McGrath and Anor and Inspector-General in Bankruptcy [2011] AATA 27 (24 January 2011)

Last Updated: 25 January 2011

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2011] AATA 27

ADMINISTRATIVE APPEALS TRIBUNAL )

) No 2010/0907

GENERAL ADMINISTRATIVE DIVISION		)
	Re		DAVID MCGRATH

Applicant

And

INSPECTOR-GENERAL IN BANKRUPTCY Respondent No 2010/2173

Re

DR ADMINSTRATION PTY LTD

Applicant

And

INSPECTOR-GENERAL IN BANKRUPTCY

Respondent

DECISION

Tribunal

Deputy President P E Hack SC

Date 24 January 2011

Place Brisbane

Decision

A. In application 2010/0907, the application is dismissed pursuant to s 42B(1)(a) of the Administrative Appeals Tribunal Act 1975 (Cth); B. In application 2010/2173, the respondent’s application for the proceedings to be dismissed pursuant to s 42A(5) of the Administrative Appeals Tribunal Act is refused and the matter is listed for directions at 9.30 a.m. (Queensland time) on 31 January 2011.

..................[Sgd]......................
Deputy President

CATCHWORDS

PRACTICE & PROCEDURE – cancellation of registration as debt agreement administrator – applicant now bankrupt – where bankruptcy would prevent a decision favourable to the applicant to be made in the application - whether application ought be dismissed as frivolous or vexatious - dismissal for lack of utility – application dismissed

PRACTICE & PROCEDURE – failure to comply with directions – whether application ought be dismissed – application for dismissal refused

Administrative Appeals Tribunal Act 1975 (Cth), ss 42A(5), 42B(1)(A)

Bankruptcy Act 1966 (Cth), Division 8 Part IX, ss 57A, 186A(1), 186C, 186H, 186K(2)

Fearnley v Australian Fisheries Management Authority [2006] FCAFC 3; (2006) 94 ALD 519

Re Irving & Repatriation Commission (1997) 46 ALD 20

Re Turf Enterprises Pty Ltd [1975] Qd R 266

Williams & Australian Electoral Commission [1995] AATA 160; (1995) 38 ALD 366

REASONS FOR DECISION

24 January 2011

Deputy President P E Hack SC

1. On 3 February 2010 the respondent, the Inspector-General in Bankruptcy, determined to cancel the registration of Mr David McGrath as a debt agreement administrator pursuant to Division 8 of Part IX of the Bankruptcy Act 1966 (Cth). It will suffice for present purposes to say that the basis of the decision was the view of the Inspector-General (by her delegate) that Mr McGrath had recovered expenses as a debt agreement administrator to which he was not entitled.
2. On the same day a decision was made that the registration of a related company, DR Administration Pty Ltd (DRA), as a debt administrator be made subject to a condition that DRA repay amounts in the order of $1m said to have been taken as expenses without authority.
3. Mr McGrath lodged an application to review the decision adverse to him on 3 March 2010. DRA was obliged to request removal of the condition by the Inspector-General prior to having any entitlement to apply to the Tribunal for a review of a decision adverse to it. This it did on 22 March 2010. The Inspector-General determined not to remove the condition on 29 April 2010 and DRA commenced proceedings to review that decision on 28 May 2010.
4. The two applications raise very similar issues and involve some 1,200 debtor estates. From the outset the two matters have been the subject of case management directions. On 18 June 2010, and with the agreement of the parties, I directed in the DRA proceedings that the Inspector-General’s obligation, pursuant to s 37 of the Administrative Appeals Tribunal Act 1975 (Cth) (the AAT Act), to lodge documents in the Tribunal be extended until further order. The view of the parties at that time, as I understood it, was that the s 37 documents lodged in Mr McGrath’s application would likely be adequate for both proceedings. Directions were made on that day for the lodging by the parties of Statements of Facts, Issues and Contentions.
5. The matter came back on for directions on 19 October 2010. On that occasion directions were made orally, that in each matter, the applicant lodge any affidavits on which he or it intended to rely on or before 19 November 2010 and that the Inspector-General lodge her affidavits thereafter.
6. It appears that there may have been some confusion caused when sealed copies of these directions were sent to the parties by the Tribunal. Bennett and Philp, the solicitors for the Inspector-General, received a copy of the directions made in the DRA application but not those made in Mr McGrath’s application. Mr Philp, the principal of that firm, wrote to the Tribunal on 25 October 2010 (with a copy of the letter to Piper Alderman, the solicitors for Mr McGrath and DRA) pointing out the oversight.
7. According to the Tribunal’s files, copies of the directions made in each matter were sent to both firms of solicitors on 27 October 2010.
8. On 17 November 2010 Mr McGrath presented his debtor’s petition to the Official Receiver. Upon its acceptance, and by operation of s 57A of the Bankruptcy Act, Mr McGrath became a bankrupt. Piper Alderman wrote to the Tribunal (and Bennett and Philp) on 22 November 2010 advising of the fact of the bankruptcy and that instructions were being sought of Mr McGrath’s trustee in bankruptcy regarding the continuation of the proceedings in Mr McGrath’s name.
9. In the result, no affidavits were filed by either Mr McGrath or DRA within the time required by the directions of 19 October 2010. That failure, and Mr McGrath’s bankruptcy, prompted the Inspector-General to make application for orders,

(a) that Mr McGrath’s proceedings be dismissed forthwith; and

(b) that the DRA proceedings be struck out pursuant to s 42A(5) of the AAT Act for non-compliance with the 19 October 2010 direction or, alternatively, that self-executing orders be made for the filing of DRA’s affidavits within a short space of time.

10. Those applications were heard on 13 December 2010. The parties lodged detailed written submissions and voluminous affidavits both before and after the hearing. Despite the volume of material the essential issues are relatively straightforward. I will discuss those issues by reference to the separate proceedings.

MR MCGRATH’S PROCEEDINGS

11. The Inspector-General contends, in this matter, that the proceedings ought be dismissed pursuant to s 42B of the AAT Act on the grounds that they are frivolous or vexatious. They answer that description, so it is said, because Mr McGrath’s bankruptcy has the effect that the relief that he seeks in the proceedings is not, in practical terms, available to him.
12. To understand the submission, reference to the statutory qualification for registration as a debt agreement administrator is necessary. By virtue of s 186C of the Bankruptcy Act registration of an individual as a debt agreement administrator is dependant upon the individual passing “the basic eligibility test”. Section 186A(1) of the Bankruptcy Act provides:

“(1) For the purpose of this Division, an individual passes the basic eligibility test at a particular time (the test time) unless:

(a) at any time during the 10-year period ending at the test time, the individual was:

(i) an insolvent under administration: ...”

13. The effect of s 186K(2) of the Bankruptcy Act is that the Inspector-General must cancel an individual’s registration as a debt agreement administrator if satisfied that the individual no longer passes the basic eligibility test. Mr McGrath no longer passes the basic eligibility test as he is an insolvent under administration. Thus, argues the Inspector-General, regardless of the merits of any case presented by Mr McGrath, the Tribunal would be bound to affirm her decision. The intervening bankruptcy means that there is no longer any utility in the proceedings as Mr McGrath’s registration is bound to be cancelled.
14. There is considerable authority for the proposition that proceedings answer the description of frivolous or vexatious if the outcome of the proceedings, whether successful or otherwise, will be devoid of any practical effect[1]. It is unnecessary to examine the cases; Mr McGrath did not argue to the contrary. It will suffice to set out what was said by Emmett J in Fearnley v Australian Fisheries Management Authority[2]:

“Where an interest that gives an applicant standing to commence a proceeding in the Tribunal ceases to exist, that applicant has no interest in pursuing the proceeding further. Although such a proceeding might not be vexatious when instituted, it becomes vexatious when no legitimate purpose can be achieved by continuing with the proceeding.”

15. It was submitted that Mr McGrath, as an undischarged bankrupt, had a right to continue personal proceedings. The submissions continued,

“This is especially so given that the relief Mr McGrath seeks, namely that there be a declaration that the decisions of the Inspector-General insofar as they relate to the lawfulness as regards expenses deducted in the relevant estates (and the impact that has had and continues to have on Mr McGrath), is not futile.”

16. It is, with respect, not entirely clear what is intended to be conveyed by this submission however what is quite clear is that whatever conclusions are reached by the Tribunal, no “declarations” will be made; the Tribunal’s powers are those in s 43 of the AAT Act i.e. setting aside, varying or affirming the decision. I rather suspect that what is sought to be conveyed is that Mr McGrath seeks the opportunity to vindicate his right to have recovered the expenses in issue in the proceedings. But as I understand the position, the issues that arise in the DRA matter are those which arise in Mr McGrath’s matter. Thus if DRA persuades the Tribunal that it was entitled to recover the expenses in issue, the position of Mr McGrath would be vindicated. To the extent to which Mr McGrath has a legitimate interest in vindication, that vindication is available to him in the DRA proceedings.
17. At the hearing, Mr McGrath suggested that the power to cancel the registration of a bankrupt might be discretionary and, for that reason, sought, and was granted, leave to make supplementary submissions on the point. Supplementary submissions were received on behalf of Mr McGrath (albeit late) however they are silent on the point. To the contrary, submissions by the Inspector-General refer to the Explanatory Memorandum to the amending legislation which introduced s 186K in which reference is made to “mandatory” cancellation. I reject the suggestion by Mr McGrath that cancellation of registration of a bankrupt is a matter of discretion.
18. I am then of the view that there is no continuing utility in Mr McGrath’s proceedings and that the application ought be dismissed pursuant to s 42B(1)(a) of the AAT Act.

THE DRA APPLICATION

19. Section 42A(5) of the AAT Act confers on the Tribunal discretion to dismiss an application, without proceeding to review the decision, where an applicant “fails within a reasonable time ... to comply with a direction by the Tribunal...” The Inspector-General submitted that the discretion to dismiss ought to be exercised in the present case because DRA had failed to comply with the direction to lodge and serve the affidavits on which it intends to rely. And it was relevant to the exercise of that discretion, it was said, to have regard to the apparent weakness in DRA’s case as demonstrated by what was said to be its earlier agreement to repay the amount of expenses referred to in the condition imposed.
20. DRA does not dispute that the s 42A(5) discretion has been enlivened. It submits, correctly in my view, that the discretion, in common with any discretion to summarily terminate proceedings, ought be exercised sparingly and only in the clearest of cases.
21. At the outset I note that DRA had now lodged two affidavits going to the merits of the proceedings. I assume that they constitute the totality of the material intended to be relied upon.
22. The decision in issue in the proceedings has its genesis in a decision made on 3 February 2010 that the continued registration of DRA as a debt agreement administrator be subject to a condition in these terms:

“The registration of DR Administration Pty Ltd to be a debt agreement administrator is conditional upon DR Administration Pty Ltd repaying to the debt agreement account, that account ... the amount of $1,038,587.73. The repayment of this amount will commence on 10 February 2010 and continue by weekly instalments for a period to conclude on 13 May 2011. Details of that repayment will be evidence [sic] by a Deed between the Inspector-General and DR Administration Pty Ltd and David Colin McGrath and Karen Merle McGrath and Richard George Symes and Leah Symes.”

23. A decision to impose conditions upon registration as a debt agreement administrator is not, in itself, reviewable by the Tribunal. The mechanism for review is provided by s 186H of the Bankruptcy Act. That section permits the making of an application to the Inspector-General that conditions on the registration as a debt agreement administrator be changed or removed. A decision, such as was made here, not to change or remove a condition is reviewable by the Tribunal.
24. The argument for the Inspector-General is that the condition imposed resulted in dealings between her officers and representatives of DRA in November 2009 culminating in a letter dated 17 November 2009 on the letterhead of “DR Administration” and signed by Mr McGrath. The letter is marked “without prejudice”. The Inspector-General points to that letter, and to other e-mails within the s 37 documents as demonstrating, inter alia, that “the parties had, by 17 November 2009, conclusively agreed that ... there would be a repayment by DRA of the expenses taken”. But the Inspector-General does not rely upon the correspondence to demonstrate a binding agreement but rather,

“(a) to show that DRA have at least previously unequivocally agreed to repay the expenses;

(b) to demonstrate that the Applicant’s case at hearing, where they seek to challenge the imposition of the Condition (namely the repayment of the expenses), is weak, implausible and unconvincing at best and fraught with significant evidentiary burdens such that the Tribunal ought to exercise its discretion in relation to the Respondent’s application for orders under section 42A(5) of the Administrative Appeals Tribunal Act 1975 in favour of the Respondent; and

(c) to urge the Tribunal if it is not minded to make orders dismissing the DRA proceeding under section 42A(5) of the Administrative Appeals Tribunal Act 1975 to impose upon DRA an expedited timetable including self executing orders for the further preparation and urgent hearing of the matter.”[3]

25. I do not propose to accede to either part of the Inspector-General’s application.
26. So far as the default on the part of DRA is concerned it has now, apparently, been remedied and it is said by Dr Quirey, the solicitor for DRA, to be explicable on the basis that he was unaware that the directions made on 19 October 2010 had been made in both matters. The default was neither great nor flagrant.
27. As to the other aspect of the argument, that concerning the alleged agreement of November 2009, I expressly make no finding on whether there is a binding agreement between the parties for the repayment of the expenses. As it seems to me, if the Inspector-General contends that there is such an agreement it is open to her to seek to enforce such an agreement in the common law courts. However I do not consider that the fact of such an agreement, if found, necessarily leads to the conclusion that the case for DRA is bound to fail. It is not clear to me why such an agreement should preclude an argument that the imposition of a condition requiring repayment was not the correct or preferable decision.
28. The power to terminate summarily is not ordinarily used merely because a case is apparently weak or tenuous; it ought be used for those cases that are bound to fail. I do not consider that this is such a case.
29. Nor do I consider that self-executing directions ought be made at this point. The matter is presently scheduled for a directions hearing at 9.30 a.m. (Brisbane time) on 31 January 2011. That hearing will proceed (in the DRA matter) and consideration will then be given to the directions that ought be made to bring the matter on for final hearing without unnecessary delay. The parties ought give consideration to the directions necessary and ideally forward to the Tribunal and exchange with one another drafts of proposed directions. I imagine, without seeking to be exhaustive, that directions may be necessary regarding the s 37 documents – whether those for Mr McGrath’s matter ought be treated as those for the DRA matter, whether any further documents, beyond those in the existing s 37 bundle, ought be lodged in the DRA matter, the lodging of affidavits by the Inspector-General and by DRA in reply, the length and timing of the final hearing, and the time for giving of notices requiring deponents for cross-examination. These matters, and such other matters as the parties wish to raise, will be dealt with at the directions hearing on 31 January 2011.
30. I would add only that if the Inspector-General intends to rely upon the letter of 17 November 2009 I would expect that consideration will be given to the “without privilege” annotation. In the ordinary course of events such communications are subject to negotiation privilege which is a joint privilege[4].
    

I certify that the 30 preceding paragraphs are a true copy of the reasons for the decision herein of Deputy President P E Hack SC

Signed: ............Signed..........................................................

Associate

Date of Hearing 13 December 2010

Date of Decision 24 January 2011

Solicitors for the Applicant Piper Aldermann

Counsel for the Respondent Ms C F Gobbo

Solicitors for the Respondent Bennett & Philp Lawyers

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[1] See e.g. re Williams & Australian Electoral Commission [1995] AATA 160; (1995) 38 ALD 366, 374; Re Irving & Repatriation Commission (1997) 46 ALD 20, 26.

[2] [2006] FCAFC 3; (2006) 94 ALD 519, at [97].

[3] Respondent’s Supplementary Submissions, 20 December 2010 at [16].

[4] See e.g. Re Turf Enterprises Pty Ltd [1975] Qd R 266, 267.