Reidy (Trustee), in the matter of Hawksford (Bankrupt)

Case [2015] FCA 432

FEDERAL COURT OF AUSTRALIA

Reidy (Trustee), in the matter of Hawksford (Bankrupt) [2015] FCA 432

Citation: Reidy (Trustee), in the matter of Hawksford (Bankrupt) [2015] FCA 432
Parties: GEOFFREY PHILIP REIDY, THE TRUSTEE OF THE DECEASED ESTATE OF BRETT PAUL HAWKSFORD, A BANKRUPT
File number: NSD 118 of 2015
Judge: WIGNEY J
Date of judgment: 21 April 2015
Catchwords: BANKRUPTCY AND INSOLVENCY – Advice to trustee – Approval of settlement of proceedings – Bankruptcy Act 1966 (Cth), s 134(4)
Legislation: Bankruptcy Act 1966 (Cth), ss 60, 60(3), 77A, 77C, 134(4)
Corporations Act 2001(Cth), s 479(3)
Cases cited: Gisborne v Gisborne (1877) 2 App Cas 300
In re Pilling; Ex parte Salaman [1906] 2 KB 644
Marley v Mutual Security Merchant Bank and Trust Co Ltd [1991] 3 All ER 198
Re Addstone Pty Ltd (in liq) (1997) 25 ACSR 357
Re Ansett Australia Ltd (No 3) (2002) 115 FCR 409
Re Driller (1972) 21 FLR 159
Re G B Nathan and Co Pty Ltd (in liq) (1991) 24 NSWLR 674
Re Lemon Tree Passage & Districts RSL and Citizens Club Co-operative Ltd (1987) 11 ACLR 796
Re Pasminco Ltd (No 2) (2004) 49 ACSR 470
Re Tietyens Investments Pty Ltd (in liq) (rec and mgr apptd) (1999) 31 ACSR 1
Sanderson v Classic Car Insurances Pty Ltd (1985) 10 ACLR 115
Shiraz Nominees (in liq) v Collinson (1985) 10 ACLR 7
Sutherland (in the matter of Scutts) [1999] FCA 147
Date of hearing: 21 April 2015
Place: Sydney
Division: GENERAL DIVISION
Category: Catchwords
Number of paragraphs: 52
Solicitor for the Applicant: Mr D Edney of Polczynski Lawyers

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

GENERAL DIVISION

NSD 118 of 2015
IN THE MATTER OF THE BANKRUPT ESTATE OF THE LATE BRETT PAUL HAWKSFORD

GEOFFREY PHILIP REIDY, THE TRUSTEE OF THE DECEASED ESTATE OF BRETT PAUL HAWKSFORD, A BANKRUPT
Applicant

JUDGE:

WIGNEY J

DATE OF ORDER:

21 APRIL 2015

WHERE MADE:

SYDNEY

THE COURT ORDERS THAT:

1.A direction pursuant to section 134(4) of the Bankruptcy Act 1966 (Cth) that the applicant, in his capacity as trustee of the bankrupt estate of Brett Paul Hawksford, would be justified in proceeding on the basis that it was appropriate for him to enter into the deed of settlement dated 23 January 2015, a copy of which is exhibited to the affidavit of the applicant sworn on 13 February 2015 at tab 1 of confidential exhibit GPR2.

2.The applicant’s costs of this application be paid from the estate.

3.The contents of confidential exhibit GPR2 referred to in the affidavit of Geoffrey Philip Reidy sworn on 13 February 2015 are not available for inspection by any person except with the leave of the Court.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.


IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

GENERAL DIVISION

NSD 118 of 2015
IN THE MATTER OF THE BANKRUPT ESTATE OF THE LATE BRETT PAUL HAWKSFORD
Details
AGLC
Reidy (Trustee), in the matter of Hawksford (Bankrupt) [2015] FCA 432
Case
[2015] FCA 432
Decision Date

CaseChat Overview and Summary

The matter before the Court involved the trustee of the bankrupt estate of Brett Paul Hawksford, who sought approval to enter into a settlement deed in relation to an ongoing dispute between the Bankrupt and his brother, Michael Hawksford. This dispute had been ongoing for over a decade and had resulted in significant litigation costs. The trustee aimed to extricate himself from the ongoing dispute and recover property that lay at the heart of it for the benefit of the estate.

The central legal issue was whether the Court should grant directions to the trustee under section 134(4) of the Bankruptcy Act 1966 (Cth) to guide him in the course of action he had resolved to take. The Court considered several principles from previous cases, including that a court is not bound to give direction simply because requested, and that an application for directions is not an appropriate vehicle to determine substantive rights of creditors. However, the Court noted that it may be appropriate to give trustees directions in certain circumstances, particularly where a legal issue or an attack on the propriety of the decision is raised.

The Court found that this was an appropriate case for directions under section 134(4) of the Act, even though the directions were not in the precise terms sought by the Trustee. The Court determined that the trustee was justified in proceeding on the basis that it was appropriate for him to enter into the deed of settlement dated 23 January 2015, given the exceptional nature of the dispute and the desire to protect the estate's interests.

The Court granted a direction to the trustee, allowing him to proceed with the settlement deed, and ordered that the trustee's costs of the application be paid from the estate. The contents of confidential exhibit GPR2 were also protected from inspection, except with the leave of the Court.

Orders

Orders of the court

1. A direction pursuant to section 134(4) of the Bankruptcy Act 1966 (Cth) that the applicant, in his capacity as trustee of the bankrupt estate of Brett Paul Hawksford, would be justified in proceeding on the basis that it was appropriate for him to enter into the deed of settlement dated 23 January 2015, a copy of which is exhibited to the affidavit of the applicant sworn on 13 February 2015 at tab 1 of confidential exhibit GPR2.

2. The applicant’s costs of this application be paid from the estate.

3. The contents of confidential exhibit GPR2 referred to in the affidavit of Geoffrey Philip Reidy sworn on 13 February 2015 are not available for inspection by any person except with the leave of the Court.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

For the reasons that follow, this is an appropriate case for directions under s 134(4) of the Act, though the directions that will be made are not in the precise terms sought by the Trustee. FACTS The relevant background facts to the Trustee’s application are, it must be said, somewhat exceptional. They relate to a dispute between the Bankrupt and his brother, and interests associated with him, that has been festering in various guises in the Supreme Court of New South Wales for over a decade. It would not be inapposite, though it would perhaps be an exaggeration, to say that the dispute bears some resemblance to the fictional case of Jarndyce v Jarndyce in Charles Dickens’ Bleak House. Of that dispute, Dickens said,Jarndyce and Jarndyce drones on. This scarecrow of a suit has, in course of time, become so complicated, that no man alive knows what it means. The parties to it understand it least; but it has been observed that no two Chancery lawyers can talk about it for five minutes, without coming to a total disagreement as to all the premises. Following his appointment as trustee of the bankrupt estate on 20 August 2013, the Trustee became aware of the dispute. He now seeks to extricate himself from the ongoing dispute, and take steps to recover property that lies at the heart of the dispute, for the benefit of the estate. Given the history of disputation, the Trustee seeks, in effect, the protection of a direction under s 134(4) of the Act in respect of the course of action he has resolved to take. The following recitation of the facts does not include any information which the Trustee wishes, for good reason, to remain confidential. That includes, of course, the content of legal advice received by him during the course of his administration and the content of without prejudice communications. The Bankrupt passed away on 6 July 2009. Letters of administration of the Bankrupt’s estate were granted by the Supreme Court of New South Wales on 13 September 2012 to two of the Bankrupt’s children, Louise Hawksford and Matthew Hawksford-Miller. The Bankrupt was, either in his own right or through companies controlled by him, the effective owner of 50% of the shares in Bremick Pty Limited (Bremick) and BMB Investments Pty Limited (BMB), a company whose principal asset is a shareholding in Bremick. The remaining shares of Bremick and BMB are owned by the Bankrupt’s brother, Michael Hawksford, or companies under his control. Bremick was and is in the business of supplying fasteners to the construction, manufacturing, mining, and petro-chemical industries. The estate’s shareholding in Bremick and BMB is the estate’s only significant asset. As at the date of his death, the Bankrupt was a party to four sets of proceedings in the Supreme Court of New South Wales. The Bankrupt was represented in those proceedings by Mr Evangelos Patakas of Evangelos Patakas & Associates, who had, in turn, briefed Mr Christopher Bevan of counsel. As an aside, it should be noted that Mr Patakas has apparently claimed that he is owed $2,000,000 for outstanding fees in relation to this litigation. Mr Bevan has also sought to prove, in the bankruptcy, a sizeable debt he claims is owed to him, no doubt in relation to his involvement in the litigation. This is mentioned only to give an indication of the nature and cost of the litigation that has been on foot.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

Full text does not contain this section.

Ratio Decidendi

Legal Principle Established

Section 134(4) is in similar terms to various provisions in the Corporations Act 2001 (Cth) (Corporations Act), which provide that external administrators of companies, such as liquidators, may approach a court for directions. One such provision is s 479(3) of the Corporations Act. There is much to be said for the view that s 134(4) should be construed in the same manner as those provisions of the Corporations Act: Sutherland (in the matter of Scutts) [1999] FCA 147 (Scutts) at [14]. A review of the authorities relating to s 134(4) of the Act and cognate provisions in the Corporations Act suggests that the following principles apply to applications for directions by trustees in bankruptcy and external administrators of companies:(1)A court is not bound to give direction simply because a trustee or external administrator asks for them: Re Driller (1972) 21 FLR 159. (2)An application for directions is not an appropriate vehicle of itself to determine the substantive rights of creditors as against the trustee or administrator, or of creditors amongst themselves: Scutts at [14].(3)Historically, at least, it was said that the court will not typically give a direction to a trustee or administrator in respect of matters which involve no more than the exercise of his or her discretionary powers in relation to business or commercial decisions; Gisborne v Gisborne (1877) 2 App Cas 300 at 307; In re Pilling; Ex parte Salaman [1906] 2 KB 644 at 647. (4)It would appear, however, that the approach taken by this and other courts is now somewhat more flexible: Re Pasminco Ltd (No 2) (2004) 49 ACSR 470 at [3]. In an appropriate case, the court will give a trustee or external administrator advice regarding the manner in which he or she might exercise a discretionary power. (5)In Marley v Mutual Security Merchant Bank and Trust Co Ltd [1991] 3 All ER 198 at 201, Lord Oliver said:A trustee who is in genuine doubt about the propriety of any contemplated course of action in the exercise of his fiduciary duties and discretions is always entitled to seek proper professional advice and, if so advised, to protect his position by seeking the guidance of the court. Likewise, in Sanderson v Classic Car Insurances Pty Ltd (1985) 10 ACLR 115 at 117 Young J said that:… it is usually only proper to exercise that power where the matter involves guidance to the liquidator on matters of law or principle or to protect him against accusations of acting unreasonably. (6)It is, however, insufficient to attract an order giving directions that the liquidator or administrator has a feeling of mere apprehension or unease about the decision, and wants reassurance. There must be some legal issue that arises in relation to the decision. As Goldberg J put it in Re Ansett Australia Ltd (No 3) (2002) 115 FCR 409 (Ansett) at [65]: There must be an issue calling for the exercise of legal judgment.(7)It may be appropriate to give a trustee directions concerning the commencement, continuation or compromise of legal proceedings, even where that decision involves commercial judgment and the exercise of the trustee’s discretion, where a legal issue or an attack on the propriety of the decision is raised, or is likely to be raised: Re G B Nathan and Co Pty Ltd (in liq) (1991) 24 NSWLR 674 at 677-680, Ansett at [46], Re Addstone Pty Ltd (in liq) (1997) 25 ACSR 357 at 363, Re Tietyens Investments Pty Ltd (in liq) (rec and mgr apptd) (1999) 31 ACSR 1 at 28-29, Re Lemon Tree Passage & Districts RSL and Citizens Club Co-operative Ltd (1987) 11 ACLR 796 (Lemon Tree Passage) at 799; cf Shiraz Nominees (in liq) v Collinson (1985) 10 ACLR 7.