Sherman v Lamb

LOGAN J: 1 This application by the trustee of the bankrupt estate of Siobhan Lamb raises what appears to be a lacuna in the drafting of the Bankruptcy Act 1966 (Cth) (the Act) and a related law reform issue. 2 Explaining why that is so requires an excursion into the occasion for the bankruptcy and events which have occurred since Ms Lamb's estate was the subject of a sequestration order by the Court on 10 February 2023: Sherman v Lamb [2023] FCA 168. An appeal by Ms Lamb against that order to the Full Court failed: Lamb v Sherman [2023] FCAFC 85. The trustee of Ms Lamb's bankrupt estate is presently Mr Bill Karageozis. 3 In its amended form, the application which the trustee has made to the Court seeks an order under s 30 of the Act requiring an incorporated legal practice, Gorval Lynch Pty Ltd (ACN 612 918 662) (Gorval Lynch), to produce particular books to the trustee, within 14 days of the bankrupt providing written consent to Gorval Lynch for the production of those documents. 4 The documents concerned are documents in Gorval Lynch's power, possession, or control in respect of the file maintained by that incorporated legal practice in respect of acting for the bankrupt in relation to the following proceedings: Queensland District Court proceeding number BD1634/2020; Federal Court of Australia proceeding QUD209/2022; and Federal Court of Australia proceeding QUD60/2023, together with what one might term related documents arising from Gorval Lynch's acting for Ms Lamb. 5 In 2020, a Mr Sheldon Sherman instituted proceedings in the District Court against Ms Lamb for damages for alleged defamation. Gorval Lynch acted for Ms Lamb in that proceeding. On 23 September 2022, and after a five-day trial, the District Court gave judgment in favour of Mr Sherman against Ms Lamb in that defamation proceeding: Sherman v Lamb [2022] QDC 215. On 21 October 2022, Ms Lamb appealed to the Queensland Court of Appeal against that judgment. Thereafter, as already noted, this Court made a sequestration order against Ms Lamb's estate. 6 On 29 March 2023, Mr Karageozis became the trustee of the bankrupt estate. Thereafter, he elected to adopt the appeal against the defamation judgment. The appeal was heard by the Court of Appeal on 22 November 2023. On 15 December 2023, that court allowed the appeal, but in so doing reserved issues as to costs: Karageozis v Sherman [2023] QCA 258. On 9 February 2024, the Court of Appeal ordered inter alia that Mr Sherman pay the bankrupt's costs at first instance, save that Mr Sherman was entitled under r 692 of the Uniform Civil Procedure Rules (Qld) to costs thrown away by the bankrupt's abandonment of a defence of justification which she had made: Karageozis v Sherman (No 2) [2024] QCA 12. 7 On 4 June 2024, pursuant to that entitlement under r 692, Mr Sherman served a cost statement on the trustee. That statement is no less than 412 pages and claims $354,824.70. Between 31 May 2023 and 5 June 2024, the trustee has endeavoured both informally, and more formally, to obtain access to files maintained by Gorval Lynch in relation to the litigation. 8 On 5 June, and at least purportedly, the trustee sought the production of the files by Gorval Lynch under s 77A of the Act. That section provides: Access by trustee to books of associated entity (1) Where a trustee is conducting under section 19AA an investigation relating to a person (in this section called the bankrupt), subsections (2) and (3) of this section apply. (2) For the purposes of the investigation, the a trustee may by writing require a person to produce: (a) to a specified person, being the a trustee or another person; and (b) at a specified place, and within a specified period or at a specified time on a specified day, being a place, and a period or a time and day, that are reasonable in the circumstances; specified books, or specified classes of books, that: (c) are books of an associated entity of the bankrupt; (d) are in the possession of the person of whom the requirement is made; and (e) in the trustee's opinion, are relevant to the investigation. (3) Where the trustee requires a person (in this subsection called the relevant person) under this section to produce books to a specified person, the trustee or the specified person: (a) if the books are so produced: (i) may make copies of, or take extracts from, the books; and (ii) may require the relevant person, or any other person who was a party to the compilation of the books, to explain to the best of his or her knowledge and belief any matter about the compilation of the books or to which the books relate; or (b) in any other case--may require the relevant person to state, to the best of his or her knowledge or belief: (i) where the books may be found; and (ii) who last had possession, custody or control of the books and where that person may be found. (4) The production of books under this section does not prejudice a lien that a person has on the books. 9 It will be noticed that one of the criteria in s 77A is that specified in s 77A(2)(c), "books of an associated entity of the bankrupt". "Associated entity" is the subject of a succession of definitions in the Act: see ss 5B, 5C, 5D and 5E. Of these, it is only presently necessary to set out ss 5B and 5C: 5B Associated entities: companies (1) For the purposes of this Act, a company is associated with a person if the person: (a) is a company officer of the company or otherwise is concerned, or takes part, in the company's management; or (b) is able to control, or to influence materially, the company's activities or internal affairs; or (c) is a member of the company; or (d) is in a position to cast, or to control the casting of, a vote at a general meeting of the company; or (e) has power to dispose of, or to exercise control over the disposal of, a share in the company; or (f) is financially interested in the company's success or failure or apparent success or failure; or (g) is owed a debt by the company; or (h) is employed, or is engaged under a contract for services, by the company; or (j) acts as agent for the company in any transaction or dealing; or (k) gives professional advice to the company. (2) For the purposes of this Act, a company is also associated with a person if the company: (a) holds property jointly with the person; or (b) is dealing with the person's property as an agent for the person; or (c) is a trustee of a trust under which the person is capable of benefiting; or (d) acquires or disposes of property as a result of dealing with the person. (3) The circumstances set out in subsections (1) and (2) are the only circumstances in which a company is associated with a person for the purposes of this Act. 5C Associated entities: natural persons (1) For the purposes of this Act, a natural person (in this section called the associate) is associated with another person if the other person: (a) holds property jointly with the associate; or (b) is a trustee of a trust under which the associate is capable of benefiting; or (ba) can benefit under a trust of which the associate is a trustee; or (c) is employed, or is engaged under a contract for services, by the associate; or (d) acts as agent for the associate in any transaction or dealing; or (da) is a principal for whom the associate acts as an agent; or (e) is an attorney of the associate under a power of attorney; or (f) has appointed the associate as the other person's attorney under a power of attorney; or (g) gives professional advice to the associate; or (h) is given professional advice by the associate. (2) A natural person (the associate) is also associated with another person if the associate has acquired or disposed of property as a result of dealing with the other person. (3) The circumstances set out in subsections (1) and (2) are the only circumstances in which a natural person is associated with another person for the purposes of this Act. 10 Prior to the advent, in modern times, of the phenomenon of an incorporated legal practice, a firm of solicitors, being a group of natural persons acting in partnership, would have fallen within s 5C(1)(h) in the events just related because the bankrupt had been given professional advice by the natural person or persons. It may also be that s 5D, which is directed to partnerships, would have been applicable. However that may be, the difficulty for the trustee in relying upon s 77A arises from the way in which s 5B is drafted. There is, as was highlighted by Mr Downes of counsel in his helpful submissions, no equivalent in s 5B of section 5C(1)(h). 11 That, with all respect to Parliament, is odd because s 5B (in s 5B(1)(k) - gives professional advice to the company) does have an equivalent in s 5C(1)(g) (gives professional advice to the associate). 12 The end result then is, as Mr Downes submitted, that the trustee is not able to have recourse to s 77A in the circumstances prevailing. That is so even though s 77A was and is a law reform measure designed to facilitate the administration of bankrupt estates and to complement the operation of s 81 in relation to the gaining by a trustee, for the purpose of that administration, of an understanding of the examinable affairs of the bankrupt: see Re Simersall; Blackwell v Bray (1992) 35 FCR 584, 590 (Gummow J). 13 The application is one which has been made on notice to Gorval Lynch. That firm, as the evidence discloses, is not disposed to oppose the application. It chose not to appear today, but its disposition is made plain by the affidavit of the trustee's solicitor, Mr Mahoney. 14 In its present form, the application is not made on notice to the bankrupt. However, the trustee has been astute in submissions and in the orders sought to preserve the only possible interest which the bankrupt might have. 15 In relation to the orders sought, that interest lies in the preservation of such legal professional privilege, if any, as may be found in any advice which reposes in the documents sought by the trustee. I am well satisfied that the reservation of a requirement for the bankrupt's written consent in conjunction with a mechanism to resolve any controversy as to legal professional privilege preserves her interests. That privilege is one which, in my view, is personal to the bankrupt and did not pass on her bankruptcy to the trustee: see Re Steele; Ex parte Official Trustee of Bankruptcy v Clayton Utz (1994) 48 FCR 236. 16 I am also well satisfied that it is necessary in the administration of the bankrupt estate for the trustee to have access to the files concerned for the purpose of determining what stance to take in relation to the costs assessment. At least as a matter of first blush, Mr Sherman's costs statement seems very ambitious, indeed, given the ultimate forensic triumph of the bankrupt in the litigation. Thus, it is undoubtedly in the interests of creditors generally for the trustee to be equipped with an ability to scrutinise the costs statement and, for that matter, for the costs controversy, if it be that, in the State courts not to be concluded until the trustee has had such opportunity. 17 Although, for the reasons I have given, s 77A is, perhaps peculiarly, not applicable to the incorporated legal practice, Gorval Lynch, that is not to say that a particular protection found in s 77A(4) should not be recognised in any order made by the Court. This is undoubtedly one of those cases where the broad, general power conferred on the Court by s 30 of the Act should be exercised, but, in so exercising that power, the Court should be astute not to deny Gorval Lynch a right which it would have, had s 77A been applicable: see, for example, Bennett & Co v CLC Corporation (2001) 23 WAR 344. I therefore propose to condition the production orders which I make with a condition akin to s 77A(4) so as to make explicit that production does not prejudice such lien, if any, as Gorval Lynch may have on the documents produced. 18 For these reasons, there will be production orders in respect of the documents the subject of the application, subject to the reservation of liberty to apply in the event of any controversy as to legal professional privilege and conditioned so as to preserve any lien of the kind which an incorporated legal practice may have on the documents. I certify that the preceding eighteen (18) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Logan.