Re Malouf, Gregory John a bankrupt Malouf, G

[1998] FCA 1427

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NG 8171 of 1998

IN THE MATTER OF GREGORY JOHN MALOUF, A BANKRUPT

BETWEEN:	GREGORY JOHN MALOUF APPLICANT
AND:	MAXWELL WILLIAM PRENTICE AS TRUSTEE FOR THE BANKRUPT ESTATE OF GREGORY JOHN MALOUF RESPONDENT
JUDGE:		SACKVILLE J.
DATE:		30 OCTOBER 1998
PLACE:		SYDNEY

EX TEMPORE REASONS FOR JUDGMENT

HIS HONOUR: By an amended application, filed on 28 October 1998, the applicant, who is a bankrupt, seeks an order under s 178 of the Bankruptcy Act 1966 (Cth), (“Bankruptcy Act”) that the Court set aside a decision by the Trustee of the bankrupt's estate.  The decision was made orally by or on behalf of the Trustee on 16 October 1998.  The effect of the decision was that the Trustee refused to return the bankrupt's passport in order to enable him to travel to Vanuatu to take up a consultancy that had been offered to him.  In that decision, the Trustee refused to return the bankrupt’s passport to him.  The effect of the decision was that the bankrupt was unable to travel to Vanuatu to take up a consultancy which had been offered to him.  No point has been taken in these proceedings by the Trustee that the decision was made orally.

In the amended application, the bankrupt seeks orders in addition to setting aside the decision to which I have referred.  The bankrupt also seeks orders that he be granted permission to leave Australia for various periods between 26 October 1998 and 26 April 1999 and that the Trustee release his passport to enable him to travel outside Australia.

Mr Nicholson, who has appeared for the bankrupt and provided helpful written submissions, modified the nature of the relief sought on behalf of the bankrupt in the course of his oral submissions.  Mindful of the observations made by Lee J in Re Wheeler; ex parte Wheeler Halse (1994) 54 FCR 166, at 168-169, he accepted that, if the Trustee's decision were set aside, the appropriate order was to remit the matter to the Trustee for reconsideration.

A little later, Mr Nicholson directed my attention to observations of Deane J, in Re Tyndall (1977) 30 FLR 6, at 10. I did not, however, understand Mr Nicholson to suggest that Lee J in Wheeler had not correctly stated the law.  In any event, the argument has been conducted on the basis that Lee J’s observations are correct.

The original application was filed on behalf of the bankrupt on 23 October 1998.  It was returnable before me on Tuesday, 27 October 1998.  Because the bankrupt's case was that he wished to take up the offer of a consultancy with Santo Oil Mill Co Limited (“Santo”) in Vanuatu as from Monday, 2 November 1998, I listed the matter for an urgent hearing in the duty judge's list, today, 30 October 1998.

I should mention that I made the sequestration order against the estate of the bankrupt.  Nonetheless, both parties have been content for me to determine this application. 

In a sense, the approach taken by the bankrupt to the relief available to him has taken some of the urgency out of the matter.  In substance, the issue is whether the Trustee's determination should be set aside and remitted for further consideration.  Nonetheless, since the matter has been listed for hearing on an urgent basis, I indicated to the parties that I would give judgment immediately.

The bankrupt's case was supported by affidavits sworn by the bankrupt himself and Mr Watkins, the Managing Director of Santo.  In essence, the bankrupt's case is that he wishes to accept an offer from Santo.  That offer, formalised in a letter dated 20 October 1998, is for a consultancy for a period of six months, with an option to extend.  The offer contemplates that the bankrupt will act as a consultant, in connection with a construction project being undertaken in Vanuatu.  His duties are said to be as follows: 

“Organisation, supervision and construction of storage, port and office facilities.  You will be further required to co-ordinate the local workers and ensure prompt and accurate delivery of all the products.”

The remuneration is to be at a daily rate of A$150.  Santo is to cover all other expenses, including travel, accommodation and subsistence during the consultancy arrangements.  The bankrupt is not to work full time, but as required by Santo.  The evidence suggests that he would be required for about fifty days during the first six months of the arrangement, yielding him about $7,500 in income during that period. 

Mr Robinson, an employee of the Trustee, gave evidence as to why he made the decision not to return the bankrupt's passport.  His reasons were as follows:

“(a)     The bankrupt has in conversations with me said words to the effect:

‘I don’t propose to pay the Trustee anything.  I will make sure I always earn below the threshold amount.  The Commonwealth Bank isn’t going to get any of my money.’

(b)The bankrupt was previously summoned to attend at a public examination on 22 September 1998 and was unable to be served.  Annexed hereto and marked with the letter “A” (page 5) is a true copy of an advice to the Trustee’s solicitors setting out attempts of service on the bankrupt of that Section 81 Summons.  The bankrupt has not disclosed any income, nor any employment and I expected him to be at home at least on some of the dates on which personal service was attempted upon him.

(c)The bankrupt disclosed in this Statement of Affairs a shareholding in a private company, Elizabeth Securities Pty Ltd.  In relation to that company, Mr Maxwell Prentice interviewed the bankrupt in my presence and advised him in words to the following effect:

‘The shares in Elizabeth Securities now vest in the Trustee and all dividends are to be paid to the Trustee.’

(d)The bankrupt received a dividend of $3,584.09 and banked the cheque and used the money for his own purpose.  The money has not been repaid to the Trustee.  At the same time George Tewfic Malouf who was the brother of the bankrupt and made bankrupt in the same proceedings and of whom Maxwell William Prentice is also a Trustee received a similar dividend cheque and paid it to the Trustee.

(e)The public examination of the bankrupt listed for hearing on 24 November 1998.

(f)The fact that it is not apparent on the face of the materials provided to me whether the offer of employment by Santo Oil Mill Company Ltd is bona fide.

(g)The Trustee wants to investigate various matters associated with the dealings of the bankrupt, particularly associated with his maintenance of his family being a dependent wife and four dependent children who are disclosed as not earning an income at the present time.

(h)I have conducted a search of the Australian Securities Industry Commission of Santo Oil Mill Company Ltd and that search does not show the company as being a foreign company registered in Australia.  Annexed hereto and marked with the letter “B” (page 6) is a true copy of the search.

(i)There is no tangible evidence as to the true income which the bankrupt may be entitled under the terms of the proposed consultancy contract or the period of time for the work and his contract.

(j)There is no evidence as to any ability by the bankrupt to obtain work within Australia according to his expertise in circumstances, on his own statements in the Statement of Affairs, he was able to earn substantial income from building works prior to his bankruptcy.

(k)There is no evidence by the bankrupt of any attempts to earn income within Australia.”

Both the bankrupt and Mr Watkins gave evidence.  I do not wish to say more than is necessary about the bankrupt's evidence, but I must say that I found it unsatisfactory in a number of respects.  I did not find his explanation of several matters put to him, particularly his use of an account maintained by a company called Stikyn Pty Ltd and the sources of funds sufficient to enable him to pay family expenses of some $50,000 to $60,000 per annum, to be convincing.

On the bankrupt's own account, despite having earned $120,000 or thereabouts in the financial year 1996/1997 he made no serious efforts to gain full-time employment in Australia after the sequestration order was made against his estate.  Rather, he spent his time on what he described as "research", apparently involving investigations into affairs that seem to have little or nothing to do with him.  He has skills relevant to the construction industry, despite not holding a current builder's licence.

While the bankrupt claims to have made some inquiries about part-time employment, he has plainly not sought to maximise his income since the sequestration order was made.  Indeed, Mr Nicholson does not dispute that this is the case.  I also accept Mr Robinson's evidence that the bankrupt has stated that he intends to make sure that he earns below the threshold amount for contributions under the Bankruptcy Act.  On the evidence, I find that this is his present intention.

In contrast with the bankrupt, I consider Mr Watkins to be a credible witness.  I think that the Trustee was quite entitled to express concerns about the bona fides of the Santo offer at the time the matter was considered the matter.  However, I am satisfied, on the evidence, that the offer made by Santo to the bankrupt is genuine and that Mr Watkins's account of the company's activities and structure is substantially correct.  I also accept his evidence that the applicant’s proposed remuneration of $150 per day is reasonable for Vanuatu.  But I do not accept that this remuneration is the maximum that the bankrupt could earn in Australia, if he were to make reasonably diligent efforts to obtain appropriate employment or contract work.

Mr Watkins indicated in his evidence that, if the bankrupt were available to take up the offered consultancy after 24 November 1998 (the date of the bankrupt’s scheduled public examination) he would probably keep the offer open. 

The principles relating to the construction of s 178 of the Bankruptcy Act are set out in Re Tyndall and in Re Wheeler; see also Bethune v Newman (1996) 19 ACSR 99 (R D Nicholson J). I have taken into account the statements in those cases, including the observations of Deane J in Tyndall that an application relating to the return of a passport ordinarily relates to the freedom of a subject, who is neither a criminal nor under criminal restraint, to travel in order to pursue legitimate commercial or personal desires.  It is no light matter to refuse to allow travel for apparently legitimate purposes.

I was also referred by Mr Nicholson to the judgment of Pincus J in Gray v Clout (1990) 27 FCR 141, at 144. Pincus J said this:

“The contention, which…seems to me correct, was that it is unnecessary, for the purpose of enlivening the Court's jurisdiction under section 178, to find that the trustee has done anything wrong.  He may not have acted unreasonably.  His decision on the material before him may have been quite correct, and it has happened that persons affected by a decision have obtained a reversal of it on material other than that placed before the trustee.”

Mr Johnson, who appeared for the Trustee, did not suggest that this statement of law was incorrect.  I propose to adopt it for the purposes of the present application.

In my opinion, Mr Watkins's evidence leads to the conclusion that, although the Trustee's decision on the material before him was reasonable when made, the additional material, which was not available to the Trustee at that time, shows that the Trustee was unduly influenced by doubts as to whether the consultancy offer from Santo was bona fide.   On the evidence, that doubt should be resolved in favour of the bankrupt.

That, in my view, is sufficient to warrant setting aside the Trustee's decision and remitting the matter to the Trustee for further determination.  Mr Johnson indicated that seven days was sufficient for this purpose.  Accordingly, the Trustee should give a further decision on the bankrupt's application within seven days from today's date.  It will, of course, be a matter for the Trustee to take into account the various factors that bear on his decision, in the light of this judgment.  These factors will doubtless include the importance of the bankrupt attending his public examination on 24 November 1998, although the Trustee will need to take into account the proffered undertakings by the bankrupt to the effect that he will return for that examination.

Mr Nicholson submitted at the very close of argument that, if I were inclined to take the course I have just outlined, I should nonetheless make orders permitting the bankrupt to travel to Vanuatu next week.  He put this on the basis that this would be an opportunity for the bankrupt to take up the consultancy, yet return to Australia within a short time.  He submitted that this would demonstrate that any concerns about the bankrupt’s non-attendance at the public examination would be unfounded.

This submission was rather at odds with the way Mr Nicholson had hitherto approached the case.  However, on the assumption that I do have power to make the order sought, I am not prepared to do so.  For the reasons I have given, I think there are grounds for setting aside the Trustee's determination.  Even so, there remain many other factors that need to be taken into account in determining whether it is appropriate to grant permission to the bankrupt to travel overseas and in particular to Vanuatu.  Having regard to the matters that have been left in an unsatisfactory state on his evidence, I think it is the Trustee who should make the decision, based on the relevant material.  In these circumstances, I am not prepared to exercise any discretion that I might have in favour of making an order permitting the bankrupt to travel to Vanuatu next week.  In reaching this conclusion, I have taken into account the fact that Santo’s offer is likely to remain open until after 24 November 1998.
The result, then, is that I make the following orders:

1. The decision made by the Trustee on 16 October 1998 declining to return the bankrupt's passport is set aside.

1. The matter is returned to the Trustee for further determination consistently with these reasons.

1. The Trustee is directed to make a decision within seven days from today's date.

Costs

I think the appropriate order in the circumstances of this case is that there be no order as to costs.   The applicant bankrupt has had some success in the proceedings.  I appreciate that I have specifically found that the Trustee did not act unreasonably.  It was only material not available to the Trustee at the time of his decision that led me to conclude that the Trustee’s decision ought to be set aside.  Nonetheless, in all the circumstances, I think that it sufficiently recognises the position of the Trustee to make no order as to costs.  That is the course that I will adopt.

I certify that this and the preceding six (6) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Sackville J.

Associate:

Dated:             30 October 1998

Solicitor for the Applicant:	Mr M A Nicholson Lloyd & Lloyd
Counsel for the Respondent:	Mr J Johnson
Solicitor for the Respondent:	Sally Nash & Co
Date of Hearing:	30 October, 1998
Date of Judgment:	30 October, 1998