% 354 Bankruptcy - application to review trustee's decision to reject proof of debt - observations concerning nature of application and hearing - whether demand arising by reason of a contract, promise or breach of trust - onus of proof - effect of conflict in affidavits filed by parties where no cross-examination. Bankruptcy Act 1966, Part X, 5.104 RE: ROBERT HENRY MASTERS - Debtor EX PARTE: ELIZABETH GEROVICH and HAZEL HENLEY - Applicants and BERNARD PUTNIN - Respondent No. 83 of 1982x TOOHEY d. PERTH 30 JULY 1985 co IN THE FEDERAL COURT OF AUSTRALIA GENERAL DIVISION BANKRUPICY DISTRICT OF THE STATE OF WESTERN AUSTRALIA No. 83 of 1982xK eww ewe RE: ROBERT HENRY MASTERS Debtor EX PARTE: ELI@ABETH GEROVICH and HAZEL HENLEY Applicants and BERNARD PUTNIN Respondent MINUTE OF ORDER JUDGE MAKING ORDER : Toohey J. DATE OF ORDER : 30 July 1985 WHERE MADE : Perth THE COURT ORDERS THAT: The application be dismissed. The applicants pay the respondent's costs of the application including any reserved costs. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules IN THE FEDERAL COURT OF AUSTRALIA GENERAL DIVISION BANKRUPTCY DISTRICT OF THE STATE OF WESTERN AUSTRALIA No. 83 of 1982X RE: ROBERT HENRY MASTERS Debtor EX PARTE: ELIZABETH GEROVICH and HAZEL HENLEY Applicants and BERNARD PUTNIN Respondent CORAM: TOOHEY J. 30 duly 1985 REASONS FOR JUDGMENT Mr. Masters, the debtor, has made an arrangement with his creditors under Part X of the Bankruptcy Act 1966. Mr. Putnin, the debtor's trustee, has rejected proofs of debt lodged by the applicants, Mrs. Gerovich and Mrs. Henley. This application seeks a review of the trustee's decision. Affidavits were sworn by Mrs. Gerovich and Mr. Masters. No application was made to cross examine either deponent and no oral evidence was adduced. I accept that an application under s.104 is by way of rehearing in the fullest sense and that it is for the Court to decide the matter on the material before it. See Re Hanifin; Ex parte Britcher (1955) 17 A.B.C. 24. Nevertheless, when affidavits reveal disputed questions of fact and the Court does not have the advantage of seeing and hearing witnesses in examination-in-chief and under cross-examination, the scope for reviewing the trustee's decision is limited. This is a matter to which I shall return later in these reasons. One proof of debt was for an amount of 416,000; the other was for an amount of 89,000. They related to different transactions, The applicants' claim for $16,000 is said to arise from a project initiated by Mr. Masters to redevelop land in Harbourne Street, Wembley which the applicants bought on his advice. Premises for medical practitioners were built on the land. For reasons that were not explained, the project was not successful and the applicants sold the land. In her affidavit, sworn 19 July 1985, Mrs. Gerovich deposed: "We have never had an accounting from Mr. Masters for the Wembley land. Because of his mismanagement we incurred debts of $16,000.00." In opening his clients' case, counsel for the applicants said that he did not intend to pursue the application in respect of the claim for $616,000 since it was an unliquidated claim. Section 82 of the Act, which is concerned with debts provable in bankruptcy, does not exclude all unliquidated claims. Sub-section 82(2) reads: "Demands in the nature of unliquidated damages arising otherwise than by reason of a contract, promise or breach of trust are not provable in bankruptcy." However, the trustee's decision to reject the proof of debt in respect of the $16,000 must be confirmed, simply because there is no hasis upon which it can he reversed. The claim for $16,000 is expressed in such vague terms and is so lacking in precision that it is not possible to characterize it as a claim arising hy reason of acontract, promise or breach of trust. Even if it were possible so to characterize the claim, there is no information which would enable the Court to conclude that the trustee erred in rejecting the proof of debt. Section 104 requires the Court, on application, to review a decision of a trustee hut it is for the alleged creditor to satisfy the Court that a decision rejecting a proof of debt should be reversed. The applicants have failed entirely in this regard. On the material available to the Court, it is not possible to say that the claim for $16,000 is a demand arising by reason of a contract, promise or breach of trust. The applicants claim to have incurred debts of $16,000 because of Mr. Master's "nismanagement" but, if they have such a claim, it may well be in negligence or otherwise in tort. And, as I said earlier, there is no information as to how the $16,000 is made up. The position in respect of the claim for $9,000 is somewhat different. The applicants' case, as appears from Mrs. Gerovich's affidavit, is as follows. They were interested in buying land in Beaufort Street, Inglewood and to this end paid a deposit of $9,000 to an estate agent. The sale fell through and the applicants received a cheque, made payable to Mrs. Henley, 4. from the agent in question. Mr. Masters offered ta sell the applicants a service station site in Dianella and to this end Mrs. Henley endorsed the cheque in his favour as a deposit on the purchase of that land. However Mr. Masters was unable to obtain title to the land and this sale also fell through. Mr. Masters agreed to return the deposit to the applicants but failed to do 5O. The applicants' case in this regard is quite straight forward but it is sharply disputed by Mr. Masters. In an affidavit sworn 24 July 1985, he deposed that the endorsed cheque was paid into the account of his firm R.H. Masters and Associates "on account of my fees and disbursments". The fees and disbursments in question related to the development of the Harbourne Street land. How does the Court determine the application in the light of this contentious issue which is at the very heart of the applicants' claim? Counsel for the applicants submitted that the Court must make a decision, however unsatisfactory and inadequate the materials made before it may be. This is mo doubt true but equally it is for an applicant to persuade the Court that a trustee's rejection of a proof of debt should be reversed. If an applicant fails to do this, the trustee's decision must be affirmed. As it is the applicant who claims to he a creditor of the debtor, this approach seems to me to be inevitable. On ordinary principles of evidence, ome who seeks the intervention of the Court to alter an existing situation, in this case the 5. rejection of a proof of debt. carries the burden of persuading the Court that it should intervene. On the affidavits themselves, I must conclude that the applicants have failed to satisfy the onus that they bear. Annexed to Mrs. Gerovich's affidavit is a copy of pleadings in an action in the District Court of Western Australia, brought by the applicants against the debtor to recover the sum of $9,000. It is unnecessary to refer to the contents of the statement of claim; they are consistent with the applicants' case as presented in Mrs. Gerovich's affidavit. The respondent's defence admits receipt of the 69,000 but denies that it was paid by way of deposit and says that it was the applicants' "contribution in a property development to be developed and managed by the Defendant". The defence then sets out in itemised form various costs incurred by Mr. Masters on behalf of the applicants, amounting in all to $9,824.73. Mr. Masters then claims to set off these expenses (and certain other damage said to have been suffered by him through the conduct of the applicants) against the amount claimed. Counsel for the applicants submitted that the defence failed to deny expressly the agreement to return the $9,000 pleaded in the statement of claim. That is true though it is perhaps explicable by the nature of the set off and counter claim pleaded. But, in his affidavit Mr. Masters expressly denied that "T ever agreed to return the money because the Applicants knew full well that the money was to be used in the development of the project at Harbourne Street". 6. Counsel for Mr. Masters submitted that, in the light of the dispute evident from the affidavits, this Court was obliged to leave the resolution of that dispute to the District Court. I do not accept this way of putting the matter. The question rather is whether the applicants have made out a case for the Court to reverse the decision of the trustee. If the facts necessary to Make out such a case are disputed by the debtor and there is no reason for preferring one affidavit to another and no other material on which the Court can conclude that the trustee erred in his rejection of the proof of debt, the situation is that the applicants have failed to satisfy the onus they bear. In my view the applicants have failed to satisfy the Court that it should reverse the decision of the trustee rejecting the proof of debt for $9,000. It follows that the application must be dismissed. I certify that this and the five preceding pages are a true copy of the Reasons for Judgment herein of his Honour Mr. Justice Toohey. Associate Dated: 30 July 1985