Official Trustee in Bankruptcy v Kent

Division: General Division

Registry: New South Wales

National Practice Area: Commercial and Corporations

Sub-area: General and Personal Insolvency

Number of paragraphs: 65

Date of last submissions: 26 October 2023

Date of hearing: 3 February 2023, 5 May 2023, 7 August 2023

Counsel for the Applicant/First Cross-Respondent: Ms I King

Solicitor for the Applicant/First Cross-Respondent: RBG Lawyers

Counsel for the First Respondent/Cross-Claimant: Mr D Krochmalik with Dr A Lim

Solicitor for the First Respondent/Cross-Claimant: Levitt Robinson Solicitors

Counsel for the Second Respondent/Second Cross-Respondent: Mr A Shearer (7 August 2023 only)

Solicitor for the Second Respondent/Second Cross-Respondent: Dentons Australia Ltd

Counsel for the Third Respondent/Third Cross-Respondent: Ms E Bathurst (7 August 2023 only)

Solicitor for the Third Respondent/Third Cross-Respondent: Becketts Lawyers

BETWEEN: OFFICIAL TRUSTEE IN BANKRUPCY Applicant

AND: RICHARD THOMAS HENRY KENT First Respondent

COMMONWEALTH BANK OF AUSTRALIA LTD Second Respondent

AUSTRALIAN FINANCIAL COMPLAINTS AUTHORITY LTD Third Respondent

AND BETWEEN: RICHARD THOMAS HENRY KENT Cross-Claimant

AND: OFFICIAL TRUSTEE IN BANKRUPTCY (and others named in the Schedule) First Cross-Respondent

order made by: RARES J DATE OF ORDER: 13 NOVEMBER 2023

1. It be declared that: (a) by entering into the deed dated 21 January 2021, the applicant (the trustee) and the second respondent (the bank) did not compromise, resolve, settle, bring to an end or do anything that had any force or effect on, the complaint that the first respondent (Mr Kent) made on 29 June 2020 to the third respondent (AFCA); (b) the tripartite agreement between Mr Kent, the bank and AFCA formed by the making of the complaint remains valid and binding on each of them and each remains bound to perform his or its obligations in respect of the complaint pursuant to, and in accordance with, the dispute resolution scheme operated by AFCA under Pt 7.10A of the Corporations Act 2001 (Cth); and (c) the settlement sum of $433,512.47 that the trustee received from the bank on 28 February 2021 is not property of Mr Kent's bankrupt estate that has vested in the trustee pursuant to s 58 of the Bankruptcy Act 1966 (Cth) or otherwise.
2. The trustee's costs of the proceeding (including the cross-claim) be an expense in the administration of Mr Kent's bankrupt estate.
3. The trustee, personally, pay Mr Kent's costs of the proceeding (including the cross-‍claim) on an indemnity basis.
4. It be declared that the trustee has a right of indemnity against Mr Kent's bankrupt estate in respect of its personal liability for costs under order 3 above.
5. The originating application be dismissed.

THE COURT NOTES, BY CONSENT, THAT: 6. There be no orders as to costs in respect of each of the bank and AFCA. 7. Having regard to the declarations in order 1 above, the trustee has agreed to repay the settlement sum (including any accruals thereon) to the bank. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

RARES J: 1 On 11 October 2023, I published my reasons that resolved the principal issues between the parties and directed them to prepare draft orders reflecting the conclusions at which I had arrived: Official Trustee in Bankruptcy v Kent [2023] FCA 1211 (my principal reasons). I will use the same abbreviations in these reasons as in the principal reasons. 2 All the parties agreed that there should be no orders as to costs in respect of the bank and AFCA and that I should make declarations, orders and notations to the following effect:

1. Declarations that: (a) The settlement sum of $433,512.47 that the trustee received from the bank on 28 February 2021 is not property of Mr Kent's bankrupt estate that has vested in the trustee (the non-vesting declaration). (b) The complaint that Mr Kent made to AFCA on 29 June 2020 was not settled, compromised or otherwise resolved by the entry of the trustee and the bank into the deed dated 21 January 2021. (c) The tripartite agreement between Mr Kent, the bank and AFCA formed by, and upon the making of, the complaint was not performed or brought to an end by the entry of the trustee and the bank into the deed.
2. An order that the trustee's costs of the originating application be an expense in the administration of Mr Kent's bankrupt estate.
3. A notation that, in light of the above declarations and order, the trustee has agreed to repay the settlement sum (including any accruals thereon) to the bank. 3 However, the trustee and Mr Kent disagreed on whether I should order: first, as the trustee sought: (a) a declaration under s 90-15 in Sch 2 of the Bankruptcy Act 1966 (Cth) that the trustee would not be justified in treating the settlement sum as property of the bankrupt that has vested in it pursuant to s 58 of that Act (the advice declaration); (b) orders that: (i) Mr Kent's costs of the proceeding (including the cross-claim) be taxed and paid by the trustee and such liability to be limited to the extent of the assets vested in the trustee in its capacity as the trustee of the property of Mr Kent's bankrupt estate (the capped costs order); and (ii) the trustee's originating application be otherwise dismissed; or secondly, as Mr Kent sought: (a) orders that: (i) the trustee's originating application be dismissed; (ii) the trustee pay Mr Kent's costs of the proceeding (including the cross-‍claim) on an indemnity basis (the indemnity order); and (b) a notation that the trustee's liability to Mr Kent with respect to his costs of the proceeding is not limited to the assets vested in the trustee in Mr Kent's bankrupt estate. 4 Thus, the substantive issues for determination are whether: (1) the trustee is entitled to: (a) judicial advice or direction in the terms of the advice declaration in respect of my resolution of its claims in the amended originating application, first, under ss 30(1) and 134(1) of the Bankruptcy Act and s 63 of the Trustee Act 1925 (NSW) or, secondly, under s 90-15 in Sch 2 of the Bankruptcy Act; and (b) an order that it pay Mr Kent costs but that its liability be limited to the extent of the assets in his bankrupt estate based on equitable principles as well as s 93 of the Trustee Act and r 42.25 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR); and (2) the trustee should be ordered to pay Mr Kent's costs on an indemnity basis. 5 On 20 October 2023, the trustee confirmed that the bankrupt estate is without funds, so that the order for costs that the trustee proposes is a simulacrum that is of no substantive value to Mr Kent. 6 On 27 October 2023, I required the trustee, after receiving the last of the parties' submissions on 26 October 2023, to file and serve a notice under s 78B of the Judiciary Act 1903 (Cth) to raise the constitutional issue of how State legislation (being s 93 of the Trustee Act and r 42.25 of the UCPR) could operate to condition or qualify the Court's express powers to order costs in a matter such as this that the Parliament had conferred on it in s 43 of the Federal Court of Australia Act 1976 (Cth) (the Federal Court Act), s 18A(1)(a) and (2)(a) of the Bankruptcy Act and s 90-15(1), (3)(a), (d), (5) and (7) in Sch 2 of that Act and in light of decisions such as Wing v Fairfax Media Publications Pty Ltd (2017) 255 FCR 61. 7 On 31 October 2023, the trustee withdrew its reliance on s 93 of the Trustee Act and r 42.25 of the UCPR as one of the bases on which it supported its application that any order for costs against it be limited to the assets of the bankrupt estate.

THE LEGISLATIVE CONTEXT 8 The Bankruptcy Act provides in s 30(1) that the Court has full power to decide all questions of fact or law in any case of bankruptcy and to make any orders, including declarations, that it considers necessary for the purpose of carrying out, or giving effect to, the Act in any matter. That Act also confers powers on a trustee in bankruptcy under s 134(1). In addition, the Bankruptcy Act provides that the trustee (ie the official trustee in bankruptcy), first, is a body corporate which may sue and be sued in its corporate name (s 18(1), (2)(c)) and, secondly, is subject to the same personal liability in respect of an act done, or omitted to be done, by it as trustee of the estate of a bankrupt as an individual acting as such a trustee would be subject if he or she had done, or omitted to do, that act (s 18A(1)(a)). Moreover, s 18A(2)(a) provides: 18A Liability of the Official Trustee … (2) The Commonwealth is by force of this subsection liable to indemnify the Official Trustee against any personal liability, including any personal liability as to costs, incurred by it: (a) by reason of subsection (1); (emphasis added) 9 Next, s 90-15 in Sch 2 of the Bankruptcy Act relevantly provides: 90‑15 Court may make orders in relation to estate administration Court may make orders (1) The Court may make such orders as it thinks fit in relation to the administration of a regulated debtor's estate. … Examples of orders that may be made (3) Without limiting subsection (1), those orders may include any one or more of the following: (a) an order determining any question arising in the administration of the estate; … (d) an order in relation to the costs of an action (including court action) taken by the trustee of the estate or another person in relation to the administration of the estate; … Costs orders (5) Without limiting subsection (1), an order mentioned in paragraph (3)(d) in relation to the costs of an action may include an order that: (a) the trustee or another person is personally liable for some or all of those costs; and (b) the trustee or another person is not entitled to be reimbursed by the regulated debtor's estate or creditors in relation to some or all of those costs. … Section does not limit Court's powers (7) This section does not limit the Court's powers under any other provision of this Act, or under any other law. (emphasis added) 10 The Trustee Act provides in s 63 that a trustee can seek judicial advice.

THE TRUSTEE'S SUBMISSIONS 11 The trustee argued that, because it had sought judicial advice, I should make the advice declaration to reflect what it should do as a result of my findings in the principal reasons. As to costs, it submitted that it had sought judicial advice, had acted in the public interest and was not seeking private gain. It argued that there was an accepted "general practice" that any costs ordered against a trustee be capped at the amount of assets vested in the estate. It opposed the indemnity order, asserting that, because Mr Kent sought to advance his own interests in the litigation, had only lodged his complaint after his discharge and, supposedly, had refused to give evidence, he was not entitled to a beneficial exercise of the judicial discretion to an award of indemnity costs in his favour.

THE ISSUE RAISED BY AFCA 12 AFCA raised the question as to whether the principal reasons left open the possibility that some of the settlement sum may have been, or represented, property of the bankrupt estate or the value of a right that had vested in the trustee. AFCA suggested that it may be appropriate for the final relief to clarify this question. 13 I do not consider it necessary to make any further order addressing AFCA's concern. That is because the issues that the parties litigated were whether Mr Kent's right to make the complaint was property that vested in the trustee, the deed resolved the complaint, Mr Kent could pursue the complaint if it were not so resolved, and whether he asserted legal rights in it that were statute barred (see [6] in the principal reasons). 14 In the principal reasons, I found that the trustee could not resolve the complaint because Mr Kent retained one or more causes of action that had never vested in the trustee by the time of the deed (see [111], [130] and [155]). In those circumstances, I held that it will be a matter for AFCA to perform its dispute resolution functions under the AFCA scheme pursuant to the tripartite contract between it, Mr Kent and the bank. It was not necessary to determine whether any of Mr Kent's rights against the bank vested in the trustee at the time of his bankruptcy once I found that he retained substantive legal rights sufficient to enable him to make and pursue the complaint. The latter finding meant that the trustee could not enter into the deed or release Mr Kent's rights that never vested in it or became part of his bankrupt estate. 15 The consideration that passed under the deed for the bank's payment of the settlement sum to the trustee and the bank's promise to pay a further $20,000 to Mr Kent was that the trustee agreed to resolve the complaint and release the bank and persons related to it from all liability in relation to the complaint (see [52] in the principal reasons). 16 The settlement sum was not apportioned. The bank's obligation under the deed to pay the settlement sum and the trustee's rendering of its counter-performance of resolving the complaint and giving the release were entire and indivisible. The consideration wholly failed because the trustee could not resolve the complaint or grant any release of Mr Kent's rights that I found had not vested in it or formed part of his bankrupt estate: Baltic Shipping Co v Dillon (1993) 176 CLR 344 at 350 per Mason CJ (Toohey J at 383 agreeing), 374 per Deane and Dawson JJ, 384-385 per Gaudron J (applying Steele v Tardiani (1946) 72 CLR 386 at 401 per Dixon J) (see too per Brennan J at 367). 17 Accordingly, no apportionment of the settlement sum is possible. Moreover, neither the bank nor the trustee suggested that, having regard to my findings in the principal judgment, any apportionment ought be made or what, if any, of Mr Kent's rights vested in the trustee or formed any part of his bankrupt estate.

PRINCIPLES: JUDICIAL ADVICE 18 The sole purpose for which s 63 of the Trustee Act and its analogues confers jurisdiction on a court to give advice to a trustee is to determine what the trustee ought to do in the best interests of the trust or the estate: Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar the Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand (2008) 237 CLR 66 at 102-103 [104]-[107] per Gummow ACJ, Kirby, Hayne and Heydon JJ approving the advice of the Privy Council in Marley v Mutual Security Merchant Bank and Trust Co Ltd [1991] 3 All ER 198 at 201. Their Honours said that sometimes it may be in the interests of the trust estate for a trustee to obtain judicial advice concerning adversarial cases that involve the trustee or the trust (at 103 [107]) and that, ordinarily, one purpose of a trustee doing so will be to protect the interests of the trust (at 94 [72]-[73]). Gummow ACJ, Kirby, Hayne and Heydon JJ also held (at 93-94 [71]-[72]): In short, provision is made for a trustee to obtain judicial advice about the prosecution or defence of litigation in recognition of both the fact that the office of trustee is ordinarily a gratuitous office and the fact that a trustee is entitled to an indemnity for all costs and expenses properly incurred in performance of the trustee's duties. Obtaining judicial advice resolves doubt about whether it is proper for a trustee to incur the costs and expenses of prosecuting or defending litigation. No less importantly, however, resolving those doubts means that the interests of the trust will be protected; the interests of the trust will not be subordinated to the trustee's fear of personal liability for costs. It is, therefore, not right to see a trustee's application for judicial advice about whether to sue or defend proceedings as directed only to the personal protection of the trustee. Proceedings for judicial advice have another and no less important purpose of protecting the interests of the trust. (italic emphasis in original; bold emphasis added) 19 Similar considerations are relevant to an application by a trustee of a regulated debtor's estate (such as a trustee in bankruptcy) under s 90-15(1) in Sch 2 of the Bankruptcy Act for an order in relation to the administration of the debtor's estate. Traditionally, when a trustee in bankruptcy or a liquidator, who had been appointed by an order of the court, was concerned about whether he or she would be acting properly in pursuing a course of action, such as bringing or defending proceedings, the court's officer could apply for directions or judicial advice as to whether he or she would be justified in so acting. Of course, such a court appointee is not in the same position as an ordinary trustee, who frequently acts gratuitously in the office of trustee, or a person appointed pursuant to a statutory mechanism, such as when the official receiver accepts a debtor's petition. 20 However, as Gummow ACJ, Kirby, Hayne and Heydon JJ noted in Macedonian Church 237 CLR at 93 [69]-[70] and 97-99 [89]-[96], one purpose of s 63 of the Trustee Act and its analogues is to enable the trustee to ascertain in advance, but subject to the possibility of revocation in the future, whether he, she or it would be able to obtain indemnity from the trust estate for the costs of bringing or defending a proceeding. They explained that the court has power to impose a condition, when giving judicial advice, that a trustee will be justified in expending funds of the trust estate in litigation in which, for example, the trustee's conduct or one or more of his, her or its decisions is challenged, that the advice is subject to the court being able to revisit that question after the litigation concludes in light of any facts that emerge which may bear on the propriety of the trustee's conduct or decision that were not known or proven earlier when the court gave its advice. 21 Ordinarily, the court will not give judicial advice to a trustee about a matter of commercial or business judgment. Goldberg J explained why in Re Ansett Australia Ltd (No 3) (2002) 115 FCR 409 at 428 [65], where he said that: the prevailing principle adopted by the courts, when asked by liquidators and administrators to give directions, is to refrain from doing so where the direction sought relates to the making and implementation of a business or commercial decision, either committed specifically to the liquidator or administrator or well within his or her discretion, in circumstances where there is no particular legal issue raised for consideration or attack on the propriety or reasonableness of the decision in respect of which the directions are sought. There must be something more than the making of a business or commercial decision before a court will give directions in relation to, or approving of, the decision. It may be a legal issue of substance or procedure, it may be an issue of power, propriety or reasonableness, but some issue of this nature is required to be raised. It is insufficient to attract an order giving directions that the liquidator or administrator has a feeling of apprehension or unease about the business decision made and wants reassurance. There must be some issue which arises in relation to the decision. A court should not give its imprimatur to a business decision simply to alleviate a liquidator's or administrator's unease. There must be an issue calling for the exercise of legal judgment. (emphasis added) 22 McLelland J expressed a similar view in Re G B Nathan and Co Pty Ltd (in liq) (1991) 24 NSWLR 674 at 679F-680C; see also Goyal, in the matter of Cape Technologies Pty Ltd (administrators appointed) [2021] FCA 1654 at [19]-[20] per Yates J; Leroy (Trustee), in the matter of Vitale and Vitale (Bankrupts) [2016] FCA 999 at [37] per Wigney J; Heenan (as joint and several receivers of Ruby Apartments Pty Ltd (recs and mgrs apptd) (in liq)) v Ralan Paradise No 1 Pty Ltd (recs and mgrs apptd) (in liq) (No 2) (2021) 156 ACSR 86 at 95-97 [50]-[55] per Downes J; see too JD Heydon and MJ Leeming, Jacobs' Law of Trusts in Australia (8th ed, LexisNexis Butterworths, 2016) at [21-34]. 23 As Gummow ACJ, Kirby, Hayne and Heydon JJ explained in Macedonian Church 237 CLR at 93-94 [69]-[71], one reason why a trustee may seek judicial advice is to protect his, her or its right to indemnity from the trust estate for the costs that the trustee, as a party to the litigation, will be personally liable to pay to the other party if he, she or it is ordered to pay costs as well as for the expenses that the trustee incurs in pursuing the litigation. That is because the trustee, not the abstract entity (without a separate legal personality) comprising the trust estate, holds the assets the subject of the trust in the trustee's own name and the trustee, not the trust estate, is the party to the litigation and has a duty to act in the best interests of the trust. The right of a trustee to be indemnified for expenses properly incurred in the administration of the trust (including the trustee's own costs of pursuing or defending litigation and any liability to pay another party's costs in the litigation) is a beneficial proprietary interest of the trustee in the trust estate: Chief Commissioner of Stamp Duties for New South Wales v Buckle (1998) 192 CLR 226 at 246-247 [50]-[51] per Brennan CJ, Toohey, Gaudron, McHugh and Gummow JJ.

SHOULD THE ADVICE DECLARATION BE MADE? 24 Here, the trustee was in a dilemma once it received Golledge SC's opinion that it could not make the complaint under the AFCA scheme rules, or resolve it, because the trustee was not an "eligible person" under the rules and no property, chose in action or other right of Mr Kent had vested in the trustee. That dilemma intensified with Ms Gobbo's inconsistent opinion (see [66]-[69], [74] of the principal reasons). 25 The trustee's originating application sought declarations, first, under ss 30(1) and 134(1) of the Bankruptcy Act together with s 63 of the Trustee Act that it would be justified in treating the settlement sum as property of the bankrupt and, secondly, pursuant to s 90-15 in Sch 2 to the Bankruptcy Act, that the settlement sum was property of the bankrupt that had vested in the trustee. 26 Counsel for the trustee submitted on the first day of the hearing: I would agree that it is something of a test case, your Honour, because it is not uncommon that people who find themselves bankrupt also may have valid complaints against a financial services firm, and the decision here will undoubtedly affect quite a few other administrations - - - by not just the official trustee but trustees in bankruptcy generally. (emphasis added) 27 The trustee should have joined the bank and AFCA at the outset of the proceeding because each was a proper and necessary party. Their participation from the inception is likely to have shortened the length of the proceeding, although this is not certain. 28 In its initial written submissions in reply, the trustee made clear that it was seeking both judicial advice and a binding declaration of right stating (par 21): It is not unusual for directions and orders declaratory of substantive rights and intended to bind parties to the proceedings being started as an application for directions [Re Staff Benefits Pty Ltd (in liq) and the Companies Act [1979] 1 NSWLR 207]. The appropriate course where such determinations are sought is to join parties with competing interests [Re Bamboo Direct Pty Ltd (in liq) [2016] FCA 264. [41]; citing Meadow Springs Fairway Resort Ltd (in liq) v Balanced Securities Ltd [2007] FCA 1443]. The [trustee] has done so and [Mr Kent] has opted to contest the matter. (emphasis added) 29 By the time of the commencement of the trial, the submissions of the parties engaged on the substantive issue of whether the trustee had the legal right to enter into the deed and be paid the settlement sum which it had received and retained since late February 2021. From about that time, the trustee was aware that Mr Kent disputed its asserted entitlement to enter into the deed and to resolve any matter the subject of his complaint. 30 Mr Kent's cross-claim also sought a final determination of his legal rights. That reflected the way which the trustee's submissions concentrated on the substantive issues of what the parties' legal rights were based on the evidence. 31 In my principal reasons, I found (at [155]) that the trustee was not entitled to any of the relief it had sought and (at [156]): This was very much in the nature of a test case as to the interaction between the AFCA scheme and the rights of trustees in bankruptcy, bankrupts and financial firms under the Bankruptcy Act. Ultimately, Mr Kent has had substantial success, although not on, and perhaps despite, some of his arguments. 32 I am of opinion that it is not appropriate to make the advice declaration. That is because the agreed form of the non-vesting declaration is a binding declaration of right that determines, as a matter of substance under s 30(1) of the Bankruptcy Act and Mr Kent's cross-claim, that the settlement sum which the trustee received from the bank is not property of Mr Kent's bankrupt estate that vested in the trustee and, as the trustee accepted (based on that declaration), now must be repaid to the bank. 33 While the trustee was entitled to apply for judicial advice on this subject matter (Macedonian Church 237 CLR 66, see [18]-[20] above), that aspect of its originating application was overtaken by the trustee's need for a binding determination as to whether a trustee in bankruptcy has any, and if so what, interest or property in a complaint by a (present or former) bankrupt under the AFCA scheme or whether any property of the bankrupt the subject or product of a complaint under that scheme vests in a trustee in bankruptcy. This was the essential reason why the trustee, together with all the parties, conducted the proceeding as a test case about the legal nature of the right of a bankrupt to make a complaint under the AFCA scheme and what, if any, interest vested in, or could be exercised by, a trustee in bankruptcy in respect of such a complaint or any proposed resolution of it. 34 The Court's resolution of what, if any, rights or property of Mr Kent vested in the trustee, in the factual context established in the evidence at the trial, would provide, first, a judicial determination of the substantive dispute between the trustee and Mr Kent about the trustee's ability to resolve the complaint in the circumstances and, secondly, at least possibly useful obiter dicta or judicial reasoning that could assist trustees in bankruptcy, AFCA and members of the AFCA scheme, such as the bank, in dealing with future issues involving persons in the positions of those now in the present litigation. 35 However, in contrast, any judicial advice that I gave could not create a legally binding finding, res judicata or issue estoppel in respect of any issue arising under the wider questions in the proceeding because such advice could not resolve authoritatively any controversy between parties. That is why I required the joinder of the bank and AFCA and Mr Kent filed his cross-‍claim. Moreover, the advice declaration that the trustee now proposes be made reflects the antithesis of the advice that it sought in the originating application. 36 I found in the principal reasons that some of the subject matter of the complaint comprised the personal, unassignable rights of Mr Kent to apply for an order under ss 178(1) and 179(1) of the National Consumer Credit Protection Act 2009 (Cth) that were not property at all or property of the bankrupt and could not vest in a trustee in bankruptcy because any such right fell within the exception in s 116(2)(g)(i) of the Bankruptcy Act (see [129]-[130]). Accordingly, at least by lodging the complaint with AFCA in respect of those matters, Mr Kent had enlivened AFCA's obligation to perform its dispute resolution functions under the tripartite contract between himself, AFCA and the bank, in which the trustee had no unilateral capacity to participate, as it had purported to do by entering into the deed to "resolve" the complaint. 37 Thus, my findings in the principal reasons did not determine the advisability of the trustee's decision to enter into the deed, but rather represented conclusions about the parties' legal rights on the evidence that resolved, once for all, the issues of fact and law contested in the litigation. 38 The substance of the three declarations of right that all of the parties agreed would give effect to my reasons are not of the character of judicial advice. Those three declarations resolved the controversy between all four parties. That resolution makes it unnecessary to give any judicial advice to the trustee in the form of the advice declaration. Rather, the substance of the three declarations states the legal rights of the parties and leaves no room for doubt that the deed did not resolve the complaint. 39 The trustee acknowledged in the course of argument that, in this event, it would be obliged to repay the settlement sum to the bank. It does not need the advice declaration. The substance of the three declarations of right will make clear that the deed did not resolve the complaint because the trustee had no legal right to do so and that, as a result, the trustee cannot retain the settlement sum that the bank paid it in purported performance of its obligations under the deed: cf Warramunda Village Inc v Pryde (2001) 105 FCR 437 at 440 [8] per Gray, Branson and North JJ. 40 It is unnecessary and inappropriate to give the trustee any judicial advice sought in the advice declaration that would do no more than repeat, in a non-binding way, the determinative effect of the non-vesting declaration. The advice declaration would produce no foreseeable consequence for the parties and should not be made: Ainsworth v Criminal Justice Commission (1992) 175 CLR 564 at 582 per Mason CJ, Dawson, Toohey and Gaudron JJ.

SHOULD A NOTATION BE MADE THAT THE TRUSTEE HAS AGREED TO REPAY THE SETTLEMENT SUM? 41 The trustee was not acting as an officer of the court in its capacity as Mr Kent's trustee in bankruptcy consequent on its appointment by force of s 55(4) of the Bankruptcy Act when the official receiver accepted his debtor's petition. However, there is no reason to consider that a trustee in bankruptcy of a bankrupt's estate should be subject to a different standard of conduct depending on the fortuity of whether that trustee is appointed by force of the statute or by a court order following a decision, after hearing a creditor's position, that a sequestration order should be made. It is well established that the rule in Ex parte James; Re Condon (1874) LR 9 Ch App 609 applies where a trustee in bankruptcy (or liquidator) is an officer of the court by force of a court order appointing that person to the position: Adsett v Berlouis (1992) 37 FCR 201 at 208 per Northrop, Wilcox and Cooper JJ. In Ex parte James LR 9 Ch App at 614, James LJ stated the rule as follows: I am of opinion that a trustee in bankruptcy is an officer of the Court. He has inquisitorial powers given him by the Court, and the Court regards him as its officer, and he is to hold money in his hands upon trust for its equitable distribution among the creditors. The Court, then, finding that he has in his hands money which in equity belongs to some one else, ought to set an example to the world by paying it to the person really entitled to it. In my opinion the Court of Bankruptcy ought to be as honest as other people. 42 Given that the trustee is now aware that it has no right to retain the settlement sum in light of the non-vesting declaration, there is no need to give it judicial advice to act, as it must, in accordance with the same high standard of honesty and propriety that it also would have had to follow had it been appointed trustee of Mr Kent's bankrupt estate by a court order. Moreover, there is no reason to think that the trustee, as a public officer and corporation sole, will not conduct itself with that level of honesty and propriety. A notation to that effect will not have any purpose in the present circumstances but, given that the parties have agreed about it, I will proceed to give effect to their agreement.

PRINCIPLES: LIABILITY OF A TRUSTEE IN BANKRUPTCY FOR COSTS 43 Where a trustee in bankruptcy applies unsuccessfully to a court for an order for payment of money that he, she or it alleges belongs to the bankrupt estate, the trustee has the same liability for costs of the action as any other unsuccessful party in litigation: Trustees of the property of Sandor, a bankrupt v Ramirez [1999] NSWCA 261 at [72]-[73] per Sheller JA with whom Meagher and Beazley JJA agreed; Ex parte Angerstein; Re Angerstein (1874) LR 9 Ch App 479 at 479-480 per Mellish LJ, James LJ agreeing; Pitts v La Fontaine (No 2) (1880) 6 App Cas 482 at 486 (Privy Council). 44 Unless the Bankruptcy Act modifies the general law in a particular respect, a trustee in bankruptcy is in the same position, and has the same rights, as any other trustee to reimbursement from the trust estate of any costs properly incurred: Adsett 37 FCR at 209-210. There, Northrop, Wilcox and Cooper JJ held (at 210): The obligation of a trustee in bankruptcy to pay costs to another party involved in litigation unsuccessfully instituted or defended by the trustee is a matter distinct from the trustee's entitlement to recoupment out of the bankrupt's estate: see Pitts v La Fontaine (1880) 6 App Cas 482 at 486; Re Driller (1972) 21 FLR 159 at 175. Ordinarily, an unsuccessful trustee will be ordered to pay the costs of the successful party. Such an order imposes a personal obligation on the trustee. In such a case, the question then arises as to whether or not the trustee has a right to be reimbursed out of the trust estate. This latter question arises in the administration of the bankruptcy, not in the original litigation. (emphasis added) 45 Under s 43(2) of the Federal Court Act, the Court has express power to make an order for costs "in the discretion of the Court" except as provided by another Act of the Parliament. The Bankruptcy Act also expressly recognises, in s 18A and s 90-15(3)(d) and (5) in Sch 2, that the official trustee in bankruptcy can incur personal liability for costs in the same way as any individual and, then, provides that the trustee will be indemnified by the Commonwealth for any such liability (see s 18A(2)(a)). 46 The discretion to order costs must be exercised judicially by reference only to relevant considerations on the basis of facts connected with, or leading up to, the litigation. A guiding and important principle for the exercise of the discretion to order costs is that "the successful party is generally entitled to his or her costs by way of indemnity against the expense of litigation that should not, in justice, have been visited upon that party": Northern Territory v Sangare (2019) 265 CLR 164 at 172-173 [24]-[25] per Kiefel CJ, Bell, Gageler, Keane and Nettle JJ (footnote omitted). A circumstance that a party is a public authority, or rich or poor, is irrelevant to the discretion to award costs, because everyone is equal before the law: Sangare 265 CLR at 174 [28] and 175 [32]; Adsett 37 FCR at 210. As the Privy Council held in Pitts 6 App Cas at 486, the fact that a bankrupt estate has little or no funds is also irrelevant to the personal liability of the trustee to pay the costs of the other, successful party to the litigation. 47 In Pattison v Graham (1854) 2 Sm & Giff 207 at 211; 65 ER 367 at 369, Stuart VC said that a person in the position of a trustee in bankruptcy had "no right to drive a person into this Court, except on the ordinary principle that the costs must be paid by the party by whose unfounded claim the litigation has been occasioned". He said that there was no special right exempting a party in the trustee's position "from what is the ordinary and the just rule on the subject of costs". 48 However, a trustee in bankruptcy or a liquidator who defends proceedings in a representative capacity, ordinarily, will not be personally liable for costs unless the trustee or liquidator has acted unreasonable: BCI Finances Pty Ltd (in liq) v Binetter (2018) 362 ALR 597 at 698-699 [616]-[617], [622] per Allsop CJ, Moshinsky and Colvin JJ; Silvia v Brodyn Pty Ltd (2007) 25 ACLC 385 at 394 [52]-[55] per Hodgson JA with whom Ipp and Basten JJA agreed applying Re Wilson Lovatt & Sons Ltd [1977] 1 All ER 274 at 285 per Oliver J. As Hodgson JA held (Silvia 25 ACLC at 394 [52]-[53]), generally, where a liquidator unsuccessfully defends a proceeding, and acts reasonably in that defence, a costs order will be fashioned so that the liquidator does not incur personal liability, such as by limiting the liability to the amount of the assets of the company available for that purpose. The same principle applies to a trustee in bankruptcy. One means of determining the reasonableness of a trustee or liquidator who unsuccessfully defends a proceeding may be that the trustee or liquidator did so after obtaining judicial advice: BCI Finances 362 ALR at 698-699 [617].

SHOULD THE TRUSTEE'S LIABILITY FOR COSTS BE LIMITED? 49 When the trustee filed its originating application, it pleaded claims for orders that appeared to be framed as judicial advice but which it also recognised in its written submissions (see [28] above) would require the Court to make a declaration of substantive rights as a determination of law or fact under s 30(1) of the Bankruptcy Act. 50 In commencing the proceeding, the trustee acted as the protagonist. It sought to justify its action in taking over the negotiations with the bank and entering into the deed on terms that purported to resolve the complaint. Once it received Golledge SC's opinion, the trustee was aware that there was a real issue of law about its ability to enter into the deed to "resolve" the complaint and retain the settlement sum. In those circumstances, the matter the subject of the proceeding that the trustee commenced always involved more than a mere claim for judicial advice. That became pellucid in the trustee's pretrial written submissions and was reinforced when Mr Kent asserted, well before the trial, that the trustee had no basis to interfere with his pursuit of the complaint or his personal, unassignable rights against the bank. 51 The trustee did not seek judicial advice before it decided to intervene in Mr Kent's complaint and exclude him in its negotiations with the bank that led to its entry into the deed. I do not accept the criticism of Mr Kent in the trustee's submissions that he failed to lodge his complaint before his discharge from bankruptcy or that he refused to give evidence in the proceeding. The timing of the making of the complaint had no relevance to the legal characterisation of whether it involved any property of the bankrupt or right that could have vested in the trustee under the Bankruptcy Act. Nor was there any relevant issue about which Mr Kent could have given evidence relating to the ability of the trustee to deal with the bank, as it did, in respect of "resolving" the complaint or entering into the deed. 52 Without having first obtained judicial advice, the trustee later sought to justify its conduct in intervening in Mr Kent's complaint and, by entering into the deed, in effect, frustrating the performance by him, AFCA and the bank of the tripartite contract to resolve the complaint that he had initiated. Within a month of its entry into the deed and receipt of the settlement sum, the trustee obtained Golledge SC's unfavourable opinion, yet it did not then begin any proceeding to ascertain its legal position. Instead, it waited until well after it received Ms Gobbo's contrary opinion in December 2021. 53 The conflict in those two opinions suggested that, first, this was not a proceeding that, in substance, was appropriate for it to seek only judicial advice, given the substantive legal uncertainty about the validity of what the trustee had done. As the trustee acknowledged in its pretrial written submissions, it needed certainty from a binding declaration of right, not advice, about whether it had acted appropriately. While I have accepted that it was entitled to seek judicial advice, that advice would have been that, because of the conflicting opinions from counsel, the trustee needed to bring, as it did, a substantive proceeding under s 30(1) of the Bankruptcy Act to resolve the questions of fact and law as to whether it had any legal rights to resolve the complaint, enter into the deed, receive or retain the settlement sum or whether any interest of the bankrupt, or his estate, had vested in it under s 58 in respect of those actions. 54 The trustee was, in fact and in substance, the moving party against whose actions Mr Kent succeeded by defending his position in the proceeding. The conflicting legal opinions that the trustee received meant that it had to bring the proceeding against Mr Kent because of the doubts about its rights to enter into the deed, retain the settlement sum and "resolve" the complaint. Mr Kent's cross-claim was a reaction that the trustee sought to provoke, as the actor, "attacker" or person seeking to justify its own uncertainty about what it had done: cf Willey v Synan (1935) 54 CLR 175 at 180 per Latham CJ, 185-186 per Dixon J (with whom Rich J agreed at 181) and 187 per McTiernan J. It is not appropriate to characterise the role of the trustee in the circumstances as that of either a defendant brought to the court by Mr Kent's actions or as otherwise attracting the principles for a capped costs order as identified in BCI Finances 362 ALR at 698-699 [616]-[617], [622] or Silvia 25 ACLC at 394 [52]-[55]. 55 As I noted in the principal reasons at [1] and [156], the proceeding that the trustee brought was in the nature of a test case which, as it knew from the conflicting legal opinions that it had received, had general importance for the administration of bankrupt estates in relation to the AFCA scheme. The outcome of the proceeding would be likely to provide a precedent for the trustee, in the exercise of its statutory functions, and other trustees in bankruptcy about that subject matter. The public interest purpose and nature of a proceeding brought by an individual is a consideration that can be relevant to the issue of costs as Lindgren and Lehane JJ held in Qantas Airways Ltd v Cameron (No 3) (1996) 68 FCR 387 at 390B-C. That consideration is apposite here. 56 The trustee has its statutory right to indemnity from the Commonwealth under s 18A(2)(a) of the Bankruptcy Act to support it in any litigation. In contrast, Mr Kent was forced to defend his position without the resource of an unlimited statutory right to indemnity from the Commonwealth or anyone else. He was wholly successful in his defence of the unfounded action by the trustee that interfered with the performance by him, AFCA and the bank of their obligations under the tripartite contract that the complaint initiated: Ramirez [1999] NSWCA 261 at [72]-[73]; Adsett 37 FCR at 210; Sangare 265 CLR at 172-173 [24]-[25]; Pattison 2 Sm & Giff at 211; 65 ER at 369; Angerstein LR 9 Ch App at 479-480; Pitts 6 App Cas at 486. 57 Accordingly, I am of opinion that the justice of the case requires, in accordance with principle, that the trustee be personally liable to pay Mr Kent's costs without any capped costs order, as s 18A(1)(a) of the Bankruptcy Act and s 90-15(3)(d), (5) and (7) in Sch 2 of that Act contemplate: cf Re Griffiths (2004) 139 FCR 185 at 204 [76] per Beaumont, Weinberg and Crennan JJ. 58 In addition, s 90-15(3)(d) in Sch 2 appears to be a new provision as to the susceptibility of a trustee in bankruptcy to an order for costs "in relation to the administration of the estate". Although it is not necessary to rely on this provision in the circumstances, I am inclined to think that, because the trustee brought this as, in effect, a test case, "in relation to the administration of the estate", even if it were characterised as including an application for judicial advice and a proceeding (based on Mr Kent's cross-claim) against the trustee, the trustee should be personally liable for Mr Kent's costs. 59 Neither AFCA nor the bank seeks any order for costs.

SHOULD THE INDEMNITY ORDER BE MADE? 60 The nature of this as a test case and one involving an important issue arising under both the Bankruptcy Act and the AFCA scheme suggests that its importance, in the context of the administration of the Bankruptcy Act, far outweighs its importance to the trustee in relation to the individual circumstances of Mr Kent or the administration of his individual bankrupt estate. The trustee needed an authoritative determination by the Court as to the interaction between bankrupts, trustees in bankruptcy, the operation of the Bankruptcy Act and complaints by present and former bankrupts under the AFCA scheme. 61 One purpose for which the unqualified right to indemnity that s 18A(2)(a) of the Bankruptcy Act confers on the official trustee in bankruptcy is that the Parliament intended to ensure that it could perform its functions and duties under that Act effectively. Often bankrupt estates will not realise sufficient to pay for the trustee's costs and expenses of administration and it may be that only the official trustee in bankruptcy will be willing to take on the onerous role of trustee of those estates. Another purpose of s 18A(2)(a) is to enable the official trustee in bankruptcy to conduct test cases, such as these, for the purpose of clarifying important points of law that arise in the administration of bankrupt estates including ones that individual trustees may be unwilling to litigate because of their risk of being found personally liable for costs. 62 It is not a pre-requisite for an order that costs be paid on an indemnity (or solicitor and client) basis that the unsuccessful party's conduct of the litigation was unmeritorious. Where the proceeding is in the nature of a test case, s 43(2) of the Federal Court Act allows the Court to make an indemnity costs order against an unsuccessful party who has conducted the litigation in a regular and proper manner: Australian Federation of Consumer Organisations Inc v Tobacco Institute of Australia Ltd (1991) 100 ALR 568 at 572 per Morling J; Baltic Shipping Co v Dillon ("Mikhail Lermontov") (1991) 22 NSWLR 1 at 34D-35D per Kirby P with whom Gleeson CJ agreed (at 10A) (Although in Dillon 176 CLR 344, the High Court allowed an appeal on a limited basis, Mason CJ at 367, with whose orders Brennan J at 372, Toohey J at 383, Gaudron J at 387 and McHugh J at 406 each agreed, held that there was no reason to disturb the indemnity order for costs made by the Court of Appeal); Hall v WorkCover Queensland [2014] QCA 202 at [5]-[7] per McMurdo P, Muir JA and Atkinson J; Cameron (No 3) 68 FCR at 390B-C. This must be particularly so where the issue in a test case has important consequences for the administration of an Act or scheme with wide application such as occurred here: Dillon 22 NSWLR at 35B-C. 63 The issues raised in this proceeding were important to the trustee, in its official capacity, as well as the trustee of Mr Kent's individual bankrupt estate. Those issues were also of general public importance to complaints by present or former bankrupts and their trustees in bankruptcy under the AFCA scheme and the Bankruptcy Act. 64 I am of opinion that, in all of the circumstances, it is appropriate and just to order that the trustee pay Mr Kent's costs on an indemnity basis.

CONCLUSION 65 Accordingly, I will not make the advice declaration or a capped costs order but instead will order the trustee to pay Mr Kent's costs on an indemnity basis. I certify that the preceding sixty-five (65) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Rares.

SCHEDULE OF PARTIES NSD 272 of 2022 Cross-Respondents Second Cross-Respondent COMMONWEALTH BANK OF AUSTRALIA LTD Third Cross-Respondent AUSTRALIAN FINANCIAL COMPLAINTS AUTHORITY LTD