Jambrecina v Official Trustee in Bankruptcy

REASONS FOR JUDGMENT 1 On 1 April 2003, a sequestration order was made against the estate of the applicant ('the Bankrupt'). The petitioning creditors were Pyramid Building Society Ltd (in liquidation) ('Pyramid') and Farrow Mortgage Services Pty Ltd (in liquidation) ('Farrow'). The creditors' petition was based on a debt of $16,266.90, being the amount due under the taxation of a costs order made against the Bankrupt in one of the many unsuccessful proceedings brought by him against Pyramid and Farrow. 2 On 4 September 2004, the Bankrupt applied to the respondent ('the Trustee') for an early discharge from his bankruptcy. The application was made pursuant to Div 3 of Part VII of the Bankruptcy Act 1966 (Cth) ('Bankruptcy Act'). Division 3 has since been repealed, but continues to apply to bankruptcies, which preceded 5 May 2003. 3 The Trustee rejected the Bankrupt's application by a Notice of Determination dated 24 September 2004. The rejection was based on s 149Y(1) of the Bankruptcy Act, which provides as follows: '… a bankrupt is disqualified from early discharge if the bankrupt's unsecured liabilities exceeded 150% of the income that the trustee determines to have been derived by the bankrupt during the year immediately before the date of the bankruptcy.' 4 The Trustee gave the following reasons for rejecting the application for early discharge: 'In his Statement of Affairs the bankrupt disclosed his gross income for the year prior to bankruptcy to be $11,310.98. In respect to the application for early discharge the Official Trustee in Bankruptcy ("Trustee") has determined that the income derived by the bankrupt during the year immediately before the date of bankruptcy to be $11,311.00… Following enquiries by the Trustee the only known creditors in the bankrupt estate are the petitioning creditors, Pyramid Building Society (In Liquidation) and Farrow Mortgage Services Pty Limited (In Liquidation). The creditors' petition was based on a debt owing by the bankrupt in the amount of $16,266.90 and this is the amount disclosed by the bankrupt in his Statement of Affairs…. Information has been received by me that additional costs orders were made against the bankrupt in favour of the petitioning creditors prior to the date of bankruptcy. Details are shown in the attached copy letter from Ferrier Hodgson dated 18 November 2003 and annexures to that letter… The income of the bankrupt for the year immediately before the date of bankruptcy has been determined at $11,311.00 and 150% of that amount is $16,967.00. For the purpose of this application the Trustee determines that the total of the bankrupt's liabilities as at the date of bankruptcy significantly exceeded $16,967.00. As the unsecured liabilities exceed the amount of $16,967.00 the Trustee determines that the bankrupt is disqualified from early discharge pursuant to Section 149Y of the Bankruptcy Act 1966.' 5 The attached copy letter set out a total of thirteen proceedings in which costs orders had been made against the Bankrupt. The letter stated that the liquidators of Pyramid and Farrow had expended approximately $100,000 in legal and administrative costs defending the Bankrupt's persistent claims. (The Bankrupt has been declared a vexatious litigant in the Supreme Court of New South Wales: Jambrecina v Pyramid Building Society [2002] NSWSC 1076.) 6 Section 149ZG(1) of the Bankruptcy Act provides that if a trustee determines that a bankrupt is disqualified from early discharge, the trustee must give the bankrupt written notice, setting out the determination and giving reasons. 7 Section 149ZM of the Bankruptcy Act provides that an application can be made to the Administrative Appeals Tribunal for review of a determination made under s 149ZG(1). In fact, the Notice of Determination advised the Bankrupt that he had a right to apply to the Tribunal for review of the Trustee's decision. 8 The Bankrupt chose not to take this course. Instead he applied to this Court pursuant to s 178(1) of the Bankruptcy Act for two orders: (i) an order directing the Trustee to grant the Bankrupt an early discharge from bankruptcy; (ii) an order directing the Trustee to assign to the Bankrupt a cause of action. The application did not identify the cause of action that was to be assigned. However, an affidavit read by the applicant attached a draft statement of claim alleging fraud and deceit by the liquidators of Pyramid and Farrow and their counsel in previous proceedings. Be that as it may, there is no evidence that the Bankrupt has ever made a request to the Trustee to assign any particular cause of action. 9 Section 178(1) of the Bankruptcy Act provides as follows: 'If the bankrupt, a creditor or any other person is affected by any 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.' As to the exercise of the power conferred by s 178(1), see Re Tyndall (1977) 30 FLR 6, at 9-10, per Deane J; Re Wheeler; Ex parte Wheeler v Halse (1994) 54 FCR 166, at 169-170, per Lee J. 10 The Bankrupt's written submissions indicated that the basis of his application under s 178(1) of the Bankruptcy Act decision was that the Trustee had erroneously determined that he (the Bankrupt) was disqualified under s 149Y(1) from obtaining early discharge from bankruptcy. In particular, the Bankrupt pointed out that the debt on which the sequestration order was founded was slightly less than 150 per cent of his income for the relevant year. 11 The Bankrupt's written submissions overlooked the fact that costs orders had been made against him in the other proceedings listed in the letter attached to the Notice of Determination. This oversight may have occurred because the copy of the Notice of Determination annexed to the Bankrupt's affidavit was incomplete. Whatever the explanation, when the oversight was pointed out, the Bankrupt accepted that numerous costs orders had been made against him and that the total amount due by him under those costs orders greatly exceeded $16,967. He also accepted that he had been disqualified from obtaining early discharge by virtue s 149Y(1) of the Bankruptcy Act. 12 In my opinion, the Bankrupt's concession was correct. The various costs orders made against him, although not yet the subject of taxation, constitute liabilities provable in the bankruptcy: see s 82(1) of the Bankruptcy Act (see also s 82(4)). They are properly described as 'unsecured liabilities' of the Bankrupt for the purposes of s 149Y(1). It follows that whatever the scope of the power conferred by s 178(1) of the Bankruptcy Act, no basis for the Court's intervention in relation to the Trustee's decision has been shown. 13 Ms Nash submitted that even if the Bankrupt had a legitimate complaint, the Court, as a matter of discretion, should not entertain an application under s 178(1) when the Bankrupt, despite being advised of his entitlement to merits review in the Administrative Appeals Tribunal, had elected not to avail himself of that procedure. It is not necessary to deal with that submission. Nor is it necessary to address the appropriate form of order, had the Bankrupt succeeded in making out his complaint against the Trustee. 14 The Bankrupt also accepted that there would be no point in pursuing the second order sought in the application unless he secured a discharge from bankruptcy: see Bankruptcy Act, s 58. In any event, there was no evidence that he had made any relevant request to the Trustee and thus no evidence of any 'act, omission or decision' of the Trustee that could be reviewed under s 178(1) of the Bankruptcy Act. 15 The application must be dismissed, with costs. I certify that the preceding fifteen (15) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Sackville.