Wenkart v Pantzer

REASONS FOR JUDGMENT THE COURT: 1 The bankruptcy of Dr Wenkart, the appellant, has resulted in a good deal of litigation, including appeals, both in the Federal Court and in the Supreme Court of New South Wales. Following the annulment of his bankruptcy, things have not improved. Further disputes have been litigated, this time between Dr Wenkart and Mr Pantzer, his former trustee. The disposition of the current appeals (initially there were five, but two have been dropped) are unlikely to bring an end to their appearances in court. The present appeals relate to the trustee's entitlement to remuneration, costs and expenses. The amount in dispute will probably pale into insignificance when compared with the costs of the litigation. Unfortunately, there is nothing for the court to do but to hear the parties out. 2 The origin of the present dispute begins with an agreement between Dr Wenkart and the trustee, the terms of which were converted into consent orders on 11 March 2002. The agreement was made in contemplation of the bankruptcy being annulled. It dealt with the trustee's costs. According to the agreement (and orders) Dr Wenkart agreed to pay the trustee's costs "within 28 days of determination of the quantum of the same". He "forthwith charge[d] the land … known as 47 Union Street, Paddington … to secure the [costs]". A company which appears to be related to Dr Wenkart, "postpon[ed] [its] mortgage … over the land … in favour of the interest of [the trustee]". The agreement and the orders were only to have effect if Dr Wenkart's bankruptcy was annulled. The bankruptcy was annulled on 15 March 2002. 3 In due course the trustee prepared a bill of costs in respect of the work performed by him during the bankruptcy. The bill was prepared in accordance with the scale of charges set out in the IPAA Guide to Hourly Rates published by the Insolvency Practitioners Association of Australia. The quantum of the bill was $115,406.07. For reasons which will soon become apparent, the trustee only claims payment of 85 per cent of that sum, namely $98,095.16. 4 Dr Wenkart did not satisfy the trustee's claim. So, on 31 October 2002, the trustee applied by motion on notice for orders, among others, that he be given power of sale of the Union Street land and permission to deduct his remuneration from the proceeds of sale. In response, the appellant filed his own motion seeking to restrain the sale of the land. The trustee's motion was opposed on a number of grounds which were articulated in a document styled "Amended Notice of Intention to Oppose Application" (the "Notice of Opposition"). The Notice of Opposition raised several discrete issues. Instead of resolving them at a single trial, the trial judge thought it appropriate that there be separate determinations of five preliminary points, some of law and some of mixed fact and law. He made orders accordingly under O 29 of the Court's rules. It may be that this approach was not warranted (see Dunstan v Simmie & Co Pty Ltd [1978] VR 669; Verwayen v Commonwealth of Australia [1988] VR 203; but compare George Wimpey & Co Ltd v Territory Enterprises [1966] VR 312; CBS Productions Pty Ltd v O'Neill (1985) 1 NSWLR 601, 606-608 per Kirby P and Becton Construction and Engineering (Int) Pty Ltd v State Government Insurance Commission of South Australia (unreported, Supreme Court of Victoria, Hedigan J, 8 July 1993)) but no point is taken on this account. The present appeals are from a number of those preliminary determinations. 5 One question which the judge determined was whether "[h]aving regard to the provisions of the consent order … and to the annulment of the [appellant's] bankruptcy … do the provisions of s 167 of the Bankruptcy Act continue to apply in accordance with their terms?" The judge gave an affirmative answer to this question. The correctness of this answer is the subject of the first appeal. 6 Section 167(1) of the Bankruptcy Act 1966 (Cth) confers upon a trustee of a bankrupt's estate the power to require the taxation of a bill of costs for services provided by any person in relation to the administration of the estate. The trustee may require the taxation on his own initiative, or at the request of the bankrupt or a creditor of the bankrupt's estate. 7 The judge found that the consent orders did not have as their object the "eliminat[ion] of any of the machinery provisions that would have been available for the determination of the [trustee's] entitlement [to costs]". The judge said that "the machinery provisions of the [Bankruptcy] Act [in which he included s 167] in all their relevant application, remained in force so as to protect all parties concerned; that is to say, relevantly, both the [former bankrupt] and the [former trustee]." The judge did not err in this result, though we reach that result by a different route. 8 The appellant's challenge to the judge's decision is founded on two underlying assumptions. First, that neither the agreement nor the consent orders picked up s 167 (and if either purported to do so that is beyond the power of the parties). The second assumption is that following the annulment, s 167 had no independent application to a third parties' bill. It is not necessary to consider the correctness of the first assumption, though for present purposes it may be accepted as correct. We are of the clear view, however, that the second assumption is misplaced. Division 2 of Part VIII of the Bankruptcy Act (comprising ss 161B to 167) deals generally with the remuneration and costs which may be charged against a bankrupt's estate. Thus, ss 161B and 162 allow the trustee to charge remuneration; ss 163 and 163A regulates the remuneration, costs and expenses of the official trustee; s 164 deals with the situation where two or more trustees act in succession; s 165 contains prohibitions against the receipt of outside benefits; and finally s 167 deals with the taxation of third party costs. Each of ss 162, 165 and 167 regulate the claims and entitlements of the trustee while he was acting in that capacity in relation to the appellant's estate. The sections operate by force of the Bankruptcy Act and not because of any agreement between the parties or order of the court. Moreover, lest there be any doubt about the matter, we wish to make it clear that these provisions have effect notwithstanding the annulment of the bankruptcy. It could hardly be supposed that a trustee's right to remuneration, the manner in which that remuneration is to be determined and the trustee's right to require a third party's bill of costs to be taxed is lost upon an annulment. 9 To understand the next preliminary determination it is necessary to say some more about the facts. The appellant contends that the trustee is not entitled to any remuneration, costs or charges for work done after 9 March 2000, that is a period of approximately two years before the annulment. The basis for this allegation is as follows. Section 73 of the Bankruptcy Act contemplates that a bankrupt may enter into a composition or arrangement with his creditors with the view of annulling his bankruptcy. Section 73(1) provides that a bankrupt wishing to put such a proposal to his creditors should lodge the proposal with the trustee. Section 73(2) requires the trustee to convene a meeting of creditors to consider the proposal. Pursuant to ss 73(2) and (2)(A) the trustee must prepare and send to the creditors a report on the proposal indicating whether in the trustee's opinion the proposal would benefit creditors generally. On 9 March 2000 the appellant lodged a proposal with the trustee. The proposal was not sent to the creditors for nearly two years. In the meantime the trustee continued to perform work for which he demands remuneration. He also incurred further costs and charges in respect of which he seeks reimbursement. In his Notice of Opposition the appellant contended that the trustee was not entitled to "remuneration, costs, charges and expenses incurred by [him] after the First Proposal on 9 March 2000 which the [trustee] neglected and refused thereafter to put to creditors in accordance with s 73(2) of the [Bankruptcy] Act which he was obliged to so to do either by operation of the Act and/or because of his duty to act reasonably." The question which the judge set down for preliminary determination was, in effect, whether this was a good plea. He decided that it was not. 10 In his reasons the judge said that the plea "raises a question of law to be determined in its proper factual context, about which, as will appear, there is no real dispute." Initially this statement formed the basis of the appeal. It was said that the judge was in error in asserting that the facts were not in dispute and, indeed, that he unfairly prevented the appellant from having access to documents sought under a notice to produce, being documents which he might have tendered as part of his case. It was also said that the judge prevented the appellant from adducing evidence on these matters which were in dispute. 11 During the hearing of the appeal the parties undertook a close examination of the transcript of the proceeding below, some of which had not found its way into the appeal book. This examination revealed that no facts were disputed and the appellant had not been treated unfairly, as had been alleged. When this became apparent the appellant's counsel, Mr Reynolds SC, very properly, and without any hesitation, withdrew the complaint on this score. 12 However, Mr Reynolds still pressed the point that the preliminary question formulated by the judge was deficient and not one which could properly be determined as a separate question. Two points were made. The first was that the facts which were not in dispute were not stated and were unclear. The second point was that the issue of law that required resolution was also not clear. In this regard Mr Reynolds called in aid the decision of the High Court in Bass v Permanent Trustee Co Ltd (1999) 198 CLR 334. That case, however, is authority for a different proposition. There the High Court said, not for the first time, that courts should not determine preliminary issues upon facts which are purely hypothetical. That is not a criticism which can be levelled at the present determination. In the first place the hearing did not proceed upon an assumption as to the relevant facts. It proceeded on what were undisputed facts; that is, facts which were accepted to be true rather than accepted to be provisionally true. Secondly, we do not accept the contention that the relevant facts upon which the decision was based and the questions of law to be decided by the judge were unclear. It is true that neither the facts nor the legal issues were stated in the question itself. Nevertheless, an examination of the transcript indicates that the parties knew precisely what were the issues to be resolved. And it was only those issues which were determined by the judge. 13 This brings us to the last ruling on which there is an appeal. This time it is not the former bankrupt but the trustee who is the appealing party. We are concerned with the taxation of his costs. The issue arises in the following way. We have already mentioned that the trustee's remuneration is governed by s 162. According to s 162(1) his remuneration may be fixed by resolution of the creditors or by a committee of inspection. Section 162(4) provides that if the remuneration is not fixed by the creditors or the committee the trustee is to be "remunerated as prescribed by the regulations". The relevant regulations are regs 8.08 and 8.09 of the Bankruptcy Regulations 1996. They provide: "8.08 For the purposes of subsection 162(4) of the Act, the remuneration of a trustee is to be: (a) in accordance with the scale of charges that is: (i) set out in the IPAA Guide to Hourly Rates published by the Insolvency Practitioners Association of Australia; and (ii) applicable to the work to be remunerated; and (b) at the level of 85 percent of those charges. 8.09(1) Where the trustee of the estate of a bankrupt claims remuneration under section 162 of the Act, the bankrupt or a creditor who is dissatisfied with the amount of the claim may, by notice in writing lodged within 28 days of being notified in writing or becoming aware of the amount of the claim, request a taxing officer to tax the claim." The point to be noted is that a bankrupt who is dissatisfied with the amount of his trustee's claim may request that the claim be taxed. This request must be made "within 28 days of [the bankrupt] being notified in writing or becoming aware of the amount of the claim". 14 The parties are in dispute as to whether Dr Wenkart became aware of the amount of the trustee's claim at the creditors' meeting on 15 March 2002 which resolved to annul the bankruptcy. (It was apparently not argued that there was then written notification within the first limb of reg 8.09(1)). The judge found that at this meeting Dr Wenkart, who was present, was not notified of the amount of the claim but only the formula upon which the claim was founded. It follows that the time within which a request for taxation had to be made had not started to run. It is from this ruling that the trustee appeals. It is not necessary for us to comment on the utility of the appeal for the reason that the relevant period has long since passed; there seems little doubt that on any view Dr Wenkart has received written notification of, or become aware of, the trustee's claim at a time more than 28 days before the hearing of this appeal. Perhaps the parties are only concerned about costs. 15 The only facts which bear upon the resolution of the issue are these. First, as the judge found, there was tendered at the meeting a document which set out the trustee's claim. The document is in the following form: "Thomas Richard Wenkart (Bankrupt) Outstanding Remuneration as at 15 March 2002 4069 5147 5150 TOTAL Entered WIP 122,379.25 69,073.50 2,645.40 194,098.15 Unentered March time for WP (130 units) 4,901.00 4,901.00 Unentered March time for SP (40 units) 616.00 616.00 Unentered March time for RT (20 units) 754.00 754.00 128,650.25 69,073.50 2,645.40 200,369.15 GST 12,865.03 6,907.35 264.54 20,036.92 Total 141,515.28 75,980.85 2,909.94 220,406.07 Less $105,000.00 as per bankrupt's proposal 105,000.00 Balance (including GST) 115,406.07" Following the tabling of this document the minutes of the meeting record that a motion was put that the trustee's remuneration be approved in the sum of $115,406.07 being the amount claimed in the document. The resolution was not carried. Then Mr Tolcher, the trustee's representative, said that "the Trustee would therefore claim 85% of the IPAA Guide to Hourly Rates pursuant to Section 162(4) and Reg 8.08 of the Bankruptcy Act." 16 As we have said, the judge found that what had occurred did not constitute a notification of the amount of the trustee's claim. It is not clear why the judge reached this conclusion. It is a conclusion with which we cannot, with respect, agree. Both the bankrupt and the creditors had before them the precise amount of the trustee's remuneration calculated in accordance with the IPAA rate. Following the failure of the resolution that the trustee be paid the full amount of his claim, they were told that the trustee could only claim 85 per cent of the IPAA rate. True it is that the bankrupt and creditors were not told what that percentage produced. But in our opinion they were aware of the amount of his claim as contemplated by the regulations: see by way of analogy Pasen v Buy-Rite Discounts Pty Ltd (1992) V ConvR 65,087, 65,091. 17 Since the question of awareness of the claim is a subjective one, and since Dr Wenkart did not give evidence that he was not aware of the claim at the meeting of 15 March 2002, the Court can more readily draw the inference to the contrary, especially as the onus lay on him. 18 We would, therefore, reverse the judge's decision. 19 This only leaves the question of costs. As the former bankrupt has failed on all his appeals, and unsuccessfully resisted the trustee's appeal, he should pay all the costs. There will be orders to that effect. I certify that the preceding nineteen (19) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Heerey, Finn & Finkelstein.