Wilson v Commonwealth of Australia [1999] FCA 219 (12 March 1999)

Last Updated: 15 March 1999

FEDERAL COURT OF AUSTRALIA

Wilson v Commonwealth of Australia [1999] FCA 219

BANKRUPTCY - Bankruptcy Act 1966 (Cth) ("the Act") - application to the Court under ss 178 and 179 of the Act - whether grounds justify inquiry under the Act - whether s 178 invoked to seek review of an act, omission or decision of the trustee in the administration of the bankrupt estate - whether case made out for inquiry under s 179 - whether trustee acted other than in the manner required by the Act - whether s 178 creates a cause of action which sounds in damages

Bankruptcy Act 1966 (Cth), ss 12(1)(b), 134, 178, 179

Federal Court of Australia Act 1976 (Cth), s 21

Williams v Official Trustee in Bankruptcy [1994] FCA 1194; (1994) 122 ALR 585, considered

Re Tyndall [1977] FCA 15; (1977) 30 FLR 6, considered

McGoldrick v Official Trustee in Bankruptcy [1993] FCA 636; (1993) 47 FCR 547, considered

Re Wheeler; Ex parte Wheeler v Halse [1994] FCA 1348; (1994) 54 FCR 166, considered

Re Alafaci; Registrar in Bankruptcy v Hardwick (1976) 9 ALR 262, cited

Re Gault; Gault v Law [1981] FCA 167; (1981) 57 FLR 165, cited

Registrar in Bankruptcy v Bradley [1983] FCA 304; (1983) 72 FLR 231, cited

Turner v Official Trustee in Bankruptcy (unreported, Full Federal Court, 27 November 1998), followed

Monroe Schneider Associates (Inc) v No. 1 Raberem Pty Ltd [1992] FCA 367; (1992) 37 FCR 234, cited

Bourke v Beneficial Finance Corporation Ltd (1993) 47 FCR 264, cited

ERNEST ARTHUR WILSON and PATRICIA LORRAINE WILLIAMS v THE COMMONWEALTH of AUSTRALIA and OFFICIAL TRUSTEE in BANKRUPTCY

NG 8014 of 1998

BRANSON J

12 MARCH 1999

SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NG 8014 OF 1998

BETWEEN:	ERNEST ARTHUR WILSON and PATRICIA LORRAINE WILLIAMS Applicant
AND:	THE COMMONWEALTH OF AUSTRALIA First Respondent OFFICIAL TRUSTEE IN BANKRUPTCY Second Respondent
JUDGE:	BRANSON J
DATE OF ORDER:	12 MARCH 1999
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

1. The proceeding 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
NEW SOUTH WALES DISTRICT REGISTRY	NG 8014 OF 1998

BETWEEN:	ERNEST ARTHUR WILSON and PATRICIA LORRAINE WILLIAMS Applicant
AND:	THE COMMONWEALTH OF AUSTRALIA First Respondent OFFICIAL TRUSTEE IN BANKRUPTCY Second Respondent

JUDGE:	BRANSON J
DATE:	12 MARCH 1999
PLACE:	SYDNEY

REASONS FOR JUDGMENT

Introduction

1 By an undated application filed on 16 September 1998 the applicants claim various declarations and orders under the Bankruptcy Act 1966 (Cth) ("the Act"). Some of the claims have only been faintly pressed. The applicants place principal reliance on their claims for orders under s 178 of the Act and an inquiry under s 179 of the Act.

2 The respondents have moved on notices of motion dated 27 October 1998 and 12 November 1998 respectively for orders that the proceeding be dismissed pursuant to O 20 r 2 of the Federal Court Rules or alternatively for a declaration that a case has not been made out by the applicants for an inquiry into the conduct of the second respondent pursuant to s 179 of the Act.

3 The applicants have placed voluminous material before the Court. To avoid waste of time it was received subject to the respondent's objections, which objections principally went to relevance but in many instances went also to form. Much of the material is plainly irrelevant to any issue which I have to decide and considerable portions of it are objectionable in form. The material canvasses, amongst many other things, the circumstances in which the applicants became bankrupt, the circumstances in which the applicants became lessors of the Gardiner's Inn Hotel at Blackheath ("the Hotel"), management difficulties experienced by the applicants in respect of the Hotel, and various material said to throw doubt on the merits of a judgment of this Court pronounced by Sweeney J in 1992. Much of the material was not referred to by either counsel in his submissions to the Court. Where I found any of the material relevant to the motions before me I refer to it below.

4 Each of ss 178 and 179 of the Act appears in Part VIII - Trustees as part of Division 4 - Control over Trustees. They respectively provide as follows:

"178 If the bankrupt, a creditor or any other person is affected by an act, omission or decision of the trustee, he may apply to the Court, and the Court may make such order in the matter as it thinks just and equitable.

179(1) The Court may, on the application of the Registrar, the Inspector-General, a creditor or the bankrupt, inquire into the conduct of a trustee in relation to a bankruptcy and may do one or both of the following:

(a) remove the trustee from office; and
(b) make such order as it thinks proper.

(2) The Inspector-General or a creditor may at any time require a trustee to answer an inquiry in relation to the bankrupt's estate or affairs."

Background Facts

5 These facts are taken principally from the reasons for judgment of Sweeney J dated 10 December 1992 in Actions No 114 and 426 of 1986, and of Sheppard, French and Einfeld JJ on appeal from Sweeney J. The reasons for judgment of the Full Court are reported as Williams v Official Trustee in Bankruptcy [1994] FCA 1194; (1994) 122 ALR 585.

6 A sequestration order was made against the estate of the first applicant ("Mr Wilson") on 23 April 1986. A sequestration order was made against the estate of the second applicant ("Ms Williams") on 17 February 1986. In each case the Official Receiver on behalf of the Official Trustee in Bankruptcy ("the Trustee") was the trustee of the estate.

7 Welona Pty Limited ("Welona") lodged a proof of debt against both estates in the sum of $151,756.57. The Trustee rejected certain items in the proof of debt to the extent of $55,162.18, admitting the proof of debt in the amount of $96,594.39.

8 On 12 April 1991, Ms Williams and Mr Wilson, who for convenience I will continue to describe as "the applicants" even when referring to the earlier proceedings, filed an application in the Court seeking orders to the effect that Welona's proof of debt against their respective estates be significantly further disallowed. On 24 February 1992 Welona filed applications seeking to have its proof of debt in each of the estates admitted in full. Hill J ordered that the application of the applicants and those of Welona be heard together and that "evidence in one shall be evidence in the other".

9 The applications were heard by Sweeney J in early October 1992. The applicants were represented by solicitors and counsel before Sweeney J, as were Welona and the Trustee. A statement made by Mr Hadley, counsel for the applicants, at the commencement of the hearing before His Honour indicates his understanding of how the hearing before His Honour would proceed. Mr Hadley stated, in response to a question from His Honour as to who would begin:

"We have had some discussion before your Honour came on the bench and I gather that the Official Trustee's attitude was that it would lay before the court the information on which it had acted and then make the witnesses available for examination by either party ...".

10 In the light of this statement, it cannot fairly be suggested in my view, that counsel for the applicants did not understand that it was his role, and not that of counsel for the Trustee, to put the case of the applicants before the Court. That is, that the real disputants before Sweeney J were the applicants on the one hand, who contended that the Trustee had admitted Welona's proof of debt in an amount that was too high, and Welona on the other hand, which contended that the Trustee had admitted its proof of debt in an amount that was too low.

11 Sweeney J gave reasons for judgment on 10 December 1992. Welona was largely successful before his Honour. Orders were ultimately entered by His Honour allowing Welona's proof of debt in an total amount of $140,534.45.

12 It is not in dispute, and it was accepted before Sweeney J, that Welona, earlier known as R Bowen (Properties) Pty Ltd, by a lease dated 17 July 1980 leased the Hotel to the applicants. The lease was for a term of five years commencing on 29 January 1980. The lease contained the usual covenants including a convenant by the lessor to keep the premises in good and substantial repair.

13 What was in dispute before Sweeney J, and later before the Full Court, was the state of repair of the Hotel when the lease was entered into and the question of who was obliged to undertake any necessary repairs to the Hotel. The case of Welona was that the Hotel was in reasonable repair as at the date of the lease and fell into a serious state of disrepair thereafter. The case of the applicants was that the Hotel was in a very bad state of repair when they went into occupation and that there was either a collateral agreement or a collateral term of the lease which obliged Welona to put the Hotel into a state of repair. Ultimately Welona carried out substantial repair work on the Hotel. Welona's proof of debt was for the cost of the repairs.

14 Sweeney J found that the lease was not subject to any collateral agreement. In determining the state of repair of the Hotel at various times Sweeney J placed reliance on a report dated 14 May 1990 prepared by Mr Bell, a chartered architect. Mr Bell's report had been paid for by Welona. However, it had been obtained on the initiative of the Official Receiver in Bankruptcy, with instructions being provided by the solicitor for the Trustee, for the purpose of assisting the Trustee in ruling on Welona's proof of debt in the bankrupt estates of the applicants.

15 In preparing his report, Mr Bell placed reliance on two earlier reports concerning the Hotel prepared by Mr Benson, a builder and contractor, apparently on the instructions of Mr Bowen of Welona. Mr Benson died before the matter was heard by Sweeney J. Each of his reports, which reports are based on inspections of the Hotel held on 12 May 1983 and 28 January 1985 respectively, was received in evidence before Sweeney J.

16 Mr Benson's report following his inspection of 12 May 1983 observes:

"it is very apparent that maintenance has been neglected over recent years."

However, it also comments on "many structural cracks to the walls" and states:

"I am most concerned with the vertical structural crack to the front parapet wall. This crack has opened up to the extent of approximately 15mm. I believe it would be wise to seek the services of a Structural Engineer to obtain his advice regarding the stability of this section of the wall. Please see photo No. 13. 14."

17 Mr Benson's report following his inspection of 28 January 1985 refers to the Hotel being "sadly neglected". The covering letter addressed to Mr Bowen states:

"I have included extra photos which you may find interesting."

18 Mr Bell's report notes that he was provided with a copy of a statement of account from Welona, the two Benson reports, thirty-nine photographs in a "Nina's Photo Lab folder" plus six photos in an envelope from Welona with various notations including "19 October 1995". His report states:

"In attempting to provide a firm opinion on the extent of work I have carefully examined the building for what evidence is still extant. Unfortunately, the building has been comprehensively renovated, partly altered and almost completely repainted and recarpeted in the intervening years. Most direct evidence of work carried out in 1985 has now gone. Indirect evidence is possible by pursuing matters in Benson's reports ... checking with photographs, and visual examination of what remains or can reasonably and professionally be assumed."

19 Mr Bell's report deals with the Welona proof of debt item by item. It is possible to identify from his report the items in respect of which he placed reliance on photographs. The number of such items is limited and, in respect of the most significant of them, the photographs are referred to as confirming other information such as the Benson report. Nothing in Mr Bell's report indicates that he thought that the photographs indicated the condition of the Hotel at any time other than 1985.

20 The transcript of the hearing before Sweeney J reveals at p 91 that counsel for Welona showed a bundle of photographs, on one occasion described as comprising forty-six photographs and on another occasion as comprising forty-eight photographs, later divided into two bundles, to Mr Bell during his re-examination. The photographs were described to his Honour as coming "from bundle number 6 of the documents referred to in the affidavit of Mr Garrett." Three affidavits of Mr Garrett were read before Sweeney J, two dated 2 July 1991 and another dated 30 September 1992. They have not been placed in evidence before me. However, an affidavit sworn by Mr Garrett on 16 February 1994, which was read on the appeal to the Full Court from the decision of Sweeney J, was placed in evidence before me. Mr Garrett was not cross examined before the Full Court on the affidavit. In the affidavit Mr Garrett, a Senior Assistant Official Receiver, gave evidence that in the latter part of 1989 or early 1990 he received from Mr Wilson and Welona photographs of areas of the Hotel. He said that he could not recall the number of photographs that he had received. He further said that after being asked by Mr Wilson to return the photographs that he had received from him he conducted an unsuccessful search for them and became convinced that he had lost or misplaced them. Later he said that he attended the registry of this Court with the solicitor for the Trustee and inspecting certain photographs which included twenty-six which he believed had previously been given to him by Mr Wilson. It is plain enough from Mr Garrett's affidavit that the twenty-six photographs which he believed had been given to him by Mr Wilson were not received in evidence before Sweeney J, but I see no reason to think that photographs referred to by Mr Garrett in his affidavit were not available for inspection by the parties to the hearing before Sweeney J. Mr Garrett was cross examined before Sweeney J by counsel for the applicants as well as by counsel for Welona.

21 The first of the bundles of photographs shown to Mr Bell was identified by him as comprising photographs first seen by him when he inspected the Hotel for the purpose of writing his report. These photographs were marked for identification number 1 ("MFI 1"). The photographs MFI 1 were later shown, again by counsel for Welona, to Mr Bowen. Mr Bowen identified them as showing the Hotel as he observed it in January 1985. Counsel for the applicants did not object to the photos previously MFI 1 being received in evidence as Exhibit 6. Nor did he cross examine Mr Bowen concerning the photographs.

22 The second of the bundles of photographs shown to Mr Bell was identified by him as comprising photographs which he referred to in his report. These photographs were marked for identification 2 ("MFI 2"). Mr Bowen gave evidence that the larger photographs MFI 2 were taken in 1985 and sent to Mr Bowen by Mr Benson with his January 1985 report. The larger photographs MFI 2 were received in evidence without objection as Exhibit 7. The one photograph MFI 2 which remained was identified by Mr Bowen as a photograph taken by his son. It was received in evidence without objection as Exhibit 8.

23 Before the Full Court, except for one photograph, Mr Wilson did not dispute that Exhibit 6 comprised photographs which showed the condition of the Hotel much later than 1983. One of the photographs in Exhibit 6 Mr Wilson said was one that he had handed to Mr Garrett and which Mr Garrett must have mislaid. Similarly, Mr Wilson in his evidence before the Full Court did not dispute that Exhibit 7, except for one photograph, showed the condition of the Hotel at or about the time of the termination of the lease. One photograph in Exhibit 7 Mr Wilson said had been taken by him and handed to Mr Garrett.

24 Exhibit 8 before Sweeney J consisted of only one photograph. However, when the papers were returned to the registry after the hearing before Sweeney J, a bundle of twenty-six photographs was placed in an envelope along with Exhibit 8. These photographs had not been received in evidence before Sweeney J. Before the Full Court Mr Wilson identified these photographs as some of the photographs referred to by him in his affidavit which he had last seen in Mr Garrett's office in 1991.

25 The applicants appealed to the Full Court from the decision of Sweeney J. The appeal came on for hearing on 30 September 1993 and the Court reserved its decision. Before the Full Court delivered judgment it was notified by the solicitors for the applicants that they wished to make an application to lead fresh evidence. The evidence which the applicants asserted was not earlier available to them consisted of a number of photographs allegedly taken in 1980. It was said that these photographs showed the run-down condition of the Hotel at the time of the commencement of the lease. It was claimed that, if the photographs had been available at the hearing before Sweeney J, they would have corroborated the evidence of the applicants. It was claimed that the photographs were not available because they had been mislaid by the Trustee.

26 The photographs said to have been missing were, according to an affidavit sworn by Mr Wilson for use before the Full Court, referred to by him in his affidavit sworn on 22 April 1991 and read at the hearing before Sweeney J. In paragraph 9 of his affidavit of 22 April 1991 Mr Wilson said that there were exhibited to him and marked "EAW 1" forty-one colour photographs that he had caused to be taken "in about April 1983". In fact no photographs were exhibited to the affidavit which had apparently been sworn in Grafton. Mr Wilson's evidence to the Full Court, and before me, was that he had inspected and counted the photographs at the office of the Trustee to whom he had earlier provided them in Sydney but they were not sent to Grafton with the unsworn affidavit and were thus not able to be shown to him when he swore the affidavit. Mr Wilson further gave evidence that sometime thereafter, when preparing to give evidence at the hearing before Sweeney J, he contacted the Trustee and asked for his photographs to be returned to him. He was advised that his photographs had been lost.

27 By his affidavit sworn for use before the Full Court, Mr Wilson said that the date in paragraph 9 of his earlier affidavit was a "typographical error" and that he had in fact taken the photographs in April 1980. Before Sweeney J, Mr Wilson gave evidence that, although he was not sure, he might have taken the photographs in September 1979. Mr Wilson also gave evidence, before Sweeney J, that he was not quite sure when he took the photographs and he was not able to deny a suggestion that he did not take the photographs until after he received Mr Benson's report of May 1983, stating:

"... I can't recall. If you give me the photos the date is on the photos".

The photos were, in fact undated.

28 The Full Court understandably concluded that it would be quite unsafe to accept at face value Mr Wilson's evidence that the photographs were taken in April 1980. Moreover, the Full Court drew attention, among other things, to Mr Wilson's failure to lead secondary evidence before Sweeney J of what the photographs depicted.

29 The Full Court observed at 598:

"We do not have a sufficient degree of confidence in Mr Wilson's evidence to say that it is at all likely that there would have been a different outcome [before Sweeney J] if the photographs in question had been produced at the trial. Mr Wilson's evidence is quite unsatisfactory. There is no consistency in the evidence looked at as a whole. There are inconsistencies in the evidence led before Sweeney J and further inconsistencies when the evidence before us is taken into account. ...the availability of the photographs at the trial would have been quite unlikely to have made any difference to its outcome."

30 The Full Court declined to order a new trial based on the alleged "fresh evidence" and, subject to a variation in the costs orders made by Sweeney J, dismissed the appeal.

31 The applicants applied to the High Court for special leave to appeal against the decision of the Full Court. The application for special leave was refused on 17 February 1995.

32 No application has been made by any party to set aside the decision of Sweeney J concerning the amount for which Welona's proof should be admitted.

33 John Michael Whitfield ("Mr Whitfield"), the solicitor for applicants, whose firm it appears has acted for the applicant at all relevant times, has in this proceeding sworn an affidavit in which he seeks to establish that a number of the photographs, which it was accepted before Sweeney J and the Full Court were taken in 1985, must have been taken not later than 1983. Mr Whitfield by his affidavit also seeks to establish that the photographic evidence received before Sweeney J was "tampered with". It has not been shown that Mr Whitfield has the expertise to make the judgments which support his conclusion of "tampering". Nor, assuming that there has been tampering, does the material before me establish the identity of the person or persons responsible for the tampering.

Case of the Applicants under Section 178 of the Act

34 The application claims that the applicants were and remain affected by various acts, omissions and decisions of the Trustee within the meaning of s 178 of the Act. These are particularised in the application as follows:

"3(i) In proceedings before this Honourable Court in October 1992, the Official Trustee permitted the receipt of false evidence in relation to the proof of debt of Welona Pty Limited dated 10 August, 1988 knowing such evidence to be false;

(ii) The Official Trustee assisted in the preparation of false evidence in proceedings before this Honourable Court in relation to the proof of debt of Welona Pty Limited dated 10 August, 1988;

(iii) The Official Trustee engaged in conduct that was false and misleading and/or the Official Trustee made negligent and/or reckless and willful [sic] misstatements to the Applicants in relation to the Official Trustee's loss of material evidence of the Applicants comprising photographs relating to issues the subject of the proof of debt by Welona Pty Limited dated 10 August, 1988;

(iv) The Official Trustee engaged a third party to assist the creditor Welona Pty Limited in establishing its claims the subject of its proof of debt dated 10 August, 1988;

...

4(i) The Official Trustee failed to diligently or properly examine the claims of Welona Pty Limited contained in its proof of debt dated 10 August, 1988;

(ii) The Official Trustee failed to ensure the safe custody of material evidence of the Applicants comprising photographs relating to issues the subject of the proof of debt lodged by Welona Pty Limited dated 10 August, 1988;

(iii) The Official Trustee failed and continues to fail to refer the conduct of Welona Pty Limited and its directors for possible contraventions of Sections 263(1)(d), 263A and 236B of the Bankruptcy Act, 1966 in relation to its proof of debt of 10 August, 1988;

...

5(i) The Official Trustee wrongfully admitted in part and wrongfully rejected in part the proof of debt of Welona Pty Limited dated 10 August, 1988 under Section 102(1)(b) of the Bankruptcy Act, 1966."

35 The orders which the applicants formally seek under s 178 of the Act are -

"6 ... that the Official Trustee in Bankruptcy made good any loss or damage incurred by the Applicants' bankrupt estate sustained by reason of the acts, omissions or decisions of the Official Trustee."

and

"7 ... that the question of the quantum of any loss or damage suffered by the Applicants' bankrupt estate together with any consequential orders be determined separately after all issues of liability in these proceedings."

36 However, Mr Gracie, counsel for the applicants, indicated that his clients would also seek an order pursuant to s 178 of the Act in relation to Messrs Bowen, Bell, Garrett and others for the purpose of establishing "who tampered with and falsified the photographic evidence and whether or not at relevant times there was knowledge of that fact." Mr Gracie also indicated that the applicants would seek an order preventing the Trustee from releasing property in the bankrupt estate of the applicants for the purpose of paying the amount due to Welona under the Act and requiring the Trustee to pay the amount due to Welona.

Case of the Applicants under Section 179 of the Act

37 The applicants claim the following orders under s 179 of the Act:

"8 ... that the Court inquire into the conduct of the Official Trustee in Bankruptcy in relation to its examination of the proof of debt of Welona Pty Limited dated 10 August 1988, under Section 102 of the Bankruptcy Act, 1966.

9 ...that the Court inquire into the conduct of the Official Trustee in Bankruptcy in relation to the Applicant's [sic] application to the Court concerning the proof of debt of Wilona [sic] Pty Ltd under Section 99 of the Bankruptcy Act, 1966

10 ... that the Official Trustee in Bankruptcy make good any loss or damage incurred by the Applicants' bankrupt estate sustained by reason of the conduct of the Official Trustee.

11 ... that the question of the quantum of any loss or damage suffered by the Applicants' bankrupt estate together with any consequential orders be determined separately after all issues of liability in these proceedings."

The Law

38 Sections 178 and 179 of the Act are set out above. Each of them has an important role to play as part of the Court's armoury of powers of supervision and control of trustees (not all of which are contained in Division 4 of Part VIII of the Act). However, their roles are not the same.

39 Under s 178, the bankrupt, a creditor or any other person affected by an act, omission or decision of a trustee may apply to the Court. As Deane J pointed out in Re Tyndall [1977] FCA 15; (1977) 30 FLR 6 at 9:

"Once the matter is properly before the court, the court is empowered - and obliged - to make such order in the matter `as it thinks just and equitable'."

40 However, his Honour is not to be understood as suggesting that there are no limits on the circumstances in which s 178 may be invoked. His Honour's reference to a matter being "properly before the court" involves acknowledgment of the fact that there are limits to the proper use of the section. As the following passage from his Honour's reasons for judgment makes clear, the orders which s 178 contemplates are orders concerning the administration of a particular bankrupt estate:

"The trustee is made responsible for the administration of the bankrupt estate under the general provisions of the Act. He must, in the course of that administration, make a variety of decisions aimed at enabling the administration to be carried out with promptness and efficiency. Some of these decisions will be business or commercial decisions in which the business or commercial experience of the trustee would itself provide a basis for arguing that, unless it were shown that the trustee's decision was perverse or clearly wrong, it would be inappropriate and unjust for the court to interfere. Again, under the present legislation, the trustee will ordinarily be the official receiver and the court must be conscious of the fact that the official receiver will be made responsible for the administration of an extraordinarily large number of estates. In such circumstances, the administration of the Bankruptcy Act demands that the court take into account, in exercising its functions under the provisions of s 178 of the Act, the opinion of the official receiver, as trustee, as to what is expedient in the interests of the prompt and efficient administration of a particular bankrupt estate. That is, however, a different thing to saying that the court can only interfere with an act, omission or decision of the official receiver, as such trustee, when it is of the view that the official receiver has acted unreasonably, absurdly or in bad faith in so acting or failing to act or in reaching that decision." (at p 10)

41 I note that in McGoldrick v Official Trustee in Bankruptcy [1993] FCA 636; (1993) 47 FCR 547 at 552 the Court regarded s 178 as giving the Court "a general power of review" of a decision of a trustee. In Re Wheeler; Ex parte Wheeler v Halse [1994] FCA 1348; (1994) 54 FCR 166 at 168, Lee J said:

"It may be concluded that s 178 is the means by which a bankrupt, a creditor or person affected by the trustee's conduct in administering the estate may challenge the trustee's exercise of his powers."

In the same case at 170,, Lee J concluded:

"... the applicant must show a ground on which the trustee's administration of the affairs of the bankrupt is to be reviewed."

42 In Re Alafaci; Registrar in Bankruptcy v Hardwick (1976) 9 ALR 262 at 267, Riley J of the Federal Court of Bankruptcy described s 178 as a section which subjects the trustee's "acts, omissions or decisions to the control of the court by way of appeal ...".

43 Section 178 of the Act is thus a section which allows the bankrupt, a creditor or any other person affected by conduct of the trustee in the course of the administration of a bankrupt estate, to challenge that conduct by seeking review by the Court of the relevant act, omission or decision of the trustee.

44 Section 179 of the Act serves a different purpose. It reflects the position that trustees are subject to the general control of the Court. It authorises the Court, on the application of the Registrar, the Inspector-General, a creditor or the bankrupt, to inquire into the conduct of a trustee. Although it is not a rule of universal application, the Court will not ordinarily initiate an inquiry under s 179 unless it is satisfied that a proper case for an inquiry has been demonstrated (Re Alafaci; Registrar in Bankruptcy v Hardwick at 268 per Riley J; see also Re Gault; Gault v Law [1981] FCA 167; (1981) 57 FLR 165 at 173 per Ellicott J; Registrar in Bankruptcy v Bradley [1983] FCA 304; (1983) 72 FLR 231 at 233 per Beaumont J). There will ordinarily be a proper case for inquiry where there is reasonable cause to believe that a trustee may have failed to act in relation to a bankruptcy in the manner required by the Act or the general law. However, as Ellicott J pointed out in Re Gault; Gault v Law at 173:

"The court has a broad discretion in deciding whether to order an inquiry. In my opinion it is not required to order an inquiry unless it is satisfied that sufficient grounds have been made out.

For instance, the court should be loath to order an inquiry unless it considers that on the evidence before it there are substantial grounds for believing that the trustee erred in his administration. If the court considered that an inquiry is unlikely to reveal misconduct it should not make an order and put the respondent and possibly the creditors to the expense and trouble involved. It should also be borne in mind that a debtor applicant may have other remedies to pursue, for example, in an action for breach of trust."

Consideration

45 The first claim made by the applicants by their application is for a declaration that the Inspector-General in Bankruptcy has failed to make any inquiry and investigation pursuant to s 12(1)(b) of the Act with respect to the administration of the applicants' bankrupt estate and the conduct of the Trustee in relation to the Welona proof of debt. Nothing was put before me to suggest that any utility would result from the making of a declaration in such terms. It is not disputed by the respondents that the Inspector-General in Bankruptcy has not made any inquiry or investigation of the kind referred to in the claim. Assuming, without deciding that the claim falls within s 21 of the Federal Court of Australia Act 1976 (Cth), the claim is, in my view, frivolous or vexatious within the meaning of O 20 r 2(1)(b) of the Federal Court Rules and should be dismissed.

46 The second claim of the applicants is for an order that the Inspector-General in Bankruptcy be compelled and directed to conduct an inquiry and investigation pursuant to s 12(1)(b) of the Act with respect to the administration of the applicants' bankrupt estate by the Trustee and conduct of the Trustee concerning the Welona proof of debt. Counsel for the applicants was not able to identify any source of power in the Court, as opposed to the Minister, to make an order in the terms claimed. No reasonable cause of action is disclosed in relation to this claim and it will be dismissed.

47 The third, fourth and fifth claims of the applicants are for declarations that they were and remain affected within the meaning of Section 178 of the Act by certain acts, omissions and decisions respectively of the Trustee. Again counsel for the applicants was not able to suggest that any utility would flow from the making of the declarations sought. It is not usual for a court to make a declaration as to a party's locus standi to institute proceedings. It may be that the claims are frivolous or vexations within the meaning of O 20 r 2(1)(b) of the Federal Court Rules. However, I prefer to deal with these claims together with the sixth claim which calls for consideration of whether the applications are relevantly "affected by an act, omission or decision of the trustee" within the meaning of s 178 of the Act. It may be noted, however, that the formulation of claims three, four and five has been of value in identifying the conduct of the Trustee concerning which the applicants make complaint.

48 The sixth claim of the applicants is for an order pursuant to s 178 of the Act that the Trustee make good any loss or damage incurred by the applicants' bankrupt estate by reason of the acts, omissions or decisions of the Trustee. The motions before me were argued on the basis that the acts, omissions or decisions of the Trustee referred to in the sixth claim are those itemised in claims three to five. All of the acts, omissions and decisions of the Trustee referred to in claims three to five relate in some way to the Welona proof of debt. There is a judgment of this Court, in respect of which the High Court has refused leave to appeal, as to the amount for which the Welona proof of debt is to be admitted in the applicants' bankruptcies. Welona has not been joined in this proceeding. No application has been made, or even foreshadowed, to have the judgment of this Court concerning the Welona proof of debt set aside. The liability of the applicants' bankrupt estates to make payment to Welona derives from the judgment of this Court and not from any act, omission or decision of the Trustee in the course of the administration of the applicants' bankrupt estate.

49 The applicants have not sought to invoke s 178 of the Act in an endeavour to obtain review of any act, omission or decision of the Trustee by which they are presently affected. The claims made by them for declarations concerning s 178 do not disguise the fact that the applicants are in truth seeking to use s 178 as a statutory base for a claim for damages. Section 178 does not create a cause of action which sounds in damages. It is not necessary for me to decide whether the Court could make an order under s 178 for compensation for loss or damage suffered by a bankrupt estate if it considered it just and equitable to do so in a case in which its jurisdiction under s 178 was properly invoked. In my view, the jurisdiction of the Court under s 178 is not properly invoked in this case as the applicants do not seek review by the Court of any act, omission or decision of the Trustee. The sixth claim of the applicants, and claims three, four, five and seven which are ancillary to it, will be dismissed as disclosing no reasonable cause of action.

50 For completeness I add that s 178 may not be invoked to obtain an order in relation to Messrs Bowen, Bell, Garrett and orders for the purpose of establishing "who tampered with and falsified the photographs evidence and whether or not at relevant times there was knowledge of that fact."

51 The eighth, ninth, tenth and eleventh claims of the applicant are made in reliance on s 179 of the Act. The motions before me were argued on the basis that the grounds put forward by the applicant as justifying an inquiry into the conduct of the Trustee are those identified in the applicants' third, fourth and fifth claims.

52 The first ground is that the Trustee permitted the receipt of false evidence in the proceeding before Sweeney J. The applicants' submissions in respect of this ground point to Mr Wilson's "lost" photographs, certain file notes and reports of the Trustee and certain file notes and correspondence of the Trustee's solicitor in the proceeding before Sweeney J. The file notes, reports and correspondence of the Trustee and the Trustee's solicitor record instructions concerning the state of repair of the Hotel when the applicant's took possession of it and conclusions reached by the respective authors of the documents that the Hotel was at that time in a poor state of repair. The material does not tend to suggest, in my view, that the Trustee permitted the receipt of false evidence in proceeding before Sweeney J in the sense that the Trustee sought to mislead Sweeney J.

53 I have referred above to the fact that the applicants were represented in the proceeding before Sweeney J by solicitors and counsel. The statement referred to earlier, which the transcript of the hearing before Sweeney J shows to have been made by the applicant's counsel at the commencement of the hearing before his Honour, indicates the roles that the respective parties before Sweeney J understood themselves to be playing. As is mentioned above, at the time of the hearing before Sweeney J, the Trustee had admitted Welona's proof of debt in an amount which the applicants contended was too high and Welona contended was too low. The Trustee placed before the Court the material upon which the Trustee's decision had been taken. It was for the two disputants, the applicants on the one hand and Welona on the other, to seek to discredit or otherwise challenge the import of that material and to produce additional evidence as they saw fit. Counsel for the applicants was free to, and did, cross examine the Trustee's witness and those called by Welona. No impediment was placed in the way of the applicants calling such witnesses in the proceeding before Sweeney J as they thought appropriate.

54 It is not clear why Mr Wilson did not give secondary evidence to Sweeney J of the matters shown by the "lost" photographs. Indeed, assuming the accuracy of the conclusions that Mr Whitfield has now reached concerning the photographic evidence before Sweeney J and the Full Court, it is not clear why the applicants and the applicants' legal representatives before Sweeney J and the Full Court did not identify certain of the photographs received in evidence as photographs taken by Mr Wilson. Since such photographs were referred to in an affidavit filed and served by Mr Garrett, it seems clear that there was no deliberate attempt by the Trustee to keep the photographs from the applicants or their legal representatives. Indeed, it seems fair to conclude that since some of the "lost" photographs ended up in the registry in an envelope containing Exhibit 8, they were almost certainly in court during the hearing before Sweeney J - and probably on the bar table.

55 I am not satisfied that on the evidence before me, there are substantial grounds, or indeed any reasonable grounds, for believing that the Trustee deliberately permitted the receipt of false evidence in the proceeding before Sweeney J. It may be, although I have no way of knowing, that a witness or witnesses called by the Trustee may have given evidence which his Honour accepted which, had the hearing been conducted differently, his Honour might not have accepted. This, however, does not of itself raise any suggestion of impropriety against the Trustee.

56 I am similarly not satisfied that on the evidence before me, there are any reasonable grounds for believing that the Trustee "assisted in the preparation of false evidence" in the proceedings before Sweeney J.

57 A further ground upon which the applicants contend that an inquiry should be held into the Trustee's conduct is that:

"3(iii) The Official Trustee engaged in conduct that was false and misleading and/or the Official Trustee made negligent and/or reckless and willful [sic] misstatements to the Applicants in relation to the Official Trustee's loss of material evidence of the Applicants comprising photographs relating to issues the subject of the proof of debt by Welona Pty Limited dated 10 August, 1988."

58 Plainly it would have been desirable for Mr Garrett to have made a proper record of the photographs that came into his possession which included the person from whom he obtained them, the date upon which he received them, and if any of them subsequently left his possession, when they left his possession and into whose possession they went. He should have taken steps to ensure that photographs from different sources were not mixed together but remained separately identified. However, I do not believe, nor did any party contend, that an inquiry under s 179 of the Act (or indeed s 178) could be justified by reason of administrative sloppiness of this kind which took place some years ago.

59 The applicants appear, some years after the events with which this application is concerned, to have devised an elaborate conspiracy theory concerning the photographs which came into Mr Garrett's possession and the use that has been made of them. I have tried carefully to understand the theory. To the extent that I understand it, it seems to me to lack support from the evidence in crucial respects. I accept that some of the photographs which were received in evidence before Sweeney J may have been taken in 1983, rather than in 1985 which was the unchallenged evidence given to his Honour. However, I do not accept that the evidence before me establishes that the Trustee sought to mislead his Honour or the applicants with respect to the photographs or that the Trustee improperly "tampered" with any of the photographs.

60 The applicants further put forward as a ground for an inquiry into the conduct of the Trustee under s 179 of the Act that the Trustee engaged a third party to assist Welona in establishing the proof of debt. This ground is, in my view, entirely misconceived. Section 134 of the Act provides, so far as is here relevant:

"134(1) Subject to this Act, the trustee may do all or any of the following things:

...

(i) obtain such advice and assistance as he or she considers desirable relating to the administration of the estate or to the conduct or affairs of the bankrupt ...."

61 In view of the difficulties involved in forming an opinion as to the amount for which Welona's proof of debt should be admitted, it was plainly appropriate for the Trustee to seek professional advice and assistance from an expert such as Mr Bell, a chartered architect. No impropriety was involved in the Trustee seeking Welona's agreement to meet the cost of such evidence and assistance.

62 A further ground upon which the applicants contend that an inquiry should be held into the conduct of the trustee is that:

"4(i) The Official Trustee failed to diligently or properly examine the claims of Welona Pty Limited contained in its proof of debt dated 10 August, 1988."

63 The Court has a broad discretion in deciding whether to order an inquiry under s 179 of the Act. The claims of Welona contained in its proof of debt were carefully examined before Sweeney J in a proceeding in which the applicants were represented by solicitors and counsel. Welona's entitlement pursuant to its proof of debt is now authoritatively established by an order of this Court made in the exercise of its jurisdiction under the Act. No useful purpose would now be served, in my view, by an inquiry into the conduct of the Trustee in examining the Welona proof of debt. Nor am I satisfied that the evidence before me demonstrates reasonable cause to believe that the Trustee may have failed to act in respect of the Welona proof of debt in the manner required by the Act and the general law.

64 I have dealt above with the issue of the Trustee's custody of photographs given to Mr Garrett. I am not satisfied that the conduct of the Trustee concerning the photographs warrants the holding of an inquiry under s 179 of the Act.

65 The applicants complain that the Trustee failed and continues to fail to refer the conduct of Welona and its directors -

"for possible contraventions of Section 263(1)(d), 263A and 263B of the Bankruptcy Act, 1966 in relation to its proof of debt of 10 August 1988".

66 As the Full Court pointed out in Turner v Official Trustee in Bankruptcy (unreported, Full Federal Court, 27 November 1998) any question of prosecution in respect of the matters alleged by the applicants against Welona and its directors is for the appropriate prosecuting authorities and not the Trustee.

67 A yet further ground advanced by the applicants for an inquiry into the conduct of the Trustee is that the Trustee -

"wrongfully admitted in part and wrongfully rejected in part"

the Welona proof of debt. For the reasons given earlier concerning the allegation that the Trustee failed diligently or properly to examine the claims of Welona made by its proof of debt, I am satisfied that no useful purpose would be served by an inquiry into the conduct of the Trustee in making his decision concerning the Welona proof of debt. Moreover no reasonable cause to believe that the Trustee acted other than in the manner required by the Act and the general law has been shown.

68 I am satisfied, having regard to each of the grounds put forward by the applicants as justifying a case for an inquiry into the conduct of the Trustee, and having also considered the cumulative effect of such grounds, that a case has not been made under s 179 of the Act for inquiry into the Trustee's conduct. I do not accept the applicants' contention that s 178 provides an alternative statutory basis for an inquiry by the Court into the Trustee's conduct.

69 The real interest of the applicant is to seek to go behind the judgment of this Court concerning the Welona proof of debt, without addressing the substantial difficulties which would attend an application to have the judgment set aside (see Monroe Schneider Associates (Inc) v No. 1 Raberem Pty Ltd [1992] FCA 367; (1992) 37 FCR 234 and Bourke v Beneficial Finance Corporation Ltd (1993) 47 FCR 264). The principle that there should be finality in litigation is an important principle. It will, in my view, be a rare case in which the Court will order an inquiry under s 179 of the Act into subject matter which has been conclusively determined by a judgment of the Court given under the Act.

70 The application further seeks a declaration that the Trustee:

"12 ... by its conduct in engaging a third party to assist the creditor Welona Pty Limited in establishing its purported claims in its proof of debt dated 10 August, 1988, acted ultra vires Section 134 of the Bankruptcy Act, 1966 in performing its duty to examine the proof of debt of Welona Pty Limited dated 10 August, 1988 pursuant to Section 102 of the Bankruptcy Act, 1966."

71 Nothing before me suggests that the Trustee engaged Mr Bell to assist Welona to establish its claims in its proof of debt. As is mentioned above, s 134(1)(i) empowered the Trustee to obtain such advice and assistance as the Trustee considered desirable relating to the administration of the applicants' bankrupt estates. In any event, I am not satisfied that there would be any utility in the circumstances in the making of such a declaration. Assuming, without deciding, that the claim comes within the terms of s 21 of the Federal Court of Australia Act 1976 (Cth), the claim should, in my view, be dismissed as being frivolous or vexatious within the meaning of O 20 r 2(1)(b) of the Federal Court Rules.

72 The final claim made by the application is for an order that:

"13 ... the Official Trustee in Bankruptcy be restrained from dissipating, disposing or otherwise dealing with the assets of the Applicants including the property comprising the bankrupt estate of the Applicant's situate at 140 Main Street, Wooli in the State of New South Wales in payment or satisfaction of any moneys purportedly owing pursuant to the proof of debt of Welona Pty Ltd dated 10 August 1988."

73 The amount for which Welona's proof of debt is to be admitted in the applicants' bankrupt estate is fixed by a judgment of this Court. No proper basis has been identified by the applicants for any order which would restrain the Trustee from taking appropriate steps under the Act to pay to Welona the amount due to it under the Act by reason of the Court's judgment. This claim will be dismissed as disclosing no reasonable course of action or alternatively as being frivolous or vexatious within the meaning of O 20 r 2(1) of the Federal Court Rules.

74 In summary, claims 1, 2, 3, 4, 5, 6, 7, 12 and 13 of the application should be dismissed. As to claims 8, 9, 10 and 11, I find that a case has not been made for inquiry into the Trustee's conduct. Claim 14 is purely consequential upon the other claims.

75 The appropriate order in the circumstances is that the proceeding be dismissed. I will hear counsel on the question of costs.

I certify that the preceding seventy-five (75) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Branson.

Associate:

Dated: 12 March 1999

Counsel for the Applicants:	Mr M.R. Gracie
Solicitor for the Applicants:	Whitfields Solicitors
Counsel for the Respondents:	Mr A. Robertson SC
Solicitor for the Respondents:	Australian Government Solicitor
Date of Hearing:	1 February 1999
Date of Judgment:	12 March 1999