Mulhern v Pearce
[2013] FMCA 229
•25 March 2013
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| MULHERN v PEARCE & ANOR | [2013] FMCA 229 |
| BANKRUPTCY – Annulment – whether the sequestration order ought not have been made – no steps taken by bankrupt to oppose creditor’s petition – non-cooperation by bankrupt – bankruptcy upheld. BANKRUPTCY – Overseas travel – application for return of documents and permission to travel overseas – bankrupt’s Australian passport confiscated – bankrupt’s Irish passport confiscated – bankrupt’s USA Green Card confiscated – whether the travel was genuine – whether the bankrupt was likely to return to Australia – whether the travel would hamper administration of the bankrupt’s estate – whether there were compassionate grounds for the travel – discretion of trustee – history of non-cooperation by bankrupt with trustee – application dismissed. COSTS – Security for costs – application for security for costs against bankrupt – security sought for interim and originating applications – security sought for costs incurred and future costs – factors to be considered when giving security for costs – whether the application for security was oppressive – bankrupt’s prospects of success – application unlikely to succeed – costs awarded. |
| Bankruptcy Act 1966 (Cth), ss.43B, 153B, 178, 272(1) Federal Magistrates Court Act 1999 (Cth), s.80 Federal Magistrates Court Rules 2001 (Cth), r.21.01 Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth), r.1.32 |
| Body Corporate for Araucaria GTP 1790 v Massey [2009] FMCA 598 James v McEvoy and Anor [2011] FMCA 604 Khan v Melluish [2010] FMCA 119 Paramasivam v the State of New South Wales (No 2) [2007] FMCA 1033 Re Molina; Ex parte Wily [1995] FCA 1057 Wharekura v Harrison [2005] FMCA 1988 |
| Applicant: | MICHAEL RICHARD MULHERN |
| Respondent: | MARK WILLIAM PEARCE AND ANDREW JOHN HEERS AS TRUSTEES OF THE PROPERTY OF MICHAEL RICHARD MULHERN (A BANKRUPT) |
| File Number: | SYG 2805 of 2012 |
| Judgment of: | Burnett FM |
| Hearing date: | 25 March 2013 |
| Date of Last Submission: | 25 March 2013 |
| Delivered at: | Brisbane |
| Delivered on: | 25 March 2013 |
REPRESENTATION
| Solicitors for the Applicant: | Mr Michael Smith |
| Solicitors for the Respondent: | Lynch Morgan Lawyers |
ORDERS
That the Applicant’s Interim Application filed 15 February 2013 be dismissed.
That the Applicant pay the Respondents’ costs of and incidental of the Interim Application filed 15 February 2013 and these costs be the Respondents’ costs in the administration of the estate of the Applicant.
That the Applicant pay the sum of $68,158.77 to the Registrar of the Court as security for the costs of these proceedings within 14 days of the date of this order.
That these proceedings be stayed until the payment by the Applicant of the amount of security for costs so ordered.
That in the event that the Applicant does not comply with order 3 these proceedings shall be deemed dismissed and the costs of the proceedings shall be the Respondents’ costs in the administration of the estate of the Applicant.
That the costs of and incidental to the Respondents’ Interim Application filed 21 March 2013 be paid by the Applicant and form part of the security for costs ordered pursuant to order 3.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT BRISBANE |
SYG 2805 of 2012
| MICHAEL RICHARD MULHERN |
Applicant
And
| MARK WILLIAM PEARCE AND ANDREW JOHN HEERS AS TRUSTEES OF THE PROPERTY OF MICHAEL RICHARD MULHERN (A BANKRUPT) |
Respondent
REASONS FOR JUDGMENT
(Ex Tempore)
The bankrupt seeks orders on an interim relief and for an annulment of the bankruptcy on the grounds that there was no jurisdiction to make a sequestration order pursuant to s.153B of the Bankruptcy Act 1966 (the Act) and, in the alternative, return of his passport and Green Card for the USA.
The Trustees in bankruptcy also apply for interim orders in the principal application. They seek the following orders:
“1. Pursuant to sec. 80 of the Federal Magistrates Court Act 1999 and/or rule 21.01(1) Federal Magistrates Court Rules 2001 and rule 1.03(2) Federal Magistrates Court (Bankruptcy) Rules 2006:-
(a)the [bankrupt] pay the sum of $68,158.77 to the Registrar of the Court as security for costs of these proceedings within 14 days of the date of this order;
(b)these proceedings be stayed until the payment by the [bankrupt] of the amount of security for costs so ordered;
(c)in the event the [bankrupt] does not comply with order 1(a) these proceedings shall be deemed dismissed and the costs of the proceedings shall be costs in the administration of the estate of the bankrupt.
2.That the costs of this application be paid by the [bankrupt] and form part of any security for costs order in the event that the Court grants the relief sought in paragraph 1.”
In the principal application, the bankrupt has applied for an annulment of the sequestration order made against him on 3 February 2010. The ground advanced by him in the principal application is that, at the time of the sequestration order, s.43B of the Act was not complied with as the bankrupt was not personally present or ordinarily resident in Australia, did not have a dwelling house or place of business in Australia, was not carrying on business in Australia and was not a member of a firm or partnership carrying on a business in Australia. The second ground advanced was that the service of the Bankruptcy Notice, Creditor’s Petition and associated documents never occurred. Finally, he contends that the requirements of international service were never complied with.
There is some history associated with the bankrupt which is relevant to both applications. It is appropriate that both the relevant parts be set out at this stage.
Until early 2013, the bankrupt had dual Irish/Australian nationality. He surrendered his passport and appears to claim he has thereby relinquished his Australian citizenship since that time. I am uncertain as to the processes involved in relinquishing citizenship. However, I do query whether the simple process of returning a passport to Department of Foreign Affairs and Trade is sufficient, particularly whilst one remains a resident of Australia.
In any event, the matter has occurred notwithstanding the claim by the bankrupt that he is being held in Australia against his will. He was subject to a sequestration order in 2010 upon the application of Joseph Michael Dodrill and John Anthony Dodrill. He owed them a sum of money approximating a million dollars in respect of a judgment they secured for a principal sum together with interest.
The Trustees’ report of May 2012 indicates that the bankrupt had liabilities of over $60 million. The largest is a debt to the Bank of Queensland that he owes as guarantor. The Bank of Queensland is yet to realise the securities for the loan under the guarantee, but advises the Trustees that it will suffer a shortfall on the sale of the secured property, leaving an indebtedness secured by the bankrupt’s guarantee.
The history of the administration, itself, discloses numerous failures by the bankrupt to comply with his statutory obligations together with the Trustees’ directions. It is apparent that the Trustees have been frustrated by the bankrupt’s refusal to comply. For instance, they have now filed an objection to the bankrupt’s discharge from bankruptcy which will prevent him from being discharged until 24 April 2018.
In their report, the Trustees summarised the various failures by the bankrupt to comply with both his statutory duties and directions issued to him by both them and the Insolvency and Trustee Service Australia (ITSA). Ultimately, the Trustees caused a warrant to issue for the bankrupt’s arrest. At that time, the bankrupt had been overseas. He was detained upon his arrival at Sydney international airport and, following that, transported to Brisbane to attend a public examination. That occurred in January 2012.
Notwithstanding all those matters and processes, it appears that, to date, no funds have been realised by the Trustees. However, they have in the meantime incurred significant expenses, particularly, they contend, because of the necessity to respond to various applications instituted by the bankrupt which I will address shortly.
I note that the bankrupt has not turned over funds approximating at least $30,000.00 which he disclosed in his statement of affairs. Nor has he made arrangements with respect to the real estate which he holds in the United States, which has also been disclosed in his statement of affairs.
It seems that despite the background of recalcitrance demonstrated by the bankrupt, he requested that the Trustees release to him his Irish passport and permit him to travel to visit his wife, who is ill. The Trustees refused. By the bankrupt’s interim application, he now seeks a review of the Trustees’ decision on that matter pursuant to s.178.
There is no contest between the parties as to the applicable principles. So far as an application for review under s.178 of the Act is concerned, the Court has a very wide power of review and the Act confers a very wide discretion. The power is a judicial one and the Court does stand in the shoes of an administrative body and exercise the powers of that body in its place.
The courts do not interfere with the exercise of a trustee’s discretion unless it can be shown that the impuned conduct of the trustee was incorrect, or that that other conduct would be preferable and/or that justice and equity require the court’s intervention.[1]
[1] Healey v Prentice (No 2) [2000] FCA 1598.
In such an application, the bankrupt bears the onus of proof by showing a ground on which there ought be a review.[2] It is not for the court to dictate to the Trustees what factor(s) should be given emphasis in a particular case, and whether or not the court ought interfere with the decision of a trustee is a serious matter which involves balancing the interests of the bankrupt in legitimate travel with the interest of the trustee and the creditors in the proper and prompt administration of the bankrupt’s estate.[3]
[2] Khan v Melluish [2010] FMCA 119.
[3] Wharekura v Harrison [2005] FMCA 1988.
The principal ground advanced by the bankrupt in this instance was a compassionate ground. It was expressed in a letter of 15 November 2012, where his solicitor wrote:
“However, even if my client is wrong on this basis (which is not admitted) my client would ask for the return of the documents in circumstances where the Trustees know full well my client’s wife is suffering cancer & needs the support of her husband.”
I should note that the solicitor’s comments are made in respect of the opening paragraph of his letter, where he notes:
“I have been instructed by my client to make a request of the Trustees for the return of his Irish passport & USA Green card which were seized by the Trustees & have not been returned.”
The Trustees responded by correspondence on 30 November 2012. Their response was acceptably prompt given that they took legal advice in the interim. Their letter of reply and decision provided a very detailed consideration of the bankrupt’s position and, in particular, addressed the three matters that constitute the most relevant factors in this case, being:
a)The purpose of the proposed travel overseas and whether or not that was genuine;
b)Whether the bankrupt was likely to return to Australia as he promises; and
c)Whether the bankrupt’s absence overseas would hamper or be detrimental to the administration of the bankrupt’s estate.
Although before me the bankrupt’s counsel sought to distinguish the point of the application by submitting that what was being sought today was merely the return of the passport, and not leave to travel overseas, the Trustees’ decision was plainly made in the context of an application for both the return of the Irish passport and the Green Card and for leave pursuant to s.272(1) of the Act to consent to the bankrupt travelling overseas.
As the Trustees’ decision addressed those matters and was made in response to an application in those terms, the application and the review sought pertain to both matters and cannot be simply subject to discrete determination in the sense contended for by the bankrupt.
In my view, it is appropriate to review the decision as a whole, which requires the Court to address all factors raised in the applicant’s initial application and which were subject to the determination which is now the subject of review by the bankrupt.
The discretionary factors relevant to the exercise of the decision to consent to overseas travel are broadly these:
a)the purpose of restricting overseas travel by a bankrupt is not to punish the bankrupt, but rather to ensure the proper administration of the bankrupt’s estate: Re Tyndall;[4]
b)the possibility that a bankrupt has committed offences under the Act and is seeking to abscond from prosecution is a relevant factor: Re Tyndall;
c)whether or not the bankrupt estate may benefit financially from the overseas travel would be a relevant consideration: Re Tyndall;
d)the terms of the Act prevent the bankrupt from doing any act preparatory to leaving Australia or leaving Australia without the consent of the trustee;
e)a relevant factor to be considered is whether there is a pressing need for the bankrupt to be in contact with the trustee during that period when the bankrupt proposes to be overseas: Mayger v Prentice;[5]
f)the discretion to be exercised by the trustee must be exercised judicially on grounds which can be reasonably considered relevant to such a decision as gleaned from a consideration of the Act: Re Molina; Ex parte Wily;[6]
g)the timely and efficient administration of the bankrupt estate is a relevant consideration to be taken into account by the trustee in determining whether to consent to overseas travel by a bankrupt: Re Molina;
h)a relevant consideration is whether, on the evidence, the bankrupt is likely to return to Australia: Re Molina;
i)a compassionate reason for the bankrupt’s request to travel overseas will counter in favour of the bankrupt: Re Molina.
[4] Re Tyndall; Ex parte Official Receiver (1977) 17 ALR 182.
[5] Mayger v Prentice [2000] FCA 99.
[6] [1995] FCA 1057.
The trustee, in exercising the discretion to consent to overseas travel, must consider at least these matters:
a)Is the purpose of the bankrupt’s proposed overseas travel genuine?
b)Is the trustee likely to return to Australia as promised?
c)Will the Trustee’s absence overseas hamper the administration of the bankrupt’s estate? Re Tyndall;
d)Has been no material change in circumstances, particularly in the context of there having been an earlier application? See Mulhern v Pearce.[7]
[7] [2012] FMCA 1186.
In this case, at least at this point, there appears to no dispute that the bankrupt has requested the Trustees’ consent to leave Australia and for the return of his passports to undertake such travel. Further, there does not appear to be any disagreement that the original purpose for the request was in connection with his father’s death in January 2012, nor is it in dispute that, on 30 November 2012, the Trustees refused the bankrupt’s request both to provide consent to proposed overseas travel and to return his Irish and Australian passports, nor that the decision was communicated to him.
The Trustees accept that the basis for the bankrupt’s request is genuine. This remains the case notwithstanding that the bankrupt’s position appears to have changed. In this regard, however, I make one observation, and that is the Trustees’ observation concerning the bankrupt’s failure to bring his wife’s health situation to the attention of the Trustees and the Federal Court when the matter first came on for determination in June 2012. Notwithstanding that failure, that additional ground remains, and perhaps now becomes a more pressing basis for the applicant’s request for the exercise of the Court’s discretion.
In any event, at that time those matters were known to the bankrupt, but despite that and the fact that this particular matter did have relevance, no mention appears to have been made at that time. It is, of course, somewhat puzzling that he did not do so, but I do not draw any adverse inference from that omission. The fact remains there are presently legitimate compassionate grounds, as there were at the time that the Trustees were called upon to make a determination.
The second consideration concerns the likelihood of the bankrupt’s return to Australia. The Trustees provided a very detailed review of the bankrupt’s history, his recalcitrant approach to his statutory duties and to their requests. They also paid particular note to some evidence that suggested that if the bankrupt was to depart Australia he would not return. Following a very detailed consideration of each of those factors and material supporting those complaints, the Trustees concluded that the bankrupt was a flight risk.
The other factors that it particularly had in mind when considering this included that the bankrupt had not offered any surety to support his assertion that he would return to Australia. This is a relevant consideration.[8]
[8] Re Molina; Ex parte Wily (supra).
Further, there was evidence by the bankrupt in his public examination conducted in January 2012 that his entire family was resident in New York. Additionally, he has no identifiable assets in Australia, but his debts in Australia, at least at the moment, appear to be potentially well in excess of $60 million.
It was evident from admissions made by the bankrupt during the course of his public examination, that he had left Australia on two previous occasions without having sought the consent of the Trustees. Nor, for purposes of the current application, had he offered any undertaking to the Court to return to Australia and use his passports only for the nominated purpose, although for reasons which follow, one might question the value of any such undertakings.
Finally, as I have earlier noted, there was evidence before the Trustees that there was a basis to fear that he may not return to Australia if he were to leave the jurisdiction, based upon a number of admissions that were said to have been made to that effect, particularly to Mr Dodrill.
Concerning the matter of the value of undertakings, I am particularly mindful, as was pointed out by counsel for the Trustees, that there is evidence that the bankrupt has previously breached undertakings given by him to the Court which may cast some doubt on the worth of any future undertakings. In any event, it is apparent that they were the considerations that drove the Trustees, in part, to their conclusion.
The third consideration addressed by the Trustees was whether the bankrupt’s absence would hamper or be likely to be detrimental to the administration of the bankrupt’s estate. In that regard, the Trustees’ views were informed by evidence that suggested to them that the bankrupt had engaged in deliberate evasion of the provision of responses to the Trustees’ questions.
For instance the Trustees complain of the bankrupt’s failure to provide them with all requested documents, including a copy of his father’s will. This has been the subject of a number of requests. Further by the bankrupt not causing, assisting and encouraging those who could provide such information to provide such information, together with other material concerning assets and accounts that he holds in the United States of America.
In Mr Pearce’s affidavit filed on 21 March 2012, he makes reference to the continuous state of non-compliance by the bankrupt with his duties under the Act between the date of the application and this application. That affidavit evidences further non-compliance or alleged non-compliance by the bankrupt with his duties under the Act.
The Trustees’ frustration with the administration of the bankrupt’s estate is further compounded by the Trustees’ belief that the bankrupt has given false evidence to the Court during his public examination. In this respect the Trustees are further frustrated because of the bankrupt’s failure to deliver documents to the trustee which would enable him to close reasonable lines of inquiry.
The Trustees also noted that the bankrupt had breached the undertakings given by the bankrupt to the Court on 16 January 2012, in particular, those undertakings in respect of the provision of information and documentation relating to his examinable affairs. It was on that basis that the trustee formed the view that the bankrupt’s absence from Australia for the requested period would probably hamper the administration of his estate.
In addition, the Trustees also point to the fact that it now seems that ITSA has indicated it considers the bankrupt to have committed a number of offences under the Act, and that those matters may yet be the subject of further action.
It follows then that having regard to the detailed consideration of the relevant history, the Trustees concluded that to permit the bankrupt to travel overseas gave rise to a real basis for concern that to do so would hinder and/or delay the administration of his estate.
Based on each of those matters, there was a proper basis for the view which was formed by the Trustees upon a reasonable consideration of the material that was then open and available to them. It prompted the conclusion that they ought not accede to the applicant’s request for consent, nor his request for the delivery to him of his passport.
In addition, the Trustees today contend that I should also have regard to the fact that there has been no material change in circumstances. I have earlier noted that this application has some history. I refer to the decision of Greenwood J in Mulhern v Pearce,[9] an application where, as in this instance, the bankrupt was seeking a review under s.178 of a decision of the Trustees to refuse his application for the return of passports and travel documentation.
[9] [2012] FCA 631.
At paragraph 12, his Honour detailed the history to the date of that hearing, which was 5 June 2012:
“The application before Logan J involved a review of the trustees’ decision pursuant to s.178 of the Bankruptcy Act. Section 178(1) provides, relevantly, that if the bankrupt is affected by a decision of the trustee, he or she may apply to the Court and the Court may make such order in the matter “as it thinks just and equitable.” The contextual history of the proceedings involving Mr Mulhern relevant to Logan J’s consideration of the application then before his Honour, is set out at [5] of the reasons, as set out below:
5. There is a history to this matter in this Court following the making of the sequestration order, so far as Mr Mulhern’s present presence in Australia is concerned. That history commences with an order which I made in August last year for the issuing of a warrant pursuant to s.78 of the Bankruptcy Act for Mr Mulhern’s arrest: see Pearce (Trustee) v Mulhern (Bankrupt) [2011] FCA 930. A sequel to that was Mr Mulhern’s arrest upon his coming to Australia in January 2012. That in turn led to consequential proceedings as a result of that arrest, initially before Buchanan J: see Pearce (Trustee) v Mulhern (Bankrupt) (No 2) [2012] FCA 7; and thereafter before Flick J: see Pearce (Trustee) v Mulhern (Bankrupt) (No 3) [2012] FCA 16. The following month, ie, in February this year, an application of the present kind was heard by Jagot J. Her Honour dismissed that application for reasons which she delivered on 2 February 2012: see Pearce (Trustee) v Mulhern (Bankrupt) (No 4) [2012] FCA 54.”
Further at paragraph 13 of Greenwood J’s decision:
“As Logan J observes, a similar application had been made before Jagot J in February 2012 and on that occasion Jagot J dismissed the application with costs: Pearce (Trustee) v Mulhern (Bankrupt) (No 4) [2012] FCA 54, 2 February 2012. That decision involved a review under s.178 of the Bankruptcy Act of a decision of the trustee early in 2012. The decision of the trustee reviewed by Logan J under s.178 was a decision of the trustee made on 3 April 2012. That decision was made against the background of the facts and circumstances as they stood on 3 April 2012 which, Logan J notes, were not in all material respects the same circumstances as prevailed in January and early February 2012. In other words, the application before Logan J was not simply a further application to review a later decision of the trustee where there had been no material change in circumstances. Certainly, the trustee seemed to accept that position.”
However, it is fair to say that in this instance matters have not necessarily fallen as they did before Greenwood J. He noted at [50]:
“I have considered the affidavits relied upon by Mr Mulhern. The affidavits represent a reassertion of the matters previously relied upon and although I accept that the continuing passage of time incrementally increases the pressure upon Mr Mulhern, I am satisfied that the decision of the trustee ought not to be interfered with in the exercise of jurisdiction under s.178 of the Bankruptcy Act. The material suggests that none of the matters the subject of the letter of 3 April 2012 have been addressed; no material change in circumstances has occurred since then; information has not been provided to the trustees as sought by the trustees; and Mr Mulhern continues to fail to cooperate and assist the trustees. No doubt that follows because Mr Mulhern believes that no sequestration order ought to have been made and that, in those circumstances, he would prefer not to cooperate. However, the trustees have statutory obligations and duties to discharge and a bankrupt has a statutory obligation to cooperate and assist the trustees.”
If there is to be any point of distinction between the observations made by Greenwood J and the case before me, it perhaps relates to the health of his wife. However, that was a matter which, as I have earlier noted, ought to have been agitated before his Honour as the evidence suggests it was a live issue at that time. However they were not the subject of agitation on that occasion.
Generally, aside from that one factor, the circumstances are as they were before Greenwood J. While I acknowledge the incremental prospect of additional difficulty for the bankrupt, he remains, in my view, as recalcitrant today as he obviously had been on the previous occasions before Greenwood, Logan and Jagot JJ.
In response to the Trustees’ application, the bankrupt submits solely that the sequestration order ought not to have been made. This is a question alive for trial. It is not lost in the context of this present application, as the remarks of other judges have noted. However, there is no reason why the Trustees could be said to have erred in the exercise of their discretion. In my view, the decision of the Trustees was reasonably open on the facts before them and there is nothing to suggest that there is any basis for me to interfere with the Trustees’ exercise of their discretion and the decision that they made in that regard.
The Trustees also apply for security for costs. I have earlier detailed the history of the application and in particular the history as related by Greenwood J. The Trustees complain that they are being forced to expend large sums of money responding to largely unmeritorious applications brought by the applicant in the context of an estate without assets. There is no doubt that the Court has a discretion in respect of such matters to award security on the basis advanced in the Trustees’ interim application.
The Trustees seek security for costs in the sum of approximately $70,000.00. This sum includes security to date and would take costs to the first day of trial and two days thereafter. The principles governing security for costs are generally well-settled. They have been articulated in a decision of this Court in Paramasivam v the State of New South Wales (No 2) [2007] FMCA 1033, and they are not controversial.
In this instance, the appropriate discretionary matters include a consideration of:
a)The chances of success of the applicant;
b)Whether the applicant’s claim is bona fide or a sham;
c)The quantum of the risk that the applicant cannot satisfy an order for costs;
d)Whether the security for costs is being used oppressively;
e)Whether the applicant’s impecuniosity arises out of an act in respect of which relief is sought;
f)Whether there are any public interest aspects which weigh in the balance against the making of an order;
g)Whether there are any particular discretionary matters present in the circumstances of the case.
In addition, it is worth noting that the fact that the party bringing proceedings resides out of the jurisdiction is a circumstance of great weight in determining whether an order for security ought be made.[10]
[10] James v McEvoy and Anor [2011] FMCA 604.
I am also conscious that the order is being sought in favour of the Trustees. The application for security concerns both the interim application for the return of passports and the application for annulment of the bankruptcy. I have dealt with the interim application. However, dealing with the question of the annulment, I understand the bankrupt’s contention that the sequestration order ought never have been made for the reasons that are articulated in his application. However, it ought not be forgotten that the bankrupt did not appear at the hearing of the Creditor’s Petition, and in those circumstances, he did not take any step to oppose the Petition.
It follows that in the face of an application for annulment, he faces a significant, if not insuperable, obstacle to the proposition that the court hearing the Petition was not bound to make the sequestration order.[11]
[11] Rigg v Baker (2006) 155 FCR 531.
Furthermore, the general difficulty that faces an applicant for annulment is that the discretion to annul must be exercised with great caution and only in special circumstances.[12] That the discretion can only be exercised upon a proper finding that the sequestration order ought not have been made.[13]
[12] Cameron v Cole (1944) 86 CLR 571.
[13] Body Corporate for Araucaria GTP 1790 v Massey [2009] FMCA 598.
In the context of the current application, the Trustees submit the following points as relevant, and I accept them as such. They are:
a)That there was a delay of nearly three years between the making of the sequestration order and the application for annulment;
b)That the Trustees’ report shows that the bankrupt presently has debts in excess of $60 million and that was the position at the date of bankruptcy;
c)That the statement of affairs disclosed only one single creditor for $900,000.00 but, materially, did not disclose the sixty-million-dollar indebtedness pursuant to the guarantee, particularly to the Bank of Queensland;
d)That the statement of affairs did not disclose over $7 million worth of assets that were owned by the bankrupt and his wife in the United States;
e)That the applicant has not lodged income tax returns since the 2005 financial year;
f)That he has breached his duties and responsibilities under the Act by failing to properly answer questions put to him by the Trustees concerning his examinable affairs;
g)That he has failed or refused to provide the Trustees with information and documentation concerning assets owned by him as at the date of his bankruptcy;
h)That his father refused to provide the Trustees with information and documentation relevant to the administration of his estate;
i)That he failed to pay income contributions in the amount of $31,858.05 for the first contribution period of the bankruptcy, as directed by the Trustees;
j)That he has failed to voluntarily deliver his passports to the Trustees despite being notified in writing to do so;
k)That he has failed on occasion to attend a public examination despite being personally served with a summons to do so;
l)That he has failed to provide his Trustees with a copy of his father’s will despite being requested in writing to do so;
m)That he has left Australia on two occasions during the period of his bankruptcy without seeking the Trustees’ written consent;
n)That he has failed to pay funds held in a New York bank account in his name to the Trustees when requested to do so.
They are all factors which would weigh heavily against a favourable exercise of the discretion in the application when it comes on for final hearing. However, there is no suggestion that his application in this instance is a sham.
Aside from the discretionary factors I have earlier identified, the only other matter which must be particularly addressed is whether or not the application for security is being used oppressively. The Trustees say that given the past costs orders made against the bankrupt and his estate and the number of proceedings commenced by the bankrupt, it could hardly be asserted that they are acting oppressively in finally seeking security in circumstances in which the administration is without assets.
Mr Pearce has deposed to the bankrupt’s conduct as being the cause of incurring nearly $450,000.00 in costs, charges and expenses associated with those claims.
It is to be noted that the bankrupt’s application is directly related to the sequestration order. However one should not forget that it was the bankrupt’s business activities that resulted in the debtor’s enlivening the jurisdiction to make that order. It was not any conduct on the part of the Trustees. I am further mindful that in this instance the bankrupt does have assets, at least in the United States. Obviously it would be open to him to choose whether or not he wishes to bring those assets to bear in support of these proceedings.
In my view, notwithstanding the fact that he has no assets in Australia, but cognisant of the fact that he does have assets outside the jurisdiction, in respect of which there is no evidence to suggest they are not available to him, I do not think that this is a case where I would exercise the discretion against the Trustees. I think the Trustees ought be permitted to have the relief that they seek. I think the circumstances warrant the exercise of an order for the relief granted, and that it is appropriate in these circumstances that the Trustees be afforded some security for costs, particularly having regard to the litigious history of the bankrupt in these circumstances.
As to the quantum of the security which ought be afforded to the Trustees, Mr Graham, in his affidavit, details costs broadly on his analysis. He has separated costs into those which have already been incurred ($26,333.75), costs that will be incurred on the security application and on the annulment application until the first day of trial ($41,825.02), and costs for the further two days ($19, 250.00).
It was contended that there is jurisdiction to order security for past costs.[14] I think having regard to the history of this application, it is appropriate that there be, in the unusual circumstances of this case, security afforded for both costs incurred to date together with those that will be incurred going forward. In the circumstances, I propose to make orders in the terms sought in the Trustees’ application.
[14] Citrus Queensland Pty Ltd v Sunstate Orchards Pty Ltd (No 5) [2006] FCA 1672.
I certify that the preceding sixty-two (62) paragraphs are a true copy of the reasons for judgment of Burnett FM.
Date: 16 September 2013
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