Wenkart v Pantzer

[2007] HCATrans 99

[2007] HCATrans 099

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  Nos S367 of 2006 and S368 of 2006

B e t w e e n -

THOMAS RICHARD WENKART

Applicant

and

WARREN PANTZER

First Respondent

ANN SEXTON

Second Respondent

INSPECTOR GENERAL IN BANKRUPTCY

Third Respondent

Applications for special leave to appeal

GUMMOW J
CALLINAN J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 2 MARCH 2007, AT 3.35 PM

Copyright in the High Court of Australia

MR J.C. SHEAHAN, SC:   May it please the Court, I appear with my learned friend, MR M. GREEN, for the applicant.  (instructed by Bruce Stewart Dimarco)

MR J.T. JOHNSON:   May it please the Court, I appear for the first respondent.  The second and third respondents have filed a submitting appearance.  (instructed by Sally Nash & Co)

GUMMOW J:   Yes, that is correct.  Yes, Mr Sheahan.

MR SHEAHAN:   Your Honours, the issues here arise out of facts which I think can be stated in two sentences.  First, a former trustee in bankruptcy claims an entitlement to remuneration and indemnity costs in respect of his attempt to enforce a claimed entitlement to remuneration and indemnity costs as trustee of the estate.  Second, that the activities that give rise to that claimed entitlement occurred after the bankruptcy was annulled.  Those circumstances, your Honours, give rise, in our submission, to two questions of general importance as to which there is, so far as we have been able to find, no clear authority in this Court or anywhere else in this country or elsewhere.  Indeed, in submissions before the Federal Court the Inspector‑General in Bankruptcy said this.  “It is submitted that the application raises important issues in bankruptcy and trust law concerning the position of a trustee in bankruptcy after an annulment and the entitlement of that person to be remunerated and have costs paid in relation to the work performed are consequential.”

GUMMOW J:   What is the issue of statutory construction in terms of specifics?

MR SHEAHAN:   In terms of specifics is this.

GUMMOW J:   Which section?

MR SHEAHAN:   It depends upon the combined effect of section 162 and section 74.  Your Honour will appreciate that a trustee in bankruptcy has an entitlement to an indemnity for costs arising under the general law but the general law provides a trustee with no entitlement to remuneration.  The trustee’s entitlement to remuneration must be found within the four corners of the Act.  Section 162, or Division 2 more particularly, provides for a trustee’s remuneration and our submission is that read as a whole and in the context of the provisions dealing with annulment in section 74, it does not contemplate an award of remuneration or an entitlement to remuneration after annulment.

GUMMOW J:   Where do you say the flaw in the reasoning is in the Full Court?

MR SHEAHAN:   The Full Court does not deal with the question of construction per se.  The question of construction ‑ ‑ ‑

GUMMOW J:   They probably were not invited to.

MR SHEAHAN:   I think in truth they were and it appears reasonably clearly from the materials in the application book that that was so. 

GUMMOW J:   Anyhow, how do we have to read section 162 plus section 74, the annulment provision?

MR SHEAHAN:   One starts with the proposition that the annulment brings an end to the administration and to the estate which I think is an uncontroversial proposition.  In section 162, which is the provision which gives rise to any claim for remuneration, can I ask your Honours to note three things.  Firstly, that subsection (1) contemplates that there are creditors and that there may be a committee of inspection to approve trustee’s remuneration.  Neither is apt after annulment.  Secondly, section 162 refers throughout to “the trustee”.  “The trustee” is a defined expression in the Act.  Subject to any contrary intention appearing, it means the trustee of the estate of the bankrupt.  After annulment there is no such estate.  Thirdly, that subsections (1) and (5A) both explicitly assume the existence of an estate, as does section 161B(2) which is a provision dealing with a minimum entitlement to remuneration.  Your Honours, going back then to section 74 ‑ ‑ ‑

GUMMOW J:   I see both 162 and 74 were amended at the same time, so the legislature cannot have been blind to the possibilities.

MR SHEAHAN:   They were, and the terms of those amendments are perhaps of some significance, but I will come to them in a minute, if I may.  Section 74 provides for the annulment of a bankruptcy consequent on a composition under section 73.  The first thing to note is that subsection (5) brings an end to the estate and does so automatically by force of the subsection on the passing of a resolution of the creditors.  The second thing I would ask your Honours to note is that so far as we can find, the only remaining statutory duty of a trustee after annulment is the giving of a notice required by section 74(5A).

GUMMOW J:   I am sorry, say that again.

MR SHEAHAN:   The only statutory duty that seems to be imposed on a trustee after annulment is the giving of a notice in subsection (5A), but there is not a lot of work left to do.

GUMMOW J:   What was the work involved here?

MR SHEAHAN:   The work involved here – that is the subject of these certificates of taxation – is effectively the conduct of proceedings commenced by the former trustee to recover his remuneration while he was trustee.  What he is doing is seeking to recover remuneration for litigating to recover his remuneration.  As we speak, there will be someone from Mr Pantzer’s office, or representing him, in the back of the Court with the meter running building up another bill to send to Dr Wenkart four years after the annulment of the bankruptcy in respect of this work pursuing his remuneration for the period since the annulment.  That is to put it in a pointed way, if I may.

GUMMOW J:   Suppose these costs were properly incurred, what, on your theory of the Act, happens?

MR SHEAHAN:   On our theory of the Act, the former trustee sues as a litigant to recover his remuneration in the same way as any other professional sues to recover their outstanding fees.  They bring an action in a court and they are entitled to costs in the discretion of a court if they are successful.  Our submission is that a trustee in bankruptcy after annulment is not in the privileged position of being able to sue to recover their professional fees with an entitlement not only to a full indemnity in respect of their costs of the suit, but also to professional fees for their attending to the litigation.  That, in essence, is the position for which we contend.  The position for which Mr Pantzer contends is that he can do that.  Until all these disputes between him and my client are resolved, his meter is on as if he were still the trustee.

Now, your Honours will see in section 74 that there is no provision made for trustee’s remuneration, although there is the possibility for some provision being made under the last few words of subsection (6).  That is to say, the court could impose terms or conditions on the revesting of property in the bankrupt or such other person as the court appoints.  That position must be contrasted with the position under sections 153A through 154.  Sections 153A and 153B deal with two other mechanisms for annulment and their effects are dealt with in 154.  In large part, 154 follows the model of 74, but it is materially different insofar as provision for the former trustee’s costs and fees are concerned. 

If I can draw your Honours’ attention to subsection (1)(b), your Honours will see that the trustee may apply properties still vested in him in payment of remuneration and costs.  There is no equivalent provision in relation to section 74.  Similarly, 154(2) gives the trustee a right to recover a deficiency in a personal action against the former bankrupt.  There is again no equivalent in section 74.  But I would ask your Honours in particular to note three things about these provisions.  First, each of those two makes proper and apt reference to the former bankrupt.  Second, neither refers to the estate, but only to the property still vested in the trustee.  Thirdly, and perhaps most importantly, neither, even though they make specific provision for trustee’s fees and costs, appears to contemplate any entitlement to post‑annulment remuneration.

So when one looks at subsection (1)(b) your Honours will see that it applies only to fees and costs of the administration of the bankruptcy, which ex hypothesi is at an end.  If your Honours look at 154(2) which confers a personal right of action in the ordinary civil courts, we submit that that provision would operate absurdly if remuneration could be earned by engaging in such litigation.  That is to say, it would contemplate otherwise an endless regression of litigation in which each case gave rise to a new entitlement to remuneration which then would be the subject of a new claim which could be litigated and so on.  A similar consideration to that which we have last mentioned arises in relation to section 161B(2), which I took your Honours briefly to a little earlier.  It again gives rise to a personal action in respect of a minimum remuneration entitlement, a personal action that would operate absurdly if the pursuit of it would give rise to a new entitlement to remuneration. 

If I can ask your Honours then to go back to section 74 to take up the point your Honour raised with me about the amendments.  In a case called Re Hudson; Ex parte ANZ Bank Justice Northrop en passant noted that the then new Division 6 of Part IV did not perhaps provide ‑ ‑ ‑

GUMMOW J:   That is 50 FCR?

MR SHEAHAN: It is 50 FCR 281 at 295. It did not perhaps provide adequate protection for the costs and remuneration of trustees in circumstances where there was an annulment under section 74 and he suggested that legislative attention may be appropriate. Now, there were amendments in 2002 evidently designed, in part at least, to provide additional protection for trustees in the case of a section 73, 74 annulment. We have given your Honours extracts from the amending Act No 131 of 2002. The relevant clauses are items 55 and 57 of the schedule. Clause 55 introduced a new section 73(2A) which gave the trustee a power to refuse to call a meeting but only as regards, your Honours will note, a failure to make “adequate provision” for fees accrued, owing and approved by creditors. In other words, the trustee was given some protection but only protection referable to past ascertained entitlements.

For future entitlements a new right was conferred by section 73A dealt with in clause 57.  That gave the trustee a right to require security before calling a meeting but only as regards his future fees and costs of arranging and holding the meeting.  So again the legislature, having turned its attention specifically to the question of protecting the interests of trustees in the context of a section 74 annulment, made no provision or even reference to the possibility of there being post‑annulment remuneration.  Read as a whole, your Honours, in our submission, the proper conclusion is that the Act does not contemplate or provide for post‑annulment remuneration.

Your Honours, my submissions so far have focused on remuneration.  The position as regards an indemnity for costs is slightly different because it arises under the general law, not under the statute, and the right to indemnity may be slightly wider for that reason.  In particular, we would concede that the right to an indemnity for costs would extend to costs incurred, for example, in revesting property in the bankrupt if that were to be necessary as part of winding up the process.  The trustee would then be a constructive trustee for the bankrupt rather than a trustee in bankruptcy.  But, in our submission, the right to an indemnity for costs would not in those circumstances extend to an indemnity for costs of suing the former bankrupt simply to recover fees and remuneration.

The second way we put the point, your Honours, is, in effect, to adopt the decision of Justice Branson who held that the activities of a trustee or a former trustee which do not involve performance of a duty under the Act which are self‑regarding and which, we would add, do not benefit the estate do not attract a right to remuneration or indemnity.  It would be odd, your Honours, if it were otherwise, in our submission.  First, it would provide a perverse incentive for trustees to multiply and prolong disputes.  Secondly, it would seriously inhibit creditors and bankrupts from challenging remuneration claims.  That is to say, not merely would they be subject to the usual risks associated with the cost‑shifting rules, with which we are all familiar, but they will be exposed to the risk of having to pay the trustee’s professional fees while he was engaged in thinking about the case and getting instructions and so on.

GUMMOW J:   What do you say about paragraph 43 of the Full Court’s judgment at page 73?

MR SHEAHAN:   Paragraph 43 is erroneous in part in point of fact insofar as it refers to Mr Pantzer successfully defending his claim to remuneration costs and charges.  The question of his success remains uncertain because the final determination of the proceedings will depend upon the ultimate judgment of Justice Branson and issues still reserved by her.

GUMMOW J:   Are we not construing an order?

MR SHEAHAN:   No, your Honour, for this reason, although I should say that the reasons of the Full Court seem to give some credence to that notion and that is, in a sense, an error on their part, in our submission.  Your Honours can see the order in the Full Court’s reasons relevantly at page 62 of the application book at line 10 at the top of the page, the very first paragraph.  Your Honours will see that the ‑ ‑ ‑

GUMMOW J:   “Lawfully entitled”.

MR SHEAHAN:   Yes, down as far as “lawfully entitled” is what is critical and it does not enlarge upon Mr Pantzer’s rights.  It simply takes whatever they are or might be under the Act or the general law.

GUMMOW J:   What was the nature of the proceeding in which Justice Beaumont made that consent order?

MR SHEAHAN:   That consent order was made while the bankruptcy was on foot in circumstances where a meeting of creditors had been called.  A few days before the meeting the trustee in bankruptcy gave notice of an additional claim for remuneration to the bankrupt.  The bankrupt was not prepared to accept that they should necessarily be provided for in the composition which was to be the subject of the meeting a few days hence.  In order to enable the meeting to go ahead there was, in effect, an agreement which is recorded in these terms.  It operates for the most part simply as a contract.  Your Honours will see that it is the fact that Justice Beaumont referred to it as an order and agreement.  The first part, item 1, is really only an order down as far as the first reference to Mr Wenkart.  In other words, he is obliged by the order to pay, otherwise the balance of it proceeds as an agreement and takes effect as an agreement.

Your Honours, I was giving a couple of reasons why it would be odd if a trustee were entitled to recover these sorts of costs as Mr Pantzer seeks.  The third is it will put the trustee in bankruptcy in a privileged position as compared to other litigants in circumstances where there is no obvious reason why that should be so in circumstances where he is seeking to recover his professional fees.  The third is that it creates the risk of infinite regression to which I have referred earlier. 

Your Honours, I wanted to say something briefly about the complex history of the case.  It has been before the court many times.  That history does not affect the discrete quality of the points that we have identified as worthy of special leave and, as I am instructed, with one possible exception,

all the separate questions were decided at the instance of the court, not of the parties.  Those are our submissions, your Honours.

GUMMOW J:   Yes, thank you, Mr Sheahan.  Yes, Mr Johnson.

MR JOHNSON:   Your Honours, dealing first with the history aspect, I think my friend is slightly in error.  The history of the proceedings was referred to by the Full Court in paragraph 4 of its judgment at page 60 by reference to that which was set out by Justice Lindgren in his judgment referred to as No 8 135 FCR 422. The request for the convening of the meeting under section 73 was, in fact, communicated about 12 months before the events which gave rise to the orders before the court at the present time, as recounted in that judgment. In fact, Mr Pantzer was injuncted from convening the meeting because of an outstanding debt dispute on a proof of debt.

The proceedings that were before Justice Beaumont when the orders were made were proceedings that were initially instituted by a letter forwarded by Dr Wenkart to his Honour under a leave that had been given in earlier proceedings.  So, unusually, there was not in fact an application.  The first document on the court file Justice Lindgren was confused about was a notice of appearance from my client.  Orders were made by Justice Beaumont originally on 1 March 2002 which were made by consent, and this is referred to in the judgment of Justice Lindgren on page 248, which included an order apart from the order to convene the meeting within 14 days and certain cheques to be delivered, an order that said:

Orders 1 and 2 above are made without prejudice to the first Respondent’s –

that is Mr Pantzer –

rights to claim and recover in accordance with the provisions of the Bankruptcy Act all remuneration, costs, charges and expenses to which the First Respondent is lawfully entitled under the provisions of the Bankruptcy Act in respect of the administration of the Bankrupt Estate; and without prejudice to the rights of the Applicant and Second Respondent –

which is a company called Hapday, I think –

to have the First Respondent’s remuneration, costs, charges and expenses determined in accordance with the Bankruptcy Act and regulations. 

The meeting was convened for 15 March.  However, in the meantime the order, which is referred to in the judgment of the Full Court at page 62, was made.  That order relevantly is in paragraph 1 at line 10 on page 62.  Both the order of 1 March and the order of the 11 March 2002 were orders that the court had jurisdiction to make under section 74(6) as a means of protecting the position of the trustee notwithstanding the convening of the meeting.  All of those matters have been and are continuing to be dealt with in what could be described as the main proceedings in respect of which Justice Branson has currently reserved.  The certificates of determination that were before her Honour were certificates of determination that arose out of an order made by consent by Justice Lindgren on 23 October 2003 as a means of proceeding with a calculation of the lawful entitlement that was claimed by Mr Pantzer.

It is the certificates of determination both of remuneration calculated following a request made by Dr Wenkart under regulation 8.09 and a direction made by Mr Pantzer under section 167 in respect of third party costs of legal advisers that were before her Honour.  It is her Honour’s determination on 8 November 2005 that was before the Full Court.  It is always open and the various judges that have had this matter in what I might call the main proceedings, we have Justice Beaumont before his untimely illness, Justice Lindgren and presently Justice Branson.  We have a Full Court that determined a number of the separate issue questions.  We have a discontinued High Court appeal.  They all arise out of the attempts to quantify the lawful entitlement. 

The lawful entitlement all flowed out of those expenses that arose prior to the date of annulment which were specifically preserved, we say, consistent with orders made under section 74(6) by the two orders of Justice Beaumont that I have referred to.  All of these matters are referred to by the Full Court in their judgment.

GUMMOW J:   Looking at your submissions, is one right in going to page 103 and focusing on your paragraphs 12 and 13 as to the legal question at the root of this, namely the nature of the annulment?

MR JOHNSON:   Yes, that is also an issue that has been dealt with by the various judges in what I might call the main proceedings and in the first Full Court judgment with a discontinued Full Court appeal.  Each of those judgments have recounted the fact that the entitlement of the purposes of quantification was specifically preserved by the two orders that I have referred to on 1 March 2002 and 11 March 2002 in the context of section 74(6).

GUMMOW J:   Which particular limb of 74(6)?

MR JOHNSON:   The section provides that ‑ ‑ ‑

GUMMOW J:   It is rather dense drafting.

MR JOHNSON:   Yes, your Honour, it has been around since 1980.

GUMMOW J:   I know.

MR JOHNSON:   I might say, your Honour, one of the curiosities about section 74 and section 73 is that there were amendments that came into force in 1996 that took away the power of the court.  Originally the court approved these sorts of compositions under section 73.

GUMMOW J:   Yes, I remember that.

MR JOHNSON:   When the Parliament took that power away and made the provision automatic, as is now reflected, the power of the court to otherwise regulate what happened was taken away, but the reference to “Court” in subsection (6) was preserved.  The section says:

all acts done, by the trustee or any person acting under the authority of the trustee or the Court before the annulment shall be deemed to have been validly made or done –

The court has made the two orders, 1 March 2002 and 11 March 2002.  Then the reversion:

to the bankrupt for all his or her estate or interest in it, on such terms and subject to such conditions (if any) as the Court orders.

The court was given a specific power to regulate what happened, particularly in the present context where an order was made directing my client - it was by consent - to convene the meeting of creditors whilst there was an outstanding dispute covering both remuneration and costs, charges and expenses that had been incurred by him prior to that meeting.

Your Honours, that in a nutshell is why we say there is nothing unique about this application.  It is unique in that there are still issues to be determined by Justice Branson, one which could be, if I might say, whether or not in her opinion costs were reasonably and properly incurred.  All that has happened with the certificates of determination is a quantification.  There is, coupled with the order made ‑ ‑ ‑

GUMMOW J:   Yes, I was wondering about this.  After Justice Branson makes her determination on which she has reserved, what is the appellate structure, if any, then?

MR JOHNSON:   To the Full Court of the Federal Court of Australia and, if a party is dissatisfied, by virtue of another application for special leave to this Court, except to the extent that the orders are covered by the judgment of the Full Court.

GUMMOW J:   What I am getting at is that, in a sense, what is happening so far is interlocutory, from our point of view at the top of the system.

MR JOHNSON:   From the viewpoint of the High Court the position of Dr Wenkart relating to issue that they are seeking to agitate in respect of these matters is unaffected because it is still dealt with in the very proceedings that are reserved before Justice Branson.  Unless your Honour wishes to hear anything further.

GUMMOW J:   Yes, thank you, Mr Johnson.  Yes, Mr Sheahan.

MR SHEAHAN:   If I can just take up the last point that your Honour raised.  If we were at liberty fully to contest the costs that are the subject of these certificates in the proceedings before Justice Branson on the grounds that we have identified for your Honour, then there would be no reason to give special leave.  But, as we understand the trustee’s position, and we think he is right in this respect, these two certificates having been ruled on now by the Full Court settle that item in the accounts between my client and Mr Pantzer.  There are other issues yet to be resolved and it may be, as my client contends, that at the end of the day when the accounts are taken he owes us money rather than the other way round.  That is why they are still unsettled.  But in that process of taking the accounts these items have been fixed by the certificate, as we understand it.  So to that extent the matter is not interlocutory.

I should say, and I only mention this because of the unsatisfactory procedural history in a sense, one way in which that difficulty could be avoided would be if special leave were to be granted, the appeal to be allowed and the orders of the Full Court set aside and the whole matter simply remitted to Justice Branson so that it is all revested in her ab initio to be dealt with all at once.  There is a basis for doing that because there is an indisputable error in the way the Full Court dealt with its orders in this matter.  It treated the decision of Justice Branson as dealing with every issue that arose in respect of the correctness of the certificates and, on the face of her Honour’s reasons, it did not.  In other words, they should have remitted it to her rather than allow the appeal.

GUMMOW J:   That is a slip that can be fixed up.

MR SHEAHAN:   It may.

GUMMOW J:   It is not for us though.

MR SHEAHAN:   I only mention that possibility because your Honour raised that question about the interlocutory nature of the matter and I can understand your Honour’s concern in that respect.

GUMMOW J:   Even if the application presented today were a convenient and appropriate occasion on which to determine the questions of principle said to arise, we are not convinced that in any event there would be sufficient prospects of success to warrant a grant of special leave.  Accordingly, special leave is refused with costs.

AT 4.09 PM THE MATTER WAS CONCLUDED