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[2007] FCA 1977
Federal Court of Australia
2007-12-13
French J, Buchanan J
Original judgment source is linked above.
REASONS FOR JUDGMENT BUCHANAN J: 1 Mr Franz Boensch was made bankrupt on 23 August 2005. Mr Scott Pascoe was appointed the trustee of Mr Boensch's bankrupt estate. The present proceedings have been brought by Mr Boensch under ss 178 and 179 of the Bankruptcy Act 1966 (Cth) ('the Act'). They seek the removal of Mr Pascoe as trustee (s 179) and orders setting aside a formal request for documents made by him on 29 November 2006 (s 178). 2 In support of his application for Mr Pascoe's removal as trustee, Mr Boensch alleges a number of specific instances of misconduct or wrongful administration of his estate. They are:
73 On the other hand, French J in Macchia v Nilant (2001) 110 FCR 101 referred (at [55]) to the need to enter an objection as soon as possible in order to maintain the credibility of the personal insolvency system.
'149B (1) Subject to the following provisions of this Subdivision, at any time before a bankrupt is discharged from bankruptcy under section 149, the trustee may file with the Official Receiver a written notice of objection to the discharge. (2) The trustee of a bankrupt's estate must file a notice of objection to the discharge if the trustee believes: (a) that doing so will help make the bankrupt discharge a duty that the bankrupt has not discharged; and (b) that there is no other way for the trustee to induce the bankrupt to discharge any duties that the bankrupt has not discharged.' 75 It is clear that a Notice of Objection should not be issued lightly. A trustee is required to make a judgment. The trustee must believe 'that there is no other way' to achieve compliance with the obligation in question. 76 In the present case the main thrust of Mr Boensch's argument is that there is a case for an inquiry into whether Mr Pascoe used his discretion either to punish Mr Boensch or to seek a collateral advantage in the litigation commenced by him to recover further property in which Mr Boensch and his former wife were named as respondents. Notice of Objection to discharge dated 2 February 2006 77 I referred to this notice earlier. It was issued because, Mr Pascoe alleged, Mr Boensch had failed to provide obligatory information about his property, income or expected income. An exchange of correspondence ensued with Mr Boensch insisting he had complied and Mr Pascoe contending he had not, and continued not to do so. 78 Mr Boensch sought a review by the Inspector-General in Bankruptcy. On 29 May 2006 the ground of objection relied on by Mr Pascoe was confirmed. Mr Boensch appealed to the Administrative Appeals Tribunal ('the AAT'). On 9 February 2007 the AAT upheld his appeal and set aside the notice. It did so because it was not satisfied that Mr Boensch had been in possession of group certificates, pay slips, relevant income tax returns or bank statements showing receipt of payments, and was therefore not satisfied he had refused to provide them. As no specific request had been made for an explanation of non-provision the request to him was found to be faulty. 79 No reason for an inquiry is provided by this Notice of Objection, or its discharge. Notice of Objection to discharge dated 27 November 2006 80 On 19 July 2006 Mr Pascoe commenced proceedings in the FMCA against Mr Boensch and his former wife seeking declarations intended to establish that the property at 255 Victoria Road, Rydalmere, still registered in the joint names of Mr Boensch and his former wife, was property falling within Mr Boensch's bankrupt estate. It appears the proceedings are vigorously resisted. Various interlocutory applications were made by Mr and Mrs Boensch. Hearing of those interlocutory applications occurred on 21 and 22 November 2006 and a number of rulings were made. The proceedings were then adjourned and, on 1 December 2006, Mr Boensch applied for leave to appeal against the interlocutory decisions. 81 On 27 November 2006 Mr Pascoe served a second Notice of Objection on Mr Boensch. It relied on statements made by Mr Boensch in February 2006 to the effect that he had received no income and on conflicting information provided, through his former wife, on 30 May 2006 from an employing entity, 'Boensch Pty Limited', including payslips and a group certificate 'evidencing wages paid to him in the period 6 January 2006 to 21 July 2006'. 82 Mr Boensch argues that Mr Pascoe could have taken this matter up at any time after 30 May 2006. he says that I should infer that the Notice of Objection was issued to: Flag 8 'a. punish the Applicant; and/or b. divert and/or c. seek to weaken his resolve in relation to defending the proceedings currently before the Federal Magistrate's Court.' 83 This Objection to Discharge was cancelled by a delegate of the Inspector-General in Bankruptcy on 26 March 2007. The delegate found that Mr Boensch earned income in January and February 2006 and that his statements to the contrary were misleading. However, Mr Boensch contended that his statements were intended to respond to questions about his income to 15 December 2005 and referred only to this period. In view of uncertainty in the evidence before him the delegate was not satisfied that the statements, although false or misleading, were intentionally so. They were therefore not shown to be in contravention of s 149D(1)(d) of the Act. 84 It is not contended that the requests to Mr Boensch were illegitimate. Nor can it be argued that Mr Boensch's responses were accurate or satisfactory. Mr Boensch was under an obligation to disclose his earnings to Mr Pascoe. When he failed to do so Mr Pascoe was entitled to act. Mr Boensch was given the benefit of the doubt by the delegate about the question of his intention when he responded but in my view the decision of the delegate raises no issue concerning the propriety of the Notice of Objection. 85 The fact that some time passed before Mr Pascoe gave formal attention to the matter, or that he did so after an adjournment of proceedings in the FMCA, is insufficient to raise an inference of the kind suggested by Mr Boensch. Mr Pascoe may have been occupied by issues arising in those proceedings or by other matters in his practice. 86 There is another issue about a letter written by Mr Pascoe two days later, on 29 November 2006. I deal with it later. I have not overlooked Mr Boensch's argument that the matters should be viewed in support of each other. Whether viewed singly, or in combination, they do not raise the inference for which he contends. Notice of Objection to discharge dated 10 January 2007 87 On 10 January 2007 Mr Pascoe issued another Notice of Objection. It was based on the contention that Mr Boensch had failed to provide written information about his 'property, income or expected income' as was the first Notice of Objection. It referred specifically to the request made by Mr Pascoe's letter of 29 November 2006 which I mentioned a short while ago and with which I am yet to deal. The matters relied upon by Mr Pascoe were a ground within s 149D(1)(d) of the Act. Mr Boensch alleges that Mr Pascoe's motivation was the same as with respect to the letter of 29 November 2006, and the Notice of Objection dated 27 November 2006. 88 The notice dated 10 January 2007 was cancelled by a delegate of the Inspector-General in Bankruptcy on 26 March 2007. On this occasion the reason for cancellation was that on 9 February 2007 the AAT set aside the first notice, which had also been based upon a ground falling within s 149D(1)(d). The AAT decision was not available when Mr Pascoe issued the notice of 10 January 2006 and no criticism of him is available from this source. The delegate appears to have taken the view that use of a ground under s 149D(1) is, in the event a notice is cancelled, by virtue of s 149N(1)(d) a barrier to ever using a ground of the same character again regardless of the factual content of the ground or the nature of a particular default. The matter has not been debated before me and it is not necessary to express any view about the soundness of that construction of s 149N(1)(d). It is sufficient to observe that nothing arising from the circumstances of the cancellation of the notice supports Mr Boensch's claim for an inquiry on the ground of any misconduct or maladministration by Mr Pascoe. 89 I shall deal shortly with the letter of 29 November 2006 upon which this notice was based. It will be seen that I reject the proposition that it represented a misuse of Mr Pascoe's powers. The same must be said for the notice of 10 January 2007. Breakdown in the relationship 90 Mr Boensch also argued that the relationship between Mr Boensch and Mr Pascoe had broken down to such an extent that Mr Pascoe should be removed for that reason. Reliance was placed on the judgment of Spender J in Doolan v Dare [2004] FCA 682 at [49]. His Honour said" '49. It seems to me that it is plain beyond argument that the relationship between the trustee and the bankrupt has totally broken down; that, in many cases, is a sufficient reason for the trustee to be removed. Here, there is such a clear conflict of interest between the trustee's interests in having her remuneration paid and how she thinks that might be achieved, and her obligations as a fiduciary to the creditors and the bankrupt, that this clearly is a case where the Court should exercise its power under subs 179(1) of the Act and remove the trustee from office.' (Emphasis added) 91 It is plain, however, that his Honour did not remove the trustee in that case because of a breakdown in the relationship but because the trustee had acted improperly and in breach of the Act 'for her own personal interests' (see at [38], [43] and [51]). 92 Obviously enough, a bankrupt should not be allowed, by an assiduous pattern of resistance to the trustee of his estate, to generate and then rely upon a suggested reason for removal thereby created. No doubt there are many instances in which disagreement may arise about the way a trustee is administering an estate or exercising his powers. Adequate opportunities exist for challenges to be made, if there are grounds for doing so. None have been made in the present case, save for the matters with which I am dealing. 93 It is clearly an insufficient ground for removal of a trustee that a bankrupt resists the proper administration of his estate or sets out to frustrate a trustee in the proper performance of his duties. Mr Boensch's obligation was to co-operate fully with his trustee. He is obliged to 'aid to the utmost of his power in the administration of his estate' (s 77(g)). It is not necessary, or desirable, to make comprehensive findings about Mr Boensch's own conduct. It is sufficient to say generally that the apparently marked lack of trust which exists between him and Mr Pascoe does not indicate any failing by Mr Pascoe in the administration of Mr Boensch's bankrupt estate or provide a reason for the Court to intervene in that task. 94 Accepting, as Spender J observed, that there will be cases where removal of a trustee is warranted due to a total breakdown in relationship, nevertheless the present is not a case, in my view, where that is called for or whether any further inquiry into that issue is necessary or desirable. APPLICATION UNDER SECTION 178 95 This part of the proceedings is directed at the letter sent by Mr Pascoe to Mr Boensch on 29 November 2006. The letter reads (in relevant part): 'I advise that I require the production of the following books and records to my office pursuant to section 77(1) of the Bankruptcy Act ("the Act") by 11 December 2006, for the purpose of my ongoing investigation of your examinable affairs and income contribution obligations under the Act: 1. In relation to the property at 255 Victoria Road Rydalmere NSW 2116, the original of the transfer entered into between Sabine Elizabeth Boensch and yourself for the purpose of carrying into effect the terms of Orders of the Family Court of Australia between them and dated 15 May 1999. 2. Books evidence of the source of the funds for all payments of your legal costs incurred after the date of bankruptcy. Please include details of the date of payment, amount and source of payment. If payments are made by someone other than yourself, please provide the name and address of this person. 3. You are required to provide copies of all invoices evidencing the cost of the legal fees and also copies of all cheque, bank statements and/or cheque butts and all other documentation evidencing payment of the legal costs.' 96 A reminder was sent on 20 December 2006. It said, relevantly: Flag 14 'I refer to my letter dated 29 November 2006, a copy is enclosed. I note that you have not provided the books and information as requested in my letter of 29 November 2006. As you have not provided the records and information, I have no alternative other than to refer the matter to Insolvency & Trustee Services Australia Bankruptcy Fraud Investigation Unit for prosecution and also lodging a further Objection to your Discharge extending your bankruptcy to a period of 8 years from the date you filed your Statement of Affairs.' 97 The Notice of Objection to discharge thereby foreshadowed was issued on 10 January 2007 and, as has been seen, later cancelled. The reference of the matter by Mr Pascoe to ITSA, I was told, will not be dealt with until the present application is finalised. 98 Mr Pascoe obtained from the files of Mr Boensch's former solicitors, a photocopy of a transfer of property, dated 9 June 1999, whereby Mrs Boensch appeared to transfer her interest in the Rydalmere property to Mr Boensch pursuant to 'Court Orders'. The document is certified as stamp duty exempt. The transfer has never been registered. The original transfer has never been produced. Instead Mr Boensch's later solicitors provided to Mr Pascoe on 30 March 2007 a copy of a transfer document said to have been 'now located' by Mr Boensch, dated 21 March 2004, whereby Mr and Mrs Boensch transferred the property to Mr Boensch. The solicitors noted their instructions not to release the original to Mr Pascoe unless and until the FMCA ruled that the property was not the subject of a validly created trust. This is, in effect, the issue to which the proceedings commenced by Mr Pascoe on 19 July 2005 are directed. That transfer has been stamped but has not been registered either. 99 It is not necessary for me to decide what arises from either of the transfers, whether they are genuine or which, if either, is effective. The only issue at the moment is whether, insofar as Mr Pascoe sought the original of a document, a copy of which was in his possession from Mr Boensch's former solicitors' file, it was an abuse of his power to do so on 29 November 2006 because it was done for a collateral purpose. In my view the proposition is not tenable. I reject it. 100 On 6 December 2007 the FMCA decided that the Rydalmere property was the subject of a valid declaration of trust made by Mr and Mrs Boensch on 23 August 1999 (Pascoe v Boensch & Anor (No 3) [2007] FMCA 2038). It remains for the FMCA to consider whether the declaration of trust is void against the trustee under s 120 or s 121 of the Act. These matters do not bear upon the issues for decision in the present case. 101 The other part of Mr Pascoe's letter sought information about the source of the fees for Mr Boensch's legal representation before the FMCA. In my view such a request was legitimate, whenever made. Later Mr Pascoe was informed that Mr Boensch was being assisted on a contingency basis. Why that could not have been explained earlier was not made clear. This request affords no basis either for any action by the Court under s 178. Nor does it, whether regarded alone or in combination with either or both of the Notices of Objection to discharge dated 27 November 2006 and 10 January 2007 provide any support for the application that Mr Pascoe be removed as trustee. CONCLUSIONS 102 No case has been made for the grant of any relief. I will dismiss the Amended Application. Mr Pascoe has asked that I not deal with any question of costs before dealing with the relief sought. I will hear the parties on costs at a time to be fixed. I certify that the preceding one hundred and two (102) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Buchanan .
Solicitor for the Applicant: Wright Commercial Lawyers
Date of Hearing: 19 - 20 and 28 September 2007
Boensch
Pascoe
[2005] FMCA 1028
[2007] FMCA 2038
(1992) 109 ALR 100
(1935) 52 CLR 713
(1988) 12 NSWLR 45
(1981) 52 FLR 115
(2001) 110 FCR 101
(1936) 54 CLR 572
(1976) 9 ALR 262
(1981) 57 FLR 165
(1987) 13 FCR 326
(1997) 80 FCR 330
(2001) 107 FCR 28