Trkulja v Morton [2005] FCA 659

FEDERAL COURT OF AUSTRALIA

Trkulja v Morton [2005] FCA 659 BANKRUPTCY – trustee in bankruptcy – application to remove – role of Court – circumstances in which order for removal may be made – alleged threats amounting to blackmail – whether threats made

Bankruptcy Act 1966 (Cth) ss 179(1), 178, 73, 149J

Macchia v Nilant [2001] FCA 7 (2001) 110 FCR 101 followed Doolan v Dare [2004] FCA 682 cited MICHAEL TRKULJA v ROBERT MORTON V 614 of 2004 GRAY J 30 MAY 2005 MELBOURNE

IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY V 614 of 2004

BETWEEN: MICHAEL TRKULJA

APPLICANT

AND: ROBERT MORTON

RESPONDENT

JUDGE: GRAY J

DATE OF ORDER: 30 MAY 2005

WHERE MADE: MELBOURNE

THE COURT ORDERS THAT: 1. The application be dismissed. 2. The respondent's costs be taxed and paid out of the bankrupt estate of the applicant in accordance with the Bankruptcy Act 1966 (Cth). Paragraph 2 of the order pronounced this day is recalled. There be substituted for that paragraph the following orders: 2. The respondent file and serve any written submissions on the question of costs on or before 6 June 2005. 3. The applicant file and serve any answering written submissions on that question on or before 14 June 2005. 4. The question of costs be reserved.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY V 614 of 2004

BETWEEN: MICHAEL TRKULJA

APPLICANT

AND: ROBERT MORTON

RESPONDENT

JUDGE: GRAY J

DATE: 30 MAY 2005

PLACE: MELBOURNE

REASONS FOR JUDGMENT

The nature of the proceeding 1 These reasons for judgment concern an application by a bankrupt to remove his trustee in bankruptcy from office on the ground of alleged misconduct. The applicant alleged that, at two separate meetings, one on 18 November 2003 and the other on 25 February 2004, the trustee made to the applicant improper threats, amounting to blackmail. 2 The applicant is Michael Trkulja, who was made bankrupt on 4 September 2000, in consequence of his presentation of a debtor's petition. The respondent, Robert William Morton, was appointed trustee of the applicant's bankrupt estate. As a result of two objections made by the respondent to the applicant's discharge from bankruptcy, the bankruptcy has been extended until 5 September 2008. 3 I have approached the application on the basis that the power invoked by the applicant is that conferred on the Court by s 179(1) of the Bankruptcy Act 1966 (Cth) ('the Bankruptcy Act'). Section 179(1) provides as follows: 'The Court may, on the application of the Inspector-General, a creditor or the bankrupt, inquire into the conduct of a trustee in relation to a bankruptcy and may do one or both of the following:— (a) remove the trustee from office; and (b) make such order as it thinks proper.' 4 In its terms, this power is plainly concerned with 'the conduct' of the trustee 'in relation to a bankruptcy'. As Macchia v Nilant [2001] FCA 7 (2001) 110 FCR 101 at [49] – [50] demonstrates, the Court must first consider whether it should inquire into the conduct of the trustee. If an inquiry is undertaken, the next question is whether the trustee should be removed from office and/or whether any other order should be made. The Court should be reluctant to undertake an inquiry, unless there are substantial grounds for believing that the trustee erred in the administration. If an inquiry is unlikely to reveal misconduct, it should not be undertaken. The Court should not unduly interfere with the day-to-day administration of a bankrupt's estate by the trustee. In order to remove a trustee in bankruptcy, it is necessary to find misconduct on the part of the trustee. Removal is possible if the relationship between the trustee and the bankrupt has broken down totally: Doolan v Dare [2004] FCA 682 at [49]. In that case, Spender J found that there was a clear conflict of interest between the trustee's interests in having her remuneration paid and how she thought that might be achieved, and her obligations as a fiduciary to the creditors and the bankrupt. 5 With these principles in mind, I took the view that I should conduct an inquiry. If true, the allegations of threats amounting to blackmail would be sufficiently serious conduct in relation to the bankruptcy to warrant the removal of the respondent as the applicant's trustee in bankruptcy. The principal question is therefore whether the allegations of threats amounting to blackmail are true. If they are, it would be necessary to consider whether, in the circumstances, removal was appropriate. If the allegations are untrue, and there is nothing else about the conduct of the respondent on the two occasions in question to amount to misconduct in relation to the bankruptcy, then it would be appropriate to dismiss the application. 6 The respondent filed an affidavit in answer to the applicant's initial affidavit, giving an account of the respondent's administration of the applicant's bankrupt estate. The exhibits to this affidavit were voluminous. I took the view that it was unnecessary, at least at the initial stage of the inquiry, for me to have regard to the manner in which the entire administration of the bankrupt estate had been conducted. Section 179(1) does not give the Court a general jurisdiction to oversee the trustee's management of the administration. Even s 178, which confers jurisdiction on the Court to make orders about the administration of the estate, requires that there be an act, omission or decision of the trustee in relation to which application can be made to the Court. For present purposes, it is sufficient to say that the evidence to which I have had regard discloses that the administration of the applicant's bankrupt estate has been complex and difficult, that the respondent has pursued and continues to pursue what he believes to be undisclosed assets and sources of income of the applicant, and that a certain amount of animosity has developed between the applicant and the respondent. With this background in mind, I turn to the evidence of what occurred at the two meetings.