Re Berlouis, H.L.

No judgment structure available for this case.

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JUDGMENT No. ..... ....-. .... .-..-...---

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IN THE FEDE	)
GENERAL DIVISION	1

BANKRUPTCY DISTRICT OF THE

)

No. QB 716 of 1991

STATE OF OUEENSLAND

)

RE: HARRY LOUIS BERLOUIS, RAYMOND LOUIS
BERLOUIS. ARMANDE CELISCA BERLOUIS AND
LIONEL JEAN BERLOUIS
Bankrupts

EX PARTE: HARRY LOUIS BERLOUIS, RAYMOND LOUIS
BERLOUIS. ARMANDE CELISCA BERLOUIS AND
LIONEL JEAN BERLOUIS
ApplicantR
NOEL ADSETT
Respondent

MINUTES OF ORDER

JUDGE MRKING ORDER: PINCUS J.
DATE OF ORDER: 9 DECEMBER 1991
WHERE MADE: BRISBANE
THE COURT ORDERS THAT:
1. The respective compositions accepted by the creditors of Harry Louis Berlouis, Raymond Louis Berlouis, Armande Celisca Berlouis and Lionel Jean Berlouis by special resolutions passed in a meeting of the creditors on 25 June 1991 be approved.

124 of the Bankruptcy Rules.

2.    The bankruptcies of the bankrupts dated 4 April 1991 be annulled.
3.    The sum payable as remuneration to Noel Adsett, the trustee of the bankrupts' estate be fixed by a District Registrar as contemplated by s.162(4) of

the Bankru~tcv Act 1966. 1
4.   The said trustee's application to commit the bankrupts for alleged contempt be dismissed.
Settlement and entry of orders is dealt with in Rule

IN THE FEDERAL COURT OF AUSTRALIA 1
GENERAL DIVISION 1

BANKRUPTCY DISTRICT OF THE No. QB 716 of 1991
STATE OF OUEENSLAND

RE: HARRY LOUIS BERLOUIS. RAYMOND LOUIS
BERLOUIS, ARMANDE CELISCA BERLOUIS AND

-EL JEAN BERLOUIS
Bankrupts

EX PARTE: HARRY LOUIS BERLOUIS. RAYMOND LOUIS
BERLOUIS, ARMANDE CELISCA BERLOUIS AND
LIONEL JEAN BERLOUIS
Applicants

AND: NOEL ADSETT
Respondent

AM - : PINCUS J.
PLACE: BRISBANE
DATE: 9 DECEMBER 1991
REASONS FOR JUDGMENT

On 4 April 1991, a sequestration order was made
under the Bankru~tcv Act 1966 ("the Act") against the estates
of four debtors, named in the title of these proceedings. The

amount of the debt was $10,528.34. It appears that the debtors could, without much difficulty, have arranged to pay

the debt and that their assets at material times exceeded their liabilities. They have attempted to make a composition with their creditors and have their bankruptcies annulled. The only substantial obstacle is that the trustee of the bankrupts' estates says that a sum of well over $100,000 is
due to him in respect of costs, charges and expenses. That

is, in essence, what this case is about: trustee's charges. As will appear, it will be necessary for those charges to be reviewed, but I feel obliged to say now that no very parsimonious attitude has been manifest. When the case was called on, it emerged that the trustee had instructed two Queen's Counsel, one to look after his interests, which were mainly in the collection of his costs, and another to appear in a pointless application for committal for contempt, which was not pursued. As another example, the trustee was represented by about six people at a creditors' meeting, mentioned below, to the del.iberations of which they contributed little or nothing. Without prejudging the result of the review of this trustee's costs and charges, I feel obliged to say that unless trustees generally take some care to ensure that the amounts spent in administration of estates are kept within reasonable limits, one would expect that steps would be taken to inject more price competition into this field of endeavour.

As the case initially came before this Court, a application which I have already mentioned to commit the

number of applications were involved. Apart from the

bankrupts to gaol, there was an application for removal of the trustee, an application for approval of the composition and an application for annulment of the bankruptcy. During the course of the hearing, counsel for the bankrupts asked for an order under s.l79(l)(b) of the Act for thc purpose of obtaining disallowance of a substantial part of the costs and expenses claimed by the trustee. Ultimately that application was adjourned sine die, because the trustee's counsel found himself unable, in the time available, adequately to prepare a detailed case with respect to the costs issues.

The application for removal of the trustee was not puraued because the trustee resigned during the hearing and his resignation was accepted.

In the result, the only live applications needing to be dealt with at present are those relating to the composition and for annulment. Putting the dispute broadly, the bankrupts say that the composition makes adequate provision for the trustee's costs, whereas the trustee says that if the composition is approved and the bankruptcies annulled, then the trustee will have no means of recovering his costs.
The questions ultimately raised are, as it seems to
me, principally dependent upon the proper construction of the
terms of the composition. It is desirable, however, to give

must be based upon the exercise of a discretion. some factual background, as ultimately the orders asked for At the time of the sequestration order, 4 April
1991, the bankrupts traded in partnerships with two other

people, Kathleen and Joseph Berlouis, at Hervey Bay, Queensland. The debt in question related to t h ~ affairs of a

partnership and was disputed. Nevertheless, an offer had been made to pay "$50 per week against the riaht amount owed . . . ". It appears that because of some personal difficulties and, no

doubt, the distance between Rervey Bay and Brisbane, none of the bankrupts appeared on the day of the hearing of the creditor's petition for a sequestration order. Further, they did not engage solicitors to appear for them, being, it appears, of the vjew that it was unnecessary to do so. In the result, their not having contested the creditor's petition has turned out to be an extremely costly course. On 1 May 1991, the trustee attempted to close the businesses down, for reasons which seem to me difficult to understand. That attempt failed and the trustee issued proceedings in the Supreme Court of Queensland to have the trustee appointed as receiver and manager of the assets of the partnerships. That was, I think, an inappropriate step since the proceedings could have been brought in this Court; people too often so litigate as inconveniently to divide disputes between the State and Federal jurisdiction, the avoidance of that being one of the purposes of the cross-vesting statutes. A composition was proposed and approved by the creditors at a

meeting of 25 June 1991. The trustee had reported to the creditors on the proposals for composition in terms which were
plainly designed to discourage approval, but that tactic
proved unsuccessful.
On 5 July 1991, Thomas J. in the Supreme Court of
Queensland, where the application for appointment of the

trustee as receiver was still pending, refused that application and ordered costs against the trustee. His Honour remarked :
"The basis upon which the trustee claims entitlement to administ-er the assets of the business partnerships is diffic~ilt to discern. It is not submitted that the solvent partners are wasting assets or are unfit to wind up the partnership in a proper manner".

I gather that the purpose of the trustee is, in part, to attempt to recover from the monies derived from the composition some costs and expenses associated with this ill- fated venture into the Supreme Court; to permit that to happen would be inconsistent with the intention of the Supreme Court's costs order.
The deed of composition which the creditors approved is lengthy and in parts difficult to comprehend. It is necessary to set out some substantial portion of it in order to discuss the attacks upon it made by Mr. O'Grady, who argued the case for the trustee helpfully. The deed includes in the

the agreement which it evidenced, but what are in effect recitals not only statements constituting the background to substantive provisions of that agreement itself - an

inconvenient course, the taking of which contributes to the document's obscurity. Recital 9 says in effect that the partners applied to National Australia Bank, Torquay Hervey Bay for an advance of $150,000 to pay out the creditors of the businesses and that the bank had approved that application. Recital 11 says that the proposal is that the trustees of the composition - who are to be distinguished from the trustee who

is a party to these proceedings - be paid the sum of $150,000 by the bank, an amount of $78,000 out of cash accrued in the business and an amount of about $19,000 held by the trustee, "aggregating in all the sum of $246,000.00 (sic) " . (In these

reasons, the expression "trustee" u ~ e d alone refers to the

bankruptcy trustee). The clause goes on to say that there is to be paid an interim dividend of not less than 50 cents in the dollar "without unreasonable delay" after approval of the composition and after payment of all ascertained liabilities, a further dividend of not less than 35 cents in the dollar and "if the circumstances so permit the remaining FIFTEEN CENTS (15 ) . Clause 2 of the substantive part of the deed reads as follows:
"The Trustees of the composition shall apply any monies received by them pursuant to this composition in making payment to the joint creditors and separate creditors of the Bankrupt and of the other bankrupt partners and any of them in the order prescribed by Section 109 of the Bankruptcy Act 1966 as amended in the same manner as if the Bankrupt and the other bankrupt partners had been made bankrupt

on the date of the execution of this Deed".

There was, as will be explained, some dispute as to the proper construction of this clause.
Clauses 5 and 6 of the substantive part of the deed

read as follows:
"5. The Trustees of the composition shall be entitled to be paid all costs, charges and expenses of and incidental to this Deed, its preparation and its implementation and
the remuneration of the Trustees calculated in accordance with the scale prescribed for the time bejng by the Insolvency Practitioner's Association of Australia and the same shall be and be deemed to have the same priority of payment of the Trustees mentioned and referred to in Section 109(1) (a) of the Act.
6. Notwithstanding the provisions of paragraph 5 hereof, the Bankrupt and the other Bankrupts, the solvent partners and any other creditor for the purposes of any claim made by the trustee for remuneration and costs, charges and expenses of the administration of the bankrupt estates of the Bankrupt and of the other bankrupts executed this Deed upon the clear understanding that they and each of them challenge the trustee's claim of entitlement in such matters and shall make application to the Registrar of the Court in accordance with s162(5) or any other provision of the Bankruptcy Act and this Deed shall be subject thereto and shall have the benefit thereof".

Under clause 7, the solvent partners (Kathleen and Joseph Berlouis) guarantee to the trustees of the composition the payment of a dividend of not less than 85 cents in the dollar and the clause adds that if the trustees of the

dividend then the guarantors agreed to pay the shortfall to composition suffered a "shortfall" in payment of the 85 cent the trustees of the composition "without unreasonable delay".

The trustee's main point is that the composition should not be approved because it makes no provision for payment of the large sum which his administration is supposed
to have cost.

It should be noted at the outset that the question of costs is not, as one would hope it might be in the ordinary case, peripheral but quite central. The amount involved is so large that if it is truly payable there may perhaps be some risk that the businesses of the partnerships, together with the composition, will fail.

The first question is the effect of clause 2. It was argued for the bankrupts that this would require the trustees of the composition to pay the trustee's costs, on the basis that he is a creditor wi-thin the meaning of the clause. The first answer Mr. ~'Grady made to that was to say that the bankruptcy occurred some months before the date of the deed (as it did) and the trustee had no provable debt in respect of the costs incurred before that date.
The expression "creditor" is defined in the deed as

follows :
"'creditor' means any person whose claim against

the Bankrupt or the bankrupt partners would have been a provable debt of the Bankrupt at the date of the (sic) bankruptcy of the
Bankrupt and his or its respective executors, arlministrators, heirs, transferees and assigns as the case may be:"

It seems clear that the trustee is not a creditor within this definition. The only way in which the sum due to him could be brought within the terms of clause 2 is by reading the term "creditors" in that clause as inclllding any person to whom money is due under one of the paragraphs of

s.109(1) of the Act. Paragraph (a) of that provision includes the "remuneration and expenses of the trustee". The definition of "the trustee" in s.5(1) of the Act shows that this is capable of meaning, as one would expect, the trustee in bankruptcy as well as the trustee of a composition. It is convenient to defer further discussion of this point until clauses 5 and 6 have been looked at.
The logical and grammatical structure of clause 5 is difficult . The expression "Trrlstee" in "the remuneration of the Trustees" is capable of including not only the trustees of the composition, but also the bankrrlpts' trrlstee. But if it does, what is its place in the clause? On one view, the clause says the Trustees of the composition are to be paid their costs, charges and expenses and also to be paid their remuneration, but that seems tautologous. It is unclear whether "remuneration" is truly intended to function as one of the objects of "paid" in the second line, or the subject of "shall be and be deemed to have" in the third last line.

Clause 6 is so framed as to make one think that the expression "the Trustees" in clause 5 is intended to include the

bankrupts' trustee, because the opening words of clause 6 make clear that it is intended to be a qualifi-cation of clause 5 . The background of fact suggests that the "trustee's claim" referred to in clause 6 was intended to be a reference to the trustee of the bankrupts; there was at the date of the deed a dispute brewing about the trustee's claim. Therefore, in my opinion, one should read "the Trrlstees" in the fifth line of

clause 5 as including the trustee of the bankrupts and should read the expression as if it were the subject of the verb "shall be and be deemed to have". This involves treating the words "and the same" in the fourth last and third last line of clause 5 as surplusage, but that does not appear to be a very extreme step.

As Mr. O'Grady pointed out, there is authority in England against the proposition that a composition can be amended: Lucae v. Martin [l8881 37 Ch. 597 at 605, and that has been treated as authoritative under our Act: Re Lewis (1987) 77 A.L.R. 165. Despite this, there appears to be some basis for a contention that amendments necessary to correct minor slips and the like may be made under s.30(1) (b) of the Act, which entitles the Court to:
" . . . make such orders (including declaratory
orders and orders granting injunctions or other equitable remedjes) as the Court considers necessary for the purposes of carrying out or giving effect to this Act in any such case or matter".

The expression "any such case or matter" can be seen, by reference to ~.30(1)(a), to jnclude a "case of bankruptcy",

which the present case is. The comparable English provisions - see 8.72 of the English Bankruptcy Act 1869, 8.102 of the Act of 1883 and 4.105 of the Act of 1914 - have had nothing jn them to which paragraph (b) of s.30(1) corresponds. The test of the power to make an order under s.30(l)(h) is a broad one; the Court must consider the order

to be "necessary for the purposes of carrying out or giving effect to this Act". In the present case, it seems to me unnecessary to decide whether minor amendments intended to give effect to the plain intention of the creditors can be made under s.30, for, as a matter of construction, one can arrive at the result for which Mr. Dutney Q.C. contends: cf. Fitzaerald v. Masters (1956) 95 C.L.R. 420.

The next difficulty is the word "rem~lneration" in

clause 5 which, in context, may be thought too narrow to embrace all the claims made by the trustee. Mr. O'Grady pointed out that for various purposes a distinction is drawn between remuneration, on the one hand, and costs, charges and expenses, on the other. He instanced s.109 of the Act, which uses the expression "the costs, charges and expenses of the administration of the bankruptcy, including the remuneration and expenses of the trustee . . . " .

It is true that a trustee's remuneration may include only what might be called his profit costs, but the word is
capable of a wider application. A clear example of "remuneration" being used as including reimbursement for expenses is provided by $. & U. Stores Ltd. v. Lee [l9691 1
W.L.R. 626.
Looking at the matter more broadly, it is hard to
believe that the creditors could have intended to diatinguiah,
for the purposes of the priority of payment, between sums paid for work done by the trustee or his employees and sums paid to reimburse the trustee for, e.g. work done for him by lawyers. The drafting of the deed is a little loose and one should not lightly assume that it was truJy intended to make the distinction just mentioned. Despite what I have said about the difficulties of clause 2, it tends to add support to the same general view, namely that the s.109 priorities apply to the administration of the composition.
It follows that the trustee's submission that the deed does not provide for payment of any sums due to him must be rejected. The conclusion is in no sense discretionary, but I should not refrain from adding that the objection comes oddly from the trustee who, although amply represented at the relevant meeting, made no complaint there about the matter. He exercised proxies he held to vote in favour of the composition. The evidence is that he was asked to speak at the meeting and declined to do so.

drafting of the deed, but I think it unnecessary to deal with Mr. O'Grady made a number of other criticisms of the them; the only basis upon which he distinctly attacked it was

the one with which I have dealt. The creditors have nearly all approved the composition. Apart from the trustee's objection, there is no rational ground for declining to approve the composition, in my opinion: an order will be made accordingly, Further, the bankrupt.cies will be annulled.

There remains the procedural question: how is the proper sum payable to the trustee to be determined7 In the events which have happened, it seems to me right to direct that the remuneration be fixed by a District Registrar as contemplated by s.162(4) of the Act. It may be that this will involve the Registrar in determining some difficult questions of fact and exercising judgment as to whether the trustee has, as the bankrupts would contend, been in some respects unnecessarily obstructive; his decision may of course be reviewed by a Judge.
The motion to punish the bankrupts for alleged

contempt will be dismissed.
I shall hear the parties on costs.
I certify that this and the
twelve preceding pages are a true copy of the reasons for judgment herein of his

Honour Mr. Justice Pincus. -

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Associate

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Re Berlouis, H.L. [1991] FCA 793

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JUDGE MRKING ORDER:	PINCUS J.
DATE OF ORDER:	9 DECEMBER 1991
WHERE MADE:	BRISBANE
THE COURT ORDERS THAT:

IN THE FEDERAL COURT OF AUSTRALIA	1
GENERAL DIVISION	1
BANKRUPTCY DISTRICT OF THE	No. QB 716 of 1991
STATE OF OUEENSLAND

dividend then the guarantors agreed to pay the shortfall to	composition suffered a "shortfall" in payment of the 85 cent	the trustees of the composition "without unreasonable delay".
The trustee's main point is that the composition should not be approved because it makes no provision for payment of the large sum which his administration is supposed
to have cost.
It should be noted at the outset that the question of costs is not, as one would hope it might be in the ordinary case, peripheral but quite central. The amount involved is so large that if it is truly payable there may perhaps be some risk that the businesses of the partnerships, together with the composition, will fail.
The first question is the effect of clause 2. It was argued for the bankrupts that this would require the trustees of the composition to pay the trustee's costs, on the basis that he is a creditor wi-thin the meaning of the clause. The first answer Mr. ~'Grady made to that was to say that the bankruptcy occurred some months before the date of the deed (as it did) and the trustee had no provable debt in respect of the costs incurred before that date.

the Bankrupt or the bankrupt partners would have been a provable debt of the Bankrupt at	the date of the (sic) bankruptcy of the
Bankrupt and his or its respective executors, arlministrators, heirs, transferees and assigns as the case may be:"

Clause 6 is so framed as to make one think that the expression	"the Trustees" in clause 5 is intended to include the
bankrupts' trustee, because the opening words of clause 6 make clear that it is intended to be a qualifi-cation of clause *5 .* The background of fact suggests that the "trustee's claim" referred to in clause 6 was intended to be a reference to the trustee of the bankrupts; there was at the date of the deed a dispute brewing about the trustee's claim. Therefore, in my opinion, one should read "the Trrlstees" in the fifth line of
clause 5 as including the trustee of the bankrupts and should read the expression as if it were the subject of the verb "shall be and be deemed to have". This involves treating the words "and the same" in the fourth last and third last line of clause 5 as surplusage, but that does not appear to be a very extreme step.
As Mr. O'Grady pointed out, there is authority in England against the proposition that a composition can be amended: Lucae v. Martin [l8881 37 Ch. 597 at 605, and that has been treated as authoritative under our Act: Re Lewis (1987) 77 A.L.R. 165. Despite this, there appears to be some basis for a contention that amendments necessary to correct minor slips and the like may be made under s.30(1) (b) of the Act, which entitles the Court to:

The expression "any such case or matter" can be seen, by	reference to ~.30(1)(a), to jnclude a "case of bankruptcy",
which the present case is. The comparable English provisions - see 8.72 of the English Bankruptcy Act 1869, 8.102 of the Act of 1883 and 4.105 of the Act of 1914 - have had nothing jn them to which paragraph (b) of s.30(1) corresponds. The test of the power to make an order under s.30(l)(h) is a broad one; the Court must consider the order
to be "necessary for the purposes of carrying out or giving effect to this Act". In the present case, it seems to me unnecessary to decide whether minor amendments intended to give effect to the plain intention of the creditors can be made under s.30, for, as a matter of construction, one can arrive at the result for which Mr. Dutney Q.C. contends: cf. Fitzaerald v. Masters (1956) 95 C.L.R. 420.

drafting of the deed, but I think it unnecessary to deal with Mr. O'Grady made a number of other criticisms of the	them; the only basis upon which he distinctly attacked it was
the one with which I have dealt. The creditors have nearly all approved the composition. Apart from the trustee's objection, there is no rational ground for declining to approve the composition, in my opinion: an order will be made accordingly, Further, the bankrupt.cies will be annulled.
There remains the procedural question: how is the proper sum payable to the trustee to be determined7 In the events which have happened, it seems to me right to direct that the remuneration be fixed by a District Registrar as contemplated by s.162(4) of the Act. It may be that this will involve the Registrar in determining some difficult questions of fact and exercising judgment as to whether the trustee has, as the bankrupts would contend, been in some respects unnecessarily obstructive; his decision may of course be reviewed by a Judge.

[1991] FCA 793

9 Dec 1991