Clyne, P.L. v. The Deputy Commissioner of Taxation [1985] FCA 462

Federal Court of Australia|1985-09-13|Before: Beaumont J

Bankruptcy - application by trustee for leave to make allowance to bankrupt for purpose of legal representation by senior and junior counsel at public examination - whether

reasonable to retain two counsel ~ whether Court bound by

PETER LEOPOLD CLYNE v. THE DEPUTY COMMISSIONER OF TAXATION

MINUTE OF ORDER JUDGE MAKING ORDER: Beaumont J. DATE ORDER MADE: 13 September 1985 WHERE MADE: Sydney

Leave be granted to the trustee to make an allowance to the bankrupt in the further sum of $12,000.00 for the purpose of the bankrupt's retainer of counsel and solicitors at his public examination on 16, 17 and 18 September 1985.

Upon the application of any party, the costs incurred by the bankrupt to the date of any such application in being represented at his public examination be taxed by a taxing ofiicer on a solicitor and client basis.

Application stood over to 23 September 1985 at 9.30 a.m.

On 1 August 1985, for the reasons then given, pursuant to $.135(1)(j) of the Bankruptcy Act, 1966, leave was granted to Mr. O'Brien, as trustee of the bankrupt estate of Mr. Clyne, to make an allowance to the bankrupt in the sum of $20,000.00 for the purpose of the bankrupt's retainer of counsel and solicitors at his public examination to be held shortly thereafter. (Re Peter Leopold Clyne Ex

parte: The Deputy Commissioner of Taxation, Beaumont J.,

unreported, 1 August 1985). Liberty was reserved to the

trustee to apply for leave to make a further allowance to

the bankrupt for that purpose. The examination has not yet

concluded. It has already proceeded for five days and it is estimated that another six days will be required. The sum of $20,000 has already been exhausted. Pursuant to the liberty reserved in that behalf, the trustee now seeks leave

to make a further allowance in respect of the remaining

In the original application, the trustee sought leave to make an allowance of $41,000.00 calculated as follows. It was then anticipated that the examination would last for 9 days. The costs of representation of the bankrupt (senior and junior counsel and solicitor) were estimated at $43,000.00 of which the bankrupt offered to contribute $2,000.00 In the result, the sum of $20,000.00 has already been exhausted - the fee of senior counsel is $2,000.00 per day (in addition to a fee on brief); that of junior counsel is $1,000.00 per day (in addition to a fee on brief): and the solicitor charges $500.00 per day. Those fees were indicated in the original application and no challenge was then made to their reasonableness. Apart from a legal argument as to the meaning of the term "allowance" in s.135(1)(4j), the debate in the original application centred on the question whether the bankrupt should retain senior counsel in addition to junior counsel - both the trustee and the bankrupt so submitting, contrary to the contentions of the Deputy Commissioner. Since the Deputy

Commissioner was himself retaining both senior and junior

counsel, it was held that fairness required that, at that stage at least, the bankrupt should be entitled to match

Although it was held in the original application that the trustee's proposal should be acceded to in

principle, some reservations as to quantum were expressed -

"The amount of the allowance presents some difficulty. Since the duration of the public examination cannot reliably be estimated, it is impossible to predict with any degree of confidence what the costs of the bankrupt's representation will be. In the circumstances, having regard to the amount involved, the appropriate course is to grant leave to the trustee to make an allowance of $20,000.00 at this stage and to reserve liberty to apply for leave to make a further allowance should that be necessary. It is possible that the examination may not take as long as suggested. Moreover, once the examination is under way, the legal representatives of the parties may agree upon a modus operandi permitting senior counsel for the bankrupt to be absent for some part at least of the examination. Whilst it is not appropriate that the Court force any such procedure upon the parties, at least at this early stage, nonetheless some flexibility could be achieved by co-operation between the parties when the

The trustee now has a different view of the type of representation which he is prepared to fund for the bankrupt. Upon taking legal advice, he is now of the opinion that the bankrupt would be adequately represented by

senior counsel and an instructing solicitor. In short,

having regard to what he described as the "passive" and "yreactionary" role to date of counsel appearing for the bankrupt, the trustee believes that the bankrupt will he properly represented even if junior counsel is not involved (cf. Rule 60, Rules of the N.S.W. Bar Association). The trustee therefore seeks leave to make a further allowance in

Solicitor 6 days at $500.00 per day 3,000.00 $15,000.00

The trustee is supported in this application by the Deputy Commissioner. For his part, the bankrupt points to the undoubted complexity of the examination and argues for

two counsel, offering to contribute a further sum of

There are obvious difficulties in my forming any view as to the reasonableness or otherwise of the retaining

by the bankrupt of more than one counsel. Although the

transcript of the examination to date was tendered, it forms

but part of the picture. It is simply impossible for me to

be able to form any concluded view as to the need to retain junior counsel to assist senior counsel for the bankrupt unless I am seised of a full knowledge of the surrounding facts and of the bankrupt's instructions in that regard. Short of embarking upon the conduct of the examination itself, I cannot reach an informed judgment on the matter. All that can be said at this stage is that the affairs of the bankrupt are complex, that the examination is of the utmost importance to all parties concerned and that the- Deputy Commissioner has himself retained two counsel. It must follow, in my opinion, that the trustee and the Deputy Commissioner have failed, at this stage at least, to establish the existence of any special circumstances

sufficient to justify depriving the bankrupt of one of his

At the same time, I am not satisfied that the Deputy Commissioner has adequately explored the possibility of the implementation of a modus operandi of the kind mentioned in the earlier Reasons. On the face of it, it should be possible, by co-operation between the parties, to devise a procedure where some forward indication of topics

is notified to the bankrupt with a view to achieving a

situation where it is not necessary that both counsel for

the trustee to make a further allowance at this stage in the sum of $12,000.00 only but to review the matter again on 23 September. The amount of $12,000.00 is arrived at in this way. The examination is to resume next week on 16, 17 and 18 September. It will then be adjourned to 23, 24 and 25 September. In my opinion, an allowance of $3,500.00, calculated as before, should be remitted in respect of the three days next week. The matter is to be reviewed on the following Monday, 23 September but to avoid any uncertainty in the retaining of counsel for that day, I propose to allow the sum of $3,500.00 for that day. Four days at $3,500.00 gives $14,000.00,less $2,000.00 which the bankrupt offers to contribute, leaves $12,000.00. The amount, if any, to be further allowed can be the subject of argument on 23 September. In particular, the Deputy Commissioner will by then have had an opportunity to explore the possibility of introducing a procedure with a view to avoiding the need for both counsel for the bankrupt to be present at the examination at all times. That exploration can take place against the background of the incentive that. as effectively

the only creditor of the estate, he has a real interest in

minimizing the cost of the bankrupt's representation.

In the course of his submissions, the Deputy Commissioner challenged the reasonableness of the fees

charged by counsel for the bankrupt. Again, I do not have

the material or expertise to form a judgment on that matter.

The appropriate course is that I order, upon the application of any party, that the bankrupt's costs be taxed on a solicitor and client basis. If any party wishes to pursue this aspect of the matter with a view to relying upon it for the purposes of any future allowance to be sought, he should move with expedition so that the results of the taxation are known on 23 September when it is proposed to review the

Finally, mention should be made of a submission put on behalf of the trustee that, in the absence of any challenge to the trustee's decision under, for example, s.178 of the Act, the powers of the Court under s.135(1)(j) are limited to those of acting as a check upon the trustee. It was further suggested that conclusive weight should be given to the opinion of a trustee as to the desirability of

exercising any of the powers mentioned in s.135(1).

It is true that the exercise of the powers conferred by s.135(1) must be initiated by the trustee. But once the Court is seised of the application, it is in no way bound by the views of the trustee although in areas of business judgment in particular, it will give considerable weight to the views of the trustee (cf. Re Tyndall (1977) 30 F.L.R. 6 per Deane, J. at p.10).

Leave be granted to the trustee to make an allowance to the bankrupt in the further sum of $12,000.00 for the purpose of the bankrupt's retainer of counsel and solicitors at his public examination on 16, 17 and 18 September 1985.

Order that, upon the application of any party, the costs incurred by the bankrupt to the date of any such application in being represented at his public examination be taxed by a taxing officer on a solicitor and client basis.

Counsel and Solicitors Mr. E.C. Lewis was instructed

for Petitioning Creditor: instructed by the Australian Government Solicitors.

Counsel and Solicitors Mr. S. Reeves was instructed

for Trustee of Estate in by Stephen Jaques Stone James.

certify that this and the 7 preceding ages are a true copy of the reasons for judgment herein of The Hortourable Mr Justice nate , 3

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Judgment (52 paragraphs)