Cornell v Inspector General in Bankruptcy [2000] FCA 1497

FEDERAL COURT OF AUSTRALIA

Cornell v Inspector-General in Bankruptcy [2000] FCA 1497

BANKRUPTCY – trustee in bankruptcy – duration of appointment – whether extended by the Bankruptcy Legislation Amendment Act 1996 (Cth) JUDGMENTS AND ORDERS – res judicata – trustee in bankruptcy – application for extension of registration – in personam – when person deemed to be party to application Bankruptcy Act 1966 (Cth) s 155C Bankruptcy Legislation Amendment Act 1996 (Cth) Sched 1, Items 468 and 497 Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485 cited Blair v Curran (1939) 62 CLR 464 applied Hall v Inspector-General in Bankruptcy [1998] FCA 1327 applied Tedeschi v Legal Services Commissioner (1997) 43 NSWLR 20 cited ANDREW MICHAEL CORNELL v INSPECTOR-GENERAL IN BANKRUPTCY V 7408 of 2000 FINKELSTEIN J MELBOURNE 30 OCTOBER 2000

IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY V 7408 of 2000

BETWEEN: ANDREW MICHAEL CORNELL

Applicant

AND: INSPECTOR-GENERAL IN BANKRUPTCY

Respondent

JUDGE: FINKELSTEIN

DATE: 30 OCTOBER 2000

PLACE: MELBOURNE

REASONS FOR JUDGMENT 1 The applicant, Mr Cornell, first became registered as a trustee in bankruptcy on 19 July 1985. According to the Bankruptcy Act 1966 (Cth), as then in force, the appointment was of indefinite duration. Later changes to the Bankruptcy Act in 1990, which I will outline shortly, confined the appointment to a period of three years with an ability to extend the term. Amendments to the Bankruptcy Act which came into force on 16 December 1996 also provide that the registration of a person as trustee has effect for three years. The applicant says that by reason of these new provisions, his period of registration as trustee, which was still current, continued for three years from 16 December 1996. That is, the applicant says that the amendments to the Bankruptcy Act "resulted in all registered trustees as at that date having their registration 'extended' for a period of three years from that date." The applicant puts this argument because the amendments also provide that the registration of a person as a trustee must be extended for a further three years if the trustee applies in writing to the Inspector-General for that extension before his registration has expired and gives the Inspector-General the prescribed fee. On 24 June 1997, the applicant did apply in writing for an extension of his registration and tendered the prescribed fee. Accordingly he says that the Inspector-General was required to grant an extension for three years from and including 17 December 1999. 2 The Inspector-General is of opinion that the applicant did not renew his registration as required and that he is not now a trustee in bankruptcy. In case this view be correct, the applicant has asked that the time within which his application for an extension might made itself be extended. The court has jurisdiction to grant such an extension under s 33(1)(c) of the Bankruptcy Act, according to the authority of Hall v Inspector-General in Bankruptcy [1998] FCA 1327. 3 The resolution of the applicant's claim depends upon the construction and effect of certain transitional provisions in the Bankruptcy Legislation Amendment Act 1996 (Cth), which introduced a new regime for the registration of trustees in bankruptcy. These transitional provisions deal with the position of trustees who were registered as such immediately before the commencement of the 1996 Act. The applicant contends that one effect of the transitional provisions is to deem a person who was registered as a trustee as having been registered under the new regime, with the result that the registration remains in force for three years from the commencement of the 1996 Act. 4 The respondent raises a preliminary point which is whether the applicant is precluded by the doctrine of res judicata from litigating the particular construction of the transitional provisions for which he contends. In Blair v Curran (1939) 62 CLR 464 at 531 Dixon J (as he then was) stated the relevant principle as follows: "A judicial determination directly involving an issue of fact or of law disposes once and for all of the issue, so that it cannot afterwards be raised between the same parties or their privies." This substantive rule of law was described by Spencer-Bower, Turner and Handley in The Doctrine of Res Judicata (3rd ed, 1996) at par 9 in these terms: "Where a final judicial decision has been pronounced on the merits by an English or (with certain exceptions) a foreign judicial tribunal with jurisdiction over the parties and the subject matter, any party to such litigation, as against any other party (and in a case of a decision in rem, any person whatsoever, as against any other person) is estopped in any subsequent litigation from disputing such decision on the merits, whether it be used as the foundation of an action, or as a bar to any claim, indictment, affirmative defence or allegation, provided the party entitled raises the point at the proper time." 5 The point arises in the following way. Section 155D of the Bankruptcy Act provides that the Inspector-General must extend the registration of a person as trustee for three years from the expiry of the person's registration if the person applies in writing before his registration expires and the person pays the relevant charge. On 5 July 1999, at the suit of the Inspector-General, the Federal Court ordered that the times limited by s 155D for certain named persons to apply for an extension of their registration be extended. The applicant was one of those persons. He was given an additional three days within which to apply for the extension of his registration as a trustee. No reasons for making the order were given. However the implicit assumption that lay behind the application, and the order that was made, was that an extension of time was required so that each of the named persons could continue to be a trustee in bankruptcy. On the other hand, if the applicant's present submission is correct that assumption would be false. 6 The question is whether the order extending time prevents the applicant maintaining his present argument. It would bind the applicant only if his present claim necessarily involves the assertion that the former decision is erroneous: Blair at 531. That is precisely what is involved in the application, so it seems to me. But, as the passage from Spencer-Bower, Turner and Handley shows, in litigation in personam the doctrine of res judicata generally binds only the parties to a proceeding (see also Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485 at 505) or their privies, although the position would be otherwise if the proceeding were in rem. In the earlier proceeding, it could hardly be said that the applicant was a stranger, although he was not formally a party. He was not a stranger because the application was made by the Inspector-General on behalf of the applicant, as well as on behalf of others in the same position as the applicant. Further, the application was made with the express written consent of the applicant. Indeed, on a strict view of the matter, it might be said that the application should not have been made by the Inspector-General, who appears to have had no standing to ask for the relief, but by the persons for whose benefit the order was made. 7 Be that as it may, I note that Spencer-Bower, Turner and Handley say (at par 218): "There is a further rule which originated in the probate jurisdiction. Any person claiming an interest in the estate has the right to intervene in a probate suit and if such a person stands by and allows the litigation to be conducted by others, he is deemed a party and is bound by the result. This principle is no longer confined to the probate jurisdiction. The Privy Council applied it to a land dispute in which an interested party allowed earlier litigation to be fought by someone in the same interest. This decision has now been followed in a case involving joint tortfeasors, Stuart-Smith LJ saying that although the rule may have originated in probate cases 'justice and commonsense [did not] require it to be so confined'." See also Tedeschi v Legal Services Commissioner (1997) 43 NSWLR 20 at 35-40. I think that the applicant is, for the purposes of this rule, to be deemed to be a party to the earlier application. As I say, it was made on his behalf and with his consent, and he took the benefit of the order made. Justice and commonsense require that he be treated a party for the purposes of the doctrine. 8 In virtue of this finding the applicant is not entitled to relief on the basis that his registration continued until 16 December 1999 because he is estopped from contending that this was the position. But in the event that I am wrong in my view of the effect of the order made by the Court, I will consider the merits of his application. 9 When the applicant was first registered as a trustee the position was as follows. A person wishing to be appointed a trustee made application for registration to the Federal Court. If the court was satisfied that the applicant was qualified to act as a trustee, it would direct that he be registered upon his entering into a bond in the prescribed amount: see s 155 of the Bankruptcy Act as then in force. The appointment took effect from registration and was for an indefinite term. However, the court could cancel the registration of a person as trustee at any time: s 155(5). 10 In 1990 the Bankruptcy Act was amended by the Law and Justice Legislation Amendment Act 1990 (Cth). The 1990 Act made important changes to the appointment of trustees. The relevant provisions of the 1990 Act are ss 24 to 27 which introduced ss 154A, 155A and 155B and amended ss 155 and 156. First, a person wishing to be appointed a trustee was required to apply to the Official Receiver for a report: s 154A(1). The Official Receiver was to prepare and give to the applicant a written report stating the Official Receiver's opinion of the applicant's ability to perform the duties of the trustee: s 154A(3). The applicant was required to submit the report to the court considering the application: s 155(3)(c). Further, for the first time a trustee was appointed for a fixed term. Thus, the registration of a person as trustee remained in force for three years from the day on which the applicant entered into the required bond: s 155(3C). Provision was also made for the extension of the term of office. A person registered as a trustee could apply to the Registrar for an extension: s 155A(1). If there was no objection to the extension by the Inspector-General, the Registrar could extend the term for three years: s 155A(7). If there was objection, the registrar was required to refer the application to the court: s 155A(5). 11 The 1990 Act contained transitional provisions for trustees who were in office when the 1990 Act came into force. Section 25(2), (3) and (4) provided: "(2) A person who, immediately before the commencement of this section, was registered under section 155 of the Principal Act, as then in force, may, within 3 months after that commencement, notify the Registrar that the person wishes to continue to be a registered trustee within the meaning of the Principal Act. (3) A person who notifies the Registrar under subsection (2) is taken to have been registered under section 155 of the Principal Act, as amended by this Act, for a term of 3 years starting on the day on which the notice is given to the Registrar. (4) A person mentioned in subsection (2) who does not notify the Registrar under that subsection stops being a registered trustee at the end of the period of 3 months mentioned in that subsection." It is by this section that the period of registration of all trustees in bankruptcy was extended to three years. 12 The provisions relating to the appointment of trustees were further amended by the 1996 Act, the relevant provisions of which came into force on 16 December 1996. The previous provisions, ss 154A, 155, 155A, 155B and 156 were repealed and replaced by new provisions. The principal effect of the new provisions is to remove the role of the court from the appointment of trustees and the renewal of their terms of office. Accordingly, s 154A now provides that a person wishing to become a registered trustee must apply to the Inspector-General. Every application is to be considered by a committee which must include the Inspector-General, an officer of the Attorney-General's Department and a registered trustee chosen by the Insolvency Practitioners' Association of Australia: s 155. If an applicant satisfies the committee that he or she meets certain criteria, the application must be granted (s 155A) and the Inspector-General must register the applicant as a trustee (s 155C). That registration has effect for three years: s 155C(4). The Inspector-General is required to grant an extension of the term of office if the trustee makes application for an extension before the trustee's registration has expired and gives to the Inspector-General the prescribed registration fee: s 155D. No provision is made for objection to a renewal. However there is power in the Inspector-General to terminate the registration of a trustee in defined circumstances: ss 155H and 155I. 13 The new provisions apply not only to persons wishing to become registered as a trustee after the date of commencement of the 1996 Act, but also to those who were registered as a trustee immediately before the commencement of the 1996 Act: see Item 468 of Schedule 1 to the 1996 Act. The position of trustees who were registered immediately before the commencement of the 1996 Act is governed by Item 497 of Schedule 1. There it is provided that such a trustee "is taken to be registered as a trustee under section 155C of the Bankruptcy Act 1966, without needing to pay a registration fee". The Item also provides that a person who is registered as a trustee immediately before Schedule 1 commenced is not entitled to a refund of any fees paid in relation to that registration. 14 The applicant says that these provisions have the effect that the term of appointment of a trustee, who is by virtue of Item 497 taken to be registered as a trustee under s 155C, is deemed to commence when the registration under s 155C is deemed to occur. It is said that this follows from Item 468. The argument is that Item 468 applies the new provisions to persons who were registered trustees before the commencement of the 1996 Act, and the new provisions include s 155C(4) which provides that registration under s 155C "has effect for three years". So it is said that the effect of the transitional provisions is that every trustee whose registration was current on 16 December 1996 had that registration extended for three years from that date. Thus, dependent upon the date on which a particular trustee was registered before the commencement of the 1996 Act, the term of that registration would vary from three years plus one day to six years less one day. Is this what Parliament had in mind? 15 To answer this question the following features of the 1996 Act should be noticed. First, Item 497 says nothing about the term of office of a registered trustee who is taken to be registered under s 155C. The principal purpose of that Item is to ensure that the office continues. Second, the combined effect of Items 497 and 468 is that s 155C applies to a trustee who was registered immediately before the commencement of the 1996 Act. Thus, the term of office of such a trustee is to be for three years. This is the same term as prevailed under the repealed provisions. However if that term of office is now to be treated as having commenced, as the applicant says, when the deemed registration takes place, there would be an extension of the three year term in every case, though the length of that extension would vary from case to case. 16 To support the argument that this is the effect of the new provisions the applicant says that when s 155C(4) states that the registration of a trustee has effect for 3 years the registration referred to is that effected by the Inspector-General under subsection (1). So much may be accepted. The next step in the argument is the contention that when Item 497 deems a registered trustee to be registered under s 155C that deemed registration is to be taken for the purposes of subsection (4) as a registration effected by the Inspector-General. It is in this way that the term of the deemed registration is said to begin when a registered trustee is taken to be registered under s 155C. 17 I do not accept that these provisions show that Parliament intended the registration of a registered trustee should remain in force for up to six years. As a matter of construction, there are two means by which the three year term of office would not be extended to a period of up to six years, in the case of a trustee to whom Item 497 applies. The first is to hold that the only function that Item 497 relevantly serves is to deem a person who was a registered trustee immediately before the commencement of the 1990 Act "to be registered as a trustee under s 155C" and that the deeming provision is not concerned with the term of that office. On this construction the term of office would be that which was originally prescribed: see s 8(c) of the Acts Interpretation Act 1901 (Cth). The other approach, and the one which I prefer, is that when s 155C(4) provides that the registration of a trustee has effect for three years, it is not confined to registration effected by the Inspector-General under s 155C(1). Thus, if the Inspector-General registers an applicant as a trustee under s 155C(1), that person's registration will have effect for three years after registration. If the registration was not effected under s 155C(1) but under previous legislation, then the registration will still have effect for three years, but the period will begin when the actual registration took place. 18 Either construction will result in a trustee only remaining in office for three years, in the absence of an extension. That was the position that prevailed under the repealed provisions and it is the position that presently prevails. I cannot read into the legislation an intention that a person, whose term of office had not come to an end when the new provisions commenced, was to continue in office for an additional period of three years. If that had been Parliament's intention, it could have enacted a provision similar to s 25 of the 1990 Act, where the duration of appointment of an existing trustee was specifically provided for. Thus, the view that I have taken is that the transitional provisions simply allow for the previous position as to the duration of term of office to take its natural course without being affected by the amending legislation. As the Inspector-General said, the deemed registration effected by Item 497 did not mean that all existing registrations were taken to have started as at 16 December 1996. An existing registration retained its anniversary date, but s 155C was to provide the legislative foundation for the future recognition of that registration. 19 The result is that the applicant has not made application for the extension of his registration in accordance with s 155D. Thus it is necessary to consider whether an order should be made under s 33(1)(c) extending the time within which the applicant can apply to extend his registration. There is no need to spend any time dealing with this matter. The failure to make an application for the extension of registration which was due to expire on 27 June 2000 resulted from a clear oversight. Further, the Inspector-General does not oppose making the order sought. I propose to order that the time limit pursuant to s 155D(a) for the applicant to apply to the Inspector-General for an extension of his registration as a trustee, be extended until 2 October 2000, and that upon the Inspector-General exercising the power conferred by s 155D pursuant to the applicant's application, such registration will be renewed for a period of three years from 27 June 2000. I certify that the preceding nineteen (19) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Finkelstein.