Coshott v Burke

REASONS FOR JUDGMENT 1 These proceedings arose out of the sequestration of the estate of the applicant and his attempt to remove the respondent as the trustee assigned to administer his bankrupt estate. For some time the proceedings were in the docket of Rares J, who commenced a substantial hearing. 2 The application to remove the trustee was later assigned to my docket, for reasons which were briefly explained in an earlier judgment (Coshott v Burke [2013] FCA 155). As there recounted (at [3]), the case for the removal of the respondent as trustee was substantially recast in late 2012 and, eventually, the applicant sought, and was granted, leave to amend his statement of claim to plead reliance on the allegations in the new case. At the same time, in substance the earlier allegations of particular misconduct and maladministration were abandoned. 3 The case was to continue, early this year, on the new foundation. However, on 15 February 2013 the trustee filed an application seeking the leave of the Court to resign as trustee. He gave, as an explanation for that desire, affidavit evidence that he was motivated by concern for the state of his wife's health. It now appears that the explanation given was incomplete and it was in my view misleading. 4 In subsequent proceedings, which were heard by the Chief Justice during my absence on leave, it was revealed that the respondent's administration of a number of bankrupt estates (but not the applicant's) had been under question for some time. The respondent had been asked to show cause why his registration as a trustee should not be cancelled. The respondent attempted, unsuccessfully, on more than one occasion to obtain an order from the Federal Magistrates Court of Australia ("the FMCA") restraining the process (Burke v Inspector-General in Bankruptcy [2013] FMCA 2). The most recent application to the FMCA was dismissed on 8 February 2013. It was in the context of an imminent possibility that his registration would be lost altogether that the respondent applied, on 15 February 2013, to be allowed to resign as trustee of the applicant's bankrupt estate. There may be an argument whether those background circumstances should have been brought to the Court's attention as important in their own right. That issue does not need to be independently resolved. What was unsatisfactory was that the respondent should advance, as his only reason for seeking leave to resign, one particular circumstance (concern for his wife's health) and omit all mention of the fact that he would very probably have been compelled to resign as trustee of the applicant's bankrupt estate in any event, and independently of the reason which he gave. 5 The application for leave to resign as trustee was heard by me on 25 February 2013. It was not opposed by the applicant, who has since given evidence that he did not know about the other matters to which I have referred. Two days later, after his application for leave to resign as trustee had been granted, the respondent surrendered his registration as a trustee, bringing that role to an end in relation to all the bankrupt estates he was then still administering, although it appears that he had progressively reduced the scale of such activities in the preceding period. 6 At the hearing on 25 February 2013, I also dealt with the question of whether the respondent should have his costs of defending himself in the application brought by the applicant to remove him as trustee, which application it was agreed should be dismissed upon the respondent's resignation as trustee. I dealt with that question in the earlier judgment as follows (at [10]-[11]): 10 The other outstanding matter is the question of costs. I am satisfied that Mr Burke's resignation from his position as trustee is bona fide. He was made a respondent to the present application and was required to incur costs in relation to it. The case which is now advanced against him is quite different from the earlier case which was commenced against him. 11 I am not satisfied that Mr Burke acted improperly in any of the senses which are alleged against him in the proceedings, either as commenced or as most recently maintained. The proceedings did not reach a point where any finding, however tentative, could be made to that effect. I am obliged, in my view, to assume that Mr Burke acted properly as trustee as no sufficient case has been erected to make any assumption or tentative finding to the contrary. As a result, I should proceed upon the basis that his costs were properly incurred as trustee, there being no respectable alternative basis upon which to proceed. 7 The respondent, therefore, had the benefit of an order for his costs before he surrendered his registration as trustee, and before the applicant became aware of the bigger picture. 8 On 3 May 2013, notwithstanding that his application for removal of the respondent as trustee had been dismissed with costs, the applicant applied to revoke the costs order in favour of the respondent. He also applied for orders preventing the new trustee from retaining solicitors or counsel used by the respondent, on the grounds that they had a conflict of interest. 9 It is not seriously contested that the Court may revisit the costs order, in the light of the new information available. In so far as the Federal Court Rules 2011 (Cth) ("the Rules") might present a particular obstacle, it is always within the power of the Court to dispense with the Rules or suspend their operation. 10 The Chief Justice dismissed the application for an order that the new trustee not retain solicitors or counsel used by the respondent (Coshott v Burke [2013] FCA 553). His Honour did not deal with so much of the application as concerned the costs order made on 25 February 2013, saying: 16. Mr Coshott's fundamental submission in relation to this was that Buchanan J was misled and, in all likelihood, would have made a different costs order had he known the true position. I indicated to the parties that it was not appropriate for me to hear this part of the interim application. It was, in substance, a re-opening of the matter before Buchanan J, and given that Buchanan J was the judicial officer said to have been misled, I should let the matter be dealt with by him. … 29. As to the circumstances of 25 February 2013, it is tolerably clear that the detail of the complaints made by the Inspector-General over the years about Mr Burke's practice was not disclosed to Buchanan J. Those matters were set out in documents that comprised Exhibit E before me (Exhibit RGC2 to Mr Coshott's affidavit of 27 May 2013). 30 Mr Burke gave evidence by affidavit sworn 31 May 2013. He swore that he did not consider that it was necessary or relevant for him to go into the substantive detail of matters between him and the Inspector-General. He was cross-examined by Mr Coshott on the evidence that he gave before Buchanan J, in particular in his affidavit of 13 February 2013. In that affidavit he had referred to the effect of his wife's health problems on his ability to manage his administrations. He was cross-examined about this and gave emotional evidence before me about the state of his wife's health. I do not propose to go into the detail of it. She has been ill for some time. He said that a worsening of her health between dates in January 2013 and February 2013 when he swore his two affidavits accounted for his personal reasons to wish to resign his office. 31 These are matters which will need to be considered by Buchanan J in relation to the claim for orders 1 and 2 in the interim application. I have looked at the material passing between the Inspector-General and Mr Burke, personally and through Ms Nash. There may be a real issue as to whether Buchanan J should have been told more in February and whether this would have impacted upon the cost order. I do not form any view about that. It will be a matter for Buchanan J. It should be noted, however, that none of the matters involving the concerns of the Inspector-General related to the conduct of the administration of the bankrupt estate of Mr Coshott. 11 I heard argument about those matters on 24 June 2013, based on the evidence which had been before the Chief Justice. 12 The costs order which I made on 25 February 2013 did not relate to the respondent's general costs of administering the applicant's bankrupt estate; it related to the respondent's costs of defending the proceedings brought against him, up until 14 December 2012 when the previous case against him was effectively abandoned and recast. So far as I can tell, none of the matters for which the respondent was under investigation would suggest, or give support to any suggestion, that the original case against the respondent had any substance. No such suggestion was made in support of the present application. There seems no reason, therefore, to revise the observations I made in the earlier judgment at [10]-[11]. 13 I accept the applicant's submission that the respondent should have disclosed the full circumstances pertaining to his decision to seek leave to resign as trustee of the applicant's bankrupt estate, as at 25 February 2013. It was misleading not to have done so, particularly as the applicant was not privy to all the circumstances. I have considered whether the failure to disclose the full reasons to the Court should disentitle the trustee to his costs, not as a form of punishment but for the reason that the true circumstances in which the costs order was sought and made were not sufficiently disclosed. Such a principle operates routinely in the case of ex parte orders when demonstration of inadequate disclosure will suffice in most cases to vacate orders obtained ex parte, although in such cases it generally remains open to seek further orders to the same effect. 14 In the present case, I am not satisfied that the incomplete information before the Court has any effect on the respondent's entitlement to the costs of the application for his removal as trustee which were incurred before 14 December 2012. Those costs were incurred in response to grounds which were not pursued, and which are not re-invigorated in any sense by the matters which are now known to the applicant. 15 In all the circumstances, I decline to revoke the costs orders which I made on 25 February 2013. The application to that effect is dismissed. The respondent's additional costs (if any) will be a cost in the bankruptcy administration. I certify that the preceding fifteen (15) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Buchanan.