Queensland Building and Construction Commission v Mead

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FEDERAL COURT OF AUSTRALIA

Queensland Building and Construction Commission v Mead [2024] FCA 1355  

File number(s): QUD 487 of 2023
Judgment of: MEAGHER J
Date of judgment: 25 November 2024
Catchwords: BANKRUPTCY – Sequestration order made by a registrar – Application made by respondent for review of sequestration order – Where defects in documents alleged – Whether the respondent was ordinarily resident or had a dwelling house in Australia – Where criteria for sequestration order are established – Whether the respondent is solvent – Whether the sequestration order ought not be made for other sufficient cause – Where no reason to go behind the judgment debt – Where the respondent has not established solvency – Where no other sufficient cause established – Sequestration order is affirmed
Legislation:

Bankruptcy Act 1966 (Cth) ss 35A(1)(h), 35A(6), 40, 43, 43(1), 52(1), 52(2)(b), 52(4), 306

Bankruptcy Regulations (Cth) regs 9, 10, 10A

Federal Court (Bankruptcy) Rules 2016 (Cth) rr 2.02, 4.02, 4.04, 4.06
Cases cited:

Baycorp Collections PDL (Aus)Pty Ltd v Hsia [2018] FCCA 249

Bechara v Bates (2021) 286 FCR 166

Cain v Whyte (1933) 48 CLR 639

Daly v Watson (1994) 50 FCR 544

Endresz v Australian Securities and Investment Commission (No 2) (2015) 228 FCR 334

Fuller v Alford (2017) 252 FCR 168

Harris v Caladine (1991) 172 CLR 84

Mathai v Kwee (2005) ABC(NS) 268

Minister for Immigration and Citizenship v Li (2013) 249 CLR 332

Pineview Property Holdings Pty Ltd v Dimitriou (No2) [2019] FCA 1416

Ramsay Health Care Australia Pty Ltd v Compton (2017) 261 CLR 132

Re Taylor; ex parte Natwest Australia Bank Limited (1992) 37 FCR 194

Sandell v Porter (1966) 115 CLR 666

Stankiewicz v Plata [2000] FCA 1185

Totev v Sfar (2008) 167 FCR 193

Toyota Finance Australia Ltd v Youssef Berro [2022] FCA 497

Veale v Coleman (2024) 304 FCR 182
Division: General Division
Registry: Queensland
National Practice Area: Commercial and Corporations
Sub-area: General and Personal Insolvency
Number of paragraphs: 69
Date of hearing: 26 June 2024
Counsel for the Applicant: Mr NJ Derrington
Solicitor for the Applicant: Gadens Lawyers
Counsel for the Respondent: The Respondent appeared in-person

ORDERS

QUD 487 of 2023
BETWEEN:

QUEENSLAND BUILDING AND CONSTRUCTION COMMISSION

Applicant
AND:

MAXWELL JAMES MEAD

Respondent

ORDER MADE BY:

MEAGHER J

DATE OF ORDER:

25 NOVEMBER 2024

THE COURT ORDERS THAT:

1.The interim application filed by the respondent on 28 February 2024 is dismissed.

2.The Orders made by Judicial Registrar Schmidt on 7 February 2024 are affirmed.

3.The applicant creditor’s costs of and incidental to the interim application filed on 28 February 2024 be paid from the estate of the respondent debtor in accordance with the Bankruptcy Act 1966 (Cth).

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


REASONS FOR JUDGMENT

MEAGHER J

INTRODUCTION

  1. This is an application made by Mr Maxwell Mead for review of the sequestration order made by Judicial Registrar Schmidt on 7 February 2024 under the Bankruptcy Act 1966 (Cth).

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Details
Case
[2024] FCA 1355
Decision Date

CaseChat Overview and Summary

In the matter of Queensland Building and Construction Commission v Mead, the Federal Court was required to review the sequestration order made by a judicial registrar against the respondent, Mr Mead, and determine whether the order should be affirmed or set aside. The Queensland Building and Construction Commission (QBCC) sought to recover a debt of $86,006.92 from Mr Mead, who was the sole director of Nationwide Homes Pty Ltd, a company that failed to complete a building contract. The Magistrates Court of Queensland granted judgment against Mr Mead, and following the issuance of a bankruptcy notice and a creditor's petition, a sequestration order was made by a judicial registrar.

The court had to decide several key legal issues, including whether the respondent was ordinarily resident or had a dwelling house in Australia, whether the criteria for a sequestration order were established, and whether the respondent was solvent. The court also needed to determine if there was any other sufficient cause why the sequestration order should not be made. Mr Mead argued that he was not ordinarily resident in Australia, that the debt was not his responsibility, and that making a sequestration order would cause undue hardship to him and his wife. He also claimed that the QBCC had unreasonably refused offers of settlement.

The court found that Mr Mead was ordinarily resident in Australia and had a dwelling house in the country. The court dismissed the argument that the debt was not his responsibility, as he was the sole director of the company that incurred the debt. The court also found that Mr Mead had not established that he was solvent or that there was any other sufficient cause why the sequestration order should not be made. The court held that there was no reason to go behind the judgment debt and that Mr Mead had not provided sufficient evidence to rebut the presumption of solvency. The court further found that Mr Mead's ill health and his wife's mental health issues did not provide sufficient grounds to set aside the sequestration order.

The court affirmed the sequestration order made by the judicial registrar and dismissed Mr Mead's application for review. The costs of the review application were to be paid from the respondent's estate. The court concluded that the respondent had not established any grounds to set aside the sequestration order, and the order was therefore affirmed.

Orders

Orders of the court

1. The interim application filed by the respondent on 28 February 2024 is dismissed.

2. The Orders made by Judicial Registrar Schmidt on 7 February 2024 are affirmed.

3. The applicant creditor’s costs of and incidental to the interim application filed on 28 February 2024 be paid from the estate of the respondent debtor in accordance with the Bankruptcy Act 1966 (Cth).

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

Background

Background to the litigation

For the reasons that follow, the review application is dismissed, and the Orders made by Judicial Registrar Schmidt are affirmed. BACKGROUND The debt in question is in the sum of $86,006.92 for a judgment made on 30 June 2023 of the Magistrates Court of Queensland and interest accrued on the judgment since the date of judgment. Mr Mead was and is the sole director of a company, Nationwide Homes Pty Ltd, which failed to complete a building contract. Under a statutory insurance scheme, the QBCC paid out money in respect of the incomplete work and sought to recover it from Mr Mead in his capacity as the director of Nationwide. The judgment in the Magistrates Court of Queensland was granted summarily. The debt was not satisfied and accordingly a bankruptcy notice was issued on 19 September 2023 and served on Mr Mead (with a copy of the judgment) on 29 September 2023. Mr Mead did not pay the amount referred to in the bankruptcy notice, nor advance to the QBCC a basis upon which the debt could be satisfied, within 21 days of being served with the bankruptcy notice. On 1 November 2023, Mr Mead sent a letter dated 31 October 2023 to the solicitors for the QBCC advising inter alia that he was unable to pay the amount owing. On 26 November 2023, the creditor’s petition was personally served on Mr Mead. The hearing of the creditor’s petition was adjourned on 6 December 2023, and the sequestration order was made on 7 February 2024. On 28 February 2024, Mr Mead filed an interim application seeking the following relief: 1. Order that the decision of Registrar Schmidt made in this matter on the 7th day of February 2024 be reviewed “de novo” by this court.2. Order that the Applicant be granted leave to file and serve Affidavits in support of this Application after the date hereof and prior to the hearing of this application3. Upon review Order that the Sequestration Order made by Registrar Schmidt in this matter on the 7th day of February 2024 be set aside and the creditors petition be dismissed pursuant to Section 52(2) (b) of the bankruptcy Act 1966. Orders were made on 22 March 2024 which, inter alia, enabled Mr Mead to file and serve any submissions and affidavits in support of his application. On 3 May 2024, Mr Mead filed an amended “Notice stating grounds of opposition to application, interim application or petition”. The grounds contained in the amended notice included that there were defects in the material served upon Mr Mead, that he was not insolvent, that in any case the debt was not his, that the QBCC had unreasonably refused offers of settlement, that Mr Mead’s poor health should be taken into account, that the debt arose as a result of the COVID-19 pandemic, and that the Court should exercise its discretion in Mr Mead’s favour as to do otherwise would cause undue hardship to him and his wife.LEGAL PRINCIPLES Judicial power of the Commonwealth may only be exercised by judges of federal courts or other courts exercising federal jurisdiction: Bechara v Bates (2021) 286 FCR 166; [2021] FCAFC 34 at [1]. However, federal judicial power may be delegated to registrars providing such delegated power is subject to review or appeal by a judge or judges of the Court: Harris v Caladine (1991) 172 CLR 84; [1991] HCA 9 at 94 – 95.

Evidence

Evidence Before The Court

As to whether the Court should go behind the judgment debt, Wigney J in Pineview Property Holdings Pty Ltd v Dimitriou (No2) [2019] FCA 1416 at [50] stated as follows: In Ramsay Health Care Australia Pty Ltd v Compton [2017] HCA 28; 261 CLR 132 , Kiefel CJ, Keane and Nettle JJ (at [43]), with whom Edelman J relevantly agreed (at [97], [110]), made it clear that this statement should not be given the “artificially narrow application” that the appellant in that case urged, which was that the bankruptcy court’s discretion to go behind a judgment after a contested hearing was enlivened only in the event of some fraud, collusion or miscarriage of justice. Rather, the categories in which the court will inquire into the validity of the judgment debt are not closed or constrained to any fixed categories. The discretion to go behind the judgment will be enlivened whenever there are “substantial reasons … for questioning whether behind [the] judgment there was in truth and reality a debt due to the petitioner”: Wren at 225 (per Barwick CJ); referred to with approval in Ramsay at [65] (per Kiefel CJ, Keane and Nettle JJ) and [110] (per Edelman J).EVIDENCE OF MR MEAD Mr Mead filed two affidavits in the matter. There was considerable overlap between his evidence and the submissions he made. From the affidavit filed on 31 January 2024, Mr Mead’s evidence may be summarised as follows:·He became a director of Nationwide to assist an immigrant, Mr Alex Harnden, whose status precluded him from being a company director.·Nationwide was a construction company, in which Mr Harnden owned all of the shares.·Mr Mead had no involvement in the operations of Nationwide.·The Magistrates Court granted judgment against the defendants without a trial.·He has been unable to negotiate with the QBCC with respect to the debt. The QBCC has been unreasonable in that regard.·The petition and documents served upon him contain defects. For example, the petition states that he has a dwelling house or place of business in Australia, which is not the case. Therefore, he deposes that the affidavit of Mr Claude Paul verifying the creditor’s petition cannot be correct, nor can the affidavit of service be relied upon.·That s 111C of the Queensland Building and Construction Commission Act 1991 (Qld) (QBCC Act), which attaches liability to directors of companies, constitutes a penalty upon directors of those companies for the actions of the company. ·Mr Mead is not insolvent. He is able to meet his debts as they fall due and has no outstanding debts.·Mr Mead is unable to work full-time due to ill health. His wife is the primary income producer in their household.·Mr Mead has suffered a serious cardiac arrest leading to hospitalisation in the ICU. He also suffers from severe kidney disease. There were medical reports supporting Mr Mead’s statements regarding his health. The additional evidence contained in Mr Mead’s affidavit filed on 3 May 2024 may be summarised as follows:·Nationwide’s debt arose due to circumstances beyond its control.·Mr Harnden had agreed to pay any of Nationwide’s debts out of the sale of a “spec home” being built by Nationwide, but that agreement was not on honoured.·Mr Mead’s ill health has affected his ability to conduct the litigation with the QBCC. He has also recently been diagnosed with an enlarged prostate. Exhibited to Mr Mead’s affidavit of 3 May 2024 were updated medical reports.·Mr Mead’s wife has mental health issues. This was supported by medical evidence exhibited to Mr Mead’s affidavit. The medical evidence included that she is unable to work and even after recovery, she would require a gradual return to work that should only be in a part-time role. ·Given Mr Mead’s wife is currently unable to work, their household income has been reduced. The change in circumstances is due to circumstances outside their control.·Mr Mead’s wife purchased the home in which they live, and is the sole owner, as “compensation to her for her loss of prestige, position, assets, reputation and reasonable expectations upon [him] being struck off the roll as a solicitor and being made bankrupt in or about 1999”.·The trustees appointed by Judicial Registrar Schmidt will consider the prospects of “attacking the property owned by [his] wife”. Such an approach will cause great further harm to her mental health which would be an “unconscionable outcome”.·Such an approach would cause undue hardship, and if the home has to be sold, lead to “two more people being made homeless in Queensland and forced onto a non-existent rental market”.SUBMISSIONS OF MR MEAD

Decision

Reasons for decision

While the QBCC provided to the Court a short form bill of costs, along with draft orders which fix the sum of its costs, I do not propose to fix the costs of the QBCC. CONCLUSION For the reasons above, I dismiss the review application and I affirm the orders made by Judicial Registrar Schmidt on 7 February 2024. The costs of the review application should be paid from the respondent’s estate.

Ratio Decidendi

Legal Principle Established

Mr Mead submitted that he is not insolvent. He stated that he is able to meet all his bills as they become due and this debt is not one for which he should be responsible. Further, he submitted, the debt that was incurred was beyond his control – it was incurred by Nationwide during the COVID-19 pandemic.Making a sequestration order would cause extreme hardship Mr Mead argued that were the Court to make a sequestration order, it would have an extremely adverse impact on his wife. She has pre-existing mental health issues which have been exacerbated by this process. Mr Mead’s wife has been the main income earner in the family since Mr Mead was struck off the roll as a solicitor. However, Mr Mead’s wife’s health has since deteriorated further such that she has been unable to work. Further, Mr Mead submitted, the medical evidence does not fully portray the extent of his wife’s mental health condition – they simply “state blandly what the situation is”. Mr Mead’s submission was that if his wife’s mental health was to deteriorate further, as would happen if a sequestration order was made and any “attack” on the property is to occur, she would continue to be unable to work. In Mr Mead’s submission, if a sequestration order was to be made, it will lead to “an unconscionable outcome” for his wife. As well, Mr Mead submitted that his ill health has precluded him from working although, in oral submissions, he stated that his health was improving such that he may be able to work again. Mr Mead also submitted that if a sequestration order were made, both he and his wife would suffer as their lifestyle will be even more negatively impacted. To that end, Mr Mead’s written submissions include that it was not in the public interest for a sequestration order to be made as follows:I submit that a decision to not issue a sequestration order against me would actually be in the public interest in that it would show empathy and humanity and it would avoid undue hardship on both my wife and myself; avoid the unconscionable outcome of damaging increased mental health strain on my wife, and ensure that my wife, an innocent third party herein would not be traumatized by the loss of her home, hospitalization and the loss of her employment Other submissions Mr Mead referred to the statement of Kiefel CJ, Keane and Nettle JJ in Ramsay at [67] that a Bankruptcy Court is concerned to “protect the interests of third parties who were not participants in the litigation which led to the judgment in question”. He argued that this statement applied to third parties, such as his wife, who are in “proximity to the debtor”. In that regard, he pointed to the interests of his wife, given the risk that the home she owns will be “attacked” by the trustees. Mr Mead also submitted that the QBCC does not need the money the subject of the judgment debt, particularly in the context of the overall loss arising from the pandemic. Further, Mr Mead stated that the QBCC has run many businesses into bankruptcy.