Morton, R.W. v Official Receiver for the Bankruptcy District of the State of Victoria
[1995] FCA 465
•28 Apr 1995
IN THE FEDERAL COURT OF AUSTRALIA
BANKRUPTCY DISTRICT OF
THE STATE OF VICTORIA
GENERAL DIVISION VT 932 of 1994
RE: ROBERT WILLIAM MORTON
Applicant
OFFICIAL RECEIVER FOR THE BANKRUPTCY DISTRICT OF
THE STATE OF VICTORIA
Objector
Coram: Olney J
Place: Melbourne
Judgment: 28 April 1995
Reasons 14 June 1995
published:
REASONS FOR JUDGMENT
THE APPLICATION
Robert William Morton (the applicant) became a registered trustee under the provisions of the Bankruptcy Act 1966 (the Act) on 18 February 1983. Subsequent to the commencement of the Law and Justice Legislation Amendment Act 1990 (Act No 115 of 1990) his registration was extended pursuant to the provisions of s 25(2) and (3) of that Act to 9 September 1994. On 8 September 1994 he applied for an extension of the term of his registration pursuant to s 155A. The Official Receiver in Bankruptcy for the Bankruptcy District of the State of Victoria (the Official Receiver) gave notice pursuant to s 155A(4) of the Act of his objection to the application for extension. The objection was referred to the Court pursuant to s 155A(5) for a direction to grant or refuse the application. The matter was heard on 26, 27 and 28 April 1994. At the end of those proceedings I announced my decision in the following terms:
I have reached a firm view that I am satisfied that Mr Morton is capable of performing the duties of a trustee and is otherwise a fit and proper person to be registered as a trustee. I propose to give detailed reasons in writing in due course but at this stage I propose to direct the Registrar to grant his application for extension of the term of his registration as a trustee. I propose to reserve the question of costs. That can be a matter of further submission once my reasons are published.
I now publish my reasons.
THE LEGISLATIVE SCHEME
The Law and Justice Legislation Amendment Act 1990 introduced a number of changes to the previously existing scheme whereby persons became registered as trustees under the Act. It is unnecessary to refer to the previous scheme other than to mention that it did not contain any requirement for a trustee's registration to be renewed or extended from time to time.
A major change brought about by the amending legislation was to require trustees to apply every 3 years for an extension of the term of their registration. A trustee who immediately before the commencement of the amendments was duly registered was given the option to give notice of his or her wish to continue to be a registered trustee, and if such notice was given within the prescribed period, the trustee was deemed to be registered for a term of 3 years from the date of the notice.
Trustees are required to lodge with the relevant Registrar a triennial statement setting out prescribed information (s 161A).
The Act now provides that a person who is registered under s 155 may within 6 months before the end of the current term of his or her registration apply for an extension of the term (s 155A(1)). The Inspector-General or an Official Receiver may, within a limited time, object to the trustee's application (s 155A(4)). If there is no objection, the Registrar must grant the application, otherwise it must be referred to the Court for a direction to grant or refuse it (s 155A(5)). The current term of the registration continues until the application is finally determined (s 155A(8)).
This appears to be the first occasion on which the Court has been required to deal with a reference by a Registrar pursuant to s 155A(5).
The Act does not provide any clue as to the basis upon which an objection may be made nor does it set out the criteria to be applied by the Court in determining whether the Registrar should be directed to either grant or refuse an application. It is appropriate therefore to first refer to the criteria applicable to an original application for registration.
Only a natural person may make application for registration as a trustee (s 155(2); s 155(4)).
A person who intends to apply for registration as a trustee may apply to the Official Receiver for a report under s 154A. On receipt of such an application the Official Receiver is required to cause the applicant to be interviewed and must make such inquiries as are thought necessary and then to prepare and give the applicant a written report stating the Official Receiver's opinion of the applicant's ability to perform the duties of, and fitness to be registered as, a trustee (s 154A(3)).
The criteria for registration are these.
The applicant must:
a)submit a written application containing prescribed information which must be accompanied by the prescribed fee and an Official Receiver's report under s 154A (s 155(3));
b)hold certain specified professional qualifications (s 155(3A)(a)), and
c)not be an insolvent under administration
(s 155 (3A)(b)).
d)reside in Australia (s 155(3A)(c)).
ii)The Court, having regard to the s 154A report, must be satisfied that the applicant is capable of performing the duties of a trustee and is otherwise a fit and proper person to be registered as a trustee (s 155(3A)(d)).
The Court must refuse an application if the applicant has been convicted of an offence involving fraud or dishonesty and makes application for registration within a period of 5 years of the conviction or (if the applicant was sentenced to imprisonment) of the applicant's release from prison (s 155(3B)).
Upon the necessary criteria being established the Court may by order direct that the applicant be registered as a trustee upon the applicant entering into a bond in an amount and for purposes which are prescribed with such surety or sureties as may be approved by the Registrar. (s 155(3A)).
There are various circumstances in which the registration of a trustee may be cancelled. Pursuant to s 176, where the Court is satisfied that a trustee of a bankrupt's estate has been guilty of a breach of duty in relation to the bankrupt's estate or affairs, it may on the application of the Inspector-General or of a creditor who has proved a debt in the bankruptcy, cancel the trustee's registration. A similar power exists under s 212 in corresponding circumstances where the trustee is or has been a controlling trustee in relation to a debtor (s 155(5B)). The Court may also cancel the registration of a trustee on the application of the Registrar if it is satisfied that the trustee fails to maintain the amount of the bond required by s 155(3A) at the required level or fails to submit a triennial statement as required by s 161A. (s 155(5C)). In cases in which neither s 176, s 212 nor s 155(5C) apply, the Court may at any time on the application of the Registrar or any other person or of its own motion, cancel the registration of a trustee (s 155(5B)). The Act is silent as to the circumstances in which the Court will be justified in exercising the power of cancellation under s 155(5B).
The Court's power to cancel a trustee's registration pursuant to s 155(5B) and its power to direct the Registrar pursuant to s 155A(5) to refuse a trustee's application for extension of the term of his or her registration would be appropriately exercised in cases where for example, the trustee has ceased to hold the professional qualifications required for registration, has become an insolvent under administration, has ceased to reside in Australia or has been convicted of an offence involving fraud or dishonesty. In each of those cases one of the essential criteria for obtaining registration would no longer exist. And likewise, if the Court were satisfied that the trustee is no longer capable of performing the duties of a trustee or is otherwise not a fit and proper person to be registered as a trustee, an essential basis for registration would no longer exist.
As has already been observed, the Act provides no guidance as to the grounds upon which the Official Receiver may object to an application under s 155A but it would not seem to be consistent with the policy of the legislation for the Court to direct the Registrar to refuse an application otherwise than on a ground which would justify cancellation or a ground which relates to matters referred to in ss 155(3A) or 155(3B).
There is one further matter of a preliminary nature to which reference should be made. Rule 61D of the Bankruptcy Rules provides that in the case of an objection under s 155A(4), the notice of objection must set out the reasons why the Inspector-General or the Official Trustee objects to an extension of the term of the trustee's registration (r 61D(2)). If the trustee intends to dispute the objection he or she must file a notice to that effect (r 61D(3)(b)). Such notice must set out the reason why the objection is disputed (r 61D(4)).
Given the serious consequences that may flow to a trustee whose registration is not extended, and having regard to the rules relating to the contents of an objection and the trustee's notice in reply, it is my view that the rules of procedural fairness and natural justice dictate that the scope of an objection is confined by the grounds asserted in the notice of objection.
In his reply to the final submissions of counsel for the applicant, counsel appearing for the Official Receiver said (at T 235-6):
Your Honour, my learned friend submitted that the official receiver is bound by its objection. Your Honour, as I said in the submission on the matter on which your Honour ruled, and as I said in the opening, the Official Receiver bears, in our submission, an evidentiary onus of proof in relation to matters alleged against the applicant, but the objection that has been filed is only the key by which the proceeding comes before your Honour. It is not a pleading. Certainly there are matters in that which have been dealt with in the notice of disputed facts and in the material. And what I have said in opening, and what I still say, in my respectful submission, your Honour, is that the matters are at large. The applicant has heard in the opening what matters are regarded by the Official Receiver as serious in the way in which they have been viewed.
...
So to confine the Official Receiver to an objection as if it were a pleading, drawn at a time when all the information was not available, and when the advantage of cross examination and so on is not there, is both unfair and not in accordance with the scheme of the Act. So although my learned friend glossed over it, he did make the point very boldly that we are bound by the objection, and I think what he was suggesting to your Honour was that your Honour should go through the notice of objection and tick off those that apply and those that do not. In my submission, that is not the way to go. What is appropriate is for your Honour to evaluate all the evidence that you have heard and the material and form a view as to whether or not, given the high standards that are involved, this particular trustee is appropriate to continue with his registration and so on.
I agree with counsel that the Official Receiver bears the onus of proving the facts alleged against the applicant as the basis of the objection and I agree that the Court's task is to evaluate the evidence and form a view as to whether or not the applicant's registration should be extended but I do not accept the proposition that the objection is but a means for getting the matter before the Court and that the applicant is required to answer whatever allegations may be asserted on behalf of the Official Receiver in counsel's opening address. Such a proposition flies in the face of all accepted standards of fairness and should be rejected. I have no doubt that the function of rule 61D is to ensure that an applicant will not be taken by surprise and will be required to answer only those matters which are said by the objector to be the reasons for the objection.
THE OBJECTION
The Official Receiver does not say that the applicant has ceased to hold the requisite professional qualifications, that he is an insolvent under administration, that he no longer resides in Australia or that he has been convicted of an offence involving fraud or dishonesty. And any suggestion that he is not a fit and proper person to be registered as a trustee is expressly disavowed. The matter was argued on the basis that the applicant was not capable of performing, or alternatively not willing to perform, the duties of a trustee although the general thrust of the evidence was to the effect that he had been guilty of a breach of his duty as a trustee in relation to the estates or affairs of several bankrupts.
In the notice of objection the Official Receiver says:
I object to an extension of the term of the registration on the ground that the applicant has demonstrated that he is either incapable of performing, or unwilling to perform, the duties of a registered trustee, in that:
(Particulars are then set out in relation to 5 matters, following which the notice concludes)
The reason for my objection is that the applicant has demonstrated by the manner in which he has conducted the aforementioned administrations, and in correspondence and discussions with my officers in relation to these matters, that he is either unwilling or incapable of performing the duties of a registered trustee to a satisfactory level. By reason of the aforementioned conduct, I consider that he has committed a number of breaches of his duties and obligations as a registered trustee, which leads me to conclude that either he does not possess, or is not prepared to exercise, the knowledge, skills and abilities required in performing the functions of a registered trustee. Accordingly, there is a substantial risk that, if the application for extension is granted, breaches of the applicant's duties as a trustee will continue and will cause further detriment to the interests of bankrupts, debtors and creditors of bankrupt and Part X estates administered by the applicant.
I propose to deal briefly with the issues raised in the notice of objection in relation to four estates. One other matter was raised in the objection which suggested irregularities in the charging of his remuneration by the applicant but this was not pursued. The Official Receiver conceded that his assertions were baseless and no evidence was led in relation to them. It is unfortunate that the allegations were made in the first place.
THE ESTATE OF DARYL JOHN CALLANDER
This was a deed of arrangement under Part X. The applicant had been the controlling trustee of the debtor pursuant to an authority under s 188. The deed of arrangement subsequently entered into provided for the assignment by the debtor to the trustee of the book debts of the partnership business of the debtor and his wife and for the debtor by a specified date to borrow sufficient funds to pay all unsecured creditors in full. The deed also provided that if the debtor failed to borrow the necessary funds he would assign all his divisible property to the trustee for the benefit of his unsecured creditors generally. The trustee was given the right to lodge a caveat against the title to properties jointly owned by the debtor and his wife. The debtor's wife executed a separate deed whereby she assigned her interest in the book debts to the trustee and consented to the creation of a caveatable interest in the properties referred to. She further consented to do all things necessary to provide security for the funds to be borrowed by the debtor by mortgage over the properties or the creation of a change over the business.
The Official Receiver asserts that:
(a)after the execution of a deed of arrangement by the debtor and the applicant as trustee and after ceasing to be the controlling trustee of the estate, the applicant continued to control the business of the debtor;
(b)the applicant charged fees for continuing to control the business after the execution of the deed;
(c)the applicant, during the course of his administration, removed caveats over the property of the debtor to permit the debtor to procure a loan and failed to lodge a further caveat to protect his interest in the debtor's real estate; the debtor disposed of part of his real estate without the knowledge of the applicant and to the potential detriment of the creditors;
(d)the applicant has purported to extend the time for the debtor's compliance with a term of the deed which required the debtor to borrow funds to pay his unsecured creditors in full by a specified date;
(e)the applicant has failed to enforce the assignment of the debtor's divisible property as required by the deed;
(f)the applicant has been inexcusably dilatory in the performance of his duties and obligations under the deed;
(g)the above conduct is in breach of the applicant's duties as a trustee and has been detrimental to the interests of the creditors of the debtor;
(h)in my opinion, the explanations of the applicant for the aforementioned conduct are not satisfactory.
the applicant has overdrawn his remuneration as controlling trustee by $2,274.30;
The applicant denies the allegations contained in paragraph (a). He says that after he ceased to be controlling trustee, at the request of the debtor, he continued to assist him in the conduct of the business until 30 June 1993 but made no decisions in relation to the conduct of the business. I found the applicant's evidence to be credible. There is no substance in the Official Receiver's complaint.
In reply to paragraph (b) the applicant says that he charged fees for assisting the debtor in his business but did not charge fees for controlling same. He did however charge fees as his remuneration under the deed. I accept the applicant's explanation. There is no evidence to contradict it.
The debtor was unable initially to raise the necessary funds from the existing mortgagee of the jointly owned properties as had been his intention. Finance was secured from another source. Caveats lodged by the applicant were withdrawn to permit the registration of a new mortgage, but the amount so procured was insufficient to pay both the unsecured creditors and the cost of the administration. Further caveats were lodged over both properties about 11 months later. Subsequently, one caveat lapsed when the debtor and his wife sold one of the properties and the other was withdrawn two weeks later. Sufficient funds were obtained from the debtor to enable the creditors to be paid in full. No detriment was suffered by reason of the delay in relodging the caveats.
The complaints in paragraphs (d) and (e) turn upon differing views as to the proper construction of the deed. It is unnecessary to enter upon a debate as to whether the applicant's construction was correct or not. There is no doubt that at all times he acted in good faith and that the decisions he made were in the interests of the creditors.
The applicant denies he was dilatory in the performance of his duties and obligations under the deed. He says that the unsecured creditors were paid in full as have the costs of the administration. Whilst there may have been some delay in the payment of the second and final dividend to the creditors the result achieved was more advantageous to them than would have been the case had the debtor been forced into bankruptcy. As it was, the applicant's efforts were instrumental in ensuring the creditors were paid in full. None of the creditors has complained of any detriment. The problem which the applicant had to overcome was caused by an anomaly in the deed of arrangement which required the debtor to pay to the trustee on 10 May 1993 sufficient funds to pay creditors who proved their debts by 10 June 1993. Such a provision was almost bound to give rise to difficulty and it is to the applicant's credit that he was successful in ensuring that the creditors were paid.
The complaint in paragraph (i) is at the most trivial. I accept the applicant's evidence that if he did overdraw his remuneration as controlling trustee (which he denies) then he underdrew his remuneration as trustee under the deed to the same extent.
No facts have been established in relation to the applicant's role in the affairs of Daryl John Callander that suggest either that he has been guilty of a breach of duty in relation to the debtor's estate or affairs or that he is not capable of performing, or not willing to perform, the duties of a trustee.
THE ESTATE OF MICHAEL JAMES PALMER
This was a bankrupt estate of which the applicant was appointed trustee. The Official Receiver says:
(a)the applicant, as trustee of the estate, sold property of the bankrupt having a net value exceeding $50,000.00 without the permission of the creditors of the bankrupt, a committee of inspection or the leave of the Court in accordance with sub-section 135(1)(a) of the Bankruptcy Act 1966;
(b)alternatively to (a), the applicant made a compromise in respect of a claim exceeding $50,000 arising out of the administration of the estate of the bankrupt without the permission of the creditors of the bankrupt, a committee of inspection or the leave of the Court in accordance with sub-section 135(1)(h) of the Bankruptcy Act 1966;
(c)the above conduct is in breach of the applicant's duties as a trustee and may have been detrimental to the interests of the creditors of the bankrupt;
(d)in my opinion, the explanations of the applicant for the aforementioned conduct are not satisfactory.
In this matter the trustee acted on legal advice. It may be the case that there is scope for more than one view as to the validity of the advice given but there is no doubt that advice was obtained by the applicant from a qualified and competent lawyer and that he acted on that advice in good faith. It is unnecessary to canvass the facts or to debate the differing views in relation to the legal advice. The view taken by the applicant's legal adviser was clearly arguable. I am not concerned in this proceeding to determine whether the advice was correct. No detriment has been shown to have been suffered by any creditor.
No facts have been established in relation to the applicant's role in the administration of the estate of Michael James Palmer that suggest either that he has been guilty of a breach of duty in relation to the bankrupt's estate or affairs or that he is not capable of performing, or not willing to perform, the duties of a trustee.
THE ESTATE OF PHILIP JOHN WALDEGRAVE-KNIGHT
This matter was a Part X deed of arrangement of which the applicant was appointed trustee. The Official Receiver's allegations are that:
(a)after the execution of a deed of arrangement by the debtor and the applicant as trustee and after ceasing to be the controlling trustee of the debtor's estate, the applicant continued to control property (being a Rolls Royce motor vehicle registered no. RR 176) of the debtor;
(b)the applicant is aware of the debtor's failure to comply with the terms of the deed (being the debtor's failure to sell the said motor vehicle as required by the deed) but has neither taken steps to enforce the debtor's compliance or to convene a meeting of creditors to consider terminating the deed;
(c)contrary to the requirements of the deed, the applicant has received remuneration out of contributions paid by the debtor to the estate;
(d)the applicant has failed to furnish to the Registrar of the Federal Court of Australia a proper account of his receipts and payments as controlling trustee in accordance with section 211 of the Bankruptcy Act 1966;
(e)the applicant has failed to furnish to the Registrar proper accounts of his receipts and payments as trustee of the estate in accordance with sections 175 and 237 of the Bankruptcy Act 1966;
(f)the above conduct is in breach of the applicant's duties as a trustee and has been detrimental to the interests of the creditors of the debtor;
(g)in my opinion, the explanations of the applicant for the aforementioned conduct are not satisfactory.
This matter occupied considerable time to no avail. The allegations of the Official Receiver do not stand up to
scrutiny. The assertion in paragraph (a) has been proved incorrect. The circumstances were not as are there suggested.
The matters asserted in paragraphs (b) and (c) have been shown to be incorrect. The applicant has not been shown to have acted in contravention of the terms of the deed.
As to the foregoing and to the other matters alleged by the Official Receiver, I was favourably impressed by the applicant's explanations and formed the view that nothing in his conduct of the affairs of the debtor amounts to a breach of duty or suggests that he is not capable of performing, or is not willing to perform, the duties of a trustee.
THE ESTATE OF SAVVAS CHRISTODOULOU
This is a bankruptcy of which the applicant is the trustee. The Official Receiver alleges that:
(a)the applicant, in his capacity as trustee of the estate, purported to convene a meeting of creditors, notice of which was intentionally not given to all creditors of the bankrupt;
(b)at the said meeting of creditors, the applicant failed to comply with the procedures as to the conduct of creditors' meetings prescribed by the Bankruptcy Act 1966.
(c)in particular, the applicant purported to procure the appointment of a committee of inspection at the said meeting by an ineffective resolution.
(d)the applicant filed with the Court certificates as to the passing of resolutions purportedly passed at the said meeting, including a certificate as to the resolution for the appointment of a committee of inspection.
(e)the above conduct is in breach of the applicant's duties as a trustee and may have been detrimental to the interests of the creditors of the bankrupt;
(f)in my opinion, the explanations provided by the applicant for the aforementioned conduct are not satisfactory.
In his notice under rule 61D(3)(b) Morton makes the following response to these allegations:
(a)In reply to paragraph 5(a) of the notice of objection the applicant says that he did convene a meeting on 4 November 1993 but that he did not consider the meeting to be a "formal" meeting of creditors as contemplated by section 64 of the Act. The meeting was described in the notice as a meeting of interested creditors. Accordingly the applicant did not consider it was necessary to give notice of the proposed meeting to certain creditors whose claims he did not consider to be at arm's length or genuine. In this respect the applicant refers to the notice of meeting of interested creditors of 26 October 1993. The creditors to whom notice was not given were the bankrupt's parents, the bankrupt's parents-in-law, Andrew Savva, a close associate of the bankrupt and one John Phillips, who has since informed the applicant that he makes no claim on the estate. Furthermore, not only did the applicant believe the claims of those four parties to be without any foundation, but in the light of what had occurred on a previous occasion believed that there would be a violent uproar if these parties attended the interested creditors meeting.
(b)In reply to paragraph 5(b) of the notice of objection the applicant refers to and repeats paragraph 5(a) hereof and says that in the circumstances he was not obliged to comply with the procedures as to the conduct of creditors meetings prescribed by the Act.
(c)In reply to paragraph 5(c) of the notice of objection the applicant denies that he purported to procure the appointment of a committee of inspection at the meeting by an ineffective resolution and says that the committee of inspection was appointed at the insistence of the creditors present. The agenda for the meeting contained in the notice of 26 October 1993 was a standard agenda appropriate to a meeting convened under section 64 of the Act. It was included in the notice of 26 October 1993 in error. The meeting was a very excitable and emotional meeting. There were some 70-80 creditors present, most of whom were members of the Greek community. Few of them spoke English. The bankrupt was a solicitor and the amount owing to unsecured creditors is in excess of $12,000,000.
When, through the interpreter present at the meeting the creditors advised that they insisted on the appointment of a committee of inspection the applicant advised the meeting that they were entitled to appoint a committee. In view of the circumstances surrounding this estate and the nature of the claims made by the creditors to whom notice was not given the applicant relies upon section 64ZF of the Act.
(d)In reply to paragraph 5(d) of the notice of objection the applicant admits that he filed a certificate as to the passing of a resolution at the meeting.
(e)In reply to paragraph 5(e) of the notice of objection the applicant denies that his conduct was in breach of his duty as a trustee and that his conduct may have been or has been detrimental to the interests of the creditors of the bankrupt.
(f)In reply to paragraph 5(f) of the notice of objection the applicant denies that the explanations provided by him are not satisfactory.
In his affidavit evidence the applicant deposes to the following further facts in relation to this matter:
... Christodoulou was a solicitor who became a bankrupt owing unsecured creditors in excess of $12,000,000. Most of the creditors are members of the Greek community who, it seems, knew and trusted Christodoulou. Christodoulou's activities are being investigated by the Fraud Squad. I am informed by Anne Sharp of Lander & Rogers, Solicitors and verily believe that she attended the meeting conducted under Part X of the Act prior to sequestration, that it erupted into violence, ended in uproar and that the attendance of the police was required and that they escorted the bankrupt from the meeting for his own safety. ... The administration of Christodoulou's estate is complex. My staff or I have had to analyse over 300 property transactions and to date, five proceedings have been commenced, two in the Federal Court and three in the Supreme Court. The cost of the administration has been high. To date my staff and I have spent in excess of $100,000 worth of time on the matter. I have not been paid for any of this time.
... The agenda for the meeting was a standard agenda appropriate for a meeting of creditors convened under the Act. It was not my intention to conduct such a meeting and the agenda was included in the circular in error. The primary purpose of the meeting was to obtain funding to enable legal proceedings to be undertaken in the form of examinations of various people under Section 81 of the Act.
The "creditors" not invited were Andrew Savva, an associate of the bankrupt, John Thomas Ivan Phillips, the bankrupt's parents and the bankrupt's parents-in-law. Even though each of these people was named in the statement of affairs completed by the bankrupt as a creditor as a result of enquiries made by me I did not believe they were genuine creditors. As the funding I hoped to obtain was to be used to examine these people and others under Section 81 of the Act and to commence proceedings I did not consider it appropriate to have them present at the meeting to consider the question of funding. Further, I was concerned that violence might ensue if any member of the bankrupt's family was present at the meeting. There is no requirement to invite the bankrupt to any meeting whether it be a meeting of creditors under the Act or not. I refer to Section 77 of the Act in this respect.
... The meeting was a very emotional one and the creditors were extremely angry. Towards the end of the meeting, the question of the appointment of a committee of inspection arose. I believe the question was raised from the floor. I advised the meeting that the creditors could appoint a committee of inspection of not more than five and not less than three people. Various people then indicated that they wanted to be on the committee and a vote was taken appointing Ian Murray, Jenny Thomas, Con Koritzas, Peter Mina and Paul Condos as members of the committee. Because of the emotion of the meeting and the anger of creditors I did not have the opportunity to think through the implications of the appointment of a committee of inspection at that meeting. Although not required by the Act or the Rules, in accordance with my usual practice, the certificate that a resolution had been passed was prepared, signed and filed, again without me turning my mind to the implications of the appointment of a committee of inspection at that meeting.
I believe that the actions taken by me at the meeting were in the best interests of creditors. Had Andrew Savva, John Thomas Ivan Phillips, the bankrupt's parents and the bankrupt's parents-in-law been invited to a meeting of creditors for the purpose of considering the appointment of a committee of inspection, I would not have admitted them to vote. Even if they were admitted to vote, the size of the debts said by the bankrupt's Statement of Affairs to be owing to them would not have been sufficient to alter the result.
Having had the opportunity to observe the applicant giving evidence in the course of which he was extensively cross-examined, I am satisfied with his explanation of how it came about that he caused to be filed a certificate as to the passing of the resolution relating to the appointment of the committee of inspection. The error is quite understandable in the circumstances. No creditor has suffered any detriment.
The applicant's task in administering this estate has been, and remains, one of considerable difficulty. In my view he is to be commended for the manner in which he has approached it.
It has not been shown that the applicant has been guilty of any breach of his duty as trustee of the bankrupt's estate or that his conduct suggests that he is not capable of performing, or is unwilling to perform, the duties of a trustee.
CONCLUSIONS
In circumstances where it is shown that a trustee has consistently fallen short of the high standards of performance that are required, even in respect of relatively minor matters, the Court may well come to the conclusion that by reason of the consistency of the breaches the trustee lacks the capacity or the willingness to perform the duties of a trustee under the Act in which case the registration of the trustee ought not to be extended. But that case is not this case. With the exception of the Christodoulou matter (which I regard as entirely trivial and of no consequence in this context) the matters alleged against the applicant were of serious import. The Official Receiver failed to justify any of his allegations. There is therefore no single finding or combination of findings which warrant the refusal of the extension sought by the applicant. It is not good enough to say, as the Official Receiver through his counsel has said, that he did not have all of the required information until he came to Court and cross-examined the applicant. When serious allegations are made in a context which can jeopardise the professional standing and reputation of a trustee, it is necessary that there is solid evidence, not mere assertion to support them.
I have refrained from commenting upon the interaction between the officers of the Official Receiver's office and the applicant in the period during and following an audit of the applicant's files. Clearly there was a clash of personalities. There may have been fault on both sides, but those matters have no bearing upon the matters complained of in the notice of objection and are best left for the parties to resolve between themselves.
I have also refrained from commenting upon the proposal put by the Official Receiver that subject to the Court making relevant findings, the applicant should be required to give certain undertakings as a condition of his registration being extended. For my own part, without having the benefit of detailed argument on the question, I doubt very much that the Court could properly follow such a course. However, as none of the findings which were said to justify the seeking of undertakings was made, the matter is not one which requires consideration.
COSTS
At the conclusion of the final submission in reply by counsel appearing for the Official Receiver I posed to him the question of whether the costs of the proceeding should follow the event. Counsel's reply was (at T 238):
No, your Honour, costs would not follow the event in a case such as this. In fact, it is difficult to say in a case such as this that the official trustee could seek an order for costs, because - assuming that the outcome was that a direction were made that Mr Morton be granted an extension of registration. We have said all along that a conditioned order, or an order following certain findings would be appropriate. In those circumstances, it is hard to say that a trustee who remains registered would have to pay any costs.
By the same token, on the other hand, the official trustee, or the official receiver rather, has certain duties, this is one of them. And, again it would be hard to see how in any outcome of this proceeding, the official could be ordered to pay costs. Jenkinson J said quite a bit about that recently. Not that long ago, in re Campbell, I did not bring a copy of it, your Honour, it is at 13 Federal Court Reports, page 326. It is a 1987 case and is referred to in McDonald, Henry and Meek at page 4306 and the note at that page is as follows:
Read as a whole the Bankruptcy Act is to be taken to impose by means of this subsection -
and that was the former subsection by which a trustee could apply for an order extending the period of bankruptcy -
an obligation on the trustee of a bankrupt to consider whether an application under the subsection ought to be made and, if the trustee considers that it ought, to make it. The trustee discharges his or her obligation under the subsection when he or she makes it in the conviction that it ought to be made and made by him or her. The discharge of the obligation imposed by the subsection is correctly conceived as the performance of a public duty for the public welfare. If the trustee fails in such an application, costs will not be awarded against him or her unless the Court is of the opinion that the trustee was unreasonable in making his or her decision or in the carrying out of that decision.
....In many ways that was a worse example than an example where - a hypothetical example - where a trustee under section 155(A) - an Official Receiver, or Inspector General under section 155(A), would file a notice of objection stating grounds and reasons, including allegations of dishonesty, which is not the case here, and then lose and fail to sustain those allegations.
For that reason those cases seem analogous and to a certain extent, of course, the converse applies in the case of Mr Morton.
In response to an invitation to reply, counsel appearing for the applicant said:
Well, your Honour, certainly we would say that if your Honour was to direct re-registration we should be entitled to costs. It is true that it might be said that the Official Receiver has some public duty but nevertheless the - in litigation such as this the successful party, generally, should be entitled to costs and unless there is some factors that might be said to count against that. But if your Honour were to say - to reach the conclusion that either there was nothing of any substance in the Official Receiver's objection or only very minor matters that really did not warrant this application, why should Mr Morton not be entitled to costs and perhaps even, if it is the first, your Honour, that there is just nothing in the objection, costs on an indemnity basis because he has been put to this huge expense.
But it is very hard, your Honour, perhaps in - without going through every possible permutation and combination of what may be the outcome to address all the issues that one might want to say on costs in the absence of the decision and the reasons. I might just make the point, your Honour, that more and more in the criminal area - criminal law area parties, whereas once members of the public who were prosecuted and were successful did not receive costs, but now that is not the case and more and more either the state or the police, which is really the state, if they are unsuccessful, having to bear costs. And it seems quite unreasonable in this sort of situation where not even suggestions of criminality that someone should be put to the expenses of having to make this appearance and be successful and not obtain costs. If your Honour pleases.
At the time of announcing my decision I indicated that I would stand the question of costs over until the publication of my reasons. As I do not want to involve the parties in incurring any further costs unnecessarily I now express my tentative view that the nature and circumstances of this case are such that it appears appropriate that the Official Receiver should pay the applicant's costs. I am of this opinion notwithstanding the views expressed in the passage read by counsel from p 4306 of McDonald Henry & Meek. In this case the objection has been found to be baseless on a number of counts. Originally it contained a serious allegation which suggested dishonesty on the applicant's part but that was not pursued. If it be the case that the Official Receiver considered that the facts warranted further consideration, as appears to be the thrust of the comments quoted earlier in these reasons, it was not necessary that the matters of complaint be raised in a notice of objection under s 155A(4). The various matters could have been more thoroughly investigated and then if it was thought appropriate, an application for cancellation could have been made by the Official Receiver under s 155(5B). The applicant has been put to expense in responding to an objection which has proved fruitless, and that for the reason that the facts were not as the objection asserted them to be.
As I have said, my views on the question of costs are only tentative. The parties should have the opportunity to make further submissions if they are so advised. In view of the outcome, if the applicant wishes to say more than was said at the hearing, a written submission should be filed and served within 10 days from the publication of these reasons. The Official Receiver should then file and serve any response which he may seek to make within 10 days after either receiving the applicant's submission or being advised that the applicant does not wish to make any further submission. The applicant may reply to any submission made by the respondent within a further 7 days. For the time being the question of costs remains reserved.
I certify that this and the preceding 23 pages are a true copy of the Reasons for Judgment of the Honourable Justice Olney
Associate:
Dated:
Heard: 26, 27 and 28 April 1995
Place: Melbourne
Judgment: 28 April 1995
Reasons published: 14 June 1995
Appearances: Mr D. Habersberger QC and Mr J.K. Chippindall (instructed by Corrs Chambers Westgarth) appeared for the applicant.
Mr G. Bigmore QC and Mr M.J. Galvin (instructed by J.M. Smith & Emmerton) appeared for the objector.
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