Trade Practices Commission v Nicholas Enterprises Pty Limited

REASONS FOR JUDGMENT THE COURT: On 8 September 1997 Heerey J dismissed an application brought by the appellant, James George Turner ("Mr Turner"), against the Official Trustee in Bankruptcy ("the Trustee") under s 178 of the Bankruptcy Act 1966 (Cth) ("the Act"). His Honour made an order for costs in the following terms: "The applicant pay the respondent's costs, and to the extent necessary these costs are to be paid out of the sale proceeds attributable to protected moneys". Mr Turner has appealed against this cost order. He claims that his Honour should have ordered that the costs be paid out of the estate. In order to understand the basis upon which his Honour made the costs order in question it is necessary to have regard to some essential background facts. The proceedings in respect of which the costs order was made relate to Mr Turner's second bankruptcy, occurring in August 1994. Mr Turner had previously been made bankrupt in 1987. This bankruptcy was annulled by order of this Court on 15 May 1992 after all costs of the administration and creditors' claims were paid in full, the surplus assets of the bankrupt estate being then revested in Mr Turner. It is very plain from the material in Mr Turner's affidavits in the proceedings before Heerey J and in the written submissions which he has provided on this appeal, that he has a very embittered view of both of his bankruptcies and of their administration. Many vituperative comments are made about those whom he considers responsible for bringing him to bankruptcy and in respect of various steps taken in the administration of his estate. Plainly enough, for reasons which he appears to regard as compelling, he has adopted attitudes and taken steps which have been obstructive of the administration of his estate in the second bankruptcy. His attitude in this regard is amply demonstrated by the preface to his written submission which is couched in the following terms:- "This is the second successive knowingly bad at law bankruptcy run against me by the Official Receiver for Tasmania. It represents the worst abuse of administrative power and authority in Australian legal history and the negligence, incompetence, breach of duty knows no bounds." At the time of his first bankruptcy Mr Turner owned five parcels of land at Glen Huon in Tasmania. These vested in the Trustee upon his estate being sequestrated. There was no necessity for their being sold in the administration of that estate and it would appear that they revested in him upon the annulment of the first bankruptcy. However, in 1991 a claim was made by Mr Turner that the properties had been purchased with the proceeds of a common law judgment obtained by him for personal injuries resulting from a motor vehicle accident occurring in 1974. The Trustee was, thereupon, alerted to the possibility that the properties were, by virtue of s 116(2)(g), s 116(2)(m) and s 116(3) of the Act, not property divisible among Mr Turner's creditors, having been purchased wholly or substantially with "protected money". It appears that this assertion was vehemently maintained by Mr Turner although there were difficulties in tracing the moneys received by him as compensation into the purchase of the properties. It may be noted that he claimed not only that the properties themselves but also livestock on the properties had been purchased with protected moneys. In his second bankruptcy it became necessary for the Trustee to have recourse to these properties, if available, so that they might be sold and the proceeds of sale made available for division amongst the creditors. The intended sale was resisted by Mr Turner with the result that it was necessary for the Trustee to bring proceedings in this Court seeking directions as to whether those properties were assets divisible amongst the creditors of the estate. The proceedings were heard by Heerey J on 25 March 1996. His Honour directed the trustee to sell each of the parcels of land but in respect of three of them, identified in the order, to pay to Mr Turner so much of the proceeds as could fairly be attributed to protected money. The latter part of the order was made pursuant to s 116(4) of the Act. It appears that Mr Turner wished to appeal against his Honour's order but failed to bring his appeal within time. He filed an application for an extension of time within which to file and serve a notice of appeal. Mr Turner did not appear on the appointed day for the hearing of this application with the result that it was dismissed. From this dismissal he appealed to a Full Court of this Court. At the hearing of the appeal their Honours gave consideration to the question of whether any prospect of success in the appeal had been demonstrated by Mr Turner. After full consideration of the matters sought to be raised by Mr Turner in support of his claim that the properties should be fully protected from division amongst his creditors, the Court expressed the view that the appeal in any event could not have succeeded. The order of Heerey J was confirmed, with the result that the Trustee was at liberty to sell the properties but was to pay to Mr Turner "so much of the proceeds as can fairly be attributed to protected money as defined in s 116(2D) of the Bankruptcy Act". The orders of the Full Court were made on 9 December 1996. In 1996, while Mr Turner's appeal was pending, the Trustee took steps to effect a sale of the properties. It is clear from the findings of Heerey J in the proceedings from which this appeal is brought, that he encountered obstruction on the part of Mr Turner. The Trustee had engaged estate agents, Websters Limited, to effect the sale of the properties. Those estate agents had provided appraisals in June 1995 which placed a total value on the lots in the range of $245,000 to $268,000. However, by September 1996 the agents had observed that properties in the Huon region had reduced in value by at least 20 per cent. The obstruction to which we have referred was summarised by his Honour in his judgment as follows:- "The Official Trustee encountered difficulties in transmitting the titles into his name. The debtor refused to deliver to the Official Trustee duplicate certificates of title in his possession in relation to two of the properties. A further difficulty was encountered by the conduct of the debtor in relation to the proposed marketing. The debtor handed to Websters' office in the Huon a letter dated 4 July 1996 headed: 'To Whom it Should Concern - Especially Real Estate Agents.' The letter made allegations of misconduct by the Official Receiver and included the following: 'Any real estate agent who offers this land for sale will immediately have me on the doorstep with a writ for aiding and abetting the Official Receiver in an invalid, fraudulent and bad at law bankruptcy and attempting to sell protected property of a bankrupt. If a writ is issued you will suffer a heavy loss. I am a qualified accountant and have excellent and accurate records. NOTE VERY CAREFULLY - the land the Official Receiver proposes to unlawfully sell is wholly protected property under the Bankruptcy Act. So if you want to get chopped up thru (sic) the courts with the Official Receiver - attempt to unlawfully sell my land in this unlawful and invalid bankruptcy.' Websters reported this to the Official Trustee by letter of 9 July 1996 noting, amongst other things: 'We would be quite happy to attempt to sell the suggested Lot 5 or any part of the property. However, at this stage we feel we would be asking for trouble if we advertised in the newspaper or placed signs on the property. We have had several people who have expressed interest in the property as a whole, however are definitely not interested in portions as they do not wish to be a neighbour of Turner. I suggest you will agree with me that there is not a simple solution to this problem.' By September the Official Trustee was able to finalise the transmission of all titles into his name. However, by a letter dated 9 September Websters advised they were not prepared to assist the Trustee in the sale of the properties. The Managing Director of that company advised that he was not able to assist further, given the debtor's threats of legal actions and intimidatory actions towards Websters' staff. Accordingly, on 23 September, the Trustee retained D R Dickinson and Associates, registered valuers, estate agents and auctioneers." On 30 October 1996 that firm gave a fresh appraisal of the value of the properties. After applying an appropriate discount, their opinion of the value of the totality of the blocks was $144,000 to $157,000. On 5 November the Trustee instructed the firm to sell the five properties by individual public tender, a course then open to the Trustee. The properties were advertised but obviously attracted little interest in the then state of the market. One tender was received from an adjoining owner but only in respect of one of the blocks. It was less than the appraised value. The other tender was from Mr Turner. It was for $300,000 for all the lots. It was couched in exaggerated and totally unacceptable terms. For instance, a substantial part of the price was to be paid from damages to be obtained by Mr Turner in five separate legal actions, including one against the firm itself for "knowingly and fraudulently aiding and abetting the Official Receiver in invalid and fraudulent bankruptcy". Needless to say, neither tender was accepted. On 13 March 1997 an offer was received for the purchase of the five blocks in the amount of $150,000 from a Mr Allen. The offer, however, contained a condition which was unacceptable. It was accordingly refused. Subsequently a company, North Forest Products Limited, made an offer of $140,000 for all the properties. This was refused. Thereafter, however, that company increased its offer to $150,000. This offer was accepted. The acceptance of the offer by the Trustee provoked the current proceedings before Heerey J. Mr Turner claimed relief under s 178 of the Act. The order sought was:- "That pursuant to Section 178 the Court order that the Official Trustee in Bankruptcy not sell the Bankrupt's properties at Glen Huon in Tasmania comprised in Volume 251981 Folio 1, Volume 252261 Folio 1, Volume 246645 Folio 1, Volume 252262 Folio 1, Volume 271860 Folio 1 at the sale price of $150,000.00." After a consideration of the whole of the evidence bearing upon the value of the properties and also upon the conduct of Mr Turner, his Honour formed the view that the acceptance of the offer was reasonable conduct on the part of the Trustee. He rejected a submission to the contrary by Mr Turner including a contention that sale at that price would produce no surplus for creditors. He dismissed the application and made the order for costs which has been appealed from. In his notice of appeal Mr Turner states the following grounds of appeal:- "2. His Honour erred in law as the order breaches the intent and purpose of the Act re protected money which is designed and intended to rehabilitate the bankrupt 3. His Honour erred in law as the order breaches S 116(2)(g) and (n) of the Act, protected money not being divisible property in bankruptcy." In his written submissions, Mr Turner supported these grounds as follows:- "The intent of the Act is to relieve the bankrupt from his creditors, pay the debts or part there, settle any disputes, rehabilitate the bankrupt and give him a fresh start. [Mr Turner referred to some extracts from a text book.] Protected money is designed for the rehabilitation of the bankrupt. There can be no rehabilitation of this bankrupt if the Official Receiver is allowed to obtain his costs from protected money when he has failed in his duty under S 86 and not recovered the surplus of the bankrupt estate from tortuitous [sic] creditors. Payment of the Official Receiver costs from protected money also defeats the intent of S 116(4) of the Act which says 'the trustee shall pay to the bankrupt so much of the proceeds of realising the property as can fairly be attributed to that protected money'. The words are mandatory, it gives the Official Receiver no discretion. To disregard this section also disregards the principles of natural justice. The decision of Mr Justice Heerey is wrong as it attempts to overturn a mandatory section of the Act. If this decision is allowed to remain it will overturn, subvert the provisions of the Act re protected money as every trustee will attempt to use this decision to attack protected money, as usually there is nowhere near enough property or money to satisfy creditors." In considering these submissions, it is convenient, in the first place, to have regard to the sections which confer power upon the Court to make orders for costs. Section 32 of the Act provides that: "The Court may, in any proceeding before it, including a proceeding dismissed for want of jurisdiction, make such orders as to costs as it thinks fit". Similarly ss 43(1) and (2) of the Federal Court of Australia Act 1976 (Cth) provide, so far as relevant, as follows:- "43 (1) ... the Court or a Judge has jurisdiction to award costs in all proceedings before the Court (including proceedings dismissed for want of jurisdiction) other than proceedings in respect of which any other Act provides that costs shall not be awarded. ... (2) Except as provided by any other Act, the award of costs is in the discretion of the Court or Judge." In each case the section gives the Court an unfettered discretion in the matter of costs. The scope of s 43 was considered by Fisher J in Trade Practices Commission v Nicholas Enterprises Pty Limited (No 3) (1979) 42 FLR 213 at 218-219. His Honour said:- "In these terms s. 43 is in pari materia with s. 40 of the Supreme Court Act (S.A.) and O. 65, r. 1 of the Supreme Court Rules (S.A.). Bray C.J. dealt with this unfettered discretion in Cretazzo v. Lombardi (1975) 13 S.A.S.R. 4 a decision of the Full Court of the Supreme Court of South Australia. ... The relevant passage is as follows: 'Order 65, rule 1 provides generally that all costs shall be in the discretion of the court or judge, subject to a proviso irrelevant for the present purpose. Time and again attempts have been made to fetter that general discretion by the imposition of judge-made rules. Time and again those fetters have been released by appellate courts. I think the guiding principle still stands as it left the House of Lords in the famous case of Donald Campbell & Co. v. Pollak [1927] A.C. 732, that the general discretion is absolute and unfettered, except that it must be exercised judicially, not arbitrarily or capriciously, and that it cannot be exercised on grounds unconnected with the litigation...'" (See also in respect of s 32: Re Skase; Ex parte Donnelly (1992) 37 FCR 509 at 522) Given that the trial judge's discretion in the matter of costs is so wide, it follows that this Court would interfere with its exercise only if some breach of principle were clearly established. The two grounds of appeal taken in Mr Turner's notice of appeal each relate to the fact that his Honour has ordered the costs to be paid out of the fund of "protected money" which will come into existence when the Trustee determines what portion of the proceeds of sale can properly be so categorised. It is submitted that to require payment of costs out of this fund would be an unacceptable use of the power conferred by the sections. This, as we apprehend the argument, is because the Act has as one of its underlying purposes the rehabilitation of the bankrupt and the retaining for him for his own use such moneys as are excluded from division amongst his creditors. Whilst arguments of this kind might prevail in certain circumstances, we are unable to accept that there is any general principle to this effect which can limit the wide discretion given by the sections. The fund of "protected money" which will come into existence when the Trustee makes an appropriate determination under s 116(4) is vested in the Trustee along with the proceeds of sale. Although the Trustee has an obligation to make payment to the bankrupt, this is not inconsistent, in our view, with the Trustee, when empowered by an order of the Court so to do, abstracting from that sum an appropriate amount for costs before the payment of the balance to the bankrupt. We are, accordingly, satisfied that the Court had power to make an order affecting the "protected money". Given the existence of the power, the obstructive behaviour of Mr Turner, and his Honour's view of the application, there was, in our opinion, ample basis for his exercising his discretion in the way that he did.