Wenkart v Warren Pantzer-Former Trustee of the Estate of Thomas Richard Wenkart & Anor [2014] HCATrans 141 (20 June 2014)

Last Updated: 24 June 2014

[2014] HCATrans 141

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Sydney No S25 of 2014

B e t w e e n -

THOMAS RICHARD WENKART

Applicant

and

WARREN PANTZER-FORMER TRUSTEE OF THE ESTATE OF THOMAS RICHARD WENKART

First Respondent

HAPDAY HOLDINGS PTY LIMITED (ACN 001 185 253)

Second Respondent

Application for special leave to appeal

KIEFEL J
BELL J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 20 JUNE 2014, AT 12.19 PM

Copyright in the High Court of Australia

MR R.E. DUBLER, SC: May it please the Court, I appear with MR M. GREEN, for the applicant, your Honours. (instructed by Bruce & Stewart Lawyers)

MS E.A. COLLINS, SC: May it please the Court, I appear for the first respondent. (instructed by Bartier Perry)

KIEFEL J: Yes, Mr Dubler.

MR DUBLER: Your Honours, this application brings forward two quite distinct issues. The first involves a straightforward, unsettled question of law, which we say has issues of public importance with it, in the area of both bankruptcy law and the general law of trusts. The second issue involves what we say is an incorrect characterisation of the remarks of counsel in open court on one occasion, which had a significant effect on the course of litigation thereafter. Whilst we say the Full Court below in the way in which it dealt with that issue raises some issues of general importance, we would substantially, in that case, rely upon the interests of justice in the particular case.

Could I deal with those two separate issues in turn? The first question could perhaps be described as follows; that is, whether a former trustee in bankruptcy, post-annulment, when pursuing litigation for recovery of his fees – in this case, that was to enforce a charge that was on property of the former bankrupt for his fees – can claim the time spent on that litigation as remuneration in a notional trusteeship for a notional estate, which has, of course, been annihilated by the annulment.

KIEFEL J: Well, do you say that the annulment itself takes away some of the rights to remuneration given by the Bankruptcy Act?

MR DUBLER: Yes.

KIEFEL J: How does that follow?

MR DUBLER: It follows because the section – if your Honours are able to find section 162 – that is in the authority book, at page 20. The rights of remuneration – it really flows along these lines. Firstly, in order to have a right of remuneration, it must be found in the Act. Secondly, the annulment takes away the vesting of the property in the trustee automatically. Next, this is an annulment under section 74(5), and under that section, there is no preservation of any estate, and that is on page 15 of the authority bundle. So that what has to occur in order to get to the gateway of remuneration, post-annulment, is to put that position in the gateway of section 162. So under 162, this is the general position of trustee’s remuneration, and as can be seen, the provision that would apply would be subsection (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.

So our position essentially, to then directly answer your Honour’s question, is that at most one could imply into what does not appear directly a statutory overhand, at best, for work performed whilst a trustee. On the face of things, prima facie - - -

KIEFEL J: Are you saying that it only has a temporal limit – would not the trustee’s remuneration – the right to remuneration is founded upon the trustee acting in the capacity of trustee, with respect to property or with respect to the pursuit of remuneration for services as trustee?

MR DUBLER: Yes. So the trustee here – prima facie, section 162(4) would deal with where there is an estate. Now, under the annulment there is no estate. What we would say in response to your Honour’s question is that under the general law of trust, you would not be able to receive remuneration if the trustee had a power of remuneration or an indemnity for the costs. It was essentially and quintessentially, it remains a private action for recovery of his fees. So it was a matter both of the statute, which may mean the general law has a special area for trustees, former trustees, but prima facie, firstly, we indicate you do not get a special provision dealing with the situation, it is absent. Falling on the general law principles - - -

KIEFEL J: But you are in the wrong statute here. What the Full Court has held is that the statutory rights to remuneration are not affected by an annulment, because there is a statutory intention to remunerate a trustee for work – services performed in the capacity of trustee. It is that distinction, the work performed in the capacity of trustee, which sets apart the primary judge’s decision and the decision of the Full Court.

MR DUBLER: Yes. Well, could I deal with that directly, and indicate that the primary judge, Justice Branson, we would say, should be regarded as the good law. So that could I identify precisely the error where we say, even taking the test of capacity of trustee, that what has emerged from the Full Court’s decision below is an extension of the principle that would have applied under general law if we were dealing with the general law position of trustees, and that there would be no cause for making that extension under the statute where there is certainly no ground, or there is no basis for saying it should go beyond the general law position. Could I try and explain it by going directly to where we say the error appears?

In the application book - the two relevant passages of both the former Full Courts can be found in the application book at page 274. Your Honours will be at page 85 of the decision of the Full Federal Court of 30 July 2013. At lines 20 to 30, I will take your Honours directly to the passage in a moment, that is a recitation of the previous 2006 Full Federal Court decision. At about line 22, your Honour will see the sentence:

In the same sense, any litigation into which a trustee might be drawn concerning remuneration, disbursements and expenses is litigation for the trustee’s benefit.

So there we would say the court is dealing with general law principle, the principle being that if it is for the trustee’s benefit, it cannot generally be regarded as being in the capacity as a trustee and, hence, comes with remuneration or indemnity costs. They go on to say this:

But to characterise it this way does not necessarily answer the question whether the trustee (or former trustee) has been properly involved in the litigation as an incident of having acted as a trustee charged with the responsibility of administering the bankrupt’s estate.

Then just if I could paraphrase, they go on to point out that in recovering fees and moving on the charge, the purpose would be to give effect to the orders which gave the charge and more generally administering the estate. That is adopted but more recently in 2013, as we can see in paragraph 3 - - -

BELL J: Before we come to the adoption, am I right in understanding that the passages that you have just taken us to in the reasons of the Full Court in 2006 was the subject of the unsuccessful application for special leave in 2007?

MR DUBLER: Yes, yes. We have to face this directly - - -

BELL J: Yes.

MR DUBLER: - - - but not only that, there was a 2008 application in another matter that raised essentially the similar point – the correctness of this decision. So there were Justices Gummow, Callinan and your Honour, which, in two separate special leave applications, expressed the view there were insufficient prospects. I have two things, essentially, to say to it, one is the obvious. Firstly, in both those cases, there was a question of incompetency because the judgments were regarded as being interlocutory. Nevertheless, foundationally and fundamentally, I have to convince your Honours that there are sufficient prospects despite those remarks, and that is what I am seeking to do.

I was going to go to paragraph 306 briefly to mention that the only additional reasoning from the more recent Full Court is that there is the notion of the litigation for recovery of fees being not unreasonable – that is in the first sentence – and that it was due to the fact that there was resistance to the recovery proceedings, and that is the reasoning for saying it should be regarded as being, we would put it, within the idea of a notional trusteeship and it comes within indemnity and rights of remuneration against the fiction of the State.

Now, where we say the law has taken the wrong turn can perhaps best be demonstrated by looking at when it was last dealt with by the High Court, and that is in Barnes’ Case. If your Honours are able to turn to the authority book at page 49, I will take your Honours to the statement of principle in 1941 by this Court, in the case of National Trustees Executors and Agency Company of Australasia v Barnes. At page 279 of the report, Justice Williams, with whom Acting Chief Justice Rich agreed, stated – and this is at about the middle of the page, about point 5:

Such expressions as acting “for the benefit of” “with reference to” or “on behalf of” the trust estate or in the discharge of his duty as a trustee are used indiscriminately in the judgments, but they all mean the same thing, namely, that the question is whether the costs, charges and expenses are properly incurred -

One can see this – whilst the Full Court in 2006 did not cite this, it is the similar language of principle -

by the trustee as an incident of his administration of the estate. If a trustee is sued by beneficiaries who complain of some act or omission by the trustee, he is entitled to defend his conduct as an incident of such administration -

Where that has been, we say, impermissibly broadened, is that the Full Court in 2006 said that it would be enough if you could look to it being an incident of formally being charged with responsibility of administering the estate, as opposed to it being an incident of the administration of the estate. So what is being substituted for a more direct causal connection between administration and the litigation is a notion of a bare sine qua non type of causal connection, and we say that that moves the law in the wrong direction. For example, as cited in our argument, Jacobs on The Law of Trust at page 635 to 636 of the 1997 edition quotes early English authority that even though an action may have a remote connection with the trust, if it is for the trustee’s own benefit, it does not come with indemnity costs.

KIEFEL J: I am having a little difficulty with this argument. If the trustee in bankruptcy has incurred costs and is entitled to remuneration on the basis that they are properly incurred in the administration of the estate, and there is a refusal for them to be paid, or some challenge to their payment, the trustee is normally entitled to sue and the actions in suing and the costs associated with it are regarded as an incident of the administration of the estate. He is still acting in the capacity as trustee in retrieving – in securing his remuneration.

MR DUBLER: That is where we part company. We say no - - -

KIEFEL J: Well, I do not see conceptually how it could be otherwise. You would never have a trustee in bankruptcy in Australia who would ever take the job.

MR DUBLER: It comes down to this, your Honours. Such litigation will come with the normal party/party costs. To add on top of it for a former trustee the rights - - -

KIEFEL J: Is it only the indemnification that is really your argument? Is it only focused on that?

MR DUBLER: Yes, yes. Certainly, the rights to fruits of the victory of the litigation is unquestioned. The point of principle is whether there is indemnity costs from the estate directly, and in addition – and this is where the expensive part comes in – rights of remuneration for time spent pursuing litigation.

KIEFEL J: But if he is acting as trustee, of its nature, he is both at law and by statute entitled to indemnification from the estate.

MR DUBLER: Not once he is - - -

KIEFEL J: You would have to sever – you would have to distinguish the capacity in which he incurred the costs and expenses to be able to avoid that result.

MR DUBLER: No. Simply what is, we say, impermissible is if you go into the arena as a former trustee, post-annulment, and sue, and instruct your lawyers to sue for your fees, it becomes a private matter. It is substantially a private matter, because it distorts the natural - - -

BELL J: You can choose to stay out of the arena, can you, and just go without your fees?

MR DUBLER: No, it is only the point of, can you get your time spent in instructing your lawyers or not? Or are you – I hesitate to use the word, but relegated to that of an ordinary litigant, is the difference.

KIEFEL J: So the way that a bankrupt avoids that part of his estate being made available to meet the trustee’s remuneration is to challenge it?

MR DUBLER: No, so that if there is a challenge - - -

KIEFEL J: Forcing the trustee to bring, usually often, unnecessary litigation, because that – he is somehow converted into suing in his personal capacity.

MR DUBLER: Yes.

KIEFEL J: An extraordinary result.

MR DUBLER: Well, it would be the result, in fact, of most professionals who sue for their fees, and so it puts them on the same level as that.

KIEFEL J: I think a trustee in bankruptcy somewhat stands apart and has been given the protection of the Bankruptcy Act to overcome these very problems.

MR DUBLER: Could I perhaps put it in the language of the Inspector-General, who did intervene in 2006, broadly in support of our proposition? In his submissions, he said this - remuneration and costs incurred by the trustee in securing a charge over the bankrupt’s property for the amount of the remuneration and costs and in enforcing the charge are not incurred in order to administer the estate, or to attend to duties under the Act in terms of the dual functions described in that setting, and Berlouis.

That is essentially our point; that it has moved from administration to suing for your private fees, and then it comes with rights to party/party costs, but it does not come with rights of remuneration and indemnity costs. We would add to that – I know your Honours see the Bankruptcy Act as perhaps beneficial – but we would say it also distorts - - -

KIEFEL J: Protective might be a better term.

MR DUBLER: Protective of trustees. There is the principle under the notion of an annulment of the notion, but under an annulment general case law suggests that the intention is to put the bankrupt in the position he would be as if there had never been a bankruptcy, to the full extent permitted by the law. We would say it is counter to that notion to have an ongoing preservation of a fictional trusteeship, whereby suing for your fees can generate further work in the capacity of a trustee, just because you say no.

So there is the reverse side of the coin, which is essentially this. It would act as a very powerful deterrent for the bankrupt to challenge fees if he knows it will come with more fees. In the case here, 98,000 was the amount in dispute, but it has generated up to a half a million in fees by the former trustee since the annulment. So that ongoing fees continuing to be a lien in the estate after annulment is contrary to the statutory intention that this is a – putting a person back in the shoes, as if there had never been a bankruptcy. By all means, they can have their private fight, they can be the litigation, they can be the party/party costs, it is just those two extra elements that we say is contrary - - -

KIEFEL J: Given the time, did you wish to move to your second point?

MR DUBLER: Yes, your Honour. This issue can be described as a litigation agreement, or a litigation estoppel issue. The error of the Full Court, we can say, can be described as follows. Counsel, on 21 October 2003, in response to his Honour Justice Lindgren’s question, said “yes” about a state of affairs. That resulted in consent orders, a concession being recorded in consent orders, a hearing in 2005, and then a reporting of that statement being erroneous in 2008. Justice Branson, when confronted with that proposition, said that essentially, any application to move from the previous position of 2003 would have to come with an application to reopen the consent orders and the concessions. When that was not done, the case moved on, and that the - - -

KIEFEL J: Did her Honour actually find that an agreement had been made? Are you able to point to that finding?

MR DUBLER: Yes. It should appear, if my notes are correct, in the application book at page 65. Your Honour will see - - -

KIEFEL J: That is simply a finding of what had been said to Justice Lindgren, not any underlying agreement.

MR DUBLER: I think what we have to then move to is the authority bundle, page 236. Unfortunately, Justice Branson returned to the issue when there was an application for leave to reopen her previous ruling, and that decision is in the authority bundles at page – yes. Perhaps if your Honours start at page 235, paragraph 27. The sentence at the bottom of the page:

Even were I satisfied that Mr Panzer should have leave to re-open his case for the purpose of adducing further evidence (which I am not), I am not satisfied that the additional evidence . . . relevantly bears on the only issue . . . That issue is whether this proceeding has been conducted by the parties on the basis of an agreement by Mr Pantzer

to have the bills of costs of Cutler Hughes & Harris taxed and, if so whether that agreement is reflected in the orders made by Lindgren J on 21 October 2003.

KIEFEL J: Well, the first aspect of that is not inconsistent with the way the Full Court approached it, which is to consider whether or not there had been an estoppel effected in the litigation and then to look to see if there was a detriment to support it.

MR DUBLER: No, but the difficulty - the flaw, we would say, in the Full Court below is treating what we would call a fairly commonplace litigation agreement, or a litigation estoppel, as being that species of estoppel where you have to have evidence of reliance and the like, when - - -

KIEFEL J: I did not know there was a separate category called litigation estoppel.

MR DUBLER: What I am trying to point out is that the error of the Full Court was to avoid – to step over the reality of the situation that it was the lawyers that were doing the relying, and so if the transcript makes it plain that counsel indicates to the court that this is a state of affairs, and then the lawyers, in court, agree on a consent regime, including orders and a concession, and a hearing takes place, it would not be erroneous – bearing in mind that there was this finding of agreement and the like – it would not be erroneous for Justice Branson to say, if you are going to change that state of affairs, you have to at least have an application to reopen, so that the consent orders could be revisited and the concession revisited.

KIEFEL J: I see the time.

MR DUBLER: Yes, may it please the Court.

KIEFEL J: Is there anything you need to add?

MR DUBLER: Only the essential, obvious point – that counsel, when they make remarks in court, should correct things immediately. There was an error here - - -

KIEFEL J: I think we would agree with you on that.

MR DUBLER: If it is found many years later, the consequence of – along the lines of Justice Branson – is the correct one, we would say. May it please the Court.

KIEFEL J: Thank you. Ms Collins, we will not need to trouble you.

In our view an appeal would enjoy insufficient prospects of success to warrant a grant of special leave. Special leave is refused with costs.

AT 12.24 PM THE MATTER WAS CONCLUDED