Frost v Sheahan

the court: 1 The appellant, Mr Frost, is a bankrupt. The respondent is the trustee of Mr Frost's bankrupt estate. Mr Frost applied to the Court to set aside the trustee's decision not to withdraw objections to Mr Frost's discharge from bankruptcy. The primary judge dismissed the application (Frost v Sheahan (2008) 249 ALR 538; [2008] FCA 1073). In this appeal Mr Frost contends that the primary judge erred in dismissing his application and seeks an order that the trustee withdraw all objections to the discharge from bankruptcy. 2 Although the submissions of both parties on the appeal emphasised a range of discretionary considerations said to make it just and equitable (or not) for an order to be made under s 178 of the Bankruptcy Act 1966 (Cth) (including matters arising after the decision of the primary judge) it is first necessary to determine whether the decision of the primary judge discloses any error of the requisite kind. Under s 178 the Court may make "such order in the matter as it thinks just and equitable". Accordingly, the decision at first instance was discretionary and the principles in House v The King (1936) 55 CLR 499 at 504 - 505 apply to the appeal, namely: The manner in which an appeal against an exercise of discretion should be determined is governed by established principles. It is not enough that the judges composing the appellate court consider that, if they had been in the position of the primary judge, they would have taken a different course. It must appear that some error has been made in exercising the discretion. If the judge acts upon a wrong principle, if he allows extraneous or irrelevant matters to guide or affect him, if he mistakes the facts, if he does not take into account some material consideration, then his determination should be reviewed and the appellate court may exercise its own discretion in substitution for his if it has the materials for doing so. It may not appear how the primary judge has reached the result embodied in his order, but, if upon the facts it is unreasonable or plainly unjust, the appellate court may infer that in some way there has been a failure properly to exercise the discretion which the law reposes in the court of first instance. In such a case, although the nature of the error may not be discoverable, the exercise of the discretion is reviewed on the ground that a substantial wrong has in fact occurred. 3 Mr Frost submitted that the primary judge's discretion miscarried for four reasons: - (i) the primary judge should have found that the provision of Mr Frost's income tax returns was substantial compliance with the obligations imposed on Mr Frost by s 139U of the Bankruptcy Act, (ii) the primary judge had proceeded on the erroneous basis that if he were to find that Mr Frost had not substantially complied with his obligations under s 139U then the discretion under s 178 would not be available to be exercised in Mr Frost's favour, (iii) the primary judge had proceeded on the erroneous basis that a potential collateral advantage to the trustee in Family Court proceedings was a discretionary factor in favour of the bankruptcy continuing, and (iv) the primary judge erred in failing to find that a range of factors favoured the withdrawal of the notices of objection. 4 Certain provisions of the Bankruptcy Act set the context for the resolution of these issues. Under s 149 a bankrupt is usually discharged from bankruptcy at the end of the period of three years from the filing of a statement of affairs. However, a trustee of a bankrupt estate may (and in certain circumstances must) file a notice of objection to the discharge in accordance with s 149B. The grounds of objection are set out in s 149D(1) and include, relevantly, s 149(1)(e) (where the bankrupt fails to disclose any particulars of income or expected income as required by s 139U), and s 149(1)(f) (where the bankrupt fails to pay the trustee an amount the bankrupt was liable to pay under s 139ZG). By s 149A, a discharge under s 149 does not operate if such an objection takes effect. Instead the bankruptcy continues for a further prescribed period unless, at an earlier time, the trustee withdraws, the Inspector-General cancels, or the Court orders the trustee to withdraw, the notice of objection (as contemplated by ss 149J, 149N and 178 respectively). 5 Section 178 of the Bankruptcy Act is as follows: (1) If the bankrupt, a creditor or any other person is affected by an act, omission or decision of the trustee, he or she may apply to the Court, and the Court may make such order in the matter as it thinks just and equitable. (2) The application must be made not later than 60 days after the day on which the person became aware of the trustee's act, omission or decision. 6 Mr Frost filed a statement of affairs on 29 June 2001. In the usual course he would have been discharged from bankruptcy on 29 June 2004. He was not discharged because the trustee filed notices of objection to the discharge. The trustee acknowledges that Mr Frost will be discharged from bankruptcy on 29 June 2009 by operation of s 149A(2)(a)(i) of the Bankruptcy Act, irrespective of any notices of objection outstanding at that date. 7 Mr Frost first applied to the Court in 2004 to have the trustee withdraw certain of the notices. He was unsuccessful in those proceedings (Frost v Sheahan (2005) 220 ALR 733; [2005] FCA 1014). Mr Frost commenced further proceedings seeking similar orders on 8 August 2007. After commencement the trustee filed a further (in fact, the fifth) notice of objection. By the time of the hearing of this further proceeding before the primary judge only two notices of objection (the fourth and the fifth) remained relevant. The fourth notice relied on Mr Frost's failure to disclose particulars of income or expected income (ss 149D(1)(e) and 139U of the Bankruptcy Act) and failure to make payments of income contributions (ss 149D(1)(f) and 139ZG of the Bankruptcy Act). The fifth notice relied only on Mr Frost's failure to disclose particulars of income or expected income. Mr Frost claimed that the trustee should have withdrawn the notices under s 149J(1) of the Bankruptcy Act in response to Mr Frost's request to do so (albeit a request made after the proceedings were commenced). The application before the primary judge proceeded on the basis that the trustee's refusal to withdraw the notices constituted an act, omission or decision of the trustee within the meaning of s 178. The primary judge dismissed the second application (to which this appeal relates) on 25 July 2008. 8 Neither party disputed the primary judge's summary of the principles applicable to s 178 of the Bankruptcy Act at [34] of the reasons, which included the following: 1. Section 178 confers a "supervisory jurisdiction over the conduct of the trustee": Cummings v Claremont Petroleum NL [1996] HCA 19; (1996) 185 CLR 124 at 132 per Brennan CJ, Gaudron and McHugh JJ. The section confers on the Court a very wide discretion: McGoldrick v Official Trustee in Bankruptcy [1993] FCA 636; (1993) 47 FCR 547 at 552-553. 2. It is not necessary for an applicant for relief under the section to show that the trustee's decision was absurd, or unreasonable or taken in bad faith. The Court has a wide discretion to make such order as seems appropriate in the circumstances of the case: Re Tyndall; Ex parte Official Receiver (1977) 30 FLR 6 at 9-10; [1977] FCA 15; 17 ALR 182 at 186 per Deane J. At the same time, the Court will be slow to make orders which will have the effect of interfering in the day-to-day administration of a bankrupt's estate and, in cases involving an exercise of business or commercial judgment, will place considerable weight on the trustee's decision. Furthermore, a Court will not intervene under s 178 simply because the Judge forms a different view from that of the trustee. 3. An order may be made under s 178 even if the trustee's decision was correct on the material before him, if, for example, additional material is put before the Court. 9 Further, neither party disputed the primary judge's decision that the ground of alleged failure to make payments of income was so uncertain that it "should not stand in the way" of Mr Frost's discharge from bankruptcy (at [75]).