Official Trustee in Bankruptcy v Kent (No 2)

The Official Trustee in Bankruptcy applied to the Federal Court seeking declarations and judicial advice to support its decision to enter into a deed to settle a complaint against a bank. Mr Kent, who had been declared bankrupt, cross-claimed for costs. The court had to decide whether the trustee was entitled to judicial advice and direction concerning its claims and whether the trustee should be ordered to pay Mr Kent's costs on an indemnity basis. The court found that the trustee was not entitled to judicial advice on matters of commercial or business judgment, but only on issues of substance, procedure, power, propriety or reasonableness. The trustee's application for judicial advice was inappropriate because it did not raise any legal issue that called for the exercise of legal judgment. The court also found that the trustee should be ordered to pay Mr Kent's costs on an indemnity basis because the proceeding was a test case with general public importance for the administration of bankrupt estates. The trustee, as the protagonist, was personally liable for the costs, and the bankrupt estate had no funds to pay them. The court ordered the trustee to pay Mr Kent's costs on an indemnity basis and to repay the settlement sum to the bank.

The court ordered that the deed between the trustee, the bank and the Australian Financial Complaints Authority did not affect the complaint, and the tripartite agreement remained valid and binding. The settlement sum the trustee received from the bank was not property of the bankrupt estate. The trustee's costs were an expense in the administration of the bankrupt estate, and the trustee had a right of indemnity against the bankrupt estate for its personal liability for costs. The originating application was dismissed, and there were no orders as to costs in respect of the bank and the Australian Financial Complaints Authority.