Roufeil v Fiore, in the matter of the Bankrupt Estate of Peter Andrew Fiore

JACKSON J: 1 The applicant, Mr Roufeil, seeks the leave of the court to inspect and copy an affidavit which the respondent, Ms McKelt, swore in the proceeding, and to use the affidavit as evidence in an action in the District Court of Western Australia. Ms McKelt opposed the application. As will appear, however, the issue to be determined on the application was not initially raised by the submissions of the parties and, once it was raised, Ms McKelt did not offer forceful opposition.

Background 2 Mr Roufeil is the trustee in bankruptcy of Ms McKelt's de facto husband, Peter Fiore. Mr Roufeil commenced this proceeding to obtain and execute summonses under s 81 of the Bankruptcy Act 1966 (Cth) for the examination of various people and for the production of documents as part of his investigations in relation to the bankrupt estate. Ms McKelt was one of the people summonsed. 3 On 21 July 2019 Ms McKelt swore an affidavit which was filed in the proceeding. That is not the affidavit which is the subject of the present application for leave, but it is relevant background to the latter. The evidence does not reveal why Ms McKelt swore this first affidavit. In it she said, among other things, that since moving in with Mr Fiore in 2015 they have not comingled their finances or shared bank accounts. She said that they have always kept their finances separate and still do. 4 On 31 July 2019 Ms McKelt swore the affidavit which is the subject of the present application, which was filed in this proceeding on 1 August 2019 (Subject Affidavit). In it she said that she was filing the Subject Affidavit 'in consequence of a telephone conference with my barrister and lawyer late in the afternoon of Thursday 25 July 2019' and that she wished to correct the statement in her previous affidavit that she and Mr Fiore did not comingle their finances. 5 It could pre-empt the outcome of this application and any appeal from it to describe the contents of the Subject Affidavit in detail in these reasons, and so put it into the public domain: see r 20.03 of the Federal Court Rules 2011 (Cth). Suffice to say that in the Subject Affidavit, Ms McKelt gives evidence of certain amounts paid into her personal bank account which she claims to have overlooked when she made her previous affidavit. The Subject Affidavit says that the amounts were received as repayment of loans. One amount was received as repayment of a loan by friends of Mr Fiore to a solicitor (Person A). Other amounts are said to have been received into the account as repayment of funds which another person (Person B) owed to Mr Fiore. 6 After the Subject Affidavit was filed, solicitors for Mr Roufeil made demand to Ms McKelt for payment of the sums referred to in it. The total of the sums is approximately $150,000. On 9 September 2019, Mr Roufeil commenced proceedings in the District Court for payment of those amounts. The statement of claim in the District Court action alleges that the amounts received in Ms McKelt's bank account were repayments of money owing to Mr Fiore by the two persons I have mentioned, and so were property of the bankrupt which is divisible among his creditors. 7 Ms McKelt has filed a defence in the District Court action. The defence admits receipt of the amounts into Ms McKelt's account from Person B. But it alleges that they were the proceeds of the sale by Person B's father in law of pieces of art from Ms McKelt's family's art collection. It is hard to understand this, as even if Person B's father in law was somehow acting as sales agent for the McKelt family, that does not explain why the money would have been paid by Person B himself. But it is not necessary to resolve that uncertainty for the purposes of the present application. 8 As for the payment from Person A, the defence admits that Ms McKelt received it from Person A's law firm, but alleges that the amount was paid by way of a loan to Ms McKelt from one Orlando Maiolo to pay for medical treatment for Mr Fiore. In this way, the defence puts in issue whether either of the amounts received are property divisible among the creditors of the bankrupt estate. 9 Mr Roufeil submits that the explanation for the receipt of the funds so pleaded is 'wholly inconsistent' with the contents of the Subject Affidavit. Ms McKelt takes issue with this, but I agree that the Subject Affidavit is inconsistent. It is true, as Ms McKelt has pointed out, that the submissions filed on behalf of Mr Roufeil do not describe the evidence correctly. The submissions claim that the Subject Affidavit describes the amount received from Person A or his law firm as repayment of loans made by Mr Fiore to third parties. It does not; it says that the loans were from friends of Mr Fiore to Person A. That being so, if the Subject Affidavit is used in the District Court proceeding, it may not directly support Mr Roufeil's case on that point. Also, the submissions say that the defence in the District Court alleges that the other amounts, from Person B, were proceeds of the sale of pieces of art from Mr Fiore's family's art collection. The defence does not say that; it claims that the sale was from Ms McKelt's family's art collection. The submissions say that the defence pleads that the loan from Mr Maiolo was a loan to the bankrupt; it does not, it pleads that it was a loan to Ms McKelt. 10 But be that as it may, the affidavit and the defence are still inconsistent with each other. The Subject Affidavit says that the receipts from Person A were repayment of loans that had been advanced to Person A by friends of Mr Fiore, but the defence says that they were received by way of a loan from Mr Maiolo to Ms McKelt. The Subject Affidavit also says that the receipts from Person B were repayment of money which Person B owed to Mr Fiore, not the proceeds of sale of art by Ms McKelt's family.

Whether the implied undertaking applies 11 It is common ground that the obligation identified in Hearne v Street [2008] HCA 36; (2008) 235 CLR 125 applies to the Subject Affidavit. That obligation, which is often referred to as an implied undertaking, is an obligation not to use a document for any purpose other than that for which it was given, without the leave of the court or unless the document has been received into evidence: Hearne v Street at [96]. The obligation applies to documents or information which a party to litigation has been 'compelled, [to disclose] either by reason of a rule of court, or by reason of a specific order of the court, or otherwise': ibid. It is an obligation to the court which can only be released by the court: see Hearne v Street at [107]-[108]. 12 There are different lines of authority on whether a compulsory requirement to disclose a document is a necessary precondition for the obligation to arise in relation to the document, and if so what kind of compulsory requirement will suffice: see Frigger v Trenfield (No 5) [2020] FCA 827. It is not entirely clear to what extent the filing of the Subject Affidavit was compulsory. It was not filed pursuant to a direction or rule of court. On its face, it was filed to correct the earlier affidavit. If that earlier affidavit was filed under compulsion, then it is arguable that the Subject Affidavit was too. The evidence does not disclose why the first affidavit was filed but given the nature of the proceeding - compulsory examinations and summonses in a bankruptcy - it may be that there was an element of compulsion, in substance if not in form. In any event, the Subject Affidavit does say that Ms McKelt had provided instructions to produce to the court bank statements disclosing the relevant transactions in response to the summons to her, and those bank statements are in fact annexed to the affidavit. This indicates that the Subject Affidavit was given under the compulsion of the summons that had been served on Ms McKelt. So it is appropriate to proceed on the basis that the implied undertaking does apply to the Subject Affidavit: see Perazzoli v BankSA, a division of Westpac Banking Corporation Limited [2017] FCAFC 204 at [269].

Whether the implied undertaking prohibits use of the Subject Affidavit in the District Court 13 That does not, however, answer the question of what the implied undertaking prevents Mr Roufeil from doing with the Subject Affidavit. In Hearne v Street at [96] the obligation is said to prevent use of a document or information 'for any purpose other than that for which it was given'. For what purpose was the affidavit given here? 14 The proceeding in this court, by reason of which the obligation attaches, is not an ordinary inter partes proceeding in which one party seeks a substantive remedy against another, so that use of a document for any other purpose other than that litigation may breach the obligation. Rather, it is a proceeding commenced by the trustee in bankruptcy pursuant to provisions which empower the court to compel the production of documents and information in order to use them for the purposes of the administration of the bankrupt estate. An action commenced in a court to recover property alleged to be divisible among the creditors is squarely within those purposes. On the face of things, then, using the affidavit as evidence in such an action is not using it for a purpose other than that for which it was given. 15 That is confirmed by Re Southern Equities Corporation Ltd (in liq); Bond & Caboche v England (1997) 25 ACSR 394. There, the Full Court of the Supreme Court of South Australia (Lander J, Cox and Bleby JJ agreeing) held that the implied undertaking does apply to documents that were produced pursuant to compulsory examination summonses obtained by a liquidator of a company. But their Honours went on to say that the undertaking did not prohibit the liquidator from using the documents, without the leave of the court, in litigation brought (at least) for the purposes of getting in assets in the liquidation. At 437 Lander J said: I think Duke Group Ltd (in liq) v Pilmer [(1993) 60 SASR 29], is authority for the following propositions. First, that an undertaking is imposed upon a liquidator with respect to documents produced to the court in response to an examination summons. Second, the undertaking is not to use the documents for a collateral or ulterior purpose. Third, the use of the documents in the liquidation is not a collateral or ulterior purpose. So it follows that a liquidator would be free to use the documents produced in an examination in another examination in the same liquidation without leave of the court or leave of the person producing the documents. Moreover, the liquidator would also be free to use those documents or the evidence obtained in the examination in getting in the assets in the liquidation. A chose in action against directors and officers or third parties is part of the process of getting in the assets in the liquidation. Therefore in any action brought by the liquidator or by the corporation at the instigation of the liquidator, the liquidator would be entitled to use any documents produced in answer to an examination summons or transcript of an examination without being required to obtain leave of the court or any other party. While the liquidator might be subject to an implied undertaking not to use documents for a collateral or ulterior purpose the use of the documents or transcript bona fide in the liquidation in the circumstances described would not be in breach of that implied undertaking. So understood the decision in Duke Group Ltd (in liq) v Pilmer, supra, is, in my respectful opinion, correct. 16 Re Southern Equities was, of course, a case of corporate liquidation. Counsel for the parties in this matter did not refer me to a case in which these dicta have been applied, or not applied, in relation to compulsory summonses in a bankruptcy. But it is well recognised that the compulsory examination provisions in corporate liquidation and those in personal bankruptcy share a common history and close correspondence: see Re Compass Airlines Pty Ltd (1992) 35 FCR 447 at 452-453; and Highstoke Pty Ltd v Hayes Knight GTO Pty Ltd [2007] FCA 13; (2007) 156 FCR 501, especially at [46]-[47]. I can see no basis to think that the reasoning in Re Southern Equities does not apply here. 17 The question may be put rhetorically: if the trustee in bankruptcy cannot use evidence obtained in the course of compulsory summonses for the purpose of recovering assets for the benefit of the bankrupt estate, then what can he use it for? In my view, the use of the subject affidavit proposed, being to recover money which will become divisible in the bankrupt estate among the creditors of the bankrupt estate, is squarely within the purposes contemplated by the provision which empowers the issue of the examination summonses, namely s 81. Therefore it is within the contemplated purposes of the summonses themselves, the purposes of the present proceeding and, by extension, the purpose for which Ms McKelt provided the Subject Affidavit. In my view, there is no need for the court to grant leave to Mr Roufeil here to use the Subject Affidavit as evidence in the District Court proceeding. 18 As I have already indicated, Ms McKelt did not in the end present any vigorous opposition to that view. It would be fair to summarise the submissions of her counsel as leaving the matter in the hands of the court. The concern expressed in those submissions was more about the question of whether the inconsistencies alleged by the applicant between the Subject Affidavit and the defence in the District Court proceedings are indeed inconsistencies. While I have considered it appropriate to express my own view on that for the purposes of this application, that view does not dispose of any issue required to be determined for the purpose of any final judgment in this proceeding and, therefore, does not give rise to any issue estoppel. 19 As to what orders are appropriate, I do not consider that the court should grant leave to use the Subject Affidavit anyway, out of an abundance of caution, as that may encourage further unnecessary applications to be made to the courts in the future. I decline to grant the leave sought in the interlocutory application. However, I am conscious that if I simply make no order on the application, or dismiss it, there may be no order capable of founding any appeal that Ms McKelt may wish to pursue (although on present indications it seems unlikely that she would do so). For that reason, I consider that it is appropriate to make a declaration that it will not be a breach of the implied undertaking if Mr Roufeil uses the Subject Affidavit as evidence in the District Court proceeding. Counsel for Mr Roufeil accepted that no order for inspection or copying of the affidavit was necessary.

Costs 20 The applicant has been successful in substance on the interlocutory application. Nevertheless, I have had reservations about whether the usual order as to costs in favour of the applicant should be made, given that the outcome has been a finding that no application for leave to use the affidavit in the District Court proceedings was in fact necessary. However, as counsel for the applicant points out, the authority relied on, Re Southern Equities, which the court brought to the attention of the parties before the hearing, is an authority in the corporate liquidation sphere and there was, therefore, potentially, some uncertainty about its application in bankruptcy. It may be inferred from the fact that the application was brought in the first place, and was the subject of significant resistance, that it was potentially necessary for that uncertainty to be cleared up by proceeding with the application and obtaining the judgment of the court, which has in fact been obtained. 21 Counsel for the applicant also submits that if the application truly was unnecessary because of a lack of opposition from Ms McKelt, then Ms McKelt could and should have said so earlier than she did. Re Southern Equities was brought to the attention of the parties on Tuesday 6 October 2020, and I consider that there was sufficient time between then and the hearing for Ms McKelt to indicate that she did not oppose the use of the affidavit. But she did not do so. Counsel for Ms McKelt has referred to the fact of having received an email, presumably from the solicitors for Mr Roufeil, only this morning, concerning Mr Roufeil's position on the question. But that does not detract from the fact that the issue was raised by the court two days ago and was susceptible of being resolved without the need for a hearing. 22 For that reason, and because of the uncertainty over the application of Re Southern Equities to which I have referred, on balance I am persuaded that it was appropriate to bring and proceed with the application and, therefore, that the usual order as to costs should be made. I certify that the preceding twenty-two (22) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Jackson.

SCHEDULE OF PARTIES WAD 518 of 2018 Respondents Fourth Respondent: JONATHAN CHARLES FIORE Fifth Respondent: KATHRYN MCKELT Sixth Respondent: MARINA HOGAN Seventh Respondent: GIUSEPPINA FIORE