STEPHEN JOHN MICHELL AND CLYDE PETER WHITE (AS TRUSTEES OF THE PROPERTY OF JOHN WILLIAM LEE (DECEASED), A BANKRUPT) v MAUREEN MONICA LEE

Federal Court of Australia|2012-09-24|Before: Mr P, Gray J

DATE OF ORDER: 24 SEPTEMBER 2012 WHERE MADE: MELBOURNE

The application be dismissed.
Stephen John Michell and Clyde Peter White, the trustees of the bankrupt estate of John William Lee (deceased), pay the costs of the proceeding of Maureen Monica Lee as administrator of the deceased estate of John William Lee.
The costs referred to in paragraph 2 of this order, and the costs incurred by Stephen John Michell and Clyde Peter White in making the application, not be treated as costs of the trustees in bankruptcy in the administration of the bankrupt estate of John William Lee. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

IN THE MATTER OF JOHN WILLIAM LEE (DECEASED), A BANKRUPT BETWEEN: STEPHEN JOHN MICHELL AND CLYDE PETER WHITE (AS TRUSTEES OF THE PROPERTY OF JOHN WILLIAM LEE (DECEASED), A BANKRUPT)

AND: MAUREEN MONICA LEE (AS ADMINISTRATOR OF THE DECEASED ESTATE OF JOHN WILLIAM LEE)

JUDGE: GRAY J DATE: 24 september 2012 PLACE: MELBOURNE

The nature and history of the proceeding 1 At issue in this proceeding is the entitlement to fees paid to a bankrupt barrister that were outstanding at the date of the bankruptcy and have been paid subsequently. On one side are the applicants, the trustees in bankruptcy, who claim the fees as a debt due to the bankrupt at the date of the bankruptcy, and therefore as an asset of the bankrupt estate. On the other side is the administrator of the deceased estate of the bankrupt (who died after he had been made bankrupt), who claims the fees as income of the barrister received after the date of his bankruptcy. The bankrupt kept his accounts on a cash basis, and not on an accrual basis. In other words, he did not treat fees as income until they were received, thereby avoiding the need to make provision for doubtful debts and to determine when a particular unpaid fee should be written off as a bad debt. This is a very common way for barristers to manage their income, for tax and other purposes. 2 There is a decided case, Re Sharpe; Ex parte Donnelly (1998) 80 FCR 536, a judgment of Lockhart J, that is directly in point. His Honour held that fees owing to a barrister at the date of his bankruptcy, and paid after that date, belonged to the barrister as income, and not to the trustee in bankruptcy as property of the bankrupt at the date of bankruptcy. The barrister in that case also conducted his affairs on a cash receipts basis, not an accruals basis. The applicants in the present case contended that the Court should reach the opposite conclusion to that reached by Lockhart J.

The facts 3 The proceeding was conducted on the basis of an agreed statement of facts. The following summary of the facts is taken from that agreed statement. John William Lee practised as a barrister at the Victorian Bar. He operated on a cash accounting basis, as explained above. On 27 September 2007, the Federal Magistrates Court of Australia made a sequestration order against the bankrupt estate of Mr Lee. The applicants were appointed as joint and several trustees of the bankrupt estate of Mr Lee. At the date of that order, there were outstanding fees owed to Mr Lee, in respect of which he had rendered accounts, totalling $40,849.50. Subsequently, the trustees have received $28,172 in respect of those outstanding fees. 4 On 26 May 2008, Mr Lee died. On 27 May 2011, the Supreme Court of Victoria granted to the respondent Maureen Monica Lee letters of administration of the intestate estate of Mr Lee. Between the date of his bankruptcy and the date of his death, Mr Lee continued to practise as a barrister and to render accounts for fees in matters in which he acted during that period. In the inventory of assets filed in support of the application for letters of administration, the respondent referred to unbilled fees, which relate to work carried out in relation to proceedings in the Supreme Court of Victoria, and are separate and distinct from the $40,849.50 of fees outstanding at the date of bankruptcy. In addition, Mr Lee performed work both before and after the date of his bankruptcy in respect of which he had not rendered accounts at the time of his death. 5 By their application, the applicants sought specific directions pursuant to s 134(4) (or s 30) of the Bankruptcy Act 1966 (Cth) ("the Bankruptcy Act") in the following terms: 1. The Applicants are justified in treating the outstanding fees owed to the Bankrupt as at 27 September 2007 being the date of his bankrupt [sic] as being vested in the Applicants as divisible property of the Bankrupt. 2. The costs of this application be costs in the administration of the bankrupt estate.

The legislation 6 Section 30(1) of the Bankruptcy Act (in conjunction with s 27 and the definitions of "the Court" and "the Federal Court" in s 5(1)) confers on this Court jurisdiction to decide all questions and make such orders as the Court considers necessary in bankruptcy cases. 7 The general rule concerning the vesting of property upon bankruptcy is found in s 58(1) of the Bankruptcy Act, which provides: Subject to this Act, where a debtor becomes a bankrupt: (a) the property of the bankrupt, not being after-acquired property, vests forthwith in the Official Trustee or, if, at the time when the debtor becomes a bankrupt, a registered trustee becomes the trustee of the estate of the bankrupt by virtue of section 156A, in that registered trustee; and (b) after-acquired property of the bankrupt vests, as soon as it is acquired by, or devolves on, the bankrupt, in the Official Trustee or, if a registered trustee is the trustee of the estate of the bankrupt, in that registered trustee. 8 This general rule is fortified by s 116(1) (which is found in Div 3 of Pt VI of the Bankruptcy Act), which provides, so far as is relevant to this case: (1) Subject to this Act: (a) all property that belonged to, or was vested in, a bankrupt at the commencement of the bankruptcy, or has been acquired or is acquired by him or her, or has devolved or devolves on him or her, after the commencement of the bankruptcy and before his or her discharge; ... is property divisible amongst the creditors of the bankrupt. 9 Section 134(4), which is in Div 4 of Pt VI of the Bankruptcy Act, provides: The trustee may at any time apply to the Court for directions in respect of a matter arising in connexion with the administration of the estate. 10 Division 4B of Pt VI of the Bankruptcy Act commences with s 139J, which provides: The objects of this Division are: (a) to require a bankrupt who derives income during the bankruptcy to pay contributions towards the bankrupt's estate; and (b) to enable the recovery of certain money and property for the benefit of the bankrupt's estate. 11 By s 139K and s 139L, the word "income" for the purposes of Div 4B, is defined to have its ordinary meaning, subject to certain specific inclusions and certain specific exclusions. Section 139M(3) provides: A reference in this Division to income derived by a bankrupt during a contribution assessment period includes a reference to income so derived in respect of work done or services performed by the bankrupt before that period or work to be done or services to be performed by the bankrupt after that period. The power, and obligation, of a trustee in bankruptcy to make an assessment of income derived by a bankrupt during a contribution assessment period is found in s 139W of the Bankruptcy Act.

The judgment in Re Sharpe 12 At the date of his bankruptcy, Mr Sharpe was a barrister, practising at the New South Wales Bar. There were outstanding fees due to him at that date, for which he had rendered memoranda of fees, in respect of work carried out prior to that date. Mr Sharpe completed his returns of income for tax purposes in respect of the period before his bankruptcy on a cash receipts basis. Mr Sharpe's trustee in bankruptcy sought directions from the Court, including a direction as to whether fees outstanding at the date of bankruptcy and the subject of previous memoranda of fees were property available for payment of the bankrupt's debts within Div 3 of Pt VI of the Bankruptcy Act, or whether they constituted income within Div 4B of Pt VI of the Bankruptcy Act. 13 One issue that arose in Re Sharpe, but does not arise in the present case, was whether there was a distinction between fees the subject of accounts rendered by Mr Sharpe prior to 1 July 1994 and fees the subject of accounts rendered after that date. On 1 July 1994, amendments to the Legal Profession Act 1987 (NSW) came into operation, so that a barrister became entitled to sue for fees. A question arose in that case as to whether those amendments were applicable to fees outstanding as at 1 July 1994, as well as to fees earned subsequently. 14 In Re Sharpe at 540, Lockhart J referred to the amendment on 1 July 1992 of the Bankruptcy Act to introduce Div 4B of Pt VI, under which a bankrupt who derives income during the bankruptcy can be required to pay contributions towards his or her estate. His Honour then said: In my opinion the scheme of Div 4B of the Bankruptcy Act proceeds on the assumption that after acquired income of a bankrupt does not vest in the trustee of the bankrupt's estate. Although the after acquired property to which ss 58 and 116 of the Bankruptcy Act apply are sufficiently widely defined to include income of the bankrupt, Div 4B establishes a comprehensive scheme of dealing with after acquired income of the bankrupt. Where it is inconsistent with sections such as ss 58 and 116, provisions of the division must be taken to apply: see Re Gillies; Ex parte Official Trustee in Bankruptcy v Gillies (1993) 42 FCR 571 at 577; Re Hawkins; Ex parte Worrell (1996) 71 FCR 371. 15 At 541, his Honour held that s 139M(3) of the Bankruptcy Act was applicable to Mr Sharpe's case. His Honour said: A barrister assessed to income tax upon a cash basis derives income from fees from his professional activity in the year of income in which those fees are received or deemed to be received, but not necessarily the year in which those fees were earned. Further, the unpaid fees of the Bankrupt are in respect of work done by the Bankrupt before the contribution assessment period. In my opinion it follows that the Trustee is not entitled to treat the unpaid fees as after acquired property of the Bankrupt available for payment of his debts within Div 3 of Pt VI of the Bankruptcy Act. It does not seem to me to matter whether the memoranda of fees rendered by the Bankrupt before the date of his bankruptcy were rendered before or after 1 July 1994 (being the date of the relevant amendments made to the Legal Profession Act). Nor does it matter whether the brief (I have in mind the requirements of the Legal Profession Act) was marked or whether a "fees, disclosure and retainer" contract was entered into or whether the fees had been assessed. His Honour directed accordingly. 16 In the present case, counsel for the applicants submitted that the judgment in Re Sharpe was infected by Lockhart J's reliance on authorities to the effect that, at common law, a barrister could not sue for fees, a situation that changed on 1 July 1994 by the statutory amendment to which Lockhart J referred. Counsel for the applicants also submitted that Lockhart J's reference to ss 58 and 116 of the Bankruptcy Act, and his Honour's use of the phrase "after acquired property" suggested that his Honour was viewing the fees in question as having become the property of Mr Sharpe after the date of his bankruptcy, whereas in truth fees outstanding as at the date of bankruptcy constituted a chose in action of Mr Sharpe at the date of his bankruptcy. It will be evident after an examination of other authorities that neither of these submissions is of significance in determining whether the applicants are bound to apply the principle determined in Re Sharpe.

Other authority 17 Re Sharpe is by no means an isolated case. It sits within a body of authority (including the two earlier cases cited by Lockhart J in the passage quoted in [14] above), which demonstrates the acceptance of the principle upon which Re Sharpe is based. 18 The line of authority begins with Re Gillies; Ex parte Official Trustee in Bankruptcy v Gillies (1993) 42 FCR 571. The bankrupt in that case was a professional diver, who received income after the date of his bankruptcy from working offshore as a contract diver. He offered to make a composition to his creditors, whereby he would pay them $4,000, which he had accumulated out of the income received since his bankruptcy. The question was whether the bankrupt was entitled to that sum of $4,000, or whether it had vested in his trustee in bankruptcy, pursuant to s 58 of the Bankruptcy Act. At 576-577, French J referred to the former s 101 of the Bankruptcy Act 1924 (Cth), and to the repealed s 131 of the Bankruptcy Act. His Honour said: Despite the absence of an equivalent of s 101 of the 1924 Act or s 131, the scheme of Div 4B rests upon the continuing assumption that the income of the bankrupt does not vest in the trustee...It is true that the after-acquired property to which ss 58 and 116 apply is defined widely enough to encompass income. However, in my opinion, the legislative scheme now in place is quite inconsistent with the application of those provisions to after-acquired income. This follows from the comprehensive scheme embodied in Div 4B which approaches a code for dealing with after-acquired income of the bankrupt. There is nothing in the extrinsic material to support a change in the approach to after-acquired income which would bring it within after-acquired property vesting in the trustee. In my opinion such income does not vest in the trustee. 19 This principle has been accepted in all subsequent cases. In Re Hawkins; Ex parte Worrell (1996) 71 FCR 371, Spender J applied the principle enunciated in Gillies to payments received by the bankrupt after bankruptcy in respect of payments of maintenance made pursuant to a deed previously entered into by the bankrupt with her former husband. Although the payments were instalments of a lump sum, his Honour took the view that they had the character of income and fell within Div 4B of Pt VI of the Bankruptcy Act. At 375, his Honour referred to Div 4B as "the comprehensive scheme...which approaches a code for dealing with the after acquired income of a bankrupt." 20 In Geia v Palm Island Aboriginal Council [1999] QCA 389 [2001] 1 Qd R 245, the Queensland Court of Appeal held that the right of a bankrupt to sue for monies due under a contract of employment, or for damages for breach of that contract, was a chose in action that vested in Mr Geia's trustee in bankruptcy upon Mr Geia becoming bankrupt. At [7], the Court referred to what was said by French J in Gillies and said, "We are in respectful agreement with that view; but it does not, of course, bear upon the question whether a cause of action for breach of a contract which would, if carried out, have produced income for the bankrupt vests in the trustee." At [17], the Court said: We have therefore concluded that it is not the law that an action of the present type may be brought by the bankrupt; it can only be brought by the trustee. The type to which we refer is an action claiming damages or other sums on the basis of wrongful dismissal, under a contract for personal service, the action not including any sum due before termination − i.e. not including any sum for services actually rendered. This passage appears to indicate the view of the Queensland Court of Appeal that a right to sue for unpaid earnings under a contract of employment would not vest in a trustee in bankruptcy, but would continue to be available to the bankrupt, because the proceeds of such a suit would be income under the Gillies principle. That proposition would make Geia consistent with the case discussed in [25] below. 21 In Trustee of the Property of O'Reilly v Law Society of New South Wales [2001] FCA 701 (2001) 110 FCR 574, a receiver had been appointed to collect monies due to a solicitor. The receiver had collected amounts owing to the solicitor by his clients in respect of fees and disbursements. The receiver had paid the total of the amounts collected to the Law Society of New South Wales. The solicitor subsequently became bankrupt. The question was whether the sum held by the Law Society was income of the solicitor or property vested in the trustee in bankruptcy. At [7]-[8], Katz J referred to what French J had said in Gillies, and to Hawkins, Sharpe and Geia. His Honour accepted the correctness of the Gillies principle. His Honour held, however, that the amount held by the Law Society was before-acquired income and that what his Honour described as the "implied exclusion" only extended to after-acquired income. In other words, by being accumulated in the hands of the receiver, the amounts paid by way of income of the solicitor before his bankruptcy were of the same character as if the solicitor had received them directly and paid them into his personal bank account. Money received by way of income, accumulated in a bank account prior to bankruptcy, gives rise to a chose in action that vests in the trustee in bankruptcy as part of the bankrupt's property. It is different from income received by the bankrupt after becoming bankrupt. 22 The subject of Nicholls v Sheaffe [2003] FMCA 387 (2003) 201 ALR 746 was the right of two bankrupts, who were former dairy farmers, to receive 32 quarterly payments under the Dairy Structural Assistance Program. After analysing the history and nature of that program, at [10], Raphael FM accepted the principle in Gillies. At [17], his Honour said that, although he could see the force of the argument that the regular payments in consideration of the loss of other income rights should be considered as income, he believed that "on balance the better argument is in favour of the payment rights constituting a chose and after-acquired property [sic]" as defined in s 58(1)(b) of the Bankruptcy Act. At [18], his Honour described the payment to which the bankrupts were entitled as "a right to a future income stream." At [19], his Honour held that the units created under the Dairy Structural Adjustment Program were "not just an inchoate income right to future income [sic]", but an "existing right, which is entered into a register and can be both traded and charged." It is unnecessary for me to determine in this case whether the federal magistrate's characterisation of the rights attaching to the units is correct. His Honour's judgment is not binding on me. For present purposes, it is only necessary to note that his Honour accepted the Gillies principle, so that Nicholls is part of the body of authority to which I referred in [17] above. 23 In Owens v Comlaw Pty Ltd [2006] VSCA 151, the question was whether the trustee in bankruptcy of a solicitor should be substituted for that solicitor as the appellant in an appeal concerning a dispute about fees owed to that solicitor. It is apparent from [18] that the solicitor was contending that the proceeding pertained to income she had earned before her bankruptcy, but which would be received after her bankruptcy, and that she relied on Sharpe. At [42], Ashley JA (with whom Redlich JA, the other judge making up the two-member Victorian Court of Appeal, agreed) summarised the authorities in a series of propositions, the first of which shows that his Honour accepted the principle in Gillies. Notwithstanding that acceptance, the Court held that the appeal fell within s 60(2) of the Bankruptcy Act, and that the trustee in bankruptcy had elected to continue the appeal. 24 In Randall v Deputy Commissioner of Taxation [2008] FCA 1939 (2008) 174 FCR 441, Lander J held that the right to apply for judicial review and consequential relief in relation to a decision to terminate a bankrupt's employment was not property vesting in the trustee in bankruptcy when the holder of that right became bankrupt. At [72]-[74], his Honour said: Section 131 has been repealed. However, the Bankruptcy Act still contemplates that income earned after the bankrupt's bankruptcy does not vest in the bankrupt's trustee: Re Gillies; Ex parte Official Trustee in Bankruptcy v Gillies (1993) 42 FCR 571 at 576-577. Whilst the trustee may require the bankrupt to make contributions out of the bankrupt's income, the Bankruptcy Act contemplates that those contributions will be made out of income in the hands of the bankrupt not the trustee. The position therefore is no different from the position when s 131 was part of the Bankruptcy Act or s 101 part of the Bankruptcy Act 1924. The bankrupt's income, after bankruptcy, does not vest in the bankrupt's trustee. If the bankrupt's income does not vest in the trustee, it must be because it is not property or at least property divisible among the bankrupt's creditors. 25 In Barwick v Goodridge [2011] NSWSC 1233 at [24], Black J accepted the principle in Gillies, referring as well to Hawkins, Sharpe, Geia and O'Reilly. Mr Goodridge had sued Mr Barwick in the Supreme Court of New South Wales and had secured judgment in accordance with terms of settlement. The judgment required Mr Barwick to make payments of instalments on certain dates. Mr Barwick had also been ordered to pay Mr Goodridge's costs of two proceedings in magistrates' courts, which costs had been assessed. Mr Goodridge then became bankrupt. Mr Barwick did not pay instalments in accordance with the terms of the judgment. Nor did he pay the costs of the other proceedings. Mr Barwick commenced a proceeding, seeking a declaration that the bankruptcy released him from further obligations in respect of the judgment and the two orders for costs. In this proceeding, Mr Barwick applied for leave to substitute Mr Goodridge's trustee in bankruptcy for Mr Goodridge as the defendant to his application, on the basis that Mr Goodridge no longer had any interest in the rights attaching to the judgment and the costs orders, because they had vested in the trustee in bankruptcy. Black J held that Mr Goodridge had sued Mr Barwick in respect of income and his right to that income had not lost that character by having become merged in the judgment. Accordingly, the rights had not vested in the trustee in bankruptcy and the substitution of parties could not be effected. 26 In the present case, counsel for the applicants contended that some of these cases are inconsistent with the result in Sharpe. Insofar as Sharpe is part of the line of authority constituted by those cases, there is no inconsistency. All of the cases indicate acceptance of the Gillies principle on which Sharpe is based. Some of the cases demonstrate that there are circumstances in which what would otherwise be an entitlement to receive income can lose its character as income and become a chose in action that vests in the trustee in bankruptcy. The line between income and a chose in action may not always be drawn easily, but this is not to say that the line does not exist. 27 Counsel for the applicants also relied on Re Evans; Ex parte Sweeney v Evans (1995) 61 FCR 556. In that case, the right in question was the right to a refund of income tax. Spender J held that right was a chose in action existing at the date of bankruptcy and therefore vested in the trustee in bankruptcy. His Honour did not discuss the Gillies principle. It is relatively easy to see that a right to a refund of income tax that has been deducted from the earnings of a person loses the character of income when it becomes a debt due by the Commissioner of Taxation to the person whose income is being taxed. 28 Two things are clear from this examination of the authorities. The first is that the judgment of Lockhart J in Sharpe sits squarely within the line of authorities based on the principle enunciated by French J in Gillies. The second is that there is no authority inconsistent with the proposition that, in the case of a barrister whose practice is conducted on a cash receipts basis, fees for which the barrister has rendered accounts prior to bankruptcy and which are paid after bankruptcy are income. Such fees fall within the provisions of Div 4B of Pt VI of the Bankruptcy Act. The right to receive the fees does not therefore vest in the trustee in bankruptcy pursuant to s 58 of the Bankruptcy Act and is not available for distribution amongst the creditors of the bankrupt pursuant to s 116 of the Bankruptcy Act.

The applicability of Sharpe 29 As I have said, Sharpe sits squarely within the line of authority that follows the principle enunciated in Gillies. None of the cases advanced as inconsistent with Sharpe is inconsistent with that line of authority. Even if the distinction between property existing at the date of bankruptcy and income earned prior to the date of bankruptcy but received after that date could have been applied so as to lead to a different result in some of those cases, it does not follow that Sharpe was decided incorrectly. 30 If Sharpe were to be overturned, the provision in s 139M(3) of the Bankruptcy Act concerning income derived in respect of work done or services performed by a bankrupt before the contribution assessment period (which is during the bankruptcy) would have no work to do. In every case, the entitlement to such income would constitute a chose in action vesting in the trustee in bankruptcy. 31 Nor is Sharpe to be impugned on the basis of the reasoning of Lockhart J. Its result is not affected by his Honour's discussion of the introduction in New South Wales of the right of a barrister to sue for fees. Lockhart J's use of the phrase "after acquired income" might have involved the introduction of terminology that had not previously been familiar to those well-versed in the law relating to bankruptcy. It is nonetheless an appropriate description of monies paid to a barrister after the barrister has become bankrupt, but in respect of work done and billed prior to bankruptcy, in the context of the application of the Gillies principle. That principle recognises that an amount owing in respect of an account rendered for fees for work done constitutes a chose in action as at the date of bankruptcy, and that the trustee in bankruptcy would ordinarily be entitled to such a chose in action as property of the bankrupt, but that Div 4B of Pt VI of the Bankruptcy Act provides a sufficient indication as to how income is to be dealt with to create an exception to that entitlement. (In this respect, it should also be said that the phrase "implied exclusion", of which counsel for the applicants complained, and which appears to have its genesis in Geia and was used in O'Reilly and in Barwick, is an apt description of the effect of the Gillies principle.) 32 Counsel for the applicants also attempted to distinguish Sharpe on the basis that Mr Lee has died since becoming bankrupt. His argument was that, because of the death, Div 4B of Pt VI of the Bankruptcy Act has no work to do. The provisions of that division therefore ceased to apply on Mr Lee's death, and the chose in action that would otherwise have vested in the trustee in bankruptcy at the date of bankruptcy, but was saved by the provisions of Div 4B, instead vested on Mr Lee's death. This argument can be dealt with simply. There is nothing in the authorities, or in the provisions of the Bankruptcy Act, that would operate to convert what is income at the date of bankruptcy (and thereafter) into property, simply because the bankrupt has died. The effect of such a conversion would be retrospectively to change the method of accounting by which Mr Lee conducted his practice at the Bar. It would mean that, although Mr Lee had conducted his practice on a cash receipts basis, he would be regarded as having conducted it on an accruals basis, for the purposes of the application of the provisions of the Bankruptcy Act. Such a process would be to ignore Div 4B of Pt VI of the Bankruptcy Act, especially s 139M(3). It is clear that what is income remains income. 33 Sharpe is therefore authority in point in this case. The applicants in the present case should have applied it. There was no need for them to seek any direction pursuant to s 134(4) of the Bankruptcy Act. They should simply have conceded that the respondent, as administrator of the deceased estate of Mr Lee, is entitled to receive so much of the total of $40,849.50 of fees outstanding to Mr Lee at the date of his bankruptcy as has been or is to be paid after that date. To the extent to which the applicants in the present case seek a direction to the contrary, the application should be dismissed.

Costs 34 The applicants also sought a direction that the costs of the application be costs in the administration of the bankrupt estate. By s 43(2) of the Federal Court of Australia Act 1976 (Cth), the award of costs is in the discretion of the Court. The ordinary principle is that costs follow the event, ie the losing party should pay the costs of the successful party. The respondent has been vindicated in her refusal to accept that the amounts received by way of outstanding fees due to Mr Lee at the date of bankruptcy were vested in the applicants and available for distribution amongst Mr Lee's creditors. The applicants should therefore be ordered to pay the respondent's costs of the proceeding. 35 The real question is whether the applicants should be entitled to receive out of the bankrupt estate of Mr Lee their own costs of bringing this proceeding and the costs they will be obliged to pay the respondent. As I have said, it was unnecessary for the applicants to bring this proceeding. They were not only entitled, but bound, to act in accordance with the judgment in Sharpe and the line of authority of which it is part. To seek to overturn that authority by reference to supposed inconsistency with other decided cases, an irrelevant distinction about the introduction of the right to sue for fees in New South Wales, and quibbles about the terminology used in judgments, was entirely inappropriate. 36 Counsel for the applicants argued that a trustee in bankruptcy is an officer of the Court, who is entitled by s 134(4) of the Bankruptcy Act to seek the guidance and the protection of the Court. This is certainly the case, but does not justify the trustee, at the expense of the creditors, applying to the Court for specific directions when it is perfectly clear on the authorities that the trustee should not act as he or she seeks to be directed to act. Counsel for the applicants also argued that the question raised in this case is one of general application. This is also perfectly true. The answer to the question is readily apparent from the authorities, however. There is also no particular reason why Mr Lee's creditors ought to suffer a diminution of any dividends they might receive from Mr Lee's estate so that the applicants can establish a precedent for use in subsequent cases by themselves and other trustees in bankruptcy. 37 The creditors of Mr Lee's bankrupt estate ought not to have to pay for the applicants' waste of money in making this application. The applicants ought to bear personally both their own costs of the application and those they are ordered to pay to the respondent. I certify that the preceding thirty-seven (37) numbered paragraphs are a true copy of the reasons for judgment herein of the Honourable Justice Gray.

Legal Profession Act 1987(NSW)

Bankruptcy Act 1966(Cth)ss 5(1), 27, 30, 30(1), 58, 58(1), 60(2), Div

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