Re Commins, P.H.C. v Ex parte The Registrar in Bankruptcy for the Southern District of Queensland

[1989] FCA 631

Re: PETER HOYTE CHAVE COMMINS
Ex Parte: THE REGISTRAR IN BANKRUPTCY FOR THE SOUTHERN DISTRICT
OF QUEENSLAND
No. QLD T789 of 1989
FED No. 631
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA

GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE SOUTHERN DISTRICT OF THE STATE OF QUEENSLAND
Spender J.(1)

CATCHWORDS

Bankruptcy - trustee charged with a number of offences - committal proceedings not yet commenced - application by Registrar in Bankruptcy to have trustee's registration suspended - whether Court's power to suspend or cancel trustee's registration exercisable only where adverse findings made as to trustee's conduct.

Bankruptcy Act 1966

HEARING

BRISBANE

#DATE 6:10:1989

Counsel for applicant: Mr. P. R. Dutney
instructed by: Australian Government Solicitor's

Office

Counsel for respondent: Mr. R.I.M. Lilley
instructed by: Goss Downey Carne as Town Agents

for Patterson, Houen & Commins

ORDER

The application be dismissed.

The applicant pay the respondents costs to be taxed if not agreed.

NOTE: Settlement and entry of orders is dealt with by Bankruptcy Rule 124.

JUDGE1

This is an application on behalf of the Registrar in Bankruptcy for the Southern District of the State of Queensland for orders that:-

1. the registration of the Trustee Peter Hoyte Chave Commins be suspended pursuant to s. 155

(5B) of the Bankruptcy Act 1966 as amended ("the Act"), until further order;

2. the Official Trustee in Bankruptcy be appointed to act as trustee in respect of any matters in which Peter Hoyt Chave Commins is trustee of a deed of assignment or deed of arrangement entered into pursuant to Part X of the Bankruptcy Act 1966, or a composition under Part X of the Bankruptcy Act 1966; and

3. the costs of and incidental to the application be taxed and paid by the trustee, Peter Hoyte Chave Commins.

1. Section 155(5B), which was inserted into the Act by Act No. 21 of 1985, provides:-
   

"Except where sub-section (5C) of this section or subsection 176(2) or 212(2) applies, the Court may, at any time, upon the application of the Registrar or any other person, or of its own motion, suspend for a specified period or cancel the registration of a person as a trustee under this section."

1. Section 155(5C) empowers the Court to suspend for a specified period or cancel the registration of a trustee for failure to enter into a bond or failure to lodge a triennial statement.

2. The sole basis on which the application is made is that Mr. Commins has been charged with a total of 15 offences. There has been no inquiry into those matters by way of committal hearing at this stage and the material indicates that committal proceedings in respect of these matters, which relate to conduct at least as far back as June 1987, are proposed to be held in March 1990. The submission, shortly put, is that it is in the public interest and in the maintenance of public confidence in trustees registered under the Act that, without in any way making a finding at this stage adverse to him, his registration as a trustee ought to be suspended until at least the outcome of the committal proceedings.

3. There are alternative constructions. The first is that s. 155(5B) falls for exercise only if it be established that something adverse to a registered trustee is made out. The second is that the discretion given to the court is not so circumscribed.

4. It is only if the section is capable of application in the absence of any adverse finding against Mr. Commins that this application can succeed, because it is trite to say that nothing adverse to Mr. Commins is to be inferred from the mere fact of his having been charged with these offences.

5. It is submitted on his behalf that Mr. Commins made disclosure of the fact of his being charged in the triennial report he is obliged to make pursuant to s. 161A of the Act, and in accordance with rule 63A and form 31A. He has had a significant amount of his assets frozen by consent and without any admission of guilt in respect of the offences with which he has been charged.

6. Further he says - and the material supports this submission - that suspending his registration would have an adverse effect on his income. It is true that there are only the relatively small number of five active estates of which he is presently the registered trustee, but I do not think the actual quantum of the damage that would flow from a suspension of his capacity to act as trustee is in any way crucial to the success or failure of this application.

7. Section 176(2), which is referred to in s. 155(5B), provides that:-
   

"The Court may make any one or more of the following orders:

(a) an order directing the person to make good any loss that the bankrupt's estate has sustained because of the person's breach of duty;

(b) if the person is registered under section 155 - an order suspending for a specified period, or cancelling, the person's registration under that section;

(c) any other order the Court considers just and equitable in the circumstances."

1. By virtue of s. 176(1), those orders may be made where the court:-
   

"...is satisfied that a person who is or has been a trustee of a bankrupt's estate has been guilty (whether before or after the commencement of this section) of breach of duty in relation to the bankrupt's estate or affairs..."

1. Section 212(2) gives the Court similar powers to suspend or cancel where findings adverse to the trustee have been made concerning his conduct, in the context of arrangements without sequestration.

2. Both ss. 176 and 212 in their present form were inserted by Act No. 119 of 1987. The previous form of s. 176 was as follows:-
   

"(1) Where the Registrar is of the opinion, whether as a result of an account furnished to him in pursuance of section 175 or of an audit under that section or for any other reason, that the trustee may have been guilty of malfeasance, misfeasance, negligence, wilful default or breach of trust in relation to the estate or affairs of the bankrupt, the Registrar may apply to the Court for an order under sub-section (2).

(2) The Court may order that the trustee make good any loss that the estate has sustained by reason of the malfeasance, misfeasance, negligence or wilful default of, or a breach of trust by, the trustee or may make such other order as the Court considers just and equitable in the circumstances."

1. Sub-sections 155(5C), 176(2) and 212(2) are each concerned with default by a trustee in respect of his conduct as a trustee. Sub-section 155(5B) has a more general application. It is to be noted that in each case the power to suspend is a power to suspend "for a specified period".

2. A consideration of In re the Assigned Estate of John Alexander Sharpe (1908) 14 Argus Law Reports, C.N. 1, reveals that a provision which permitted the court to take such action as the court "deemed expedient" has been construed as permitting orders to suspend a trustee from acting as a trustee for a period of time. In that case, the order was that J. Gray Mitchell, the trustee, be suspended from acting as a trustee in any new estate for a term of six months as and from 19 December 1907. That order was made after the court was satisfied that there had been default by the trustee in the carrying out of his obligations as trustee.

3. In Re Humphreys and Walter (1931) 3 ABC 254, two registered trustees had been the subject of civil litigation in which a jury had found that they had received fees as secret commissions. The trustees gave evidence before the jury and findings adverse to their testimony were reached. Lukin J. inquired into those circumstances, and had regard to the fact that the trustees not only had failed to file accounts in various estates although repeatedly reminded to do so, but had made certain unauthorised payments and otherwise acted in contravention of their duties. Orders were made cancelling their registration as trustees.

4. Lukin J. said at p 258:-
   

"Before the Court makes an order enrolling an applicant as a person qualified to act as trustee, it has to satisfy itself not only of his experience and competence as an accountant, but also of his honesty and good repute, and of his ability, as such, to command and retain the confidence of the Court, of the creditors and debtors in a bankruptcy proceeding, and of the general community. As such, each of the respondents was duly enrolled. Can I say that as such, in the face of this verdict, they retain such confidence, or as was said by Lopes, L.J., in the case of In re Weare ((1893) 2 QB 439 at 448), quoted with approval by the High Court in Southern Law Society v. Westbrook (10 CLR 609 at 612) in regard to a solicitor, the word 'trustee' being substituted for 'solicitor' in that citation: "Is the Court, having regard to the circumstances brought before it, any longer justified in holding out the 'trustee' in question as a fit and proper person to be entrusted with the important duties and grave responsibility which belong to a 'trustee'?" I think not. Is not the past happening calculated, and likely, to engender suspicion and distrust? I think it is. I have, therefore, in my opinion, no alternative. I must order and direct in each case that the registration of the respondent as a person qualified to act be cancelled."

1. While the matter is not free from doubt, in my opinion the power to suspend for a specified period, conferred by s. 155(5B) is to be exercised where the court is satisfied that there is something in the conduct of the trustee, either in respect of his duties as trustee or otherwise, which make it proper not to permit him to act as trustee for a period. There has to be some finding by the court of unfitness or a disabling quality in the trustee personally before his registration as a trustee should be suspended for a specified period or cancelled. I regard the power to suspend as being exerciseable only as a punitive or disciplinary matter. There is nothing prophylactic in the power given to the court to suspend a trustee.

2. Such a view both reinforces the presumption of innocence and gives effect to the fundamental legal principle that no person is to be subjected to a penalty without a breach of the law having been established.

3. Merely to suspend a person on the basis that he has been charged, on the facts of this case, would mean that he will suffer damage and be denied the capacity to earn an income without anything adverse to him having been established.

4. Such a consideration is supported by the consideration that no case has been found where mere charging has been the basis on which a suspension has been made.

5. I have been referred to the circumstances of a formerly registered trustee, Mr. John Ahern. The information from both sides of the bar table, quite informally presented but seemingly reliable, is that Mr. Ahern was convicted in respect of a criminal offence or offences on 19 December 1986 and, subsequent to that, an application was made for his suspension or cancellation. Orders were, in his case, made by consent.

6. Consistent with general principle, it seems to me that the powers given in s. 155(5B) ought not be exercised on the mere circumstance of a person being charged. I am conscious of the need for public confidence in trustees under the Bankruptcy Act 1966, but if it be the intention of parliament that persons should be suspended in the public interest immediately they have been charged with offences and before the validity of those charges on any basis is made out, it would have been reasonably easy for parliament to have said so.

7. In Furnell v. Whangarei High Schools Board (1973) AC 660, the Privy Council was concerned with a teacher who had been suspended after being charged with various offences. Section 157 of the Education Act 1964 (New Zealand) provided that if a teacher is charged with having committed an offence for which the maximum punishment is not less than two years' imprisonment (whether on indictment or on summary conviction), then he may be suspended by the school board employing him. It would seem to me that in the absence of such a provision, it would not be proper to inflict what would be a penalty on a person as a consequence of his being charged with an offence. In the absence of any such provision I ought not to infer such a power.

8. On the question of costs, I accept that this matter was brought on the basis that it was thought to be in the public interest. I do not criticise the Registrar for bringing this application, but it seems to me fair that Mr. Commins should not be out of pocket as a result of the application.

9. I order that the application be dismissed with costs to be taxed if not agreed.