Consideration
22 In my view the applicants were and are entitled to bring an action under s 179(1) of the Bankruptcy Act even though they were discharged from bankruptcy at the time the action was commenced. The weight of authority supports this conclusion and the submissions made by the respondent do not compel a contrary conclusion. The majority judgments in Todd are the starting point for consideration of the relevant authorities.
23 Todd concerned a person who became bankrupt following the presentation of her own petition. Following her discharge from bankruptcy four summonses were issued pursuant to s 81 of the Bankruptcy Act requiring the attendance of the discharged bankrupt and three others for examination in relation to the bankruptcy. The issue was whether a person could be examined under s 81 after the bankrupt had been discharged from bankruptcy. A majority of the Full Court (Fisher and Lockhart JJ) determined that issue affirmatively.
24 In its then form, s 81 provided as follows:
The Court or the Registrar may, on the application of a creditor who has proved his debt and on such terms as to costs as the Court or the Registrar thinks fit to impose, or on the application of the Official Receiver or the trustee, at any time summon -
(a) the bankrupt or the spouse of the bankrupt; or
(b) a person who is known or suspected to have in his possession any of the property of the bankrupt, or is supposed to be indebted to the bankrupt or to be able to give information concerning the bankrupt or his trade dealings, property or affairs,
to attend, on a date and at a time and place fixed in the summons, before the Court or the Registrar or, if the Court or the Registrar thinks fit, before a magistrate, to give evidence concerning, and produce any books (whether or not in existence at the time the bankrupt became a bankrupt) in his custody or power relating to, the bankrupt or his trade dealings, property or affairs.
25 Central to the reasoning of both Fisher J and Lockhart J was the fact that, notwithstanding that a bankrupt has been discharged, the trustee in bankruptcy remains as trustee of the undistributed property of the bankrupt estate and continues to have duties in relation to that estate. As Fisher J (at 178) said:
The Act does not link temporally the completion of the administration of the bankrupt's estate, and in particular the ascertainment of the assets, their respective whereabouts and their realisation and distribution, with the obtaining of a discharge with its consequential change of status and release from debts. Many years may separate the date of discharge of the bankrupt on the one hand and the release of the trustee upon completion of his administration.
26 Lockhart J (at 181) quoted with approval the following observations of Sir Wilfred Greene in Re a Debtor [1939] Ch 489 at 501:
... the discharge of the bankrupt does not put an end to the bankruptcy regarded as a series of judicial and administrative acts and rights and powers.
27 In considering whether a person is a "bankrupt" for the purposes of s 81 (in the form in which it then existed), both Fisher J and Lockhart J had regard to the definition of "bankrupt" in s 5(1) of the Bankruptcy Act and the operation of s 55(8) (which was substantially in the same terms as (the then) s 43(2)). Sections 43(2) and 55(8) have since been amended but, as I have noted, are substantially in the same terms and the amendments are not material for present purposes. Lockhart J (at 183-186) concluded that s 55(8) did not qualify the definition of "bankrupt" in s 5(1) and that the word "bankrupt" had a different meaning in ss 43(2) and 55(8) as the context of those provisions made clear. However, the word "bankrupt" was used with its defined meaning in s 81. Fisher J came to the same conclusion. At 179-180 his Honour said:
To my mind the use of the word "bankrupt" in s 81 should not be construed as limiting the scope of that section to the period prior to discharge, certainly in circumstances where the estate is still in the process of administration and the assets still being got in. It could not be suggested that the analogous power of the court to examine under s 179(3) a trustee, engaged in the administration of an estate in bankruptcy, was limited to a time prior to discharge of the bankrupt. Likewise an inquiry under s 179(2) by the Registrar, Inspector-General or creditor in relation to a "bankrupt's estate or affairs" must surely be answered by the trustee notwithstanding the facts that the bankrupt has been discharged.
28 The reasoning in Todd was central to the decisions in Cheesman and Macchia.
29 In Cheesman the applicants sought relief under ss 178 and 179. The respondent trustee contended that, as the applicants were discharged bankrupts at the date of the application, they were not entitled to make an application as a "bankrupt" under either section: see at 82. Merkel J considered that the starting point must be the definition of "bankrupt" in s 5(1). His Honour noted the majority view in Todd that that definition was not subject to any temporal constraint. His Honour also noted that the definition in s 5(1) was expressed to apply "unless the contrary intention appears" and identified the issue as being whether, having regard to the nature, context and purposes of ss 178 and 179, there is an intention that the statutory definition not apply. His Honour could not discern any such intention.
30 With respect to s 178 his Honour said (at 90):
It is clear that the legislative intent is that the jurisdiction of the court to control a trustee is at the least, to be coextensive with the power of a trustee to engage, or omit to engage, in conduct under the Act that might affect a "bankrupt". Other provisions of the Act demonstrate explicitly or implicitly that a trustee may be liable for, or may engage or omit to engage in, conduct which affects a "bankrupt" well after the bankrupt's discharge.
31 Merkel J then identified a number of provisions of the Bankruptcy Act that illustrated that proposition: see ss 184, 152, 81, 134 and 135, 148, 170(2) and s 171. His Honour concluded by saying (at 90):
It is sufficient to say that, in these circumstances, a consideration of the nature, context and purpose of s 178 demonstrates that there is no basis for discerning an intention to exclude a discharged bankrupt from the class of persons entitled to make application under the section.
32 His Honour noted that in Watson v Healey (1996) 64 FCR 301 Lee J had reached a contrary view and had decided that a discharged bankrupt had no entitlement to make an application under s 178. Watson was a case where the jurisdiction conferred by s 178 was sought to be invoked in circumstances where the bankrupt had not only been discharged from bankruptcy but the bankrupt estate had been fully administered and finalised by the trustee. Whilst the decision in that case had been made in that context, Lee J had expressed the obiter view that there was nothing in the words of s 178 or the context in which that provision was found to indicate that the term "bankrupt" in s 178 extended to a discharged bankrupt. However, Merkel J (at 91) considered that decision to be "clearly wrong" and declined to follow it. In that connection his Honour observed that, in Watson, the applicant had appeared in person and that the matters that had led his Honour to the contrary view in Cheesman had not been drawn to Lee J's attention in Watson.
33 With respect to s 179 Merkel J said (at 90-91):
A similar analysis can be applied to s 179. While application under that section cannot be made by "any other person", the section confers jurisdiction to inquire into "conduct of a trustee in relation to a bankruptcy". In a sense the section's subject matter is as broad as, and possibly broader than, s 178 which limits application to persons "affected" by particular conduct of the trustee. It seems to me that the jurisdiction conferred by s 179 is intended, at the least, to be coextensive with the capacity of a trustee to engage in conduct in relation to a bankruptcy. As that can occur both before and after discharge, as with s 178, there is no basis for discerning an intention to exclude a discharged bankrupt from the class of persons entitled to make application under the section.
There is a further reason for declining to read down the class of persons entitled to make application under ss 178 and 179. As I later observe in considering the discretion conferred under each section, the court may make such orders as it "thinks just and equitable" (s 178) or "proper" (s 179). Such criteria ensure that the court has fairly wide discretionary powers in relation to the orders it might make and the considerations it might take into account in determining whether, and if so how, it will exercise its jurisdiction under either section. The legislative purpose of conferring a broad jurisdiction in relation to the conduct of trustees in exercising the power conferred upon them under the Act and the width and nature of the court's jurisdiction under each section affords good reason for not being restrictive in the interpretation of the categories of persons entitled to make application to the court under either section.
34 It should be noted that, in the present case, unlike the position in Watson and Cheesman, the respondent continues to act as trustee of the bankrupt estates. In Cheesman Merkel J went on to consider the question of jurisdiction where an applicant was not only a discharged bankrupt at the time the action was commenced, but the trustee had also ceased to act. His Honour said (at 91):
In these circumstances there is no reason to conclude that a court's jurisdiction under s 178 or s 179 should cease at any time prior to a trustee being released from liability for his conduct under the Act. As this may occur after the trusteeship has ceased, the trustee ought to remain subject to the court's jurisdiction under ss 178 and 179.
My conclusion is supported by the wording of the sections. Jurisdiction arises in relation to "any act, omission or decision" (s 178) or "conduct" (s 179) of a trustee. As long as the conduct in question falls within the statutory description, the fact that a person has since ceased to be the trustee is irrelevant.
35 Later his Honour said (at 92):
The mere fact that a person has ceased to act as a trustee, whether by resignation, removal or otherwise, should not result in the court losing its jurisdiction in relation to conduct engaged in prior to the date of cessation. Indeed there might be very good reason why such a jurisdiction is appropriate after removal, particularly if the removal might have come about as a result of wrongful conduct by a trustee.
In my view the discernible legislative policy under the Act is that the court should have a broad jurisdiction in relation to the conduct of a trustee which might be exercised whenever it is "just and equitable" or "proper" to do so. If any policy considerations arise in relation to a person who has ceased to be a trustee then, as with a discharged bankrupt, the cessation is not relevant to jurisdiction although it may be relevant to discretion.
For these reasons I have concluded that the court has jurisdiction to hear and determine the application notwithstanding that at the date it was lodged with the court the applicants were discharged bankrupts and the trustee had ceased to act as trustee of their bankrupt estates.
36 In Macchia a discharged bankrupt sought orders which included an order for an inquiry into the conduct of his trustee in bankruptcy pursuant to s 179 and consequential orders (including orders for the payment of damages). Similar orders pursuant to s 178 were sought in the alternative. French J (as his Honour then was in this Court) dealt with the question of standing under both sections, holding that the supervisory jurisdiction of the Court conferred by ss 178 and 179 extended to conduct of the trustee under the Bankruptcy Act after the discharge of the bankrupt: [42], [50] and [51]. Although in that case reliance was placed primarily on s 179, his Honour considered it to be convenient to deal first with the scope of operation of s 178: at [29]. His Honour noted that the definition of "bankrupt" in s 5(1) was not limited to persons who are undischarged bankrupts, referring in that regard to the judgments of Fisher and Lockhart JJ in Todd at 178-179 and 183.
37 His Honour also noted at [41] the conflicting views expressed in Cheesman and Watson about whether s 178 may be invoked by a discharged bankrupt and the dismissal by Fisher J in Todd (at 179-180) of the suggestion that the power of the Court under (the then) s 179(3) to examine a trustee engaged in the administration of an estate in bankruptcy and the power under s 179(2) to require a trustee to answer an inquiry in relation to the bankrupt's estate or affairs, was limited to a time prior to the discharge of the bankrupt.
38 French J then held as follows (at [42]) with respect to the question of jurisdiction under s 178:
In my respectful opinion, for the same reasons as expressed by Fisher J in Todd, the supervisory jurisdiction of the Court conferred by s 178 extends to conduct of the trustee under the Act after the discharge of the bankrupt. So extended, it cannot be said that the section is unavailable to a person who has been discharged from bankruptcy. If the trustee's conduct post-discharge, exercising powers that may affect the bankrupt, is to be subject to the supervisory jurisdiction then the bankrupt should be able to approach the Court in relation to any such exercise. This does not mean that s 178 provides an unlimited charter for bankrupts or any other persons after discharge to, at any time, seek a review of a decision of the trustee taken whether before or after discharge. The Court must determine whether any order proposed would be just and equitable and in so doing may have regard, inter alia, to the lapse of time which has occurred since the conduct complained of. The remedy is in that sense discretionary.
39 His Honour then held as follows (at [50]) with respect to the question of jurisdiction under s 179:
Section 179 operates in aid of the Court's supervision of trustees who are its officers. That operation, however, is subject to restraint against undue interference and to discretionary considerations including the practical benefit likely to be derived from the conduct of any inquiry. Like s 178, it may be invoked by a bankrupt after discharge and in part for the same reason, namely that the trustee's powers continue in the various ways referred to by Merkel J at first instance in Cheesman. It may also be the case that the trustee should be held to account for conduct in the administration of the estate which has affected the bankrupt in some way.
40 In Zegarac v Rambaldi [2010] FCA 219 Gray J dismissed an application for leave to appeal from a decision which, in turn, had dismissed (as an abuse of process) an application seeking various orders which his Honour saw as arguably capable of being grounded in the jurisdiction conferred by either or both of ss 178 and 179. In relation to the scope of s 179 his Honour (at 42) noted the view that:
… s 179 of the Bankruptcy Act is intended to confer on the Court a supervisory jurisdiction with respect to a trustee in bankruptcy during the bankruptcy, and not a general jurisdiction to revisit at any time thereafter any aspect of the conduct of a trustee in bankruptcy. That policy is also expressed by the short limitation period in s 178(2), within which an application must be made to review an act, omission or decision of a trustee.
41 If by the expression "during the bankruptcy" his Honour was intending to refer to the period during which a person is an undischarged bankrupt then the view noted by his Honour is not consistent with the decisions in Cheesman or Macchia. However, his Honour also found (at [43]-[44]) that even if ss 178 or 179 could be availed of in that case, for other reasons the proceedings were bound to have failed and thus the orders made by the primary judge (Zegarac v Rambaldi [2009] FCA 1463) were not open to sufficient doubt to warrant their reconsideration by a Full Court. It is important to observe that the applicant appeared in person and the respondent trustee did not appear. His Honour does not appear to have been provided with any real assistance by the applicant. In particular it does not seem that the decisions in Todd and Cheesman were drawn to his Honour's attention. His Honour's reasons do include a passing reference to Macchia, but on a point different to that now under consideration.
42 The decision in Re Quinn; Ex parte Quinn v Official Trustee in Bankruptcy (1995) 63 FCR 129 was also drawn to my attention. In that case Tamberlin J held that a discharged bankrupt was not a "bankrupt" within the meaning of s 73 of the Bankruptcy Act which relates to compositions and schemes of arrangement proposed by a bankrupt and the calling by a trustee of meetings of creditors to consider such proposals. His Honour reasoned that the decision in Todd (dealing with s 81) was distinguishable from the case before him (dealing with s 73). His Honour held that the wording and context of the two provisions were quite different.
43 From this brief review of the relevant cases it can be seen that both Cheesman and Macchia stand as direct authority that s 179 can be invoked by a bankrupt after discharge. Both decisions gave detailed consideration to the nature, context and purpose of the jurisdiction conferred by ss 178 and 179 and, with great respect, advanced detailed and persuasive reasons why those provisions should be available to a bankrupt after discharge. Both decisions took as their starting point the majority judgments in Todd with respect to the scope of the definition of "bankrupt" in s 5(1) and adopted reasoning, similar to that in Todd, in reaching a conclusion on the scope of the jurisdiction conferred by ss 178 and 179. Both decisions rejected the contrary obiter in Watson that s 178 could not be invoked by a discharged bankrupt. The obiter remarks of Gray J in Zegarac with respect to the supervisory jurisdiction conferred by s 179 may not stand with Cheesman and Macchia but, as I have already observed, the relevant cases, and the analysis undertaken in them, do not seem to have been brought to his Honour's attention. Although cited in Watson, the decision in Quinn is, in my view, plainly distinguishable and provides no real assistance in deciding the present issue.
44 The respondent's submissions were directed to identifying reasons why the definition of "bankrupt" in s 5(1) of the Bankruptcy Act should not apply to s 179 and, ultimately, to why the decisions in Cheesman and Macchia should not be followed.
45 The first and third of those submissions sought to suggest a rationale for a complementary operation of ss 178 and 179 which confined a discharged bankrupt to recourse only to the jurisdiction granted by s 178 in that person's capacity as "any other person" who is affected by an act, omission or decision of a trustee. That submission should not be accepted. It ignores the accepted position that s 179 serves a different purpose to s 178. Section 178 is a provision that allows a bankrupt, a creditor or any other person affected by the conduct of the trustee in the course of the administration of a bankrupt estate to challenge that conduct by seeking review by the Court of the act, omission or decision: Wilson v The Commonwealth of Australia [1999] FCA 219 at [43]; Macchia at [48]. Plainly recourse to the jurisdiction conferred by that provision is limited by the requirement that the applicant (whether as "the bankrupt, a creditor or any other person") is "affected" by the act, omission or decision, and by the requirement that the time limit prescribed by s 178(2) is met: Cheesman at 90. On the other hand, s 179 is a broad provision that serves a different purpose, reflecting the position that trustees are subject to the general control of the Court: Wilson at [44]; Macchia at [48].
46 In Macchia French J, in that connection, quoted with approval the following passage from Re Alafaci; Registrar in Bankruptcy v Hardwick (1976) 9 ALR 262 at 267:
Its terms are wide and general. The court may inquire into any aspect of the conduct of a trustee in relation to a bankruptcy, and is enabled to deal with the situation which it finds by making 'such order as it thinks proper'. A case of misfeasance, negligence or wilful default on the part of a trustee may emerge otherwise than from the accounts submitted by him in accordance with s 175 or an audit of those accounts; if it does, or if it appears that for any other reason the trustee's conduct should be inquired into, I see no reason why s 179 should not be set in motion, or why the court cannot under s 179 order the trustee to make good, if such an order is what the court 'thinks proper'.
47 The decisions in Todd, Cheesman and Macchia demonstrate that the conduct or acts of a trustee in bankruptcy may well affect a "bankrupt" or "bankrupt estate" after the "bankrupt" has been discharged. Given the different scope and purpose of the two provisions, there is no apparent reason why, after discharge, a discharged bankrupt should loose the benefit of s 179 and be confined to recourse to s 178 when, prior to discharge, that person had the benefit of both provisions.
48 The respondent's second submission proceeded on the basis that both Cheesman and Macchia were decided without regard to s 43(2) of the Bankruptcy Act which provides that, upon the making of a sequestration order against the estate of the debtor, the debtor becomes a bankrupt and continues to be a bankrupt until he or she is discharged from bankruptcy or his or her bankruptcy is annulled. It is true that the reasons in Cheesman and Macchia do not explicitly refer to s 43(2) when dealing with the standing of a person to commence an action under either s 178 or s 179. However, both cases proceeded upon the correctness of, and applied, the reasoning of the majority judgments in Todd including the conclusion reached by the majority in Todd that neither s 55(8) nor its corresponding provision s 43(2) affect the application of the definition of "bankrupt" in s 5(1). In Todd Lockhart J (at 185) expressed the view that s 55(8) properly construed provides no barrier to the exercise of the power conferred by s 81(1) after the bankrupt is discharged from bankruptcy. Fisher J (at 177) expressed general and full agreement with Lockhart J's reasons and conclusions. By parity of reasoning, s 43(2) properly construed provides no barrier to the exercise of the jurisdiction conferred by s 179(1) after the bankrupt is discharged from bankruptcy.
49 The respondent's fourth submission raised the spectre that, if s 179 gives standing to a discharged bankrupt, the trustee will remain subject to complaints in respect of matters that have occurred in the distant past. However, as the authorities recognise, the language of s 179 invites, as a first consideration, whether the Court should inquire into the conduct of the trustee. This is a matter to which I will return in dealing with the third issue. For present purposes it is sufficient to note that the operation of s 179 is subject to restraint against undue interference and to discretionary considerations including the practical benefit likely to be derived from the conduct of any inquiry: Macchia at [50].
50 Finally the respondent refers to the fact that the authorities are in conflict. This is true to the extent and in the circumstances that I have noted above. However, in my respectful view, Cheesman and Macchia correctly decided the scope of the jurisdiction under s 179, at least in relation to the circumstances of the present case where the trustee's administration of the bankrupt estates is continuing, and I propose to follow those cases.