Gao v The Official Trustee in Bankruptcy [2003] FCAFC 84 (8 May 2003)

Last Updated: 23 May 2003

FEDERAL COURT OF AUSTRALIA

Gao v The Official Trustee in Bankruptcy [2003] FCAFC 84

BANKRUPTCY - whether an unsecured creditor has standing to challenge sale of an asset of a bankrupt by a secured creditor

APPEALS AND NEW TRIALS - whether a single judge can grant leave to an appellant to cross-examine a witness before a Full Court

Bankruptcy Act 1966 (Cth) s 55, 58, 153B, 156A, 176, 179

Federal Court of Australia Act 1976 (Cth) ss 27, 40

Federal Court Rules O 20 r 2, O 52 r 36

Cottrell v Wilcox [2002] FCA 232 approved

CDJ v VAJ [1998] HCA 76; (1998) 197 CLR 172 cited

Re Cheesman; Cheesman v Waters (1997) 143 ALR 78 cited

PENG YUANG GAO v THE OFFICIAL TRUSTEE IN BANKRUPTCY as trustee of the Bankrupt Estate of YU JING ZHU

No V 830 of 2002

SPENDER, HEEREY, TAMBERLIN JJ

MELBOURNE

8 MAY 2003

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	V 830 OF 2002

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:	PENG YUANG GAO APPELLANT
AND:	THE OFFICIAL TRUSTEE IN BANKRUPTCY as trustee of the Bankrupt Estate of YU JING ZHU RESPONDENT
JUDGES:	SPENDER, HEEREY, TAMBERLIN JJ
DATE OF ORDER:	8 MAY 2003
WHERE MADE:	MELBOURNE

THE COURT ORDERS THAT:

1. The appeal be dismissed.

2. The application for leave to appeal be dismissed.

3. The appellant pay the respondent's costs of the appeal and the application for leave to appeal, to be taxed if not agreed.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	V 830 OF 2002

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:	PENG YUANG GAO APPELLANT
AND:	THE OFFICIAL TRUSTEE IN BANKRUPTCY as trustee of the Bankrupt Estate of YU JING ZHU RESPONDENT

JUDGES:	SPENDER, HEEREY, TAMBERLIN JJ
DATE:	8 MAY 2003
PLACE:	MELBOURNE

REASONS FOR JUDGMENT

THE COURT:

1 The appellant ("Mr Gao") is a self-represented litigant for whom English is not his first language. He seeks to appeal from orders of Sundberg J on 4 October 2002 refusing him leave to join the Commonwealth Bank of Australia ("CBA") as a respondent to proceedings he filed against the Official Trustee in Bankruptcy ("the Official Trustee"), and Sundberg J's orders of 6 November 2002 dismissing those proceedings pursuant to O 20 r 2 of the Federal Court Rules on the ground that they disclosed no reasonable cause of action. Mr Gao also seeks leave to appeal from orders made by Ryan J on 19 December 2002, made in respect of notices of motion filed by Mr Gao relating to the mode of appeal from the orders made by Sundberg J, and the evidence that might be put before the Full Court on that appeal.

2 The litigation in the Federal Court and in the Federal Magistrates Court (as well as other proceedings in the Supreme Court of Victoria) concerns the bankrupt estate of Yu Jing Zhu ("Zhu"). In proceedings V 7028 of 2002 in the Federal Court, Mr Gao refers to his proceedings 6371 of 1999 in the Supreme Court of Victoria against Zhu. The Supreme Court proceedings Mr Gao describes as follows:

"The nature of the proceeding is that ZHU had taken advantage of marriage with plaintiff and plaintiff's sponsorship for her stay in Australia permanently to deceive significant sum of money from plaintiff, and to deceived plaintiff into believing that plaintiff was the father of Vicki GAO born on 2 Feb. 1998 and had taken the advantage of the said unbeknown to plaintiff had sold plaintiff's Thornbury flat for less than market value about $31,000, and had give false testimonies to the Court for making denigrating remarks about plaintiff."

3 That passage gives some indication of the language difficulties of Mr Gao, but also provides some insight into why Mr Gao has pursued his complaints about aspects of the Official Trustee's administration of Zhu's bankrupt estate with such vociferous and uncompromising zeal.

4 The proceedings in the Supreme Court of Victoria commenced with the writ and statement of claim on 17 December 1999. On 30 January 2001 Gao entered judgment against Zhu in default of defence. He sought an assessment of damages on 7 May 2001, and on 23 May 2001 Master Evans assessed damages at $163,000 plus interest of $35,681. On 16 May 2001, Zhu had opened a term deposit account with the ANZ Bank in the sum of $94,000. There were significant withdrawals of $23,100 on 28 May 2001, $40,000 on 29 June 2001 and $30,064.78 on 20 July 2001, by which time the entirety of the term deposit had been dispersed. The last amount was constituted by a bank cheque payable to Zhu in the sum of $25,064.78 and $5,000 cash. On 6 September 2001 an amount of $85,974.47 was paid into the Supreme Court of Victoria by Zhu, and is still being held by the Supreme Court.

5 On 10 April 2002 Zhu presented a debtor's petition under s 55 of the Bankruptcy Act 1966 (Cth) ("the Act"). The petition was accepted by the Official Trustee with the consequence that Zhu became bankrupt: ss 55(4A), 57A. Pursuant to s 58(1), the property of Zhu vested forthwith in the Official Trustee.

6 Section 58(3) provides:

"Except as provided by this Act, after a debtor has become a bankrupt, it is not competent for a creditor:

(a) to enforce any remedy against the person or the property of the bankrupt in respect of a provable debt; or

(b) except with the leave of the Court and on such terms as the Court thinks fit, to commence any legal proceeding in respect of a provable debt or take any fresh step in such a proceeding."

It is important in the present case to note also s 58(5) which provides:

"Nothing in this section affects the right of a secured creditor to realize or otherwise deal with his or her security."

7 Zhu was the registered owner of property at 168 Hansworth Street, Mulgrave ("the Mugrave property"). The trustee organised a kerbside valuation of that property, and by letter of 15 April 2002 Ray White advised:

"Under the current market conditions we believe that the property could achieve a price around $250,000."

The property was subject to a mortgage to the CBA. Also on 15 April 2002 the trustee wrote to the CBA seeking information as to the mortgage and the loan amount, and the trustee was advised by the CBA that Zhu owed $183,477.60 and was in default under the mortgage. Notwithstanding claims by Mr Gao that the CBA never had possession of the Mulgrave property, an officer of the Official Trustee deposes to discussions with the CBA and the advice to the Official Trustee that prior to 5 June 2002 the bank had entered into possession of the property and intended to sell the property at auction during July. Again despite claims by Mr Gao to the contrary, the Official Trustee denies that at any stage he "ever instructed the bank to sell the property."

8 On 10 August 2002 the CBA sold the Mulgrave property at auction for $200,000 with settlement due to occur on 9 October 2002. On 13 August an officer of the Official Trustee was advised concerning the purchase price of $200,000 by a real estate agent who had been involved in attempts by Ms Zhu to sell the property prior to her bankruptcy :

"With the status of the market at present, properties are selling at the lower end of their valuations. If the vendor of the property had been prepared to wait several months it might get $230,000 but $200,000 was not ridiculously low."

9 The officer from the Official Trustee concerned with Ms Zhu's bankrupt estate, Mr Philip Bezemer, swears:

"The Trustee has not been provided with any evidence that the sale process undertaken by the Commonwealth Bank of Australia was in any way defective or that the process of the sale of the Property at auction did not realise the market value of the Property on that day. In the circumstances and in the absence of an appropriate indemnity from creditors of the Bankrupt, the Trustee does not intend taking any step in relation to challenging the sale of the Property by the Commonwealth Bank of Australia."

10 On 16 September 2002, in proceedings V7028 of 2002, Mr Gao made application to the Federal Court (which application was amended on 23 September 2002) seeking against the respondent to that application, the Official Trustee:

* Removal of the Official Trustee as Trustee pursuant to s 156A(4) of the Act.

* Review of the Trustee's conduct being "the way ... that the Trustee transferred his power of dealing with bankrupt's property to secured creditor of Commonwealth Bank Australia (CBA) for selling the property for reserved price of $200,000 which is under market value and is just for repaying the mortgage knowingly without considering interest of unsecured creditors at all."

* That the contract of sale between the CBA and the purchaser on 10 August 2002 be set aside.

* Pursuant to ss 176 and 179 of the Act, the damage or loss sustained by the unsecured creditors "if the property would have been settled on 9 October 2002." The damage or loss is said to have resulted "from the way of Trustee's opinion for dealing with the property of which was sold at reserved price that is under market value by secured creditor of CBA to which they are liable to account and compensate."

* An annulment of Zhu's bankruptcy pursuant to s 153B of the Act.

11 On 23 September 2002 Gao filed his first notice of motion, seeking to join CBA as a defendant to his application of 16 September 2000.

12 On 4 October 2002, Sundberg J dismissed that notice of motion with costs. In his reasons, Sundberg J said:

"The basis of the application is the allegation that the Bank sold the property at an undervalue. The Bank sold as mortgagee in possession. It was a secured creditor and stands outside the bankruptcy. Section 58(1) of the Bankruptcy Act 1966 (Cth) ("the Act") provides that where a debtor becomes bankrupt, his or her property vests in the Official Trustee or a registered trustee. However, s 58(5) provides that `Nothing in this section affects the right of a secured creditor to realise or otherwise deal with his or her security'. Thus the Bank was entitled, as it did, to sell the property. It required no permission from the trustee to do so, and the applicant's contention that the trustee wrongfully `transferred' to the Bank the trustee's power to sell the property, or `instructed' the Bank to sell it, is misconceived."

Sundberg J also considered that had the sale been at an undervalue, Mr Gao would lack standing to bring a claim in respect of that circumstance, saying:

"The trustee alone has standing to assert a sale at an undervalue, to the detriment of the unsecured creditors. The trustee has considered whether to make such a claim, and has decided not to."

Sundberg J concluded that no case for the joinder of the Bank had been made out, and said:

"It follows that the applicant's claim ... that the Bank should be restrained from dealing with the Certificate of Title to the property must be rejected."

13 On 21 October 2002 the Official Trustee filed a motion seeking to strike out the application filed 16 September 2002, which Sundberg J did on 6 November 2002, with costs. It will be necessary to have regard to his Honour's reasons for so ordering a little later in these reasons.

14 On 27 November 2002 Mr Gao purported to lodge a notice of appeal against the orders of Sundberg J of 6 November 2002 and, implicitly, his Honour's orders of 4 October 2002. That nine-page notice of appeal concludes with the orders which Mr Gao would seek on the appeal as follows:

"a. The order made on 6 Nov. 2002 be set aside

b. Damage or loss and relief resulted from trustee has knowingly acted to detriment of interest of applicant.

c. In whatsoever circumstance applicant would not be liable for costs for appearance of trustee on 30 Sep. & 4 Oct. & 28 Oct. 2002 in the proceeding.

d. In pursuance of Evidence Act 1995 and Federal Court order 14 rule 9 applicant seeks for questioning and examination with witnesses for verifying evidence in this proceeding.

e. In pursuance of S30(3) of the Act applicant desires further hearing of this application be tried before a jury.

f. Further orders applicant would seek in the appeal.

g. Such or further order that the Court may deem fit."

Items d. and e. were not live matters before Sundberg J.

15 On 29 November 2002 Mr Gao filed a notice of motion (the second notice of motion) which reads:

"In order to real matter before the Court would be effectually & completely determined & adjudicated, applicant desires for questioning witnesses as to evidences given by trustee in the proceeding, and desires the Court appointed referral legal assistance from pro bono panel, and desires the hearing be tried before jury."

16 On 9 December 2002 Mr Gao filed a six-page document styled "Supplementary Notice of Appeal", and on 28 April 2003 a thirteen-page document styled "Amended Notice of Appeal".

17 A further notice of motion (the third notice of motion) was filed by Mr Gao on 9 December 2002 which motion read:

"In order to real matter before the Court would be effectually & completely determined & adjudicated, applicant desires for adducing evidences in relation to the bankruptcy."

18 The second and third notices of motion were the subject of reasons for judgement of Ryan J on 19 December 2002. His Honour noted:

"... the appellant has recited a large number of matters in the form of a chronological narrative. The grounds of appeal do not emerge clearly from those documents but it seems that the appellant is aggrieved by the Trustee's disclaimer, as he calls it, of the property which he says is the only `profitable' asset in the bankrupt's estate."

Ryan J referred to s 27 of the Federal Court of Australia Act 1976 (Cth) ("the Federal Court Act") which gives to a Full Court hearing an appeal a discretion to receive further evidence. His Honour noted that that discretion is exclusively one for the Full Court hearing the appeal. Ryan J said:

"... I cannot anticipate it by requiring any deponent to attend for cross examination or by granting the appellant leave to issue subpoenas in advance of consideration by the Full Court of his application to adduce further evidence. The appellant will have to comply with O 52 r 36 if he seeks to persuade the Full Court on the hearing of his appeal to permit him to adduce fresh evidence."

It should be noted that O 52 r 36(3), (4) and (5) provide:

"(3) The application shall be made by motion on the hearing of the appeal without filing or serving notice of the motion.

(4) The grounds of the application shall be stated in an affidavit.

(5) Any evidence necessary to establish the grounds of the application, and the evidence which the applicant wants the Court to receive shall be given by affidavit."

19 Ryan J considered that s 40 of the Federal Court Act which permits a direction of a suit by trial with a jury clearly contemplated a trial by jury at first instance of a suit or an issue of fact raised by a matter before the Court. Ryan J said:

"Of its nature, an appeal from an order at first instance cannot be determined by a jury."

His Honour ordered that:

" [Mr Gao] be referred to the Registrar for referral to a legal practitioner on the Pro Bono Panel for legal assistance confined, in the first instance until further referral by the Registrar, to:

(a) explaining to the appellant the reasons for judgment of Sundberg J of 6 November 2002 and of Ryan J of this day;

(b) indicating the grounds of appeal (if any) which can properly be argued on the hearing of the appeal;

(c) advising the appellant whether leave is required to appeal from the order of Sundberg J of 6 November 2002 and, if so, preparing an application for such leave;

(d) preparing an amended notice of appeal incorporating any grounds indicated pursuant to paragraph (b) of this Order."

His Honour ordered that the second notice of motion be otherwise dismissed with costs, and the third notice of motion be dismissed with costs.

20 On 30 December 2002 Mr Gao lodged an application for leave to appeal against the judgment of Ryan J.

21 On 19 March 2003 the parties were advised that the appeal was set down to be heard on 5 May 2003. Prior to that date Mr Gao sought adjournment of the hearing of his appeal and further pro bono assistance, applications which were unsuccessful. He was informed that he might renew those applications to the Full Court. He did, but we declined to adjourn his appeal or order further pro bono assistance on the ground that no proper basis had been made out for the grant of either form of relief.

22 Turning to the issues raised by Mr Gao's appeal and leave to appeal, it is convenient to deal first with the application for leave to appeal from the orders of Ryan J of 19 December 2002. Having regard to the reasons of Ryan J and, in particular, the terms of O 52 r 36(3), Ryan J was clearly correct in ordering as his Honour did.

23 The Full Court of the Federal Court in Cottrell v Wilcox [2002] FCA 232, following the judgments of the High Court in CDJ v VAJ [1998] HCA 76; (1998) 197 CLR 172, made it plain that the statutory power to receive further evidence under s 27 of the Federal Court Act on appeal is not governed by common law rules governing the reception of fresh evidence. That power is confined only by the requirement that it be exercised judicially and consistently with the judicial process: at 184-186 per Gaudron J.

24 In this case Mr Gao has not sought to indicate what he would seek to prove by any such evidence, nor has he indicated which witnesses he might wish to call, and the nature of the evidence of those witnesses.

25 While the appellant has not, in express terms, sought to appeal from the decision by Sundberg J to refuse to join the CBA, no error has been shown in his Honour's reasons for so deciding. There simply is no evidence that the trustee disclaimed the property as onerous, as Mr Gao asserts; there is no evidence that the property was in fact sold by the CBA at an undervalue, notwithstanding that there were expressions of value higher than the sale price actually achieved; and there is no evidence that the trustee "transferred his power" in respect of the Mulgrave property to the CBA. In fact, there is sworn and unchallenged evidence to the contrary. There is nothing to indicate that Sundberg J's conclusion that Mr Gao lacked standing to bring proceedings in respect of any asserted sale at an undervalue was in error.

26 The claim to seek the removal of the trustee under s 156A(4) of the Act was doomed to fail because, as his Honour noted, s 156A(4) does not apply to the Official Trustee in Bankruptcy and, in any event, the complaint concerning the trustee's conduct was misconceived. His Honour was right to conclude that there was no prospect of Mr Gao succeeding in his claim to have the contract of sale between the bank and its purchaser set aside.

27 While Mr Gao, who asserts that he is an unsecured creditor of Zhu, may be able to bring proceedings under s 176 of the Act (which section permits the Court, on the application, inter alia, of a "creditor who has or had a debt provable in the bankruptcy", to order the trustee to make good loss caused by a breach of duty by the trustee), and the Court has power under s 179 of the Act, on the application, inter alia, of a "creditor" of the bankrupt, to enquire into the conduct of a trustee, remove the trustee from office or to make such order as it thinks proper, there was simply no evidence before Sunderg J of any breach of duty by the Official Trustee in relation to the bankrupt estate of Zhu.

28 Sundberg J indicated, particularly in his reasons of 4 October 2002, that Mr Gao had not at any stage pointed to evidence of conduct that justifies investigation. As Re Cheesman; Cheesman v Waters (1997) 143 ALR 78 makes plain, an application under s 179 is a two-step process, the first step of which requires the Court to be satisfied that it is appropriate to order an inquiry into the trustee's conduct. There was, in this case, no evidence to satisfy that first step.

29 Finally concerning the claim for an annulment of Ms Zhu's bankruptcy, s 153B of the Act provides for the annulment of a bankruptcy where the debtor's petition "ought not to have been presented or ought not to have been accepted by the Official Receiver". Section 55(4) of the Act permits that a petition not be accepted where the preconditions to acceptance set out in s 55(3) are not complied with - that is to say, if the petition does not comply with the approved form, if it is not accompanied by a statement of affairs, or if the Official Receiver thinks that the statement of affairs is inadequate. Section 55(4) requires that if those conditions are satisfied the Official Receiver must accept a debtor's petition unless the Court directs it not to. Having regard to the considerations, there has been no evidence pointed to by Mr Gao which goes towards proving that the petition ought not to have been presented or accepted.

30 We see no error in the conclusion by Sundberg J that there was no prospect of his obtaining any of the relief he sought in his application of 16 September 2002, as amended on 23 September 2002. It was therefore, in our opinion, appropriate for his Honour to dismiss the application with costs. No error has been demonstrated in respect of any of the orders of Sundberg J, including the exercise of his Honour's discretion as to costs.

31 It is apparent that there are matters in the administration of the bankrupt estate of Ms Zhu that require investigation. There seems to have been a dissipation of considerable sums which are unexplained, and one can understand Mr Gao's concerns, in particular, that his partially successful claim in the Supreme Court of Victoria might be frustrated by the presentation and acceptance of Ms Zhu's debtor's petition, coupled with any secreting of her assets from her trustee. However, the Official Trustee has acknowledged that there are matters in the administration of her estate which require investigation, and it is not to be presumed that those matters will not be properly investigated, within the financial resources available to him.

32 For the above reasons, the appeal should be dismissed with costs, and the application for leave to appeal should be refused, with costs.

I certify that the preceding thirty-two (32) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Spender, Heerey and Tamberlin.

Associate:

Dated: 8 May 2003

The appellant appeared on his own behalf
Counsel for the Respondent:	Mr Stewart Maiden
Solicitor for the Respondent:	Gadens Lawyers
Date of Hearing:	5 May 2003
Date of Judgment:	8 May 2003