Cheesman v Waters

EX TEMPORE REASONS FOR JUDGMENT The reasons of the Court were delivered by Burchett J: Mr Turner is a discharged bankrupt who, prior to what I will call his second bankruptcy, that from which he has now been discharged, was a lessee of a farming property. In that capacity, he was involved in a dispute with the lessors, Mr and Mrs Whitford, which appears to have been somewhat bitter. They attempted to evict him, and the consequent altercation resulted in his being charged by police with Òassault and resisting arrest and escaping from custodyÓ. This was in early 1989. It led to a settlement on 5 September 1991 between Mr and Mrs Whitford and the trustee in Mr TurnerÕs then bankruptcy (not his second bankruptcy, which was produced by a sequestration order made on 29 August 1994). The settlement seems to have left outstanding certain proceedings pending in the Supreme Court since then (and not pursued actively) by Mr Turner against Mr and Mrs Whitford in relation to the attempted eviction, in which Mr Turner sued for $1998 special damages plus general damages involving claims for loss of reputation and distress. When Mr TurnerÕs second bankruptcy occurred, Mr and Mrs Whitford lodged a proof of debt, claiming rental or occupation fees for a period following the settlement. It was alleged that Mr Turner had gone back into occupation, or had not actually vacated the farm. The trustee initially accepted that some amount (much less than the claim) was due, but ultimately determined that the claim was properly a claim in the earlier bankruptcy, and therefore rejected it. There was no application to the Court to review this decision under s 104 of the Bankruptcy Act 1966. Mr Turner then brought an application before the primary judge seeking an inquiry into the trusteeÕs conduct under s 179. He raised in substance two matters. First, he alleged the trustee should not have rejected Mr and Mrs WhitfordÕs proof of debt, but should instead have raised against them, as a counterclaim under s 86(1), the dormant claim in the Supreme Court proceeding. Secondly, he alleged the trustee should have initiated criminal charges against Mr and Mrs Whitford in respect of their proof of debt under ss 263(1)(d)(i) and 263B of the Bankruptcy Act. The primary judge rejected the application, and Mr Turner now appeals, conducting his case in person. Taking the first allegation first, it is necessary to point out that the reference to s 86(1) merely confuses the issue. Once the trustee appreciated that Mr and Mrs WhitfordÕs claim arose in the earlier bankruptcy, and rejected that claim, making a determination which cannot in itself be impugned, there could be no set off under s 86 because there were no mutual debts and credits. There was only Mr TurnerÕs asserted claim against Mr and Mrs Whitford. But that claim had lain dormant for a number of years, and it is not possible to say the trustee was bound to pursue it, so far as it was open to him to do so. It is a commonplace of bankruptcy administration that a trustee may take a much cooler view than a bankrupt of suggested claims against other persons. A trustee may think there is Òno evidence to warrant action being taken, no real prospect of success in any proceedings and no money to finance the proceedingsÓ: Cheesman v Waters (1997) 77 FCR 221 at 225. As to such questions, the Court will bear in mind the considerations stated by Deane J in Re Tyndall (1977) 30 FLR 6 at 9-10 (a passage cited by Northrop J in some earlier litigation involving Mr Turner, Re Turner; Ex parte Mulley, unreported, 22 June 1995). Deane J referred to Òthe well established policy under bankruptcy legislation that the court should not unduly interfere with the day-to-day administration of a bankruptÕs estate by a trusteeÓ. His Honour continued: ÒThe trustee is made responsible for the administration of the bankrupt estate under the general provisions of the Act. He must, in the course of that administration, make a variety of decisions aimed at enabling the administration to be carried out with promptness and efficiency. Some of these decisions will be business or commercial decisions in which the business or commercial experience of the trustee would itself provide a basis for arguing that, unless it were shown that the trusteeÕs decision was perverse or clearly wrong, it would be inappropriate and unjust for the court to interfere. Again, under the present legislation, the trustee will ordinarily be the official receiver and the court must be conscious of the fact that the official receiver will be made responsible for the administration of an extraordinarily large number of estates. In such circumstances, the administration of the Bankruptcy Act demands that the court take into account, in exercising its functions under the provisions of s. 178 of the Act, the opinion of the official receiver, as trustee, as to what is expedient in the interests of the prompt and efficient administration of a particular bankrupt estate.Ó It will be noticed that these remarks were made in the immediate context of s 178. But they apply equally to s 179, as is made clear by the observation of Merkel J at first instance in Cheesman v Waters (1997) 143 ALR 78 at 114 that Òessentially the same principles operate in relation to ss 178 and 179.Ó The courts have held (in a number of decisions which are collected by Merkel J in Cheesman v Waters at 114) that the application of s 179 involves a broad discretion as to whether or not there are sufficient grounds to make an inquiry appropriate. In Re Gault; Gault v Law (1981) 57 FLR 165 at 173, Ellicott J cited the opinion of Riley J in Re Alafaci; Registrar in Bankruptcy v Hardwick (1976) 9 ALR 262, who said (at 268) Ò[T]here is a preliminary question to be decided by the court Ð namely on the grounds and facts before it, has a case been made for inquiry into the trusteeÕs conduct?Ó Ellicott J added: ÒThe 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. For instance, the court should be loath 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.Ó Bearing these considerations in mind, and so far as the suggested claim against Mr and Mrs Whitford is concerned, there is no reason, in the present case, to disagree with the primary judgeÕs view that nothing was shown to justify any inquiry into the way the trustee had dealt with the matter. That leaves the criminal allegations. It is now far too late to prosecute for any breach of s 263B, which is subject (by s 15B(1)(b) of the Crimes Act 1914) to a limitation period of one year. As for s 263(1)(d)(i), which creates an offence of making Òa false claimÓ or lodging Òa proof of debt that is untrue in any particularÓ, this requires an Òintent to defraudÓ. Nothing in the material before the court suggests such an intent, which would have to be proved beyond reasonable doubt. Accordingly, there would be no basis for upholding the appeal in respect of the criminal allegations, even if they raised responsibilities of the trustee. But in fact they do not. Any question of prosecution in respect of the matters alleged by Mr Turner would be for the appropriate prosecuting authorities, not for the trustee. Mr Turner wished to agitate a number of other issues, but they were not raised before the primary judge, and upon ordinary principles he should not be permitted to raise them now, as belated afterthoughts. In connection with some of these issues, he also sought to adduce fresh evidence, but he acknowledged that the evidence was available to him at the time of the hearing at first instance. Accordingly, the Court refused leave to adduce that evidence. The appeal is dismissed with costs.