Freeman v Joiner

REASONS FOR JUDGMENT 1 This is an application under s 178 of the Bankruptcy Act 1966 (Cth) ("the Act") seeking orders that the respondents ("the Trustees") assign to the applicant two separate actions in which he is involved. 2 Section 178 provides that if the bankrupt is affected by an omission or decision of the trustee an application may be made to the Court to make such order as the Court thinks just and equitable. The Court's power is discretionary and broadly-based but it must be exercised in a judicial manner, that is to say, the Court must have regard to the particular facts of the application including the history of the matter, the function of the trustee and commercial reality. 3 On 2 December 2004, the applicant wrote to the Trustees requesting that they assign actions S4013 of 1998 and S2339 of 2003 ("the actions") to him. By letter dated 3 March 2005, the applicant was notified that the Trustees had decided not to consider his request for an assignment of the actions until funds in the sum of $6,800.00 were received by the Trustees as a contribution to anticipated legal costs. In substance, there has been an omission by the Trustees to consider and decide the request by the applicant. 4 The payment of anticipated legal costs was required as a condition precedent to the Trustees' consideration of the applicant's request on the basis that the Trustees would need to obtain legal advice on the legality or otherwise of the proposed assignments. 5 Mr Joiner, one of the Trustees, has given evidence that, in his judgment, there is a perceived risk to the Trustees in either assigning or prosecuting the actions and that it is therefore reasonable and appropriate for them to seek legal advice. More specifically, Mr Joiner gives three reasons for refusing to consider the request. These are as follows: "a) The Applicant did not provide sufficient funds for the Trustees to obtain legal advice as to whether the proposal was one which the Trustees could lawfully agree; b) There were and still are no funds in the estate to otherwise obtain legal advice as to whether the proposal was one which the Trustees could lawfully agree; c) There were and still are no other funds available to pay for that advice …" (Emphasis added) 6 In earlier proceedings, the applicant was unsuccessful in an attempt to compel the Trustees to prosecute these actions. In Freeman v National Australia Bank Limited [2003] FCAFC 318 (Freeman), the Full Court of the Federal Court refused to grant the applicant leave to appeal from a decision of Spender J rejecting the application to compel the Trustees to prosecute (Freeman v National Australia Bank [2003] FCA 1233). Their Honours in the Full Court, applying well-settled principles, were not persuaded that the decision of Spender J was attended by sufficient doubt or that substantial injustice would be caused if leave was refused assuming the decision to be wrong. 7 However, this Full Court decision was concerned with the prosecution of the actions by the Trustees and not with an assignment of the actions. Although the views expressed by a unanimous Full Court in relation to the prosecution are not strictly binding on me in relation to the assignment, they are highly persuasive and, for the reasons which I set out below, they accord with my view of the circumstances of this case. 8 In Freeman at [36]-[37], the Full Court said: [36] It is open to Mr Freeman, if he wishes, to ask the Trustees to revisit the question of assignment, and to place before them any proposal which Mr Freeman wishes to advance in that respect, and any submission which he wishes to put in support of that proposal. The fact that Mr Freeman is able to take such a course demonstrates that no substantial injustice flows from the refusal of the present application for leave to appeal. [37] It would not be appropriate for us to determine how the Trustees should respond to any such proposal, as the matter is not one which is in issue in the present proceedings. However, for the assistance of the parties, we state that in our view the Trustees would not be bound to respond to any such proposal unless sufficient funds were made available to them so that legal advice could be obtained as to whether the proposal is one to which the Trustees could lawfully agree." 9 The position in this case is that sufficient funds have not been forthcoming. Nevertheless, the applicant seeks an order that the Trustees be required to consider the request. 10 The relevant principles concerning an application under s 178 are set out by Nicholson J in Willoughby v Official Trustee in Bankruptcy [2001] FCA 753 at [27]-[28]. 11 The need for the orderly administration and management of the bankrupt estate in determining the best interests of all parties, including creditors, means that the Court should be cautious not to intervene too readily in the administration of the estate by the trustee in bankruptcy. The Court, generally speaking, should only intervene where the trustee's decision is incorrect in the sense that the requirements of justice and equity dictate that other conduct would clearly be preferable: Re Bankrupt Estate of Hudson (2004) 2 ABC(NS) 69; Healey v Prentice (No 2) [2000] FCA 1598 (Healey). In Healey at [21], Madgwick J said: "[21] It would be enough to excite the Court to intervene if it be shown that the impugned conduct of the trustee was incorrect or that other conduct was, or on the material before the Court would be, preferable and that justice and equity require the Court's intervention. An applicant no doubt carries the onus of establishing this. It is plain that the Court should not be too ready to intervene for fear of making the role and work of a trustee unmanageable. That the judge who hears a review application might have acted differently from the way a trustee did is not to the point. The question is whether it is just and equitable that the courts should afterwards intervene in some fashion." (Emphasis added) 12 The trustee, of course, has a duty to save the estate unnecessary expenditure and to maximise returns. It is important to keep in mind that the Trustees' decision not to consider the request for an assignment is not simply a decision which concerns the applicant. It is also a commercial decision based on the Trustees' detailed knowledge and experience of the estate having regard to a broad range of discretionary considerations including the prospects of success of the actions, the degree of risk involved in the litigation and the interests of creditors and the estate as a whole, together with the need to ensure the orderly, timely and effective administration of the estate. 13 If the Trustees assign the actions for less than their value, there may be a legitimate cause for concern on the part of creditors. The decision of the Trustees to seek legal advice is both appropriate and reasonable upon receipt of such a request from the applicant. The obtaining of this advice of course requires funds and, apart from the minimal consideration proposed for the assignment, no funds are forthcoming. 14 I do not accept the respondents' argument that because no decision has been made as to whether or not to assign the actions, the Court does not have jurisdiction under s 178. In my view, by reason of the broad wording of the section, which includes a reference to "omission", it is reasonably clear that the Court does have jurisdiction to consider whether the refusal by the Trustees to consider the request for the assignment of the actions should be set aside or modified having regard to what is considered to be just and equitable. 15 Having regard to the evidence and the history of this matter, I am not persuaded that the decision of the Trustees can be said to be incorrect or that the requirements of justice and equity call for any different approach to be taken. 16 Accordingly, I dismiss the application with costs. I certify that the preceding sixteen (16) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Tamberlin.