FEDERAL COURT OF AUSTRALIA
Allison v Murphy [2021] FCAFC 232
Appeal from: Application for extension of time: Murphy v Allison [2021] FedCFamC2G 184 File number: QUD 389 of 2021 Judgment of: BESANKO, COLVIN AND DOWNES JJ Date of judgment: 20 December 2021 Catchwords: BANKRUPTCY AND INSOLVENCY - funds held in solicitor's trust account when sequestration order was made by registrar - funds transferred to petitioning creditor after sequestration order made - transferred funds less than debt owed to creditor - creditor did not accept tender of payment of debt - whether judge conducted de novo hearing - whether judge put to one side the fact that there had been a sequestration order - whether judge erred in approaching review on basis that sequestration order meant that funds in solicitor's trust account were not funds available to debtor for the purposes of the hearing de novo - consequence of payment not being accepted by creditor was that creditor's petition should not have been dismissed Legislation: Bankruptcy Act 1966 (Cth) s 52
Federal Circuit Court (Bankruptcy) Rules 2016 (Cth) r 4.06
Cases cited: Allison v Murphy [2021] FCA 1551
Bechara v Bates [2021] FCAFC 34
Clyne v Deputy Commissioner of Taxation (1984) 154 CLR 589
Harrington v Lowe (1996) 190 CLR 311
McIntosh v Shashoua (1931) 46 CLR 494
Porter as former trustee of the estates of Ghasemi and Kakhsaz v Ghasemi [2021] FCAFC 144
Psevdos v Commonwealth Bank of Australia (No 2) [2017] FCA 19
Stead v State Government Insurance Commission (1986) 161 CLR 141
Division: General Division Registry: Queensland National Practice Area: Other Federal Jurisdiction Number of paragraphs: 65 Date of hearing: 15 December 2021 Counsel for the Applicant: Mr J Frankcom Solicitor for the Applicant: CCA Legal Pty Ltd Counsel for the Respondent: Mr AJH Morris QC ORDERS
QUD 389 of 2021 BETWEEN: PAUL FRANCIS ALLISON
Applicant
AND: JOHN PAUL MURPHY
Respondent
ORDER MADE BY:
BESANKO, COLVIN AND DOWNES JJ
DATE OF ORDER:
20 DECEMBER 2021
THE COURT ORDERS THAT:
1.There be an extension of time to allow the appeal to be heard.
2.The appeal be dismissed.
3.The appellant do pay the respondent's costs of and incidental to the appeal to be assessed if not agreed.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
THE COURT:
Mr John Paul Murphy is a barrister. On 30 August 2019, he obtained judgment in the Brisbane Magistrates Court against his former client Mr Paul Francis Allison. The principal amount the subject of the judgment was $28,758.60. However, with interest and costs, judgment was entered for $49,032.02. Almost 18 months later, Mr Allison was served with a bankruptcy notice. It claimed that Mr Allison owed the principal debt, further interest of $3,387.90 and amounts for fees and costs being a…
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- AGLC
- Allison v Murphy [2021] FCAFC 232
- Case
- [2021] FCAFC 232
- Decision Date
CaseChat Overview and Summary
In the matter of Allison v Murphy, the dispute arose from a sequestration order issued by a registrar under the Bankruptcy Act 1966 (Cth). The case involved funds held in a solicitor's trust account at the time the sequestration order was made. These funds were transferred to the petitioning creditor after the sequestration order, but the transferred amount was less than the debt owed. The creditor did not accept the tendered payment, leading to questions about the validity of the review process and whether the judge correctly treated the hearing de novo, independent of the prior sequestration order. The central issue was whether the judge erred by considering the sequestration order as relevant to the availability of the funds in the solicitor's trust account during the review hearing.
The legal issues before the court involved the interpretation of the Bankruptcy Act, particularly sections 52(1) and 52(2), concerning the requirements for a sequestration order and the onus of proof on the creditor to demonstrate that the debt still existed and exceeded the statutory minimum. The court had to determine if the review judge correctly treated the hearing as a de novo process and whether the judge should have disregarded the prior sequestration order when considering the status of the funds in the trust account. The court also considered whether the creditor's failure to accept the tendered payment meant that the petition should not have been dismissed.
The court held that the review judge did not err in conducting the hearing de novo and treating the sequestration order as not influencing the availability of the funds in the trust account. The court found that the judge correctly approached the review as a fresh hearing, independent of the prior decision. The court concluded that since the creditor did not accept the tendered payment, the petition should not have been dismissed, thus affecting the outcome of the case. The appeal was dismissed, and costs were awarded to the respondent.
The legal issues before the court involved the interpretation of the Bankruptcy Act, particularly sections 52(1) and 52(2), concerning the requirements for a sequestration order and the onus of proof on the creditor to demonstrate that the debt still existed and exceeded the statutory minimum. The court had to determine if the review judge correctly treated the hearing as a de novo process and whether the judge should have disregarded the prior sequestration order when considering the status of the funds in the trust account. The court also considered whether the creditor's failure to accept the tendered payment meant that the petition should not have been dismissed.
The court held that the review judge did not err in conducting the hearing de novo and treating the sequestration order as not influencing the availability of the funds in the trust account. The court found that the judge correctly approached the review as a fresh hearing, independent of the prior decision. The court concluded that since the creditor did not accept the tendered payment, the petition should not have been dismissed, thus affecting the outcome of the case. The appeal was dismissed, and costs were awarded to the respondent.
Orders
Orders of the court
1. There be an extension of time to allow the appeal to be heard.
2. The appeal be dismissed.
3. The appellant do pay the respondent's costs of and incidental to the appeal to be assessed if not agreed.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
Background
Background to the litigation
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Evidence
Evidence Before The Court
For those reasons, there should be an extension of time in which to appeal.Application to adduce further evidence Mr Allison made application to adduce further evidence in the appeal being a letter from Mr Murphy to the solicitor acting for Mr Allison dated 10 June 2021 (being about a week after the registrar made the sequestration order and well before the hearing before the primary judge). The letter referred to statements that had been made by the solicitor to the registrar to the effect that the amount of $47,384 had been paid into the solicitor's trust account for the purpose of paying Mr Murphy. It made demand for the funds to be remitted to Mr Murphy. We refused the application to admit the further evidence. Our reasons for doing so are as follows. First, it was plain that the letter was available to be presented in evidence by Mr Allison before the primary judge but that was not done. Assuming it had significance, there was no explanation as to why it had not been relied upon before the primary judge. Indeed, given the limited material and the narrow scope of the issues before the primary judge it is very difficult to see how any such significance might have been overlooked. Second, if the letter was received it could open up issues as to the circumstances in which it had been sent. Those were matters that should not be dealt with for the first time on appeal. Third, the letter did not contain any admission against interest. It referred to the monies being held in a trust account to be paid to Mr Murphy and claimed that the solicitor had not stated that any conditions applied to the trust. Therefore, the letter simply relied upon statements that had been made to the registrar as a basis for the demand. Fourth, the contentions advanced on behalf of Mr Allison in the appeal were based upon the actual payment of the monies to Mr Murphy and claims as to the status of those monies before they were paid. The fact that Mr Murphy had made the demand in the letter was not relevant to the determination of those matters. The fact of the demand could not affect the status of the monies in the trust account which was determined by dealings between Mr Allison, his solicitor and his relatives. Further, there was no suggestion that the payment made to Mr Murphy had been made because of the demand.Grounds 1 and 2 The first two appeal grounds can be dealt with together. They depend upon the proposition that proof of payment to Mr Murphy of $47,784 would lead to the conclusion that the creditor's petition should have been dismissed by the primary judge. In order to deal with the grounds, it is first necessary to consider the significance for them of the nature of the review proceedings that were before the Circuit Court judge. On the one hand, the sequestration order made by the registrar was valid and effectual and operated to commence the bankruptcy of Mr Allison. Therefore, by the time of the hearing before the Circuit Court judge, Mr Allison was a bankrupt. He was also a bankrupt at the time that the payment was made from the solicitor's trust account to Mr Murphy's bank account.
Decision
Reasons for decision
By reason of the matters deposed to by way of affidavit, by the time the matter came before the Circuit Court judge on 27 August 2021 for review of the registrar's decision, it was apparent that Mr Allison claimed to have tendered the amount in the trust account towards payment of the debt and disputed matters stated in the report to creditors concerning other liabilities. As to the debt claimed by Mr Murphy, Mr Allison claimed that payment of the amount of $47,784 had been made and in consequence the debt was less than the statutory minimum and on that basis the petition should be dismissed.The nature of the proceedings to review the registrar's decision In Bechara v Bates [2021] FCAFC 34, the Court considered the state of the authorities concerning the nature of an application to review a sequestration order in bankruptcy made by a registrar and concluded at [27] that the following matters were clear:(a)The application for review leads to a hearing de novo of the creditor's petition.(b)The hearing (or rehearing) of the creditor's petition is not prosecuted by the debtor (applicant for review) but by the creditor in the proceeding in which the registrar's order was made.(c)The application for review is a demand that the claim for relief (the sequestration order) be heard by a judge.(d)The onus is upon the creditor to prosecute its petition. The only onus of the debtor/bankrupt against whose estate a sequestration order has been made is to prove either solvency or any other sufficient cause under s 52(2) of the Bankruptcy Act 1966 (Cth).(e)An appreciation of the above considerations makes it evident that summary or default judgment terminating an application for review is highly likely to be misconceived and founded upon a misconception that the applicant for review has an onus to prosecute an application or to show error in the approach of the registrar. Therefore, on such a review application, the judge is not concerned with considering the correctness of the decision made by the registrar or redressing any perceived error in that decision. Rather, the Court hears the case again unaffected by what has gone before and the applicant on the review is the petitioning creditor even if it is the debtor who brings the review application: Robson at [2], [38], [40], [61]-[64], [299]. Accordingly, it was for Mr Murphy to prove the fact that the debt or debts on which he relied were still owing as at the date of the hearing: s 52(1)(c) of the Bankruptcy Act. Only if there was evidence upon which the Court may be satisfied as to the proof of that matter could the Court make a sequestration order on review. Further, the debt must be above the statutory minimum of $10,000 required to support a petition for a sequestration order. In addition, it may be noted that s 52(2) provides:If the Court is not satisfied with the proof of any of those matters [that is, the matters stated in s 52(1)], or is satisfied by the debtor:(a)that he or she is able to pay his or her debts; or(b)that for other sufficient cause a sequestration order ought not to be made;it may dismiss the petition.
Ratio Decidendi
Legal Principle Established
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