Re Yan, Mei Mei (aka Quinne Wong); & Ex Parte Deputy Commissioner of Taxation [1998] FCA 274

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY NG 7468 of 1997

RE: mei mei yan (aka quinnie wong)

Debtor

EX PARTE: deputy commissioner of taxation

Petitioner

JUDGE: EMMETT J

DATE OF ORDER: 17 MARCH 1998

WHERE MADE: SYDNEY

THE COURT ORDERS THAT: 1. The Official Trustee in Bankruptcy pay all outstanding reasonable legal fees in proceedings NG 7468 of 1997, in proceedings before the Administrative Appeals Tribunal NT 96/82/86 and in criminal proceedings concerning the debtor incurred by the debtor between 25 June 1997 and 17 December 1997 inclusive in respect of which evidence has been filed in these proceedings; 2. The notice of motion of the creditor and the amended notice of motion of the debtor each filed 17 March 1998 be otherwise dismissed; 3. Each party pay its own costs. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY NG 7468 of 1997

RE: mei mei yan (aka quinnie wong)

Debtor

EX PARTE: deputy commissioner of taxation

Petitioner

JUDGE: EMMETT J

DATE: 17 MARCH 1998

PLACE: SYDNEY

EX TEMPORE REASONS FOR JUDGMENT HIS HONOUR: I have before me two motions seeking to vary orders made by Einfeld J in June 1997. In order to understand the issues, it is necessary to consider the background to the proceedings. On 30 April 1996, judgment was entered in the Supreme Court of New South Wales against Mei Mei Yan, also known as Quinnie Wong, in favour of the Deputy Commissioner of Taxation ("the Commissioner"). The judgment debtor was ordered to pay to the Commissioner the sum of $1,120,396.83 and $485 in costs. The judgment was in respect of income tax and additional tax for the income years 1990 to 1994 inclusive and provisional tax and additional tax in respect of the 1995 income year. A bankruptcy notice was served but was not complied with. As a consequence, an act of bankruptcy was committed on 24 December 1996. The Commissioner then filed a creditor's petition on 24 April 1997 and the petition was served on the debtor on 5 May 1997. On 29 May 1997, the hearing of the creditor's petition was adjourned, by consent, to 20 November 1997 pending the outcome of an application for review lodged by the judgment debtor in the Administrative Appeals Tribunal in respect of the assessments upon which the judgment was based. On the same day the debtor was charged with being a party to one or more non-reportable transactions, being 177 deposits of less than $10,000 which were transferred from various banks in Sydney to various accounts with the Hang Seng Bank in Hong Kong. The allegation was that those transfers were for the sole or dominant purpose of ensuring, or attempting to ensure, that the currency involved in the transaction was transferred in a manner and form which would not give rise to significant transactions within the meaning of the Financial Transaction Reports Act 1988 (Cth). The Administrative Appeals Tribunal proceedings have since been adjourned indefinitely pending the resolution of the criminal proceedings. On 19 June 1997 the Commissioner filed an application to appoint a receiver in respect of the property of the judgment debtor before sequestration. On that day, Einfeld J made orders, pursuant to section 50 of the Bankruptcy Act 1966 (Cth), that the Official Trustee in Bankruptcy take control of the property of the judgment debtor and that he open an account in the joint names of the judgment debtor and the Official Trustee and arrange that monies may only be withdrawn from that bank account upon the authority of the Official Trustee. There was also an order that the judgment debtor transfer or facilitate the transfer of all monies held by her or on her behalf into that account. Einfeld J also made an order in the following terms: 6. The Official Trustee in Bankruptcy be authorised to make payment out of the said account of such reasonable living expenses of the judgment debtor as said Trustee shall approve. On 25 June 1997, further orders were made by Einfeld J by consent, including the following three orders: 4. The amount of $29,131.85 be retained in the trust account of Mark Solomon & Associates exclusively to meet reasonable legal costs of the judgment debtor in respect of these and related proceedings but not to be so disbursed without the consent of the Official Trustee in Bankruptcy. 5. The amount of $910.00 be retained in the trust account of Potts Latimer exclusively to meet reasonable legal costs of the judgment debtor in respect of these and related proceedings but not to be so disbursed without the consent of the Official Trustee in Bankruptcy. 6. The Official Trustee in Bankruptcy be authorised to make payment out of the New Account to meet such reasonable legal costs of the judgment debtor as the said Trustee shall approve in relation to these proceedings and related proceedings. Substantial sums of money have been received by the Official Trustee from the proceeds of sale of a property of the judgment debtor at Kensington. Those monies have been paid into the account opened pursuant to the orders made by Einfeld J. On 1 August 1997, the Official Receiver wrote to Mark Solomon & Associates, who were acting for the judgment debtor, confirming that the Official Trustee was agreeable to amounts of $11,275 and $9154 being transferred from the trust account to pay accounts rendered of 17 and 18 July 1997. Those fees included attendance in relation to the criminal proceedings to which I have referred. On 21 August 1997, the Official Receiver wrote again to Mark Solomon & Associates confirming the consent of the Official Trustee to payment of fees and costs of Messrs Potts Latimer with respect to the debtor's appeal to the Administrative Appeals Tribunal in the amount of $3,065. On 18 September 1997, a request was made for the payment of living expenses. Subsequent requests were made for the payment of further legal fees. On 4 November 1997, the Official Receiver wrote to Mark Solomon & Associates saying inter alia: ...at this juncture, the Official Trustee is only prepared to outlay total reasonable weekly living expenses of $643. As the debtor in receipt of social security benefits of $393.05/week, the Official Trustee is prepared to pay to the debtor a weekly amount of $249.95. With now 10 weeks arrears (including this week) the debtor is entitled to an amount of $2,499.50. I have enclosed a cheque in the amount of $2,499.50 and will issue your office with a weekly cheque in the amount of $249.95. In the light of the fact that your client has been without the benefit of these monies since the making of the orders of the Federal Court would you advise how the debtor has been able to service the expenses claimed by her in particular the raising of the rental bond. Again, complete supporting documentation is required to be provided. ............................................................................................................................. With respect to the payment of the debtor's reasonable legal costs my legal representatives will be in contact with you shortly in this regard. On the same day the solicitor for the Official Trustee wrote to Mark Solomon & Associates seeking further information regarding legal fees. Mark Solomon & Associates responded on 17 November 1997 furnishing further information. On 28 November 1997, Mark Solomon & Associates wrote again providing further information in relation to those fees. Finally, on 4 December 1997, Mark Solomon & Associates wrote again to the Official Trustee, enclosing a memorandum of fees and disbursements to 3 December 1997 and seeking consent to payment of that account from the balance of funds held in the trust account, which the letter said presently stood at $5,637.85. A request was made for a shortfall of $1,628.15 to be paid from the proceeds of the sale of the property at Kensington. On 17 December 1997, Potts Latimer, who were also acting for the judgment debtor, wrote to the Official Receiver referring to earlier discussions which had taken. The letter said, inter alia: We are instructed that in relation to living expenses your office to date has made only one payment of $2,499.50 on 4 November, 1997 (being 10 weeks in arrears) to the debtor and, despite an undertaking by the Official Trustee to pay a weekly cheque thereafter of $249.95, no further amounts have been paid. We believe that there can be no justification for the Official Trustee not making such a payment where such an amount has been settled upon by the Official Trustee as being a reasonable amount, even if there maybe a continuing dispute with the debtor as to the sufficiency of such an amount. To date the Official Trustee has also not paid any amount out of funds held by it for legal expenses in relation to these legal proceedings. This is despite the fact that all the queries raised by the Official Trustee in relation to those expenses, and requests for additional information, were promptly responded to by Mark Solomon & Associates. We now understand that in early December, 1997, for the first time, the Official Trustee indicated that no legal expenses would be paid pending directions from the Australian Government Solicitor. In relation to the payment of living expenses to the debtor would you please advise as to the following matters: 1. The justification for the failure of the Official Trustee to pay to the debtor any amount for further living expenses since 4 November, 1997; 2. Does the Official Trustee intend to pay the debtor any further living expenses?; 3. If the answer to 2 is NO, what is the basis for the Official Trustee refusing to pay further living expenses?; 4. If the Official Trustee does intend to pay the debtor further living expenses, whether the Official Trustee is prepare [sic] to give an undertaking to pay before the end of this week the arrears in payments (based on $249.95 per week) and to continue to make payments on a weekly basis of $249.95 per week for the future; 5. If the Official Trustee is refusing to pay any amount to the debtor at the direction of another person, please specify the person giving the direction and the content of the direction. In relation to the payments of legal expenses, would you please advise as to the following matters; 1. The justification for the failure of the Official Trustee to pay any legal expenses from funds of the debtor controlled by the Trustee; 2. Does the Official Trustee intend to pay any legal expenses?; 3. If the answer to 2 is NO, what is the basis of the Official Trustee refusing to pay any legal expenses?; 4. If the Official Trustee is refusing to pay the legal expenses to date on the basis that they are not reasonable, please specify the person giving the direction and the content of the direction. 5. If the Official Trustee is refusing to pay the legal expenses at the direction of another person, please specify the person giving the direction and the content of the direction. We consider that the course of action taken by the Official Trustee in relation to the non-payment of the living and legal expenses is in flagrant breach of the orders of the Federal Court. The Australian Government Solicitor responded to that letter on the same day, saying: I understand you were advised by the Official Receiver that I have instructions from the Australian Taxation Office (ATO) to seek to vary the relevant parts of the two orders of the Court of 19 and 25 June 1997 in relation to the payment out of legal and living expenses for monies held by the Official Receiver. Those particular orders were not opposed by the ATO at the time. It now appears that there was a misapprehension at the time we sought those orders as to the true facts, in particular as to the extent of monies available to Mrs Wong for her legal and living expenses. In addition, the consent to the orders as to legal expenses was predicated on the tax appeal in the AAT being resolved promptly, in September 1997. We had understood from the Official Receiver that you would await our re-listing of this matter before the Court and the service of necessary evidence. This evidence in [sic] presently in a state of preparation and is being prepared as a matter of urgency. In the circumstances, we have requested of the Official Receiver that further monies not be paid, either for living or legal expenses, pending the re-listing of the matter before the Court. On 23 December 1997 the Australian Government solicitor wrote again to Potts Latimer and to Mark Solomon & Associates saying: The Official Trustee has determined that he will not pay your legal fees and counsel's memoranda because the Trustee believes: (1) The respondent/debtor has made herself or caused to be made many deposits of moneys from Australia to various bank accounts in Hong Kong and Singapore during the calendar years 1996 and 1997 amounting to a total of $3.4 M; and (2) The fees and memoranda are excessive. (3) In addition, as you are aware, the Australian Taxation Office proposes to seek an order varying the terms of the consent orders of June 1997 in light of changes in circumstances,... Two motions are before the Court today. The first motion is brought by the Commissioner seeking that order 6 made by the Court on 19 June 1997 and orders 4, 5 and 6 made on 25 June 1997 be rescinded. The motion by the Debtor seeks orders: 1. That the Official Trustee pay the following amounts relating to outstanding legal costs incurred by the Debtor: Accounts of Potts Latimer dated 21/10/97 & 16/3/98 $9,942.99 Accounts of A J O'Brien dated 22/9/97, 15/3/98(3) $32,850.00 Account of D B McGovern dated 8/9/97 $7,650.00 Account of Mark Solomon & Associates dated 3/12/97 $7,266.00 2. That the Official Trustee pays reasonable living expenses of $250.00 per week to the applicant/debtor for the period from 4 November, 1997 to date. In an affidavit filed on behalf of the Official Trustee, Mr Paul Dounis, a senior assistant Official Receiver in the office of the Official Trustee, said that he believes that the debtor has access to monies not disclosed to the Official Receiver as referred to in the letter to which I have referred above. There is also before me a report dated 15 December 1997 by Mr Graham Bell, an officer of Special Investigations at the Hurstville Branch of the Australian Taxation Office. The report was, according to the affidavit, the basis upon which a further assessment to primary tax and late lodgment penalties was issued to the debtor in respect of the years ended 30 June 1996 and 30 June 1997. The report comprises a detailed summary of investigations carried out in relation to money transactions apparently involving the debtor. The report asserts that the investigations disclose that there have been transfers made by the debtor in excess of $3 million in funds to Hong Kong accounts, many of which are in the name of close relatives of the debtor. I admitted that report as evidence of material which was available to the Official Receiver, but not as evidence of the truth of the assertions made in it. There has, however, been no evidence of any denial by the debtor to the Official Receiver of the truth of the assertion made in the letter of 19 December 1997 that the debtor had made, or had caused to be made, many transfers of money from Australia to various bank accounts in Hong Kong amounting to a total of $3.4 million. On the basis of the material in the report and the absence of any denial, it appears to me to be reasonable for the Official Trustee to have formed the belief indicated in the affidavit to which I have referred above. In the circumstances, it would have been appropriate for the Official Trustee to withhold the consent and approval contemplated by the orders in question. Several bases, however, have been advanced on behalf of the debtor as to why that course is not appropriate. The first is that unless it is established that living expenses were unreasonable or that legal costs were unreasonable, the Official Trustee was bound to give the consent or approval contemplated by the orders. Second, it was contended that since the Official Trustee had apparently been prepared to approve the payment of reasonable expenses in November and had been prepared to consent to payment out of legal fees and to approve the payment of further legal fees in August, it would be unreasonable now for the Official Trustee to take a different view and withhold consent or approval. Third, it was contended that the lawyers involved had continued to act for the debtor in the expectation that their reasonable costs would be met from the funds in the trust account to which I have referred. I shall deal with each of those matters. I consider that, as a matter of construction of the orders, there are two prerequisites for payment. In the case of living expenses it must first be shown that the proposed payment is of reasonable living expenses. The amount presently sought by the debtor is the amount which the Trustee had previously accepted as reasonable and there is no issue as to that matter. The second prerequisite, however, is that, even if the proposed living expenses are reasonable, the Trustee must still approve the payment. Accordingly, the issue is whether or not the Trustee's failure to approve is a lawful withholding of approval. The same question arises in relation to the orders made on 25 June 1997. A disbursement can be made only in respect of reasonable legal costs and, even if a proposed disbursement is for reasonable legal costs, it can only be made with the consent of the Official Trustee. That is to say, consent may be withheld or given within the discretion of the Official Trustee even if the legal costs are reasonable. The Official Trustee's position is that it is reasonable for him to withhold consent or approval in circumstances where he has, on rational grounds, formed the opinion that the debtor has available to her substantial funds from which she could meet living expenses and legal expenses. Accordingly, I reject the first contention on the part of the debtor. The second contention is that, having regard to the conduct of the Official Trustee hitherto, his decision not to approve or consent to further payments must be unlawful. I do not consider that that conclusion is open. The material before me indicates that the Trustee could reasonably form the conclusion that it is appropriate to withhold consent or approval because there are funds available to the debtor to meet reasonable living expenses and legal fees. It might be a different matter, of course, if the debtor attempted to satisfy the Trustee by appropriate denials, supported by some credible evidence that the funds which are referred to in the report of Mr Bell are not in fact available to her. However, on the material before me, the decision is reasonable and I do not consider that the mere fact that an approval has been given on the basis of material that was then available to the Official Trustee is a justification for rendering unlawful a different decision made some weeks later. The third basis upon which the debtor challenges the position of the Official Trustee is not so much the entitlement of the debtor as the position of her legal advisers. The correspondence to which I have referred briefly is capable, it seems to me, of giving rise to an inference that the firms of solicitors and counsel who advised the debtor continued to do so on the basis that monies available in an Australian account would be available to them to meet reasonable costs and expenses. Such a position could prevail, however, only up to 17 December 1997 when the attitude of the Official Trustee was made known. Strictly, it is not so much a matter for the debtor as for the legal advisers to maintain the position. However, I consider it is reasonable to draw the inference that the debtor had the benefit of the legal advice and would have to have made other arrangements had it been made clear that even reasonable legal costs incurred after the consents had been given in August 1997 would not be approved by the Official Receiver. In the circumstances I consider that it is unreasonable of the Official Trustee not to consent to the payment out of amounts for legal fees which were reasonably incurred up to and including 17 December 1997. A further question concerns the construction of orders 4, 5 and 6 made on 25 June 1997 in these proceedings, being the proceedings in which the order under section 50 of the Bankruptcy Act was sought. The fees in question are identified as costs in respect of these and related proceedings. The Official Trustee contended that while the proceedings in the Administrative Appeals Tribunal might be related to these proceedings, the criminal proceedings were not. There is no evidence before me as to what communication, if any, passed between the parties prior to the making of the orders on 25 June 1997 by consent which might throw some light on what they had in mind by related proceedings. However, the criminal proceedings are linked as a matter of fact with the matters which will arise in relation to the proceedings before the Administrative Appeals Tribunal. The charges were laid on the same day as the creditor's petition was adjourned pending the outcome of the application to the Administrative Appeals Tribunal. In addition, the Trustee has in fact consented to the payment out of fees relating to the criminal proceedings. While the conduct of the parties after the making of the orders cannot bear upon the construction of the orders as such, it is indicative of what might have been in the parties' minds at the time when the consent orders were made. I consider therefore that, insofar as the Trustee is required to give consent to reasonable fees incurred prior to 17 December 1997, the fees extend to the criminal proceedings. It follows from the conclusions which I have reached that I would not be disposed to direct any payment out of the funds available to the Official Trustee beyond the amounts of reasonable legal expenses incurred prior to 17 December 1997. I am not certain that the Commissioner seeks to press any variation of the earlier orders except to the extent that the construction to be put on them is that contended for by the debtor. As I have indicated I reject that contention. I am not disposed to vary the terms of the order. It is a matter for the Official Trustee to give consideration to any material which might be placed before him in the future in support of any application for further payment out of legal fees or of living expenses. As I have said, I do not consider that the approach taken by the Official Trustee in declining to give consent or approval is unreasonable except to the extent I have indicated.