Labocus Precious Metals Pty Ltd v Thomas [2007] FCA 1072

FEDERAL COURT OF AUSTRALIA

Labocus Precious Metals Pty Ltd v Thomas [2007] FCA 1072 EVIDENCE – expert evidence – enquiry under s 178 of the Bankruptcy Act 1966 (Cth) LABOCUS PRECIOUS METALS PTY LTD AND MICHAEL LOCH MCGURK v HUGH CHARLES THOMAS, MILTON ALEXANDER NAYLOR, GLEN ELLWYN NAYLOR AND 26 ORLANDO AVENUE PTY LTD NSD 1125 OF 2007

ALLSOP J

19 JULY 2007

SYDNEY IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY NSD 1125 OF 2007

BETWEEN: LABOCUS PRECIOUS METALS PTY LTD

First Applicant

MICHAEL LOCH MCGURK

Second Applicant

AND: HUGH CHARLES THOMAS

First Respondent

MILTON ALEXANDER NAYLOR

Second Respondent

GLEN ELLWYN NAYLOR

Third Respondent

26 ORLANDO AVENUE PTY LTD

Fourth Respondent

JUDGE: ALLSOP J DATE OF ORDER: 19 JULY 2007

WHERE MADE: SYDNEY

THE COURT ORDERS THAT:

1. The tender of the contents of the affidavit of William James Hamilton sworn 16 and 18 July 2007 be rejected. 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 NSD 1125 OF 2007

BETWEEN: LABOCUS PRECIOUS METALS PTY LTD

First Applicant

MICHAEL LOCH McGURK

Second Applicant

AND: HUGH CHARLES THOMAS

First Respondent

MILTON ALEXANDER NAYLOR

Second Respondent

GLEN ELLWYN NAYLOR

Third Respondent

26 ORLANDO AVENUE PTY LTD

Fourth Respondent

JUDGE: ALLSOP J

DATE: 19 JULY 2007

PLACE: SYDNEY

REASONS FOR JUDGMENT 1 In this matter the applicants sought to read two affidavits of a well-known chartered accountant and trustee, William James Hamilton, the two affidavits being sworn on 17 July and 18 July 2007. I propose to reject the totality of both affidavits in their current form. I have had argument before me as to the admissibility of expert evidence in professional cases. That may not be the correct focus of debate for the admissibility of this evidence. I say that because although there is an explicit, or implicit, assertion in the pleadings by the applicants that the first respondent has failed to take into account properly the interests of creditors at the time of the composition meetings, and although that matter can be seen as a question of professional standards, the structure of the claim and of the proceeding is founded significantly, though not wholly, on the operation of s 178 of the Bankruptcy Act 1966 (Cth). 2 Section 178 of the Bankruptcy Act is in wide terms giving power to the court to make such order as it thinks just and equitable, in effect in review of decisions by the trustee in the course of the administration. That undertaking and that inquiry may be quite a wide one and the boundary of what is evidence of relevance to that inquiry and the making of orders, consequent upon such inquiry, can be seen to be much wider than the admissibility of evidence as probative and in conformity with the Evidence Act 1995 (Cth)in a professional negligence case. Nevertheless, the debate that took place before me was of assistance in reaching my conclusion on either basis; that is, the basis of a professional negligence action and a wider s 178 action. 3 Without going through the affidavits in detail, they contain evidence which can be summarised as evidence in which Mr Hamilton says what a prudent trustee would have done and evidence as to what he would have done. There is a body of authority, best illustrated by the judgment of Austin J in Australian Securities and Investments Commission v Vines (2006) 58 ACSR 298 which rejects evidence in professional negligence cases where the expert evidence does not direct itself to the developed practice amongst competent professionals. His Honour referred to Permanent Trustee v Boulton (1994) 33 NSWLR 735, and also the well-known case of Midland Bank v Hett Stubbs and Kemp [1978] 3 All ER 571. 4 The evidence in the two affidavits is sufficiently muddled, if I may say so, without disrespect to Mr Hamilton, not to be of real utility. If what Mr Hamilton is seeking to say is that in his view no competent professional could ever have taken the steps that were taken by Mr Thomas, the evidence may not be admissible on those authorities by reference to the test of admissibility in a professional negligence case. I reserve the question as to whether that evidence would be admissible in a s 178 inquiry, such as the present. It may be that what he is saying, however, is that he would have done it in a particular manner. If that is all he is saying, that does not mean that no prudent trustee would have undertaken the steps that Mr Thomas did. 5 Taken from a professional negligence case standpoint, that evidence is irrelevant if the issue is the standard of care of the professional in question, because all that has been proved is what one person in the profession would have done, not what no one, properly informed, could have done. That said, again, I would reserve the position as to whether that evidence was admissible for an inquiry under s 178 of the Bankruptcy Act. I would also reserve the question of the operation of the discretionary exclusionary provision being s 135 of the Evidence Act 1995 (Cth). If other evidence is to be brought forward in proper form, I will deal with that at the time. For now I simply reject the affidavits of William James Hamilton of 17 and 18 July 2007 and they will be marked for identification, MFI 1 and MFI 2 accordingly, in case there is any debate about this issue on another occasion. I certify that the preceding five (5) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Allsop.