McNamara v San

[2009] FCA 895

FEDERAL COURT OF AUSTRALIA

McNamara v San [2009] FCA 895

PAUL MCNAMARA v IVAN SAN

NSD 147 of 2009

PERRAM J
5 AUGUST 2009
SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION	NSD 147 of 2009

BETWEEN:	PAUL MCNAMARA Applicant
AND:	IVAN SAN Respondent

JUDGE:	PERRAM J
DATE OF ORDER:	5 AUGUST 2009
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

1.The interim application filed on 6 April be dismissed.

2.The documents to be produced pursuant to the Summons be limited as set out in a letter of KQ Lawyers dated 4 August 2009 a copy of which is attached to these orders.

3.Direct that the Examination pursuant to the Summons be limited such that in so far as it concerns the topic of Ivan San’s purchase of 8 Balston Close Abbotsbury, the Examination shall not concern:

3.1the intentions of the vendors or Ivan San’s knowledge of those intentions;

3.2his credit in respect of Supreme Court proceedings No 4784 of 2007 and the Federal Court proceedings NSD 615 of 2009

save as relates to Ivan San’s sources and applications of funds for the purchase of the said property, his sources and applications of funds for mortgage and other payments relating to the said property, and the vendors’ receipt and application of funds arising from that sale.

4.Grant liberty to the First Respondent to apply to the list clerk after 4 September 2009 for the fixing of a date for hearing of the Examination Summons

5.Order Paul McNamara to pay Ivan San’s costs of the Interim Application up to and including 4 August 2009, as agreed or taxed.

6.Order Ivan San to pay Paul McNamara’s costs of 5 August, as agreed or taxed.

7.Liberty to apply to Justice Perram on 24 hours notice.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using eSearch on the Court’s website.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION	NSD 147 of 2009

BETWEEN:	PAUL MCNAMARA Applicant
AND:	IVAN SAN Respondent

JUDGE:	PERRAM J
DATE:	5 AUGUST 2009
PLACE:	SYDNEY

REASONS FOR JUDGMENT

1. On 20 February 2009 a registrar of this Court issued a summons for the examination of Mr Ivan San who is the applicant on the present application. That summons was issued pursuant to s 81(1)(a) of the Bankruptcy Act 1966 (Cth) (“the Bankruptcy Act”) which provides:

   (1)Where a person (in this section called the relevant person) becomes a bankrupt, the Court or a Registrar may at any time (whether before or after the end of the bankruptcy), on the application of:

   (a)a person (in this section called a creditor) who has or had a debt provable in the bankruptcy;

   summon the relevant person, or an examinable person, for examination in relation to the bankruptcy

2. On 6 April 2009 Mr Ivan San made an interim application to this Court seeking to set aside the summons.  The power in section 81 of the Act to issue the summons only arises in circumstances where there is a bankrupt estate.  The bankrupt estate in the present proceedings is that of Mr Ivan San’s mother, Mrs Julie San.  The circumstances giving rise to the present application require some explanation of the circumstances of, and background to, the position of Mr McNamara, who is the applicant, and the San family.

3. Mr McNamara has proceedings on foot in the Supreme Court and also in this Court.  Summarising those proceedings in a general way, it would appear that Mr McNamara was a builder and at some point performed building work for, amongst others, Mrs San.  Subsequently, there was a dispute between the Sans and Mr McNamara, which resulted in proceedings before the Consumer Trader and Tenancy Tribunal of NSW (the “CTTT”).  Those proceedings were conducted to finality and resulted in a judgment in favour of Mr McNamara in the sum of about $329,000. In his Supreme Court proceedings, Mr McNamara alleges that Mr and Mrs San, who owned a house, subsequently disposed of that house at an undervalue to their son, Ivan.

4. The proceedings in the Supreme Court seek to vindicate that claim by making an allegation that the conveyance to Mr Ivan San was a fraudulent conveyance within the meaning of s 37A of the Conveyancing Act 1919 (NSW). At a time subsequent to the CTTT proceedings Mr and Mrs San became bankrupt. The result of that bankruptcy was that s 60(3) of the Bankruptcy Act took effect and the proceedings against Mrs San were stayed.  Mr McNamara has now commenced proceedings in this Court in which he seeks to articulate the same points again.  The reason this court was selected as an appropriate forum was, so I was informed, because eventually leave would be needed from this Court in order to proceed against the bankrupt estates.

5. Additionally, in this Court, the trustees of Mr and Mrs Sans’ estates had been joined to the proceedings.  It was indicated to me from the bar table that it was the intention of Mr McNamara to transfer the proceedings from the Supreme Court to this Court so that they could all be heard at one time.

6. It is necessary then, I think, to characterise the proceedings which Mr McNamara has brought in both Courts. If Mr McNamara is successful in obtaining orders pursuant to section 37A of the ConveyancingAct then the consequence will be, in one way or the other, the unwinding of the sale by Mr Ivan San’s parents to him and a restoration of some or all of the proceeds of that process back into what are presently the bankrupt estates. 

7. I accept, of course, that an application made pursuant to section 37A does not necessarily have to take place in the context of a bankruptcy, but there is no particular difficulty in it doing so. It is a familiar experience to see a claim made by a trustee in bankruptcy both pursuant to section 121 of the Bankruptcy Act and, also, section 37A of the Conveyancing Act in relation to a fraudulent conveyance.

8. The effect of the summons obtained by Mr McNamara is to require Mr Ivan San to give evidence before a Registrar of this Court in relation to the examinable affairs of his mother.  The expression “examinable affairs” is defined in s 5 of the Bankruptcy Act in the following terms:

   "examinable affairs" , in relation to a person, means:

   (a)       the person's dealings, transactions, property and affairs; and

   (b)the financial affairs of an associated entity of the person, in so far as they are, or appear to be, relevant to the person or to any of his or her conduct, dealings, transactions, property and affairs.

9. In opposition to the application to set aside that summons, it was put on Mr McNamara’s behalf that the matters which arise on the application under s 37A are essentially the same questions as would arise in an application by the official trustee to set aside the conveyance in the bankruptcy. Thus, it is not surprising that the examinable affairs of Mrs San overlap, or are concurrent with, the subject matter of this proceeding. True it is that one might not normally expect an examination summons to issue with respect to a civil proceeding by someone other than the official trustee, but where that proceeding directly involves an allegation of a voidable disposition, then that outcome is not surprising.

10. It was submitted on Mr McNamara’s behalf that, to the extent that the existence of the summons and concomitant civil proceedings gave rise to difficulties, those difficulties could be cured in two ways.  The first of these was the proffering of an undertaking by Mr McNamara not to use the examination process to obtain an undue forensic advantage in the civil proceedings.  I apprehend that, effectively, to be an undertaking not to cross-examine Mr Ivan San in relation to his credit.  Secondly, it was said that it was possible that any straying during the examination into inappropriate areas could be kept in check by the supervision of the Registrar.  Both of those submissions derive support from decisions of this Court. 

11. As to the former, counsel for Mr McNamara referred to the decision of French J in Re Peter Anthony McComish, ex parte Theresa Pearson McComish and Bernard Putnin as Trustee in the Estet of Peter Anthony McComish [1990] FCA 385 at 10, where his Honour appears to have considered that the difficulties which arise from the existence of related proceedings can be appropriately redressed by imposing a requirement that inappropriate questions be controlled by the Registrar. As to the idea that an undertaking could be accepted for the purposes of achieving a similar result, reference was made to the decision of Sundberg J in Crawford v Sellars (Trustee) in the matter of Hussen (Bankrupt) [2000] FCA 162, and particularly at the penultimate paragraph, where his Honour stated:

    The contention that the examination is an abuse because it is a rehearsal for crossexamination is not supported by any evidence. Furthermore, if it becomes apparent in the course of the examination before the Registrar that the procedure is being used as a rehearsal for crossexamination, the applicant’s legal representative can object and the Registrar will rule on the matter.

12. It was true that previous decisions relating to the issue of summonses under s 81 had suggested some tenderness towards the position of the official trustee where that person applied for an examination summons. But, so Mr McNamara submitted, there was no reason to think different principles applied to the position where a creditor applied for the summons.  It is accepted, I think, that where the official trustee is the applicant for the summons then the Court usually proceeds upon the assumption that the application is being made in good faith.  So much appears from the Full Court in Karounos v Official Trustee (1988) 19 FCR 330 at 336, [12], per Forster, Woodward and Spender JJ.

13. For the applicant, Mr Ivan San, it was submitted that the mere fact that the summons had been issued and would elicit information which directly bore upon the subject matter of Mr McNamara’s proceedings was sufficient to characterise the use of the summons as being for an improper purpose.  Secondly, it was submitted that the power to issue the summons was limited to the examinable affairs of the bankrupt, and that, in circumstances where the official trustee had not indicated any desire to examine Mr San himself, it could not be said that the examinable affairs extended sufficiently far to authorise the creditor’s summons.

14. Thirdly, Mr Young, who appeared for Mr San, pointed to passages in Karounos, to which I have already referred, suggesting that some care was needed where a summons sought to examine about matters which overlapped with the civil proceedings.

15. The present application before me is for a review of a decision by a registrar to issue the summons.  The manner in which such a review is to be conducted were explained by the Full Court in Karounos, at 336, [9], where their Honours said:

    If such an application is made to the court by a person summoned, the court must consider afresh, on the material before it, whether the summons should be set aside or adjourned to a more convenient time. It is not merely deciding whether, on the material before the Registrar, he correctly exercised his discretion.

16. In substance, the question is whether the summons should issue.

17. The examination which is sought relates to the question of whether the sale to Mr San of the home, which had previously belonged to his parents, should be set aside as a fraudulent conveyance. I have no doubt that that is part of the examinable affairs of the bankrupt estate of Mrs San. Accordingly, it is within the power conferred upon the Registrar by section 81(1)(a) of the Act. I reject the second argument put on Mr San’s behalf that the examinable affairs did not extend that far unless and until the official trustee indicated a desire on his part to conduct such an examination himself. I reject that submission because a scrutiny of the definition of examinable affairs makes plain that it does not include any reference to the mental state of the official trustee.

18. Either the fraudulent conveyance of a property from the estate is within the examinable affairs of the bankrupt or it is not. In my opinion it clearly is. Accordingly, the power under section 81(1)(a) arises, and the issues which then call for determination are ones dealing with discretionary matters. I reject the submission made on behalf of Mr San that the examination summons has been procured in circumstances amounting to the pursuit of an improper purpose. It appears from the material that the purpose for which the application has been brought includes an assessment of whether the proceedings should be continued. It is established that such a purpose is a proper purpose for s 81: see Karounos v Official Trustee, at 336, [10] and [11].

19. There is no evidence before me that would suggest any other improper motive.  That is particularly so where, as here, Mr McNamara has tendered an undertaking that, during this examination process, he will not seek to cross-examine Mr Ivan San on anything other than the facts and circumstances going to the conveyance itself.  In due course I propose to impose as a condition for the issuing of the examination summonses a requirement that there be no cross-examination going to Mr San’s credit alone. 

20. It follows that I reject the first argument put on Mr San’s behalf.  Another relevant discretionary matter to be considered is the fact that there are civil proceedings on foot brought by Mr McNamara.  It is true, as Mr Young pointed out, that in Karounos the Full Court suggested that the existence of such proceedings was a matter which could give rise to some delicacy.  However, accepting that to be so, like French J in McComish, I do not consider that, by itself, it provides a sufficient reason to set aside the issue of the summons.

21. I also take into account the fact that if a condition constraining the examination be not imposed, it would be possible for Mr McNamara’s counsel to cross-examine Mr San as to his credit.  If that were to occur, that would constitute an illegitimate forensic advantage which Mr McNamara should not have, in my opinion.  In those circumstances, I will impose a condition to prevent that occurring.

22. The trustee has indicated that he neither consents nor opposes the present application, but if the application is allowed, he proposes to seek to examine Mr San himself.  I take that into account, although it doesn’t seem to me to be other than neutral.  It is also, of course, relevant to note that in the Federal Court proceedings which are presently on foot, Mr McNamara has an entitlement to seek discovery and also to seek the issue of subpoenas.  In an appropriate case, that might provide a proper basis for declining to issue a summons for the production of documents.  However, I do not think that this is such a case.

23. In all the circumstances, it appears to me that the risk of Mr McNamara obtaining an inappropriate forensic advantage in the civil proceedings can be addressed by the Registrar performing a visitorial function during those examinations, and by the proffering of an undertaking on behalf of Mr McNamara that there will be no cross-examination touching solely upon the credit of Mr Ivan San.  Accordingly, I decline to set aside the summons and accept the undertaking profferred by Mr McNamara’s counsel.

24. I make a direction in accordance with paragraph 3 of the document which has been handed up.  I dismiss the interim application.

25. Mr McNamara seeks the costs of today.  It was at 5 o’clock yesterday afternoon that it was indicated on Mr McNamara’s behalf that a number of the documents which were sought in the summons would not be sought.  It was also indicated for the first time then that an undertaking would be proffered to limit the scope of the examination.  Until that time, the application which had been made by Mr Ivan San was one which, so it seems to me, was reasonable.  In the absence of the undertaking, Mr San’s application would have succeeded.  It seems to follow from that that Mr San is entitled to his costs up until yesterday.

26. Insofar as the costs of today are concerned, the analysis begins with the proposition that it is Mr McNamara who has substantively succeeded. Ordinarily, therefore, Mr McNamara would be entitled to costs unless there is some good reason advanced as to why that should not be so.  One can have some sympathy with Mr San since he found out only on the eve of the hearing, that the undertaking would be proffered. Nevertheless, I do not think that that circumstance is sufficient to displace the ordinary costs rule.  Accordingly, I order that Mr San pay the costs of today and that Mr McNamara pay the costs of the application up until yesterday.

I certify that the preceding twenty-six (26) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Perram.

Associate:

Dated:        5 August 2009

Counsel for the Applicant:	Mr E. Young
Counsel for the Respondent:	Mr M. Auld

Date of Hearing:	5 August 2009
Date of Judgment:	5 August 2009