Singh v Official Trustee In Bankruptcy (No.2)
[2007] FMCA 739
•17 May 2007
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| SINGH v OFFICIAL TRUSTEE IN BANKRUPTCY (No.2) | [2007] FMCA 739 |
| BANKRUPTCY – Appeal against trustee’s decision not to pay funds claimed by the applicant from the bankrupt estate being administered by the trustee – trustee conceding the funds claimed were not property of the bankrupt – applicant himself an undischarged bankrupt in New Zealand – funds claimed by his assignee in bankruptcy in New Zealand – applicant now claiming the funds are payable to a non party – application dismissed. PRACTICE AND PROCEDURE – Consolidation of proceedings – appropriate parties to consolidated proceeding – adjournment of consolidated proceeding pending the outcome of litigation in New Zealand. |
| Bankruptcy Act 1966 (Cth), ss.29, 178 |
| In the Matter of Khadem, a Bankrupt, Singh v The Official Trustee in Bankruptcy [2007] FCA 495 |
| Applicant: | MOTI SINGH |
| Respondent: | OFFICIAL TRUSTEE IN BANKRUPTCY (AS TRUSTEE OF THE BANKRUPTCY ESTATE OF SHAIFUL ALAM KHADEM) |
| File Numbers: | ADG296 of 2005 SYG1289 of 2005 |
| Judgment of: | Driver FM |
| Hearing date: | 17 May 2007 |
| Delivered at: | Sydney |
| Delivered on: | 17 May 2007 |
REPRESENTATION
The Applicant appeared in person
| Solicitors for the Respondent: | Mr P Madden Gretsas & Associates |
AMENDED ORDERS
The Court directs that a copy of all orders made by Federal Magistrate Driver in proceedings ADG296 of 2005 on and from 19 October 2006 be placed on file SYG1289 of 2005, and henceforth the files travel together.
The proceedings are listed for further directions at 9.30am on 14 August 2007 at John Maddison Tower, 88 Goulburn Street, Sydney.
The application under s.178 of the Bankruptcy Act 1966 (Cth) is dismissed with costs.
The Official Trustee’s costs in proceedings SYG1289 of 2005 be paid from the bankrupt estate of Shaiful Alam Khadem in accordance with the Bankruptcy Act 1966 (Cth) and pursuant to the Federal Court scale and the trustee’s costs be taxed in accordance with the Federal Court Rules.
Humayon Kabir has liberty to apply for further directions or orders on seven days notice in writing to the parties.
Humayon Kabir has leave to appear by telephone on 14 August 2007.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
ADG296 of 2005
SYG1289 of 2005
| MOTI SINGH |
Applicant
And
| OFFICIAL TRUSTEE IN BANKRUPTCY (AS TRUSTEE OF THE BANKRUPT ESTATE OF SHAIFUL ALAM KHADEM) |
Respondent
REASONS FOR JUDGMENT
(revised from transcript)
I have before me an application filed on 10 November 2005 in the Adelaide Registry of the Court pursuant to s.178 of the Bankruptcy Act 1966 (Cth) (“the Bankruptcy Act”). That application seeks orders to quash a decision of the respondent trustee made on 13 September 2005 to refuse to pay over to the applicant certain moneys claimed by the applicant. The application also sought an order that the funds seized by the respondent from Provident Capital Limited following an order issued by the Federal Magistrates Court in Sydney on 19 July 2005 is subject to a constructive trust in favour of the applicant; an order that the funds are the trust property of the applicant; an order that the respondent return to the applicant his property together with interest at the rate of 10 per cent per annum; costs; equitable damages and any other relief the Court may deem just and appropriate. As will become clear the application has since been amended, both orally and in writing.
The procedural history of this matter is somewhat complex and needs to be set out in reasonable detail for clarity. The proceedings, pursuant to s.178 of the Bankruptcy Act were commenced in Adelaide, as I have noted, and are proceedings ADG296 of 2005. There was an earlier proceeding, being proceeding SYG1289 of 2005. That was an application by the Official Trustee of the bankrupt estate of Shaiful Alam Khadem against Parvin Akter, the wife of Mr Khadem, seeking a declaration that the transfer of a debenture certificate with Provident Capital Limited in the sum of $33,000 plus interest to Ms Akter was void, a declaration that the sum of $33,000 plus interest held in the debenture certificate with Provident Capital in the name of Ms Akter vests in the trustee and an order that Ms Akter sign documents in order to transfer the funds to the trustee. Other consequential relief was sought including an order that the respondent Ms Akter pay the costs of the application.
There were issues of service and notice raised in that matter, given that Mrs Akter was apparently at the time resident in Bangladesh. As matters transpired, perhaps fortuitously, Ms Akter consented to orders made by Federal Magistrate Raphael on 19 July 2005. Those orders were:
THE COURT DECLARES THAT:
1.A declaration that the transfer of Debenture Certificate number 203352 with Provident Capital Ltd in the sum of $33,000.00 plus interest thereon to the Respondent is void.
2.A declaration that the sum of $33,000.00 plus interest held in Debenture Certificate number 210711 with Provident Capital Ltd in the name of the Respondent vests in the Applicant.
3.That the Official Receiver in Bankruptcy be authorised to sign such withdrawal slips, certificates or other documents as may be required from Provident Capital Ltd to transfer Debenture Certificate number 210711 of the benefit of the sum of $33,000.00 plus interest to the Applicant.
No costs order was made. Neither there was an order that there be no order as to costs.
It was after that order was made that the proceeding in Adelaide was commenced. The application was opposed by the Official Trustee which is unsurprising in the light of the orders made by Federal Magistrate Raphael. A substantial amount of evidence was filed and various court events took place over a period of about 12 months until the Adelaide proceeding was ultimately transferred to this Court in Sydney.
The matter came before me on 19 October 2006. Having perused the papers it appeared to me that there was a serious problem with the s.178 application in that the orders made by Federal Magistrate Raphael provided a complete answer to the application. Plainly, the trustee was required to act in accordance with the orders made by the Court. The trustee could not accede to a request by Mr Singh to pay moneys held by the trustee to him when the Court had declared that that money was part of the bankrupt estate of Mr Khadem.
I sought to explain this to the parties at that time and noted that if the application was to proceed any further it would be necessary to deal with the orders made by Federal Magistrate Raphael as the application under s.178 appeared to be a collateral attack upon those orders.
On 19 October 2006 I ordered that the two proceedings be consolidated. I removed Ms Akter as a party to the consolidated proceeding, noting that she had consented to the orders made by Federal Magistrate Raphael, continued to be a resident of Bangladesh and appeared not to have a necessary interest in the proceeding. I also ordered that the present applicant, Mr Singh, be the applicant to the consolidated proceedings and that the respondent be the Official Trustee.
On that day Mr Madden, who appeared for the Official Trustee, conceded that on the facts at that time understood order 2 made by Federal Magistrate Raphael in the Parvin Akter proceeding ought not to have been made because the Trustee accepted that the funds recovered were not part of the bankrupt estate being administered. I therefore ordered that that order be vacated. I further ordered the trustee to make inquiries as to the legal owner of the money the subject of the proceedings and to file and serve an affidavit as to the outcome of those inquiries no later than 20 November 2006. I adjourned the proceedings for further directions on 23 November 2006.
On 23 November 2006 the affidavit of the Official Receiver was read. The facts disclosed that the applicant Mr Singh was an undischarged bankrupt in New Zealand. This raised the question of whether the Court should act in aid of the bankruptcy court of New Zealand, pursuant to s.29 of the Bankruptcy Act. I ordered that the Court invite consideration by a court exercising bankruptcy jurisdiction under the law of New Zealand whether that court should request assistance from this Court pursuant to s.29.
I required the parties to bring my orders to the attention of Mr Singh’s official assignee of his bankrupt estate in New Zealand and gave the official assignee photocopy access to documents filed in the proceedings. I directed that the Court would consider any request for assistance by a New Zealand court on 14 February 2007.
The matter came before me again on 14 February 2007 at which time I received a memorandum from counsel for the official assignee of Mr Singh’s bankrupt estate that was presented by the Official Trustee. That memorandum established that the official assignee wished to take steps in the High Court of New Zealand to obtain a letter of request but had not at that time done so. I directed that the hearing be adjourned to 17 May 2007 over the objections of Mr Singh. I also made orders for the filing of additional material.
Mr Singh sought leave to appeal from those orders in the Federal Court. The appeal was dealt with by Graham J who dismissed the application for leave on 12 March 2007 and gave reasons for that decision. The decision is reported as In the Matter of Khadem, a Bankrupt, Singh v The Official Trustee in Bankruptcy [2007] FCA 495. It appears from his Honour’s reasons that the dismissal order was, in effect, made by consent.
The matter came before me again today. The Official Trustee presented a further memorandum from the official assignee which, relevantly, states that proceedings have been commenced in the High Court of New Zealand for orders directing the issue of a letter of request to this Court but that those proceedings have not been completed. The Official Trustee, on behalf of the official assignee, sought further adjournment of three months. That adjournment was opposed by Mr Singh who, reasonably, pointed out that an inordinate amount of time had passed since he originally filed his application under s.178 of the Bankruptcy Act and that there ought to be some resolution to it. Mr Singh also pointed out that significant new evidence had come to light which had been filed in support of his application. That in particular is set out in the affidavit of Humayon Kabir filed on 9 May 2007. In substance, that affidavit states that virtually all of the money the subject of these proceedings is not in fact due to Mr Singh but is due to Mr Kabir.
The background facts which have led to the present dispute are somewhat complex. They are conveniently summarised in the judgment of Graham J and I incorporate in this judgment paragraphs 2 through to 7 of his Honour’s reasons:
The applicant’s case is that Shaiful Alam Khadem, an Australian citizen, became bankrupt in December 2004. Under s 58(1)(a) of the Act the property of the bankrupt, not being after-acquired property, vests forthwith in the Official Trustee where a debtor becomes a bankrupt. Under s 116(2)(a) property which vests in the Official Trustee does not extend to ‘property held by the bankrupt in trust for another person’.
My understanding is that the applicant claims that a debenture certificate number 210711 recording a loan of $A33,000 to Provident Capital Limited related to property held by the bankrupt in trust for him. Shortly before his bankruptcy Mr Khadem transferred the debenture certificate to his wife, Parvin Akter, but in proceedings SYG 1289 of 2005 in the Federal Magistrates Court of Australia that transfer was set aside and declared to be void.
The applicant presently before the Court contends that the amount of $A33,000 plus interest recovered by the Official Trustee in Bankruptcy in respect of Mr Khadem’s bankrupt estate is held in trust for him. On 14 February 2007 Federal Magistrate Driver ordered the Official Trustee in Bankruptcy as the trustee of the bankrupt estate of Mr Khadem to pay the funds the subject of proceedings No. (P)ADG 296/2005 instituted in the Federal Magistrates Court of Australia by the applicant into an interest‑bearing trust account and to retain same pending further orders of the Federal Magistrates Court.
Those proceedings were commenced by the applicant on 10 November 2005 in Adelaide. They have subsequently been transferred to Sydney. The applicant had hoped that his matter would be heard by the Federal Magistrates Court on 14 February 2007. Instead, Federal Magistrate Driver adjourned it until 17 May next. Apart from quarantining the funds claimed by the applicant, Federal Magistrate Driver on 14 February 2007 granted leave to the parties to file and serve any amended application and any Affidavit evidence they may wish to rely upon in those proceedings no later than 11 May 2007.
I will not go into the facts in great detail beyond saying that the applicant is himself a New Zealand citizen who now has permanent residency in Australia. He had a friend in New Zealand known as Humayon Kabir who was also a New Zealand citizen. The applicant contends that Mr Kabir lent the applicant approximately $NZ40,000. Instead of paying the money directly to the applicant, Mr Kabir is said to have paid it into a bank account at a National Australia Bank Limited branch in Sydney in the name of Mr Khadem who is an Australian citizen. Mr Khadem was previously the brother-in-law of the applicant, he having been married to the applicant’s sister. Subsequently he became divorced from the applicant’s sister and proceeded to marry Parvin Akter who as I understand it is living in Bangladesh.
The applicant’s case is that when he moved to Australia he married under an arranged marriage. He says that rather than have the money lent to him directly by Mr Kabir, he requested that it be provided to Mr Khadem with a view to it being invested in his name and held in trust for the applicant. My understanding is that the applicant has made a claim on the trustee of Mr Khadem’s bankrupt estate for the moneys and that that application was refused, it being suggested that there was insufficient evidence to support the claim to the moneys the subject of the debenture certificate on the applicant’s behalf.
There are essentially two issues to resolve. The first and major question is whether the funds which are currently held in a trust account by the Official Trustee pursuant to orders made by me should be paid to Mr Singh or Mr Kabir or Mr Singh’s Official Assignee or someone else. The second is what, if any, orders should be made in respect of moneys expended from the funds recovered in the Parvin Akter proceedings in those proceedings.
Both the applicant Mr Singh and the Official Trustee relied upon all material filed on their behalf in the proceedings. No objection was raised by either party to any of the material relied upon with the exception that Mr Singh objected to my receipt of the latest memorandum of counsel from the official assignee filed on 16 May 2007. That is in part a submission in support of an adjournment application but also contains a factual statement as to the present state of the proceeding in the High Court of New Zealand. That is obviously relevant and I received the memorandum as evidence to that extent. None of the deponents were required for cross-examination.
Up until the time I set aside order 2 made by Federal Magistrate Raphael, in my view, the application under s.178 of the Bankruptcy Act by Mr Singh was doomed to fail. Once that order was vacated it became an open question of what should become of the funds recovered from Ms Akter. They are currently held in a trust account and the Official Trustee, in effect, takes the position of an interpleader. The Official Trustee concedes that the funds are not part of the bankrupt estate of Mr Khadem which the Official Trustee is administering and awaits orders of the Court as to what should be done with the money.
There are a number of facts of significance. One is that the applicant Mr Singh is an undischarged bankrupt in New Zealand. The Court must pay regard to s.29 of the Bankruptcy Act:
(1) All Courts having jurisdiction under this Act, the Judges of those Courts and the officers of or under the control of those Courts shall severally act in aid of and be auxiliary to each other in all matters of bankruptcy.
(2) In all matters of bankruptcy, the Court:
(a) shall act in aid of and be auxiliary to the courts of the external Territories, and of prescribed countries, that have jurisdiction in bankruptcy; and
(b) may act in aid of and be auxiliary to the courts of other countries that have jurisdiction in bankruptcy.
(3) Where a letter of request from a court of an external Territory, or of a country other than Australia, requesting aid in a matter of bankruptcy is filed in the Court, the Court may exercise such powers with respect to the matter as it could exercise if the matter had arisen within its own jurisdiction.
(4) The Court may request a court of an external Territory, or of a country other than Australia, that has jurisdiction in bankruptcy to act in aid of and be auxiliary to it in any matter of bankruptcy.
(5) In this section, prescribed country means:
(a)the United Kingdom, Canada and New Zealand;
(b)a country prescribed by the regulations for the purposes of this subsection; and
(c) a colony, overseas territory or protectorate of a country specified in paragraph (a) or of a country so prescribed.
The Court is on notice that Mr Singh’s official assignee is seeking orders for a letter of request from the High Court in New Zealand and if such a letter of request is received, there would need to be good reasons advanced why the Court should not act in conformity with it.
Secondly, the position of Mr Singh on his application has fundamentally changed. Originally, he sought orders for payment of the money to him on the basis that the funds had been paid by Mr Kabir to Mr Khadem to be held on trust for him and that he was therefore entitled to those funds in his own right both under law and equity. Now, following the disclosure of the interest of the official assignee in the money, Mr Singh relies upon the latest affidavit of Mr Kabir that all but NZ$1057.51 is the property of Mr Kabir and should be paid to him.
The affidavit evidence upon which Mr Singh relies consists substantially of unsupported assertions. The financial arrangements between him and others appear to me to be somewhat murky. Mr Singh deposes that he paid funds to Mr Kabir very shortly before he became bankrupt in New Zealand. Although Mr Singh denies any prior knowledge of that bankruptcy the timing and circumstances of the transfer of that money, if it occurred, are suspicious.
It is even more suspicious that now that Mr Singh is on notice of a real prospect of the funds being transferred to New Zealand for the benefit of his creditors there that Mr Kabir recants earlier evidence that the money was Mr Singh’s and now claims it is his. Although Mr Kabir refers in his most recent affidavit to banking records those are not annexed to his affidavit. I am left in significant doubt as to whether any weight can be given to Mr Kabir’s evidence.
The position is that the funds held by the trustee are not the property of either Ms Akter or Mr Khadem. That was established in the Parvin Akter proceeding and in consequence of the concession more recently made by the Official Trustee. On the basis of the available evidence it appears that the funds held by the Official Trustee are either the property of Mr Singh, or Mr Kabir or both although any division of those funds between them is, in my view, a matter of speculation.
I am not persuaded on the basis of the material before me that any order should be made pursuant to s.178 of the Bankruptcy Act for payment of the funds held by the Official Trustee to either Mr Kabir or Mr Singh. Mr Kabir is not a party to these proceedings, neither is there anything before me to tell me that he is seeking to be joined[1]. There is some confusion whether Mr Kabir is now saying that he paid the money to Mr Khadem in error or as a loan. It appears from the reasons of Graham J that the Federal Court was told by Mr Singh that the payment should be treated as a loan. That is consistent with what Mr Kabir says in his most recent affidavit although on a reading of the affidavit as a whole it is equally possible that Mr Kabir is saying that the money was paid under a common mistake of fact. In either case it seems to me that if what Mr Kabir is now saying is true he is a creditor of Mr Singh. Mr Kabir is resident in New Zealand. The bankrupt estate of Mr Singh is being administered in New Zealand. If Mr Kabir wishes to make a claim on Mr Singh’s bankrupt estate he may do so in accordance with the bankruptcy law of New Zealand and no doubt that claim will be dealt with by the official assignee of Mr Singh’s bankrupt estate. Any dispute in relation to such a claim could be dealt with in accordance with the law of New Zealand by the courts of New Zealand. Those courts would be the appropriate forum for the resolution of any such dispute.
[1] That statement may not be correct. See the addendum to this judgment.
A payment of anything more than NZ$1057.51 to Mr Singh would be inconsistent with the evidence upon which he now relies. I am not persuaded that even that amount should be paid to him as it relies entirely on a calculation by Mr Kabir unsupported by any documentary evidence and in the light of Mr Kabir’s serious errors deposed to in his own affidavit. No payment should be made by this Court to Mr Kabir not least because it would be improper to give him a preference over other creditors of Mr Singh’s bankrupt estate.
The appropriate course is to dismiss the application under s.178 of the Bankruptcy Act with costs and I so order.
The money will remain held in trust pursuant to the orders already made by the Court pending the outcome of the proceedings in the High Court in New Zealand.
Although the official assignee sought an adjournment of three months in these proceedings the official assignee should be encouraged to exercise more vigour in achieving an outcome. I will list proceedings for further directions at 9.30 am on 14 August 2007 when I would hope that more definitive information would be available in relation to position of the official assignee.
There remains the question of the funds expended by the Official Trustee in the Parvin Akter proceeding. Mr Singh has made serious allegations against the Official Trust in relation to that expenditure. Apart from Mr Singh’s assertions, however, there is no evidence that the conduct of the Official Trustee was unlawful or improper. The evidence discloses that the Official Trustee received information that Mr Khadem had failed to disclose the debenture certificate and that the funds had been transferred to his wife. That was, indeed, verified when the Official Trustee approached the financial institution holding the funds.
The affidavit of Philip Madden filed on 18 May 2005 in the Parvin Akter proceedings deposes as to the relevant circumstances. Annexure D to that affidavit is a facsimile letter from Provident Capital to the Insolvency and Trustee Service Australia in which Provident Capital states that following transfer of the investment from Mr Khadem to Ms Akter there were no funds of the bankrupt Mr Khadem held by Provident Capital and that no payment would be made to the Official Trustee in the absence of a court order.
That is patent evidence as to the necessity of the Parvin Akter proceeding. I reject the contention that that proceeding was commenced improperly. Nevertheless, and this is significant, the orders ultimately made by Federal Magistrate Raphael were made by consent of Ms Akter. There is a question of the extent to which the funds expended in the proceedings were reasonably and properly expended. In the absence of a costs order and a taxation of those costs it is difficult to answer that question.
I have decided in the circumstances that a costs order should be made and that the Official Trustee’s costs in that proceeding should be taxed.
I order that the Official Trustee’s costs in proceeding SYG1289 of 2005 be paid from the bankrupt estate of Mr Khadem in accordance with the Bankruptcy Act and pursuant to the Federal Court scale and that the trustee’s costs be taxed in accordance with the Federal Court Rules.
The Official Trustee has given the Court an undertaking that he would account for his expenditure in that proceeding. That is appropriate as the funds expended were not part of the bankrupt estate which the trustee is administering. The trustee did not know that at the time of the expenditure but it has since been conceded. There will be need to a resolution of the question of whether the trustee should be required to reimburse the funds currently held in trust in respect of that expenditure. The resolution of that question can await the taxation of the trustee’s costs and will no doubt require a consideration of whether the expenditure is properly recoverable from the trustee in circumstances where the expenditure was undertaken in good faith and for good reason.
Addendum
Since giving judgment in this matter Mr Kabir has written to the Court expressing concern that an earlier letter from him to the Court dated 7 May 2007, in which he stated that he wished to be heard, and inviting the Court to contact him to discuss his most recent affidavit, had not been taken into account. Mr Singh referred to the first letter from Mr Kabir in court on 17 May 2007 but I could not locate it on the correspondence file. I did locate another letter from Mr Kabir, which simply provided his most recent affidavit. In his most recent correspondence Mr Kabir provides a copy of his letter dated 7 May 2007. On re-checking the correspondence file, I confirmed that that letter was on the correspondence file, stapled behind an e-mail. I overlooked it on 17 May 2007. Mr Kabir’s request for an opportunity to be heard by the Court should not be ignored and may indicate that he wishes to apply to become a party to the proceedings or file his own application claiming the money the subject of the proceedings. I have decided that, in the circumstances, my orders require amendment in order to ensure that Mr Kabir has that opportunity. I have added orders 5 and 6 to this judgment.
I certify that the preceding thirty-six (36) paragraphs are a true copy of the reasons for judgment of Driver FM
Associate:
Date: 22 May 2007