CATCHWORDS BANKRUPTCY - Application for orders in relation to conduct of trustee in administration of estate - claims by bankrupt against certain creditors and others for unascertained amounts - whether the unascertained amounts claimed should be set-off - whether causes of action should be assigned back to bankrupt by trustee Bankruptcy Act 1966 ss 86, 178 re Tyndall (1977) 30 FLR 6 Guy v McIntyre (1991) 171 CLR 609 re Capel; Ex parte Marac Finance Australia Ltd v Capel (1994) 48 FCR 195 JAMES GEORGE TURNER EX PARTE KEITH MULLEY NO TB 434 OF 1994 NORTHROP J HOBART 22 JUNE 1995 IN THE FEDERAL COURT OF AUSTRALIA EXERCISING FEDERAL JURISDICTION No TB 434 of 1994 IN BANKRUPTCY BANKRUPTCY DISTRICT OF THE STATE OF TASMANIA RE: JAMES GEORGE TURNER Applicant EX PARTE: KEITH MULLEY Respondent COURT: NORTHROP J PLACE: HOBART DATE: 22 JUNE 1995 REASONS FOR JUDGMENT There is an application before the Court brought by James George Turner, a bankrupt, in which Mr Turner is seeking orders under section 178 of the Bankruptcy Act 1966. That section provides as follows: "178. If the bankrupt, a creditor or any other person is affected by any act, omission or decision of a trustee, he may apply to the Court, and the Court may make such order in the matter as it thinks just and equitable." The nature and extent of the power conferred by that section was considered by Deane J in re Tyndall (1977) 30 FLR 6, and I refer in particular to what his Honour said at pages 9-10: "In my view, the wording of s.178 of the Act is such as to confer upon the court the widest possible discretion as to the appropriate order which should be made in the particular case and is quite inconsistent with the approach that, upon an application made pursuant to the section by a bankrupt, creditor or other person affected by an act, omission or decision of the trustee, the court is only empowered to interfere with the trustee's act, omission or decision if it is of the view that the trustee has acted absurdly or unreasonably or in bad faith. Once the matter is properly before the court, the court is, by the express words of s.178, empowered (and, as I have said, obliged) to make such order in the matter as it thinks just and equitable. This is not, of course, to say that the court should either disregard the relevant decision of the trustee or ignore the well established policy that bankruptcy legislation that the court should not unduly interfere with the day‑to‑day administration of a bankrupt's estate by a trustee. The trustee is made responsible for the administration of the bankrupt estate under the general provisions of the Act. He must, in the course of that administration, make a variety of decisions aimed at enabling the administration to be carried out with promptness and efficiency. Some of these decisions will be business or commercial decisions in which the business or commercial experience of a trustee would itself provide a basis for arguing that, unless it were shown that the trustee's decision was perverse or clearly wrong, it would be inappropriate and unjust for the court to interfere. Again, under the present legislation, the trustee will ordinarily be the official receiver and the court must be conscious of the fact that the official receiver will be made responsible for the administration of an extraordinarily large number of estates. In such circumstances, the administration of the Bankruptcy Act demands that the court take into account, in exercising its functions under the provisions of s.178 of the Act, the opinion of the official receiver, as trustee, as to what is expedient in the interests of the prompt and efficient administration of a particular bankrupt estate. That is, however, a completely different thing to saying that the court can only interfere with an act, omission or decision of the official receiver, as such trustee, when it is of the view that the official receiver has acted unreasonably, absurdly or in bad faith in so acting or failing to act or in reaching that decision." The extent of the power conferred by section 178 is referred to and acted upon by a Full Court of the Federal Court of Australia in the case of McGoldrick v Official Trustee in Bankruptcy (1993) 47 FCR 547. The application is brought by Mr Turner, who appears on his own behalf. It is fairly difficult to ascertain just what act or omission or decision of the trustee is sought to be reviewed under section 178 of the Act. The application seeks orders as follows: "(1)That an injunction be granted preventing the Official Trustee disposing of any assets of the applicant's bankrupt estate before: (a) a meeting of creditors is held; (b) the Official Trustee admits the applicant's counter‑claim set off against the petitioning creditor, Mr Mulley, his employers and other racing officials; (c) complete recovery of stolen, converted, rescued, removed property of the bankrupt's estate and; (2) such other orders as the Court deems fit." It should be noted that that application was dated 8 June 1995 and was filed on 8 June 1995. On 6 June, notice had been given of a meeting of creditors and that meeting was held on 15 June 1995. The meeting of creditors has been held. There is no basis for the first order sought by Mr Turner being granted. The second order is based upon the Official Trustee admitting the applicant's counter‑claim or set-off against Mr Mulley, his employers and other racing officials. This claim is based upon section 86 of the Bankruptcy Act, a section which gives rise to certain difficulties. Subsection 86(1) is set out: "86(1)Subject to this section, where there have been mutual credits, mutual debts or other mutual dealings between a person who has become a bankrupt and a person claiming to prove a debt in the bankruptcy: (a) an account shall be taken of what is due from the one party to the other in respect of those mutual dealings; (b) the sum due from the one party shall be set off against any sum due from the other party; and (c) only the balance of the account may be claimed in the bankruptcy, or is payable to the trustee in the bankruptcy, as the case may be." This is a case where the mutual debts are alleged to arise between a creditor of the bankrupt and the bankrupt. Section 86 is designed to ensure justice applying between those two persons on the basis that one does not get an unfair advantage over the other. The nature of the application and construction of section 86 is considered by the High Court in Guy v McIntyre (1991) 171 CLR 609, but there, at the relevant time, and assuming for present purposes that the composition entered into by the debtors had the effect of those debtors being treated as bankrupts for the purposes of the application of the relevant provisions of the Act, the actual amounts of the debts between the two competing parties, the creditor and the bankrupts, or debtors, had been ascertained. More recently, the application of section 86 of the Act has been considered by the Federal Court of Australia constituted by Drummond J in re Capel; Ex parte Marac Finance Australia Ltd v Capel (1994) 48 FCR 195. That case is of importance for the present purposes since it clarifies many of the difficulties arising from the judgments in Gye. But before coming back to that case I should turn to the material in support of the application. The material is contained in an affidavit of Mr Turner sworn 8 June 1995, a copy of the statement of affairs of Mr Turner, an affidavit of Brett Richard Geoffrey Harrison, the Official Receiver, and the exhibit to that affidavit, and the minutes of the creditors' meeting held on 15 June 1995. It is very difficult to ascertain precisely what is the claim being made by Mr Turner from this material, but it is said that it is set out in the statement of affairs under the heading "Court Actions Substantial Assets". These include claims against C.J. Whitford, Police and Others, Official Trustee, relating to matters which occurred during an earlier bankruptcy of Mr Turner which has been annulled and where a figure of $500,000 is set out as being the amount involved. It is certainly not a specified amount and has not been ascertained. There is a claim for possible damages, the basis of which does not appear from the material. There is also a claim against the Minister for Racing, Director of Racing, Tasmanian Racing Authority, Tasmanian Thoroughbred Racing Council, Dr G McLeod, Mr B. Taranto, Mr R.W. Taylor, Mr D. Wallace, Mr Rod Thurkle‑Johnston, Keith Mulley, Official Trustee, being 18 years' abuse of office, issue of bankruptcy notice when no entitlement, issue of bankruptcy notice for wrong amount, attempted garnishee of property of bankrupt estate, levying upon property of the bankrupt estate with Official Trustee's permission, the Federal Court having already found the insurer has a counter‑claim against the above, say, $1 million. It would appear that under the provisions of section 116 of the Bankruptcy Act any cause of action of this kind would vest in the Trustee in Bankruptcy by reason of the provisions of the Bankruptcy Act and in this regard any cause of action of the type suggested is not a claim coming within paragraph 116(2)(g) of the Act being a claim for recovery of damages or compensation for personal injury or wrong done to the bankrupt since it is not limited to the mind, body or character of the bankrupt. The first question that arises, I suppose, is whether it is an appropriate time to consider this matter now. There has been no final decision made as to what the trustee will do in relation to these claims. There is a possibility that he should assign the causes of action back to the bankrupt to enable the bankrupt to pursue the alleged actions in the appropriate court. This can be done under the general powers conferred upon the Trustee. It is a matter which has been directed by the meeting of creditors to be considered by the trustee. There is much to be said for such a course to be taken. Otherwise, the trustee, if he is required to pursue the claim could waste ‑ and I use the word "waste" intentionally ‑ large amounts of money in the bankrupt's estate pursuing what may well be a hopeless case at the expense of creditors generally without any real prospect of recovering anything at all. Involved in that is the possibility that the trustee would be compelled to sell a property at Glen Huon, apparently owned by the bankrupt but now vested in the trustee, a property which the bankrupt does not want to be sold. Insofar as any other assets are concerned, being livestock and so on, the position now is too late. They have in fact been sold and nothing further can be done about it. This type of problem was discussed by Drummond J in re Capel where his Honour expressed the opinion which, to my mind, is logical, that in cases of this kind it may well be the appropriate step for the trustee to transfer to the bankrupt the cause of action claimed by the bankrupt to enable the bankrupt to pursue that claim. In other words, what his Honour is saying is that where section 86 is to be applied, having regard to what the High Court said in the case of Gye, it is not the duty of the trustee to actually determine the amount in the mutual dealings of the set off and counter‑claim. This can be done by the bankrupt, in appropriate circumstances. In the final result any competing claims between the creditor and the bankrupt can be resolved once those amounts have been determined. Until then, the bankrupt should be liable for the expense of determining the actual amounts. In the present case, for argument's sake, the amount of the claim by Mr Turner is said to be $1 million or more. The amount of the debt claimed by the persons against whom the claim is being made is far, far less than that. If in due course the amounts claimed by Mr Turner are justified, the small amounts could well be lost in the overall outcome of that case. Though again it is all premature. There has been no decision made yet to assign these matters to Mr Turner. It may well be the practical answer for the trustee to adopt that course. It is a matter for the trustee to determine. Re Capel illustrates the ample powers conferred upon the trustee to do the type of thing which is suggested. As far as the sale of the land is concerned at Glen Huon, there has as yet been no decision made to do that. It may be necessary to sell it to enable the creditors to be paid out because the main duty of the trustee is to get in the property of the bankrupt, to administer the estate of the bankrupt, to determine the amount of the various debts to claiming creditors, to pay them out, to pay the costs of the trustee and to then give back to the bankrupt anything left in the estate. These matters are matters which should be done as expeditiously as possible and if, in due course, it is necessary for that land to be sold, it may have to be sold, and that is a matter for the discretion of the trustee. In the meantime, the trustee has to consider whether to assign these causes of action, if they can be identified, and this will depend upon Mr Turner giving sufficient identification of these causes of action to the trustee to enable the trustee to make a decision concerning them, to enable Mr Turner to pursue these claims and, in the meantime, the trustee to proceed with the administration of the estate. In all the circumstances the application by Mr Turner is refused and the application is dismissed. I order that the costs of the Official Trustee of Bankruptcy be taxed in accordance with the provisions of the Bankruptcy Act and paid out of the estate of the bankrupt. I certify that this and the preceding eight (8) pages are a true copy of the Reasons for Judgment of The Honourable Justice R.M. Northrop. Associate: Date: ATTACHMENT Applicant appeared in person and was not represented Counsel for the Respondent: Mr P. Wood Solicitor for the Respondent: Piggot, Wood and Barker Date of Hearing: 22 June 1995