Re Steele, P.J. R. v Ex parte The Official Trustee of Bankruptcy and Anor
[1994] FCA 25
•10 FEBRUARY 1994
PHILIP JOHN RUPERT STEELE
EX PARTE: THE OFFICIAL TRUSTEE OF BANKRUPTCY and CLAYTON UTZ (a firm)
No. VB971 of 1990
FED No. 25/94
Number of pages - 7
Bankruptcy - Statutes
(1994) 119 ALR 716
(1994) 48 FCR 236
COURT
IN THE FEDERAL COURT OF AUSTRALIA
EXERCISING FEDERAL JURISDICTION IN BANKRUPTCY
BANKRUPTCY DISTRICT OF VICTORIA
RYAN J
CATCHWORDS
Bankruptcy - access by Official Trustee to premises and documents - legal professional privilege - whether common law privilege ousted by necessary implication - Bankruptcy Act 1966.
Statutes - necessity for clear language in order to displace common law right.
Bankruptcy Act 1966 - S77AA.
Income Tax Assessment Act S263, 264.
Baker v Campbell (1983) CLR 52 (applied).
Commissioner of Taxation v Citibank (1989) 20 FCR 403 (applied).
Corporate Affairs Commissioner of New South Wales v Yuill (1991) 172 CLR 319.
Grant v Downs (1976) 135 CLR 674 (referred to).
Mortimer v Brown (1970) 122 CLR 493.
O'Reilly v The Commissioners of the State Bank of Victoria (1983) 153 CLR 1.
Potter v Minahan (1908) 7 CLR 277.
Re Compass Airlines Pty Ltd (1992) 10 ACLC 1,380 (applied).
Sorby v Commonwealth (1983) 152 CLR 281.
HEARING
MELBOURNE
#DATE 10:2:1994
Counsel for applicant: Mr R Frazzetto
Solicitors for applicant: Australian Government Solicitor
Counsel for bankrupt: Mr N Russell
Solicitor for bankrupt: Molomby and Molomby
Counsel for respondent: Mr C Maxwell
Solicitors for respondent: Clayton Utz
ORDER
THE COURT ORDERS:
1. That the application be dismissed.
2. That the applicant pay the costs of the respondents such costs to be taxed in default of agreement.
NOTE: Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules.
JUDGE1
RYAN J This application by the Official Trustee in Bankruptcy, as trustee of the bankrupt estate of Philip John Rupert Steele ("the bankrupt") raises the question of whether the bankrupt is entitled to legal professional privilege against his trustee in bankruptcy in the context of s.77AA of the Bankruptcy Act ("the Act").
Mr Steele became bankrupt by filing his own petition on 5 June 1990. In about October 1992 the Official Trustee became aware that the matrimonial home of the bankrupt and his wife had been sold. Mrs Steele had been registered as the sole proprietor of the property. However, the bankrupt had, on 15 December 1987, lodged a caveat against the title to the property claiming an equitable interest in fee simple pursuant to a constructive trust between himself and Mrs Steele "arising out of the expenditure of monies for capital improvements to the land".
On 19 October 1992 Mr G Wilmot for the Official Trustee wrote as follows to Clayton Utz, solicitors then retained by the bankrupt:
"I refer to our telephone discussion of today's date and confirm the abovenamed was made bankrupt on 25 June 1990 and the Official Trustee is trustee of his estate.
I note that your firm acted for the bankrupt in relation to the lodgement of a caveat against a property situated at 12 Iona Ave, Toorak.
The property which is registered in the name of the bankrupt's wife (formerly Ann Jessop Robinson) was sold at auction on 3 August 1992 and settlement is imminent.
To assist my investigations I would be grateful therefore if you could furnish the following information;
1. The basis upon which the bankrupt claims a constructive trust interest in the property.
2. Is the claim to a constructive trust supported by written agreement between the bankrupt and his wife.
3. Are you in possession of any other documentary evidence which would lend support to the claim.
The above information is sought pursuant to the provisions of Section 77(c) of the Bankruptcy Act 1966. An extract of Section 77(c) is enclosed herewith.
As the above information is required urgently I would be grateful if you could furnish the above information by facsimile."
In response to that letter, Mr Nixon, a solicitor employed by Clayton Utz, telephoned Mr Wilmot on 21 October 1992 advising that Clayton Utz had four documents falling within the terms of the request of 19 October. Those documents were:
(i) A file note recording Clayton Utz's instructions;
(ii) Copy caveat N193392D dated 15 December 1987;
(iii) A letter of instructions from S V Winter and Co dated 20 June 1990; and
(iv) Copy withdrawal of caveat dated 22 June 1990.
On 27 October 1992, Clayton Utz provided the Official Trustee, with each of the documents except the first which was withheld on the ground that the bankrupt claimed it to be the subject to legal professional privilege. The subject file note had been prepared by Ms Angelika Dickschen, a member of Clayton Utz who has deposed:
"The document referred to as the Clayton Utz file note is a single page document on which I made handwritten notes recording initial instructions that I received from Mr Steele in my capacity as his then solicitor for the purpose of giving him advice and carrying out his instructions."
On 28 October 1992 the Official Trustee issued a Notice of Authorisation to Access Premises and Records pursuant to s.77AA of the Act directed to Mr James Nixon, Clayton Utz. That notice recited:
"I, ALISTAIR ASHLEY PAGE, of 470 Collins Street, Melbourne, Official Receiver, hereby authorise, pursuant to Section 77AA of the Bankruptcy Act 1966, the following officers to access premises and to take copies or make extracts from any documents or books, that are relevant to the examinable affairs of the abovenamed bankrupt:-
(1) Garry Wilmot
(2) David Eng
NOTE:
Failure to allow full and free access to premises and records, or failure to provide reasonable facilities or assistance, may render you liable for a fine of $3,000, pursuant to Section 77AA (3) of the Bankruptcy Act 1966."
On the same day the notice was served by Mr Wilmot and Mr Eng, another officer of the applicant, who attended the offices of Clayton Utz. They were there provided with the entire Clayton Utz file save for the three documents referred to above which had earlier been provided and the file note for which privilege is claimed.
Later on 28 October representatives of the Official Trustee and Clayton Utz attended upon a Deputy Registrar of this Court and the disputed file note was placed in the custody of the Court pending the issue and determination of an application to be issued by the Official Trustee seeking its release.
On 7 December 1992 the Official Trustee wrote to the bankrupt in these terms:
"I have received information that in October 1987 you acquired an interest in your wife's former property at 12 Iona Avenue, Toorak. I am further advised that as a consequence you approached the firm of Clayton Utz Solicitors and Attorneys, who recommended that it was appropriate in the circumstances that you lodge a caveat against your wife's property.
To assist my further investigations I therefore direct that you provide the following information by close of business on Friday the 11th December 1992.
1. All documents which supported your claim to a constructive trust in the property at 12 Iona Ave, Toorak.
2. In particular I direct that you immediately instruct the firm of Clayton Utz to release to the Official Trustee all documents, letters and other written material which is claimed to be protected by professional privilege.
In the event that you fail to provide this information, or authorise its release to the Official Trustee within the time stipulated, I intend to make application that the firm of Clayton Utz and yourself be summoned to appear in the Federal Court."
That letter elicited the following response from the bankrupt dated 10 December 1992:
"I am in receipt of your letter of the 7th December, 1992. I advise that there are no documents supporting my claim to an interest in relation to 12 Iona Avenue, Toorak. In relation to the matters raised in Paragraph 2 of your letter these are the subject of communications of a confidential nature between myself and my then solicitors. I do not intend to waive the privilege."
On 3 February 1993 the Official Trustee issued an application in this Court seeking, amongst other orders, the following:
"(2) A declaration that books relating to the examinable affairs of the bankrupt which were left in the custody of the Deputy Registrar of this Honourable Court by Messrs Clayton Utz on 28 October 1992, are books which:
(a) may be inspected and copied by the Official Receiver or the officers of the Official Receiver who are authorized by a written authority dated 28 October 1992 to exercise the powers of the Official Receiver under s.77AA of the Bankruptcy Act 1966.
(b) are the property of the Official Trustee in Bankruptcy by reason of the Sequestration Order made against the estate of the bankrupt on 25 June 1990 and the provisions of the Bankruptcy Act 1966.
(3) An Order that the bankrupt give to the Official Trustee in Bankruptcy full information in respect of the matters which were the subject of a request made by the Official Trustee in Bankruptcy on 7 December 1992 pursuant to s.77(ba) of the Bankruptcy Act 1966."
Despite the width of paragraph 2 of the application the Official Trustee now seeks access only to the single file note which was lodged with the Court on 28 October 1992.
It was conceded by Mr Frazzetto of Counsel for the Official Trustee that if the claim for relief under paragraph 2 of the application were to fail because the claim for legal professional privilege was upheld, it would follow that the Official Trustee's claim in paragraph 3 of the application must also fail.
It is clear from the affidavit of Ms Dickschen that the file note records instructions received from the bankrupt. The information contained in the file note is information which could be obtained by the Official Trustee by other means such as a public examination of the bankrupt under s.81 of the Act. Thus the primary purpose of the Official Trustee, in obtaining the document, would not be for the purpose of obtaining primary information about the property or assets of the bankrupt but to test or verify primary information which the trustee might otherwise obtain.
It is against that factual background that the relatively short point arises. That is whether a document stipulated in a notice issued pursuant to s.77AA may be withheld on the basis that it is protected by legal professional privilege.
Section 77AA provides:
"(1) The Official Receiver, or an officer authorised in writing by the Official Receiver to exercise powers under this section, is entitled at all reasonable times to full and free access to all premises and books for any purpose of this Act, and for that purpose may make copies of, or take extracts from, any such book.
(2) An officer is not entitled to enter or remain in or on any premises under this section if, on being requested by the occupier of the premises for proof of authority, the officer does not produce the officer's authority under subsection
(1).
(3) The occupier of any premises entered or proposed to be entered by the Official Receiver, or by an officer, under subsection (1) must provide the Official Receiver or officer with all reasonable facilities and assistance for the effective exercise of powers under this section. Penalty: $3,000."
"Books" is defined widely in s.5 of the Act to include:
"any account, deed, paper, writing or document and any record of information however compiled, recorded or stored, whether in writing on microfilm, by electronic process or otherwise."
Section 77AA was inserted into the Act by the Bankruptcy Amendment Act 1991 and commenced operation on 1 July 1992. Section 77AA is based upon s.263 of the Income Tax Assessment Act ("ITAA") which provides:
"263(1) The Commissioner, or any officer authorized by him in that behalf, shall at all times have full and free access to all buildings, places, books, documents and other papers for any of the purposes of this Act, and for that purpose may make extracts from or copies of any such books, documents or papers."
The authorities make clear that it is necessary to construe s.263 of the ITAA in the light of s.264; see eg O'Reilly v State Bank Victoria (1983) 153 CLR 1 at 42 per Gibbs CJ, Wilson, Dawson JJ and at 47 per Mason, Murphy, Brennan and Deane JJ, and Commissioner of Taxation v Citibank (1989) 20 FCR 403 per Bowen CJ and Fisher J at 411. Section 264 provides:
"264(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. 264(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 officers so authorized by him may administer an oath.
264(3) The regulations may prescribe scales of expenses to be allowed to persons required under this section to attend."
Section 263 of the ITAA declaratory of a right in the Commissioner gives full and free access. By contrast, s.264 gives effect to the right conferred by s.263 by imposing an obligation to furnish information or attend to give evidence and produce documents. Section 264 is supported by other provisions in the Act which provide for penalties for failure to furnish documents or information as required, for example, s.222 of the ITAA.
The operation of legal professional privilege in relation to the right of access afforded to the Commissioner by s.263 was considered by a Full Court of this Court in Commissioner of Taxation v Citibank, supra. The Court there unanimously concluded that s.263 was to be read subject to any claim for legal professional privilege. In their joint judgment Bowen CJ and Fisher J began by acknowledging that legal professional privilege constitutes an important common law protection. In determining whether privilege was abrogated by s.263 their Honours considered and adopted the reasoning of Deane J in Baker v Campbell (1983) 153 CLR 52 where, at 116, his Honour observed:
"It is a settled rule of construction that general provisions of a statute should only be read as abrogating common law principles or rights to the extent made necessary by express words or necessary intendment. As has been seen, the underlying principle that a person should be entitled to preserve the confidentiality of relevant communications between himself and his attorney is regarded as of such importance by the common law that the courts themselves do not require disclosure of the content of such communications even if it appears that such disclosure would be conducive to justice in a particular case and even if the proceedings be between parties neither of whom is entitled to claim the protection of the privilege as regards the relevant documents or information. Both logic and authority support the present-day acceptance of the preservation of that confidentiality as a fundamental and general principle of the common law. It is to be presumed that if the Parliament intended to authorize the impairment or destruction of that confidentiality by administrative action it would frame the relevant statutory mandate in express and unambiguous terms."
In Baker v Campbell the High Court considered whether a warrant issued under s.10 of the Crimes Act (Commonwealth) was to be read to be subject to legal professional privilege. After referring to the relevant statutory powers Deane J continued, at 117:
"As can be seen, s.10 contains no express reference to communications between a person and his legal advisers. It neither expressly includes them in, nor expressly excludes them from, the things to which it refers. There is nothing in either s.10 or in any other provision of the Act which indicates either that the Parliament directed its attention to the particular matter of modifying or destroying the confidentiality of relevant communications between a person and his legal advisers or that there existed a legislative intention to modify the common law principle that the confidentiality of such communications should be preserved. In accordance with the ordinary principles of construction, the section should be construed as not including, in the things which it authorizes to be inspected or seized, documents whose confidentiality would be protected in the courts of the land by the doctrine of legal professional privilege. That construction of s.10 is also supported by the consideration that it is scarcely likely that Parliament would have intended to authorize an administrative seizure of documents on the ground that they would afford "evidence as to the commission" of an offence either in circumstances where legal professional privilege would be applicable to prevent the documents being received in evidence on a prosecution for that offence or in circumstances where the administrative seizure of the documents would destroy that privilege on the hearing of such a prosecution. The consequence of that construction of the section is that the search warrant in the present case should be read as not referring to documents to which legal professional privilege attaches."
In applying the reasoning of Deane J in Baker v Campbell Bowen CJ and Fisher J in the Citibank case were compelled to the conclusion that there is not to be found in the general terms of s.263 an unrestricted power of search and entry but the section should rather be read subject to legal professional privilege.
In a separate judgment, French J considered in detail s.263 and other related provisions of the ITAA and observed that the rights conferred by those provisions are wide and not readily amenable to implied restrictions. French J considered the two central arguments put forward by the Commissioner in favour of a construction which authorised access to documents otherwise subject to privilege. Those arguments invoked, first, the generality of the language of s.263 and, second, the purpose for which the right of access was granted. In considering these arguments French J took a similar approach to that adopted in the joint judgment. Commencing with a recognition of the fundamental rights conferred by legal professional privilege his Honour repeated the unequivocal acceptance of the High Court in Grant v Downs (1976) 135 CLR 674 that legal professional privilege is firmly entrenched in the law and "is not to be exorcised by judicial decision".
French J then applied, at 437, the canon of construction that a statute is not to be construed as taking away a common law right unless a legislative intent to do so clearly emerges by express words or necessary implication. His Honour reached the conclusion that legal professional privilege applied to documents sighted under the authority of s.263 observing that:
"The decision in Baker v Campbell leaves no room for the proposition that the mere generality of the language of s.263 will displace legal professional privilege."
In relation to the purposes of the ITAA French J observed, at 438:
"The need for the Commissioner and his officers to take account of legal professional privilege as a limiting factor, however, reflects a broader principle. The right of access may only be exercised for the purposes of the Act. On premises such as those occupied by the Bank, there will be many documents the subject of a contractual duty of confidence between banker and customer, the examination and copying of which would serve no purpose contemplated by the legislation."
As I understand it, Counsel for the applicant sought to distinguish the Citibank case on the grounds that the Act creates a different statutory regime from that embodied in the ITAA and that the different context in which the same words appear warrants a different conclusion on the application of legal professional privilege. Emphasis was also placed upon a line of High Court authority culminating in Corporate Affairs Commission of New South Wales v Yuill (1991) 172 CLR 319 which, so it was said, cast doubt upon the process of reasoning adopted in Citibank.
In my view the Citibank case is instructive on two levels. In general terms it is properly to be seen as an exposition of a principle of law which has been unequivocally endorsed by the High Court in decisions both before and since Citibank. The principle is that a statute is not to be construed as abrogating a common law right unless a legislative intent to do so clearly emerges whether by express words or by necessary implication; Baker v Campbell supra at 90 per Murphy J; 116 per Deane J, at 123 per Dawson J; Sorby v Commonwealth (1983) 152 CLR 281 at 289 and 309 - 310. The proposition of law was again restated in Yuill (supra), the very case which it is now suggested by Counsel for the applicant casts doubt on the reasoning process in Citibank; see per Brennan J at 322-323; per Dawson J (with whom Toohey J agreed) at 331; per Gaudron J at 338; and McHugh J at 348.
I can discern nothing in the authorities to which I have been referred which tends to contradict or dilute the reasoning of the Full Court in Citibank.
Citibank is also authority for the more specific proposition that the use of general words in s.263 of the ITAA was not sufficient to warrant the conclusion that the right to claim legal professional privilege had been abrogated by necessary implication. The specific conclusion reached in relation to that provision has not, as far as my researches indicate, been qualified by any subsequent judgment of the High Court or another Full Court of this Court. Accordingly I regard it as binding authority on the approach to be taken in the construction of s.77AA of the Act.
In resolving the ultimate question in issue as to whether legal professional privilege has been abrogated it is necessary, of course, to determine the intent of Parliament. The maxim that a common law right will not be easily done away with has been adopted by the High Court as a means by which to discover the true intention of the legislature; see Yuill (supra) per Brennan J at 322 referring to Potter v Minahan (1908) 7 CLR 277. In Citibank a Full Court unanimously held that the words of s.263 of the ITAA in their context were not sufficient to abrogate legal professional privilege. In my view, there is no significant textual difference between s.263 of the ITAA and s.77AA of the Act to warrant, in the present case, a result contrary to that reached by the Full Court.
It was argued for the applicant that the context in which s.77AA is found carries with it a necessary implication that legal professional privilege had been abrogated. That inference is to be drawn, so it is said, because if privilege were available the investigative powers under the Act would be unreasonably curtailed and the overall legislative purpose of the Act would be frustrated. In Yuill, (supra) the High Court considered and upheld a similar argument in relation to various investigative provisions of the Companies (NSW) Code. Section 295 of the Code required persons to produce books of a corporation the affairs of which were being investigated under Pt VII of the Code. The majority of the Court (Brennan, Dawson, Toohey JJ) held that the maintenance of legal professional privilege was inconsistent with, and would frustrate, the investigative powers conferred by the Code. In his reasons for judgment, Brennan J referred to various textual indicia of legislative intent which led him to conclude that privilege had been abrogated. I shall not restate each of the relevant indicia. However, one aspect was particularly relied upon by the applicant in these proceedings. At 326 his Honour observed:
"It would frequently be impossible in practice for an inspector to discharge the duty laid upon him by s.305 to form an opinion on the affairs of a corporation and to report that opinion and the facts on which it is based if he were unable to compel disclosure of professional communications between legal advisers and those who have played some part in a corporation's affairs. An investigation into the affairs of a corporation may extend to the possible commission of offences, the possible occurrence of fraud, negligence, default, breach of trust, breach of duty or other misconduct occasioning damage to the corporation and the possible taking or non-return of the corporation's property; see s.306(8) and (11). An inspector's ability to satisfy the public or national interest or to meet the concerns of the Ministerial Council on these topics would be significantly diminished if the inspector were not empowered effectively to compel full disclosure of the contents of privileged communications passing between legal advisers and persons whose conduct is material to the investigation."
In his reasons for judgment Dawson J also emphasised the character and purpose of the legislation as indicating a similar legislative intent. His Honour referred to Mortimer v Brown (1970) 122 CLR 493 in which Kitto J observed, at 496 that:
"to read down the wide terms of the section so as to allow a danger of self-incrimination is a valid ground for refusing to answer a question would render the provision relatively valueless in the very cases which call most loudly for investigation".
Dawson J also observed, at 335, that the abrogation of self-incrimination in part VII of the Code made it:
"... unlikely that the legislature thought it necessary to deny its protection for the purposes of an investigation under Pt VII, intending at the same time to preserve legal professional privilege, when a claim of legal professional privilege might well hamper an investigation as much as, or more than, a claim of privilege against self-incrimination."
In the present case the applicant seeks to distinguish Citibank by arguing that to uphold a claim to legal professional privilege would frustrate a purpose of the Act, to an extent that Parliament could not have intended. In support of that argument extensive reference was made to the investigative provisions of the Act and in particular s.81 which provides for a public examination and sub-s.81(11AA) which expressly abrogates the privilege against self-incrimination in such an examination.
In my view, the conclusion reached by the majority of the High Court in Yuill does not make the conclusion in the Citibank case inapplicable to s.77AA of the Act. It may be accepted that it is an important purpose of the Act to discover assets of the bankrupt and make provision for their orderly distribution to creditors. The investigative powers conferred on the Official Trustee are significant and should not readily be frustrated. However, much the same can be said of the investigative powers of the Commissioner under the ITAA yet the same argument did not prevail in Citibank. Contrary to the submission of Counsel for the Official Trustee, the Full Court there, in my view, did consider the impact of legal professional privilege upon the achievement of the purposes of the ITAA. French J made express reference to purpose at 437 to 438 and early in his reasons at 436 referred to the recognition by the High Court in Grant v Downs (supra) at 685 of "powerful considerations which suggest the privilege should be confined within strict limits". A finding that legal professional privilege would not frustrate the operation of s.263 is also, in my respectful opinion, implicit in the joint judgment.
In so far as the abrogation of self-incrimination in s.81 is relied upon I am content to adopt what was said by Lockhart J as a member of a Full Court in Re Compas (1992) ACLC 1,380 where, at 1385, his Honour rejected a similar argument which had been advanced in relation to s.597 of the Corporations Law.
Great emphasis was placed in argument upon the dire consequences which were said to follow a finding that legal professional privilege had not been abrogated. However, I am not persuaded by this argument. Here, the prejudice suffered by the Official Trustee would be limited to his inability to test or verify certain evidence which is readily obtainable by other means. The following passage from the judgment of Dawson J in Baker v Campbell (supra) at 122, can be paraphrased to apply with equal force to the present case:
"The problem, although one of basic principle, should not be seen to have a greater significance than it in fact has. In the first place, those communications to which legal professional privilege attaches are closely confined and the extent to which the privilege could constitute an impediment to administrative or executive investigations is limited. And if the privilege does extend beyond judicial proceedings to administrative inquiries, the question is not whether the legislature has power to abrogate the privilege by appropriate legislation: clearly it has. See Smorgon v Australia and New Zealand Banking Group Ltd (1976) 134 CLR 475 at p 487; Federal Commissioner of Taxation v Australia and New Zealand Banking Group Ltd (1979) 143 CLR 499, at pp 521,
540. It is merely whether the legislature has done so, having regard to the rule which requires the general words of statutes to be construed, if possible, so as not to effect an alteration of common law doctrines or a denial of common law rights."
In the result I am unable to distinguish the judgment of the Full Court in Citibank and regard myself bound by it in respect of the specific proposition for which that case is authority. Accordingly, I find that s.77AA of the Bankruptcy Act is not to be read as denying the common law right to claim legal professional privilege.
Having reached the conclusion which I have, it remains to say that the bankrupt may deny his trustee access to any communication which properly attracts legal professional privilege in favour of the bankrupt. Having inspected it, I am satisfied that the Clayton Utz file note is privileged. Accordingly, the Act gives the Official Trustee no right to inspect it. I do not regard the provisions of the Act which vest the property of the bankrupt in his trustee as affecting the conclusion that I have reached nor do I regard them as vesting the privilege itself in the Official Trustee. This is not to say that there may not be communications between a bankruptand his or her legal advisers which are so closely connected with the property of the bankrupt which vests in the trustee that the bankrupt is precluded from asserting legal professional privilege as against the trustee. However, the present file note is not such a communication.
For these reasons the application must be dismissed with costs and I direct that the file note which was lodged in the custody of the Court be returned to the bankrupt.
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