R H Mackay and Associates and Anor v Sullivan and Anor (No.2)
[2005] FMCA 1309
•9 September 2005
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| R H MACKAY & ASSOCIATES & ANOR v SULLIVAN & ANOR (No.2) | [2005] FMCA 1309 |
| BANKRUPTCY – Whether applicant entitled to restitution after setting aside of s.139ZL Notice – application dismissed. |
| Bankruptcy Act 1966, ss.120, 121, 139E, 139K, 139P , 139ZL, 139ZM(2) Family Law Act 1975, s.65DA(2) Corporations Act 2001, s.206A(1) |
| R.H. Mackay & Associates and Anor v Sullivan and Anor (2005) FMCA 125 The Commonwealth v McCormack (1984) 155 CLR 273 Ex-parte: James (1874) ANZ Banking Group Ltd v Westpac Banking Corporation (1988) HCA 17 |
| First Applicant: | R H MACKAY & ASSOCIATES PTY LTD |
| Second Applicant: | ROBERT HUGO MACKAY |
| First Respondent: | MAURICE LOUI SULLIVAN IN HIS CAPACITY AS DEPUTY OFFICIAL RECEIVER |
| Second Respondent: | SCOTT DARREN PASCOE AS TRUSTEE OF THE PROPERTY OF ROBERT HUGO MACKAY |
| File Number: | BRG539 of 2003 |
| Judgment of: | Baumann FM |
| Hearing date: | 3 May 2005 |
| Delivered at: | Brisbane |
| Delivered on: | 9 September 2005 |
REPRESENTATION
| Counsel for the Applicants: | Mr Dearn |
| Solicitors for the Applicants: | Whitehead Payne Lawyers |
| Solicitors for the Respondents: | TressCox Lawyers (Mr Rodgers) |
ORDERS
The First Applicants application for reimbursement of funds paid under the purported s.139ZL Notice, be dismissed.
The First Applicant shall make a contribution to the costs of the Second Respondent to be fixed, in relation to the opposition to the Application for reimbursement.
The Second Respondent shall file and serve within 14 days an assessment of costs under the Federal Magistrates Court Rules 2001 and the First Applicant shall have 14 days thereafter to file and serve written submissions in reply.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT BRISBANE |
BRG539 of 2003
| R H MACKAY & ASSOCIATES PTY LTD & ANOR |
Applicants
And
| SULLIVAN & ANOR |
Respondents
REASONS FOR JUDGMENT
On 15 February 2005, I delivered reasons in this matter for finding that a Notice issued under s139ZL of the Bankruptcy Act 1966 (“the Act”) be set aside (see R H Mackay & Associates and Anor v Sullivan and Anor (2005) FMCA 125).
It was contended by Applicants in their Application filed on 6 October 2003 that not only should the Notice be set aside, but that:
“all monies paid thereunder be reimbursed to the First Applicant.”
The monies “paid thereunder” were paid by the Health Insurance Commission (“HIC”) to the Second Respondent Scott Pascoe (“the Trustee”) as a result of the Trustees assessment, pursuant to s139P of the Act, that the Bankrupt will have income which exceeds the actual income threshold.
By way of background, I record the finding I made as paragraph 18 of my earlier reasons for judgment as follows:-
“18.The history of the company’s administration, particularly since the bankruptcy of Dr Mackay coupled with:-
a) The evidence of Dr Mackay which unreliably in my view, seeks to assert a lack of control of the company;
b) The frank evidence of Douglas Graham Harper, who in cross-examination (and even during re-examination) made it clear that he never opened a “single item of mail”; “didn’t give a single order” and “didn’t touch a single bank account” and
c) The shareholding of the company,
Now make it abundantly clear to me that at all material times the company, in reality, has been the alter ego of Dr Mackay and all his attempts to disguise his control of the entity amount to a sham. Mr Harper was his puppet. He did as Dr Mackay directed and did not exercise any independent thought or process in the discharge of his duties as a Director of the Company.”
Subsequent to the initial hearing of this matter (on 25 May 2004), the First Applicant RH Mackay & Associates Pty Ltd was placed into liquidation by an order of the Supreme Court of Queensland made
1 July 2004. The Official Liquidator says in an affidavit filed by leave on 11 March 2005, that it is asserted by the Directors of the company that the
“failure of the company was caused by the garnishee of the Health Insurance Commission funds”.
Applicant’s submissions
Mr Dearn for the Applicants (including the Official Liquidator so appointed), made written submissions on 11 May 2004; supplementary submissions on 11 March 2005 and oral submissions on 3 May 2005.
I have considered those submissions carefully, which contend that the First Applicant is entitled to restitution on the following grounds, namely:-
a)Pursuant to s.139ZM(2) of the Act, a “ notice that has been set aside is taken not to have been given.”
b)The effect of the judgment and of the Application of s.139ZM(2) is to require the Court to allow for restitution in integrum in favour of the First Applicant which is achieved by repayment to the First Applicant of all monies under the Notice set aside, which “is the right of every successful litigant” (The Commonwealth v McCormack (1984) 155 CLR 273 at 276).
c)Restitution on the basis of a mistake of law is well established, and a Trustee in Bankruptcy is treated in a “special category as being under a strict duty as an officer of the Court” and
“the Court, then, finding that he has in his hands money which in equity belongs to someone else, ought to set an example to the world by paying it to the person really entitled to it”.
(Ex-parte: James (1874) L.R. 9 Ch. APP. 609).
d)Receipt under mistake of fact or law gives rise to a prima facie obligation to make restitution in the sense of compensation for the benefit of unjust enrichment to the person who has sustained the countervailing detriment and no issue of tracing arises (relying upon ANZ Banking Group Ltd v Westpac Banking Corporation (1988) HCA 17 at paragraph 11).
Respondent’s submissions
Mr Skinner of Counsel initially relied upon submissions filed 17 May 2004, which have been supplemented by written and oral submissions prepared and delivered by Mr Rogers on 11 March 2005; 24 March 2005 and 2 May 2005. I have carefully considered those submissions which assert that the First Applicant is not entitled to restitution because:-
a)There is no power in the Court to order the Trustee to pay the money received by HIC to the Bankrupt or the Company as it has been accepted by the Courts “that pre-existing equities will prevail over statutory obligations akin to those created by the Notice”.
b)The money in question (the money paid by HIC to the Trustee under the section 139ZL Notice) is income (as defined by the Act) earned by the bankrupt in the period from 11 September 2002 to 10 September 2003 and, unless validly assigned, the money earned by the Bankrupt in that period “must be paid to the Trustee, pursuant to the income contribution assessment dated
22 November 2002.” As recorded in my earlier reasons (at paragraph 12), a review of the Assessment was not sought by the bankrupt pursuant to subdivision 9 of Part VI of the Act.c)The purported assignment of income was, in fact, a mere direction to pay and even if the assignment were not invalid (as asserted at paragraphs 8.1 to 8.5 of the first submissions), then the assignment would be void as a result of the operation of section 120 of the Act and further “the steps taken by the Bankrupt in attempting to deal with the HIC entitlements was an attempt to defeat or delay creditors to such an extent that section 121 of the Bankruptcy Act would also be involved.”
d)Section 139E of the Act applies, in circumstances where I found the First Respondent was the alter ego of the Bankrupt. As the Bankrupt supplied personal services to an entity he controlled and where it was arguable the remuneration paid was substantially less than might be reasonably expected to be paid or was deliberately set out at an artificially low rate to maximise the bankrupt’s pension entitlement, it would be open to the Court to order that the moneys (if held by the First Applicant), should be paid to the Trustee.
Discussion
The objects of Division 4B of the Act are:-
“(a) to require a Bankrupt who derives income during the bankruptcy to pay contributions towards the bankrupt’s estate; and
(b)to enable the recovery of certain money and property for the benefit of the Bankrupt’s estate.”
The assessment made by the Trustee on 22 November 2002, that the Bankrupt was liable pursuant to s.139P to contribute $145,564.10 was never challenged or reversed. That assessment founds the actions for recovery then undertaken by the Trustee.
I am satisfied that the HIC form at Exhibit RHM 7 of the affidavit of the Bankrupt filed on 6 October 2003 was a mere direction to HIC that the Medicare benefits be paid to the company. In any event, the direction merely, in effect, directed the funds to be paid to the alter ego of the Bankrupt. Even if validly assigned, which I do not accept, he in effect assigned the benefits to himself.
Because it was his “income”, within the meaning of that term prescribed by s.139K, the receipt by the Trustee of those funds via the purported s.139ZL Notice, was not different to what would have occurred if the Bankrupt had complied with the contribution assessment personally.
I can see no basis for asserting the Trustee was “unjustly enriched” by the receipt of the funds. He was, in my view, clearly entitled to the funds although not via the s.139ZL Notice process.
This does not in my view taint the funds. The Bankrupt does not come to this Court with “clean hands”. The directions at “RHM7”, dated
12 February 1999 (Galleon Way X-Ray and Ultrasound); 4 April 2000 (Christine Avenue X-Ray); 28 April 2001 (Highlands Medical Centre Ultrasound) and 8 January 2003 (IMIS Labrador Park) and were all signed by Mr Mackay as Applicant and by Mr Mackay on behalf of the First Respondent. He even signed one of the directions after he had been sequestrated and after the contribution assessment had issued to him.
The principle which arises from Ex parte James (supra) does not assist the First Respondent as the funds are in the rightful hands of the Trustee, as a consequence of the contribution assessment.
I agree with the submissions of the Second Respondent that there is no “rational principled basis” to claim restitution in this case for the funds received by the Trustee.
For these reasons, I do not propose to order that the Trustee Second Respondent reimburse or pay any of the funds received to the First Respondent (in liquidation).
Costs
In respect of the relief sought by the First and Second Applicants, they were partly successful (in securing an order that the Notice be set aside), but were unsuccessful in recovering any of the funds paid to the Trustee.
The continued assertion by the Bankrupt, and through him, the First Applicant of separate legal positions was, on the evidence, without foundation. The evidence of Mr Harper should have been known to the Applicants.
Furthermore, as the Second Respondent’s submissions contend, the evidence strongly suggests Mr Mackay was in breach of s.206A(1) of the Corporations Act and the First Applicant has been a party to that conduct.
That is a matter, when taken with the overall conduct of the Bankrupt and his alter ego, the First Applicant, which militates against a favourable exercise of discretion on costs.
I do not however conclude that the Second Respondent is entitled to all of their costs. The Second Respondent asserted vigorously that the Notice was valid. I found it was not.
I take the view however that the continued agitation by the First Applicant for restitution, which was always opposed by the Second Respondent, requires that costs follow that decision given by these reasons.
I propose to fix costs and will be happy to receive a submission in writing as to an appropriate quantification for same under the Federal Magistrates Court Rules 2001, which I shall decide promptly on the papers.
I certify that the preceding twenty-three (23) paragraphs are a true copy of the reasons for judgment of Baumann FM
Associate:
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