Crawford v Sellars (Trustee), in the matter of Hussen (Bankrupt) [2000] FCA 162 (24 February 2000)

Last Updated: 28 February 2000

FEDERAL COURT OF AUSTRALIA

Crawford v Sellars (Trustee) in the matter of Hussen (Bankrupt) [2000] FCA 162

BANKRUPTCY - Discovery of bankrupt's property - Application by trustee to avoid disposition of land by bankrupt - Summons for examination of persons associated with disponee - Motion by examinee to discharge summons - Propriety of using examination to assist in the conduct of trustee's proceeding - Propriety of using examination to determine viability of trustee's proceeding - Whether abuse of process.

Bankruptcy Act 1966 s 81

Karounos v Official Trustee (1988) 19 FCR 330 applied

Re Excel Finance Corporation Ltd; Worthley v England (1994) 52 FCR 69 applied

Re Jonson; Ex parte Prentice (1 September 1997, unreported) cited

Official Trustee v Harbream (8 December 1998, unreported) cited

Re McKee; Ex parte Laroar Holdings Pty Ltd (4 December 1996, unreported) cited

CHRISTOPHER EDWARD CRAWFORD v KENNETH STEWART SELLARS (as trustee of the property of William John Hussen, a bankrupt, and as trustee of the property of Kayleen Maree Hussen, a bankrupt)

V 7809 OF 1999

SUNDBERG J

24 FEBRUARY 2000

MELBOURNE

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	V 7809 OF 1999

BETWEEN:	CHRISTOPHER EDWARD CRAWFORD APPLICANT
AND:	KENNETH STEWART SELLARS (as trustee of the property of William John Hussen, a bankrupt, and as trustee of the property of Kayleen Maree Hussen, a bankrupt) RESPONDENT

JUDGE:	SUNDBERG J
DATE OF ORDER:	24 FEBRUARY 2000
WHERE MADE:	MELBOURNE

THE COURT ORDERS THAT:

1. The motion notice of which was filed on 1 February 2000 be dismissed.

2. The applicant pay the respondent's costs of the motion.

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 7809 OF 1999

BETWEEN:	CHRISTOPHER EDWARD CRAWFORD APPLICANT
AND:	KENNETH STEWART SELLARS (as trustee of the property of William John Hussen, a bankrupt, and as trustee of the property of Kayleen Maree Hussen, a bankrupt) RESPONDENT

JUDGE:	SUNDBERG J
DATE:	24 FEBRUARY 2000
PLACE:	MELBOURNE

REASONS FOR JUDGMENT

BACKGROUND

1 William and Kayleen Hussen became bankrupt on their own petition on 8 August 1997. The respondent was appointed trustee of their bankrupt estates in September 1997. By application to the Court filed on 29 June 1999 the trustee has sought declarations that dispositions of parcels of land by the bankrupts to companies owned and controlled by Peter George Donald and the applicant are void pursuant to s 120 or s 121 of the Bankruptcy Act 1966 ("the principal proceedings"). By order made 3 December 1999 a Registrar granted the trustee's application for the issue of summonses for the examination of Donald and the applicant pursuant to s 81 of the Act in respect of the examinable affairs of the bankrupts. Pursuant to the order, a summons was issued to each of Donald and the applicant on 3 December. The examination of Donald commenced on 1 February 2000. It was not concluded on that day and was adjourned. The summons to the applicant was returnable on 2 February 2000.

THE APPLICATION

2 By notice of motion dated 1 February 2000 the applicant seeks an order that the summons directed to him be discharged or adjourned to a date after the conclusion of the principal proceeding. The applicant's affidavit in support discloses that

* he is a director of One Step Plumbing & Concrete Pty Ltd ("the company"), one of the respondents in the principal proceeding

* the company has filed a Notice of Intention to Oppose Application, one of the grounds of which is that "there is no admissible evidence of any cause of action" against the company

* from time to time the trustee has obtained orders extending the date by which he is to file any affidavits in reply to those filed in answer to his initial affidavit in the principal proceeding, the current date being 10 March 2000

* although the Registrar had granted the application for the issue of a summons to the applicant on 3 December 1999, the trustee's solicitor did not inform the applicant's solicitor of this on 13 December when the timetable for the filing of the trustee's affidavit in reply was adjusted, and the applicant's solicitor agreed to 10 March 2000 for the filing of the affidavit without being aware that the examination would take place before that date

* the applicant believes the application for the issue of the summons was "an abuse of process, brought by [the trustee], inter alia, to use the examination process for an improper object, as a means of conducting a fishing expedition for the purposes, primarily, inter alia, of attempting to establish a case against One Step".

SECTION 81

3 Section 81 of the Bankruptcy Act empowers the Court or a Registrar to summon the bankrupt, or an "examinable person" in relation to the bankrupt, for examination in relation to the bankruptcy. A person is an examinable person if he or she is an "associated entity" of the bankrupt or is or has been associated with an associated entity and may be able to give information about the bankrupt's examinable affairs: s 5. A company that has been associated with a bankrupt is an "associated entity" for the purposes of these provisions, and so, therefore, is a director of such a company. The phrase "examinable affairs" means the bankrupt's dealings, transactions, property and affairs, and the financial affairs of an associated entity insofar as they are relevant to the bankrupt: s 5.

4 In Karounos v Official Trustee (1988) 19 FCR 330 the Full Court examined the case law on s 81. The following propositions, amongst others, can be derived from the case:

* The power given by s 81 is unusual and far-reaching.

* The power is exercised in the interests of creditors, and those interests are not to be defeated by an unduly technical or restrictive approach to the use of the power.

* An examination is designed to establish what assets the bankrupt had, what has happened to them, and whether action should be begun, or continued, to recover them.

* Discharge or adjournment of a summons may be appropriate where there is litigation pending or likely to be instituted and it is alleged that:

* the summons is being improperly sought as an aid to that litigation, where ordinary procedures of discovery, interrogation or subpoena would be fairer and more appropriate; or

* it would be more just and equitable to defer the examination until the litigation has been disposed of.

* There is no material difference in principle between cases where proceedings have actually been instituted and where they are merely in contemplation.

* Where litigation is pending or likely to be brought, and the information sought under a summons could affect that litigation, there is no presumption that the summons will be set aside or adjourned.

* Normally the summons will be set aside only if the court finds some improper motive behind the application.

* The Court will give due weight to the fact that the summons is issued at the request of the Official Trustee who will not be presumed to have acted unfairly or for an improper purpose except on convincing evidence.

The last mentioned proposition applies equally, in my view, to a registered trustee such as the respondent.

5 As appears from the Full Court's decisions in Re Excel Finance Corporation Ltd; Worthley v England (1994) 52 FCR 69 at 91, an abuse of the examination process might occur if

* litigation is on foot or in contemplation, and a potential witness is summoned simply for the purpose of destroying his or her credit and thereby gaining a forensic advantage

* all that is intended is a dress-rehearsal for cross-examination

* de facto discovery is sought where discovery in existing proceedings has been refused

* the examination was designed to obtain evidence for use in existing or contemplated proceedings brought or to be brought by someone other than the trustee.

6 The fact that other proceedings have been commenced or are contemplated by the trustee does not, of itself, make it an abuse of process to secure the issue of a summons. Indeed a trustee is entitled to inquire into the very matters the subject of existing proceedings. In Re Jonson; Ex parte Prentice (1 September 1997, unreported) the trustee had commenced proceedings under ss 120 and 121 to have transfers of land set aside. He secured the issue of notices under s 77C (the predecessor of s 81) for the examination of persons connected with the transferees. Lockhart J said:

"It will be important for the Official Receiver and the trustee, when the examinations are being conducted, to ensure that they are not used for any improper purpose, such as examining the witnesses simply for the purpose of destroying their credit or obtaining any other forensic advantage. [They] must be used for the purposes of legitimate enquiry to obtain information concerning the assets, liabilities, income and expenditure of the bankrupt and for the purpose of ascertaining information about the property transactions which are impeached in the current proceedings in this Court."

7 In Official Trustee v Harbream (8 December 1998, unreported) North J, after setting out the above passage, said:

His Honour clearly contemplated that the power to examine under s 77C could properly be used for the purpose of the Official Receiver inquiring into the very matters which were the subject of extant proceedings.

...

I agree ... that s 77C(1)(a) allows the Official Receiver to conduct an examination which has a link with the proceedings being conducted. That is to say, one of the functions of the Official Receiver is to identify and get in the property and assets of the bankrupt. One way in which that is done is by the commencement of legal proceedings. It is legitimate for the Official Receiver to use the power in s 77C to advance properly the process of identifying and getting in the assets of the bankrupt."

See also Re McKee; Ex parte Laroar Holdings Pty Ltd (4 December 1996, unreported).

THE APPLICANT'S SUBMISSIONS

8 The applicant's first ground for his claim to have the summons set aside or adjourned is that there is no admissible evidence of any cause of action against him. The impugned sale to the company was for $515,000. In his affidavit in the principal proceeding, the trustee claims that there were two mortgages over the land, one for $494,000 in August 1997 and one for $76,000 in June 1997, a total of $570,000. He says that this "makes it clear that both mortgagees were confident that [the land] had a market value as at [August 1997] of more than the $570,000 advanced to One Step Plumbing". Thus, he says, the sale was for at least $55,000 less than "the purported market value". The trustee also exhibits in the principal proceeding a bank valuation of the land as at June 1997 in the sum of $525,000. On the basis of this valuation, the applicant asserts that the material before the Court militates against the likelihood of the principal proceeding being successful. It may be that the material on which the trustee at present relies needs firming up by expert evidence as to value, and does not disclose a strong case. However, I do not regard that as justifying discharging the summons or adjourning it. As Karounos shows, the examination procedure is designed to establish, amongst other things, whether action should be begun or continued to recover the bankrupt's assets. It is not improper for a trustee to use the power in s 81 to strengthen his case or assess its continued viability. In the light of the authorities to which I have referred, I do not accept the applicant's contentions that the examination is an abuse of process because it is designed to secure material to assist the trustee in the principal proceeding, or because it is being used to help him decide whether the principal proceeding is to be prosecuted.

9 The contention that the examination is an abuse because it is a rehearsal for cross-examination is not supported by any evidence. Furthermore, if it becomes apparent in the course of the examination before the Registrar that the procedure is being used as a rehearsal for cross-examination, the applicant's legal representative can object and the Registrar will rule on the matter. That was the fact situation Lockhart J had in mind in Jonson when he spoke of ensuring that the examination is not conducted for the purpose of destroying credit or obtaining any other forensic advantage.

10 The applicant's other objection, that the trustee's solicitor did not inform his solicitor on 13 December 1999 of the issue of the summons has no substance. It follows from what I have said about the proper use of the power in s 81 that the fact that the applicant's solicitor may have objected to the filing date of 10 March 1999, had he been aware that the examination would precede it, is neither here nor there. The applicant is at liberty to use the examination to discover material to support his case or to assess its continuing viability.

CONCLUSION

11 The motion is dismissed with costs.

I certify that the preceding eleven (11) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Sundberg.

Associate:

Dated: 24 February 2000

Counsel for the Appellant:	M Pirrie
Solicitors for the Appellant:	Frenkel Partners
Counsel for the Respondent:	M Galvin
Solicitors for the Respondent:	Dunhill Madden Butler
Date of Hearing:	3 February 2000
Date of Judgment:	24 February 2000