Official Trustee in Bankruptcy v Harbream Pty Ltd & Ors [1998] FCA 1688

FEDERAL COURT OF AUSTRALIA

BANKRUPTCY – application for injunction to restrain applicant from participating in an examination of the second respondent – allegation that procuring a notice pursuant to s 77C Bankruptcy Act 1966 (Cth) constitutes a contempt of court or an abuse of process Bankruptcy Act 1966 (Cth) s 77C Trade Practices Act 1974 (Cth) s 155 Income Tax Assessment Act 1936 (Cth) s 264

Re Jonson; Ex parte Prentice; Official Receiver v Jonson & Ashbury (Federal Court of Australia, 1 September 1997, unreported), cited

Brambles Holdings Ltd v Trade Practices Commission (1980) 32 ALR 328, cited

Re Hugh J Roberts Pty Ltd and the Companies Act (in liq) [1970] 2 NSWR 582,cited

Deputy Commissioner of Taxation v De Vonk (1995) 133 ALR 303; (1995) 61 FCR 564, cited

OFFICIAL TRUSTEE IN BANKRUPTCY v HARBREAM PTY LTD (ACN 003 723 804) and Ors

No VG 7226 of 1998

JUDGE: NORTH J

DATE: 8 DECEMBER 1998

PLACE: MELBOURNE

IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY VG 7226 of 1998

BETWEEN: OFFICIAL TRUSTEE IN BANKRUPTCY

APPLICANT

AND: HARBREAM PTY LTD (ACN 003 723 804)

FIRST RESPONDENT

LORRAINE MARGARET YOUNG

SECOND RESPONDENT

BRYONY JANE DADE

THIRD RESPONDENT

JUDGE(S): NORTH J

DATE OF ORDER: 8 DECEMBER 1998

WHERE MADE: MELBOURNE

THE COURT ORDERS THAT: (1) The motion, notice of which was filed by the respondents on 7 December 1997, is dismissed. (2) The respondents are to pay the costs of the applicant to be taxed or agreed. (3) Such costs to be paid within 30 days of taxation or agreement.

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 7226 of 1998

BETWEEN: OFFICIAL TRUSTEE IN BANKRUPTCY

APPLICANT

AND: HARBREAM PTY LTD (ACN 003 723 804)

FIRST RESPONDENT

LORRAINE MARGARET YOUNG

SECOND RESPONDENT

BRYONY JANE DADE

THIRD RESPONDENT

JUDGE(S): NORTH J

DATE: 8 DECEMBER 1998

PLACE: MELBOURNE

EX TEMPORE REASONS FOR JUDGMENT 1 Before the Court is a notice of motion brought by the respondents in which, in essence, they seek to restrain or prevent occurring an examination of the second respondent. That examination is to occur tomorrow, unless restrained by the Court. As a result, these reasons are more brief than they would otherwise be. It is to be conducted under s 77C of the Bankruptcy Act 1966 (Cth) (the Act). The essential grounds upon which the motion has been argued are twofold: firstly, that the procuring of the notice by the applicant in the proceedings, the Official Trustee in Bankruptcy, is an abuse of process and, secondly, that the procuring of the notice by the Official Trustee is a contempt of court. 2 Mr Bigmore QC, who appeared on behalf of the respondents, contended that the purpose disclosed by the evidence for the issue of the notice under s 77C was solely to advance the position of the Official Trustee in the principal proceedings. In the principal proceedings, the Official Trustee seeks declarations against the respondents under ss 115, 116 and 58, and under ss 120 and 121 of the Act. The essence of that claim is that the respondents hold property which is, in truth, property of the bankrupts Cornelius and Marie de Groot. 3 Section 77C provides: "(1) The Official Receiver, by written notice given to any person, whether a bankrupt or not, including any person employed by or in connection with a Department, or an authority, of the Commonwealth, of a State or of a Territory, may require the person: (a) to give to the Official Receiver such information as the Official Receiver requires for the purposes of the performance of the functions of the Official Receiver or a trustee under this Act; and (b) to attend before the Official Receiver, or before an officer authorised in writing by the Official Receiver to exercise powers under this paragraph, and: (i) give evidence; and (ii) produce all books in the possession of the person; relating to any matters connected with the performance of the functions of the Official Receiver or a trustee under this Act. (2) The Official Receiver or authorised officer may require the information or evidence to be given on oath, and either orally or in writing, and for that purpose may administer an oath." In particular, attention should be directed to s 77C(1)(a), which limits the issue of such notice for purposes of the performance of the functions of the Official Receiver or Trustee under the Act. This is, in my view, a critical part of the section for the purposes of resolving the present issue. 4 A situation which was, relevantly, the same as the situation in the present case was considered by Lockhart J in Re Jonson; Ex parte Prentice; Official Receiver v Jonson & Ashbury (Federal Court of Australia, 1 September 1997, unreported). His Honour considered an application for the setting aside of notices under s 77C, on the ground that the notices were served for an improper purpose, namely, for the Official Trustee to obtain evidence for proceedings similar to the present proceedings. He dismissed the application, saying, at p 10: "Particular care must be exercised when the power conferred by s 77C is used to obtain information and documents about transactions that are impeached in current litigation commenced or continued by the trustee of bankrupt's estate against respondents who include a proposed examinee under s 77C. See Pioneer Concrete (Vic) Pty Ltd v Trade Practices Commission (1982) 152 CLR 460, in particular per Gibbs J at 468 and Mason J at 473 concerning s 155 of the Trade Practices Act 1974". He then continued: "It is true that the two current proceedings in which the trustee seeks to set aside the transfers of the properties relate to events that occurred before the bankrupt was made bankrupt in 1994, and that those proceedings, also earlier proceedings in this Court, (No 7619 of 1997) concern basically the same subject matter, namely, the setting aside of the property transactions. The Court must be careful lest the powers conferred by s 77C on the Official Receiver are not misused, especially when much of the material to be examined pursuant to the exercise of the s 77C powers concerns the two proceedings presently on foot. 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. It 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." 5 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. He drew a distinction between that proper purpose and an improper purpose, such as examination of a witness simply for the purpose of destroying credit. 6 I agree with the submission of Mr Williams, who appeared for the Official Trustee, 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. 7 Mr Bigmore relied on a number of authorities, decided under different provisions, to contend that the examination which inquired into the very same matters as were the subject of the court proceedings, constituted a contempt of court. One such authority was Brambles Holdings Ltd v Trade Practices Commission (1980) 32 ALR 328, which concerned the issue of a notice under s 155 of the Trade Practices Act 1974 (Cth) and its relation to proceedings arising out of the alleged contraventions of s 45 of the Trade Practices Act. It was held, by way of obiter in that case, that the issue of the notice under s 155 could constitute a contempt. Franki J said, at p 335-336: "It is an important aspect of this case that the issue of the notice and the compliance with it was a matter not authorized by statute and not within the control of the court. This distinction is important and distinguished a number of cases where the relevant act was authorized by statute and was subject to the supervision and control of the court." 8 Re Hugh J Roberts Pty Ltd and the Companies Act (in liq) [1970] 2 NSWR 582 was then cited, a case relied on by Lockhart J in Jonson. Brambles was quite different to the present case. Not only was the s 155 notice in that case not authorised by the Act, but the power under s 155 is quite different to the power under s 77C. The important distinction is that s 77C is a power of information gathering for the purposes of the performance of the functions of the Official Receiver, whilst s 155 is an enforcement or compliance provision. The other main authority upon which Mr Bigmore relied was Deputy Commissioner of Taxation v De Vonk (1995) 133 ALR 303; (1995) 61 FCR 564, which involved the provisions of s 264 of the Income Tax Assessment Act 1936 (Cth). This section, again, allowed the service of a notice by the Commissioner for the purposes of gathering information without any reference to the specific purposes of the exercise. Section 77C makes direct and express reference to the limited nature of the examination, namely, for the purposes of the performance of the function of the Official Trustee. Further, in De Vonk, the contempt was constituted by the fact that the person to whom the notice was directed had no privilege against self-incrimination in responding to the notice, while that person had such claim to privilege in the prosecution which was proceeding against the person. Thus, in my view, the motion, notice of which was filed by the respondents on 7 December 1998, should be dismissed. 9 The orders of the Court will be: (1) The motion, notice of which was filed by the respondents on 7 December 1997, is dismissed. (2) The respondents are to pay the costs of the applicant to be taxed or agreed. (3) Such costs to be paid within 30 days of taxation or agreement. I certify that the preceding nine (9) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice North

Associate: Dated: 8 December 1998

Counsel for the Applicant: Mr D J Williams

Solicitor for the Applicant: Dunhill Madden Butler

Counsel for the Respondent: Mr G T Bigmore QC, with Mr M J Galvin

Solicitor for the Respondent: Gadens Lawyers

Date of Hearing: 8 December 1998

Date of Judgment: 8 December 1998