Labocus Precious Metals Pty Ltd v Thomas

1 I have taken the course of giving oral reasons as soon after completion of the hearing in this matter as other commitments have made possible. These are the settled reasons of the oral reasons delivered on 2 August 2007. 2 The applicants complain about the conduct of the trustee of the estate former bankrupts, the second and third respondents. The applicants' essential complaint is that they, in particular the first applicant, have lost the opportunity to buy some valuable real estate which formed part of the estate of the bankrupts. The second applicant, Mr Michael McGurk, is an astute man who can for the purposes of these proceedings relevantly be described as a property developer. The first applicant, Labocus, is a corporate vehicle controlled by him and which was the proposed purchasing entity of the land in question. The former bankrupts, two brothers, Messrs Milton and Glen Naylor, were farmers who worked the subject land in Perthville not far from Bathurst. Mr Hugh Thomas was the former trustee in the bankruptcies of the Naylors and now is the trustee of a composition of the Naylors, the validity of which is the subject of this proceeding. 3 An explanation of the issues in the case can conveniently await an outlining of the essential facts. 4 Prior to 25 July 2006, the Naylors were registered proprietors of various parcels of land at Perthville. The land in question is described by Real Property Act 1900 (NSW) and Land Title Office references in the cross-claim, and is described on pages 12 and 13 of the Report to Creditors prepared by Mr Thomas as bankruptcy trustee as follows: The subject property at Perthville… comprises 31 titles of which 5 are perpetual leases and therefore not owned, 24 joint freehold titles, one title (lot 166) formerly in the name of Glen Naylor and another lot 1 DP 244818, the proprietors being the parents and Milton Naylor (1/3 interest) 5 By a sequestration order made on 11 April 2006, each of Messrs Naylor became a bankrupt. Mr Thomas became the trustee of their separate estates and their joint estate. In due course, Mr Thomas became registered proprietor of the land by conversion applications. 6 The creditors of the three estates were set out conveniently in annexure E to the Report to Creditors, which is Annexure A to these settled reasons. The land was the major asset of the Naylors. It was their family farm and one can infer a clear emotional involvement by the Naylors in their bankruptcy. One of the witnesses referred to it as a "challenging bankruptcy". By all the evidence, the Naylors were difficult to deal with and made the administration of the estate by Mr Thomas more difficult than it needed to be. 7 Mr John Fagan of Raine and Horne, a local real estate agent, was appointed to sell the land. An auction occurred on 7 December 2006. At that auction, the reserve price was not met. A notice to give vacant possession had been issued to the Naylors on 13 November 2006 and not complied with. The Naylors, it is fair to say on the evidence, had hampered the process of sale, especially inspections, by their conduct and the condition of the land. As I said, the auction failed to reach the reserve price of $580,000. By 30 January 2007, Mr Fagan advised that the general condition of the land was "a disgrace". Proceedings for possession were commenced in February 2007 in the Supreme Court of New South Wales. In February 2007, an offer of $425,000 to buy the land came forward from interests referred to in the proceedings as the "Shute interests". Creditors were consulted and the offer was increased to $445,000. 8 On or about 16 March 2007, Mr Thomas was advised of a refinancing proposal by the Naylors in which the sum of $685,000 was to be paid leading to the annulment of the bankruptcies. The $685,000 was subsequently reduced to $620,000. Not long after 16 March 2007, Mr McGurk became aware of the property being available for sale. Mr Thomas had a conversation with a Mr Hugh, one of Mr McGurk's solicitors. In this conversation, the existing $445,000 contract was discussed and Mr Hugh asked Mr Thomas what price it would take to beat the other purchaser. Mr Thomas referred to a million dollars and laughed. This exchange, I infer, was to ensure, on Mr Thomas' behalf, that all negotiating as to the purchase price was done by the person whom he intended to undertake that task, being Mr Fagan. Nevertheless, it is important to understand that Mr Thomas had made clear to him by Mr Hugh in this conversation that Mr McGurk was willing to pay more than the existing purchaser. 9 Mr Fagan then received a telephone call from an associate of Mr McGurk, a Mr Hamish Williamson. This contact was less than constructive. Mr Fagan thought that Mr Williamson might be associated with the Naylors and thus possibly part of some further hindering activity. Given what had occurred in the past, that was not an unreasonable assumption. Mr Fagan also knew that Mrs Naylor had picked up a copy of the Shute contract not long before. Mr Fagan also formed the view that Mr Williamson was rude to him. Mr Fagan gave evidence, Mr Williamson did not. It is not necessary or appropriate for me to comment one way or the other on the politenesses or otherwise of the two gentlemen at the time, but it is sufficient to note that Mr Fagan, who gave evidence, was not likely to be one to step backward too easily in such an exchange. 10 Mr Fagan shortly thereafter spoke to Mr Hugh. This conversation took place after Mr Fagan and Mr Thomas had spoken about Mr Fagan's first conversation with Mr Williamson. Mr Fagan had been asked by Mr Thomas to treat the coming inquiry that he anticipated as one which was not from the Naylors, but which, Mr Fagan should assume, was genuine. In this later conversation that Mr Fagan had with Mr Hugh, an offer price of $485,000 was reached. It is of some importance to understand how this came about. Mr Fagan, whose evidence I accept, when asked what price would get the property, in effect, tendered the price of $485,000. It was not a price bargained down from the reserve to extract what Mr Fagan could expect to understand at the time would have been the highest possible offer from Mr Hugh. There was no basis for Mr Fagan to think that this was the highest bid that Mr McGurk would ever make, but it was the price struck for a bargain to sell the land. 11 Mr Fagan later told Mr Thomas this when Mr Fagan reported the conversation. It is fair to say, and I am not the slightest bit critical of Mr Fagan (it had not been an easy bankruptcy for him either) that Mr Fagan was slightly embarrassed in the witness box that he had not done a particularly rigorous job in bargaining for the purchase price. At the same time, his view was that it was probably a fair value of the land, certainly $40,000 above an existing contract. Thus, both Mr Thomas and Mr Fagan knew how the $485,000 had been reached and neither had a basis to think that it was Mr McGurk's absolute limit, if that issue came up for consideration. (In fairness to both gentlemen, neither said as much in their evidence.) Thereafter, negotiations, including as to special conditions and deposit, continued and contracts were exchanged on 5 April 2007. Completion was conditional on creditors' approval. 12 On 1 May 2007, Mr Thomas wrote to the creditors with the Report to Creditors to which I have referred and a notice of meeting for 11 May 2007, at which the creditors could consider whether or not to authorise proceeding with the McGurk contract for the Perthville land. By that time, there was also a proposal from the Naylors, said to be under s 73 of the Bankruptcy Act 1966 (Cth). The Report to Creditors was one document. There was one notice of meeting, but for each of three meetings, being the meetings of the creditors of the joint estate and the two single or several estates. There were proxy forms and statements of claim and the Report to Creditors was the third such report in the bankruptcies. The Report to Creditors gave the history of the bankruptcies. Amongst other things, it described the difficulties in the conduct of the bankruptcies. The report to creditors described the refinancing proposal, put forward by the Naylors. The trustee's comments on the Naylor's proposal were as follows: (d) Refinancing Proposal At approximately 4.55 pm on Friday 16 March the Trustee was advised of a refinancing proposal wherein funds of approximately $685,000 would be made available to the Trustee to enable the annulment of the bankruptcy of the Naylors, documentation and a proposal would be forwarded by Wednesday the following week. This sum was subsequently amended to $620,000 to allow for financing and other costs. As no confirmation or documentation had been received the Trustee corresponded to Mr M. Naylor on 21 March advising that sales negotiations had progressed to a stage whereby the Trustee proposed to enter into a Contract of Sale of the Perthville property at 12 noon the following day as the Trustee had not received any written communication from him or his advisors. The Trustee has subsequently received a draft proposal for an annulment of bankruptcy and photocopy of a letter of finance. Enquiries by the Trustee's Solicitor have revealed that there was no finance approval. Please refer to Section entitled - Section 73 Annulment Proposal. 13 The Report to Creditors then gave projected returns to creditors flowing from the McGurk $485,000 sale. By this stage of the bankruptcy, and paying off the secured creditors, $109,921 would be left for the unsecured creditors, assuming a further modest trustee's remuneration. The Report to Creditors then discussed how that $109,921 would be distributed in each estate if proportional values were attributed to each estate and s 110 of the Bankruptcy Act was followed. The Report to Creditors contained the following: At the commencement of the administration of the bankrupt estates the Trustee engaged Mr. Ralph Toyer to conduct a valuation of the Perthville real estate in its 3 holdings. Based on that valuation and the proportional values obtained attributable to each separate holding of the Trustee proposes to apply such percentages to the estimated net fund available of $109,921 which results in the following proceeds available for distribution to creditors of each of the 3 Estate:- Joint $75,383.82 Glen $34,537.18 Milton _________ $ 109,921 Accordingly, the projected estimated dividend for each estate is likely to be: - Joint Estate Proceeds $ 75,383.82 Creditors claims $249,269.66 Estimated dividend rates =30.241 c in the $ Glen Naylor Proceeds $ 34,537.18 Creditors claims (joint) $249,269.66 Estimated dividend rates = 13.855 c in the $ Milton Naylor As the bankrupt only has a 1/3 interest it is not subject to a Contract of Sale and will need to be sold separately. The estimated realisation value is under $1,000.000 Please note that the abovestated projected estimates may alter due to, for instance, the possible incurring of legal fees in obtaining vacant possession and the aforestated estimated are indicative only and subject to any unforseen problems. 14 The Report to Creditors then discussed the s 73 annulment proposal by the Naylors. That proposal was annexed to Report to Creditors and is Annexure B to these settled reasons. The trustee described the proposal in the Report to Creditors as follows: The proposal discloses that Nation Finance is to provide loan funds totalling $685,000 on the security of the Perthville properties (currently registered in the Trustee's name but formerly the bankrupts) and certain additional real estate of Sandra Naylor and Ernst and Myrtle Naylor of which the sum of $620,000 (composition amount) is to be paid to the Trustee who, after payment of the costs, charges and expenses of the Trustee in administering the bankrupt estate and composition (section 73), will distribute the balance to creditors on the basis that creditors of the Estate are treated equally for distribution purposes. The trustee then commented upon a crucial missing element in the Naylors' proposal on the same page of the Report as follows: The only missing item is a letter from Nation Finance Pty Ltd confirming the provision unconditionally of the stated funds. Until such the letter is received the Trustee, nor are the creditors, able to determine the ability to implement the terms of the proposal [sic]. The Trustee has requested provision of the letter and has received numerous assurances that the confirmation of finance is forthcoming however at the date of this report NO confirmation has been received. [emphasis in original] It is to be noted that all creditors of all three estates would be treated equally under this proposal for distribution. 15 The Report to Creditors then provided an analysis of projected returns to creditors under the s 73 proposal. The estimated total available funds for return was $259,399 as against $109,921 from the McGurk contract. This led to an estimated projected return of 80.6 cents in the dollar, or 77.53 cents if the creditors approved an ex gratia commission payment to Raine and Horne for the work done in attempting to sell the property. (The creditors did approve that payment.) 16 The trustee explained the pooling as follows: The proposal specifies that the composition amount be distributed between the combined creditors of the estates of the bankrupts (Clause 7) and that all claims by creditors of the estate of the bankrupts, whether joint or individual shall be pooled and treated equally for the purposes of the proposal (Clause 6). In other words, the creditors of the 3 Bankrupt Estates will be combined into one list of claimants and be treated equally for the purposes of the distribution in the bankruptcy. In view of the terms and conditions specified in the proposal, that creditors claims be treated equally the application of Section 110 would appear to be inappropriate. It is also noted that the composition amount is the resultant of an agreement by Nation Finance Pty Ltd to provide funds which are to be secured on the Perthville real estate formerly of the bankrupts but also on real estate owned by third parties. As third parties have provided additional securities in the form of additional real estate and additional securities by way of guarantees, it is not possible for the trustee to apply the provisions of Section 110 0f the Bankruptcy Act. Indeed the terms of the proposal do not anticipate such application. [emphasis in original] 17 It should be noted that s 110 of the Bankruptcy Act is in the following terms: (1) In the case of joint debtors, whether partners or not, the joint estate shall be applied in the first instance in payment of their joint debts, and the separate estate of each joint debtor shall be applied in the first instance in payment of his or her separate debts. (2) If there is a surplus in the case of any of the separate estates, it shall be dealt with as part of the joint estate and if there is a surplus in the case of the joint estate, it shall be dealt with as part of the respective separate estates in proportion to the right and interest of each joint debtor in the joint estate. 18 As I have already said, the Report to Creditors contained a full list of creditors broken up into the three estates and totalling in all $321,648.11. (See Annexure A to these settled reasons.) The trustee then summarised the position in the Report to Creditors as follows: 12. Summary The Report advises that there are 2 alternative proposals for creditors to consider being: (a) Accept conditional contract of sale $485,000 Or (b) Accept Section 73 Annulment proposal Based on the information set out in this report alternative (a) would appear to return to creditors of the joint estate a dividend at the rate of an estimated 30.24 cents in $ and a return to creditors of Glen Naylor's estate an estimated 13.85 cents in $. The creditors in Milton Naylor's estate would receive a very nominal return. Alternative (b) would appear to indicate a return of an estimated 80.6 cents in the $ for all creditors (ie joint & several of each estate) OR if creditors so resolve to authorise the exgratia payment to Raine & Horne, a return of an estimated 77.5 cents in the $. Creditors may have other factors which they take into account, which are unknown to the Trustee, in determining which proposal best meets their requirements. Section 73(2A) of the Bankruptcy Act requires the Trustee's report to indicate whether the proposal would benefit the bankrupts' creditors generally. It would appear that both alternatives benefit the bankrupts' creditors. Ultimately it is the decision of the creditors to decide which of the two alternatives they wish to accept. [emphasis in original] 19 Mr McGurk received none of this information. He was not a creditor. Mr McGurk was an experienced buyer and seller of land. Upon becoming aware of the availability of the land he wanted to buy it. He said in evidence, and I accept him, that he thought $485,000 was, in effect, a price reflecting very good value, in particular because of the multiple titles. He perceived the capacity to on-sell the properties. It is unnecessary to resolve some of the minor factual contents as to who said what to whom in the weeks leading up to 11 May 2007. By and large I accept Mr McGurk's evidence as truthful. There was some cross-examination of him on some aspects, in particular the content of his conversation with the valuer, but I accept in his evidence that he was well able to understand or appreciate for his own purposes what he perceived to be the value in the purchase from a general understanding of the location of the land and of its title status. 20 By late April and early May 2007, Mr McGurk was becoming anxious. On about 7 May 2007 his solicitors sought to set a day for completion of the contract. I infer that Mr McGurk's anxiety was significantly driven by the fact that he appreciated in his mind that he was getting a good deal. After Mr McGurk's solicitors sought to set a date for completion the two solicitors (that is for Mr McGurk and the trustee) corresponded. From this, Mr McGurk's solicitor and Mr McGurk became aware that a meeting of creditors had not yet been held. On 8 or 9 May 2007, Mr McGurk spoke to one of the valuers of the property who informed him that there was a proposal from the Naylors. Mr McGurk says that at this time he did not understand that the terms of the proposal of the Naylors would or might affect his sale going through. He was cross-examined on this forcefully; however, I accept Mr McGurk in his evidence in this regard. I do not think it is crucial in any event. Mr McGurk was certainly anxious. As I said, I think that anxiety arose from a desire not to see a valuable opportunity slip, if I may use the expression, "between cup and lip". He wanted to keep the pressure on the trustee, I find, to minimise the risk of the matter drifting which might allow unforseen events to intrude. On 10 May 2007, Mr McGurk spoke to Mr Fagan who said something to the following effect: I spoke to Hugh Thomas yesterday. He told me that he had received a proposal from the Naylors. The Naylors are trying to get out of bankruptcy and have to put up a proposal to do this. Thomas said to me that the Naylors' proposal had no details or any evidence of the finance they are trying to obtain. Thomas said to me that your contract will be approved by the creditors at the creditors' meeting to be held tomorrow. Hugh Thomas didn't call a creditors meeting until tomorrow as he wanted to give the Naylors time to put up the proposal to creditors as he is bound to do. 21 There was some dispute about the precise terms of that conversation together with the balance of it as contained in paragraph 39 of Mr McGurk's affidavit, but it is clear that by 10 May 2007 Mr McGurk was aware of the Naylors' proposal. There had been the conversation with the valuer and there was the conversation with Mr Fagan. On 10 May 2007, Mr McGurk's solicitors sent by facsimile marked "urgent" a letter to the trustee's solicitor in the following terms: We have your letter dated 8 May 2007 (received 10 May 2007). We note with some concern that your client has not yet "held" the creditor's meeting. In negotiating the Conditions of the Sale Contract with you, your client insisted on creditor approval and a short settlement time of 28 days-see Special Condition 63 of the Contract exchanged on 5 April 2007 (hereafter "the Sale Contract"), and in particular condition 63.2 and 63.4. In a telephone conversation this afternoon (Chaffey/Gregson) you could not confirm whether in fact a meeting of creditor's had been called by your client. The obligations of your client are clear-must [sic] seek creditor approval of the Sale Contract. We are instructed that our client has just received information that your client has a creditor's meeting scheduled for 10 am tomorrow 11 May 2007 with an Agenda of 7 items some of which are proposals alternative to and other than approval of the Sale Contract. If this is the case then we are instructed that your client is in breach of its obligations under the Sale Contract and that your client provide to us an Undertaking to only put to the Creditor's meeting the approval of the Sale Contract to our client and no other conflicting proposal. Would you provide to us details as to whether a Creditor's meeting is scheduled for tomorrow as we are instructed and provide a copy of the agenda. In the meantime we are instructed to put you on notice that our client expressly reserves its rights. 22 It is to be noted that the letter indicated that Mr Chaffey (Mr McGurk's solicitor) by that stage, late on 10 May 2007, was instructed, by Mr McGurk, that Mr McGurk had "just received information that Mr Thomas has a creditors' meeting scheduled for tomorrow [that is 11 May 2007], with an agenda of seven items, some of which are proposals alternative to and other than the approval of the sale contract". Thus, there was an appreciation in Mr McGurk (however it had arisen) by late on 10 May 2007 that there was some inconsistency between the proposals to go forward on the following day. 23 The letter adopted, and I do not say this critically, a reasonably aggressive standpoint. It can be seen from the terms of the letter that a proposition was being put that Mr Thomas was in breach of his obligations under the sale contract if there were inconsistent proposals at the meeting. I find that the letter reflected Mr McGurk's instructions, and that it also reflected his desire to ensure that he obtained the property at what he saw to be an advantageous price. Mr Thomas, thereafter, appeared to instruct his solicitor, Ms Gregson, not to respond to the letter that evening. It is fair to say, and it was accepted by Mr McGurk's senior counsel, that in the position the parties found themselves on the afternoon of 10 May 2007, that was a sensible course to take. There was no point in engaging in combative correspondence denying breaches of contract when, as far as Mr Thomas was aware, the likelihood was that the meetings would approve the sale to Mr McGurk's company, because of the inadequacies of the Naylors' then proposal, with the lack of clarity in the financing from Nation Finance. It would only be costly to engage in that. Mr Thomas already had some directed proxies to vote for Mr McGurk's contract and he intended to exercise the undirected proxies in that fashion. Mr Thomas had written on 9 May 2007 to creditors stating that as at that date the finance for the s 73 approval had not been confirmed. 24 Shortly prior to the meeting the following day, 11 May 2007, Mr Thomas was informed by facsimile by lawyers acting for the Naylors of a new financier. Nation Finance had withdrawn and the enclosed letter was described as an unconditional offer of finance. The letter was from a company called Fair Go Finance (Aust) Pty Limited having an address at a post office box in Asquith, New South Wales and the letter stated as follows: Dear Sir Milton & Glen Naylor Properties at Hen & Chicken Lane, Perthville Fair Go Finance is pleased to offer the Naylor family interests a first mortgage over the above properties for $620,000. This loan is unconditional in respect of the property. There are however, three conditions with respect to the status of Milton and Glen Naylor, namely: 1. Acceptance by the creditors of an amount of no more that $620,000 in full and final settlement of all claims against Milton and Glen Naylor; 2. Annulment of the bankruptcy; and 3. Release of all securities currently held by the trustee. The above pre-conditions must be met before settlement of this loan. Should you require any further information please contact me on [telephone number provided]. Yours faithfully 25 Mr Thomas was also given what was said to be an "amended s 73 proposal" from the Naylors. The substantial differences from the first proposal were that there was a new financier and that there was reduced security for Fair Go Finance - only Sandra Lynne Naylor's real property interest was to stand as security. I will come back to the differences between the two proposals in due course. This "amended s 73 proposal" is Annexure C to these settled reasons. 26 At 10 am on 11 May 2007, Mr Thomas convened the meetings. The meetings were held consecutively. The meetings were described in paragraphs 31, 32, 33 and 34 of Mr Thomas' affidavit as follows, which I accept. 31. On 1 May 2007, I wrote to each of the creditors of the bankrupt estates of Milton Alexander Naylor and Glen Ellwyn enclosing a Notice of Meeting of Creditors dated 30 April 2007, scheduling meetings of Creditors on 11 May 2007 (the Creditors Meetings) and including at point 11 of the agenda a resolution: "(C) Ordinary Resolution: Sale of Perthville Real estate That the Trustee is authorised and directed to proceed with the Contract of Sale dated 5 April 2007 in the sum of $485,000 to settlement." With that letter I also enclosed a Report to Creditors which included at page 9 of the report a summary of the proposal for the sale of the Land pursuant to the conditional Contract for Sale referred to in paragraph 29 of my affidavit. A copy of the letter dated 1 May 2007, the Notice of Meeting of Creditors and Report to Creditors is exhibited to this affidavit and marked "HCT 14". 32. On 9 May 2007 I wrote to the creditors of the bankrupt estates of Milton Alexander Naylor and Glen Ellwyn Naylor, advising them that finance approval relating to the Section 73 proposal from Milton Alexander Naylor and Glen Ellwyn Naylor included in the Report to Creditors referred to in paragraph 31 of this affidavit, had not been confirmed. A copy of the email to creditors dated 9 May 2007 is exhibited to this affidavit and marked "HCT 15". 33. On 11 May 2007 at 10.00 am, I convened the Creditors Meetings referred to in paragraph 31 of my affidavit. The three meetings were conducted consecutively; the first for the creditors of the joint bankrupt estates of Milton Alexander Naylor and Glen Ellwyn Naylor commenced at 10 am and was adjourned at 10.20 am, the second for the creditors of the bankrupt estate of Milton Alexander Naylor commenced immediately after the first and adjourned at 10.28 am and the third for the creditors of the bankrupt estate of Glen Ellwyn Naylor commenced immediately after the second and adjourned at 10.34 am. Other than myself, the Creditors Meetings were attended in person by my assistant, Ms Hummelstad, who took the minutes of the three meetings, by the bankrupts, Milton Alexander Naylor and Glen Ellwyn Naylor, by Sandra Naylor, and by two observers, Mr Friedlander and Mr McLaughlin. At the meeting of the creditors of the joint bankrupt estates of Milton Alexander Naylor and Glen Ellwyn Naylor two creditors, Elders and the ATO, attended by proxy by phone. I received specific proxies from NFFA and Blue Shearing. At the meeting of the creditors of the bankrupt estate of Milton Alexander Naylor, Elders attended by proxy by phone. I received specific proxies from NFFA, Blue Shearing, Buckwheat Enterprises, Avco Access Ltd and Auto Watt Pty Ltd and general proxies form PR Master Stephens & Co, Credit Corp Services Pty Ltd and AD & DR Klavins. At the meeting of the creditors of the bankrupt estate of Glen Ellwyn Naylor, Elders attended by proxy by phone. I received specific proxies from NFFA and Blue Shearing. All the proxies were tabled at the Creditors Meetings. I formed the view that there was a quorum present at each of the Creditors Meetings. 34. I informed the meetings that I had received, prior to the meetings, a facsimile from McMahons Lawyers attaching a copy of an email from Fair Go Finance, advising of the unconditional provision of finance and attaching an amended section 73 Proposal. As stated in paragraphs 31 and 32 of my affidavit, I had previously informed the creditors, by letters dated 1 May 2007 and 9 May 2007, that the finance approval had not been confirmed. Each meeting resolved unanimously to adjourn each meeting to 3.00 pm that afternoon so that I could make further enquiries to satisfy myself that the finance offer was genuine. A copy of the facsimile from McMahons Lawyers attaching the email from Fair Go Finance and the amended section 73 Proposal dated 11 May 2007 is exhibited to my affidavit and marked "HCT 16". 27 Meanwhile, Mr McGurk, not having had his solicitors' correspondence answered, rang Mr Thomas twice. He was told by the person answering the phone that Mr Thomas was not available and that a message would be left for him to ring Mr McGurk. Mr Thomas did not ring Mr McGurk. He did not return his calls on that day at all. Mr Thomas says, and I accept him, that he did not know Mr McGurk had called. There was no issue in the case that Mr McGurk had called. The office system in Mr Thomas' firm was proved in evidence before me and the only conclusion is that there was a breakdown in that system such that Mr Thomas did not have brought to his attention the messages waiting for him from Mr McGurk. Mr Thomas then described in paragraphs 35 and 36 of his affidavit what he did, which I accept and which I set out as follows: 35. During the adjournment I telephoned Mr Paton of Fair Go Finance and we had conversation with words to the following effect: Me: "Can you fax over a set of financial accounts?" Mr Paton: "I don't think so because of confidentiality and privacy issues. I'll have to check with our lawyers. We are a broker, we endeavour to place matters like this with other lenders but if we can't place it within the time required we can finance it internally." Me: "So you can pay the $620,000.00 yourselves?" Mr Paton: "Yes. We have loans of about six million dollars rolling over on short term loans." 36. Following the telephone conversation described in paragraph 35 of my affidavit, Mr Paton sent a facsimile to me outlining Fair Go Finance's procedure with regard to the provision of the proposed finance. Mr Paton then sent a second facsimile outlining Fair Go Finance's current loan assets. Copies of the two facsimiles are exhibited to my affidavit and marked "HCT 17". 28 Mr Thomas circulated the so-called amended proposal. He then spoke to a number of creditors, three in particular: Blue Shearing, Buckwheat Enterprises and National Finance (NFFA). After these conversations, these creditors decided to vote for the amended proposal. Mr Thomas also decided to change his undirected proxies vote to the amended proposal. It should be noted that Elders and the Tax Office were present at the meetings by telephone. At 3 pm, the adjourned meetings were convened. Mr Thomas in paragraphs 43 and 44 of his affidavit, which I accept, set out what happened at those meetings and that is as follows: 43. The three Creditors Meetings as described in paragraph 33 of my affidavit were reconvened consecutively from 3.00 pm on 11 May 2007. The reconvened meetings were attended in person by me, my assistant, Ms Hummelstad, who took the minutes of the meeting, by the bankrupts, Milton Alexander Naylor and Glen Ellwyn Naylor, by Sandra Naylor, and by two observers, Mr Friedlander and Mr McLaughlin. At the reconvened meeting of the creditors of the joint bankrupt estates of Milton Alexander Naylor and Glen Ellwyn Naylor two creditors, Elders and the ATO, attended by proxy by phone. I received specific proxies from NFFA and Blue Shearing. At the reconvened meeting of the creditors of the bankrupt estate of Milton Alexander Naylor, Elders attended by proxy by phone. I received specific proxies from NFFA, Blue Shearing, Buckwheat Enterprises, Avco Access Ltd and Auto Watt Pty Ltd and general proxies from PR Master Stephens & Co, Credit Corp Services Pty Ltd and AD & DR Klavins. At the reconvened meeting of the creditors of the bankrupt estate of Glen Ellwyn Naylor, Elders attended by proxy by phone. I received specific proxies from NFFA and Blue Shearing. I formed the view that there was a quorum present at each of the Creditors Meetings. I informed the meetings that during the adjournment an amended section 73 Proposal had been lodged at the Insolvency & Trustee Service Australia and the amended section 73 Proposal was tabled for inspection. 44. At the Creditors Meetings the ordinary resolution for the sale of the Land referred to in paragraph 31 of my affidavit was put to the creditors and passed by majority in the negative. At each meeting the creditors unanimously passed a special resolution: "That creditors accept the terms and conditions of the proposal dated 11 May 2007 from MA & GE Naylor wherein the sum of $620,000 (composition amount) be paid to the Trustee for the benefit of the creditors of the estate in full and final satisfaction and release of all claims by creditors and that (i) Mr H.C. Thomas be appointed Trustee of the composition (ii) The Trustee distribute the composition funds in accordance with the proposal (iii) The bankruptcy of MA Naylor and GE Naylor be annulled." Copies of the Certificate That Resolution Passed dated 14 May 2007, the Section 73 Proposal dated 11 May 2007 and Certificates of the Annulment of the Bankruptcy of Milton Alexander Naylor and of Glen Ellwyn Naylor are exhibited to this affidavit and marked "HCT 19". 29 There were three meetings. In each of those meetings the creditors of the relevant estate voted against the sale and for the amended s 73 proposal. At no time on 11 May 2007 did Mr Thomas try to contact Mr McGurk. His affidavit gave no real explanation for this. It is to be recalled that both he and Mr Fagan had no belief and had no basis to believe that Mr McGurk had offered the last dollar in his pocket, if I may use that expression, for the property. Indeed, they had grounds to believe that he had not. 30 It is also to be recalled that Mr Hugh had said to Mr Thomas that they would pay whatever it took to win the land. It is also to be recalled that Mr McGurk's solicitors had been pressing the evening before. Further, though I accept Mr Thomas did not appreciate it at the time, the breakdown of his own office procedures meant that he was not aware that Mr McGurk had already rung twice that day. 31 In cross-examination, Mr Thomas said, in effect, the following: that if he had received the amended s 73 proposal the day before he would have gone back to Mr McGurk to see whether he could obtain more money from him; that he should have gone back to Mr McGurk on 11 May 2007; that he created the pressure for himself on the day; that a "very small factor" weighing on him was to close the deal and "get the Naylors out of his life"; and that he forgot to turn his mind to go back to speak to Mr McGurk. 32 On the evidence, I am not prepared to conclude other than that most of the creditors, in respect of any relevant resolution, wanted the largest amount of return. That proposition must of course be read and understood in the light of the separate nature of the estates and the possible different flows of money from a direct infusion from the sale of the land, whether of $485,000 or more, and the rateable equal distribution in the proposal of the Naylors. The creditors were entitled to assume that the amended s 73 proposal and the offer from Mr McGurk were the best two offers reasonably available from the work of the trustee to date and were the best two offers reasonably available as far as the trustee was aware. Unfortunately, I do not think that that can be said to be the case. 33 Mr McGurk says, and I accept him, that he would have offered up to $685,000. That is, $200,000 more. Precisely how that would have manifested itself in a process of bargaining, however, with, if I may say so without the slightest intent of disrespect, a likely tough bargainor such as Mr McGurk, is impossible to identify. That extra $200,000 is a product of Mr McGurk being frank with the Court in an attempt to win his case, and once again I do not say that in the slightest critically. The creditors, however, were deprived of the possibility of extracting some more money from Mr McGurk and perhaps even the Naylors through, I am bound to say, a too hurried and, I think, careless conduct of affairs on the day by Mr Thomas who should, doing his job in the interests of creditors, have plainly gone back to Mr McGurk. He did not do so, and the creditors in each meeting voted for the composition. The meetings took place in the afternoon of Friday, 11 May 2007. Mr Thomas' solicitors informed Mr McGurk's solicitor of the recision of the contract pursuant to clause 63.5 on that day. 34 At this stage, it is worth appreciating the following aspects of the funding of Fair Go Finance on 11 May 2007 and later. Mr Thomas in his affidavit in paragraphs 58 and 59 says the following, which I accept: 58 On 11 May 2007, Mr Paton of Fair Go Finance informed me that the funding would be available in about 30 days. At the Creditors Meetings, described in paragraphs 33, 34, 43 and 44 of my affidavit, I reported to the creditors that the funds from Fair Go Finance would be available in about 30 days. The record of this statement appears at page four of the Minutes of Meeting of Creditors for the joint bankrupt estates of Milton Alexander Naylor and Glen Ellwyn Naylor which form part of exhibit "HCT 20" to my affidavit. In my email to all creditors sent on 11 May 2007, which appears at Exhibit "HCT 18" to my affidavit, I wrote that "settlement could take place within 1 month". 59. On 5 June 2007, I am informed by my solicitors, and I verily believe, that Fair Go Finance's solicitors sent a facsimile to my solicitors confirming that Fair Go Finance would be in a position to settle the composition amount under the section 73 Proposal "very shortly" and requesting confirmation that I am ready and able to transfer the Land to Milton Alexander Naylor and Glen Ellwyn Naylor as required by the section 73 proposal. Exhibited to my affidavit and marked "HCT 31" is a copy of the facsimile from McMahon's solicitors dated 5 June 2007. 35 On Monday, 14 May 2007, the first applicant, Labocus, lodged a caveat on the title of the relevant land at the Land Titles Office. Mr McGurk's solicitors wrote a letter as contained in tab 24 in exhibit A. Again without the slightest criticism of Mr Chaffey or Mr McGurk, it should be noted that the letter was immediately, in a legal sense, aggressive, in that the position of Mr McGurk was put with clarity and a degree of forcefulness. The letter asked by 5 pm that day for various documents. It noted that Mr Thomas had purported to rescind the contract and that the request for documents was for the purpose of advising Mr McGurk and Labocus as to the rights of Labocus and the request for such documents was not an affirmation of the alleged rescission and that as to rescission Labocus' rights remained reserved. 36 Two days later, on 16 May 2007, the solicitors for the trustee responded to that letter. They refused to give documents, proposals, agendas and reports and other correspondence provided to the creditors to Labocus and Mr McGurk's solicitor. Certificates of resolution were provided. A copy of the first Naylor proposal and amending proposal were provided and documents said to reflect compliance with condition 63 of the contract were not agreed to be provided. On 24 May 2007, Mr Thomas' solicitors wrote to Mr Chaffey about the caveat, setting out the terms of the contract and demanding that the caveat be withdrawn. After an extension of time was granted to Mr McGurk's solicitors to enable them to advise Labocus and Mr McGurk, on 29 May 2007, Mr Chaffey wrote a detailed letter to the trustee's solicitor reflecting many of the issues litigated in these proceedings. It is unnecessary to set out the letter in full. It should be noted, however, that the following issues were raised, the solicitors having had an opportunity to obtain instructions. It was contended that the contract had not been validly rescinded, hence the maintenance of the equity in the property to ground a caveat. It was contended that the resolutions at the meetings were not validly put to the creditors or validly passed by them. Pages 2 and 3 of the letter then set out the reasons for these ultimate propositions. As I said, those reasons included many of the issues litigated in the case, such as the following: (1) the proposals were not proposals for the purposes of s 73 of the Bankruptcy Act; (2) the resolutions were not validly passed; (3) the proxies were invalid; (4) section 73 did not permit two bankrupts to make a single or joint proposal in one document; and (5) the failure to inform Mr McGurk or Labocus of the proposals, thereby entailing a breach of duty to the creditors by the trustee, Mr McGurk and Labocus being willing, it was said, to pay more for the land. 37 A claim was asserted under s 52 of the Trade Practices Act 1974 (Cth), in effect that Mr McGurk and Labocus had been misled by the trustee's silence. 38 The letter also stated that Labocus remained ready, willing and able to complete the contract and, if necessary, amend the purchase price to provide a better return to creditors. The letter indicated that Labocus was preparing an application to the Court. The trustee did not wait for any justifying proceedings for the caveat under the Real Property Act 1900 (NSW) and moved of his own motion to remove the caveat. Those proceedings are still in the Supreme Court although they are stayed, as I understand it, while these proceedings are resolved. Additionally, the trustee has propounded a cross-claim in these proceedings, in effect mirroring all the relief claimed in the Supreme Court caveat proceedings so that there will be no need for the Supreme Court proceedings once these proceedings are resolved. 39 The Federal Court proceedings were commenced on 20 June 2007 and amended on 26 June 2007. The amendment joined Mr McGurk, who by that stage - that is, 26 June 2007 - had become a creditor by assignment of a small number of the debts to him (under $500). I made an order at the beginning of the case that this amendment would only run from 26 June because Mr McGurk did not become a creditor until assignment on 25 June. There was an issue as to whether there had been notice given for the purposes of s 12 of the Conveyancing Act 1919 (NSW). The evidence discloses that value was given for the assignments. Mr McGurk was undoubtedly the equitable owner of the debt. If he was not the legal owner, then there may be a technical deficiency in the parties to the suit. Any such technical deficiencies is within the Court's power to absolve. In any event, notice of the assignments was given by the evidence in the proceedings which showed to the Naylors, being parties to the proceedings, the fact of the assignment. In any event, this issue need not delay me any further, but it is worthwhile noting that until 25 June 2007 Mr McGurk was not a creditor and he only assumed the status of creditor, I would infer, to improve his status in the proceeding and to give him a right beyond the existing rights of Labocus under s 178 of the Bankruptcy Act and the Trade Practices Act so that he could invoke, as he does, ss 222 and 222C of the Bankruptcy Act to set aside the compositions. In saying what I have just said, once again I am not being critical of Mr McGurk or his solicitors for taking that technical approach. It was a perfectly legitimate and sensible course to take to have taken to arm him with the maximum amount of rights to vindicate what he saw as his rightful position. 40 As can be seen from the correspondence, which I will not go into in any further detail, there was a degree of immediate, aggressive legal position-taking, both as to the caveat and as to the application. The Federal Court proceedings initially sought a review under s 178 of the Bankruptcy Act which relevantly is in the following terms: (1) If the bankrupt, a creditor or any other person is affected by an act, omission or decision of the trustee, he or she may apply to the Court, and the Court may make such order in the matter as it thinks just and equitable. (2) The application must be made not later than 60 days after the day on which the person became aware of the trustee's act, omission or decision. 41 There was no issue taken by any party that Labocus, at least, was a "person … affected" for the purpose of standing. 42 The review was sought in the original application over a myriad of facts in relation to the conduct of Mr Thomas. They were grouped under various headings, but essentially of failing to inform Mr McGurk of the Naylors' proposals, failing to get the best price for the creditors, failing to inform Labocus of the s 73 proposal, failing to ascertain what Labocus was prepared to pay and failing to inform creditors of those failures. I will not set out in full all the various aspects that were attacked in the application. It was amended on 26 June 2007 and later amended at the end of the trial with leave, but it is worthy of note that every aspect of the conduct of Mr Thomas that could conceivably be attacked was attacked and every point that could be made was made. 43 Declarations were sought that the procedural steps taken by the trustee were invalid; that the second proposal was a fresh proposal and not an amendment; attacking the resolutions; attacking the validity of the composition and attacking the validity of the annulment thereby; that the contract was not validly rescinded; that Labocus had an equitable interest; that there could be a variation of contract; and an order was sought, in effect, that the whole issue of what should occur should go back to creditors. After the amendment the same thrust of attack remained; however, orders were now sought not only on the basis of ss 30 and 178 but also, as I said earlier, on the basis of ss 222 and 222C. Sections 222 and 222C are in the following form: s 222 Court may set aside personal insolvency agreement (1) If a personal insolvency agreement is in force, the Court may, on application by: (a) the Inspector-General; or (b) the trustee; or (c) a creditor; make an order setting the agreement aside if the Court is satisfied that: (d) the terms of the agreement are unreasonable or are not calculated to benefit the creditors generally; or (e) for any other reason, the agreement ought to be set aside. (2) If a personal insolvency agreement is in force, the Court may, on application by: (a) the Inspector-General; or (b) the trustee; or (c) a creditor; or (d) the debtor; Make an order setting the agreement aside if the Court is satisfied that: (e) the agreement was not entered into in accordance with this Part; or (f) the agreement does not comply with the requirements of this Part. (3) The Court must not make an order setting aside a personal insolvency agreement on the ground that it does not comply with the requirements of this Part if the agreement complies substantially with those requirements. (4) The Court must not make an order under subsection (2) unless the application for the order is made before all the obligations that the personal insolvency agreement created have been discharged. (5) If a personal insolvency agreement is in force, the Court may, on application by: (a) the Inspector-General; or (b) the trustee; or (c) a creditor; make an order setting the agreement aside if the Court is satisfied that: (d) the debtor has given false or misleading information in answer to a question put to the debtor with respect to any of the debtor's conduct or examinable affairs at the meeting of creditors at which the resolution requiring the debtor to execute the agreement was passed; or (e) the debtor has: (i) omitted a material particular from the statement of the debtor's affairs given under subsection 188(2C) or (2D); or (ii) included an incorrect and material particular in that statement; or (f) the debtor was subject to a requirement under subsection 194A(3) to table a statement, and the debtor has: (i) omitted a material particular from that statement; or (ii) included an incorrect and material particular in that statement; or (g) the controlling trustee has: (i) omitted a material particular from the declaration given by the controlling trustee under subsection 189A(3); or (ii) included an incorrect and material particular in that declaration; or (h) the controlling trustee was subject to a requirement under subsection 194A(5) to table a statement, and the controlling trustee has: (i) omitted a material particular from that statement; or (ii) included an incorrect and material particular in that statement; or (i) a person who became the trustee of the agreement has: (i) omitted a material particular from the declaration given by the person under subsection 215A(3) or (4); or (ii) included an incorrect and material particular in that declaration. (6) The Court must not make an order under subsection (5) unless it is satisfied that it would be in the interests of the creditors to do so. (7) The Court must not make an order under subsection (5) unless the application for the order is made before all the obligations that the personal insolvency agreement created have been discharged. (8) If the Court makes an order under subsection (1), (2) or (5), the Court may make such other orders as the Court thinks fit. (9) An order under subsection (8) may be an order directing a person to pay another person compensation of such amount as is specified in the order. This subsection does not limit subsection (8). (10)The trustee or a creditor may include in an application under subsection (1), (2) or (5) an application for a sequestration order against the estate of the debtor. If the Court, on the first-mentioned application, makes an order under this section setting the personal insolvency agreement aside, it may, if it thinks fit, immediately make the sequestration order sought. (11)The making of an application by the trustee or a creditor for a sequestration order under this section is taken, for the purposes of this Act, to be equivalent to the presentation of a creditor's petition against the debtor, but the provisions of subsection 43(1), sections 44 and 47, subsections 52(1) and (2) and Part XIA do not apply in relation to such an application. (12)The Court may, if it thinks fit, dispense with service on the debtor of notice of an application by the Inspector-General, the trustee or a creditor under this section, either unconditionally or subject to conditions. s222C Court may terminate personal insolvency agreement (1) If a personal insolvency agreement is in force, the Court may, on application by: (a) the trustee; or (b) a creditor; or make an order terminating the agreement aside if the Court is satisfied (c) the debtor; or (d) if the debtor has died--the person administering the estate of the debtor; (e) that: (i) the debtor; or (ii) if the debtor has died--the debtor or the person administering the estate of the debtor; Has failed to carry out or comply with a term of the agreement; or (f) that the agreement cannot be proceeded with without injustice or undue delay to: (i) the creditors; or (ii)the debtor; or (iii) if the debtor has died--the estate of the debtor; or (g) that, for any other reason, the agreement ought to be terminated. (2) The Court must not make an order terminating a personal insolvency agreement on the ground specified in paragraph (1)(e) or (g) unless it is satisfied that it would be in the interests of the creditors to do so. (3) If the Court makes an order terminating a personal insolvency agreement, the Court may make such other orders as the Court thinks fit. (4) An order under subsection (3) may be an order directing a person to pay another person compensation of such amount as is specified in the order. This subsection does not limit subsection (3). (5) The trustee or a creditor may include in an application under subsection (1) an application for a sequestration order against the estate of the debtor. If the Court, on the first-mentioned application, makes an order under this section terminating the personal insolvency agreement, it may, if it thinks fit, immediately make the sequestration order sought. (6) The making of an application by the trustee or a creditor for a sequestration order under this section is taken, for the purposes of this Act, to be equivalent to the presentation of a creditor's petition against the debtor, but the provisions of subsection 43(1), sections 44 and 47, subsections 52(1) and (2) and Part XIA do not apply in relation to such an application. (7) The Court may, if it thinks fit, dispense with service on the debtor of notice of an application by the trustee or a creditor under this section, either unconditionally or subject to conditions. 44 Although there were copious references in the application to the facts, many of those were removed in the amendment to the application and a pleading was brought forward in the form of a statement of claim. In the amendment to the application the allegations of misleading or deceptive conduct were removed; however, damages were still sought and still are sought against the trustee by Labocus and Mr McGurk for his conduct. At the hearing, various of the issues raised in the amended application were abandoned. In particular, the various procedural or meeting law attacks on the resolutions and on the proxies were abandoned. They were still relied on as illumination of what was said to be the hasty and careless conduct of Mr Thomas on the day. 45 The issues for determination were and are essentially as follows: