Powell, V.G. & C.R. v The Official Trustee in Bankruptcy
[1990] FCA 647
•13 NOVEMBER 1990
Re: VINCENT GERALD POWELL and CAROLL ROSEANNE POWELL
Ex parte: THE OFFICIAL TRUSTEE IN BANKRUPTCY
No. 82 of 1985
FED No. 647
Bankruptcy
COURT
IN THE FEDERAL COURT OF AUSTRALIA
EXERCISING FEDERAL JURISDICTION IN BANKRUPTCY
BANKRUPTCY DISTRICT OF THE STATE OF TASMANIA
Northrop J.(1)
CATCHWORDS
Bankruptcy - discharge of bankrupt by operation of law - application by trustee that bankrupt not be discharged - principles to be applied - whether unsuccessful trustee should pay bankrupt's costs of application.
Bankruptcy Act 1966 s.s.149, 150
Bankruptcy Rule 51A
HEARING
HOBART
#DATE 13:11:1990
Counsel for applicant: Mr Slicer
Solicitor for applicant: Australian Government Solicitor
Counsel for respondent: Mr Rae
Solicitor for respondent: Bishop Gunton and Rae
ORDER
The application be dismissed.
The order of 26 April 1990 be varied by deleting the date "31 December 1990" and inserting in lieu thereof the date "13 November 1990".
Note: This order is to be settled and filed in accordance with rule 124 of the Bankruptcy Rules.
JUDGE1
The Official Trustee in Bankruptcy, as trustee of the estate of Mrs Carol Roseanne Powell, a bankrupt, is seeking an order under sub-section 149(12) of the Bankruptcy Act 1966 that Mrs Powell be not discharged by virtue of s.149 of the Bankruptcy Act. Sub-section 149(12) provides:-
"(12) The Court may, at any time before the discharge of a bankrupt, on the application of the Registrar, the Inspector General, the trustee or a creditor, direct that the bankrupt should not be discharged from bankruptcy by virtue of this section."
If the order sought is made, it will mean that Mrs Powell will remain a bankrupt for the rest of her life unless, on an application made by her, the Court makes an order under s.150 of the Bankruptcy Act.
The history of the bankruptcy of Mrs Powell is unusual and is set out in summary form. On 6 May 1985, the Supreme Court of Tasmania, on the petition of Australia and New Zealand Banking Group Ltd., made a sequestration order against the estates of Mrs Powell and her husband Vincent Gerald Powell. By reason of the Bankruptcy Act, the Official Trustee became the trustee of the joint and separate estates of Mr and Mrs Powell. Normally each would have been discharged from bankruptcy on 6 May 1988 by reason of paragraph 149(2)(b) of the Bankruptcy Act. This did not happen because, on 2 July 1986 the trustee, in conformity with paragraph 149(3)(c), entered an objection to such a discharge with respect to each bankrupt. Neither of those objections was withdrawn. Under sub-section 149(7), and subject to sub-section (11), where an objection to discharge is not earlier withdrawn, the objection lapses at the expiration of 5 years from the date of the bankruptcy or "if the Court makes an order under sub-section (8) or (9) in relation to the bankrupt-the period fixed by the order." Sub-section 149(11) provides that an objection to discharge lapses if an order is made under s.150.
Sub-section 149(8) provides:-
"(8) The Court may, at any time before the expiration of 5 years after the date of the bankruptcy, on the application of the Registrar, the Inspector-General, the trustee or a creditor order that the period at the expiration of which an objection entered under paragraph (3)(c) will lapse be such period, being a period exceeding 5 years, commencing on the date of the bankruptcy as is specified in the order."
By application dated 4 April 1990 and filed on 6 April 1990 in which the trustee was named as the applicant and Mrs Powell was named as the respondent, the trustee sought the following orders:-
"1. That pursuant to sub-section 149(12) of the
Act the bankrupt (Mrs Powell) shall not be discharged from bankruptcy.
2. For such further or other orders as the
Courts thinks fit."
By application dated 4 April 1990 and filed on 6 April 1990 in which the trustee was named as the applicant and Mr Powell was named as the respondent, the trustee sought the following orders:-
"1. That pursuant to sub-section 149(12) of the
Act the bankrupt (Mr Powell) shall not be discharged from bankruptcy.
2. For such further or other orders as the
Court thinks fit."
Each of these applications was to come on for hearing on 26 April 1990. It is apparent from the history set out, that unless an order was made pursuant to sub-section 149(12) of the Bankruptcy Act before 6 May 1990 each of the bankrupts would, by reason of paragraph 149(7)(a) and sub-section 149(14) be discharged from bankruptcy on 6 May 1990. The Court was unable to sit in Hobart on 26 April 1990 and it was not possible for the applications to be heard and determined before 6 May 1990. In those circumstances, by telephone hookup on 26 April 1990 at which the trustee and each of the bankrupts appeared by their legal representative, the Court, on the application of that trustee, made the same order in each application namely:-
"The period under Section 149(8) at the expiration of which the objection lodged under paragraph 149(3)(c) of the Bankruptcy Act 1966 will lapse be extended until 31 December 1990."
These orders were made to enable the applications that had been filed on 6 April 1990 to be heard and determined by the Court. At the same time directions were given to enable the applications to be prepared for hearing.
The application with respect to Mrs Powell came on for hearing by the Court on 27 August 1990, extended during 5 days and concluded on 31 August 1990. Mr Powell was granted leave to appeal from the order made on 26 April 1990 and as set out above. The appeal was pending at the time the application with respect to Mrs Powell was being heard by the Court.
Before turning to the facts of the case reference should be made to other statutory provisions. Sub-section 149(13) provides:-
"149(13) In deciding whether to make an order under sub-section (12), the Court shall taken into account such matters (if any) as are prescribed for the purposes of this sub-section."
Matters prescribed for the purposes of sub-section (12), as well as for the purposes of sub-section (10) which relates to what is to be taken into account in applications under sub-section (8), are set out in Bankruptcy Rule 51A. That Rule, which was inserted into the Rules in 1980, see SR 1980 No. 386, is as follows:-
"51A. The following matters are prescribed for the purposes of sub-section 149(10) and (13) of the Act:
(a) whether the bankrupt is able, or is likely within 5 years from the date of the bankruptcy to be able, to make a significant contribution to his estate;
(b) whether the discharge of the bankrupt would prejudice the administration of his estate;
(c) whether the bankrupt has co-operated in the administration of his estate;
(d) the conduct of the bankrupt, in respect of the period both before and after the date of the bankruptcy;
(e) any matters arising out of the conduct of the bankrupt as a bankrupt, being matters that are the subject of an investigation that is not completed;
(f) the age and state of health of the bankrupt;
(g) any evidence adduced by the bankrupt, the Inspector-General, the trustee, the Official Receiver or a creditor relating to-
(i) the circumstances in which the debts of the bankrupt were incurred, including the bankrupt's experience in, and understanding of, financial matters and of the obligations imposed on the bankrupt as a result of incurring the debts; and
(ii) the conduct of the bankrupt's creditors, including the nature and extent of any inquiries made by the creditors into the bankrupt's ability to pay his debts and whether the bankrupt was induced to incur debts by conduct on the part of the creditors that departed from the standards of normal and reasonable commercial practice."
During the course of final submissions, counsel for the trustee made it clear that the matters sought to be established in support of the application were those contained in Rule 51A(b) and (d) namely that the discharge of Mrs Powell would prejudice the administration of her estate and that her conduct in respect of the period both before and after the date of bankruptcy on 6 May 1985 justified the making of the order sought.
Before turning to the facts of this application some general observations are made on the policy expressed by the Bankruptcy Act with respect to the discharge of bankrupts. For this purpose, it is not necessary to delve into the history of the relevant provision as illustrating the changing nature of that policy. The present policy is made clear by a reference to Part VII of the Bankruptcy Act, especially sections 149 and 150, as it now stands. In Vanguard Service Print v. Mercovich (1985) FCR 32, a Full Court expressed views on this policy. With respect, I agree with those views but the general observations about to be made are mine.
The general policy of the Act with respect to the discharge of bankruptcies is clear. That policy is that a bankrupt is to be discharged by operation of law at the expiration of three years from the date of the bankruptcy. There are exceptions. Under one exception, the period at the expiration of which the bankrupt is to be discharged by operation of law may be extended to five years by the Registrar, the Inspector-General or the trustee entering an objection to the discharge; see paragraph 149(3). But as was said in Mercovich at pp 39-40, such an objection should not be lodged unless "the objector has sufficient reason to believe that there exists one or more of the grounds specified in s.149(4); see Van Reesema v Official Receiver (1983) 50 ALR 253 at 264". In Van Reesema, in that passage, Sheppard J. in considering the grounds referred to in sub-section 149(4), said:-
"What then is the significance of the grounds so specified? What part do they play in the overall scheme of the legislation in so far as it provides for the discharge of bankrupts? It seems to me that the purpose of s.149(3) and (4) is to cast upon a person entitled to enter an objection ie the Registrar, the Inspector-General, the trustee or a creditor (with the leave of the court) an obligation to apply his mind carefully to the question of whether there is sufficient reason or basis for the entry of an objection upon one or more of the available grounds. By that I do not mean that the objector must be satisfied that the ground exists upon the basis of any absolute standard. But, in my opinion, he must turn his mind to the problem and ought not to enter the objection unless reasonably satisfied of the correctness of what the ground implies. The reason for that view is the clear intention of the legislature that bankrupts are to be automatically discharged after the expiration of three years from the date of their bankruptcies unless at least one of the grounds exists. The legislature has thus specified with precision the circumstances in which the operation of the section will be stayed."
It is noted that a creditor cannot enter an objection under paragraph 149(3)(c) without the leave of the Court. In determining whether leave should be granted, the Court would have regard to the matters referred to in sub-section 149(4). Any objection lodged may be withdrawn within the five year period; see sub-sections 149(5) or (6), whereupon the bankrupt is discharged from bankruptcy. Before the expiration of the five year period, the Court has power to order that the period be extended to a period exceeding the five years or that the bankrupt not be discharged. In either event, an application must be made to the Court by the Registrar, the Inspector General, the trustee or a creditor. It is for the applicant to make out a case in support of the application and in deciding the application, the Court is required to taken into account the matters prescribed in Rule 51A. In the absence of any evidence led by the applicant, it would be expected that the application would be refused. In Mercovich, the Court constituted by Sweeney, Sheppard and Beaumont JJ., at pp 40-41 considered the nature of the evidence necessary to justify the making of an order under sub-section 149(12) of the Bankruptcy Act. In determining an application under that sub-section the Court must have regard to the public interest as well as applying justice between the parties before the Court. In relation to a bankruptcy which has lasted for five years or more, the Court said that "misconduct of a serious kind would need to be established in order to warrant the denial of a discharge". Later, the Court said that "allegations of misconduct of this kind must be established to the comfortable satisfaction of the Court in the form of admissible evidence."
There is no provision in s.149 of the Bankruptcy Act to the effect that a report of a trustee or any other person is to be treated as prima facie evidence of the statements contained in it. The provisions of s.149 are to be contrasted with the provisions of s.150 which permit a bankrupt to make an application to the Court for an order of discharge. Where such an application is made, under sub-section 150(3), the Court is required to take into consideration a report in writing of the trustee and under sub-section 150(4), that report is prima facie evidence of the statements contained in it. It should be noted further that s.153 contains provisions relating to the effect of a discharge from bankruptcy while s.152 imposes continuing obligations on a person who has been discharged from bankruptcy.
In the present case, Mrs Powell and Mr Powell became bankrupt on 6 May 1985. The bankrupts were not present at Court when the sequestration order was made. On 9 May 1985 Mr Harrison, the Acting Official Receiver who happened to be then in the Launceston area, interviewed Mr and Mrs Powell at their home. At the time of the interview neither had received official notification, under s.19 of the Bankruptcy Act, of the sequestration order nor had either received a copy of a document headed "Some Responsibilities of a Bankrupt under the Bankruptcy Act". That notice sets out in summary form the obligations of a bankrupt under sections 54, 77, 78, 80, 264A, 264B, 265, 269 and 272 as well as s.117 of the Bankruptcy Act. That notice, together with a covering letter dated 30 May 1985 notifying Mrs Powell of her bankruptcy and making reference to other matters, was not received by Mrs Powell until 9 July 1985. She forwarded acknowledgement of the receipt of the letter and notice immediately after receipt of that letter and notice.
About 29 August 1985, Mr Harrison filed with the Registrar a report dated 29 August 1985 ("the s.19 report") made under paragraph 19(1)(c) of the Bankruptcy Act as then in operation. At that time paragraphs 19(1)(c) and (g) provided as follows:-
"19(1) Where a person becomes a bankrupt, it is the duty of the trustee-
(a) ...
(c) if the trustee, having regard to all the circumstances of the case, considers it desirable to do so, to investigate-
(i) the conduct, dealings, and transactions of the bankrupt;
(ii) the cause of bankruptcy; and
(iii) the books, accounts and records kept by the bankrupt,
and, if he conducts such an investigation, to file with the Registrar a report showing the result of the investigation;
(d) ...
(g) if an investigation referred to in paragraph (c) is made in relation to the bankrupt, to file from time to time such supplementary reports in relation to the matters specified in that paragraph as the trustee considers desirable, having regard to all the circumstances of the case."
These two paragraphs were repealed in 1987 and were not replaced by any comparable provisions. Some further comments will be made later in these reasons in relation to the s.19 report, but at this stage, it is sufficient to say that the production of that report is not evidence of the facts contained in it.
At the hearing evidence by way of affidavit was led by the trustee from Mr Harrison, Julie Read, a legal practitioner employed by the Australian Solicitor's Office, Nicholas Robert Ackers, a fencing contractor who was the petitioning creditor of a petition on which a sequestration order was made on 28 September 1987 against the estate of Mrs Lorna Berenia Edwards, the mother of Mrs Powell, Andrew John Robinson, an Assistant Official Receiver and Philip David Anstie, an Assistant Official Receiver. Among the material in evidence before the Court was a transcript of the evidence given by Mrs Powell on 27 September 1985 at an examination under s.69 of the Bankruptcy Act and a copy of an unsworn statement made by Mrs Powell at her trial for offences under the Bankruptcy Act. In addition many other documents were received in evidence. Mrs Powell gave evidence by way of affidavit. Further oral evidence was led from each witness, other than Mr Robinson who was not cross-examined, and each witness was cross-examined vigorously and at length particularly Mr Harrison, Mr Anstie and Mrs Powell. In the event, the most crucial witness was Mrs Powell since most of the evidence relied upon by the trustee consisted of documents which tended to implicate Mrs Powell as well as Mr Powell. In addition the s.19 report contains many statements made by Mr Harrison to the effect that "Mr and Mrs Powell stated". As a result of the whole of the evidence, including admissions made by Mr Harrison in cross-examination, that the report related to the interview that took place on 6 May 1985 and that Mrs Powell did not participate in conversations in which it is stated in the report that "Mr and Mrs Powell stated". To that extent, the report is wrong in fact, but of more importance, the report itself which was presented before Mrs Powell was examined under s.69 of the Bankruptcy Act, is completely misleading in that it gives the impression, contrary to fact, that Mrs Powell had played an active part in the business affairs of Mr Powell. I have formed the opinion that this wrong impression, which is so clearly apparent in the s.19 report presented by Mr Harrison on 29 August 1985, so clouded his opinion that he became obsessed by the view that Mrs Powell should not be discharged from bankruptcy. Thus, the notice of objection to discharge given under sub-section 149(3) of the Bankruptcy Act was dated 25 June 1986 some 13 months after the sequestration order and some 23 months before the expiration of the three year period from the date of the bankruptcy. Some of the grounds relied upon were misleading and some were based upon activities which had been explained by Mrs Powell in her s.69 examination but ignored for the purpose of the notice of objection to discharge. Further the nature of the obsession is illustrated by the reason given by Mr Harrison in his affidavit in support of the application under sub-section 149(12) for making the application namely:-
"That I am making this application because, having regard to the circumstances of this estate, I do not consider Carol Roseanne Powell should receive the benefit of an automatic discharge and believe that on the basis of the information before me I have a duty to apply for an order under s.149 of the Act."
Having regard to the evidence given in this case by all witnesses and the explanations given by Mrs Powell, it is unfortunate that Mr Powell was not required to give evidence. It is realised that the Court has not heard evidence by Mr Powell nor have submissions been made on his behalf, but on all of the evidence before the Court, I have formed the view that Mrs Powell was but an unfortunate pawn in the business activities of Mr Powell. Mr Powell seemed to exercise a strange power to use and misuse not only Mrs Powell but also Mrs Edwards. As far as Mrs Edwards is concerned it appears that Mr Powell was able to induce Mrs Edwards to purchase a property after 6 May 1985 to enable Mr Powell to conduct a trotting horse stud business even though he was an undisclosed bankrupt. Further he was able to induce Mrs Edwards to plead guilty to a charge of living off the earnings of prostitution arising from a call girl business being conducted from the house of Mrs Powell. Mrs Powell who was born in November 1950 and who had two young children by a previous marriage, married Mr Powell in 1978. Their marriage was not particularly successful. In 1985 Mrs Edwards paid for an overseas trip to be undertaken by Mr and Mrs Powell in an attempt to save the marriage. They had separated in 1983 but the separation had ceased. In late 1985 Mrs Powell joined Mr Powell at the horse stud property at Beaconsfield but thereafter had a very unsatisfactory life with him. In January 1987 Mrs Powell received serious injuries as a result of an assault by Mr Powell. She left him and they have been separated since then. Nevertheless, up until January 1987 Mr Powell had a strong influence over Mrs Powell and she did whatever he told her to do.
Having seen and heard Mrs Powell giving evidence under a vigorous examination, I have formed the view that essentially she is a witness of truth. I accept her evidence as correct. In fact there is no oral evidence in contradiction to the evidence she gave. Her explanations and versions of events given at the s.69 examination, her unsworn statement, and the evidence given before this Court are remarkably similar and consistent. She struck me as being an honest person. She had no business experience or abilities. Essentially she was a caring type of person incapable of making up and adhering to the story she has told so consistently. She has had a very unfortunate experience as a result of her marriage to Mr Powell and her support of him in the sense of doing what he wanted her to do without any clear idea of the implications of those actions. I accept her as a witness of truth to be pitied rather than condemned.
Having formed these views it is not necessary to deal in detail with all the material before the Court. Most of that material relates to the activities conducted by Mr Powell in the joint names of himself and Mrs Powell. Mrs Powell signed documents but played no other part in those activities which were conducted by Mr Powell without him telling Mrs Powell what he was doing. In most instances, Mr Powell conducted these activities under a business name which made no reference to Mrs Powell. There is no evidence that any person was induced to deal with Mr Powell because of the signature of Mrs Powell appearing on any document. Mr Powell had the power to sign all accounts in his own name only. Mrs Powell had no separate income. When living with Mr Powell, he provided meagre funds for the provision of household goods. When separated, on occasions Mrs Powell received wages which were not large. Nevertheless, reference must be made to a number of specific events.
In his affidavit in support of the application under sub-section 149(12) of the Bankruptcy Act, Mr Harrison refers to the notice of objection to discharge under paragraph 149(3)(c) dated 25 June 1986 and forwarded to Mrs Powell under cover of a letter of the same date. The grounds relied upon by Mr Harrison were those referred to in paragraphs 149(4)(b), (c) and (d). Those paragraphs are set out:-
"(4) An objection shall not be entered under paragraph (3)(c) otherwise than on one or more of the following grounds:-
(a) ...
(b) that the discharge of the bankrupt by force of this section would prejudice the administration of his estate;
(c) that the bankrupt has failed to co-operate in the administration of his estate;
(d) that the conduct of the bankrupt, either in respect of the period before or the period after the date of the bankruptcy, has been unsatisfactory."
The grounds of objection relied on by Mr Harrison were:-
1. That the discharge of the bankrupt by force
of this section would prejudice the administration of her estate in that:-
(a) My investigations in relation to the bankrupt's business activities and financial dealings prior to and since the date of bankruptcy have yet to be finalized.
(b) My investigations into whether the bankrupt has committed offences against the Act have yet to be finalized.
2. That the bankrupt has failed to co-operate
in the administration of her estate in that after she had become a bankrupt, without the consent in writing of the trustee of her estate, left Australia.
3. That the conduct of the bankrupt, either in
respect of the period before or the period after the date of bankruptcy, has been unsatisfactory in that she:-
(a) has, after knowing herself to be insolvent continued to trade or obtained credit to the amount of $100-00 or upwards.
(b) has omitted to keep and preserve such books, accounts or records as sufficiently disclose her business transactions and financial position within the period of five years immediately preceding the date on which she became a bankrupt.
(c) has failed to disclose in the joint Statement of Affairs property that vested in the estate."
After setting out these matters, the affidavit continued:-
"That the Official Receiver sent a letter dated 25 June, 1986 to the bankrupt which enclosed a copy of the Notice of Objection to Discharge, explained the grounds of the objection, directed her to aid my investigations into her business activities and financial dealings prior to and since the date of bankruptcy, and to forward all books of account and records of businesses operated by her in the five years prior to bankruptcy. I did not receive a reply to this letter and I am not aware that it was returned by Australia Post as unclaimed."
Initially, this paragraph was designed to establish a case based upon Bankruptcy Rule 51A(c) namely whether the bankrupt had co-operated in the administration of his estate. During the course of the hearing, it became apparent that Mrs Powell had replied to the letter. Difficulties had arisen with respect to the delivery of the letter but she did receive it and had responded almost immediately. As a result further searches among the papers filed by the Official Receiver were made and the response was discovered. The letter in reply by Mrs Powell was dated 22 July 1986 and had a stamp on it showing that it had been received at the office of the Official Receiver on 24 July 1986. This incident is an illustration of the unfortunate history of the actions taken against Mrs Powell.
By her letter of 22 July, Mrs Powell acknowledged receipt of the letter dated 25 June 1986 together with the notice of objection to discharge. Comments were made about a number of matters contained in the letter of 25 June 1986 and the following answers were made with respect to the three grounds referred to in the notice of object to discharge:-
"With respect to your point 1, I do appreciate your obligation to enquire into my business dealings. To this end I understand that you have ALL relevant information regarding my business dealings prior to bankruptcy. I reiterate prior statements to the effect that I have not had any business dealings since our bankruptcy." "With respect to your point 2, I have no intention to travel overseas during the period of my bankruptcy."
"In relation to point 3, all records of business, books of account, etc., that were in my care have already been forwarded to your Department."
At the hearing, counsel for the trustee abandoned any reliance on the matters referred to in Bankruptcy Rule 51A(c).
The trustee relied upon the matters prescribed in Bankruptcy Rule 51A(d). That paragraph refers to the conduct of the bankrupt, in respect of the period both before and after the date of the bankruptcy. In his affidavit, Mr Harrison, strangely, adopts wording more consistent with paragraph 149(4)(d) of the Bankruptcy Act which specifies, as alternatives, true alternatives, but there does not seem to be any reason why conduct during each of the periods should not be relevant. The matters relied upon, as listed in paragraph 7 of the affidavit, are set out:-
That the conduct of the bankrupt, either in respect of the period before or the period after the date of bankruptcy has been unsatisfactory in that she:
i) has, after knowing herself to be insolvent, continued to trade or obtained credit to the amount of $100-00 or upwards,
ii) failed to disclose property in her
Statements of Affairs, namely furniture, tools, vehicle parts and accessories,
iii) left Australia on or about 11 May, 1985,
without the consent of the trustee, returning on or about 7 July, 1985,
iv) failed to disclose to the trustee property
acquired by her after the date of bankruptcy, being property divisible amongst her creditors, namely horses, sheep, two motor vehicles, and a truck,
v) failed to account satisfactorily to the trustee for a loss of assets acquired after the date of bankruptcy, namely a number of horses and monies in bank accounts,
vi) failed to deliver to the trustee all books
and records relating to her trade dealings, property and affairs, and her passport,
vii) failed to reply to correspondence and aid
the trustee to the utmost of his power in the administration of his estate;
viii) been convicted of an offence under
section 269(a)
of the Act,
ix) has failed to co-operate in the
administration of her bankrupt estate."
In addition, the trustee relied upon the matters prescribed in Bankruptcy Rule 51A(b) namely whether the discharge of the bankrupt would prejudice the administration of his estate. The matters relied upon, as listed in paragraph 8 of the affidavit of Mr Harrison, are set out:-
"8. ... the discharge of the bankrupt would prejudice the administration of her estate in that I require the continued co-operation of the bankrupt to:
a) explain what became of funds totalling $71249.17 withdrawn from bank accounts between January 1987 and June 1987, b) provide verifiable evidence as to the sale of the horses attached under rule 178 of the Bankruptcy Act or make restitution for the funds she allegedly received from the sales, c) account to me for the $2600.00 received from the sale of the Datsun Utility motor vehicle on or around 25 September, 1987."
I have made reference already to the fact that Mrs Powell did not participate in the business affairs of Mr Powell for the period immediately before the date of the bankruptcy nor after the date of bankruptcy. I accept her evidence that she had no knowledge of the extent or nature of those activities except in the broadest sense. For all practical purposes, she was a stranger to these activities. Reference will be made later to one submission made on behalf of the trustee in reply, but for present purposes, the findings I have made do not make it necessary to explain in detail the voluminous evidence of these business activities. The trustee has not made out a case based upon the matters referred to in paragraphs 7(i)(ii), (iv), (v), (vi) (with the exception of the reference to the passport), or (vii) or paragraph 8(a) or (b).
The issue of the overseas trip and the passport loomed large in the consideration of the trustee and at the hearing. In reality, the importance of the overseas trip, is minor when seen in proper perspective. Mrs Powell was made bankrupt on 6 May 1985. Mr Harrison interviewed Mr and Mrs Powell on 9 May 1985. No mention was made at that interview that the bankrupts were required to deliver their passports to the trustee and not to leave Australia without the consent of the trustee. Mrs Powell did not know of the requirements. The bankrupts were planning to leave on an overseas trip on 11 May 1985. The trip was being paid for by Mrs Edwards. It was designed to save the marriage. They went on the trip. They returned on 7 July 1985. Mrs Powell did not receive the official notification in writing of her obligations until after her return. She did not give her passport to the trustee. She gave it to Mr Powell and believed him when he said he was going to burn it. In fact Mr Powell did not burn the passport. By her letter of 22 July 1986 Mrs Powell stated that she had no intention to travel overseas during the period of her bankruptcy.
A degree of confusion arises with respect to the sale of the Datsun Utility motor vehicle on or about 25 September 1987. A dispute existed between the trustee and Mrs Edwards as to who was the owner of the vehicle - Mrs Edwards or either Mr or Mrs Powell or both of them. The ownership of the vehicle was one of the issues in dispute in legal proceedings being action 423 of 1986 between the trustee and Mrs Edwards. An agreement was reached between the trustee and Mrs Edwards relating to a number of items of property including property the subject of action 423 of 1986. The terms of the agreement are set out in a letter from the solicitors for the trustee to the solicitors for Mrs Edwards dated 27 August 1987. There is an ambiguity in the terms so set out. On one view motor vehicles (other than a Volvo) were to be attached by the trustee but the property the subject of action 423 of 1986 was to be sold by Mrs Edwards and the proceeds distributed between the trustee as to 23% and Mrs Edwards as to 77%. Mrs Powell thought the Datsun was to be sold by Mrs Edwards pursuant to this arrangement. She went with Mrs Edwards when the Datsun was sold. She went with Mrs Edwards to the bank where the cheque was cashed. She gave the cash, $2600, to Mrs Edwards. She does not know what Mrs Edwards did with the money.
On 31 October 1989, in the Supreme Court of Tasmania, Mrs Powell was found guilty of the charge of obtaining credit of $500 or more without disclosing her bankruptcy, contrary to paragraph 269(a) of the Bankruptcy Act in that she obtained credit of $563.15 from Evans-Scott Pty. Ltd. without informing that company that she was an undisclosed bankrupt. Upon conviction she was placed on a $500 recognisance to be of good behaviour for a period of 12 months. She had been charged with some seven other offences under the Bankruptcy Act, which were tried at the same time, but a verdict of not guilty was given with respect to those other charges. The unsworn statement referred to earlier in these reasons was made by Mrs Powell at the trial of those charges.
The charge on which Mrs Powell was convicted related to the purchase of a blind for the property at the horse stud. A representative from Evans Scott came to the farm and discussed the blind with Mr Powell. A fabric was chosen and Mr Powell told the representative the box number to which to send the account. Later, another representative came to the farm to take measurements for the blind. The details were written onto a document and the representative asked Mrs Powell to sign that document. It was an invoice but Mrs Powell did not realise that, she thought all the arrangements had been made between her husband and the first representative. Mrs Powell never saw an account or statement for the fund.
One of the major submissions made by counsel on behalf of the trustee was that the conduct of Mrs Powell in signing documents enabling Mr Powell to engage in business activities both before and after the date of bankruptcy was in itself conduct which constituted misconduct, having regard to Bankruptcy Rule 51A(d), sufficient to justify the making of an order under sub-section 149(12) of the Bankruptcy Act. This conduct was not specified in any of the documents filed in support of the application despite the fact that at all times including the time when evidence was given at the s.69 examination, the time when the unsworn statement was read, and as well as from other sources, Mrs Powell had make her position clear. The trustee should have known what Mrs Powell was claiming. In reality, Mrs Powell was doing no more than what many wives do namely sign documents at the request of the husband. There was no evidence that any person had been misled by the existence of Mrs Powell's signature or any of these documents. Nevertheless, counsel relied upon this conduct and sought support from expressions of opinion given by Ormiston J. in Statewide Tobacco Services Ltd. v. Morley, Supreme Court of Victoria, 28 August 1990, unreported. That was a case involving the responsibility of company directors under the Companies (Victoria) Code, in particular s.556, as to the extent to which a director who takes no effective part in the management of a company may be liable for its debts in circumstances where it continues to trade while insolvent. The issue there was whether a director who leaves the conduct of the business entirely to another director or executive can make out the defence under paragraph (a) of sub-section (2) of s.556 by proving that the debts in question were incurred without his or her express or implied authority or consent.
The view expressed by his Honour was:-
"A director should not, in these circumstances, be entitled to hide behind ignorance of the company's affairs which is of his own making, or if not entirely of his own making has been contributed to by his own failure to make further necessary inquiries. What each director is expected to do is to take a diligent and intelligent interest in the information either available to him or which he might, with fairness, demand from the executives or other employees and agents of the company. Even in a small company a director should ask for and receive figures, albeit of a basic kind, on a more or less regular basis. If that is sought and it reveals no difficulties and the director has no other reason to suspect the company may not be able to pay its debts as they fall due, then the director may be shown for acting reasonably.
If people choose to use a corporate vehicle then they must accept the consequential responsibilities imposed by law. Even now these duties are not exceptionally onerous. They do not as yet involve any degree of competence, only a reasonable degree of diligence and honesty."
Counsel for the trustee, by analogy, submitted a similar allegation should be imposed upon an undischarged bankrupt. It was contended that an undischarged bankrupt had duties imposed by statute and those duties could not be avoided by a claim that the bankrupt was ignorant of the true facts and therefore ought not to be held responsible for being in breach of that duty.
In that case there was judgment for the plaintiff against the defendant in the sum of $165,290. The present case is very different. Mrs Powell could not rely on her ignorance to avoid the judgment which formed the basis of the sequestration order. Since the bankruptcy, there is no suggestion that her conduct has resulted in other persons suffering loss or damage. The issue in this application is whether the Court should direct that Mrs Powell shall not be discharged from bankruptcy by virtue of s.149. In deciding whether to make that order, the Court is required to take into account the matters prescribed in Bankruptcy Rule 51A. Mrs Powell has paid the penalty of having committed an offence under s.269 of the Bankruptcy Act. She has been acquitted on other charges. She should not be punished twice for the one offence. In my opinion, on the facts of this case, the opinion expressed by Ormiston J. has no application to the issues raised in this application.
Having regard to all the evidence given in this application and for the reasons given I am not satisfied that Mrs Powell has engaged in any misconduct of such a serious kind to warrant the denial of a discharge from bankruptcy at the expiration of 5 years.
Accordingly, the application is dismissed.
The order made under sub-section 149(8) of the Bankruptcy Act has the effect of delaying the discharge of the bankruptcy until 31 December 1990. That order was made to enable the Court to hear and determine the application under sub-section 149(12). That application fails. In these circumstances, the order of 26 April 1990 should, pursuant to the powers conferred by sub-section 37(1) of the Bankruptcy Act be varied by deleting the date "31 December 1990" and inserting in lieu thereof the date "13 November 1990" being the date on which this judgment is published. As a result, Mrs Powell is discharged from her bankruptcy on 13 November 1990.
The dismissal of the application raises a nice question as to the costs of the application. Normally, costs should follow the event. However, in Re: Campbell; Ex parte Official Trustee (1987) 13 FCR 326 Jenkinson J. considered this question where an application by the Official Trustee under sub-section 149(12) of the Bankruptcy Act was dismissed. His Honour considered the nature of the function of the Official Trustee under the Bankruptcy Act and a number of earlier authorities and at p 329 said:-
"The trustee discharges an obligation to make the application under s.149(12) when he makes it in the conviction that it ought to be made, and made by him. And the discharge of the obligation is in my opinion correctly conceived as the performances of a public duty for the public welfare. If the trustee's decision to make an application under s.149(12) were considered by the court to have been unreasonable, of if the conduct of the application by the trustee were considered to have been unreasonable in some respect, that would be a consideration in favour of an exercise of the discretionary power to order the trustee to pay the bankrupt's costs of the application. But I do not consider that in this case there was anything unreasonable in the institution or the prosecution of the application. In those circumstances I do not consider that any order for payment of the bankrupt's costs by the applicant trustee ought to be made."
In the present case, I have come to the view that this is not a case where the Court should order the trustee to pay Mrs Powell's costs. The reason given by Mr Harrison for bringing this application as set out earlier in these reasons, is based, obviously, on Campbell's case but its formulation appears to be defective. The Official Trustee should not make an application under sub-section 140(12) unless on the evidence available, the Official Trustee believes that an order should be made. An application under sub-section 149(12) is not analogous to an examination of a bankrupt under s.69 so as to enable the trustee to conduct an enquiry into the conduct of the bankrupt. It is for the trustee to lead evidence to justify the making of the order. The nature of this duty is referred to earlier in these reasons. Further, earlier in these reasons, reference was made to what appeared to be an obsession formed in the mind of Mr Harrison adverse to Mrs Powell. These factors suggest that the application might have been brought unreasonably. However, having regard to the unusual facts of this case, I have concluded that the normal practice should be followed and that there be no order as to the costs of the application.
Since writing the above reasons, on 15 October 1990 a Full Court of this Court published its reasons in the appeal by Mr Powell against the order made on 26 April 1990 with respect to Mr Powell that the period under sub-section 149(8) at the expiration of which the objection lodged under paragraph 149(3)(c) of the Bankruptcy Act will lapse be extended until 13 December 1990. The Full Court allowed the appeal and set aside that order, but made no orders with respect to the other orders made on 26 April 1990 with respect to the application made under sub-section 149(12) with respect to Mr Powell. On this matter, the Full Court said:-
"We were informed, in the course of argument, that the application for an order under s.149(12) has not yet been dealt with. We express no opinion on the question whether the Court still has jurisdiction to entertain that application and to make an order under that provision."
The essence of the reasons of the Full Court for allowing the appeal was that sections 149 and 150 of the Bankruptcy Code constituted a code with respect to the discharge of bankrupts and that the Court had no power or jurisdiction to make an order under sub-section 149(8) for the purpose of enabling an application under s.149(12) to be heard and determined during a period after the expiration of 5 years from the date of bankruptcy. In giving these reasons, the Full Court distinguished Mercovich on the ground that in that case "orders were made from time to time under s.149(8), but they were made by consent."
The question arises whether, in the light of the judgment of the Full Court in the appeal by Mr Powell, the Court should continue with the hearing and determination of the application under s.149(12) with respect to Mrs Powell. Mrs Powell did not consent to the order made under s.149(8) but she has not appealed from that order. The hearing of the application extended over five days. The Full Court has expressed no opinion on whether the Court has jurisdiction and power to hear and determine the application under s.149(12) with respect to Mr Powell where the application was made before the expiration of the 5 year period from the date of bankruptcy but the hearing and determination of that application, of necessity, takes place after the expiration of that period.
It is trite law that jurisdiction of a Court, in the sense of legal authority to determine matters between disputing parties, cannot be conferred on a Court by the consent of the parties. A reading of the report of Mercovich shows that in that case, the date of bankruptcy was 12 February 1980. An objection under s.149(3) was lodged by the Official Receiver on 18 January 1983. That objection was not withdrawn so the bankruptcy would, in normal circumstances, have been discharged on 12 February 1985. The date the applications under sections 149(8) and 149(12) is not disclosed, but the applications came on for hearing after 30 May 1985, i.e. after the expiration of five years from the date of bankruptcy; see p 37 of the report. Further, the hearing of the application took place 5 years 4 months after the date of the bankruptcy; see p 41. The applications were dismissed by the trial Judge. The appeal was heard on 16 September 1985 and judgment on the appeal was given on 20 September 1985. At p 33, the Full Court said:-
"Pursuant to s.149(8) the court has by consent extended the period of 5 years from time to time. The reasons for the extensions was to enable the application and then this appeal to be prosecuted. The last order extended the period to 4 October 1985 or until further order."
The Court as presently constituted is bound by Mercovich. Consent cannot confer jurisdiction on the Court and until Mercovich is over-ruled it is authority for the proposition that while there is in existence an order made under sub-section 149(8), the Court has jurisdiction to hear and determine an application under sub-section 149(12) before the expiration of the period referred to in the order made under sub-section 149(8). In these circumstances, the Court proceeds to make orders in this application and to publish its reasons for making those orders.
0
2
0