Mokhtar v Piscopo

Case [2024] FCA 493

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…

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AGLC
Mokhtar v Piscopo [2024] FCA 493
Case
[2024] FCA 493
Decision Date

CaseChat Overview and Summary

Ahmad Shaib Mokhtar, the bankrupt, filed an application under section 90-15 of the Insolvency Practice Schedule (Bankruptcy), Schedule 2 of the Bankruptcy Act 1966 (Cth) to remove his trustee, Piscopo. The dispute centred on whether the relationship between Mokhtar and Piscopo had irretrievably broken down, whether Piscopo had lost the objectivity required of a trustee, and whether his removal was in the best interests of the bankrupt estate. The court needed to decide if Mokhtar's failure to cooperate and Piscopo's filing of 17 objection notices within a 10-month period indicated an improper purpose or if Piscopo's lack of objectivity had exacerbated the breakdown. Additionally, the court had to determine if the trustee's actions warranted his removal.

The court found that Mokhtar had failed to cooperate in multiple respects, which, combined with Piscopo's lack of objectivity, led to the irretrievable breakdown of their relationship. The trustee's filing of 17 objection notices within a 10-month period raised concerns, but the court did not find evidence that the notices were filed for an improper purpose. However, Piscopo's lack of objectivity exacerbated the breakdown, and the court concluded that replacing the trustee was in the best interests of the bankrupt estate. The court emphasised that the outcome was not a vindication of Mokhtar's conduct.

The court considered the quality of evidence, noting the undesirability of direct speech in affidavits despite the passage of time and the witness not recalling the precise words used in the conversations. The court also considered whether there was a failure to comply with the rule in Browne v Dunn regarding the failure to cross-examine Piscopo on certain topics. Ultimately, the court concluded that the evidence was sufficient to satisfy the balance of probabilities standard, given the seriousness of the allegations against Mokhtar.

In its decision, the court ordered Piscopo to cease being the trustee of Mokhtar's bankrupt estate. The parties were given the opportunity to be heard separately on costs, with a deadline to indicate their wishes by 3 June 2024. If the parties could not agree on costs, they were to agree on a timetable for short submissions and evidence on costs, with the final determination subject to the court's order. The court also granted liberty to apply for further orders.

Orders

Orders of the court

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.

Background

Background to the litigation

Full text does not contain this section.

Evidence

Evidence Before The Court

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. EVIDENCE4.1 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”.

Decision

Reasons for decision

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

Ratio Decidendi

Legal Principle Established

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.)