Young v Thomson (formerly trustee of the property of Young) [2017] FCAFC 140

FEDERAL COURT OF AUSTRALIA

Young v Thomson (formerly trustee of the property of Young) [2017] FCAFC 140 Appeal from: Young v Thomson (Trustee), in the matter of Young (Bankrupt) (No 2) [2017] FCA 8

File number: NSD 22 of 2017

Judges: SIOPIS, RARES AND FLICK JJ

Date of judgment: 1 September 2017

Catchwords: BANKRUPTCY – Bankruptcy Act 1966 (Cth) – application under s 178(1) by creditor against decision of primary judge dismissing application to set aside litigation funding agreement entered into by trustee of bankrupt's estate, and for inquiry under s 179 into conduct of trustee – whether primary judge erred in exercise of discretion under s 178(1) to refuse to set aside funding agreement – where trustee considered she had "carte blanche" to enter into funding agreement regardless of creditors' position – where major creditor adversely affected by entry into funding agreement – where many valuable assets of estate all burdened by funding agreement to pay funder 35% of all recoveries – where funder agreeing to fund only some but not all expected costs of recovery actions but entitled to recoup outlays and 35% of all net proceeds recovered BANKRUPTCY – Bankruptcy Act 1966 (Cth) – whether primary judge erred in exercise of discretion when considering what order was "just and equitable" under s 178(1) – where primary judge required applicant to establish preferable course of conduct in the circumstances – where primary judge failed to consider additional fact arising after trustee's decision that valuable asset of estate would soon be realised – where proceeds of sale of asset would make funding agreement unnecessary – where funder on notice of application under s 178(1) to set aside funding agreement before it provided finance – where applicant creditor undertakes to repay funder all its outlays with interest if funding agreement set aside TRUSTS AND TRUSTEES – Bankruptcy Act 1966 (Cth) – statutory and fiduciary duties of trustee – whether trustee disclosed information about administration of estate to creditors under s 19(1)(d) – where trustee supinely negligent in performance of duties – where trustee did not disclose to creditors proceeding with imminent hearing date and estate exposed to risk of adverse costs order connected to her decision to enter funding agreement – whether trustee administered estate as efficiently as possible by avoiding unnecessary expense under s 19(1)(j) – where trustee involved in multiple litigations and incurred substantial legal fees without receiving approval from creditors or seeking directions or advice from the Court – where trustee had insufficient knowledge of position of estate and issues in ongoing litigation – where trustee's reports to creditors gave little information about ongoing litigation – whether trustee gave adequate notice to creditors of intention to enter into funding agreement – whether trustee exercised her functions in a commercially sound way under s 19(1)(k) – where funding agreement entitled funder to agreed fee of 35% of the net proceeds recovered using funding – whether trustee breached duty to take informed view in deciding to enter into funding agreement – where trustee in conflict of interest and duty at time of entering into funding agreement ADMINISTRATIVE LAW – procedural fairness – where ground of appeal that trustee denied creditor procedural fairness – whether principles of judicial review of administrative decisions apply to review of trustee's conduct under s 178 of Bankruptcy Act 1966 (Cth)