McGuire v Sporting Shooters Association of Australia (New South Wales) Coffs Harbour Branch Inc
[2023] FCA 23
•24 January 2023
FEDERAL COURT OF AUSTRALIA
McGuire v Sporting Shooters Association of Australia (New South Wales) Coffs Harbour Branch Inc [2023] FCA 23
Appeal from: Sporting Shooters Association of Australia (New South Wales) Coffs Harbour Branch Inc v McGuire [2022] FedCFamC2G 286 File number: NSD 370 of 2022 Judgment of: MARKOVIC J Date of judgment: 24 January 2023 Catchwords: BANKRUPTCY AND INSOLVENCY – appeal from a decision of the Federal Circuit and Family Court of Australia dismissing an application for review of a registrar’s orders – where registrar made a sequestration order against the estate of the appellant – whether debt truly owing – appeal dismissed Legislation: Bankruptcy Act 1966 (Cth) s 52
Federal Circuit and Family Court of Australia (Division 2) (Bankruptcy) (Rules) 2021 (Cth)
Federal Circuit and Family Court of Australia Act 2021 (Cth)
Cases cited: Katter v Melhem (No 2) [2014] FCA 1176; 319 ALR 646
Ramsay Health Care Australia Pty Ltd v Compton (2017) 261 CLR 132
Wren v Mahony (1972) 126 CLR 212
Division: General Division Registry: New South Wales National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Number of paragraphs: 74 Date of hearing: 14 December 2022 Counsel for the Appellant: The Appellant appeared in person Counsel for the Respondent: Mr Davis Solicitor for the Respondent: Bartier Perry ORDERS
NSD 370 of 2022 BETWEEN: MR PADRAIG CHRISTOPHER MCGUIRE
Appellant
AND: SPORTING SHOOTERS ASSOCIATION OF AUSTRALIA (NEW SOUTH WALES) COFFS HARBOUR BRANCH INC (ABN 50 393 246 782)
Respondent
ORDER MADE BY:
MARKOVIC J
DATE OF ORDER:
24 JANUARY 2023
THE COURT ORDERS THAT:
1.The appeal be dismissed.
2.The appellant pay the respondent’s costs of the appeal.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
MARKOVIC J:
On 8 June 2021 the respondent, Sporting Shooters Association of Australia (New South Wales) Coffs Harbour Branch Inc (SSAA), served a bankruptcy notice issued on 7 June 2021 on the appellant, Padraig McGuire. The bankruptcy notice demanded payment of $264,698.53 made up of two amounts: a judgment entered in the Supreme Court of New South Wales on 28 February 2017 in the sum of $220,488.87; and a judgment entered in the Supreme Court on 28 February 2017 for the sum of $44,209.66. The judgments were based on costs assessor determinations of costs payable by Mr McGuire to SSAA pursuant to orders made in proceedings in the Local Court of New South Wales described at [21] and [22] below.
Mr McGuire failed to comply with the requirements of the bankruptcy notice, thereby committing an act of bankruptcy. Accordingly, on 30 July 2021, SSAA filed a creditor’s petition in the Federal Circuit and Family Court of Australia (Div 2). On 17 November 2021 a registrar of that court made a sequestration order under the Bankruptcy Act 1966 (Cth) in relation to Mr McGuire’s estate.
Mr McGuire applied for a review of the sequestration order made by the registrar under s 104(3) of the Federal Circuit Court of Australia Act 1999 (Cth). At the time Mr McGuire made his application that Act was no longer in force. Accordingly, his application was taken to have been made under s 256(1) of the Federal Circuit and Family Court of Australia Act 2021 (Cth). On 22 April 2022 the Federal Circuit Court made orders dismissing the application for review with costs: see Sporting Shooters Association of Australia (New South Wales) Coffs Harbour Branch Inc v McGuire [2022] FedCFamC2G 286 (PJ). Mr McGuire now appeals from those orders.
BACKGROUND
The following background is taken from the reasons of the primary judge.
SSAA is incorporated under the Associations Incorporation Act 1984 (NSW) and is a “branch member” of the Sporting Shooters Association of Australia NSW Inc (Sporting Shooters (NSW)). Sporting Shooters (NSW) is, in turn, a member of the Sporting Shooters Association of Australia Inc (National Association): PJ [12].
Mr McGuire became a member of SSAA in 1982: PJ [14].
On 23 February 2010, at SSAA’s annual general meeting, Mr McGuire and six other members of SSAA were elected as SSAA’s committee (February Committee): PJ [15].
In about April 2010 four members of SSAA complained to Sporting Shooters (NSW) that the election of the February Committee had not been properly conducted: PJ [16].
The February Committee sought legal advice from McNamara James & O’Connor, solicitors, on two questions: first, whether SSAA was entitled to require “allocated members”, who were members who had lodged applications for membership to the National Association but whom Sporting Shooters (NSW) had allocated to SSAA, to pay a subscription fee in addition to any amount they may have paid the National Association; and secondly, whether SSAA could prevent “allocation members” from attending and voting at general meetings of SSAA. By letter dated 10 June 2010 McNamara James & O’Connor provided its advice to SSAA in response to the questions raised by it: PJ [17]-[18].
On 30 June 2010 Sporting Shooters (NSW) convened a special general meeting to remove the February Committee and SSAA purportedly elected a new committee, which did not include Mr McGuire: PJ at [16], [20].
On about 1 July 2010 Mr McGuire caused $24,624.16 of SSAA’s funds to be deposited into McNamara James & O’Connor’s trust account. Those funds were deposited into “Trust Matter #10/0363 that was already in existence”: PJ [20].
By letters dated 21 July 2010 Schweizer Kobras, solicitors for the new committee, demanded that by 26 July 2010 each of Mr McGuire and the other members of the February Committee vacate their “respective offices”, hand over to the new committee all books, records and assets of SSAA, account to the new committee for all expenditure of funds of SSAA made on or after 1 July 2010, and further account to the new committee for all dealings with third parties from on or after 1 July 2010. In those letters Schweizer Kobras stated that if the demands were not met SSAA would commence proceedings without further notice: PJ [21].
By letter dated 2 August 2010 from McNamara James & O’Connor to Mr McGuire those solicitors wrote:
We note your proposal to leave $10,000.00 – $12,000.00 in our trust account. We are currently holding $26,624.16. Please let us have your instructions to whom we should draw the cheque in refund of the balance of the money.
By letter dated 11 August 2010 McNamara James & O’Connor informed Schweizer Kobras that they no longer acted “in this matter”. By letter dated 17 August 2010 (17 August 2010 Letter) Schweizer Kobras responded to McNamara James & O’Connor in the following terms:
We note that you are no longer acting in this matter.
We are instructed that our client was informed by the current committee (the “Committee”) of the Sporting Shooters Association of Australia (NSW) Coffs Harbour Branch Inc (the “Branch”) that it had received various books and records belonging to the Branch from the previous committee, including in particular some records in relation to the Branch’s bank accounts.
The Committee has further informed our client that $26,624.16 (the “Trust Amount”) was deposited into your trust account by a cheque dated 1 July 2010 drawn on a bank account of the Branch and our client has been asked by the Committee to assist the Branch in recovering the funds of the Branch.
Please provide us with all details of all payments made from the Trust Amount, if any. Our client also requests that the remaining balance of the Trust Amount be repaid to the Branch within seven (7) days from the date of this letter. This may be done by sending a cheque to us payable to the Branch.
By letter dated 23 August 2010 from McNamara James & O’Connor to Mr McGuire, that firm recorded:
We refer to our recent telephone conversations concerning this matter and we note that the former committee has agreed to allow another committee to take responsibility for management of the Coffs Harbour branch of the Association. You have instructed us to deduct the costs owing, hold back $20,900.00 in a trust account in your name, and to remit the balance of the monies held in trust the [sic] Sporting Shooters Association of Australia (NSW) Coffs Harbour Branch.
We had received into our trust account $26,624.16 and the outstanding costs totalled $1,949.41. After deduction of that amount from the trust balance there remained $24,674.75. After the further deduction of $20,900.00 to be held on your account, there is a balance $3,774.75 to be forwarded to the branch. We are remitting that amount.
We note that this brings to an end our immediate involvement in the matter.
On 23 August 2010 McNamara James & O’Connor sent a cheque for $3,774.75 to SSAA which they note in their covering letter was being sent “at the instruction of Mr McGuire”: PJ [24].
According to a trust matter ledger for transactions in McNamara James & O’Connor’s trust account for “Matter #10/0363, Advice re Constitution Sporting Shooters Association of Australia (NSW) Coffs Harbour Branch Inc.” (MJO Trust Ledger), the balance of the sum held by it, $20,900, was transferred to a new trust account described as “Matter #10/0540 Mr Padraig Christopher McGuire”. That amount represented the balance of the amount of $26,624.16 (which was originally paid into that firm’s trust account by SSAA) after payment of the sum referred to in the preceding paragraph to SSAA and McNamara James & O’Connor’s costs: PJ [27].
In their letter dated 31 August 2010 to McNamara James & O’Connor, Schweizer Kobras repeated its inquiry made in its 17 August 2010 Letter in relation to the sum of $26,624.16. Once again Schweizer Kobras noted they were instructed to commence proceedings as necessary to recover that amount: PJ [29].
On 31 August 2010 McNamara James & O’Connor responded to Schweizer Kobras’ letter referred to in the preceding paragraph in the following terms:
We refer to your letter of 31 August 2010. We advise that on 1 July 2010 we received from Mr McGuire $26,624.16. Whilst we acted for Mr McGuire in his capacity as President of the Association, the Association incurred legal costs with us of $1,949.41 which we have been instructed to pay from the monies received from Mr McGuire.
Mr McGuire further instructed us to refund to the Association $3,774.75 and to hold in trust $20,900.00 on his behalf and pending his further instructions.
There would appear to be a dispute between the Association and Mr McGuire as to what is to become of those monies. We do not wish to be part of that dispute but are subject to the instructions we received from Mr McGuire in relation to those monies.
Subject to advice we may receive from the Ethics Committee of the Law Society we would propose to pay the $20,900.00 into Court.
On 7 September 2010 McNamara James & O’Connor provided Mr McGuire with a copy of the letter referred to in the preceding paragraph noting that there was a dispute as to who was “entitled to the $20,900”, that McNamara James & O’Connor did not wish to become defendants in any dispute and that the firm would abide by any determination of the court: PJ [30].
On 18 October 2010 SSAA commenced a proceeding in the Local Court against Mr McGuire to recover the sum of $22,849.41 (Recovery Proceeding), being the difference between the sum of $26,624.16 originally paid into McNamara James & O’Connor’s trust account and the sum of $3,774.74 which McNamara James & O’Connor subsequently paid to SSAA: PJ [31].
On 7 December 2010 Mr and Mrs McGuire commenced a proceeding in the Local Court against SSAA in which they alleged that SSAA owed them money for services provided to it (Earthworks Proceeding).
SSAA was successful in both the Recovery Proceeding and the Earthworks Proceeding and a costs order was made against Mr McGuire in each of those proceedings: PJ [32]-[36].
SSAA applied to have its costs assessed and its bills of costs were submitted to Sandra Hale, the costs assessor appointed to undertake the assessments. On or about 20 October 2015 Ms Hale provided her determination of costs for SSAA’s costs in each proceeding. Mr and Mrs McGuire then applied for a review of Ms Hale’s determinations: PJ [42]. The review of the costs determinations was ultimately unsuccessful.
Once the review proceedings were complete SSAA had the costs certificates registered as judgments in the Supreme Court. It was those judgments which founded the bankruptcy notice: the judgment in the sum of $220,488.87 was for SSAA’s assessed costs in the Earthworks Proceeding and the judgment in the sum of $44,209.66 was for SSAA’s assessed costs in the Recovery Proceeding.
As set out above Mr McGuire failed to comply with the requirements of the bankruptcy notice. SSAA filed a creditor’s petition and on 17 November 2021 a sequestration order was made against his estate.
PROCEEDING BEFORE THE FEDERAL CIRCUIT COURT
Mr McGuire sought a review of the sequestration order made by the registrar. The application for review was heard by the primary judge on 1 April 2022.
On 22 April 2022 the primary judge made orders dismissing the application for review of the registrar’s orders and ordered that SSAA’s costs of the review, fixed in the sum of $12,832.12, be paid out of Mr McGuire’s estate. The primary judge provided comprehensive reasons for making those orders. A summary of those reasons follows.
The primary judge commenced by noting that the application before him was for a review of the orders made by a registrar of the court and that being so the matter would proceed by way of hearing do novo. Accordingly, first SSAA was required to establish the preconditions under s 43 and s 52(1) of the Bankruptcy Act and under the Federal Circuit and Family Court of Australia (Division 2) (Bankruptcy) (Rules) 2021 (Cth) (FCCA Bankruptcy Rules) for the making of the sequestration order and thereafter it was necessary for the court to consider whether a sequestration order ought not to be made against the estate of Mr McGuire.
The primary judge identified the affidavits upon which Mr McGuire relied and set out in detail the factual background to the matter (a summary of which appears above). I do not intend to repeat that summary here.
Before the primary judge, Mr McGuire did not dispute that SSAA had satisfied the preconditions for the making of a sequestration order under the Bankruptcy Act and the FCCA Bankruptcy Rules. However, he contended that a sequestration order ought not to be made for two reasons: first, because he was able to pay his debts; and secondly, because the two judgments on which the bankruptcy notice was based did not represent true debts: PJ [6].
The primary judge first considered whether SSAA had proved the matters specified in s 52(1) of the Bankruptcy Act and the FCCA Bankruptcy Rules. Having regard to the evidence before him the primary judge was satisfied that it had: PJ [58]-[62]. His Honour noted that, subject to the matters on which Mr McGuire relied, a sequestration order should be made against his estate.
The primary judge then turned to consider the issues raised by Mr McGuire by way of opposition to the creditor’s petition, namely whether Mr McGuire was, as he contended, able to pay his debts and/or whether there was some other sufficient cause under s 52(2)(b) of the Bankruptcy Act not to make a sequestration order. Only the primary judge’s findings in relation to the second of those matters is in issue in the appeal.
The primary judge carefully considered the evidence relied on by Mr McGuire to establish that he was able to pay his debts as required by the principles to which his Honour referred. However, the primary judge was not satisfied that the evidence relied on by Mr McGuire established that he could procure within a relatively short time the moneys required to pay the debts demanded in the bankruptcy notice and all of his other debts. His Honour set out his reasons for reaching that conclusion: PJ [63]-[64]. Given that those findings are not the subject of challenge in the appeal, I do not intend to set those reasons out.
The primary judge then turned to consider whether there was other sufficient cause why a sequestration order ought not to be made. Mr McGuire relied on a number of matters to establish other sufficient cause, each of which the primary judge considered.
First, Mr McGuire contended that the costs assessor, Ms Hale, had failed to address submissions which he and Mrs McGuire had sent to her. Mr McGuire contended that was so because neither Ms Hale nor the review panel expressly referred to those submissions. The primary judge was not prepared to infer that neither Ms Hale nor the review panel were aware of or considered the submissions in question simply because they were not referred to in their respective assessments or reasons. That was because the primary judge found that those submissions could not have been considered to have any merit by a decision maker in the position of Ms Hale or the review panel. The primary judge explained why that was so: PJ [66]-[67].
The primary judge also found that even if he was to assume that neither Ms Hale nor the review panel considered the submissions he would not be satisfied that would arguably constitute a denial of procedural fairness. That was because he could not be satisfied that, had Ms Hale or the review panel considered the submissions, they could realistically have resulted in Ms Hale or the review panel making a different decision which would justify the conclusion that the costs assessments or the review by the review panel, were affected by jurisdictional error: PJ [68].
The last matter considered by the primary judge in relation to this contention was that Mr McGuire’s submissions about the failure to consider the submissions only concerned the Recovery Proceeding. Thus his Honour noted that even if Mr McGuire was successful in establishing that the failure to consider the submissions gave rise to a doubt that the judgment entered against him in the Recovery Proceeding does not represent a real debt, it does not address the judgment entered against him in the Earthworks Proceeding. That is, even if Mr McGuire was successful on this issue, the effect would be to reduce the amount claimed in the bankruptcy notice and would not lead to a finding that “there was, in truth, no debt at all”: PJ [69].
Secondly, Mr McGuire contended that the amounts identified in SSAA’s bills of costs relied on in support of its application for a lump sum costs order (which had been refused by Magistrate Heilpern) was the sum of costs that was to be assessed and that the costs that SSAA submitted for the purposes of the costs assessment exceeded the amount of those costs. Mr McGuire contended that the costs identified in the bills of costs in support of its application for a lump sum costs order represented the total amount of costs that SSAA had in fact paid and that by applying for the assessment of costs that exceed that amount, SSAA applied for costs that it had not paid or incurred: PJ [71].
The primary judge observed that one may accept that the Magistrate, when addressing the application for lump sum costs, assumed that SSAA’s costs to be assessed in a lump sum were those set out in its bills of costs submitted in support of that application. However, his Honour found that it was not arguable that the Magistrate made any order capping the costs to which SSAA may have otherwise been entitled to the costs identified in the bills of costs submitted in support of its application for a lump sum costs order. His Honour also found that even if the Magistrate had made such an order, that would only support a finding that the amount of the debt be reduced to an amount not exceeding the sum of the costs SSAA identified in its application for a lump sum costs order and would not support a finding that there was, in truth, no debt at all: PJ [72].
The primary judge also observed that a party in whose favour an order for costs has been made is entitled to the benefit of such an order only to the extent that the party has in fact paid or incurred a liability to pay legal costs, referred to as the “costs indemnity principle”. His Honour found that there was no evidence capable of supporting a finding that there were substantial reasons for questioning that the judgments on the basis of which the bankruptcy notice was issued did not reflect amounts for legal costs SSAA had paid or incurred in connection with the Recovery Proceeding or the Earthworks Proceeding. His Honour concluded that SSAA submitting bills of costs for amounts that exceeded the amounts it claimed in support of its application for a lump sum costs order did not amount to a substantial reason for questioning whether the costs determinations based on which the bankruptcy notice was issued were made without jurisdictional error: PJ [74]-[75].
Thirdly, Mr McGuire contended that “there was some very improper, unlawful conduct that took place in order to set [him] up so that [he] could be dragged into what became number 2010/345199”, being the Recovery Proceeding. The primary judge observed that the basis of Mr McGuire’s submission was Mr James of McNamara James & O’Connor having asked Mr McGuire on 23 August 2010 what he wanted Mr James to do with the money in circumstances where Mr McGuire no longer had any authority to instruct Mr James in relation to the money. Mr McGuire submitted that there was a “shuffling” of the money.
The primary judge found that Mr McGuire did not understand in full the nature and purpose of the transactions recorded in the MJO Trust Ledger. The primary judge was willing to accept that Mr McGuire believed that those transactions revealed something untoward occurred. However, the primary judge did not accept that Mr McGuire’s belief was reasonable because the contemporaneous documents clearly revealed what had occurred in relation to $26,624.16 of SSAA’s money which had been paid into McNamara James & O’Connor’s trust account on 1 July 2010 by Mr McGuire. The primary judge referred to the letters which revealed that McNamara James & O’Connor dealt with those funds in the manner it did on the basis of instructions given by Mr McGuire. His Honour also observed that one inference that was available, based on the documents, to explain the transactions recorded in the MJO Trust Ledger was that McNamara James & O’Connor initially treated SSAA as their client but, after they became aware of the dispute between SSAA and Mr McGuire, those solicitors made journal entries to record that Mr McGuire was their client: PJ [76]-[77].
The primary judge was not satisfied that the transactions recorded in the trust matter ledger afforded a substantial reason for questioning whether the costs determinations on the basis of which the bankruptcy notice was issued were made free from jurisdictional error. His Honour also noted that if the evidence was to suggest some impropriety that would only relate to the orders for costs made in the Recovery Proceeding and would not affect the orders for costs made in the Earthworks Proceeding. Thus, even if there was merit in Mr McGuire’s submissions on this issue, it would only support a finding that the amount of the debt be reduced and would not support a finding that there was, in truth, no debt at all: PJ [78].
The primary judge concluded that SSAA had established the matters prescribed by s 52(1) of the Bankruptcy Act and by the FCCA Bankruptcy Rules. His Honour was not satisfied that Mr McGuire was able to pay his debts and was not satisfied that there was any other sufficient cause for not making a sequestration order against Mr McGuire’s estate. His Honour thus dismissed Mr McGuire’s application for review: PJ [80]-[81].
THE APPEAL
Mr McGuire relies on a notice of appeal filed on 19 May 2022 in which he contends that (as written):
(a)In February 2010 a committee of the Respondent (SSAA) was elected. The Appellant was elected President of that Committee.
(b)On July 1 2010 that Committee placed $26,624.16 of the SSAA’s monies for safe keeping in a Trust Matter Ledger 10/0363 (TML) with [McNamara James & O’Connor].
(c)In June 2010, at a special general meeting, a new committee of the SSAA was elected. The Appellant was not a member of this new committee.
(d)3 August 2010, the February Committee handed control of SSAA to the June Committee and in so doing relinquished authority to have any part in running SSAA. The TML shows that all entrusted monies were intact. That same day the Appellant faxed Mr James, of [McNamara James & O’Connor], a document advising control of the SSAA had been handed over to the new committee.
(e)11 August 2010 Mr James wrote a Refund Monies in Trust Cheque in favour of SSAA for $24,674.75 and presumably, due to the subsequent actions of Sweizer Kobras Lawyers (SK), sent it along with a Ceasing to Act notice and an account for outstanding costs to SSAA. The Trust Account statement for the TML shows [McNamara James & O’Connor] retained $1,949.41 to cover their fees.
(f)17 August 2010 Dr Lee of SK faxes a letter to [McNamara James & O’Connor] in which he notes that [McNamara James & O’Connor] is no longer acting in this matter and that SK have been informed by the June committee of SSAA that they received books, records and bank account details from the February committee. In that letter Dr Lee, as the new lawyer for SSAA, requests that the remaining balance of the Trust Amount be repaid within 7 days.
(g)23 August 2010 [McNamara James & O’Connor] reverses the withdrawal of $24,674.75, the Refund Monies in Trust cheque, and instead send a cheque for $3,774.75 to SSAA, in contradiction with Dr Lee's request. The letter sent with that cheque attributes the Appellant with giving the instruction for that action, despite [McNamara James & O’Connor] having been previously informed the Appellant no longer had authority to act for SSAA.
(h)30 August 2010 Mr James then journals $20,900.00 to a new Trust Matter #10/0540 in the name of the Appellant. Numerous requests, in writing, by the Appellant to [McNamara James & O’Connor] for details of his part in the creation of this account have been ignored. This would suggest the Appellant has no involvement and [McNamara James & O’Connor] are aware of this and seeking to withhold that information.
(i)31 August 2010 Dr Lee faxes [McNamara James & O’Connor] again seeking information relating to SSAA’s monies. [McNamara James & O’Connor] advises that there is $20,900.00 in a Trust which they claim are subject to instructions received from the Appellant.
(j)It is obvious that if there were any lawful instructions from McGuire they would have to have been made prior to 3 August 2010 and therefore acted on or before the 3 August 2010 handover and relinquishing of authority.
(k)To disburse SSAA monies to an entity that is not SSAA establishes that [McNamara James & O’Connor] have wilfully committed a breach of LPA 2004 NSW Sect 255 (a) (b). if it be that Dr Lee as a responsible lawyer has not instructed [McNamara James & O’Connor] to do so. The Honorary Judge in his decision to accept that James was allowed to make the payment, in parts 26, 27 and 28 of his findings, shows the Judge has erred in his application of that Act.
(l)It is noted that Dr Lee does not raise any dissent about [McNamara James & O’Connor]’s breach of the LPA. It is also noted that Dr Lee does not report the irregularity undertaken by [McNamara James & O’Connor] to the Law Society Council as required by LPA 2004 NSW Sect 263. The Honorary Judge, in his findings parts 77 and 78, has erred in not recommending action against Lee for failing to report what was a breach of the act.
(m)The Appellant contends that this shuffling of monies, attributed to him, is then used to justify a Statement of Claim and the certifying under Sect 347 of LPA 2004 NSW. It is obvious that because no funds were missing on 3 August 2010 Dr Lee would not have been able to instigate any legal proceedings. As the SSAA lawyer since 17 August 2010 if Dr Lee was not aware of what [McNamara James & O’Connor] did in the money shuffling [McNamara James & O’Connor] must be responsible for the money that was not available to SSAA. The fact that Dr Lee did not report the irregularity indicates that he knew what was going on and consequently SK’s Statement of Claim, which is the origin of all the legal costs incurred and is now the subject of this Bankruptcy action, was knowingly based on unlawful actions.
(n)13 April 2011 In a letter to Professional Standards of the Law Society of NSW Mr James of [McNamara James & O’Connor], when speaking about events post 3 August 2010, states “Our primary submission is that when Mr McGuire was no longer an authorised representative of the Coffs Harbour Branch, he had no standing to give us any instruction whatsoever regarding the disposal of the branch's money. The money belonged to the Coffs Harbour branch and we could only dispose of that money in accordance with directions received from the branch.” This is further proof that the creation of Trust Matter #10/0540, in the Appellants name, was executed unlawfully and the Honorary Judge erred in his acceptance of that action by [McNamara James & O’Connor].
As can been seen Mr McGuire’s grounds of appeal are somewhat discursive in nature. They refer to an exchange of correspondence between various parties in relation to the sum of $26,624.16 of SSAA’s funds which was deposited into McNamara James & O’Connor’s trust account. The grounds of appeal seek to challenge the primary judge’s findings in relation to that matter and, in particular, his Honour’s findings at PJ [76]-[78] where his Honour considered Mr McGuire’s contention of alleged improper conduct on the part of others in relation to those funds and rejected that there was any such improper purpose established and thus rejected the contention that the conduct constituted other sufficient cause not to make a sequestration order for the purposes of s 52(2)(b) of the Bankruptcy Act.
Mr McGuire’s submissions
Mr McGuire relied on both written and oral submissions.
In his written submissions Mr McGuire submitted that he was a member of a properly elected committee of SSAA from 23 February 2010 until 3 August 2010, i.e. the February Committee, and that on 1 July 2010 the sum of $26,684.16 was deposited into McNamara James & O’Connor’s trust account. Mr McGuire contended that the justification for holding those funds was a dispute about the constitution with Sporting Shooters (NSW).
Mr McGuire submitted that on 3 August 2010 the February Committee ceded control of SSAA and handed over all documents to the new committee. At that time all of the funds remained in McNamara James & O’Connor’s trust account. Mr McGuire submitted that the ceding of control resulted in there no longer being a need to pursue the legal matter and that “as per usual practice the Trust Matter Ledger should to (sic) be closed and [McNamara James and O’Connor] began this procedure”. He said that on 11 August 2010 McNamara James & O’Connor wrote a “Refund Monies in Trust cheque payable to SSAA” which he said was presumably sent but noted that the primary judge suggested that the cheque may not have been sent. Mr McGuire contended that the amount was debited from the MJO Trust Ledger and whether or not it was sent is negated by a letter from Schweizer Kobras in which that firm noted that it had received a notice of ceasing to act from McNamara James & O’Connor and that it was aware that the control of SSAA had been ceded to a new committee.
Mr McGuire submitted that the movement of trust funds by McNamara James & O’Connor pursuant to the 17 August 2010 Letter was very irregular and contrary to ss 255, 262 and 263 of the Legal Profession Act 2004 (NSW). He contended that for reasons not explained McNamara James & O’Connor “falsely claim that instruction came from” him. He submitted that the 17 August 2010 Letter clearly gave McNamara James & O’Connor an instruction as to what to do with the funds and contended that, because that firm did not comply with the reporting requirements in the Legal Profession Act 2004, it breached that Act.
Mr McGuire submitted that because there was no money missing at the time of the handover to the new committee on 3 August 2010 it was not justifiable for Schweizer Kobras to commence legal action against him. He submitted that the most likely conclusion to draw from McNamara James & O’Connor’s improper disbursement and the failure by Schweizer Kobras to draw attention to the error leads to a conclusion that there was collusion between the lawyers to enable Schweizer Kobras to use claims by McNamara James & O’Connor for the purpose of certification pursuant to s 347 of the Legal Profession Act 2004.
Mr McGuire submitted that at the time of “all the shuffling of monies” he trusted McNamara James & O’Connor and had no knowledge of trust accounts and the procedures relating to them. However, he knew that “not a cent” of SSAA’s monies was missing.
Mr McGuire submitted that on or about 4 August 2011 at a meeting with three senior members of SSAA and others he was offered the sum of $10,000 plus GST as full and final payment for earthmoving works performed by him for SSAA and he accepted the offer. However, about three days later he was informed that SSAA was reneging on the deal and, within weeks, Schweizer Kobras had filed actions against other members of the February Committee.
Mr McGuire also submitted that the sum included in the bills of costs for assessment were exaggerated and exceeded the amounts included in the bills of costs relied on by SSAA in support of its application for a lump sum costs order. He submitted that such an exaggeration is unacceptable and not in conformity with the New South Wales Law Society’s guide to the preparation of costs.
In his oral submissions Mr McGuire contended that the Recovery Proceeding was an unlawful action. He submitted that the primary judge erred in finding that it was permissible for McNamara James & O’Connor to form a view that Mr McGuire was responsible for providing instructions in circumstances where he had “been incompetent to give instructions for 20 days”. Mr McGuire submitted that he should not have been a party to the Recovery Proceeding.
Mr McGuire also contended he would not have filed the Earthworks Proceeding “if there hadn’t been this attack” i.e. if SSAA had not filed the Recovery Proceeding.
Consideration
As identified above, Mr McGuire’s ground of appeal challenges the primary judge’s findings in relation to whether there was any improper conduct on the part of McNamara James & O’Connor and/or Schweizer Kobras in relation to the funds held by McNamara James & O’Connor in their trust account.
The primary judge considered whether there was any improper conduct as alleged and whether there was in truth a debt owing by Mr McGuire to SSAA.
Before proceeding further it is convenient to set out the statutory framework.
Section 52(1) of the Bankruptcy Act provides:
At the hearing of a creditor’s petition, the Court shall require proof of:
(a)the matters stated in the petition (for which purpose the Court may accept the affidavit verifying the petition as sufficient);
(b)service of the petition; and
(c)the fact that the debt or debts on which the petitioning creditor relies is or are still owing;
and, if it is satisfied with the proof of those matters, may make a sequestration order against the estate of the debtor.
As set out above, Mr McGuire does not challenge the findings made by the primary judge in relation to whether the requirements of s 52(1) of the Bankruptcy Act were satisfied. As his Honour noted the power in s 52(1) of the Bankruptcy Act to make a sequestration order is subject to subs (2) which provides:
If the Court is not satisfied with the proof of any of those matters, 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.
As the bankruptcy notice was based on judgment debts which, in turn, were based on costs determinations for costs orders made in SSAA’s favour in the Recovery Proceeding and the Earthworks Proceeding, the primary judge noted that the court has a discretion to go behind the judgments if there is substantial reason to question if there is in truth and reality a debt owing to the petitioning creditor: Wren v Mahony (1972) 126 CLR 212 at 225. In Ramsay Health Care Australia Pty Ltd v Compton (2017) 261 CLR 132, after referring to Wren v Mahony, Kiefel CJ, Keane and Nettle JJ further explained (at [54]-[55] and [68]):
54In point of principle, scrutiny by a Bankruptcy Court of the debt propounded by a judgment creditor seeking a sequestration order in no sense involves an attempt to impeach the judgment. A Bankruptcy Court is not concerned with whether the judgment should be set aside as upon an appeal, or even as a default judgment or a judgment obtained by fraud may be set aside; nor is a Bankruptcy Court concerned to deny the effect of the judgment as “res judicata” between the parties to it. A Bankruptcy Court is not concerned to prevent the judgment creditor from invoking the ordinary processes of execution available under the general law. Rather, a Bankruptcy Court is concerned with whether the debt on which it is based is truly a basis for the making of a sequestration order. A Bankruptcy Court has a statutory duty to be “satisfied” as to the existence of the petitioning creditor’s debt; a creditor should not be able to make a person bankrupt on a debt which is not provable.
55The scrutiny required by s 52 as to whether there is, in truth and reality, a debt owing to the petitioning creditor serves to protect the interests of third parties, particularly other creditors of the debtor. It is of critical importance to appreciate that such persons were not parties to the proceedings that resulted in the judgment debt. It has long been recognised that their interest in being paid their debts in full should not be prejudiced by the making of a sequestration order in reliance on a judgment debt which does not reflect the true indebtedness of the debtor to the petitioning creditor. In In re Fraser; Ex parte Central Bank of London, Lord Esher MR said:
“The decision is based upon the highest ground – viz, that in making a receiving order, the Court is not dealing simply between the petitioning creditor and the debtor, but it is interfering with the rights of his other creditors, who, if the order is made, will not be able to sue the debtor for their debts, and that the Court ought not to exercise this extraordinary power unless it is satisfied that there is a good debt due to the petitioning creditor. The existence of the judgment is no doubt prima facie evidence of a debt; but still the Court of Bankruptcy is entitled to inquire whether there really is a debt due to the petitioning creditor.”
…
68For the purposes of s 52 of the Act, a judgment may usually be taken to be sufficient evidence of a debt in that a judgment against a debtor in favour of a creditor obtained after a trial is, generally speaking, a reliable indication of the true state of indebtedness as between creditor and debtor. Indeed, such a judgment can usually be expected to provide the most reliable statement of the debt humanly attainable because the ordinary processes of the adversarial system provide a practical guarantee of reliability. The testing of the relative merits of a claim and counterclaim under the rigours of adversarial litigation will usually establish the true state of accounts as between the parties to the proceedings. Accordingly, a Bankruptcy Court will usually have no occasion to investigate whether the judgment debt is a true reflection of the real debt. But where the merits of a claim and counterclaim have not been tested in adversarial litigation, a judgment debt will not have this practical guarantee of reliability.
(Footnotes omitted.)
These were the principles which also guided the primary judge. To them his Honour added the observations of Wigney J in Katter v Melhem (No 2) [2014] FCA 1176; 319 ALR 646 at [77] that the Court should not go behind a judgment where the grounds upon which the judgment is challenged are such that, if they were accepted, they would only support a finding that the debt owing be reduced and would not support a finding that there was in truth no debt at all.
Having regard to the statutory framework, the principles set out above and the material before the primary judge, the appeal cannot succeed. There is no error in the primary judge’s conclusion at PJ [78] that the transactions recorded in the MJO Trust Ledger did not afford a substantial reason for questioning whether the costs determinations were made free from jurisdictional error or, put another way, whether there was in truth a substantial reason for questioning whether the debts the subject of the judgments on which the bankruptcy notice was based were owing. My reasons for reaching that conclusion follow.
First, his Honour relied on the correspondence between the parties and the MJO Trust Ledger to reach his conclusion that McNamara James & O’Connor dealt with the $26,624.16 in accordance with Mr McGuire’s instructions and that, on the basis of a dispute between SSAA and Mr McGuire about a part of those funds, remitted that part which was not in dispute to SSAA. The correspondence and MJO Trust Ledger supports those findings:
(1)as recorded in the MJO Trust Ledger, and accepted by Mr McGuire, on 1 July 2010 SSAA deposited $26,624.16 into McNamara James and O’Connor’s trust account;
(2)as set out in an email dated 1 July 2010 from Dr Lee of Schweizer Kobras, on 30 June 2010 the new committee of SSAA was elected;
(3)on 21 July 2010 Schweizer Kobras sent a letter to, among others, Mr McGuire demanding, among other things, that the members of the February Committee vacate their offices and hand over the books, records and other assets of SSAA to the new committee by 26 July 2010, failing which proceedings would be commenced;
(4)by letter dated 2 August 2010 addressed to Mr McGuire, McNamara James and O’Connor noted Mr McGuire’s proposal to leave $10,000 to $12,000 in their trust account and sought instructions as to whom the cheque for the balance of the monies held should be made;
(5)the exchange of correspondence between McNamara James & O’Connor and Schweizer Kobras is set out at [14] above. Thereafter McNamara James & O’Connor sent a letter dated 23 August 2010 to Mr McGuire which recorded Mr McGuire’s instructions to deduct from the monies held in trust the costs owing to McNamara James and O’Connor, hold back $20,900 in trust in Mr McGuire’s name and to remit the balance to SSAA;
(6)by a further letter dated 23 August 2010, as instructed by Mr McGuire, McNamara James & O’Connor sent a cheque for the balance of the trust funds, being $3,774.75, to SSAA; and
(7)save in one respect described at [67] below, the MJO Trust Ledger, the transactions which are set out at PJ [27], record the payment of the funds in the manner evidenced by the correspondence between the parties and as set out above.
The MJO Trust Ledger includes an entry on 11 August 2010 recording that $24,674.75 was “paid to [SSAA]” with reason recorded as “Refund Monies in Trust” but it also records as the very next entry on 23 August 2010 reversal of that payment. The primary judge found that payment of $24,674.25 to SSAA would be inconsistent with McNamara James and O’Connor’s letter dated 23 August 2010. That is so and an available inference. In any event the MJO Trust Ledger clearly shows that the payment was reversed on 23 August 2010 and there was no evidence to suggest that the MJO Trust Ledger was not an accurate record of the payment of the funds deposited into it.
As the primary judge found the contemporaneous evidence supports a finding that the payments were made in accordance with Mr McGuire’s instructions and not at the instigation of Schweizer Kobras or by McNamara James & O’Connor acting either without instructions or in collusion with Schweizer Kobras. The primary judge’s findings were open to his Honour on the evidence before him.
Finally as found to be the case by the primary judge, even if Mr McGuire was successful in establishing the alleged improper conduct such that there was reason for questioning whether, behind the judgment, there was in truth a debt due to SSAA, only the costs judgment relating to the Recovery Proceeding (for $44,209.66) would be impugned. The effect would be a reduction in the sum owing by Mr McGuire, not that there was no debt at all. The same result would follow had Mr McGuire been able to establish his ground of appeal.
Mr McGuire refers to various sections of the Legal Profession Act 2004. I pause to note that the Legal Profession Act 2004 was repealed by the Legal Profession Uniform Law Application Act 2014 No 16 (NSW). However, given my conclusion that the primary judge’s findings were open to him based on the material before him such that there was no conduct of the nature alleged by the lawyers involved in the matter, it is not necessary for me to consider Mr McGuire’s submissions in relation to alleged breaches of the Legal Profession Act 2004 or the Act which succeeded it.
The last matter to address is Mr McGuire’s submission that the amounts included in SSAA’s bills of costs for assessment were exaggerated and exceeded the bills of costs relied on in support of SSAA’s application for a lump sum costs order. As the primary judge found there was no evidence to suggest that SSAA’s bills of costs submitted for assessment did not reflect the costs it actually incurred in pursuing the Recovery Proceeding and defending the Earthworks Proceeding and there was no finding in the Local Court that in pursuing an assessment of its costs SSAA was limited to the costs it sought by way of a lump sum costs order. On the basis of the material before me I can discern no error in the primary judge’s findings about this aspect of the matter.
CONCLUSION
For these reasons Mr McGuire has failed to make out his grounds of appeal and the appeal should be dismissed.
As he has been unsuccessful Mr McGuire should pay SSAA’s costs of the appeal.
I will make orders accordingly.
I certify that the preceding seventy-four (74) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Markovic. Associate:
Dated: 24 January 2023
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