Nguyen v Pattison

Case [2005] FCA 650

FEDERAL COURT OF AUSTRALIA

Nguyen v Pattison [2005] FCA 650

BANKRUPTCY – Decision by trustee not to withdraw notice of opposition to discharge from bankruptcy – Application by bankrupt to Federal Magistrates Court to review decision under s 178 of Bankruptcy Act 1966 (Cth) – Whether Federal Magistrate precluded by s 149N(1B) from taking notice of remedial steps taken by bankrupt prior to hearing – Nature of supervisory jurisdiction under s 178 – Whether irrelevant considerations taken into account – Whether rejection of application under s 178 gives rise to issue estoppel or res judicata

Bankruptcy Act 1966 (Cth) s 149J
Federal Court of Australia Act 1976 (Cth) s 25(1A)

Nguyen v Pattison [2004] FMCA 517 affirmed

Macchia v Nilant (2001) 110 FCR 101 referred to
Thomas v Donnelly (No. 2) [1997] FCA 1142 referred to
Re Ansett (1995) 56 FCR 526 discussed
Inspector-General in Bankruptcy v Nelson (1998) 86 FCR 67 discussed
Wharton v Official Receiver in Bankruptcy (2001) 107 FCR 28 discussed
Pollack v Lombe [2004] FCA 362 referred to
Re Tyndall (1977) 17 ALR 182 at 186 referred to
Bethune v Newman (1996) 19 ACSR 99 at 102 referred to
House v The Queen (1936) 55 CLR 499 referred to
Rawson v Hobbes (1961) 107 CLR 466 at 485 cited
Administration of Papua and New Guinea v Daera Guba (1973) 130 CLR 353 at 453 referred to
Department of Aviation v Ansett Transport Industries Ltd (1987) 72 ALR 188 referred to
Cachia v Isaac (1985) 3 NSWLR 366 referred to
Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 459 referred to
Commissioner for Corporate Affairs v Harvey [1980] VR 669 discussed

THAN SON NGUYEN v PAUL ANTHONY PATTISON (trustee of the Bankrupt Estate of THAN SON NGUYEN)

VID1123 of 2004

WEINBERG J
24 MAY 2005
MELBOURNE

IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY

VID1123 OF 2004

ON APPEAL FROM THE FEDERAL MAGISTRATES COURT OF AUSTRALIA

BETWEEN:

THAN SON NGUYEN
APPELLANT

AND:

PAUL ANTHONY PATTISON (trustee of the Bankrupt Estate of THAN SON NGUYEN)
RESPONDENT

JUDGE:

WEINBERG J

DATE OF ORDER:

24 MAY 2005

WHERE MADE:

MELBOURNE

THE COURT ORDERS THAT:

1.        The appeal be dismissed.

2.        The appellant pay the respondent’s costs.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY

VID1123 OF 2004

ON APPEAL FROM THE FEDERAL MAGISTRATES COURT OF AUSTRALIA

BETWEEN:

THAN SON NGUYEN
APPELLANT

AND:

PAUL ANTHONY PATTISON (trustee of the Bankrupt Estate of THAN SON NGUYEN)
RESPONDENT

JUDGE:

WEINBERG J

DATE:

24 MAY 2005

PLACE:

MELBOURNE

REASONS FOR JUDGMENT

INTRODUCTION

  1. This is an appeal from a decision of a Federal Magistrate given on 20 August 2004: Nguyen v Pattison [2004] FMCA 517. His Honour dismissed an application to review a decision of the Trustee in Bankruptcy (“the trustee”) not to withdraw an objection to the appellant’s discharge from bankruptcy, a course that was open to the trustee pursuant to…

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Nguyen v Pattison [2005] FCA 650
Case
[2005] FCA 650
Decision Date

CaseChat Overview and Summary

The appeal in Nguyen v Pattison concerns the dismissal by a Federal Magistrate of an application to review a decision by the Trustee in Bankruptcy not to withdraw an objection to the appellant’s discharge from bankruptcy. The appellant argues that the Federal Magistrate erred both in fact and in law by not allowing the review application. The appellant contends that the decision was influenced by irrelevant considerations and failed to appropriately weigh the appellant's right to have the objection withdrawn after the statutory three-year bankruptcy period had expired, and the grounds for the objection had been remedied.

The legal issues before the court involved the interpretation and application of Section 178 of the Bankruptcy Act 1966, which allows for review of the trustee’s actions if certain conditions are met. The court had to determine whether the Federal Magistrate correctly exercised his discretion under this section, taking into account the relevant factors, and whether there were any errors in the weight given to specific considerations.

The court considered the evidence and submissions made by both parties. It found that the factors considered by the Federal Magistrate were relevant to the exercise of discretion under Section 178. The court emphasised that the decision to maintain the trustee’s objection was based on the need for further investigation into the appellant's affairs, which the trustee should conduct expeditiously. The court concluded that while the appellant had a strong interest in being discharged from bankruptcy, the trustee’s decision not to withdraw the objection was not arbitrary or unreasonable. The court also noted that the appellant could reapply if the trustee failed to pursue the matter adequately.

In dismissing the appeal, the court held that the Federal Magistrate correctly exercised his discretion and there was no misapplication of the law. The orders of the court were to dismiss the appeal and for the appellant to pay the respondent's costs.

Orders

Orders of the court

1. The appeal be dismissed.

2. The appellant pay the respondent’s costs.

Background

Background to the litigation

This is an appeal from a decision of a Federal Magistrate given on 20 August 2004: Nguyen v Pattison [2004] FMCA 517. His Honour dismissed an application to review a decision of the Trustee in Bankruptcy (“the trustee”) not to withdraw an objection to the appellant’s discharge from bankruptcy, a course that was open to the trustee pursuant to s 149J of the Bankruptcy Act 1966 (Cth) (“the Act”). The appellant contends that his Honour erred in both fact and law in failing to allow the application to review. On 26 October 2004, the Chief Justice directed, pursuant to s 25(1A) of the Federal Court of Australia Act 1976 (Cth) (“the Federal Court Act”), that a single judge of the Court hear and determine this appeal. THE BACKGROUND The background to this matter may be briefly summarised. The appellant was made bankrupt on 25 July 2000. However, he did not file his statement of affairs until 17 October 2000. The trustee’s objection to discharge, dated 2 September 2003, was based upon the appellant’s failure to provide details of his income, and to pay the sum of $4495. The appellant applied to the Inspector-General in Bankruptcy to review the objection. On 11 February 2004, the Inspector-General determined that the objection should be upheld. Subsequently, on 14 April 2004, the appellant provided details of his income to the trustee. On 17 May 2004, the appellant paid the sum of $4495 to the trustee. Notwithstanding this, the trustee refused to withdraw the objection. On 7 June 2004 the appellant brought an application in the Federal Magistrates Court seeking to review the trustee’s decision. It was the Federal Magistrate’s dismissal of that application that has led to this appeal.THE RELEVANT LEGISLATIVE SCHEME It is necessary to refer in some detail to the legislative provisions that are relevant in this appeal. The application before the Federal Magistrate was brought under s 178 of the Act. Sub-section (1) relevantly provides:“If the bankrupt, a creditor or any other person is affected by an act, omission or decision of the trustee, he or she may apply to the Court, and the Court may make such order in the matter as it thinks just and equitable.” Section 149 of the Act provides that the bankrupt is, by force of that section, discharged from bankruptcy at the end of the period of three years from the date on which the bankrupt filed his or her statement of affairs. However, s 149 must be read subject to the filing by the trustee of an objection to discharge, pursuant to s 149B. That section provides as follows:“(1) Subject to the following provisions of this Subdivision, at any time before a bankrupt is discharged from bankruptcy under section 149, the trustee may file with the Official Receiver a written notice of objection to the discharge. (2)The trustee of a bankrupt's estate must file a notice of objection to the discharge if the trustee believes:(a) that doing so will help make the bankrupt discharge a duty that the bankrupt has not discharged; and(b) that there is no other way for the trustee to induce the bankrupt to discharge any duties that the bankrupt has not discharged.”

Evidence

Evidence Before The Court

It is important to note his Honour’s final observation. When dealing with the matter of costs, he said at [54]:“I am of the view that whilst the applicant has failed in the application it is only on the basis of evidence elicited during the application, which could have been obtained by the trustee before the applicant was put to the costs of the proceedings. The initial reasons given by the trustee were such that it was reasonable for the applicant to bring the application. Therefore I do not propose to make any orders for the costs of the application, other than the costs thrown away by an earlier adjournment (agreed by the parties to be in the sum of $300.00 and payable by the respondent to the applicant).” (emphasis added)THE APPELLANT’S SUBMISSIONS By notice of appeal filed on 10 September 2004, the appellant challenges the decision of the Federal Magistrate dismissing his application to review the trustee’s refusal to withdraw his objection. The grounds of appeal are numerous. In substance, the appellant contends that, in exercising his discretion under s 178 of the Act, his Honour:·took into account a series of irrelevant considerations; ·failed to give appropriate weight to the appellant’s right to have the objection withdrawn given the expiration of the normal three year period of bankruptcy, and the grounds for the objection having been remedied;·failed to give weight to the fact that the appellant had consented to a s 81 examination being conducted as part of the application for review;·erred in holding that he had no power to order the trustee to withdraw the objection, but stay the operation of that order for a time sufficient to enable additional inquiries to be made; and·failed to have regard to the fact that an order dismissing the application would create a res judicata, or an issue estoppel, barring the appellant from making a further application to review even if the s 81 examination proved nothing. Counsel for the appellant, Mr Irlicht, also appeared before the Federal Magistrate. He submitted that his Honour had erred in concluding that the amendments to the Act introduced in 2002 had altered significantly the discretionary factors to be taken into account in determining whether it was “just and equitable” to require the trustee to withdraw his objection. The purpose of the procedure relating to objection to discharge was to promote compliance with the duties referred to in s 149D, and not to punish a bankrupt for any breaches of those duties. More particularly, Mr Irlicht submitted that none of the facts identified in [47] of the Federal Magistrate’s reasons for decision (set out at [44] above) were in any way relevant to the exercise of his Honour’s discretion under s 178, and had not, in any event, been raised by the trustee in his notice of intention to oppose the appellant’s application. In addition, it was clear from the reasoning below that it was only the evidence given by the appellant during his s 81 examination which had resulted in his application being dismissed.

Decision

Reasons for decision

WEINBERG J
Finally, Mr Agardy dealt with the two remaining grounds of appeal. He submitted that the fact that the appellant had consented to the s 81 examination was of no consequence. The trustee had a statutory right to examine the bankrupt, and the evidence obtained at such an examination was plainly relevant and admissible. As for the Federal Magistrate’s conclusion that he had no power to stay an order directing the trustee to withdraw his objection, that view was clearly wrong. Both s 30 and s 37 of the Act conferred such a power upon the court. However, it did not follow that the decision to dismiss the application was itself wrong. It was clear from [52] of his Honour’s reasons that he was not satisfied that it would be just and equitable to require the trustee to withdraw the objection. He considered that the appellant should remain a bankrupt until the investigation into his affairs had been completed. That should of course be done expeditiously. It was implicit in his reasons that if the trustee did not pursue his inquiries with sufficient vigour, the appellant could renew his application by filing a fresh proceeding, based on changed circumstances.CONCLUSION I propose to deal firstly with ground 2(a) of the appellant’s notice of appeal. By that ground he contends that the Federal Magistrate’s discretion miscarried because he took into account a series of irrelevant considerations, and matters that were not raised by the trustee’s notice of intention to oppose. In my view, there is no substance in that contention. The matters said to be irrelevant were all plainly relevant when considering whether it was just and equitable to direct the trustee to withdraw his objection. The fact that the appellant had been working for a company owned and controlled by his de facto throughout the period of his bankruptcy was obviously a consideration to be taken into account. Division 4B of the Act, introduced in July 1992, requires a bankrupt to pay contributions to the trustee of his or her bankrupt estate where the bankrupt’s income, as assessed by the trustee, exceeds a given threshold level. Pursuant to s 139S, the amount of contributions payable is equal to 50% of all income exceeding the threshold level. Income is taken to be derived by a bankrupt for the purposes of Division 4B even though it is not actually received by the bankrupt. Section 139Y(1)(b)(ii) of the Act enables the trustee to treat the bankrupt as having received reasonable remuneration. That includes any amount that might reasonably be expected to be, or to have been received, by a person who engaged in similar employment in circumstances where there was no relationship or other connection between that person and the employer. Clearly, a bankrupt who is employed by a company owned and operated by his de facto may find himself being the subject of a reasonable remuneration assessment under these provisions. The relevance of the employer’s identity is made even clearer when one considers that the appellant was paid “a very low wage”, even though he carried out important and responsible tasks on behalf of the company.

Ratio Decidendi

Legal Principle Established

Established by: WEINBERG J

His Honour stated his conclusions as follows:“50. If one analyses this case in terms of the factors identified above the results are as follows:a)The utility of continuing the administration: There appears to be prima facie evidence that the applicant has a greater income and earning capacity than presently being exercised. It is not possible to determine definitively if there is in fact utility in continuing the administration of the estate;b)Sufficient time to allow for appropriate inquiry: Whilst the trustee has had significant time to make enquires, there is now evidence which would warrant further inquiry; at least another few months would be needed in this regard. It is difficult to see why a trustee should have more than 9 to 12 months after a bankrupt has complied, if the trustee is not actively pursuing the administration of the estate;c)Maintaining public confidence: There has been a significant period of bankruptcy, in excess of the minimum 3 years. The applicant has suffered a significant lengthening of his period of bankruptcy due to his default. The lack of interest in the applicant by the trustee to date would do little to maintain public confidence, although the fault in this regard lies with both applicant and trustee. However, to discharge the applicant without ensuring that a reasonable opportunity is provided to follow up the matters arising from the applicant’s section 81 examination would not be likely to maintain public confidence. d)The interests of the Bankrupt: The applicant has a strong interest in discharge from bankruptcy. He is entitled to expect that the trustee would act in a timely fashion if the trustee wishes to pursue him further. However, his failure to maintain any contact with the trustee has also contributed to the current circumstances.51. It was submitted by both parties that I could make orders requiring the trustee to withdraw the objection (and effectively discharge the applicant), but stay the operation of those orders until the end of the year to allow the trustee to pursue the applicant over the next few months. It was argued that the trustee could then apply to have my orders discharged if the trustee could establish further grounds for continuing the bankruptcy. That would really amount to a provisional or conditional judgment. I am not satisfied that I have power to make such orders, nor that it would be appropriate to do so in the context of this case. 52. On balance I am not satisfied that it would be just and equitable to make orders under section 178 requiring the trustee to exercise his power to withdraw the objection under section 149J (effectively discharging the applicant from bankruptcy). However, the trustee ought to actively pursue the administration of this estate, and if he does not do so, it is difficult to see why he ought not exercise his discretion under section 149J in the near future.53. I therefore dismiss the application.” It is important to note his Honour’s final observation. When dealing with the matter of costs, he said at [54]:“I am of the view that whilst the applicant has failed in the application it is only on the basis of evidence elicited during the application, which could have been obtained by the trustee before the applicant was put to the costs of the proceedings. The initial reasons given by the trustee were such that it was reasonable for the applicant to bring the application. Therefore I do not propose to make any orders for the costs of the application, other than the costs thrown away by an earlier adjournment (agreed by the parties to be in the sum of $300.00 and payable by the respondent to the applicant).” (emphasis added)THE APPELLANT’S SUBMISSIONS