Mulhern v Pearce (No 2)

Case [2014] FCA 805

FEDERAL COURT OF AUSTRALIA

Mulhern v Pearce (No 2) [2014] FCA 805

Citation: Mulhern v Pearce (No 2) [2014] FCA 805
Parties: MICHAEL RICHARD MULHERN (AUSTRALIAN MADE BANKRUPT) v MARK WILLIAM PEARCE AND ANDREW JOHN HEERS AS FEDERAL COURT OF AUSTRALIA APPOINTED TRUSTEES OF THE AUSTRALIAN ESTATE OF MICHAEL RICHARD MULHERN, JOSEPH MICHAEL DODRILL (A BANKRUPT), JOHN ANTHONY DODRILL (A BANKRUPT) and BANK OF QUEENSLAND
File number: NSD 1888 of 2013
Judge: COLLIER J
Date of judgment: 1 August 2014
Catchwords:

BANKRUPTCY AND INSOLVENCY – application by trustees for summary dismissal – r 1.03(2) Federal Court (Bankruptcy) Rules 2005 (Cth) and r 26.01 Federal Court Rules 2011 (Cth) – primary proceedings concern application by bankrupt seeking annulment of sequestration order, discharge of bankruptcy and return of passport and United States Green Card – two interlocutory applications filed by bankrupt seeking return of passport and discharge of bankruptcy – whether bankrupt has reasonable prospect of successfully prosecuting the proceeding – bankrupt not personally served with bankruptcy notices or creditor’s petitions – service effected in accordance with substituted service orders – whether jurisdiction for sequestration order existed – s 43(1)(b) Bankruptcy Act 1966 (Cth) – bankrupt alleging business not carried on in Australia and not ordinarily resident in Australia at time of bankruptcy – bankrupt not contesting any factual evidence on which court relied in making sequestration order – assertion that debt the subject of bankruptcy paid by bankrupt

PRACTICE AND PROCEDURE – application to reopen hearing to adduce further evidence made by trustees – further application to adduce evidence made by bankrupt – whether in interest of justice to reopen and admit evidence – whether material relevant

PRACTICE AND PROCEDURE – application by trustees for security for costs – s 56 Federal Court of Australia Act 1976 (Cth) – r 19.01 Federal Court Rules 2011 (Cth) – whether bankrupt has assets in jurisdiction – whether order for security would stifle proceedings – bankrupt’s prospects of success – bankrupt’s ability to satisfy a costs order – whether bankrupt has cooperated with trustees
Legislation: Bankruptcy Act 1966 (Cth) ss 7(1), 43, 43(1), 43(1)(b), 43(1)(b)(i), 43(1)(b)(ii), 43(1)(b)(iii), 58, 77, 77(1)(a), 77(1)(a)(i), 77(1)(a)(ii), 77(1)(b), 77(1)(ba), 77(1)(e), 77(1)(f), 77(1)(g), 153B, 153B(1), 178, 178(1), 178(2), 309(2)
Evidence Act 1995 (Cth)) ss 56, 75
Federal Court of Australia Act 1976 (Cth) ss 31A, 31A(3)
Federal Court (Bankruptcy) Rules 2005 (Cth) rr 1.03, 1.03(2)
Federal Court Rules 2011 (Cth) rr 19.01, 26.01(1), 26.01(3), 132
Cases cited: Batistatos v Roads and Traffic Authority (NSW) (2006) 226 CLR 256 cited
Battenberg v Restrom (2006) 149 FCR 128 cited
Bell Wholesale Co Pty Ltd v Gates Export Corporation (1984) 2 FCR 1 cited
Bing! Software Pty Ltd v Bing Technologies Pty Ltd (No 2) [2008] FCA 1761 cited
Boston Commercial Services Pty Ltd v GE Capital Finance Australasia Pty Ltd [2006] FCA 1352 cited
British American Tobacco Australia Services Limited v Laurie (2011) 242 CLR 283 cited
Cameron v Cole (1944) 68 CLR 571 cited
De Robillard v Carver (2007) 159 FCR…

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AGLC
Mulhern v Pearce (No 2) [2014] FCA 805
Case
[2014] FCA 805
Decision Date

CaseChat Overview and Summary

In the case of Mulhern v Pearce (No 2), the primary issue before the court was whether the bankrupt, Mr Mulhern, had a reasonable prospect of successfully prosecuting his application for the annulment of his sequestration order, the discharge of his bankruptcy, and the return of his passport and US Green Card. The court was also required to decide whether it was in the interest of justice to reopen the hearing to admit further evidence, whether an order for security for costs should be granted, and whether the bankrupt had assets in the jurisdiction. The matter was heard in the Federal Court of Australia, with Justice Kenny presiding.

The court found that Mr Mulhern had no reasonable prospect of successfully prosecuting his application for the annulment of his bankruptcy on the basis that he had not personally been served with bankruptcy notices or creditor's petitions, and that service had been effected in accordance with substituted service orders. The court also held that there was no material before it to substantiate a claim that a sequestration order should not have been made in respect of Mr Mulhern. Furthermore, the court dismissed Mr Mulhern's application for the discharge of his bankruptcy, finding that he had no reasonable prospect of success in obtaining such an order.

Regarding the admission of further evidence, the court found that the additional material sought to be filed by the trustees was relevant to the current proceedings, and that it was in the interest of justice to admit it. The court also found that it was in the interest of justice to admit Mr Mulhern's affidavit, despite it being of little probative value.

Finally, the court dismissed Mr Mulhern's interim applications seeking the return of his passport and US Green Card, finding that he had no reasonable prospect of success in obtaining such orders.

The court's final orders were that the affidavits of Mark William Pearce and Paul Gerard Lynch be admitted to evidence, that Mr Mulhern's affidavit be admitted to evidence, and that Mr Mulhern's application and interim applications be dismissed. The court also noted that entry of orders was dealt with in Rule 39.32 of the Federal Court Rules 2011.

Orders

Orders of the court

1. The affidavit of Mark William Pearce sworn 13 June 2014 be admitted to evidence.

2. The affidavit of Paul Gerard Lynch affirmed 13 June 2014 be admitted to evidence.

3. The affidavit of Michael Richard Mulhern sworn 18 June 2014 be admitted to evidence.

4. The application of Michael Richard Mulhern filed 12 September 2013 be dismissed.

5. The interim applications filed by Michael Richard Mulhern on 12 February 2014 and 5 March 2014 be dismissed.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

Full text does not contain this section.

Evidence

Evidence Before The Court

Since Mr Mulhern’s application for annulment of his bankruptcy was filed, evidence has been filed on behalf of both the trustees and Mr Mulhern.Evidence filed on behalf of the trustees A number of affidavits have been filed on behalf of the trustees, namely:·An affidavit of Mr Mark Pearce who is one of the trustees, sworn 24 September 2013.·An affidavit of Mr Michael Graham sworn 20 February 2014. Mr Graham is a solicitor and costs assessor.·Three affidavits of Mr Andrew Heers, who is one of the trustees. These affidavits were dated 14 February 2014, 17 February 2014 and 21 February 2014.·An affidavit of Mr Michael Dullaway, who is a senior manager in the insolvency accounting firm of the trustees. This affidavit was sworn 7 March 2014. The evidence of these witnesses may be summarised as follows.Mr Pearce’s affidavit Mr Pearce deposes as to some history of the current proceedings before the Court involving Mr Mulhern and the trustees. In particular he gives evidence in relation to:·earlier applications for annulment of his bankruptcy brought by Mr Mulhern;·earlier applications of Mr Mulhern seeking return of passports and permission for overseas travel;·other orders made against Mr Mulhern and facts relevant to the change of venue of these proceedings from Sydney to Brisbane. It is not in dispute that earlier applications for annulment of his bankruptcy brought by Mr Mulhern were:·QUD 208 of 2012 heard by Dowsett J on 31 May 2012;·QUD 242 of 2012 heard by Besanko J on 17 August 2012, being an appeal from orders of Dowsett J in QUD 208 of 2012. The decision in this matter appears at Mulhern v Pearce [2012] FCA 884.·QUD 577 of 2012 heard by Reeves J on 15 November 2012 and 26 November 2012; and·SYG 2805 of 2012 heard by Burnett FM (as his Honour then was). The decision in this matter appears at Mulhern v Pearce [2012] FMCA 1186. All of these applications were dismissed. Earlier applications by Mr Mulhern seeking return of his passports and for permission to travel overseas were:·QUD 176 of 2011 heard by Jagot J on 2 February 2012. The decision in this matter appears at Pearce (Trustee) v Mulhern (bankrupt) (No 4) [2012] FCA 54.·QUD 208 of 2012 heard by Logan J on 19 April 2012. The decision in this matter appears at Mulhern, in the matter of Mulhern (bankrupt) v Pearce [2012] FCA 570.·QUD 244 of 2012 heard by Greenwood J on 19 June 2012. The decision in this matter appears at Mulhern v Pearce [2012] FCA 631.·SYG 2805 of 2012 heard by Burnett FM. The decision in this matter appears at Mulhern v Pearce [2013] FMCA 229. In all of these matters the Court dismissed Mr Mulhern’s application for the return of his passport and other travel documentation, and confirmed the decision of the trustees in respect of Mr Mulhern’s overseas travel. Other applications in this Court include:·QUD 88 of 2010 heard by Reeves J on 6 May 2010; and·QUD 176 of 2011 heard by Logan J on 9 August 2011, by Buchanan J on 11 January 2012 and by Flick J on 16 and 17 January 2012.

Decision

Reasons for decision

On the material before me Mr Mulhern has no reasonable prospect of successfully maintaining this argument.Conclusion There is no material before me to substantiate a claim that a sequestration order should not have been made in respect of Mr Mulhern. The arguments and evidence he has put to this Court are, in my view, without merit. On the material before me Mr Mulhern has no reasonable prospect of successfully prosecuting a claim for annulment of his bankruptcy on this basis.Paragraph A 2 of Mr Mulhern’s application In paragraph 2 of his application Mr Mulhern seeks an order that:Pursuant to rule 132 of the Federal Court Rules 2011, the bankruptcy of Richard Mulhern be discharged forthwith. There is no r 132 in the Federal Court Rules. There is r 34.132 however it has no potential application to discharge of a bankruptcy. Mr Mulhern has no reasonable prospect of success in obtaining an order for the discharge of his bankruptcy pursuant to this contention.Paragraph A 3 of Mr Mulhern’s application In paragraph 3 of his application Mr Mulhern seeks an order that:In the alternative, the Court orders the Trustee discharge Michael Richard Mulhern from his bankruptcy. In short, the Court has no power to order the trustees to discharge Mr Mulhern from his bankruptcy. A bankrupt is discharged by operation of law in accordance with Part VII of the Bankruptcy Act. Mr Mulhern has no reasonable prospect of success in obtaining an order for the discharge of his bankruptcy pursuant to this contention.Paragraph A 4 of Mr Mulhern’s application In paragraph 4 of his application Mr Mulhern seeks an order that:Further or in the alternative, the Court orders the Trustee to return to Mr Mulhern his Irish passport and his US Greencard. Section 77 of the Bankruptcy Act imposes certain duties on a bankrupt. These include:·forthwith after becoming bankrupt, delivering to the trustee all books that relate to the bankrupt’s examinable affairs and the bankrupt’s passport: s 77(1)(a);·attending the trustee whenever the trustee reasonably requires: s 77(1)(b);·giving such information about any of the bankrupt’s conduct and examinable affairs as the trustee requires: s 77(1)(ba);·executing such instruments and generally doing all such acts and things in relation to his or her property and its realization as are required by the Bankruptcy Act or by the trustee or as are ordered by the Court upon the application of the trustee: s 77(1)(e);·disclosing to the trustee, as soon as practicable, property that is acquired by the bankrupt or devolves on the bankrupt, before his or her discharge, being property divisible among his or her creditors: s 77(1)(f); and·aiding, to the utmost of his or her power, in the administration of his or her estate: s 77(1)(g). Clearly one of Mr Mulhern’s chief concerns is the withholding of his passport and US Green Card by the trustees. He has previously agitated unsuccessfully for the return of his passport in this Court (Pearce (Trustee) v Mulhern (Bankrupt) (No 4) [2012] FCA 54; Mulhern v Pearce (Trustee) [2012] FCA 570; and Mulhern v Pearce [2012] FCA 631) and in the Federal Magistrates Court (Mulhern v Pearce [2013] FMCA 229). Similarly, Burnett FM (as his Honour then was) in Mulhern v Pearce [2013] FMCA 229 dismissed an interim application by Mr Mulhern for the return of his Green Card, and Logan J in Mulhern v Pearce (Trustee) [2012] FCA 570 refused to order that Mr Mulhern’s US travel documentation be returned to him.

Ratio Decidendi

Legal Principle Established

Further, Mr McClelland for Mr Mulhern made oral submissions supporting the admission of Mr Mulhern’s affidavit sworn 18 June 2014 and opposing the admission of the additional material sought to be tendered by the trustees. Mr McClelland sought to file this affidavit of Mr Mulhern in order to answer the statements in the affidavits sought to be tendered by the trustees. In summary, his objections to the admission of the additional evidence tendered by the trustees were (transcript 19 June 2014 p 6):·There was already evidence before the court of the trustee’s objections with respect to the extension of the bankruptcy.·The trustee’s main objection for the extension or the discharge of Mr Mulhern’s bankruptcy was that he was uncooperative. However it is understandable that someone is uncooperative if they believe they have been wronged. Further, Mr Mulhern’s lack of co-operation with his trustees in bankruptcy is nothing new.CONSIDERATIONAdmission of further evidence As it transpired, no objection was made at the hearing by Mr McClelland on behalf of Mr Mulhern to evidence of Mr Pearce as hearsay, and indeed had such an objection been made it could have been answered by reference to s 75 of the Evidence Act on the basis that Mr Pearce stated the source of the relevant hearsay in his affidavit: cf Thomas v Mowbray (2007) 233 CLR 307; British American Tobacco Australia Services Limited v Laurie (2011) 242 CLR 283. As Kenny J explained in Inspector-General in Bankruptcy v Bradshaw [2006] FCA 22 the overriding principle to be applied in considering whether to grant leave to reopen a proceeding to permit the admission of further evidence is whether the interests of justice are better served by allowing or rejecting the application for leave to reopen. However it is also important that the evidence which the applicant for reopening seeks to have admitted is relevant within the meaning of s 56 of the Evidence Act: Bing! Software Pty Ltd v Bing Technologies Pty Ltd (No 2) [2008] FCA 1761; Lee v Professional Services Review Committee No 292 (No 2) [2010] FCA 1490. The additional material sought to be filed by the trustees – that is, the affidavits of Mr Pearce and Mr Lynch – is material which is relevant to the current proceedings, and which was not available at the time of the hearing. The affidavits also contain information relevant to the exercise of the Court’s discretion in determining whether Mr Mulhern’s bankruptcy should be annulled, in that the evidence therein concerns:·the possibility of assets to which Mr Mulhern has not otherwise admitted;·the prospect of Mr Mulhern commencing fresh legal action; and·the question whether Mr Mulhern has taken inappropriate steps to obtain a new passport. In my view these affidavits ought be admitted to evidence. Mr Mulhern’s affidavit of 18 June 2014 to a large degree repeats allegations previously made by him. It also contains scandalous allegations and bare assertions concerning the trustees. However he also seeks to answer the evidence of Mr Lynch and Mr Pearce in their affidavits. While I consider Mr Mulhern’s affidavit to be of little probative value, in the interests of justice I will allow it to be admitted.The trustees’ interim application – summary dismissal