Marcus Timothy Clark v Alexander Jamie Wood (In his Capacity as Deputy District Registrar of the Federal Court of Australia) & Anor [1997] FCA 999 (19 September 1997)

• FEDERAL COURT OF AUSTRALIA

FEDERAL COURT OF AUSTRALIA

BANKRUPTCY - whether a ruling under s 81(10) of the Bankruptcy Act 1966 is reviewable under the Administrative Decisions (Judicial Review) Act 1977 - in what circumstance will relief be granted.

Bankruptcy Act 1966 (Cth) ss 81(1), (10), (11)

Administrative Decisions (Judicial Review) Act 1977 ss 3(1), 5, 16

In re Cronmire; Ex parte Cronmire [1894] 2 QB 246

Burns v Australian National University (1982) 40 ALR 707

Huston v Costigan (1982) 45 ALR 559

Australian Broadcasting Tribunal v Bond [1990] HCA 33; (1991) 170 CLR 321 applied

In re North Australian Territory Company (1890) 45 Ch D 87 discussed

Re Hodder; Ex parte Cougle (1965) 7 FLR 436

In re Pennington, Ex parte Pennington 5 Mor. 268

Salerno v National Crime Authority & Ors (1997) 144 ALR 709 applied

Re Andrews 18 ABC 181

Re Anderson Ex parte Official Receiver 10 ABC 284

Hamilton v Oades [1989] HCA 21; (1988-1989) 166 CLR 486

Lamb v Moss (1989) ALR 533 applied

Fares Rural Meat and Livestock Pty Ltd v Australian Meat and Livestock Corporation [1990] FCA 139; (1990) 96 ALR 153

TIMOTHY MARCUS CLARK v ALEXANDER JAMIE WOOD (In his capacity as Deputy District Registrar of the Federal Court of Australia) and OFFICIAL TRUSTEE IN BANKRUPTCY

VG 89 of 1997

FINKELSTEIN J

MELBOURNE

19 SEPTEMBER 1997

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VG 89 of 1997

BETWEEN:	TIMOTHY MARCUS CLARK Applicant
AND:	ALEXANDER JAMIE WOOD (in his capacity as Deputy District Registrar of the Federal Court of Australia) and OFFICIAL TRUSTEE IN BANKRUPTCY Respondents

JUDGE: FINKELSTEIN J.

DATE OF ORDER: 19 SEPTEMBER 1997

WHERE MADE: MELBOURNE

THE COURT ORDERS THAT:

The application for review be dismissed.

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	VG 89 of 1997

BETWEEN:	TIMOTHY MARCUS CLARK Applicant
AND:	ALEXANDER JAMIE WOOD (in his capacity as Deputy District Registrar the Federal Court of Australia) and OFFICIAL TRUSTEE IN BANKRUPTCY Respondents

JUDGE: FINKELSTEIN J

DATE: 19 SEPTEMBER 1997

PLACE: MELBOURNE

REASONS FOR JUDGMENT

HIS HONOUR: This case raises a short but interesting point in bankruptcy. It arises out of an examination under s 81(1) of the Bankruptcy Act 1966 (Cth) that was conducted before a Deputy District Registrar of the Federal Court (the first respondent). The Official Trustee in Bankruptcy (the second respondent) had obtained an order for the examination of the bankrupt (the applicant). During the course of that examination objection was taken to a question that counsel for the Official Trustee had asked the bankrupt. The Deputy District Registrar ruled that it was appropriate for the question to be put to the bankrupt. The bankrupt seeks to review that ruling under the Administrative Decisions (Judicial Review) Act 1977 (Cth) (the AD(JR) Act). The question is - is the ruling to allow the question a "decision of an administration character made ... under an enactment" (see the definition of "decision to which this Act applies" in s 3(1) of the AD(JR) Act) and thereby reviewable under the AD(JR) Act ?

There is no doubt that the ruling was "made under an enactment" as required by the definition. Section 81(10) of the Bankruptcy Act confers express power upon the Registrar (which is defined in s 5(1) to include a Deputy District Registrar) "to allow to be put to a person being examined under this section such questions about [the bankrupt's] examinable affairs as the Registrar ... thinks appropriate." There is also no doubt that a ruling under that section is a ruling of an administrative character. See In re Cronmire; Ex parte Cronmire [1894] 2 QB 246 for a discussion of the nature of an examination and the fact that it is not judicial, Burns v Australian National University (1982) 40 ALR 707 at 714 for the general characteristics of an administrative decision and Huston v Costigan (1982) 45 ALR 559 for an example of a review of a decision relating to the calling of evidence.

The point that is made by the Official Trustee (the Deputy District Registrar does not appear and is content to abide by the result) is that the ruling is not a "decision" under s 3(1) because it does not satisfy the characteristics of a decision laid down by the High Court in Australian Broadcasting Tribunal v Bond [1990] HCA 33; (1991) 170 CLR 321. In Bond, Mason CJ, with whom Brennan and Deane JJ agreed, said at 337 and 338:

"[A] reviewable `decision' is one for which provision is made by or under a statute. That will generally, but not always, entail a decision which is final or operative and determinative, at least in a practical sense, of the issue of fact falling for consideration ...

Another essential quality of a reviewable decision is that it be a substantive determination ...

My view is more in accord with the tentative opinion expressed earlier by Ellicott J in Ross v Costigan when he said that "it may well be that the word `decision' "means an ultimate or operative determination not a mere expression of opinion or a statement which can of itself have no effect on a person."

Here the focus of attention is on a decision that is on a point of substance rather than on a matter of procedure. The decision must be final "in a practical sense". Usually it will be a decision about a disputed fact. But as is made clear not every decision must conform with these characteristics.

Examinations in bankruptcy have a long history. They date back to 34 & 35 Henry 8
c 4 s 2. Examinations have also been available in the case of insolvent companies. The first Act to be called a Companies Act (25 & 26 Vict. c 89) contained a power to order an examination: see s 115. The sole purpose of an examination is to gather information. Nothing is decided in an examination. No conclusions are reached about the bankrupt or his or her affairs or anything else.

Nevertheless, the power to compel an examination has been called an extraordinary power. It was so described by Bowen LJ in In re North Australian Territory Company (1890) 45 Ch D 87 at 93:

"In the first place, it must be observed that it is an extraordinary section. It is an extraordinary power; it is a power of an inquisitorial kind which enables the Court to direct to be examined - not merely before itself, but before the examiner appointed by the Court - some third person who is no party to a litigation. That is an inquisitorial power, which may work with great severity against third persons, and it seems to me to be obvious that such a section ought to be used with the greatest care, so as not unnecessarily to put in motion the machinery of justice when it is not wanted, or to put it in motion at a stage when it is not clear that it is wanted, and certainly not to put it in motion if unnecessary mischief is going to be done or hardship inflicted upon the third person who is called upon to appear and give information."

See also Ex parte Willey, In re Wright (1883) 23 Ch D 118 at 128.

For the reason that mischief or hardship might result from a misuse of the power to compel and conduct an examination the courts have been at pains to point out that care should be exercised before ordering an examination and that vigilance must be observed by those overseeing an examination to ensure that no injustice occurs: see the cases cited in Karounos & Ors v Official Trustee (1988) 19 FCR 330 at 336. Not only must injustice be guarded against, but "irrelevant or fishing questions or (those that) have an indirect purpose not connected with the bankruptcy must not be allowed": see Re Hodder; Ex parte Cougle (1965) 7 FLR 436 at 437 and the cases cited at 438. Indeed, as early as 1888 in In re Pennington, Ex parte Pennington 5 Mor. 268 at 269 Lord Esher said:

"What I want the registrars to do is to do their duty and to stop counsel at once if the question is one which is clearly irrelevant and which ought not to be put; and if it is clear that the object of the question is to lead the witness to say something which he or she does not intend then to stop it and tell the witness not to answer."

It must be remembered that if an examinee fails to answer a question that is put and required to be answered an offence is committed and the examinee is liable to a penalty of $1000 or imprisonment for six months or both: see s 81(11) and 264C. In addition, the fact that an answer may be incriminating is not an excuse not to answer the question unless the person before whom the examination takes place otherwise directs: see s 81(11AA). So, it is obvious that if an examination is not strictly controlled real harm may be suffered by an examinee and by other persons as well. Private, sensitive or confidential information might be disclosed when it should not have been. Incriminating answers may be given when the questions that led to them should not have been asked. Some unfair advantage might be obtained for other litigation.

The possibility that an examination may be oppressive or unfair suggests to me that the quality of a ruling to allow a question to be put is something more than a procedural matter "at least in a practical sense" to borrow from the language of Mason CJ in Bond. A ruling may not resolve any dispute of fact, but that is not a strict requirement of a "decision". A ruling does of course resolve an issue that is raised namely whether a particular question should be allowed. Having regard to these considerations and the potentially serious consequences that may result from a ruling under s 81(10) to allow a question to be put, it seems to me that such a ruling is a "decision" that is capable of review under the AD(JR) Act.

This conclusion is confirmed by Salerno v National Crime Authority & Ors (1997) 144 ALR 709 a recent decision of the Full Court. The question that arose for consideration in that case was whether a decision by the National Crime Authority to issue a search warrant was a decision reviewable under the AD(JR) Act. In arriving at an affirmative answer the Full Court based its reasoning substantially on the fact that the decision to issue a warrant materially affected the appellant's legal rights to the quiet enjoyment of his home. That is, it made conduct that would otherwise be an unlawful trespass lawful conduct. In the case of an examination, an examinee's legal rights may also be improperly interfered with, of course in a different way, but no less seriously, as I have attempted to show.

Before leaving this topic I wish to mention one other matter concerning the jurisdiction of the Court to set aside a decision made under s 81 (10) of the Bankruptcy Act. In this case the bankrupt only relied on the AD(JR) Act to found jurisdiction. Nothing that I have said should be taken as an indication that I am of the view that the AD(JR) Act is the sole, or even the most appropriate, source of power to control an examination. Quite apart from s 39B of the Judiciary Act 1903, pursuant to which an injunction may be sought, the Court has an inherent jurisdiction to prevent injustice arising from the use of the Court's procedures: compare Hamilton v Oades [1989] HCA 21; (1988-1989) 166 CLR 486 at 498-499 per Mason CJ and at 502-503 per Deane and Gaudron JJ in relation to an examination under the former Companies Codes. Jurisdiction may also exist as an incident of the power to order an examination under s 81(1). Finally, the Court has power to recall an order to allow an examination and it may exercise that power if an examination is being conducted improperly: see Re Andrews 18 ABC 181 and Re Anderson; Ex parte Official Receiver 10 ABC 284.

Now it is necessary to turn to the merits of the application. Before the sequestration order was made, the bankrupt and his wife jointly owned their matrimonial home. The home was worth approximately $2 million. The bankrupt also owned shares worth approximately $1 million. During the examination the bankrupt said that he had transferred his interest in the matrimonial home to his wife. The transfer was in pursuance of a contract which recorded the consideration as $1 million as did the transfer that was lodged in the Office of Titles. The consideration was satisfied by the delivery of an "inchoate bill of exchange" for $1 million. The applicant transferred his shares to Timarc Nominees Pty. Ltd. to be held, pursuant to a trust, for the benefit of his children. The consideration for the transfer was $1 million and was also satisfied by the delivery of a bill of exchange for that amount. It appears that neither bill of exchange was discharged by payment or at least by a payment that was retained by the bankrupt. These facts give rise to the possibility that the transfers could be avoided under
s 121 of the Bankruptcy Act, which makes void as against the trustee in bankruptcy a "disposition of property ... made ... with intent to defraud creditors".

During the examination counsel for the Official Trustee asked many questions about the transfers. At one point senior counsel for the bankrupt (Mr Bigmore) said with regard to the transfer of the house:

"But my point about this is really is that all these documents eventually tell us, as a lawyer can tell with a great deal of pain and suffering looking through the document - eventually tell us that the transaction went around in the circle that one would expect and resulted in the net effect of the transfer of the property, whether you label it a gift or a disposition or whatever you want to call it. The fact is there was such a disposition. There is no dispute about that issue, and really, the sooner we get to the bottom line, the better it will be."

This was not a significant concession. It appears indisputable that there was either a disposition of the land or at least an attempt to dispose of the land. The Official Trustee has evidence available to establish either of these alternatives without recourse to any concession made by or on behalf of the bankrupt.

A day or so later, the bankrupt was being asked questions about the transfer of the shares. His counsel sought to shorten the examination. The following exchange took place:

Mr Delany: "Well I just inquire whether it is conceded that there was no consideration, no effective consideration, given either for the house or for the shares. If my friend wants to make that concession it will no doubt make things a lot shorter".

Mr Bigmore: Well, I think I made that concession yesterday, and you will recall that Mr Clark was asked in a rolled up fashion about a gift and finally when he was asked the simple question whether it was a gift or not he said it was. We took a while to get to that stage but around about the same stage we made it quite clear that we conceded that there was a gift of the shares and a gift of the house, whether you call it a gift or a transfer or whatever, it was a disposition. It answers the description of disposition in section 121 of the Bankruptcy Act without any doubt whatsoever and we could have got to that a lot quicker."

This concession was slightly more forthcoming than the earlier concession. Now it was being conceded that both the transfer of the house and the transfer of the shares were dispositions for the purposes of s 121: a proposition, as I have said, that was not much in doubt. It was also conceded that each transfer was made by way of gift. However, counsel for the Official Trustee was not content with concessions being made on behalf of the bankrupt. He wanted the bankrupt personally to adopt those concessions. Accordingly, he asked the bankrupt the following question:

"Now earlier this morning, I said this on the transcript:

`Well, I just enquire whether it is conceded that there was no consideration, no effective consideration, given for the house or for the shares'

And I said:

`If my friend wants to make that concession it will no doubt make things a lot shorter.'

And Mr Bigmore said:

`Well, I think I made that concession yesterday.'

Is that a concession which you adopt?"

There was an objection to the question. The basis for the objection was that it was not permissible in an examination under s 81(1) to ask an examinee to make any concession because "there is no legal proceeding in which that concession is made". The Deputy District Registrar overruled the objection and allowed the question to be put. This is the ruling that is the subject of this application for review.

There is no doubt that the reason put forward to support the objection lacked merit. The purpose of an examination is to discover facts about the examinable affairs of a bankrupt so that a trustee in bankruptcy can locate and get in the bankrupt's divisible property for the benefit of creditors. To ask an examinee to make a concession about a matter relevant to this subject is no different from asking the examinee to make an admission about that matter. Provided that which is enquired after is a concession or admission about a relevant matter generally speaking the question is a proper one. But to say that the basis of the objection was not good in point of law does not mean that the question should have been allowed.

There are a number of comments that can be made about the form of the question. First, the concession attributed to Mr Bigmore (and accepted by him as having been made) was probably not made, at least not in the terms asserted in the question. Secondly, by the question the bankrupt was asked to adopt a statement (counsel's concession) that had four components. Two components concerned matters of fact, viz. that there was no consideration given for the transfer of the house and that there was no consideration given for the transfer of the shares. Two components enquired after conclusions of law, viz. that there was no "effective consideration" given for the transfer of the house or for the transfer of the shares.

In curial proceedings a question in the form put would not be allowed. In the first place, it would not be allowed because any answer to a question containing several components would usually be unhelpful. In the second place the question is unfair because in effect it asks four separate questions and the answer to each may be different. Finally, it is usually not permissible to ask a lay witness for his or her legal opinion on a matter in issue: Phipson on Evidence 14th ed para 24-16.

It seems to me that the Deputy District Registrar should not have allowed the question to be put for the same reasons that it would not have been allowed to be put to a witness in a curial proceeding. Moreover, in so far as the question required the bankrupt to give an opinion on a matter of law, where the bankrupt is a layman and has no qualification to express an opinion on the law it is unlikely that any answer would provide the Official Trustee with information concerning the examinable affairs of the bankrupt. For that reason alone the question was not a proper one.

However, it does not follow from the fact that the question should not have been allowed that the bankrupt will succeed in obtaining any relief. Relief under s 16 of the AD(JR) Act is discretionary: Lamb v Moss (1989) ALR 533 at 549-551, SCI Operations Pty. Ltd. & Anor v Trade Practices Commission & Ors.[1984] FCA 52; (1984) 53 ALR 283 at 304, Fares Rural Meat and Livestock Pty Ltd v Australian Meat and Livestock Corporation [1990] FCA 139; (1990) 96 ALR 153 at 170 and Bond, supra, at 338. When relief is sought in relation to a question allowed to be put at an examination it is not sufficient, in my opinion, to show that the ruling was wrong in law. Generally, it will also be necessary for an applicant to show that the question was asked for an ulterior purpose, or that the question was oppressive or vexatious, or that some other unwarranted harm will be suffered if the question is answered. If this requirement is not imposed the conduct of examinations will be severely hampered. This case is a good example. The examination has already been delayed for some nine months pending the outcome of this application. There is no suggestion that the question was asked for an improper purpose. Finally, it is not alleged that any harm will be suffered if the question is answered. It is not appropriate to grant any relief in these circumstances.

I certify that this and the preceding (eight) 8 pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Finkelstein

Associate:

Date: 19 September 1997

Counsel for the Applicant: GT Bigmore QC

Solicitor for the Applicant: JM Smith & Emmerton

Counsel for the Second Respondent: J Delany

Solicitor for the Second respondent: Cornwall Stodart

Date of Hearing: 3 September 1997

Date of Judgment: 19 September 1997