Trkulja v Morton

THE COURT: 1 On his own petition, the appellant was made bankrupt on 4 September 2000. The respondent was appointed trustee of his estate. As a result of intervention by the respondent the appellant's discharge has been delayed until 5 September 2008. The appellant applied to this Court pursuant to s 179 of the Bankruptcy Act 1966 (Cth) (the "Act") for removal of the respondent as trustee. That application was refused at first instance. This is an appeal from that decision. Each party appeared on his own behalf. 2 In support of his application the appellant filed an affidavit in which he swore that the respondent had blackmailed him and that he believed that the respondent 'may have engaged in dodgy tactics'. The allegations arose out of meetings between the appellant, the respondent and their solicitors. The meetings took place on 18 November 2003 and 25 February 2004. The appellant claimed that at the first meeting, the respondent said that if the former did not offer to pay a substantial amount of money to the latter, then he would 'put the heat up and refer me to the police'. He also claimed that at the second meeting the respondent said that he wanted $350 000, and that two weeks later the respondent's solicitor wrote, saying that he would accept $150 000. The appellant asserted that: 'I believe that he is harassing me and my family and engaging in unethical practices far beyond what is reasonable or in accordance with the law.' 3 Although the appellant claimed to have received legal advice that the respondent's conduct amounted to blackmail, it is unlikely that he used the word in any technical sense. The above quotation suggests that his complaint was that the respondent had sought to apply unreasonable pressure to the appellant and his family, the particular conduct complained of being the alleged attempt to obtain money by threats. 4 The appellant's solicitor, Mr McMonnies, swore two affidavits in which he offered substantial support for the appellant's allegations. The respondent's solicitor, Mr Nikolaidou, swore that at the first meeting the respondent explained the way in which the appellant could enter into a composition with his creditors, usually by paying a sum of money. He said that if the appellant put up a proposal, it would be for the respondent to decide whether to recommend the composition to the creditors, having regard to all of the circumstances. No figure was mentioned, although the appellant asked the respondent 'what kind of money he had in mind'. 5 In February 2004 and prior to the second meeting, in the course of the appellant's examination in bankruptcy, he admitted that a property registered in the name of his nephew belonged to him. When asked whether he would transfer the property to the respondent without the need for further litigation, he said that he would take legal advice. Mr Nikolaidou's understanding of the purpose of the meeting on 25 February was to discuss resolution of this issue. It seems that Mr McMonnies understood that its purpose was to resolve all the matters in dispute between the parties. At the meeting, according to Mr Nikolaidou, the appellant said that he would transfer the property to the respondent in exchange for a discharge from bankruptcy. He said that his "equity" in it was approximately $50 000. The respondent was not present at the time that this offer was made. He entered the room shortly thereafter and rejected the proposal, indicating that he would need an amount of $300 000. The appellant and his solicitor then left. 6 We were told that the respondent also swore an affidavit for use in these proceedings in which he set out aspects of the history of the administration of the appellant's estate. The respondent understood that such affidavit was not received into evidence. That may not be correct. At [6] of the primary Judge's reasons his Honour recorded that: 'The respondent filed an affidavit in answer to the [appellant's] initial affidavit, giving an account of the respondent's administration of the [appellant's] bankrupt estate. The exhibits to this affidavit were voluminous. I took the view that it was unnecessary, at least at the initial stage of the inquiry, for me to have regard to the manner in which the entire administration of the bankrupt estate had been conducted. … For present purposes, it is sufficient to say that the evidence to which I have had regard discloses that the administration of the [appellant's] bankrupt estate has been complex and difficult, that the respondent has pursued and continues to pursue what he believes to be undisclosed assets and sources of income of the [appellant], and that a certain amount of animosity has developed between the [appellant] and the respondent.' 7 His Honour's reference to the 'first stage' appears to have been to his inquiry as to whether or not the appellant's allegations were true. The above extract suggests that his Honour received the affidavit but did not consider it to be relevant to that inquiry. In any event there was no challenge to the brief summary of the evidence concerning the administration which appears in the above extract. As to the question of animosity, we saw some evidence of it during the hearing. 8 At first instance, all four participants in the meetings gave oral evidence and/or were cross-examined. The appellant made a further allegation, that at one meeting, the respondent had spoken about a previous matter in which he had caused a Mr Christodoulou to be imprisoned for four years and that in this context, he said words the effect of 'Look, if you don't pay substantial money, I will put the full force of the law … .' The appellant had secretly taped the meeting of 18 November. The tape was produced at first instance, and a transcript was prepared. Relevantly the respondent said at that meeting: 'Well, I mean, we could hold off and have another discussion later I suppose but I just thought that I might put a few things to you. See, I've reached a turning point in this administration and the turning point is going to mean that either I'm going to turn up the heat and when I turn up the heat - when I say turn up the heat, I really mean turn up the heat. I have, in previous administrations, difficult administrations, dealt with this - brought the full force of the law to bear and just - one example, Mr Christodoulou, I mean, he spent four and a half … .' 9 At this point somebody, probably Mr Nikolaidou, interjected saying 'You remember Christodoulou … the solicitor'. The respondent then continued: 'He spent four and a half years in jail which was, you know, basically my doing … .' 10 The appellant asked if he was being threatened. The respondent said 'No', that he was 'just laying the cards on the table'. Mr Nikolaidou must have thought that there was something threatening about the suggestion because he said '[The appellant] is impervious to all this. I think we can take it all as read.' A little later he said 'I think [the appellant] is beyond the threats.' To this the respondent replied 'Well, any rate, we'll see.' 11 Later in the meeting the respondent discussed the cost of calling a meeting of creditors to consider any proposed composition, saying that the appellant would have to pay $5 000 just to hold the meeting. He also pointed out that such a composition would have to be approved by more than 50 per cent of creditors holding 75 per cent by value of debts. He then continued: 'So you're going to have to - using that method you're going to have to put a proposal for a composition which has to get past Mr Hardy, amongst other people, because he is the largest creditor. So that's the first thing and that's an obstacle for you. The second way to do it, under section 149J of the Bankruptcy Act the trustee has power to withdraw an objection to discharge. So you can - you've spent more than three years in bankruptcy and if you come to a deal which is appropriate with me, then I can consider that and I, of my own volition, can withdraw [my] objection.' 12 Subsequently, Mr Nikolaidou said: 'What [the respondent] is suggesting is that if you are interested in making a lump sum offer, the - for his consideration, he's prepared to withdraw his objection to your extension to your bankruptcy and the banks will - I mean, you say that you're a free man; I'm sure you are. And I'm sure you will agree it's much better not to be bankrupt than to be bankrupt.' 13 It was suggested that the appellant's debts totalled over half a million dollars. Mr Nikolaidou said: 'Nobody is suggesting that you pay half a million dollars.' 14 Other matters were discussed. The tone of the meeting was obviously hostile. 15 His Honour said of the content of the tape recording at [32] - [34]: 'The tape-recording of the meeting makes it absolutely clear that the [appellant's] complaint, that the respondent threatened him that if he did not pay a substantial amount of money, the respondent would go to the police, is not made out. It is clear that the respondent was doing no more than attempting to secure a compromise, which would enable him to withdraw his objection to the discharge of the [appellant] from bankruptcy, and thereby release the [appellant] from bankruptcy and relieve the respondent of the burden of numerous investigations and legal proceedings. This was a proper thing for the respondent as trustee in bankruptcy to do. The word "police" was not mentioned in the course of the meeting, so far as the tape reveals. … The respondent did refer to the case of Mr Christodoulou, no doubt intending the [appellant] to get the message that his persistence in resisting attempts to uncover all his assets could result in prosecution for criminal offences, and in imprisonment. It was by no means improper for the respondent to communicate these matters to the [appellant], in an attempt to induce him to settle. There was no element of blackmail about them. … The reference to turning up the heat was intended to communicate to the [appellant] that, if no compromise were achieved, there would be more legal proceedings. … In short, what took place at the meeting of 18 November 2003 was not out of the ordinary in a meeting between a trustee in bankruptcy and the bankrupt, in which the trustee in bankruptcy wished to explain to the bankrupt that the bankrupt could be discharged if a compromise were achieved, and how that might be effected. No threat was made, other than in general terms in relation to further legal proceedings and the possibility of criminal prosecutions, leading to imprisonment. No reference was made to the police.' 16 There was no recording of the meeting of 25 February 2004. His Honour therefore relied upon the varying versions from the four witnesses. His Honour did not accept that at that meeting, there had been any reference to reporting the appellant to the police. After careful assessment of the evidence, his Honour concluded that there had been no unlawful threat made at that meeting. His Honour made these findings of fact after hearing oral evidence and gave detailed reasons for rejecting aspects of the evidence of the appellant and Mr McMonnies. 17 The grounds identified in the notice of appeal allege failure to have sufficient regard to the weight of evidence, to the evidence of Mr McMonnies, to the evidence of Mr Nikolaidou and alleged inconsistencies in the respondent's evidence. It was also asserted that his Honour ought to have rejected Mr Nikolaidou 'as a witness of truth'. None of these grounds raises any basis upon which an appellate court could properly intervene, given that the primary Judge heard oral evidence and accepted or rejected parts of it. Before us, the appellant did little more than repeat his assertions. He made no detailed reference to the evidence. We have perused the reasons in light of the grounds of appeal. We see no basis for doubting the correctness of his Honour's conclusions concerning the witnesses. 18 His Honour concluded that the respondent's intention was to inform the appellant of the risk of punishment in the event that he concealed assets, and to explore the possibility of obtaining funds for the bankrupt estate. Both purposes were proper. It might be improper to link them, but his Honour's findings excluded that possibility. Our own perusal of the transcript of the tape recording suggests that such a view was fairly open. The question depended in part upon the respondent's intentions at the time of the first meeting. His Honour had the advantage of seeing the respondent give evidence. In those circumstances it would be wrong for us to substitute any other view for his. The appeal must be dismissed. 19 We should make two further observations. The first is that we are not entirely in agreement with his Honour's observations as to the appropriateness of the respondent's conduct at the November meeting. Whilst we do not consider that the appellant's allegations were made out, we consider that it was unwise for the respondent to make the observation concerning 'turning up the heat' and to refer to Mr Christodoulou's plight. Those remarks clearly implied the possibility that the respondent would take steps which might lead to the appellant being imprisoned. It may be appropriate to advise a bankrupt of the possibility of imprisonment if he persists in a particular line of conduct where that is a possible outcome of such conduct. However any such warning should be delivered with care. In this case, given the hostility between the parties, we think it unfortunate that the question of imprisonment was raised, particularly at a meeting at which the respondent intended to suggest that the appellant pay money to the estate. 20 The second matter flows from the mutual hostility to which we have referred. Although the relevant ground for removal was not made out, we have turned our minds to the question of whether or not we should, ourselves, consider removal on the ground of such hostility. There is authority for the proposition that total breakdown of the relationship between trustee and bankruptcy may be sufficient reason for removal and replacement of the former. See Doolan v Dare (2004) 2 ABC (NS) 16 at [47]-[50]. However, given that the matter was not canvassed at first instance, we would deny procedural fairness to the respondent if we did so. It also seems that the respondent has enjoyed a measure of support amongst the creditors. It may be inappropriate to take such a step on any ground other than that identified at first instance, without giving them an opportunity to be heard, or the respondent an opportunity to call them in support of his position. However, pursuant to s 12 of the Act, the Inspector-General in Bankruptcy (the "Inspector-General") may make appropriate inquiries and investigations with respect to the administration of, or conduct of, a trustee in relation to a bankruptcy. Pursuant to s 179 of the Act, the Inspector-General may also apply to the Court for an inquiry into the conduct of a trustee, with a view to his or her removal. It is appropriate that we draw these proceedings to the attention of the Inspector-General. In so doing we do not wish to be taken as implying any criticism of the respondent. It may be that the appellant's hostility arises from resentment of the respondent's tenacity in seeking to protect the rights of creditors, and the respondent's, from professional frustration. However we feel that it would be desirable for an independent third party to consider the matter and take such steps as may be appropriate in the circumstances. We will therefore direct the Registrar to forward to the Inspector-General copies of the following documents: s the application and all affidavits filed in this matter; s transcript of evidence at first instance; s transcript of contents of the tape recording; s his Honour's reasons for judgment at first instance; s the notice of appeal; and s these reasons. 21 As the parties were self-represented, we assume that no question of costs arises. However each party will have liberty to move, on seven days' notice to the other, for any order as to costs, such notice of motion to be filed not later than seven days from the date of publication of these reasons. I certify that the preceding twenty-one (21) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Lee, Tamberlin and Dowsett.