Re Wheeler: Ex parte Wheeler v Halse

IN THE FEDERAL COURT OF AUSTRALIA ) WESTERN AUSTRALIA DISTRICT REGISTRY) GENERAL DIVISION ) NO. WAG 1501 OF 1995 BRIAN ALEXANDER BETHUNE Applicant and DIANA DENISE NEWMAN Respondent CORAM: JUSTICE R D NICHOLSON DATE: 2 JANUARY 1996 PLACE: PERTH REASONS FOR JUDGMENT This is an application brought under s178 of the Bankruptcy Act 1966 ("the Act") for return of the applicant's passport. A sequestration order was made against the applicant on 11 December 1995 and he was notified of it on 21 December 1995. On 22 December he attended upon the respondent (`the Trustee') and delivered his passport to her. At the same time he requested the return of the passport. The Trustee declined the request. On the present evidence, the grounds for her refusal were that the Trustee did not know whether the bankrupt would be required to contribute to the Estate and she was not in a position to make a decision on that until she had reviewed the Statement of Affairs. I am told by counsel on her behalf that she did not see the Statement of Affairs until the morning of this hearing. The applicant seeks to depart overseas to Vietnam tomorrow to carry out duties in the course of his employment with a company, Millpond Pty Ltd ("Millpond"). As appears from his affidavits, he seeks to be absent approximately 3 weeks with an interval of return for about 10 days to Western Australia followed by a further 3 weeks in Vietnam carrying out the duties of his employment with Millpond. He says that if he is not permitted to go to Vietnam the future of Millpond's business will be seriously compromised and his primary source of income will be lost. The applicant surrendered his passport to the Trustee in accordance with the provisions of s77(a)(ii) of the Act. The Trustee is obligated pursuant to s139W(1), "as soon as practicable after the start of each contribution assessment period in relation to a bankrupt," to make an assessment of the income that is likely to be derived by the bankrupt during that period of the actual income threshold amount that is applicable in relation to the bankrupt when the assessment is made and of the contribution (if any) that the bankrupt is liable to pay in respect of that period pursuant to s139S. As soon as practicable after the making of an assessment the Trustee must give to the bankrupt written notice setting out particulars of the assessment: s139W(4). The phrases "contribution assessment period" and "actual income threshold amount" are defined in s139K of the Act. Relevantly the "contribution assessment period" in relation to a bankrupt means a period that begins on the commencement of the bankruptcy and ends 1 year after that commencement or upon discharge. The liability to make contributions also derives from ss139P and 139Q, although the latter section is not apparently relevant on the facts here. Section 139P(1) provides that, subject to s139Q,: "If the income that a bankrupt is likely to derive during a contribution assessment period as assessed by the Trustee under an original assessment exceeds the actual income threshold amount applicable in relation to the bankrupt when that assessment is made the bankrupt is liable to pay to the Trustee a contribution in respect of that period."

Evidentiary Objection On the hearing of this application notice has been given on behalf of the Trustee that it is sought to lead evidence designed to show that there would be grounds of objection referred to in pars149D(b)(e) and (g) of the Act that could be set out in a notice in objection to the discharge of the bankrupt under s149B. The relevance of that is that s139ZU(3) provides that: "The court must not grant permission to a bankrupt to leave Australia if it is satisfied that any of such grounds are made out."

Section 139ZU(1) provides that: "A bankrupt who is liable to pay to the Trustee a contribution under section 139P(1) or 139Q(1) is not entitled to leave Australia unless, on application made by the bankrupt, the court has made an order granting the bankrupt permission to leave Australia."

The relevant paragraphs of s149D(1) read as follows: "149D (1) The grounds of objection that may be set out in a notice of objection are as follows: (a) ... (b) after the date of the bankruptcy the bankrupt continued to manage a corporation as mentioned in section 91A of the Corporations Law without having been given leave to do so under section 229 of that Law; (c) ... (d) ... (e) the bankrupt failed to disclose any particulars of income or expected income as required by a provision of this Act referred to in subsection 6A(1) or by section 139U; (f) ... (g) at any time during the period of 5 years immediately before the commencement of the bankruptcy, or at any time during the bankruptcy, the bankrupt: (i) spent money but failed to explain adequately to the trustee the purpose for which the money was spent; or (ii)disposed of property but failed to explain adequately to the trustee why no money was received as a result of the disposal or what the bankrupt did with the money received as a result of the disposal; (h) ... (i) ... (j) ..."

For the applicant, objection is taken to evidence being lead in relation to those paragraphs. On behalf of the Trustee it is contended that such evidence should be allowed. On the case for the applicant, the objection is supported by the contention that s139ZU is only operative where there is a liability to pay: that is, where the Trustee has made an assessment under ss139P(1) or 139Q(1) and consequently the section has no application where no such assessment has been made. Further, and as a result, it is contended for the applicant that the court ought not to hear evidence direct satisfying the provisions of s139ZU(3). In my opinion s139ZU is directed to a situation where a liability to pay a contribution under s139P(1) or 139Q(1) has been assessed. Consequently, the restrictions imposed by that section on the grant of leave by a court to a bankrupt to leave Australia only have application where there is an extant liability to that effect. It was recognised by Lee J in Re Wheeler: Ex parte Wheeler v Halse (1994) 54 FCR 166 at 170 that there could be a situation where an applicant requesting the return of a passport was not liable to pay contributions, so that the section did not have application. However, the Court there was required to consider the matter on other grounds. For the Trustee it is contended that the Court should not prevent the admission of the evidence because the scheme of the Act is clearly to allow the Trustee time to make an assessment and, if appropriate, to issue a contribution assessment. It is not challenged and, on the evidence as it presently appears, it could not be challenged that the Trustee has not had practicable time in which to make an assessment. The submission is supported also by and on behalf of one of the creditors. However, that consideration does not justify reading into s139ZU words that are not there or giving to the words "liable to pay" as they appear in subs(1) of that section a lesser meaning than they carry. In my opinion the desire to protect the scheme of the Act cannot overcome or cause a different interpretation to that which I think adheres and pertains to the clear wording of s139ZU. Nevertheless, the Court is required to consider the application by way of review under s178. That is the exercise of a discretionary power in the Court and the Court must take into account all matters that go to the making of orders thought to be just and equitable. The broad discretion given to the Court under s178 requires it, in my view, to be put in possession of all facts that might be relevant. It is argued on behalf of the applicant that evidence directed to paragraphs 149D, (b), (e) and (g) could not be relevant to the exercise of discretion under s178 in relation to an application for return of a passport because the only evidence that would be relevant would be evidence that the applicant may not return, that he would not assist the Trustee or that he would be out of contact while overseas. Given the broad nature of the discretion in s178 I cannot accept the submission that relevant evidence should be so confined. It is relevant that the application for return of the passport is made at a time where it has not been practicable for the Trustee to make a contribution assessment. It is relevant that if such an assessment was made there may be evidence which would preclude the Court from granting permission to a bankrupt to leave Australia because of the provisions of s139ZU(3). For a proper exercise of the discretion in s178, the Court needs to be put in possession of the facts as they are and as they might be if time had allowed the application to be dealt with and the Trustee to have made a full assessment. For these reasons I do not allow the objection to the nature of the evidence which it is sought to call and I will hear the evidence on behalf of the Trustee. That of course is without prejudice to any further objections that may be made if appropriate on any other grounds that have not formed part of this ruling. Principal Application Having now heard oral testimony from the applicant and the Trustee, I turn to the principal application. It is one which is made pursuant to s178 of the Act. The application invites the Court to order that the passport of the applicant be returned to him to enable him to undertake travel to Vietnam. That requires the Court to consider whether a decision of the Trustee relevantly affecting the applicant should be reviewed and, in turn, an order made as the Court thinks just and equitable. Section 178 is to be applied in the manner referred to in Re Wheeler (supra) at 170. Accordingly the applicant must show a ground on which the Trustee's administration of the affairs of the bankrupt is to be reviewed. The applicant carries an onus in that respect. I note that in Wheeler (supra) at 172, after the Court had found that the applicant had shown that the Trustee had not properly evaluated the prospect of the applicant deriving increased income either immediately or in the future or more generally improving his employment opportunities by the possibility of travel on the provision of a passport, the matter was returned to the Trustee for reconsideration. On this application I am invited to order that the passport be made available. That is supported in the view of the applicant by the consideration that the applicant seeks to travel tomorrow morning. The decision of the Court in Wheeler to return the matter for reconsideration to the Trustee is a recognition of the fact that it is the exercise of a discretion by the Trustee which is in issue. It is in relation to that discretion that a ground must be shown. The evidence with which the applicant supports his application comprises two affidavits and his sworn testimony. In the first affidavit he said that on 22 December 1995 when he attended upon the Trustee and delivered up his passport, she declined to return it on the grounds that she did not know whether he would be required to contribute to the Estate and she could not make a decision to release it until she had reviewed a statement of affairs. At that time he said she told him she would not oppose an application to the Court for release of the passport. Other matters from that and the second affidavit have previously been described. In the course of evidence on this hearing the Trustee has given evidence as to the nature of her decisions. The Court does not have the benefit tonight of transcript of that evidence. However, her characterisation of the decisions was not challenged by the applicant who said he agreed with her version. As I understand the evidence it supports a finding that on 22 December 1995 the Trustee declined to make a decision to release the passport pending further investigation. In her evidence today the Trustee said that she had made a decision today to oppose the application before the Court. On behalf of the creditor represented here it is contended that this evidence should lead only to findings that the only decisions that were made were, firstly that on 22 December there was a decision not to give back the passport immediately; and, secondly, a decision today not to oppose the application. In either event, it is said for the creditor there is no relevant decision that ought to be entitled to review pursuant to s178. The effect of each of the decisions, as characterised on behalf of the creditor, is that the applicant has not obtained the passport. In any event I do not consider that the characterisation of the decision is a matter which inhibits the Court from arriving at a resolution of this application, for reasons which will appear. In her evidence today the Trustee said that there were three principal reasons why she now opposed the making available of the passport. The first is that the salary disclosed by the applicant's evidence as payable to him was not commercially realistic and that, if he were to go to Vietnam to perform services at that rate of salary, a proper benefit would not be obtained for creditors because a proper fee would not be being paid to him. In addition the factor of the low salary was considered by her in the context of available evidence as to motor vehicle values, shareholdings in companies and the possibility that the applicant received benefits other than those disclosed by him in his evidence. In her view, there was prima facie evidence that the applicant was earning more than his disclosed income of $25,000 per annum. Consequently there was a prima facie case that the applicant would be liable to be assessed for a contribution pursuant to s139P of the Act. Secondly, the Trustee gave consideration to the likelihood of whether the applicant would return to Australia in the event that his passport was released. She took into account that his wife and family were free to travel, there being no evidence to the contrary; that the Australian operations of Millpond in which the applicant was engaged were small; in contrast, the Vietnamese operations of Millpond in which the applicant was involved were large; and, in addition, the output of those operations was reflected in export from Vietnam to markets other than in Australia. Thirdly, she was concerned that there might be breaches of s229 of the Corporations Law in that the applicant may be engaging in the management of the company with which he was concerned without the leave of a court to so do. In the affidavits of the applicant he deposes not only of his need to go to Vietnam to chair a meeting but also to spend 6 weeks inspecting factories and co-ordinating their production to ensure a proper degree of quality control and proper levels of production are in place for a 3 month period. Relevantly to this point, there was no evidence from the employer Millpond before the Trustee, nor is there presently before the Court any evidence in relation to the role of the applicant and his significance to Millpond. Further, there is no evidence as to why another director would not be able to act in his place. In addition, it is asserted by the applicant in his affidavit that his primary source of income would be lost if he did not go to Vietnam but there is no evidence to explain why that should necessarily be the case. In assessing, therefore, the reliance by the Trustee in reaching her decisions on the matters relating to breaches of Corporations Law the Court acts with deficiencies in evidence which may have enabled the foundation of that reasoning by the Trustee to be more fully tested. This is not a case where it is contended in final submissions that the Trustee failed to properly evaluate what the applicant would earn if he went overseas. Indeed, the evidence before me was to the contrary, namely, that the Trustee had taken into account what may be earned and considered it to be low. Although questions were directed to whether the Trustee had applied a blanket policy and although she expressed some reluctance to approve the release of a passport where a matter had not been investigated by her as a matter of general principle, it is not contended that she approached the decision on any blanket basis or that she failed to weigh the issues before her. The grounds on which the applicant relies have necessarily been formulated with some difficulty by counsel for the applicant as the application has unfolded. Regrettably, the prospect of an adjournment offered no solution to the dilemma in which the applicant finds himself and, consequently, the grounds were ones which were formulated as the evidence unfolded and late in the piece. That necessarily contains some unfairness for all parties. The first ground is that the Trustee took into account irrelevant considerations in considering the potential liability of the applicant to assessment for contributions rather than actual liability. I am unable to agree that the Trustee, to the extent that she took into account such a consideration, took into account an irrelevant consideration. In the exercise of the discretion the Trustee was bound, on the evidence that was available at either of the relevant dates, to do the best which she could to exercise the discretion properly. She had to have in mind that, if the bankrupt was liable to contributions, then the court was inhibited by the Act in s139ZU(3) from granting permission to him to leave Australia once liability to contribution had been assessed. That was a relevant consideration at any stage prior to assessment. There was evidence, to which I have referred, that prima facie the income which the applicant earned would exceed on investigation the level at which contribution would be required, namely, in the vicinity of $25,000. In my opinion that ground is not made out. The second ground is that the Trustee failed to take into account or to give sufficient weight to the need of the applicant to go to Vietnam for the purposes of his business, that is the business of Millpond. It is not for this Court to dictate to the Trustee what weight each particular factor should be given. What the court must do, as has been said, is to find whether there is a ground made out for reviewing the administration of the affairs. On the evidence, the Trustee was aware from 22 December that the applicant wished to go to Vietnam and wished to do so for the purposes of the business of Millpond. At the hearing of this application she was aware of the assertions in his affidavits to similar effect. There is no basis for concluding that she did not take that into account. There remains the question whether, as the case for the applicant seems to consider, that should have been a primary or dominant consideration along with the question of whether the applicant would return to Australia or whether there was any evidence that he would not do so. The exercise of the Trustee's discretion is truly discretionary. All factors are relevant and the question is whether in this case sufficient weight was given. In my opinion there is nothing in the evidence before me which would enable me properly to conclude that the Trustee had failed to give sufficient weight to the fact that the applicant needed to go to Vietnam for the purposes of his employment. Indeed, her evidence in relation to the reasons on her second decision, made today, showed that she had given consideration to the fact that in doing so his salary would be substantially below what she believed to be commercially realistic. In my opinion, the second ground is not made out. Turning to the third ground, it is that the Trustee irrelevantly considered that the applicant earned more from Millpond than he had divulged. As has been said, the reasoning of the Trustee on that matter was that the creditors should be protected for a proper fee and that, if there was evidence that the applicant was on the face of it earning more than he had disclosed, then he had not put himself in a position where he should in the interests of creditors be enabled to pursue the earning of a salary below the commercial expectation. It cannot, in my view, be said that the consideration in relation to earnings was irrelevant. It struck at the heart of the veracity of the applicant's approach. The applicant is an accountant, previously a member of the Certified Practising Accountants Association. In his evidence he explained a number of references in his statement of affairs in relation to inconsistencies or inexactitudes which the evidence given by the Trustee had highlighted in relation to a transcript of a prior court case involving evidence given by the applicant. Although an accountant by profession, on his own evidence he did not bring to the completion of the statement of affairs the exactitude that would have attracted the confidence of the Trustee. It seems to me that the matters which have arisen in relation to his earnings are in this category. It was a relevant consideration to know whether the applicant had made full disclosure to the Trustee in a way which she considered could enable her properly to account to the creditors. In my opinion the third ground is not made out. I turn to the fourth ground. It is that the Trustee had no evidence on which to base a reason for refusing to release the passport on the ground that the applicant may not return. I have already canvassed the evidence which the Trustee gave in relation to that matter. In my opinion, the factors to which I referred were relevant factors and provided evidence which would entitle the Trustee to exercise a discretion at this stage of her inquiries on the grounds that there were matters that required consideration before she could be satisfied on the point of return. Significantly, the scope of the Vietnamese operations, the operation in relation to export trade outside Australia from Vietnam and the smallness of Australian operations, even if the family factors were put aside, were factors which could properly provide an evidentiary basis for the Trustee (taking that factor into account to the degree which the stage of her inquiries on 22 December and subsequently on 2 January enabled her to do so). In my opinion that ground is not made out. There was a further factor which the Trustee took into account and that was that all but one creditor had expressed to her support for the view that the passport should not be made available. One creditor appears before me to support that view. In my opinion, the case which the applicant brings, with all the difficulties which it has encountered due to the advent of the Christmas and New Year season and the impact of that on professional work, fails to make out the ground that the Trustee has erred in a way which would entitle a court to interfere with the decision or decisions of the Trustee or to set them aside. I add that at one point it was submitted the only basis on which the decision of the Trustee could be set aside was if there was a breach of faith or fraud in relation to it. I accept the submissions for the applicant that the exercises of discretion by the Trustee are to be reviewed on the grounds which the applicant has in fact pursued, and that the basis of review is not to be as narrowly perceived as the submission advances. Returning to the question of the characterisation of the decisions and whether they were actual decisions or not, it follows from the reasons I have given that whether no decisions were made on either of the two relevant dates (as submitted for the creditor present), or, if decisions were made or the decisions made are to be taken as decisions not to make the passport available, the applicant is unable to succeed in either case. In other words, the characterisation of the "decision" is not in my view fundamental to the outcome of the application. The statutory context of the Act in its application to passports also includes the provision in s149ZE which reinforces the regime previously referred to deriving from ss77 and 139ZU. Section 149ZE provides that: "A bankrupt is disqualified from early discharge if, at any time after the date of bankruptcy the bankrupt has a passport and the Trustee requested the delivery up of it and there was a refusal or failure to comply with that request."

It is in that statutory context that the Trustee must exercise the discretion as to whether or not to release the passport at a time prior to contribution assessment liability being considered or raised. For these reasons I refuse the application. I certify that this and the preceding 13 pages are a true copy of the Reasons for Judgment of his Honour Justice R D Nicholson. Associate: Date:

APPEARANCES Counsel for the Applicant: Mr M C Hotchkin Solicitors for the Applicant: Hotchkin Hanly Counsel for the Respondent: Mr J Hammond Solicitors for the Respondent: Hammond Worthington Prevost Counsel for Aboriginal Legal Service: Mr T Shelley Solicitor for Aboriginal Legal Service: Mr T Shelley Date of Hearing: 2 January 1996 Date of Judgment: 2 January 1996