Grounds of appeal
63 As I have already noted in this judgment the appellant relies upon the grounds of appeal and seeks the orders set out in the supplementary notice of appeal filed 13 July 2011. The grounds of appeal in the supplementary notice are extensive and detailed, so much so that they also bear the characteristics of supporting submissions. It is appropriate to set them out in full:
A. In the event that the decision of the Federal Magistrate not to conduct an inquiry into Mr Piscopo's trusteeship of the bankrupt estate of Terry hill, the Applicant, under s.179 of the Bankruptcy Act 1966 ("the Act") is an interlocutory decision (and the appeal on the grounds below is not brought as of right), leave be granted to the Applicant to bring the present appeal on the grounds below.
B. For the following reasons, the Federal Magistrate failed to properly exercise his discretion to decide whether to conduct an inquiry under s.179 of the Act:
1. In determining he could not be satisfied that Messrs James and Brooks were controlling or dictating Mr Piscopo's behaviour in the administration of his trusteeship ([189] of the Federal Magistrate's judgment), the Federal Magistrate failed to consider or, in the alternative, failed to give adequate weight to the following materially relevant matters:
a. when Mr Hill made a request to Mr Piscopo in August 2006 to have his passport for overseas travel, Mr Piscopo consulted Mr Brooks before acceding to Mr Hill's request;
b. when Mr Hill made a request to Mr Piscopo in May 2007 to have his passport for overseas travel, Mr Piscopo again contacted Mr Brooks, before, on this occasion, rejecting Mr Hill's request;
c. when Mr Hill made a request to Mr Piscopo in March 2008 to have his passport to make a one week trip to New Zealand to attend a wedding, Mr Piscopo once again contacted Mr Brooks, before, on this occasion, rejecting Mr Hill's request and giving no relevant reason for that rejection;
d. when Mr Hill in March 2008 made an application to the Federal Federal Magistrate's Court for an order that Mr Piscopo provide him with his passport for the New Zealand trip, Mr Piscopo consulted with Mr Brooks about the content of the affidavit he should swear to oppose Mr Hill's application;
e. Mr James funded Mr Piscopo's defence of Mr Hill's application in March 2008 for an order that Mr Piscopo return his passport so he could make a one week trip to New Zealand, such funding covering the work of senior and junior counsel;
f. Mr James funded Mr Piscopo's defence of an application for an order that Mr Piscopo provide his passport in circumstances where Mr Piscopo knew and later conceded that the proposed travel to New Zealand in March 2008 would not hamper the administration of Mr Hill's estate;
g. Mr James funded Mr Piscopo's defence of Mr Hill's application for an order that Mr Piscopo provide his passport in circumstances where there was no commercial benefit in Mr James doing so;
h. the matters in 1(a) to (g), both separately and cumulatively, and together with unchallenged evidence put before the Federal Magistrate, are substantial grounds for believing that Mr Piscopo:
i. did not act independently of Mr Brooks or Mr James in respect of his conduct regarding the August 2006, May 2007 and March 2008 passport applications;
ii. did not have an independent mind in exercising his powers as Mr Hill's Trustee and was overborne by Mr James and Mr Brooks.
2. In determining that he could not be satisfied Messrs James and Brooks were controlling or dictating Mr Piscopo's behaviour in the administration of his trusteeship ([189] of the Federal Magistrate's judgment), the Federal Magistrate failed to consider or, in the alternative, give adequate weight to the following materially relevant matters:
a. Prior to Mr Hill becoming bankrupt, he had filed a creditor's petition in respect of Mr James for a net total of $397,547.30;
b. Prior to Mr Hill becoming a bankrupt, Mr Brooks, James and three other defendants in proceedings before Bergin J of the Supreme Court of New South Wales became the beneficiaries of a costs order for which Mr Hill was liable;
c. Mr Piscopo's predecessor in his trusteeship, a Mr Rodgers, was, on becoming trustee of Mr Hill's estate, substituted for Mr Hill as Mr James' petitioning creditor;
d. In becoming Mr James' petitioning creditor, Mr Rodgers had a funding agreement with an indemnity from Ms Rose (Mr Hill's wife);
e. On 19 April 2006, Mr Rodgers entered into a Deed of Release with Mr James:
f. According to the terms of that Deed:
i. Mr James and Mr Rodgers mutually released each other in return for Mr James paying $350,000 to Mr Rodgers;
ii. Mr James has a 'right of first refusal' (subject to a 'discount' of $100,000) on any asset recovered by Mr Hill's bankruptcy.
g. There was no similar release given by Mr James' companies for the costs order;
h. Mr Rodgers deed not seek the approval of Mr Hill or Ms Rose for entry into the Deed of Release;
i. There is no evidence that Mr Rodgers called a meeting of creditors of Mr Hill before entering into the Deed of Release, nor is there any evidence he approached the Court for trustee's directions;
j. The terms and circumstances of the Deed of Release are extraordinary, its effect is unclear, and under normal circumstances it might reasonably be the subject of an investigation by Mr Piscopo;
k. There was a reasonable likelihood that an investigation into the Deed of Release by Mr Piscopo would endanger the funding stream that Mr Brooks and Mr James provide, including in respect of the proceedings below;
l. In the circumstances set out above, Mr Piscopo is knowledgably in a position of conflict, that being a conflict between the source of his funding and the proper exercise of his duties;
m. Each of the above matters, and the fact that Mr Piscopo chooses to remain in a position of conflict, are, both separately and cumulatively, and together with other unchallenged evidence before the Federal Magistrate, substantial grounds for believing that Mr Piscopo's trusteeship is not sufficiently independent of Mr Brooks and Mr James.
3. The Federal Magistrate failed to consider or give relevant weight to the following materially relevant consideration: whether the facts set out at Ground 2(a)-(k), both cumulatively and together with other unchallenged evidence before the Federal Magistrate, provided substantial grounds for believing that Mr Piscopo erred in his trusteeship because it was conducted under conditions of a conflict of interest.
4. In determining that he could not be satisfied Messrs James and Brooks were controlling or dictating Mr Piscopo's behaviour in the administration of his trusteeship ([189] of the Federal Magistrate's judgment), the Federal Magistrate failed to consider or, in the alternative, give adequate weight to the following materially relevant matters:
a. In making an ex parte application for examination summonses in relation to Mr Hill's bankruptcy under s.81 of the Bankruptcy Act, Mr Piscopo failed to disclose to the Federal Magistrate's Court that Helen Walker, a New Zealand liquidator, had told him that certain New Zealand shares held by her nominee company were not property of the Mr Hill's bankrupt estate;
b. In failing to disclose Ms Walker's advice, Mr Piscopo failed to disclose material adverse facts; and
c. Mr Piscopo knowingly failed to make that disclosure.
5. The Federal Magistrate failed to consider or give relevant weight to the question of whether the matters set out at Grounds 4(a)-(c), both cumulatively and together with other unchallenged evidence, provided substantial grounds for believing that Mr Piscopo:
a. acted contrary to the standard of conduct expected of an officer of the Court; and
b. therefore erred in his trusteeship
by failing to make the relevant material disclosure.
6. In the alternative to Grounds 4 and 5, the Federal Magistrate not only failed to consider or, in the alternative, give adequate weight to, the matters referred to in Grounds 4(a), but also failed to consider or decide whether:
a. The non-disclosure referred to in Ground 4 was relevantly a material non-disclosure; or that
b. Mr Piscopo knowingly failed to make the disclosure.
7. The Federal Magistrate:
a. Failed to consider whether he should draw a Jones v Dunkel inference against Mr Piscopo regarding his failure to give evidence about his failure to disclose the adverse material facts described in Ground 4; or in the alternative
b. Refused to draw a Jones v Dunkel inference against Mr Piscopo about those matters.
8. The Federal Magistrate:
a. Failed to consider whether he should draw a Jones v Dunkell inference regarding Mr Piscopo's failure to give evidence about his reasons for, and the circumstances of, his claim for privilege over 290 pages of non-privileged documents that were the subject of a subpoena issued in the proceedings below; or in the alternative
b. Refused to draw a Jones v Dunkell inference against Mr Piscopo about those matters.
9. In determining he could not be satisfied that Messrs James and Brooks were controlling ot dictating Mr Piscopo's behaviour in the administration of his trusteeship ([189] of the Federal Magistrate's judgment), the Federal Magistrate failed to consider or, in the alternative, give adequate weight to the following materially relevant matters: that during Federal Court proceedings brought by Mr Piscopo to prevent NOT Lawyers from acting for anyone opposed to Mr Piscopo in relation to the bankruptcy of Mr Hill, counsel for Mr Piscopo submitted:
a. Over relevance objections of Mr Hill's counsel that evidence should be admitted about the conduct of Mr O'Neill (managing partner of NOT Lawyers) in prior court proceedings that had been commenced by Mr Hill against Messrs James and Brooks and which had nothing to do with Mr Piscopo; and
b. Mr O'Neill should be prevented from acting in proceedings opposed to Mr Piscopo because of Mr O'Neill's conduct in those prior proceedings.
10. The Federal Magistrate:
a. Failed to consider whether he should draw a Jones v Dunkell inference against Mr Piscopo regarding his failure to give evidence about who had instructed his counsel in the proceedings before Justice Foster to make the submissions and press for admission of the evidence referred to in Ground 9;
b. Refused to draw a Jones v Dunkell inference against Mr Piscopo about those matters.
11. Correction of the Federal Magistrate's judgment on the Grounds above requires a determination by the Full Court that there are substantial grounds for believing that Mr Piscopo:
a. did not act independently and did not have an independent mind in exercising his powers as Mr Hill's Trustee and was overborne by Mr James and Mr Brooks, and therefore erred in his trusteeship; and
b. was otherwise in breach of his trusteeship.
12. The Federal Magistrate erred in:
a. Permitting the Respondent to ask ([85]), and compelling Mr Hill to answer, questions that were in breach of the Respondent's undertaking to Jacobson J sitting as the Full Court of the Federal Court not to ask questions in the proceedings before the Federal Magistrate that would amount to a 'dress-rehearsal' of the examination summons issued to Mr Hill on application of Mr Piscopo, thereby admitting for consideration extraneous material;
b. Giving reasons that are not adequate because they do not permit the parties or the Full Federal Court in this Appeal to determine whether, or to what extent, his Honour's decision is based on answers to questions posed in breach of the Respondent's undertaking and therefore on extraneous material;
c. Giving reasons that are not adequate because they do not permit the parties or the Full Federal Court in this Appeal to determine whether justice has been done by the Federal Magistrate, that is, to determine whether or not the Federal Magistrate's decision is based on the extraneous material.
13. The Federal Magistrate erred in taking into account irrelevant material (at [184] and [188] and [189]), namely testimony given by the first respondent on 30 September 2008 in pre-hearing subpoena examinations, that being material the Court had ordered (by consent) should not form a basis of the Federal Magistrate's reasons.
14. The Federal Magistrate erred in stating at [75] that he had told the parties after lunch on 19 March 2009 that if the evidence did establish a failure on behalf of Mr Piscopo (in relation to their administration), he would formally split the proceedings into the 2 stage approach and "provide Mr Piscopo the opportunity to defend his position", where he had in fact said "I think in the circumstances we should proceed as we have been up to this application. But I may have to express a different view if at the end of whatever hearing we have, I am not in a position to make that. So for the moment, we will proceed on the basis that we will not split into two sections."
15. The length of the period for which the Federal Magistrate reserved judgement (a period of 1 year, 8 months and 18 days) has the following consequences:
a. This Court should be more easily satisfied than otherwise that his Honour made the errors set out above:
b. This Court should find that the integrity and quality of his Honour's reasoning was adversely affected by the length of his Honour's delay;
c. The delay's adverse effect was such as to require that his Honour's Orders be set aside.
16. Each of Grounds, both separately and cumulatively, requires that the Federal Magistrate's Orders be set aside and that this Court undertake an inquiry under s.179 of the Act.
64 In the supplementary notice the appellant sought the following orders:
1. That Orders 2 and 3 of the Magistrate's decision made on 14 December 2010 be set aside;
2. Instead, an order be made that pursuant to section 179 of the Bankruptcy Act 1966 (Cth) that the Court inquire into the conduct of the First Respondent in relation to the bankruptcy of the Second Respondent;
3. Further, an order pursuant to section 179 of the Bankruptcy Act 1966 (Cth) that the First Respondent be removed from his office as the trustee in bankruptcy of the Second Respondent, and that the Official Trustee in Bankruptcy be appointed in his stead;
4. The First Respondent pay the Appellant's costs of the proceeding below and of this appeal.