The Trustee of the Property of Z. Sandor (A Bankrupt) v Ramirez S147/1999 [2000] HCATrans 114 (17 March 2000)

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Sydney No S147 of 1999

B e t w e e n -

THE TRUSTEE OF THE PROPERTY OF ZOLTAN SANDOR (A BANKRUPT)

Applicant

and

JEANETTE RAMIREZ

Respondent

Application for special leave to appeal

GLEESON CJ

KIRBY J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 17 MARCH 2000, AT 10.54 AM

Copyright in the High Court of Australia

MR M.D. BROUN, QC: In that matter if the Court pleases, I appear with MR D.J. DURSTON, for the applicant Trustee. (instructed by Michell Sillar)

MR R.W. TREGENZA: As Your Honours please, I appear for the respondent. (instructed by Watson Stafford)

GLEESON CJ: Yes, Mr Broun.

MR BROUN: Your Honours, the Trustee in bankruptcy in this case relied upon the existence of the title of the bankrupt, but also he had a number of contemporary documents. He had a statutory declaration verified by the bankrupt which turned out to have been prepared, in fact, by the plaintiff, that it was his money and he was the purchaser.

There was also a second document to similar effect, also verified contemporary with the purchase. Then some years later the bankrupt swore a document in which he set out that he had a mortgage debt and owned a property which, as Mr Justice Sheller in the Court of Appeal said, there cannot be any real doubt that that is referring to the property the Trustee tried to take possession of. Also, there was coupled on top of that the fact that the bankrupt actually lived in the property, both from the time of purchase and, indeed, right up to the hearing.

Now, the plaintiff's claim involved her in saying, "I participated in and prepared false documents", characterised by Mr Justice Young as involving criminality on her part. "I did this because I wanted to deceive Home Fund", the government Home Fund which was going to lend the money, "because that was the only way I could get what I wanted". So, it was all right, as it were, as she saw it, to swear false documents.

Now, because the Trustee had the temerity and boldness to rely upon the title and the documents, the contemporaneous documents verified, he was ordered to pay the costs of the proceedings when the court accepted that Miss Ramirez had participated in lies and deception and false swearing.

KIRBY J: As I understand it, you have two points. One is a "clean hands" point and the other is the error in relation to the ordering of costs. Is that the essence of it?

MR BROUN: Your Honour, there is, of course, the entirely separate one about whether somebody - discrete question of whether somebody can be a nominee for debt, but if I may come to that separately. We would put it a little more - - -

KIRBY J: Can I just say that, first of all, in relation to the first matter identified, you did not really raise the issue of "clean hands", as I understand it, at the trial or in the Court of Appeal.

MR BROUN: Your Honour, that was, in a sense, the whole thrust of our case.

KIRBY J: But as such you did not propound that that was a basis within that jurisprudence to reject the claim.

MR BROUN: We did not specifically plead "clean hands", your Honour.

KIRBY J: As to the costs, it would be a very rare thing for this Court to become involved in an order as to costs.

MR BROUN: Indeed.

KIRBY J: So that you may have something on your separate point but those two points do not seem to be special leave points to me.

MR BROUN: Your Honour, may I say that we put what we might call the lying and cheating point three ways. First of all, we say that really "clean hands" is not a matter of pleading or raising. It is a matter of jurisprudential approach or what a judge should do in approaching an issue where that sort of issue stares out and is the main thrust of the case. It is something that needs to be looked at carefully and ought to be a central point, as indeed it was.

GLEESON CJ: Which ground of appeal in the amended notice of appeal on pages 34 and 35 raise this point? Pages 34 and 35 was, I understand it, the notice of appeal with which the Court of Appeal was dealing.

MR BROUN: Yes. The notice of appeal in the Court of Appeal? No, it was not a specific separate ground before the Court of Appeal.

GLEESON CJ: That is probably why we do not find the Court of Appeal dealing with it.

MR BROUN: We do not find them dealing with "clean hands" as a separate argument but they deal extensively and, indeed, the summary of the case entirely turns upon the fact that there was a plaintiff who was a liar, a cheat, a participant in false swearing - - -

GLEESON CJ: And provided all the money?

MR BROUN: No. Well, she said she did but, of course, she had prepared documents that she had Mr Sandor sign that said she did not.

GLEESON CJ: But was there not a finding of fact that she provided all the money?

MR BROUN: There was ultimately a finding of fact that way, but even then we would say that a court should have rejected that because of the facts that contemporaneously the plaintiff had participated in the preparation of statutory declarations by which it had been sworn, verified that it was not her money.

The trouble is, your Honours, and this is perhaps the central point on the cost question, the Trustee has no personal knowledge. He has to make his inquiries, look at the contemporary documents as far as he can get them, look at the facts and say is this the bankrupt's property? That is his job. That is what he is there for.

KIRBY J: Is there a pronouncement of a general principle that you rely on that because of the Trustee's trust position that the Trustee ought not to suffer the ordinary rule as to costs?

MR BROUN: I could not put it that highly, your Honour. No, there have been a number of comments - - -

KIRBY J: If there is not, then is not this simply an application of the general principles as to costs for the exercise of discretion?

MR BROUN: Your Honours, yes, but we would submit that where you have somebody performing a statutory office, such as Trustee in bankruptcy, he has to be given a fair go.

KIRBY J: Yes. I assume you put all these points to the courts below and if they - and I mean they are in a sense self-evident that he is not an ordinary litigant pursuing his own personal advantage, so it would be impossible to think that that was not a factor but, nonetheless, in the exercise of discretion the order was made. It is pretty hard to get us involved in such a matter.

MR BROUN: I regret if that is the case, your Honours, because essentially a Trustee in bankruptcy, if this case stands, he has to know that unless he can get an indemnity from the creditors - and often that is not available because the creditors have not got the money or the creditors are not prepared to invest further money - if he cannot get an indemnity from creditors then he cannot afford to go ahead.

KIRBY J: That does not necessarily follow. I did not understand the Court of Appeal to be laying down a general rule that a Trustee in bankruptcy must always suffer the consequences of losing a case. I mean, there is no general principle laid down. It is just special to this particular case.

MR BROUN: Your Honour, that, in my submission, cannot be right in a situation where what the Trustee relied on in this case was so strong and clear if as a matter of proper exercise of discretion he gets ordered to pay the costs personally in that case. What sort of a case could there be where he does not suffer consequences of costs? This is a very strong one.

GLEESON CJ: There was a finding on the bottom of page 31 at line 44 by Mr Justice Young about the approach taken to this case by the officers of the Trustee.

MR BROUN: There was some criticism. I accept that, your Honour, but nonetheless, what the Trustee had was very strong and compelling material. Now, your Honours, what we would put our first point on, not only on the "clean hands" question, we would also say that this is a case where there is an opportunity to look at, in a general context, a principle which is developed in the other jurisdiction which constantly has this problem of things being told to a taxation authority, a revenue authority, a bank, a lender on the one hand, and then in court years later an entirely different story is told.

It occurs basically in two areas, in insolvency law and practice and in family law, and the Family Court has developed a series of principles about it derived from a case called Elias where they have effectively said, with certainly a vast number of qualifications, that if somebody swears one thing one time or represents a fact to a taxation authority, stamp duties or a bank on one hand, then there has to be a pretty sound reason for letting him say something else to another court.

Now, this is a sort of evidentiary estoppel question but it is something that has occurred so often and has been the subject of such comment in so many judges in cases that it seems to have developed into a sort of principle. Now, your Honours, if that one that occurs so often in family law is transferred into bankruptcy law - - -

GLEESON CJ: What exactly is the principle?

MR BROUN: I have tried to set it out in our summary of argument that if a witness has advanced, for his own advantage, to a revenue authority or other authority, typically banks and taxation office are the usual two, then he cannot be heard later to say that was all false and the facts are otherwise.

GLEESON CJ: That would facilitate the administration of criminal justice.

MR BROUN: It does not arise - - -

GLEESON CJ: It would shorten cases.

MR BROUN: I am sure some very different questions would arise in a criminal matter but in jurisdictions or areas of practice where it occurs so often, as in family law and insolvency, unless one has some sort of a guiding principle like this, one is in difficulties, and particularly trustees.

KIRBY J: I wonder about that. Essentially it seems to be a bit of an obstacle to the court's duty to get at the truth if, in fact, there has been a false statement. Why should there be some estoppel or any principle that prevents the particular court with a duty to hear, then determine the case, getting at the truth of the case?

MR BROUN: Your Honour, I suppose it comes back to the question of why does a court go in to assist or to even entertain an application for somebody's benefit when that witness was perfectly prepared to lie and to cause other people to lie, even to statutorily declare lies in the past for their advantage.

KIRBY J: But there may be reasons of experience in the Family Court that have led to the formulation of this rule. We are not asked to pass on that now but in so far as you are seeking to import it as a general principle of evidentiary estoppel applicable to bankruptcy, I must say I am doubtful of it.

MR BROUN: Yes.

KIRBY J: I speak for myself.

MR BROUN: The third way, and this is the way, perhaps, we emphasised in the Court of Appeal that we particularly want to advance these points is, in effect on State Rail Authority v Earthline. We would say that the factual conclusions in the face of those contemporaneous verified documents is just not supported.

KIRBY J: All of that, presumably, was battled out at trial?

MR BROUN: And battled out, to some extent, in the Court of Appeal but did not find favour but we would submit that the result here is just - - -

KIRBY J: Not an end to battling, unless it is a case that is a very strong case. It is very rare that this Court would get involved in the sorting out of the facts. Earthline was a very strong case and Earthline did not expunge Jones v Hyde and Avalos, it simply, as it were, indicated that there were other factors to be considered in the discharge by a first level appellate court of its functions.

MR BROUN: Yes. I put to your Honours, of course, that certainly on our side we may be looking at the issue from a particular issue, namely the Trustee in bankruptcy, but we would say that this is a very strong case. When all the contemporaneous documents, including verified ones, supported the Trustee's position, the - - -

KIRBY J: That is a very strong statement by Justice Young, very strong, that your officers' minds were poisoned. It is not often one sees a statement as strong as that.

MR BROUN: Your Honours, whether they were poisoned or not, the fact is there were some very good bits of poison around, namely the statutory declarations, the existence of the title, the statement made several years later that that was a property he owned and he had a mortgage liability and he was not paying any rent. That is pretty good poison.

KIRBY J: But a donee of public power ought not ever to have a poisoned mind. It is always important to keep the mind open because you are the donee of public power.

MR BROUN: Your Honour, that is so, but how does one keep an open mind and perform the duties as of a trustee in bankruptcy in that situation?

KIRBY J: But the sensible and practical Trustee in bankruptcy knows that sometimes, for other purposes, revenue purposes, people do tell lies but then it is still their duty to get at the truth.

MR BROUN: Your Honour, unhappily, lies and deception in bankruptcy and insolvency law generally are commonly encountered. Your Honours, I can put it no stronger than that but may I turn then to the completely discrete point, the question of the trial judge's finding in the Court of Appeal's upholding this notion that one may borrow money contributed to that borrowed money to the purchase of a property and not make a contribution to the purchase.

Now, in effect, the Court of Appeal and the trial judge have invented, we would perceive, a new concept in law that one may not only be a trustee of assets, but one may be a trustee of liabilities, that it was sort of held here that Mr Sandor was, for the purposes of the debt he incurred to Home Sure by borrowing the bulk of the purchase price, that that debt he incurred and that pledging of his personal liability was not even a guarantee. It was that he was the nominee of Miss Ramirez.

Now, we would say that that just must be wrong. I may hold an asset on behalf of another but, in my submission, in law, I cannot hold a liability on behalf of another. It is my liability. I cannot say, "Well, don't look to me. I'm just the nominee. There's the real debtor", and in this case it is quite clear that Mr Sandor borrowed the money. Nobody else was lending it, it was not being lent to anyone else. He had that money. He put it into the purchase price. He made thereby, in our contention, a contribution to the purchase price and we would submit that that alone merits special leave because, without it, the Court of Appeal has created a new legal entity.

Now, your Honours, unless there are any other matters I can assist your Honours with, those are our submissions.

GLEESON CJ: Yes, thank you, Mr Broun. We do not need to hear you, Mr Tregenza.

MR TREGENZA: As your Honours please.

GLEESON CJ: The decision of Mr Justice Young at first instance and of the Court of Appeal turned on the application of well-settled principles to the facts and circumstances of the case and is not attended by sufficient doubt to warrant a grant of special leave to appeal. The application is refused.

Can you resist an order for costs, Mr Broun?

MR BROUN: Yes, we do, your Honours, because if your Honours look at our outline of submissions we said that in order to save costs, we did not seek to be heard orally. Now the respondents then brought us here by saying, "No, we want to make oral submissions." So, in our submission - - -

KIRBY J: It is a natural step for them to take in self-defence. They have not briefed Queen's Counsel or Senior Counsel. It is reasonable, is it not, that they should wish to be heard? It is very important to them. They are not in a public position but in a private position. Everybody is entitled to defend themselves.

MR BROUN: Well, your Honour, Mr Wily, of course, in this case, as in others, he does not have a public purse in which to dip for costs.

KIRBY J: That is true but he is the donee of statutory power.

MR BROUN: This is his own pocket. Well, we would submit that where we have sought to minimise costs, where this appearance today is the result of the action of Ms Ramirez, we ought not to be ordered to pay at least the costs of today.

KIRBY J: Mr Broun, that is a classic problem of causation. Is it because of your application for special leave or is it because of the wilfulness of the respondent? It seems as though it would not have happened but for your application for special leave.

MR BROUN: Undoubtedly, our application for special leave is a causa sine qua non but we would submit, nonetheless, we have done our best to minimise the costs and they were frustrated.

GLEESON CJ: Thank you, Mr Broun.

The applicant must pay the respondent's costs of the application.

AT 11.12 AM THE MATTER WAS CONCLUDED