Sammut v Paul Leroy as trustee of the Bankrupt Estates of Joanne De Rome and Geoffrey De Rome

[2016] FCCA 348

FEDERAL CIRCUIT COURT OF AUSTRALIA

SAMMUT v PAUL LEROY AS TRUSTEE OF THE BANKRUPT ESTATES OF JOANNE DE ROME & GEOFFREY DE ROME & ORS [2016] FCCA 348

Catchwords:
BANKRUPTCY – Application for order under s.178 of the Bankruptcy Act 1966 (Cth) in relation to a decision by a trustee in bankruptcy of two bankrupt estates to enter into an agreement with a creditor of the estates (Creditor), being the son of the bankrupts, who also claimed to hold a second mortgage over the principal asset of the estates – whether the applicant was a person affected by the trustee’s decision – whether the trustee ought to have obtained a formal valuation of the property before he entered into the agreement with the Creditor – whether the trustee should have informed the creditors of the estates of his view that the mortgage purportedly granted to the Creditor may have been void against the trustee – whether the trustee ought to have considered whether the Creditor had abandoned his claim to be a secured creditor – whether the trustee ought to have invited the creditors of the estates to provide funding for a formal valuation of the property and to fund proceedings to challenge the validity of the mortgage purportedly granted to the Creditor – whether the trustee ought to have submitted to the creditors for their approval the trustee’s proposal to enter into the agreement with the Creditor – whether the trustee misrepresented the effect of the agreement with the Creditor – whether it would be just and equitable to make an order in relation to the trustee’s decision to enter into the agreement with the Creditor assuming the trustee was required to obtain a formal valuation of the property, or to inform the creditors of the estates of his view that the mortgage may have been void, or to inform the creditors that the Creditor may have abandoned his claim to be a secured creditor, or to submit for the creditors’ approval the proposal to enter into the agreement with the Creditor.

Legislation:

Bankruptcy Act 1966 (Cth), ss.19, 81, 90, 120, 120(4), 122, 139ZQ, 139ZQ(1), 139ZS, 178, 178(1), 178(2)
Bankruptcy Regulations 1966 (Cth), Sch. 4A
Evidence Act 1995 (Cth), s.55(2)

Adsett v Berlouis [1992] FCA 368; (1992) 37 FCR 201

Cummings v Claremont Petroleum NL [1996] HCA 19; (1996) 185 CLR 124
Frost v Sheahan (Trustee) [2009] FCAFC 20
Healey v Prentice (No. 2) [2000] FCA 1598
Mango Boulevard Pty Ltd v Whitton [2011] FCA 138; (2011) 198 FCR 211
Mb v Protective Commissioner [2000] NSWSC 718

Re Wheeler; Ex parte Wheeler v Halse [1994] FCA 1348; (1994) 54 FCR 166
Texas & P. Ry v Behymer 189 U.S. 468, 470 (1903)

Applicant: DANIEL SAMMUT

First Respondent: PAUL LEROY AS TRUSTEE OF THE BANKRUPT ESTATES OF JOANNE DE ROME & GEOFFREY DE ROME

Second Respondent: BRETT DE ROME

Third Respondent: MARK ROUFEIL AS TRUSTEE OF THE BANKRUPT ESTATES OF JOANNE DE ROME & GEOFFREY DE ROME

File Number: SYG 2528 of 2013

Judgment of: Judge Manousaridis

Hearing date: 5 and 6 February 2015

Date of Last Submission: 6 February 2015

Delivered at: Sydney

Delivered on: 26 February 2016

REPRESENTATION

Counsel for the Applicant: Mr FFF Salama

Solicitors for the Applicant: Holman Webb

Counsel for the First Respondent: Mr R D Marshall

Solicitors for the First Respondent:	Bartier Perry
Counsel for the Second Respondent:	Mr B Katekar with Ms H Mann

Solicitors for the Second Respondent: Gillis Delaney

ORDERS

1. The application is dismissed.

2. Subject to order 3, the applicant pay the first respondent’s and the second respondent’s costs.

3. The parties have liberty to apply within twenty one days of the making of these orders for the vacation or variation of order 2.

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT SYDNEY

SYG 2528 of 2013

DANIEL SAMMUT

Applicant

And

PAUL LEROY AS TRUSTEE OF THE BANKRUPT ESTATES OF JOANNE DE ROME & GEOFFREY DE ROME

First Respondent

BRETT DE ROME

Second Respondent

MARK ROUFEIL AS TRUSTEE OF THE BANKRUPT ESTATES OF JOANNE DE ROME & GEOFFREY DE ROME

Third Respondent

REASONS FOR JUDGMENT

Introduction

1. Mr Sammut is a creditor of each of the bankrupt estates of Mrs Joanne Margaret De Rome and her husband, Mr Geoffrey Ronald De Rome (the bankrupts). He seeks relief under s.178 Bankruptcy Act 1966 (Cth) (Act) against the first respondent, the former trustee of the bankrupts (Trustee), and against Mr Brett Coulter De Rome, the son of the bankrupts.

2. Mr Sammut claims he was affected by the Trustee’s decision to sell to Mr Coulter De Rome for $18,000 the bankrupts’ interest in the property situated at 1 Tenalga Street, Nerang, Queensland (Property), and that it would be just and equitable for the Court to make orders, including an order that the sale be declared void. In broad terms, Mr Sammut claims the Trustee decided to sell the Property to Mr Coulter De Rome without communicating relevant information to creditors and without obtaining the creditors’ consent, and in circumstances where the Trustee misled Mr Sammut about the nature of the agreement the Trustee had reached with Mr Coulter De Rome.

3. The Trustee resists Mr Sammut’s claims. The Trustee submits that his decision to enter into the agreement with Mr Coulter De Rome was reasonable and commercial, whether assessed against what was known by the Trustee at the time he made the decision, or against the matters as they have now been made known to the Court. The Trustee also resists the making of an order because Mr Coulter De Rome has spent a considerable amount of money on the faith of the agreement he made with the Trustee. Mr Coulter De Rome, in addition to supporting the Trustee’s answers to Mr Sammut’s claims, contends Mr Sammut applied for an order outside the time provided for by s.178(2) of the Act.

4. These reasons are arranged as follows. First, I will set out the facts, most of which are not in contest. Second, I will consider the nature and scope of s.178 of the Act. Finally, I will identify and consider each of the grounds on which Mr Sammut relies.

Facts

1. On 28 September 2012 Mrs De Rome became bankrupt and, on 2 October 2012, Mr De Rome also became bankrupt. Both Mr and Mrs De Rome became bankrupt on their own petitions.

2. In support of their petitions, the bankrupts each prepared a statement of their affairs in which they stated they were the registered proprietors of the Property.[1] They also stated that the Property was subject to two registered mortgages, one in favour of Suncorp-Metway Limited (Suncorp), and the other in favour of Mr Coulter De Rome.[2] Mr De Rome stated that the mortgage to Suncorp secured a debt of $214,662, Mrs De Rome stated that mortgage secured a debt of $214,660, and both stated that the mortgage to Mr Coulter De Rome secured a debt of $40,000.

   [1] Affidavit of P Leroy, 25.06.2014, Exhibit PL-1, page 11; 38

   [2] Affidavit of P Leroy, 25.06.2014, Exhibit PL-1, page 14; 41

3. Mr Coulter De Rome’s mortgage was registered on 31 May 2012.[3] It was registered pursuant to a written loan agreement dated 31 May 2012 made between Mr Coulter De Rome and the bankrupts.[4] The loan agreement recited, among other things, that  Mr Coulter De Rome had already lent to the bankrupts $30,000 and proposed to lend further advances, making a total of $200,000 to enable the bankrupts to develop the Property into a pair of semi-detached dwellings, one of which was proposed to be sold to Mr Coulter De Rome. The loan agreement also recited that the loan would be secured by a second mortgage over the Property.

   [3] Affidavit of P Leroy, 25.06.2014, Exhibit PL-1, page 48

   [4] Exhibit B

4. After his appointment, the Trustee, through his staff, made a number of inquiries about the Property, including its value. In October 2012 the Trustee received two appraisals, one for between $270,000 and $290,000,[5] and one for between $220,000 and $240,000.[6] In addition, the Trustee requested Mr Coulter De Rome provide documents that evidenced Mr Coulter De Rome’s security, and the amount the bankrupts owed Mr Coulter De Rome.[7] In the course of these inquiries, Mr Coulter De Rome had expressed interest in purchasing the bankrupts’ interest in the Property.[8]

   [5] Affidavit of P Leroy, 25.06.2014, Exhibit PL-1, page 53

   [6] Affidavit of P Leroy, 25.06.2014, Exhibit PL-1, page 75

   [7] Affidavit of P Leroy, 25.06.2014, Exhibit PL-1, page77

   [8] Affidavit of P Leroy, 25.06.2014, [7]

5. On or about 25 October 2012 the Trustee circulated a report to the creditors of each of the bankrupts.[9] In both reports the Trustee stated that the bankrupts’ assets included the Property, that the estimated resale value of the Property was $260,000, and that the Property was subject to mortgages, the first securing a loan of $214,662 owing to Suncorp, and the second securing a loan of $40,000 owing to Mr Coulter De Rome. The reports noted that the amount of $40,000 outstanding to Mr Coulter De Rome is “pursuant to a Loan Agreement . . . dated 31 May 2012”.[10] The Trustee also stated:[11]

   I further note that I am currently liaising with the bankrupt’s son, Brett Coulter De Rome in relation to purchasing the Bankrupt Estate’s interest in the property. At this stage no agreement has been reached. In the event that the Bankrupt’s son chooses not to proceed with the purchase of the Bankrupt Estate’s interest, I may consider the commerciality of enforcing my rights as Trustee to realise and sell the property for the benefit of the Bankrupt Estate.

   [9] Affidavit of P Leroy, 25.06.2014, Exhibit PL-1, page 81-109; 110-140

   [10] Affidavit of P Leroy, 25.06.2014, Exhibit PL-1, page 88; 118

   [11] Affidavit of P Leroy, 25.06.2014, Exhibit PL-1, page 89; 119

6. In his report, the Trustee noted that on “the information presently available it appears that there will not be a dividend” in the estate, but he would advise creditors of any significant developments that would result in a declaration of a dividend.[12] Towards the end of his report, the Trustee noted that he “did not expect to send any further reports contingent upon their being no significant developments or material change in the Estate”, such material change including, but not limited to, the recovery of assets.[13]

   [12] Affidavit of P Leroy, 25.06.2014, Exhibit PL-1, page 96;126

   [13] Affidavit of P Leroy, 25.06.2014, Exhibit PL-1, page 97; 127

7. By email sent on 20 November 2012, Mr Daniel Jepson, a solicitor acting on behalf of Mr Sammut, provided to the Trustee an appraisal which stated that if the Property “were to be offered for sale on the current market, a price of between $280,000-$310,000 would be recommended”.[14] Mr Jepson said that Mr Coulter De Rome’s mortgage was registered on 31 May 2012, which was “substantially after our client obtained his judgment against the bankrupts, and a matter of days before the bankrupts’ appeal against that judgment was dismissed”. Ms Diana Talevski, from the Trustee’s office, responded by email on the same day, in which she said:[15]

   [14] Affidavit of G S Hansen, 17.10.2013, Exhibit GSH-1, page 73-74

   [15] Affidavit of G S Hansen, 17.10.2013, Exhibit GSH-1, page 78

   Please note that as outlined in our Report to creditors for the above mentioned Estate, three (3) market appraisal [sic] were obtained from various realtors in Nerang to assess the property’s market value.

   Due to the significant range in resale value provided by real estate agents from conducting kerbside appraisals, our office intends on obtaining the professional opinion of a valuer by gaining access to the premises to assist in facilitating negotiations with respect to the Bankrupt’s equitable interest. Our office is also in the process of obtaining professional legal advice to confirm the validity of Brett De Rome’s claim.

   . . .

   Accordingly, I will keep you appraised with respect to the administration and any material and/or significant developments. . .

8. In the meantime, on or about 2 November 2012, Mr Coulter De Rome lodged proofs of debt with the Trustee in which he claimed each of the bankrupts owed him $42,130.60.[16] Mr Coulter De Rome supported the amounts claimed in the proofs of debts by bank statements.[17] In both proofs of debt Mr Coulter De Rome answered the question “Do you hold any security?” by ticking the box next to the word “No”.

   [16] Affidavit of B C D Rome, 25.06.2014, [12]; Affidavit of D Sammut, 03.04.2014, Exhibit DS-1, page 23

   [17] Affidavit of D Sammut, 03.04.2014, Exhibit DS-1, page 27-40

9. On 2 January 2013 a staff member provided to the Trustee a document titled “FILE NOTE”.[18] This document sets out the results of inquiries made in relation to Mr Coulter De Rome’s mortgage over the Property. It appears the file note was prepared for the purpose of the Trustee’s obtaining professional legal advice “concerning the bankrupts’ current residential property”.[19] The file note summarised information contained in documents Mr Coulter De Rome provided to the Trustee. It referred to a statutory declaration provided by the bankrupts and by Mr Coulter De Rome to the effect that “during the periods from 2011 to 2012 . . . funds were lent in the amount of $42,000.00 to Joanne and Geoffrey De Rome”.[20] The file note concluded:[21]

   Based on the information before me, I believe that as Trustee of the Bankrupt Estate of Geoffrey and Joanne De Rome that I am entitled to the net proceeds from the property. Alternatively, I am willing to negotiate settlement to avoid litigation with the bankrupt’s son, Brett Coulter De Rome purchasing the Bankrupt Estate’s interest in the property.

   Accordingly, could you please assist my office in enforcing my rights as Trustee, including notifying all relevant parties of their obligation and responsibilities, confirming the validity of the unregistered mortgage represent [sic] by Brett Coulter De Rome and if necessary, assist in realising and selling the property for the benefit of the Bankrupt Estate.

   [18] Affidavit of P Leroy, 25.06.2014, Exhibit PL-1, page 147-150

   [19] Affidavit of P Leroy, 25.06.2014, Exhibit PL-1, page 148

   [20] Affidavit of P Leroy, 25.06.2014, Exhibit PL-1, page 149

   [21] Affidavit of P Leroy, 25.06.2014, Exhibit PL-1, page 149-150

10. By letter dated 21 January 2013,[22] the Trustee’s solicitors asserted to Mr Coulter De Rome that, because the mortgage that had been granted to him secured past advances in the amount of $30,000, “consideration of less than market value was provided in exchange for your parents granting the Second Registered Mortgage to you by at least $30,000.00”.[23] The letter asserted that Mr Coulter De Rome’s mortgage was void against the Trustee under s.120 of the Act, and demanded that Mr Coulter De Rome execute an instrument discharging his mortgage.

    [22] Affidavit of P Leroy, 25.06.2014, Exhibit PL-1, page 151-153

    [23] Affidavit of P Leroy, 25.06.2014, Exhibit PL-1, page 153

11. After he received the letter dated 21 January 2013, Mr Coulter De Rome contacted a debt restructuring advisory practice known as “Queensland Administration Services” (QAS) at Nerang.[24] Mr Coulter De Rome was aware QAS was not a legal or accounting firm, but Mr Coulter De Rome contacted QAS because it had assisted Mr and Mrs De Rome with their voluntary bankruptcies.[25] After having a number of consultations with Mr Will Hawney from QAS, Mr Coulter De Rome decided to attempt to negotiate with the Trustee.[26] Mr Coulter De Rome deposed that, based on what Mr Hawney had told  him about the demands of the Trustee and the Trustee’s allegation that Mr Coulter De Rome’s mortgage was void, he “was willing to defend any legal action which [the Trustee] might have brought against me”.[27] Mr Coulter De Rome further deposed:[28]

    I thought that I had a good chance of defending [the Trustee’s] claim, and because I had made payments to my parents or on their behalf which totalled at least $84,000, which I wanted repaid, I was not willing to surrender my second mortgage security. If necessary I was willing to defend legal action from [the Trustee] challenging my mortgage.

    [24] Affidavit of B C D Rome, 25.06.2014, [15]

    [25] Affidavit of B C D Rome, 25.06.2014, [15]

    [26] Affidavit of B C D Rome, 25.06.2014, [17]

    [27] Affidavit of B C D Rome, 25.06.2014, [18]

    [28] Affidavit of B C D Rome, 25.06.2014, [19] 

12. On 30 January 2013 Mr Coulter De Rome sent a letter to the Trustee’s office offering to purchase “the interest in” the Property “from the bankrupt estate of my parents”.[29] After some discussions in which the Trustee’s solicitor indicated to Mr Coulter De Rome that the Trustee would be prepared to accept $18,000 to transfer the Property to Mr Coulter De Rome, and Mr Coulter De Rome indicated he would be willing to pay that amount, the Trustee, through his solicitor’s letter dated 7 February 2013, offered to agree not to challenge Mr Coulter De Rome’s second mortgage provided Mr Coulter De Rome paid to the Trustee $18,000 within seven days.[30] The Trustee repeated the offer in a letter from his solicitors dated 13 February 2013, except that the Trustee agreed not only not to challenge Mr Coulter De Rome’s mortgage, but also to transfer to Mr Coulter De Rome the Trustee’s interest in the Property.[31] Mr Coulter De Rome accepted that offer by email he sent to the Trustee’s solicitors on 18 February 2013.[32] Mr Coulter De Rome then paid $18,000 to the Trustee. Mr Coulter De Rome understood that he would be responsible for arranging to have the title to the Property transferred into his name, and that Suncorp would be involved in that process.[33]

    [29] Affidavit of P Leroy, 25.06.2014, Exhibit PL-1 page 159

    [30] Affidavit of P Leroy, 25.06.2014, Exhibit PL-1 page161-162

    [31] Affidavit of P Leroy, 25.06.2014, Exhibit PL-1 page 163-164

    [32] Affidavit of P Leroy, 25.06.2014, Exhibit PL-1 page 165

    [33] Affidavit of B C D Rome, 25.06.2014, [26]

13. The Trustee has deposed to the matters he took into account when considering whether to accept Mr Coulter De Rome’s offer.

    a)First, the Trustee considered the value of the claim he had against Mr Coulter De Rome, which at most was $40,000, and the costs of enforcing that claim, which the Trustee believed would exceed $40,000.[34]

    b)Second, the Trustee considered the impact on the market value of the Property if he were to seek to sell the Property. The Trustee considered the amount secured by the Suncorp mortgage (around $214,000), the expenses of sale (which the Trustee estimated to be $13,000), and potential difficulties of securing vacant possession of the Property.[35] The Trustee’s concern was that he had learnt that the bankrupts were pensioners who had lived on the Property for many years. It may have been costly (the Trustee estimated the cost would be $15,000) and time consuming to evict the bankrupts.[36] Based on the range of values given in the sales appraisals he had received, and the likely costs of gaining possession and selling the Property, the Trustee considered that the net proceeds of sale would range from a loss of $10,000 (if the Property were sold for $230,000) to a gain of $68,000 (if the Property were sold for $310,000).[37]

    c)Third, the Trustee considered the impact of his taking proceedings against Mr Coulter De Rome. The Trustee understood that Mr Coulter De Rome was making mortgage payments under the Suncorp mortgage and feared that Mr Coulter De Rome would cease making those payments if the Trustee were to take action, thus creating default under that mortgage. That could have resulted in Suncorp charging interest at default rates, commencing proceedings to recover possession of the Property, and that in doing so Suncorp would incur costs of $20,000, which would be added to the amount that was secured by its mortgage.[38]

    d)Fourth, there were the Trustee’s remuneration and expenses. As at 1 December 2012, the value of the work the Trustee and his staff had already undertaken in administering the estate of Mr and Mr De Rome was $22,453. The Trustee would earn additional remuneration and incur legal costs if he were to take proceedings against Mr Coulter De Rome.[39]

    [34] Affidavit of P Leroy, 25.06.2014, [14]

    [35] Affidavit of P Leroy, 25.06.2014, [15]

    [36] Affidavit of P Leroy, 25.06.2014, [15]

    [37] Affidavit of P Leroy, 25.06.2014, [16]

    [38] Affidavit of P Leroy, 25.06.2014 [17]

    [39] Affidavit of P Leroy, 25.06.2014, [19]

1. Taking these matters into account, the Trustee considered that, even assuming the Property would be sold at its highest estimated value,  the “remaining value would be overcome by…priority expenses”, and a net deficiency of $13,000 would result.[40] The Trustee has deposed that “[t]his is the logic that caused me to accept that the only real choice open to me was to negotiate a settlement of the issue of Brett De Rome’s mortgage and the Property”.[41] The Trustee further deposed that, in light of a deficiency even on the most optimistic valuation of the Property, he considered it “inappropriate to seek funding from any creditor or anyone else to prosecute a claim against Brett De Rome, and equally considered it inappropriate to incur the expense and inconvenience of a meeting of creditors to discuss such Court action”.[42]

   [40] Affidavit of P Leroy, 25.06.2014, [20]

   [41] Affidavit of P Leroy, 25.06.2014, [20]

   [42] Affidavit of P Leroy, 25.06.2014, [21]

2. On or shortly before 27 February 2013, Mr Grant Hansen, the solicitor for Mr Sammut, sent a letter to the Trustee. Mr Hansen recorded what he understood was the effect of a telephone conversation he had with Ms Talevski from the office of the Trustee.[43] Mr Hansen said he understood, among other things, that Mr Coulter De Rome intended to offer to purchase the Property for $250,000, and that the Trustee was inclined to accept that offer. Mr Hansen said Mr Sammut was concerned that the price of $250,000 would not represent the market value of the Property. Mr Hansen enclosed a “kerb side valuation” from L J Hooker which “values the” Property “at between $280,000-$310,000”.[44] Mr Hansen expressed the view that the Property should be sold at auction.

   [43] Affidavit of G S Hansen, 17.10.2013, Exhibit GSH-1, page 79-80

   [44] Affidavit of G S Hansen, 17.10.2013, Exhibit GSH-1, page 79

3. Mr Mark Tierney, the solicitor for the Trustee, responded by letter dated 1 March 2013.[45] After noting that Ms Talevski disagreed with Mr Hansen’s understanding of her telephone conversation with Mr Hansen, Mr Tierney set out the Trustee’s position. Mr Tierney said the amount secured by Suncorp as first registered mortgagee over the Property was approximately $215,000; the Trustee was of the view that some of the amount secured by the second mortgage granted to Mr Coulter De Rome was advanced to Mr Coulter De Rome before the mortgage was executed, and the mortgage, therefore may have been void; pursuant to s.120(4) of the Act, the Trustee would have to pay to Mr Coulter De Rome an amount equal to the value of any consideration given if the Trustee were to succeed in proving the mortgage was void, and that this would be between $6,000 and $30,000; that the Trustee, through his solicitor, had sent a letter to Mr Coulter De Rome alleging that Mr Coulter De Rome’s mortgage was void, but Mr Coulter De Rome indicated he disputed the Trustee’s allegation; and that, given the amount of the claim, being between $6,000 and $30,000, and the legal costs that would be incurred in those proceedings, the Trustee entered into negotiations with Mr Coulter De Rome and the Trustee had settled that claim on the basis that Mr Coulter De Rome pay $18,000 in return for the Trustee not challenging the validity of Mr Coulter De Rome’s mortgage. Mr Tierney concluded that “[g]iven that there is no equity in the Property, our client will not be taking steps to sell the Property”.[46]

   [45] Affidavit of G S Hansen, 17.10.2013, Exhibit GSH-1, page 84-85

   [46] Affidavit of G S Hansen, 17.10.2013, Exhibit GSH-1, page 85

4. There was no further communication between Mr Sammut’s lawyers and the Trustee or his lawyers until 6 August 2013. On that day, Mr Jepson, following a telephone conversation with Ms Talevski, sent Ms Talevski an email. In his email, Mr Jepson said “we have been made aware that there is significant construction taking place on the above bankrupts’’ property”.[47] Mr Jepson requested that Ms Talevski provide “an update on the administration of the bankruptcies generally, as well as specifically in relation to the bankrupts’ property”. The Trustee responded by letter dated 19 August 2013.[48]  The Trustee said he was aware that Mr Coulter De Rome had expressed an interest in developing an additional dwelling on the Property; that “at this stage [he] was not aware that this construction had commenced”; and that the Trustee had requested further information from the bankrupts. The Trustee also provided information about his investigations to date in relation to the bankrupts’ estates. In addition, the Trustee said:

   As you are aware, Brett De Rome purchased the Bankrupt Estate’s interest in the property in the amount of $18,000.00 on 18 February 2013. As such, a withdrawal of caveat was provided by me, as Trustee and Brett De Rome was advised to take the necessary steps to lodge the withdrawal of caveat and a transfer of title with the Land and Property Management Authority. I note that the transfer of title has not yet been filed by Brett De Rome.

   [47] Affidavit of G S Hansen, 17.10.2013, Exhibit GSH-1, page 113

   [48] Affidavit of G S Hansen, 17.10.2013, Exhibit GSH-1, page 116

5. By letter dated 19 August 2013 to Ms Talevski, Mr Hansen said he was not aware Mr Coulter De Rome had purchased the bankrupts’ interest in the Property.[49] Mr Hansen further stated that Mr Tierney’s letter of 1 March 2013 said the Property would not be sold; the letter stated no more than that the Trustee had accepted $18,000 in return for recognising the validity of the mortgage Mr Coulter De Rome held over the Property. Mr Hansen said that there was equity in the Property, and he expressed surprise the Trustee “could have entertained a transfer of the entire interest in the bankrupts’ sole asset to a related party without reference to the majority creditors in the bankruptcies”.[50] Further correspondence followed, but it is unnecessary to set out its contents in these reasons.

   [49] Affidavit of G S Hansen, 17.10.2013, Exhibit GSH-1, page 118-119

   [50] Affidavit of G S Hansen, 17.10.2013, Exhibit GSH-1, page 118

6. In the meantime, after Mr Coulter De Rome paid the $18,000 to the Trustee, he commenced substantial work on the Property. He arranged to build a second residence on the Property for his family, and renovated the part of the Property in which the bankrupts live.[51] Mr Coulter De Rome spent approximately $224,000 on building the additional residence, and some $66,000 in renovating the existing residence.[52]

   [51] T75.40

   [52] T76.5

Section 178 of the Act

1. Section 178 of the Act provides as follows:

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

   (2)The application must be made not later than 60 days after the day on which the person became aware of the trustee’s act, omission or decision.

2. It will be seen that s.178 of the Act confers jurisdiction on this Court and the Federal Court to make an order or orders if an application is made to it. The application may be made by the bankrupt or by a creditor of the relevant estate or by any person, but only if the bankrupt, creditor or other person is affected by an act or omission or decision of the trustee. Once an application is made to the Court by a person who is affected by the trustee’s act or omission or decision, the Court may make an order “in the matter”. The only limit on the orders the Court may make is that they must be orders the Court thinks are just and equitable.

3. The first matter to consider is the requirement that the person who applies for an order under s.178 of the Act must be “affected by” an act or omission or decision of a trustee in bankruptcy. The expression “affected by” in s.178 of the Act means “produce an effect on”; and the words “affect” and “effect”, when used as a noun, focus on the “result or consequence of an action”.[53] These words import a causal connection between the act or omission or decision in question, and the position or interest of the person applying for an order under s.178 of the Act. That is, an applicant must show that his or her position has been, or at least may be, adversely altered in some way because of the act or omission or decision of the trustee. If an applicant is unable to show any such causal connection, the Court will have no jurisdiction to make an order under s.178 of the Act. Although the requirement of affectation appears to be a matter that an applicant must satisfy at the outset, as a practical matter there is no reason why that question cannot be determined by the Court after hearing the entire application.

   [53] Mango Boulevard Pty Ltd v Whitton [2011] FCA 1383; (2011) 198 FCR 211 at [129] (Greenwood J). His Honour sourced the quoted passages from the Oxford English Reference Dictionary, 2^nd Edition.

4. The next matter to consider is the scope of the expression “just and equitable”. Section 178 of the Act does not expressly prescribe the circumstances in which it would be appropriate for the Court to think that it would be just and equitable to make an order under s.178(1) of the Act. The starting point in determining what those circumstances might be is the powers and duties the Act assigns to and imposes on trustees in bankruptcy. Under the Act, the trustee is given various powers, and is subjected to specific duties, the overall purpose of which is to enable the trustee to administer the property of the bankrupt in the interests of creditors and the bankrupt.[54] The Act assigns and imposes these powers and duties to and on the trustee, not the Court; s.178 of the Act only confers on the Court a “supervisory jurisdiction over the conduct of the trustee”.[55] The question whether it is just and equitable to make an order in relation to an act or omission of a trustee, therefore, is not to be answered by asking whether the Court would have acted or omitted to act in the manner the trustee acted or omitted to act. [56]

   [54] Adsett v Berlouis [1992] FCA 368; (1992) 37 FCR 201 at [27]; s.19 Bankruptcy Act 1966 (Cth)

   [55] Cummings v Claremont Petroleum NL [1996] HCA 19; (1996) 185 CLR 124 at [5]

   [56] See Re Wheeler; Ex parte Wheeler v Halse [1994] FCA 1348; (1994) 54 FCR 166 at pages 168-169 (Lee J). See also Healey v Prentice (No. 2) [2000] FCA 1598 where Madgwick J said (at [21]): “That the judge who hears a review application might have acted differently from the way a trustee did is not to the point”.

5. Identifying what s.178 of the Act does not authorise the Court to do does not identify the circumstances in which the Court may be entitled to think it would be just and equitable to make an order under s.178(1) of the Act. There are two circumstances in which it can readily be said the Court would be entitled to think it would be just and equitable to make orders. The first is where the trustee acted when he or she did not have authority under the Act to so act, or where the trustee omitted to do an act the Act obliged the trustee to do. The second is where the trustee had power to act or not act, but the trustee acted in breach of duty in the manner by which he or she exercised that power or the manner by which the trustee decided not to exercise the power. The more general duties of the trustee in bankruptcy were identified by the Full Court of the Federal Court in Adsett v Berlouis:[57]

   According to Halsbury's Laws of England (3rd ed), Vol 38, p 967, a trustee must take all reasonable and proper measures to obtain possession of the trust property and to get in all debts and funds due to the trust estate, and to preserve it, and to secure it from loss. He must take reasonable precautions to see the property is not stolen or lost by default. The Trustee is bound to execute the trust with fidelity and reasonable diligence and ought to conduct its affairs in the same manner as an ordinary prudent man of business would conduct his own affairs. But beyond this he is not bound to adopt further precautions. It was said by their Honours Dixon CJ, McTiernan and Windeyer JJ in Elder's Trustee and Executor Co Ltd v Commissioner of Taxation (Cth) . . . (1963) 113 CLR 42 that:

   ‘We are not to judge what the trustee then did or failed to do by the light of later events ... The duty of the trustee was to exercise due diligence, care and prudence in the conduct of the business, bearing in mind the need to preserve the capital of the Testator's estate ... The argument that the trustee having, it was said, exercised a discretion, its conduct is now unchallengeable is sufficiently answered by a passage from the judgment of Fry U in Re Brogden ... Whether or not one calls [the trustee's action] an exercise of discretion, the question remains was it the act of a prudent trustee.’

   [57] [1992] FCA 368; (1992) 37 FCR 201 at [27]

6. Also relevant are the standards set out in Schedule 4A to the Bankruptcy Regulations 1966 (Cth) (Regulations).

7. It may be thought difficult to conceive of additional circumstances in which it would be open to the Court to think it is just and equitable to make an order in relation to an act or omission of a trustee, given that s.178 of the Act confers only a supervisory jurisdiction on the Court. If the trustee has made a decision for which he or she had power under the Act to make, and the trustee did not breach any duty in making such decision, how could it be said to be just and equitable for the Court nevertheless to make an order under s.178(1) of the Act? There are, however, circumstances where it could be open to the Court to think it is just and equitable to make an order, even where the trustee has not acted in breach of any duty. One circumstance is where there is material before the Court that was not available to the trustee when he or she made the decision which affords grounds for the Court to think it is just and equitable to make an order in relation to that decision. It has been said that an “order may be made under s 178 even if the trustee’s decision was correct on the material before him, if, for example, additional material is put before the Court”.[58] And other circumstances may be imagined. It is conceivable that the trustee, in making his or her decision, but without breaching any duty, failed to take into account relevant material, or failed to appreciate the true significance of material which he or she did take into account, or attached disproportionate weight to one of a number of relevant matters, or made a decision which, having regard to all of the circumstances, was so unreasonable that no reasonable trustee would have made the decision. It is not possible and, in any event, it would be unwise to attempt to define the outer limits of the circumstances in which it would be open to the Court to consider it just and equitable to make an order in relation to an act or omission or decision of a trustee in bankruptcy under s.178(1) of the Act.

   [58] Frost v Sheahan (Trustee) [2009] FCAFC 20at [8] (Ryan, Mansfield and Jagot JJ)

8. There is one other aspect that is relevant to whether it would be just and equitable to make an order in any given case; and that arises from s.178 of the Act requiring that it is only a person who has been or is “affected by” an act or omission or decision of a trustee in bankruptcy who can apply for an order under that section. As I have already observed, these words import a causal link between the trustee’s act or omission or decision in question, and the position or interest of the person applying for an order under s.178 of the Act. That, in turn, suggests a limitation on the orders that the Court may legitimately think it is just and equitable to make, assuming the Court is satisfied it is otherwise just and equitable to review the act or omission or decision of the trustee; it suggests that the purpose for which an order may be made can go no further than placing the applicant in the position he or she would have been in, had the trustee not acted or failed to act, or had the trustee not made the decision in question.

9. There is one final matter that I will note. The onus is on an applicant to make out a case for the making of an order under s.178 of the Act.[59]

   [59]  Re Wheeler; Ex parte Wheeler v Halse [1994] FCA 1348; (1994) 54 FCR 166 at [14]: “[T]he applicant must show a ground on which the trustee's administration of the affairs of the bankrupt is to be reviewed” (Lee J).

Approach to applications for order under s.178 of the Act

1. When entertaining an application for an order under s.178(1) of the Act, therefore, the following questions will usually need to be considered:

   a)What is the act, omission, or decision of the trustee that is the subject of the application?

   b)Was the application in relation to the trustee’s act, omission, or decision made not later than 60 days after the day on which the applicant became aware of the trustee’s act, omission, or decision?

   c)Has the applicant been affected by the trustee’s act, omission, or decision? If so, in what way?

   d)Assuming (c) is answered in the affirmative, what are the grounds on which the applicant relies for claiming it is just and equitable for the Court to make an order?

   e)If those grounds are established, would it be just and equitable for the Court to make an order under s.178 of the Act? If so, what order should it make?

2. I will consider each of these questions in relation to Mr Sammut’s application.

What are the Trustee’s relevant acts or omissions?

1. The acts or omissions or decisions of the Trustee on which Mr Sammut relies are the “actions referred to in paragraph 18” of the statement of claim.[60] These are the Trustee’s taking all necessary steps to transfer the Property to Mr Coulter De Rome, and the Trustee’s agreeing not to take any further action in relation to the validity of Mr Coulter De Rome’s mortgage, both of which are alleged to have been made in consideration of Mr Coulter De Rome contributing $18,000 to the bankrupts’ estates. There is no issue that these steps were taken and this agreement was made by the Trustee, and that the steps constitute acts or decisions by the Trustee within the meaning of s.178 of the Act. In the remainder of these reasons, I will refer to these acts as the “Decision” or the “Trustee’s Decision”. There is also no issue that Mr Coulter De Rome paid the $18,000 provided for by the agreement.

   [60] Applicant’s Statement of Claim, [18]

2. The statement of claim alleges other acts or omissions or decisions of the Trustee. The statement of claim alleges these acts or omissions or decisions, however, as grounds for the Court’s reviewing the Trustee’s agreement with Mr Coulter De Rome to transfer the bankrupts’ interest in the Property. I will refer to these grounds later in these reasons.  

Did Mr Sammut apply within 60 days of becoming aware of decision?

1. The Trustee accepts Mr Sammut did not become aware of the Trustee’s Decision until after Mr Sammut’s solicitor received the Trustee’s letter dated 19 August 2013. Mr Coulter De Rome, on the other hand, submits that Mr Sammut was made aware of the Trustee’s Decision when Mr Sammut’s solicitor received the letter dated 1 March 2013 from the Trustee’s solicitors; and that Mr Sammut, therefore, made his application for an order under s.178(1) of the Act more than 60 days after the date on which he was informed of the Trustee’s Decision.

2. Subsection 178(2) of the Act specifies the date of awareness of the relevant act or omission or decision as the date from which the 60 days is to be calculated. Given the word “aware” is used without qualification, it must be taken to bear its ordinary meaning. To be aware means to be informed, or cognisant, or conscious, or sensible of something.[61] When, as in s.178(2) of the Act, “aware” is used in relation to an act, omission, or decision, it means to be informed, or cognisant, or conscious or sensible of the act, omission, or decision. That requires proof of the communication to the applicant of the essential elements of the trustee’s act or omission or decision.

   [61] Oxford English Dictionary Online edition

1. The Trustee’s solicitor’s letter dated 1 March 2013 did state the Trustee entered into an agreement with Mr Coulter De Rome. It did not, however, accurately state the nature of the agreement. The letter only stated that the Trustee and Mr Coulter De Rome agreed that, in return for Mr Coulter De Rome’s paying $18,000 to the Trustee, the Trustee agreed not to challenge Mr Coulter De Rome’s mortgage. The effect of the agreement as represented in the letter was to confirm Mr Coulter De Rome’s having a security interest in the Property on the terms set out in the mortgage that had been granted to him. The agreement the Trustee entered into with Mr Coulter De Rome pursuant to the Trustee’s Decision, however, contained an additional element which was not disclosed in the Trustee’s solicitor’s letter dated 1 March 2013; the agreement conferred on Mr Coulter De Rome ownership of the Property, subject to Suncorp’s mortgage.

2. Mr Sammut became aware of all of the essential elements of the agreement the Trustee made with Mr Coulter De Rome only after his solicitor received the Trustee’s letter of 19 August 2013. It follows, therefore, that Mr Sammut had 60 days after the day be became aware of the contents of the Trustee’s letter dated 19 August 2013 to make his application under s.178 of the Act. Mr Sammut commenced this application on 17 October 2013, that is, within 60 days after 19 August 2013.

Was Mr Sammut affected by the Trustee’s Decision?

1. In his statement of claim, Mr Sammut alleges he was affected by the Trustee’s Decision;[62] and he alleges he was affected because the Trustee’s Decision “effectively disposed of property” of the bankrupts, and “modified the notional value of the Bankrupts’ estate available for distribution to creditors”.[63] It is not entirely clear what the words “modified the notional value of the Bankrupts’ estate” mean. I assume they mean that the Trustee’s Decision reduced the value of the Bankrupts’ estates that would otherwise have been available for distribution to creditors and, for that reason, Mr Sammut, as the largest creditor of the Bankrupts, will receive or, at least, there is a risk he will receive, a smaller dividend from the estates than he otherwise would have received had the Trustee not made the Decision.

   [62] Applicant’s Statement of claim, [21]

   [63] Applicant’s Statement of claim, [20]

2. To make good this allegation, there must be some evidence on the basis of which it could rationally be concluded that, had the Decision not been made, the bankrupts’ estates may or could have had larger amounts available for distribution to creditors than the estates now have. Mr Sammut, however, has offered no evidence from which any such conclusion could rationally be made. Mr Sammut has not adduced any evidence from a qualified valuer of the value of the Property. Even if the appraisals the Trustee received can be regarded as some evidence of the range of prices for which the Property could have been sold, there is no evidence from which a judgment could be made of where in the range the Property is likely to have been sold.

3. Further:

   a)Mr Sammut has not submitted, nor, during cross-examination, was the proposition put to the Trustee or to Mr Coulter De Rome, that Mr Coulter De Rome did not intend to defend any action the Trustee might have brought to challenge the validity of Mr Coulter De Rome’s mortgage;

   b)Mr Sammut has not adduced any evidence which calls into question the nature of the costs the Trustee deposed he believed he would have had to incur if he were to challenge Mr Coulter De Rome’s mortgage and sell the Property, or the reasonableness of the Trustee’s estimates of the costs he would incur;

   c)it has not been submitted that, given the assumptions on which it was based, the analysis the Trustee deposed he undertook before he made the Decision was incorrect or unreasonable; nor during cross-examination was it put to the Trustee that his analysis was incorrect or unreasonable;

   d)in particular, it was not submitted, nor during cross-examination was it put to the Trustee, that the Trustee was incorrect or unreasonable in concluding that, assuming the Property was sold for $310,000, being the upper end of the highest of the appraisals the Trustee had received, there would have been a net deficiency of $13,000.

4. Mr Sammut tendered an expert’s report prepared by Mr Gavin Thomas, an accountant who has had extensive experience in forensic and investigative accounting. Counsel for the Trustee objected to most of the report, but I admitted the report subject to relevance, indicating that I will announce my ruling in my reasons for judgment. Mr Thomas, however, did not in his report criticise the analysis the Trustee undertook before and on the basis of which he made the Decision. Under cross-examination, Mr Thomas accepted that the Trustee’s analysis was “not a bad thought process”.[64] Mr Thomas also accepted as reasonable a number of the assumptions the Trustee made for the purposes of his analysis. Mr Thomas accepted that if the value of an estate’s assets is insufficient to pay the costs of valuations, the trustee is “not required to put his hand in his own pocket” to provide the funds;[65] if there was a default under a mortgage, the default rate would normally apply;[66] a trustee’s “remuneration and ordinary expenses”, as approved by creditors, would have to be considered when considering whether to realise an asset;[67] lawyers would have had to be engaged to take proceedings to challenge Mr Coulter De Rome’s mortgage;[68] the legal costs of challenging Mr Coulter De Rome’s mortgage could have been $50,000;[69] that a successful party in whose favour an order for costs is made would only get back 70%;[70] that a trustee would prepare a schedule of estimates of the potential outcomes and costs of proceedings;[71] and if the trustee were to conclude that proceedings would not earn a return for creditors the trustee would tell the creditors there would be no point in pursuing the matter.[72] For reasons that I give later, however, I attach no weight to the opinions Mr Thomas gave in his report and, for the same reasons, attach no weight to the evidence he gave under cross-examination.

   [64] T61.40

   [65] T51.10

   [66] T53.10

   [67] T53.30

   [68] T55.5; Mr Thomas said he would not make a decision to take proceedings without first arranging an examination – T54.40.

   [69] T56.15

   [70] T56.35

   [71] T57.30

   [72] T57.45

5. During his cross-examination, Mr Sammut said that had he been informed the Trustee proposed to sell the Bankrupts’ interest in the Property for $18,000 he would have been prepared to contribute money to fund proceedings by the Trustee to challenge the validity of Mr Coulter De Rome’s mortgage.[73] Mr Sammut also said the Trustee should have sold the Property by auction and he or someone else willing to pay the money would have purchased the Property at auction.[74]  Even if all this is accepted, it does not alter the fact that, on the analysis the Trustee undertook before he made the Decision which, as I have just noted, has not been challenged, there is nothing that could reasonably suggest that the end result would not have been a net deficiency of around $13,000, rather than a receipt of $18,000. In other words, I am not satisfied that even if Mr Sammut was prepared to contribute money to fund proceedings against Mr Coulter De Rome, the estates would have been in a better position than the position in which they currently find themselves or, if they would have been a better position, the creditors would have received any dividend.

   [73] T26.30; T28.25

   [74] T38.45

6. I am not satisfied, therefore, that Mr Sammut is a person who is affected by the Trustee’s Decision. For that reason alone, Ms Sammut’s application should be dismissed. I will, however, consider Mr Sammut’s application on the assumption that he is affected by the Trustee’s Decision.

Grounds on which Mr Sammut relies

1. The grounds on which Mr Sammut relies for the Court reviewing the Trustee’s Decision are stated in paragraphs 22-29 of the statement of claim. Mr Sammut also relies on the report prepared by Mr Thomas which contains opinions about a number of matters. As I have already noted, the Trustee objected to the reception of most of the report on the grounds of relevance. Before I consider the grounds on which Mr Sammut relies for seeking an order under s.178 of the Act, it would be appropriate to deal with the Trustee’s objection.

Mr Thomas’ report

1. There is no question Mr Thomas has had extensive experience in the area of insolvency. He was a chartered accountant from 1973 to 2012, a registered liquidator from 1977 to 2013, an official liquidator from 1981 to 2013, and a bankruptcy trustee from 1987 to 2012. Since 1969 Mr Thomas has been engaged in forensic and investigative accounting concentrating on insolvency and recovery proceedings. Further, Mr Thomas was involved in the drafting of standards for Official Trustees and Registered Trustees. That task was completed in 1988, and the standards in whose preparation Mr Thomas participated became the basis of the standards now contained in Schedule 4A to the Regulations.

2. In his report, Mr Thomas addresses ten questions. All but two of those questions are in the form of whether a “reasonably competent bankruptcy trustee, in the position of” the Trustee, would have done or not done the matters referred to in the question in the circumstances identified in the question; and the two questions that were not in this form in substance asked whether the Trustee acted in a way that a reasonably competent trustee in the position of the Trustee would have acted. The intended relevance of the opinions Mr Thomas gives is as follows: to the extent Mr Thomas’ opinion is that a “reasonably competent bankruptcy trustee, in the position of” the Trustee ought to have done or ought not to have done that which the question asserts the Trustee did not do or did do, it is to be inferred that the Trustee did not act as a reasonably competent trustee in bankruptcy should have or would have acted. That, in turn, would support the inference that the Trustee acted in breach of his duties as trustee or at the very least unreasonably and, for that reason, it would be just and equitable for the Court to make an order under s.178 of the Act.

3. A notable feature of Mr Thomas’ report is that it does not provide, because Mr Thomas was not asked to provide, an opinion specifically about the Trustee’s Decision. In particular, and as I have already noted, Mr Thomas offers no opinion about the reasonableness of the analysis the Trustee undertook before he made the Decision, and on which he relied to make the Decision.

4. Another feature of Mr Thomas’ report is that his opinions are implicitly based on the existence of a standard or standards to which “reasonably competent bankruptcy trustees” conform or are expected to conform. Mr Thomas, however, does not identify what those standards are, or the source or sources of those standards. There are two possibilities. The first is that Mr Thomas has in mind a standard or standards that reflect what most trustees in bankruptcy do in “regularly occurring circumstances as to which there is a general practice”.[75] In those circumstances, evidence of general practice would constitute evidence of what “usually is done” and, for that reason, may have been “evidence of what ought to [have been] done”.[76] The second possibility is that Mr Thomas has in mind a standard or standards that do not reflect what trustees in general do because the circumstances to which Mr Thomas directs his opinions are “not regularly occurring circumstances as to which there is a general practice, but rather, specific hypothetical circumstances in relation to which an opinion is expressed as to what a careful and competent professional would do”.[77]

   [75] Mb v Protective Commissioner [2000] NSWSC 718 at [5] (Hodgson CJ in Eq)

   [76] Texas & P. Ry v Behymer 189 U.S. 468, 470 (1903) (Holmes J), quoted in J.H. Wigmore Evidence in Trials at Common Law Volume 2, Chadbourne revised edition (1979) page 594. Holmes J continued: “but what ought to be done is fixed by a standard of reasonable prudence, whether it is usually complied with or not”.

   [77] [2000] NSWSC 718 at [5]

5. The difficulty with Mr Thomas’ opinions on each of the ten questions he addresses is that he does not say whether or not the circumstances to which he addresses his opinions are regularly occurring circumstances as to which there is a general practice or whether those circumstances do not regularly occur. It is not possible, therefore, to determine what standard Mr Thomas applies. It is not possible to determine whether the standard he applies reflects the general practice of trustees in bankruptcy in circumstances similar to those to which Mr Thomas addresses his opinions, or whether Mr Thomas is of the view the circumstances to which his opinions are directed do not reflect regularly occurring circumstances as to which there is a general practice. For these reasons, even though Mr Thomas’ opinions may be relevant within the meaning of s.55(2) of the Evidence Act 1995 (Cth), they are capable of carrying very little weight, and I propose to give them no weight. I will, however, later in these reasons assume that the opinions establish the matters they address and consider whether, on those assumptions, it would be just and equitable to make an order under s.178 of the Act.

6. I now turn to the grounds stated in the statement of claim on which Mr Sammut relies for claiming it would be just and equitable for the Court to make an order under s.178 of the Act.

First ground

1. The first ground is that the Trustee failed to notify Mr Sammut of the Trustee’s Decision for approximately six months.[78]

   [78] Applicant’s statement of claim, [22]

2. It is true the Trustee did not inform Mr Sammut of the true effect of the agreement the Trustee entered into with Mr Coulter De Rome. As I have already found, by letter dated 1 March 2013, the Trustee’s solicitor informed Mr Sammut’s solicitor that the Trustee had entered into an agreement with Mr Coulter De Rome, but he did not disclose all essential elements of the agreement. In my opinion, however, that circumstance does not render it just and equitable that the agreement the Trustee entered into with Mr Coulter De Rome pursuant to the Decision should be set aside or that any other order should be made. There is no causal link between the Trustee’s Decision on the basis of which the agreement was made, or the Trustee’s entering into the agreement itself, and the Trustee’s solicitor’s omitting to disclose all essential elements of that agreement after it was made.

Second ground

1. The second ground is that the Trustee did not obtain a valuation, as opposed to an appraisal of the Property, to ascertain its market value.[79]

   [79] Applicant’s statement of claim, [25(a)]

2. It is true the Trustee did not obtain a valuation. It has not been suggested, however, there were sufficient funds in the bankrupts’ estates the Trustee could have used to obtain a valuation; nor has it been suggested the Trustee was obliged to pay for a valuation from his own pocket. It would not be just and equitable to make any order only because the Trustee did not, in those circumstances, obtain a valuation.

3. A substantial part of Mr Sammut’s complaint, however, appears to be that, in her email of 20 November 2012, Ms Talevski from the Trustee’s office represented to Mr Sammut’s solicitor that the Trustee’s office intended to obtain a valuation.[80] That statement of intention, and the Trustee’s not fulfilling that intention, have not been explained. In my opinion, however, these circumstances by themselves do not make it just and equitable that an order be made. It is not suggested that Mr Sammut would have provided the Trustee with money to enable the Trustee to engage a valuer, had Ms Talevski not stated the Trustee’s office intended to obtain a valuation. Mr Sammut did not, after he received the creditors’ reports in which the Trustee stated there would be no dividend from the estates, offer money to the Trustee to obtain a valuation; Mr Sammut, through his solicitors, only provided an appraisal of the Property.

   [80] Applicant’s submissions, [17(b)]

4. In any event, Mr Sammut has adduced no valuation of the Property. It is not possible to determine, therefore whether, had the Trustee commissioned a valuation, whether with his own money or with money Mr Sammut may have provided, the Property would have been valued at more than $310,000, being the value the Trustee assumed in the analysis on the basis of which he arrived at the Decision. It cannot be said, therefore, that, because the Trustee did not obtain a valuation, the Trustee did something he otherwise would not have done or failed to do something he otherwise would have done. In those circumstances, it would not be just and equitable to make an order because the Trustee did not obtain a valuation of the Property, or ask the creditors for money to enable the Trustee to obtain a valuation of the Property.

Third ground

1. The third ground on which Mr Sammut relies is that the Trustee failed to obtain a legible copy of the documents provided by Mr Coulter De Rome in support of his proofs of debts.[81] There is evidence to suggest the bank statements Mr Coulter De Rome provided to the Trustee were illegible. The exhibits to the affidavits, filed in the proceedings, and which were adduced into evidence, contain a copy of the bank statements attached to the proofs of debt that are illegible. The originals of the bank statements, however, were not tendered into evidence. A legible copy was adduced into evidence through Mr Coulter De Rome; but that was not a copy of the bank statements the Trustee received.

   [81] Applicant’s statement of claim, [25(b)]

2. It appears, however, that the Trustee did not rely on the illegible copy of the bank statements Mr Coulter De Rome submitted with his proofs of debt. That is made apparent in the “FILE NOTE” to which I referred earlier in these reasons.[82] Under the heading “Documentation obtained on 6 November 2012 [Annexure F]” there appear the words “In receipt of bank statements regarding payments made through Greater Building Society”; and under those words there is a table detailing payments. There is nothing in the third ground, therefore, that would render it just and equitable for the Court to make an order setting aside the agreement made pursuant to the Trustee’s Decision, or any other order.

   [82] Affidavit of P Leroy, 25.06.2014, Exhibit PL-1, page 147-150

Fourth ground

1. The fourth ground on which Mr Sammut relies is that the Trustee failed to satisfy himself that Mr Coulter De Rome’s mortgage secured the advances referred to in the proofs of debt Mr Coulter De Rome submitted to the Trustee.[83] This ground is premised on the proposition that the Trustee was required to satisfy himself that Mr Coulter De Rome’s mortgage was valid. Mr Sammut does not articulate any principle or other reason to support such proposition. In my opinion, the proposition is incorrect. The relevant decision for the Trustee was whether he should take proceedings against Mr Coulter De Rome to test the validity of the mortgage. That required the Trustee to assess the potential costs and advantages of taking proceedings to challenge the mortgage. That is what the Trustee did. As I have already noted, it has not been submitted that the analysis the Trustee deposed he undertook before he made the Decision was incorrect or unreasonable; nor during cross-examination was it was it put to the Trustee that his analysis was incorrect or unreasonable.

   [83] Applicant’s statement of claim, [25(c)]

Fifth ground

1. The fifth ground on which Mr Sammut relies is that the Trustee failed to advise Mr Sammut that the Trustee had formed the view that Mr Coulter De Rome’s mortgage may have been void under s.120 of the Act.[84]

   [84] Applicant’s statement of claim, [25(d)]

1. This ground is supported by opinions contained in a report prepared by Mr Thomas. In his report, Mr Thomas provides opinions on a number of questions. Two of those questions relate to the fifth ground on which Mr Sammut relies. The questions are:

   3.The letter from Bartier Perry [the Trustee’s solicitors] dated 21 January 2013 states that – ‘Pursuant to section 120 of the Bankruptcy Act, the Second Registered Mortgage is void against the trustee’. Would a reasonably competent bankruptcy trustee, in the position of [the Trustee], inform creditors that he had formed a view that Brett De Rome’s mortgage was voidable against him, prior to compromising a claim in respect of it?

   4.If the answer to question 3 above is yes, would a reasonably competent bankruptcy trustee in the position of [the Trustee]:

   (a)Convene a Creditor’s Meeting to seek creditors’ approval prior to compromising the voidable mortgage against him and selling his vested interest in a related party of the bankrupts, namely their son?

   (b)Explain to creditors generally their opinions in seeking to void Brett De Rome’s mortgage [?]

2. Mr Thomas approaches question 3 in the following way. First, he notes that the Trustee’s reports to creditors referred to Mr Coulter De Rome’s having a secured claim, to the equity available in the Property after allowing for that secured claim, and to the making of further enquiries; yet, the Trustee provided no follow up information about the amount of Mr Coulter De Rome’s claim or about the validity of Mr Coulter De Rome’s mortgage.[85] Second, Mr Thomas notes that the reports to creditors refer to Mr Coulter De Rome having a secured claim for $40,000 and unsecured claims of $20,000; yet the Trustee’s solicitors’ letter of 21 January 2013 to Mr Coulter De Rome refers to three affidavits made by Mr Coulter De Rome which refers to Mr Coulter De Rome having loaned $42,000.[86] Third, Mr Thomas notes that the reports to creditors do not mention the possibility of the Trustee’s being able to apply under s.120 or s.122 of the Act to set aside Mr Coulter De Rome’s mortgage.[87] Mr Thomas then concludes:[88]

   It is my opinion that a second Report should have been forwarded to Creditors detailing this information and setting out the various options available to the trustee on behalf of the Creditors. The comments made by Mr Brett De Rome in his email to Diana Talevski dated 6 November 2012 appear to indicate that the mortgage was granted at a time when the bankrupts would have been fully aware of their financial difficulties.

   [85] Expert Report of Gavin Thomas, [3.1]

   [86] Expert Report of Gavin Thomas , [3.2]

   [87] Expert Report of Gavin Thomas, [3.3]

   [88] Expert Report of Gavin Thomas, [3.4]

3. For reasons I have already given, I do not attach any weight to Mr Thomas’ opinions. Further, I do not accept that a reasonably careful and competent trustee, in the circumstances in which the Trustee found himself, would or should have sent a further report in circumstances where, on an analysis which is not said to have been unreasonable, the alternative to the course of action the Trustee did in fact follow – namely, challenging Mr Coulter De Rome’s mortgage – would have led to the estate suffering a deficiency of $13,000, rather than earning a benefit of $18,000. In my opinion, the Trustee did not act unreasonably in not specifically informing the creditors of his view that Mr Coulter De Rome’s mortgage may have been void. It would, therefore, not be just and equitable to make any order because the Trustee did not advise Mr Sammut that the Trustee had formed the view that Mr Coulter De Rome’s mortgage may have been void under s.120 of the Act.

4. Finally, it may not be irrelevant that Mr Sammut was legally represented, and that Mr Sammut’s lawyers were at the very least alert to the possibility that there was an argument that Mr Coulter De Rome’s mortgage may be void. In his email of 20 November 2012 to Ms Talevski, [89] Mr Jepson noted that Mr Coulter De Rome’s mortgage was registered “substantially after our client obtained his judgment against the bankrupts, and a matter of days before the bankrupts’ appeal against that judgment was dismissed”. It could be said that Mr Sammut’s solicitor, and hence Mr Sammut, did not require the Trustee to inform him that Mr Coulter De Rome’s mortgage could have been void.

   [89] Affidavit of G S Hansen, 17.10.2013, Exhibit GSH-1, page 73

Sixth ground

1. The sixth ground on which Mr Sammut relies for claiming it would be just and equitable to make an order under s.178 of the Act is that the Trustee failed to advise Mr Sammut that Mr Coulter De Rome did not state in the proofs of debt he lodged with the Trustee that he held a security over the bankrupts’ estates and may have surrendered the interest Mr Coulter De Rome claimed he held under the mortgage pursuant to s.90 of the Act.[90]

   [90] Applicant’s statement of claim, [25(e)]

2. It is to be noted that Mr Sammut does not claim that Mr Coulter De Rome in fact surrendered his interest in the mortgage the bankrupts granted him over the Property; the ground is that the proofs of debts Mr Coulter De Rome provided to the Trustee may have indicated that Mr Coulter De Rome had surrendered his interest. Whether the proof of debts may have reasonably indicated any intention by Mr Coulter De Rome to surrender his mortgage, subsequent events made it clear that Mr Coulter De Rome did not surrender, or intend to surrender, his interest. Mr Coulter De Rome did not accept the allegation made in the Trustee’s solicitor’s letter dated 21 January 2013 that the mortgage was void; and he deposed that he intended to defend any claim the Trustee might bring to challenge the mortgage.

3. In my opinion, it is not just and equitable that any order should be made because in the proofs of debt Mr Coulter De Rome provided to the Trustee Mr Coulter De Rome claimed he held no security in any asset of the bankrupts’ estates.

Seventh ground

1. The seventh ground on which Mr Sammut relies is that the Trustee failed to invite the applicant to fund proceedings to challenge the validity of Mr Coulter De Rome’s mortgage.[91] In my opinion, given the analysis the Trustee undertook before he made the Decision, the Trustee was not required to invite the applicant or any other creditor to provide such funding.

   [91] Applicant’s statement of claim, [25(f)]

2. Further, there was nothing to prevent Mr Sammut from informing the Trustee that he was willing to provide such funding. Mr Sammut was represented by solicitors. In his email of 20 November 2012 to Ms Talevski, [92] Mr Jepson noted that Mr Coulter De Rome’s mortgage was registered “substantially after our client obtained his judgment against the bankrupts, and a matter of days before the bankrupts’ appeal against that judgment was dismissed”. That indicates that Mr Jepson was of the view that there may have been an available argument for contending Mr Coulter De Rome’s mortgage may have been void. Mr Sammut did not need any invitation from the Trustee to offer to fund proceedings to challenge the validity of Mr Coulter De Rome’s mortgage. Mr Sammut ought to have been aware from the creditors’ reports that there were no assets available from the estate that could have funded a challenge to the validity of the mortgage and that any proceedings to challenge the validity of Mr Coulter De Rome’s mortgage would have required funding from other sources.

   [92] Affidavit of G S Hansen, 17.10.2013, Exhibit GSH-1, page 73

3. In my opinion, it would not be just and equitable to make any order under s.178 of the Act because the Trustee did not invite Mr Sammut to fund a challenge to the validity of Mr Coulter De Rome’s mortgage.

Eighth ground

1. The eighth ground on which Mr Sammut relies is that the Trustee failed to invite the applicant to fund an examination under s.81 of the Act to ascertain the validity of Mr Coulter De Rome’s mortgage.[93]

   [93] Applicant’s statement of claim, [25(g)]

2. In my opinion, given the analysis the Trustee undertook before he made the Decision, the Trustee was not required to invite the applicant to fund an examination to ascertain the validity of the mortgage. Further, there was nothing to prevent Mr Sammut to suggest to the Trustee that there be an examination. As I have noted above, Mr Jepson was of the view that there may have been an available argument for contending Mr Coulter De Rome’s mortgage may have been void. It is unreasonable to expect that a lawyer would have required a trustee to suggest that information relevant to the validity of a mortgage could potentially be obtained by conducting an examination.

3. It is not, in my opinion, just and equitable for any order to be made because the Trustee did not suggest to Mr Sammut that he should fund an examination to ascertain the validity of Mr Coulter De Rome’s mortgage.

Ninth ground

1. The ninth ground is that the Trustee did not issue a notice pursuant to s.139ZQ of the Act.[94]

   [94] Applicant’s statement of claim, [25(h)]

2. Subsection 139ZQ(1) of the Act empowers the Official Receiver to issue a notice to a person who has received any money or property as a result of a transaction that is void against the trustee of a bankrupt under Division 3 of Part VI of the Act requiring that person to pay an amount of money as specified in that subsection. Where the notice claims the person received property as a result of the transaction, the notice must require payment of the value of the property. Under s.139ZS of the Act, the Court may, on application made by the person on whom a notice has been issued, set aside the notice if the Court is satisfied that Division 4B of Part VI of the Act does not apply to the person on the basis of the alleged facts and circumstances set out in the notice.

3. The Trustee in his affidavit did not identify the manner in which he considered he would challenge Mr Coulter De Rome’s mortgage; nor was the Trustee asked any questions about the manner in which he assumed he would challenge the mortgage if he were to challenge it. In those circumstances, it is reasonable to assume that the Trustee had s.139ZQ of the Act in mind as the method by which he assumed he could have challenged Mr Coulter De Rome’s mortgage. If that is correct, given there has been no challenge to the analysis the Trustee deposed he undertook before he made the Decision, the Trustee did not act unreasonably by entering into the agreement with Mr Coulter De Rome rather than challenging Mr Coulter De Rome’s mortgage by applying to the Official Receiver for the issuing of a notice under s.139ZQ of the Act.

4. It is not, therefore, just and equitable for the Court to make an order under s.178 of the Act because the Trustee did not apply for the issue of a notice under s.139ZQ of the Act.

Tenth ground

1. The tenth ground on which Mr Sammut relies for an order under s.178 of the Act is that the Trustee, through his solicitor’s letter dated 1 March 2013, misrepresented the effect of the agreement between the Trustee and Mr Coulter De Rome.[95]

   [95] Applicant’s statement of claim, [26]

2. There is no dispute that the letter did misrepresent the effect of the agreement between the Trustee and Mr Coulter De Rome; and it is not suggested the misrepresentation was intentional. Although unfortunate, however, the misrepresentation was made after the agreement was made. It cannot be suggested, therefore, and it has not been suggested that the misrepresentation had any causal connection with the Trustee’s Decision. Although it could be suggested that Mr Sammut may have relied on the representation to his detriment, that would not be relevant to the application that is before me. That application relates to the Trustee’s Decision, not to the Trustee’s solicitor sending a letter that contains a misrepresentation.

3. It is not, therefore, just and equitable that an order be made under s.178 of the Act because the effect of the Trustee’s agreement with Mr Coulter De Rome was misrepresented by the Trustee’s solicitor in his letter of 1 March 2013.

Eleventh ground

1. The eleventh ground is a set of allegations, namely, that the Trustee preferred his interest over those of the bankrupts’ creditors, the Trustee acted unreasonably, and the Trustee did not act in the best interests of the bankrupts’ creditors.[96] These allegations, in turn, are based on the allegations that:

   a)the Trustee’s Decision involved the Trustee transferring the only substantial asset of the bankrupts’ estates to a person related to the bankrupts without notice to Mr Sammut, and without ascertaining the market value of the Property;[97] and

   b)by making the Decision, the Trustee sold the Property for less than its market value, obtaining, in the process, a significant amount in respect of his fees for administering the bankrupts’ estates, and ensuring unsecured creditors would not receive any dividend from their estates.[98]

   [96] Applicant’s statement of claim, [29]

   [97] Applicant’s statement of claim, [27]

   [98] Applicant’s statement of claim, [28]

2. There is no evidence of the market value of the Property; there is no evidence from which it could reasonably be inferred that the Trustee made any fees greater than what he was entitled to earn; and there is no evidence that, had the Trustee not transferred the Property to Mr Coulter De Rome on the terms that he did, the creditors would have received any dividend from the bankrupts’ estates. Further, as I have already noted, it has not been submitted that the analysis the Trustee deposed he undertook before he made the Decision was incorrect or unreasonable. Finally, the Trustee did, in each of the creditors’ reports the Trustee prepared for each of the bankrupts, give notice to Mr Sammut and other creditors that he was “currently liaising with the bankrupt’s son, Brett Coulter De Rome in relation to purchasing the Bankrupt Estate’s interest in the property”.[99]

   [99] Affidavit of P Leroy, 25.06.2014, Exhibit PL-1, page 89; 119

3. The eleventh ground, therefore, is not made out, and, to the extent it is made out, it does not afford grounds that would make it just and equitable that an order be made under s.178 of the Act.

Matters addressed in Mr Thomas’ report

1. I have already concluded I would give no weight to the opinions of Mr Thomas. In this section of my reasons, however, I will assume Mr Thomas’ opinions establish that which they claim, and consider whether, on that assumption, the opinions fall within the scope of the statement of claim and, if so, whether the opinions would render it just and equitable for the Court to make an order under s.178 of the Act.

2. The first question on which Mr Thomas gives an opinion is whether the Trustee’s reports to creditors “sufficiently address all the issues that ought to have been brought to creditors’ attention”.[100] Mr Thomas says that the Trustee in his reports “should have outlined all known important facts relating to the Administrations” and that the reports “did not convey enough accurate information about” the Property, the potential claims of Mr Coulter De Rome, the “facts affecting the possibility of dividends”, and other assets.[101]

   [100] Expert Report of Gavin Thomas, [1]

   [101] Expert Report of Gavin Thomas, [1.1]

3. There is nothing in the evidence or in the submissions that suggests that, had the creditors’ reports sufficiently addressed all issues Mr Thomas says they ought to have addressed, the bankrupts’ estates would have been in a different position than they currently are, or that the Trustee would have or ought to have adopted a different course to his having entered into the agreement with Mr Coulter De Rome. Thus, even if Mr Thomas’ opinion is correct, it would not render it just and equitable for the Court to make an order under s.178 of the Act.

4. The second issue Mr Thomas addresses is whether the Trustee adopted “an appropriate methodology to ascertain the value of the Property”.[102] Mr Thomas’ answer is that the Trustee did not because, although the Trustee reported he had received appraisals from three different real estate agents, he did not present the information received from the agents in the format he received it, but he averaged the range of values provided by each of the real estate agents. Mr Thomas further states that the Trustee should have indicated what would have been the dividend prospects at the highest value given by the real estate agents.

   [102] Expert Report of Gavin Thomas, [2]

5. Whether or not the Trustee adopted an appropriate methodology to ascertain the value of the Property is not a matter pleaded in the statement of claim. Even if the issue were pleaded, and even if it is accepted the Trustee’s approach was not one that would be followed by a competent trustee, the creditors’ reports noted the Trustee had received appraisals, and yet only referred to one figure. From that it would have been obvious to a reader of the reports that the figure the Trustee used would have in some way been an average. Had Mr Sammut or any other creditor desired to know the highest of the three appraisals, a simple enquiry could have been made of the Trustee. Further, after he received the creditors’ reports, Mr Sammut, through his lawyer, provided to the Trustee an appraisal of the Property of between $280,000 and $310,000. [103] Mr Sammut, therefore, knew that the Trustee had in his hands an appraisal that was in excess of $260,000.

   [103] Affidavit of G S Hansen, 17.10.2013, Exhibit GSH-1, page 73-76

6. In any event, even if the Trustee was obliged, but failed to disclose the highest of the three appraisals he had received, there is nothing before me to suggest that the Trustee would not have made or ought not to have made the Decision. The analysis on the basis of which the Trustee made the Decision assumed the Property had the highest of the three values estimated by the appraisals the Trustee had received.

7. The third and fourth issues Mr Thomas addresses may be considered together; and these are whether a reasonably competent bankruptcy trustee in the position of the Trustee would have informed creditors that the Trustee had formed the view the Mr Coulter De Rome’s mortgage was voidable against him and, if so, whether the Trustee should have convened a creditors’ meetings to seek the creditors’ approval to compromise the claim the Trustee had in relation to the mortgage. I have already considered Mr Thomas’ opinions on these issues.

8. The fifth issue Mr Thomas addressed was whether a reasonably competent bankruptcy trustee in the position of the Trustee would have informed the creditors he intended to transfer the bankrupts’ interests in the Property to Mr Coulter De Rome and compromise the Trustee’s claims in relation to Mr Coulter De Rome’s mortgage. Mr Thomas does not give a responsive opinion. He says that the letter from the Trustee’s solicitors to Mr Sammut’s solicitors dated 1 March 2013 did not deal with the rights of the Trustee that might have been available under s.122 of the Act.

9. The sixth issue was whether a reasonably competent bankruptcy trustee in the position of the Trustee would seek creditor approval before agreeing to transfer the Property to Mr Coulter De Rome. Mr Thomas does not give a responsive answer. He says that a reasonably competent trustee would not deal with real estate by selling it to a secured creditor who was a relative of the bankrupt without taking steps to ascertain the validity of the claim, the security, and determining the value of the property through an accepted valuation method. Mr Thomas also says that the financial information contained in the creditor’s reports was inaccurate and that the Trustee should have sent a second report bringing to the attention of the creditors a number of matters. These matters included uncertainty about the amount of the debt Mr Coulter De Rome claimed, that Mr Sammut had queried the value of the Property, and that the bankrupts had spent $24,500 to acquire a removable home.

10. Even if all this is accepted, there is no evidence from which it could reasonably be inferred that the creditors, if informed of these matters, would have decided against the Trustee entering into the agreement with Mr Coulter De Rome. It is difficult to see how the creditors could have so decided, given the analysis on the basis of which the Trustee made the Decision whose accuracy or reasonableness has not been put into question.

1. The seventh issue Mr Thomas addressed in his report is whether a reasonably competent bankruptcy trustee in the position of the Trustee would rely on curb side appraisals in the context of “a dispute as to its value and having promised to obtain a formal valuation”.[104] Mr Thomas says the Trustee’s reliance on the curb side valuations was “unprofessional” because the range of figures was such that no meaningful figure was available to assess which course of action was best for the administration.[105] Even if I assume these opinions are within the scope of Mr Thomas’ expertise, I would not accept them. In any event, even if the opinions are assumed to be correct, there is no evidence that had the Trustee not relied on the curb side valuations the Trustee would have obtained a valuation that showed a value higher than the $310,000 value he assumed the Property had and on the basis of which the Trustee undertook the analysis on which he relied for making the Decision.

   [104] Expert Report of Gavin Thomas, [7]

   [105] Expert Report of Gavin Thomas, [7.1]

2. The eighth issue is whether a reasonably competent bankruptcy trustee in the position of the Trustee would have informed creditors he had made a decision as soon as possible. Mr Thomas says the Trustee should have issued a supplementary report detailing his findings and proposed actions subject to any creditors’ objections. Assuming the Trustee had done that, it is reasonable to expect the Trustee would have disclosed to the creditors the analysis which the Trustee undertook before he made the Decision. Given that, under that analysis, the reasonableness of which has not been challenged, the Trustee concluded there would be a shortfall of $13,000 if the Trustee were to challenge the validity of Mr Coulter De Rome’s mortgage, as opposed to a gain of $18,000 if he were to enter into an agreement with Mr Coulter De Rome, the creditors would not have refused to approve the Trustee’s entering into the agreement, or at least would have had no reasonable grounds for not agreeing to the Trustee entering into such agreement.

3. Mr Thomas was unable to offer an opinion about the ninth issue he was asked to address. The tenth issue he was asked to address was whether a reasonably competent bankruptcy trustee in the position of the Trustee would have made the Decision without informing creditors and considering their views, having promised to keep the creditors informed, and without the benefit of a valuation, having promised to obtain one. Mr Thomas stated the Trustee made an error by deciding not to obtain a formal valuation or requesting creditors to pay for a valuation. Assuming that is correct, there is nothing before me that could reasonably suggest that had the Trustee obtained a formal valuation the Property would have been valued for more than the $310,000 the Trustee assumed the Property was worth when the Trustee undertook the analysis on the basis of which the Trustee made the Decision.

Orders that it would otherwise be just and equitable

1. None of the grounds on which Mr Sammut relies, considered alone or in combination, demonstrate it would be just and equitable to make any order because of the Trustee’s Decision. If, contrary to my conclusion, one or more of the grounds did demonstrate it would be just and equitable to make an order to set aside the agreement between the Trustee and Mr Coulter De Rome, the order would be made subject to terms that would have the purpose of restoring the parties to the position they would have been in had the Trustee not made the Decision. Given that bad faith has not been alleged against Mr Coulter De Rome, these terms would at the very least include the reimbursement of Mr Coulter De Rome of all money he has so far expended on the Property, the return of the $18,000 Mr Coulter De Rome paid to the Trustee, the reimbursement of money Mr Coulter De Rome paid to Suncorp under its mortgage, together with interest on those amounts. In addition, Mr Coulter De Rome would be entitled to insist that his mortgage is valid and defend any action the Trustee might bring against him to challenge the mortgage. No evidence was tendered to the effect that Mr Sammut or any other person would be prepared to pay money to reimburse Mr Coulter De Rome for the amounts he expended on or in connection with the Property, including $18,000 Mr Coulter De Rome paid to the Trustee, as a condition of the Court making an order to set aside the agreement between the Trustee and Mr Coulter De Rome.

2. Even if I had found the Trustee acted in breach of his duty by preferring his interests over those of creditors, that would not have resulted in an order requiring the Trustee to pay the amounts that would restore Mr Coulter De Rome to the position he would have been in had he not entered into the agreement with the Trustee and spent money on the Property on the faith of that agreement. That is so because it would deliver a substantial windfall to the bankrupts’ estates. At most, assuming bad faith were found against the Trustee, the just and equitable order would be that the Trustee pay an amount that would place the estates in the position they would have been in had the Trustee not made and acted on the Decision. There is no evidence on the basis of which an assessment or even a rough estimate may be made of such sum.

Conclusions and disposition

1. In my opinion, Mr Sammut has not demonstrated that it is just and equitable that the Court make an order because of the decision the Trustee made to transfer the bankrupts’ interest in the Property and not to challenge Mr Coulter De Rome’s mortgage in consideration of Mr Coulter De Rome paying $18,000 to the Trustee. I propose, therefore, to order that the application be dismissed. I also propose to order that Mr Sammut pay the Trustee’s costs and the costs of Mr Coulter De Rome. I will grant the parties liberty to apply within twenty one days for a different costs order.

I certify that the preceding one hundred and two (102) paragraphs are a true copy of the reasons for judgment of Judge Manousaridis

Date: 26 February 2016