Mead v Mead - [2009] FMCA 637

FEDERAL MAGISTRATES COURT OF AUSTRALIA

MEAD v MEAD

[2009] FMCA 637

BANKRUPTCY – Application to set aside bankruptcy notice – whether counter-claim, set-off or cross demand – whether abuse of process to serve bankruptcy notice while debtor in prison.

Bankruptcy Act 1966 (Cth), ss.40, 41
Civil Procedure Act 2005 (NSW), s.101
Evidence Act 1995 (Cth), s.91
Uniform Civil Procedure Rules 2005 (NSW)

Guss v Johnstone (2000) 74 ALJR 884
Re Glew; Glew v Harrowell (2003) 198 ALR 331

Applicant:

LUCY MEAD

Respondent:

COLIN MEAD

File Number:

SYG671 of 2008

Judgment of:

Barnes FM

Hearing date:

29 May 2009

Delivered at:

Sydney

Delivered on:

15 July 2009

REPRESENTATION

Applicant:

In person

Counsel for the Respondent:

Mr V Bedrossian

Solicitors for the Respondent:

Etheringtons Solicitors

ORDERS

The application be dismissed.
The applicant pay the costs of the respondent, including reserved costs, as agreed and in the absence of agreement taxed in accordance with the Federal Court Rules.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
SYDNEY

SYG671 of 2008

LUCY MEAD

Applicant

And

COLIN MEAD

Respondent

REASONS FOR JUDGMENT

By application filed on 20 March 2008 Mrs Mead sought that bankruptcy notice number NN0765 of 2008 be set aside on the basis that she had cross-claims against Mr Mead, her ex-husband.
The bankruptcy notice in question was issued on 6 March 2008 and stated that Mrs Mead owed Mr Mead a debt of $154,267. The bankruptcy notice was based on a certificate of taxation issued by the Family Court of Australia in relation to the costs of Family Court proceedings in the sum of $100,143.09. That certificate of taxation was filed in the District Court of New South Wales on 24 April 2002. In addition, interest of $54,123.91 was claimed pursuant to s.101 of the Civil Procedure Act 2005 (NSW) and the Uniform Civil Procedure Rules 2005 (NSW).
The bankruptcy notice required Mrs Mead to pay the amount of the debt within 21 days after service on her of the bankruptcy notice. She admitted in her application that she was served with the bankruptcy notice on 6 March 2008. She commenced these proceedings on 20 March 2008.
The matter has been before a Registrar of this Court on a number of occasions and was adjourned while Family Court property settlement proceedings between the parties were on foot. The time for compliance with the requirements of the bankruptcy notice has been extended on each occasion (see s.41(6A)(b) of the Bankruptcy Act 1966 (Cth)). Final orders were made by O'Ryan J of the Family Court on 3 April 2009 in the proceedings between the Meads. There were five other respondents to the proceedings, including Mrs Mead’s parents and sister. On 18 May 2009 O'Ryan J made further orders staying some, but not all, of the orders of 3 April 2009 in light of a notice of appeal to the Full Court of the Family Court filed by Mrs Mead on 30 April 2009.
The application to set aside the bankruptcy notice filed by Mrs Mead claimed the following:
Cross claim husband breached marriage contract. I singly looked after children 12 years.
Set aside & cross claim husband money I put in $446848 annexure D prior to marriage to purchase Ermington home.
Set aside & cross claim husband money I put in $445059 annexure D by selling Ryde unit at 1/3 Hatton Street, Ryde 2112 and others.
Under s.40(1)(g) of the Bankruptcy Act a debtor commits an act of bankruptcy if:
a creditor who has obtained against the debtor a final judgment or final order, being a judgment or order the execution of which has not been stayed, has served on the debtor in Australia … a bankruptcy notice under this Act and the debtor does not:
(i) where the notice was served in Australia – within the time specified in the notice;
…
comply with the requirements of the notice or satisfy the Court that he or she has a counter-claim, set-off or cross demand equal to or exceeding the amount of the judgment debt or sum payable under the final order, as the case may be, being a counter-claim, set-off or cross demand that he or she could not have set up in the action or proceeding in which the judgment or order was obtained.
It appears that Mrs Mead’s assertion is that she has a counter-claim, set-off or cross demand against Mr Mead within s.40(1)(g). She relied on an affidavit sworn by her on 15 March 2008 which simply contains a bundle of annexures (without explanation) and an affidavit sworn by her on 8 April 2008 in which she made two “claims” of $446,848 and $445,059 (by reference to annexures). She also sought that the Court order that Mr Mead and his solicitors pay her $892,907 and that his solicitors be reported “to the law society and bar association to refrain their wrongful and unethical actions”. There is no evidence before the Court to warrant any such suggested action in relation to Mr Mead’s solicitors.
In oral submissions Mrs Mead elaborated on her contention that she had “cross-claims”. She asserted that she had made contributions to the marriage between herself and Mr Mead and to the purchase of matrimonial assets that she claimed exceeded any liability to Mr Mead in relation to the Family Court costs order that was the basis for the bankruptcy notice.
In addition, Mrs Mead asserted generally that the fact that the bankruptcy notice was issued at a time when she was in prison and while there were family law property proceedings between the parties on foot constituted an abuse of process and that the bankruptcy notice should be set aside on this basis.
Mrs Mead claimed first that Mr Mead owed her $446,848 consisting of an amount of $60,000 said to be owed since 15 September 1982 and “interest” since that date. Mrs Mead claimed that she had made a contribution to the marriage of $60,000 in 1982 in connection with the purchase of the former matrimonial home in Ermington. She calculated “interest” at $386,848 from that date on the basis that, had this been a loan from a bank, the bank would have charged interest and hence that Mr Mead owed her such an amount.
Mrs Mead also claimed to have a “cross-claim” for $445,059, consisting of an amount of $126,838.73 that she claimed she contributed to the marriage on 26 April 1994 through a company called Hypec Electronics Pty Limited (in liquidation) (Hypec) which was one of the respondents in the Family Court proceedings and also “interest” calculated as above.
Mrs Mead also contended generally that she had a cross-claim in the sense that she had looked after the children of the marriage. She did not explain how such claims could not have been raised in the proceedings in the Family Court in which the order on which the bankruptcy notice was based was obtained.
Insofar as the application is based on the ground that Mrs Mead has a counter-claim, set-off or cross demand within s.40(1)(g) of the Bankruptcy Act, neither in her affidavit nor elsewhere in the material before the Court did she set out the details required by Rule 3.02(2) of the Federal Magistrates Court (Bankruptcy) Rules. I gave her the opportunity in oral submissions to clarify the basis for her application. However her submissions did not satisfy me that she had a counter-claim, set-off or cross demand within s.40(1)(g) of the Act.
In order to avoid committing the act of bankruptcy in s.40(1)(g) consisting of failure to comply with the requirements of a bankruptcy notice, Mrs Mead must satisfy the Court that she has a counter-claim, set-off or cross demand against Mr Mead of the kind described in s.40(1)(g). As Gleeson CJ, Gaudron, McHugh, Kirby and Callinan JJ stated in Guss v Johnstone (2000) 74 ALJR 884 at [40]:
The state of satisfaction referred to in s 40(1)(g), and s 41(7), involves weighing up considerations as to the legal and factual merit of the claim relied upon by the debtor, and the justice of allowing the bankruptcy proceedings to go ahead or requiring them to await the determination of the claim.
After describing the various formulations of what an applicant must do to “satisfy the Court” within s.40(1)(g) of the Act, Lindgren J stated in ReGlew; Glew v Harrowell (2003) 198 ALR 331 at [12] that in proceedings such as these:
Perhaps little more can usefully be said than that a debtor must satisfy the court that there is sufficient substance to the counter-claim, set-off or cross demand asserted to make it one which the debtor should, in justice, be permitted to have heard and determined in the usual way, rather than be forced to comply with the bankruptcy notice by payment or to commit an act of bankruptcy.
The evidence before the Court and the submissions of Mrs Mead do not identify any cause of action against Mr Mead or claim against Mr Mead, beyond her claims that she made contributions to the marriage, that should be permitted to be heard and determined in the usual way. Her claims about contributions to the marriage have been considered and determined by the Family Court. Indeed, insofar as Mrs Mead raises issues that were the subject of determination in the Family Court proceedings, her application to set aside the bankruptcy notice was adjourned until determination of those proceedings. Final orders have now been made by the Family Court. Hence, if there was such a claim that was not statute barred that was a material claim, it has been dealt with by the Family Court.
Mrs Mead referred to the fact that she had filed a notice of appeal in the Family Court and that some of the orders made by O'Ryan J had been stayed. The orders made by O'Ryan J on 3 April 2009 were extensive. Among other things, Mrs Mead was ordered to transfer to Mr Mead her interest in the former matrimonial home at Ermington, all her legal and beneficial interest in the issued capital of Hypec (subject to Mr Mead paying to her a percentage of any surplus available to be distributed on conclusion of the winding up of the company that exceeded $2 million) and the entirety of her legal and beneficial interest in the issued capital of a company called Quoin Island Resort Developments Pty Ltd. She was also ordered to pay to Mr Mead the sum of $3,360,000 and do all acts and things necessary to ensure that moneys held in the trust account of his solicitors be released to him and to transfer any shares she held in publicly listed companies to him. Mrs Mead and three members of her family were ordered to indemnify Mr Mead against all claims arising in relation to his interest in the former matrimonial home and in various companies or as a result of any guarantees given by him in relation to those companies or any alleged indebtedness on his part to any of those companies.
After Mrs Mead lodged the notice of appeal certain of the orders made on 3 April 2009 were stayed. Mrs Mead submitted that as the operation of the orders in relation to transferring her interest in the family home at Ermington and payment of the sum of $3,360,000 to Mr Mead had been stayed, if the family home was sold she could theoretically pay the debt to Mr Mead that formed the basis for the bankruptcy notice. Mrs Mead also suggested that there might be a surplus available for distribution after the winding up of Hypec of which she would receive a percentage. She made this submission notwithstanding that in addition to staying the operation of the order in relation to transfer of the family home (until further order or determination of the appeal), O’Ryan J ordered that Mrs Mead be restrained from in any way dealing with the Ermington property or doing any act to cause any caveat lodged on the title by Mr Mead to be removed or lapse and also imposed restrictions on transactions by Hypec except in the ordinary course of business.
In a judgment of 18 May 2009 (a copy of which was tendered by the respondent) O'Ryan J dealt with the application for a stay by Mrs Mead and other respondents. I have had regard to s.91 of the Evidence Act 1995 (Cth). However this evidence establishes the terms of the judgment and its effect. His Honour found that the balance of convenience favoured a dismissal of the applications for a stay (at [41]). Despite this, being mindful that Mrs Mead was unrepresented and at that time still had the opportunity to file (without leave) an amended notice of appeal articulating appealable error, O’Ryan J granted a stay of the orders in relation to the Ermington property in which Mrs Mead and the children resided and the order for payment to Mr Mead of $3,360,000 (as well as limiting the order restraining transactions by Hypec). He did so on the basis that Mr Mead could apply to discharge or vary the orders in the event that Mrs Mead failed to file an amended notice of appeal or to provide any meritorious grounds of appeal in any amended notice of appeal. O’Ryan J was not prepared to grant a stay on the operation of other orders, finding that the balance of convenience favoured Mr Mead obtaining some benefit from the judgment of 3 April 2009.
Insofar as Mrs Mead’s submissions might be taken to be an application for a further adjournment of these proceedings in light of her appeal to the Full Court of the Family Court, I am not persuaded that an adjournment would be in the interests of justice or the parties or that the existence of the notice of appeal provides a basis on which the bankruptcy notice should be set aside. No submissions were made by Mrs Mead in relation to the grounds of appeal. She has not established that she has any prospects of success on the evidence before this Court.
Mrs Mead's submissions in relation to her possible ability to pay the debt to Mr Mead (which were disputed by counsel for Mr Mead given the orders of the Family Court) are not such as to establish a basis on which the bankruptcy notice should be set aside. I also note that in these proceedings issues of solvency do not arise as they would in the context of the hearing of a creditor’s petition.
The oral submission that these proceedings are in some way an abuse of process is not made out. While the bankruptcy notice was apparently issued at a time when Mrs Mead was serving a sentence of six months imprisonment and while family law preceding were on foot, she has had a considerable amount of time to address the issues raised by the bankruptcy notice and an opportunity to file further affidavit evidence. There is no evidence to support any claim that she has not had the opportunity to raise or to address issues in the proceedings to set aside the bankruptcy notice, given the adjournments there have been since the matter first came before the Court on 1 April 2008. It has not been established that there was an abuse of process.
Beyond this, apart from the asserted contributions to the marriage that have been addressed in the Family Court proceedings, the evidence before the Court, which consists of a number of documents and extracts from documents annexed to affidavits, is not such as to satisfy me that Mrs Mead has a “prima facie case”, a “fair chance of success” or a “genuine or bona fide claim” in relation to the asserted cross-claims as discussed in Glew v Harrowell.
In particular, while Mrs Mead asserted an entitlement to $446,848 including $60,000 from 15 September 1982, there is no proper evidence before the Court to justify this claim. The documents that are apparently intended to relate to this claim include a completed Corporations Law Form 535 claiming $60,000 plus interest. Form 535 is the Form prescribed under Corporations Regulation 5.6.49(2) for a formal proof of debt in a corporate insolvency. The assertions in this Form do not establish a counter-claim, set-off or cross demand against Mr Mead within s.40(1)(g) of the Bankruptcy Act. The “evidence” consisting of copies of extracts from a Commonwealth Bank savings investment account book in the name of a “Miss Lucy Young” covering a period from 1982 to 1983 does not satisfy me that Mrs Mead has a “prima facie case” or a “fair chance of success” on the basis of a counter-claim, set-off or cross demand against Mr Mead. There is no evidentiary basis for the claim for interest calculated in tabular form in an annexure to the affidavit of 8 April 2008.
Nor am I so satisfied in relation to the claim for $126,838.73 plus interest of $318,121. The evidence in this respect is said to include a page from an undated contract of sale of land in relation to a unit in Ryde and a copy of a letter of 22 February 1982 from a Lucy Yang (who I understand is Mrs Mead) in relation to obtaining vacant possession of the property, together with an extract from a bank account showing deposits and withdrawals in a three months period in 1994. This material (and the tabular calculation of interest to which Mrs Mead asserts an entitlement) does not identify a claim of sufficient substance in the sense considered in Glew v Harrowell.
Moreover, as the solicitor for the respondent pointed out, even if there are claims within the meaning of s.40(1)(g) of the Bankruptcy Act they are said to have arisen on 15 September 1982 and 26 April 1994 respectively and hence would appear to be statute barred, there being no evidence of any proceedings commenced to recover such amounts apart from the Family Court proceedings.
It is not disputed that the Family Court proceedings dealt with the property settlement between the parties including, in particular, the matrimonial property at Ermington in relation to which Mrs Mead claims she made a contribution. Mrs Mead’s general assertion that Mr Mead was indebted to her in circumstances arising in the course of the marriage and the conduct of certain companies also relates to matters that have been the subject of the Family Court proceedings. I am not satisfied that there is any basis on which such claims come within s.40(1)(g) of the Bankruptcy Act.
Hence, I am not satisfied on the evidence before me that Mrs Mead has a counter-claim, set-off or a cross demand that she could not have set up in the action or proceeding in which the order that was the basis for the bankruptcy notice was obtained within s.40(1)(g) of the Bankruptcy Act or that there is any other basis on which the bankruptcy notice should be set aside.
The application to set aside the bankruptcy notice should be dismissed with costs.

I certify that the preceding twenty-nine (29) paragraphs are a true copy of the reasons for judgment of Barnes FM

Associate:

Date: 15 July 2009