Huynh v Pascoe [2002] FCAFC 73 Huynh v Pascoe [2002] FCA 309 NOTE: CHANGES TO THE MEDIUM NEUTRAL CITATION (MNC) The Federal Court adopted a new medium neutral citation (FCAFC) for Full Court judgments effective from 1 January 2002. Single Judge judgments will not be affected and will retain the FCA medium neutral citation. The transitional arrangements are as follows: * All Full Court judgments delivered prior to 1 January 2002 will retain the FCA medium neutral citation. * All Full Court judgments delivered between 1 January 2002 to 30 April 2002 have been assigned parallel medium neutral citations in both the FCA and FCAFC series. * All Full Court judgments delivered from 1 May 2002 will contain the FCAFC medium neutral citation only. FEDERAL COURT OF AUSTRALIA Huynh v Pascoe [2002] FCA 309 BANKRUPTCY – application to remove trustee of bankrupt estate by single creditor – existence of two or more creditors – meeting of creditors convened by applicant creditor for purpose of removal of trustee – meeting attended by only the applicant creditor notwithstanding existence of other creditors – whether quorum nevertheless present and if so whether trustee should be removed by reason of unreasonable failure to recognise existence of quorum or unreasonable failure otherwise to remedy the situation confronting the applicant – absence of quorum because two or more creditors required for a quorum where there are two or more creditors. Bankruptcy Act 1966 (Cth), ss 63, 63A, 64, 64A, 64D, 64L, 64M, 64N(2)(7), 64P, 64ZA(1)(2)(3)(6)(8)(9), 156A(3), 178, 181 Bankruptcy Act 1924, s 160 Companies Act 1948 Bankruptcy Rules, r 96 sub-r (1), (2) and (3) McDonald et al Australian Bankruptcy Law and Practice, 4th ed. 1968 at p.437 Explanatory Memorandum, Bankruptcy Amendment Bill 1991 Re Burton; Burton & Ors v Wily (1994) 122 ALR 399 considered Jones v Dunkel (1959) 101 CLR 298 referred to The London Flats Ltd [1969] 2 All ER 744 approved Re Nelson (1963) 19 ABC 172 approved Re Foster; Ex parte Foster v Duus (1994) 49 FCR 309 considered Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 cited House v The King (1936) 55 CLR 499 referred to VAN TRI HUYNH v SCOTT DARREN PASCOE N1317 of 2001 RYAN, CARR & CONTI JJ 20 MARCH 2002 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N1317 of 2001 ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA BETWEEN: VAN TRI HUYNH Appellant AND: SCOTT DARREN PASCOE Respondent JUDGES: RYAN, CARR & CONTI JJ DATE OF ORDER: 20 MARCH 2002 WHERE MADE: SYDNEY THE COURT ORDERS: 1. THAT the appeal be dismissed. 2. THAT the appellant pay the respondent's costs of the appeal, such costs to be taxed in default of agreement. 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 N1317 of 2001 ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA BETWEEN: VAN TRI HUYNH Appellant AND: SCOTT DARREN PASCOE Respondent JUDGES: RYAN, CARR & CONTI JJ DATE: 20 MARCH 2002 PLACE: SYDNEY REASONS FOR JUDGMENT RYAN and CONTI JJ: Introduction 1 This is an appeal from a judgment of a Judge of this Court, given on 28 August 2001, dismissing the appellant's application, under s 178 of the Bankruptcy Act 1966 (Cth) ("the Act"), for an order that the respondent ("the Trustee") be removed as trustee of the estate of the bankrupt Le Dinh Thi Than ("the Bankrupt"). Factual and Procedural Background 2 On 5 June 2000 this Court made a sequestration order in respect of the estate of the Bankrupt. The Trustee became the trustee of that estate by virtue of s 156A(3) of the Act. 3 In the Trustee's report to creditors, dated 1 August 2000, total assets of the Bankrupt were shown as $224 and total liabilities as $365,400. The Bankrupt had disclosed to the Trustee that her liabilities included an unsecured debt to the appellant in the sum of $149,000. 4 By letter dated 24 October 2000 the appellant's solicitors requested the Trustee to call a meeting of creditors of the Bankrupt's estate (and that of the Bankrupt's husband's bankrupt estate) for the purpose of removing the Trustee as trustee of both estates. 5 The Trustee gave notice of a meeting of creditors of the Bankrupt's estate to be held on 17 November 2000 at "12.00 pm". The appellant was the only creditor to attend the meeting. The Trustee, apparently taking the view that there was no quorum, declined to proceed with the meeting which he adjourned until 30 November 2000. At the start of the adjourned meeting on 30 November 2000 the appellant was again the only creditor present. Again the Trustee declined to proceed with the meeting. 6 The applicant then filed an application in this Court seeking an order removing the Trustee as trustee of the Bankrupt's estate. He contended that the Trustee ought to have allowed one or other of the meetings to proceed. If either of those meetings had proceeded, the appellant would have voted in favour of removing the Trustee as trustee of the Bankrupt's estate. In those circumstances he contended that it would be an appropriate exercise of the discretion of the Court under s 178 of the Act to make an order removing the Trustee as trustee of the Bankrupt's estate. 7 Section 178 of the Act, under which the application at first instance was brought, provides: "If the bankrupt, a creditor or any other person is affected by an act, omission or decision of the trustee, he or she may apply to the Court, and the Court may make such orders in the matter as it thinks just and equitable." 8 The following summary of the other relevant provisions of the Act is taken largely from the reasons of the learned primary Judge. 9 Division 5 of Pt IV of the Act, comprising ss 63A-64ZF, is concerned with meetings of creditors. 10 By way of preface to Div 5 s 63A contains, amongst others, the following definitional provisions; "creditors and their representatives, in relation to a meeting, means: (a) the creditors who are entitled to vote at the meeting and are participating in person or by telephone in the meeting; and (b) the persons participating in person or by telephone in the meeting as proxies or attorneys of any other creditors who are entitled to vote at the meeting. … … … … … meeting means a meeting of the creditors of a bankrupt or a meeting of the creditors of any one or more of the bankrupts who were made bankrupt in a joint bankruptcy. … … … … … (2) A reference in this Division to a person participating in person in a meeting is a reference to a person being physically present at the meeting." 11 Section 64A identifies the persons to whom notice of meeting of creditors must be given. Sections 64B and 64D are concerned with matters which must be set out or stated in the notice of meeting. Section 64D provides as follows: "64D Statement by creditor as to amount of debt The notice must state that each creditor must give to the trustee at or before the meeting a written statement setting out: (a) the amount in respect of which the creditor claims that the bankrupt is indebted to the creditor; and (aa) if the creditor has been assigned a debt that the bankrupt owes to the creditor – the value of the consideration that the creditor gave for the assignment of the debt; and (b) if the meeting is the first meeting of the bankrupt's creditors: (i) whether the creditor holds a security in respect of the debt and, if so, the value of the security as estimated by the creditor and the amount of the creditor's debt after deducting that value; and (ii) brief particulars of the transaction and circumstances that gave rise to the debt." 12 Subdivision D of Div 5 of Pt IV of the Act, (comprising ss 64K-64X), governs with considerable particularity the procedure to be followed at a meeting of creditors. Section 64K is concerned with the opening stages of the meeting. Sections 64L and 64M respectively are concerned with the appointment of a minutes secretary and the announcement of proxies and attorneys. In this matter, nothing presently turns on these sections. Section 64N relevantly provides: "64N (1) The trustee must then determine whether a quorum is present. (2) A quorum is constituted: (a) if there is only one creditor who is entitled to vote: (i) by that creditor, or a proxy or attorney of that creditor, participating in person or by telephone; and (ii) by the presence in person of the trustee; or (b) otherwise – by 2 persons participating in person or by telephone each of whom is either a creditor who is entitled to vote or the proxy or attorney of such a creditor. (3) If a quorum is not present within 30 minutes after the time fixed for the meeting, the meeting is adjourned to a time, date and place fixed by the trustee. (4) The date of the adjourned meeting must be not earlier than 7 days nor later than 14 days from the date of the original meeting. …" Section 64ZA relevantly provides: "64ZA(1) This section applies to voting: (a) at an election under section 64P of a person to preside at a meeting; and (b) on any motion proposed at a meeting or an amendment proposed to such a motion. (2) In this section: 'creditor' means a creditor who, or whose proxy or attorney, participates in a meeting in person or by telephone. (3) A person other than a creditor is not entitled to vote. (4) Subject to subsections (5) and (6), each creditor is entitled to vote and has one vote. (5) If a creditor holds a security in respect of a debt, the creditor is not entitled to vote unless the debt, or the total amount of the debts, owed to the creditor exceeds the amount estimated by the creditor in the statement given to the trustee under section 64D to be the value of the security. (6) A creditor who has failed to give to the trustee a statement in accordance with section 64D is not entitled to vote. …" 13 The power of the creditors of the estate of a bankrupt to remove a trustee is confirmed by s 181 of the Act which provides: "The creditor may, by resolution, at a meeting of which not less than 7 days' notice has been given, remove a registered trustee appointed by them, or a registered trustee who is, by virtue of subsection 156A(3), the trustee of the estate of the bankrupt concerned, and may at the same or a subsequent meeting appoint another registered trustee to be trustee in his or her place." The Proceedings at First Instance 14 The only factual issue which arose at first instance was whether the appellant had given the Trustee "a statement in accordance with s 64D …" within the meaning of s 64ZA(6), set out above. It was accepted by both parties that a completed proof of debt would constitute such a written statement: Re Burton; Burton & Ors v Wily (1994) 122 ALR 399. 15 The appellant did not claim to have provided to the Trustee a proof of debt before the meeting of 17 November 2000. He claimed that he had handed a proof of debt to a member of the Trustee's staff shortly before the adjourned meeting of 30 November 2000. 16 It was common ground that the appellant had received a partially completed proof of debt form from the Trustee at the same time as he had received the notice of the meeting to be held on 17 November 2000. 17 The affidavit initially filed in support of the application was sworn by a Mr Mario Cesare Bechelli, solicitor, on 14 February 2001. That affidavit contained the following paragraph: "Annexed hereto and marked 'c' is a copy of a Proof of Debt which I am informed by Van Tri Huynh, and believe, was lodged by him with the respondent. The respondent has not rejected the Proof of Debt." 18 The document annexed to Mr Bechelli's affidavit and marked 'c' was a partially completed proof of debt form. It identified the Bankrupt and gave her bankruptcy number and the date of her bankruptcy. It was not otherwise completed. Her Honour found that, to the extent that the proof of debt form had been completed, that had occurred in the office of the Trustee before it was provided to the appellant. 19 At the hearing Mr Bechelli said that the paragraph set out above from his affidavit was inaccurate, that he did not recall being informed by the appellant that a proof of debt had been lodged by him and that he had no recollection of seeing a proof of debt in the Bankrupt's estate which had been completed by the appellant. 20 The appellant had sworn an affidavit which referred to a proof of debt. However, he acknowledged in cross-examination that the reference was to a proof of debt filed by him in the bankrupt estate of the Bankrupt's husband. In about May 2001 the Trustee's solicitors raised with the appellant's solicitors the issue of whether the appellant claimed to have lodged a proof of debt in the Bankrupt's estate. By letter dated 17 May 2001 the appellant's solicitors wrote to the Trustee's solicitors in the following terms: "We refer to your letter of 15 May 2001. The Applicant does not intend to read paragraph 4 of the affidavit of Mr Bechelli sworn 14 February 2001 [the paragraph set out above] and accepts that no proof of debt was lodged by him in this bankrupt estate. In those circumstances, would you kindly advise whether you still require the Applicant and Mr Bechelli for cross-examination." 21 By a second affidavit sworn on 21 May 2001 the appellant relevantly deposed as follows: "2. I refer to my affidavit sworn earlier in these proceedings. When I attended at Mr Pascoe's office on 30 November 2000, I first went into the reception area of his office and I gave to the receptionist and I said: 'My name is Van Tri Huynh. I am here for a meeting with Mr Pascoe. Would you please give him these documents.' I then sat down in the reception area. Annexed and marked 'A' is a copy of a bundle of documents that I gave him. 3. I waited for about ten minutes and then Mr Pascoe came into the reception area. He had the bundle of documents, which I had given to the receptionist, with him. He was looking through the bundle of documents as he came into the reception area and he gave them back to me and we then had the conversation set out in paragraph 4 of my earlier affidavit." 22 Included in the bundle of documents annexed to the appellant's affidavit of 21 May 2001 and marked 'A' was a completed proof of debt in the Bankrupt's estate. It showed the amount owing to the appellant as $149,000, was signed by the appellant and was dated 28 November 2000. 23 Under cross-examination, the appellant said that after the meeting of 30 November 2000 he went to see his solicitor and showed him the documents which had earlier been returned to him by the Trustee. However, he said that he had retained possession of those documents until the week of 21 May 2001 when he gave them to his solicitor. He agreed that he had not photocopied the proof of debt form provided to him by the Trustee so that after 28 November 2000 he only had in his possession the completed proof of debt. When asked if he knew how his solicitors came to be in possession of the partially completed proof of debt form annexed to Mr Bechelli's affidavit, the appellant responded that he thought that they must have been in touch with the office of the Trustee to obtain it. We note parenthetically that this was an important sub-issue. The completed proof of debt was dated 28 November 2000. Annexed to Mr Bechelli's affidavit of 14 February 2001 was the partially completed proof of debt form. The appellant had not photocopied the proof of debt form provided to him. He (the appellant) after 28 November 2000 only had in his possession the completed proof of debt form. Where had the partially completed copy proof of debt form annexed to Mr Bechelli's affidavit of 14 February 2001 come from? 24 Her Honour noted that although the solicitor for the appellant who signed the letter dated 17 May 2001 and before whom he had sworn his affidavit on 21 May 2001, was present in Court throughout the hearing of the matter, he was not called to give evidence. 25 The Trustee gave affidavit evidence that he did not recall either the appellant or his receptionist giving him a bundle of documents on 30 November 2000 and did not recall ever having seen a proof of debt lodged by the appellant in the Bankrupt's estate. He swore that, if he had received a bundle of documents from a creditor, he would have perused them and retained in his possession any proof of debt identified among such documents. The Trustee gave oral evidence of having sought, but failed, to identify the member of his staff who was on reception duty on 30 November 2000. He said that none of the three staff members who may have been on reception duty that day could say one way or the other whether she had seen the applicant on that day. He said that the appellant had visited his offices on a number of occasions. 26 The primary Judge said that in reaching a finding as to whether the appellant handed a proof of debt in the Bankrupt's estate to a member of the Trustee's staff on 30 November 2000, she attached significance to the failure of the appellant to call a solicitor from the law firm which represented him to explain the circumstances in which the partially completed proof of debt form came first into their possession and how it came to be annexed to Mr Bechelli's affidavit. Her Honour said that she attached even more significance to the failure to give evidence of the solicitor for the appellant who signed the letter of 17 May 2001, and before whom the appellant's affidavit of 21 May 2001, was sworn. 27 The primary Judge observed that the evidence was sufficient to give rise to an inference that the proof of debt signed by the appellant had been completed and signed by him on a date between 17 May 2001 (when his solicitors, presumably acting on his instructions, advised the Trustee's solicitors that the appellant accepted that no proof of debt had been lodged by him in the Bankrupt's estate) and 21 May 2001 when the appellant swore his second affidavit. Her Honour concluded that if the appellant's solicitor or solicitors with knowledge of these matters had given evidence, his or their evidence would not have assisted the appellant by throwing doubt on the correctness of that inference. Accordingly, her Honour concluded that on the balance of probabilities the appellant had not handed a proof of debt in the Bankrupt's estate to a member of the Trustee's staff on 30 November 2000 or at any relevant time. 28 Her Honour then turned to the question whether the Trustee was correct in his determination of 30 November 2000 that no quorum was present at the adjourned meeting of creditors. 29 She found that the appellant was not a "creditor who is entitled to vote" at the meeting on 30 November 2000 because he had not given a written statement as referred to in s 64D. Her reasoning concluded in the following terms: "I therefore conclude that a "creditor who is entitled to vote" within the meaning of subs 64N(2) is a creditor of the relevant bankrupt estate who would, if he or she chose to participate in the meeting, be entitled to vote at the meeting. That is, "a creditor who is entitled to vote" within the meaning of the subsection is a creditor of the relevant bankrupt estate who: (a) has given the trustee a statement in accordance with s 64D (subs 64ZA(6)); and (b) if he or she holds a security in respect of a debt, the debt or the total amount of the debts, exceeds the amount estimated by the creditor in the s 64D statement to be the value of the security (subs 64ZA(5)). The above conclusion means that the question of whether "there is only one creditor who is entitled to vote" within the meaning of subs 64N(2) is to be determined by reference to the total body of creditors of the relevant estate, and not by reference only to those present at the meeting. However, only a creditor of the estate who satisfies the criteria (a) and (b) above is a "creditor who is entitled to vote" within the meaning of the subsection. It is for this reason, in my view, that s 64D of the Act mandates that the notice of the meeting of creditors is to state that each creditor must give to the trustee at or before the meeting, a written statement setting out the matters identified in that section. The matters identified in the section are such that, if the creditor does give to the trustee such a written statement, he or she will be entitled to vote at the meeting of creditors." 30 Her Honour then referred to what she described as some irregularities in the Trustee's management of the Bankrupt's estate. She said that she saw no reason to conclude that those irregularities reflected more than a failure on the part of the Trustee to pay careful attention to the requirements of Pt IV of the Act. We note that the Trustee's oversights included the fact that the notice of meeting dated 2 November 2000, which he had prepared and sent to creditors, did not contain the statement required by s 64D. Nor did the Trustee seek to overcome the deficiency in the notice by asking the appellant, as the only creditor present at the meeting, if he wished to give him a proof of debt. Her Honour, earlier in her reasons, had observed that the notice of meeting did not comply at all with the requirement of s 64D. 31 Her Honour referred to the fact that it had not been suggested to the Trustee in cross-examination that his conduct had been actuated by self interest or any other improper motive. 32 Accordingly, her Honour held that there was no quorum at either of the meetings on 17 November and 30 November 2000 – see s 64N(2)(a), set out above. Her Honour noted that a further creditor had lodged a proof of debt with the Trustee who would now be a creditor entitled to vote on any motion which might be proposed for the removal of the Trustee as the trustee of the Bankrupt's estate. 33 Her Honour concluded that "[p]erhaps most significantly" the applicant had failed to establish that there was a quorum at either meeting of creditors, concluding: "That is, he has failed to establish that had these meetings, or one of them, been conducted as required by the Act, a motion would have been carried for the removal of trustee as trustee of the bankrupt's estate." The Appeal 34 The appellant contended that, on a proper construction of the Act, there had been a quorum, because he was the only creditor participating and entitled to vote. Alternatively, if there had been no quorum, this had been due to the Trustee's non-compliance with ss 64A and 64D, which should have been remedied by the Trustee during the meeting, in which case a quorum would have been constituted. 35 The appellant submitted that a just and equitable remedy for the Trustee's unreasonable failure to determine the existence of a quorum (alternatively his unreasonable failure to remedy the situation) was to remove him as trustee because this would have occurred but for the Trustee's conduct. 36 On the construction point the appellant argued that s 64ZA(6) does not impose an obligation on a creditor to give the statement referred to in s 64D. Section 64A, so it was put, imposed an obligation on the Trustee to give a particular notice to creditors. No discretion was provided. Section 64D prescribed the content of the notice but did not directly impose an obligation upon a creditor to give a statement. That obligation was imposed on the creditor by the Trustee by means of the notice. The sanction for non-compliance was ineligibility to vote. A creditor, so the appellant submitted, could not "fail" to give the statement unless he had been required by the Trustee to do so. The creditor could not fall short of an obligation which was so imposed. The Trustee's non-compliance had the consequence that no obligation was placed upon the creditor to provide a statement containing the prescribed information. Therefore, the appellant was not ineligible to vote, a quorum existed and the Trustee had failed to recognise the quorum. But for his incorrect determination of the quorum question, the Trustee would have been removed as trustee by the vote of the appellant. 37 Alternatively, if the appellant's eligibility had been lost because he did not provide a statement containing the information prescribed by s 64D, that non-compliance was attributable to the failure of the Trustee to comply with ss 64A and 64D or the Trustee's failure to remedy those breaches by suitable warning or request at the meeting – or both. The appellant submitted that the legislature could not have intended that the consequence of non-compliance by a trustee with these sections would be to deprive a creditor of eligibility to vote. 38 The appellant also challenged the primary Judge's findings of fact as having been based on inferences, rather than upon an adverse evaluation of the appellant's credit. The appellant argued that the principles discussed in Jones v Dunkel (1959) 101 CLR 298 did not apply to a failure to call a party's solicitors, because to do so could unfairly induce a party to waive legal professional privilege. Competing favourable inferences, so it was put, had thus mistakenly been displaced or not fully weighed. 39 As to remedies, the appellant submitted that if it were accepted that there was a quorum, considerations which would justify relief under s 178 of the Act included: · the Trustee's approach to the obligation of determining whether a quorum existed had, so it was submitted, been cursory or mechanical, despite the fact that whether the single creditor meeting had a quorum was critical to his continuation as a trustee; · the Trustee's failure to remedy his breach of s 64A and reliance on that breach to deny the appellant eligibility to exercise the power to bring about the appointment of a new trustee; · allowing the Trustee to retain office would be to entrench his error. This would not promote careful and diligent adherence by trustees to their statutory obligations. 40 Accordingly, so it was contended, a just and equitable remedy for the Trustee's unreasonable failure to recognise the quorum, alternatively his unreasonable failure to remedy the situation, was to remove him as trustee because this would have occurred but for the Trustee's conduct. Respondent's Submissions 41 Counsel for the Trustee submitted that her Honour had a discretion whether to remove him as trustee. Unless it had been demonstrated (as it had not been) that her Honour had failed to take into account a relevant consideration, or had taken into account an irrelevant consideration, in determining this issue, this Court should not revisit it. 42 On the central factual issue of whether the appellant had lodged a proof of debt with the Trustee immediately before the reconvened meeting of 30 November 2000, the Trustee submitted that in accordance with established principles we should not overturn that finding of fact because it was based at least in part on impressions formed by the primary Judge. Furthermore to the extent that her Honour had based her judgment on the balance of probabilities and inferences properly drawn, that process of reasoning was manifestly correct. Reasoning on the Appeal 43 It was submitted on behalf of the appellant that, for the purpose of determining the existence of a quorum at each of the meetings of 17 November and 30 November 2000, there was "only one creditor who is entitled to vote" within the meaning of s 64N(2)(a). That one creditor so entitled was, it was contended, the appellant himself. That result was required, so the argument went, by the definition of "creditors and their representatives" in s 63A, an essential element of which was participation in person or by telephone in the meeting. "Participating in person", it was pointed out, is equated by s 63A(2) with being physically present at the meeting. However, it is to be borne in mind that the expression defined in s 63A is "creditors and their representatives" not "creditors who are entitled to vote", although the latter expression is used twice in the definition of "creditors and their representatives". "Creditors and their representatives" appears in Div 5 of Pt IV of the Act after s 63A first in s 64L(1)(a) which provides; "The trustee must then: (a) invite the creditors and their representatives to propose a motion appointing a person to record the minutes of the meeting;" 44 Section 64P requires a similar invitation to be extended to "the creditors and their representatives" to nominate a person for election to preside at the meeting. After the President has been elected he or she must invite "the creditors and their representatives" to propose a motion that the meeting is being held at a time, date and place that are convenient to a majority of creditors; s 64Q. The other references in Div 5 of Pt IV to "the creditors and their representatives" are in s 64R(2), s 64S(1) and (2), s 64T, s 64U(4), (6) and (7), s 64V, s 64W, s 64X, s 642B and s 64ZE(1). All those references occur in machinery provisions governing the conduct of meetings. In our view, the compound expression "creditors and their representatives" incorporating as it does the requirement of participation in person or by telephone, is not definitive of the expression "creditor who is entitled to vote" in s 64N(2). If that were not so, there would be an unacceptable circularity in the reference in s 63A(1)(b) to "the persons participating in person or by telephone in the meeting as proxies or attorneys of any other creditors who are entitled to vote at the meeting" (emphasis added). 45 Nor do we consider that the expression "only one creditor who is entitled to vote" in s 64N(2) is governed by the code regulating entitlement to vote contained in s 64ZA. In the first place, s 64ZA finds its place in the legislation well after s 64N and confers a right to vote at a meeting which has been validly constituted by, amongst other things, the appointment of a minutes secretary (s 64L) and the determination that a quorum is present (s 64N). It is only after those steps have been taken that the entitlement to vote regulated by s 64ZA becomes exercisable. If a quorum is not present after the expiration of 30 minutes the Act acknowledges, we consider, in accordance with common law principles that the meeting is incapable of electing a President or carrying any motion; see eg, The London Flats Ltd [1969] 2 All ER 744. In that case, Plowman J acknowledged that there were certain exceptional cases in which the Companies Act 1948 enabled one member of a company to constitute a meeting. However, his Lordship considered those cases had no application to that before him in which the respondent, being the sole shareholder remaining in attendance at a meeting, purported to appoint himself as liquidator of the company. That purported appointment was held to be a nullity. For these reasons we have concluded that the entitlement to vote contemplated by s 64ZA is not exercisable at a meeting which lacks a quorum. Such a meeting must therefore be adjourned by the trustee in accordance with s 64N(3). 46 It is conceded that the construction which we favour accords a different meaning to the same phrase "creditor entitled to vote" in different sections in close proximity to each other. However, the alternative construction leaves no work for s 64N(2)(b) to do. If a quorum could be constituted by a single creditor or his or her proxy or attorney participating in person or by telephone even if there were other creditors who, or whose proxies or attorneys, were not participating in person or by telephone, the requirement in s 64N(2)(b) that "otherwise" a quorum be constituted by at least two creditors or their proxies or attorneys participating in person or by telephone would be quite superfluous. 47 Section 64ZA appears designed to serve a similar purpose to s 66 of the Act before its repeal by Act No 9 of 1992. Before its repeal, s 66, as amended by s 27 of Act No 119 of 1987 provided; "(1) Subject to this section, each creditor who is entitled to prove a debt in the bankruptcy is entitled to vote at a meeting of creditors. (2) A creditor is not entitled to vote at a meeting of creditors (otherwise than in respect of the election of a chairman of the meeting) unless he has made known to the chairman particulars of his debt. (3) Except as provided by subsection (4), a secured creditor is not entitled to vote in respect of a secured debt unless he surrenders his security. (4) A secured creditor may, if he has furnished to chairman, in writing, particulars of his security and of value at which he estimates it, vote in respect of balance (if any) of the secured debt after deducting value at which he has estimated the security. (5) The spouse, or the de facto spouse, of the bankrupt is not entitled to vote at a meeting of creditors." 48 There was in the 1966 Act, before its amendment by Act No 9 of 1992, no provision regulating the conduct of meetings in general for the purposes of the Act, although there were detailed provisions in respect of meetings of creditors under Pt X dealing with arrangements with creditors without sequestration. Sub-sections 202(1), (2) and (3) which were to be found in Pt X provided; "(1) At a meeting under this Division, 2 creditors, being creditors entitled to vote at the meeting, present personally, by attorney or by proxy, constitute a quorum. (2) If a quorum is not present within 30 minutes after the time appointed for the meeting, any creditor of attorney or proxy of a creditor entitled to vote at the meeting who is present may adjourn the meeting to such date and place as he appoints. (3) The date so appointed shall not be earlier than 7 days, or later than 14 days, from the date on which the adjournment takes place. (4) Notice of the adjournment shall forthwith be given to all the creditors by the debtor or by the controlling trustee or the solicitor authorized by the debtor to call the meeting in the manner specified in subsection 194(2). (5) A meeting of creditors on the date and at the place to which the meeting under this Division was adjourned shall not be deemed incompetent to act for the purposes of this Part by reason only of a failure to comply with subsection (4) unless the Court, on the application of a creditor or of the controlling trustee or solicitor by whom the meeting was called, otherwise declares." 49 Before Act No 9 of 1992 came into force, the matter of a quorum at a meeting of creditors, other than a meeting under Pt X, was regulated by r 96 of the Bankruptcy Rules, sub-r (1), (2) and (3) of which were identical to the corresponding sub-sections of s 202 which we have just quoted. 50 In Re Nelson (1963) 19 ABC 172, Paine J, at 175, considered that s 160 of the Bankruptcy Act 1924 which regulated meetings of creditors under what was then Pt XI of the Act dealing with schemes of arrangement pointed prima facie "to an assemblage of persons, presided over by one of them duly elected as chairman, and required to comply with certain definite standards before it can achieve validity for the object submitted for its consideration." After a careful review of the authorities, including those decided in the application of company law, his Honour concluded that a meeting attended only by a single proxy for three creditors was invalid. The effect of that judgment was not considered by the learned authors of McDonald Henry & Meek's Australian Bankruptcy Law and Practice, 4th ed. to be displaced by s 202(1) of the 1966 Act quoted above; see par 938 at p 437 of that work. 51 In the Explanatory Memorandum to the Bankruptcy Amendment Bill which became Act No 9 of 1992, the first and most relevant of the "key features" of the Bill was identified as being; "clarification and codification of procedures at meetings of creditors to ensure that creditors can make fully informed decisions about the course of administration of a bankruptcy;" 52 The note in the Explanatory Memorandum directed to the proposed s 64N was in these terms; "12.18 The trustee must then determine whether a quorum is present (proposed subsection 64N(1)). Where there is only one creditor who is entitled to vote, a quorum is constituted by that creditor participating in person, by telephone or by proxy or attorney and the presence in person of the trustee. In any other case, a quorum is constituted by 2 creditors entitled to vote participating in person or by telephone, or represented by a proxy or attorney (proposed subsection 64N(2)). Where a quorum is not present within 30 minutes after the time fixed for the meeting, the meeting is automatically adjourned to a time, date and place fixed by the trustee (proposed subsection 64N(3)). The adjourned meeting must take place not earlier than 7 days, nor later than 14 days from the date of the original meeting (proposed subsection 64N(4)). The time and place of the adjourned meeting need not be the same as the time and place set for the original meeting (proposed subsection 64N(5)). All the remaining proposed provisions of Division 5, namely proposed sections 64P to 64ZF inclusive, apply to and in relation to any meeting at which a quorum is present within 30 minutes after the time fixed for that meeting (proposed subsection 64N(6)). For the avoidance of doubt, it is specifically provided that a reference to the trustee being present in person includes a reference to the representative of the trustee, if such a representative has been appointed, being present in person at the meeting (proposed subsection 64N(7))." 53 The specific reference in the Explanatory Memorandum to proposed s 64ZA recited; "12.36 A person other than a creditor, or the proxy or attorney of a creditor, is not entitled to vote at a meeting of creditors (proposed subsection 64ZA(3)). A creditor means a creditor who, or whose proxy or attorney, participates in the meeting by person or by telephone (subsection 64ZA(2)). Each creditor is entitled to vote and has one vote in relation to any motion proposed at a meeting and any amendment proposed to a motion, and at an election for President (proposed subsections 64ZA(1) and (4)). If a creditor holds security in respect of a debt, the creditor is not entitled to vote, unless the debt or the total amount of the debts owed to the creditor exceeds the amount estimated by the creditor to be the value of the security (proposed subsection 64ZA(5)). A creditor who has not given the trustee a statement setting out the particulars of the creditor's debt is not entitled to vote (proposed subsection 64ZA(6)). A creditor is not disentitled from voting because he or she is President or minutes secretary (proposed subsection 64ZA(7)). 12.37 The trustee may determine any question that arises as to the entitlement of a person to vote (proposed subsection 64ZA(8)), and if the trustee needs time so to determine, the meeting is to be adjourned to such a time, date and place as the meeting resolves, being a date not later than 14 days after the date of the original meeting, so that the trustee can make the determination (proposed subsection 64ZA(9))." 54 We have been unable to discern in that preparatory material or elsewhere in the history of the relevant legislative provisions anything to suggest that Parliament intended that either the definition in s 63A of "creditors and their representatives" or the prescription in s 64ZA of entitlement to vote at meetings of creditors, alone or in combination, should displace the principle discussed above. That principle, which we consider to be reaffirmed in s 64N(2), is that where there are two or more creditors entitled, independently of s 64ZA or its predecessors, to vote, a quorum may not be constituted by only one such creditor or his or her proxy or attorney. 55 In the light of the legislative history which we have recounted, and especially in the face of the intractable language of s 64N(2), we are compelled to conclude that the so called meetings of 17 and 30 November 2000 were no less ineffectual than that considered in Re London Flats (supra). We note that in Re Foster; Ex parte Foster v Duus (1994) 49 FCR 309, Einfeld J entertained no doubt about the effect to be given to s 64N(2). His Honour there said, at 311; "The Bankruptcy Act 1966 (Cth) provides in s 64N(2) that where there is more than one creditor entitled to vote, a quorum is constituted: "… by two persons participating in person or by telephone each of whom is either a creditor who is entitled to vote or the proxy or attorney of such a creditor." That provision makes it perfectly clear that in order for the chair to determine whether a quorum is present, there must be present two persons, either in person, by telephone or by proxy, each of whom is a creditor." 56 Given the conclusion at which we have arrived, it is unnecessary to consider whether, had at least one other creditor been present or represented at the "meetings" of 17 and 30 November 2000, the appellant should have been regarded as entitled to vote in the face of s 64ZA(6). We have, accordingly, reached the same result, although by a different route, as the learned primary Judge. The appeal must therefore be dismissed with costs. I certify that the preceding fifty-six (56) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Ryan and the Honourable Justice Conti. Associate: Dated: 20 March 2002 IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N1317 OF 2001 ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA BETWEEN: VAN TRI HUYNH Appellant AND: SCOTT DARREN PASCOE Respondent JUDGES: RYAN, CARR & CONTI JJ DATE: 20 MARCH 2002 PLACE: SYDNEY REASONS FOR JUDGMENT CARR J: 57 The factual and procedural background of this appeal and the relevant statutory framework are contained in the reasons for judgment of Ryan and Conti JJ. I agree that the appeal should be dismissed, but, unfortunately, I differ from their Honours in the construction which they place on s 64N(2) of the Bankruptcy Act 1966 (Cth) ("the Act"). 58 First, I must record my respectful agreement with their Honours' view (expressed in paragraph [43] of their reasons) that the compound expression "creditors and their representatives" in s 63A of the Act is not definitive of the expression "creditor who is entitled to vote" in s 64N(2). 59 In my view, s 64N(2) is a drafting mechanism designed to make it clear that there may be a quorum at a meeting of creditors even if there is only one creditor who is entitled to vote who (or whose proxy) is physically present or participates by telephone. Provided that the trustee is also present in person or by his appointed representative (see s 63B(2) and s 64N(7)), there is a quorum. Alternatively, if there are two persons who (or whose proxy) are physically present or participate by telephone, they constitute a quorum without the need to count the trustee for that purpose. 60 As I see it, the relevant sections of Subdivision D of Division 5 of Part IV work as follows. Section 64K provides that the trustee is to preside at the meeting of creditors until a person is appointed to preside under s 64P. Section 64K also deals with non-contentious matters such as opening the meeting, announcing whether the bankrupt is present or not, circulating the attendance record and entering the relevant particulars into that record. The next item of business is dealt with by s 64L, namely the appointment of a minutes secretary. The trustee is required to invite "the creditors and their representatives" (which in my view, is defined in s 63A) to propose a motion appointing a minutes secretary. It is not necessary for me to consider whether such a motion falls within s 64ZA(1)(b). 61 The trustee is then obliged, by s 64M, to announce the names of creditors whose proxies or attorneys are participating in person or by telephone and the names of such proxies and attorneys. He must also circulate the instruments appointing proxies and the powers of attorney (or copies of the powers of attorney) for inspection by those present at the meeting. 62 The trustee is then required, by s 64N, to determine whether a quorum is present at the meeting. That must, in my view, involve an assessment of whether sufficient duly qualified persons are participating in person or by telephone to conduct the business proposed ie to elect a president and pass any motions. In my opinion, to carry out that assessment the trustee must look to s 64ZA to determine who is entitled to vote at the meeting. Section 64ZA(1) provides that the section applies to voting at an election of a person to preside at a meeting (the very next item on the agenda – see s 64P) and on any motion or amendment to such motion proposed at the meeting. Section 64ZA(2) defines what the word "creditor" means in that section ie a creditor who, or whose proxy or attorney, participates in the meeting in person or by telephone. Participating in person means being physically present at the meeting – see s 63A(2). Section 64ZA(3), presumably as a matter of abundant caution, provides that a person other than a creditor is not entitled to vote. Section 64ZA(4) provides that, subject to subsections 5 and 6, each creditor is entitled to vote and has one vote. The remaining subsections further qualify a creditor's entitlement to vote at the meeting. It is for the trustee to determine any question that arises as to the entitlement of a person to vote (and if he needs time to do this, he may adjourn the meeting (see s 64ZA(8) and (9)). The first occasion upon which he has to determine that question is likely to be when determining whether there is a quorum. 63 I derive some comfort from my impression that my analysis of how these sections work coincides with what is contained in paragraphs 12.18, 12.36 and 12.37 of the Explanatory Memorandum to the Bankruptcy Amendment Bill, which became Act No 9 of 1992. Those paragraphs are set out in [51] to [53] of Ryan and Conti JJ's judgment. 64 While I agree with the learned primary judge that one has regard to s 64ZA to decide whether a person is a "creditor who is entitled to vote" within the meaning of s 64N(2), I disagree respectfully with her conclusion that that question is to be determined by reference to the total body of creditors of the relevant estate, and not by reference only to those present at the meeting. That is because, in my view, a "creditor" does not fall within the entitlement to vote conferred by s 64ZA(4) unless he (or his proxy or attorney) participates in (is physically present at) the meeting in person or by telephone (s 64ZA(2)). 65 It thus becomes necessary for me to consider whether the appellant was entitled to vote at the adjourned meeting. 66 It is convenient to set out s 64ZA(6) again. It provides: "(6) A creditor who has failed to give to the trustee a statement in accordance with section 64D is not entitled to vote." 67 In Re Burton (1994) 122 ALR 399, Davies J, in an ex tempore decision, rejected a submission that proofs of debt were not statements for the purpose of s 64D. That was one of the two issues in that case. His Honour, in so holding, said at [401]: "… in my opinion s 64D does not require any matter of technicality. It simply requires that there be a written statement given to the trustee before or at the meeting of the amount in respect of which the creditor claims that the bankrupt is indebted. The proofs of debt which were lodged satisfied that description and, in my opinion, it follows that the creditors who were admitted to vote were not disentitled for reason of non-compliance with s 64ZA(6)." 68 In that case the notice of meeting complied with s 64D by stating that each creditor had to give to the trustee the written statement described in that section. His Honour did not have to consider what consequences might flow from a meeting convened by a notice which did not comply with s 64D. 69 In my view, it would not be consonant with the purpose of the Act to regard either the notice convening the meeting or the meeting itself to be invalid by reason of the respondent's failure to comply with s 64D: Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 at [93]. 70 Nor, in my view, would the purposes of the Act be served by a construction of s 64ZA(6) which had the result, in circumstances where s 64D was not complied with and thereby a creditor did not give to the trustee a written statement of debt contemplated by that section, that the creditor was disentitled from voting. I acknowledge that the word "fail" may mean simply not to do something, but, in the present context, I think that it was Parliament's intention that the word "failed" in the subsection meant omitting to give the trustee a statement after being given a notice which complied with s 64D duly requiring such a statement. 71 Accordingly, on the facts of this matter I consider that the appellant was entitled to vote at the adjourned meeting. As the appellant and the trustee were physically present at the meeting there was, in my view, a quorum. 72 I would distinguish Re Foster (1994) 49 FCR 309 on the basis that at the relevant meeting in that case there were at least two creditors entitled to vote. Einfeld J was thus concerned with s 64N(2)(b), not s 64N(2)(a) with which we are concerned in this matter. 73 In those circumstances, it is not necessary to consider whether we would be entitled to review her Honour's finding that the appellant did not furnish the respondent with a duly completed proof of debt before the adjourned meeting. 74 I now turn to consider what course this Court should take in all the circumstances. Her Honour was exercising a discretion under s 178 when she decided not to make an order removing the respondent as trustee of the bankrupt's estate. Her Honour was well aware of the respondent's failure to comply at all with the requirements of s 64D. Her Honour also took into account other irregularities on the respondent's part. The only respect in which I would differ with her Honour is in relation to the question whether the appellant was entitled to vote at the meeting and thereby he and the trustee constituted a quorum. The very fact that judges might differ on such a point serves to illustrate the nature of what I consider to be the respondent's innocent, but mistaken, view of the law. As her Honour noted (at [34] of her reasons) it was not suggested that the respondent was motivated by self interest or any other improper factor. 75 There were three factors which led her Honour to refuse to make the order sought by the appellant. The first was her assessment that the irregularities in the respondent's management of the bankrupt's estate (which her Honour identified) did not reflect more than the failure on his part to pay careful attention to the requirements of Part IV of the Act. 76 Secondly, her Honour was influenced by the fact that another creditor had lodged a proof of debt with the respondent. 77 Her Honour dealt with the third factor, at [36] of her reasons for judgment, as follows: "Perhaps most significantly, the applicant has failed to establish a matter of fact at the heart of his complaint against the respondent. Namely, that at one or other or both of the meetings of 17 November and 30 November 2000 a quorum was present. That is, he has failed to establish that had these meetings, or one of them, been conducted as required by the Act, a motion would have been carried for the removal of trustee as trustee of the bankrupt's estate." 78 If my construction of ss 64N(2)(a) and 64ZA(6) is correct and the trustee had applied those provisions in accordance with my construction, then the appellant might well have achieved the removal of the respondent as trustee of the bankrupt's estate. 79 It would seem that the appellant had, and still has, a particular interest in having the respondent removed as trustee. But, in my view, the fact that the respondent made an incorrect determination under s 64ZA(8) about the appellant's entitlement to vote, even when coupled with the other irregularities, would not warrant the removal of the respondent as trustee, in the absence of any evidence that he was motivated by self interest or any other improper purpose. 80 Accordingly, while I consider that, with respect, her Honour misconstrued s 64ZA and that that circumstance would entitle us, under the principles explained in House v The King (1936) 55 CLR 499 at 504-505, to exercise our own discretion in substitution, I do not think that it would be appropriate to do so. My principal reasons for that view are the absence of any improper conduct on the part of the respondent and the fact that the creditors may, if they consider it to be in their interests, convene a meeting and remove the respondent as trustee. I can see no persuasive reason, in the absence of the creditors generally being so minded, for the Court to take such a step. 81 For the foregoing reasons I would dismiss the appeal with costs. I certify that the preceding twenty-five (25) numbered paragraphs are a true copy of the Reasons for Judgment of Justice Carr. Associate: Dated: 20 March 2002 Mr P L Dodson Counsel for the Appellant: Solicitor for the Appellant: MacLarens Counsel for the Respondent: Mr C R C Newlinds Solicitor for the Respondent: Kemp Strang Date of Hearing: 26 February 2002 Date of Judgment: 20 March 2002