Official Receiver v Gillies, in the matter of Wharton
[2000] FCA 664
•22 MAY 2000
FEDERAL COURT OF AUSTRALIA
Official Receiver v Gillies, In the matter of Wharton [2000] FCA 664
Bankruptcy Act 1966 ss 30, 77C
IN THE MATTER OF STEPHEN LYNNE WHARTON, a bankrupt
and the OFFICIAL RECEIVER and JOHN JAMES GILLES
V7133 of 2000RYAN J
MELBOURNE
22 MAY 2000
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
V7133 OF 2000
IN THE MATTER OF STEPHEN LYNNE WHARTON, a bankrupt
AND:
OFFICIAL RECEIVER
ApplicantAND:
JOHN JAMES GILLES
RespondentJUDGE:
RYAN J
DATE OF ORDER:
22 MAY 2000
WHERE MADE:
MELBOURNE
THE COURT ORDERS THAT:
1.The respondent give to the applicant the books and documents specified in the three notices issued to the respondent under s 77C of the Bankruptcy Act 1966 on 25 February 2000.
2.The respondent pay the applicant’s costs of the application dated 16 March 2000 such costs to be taxed in default of agreement.
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
V7133 OF 2000
IN THE MATTER OF STEPHEN LYNNE WHARTON, a bankrupt
AND:
OFFICIAL RECEIVER
ApplicantAND:
JOHN JAMES GILLES
Respondent
JUDGE:
RYAN J
DATE:
22 MAY 2000
PLACE:
MELBOURNE
REASONS FOR JUDGMENT
There is before the Court an application by the Official Receiver for an order under s 30 of the Bankruptcy Act 1966 ("the Act"). Sub-section (5) of that section provides:
"Where:
(a)a bankrupt, a debtor or any other person has failed to comply with an order or direction of a Registrar, or with a direction or requirement of an Official Receiver or trustee, under this Act; or
(b)a trustee has failed to comply with an order, direction or requirement of a Registrar, or with a requirement or request of the Inspector-General, under this Act;
the Court may, on the application of the Registrar, Official Receiver, trustee or Inspector-General, as the case requires:
(c)order the person who has failed to comply with the order, direction, requirement or request, as the case may be, to comply with it; or
(d)if it thinks fit, make an immediate order for the committal to prison of that person."
On 25 February 2000 the Official Receiver caused notices under s 77C of the Act to be issued to the respondent Mr Gillies. The Schedule to the first notice recited:
"You are directed to provide the following information:
WHARTON PARTNERS PTY LTD (ACN 050 196 159)
Please provide all books and other documents in your possession custody or control for the periods from 23 March 1996 to 22 March 1997, 23 March 1998 to 22 March 1999 and 23 March 1999 to 22 March 2000 ("the relevant periods") unless otherwise stated.
1.All books and other documents of Wharton Partners Pty Ltd ("Wharton Partners") for the period from incorporation to date including but not limited to the share register, relating to or evidencing all changes in the share holdings of Wharton Partners.
2.All financial statements, annual returns, and taxation returns of Wharton Partners for the relevant periods.
3.All bank statements, accounts and cheque butts of Wharton Partners or any other documents relating to or evidencing monies owing, monies received and monies distributed for or on behalf of Wharton Partners for the relevant periods.
4.All contracts of employment or any other such documents of Wharton Partners relating to or evidencing the bankrupt's employment with Wharton Partners for the relevant periods.
5.All books and other documents of Wharton Partners, including invoices, relating to or evidencing all fees charged by Wharton Partners to its clients for the relevant periods including a break down of all fees charged as a result of work performed by the bankrupt.
6.All books and other documents of Wharton Partners relating to or evidencing the payment of group tax by Wharton Partners to the Australian Taxation Office during the relevant periods.
7.All books and other documents of Wharton Partners relating to or evidencing any loan agreements or arrangements made by or entered into between Wharton Partners and the bankrupt during the relevant periods.
8.All books and other documents of Wharton Partners relating to or evidencing the client list of Wharton Partners for the periods as at 1 July 1993, 1 July 1994, 1 July 1995, 1 July 1996, 1 July 1997, 1 July 1998, 1 July 1999.
9.All books and other documents of Wharton Partners relating to or evidencing the payment of the bankrupt's legal expenses during the relevant periods."
The other notices respectively required production of corresponding information in relation to Tye Nominees Pty Ltd ("Tye Nominees") and ABC Fund Managers Ltd ("ABC Fund Managers").
Each notice required production of the requested information by 12.00 noon on 10 March 2000. None of the notices was complied with by that time and on 10 March 2000 the Official Receiver's solicitors wrote to Messrs Oakley Thompson who apparently have acted at all relevant times for the bankrupt, Wharton Partners, Tye Nominees and ABC Fund Managers. That letter requested that the documents be produced by 4.00 pm on 13 March 2000. Oakley Thompson replied on 10 March 2000, saying:
"It should be noted that you have previously examined both Mr Gillies and Mr Gianchino, directors of some or all of the companies, pursuant to s.77C and, further, sought to obtain documents from them concerning these companies. The propriety of you using these notices to obtain information is doubtful, given that no such steps were taken by you during the normal term of Mr Wharton's bankruptcy and, indeed, were only embarked upon by you after lodging of an application to review your decision to object to Mr Wharton's discharge from bankruptcy. As you are no doubt aware, the hearing of that review is listed for 4 April 2000, and these notices are viewed as an improper attempt to obtain information in the forlorn hope that something might be discovered which might otherwise support what we view as a totally non-meritorious objection.
In relation to the Notices themselves, it is our opinion that the Notices are too wide, oppressive and not issued for the legitimate purpose of s.19AA of the Bankruptcy Act.
With respect to the Notice to Wharton Partners Pty Ltd, the only class of documents we view as possibly being legitimately requested is that referred to at point 4. We are instructed that there is no written contract of employment between the company and Mr Wharton."
The Official Receiver relies on an answer given by Mr Gillies in the course of his examination under s 77C(2) of the Act when Mr Gillies was asked:
"Well, let me put that precise question. Mr Gillies, do you, as an officer of any kind of any of these companies that I identified, have the control of each of those companies books and records?"
He replied:
"Yes."
The respondent has since 10 March 2000 declined to produce any of the documents requested of him contending that the notices were too wide and oppressive and that they had been issued for an ulterior purpose.
By notice of opposition filed 30 March 2000 the respondent opposes the application on the grounds that:
“1.The Notice to Produce Documents Pursuant to s.77C of the Bankruptcy Act addressed to John James Gillies as director respectively of Wharton Partners Pty. Ltd., ABC Fund Managers Limited and Tye Nominees Pty. Ltd. all dated 25 February 2000 (“the Notices”) are too wide and ought to be set aside.
2.The documents sought to be produced pursuant to the Notices are not for the legitimate purpose of the examinable affairs of the bankrupt.
3.The Notices should be set aside on the grounds that the documents sought to be produced do not relate to the bankrupt’s examinable affairs.”
As to the first ground, the respondent contends in substance that the notices would require him to produce documents to which he does not have access. However, as the words “provide all books and other documents in your possession, custody or control” make plain, the requirement extends only to those materials within the respondent’s actual or constructive possession. It was also suggested that the notices were insufficiently specific to enable the respondent to know what was required to comply with them, and that they were in that sense too wide, or were oppressive. That suggestion is, in the current circumstances, completely answered by the recognition that the purpose of the notices is to establish both the existence and contents of relevant documents. Sufficiently identifying the classes of documents which may be relevant is the acceptable balance between providing a notice with which the recipient can comply and ensuring that the notice serves its purpose. The respondent did not demonstrate that the classes of documents were insufficiently identified.
The second ground of objection was that the notices have been issued for an improper purpose, namely to provide the applicant with material in which might be found justification for his decision to object to Mr Wharton’s discharge from bankruptcy. As noted in the letter reproduced in para 4 above, that decision was subject to an application for review by the Administrative Appeals Tribunal (“the AAT”) which was to commence on 4 April 2000. The respondent invites the Court to infer that ulterior purpose from the fact that the present application has been made on 16 March shortly before the applicant was to be called on to defend his decision.
The notices the subject of this application were preceded by the issue of s 77C notices on 23 September 1999, which were not limited to “the relevant periods”. The respondent did not produce the documents required by these earlier notices, contending through his solicitors on 11 October 1999 that “none of the documents [were in his] possession.” On 13 October 1999 the respondent admitted, as described in para 5 above, to having control of relevant documents. That admission caused the applicant to request, on 21 December 1999, production of documents limited to “the relevant periods” but otherwise the requirement was in similar terms to those contained in the earlier notices. That request was not complied with and the applicant issued the s 77C notices which are the subject of this application.
Evidence was given by Mr Byrden, who is the employee of the applicant with responsibility for the day-to-day management of the relevant file and for making recommendations to the applicant in the exercise of his official functions. In the course of cross-examination, Mr Byrden indicated that the applicant had sought, by letter in December 1998, documents which he believed had not been provided by the bankrupt Wharton, in relation to the companies. The response to that letter was unsatisfactory and apparently resulted in the decision to issue the s 77 notices to which I have referred in para 10 of these reasons.
Mr Byrden also gave evidence that the applicant was aware, when the earlier notices were issued in September 1999, that the bankrupt had filed in the AAT an application to review the decision to object to the discharge from bankruptcy. He also conceded that he was aware (though at what stage is not made clear) that documents provided in response to the notices may prove useful in the applicant’s conduct of the associated proceedings in the AAT. It is equally clear, however, despite cross-examination directed to the question, that the reasons and evidence relied on in issuing the s 77C notices are (at least primarily) those set out in paras 9-10 of the “section 13 statement” prepared by the applicant, which are in the following terms:
“9. I made the decision on behalf of the Official Trustee to issue the Notices pursuant to Section 77C of the Act. The reasons for issuing the Notices are:
9.1 To enable the trustee to advance his further investigations with a view to obtaining substantive information from the bankrupt’s associated entities upon which to reassess his liability to pay income contributions.
9.2 To determine whether the estate includes property that can be realised to pay a dividend to creditors pursuant to Section 19 of the said Act.
9.3 To ascertain whether the bankrupt divested himself of his beneficial shareholding in companies including Wharton Partners Pty Ltd. and Tye Nominees Pty Ltd, shortly prior to, or during the period of bankruptcy.
9.4 If the bankrupt did divest himself of his beneficial shareholding in companies including Wharton Partners Pty Ltd and Tye Nominees Pty Ltd., ascertain all the circumstances to explain how, why and when this occurred, how much was received, and whether these transactions are voidable as against the trustee.
9.5 To ascertain what Mr Wharton did with the proceeds from the sale of his beneficial shareholding in companies including Wharton Partners Pty Ltd and Tye Nominees Pty Ltd.
EVIDENCE ON WHICH THE DECISION WAS MADE
10. In arriving at my decision I considered the following information and documents:
10.1 The notice of objection to Mr Wharton’s discharge from bankruptcy signed by Michael Jason Mann Deputy Official Receiver on 26 May 1999 and the documents referred to in the notice of objection.
10.2 The bankrupt works for Wharton Partners Pty Ltd where he is employed as an accountant. The trustee had requested information from Mr Wharton in respect of his employment including precise details of legal expenses paid on his behalf by the company. The trustee’s requests were not complied with and this resulted in the trustee lodging an objection to Mr Wharton’s discharge from bankruptcy. It was noted in the reasons for lodging the objection that the trustee intends to conduct further investigations into the bankrupt’s affairs with a view to obtaining substantive information from the bankrupt and associated entities upon which to reassess his liability to pay income contributions.
10.3 The notices were directed to Mr John Gillies. Mr Gillies is a director and secretary of Wharton Partners Pty Ltd. He is the sole director of Tye Nominees Pty Ltd. He is also a director and secretary of ABC Fund Managers Pty Ltd. The bankrupt was formerly a director and/or secretary and/or a shareholder of each of the above companies prior to and/or after his bankruptcy commenced.
10.4 Wharton Partners Pty Ltd is an associated entity of the bankrupt pursuant to section 5B of the Act in that it employs the bankrupt and the bankrupt is a former director, secretary and shareholder.
10.5 Tye Nominees Pty Ltd is an associated entity of the bankrupt pursuant to section 5B of the Act as the bankrupt is a former director, secretary and shareholder.
10.6 ABC Fund Managers Pty Ltd is an associated entity of the bankrupt pursuant to section 5B of the Act as the bankrupt is a former director and current secretary. All the shares in ABC Fund Managers Pty Ltd are owned by Tye Nominees Pty Ltd.
10.7 Accordingly, Mr Gillies is an associated entity of the bankrupt by virtue of the various positions he holds as director and secretary of Wharton Partners Pty Ltd, sole director of Tye Nominees Pty Ltd, and director and secretary of ABC Fund Managers Pty Ltd.
10.8 The notices requested information which you would expect Mr Gillies to have access to or control of given the positions he holds as an officer of the various companies.”
The allegation by the respondent that the notices were not issued bona fide is said to derive particular force from the applicant’s alleged failure to pursue earlier in the administration of the bankruptcy the documents which he now seeks. However, that failure can be explained on the basis that the issue of the notices reflects the potentially fruitful inquiry opened to the applicant by the respondent’s answer on 13 October 1999 which is described in para 5 of these reasons.
The mere existence of associated proceedings, in which material required under a notice may prove relevant, does not of itself entail that the notice has been issued for an ulterior purpose. In Karounous v Official Trustee (1988) 80 ALR 626 at 633 a Full Court of this Court distilled, as one of the relevant principles applicable to the issue of summonses under s 81 of the Act, the following:
“Discharge or adjournment of a summons may be appropriate where there is litigation pending or likely to be instituted and it is alleged that:
(a)the summons is being improperly sought as an aid to that litigation (cf Re Northern Australian Territory Co [(1890) 45 Ch D 87 at 93]; Re Bletchley Boat Co Ltd [1974] 1 WLR 630 at 637, where ordinary procedures of discovery, interrogation or subpoena would be fairer and more appropriate, ......”
I respectfully adopt that principle as applicable to the present circumstance. The fact that the applicant’s pursuit of the documents by way of the notices does not pre-date, but substantially coincides with, the associated proceedings, does not alter my view that the perceived need for the notices arose in December 1998, despite the manoeuvring which has resulted in the issue of the notices at a much later point. Accordingly, the principle in Karounous has not been infringed, and the respondent’s second ground of objection fails.
The respondent has an obstacle to overcome in respect of his third ground of opposition in that it has been formulated, and was argued, on the basis that the documents “do not” relate to the examinable affairs under scrutiny, rather than that they “could not” so relate. Having regard to the way the classes of documents are defined in the notices, and since the Court has not had an opportunity to examine specific documents, it is only possible to say with accuracy that some documents in those classes may not relate to the examinable affairs of the bankrupt. To that extent, however, the notice, in its terms, does not require those documents.
If the respondent is reasonably able to say that a particular document does not relate to the examinable affairs of the bankrupt that will justify him in not providing it. While the sanctions against failure fully to comply with a notice may persuade the respondent to err on the side of caution, the application of those sanctions (should it be required) would be mitigated if a reasonable excuse or explanation for non-compliance were adduced. Unless it had been demonstrated that a class of documents specified in the notice could not conceivably relate to the examinable affairs of the bankrupt, I could not, in the present circumstances, uphold the respondent’s third ground of opposition. Even then, the objection to the notice, properly expressed, would be that inclusion of such a class of documents in the notice is inconsistent with the overarching requirement that the required documents be those that “[relate] to the examinable affairs”. Once it is accepted that the notices do not work oppression, due to the volume or nature of the documents required (and there is no evidence before me that the notices are in this sense oppressive), it is for the respondent to comply with the notices so far as they are consistent with the valid purpose of their issue.
In these circumstances, the appropriate order is to grant the application, and to require that the respondent, in his capacity as an officer of the three companies, comply with the respective s 77C notices issued on 25 February 2000. The respondent must pay the applicant’s costs of the application.
I certify that the preceding eighteen (18) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Ryan. Associate:
Dated: 22 May 2000
Counsel for the Applicant: Mr M Galvin Solicitor for the Applicant: Deacons Graham & James Counsel for the Respondent: Mr A K Panna Solicitor for the Respondent: Oakley Thompson Date of Hearing: 3 April 2000 Date of Judgment: 22 May 2000
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