Peled v Roufeil
[2017] FCCA 2342
•31 October 2017
FEDERAL CIRCUIT COURT OF AUSTRALIA
| PELED v ROUFEIL | [2017] FCCA 2342 |
| Catchwords: BANKRUPTCY – Application by bankrupt in respect of his trustees’ decision to issue contribution assessments and objecting to his discharge from bankruptcy. |
| Legislation: Bankruptcy Act 1966, ss.33, 139J, 139W, 139WA, 139Y, 139ZA, 139ZG, 149B, 149C, 149D, 178 Home Building Act 1989 (NSW) |
| Cases cited: Coshott v Prentice (2014) 221 FCR 450 |
| Applicant: | NIR PELED |
| Respondent: | MARK DAMIAN CHARLES ROUFEIL |
| File Number: | SYG 3095 of 2016 |
| Judgment of: | Judge Altobelli |
| Hearing dates: | 17 - 18 July 2017 |
| Date of Last Submission: | 15 August 2017 |
| Delivered at: | Sydney |
| Delivered on: | 31 October 2017 |
REPRESENTATION
| Counsel for the Applicant: | Mr Scruby |
| Solicitors for the Applicant: | John Lloyd & Co. |
| Counsel for the Respondent: | Mr Golledge |
| Solicitors for the Respondent: | Matthews Folbigg Lawyers |
ORDERS
Within seven (7) days, the parties are to submit a joint minute of order consistent with paragraph [78] of these reasons.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY |
SYG 3095 of 2016
| NIR PELED |
Applicant
And
| MARK DAMIAN CHARLES ROUFEIL |
Respondent
REASONS FOR JUDGMENT
Introduction
These reasons for judgment explain the Orders that the Court has made in this case. By way of an Amended Application dated 12 May 2017, the Applicant, a bankrupt, challenges two related aspects of the conduct of his Trustee in bankruptcy, the Respondent. The first is the Trustee’s decision to issue contribution assessments under section 139W of the Bankruptcy Act 1966 (Cth) (the Act). The second is the Trustee’s decision to issue a notice of objection to discharge on the basis that the Applicant did not pay the contribution assessments under challenge. The Respondent Trustee opposes the orders sought by the bankrupt Applicant.
Background
A sequestration order was made against the Applicant’s estate on 3 April 2014. The Applicant is a builder by trade. The sequestration order arose in connection with an unsuccessful unrelated business venture. The Applicant lives with his wife and three children in a house in Sydney’s eastern suburbs. The Applicant’s wife, Ms Mekler-Peled, and her sister, Ms Mekler, also gave evidence in this case. The Applicant’s wife and her sister are found by the Court to be experienced business people who have the benefit of an inheritance from their parents. Their father also worked in the construction industry. The two sisters inherited what was their father’s shares in a company known as Bulkara Holdings Pty Limited (Bulkara Holdings).
It is an uncontentious fact that since 2013, the role of Bulkara Holdings has been to manage 12 units and 4 shops in a building complex that it owns. It is uncontentious that Ms Mekler manages the day-to-day administrative operations of the business conducted by Bulkara Holdings. It is not alleged that the Applicant has any significant input or involvement in Bulkara Holdings. The Applicant’s only involvement is through a company called Hopetoun Group Pty Ltd (Hopetoun) which is contracted by Bulkara Holdings to do specific work and Hopetoun utilises the Applicant to perform that work. One of the issues in this case is the extent to which Hopetoun conducted other business activities using the Applicant to perform that work, in whole or in part.
The Applicant, and his wife, Ms Mekler-Peled, appear to have incorporated Hopetoun in 2000. It is uncontentious that Hopetoun is a company that provides building services, generally on a small scale, and normally for homes or home units. The Applicant contends that during his bankruptcy he worked on average for about 15-20 hours a week for Hopetoun, when it was engaged in building work. The Respondent does not accept this, indeed contends that the evidence will satisfy the Court that the Applicant was working for Hopetoun much more than about 15-20 hours a week.
The sisters contend, and the Court is prepared to accept, that Hopetoun and Bulkara Holdings are not in any practical sense part of the same group. What is plainly apparent to the Court, however, is that the Applicant and his wife managed their personal finances with the assistance of funds provided by Bulkara Holdings which extended to the payment of costs related to these proceedings.
The Respondent became the Applicant’s Trustee in bankruptcy on 30 July 2014, but not much occurred in terms of the administration of the bankrupt estate until mid-2016. The Applicant concedes that there was an initial interview in November 2014, and there were discussions about obtaining permission to travel to Israel to seek work in that year as well. In March 2015, and March 2016 the Respondent provided to the Applicant, and the Applicant completed, income questionnaires to facilitate the Respondent making an assessment in relation to income contribution.
A third income questionnaire was issued in 2016, but it was not until August 2016 that the Trustee determined to issue contribution assessments for 2014, 2015 and 2016. Instead of issuing those assessments on the basis of the questionnaires that the Applicant provided to the Respondent, the Respondent issued them under section 139Y of the Act which, as will be seen below, entitles the Trustee to deem a bankrupt to have received reasonable remuneration for work or activities performed by a bankrupt during a contribution period.
The Respondent conceded that the first contribution assessment issued by way of a notice dated 22 August 2016 is invalid. A new notice was issued on 17 November 2016, again in relation to three periods. The amended assessments are the subject of the present challenge.
The Applicant became due to be discharged from bankruptcy on 12 May 2017, which was the expiration of three years after lodgement of his statement of affairs. On 14 March 2017, after the commencement of these proceedings, indeed after the matter had been set down for hearing, the Trustee lodged a notice of objection to the Applicant’s discharge from bankruptcy under section 149B of the Act. The Applicant seeks to set aside the objection. The Respondent presses it, on the basis of the Applicant’s failure to pay the contribution assessments.
Before dealing with the substantive issues of both the contribution assessments, and the objection to discharge, there is a preliminary issue about the Court’s jurisdiction under section 178 of the Act. There is an issue about whether the section 178 application was made within the statutory time limit of 60 days. There is a separate but related issue of whether section 178 should be applied in a situation, such as this one, where the Applicant had alternative remedies.
Issues
The Court must therefore consider whether it has jurisdiction under section 178 of the Act or, more particularly, whether it should exercise that jurisdiction. The Court must then consider whether the contribution assessments should be set aside, and if so on what basis. The Court must finally consider whether to set aside the notice of objection to discharge of the Applicant’s bankruptcy.
The Evidence Before the Court
The Applicant relied on the following material:
a)Amended Application filed 24 February 2017;
b)Affidavit of Nir Peled filed 18 April 2017;
c)Affidavit of Nir Peled filed 18 May 2017;
d)Affidavit of Michelle Mekler-Peled filed 11 July 2017;
e)Affidavit of Simonne Mekler filed 11 July 2017;
f)Affidavit of Nir Peled filed 11 July 2017;
g)Case Outline dated 16 July 2017;
h)Affidavit of Rebecca Byrne filed 18 July 2017;
i)Closing submissions filed 28 July 2017; and
j)Submissions in reply filed 15 August 2017.
The Respondent relied on the following material:
a)Affidavit of Mark Roufeil filed 16 June 2017;
b)Optus Records Analysis – Annexure A and Annexure B.
c)Case Outline dated 14 July 2017; and
d)Submissions dated 8 August 2017.
The following documents were tendered in evidence:
| Date | MFI No. | Tendered by (eg. A/W, R/H) | Description of Exhibit/MFI |
| 17.7.17 | R1 | Respondent | Notice to produce |
| R2 | Respondent | Bundle of documents tab 5 to tab 9. | |
| R3 | Respondent | Optus bundle docs | |
| R4 | Respondent | Bundle of documents tab 2-4 | |
| 18.7.17 | A1 | Applicant | File note dated 21 July 2016 |
| R5 | Respondent | Bundle of documents tab 1 | |
| R6 | Respondent | Fair trading print out |
Following the conclusion of the evidence, written submissions were provided by the parties, as follows:
a)Closing submissions by the Applicant,
b)Closing submissions by the Respondent; and
c)Submissions in reply by the Applicant.
Mr Richard Scruby appeared as Counsel for the Applicant, and Mr Steven Golledge appeared as Counsel for the Respondent.
The Applicable Law
Section 178 of the Act sets out the Court’s jurisdiction to consider applications made in relation to decisions made by a Trustee:
(1) 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.
(2) The application must be made not later than 60 days after the day on which the person became aware of the trustee’s act, omission or decision
An issue arose in this case as to whether the time limit prescribed in section 178(2) should be extended. In this regard, section 33(1)(c) states that the Court may:-
Extend before its expiration or, if this Act does not expressly provide to the contrary, after its expiration, any time limited by this Act, or any time fixed by the Court or the Registrar under this Act (other than the time fixed for compliance with the requirements of a bankruptcy notice), for doing an act or thing or abridge any such time.
Division 4 of part VI of the Act deals with contribution by a bankrupt. Section 139J explains that the objects of this division, as relevant, includes: “(a) to require a bankrupt who derives income during the bankruptcy to pay contributions towards the bankrupt’s estate;”.
Section 139W deals with the assessment of a bankrupt’s income and contribution and states:
(1) As soon as practicable after the start of each contribution assessment period in relation to a bankrupt, the trustee is to make an assessment of the income that is likely to be derived, or was derived, by the bankrupt during that period, of the actual income threshold amount that is applicable in relation to the bankrupt when the assessment is made and of the contribution (if any) that the bankrupt is liable to pay in respect of that period under section 139S.
(2) If at any time, whether during or after a contribution assessment period, any one or more of the following paragraphs applies or apply:
(a) the trustee is satisfied that the income that is likely to be derived, or was derived, by the bankrupt during that period is or was greater or less than the amount of that income as assessed by the last preceding assessment in respect of that period;
(b) the base income threshold amount increased or decreased after the making of the last preceding assessment in respect of that period and before the end of that period;
(c) the trustee is satisfied that the number of the bankrupt’s dependants increased or decreased after the making of the last preceding assessment and before the end of that period;
the trustee is to make a fresh assessment of the income that is likely to be derived, or was derived, by the bankrupt during that period, of the actual income threshold amount that is applicable in relation to the bankrupt when the assessment is made and of the contribution (if any) that the bankrupt is liable to pay in respect of that period.
(3) The powers of the trustee under subsection (2) may be exercised on the trustee’s own initiative or at the bankrupt’s request, but the trustee is not required to consider whether to exercise those powers at the bankrupt’s request unless the bankrupt satisfies the trustee that there are reasonable grounds for the trustee to do so.
(4) As soon as practicable after the making of an assessment the trustee must give to the bankrupt written notice setting out particulars of the assessment and informing the bankrupt about the possibility of a variation under section 139T.
The Trustee’s decision to issue a notice under section 139W is reviewable by the Administrative Appeals Tribunal. Notwithstanding that, it was the Applicant’s case that there was good reason for the Court to review the Trustee’s decision under section 178 of the Act.
One of the concerns raised by the Applicant in his case was that the assessments were made late, and thus not “as soon as practicable after the start of each contribution assessment period” for the purposes of section 139W(1). In this regard, however, section 139WA, subsection (1) makes clear:
(1) An assessment under section 139W (including a fresh assessment referred to in subsection 139W(2)) for a contribution assessment period may be made at any time, including:
(a) a time after the end of the contribution assessment period; or
(b) a time after the bankrupt is discharged.
The Respondent Trustee in issuing its assessment relies on section 139Y, which is, in effect, a deeming provision. The section states:-
(1) If:
(a) the bankrupt is engaging or has engaged during a contribution assessment period in employment or other work or in activities that resemble employment or other work; and
(b) the bankrupt does not receive or did not receive any remuneration in respect of the employment, work or activities or receives or received remuneration that is less than the remuneration (in this subsection called the reasonable remuneration) that:
(i) in the case of employment where an industrial instrument prescribes rates or minimum rates of salary or wages for the employment—might reasonably be expected to be or to have been received by the bankrupt in respect of the employment by virtue of the industrial instrument; or
(ii) in any other case—might reasonably be expected to be or to have been received by a person who engaged in similar employment, work or activities where there was no relationship or other connection between that person and the person for whom the employment, work or activities were carried out;
then, for the purpose of making an assessment, the trustee may determine that the bankrupt receives or received the reasonable remuneration in respect of the employment, work or activities.
The Respondent’s case is that sections 139Y(1)(a) and (b)(ii) are activated in this case. The Trustee thus contends that throughout the course of his bankruptcy, the Applicant was engaged during a contribution assessment period in employment or other work, and he did not receive a remuneration in respect of that employment or work which might reasonably be expected to have been received by a person who engaged in similar employment or work where there was no relationship or other connection between the bankrupt and the person for whom the employment or work was carried out.
The Applicant does not dispute that he was working during the contribution assessment period, but he does dispute the reasonableness of the Respondent’s conclusion as to the amount or the value of the work performed by him.
Credit Findings
It is necessary to make some observations in relation to credit findings. Each of the Applicant, Ms Mekler-Peled, and the Respondent Trustee, Mr Roufeil, gave evidence and was cross-examined. The Court is comfortably satisfied that there are no issues about the evidence given by the Respondent Trustee, Mr Roufeil. He was at all times responsive, cooperative, willing to make sensible concessions, and gave his evidence directly and in a matter-of-fact manner. Whilst the Court is prepared to state that it accepts his evidence, that should not be interpreted as an acceptance of the correctness of the Respondent’s actions.
The evidence of the Applicant’s wife, Ms Mekler-Peled, the Court accepts, was truthful, though not necessarily complete or conclusive. The Court was left with a lingering impression that she knew far more than what she was required to say. She became the sole director of Hopetoun after the Applicant’s bankruptcy. When the aggregated evidence is reviewed in its entirety, the Court finds it surprising, therefore, that so little of the business affairs of that company during the contribution period appeared to be related to her, or seem to involve her.
For example, in cross-examination it became apparent to the Court that in fact she knew very little about the persons with whom Hopetoun contracted in its building projects. One would have expected Ms Mekler-Peled’s name to have appeared on the invoices of the company, but her name appears to have been there only once. Her denial, for example, that the Applicant’s legal costs were being met through Hopetoun was surprising, given the Applicant’s own evidence, and the business records produced to the Court.
Without wishing to suggest that this witness was untruthful, the Court was left with the strong impression that she knew far more than she was prepared to say. It is interesting to observe her evidence at one point in cross-examination when she was, in effect, asked to explain how her husband appeared to continue to devote substantial time and energy to Hopetoun’s business, notwithstanding the fact that he appeared to receive either nothing, or very little indeed, as compensation for his efforts. Her answer was to the effect that it was a family business, in which they worked together as a team. Her evidence, of course, merely strengthened the Trustee’s conclusion that the bankrupt did not receive the remuneration that might reasonably have been expected to have been earnt by him.
In many ways, the focal point of the evidence was the Applicant’s cross-examination. The Court accepts the submission made on behalf of the Trustee that much of the Applicant’s evidence was given with a view to advancing his own interest in the proceeding, rather than by a desire to give to the Court a full and frank account of all relevant events. This was, the Court observes, a rather diplomatic way of suggesting that the Applicant’s evidence needs to be very carefully considered by the Court. Indeed, there are several reasons, based on the Applicant’s own evidence in cross-examination, which would cause the Court to be most concerned about the factual matters that he asserts.
For example, in his 2015 and 2013 income questionnaires, he described himself as a supervisor with Hopetoun. At paragraph 93 of his affidavit filed 18 April 2017, the Court finds that the Applicant sought to distance himself from his previous representation. In effect, at paragraph 93, the Applicant contends that his function did not involve him in any way supervising the quality of work carried out by anyone on site, but rather that this was performed by a Mr Eric Moss.
The Applicant sought to infer from his evidence that when he described himself as supervisor, he was adopting a term or description used by the Respondent. The Court does not accept this. It is simply not plausible, given the Applicant’s own background and experience as a builder. He himself deposes to the fact that he started work in the building industry in 1991, as a full-time labourer. He would well and truly have understood who was supervisor, and what a supervisor did. Thus, to suggest that he was either mistaken, or had been misled into describing himself as a supervisor is, with great respect, highly unlikely. His denial that he was a supervisor was, indeed, disingenuous. In all likelihood, it was a denial that he thought would assist him in maintaining his case.
In paragraph 93 of the said affidavit, the Applicant refers to Mr Eric Moss who, he contends, was in fact the supervisor for Hopetoun. Instead of providing some clarity to the Applicant’s evidence, it had the opposite effect. If Mr Moss was, indeed, the nominated supervisor for Hopetoun, the Applicant provided no plausible explanation for why he was not appointed until over 12 months after the bankruptcy. The Applicant was also oddly ignorant, it seemed, about the relationship between Mr Moss, and a company known as Gem Industries, which was clearly associated with him.
The Court finds that the Applicant was incorrect in information he gave to the Trustee about the number of persons dependent on him during the first year of his bankruptcy, and the use of family motor vehicles. These incorrect representations were contained in his statement of affairs completed 1 May 2014, his income questionnaire completed 12 April 2015, and that one completed on 17 April 2016. Further confusion is caused as a result of the exchanges between his solicitor, and the Respondent, in September 2016. For example, in the period of these documents and exchanges, the Applicant’s position moved from a concession that he was working as a supervisor 50 hours per week, to a position where he denied being in a supervisory role, and was working no more than 15-20 hours per week.
Of particular concern to the Court, certainly as regards the Applicant’s credit, but on the broader issue of the contribution assessment, is the detailed evidence led on behalf of the Trustee about telephone calls made from a mobile telephone that the Applicant himself conceded was one that he used. The evidence is voluminous and can be summarised as follows. The Applicant admitted in cross-examination that most of the calls made on the telephone numbers in question related to the commercial affairs of the company. The calls were made from early morning till late afternoon and evenings on most days of the week, and often on weekends. Certainly as at 2014, the telephone records are entirely consistent with the Applicant’s admission in his statement of affairs that he was working about 50 hours per week for the company.
The records suggest that the Applicant was also travelling around Sydney, and in particular the eastern suburbs of Sydney during the days in question. The logical inference to be drawn from this evidence is that he had access to a motor vehicle for extensive periods of time.
A disconcerting analysis of the telephone records (from the Applicant’s perspective) was conducted by the Respondent in relation to the numbers called by the Applicant. The Respondent contends, and in this regard the Applicant did not deny, that over 1,100 calls are recorded as having been made to telephone numbers of known subcontractors to Hopetoun. Of those calls, a single call was made from a phone used by the Applicant’s wife. A further single call was made from a handset in the name of Hopetoun. The remaining calls, over 1,100 in number, were all made from the handset used by the Applicant.
The Respondent contends that the evidence is, in fact, incomplete. For example, the analysis of the telephone calls made does not include any telephone calls received by the Applicant. Moreover, the analysis of calls made to the known subcontractors, is entirely based on the Applicant’s own disclosure of subcontractors. The inference is that there could be, indeed probably were, other subcontractors not disclosed.
The aggregated evidence creates a strong impression that it was the Applicant, rather than any other person, who was primarily responsible for dealing with the third party contractors of Hopetoun, and it is far more likely than not that it was the Applicant who continued to carry out work for that business, notwithstanding his bankruptcy, and certainly for hours likely to be far longer than what he asserted to the Trustee.
It is uncontentious that the Applicant was not paid for work carried out by Hopetoun on any basis that reflect either the nature of the work being carried out, or the extent of that work. This is on the basis of the hours that the Applicant was prepared to concede, let alone what the Court believes to have been the reality, ie, much longer hours.
All of this leads the Court to accept the Respondent’s submission that the Applicant was not making a genuine effort to tell the Court everything he knew about the facts in issue. Indeed, the Court finds that it is more likely than not that he was working far greater hours than he was prepared to concede either to the Trustee or to the Court.
The Court must record, however, Mr Scruby’s valiant efforts to overcome what the Court believes to be the formidable, if not overwhelming, evidence that was contrary to the case run by Mr Scruby’s client. For example, Mr Scruby submitted that the telephone records were neutral and were not inconsistent with the Applicant’s description of his work during his bankruptcy.
The sheer volume of the telephone records, the period that they cover, and the consistent trends evident from these records make it impossible for the Court to accept this contention. In any event, any lack of congruence between the places at which the telephone calls were made, and specific work that Hopetoun was performing, does not necessarily detract from the probative value of the evidence. Counsel is surely right in pointing out that the phone records do support the Applicant’s case that Hopetoun worked predominantly through subcontractors, but those subcontractors needed to be carefully coordinated and supervised, and the evidence strongly suggests that it was the Applicant who was in that role.
Even if the telephone records do not state the duration of each telephone call, this does not detract from the probative value of the evidence. The Court is not prepared to infer that any length of telephone call was required in order for the Applicant to be performing supervision duties.
True it is that, from the quantitative perspective, the total times recorded on one mobile number do not amount to more than one quarter of the monthly hours declared by the Applicant to have worked for Hopetoun.
But even this observation does not assist the Applicant’s case because the Court is not prepared to infer that the Applicant’s role as supervisor was somehow limited to the making of telephone calls. A common sense and holistic view of this evidence must be adopted. Despite Mr Scruby’s valiant attempts to shore up his client’s evidence, the Court’s adverse conclusions about his evidence remain intact.
Findings of Fact
The aggregated evidence before the Court enables it to make the following findings:-
i)The Applicant was engaged in employment or other work-like activities that resembled employment, for and on behalf of Hopetoun, throughout the course of the income contribution periods; and
ii)The Applicant did not receive the level of remuneration as might be reasonably be expected to have been received by a person who engaged in similar employment, work or activities. Were there no relationship or connection between the Applicant and Hopetoun, the relationship being through his wife, the Applicant would have received a higher level of remuneration than he did.
iii)It follows from the findings above that the Court does not accept that the Applicant reduced his workload on or after bankruptcy. Specifically, the Court does not accept the Applicant’s evidence about the role allegedly played by Mr Eric Moss. At all relevant times, the onus of proof under section 139Y was on the Applicant (Coshott v Prentice (2014) 221 FCR 450 at [80] (Full Court); Ho v Powell (2001) 51 NSWLR 572; Jones v Dunkel (1959) 101 CLR 298).
iv)At the date of the sequestration order, Hopetoun carried on businesses as a licensed builder and, as such, was entitled to enter contracts with customers. Since 2001, the company had a condition on its licence to the effect that it was not authorised to carry out work requiring home warranty insurance under the Home Building Act 1989 (NSW).That condition had nothing to do with the Applicant’s bankruptcy. The Court accepts, however, that the Applicant’s bankruptcy might, if known to the public, have had an adverse impact on Hopetoun securing work. The evidence before the Court, does not establish this.
v)At the time of the sequestration order, the Applicant held a qualified supervisors certificate, and was the nominated supervisor for Hopetoun. This qualified him to perform building work, but contracts needed to be entered into via a subcontractor.
vi)The Applicant completed a statement of affairs on 1 May 2014 in which he described himself as being currently employed by Hopetoun as a supervisor, and that he worked 50 hours per week.
vii)On or about 12 April 2015, the Applicant completed an income questionnaire for the period 3 April 2014, to 2 April 2015. He described himself as employed by Hopetoun as a supervisor, and as having received nil gross income for that 12 month period.
viii)On or about 17 April 2016, the Applicant completed another annual income questionnaire for the period 3 April 2015 to 2 April 2016. In that questionnaire, he stated that he remained employed by Hopetoun, that his actual income was $20,300, that he was employed as a supervisor, and that his estimated income for the following 12 month period was $20,000.
ix)On 1 September 2016, and as part of exchanges between his solicitor at the time and the Respondent, the Applicant provided further information regarding both himself, and Hopetoun. For the first time, he described himself as the sole casual employee of Hopetoun. For the first time, he referred to Mr Eric Moss as the contractor supervisor. He described his work as sourcing work for the company, communicating with quantity surveyors, attending building sites for approximately 3-4 hours a day whilst work was going “to see that everything was being carried out in a proper and workman-like manner”, but (notwithstanding that) it was Mr Moss who supervised the works, and gave instructions to contactors. He explained in this communication that he could not act as a supervisor, that he was only working 15-20 hours per week when the company was engaged in building work, which was irregular.
x)On 20 April 2017, the Applicant completed a third annual income questionnaire, for the period 3 April 2016 – 2 April 2017. Here, he disclosed that his income for the period was $5000 and, for the first time, described his employment as being “part overseer” and that he was not “supervisor” of workmanship of the employees and subcontractors.
xi)During the period of the Applicant’s bankruptcy, Hopetoun reported the following financial results:
13/14 14/15 15/16 Total Contract Income $897,328[1] $279,068[2] $705,989[3] Declared Profit/Loss ($159,799)[4] Loss ($17,742)[5] Loss $43,862[6] [1] Exhibit NP2 at 641
[2] Ibid at 653
[3] Ibid at 663
[4] Ibid at 641
[5] Ibid at 653
[6] Ibid at 663
xii)During the whole of the period referred to in the table above, no income has been paid by Hopetoun to the Applicant’s wife, notwithstanding that according to both of them, she also carries out work for the company.
xiii)On 17 November 2016, the later (ie, the operative) income contribution notices were issued by the Trustee.
xiv)On 8 December 2016, the Applicant applied to the Inspector-General in Bankruptcy to review the decision by the Respondent to issue the later notices.
xv)On 31 January 2017, the Inspector-General advised that she declined to carry out a review of the Respondent’s decision, and no appeal to the AAT was taken in respect of that decision.
xvi)The evidence suggest that all personal expenses of the bankrupt and his family are paid for by Bulkara Holdings. In addition, the Applicant’s cost of these proceedings have been paid by Hopetoun. The moneys paid by the company are, apparently, not recoverable on any loan account with the Applicant.
xvii)During the course of the bankruptcy, the Applicant was the named user in respect of two mobile phone handsets the costs of which are billed to Hopetoun and which is then claimed by Hopetoun as a business expense. The evidence suggests the Applicant’s use of these mobile numbers was extensive, and ranging up hundreds of telephone calls each month made by the Applicant.
Jurisdictional Issues
To the extent that the Applicant requires an order under section 33(1)(c) for an extension of time to bring the various components of its application, the Court grants this leave. There was an issue that was raised in submissions about the Court’s power to extend time under section 178, pursuant to section 33(1)(c) of the Act. This Court believes that it is bound by the decision of her Honour, Jagot J, in Kerr (Trustee) in the matter of Cross v Bechara [2015] FCA 284 at paragraphs 44-45. There is no basis for not exercising the power to extend time, as sought by the Applicant. There is no prejudice to the Respondent. There would be prejudice to the Applicant if leave were denied.
A second jurisdictional issue arises under section 178, and that is, in effect, whether the Court should use its powers under the section in circumstances where the Applicant has alternative remedies available to him. The Respondent submits that each of the decisions to issue both the initial notices, and the later notices, and indeed the decision to lodge the notice of objection to discharge, were amenable to internal review by the Inspector-General in Bankruptcy pursuant to section 139ZA of the Act (in respect of the assessments) and section 149K (in respect of the objection to discharge). Any decision by the Inspector General on an application for internal review was itself subject to review upon application to the Administrative Appeals Tribunal pursuant to section 139ZF and 149Q.
The evidence establishes that the process was in fact commencing in respect of both contribution notices, but the Inspector-General declined to conduct any review of the Respondent. The Applicant would have been entitled to a review of the merits of the Inspector-General’s refusal to review the issue of the later notices in the Administrative Appeals Tribunal.
In short, the Respondent’s case is that the Applicant should have pursued administrative review in favour of an application to the Court under section 178. The Respondent concedes, however, that the section 178 application remained open, notwithstanding the existence of the parallel administrative review process: Machia v Nilant 110 FCR 101 at [40] per French J. The Respondent emphasised the important differences between proceedings in the AAT, and the conduct of an application under section 178 in this Court.
The Court accepts that the Applicant invoked section 178 for good reason. Those reasons are succinctly summarised at paragraphs 18-22 of the Applicant’s outline of submissions filed 28 July 2017, which are reproduced below:
18. In the present case, the Applicant applied to the Inspector-General for a review of the Trustee's decision. The Inspector-General however declined to conduct a review. The Applicant has chosen to invoke this Court's jurisdiction under s 178 instead of pursuing matters in the Administrative Appeals Tribunal ("AAT") for the following reasons. In two decisions in October last year, the AAT held that in circumstances where an Inspector-General declines to conduct a review the AAT does not have jurisdiction to do anything other than set aside the Inspector-General's decision not to conduct a review.4 In other words, if the Inspector-General under s 139ZA(1) declines to conduct a review of a Trustee's decision at the request of a bankrupt, the best that a bankrupt can hope for in the AAT is for the matter to be remitted to the Inspector-General.
19. The result of these decisions is that, following the decision of the Inspector-General not to conduct a review, the Applicant did not have available any "comparatively speedy and inexpensive means of administrative review" of the sort referred to by French J in Macchia. The very best that he could have achieved in the AAT was an order setting aside the Inspector-General's decision not to conduct a review under s 139ZA. If he had obtained that relief, the Inspector-General would have had to re-exercise his discretion under s 139ZA(1) to conduct a review. Then, if the Inspector-General's decision was unfavourable, the Applicant would have been left to approach the AAT again. This would be an unsatisfactory outcome for all concerned. Whether or not the AAT's approach to the Act is correct need not be decided in the present litigation (the Federal Court has not considered the matter): the point is that the Applicant's decision to invoke the jurisdiction under s 178 is readily understandable and indeed the only practical option available to him.
20. In the above circumstances, the alternative regime available to challenge the CAP decision does not militate against this Court exercising its discretion under s 178.
21. There are two further points to be made in the above context. The first is that, as noted above, the Applicant is seeking also to review the Trustee's decision to issue a Notice of Objection to discharge ("the Objection"). A similar parallel regime exists for the challenge to such decisions. However there were compelling reasons for the Applicant to proceed by way of s 178. The Objection was issued during the pendency of the present application (indeed, after a hearing date was set down). The Objection has a drastic effect on the
Applicant's circumstances and any challenge to it should be dealt with as expeditiously as possible. It is obviously convenient to deal with it in the same proceedings as the challenge to the Contribution Assessments.
22. The second point is to note that, in any event, that the Applicant is also invoking this Court's power under s 33(1)(c) of the Act to extend the time for compliance with the Contribution Assessments (see prayer 5). It is not possible to seek this relief under the alternative statutory regimes.
The Court finds that the Applicant has quite properly invoked section 178 of the Bankruptcy Act, on the facts of this case.
The Contribution Assessments
The Applicant invokes section 178 of the Act to review the Trustee’s decision under section 139Y of the Act. A number of important relevant principles emerge from the decision of the Full Court of the Federal Court in Frost v Sheahan [2009] FCAFC 20 at paragraph 8. The first is that section 178 confers a supervisory jurisdiction over the conduct of the Trustee, and gives to the Court a very wide discretion. The second is that it is not necessary for an Applicant for relief under section 178 to show that the Trustee’s decision was absurd, or unreasonable or taken in bad faith. The Court has a wide discretion to make such order as seems appropriate in the circumstances of the case. At the same time, the Court would be slow to make orders which will have the effect of interfering in the day-to-day administration of a bankrupt’s estate and, in cases involving an exercise of business or commercial judgment, will place considerable weight on the Trustee’s decision. Moreover, a court will not intervene under section 178 simply because a trial judge forms a different view from that of the Trustee.
A third principle derived from the decision is that an order may be made under section 178 even if the Trustee’s decision was correct on the material before him if, for example, additional material is put before the Court.
Having regard to the Court’s findings of fact, the present focus is on the Trustee’s determination not of the income the Applicant actually received (which is irrelevant) but rather of what he might reasonably be expected to have received having regard to what a person engaged in similar employment would have received. The Court accepts that this is an evaluative process which does not admit of any precise mathematical calculation: Prescott v Inspector-General in Bankruptcy [2013] AATA 680 at [89]. Was the Trustee’s formulation of the amount payable in respect of each income contribution period reasonable in the sense that it was reasonably based?
At one level there is the obvious difficulty that it was, in effect, the Applicant’s non-disclosure of the true extent of his involvement in the business affairs of Hopetoun that led to the Trustee issuing contribution assessments of which the Applicant now complains. At a discretionary level it might simply be argued that if the Applicant had been forthright, that these proceedings would have been unnecessary. This is a discretionary consideration that might result in the Court not exercising the discretion it has under section 178 even if the Court found the Trustee to have acted unreasonably.
On the other hand, however, the evidence in this case demonstrates that whilst the Trustee was perfectly entitled to conclude that the Applicant was less than forthright in disclosing the true nature and extent of his involvement in the business affairs of Hopetoun, the assumptions that he made in issuing the assessment under section 139Y were flawed, for reasons that will be discussed below. On the facts of this case, therefore, the Applicant’s conduct (for want of a better word) does not necessarily disentitle him to relief under section 139Y but may well disentitle him to any order for costs that might otherwise have followed from a successful application under section 139Y.
The Court is concerned about the methodology adopted by the Trustee in the contribution assessments over the three income periods (2015, 2016 and 2017). Of concern to the Court is the manner in which the Trustee deemed the Applicant’s income to be the amounts stated in the assessments. Specifically, the Court finds that the Trustee applied pay scales to assess average wages which were not appropriate on the facts of the present case.
Thus, for example, the evidence indicates that two of the three pay scales used to assess average wages were 2016 pay scales, which would have been inapplicable to the first and second contribution assessment periods. Only one of the pay scales distinguished between different tiers in the construction industry, and specifically did not relate to a small company such as Hopetoun. Moreover, the Trustee appears to have made a wrong assumption about whether the nature of the business undertaken by Hopetoun fell into the category that he in fact assumed.
The Court is satisfied that in assessing the benefit to the Applicant of the housing provided by his wife, his adoption of market value was based on an assessment of rental values derived on one day only in 2016. The precise calculations in this regard are set out cogently, and carefully, at paragraphs 23-39 of the Applicant’s outline of submissions filed 28 July 2017. There is no need to reproduce the details here.
What is clear from the Applicant’s submissions is that, if the Court were prepared to accept all of its contentions (which, of course, it does not) there would be a significant difference in the contribution assessments. The difficulty in the Applicant’s case, of course, is that so many findings of fact have gone against him as regards the nature and extent of his involvement in the business affairs of Hopetoun. In so far as the Applicant’s calculations are predicated on the Court accepting that he only worked 15-20 hours per week, the figures are clearly wrong as the Court does not accept the basis of them. To the extent that the Applicant asserts, however, that the Respondent has miscalculated the contribution assessments as a result of his deemed income, and the fringe benefits consisting of the housing benefit and car benefit, the Court agrees.
The Court’s finding that the Trustee has not acted reasonably in assessing the Applicant’s income for contribution assessment purposes is limited to the matters set out above i.e. the housing and car benefits and average wages. It is not suggested that the Trustee acted in bad faith. It may well be, for example, that once the Trustee recalculates what the Applicant’s contribution assessment should be, in respect of each period, using more transparent and objectively sustainable data, there will not be a significant difference in the contribution to be assessed.
That is a process that the Court will certainly not undertake for itself, despite the Applicant’s urging in this regard. That is a role for the Trustee. Whatever the difference actually is, it will no doubt be significant to the Applicant and thus the Court has no hesitation in exercising the discretion that it clearly has under section 178 to set aside the contribution assessment notice and require the Trustee to re-assess having regard to the Court’s findings in these reasons for judgment.
The Objection to Discharge of Bankruptcy
Section 149B of the Act deals with objection to discharge, and states:
(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.
Section 149C deals with the form of notice of objection, and section 149D deals with the grounds of objection. In this regard, the Respondent Trustee relies on those grounds dealing with unpaid income contribution assessment liabilities.
It is common ground that the notice of objection was lodged whilst the challenge to the assessments was on foot.
The Applicant referred the Court to the statements of principle made by Lander J, in Frost v Sheehan [2005] FCA 1014 at 48-49:-
48. It is a power, however, which must be used sparingly and for the purpose of protecting the interests of creditors and in generally advancing the administration of the estate of the bankrupt.
49. In a sense, it is a power of last resort when no other form of persuasion will assist to remind the bankrupt of the bankrupt’s obligations.
Counsel for the Applicant also referred the Court to the Full Court’s statement in Prentice v Wood (2002) 119 FCR 296 at 21:
21. In Inspector-General v Nelson (1998) 86 FCR 67 at 78 a Full Federal Court said that in order to “keep a person bankrupt” beyond the ordinary period, a trustee would need to have reasons directed to achievement of a purpose of the law of bankruptcy. The existence of a permissible ground supported by sufficient evidence is a threshold; there must also be reasons justifying the making of the objection in the particular case.
The Applicant submitted that the Trustee’s exercise of the power in the present case was contrary to these statements of principle.
It should be noted that the Trustee originally had two grounds in support of the notice of objection. The first one related to the failure to pay contributions. The second ground, now withdrawn, related to a failure to surrender the Applicant’s passport. This ground was withdrawn, and the Court does not accept that it should infer anything about the appropriateness of the Trustee’s exercise of power because of the withdrawn ground. The focus must be on the ground presently asserted by the Trustee to support the objection to the Applicant’s discharge from bankruptcy.
The Applicant strongly submits that the issue of a notice of objection to discharge on the basis of non-payment of contribution assessments during the present proceedings which challenges the income contribution assessment is improper. The Applicant contends that it has the effect of placing pressure on the bankrupt to compromise or withdraw proceedings to vindicate a legal right.
The Applicant points out that a liability to pay contribution assessments under section 139ZG is a liability that is not released on discharge from bankruptcy, and that a Trustee can make contribution assessments even after a bankrupt has been discharged. Thus, regardless of the outcome of these proceedings, the Applicant contends it was not necessary for the Trustee to make the objection to preserve any liability to pay the contribution assessments. The Applicant contends that the issue of the objection was pointless from a practical perspective.
The Applicant makes much of the fact that one of the orders he seeks is an order extending the time for payment of the income contribution, until the determination of these proceedings. In the circumstances, he contends, there was no sufficient reason to issue the notice. Any coincidence with the date of expiration of the bankruptcy period was entirely the Trustee’s fault because of the lateness in issuing the contribution assessments. In short, the Applicant’s case is that the objection was either a mindless and pointless exercise, or an attempt to intimidate or place pressure on the Applicant in these proceedings. On either view, the Applicant contends that it should be set aside.
The Trustee was cross-examined about his decision. His explanation, which the Court accepts, is that the notice was necessary so as to ensure that the Applicant complied with its obligations under the Act. It was the Trustee’s view that the Applicant had failed to pay income contributions and, indeed, failed to engage with the issues arising in relation to those assessments.
On behalf of the Respondent, it was strongly submitted that the Applicant’s case was, at all relevant times, that the Trustee ought to have accepted the bankrupt’s contention that he was not receiving income in the amounts assessed. That is correct, and the Applicant’s case in this regard has not been accepted by the Court. The Applicant’s success on the section 139Y application could be described as a technical success based on a number of incorrect assumptions made by the Trustee in assessing the income contribution. The incorrect assumption made did not, however, relate to an unjustified non-acceptance of the Applicant’s contention about contribution assessment.
The Court believes that even though the Applicant has enjoyed a measure of technical success in his application under section 139Y, the Court’s findings nonetheless go strongly against him. In the circumstances, at least pending the determination of these proceedings, the Respondent was perfectly entitled to lodge the objection in accordance with the legislation. It certainly does not follow, in this Court’s mind, that just because the section 139Y application has succeeded in some measure, that it must follow that the objection be withdrawn. The facts of this case do not warrant such a conclusion.
In the circumstances, the order of the Court will be that proposed orally by Counsel for the Respondent modified as follows. The Respondent will have four weeks to issue new assessments. If the new assessments are not issued within four weeks, the Respondent must withdraw the notice of objection to discharge no later than five weeks hence. If new assessments are issued, and fully paid, then the Respondent must, once again, withdraw the objection within seven days of payment. If the new amendments are issued but unpaid, the notice of objection remains on foot pending payment, or pending any further application to this Court.
Costs
Costs would normally follow the event, but the Applicant has only enjoyed technical success on his section 139Y application, and has not succeeded as regards the notice of objection to discharge. In the circumstances, the Court proposes to order each party to pay and bear their own costs, with the Trustee’s costs being part of the bankrupt estate. Should either party seek a contrary order in relation to costs, then the Applicant for costs must file written submissions in support of the same within 28 days, the Respondent to such order within a further 28 days, with the Applicant having 14 days to reply.
Order
Within seven (7) days, the parties are to submit a joint minute of order consistent with paragraph [78] of these reasons.
I certify that the preceding eighty (80) paragraphs are a true copy of the reasons for judgment of Judge Altobelli
Date: 31 October 2017
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