it was never served.
On 1 September 2022, Markovic J, as duty judge, made orders for the issue of a certificate referring Mr Mokhtar for pro bono legal assistance. Mr Karam accepted the brief and appeared with his junior, Mr Noakhtar. The Court wishes to express its gratitude to both counsel for their very considerable assistance.
By his Further Amended Application, filed on 9 December 2022, the applicant seeks orders pursuant to s 90-15 of the Insolvency Practice Schedule (Bankruptcy) to the Bankruptcy Act 1996 (Cth) that the Trustee cease to be the trustee of Mr Mokhtar’s bankrupt estate.
I note that initially, the applicant also sought the appointment of a replacement trustee. However, it is now common ground that this order is unnecessary. By operation of s 160 of the Bankruptcy Act, the Official Trustee would be the trustee of the estate if the Trustee were removed: Coshott v Coshott [2013] FCA 156 (Buchanan J) at [1]; O’Brien v Sheahan [2004] FCA 608 at [56]. The Further Amended Application sought various other orders, but those are no longer pressed.
The applicant seeks orders to remove the Trustee on the basis that his relationship with the Trustee has irretrievably broken down.
As expressed in his written submissions in opening, the applicant’s case that the Trustee should be removed rested on three bases, individually or cumulatively, namely:
(1)there is a legitimate concern that the Trustee has not acted independently and with reasonable diligence, particularly by reference to the May Letter [being the letter from the trustee to the applicant dated 3 May 2021 (3 May letter)] … and multiple objections lodged after December 2021 …;
(2)there has been an irreparable breakdown of trust in the relationship between Mr Mokhtar and the Trustee, such that it is untenable for the Trustee to continue administering the bankrupt estate of Mr Mokhtar; and
(3)the volume and frequency of objection notices, as well as their timing in the life of the bankruptcy, gives rise to legitimate concerns that the notices have been issued for purposes other than advancing the legitimate interests of the bankrupt estate.
(Applicant’s submissions in opening, filed on 15 June 2023 (AS) at [6].)
As to ground 1, by “independently” I understand the applicant to mean with the objectivity required of a trustee in bankruptcy, in line with the tenor of the applicant’s case, as presented at trial.
The Trustee actively opposed the application, in contrast to other cases where a trustee in bankruptcy played a limited role only in the proceedings or, alternatively, has made a submitting appearance: see, eg, Borg v de Vries (Trustee), in the matter of Bankrupt Estate of David Morton Bertram [2018] FCA 2116 at [5].
In the Trustee’s submission, even allowing that the relationship between the applicant and the Trustee is deeply acrimonious, regard must be had to the totality of the relationship between the parties. Viewed as a whole, the Trustee submitted that it is apparent that it is the applicant’s conduct which caused the breakdown in the relationship (Respondent’s opening submissions filed 23 June 2023 (RS) at [5]). In his opening submissions at [54], the Trustee submitted that:
Mr Mokhtar, through his own actions, finds himself where he is today and he should not now be permitted to, as a result of this conduct, apply for Mr Piscopo’s removal. The evidence of the shortcomings in Mr Mokhtar’s conduct is clear and includes failing to pay his full income contributions, misleading Mr Piscopo as to his income and assets, exercising employee stock options without accounting to the bankrupt estate, destroying his records and hampering Mr Piscopo’s investigations, and withholding information regarding the settlement with his ex-wife.
The Trustee submits, therefore, that no sufficient cause has been established to remove him. To do so, in the Trustee’s submission, would effectively allow the applicant to benefit from his own poor behaviour. The applicant accepts that if he had knowingly contrived of the situation, it would be inappropriate to make orders removing the Trustee. However, the applicant alleges that he disclosed what was required to his financial advisor, on whom he relied to prepare his statement of affairs, and that, rather than intentional concealment of information by the applicant, there were a number of genuine misunderstandings between the parties.
The Trustee’s approach was therefore wider, requiring consideration of the totality of the parties’ relationship in order to consider the reasons for the breakdown in the relationship and whether the evidence establishes a lack of objectivity by the Trustee in his administration of the bankruptcy.
The parties reconciled their different approaches to the issues for determination to some extent in their pre-trial Joint List of Legal and Factual Issues, dated 12 July 2023 (Joint List). Specifically, at a minimum the parties agreed that the various legal and factual issues for determination derived from:
(1)the 3 May 2021 letter (Joint List no’s 1–3);
(2)the Trustee’s investigations and his objections to Mr Mokhtar’s discharge from bankruptcy (Joint List no’s 4–6);
(3)the breakdown in relationship between the Trustee and Mr Mokhtar (Joint List no 7);
(4)replacement of the Trustee and the best interests of the bankrupt estate (Joint List no 8 (agreed)); and
(5)other issues concerning relief (Joint List no’s 9–10).
As to the nature and scale of the task before the Court, it must be borne in mind that the focus is ultimately upon what is in the best interests of the bankrupt estates and that, as the applicant submitted in closing:
Mr Mokhtar’s conduct and interactions with the Trustee are relevant to the Court’s consideration of the Application. It is submitted that focus must ultimately remain on what is in the best interests of the bankrupt estate. While that necessarily implicates the Trustee’s administration of the bankrupt estate (since it is his occupation of office which is challenged), the applicant does not seek (nor is it appropriate for this Court to be burdened with) an administrative review of 17 Objection Notices or an enquiry into the professional conduct of the Trustee or statutory liability of Mr Mokhtar.
It is also important to stress that this is not a case where it is said that the Trustee has engaged in misconduct. The Trustee has not acted negligently or otherwise in breach of duty in the administration of the bankrupt’s estate. A case to that effect was expressly disavowed by the applicant’s counsel.
Nonetheless, it should be acknowledged that this is a troubling matter. The applicant has been in bankruptcy for just on 6 years. There is no apparent end in sight to the bankruptcy, subject to the effective statutory maximum of 8 years: s 149A(2)(a)(i) of the Bankruptcy Act. As Banks-Smith J recently observed in Duckworth v Field [2023] FCA 801 at [3], “[t]o be bankrupt for a period of eight years is no small thing.” Further, on 10 April 2018, in his initial remuneration notice, the Trustee estimated that his remuneration for the administration of the estate would be $17,180 plus GST and disbursements. By the time the matter proceeded to trial, the respondent estimated the Trustee’s fees to be $311,120.00. This sum included $118,214.00 remuneration for 307.10 hours of time spent personally by the Trustee in preparing for this proceeding.
In addition, prior to the trial, the Trustee estimated the disbursements incurred in the administration of the bankruptcy to be $91,336.74, of which $52,841.34 were legal costs associated with this litigation. Of the total amount, $86,676.36 had been paid with only $4,660.38 still owed to the Trustee.
2. SUMMARY OF KEY FINDINGS
For the reasons that follow, the applicant has established that it is appropriate to order that the Trustee cease to be trustee of the bankrupt estate of Mr Mokhtar. In view of the length of my reasons, I considered that it would be helpful to summarise some of my key findings at the outset.
First, this is not (as I have said) a case where it was alleged, or I have found, any misconduct on the part of the Trustee.
Secondly, I have not accepted that the 17 Objection Notices which were filed by the Trustee between December 2021 and October 2022 were filed for an improper purpose.
Thirdly, it is evident that the bankruptcy has caused profound bitterness and stress for all concerned. More fundamentally, however, I have found that there is an irretrievable breakdown in the relationship between Mr Mokhtar and the Trustee. While I have found that Mr Mokhtar’s repeated failure to grasp or comply with basic aspects of his obligations as a bankrupt was not intended to engineer the Trustee’s removal, it has unquestionably contributed and contributed substantially to the irretrievable breakdown in the relationship. However, there were other material contributing factors. These include that Mr Mokhtar genuinely and reasonably misunderstood correspondence from the Trustee on 3 May 2021 and the associated calculator to mean that a payment of $66,000 would suffice for him to be discharged from bankruptcy. I have also formed the view that the Trustee has developed a lack of objectivity during the course of administering the bankruptcy and that this has exacerbated the situation. That lack of objectivity is perhaps understandable in light of Mr Mokhtar’s conduct, including Mr Mokhtar’s completely inappropriate, and at times vicious, language and allegations in later correspondence with the Trustee. I also did not consider that the Trustee’s delay in, among other things, undertaking investigations into aspects of the bankruptcy, taking steps to protect the assets of the bankrupt’s estate and, in particular, in garnisheeing Mr Mokhtar’s income, were satisfactorily explained, especially in circumstances where the Trustee was aware even before the bankruptcy of Mr Mokhtar’s gambling, drinking, and inability to control his spending. These matters show, respectfully, deficiencies in the Trustee’s judgement which have impacted adversely on the administration of the bankrupt estate. It is the combination of these factors in particular which have led me ultimately to the view that it would not, be in the best interests of the bankruptcy for the Trustee to continue.
Finally, this outcome should not be understood in any way as a vindication of Mr Mokhtar’s conduct during the bankruptcy. It needs to be said in no uncertain terms that Mr Mokhtar needs to start accepting responsibility for his actions including: ensuring that he fully understands and complies with his obligations as a bankrupt; ensuring that he fully cooperates with the new trustee; and ensuring that he acts at all times with respect and courtesy towards the new trustee and towards Mr Piscopo to the extent to which they may have contact during the handover period.
3. STATUTORY FRAMEWORK AND RELEVANT PRINCIPLES
The applicable legal principles are largely not in dispute.
The applicant seeks orders under s 90-15 of the Schedule to the Bankruptcy Act. That provision relevantly provides that:
(1)The Court may make such orders as it thinks fit in relation to the administration of a regulated debtor’s estate.
Orders on own initiative or on application
(2) The Court may exercise the power under subsection (1):
(a) on its own initiative, during proceedings before the Court; or
(b) on application under section 90-20.
Examples of orders that may be made
(3)Without limiting subsection (1), those orders may include any one or more of the following:
…
(b) an order that a person cease to be the trustee of the estate;
…
(4)Without limiting the matters which the Court may take into account when making orders, the Court may take into account:
(a)whether the trustee has faithfully performed, or is faithfully performing, the trustee’s duties; and
(b)whether an action or failure to act by the trustee is in compliance with this Act and the Insolvency Practice Rules; and
(c)whether an action or failure to act by the trustee is in compliance with an order of the Court; and
(d)whether the regulated debtor’s estate or any person has suffered, or is likely to suffer, loss or damage because of an action or failure to act by the trustee; and
(e)the seriousness of the consequences of any action or failure to act by the trustee, including the effect of that action or failure to act on public confidence in registered trustees as a group.
Section 90-15 of the Schedule therefore confers a discretion on the Court to make orders removing the trustee in the exercise of which the Court may take into account, but is not limited to, the matters identified in s 90-15(4). Section 90-20 in turn provides that:
(1)Each of the following persons may apply for an order under section 90‑15:
(a)a person with a financial interest in the administration of the regulated debtor’s estate;
(b)if the committee of inspection (if any) so resolves—a creditor, on behalf of the committee;
(c)the Inspector-General.
(2)If an application is made by a person referred to in paragraph (1)(b), the reasonable expenses associated with the application are to be taken to be expenses of the administration of the estate.
The effect of s 90-15(1), (2)(b) and (3) and s 90-20(1)(a) of the Schedule is that the Court may, on the application of a person with a financial interest in the administration of a regulated debtor’s estate, make orders in relation to the administration of the estate, including that a person cease to be the trustee of the estate in bankruptcy. A “regulated debtor” includes a bankrupt: s 5-15(a) of the Schedule. A person has a “financial interest” in the administration of a regulated debtor’s estate if the person is the regulated debtor: s 5-30(a)(i) of the Schedule.
I am therefore satisfied that the Court has jurisdiction to entertain Mr Mokhtar’s application for an order that the Trustee cease to be the trustee of Mr Mokhtar’s estate: see e.g. Shaw v The Official Trustee in Bankruptcy (No 3) [2021] FCA 1569 at [10]–[11] (Wigney J).
The relevant principles governing the exercise of the discretion in s 90-15 may be summarised as follows.
First, the general duties of the trustee in bankruptcy and the limited role of the Court provide important context against which to consider the matters raised by the applicant, even though there is no allegation of a breach of duty in the present case. The law in this regard is well-established and conveniently explained by Wigney J in Shaw at [27]–[29] as follows:
A trustee in bankruptcy is subject to the general law relating to trustees, except where bankruptcy legislation modifies the general law: Adsett v Berlouis (1992) 37 FCR 201 at 208-210. In Adsett, the Full Court adopted the following observations of Smithers J in Mannigel v Aitken (1983) 77 FLR 406 at 408-409 as a correct statement of the duties, and the proper manner of performance of those duties, of a trustee in bankruptcy:
In the case of bankruptcy the Trustee is in charge of the assets of the bankrupt and those assets are to be applied for the benefit of the creditors and if there be any surplus for the benefit of the bankrupt. It is clear that the minimum standard required of the Trustee is that he shall handle the assets with a view to achieving the maximum return from the assets to satisfy the claims of the creditors and to provide the best surplus possible for the bankrupt. Obviously a great deal of discretion and judgment is required to be exercised by the Trustee. It was said by Rogerson J in Re Ladyman (1981) 55 FLR 383 at 394-396 that the standard of conduct required of the Trustee will ordinarily be the standard required of a professional man and perhaps higher. The learned judge referred to “the high standard of conduct required of trustees”.
In Re Brogden [1888] All ER 927 Lord Justice Fry said at p 935:
“A Trustee undoubtedly has a discretion as to the mode and manner, and very often as to the time in which or at which, he shall carry his duty into effect. But his discretion is never an absolute one. It is always limited by – the dominant duty – the guiding duty of recovering, securing and duly applying the trust fund; and no Trustee can claim any right of discretion which does not agree with that paramount obligation.”
…
As has already been noted, in [Re Tyndall (1977) 30 FLR 6], Deane J referred (at 10) to the “well-established policy under bankruptcy legislation that the court should not unduly interfere with the day-to-day administration of a bankrupt’s estate by a trustee”. His Honour continued (at 10):
The trustee is made responsible for the administration of the bankrupt estate under the general provisions of the Act. He must, in the course of that administration, make a variety of decisions aimed at enabling the administration to be carried out with promptness and efficiency. Some of these decisions will be business or commercial decisions in which the business or commercial experience of the trustee would itself provide a basis for arguing that, unless it were shown that the trustee’s decision was perverse or clearly wrong, it would be inappropriate and unjust for the court to interfere.
In Patel v Ruhe [2016] FCA 520, Buchanan J said (at [33]):
Although a trustee may not disregard the legitimate interests of a bankrupt, a primary duty of a trustee is to protect the interests of creditors and recover for the estate such property as may reasonably be recovered in a commercially sound way. Judgments are required. The judgments are ones for the trustee to make and the Court will normally not interfere unless it is clear that some maladministration of the estate has occurred or is likely …
(Emphasis in original.)
The caution sounded in the authorities cited by Wigney J against undue interference by the Court in the administration of bankruptcy is a matter to which I have had particular regard in the exercise of discretion in the present case.
That caution was repeated in Frigger v Trenfield (No 10) (2021) 397 ALR 24 (Frigger (No 10)), where Jackson J considered an application relevantly seeking an order under s 90-15(3)(b) of the Schedule that a trustee of certain bankrupt estates cease to be the trustee (at [553]). His Honour helpfully summarised the trustee’s duties relevantly as follows at [555]–[556] and [558]–[559]:
A trustee in bankruptcy must act to the standard expected of an officer of the court, given that his or her acts or omissions are, in general, reviewable by the court. ‘That is because the statutory office of a trustee in bankruptcy is a public one that reposes considerable statutory powers in the trustee to enable him or her to carry out the public duty to administer the bankrupt’s estate according to the Act’: Young v Thomson [2017] FCAFC 140; (2017) 253 FCR 191 at [115] (Siopis and Rares JJ).
Because the trustee is exercising a fiduciary power, he or she has a duty to do so honestly (i.e. in good faith), to act upon genuine consideration, and not to act irresponsibly, capriciously or wantonly. The trustee must exercise the relevant power with due consideration for the purpose for which it was conferred and not for some ulterior purpose. A professional trustee should be particularly careful to act strictly within the line of the trustee’s duty: Young v Thomson at [110]-[111].
…
Other expressly stated objects of the Insolvency Practice Schedule are to ensure that any person registered as a trustee has an appropriate level of expertise and behaves ethically: s 1-1(1)(a) and (b). There is also a large number of specific duties imposed on trustees in bankruptcy by statute. They relevantly include:
•determining whether the estate includes property that can be realised to pay a dividend to creditors (Bankruptcy Act s 19(1)(b));
•taking appropriate steps to recover property for the benefit of the estate (Bankruptcy Act s 19(1)(f));
•administering the estate as efficiently as possible by avoiding unnecessary expense (Bankruptcy Act s 19(1)(j));
•exercising powers and performing functions in a commercially sound way (Bankruptcy Act s 19(1)(k));
•acting honestly and impartially in relation to each administration (Insolvency Practice Rules (Bankruptcy) 2016 (Cth) (Bankruptcy Practice Rules) r 42-10(1);
•not making or signing a document that the trustee knows, or ought reasonably to know, is false or misleading in a material particular (Bankruptcy Practice Rules r 42-10(2)); and
•taking care to ensure that all communications, including reports (whether issued personally or by delegation) are accurate and do not omit or obscure information required to be included or relevant to users of the communication (Bankruptcy Practice Rules r 42-15(2)).
It is also relevant in this proceeding that, under the Bankruptcy Practice Rules, the trustee must undertake preliminary inquiries and actions at the start of each administration, including:
•obtaining and reviewing the statement of affairs of the regulated debtor (Bankruptcy Practice Rules r 42 30(b));
•if necessary, interviewing the regulated debtor to clarify any matters in the statement of affairs (Bankruptcy Practice Rules r 42-30(c));
•identifying and making an assessment of realisable assets that could be expected to provide a return to creditors or contribute to the payment of the costs and fees of the administration (Bankruptcy Practice Rules r 42-30(d));
•determining the likelihood of whether the estate of the regulated debtor includes property that can be realised to pay a dividend to creditors (Bankruptcy Practice Rules r 42-30(f));
•if the trustee has a genuine reason for believing that the bankrupt may not have disclosed an interest in real or other registered property – conducting appropriate searches for such property (Bankruptcy Practice Rules r 42-30(g));
•if information so obtained shows that the bankrupt has not made full and true disclosure of his or her interest in property, making inquiries of third parties about the information (or if further inquiries are not made, explaining to the creditors why they were considered unnecessary) (Bankruptcy Practice Rules r 42-30(h)); and
•if the trustee considers that there may have been antecedent transactions, making inquiries of third parties to identify those transactions (Bankruptcy Practice Rules r 42-30(i)).
(Emphasis added.)
Secondly, s 90-15 of the Schedule replaced s 179 of the Bankruptcy Act, reforming the process of removing a trustee. Importantly, under the former provision, removal could occur only following a two-part process. An applicant had first to establish grounds for an inquiry into the conduct of the trustee before a Court could order the trustee’s removal. That is no longer a requirement under s 90-15. As White J held in Borg (at [24]):
In contrast with the former s 179(1), s 90-15 does not require a two stage consideration. An applicant seeking the removal of a trustee does not have to establish proper grounds for an inquiry. The power to remove and replace is not made subject to conditions such as proof of error, misfeasance, negligence or other poor conduct by a trustee.
(Emphasis added.)
I note, however, that there may still be cases where it is nonetheless appropriate to embark on a two-stage process similar to that under s 179 of the Bankruptcy Act. As Wigney J explained in Shaw at [21], “[s]uch an approach may be appropriate where the orders sought by the applicant are based on broad allegations of misfeasance, neglect or other error in the conduct of the administration of the estate by the trustee, particularly where those allegations effectively encompass almost every aspect of the administration of the estate.” However, while at times the Trustee’s submissions appeared to stray into such an approach, neither party suggested that the present matter was a case where that approach should be adopted.
Thirdly, the enactment of s 90-15 more closely aligned the rules for the removal of trustees in personal bankruptcies with those for the removal of liquidators in corporate insolvencies: Pioneer Australia Pty Ltd v Bettles as Trustee of the Bankrupt Estate of Quinn [2020] FCA 1788 at [30] (Derrington J); Borg at [26]. The principles and case law concerning the removal of liquidators may therefore apply by analogy when considering whether to remove a trustee in bankruptcy.
Fourthly, and of particular relevance, the Court’s power to remove a liquidator (and, by analogy, a bankrupt) “is not limited to matters relating to the unfitness of the liquidator to hold office”: Domino Hire Pty Ltd v Pioneer Park Pty Ltd (in liq) [2003] NSWSC 496; (2003) 21 ACLC 1330 at [58] (Austin J). Rather, “[i]t is open to the applicant for removal to point to any conduct or inactivity on the liquidator’s part that provides a basis for the conclusion that he or she should be removed, ranging from moral turpitude, to bias or partiality, lack of independence, incompetence or other unfitness for office”: Domino at [58]. The relevant authorities are helpfully discussed by White J in Borg at [29]–[33] (White J) as follows:
In Re Adam Eyton Ltd; ex parte Charlesworth (1887) 36 Ch D 299, Cotton LJ said, at 303–4:
[I]t is not necessary, in order to justify the Court under this section in removing the liquidator, that there should be anything against the individual. In my opinion, although of course unfitness discovered in a particular person would be a ground for removing him, yet the power of removal is not confined to that, … [I]f the Court is satisfied on the evidence before them that it is against the interest of the liquidation, by which I mean all those who are interested in the company being liquidated, that a particular person should be made liquidator, then the Court has power to remove the present liquidator, and of course then to appoint some other person in his place.
To like effect, Bowen LJ said at 306:
In many cases … unfitness of the liquidator will be the general form which the cause will take upon which the Court in this class of case acts, but that is not the definition of due cause shewn. In order to define “due cause shewn” you must look wider afield, and see what is the purpose for which the liquidator is appointed. To my mind the Lord Justice has correctly intimated that the due cause is to be measured by reference to the real, substantial, honest interests of the liquidation, and to the purpose for which the liquidator is appointed. Of course, fair play to the liquidator himself is not to be left out of sight, but the measure of due cause is the substantial and real interest of the liquidation.
Austin J applied the approach of Bowen LJ in Re Adam Eyton in Domino Hire Pty Ltd v Pioneer Park Pty Ltd (in liq) [2003] NSWSC 496; (2003) 21 ACLC 1330:
[58] The words “cause shown” indicate that a liquidator is not to be removed unless there is some ground for removal, and the ground must be established by evidence. However, “cause shown” is not a narrow concept. It is open to the applicant for removal to point to any conduct or inactivity on the liquidator’s part that provides a basis for the conclusion that he or she should be removed, ranging from moral turpitude, to bias or partiality, lack of independence, incompetence or other unfitness for office. But the concept of “cause shown” is not limited to matters relating to the unfitness of the liquidator to hold office. In Re Adam Eyton Ltd; ex parte Charlesworth (1887) 36 Ch D 299, speaking of a statutory formulation where the words used were “due cause shown” rather than “cause shown”, Bowen LJ said (at 306) … [see the passage just quoted]:
[59] In Network Exchange Pty Ltd v MIG Communications Pty Ltd (1994) 13 ACSR 544, Hayne J applied this test to an application for removal of an administrator, even though the statutory provision authorising the Court to remove an administrator (s 449B) does not contain the words “on cause shown”. His Honour concluded that the absence of those words did not produce any marked difference, and he described the position as follows (at 550):
“In my view, however, it must be accepted that an order for removal should be made only if it is demonstrated that such an order would be for the better conduct of the administration. It is not to be contemplated that the power under s 449B is to be exercised save in circumstances that justify or require its exercise and those, speaking generally, would appear to be circumstances in which the order would conduce to the better conduct of the administration concerned.”
[60] In cases where the applicant relies on misconduct by the liquidator, the words “cause shown” do not require the Court to work through each of the particulars of misconduct relied upon, and determine one by one whether they are made out. Young J (as the Chief Judge in Equity then was) rejected such an approach in Re Biposo Pty Ltd (1995) 17 ACSR 730. His Honour said (at 734):
“The question is not whether in adversarial litigation there has been proof of a case according to the heads particularized, … but rather whether in the interests of the public the removal of the liquidator would be for the general advantage of persons interested in the winding up”.
In Australian Securities and Investments Commission v Franklin [2014] FCAFC 85; (2014) 223 FCR 204 at [55], this Court applied the approach of Austin J in Domino Hire.
I conclude that the approach in the corporations cases to s 503 and its predecessors is apposite in relation to the removal and replacement of the trustee in bankruptcy under ss 90‑15 and 90‑20 of the Bankruptcy Schedule. The Court should exercise the power to remove and replace a trustee in bankruptcy in a manner which best advances the interests of the bankruptcy, having regard to the objects of the Bankruptcy Act. Having regard to s 1‑1(2)(b) of the Bankruptcy Schedule, the proper interests of the creditors of the bankrupt will be an important consideration.
(Emphasis added.)
Those principles are equally apt to apply in the context of bankruptcy: Borg at [33].
Fifthly, where the relationship between the trustee and the bankrupt “has totally broken down; that, in many cases, is a sufficient reason for the trustee to be removed”: Doolan v Dare [2004] FCA 682 at [49] (Spender J); see also, eg, Trkulja v Morton [2005] FCA 659 at [4] (Gray J). Similarly, Jagot J held in Liprini v Pascoe as Trustee of the Bankrupt Estate of Liprini [2012] FCA 886; (2012) 292 ALR 778 at [22] (in the context of an application by the major creditor of the bankrupt estate under s 179 of the Bankruptcy Act) that:
[T]he powers to remove a trustee are not dependent on misconduct. There is ample authority that a breakdown in the relationship between at least the major creditor and the trustee may be sufficient, both for the purposes of an inquiry and for removal.
Sixthly, the mere breakdown in a relationship between the trustee and bankrupt will not always justify removal of the trustee. As Buchannan J held in Boensch v Pascoe [2007] FCA 1977 at [92]–[93] (also in the context of an application under s 179):
Obviously enough, a bankrupt should not be allowed, by an assiduous pattern of resistance to the trustee of his estate, to generate and then rely upon a suggested reason for removal thereby created. No doubt there are many instances in which disagreement may arise about the way a trustee is administering an estate or exercising his powers. Adequate opportunities exist for challenges to be made, if there are grounds for doing so. None have been made in the present case, save for the matters with which I am dealing.
It is clearly an insufficient ground for removal of a trustee that a bankrupt resists the proper administration of his estate or sets out to frustrate a trustee in the proper performance of his duties. Mr Boensch’s obligation was to co-operate fully with his trustee. He is obliged to ‘aid to the utmost of his power in the administration of his estate’ (s 77(g)).
In other words, a bankrupt cannot, by their conduct in not cooperating with the trustee, cause a complete breakdown in their relationship, and then rely upon the breakdown as a basis upon which to remove the trustee: see also, eg, Trkulja at [62]. As will become apparent, the Trustee’s case focused particularly around this last point.
Finally, the duties of the bankrupt are relevant to consider, as the Trustee’s case largely centred on the multiple respects in which he alleged that Mr Mokhtar had failed to comply with those duties. These are enumerated in s 77 of the Bankruptcy Act and include the following:
(1) A bankrupt shall, unless excused by the trustee or prevented by illness or other sufficient cause:
(a) forthwith after becoming a bankrupt, give to the trustee:
(i) all books (including books of an associated entity of the bankrupt) that are in the possession of the bankrupt and relate to any of his or her examinable affairs; and
(ii) any passport or document issued for the purposes of travel held by the bankrupt; and
(b) attend the trustee whenever the trustee reasonably requires; and
(ba) give such information about any of the bankrupt’s conduct and examinable affairs as the trustee requires; and
(bb) as soon as practicable after the later of the following times:
(i) the time the bankrupt’s statement of affairs was accepted under subsection 57B(1);
(ii) the time the bankrupt became a bankrupt;
advise the trustee of any material change that occurred between the time the statement was filed and the later of the times mentioned in subparagraph (i) or (ii); and
(bc) if a material change occurs at or after the later of the times mentioned in subparagraph (bb)(i) or (ii), advise the trustee of that change as soon as practicable after the change occurs; and
…
(e) execute such instruments and generally do all such acts and things in relation to his or her property and its realization as are required by this Act or by the trustee or as are ordered by the Court upon the application of the trustee; and
(f) disclose to the trustee, as soon as practicable, property that is acquired by him or her, or devolves on him or her, before his or her discharge, being property divisible amongst his or her creditors; and
(g) aid to the utmost of his or her power in the administration of his or her estate.
Ryan, Heerey and Allsop JJ (as his Honour then was) summarised the significance of s 77 of the Bankruptcy Act in Griffin v Pantzer [2004] FCAFC 113; (2004) 137 FCR 209 at [175] as:
Without that obligation the very ability of the trustee to perform his or her duties would be frustrated and made unworkable whenever the bankrupt had been, or asserted that there was a risk of finding that he or she had been less than honest.
However, the ultimate question for me on the basis of the authorities to which I have referred is whether removal would be in the best interests of the bankruptcy.
4. EVIDENCE
4.1 Approach to evidence: general principles
First, it was not in issue that the onus lay upon Mr Mokhtar to establish grounds for removing the Trustee.
Secondly, in approaching my assessment of the evidence I have borne firmly in mind the seriousness of the allegations by the Trustee against Mr Mokhtar, including that he has deliberately concealed assets, destroyed documents, and realised assets without the Trustee’s knowledge or authority. In this regard, in arriving at a state of satisfaction in civil proceedings that a case has been proved on the balance of probabilities, s 140(2) of the Evidence Act 1995 (Cth) provides that:
Without limiting the matters that the court may take into account in deciding whether it is so satisfied, it is to take into account:
(a) the nature of the cause of action or defence; and
(b) the nature of the subject-matter of the proceeding; and
(c) the gravity of the matters alleged.
(Emphasis added.)
The considerations to which consideration must be given pursuant to s 140(2) of the Evidence Act align with Dixon J’s observations in Briginshaw v Briginshaw (1938) 60 CLR 336 of how the civil standard of proof at common law operates: see, eg, Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing & Allied Services Union of Australia v Australian Competition and Consumer Commission [2007] FCAFC 132; (2007) 162 FCR 466 at [31] (Weinberg, Bennet and Rares JJ). Thus, in an oft‑quoted passage at 362 from Briginshaw, Dixon J explained that:
reasonable satisfaction is not a state of mind that is attained or established independently of the nature and consequence of the fact or facts to be proved. The seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding are considerations which must affect the answer to the question whether the issue has been proved to the reasonable satisfaction of the tribunal. In such matters “reasonable satisfaction” should not be produced by inexact proofs, indefinite testimony, or indirect inferences. Everyone must feel that, when, for instance, the issue is on which of two dates an admitted occurrence took place, a satisfactory conclusion may be reached on materials of a kind that would not satisfy any sound and prudent judgment if the question was whether some act had been done involving grave moral delinquency.
In other words, as explained by Barwick CJ, Kitto, Taylor, Menzies and Windeyer JJ, the “degree of satisfaction for which the civil standard of proof calls may vary according to the gravity of the fact to be proved”: Rejfek v McElroy [1965] HCA 46; (1965) 112 CLR 517 at 521. This principle, as Flick and Perry JJ observed in Sullivan v Civil Aviation Safety Authority [2014] FCAFC 93; (2014) 226 FCR 555 at [99], “is ultimately founded upon principles of fairness and common sense”.
Thirdly, the matters set out in s 140(2) are mandatory but not exhaustive. As Lee J set out in Lehrmann v Network Ten Pty Limited (Trial Judgment) [2024] FCA 369 at [97]:
Other considerations which may be relevant include the inherent likelihood of the occurrence of the fact alleged and the notion that all evidence is to be weighed according to the proof which it was in the power of one side to have produced, and the other to have contradicted: Blatch v Archer (1774) 1 Cowp 63 (at 65 per Lord Mansfield).
Fourthly, both the applicant and the Trustee ask the Court to draw certain inferences, including in the case of the applicant as to the Trustee’s purpose in issuing multiple objection notices after Mr Mokhtar made a complaint to the Australian Financial Security Authority (AFSA) regarding the Trustee’s letter of 3 May 2021 (the 3 May letter). As to inferential reasoning, Lee J in Quintis Ltd (Subject to Deed of Company Arrangement) v Certain Underwriters at Lloyd’s London Subscribing to Policy Number B0507N16FA15350 [2021] FCA 19; 385 ALR 639 at [105]-[106] said the following:
However, it is also true that where there is no direct evidence of a fact that a party bearing the onus of proof seeks to prove, “it is not possible to attain entire satisfaction as to the true state of affairs”: Girlock (Sales) Pty Ltd v Hurrell (1982) 149 CLR 155 (at 169 per Mason J). However, in such a case, the law does not require proof to the “entire satisfaction” of the tribunal of fact: see Transport Industries Insurance Co Ltd v Longmuir [1997] 1 VR 125 (at 141 per Tadgell JA, with whom Winneke P and Phillips JA agreed). Indeed, a party may advance a case relying on circumstantial evidence, on the basis that collectively viewed, a combination of proven facts can provide a sufficient basis for inferring the ultimate fact to be proved. A comprehensive statement as to the sufficiency of circumstantial evidence in a civil case to support proof by inference from directly proved facts was given by the High Court in Bradshaw v McEwans Pty Ltd (1951) 217 ALR 1 (at 5 per Dixon, Williams, Webb, Fullagar and Kitto JJ):
Of course as far as logical consistency goes many hypotheses may be put which the evidence does not exclude positively. But this is a civil and not a criminal case. We are concerned with probabilities, not with possibilities. The difference between the criminal standard of proof in its application to circumstantial evidence and the civil is that in the former the facts must be such as to exclude reasonable hypotheses consistent with innocence, while in the latter you need only circumstances raising a more probable inference in favour of what is alleged. In questions of this sort, where direct proof is not available, it is enough if the circumstances appearing in evidence give rise to a reasonable and definite inference: they must do more than give rise to conflicting inferences of equal degrees of probability so that the choice between them is mere matter of conjecture. But if circumstances are proved in which it is reasonable to find a balance of probabilities in favour of the conclusion sought then, though the conclusion may fall short of certainty, it is not to be regarded as a mere conjecture or surmise …
(Citations omitted).
Furthermore, in assessing a circumstantial case, the question of whether an inference is open and can be drawn as a matter of probability is to be determined by considering the combined weight of all the relevant established facts, rather than by considering each fact sequentially and in isolation: Marriner v Australian Super Developments Pty Ltd [2016] VSCA 141 (at [75] per Tate ACJ, Kyrou and Ferguson JJA). Indeed, as the Full Court of this Court recently stated in Australian Broadcasting Corporation v Chau Chak Wing [2019] FCAFC 125; (2019) 271 FCR 632 (at 674 [134] per Besanko, Bromwich and Wheelahan JJ):
In assessing a circumstantial case, it is important to bear in mind that the facts ultimately to be proven are those that are in issue, and not necessarily all the circumstantial facts themselves. As Dawson J observed in Shepherd v The Queen (1990) 170 CLR 573 at 580, “[T]he probative force of a mass of evidence may be cumulative, making it pointless to consider the degree of probability of each item of evidence separately.” This invites consideration of the combined weight of circumstantial facts, for it is the essence of a circumstantial case that the combined force of its components should be considered, and proof of some circumstantial facts may be affected by the court’s assessment of other circumstantial facts: Chamberlain v The Queen (No 2) (1984) 153 CLR 521 at 535 (Gibbs CJ and Mason J). Courts may fall into error by compartmentalising circumstantial facts, rather than standing back and assessing the broader picture.
In the fifth place, with respect to the assessment of affidavit and oral evidence and the impact of the passage of time on the quality of evidence, Black J in In Re Kit Digital Australia Pty Ltd (in liq) [2014] NSWSC 1547 explained (at [7]) that:
It is important in this context to have regard to the fallibility of human memory which increases with the passage of time, particularly where disputes or litigation intervene: Watson v Foxman (1995) 49 NSWLR 315 at 318-319 per McLelland CJ in Eq; Hoy Mobile Pty Ltd v Allphones Retail Pty Ltd (No 2) [2008] FCA 810 at [41] per Rares J; Varma v Varma [2010] NSWSC 786 at [424]-[425] per Ward J. To the extent that credit issues need to be determined in respect of particular conversations, I have also had regard to the fact that objective evidence is likely to be the most reliable basis for determining them. I summarised the relevant principles in Re Colorado Products Pty Ltd (in prov liq) [2014] NSWSC 789 at [10], where I noted that the credibility of a witness and his or her veracity may be tested by reference to the objective facts proved independently of the testimony given, in particular by reference to the documents in the case, by paying particular regard to the witness’s motives and the overall probabilities: Armagas Ltd v Mundogas SA [1985] 1 Ll R 1 at 57; Camden v McKenzie [2007] QCA 136; [2008] 1 Qd R 39 at [34]; Craig v Silverbrook [2013] NSWSC 1687 at [141]; State of New South Wales v Hunt [2014] NSWCA 47 at [56].”
These principles were recently approved, for example, by Markovic J in Scott (Trustee), Stolyar (Bankrupt) v Stolyar [2022] FCA 691 at [22].
McLelland CJ in Equity, speaking of the fallibility of human memory in Watson v Foxman and Others (1995) 49 NSWLR 315 at 319, pointedly explained influences that may impact upon the processes of memory with the passing of time:
…human memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions or self-interest as well as conscious consideration of what should have been said or could have been said. All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed. All this is a matter of ordinary human experience.
Similarly, Katzmann J explained in Arnautovic & Sutherland t/as Jirsch Sutherland & Co v Cvitznovic (as trustee of the bankrupt estate of Adrian Lawrence Rosee) [2011] FCA 809 at [73] that:
In the absence of notes it is, generally speaking, impossible to accurately recall the terms of any conversation six months after it took place. Human memory is notoriously unreliable. As Spigelman CJ recently observed (“Truth and the Law”, The 2011 Sir Maurice Byers Lecture, 26 May 2011):
Witnesses can, without any dissimulation or propensity to lie, confidently assert the truth of conversations, observations and events which did not happen. The plasticity of memory impedes the truth finding process. This is not an uncommon phenomenon…
4.2 Mr Mokhtar’s evidence and findings as to credit
Subject to rulings and concessions on objections to evidence, the applicant read the following affidavits:
(1)Paragraphs 1, 5, 7, 29, 30, 33, 34 and 36 of Mr Mokhtar’s affidavit, affirmed on 26 July 2022 (and filed on 8 August 2022);
(2)Mr Mokhtar’s affidavit, affirmed on 9 December 2022;
(3)Mr Mokhtar’s affidavit, affirmed on 17 March 2023; and
(4)Mr Mokhtar’s affidavit, affirmed on 17 July 2023 (Fourth Mokhtar affidavit).
Mr Mokhtar was also cross-examined extensively by the Trustee. The Trustee submitted that the Court ought to find that Mr Mokhtar was an unsatisfactory witness, who was interested only in advancing his own interests. For instance, during cross-examination, Mr Mokhtar gave evidence that during the past five years, he had misunderstood various aspects of the administration of the bankruptcy, that aspects had been misrepresented to him and that sometimes he recalled things well but sometimes he did not. The Trustee submitted that those statements were deliberately inaccurate, and that this was not merely a case of a bankrupt who was acting under misunderstandings. Rather, the Trustee contended that Mr Mokhtar’s conduct in the course of the bankruptcy and in giving evidence was characterised by obfuscation.
In respect of Mr Mokhtar’s evidence, I have reached the following general conclusions.
First, I agree that Mr Mokhtar was an unsatisfactory witness. I found his evidence generally to be evasive. He consistently sought to place the blame on others — in particular, his financial adviser, Mr Humphries, and the Trustee — and he consistently sought to avoid accepting responsibility for his own conduct.
I also accept to some extent Mr Mokhtar’s evidence that he has difficulty in recalling aspects of what occurred over the bankruptcy. Mr Mokhtar gave evidence that he has been very stressed and feeling depressed over his bankruptcy. He also told the Court of his problems with gambling and alcohol, the collapse of his marriage, and his financial difficulties. Mr Mokhtar was cross-examined on whether he had a diagnosed mental health condition which contributed to his inability to recall information. While no expert evidence was called, or medical report tendered, I accept Mr Mokhtar’s evidence that at some point in time he was diagnosed with depression by a psychiatrist and/or a psychologist because he was able to volunteer the medicine prescribed to him, the dosage, and the location of the psychiatrist and psychologist who he had consulted. However, he did not give evidence otherwise as to when he met with mental health professional or was diagnosed or as to the impact of his mental health issues on his ability to recall matters. In any event, it is patently clear Mr Mokhtar was under significant stress in the leadup to his bankruptcy and remains so.
Nonetheless, in my view, Mr Mokhtar exaggerated his inability to recall events so to avoid taking responsibility for his actions. For example, Mr Mokhtar admitted in cross-examination that he was able to function in his employment as an audiometrist, working across two clinics, despite claiming that throughout the same period he had no memory of preparing or signing the debtor’s petition.
In short, I find that Mr Mokhtar’s evidence was unreliable and therefore generally ought not to be accepted absent corroborative evidence, admissions against interest, or where it is inherently plausible.
Secondly, certain aspects of Mr Mokhtar’s evidence were corroborated by other evidence which I have accepted. For example, the respondent in cross-examining Mr Mokhtar, was particularly critical of Mr Mokhtar’s purported concealment of information about his assets and liabilities when preparing the debtor’s petition. Mr Mokhtar denied the claim and gave evidence that he disclosed his relevant assets to Mr Humphries, his financial adviser. This evidence was subsequently corroborated to some extent by an apparently contemporaneous financial statement prepared by Mr Humphries (discussed further below). However, the evidence also indicates that there were significant assets and dealings in assets both before and during the bankruptcy by Mr Mokhtar which he did not disclose to his financial adviser or to the Trustee.
4.3 Trustee’s evidence
The Trustee relied on three affidavits sworn by the Trustee, namely the first and second affidavits sworn on 20 February 2023 (First Trustee Affidavit and Second Trustee Affidavit) together with their exhibit R5, and the Trustee’s affidavit sworn on 21 March 2023 (Third Trustee Affidavit), together with exhibit R6 thereto. These were received subject to those paragraphs not read, received for a limited purpose, or received only as submissions, in accordance with concessions by the Trustee and my rulings on objections. In addition, the Trustee filed, among other affidavits, an affidavit sworn on 19 September 2023 which Mr Mokhtar tendered into evidence (Fourth Trustee Affidavit).
In the body of the affidavits on which he relied, the Trustee included lengthy accounts of conversations that he had purportedly had with the applicant, to which the applicant objected. The accounts were said to be corroborated by independent file notes kept by the Trustee, which purported to record the conversations he had with Mr Mokhtar. The Trustee did not keep individual electronic file notes but a single electronic word document. That document included a mix of non-privileged material and material apparently subject to legal professional privilege. With respect, this is a highly unsatisfactory practice as I observed at the hearing and the Trustee’s counsel accepted. It was also impossible to determine from the single electronic file when individual entries were made and therefore whether the notes of conversations were contemporaneous.
At trial, the applicant’s objections to the alleged conversations and file notes were resolved on the basis that the parties would make submissions as to the weight I could ascribe that evidence. The applicant submitted that no weight could be given to the account of the conversations contained in the body of the Trustee’s affidavits. This was because they were reconstructions of events made well after the purported conversations took place, and were often not corroborated by, and at times were inconsistent with, the typed file notes kept by the Trustee. I agree that the word-for-word accounts of conversations in the body of the affidavits cannot generally be given any weight save where, for example, they are corroborated by other evidence for the following reasons. I had a particular concern that the alleged verbatim accounts frequently contained what appear on their face to be self-serving statements by the Trustee which, as I explain below, did not generally find support in the attached file notes.
First, the Trustee set out critical conversations between him and the applicant in the body of his affidavits in direct speech, notwithstanding the length of time elapsing between those conversations and swearing of his affidavits. Not only is it inherently unlikely that the Trustee recalled the precise words used in those conversations, but the Trustee’s evidence in cross-examination was to the effect that the conversations were put into direct speech by the Trustee’s solicitor based on the Trustee’s file notes in preparing the first draft of his first affidavit.
Where the deponent remembers only the substance or gist of what was said, the conversation should not be set out in direct speech (or in quotation marks) as that gives the misleading impression that the deponent recalls the actual words of the conversation. As Jackman J held in Kane’s Hire Pty Ltd v Anderson Aviation Australia Pty Ltd [2023] FCA 381 at [123]–[128]):
There is ample authority for the proposition that there is no rule of the law of evidence in Australia that evidence of conversations must be given in direct speech… Evidence should be given in direct speech only if the witness can remember the actual words used…
The passage [from the judgment of McLelland CJ in Eq in Watson v Foxman (1995) 49 NSWLR 315 at 318-319 quoted above] is characteristically pithy and insightful. … The statement towards the end of the quoted passage, as to what is actually remembered being little more than an impression from which plausible details are then constructed, is particularly pertinent to the present issue, although many would find his Honour’s reference to that often occurring “subconsciously” to be overly charitable.
The primary duty of a witness is one of honesty. The oath or affirmation binds the witness to tell the truth, the whole truth and nothing but the truth. Witnesses should not be compelled or encouraged into uttering untruths on oath by giving a form of words in direct speech with which they are not happy and which they cannot actually recollect in preference to their own words in indirect speech…
The practice of witnesses and lawyers working up a version of a conversation in direct speech (whether or not prefaced by the phrase “in words to the following effect”) from the witness’s actual memory merely of the substance or gist of what was said is logically, ethically and grammatically wrong. It is logically wrong because it reverses the logical process of deriving the meaning or substance of what was said from the actual words which were spoken; one cannot derive (as distinct from guess at) the actual words spoken simply from their gist. It is ethically wrong because the evidence given as a result of that process conceals the true nature and quality of the witness’s memory, and conveys a false impression of that memory. It is grammatically wrong because the use of quotation marks indicates as a matter of conventional usage that the relevant expression is a quotation of the exact words which were spoken. It could not be said that this practice is allied to an iron sense of principle.
The form in which evidence of conversations is given should reflect the difference between verbatim memory and gist memory. … It would appear that verbatim memory and gist memory of conversations are not merely different in degree, but are also different in kind…
(Citations omitted.)
This passage was recently approved by the NSW Court of Appeal in Gan v Xie [2023] NSWCA 163 at [119] (White JA (Simpson AJA at [126] and Basten AJA at [127] agreeing)).
Secondly, certain conversations reproduced in the body of the Trustee’s affidavits were said to have been based on his file notes. However, the Trustee did not give evidence sufficient to establish that the reliability of the file notes, such as how the file notes were prepared, in what form, at what time, and whether he had adopted a general practice in relation to their preparation. This is particularly the case with respect to those notes contained in the single electronic document in which the Trustee apparently kept a running record of the administration of the bankruptcy.
Furthermore, as submitted by the applicant, in some cases, the conversation as related in the body of his affidavit was inconsistent with the file note, including containing significant additional information. In this regard, apparently the wrong file note was attached to the Trustee’s affidavit in support of the description given by him in the body of his affidavit of a telephone conversation with the applicant on 28 March 2018. However, that was not the only case where the file note attached to the affidavit did not support the description of the conversation as relayed in the body of the affidavit.
For example, at [10] of his affidavit sworn on 20 February 2023, the Trustee stated that:
On 15 January 2018 I received a telephone call from Mr Mokhtar. We had a conversation to the following effect:
He said: My name is Ahmad Mokhtar. Alex Humphries gave me your number. I would like to ask you some questions about bankruptcy which I am thinking about.
I said:Sure.
He said:I went through a divorce and all I have left is a half interest in a property in St Clair where I live. I refinanced it since the divorce. I received $122,000 from my ex-wife when we settled.
I said:What happened to the money you had?
He said:I gave some money to my ex-brother-in-law and to other family members. Anyway, Alex said to talk to you about purchasing that interest in the property back from the bankrupt estate once I become a bankrupt.
I said:If I become the trustee, I will have to get a number of market appraisals to determine the amount of equity first of all. In the meantime, you can get your own market appraisals. Who is the other owner?
He said:My cousin.
I said:An arrangement to purchase the bankrupt estate’s interest is possible where there is only limited equity in the property. However, it will become yours only after both you have paid in full with interest and are discharged. I want to stress that you have to be discharged before the interest becomes yours as that is the law due to a certain court decision. That is also the position of AFSA my regulator. Do you understand?
He said:Yes.
I said: I also want to stress that you must pay. While I will be patient to a point, I will pull the plug at some point in time if you don’t pay. You don’t want to end up like a particular bankrupt woman who had to pay only $5,500. She paid only $500 when I had no choice but to pull the plug as I have duties to the bankrupt estate. Her husband then had to find $165,000 from his super to save the house from sale. Extreme case but do you understand?
He said:Yes. Alex said that I will have to pay income contributions on my income which is going to be about $140,000.
I said:That is right. How much you pay depends on the number of dependants and how much child support you pay. It is in your interest to pay as otherwise you can get your bankruptcy extended. It is one of the two most common reasons why bankrupts get their bankruptcy extended. You would then have even more income contributions to pay. Something to be avoided at all cost.
He said:Understood.
I said: Tell me more about what happened to your money.
He said:When my marriage broke up I was depressed. I gave some money to creditors. The rest I spent or gambled. I also lost the money from shares I sold. I even drew money from my super.
I said:How did you pay your creditors?
He said:A lot of it was in cash.
A copy of my file note of this telephone conversation is at page 2 of Exhibit SP-2.
(Emphasis omitted.)
However, the handwritten file note of this telephone conversation at page 2 of the exhibit simply states:
Mokhtar 15/1/18
Tel.
- Property – home ® refinance - $122K
- gave brother in law $65K?. – [indecipherable word] – preference?
- St Clair - [indecipherable word] – get [indecipherable word] appraisal
- other owner ® [indecipherable word]
- arrangement? If limited equity – pay + discharge
- [four indecipherable words]
- spent money – depressed – marriage break up – gambled shares – drew money out of super
- cus ® cash?
While there was no evidence as to how and when the note was made, it can reasonably be inferred from the nature of the note that it was contemporaneous. Nonetheless, the note lends no support to the detailed telephone conversation set out in the Trustee’s affidavit. To the contrary, it strongly suggests that the conversation as described in the body of the affidavit is a complete reconstruction.
Having regard to these concerns, I do not consider that the evidence in the body of the Trustee’s affidavit in direct speech of the alleged content of conversations can be relied upon absent corroborative evidence or admissions by Mr Mokhtar. The Trustee was unable to provide a satisfactory explanation for the inconsistencies between the content of conversations as set out in the body of his affidavits, on the one hand, and his file notes, on the other hand. In addition, in two affidavits (First Trustee Affidavit and Fourth Trustee Affidavit), the Trustee deposed to words spoken at a meeting with Mr Mokhtar on 20 March 2021. Yet the accounts of the conversation, both of which were given in direct speech, differed between the two affidavits without any explanation for the differences.
Furthermore, the extent to which the Trustee’s affidavits were drafted by his solicitors, as opposed to setting out his actual recollection of events in his own words, remains unclear. This is despite the Trustee’s evidence that he amended his first affidavit (First Trustee Affidavit) to accord with his recollection and “I think I had a much more direct hand” in drafting “the other affidavit” (which I take to be a reference to the Third Trustee Affidavit). As such his affidavit evidence was generally unsatisfactory.
Nonetheless, I found the Trustee’s evidence in cross-examination generally to be persuasive, notwithstanding that he was prone to discursive answers and was at times defensive. The latter was illustrated by the frequency with which he would answer questions about his conduct or recollection of matters by diverting the answer to Mr Mokhtar’s behaviour, which he clearly viewed extremely poorly and was very upset about. In particular, I largely accept the gist of his oral evidence as to matters conveyed in certain significant conversations including, notably, the conversation at the Top Ryde Shopping Centre.
4.4 Was there a failure to comply with the rule in Browne v Dunn with respect to the failure to cross-examine the Trustee on certain topics?
The respondent objected to the applicant’s submissions regarding the 17 Objection Notices on the basis the Trustee had not been cross-examined on the issue in breach of the rule in Browne v Dunn (1893) R 67. It was submitted that as a result, the Trustee was not afforded the opportunity to respond to the proposition that he acted improperly in issuing the Objection Notices from bankruptcy over an 11-month period.
The rule in Browne v Dunn is an aspect of the requirements of procedural fairness, namely, that there is an obligation on a party cross-examining a witness to give the witness an opportunity to explain when it is proposed that the witness’ evidence, in whole or in part, should not be believed. However, it is not necessary to afford the witness that opportunity in cross-examination where clear notice has already been given of the cross-examiner’s intention to rely on such matters.
In West v Mead [2003] NSWSC 161 at [95]–[99], Campbell J helpfully analysed the authorities and relevant principles as follows:
In Browne v Dunn at 70-71 Lord Herschell LC stated an obligation of procedural fairness which counsel has when cross-examining a witness who counsel intends to submit should not be accepted:
“If you intend to impeach a witness you are bound, whilst he is in the box, to give him an opportunity to make any explanation which is open to him; and, as it seems to me, that is not only a rule of professional practice in the conduct of a case, but is essential to fair play and fair dealing with witnesses.”
However, Lord Herschell LC said that there was no obligation to raise such a matter in cross-examination where it is:
“… perfectly clear that [the witness] has had full notice beforehand that there is an intention to impeach the credibility of the story which he is telling … All I am saying is that it will not do to impeach the credibility of a witness upon a matter on which he has not had any opportunity of giving an explanation by reason of there having been no suggestion whatever in the course of the case that his story is not accepted.”
In Allied Pastoral Holdings Pty Ltd v Federal Commissioner of Taxation [1983] 1 NSWLR 1 Hunt J made a thorough review of later cases applying Browne v Dunn, and concluded (at 26):
“I remain of the opinion that, unless notice has already clearly been given of the cross-examiner’s intention to rely upon such matters, it is necessary to put to an opponent’s witness in cross-examination the nature of the case upon which it is proposed to rely in contradiction of his evidence, particularly where that case relies upon inferences to be drawn from other evidence in the proceedings.”
In the present case, the serving of Ms West’s affidavit in chief gave notice to Ms Mead and her advisers that Ms West proposed to rely upon the matters contained in paragraph 181. Ms Mead took the opportunity, in her own affidavit in response, specifically to reply to that allegation. Documents exchanged between the parties to litigation before the commencement of the trial are able to give notice that a witness’s account of events will be challenged in particular ways, so that there is no breach of Browne v Dunn if the witness’ account is not challenged in cross-examination. – Marelic v Comcare (1993) 121 ALR 114 at 120 (pre trial exchange of medical reports gives adequate notice), Flower & Hart v White Industries (QLD) Pty Ltd (1999) 163 ALR 744 at [52] (statement of issues, stated case and service of documentary evidence can give adequate notice), Stern v National Australia Bank Limited (2000) 171 ALR 192 at [44] (adequate notice given by pleadings), Seymour v Australian Broadcasting Commission (1977) 19 NSWLR 219 at 236 per Mahoney JA (adequate notice given by “the nature of the defendant’s case and the particulars given, and otherwise the conduct of it”), In the Marriage of L C & T C (1998) 23 FamLR 75 at [39] (affidavits give adequate notice). Cross On Evidence, 6th Australian edition, paragraph [17460] footnote 12 says:
“… the rule in Browne v Dunn did not apply where all parties were on notice of the evidentiary issues, eg by reason of affidavits having been exchanged …”
The consequence of these decisions is that the circumstances in which Browne v Dunn will require matter to be put to a witness in cross-examination will depend upon the nature of the pre-trial preparation there has been, and whether that pre-trial preparation has been sufficient to give notice to a witness of the submission ultimately intended to be put to the court. An aspect of this is that Browne v Dunn will require more extensive cross-examination in a case where all the evidence is given orally, than is necessary in a case where the substance of the evidence proposed to be given by each side is notified in advance by affidavit or statement.
Even when there has been an exchange of affidavits or statements, the rule in Browne v Dunn will require a cross-examining counsel to put to a witness the implications which counsel proposes to submit can be drawn from the evidence, if those implications are not obvious from the evidence, or from other pre-trial procedures, or the course of the case. However, the submission which Ms Bateman seeks to put on the basis of paragraph 181 of Ms West’s affidavit in chief involves no drawing together of strands of evidence to create some overall theory or inference of fact, but is a submission as to the legal consequence that should be drawn from the facts plainly asserted in paragraph 181. Nothing in the rule in Browne v Dunn prevents her from putting that submission.
(Emphasis added.)
Applying these principles to the present case, the Trustee was given clear notice that Mr Mokhtar alleged that he had acted improperly in issuing the 17 Objection Notices over an 11-month period. The applicant’s Concise Statement dated 23 December 2022 at [38] alleged that “the volume and frequency of the objection notices, as well as the timing of them in the life of the bankruptcy, gives rise to a legitimate concern that the notices have not been issued sensibly, and rather have been issued for vindictive purposes rather than to advance legitimate interests of the bankrupt estate.”
In his Concise Response dated 23 February 2023, the Trustee denied the allegations and alleged at [34]–[35] that:
The Trustee has a statutory duty to file a notice of objection to discharge whenever a bankrupt is not discharging his statutory duties. The fact that multiple notices of objection were issued in Mr Mokhtar’s case is no reason to infer that they were filed for “vindicative purposes” or to punish Mr Mokhtar.
Mr Mokhtar bears the burden of proving a case for the removal of the Trustee as mere dissatisfaction with a decision, or actions of the Trustee or mere assertions of partiality, no matter how stridently put, are not enough to justify removal.
One further objection notice was filed by the Trustee on 25 June 2023.
As the table above demonstrates, a number of the notices were subsequently withdrawn because the Trustee considered that Mr Mokhtar had subsequently complied with his obligations. However, the Trustee gave evidence that he continued to file notices of objection because they seemed to be the only way by which he could get Mr Mokhtar to comply with his obligations in the bankruptcy. The Trustee accepted, however, that none of the subsequent notices of objection had, or could have had, any further effect in terms of extending the period of bankruptcy beyond the eight-year statutory maximum of 16 March 2026. As such, the Trustee submitted that “[n]o number of subsequent objections could prejudice Mr Mokhtar by extending his bankruptcy any further” (RS at [13].)
By contrast, Mr Mokhtar regarded the number of objections filed against him as a personal attack and, as the above table disclosed, repeatedly sought to challenge them. He lodged at least five additional complaints with AFSA after the 16 December 2021 objection notice. Of these, ASFA declined to review the objections notices of 20 December 2021 and 4 March 2022 finding that insufficient reasons had been provided by Mr Mokhtar to justify a review. ASFA further upheld the Trustee’s decision to file the Objection Notice of 28 February 2022, due to the notice complying with requirements in the Bankruptcy Act. In his submissions, the Trustee emphasised the fact that only one objection notice was cancelled by ASFA.
By August 2022, Mr Mokhtar had also filed five applications in the AAT with respect to his unsuccessful requests for AFSA to review the Trustee’s objection notices. These applications have been held in abeyance pending the outcome of these proceedings by an order made by the AAT on 18 August 2022.
On 19 August 2022, AFSA also advised that with the lodging on that date Mr Mokhtar’s application to have his bankruptcy annulled in the Federal Court, AFSA considered that it would not be appropriate for the Inspector General to undertake a review of the objections under s 149K of the Bankruptcy Act while the matter was pending before the courts.
5.14.3The decision on 9 August 2022 to cancel the notice of objection dated 29 April 2022
As indicated in the table above, a delegate of the Inspector-General decided to cancel the Trustee’s decision to file the notice of objection dated 29 April 2022, which concerned a failure by Mr Mokhtar to provide information (being the ground in s 149D(1)(d)). Specifically, in a letter dated 14 March 2022, the Trustee requested contact details, including residential and business addresses and phone numbers, of Edward and Madeleine Seyfarth. The Trustee further requested information about their occupation and role in the property settlement with Mr Mokhtar’s former spouse.
On 16 March 2022, Mr Mokhtar provided the Trustee with the email addresses of Edward and Madeleine Seyfarth. On the same day, the Trustee communicated with Edward Seyfarth by email. Nonetheless, the Trustee informed Mr Mokhtar by email on 16 March and 28 April 2022 that strict compliance with his request was required. The Trustee had also apparently been in communication with Edward Seyfarth regarding his role with respect to the property settlements in question.
Having regard to that material, on 29 July 2022, the delegate wrote to the Trustee with its preliminary view that the objection notice should be cancelled. In the letter, the delegate noted that in the Trustee’s communications with Edward, he could have used the opportunity to seek such information from him directly. However, in his response on 29 July 2022, the Trustee stated that he “did not know what communication with Mr Seyfarth you are referring to in which I could have sought the “information” to which you refer. I am actually surprised at the suggestion.”
The delegate concluded, in his final decision, that he was satisfied from the material that there is sufficient evidence to support the existence of this ground of objection “in a strict sense”. However, Mr Mokhtar had a reasonable excuse for not providing the full contact details of Edward and Madeleine Seyfarth “[g]iven that Edward and Madeleine Seyfarth had requested that you only provide their email addresses, and the Trustee has since been in communication with them regarding their role in the property settlements”. Accordingly, the delegate cancelled the notice of objection.
5.15 The garnishee of Mr Mokhtar’s salary by the Trustee on 29 June 2022
On 29 June 2022, the Trustee finally obtained a garnishee of 20% of Mr Mokhtar’s salary. I make further findings with respect to the apparent lack of judgement on the part of the Trustee delaying, until this late stage of the bankruptcy, in seeking to garnishee Mr Mokhtar’s salary.
6. THE PARTIES’ SUBMISSIONS
Mr Mokhtar submits that there has been an irretrievable breakdown in his relationship with the Trustee and that the circumstances of this case are such that it is in the best interests of the bankruptcy to remove the Trustee. As to the latter, among other things, Mr Mokhtar relied upon the following factors:
(1)It is unclear how the Trustee says that his forensic decisions and judgements were in the best interests of the bankruptcy, in all of the circumstances, having regard to his alleged failure to conduct appropriate investigations, the late filing of multiple notices of objection, and the failure to garnishee Mr Moktar’s regular income until June 2022.
(2)The turning point in the relationship for Mr Mokhtar leading to the breakdown in trust was the calculator, accompanying email, and 3 May letter, coupled with the failure to discharge him from bankruptcy following the sale of the Strauss Road property. The possibility that the calculator, accompanying email, and 3 May letter may be misunderstood was patent (even accepting, in the alternative to Mr Mokhtar’s primary submission, that the Trustee intended the letter to be provided only to the bank in the context of the proposed refinancing).
(3)It can be inferred that the Trustee’s actions in issuing multiple objection notices from December 2021 were prompted by Mr Mokhtar’s AFSA complaint.
(4)The volume and frequency of the objection notices from this date were such as to give rise to a legitimate concern that they were filed for purposes other than advancing the legitimate interests of the bankrupt estate.
In summary, counsel for Mr Mokhtar submitted that:
Mr Piscopo has now been administering the bankrupt estate for approximately 5 years. There appears to have been minimal investigations done in the first year and the First Report estimating the costs of the estate to be only approx. $17k. By the time of the Trustee’s Second Report dated 11 November 2021, the estimate of fees had risen to be $62,098, plus GST and disbursements, and stated in respect of this “[m]ost of the work has in fact been done”. In the Trustee’s tables of remuneration and disbursements tendered at trial, his costs are now over $311k, with additional disbursements of over $91k. Notwithstanding the surprising increase in costs, it remains unclear how progressed Mr Mokhtar’s bankruptcy is, what value of assets the Trustee anticipates being available for recovery and how the decisions he is making in administering the estate of the preceding 2 years (since November 2021) are commercial.
The Trustee’s plan for ending the bankruptcy shows no indication of being feasible or practicable. That plan, and the incidence of lodging further new Objection Notices as recently as last month (on 25 June 2023) suggests a new approach to this administration may be in the bests interests of achieving an optimal outcome for creditors, the estate and Mr Mokhtar himself. Under the Trustee’s administration, there has been no less than 5 AAT review applications and several AFSA complaints, apart from these Proceedings. A replacement trustee may also better serve community interests and Court resources.
(Citations omitted.)
The Trustee also submits that the “the first consideration … is the interests of the estate and the interest of the creditors”. In this regard, factors, such as the independence of the Trustee and whether it is the bankrupt’s conduct which has created the breakdown in the relationship with the Trustee are not separate from that consideration but are relevant to determining what is in the best interests of the bankrupt estate.
The Trustee’s case focuses upon Mr Mokhtar’s conduct in impeding the proper administration of the bankruptcy and the part which Mr Mokhtar’s conduct played in any breakdown in the relationship between him and the Trustee. Specifically, the Trustee submits that Mr Mokhtar cannot be allowed by his own conduct to attempt to generate and then rely upon an alleged reason for removing the Trustee. To permit him to do so would, in the Trustee’s submission, be to set “a dangerous precedent …. ‘If you’re the sort of bankrupt who can throw enough mud, then there’s a prospect that if you can just make this whole thing break down, just kill – throw your toys out of the cot, kill the whole situation, then – you know what? You’ve got a chance. There will be a new guy to come in and he will be your saviour…’.” Furthermore, the Trustee contends that, given Mr Mokhtar’s conduct thus far in the bankruptcy, the Court could not be persuaded that Mr Mokhtar would cooperate with any other Trustee.
The Trustee submits that Mr Mokhtar “was untruthful from the time of the preparation of his Statement of Affairs to the present time”. He denies that Mr Mokhtar was operating under any misconceptions as to the purposes of the 3 May letter or otherwise. Rather, he submits that Mr Mokhtar has been “deliberate in his conduct” and has sought to blame everyone but himself. Among other things, the Trustee relies upon: the unexplained circumstances by which Nabil came to hold a half share in the Strauss Road property for no consideration and contrary to the separation agreement between Mr Mokhtar and his former spouse; the alleged destruction of documents by Mr Mokhtar; and the exercise of the employment stock options by Mr Mokhtar in July 2021 without accounting to the bankrupt estate for the proceeds on the basis that the shares were his to do with as he wished. Nonetheless, the Trustee submitted that:
The Court is not asked to make comprehensive findings about Mr Mokhtar’s conduct. Rather evidence of Mr Mokhtar’s conduct is adduced to show that there has been an assiduous pattern of resistance to the trustee’s investigations, to show breaches of s 77(g) long before any tensions arose and to explain the background to the objections lodged.
(RS at [53].)
The Trustee contends that he bears no responsibility for any breakdown. Rather, in his submission, he “made every effort to recover what he could for creditors throughout the bankruptcy while conscious that Mr Mokhtar characterised himself as vulnerable, despite managing two audiometric clinics at work.” Thus, in the Trustee’s submission, in undertaking further investigations after 2021 and issuing the objection notices, he was merely continuing to carry out his obligations as Trustee after realising that Mr Mokhtar was not the truthful person he had made himself out to be. The Trustee’s case was that that realisation came about as a result of him becoming aware that Mr Mokhtar had “attempted to sell the Strauss Road property behind his back”, was not in fact residing in the property, and had been receiving rent from a hitherto undisclosed lease of the property to third parties. These matters were identified by the Trustee as critical in terms of the souring of the relationship between the Trustee and Mr Mokhtar.
7. DISPOSITION OF THE ISSUES
7.1 The Trustee’s investigations and objection notices between 16 December 2021 and 16 October 2022
7.1.1The “red flags” evident from the start of the bankruptcy
As I have earlier explained, the Trustee was subject to statutory standards under s 19 of the Bankruptcy Act, including to administer the estate as efficiently as possible by avoiding unnecessary expense, exercising powers and performing functions in a commercially sound way, and acting impartially. As Mr Mokhtar also submitted, the requirements in Div 42 of the IPRB also applied to the Trustee. As earlier explained, these include:
(1)making preliminary inquiries and actions to form a view about possible antecedent transactions and undisclosed assets (s 42-30 IPRB); and
(2)acting impartially (s 42-10 IPRB);
(3)expressing communications objectively and in a professionally courteous tone and manner (s 42-15 IPRB); and
(4)as soon as practicable after appointment as trustee, conducting appropriate investigations of the debtor’s property and income (s 42-220 IPRB).
I agree with the applicant that the necessity and prudence of undertaking investigations, as well as taking steps to protect the assets of the bankrupt’s estate, ought to have been especially evident in the circumstances of Mr Mokhtar’s bankruptcy. In particular, the Trustee was aware, even prior to his appointment, that Mr Mokhtar’s gambling, drinking, and inability to control his spending had led him to the brink of bankruptcy. Furthermore, other obvious “red flags” included:
(1)Mr Mokhtar’s statement of affairs disclosed only $213.00 in cash, including in his bank accounts;
(2)on the Trustee’s own evidence, as early as March 2018, he was concerned about what had happened to the money from the sale of the Italian shares and the money from the property settlement with Mr Mokhtar’s former spouse, and was suspicious of dealings in property shortly before the bankruptcy;
(3)Mr Mokhtar has largely been in arrears with his income contributions since he was issued the first assessment on 14 March 2018 of his compulsory income contributions pursuant to s 139W of the Bankruptcy Act despite being in full-time employment throughout the bankruptcy with a substantial income;
(4)on the Trustee’s own evidence, he warned Mr Mokhtar at least as early as 3 May 2018 that his bankruptcy would be extended through the filing of a notice of objection, and garnisheed, if he was too far behind in payment of the income contributions;
(5)Mr Mokhtar failed to provide the bank valuation of the Strauss Road property to the Trustee, despite a copy being requested by the Trustee as early as 8 March 2018; and
(6)Mr Mokhtar provided very few records despite the letter from the Trustee on 14 March 2018 demanding all of Mr Mokhtar’s records and repeated requests thereafter by the Trustee including on 3 May and 15 October 2019.
Leaving aside the notice of objection filed on 19 January 2021 for outstanding contributions (which were then in the substantial amount of $32,372.71), it was not until December 2021 that notices of objection were filed in support of the Trustee’s investigations. Further, and even more surprisingly, it was only in June 2022, and therefore after the first objection notice on 19 January 2021 was filed relating to this non-compliance, that Mr Mokhtar’s wages were garnisheed.
I accept the bankrupt’s submission that I should have regard to these matters in determining whether removal of the Trustee is in the best interests of the bankruptcy. I also agree with the applicant that the failings in the Trustee’s judgement, exposed by these aspects of the administration of the bankrupt estate were, with respect, inadequately explained by the Trustee and develop my reasons for so finding shortly. Nor is it apparent how these judgements could be said to have been in the best interests of the bankruptcy.
7.1.2The 3 May letter
For the reasons earlier given, I accept that the Trustee provided the 3 May letter solely to assist Mr Mokhtar in refinancing the Strauss Road property and that there was a valid difference between a sale and refinancing of the property in terms of accounting to the bankrupt estate. I have also accepted Mr Mokhtar’s evidence that he genuinely misunderstood the 3 May letter together with the calculator and its accompanying email. As a consequence of this, Mr Mokhtar could not understand why he was not being discharged from bankruptcy when the sale of his share in the Strauss Road property realised almost twice the amount he had been told would suffice to enable his discharge. The way in which Mr Mokhtar understood the letter, together with the calculator, was not, in my view, unreasonable. Further, I consider that the Trustee’s categorical refusal in cross-examination to accept that the letter, together with the calculator, might have been understood in this way by Mr Mokhtar, even in the face of AFSA’s findings, is indicative of a lack of objectivity on the part of the Trustee.
7.1.3Why did the Trustee change his approach to administration of the bankruptcy and file multiple objection notices between December 2021 and October 2022?
Counsel for the Trustee submitted that the Trustee was first alerted to the fact that something was “untoward” when, on 3 November 2021, he saw the agreement for the sale of the Stauss Road property and the attached lease agreement which showed that Mr Mokhtar was not, in fact, living in the property. In the Trustee’s submission, it was this which precipitated his investigations so late into the bankruptcy and the filing of the multiple objection notices. The Trustee therefore submitted that it was simply “happenstance” that the 3 May letter was sent around the same time. As counsel for the Trustee submitted:
The 3 May letter is very much not to our mind where the, so to speak, turning point is. That is as complaint made by Mr Mokhtar. What can be made of that complaint and how that impacts on Mr Piscopo’s handling of the bankruptcy, we say there is little to no impact, but we will deal with that in submissions. Your Honour, our case - nothing really in our case turns on that 3 May letter. We’re simply saying that the objections were all – and again, it’s by happenstance that they happened to happen at that time. But we’re saying that the investigations which then led from that – from the turning point which was the sale of the property, that’s where it started to become clear to Mr Piscopo where there were issues with his bankruptcy.
(Emphasis added.)
That submission, however, cannot be reconciled with the Trustee’s evidence to which I have referred at [210] above. It is also at odds with the Trustee’s advice in his updated report to creditors dated 11 November 2021 that “[m]ost of the work has in fact been done” and with correspondence from the Trustee to Mr Mokhtar on 1 December 2021. Specifically, the Trustee wrote advising Mr Mokhtar that:
If you want an accurate figure as to how much I required to discharge you from bankruptcy, I can give you that. It is essentially what you owe income contributions. The only reason why historically I gave you a higher figure was because you yourself requested a figure that would clear all the claims of the bankrupt estate against [your cousin], etc. as you claimed that they were stressing you out and you were being required to make the payments on their behalf in any case. Otherwise, the figure would have been lower.
As it stands, your income contributions debt is $31,315.15. If you were to pay today you would be required to pay $28,842.73 in view of the fact that there are still approximately 4 months to go in CAP 4. Might I stress that although on payment you would be discharged from bankruptcy, [your cousin], et. would not be absolved of their debts to the bankrupt estate unless their debts were also paid.
(Emphasis in the original.)
In other words, despite having been alerted to the fact that the Strauss Road property had been rented without the Trustee’s permission in early November, nothing in the letter to Mr Mokhtar providing a payout figure for him to be discharged from bankruptcy indicated any intention to conduct further investigations against him. I note that the Trustee was not alerted to the fact that Mr Mokhtar had apparently received rental income until November 2022, when he received information about Mr Mokhtar’s tax returns from the ATO.
While he also relies upon the bankrupt’s conduct with respect to the sale of the Strauss Road property, the Trustee gave a different explanation for the change in his approach to the bankruptcy in the First Trustee Affidavit. The Trustee said that appropriate investigations were undertaken by him from the outset but that Mr Mokhtar’s conduct had impeded those investigations. The Trustee claimed Mr Mokhtar had destroyed records and made many false and misleading statements, including in his statement of affairs. In that context, the Trustee sought to explain in his first affidavit why he suddenly started issuing multiple notices of objection to discharge from December 2021 by reference to his initial response to Mr Mokhtar’s claims to have mental health issues. Specifically, the Trustee said that:
Up to the time I started lodging multiple Notices of Objection to Discharge I had given Mr Mokhtar ample credit for his alleged mental health issues including by not filing Notices of Objection to Discharge. That was despite the fact that Mr Mokhtar failed to give me any evidence of ongoing mental health issues or memory failure despite being requested as noted in paragraphs 32 and 33 above of my affidavit. I did not object to Mr Mokhtar’s discharge before I did because I felt constrained by AFSA’s mental health policy as set out in paragraph 109 to 111 of my affidavit. However, after Mr Mokhtar’s dishonesty in relation to the selling the Strauss Road property without first seeking my permission and my reading of DPP v Luong, I then understood that it was my duty to change my approach.
(First Trustee Affidavit at [124](c); see also the reference to DPP v Luong [2021] VCC 1482 in the Trustee’s Concise Response at [33].)
As to his first reason, the Trustee gave evidence that “[i]n light of Mr Mokhtar’s assertion that he suffered from mental health issues and AFSA’s policy in regard to bankrupts with mental health issues I felt it was prudent on my part to be very cautious in dealing with Mr Mokhtar”. The evidence of the policy and of the Trustee’s understanding of it, however, was scant. The Trustee’s evidence was that:
at around the time of my appointment as trustee of the bankrupt estate of Mr Mokhtar, AFSA instituted a mental health awareness program. … The policy underpinning the program was confusing for trustees like me as to how to administer a bankrupt estate when a bankrupt repeatedly failed to cooperate, at the same time claiming mental health issues in his or her defence.
The Trustee attached a copy of what he described as the relevant webpages from AFSA’s website which explained that:
The Insolvency Mental Health Awareness Program (IMHAP) is a joint initiative of the Australian Financial Security Authority (AFSA), the Australian Securities and Investments Commission (ASIC), and the Australian Restructuring Insolvency and Turnaround Association (ARITA).
IMHAP has a dual focus: understanding the mental health of people accessing bankruptcy and insolvency services and addressing possible mental health implications for professionals providing these services.
The program, developed in conjunction with Mental Health First Aid Australia consists of:
1.a 90 minute overview session aimed at senior leaders, managers and registered practitioners.…
2.a blended course (comprising an e-Learning package and face-to-face training) aimed at those insolvency professionals who require a higher level of knowledge.
The website also contained hyperlinks through which a person could enrol in the 90 minute overview session and the self-paced interactive e-learning, and stated that “[i]t is AFSA’s expectation that all registered insolvency professionals complete this 90 minute overview session before December 2019”. The website further stated that face-to-face training sessions would be provided in 2019.
The Trustee did not give evidence of what he understood the “policy” to be, although I would infer that it is in broad terms the “dual focus” identified above. Nor did he give evidence that he had in fact undertaken either the 90 minute overview session or the blended course. Presumably, if he had done so, he would have given that evidence. However, even if he did complete one or both of the courses, he does not explain why that left him confused about the policy, in what respects he was confused about the policy, and why he did not take any steps to seek to clarify the policy.
As mentioned, the Trustee gave evidence that he became less “cautious” in administering the bankruptcy after reading an article published on 6 October 2021 by AFSA and the sale of the Strauss Road property. The article concerned a Victorian woman who was jailed after pleading guilty to offences under the Bankruptcy Act for disposing of property with the intent to defraud creditors. In the article, AFSA’s Acting Deputy Chief Executive, Peter Edwards, is quoted as stating that:
The insolvency system is built on integrity and transparency – and those who seek to undermine it must be appropriately disciplined …
We know that financial difficulties can be a stressful time for individuals, and we work closely with those experiencing hardship to provide support – however, individuals who deliberately misuse the system must be held accountable.
The defendant in these circumstances failed to disclose information about her assets to her bankruptcy trustee. As a result, genuine creditors have lost access to funds that should have been available to help repay the debts they were owed.
Once he read that article and the decision in Luong, the Trustee said that “I formed the view that I did not need to be quite so hesitant in dealing with Mr Mokhtar despite AFSA’s policy. As a result, I conducted further investigations in 2022.” However, the Trustee does not explain how the article addressed his confusion and why it led him to change his approach to the administration of the bankruptcy. Notably, in this regard, while the article referred to stress, it did not purport to address circumstances where the bankrupt suffers from mental health issues. Furthermore, the Trustee was still of the view, at this time, that there was some truth in Mr Mokhtar’s claims as to his mental health. Specifically, the Trustee advised the creditors in his updated report dated 11 November 2021 that he had no reason not to believe that there was some truth in Mr Mokhtar’s claims that his affairs became disorganised following the breakup of his marriage, which in turn had an adverse impact on his mental health.
It follows that I consider the Trustee’s evidence as to why he filed the 17 notices of objection within a 10-month period so late in the bankruptcy by reference to confusion about AFSA’s policy to be unconvincing.
Nor does the Trustee adequately explain the substantial delay in garnisheeing the bankrupt’s income. It was common ground that if the income contributions were not paid by the bankrupt, the Trustee had power to garnishee Mr Mokhtar’s salary: s 139ZL of the Bankruptcy Act. Yet, the bankrupt’s income was not garnisheed until 29 June 2022 – some four and a half years into the bankruptcy and eight months after the AFSA article. I found this aspect of the administration of bankruptcy particularly troubling. It makes no sense, with respect, for the Trustee not to take this step because of a concern for Mr Mokhtar’s mental health when the consequences were that the bankruptcy was extended in January 2021 to the statutory maximum as a result of Mr Mokhtar’s consistent inability to meet his income contributions. That approach to administration of the bankruptcy could only compound the stress on Mr Mokhtar. At the very least, some explanation was required from the Trustee as to why Mr Mokhtar’s income was not garnisheed in January 2021, yet none was forthcoming.
7.1.4The reasons for the filing of the objection notices between December 2021 and October 2022
Bearing in mind the gravity of the allegation, the evidence falls well short of establishing a sufficient basis on which I could infer that the objection notices were filed by the Trustee as some kind of improper response to Mr Mokhtar’s complaint against the Trustee to AFSA lodged on 30 November 2021. Ultimately, the basis on which the applicant alleges an improper purpose rises no higher than the allegedly “conspicuous coincidence” of the Trustee’s objection notices being filed within days of Mr Mokhtar lodging his complaint with AFSA and their volume and frequency (ASC, [64]). That notwithstanding, it is possible that the pursuit of the complaint by Mr Mokhtar might have contributed to the Trustee’s sense of aggrievement and loss of objectivity, but again, this can rise no higher than speculation and therefore I have not taken it into account.
The more likely inference is that the filing of the notices of objection were the Trustee’s response to the very considerable difficulties and frustration which he was confronting in getting Mr Mokhtar to understand and comply with his obligations as a bankrupt. The evidence also indicates that in some cases, Mr Mokhtar complied with his obligations after the filing of certain objection notices, supporting the Trustee’s view, to some extent, that the objection notices may operate as an impetus for Mr Mokhtar to cooperate.
That said, however, I regard the sheer number and timing of the objection notices as a further indication of a loss of objectivity by the Trustee. In some cases, objection notices were filed within a day, or a few days, of each other. Two were even filed on the same day. No explanation for why he adopted this approach was given by the Trustee. Nor was there an adequate or reasonable explanation for why some of the notices which related to longstanding issues with Mr Mokhtar’s lack of cooperation should not have been filed earlier. It is also clear that, while Mr Mokhtar complied with his obligations following the filing of some of the notices of objection leading to their withdrawal, this flood of objection notices further inflamed tensions with Mr Mokhtar. This was evident from his correspondence with the Trustee and the number of challenges to the notices taken by Mr Mokhtar.
7.2 Has there been an irreparable breakdown in the relationship between the Trustee and Mr Mokhtar?
While Mr Mokhtar submits that there has been an irretrievable breakdown in his relationship with the Trustee, the Trustee submits only that “a degree of antagonism” has arisen. The Trustee contends that this occurs in many bankruptcy administrations and that the antagonism between him and Mr Mokhtar has not risen to the level of an irreparable breakdown in the relationship.
As to Mr Mokhtar, I accept that there has been a genuine loss of trust in the Trustee and a very strong feeling that he has been aggrieved. There is no doubt that Mr Mokhtar’s sense of aggrievement is in part attributable to his repeated failure to grasp or comply with basic aspects of his obligations as a bankrupt. An example is his patently wrong view that the stock options remained his and the money from their sale after the bankruptcy was his to gamble away. The Trustee was plainly correct to pursue those monies and require them to be accounted for to the estate in bankruptcy.
However, I also accept Mr Mokhtar’s evidence that the turning point in the relationship for him was the 3 May letter and calculator from the Trustee, coupled with his failure to be discharged from bankruptcy following the sale of the Strauss Road property. The Trustee must bear responsibility to this extent for the breakdown in the relationship insofar as his letter led to the misunderstanding, which was not an unreasonable one. Subsequent conduct in the administration of the bankruptcy has compounded the breakdown including the filing of 17 notices of objection. Nor, as counsel for Mr Mokhtar submitted, has the flow of objection notices abated, with a further two objection notices filed since these proceedings were instituted.
It is also evident from the Trustee’s evidence, submissions and conduct since December 2021 that he had no trust in Mr Mokhtar’s truthfulness or his ability to comply with his obligations as a bankrupt. Indeed, the evidence has established that there is substantial justification for those views. What is more relevant, however, is the question of whether the Trustee has lost the objectivity demanded of him as a trustee in bankruptcy. I accept the applicant’s submission that the evidence establishes that objectivity has been lost. The impression which the Trustee’s evidence conveyed was that he felt betrayed by Mr Mokhtar to whom he believes that he extended an unusual degree of latitude in the first three years of the bankruptcy. As an aspect of this, when challenged on aspects of his conduct of the bankruptcy, the Trustee was defensive and categorical. He did not admit to any possibility of misjudgement or misunderstanding. An illustration of this is his position with respect to the possibility that the calculator, accompanying email, and 3 May letter might have been misunderstood. This is also evidenced by the tone of some of the correspondence from the Trustee to Mr Mokhtar, Mr E Seyfarth and Mr Mokhtar’s former spouse, to which I have already referred.
7.3 Is it in the best interests of the bankruptcy to remove the Trustee?
As I have earlier explained, there is no requirement for an applicant to demonstrate misconduct or a breach of duty by the Trustee to enliven the Court’s power to remove a trustee in bankruptcy under s 90-15. Rather, as, for example, Dixon J observed in Miller v Cameron (1936) 54 CLR 572 at 580 by analogy (with respect to an application to remove a trustee of a trust for the benefit of his creditors):
The jurisdiction to remove a trustee is exercised with a view to the interests of the beneficiaries, to the security of the trust property and to an efficient and satisfactory execution of the trusts and a faithful and sound exercise of the powers conferred upon the trustee. In deciding to remove a trustee the Court forms a judgment based upon considerations, possibly large in number, and varied in character, which combine to show that the welfare of the beneficiaries is opposed to his continued occupation of the office. Such a judgment must be largely discretionary. A trustee is not to be removed unless circumstances exist which afford ground upon which the jurisdiction may be exercised.
Given my findings as to the Trustee’s loss of objectivity, the complete breakdown in the relationship between the Trustee and Mr Mokhtar, and the fact that both parties have contributed to that breakdown, I consider that it is in the best interests of the bankruptcy that the Trustee be removed.
Finally, I had concerns about the timetable prepared by the Trustee for the discharge of Mr Mokhtar from bankruptcy, which sets out multiple steps which the Trustee intended to carry out in parallel if he continued as trustee. These involved several sets of proceedings against third parties. However, ultimately, I did not take this into account in reaching my decision on the application because it will be for the new trustee to determine what steps should be taken.
8. CONCLUSION
For the reasons set out above, I have reached the conclusion that it is in the best interests of the bankruptcy that the Trustee be removed. I reiterate that this decision is not based upon misconduct on the part of the Trustee but because the present Trustee has reached a point where he is unable to bring an objective and dispassionate mind to bear upon the administration of this bankruptcy. Nor, and as an aspect of this, can it be said that the irreparable breakdown in the relationship between the Trustee and Mr Mokhtar was engineered by Mr Mokhtar so that the Trustee might be removed. Nor was Mr Mokhtar the sole cause of the breakdown, notwithstanding his uncooperative, irresponsible, and at times abusive, conduct in the course of the bankruptcy. It is to be hoped that Mr Mokhtar’s attitude towards his responsibilities as a bankrupt will change and that he will fully cooperate with the new trustee. Absent that level of cooperation by him, the bankruptcy will almost certainly run to the statutory maximum of 8 years.
In the circumstances, I consider that the parties should be afforded an opportunity to make submissions as to the appropriate order as to costs.
I certify that the preceding two hundred and thirty-seven (237) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Perry . Associate:
Dated: 13 May 2024
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