CATCHWORDS Bankruptcy - Application for inquiry into conduct of trustee - Application for order cancelling respondent's registration as trustee - Whether Court should determine as preliminary question whether it is appropriate to hold an inquiry at all - Principles to be applied by Court in exercising discretion to order inquiry - Court not required to order inquiry unless satisfied sufficient grounds made out - Appropriate in circumstances to hold prelim- inary inquiry. Bankruptcy Act, 1966 ss. 155, 179 and 212B BRIAN MUIR, REGISTRAR IN BANKRUPTCY v. DAVID GEOFFREY BRADLEY No. T886 Beaumont, J. Sydney 16 November, 1983 IN THE FEDERAL COURT OF AUSTRALIA GENERAL DIVISION BANKRUPTCY DISTRICT OF THE STATE OF NEW SOUTH WALES AND THE ee ee ee AUSTRALIAN CAPITAL TERRITORY No. T886 BETWEEN : BRIAN MUIR, REGISTRAR IN BANKRUPTCY Applicant AND: DAVID GEOFFREY BRADLEY . Respondent ORDER Judge making order: Beaumont, J. Date order made: 16 November, 1983. Where made: Sydney THE COURT ORDERS THAT: 1. Further directions in the matter be fixed for Friday, 18 November, 1983 at 9.30 a.m. 2. Costs reserved. GENERAL DIVISION IN THE FEDERAL COURT OF AUSTRALIA BANKRUPTCY DISTRICT OF THE STATE OF NEW SOUTH WALES AND THE wwe www SS SS AUSTRALIAN CAPITAL TERRITORY No. T886 BETWEEN: BRIAN MUIR, REGISTRAR IN BANKRUPTCY Applicant AND: DAVID GEOFFREY BRADLEY Respondent CORAM : Beaumont, J. DATED: 16 November, 1983. REASONS FOR JUDGMENT By his application filed on 22 September, 1983, the Registrar in Bankruptcy seeks first, an order that the Court inquire into the conduct of the respondent as trustee of certain estates; and secondly, an order that the respondent's registration as a person qualified to act as trustee be cancelled. The application is made pursuant to ss.179 and/or 212B of the Bankruptcy Act, 1966 ("the Act") in the former case, and pursuant to s.155 of the Act in the latter case. 2. In support of his application, the Registrar has sworn an affidavit which describes the history of the administration of some forty two estates of which the respondent is trustee. The Registrar's case, broadly stated, is that the respondent has failed to act in the administration of those estates with due diligence; in a number of cases, it is alleged that the respondent has failed to substantiate the basis of his remuneration, but no allegations of financial dishonesty are made against him. In essence, the case sought to be made against the respondent is that he has failed to file on due dates, or in some instances, at all,-returns and accounts required to be filed by the rules and that he has also failed to answer correspondence of the Registrar in connection with the administration of certain estates. The respondent has sought and been supplied with, further and better particulars of the charges made against him. A preliminary point has been raised by the respondent that the matter should not proceed further until the Court first determines whether it is appropriate to hold an inquiry at all. It is said that so much was decided by Riley, J. in Re Alafaci; Registrar in Bankruptc Vv. Hardwick (1976) 9A.L.R. 262 and by Ellicott, J. in Re Gault; Gault v. Law (1981) 57 F.L.R. 165. In Alafaci, Riley, J. said (at p.267): "There remains the submission that s 179 demands an 'inquiry', and that in the present case no 'inquiry' has been held. Where the Registrar (or any other person entitled by s 179) wishes to proceed under s 179 he should make application (1) for an order that an inquiry be made by the court into the conduct of the trustee in relation to the bankruptcy, and (2) for such other specified order or orders as he thinks it proper to seek. Rule 102 of the Bankruptcy Rules requires that he shall file an application in accordance with Form 45 in the First Schedule to those Rules. Rule 103(1) requires that he shall state an an affidavit filed in support of his application the grounds on which the court will be asked to make the orders specified in the application and the facts on which he proposes to rely in support of (the application. The application and the affidavit 1n support must be served on the trustee: Cock v Howden (1915) 20 CLR 552. If the trustee wishes to oppose the application r 106 requires him to file and serve a notice 1n accordance with Form 46 setting out the grounds of his opposition and an affidavit setting out any facts on which he intends to rely and which were not set out in the affidavit filed by the applicant. Before the application is heard, therefore, the trustee will know the grounds on which the court will be asked, inter alia, to inquire into his conduct and the facts on which the Registrar proposes to rely in support of his application that the court do so inquire. I do not wish to be taken as presuming to lay down any rule as to the procedure to be followed in, or the approach to be made by the court to, a case of this sort; but it seems to me that in such a case there 1s a preliminary question to be decided by the court -- namely on the grounds and facts before it, has a case been made for inquiry into the trustee's conduct? If the answer to that question is 'yes', the next question is -- what is to be the scope of the inquiry? It may be 4. that the material already before the court sufficiently defines the scope of the inquiry; on the other hand, the court may find it necessary to define the subjects for inquiry -- eg in the form: 'Did the trustee do (or fail to do) so and so?' -- and to give directions before proceeding to inquire. In any event, the court will seek to inquire into specific matters, and to ensure that the trustee is given proper opportunity to prepare and present his case on those matters. If in the course of inquiry into those matters it emerges that there are other aspects of the trustee's conduct in relation to the bankruptcy into which the court, as the authority having control over trustees, should inquire, the court will safeguard the interests of the trustee as may be necessary by such means as the granting of adjournments and the giving of directions. It will act similarly as may be necessary when the inquiry is completed and the question then arises of what order or orders, if any, should be made under s 179(1)(a) and (b)." In Gault, Ellicott, J. expressed his agreement with this passage (at p.172) and concluded (at p.173): "It was with his Honour's comments in mind that I required the applicant to give particulars of the misconduct he relied on to found his application. The court has a broad discretion in deciding whether to order an inquiry. In my opinion it is not required to order an inguiry unless it is satisfied that sufficient grounds have been made out. For instance, the court should be loath to order an inquiry unless it considers that on the evidence before it there are substantial grounds for believing that the trustee erred in his administration. If the court considers that an inquiry is unlikely to reveal misconduct it 5. should not make an order and put the respondent and possibly the creditors to the expense and trouble involved. It should also be borne in mind that a debtor applicant may have other remedies to pursue, for example, in an action for breach of trust." Accepting, as I do, the correctness of the approach taken by Riley, J. and Ellicott, J., it is clear that their Honours were not laying down any inflexible rule of universal application: on the contrary, Riley, J. made it clear that he was addressing his mind to the position in a general way only; and clearly exceptions would need to be made if the particular circumstances of the case so required. In the present case, it has emerged from the course of argument that there will be little, if any, dispute as to the primary facts of the case. The respondent's case will consist, in the main, of argument on a number of questions of law together with evidence by way of mitigation. But it is his wish, at this stage, to argue that no sufficient grounds have been established for the holding of an inquiry into his conduct. The Registrar, on the other hand, submits that it is inappropriate that any such preliminary inquiry should be held and that the matter should now go forward to a final hearing. 6. In my opinion, the balance of convenience in this case indicates that a preliminary inquiry of the type urged by the respondent is the appropriate course to be adopted provided that, in the event that the matter goes forward to an inguiry on a final hearing, the evidence taken and submissions made in the preliminary inquiry are to be regarded as evidence and submissions in the final inquiry: in other words, the preliminary inquiry should be treated as part of the final inquiry. It is as 1f the respondent were to move for the dismissal of the proceedings as an abuse of process and then to fail in that application, in which event the material before the Court in the summary application is to be treated as part of the material before the Court upon the final hearing of the proceeding. I was informed in argument that the respondent did not object to the matter proceeding in this way. Given this modification of the procedure, it seems to me that the potentially unattractive aspects of the preliminary inquiry relied upon by the Registrar in the form of additional expense and the like, disappear. In effect, the position is no different to my being part heard in the final hearing and in this way, no costs will be thrown away. In this regard, I accept entirely the force of the submission put on behalf of the Registrar that, generally speaking, the discretion of the Court should be exercised so as to avoid, if possible, the prospect of the 7. parties being put to the expense of two, disparate inquiries. I fix 9.30 a-m. on Friday, 18 November, 1983 for further directions in the matter. I reserve costs, i cerufy Sat this and the 6 preceding peges are a true copy of the reasons for judgment herein of The Honourable ice Beaumont. "Prana Che Mr Justice oe te Dated {G Novernter 182