FEDERAL COURT OF AUSTRALIA Ambrose v Little [2002] FCA 1644 COLIN LOUIS AMBROSE v PAULINE ANNE LITTLE No S 7008 of 2002 von DOUSSA J ADELAIDE 13 SEPTEMBER 2002 IN THE FEDERAL COURT OF AUSTRALIA SOUTH AUSTRALIA DISTRICT REGISTRY S 7008 OF 2002 IN THE MATTER OF THE BANKRUPT ESTATE OF PAULINE LITTLE BETWEEN: COLIN LOUIS AMBROSE APPLICANT AND: PAULINE ANNE LITTLE RESPONDENT JUDGE: von DOUSSA J DATE OF ORDER: 13 SEPTEMBER 2002 WHERE MADE: ADELAIDE THE COURT ORDERS THAT: 1. Paragraphs 2 to 6 and 10 of the notice of motion dismissed. 2. Question of costs on the dismissal of those paragraphs reserved. 3. Balance of notice of motion stood over to a date to be fixed. 4. Liberty to apply on short notice. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA SOUTH AUSTRALIA DISTRICT REGISTRY S 7008 OF 2002 IN THE MATTER OF THE BANKRUPT ESTATE OF PAULINE LITTLE BETWEEN: COLIN LOUIS AMBROSE APPLICANT AND: PAULINE ANNE LITTLE RESPONDENT JUDGE: von DOUSSA J DATE: 13 SEPTEMBER 2002 PLACE: ADELAIDE REASONS FOR JUDGMENT Resumed hearing of a notice of motion filed by the respondent 1 These proceedings were commenced on 14 June 2002 by an application by the trustee, Colin Louis Ambrose, for leave to issue a summons to examine the bankrupt, Pauline Anne Little. The present notice of motion was issued on the bankrupt's behalf on 28 June 2002 seeking, amongst other orders, an order setting aside the summons which had then issued. That notice of motion came on for hearing before me on 3 July 2002. Insofar as the notice of motion sought to set aside the summons, it was dismissed. 2 The balance of the notice of motion has now been relisted for further hearing. Paragraphs 2 to 6 and par 10 seek an order for an inquiry under s 179 of the Bankruptcy Act 1996 (Cth) (the Act) and consequential relief. Paragraph 7 and the remainder of the notice of motion seek an order under s 178 of the Act to remove or withdraw a caveat that had been lodged by the trustee over a certain house property of which the bankrupt's husband, Gregory Martin Little, is the registered proprietor. 3 At the hearing on 3 July 2002, attention was given to the request for an inquiry under s 179 of the Act. On that occasion the notice of motion was supported by an affidavit filed by the bankrupt's solicitor which asserted that he had been informed by the bankrupt that the trustee had embarked upon a needless pursuit, and incurred needless expense, with respect to the assignment of the bankrupt's interests in the said house property to her husband, and generally had failed to explain to creditors the ramifications of the action he was taking. The affidavit asserted that the trustee was wasting the assets of the bankrupt's estate to the detriment of creditors. 4 It was also alleged that the trustee had been unreasonably and unnecessarily abrupt, curt, discourteous and belligerent in his dealings with the bankrupt, with her husband and with their accountant. All that information I thought should have been deposed to by persons who had direct knowledge of the material if it was to be taken into account in support of a request for an inquiry under s 179 of the Act. Accordingly, on 3 July 2002, a direction was made that the bankrupt file material in admissible form within 21 days identifying the conduct of the trustee which she alleges constitutes a ground for inquiry under s 179 of the Act. 5 I indicated on that occasion that the function of the court was a two-stage function. First, the Court should consider whether there is sufficient material put forward to warrant an inquiry, and secondly, if such material is present, then to embark upon the inquiry itself, in the first instance by considering the scope of it and giving the necessary directions as to the way in which the inquiry would thenceforth proceed. The matter was stood over until today to enable that affidavit material to be filed and responded to by the trustee. 6 On 30 July 2002 the bankrupt filed an affidavit. It did not depose to discourteous conduct on the part of the trustee. Later allegations to that effect were specifically withdrawn in a letter from the bankrupt's solicitor. The affidavit from the bankrupt, however, made a generalised complaint that the trustee had failed to make appropriate LTO searches of the house property, and had failed to keep creditors informed about what was happening. The affidavit concluded by saying, "I ask that the court give directions with respect to the further realisation of my bankrupt estate". 7 Although that affidavit fell far short of providing an evidentiary base upon which the Court could be satisfied that it was appropriate to embark on an inquiry under s 179 of the Act, the trustee nevertheless filed a lengthy affidavit explaining his conduct up to the time when the affidavit was filed. I think it was entirely proper that an officer of the Court should do that, his conduct having been called into question at an earlier point in time. 8 The affidavit material, without going through it in detail, discloses that LTO searches were made and that the creditors were informed in the early stages of the bankruptcy about what was happening, and that in more recent times the trustee has been acting on an indemnity from the principal creditor in the bankrupt estate who has informally been kept advised. The information filed by the trustee firstly explains away the implied criticisms made in respect of the alleged failure to conduct LTO searches and the alleged failure to keep creditors informed, and secondly explains that the trustee is conducting an entirely appropriate course of inquiry at the present time. 9 In these circumstances it seems to me that the proper course is to dismiss at this stage pars 2 to 6 and 10 of the notice of motion insofar as an inquiry under s 179 of the Act is sought. I propose to make an order to that effect notwithstanding the request by Mr Brook, who appears for the bankrupt, to adjourn the application for an inquiry until a later point in the administration of the bankrupt's estate. Mr Brook informs me that since this matter was last before the Court the trustee has issued a summons under s 81 of the Act to examine the bankrupt's husband. That examination is part heard and has been adjourned for four months to enable the bankrupt's husband to search through voluminous material looking for documents to establish that advances were made to support a mortgage and a bill of sale which is propounded by him as a security over the house property in one instance, and jewellery of the bankrupt in another instance. 10 At this stage, as Mr Brook rightly points out, no proceedings have been taken to set aside any transactions between the bankrupt and her husband. The inquiries presently being conducted by the trustee might lead to proceedings of that kind, and if those proceedings are issued, they will directly relate to the validity of the caveat which is the subject of par 7 of the notice of motion. In those circumstances, Mr Brook submits that the application for the inquiry in pars 2 to 6 of the notice of motion should be stood over until the other matters are completed so that at some point in the future all the matters then existing between the parties that need resolution can be determined at the same time. 11 In my opinion, there is no relationship between the claim to inquire into the conduct of the bankrupt, being conduct up to and at June 2002 when the notice of motion was issued, and the other matters, the subject of the notice of motion. The application for an inquiry raises an issue which is of serious import to the trustee, and I do not think it is appropriate that such a matter should be hanging in the air over his head when the bankrupt has not put forward any information which raises a prima facie case that warrants further investigation. I therefore dismiss pars 2 to 6 of the notice of motion and par 10 which is related to it. I will stand over for further consideration on a date to be fixed the remainder of the notice of motion. 12 Mr Gretsas, appearing for the trustee, has applied for an order for costs in relation to the application for an inquiry under s 179 and, moreover, that the costs be on a solicitor and client basis. I propose to stand over the question of costs for consideration at a later date. In doing so, I make it clear that I have not formed a view one way or the other about the entitlement to costs, nor the basis upon which they should be awarded if they are to be awarded. 13 I stand over the question of costs primarily because I anticipate that if further proceedings are taken between the parties, it is not improbable that a lot of the material that has been filed by the trustee will be of use and indeed will become part of the evidentiary material in the future action. If that happens, the costs in relation to the preparation of those papers would be more appropriately dealt with in whatever application or proceedings follow. I think it is better that the matter run its course and the question of costs be considered at the end. 14 The formal orders are: 1. Paragraphs 2 to 6 and 10 of the notice of motion dismissed. 2. Question of costs on the dismissal of those paragraphs reserved. 3. Balance of the notice of motion stood over to a date to be fixed. 4. Liberty to apply on short notice. I certify that the preceding fourteen (14) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice von Doussa. Associate: Dated: 31 January 2003 Counsel for the Applicant: Mr G Gretsas Solicitor for the Applicant: Gretsas Chrzaszcz Counsel for the Respondent: Mr R Brook Solicitor for the Respondent: Mr R Brook Date of Hearing: 13 September 2002 Date of Judgment: 13 September 2002