Lees v O'Dea

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 158 of 2014

JUDGE: GORDON J DATE: 8 OCTOBER 2014 PLACE: MELBOURNE

introduction 1 The applicants, as foreign trustees in bankruptcy of the respondent, Mr Peter John O'Dea (Mr O'Dea), seek to appoint a receiver without security of Mr O'Dea's divisible property (within the meaning of s 116 of the Bankruptcy Act 1966 (Cth) (the Bankruptcy Act)) situated within Australia. 2 In this case, such an order is discretionary and may be made by the Court under s 29(2)(b) of the Bankruptcy Act.

BACKGROUND 3 By order of the Court of First Instance of The High Court of the Hong Kong Special Administrative Region (the Hong Kong Court) granted on 3 July 2013, Mr O'Dea was adjudged bankrupt and the Official Receiver became the provisional trustee of Mr O'Dea's estate. 4 On 3 October 2013, Mr John Robert Lees and Mr Mat Ng (the applicants) were appointed the Joint and Several Trustees in Bankruptcy of Mr O'Dea at a creditors' meeting in Hong Kong. 5 On 12 March 2014, the Hong Kong Court issued a Letter of Request to this Court pursuant to s 29 of the Bankruptcy Act (the Letter of Request). The Letter of Request advised that the Hong Kong Court has the exclusive jurisdiction in Hong Kong Special Administrative Region for bankruptcy matters and proceedings. The Letter of Request stated that the applicants had advised the Hong Kong Court that: (1) the applicants had been unable to locate Mr O'Dea in Hong Kong; (2) the applicants had two addresses for Mr O'Dea and they had written to him at both addresses but he had not responded; (3) the applicants were aware that Mr O'Dea's mother lived at one of those addresses and had reason to believe that Mr O'Dea's mother was in contact with him; and (4) the applicants had reason to believe that Mr Peter Lilley and Mr John Anthoniou, business colleagues of Mr O'Dea, may have knowledge of his whereabouts. 6 The Letter of Request consequently requested this Court render assistance to the applicants in obtaining the following orders: (1) An order for a public examination of Mr O'Dea under s 81 of the Act; (2) An order for an examination of Mr O'Dea's mother, Mr Peter Lilley and Mr John Anthoniou under s 81 of the Act; (3) An order for the delivery up of Mr O'Dea's passport; (4) An injunction restraining Mr O'Dea from dealing with an asset in the jurisdiction; (5) An order for the filing of a Statement of Affairs by Mr O'Dea which set out his assets, liabilities and dealings; (6) An order for the production of documents; and (7) Such others as the applicants may seek and this Court may deem appropriate. 7 On 30 April 2014, North J made orders giving effect to the Letter of Request, including for Mr O'Dea to file and serve a written statement of affairs as required under s 54 of the Bankruptcy Act, for the examination of Mr O'Dea and other persons as a Registrar of this Court deemed appropriate and for delivery up of Mr O'Dea's current passports. On 15 May 2014, the applicants' solicitor received the written statement of affairs. The examination of Mr O'Dea and two other examinees took place before a Registrar of this Court on 5 and 6 August 2014. 8 On 31 July 2014, the solicitor for the applicants became aware that Mr O'Dea's mother had passed away on 30 July 2014. 9 On 26 August 2014, Mr David Whiting, a solicitor who acted for Mr O'Dea in relation to some matters, provided the applicants' solicitor with a copy of the will of Mr O'Dea's mother (the Will) and advised that the Will "contains drafting errors, and it is possible that an application will need to be made to the Supreme Court for interpretive guidance". The Will relevantly contains the following paragraphs: [2] I APPOINT DAVID EDWARD WHITING of 57 Pearson Street Brunswick West Executor of this my Will and Trustee of my Estate ("my Trustee"). [3] PROVIDED THAT he survive for 30 days, I GIVE DEVISE AND BEQUEATH the whole of my real and personal estate to my son PETER JOHN O'DEA, and APPOINT him to be Executor of this my Will and Trustee of my Estate. [4] IF my son should not survive me for 30 days I GIVE DEVISE AND BEQUEATH the whole of my real and personal estate to my granddaughter … and APPOINT her to be Executor of this my Will and Trustee of my Estate. … 10 By the Will, Mr O'Dea is the sole beneficiary of all the real and personal estate and is named as an executor and trustee. The estate includes a property at 33 Thomson Street, Maidstone, subject to a mortgage to the Commonwealth Bank of Australia. 11 By an interim application filed 27 August 2014 (the Interim Application), the applicants sought the following interim orders: 1. Upon the applicants giving to the Court, by their counsel, the undertakings in the Schedule, an order that Stephen Graham Longley of Level 21, 181 William Street Melbourne Victoria 3000 be appointed receiver without security of the divisible property, within the meaning of section 116 of the Bankruptcy Act 1966 (Cth) and ascertained by reference to the commencement of the bankruptcy in Hong Kong on 3 July, 2013, of the respondent situated within Australia with authority to take all necessary steps to obtain possession of and to sell the same and to receive the proceeds thereof, and, to do all such acts and things as may be necessary or expedient for the purposes of giving full force and effect hereto. 2. Stephen Graham Longley be authorised to remit money received by him under these orders to the applicants as trustees in bankruptcy in whom the estate of the respondent is vested pursuant to section 58(2) of the Bankruptcy Ordinance (Chapter 6) (Hong Kong [Special Administrative Region]) after payment of any encumbrances on the said property and of the costs, charges and expenses that may be incurred in the exercise of any of the powers hereby conferred or otherwise hereunder. 3. Stephen Graham Longley be authorised to appoint, if necessary, solicitors in Australia to advise or assist him in the discharge of his duties hereunder. 4. The costs of the applicants of and incidental to this application including reserved costs be taxed as between solicitor and client and that when so taxed Stephen Graham Longley be a[t] liberty to pay the same out of any moneys of the bankrupt in Australia received by Stephen Graham Longley. 5. The applicants and the respondent be at liberty to apply to this Court on seven days['] notice for any consequential or ancillary orders or directions in this matter as may be necessary. 6. An order that the respondent by (sic) restrained from assigning, disposing of or encumbering any or all rights he has under the Will of the late Ada Elizabeth Ursich dated 29 May, 2014 ('Will') and her estate, save for: a. Any further order of the court; or b. On terms first agreed in writing between the applicants and respondent. 7. Each party have liberty to apply on 3 days['] notice. 8. Further or other orders. 9. Costs. Schedule 1. All money or other property received by the applicants as trustees in bankruptcy of the property of the respondent under or pursuant to these orders shall be applied by them in due course of the administration of the bankruptcy in Hong Kong. 2. Any matters in controversy in connection with the bankruptcy between the applicants and Stephen Graham Longley as receiver of the respondent's property in Australia and persons resident in Australia shall be determined by this Court. 3. The applicants submit to the jurisdiction of this Court in all such matters as aforesaid and abide by any order the Court may make subject to appeal; and 4. The applicants shall appoint a solicitor or firm of solicitors in Australia to accept service on their behalf of any proceedings brought by Stephen Graham Longley, as receiver, or by persons resident in Australia in connection with the said bankruptcy and receivership as aforesaid. [Schedule renumbered]. The applicants filed a consent to act as receiver signed by Mr Stephen Graham Longley. 12 On 29 August 2014, Mr Whiting advised the applicants' solicitor that "we propose to make an Application to the Supreme Court of Victoria for rectification of the … Will" (the Rectification Application). Mr Whiting advised that if the Interim Application was successful, notice of the Rectification Application would be given to the appointed receiver, and if the Interim Application was unsuccessful, notice would be given to the solicitor for the applicants. 13 The Interim Application came on for hearing before North J on 5 September 2014. Counsel appeared for the applicants. Mr O'Dea appeared unrepresented. The transcript of the hearing records that there was little debate about the form of the orders. The appointment of a receiver was discussed. However, North J made the following orders: UPON THE UNDERTAKING of the applicants by their counsel (a) to submit to such order (if any) as the Court may consider to be just for the payment of compensation, to be assessed by the Court or as it may direct, to any person, whether or not a party, adversely affected by the operation of the interlocutory order or undertaking or any continuation (with or without variation) thereof; and (b) to pay the compensation referred to in (a) to the person there referred to. THE COURT ORDERS THAT: 1. The respondent be restrained from assigning, disposing of or encumbering any or all rights he has under the Will of the late Ada Elizabeth Ursich dated 29 May 2014 and her estate, save for: (a) any further order of the court; or (b) on terms first agreed in writing between the applicants and the respondent. 2. The costs be reserved. 3. The further hearing of the interlocutory application is adjourned to 10.15 am on 8 December 2014. 14 By letter dated 26 September 2014, Mr Whiting advised the applicants' solicitor, among other matters, that: (1) he would be the applicant in the Rectification Application; (2) when the proceedings were issued he would provide copies of documentation to the applicants or the applicants' solicitor as appropriate, as he accepted that the applicants have an indirect interest in the Will; (3) he had engaged another firm of lawyers to act in relation to the Rectification Application and the Application for Probate of the Will, but he would not provide the contact details of those lawyers; (4) the proceedings would be issued "next week, or the week after"; (5) the substance of the application "will be that paragraphs 3 and 4 of the Will should be deleted from the Will, or that Will should be read and construed as if those clauses did not appear in the Will". Paragraphs 3 and 4 are extracted at [9] above. 15 By letter to the Court dated 30 September 2014, the applicants sought to have the matter relisted for the purposes of seeking orders 1-5 of the Interim Application. Mr O'Dea objected to the matter being relisted. Due to judicial unavailability, the Interim Application was placed in my docket on 1 October 2014.

The Interim Application 16 The resumed hearing of the Interim Application was heard on 8 October 2014. Again, the applicants were represented by counsel and Mr O'Dea appeared unrepresented. Each party had filed a short written submission prior to the hearing. Mr O'Dea objected to the appointment of the receiver and the likely costs involved if a receiver was appointed. 17 The balance of these reasons for judgment will consider the power to appoint a receiver, the necessity here for the appointment of a receiver and whether the court should, in the exercise of its discretion, grant the relief sought by the applicants.

Power to appoint a receiver 18 The Court has power under s 29 of the Bankruptcy Act to act in aid of and be auxiliary to the courts of other countries that have jurisdiction in bankruptcy. 19 Section 29 provides: (1) All Courts having jurisdiction under this Act, the Judges of those Courts and the officers of or under the control of those Courts shall severally act in aid of and be auxiliary to each other in all matters of bankruptcy. (2) In all matters of bankruptcy, the Court: (a) shall act in aid of and be auxiliary to the courts of the external Territories, and of prescribed countries, that have jurisdiction in bankruptcy; and (b) may act in aid of and be auxiliary to the courts of other countries that have jurisdiction in bankruptcy. (3) Where a letter of request from a court of an external Territory, or of a country other than Australia, requesting aid in a matter of bankruptcy is filed in the Court, the Court may exercise such powers with respect to the matter as it could exercise if the matter had arisen within its own jurisdiction. (4) The Court may request a court of an external Territory, or of a country other than Australia, that has jurisdiction in bankruptcy to act in aid of and be auxiliary to it in any matter of bankruptcy. (5) In this section, prescribed country means: (a) the United Kingdom, Canada and New Zealand; (b) a country prescribed by the regulations for the purposes of this subsection; and (c) a colony, overseas territory or protectorate of a country specified in paragraph (a) or of a country so prescribed. (Emphasis added.) The Hong Kong Court is a court that exercises jurisdiction in bankruptcy in the Hong Kong Special Administrative Region: see [5] above. The Hong Kong Court is not a court of a prescribed country (within the meaning of s 29(2)(a) of the Bankruptcy Act) but is a "[court] of other countries that have jurisdiction in bankruptcy" (within the meaning of s 29(2)(b) of the Bankruptcy Act). 20 This Court retains a discretion as to whether to render assistance and, if so, the extent of that assistance. The Court's jurisdiction under s 29 of the Bankruptcy Act was recently considered by Logan J in Gainsford v Tannenbaum (2012) 216 FCR 543 at [57]-[58] in giving effect to a Letter of Request from a South African Court: [57] In Re Ayres; Ex parte Evans (1981) 51 FLR 395 at 405 (Re Ayres), Lockhart J described the jurisdiction conferred by s 29 of the Bankruptcy Act as having the object of courts exercising jurisdiction in bankruptcy acting in aid of and being auxiliary to one another. South Africa is not a "prescribed country" for the purposes of s 29 but s 29(2)(b) of the Bankruptcy Act allows the extending of assistance to courts which exercise a bankruptcy jurisdiction. The extending of any such assistance calls for the exercise of a judicial discretion in light of the object of the section. Section 29 of the Bankruptcy Act has a lengthy provenance in the insolvency law of Australia and the United Kingdom: see, for example, s 22(1) of the Bankruptcy Act 1924 (Cth) (repealed) and Ayres v Evans (1981) 56 FLR 235 at 239‑240 per Fox J; at 244‑247 per Northrop J and at 254‑255 per McGregor J. In turn, s 29 and its cognates have, in part, a declaratory quality in that, at common law, there is an ideal of universality of application with respect to bankruptcy proceedings: Cambridge Gas Transport Corporation v Official Committee of Unsecured Creditors of Navigator Holdings plc [2007] 1 AC 508 at [14] to [20] (Cambridge Gas). In Williams v Simpson at [82], Heath J opined that the common law position as described for the Judicial Committee by Lord Hoffman in Cambridge Gas should inform the exercise of the discretion under the New Zealand equivalent of s 29 of the Bankruptcy Act. I respectfully agree with this approach to the exercise of such a discretion. [58] The request made of this Court by the SA High Court is directed to the provision by Mr Tannenbaum of a statement of affairs and to the conduct of examinations and production of documents by him and others. The provision of assistance of this kind will not embarrass any Australian bankruptcy administration with respect to Mr Tannenbaum. There is none. His disposition not to co‑operate with the applicants is manifest. Also manifest are the interrogative notes which I have described above. In my opinion, the case for the provision by the Court of assistance of the kind sought is compelling. There is ample power under s 29(3) of the Bankruptcy Act to grant that assistance. The Bankruptcy Act makes provision for the provision of a statement of affairs by a bankrupt and for just this kind of examination and production of documents. I propose therefore to make orders directed to these ends by way of assistance to the SA High Court and that court's appointees, the applicants in respect of the administration of Mr Tannenbaum's insolvent estate. (Emphasis added.) 21 Gainsford dealt with steps expressly contemplated by the Bankruptcy Act. The Interim Application seeks the appointment of a receiver. Is there power under s 29 of the Bankruptcy Act for the Court to appoint a receiver of Mr O'Dea's divisible property in Australia in aid of the administration of the Mr O'Dea's insolvent estate in Hong Kong? That question has been considered affirmatively in the context of the United Kingdom and New Zealand in Ayres v Evans (1981) 56 FLR 235 at 240, 247, 254-255; Radich v Bank of New Zealand (1993) 45 FCR 101 at 121-122 and Dick as Trustee in Bankruptcy v McIntosh [2001] FCA 1008 at [19]. 22 In each case, the rationale is clear - s 29 enables recourse to be had to a bankrupt's property in the country to the courts of which the request for aid is made: Radich at 121. The assistance provided by an Australian Court is not limited to where the Australian Court and the foreign court have powers that mirror each other: Radich at 121. As Drummond J (Foster J agreeing) said in Radich: If there is a "matter of bankruptcy" within s 29(3) before the foreign court, the Australian court, in response to a request for aid, can exercise any of the powers it has under the Bankruptcy Act if that same matter had arisen in Australia, being powers the exercise of which will provide assistance to the foreign court in the circumstances of the particular case … 23 Moreover, the power of the Court to vest property in a receiver is not limited to the making of orders with respect to presently identifiable property or property beneficially owned solely by Mr O'Dea: Dick v McIntosh at [20]. 24 What then is the nature of the interest held by Mr O'Dea in the estate? The property which is the subject of a bequest does not immediately vest in the named beneficiary on the death of the testator: see Woolley (dec'd) v Clark (1822) 106 ER 1363; Administration and Probate Act 1958 (Vic), s 13. More specifically, neither the legal or equitable ownership in the property vests in the named beneficiary on the death of the testator: Official Receiver in Bankruptcy v Schutlz (1990) 170 CLR 306 at 312. Why? Because prior to administration of the deceased estate, there is no specific property capable of constituting the subject matter of a trust in favour of a beneficiary: Schultz at 312. What then does the beneficiary hold? The beneficiary has a right, a chose in action, to have the deceased estate administered in accordance with the duties of the executors. The interest carries with it an expectation that the assets would pass to the named beneficiary upon completion of the administration subject to the assets being realised to meet any outstanding liabilities and to defray the costs of administration. When that chose in action passes by operation of law, such as under the Bankruptcy Act, that transmission encompasses the chose in action and the expected fruits of the chose in action: Schultz at 314. Consistent with the position adopted in Radich (see [22] above), if the question had arisen in Australia, Mr O'Dea's chose in action would pass by operation of law to the applicants, if appointed in Australia. That chose in action (being his right to have the deceased estate administered in accordance with the duties of the executors) is divisible property (within the meaning of s 116 of the Bankruptcy Act situated in Australia): Schultz; Re Pevsner; Ex parte Trustee in Bankruptcy (1983) 86 FLR 254 at 256; Silvia v Thomson (1989) 87 ALR 695 at 697.

Necessity for the appointment of a receiver 25 Next, should the Court exercise its discretion to appoint a receiver to Mr O'Dea's divisible property within the meaning of s 116 of the Bankruptcy Act situated in Australia? Put another way, is such an order necessary? 26 Property of Mr O'Dea has been identified. The foreshadowed Rectification Application is in relation to that property. If the Court does not grant the applicants' Interim Application, there will likely be no contradictor to that Rectification Application. The applicants have, in the words of Ashley J in Monty Financial Services Ltd v Delmo [1996] 1 VR 65 at 67 "a very real interest in ensuring that whatever interest [Mr O'Dea] had in the estate is received by [them]". If the receiver successfully defends the Rectification Application, the receiver will have a right to enforce the trusts under the Will for the benefit of the creditors. Moreover, as the applicants submitted, as the Rectification Application has been filed, or at the very least is imminent, there is nothing to be gained by delaying the appointment of the receiver. 27 Mr O'Dea opposed the appointment of a receiver on the basis that it would incur unnecessary costs and because he understood that Mr Whiting would cooperate with Mr Barros. The question of cooperation may be put to one side - it does not assist in the resolution of the issues addressed in [26] above. Under the proposed orders (extracted at [11] above), the costs of the receiver would be borne out of money received in the receivership. If no money is forthcoming (for example, if the Rectification Application is successful and there are no other funds able to be recovered), the receiver's costs would be paid by the applicants. Further, under the proposed orders, the costs of the applicants of and incidental to this application would only come out of monies recovered by the receiver. 28 Finally, in exercising the discretion to grant assistance, it is appropriate to record (and reinforce) that the appointment of a receiver (as with bankruptcy generally) is one seeking the enforcement of rights, not the establishment of rights, and should not confer advantage on one class of creditors because some assets may be in a particular jurisdiction. In these circumstances, in my view, it is appropriate to appoint a receiver.

Form of relief 29 There are two further matters - the form of the undertakings and the form of the orders. The undertakings which the applicants will give to the Court if the receiver is appointed were set out in the schedule extracted at [11] above. Those undertakings were based on those proffered and accepted in Dick v McIntosh (see also Ayres v Evans at 242). Those undertakings are required and were given. 30 Next the form of the orders. The form of orders proposed was similar to those made in Dick v McIntosh (as varied in Dick v McIntosh [2002] FCA 1135) and Levy v Reddy [2009] FCA 63. However, the final form of the orders has been modified to meet the particular circumstances of this case. The Receiver's appointment is limited in scope. The scope of the appointment will ensure that he has standing in any Rectification Application and, if that application should not be filed or is unsuccessful, to seek to deal with the property left to Mr O'Dea under the will. Next, the orders impose a cap on the total costs and the hourly rates to be charged by the Receiver and his staff and to set the hourly rates. Given the limited size of the estate and the limited scope of the appointment, the costs incurred should be proportionate. Mr Barros, the applicants' solicitor, gave oral evidence about both the quantum of the cap and the hourly rates. The Receiver has informed the Court that he consents to the scope of the appointment on those terms. The orders made will reflect those amendments. I certify that the preceding thirty (30) numbered paragraph is a true copy of the Reasons for Judgment herein of the Honourable Justice Gordon.