Dare v Doolan [2003] FCA 1451

FEDERAL COURT OF AUSTRALIA

Dare v Doolan [2003] FCA 1451 BANKRUPTCY - statutory scheme relating to the quantum of a trustee's remuneration - power of the creditors to fix the trustee's remuneration Bankruptcy Act 1966 (Cth) Jefferson v Official Trustee in Bankruptcy (2000) 175 ALR 671 (Discussed) Pattison v Bellin (2000) 103 FCR 590 (Discussed) TRACEY JOY DARE (AS TRUSTEE IN BANKRUPTCY OF WILLIAM EDWARD DOOLAN v WILLIAM EDWARD DOOLAN) Q7004 of 2003

WILLIAM EDWARD DOOLAN v TRACEY JOY DARE

Q7005 of 2003 KIEFEL J BRISBANE 11 DECEMBER 2003

IN THE FEDERAL COURT OF AUSTRALIA

QUEENSLAND DISTRICT REGISTRY Q7004 OF 2003

BETWEEN: TRACEY JOY DARE (AS TRUSTEE IN BANKRUPTCY OF WILLIAM EDWARD DOOLAN)

APPLICANT

AND: WILLIAM EDWARD DOOLAN

RESPONDENT

JUDGE: KIEFEL J

DATE: 11 DECEMBER 2003

PLACE: BRISBANE

AND:

IN THE FEDERAL COURT OF AUSTRALIA

QUEENSLAND DISTRICT REGISTRY Q7005 OF 2003

BETWEEN: WILLIAM EDWARD DOOLAN

APPLICANT

AND: TRACEY JOY DARE

RESPONDENT

JUDGE: KIEFEL J

DATE: 11 DECEMBER 2003

PLACE: BRISBANE

REASONS FOR JUDGMENT 1 The applications before me raise questions about the statutory scheme relating to the quantum of a trustee's remuneration and the power of creditors to fix that remuneration. 2 Mr Doolan's estate was sequestrated on 2 June 1999 and Ms Dare was appointed as trustee of the estate. The relationship between the parties during the administration of the estate has not been cordial at all times. It is not necessary for present purposes to detail the complaints raised by Mr Doolan. 3 At the first meeting of creditors, held on 11 October 1999, a representative of the trustee presided. There was no discussion about the trustee's proposals with respect to remuneration. Prior to a meeting of creditors held on 5 August 2002 the trustee gave notice to creditors of her intention to have creditors fix her remuneration for the period 2 June 1999 to 28 June 2002. The amount said to be involved was $71,301.10. A further sum of $40,000.00 was sought to be fixed with respect to future remuneration. These amounts were calculated according to the trustee's firm's usual rates of hourly charges and not according to the rates set by the regulations under the Bankruptcy Act 1966 (Cth). The regulations provide for a rate which is 85 per cent of the hourly rates published by the Insolvency Practitioners Association of Australia ('IPAA'). 4 At the meeting of 5 August 2002 a resolution was passed fixing the trustee's remuneration in the sums sought. It was passed on the vote of one creditor. Mr Doolan disputed that creditors' entitlement to vote and the trustee has not sought to rely upon the resolutions. On 21 August 2002 Mr Doolan requested taxation of the trustee's remuneration and the matter was referred to ITSA for taxation. On 21 November 2002 he withdrew that request. Subsequent to his request and on about 6 September 2002 the trustee forwarded a revised claim for remuneration, calculated at IPAA rates although not at 85 per cent of them. 5 On 8 January 2003 Mr Doolan's solicitors gave notice to creditors of a meeting. Whether the notice was effective for the purpose is another issue. It was proposed that the creditors approve a composition under s 73 which involved transferring the last remaining asset in the estate to Mr Doolan and that creditors would be paid in full at some future, unspecified, date. No arrangements were made for payment of the trustee's remuneration but many criticisms were made in the letter of notification about the trustee and to their effect upon her claims for remuneration. 6 The trustee declined to call a meeting to discuss the proposed arrangement until further information was provided, as she was entitled to do. The meeting proceeded in any event on 24 January 2003 in her absence. The creditors resolved to accept the proposed composition. At a subsequent meeting held on 12 February 2003, again held in her absence, the creditors resolved to remove the trustee. 7 No other claim for remuneration has been made by the trustee since 6 September 2002. It is her proposal to claim remuneration in accordance with the rates set by the regulations and to deliver a bill in taxable form to that end. She does not propose asking the creditors to fix her remuneration on another basis. This course will permit Mr Doolan and any other creditors to seek taxation of them. I understand that it is proposed that the trustee will claim for all remuneration to date in this way. The previous claim and revised claim were not calculated by reference to the regulations and Mr Doolan's withdrawal of request for taxation would not relate to the newly based claim. In any event I did not understand the trustee to take any point about his right to request taxation. 8 Section 162 of the Act provides, in subsection (1) and (4): '(1) Subject to section 161B, the remuneration of the trustee of the estate of a bankrupt may be fixed, from time to time, by resolution of the creditors or, if the creditors so resolve, by the committee of inspection. … (4) Where the remuneration of the trustee is not fixed by the creditors or the committee of inspection, the trustee is to be remunerated as prescribed by the regulations'. 9 Section 161B is not presently relevant. Subsections (2) and (3) of s 162 provide for the payment of remuneration, or additional remuneration, by way of commissions. These provisions would appear to operate in aid of a creditor's resolution under sub-s (1). 10 The regulations provide by reg 8.08: 'For the purposes of subsection 162(4) of the Act, the remuneration of a trustee is to be: (a) in accordance with the scale of charges that is: (i) set out in the IPAA Guide to Hourly Rates published by the Insolvency Practitioners Association of Australia: and (ii) applicable to the work to be remunerated; and (b) at the level of 85 per cent of those charges.' 11 Regulation 8.09 then provides that the bankrupt or a creditor who is dissatisfied with the claim for remuneration under s 162 may, by notice in writing given within a specified time, request a taxing officer to tax the claim. Provision is made in following regulations for payment of the costs of the taxation depending on the amount by which the bill is reduced by the taxation. The taxing officer has power to disallow items considered to be unreasonably high or costs which are incurred improperly, unreasonably, negligently or unnecessarily. 12 So far as concerns the costs for services rendered by third parties, s 167 provides that the trustee may require a bill of costs from that person and it may be taxed. The taxing officer is to satisfy themselves that the employer of the person was authorised, reasonable and necessary. There appears to be no dispute between the parties that that course is necessary to be followed in this case. 13 The threshhold question which arises is as to the trustee's own remuneration and whether or not it is necessary for her to return to a creditor's meeting to allow them to consider her claim. Whether additional orders, as to the two resolutions passed in January and February 2003, are to be pursued depends largely upon the determination of the issue relating to the trustee's remuneration. 14 The trustee seeks an order, by way of declaration, to the effect that she is entitled to claim her remuneration at the rate provided for by the regulation. It is not sought to have the Court fix them at some other rate. The order is sought under s 30 of the Act which provides in relevant part: 'General powers of Courts in bankruptcy (1) The Court: (a) has full power to decide all questions, whether of law or of fact, in any case of bankruptcy or any matter under Part IX, X or XI coming within the cognizance of the Court; and (b) may make such orders (including declaratory orders and orders granting injunctions or other equitable remedies) as the Court considers necessary for the purposes of carrying out or giving effect to this Act in any such case or matter. (2) The Court may direct such inquiries to be made and accounts to be taken for the purposes of any proceeding before the Court as the Court considers necessary and may, when directing an account to be taken, or subsequently, give special directions as to the manner in which the account is to be taken or vouched.' 15 It was submitted for Mr Doolan that were the Court to make such a declaration it would be cutting across a statutory procedure by which remuneration is to be considered and fixed as creditors think appropriate. Mr Doolan wishes a meeting to be called to this end to discuss the trustee's claims and, I infer, the action or inaction on her part which he considers to be relevant to a decision on the claim. An outcome on the question of her remuneration is not a foregone conclusion at present. There is one person whose proof of debt is currently under consideration in the Federal Magistrates' Court. If it is admitted the outcome might be different. In any event I am encouraged not to assume an outcome unfavourable to the trustee. 16 Mr Doolan's argument appears to proceed upon an assumption that creditors are given rights to consider and make decisions upon the course a trustee proposes to take. In that regard much reliance was placed upon s 64U. It is necessary to set it out in full: 'Remuneration of registered trustee (1) If the meeting is the first meeting of the bankrupt's creditors and the trustee is a registered trustee, the President must then ask the trustee to state the basis on which the trustee wishes to be remunerated. (2) If the trustee states that he or she wishes to be remunerated as prescribed by the regulations, the minutes secretary is to record that statement in the minutes of the meeting. (3) If the trustee states a different basis for the fixing of his or her remuneration, the following provisions of this section have effect. (4) The President must invite the creditors and their representatives to propose a motion that the trustee be remunerated in accordance with the statement and, if no such motion is proposed, the trustee may propose such a motion. (5) A statement to be made by the trustee as mentioned in subsection (3) must: (a) if the trustee proposes to charge on a time-cost basis: (i) if there is only one rate at which the remuneration is to be calculated—state that rate; or (ii) otherwise—state the respective rates at which the remuneration of the trustee and the other persons who will be assisting, or will be likely to assist, the trustee in the performance of his or her duties are to be calculated; or (b) if the trustee proposes to charge on the basis of a commission upon money received by the trustee - state the rate of that commission; and must also state the periods at which the trustee proposes to withdraw funds from the bankrupt's estate in respect of the trustee's remuneration. (5A) The statement under subsection (3) must also include: (a) an estimate of the total amount of the trustee's remuneration; and (b) an explanation of the likely impact of that remuneration on the dividends (if any) to creditors. (6) Any of the creditors and their representatives may ask the trustee questions about the proposed remuneration of the trustee and, if such a question is asked, the trustee must answer it. (7) Any of the creditors and their representatives may move an amendment to a motion proposed in accordance with subsection (4) so as to change in any way the basis on which the trustee is to charge or the periods at which the trustee may withdraw funds in respect of his or her remuneration or to refer the fixing of the trustee's remuneration to a committee of inspection. (8) If the meeting is not the first meeting of the bankrupt's creditors and the trustee is a registered trustee, the President must request the trustee to lay before the meeting a statement of the amount of remuneration drawn by the trustee from the funds of the bankrupt's estate before the meeting was held and the trustee must comply with the request.' 17 There have been amendments in recent years to s 162 and other provisions concerning the way in which a trustee's remuneration is to be fixed. Prior to 1996, s 162 provided that where the remuneration of a trustee was not fixed by the creditors or the committee of inspection, the registrar may fix the remuneration. The registrar was given powers, on the application of a creditor or the trustee or of his own motion, to review the amount of the remuneration and to confirm, reduce or increase the remuneration (sub-s (4) and (5)). That power has been removed. Section 162 in its present form refers only to remuneration being fixed by creditors or by regulation. Goldberg J in Pattison v Bellin (2000) 103 FCR 590 observed that there remains no express provisions involving the Court in fixing or determining the trustee's remuneration. Mr Doolan relies upon the decision as confirming that it is for the creditors alone to consider and determine remuneration. I do not consider the decision goes that far. 18 It is of some importance that the new statutory regime provides for the automatic application of the rates of remuneration prescribed by regulation where creditors have not fixed remuneration and, it would follow, where it is not intended to seek such a resolution. The new regime involves creditors where the basis for remuneration is to be different from the rates prescribed by the regulations (see s 64U(3)). Where that is the case details of the proposed methods of charge have to be supplied by the trustee, as required by s 64U, to enable proper consideration to be given to the trustee's proposal by creditors. As counsel for Mr Doolan pointed out, further amendments resulting in s 162(6A) and reg 8.12 confirm that it is now also intended that creditors be given notice of how a trustee seeks to be remunerated. These provisions would also appear relevant to proposals which have some basis other than regulation rates. Either creditors or the trustee can propose a motion as to the basis of remuneration. Section 64U(7) also permits creditors or their representatives to move amendments to any motion with respect to the trustee's proposal. The section is however silent about the position of the trustee faced with a resolution which is unacceptable to the trustee. 19 In Jefferson v Official Trustee in Bankruptcy (2000) 175 ALR 671 at [21] Dowsett J observed that there was no mechanism provided for the resolution of any bona fide disagreement between creditors and a trustee, but that it seemed unlikely that creditors were intended to be the arbiters of it. I respectfully agree. His Honour did not have to resolve the difficulty. There the creditors had resolved to fix the trustee's remuneration on a commission basis when the trustee had wished to be remunerated in accordance with the regulations. The wide powers of s 30 were considered sufficient, in his Honour's view, to resolve the dispute which had arisen. It was appropriate to use those powers where there was no other statutory mechanism provided. His Honour's earlier observation, that it was not open to the creditors to compel the trustee to accept remuneration on some basis other than s 162(4) for work performed (at [20]), is also relevant to these proceedings. 20 It seems to me to be intended that creditors be better informed as to the basis upon which remuneration will be charged by a trustee and in a timely way. Their participation is however only required where a trustee seeks remuneration to be charged on a basis other than as provided for in the regulations. In such cases the creditors will often be asked to approve rates of charges which are higher than those prescribed by reg 8.08 or to approve methods of charging different from those based upon hourly or other rates. 21 The removal of the registrar's review and the provision of an alternative rate set by regulation would also appear designed to promote efficiency and reduce the likelihood of dispute. These objects may be seen as achieved to an extent by permitting a trustee to elect for remuneration based upon regulation rates. 22 There is nothing in the statutory provisions which would entitle a creditor to deny or contest a trustee's decision to claim remuneration under s 62(4). This is a matter entirely for the trustee. The trustee's decision to seek remuneration by that route and not to ask the creditors to fix some other basis for it leaves no room for debate or negotiation as between the trustee and the creditors. The regulation will simply apply. 23 It follows that there can be no practical utility in requiring the matter to be considered at a meeting of creditors. It was submitted for Mr Doolan that there has been non-compliance of the requirement of s 64U(1) that the proposed basis for the trustee's charges be placed before the creditors at a first meeting. The trustee acknowledges this. A proposal for remuneration was first raised in August 2002. Non-compliance with these provisions of s 64U would not result in a denial of the trustee's right to claim remuneration under s 162(4). It may be otherwise where remuneration is sought under s 162(1). The purpose of the trustee's election as to s 162(4) being recorded at that meeting (see s 64U(2)) is to make plain that other proposals, potentially more expensive and requiring detail to be given of them, are not sought. The balance of the section is concerned with the creditors consideration of other proposals. There is, as I have said, nothing further to be considered on the part of creditors concerning the application of s 162(4). 24 A declaration under s 30 is therefore appropriate. It does not seem to me to involve the Court in determining a controversy between the parties involving different bases for the calculation of remuneration. Rather it gives effect to the provisions of s 162(4), which come into effect automatically where creditors are not to be asked to fix remuneration. The terms of the declaration I propose are: 'There being no proposal that the creditors fix the trustee's remuneration on some basis other than provided for in reg 8.08, s 162(4) has the effect that the trustee may claim remuneration in accordance with that regulation.' 25 I will hear counsel on the terms of the declaration and as to any further orders sought. I certify that the preceding twenty-five (25) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Kiefel.