O'Brien v Sheahan

Case [2005] FCAFC 59

FEDERAL COURT OF AUSTRALIA

O’Brien v Sheahan [2005] FCAFC 59

BANKRUPTCY – validity of notice of objection filed by registered trustee – whether at time of objection registered trustee was validly appointed as trustee of bankrupt estate under s 157 of the Act – certificate of appointment issued where registered trustee gave written notification of consent to act but registered trustee not notified in writing of appointment – whether failure to comply with subs 157(2) and (3) of the Act is a formal defect or irregularity within s 306(1) of the Act – whether notice of objection validated under s 306(2) of the Act.

Bankruptcy Act 1966 (Cth)
Bankruptcy Act 1914 (UK)
Bankruptcy Amendment Act 1980 (Cth)
Bankruptcy Legislation Amendment Act 1996 (Cth)
Commonwealth Functions (Statutes Review) Act 1981 (Cth)

Nilant v Macchia (2000) 104 FCR 238 applied
Cummings v Mack (2000) 96 FCR 345 referred to
Plaintiff S157/2002 v Commonwealth of Australia (2003) 211 CLR 476 applied
Sweeney v Fitzhurdinge (1906) 4 CLR 716 applied
Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 applied
Donnelly v Edelsten (1992) 34 FCR 556 referred to
Re Rosenboom (1974) 18 CBR (NS) 180 (Ont SC) referred to
Re Ballato; Ex parte Pezzano [1988] FCA 768 referred to
Matthews v Collett [2000] FCA 224E referred to
Re Macchia; Ex parte Macchia v Nilant (2000) 172 ALR 158; [2000] FCA 353 referred to
Kleinwort Benson v Crowl (1988) 165 CLR 71 referred to
Tsingaris v Official Receiver for the Bankruptcy District of the State of Victoria [1999] FCA 1389 applied
Nikoglou v Official Receiver [2000] FCA 8, (2000) 171 ALR 223 referred to
Official Trustee in Bankruptcy v Byrne (1989) 94 FLR 465 referred to

CHRISTOPHER JOHN O’BRIEN v JOHN SHEAHAN AND THE OFFICIAL RECEIVER IN RESPECT OF THE STATE OF SOUTH AUSTRALIA

SAD 129 of 2004

MARSHALL & MANSFIELD JJ
20 APRIL 2005
ADELAIDE


IN THE FEDERAL COURT OF AUSTRALIA

SOUTH AUSTRALIA DISTRICT REGISTRY

SAD 129 OF 2004

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:

CHRISTOPHER JOHN O'BRIEN
APPELLANT

AND:

JOHN SHEAHAN
FIRST RESPONDENT

THE OFFICIAL RECEIVER IN RESPECT OF THE STATE OF SOUTH AUSTRALIA
SECOND RESPONDENT

JUDGE:

MARSHALL & MANSFIELD J

DATE OF ORDER:

20 APRIL 2005

WHERE MADE:

ADELAIDE

THE COURT ORDERS THAT:

1.The appeal be dismissed.

2.The appellant pay to the respondents their costs of the appeal.

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


IN THE FEDERAL COURT OF AUSTRALIA

SOUTH AUSTRALIA DISTRICT REGISTRY

SAD.129 OF 2004

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:

CHRISTOPHER JOHN O'BRIEN
APPELLANT

AND:

JOHN SHEAHAN
FIRST RESPONDENT

THE OFFICIAL RECEIVER IN RESPECT OF THE STATE OF SOUTH AUSTRALIA
SECOND RESPONDENT

JUDGE:

MARSHALL & MANSFIELD J

DATE:

20 APRIL 2005

PLACE:

ADELAIDE

REASONS FOR JUDGMENT

THE COURT

  1. This appeal concerns ss 157 and 306 of the Bankruptcy Act 1966 (Cth) (the Act).

  2. The appellant had been…

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O'Brien v Sheahan [2005] FCAFC 59
Case
[2005] FCAFC 59
Decision Date

CaseChat Overview and Summary

In the case of O'Brien v Sheahan, the appellant sought to have declared invalid the appointment of the respondent as the new trustee of his estate. The appellant argued that, as a result, the respondent was not entitled to give a valid notice of objection to discharge from bankruptcy, and that the Official Trustee, who the appellant believed remained as the trustee of his estate, did not provide such a notice. Consequently, the appellant claimed there was no valid notice of objection to discharge, leading to automatic discharge pursuant to s 149(4) of the Bankruptcy Act 1966 (Cth). The legal issues the court was required to decide included whether the respondent was validly appointed as the trustee of the appellant's estate and whether the respondent's consent was validly obtained and followed by the perfecting instrument, the certificate of appointment. The court found that the respondent was validly appointed as the trustee of the estate of the appellant, effective from 6 December 1999 when the certificate of appointment issued. The court also found that the operation of s 306(2) of the Act would prevent the final notice of objection to discharge being invalid if the consent of the respondent was necessary to be procured in the strict way the appellant contended. Therefore, the appeal was dismissed, and the appellant was ordered to pay the respondent's costs of the appeal.

Orders

Orders of the court

1. The appeal be dismissed.

2. The appellant pay to the respondents their costs of the appeal.

Background

Background to the litigation

The appellant brought proceedings to have declared invalid the appointment of the respondent as the new trustee of his estate. The consequence would be that the respondent was not entitled to, and did not, give a valid notice of objection to discharge from the bankruptcy. The Official Trustee who, according to the appellant remained as the trustee of his estate, did not give such a notice. Consequently, he claimed there was no valid notice of objection to discharge, so that automatic discharge occurred pursuant to s 149(4) of the Act.THE FACTS The appellant was made bankrupt by sequestration order made on 5 November 1996. The Official Trustee was appointed trustee of the estate. On 6 December 1996, the appellant provided a statement of affairs to the Official Receiver in respect of the State of South Australia (the Official Receiver). Consequently, in the ordinary course of events, and in the absence of a valid notice of objection, he would have been discharged from bankruptcy at the end of three years from the date in which he filed his statement of affairs: s 149(4) of the Act. It was common ground that the discharge would have occurred at 12 midnight on 6 December 1999. On 16 November 1999, the Deputy Official Receiver on behalf of the Official Trustee instructed the respondent, a registered trustee in bankruptcy, as agent for the Official Trustee of the estate of the appellant to call a meeting of creditors to appoint the respondent as trustee of the estate of the appellant and to assist in the investigations of the affairs of the appellant, to identify his assets and to safeguard them. There had obviously been some earlier communications between the respondent and the Deputy Official Receiver, including as to whether a notice of objection to automatic discharge of the appellant from bankruptcy should be filed. By letter of 18 November 1999, the respondent indicated that he was prepared to take over the administration of the estate of the appellant, and to accept the agency appointment. On 25 November 1999, the respondent circulated a notice to creditors of the estate of the appellant calling a meeting of creditors for 2 December 1999. The purpose of the meeting included enabling the creditors to consider appointing the respondent as trustee of the bankrupt estate of the appellant. The respondent pointed out that, unless an objection to discharge was served, the appellant would be discharged from bankruptcy automatically on 7 December 1999. On 1 December 1999, the Deputy Official Receiver appointed Ian Lock (a partner of the respondent) to represent the Official Trustee at the meeting of creditors to be held on 2 December 1999. Mr Lock attended the creditors’ meeting in that capacity. On 1 December 1999 the respondent executed a ‘Consent to Act as Trustee’ of the bankrupt estate of the appellant (the consent). The consent referred to him being appointed as ‘a successive trustee under s 158’ of the Act. In fact, the proposed appointment of the respondent as trustee was to be made under s 157 of the Act. Section 157 generally concerns the appointment of a trustee, whereas s 158 concerns the appointment of more than one trustee or trustees in succession: s 158(2).

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

Section 157(3) provides for the Official Receiver to issue a certificate of appointment once the consent in writing of the registered trustee is given (and provided the appointment has not been deemed to have declined), and the appointment of the trustee under s 157(1) then takes effect: s 157(4). The appointment is perfected by the certificate of appointment. In this matter, the defects or irregularities alleged concern the means by which the consent of the respondent was provided. In our view, as there is both a creditors’ appointment under s 157(1), and a consent in reality (if not in the procedural form contemplated by subs 157(2) and (3) – if the appellant’s contentions are correct) followed by the perfecting instrument the certificate of appointment, the respondent was appointed as the trustee of the estate of the appellant. Section 306(2) would then, if necessary, operate to prevent the final notice of objection to discharge being invalid if the consent of the respondent was necessary to be procured in the strict way the appellant contended. The operation of s 306(2) in that way is consistent with its operation as discussed in Official Trustee in Bankruptcy v Byrne (1989) 94 FLR 465.CONCLUSION Accordingly, we have reached the view that the appeal should be dismissed. The appellant should pay to the respondent his costs of the appeal.

Ratio Decidendi

Legal Principle Established

The learned judge at first instance therefore concluded that the respondent was validly appointed as trustee of the estate of the appellant, effective from 6 December 1999 when the certificate of appointment issued. The consequence was that the final notice of objection to discharge was effective to prevent the automatic discharge from bankruptcy of the appellant.CONSIDERATION The Act was introduced following what is commonly called the Clyne Committee Report (Report of the Committee Appointed by the Attorney-General of the Commonwealth to Review the Bankruptcy Law of the Commonwealth, Commonwealth Government Printer, 1962). See Cummings v Mack (2000) 96 FCR 345 at [42]. That report considered provisions of the Bankruptcy Act 1924-1960 (the former Act) dealing with the appointment of trustees to be generally satisfactory: Clyne Committee Report, par 239. It suggested only minor alterations to the former Act on that topic. Section 157 as first enacted reflected the draft Bill suggested by the Clyne Committee Report. Part VIII Div 1 of the Act, when enacted, in dealing with the appointment of trustees carried forward the procedures under the former Act. Following a bankruptcy, the creditors by resolution could appoint a registered trustee as trustee of the estate of the bankrupt (s 157), or they could do so in the event of a vacancy in the office of trustee (s 159). Section 160 provided for the official receiver for the district to be the trustee of the estate of the bankrupt until a creditors’ resolution under s 157(1), or if there were no such appointment of a trustee by the creditors or in the event of there being a vacancy in the office of trustee. Section 159(3) made it clear that a vacancy in the office of trustee existed, so the creditors could resolve to appoint a registered trustee as trustee of the estate of the bankrupt, where the official receiver for the district was trustee by reason of s 160. The provisions initially were much the same as those which applied under s 19 of the Bankruptcy Act 1914 (UK) and the Bankruptcy Acts of the several Australian States, as well as under the former Act: Clyne Committee Report, pars 17-18. At that time subs 157(2)-(5) provided the means by which the creditors’ appointment of a trustee should be effected. In substance, those provisions are to the same effect as the existing subs 157(2)-(5) in the Act. The minor differences are a consequence of the different functions then carried out, namely that the Official Receiver for the district was the default trustee and so had to give the notification required by s 157(2) and to receive the notification of acceptance under s 157(3), and the Registrar rather than the Official Receiver was responsible for issuing the certificate of appointment under s 157(3). Section 12 of the Bankruptcy Amendment Act 1980 (Cth) changed the title of The Official Receiver in Bankruptcy to the Official Trustee in Bankruptcy, and continued that entity as a body corporate established under the Act. Section 3 and Sch 1 Pt 1 cl 289 of the Bankruptcy Legislation Amendment Act 1996 (Cth) (the 1996 Amending Act) provided for the Official Receiver rather than the Registrar to issue the certificate of appointment under s 157(3). The 1996 Amending Act extensively amended s 18 of the Act, including to empower the Official Receiver to exercise the powers of the Official Trustee. It will be necessary to refer to s 18 in a little detail below. The 1996 Amending Act also, inter alia, amended the regulation making power in s 315. It was followed by the Bankruptcy Regulations 1996, which included the establishment of the National Personal Insolvency Index. Those changes were partly to give effect to the establishment of a ‘One Stop Service’ for bankrupts and insolvent debtors within the Insolvency and Trustee Service, Australia, the relevant division of the Attorney-General’s Department, and the rationalising of bankruptcy administration: Bankruptcy Legislation Amendment Bill 1996, Explanatory Memorandum, s 2(a).