Inspector‑General in Bankruptcy v Bradshaw [2005] FCA 424 | Case summary

REASONS FOR JUDGMENT introduction 1 This is an application by the Inspector-General in Bankruptcy and the Commonwealth of Australia ("the applicants") for declarations and orders against the respondents. Amongst other things, the applicants seek a declaration that the first respondent, who was formerly a registered trustee in bankruptcy, contravened the condition of a bond entered into by him pursuant to s 155 of the Bankruptcy Act 1966 (Cth) ("the Act") and an order that the first respondent pay the second applicant $100,000, which is the amount of the first respondent's bond. The applicants also seek a declaration that the second respondent, who was a surety approved by the registrar under s 155, contravened the condition of its bond and an order that the second respondent pay the second applicant $100,000, which is the amount of the second respondent's bond as surety. The applicants seek this relief on the basis that the first respondent committed various breaches of duty as trustee, and neither the first nor second respondent has made any payment to the second applicant as required under their bonds. 2 Relying on O 77, r 11 of the Federal Court Rules, the respondents filed notices of intention to oppose the application. The first respondent's grounds were: (1) the application is statute-barred by virtue of s 79 of the Judiciary Act 1903 (Cth) and s 5(3) of the Limitation of Actions Act 1958 (Vic) ("the LAA"); alternatively (2) the sum of $100,000 specified in the bond is a penalty and this Court would relieve against the penalty by awarding only the amount that would compensate the applicants for loss and damage sustained in connection with a breach of the bond. In its notice, the second respondent adopted the first respondent's grounds of opposition and claimed further: (1) if the application failed against the first respondent, then it would fail against the second respondent; and (2) the second respondent's bond "secure[d] the payment of a monetary liability, that is the first respondent's liability to pay under his bond". The second respondent also filed a cross-claim against the first respondent, the hearing of which was deferred, by consent, pending the outcome of the principal application. 3 In bringing this proceeding, the applicants relied on s 30 of the Act and s 19 of the Federal Court of Australia Act 1976 (Cth). The first respondent submitted that the proceeding is better understood as a proceeding under s 39B(1A) of the Judiciary Act 1903 (Cth), which confers a broad jurisdiction in matters in which the Commonwealth is seeking a declaration or in matters arising under any laws made by the Parliament. There was no dispute that the Court had jurisdiction over the matter, and the parties did not contend that the outcome of this question had any practical consequence. The better view is, it seems to me, that these provisions operate concurrently to enable the Court to hear and determine the matter, and to grant such relief as may be necessary to give effect to its determination. 4 In support of their application, the applicants relied on the affidavit of Terence David Clarke sworn on 11 August 2004. The respondents did not contest the contents of Mr Clarke's affidavit. The first respondent relied on his own affidavit sworn on 27 August 2004 and also on the sentencing remarks of the trial judge at the time of his conviction for theft (included in the exhibits to Mr Clarke's affidavit). 5 Exhibited to the first respondent's affidavit was a letter from the applicants' solicitors dated 7 July 2000, stating that they would provide details of the costs incurred by the second applicant in relation to its investigation and prosecution of the first respondent. The first respondent deposed, and it was not disputed, that no such details were provided prior to the hearing. 6 The second respondent relied on the affidavit of Alexandra Jane Golding, solicitor, sworn on 17 September 2004, as evidence of the fact that it had revoked its bond as surety on 24 September 1996, with effect from 24 December 1996. 7 There was no cross-examination of any deponent. The evidence of the first respondent and Ms Golding was not disputed. the relevant facts 8 In his affidavit, Mr Clarke, a certified practising accountant, deposed that between August 1990 and March 2003, he was employed by the Insolvency and Trustee Service Australia ("ITSA"). Acting under s 12(2)(d) of the Act, on 8 February 1996, the first applicant appointed him to investigate the conduct of the first respondent in his capacity as a registered trustee. The evidence of Mr Clarke established, in summary, that: (1) The first respondent was registered as a trustee on 15 September 1980 and resigned from this position on 4 March 1996. (2) On 2 September 1986, the first respondent executed a bond as required by the Act and the Bankruptcy Rules 1966 (Cth) ("the Rules") applicable at that time. (3) On 31 July 1986, the second respondent executed a bond as required by the Rules applicable at that time. (4) The investigation into the conduct of the first respondent in his capacity as a registered trustee showed that, between 1993 and 1995, the first respondent misappropriated monies from trust accounts relating to administrations that he was conducting as a trustee. (5) The first respondent was subsequently charged with theft. He pleaded guilty to 10 counts of theft committed between August 1993 and August 1995, in respect of amounts totalling $81,000 in relation to estates under his control under Part X of the Act and an amount of $72,500 in relation to a company of which he was the liquidator. On 3 June 1999, the first respondent was convicted and sentenced in respect of these offences to 18 months' imprisonment, 14 months of the sentence to be suspended for two years. (6) The first respondent made full restitution of the monies that he had misappropriated. (7) In May 2000, the applicants made a demand to the first respondent for the payment of $100,000 in respect of his liability under his bond (and $4,000 under an earlier bond); and the first respondent has made no such payment. (8) In September 2002, the applicants made a demand to the second respondent for the payment of $100,000 in respect of its liability under the second respondent's bond; and no such payment has been made. 9 Mr Clarke further deposed that: ITSA's involvement in the investigation of David Bradshaw from February 1996 to December of that year together with assisting the Commonwealth Director of Public Prosecutions necessitated up to 3 officers from ITSA, myself included, being involved to a significant degree in the investigation and examination of estates administered by Bradshaw. I can say that from February to December 1996, at least 60% of my time was devoted to these tasks. Further, I understand that significant costs were also incurred by the DPP in the prosecution of offences committed by Bradshaw as a Bankruptcy Trustee administering the various Part IV and Part X estates under the Act referred to in this my affidavit. As already noted, this evidence was uncontested. There is no evidence as to the precise quantum of the costs of the investigations and prosecutions mentioned in this passage. the parties' submissions 10 The applicants' case was straightforward. The applicants submitted that the first respondent gave a bond in the sum of $100,000 in order that he might be registered as a trustee; and that, by his misappropriation of monies from estates under his administration, he breached the condition of his bond. They contended that liability under the bond was absolute. Accordingly, the first respondent was, they said, bound to pay the second applicant, as obligee, the amount of the bond. For the same reason, the second respondent, as surety, was "liable to pay such sum, not exceeding $100,000, as [the first respondent] becomes liable to pay". Having made demand on the respondents, then, so the applicants contended, the respondents were obliged to pay. Referring to the orders of Drummond J in Re Smith; ex parte Inspector-General in Bankruptcy and Brown [1996] FCA 1076 ("Re Smith"), the applicants contended that the first respondent's liability was not affected by the restitution that he had made, or by the second applicant's failure to quantify its loss and damage. 11 The respondents contended that Re Smith was not on point because the case did not consider the matters that they now raised. They did not dispute that, by his misappropriation of monies between 1993 and 1995, the first respondent had breached the condition of his bond. The respondents' primary submission was that liability under the bonds was not absolute. They contended that the applicants' case should be dismissed because the second applicant had failed to quantify its loss, although it had been asked to do so by the first respondent at a much earlier date. 12 In oral argument, the first respondent did not dispute that the bond might be called on to compensate the second applicant for the administrative costs of an investigation of a defaulting trustee. Referring to AMEV-UDC Finance Limited v Austin (1986) 162 CLR 170 ("AMEV-UDC") at 186-189 and the doctrine of penalties, the first respondent contended that a bond under s 155 of the Act was penal in nature and, in order to recover on it, the second applicant as obligee was obliged to quantify its loss. The first respondent's submission was that the obligee could recover only that portion of the bond amount as was required to compensate it for its loss. Referring to Schoenmakers v Director of Public Prosecutions (No 2) (1991) 31 FCR 429 ("Schoenmakers") and s 23 of the Federal Court of Australia Act 1976 (Cth), the first respondent contended that this Court had jurisdiction to give effect to the doctrine of penalties. 13 Counsel for the first respondent also put the argument a different way. In written submissions, the first respondent relied particularly on the terms of the second respondent's bond. This bond followed the language of Form 30. Counsel contended that the words "such sum or sums (not exceeding $100,000 either in one sum or in the aggregate) as the trustee may become liable to pay" demonstrated that: [T]he framers of regulation 61 and forms 29 and 30 intended that a defaulting trustee might be liable for only part of the $100,000. The Applicants' case in this matter ignores this obvious conclusion and is thus misconceived. 14 Also in written submissions, the first respondent said: [T]he conditions of the prescribed forms of [the] trustee's bond and surety's bond direct attention to performance and execution, that is to say eventual completion of the obligation to account in full for trust moneys and the expense involved on the part of the regulators in procuring that result. [Emphasis in original] On this view, so the first respondent submitted, "the condition in [the first respondent's] bond has been fulfilled and, absent quantified loss on the part of the Commonwealth, the bond is void". 15 The first respondent supported his submissions with the observations that "[a]n action on the bond is irrelevant to the obtaining of an order for compensation of deficient estates" under s 176 of the Act; and "[t]he contemplated breaches must be serious enough to cause the incurring of more than the administrative costs associated with, for example, processing a late form - one would not expect a demand for $100,000 in such circumstances". 16 The second limb of the first respondent's defence was that the claim against him was statute-barred. Citing Torrens Aloha Pty Ltd v Citibank NA (1997) 72 FCR 581, Deane v The City Bank of Sydney (1918) 25 CLR 215 and Ogilvie v Adams [1981] VR 1041, counsel for the first respondent contended that, if the $100,000 were payable in full, then it was a debt payable on demand. As such, any cause of action against the respondents accrued on the day the bonds were executed more than 15 years ago. Accordingly, so the argument ran, the applicants' claim was statute-barred pursuant to s 5(3) of the LAA and s 79 of the Judiciary Act 1903 (Cth). 17 The applicants conceded that the first respondent had made full restitution to the estates that had been under his administration. By way of reply, they contended that liability under the first respondent's bond was independent of actual loss to the relevant estates. In written submissions, the applicants said: The decision in Smith clearly contemplates that payment upon a breach of the bond is independent of any loss to the relevant estate(s). It provides a full answer to that argument. 18 The applicants also submitted that the doctrine of penalties was inapplicable. Referring to the commentary in chapter 18 of R P Meagher, J D Heydon and M J Leeming, Meagher, Gummow and Lehane's Equity: Doctrines and Remedies (4th ed, Chatswood, Butterworths LexisNexis, 2002) ("Meagher, Gummow and Lehane") and Skinner v Dayton (1817) 2 Johns Chan 526 at 535 (which is cited by the learned authors at 578, [18-010]), the applicants submitted that the doctrine of penalties should be confined to commercial cases in which the doctrine would operate to limit recovery to an amount that was "expected or required". The applicants observed that, at 586-587, [18-075], the authors of Meagher, Gummow and Lehane: pose an example of a bond required by the Commonwealth conditional on the performance of a promise to a third party (par 18-075, at p 587.) The bond is designed to support a policy of encouraging a particular industry. A failure to comply with the promise could cause loss to the third party but not to the Commonwealth as obligee. The learned authors offer the opinion that equity would not intervene in such circumstances: Here the result of non-fulfilment of the condition will be a disappointment to the Government in pursuit of its policy, but for this compensation by way of monetary damages would be neither appropriate nor measurable. 19 Counsel for the applicants submitted that the first respondent's bond was not in the nature of an indemnity to make good any damage suffered, but was "akin to a bond to be of good behaviour, given to the Commonwealth". It followed, so counsel maintained, that proof and quantification of loss were irrelevant to their claim. Referring to Schoenmakers, counsel submitted that the position of sureties supporting a recognisance as a condition of bail provided a closer analogy to the present case than the cases relating to commercial contracts. Counsel relied on the fact that Schoenmakers recognised that, at common law, there was no discretion other than to declare the forfeiture upon proof of breach and order that the recognisance be estreated. Acknowledging that the Court had a discretion by reason of s 23 of the Federal Court of Australia Act 1976 (Cth), counsel noted that the discretion was not exercised in Schoenmakers and submitted that the Court should not, in this case, relieve the first respondent from his liability under the bond, particularly given the serious nature of his breach. 20 Whilst the applicants accepted that s 5(3) of the LAA applied by virtue of s 79 of the Judiciary Act 1903 (Cth), they maintained that the cause of action against the first respondent was not statute-barred. This cause of action accrued, so the applicants said, on breach of the condition of the bond. On the agreed facts, the earliest breach was in 1993. 21 In addition to adopting the first respondent's submissions, the second respondent contended that it could not be liable to pay any sum unless the first respondent was so liable and had failed to satisfy his liability. After referring to Meagher, Gummow and Lehane at [18-065], the second respondent said in written submissions that: The reasoning of Mason J and Wilson J in AMEV UDC Finance v Austin [at 186 and 189-193] confirms that there is jurisdiction in equity to relieve against a penal provision in the nature of a surety. Plainly the [second respondent's] bond secures a monetary payment (that under [the first respondent's] bond) so that the consideration that equity will not relieve against the forfeiture of bonds conditioned upon an act non-performance of which will cause the obligee no loss compensable in money (relied on by the Commonwealth), has no application. 22 Counsel for the second respondent contended that the second respondent's revocation of its bond in 1996 was a full answer to the applicants. Relying on Commercial Bank of Australia Ltd v Cavanaugh (1980) 7 NTR 12, counsel argued that the second respondent could only be liable under its bond in respect of liabilities that accrued before 24 December 1996; and, by virtue of clauses 2 and 3 of its bond, there could be no accrued liability unless a demand had been made on or before this date. 23 Counsel for the applicants answered with the submission that the second respondent's liability accrued from the same date as the first respondent's liability. On the applicants' submission, a call on the bond was not a prerequisite for the second respondent's liability. 24 At the conclusion of the hearing on 20 September 2004, I indicated that I wished to know something of the legislative history of the bond requirement in s 155 of the Act, in order to understand the purpose of the requirement. Following the Court's researches, counsel's attention was specifically directed to the Insolvency Act 1915 (Vic), s 74; the Bankruptcy Act 1924 (Cth) ("the 1924 Act"), s 126(2); the Bankruptcy Amendment Act 1985 (Cth) ("the 1985 Amendment Act"), s 29; the Bankruptcy Rules 1928 (Cth) ("the 1928 Rules"), rr 346-349 and Form 91; the Bankruptcy Rules 1934 (Cth) ("the 1934 Rules"), rr 418-424 and Forms 91 and 91A; the Report of the Committee Appointed by the Attorney-General of the Commonwealth to Review the Bankruptcy Law of the Commonwealth (1962) ("the Clyne Committee Report"), [239]; and A J Eastman and J Malor, McDonald, Henry, and Meek's Australian Bankruptcy Law and Practice (2nd ed, Sydney, Law Book Company Pty Ltd, 1940), at 457-458. An opportunity was afforded to counsel to make written submissions in response. All parties subsequently filed submissions. 25 In written submissions dated 7 October 2004, the applicants contended that, although the provisions mentioned in [24] above illustrated the development of the requirements for registration of trustees, they did not assist in ascertaining the purpose of the bond. The applicants submitted: The reason why the old provisions … do not assist is that the wording of s 155 and of the bond given by [the first respondent] are unambiguous. There is no scope for reading into the section or into the bond the wording of any previous provisions. The fact that there has been restitution to the relevant estates is not determinative of the availability of the bond to the Commonwealth. The Court may order that a trustee who has been guilty of a breach of duty in relation to a bankrupt estate make good any loss the estate has sustained. That is the function of s 176, which operates independently of s 155. The respondents submit that there is a requirement that the applicants prove a loss … . If there was in the past any such requirement it does not apply now. The words which appear in previous provisions could have been reproduced in the bond under review. They were not. 26 The applicants contended that the reference to a "penal sum" in the 1928 Rules was inconsistent with the reference to an "amount incurred by the Commonwealth in ascertaining the loss sustained by any estate" in the 1934 Rules. They maintained that, if the bond was penal in nature, no enquiry into loss was required; and, further, that there was no "statutory lineage" supporting the respondents' contention that loss and damage must be proved in order to claim on the bond. The applicants said: There is inconsistency between the old provisions relied on and critical words in some of these provisions have not been repeated in the provisions which apply in this case. The applicants also submitted that the Clyne Committee Report did not assist in the present case. 27 In its written submissions, the second respondent contended that: It is plain from the legislation prior to the introduction of section 155 that the bond required by section 155 is in the nature of a security securing loss and damage by a person who might be affected by the conduct of a bankruptcy trustee. So much is apparent from a review of the legislation and statutory rules … . The second respondent relied on the primary meaning of the word "security", referring to The Oxford English Dictionary (2nd ed), Handevel Pty Ltd v Comptroller of Stamps (Vic) (1985) 157 CLR 177 ("Handevel") at 196 per Mason, Wilson, Deane and Dawson JJ,and Broad v Commissioner of Stamp Duties [1980] 2 NSWLR 40 at 45 per Lee J who cited Maddaford v De Vantee [1951] SASR 259 at 267. 28 The second respondent further submitted: There is a lengthy statutory lineage supporting the Respondents' contention that loss and damage must be proven for the Applicants to have recourse to the bond under section 155. The statutory lineage does not suggest that the bond can be recovered without proof of loss and simply on demand … . The lineage articulates the purpose or object of s 155, that is, as a security for loss by reason of default by the trustee. Section 15AA of the Acts Interpretation Act 1901 provides that a construction which would promote the purpose or object underlying the Act shall be preferred to a construction that would not promote that purpose. The bonds (both of Mr Bradshaw and Cigna Insurance Australia Ltd) are securities in the event of default by the trustee and are given to secure loss. Since no loss is claimed or proven no recovery can be had under the bonds. 29 The first respondent adopted the second respondent's submissions, adding: Paragraph 239 of the Clyne Committee Report shows that ss 155-161 of the 1966 Act were not intended to effect any significant change to the then existing regime in respect of registration of trustees nor, it follows, the arrangements in respect of bonds given by trustees and sureties. There is no need to suppose that the differences in wording between the 1928 and 1934 rules and the rule currently under consideration reflect any change in legislative intention. The older prescribed procedure mimics the position that would have then (and, it is submitted, does now) obtain under the general law: The penalty ought to be relieved against except to the extent of the quantum damnificatus, namely the amount of any loss sustained by any estate (which may include any amount ordered under s 176) plus any and every "amount expended by the Commonwealth in ascertaining the loss sustained by an estate". [Emphasis in original] Consideration The nature of the bond requirement 30 Much of the argument in this case arose from a disagreement about the true character and purpose of the bond. On the one hand, the applicants characterised the bond as a "performance bond" designed to secure from the trustee the proper administration of the bankrupts' estates under the trustee's control. On the other hand, the respondents characterised the bond as being in the nature of an indemnity against loss sustained in consequence of the trustee's misconduct. As it happens, the terms of s 155 of the Act as it stood in 1986 are capable of supporting either view; and the effect of the security instruments is not as clear as the applicants would have it. 31 The trustee's and surety's bonds must be considered in the light of their terms; and the statutory context in which, and history of the provisions under which, they are sought and received. 32 At the time the first and second respondents entered into the bonds in question, s 155 of the Act relevantly provided: (1) Each Registrar shall keep, as prescribed, a register in which shall be entered the names and such other particulars as are prescribed of persons whom the Court directs to be registered under this section as qualified to act as trustees and who have given security as provided by sub-section (3A). (2) A natural person may make an application to the Court for registration as a trustee. (3) An application under sub-section (2) shall be made in writing as prescribed and shall contain such information as is prescribed. (3A) Subject to this section, where an application is made to the Court under sub-section (2) and - (a) the applicant - (i) is a member of a prescribed body; (ii) holds a degree, diploma or certificate from a prescribed university or another prescribed institution in Australia and has passed examinations in such other subjects, under whatever name, as the appropriate authority of the university or other institution certifies to the Court to represent a course of study in accountancy of not less than 3 years' duration and in commercial law (including company law) of not less than 2 years' duration; or (iii) has other qualifications that, in the opinion of the Court, are equivalent to the qualifications mentioned in sub-paragraph (i) or (ii); (b) the applicant is not an insolvent under administration; (c) the applicant resides in Australia; and (d) the Court is satisfied that the applicant is capable of performing the duties of a trustee and is otherwise a fit and proper person to be registered as a trustee, the Court may, by order, direct that the applicant be registered as a trustee upon the applicant's entering into a bond in the amount prescribed for the purposes of this sub-section and in the prescribed manner with such surety or sureties as is or are approved by the Registrar. … (5A) Where an amount prescribed for the purposes of sub-section (3A) (in this sub-section referred to as the "relevant amount") exceeds the amount of the bond that was previously entered into (whether before or after the commencement of this sub-section) by a trustee under a provision of this section, being a bond that is in force on the day on which the provision prescribing the relevant amount comes into operation, the trustee shall, within 3 months after that day, enter into a bond in the relevant amount and in the prescribed manner with such surety or sureties as is or are approved by the Registrar. … (5C) The Court may, if it is satisfied, upon the application of the Registrar, that a person registered under this section has failed to comply with sub-section (5A) of this section or section 161A, by order, suspend for a specified period or cancel the registration of that person as trustee. …. [Emphasis added] 33 In 1986, r 61(1)(a) of the Rules prescribed an amount of $100,000 for the purposes of s 155(3A). Under r 61(1)(b), a trustee's bond was to accord with Form 29; and, under r 61(2), a surety's bond was to accord with Form 30. The first respondent's bond conformed to r 61 and Form 29. It read: BY THIS BOND I [the first respondent] bind myself to the Commonwealth of Australia for the payment to it of the sum of $100,000. The condition of this Bond is that this Bond is to be void if [the first respondent] at all times well and sufficiently performs and executes all the duties required of him in any office of [trustee] to which he is duly appointed, otherwise it shall remain of full force and effect. [Emphasis added] 34 The second respondent's bond also conformed to r 61 and Form 30. It read: BY THIS BOND [the second respondent] bind[s] itself to the Commonwealth of Australia for the payment to it of the sum of ONE HUNDRED THOUSAND DOLLARS ($100,000.00). Whereas [the first respondent] is bound to the Commonwealth of Australia in the sum of ONE HUNDRED THOUSAND DOLLARS ($100,000.00) upon the condition that his bond is to be void if he at all times well and sufficiently performs and executes all the duties required of him in any office of [trustee] to which he is duly appointed: And whereas the surety has agreed to bind itself as surety for the due performance by the trustee of his obligations under the abovementioned bond: Now the condition of this Bond is that this Bond is to be void if the surety pays to the Commonwealth such sum or sums (not exceeding $100,000.00 either in one sum or in the aggregate) as the trustee may become liable to pay under his abovementioned bond and fails to pay to the Commonwealth, being a sum or sums that he becomes liable to pay by reason of a failure to comply with the conditions of that bond during the currency of this Bond, otherwise it will remain of full force and effect. 2. This Bond continues in force until the expiration of 3 months after notice of intention to revoke this Bond has been given to the Registrar in Bankruptcy and to the trustee. 3. The revocation of this Bond does not release the surety from, or affect, any liability of the surety under this Bond existing immediately before the revocation or in respect of liability of the surety arising out of any failure by the trustee to comply, before the revocation of this Bond, with the condition of the bond referred to in the first recital to this Bond. [Emphasis added] 35 As will be seen, under earlier Rules made under the 1924 Act, the prescribed forms provided that the Registrar, not the Commonwealth, was the obligee. Nothing would appear to turn on this difference in this case. 36 Section 155, in its 1986 form, has subsequently been relevantly amended, first, by s 25 of the Law and Justice Legislation Amendment Act 1990 (Cth) and, subsequently, by the Bankruptcy Legislation Amendment Act 1996 (Cth) (see Schedule 1, item 283). The requirement of a bond remained until 1996, although s 155C was then introduced to require a prescribed fee to be paid upon registration as a trustee. The fees requirement has become a requirement to pay a charge: see Bankruptcy (RegistrationCharges) Act 1997 (Cth), ss 4 and 5 and Bankruptcy Amendment Act 1997 (Cth), Sch 1, item 6. Nothing turns on these changes in this case. 37 Noting that the terms of s 155 of the Act as it stood in 1986 provided only limited guidance as to the character and purpose of the bond, I turn first to the more recent legislative history of the provision for clarification. When enacted in 1966, s 155 differed little from the form it was to take twenty years later. In 1966, it relevantly read: (1) Each Registrar shall keep, as prescribed, a register in which shall be entered the names and such other particulars as are prescribed of persons whom the Court directs to be registered under this section as qualified to act as trustees and who have given security in the prescribed amount and manner. (2) A person may apply to the Court to be registered as qualified to act as a trustee and, subject to this section, the Court may, if it thinks fit, by order direct that he be so registered upon his entering into a bond in the prescribed amount and manner with such surety or sureties as the Registrar approves. … . [Emphasis added] 38 Section 29 of the 1985 Amendment Act (see [24] above) amended s 155, in consequence of which s 155 assumed the form with which we are presently concerned. The principal purpose of the amendments in 1985 was to set out "the necessary qualifications for registration": see the Explanatory Memorandum accompanying the Bankruptcy Amendment Bill 1985 (Cth) at par 103. This purpose does not bear on anything presently under discussion. The introduction of subs 155(3A) and the consequential amendment to subs 155(1) did not affect any substantive change to the provision as it previously stood. 39 Section 155, as it stood in 1966, had its genesis in earlier legislation. The 1924 Act (see [24] above) included a predecessor provision. On its enactment, s 126 of the 1924 Act provided: (1) Any person may apply to the Court in the prescribed manner to be registered as qualified to act as a trustee. (2) The Court may, if it thinks fit, on the applicant entering into a bond in the prescribed amount and manner, by order direct that he be registered as so qualified. (3) On such order being made, the Registrar shall keep a record of the registration, and shall issue to the applicant a certificate of registration in the prescribed form. (4) The Court may, at any time, cancel any such registration. (5) No person (except an official receiver) who is not registered, shall be capable of acting as a trustee. For present purposes, there were no material amendments to s 126 of the 1924 Act prior to the repeal of that Act by the Bankruptcy Act 1966 (Cth), s 4, Sch 1. In 1962, the Clyne Committee Report recorded that the provisions concerning the appointment of trustees (which included the bond requirement) in the 1924 Act were "generally satisfactory", and suggested that "only minor alterations should be made": see par 239. 40 The Act in its original form and the 1924 Act both required a person to give personal security (specifically a bond) as a condition of being registered as a trustee of bankrupt estates. This context indicates that the requirement for the trustee to enter into a personal bond as a condition of registration was designed, at least in part, to ensure that the trustee fulfilled his obligations with respect to the estates under his control. Indeed, the words "security" and "bond" commonly bear this meaning: Oxford English Dictionary (2nd ed); also Handevel at 196-7 per Mason, Wilson, Deane and Dawson JJ. 41 The applicants' fundamental submission that a trustee's bond under s 155 is in the nature of a performance bond is consistent with the statutory context in which the bond was given and received and the statutory history to which I have thus far referred. The trustee has good reason to perform his duties properly, for failure to do so renders the bond effective. The applicants' submission is also compatible with the terms of the trustee's bond: see [33] above, pursuant to which the first respondent expressly bound himself to pay to the second applicant the sum of $100,000, although in the event that he well and sufficiently performed his duties as trustee, the bond was void. There is no dispute that the first respondent did not perform his duties as trustee well and sufficiently and, accordingly, on its terms, the bond is "of full force and effect". If, as the applicants contend, the trustee's obligation under the bond is absolute, then the first respondent is obliged to pay the sum of $100,000 to the second applicant, unless the claim is statute-barred. In this event, the fact that the first respondent made restitution to the estates from which he had earlier misappropriated monies is not to the point; and, indeed, such a conclusion is consistent with the orders made by Drummond J in Re Smith. For reasons that appear below, however, I am not persuaded that this analysis is correct. As the respondents noted, in Re Smith Drummond J had no occasion to consider the matters raised by them in this case. 42 The requirement for a surety or sureties has a different purpose to that of the trustee's bond, i.e., to ensure that any money claim arising from a breach of the condition of the trustee's bond is met, if not by the trustee, then by his surety. This is also consistent with a further legislative object - to ensure that there is a fund available to compensate for loss consequential upon the trustee's breach and failure to pay. If so, the legislative objects of the bond requirement are in effect twofold: to encourage the trustee to fulfil his obligations as trustee and to provide a source of monetary compensation for the loss occasioned by any breach. For reasons that appear below, this is the preferred analysis. 43 I commence with the position of the surety for the trustee. Leaving aside the issue of revocation and statutory limitation, the second respondent bound itself to pay the sum of $100,000 to the second applicant as surety for the first respondent upon the basis that the bond was to be void if the second respondent paid to the second applicant "such sum or sums (not exceeding $100,000.00 either in one sum or in the aggregate) as the [first respondent] may become liable to pay under his … bond and fails to pay to the Commonwealth": see [34]. Again, there is no dispute that the second respondent failed to make any such payment and, in consequence, on its terms, the second respondent's bond is also "of full force and effect". It follows, so the applicants would have it, that the second respondent is also liable to make the payment of "such sum or sums" as the first respondent has become liable to pay and has failed to pay. If the trustee's obligation under his bond were absolute, then it would follow that the surety would be bound to meet the trustee's undischarged liability of $100,000, subject to relevant defences. The language of the surety's bond does not, however, support the applicants' case in this regard. 44 As the respondents submit, the language of the surety's bond contemplates that the trustee may become liable for a lesser sum upon breach of the condition of the bond, and restricts the surety's liability to the shortfall. The language of the surety's bond sits ill with the applicants' submission that the full amount of the bond is payable by the trustee on a breach of the condition of the bond and, thus, by the surety upon the trustee's failure to pay. This language is supportive of the respondents' case that the trustee's liability under his or her bond is not absolute; and that, even if a purpose of the bond is to secure due performance as trustee, a trustee who breaches the condition is to be called on to pay only in respect of such compensable loss (not exceeding $100,000) as arises from the breach. 45 Mason and Wilson JJ observed in AMEV-UDC at 186: The doctrine of penalties has pursued such a tortuous path in the course of its long development that it is a risky enterprise to construct an argument on the basis of the old decisions. Notwithstanding this warning, the respondents, as we have seen, called in aid the doctrine of penalties, the history of which was discussed in AMEV-UDC, at 183-194 per Mason and Wilson JJ and at 197-199, 201-202 per Deane J: see also A W B Simpson, "The Penal Bond with Conditional Defeasance" (1966) 82 Law Quarterly Review 392; and C J Rossiter, Penalties and Forfeiture (Sydney, Law Book Company Ltd, 1992). As will be seen below, an examination of the introduction of the bond as a statutory requirement in insolvency legislation in the nineteenth century demonstrates that the doctrine of penalties is relevant in construing the purpose of the bond in contemporary legislation. Of course, the origins of the use of a bond in this and related contexts stretches back well before the nineteenth century, but, for present purposes, it is unnecessary to delve deeper into its history. 46 Typically, a penal bond (i.e., a bond to which the doctrine of penalties may be applicable) contains an obligation to pay the stated penalty in the event that the condition of the bond is not fulfilled. In Geraldton Food Distributors Pty Ltd v Spencer [1985] WAR 261 ("Geraldton") at 276, Brinsden J succinctly stated the point that the respondents sought to make in this case when he said, "Courts of Equity have intervened to relieve against penalties cutting them down to the actual damage sustained since the seventeenth century". 47 In his dissenting judgment in AMEV-UDC at 199-200, Deane J explained the development of the doctrine of penalties in the following terms: While the rules relating to penalties developed as part of the broad equitable jurisdiction to relieve against forfeiture … they are properly to be seen, under a Judicature Acts system, as distinct rules dealing with a particular category of case. The general area in which they are applicable is where there exists a contractual liability (whether under seal or for consideration) to pay or forfeit an amount or amounts either on or in default of the occurrence of an event which can be seen, as a matter of substance, to have been treated by the parties as lying within the area of obligation of the party liable to make the payment in the sense that it is his or her responsibility to ensure that the specified event does or does not occur and where the stipulated payment contains an element of compensation for the economic loss or damage which might be sustained by the other party by reason of the particular occurrence or default. It is within that general area that a liability to pay or forfeit money may be discerned, as a matter of substance, as going beyond any genuine pre-estimate of damage and as representing a penal sanction or security against the occurrence or non-occurrence of an event which the obligor and obligee have seen as falling within the responsibility of the obligor. There, the particular rules relating to penalties are applicable to determine the enforceability of the liability to pay or forfeit the designated amount regardless of whether there was any distinct contractual condition or warranty that the event would or would not occur. There, if the liability is unenforceable as a penalty and the quantum of damage sustained is ascertainable, a court can give a monetary recompense or compensation for what the obligee primarily expected or desired, namely, the occurrence or non-occurrence of the particular event … . 48 At 202-203, his Honour explained the effect of the Statute of William III (8 & 9 Wm. III c. 11, s 8) on the development of this aspect of the law: The effect of the statute of 1696 [the Administration of Justice Acts of 1696 (8 & 9 Wm. III c. 11, s 8)], as subsequently applied and developed by common law courts, was summarized by Bailhache J in Wall v Rederiaktiebolaget Luggude [[1915] 3 KB 66, at p 72]: "in an action upon a bond (and this includes a penalty clause in a contract) conditioned for the performance of a contract the plaintiff must assign a breach, or as many breaches as he thinks fit, of the condition, and though he is entitled on proving a breach to judgment for the full amount of the penalty he can only recover by execution the amount of the damages proved to have been sustained by the breach or breaches [i.e. of the condition] assigned. The result of suing for the penalty [i.e. 'in archaic phraseology to sue in debt' …] is therefore that the plaintiff recovers proved damages, but never more than the penal sum fixed."(Emphasis added.) Regardless of whether the statutory provisions are seen as essentially substantive or as essentially procedural, it would seem plain enough that, under that effect and instigation, the general position was established by the mid-eighteenth century that a contractual obligation to make payment of a penalty was unenforceable at common law but only to the extent that the amount payable exceeded the quantum of relevant loss or damage which could be proved to have been actually sustained. 49 Geraldton provides a contemporary illustration of an attempt to invoke the equitable doctrine in connection with a penal bond. The appellants, who were land developers, entered into a bond with the Commissioner of Soil Conservation to secure the appellants' performance of certain work, which they later failed to perform. Amongst other things, the appellants argued that the money payable under the bond was a penalty. They cited Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1915] AC 79 at 87 per Lord Dunedin and Lord Elphinstone v Monkland Iron and Coal Co Ltd (1886) 11 App Cas 332 at 342 per Lord Watson, in support of the proposition that there was "a presumption (but no more) that it is a penalty when a 'single lump sum is made payable by way of compensation, on the occurrence of one or more or all of several events, some of which may occasion serious and others but trifling damages'". In relation to this submission, Burt CJ said at 267-268: Assuming for the moment that this is a case in which equity would relieve against the bond because … the amount payable under it is a penalty … then the measure of … damage would be the cost of doing the work which the company should have done and the respondent, probably within the range of the penalty, would be entitled to recover those damages. … This ground, however, gives rise to other considerations. I am of the opinion … that the Statute 8 & 9 Will III c 11 s 8 … is part of the substantive law of this State for the same reason as it was held in 1908 to be part of the substantive law in New Zealand. Moore v Orford (1908) 27 NZLR 577. If that be so then the bond …, if as the appellants contend the bond is one securing the performance of several covenants, is a bond falling within that section. That Act: 'allowed a plaintiff suing successfully on a penal bond to enter judgment for the whole sum, but provided that he should state the breaches and restricted him from recovering more than he proved as damages. The judgment as to the balance secured him against further possible breaches'. Seldon Society v Nottingham's Chancery Cases Vol 11 at p 29. … The practice under that statute is set out in Bullen & Leake (3rd ed), at p 115 and the order made by the trial judge as appears in the report of Waterside Workers' Federation of Australia v Stewart (1919) 27 CLR 119 at 121, seems to be consistent with that practice. … 50 The respondents' case here is very similar to that of the appellants in Geraldton. The appellants in Geraldton ultimately failed, amongst other reasons, because neither the Chief Justice nor Brinsden J considered that equity would intervene in the case, the bond being of the kind used by governments to ensure compliance with statutory obligations. As we have seen, the applicants also submitted here that the respondents' invocation of the doctrine of penalties should fail for this and other reasons. 51 The history of penal bonds shows that bonds entered into in a commercial context or for a commercial purpose may attract different considerations from bonds made pursuant to statute. Apart from the provision presently under consideration, there are other statutory provisions that require security, at least in part to secure compliance with the statute: see, e.g., Bounty (Books) Act 1986 (Cth), s 21. A breach of such a security may not result in loss to the obligee, which is of a kind that is compensable in money: see also Geraldton; and Golden Bay Realty Pte Ltd v Orchard Twelve Investments Pte Ltd [1991] 1 WLR 981. 52 Thus, in Geraldton, Burt CJ rejected the appellants' attempt to rely on the equitable doctrine, in the following passage at 268: [T]he assumption which I have so far made, it being that the respondent suffered damage by reason of the company's failure to perform, does not seem to me to be sustainable on the facts. As I have said, the agreement lacks mutuality. The respondent paid no price for the appellant's promise and the respondent did not by that agreement agree to do anything. … [I]t can be seen that the bond stipulates as its condition the doing of acts which if not done, would cause no damage or loss to the obligee although clearly the non-performance by the company of what it had agreed to do would defeat the policy of the Town Planning and Development Act 1928. Bonds of that kind are used by governments and by the agencies of government to give effect to policy considerations arising under statutes which they are called upon to administer and they are not rare and they give rise to the question whether equity has any reason or any power to relieve against them. In my opinion, which again I have formed without hearing argument on the question, it has not. Brinsden J, like the Chief Justice, referred to the commentary in Meagher, Gummow and Lehane (on which the applicants also relied: see [18] above) and concluded that equity would not intervene in such a case: 276-277. 53 Courts in the United States also recognise that the considerations relevant to statutory and commercial bonds may differ. Williston on Contracts (R Lord, Williston's A Treatise on the Law of Contracts (4th ed, West Group, 2000) vol 14 s 42:16) states: Where the law imposes by statute a penalty for the doing or failure to do a particular act, it is no defense that the failure has not caused damages equal to the statutory penalty, and the wrongdoer is liable for the full penalty, if, under the authority of law, a bond is taken to secure performance. This principle … has been applied whenever the penalty or forfeiture is inflicted by the sovereign for a breach of law, or when the bond is given to a public body as a condition of a privilege. 54 A L Corbin in Corbin on Contracts (Interim Edition, Newark, LexisNexis, 2002) vol 11, s 1056 describes the applicable principles in less absolute terms, saying: The fact that the bond is a governmental one is not in itself decisive. The state, as well as an individual citizen, may accept a bond as security for the payment of customs duties or other money debts, or as an indemnity against pecuniary losses by official defalcation. In every case the statute authorizing the taking of the bond in suit must be examined, not only to determine the purpose for which the bond was given, but also to discover whether the legislature has made provision for the extent of the remedy and for the burden of proof. 55 Returning to the present case, it seems to me that the mere fact that a bond is required by statute is not determinative of the purpose and operation of the bond. Rather, the operation of the bond and its purpose will depend on the governing statute. 56 In this case, three considerations indicate that the equitable doctrine does not apply to a trustee's bond under s 155 of the Act as it stood in 1986. First, as already noted, the bond is a condition of the trustee's registration. Under s 126(2) of the 1924 Act, a prospective trustee was required to enter into the bond before the Court would direct his registration as trustee, having regard "not only of his experience and competence as an accountant, but also of his honesty and good repute, and of his ability, as such, to command and retain the confidence of the Court, of the creditors and debtors in a bankruptcy proceeding, and of the general community": see Re Humphreys and Walter (1931) 3 ABC 254, at 258 per Lukin J, cited in A J Eastman and J Malor, McDonald, Henry and Meek's Australian Bankruptcy Law & Practice (2nd ed, Law Book Company, 1940) at 457-458. Subsection 155(3A) of the Act as it stood in 1986 emphasised a number of these attributes by making express provision for them. The bond requirement clearly serves a public purpose by encouraging the trustee to administer the estates under his control in accordance with law and, perhaps, also by encouraging community confidence in the office of trustee. 57 Secondly, the registration of a trustee for the purpose of administering bankrupt estates is akin to a public privilege like that conferred upon permit-holders and licensees. Registration entitles trustees to exercise particular statutory powers and to be remunerated for their work as registered trustees. The bond may thus be regarded as a security for the proper conduct of a person in a quasi-public office and designed to serve the policy objectives underlying the Act. Thirdly, the condition of the bond is the due performance of duties as trustee. Payment under the bond might therefore be considered a penalty for a breach, in circumstances where equity would not afford relief. 58 Notwithstanding these considerations, I am persuaded that the legislative intention was to permit recovery under the bond for compensable loss suffered through the trustee's default. I have reached this conclusion having regard to: the long history of the statutory bond requirement; the fact that the relevant statutory language has altered very little over time; and the original purpose of the bond, which is consistent with the Act and the Rules in 1986 and Forms 29 and 30 as then prescribed. 59 For present purposes, the relevant legislative history stretches back to the nineteenth century and makes plain the nature of the bond and the legislative purposes it was to serve. As noted above, I do not intend to suggest that the history of the bond requirement commences in the nineteenth century: it clearly has much earlier beginnings, although it is unnecessary to explore them here. Section 126 of the 1924 Act had its counterparts in earlier State legislation: see Insolvency Act 1915 (Vic), sub-ss 74(2) and (5); Bankruptcy Act 1898 (NSW), sub-s 88(2); Bankruptcy Act 1892 (WA), sub-s 20(2); Insolvency Act 1874 (Qld), sub-s 92(2); and Bankruptcy Act 1870 (Tas), sub-s 13(2). Sub-sections 74(2) and (5) of the Insolvency Act 1915 (Vic) stated: (2) Every person appointed to fill the office of trustee shall give security in manner hereinafter mentioned to the satisfaction of the court, and the court may upon the acceptance in writing of office by the trustee and on being satisfied that he is duly registered as required by this Act and that the requisite security has been given make an order confirming his appointment. … (5) The following rules as to security to be given by a trustee shall be observed, namely: - (a) The security shall be given to such officers or persons and in such manner as the court from time to time directs. (b) It shall not be necessary that security shall be given in each separate matter; but security may be given either specially in a particular matter or generally be available for any matter in which a person giving security may be appointed as trustee. (c) The court shall fix the amount and nature of such security and may from time to time as it thinks fit either increase or diminish the amount of special or general security which any person is to give. (d) The court may on the application of any person interested direct that the security be enforced or realized and the proceeds applied in such manner as the court thinks just. 60 In Victoria, the forerunner of this provision is to be found in the Insolvency Act 1897 (Vic). Pursuant to s 17 of this Act, application for registration as trustee was made to the court and the provision of security was a condition precedent to an order for registration. Pursuant to r 338 of the Insolvency Rules 1898 (Vic), an applicant for registration was required to enter into a bond to enure for the benefit of the Official Accountant. If the bond were general, it was "taken in a penal sum" and, in all other cases, it was "in a penalty" amount (r 339). See W H Lewis, The Insolvency Law of Victoria (Melbourne, Charles F Maxwell, 1899). 61 Pursuant to r 347 of the Insolvency Rules 1898 (Vic), which seems to have drawn on s 8 of the Statute of William III (see [48] above), the court could order the bond to be assigned in the event of breach and the assignee was entitled to recover the full amount of the bond as trustee for all persons interested. The Rules made under the 1924 Act adopted this model (see below). The effect of s 8 of the Statute of William III was that a plaintiff suing on a penal bond might obtain judgment for the whole amount of the bond, but that execution was restricted to recovering the damage suffered by reason of a specified breach or breaches, with judgment as to the balance to be held as security for further breaches: see also C J Rossiter, Penalties and Forfeiture, at pages 11-12. 62 The Insolvency Act 1897 (Vic) was prompted by a large number of contemporary bankruptcies, as appears from the discussion in the Victorian Legislative Council concerning the Bill in 1897 and a near identical Bill in the preceding year: Parliamentary Debates, Legislative Council, 29 June 1897, page 58 et seq; 17 November 1896, page 3343 et seq. At page 3344, in the course of the second reading of the 1896 Bill, the relevant Minister spoke of the abuse of office by the trustees of bankrupt estates, saying: [T]rustees of this class are actuated simply by a desire to get all they possibly can out of an estate; they do not look to the interests of creditors, and there is no proper check or proper control over them. … Thousands and thousands of pounds have been lost to the creditors of various estates by the manner in which trustees have been allowed to go on taking the money belonging to the estate … One of the objects of this Bill is to prevent a repetition of these abuses. … [O]ne of the disadvantages of the state of the law which became clear … was this - that the trustee was under no obligation whatever to give any security, and, although the Judge might make an order that he should restore certain of the funds, the trustee may now not be in a position to do so, and the creditors may get little or no advantage from His Honour's decision. It is partly to meet cases of that kind that this Bill has been brought forward. 63 As these Parliamentary Debates made clear, the legislation in Victoria derived from England. Section 14(2) of the Bankruptcy Act 1869 (UK) (32 & 33 Vict c 71) provided that a meeting of creditors appointing a trustee was also to declare what security was to be given and by whom. The Insolvency Statute 1871 (Vic) introduced a similar provision, as did other legislation current in Australia at the time: see F G Duffy and H B Higgins, The Insolvency Statute 1871 (Melbourne, McCarron, Bird & Co, 1882). Subsequently, s 21 of the Bankruptcy Act 1883 (UK) required that a person appointed by a meeting of creditors to be a trustee "shall give security in manner prescribed to the satisfaction of the Board of Trade". Rule 342 of the Bankruptcy Rules 1886 (UK) made provision for security in essentially the same terms as later made by sub-s 74(5) of the Victorian Insolvency Act 1915, set out at [59] above. Rules 38 to 46 of the 1886 UK Rules made general provision for securities under the 1883 Act and provided, in r 39, that, subject to consent, the "bond shall be taken in a penal sum, which shall not be less than the sum for which security is to be given, and probable costs". There was a similar provision in the case of a deposit in lieu of a bond (r 40): see generally G Y Robson, A Treatise on the Law of Bankruptcy (6th ed, London, Reeves and Turner, 1887). 64 In contrast with the Victorian Insolvency Act 1915, the first Commonwealth bankruptcy statute, which was the 1924 Act, said very little about the details of the trustee's security. It was the Rules made under the Act that set out the requirements for the bond. Thus, the 1928 Rules, which were made under the 1924 Act, specified the amount and manner of the bond required by s 126(2) and introduced the requirement for sureties: see the 1928 Rules, rr 346-349. In particular, r 346 provided: (1) The bond to be entered into by the applicant under sub-section (2.) of section 126 of the Act shall be in a penal sum of Ł2,000, and shall be executed to the Registrar to enure for the benefit of the Registrar for the time being with two sufficient sureties to be approved by the Registrar, conditioned for the faithful and sufficient performance and execution from time to time of all and singular the duties required of him as trustee by the Act or these Rules. (2) The bond shall be in accordance with Form 91. [Emphasis added] Although the precise language of Form 91 differed from that prescribed in Form 29 of the Act as it stood in 1986, the substance, including the condition of the bond, was the same. 65 Sub-rule 349(4) of the 1928 Rules provided for assignment of the trustee's bond by court order. Sub-rule 349(4) stated: The Court may, on application made on motion in a summary way, and on being satisfied that the condition of any such bond has been broken, order the Registrar to assign the bond to some person to be named in the order, and that person, his executors or administrators, shall thereupon be entitled to sue upon the bond in his or their own name or names as if the bond had been originally given to him, and shall be entitled to recover thereon as trustee for all persons interested the full amount recoverable in respect of any breach of the condition of the bond. I note that this sub-rule contemplated that an assignee of the bond would recover on the bond "as trustee for all persons interested the full amount recoverable in respect of any breach of the condition of the bond". As noted above, this followed r 347 of the Victorian Insolvency Rules 1898, which drew upon s 8 of the Statute of William III. 66 Although the 1934 Rules made more detailed provision for the trustee's bond than the 1928 Rules, the essential character of the bond remained the same: compare rr 417-427. Rule 420 provided that the trustee's and the surety's bonds were to "enure for the benefit of the Registrar for the time being of the Court to which the application is made or his assigns". As under the 1928 Rules, r 423 of the 1934 Rules provided that, upon assignment of the trustee's or surety's bond, the assignee could sue and recover the full amount recoverable in respect of any breach of a condition of the bond. Under the 1934 Rules, the assignee was directed in some circumstances to make a payment into the Consolidated Revenue Fund of "any amount expended by the Commonwealth in ascertaining the loss sustained by an estate" and "otherwise to hold as trustee for all persons interested the amount recovered in respect of any breach of a condition of the bond": see r 423(a) and (6). Rule 424, which concerned the surety's bond, expressly limited the right to recover by execution to "the amount of the damages sustained by the breach or breaches assigned". Under r 424, the balance of a judgment was to remain as a further security to answer for such damages as sustained by any further breach. 67 The 1934 Rules also introduced Form 91A, which provided for the form of security to be given by a surety or sureties. Amongst other things, Form 91A stated that the condition of the bond was that, "if whenever" the trustee failed to pay any sum of money for which he was accountable by virtue of his office, then the surety: shall pay to the Registrar for the time being of the said Court or his assigns within forty-two days after the making by the said Registrar or his assigns of a demand therefore all or any of the following amounts namely - (1) an amount equal to the sum the Trustee has so failed neglected or omitted to account for apply pay transfer or deliver up; (2) … (3) any other amount which the Trustee is ordered to make good to any estate in consequence of such failure neglect or omission; and (4) any amount incurred by the Commonwealth in ascertaining the loss sustained by any estate in consequence of such failure neglect or omission. then the abovewritten bond shall be void otherwise it shall remain in full force and effect: Provided always and it is hereby agreed and declared- (1) that the total cumulative liability of the [surety/sureties] under this bond … shall not in any event exceed Two thousand pounds … . Under this form, the surety's liability was distinctly limited to the shortfall of any amounts already paid by the trustee. In contrast with Form 30 as prescribed in 1986, Form 91A expressly extended the surety's liability to certain compensable loss to the Commonwealth, being any amount incurred by the Commonwealth in ascertaining the loss to an estate in consequence of the trustee's failure to pay. 68 Notwithstanding the differences in the prescribed forms for sureties and other differences concerning trustees' bonds, it is striking how little the terms of the governing statutes altered between 1924 and 1986 and how much the 1924 Act drew upon much earlier legislation. The requirement for bonds from a trustee and a surety as a condition of registration as trustee has, it seems, been a long-standing feature of Australian bankruptcy law. The rules made under the 1924 Act showed, as clearly as could be, that, to quote from N S Young, Bankruptcy Practice in Australia (2nd ed, Sydney, Butterworth & Co, 1951) at page 97: The purpose of the bonds is to ensure that a fund will be available for any persons defrauded, if the trustee should default in the course of administering estates. 69 Until the repeal of the 1924 Act, it was abundantly clear that the purpose of the bond was not merely to encourage performance by a registered trustee of his duties and to secure the Commonwealth against non-compensable loss in connection with related policy objectives. Rather, up until this time, it was plain enough that the purpose of the trustee's bond (supported by a surety or sureties) was to provide an indemnity against pecuniary losses sustained by reason of the misconduct of a registered trustee. In general terms, recovery under the trustee's bond was limited to the loss occasioned by the relevant breach. 70 The mere absence from the Act and the Rules, as they stood in 1986, of provisions such as r 349(4) of the 1928 Rules and rr 423-424 of the 1934 Rules does not show that the legislature intended to abrogate these well-established principles. There are a number of matters that point to the contrary conclusion. 71 First, there is nothing in the drafting of s 155 of the Act as introduced in 1966 or as it stood in 1986 that indicates a change in the legislative purpose. The terms of the legislation pursuant to which, until recently, a bond was required as a condition of registration as trustee were virtually unaltered from the 1924 Act: compare s 126(2) of the 1924 Act. 72 Second, there is nothing in the relevant extrinsic material to show that a wholesale change in the purpose of the bond was intended and, indeed, the Clyne Committee Report is to the contrary. 73 Third, as already noted, the requirement for a surety or sureties is entirely consistent with the fact that the trustee's bond is intended to provide a fund to indemnify against compensable losses upon the trustee's default. 74 Fourth, as already noted, the prescribed form of the surety's bond - used by the second respondent in the instant case - confirms this interpretation: see [43]-[44] above. The language of the bond derives, of course, from prior Rules and Forms, and these prior Rules and Forms expressly contemplated recovery only to the extent of the loss sustained. 75 Fifth, on enactment in 1966, s 30(1) of the Act affirmed that the Court had full power to decide all questions in any case of bankruptcy, as defined in s 5(1), coming within the cognisance of the court and that it might "make such orders (including declaratory orders and orders granting injunctions or other equitable remedies) as the Court considers necessary for the purposes of carrying out or giving effect to this Act in any such case or matter". Section 30 would apparently operate to permit the Court to give effect to the doctrine of penalties (as discussed at [45]-[48] above) at least to the extent that the Court permits recovery only in respect of loss sustained by a breach of the condition of the bond. 76 Sixth, s 23 of the Federal Court of Australia Act 1976 (Cth) confers discretion on the Court in relation to the forfeiture of bond money analogous to the discretion discussed by Foster J in Schoenmakers in relation to the estreatment of a recognisance under the Extradition Act 1988 (Cth). A relevant consideration in the exercise of the discretion conferred by s 23 is the character and purpose of the bond as shown by its legislative history, which evidences the relevance of the doctrine of penalties. 77 Seventh, the applicants' reference to s 176 of the Act as it stood in 1986 does not assist them. In substance, in the Act as it stood in 1986, s 176 provided that, where the Registrar formed the opinion that a trustee may have been guilty of breach of trust in relation to a bankrupt's estate, the Registrar could apply to the Court for an order that the trustee make good any loss that the estate sustained by reason of the breach. Although s 176 was amended after 1986, it continues to confer such power on the Court. An examination of the legislative history of s 176 confirms that something very like this provision was a part of the early modern bankruptcy legislation. There is nothing in this legislative history to support the proposition that the entitlement of an obligee to claim under a trustee's bond was curtailed in some way by the existence of s 176 of the Act. 78 Thus, in 1986, s 176 of the Act was in similar terms to the form it took on its enactment in 1966, notwithstanding some amendment in the intervening years: see Bankruptcy Amendment Act 1980 (Cth), s 91. Section 176 derived from sub-s 146(6) of the 1924 Act, which provided that: The Registrar shall report to the Court any misfeasance, neglect, or omission on the part of the trustee, and the Court may order the trustee to make good any loss which the bankrupt's estate has sustained thereby, or make such other order in the premises as it thinks fit. Sub-section 146(6) derived from legislation in other Australian jurisdictions and from England: see Insolvency Act 1915 (Vic), s 128; Bankruptcy Act 1898 (NSW), sub-s 101(2); Insolvency Act 1874 (Qld), s 194; Bankruptcy Act 1892 (WA), sub-s 78(2); Bankruptcy Act 1870 (Tas), s 56; and Bankruptcy Act 1883 (UK) (46 & 47 Vict c 52), s 81. The Clyne Committee Report recommended no substantive changes to s 146 of the 1924 Act, which in 1966 became s 176 of the Act. 79 Accordingly, although the first respondent may be liable under his bond to pay the full amount of the bond to the second applicant, bearing in mind the character and purpose of the trustee's bond as explained above, I would make orders for the recovery only of that which is proven to be the second applicant's compensable loss. I interpolate that the respondents conceded that this compensable loss included the cost to the Commonwealth of investigating the conduct of the first respondent. This concession is consistent with the history to which I have referred, commencing with the Bankruptcy Act 1883 (UK) and including the Rules made under the 1924 Act. 80 As we have seen, the respondents contended that the applicants' case should be dismissed because the applicants did not adduce evidence quantifying the loss sustained in investigating the first respondent's conduct as trustee. I would not adopt this course. There is no dispute that the first respondent breached the condition of his bond between 1993 and 1995. The first respondent is therefore liable under his bond to pay the second applicant the amount of the bond, although the second applicant can recover only in respect of the loss it sustained by the breach or breaches. There is in fact evidence, which was adduced by the applicants at the hearing, that the second applicant incurred significant costs in the investigation and prosecution of the first respondent: see [9] above. Such costs may well equal or exceed the bond amount, although I would not so conclude in the absence of some specific evidence as to quantum. Bearing in mind the evidence the applicants have already adduced and the purpose to be served by the bond, I would not dismiss the present application before giving the applicants an opportunity to adduce further evidence - as to the quantum of the second applicant's loss.

Inspector‑General in Bankruptcy v Bradshaw

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