Weston v Hacker

Case [2014] FCA 86

FEDERAL COURT OF AUSTRALIA

Weston v Hacker [2014] FCA 86

Citation: Weston v Hacker [2014] FCA 86
Parties: PAUL GERARD WESTON v SUSANNE HACKER (AKA SUSANNAH HACKER, SUSIE HACKER, SUSIE SHOSHANNA GISELA AND SUSANNAH SHOSHANNA GISELLA HACKER)
File number: NSD 750 of 2013
Judge: COWDROY J
Date of judgment: 18 February 2014
Catchwords: EQUITY – claim by bankrupt in devastavit against trustee in bankruptcy in the Supreme Court of New South Wales – whether direction under s 134(4) of the Bankruptcy Act 1966 (Cth) should be made justifying the use of trust funds by the trustee to defend the devastavit claim
Legislation: Bankruptcy Act 1966 (Cth) ss 134, s 153A, 183,
Trustee Act 1925 (NSW) s 63
Cases cited: Adsett v Berlouis (1992) 37 FCR 201
Alsop Wilkinson (a firm) v Neary [1995] 1 All ER 431
Bovaird v Trustee of the Bankrupt Estate of Frost (2010) 118 ALD 263
Donnelly (Trustee), Re Hancock v Porteous [2002] FCA 607
Drummond v Drummond [1999] NSWSC 923
Frost v Bovaird (2012) 203 FCR 95
Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar the Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand (2008) 237 CLR 66
McDonald v Horn [1995] 1 All ER 961
Miller v Cameron (1936) 54 CLR 572
Re Ladyman (1981) 38 ALR 631
Re Lofthouse (2001) 107 FCR 151
Re Weber (2006) 154 FCR 80
Sutherland (In the Matter of Scutts) [1999] FCA 147
Date of hearing: 25 November 2013
Place: Sydney
Division: GENERAL DIVISION
Category: Catchwords
Number of paragraphs: 23
Counsel for the Applicant: Mr J Baird
Solicitor for the Applicant: Goldrick Farrell Mullan
Counsel for the Respondent: Mr M Sneddon
Solicitor for the Respondent: Carrolls Lawyers

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

GENERAL DIVISION

NSD 750 of 2013
BETWEEN:

PAUL GERARD WESTON
Applicant
AND:

SUSANNE HACKER (AKA SUSANNAH HACKER, SUSIE HACKER, SUSIE SHOSHANNA GISELA AND SUSANNAH SHOSHANNA GISELLA HACKER)
Respondent

JUDGE:

COWDROY J

DATE OF ORDER:

18 FEBRUARY 2014

WHERE MADE:

SYDNEY

THE COURT ORDERS THAT:

1.The interlocutory application filed 14 November 2013 (‘the interlocutory application’) be dismissed.

2.The Applicant pay the costs of the Respondent in respect of the interlocutory application.

Note:Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.


IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

GENERAL DIVISION

NSD 750 of 2013
BETWEEN:

PAUL GERARD WESTON
Applicant
AND:

SUSANNE HACKER (AKA SUSANNAH HACKER, SUSIE HACKER, SUSIE SHOSHANNA GISELA AND SUSANNAH SHOSHANNA GISELLA HACKER)
Respondent

JUDGE:

COWDROY J

DATE:

18 FEBRUARY 2014

PLACE:

SYDNEY

REASONS FOR JUDGMENT

  1. Before the Court is an interlocutory application (‘the interlocutory application’) filed on 14 November 2013 by a trustee in bankruptcy for directions that he would be justified in using the funds of the estate of which he is the trustee to defend a claim in devastavit made against him in his capacity as trustee.

    BACKGROUND

  2. On 5 December 2008 the applicant (‘the trustee’) was appointed as the…

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Weston v Hacker [2014] FCA 86
Case
[2014] FCA 86
Decision Date

CaseChat Overview and Summary

The interlocutory application filed by the trustee in bankruptcy, represented by the applicant, against the respondent, Ms Hacker, seeks directions that the trustee would be justified in using the funds of the estate to defend a claim in devastavit made against him in his capacity as trustee. Ms Hacker was discharged from bankruptcy on 9 April 2012, but there are substantial assets remaining in the estate. The trustee applied for an order under section 183 of the Bankruptcy Act 1966 (Cth) that he be released from his trusteeship of the estate and that his costs be paid out of the estate. The release application remains adjourned pending the determination of the devastavit proceedings.

The legal issue before the court was whether the direction sought by the trustee under section 134(4) of the Act was appropriate. Section 134(4) of the Act provides that a trustee may apply to the Court for directions in respect of a matter arising in connection with the administration of the estate. The court noted that while the trustee was entitled to make the interlocutory application in view of the devastavit proceeding against him, Ms Hacker correctly observed that the trustee had not sought judicial advice as to whether it was appropriate for him to defend the devastavit proceedings. The court held that the procedure under section 134(4) was not an appropriate method to determine the substance of Ms Hacker’s claim in devastavit.

The court dismissed the interlocutory application filed by the trustee in bankruptcy and ordered that the applicant pay the costs of the respondent in respect of the interlocutory application.

Orders

Orders of the court

1. The interlocutory application filed 14 November 2013 (‘the interlocutory application’) be dismissed.

2. The Applicant pay the costs of the Respondent in respect of the interlocutory application.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

Before the Court is an interlocutory application (‘the interlocutory application’) filed on 14 November 2013 by a trustee in bankruptcy for directions that he would be justified in using the funds of the estate of which he is the trustee to defend a claim in devastavit made against him in his capacity as trustee.BACKGROUND On 5 December 2008 the applicant (‘the trustee’) was appointed as the trustee of the bankrupt estate (‘the estate’) of the respondent (‘Ms Hacker’). Ms Hacker was discharged from bankruptcy on 9 April 2012 following the sale of certain real estate and the payment in full of all creditors to the estate. Substantial assets remain to the estate’s credit. On or about 2 July 2012, solicitors for the trustee sent a deed of release to the solicitors for Ms Hacker. Such deed, if executed, would have released the trustee from all claims in respect of his administration of the estate, including the sale of Ms Hacker’s real estate. After some delay in responding, Ms Hacker opposed the release and alleged that the trustee had been guilty of waste in the administration of the estate. By an application filed on 6 May 2013, the trustee applied for an order under s 183 of the Bankruptcy Act 1966 (Cth) (‘the Act’) that he be released from his trusteeship of the estate, and that his costs be paid out of the estate (‘the release application’). Ms Hacker opposed the application. The proceedings were adjourned on 12 August 2013. Such adjournment was granted conditional upon Ms Hacker commencing proceedings against the trustee in relation to her claims against him, including a claim in devastavit, within 14 days. Ms Hacker duly commenced proceedings on 29 August 2013 in the Supreme Court of New South Wales (‘the Supreme Court’): proceedings number 2013/262627 (‘the devastavit proceedings’). The release application in this Court now remains adjourned pending the determination of the devastavit proceedings. By his interlocutory application, the trustee seeks a direction pursuant to s 134(4) of the Act that he would be justified in using the funds in the estate to meet the legal costs on an ongoing basis of properly defending the devastavit proceeding. He also seeks an order that the costs of the interlocutory application be paid out of the estate.CONSIDERATION Section 134(4) of the Act provides that a ‘trustee may at any time apply to the Court for directions in respect of a matter arising in connexion with the administration of the estate’. Such provision is of a similar nature to that contained in s 479(3) of the Corporations Act 2001 (Cth), which authorises a liquidator to ‘apply to the Court for directions in relation to any particular matter arising under the winding up’: Sutherland (In the Matter of Scutts) [1999] FCA 147 at [14]. Whilst there is no question that the trustee was entitled to make the interlocutory application in view of the devastavit proceeding against him, Ms Hacker correctly observes that the trustee has not sought judicial advice as to whether it is appropriate for him to defend the devastavit proceedings. This may be due to the principle that the Court will not give an advisory opinion in the form of a direction: Donnelly (Trustee), Re Hancock v Porteous [2002] FCA 607 at [17].

Evidence

Evidence Before The Court

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Decision

Reasons for decision

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Ratio Decidendi

Legal Principle Established

By his interlocutory application, the trustee seeks a direction pursuant to s 134(4) of the Act that he would be justified in using the funds in the estate to meet the legal costs on an ongoing basis of properly defending the devastavit proceeding. He also seeks an order that the costs of the interlocutory application be paid out of the estate.CONSIDERATION Section 134(4) of the Act provides that a ‘trustee may at any time apply to the Court for directions in respect of a matter arising in connexion with the administration of the estate’. Such provision is of a similar nature to that contained in s 479(3) of the Corporations Act 2001 (Cth), which authorises a liquidator to ‘apply to the Court for directions in relation to any particular matter arising under the winding up’: Sutherland (In the Matter of Scutts) [1999] FCA 147 at [14]. Whilst there is no question that the trustee was entitled to make the interlocutory application in view of the devastavit proceeding against him, Ms Hacker correctly observes that the trustee has not sought judicial advice as to whether it is appropriate for him to defend the devastavit proceedings. This may be due to the principle that the Court will not give an advisory opinion in the form of a direction: Donnelly (Trustee), Re Hancock v Porteous [2002] FCA 607 at [17]. The purpose of the direction sought is only to protect the trustee from liability to Ms Hacker for using the funds of the estate to defend the devastavit proceedings. Should the direction be given, it will operate as an indemnity to the benefit of the trustee. However, the procedure under s 134(4) is not an appropriate method to determine the substance of Ms Hacker’s claim in devastavit: Re Weber (2006) 154 FCR 80 at [2]; Re Lofthouse (2001) 107 FCR 151 at [9]. In Alsop Wilkinson (a firm) v Neary [1995] 1 All ER 431 (‘Alsop Wilkinson’) at 434–435, Lightman J considered three kinds of disputes in which trustees might become involved. The second such category concerned a ‘beneficiaries dispute’ in which beneficiaries challenge the present or future conduct of the trustee. The devastavit proceeding falls squarely within this category. Lightman J noted at 435 that such disputes are generally ‘regarded as ordinary hostile litigation in which costs follow the event and do not come out of the trust estate’: see also McDonald v Horn [1995] 1 All ER 961 at 971. A similar direction to that sought in the present case was applied for in Frost v Bovaird (2012) 203 FCR 95 (‘Frost’). That case in part concerned a devastavit proceeding in the Supreme Court commenced against executors of a bankrupt deceased estate by two beneficiaries of that estate. The executors sought their legal costs in defending the devastavit proceeding from the trustee in bankruptcy. In turn, the trustee sought a direction from this Court under s 134(4) of the Act that he was justified in indemnifying the executors’ legal costs of, inter alia, the devastavit proceeding out of the funds of the bankrupt estate.