Mulhern v Bank of Queensland Ltd

[2012] FMCA 1266

FEDERAL MAGISTRATES COURT OF AUSTRALIA

MULHERN v BANK OF QUEENSLAND LIMITED [2012] FMCA 1266

BANKRUPTCY – Sequestration order – annulment – failure to demonstrate solvency – imposition of Mareva orders – refusal to settle – assessment of assets – residency – carrying on a business – applicant carrying on a business in Australia – insufficient material to warrant annulment – application dismissed.

Bankruptcy Act 1966 (Cth), ss.43, 52, 153B
Uniform Civil Procedure Rules 1999 (Qld), Rule 389A

Bulic v Commonwealth Bank of Australia [2007] FCA 307
Jones v Dunkel (1959) 101 CLR 298
Mareva Compania Naviera SA v International Bulk Carriers SA (The Mareva) [1980] 1 All ER 213
Mulhern Constructions Pty Ltd v Mulhern [2012] QSC 120
Watt v Barnett (1878) 3 QBD 183

Applicant: JACQUELINE PATRICIA MULHERN

Respondent: BANK OF QUEENSLAND LIMITED

File Number: BRG 959 of 2012

Judgment of: Burnett FM

Hearing date: 4 December 2012

Date of Last Submission: 4 December 2012

Delivered at: Brisbane

Delivered on: 6 December 2012

REPRESENTATION

Counsel for the Applicant: Mr M. Williams

Solicitors for the Applicant: Michael Smith Legal

Counsel for the Respondent: Mr B. Porter

Solicitors for the Respondent: Dibbs Barker Lawyers

ORDERS

1. That the application filed on 31 October 2012 be dismissed.

2. That the applicant pay the respondent’s costs of and incidental to the application in an amount to be assessed.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA
AT BRISBANE

BRG 959 of 2012

JACQUELINE PATRICIAL MULHERN

Applicant

And

BANK OF QUEENSLAND LIMITED

Respondent

REASONS FOR JUDGMENT

(Ex Tempore)

1. On 7 November 2012 I adjourned this application for reasons then stated.  In summary, although I was satisfied that, prima facie, the court had properly made the original sequestration order and the application for annulment should be dismissed, I was prepared to adjourn the application to permit the applicant to put more material before the court. I did so because authority indicates that in circumstances where orders for substituted service are relied upon to support orders for final relief, a defendant might be permitted to defend if he or she has “… a substantial case which he desires to try” – see Watt v Barnett (1878) 3 QBD 183 at 185.

2. By analogy, I consider that before finally resolving the question to be addressed in this application, pursuant to s.153B(1) of the Bankruptcy Act 1966 (Cth) (“the Act”), as to whether a sequestration order ought to have been made, I must consider whether upon the merits that strict reliance on substituted service ought be permitted. To that end, the applicant debtor was afforded three weeks to prepare and file material adducing matters she says could have been raised pursuant to s.52(2) of the Act but which were not because she was unaware of proceedings having been served upon her in the manner provided for in the order for substituted service.

3. The applicant has now filed material, a substantial part of which is inadmissible. However, despite that, she principally advances four grounds:

   a)Solvency;

   b)The merits of the judgment underlying the Bankruptcy Notice;

   c)That there was a failure to consider offers that were made in proceedings where ex parte orders were made; and

   d)That at the time of the commission of the act of bankruptcy, the applicant was not a person resident in Australia or carrying on business in Australia and, therefore, the order made was infected with jurisdictional error.

4. I will deal first with the applicant’s solvency. Despite at least three weeks’ notice, the best evidence as to solvency able to be deduced from the affidavits filed by the applicant’s husband were as follows: He stated that on or about 24 May 2010 the bank seized control of assets worth $82 million, in the form of businesses and assets of the entities known as the “Mulhern Group,” of which the debtor was the sole director and shareholder. He estimated that the income being produced by these assets at the time was in the order of $30 million per annum.

5. There was no particularisation of the worth of the companies, no balance sheets, no profit and loss statements and no information about cash flows.  Nor was there any other evidence adduced by the debtor to indicate what other liabilities she might have. While the evidence does demonstrate that she was at least a shareholder and director of five companies in the Mulhern Group, there was nothing else to indicate what value the shareholdings have, if any. As the applicant she bears the onus of proof in respect of these matters and it would appear, in my view, that she has failed to fulfil that onus.

6. Furthermore, there was evidence by the trustee of a failure by the debtor to cooperate.  Had she cooperated there may have been at least some other material, perhaps included in the Statement of Affairs, which could have been put before the Court. However, what is before the Court and is contained within the trustee’s first report is that there was a small sum of $14,600.00 in the debtor’s bank account and that there was property in the United States. However, from that material filed by the debtor in other proceedings, it appears that the property is heavily encumbered and, furthermore, it appears that Mrs Mulhern is in default of the mortgage in respect of that property and she has been unsuccessfully attempting to sell it.

7. The Statement of Affairs indicates an estimated value at the moment of $3.6 million and also outstanding costs, which have been estimated in Supreme Court proceedings to be in the sum of $167,000.00.  It follows, adopting a Jones v Dunkel (1959) 101 CLR 298 approach to this issue, that I consider the debtor unable to place any satisfactory evidence of solvency before the Court because there is none which could be placed before the Court. Again, having regard to the onus that the applicant debtor bears, I am not satisfied that she has demonstrated solvency in this instance.

8. I move now to the matters that relate to the merits of the judgment underlying the Bankruptcy Notice. The underlying judgment supporting the Bankruptcy Notice is a judgment for costs.  The circumstances giving rise to the judgment are broadly as follows:  The debtor had been, at least since January 2009, the sole director and shareholder of the five companies which make up the Mulhern Group.  At least two of those companies were vehicles by which the Mulherns developed and expanded a Gladstone shopping centre between 1996 and 2010, when the respondent creditor appointed receivers.

9. By May 2010 the Mulherns were under pressure from the creditor to pay down debts of the Mulhern Group which the bank asserted were in default.  Investigating accountants had been appointed and a deadline was given (19 May 2010) to provide evidence of a sale contract for the Gladstone Shopping Centre. Plainly, none was produced. On 19 May 2010, that is, shortly before the appointment of receivers, Ms Mulhern withdrew a sum of $479,466.00 from the bank’s accounts belonging to the five Mulhern Group companies and transferred those funds into her personal account.

10. When receivers were appointed on 24 May 2010 these withdrawals were immediately apparent to them. They promptly applied to the Supreme Court of Queensland the following day for Mareva[1] orders freezing the funds in Ms Mulhern’s account and then commenced recovery proceedings. Those proceedings were commenced by the Bank of Queensland (the creditor) and the receivers on various grounds arising out of the rights associated with the company charges held by the bank over the assets of the Mulhern Group.

    [1] Mareva Compania Naviera SA v International Bulk Carriers SA (The Mareva) [1980] 1 All ER 213.

11. The debtor applied to set aside or vary the Mareva orders. She attended that matter in person and was cross-examined on that occasion. The application was dismissed with costs, which gave rise to the costs order the subject of the Bankruptcy Notice. Funds that had been the subject of the Mareva proceedings were eventually paid into court and were dealt with later, as I will explain shortly. The applicant contends, however, that those proceedings remain open in that the issues enlivened have not been concluded and, until the debtor has exhausted her rights, her final net position is unknown.

12. I note that the debtor did not go so far as to say that any outcome would be favourable, but rather complained simply that the merits had not been tried.  In broad terms, the merits that she speaks of concern the matter which was ultimately the subject of a summary judgment application in the recovery proceedings. In those proceedings, Douglas J determined on 9 May that summary relief ought be allowed to the bank and the various companies then in receivership.[2] In doing so, his Honour made consequent orders, including orders in the Mareva proceedings, for the payment of the funds held in court to the receivers and for the debtor to pay costs in those proceedings.

    [2] Mulhern Constructions Pty Ltd v Mulhern [2012] QSC 120.

13. The debtor then appealed Douglas J’s decision and the receivers sought security for costs. That matter came on before Gotterson JA who ultimately made an order for security which was to be paid by a certain date and in default of which the appeal would be dismissed. It appears that the sum which was ordered to be paid by way of security was not paid and the appeal was dismissed. The recovery proceedings were determined summarily before the Supreme Court. The debtor appeared at that hearing and, from the reasons given by Douglas J, I am satisfied that the judgment was entered because the debtor had no real prospects of defending the claim. In that instance, there was no basis for a trial on the merits.

14. After summary judgment was ordered, the debtor brought an application in the Mareva proceedings (in which orders for payment out had been executed) seeking payment to her personally of the sum of $32 million as her: “just equity and legal entitlement seized by or on behalf of” the bank in the Mareva proceedings. That matter came on before Martin J on 19 June 2012 and his Honour on that occasion not only refused the application but made orders restraining the debtor from making any further applications without leave on the basis that she had brought the application vexatiously.

15. I note the disposition of that matter by Martin J, and particularly that he made orders pursuant to Rule 389A of the Uniform Civil Procedure Rules 1999 (Qld) restraining the debtor from filing any further application in relation to the Mareva proceedings, including an appeal, without first obtaining the Court’s leave. I note also that the order was made on the grounds that the debtor had made more than one application in relation to the Mareva proceedings that was frivolous, vexatious or an abuse of process. As such I think that it is fair to infer that there was no trial to be had on the merits in respect of those matters. 

16. In my view, the evidence demonstrates that the debtor has been afforded every opportunity to pursue her rights arising from the transactions.  She has been unsuccessful.  The result is that now she has outstanding the costs orders of 27 April 2011, which have been assessed at $24,181.60 and which order supports the Bankruptcy Notice, as well as other costs orders that have also been ordered against her, which are presently assessed as having a value of $167,234.37. It seems that overall she has been wholly unsuccessful and there are no merits to be prosecuted.

17. It is next contended that there were unreasonable refusals on the part of the creditor to refuse offers to settle. The matters of without prejudice negotiation are not matters for the Court. They are matters solely for the parties and the only question the Court is concerned with is the question of solvency. The creditor’s attitude to offers is entirely a matter for it and the Court will not buy into the dispute concerning those matters. 

18. A further issue arose in respect of the assessment of the value of assets within Australia. The complaint is that there was a failure by the Supreme Court to attribute any value to the cash flow emanating from the properties. These are matters which would have and ought to have been prosecuted in the Supreme Court. 

19. The Supreme Court has ruled on the debtor’s application.  She did not successfully prosecute any appeal from the Court’s rulings on that matter so it follows that aside from those matters and the fact that her complaints are now too vague and lacking in form to give rise to any proper ground in this application, I do not think those matters assist her in this instance.

20. The final matter is that of residence. Section 43(1) of the Bankruptcy Act 1966, provides that a sequestration order cannot be prosecuted against a party unless the party is either a resident of Australia, conducts or carries on business in Australia or has a place of business in Australia.

21. The debtor’s submissions were directed principally to the question of residence. The creditors, however, addressed that point as well as the question of carrying on business. It is fair to say that both matters are open to be argued on the facts. However, in this case it seems the middle ground can be established in that the debtor has a place of business in Australia.

22. In her application filed in the Supreme Court on 12 June (about three weeks after the date of bankruptcy) she noted her business address, inter alia, as: “29 Marsh Street, Cannon Hill 4170, Queensland.”

23. That address was coincidentally the same address to which the Registrar of the Supreme Court wrote on or about 7 June 2012 when forwarding her a copy of the orders made by Gotterson JA on that date.  In that instance, the order was noted as having been prepared in the office of the Registrar and directed to “Jacqueline Patricia Mulhern C/- 29 Marsh Street Cannon Hill Qld 4170.” This was about one week before the date of bankruptcy.

24. Having regard to those matters, I am satisfied that the debtor did have a place of business in Australia at the time of bankruptcy and it follows that the Court’s jurisdiction to determine a sequestration order was enlivened. Accordingly, it is unnecessary for me to determine questions in respect of both residence and carrying on a business as were agitated before the court.

25. The debtor has now had an opportunity to place before the court all that material she considers relevant to her annulment application.

26. The principles to be applied in determining such applications were relevantly summarised by Tracey J in Bulic v Commonwealth Bank of Australia [2007] FCA 307, where at [12] his Honour stated:

    “…

    Section 153B(1) and its predecessors have been considered in many decisions of this and other Courts. These authorities establish a number of relevant propositions. They are:

    (1) An order can be made under s.153B(1) of the Act notwithstanding that the applicant has been discharged from bankruptcy; Re Oates; ex parte Deputy Commissioner of Taxation (1987) 17 FCR 402.

    (2) An applicant who seeks an annulment of his or her bankruptcy “carries a heavy burden.” It is incumbent on an applicant “to place before the Court all relevant material with respect to his or her financial affairs so that the Court may be properly informed and may make a judgment that is based on the actual circumstances of the applicant”: Re Papps; Ex parte Tapp (1997) 78 FCR 524 at 531.

    (3) In determining whether or not a sequestration order “ought not to have been made” the Court is not confined to a consideration of whether the order should have been made on the facts known to the Court at the time at which it was made. The Court must take account of facts, known at the time at which the sequestration order was made and at which it determines an annulment application, even if those facts were not before the Court at the time at which the sequestration order was made: Boles v Official Trustee in Bankruptcy (2001) 183 ALR 239 at 243; Re Raymond; ex parte Raymond (1992) 36 FCR 424 at 426.

    (4) A sequestration order “ought not to have been made” if, on the facts known at the time of the annulment application, the Court would have been bound not to make the sequestration order: Re Frank; ex parte Piliszky (1987) 16 FCR 396.

    (5) The Court will be so satisfied if it is established that the debtor was not, at the time the sequestration order was made, indebted to the petitioning creditor: Re Deriu (1970) 16 FLR 420 at 422.

    (6) If the Court is so satisfied, it is not precluded from annulling the bankruptcy because the bankrupt had not sought to have the default judgment set aside or failed to oppose the creditor’s petition or failed to seek a review of the sequestration order: Re Raymond; ex parte Raymond (1992) 36 FCR 424 at 426.

    (7) The power conferred on the Court by s.153B(1) is discretionary in nature. Even if persuaded that the sequestration order ought not to have been made, the Court can, in appropriate circumstances, decline to annul the bankruptcy: Boles v Official Trustee in Bankruptcy (2001) 183 ALR 239 at 243.

    (8) Considerations which may have a bearing on the exercise of discretion include unexplained delay in the making of the application, whether or not the applicant is solvent, whether or not the applicant has made full disclosure of his or her financial affairs and a failure by the bankrupt to oppose the creditor’s petition and attend the hearing at which the sequestration order was made: Re Williams (1968) 13 FLR 10 at 24–5; Boles at 247; Re Papps; ex parte Tapp (1997) 78 FCR 524 at 531; Rigg v Baker [2006] FCAFC 179 at [79]; Cottrell v Wilcox [2002] FCA 1115 at [7]. Additional considerations are collected in D. A. Hassall, “Annulment of Bankruptcy and Review of Sequestration Orders” (1993) 67 ALJ 761 at 766.”

27. Nothing advanced by the debtor by reason of matters that have been placed before me persuades me that my prima facie conclusion expressed on the last occasion is wrong. I am not satisfied that the order was one that ought not to have been made; it follows that the jurisdiction to annul is not enlivened under s.153B.

28. The application is dismissed.

29. I direct that the applicant pay the respondent’s costs of an incidental to the application to be assessed.

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

Date:  16 September 2013