McKinnon v Pattison

The judgment below 27 Counsel for the respondent did not rely on any question of delay on the part of the appellants. At [8] of the Second Judgment, Phipps FM said: The argument which is put is that to order a taxation of costs here would be futile because it can have no benefit for the applicants, the bankrupts, because there will not be any money left over in this estate on any view, even if trustee's remuneration is ignored. 28 At [13], Phipps FM noted that there was no prospect of any return of funds to the appellants and said that "[t]herefore they have no financial interest in having the trustee's remuneration taxed and possibly reduced". His Honour went on at [14] to observe that there was no evidence before him that taxation would reduce the trustee's costs. 29 His Honour therefore concluded at [15] that: Justice is done between the parties if the application is refused because there is nothing to be gained by extending the time for giving notice for taxation and so allowing a taxation to proceed. 30 The power to extend time under s 33(1)(c) of the Act is a broad discretionary power. It is unfettered and must be exercised with a view to doing justice between the parties; see Abeyratne at 262 and see also Vince v Sellers [2004] FMCA 564 at [6]. In order to evaluate whether it is just to grant an extension of time it is necessary to consider all the factors which militate for and against an extension in the circumstances of the particular case. Examples of relevant factors which may need to be taken into account include: the reason why the applicant did not perform the required act within the statutory time limit, the prejudice to other parties of allowing an extension of time and the public policy interest in allowing or refusing an application to extend time. 31 In the exercise of his discretion pursuant to s 33(1)(c) his Honour focused solely on the question of whether the grant of an extension of time would be futile as it would not improve the financial circumstances of the appellants. His Honour did not appear to consider any other relevant factors in the exercise of his discretion. In denying an extension of time, on the ground of "futility" alone, his Honour erred in the exercise of his discretion by allowing one matter to guide the exercise of that discretion to the exclusion of other material considerations; see, by way of analogy, House v The King (1936) 55 CLR 499 at 504-5 per Dixon, Evatt and McTiernan JJ. It can be seen by the ensuing discussion at [33]-[42] below that "futility" was not the sole criterion for consideration. 32 The discretion in the Court below having miscarried, it is appropriate that this Court should exercise that discretion afresh; see Draffin v Construction, Forestry, Mining and Energy Union [2009] FCAFC 120 at [5] per Goldberg, Jacobson and Tracey JJ.

Consideration of the exercise of the discretion 33 In determining whether to grant the extension of time requested by the appellants it is necessary to take into account a number of factors, in addition to the futility factor. 34 First, the appellants' failure to lodge their notice for taxation within the required time period does not appear to be due to deliberate delay on their part. The appellants were dissatisfied with the claim for remuneration by the trustee and gave early notice to him that they would seek a taxation of the claim. The appellants attempted to lodge a notice within the requisite time and appear to have made a genuine mistake about whom the notice should have been sent. They did not realise that they needed to apply to ITSA. The fact the appellants have provided a reasonable explanation as to why they failed to comply with the requirements of reg 8.09(1) is a matter which weighs in favour of granting an extension of time. 35 Second, the time lapse between the date by which the appellants should have lodged their notice under reg 8.09(1) and the date by which they applied for an extension of time under s 33(1)(c) was only about three months. The appellants acted promptly once they became aware they had not lodged a notice in conformity with the requirements of reg 8.09(1) and could apply for an extension of time to comply with the terms of that provision. The fact that the delay was relatively brief and was not exacerbated by the appellants' conduct again weighs in favour of granting the extension. The respondent stated before Phipps FM and at the hearing of this appeal that he takes "no issue on the question of delay". 36 The third factor which needs to be considered is that there is a public interest in ensuring that the time limits set out in the Regulations are adhered to. As has been noted the purpose of the time limit in reg 8.09(1) is to ensure that finality and certainty are brought to the quantification of a trustee's remuneration within a relatively short period of time; see Wenkart v Pantzer (No 6) [2003] FCA 1210 at [34] per Lindgren J. This would ordinarily militate against the granting of an extension of time. However, in the present case, the respondent was aware prior to the expiry of the statutory time limit in reg 8.09(1) that the appellants intended to request a taxation of his remuneration. The respondent cannot contend that he was surprised by the appellants' request to be allowed to lodge a notice for taxation after the 28 day period. The respondent has also not argued that he made any arrangements relying on the fact that the appellants failed to lodge a notice in conformity with reg 8.09 which will be disrupted if an extension of time is granted. Consequently, this argument is of little weight in the context of this case. 37 Fourth, the respondent did not argue before Phipps FM that he would suffer any other prejudice if the extension of time is granted. However, in his written submissions the respondent asserted that: In circumstances where the appellants are bankrupt and have not paid the outstanding costs orders made by Moore R and Phipps FM it would not be doing justice to the respondent or the creditors of the appellants to allow the appellants to seek a taxation, which would incur further costs to the respondent and thereby reduce the amount available to creditors. This contention appears to assume that the remuneration claimed by the respondent will be upheld in any taxation. Whether the respondent is correct in his claim for remuneration and his entitlement to his costs of taxation may be a matter for the taxing officer. It is not for this Court to pre-empt any such decision. Any failure by the appellants to pay the respondent's costs to date is not relevant to issue for current determination. The respondent has not shown that he would suffer any prejudice if the extension of time is granted. Indeed that is why he only relied on the futility factor in the Court below. 38 The fifth factor to be taken into account is that the respondent has argued that the grant of the extension of time is futile because, in essence, even if the remuneration claimed by the respondent is taxed it will not improve the financial circumstances of the appellants. The implication is that the sole purpose of reg 8.09(1) is to enable the bankrupt or a creditor to gain some tangible financial benefit. Giving primacy to this approach, to the exclusion of other factors, fails to recognise and respect the wider public interest inherent in reg 8.09(1). 39 A trustee in bankruptcy is under an obligation to exercise reasonable skill in the performance of his or her duties and "[a] trustee in bankruptcy who acts for remuneration is under a duty of care greater than that of a gratuitous trustee"; see Adsett v Berlouis (1992) 37 FCR 201 at 208 per Northrop, Wilcox and Cooper JJ. As a consequence, it has been held that under the Act: the trustee's right to remuneration is limited to work properly undertaken. In this context, "properly" means work reasonably and bona fide undertaken for the purpose of administering the estate or performing any public duty imposed by the Act, conformably with the trustee's duty to perform the work with reasonable care and skill and in an efficient and economical way. Adsett at 212 and see also Pantzer v Wenkart (2006) 153 FCR 466 at [43] per Black CJ, Ryan and Moore JJ. 40 There exists a public interest in ensuring that trustee's remuneration is open to objective scrutiny. That public interest remains regardless of whether there would be any prospect of financial return to the appellants after the taxation. A prima facie entitlement to taxation, provided by legislation which promotes the public interest, should not be overridden by factors peculiar to the financial standing of any particular bankrupt, without good reason. 41 While the extension of time may arguably be futile, in the contexts of what remains in the estates, it does not mean that no benefit is gained by granting the extension of time. On the contrary, there is a significant public benefit in allowing the respondent's claim for remuneration to be taxed. This weighs considerably in favour of granting the extension of time under s 33(1)(c) of the Act. 42 The respondent also relies on the creditors' approval of his claim for remuneration. However, the creditor's approval of the claim does not diminish the public interest in ensuring that the trustee's remuneration is limited to work properly undertaken. The Act enables a bankrupt to request taxation regardless of the creditor's approval of the trustee in bankruptcy's remuneration. Similarly, the approval by creditors of a claim for remuneration does not mean that the claim for remuneration will be unchanged after taxation. The process of approval and taxation serve different aims. 43 I have taken all the above factors into account, in forming the view that his Honour's discretion miscarried. In order to do justice between the parties the discretion should be exercised afresh on appeal and the appellants' application for time to be extended under s 33(1)(c) of the Act should be allowed, for the reasons set out at [33]-[42] above.

ADDITIONAL COMMENTS 44 The appellants' grounds of appeal also allege that Phipps FM erred in that he "failed to seek the requested info from the respondent to be returnable 19 June 2009". It seems that this is a reference to the financial statement exhibited to the respondent's affidavit sworn on 12 June 2009. That affidavit was filed before Burchardt FM on 15 June 2009. The appellants object to the affidavit and question the accuracy of its exhibit. 45 Given the findings in relation to the exercise of the discretion conferred by s 33(1)(c) of the Act it is unnecessary to examine whether the Court below was mislead by the document.

CONCLUSION 46 For the reasons set out above under the heading "substantive issue" the appeal should be allowed and an extension of time granted for the appellants to apply for a taxation of the respondents claim for remuneration. I certify that the preceding forty-six (46) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Marshall.

Associate: Dated: 7 December 2009 The Appellant appeared for herself and the Second Appellant

Counsel for the Respondent: Mr M Black

Solicitor for the Respondent: TurksLegal