Horne (Trustee), In the matter of Pruzanski [2000] FCA 151 (8 February 2000)

Last Updated: 23 February 2000

FEDERAL COURT OF AUSTRALIA

Horne (Trustee), In the matter of Pruzanski [2000] FCA 151

BANKRUPTCY - Applicant sought removal of trustee in bankruptcy and orders restraining particular firm of solicitors from further acting on behalf of the trustee - whether conduct of trustee justifies his removal - whether conflict of interest in trustee retaining particular firm of solicitors - delay in conflict concern being raised.

Bankruptcy Act 1966 (Cth) s 81

Re Abrahams; Ex p Thomas (1985) 70 ALR 784, referred to

RE: LEON MARK PRUZANSKI (a Bankrupt) and EX PARTE: STIRLING LINDLEY HORNE (In his capacity as the Trustee of the Bankrupt Estate of Leon Mark Pruzanski).

V7731 OF 1999

MARSHALL J

MELBOURNE

8 FEBRUARY 2000

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	V7731 OF 1999

RE:	LEON MARK PRUZANSKI A BANKRUPT
EX PARTE:	STIRLING LINDLEY HORNE (In his capacity as the Trustee of the Bankrupt Estate of Leon Mark Pruzanski)
JUDGE:	MARSHALL J
DATE OF ORDER:	8 FEBRUARY 2000
WHERE MADE:	MELBOURNE

THE COURT ORDERS:

1. That Freehill Hollingdale and Page solicitors be restrained from further acting on behalf of any trustee appointed by this Honourable Court to administer the joint and several bankrupt estates of Leon Mark Pruzanski, Karen Yvonne Pruzanski, Keila Pruzanski, and Tewel Pruzanski.

2. That par 1 of the amended Notice of Motion seeking the removal of Stirling Lindley Horne as trustee be adjourned to 10.15 am on 26 April 2000 or to such other date as one party seeks to have the Court deal with the matter pursuant to liberty to apply under the rules of Court.

3. That the examination scheduled for 10 February 2000 be converted to a mention date only before Registrar Wood with the Registrar being at liberty to schedule the examination as he sees fit subject to submissions of counsel or other parties, however so represented.

4. There be no order as to costs.

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 7731 OF 1999

RE:	LEON MARK PRUZANSKI A BANKRUPT
EX PARTE:	STIRLING LINDLEY HORNE (In his capacity as the Trustee of the Bankrupt Estate of Leon Mark Pruzanski)

JUDGE:	MARSHALL J
DATE:	8 FEBRUARY 2000
PLACE:	MELBOURNE

REASONS FOR JUDGMENT

1 On 20 December 1999, Stayglen Investments Pty Ltd ("Stayglen") filed a Notice of Motion seeking certain relief in respect of Mr Stirling Horne in his capacity as trustee in bankruptcy for the bankrupt estate of Leon Mark Pruzanski and other members of the Pruzanski family who I shall refer to collectively as the "Pruzanskis". The motion was listed for hearing on 21 December 1999, but on that day was adjourned to 7 February 2000 to enable Stayglen to file and serve its supporting affidavit material.

2 The Notice of Motion, as amended, sought the following orders:

"1. That the first respondent, Stirling Lindley Horne, be removed as the trustee of the joint and several bankrupt estates of Tewel Pruzanski, Keila (aka Kelja) Pruzanski, Leon Mark Pruzanski and Karen Yvonne Pruzanski.

2. That the second respondent, Freehill Hollingdale & Page, solicitors be restrained from further acting on behalf of any trustee appointed by this Honourable Court to administer the joint and several bankrupt estates of Leon Mark Pruzanski, Karen Yvonne Pruzanski, Keila (aka Kelja) Pruzanski and Tewel Pruzanski.

3. That the first and second respondents return, and deliver up, to the trustee appointed by this Honourable Court to administer the joint and several bankrupt estates of Leon Mark Pruzanski, Karen Yvonne Pruzanski, Keila (aka Kelja) Pruzanski and Tewel Pruzanski all documents, file notes, transcripts of any examination or interview of any of the debtors, and other documents relating to the bankrupt estates obtained by the respondents and each of them from any person in connection with or relating to the bankrupt estates."

3 Supporting affidavits from the following persons were filed: Brian Francis Williams, a solicitor instructed by Professional Management Service Ltd, ("PMS"); Alan Harold Jankie, a director of Stayglen; and Leon Mark Pruzanski.

4 PMS and Stayglen each claim to be a creditor of the Pruzanskis. Affidavits in opposition to the relief sought in the motion were also filed. The deponents were Mr Horne and Ms Kelly-Ann McKinnis, a solicitor employed by the firm Freehill, Hollingdale and Page ("Freehills"). Mr Horne and Ms McKinnis were each subject to cross-examination before the Court.

5 The affidavit evidence filed on behalf of Stayglen was chiefly directed to the claim made in par 2 of the relief sought in the motion; that Freehills be restrained from further acting, inter alia, for Mr Horne in his capacity as trustee in bankruptcy for the various bankrupt estates. The affidavit evidence from Mr Horne and Ms McKinnis primarily contained responses to claims made by Stayglen on the issue of conflict of interest.

6 The motion was filed in circumstances where an examination was in the process of being conducted, pursuant to s 81 of the Bankruptcy Act 1966 (Cth), by a Registrar of the Court. The examination is due to commence next Thursday and other dates have been set for later this month. Therefore it is important that the Court deal with the motion and make orders in respect of it as soon as possible. While the amended motion dealt with four members of the Pruzanski family, these reasons are provided with respect to the estate of Leon Pruzanski but are applicable also to the bankrupt estates of the other three relevant members of the family.

7 There is inadequate material presently before the Court to justify an order in terms of par 1 of the Notice of Motion. It is the view of the Court that there is no persuasive evidence that Mr Horne has engaged in conduct which justifies his removal as trustee, at least at this stage. On the evidence before the Court Mr Horne appears to have substantially conducted himself professionally and relied on legal advice where appropriate on all contentious issues. However, given the concerns of counsel for Stayglen and counsel for the Pruzanskis that the trustee has acted in combination with Freehills to disadvantage their clients, the Court will adjourn par 1 of the motion to a later date, that is, 26 April 2000 at 10.15 am. That date is a nominal date. The matter can be sought to be re-listed earlier on three days' notice pursuant to liberty to apply, which is available under the Court's rules. Appropriate arrangements will be made to relieve the Court as currently constituted of other matters or to sit early or late, as the situation arises, if that is necessary.

8 Paragraph 3 of the motion was amended on 7 February and is directed to Freehills. It essentially seeks the return to Mr Horne of documents held by Freehills which were given to the firm as a result of it being retained by Mr Horne.

9 Paragraph 4 of the motion refers to various matters regarding the continuation of the examinations before the Court. I will return later to the matters raised in pars 3 and 4. Paragraph 2 deals with the question whether Freehills should be removed from acting for the trustee in the matter before the Court and in the administration of the bankrupt estates. The conflict of interest claim arises in the following way:

§ Freehills act for the Australian and New Zealand Banking Group Ltd, ("ANZ").

§ ANZ is an alleged creditor of the Pruzanskis. Mr Horne as trustee of the bankrupt estate of the Pruzanskis sought to be indemnified by persons or entities claiming to be creditors of the Pruzanskis in respect of the legal costs of conducting an examination.

§ ANZ was the only creditor to agree to indemnify Mr Horne unconditionally.

10 When it became apparent in the first half of 1999 that ANZ would fund the legal costs of Mr Horne, representatives of Stayglen, PMS and solicitors for the Pruzanski family raised the issue of conflict of interest. The alleged conflict of interest was said to arise as a consequence of Freehills acting for ANZ with respect to ANZ's claims against the Pruzanskis. It is in ANZ's interest to defeat the claims for PMS and Stayglen to be accepted as creditors. Freehills has advanced the cause of the ANZ in the administration so far, while simultaneously acting for Mr Horne whose interest it was and continues to be, to impartially determine who should be accepted as a creditor.

11 After May 1999, no further protest was made by PMS, Stayglen or the Pruzanskis solicitors about the position of Freehills until late November 1999.

12 It was only after the commencement of the public examination, in fact on the fourth day thereof, that the issue was re-agitated by the motion which is now before the Court, albeit in its amended form. Although it appears to me that a clear conflict exists between Freehills' duty to assist ANZ to defeat the claims of PMS and Stayglen, and Freehills' duty to assist Mr Horne to impartially determine the validity of the claims, the Court is concerned about the lateness of the application to seek to exclude Freehills from acting for Mr Horne. The Court would not want to inadvertently be used by Stayglen as a pawn in any delaying tactic to put off further hearings and examinations conducted by the Registrar.

13 Practically, the Court is of the opinion that the matter can be resolved in the following way:

1. Freehills be restrained from further acting for Mr Horne in connection with the bankrupt estates of the Pruzanski's.

2. The newly appointed solicitors be at liberty to retain counsel already briefed by Freehills on behalf of Mr Horne to continue to represent Mr Horne at the examinations.

This practical situation would overcome the perception of conflict of interest by Freehills, remembering that justice must not only be done but be seen to be done.

14 As Lockhart J said in Re Abrahams; Ex p Thomas (1985) 70 ALR 784 (at 789):

"The principle that justice must not only be done but must appear to be done is still very much alive."

15 It would also not delay the examination unduly, as there would be a continuity of counsel for the trustee. However, counsel's instructions would now come from a firm whose only concern, and I emphasise only concern, was to advise Mr Horne on the impartial conduct of his duties without simultaneously being liable to advise ANZ as to how best advance its interest in its dispute with the Pruzanski family.

16 There is no evidence that ANZ's financial support for the trustee is contingent on him retaining Freehills as his solicitors. The necessary conferences with the new solicitors for Mr Horne need not be extensive if the same counsel continues to act for Mr Horne. Additional costs faced by Mr Horne can be kept to a minimum. But in any event, these costs would be met by the ANZ. The Court therefore makes an order in terms of order 2 of the Notice of Motion as amended.

17 It is not necessary to make proposed order 3 as amended. As a reputable firm of solicitors, Freehills will doubtless ensure that any documents they hold which should be sent to Mr Horne's new solicitors will be so transferred. If any difficulty arises about such matter, it can be referred to Registrar Wood, or alternatively dealt with by me pursuant to liberty to apply.

18 On the question of costs there are two concerns. One is the fact that it might be said that the major portion of the debate related to the question of the exclusion of Freehills, though on the other hand questions of the exclusion of the trustee were dealt with extensively in submissions. There is also the fact that it was not until the fourth day of the examination that Mr Jankie from Stayglen reasserted that relevant issues of conflict might arise. It can't be denied that at least the Pruzanskis were represented at that stage and that they similarly had an issue of concern earlier on about the conflict issue. On balance it is the view of the Court in the exercise of its discretion that the appropriate order as to costs is to make no such order.

19 The orders of the Court are therefore as follows:

1. That Freehill Hollingdale and Page solicitors be restrained from further acting on behalf of any trustee appointed by this Honourable Court to administer the joint and several bankrupt estates of Leon Mark Pruzanski, Karen Yvonne Pruzanski, Keila Pruzanski, and Tewel Pruzanski.

2. That par 1 of the amended Notice of Motion seeking the removal of Stirling Lindley Horne as trustee be adjourned to 10.15 am on 26 April 2000 or to such other date as one party seeks to have the Court deal with the matter pursuant to liberty to apply under the rules of Court.

3. That the examination scheduled for 10 February 2000 be converted to a mention date only before Registrar Wood with the Registrar being at liberty to schedule the examination as he sees fit subject to submissions of counsel or other parties, however so represented.

4. There be no order as to costs.

I certify that the preceding nineteen (19) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Marshall.

Associate:

Dated: 22 February 2000

For the Bankrupt:	Mr M Pirrie
Solicitor for the Bankrupt:	Madgwicks
Counsel for the Applicant on the motion:	Mr M Heaton
Solicitor for the Applicant on the motion:	Mr J Chrapot
Counsel for the Trustee in Bankruptcy:	Mr M Sifris
Solicitor for the Trustee in Bankruptcy:	Freehill Hollingdale and Page
Date of Hearing:	8 February 2000
Date of Judgment:	8 February 2000 (ex-tempore as revised from the transcript)