McMahon v Permanent Custodians Ltd

[2014] FCCA 216

FEDERAL CIRCUIT COURT OF AUSTRALIA

MCMAHON v PERMANENT CUSTODIANS LTD [2014] FCCA 216

Catchwords:
PRACTICE AND PROCEDURE – Application for adjournment – where affidavit recently served on bankrupt filed to correct debt owed – where bankrupt claimed lack of readiness to proceed to hearing of own application – whether to grant adjournment.

BANKRUPTCY – Sequestration orders – application for review of Registrar’s decision to make sequestration orders – where bankrupt seeks to appeal decision not to set aside consent orders establishing debt upon which sequestration order based – where bankrupt previously appealed decision before New South Wales Court of Appeal – where prospects of success of appeal discussed by High Court in related proceedings – whether real prospects of success of appeal – where applicants claim third party can pay debts – where no evidence of capacity of third party to pay debts – whether to set aside sequestration order.

Legislation:  

Farm Debt Mediation Act1994 (NSW), s.11
Real Property Act 1900 (NSW), s.57(2)(b)

Ahern v Deputy Commissioner of Taxation (Qld)(1987) 76 ALR 137

Narain v Euroasia (Pacific) Pty Ltd [2010] FCA 1352

Applicant: ROBYN SANDRA MCMAHON

Respondent: PERMANENT CUSTODIANS LTD

File Number: SYG 2917 of 2012

Applicant: JOHN TERENCE MICHAEL MCMAHON 

Respondent: PERMANENT CUSTODIANS LTD

File Number: SYG 2918 of 2012

Judgment of: Judge Raphael

Hearing date: 3 February 2014

Date of Last Submission: 3 February 2014

Delivered at: Sydney

Delivered on: 3 February 2014

REPRESENTATION

For the Applicants: Mr McMahon in person

Counsel for the Respondent: Mr D Barnett

Solicitors for the Respondent: Gillis Delaney Lawyers

ORDERS

1. The matter be stood over to 14.15 on 3 February 2014.

2. The application for review of the decision of Registrar Hannigan is dismissed.

3. The applicant debtor must pay the respondent creditor’s costs to be taxed, if not agreed, and paid in the same priority as those of the judgment creditor.

FEDERAL CIRCUIT COURT
OF AUSTRALIA

AT SYDNEY

SYG 2917of 2012

ROBYN SANDRA MCMAHON

Applicant

And

PERMANENT CUSTODIANS LIMITED

Respondent

SYG 2918 of 2012

JOHN TERENCE MICHAEL MCMAHON

Applicant

And

PERMANENT CUSTODIANS LIMITED

Respondent

REASONS FOR JUDGMENT

Decision in relation to application for an adjournment

1. In this matter the applicant debtor comes before me seeking an adjournment of his application for review of a decision of Registrar Wall made on 1 November 2013 to make an order sequestrating his estate and that of his wife Ms Robyn Sandra McMahon.  The basis of the request for the adjournment is that he has only recently been served with an affidavit apparently filed on 20 December 2013 by Mr Raymond David Perkes, the solicitor for the applicant creditor. 

2. The importance of the affidavit is to set out the history of the matter and to provide the court with advice that since the sequestration order was made a sale of property has occurred and thus the amount owed by the applicant debtors has reduced.  This caused the creditor to conclude that, for the avoidance of doubt, he should file an amended creditor’s petition indicating the lesser sum so that when any hearing of the review took place as a hearing de novo, the correct amount of the debt was stated in the petition.  Whether or not that was really necessary is irrelevant, because it has been done and no doubt it is of some assistance to the court.

3. Mr McMahon also says that he was not aware that the matter might be heard today, but this is always a possibility when matters come before the duty bankruptcy judge, and parties really should be ready for it.  He has filed an affidavit dated 6 December 2013 explaining his reasons why he believes an application for review should be successful.  In my view, he has not told me anything else today that would convince me that an application for an adjournment should be granted. 

4. It seems to me that it is in the interests of justice and, in the end, of the creditors that the matter proceed as soon as possible.  I am not prepared to grant an adjournment, but I am prepared to stand the matter down until 2.15 so that Mr McMahon can prepare the case as best he can, and it will be heard then.

Decision in relation to application for review of Registrar’s decision

1. There comes before me today for hearing an application for review of a decision of Registrar Hannigan made on 1 November 2013 to make a sequestration order against the estates of John Terence Michael McMahon and his wife, Robyn Sandra McMahon.  I had decided earlier this morning that I would not grant Mr McMahon an adjournment that he sought.  With the assistance of an unnamed McKenzie friend, he has, however, been able to provide to the court some submissions in respect of his notice of grounds of objection which he brings to the court’s attention in its hearing of this review application, and I am grateful for those.

2. Mr and Mrs McMahon are farmers.  They gave a mortgage of certain of their farm properties to Permanent Custodians Limited, in return for which they received a sum of around $3.3 million by way of loan.  They were unable to repay this loan, and the creditor sought to enforce its rights under the loan arrangements.  In New South Wales, when a farmer finds himself in financial difficulties of this type, he is provided with the protection of what is known as the Farm Debt Mediation Act1994 (NSW). This act provides a process by which farmers are able to attempt to negotiate a settlement of their obligations with their lenders before any enforcement action can be taken. The process is one of mediation and conducted by independent and experienced persons under the act. It is only if the mediation fails or if the arrangements which were made under the mediation are not complied with by the farmer that the creditor can obtain a certificate under s.11 of the act which allows it to move ahead and enforce its rights.

3. This is what occurred in the dispute between the McMahons and their creditor.  A notice under the Farm Debt Mediation Act was given. A mediation occurred. A heads of agreement was drawn and not complied with. A s.11 certificate was applied for and obtained. Thereafter, a section 57(2)(b) of the Real Property Act 1900 (NSW) notice was served. A statement of claim was issued. Finally, consent orders were made providing that the McMahons pay Permanent Custodians Limited the sum of $3.75 million.

4. Some time later, the McMahons applied to set aside the consent orders.  Such an application, which is made to the Supreme Court of New South Wales, is an interlocutory application.  It went before a single judge, Davies J, and the application was dismissed.  The McMahons appealed his Honour’s decision, but they had to seek leave to appeal first.  The creditor agreed that the appeal and the leave to appeal applications should be heard together.  This occurred.  The application was heard by three judges.  Ward J gave the judgment of the Court, with which the other two judges concurred.  Her Honour dismissed the appeal. 

5. The basis of the appeal was the construction of s.11 of the Farm Debt Mediation Act. The McMahons argued that the heads of agreement deferred the time for repayment of the loan until 15 August 2011 so that the s.11 certificate issued prior thereto was void because at that time they were not in default under the farm mortgage. The s. 11 certificate was issued on 11 August 2011, and the McMahons did not dispute in the Court that they remained in default under the mortgage on that date.

6. Notwithstanding the firm views expressed both by the judge at first instance and the Court of Appeal, the McMahons determined that they would seek special leave from the High Court to appeal this essentially interlocutory decision.  The argument that they put was still the same.  By this time, proceedings had commenced in this court for the bankruptcy of both Mr and Mrs McMahon, and so those advising the McMahons, on what I believe was a pro bono basis, made an application to the High Court for a stay either of the judgments of the Court of Appeal and Davies J or a stay of the proceedings that had been commenced in this court. 

7. The application came on before Gageler J on 24 October 2013.  It appears to have been conceded that his Honour could not grant a stay of proceedings that were current in this court, although he could grant an injunction restraining this court from determining those matters.  He seemed to have been in some doubt as to whether a stay in relation to the decisions of the Court of Appeal and Davies J would have any effect, but the firm intention of the McMahons was to try and stop the bankruptcy proceedings until after there was a hearing of the special leave application, and if the application was granted, then presumably until the appeal itself was heard. 

8. I have been assisted by the provision of a transcript of the hearing before Gageler J.  It is not long.  His Honour describes the proceedings in a manner similar to that which I have used and describes the argument being made by the McMahons.  His Honour stated:

   “The Court of Appeal refused leave to appeal on the basis that the construction of section 11(1)(a) of the Act, for which the applicants contended, was untenable.

   In their application for special leave to appeal against the decision of the Court of Appeal, the applicants seek to reagitate the same construction of section 11(1)(a) of the Act.

   …

   In the present case I am not persuaded that such exceptional circumstances exist as would justify making either of the orders the applicants seek in the summons. 

   In particular, I am not persuaded that the present is a case in which the application for special leave to appeal has the requisite substantial prospects of success.  The construction of the Farm Debt Mediation Act for which the applicants contend was rejected in the Court of Appeal in reasons for judgment given by Justice Ward, with which Justices Meagher and Barrett agreed. The reasons given by Justice Ward, in particular at paragraphs 45 to 56 of those published reasons for judgment, provide a very strong basis for rejecting the construction. Moreover, the applicants do not dispute that a section 11 certificate could validly have issued just four days after the certificate they challenge was in fact issued and they do not suggest that anything done by the respondent before that time amounted to the commencement of enforcement action. Added to those difficulties in the way of grant of special leave to appeal are that the orders now sought to be set aside were made by consent and that the decision of Justice Davies was interlocutory in character.

   As to the balance of convenience, were it necessary to address it, the evidence before me establishes that in excess of $3 million remains owing by the applicants to the respondent on which interest continues to accrue and that if the properties in issue are sold for the highest valuation estimates, almost $2 million is likely to remain outstanding.  Plainly, there is prejudice to the respondent the longer the respondent is kept out of its money and it is quite properly not suggested by Mr Boskovitz, who appears for the applicants, that such prejudice could meaningfully be alleviated by an undertaking as to damages.”

9. The situation with which I am faced today is no improvement on that considered by Gageler J.  The creditor has filed a further amended creditor’s petition which indicates that there is now only one property remaining unsold, but that the current debt is $1,713,067.67 and if the remaining property is sold at the value suggested by the creditor there will still be $1,114,806.67 remaining unsecured.

10. In his submissions Mr McMahon seeks to re-agitate the issues concerning s.11(1)(a) that have already been the subject of decisions by the Supreme Court, its Court of Appeal and, in a way, by the High Court of Australia. The gravamen of his argument is that if I do not review this decision and set aside the sequestration order he will not have an opportunity to argue his case in the High Court. His arguments will be “cut off at the knees”. I understand Mr McMahon’s concern, but the authorities are now clear that whilst favourable consideration is always given to allowing a debtor to appeal against the primary decision which constitutes the debt the subject of the bankruptcy: Ahern v Deputy Commissioner of Taxation (Qld)(1987) 76 ALR 137, this is not the case when the applicant is seeking special leave from the High Court to appeal against a decision of a Court of Appeal:  Narain v Euroasia (Pacific) Pty Ltd [2010] FCA 1352 at [52].

11. In those cases the court must be satisfied that there are real prospects of success in the appeal.  It is not for this Court to second guess the views of four judges of the Supreme Court of New South Wales and a judge of the High Court of Australia, all of whom have indicated that the arguments that Mr McMahon wishes to put forward on behalf of himself and his wife are unlikely to succeed.  He has told me nothing to convince me that the arguments have any more strength today than they did when they were considered by those eminent jurists.

12. Mr McMahon has one other arrow left in his quiver.  He tells the court that there is a third party who is willing to pay off his obligations.  All that is needed is for the respondent to issue “a bill”.  On the other hand, Mr Barnett tells me that this third party, a Mr Tatana, came to the Court on 30 October 2013 and indicated his willingness to pay the bill.  Permanent Custodians informed him that they were not issuing bills,  this was not a retail purchase.  But they made clear to him the amount allegedly owed.  He was cross-examined and, I am told - and have no reason to disbelieve Mr Barnett - that he was not able to provide the court with any evidence of his means or ability to make the payment.

13. Notwithstanding this, he was given until the next day to do so.  He failed and, therefore, on 1 November 2013 Registrar Hannigan made the sequestration order that is currently under review by myself.  Mr McMahon still maintains that Mr Tatana is prepared to meet his obligations on presentation of a bill.  Mr Barnett is equally firm in his view that no bill will be provided.  To my mind this is a mischievous demand by Mr Tatana.  There is nothing that the provision of a bill will do that could possibly affect his decision to bail out the McMahons.  If what he really wants is a firm figure which the creditor will accept in full and final settlement of all the obligations of Mr McMahon he is entitled to ask for that under a without prejudice letter.  I have little doubt that it will be given.

14. I do not believe that the intervention of Mr Tatana in the circumstances is sufficient to warrant my setting aside the sequestration order, a view I have come to in respect of the other arguments put by Mr McMahon and, in particular, his argument that the sequestration order will now prevent him from his proceeding in the High Court.  That application has so little prospect of success in my view that it is best it is not proceeded with.

15. The application for review of the decision of Registrar Hannigan is dismissed.  The applicant debtor must pay the respondent creditor’s costs to be taxed, if not agreed, and paid in the same priority as those of the judgment creditor.

I certify that the preceding nineteen (19) paragraphs are a true copy of the reasons for judgment of Judge Raphael

Associate: 

Date:  12 February 2014