CATCHWORDS BANKRUPTCY - Meetings of creditors - Eligibility for election to preside as chairman - Any person physically present at the meeting is eligible to preside. COSTS - Error of law in exercise of discretion - Whether appellant's costs should be costs in the administration of the bankrupt's estate - No order made as to costs. Bankruptcy Act 1966 (Cth) - ss 30, 63A(2), 64J(3), 64P(2), 196(1). Bankruptcy Rules 1968 (Cth) - r 85A. IVOR WORRELL v RONALD K CASH QG 148 of 1995 RYAN, FOSTER & SACKVILLE JJ. BRISBANE 8 NOVEMBER 1995 IN THE FEDERAL COURT OF AUSTRALIA ) ) QUEENSLAND DISTRICT REGISTRY ) QG 148 OF 1995 ) GENERAL DIVISION ) AN APPEAL from an order of a single judge of the court made on 7 September 1995 on an application made pursuant to section 30 of the Bankruptcy Act BETWEEN: IVOR WORRELL Appellant AND: RONALD K CASH Respondent CORAM: RYAN, FOSTER & SACKVILLE JJ PLACE: BRISBANE DATE: 8 NOVEMBER 1995 MINUTE OF ORDER THE COURT ORDERS: 1. That the appeal be dismissed. NOTE:Settlement and entry of orders is dealt with in O 36 of the Rules of the Federal Court of Australia. IN THE FEDERAL COURT OF AUSTRALIA ) ) QUEENSLAND DISTRICT REGISTRY ) QG 148 OF 1995 ) GENERAL DIVISION ) AN APPEAL from an order of a single judge of the court made on 7 September 1995 on an application made pursuant to section 30 of the Bankruptcy Act BETWEEN: IVOR WORRELL Appellant AND: RONALD K CASH Respondent CORAM: RYAN, FOSTER & SACKVILLE JJ PLACE: BRISBANE DATE: 8 NOVEMBER 1995 REASONS FOR JUDGMENT (Extempore) THE COURT: This is an appeal from an order of a single judge of the court made on 7 September 1995 on an application made pursuant to s 30 of the Bankruptcy Act 1966 (Cth) ("the Act") for certain declarations in respect of a meeting of creditors of Ronald Kevin Cash held on 18 July 1995. After refusing the debtor's application for those declarations which was made against Mr Worrell who had been elected chairman of the meeting, the learned primary judge made a sequestration order against the estate of the debtor. She declined to make any order for costs in favour of Mr Worrell and it is against that exercise of discretion that the present appeal is brought. Essentially, the debtor made two challenges to the conduct of the meeting of 18 July 1995. The first was that the present appellant, Mr Worrell, a registered trustee, should not have been elected chairman. The second challenge was that Mr Worrell had performed the functions of chairman with an apparent bias against acceptance of the debtor's proposal and had so conducted the meeting that the debtor had been denied an opportunity properly to present his proposal to the creditors. There was a finding at first instance, not disputed on appeal, that Mr Worrell had been present at the meeting solely as an observer on behalf of certain unnamed creditors. He held no proxy from any creditor. The question therefore arose whether he was entitled to be elected chairman pursuant to s 196(1) of the Act which provides: "The majority in number of the creditors present at the meeting in person, by attorney or by proxy shall elect a chairman to preside at the meeting." Her Honour held that the entitlement to be elected as chairman of the meeting was confined to creditors, their attorneys and proxies. She referred to s 64P(2) which finds its place in Division 5 Subdivision B of Part IV of the Act. That subdivision governs meetings of creditors of a bankrupt. Subsections (1) and (2) of s 64P provide: "(1)The trustee must: (a) invite the creditors and their representatives to nominate a person for election to preside at the meeting; or (b) if no person is so nominated - nominate a person for election to preside at the meeting. (2) Anyone participating in person in the meeting, whether or not a creditor or a proxy or attorney of a creditor, and including the trustee but not including the bankrupt, is eligible to be nominated for appointment, and may be elected, to preside at the meeting." The provisions of s 64P are made applicable to meetings of creditors under Part X of the Act by r.85A of the Bankruptcy Rules which provides: "The provisions of Division 5 of Part IV of the Act with respect to the holding and conduct of a meeting held under s 64 of the Act, apply, so far as they are capable of being applied, to the holding or conduct of a meeting held under Division 2 or Division 3 of Part X of the Act." After referring to s 64P(2) her Honour observed: "Without being referred to any discussion on sub-s (2) I would have thought that the participation there spoken of was referable to those persons entitled to take part by voting and, it would follow, to address the meeting though the chair namely, a creditor or a creditor's proxy or attorney. They are the same persons identified later in the sub-section after the words "whether or not". And it seems to me that it was sought by that phrase to confine the persons who are said to participate and are therefore eligible for nomination to those then described. It seemed a strange notion that anyone who happened in to the meeting might be eligible and it would be straining the meaning of "participation" to extend it to an onlooker. Counsel were unable to refer me to any authority on the point." Her Honour referred to the definition of "creditors and their representatives" in s 63A(1) saying: "This definition does say something about what is meant by `participation' and about those who are taken to participate in the manner referred to and supports the view that it relates to the exercise of voting and associated rights. There is no other provision to which I was referred which suggests that participation in a meeting refers to something other than the exercise of the right of voting. This would include associated rights with respect to motions enquiries and discussion, subject to regulation of the meeting. Similarly I was not referred to a provision which suggested that persons other than creditors, their proxies or attorneys are to be taken to participate in meetings of creditors." That passage suggests that, curiously, there was no reference in submissions below to s 63A(2) which defines participation in a meeting by stipulating: "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." In our view, that definition is critical for the purposes of s 64P(2) of the Act. Accordingly, anyone physically present at the meeting is eligible to be nominated for appointment as chairman, regardless of whether that person plays, or intends to play, an active part in the meeting. We adopt this view for four reasons. First, it accords with the clear language of s.63A(2). Secondly, the terms of s.64P(2) are consistent with any person physically present at the meeting being eligible to be nominated for appointment as chairman. Section 64P(2) provides that "anyone participating in person" is eligible for appointment: "... whether or not a creditor or a proxy or attorney of a creditor and including the trustee but not including the bankrupt". This language shows that the class of eligible appointees is broad and is not to be limited to any particular category of persons. Thirdly, there is no reason in policy or principle to exclude from s.64P(2) those who are merely observers or in attendance for the purpose of being nominated to chair the meeting. There might be very good reasons why creditors should wish to appoint an "outsider" to chair the meeting. The chairman's role might be considered particularly demanding and a person with the relevant skills or qualities of perceived independence might not be available from among the creditors, their proxies or attorneys. Fourthly, the definition in s.63A(2) applies not only to s.64P(2), but to s.64L(2), which is in identical terms except that it provides for eligibility to be appointed as minutes secretary. There is no obvious reason why any person physically present at the meeting, who is thought by those present to be competent to act as minutes secretary, should not be eligible for appointment. Of course, if a person physically present at the meeting is unsuitable for appointment, the creditors or their representatives need neither nominate nor vote for that person. Mr Hack of Counsel for the respondent contended that s.63A(2) is merely intended to distinguish between "participants" who are physically present at the meeting and those who are not. He pointed out that the Act contemplates, for example, that creditors (or their proxies or attorneys) can participate in a meeting by telephone: see, for instance, ss.64H, 64K(5). But s.63A(2) does not say that a reference to "a person participating in person in a meeting" is a reference to "a person participating in the meeting who is physically present at the meeting". It simply says that "a reference to a person participating in person at a meeting is a reference to a person being physically present at the meeting". Had it been intended to achieve the result for which Mr Hack contended, it would have been very easy to say so. Mr Hack also relied on s 64J(3) of the Act, which provides as follows: "The attendance record must also include provision for recording whether the bankrupt is present and the names of any other persons present who are not creditors or proxies or attorneys of creditors, including provision for recording the capacity in which those other persons are present." However, a person may be present at a meeting in a "capacity" as observer or as a person requested to attend by a creditor. There is no reason why that capacity cannot be recorded, as required by s 64J(3). In the absence of a specific statutory entitlement to attend and participate at the meeting (as is conferred by s 12(4) on the Inspector-General), an observer's continued presence at the meeting may depend on whether the meeting resolves to exclude him or her. Be that as it may, there is nothing in s 64J(3) which supports the construction of s 64P(2) for which Mr Hack contended. For these reasons we have been led to conclude that the learned primary judge erred in concluding that Mr Worrell was not entitled to be elected chairman of the meeting. That conclusion clearly weighed with her Honour in the exercise of her discretion in relation to costs. It was said in the concluding paragraph of the reasons for judgment: "I do not propose to grant either Mr Worrell or the debtor their costs of this application. Both were in error and this application should not have been brought. I would be inclined to allow the partitioning creditor's costs of it if it was not one of the creditors for whom Mr Worrell acted at the meeting. I shall, however, at the conclusion of my reasons hear counsel further as to the question of costs. There is no basis then for an adjournment of the petition of the creditor, Tilemakers Australia Proprietary Limited. In these circumstances, the debtor does not offer submissions. I am satisfied that a sequestration order ought to be made." We accept therefore, in the light of the error of construction which we have imputed to the learned primary judge, that it falls to this court to exercise the discretion as to costs for itself. There was further discussion about costs at first instance, after pronouncement of the reasons just quoted, but nothing was put to show why a second set of costs should be allowed to Mr Worrell out of the estate of the bankrupt. It is significant that in an affidavit filed in opposition to the debtor's application in respect of the conduct of the meeting, Mr Worrell deposed in paragraph 45: "I seek the following orders: (a) the application be dismissed; and (b) that my costs of and incidental to this application, on a solicitor and own client basis, be paid by Frederick Walton Lippiatt." Mr Lippiatt, we interpolate, was the solicitor for the debtor. That application was apparently not pursued before her Honour and reference to it was expressly struck out of the grounds appended to the notice of appeal before this court. A respondent to an application by an insolvent or bankrupt attracts peculiar risks as to costs. In the present case it has not been demonstrated that Mr Worrell took any steps to minimise those risks, as, for example, by enquiring whether he could have been represented by the same counsel and solicitors as the petitioning creditor. We have assumed, contrary to Mr Hack's argument, that s 109 permits us to make the order sought by the appellant. However, in the circumstances, we are not disposed to burden the general body of creditors with another set of costs for the benefit of Mr Worrell. At the commencement of the hearing, we were told by Mr Callinan QC who appeared with Mr Martin for the appellant that the point which we have resolved about the entitlement of mere observers to be elected to chair meetings of creditors is of importance to registered trustees and the accounting profession in general. The appellant, having made good his contentions on that point, we consider, should be satisfied with that result and we are not disposed to make any order as to the costs of the appeal. Accordingly, the only order of the court is that the appeal be dismissed. I certify that this and the preceding eight (8) pages are a true copy of the reasons for judgment herein of the Court. Associate: Date: 8 NOVEMBER 1995 A P P E A R A N C E S COUNSEL FOR THE APPLICANT: MR I D F CALLINAN QC WITH MR M MARTIN INSTRUCTED BY: BAKER JOHNSON COUNSEL FOR THE RESPONDENT: MR P E HACK INSTRUCTED BY: LIPPIATT & CO DATE OF HEARING: 8 NOVEMBER 1995 DATE OF JUDGMENT: 8 NOVEMBER 1995