Roufeil (Trustee), in the matter of Tarrant (Bankrupt) v Tarrant

Federal Court of Australia|2018-10-26|Before: Yates J

Solicitor for the Applicants: Mr C Decker of Lancaster Law & Mediation

Counsel for the Second Respondent: The second respondent did not appear

ORDERS NSD 901 of 2018 IN THE MATTER OF THE BANKRUPT ESTATE OF MERVYN ROSS TARRANT BETWEEN: MARK DAMIAN CHARLES ROUFEIL IN HIS CAPACITY AS TRUSTEE OF THE BANKRUPT ESTATE OF MERVYN ROSS TARRANT Applicant

AND: MERVYN ROSS TARRANT (BANKRUPT) AND OTHERS Respondent

IN THE INTERIM APPLICATION: BETWEEN: BISERKA ROSANDIC First Applicant

MARKET ST TAX PTY LIMITED ACN 166 664 062 Second Applicant

MARKET ST HOLDINGS PTY LIMITED ACN 143 460 959 Third Applicant

MARKET ST ACCOUNTING SERVICES PTY LTD ACN 155 387 330 Fourth Applicant

AND: MARK DAMIAN CHARLES ROUFEIL IN HIS CAPACITY AS TRUSTEE OF THE BANKRUPT ESTATE OF MERVYN ROSS TARRANT First Respondent

MERVYN ROSS TARRANT (BANKRUPT) AND OTHERS Second Respondent

JUDGE: YATES J DATE OF ORDER: 26 OCTOBER 2018

The interim application dated 17 September 2018 be treated as an application brought under s 35A(5) of the Federal Court of Australia Act 1976 (Cth) to review the exercise of the power by a Registrar to issue, pursuant to an order made on 15 June 2018, an Order for Production of Documents in respect of each applicant (the review application).
Pursuant to r 1.39 of the Federal Court Rules 2011, time be extended within which to bring the review application.
The Order for Production of Documents addressed to the first applicant, Biserka Rosandic, issued pursuant to the order made on 15 June 2018, be set aside.
The review application otherwise be dismissed and the issue of each other Order for Production of Documents (addressed respectively to the second applicant Market St Tax Pty Ltd, the third applicant Market St Holdings Pty Limited and the fourth applicant Market St Accounting Services Pty Ltd), pursuant to the order made on 15 June 2018, be confirmed.
The applicants pay 75% of the first respondent's costs of the application, as taxed or agreed. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Introduction 1 On 3 July 2018, Orders for Production of Documents were issued pursuant to an order made by a Registrar of the Court (the orders for production). The orders for production were issued in connection with the issue of summonses for Examination under s 81 of the Bankruptcy Act 1966 (Cth) (the Bankruptcy Act). The orders for production were directed to: (a) Biserka Rosandic (Ms Rosandic); (b) Market St Tax Pty Ltd (MS Tax); (c) Market St Holdings Pty Limited (MS Holdings); and (d) Market St Accounting Services Pty Ltd (MS Accounting), (collectively, the applicants and, in relation to MS Tax, MS Holdings and MS Accounting, the corporate applicants). 2 The examinations are to be conducted over three days from 1 November 2018. Ms Rosandic is one of the examinees. 3 By an interim application dated 17 September 2018 (the application), the applicants seek orders setting aside the orders for production, or varying them. 4 At the hearing, the first respondent to the application, Mr Roufeil, who is the trustee of the bankrupt estate of Mervyn Ross Tarrant (the Trustee and the Bankrupt, respectively) raised a procedural issue. He contends that the orders for production are not amenable to being set aside in the same manner as a subpoena: see r 24.15 of the Federal Court Rules 2011 (FCR). Similarly, the orders for production are not amenable to being discharged in the same manner as a summons for examination: see r 6.16 of the Federal Court (Bankruptcy) Rules 2016 (FCBR). The Trustee submits that the accepted method by which relief should be sought is by review of the Registrar's decision under s 35A(5) of the Federal Court of Australia Act 1976 (Cth) (the Federal Court Act): see the observations in Cathro, in the matter of Lidcombe Plastering Services Pty Ltd (in liq) [2018] FCA 1138 at [25] - [29]. The applicants accept that the procedure advocated by the Trustee is the correct procedure. The Trustee does not oppose the application being treated as an invitation to review the Registrar's decision to issue the orders for production. However, under r 3.11(2) FCR, such an application must be made within 21 days after the day on which the Registrar's power was exercised. That time has now expired, but the Trustee does not oppose time being extended under r 1.39 FCR. 5 I will treat the application as an application brought under s 35A(5) of the Federal Court Act and extend the time within which the application can be brought. 6 The principles on which the Court proceeds in such a review were explained by Lander J in Callegher v Australian Securities and Investments Commission [2007] FCA 482; (2007) 239 ALR 749 at [46]: The hearing before me is a hearing de novo: Mazukov v University of Tasmania [2004] FCAFC 159; Pattison v Hadjimouratis (2006) 155 FCR 226. The right to review arises because the Registrar has exercised the judicial power of the Commonwealth and, as such, is subject to the supervision of the Court. The Registrar's orders are reviewable by hearing de novo: Harris v Caladine (1991) 172 CLR 84 per Dawson J at 124. A hearing de novo contemplates a complete rehearing. The moving party before the Registrar has the responsibility of satisfying the Court that the orders should have been made. The parties may adduce further evidence before the Court and the rehearing is determined on the evidence put before the Court which may include the evidence put before the Registrar. The judge determines the rehearing without being fettered by the decision of the Registrar: Southern Motors Pty Ltd v Australian Guarantee Corp Ltd [1980] VR 187. The parties did adduce the further evidence to which I have referred and the applicant cross-examined the first plaintiff. 7 These principles were affirmed by Kenny J in Deputy Commissioner of Taxation v Australian Securities and Investments Commission [2013] FCA 623; (2013) 304 ALR 319 at [36] - [38]. 8 For completeness, I also note that the Trustee has drawn attention to the fact that the orders for production were expressed to have been made pursuant to r 20.35 FCR. He submits that the correct source of power is r 30.34 FCR. The applicants take no point about the source of the power that was exercised. I do not propose, therefore, to deal with that question further.

Evidence 9 The Trustee supports the making of the orders for production in two affidavits made by him - the first made on 23 May 2018 (paragraphs 5, 30 - 46 and 61 only), and the second made on 5 October 2018. These affidavits (or the relevant parts of them) have been received confidentially, as has the tender of certain documents marked Exhibit MR1. 10 The applicants rely on an affidavit made by Stefanie Seco on 17 September 2018. Ms Seco is the sole director and secretary of the corporate applicants. She is also Ms Rosandic's sister. 11 Ms Seco's evidence is: (a) MS Tax was incorporated on 7 November 2013 and trades as Tarrants Accountants. It purchased the previous tax and accounting practice operated by the Bankrupt as a sole trader, being Tarrants Accountants and Business Advisors. The purchase occurred on 26 July 2015. (b) From approximately April 2004 to approximately July 2015, Ms Seco was an employee of Tarrants Accountants and Business Advisors. Prior to that, from 3 December 2003 to approximately April 2004, she was an employee of Tarrant & Tarrant, which was a tax practice operated by the Bankrupt and his brother, Douglas Tarrant. (c) MS Holdings was incorporated on 4 May 2010 and conducts a financial advisory practice. (d) The Bankrupt has no association with MS Holdings and has never owned any shares in MS Holdings; been employed by MS Holdings as an employee or consultant, or independent contractor, on either a full-time or part-time basis; acted as an officer of MS Holdings; or received any benefit, financial or otherwise, from MS Holdings. (e) None of the records of MS Holdings would contain information relating to the Bankrupt's examinable affairs.

The applicants' submissions 12 The applicants advance two main submissions. 13 First, Ms Rosandic and MS Holdings are so remote from the Bankrupt that they cannot be seen as being in (or having been in) a relationship with him that could relate to his examinable affairs. Therefore, the orders for production should not have been made. In any event, the orders for production that were made in relation to Ms Rosandic and MS Holdings seek documents that are not referable to the Bankrupt's examinable affairs. 14 Secondly, whilst there exists a sufficient relationship between MS Tax and MS Accounting and the Bankrupt, the orders for production that were made in relation to MS Tax and MS Accounting seek documents that are not referable to the Bankrupt's examinable affairs. 15 As to the scope of the orders made against the corporate applicants, the applicants draw particular attention to the call for the production of each corporate applicant's bank statements, general ledgers, financial statements, and taxation returns and tax-related documents including, for example, BAS statements, payroll records and PAYG summaries, for certain financial years. The applicants also draw attention to the call for copies of documents recording employee timesheets, and documents recording performance appraisals and/or salary reviews, for the Bankrupt, Ms Rosandic, and the Bankrupt's children Lara Tarrant and Mervyn Steven Tarrant. The applicants submit that all these documents either do not relate, or have an insufficient relationship, to the Bankrupt's examinable affairs. 16 As to the scope of the orders made against Ms Rosandic, the applicants submit that the documents ordered to be produced are all documents that relate peculiarly to Ms Rosandic's personal affairs and do not relate to the Bankrupt's examinable affairs.

Consideration 17 The power to compel the production of documents in the present context is a wide one, referable to the purpose for which examinations under s 81 of the Bankruptcy Act are conducted. The power conferred by s 81 to summon persons to attend to give evidence is "an extraordinary power of an inquisitorial nature": Re North Australian Treaty Co (1890) 45 Ch.D. 87 at 93 as quoted in Re Csidei; Ex parte Andrew (1979) 28 ALR 381 at 386. The exercise of the power provides not merely for the identification and collection of assets. It also serves the purpose of protecting the public by a "full and searching examination" of the conduct of the bankrupt in order that a "full report" by the trustee in bankruptcy may be made: Griffin v Pantzer [2004] FCAFC 113; (2004) 137 FCR 209 at [76]. Given the far-reaching nature of the power, the Court must be astute to ensure that it is not exercised oppressively, vexatiously or otherwise unfairly. That said, its purpose should not be defeated by an unduly technical or restrictive application to its use: Karounos v Official Trustee (1988) 19 FCR 330 at [335]; (1988) 80 ALR 66 at 632. 18 The "examinable affairs" of a person - relevantly here, the Bankrupt - means the person's dealings, transactions, property and affairs, and the financial affairs of an "associated entity" of the person, insofar as they are, or appear to be, relevant to the person or to any of his or her conduct, dealings, transactions, property and affairs: s 5(1), Bankruptcy Act. 19 An "associated entity" means, in relation to a given person, an entity (other than a company) that is, or has been, associated with the person or a company that is, or has been, associated with the person at a time when the company is, or was, a private company: s 5(1), Bankruptcy Act. 20 I have had regard to Ms Seco's affidavit evidence, and also to the Trustee's affidavit evidence which, as I have said, at the present time remains confidential. I have come to the following conclusions. 21 First, on the evidence before me, I am not persuaded that the relationship between Ms Rosandic and the Bankrupt, or MS Holdings and the Bankrupt, is, in each case, so remote that orders for production should not have been made. In relation to MS Holdings, I have taken into account Ms Seco's evidence concerning a lack of any specific connection between the company and the Bankrupt. It is apparent, however, that MS Holdings is within a group of companies associated with Ms Seco that provide what can be described broadly and corporately as tax, accounting and financial advisory services as a successor in business to Tarrants Accountants and Business Advisors, the Bankrupt's previous business. This group includes MS Tax and MS Accountancy with whom, it is accepted, the Bankrupt does have a connection. 22 Secondly, in the case of the corporate applicants, I am persuaded that there is a sufficient connection between the documents that are sought and the examinable affairs of the Bankrupt. One argument advanced by the applicants in this regard is that some of the documents (to which particular attention was drawn) are general financial documents that would say nothing that is specific about the Bankrupt. Whether this might be so is not a matter on which I would speculate. It may be that, on inspection, the documents called for are ultimately uninformative, but that does not mean that, as a threshold matter, the documents are not of a character that can be said to relate to, or have a connection with, the Bankrupt's examinable affairs. 23 Another argument, advanced through Ms Seco's affidavit, is that the documents sought would disclose personal and private details of employees and clients. If this be so, it would be open to the Registrar conducting the examinations to make orders preserving the confidentiality of information, if such orders be appropriate in the circumstances. But this is not a reason for not making orders for the production of the documents that are sought. 24 Thirdly, notwithstanding my first conclusion as it relates to the relationship between Ms Rosandic and the Bankrupt, I am persuaded that the order for production directed to her should be set aside. I accept the applicants' submission that these documents relate peculiarly to Ms Rosandic's personal affairs and circumstances. I am not satisfied that they bear a sufficient - or indeed any real - connection to the Bankrupt's examinable affairs.

Additional matters 25 There are four additional matters to which I should refer. 26 First, the applicants' written submissions advance the contention that it was not a proper exercise of the Registrar's power to issue a summons for examination to Ms Rosandic. They contend that the summons should be set aside. 27 I do not accede to that application. No order for discharge was sought in the application as filed, and this question was not agitated in the course of the hearing. The hearing was directed solely to the question of the appropriateness of the orders for production. In any event, on the evidence before me I am not persuaded that a proper case for discharge exists. 28 Secondly, the applicants applied orally for access to the confidential affidavits made by the Trustee. No cogent reason was advanced why this should be permitted. 29 Rule 6.12 FCBR reflects a long-standing practice in relation to the confidential treatment of affidavits and other material filed in support of applications for the issue of examination summonses in the context of both bankruptcies and company liquidations. The purpose of the confidentiality regime is clear. It addresses the concern that, by disclosing to an examinee the very matters on which he or she is to be examined, the purpose of conducting the examination might be defeated. As I have previously noted, the examination is inquisitorial in nature. 30 However, the Court does have the power, in its discretion, to order disclosure of the material filed in support of the issue of an examination summons, but the examinee must establish some substantial basis for access. Access is not granted simply for the asking. 31 As Lander J observed in Simionato & Farrugia v Macks & Macks (1996) 19 ACSR 34 at 63 (in the context of an application to set aside an examination summons in a company liquidation): It is not in every case where a party makes an application to set aside an order for examination that the proposed examinee ought to be entitled to inspect the affidavit upon which the original orders was made. Otherwise the very reason for sealing the affidavit would stand frustrated and the examination process would be likely to be frustrated. The proposed examinee must establish some qualification so as to be allowed access to the affidavit. The application to set aside the order itself is not sufficient. 32 In Re British & Commonwealth Holdings Plc. (Nos 1 & 2) [1992] 1 Ch 342, Nourse LJ said (at 355): In my judgment inspection of the statement should prima facie be allowed where the court is of the opinion that it will or may be unable fairly and properly to dispose of the application if part of the evidence is withheld from the person against whom the orders is sought. 33 I am satisfied that the applicants' challenge to the orders for production can be determined fairly and properly without the applicants' access to the Trustee's confidential material. 34 Thirdly and relatedly, the applicants argued that the Trustee's second affidavit is in a different position so far as confidentiality is concerned. As I understand it, their submission is based on the fact that the Trustee's second affidavit is in reply to Ms Seco's affidavit. This fact, according to the applicants, removes it from any mantle of protection. They submit that if the Trustee's second affidavit is in reply, it must be responsive to Mr Seco's affidavit and, therefore, relevant to the matters she has raised. They submit, therefore, that they should have access to it. 35 I do not accept that submission. I do not accept that, simply because the Trustee's second affidavit might be in reply, it stands in a different position to his first affidavit. Each affidavit is advanced as establishing the basis on which the orders for production should be made. 36 Fourthly, Ms Seco deposed that, in the event that the scope of the orders for production addressed to the corporate applicants is not limited, she would need additional time to comply with them. The application, as filed, contains no prayer for relief in that regard, and this point was not agitated at the hearing.

Disposition 37 The order for production addressed to Ms Rosandic will be set aside. The issue of the orders for production addressed to the corporate applicants will be confirmed. 38 The Trustee has been largely successful. An order for costs should be made in his favour. However, the order should reflect the applicants' limited degree of success. The applicants should pay 75% of the Trustee's costs of the application. 39 Orders will be made accordingly. I certify that the preceding thirty-nine (39) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Yates.

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