Fitz-Gibbon, in the matter of Fitz-Gibbon v Inspector General in Bankruptcy

BACKGROUND 2 The two grounds of objection confirmed by the Inspector-General and the AAT were that: (a) Mr Fitz-Gibbon had engaged in misleading conduct within the meaning of s 149D(1)(c) of the Act, by obtaining credit exceeding the statutory amount from Citibank without informing the bank that he was an undischarged bankrupt (the "Citibank objection"); and (b) Mr Fitz-Gibbon's failure to disclose to the Trustee that he had a beneficial interest in a gold Rolex watch was the basis for an objection under s 149D(1)(n) of the Act (the "Rolex objection").

The Citibank objection 3 The Citibank objection concerns Mr Fitz-Gibbon's Citibank credit card. The credit card was issued in February 1996, before the date of bankruptcy, but was not used until April 1996, which was after the date of bankruptcy. By April 1997, when Citibank commenced recovery action, the amount owing on the card was more than $28,000. There is some dispute between the parties as to whether Mr Fitz-Gibbon notified Citibank on 15 May 1996 that he was an undischarged bankrupt or whether the bank only became aware of Mr Fitz-Gibbon's status in April 1997. In any event, as the AAT pointed out, even on Mr Fitz-Gibbon's evidence, there was an amount exceeding $3,000 owing to Citibank prior to 15 May 1996 when he claims to have advised the bank of his status. 4 The AAT accepted that the Citibank objection was a ground of objection under s 149D(1)(c) of the Act. It accepted that Mr Fitz-Gibbon had obtained credit in circumstances set out in s 148(a). It held that there was no substance in the submission, made on behalf of Mr Fitz-Gibbon, that the credit from Citibank was obtained when the bank issued the card being before the date of the bankruptcy. In addition, the AAT stated that Mr Fitz-Gibbon's failure to pay the monthly accounts on their due date without disclosing his state of bankruptcy, amounted to misleading conduct and remarked that the misleading conduct: "…is not merely constituted by silence. It is constituted by the failure to do something which the applicant was legally obliged to do, namely to pay the accounts." 5 In the notice of objection the Trustee stated that his reason for making the Citibank objection was that further investigation of the bankrupt's financial affairs was warranted. The AAT accepted the Trustee's reasons and commented that Mr Fitz-Gibbon's continuing failure to meet his obligations and the fact that for some 13 years he had experienced financial difficulties suggested that he might not yet be able to manage his affairs. It concluded that this warranted an extension of the bankruptcy.

The Rolex objection 6 The Rolex objection concerned Mr Fitz-Gibbon's failure "whether intentionally or not" to disclose to the Trustee his beneficial interest in a gold Rolex watch. The Statement of Affairs signed by Mr Fitz-Gibbon detailed his assets and property but made no reference to a gold Rolex watch. Subsequently the Trustee became aware of such a watch and brought proceedings in this Court. In those proceedings Hill J found that Mr Fitz-Gibbon had purchased a gold Rolex watch and continued to own it at least until the date of a meeting with the Trustee on 17 June 1997. His Honour ordered Mr Fitz-Gibbon to deliver the gold Rolex watch to the Trustee. Mr Fitz-Gibbon did not comply with the order. An appeal against the decision of Hill J was dismissed by a full Federal Court and the High Court refused leave to appeal. 7 The AAT commented that the evidence supporting the existence of the Rolex objection was plain from the findings of fact of Hill J in the proceedings referred to above. The AAT expressed the view that extensive litigation relating to the watch not only in the courts but also in the tribunal had prevented the Trustee from carrying out investigations to an extent that would normally be expected. It pointed out that: "There were at least two lengthy interlocutory proceedings, in which counsel were briefed, concerning a large number of documents which the applicant had required the Trustee to produce pursuant to a summons. …the Tribunal gave written reasons for decision in the first case, and oral reasons in the second case. Both of the hearings leading to these decisions were unusually lengthy. The preparation for the hearing of these applications must have occupied considerable time. … During the whole of the time elapsing between the first application (dealing with the summons itself) and the result in the final application, the Trustee was deprived of access to the documents in question." 8 It found that those facts were adequate "to base a reasonable apprehension on the part of the Trustee that a possibility exists of undisclosed property". In the AAT's opinion, the Trustee, having had considerable dealings with Mr Fitz-Gibbon, "was the person most able to decide if further investigation is necessary to discover hitherto undisclosed property".

THE citibank objection as a ground of objection 9 As indicated, the AAT accepted that the Citibank objection was a ground of objection under s 149D(1)(c). The notice of objection stated: "Pursuant to Section 149D(1)(c) of the Bankruptcy Act, the bankrupt, after the date of bankruptcy, engaged in misleading conduct in relation to obtaining credit in excess of $3,000 from Citibank and failed to disclose to Citibank that he was an undischarged bankrupt." 10 Mr Watts, counsel for Mr Fitz-Gibbon, submitted that the AAT's acceptance of this ground involved an error of law as there had been no misleading conduct that could constitute a ground of objection. He supported this submission on two bases: (a) the credit obtained from Citibank had been obtained when the card was issued to Mr Fitz-Gibbon (that is before he became a bankrupt) and not when he used the Citibank card to purchase goods after the date of the bankruptcy. Accordingly the conduct did not fall within s 149D(1)(c); and (b) for the purposes of the Act, s 148 provides an exhaustive definition of misleading conduct and therefore Mr Fitz-Gibbon's failure to pay the Citibank accounts without disclosing the bankruptcy could not be misleading conduct for the purposes of s 149D(1)(c).

When was credit obtained in relation to the Citibank credit card? 11 Mr Watts relied on the decision of the High Court in U.G. Insurances Pty Ltd v Commissioner of Stamp Duties (N.S.W.) (1973) 128 CLR 353. That case concerned the amount of stamp duty payable on a loan agreement between a financier who provided the purchase price of goods and the borrower who had purchased them. The purchase price less the deposit was paid directly to the vendor of the goods by the financier and repaid with interest to the financier by the purchaser. The Commissioner of Stamp Duties assessed duty on the agreement with the financier at an amount appropriate to a "credit arrangement" within the meaning of the Stamp Duties Act 1920 (NSW). The High Court disagreed with the Commissioner and held that the loan agreement was not a credit arrangement. 12 In my opinion, the Court's decision was based on the statutory definition of "credit arrangement" and is of little assistance beyond that definition. For instance, Menzies J commented at 365 that a contract by a third party to lend money with which to pay for goods "is not, in my opinion, a credit arrangement within the definition" (emphasis added). His Honour further commented: "...My conclusion rests upon the language of the definition, not upon any narrow conception of what is understood by the word 'credit', for I have no doubt that in each case the purchaser here under consideration did, in a very real sense, obtain credit. That credit, however, was obtained from a third person outside the contract to purchase, not from New Era Furniture Pty Ltd by a "credit arrangement" with that company." 13 In contrast, the term "credit" used in s 148(a) is not defined in the Act. The term should therefore be given its ordinary meaning in the context of the policy of the Act and the purpose of the relevant section; Pinner v Everett [1969] 3 All ER 257 at 258-259 per Lord Reid; N.S.W. Associated Blue-Metal Quarries Ltd v FCT (1955-1956) 94 CLR 509 at 514 per Kitto J and at 524 per Dixon CJ, Wilkins and Taylor JJ. While the ordinary non-technical meaning of a word is a question of fact (Life Insurance Co of Australia Ltd v Phillips (1925) 36 CLR 60 at 78), the question of the policy of a statute and whether facts fall within a statutory enactment properly construed is "generally a question of law"; Collector of Customs v Pozzolanic Enterprises Pty Ltd (1993) 43 FCR 280 at 287.

The policy of the legislation 14 It is well established that the policy of the bankruptcy legislation is to strike a balance between the orderly winding up of the bankrupt's estate for the benefit of creditors and freeing the bankrupt from accumulated liabilities so that he or she can make a fresh start. Both aspects of this policy can be seen in the requirements of s 149C of the Act. The section provides that a notice of objection must not only refer to a ground of objection (in accordance with s 149D) but must also state the reasons for objecting to the discharge on that ground. Section 149D(1)(c) provides that misleading conduct on the part of the bankrupt is a ground of objection. Section 148 provides instances of misleading conduct all of which involve the bankrupt taking on financial liabilities or, in the case of subsection (f), being involved in business, without informing relevant other parties that he or she is an undischarged bankrupt. It is not difficult to deduce that the relevance of such conduct to the issue of an automatic discharge is that it has the potential to interfere with the orderly winding up of the bankrupt's estate for the benefit of creditors.

The meaning of "credit" in s 148(a) 15 As the section is concerned with financial liabilities, the term "credit" in s 148(a) must be interpreted in this context. Broadly speaking, the term means the provision of funds either directly to the person obtaining the credit or to a third party provider of goods and services to that person subject to the obligation of the person obtaining credit to pay at a later time. Irrespective of the precise form of such a transaction, the effect is to create a debt, with the person obtaining credit being the debtor and the provider of the credit being the creditor. This meaning accords with the policy of the legislation in the context of the relevant sections.

The provision of 'credit' 16 In my opinion, the issuing of the Citibank credit card was not the provision of credit. In this respect, it is important to distinguish between the provision of credit and the promise to provide credit. The issue of the card by Citibank merely signified that the parties had entered into a contract whereby Citibank had promised to provide credit if and when the cardholder used the card. In fact, it would be difficult to describe Citibank as a "creditor" at any time before the use of the card had created an obligation to make payments in accordance with the agreed regime. For these reasons, I find that Mr Fitz-Gibbon's use of the card after the date of bankruptcy constituted obtaining credit within the meaning of s 148(a). Consequently his use of the card after he became a bankrupt without disclosing this state to Citibank amounted to engaging in misleading conduct within the meaning of s 149D(1)(c).

The scope of misleading conduct under s 149D(1)(c) 17 In relation to the AAT's finding that the bankrupt's failure to pay accounts sent by Citibank constituted misleading conduct, Mr Watts, for Mr Fitz-Gibbon, made two points. First, he submitted that in the Notice of Objection the Trustee had not relied on failure to pay accounts but only on the fact that the bankrupt had obtained credit. He argued that the AAT was not permitted to support the Inspector-General's determination by reference to a matter that was not part of the trustee's initial determination. Secondly, Mr Watts submitted that this was not a proper ground of objection having regard to the terms of s 149D(1)(c) as explained by s 148 of the Act. In support of this latter submission it was argued that only concept of misleading conduct which the Act adopts is to be found in s 148. For instance, the Act does not adopt the concept as it might be understood by reference to s 52 of the Trade Practices Act 1974 (Cth)). Consequently, Mr Watts argued, it is an error to conclude that silence (or some other act or omission) which is outside the terms of s 148 can constitute misleading conduct. 18 As I have already found that the AAT was correct in finding that applicant had engaged in misleading conduct in relation to the use of the Citibank card, I do not need to decide if the bankrupt's failure to pay the credit card accounts could itself constitute misleading conduct. However the issue seems to be whether s 148 exclusively defines misleading conduct or whether, as the opening words of the section suggest, it merely lists instances of misleading conduct thus leaving it open for additional instances to be determined by the courts in the usual way.

the utility issue 19 Section 149N of the Act provides, among other things, that if the Inspector-General is satisfied that the reasons for objecting on the given grounds do not justify the making of the objection then the Inspector-General must cancel the objection. Interestingly, the way in which the section is expressed makes it less likely that the Inspector-General will cancel the objection than if he or she had to be satisfied that the reasons do justify the objection. Be that as it may, the authorities are clear that the bankrupt is entitled to the benefit of a discharge by operation of law unless the trustee has reasons directed to achievement of a purpose of the law of bankruptcy to extend the bankruptcy beyond the ordinary period; Inspector-General in Bankruptcy v Nelson (1988) 86 FCR 67 at 78. It is not sufficient merely to restate the grounds of the objection; Re Hall (1994) 14 ASCR 488 at 493. In this case, the AAT held that reasons given in respect of both the Citibank objection and the Rolex objection justified the making of the objections on their respective grounds. 20 Mr Watts submitted that, even if the grounds of the objection were made out, there was no utility on either ground in extending the bankruptcy. In relation to the Rolex objection, his argument was that the Trustee, if so inclined, could commence contempt proceedings to recover the watch and therefore the Trustee's ability to recover the watch would be in no way enhanced by an extension of the bankruptcy. Further, Mr Watts argued that the AAT erred in law by concluding that the Rolex objection was sufficient "to base a reasonable apprehension on the part of the Trustee that a possibility exists of undisclosed property". He submitted that there was no logical basis for concluding that, because Mr Fitz-Gibbon had failed to deliver the gold watch to the Trustee, there could be any further undisclosed property. He pointed out that the Trustee had not attempted to identify such property or any other basis for the belief that such property may exist. He also pointed out that the Trustee had not to date made any attempts to investigate whether there was any further undisclosed property. 21 Similarly in relation to the Citibank objection, Mr Watts argued that an extension of the bankruptcy could not benefit creditors because the credit card was cancelled some years ago. He submitted that reliance on Mr Fitz-Gibbon's failure to pay his Citibank account and on the inference that he was not yet able to manage his own affairs was not permissible because these issues had not been raised against the applicant prior to the AAT decision. Nor, it was argued, were these issues relevant to determining the utility of extending the bankruptcy. 22 Mr Leeming, counsel for the respondent, submitted that the phrase "reasons did not justify" in s 149N(1)(c) indicates that the reviewing body has discretion in deciding the question of justification. In particular, he argued that the AAT's findings concerning the applicant's ability to manage his own affairs and the extent to which litigation had interfered with the trustee's investigation of those affairs raise only issues of fact. Accordingly, it was submitted that neither of these issues is amenable to review in this Court because neither involves an error of law. In relation to the Rolex objection, Mr Leeming submitted that the AAT's conclusion that there was a reasonable apprehension that Mr Fitz-Gibbon was withholding further property was a finding of fact and that this Court can only intervene if there is no evidence on which that finding is based.

Jurisdiction to review 23 The Act provides that the Inspector-General in Bankruptcy may review the Trustee's decision to file a notice of objection and, in turn, this decision may be reviewed by the AAT. Under s 149N, the Inspector-General must cancel the objection if satisfied that the evidence to support the existence of the grounds given for the objection is insufficient or that the reasons given for objecting on those grounds do not justify the making of the objection. These criteria, which also apply to review by the AAT of the decision of the Inspector-General, involve a merits based review. 24 However, this Court's jurisdiction to review decisions of the AAT is much more confined. It derives from s 44 of the Administrative Appeals Tribunal Act 1975 (Cth) ("AAT Act") which gives the Court power to review only questions of law; BTR v Westinghouse Brake & Signal Co (1992) 34 FCR 246 at 253. The Court is not entitled to substitute its own view on the merits of the case for that of the AAT. As Franki J remarked in Neal v Secretary, Dept of Transport (1980) 29 ALR 350 at 354: "There is no appeal to this court on anything other than a question of law and therefore the court is not concerned with whether or not it would have come to the same conclusion as the Tribunal came to, but only with the question of whether the Tribunal erred in law.". 25 While there is no error in law merely in making a wrong finding of fact, this court can set aside a finding of fact by the AAT if there is an error of law which has vitiated the finding; Waterford v Commonwealth (1987) 163 CLR 54 at 77 per Brennan J. For a finding to be vitiated by an error of law it is necessary to show that the error affected the AAT's decision. An immaterial error of law will not suffice; BTR v Westinghouse Brake & Signal Co (supra) at 253-254. 26 The High Court has recognised that the distinction between questions of fact and questions of law, though vital in many fields of law, is notoriously difficult. The High Court's comment in Craig v South Australia (1995) 184 CLR 163 at 186, that almost any question that arises for determination by a judge can be "dressed in the garb of a question of law", provides some insight into the nature of the difficulty. The High Court also accepted in Collector of Customs v Agfa -Gevaert Ltd (1996) 186 CLR 389 at 394 that: "Notwithstanding attempts by many distinguished judges and jurists to formulate tests for finding the line between the two questions, no satisfactory test of universal application has yet been formulated." 27 However, it is not necessary to formulate a "satisfactory test of universal application" in order to determine the proper scope of the court's jurisdiction in this case. It is not even necessary to characterise the "non-law" questions, whether as questions of fact, as a mixture of fact and opinion or otherwise. It is only necessary to decide whether those parts of the AAT's reasons for decision which have been challenged involve an error of law including an error which would vitiate a finding of fact 28 The possibility of a finding being vitiated by error of law requires the court to examine the reasoning of the AAT. The standard of reasoning required of an administrative tribunal has been discussed many times. The position is neatly summarised by Diplock LJ in R v Deputy Industrial Injuries Commissioner; ex parte Moore [1965] 1 QB 456 at 488: The requirement that a person exercising quasi-judicial functions must base his decision on evidence means no more than it must be based upon material which tends logically to show the existence or non-existence of facts relevant to the issue to be determined, or to show the likelihood or unlikelihood of the occurrence of some future event the occurrence of which would be relevant. It means that he must not spin a coin or consult an astrologer, but he may take into account any material which, as a matter of reason, has some probative value in the sense mentioned above. If it is capable of having any probative value, the weight to be attached to it is a matter for the person to whom Parliament has entrusted the responsibility of deciding the issue. 29 Deane J relied on this view of Lord Diplock as the basis for the somewhat broader position articulated in Minister for Immigration and Ethnic Affairs v Pochi (1980) 31 ALR 666 at 689-690. His Honour held that the tribunal, as a matter of law, had to act on the basis that the facts as found were based on the evidence: "on the balance of probability, to its satisfaction by some rationally probative evidence and not merely raised before it as a matter of suspicion or speculation or left, on the material before it, in the situation where the Tribunal considered that, while the conduct may have occurred, it was unable to conclude that it was more likely than not that it had." 30 This approach was rejected by the full Federal Court (Black CJ, von Doussa and Carr JJ) in Minister for Immigration and Multicultural Affairs v Epeabaka (1999) 84 FCR 411. In a joint judgment their Honours stated that the judgment of Mason CJ in Australian Broadcasting Tribunal v Bond (1990) 170 CLR 321 at 355 - 360 provides authoritative guidance in relation to findings of fact and related questions of illogicality in reasoning. Their Honours quoted (at 421) the following passage from Mason CJ's judgment: "Thus, at common law, according to Australian authorities, want of logic is not synonymous with error of law. So long as there is some basis for an inference - in other words, the particular inference is reasonably open - even if that inference appears to have been drawn as a result of illogical reasoning, there is no place for judicial review because no error of law has taken place." [emphasis in original] 31 The difference is between whether there is any evidence supporting the challenged conclusion and whether the decision-maker ought to have made the decision. The latter question relates to the decision-maker's assessment of the probative value of the evidence that logically supports the decision. 32 In reviewing the decision of the AAT, I am also conscious of Lockhart J's sound, practical warning that the court should approach its task not "with an eye keenly attuned to the perception of error". The task should be approached "in a balanced way, not reading passages from the reasons for decision in isolation from others to which they may be related or taking particular passages out of the context of the reasons as a whole"; Politis v FCT (1988) 16 ALD 707 [Ext] at 708.

The AAT's findings of fact 33 In relation to the Citibank objection and whether the bankrupt's misleading conduct justified the Trustee's objection to discharge of the bankruptcy on that ground, the AAT considered evidence of the bankrupt's continuing financial difficulties. I do not accept the applicant's submission that the AAT was in error in considering this issue. In this regard, it is important to distinguish between the statement in the notice of the reasons for objecting to the extension of the bankruptcy and the analysis which is directed to establishing whether or not the reasons given in the notice justify making the objection on the ground stated. The AAT's view that it was arguable that the bankrupt was not yet able to manage his affairs was part of the analysis leading to the conclusion that the reasons in the notice given justified the objection. It was not the admission of reasons that had not been specified in the notice of objection. 34 In relation to the Rolex objection, the Trustee suspected that there might be further property to be recovered for the benefit of creditors. The AAT found that those reasons justified the objection on the ground of the Rolex objection. The AAT also referred to the extensive litigation involving the watch and the time taken in dealing with this litigation. The applicant objected to the AAT's approach on the basis that raising this issue amounted to a consideration of a matter which was outside s 149D, was irrelevant and had not been relied on by the Trustee. I do not accept this argument. In my opinion, the AAT was also referring to these matters in the context of deciding if the reasons given justified the objection on the grounds stated, not in the context of deciding whether the whether there was a s 149D ground for making the objection. 35 Although the notice of objection must include the reasons for objecting to discharge in relation to each ground specified, it is not necessary that the reasons as stated in the notice of objection included all the evidence relied on to establish that the reasons are justified. My view in this regard accords with the comments of Einfeld J in Re Harris; ex parte Harris & Official Trustee in Bankruptcy [1997] FCA 627 as to the requirements of s 149C(1)(c) of the Act. In deciding whether the reasons given by the Trustee justified the objection, the AAT is entitled to take into account evidence which was not relied on by the Trustee at the time of filing the notice of objection (see, for example,the decision of the AAT in Re Woodman & Inspector-General in Bankruptcy (1996) 22 AAR 508 at 524). 36 The findings of fact which the AAT made were open to it on the evidence presented. Furthermore, the AAT correctly stated and applied the principle in Inspector-General v Nelson (1998) 86 FCR 67 by recognising that the mere fact that one or more of the grounds specified in s 149D has been established does not of itself entitle a Trustee to cause the period of bankruptcy to be extended. 37 In my opinion, in finding that the reasons given in respect of both objections support the objections on the grounds stated in the notice, the AAT gave rational consideration to probative evidence. The fact that another person (or even this Court) reviewing the same evidence may have come to a different conclusion is not to the point. Consequently, the AAT's decision that the reasons given by the Trustee justify the objection made on the grounds stated in the notice is not reviewable by this Court. 38 For these reasons the application should be dismissed with costs. I certify that the preceding thirty eight (38) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Stone.

Associate: Dated: 24 November 2000 Counsel for the Applicant : Mr M J Watts

Counsel for the Respondent: Mr M J Leeming and Ms N Obrart

Solicitor for the Respondent: Australian Government Solicitor