Frost v Sheahan

THE SUBSTANTIAL COMPLIANCE ISSUE 10 As noted in [3] of these reasons, there are two aspects to this issue. First, whether the primary judge should have found that Mr Frost had substantially complied with his obligations to provide particulars of actual and expected income (ss 149D(1)(e) and 139U of the Bankruptcy Act). Second, whether the primary judge assumed that the discretion under s 178 was not available if Mr Frost was found not to have substantially complied with these statutory obligations. 11 The primary judge (at [48]) considered that substantial compliance required the provision of sufficient information to facilitate a proper assessment of income by the trustee (which is the purpose of ss 149(1)(e) and 139U). This approach accords with the reasoning of Burchett J in Re Asset Risk Management and Others (1995)130 ALR 605 at 607, namely, that "…substantial compliance is a matter of degree. What the Court is concerned with is the practical effect of what has been done, which should be compared with the practical effect the legislature appears to have sought to achieve". The primary judge found that the provision of income tax returns did not amount to substantial compliance with the statutory obligation. 12 Mr Frost submitted that provision of his income tax returns disclosed to the trustee details of Mr Frost's employer, the directors of the employer, the periods of employment, and the amount of income earned by Mr Frost during each financial year, which was sufficient to satisfy the purpose of the statutory obligation. Section 139U(1)(a), however, requires the provision of particulars of actual and expected income. Income tax returns do not provide information about expected income. Further, there was ample evidence supporting the primary judge's conclusion (at [58]) that the income disclosed in the returns may not have disclosed Mr Frost's true income, particularly given the lack of any records evidencing the amount of cash he had been paid or the cheques payable to cash that he had received. In these circumstances it was open to the primary judge to make the finding that Mr Frost had not substantially complied with his statutory obligations. This conclusion is sufficient to dispose of this ground of appeal. 13 Mr Frost submitted that the primary judge's reasons at [48], [60] and [79] disclosed a mistaken assumption that a finding against Mr Frost as to whether he had substantially complied with his obligations precluded the making of any order in Mr Frost's favour under s 178. Those paragraphs, read according to their ordinary meaning and in the context of the reasons as a whole, do not disclose any such error. When stating the relevant principles the primary judge identified the issue of substantial compliance as but one of a range of potentially relevant considerations a trustee (and also, implicitly, the Court on application under s 178) would consider on being asked to withdraw a notice of objection (see [35] at 5). Further, the primary judge's observation in [35] at 5 that it "is difficult to see how a trustee could be criticised for refusing to withdraw an objection that had not been substantially complied with" reinforces this acknowledgment that substantial compliance is one factor relevant to the trustee's decision, albeit a factor of significant and potentially determinative weight. The paragraphs on which Mr Frost relies in support of the allegation of error should be considered in this broader context. 14 Paragraph [48] of the primary judge's reasons does not disclose the alleged error. The paragraph is simply emphasising that, irrespective of the lack of substantial compliance, other discretionary factors were sufficient to lead to dismissal of Mr Frost's application. The same is true of the primary judge's observations in [60]. In that paragraph the primary judge is explaining that the discretionary factor of lack of substantial compliance was sufficient, in and of itself, to lead to dismissal of Mr Frost's application but, alternatively, other discretionary factors independently led to the same result. The summary in [79] is consistent with this approach. None of the paragraphs suggests that the primary judge (contrary to his own identification of the applicable principles in [35]) assumed that the question of substantial compliance was separate from the consideration of all factors relevant to s 178 or that a negative answer to that question necessarily precluded the making of an order under s 178.

FAMILY COURT PROCEEDINGS 15 The primary judge dealt with this potentially complex issue in [76] to [77] of his reasons. In short, Mrs Frost commenced proceedings in the Family Court of Australia seeking orders about (amongst other things) property known as the Angas Street property. A company associated with Mr Frost is the registered proprietor of that property. There is a question whether the company holds the property in its own right or as trustee of the Frost Family Trust. The trustee contends, and Mr Frost denies, that the outcome of the Family Court proceedings (at least if determined before 29 June 2009, which now seems unlikely) may potentially affect creditors because, depending on the outcome, half of the property may be vested in Mr Frost. The primary judge said that the trustee's submissions depended on a number of assumptions, not all of which had been addressed, but that he could not "rule out" the possibility raised by those submissions which his Honour described as seeming to be "a discretionary reason in favour of allowing the administration of the estate to continue". 16 On the appeal Mr Frost submitted that this was in error. Section 149C(1)(a) requires a notice of objection to set out a ground of objection as referred to in s 149D(1). The grounds identified in s 149D(1) are exhaustive. Those grounds do not include each and every matter arising in connection with a bankruptcy. Specifically, they do not include a trustee obtaining some collateral advantage such as the trustee claimed to be possible in the present case. As the trustee could not file a notice of objection on that ground, Mr Frost submitted that the trustee could not refuse to withdraw a notice on that basis, with the consequence that the Family Court proceedings were not a relevant consideration for the primary judge under s 178. 17 The effect of Mr Frost's submission is that the possible outcome of the Family Court proceedings was an irrelevant consideration which the primary judge was bound to disregard. The difficulty with the submission is that, irrespective of any limitations on the functions of the trustee, s 178 enables application to be made to the Court by a nominated person affected by an act, omission or decision of a trustee and empowers the Court to make "such order in the matter as it thinks just and equitable". In Re Tyndall; Ex parte Official Receiver (1977) 30 FLR 6 at 9-10 Deane J described s 178 as conferring the "widest possible discretion as to the appropriate order which should be made in the particular case" (see also, to similar effect, Macchia v Nilant 110 FCR 101; [2001] FCA 7 at [38]). The law relating to irrelevant considerations is clear; "where a statute confers a discretion which in its terms is unconfined, the factors that may be taken into account in the exercise of the discretion are similarly unconfined, except in so far as there may be found in the subject matter, scope and purpose of the statute some implied limitation on the factors to which the decision-maker may legitimately have regard" (Minister for Aboriginal Affairs v Peko-Wallsend Ltd (1986) 162 CLR 24 at 40). Nothing in the subject matter, scope and purpose of the Bankruptcy Act supports the submission that the primary judge was precluded from having regard to the potential outcome of the Family Court proceedings. 18 Nor can it be accepted that the primary judge erred in accepting the possibility of an outcome affecting creditors. The evidence before the primary judge was simply insufficient for his Honour to discount the possibility. The evidence remains in that state on the appeal.

OTHER DISCRETIONARY FACTORS 19 Mr Frost submitted that a range of other factors favoured withdrawal of the notices of objection and the primary judge erred in concluding to the contrary. This submission is difficult to reconcile with the limits on appellate review of discretionary decisions identified in House v The King. First, it is apparent that the primary judge considered each of the seven matters on which Mr Frost relies as a factor favouring discharge. Mr Frost did not submit to the contrary. Second, the weight to be given to those factors was a matter for the primary judge (Peko-Wallsend at 41). Third, the decision of the primary judge was not "unreasonable or plainly unjust" (House v The King at 505) upon the facts as at the date of judgment (25 July 2008). The fact that the further passage of time has possibly reduced the utility of the bankruptcy continuing from that found by the primary judge is immaterial and does not support any conclusion of error.

conclusion and orders 20 Mr Frost has not identified any error of the requisite kind by the primary judge. It follows that the evidence of circumstances arising after the primary judge's decision and the submissions of the parties on the merits of making or not making orders under s 178 are immaterial. There is no occasion for the exercise of any power by this Court other than the making of an order dismissing the appeal with costs. I certify that the preceding twenty (20) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Ryan, Mansfield and Jagot.

Associate: Dated: 27 February 2009 Counsel for the Appellant: Mr G Dart

Solicitor for the Respondent: Gretsas & Associates