Stillman v Pascoe
[2010] FMCA 548
•28 July 2010
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| STILLMAN v PASCOE | [2010] FMCA 548 |
| BANKRUPTCY – Trustee in bankruptcy – interim application for summary dismissal of application for inquiry into conduct of Trustee – alleged freezing of bank account by Trustee – duties of Trustee – principles in relation to summary dismissal – whether bank account frozen – whether misconduct by Trustee. |
| Bankruptcy Act 1966 (Cth), ss.17A, 19, 58, 77, 125(1) and (2), 139U, 179 Federal Court of Australia Act 1976 (Cth), s.31A(2)(b) Federal Court Rules (Cth), O.35 r.8 Federal Magistrates Act 1999 (Cth), ss.17A, 76(3)(d) Federal Magistrates Court Rules 2001 (Cth), r.13.10 Workers’ Compensation and Injury Management Act 1981 (WA), s.303(1) |
| Adsett v Berlouis (1992) 37 FCR 201 Boensch v Pascoe (2007) 5 ABC(NS) 480; [2007] FCA 1977 Coyne v Douglas-Brown [2002] FCA 1324 Dey v Victorian Railways Commissioners (1949) 78 CLR 62 General Steel Industries Inc v Commissioner for Railways (NSW) & Ors (1964) 112 CLR 125 George v Fletcher [2010] FCAFC 53 Jefferson Ford Pty Ltd v Ford Motor Company of Australia Ltd (2008) 167 FCR 372; [2008] FCAFC 60 Lawrenson Light Metal Die Casting Pty Ltd (in liq) v Cosmick Pty Ltd [2006] FCA 753 Maxwell-Smith v Donnelly (2006) 4 ABC(NS) 621; [2006] FCAFC 150 Randall v Deputy Commissioner of Taxation (2008) 174 FCR 441; [2008] FCA 1939 Stillman v Pascoe [2010] FMCA 549 Trkulja v Morton (2005) 3 ABC(NS) 231; [2005] FCA 659 Trkulja v Morton (2005) 4 ABC(NS) 110; [2005] FCAFC 259 Wade v Leroy [2010] FCA 178 White Industries Australia Ltd v Commissioner of Taxation (2007) 160 FCR 298; [2007] FCA 511 |
| PP McQuade and MGR Gronow, McDonald, Henry & Meek Australian Bankruptcy Law and Practice (6th edn) (Sydney: Thomson Reuters, 2008) |
| Applicant: | TREVOR JAMES STILLMAN |
| Respondent: | SCOTT PASCOE |
| File Number: | PEG 230 of 2009 |
| Judgment of: | Lucev FM |
| Hearing date: | 19 April 2010 |
| Date of Last Submission: | 19 April 2010 |
| Delivered at: | Perth |
| Delivered on: | 28 July 2010 |
REPRESENTATION
| Counsel for the Applicant: | Mr R W Bower |
| Solicitors for the Applicant: | Corser & Corser Lawyers |
| Counsel for the Respondent: | Mr C Donoghue |
| Solicitors for the Respondent: | Carles Solicitors |
ORDERS
That the Trustee pay to the Applicant within 14 days the sum of $2382.79, plus interest:
(a)up to judgment in a lump sum of $300.00 pursuant to s.76(3)(d) of the Federal Magistrates Act 1999 (Cth); and
(b)on judgment at the rate prescribed by Order 35 rule 8 of the Federal Court Rules from the date of entry of judgment to the date of payment.
That the interim application for summary dismissal of the application otherwise be upheld.
That the application otherwise be dismissed.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA ATPERTH |
PEG 230 of 2009
| TREVOR JAMES STILLMAN |
Applicant
And
| SCOTT PASCOE |
Respondent
REASONS FOR JUDGMENT
Interim application
The Court has before it an interim application filed by the respondent[1] for summary dismissal of the application in this matter by the bankrupt, Mr Stillman.
[1] “the Trustee”.
The interim application seeks order in the following terms:
1.The originating application filed 10 December 2009 by the respondent [applicant] Trevor James Stillman be dismissed.
2.The respondent [applicant] Trevor James Stillman is to pay the costs of the interim application of the applicant [respondent] Scott Darren Pascoe and of the originating application filed on 10 December 2009 by the respondent [applicant] Trevor James Stillman.[2]
[2] “Interim Application”.
The substantive application in this matter seeks orders under s.179 of the Bankruptcy Act 1966 (Cth)[3] as follows:
1.the Respondent pay to the Applicant all sums in the nature of workers’ compensation and wages of the Applicant received or controlled by the Respondent;
2.the Respondent be disentitled to recover costs in respect of his work as trustee of the Applicant’s bankrupt estate;
3.the Respondent be removed as trustee of the Applicant’s bankrupt estate;
4.the Official Receiver be appointed as the Applicant’s trustee in bankruptcy;
5.the Respondent pay the Applicant’s cost of this application to be fixed and paid forthwith.[4]
[3] “Bankruptcy Act”.
[4] “Section 179 Inquiry Application”.
Section 179 inquiry
In essence, the Interim Application seeks to have the Section 179 Inquiry Application dismissed. Section 179(1) of the Bankruptcy Act provides as follows:
(1) The Court may, on the application of the Inspector‑General, a creditor or the bankrupt, inquire into the conduct of a trustee in relation to a bankruptcy and may do one or both of the following:
(a) remove the trustee from office; and
(b) make such order as it thinks proper.
In determining whether s.179(1) of the Bankruptcy Act is to be invoked it is usual to consider first whether an inquiry should be held into the conduct of a trustee in bankruptcy.[5]
[5] Boensch v Pascoe (2007) 5 ABC(NS) 480 at 482 per Buchanan J; [2007] FCA 1977 at para.7 per Buchanan J (“Boensch”).
The relevant authorities concerning the power to order an inquiry are set out in Maxwell-Smith v Donnelly[6] where the Full Court of the Federal Court of Australia said as follows:
[6] (2006) 4 ABC(NS) 621; [2006] FCAFC 150 (“Maxwell-Smith”).
[52] The authorities concerning the exercise of the power to order an inquiry have recently been conveniently gathered together in Moore v Macks [2006] FMCA 594. The learned Federal Magistrate described what he called the threshold requirement before an inquiry could be ordered under s 179 (at [13]-[18]):
The threshold requirement
In Re Alafaci; Registrar in Bankruptcy v Hardwick (1976) 9 ALR 262 Riley J observed in relation to a request by the Registrar in Bankruptcy for an inquiry in relation to the conduct of a trustee at p 268:
Before the application is heard, therefore, the trustee will know the grounds on which the court will be asked, inter alia, to inquire into his conduct and the facts on which the Registrar proposes to rely in supply [sic] of his application that the court do so inquire. I do not wish to be taken as presuming to lay down any rule as to the procedure to be followed in, or the approach to be made by the court to, a case of this sort; but it seems to me that in such a case there is a preliminary question to be decided by the court -- namely on the grounds and facts before it, has a case been made for inquiry into the trustee's conduct? If the answer to that question is "yes", the next question is -- what is to be the scope of the inquiry? It may be that the material already before the court sufficiently defines the scope of the inquiry; on the other hand, the court may find it necessary to define the subjects for inquiry -- eg in the form: "Did the trustee do (or fail to do) so and so?" -- and to give directions before proceeding to inquire.
In Re Gault; Gault v Law (1981) 57 FLR 165 the Federal Court was asked to conduct an inquiry in relation to the trustee of the bankrupt's estate. In fact, the case involves the second such request for an inquiry made many years after the first request had been made and refused. Ellicott J referred to Re Alafachi (above) at p 173 and said:
It was with his Honour's comments in mind that I required the applicant to give particulars of the misconduct he relied on to found his application. The court has a broad discretion in deciding whether to order an inquiry. In my opinion it is not required to order an inquiry unless it is satisfied that sufficient grounds had been made out.
For instance, the court should be loathe to order an inquiry unless it considers that on the evidence before it there are substantial grounds for believing that the trustee erred in his administration. If the court considers that an inquiry is unlikely to reveal misconduct it should not make an order and put the respondent and possibly the creditors to the expense and trouble involved. It should also be borne in mind that a debtor applicant may have other remedies to pursue, for example in an action for breach of trust.
In Muir v Bradley (1983) 72 FLR 231 Beaumont J was considering an application by the Registrar in Bankruptcy for a s 179 inquiry. His Honour referred to the passages from Re Alafachi and Gault (above) and said at p 233:
In my opinion, the balance of convenience in this case indicates that a preliminary inquiry of the type urged by the respondent was the appropriate course to be adopted provided that, in the event that the matter goes forward to an inquiry on a final hearing, the evidence taken and submissions made in the preliminary inquiry are to be regarded as evidence and submissions in the final inquiry: in other words, the preliminary inquiry should be treated as part of the final inquiry. It is as if the respondent were to move for the dismissal of the proceedings as an abuse of process and then to fail in that application, in which event the material before the court in the summary application is to be treated as part of the material before the court upon the final hearing of the proceeding.
Finally, in Wilson v Commonwealth [1999] FCA 219 Branson J discusses the nature of proceedings pursuant to s 179 of the Act in addition to proceedings under s 178 of the Act. At [44] Her Honour summarises the law in relation to s 179 as follows:
Although it is not a rule of universal application, the court will not ordinarily initiate an inquiry under s 179 unless it is satisfied that a proper case for an inquiry has been demonstrated ... There will ordinarily be a proper case or an inquiry where there is a reasonable cause to believe that a trustee may have failed to act in relation to a bankruptcy in the manner required by the Act or the General law. However, as Ellicott J pointed out in Re Gault at 173:
The court has a broad discretion in deciding whether to order an inquiry. In my opinion it is not required to order an inquiry unless it is satisfied that sufficient grounds have been made out.
....
There can be no doubt then that the court is not obliged to embark upon an inquiry pursuant to s 179 simply because it is asked to do so. I have to be satisfied before embarking upon the inquiry that sufficient grounds have been demonstrated for the inquiry to be conducted. I will only be able to determine that if the applicant has revealed the basis claimed for the inquiry and the trustee given the opportunity to respond.
[53] The power to order an inquiry is a discretionary one. In addition, as just discussed, it is a discretionary power which is not ordinarily exercised. A clear case must be made out to warrant an inquiry.[7]
[7] Maxwell-Smith ABC(NS) at 632-633 per Moore, Nicholson and Conti JJ; FCAFC at paras.52-53 per Moore, Nicholson and Conti JJ.
In Trkulja v Morton[8] a single Judge of the Federal Court of Australia set out the requirements for a s.179 inquiry as follows:
[4] In its terms, this power is plainly concerned with "the conduct" of the trustee "in relation to a bankruptcy". As Macchia v Nilant (2001) [2001] FCA 7, 110 FCR 101 at [49]-[50] demonstrates, the Court must first consider whether it should inquire into the conduct of the trustee. If an inquiry is undertaken, the next question is whether the trustee should be removed from office and/or whether any other order should be made. The Court should be reluctant to undertake an inquiry, unless there are substantial grounds for believing that the trustee erred in the administration. If an inquiry is unlikely to reveal misconduct, it should not be undertaken. The Court should not unduly interfere with the day-to-day administration of a bankrupt's estate by the trustee. In order to remove a trustee in bankruptcy, it is necessary to find misconduct on the part of the trustee. Removal is possible if the relationship between the trustee and the bankrupt has broken down totally: Doolan v Dare (2004) [2004] FCA 682, 2 ABC(NS) 16 at [49]. In that case, Spender J found that there was a clear conflict of interest between the trustee's interests in having her remuneration paid and how she thought that might be achieved, and her obligations as a fiduciary to the creditors and the bankrupt.[9]
[8] (2005) 3 ABC(NS) 231; [2005] FCA 659 (“Trkulja”).
[9] Trkulja ABC(NS) at 232-233 per Gray J; FCA at para.4 per Gray J.
Trkulja was subsequently upheld by the Full Court of the Federal Court of Australia.[10]
[10] See Trkulja v Morton (2005) 4 ABC(NS) 110; [2005] FCAFC 259. See also Wade v Leroy [2010] FCA 178 at para.33 per Moore J.
Duties of trustee
The duties of a trustee in bankruptcy are as follows:
(1) The duties of the trustee of the estate of a bankrupt include the following:
(a)notifying the bankrupt's creditors of the bankruptcy;
(b)determining whether the estate includes property that can be realised to pay a dividend to creditors;
(c)reporting to creditors within 3 months of the date of the bankruptcy on the likelihood of creditors receiving a dividend before the end of the bankruptcy;
(d)giving information about the administration of the estate to a creditor who reasonably requests it;
(e)determining whether the bankrupt has made a transfer of property that is void against the trustee;
(f)taking appropriate steps to recover property for the benefit of the estate;
(g)taking whatever action is practicable to try to ensure that the bankrupt discharges all of the bankrupt's duties under this Act;
(h)considering whether the bankrupt has committed an offence against this Act;
(i) referring to the Inspector‑General or to relevant law enforcement authorities any evidence of an offence by the bankrupt against this Act;
(j) administering the estate as efficiently as possible by avoiding unnecessary expense;
(k) exercising powers and performing functions in a commercially sound way.
(2) Where a person who became a bankrupt on a creditor's petition is unable to prepare a proper statement of affairs, the trustee may employ, at the expense of the estate, a qualified person to assist in the preparation of the statement.[11]
[11] Bankruptcy Act, s.19.
For present purposes the general duties of a trustee can be summarised as follows:
1.A trustee appointed in relation to a bankrupt becomes trustee of the bankrupt’s estate and is bound to administer that estate in accordance with the Bankruptcy Act 1966 (Cth) and the Bankrupcty Rules.
2.The trustee has a dual function:
(a) to administer the estate in the interests of the creditors and the bankrupt;
(b) to exercise, as a public duty and for the public welfare, the powers given and duties imposed, under the Bankruptcy Act 1966 (Cth).
3.The trustee’s conduct is subject to the supervision of the court: Div 4 of Pt VIII.
4.The trustee is regarded as an officer of the relevant court.
5.A trustee in bankruptcy who acts for remuneration is under a duty of care greater than a gratuitous trustee.
6.The trustee is required to bring reasonable skill to the performance of her or his duties. A trustee must exercise judgment so as to save the estate unnecessary expenditure of money.
7.The discharge of a public duty imposed by the Bankruptcy Act 1966 (Cth) is to be performed conformably with the requirements of that duty, but also conformably with the trustee’s obligation to administer the estate in such a manner as to maximise satisfaction of the creditors’ claims and any possible surplus for the bankrupt. The trustee is in charge of the assets of the bankrupt and those assets are to be applied to the benefit of the creditors, and if there is any surplus, for the benefit of the bankrupt. It is clear that the minimum standard required of the trustee is that he or she shall handle the assets with a view to achieving the maximum return from the assets to satisfy the claims of the creditors and to provide the best surplus possible for the bankrupt.
8.A great deal of discretion and judgment is required to be exercised by the trustee.
9.The standard of conduct required of the trustee will ordinarily be the standard required of a professional person and perhaps higher.
10.Where an order is sought that a trustee be removed and make good losses suffered by the estate, it must be established that the trustee has been guilty of a breach of duty to act “diligently and prudently in regard to the business of the trust”.
11.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 business person would conduct her or his affairs. A trustee in bankruptcy is governed by the general law relating to trustees … save where the position of the trustee is modified by the Bankruptcy Act 1966 (Cth) or the Bankruptcy Rules.[12]
[12] PP McQuade and MGR Gronow, McDonald, Henry & Meek Australian Bankruptcy Law and Practice (6th edn) (Sydney: Thomson Reuters, 2008) at para.19.1.10 summarising the judgment of the Full Court of the Federal Court in Adsett v Berlouis (1992) 37 FCR 201 at 208-209 per Northrop, Wilcox and Cooper JJ.
Summary dismissal – principles to be applied in this Court
Section 17A of the Federal Magistrates Act 1999 (Cth)[13] provides as follows:
[13] “FM Act”.
(2)The Federal Magistrates Court may give judgment for one party against another in relation to the whole or any part of a proceeding if:
(a) …; and
(b) the Court is satisfied that the other party has no reasonable prospect of successfully prosecuting the proceeding or that part of the proceeding.
(3)For the purposes of this section, a defence or a proceeding or part of a proceeding need not be:
(a) hopeless; or
(b) bound to fail;
for it to have no reasonable prospect of success.
It is also relevant to note that r.13.10 of the Federal Magistrates Court Rules 2001 (Cth)[14] provides as follows:
The Court may order that a proceeding be stayed, or dismissed generally or in relation to any claim for relief in the proceeding, if the Court is satisfied that:
(a) the party prosecuting the proceeding or claim for relief has no reasonable prospect of successfully prosecuting the proceeding or claim; or …
[14] “FMC Rules”.
The Federal Court possesses a like power under s.31A(2)(b) of the Federal Court of Australia Act 1976 (Cth).[15] In relation to the power under s.31A(2)(b) of the FC Act it has been observed that:
a)a court must be satisfied that the applicant has no reasonable prospect of success;
b)the court need not be satisfied that the proceeding is hopeless or bound to fail;
c)the legislature’s intention in introducing the provisions concerning summary dismissal was to lower the bar for obtaining summary judgment (including summary dismissal) below the level that had been fixed by authorities like Dey v Victorian Railways Commissioners[16] and General Steel Industries Inc v Commissioner for Railways (NSW) & Ors[17] which required that the allegations be quite clearly so untenable that they could not possibly succeed;
d)there was not an intention on the part of the legislature to remove the bar completely;
e)the mere presence of a trifling, implausible, tenuous or tangentially relevant factual controversy is not a bar to the exercise of the summary dismissal power; and
f)what is required is a prediction of the outcome of a trial on the merits but not an actual adjudication of those merits.[18]
[15] “FC Act”.
[16] (1949) 78 CLR 62 at 91-92 per Dixon J.
[17] (1964) 112 CLR 125 at 129-130 per Barwick CJ.
[18] George v Fletcher [2010] FCAFC 53 at para.75 per Ryan and Logan JJ citing White Industries Australia Ltd v Commissioner of Taxation (2007) 160 FCR 298 at 310 per Lindgren J; [2007] FCA 511 at paras.50-54 per Lindgren J; and paras.99-105 per Marshall J, and in particular para.102 citing Jefferson Ford Pty Ltd v Ford Motor Company of Australia Ltd (2008) 167 FCR 372 at 387-388 per Rares J; [2008] FCAFC 60 at para.45 per Rares J; Lawrenson Light Metal Die Casting Pty Ltd (in liq) v Cosmick Pty Ltd [2006] FCA 753 at para.15 per Heerey J.
Factual matters in support of the substantive application
The relevant factual assertions originally made in support of the Section 179 Inquiry Application are as follows:
a)that the Trustee was preventing Mr Stillman from receiving workers’ compensation payments in the sum of $52,591.20 in contravention of s.303(1) of the Workers’ Compensation and Injury Management Act 1981 (WA);[19]
b)that the Trustee was preventing Mr Stillman from receiving wages payments in the sum of $12,942; and
c)that the Trustee was not entitled to rental income payments received by Mr Stillman as the bankrupt’s prior bankruptcy trustee, the Official Trustee, took no action to prevent rental income being paid to Mr Stillman after he disclosed that income, and Mr Stillman therefore asserts that it was his understanding that the Official Trustee was content for Mr Stillman to receive that income.[20]
[19] “WC Act”. Section 303(1) of the WC Act provides as follows:
(1) A payment of compensation, or a sum paid by way of redemption thereof, is not capable of being assigned, charged or attached, and shall not pass to another person by operation of the law, nor shall any claim be set off against such payment or sum, except in respect of voluntary advances of future compensation made by an employer or insurer with the approval of the Director.
[20] Affidavit of Trevor James Stillman sworn 23 November 2009, paras.7, 12, 19 and 20 (“Mr Stillman’s Affidavit”).
The freezing provisions of the Bankruptcy Act
Section 125(1) and (2) of the Bankruptcy Act provides as follows:
(1) Where a prescribed organization has ascertained that a person having an account with it is an undischarged bankrupt, then, unless the prescribed organization is satisfied that the account is on behalf of some other person, it shall forthwith inform the trustee, in writing, of the existence of the account and, subject to subsection (2), shall not make any further payments out of the account, except under an order of the Court of which a copy has been served on it or in accordance with written instructions from the trustee.
(2) If, within 1 month from the date on which the prescribed organization informed the trustee of the existence of the account, a copy of an order of the Court in respect of the account has not been served on the prescribed organization and it has not received written instructions from the trustee within that period in respect of the account, the prescribed organization is entitled to act without regard to any claim or right the trustee may have in respect of the account.
The freezing and unfreezing of Mr Stillman’s account
The background with respect to the freezing and unfreezing of Mr Stillman’s Account is as follows:
a)the Trustee wrote to the ANZ Bank on 19 January 2009 requesting information as to whether there was any account in credit in Mr Stillman’s name with the bank, and also requesting that if so, it be frozen immediately;[21]
[21] Affidavit of Andrew John Scott sworn 29 January 2010, Annexure C (“Mr Scott’s Affidavit”).
b)the ANZ Bank responded by advising that there was a savings account[22] with a credit of $6,970.32;[23]
[22] “the ANZ Bank Account”.
[23] Mr Scott’s Affidavit, Annexure D.
c)there was further correspondence between the Trustee and the ANZ Bank, leading to the Trustee writing to the bank on 19 February 2009, as follows:
“I understand from your correspondence that the account held by the bankrupt […] is in credit in the amount of $6,970.32. Would you please forward me a cheque for the balance of this account made payable to “Scott Pascoe ATF The Bankrupt Estate of Trevor Stillman” and then proceed to lift the freeze on the account.”[24]
[24] Mr Scott’s Affidavit, Annexure F.
d)the ANZ Bank did as requested by the Trustee, and forwarded a cheque to the Trustee for the amount of $6,972.32 being the credit amount in the ANZ Bank Account;[25]
[25] Mr Scott’s Affidavit, Annexure G.
e)on 27 February 2009 Mr Stillman’s solicitors wrote to the firm by which the Trustee is employed and asserted that the ANZ Bank Account contained funds comprising the proceeds of workers’ compensation payout and wages earned by him, and that according to the ANZ Bank the Trustee had taken action to freeze the ANZ Bank Account;[26]
[26] Mr Scott’s Affidavit, Annexure L.
f)the Trustee responded on 2 March 2009 advising that:
i)in accordance with s.125 of the Bankruptcy Act it was the Trustee’s usual practice to conduct searches of banks and request the freezing of any accounts in a bankrupt’s name where the accounts are in credit, until further instruction;
ii)rent had continued to be paid to Mr Stillman since the commencement of the bankruptcy in relation to a property in South Boulder,[27] and that such monies vested in the Trustee under s.58 of the Bankruptcy Act, and that the Trustee asserted that monies in the ANZ Bank Account represented the proceeds of the rental monies; and
[27] “the South Boulder Property”.
iii)the Trustee requested Mr Stillman to provide documents in support of his assertions that the monies in the ANZ Bank Account represented the proceeds of a workers’ compensation payout and his wages, including copies of bank statements from the commencement of the bankruptcy to date; information in relation to the workers’ compensation payout and disbursement of funds, and payslips since the commencement of the bankruptcy;
g)the Trustee did not however advise Mr Stillman’s solicitors that he had written to the ANZ Bank unfreezing the ANZ Bank Account some eight days earlier;
h)a letter of demand dated 13 March 2009 was sent by the Trustee to Mr Stillman in relation to rental payments on the South Boulder Property totalling $32,631.42 received after the date of bankruptcy;[28]
[28] Mr Scott’s Affidavit, Annexure O.
i)on 16 March 2009 Mr Stillman’s solicitors wrote to the Trustee:
i)indicating that Mr Stillman was preparing an analysis of his bank statements to provide to the Trustee which would identify the payments received for workers’ compensation and wages; and
ii)asserting that in relation to the South Boulder Property Mr Stillman’s original trustee, the Official Trustee, had approved of the rental payments from that property going to Mr Stillman;[29]
[29] Mr Scott’s Affidavit, Annexure P.
j)on 23 June 2009 Mr Stillman’s solicitors wrote to the Trustee:
i)complaining about the maintenance of the “frozen status” of the ANZ Bank Account;
ii)making accusations of wrongful and illegal conduct, and the misuse of and gross abuse of official powers because of the alleged maintenance of the “frozen status” of the ANZ Bank Account; and
iii)evincing an intention to commence action seeking to remove the Trustee as Mr Stillman’s trustee and to take action against the Trustee in the District Court of Western Australia for negligence;[30]
[30] Mr Scott’s Affidavit, Annexure S.
k)the Trustee made inquiries with the ANZ Bank,[31] and the outcome of those inquiries was detailed in a letter to Mr Stillman’s solicitors dated 24 June 2009,[32] which included the following:
[31] Mr Scott’s Affidavit, Annexure T.
[32] “Trustee’s June 2009 Letter”.
“Your client appears to be under a misapprehension that I am responsible for maintaining the frozen status of his bank account. Instructions were issued by me to ANZ in February 2009 to forward my office a cheque for the balance of funds in this account and to remove the freeze on your client’s account. My staff have spoken with ANZ today and have been advised that the freeze on your client’s account was removed in accordance with my instructions.
Accordingly, your assertions that I have wrongfully and illegally maintained the freeze on your client’s bank account is without merit. In the interests of minimising any further costs in this matter, I suggest your client contact his local ANZ branch to make his own independent enquires [sic].
I note the monies realised from your client’s bank account in February 2009 were realised on the basis that I asserted the funds represented the proceeds of the rental monies in relation to the property known as 25 Pirie Street, Boulder WA. By my letter dated 2 March 2009, I requested your client to provide written information to support his assertions that the proceeds of this account represented his workers compensation payout and wages. Your letter in response dated 16 March 2009 advised that your client was preparing an analysis of his bank statements to identify payments received for workers compensation and that you would provide the information to me.
No further information was produced by your client in relation to the origins of the funds held in his ANZ bank account, despite my request in writing and your written advice to me that you would provide this information. In the absence of any information to the contrary I maintain my position that the funds in the bank account were divisible property.
If your client provides me with evidence which establishes the funds in this account are directly traceable to the proceeds of his workers compensation and/or wages, then I will review my position. However, the fact that your client received the benefit of rental monies after the commencement of the bankruptcy to which he was not entitled is relevant to my decision. The total of such payments well exceeds the amount of monies realised by me from this account.
Please remind your client of his duties pursuant to Section 77 of the Bankruptcy Act. Unless the written information requested in my letter dated 2 March 2009 is provided to my office by close of business on 10 July 2009 it is my present intention to lodge an objection to discharge which may have the effect of extending your client’s bankruptcy period to eight years from the date he filed his Statement of Affairs.
I reserve my rights to rely on this letter in relation to the question of costs in any proceedings that are brought by your client as contemplated in your letter.’’[33]
[33] Mr Scott’s Affidavit, Annexure U.
l)by letter dated 20 October 2009[34] Mr Stillman’s solicitors provided:
[34] “Mr Stillman’s October 2009 Letter”.
i)copies of five pages of bank statements for the ANZ Bank Account said to identify workers’ compensation payments, wages and rental income for the period 28 November 2008 to 17 March 2009; and
ii)copies of pages 2, 5, 6, 8, 11, 15 and 18 of Mr Stillman’s Statement of Affairs provided at the time he placed himself into bankruptcy;
m)in Mr Stillman’s October 2009 Letter Mr Stillman’s solicitors assert that the Trustee was aware of the express details of the ANZ Bank Account income, including that Mr Stillman was in receipt of:
i)workers’ compensation and wages; and
ii)rental paid on the South Boulder Property,
because those facts were expressly referred to in the relevant entries in the bank statements.[35]
[35] Mr Scott’s Affidavit, Annexure V.
n)Mr Stillman’s October 2009 Letter asserts that:
i)the ANZ Bank Account is still frozen with a credit balance of $43,696.90 as at May 2009, or alternatively that it has a nil balance because the Trustee has appropriated the final balance to his purposes;
ii)by misappropriating the total of the funds in the ANZ Bank Account by freezing it or removing the funds the Trustee has breached s.303 of the Workers’ Compensation Act;
iii)there is no basis on which the Trustee could appropriate Mr Stillman’s wages; and
iv)the assertion in the Trustee’s June 2009 Letter that the funds in the ANZ Bank Account comprised rental income and that the Trustee therefore appropriated the full amount is not supported by the facts, and it is implied that the Official Trustee permitted Mr Stillman to keep rental payments on the South Boulder Property.[36]
[36] Mr Scott’s Affidavit, Annexure V.
o)the pages inserted from Mr Stillman’s Statement of Affairs do make reference to:
i)Mr Stillman being on workers’ compensation or totally unfit for work; and
ii)a property rented to a tenant for $51,000 per annum, with a note that no rent had as of yet been received;[37]
[37] Mr Scott’s Affidavit, Annexure V.
p)the Trustee responded to Mr Stillman’s October 2009 Letter on 30 October 2009:
i)attaching a Section 77 Notice under the Bankruptcy Act; and
ii)requesting further information under s.139U of the Bankruptcy Act,
but not addressing in detail the substance of the complaints set out above made in Mr Stillman’s 20 October 2009 Letter;[38] and
[38] Mr Scott’s Affidavit, Annexure W.
q)on 27 January 2010 the Trustee’s solicitors wrote to Mr Stillman’s solicitors, and advised as follows:
“The ANZ Bank has advised that its policy is that a bankrupt can only withdraw funds from his/her account by going into a branch of the bank. That is, for the remaining period of his/her bankruptcy the bankrupt cannot use any electronic methods, e.g. eftpos.
Your client made claims alleging the amount withdrawn by our client was made up of Workers Compensation payments, wages and rental income. Your client was requested to provide evidence to this effect. The Account bank statements were provided by your client on 20 October 2009.
Workers Compensation Payments
The last payment of $2098.90 was paid into your clients Account on 29 December 2008. On the 2 January 2009 your client withdrew $11,010.00 from his Account which left a remaining balance of $506.79 in the Account.
The extent to which the balance of $506.79 consists of workers compensation payments paid into the Account from 22 September 2008 to 29 December 2008 is arguable. This is especially so given there were other payments paid into the account during this period made up of rental income and wages. The workers compensation payment transactions were as follows:
§22.9.08 $2,098.90
§7.10.08 $2,098.90
§20.10.08 $2,098.90
§3.11.08 $2,098.90
§17.11.08 $2,098.90
§1.12.08 $2,098.90
§15.12.08 $2,098.90
§29.12.08 $2,098.90
$16,791.20
The account increased from $506.79 on 2 January 2009 to $6970.32 (amount withdrawn by our client) on 13 January 2009 due to the following transactions:
§Balance as at 2 1.09 $506.79
§6 1.09 wages deposit $1,438.00
§9 1.09 rental income $4,587.53
§9 1.09 withdrawal (Kalgoorlie branch) ($1,000.00)
§13.1.09 wages deposit $1,438.00
$6,970.32
As shown above, no transactions after the 2 January 2009 included workers compensation payments.
A workers compensation lump sum payment of $35,800.00 was paid into the Account on 17 March 2009. This transaction was after the freeze on the Account had been lifted. Our client has not withdrawn any further amounts from the Account other than the $6,970.32. Any amounts paid into the Account since the date the freeze was lifted are either still in the account or have been withdrawn by your client.
The bank statements provided by you show the Account in credit for the amount of $43,695.90 as at 28 May 2009.
Rental Income
Again the extent to which the balance of the account at 2 January 2009 ($506.79) is made up of rental income paid into the account up to that date is arguable. This is due to wages payments also being paid leading up to 2 January 2009. The rental transactions up to that date consisted of:
§11.7.08 $1,428.45
§11.7.08 $1,590.89
§25.7.08 $4,634.28
§29.8.08 $4,634.28
§1.10.08 $4,634.28
§31.10.08 $4,135.67
§28.11.08 $3,814.09
$24,871.94
A further rental income payment of $4,600.40 was paid on 9 February 2009 into the account after the freeze was lifted on the Account and before the rental income was re-directed to our client.
Our client is obliged to protect the assets that have vested in him due to the bankruptcy of your client. Given your client’s argument as to his claims on the rental income and his withdrawal pattern, our client is within his rights to redirect the rental income into the bankrupt estate for safe keeping until the matter of who is entitled to the rental income is resolved.
Our client’s position in regard to the rental income of the Kalgoorlie property is that this vested in the trustee as after acquired property pursuant to section 58(1)(b) of the Bankruptcy Act 1966. This is because the rent was being generated by property which had vested in the trustee.
Our client’s investigations into your client’s claim of the Official Trustee disclaiming its rights to the rental income have not produced any evidence to substantiate this claim. Further, your client has not provided any evidence to support his claim.
We note that section 133(1) of the Bankruptcy Act 1966 requires any disclaimer to be in writing signed by the trustee.
Wages
Again the extent to which the balance of the account at 2 January 2009 ($506.79) is made up of wages paid into the account up to that date is arguable. This is due to rental income payments also being paid leading up to 2 January 2009. The wages transactions up to that date consisted of:
§9.12.08 $1,438.00
§16.12.08 $1,438.00
§23.12.08 $1,438.00
§30.12.08 $1,438.00
$5,752.00
Notwithstanding the above, our client’s position is that he is entitled in the circumstances to offset any wages component in the $6,970.32 against his claim for the rental income.
Your client has since the freeze on his Account was lifted had access to any further wages payments that have been paid into the Account.
Summary
The only component of the $6,970.32 withdrawn by our client that could be perceived to contain workers compensation payments would be the balance amount of $506.79 at 2 January 2009.
However, your client made a withdrawal of $1,000.00 in Kalgoorlie on 9 January 2009. This would be applied to the oldest credit amount first and so on. That is, the withdrawal of $1,000 would be applied to the amount of $506.79 first. This means there would be no workers compensation payments left in the Account on the date the cheque was drawn by the ANZ bank for our client.
Therefore, of the $6,970.32 being held by our client, $4,587.53 is rental income which belongs to the trustee. This leaves a balance of $2,382.79 which represents wages.
The trustee will apply the $2,382.79 in reduction of your client’s rental income liability of $32,631.42 the subject of the Notice of Demand. This leaves a rental liability of $30,248.63 owing by your client.
It is difficult to see what your client intends to achieve by continuing with the present proceedings. Our client would be prepared to have the proceedings dismissed with no order as to costs at this stage. Our client will rely on this letter to seek costs if your client proceeds with the application.”[39]
[39] Mr Scott’s Affidavit, Annexure X.
Concession made at hearing
At hearing Mr Stillman’s Counsel made an important concession in the following passage from Transcript:
“HIS HONOUR: Do you agree that it can only be a complaint in relation to the lump sum because of the manner in which the withdrawals took place … when the bankrupt got his balance down to $506, even if that was all workers comp, he then withdraws a $1000 and, therefore, there’s no workers comp left; therefore, this can only be a complaint about the $35,000?
MR BOWER: I do agree; yes, sir. … on the evidence before the court now, the lump sum payment of $35,800 for workers compensation is, I think, very clear. It arrived in the account on a date after the trustee’s letter to the bank saying, “Free up that account.” The problem is, of course, that his letter was ineffective.”[40]
[40] Transcript, page 15.
Some other relevant considerations were made by Mr Stillman’s Counsel at hearing. They included:
a)that there was no express statement by Mr Stillman that the relationship between he and the Trustee had broken down, but rather, the Court was invited from all the circumstances to infer that that was the case;
b)that an inference that Mr Stillman suggested the Court ought to infer, namely that the Trustee took no steps to unfreeze or clarify the status of the ANZ Bank Account because the Trustee wished to put pressure on Mr Stillman to recover the outstanding rental monies was based on no more than a “faint suspicion”;[41]
c)Mr Stillman did not complain concerning the Trustee’s freezing of the ANZ Bank Account from 19 January 2009 to 19 February 2010;[42] and
d)that there was no evidence that the Official Trustee disclaimed the rental monies, but that was simply what Mr Stillman understood from the circumstances.[43]
[41] Transcript, pages 11 and 19 (the quotation is from 19).
[42] Transcript, page 14.
[43] Transcript, page 18.
Consideration
Central to the resolution of the issues in this matter is the question of whether or not the ANZ Bank Account was frozen, and remained frozen, or was not able to be operated, by reason of the conduct of the Trustee.
The Court finds that, apart from the period between 19 January 2009 and 19 February 2009, when the ANZ Bank Account was frozen by operation of s.125 of the Bankruptcy Act, that the better view of the evidence is that the account was not frozen. In this regard, the evidence of the Trustee based on what he was told by the ANZ Bank is to be preferred to that of Mr Stillman’s solicitor based on what he was told by Mr Stillman and the ANZ Bank. The evidence of Mr Stillman’s solicitors is not especially reliable. At hearing it was conceded that:
a)a paragraph of Mr Stillman’s solicitor’s affidavit in support of the application for orders against the Trustee (but which was filed in Court in relation to the Interim Application) in which it was asserted that the Trustee had not responded to Mr Stillman’s solicitors’ 23 June 2009 letter was wrong.[44] That was a crucial mistake because the Trustee’s June 2009 Letter in response specifically pointed out that the Trustee’s staff had spoken to the ANZ Bank and been advised that the freeze on the ANZ Bank Account had been removed in accordance with the Trustee’s instructions to the bank on 19 February 2009. It is further worthy of note that there is no evidence that that letter was ever brought to Mr Stillman’s attention by his solicitors, nor was there any evidence that either Mr Stillman’s solicitors or Mr Stillman made any reference to this letter in their dealings with the ANZ Bank. That, of course, might be as a result of Mr Stillman’s solicitors being, wrongly, under the impression that the Trustee had not replied to their 23 June 2009 letter; and
b)Mr Stillman’s October 2009 Letter was in large part inaccurate in its assertion as to the quantum of funds said to have been frozen.[45]
[44] Transcript, page 3.
[45] Transcript, page 15.
Furthermore, Mr Stillman’s Affidavit contains no additional information as to the form and nature of the alleged freezing of the ANZ Bank Account. The Court is not informed as to when, where and how Mr Stillman sought to withdraw monies from his account. There is, for example, no evidence that Mr Stillman actually ever went into a branch of the ANZ Bank and sought to withdraw funds, as opposed to seeking to withdraw funds externally by electronic means. That leaves open the possibility that Mr Stillman was not able to access funds because of the ANZ Bank’s policy that a bankrupt can only withdraw funds by going into a branch of the ANZ Bank, and not electronically. That does not constitute a freezing of the ANZ Bank Account, but rather a controlling of the means of funds being withdrawn from the account by the ANZ Bank.
What is clear is that the ANZ Bank Account was not frozen by the Trustee at any time after 19 February 2009 when the operative force of s.125 of the Bankruptcy Act ceased to have effect. Rather, the Trustee acted promptly on 19 February 2009 in advising the ANZ Bank that the ANZ Bank Account ought no longer be frozen. The Trustee also acted promptly, and spoke to the ANZ Bank confirming that the ANZ Bank Account was not frozen and advised Mr Stillman’s solicitors accordingly on 24 June 2009 in response to their letter of 23 June 2009. It is also apparent that the Trustee contacted the bank in relation to the assertion in Mr Stillman’s October 2009 Letter that the account was still frozen, for in the Trustee’s response of 27 January 2010 the Trustee refers to the ANZ Bank’s policy of only allowing in-bank withdrawals by bankrupts.
Having instructed the ANZ Bank to unfreeze the ANZ Bank Account in February 2009, confirmed in June 2009 that it was not frozen, and seemingly having taken steps in response to Mr Stillman’s October 2009 Letter to check whether the account was frozen or not, and having advised Mr Stillman of the ANZ Bank’s policy in that regard in the response of 27 January 2010, it cannot, in the Court’s view, be said that the Trustee has not acted in the interests of the bankrupt, or more generally in accordance with his duties as Trustee in administering the estate in the interests of creditors and the bankrupt, and exercising his discretion and judgment so as to save the unnecessary expenditure of money from Ms Stillman’s bankrupt estate. It is not the duty of the Trustee to be constantly checking with a bank as to the status of a bankrupt’s account. The fact that the fact that Mr Stillman was not able to access the ANZ Bank Account cannot be said to be generally attributable to failings on the part of the Trustee.[46] Furthermore, it is fair to observe that Mr Stillman’s responses to the Trustee were tardy, and, in the case of Mr Stillman’s October 2009 Letter, inaccurate, and had he acted promptly and accurately, the position with respect to the ANZ Bank Account might have been resolved more quickly than it was. The tardiness of Mr Stillman cannot be attributed to any failing on the part of the Trustee.
[46] Coyne v Douglas-Brown [2002] FCA 1324 at para.67 per French J.
Because the complaint concerning workers’ compensation relates to a lump sum amount which went into the ANZ Bank Account after 19 February 2009 it follows that that amount was not frozen in the ANZ Bank Account. It follows that the Trustee did not prevent Mr Stillman from accessing that lump sum amount, nor did the Trustee do anything inconsistent with the Trustee’s duties to prevent Mr Stillman from accessing that amount. It follows that the allegations made by Mr Stillman that the Trustee breached s.303(1) of the WC Act are wrong. The allegations were, it must be said, made on the weakest of foundations.
With respect to the rental monies, the Court has found in Reasons for Judgment concerning the same parties and to be handed down immediately after these Reasons for Judgment, that:
46.The South Boulder Property vested in the Official Trustee at the time Mr Stillman became bankrupt. There is no evidence that the Official Trustee, or the Trustee, have disclaimed the South Boulder Property or any of the rental monies, or that Mr Stillman was both allowed and encouraged to treat the rental monies as his own. It follows that the rental monies received in relation to the South Boulder Property after Mr Stillman became bankrupt belong to the Trustee on behalf of Mr Stillman’s bankrupt estate.
47.In the absence of evidence that the Official Trustee disclaimed any right to the rental monies, the Court is of the view that the rental monies belong to the Trustee….[47]
[47] Stillman v Pascoe [2010] FMCA 549 at paras.46-47 (footnotes omitted).
The correctness of that conclusion is reinforced by the fact that in these proceedings there was evidence from Mr Stillman, and a concession by Counsel for Mr Stillman, that Mr Stillman’s assertions with respect to the rental monies were based on nothing more than “his understanding”[48]
[48] Mr Stillman’s Affidavit, para.20; Transcript, page 18.
With respect to the matter of wages, the Trustee conceded in his solicitor’s 27 January 2010 letter that there may have been a sum of $2,382.79 which represented wages, and indicated that that would be applied in reduction of Mr Stillman’s rental monies liability of $32,631.42 the subject of the Notice of Demand.
It may be the passage referred to above in the Trustee’s solicitor’s 27 January 2010 Letter which gives rise to the submission by Mr Stillman in these proceedings that the Trustee froze the ANZ Bank Account, or took no steps to unfreeze or clarify its status, because the Trustee wished to put pressure upon Mr Stillman to recover the outstanding rental monies. That submission cannot, however, be made out as a matter of fact because the Court has found that the account was not frozen at any time other than for the month from 19 January 2009 to 19 February 2009, and then in accordance with s.125 of the Bankruptcy Act. It might be argued that the application by the Trustee of the wages amount in reduction of Mr Stillman’s rental monies liability supports the drawing of an inference that the Trustee acted as it did in order to try to force Mr Stillman to pay the rental monies liability. As indicated above, this argument runs counter to the Court’s finding that the ANZ Bank Account was not frozen. In any event, it is inconsistent with the conduct of the Trustee in:
a)unfreezing the ANZ Bank Account in February 2009; and
b)making inquiries of the ANZ Bank in June 2009, ascertaining that the ANZ Bank Account was not frozen, and writing to Mr Stillman’s solicitors on 24 June 2009 advising that the ANZ Bank Account was not frozen.
Further, the attribution of such conduct to the Trustee cannot be reconciled with the fact that the Trustee was not aware of the lump sum workers’ compensation payment until October 2009, when Mr Stillman’s solicitors finally advised the Trustee that such a payment had been made in March 2009.[49]
[49] As conceded by Counsel at hearing: Transcript, page 14.
The Court notes that the personal earnings of Mr Stillman post bankruptcy do not pass to the Trustee except to the extent that Mr Stillman is liable to make a contribution under the provisions of Part VI Division 4B of the Bankruptcy Act, and the first order sought in the substantive application reflects this proposition.[50] In the hearing of the Interim Application, the focus was on whether or not monies in the ANZ Bank Account – be they workers’ compensation (on which there was a focus) or wages – could be accessed by Mr Stillman during 2009-2010. There was no suggestion by Mr Stillman that the conduct of the Trustee in this particular respect (attributing the sum of wages in the ANZ Bank Account as an offset against the rental monies liability) was conduct warranting an inquiry under s.179.[51] Even if there were it would not be sufficient, on its own, for there to be cause to be an inquiry, particularly when Trustee’s actions can be remedied by a less drastic order requiring the Trustee to repay the wages monies to Mr Stillman, with interest.[52] There will be an order accordingly. In the circumstances, the interest will be a lump sum (of $300) up to judgment,[53] and at the rate prescribed under O.35 r.8 of the Federal Court Rules from entry of judgment until the date of payment.
[50] Randall v Deputy Commissioner of Taxation (2008) 174 FCR 441 at 449-450 per Lander J; [2008] FCA 1939 at paras.50-57 per Lander J.
[51] The Court notes, but does not take into account for the purposes of these Reasons for Judgment, that Mr Stillman has incurred contribution liabilities subsequently: Stillman v Pascoe [2010] FMCA 549 at para.33 per Lucev FM.
[52] Bankruptcy Act, s.179(1)(b).
[53] FM Act, s.76(3)(d).
In all the circumstances of this case there is, in the Court’s view, nothing to suggest that the Trustee has failed to carry out its duties other than in accordance with the Bankruptcy Act and the general law, otherwise than in relation to the wages monies dealt with above. The primary premise upon which the suggestion of a breach of the Trustee’s duties was based, namely that the ANZ Bank Account was frozen by the Trustee, has failed. Given that that failed factual premise underpins each of the alleged breaches of duty by the Trustee, it follows that the application has no reasonable prospect of success save, for reasons explained above, with respect to wages monies, which are able to be remedied with an order other than an order for an inquiry or removal of the Trustee. On that basis, there can be no proper case for an inquiry because such an inquiry is not likely to reveal misconduct. That being the case the inquiry ought not be undertaken, as an inquiry ought only be undertaken where there is a clear case for a Trustee to answer. Likewise, there is no basis for the removal of the Trustee. In this case, there is on the facts put in support of the grounds of the application no arguable case of misconduct.
There was also a submission at hearing by Counsel for Mr Stillman that an order removing the Trustee ought to be made because the relationship between Mr Stillman and the Trustee had broken down. Counsel conceded that this was not the expressly stated evidence of Mr Stillman, nor was it expressly said to be the case, but the Court was invited to infer that there was a breakdown in the relationship from all of the circumstances of the case. In circumstances where Mr Stillman does not say that there was a breakdown in the relationship there is no reason for the Court to infer that that is the case. All of the circumstances of this case lead generally to a conclusion that Mr Stillman has been tardy and not prepared to cooperate to the utmost as required by s.77(1) of the Bankruptcy Act, rather than any breakdown in the relationship as between Mr Stillman and the Trustee.
The Interim Application to summarily dismiss the application must therefore be upheld, from which it follows that the application must be dismissed.
Conclusion
The Court has concluded that the Interim Application to summarily dismiss the application ought to be upheld, and that it follows from that that the application ought to be dismissed. There will be orders to that effect.
The Court will hear the parties as to costs.
I certify that the preceding thirty-four (34) paragraphs are a true copy of the reasons for judgment of Lucev FM
Associate:
Date: 28 July 2010
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