Coshott v Coshott

First Respondent/Third Cross Defendant: Appeared in person

Counsel for the Second Respondent/Cross Claimant: J Johnson

Solicitor for the Second Respondent/Cross Claimant: Sally Nash & Co

Applicant: Appeared in person

Solicitor for the First Respondent: Sally Nash & Co

GENERAL DIVISION NSD 1412 of 2009

1. John Christopher Burke replaced the official trustee in bankruptcy as trustee of the estate of Robert Gilbert Coshott on 18 December 2008 pursuant to s 181A, Bankruptcy Act 1966. THE COURT ORDERS THAT:
2. To the extent that the second respondent has incurred costs that are additional to and separate from the costs to which he is entitled to under the order for costs made in proceedings NSD1208/2009 on 17 February 2010, the applicants and first respondent pay the second respondent's costs of the issues in these proceedings ordered to be tried separately on 17 February 2010. Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court's website. IN THE FEDERAL COURT OF AUSTRALIA

GENERAL DIVISION NSD 1208 of 2009

IN THE MATTER OF ROBERT GILBERT COSHOTT, A BANKRUPT BETWEEN: ROBERT GILBERT COSHOTT

1. John Christopher Burke replaced the official trustee in bankruptcy as trustee in the estate of Robert Gilbert Coshott on 18 December 2008 pursuant to s 181A, Bankruptcy Act 1966. THE COURT ORDERS THAT:
2. The applicant pay the first respondent's costs of the hearing of the issues referred to in Order 1 made on 11 December 2009.
3. The proceedings be dismissed as against the second respondent with costs.
4. The second respondent be entitled to have any bill of costs taxed forthwith. Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court's website. IN THE FEDERAL COURT OF AUSTRALIA

GENERAL DIVISION NSD 1412 of 2009

IN THE MATTER OF ROBERT GILBERT COSHOTT, A BANKRUPT BETWEEN: ROBERT GILBERT COSHOTT

REASONS FOR JUDGMENT (REVISED FROM THE TRANSCRIPT) 1 This is the hearing of a separate question under O 29 r 2 of the Federal Court Rules as to the status of John Christopher Burke as trustee of the bankrupt estate of Robert Gilbert Coshott. The question is whether Mr Burke was validly appointed pursuant to s 181A of the Bankruptcy Act 1966 (Cth). There are two related proceedings in which this question arises, one brought by the bankrupt against Mr Burke and the Official Trustee in Bankruptcy, the other brought by the bankrupt's son, James Coshott, and his wife, Ljiljana Coshott, against the bankrupt and Mr Burke. In the second proceedings, by consent, the same question as to the validity of Mr Burke's appointment has been ordered today to be the subject of this separate hearing.

The Statutory Scheme 2 Under s 181A(1) the current trustee of a bankrupt's estate may, with a written consent of another trustee (here Mr Burke) nominate the other trustee as the new trustee of the estate. The section then provides that the current trustee must give notice of the nomination to all creditors who would be entitled under s 64A to receive a notice of meeting of creditors. It provides that the notice must specify a date at least ten days after the notice is given, from which it is proposed that the new trustee would become the trustee of the estate and state that any creditor might, by written notice to the trustee, at least two days before the specified date, object to the nomination taking effect without there being a meeting of creditors. It then provides that if no creditor lodges a written notice of objection with the current trustee within that time frame, the new trustee replaces the current trustee as trustee of the estate on the date specified in the notice. 3 Next, s 64A(1) provides that the trustee must give notice of a meeting of a bankrupt's creditors to a person whom either the bankrupt has informed him or her, or he or she has otherwise found out, is a creditor of the bankrupt, if the trustee is aware of one address specified in s 64A(1)(b). 4 An Official Receiver may, by signed instrument under s 15(4), delegate to an authorised employee all or any of his or her powers and functions under the Act. The corporation sole, known as the Official Trustee in Bankruptcy, was continued in existence as a body corporate with perpetual succession by s 18. Importantly, s 18(8) provided that the Official Receiver for a district may exercise the powers and perform the functions of the Official Trustee that relate to a matter that originated in that district under other provisions of the Act. And, in exercising powers or performing functions under s 18(8), an Official Receiver was required to act in the name of, and on behalf of, the Official Trustee by virtue s 18(8AA). And, under s 18(8A), all acts and things done in the name of, or on behalf of, the Official Trustee by any Official Receiver are deemed to have been done by the Official Trustee. 5 Next, s 134(1)(i) provides that, subject to the provisions of the Act, a trustee may obtain such advice or assistance as he or she considers desirable relating to the administration of the estate or to the conduct or affairs of the bankrupt. 6 Importantly, s 306 provides: "306 Formal defect not to invalidate proceedings (1) Proceedings under this Act are not invalidated by a formal defect or an irregularity, unless the court before which the objection on that ground is made is of opinion that substantial injustice has been caused by the defect or irregularity and that the injustice cannot be remedied by an order of that court. (2) A defect or irregularity in the appointment of any person exercising, or purporting to exercise, a power or function under this Act or under a personal insolvency agreement entered into under this Act does not invalidate an act done by him or her in good faith." 7 Finally, s 308(d) provided that, subject to the Act, for the purposes of the Act, any person may act by his or her agent, duly authorised in that behalf.

The circumstances in which Mr Burke became trustee 8 On 7 November 2008, the Federal Magistrates Court ordered that a sequestration order be made against the estate of the bankrupt. By force of s 160, the Official Trustee became the trustee of his estate. A number of officers of the Official Trustee have given evidence in the proceedings. Around 24 or 25 November 2008, the Official Trustee's office became aware of the sequestration order and commenced the administration of the estate. 9 Tibor Karolyi was an assistant business manager in the office of the Official Receiver for the Bankruptcy district of New South Wales and the Australian Capital Territory. There is no dispute that Mr Karolyi was a delegate of the Official Receiver under s 15(4) of the Act and had the power to nominate a new trustee for the bankrupt's estate. Mr Karolyi was responsible within the Official Receiver's office for the bankrupt's estate. He directed an accountant in the employ of the Insolvency Trustee Service of Australia (ITSA), Ms Lana Chau, to perform the administrative functions in respect of the bankrupt's estate. 10 One issue in the proceedings is whether Ms Chau was acting as an agent or as a delegate, and particularly in relation to how Mr Burke came to be put forward as a new trustee. There was no delegation capable of applying to give Ms Chau any relevant powers or functions. It is common ground that if any relevant power or function had been purportedly delegated to her, there was no valid delegation to support it. Thus, it is accepted that any acts that she performed as a purported delegate were invalid. 11 The bankrupt had been involved in a very large amount of litigation according to the search of the AustLII website conducted by the Official Receiver's office on 25 November 2008. Forty-one cases mentioning Mr Coshott as a party were detected in the AustLII search. The relevant search term was simply the name "Coshott". The search did not indicate in what capacity or capacities Mr Coshott was a party or any ultimate finding involving him, namely, whether he became a judgment creditor or a judgment debtor. There was no indication of any judgment sums entered against him in that search, or whether he had any judgment against him in respect of which he may have been liable for costs. 12 On 25 November 2008 Ms Chau mailed a statement of affairs to addresses that she had for the bankrupt for him to complete. However, each of the two letters was returned undelivered on 2 December 2008. An officer of ITSA sent a notification of the bankruptcy on 26 November 2008 to the petitioning creditor, Shipton Lodge Cobbity Pty Limited, and to another creditor, Woollahra Municipal Council. 13 Mr Karolyi observed that in some cases, there was a practice in the Official Receiver's office to seek the appointment of an outside trustee where the Official Trustee had been appointed under the sequestration order. He said that Mr Coshott's matter was an instance of the kind in which such outside administration was appropriate. He gave directions that the petitioning creditor be asked to arrange for a consent to act from an independent trustee. The solicitors acting for the petitioning creditor sent a letter on 2 December 2008 to the Official Receiver, care of Ms Chau indicating that Mr Burke would so act. He had signed a consent to act on 1 December 2008 faxing it to another officer of the service, Mr O'Brien, on 2 December 2008. Mr Burke noted that the process to be used was that provided for in s 181A of the Act. 14 On 4 December 2008, Ms Chau prepared a further report to creditors. She caused it to be sent that day to five creditors of the bankrupt, being the only creditors of which she was aware. It was headed up "Transfer of Administration under section 181A of the Bankruptcy Act 1966". The report referred to the making of the sequestration order and a notification of Mr Coshott's bankruptcy that had been issued on 26 November 2008 by the Official Trustee's office. It identified the purpose of the meeting as being that the petitioning creditor had requested that Mr Burke be appointed as the new trustee in place of the Official Trustee. The notice stated that Mr Burke had consented to act and that "the Official Trustee nominates Mr Burke to be the new trustee of the bankrupt estate of [Mr Coshott]". The notice then recited that pursuant to s 181A, Mr Burke would become the trustee unless, not less than two days prior to 18 December 2008, a creditor lodged a written objection to the nomination taking effect without there being a meeting of creditors. The notice recorded that at that time the bankrupt had not filed his statement of affairs. It then referred to a number of matters to do with the administration of the estate. The notice concluded with the date, 4 December 2008, under which there was a blank space, and then the following appeared: "Lana Chau On behalf of OFFICIAL TRUSTEE IN BANKRUPTCY Lana Chau For the Official Trustee"

Submissions 15 The bankrupt made submissions on his own behalf and on behalf of his wife and son who were in the same interest in seeking to challenge Mr Burke's appointment. The bankrupt argued that the notice was wholly invalid because Ms Chau was not a delegate of the Official Trustee, or the Official Receiver, acting for the purposes of ss 15 and 18 of the Act, as the official trustee. He contended that it was a notice issued by Ms Chau and that, in any event, nobody had signed it. It was therefore, he argued, incapable of being a notice of nomination given in accordance with s 181A. 16 Mr Burke and the Official Trustee contended that the notice was validly given by the Official Trustee and there being no objection by any creditor, Mr Burke was validly appointed to act on 18 December 2008. 17 The bankrupt also argued that before any notice could be sent out, the Official Trustee had a duty to ascertain who his creditors were by making preliminary inquiries. He contended that such a duty was created by force of the obligations imposed on each trustee by s 155H(5), reg 8.34A of the Bankruptcy Regulations 1966 and cl 2.6(v) of Sch 4A to the Regulations. That provision in Sch 4A referred to part of the duties of a registered trustee as obtaining and reviewing a statement of affairs of the bankrupt. No submission was made that these provisions did not apply to the Official Trustee and I have proceeded on the assumption that they did. 18 The bankrupt's last argument can be disposed of quickly. He contended that the notice was wholly invalid because in the published reasons for judgment of the Federal Magistrates Court a supporting creditor was identified as Voits Holdings Pty Limited and its solicitors were also identified. He argued that since no notice was sent to Voits, the obligation, under ss 181A(2) and 64A of the Act, to give notice to all creditors known to the Official Trustee in the circumstances as the nominating trustee was not met. There is no issue that had the trustee been aware of the existence of Voits on or before 4 December 2008, it would have been able to send notice under s 64A to Voits' solicitor. 19 Ms Chau sent notices to all the creditors of whom she was aware. There was no evidence that she was aware of the contents of the reasons for judgment of the Federal Magistrates Court at the time the notices were sent. There was no evidence that any other officer of the Official Trustee, or the Official Trustee herself, was so aware. A I explain later (at [31]-[33]) it is not necessary for the Official Trustee to make exhaustive enquiries as to the existence of all creditors. In those circumstances, I am not satisfied that the Official Trustee or any officer acting on the Official Trustee's behalf was aware of the existence of Voits as a creditor of the bankrupt's estate at the time of dispatch of the notice on 4 December 2008.

Consideration 20 When Mr Karolyi became aware on 2 December 2008 that Mr Burke's written consent to act as trustee had been received in ITSA's office, he determined, as a delegate of the Official Trustee for the purposes of s 181A, that the administration of Mr Coshott's bankruptcy should be transferred to a registered trustee. He instructed Ms Chau to take steps to transfer the matter to Mr Burke. 21 The bankrupt argued that this instruction and decision of Mr Karolyi was insufficient to amount to a nomination for the purposes of s 181A. He also contended that I should not make the finding I have just made because Mr Karolyi only gave evidence of his instruction after the bankrupt's written submissions in reply had been served. Those submissions identified deficiencies in the proof offered of the nomination and the absence of any evidence in Mr Karolyi's earlier affidavit to that effect. 22 I am comfortably satisfied that such an instruction was, in fact, given by Mr Karolyi having regard to, among other things, the documentary evidence showing that the nomination was received from Mr Burke as a result of discussions with different officers of ITSA, and by the terms of the notice prepared and sent by Ms Chau. I accept Mr Karolyi's evidence. 23 Nonetheless, the bankrupt contended that the instruction did not amount to a nomination. Rather, he relied on a statement Mr Karolyi made in his oral evidence, to the effect that he had delegated the matter to Ms Chau. The bankrupt argued that this statement should be taken at face value and that Ms Chau had herself made the nomination purporting to act as a delegate. 24 I reject that argument, and find that, for the purposes of the Act, Mr Karolyi, by giving the instruction to Ms Chau to take steps to transfer the matter to Mr Burke, made a nomination. No particular formality is required by s 181A for the making of a nomination. The section does not require the nomination to be made in writing; it merely requires a written consent of the other (incoming) trustee, and the giving of notice of the nomination to the creditors. I am of opinion that Mr Karolyi's decision, which he then conveyed to Ms Chau as an instruction, was a sufficient nomination for the purposes of the Act. In any event, I am satisfied that the notice contained the statement that the Official Trustee nominated Mr Burke to be the new trustee and that this was also sufficient to amount to a nomination. The notice was issued on behalf of the Official Trustee in Bankruptcy. In my opinion, the form of the signature of the notice was sufficient in that regard to amount to a nomination in the name of, and on behalf of, the Official Trustee for the purposes of the Act. 25 It is not necessary that a physical, handwritten signature be placed on the notice of meeting for the requirement of a nomination in s 181A(1) to be satisfied. Notices of an official kind appear daily in Government Gazettes purporting to be signed by Ministers or other senior members of the executive branch including, Her Excellency the Governor-General, or Her Excellency, the Governor of a State, without needing to have a handwritten signature. As Griffith CJ said in Williams v Silver Peak Mines Limited (1915) 21 CLR 40 at 47-48, the court could take judicial notice that a particular person was then Secretary for Mines. He held that a notice in a Government Gazette was signed by that official and: "'Signature' in this case, obviously, does not mean the personal signature of the Minister." 26 Griffith CJ held that the Secretary was a proper person to sign the notice. The Chief Justice addressed the argument that the Secretary ought to have added his official title to his signature. He said that it was impossible for the Court to lay down that a Minister of State publishing an official notice was bound to have penned his "addition" or description of Minister: Williams 21 CLR at 47-48. Isaacs J said (Williams 21 CLR at 52-53): "Where the sub-clause speaks of a "notice purporting to be signed by the Secretary for Mines" it must be remembered that it is a printed notice, and that the printed signature is what is referred to. That, of course, could not be the sign manual of the Minister himself, and, if his signature in fact, it must be because, as he might do, he authorized it to be there printed as his signature (Schneider v. Norris 2 M & S 286; R. v. Justices of Kent LR 8 QB 305 at 307; Evans v. Hoare [1892] 1 QB 593 at 596)." (emphasis added) 27 In Schneider v Norris (1814) 2 M & S 286 [105 ER 388 at 389] Lord Ellenborough CJ, giving the leading judgment of the Court of King's Bench, said that a printed name on a document could be an acknowledgement by a party "… as much as if he had subscribed his mark to the document, which is strictly the meaning of signing …". He held that the party adopted the document on which his name had been printed as their own. The other members of the Court came to similar conclusions. Le Blanc J said (Schneider 2 M & S at 289): "Suppose the defendant had stamped the bill of parcels with his own name, would not that have been sufficient? Such a stamping, as it seems to me, if required to be done by the party himself or by his authority, would afford the same protection as signing." 28 Indeed, at common law, the purpose of a signature had to accommodate the fact that, at least, until late in the 19th Century, most of the population could not write or read, but had to be capable of being bound to written instruments. In R v Justices of Kent (1873) LR 8 QB 305 at 307, Blackburn J said: "No doubt at common law, where a person authorises another to sign, for in the signature of the person so signing is the signature of the person authorising it; nevertheless, there may be a case in which a statute may require a personal signature." 29 And in Deputy Commissioner of Taxation v Vauxhall (1988) 19 FCR 435 at 438, Lockhart, Burchett and Gummow JJ applied what Blackburn J had said to hold that an agent of the Deputy Commissioner could validly sign a creditor's petition under the Bankruptcy Act, pursuant to the power contained in s 308(d). 30 In my opinion, Ms Chau sufficiently signed the further report to creditors, giving notice under s 181A, by having her typed name inserted at the end of the document, and she did so as agent of the Official Trustee, under s 308(d). She had been instructed by the official trustee, through her delegate, Mr Karolyi, to nominate Mr Burke. I am of opinion that this was a nomination by the Official Trustee by her agent, Ms Chau. It follows that Mr Burke's nomination by the official trustee was properly made in accordance with s 181A of the Act, and is valid. 31 I am satisfied that the Official Trustee was not aware of the existence of any other creditors, than those that Ms Chau swore she was aware of and to whom she had sent notices. I reject the bankrupt's argument, that in some way the Official Trustee could not send out a notice under s 181A, before obtaining and reviewing a statement of affairs of the bankrupt, or that some duty to do so was created under cl 2.6(b) in Sch 4A to the Regulations. The Regulations provide that the trustee had to undertake preliminary inquiries and actions at the start of each administration, including obtaining and reviewing a statement of affairs of the bankrupt. If that were a mandatory step, bankrupts could frustrate their administration, as they often do, by refusing to fill out a proper statement of affairs, or a statement of affairs at all. They could then control whether or not the trustee was capable of causing a new trustee to be nominated in accordance with the Act. 32 Here, steps were taken by Ms Chau to serve the bankrupt with a form containing a pro forma statement of affairs for him to complete, but those steps had proved to be unsuccessful at the stage at which the notice was sent. As I apprehend, there is nothing in the scheme of the Act to require that the administration reach any particular stage as an essential condition for the validity of the nomination and appointment of a new trustee to occur. Nor is there anything in s 181A to suggest that it was the intention of the Parliament by providing the streamlined procedure for a new trustee to be nominated, that the section sets out, that if some pre-requisite step was not undertaken, other than those nominated in s 181A itself, including satisfying the requirements of s 64A, the appointment would be invalidated. 33 The public inconvenience from such a source of invalidity for nominations and appointments of new trustees that could result from acceptance of the bankrupt's argument is manifest. Such an intention is not evident in the terms of the Act. It would not be appropriate to give effect to the streamlined procedure for which s 181A provides to engraft upon it some further mandatory requirement, such as the obtaining of a statement of affairs from the bankrupt, or the making of exhaustive inquiries, or any particular standard of inquiries, for the purposes of ascertaining the creditors to whom notices should be sent than appears: Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 at 391-393 [94]-[100] per McHugh, Gummow, Kirby and Hayne JJ; Adams v Lambert (2006) 228 CLR 409 at 419 [26] per Gleeson CJ, Gummow, Kirby, Hayne, Callinan, Heydon and Crennan JJ.

Would s 306 have been available to validate Mr Burke's nomination 34 I should briefly indicate the view that I have formed on the alternative argument put by the Official Trustee and Mr Burke in the event that I found that Mr Burke's nomination and appointment were invalid. In my opinion, this would be an appropriate case in which to make an order under s 306 that Mr Burke's appointment as a new trustee would not be invalidated. Section 306 has been construed widely by decisions of the Full Court so as to apply to more than simply proceedings in a court: Trustees of the Franciscan Missionaries of Mary v Weir (2000) 98 FCR 447 at 455-456 [12]-[13] per Beaumont, Burchett and Hely JJ; Nilant v Macchia (2000) 104 FCR 238 at 244 [26]-[27] per Hill J, 246 [36] per Carr J and 249 [51]-[53] per Weinberg J. 35 In Nilat 104 FCR at 249, Weinberg J (Carr J agreeing on this point at 246 [36 par 1]) said that the convening of a meeting of creditors of a bankrupt and the giving of notice of such a meeting under s 64A, and the form which such a notice had to take under ss 64A(2) and 64B, were "proceedings under this Act" within the meaning of that expression in s 306(1). Weinberg J applied the test that the proceeding, albeit not itself curial, had to be such as capable of coming before the Court on an objection concerning its validity. Self-evidently, these proceedings demonstrate that the question of whether or not Mr Burke had been validly nominated and appointed falls into such a category. 36 The bankrupt suggested that the use of the word "must" in ss 181A(2) and (3) and s 64A in relation to the performance by the nominating trustee of its functions under the Act created a requirement that could not be described as a "formal defect or an irregularity" reading s 306 in the context of the whole Act. He referred to Adams 228 CLR at 418 [24]. 37 However, as the Court made clear in Adams 228 CLR at 419-421 [26]-[31] the use of the word "must" is not conclusive. Whether the Act, in providing for something that "must" be done is seeking to create a requirement which, if not met, would automatically invalidate that which was done, must be assessed having regard to what the requirement is and the consequences of non-compliance. Here, the nomination of a new trustee and consequent appointment under s 181A is not of the same character as the consequence to a person failing to meet the requirements of a bankruptcy notice, or the requirements necessary to be observed and fulfilled in order that the court may make a sequestration order against a person's estate. The identification of a new person to administer the bankrupt's estate, while having important and serious consequences under the Act, including for the bankrupt, is not of the same order as the consequences that attend upon the steps the Act prescribes as necessary to enable a person's status to be changed to that of being a bankrupt, or otherwise under administration so as to cause his or her affairs to be administered under the Act, either involuntarily, or as a result of his own act by filing either a debtor's petition or proposing a personal insolvency arrangement. 38 There might be defects in giving notice to creditors, such as a deliberate decision by a trustee not to give notice to a particular person who is a creditor, for fear that they may object, which could conceivably be found to be more than a formal defect or irregularity under s 306(1). But this is not such a case. 39 Here, the only creditor alleged not to have received notice, namely Voits, has, in fact written to Mr Burke on being informed by him of the challenge to his appointment. Voits, through its solicitor, as recently as 3 December 2009 has said that it did not support the bankrupt's application to have Mr Burke removed as his trustee, and agreed to his continuing to hold that office. Thus, I would not have been satisfied that any conceivable injustice, that could not be remedied by an order of the court validating Mr Burke's appointment, would have been done, had I had any doubt his nomination and the appointment was other than valid.

Conclusion 40 For these reasons, I am of opinion that the separate question in each matter should be answered by a declaration that Mr Burke replaced the Official Trustee as trustee of the bankrupt's estate on 18 December 2008 pursuant to s 181A of the Act. I certify that the preceding forty (40) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Rares.