Re Brewer, R.J. Ex parte Eurodollar P/L & ors v Donnelly, M.C. & ors
[1992] FCA 615
•26 AUGUST 1992
Re: RICHARD JAMES BREWER
Ex Parte EURODOLLAR PTY LTD
And: MAX CHRISTOPHER DONNELLY as Controlling Trustee of RICHARD JAMES BREWER
and DEPUTY COMMISSIONER OF TAXATION
No. N X69 of 1991
FED No. 615
Bankruptcy - Costs - Jurisdiction
COURT
IN THE FEDERAL COURT OF AUSTRALIA
GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE STATE OF NEW SOUTH WALES
Einfeld J.(1)
CATCHWORDS
Bankruptcy - Part X meeting of creditors - chairman also controlling trustee - one major creditor controlled by debtor - decision to reject part of creditor's proof of debt - whether decision at all - whether decision of trustee or chairman - effect of decision - whether final and conclusive as to debt
Costs - case abandoned after undefended hearing and recast - intervener succeeds on application to intervene and in the case itself - case effectively heard twice - except for application to intervene unsuccessful party should pay own costs of both hearings and intervener's costs of one hearing
Jurisdiction - possibility of review of chairman's decision as to voting rights of creditors at Part X meeting - need for court to be seized of another matter - legal rights to be affected
Words and Phrases - "seized of another matter"
Bankruptcy Act 1966 Part X, ss 30, 178, 201, 212A, 237(2)
McIntosh v Shashoua (1931) 46 CLR 494 at 520
Re Ringuet Ex Parte Knight (1986) 11 FCR 45
Gray v Clout (1990) 27 FCR 141
Re Amadio (1978) 24 ALR 455
Re Bayliss Ex Parte Official Trustee in Bankruptcy (1987) 73 ALR 455
Zantiotis v Andrew and Anor (1987) 80 ALR 23
Forshaw v Thomson Spender J unreported 19 February 1992; Full Court (1992) 106 ALR 633
Re Barton (1980) 43 FLR 245
Re Levy and Ors Ex parte Scholefield Goodman and Sons Ltd and Ors (1980) 50 FLR 99
Second Consolidated Trust Ltd v Ceylon Amalgamated Tea and Rubber Estates Ltd (1943) 2 All ER 567
HEARING
SYDNEY
#DATE 26:8:1992
Counsel and solicitor S G Finch instructed by
for the applicant Parry Carroll Kanjian Solicitors
Counsel and solicitor A C Hogg instructed by
for the first respondent Beverly Simon and Associates
Counsel and solicitor D B McGovern instructed by
for the second respondent the Australian Government Solicitor
ORDER
1. Application and cross application dismissed.
2. Costs to be paid as follows:
(a) as to activity up to and including the hearing on 25 February 1992 and the directions hearing on 5 March 1992, applicant to pay its own costs
(b) as to the hearings on 12 and 19 March 1992 on the issue of the Deputy Commissioner's intervention in the proceedings, his cross application of 16 March 1992, and the judgment on intervention on 5 May 1992, second respondent to pay applicant's costs
(c) as to the hearing and submissions relating to the issue of jurisdiction and this judgment on that issue, applicant to pay second respondent's costs
Note: Settlement and entry of orders are dealt with in Order 36 of the Federal Court Rules.
JUDGE1
This case arises from a meeting of creditors on 12 September 1991 (the meeting) considering a proposed Part X arrangement. After contemplating the matter for some weeks during which he sought supporting information from the applicant (Eurodollar) concerning the debt it was claiming, the chairman of the meeting, who is also the debtor's controlling trustee and is the first respondent to this application, decided to admit only a small part of the debt for voting purposes at the meeting (the decision). By application dated 3 October 1991, Eurodollar has sought to have the decision overturned and the substitution of the whole amount claimed.
For the reasons set out in my judgment in this matter on 5 May 1992 (the earlier judgment), the Deputy Commissioner of Taxation was granted leave to appear in the proceedings after the hearing but before judgment. He now challenges the jurisdiction of the Court to entertain Eurodollar's application. The Deputy Commissioner also filed an application seeking the reversal of the decision to admit Eurodollar to vote at all.
I will not repeat the basic facts of the matter which are detailed in the earlier judgment. The question of jurisdiction arises following doubts I expressed during the hearing of Eurodollar's application about the nature of the exercise being undertaken and the jurisdiction being invoked. I noted some of these misgivings in the earlier judgment. When Eurodollar's application was filed and argued, it was said to be founded on section 104(2) of the Bankruptcy Act. It is now conceded that that subsection does not give the Court jurisdiction in the matter since the deed of arrangement in question had not been executed: see s. 237(2).
The first basis now proposed for the jurisdiction is section 212A. This section provides affected or aggrieved creditors with a right to seek a review by the Court of acts, omissions or decisions of controlling trustees. It is apparently not necessary for the trustee to have done anything wrong for this jurisdiction to be invoked: Gray v Clout (1990) 27 FCR 141. That was a case under section 178, but its analogous terms suggest that the same principles should be applied.
The problem with section 212A in the present context, as I see it, is that the decision may have been an act of the first respondent as chairman of a meeting of creditors and not as controlling trustee. That is, it may not have been made in the course or as part of his trusteeship. Eurodollar challenges this possibility. It submits that the creditors did not convene on 12 September 1991 to vote on the deed of arrangement but to enable the first respondent as trustee to report back to them on his investigations into Eurodollar's proof of debt. Voting and voting rights were therefore irrelevant.
There is certainly a distinction between the two positions and their roles, even if the same person fills both: Second Consolidated Trust Ltd v Ceylon Amalgamated Tea and Rubber Estates Ltd (1943) 2 All ER 567; Re Ringuet Ex Parte Knight (1986) 11 FCR 45.
The minutes of the meeting contain the following entry:
The Chairman advised that certain amounts in the claim were admissible and suggested that the appropriate course of action is to admit the claim for the amount of $189,055.00. This amount being Richard Brewer's personal loan account in Eurodollar Pty Ltd. The balance of the claim is to be rejected on the basis of the evidence available to him.
Eurodollar argues first that this is not a decision at all but a tentative proposal which would or might be reviewed when further evidence was available. I reject this submission. Eurodollar's legal adviser at the meeting certainly accepted that a decision had been made. As the minutes reveal:
Mr Ganz representing Eurodollar Pty Limited advised the meeting that his client did not accept the decision of the Trustee and requested an adjournment...
Moreover, on the first day of this hearing, Eurodollar's counsel stated to me that:
Mr Ganz who was representing Eurodollar asked for an adjournment to enable Eurodollar to apply to this court to appeal on the decision. So it is in essence a decision which is being appealed from.
See also annexures C and D to the debtor's affidavit of 31 January 1992.
Creditors' meetings under Part X are not held to consider the admission of proofs of debt. That is for the trustee. As the minutes show, the meeting had been adjourned several times previously to enable Eurodollar to submit material to support its claim to vote up to the amount of its proof of debt. The chairman's statement at the meeting was the ultimate result of his investigations into this matter, perhaps undertaken both as trustee and chairman for the separate purposes of each office. In my opinion it is not necessary to fix the auspices for the investigations, because the decision was the consequence of the investigations. It was taken to permit the creditors, after quite a delay, to get on with and finalise their deliberations on the deed. Moreover, it was not an interim decision but the best and fairest result the chairman thought the submitted evidence permitted.
Eurodollar next argues that if it was a decision, it was taken by the controlling trustee, not by the chairman of the meeting. I disagree. The matter before the meeting was the acceptance or rejection of the debtor's proposed deed of arrangement. This could not be decided unless and until all voting rights were determined. The first respondent might have conducted the investigation into Eurodollar's debt as trustee, but subject to the meeting's right to a point of view, section 201 provides that it was for the chairman to make a decision on the voting entitlements. That section states:
Any question as to the right of a person to vote at a meeting under this Division, or as to the amount of the debt in respect of which a person is entitled to vote at such a meeting, shall be determined by the chairman, who may, if he thinks it necessary to do so, adjourn the meeting for a period, not exceeding 14 days, to enable him to investigate the matter.
To determine these rights requires the acceptance or rejection, in a fairly summary way, of the proofs of debt submitted, including any that were disputed. The acceptance of some, and the rejection of the rest, of Eurodollar's proof of debt was only important, so far as the meeting was concerned, in that context. As Bowen C.J. said in Re Levy and Ors Ex parte Scholefield Goodman and Sons Ltd and Ors (1980) 50 FLR 99 at 112:
Section 201 is designed to empower the Chairman not to make a final ruling on a debt - that is for the trustee who will decide whether it is provable - but to rule for the purposes of the meeting in a summary way avoiding technicalities and delays.....His decision is not made appealable by the Act.....The policy revealed by section 201, particularly when read with sub-section 225(2), appears to be to facilitate the efficient and final despatch of business in relation to a meeting of creditors under Part X.
The judgment proceeded:
On the other hand, section 201 does not expressly make the chairman's decision final and conclusive. No doubt if the court was seized of another matter in the course of which it was material to determine whether or not a person was a creditor entitled to vote at the meeting, the court would be able, indeed would be obliged, to determine the question, in order to exercise its jurisdiction effectively and would not be bound by the chairman's decision: see s 30(1).
Eurodollar argues that section 201 does not apply to the decision in question here. This attitude is necessary because there is a significant weight of authority against its application if the section does apply: Re Amadio (1978) 24 ALR 455 at 457 and 466-7; Forshaw v Thomson Spender J unreported 19 February 1992; Full Court (1992) 106 ALR 633, where these and a number of other decisions are discussed by Justice Lockhart, with whose reasons for judgment Chief Justice Black and Justice Sweeney agreed. These cases held that on its true construction, section 201 delegates to the chairman of a Part X meeting, and no one else, the right and obligation to determine questions as to voting rights at the meeting. As voting rights are determined by reference to the existence and amount of creditors' debts, this means that the chairman must also make determinations on such matters. But, as Bowen C.J. said, these are not definitive final conclusions on the admission or amounts of the debts. Justice Lockhart said in Forshaw at 642:
The determination of the right of a creditor to vote may involve the consideration of a variety of circumstances including, as here, the question whether the creditor is a contingent creditor and therefore disqualified from voting by s 198(2) or whether he is a creditor at all (also this case). The determination of these questions is certainly open to the chairman for the purposes of determining entitlement to vote at meetings, but his examination must necessarily be limited and not binding upon anybody otherwise than with respect to the entitlement to vote at the relevant meeting; he cannot determine substantive rights and liabilities involving the relationship of debtor and creditor.
His Honour went on to observe that while section 201 "both empowers and requires" the chairman to rule or decide in this regard, it does not oust the power of the court to intervene in or review a decision in a particular case. The criteria for intervention were not specified but the observations of Bowen C.J. in Levy in this respect were apparently approved. One of the criteria for intervention mentioned in Levy was where the chairman of a meeting of creditors is unable to make a relevant decision, and fails to adjourn to make further enquiries. Contrary to Eurodollar's submission, this is not such a case. Section 201 applies to this decision.
It should be said that if Amadio and Forshaw are not distinguishable, Eurodollar submits that they are wrongly decided. Until the Full Court's decision in Forshaw, which was published after this judgment had been reserved, such a submission was only open for me to entertain on the basis that Amadio and Forshaw were judgments at first instance. If I could have been persuaded to do so, it would have been necessary to take into account what was said in Levy and to add that Justice Beaumont in Zantiotis v Andrew and Anor (1987) 80 ALR 23 criticised Amadio as too restrictive when it held that there was little if any room for the Court to examine such decisions. But in the light of the Full Court's Forshaw decision, which approved Justice Beaumont's disagreement with Amadio, the option of reviewing these expressions of the law is now foreclosed to a first instance judge. Furthermore, I do not believe that they are relevantly distinguishable. Sensibly, creditors' meetings to consider Part X deeds may now proceed to conclusion generally free of the potential of derailment and delay by applications to the Court.
Eurodollar's second suggested jurisdictional foundation is section 30. It is well settled that this section gives the Court wide jurisdiction in bankruptcy matters: McIntosh v Shashoua (1931) 46 CLR 494 at 520; Re Barton (1980) 43 FLR 245; Re Bayliss Ex Parte Official Trustee in Bankruptcy (1987) 73 ALR 455. The section also enables the Court to decide all questions of law or fact in Part X matters coming before the Court and to grant all necessary relief: see Zantiotis at 26. The question here is whether section 30 provides an independent cause of action or basis for jurisdiction or whether something else is needed.
The observations of Bowen C.J. in Levy concerning the uses to which section 30 can be put in reviewing decisions of chairpersons of creditors' meetings under Part X, remarks which were expressly approved and applied by Justice Beaumont in Zantiotis, make clear that as a prerequisite to interference by the Court with such decisions, the Court must be "seized of another matter". Accepting for this purpose that the decision was that of the first respondent as chairman and not as trustee, Eurodollar says that the Court is "seized" of two other matters, viz. the admission of the proof of debt and the question as to whether the first respondent has made a decision at all.
This submission is equivocal and argumentative. The application before the Court is that the first respondent's decision be reversed. The intent is so that Eurodollar can vote on the deed of arrangement on the basis of the whole amount of the debt claimed. The decision was that as part of its debt had been satisfactorily proved for the purpose of voting on the resolution to approve the deed, Eurodollar should be permitted to vote accordingly. There is no application before the Court to review the extent to which Eurodollar's claim of a debt should be admitted to proof, about which there is too little evidence in any event, or to consider whether there was a "decision" made on that matter at all. As Forshaw and Levy demonstrate, the chairman of a creditors' meeting does not make binding decisions in such matters. The decision was, and the application is, about voting rights on the acceptability of the Part X deed.
In my opinion, it begs the question to be determined to say that section 30 permits the Court to entertain an appeal from, or an application to review, a decision of the chairman of a meeting of creditors as to their voting rights in relation to a proposed Part X deed. There is no such power in the section or anywhere else in the Act at this stage of proceedings. The Court is "seized" of nothing except the matter which requires something else before it can be considered. If this matter arose as an incident of another matter before the Court, I do not doubt that the Court could deal with it under section 30. Section 30 cannot provide an independent jurisdictional basis for Eurodollar's application. It certainly does not provide a relevant cause of action itself.
However, once legal rights become affected by the passing, or perhaps the rejection, of a resolution approving the deed, the refusal of a right or a full entitlement to vote to a creditor who wished to oppose the resolution, or vice versa, would be a matter of which the Court could take cognisance under section 201. That is not this case but Eurodollar submits that the need for legal rights to be affected before an application can be made produces a logical inconsistency.
The submission begins with an assertion that the Deputy Commissioner must intend to vote against the deed because of his opposition to Eurodollar's application. As to this proposition, it cannot be the case that Eurodollar's realisation of the voting facts concerning the deed was awakened by these proceedings. This is because the expectation of Tax Office opposition and the consequent likely defeat of the deed if Eurodollar's debt as claimed is not fully admitted were both conveyed to me by Eurodollar's counsel at the very outset of the hearing of this application on 25 February 1992. Indeed it seems unlikely that the proceedings would have been commenced at all if Eurodollar had not been at least apprehensive of the outcome of the special resolution to approve the deed.
Eurodollar next argues that if it is a condition precedent to relief that legal rights must first be adversely affected, Eurodollar could never qualify to bring an application to the Court. This contention was not really developed but as the facts were given to me at the hearing, it is simply not so. What I was told was that if Eurodollar was only admitted to vote in favour of the resolution to approve the deed to the extent ruled by the chairman in the decision, and the Tax Office as expected opposed the special resolution to approve the deed, the resolution would fail because the requisite majority in dollar value would not have been achieved. But if Eurodollar was granted the right to vote up to the full value of the claimed debt, it was said that the majority would be there for approval. Thus if the decision currently before the Court remains undisturbed, and Eurodollar's projections as to voting are proved correct, it will have an entitlement to challenge the resolution to reject the deed as being vitiated by the refusal of its due franchise.
Eurodollar's application is premature and the Court has no jurisdiction to deal with it. The application will be dismissed. That raises for determination the fate of what is in effect the cross application. Despite an attempt by the Deputy Commissioner to give his application a different or additional jurisdictional base than was proposed for Eurodollar's application, in my view if there is no jurisdiction to entertain Eurodollar's application, there is no jurisdiction to deal with the cross application. It will also be dismissed.
Questions of costs also have to be decided. On this matter I have found the parties' submissions singularly unhelpful, even obtuse and obstructive. There are three aspects or sections of the litigation to consider in this connection:
1. Activity up to and including the hearing on 25 February 1992 and the directions hearing on 5 March 1992.
2. The hearings on 12 and 19 March 1992 on the issue of the Deputy Commissioner's intervention in the proceedings, his cross application of 16 March, and the judgment on intervention on 5 May 1992.
3. The hearing and submissions relating to the issue of jurisdiction and this judgment on that issue.
The facts relevant to the first two of these stages of the case are recorded in the earlier judgment; the matters relevant to the third stage are noted earlier in these reasons. There is no need to repeat them. The Deputy Commissioner was not involved in the matter in the first of the periods mentioned. The whole of Eurodollar's application as presented in that stage has failed. Indeed, Eurodollar eventually had to abandon the legal basis on which its application was commenced and litigated in this period.
It is true that this situation was contributed to and compounded, from the Court's point of view, by the extraordinary attitude adopted by the trustee, either in not testing or challenging the case, while being represented by counsel, despite the doubtful validity or clear invalidity of what was being attempted, or in not inviting the Tax Office or any other creditor to do so. But that does not absolve Eurodollar from the facts that the application and the presentation of its case were totally misconceived, and that the Court was misled and inconvenienced in a substantial and material way.
There is more than a suspicion that these events were not accidental or coincidental. The only reason I do not refer this conduct for examination elsewhere is because the central dispute in this litigation is not yet resolved, and will not be resolved by this judgment, and the matter should not be diverted until it is. At the very least this part of the case was a complete waste of several days for the Court. There can be no doubt that Eurodollar should bear its own costs of this work. If the power existed, I would have ordered it to pay the Court's costs of this unhappy part of the exercise.
As to the second stage of the matter, it is true that the Deputy Commissioner succeeded in his application to intervene. But as the earlier judgment shows, significant additional cost and inconvenience were brought about by inadequacies emanating from his office. Notwithstanding the fate of its application, it is not Eurodollar's fault that the Tax Office was not involved earlier, with the cost saving that would have wrought. It is not just that Eurodollar should not have to pay two lots of costs to get the case properly up and running. Even when the Deputy Commissioner did come into the matter, his initial evidentiary contribution to the proceedings did not possess the quality, direction and commitment that the circumstances demanded. The Deputy Commissioner should pay Eurodollar's costs of the second period.
The jurisdictional issue produced, in the third generational era of the case, the first real substance of the litigation. Not only did the Deputy Commissioner's argument prevail in the result, with the consequence that the whole case has failed at the threshold; Eurodollar was actually forced to recast its whole approach to the matter. This event can have only one rational consequence as to costs. Eurodollar will pay the Deputy Commissioner's costs of the third section of the case.
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