Re Wheeler G.J & Wheeler V.S Ex parte; Wheeler G J v Halse a J

[1994] FCA 1060

RE: GLENN JOHN WHEELER AND VICKI SUZANNE WHEELER
EX PARTE: GLENN JOHN WHEELER v. ALDEN JON HALSE
No. WB221 OF 1993
FED No. 1060/94
Number of pages - 7
Bankruptcy
(1994) 54 FCR 166

COURT

IN THE FEDERAL COURT OF AUSTRALIA
GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE STATE OF WESTERN AUSTRALIA
LEE J

CATCHWORDS

Bankruptcy - application for review of trustee's decision to refuse to return passport - nature of application under s 178 - exercise by the Court of the judicial power of the Commonwealth.

Bankruptcy Act 1924 s 148
Bankruptcy Act 1966 Pt VII; Div 4; ss 139ZU, 177-179, ; sub-ss 139P(1),139Q(1), 139ZU(3), 149D(1), 272(c); paras 77(a)(ii), 149D(1)(b)-(n)
Income Tax Administration Act 1953 s 14V; sub-ss 14S(1), 14V(1), 14V(2)

The Constitution Ch III; s 71

Builders Licensing Board v. Sperway Constructions (Syd.) Pty. Ltd. (1976) 135 CLR 616
McGoldrick v. Official Trustee (1993) 47 FCR 547
Louise Poletti v. Deputy Commissioner of Taxation (1994) ATC 4,639
Re Tyndall (1977) 30 FLR 6

HEARING

PERTH, 19 September 1994
#DATE 19:9:1994
#ADD 22:5:1995

The applicant appeared in person.

Counsel for the Respondent: I.M.O. Mathews

Solicitors for the Respondent: Phillips Fox

ORDER

THE COURT ORDERS THAT:
1. The matter be remitted to the respondent for determination

according to law.

2. There be no orders as to costs.
THE COURT DIRECTS THAT:
1. The applicant provide the respondent with such additional

information that the respondent may require before the respondent reconsiders the matter.

Note: Settlement and entry of orders is dealt with in Order 124 of the Bankruptcy Rules.

JUDGE1

LEE J A sequestration order was made against the estate of the bankrupt ("the applicant") on 16 February 1993. As a result of that order a trustee was appointed to administer the estate of the applicant and the applicant was, and continues to be, by reason of sub-s.272(c) of the Bankruptcy Act 1966 ("the Act"), constrained from leaving Australia without the written consent of the trustee of the estate. By para.77(a)(ii) of the Act the applicant was required to give his passport to the trustee forthwith after becoming bankrupt.

1. In this application, made under s.178 of the Act, the applicant claims to be a person affected by a decision of the trustee to refuse to return that passport to the applicant. It may be assumed that the decision that is the subject of the application includes the decision of the trustee to refuse to consent in writing to the applicant leaving Australia. The applicant seeks an order from this Court that the trustee return the passport to the applicant to enable the applicant to travel to Sri Lanka to provide "business and strategic financial and investment advice" to a party by whom the applicant has been engaged as a consultant from time to time. Two applications under s.178 have been made by the applicant in respect of similar decisions by the trustee and were heard on 8 February 1994 and 31 March 1994 respectively. Each application was dismissed. The applicant appeared in person on the hearing of each application.

2. The first question for determination concerns the nature of an application to the Court under s.178. That section reads:
   

"If the bankrupt, a creditor or any other person is affected by any act, omission or decision of the trustee, he may apply to the Court, and the Court may make such order in the matter as it thinks just and equitable."

1. The applicant submits that s.178 empowers the Court to consider afresh the applicant's request for the return of his passport and make a decision upon that request without regard to the trustee's decision. In Louise Poletti v. Deputy Commissioner of Taxation (1994) ATC 4,639 the Full Court dealt with the nature of an "appeal" to the Court under sub-s.14V(1) of the Income Tax Administration Act 1953 against an order of the Commissioner of Taxation, pursuant to sub-s.14S(1) of that Act. Sub-section 14S(1) empowered the Commissioner to prohibit the departure of a person from Australia for a foreign country in certain circumstances. Sub-section 14V(1) provided that a person aggrieved by the making of a departure prohibition order may appeal to the Federal Court or Supreme Court of a State or Territory against the making of the order.

2. The Full Court referred to Builders Licensing Board v. Sperway Constructions (Syd.) Pty. Ltd. (1976) 135 CLR 616, where Mason J as he was then, with whom Barwick C.J and Stephen J agreed, found that the character of such an "appeal" depends upon the content of the legislative provisions creating it. The Full Court cited numerous reported cases where the nature of an appeal had been considered and concluded that it was ultimately a matter of eliciting the intention of the legislature and continued at 4,641:
   

"This is particularly so in the case of appeals to federal courts or state courts exercising federal jurisdiction from the decisions of officers of the Commonwealth where the rights of the appeal are conferred by federal statutes. Appeals from decisions of Commonwealth officers or federal administrative tribunals, though called appeals, are not appeals in the strict sense. The right of 'appeal' is to a court exercising the judicial power of the Commonwealth, for it is the first occasion on which a court is seized with jurisdiction to consider a matter after it has been dealt with by administrative bodies. Appeals of this kind, of which there are numerous examples (notably appeals to the Federal Court from decisions of the Administrative Appeals Tribunal (s.44 of the Administrative Appeals Tribunal Act 1975) and appeals under Part V of the Income Tax Assessment Act 1936 directly from the decisions of te Commissioner to the Federal Court), lie to the Federal Court in the exercise of its original, not appellate, jurisdiction.

There is a fundamental distinction between an

appeal to a court from the decision of an administrative body, which may necessarily include a rehearing, frequently de novo, and an appeal to a federal court or state or territory court exercising federal jurisdiction, in each case exercising the judicial power of the Commonwealth under Chapter III of the Constitution (a distinction emphasised by Mason J in Sperway at 621). The reason is, of course, that federal courts or other courts exercising federal jurisdiction exercise only the judicial power of the Commonwealth, and do not act administratively or exercise administrative or executive powers by, for example, substituting their own discretion for the discretion of the original decision-maker. This distinction must be kept sharply in mind in this case because it argues powerfully against the appeal from the Commissioner's order under s.14S(1) of the Act being a rehearing de novo."

1. The comments in Poletti are instructive in this case although it is to be noted that the Income Tax Administration Act 1953 specifically provided in sub-s.14V(2), to which the Full Court gave considerable weight, that s.14V had effect subject to Ch.III of the Constitution. The Full Court was guided also by the explanatory memorandum to the Taxation Laws Amendment Bill 1984 which confirmed that sub-s.14V(2) was "a drafting measure to ensure that nothing in s.14V exceeds the constitutional jurisdiction of the judicial arm of government ..."

2. Section 178 is in Pt.VII of the Act entitled "Trustees" and Div.4 of Pt.VII of the Act is headed "Control over Trustees". Division 4 contains three sections, ss.177-179. Section 177 directs that the trustee in the administration of the bankrupt's estate shall have regard to any lawful directions given by resolution of the creditors. Section 179 empowers the Court, on the application of the Registrar, the Inspector-General, a creditor, or the bankrupt, to inquire into the conduct of a trustee in relation to a bankruptcy and remove the trustee from office and or make such orders it thinks proper.

3. It may be concluded that s.178 is the means by which the bankrupt, a creditor or person affected by the trustee's conduct in administering the estate may challenge the trustee's exercise of his powers.

4. In the absence of any other indication as to the nature of the application to be made under s.178, that section should be construed with the observations of the Full Court in Poletti firmly in mind.

5. As was recognised in Poletti the Federal Court exercises federal jurisdiction pursuant to s.71 of the Constitution. The Court can only exercise the judicial power of the Commonwealth and powers incidental thereto. The Court cannot be asked by application to perform the administrative functions of a trustee administering an estate in bankruptcy. The Court, by a grant of jurisdiction exercisable as original jurisdiction, may hear an application, sometimes described as an "appeal", from non-judicial or administrative bodies. The exercise of that jurisdiction may entail orders of a supervisory character in so far as the determination of questions of law raised by the application require those orders to be made but the Court cannot be asked, by mere application, to stand in the shoes of an administrative body or administrator and exercise the powers of that body in its stead. The Court may only exercise such a power ancillary to the exercise of judicial power.

6. In Re Tyndall (1977) 30 FLR 6 Deane J, as he then was, undertook a detailed examination of the nature of an application under s.178 and noted that the terms of that section differed significantly from its precursor, s.148 of the Bankruptcy Act 1924, which corresponded closely with the comparable provisions of English bankruptcy legislation, and provided for a person "aggrieved" to make application to the Court. Deane J noted that traditionally the Courts would only interfere with the decision of a trustee if it appeared that the trustee was acting unreasonably or in bad faith. With regard to s.178 his Honour stated at 9-10:
   

"Once the matter is properly before the court, the court is empowered - and obliged - to make such order in this matter 'as it thinks just and equitable'.

It was strongly submitted by Mr. Urquhart for the

official receiver that, notwithstanding the variation in wording, the authorities on the English legislation and the statements by Clyne J to the effect that those authorities were applicable to the provisions of s.148 of the Bankruptcy Act 1924, should lead me to conclude that, in an application under s.178, the court should only interfere with the relevant act, omission or decision of the trustee if it appeared that the trustee had acted absurdly or unreasonably or in bad faith. I have reached the conclusion that this submission cannot be accepted. In my view, the wording of s. 178 of the Act is such as to confer upon the court the widest possible discretion as to the appropriate order which should be made in the particular case and is quite inconsistent with the approach that, upon an application made pursuant to the section by a bankrupt, creditor or other person affected by an act, omission or decision of the trustee, the court is only empowered to interfere with the trustee's act omission or decision if it is of the view that the trustee has acted absurdly or unreasonably or in bad faith. Once the matter is properly before the court, the court is, by the express words of s. 178, empowered (and, as I have said, obliged) to make such order in the matter as it thinks just and equitable."

1. His Honour was not persuaded that the exercise of the jurisdiction provided by s.178 was limited to redress of conduct of the trustee performed absurdly, unreasonably or in bad faith. With respect, I agree with his Honour that by use of the word "affected" rather than "aggrieved" the parliament intended to enlarge the supervisory jurisdiction conferred on the Court with a regard to the exercise of powers by a trustee. That jurisdiction permits a person affected by the trustee's administration of an estate to challenge that administration or the conduct of the trustee and seek a remedy from the Court. That is, a person so affected may apply to the Court for redress according to law. The discretion of the Court to make orders thought to be just and equitable depends upon the Court's determination of the justiciable issue raised in the application.

2. As the Full Court said in McGoldrick v. Official Trustee (1993) 47 FCR 547, in substance s.178 entitles a person affected to seek review by the Court of the trustee's decision.

3. Accordingly, the applicant must show a ground on which the trustee's administration of the affairs of the bankrupt is to be reviewed.

4. As noted earlier the Act, in s.77, provides that the bankrupt is to deliver his or her passport to the trustee forthwith. The Act does not set out any circumstances in which a bankrupt may seek the return of the passport in the period of the bankruptcy. That matter is left to the trustee to determine according to the requirements of proper administration of the estate.

5. If a bankrupt is liable to pay contributions under sub-s.139P(1) or sub-s.139Q(1) of the Act, then pursuant to s.139ZU of the Act, the trustee is bound to refrain from consenting to the bankrupt leaving Australia and to refuse to return the passport to the bankrupt unless an order has been made by the Court that the bankrupt be permitted to leave Australia. In determining whether permission should be granted, the Court must be satisfied, either, that it is necessary for the bankrupt to leave Australia to continue to derive income, or that it is appropriate for compassionate reasons to allow the bankrupt to leave. Under sub-s.139ZU(3) the Court must not grant permission if the Court is satisfied that any of the grounds of objection referred to in paras.149D(1)(b) to (n), inclusive, has been established.

6. The applicant in this matter is not liable to pay contributions under sub-s.139P(1) or sub-s.139Q(1) of the Act.

7. On the hearing of the application the trustee sought leave to rely on an affidavit sworn 4 February 1994 and filed in opposition to the applicant's first application in respect of a decision by the trustee to refuse to return the passport. That affidavit set out two grounds upon which the trustee had relied in making his decision. The first was that the trustee was not of the opinion that the trip to Sri Lanka was necessary to enable the bankrupt to continue to derive income. The second was that the trustee held the belief that under sub-s.149D(1) of the Act there may be grounds for objecting to the applicant's discharge from bankruptcy.

8. Counsel for the trustee submitted that the facts relied upon by the applicant to support the request for the return of the passport did not differ materially from previous requests, save that criminal charges (unrelated to the bankruptcy) pending against the applicant at that time had been heard and disposed of by the acquittal of the applicant. It was further submitted that an offer of future employment from the party to whom the applicant had provided services as a consultant did not present circumstances which differed materially from those considered in previous requests.

9. The applicant submitted that the trustee failed to properly consider the applicant's request for the consent of the trustee, in that, the trustee had failed to have regard to relevant facts which showed that the trip was necessary for the applicant to continue to derive income. Alternatively, it was submitted that if the trustee did consider those facts, he misunderstood them. The essence of the submission was that in making his decision the trustee had failed to take into account relevant matters or had taken into account irrelevant matters.

10. In support of this argument it was said that apart from minor income derived from consulting work the applicant had no other source of income. The applicant submitted that the trustee had not stated that he was not satisfied by the material presented by the applicant that the applicant would earn $1,000 per week by way of remuneration for the services to be provided by him in Sri Lanka. Travel, accommodation and related expenses were to be met by the party receiving his services. The applicant contended that the trustee could not conclude otherwise that the trip was necessary to enable the applicant to continue to derive income unless the trustee rejected the applicant's claim that he would earn $1,000 a week for 8-10 weeks.

11. Certainly it was relevant to a proper determination of the applicant's request for return of the passport to consider what prospect there was of an improvement in the earnings, or earning capacity, of the applicant. It would be necessary for the trustee to evaluate the chance that improvement in employment opportunities for the applicant may follow if the applicant's passport were returned to him for use in the manner described by the applicant. For example, the trustee may have to consider whether the applicant may earn income at a higher level after his engagement in Sri Lanka, thereby increasing the prospect of some contribution being made to the estate from the applicant at some future time, if not immediately. These were matters the trustee was obliged to consider when assessing whether the passport should be returned. The trustee may not have been satisfied by the material presented by the applicant that the applicant would improve his prospects of earning any income or that it was in the interests of the estate to provide the applicant with that opportunity but the trustee had to turn his mind to that question. Whether the prospect of a return to creditors would be improved if the passport were returned was a matter for the trustee to evaluate. As it was the trustee relied upon his earlier determinations on other submissions and made no fresh evaluation of the prospect of return to the estate in the circumstances set out by the applicant. The trustee appears to have done no more than decide that the applicant would continue to earn some income if return of the passport were refused. I am satisfied that such an approach by the trustee, leading to the decision to refuse to return the passport, didnot constitute an adequate decision making process, and that ground to review the decision has been made out.

12. The applicant also submitted that the trustee erred in having regard to the possibility that there could be ground under sub-s.149D(1) of the Act to object to discharge of the applicant from bankruptcy. The trustee deposed in an affidavit filed in an earlier application to a belief that the applicant had committed one of the acts specified in sub-s.149D(1) of the Act by failing to disclose the receipt of a sum of money whilst a bankrupt and the disbursement of that sum.

13. If the trustee was satisfied that such a ground was made out on the material before him, it may be a relevant matter to take into account in making a decision not to consent to the applicant leaving Australia but the weight to be given to that consideration could only be judged by the trustee when other matters required to be taken into account had been properly considered.

1. I am satisfied by the material before the Court that the applicant has shown that the trustee did not properly evaluate the prospect of the applicant deriving increased income, either immediately or in the future, or, more generally, improving his employment opportunities so as to enable him to make some contribution to the estate. I am also satisfied that when responding to the applicant's request for the return of his passport it was necessary for the trustee to determine whether the return of the passport and consent to the applicant leaving Australia would enable the applicant to improve his financial circumstances so as to be in a position to assist the estate. Previous requests for the return of the passport had been refused because the applicant had not provided sufficient details of the proposed employer, the nature of the employment, or the amount likely to be earned by that employment outside Australia. Such omissions were matters of substance and the requests for consent to leave Australia were properly refused.

2. The applicant's present request differs from previous requests to the extent that the bankrupt has provided the trustee with some details that had been omitted previously.

3. I will direct that the matter be returned to the trustee for reconsideration according to these reasons. I will also direct that the bankrupt deliver any additional information as to employment arrangements and level of remuneration that the trustee may require before reconsidering the matter. There will be no order as to costs.