Maxwell-Smith v Donnelly

REASONS FOR JUDGMENT 1 In this matter I have before me an inquiry under s 179 of the Bankruptcy Act 1966 (Cth) (the "Act) into the conduct of Mr Max Christopher Donnelly, the trustee in relation to the bankruptcy of Mr Eugene and Mrs Inge Maxwell-Smith. The bankruptcy of Mr and Mrs Maxwell-Smith has been annulled. However, Mr and Mrs Maxwell-Smith have pressed for an inquiry as to the conduct of the trustee in circumstances which I will recount. The inquiry comes before me pursuant to orders made by a Full Court (Moore, Nicholson and Conti JJ) which allowed, in part, an appeal from orders made by Wilcox J dismissing the application before him for the undertaking of an inquiry. 2 The application before Wilcox J, and thus the Full Court on appeal, was set out in [5] of the Full Court's reasons as follows: On 2 December 2004 the appellants filed an amended application in this Court in the following terms: 1. The Respondent M.C. Donnelly did not avoid unnecessary expenses while acting as the trustee in our estate caused in the Creditor's petition N-7192 of 2003. (Section 19 of the Act) 2. The Respondent M.C. Donnelly abused his power as the trustee to examine vexatiously and oppressive [sic] and also refused to give his approval for a reasonable request made by the Federal Police on behalf of the Applicant Inge Maxwell-Smith to make a coastal cruise with her sick grandchild. (Section 81 of the Act) 3. M.C. Donnelly's legal representatives distorted relevant information during the Court proceeding in the Application for Annulment (N-198 of 2004) 4. The Applicant Inge Maxwell-Smith claims compensation for $300,000.00 for aggravated damages caused by the actions of M.C. Donnelly to her and to her family. 3 Section 179 of the Act relevantly was in the following terms: (1) The Court may, on the application of the Inspector‑General, a creditor or the bankrupt, inquire into the conduct of a trustee in relation to a bankruptcy and may do one or both of the following: (a) remove the trustee from office; and (b) make such order as it thinks proper. 4 At first instance, Wilcox J identified and distilled a number of matters from the assertions of Mr and Mrs Maxwell-Smith that could be the subject of inquiry. They included the circumstances surrounding the inability of Mrs Maxwell-Smith on 20 May 2004 to take a cruise to Noumea with her grandchildren (the children of her son) including one grandchild who was physically disabled. 5 Wilcox J dismissed the application, being of the view that there was no matter appropriate for inquiry. In relation to the issue concerning the cruise, Wilcox J dealt with this at [17] to [18] of his reasons: Apparently, Mrs Maxwell‑Smith intended to speak to the trustee about this matter on 18 May. Although she saw Mr Donnelly on that day, she omitted to do so. She saw him again on 19 May, but again failed to raise the matter with him. She then apparently assumed there would not be a problem, because of something said to her by Ms Gallucci. So she presented herself and her grandson to the ship on 20 May but was denied entry. Despite an attempt by the captain of the ship to resolve the matter, Mrs Maxwell-Smith eventually had to be excluded from the ship because of the fact that she was on a Portwatch list maintained by the Australian Federal Police. I understand the embarrassment and anguish of Mrs Maxwell-Smith over this matter. Perhaps it could have been better handled by Mr Donnelly, but I have to say it seems to me the fault lay at least as much on the side of Mrs Maxwell-Smith, as on the trustee. She ought to have taken up the matter with Mr Donnelly well before the cruise was due to depart. In any event, this particular complaint has no financial aspect. There would be no point in having an inquiry in relation to that matter. 6 The Full Court concluded that Wilcox J had dealt with this issue inadequately. One of the difficulties perceived by the Full Court was that there had been little evidence filed by the trustee. I should add that there was evidence from Mrs Maxwell-Smith before his Honour. 7 In particular, at [60] to [64], the Full Court said the following: No affidavit was filed by the trustee in the proceedings before Wilcox J denying the version of events given by Mrs Maxwell-Smith. The only affidavit of Ms Gallucci before his Honour was an affidavit of 7 April 2004 sworn in the annulment proceedings. She gave very brief oral evidence in chief but did not address events surrounding the cruise. While the submission of Mrs Maxwell-Smith is a mixture of both submission and assertions of fact, in the absence of a denial by Ms Gallucci and any evidence from Mr Donnelly explaining why he refused permission (there was none), the evidence of Mrs Maxwell-Smith together with the submission raised, in our opinion, a serious issue concerning the conduct of the trustee in refusing his consent to her travelling. We do not accept, with respect, that the matter can be disposed of in the way suggested by Wilcox J. His Honour does not deal with whether an inquiry might be warranted in which the basis on which the trustee refused to grant consent can be investigated. It is not true to say that Mrs Maxwell-Smith had to be excluded from the ship because of the fact that she was on a Portwatch list maintained by the Australian Federal Police. She was excluded from the ship because it would have been an offence for her to travel without the consent in writing of the trustee: s 272(1)(c) and the trustee, on Mrs Maxwell-Smith's version of events, had the opportunity to give that consent but did not in a context where the captain of the vessel gave certain assurances designed to have Mrs Maxwell-Smith return to Australia. The principles governing the giving of consent by a trustee to a bankrupt to travel were articulated by Deane J in Re Tyndall; Ex parte Official Receiver (1977) 17 ALR 182 (at 190-191): It is only in recent years that the Commonwealth bankruptcy legislation has made it an offence for a bankrupt to travel overseas without the consent of his trustee and has required a bankrupt to surrender his passport to his trustee once a sequestration order is made. Bankruptcy does not, of itself, involve any criminal offence. A citizen should be free to travel if and when his commercial activities or personal desires prompt him so to do. Restrictions upon such travel under the bankruptcy legislation must be seen as being aimed at insuring the proper administration of the bankruptcy laws and of bankrupt estates under such laws and not as a penalty imposed upon a citizen as a consequence of inability to pay debts leading to the making of a sequestration order. In some cases, the possibility that the bankrupt has committed offences under the Act and is seeking to abscond from possible prosecution will be extremely relevant. There has not, however, in this case been any suggestion that the bankrupt is endeavouring to abscond to avoid possible prosecution. In some cases the financial rewards to be derived by the bankrupt's estate from such overseas travel will clearly outweigh [sic] any inconvenience in the administration of that estate resulting from the bankrupt's departure from the jurisdiction. It can be seen that relevant considerations in deciding whether to give consent may be the possibility of a bankrupt absconding to avoid prosecution or inconvenience caused to the administration of the bankrupt's estate. In the present case it is not apparent why the trustee refused to grant permission to Mrs Maxwell-Smith to travel. There may be a number of reasons having regard to the circumstances. However, if he was aware of various matters to which Mrs Maxwell-Smith referred in her material (her affidavit and her submissions) then a real issue arises about whether it was appropriate for him to have refused permission. In our opinion, Wilcox J gave insufficient consideration to the matters raised by Mrs Maxwell-Smith in support of an inquiry at least as it related to this question of travel. To use the language of the High Court in House v King set out at [54], his Honour did not take into account a material consideration, namely that the trustee may have misconceived his powers in refusing Mrs Maxwell-Smith permission to travel. The trustee's refusal is a matter, in our opinion, which warrants further investigation and it is appropriate that an inquiry be ordered to investigate that specific matter. It is, with respect, not enough to say, as Wilcox J did, that there was no financial aspect to this complaint. It was characterised by the appellants as an abuse of power. Whether that characterisation is apt or even relevant is a matter that should not be addressed at this stage. It is a matter for the judge who conducts the inquiry. An inquiry can be conducted on a particular matter: ReAlafaci;Registrar in Bankruptcy v Hardwick (1976) 9 ALR 262. In our opinion, there should be an inquiry into whether the trustee refused Mrs Maxwell-Smith permission to travel on or about 20 May 2005 [sic: 2004] and, if so, was that refusal appropriate in all circumstances. 8 Before me, evidence was led on behalf of the trustee. At the hearing before me Mr Donnelly swore to the truth of a comprehensive statement and was cross-examined. There was no objection taken to any part of his statement. Mrs Gallucci, his manager on the file, prepared a statement. She attended court. She was not required for cross-examination and no objection was taken to any part of her statement. I was informed by Mr Skinner, without any objection by counsel for Mr and Mrs Maxwell-Smith, and apparently accepting what Mr Skinner said without the need for evidence, that Mrs Gallucci was very ill. I think it appropriate to identify the nature of her condition. In many instances, I would not do so, but I think in the circumstances of the seriousness of the matter, Mrs Gallucci will understand my desire to ensure the completeness of these reasons. Mrs Gallucci is under medical treatment by the application of steroids for a spinal problem which is contributing to a condition of deafness. She has also recently had a stroke. In circumstances where counsel for Mr and Mrs Maxwell-Smith indicated that he had no questions for Mrs Gallucci in cross-examination, I raised the question as to whether counsel would agree to Mrs Gallucci's statement being tendered without formally being sworn. Counsel agreed and in those circumstances the trial proceeded on the basis of Mrs Gallucci's statement being tendered without being sworn to or affirmed as if that had occurred. 9 Given Mrs Gallucci's ill health, I permitted this somewhat unusual course because I did not think it appropriate to take any risk in relation to her health that was unnecessary, and no doubt, that is what prompted counsel for Mr and Mrs Maxwell-Smith to take the entirely proper course that he did in this respect. I rejected another statement from an employee of the trustee dealing with two aspects of the administration of the estate because I thought that the bounds of relevance were being stretched to a point where it was unnecessary. 10 Mrs Maxwell-Smith gave evidence by affidavit. One of those affidavits dealt with her background, but is not really relevant. Mr Skinner took no objection to that affidavit. In all the circumstances, in particular the matters that I propose to discuss later in these reasons, Mr Skinner's failure to object to the totality of the second affidavit was a course that was proper in all the circumstances. Mrs Maxwell-Smith was cross-examined. From the earliest part of her cross‑examination, it was apparent that she was extremely emotionally involved in the case, was upset and had difficulty in focusing on and limiting herself to answers to questions. The transcript will disclose the extent of this tendency. I do not say this by way of criticism of Mrs Maxwell-Smith; however, it is necessary to explain that in relation to her evidence a special course was also taken. Mr Skinner had a number of questions which he thought it was his obligation to put to Mrs Maxwell-Smith. I apprehended after the first couple of these that if he persisted we would need the two days that had been set aside for this matter which seemed to me to be an unnecessary expenditure of time and money for the parties and probably an unnecessary strain on Mrs Maxwell-Smith. To resolve this, I requested Mr Skinner and Mr Brennan to consult with each other to identify the matters that were simply being put formally out of fairness and that if agreement could be reached, this trial of the emotions of Mrs Maxwell-Smith could be cut short. That was done and for that reason only limited cross-examination took place of Mrs Maxwell-Smith. The transcript reveals the issues which the parties reached agreement about and that were unnecessary to put to her. 11 Before I continue, may I say that I have been assisted by both counsel on this case, in particular counsel who appeared for Mr and Mrs Maxwell-Smith who have been prepared to appear for Mr and Mrs Maxwell-Smith at the request of the Court. I have no doubt that the approach of counsel for both sides (to the disadvantage of no client) has enabled the matter to be resolved by way of evidence in one day. The Court expresses its gratitude to all counsel for that endeavour, but in particular, in the circumstances, without disrespect to Mr Skinner, to Mr Brennan and Ms Orman-Hales counsel for Mr and Mrs Maxwell-Smith. 12 I should also add that only Mrs Maxwell-Smith sought to give evidence. Only she was involved in the events of 20 May 2004, although both Mr and Mrs Maxwell-Smith are applicants seeking the inquiry. Counsel appeared for both and although the reasons today deal with events that concern only Mrs Maxwell‑Smith, Mr Maxwell-Smith has not removed himself from the application. 13 Serious allegations have been made about Mr Donnelly. It was asserted that he acted with mala fides, that he was motivated by a personal dislike of Mrs Maxwell-Smith and that he failed to comply with his obligations as a trustee in relation to the making of a decision in the administration of the estate. Given the seriousness of the allegations made about Mr Donnelly, it is appropriate to put 20 May 2004 and the relevant events which occurred on that day in its and their context. 14 On 15 September 2003, Mr Donnelly was appointed the trustee of the bankrupt estate of Mr Eugene and Mrs Inge Maxwell-Smith by this Court. Whilst it is not appropriate to examine in minute detail every aspect of the conduct of the administration, some points are worthy of note. The first matter that is worthy of note, in fairness to the Maxwell-Smiths, is that the bankruptcy arose from an acrimonious building dispute in relation to premises which were a home of the Maxwell-Smiths. It is unnecessary to detail the travails of the Maxwell-Smiths in that regard, but it explains, I think, in human terms, the genesis of their sense of grievance in relation to this bankruptcy. It may be that that sense of grievance, which has been, to a degree, vindicated by the annulment, has been transferred to the trustee. I also at this point need to highlight that the reasons for the annulment do not reflect in any way upon Mr Donnelly or his firm. 15 From the first contact of the trustee's office with the former bankrupts, there was some difficulty in cooperation. On 17 September 2003, Mrs Gallucci telephoned the Maxwell-Smiths' home and spoke to Mr Maxwell-Smith. The evidence is that Mr Maxwell-Smith asked for a complete listing of the claim against him and that he stated that until this was provided to him he and his wife would do nothing. That expression of doing nothing was in the context of the manager in Mr Donnelly's firm perfectly properly beginning to make inquiries in relation to conduct of the bankruptcy which the trustee was by law then undertaking. 16 On that day, 17 September 2003, a letter was sent to the Maxwell-Smiths asking for completion of the usual documentation in relation to a bankruptcy and the handing over of the Maxwell-Smiths' passports, if they existed. I should add that at no point from the receipt of that letter did the Maxwell-Smiths give their passports to Mr Donnelly or anyone in his office. The significance of the failure to provide the passports can be seen by the terms of s 77 of the Act which was introduced into the legislation in 2002. In s 77(1) the following appears: A bankrupt shall, unless excused by the trustee or prevented by illness or other sufficient cause: (a) forthwith after becoming a bankrupt give to the trustee … (ii) the bankrupt's passport, if any; … 17 It is common ground that there was no excuse for not providing the passport of Mrs Maxwell-Smith to the trustee. There was no assertion that either Mr or Mrs Maxwell-Smith was prevented by illness or other sufficient cause from providing the passport. Passports were asked for. It is not clear whether Mr Maxwell-Smith had a passport. Mrs Maxwell-Smith on the evidence certainly did. At this point, it is also convenient to refer to the terms of s 272 of the Act, subsections (1) and (2) of which are in the following terms: (1) A person who: (a) within 6 months before the presentation of the petition on or by virtue of which he or she became a bankrupt, left Australia, or did an act preparatory to leaving Australia, with intent to defeat or delay his or her creditors; or (b) after the presentation of the petition on or by virtue of which he or she became a bankrupt and before he or she became bankrupt, left Australia, or did an act preparatory to leaving Australia, with intent to defeat or delay his or her creditors; or (c) after he or she has become a bankrupt and before he or she is discharged from the bankruptcy, without the consent in writing of the trustee of his or her estate, leaves Australia, or does an act preparatory to leaving Australia; is guilty of an offence and is punishable, on conviction, by imprisonment for a period not exceeding 3 years. (2) The trustee may impose written conditions on a consent given for the purposes of paragraph (1)(c). If the bankrupt is liable to make a contribution to the trustee under section 139P or 139Q, the conditions may include conditions regarding the payment of that contribution. [emphasis added] 18 It is to be noted that not only was Mrs Maxwell-Smith required by law to provide her passport on or shortly after 17 September 2003 to Mr Donnelly, she was forbidden by s 272(1)(c) without the consent in writing of the trustee to leave Australia or do an act preparatory to leaving Australia. That latter prohibition was in the nature of an offence punishable on conviction by imprisonment for a period not exceeding three years. 19 In the evidence before me, Mrs Maxwell-Smith indicated that she became aware in September or October 2003 that she was obliged to deliver her passport to the trustee. As I have said, it was never delivered to the trustee, and no satisfactory reason for that has ever been given or even proffered. To the extent it is relevant, I can find with some confidence that from October 2003 Mrs Maxwell-Smith knew that she was required to give her passport to the trustee and thus from that fact that she knew or ought to have known that at least without some further step from the trustee she was not allowed to travel overseas. 20 The administration proceeded. Exhibit C is a bundle of documents tendered on behalf of Mr Donnelly, the contents of which Mr Donnelly and Mrs Gallucci made reference in their statements. It contains documentation revealing the significant difficulty in the running of the administration. On one occasion, on the evidence, Mr Maxwell-Smith made threats which became the subject of a report to the Inspector-General. The Maxwell-Smiths did not attend a s 81 examination. Warrants were issued for the arrest of the Maxwell-Smiths because of that. Orders were made for the issue of the warrants pursuant to s 263B of the Act, which warrants were to lie in the office of the Registrar and not be executed until after 13 April 2004 and be discharged if the person summonsed appeared before the Registrar. The warrants were never executed. (Moving forward for a moment, the Federal Police who attended Darling Harbour on 20 May 2004 were under instructions not to execute them.) Nevertheless, they had been issued. The point of referring to the warrants at this point is to indicate the difficulty of the administration. 21 I think it appropriate at this point to say again something that I said at the beginning that for a number of reasons which it is unnecessary to discuss, the Maxwell-Smiths felt aggrieved at their bankruptcy and ultimately the bankruptcy was annulled. 22 It is also clear from the papers, in particular contents of exhibit C, that there was a degree of tension between the Maxwell-Smiths and Mr Donnelly and the officers of Ferrier Hodgson in the undertaking of the bankruptcy administration. That is not said as a criticism of anyone. It is a comment which I think is obvious from the papers. 23 Neither counsel - and if I may say, perfectly properly - asked me to investigate the rights and wrongs of every aspect of the administration. Mr Brennan said that exhibit C was irrelevant. I do not think that that is correct. Whoever, if anyone, was at fault for the tension in the administration, Mr Donnelly has had serious issues raised about his conduct on 20 May 2004 and an understanding of his position and his perspective leading up to 20 May 2004 is essential in fairness to him and to the proper administration of justice to understand his conduct. It was not put as relevant to that to ascertain whether it was Mr Donnelly's fault or Mrs Gallucci's fault for the difficulties of communication and co-operation that had occurred and thus it is quite unnecessary for me to express a view as to who may or may not have been, if anyone, at fault for what was the evident tension and lack of co-operation in the administration. 24 Mrs Maxwell-Smith became aware in April 2004 that her son proposed to pay for a cruise for her and his children. No doubt this was a matter of significant anticipation, indeed joyful anticipation, for not only Mrs Maxwell-Smith but for the three children and Mrs Maxwell-Smith's son perhaps. However, from this time Mrs Maxwell-Smith knew or should have known that she should speak to the trustee about that matter. She knew that her passport was required to be handed in. She must have known that some communication should be made to the trustee about the travel. If I may say so, at this point without the slightest disrespect intended to Mrs Maxwell-Smith by my saying it, she is an intelligent person, and as I have earlier said, deeply upset by the bankruptcy, and for that reason one assumes prone to a degree of emotional outbursts about what she feels she has suffered unjustly in relation to the bankruptcy. 25 It does not matter whether or not she knew that she should have contacted the trustee about permission to travel. As I said, I think it can be inferred that she did because in fact she did intend to speak to the trustee about it. Ultimately, this controversy is about the propriety of Mr Donnelly's conduct, not the wisdom or lack of it displayed by for Mrs Maxwell-Smith in this regard. 26 At no time up to or on 20 May 2004 did Mrs Maxwell-Smith seek any permission to travel overseas from Mr Donnelly. On 18 May 2004, Mrs Maxwell-Smith attended the offices of Ferrier Hodgson. It is unfortunately necessary to set out the whole of the conversation which took place between Mrs Maxwell-Smith and Mrs Gallucci as recalled by Mrs Gallucci. As is evident from what I have earlier said there was no contest about Mrs Gallucci's statement. She was not cross-examined and her statement went into evidence by consent: IMS: "You must read this newspaper article". Trustee: "I have not got my glasses with me so I cannot read it". IMS (after thrusting a newspaper article into my hands): "you read it to him". Trustee: "It isn't necessary as I am not interested in reading a newspaper article as I wish to get back to my office". Trustee (these words were spoken several times): "I am otherwise engaged and am unable to spend time with you. Do you have papers to serve on me or do you wish to discuss any aspect of your (or your husband's) bankruptcy administration as I wish to return to my previous business". IMS: "I want to talk about the sale of my book". Trustee: "you have claimed in your affidavit that I have charged too much fees and yet you want to take up more of my time to talk about was the sale of your book. I do not want to purchase your book" Myself: "I do not want to purchase your book". IMS: "You do not want to purchase the book because you are not interested in justice". Trustee: "I don't want buy your book. Unless you have papers to serve on me or you wish to discuss any aspect of your (or your husband's) bankruptcy administration I wish to return to my previous business." IMS: "You do not want to help me. By buying this book it helps me because I am helping other people like myself. I am sick through people like you. You have made me sick. I want to sell you the book as I want to heal myself". Trustee: "I am going back to my office if you have nothing to serve on me. If you want to see me again you should telephone to make an appointment and not just turn up". IMS: "I want to sell my book because I want to get $2,000 to give to the Children's Trust Foundation". Trustee: "I already give monies to charity and would prefer to give my money to my choice of charities rather than those of your choosing". The Trustee left the reception area. Words to the following effect were then spoken IMS: "The Trustee deliberately arranged the Public Examinations so that it required me travelling to Sydney twice in one week. This is too much for me. Yesterday I did thirteen hours travel on public transport". Myself: "These dates are fixed by the Federal Court" (IMS did not appear to listen to this). IMS (Screaming): "You should make sure that you write down everything that is said by both me and the Trustee. You only write down what you say and not what my husband says to you. You make false affidavits". Myself: "This is not right. I did not meet with your husband. You are confusing me with Maria Psomas. Please stop screaming". IMS: "I am sorry, but Maria Psomas got things wrong. My husband is not a terrorist. I was not present at the time of the discussions but Maria has not written the truth. It is ridiculous that you should have my husband investigated for terrorist acts". Myself: "You husband said he had a pilots licence…" IMS (interrupting): "He only made the remark that it would probably take a September 11 thing to get people's attention". Myself: "You must stop screaming as this is a professional office and you should quieten down and behave accordingly". IMS: "You should not tell me to quieten down. The Trustee has caused me to have a breakdown. I have been very ill. He has caused us to be investigated and has spent so much money. It is criminal. We have provided the information". Myself: "Most of the investigations were carried out before the Statement of Affairs was provided". IMS: "The arrest warrants and Portswatch were a wast of the Trustee's time and money and is a further indication to me of the Trustee's abuse of power". Myself: "The Warrants were issued because you didn't turn up for the Public Examination. When I spoke to the Australian Federal Police about the arrest Warrants they instructed me to arrange a Portswatch. There was a problem with the execution of the arrest Warrants and we will be arranging for the Court to cancel them". IMS: "When I met with the Trustee the last time he did not even tell me that he had our house transmitted into his name. You know we will get our annulment. You are not interested in justice or truth but you should know that Justice Moore will be giving us our annulment because he knows the truth of this and he will definitely be giving us our annulment". Myself: "You are out of control. This conversation is at an end. I am going back to my office." IMS: "You are not interested in the truth". 27 On 18 May 2004, Mrs Maxwell-Smith was aware that a so-called Portwatch was in place. That is, that she would be stopped by officials from leaving the country at any air or sea port. In [4] and [5] of her affidavit of 12 April 2007, Mrs Maxwell-Smith said the following: Because I was aware that a Port-watch had been requested, I had every intention to ask Donnelly for his permission to travel, when I was in his Office to serve him some documents on the 18th May, two days prior to the departure of the ship. I also wanted to sell him a book that my husband created, which tells the true story leading up to the bankruptcy. Donnelly said; "I am not interested in the book and I am not interested how you become bankrupt." I said; "We are being treated like criminals" and "and why is my husband being investigated as a terrorist, why spend all this money unnecessarily?" Donnelly replied; "You are wasting my time and I am only interested in your and your husband's bankruptcy administration and I don't' want you to wast any more of my time." I started feeling ill and I can only remember saying; "I'll leave you this newspaper article, describing the true story. You can see I only wanted you to be informed that we are of good character and I am selling this book as a healing process." I than had to get away quickly because I was getting a panic attack. I left Donnelly's office before I realised that I had not even served him with the documents that I had with me. (errors and emphasis in original) 28 Mrs Maxwell-Smith returned to the offices of Ferrier Hodgson on 19 May, that is the following day. Mr Donnelly at [26] of his affidavit stated the following: On 19 May 2004 IMS [Mrs Maxwell-Smith] again visited my office and spoke to me and Mrs Gallucci. Nothing was said by IMS [Mrs Maxwell-Smith] with regard to her forthcoming departure from Australia. 29 The accuracy of the second sentence of [26] was not in contest. Mrs Maxwell-Smith deposed in [6] to [10] of her affidavit of 12 April 2007 as follows: I returned on the 19th May to serve him these documents and said to him; "I am sorry for rushing off the way I did yesterday. I did not even give you the documents, which are important for the annulment hearing in June." Donnelly said; "Mrs Maxwell-Smith, you have been informed in the past to make an appointment if you would like to see me." I said; "I don't have a mobile telephone." He replied; "Use a public phone, there are phones everywhere." His manner was short and business-like and I tried very hard not to get emotional. Angela Gallucci had joined us at that stage and Donnelly asked her several questions. I than said to Donnelly; "Can you think of any other documents you might need?" Donenlly replied; "Unless you have any more papers to serve me or anything to discuss about the annulment application, I don't want to talk to you any more." He then turned and walked away and I was left alone with Gallucci. She had been writing notes and I asked her; "are you the trustees secretary?" Gallucci replied; "I am the Manager." I said to her; "I hope you are also writing down the rude treatment I am getting" and asked her; "why was the public examination scheduled five days before the direction hearing I do have to travel for ten hours on public transport to attend these hearings." Gallucci replied; "These dates are fixed by the Federal Court." I than ask her; "Did the Federal Court Registrar not inform you that I had send a fax one day before the hearing that due to my husbands illness I had to return home and would not be able to attend the hearing?" Galluci ignored this question and I became even more upset. As we were walking towards the lift I must have been speaking loudly because of my distressed state and ask Gallucci; "Do you know that there is a warrant for our arrest and a Port-watch taken out?" Gallucci said; "Keep your voice down, I am aware of this." This upset me even more and I said; "How would you feel if you got treated like a criminal and that a request is made to the Court for an order of a Port-watch and a warrant for our arrest, especially as we have applied to have the bankruptcy annulled?" Gallucci said; "I told you to keep your voice down. The Port-watch and the warrant for arrest have been taken out but they have not yet been executed." The lift arrived and I entered without looking back. It tried to forget the whole episode and put my mind to thinking about the past. On the same day 19th May 1961, I gave birth to my first son. I felt assured, everything would be alright for me to take my grandchildren on the cruise the following day. I did not mention the meeting with Donnelly to my sons. (errors and emphasis in original) 30 The last sentence of [9] of that affidavit was the foundation of the evidence of Mrs Maxwell-Smith that she thought after her discussion with Mrs Gallucci that the Portwatch had been lifted and in effect that she was free to travel. This is the explanation proffered by her for not seeking consent on, at the latest, 19 May 2004. 31 I am not prepared to conclude that Mrs Gallucci said what Mrs Maxwell-Smith says she said. I think it more likely that Mrs Gallucci said in effect what she had stated on 18 May that there would be no problem with the warrant. There is no reason logically why Mrs Gallucci would have said anything that was incorrect in this regard. There was no occasion logically for her to be discussing Portwatch because Mrs Maxwell-Smith had given not the slightest indication to Mrs Gallucci or Mr Donnelly that she was intending, at any time, let alone the very next day, to travel overseas. 32 However, I am prepared to accept the honesty of Mrs Maxwell-Smith's recollection. I have no doubt whatsoever from having seen and heard her in the witness box that she was upset and angry on that day for reasons which need not be gone over. To that extent, and for that reason, I am prepared to accept that she was being honest in the swearing of this affidavit and giving her evidence, but I would conclude that there was a degree of confusion on day, no doubt brought about by her emotional state, and I am prepared to accept that she thought she need not ask because she thought the Portwatch would not prevent her leaving. 33 As I have said, more than once this morning, and as Mr Brennan on a number of occasions said to me in address at various points yesterday, this inquiry is not about Mrs Maxwell-Smith. It is about Mr Donnelly. And what is clear is that Mrs Maxwell-Smith gave not the slightest indication to Mr Donnelly or his manager that she was to leave the country the following day. 34 I should at this point say that Mrs Gallucci in [8] of her statement dealt with a conversation between Mrs Maxwell-Smith, the trustee and Mrs Gallucci which, on all the evidence in particular that of Mrs Maxwell-Smith and Mr Donnelly, probably occurred on 19 May 2004. No particular importance need be attached to any lack of recollection of the precise day by Mrs Gallucci of that second conversation which I think was the conversation that occurred on 19 May. Thus the sequence of events that I find occurred, in particular relying on the evidence of Mrs Maxwell-Smith and Mr Donnelly, was that Mrs Maxwell-Smith attended Ferrier Hodgson's offices on the 18th and on the 19th and conversations took place on both those days rather than as Mrs Gallucci seemed to recall at the time of making her statement of the second occurring on the morning of the 20th. 35 The Portwatch process had been activated. The Federal Police were therefore in due course on the following day called to Darling Harbour where the ship Pacific Sky was boarding with Mrs Maxwell-Smith and her three grandchildren as passengers. Federal Agent Nagy and Federal Agent Pavlov were instructed by their superior officer to attend and prevent Mrs Maxwell-Smith from travelling. It is worth recalling at this point that s 272(1)(c) made an act preparatory to leaving Australia and the leaving of Australia of Mrs Maxwell-Smith without the consent in writing of the Trustee an offence. It is unnecessary to discuss any relevant mental state that was required for that Commonwealth offence under the Criminal Code or the general law and my point in saying this again is not to conclude that Mrs Maxwell-Smith was guilty of a criminal offence but to identify what the Federal Police must have understood their task to be, as was plain from the evidence of Federal Agent Nagy. 36 When Federal Agent Nagy attended the ship, she found a grandmother, no doubt in some state of emotional agitation, and her three grandchildren, one of whom was disabled, wishing to take a cruise. I propose now to discuss the conduct of Federal Agent Nagy. It should be understood that I make no criticism of her conduct. On her own initiative and without, on her evidence, discussing the matter with Mrs Maxwell-Smith, she sought a compromise. She rang Mrs Gallucci. She says Mrs Gallucci was rude to her on the telephone; her note also stated that Mr Donnelly was rude to her. It is unnecessary for me to conclude one way or the other whether this was the case or whether the tone of voice of Mrs Gallucci and Mr Donnelly should be the subject of any comment. 37 I think I have indicated enough of the background facts for the reader of these reasons to understand what may have been the surprise of both Mrs Gallucci and Mr Donnelly to the news that Mrs Maxwell-Smith was seeking to board a ship to leave the country. In any event, Federal Agent Nagy sought to broker a compromise. I have the benefit in exhibit 1 of Federal Agent Nagy's notes made shortly after the events in question. In those notes she recounts her direction by her superior to attend the ship, that she came upon Mrs Maxwell-Smith with three children, two girls and one boy in a wheelchair. She ascertained that the ship was going to New Caledonia. She rang her superior who said that Mrs Maxwell-Smith was not to travel unless written confirmation could be obtained from the captain (as suggested by ship's crew) that Mrs Maxwell-Smith could hand in her passport and it be maintained on board the ship. 38 I need not pass upon the disconformity of this view with s 272 of the Act, but no doubt the superior was, like Federal Agent Nagy, doing his best to resolve a situation which he perceived might be resolved. However, Federal Agent Nagy's notes then proceed to say that the captain could not provide in writing any such assurance as he was concerned about repercussions if Mrs Maxwell-Smith did manage to leave the ship at port. 39 At this point, the note recites that Federal Agent Nagy called Mrs Gallucci who told her to call Mr Donnelly. The note then states that Federal Agent Nagy called Mr Donnelly. Mrs Gallucci's statement is slightly different in its chronology. In [9] and following of her statement Mrs Gallucci deals with the events of 20 May 2004. She recounts receiving a call from the federal agent who asked whether Mrs Maxwell-Smith was allowed to leave the country. Mrs Gallucci says she said that she would have to talk to the trustee and call her back. Mrs Gallucci then says that she attempted to locate Mr Donnelly and eventually contacted him, telling him that a federal agent had telephoned and told him of the conversation and asked whether Mrs Maxwell-Smith was allowed to travel. Mr Donnelly replied: You should inform the Federal Police that Mrs Maxwell-Smith should not be allowed to leave Australia. She has not asked for my permission and the Federal Police should seize her passport. Mrs Gallucci then says she telephoned the federal agent who said: There is an outstanding warrant which had not been executed. Do you want me to arrest Mrs Maxwell-Smith? To which Mrs Gallucci said: I will speak to the trustee again and let you know. 40 Mrs Gallucci said she again spoke to Mr Donnelly and reminded him of the arrest warrant. Mr Donnelly said that Mrs Maxwell-Smith should not be arrested, but her passport should be seized. Mrs Gallucci then telephoned the federal agent, telling the federal agent that Mrs Maxwell-Smith was not to be arrested but her passport was to be seized. Mrs Gallucci then recalls that later on she received a call from another federal agent. Thus Mrs Gallucci's recollection is that the earlier conversations were with Federal Agent Pavlov, not Federal Agent Nagy. The difference between the recollection of Mrs Gallucci and the contemporaneous summarised note of Federal Agent Nagy is not of any real consequence. By this later stage in the afternoon Mrs Gallucci was speaking to Federal Agent Nagy and it was in this conversation that Federal Agent Nagy asked whether some compromise was not possible, telling Mrs Gallucci that Mrs Maxwell-Smith was boarding with her grandchildren in effect for a holiday, although these precise words were not used. Mrs Gallucci said: The trustee had said 'no', but you can call him yourself if you wish to confirm this. Mrs Gallucci said that she said to Federal Agent Nagy that Mrs Maxwell-Smith does not have permission of the trustee to travel overseas, nor had she ever asked for it. 41 At this point, one can take up the chronology with the recognition from the note of Federal Agent Nagy that she spoke to Mr Donnelly. Mr Donnelly said that she, Mrs Maxwell-Smith, was not to travel. Mr Donnelly dealt with the matter at [27], [28] and [29] of his affidavit. He said the following: During or shortly after lunch time on 20 May 2004, while I was away from my office, I received a telephone call from Mrs Gallucci who informed me that the Australian Federal Police had telephoned here to say that Mrs Maxwell-Smith is attempting to board a liner cruising to Noumea and that there is a Portswatch alert in place and to ask whether Mrs Maxwell-Smith was allowed to leave Australia. I told Mrs Gallucci to inform the Federal Police that Mrs Maxwell-Smith should not be allowed to leave Australia as she had not obtained my permission, and the Federal Police should seize her passport. Shortly afterward, I received a second telephone call from Mrs Gallucci who said words to the effect "The Federal Agent reminded me there is an arrest warrant outstanding and asked if you want him to arrest Mrs. Maxwell-Smith". I said "No. Tell them not to arrest her just seize the passport." Later on 20 May 2004 whilst I was still away from my office I received a telephone message to call "Rebecca" concerning the departure of IMS overseas. I rang Rebecca (on [mobile number provided]) at 4.30 pm that day. Rebecca advised me that she was trying to seek a compromise regarding the departure of IMS overseas, apparently with her three grand children. I said to Rebecca that IMS had been in my office on the previous two days and that there had been absolutely no mention of any trip overseas by her, EMS or any of her family members. Rebecca said that she was not aware of that but was trying to seek some resolution. I said that as far as I was aware, there was actually a warrant out for IMS's arrest regarding her non-attendance at a public examination. As soon as I mentioned that, the phone went dead and the screen on my mobile phone said "opposite hang up". The call ended at approximately 4.33 pm. 42 In any event, I do not think anything turns upon the precise chronology of those events. What is important is that Mrs Maxwell-Smith attended, at least twice, the offices of Ferrier Hodgson two days and one day prior to travelling overseas and took no opportunity given to her to inform the trustee or his staff that she was intending to travel. It is clear that Mr Donnelly was approaching the matter on the basis that a third party was asking him whether Mrs Maxwell-Smith could travel in circumstances where: (a) Mrs Maxwell-Smith had not asked for that permission; and (b) that third party was a Federal Police Agent whose obligation at the time was to prevent Mrs Maxwell-Smith from leaving the country. 43 Mr Donnelly is attacked and criticised strongly for his conduct in dealing with the Federal Agent in the way he did in that he did not, it is said, turn his mind to proper considerations as to whether or not the administration of the estate would be in any way affected or compromised by Mrs Maxwell-Smith departing the country. In this circumstance, it is appropriate and proper to set out the totality of Mr Donnelly's written explanation of why he acted as he did which is contained in [42] through to and including [47] of the statement which is exhibit A: The advice from Mrs Gallucci that IMS was attempting to travel overseas came as a surprise to me, particularly as she had been to my office and spoken to me on the two preceding days and had not mentioned any possibility of travel notwithstanding that I had specifically asked her on each day whether there was anything else she wanted to talk to me about. I informed the Federal Police that IMS did not have my permission to travel overseas. I did this because I had not previously granted permission for IMS to travel overseas, nor had IMS sought it. I did consider whether I should grant permission at that time but decided that it was not appropriate for me to do so because the request had not come form IMS (as the bankrupt in question), IMS had not provided me with any reasons why I should grant permission for her to travel overseas and I was not otherwise aware of any reason why I should grant that permission. This decision was made against a background of non-cooperation by IMS. At the time I received the phone calls referred to above, I was aware of the following which I took into account in making my decision: (a) that IMS had been to my office and spoken to me on the two earlier days and had not sought my permission to travel or even mentioned her intention to do so; (b) that IMS had not previously sought my consent and had had the opportunity to do so; (c) that IMS had not previously surrendered her passport (indeed, it was clear to me that IMS was in possession of her passport as she would have needed to have it in order to pass through customs, thereby triggering the Ports Watch, and board the ship); and (d) that an arrest warrant was current for IMS. At no time during the phone calls referred to above was I informed that one of the grand children accompanying IMS was disabled or that the trip was for the benefit of a disabled grandchild. If I had been informed of these circumstances, I may have considered them to be an appropriate compassionate reason for a bankrupt to travel. I was not informed during these conversations, and did not otherwise know that the captain of the ship had offered to accept responsibility for the return to Australia of IMS. Nor did I know the itinerary of the cruise ship or who was paying for the trip. Notwithstanding that it may have been possible for IMS to satisfy me that there was an appropriate reason for her travel overseas, the manner in which she went about making the travel arrangements and boarding the ship did not permit sufficient time for her to satisfy me that I should grant that permission. Nor did she seek to do so. 44 It is clear that whilst the captain of the ship and Federal Agent Nagy had had discussions about the position, the captain was not prepared to give any guarantee about either the passport or the disembarkation of Mrs Maxwell-Smith. The Maxwell-Smiths, through Mr Brennan, say that the discretion miscarried because Mr Donnelly did not apply the considerations discussed by Deane J in Re Tyndall Ex parte Official Receiver (1977) 17 ALR 182, in particular at 190 and 191, where his Honour said the following: …It is only in recent years that the Commonwealth bankruptcy legislation has made it an offence for a bankrupt to travel overseas without the consent of his trustee and has required a bankrupt to surrender his passport to his trustee once a sequestration order is made. Bankruptcy does not, of itself, involve any criminal offence. A citizen should be free to travel if and when his commercial activities or personal desires prompt him so to do. Restrictions upon such travel under the bankruptcy legislation must be seen as being aimed at insuring the proper administration of the bankruptcy laws and of bankrupt estates under such laws and not as a penalty imposed upon a citizen as a consequence of inability to pay debts leading to the making of a sequestration order. In some cases, the possibility that the bankrupt has committed offences under the Act and is seeking to abscond from possible prosecution will be extremely relevant. There has not, however, in this case been any suggestion that the bankrupt is endeavouring to abscond to avoid possible prosecution. In some cases the financial reward to be derived by the bankrupt's estate from such overseas travel will clearly outweigh any inconvenience in in the administration of that estate resulting form the bankrupt's departure from the jurisdiction. This is not, however, such a case for the reason that , as I haved said, I am unconvinced that the bankrupt estate of the applicant could be expected to benefit over and beyond the $40 per month which the bankrupt has currently undertaken to pay to the trustee. In some cases, the requirements of the prompt and efficient administration of the estate of the bankrupt and the administration of the Act will justify the refusal to grant leave to travel overseas. This, in my view, such a case. Taking into account all the circumstances of the present matter I have reached the conclusion that, in the present stage of administration of the applicant's bankrupt estate, I should not grant the leave which he seeks. The provisions of s 77(a) and s 272 of the Act recognize that a bankrupt's legitimate desires to travel overseas must, in an appropriate case, be subordinated to what is necessary for the proper and efficient administration of his estate in bankruptcy and the administration of the bankruptcy law. All in all, the circumstances of the present case are such as to make that subordination necessary. 45 But, as the facts reveal here, Mr Donnelly was never really called upon to make a decision on an application by the bankrupt to travel. To say that that is what occurred on 20 May 2004 misunderstands and misconceives the position Mr Donnelly found himself in. He was called upon, without notice, in circumstances where he is entitled to say that the matter came as a surprise to him, to consider a conversation with a Federal Police Officer (who had been sent to the wharf to prevent Mrs Maxwell-Smith travelling) about allowing Mrs Maxwell-Smith to travel in circumstances where what Mr Donnelly knew was set out in [44] of his statement and in circumstances where it was not, nor could be understood as being, a request by the bankrupt herself. 46 Given the irregularity of the behaviour, the failure of the Maxwell-Smiths to give any notice whatsoever that Mrs Maxwell-Smith would be travelling, despite the apparent clear opportunity of the previous days, given the failure to attend the s 81 examination, whatever might be the explanation for that, given the taking out of the warrants whatever might be the status of those and the circumstances of lack of notice and surprise in which Mr Donnelly found himself, his decision was not one, in my view, that is open to the kind of criticism that is made of it. In particular, I think what is said in [47] of Mr Donnelly's statement is legitimate. 47 The kinds of consideration discussed by Deane J in Re Tyndall presuppose a request, otherwise regular, to travel. The circumstances here were highly irregular. As I have said, there was no application by Mrs Maxwell-Smith. She had given no notice. She could be seen as having possibly committed an offence in failing to deliver her passport and to have acted in an attempt to board the ship. In all the circumstances identified by Mr Donnelly in [42] to [47] of his statement, I think it is a misunderstanding of the position to say that he breached his obligation as a trustee by failing to only turn his mind to the question of the due administration of the estate. 48 Even assuming that one can somehow construct some agency between Federal Agent Nagy and Mrs Maxwell-Smith, such that Mrs Maxwell-Smith can be seen to have been making an application through Federal Agent Nagy, I do not think that the conduct of Mr Donnelly is made any more liable to criticism. At the risk of repetition, it is quite unrealistic in my view, in the circumstances in which Mrs Gallucci and Mr Donnelly found themselves, to require them, on pain of criticism for breach of duty, to turn their minds only to the kinds of consideration identified by Deane J. Mrs Maxwell-Smith had failed to give up her passport. She had apparently, to their eyes, not given them any notice of the intended travel, had given no warning as to why she wanted to leave her country and even in the circumstances where there was an annulment application on foot and the estate on the current understanding of the facts was probably solvent, these matters did not mandate Mr Donnelly taking a course other than that which he took on pain of criticism that he was somehow abusing his position. 49 In my view, in all the circumstances, there was no miscarriage of discretion of the kind posited in address, there was no abuse of power, there was no act of mala fides, Mr Donnelly's actions in all the circumstances that he was placed in by others is not the subject of legitimate criticism. Of course he could have said, yes, it is all right for you to go, but he did not. If there is any responsibility for the most unfortunate events of 20 May 2004, they rest with others and not with Mr Donnelly or Mrs Gallucci. They should have been warned and told that overseas travel was desired. I have already expressed my view that I am prepared to accept Mrs Maxwell-Smith's evidence as honest as to why she thought she did not have to, but from Mr Donnelly's position, to attempt to criticise him in the serious way that has been done, in circumstances where he was given no notice whatsoever of the travel and in the other circumstances that I have described is, I think, somewhat unfair. 50 If Mr Donnelly had been given adequate notice for the decision, if the nature of the family trip had been explained to him, I have little doubt that with appropriate conditions of the kind imposed by Moore J in July, he would have consented to the travel. 51 This inquiry and its attendant costs have been made necessary by the application for the inquiry and the view by the Full Court that Wilcox J dealt with the matter inadequately. I have had the benefit of full evidence from all parties as to the subject of the inquiry required by the Full Court and, in my view, the conduct of Mr Donnelly and Mrs Gallucci does not warrant the criticism that has been made of it and in those circumstances the question of a proper order arises. 52 The inquiry has been pressed. The Maxwell-Smiths have demanded it. The Full Court disagreed with Wilcox J as to the conclusions that could be drawn at least from Mrs Maxwell-Smith's evidence and Mr Donnelly was thereby, for those reasons, put to the expense, of justifying the decision he took as the responsible officer and trustee dealing with the Maxwell-Smiths' estate. I see no reason whatsoever why Mr Donnelly should personally bear those costs of defending himself against the accusations made against him. In those circumstances, given my view that it would be most unjust for Mr Donnelly to personally bear the costs of justifying his conduct, that leaves only one conclusion as to who and what should bear the costs of the inquiry. 53 Therefore, in all the circumstances, the order of the Court will be as follows, though I will give the parties a period of time after my settled reasons to put submissions about the terms of the orders if they think it appropriate in writing. The orders that I propose to make today are as follows: (1) Having inquired into the conduct of the respondent trustee, Max Christopher Donnelly in relation to the matters in order 3 of the orders of the Full Court of the Federal Court on 27 October 2006 and finding no basis for criticism of the conduct of the said trustee or of his manager, Mrs Angela Margaret Gallucci, the applicants, Mr Eugene and Mrs Inge Maxwell-Smith pay the costs of the respondent, Max Christopher Donnelly, of this inquiry as taxed in accordance with the Bankruptcy Act 1966 (Cth) and that the costs of the respondent trustee of this inquiry before me form part of the respondent trustee's costs and expenses of the administration of the former bankrupt estate of Mr and Mrs Maxwell-Smith;