Healey v Prentice

The applicant's case in these proceedings 18 The substantive case before me depended on two views. The first was that Rolfe J and the Court of Appeal had made legal errors in failing to hold that an agreement to negotiate in good faith should be implied, so there were real prospects of the High Court granting special leave and, secondly, that the effect of the trustees' decision not to further contest the remaining Supreme Court actions, at least to the point of allowing the ventilation of the applicant's motions to test the adequacy of discovery, was to deny the applicant a chance to find documents which could be anticipated to exist. Further, there was a chance that as yet undiscovered documents would provide something akin to evidence (the familiar allusion to "smoking guns" was employed in these proceedings) of bank officers' acceptance of the reality of the existence of one or other of the express or implied exculpatory agreements asserted by the applicant. It was sought before me, in effect, to prove that the trustees' decision was flawed by attempting to show that an examination of the relevant documents would indicate that at least there had not been full compliance by the Bank with its discovery obligations, including in the suit heard to finality by Rolfe J. 19 I took the preliminary view that s 178 was and might be wide in its scope and allowed considerable latitude to the applicant, by the use of subpoenas and by permitting his counsel to put leading questions to witnesses in the bank's camp, to test his theories.

Section 178 of the Act 20 The Court is given a very broad supervisory role. The only constraint is that it must be made to appear to the Court that it is just and equitable to make some proposed order. While, for historical reasons, its is well settled that such a broad review jurisdiction in insolvency matters falls within the judicial power of the Commonwealth, in truth, the Court's role has aspects not unlike those more commonly found in administrative reviews. The Court is, after all, reviewing administrative actions of a trustee. 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 Court should afterwards intervene in some fashion. 22 This view I think is in accord with what RD Nicholson J said in Bethune v Newman (1996) 19 ACSR 99 and of the approach of Lee J in Re Wheeler; ex parte Wheeler v Halse (1994) 54 FCR 166 at 170.

The subject matter 23 A very large debt, and the application of the value of a considerable number of properties, themselves of value, to the reduction of that debt, were in issue in the litigation, even though the total value, if all the litigation had been concluded in the applicant's favour, would likely not have been sufficient to undermine the actual sequestration order (insolvency apart from the imputed Bank debts having been shown). The size of the sums in issue no doubt indicated a need for considerable care on the part of the trustees.

The submissions of the applicant 24 The applicant contended firstly that it could be inferred from the voluminous nature of the litigation and associated documents that the trustees did not have sufficient time properly to review the necessary materials in order to come to a sound decision. Secondly, in particular, the trustees failed to exercise what would have been an option well open to them of seeking additional time from the Court to reply to the s 60 notices served on the trustees. Thirdly, it could be inferred from the circumstances that the trustees did not in fact properly review the material and consider the information provided, both in the light of the material available to them and in the light of the further material available as a result of the proceedings before me. Finally, it was submitted that the trustees did not have the power to discontinue the High Court proceedings.

The time available to the trustees 25 It is true that the trustees acted within a fairly short period to come to their decision, given that the subject litigation was large and complex and that a few extra days, even without an application for extension of time, would have been available. However, one of the trustees, Mr Prentice, had had knowledge of the applicant's affairs generally since 11 March 1999 and it is inconceivable that he would not have understood, as it were, the theory of the respective cases advanced by the Bank and by the applicant, even if he had not had the opportunity to master all relevant details. There were, by the time the trustees came to consider the matter, two judgments to assist them. The judgment of Rolfe J is long but not so long that the trustees, their agents or legal advisers could not, with assiduity, reasonably soon absorb it. The Court of Appeal's judgment is quite short. These judgments dealt with the applicant's claims and made an understanding of his position and that of the Bank reasonably easy to comprehend. In addition, the Bank, as was its right, was astute to provide helpful information to the trustees which it did, and the trustees had this information. 26 Secondly, Emmett J had expressed views that considerable difficulties would attend the special leave application in the High Court. 27 It would have very soon become apparent to the legal advisers of the trustees, if not to the trustees themselves, that the discovery issues in the remaining Supreme Court litigation were substantially the same as those in the proceedings litigated before Rolfe J. The trustees could safely have assumed that the debt litigation before Rolfe J had been thoroughly fought, including as to interlocutory aspects. 28 Finally, there was no evidence put before the trustees to indicate deficiencies in discovery, of a kind having a material chance of affecting the outcome of any of the Supreme Court litigation, including leading to a new trial of the case which Rolfe J had decided. 29 The trustees were not required, of course, to read every document among thousands. They were required to understand and assess the matter sufficiently to enable a practical commercial decision to be taken. In my opinion, when one looks at all the circumstances, one does not conclude that there was scant time for all of that. On the contrary, I conclude that there likely was enough time for that. Mr Prentice gave evidence that in fact he did have enough time and he was not sought to be cross-examined in relation to that. 30 In my opinion, the attack based on the amount of time available to the trustees fails. 31 It follows that, if they had enough time, there can be no substance in the criticism that the trustees should have sought further time. The decision of the trustees not to pursue discovery - whether flawed on the merits 32 On the face of it, to a non-banker it looks surprising that there were not more intra-Bank written communications in the period of approximately a year before the final notification by the Bank to the applicant that the Bank was intent on suing him. However, an explanation by a seemingly credible senior bank officer was given in evidence, and the apparent dearth of documents is, on examination, neither as extensive nor as surprising as might at first appear. Even with the benefit of an extensive investigation of the matter, it does not seem to me now to be warranted that the matter should be further investigated. 33 There is, in my opinion, no serious prospect that any further document would appear which could affect the result of the litigation or justify the grant of a new trial as to the debt action; nor is there any serious prospect, in my view, that facts will otherwise be revealed by reactivating any of the litigation which would ultimately assist the applicant. In particular, I should say that, in my view, no inference arises, from all the circumstances, of any wrongful suppression of documents by any bank officer, known or unknown. 34 There is a further aspect to this, as pointed out by counsel for the respondents. The prospect that there might have been express acknowledgement by anyone in the Bank that the Bank had a duty to continue to negotiate in good faith, is at odds with the very case put before Rolfe J. This was that, there being no express agreement to negotiate in good faith, by operation of law in all the other circumstances, such an agreement ought to be implied. This is perhaps another reason for considering that there was nothing wrong with the trustees' decision on the merits.

The special leave application in the High Court 35 Argument was put that the trustees did not have the power to discontinue the High Court proceedings. As I apprehend this argument, it rests on the High Court proceedings having actually been discontinued rather than simply having been left to be "deemed to have [been] abandoned" under subs (3) of s 60 of the Act. The argument would appear to assume that there was no power under s 60 to discontinue the action and that the only power the trustees had was that of dealing with the bankrupt's property. However, subs (2) of s 60 provides that: "An action commenced by a person who subsequently becomes a bankrupt is, upon him or her becoming a bankrupt, stayed until the trustee makes election, in writing, to prosecute or discontinue the action." (emphasis added) Thus s 60 itself seems to contemplate an actual discontinuance. It appears that an application for special leave falls within section 60: see Cummings v Clarement Petroleum NL & Anor (1996) 185 CLR 124 at 130. It seems to me, therefore, that this argument was founded on something of a misconception. 36 As to the merits of discontinuing the special leave application, every judicial officer who has looked at this matter so far has expressed himself as unimpressed with the central legal argument upon which the special leave application is founded. The legal advice of the trustees was to the like effect. The applicant does not say that he had any legal advice to the contrary. It seems to me that the decision of the trustees in the circumstances was clearly correct. 37 As pointed out by counsel for the trustees, the question for the trustees was to decide what was in the best interests of the administration of the bankrupt estate. In the case of all the litigation concerned, on the evidence, the trustees considered the pleadings, the various judgments and the correspondence which both the Bank and the applicant had with the trustees and their solicitors in relation to the appropriate course of action. The trustees took legal advice and acted in accordance with it. They also considered what, in financial terms, success in the litigation would bring to the unsecured creditors. As pointed out by counsel for the respondents, that return would appear to be nil. The applicant's case in defence of the Bank's claim was not that the money was not owing, but rather that there was in place an agreement to negotiate as to the terms upon which it would be repaid. Such an agreement would have no special likelihood of resulting in an ultimate agreement to defer for any material period the repayment. 38 It is true that the applicant sought to lighten the trustees' load by offering to provide solicitors to conduct the case for the trustees on discovery and in the High Court at no charge. Yet nothing was done to indemnify the trustees against any adverse costs order if it might be made and the estate could have been exposed to significant costs orders.

Conduct of the Bank's solicitor as to discovery 39 In fairness to Mr Courtenay, I should say that it has not been shown to me that there was any dereliction or failure by the Bank's solicitor to appreciate the extent of his duty to the Court and to his opponent. Mr Courtenay appears to have acted honestly and with reasonable competence for an expert litigator. There was also no positive evidence to suggest banking practice different from that shown to have been employed in this case.

Too late? 40 Submissions were made by the respondents in effect that the applicant had come to this Court too late and that after the judgments in the Supreme Court and the discontinuance of the proceedings in the High Court, nothing this Court could now do, could resuscitate those proceedings. No doubt there is a question of the direct reach of this Court, but it is not necessary to decide the validity of these submissions. I note, however, that the Court's powers are wide and that the Bank is a party. I would assume that, if appropriate, the Court could in fact mould orders that would at least materially assist the applicant. However, as I have indicated, in my view it is not appropriate that the Court intervene. Disposition 41 It follows that the application should be dismissed. The applicant should pay the respondent's costs over the motion and those costs should be regarded as costs of the administration for the purposes of s 109 of the Act. I certify that the preceding forty-one (41) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Madgwick.

Solicitor for the Applicant: G.H. Healey & Co.

Solicitor for the 1st Respondents: Henry Davis York

Date of Hearing: 31 October & 1 November 2000

Date of Judgment: 2 November 2000