Rutherfurd v Offermans
[2023] FedCFamC2G 60
Federal Circuit and Family Court of Australia
(DIVISION 2)
Rutherfurd v Offermans [2023] FedCFamC2G 60
File number(s): BRG 577 of 2021 Judgment of: JUDGE EGAN Date of judgment: 6 February 2023 Catchwords: BANKRUPTCY – Application by bankrupt for an order requiring his trustees in bankruptcy to provide to him a copy of a notice for production of documents given by the trustees to the Commissioner of the Queensland Police Service pursuant to s. 77A of the Bankruptcy Act 1966 – where trustees refused to comply with notice on the ground that production would prejudice the interests of creditors and third parties and was unreasonable – whether the reasons of the trustees for their non-compliance with the notice were lacking in precision and inadequate – whether trustees had adduced persuasive evidence supporting the proposition that the disclosure of the notice would be unreasonable – where reasons found to be inadequate – application for production of notice granted Legislation: Bankruptcy Act 1966 (Cth) ss. 19AA, 77A and 70-56 and 70-90 of Insolvency Practice, Schedule 2 to the Act. Insolvency Practice Rules (Bankruptcy) 2016 (Cth) Rule 70-17(1)-(2). Cases cited: Adsteam Building Industries Pty Ltd v The Queensland Cement and Lime Co Ltd (No 4) (1984) 9 ACLR 62 Secatore, in the matter of Last Lap Pty Ltd (in liq) [2020] FCA 627
Zarro & Ors v Australian Securities Commission (1992) 36 FCR 40
Division: Division 2 General Federal Law Number of paragraphs: 29 Date of last submission/s: 2 February 2023 Date of hearing: 2 February 2023 Place: Brisbane Counsel for the Applicant: Mr A Collins Solicitor for the Applicant: Conrad Business & Succession Law Counsel for the Respondents: Mr M Goldsworthy Solicitor for the Respondents: Miller Harris Lawyers ORDERS
BRG 577 of 2021 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
BETWEEN: DANIEL IVAN RUTHERFURD (A BANKRUPT)
Applicant
AND: DENNIS OFFERMANS
First Respondent
MICHAEL BRENNAN
Second Respondent
order made by:
JUDGE EGAN
DATE OF ORDER:
6 FEBRUARY 2023
THE COURT ORDERS THAT:
1.The First Respondent and the Second Respondent provide to the Applicant’s lawyers, by 4.00pm AEST on 7 February 2023, a copy of the Notice dated 14 July 2021 given by them to the Commissioner of the Queensland Police Service pursuant to the provisions of s. 77A of the Bankruptcy Act 1966 (Cth).
2.The Respondent pay the Applicant’s costs to be agreed, or failing agreement, to be taxed pursuant to r. 22.10 of the Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth).
Note: The form of the order is subject to the entry in the Court’s records.
Note: The form of the order is subject to the entry in the Court’s records.
Note: The Court may vary or set aside a judgment or order to remedy minor typographical or grammatical errors (r 17.05(2)(g) Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 17.05 Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth).
REASONS FOR JUDGMENT
Judge Egan
Introduction
On 5 April 2017, the applicant was declared bankrupt. The respondents were appointed Trustees in Bankruptcy of the Bankrupt Estate (the Trustees).
After their appointment, the Trustees commenced an investigation pursuant to the provisions of s. 19AA of the Bankruptcy Act 1966 (Cth) (the Act). Section 19AA of the Act relevantly provided as follows:
“Section 19AA Power of investigations of bankrupt’s affairs
(1)The trustee of the estate of a bankrupt may investigate:
a. The bankrupt’s conduct and examinable affairs; and
b. Books, accounts and records kept by the bankrupt; so far as they relate to bankruptcy.”
On 14 July 2021, the Trustees caused a Notice to Produce to be given to the Commissioner of the Queensland Police Service (QPS) pursuant to the provisions of s. 77A of the Act (“the Notice”). Section 77A of the Act relevantly provided as follows:
“77A Access by trustee to books of associated entity
(1) Where a trustee is conducting under section 19AA an investigation relating to a person (in this section called the bankrupt), subsections (2) and (3) of this section apply.
(2) For the purposes of the investigation, the a trustee may by writing require a person to produce:
(a) to a specified person, being the a trustee or another person; and
(b) at a specified place, and within a specified period or at a specified time on a specified day, being a place, and a period or a time and day, that are reasonable in the circumstances;
specified books, or specified classes of books, that:
(c) are books of an associated entity of the bankrupt;
(d) are in the possession of the person of whom the requirement is made; and
(e) in the trustee’s opinion, are relevant to the investigation.
(3) Where the trustee requires a person (in this subsection called the relevant person) under this section to produce books to a specified person, the trustee or the specified person:
(a) if the books are so produced:
(i) may make copies of, or take extracts from, the books; and
(ii) may require the relevant person, or any other person who was a party to the compilation of the books, to explain to the best of his or her knowledge and belief any matter about the compilation of the books or to which the books relate; or
(b) in any other case—may require the relevant person to state, to the best of his or her knowledge or belief:
(i) where the books may be found; and
(ii) who last had possession, custody or control of the books and where that person may be found.
(4) The production of books under this section does not prejudice a lien that a person has on the books.”
During the course of administrative appeal proceedings commenced on behalf of the applicant in the Administrative Appeals Tribunal relating to his bankruptcy, it came to the attention of the lawyer for the applicant that the Trustees had received, in an electronic form, over 600,000 documents from QPS, and that such documents had probably been provided pursuant to the giving by the Trustees of the Notice pursuant to s. 77A of the Act.
On 24 September 2021, the lawyer for the applicant sent an email to the Trustees requesting a copy of the Notice. Such request was made pursuant to the provisions of s. 70-56 to Schedule 2 to the Act, which relevantly provided as follows:
Section 70-56 Rights of regulated debtor to request information etc. from trustee
(1) A regulated debtor may request the trustee of the regulated debtor's estate to:
(a) give information; or
(b) provide a report; or
(c) produce a document;
to the regulated debtor.
(2) The trustee must comply with the request unless:
(a) the information, report or document is not relevant to the administration of the regulated debtor's estate; or
(b) the trustee would breach his or her duties in relation to the administration of the regulated debtor's estate if the trustee complied with the request; or
(c) it is otherwise not reasonable for the trustee to comply with the request.
(3) The Insolvency Practice Rules may prescribe circumstances in which it is, or is not, reasonable for a trustee of a regulated debtor's estate to comply with a request of a kind mentioned in subsection (1).”
On 17 December 2021, the applicant was charged with a number of criminal offences which were as set out in [36] of the affidavit of Mr Offermans filed on 16 March 2022. Those charges were referred to in the affidavit as follows:
“[36]On 15 February 2022 Detective Sergeant Nick Hempel of the QPS advised by email that it is on the public records that the Bankrupt was charged on 17 December 2021 with the following criminal code offences:
a. 433(1 ): Adult - receiving tainted property;
b. 408C(l )(a)(i): Adult - Fraud - dishonest application of property of another;
c . 398: Adult - Stealing;
d.408C(l )(a)(i): Adult - Fraud - dishonest application of property of another;
e. 408C(d)&(2) (d) : Adult - Fraud - dishonestly gain benefit/advantage value of/over $30,000.00 but less than $100,000.00; and
f. 408C(l )(d)&(2A)(a): Adult Fraud dishonestly gain benefit/advantage value of at least $100,000.00.”
As at the date of the hearing before the Court, the applicant had not been convicted of any of the charges laid against him.
In response to a further request for the disclosure to the applicant of a copy of the Notice, on 8 October 2021 the Trustees responded as follows: [1]
[1] Annexure JKG-6 to the affidavit of Mr Guy filed on 23 December 2021.
“Dear Mr Guy
THE BANKRUPT ESTATE OF DAVID SAMUEL IVAN RUTHERFURD
ESTATE NO: QLD 1532/17/8 (THE "ESTATE")
AAT APPLICATION NUMBERS 2021/0664 AND 2021/3889
We refer to your letters of 24 September 2021 and 6 October 2021.
We have considered your request and advise that we are of the view that it is an unreasonable request pursuant to Section 70-17 of the Insolvency Practice Rules (Bankruptcy) 2076.
Please find a copy of the relevant subsection which is self-explanatory.
For and on behalf of
THE BANKRUPT ESTATE OF
DAVID SAMUEL IVAN RUTHERFURD
DENNIS OFFERMANS
JOINT & SEVERAL TRUSTEE IN BANKRUPTCY”
During the course of the hearing before the Court, Counsel for the Trustees indicated that the refusal to provide a copy of the Notice was based upon the provisions of r. 70-17(2)(a) of the Insolvency Practice Rules (Bankruptcy) 2016 (Cth) (the Insolvency Rules). Rules 70-17(1) and (2) of the Insolvency Rules relevantly provided as follows:
“Right of Regulated Debtor To Request Information Etc. From Trustee
70-17(1) This section is made for the purposes of section 70-56 of the Insolvency Practice Schedule (Bankruptcy)Unreasonable requests
70-17(2) It is not reasonable for the trustee of a regulated debtor's estate to comply with a request to give information, provide a report or produce a document to the regulated debtor if the trustee, acting in good faith, is of the opinion that:
(a) complying with the request would substantially prejudice the interests of one or more creditors or a third party and that prejudice outweighs the benefits of complying with the request; or
(b) the information, report or document would be privileged from production in legal proceedings on the ground of legal professional privilege; or
(c) disclosure of the information, report or document would found an action by a person for breach of confidence; or
(d) there is not sufficient available property to comply with the request; or
(e) the information, report or document has already been provided; or
(f) the information, report or document is required to be provided under the Act (including regulations made under the Act) within 20 business days of the request being made; or
(g) the request is vexatious.
70-17(3) … “
On 11 October 2021, the lawyers for the applicant emailed the Trustees seeking reasons as to why the request for production of the notice had been denied. [2]
[2] Annexure JKG-7 to Guy affidavit.
On 13 October 2021, the Trustees responded in writing as follows: [3]
[3] Annexure JKG-8 to Guy affidavit
“Dear Mr Guy
THE BANKRUPT ESTATE OF DAVID SAMUEL IVAN RUTHERFURD
ESTATE NO: QLD 1532/17/8 (THE "ESTATE")
AAT APPLICATION NUMBERS 2021/0664 AND 2021/3889
We refer to your letter of 11 October 2021.
It is the Trustees' opinion that it is not reasonable for the notice served upon the Queensland Police Service to be provided as our investigations pursuant to Section 19AA of the Bankruptcy Act 1966 ("Act") Act are ongoing and complying with the request would prejudice the interest of creditors and third parties. As Trustees of the estate of a bankrupt, we may investigate the bankrupt's conduct and examinable affairs. In conducting those investigations, we may require pursuant to Section 77A of the Act a person to produce specified books that are books of the bankrupt or an associated entity of the bankrupt which in our opinion, are relevant to the investigation.
For and on behalf of
THE BANKRUPT ESTATE OF
DAVID SAMUEL IVAN RUTHERFURD
DENNIS OFFERMANS
JOINT & SEVERAL TRUSTEE IN BANKRUPTCY”
By an Application filed on 23 December 2021, the applicant bankrupt sought the following order:
1. That pursuant to s. 70-90 of Schedule 2 of the Bankruptcy Act 1966 (Cth) (the Act) the respondents give to the applicant a copy of all notices served on the Queensland Police Service either under s. 77A of the Act or any other provision of the Act.
Section 70-90 of Schedule 2 to the Act relevantly provided as follows:
“70-90 Court may order relevant material to be given
(1) The person or persons who made the request for the relevant material may apply to the Court for an order that the trustee give the person all or part of the relevant material.
(2) If:
(a) the Inspector-General gives the trustee a direction under section 70-70 in relation to all or part of the relevant material; and
(b) the trustee does not comply with the direction;
the Inspector-General may apply to the Court for an order that the trustee comply with the direction.
(3) On application under subsection (1) or (2), the Court may:
(a) order the trustee to give the person, or any or all of the persons, who made the request for the relevant material all or part of that material; and
(b) make such other orders, including orders as to costs, as it thinks fit.”
The reasons advanced on behalf of the applicant for wanting to view the Notice were set out in [18] of the affidavit of Mr Guy filed on 23 December 2021, and were as follows:
“[18] I am informed by the Applicant and believe that:
(a)he is concerned that the volume of documents disclosed by the QPS as a result of the notice issued by the Trustees have not been reviewed for privacy or relevance by the QPS prior to disclosure to the Trustees;
(b)he is concerned that the documents disclosed by the QPS are documents to which his Trustees in Bankruptcy are not entitled for the purposes of the Act; and
(c)he wants to obtain legal advice in respect to his ability to challenge the production of documents by the QPS to the Trustees and he cannot sensibly do so until he has seen the notice issued by the Trustees to the QPS.”
Analysis of Refusal by Trustees to Provide a Copy of the Notice
Under r. 70-17(2)(a) of the Insolvency Rules, an essential criteria which must be satisfied in order for a trustee to justifiably refuse a request to produce a document was that the decision to refuse was made in good faith. Another essential criteria under r. 70-17(2)(a) was that complying with the request would substantially prejudice the interests of one or more creditors or a third party. A third essential criteria which must be satisfied was that such prejudice to a creditor or third party outweighed the benefits of complying with the request.
The word “substantially” means “very much”, or “a lot”. [4] It has otherwise been accepted as meaning “to a great or significant extent”. Clearly, substantial prejudice is prejudice of a greater extent than prejudice simpliciter, and it must be inferred that the legislature well appreciated the distinction when enacting the Rules.
[4] Oxford English Dictionary.
In the Trustees’ letter of 13 October 2021 to the lawyers for the applicant giving their reasons for failing to comply with the Notice, the Trustees:
(a)failed to declare or otherwise indicate that their refusal was made in good faith.
(b)failed to claim that production of the Notice “would substantially prejudice” the interests of creditors and third parties – the Trustees claimed that such production would merely prejudice such creditors and third parties as opposed to substantially prejudicing them.
(c)failed to address the question as to whether the refusal of the request for production outweighed the benefits of complying with the request.
(d)failed to explain with particularity and precision how any prejudice would be caused.
At [42] – [45] inclusive of his affidavit filed on 16 March 2022, Mr Offermans affirmed and declared that it was unreasonable for him to produce the Notice in the following terms:
“[42]As trustees of the estate of a Bankrupt, we are required to investigate the Bankrupt’s conduct and examinable affairs. In conducting those investigations, we may require pursuant to section 77A of the Act a person to produce specified books that are books of the Bankrupt or an associated entity of the Bankrupt which in our opinion, are relevant to the investigation.
[43]The trustees investigations pursuant to section 19AA of the Act are ongoing and complying with the request would prejudice the interest of creditors and third parties. We are concerned that the Bankrupt has engaged in unlawful and criminal activity, including concealment of his financial resources.
[44]I note also that it is not clear to me why the Bankrupt needs the notice or what he intends to do with the notice if I am required to provide a copy to him.
[45]It is the trustees' opinion that it is not reasonable pursuant to Section 70-17 of the Insolvency Practice Rules (Bankruptcy) 2016 for the notice served upon the Queensland Police Service to be provided to the Bankrupt.”
In his affidavit, Mr Offermans:
(a)failed to affirm or otherwise indicate that the refusal to comply with the Notice was made in good faith.
(b)failed to affirm that production of the Notice “would substantially prejudice” the interests of creditors and third parties.
(c)failed to address the question as to whether the refusal of the request for production outweighed the benefits of complying with the request.
(d)failed to explain with particularity and precision how any prejudice would be caused.
It is of significance that s. 70-56(2) of Schedule 2 to the Act provided that the Trustee must comply with the request for production of the Notice unless, as was contended on behalf of the Trustees, any such production would be unreasonable. In that respect, the Court finds that persuasive evidence is required to be positively adduced by or on behalf of the Trustees so as to enable the Court to at least infer that production of the Notice would be unreasonable. No such persuasive evidence was here adduced. General statements not going to the criteria which were legislatively required to be satisfied were insufficient to justify non-compliance with the Notice.
It is trite that there are many agencies of government which have the power to require the production of documents upon the giving of notice whilst a statutorily sanctioned investigation is under way. In Adsteam Building Industries Pty Ltd v The Queensland Cement and Lime Co Ltd (No 4) (1984) 9 ACLR 62 at 64, McPherson J (as he then was) was there dealing with a list of documents for which privilege was claimed by the National Companies and Securities Commission ("NCSC"). The claim was formulated in the following terms:
Such documents should by reason of the class of documents to which they belong be withheld from production on the ground that the production of the same would be injurious to the public interest. Further, in my opinion, the non-disclosure of documents of that class is necessary for the proper functioning of the (NCSC).
The documents were described as having come into the possession of the NCSC in the course of investigations into possible breaches of corporate law, and in the course of investigating complaints of breaches of that legislation, or in the course of confidential communication with the Foreign Investment Review Board.
McPherson J said as follows:
“However, in order to arrive at a proper balance, or proper assessment of where the balance lies, it is necessary to know with precision what it is that is said to be the interest that requires that the document, or class of documents, be preserved from production. What Mason J in Sankey v Whitlam described as 'the amorphous statement', that non-disclosure is necessary for the proper functioning of the public service, is no longer an acceptable form of the objection to produce unless the affidavit also says why disclosure would be detrimental to that function: see 142 CLR 1 at 43, where his Honour added: 'An affidavit claiming Crown privilege should state with precision the grounds on which it so contended that documents or information should not be disclosed so as to enable the court to evaluate the competing interests'.
But it was submitted by the NCSC that the form of objection … showed that the explanation for the objection was that the documents in question had been acquired or brought into existence in the course of investigating possible breaches of the Companies Code or the Acquisition of Shares Code, and in the course of investigating complaints of breaches of that legislation, or in the course of confidential communication with the Foreign Investment Review Board. As regards the latter, there is nothing specific to demonstrate that any prejudice will result to anyone or anything if the allegedly confidential communication is disclosed pursuant to the compulsory processes of this court.
Without evidence of at least the possibility of some such prejudicial consequence, the mere circumstance that the communication was confidential is not a ground for refusing production.What is required, even in relation to investigations of crime and sources of information on that subject is, as O'Leary J recently remarked in R v Robertson (1983) 21 NTR 11 at 22, some 'condescension to particularity'. Nothing here suggests that the NCSC has sources of information or techniques of investigation that will be prejudiced by their disclosure in consequence of production of the documents in question, or even that this or future investigations in similar cases will be rendered more difficult by such production.”
The Court finds that the reasons of the Trustees for non-compliance with the Notice, as advanced in their letter of 13 October 2021 and in the affidavit of Mr Offermans, were so general, lacking in precision, formulaic and non-specific as to be of insufficient weight to justify non-compliance with the Notice. The non-compliance with the Notice requiring production was accordingly unreasonable.
The Court did not accept the submission advanced on behalf of the Trustees that the Court ought to infer that the Trustees were indeed acting in good faith and reasonably [5] when failing to comply with the Notice, such submission being based in part on the fact that the Trustees were duly conducting an ongoing investigation into the affairs of the applicant in circumstances where the period of bankruptcy had been extended, and in part because the applicant had been charged with a number of criminal offences. Neither of such factual scenarios justified the Trustees failing to give to the applicant a copy of the Notice so that he could receive advice as to whether or not there had been any unacceptable over-reach by the Trustees as to the type of documents which had been sought.
[5] Secatore, in the matter of Last Lap Pty Ltd (in liq) [2020] FCA 627 at [45] – [54] per Anderson J
The actual receipt by the Trustees of a huge volume of documents without the Trustees having explained why it was necessary for such a large number of documents to be examined as part of its ongoing investigations prima facie lacked transparency. The due administration of justice required that a more considered and fulsome explanation be given by the Trustees as to why non-compliance with the Notice was reasonable.
Further, the approach of the Trustees as reflected at [44] of the Offermans affidavit was misconceived. Rather than asking why the applicant needed to look at the Notice, the Trustees ought to have been focussed upon whether compliance with the Notice by them would be unreasonable or not.
The Court’s finding was fortified by the Court having taken the opportunity to examine a copy of the Notice – delivered to Judge’s Chambers in a sealed envelope - in circumstances where each Counsel conceded that the Court had the power to do so, and where no objection was made to the Court adopting such course. When considering a claim for public interest immunity on appeal in Zarro & Ors v Australian Securities Commission (1992) 36 FCR 40, Ryan J at p. 57 said as follows:
That passage makes clear that the court has a discretion which may be enlivened, for example, by a need to save time or costs, to inspect documents to see whether they support a claim for immunity at all, before balancing that claim against the public interest in the full and effective conduct of litigation. That is not to say that a government or agency which relies on an affidavit which articulates a claim of privilege with insufficient precision or particularity can assume that the court will invariably inspect the documents to see whether they can support a claim which could have been, but was not, properly formulated. Such a government runs the risk that the claim will be rejected without inspection of the documents, as apparently happened in Adsteam Building Industries Pty Ltd v The Queensland Cement and Lime Co Ltd (1984) 9 ACLR 62, or after an inspection unaided by an adequate indication of the considerations which prompted the claim as related to particular documents.
I do not understand the passages from the speeches of Lord Keith of Kinkel (at 1134) and Lord Scarman (at 1145) in Burmah Oil Co Ltd v Bank of England (1980) AC 1090 to which we were referred by Counsel for the respondents, to deny the existence of the discretion to which I have just referred. In those passages their Lordships indicated that a court may always inspect the documents when left in some doubt as to the outcome of the balancing exercise after considering a presumptively adequate certificate or affidavit asserting the privilege. However, that is not to say that the court may never inspect the documents at some stage before reaching a real doubt as to where the balance lies. No different understanding, in my view informs the reference to Burmah Oil by Gibbs CJ in Alister v The Queen (above) at 414, or the recent discussion of those and other authorities by a Full court of this court in Commonwealth v Northern Land Council (1991) 30 FCR 1.
In my view, the learned primary Judge exercised the discretion, which I consider he clearly had, to inspect the documents comprised in Ex BA3 to see whether they supported the claim to public interest immunity which he distilled, not without difficulty, from the affidavits and oral evidence of Mr Adams on behalf of the ASC. His Honour then undertook the different intellectual exercise of balancing the claim which he perceived to be supported by the documents against the public interest in the respondents' having access to those documents for the purposes of the litigation.
Without descending into particulars, the Court’s view after having read the applicable Notice was that the applicant would gain no forensic advantage by being made aware of its contents, and that the Notice dated 14 July 2021 should in its entirety be so produced to his lawyers.
And it is so ordered.
The Court records that the copy Notice was replaced into the envelope in which it was delivered to Chambers; that it was re-sealed by tape; and that it was then placed on the Court file.
I certify that the preceding twenty-nine (29) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Egan. Associate:
Dated: 6 February 2023
0
3
0