Re McKee; Ex parte Laroar Holdings v Ross
[1996] FCA 1170
•4 DECEMBER 1996
C A T C H W O R D S
BANKRUPTCY - Official Receiver - power to obtain information and evidence - notice to third parties to give evidence and produce books and documents - width of notice - s 77C Bankruptcy Act 1966.
PROCEDURE - application by trustee to be made party to application to review decision of Official Receiver - whether trustee is a "person interested in a decision": s 12 Administrative Decisions (Judicial Review) Act 1977.
Bankruptcy Act 1966 - ss 19, 19AA, 77C and 81
Administrative Decisions (Judicial Review) Act 1977 - s 12
Australian Broadcasting Commission Staff Association v Bonner (1984) 2 FCR 561 at 573
Bond v Tuohy (1995) 56 FCR 92
Smorgon v Australian and New Zealand Banking Group Ltd (1976) 134 CLR 475
Adsett v Berlouis (1992) 37 FCR 201
Karounos v Official Trustee (1988) 19 FCR 330
Re: Osenton; Ex parte Osenton v Ivor Worrell (unreported judgment of Cooper J of 3 March 1995)
Grosvenor Hill (Qld) Pty Ltd v Barber (1994) 48 FCR 301
Adler v Qintex Group Management Services Pty Ltd (unreported judgment of 22 November 1996)
Dunkel v The Deputy Commissioner of Taxation (1990) 27 FCR 524-528
Terry v Prentice (unreported judgment of Lindgren J of 2 December 1994)
Re: Muttukumaru; Ex parte Watson-Paul (1995) 57 FCR 384
RE: JAMES THOMAS COLWELL McKEE and DENISE GAIL McKEE (Debtors); EX PARTE: LAROAR HOLDINGS PTY LTD & ORS (Applicants) v DIGBY NICHOLAS BARTHOLOMEW ROSS (Respondent)
No QB 74 of 1996
SPENDER J
BRISBANE
4 DECEMBER 1996
IN THE FEDERAL COURT OF AUSTRALIA )
GENERAL DIVISION )
No. QB 74 of 1996
BANKRUPTCY DISTRICT OF THE )
STATE OF QUEENSLAND )
RE:JAMES THOMAS COLWELL McKEE and DENISE GAIL McKEE
Debtors
EX PARTE:LAROAR HOLDINGS PTY LTD
First Applicant
AND: DENNY REALTY PTY LTD
Second Applicant
AND: DAVID JOHN DENNY
Third Applicant
AND:DIGBY NICHOLAS BARTHOLOMEW ROSS
Respondent
MINUTES OF ORDER
JUDGE MAKING ORDER: Spender J
DATE OF ORDER: 4 December 1996
WHERE MADE: Brisbane
THE COURT ORDERS THAT:
(1)each notice, the subject of the order of review, be set aside.
(2)the respondents pay the applicant's costs, to be taxed if not agreed.
(3)the time for election by Ivor Worrell under s 60(2) of the Bankruptcy Act 1966 in relation to Action No 2465 of 1995 in the Supreme Court of Queensland be extended to 21 March 1997.
NOTE: Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules.
IN THE FEDERAL COURT OF AUSTRALIA )
GENERAL DIVISION )
No. QB 74 of 1996
BANKRUPTCY DISTRICT OF THE )
STATE OF QUEENSLAND )
RE:JAMES THOMAS COLWELL McKEE and DENISE GAIL McKEE
Debtors
EX PARTE:LAROAR HOLDINGS PTY LTD
First Applicant
AND: DENNY REALTY PTY LTD
Second Applicant
AND: DAVID JOHN DENNY
Third Applicant
AND:DIGBY NICHOLAS BARTHOLOMEW ROSS
Respondent
CORAM: Spender J
DATE: 4 December 1996
PLACE: Brisbane
REASONS FOR JUDGMENT
The applicants, Laroar Holdings ('Laroar'), Denny Realty Proprietary Limited ('Denny Realty') and David John Denny, applied on 12 November 1996 for orders to review decisions made by the respondent, Digby Nicholas Bartholomew Ross, the Official Receiver for the Bankruptcy District of the State of Queensland ('the Official Receiver'), to issue notices pursuant to s 77C(1)(b) of the Bankruptcy Act 1966 ('the Act') requiring the secretary of the corporate applicants and Mr Denny to attend before the Official Receiver, or an officer authorised in writing by him, to give evidence "relating to the bankrupt's conduct, transactions,
dealings, property and affairs ..." and to produce books and documents listed in schedules to the three notices.
In truth these are three applications; the basis of each application does not specifically appear from the application. Mr David Russell QC, counsel for the applicants, at the outset of the hearing indicated that the applications were brought pursuant to the Administrative Decisions (Judicial Review) Act 1977 ('the ADJR Act').
Mr I. Worrell, the trustee of James Thomas Colwell McKee and Denise Gail McKee ('the trustee'), sought to be made a party to the proceedings. Section 12 of the ADJR Act provides that a person interested in a decision may apply to the Court to be made a party to the application for review of that decision. Section 12 of the ADJR Act ought not be construed narrowly: Australian Broadcasting Commission Staff Association v Bonner (1984) 2 FCR 561 at 573.
In this case, the trustee has a clear and immediate interest in the decision. Further, he seems to me to be an appropriate party, especially if some of the alleged grounds of review rely on the nature of the action and steps taken in it which the trustee has continued against the applicants for review. The application by the trustee to be joined as a party pursuant to s 12 of the ADJR Act was not opposed by counsel for the applicants, but it was submitted by Mr Russell that the applicants should not be exposed to two sets of costs. The trustee was joined as a respondent and the question of costs deferred.
The review filed on 12 November 1996 also sought to review what was said to be the decision by the Official Receiver to permit the solicitors for the trustee, Messrs Baker Johnson, to ask questions at the examination contemplated by the notices.
The position factually is this. On 14 December 1995 James Thomas Colwell McKee and Denise Gail McKee commenced proceedings in the Supreme Court of Queensland against the applicants, claiming damages (or relief under s 87 of the Trade Practices Act 1974) for contravention of s 52 of the Trade Practices Act 1974, damages for fraudulent misrepresent- ation and damages for negligent misrepresentation.
Shortly after those proceedings commenced, Mr and Mrs McKee became bankrupts and the trustee became their trustee. Although there was a degree of correspondence between the solicitors for the applicants and the solicitors for the trustee seeking that the statement of claim in the Supreme Court matter on behalf of the plaintiffs be filed, no statement of claim was filed.
In a letter dated 29 April 1996, Messrs Baker Johnson made reference to an application having been filed that day for an examination of certain persons pursuant to s 81 of the Act. That application was not in fact filed until 20 May 1996, and it sought the examination of Mr Denny pursuant to s 81 of the Act about the examinable affairs of Mr and Mrs McKee.
The application was supported by an affidavit sworn by the trustee. As what is said by the trustee in that affidavit is germane to the present application, I set out what appears at paragraphs 16, 17 and 18 of that affidavit:
"16. It is clear that the Respondents amongst them will have information relating to the examinable affairs of the Bankrupt. The substantial asset in the Bankrupts estate would appear to be the action against the three Respondents. I wish to establish the following matters in relation to the Supreme Court litigation:-
(a)The Respondents financial position.
(b)Whether the Respondents have insurance.
(c)Particulars of the Respondents defence.
(d)Further information to enable me to obtain advice as to the prospects of success of the litigation.
17.It is imperative that this information be obtained as it will:-
(a)Assist in the determination by me as to whether the reasonable prospects to continue with the action and;
(b)To determine whether there is any prospects of settlement in the action.
18.I do not wish to expose the administration to substantial legal costs in running this legal action unless I'm convinced that should the legal action be successful there are prospects of payment being received upon a Judgment. "
On 10 May 1996 the applicants filed a summons in the Supreme Court action, returnable 22 May 1996, seeking amongst other things an order that the action be dismissed for failure to deliver the statement of claim.
An affidavit sworn by Mr Bax of Messrs Baker Johnson, was filed on behalf of the trustee, seeking in essence that the application be adjourned to permit the s 81 of the Act examination to proceed. On the hearing of that application, counsel for the trustee submitted that the trustee was prepared to deliver a statement of claim within seven days. Accordingly, the summons was dismissed and the trustee was ordered to pay the costs of it.
The statement of claim was in fact delivered on 23 May 1996. A request for particulars was made on 27 June and responded to on 10 September. After correspondence from the solicitors for the applicants concerning questions, amongst other things, of whether the claims under the Trade Practices Act 1974 were statute barred, and also in respect of the nature of the formulation of damages in that first statement of claim, an application was filed in the Supreme Court on 1 October 1996 seeking the striking out of all or parts of that statement of claim.
On 14 October 1996 an amended statement of claim was delivered, and on 16 October 1996 further particulars were delivered. A further amended statement of claim was delivered on the morning of 23 October 1996. On that day the application to strike out was heard by Thomas J. In his reasons for judgment his Honour said, with respect to the amended statement of claim:
"I am firmly satisfied that in its present form it is embarrassing and vexatious in so far as the Trade Practices Act cause of action is concerned. I am also of the view that the presentation of the claim for damages is embarrassing and vexatious and leaves the claim entirely to guess work. Inter alia there are a number of unstated premises in paragraph 14..." [paragraph 14 being directed to the question of quantification of damages]
His Honour gave leave to replead within 28 days, that is to say by 20 November 1996.
Letters from the trustee's solicitors, Messrs Baker Johnson, dated 5 November 1996, addressed to the applicants care of their solicitors, Messrs Macrossan and Amiet, and notices issued by the Official Receiver which are the subject of the present applications, were received in Mackay on 7 and 8 November 1996. By way of illustration the notice in respect of Laroar commences:
"The Trustee of the bankrupt estate of JAMES THOMAS COLWELL MCKEE AND DENISE GAIL MCKEE is currently investigating the financial affairs of the bankrupts, in accordance with Section 19AA of the Bankruptcy Act 1966.
I, Digby Nicholas Bartholomew Ross, Official Receiver for the abovementioned Bankruptcy District of the State of Queensland of Level 13, 340 Adelaide Street, Brisbane in the State of Queensland in accordance with Section 77C(1)(b) of the Bankruptcy Act, 1966 require you to attend at 10.00am on Monday, 18th day of November, 1996, at the office of the Insolvency and Trustee Service of Australia Level 13, 340 Adelaide Street, Brisbane before me or an officer authorised in writing by me, and to give evidence relating to the bankrupts' conduct, transactions, dealings, property and affairs, and to produce the books and documents listed in the schedule attached to this Notice, that are in your possession.
Section 81G of the Bankruptcy Act 1966 provides that failure to comply with this Notice, will render the information/documents/books, inadmissible in certain proceedings to recover income contributions or property disposed of by the bankrupt. "
In the light of the nature of the attacks on the notice, it is necessary to set out the schedule:
" BANKRUPTCY ACT 1966
SCHEDULE TO NOTICE DATED 1st DAY OF NOVEMBER 1996 ISSUED TO
THE SECRETARY, LAROAR HOLDINGS PTY LTD
PURSUANT TO SECTION 77C(1)(B) BANKRUPTCY ACT 1966
PART A
In respect of the Shopping Centre known as "The Dome Shopping Centre" at Mackay please provide all information including but not limited to:-
(a)The acquisition and establishment of the shopping centre.
(b)The acquisition and establishment of a convenience store at the shopping centre.
(c)The acquisition and establishment of a delicatessen at the shopping centre.
(d)Any and all representations made to any person about the operation and performance of The Dome Shopping Centre.
(e)Any and all representations made to the bankrupts about the operation and performance of The Dome Shopping Centre.
(f)Any and all representations made in respect of the convenience store and delicatessen and The Dome Shopping Centre.
(g)Any and all representations made in respect of the convenience store and delicatessen at The Dome Shopping Centre to the bankrupts.
(h)All information in respect of the actual and estimated turnover of the convenience store and the delicatessen.
All information used by the Laroar Holdings Pty Ltd or any of its officers to determine estimated turnover for the convenience store and delicatessen.
(j)The rental charge to each tenant of The Dome Shopping Centre and basis of calculation of same.
(k)All information used to calculate the rental charge to each tenant of The Dome Shopping Centre.
(l)All information used to calculate the rental charge in relation to the convenience store and delicatessen at The Dome Shopping Centre.
(m)All information utilised to determine the fair market rental of the convenience store and delicatessen at The Dome Shopping Centre including the actual fair market rental.
(n)All information utilised to determine the fair market rental of all tenancies at The Dome Shopping Centre and their actual rental.
(o)All information held concerning the parking facilities at The Dome Shopping Centre including Council and other local authority requirements and consents.
(p)All marketing information concerning The Dome Shopping Centre together with information about the traffic flows associated with the streets adjacent or near The Dome Shopping Centre.
(q)All information held by the Laroar Holdings Pty Ltd or any of its officers which enabled Laroar Holdings Pty Ltd to advise the bankrupts that the opinion of the bankrupts' accountants to the effect that the expenses of the convenience store and delicatessen were too high and that there was no (sic) enough profit to be made was rubbish.
(r)All information that relates to any representations or other determinations made by Laroar Holdings Pty Ltd concerning the profitability of the business.
(s)All information concerning the operation of The Dome Shopping Centre from December, 1991 and November, 1995 and included but not limited to Shop 14.
(t)All information relating to payments made to Laroar Holdings Pty Ltd and any communications passing between Laroar Holdings Pty Ltd and the bankrupts at all but particularly in relation to the following statements:
(i)The bankrupts were the right people for the business;
(ii)That the bankrupts could continue to operate the business;
(iii)That a profit would be made notwithstanding the poor performance of the business.
(u)Any plans for improvement of the parking facilities at The Dome Shopping Centre.
Any information in relation to the location of The Dome Shopping Centre in so far as it relates to being within a focal point of the city of Mackay.
(w)The financial position of Laroar Holdings Pty Ltd
Whether Laroar Holdings Pty Ltd has insurance and if so what type and what amount of cover.
(y)Full details of the acquisition of the convenience store and delicatessen business.
(z)Full details of any benefit Laroar Holdings Pty Ltd was to receive or any company controlled by Laroar Holdings Pty Ltd was to receive or entitled to receive at any stage from the bankrupt or any other party in respect of the acquisition by the bankrupts of the convenience store and delicatessen or otherwise from the dealings of Laroar Holdings Pty Ltd with the Bankrupt.
(aa)Full details of current and previous associations with the bankrupt including details of any other business you have been involved with, with the bankrupt and details of the sale and transfer of any plant or equipment to yourself, family members, other parties or related companies from the bankrupts.
(ab)Full details of any property purchased or sales made by Laroar Holdings Pty Ltd in the two years immediately prior to the date of bankruptcy of James Thomas Colwell McKee and Denise Gail McKee or subsequent to the date of bankruptcy in conjunction with or in association with the bankrupts.
(ac)Particulars of each and every meeting had between Laroar Holding Pty Ltd its employees, agents or representatives and the bankrupts in relation to The Dome Shopping Centre generally and/or the acquisition and establishment of a convenience store and delicatessen at The Dome Shopping Centre.
(ad)Details of any commissions or other monies paid by Laroar Holdings Pty Ltd in relation to the acquisition and establishment by the bankrupts of the convenience store and delicatessen and the ongoing relationship with the bankrupts.
(ae)Any other matter that may be considered relevant to the examinable affairs of James Thomas Colwell McKee and Denise Gail McKee.
PART B
BOOKS AND RECORDS TO BE PROVIDED
All records held by you on behalf of Laroar Holdings Pty Ltd including but not limited to books of account and banking records, including statements of gross profit and loss, trading statements, wages records, income tax returns and any other records pertaining to such financial activities and including all leases, purchase contracts, commission statements and other documents in respect of The Dome Shopping Centre and all documents held by you relating to insurance of Laroar Holdings Pty Ltd and all documents relating to turnover, projected or otherwise, car parking, rental calculation and occupation of The Dome Shopping Centre, Mackay and all and any correspondence passing between Laroar Holdings Pty Ltd and the bankrupts and all other documents held by you which relate in any way to the acquisition and establishment of The Dome Shopping Centre, any of its tenants, the convenience store and delicatessen and the continued trading of same.
Should you not have in your possession the records pertaining to the above, you are required to advise, to the best of your knowledge and belief:-
a)where those books may be found; and
b)the full names and addresses of persons who last had possession, custody or control of those books.
DATE ISSUED 1st day of November, 1996
[Sgd] D.N.B. ROSS
OFFICIAL RECEIVER "
The solicitors for each applicant, by letter dated respectively 7 and 8 November, asked eight questions of the Official Receiver in respect of each of the applicants and the Official Receiver replied by letter of 8 November. I set out the questions asked on behalf of the applicants followed by the answers as furnished by the Official Receiver.
"1. Is it intended that the examination be conducted before you or before an officer authorised in writing by you;
2.If it is intended that the examination be conducted before an officer authorised by you who is that officer;
3.If it is intended that the examination be conducted before an officer authorised by you please provide a copy of that authorisation;
4.Is it intended to permit legal advisors on behalf of the examinee to be present at the examination;
5.Is it intended that persons other than you (or your authorised) officer and the examinee (and that person's legal advisors) attend or take part in the examination;
6.If it is intended that other persons attend the examination who are those persons;
7.If it is intended that other persons take part in the examination who are those persons and what part is it intended that they play in the examination;
8.Is it intended that any information obtained in the course of the examination be provided to any other person, and if it is, who is, or are, that person or persons, for what purpose is it intended to provide information and what information is intended to be provided. "
"1. Yes
2.Will depend on issues and who is rostered on the day to preside
3.The authorisation will be available on the day
4.Yes
5.Yes
6.The trustee, trustee's staff and or legal advisors. The presiding officer will consider any other requests for appearances on the day. For example a creditor
7.Trustee or trustee's staff and or legal advisors may ask questions
8.The information obtained is able to be used in the trustees administration of the bankruptcy and by the Official Receiver in performance of his duties. "
The solicitors for the applicants have requested a statement of reasons pursuant to s 13 of the ADJR Act, but those statement of reasons have not been received.
This application was filed on 12 November 1996. As I indicated earlier, it really encompasses three separate applications, in respect of the three notices directed to each of the applicants.
While originally the matter was listed for interlocutory relief, I proceeded to deal with the matter substantively.
On the question of the review, it was submitted on behalf of the applicants that there were five grounds invalidating the respective notices. They are:
"(a) the Respondent failed to take into account a material consideration, namely the state of the proceedings between Mr. Worrell and the Applicants in the Supreme Court;
(b)sec.77C(1)(b) does not authorise an examination into the "examinable affairs" of the bankrupts;
(c)sec.77C(1)(b) does not permit the Respondent to delegate to persons outside his office and, in particular, to the trustee's solicitors the task of conducting the examination;
(d)the statutory procedure is being used in bad faith to assist the trustee to overcome difficulties in his case in the Supreme Court;
(e)the width of what is sought and is to be enquired into makes the examinations oppressive. "
Section 77C of the Act provides:
"(1) The Official Receiver, by written notice given to any person, whether a bankrupt or not, including any person employed by or in connection with a Department, or an authority, of the Commonwealth, of a State or of a Territory, may require the person:
(a)to give to the Official Receiver such information as the Official Receiver requires for the purposes of the performance of the functions of the Official Receiver or a trustee under this Act; and
(b)to attend before the Official Receiver, or before an officer authorised in writing by the Official Receiver to exercise powers under this paragraph, and;
(i)give evidence; and
(ii)produce all books in the possession of the person;
relating to any matters connected with the performance of the functions of the Official Receiver or a trustee under this Act.
(2) The Official Receiver or authorised officer may require the information or evidence to be given on oath, and either orally or in writing, and for that purpose may administer an oath. "
The primary dispute is as to the proper scope of s 77C(1)(b) of the Act. It was submitted on behalf of the applicants that the purpose of the examinations was to enable the trustee to obtain information and documents for the purpose of prosecuting the Supreme Court action. Whilst such a purpose, it was said, may come within the ambit of the expression "examinable affairs" as defined by s 5 of the Act, s 77C of the Act was not concerned with examinable affairs but with the performance of the functions of either the Official Receiver, a trustee, or both.
It was submitted that had the legislature intended s 77C of the Act to authorise an examination into the examinable affairs of a bankrupt, it could easily have done so using the language used in the Act in, for instance, ss 19AA, 77A, 77B and 81 of the Act.
In my opinion, the ambit of a valid notice appears from the terms of the section itself. The notice must be given in respect of evidence or documents "relating to any matter connected with the performance of the functions of [inter alia] a trustee...".
It was submitted on behalf of the applicants that the purpose of the examinations as indicated in the paragraphs from the trustee's affidavit that I have earlier set out, was an improper purpose. And further, that the true purpose was to permit the trustee to properly plead his statement of claim in the light of the several attempts so far unsuccessfully made to that end.
Section 77C of the Act is couched in wide terms. It is one of the set of provisions contained in Part 5 of the Act. As Shepherd J observed in Re: Bond; Ex parte Ramsay (1994) 54 FCR 394 at 401:
"The provisions of s 77 and the other provisions of Pt V of the Act are designed to enable the Trustee to make the fullest investigations into a bankrupt's property, dealings and affairs. "
It is part of the trustee's function to get in the assets of a bankrupt estate and to distribute them rateably amongst the creditors. Part of that function, in my opinion, requires the trustee to investigate and assess the prospect of recovering funds from the existing action. The obtaining of information by evidence, and the production of books relating to those matters of complaint is a matter which is, in my opinion, immediately connected with the performance of that function of a trustee.
Section 77C of the Act is based on s 264 of the Income Tax Assessment Act 1936. In Bond v Tuohy (1995) 56 FCR 92, Ryan J said at 97 et seq:
"It is to be noted that the language of s 77C closely parallels that of s 264 of the Income Tax Assessment Act 1936 (Cth) which provides:
'(1) The Commissioner may by notice in writing require any person, whether a taxpayer or not, including any officer employed in or in connexion with any department of a Government or by any public authority -
(a)to furnish him with such information as he may require; and
(b)to attend and give evidence before him or before any officer authorized by him in that behalf concerning his or any other person's income or assessment, and may require him to produce all books, documents and other papers whatever in his custody or under his control relating thereto.
(2) The Commissioner may require the information or evidence to be given on oath and either verbally or in writing, and for that purpose he or the officer so authorized by him may administer an oath.
(3) The regulations may prescribe scales of expenses to be allowed to persons required under this section to attend. '
The parallel to which I have drawn attention is not accidental as the Explanatory Memorandum which accompanied the Bankruptcy Amendment Bill as enacted to insert, amongst other new sections, s 77C, recited:
'Clause 20 - Insertion of new section 77C - Power of Official Receiver to obtain information and evidence
20.1Clause 20 of the Bill proposes the insertion of section 77C into the Act. Proposed section 77C is based on section 264 of the Income Tax Assessment Act 1936 which enables the Commissioner of Taxation to issue notices requiring taxpayers and other persons to attend to give evidence and information. "
The inquisitorial investigative power provided to the Official Receiver or his authorised delegate by s 77C of the Act is administrative in nature. In exercising that power the Official Receiver is not carrying out any judicial or quasi-judicial function. Of s 264 of the Income Tax Assessment Act 1936, Stephen J said in Smorgon v Australian and New Zealand Banking Group Ltd (1976) 134 CLR 475 at 481:
"What s 264(1)(b) is designed to do is to permit the Commissioner to gain access to the knowledge residing in men's minds. "
To be a valid notice, the evidence sought, or the records sought, must be connected with the performance of the functions of a trustee under the Act. In the circumstances of this case, the examination for which the section calls may be conducted by the Official Receiver or an authorised officer. As Mr McQuade, counsel for the Official Receiver, pointed out, the specific functions of a trustee under the Act are not defined.
What is comprehended by the term "function" is to be derived from the provisions of the Act, from the general common law duties and obligations of a trustee, and from the statutory duties imposed on a trustee under the Act.
The Full Court in Adsett v Berlouis (1992) 37 FCR 201 at 208 referred to:
"the trustee's obligation to administer the estate in such a manner as to maximise the return from estate assets, and thereby to maximise satisfaction of the creditors' claims and any possible surplus for the bankrupt. "
A trustee has the duties set out in ss 19 and 19AA of the Act, which relevantly include the duty to ascertain the assets and liabilities of the bankrupt (s 19(1) of the Act); and to investigate the bankrupt's examinable affairs, and the books, accounts and records kept by the bankrupt, as is relevant to the bankruptcy (s 19AA(1)(c) of the Act). "Examinable affairs", defined in s 5.1 of the Act has a wide meaning, and includes dealings, transactions, property, and affairs.
The power conferred by s 77C of the Act, in the context of Part 5 of the Act, like the power in s 81 of the Act for public examination, is to be exercised in the interests of creditors; and the procedure is designed to establish what assets the bankrupt had, what has happened to those assets, and whether action should be begun or continued to recover them. See Karounos v Official Trustee (1988) 19 FCR 330 at 335.
It seems to me that it is not an improper exercise of that power to enquire into matters that relate to the litigation in the Supreme Court. I am satisfied on the facts that the notices have not been issued for the purpose of permitting the trustee to plead his statement of claim in those proceedings. The chronology of events and the disavowal from the bar table of any such purpose, in my opinion, establishes that that is the position. The purposes set out in the trustee's affidavit earlier set out in these reasons, in my opinion, are not improper purposes.
In Re: Osenton; Ex parte Osenton v Ivor Worrell, an unreported judgment of Cooper J of 3 March 1995, his Honour said at page 22:
"I am not persuaded that the trustee ought to be disbelieved when he swears on oath that he needs to carry out the examinations for the purpose of determining whether he has a cause of action against the company or trust and whether that cause of action ought to be pursued. Such a purpose is an entirely proper purpose for a trustee to pursue..."
Citing Karounos v Official Trustee (supra), his Honour referred to the similar position of a liquidator discussed in
Grosvenor Hill (Qld) Pty Ltd v Barber (1994) 48 FCR 301, where the court (Beaumont, Spender and Cooper JJ) said at 306:
"The necessity to obtain relevant information in relation to litigation by or against a company being wound up is but one instance of the broad general purpose identified in the decisions cited above and numerous other decisions to like effect. Clearly, one purpose of an examination in relation to pending or contemplated litigation is to determine whether or not there is evidence available to support a claim brought by the company to recover property or damages, or conversely to defend a claim brought against the company, and the strength of that evidence. That such is a purpose falling within the power contained in s 596B of the Law was not challenged by Grosvenor; the whole weight of authority is against such a challenge in any event.
The question is whether the Court is limited by the section to ordering an examination the purpose of which is to go no wider that to determine whether or not there are reasonable grounds, including evidence, to litigate a case to a successful judgment, or whether, the Court has power to order an examination, the purpose of which is to ascertain the likelihood of any judgment being satisfied; that is, whether it is a permitted purpose to inquire as to the worth of a potential defendant so as to be able to make a practical assessment as to the likelihood of a return to the company of the fruits of any favourable judgment and the necessary legal costs expended in obtaining it. Is the Court empowered under the section to order an examination or the production of documents to test the likelihood of the creditors in the winding up receiving a tangible benefit from the satisfaction of any judgment obtained and to enable the liquidator to determine whether it is prudent to commence or maintain litigation with knowledge as to the real likelihood of obtaining any tangible benefit beyond a mere judgment, including a judgment for costs, at the conclusion of the litigation?
In our view, the Court has such a broad power. Additionally, it is a power of long standing. "
See also Re: Excel Finance Corporation Ltd (Receiver and Manager Appointed); Worthley v England (1994) 52 FCR 69 at 89 et seq.
Recently, in the context of company litigation, the Court of Appeal in Queensland had to consider whether the purposes for which an examination was sought in that case was improper. In Adler v Qintex Group Management Services Pty Ltd, an unreported judgment of 22 November 1996, Messrs Geroff and Burns had been appointed liquidators of the Qintex Group Management Services Pty Ltd ('QGHS'), and had obtained an order that summonses pursuant to ss 596A and 596B of the Corporations Law issue to two persons to attend to be examined about the affairs of QGMS.
At the hearing, an affidavit of Mr Burns was read in support of the application for examination, in which Mr Burns said that he wished to examine certain persons, the appellants being two of those named, so that he would be in a better position to assess the prospect of QGMS in the Supreme Court proceedings, and so obtain from them evidence that would be admissible at the trial. On the appeal, it was submitted on behalf of Mr Adler, that an examination should not be ordered where a liquidator was by that means seeking to achieve an advantage not otherwise available under ordinary pre-trial procedures, and further it was submitted that in the circumstances of that case it was unjust or oppressive to require Mr Adler to be examined.
The Court of Appeal reviewed the many authorities touching on the power that liquidators have which ordinary litigants do not have, and said at page 6 of the judgment:
"To deny to liquidators the use of the procedure for examination in litigation would deprive it of most of its practical utility. "
Importantly they then said:
"For all that, there may be some cases in which it can be seen that liquidators are acting improperly in seeking to examine someone under the provisions of the Corporations Law. Examinations under the statute are capable of being or becoming oppressive if their real purpose is simply to assert pressure by inflicting costs, or causing undue inconvenience or embarrassment to the defendant. There may also be other ways in which they can operate harshly. Conducting a dress-rehearsal of cross-examination may conceivably be another instance, although in practice it probably serves mainly to alert a witness to the question he may be asked at trial and so enable him to anticipate them. "
And later:
"The fact that an application to examine is made long after the relevant events took place may be a matter for consideration, but it is a regrettable feature of many winding ups that, like litigation, they often take an inordinately long time to complete. There is nothing to suggest that the liquidators here deliberately deferred the application to examine the appellants in order to catch them off guard. "
The appeal was dismissed.
It seems to me then that the notices issued for the purposes deposed to by the trustee are not an improper exercise of the power conferred by s 77C of the Act. I reject the suggestion that the purpose of the issue of the notices was to permit the trustee to plead to his statement of claim. As to the assertion that the Official Receiver failed to take into account the history of the litigation, it seems to me that that contention was centred primarily on the detailed history of the difficulties of the trustee in pleading a
satisfactory statement of claim. Insofar as is directed to the matters referred to by the trustee, I am satisfied that the Official Receiver did take into account that history as it is recorded in the correspondence between Messrs Baker Johnson and himself.
Concerning the submissions based on what is said to be the proposed procedure for the conduct of the examination, the specific complaints are that the trustee and his staff and legal advisers might take part in that examination, and that the information provided at the examination may be provided to the trustee. It is said that this is not authorised by the Act and is beyond power.
It seems to me that this complaint has to be considered in the context of the object or purpose of s 77C of the Act and the provisions of Part 5 of the Act more generally, and in the context of the duties and obligations of the trustee as to which I have previously referred. In particular, the process contemplated by s 77C of the Act is a statutory aid to the process of discovery and realisation of assets for the benefit of the creditors of an estate in bankruptcy .
The procedure adopted in such an inquiry or examination is a matter for the Official Receiver or authorised officer conducting the examination. There is no limitation contained in the section or otherwise in the Act which limits or specifically regulates the conduct of the examination other than it must be for the purpose specified. It seems to me to be incidental to the exercise of the statutory power that in the conduct of the examination, the Official Receiver or the authorised officer be entitled to admit any person into the examination the presence of whom is reasonably necessary to enable the Official Receiver or authorised officer to carry out the duty imposed under the Act.
Particularly, it seems to me, the presence of counsel or a legal representative will ordinarily facilitate the proper conduct of the examination. So much was noted in Dunkel v The Deputy Commissioner of Taxation (1990) 27 FCR 524-528.
Where, as here, the purpose of the examination is in aid of the performance of the functions of the trustee, in my opinion it is open to the Official Receiver to allow the trustee and the trustee's legal representative to participate in the examination. The examination has to be conducted by the official trustee or the authorised officer, but how that is to be done is very much a matter for the Official Receiver or the authorised officer, and certainly the bounds of a proper examination are sufficiently flexible to permit the person conducting the examination to allow other interested parties such as the trustee or his legal representative to ask questions. Of course, if questions are improperly asked, they should be disallowed by the Official Receiver who has the conduct of the examination.
Further, it seems to me to be necessarily incidental or consequential to the statutory power, and the object and purpose of s 77C of the Act, that the information obtained at that examination be given to the trustee to enable him to carry out or perform his functions under the Act. The contrary interpretation would not further the object or purpose of s 77C of the Act and would mean that it had no teeth. That result really would be an absurdity: given that the object of the section is, amongst other things, to assist in the performance of the functions of the trustee, that object would be frustrated if the information relevant to that function were not able to be communicated to the trustee.
It remains to consider the complaint that the notices are too wide. The limitation on the width of a notice comes from the terms of the section itself. A notice cannot extend to matters alien to the performance of the functions of a trustee. Further, in respect of a request to produce documents, the documents must relate to a matter connected with the performance by the trustee of his/her functions under the Act. When one has regard now to the matters the subject referred to in the schedules, of which an illustration has been earlier set out, clearly the notices seeking much of that information are not authorised by the section.
I invited counsel for the parties to make suggestions as to how the notices might be modified so as to bring them within power. It was submitted on behalf of the trustee that in relation to Part A of the notices to Laroar and to Denny Realty , the following subparagraphs ought to be omitted: (a), (b), (c), (d), (j), (k), (n), (s), (t), (w), (aa) and (bb). Counsel on behalf of the Official Receiver, in addition to those subparagraphs, also suggested the omission of subparagraphs (e), (f), (h), (o), (p), (u) and (v). It was submitted on behalf of the trustee that (w) and (x) should be amended, (w) to read:
"The financial capacity of Laroar Holdings Pty Ltd to satisfy claims by the trustee against it. "
And (x), so as to read:
"Whether Laroar Holdings Pty Ltd has insurance by which it might be indemnified against the trustee's claim and if so what type and amount of cover. "
Counsel for the Official Receiver also submitted that subparagraph (r) should be amended so as to read:
"All information that relates to any representations or other determinations made by the examinee concerning the profitability of the convenience store and delicatessen. "
It was suggested on behalf of the trustee that the first paragraph of Part B should be omitted, and in its place the following inserted:
"All records held by you on behalf of Laroar Holdings Pty Ltd relating to:
(a)turnover of the convenience store and delicatessen;
(b)the calculation or determination of rental for the convenience store and delicatessen;
(c)the permitted and/or proposed parking facilities for The Dome Shopping Centre during the period September 1991 to November 1995;
(d)the estimated expenses of the convenience store and delicatessen;
(e)any insurance by which it might be indemnified against the trustee's claims. "
It was said that the invalid parts of a notice as to production of records are severable from the other parts of the notice and should be severed where it is practicable to do so. Terry v Prentice, an unreported judgment of Lindgren J of 2 December 1994, was relied on. In that case a notice had been issued which required Mrs Terry to attend for examination to provide information relating to the income and assets of the bankrupt, and also requiring her to produce the books and accounting records of Aba-Fel Pty Ltd as trustee for The Terry Family Trust. His Honour said:
"It seems clear that the two requirements of the notice are severable: see Elliott v DCT (1990) 21 ALD 50 (FCA/Burchett J), a case on section 264 of the Income Tax Assessment Act 1976 (Cth). "
His Honour said of the notice:
"In my opinion, in two respects the present notice requires more than what the section authorises a notice under it to require. First, the notice is not limited to books and accounting records in Mrs Terry's possession and requires her to produce all the books and accounting records referred to, wherever they may be, under, it may be noted, a penalty of six months' imprisonment for default: para 267F(c).
Secondly, the description is not limited by reference to the requisite "[relationship] to any matters connected with the performance of the functions of the Official Receiver or a trustee under [the] Act". In this respect it should be noted that the words which occur earlier in the notice, 'relating to the income and assets of the bankrupt', qualify the word 'information' and do not supply a qualification of the books and accounting records required to be produced. See FCT v Australian and New Zealand Banking Group Ltd, (Smorgon's case) (1979) 143 CLR 499 at 525 (Gibbs ACJ), 536-8 (Mason J); Clarke v DCT (1989) 89 ATC 4521 (FCA/Spender J) at 4526; Elliott v DCT (1990) 21 ALD 50 (FCA/Burchett J) in which similar issues in relation to notices under s 264 of the Income Tax Assessment Act 1936 (Cth) have been considered. "
In the result, his Honour made an order setting aside the notice in respect only of the second aspect, namely, the requirement that she produce the books and accounting records of Aba-Fel Pty Ltd as trustee of The Terry Family Trust.
It is possible to sever parts of a notice that are invalid from parts of a notice that are valid. However, I do not think under that power it is possible to re-write categories of documents or categories of evidence.
It seems to me that, in the circumstances of this case, the better course is simply to set aside the notices as being too wide and permit the Official Receiver to issue notices that conform with the limitations that are inherent in s 33 of the Act. The notices the subject of the present attacks are clearly wider than the statutory power conferred in that section. I will therefore set aside each of the notices the subject of the order of review. I expect that if further notices are to be issued by the Official Receiver for the purposes indicated by the trustee, that they will be no more extensive than as indicated in the proposals for modification supplied by counsel for the Official Receiver and by the Trustee together.
Having heard counsel on costs, there are a number of matters which have to be decided. First, the applicants for review of the decision to issue the notice seek costs against both parties and against the Official Receiver on an indemnity basis. They point to a decision of Drummond J in Re: Muttu- Kumaru; Ex parte Watson-Paul (1995) 57 FCR 384 where, the applicants having, prior to the hearing, written to the other side and indicated that there was no power in a Deputy Official Receiver to issue a notice under s 139ZQ of the Act, the circumstance of taking no action but allowing the matter to proceed provided the basis where, in the exercise of a discretion in the facts of that case, his Honour ordered indemnity costs.
As a matter of principle, it seems to me that the mere fact of writing to the other side and indicating that there are deficiencies in respect of a notice, does not mean that if any of those deficiencies in fact is found to exist, that party would be entitled to indemnity costs. A fortiori, where there is asserted a number of bases on which the notices were invalid, but one only is made out.
It is only in respect of the width of the notice going beyond the statutory power which led me to set aside the notices; and in respect of all of the other grounds they were found contrary to the submissions on behalf of the applicants. I certainly would not order indemnity costs in the present circumstances.
Next it was submitted that because there had been success on each side, having regard to the issues on which the respondents were successful, either there ought to be no order as to costs or the applicant should be entitled to a proportion only of their costs.
The Court has a power in the exercise of its discretion in relation to costs to depart from the ordinary rule that the successful party should have its costs, and can order that because there had been a failure in respect of some issues that a proportion only of the costs be awarded to a successful party. The general rule, however, is that a successful party is entitled to its costs even though it has argued matters on which it has been unsuccessful.
I accept that the matters on which the Official Receiver has been successful are matters of general importance. That itself however does not seem to me to be a consideration which would incline me to award a proportion only of a successful party's costs. In the circumstances of
this case I will not make a special order ordering the respondents to pay part only of the applicant's costs.
I think a fair and just exercise of the discretion as to costs in the circumstances of this case is to order that the respondents pay the applicant's costs, to be taxed if not agreed.
I make an order extending the time for election by the trustee under s 60(2) of the Act in relation to Action No 2465 of 1995 in the Supreme Court of Queensland to 21 March 1997.
I certify that this and the preceding twenty-nine (29) pages are a true copy of the reasons for judgment herein of the Honourable Justice Spender.
Associate
Date: 4 December 1996
Counsel for the first, second
and third applicants : Mr D Russell QC and Mr P E Hack
instructed by : Gilshenan & Luton (as town agents for Macrossan & Amiet)
Counsel for the respondent : Mr P McQuade
instructed by : Australian Government Solicitor
Counsel for Ivor Warrell : Mr P McMurdo QC and Mr M D Martin
instructed by : Baker Johnson
Date of Hearing : 18 November 1996
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