Sporting Shooters Association of Australia (New South Wales) Coffs Harbour Branch Inc v McGuire
[2022] FedCFamC2G 286
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 2)
Sporting Shooters Association of Australia (New South Wales) Coffs Harbour Branch Inc v McGuire [2022] FedCFamC2G 286
File number(s): SYG 1432 of 2021 Judgment of: JUDGE MANOUSARIDIS Date of judgment: 22 April 2022 Catchwords: BANKRUPTCY – Application for review of sequestration order made by Registrar – whether creditor has established preconditions to the making of a sequestration order – whether debtor able to pay his debts – whether there is any other sufficient cause for not making a sequestration order – application for review dismissed. Legislation: Bankruptcy Act 1966 (Cth) ss 5(2), 43, 47(1A), 52(1), 52(2)
Federal Circuit and Family Court of Australia Act 2021 (Cth) ss 256(1), 256(2)
Federal Circuit and Family Court of Australia (Division 2) (Bankruptcy) Rules 2021 (Cth) rr 4.04(1), 4.05, 4.06
Associations Incorporation Act 1984 (NSW)
Civil Procedure Act 2005 (NSW) s 98(4)(c), 113
Legal Profession Act 2004 (NSW) s 353(2)
Legal Profession Uniform Law Application Act 2014 (NSW) ss 70, 74
Cases cited: Ace Contractors & Staff Pty Ltd v Westgarth Development Pty Ltd [1999] FCA 728
Boensch v Bingham (No 2) [2022] FedCFamC2G 47
Cachia v Hanes [1994] HCA 14
Cheung v Burness (Trustee) [2016] FCA 1381
Conlan v Mladenis [2007] FCA 1129
Deputy Commissioner Of Taxation v Caporale [2013] FMCA 5
Harold v Smith [1860] EngR 516; (1860) 5 H & N 381
Katter v Melhem (No 2) [2014] FCA 1176
Minister for Immigration and Border Protection v SZMTA; CQZ15 v Minister for Immigration and Border Protection; BEG15 v Minister for Immigration and Border Protection [2019] HCA 3
Ramsay Health Care Australia Pty Ltd v Compton [2017] HCA 28
Re Eric Trojan v Corporation of the Town of Hindmarsh [1987] FCA 276
Re Sarina; Ex parte Wollondilly Shire Council (1980) 32 ALR 596
Robson as former trustee of the estate of Samsakopoulos v Body Corporate for Sanderling at Kings Beach CTS 2942 [2021] FCAFC 143
Rigg v Baker [2006] FCAFC 179
Sandell v Porter (1966) 115 CLR 666
Wren v Mahony [1972] HCA 5; (1972) 126 CLR 212
Division: General Number of paragraphs: 81 Date of last submission/s: 4 April 2022 Date of hearing: 1 April 2022 Place: Sydney Counsel for the Applicant: Mr M Davis, by video Solicitor for the Applicant: Bartier Perry Solicitor for the Interested Person: Mr A Ng of Maddocks Lawyers, by video The Respondent: Appeared in person, by video ORDERS
SYG 1432 of 2021 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
IN THE MATTER OF PADRAIG CHRISTOPHER MCGUIRE
BETWEEN: SPORTING SHOOTERS ASSOCIATION OF AUSTRALIA (NEW SOUTH WALES) COFFS HARBOUR BRANCH INC (ABN 50 393 246 782)
Applicant
JASON LLOYD PORTER
Interested PersonAND: PADRAIG CHRISTOPHER MCGUIRE
Respondent
ORDER MADE BY:
JUDGE MANOUSARIDIS
DATE OF ORDER:
22 APRIL 2022
THE COURT ORDERS THAT:
1.The application for review of the orders made by the Registrar on 17 November 2021 that:
(a)the estate of the applicant to the review, Mr Padraig Christopher McGuire (applicant), be sequestrated; and
(b)the costs of the respondent to the review (respondent) be fixed in the sum of $12,832.12 and be paid from the estate of the applicant,
is dismissed.
2.The respondent’s costs of the review be paid out of the estate of the applicant and have the same priority as the costs of the creditor’s petition.
Note: The form of the order is subject to the entry in the Court’s records.
Note: The Court may vary or set aside a judgment or order to remedy minor typographical or grammatical errors (r 17.05(2)(g) Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 17.05 Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth).
REASONS FOR JUDGMENT
INTRODUCTION
The respondent, Mr McGuire, applies for a review of a sequestration order made against his estate by a Registrar of this Court on 17 November 2021. The act of bankruptcy on the basis of which the sequestration order was made is Mr McGuire’s failure to comply with the requirements of a bankruptcy notice issued on the application of the applicant (SSAA) against Mr McGuire on 7 June 2021, and served on him on 8 June 2021.
The bankruptcy notice demands payment of $264,698.53. That is the sum of two amounts. The first is $220,488.87, being a judgment entered in the Supreme Court of New South Wales on 28 February 2017; and the second is $44,209.66, also entered in the Supreme Court of New South Wales on 28 February 2017. The $220,488.87 represents a costs assessor’s determination of SSAA’s costs Mr McGuire was ordered to pay in a proceeding Mr McGuire and his wife commenced against SSAA in 2010 in the Local Court of New South Wales (Local Court). The $44,209.66 represents a costs assessor’s determination of SSAA’s costs Mr McGuire was ordered to pay in a proceeding SSAA commenced against Mr McGuire as first defendant in 2010 in the Local Court.[1] I will assume that the costs determinations are recorded in costs certificates issued pursuant to s 70 of the Legal Profession Uniform Law Application Act 2014 (NSW), or under the equivalent provision of the Legal Profession Act 2004 (NSW).
[1] The certificates of the costs determinations are not in evidence. It may be assumed, however, that the amounts include the costs of assessment.
NATURE OF REVIEW
Mr McGuire has applied for a review of the Registrar’s decision under s 256(1) of the Federal Circuit and Family Court of Australia Act 2021 (Cth) (FCFC Act) which, together with s 256(2), provides:
(1)A party to proceedings in which a delegate has exercised any of the powers of the Federal Circuit and Family Court of Australia (Division 2) under section 254 may:
(a) within the time prescribed by the Rules of Court; or
(b) within any further time allowed in accordance with the Rules of Court;
apply to the Court for review of that exercise of power.
(2)The Federal Circuit and Family Court of Australia (Division 2) may, on application under subsection (1) or on its own initiative, review an exercise of power by a delegate under section 254, and may make any order or orders it thinks fit in relation to the matter in respect of which the power was exercised.
A review under s 256(2) of the FCFC Act is a “hearing de novo”. That means that an: [2]
applicant for review under [s 256(2)] is under no obligation to demonstrate error on the part of the Registrar, and does not need to establish that the Registrar’s exercise of discretion miscarried in the sense described in House v The King [1936] HCA 40; (1936) 55 CLR 499 at 505: Pattison v Hadjimouratis [2006] FCAFC 153 at [153]- [154].
[2] Conlan v Mladenis [2007] FCA 1129, at [5] (Sundberg J)
In substance, although not in form, the questions before me, therefore, are whether SSAA has satisfied the preconditions under s 52(1) of the Bankruptcy Act 1966 (Cth) (Act) and under the Federal Circuit and Family Court of Australia (Division 2) (Bankruptcy) Rules 2021 (Cth) (Bankruptcy Rules) for the making of a sequestration order and, if so, whether a sequestration order ought not be made against the estate of Mr McGuire. If these questions are answered adversely to Mr McGuire, his application for review must be dismissed. If they are answered adversely to SSAA, the sequestration order and orders for costs the Registrar made must be set aside, the creditor’s petition must be dismissed, and there will remain outstanding the question of what, if any, orders may be made about the remuneration and costs of the trustee in bankruptcy that was appointed on the Registrar’s making the sequestration order.[3]
[3] Robson as former trustee of the estate of Samsakopoulos v Body Corporate for Sanderling at Kings Beach CTS 2942 [2021] FCAFC 143
Mr McGuire does not dispute that SSAA has satisfied the preconditions for the making of a sequestration order under the Act and the Bankruptcy Rules. Mr McGuire submits, however, that a sequestration order ought not to be made, first, because he is able to pay his debts and, second, the two judgments on the basis of which the bankruptcy notice was issued do not represent true debts.
AFFIDAVITS ON WHICH MR McGUIRE RELIES
It will be necessary to set out the evidence, as presented by Mr McGuire in his affidavits, out of which Mr McGuire says SSAA applied for the issue of the bankruptcy notice, and which are relevant to the matters on which Mr McGuire relies for submitting that the judgments do not in truth represent any debt he owes SSAA. Before I set out the evidence, I must identify the affidavits on which Mr McGuire relies.
The affidavits on which Mr McGuire relies consist of the affidavits Mr McGuire read at the hearing on 1 April 2022, these being four affidavits he made on 21 February 2022, two affidavits he made on 29 March 2022, and affidavits he made on 14 March 2022, 31 March 2022, and 1 April 2022. After the hearing, when considering my judgment, I became aware that Mr McGuire did not read an affidavit he made on 7 December 2021. That prompted me to instruct my associate on 20 April 2022 to send the following email to Mr McGuire (copied to the lawyer for SSAA):
In the course of considering his judgment his Honour noted that Mr McGuire had filed a substantial affidavit made on 7 December 2021 but, at the hearing on 1 April 2022, Mr McGuire did not rely on the affidavit.
His Honour enquires whether Mr McGuire did not intend at the hearing to rely on his affidavit of 7 December 2021.
Given the matter is listed for judgment at 9:30 am on 22 April 2022, his Honour would appreciate Mr McGuire responding to this email by 9:00 am on 21 April 2022.
Mr McGuire responded with the following email he sent at 7:22 am on 21 April 2022:
I apologise for not making mention of my affidavit of 7 December 2021 at the hearing on 1 April 2022. My unfamiliarity with usual procedure led me to assume that all documents presented and filed as pertaining to SYG 1432/2021 would be treated as included and able to be relied upon. That it be included for reliance was intended.
If required I am also comfortable with the Court looking at affidavits filed under my name during the previous matter NSD 952/2018 which was ultimately dismissed by Judge Lee in 2019.
I have not directed my associate to invite submissions from SSAA about whether I could treat Mr McGuire’s affidavit of 7 December 2021 as having been read. I did not do so because that affidavit does not go beyond the matters to which Mr McGuire deposes in the affidavits he read at the hearing on 1 April 2022, and, in any event, the affidavit aids comprehension of the affidavits Mr McGuire did read at the hearing. In these reasons for judgment, therefore, I proceed on the assumption that I have read Mr McGuire’s affidavit made on 7 December 2021.
I interpret the second paragraph of the email Mr McGuire sent on 21 April 2022 as an invitation to read the affidavits filed on his behalf in Federal Court of Australia proceeding NSD952/2018 if I so require. I do not require Mr McGuire to read any of those affidavits, and it will therefore not be necessary for me to refer to them.
BACKGROUND
The SSAA
SSAA is incorporated under the Associations Incorporation Act 1984 (NSW). It is a “branch member” of the Sporting Shooters Association of Australia NSW Inc (State Association) which, in turn, is a member of the Sporting Shooters Association of Australia Inc (National Association). Under cl 5.1.1 of its constitution,[4] the SSAA may admit a person as an individual member if, among other things, the person pays the “prescribed membership fee required by the National Association”, and the person’s application is accepted by “the Branch”, that is, the SSAA. Clause 5.2 of SSAA’s constitution describes an organisational structure of which SSAA is a part: SSAA is a branch member of the State Association; and the State Association is a member of the National Association. Clause 5.2.1 provides that SSAA “agrees with, and agrees to be bound where relevant and remain supportive of the organisation membership structure of the Sporting Shooters Association of Australia movement” described in cl 5.2.1.
[4] Affidavit P C McGuire 07.12.2021, Tab 1, PCM-1
According to a letter dated 10 June 2010 to Mr McGuire from Mr James, a partner of McNamara James & O’Connor (MJO), solicitors, the following practice had arisen in relation to persons who applied to the National Association for membership:[5]
When individuals apply to the National Association for membership, the application on acceptance by the National Association is referred to the relevant state Association (based on post code) which then allocates the member to the relevant Member Branch for that applicant's address. In this manner, persons are added to the branch membership list without any input from the branch committee.
[5] Affidavit P C McGuire 07.12.2021, Tab 2, PCM-1, at page 37
Mr McGuire’s membership of SSAA
Mr McGuire became a member of SSAA in 1992. Over the following eight years Mr McGuire and his elder son shot at SSAA’s Dairyville Range, including in competitions. Mr McGuire, who was an earthmoving contractor, also undertook some work over the years to improve the safety and amenity of the range. In February 2007, at SSAA’s annual general meeting, Mr McGuire was granted life membership for “his many years of service to” SSAA.[6]
[6] Affidavit P C McGuire 07.12.2021, [6], [7], [10]
Dispute over voting
On 23 February 2010, at SSAA’s annual general meeting, Mr McGuire and six other members of SSAA were elected as SSAA’s committee (February Committee). This was done after in January 2010 SSAA’s committee resolved to limit voting rights to those who are “individual members” within the meaning of cl 5.1.1 of SSAA’s constitution, and who had paid a membership fee of $25 to SSAA. This purported resolution was intended to prevent persons who had paid a general or affiliation fee to the National Association from voting as members of SSAA unless they also paid the $25 membership fee to SSAA.
In about April 2010 four members of SSAA complained to the State Association that the election of the February Committee had not been properly conducted. The State Association convened a special general meeting on 30 June 2010 to remove the February Committee.
The February Committee sought legal advice from MJO on two questions. The first was whether SSAA is entitled to require “allocated members”, that is members who had lodged applications for membership to the National Association, but whom the State Association had allocated to SSAA, to pay a subscription fee in addition to any amount they may have paid the National Association. The second was whether SSAA could prevent “allocated members” from attending and voting at general meetings of SSAA.
By letter dated 10 June 2010 Mr James, a partner of MJO, advised SSAA, first, that once accepted as members, SSAA could exercise the power conferred by cl 4.5 of its constitution to levy a subscription on the members; and, second, persons allocated by the State Association to SSAA are entitled to vote, and SSAA cannot withdraw their voting rights, but their membership must first be accepted by SSAA’s committee.
Payment of $26,624.16 and demand for its recovery
On 28 June 2010 the February Committee made what Mr McGuire says was an “interim decision . . . to approve the possible transfer of the Branch funds of $26,624.16 if advised by the solicitors”.[7] On 30 June 2010 Mr McGuire and other members of the February Committee met with Mr McNabb, Ms Melham, and Dr Lee of Schweizer Kobras, who were, respectively, the President, chief executive officer, and lawyer for the State Association. In response to a question asked by SSAA’s senior vice president, Mr McNabb said words that included words to the effect of “crush you”.[8]
[7] Affidavit P C McGuire 07.12.2021, [14]
[8] Affidavit P C McGuire 07.12.2021, [15]. Mr McGuire says Mr McNabb said: “You’re right about the voting issue, but I’m not going to allow a precedent that threatens my power. We’ve got plenty and we’ll use as much money as necessary to crush you”. Mr McGuire, however, deposes that he only heard Mr McNabb use the words “money” and “crush you”.
Mr McGuire says that on around 1 July 2010 Mr James informed Mr McGuire that it would be sensible if the February Committee safeguard “the Branch funds whilst there is uncertainty and an attack on the Branch’s integrity, by placing its funds into our trust fund”. The amount of $24,624.16 was deposited into “Trust Matter #10/0363 that was already in existence”.[9] On 30 June 2010, however, SSAA had purportedly elected a new committee (New Committee). That is apparent from an email Dr Lee sent to Mr McGuire at 4:01 pm on 1 July 2010 in which Dr Lee said that “our client considers the committee as elected yesterday evening as the duly elected committee of the Coffs Harbour Branch”.[10] If true, and if the New Committee were validly elected, any power the February Committee had to manage the affairs of SSAA would have ended on the election of the New Committee.
[9] Affidavit P C McGuire 07.12.2021, [16]
[10] Affidavit P C McGuire 07.12.2021, Tab 3, PCM-1, page 41. See also Affidavit P C McGuire 07.12.2021, [19]
By separate letters dated 21 July 2010 Schweizer Kobras, acting on the instructions of the New Committee, demanded that by 26 July 2010 each of Mr McGuire and the other members of the February Committee vacate “your respective offices”, hand over to the New Committee all books, records and assets of SSAA, account to the New Committee for all expenditure of funds of SSAA made on or after 1 July 2010, and further account to the New Committee for all dealings with third parties from on or after 1 July 2010. Schweizer Kobras stated that if the demands are not met SSAA would commence proceedings without further notice.[11] It appears from a letter MJO sent to Mr McGuire on 2 August 2010 that MJO responded to Schweizer Kobras’ letter by letter sent on 2 August 2010.[12] In their letter to Mr McGuire MJO said:
We note your proposal to leave $10,000.00-$12,000.00 in our trust account. We are currently holding $26,624.16. Please let us have your instructions to whom we should draw the cheque in refund of the balance of the money.
[11] Affidavit P C McGuire 07.12.2021, Tab 4, PCM-1, page 43
[12] Affidavit P C McGuire 21.02.2022 (27 pages), at page 14
By letter dated 11 August 2010 MJO informed Schweizer Kobras they no longer acted “in this matter”.[13] Schweizer Kobras responded by letter dated 17 August 2010, in which they said:[14]
We note that you are no longer acting in this matter.
We are instructed that our client was informed by the current committee (the “Committee”) of the Sporting Shooters Association of Australia (NSW) Coffs Harbour Branch Inc (the “Branch”) that it had received various books and records belonging to the Branch from the previous committee, including in particular some records in relation to the Branch's bank accounts.
The Committee has further informed our client that $26,624.16 (the “Trust Amount”) was deposited into your trust account by a cheque dated 1 July 2010 drawn on a bank account of the Branch and our client has been asked by the Committee to assist the Branch in recovering the funds of the Branch.
Please provide us with all details of all payments made from the Trust Amount, if any. Our client also requests that the remaining balance of the Trust Amount be repaid to the Branch within seven (7) days from the date of this letter. This may be done by sending a cheque to us payable to the Branch.
[13] Affidavit P C McGuire 07.12.2021, Tab 5, PCM-1, page 44
[14] Affidavit P C McGuire 21.02.2022 (27 pages), at page 16
On or shortly before 23 August 2010 Mr McGuire had a conversation with Mr James about the $26,624.16 Mr McGuire had paid to MJO on 1 July 2021. After the conversation, MJO sent to Mr McGuire a letter dated 23 August 2010 as follows:[15]
We refer to our recent telephone conversations concerning this matter and we note that the former committee has agreed to allow another committee to take responsibility for management of the Coffs Harbour branch of the Association. You have instructed us to deduct the costs owing, hold back $20,900.00 in a trust account in your name, and to remit the balance of the monies held in trust the [sic] Sporting Shooters Association of Australia (NSW) Coffs Harbour Branch.
We had received into our trust account $26,624.16 and the outstanding costs totalled $1,949.41. After deduction of that amount from the trust balance there remained $24,674.75. After the further deduction of $20,900.00 to be held on your account, there is a balance $3,774.75 to be forwarded to the branch. We are remitting that amount. We note that this brings to an end our immediate involvement in the matter.
[15] Affidavit P C McGuire 07.12.2021, Tab 5, PCM-1, page 47
Under cover of a letter dated 23 August 2010 MJO sent to SSAA a cheque for $3,774.75 which, the letter stated, was being sent “[a]t the instruction of Mr McGuire”.[16]
[16] Affidavit P C McGuire 07.12.2021, Tab 5, PCM-1, page 48
In his affidavit of 7 December 2021 Mr McGuire deposes that on 11 August 2010 MJO sent “a $24,674.75 Refund Monies in Trust cheque to [SSAA] and a Ceasing to Act and a detailed Account for costs to the Applicant PO Box . . . Coffs Harbour, and a Ceasing to Act to Mr Lee”.[17] Mr McGuire appears to rely on a document he annexes to his affidavit.[18] That is a copy of the “Trust Matter Ledger” to which I refer in paragraph 27 below; but it also includes a copy of a cheque butt which records the following:
[17] Affidavit P C McGuire 07.12.2021, [22]
[18] Affidavit P C McGuire 07.12.2021, Tab 5, PCM-1, page 46
11/8/10
Sporting Shooters Assn. CH Branch – refund monies in trust
Forward
Deposits 10/0363
Total SSAA (NSW) CHB
This cheque 24,674.75
Balance
003221
If this is a copy of a genuine cheque butt, and purports to reflect the payment of $24,674.75 to SSAA, it would be inconsistent with the statements MJO made in its letter to Mr McGuire on 23 August 2010, and with MJO, on 23 August 2010, sending to SSAA a cheque for $3,774.75. One available explanation, however, assuming the cheque butt is genuine, is that on 11 August 2010 MJO had drawn a cheque for $24,674.75 payable to SSAA, but did not send the cheque.
There is in evidence a “Trust Matter Ledger” (TML) recording transactions in MJO’s trust account. The ledger is headed: “Matter # 10/0363, Advice re Constitution Sporting Shooters Association of Australia (NSW) Coffs Harbour Branch Inc”.[19] The TML records the following:
[19] Affidavit P C McGuire 07.12.2021, [22]
Date Reference Paid To/Received From
Journaled To/From ReasonWithdrawal Amount Deposit Amount Balance 1/07/2010 23/07/2010 Rec12320 Received from [SSAA]
Reason: Costs$26,624.16 $26,624.16 11/08/2010 12/08/2010 Pay3221 Paid To: [SSAA]
Reason: Refund Monies in Trust$24,674.75 $1,949.41 23/08/2010 Pay3221 Paid to: [SSAA]
Reason: Reversal Refund Monies in Trust($24,674.75) $26,624.16 23/08/2010 26/08/2010 Pay3250 Paid To: [SSAA]
Reason: Balance in Trust$3,774.75 $22,849.41 30/08/2010 Jrn101 Journaled To: Matter # 10/0540, Mr Padraig Christopher McGuire;
[SSAA]
Reason: Transfer balance in trust to new trust account$20,900.00 $1,949.41 10/09/2010 Pay3271 Paid To: [MJO]
Reason: Invoice 803793 Trust To Office Transfer$1,949.41 $0.00 Account Totals $26,624.16 $26,624.16 $0.00
In his affidavit of 7 December 2021 Mr McGuire asserts that the creation of a journal entry of $20,900, and the payment by MJO of $3,774.75, occurred on the instructions of Dr Lee or Schweizer Kobras.[20] There is no evidence to support this assertion; and the contemporaneous evidence is against the assertion being correct. In particular, it is inconsistent with the letter dated 23 August 2010 MJO sent to Mr McGuire confirming that Mr McGuire had instructed Mr James to “hold back $20,900.00 in a trust account in [Mr McGuire’s] name, and to remit the balance of the monies held in trust” to SSAA.
[20] Affidavit P C McGuire 07.12.2021, [26]
By letter dated 31 August 2010 to MJO Schweizer Kobras repeated the inquiry made in their letter dated 17 August 2010 in relation to the $26,624.16.[21] The letter stated that the $26,624.16 was drawn from SSAA’s funds after Mr McGuire was removed from office. Schweizer Kobras said they were instructed to commence proceedings if necessary to recover the amount. MJO responded by letter dated 31 August 2010 as follows:[22]
We refer to your letter of 31 August 2010. We advise that on 1 July 2010 we received from Mr McGuire $26,624.16. Whilst we acted for Mr McGuire in his capacity as President of the Association, the Association incurred legal costs with us of $1,949.41 which we have been instructed to pay from the monies received from Mr McGuire.
Mr McGuire further instructed us to refund to the Association $3,774.75 and to hold in trust $20,900.00 on his behalf and pending his further instructions.
There would appear to be a dispute between the Association and Mr McGuire as to what is to become of those monies. We do not wish to be part of that dispute but are subject to the instructions we received from Mr McGuire in relation to those monies.
Subject to advice we may receive from the Ethics Committee of the Law Society we would propose to pay the $20,900.00 into Court.
[21] Affidavit P C McGuire 07.12.2021, Tab 6, PCM-1, page 50
[22] Affidavit P C McGuire 07.12.2021, Tab 6, PCM-1, page 51
MJO provided a copy of this letter to Mr McGuire by letter dated 7 September 2010. In that letter MJO stated there “is a dispute as to who is entitled to the $20,900.00”, and that MJO did “not wish to become defendants in that dispute and will abide any determination of the Court”.[23]
[23] Affidavit P C McGuire 07.12.2021, Tab 6, PCM-1, page 52
Commencement and course of proceedings
On 18 October 2010 SSAA commenced a proceeding in the Local Court against Mr McGuire to recover $22,849.41 (Recovery Proceeding).[24] This represents the difference between the $26,624.16 Mr McGuire paid to MJO’s trust account, and the $3,774.75 MJO paid to SSAA on 23 August 2010.[25] On 7 December 2010 Mr and Mrs McGuire commenced a proceeding in the Local Court against the SSAA in which Mr and Mrs McGuire claimed SSAA owed them money for services provided to SSAA (Earthworks Proceeding).[26]
[24] Affidavit P C McGuire 07.12.2021, [4], [5]
[25] Affidavit P C McGuire 07.12.2021, [5]
[26] Affidavit P C McGuire 07.12.2021, [4]
According to evidence Mr McGuire gave under cross examination, the Recovery Proceeding took the following course: SSAA obtained default judgment against Mr McGuire after he failed to file a defence; in July 2011 Mr McGuire filed an application to set aside the default judgment; in October 2011 the Local Court set aside the default judgment; the proceeding was heard on 24 July 2012; judgment was given in favour of SSAA; and Mr McGuire was ordered to pay SSAA’s costs. As for the Earthworks Proceeding, Mr and Mrs McGuire did not file any evidence, judgment was entered against Mr and Mrs McGuire, and they were ordered to pay SSAA’s costs.
There is other evidence about the nature and course of the Earthworks Proceeding, and this is contained in the affidavit of Dr Lee sworn 6 November 2012 (Lee affidavit) which is annexed to Mr McGuire’s affidavit of 14 March 2022.[27]
(a)The SSAA filed a cross-claim in the Earthworks Proceeding.[28]
(b)On 6 June 2012 the Local Court ordered that the Recovery Proceeding and the Earthworks Proceeding be tried separately, and before the cross-claim.[29]
(c)Also on 6 June 2012 Magistrate Heilpern heard and determined a number of notices of motions – a number filed by Mr and Mrs McGuire, one filed by Mr McGuire in relation to the cross-claim, a number of applications filed by the cross-defendants, and applications made by SSAA. Magistrate Heilpern dismissed the notices of motion filed by Mr and Mrs McGuire and the other cross-defendants, and granted the application made by SSAA.[30]
(d)On 13 and 17 July 2012 Mr and Mrs McGuire filed two notices of motion which sought to vacate the hearing listed for 24 July 2012, and leave to file a further amended statement of claim.[31]
(e)On 24 July 2012 Magistrate Clisdell dismissed the motions Mr and Mrs McGuire filed on 13 and 17 July 2012, dismissed the Earthworks Proceeding, and ordered that Mr and Mrs McGuire pay SSAA’s costs on an indemnity basis.[32]
[27] Affidavit P C McGuire 14.03.2022, annexure PCM1a
[28] Lee affidavit, [4]
[29] Lee affidavit, [4]
[30] Lee affidavit, [41]
[31] Lee affidavit, [45]
[32] Lee affidavit, [47]
In his affidavit of 7 December 2021 Mr McGuire deposes to a number of additional matters that relate to the Earthworks Proceeding. These include the following:
(a)On about 2 August 2011 he met with a number of SSAA’s representatives in which SSAA offered Mr McGuire $11,000 to settle his claim, and he accepted that offer.[33]
(b)Mr McGuire deposes to matters that reveal the nature of the cross-claim SSAA filed in the Earthworks Proceedings. It appears to have been filed against Mr McGuire and former members of SSAA’s committee. SSAA apparently claimed that if Mr McGuire did carry out earthworks, and was engaged by former committee members to do so, they had no authority on behalf of SSAA to engage Mr McGuire to carry out the work.[34]
[33] Affidavit P C McGuire 07.12.2021, [47]-[48]
[34] Affidavit P C McGuire 07.12.2021, [53], [54], [60]-[62]
The Lee affidavit also refers to matters that occurred in the Recovery Proceeding.[35]
(a)On 9 February 2011 default judgment was entered against Mr McGuire and MJO.[36]
(b)On 11 July 2011 Mr McGuire filed a notice of motion to set aside the default judgment.[37]
(c)On 22 September 2011, when the notice of motion was listed for hearing, Mr McGuire did not appear, and the hearing was adjourned to 20 October 2011.[38]
(d)On 20 October 2011 Magistrate Townsden ordered that the default judgment be set aside and that Mr McGuire pay SSAA’s costs thrown away because of the default.[39]
(e)On 24 July 2012 Magistrate Clisdell entered judgment for SSAA and ordered that Mr McGuire pay SSAA’s costs on an ordinary basis.[40]
[35] Affidavit P C McGuire 14.03.2022, annexure PCM1a
[36] Lee affidavit, [18]
[37] Lee affidavit, [19]
[38] Lee affidavit, [20]
[39] Lee affidavit, [21]
[40] Lee affidavit, [23]
By email sent on 27 September 2012 to Dr Lee and Mr Glaser (who acted for Mr and Mrs McGuire at that time[41]) Magistrate Clisdell said he decided that the costs “claimed on the Notice of Motion” is best left to an expert. His Honour therefore declined to assess costs under s 98(4)(c) of the Civil Procedure Act 2005 (NSW) (CP Act) (which empowers the courts to which it applies to make an order that a party to whom costs are to be paid is entitled to “a specified gross sum instead of assessed costs”), but instead ordered that SSAA’s costs be assessed by a costs assessor under s 353(2) of the Legal Profession Act 2004 (NSW).[42]
[41] Affidavit P C McGuire 07.12.2021, [75]
[42] Lee affidavit, [49], annexure U
Application for fixing gross amount of costs
According to the Lee affidavit, on 6 November 2012 SSAA filed a notice of motion for various orders relating to the discontinuance of the cross-claim, and SSAA’s “costs of and incidental to” the Earthworks Proceeding, the Recovery Proceeding, the cross-claim, the notices of motion that were determined on 6 June 2012, and the two notices of motion that were determined on 24 June 2012. It appears that the principal purpose of SSAA’s notice of motion was to seek an order under s 98(4)(c) of the CP Act that SSAA is entitled to a specified gross sum instead of assessed costs. That is apparent from the Lee affidavit where Dr Lee deposes that SSAA had incurred the following costs (each inclusive of GST):
(a)$130,549.17 in relation to what the Lee affidavit describes as the “main proceedings”, being what I have identified as the “Earthworks Proceeding”.[43]
(b)$29,936.20 in relation to the Recovery Proceeding.[44]
(c)$45,926.79 in relation to the “June Motions”.[45]
(d)$27,254.91 in relation to the “July Motions”.[46]
(e)$7,820.50 in relation to the cross-claim.[47]
[43] Lee affidavit, [11]
[44] Lee affidavit, [24]
[45] Lee affidavit, [43]
[46] Lee affidavit, [48]
[47] Lee affidavit, [54]
The Lee affidavit also claimed $12,293.43 as interest on $233,487.57, being the total of these amounts.[48]
[48] Lee affidavit, [75]-[76]
On 12 March 2013 Magistrate Heilpern delivered what his Honour described as “a decision on costs regarding a civil case”, these being:[49]
aDetermining the costs arising out of disposal of interlocutory matters on 6 June 2012
bDetermining the costs issue arising out of the discontinuance of the Association's Cross-Claim in the substantive proceedings
cDetermining whether the costs ought be “fixed” in respect of (a) and (b) above
dDetermining whether interest ought be payable on the costs.
[49] Affidavit P C McGuire 07.12.2021, [85], page 70
In his reasons for judgment Magistrate Heilpern held that Mr and Mrs McGuire should pay SSAA’s costs of the interlocutory matters, and of its discontinuance of the cross-claim, on an indemnity basis. His Honour declined to make an order fixing SSAA’s costs. His Honour’s reasons for so declining are as follows:
Undoubtedly the court has the power to fix a sum in an appropriate case, and may do so without jurisdictional limit. However, I decline to do so in this case. Firstly, the amount is extremely high, greater than any costs orders I have been urged to make in 15 years on the bench. Secondly, the taxation system is designed to ensure that an expert reviews the bill, and applies costing law and practice to each item. Thirdly, there is much at stake here – a costs order in the sum of in excess of $200,000 would be likely to have significant financial impact on the McGuires who appear to me to be country folk, way out of their depth and with limited access. The McGuires are entitled to be sure that they are liable for the correct amount. Fourthly, the Associations lawyers have already prepared a detailed bill of costs, meaning that the taxation process would not require extensive additional work. Fifthly, the ordinary position is that costs are to be as agreed or assessed – r 42.2 of the UCPR. Finally, no party has raised the issue of cost-capping. That is a matter which may be relevant on assessment of the costs payable.
In making that decision I am cognisant that this will inevitably result in additional delay for the Association which is of limited means. I also recognise that there have been difficulties in serving the McGuires in the past, that they have been blessed with four lots of solicitors and that their unreasonableness has been the foundation for each of the indemnity costs orders referred to above.
Nevertheless, on balance, I will order that the costs be as agreed or assessed, on an indemnity basis, and with interest (see below).
Magistrate Heilpern disposed of the application by making the following orders (errors in original):
1. In proceedings 2010/406050 I order that the Plaintiffs (McGuires) are to pay the Defendants (Association) costs of Notices of Motion and Applications determined on 24 July 2012 on an indemnity basis as agreed or assessed.
2. In proceedings 2010/406050 I order that the Plaintiffs (McGuires) are to pay the Defendants (Association) costs the Cross Claim on an indemnity basis as agreed or assessed.
3.In proceedings 2010/345199 the Defendant is to pay the Plaintiffs costs on the ordinary basis as agreed or assessed.
4. In both proceedings 2010/345199 and 2010/406050, the McGuires are to pay the Associations costs of the Notices of Motion determined on 6 June 2012, and Notices of Motion dated 6 November 2012, including the costs of appearing on 21 March 2012 on an indemnity basis.
5.The McGuires are to pay the Association interest at the prescribed rate defined in s101(5) of the Act on the amount of costs as agreed or assessed regarding all costs orders in these proceedings.
6.The amount of security for costs paid into court by the McGuires is to be paid forthwith to the Association in partial satisfaction of these orders.
Assessment of SSAA’s costs
In evidence given under cross-examination, Mr McGuire said that after Magistrate Heilpern delivered his judgment on costs, Dr Lee prepared new bills of costs in relation to the Recovery Proceeding and the Earthworks Proceeding; those bills of costs were submitted to Ms Hale for assessment; on around 20 October 2015 Ms Hale provided her determinations of costs; and Mr and Mrs McGuire applied for a review of Ms Hale’s determinations.
In his affidavit of 7 December 2021 Mr McGuire makes a number of statements in relation to the assessment of costs. These include the following:
(a)Ms Hale assessed SSAA’s costs in an amount that exceeded the amount the Lee affidavit recorded SSAA had actually paid in relation to its legal costs.[50]
[50] Affidavit P C McGuire 07.12.2021, [91]
(b)A cursory examination “of the Review Panel’s documents showed that several documents needed to be changed because names had been transposed and debts attributed incorrectly”. Mr and Mrs McGuire “promptly reported” these “obvious mistakes”, and assumed that the Review Panel would recognise the faults as easily as Mr and Mrs McGuire had recognised the faults, and they expected “that the only regular action would be to annul the documents and to provide new fault free assessments”.[51]
[51] Affidavit P C McGuire 07.12.2021, [95]
(c)The Review Panel itemised all correspondence they relied on, but they omitted to refer to two submissions Mr and Mrs McGuire sent to Ms Hale in about late January 2014.[52] That is a reference to an email Mrs McGuire sent to Ms Hale on 29 January 2014 documents; an “Out of Office AutoReply” sent to Mrs McGuire on 29 January 2014 stating: “In my absence, please forward email to Kara Cable”, and providing the email address of Kara Cable; and an email Mrs McGuire sent on 31 January 2014 to Kara Cable on-forwarding the email Mrs McGuire had sent on 29 January 2014.[53]
[52] Affidavit P C McGuire 07.12.2021, [97]-[101]
[53] Exhibit A
(d)On 13 July 2017 Mr McGuire sent an email to the Costs Assessment Manager. Mr McGuire referred to the emails I identify in (c), and stated “we cannot see any evidence that this email and its attachments have been acknowledged as being received, read or viewed in any way by either costs assessment process”. Mr McGuire further said (errors in original):[54]
[54] Affidavit P C McGuire 07.12.2021, [100] Tab 19, PCM-1, page 81
This is of great concern as this was not only our main submission to Ms Hale re 2013/265688, but also strongly spoke of our concerns re the SSAA lawyer presenting a new Bill of costs after the first had been deemed suitable by the magistrate.
The reason for the documents to be missing (if you cannot find and provide proof that they were received) needs to be thoroughly investigated and we expect that you will advise the proper authorities of this issue as soon as practicable to ensure that the reason is determined and appropriate remedy made..
Obviously the fact that they were never considered is an action beyond our control and disadvantages us immensely whilst being an advantage to the other side. In view of this failure of procedural fairness we press that all of the costs procedures that have taken place are quashed immediately and that official advice to all parties of this action be forwarded to prevent any further wasting of monies on legal action that is currently on foot as soon as next Tuesday July 18th.
(e)Mr Bellach, the Senior Deputy Registrar & Manager of Costs Assessment, responded to Mr McGuire’s email by email sent on 14 July 2017.[55]
In response to your below email, the initial costs assessor Ms Hale notes the material considered by her in the course of the assessment at page 4, going to page 5 of her determination.
Specifically, it states “E Emails and accompanying documents received from Costs Respondents.”
With that in mind, your emails and attachments appear to have been considered.
Having said that, any concerns about specific material being considered by the costs assessor ought to have been raised in your review application lodged on 3 December 2015, a year and a half ago. The review panel has considered the grounds of review submitted in your application to complete their determination.
I have once more requested the review panel to consider the need to amend the relevant certificate in matter number 2013/265688, and await their response.
A copy of this email has been sent to the review panel for their records.
[55] Affidavit P C McGuire 07.12.2021, [100] Tab 19, PCM-1, page 80
It would be convenient if I refer at this point to the submission that was attached to the email Mrs McGuire sent to Ms Hale on 29 January 2014, and on-forwarded to a different email address on 31 January 2014. The submission is in the form of an undated letter from Mr McGuire.[56] In that document Mr McGuire says as follows:
(a)Mr McGuire saw little point in addressing many of the hundreds of items claimed “because the case should never have been commenced against Mr McGuire”.
(b)The Lee affidavit lists the amounts SSAA paid for all its legal costs. It was, however, “evident that an attempt is being made with a new document to try to benefit from a substantial increase”.
(c)According to the statement of claim SSAA filed in the Recovery Proceeding that Mr McGuire did not have authority to instruct MJO in relation to the money paid into MJO’s trust account, and that the transactions recorded in the TML MJO issued were “done without the knowledge or approval of Mr McGuire”.
When simplified by removing all the smoke and mirrors the merit of 345199 rests entirely on a question of the origin of lawful authority instructions and who gave them. It is inconceivable to expect that legal professionals of the experience and credentials of Mr Lee and Mr James as well as Mr Norbert Schweizer (the SoC legal representative) and Mr Michael Kobras who signed the SoC did not know that an ex-Committee member cannot give lawful instructions that must be complied with. It is observed that despite being conscious of Mr McGuire's lack of lawful authority the Plaintiffs legal team does not seek to discover why somebody at MJO dealt with the plaintiff’s funds without proper authority, if that was in fact the case.
Mr McGuire sincerely regrets that he took so long to open his eyes and his mind, and as a result thousands of dollars in Court time alone have been wasted. The reason for shuffling the $20,900 remained a mystery until it was learnt that by ensuring the initial SoC claim amount was in excess of $20,000 all initial and ongoing legal costs could be claimed even if an Amended Statement of Claim (ASoC) for less than $2,000 eventually became the amount being sought.
[56] Exhibit A, pages 4-5
PRINCIPLES
Before the Court can make a sequestration order under s 52(1) of the Act it must be satisfied that the matters specified in s 43 and s 52(1) of the Act have been proved. These include the matters stated in the creditor’s petition, and that the debt or debts on which the petitioning creditor relies is or are still owing. The Court must also be satisfied that the relevant provisions of the Bankruptcy Rules have been complied with, subject to the Court’s discretion to dispense with compliance with those rules. [57] If the Court is satisfied with the proof of the matters specified in s 43 and s 52(1) of the Act, and that the requirements of the Bankruptcy Rules have been met, the Court may make a sequestration order.
[57] See Burrell v Reavill Farm Pty Ltd & Ors [2014] FCCA 1449, at [48]
The power conferred by s 52(1) of the Act to make a sequestration order is subject to s 52(2), which provides:
If the Court is not satisfied with the proof of any of those matters, or is satisfied by the debtor:
(a) that he or she is able to pay his or her debts; or
(b) that for other sufficient cause a sequestration order ought not to be made;
it may dismiss the petition.
Able to pay debts
Subsection 52(2)(a) of the Act does not use the word “solvent”;[58] nor does it use the words “as and when they become due and payable”.[59] It simply says “he or she is able to pay his or her debts”. In other words, s 52(2)(a) does not in terms require the debtor to be “solvent”. Notwithstanding the omission of “solvent” in s 52(2)(a) of the Act, that paragraph has been construed as requiring the Court to be satisfied the debtor is “solvent” in the sense of not being “insolvent” as that term was explained in Sandell v Porter:[60]
Insolvency is expressed in s. 95 [of the Bankruptcy Act 1924] as an inability to pay debts as they fall due out of the debtor’s own money. But the debtor’s own moneys are not limited to his cash resources immediately available. They extend to moneys which he can procure by realization by sale or by mortgage or pledge of his assets within a relatively short time – relative to the nature and amount of the debts and to the circumstances, including the nature of the business, of the debtor. The conclusion of insolvency ought to be clear from a consideration of the debtor’s financial position in its entirety and generally speaking ought not to be drawn simply from evidence of a temporary lack of liquidity. It is the debtor’s inability, utilizing such cash resources as he has or can command through the use of his assets, to meet his debts as they fall due which indicates insolvency. Whether that state of his affairs has arrived is a question for the Court and not one as to which expert evidence may be given in terms though no doubt experts may speak as to the likelihood of any of the debtor’s assets or capacities yielding ready cash in sufficient time to meet the debts as they fall due.
[58] Being a term which is defined in s 5(2) of the Act.
[59] Which is part of the definition of “solvent” in s 5(2) of the Act.
[60] Sandell v Porter (1966) 115 CLR 666 at 670-671. The cases which so construed s 52(2)(a) of the Act were identified by Cowdroy J in Rigg v Baker [2006] FCAFC 179, at [104].
Some of the relevant principles for determining whether, on this approach, a debtor is able to pay his or her debts were identified by Driver FM (as his Honour then was) in Deputy Commissioner Of Taxation v Caporale as follows (references omitted):[61]
The inquiry emphasises that it involves a consideration of the ability to command cash resources through his or her own assets. The Court must also look at the level of the debtor’s recurrent expenses and earnings in addition to whether there are cash resources from assets.
A respondent debtor bears the onus of proving to the Court that their assets are sufficient to pay their liabilities as and when they become due and payable. It is not sufficient to simply show an excess of assets over liabilities. The respondent debtor must also establish that their assets are available to be realised and that they are capable of ready realisation.
[61] Deputy Commissioner Of Taxation v Caporale [2013] FMCA 5, at [23] and [24]
The words “able to pay his or her debts” that appear in s 52(2)(a) of the Act do not mean “willing and able” to do so.[62] A debtor, therefore, who is able to pay his or her debts, but who is unwilling to pay the debt owed to the debtor’s petitioning creditor, remains a person who can pay his or her debts, and the Court may, in its discretion, dismiss a creditor’s petition against such a debtor. Thus, in Re Sarina; Ex parte Wollondilly Shire Council, it was said that a debtor is “able to pay his debts but is recalcitrant, his creditors may resort to the remedies otherwise afforded by the law such as execution against his property and garnishee proceedings”.[63]
[62] Re Sarina; Ex parte Wollondilly Shire Council (1980) 32 ALR 596, at page 599 (Bowen CJ, C A Sweeney and Lockhart JJ)
[63] Re Sarina; Ex parte Wollondilly Shire Council (1980) 32 ALR 596, at page 599
Potentially relevant to the case before me is the judgment of the Full Federal Court in Re Eric Trojan v Corporation of the Town of Hindmarsh.[64] In that case the debtor paid into court the amount of the judgment debt demanded in a bankruptcy notice that was issued against the debtor and his wife. The money the debtor and his wife paid into court had been paid to them jointly by the trustee of a discretionary trust. The debtor attempted to prove he was in a position to pay the debt; but both the debtor and his wife refused to use the money paid into court to pay the debt. The primary judge made a sequestration order against the debtor, but not against the wife, finding that the debtor’s wife, but not the debtor, was solvent. The primary judge made the sequestration order after he refused the debtor leave to reopen his case to show that his wife had given the debtor her share of the money that was paid into court. Apart from the money that was paid into court, it appeared the debtor was not a person of sufficient substance to pay his debts, although it appeared the trust had sufficient assets to do so.
[64] Re Eric Trojan v Corporation of the Town of Hindmarsh [1987] FCA 276; (1987) 16 FCR 37
The Full Federal Court dismissed the debtor’s appeal. First, the fact the trust had assets sufficient to pay the judgment debt did not demonstrate the debtor was able to do so, because the debtor did not control the assets of the trust. Second, given the money was paid jointly into court, the debtor could not show that his wife’s share was available to pay the debt. Third, even if the money that had been paid into court was available to pay the debt, there remained a discretion not to make a sequestration order, and the Full Federal Court held that the discretion ought not to be exercised in favour of the debtor. The Full Federal Court said:[65]
Section 52(2)(a) envisages a situation which will probably bear fruit in payment. It is not easy to see any other reason why the legislature saw fit to make a demonstration of ability to pay only a discretionary ground of dismissal of a petition, and not an absolute bar to its success. At all events, cases such as the present fall fairly within the reach of a proper judicial discretion of the kind conferred by the subsection. Far from being an authority in the appellant's favour, the Sarina case, when properly understood, affirms the existence of a discretion which in the very different circumstances of the present case a court could hardly contemplate exercising otherwise than in favour of the respondent. However, since his Honour rightly held that the asset in Court was not sufficient to satisfy him that the appellant was able to pay his debts, no question of the exercise of his discretion on the footing of satisfaction of the appellant's ability to pay his debts arose.
[65] Re Eric Trojan v Corporation of the Town of Hindmarsh [1987] FCA 276; (1987) 16 FCR 37, at page 48
Finally, it is relevant to refer to what is required to prove solvency. Speaking in the context of corporate insolvency, Weinberg J in Ace Contractors & Staff Pty Ltd v Westgarth Development Pty Ltd said that to discharge the onus of proving solvency “the Court should ordinarily be presented with the “fullest and best” evidence of the financial position of the respondent”; and that “unaudited accounts and unverified claims of ownership or valuation are not ordinarily probative of solvency. Nor are bald assertions of solvency arising from a general review of the accounts, even if made by qualified accountants who have detailed knowledge of how those accounts were prepared”.[66]
[66] Ace Contractors & Staff Pty Ltd v Westgarth Development Pty Ltd [1999] FCA 728, at [44]
“Other sufficient cause” – going behind the judgment
An application for a sequestration order must be based on the debtor owing the petitioning creditor a debt. In most cases the debt will be constituted by a judgment debt. That will be the case where the act of bankruptcy on which the creditor relies is the debtor’s failure to comply with the requirements of a bankruptcy notice. A bankruptcy court has a discretion to “go behind the judgment” if “substantial reasons are given for questioning whether behind that judgment there was in truth and reality a debt due to the petitioner”.[67] Where the Court is satisfied such substantial reasons exist, the petitioning creditor will bear the legal burden of proving the judgment records a true debt.[68] The relevant principles were considered more recently by the High Court in Ramsay Health Care Australia Pty Ltd v Compton.[69] Thus, Kiefel CJ, Keane and Nettle JJ said (references omitted):[70]
For the purposes of s 52 of the Act, a judgment may usually be taken to be sufficient evidence of a debt in that a judgment against a debtor in favour of a creditor obtained after a trial is, generally speaking, a reliable indication of the true state of indebtedness as between creditor and debtor. Indeed, such a judgment can usually be expected to provide the most reliable statement of the debt humanly attainable because the ordinary processes of the adversarial system provide a practical guarantee of reliability. The testing of the relative merits of a claim and counterclaim under the rigours of adversarial litigation will usually establish the true state of accounts as between the parties to the proceedings. Accordingly, a Bankruptcy Court will usually have no occasion to investigate whether the judgment debt is a true reflection of the real debt. But where the merits of a claim and counterclaim have not been tested in adversarial litigation, a judgment debt will not have this practical guarantee of reliability.
[67] Wren v Mahony [1972] HCA 5; (1972) 126 CLR 212, at page 225 (Barwick CJ)
[68] Cheung v Burness (Trustee) [2016] FCA 1381, at [79] (Moshinsky J)
[69] Ramsay Health Care Australia Pty Ltd v Compton [2017] HCA 28, at [16], [37]-[38], [54]-[55], [65]-[67]
[70] Ramsay Health Care Australia Pty Ltd v Compton [2017] HCA 28, at [68]
The bankruptcy notice that was issued in relation to Mr McGuire is based on judgments that were entered on the basis of costs certificates. In Boensch v Bingham (No 2) I concluded that the principles relating to going behind a judgment apply to judgments that have been entered on the basis of costs certificates; and the principles apply if there are substantial reasons for questioning that the costs determination was made without any jurisdictional error.[71]
[71] Boensch v Bingham (No 2) [2022] FedCFamC2G 47, at [80]
Finally, it is relevant to refer to the following principle Wigney J stated in Katter v Melhem (No 2):[72]
Fourth, the Court should not go behind a judgment where the grounds upon which the judgment is challenged are such that, if accepted, they would only support a finding that the amount of the debt be reduced and would not support a finding that there was, in truth, no debt at all: Emerson v Wreckair Pty Ltd (1992) 33 FCR 581 at 589; Olivieri v Stafford (1989) 24 FCR 413 (Olivieri v Stafford) at 431-432 (Gummow J); Re Cosimo Longo Ex parte: Cosimo Longo [1995] FCA 1324 at [23]-[25]; Cumins v Deputy Commissioner of Taxation (2008) 172 FCR 425 at [7]-[10]; Re Riviere; Ex parte Original Mont de Piete Ltd (1919) 20 SR (NSW) 77 (Re Riviere) at 83-84.
[72] Katter v Melhem (No 2) [2014] FCA 1176, at [77]
PROOF OF MATTERS SPECIFIED IN s 52(1) OF THE ACT AND BANKRUPTCY RULES
Subsection 52(1) of the Act provides as follows:
At the hearing of a creditor’s petition, the Court shall require proof of:
(a)the matters stated in the petition (for which purpose the Court may accept the affidavit verifying the petition as sufficient);
(b) service of the petition; and
(c)the fact that the debt or debts on which the petitioning creditor relies is or are still owing;
and, if it is satisfied with the proof of those matters, may make a sequestration order against the estate of the debtor.
The matters that must be stated in a creditor’s petition are prescribed by s 47(1A) of the Act, which provides that if “the rules of court prescribe a form for the purposes of this subsection, the petition must be in the form prescribed”. Rule 4.02 of Bankruptcy Rules prescribes a form for the purposes of s 47(1A) of the Act. The form requires the creditor, among other things, to identify the act of bankruptcy on which the creditor relies, and the debt or debts the creditor claims the debtor owes it.
In the creditor’s petition SSAA claims Mr McGuire failed to comply on or before 29 June 2021 with the requirements of a bankruptcy notice served on him on 8 June 2021. SSAA relies on the affidavit of service of the bankruptcy notice made by Rodney Smith on 13 July 2021. I am satisfied Mr McGuire was served with the bankruptcy notice on 8 June 2021. Given Mr McGuire did not comply with the requirements of the bankruptcy notice, I am satisfied he committed an act of bankruptcy on 29 June 2021. The creditor’s petition also identifies the debts SSAA claims Mr McGuire owes it, these being the two judgment amounts to which I have already referred, together with interest on those amounts.
SSAA filed a creditor’s petition on 30 July 2021. The creditor’s petition is in the prescribed form,[73] and, as required by s 47 of the Act, an officer with authority has made an affidavit verifying it on behalf of SSAA.[74] SSAA also filed, at the time it filed the creditor’s petition, an affidavit required by r 4.04(1)(a) of Bankruptcy Rules,[75] and the affidavit of service of the Bankruptcy Notice, as required by r 4.04(1)(b).[76] SSAA also filed a trustee consent to act declaration signed by Mr Jason Lloyd Porter.
[73] Form B6
[74] Affidavit L P Miller 28.07.2021
[75] Affidavit of S Roskov 29.07.2021
[76] Affidavit of R Smith 31.08.2021
As required by r 4.05 of the Bankruptcy Rules, the creditor’s petition was served on Mr McGuire on 30 August 2021, being more than five days before the date that had been first fixed for the hearing of the creditor’s petition, together with the affidavit required by r 4.04(1)(a) of the Rules, and the affidavit of service of the bankruptcy notice.[77] Further I read an affidavit of debt,[78] being an affidavit which, under r 4.06(4) of the Bankruptcy Rules, must be made as soon as practicable before the hearing of the creditor’s petition, and also an affidavit of search,[79] as required by r 4.06(3) of the Bankruptcy Rules.
[77] Affidavit of R Smith 13.07.2021
[78] Affidavit of Debt L P Miller 31.03.2022
[79] Affidavit of Search S Roskov 31.03.2022
In his notice stating grounds of opposition Mr McGuire claims he was not served with the bankruptcy notice. Mr McGuire did not press this ground at the hearing. In any event, I have already found on the basis of the affidavit of service of Rodney Smith that Mr McGuire was served with the bankruptcy notice on 8 June 2021.
I am satisfied SSAA has proved the matters it is required to prove under s 43 and s 52(1) of the Act and the Bankruptcy Rules and that, subject to the matters on which Mr McGuire relies, a sequestration order should be made against his estate.
IS MR McGUIRE ABLE TO PAY HIS DEBTS?
Mr McGuire submits he is able to pay his debts. He relies on the following matters to which he deposes in his affidavit of 21 February 2022:[80]
(a)Mr McGuire owns a property with his wife, Mrs McGuire, at Tyndale (Tyndale property). The New South Wales Valuer General has valued that property at $195,000; and on 18 February 2020 L J Hooker Real Estate estimated the property to have a value of between $525,000 and $565,000.
(b)Mr and Mrs McGuire also own property at Upper Orara (Upper Orara property). Real estate agents have appraised that property’s value at between $1.6 million and $1.7 million. It is subject to a mortgage of around $151,930.
(c)Mr McGuire owes $113,351.15 to Kalantzis Lawyers in relation to a defamation action SSAA and the State Association had brought against Mr McGuire. Mr McGuire has paid $32,396 in addition to this amount; and his lawyer advised him that SSAA and the State Association have discontinued the action, and will therefore be liable to pay his legal costs.
(d)Mr McGuire owes $14,578 to McKell’s Solicitors, and he has paid $9,595 to them, $28,800 to Pavuk Legal, and $27,710 to a barrister, all in connection with a bankruptcy proceeding SSAA commenced against Mr McGuire. Mr McGuire has annexed to his affidavit orders made by Lee J on 8 July 2019 dismissing a creditor’s petition SSAA presented, and ordering SSAA to pay 75% of the party/party costs of Mr McGuire, save for the costs of the hearing on 20 March 2019.
(e)Mr McGuire receives a fortnightly aged pension of $729.30.
[80] Affidavit of P C McGuire 21.02.2022 (36 pages)
I am prepared to assume that the Tyndale and Upper Orara properties have a value at the lower end of the range of the estimates of values on which Mr McGuire relies; and I am also willing to assume that Mr McGuire has accurately disclosed all of his assets and liabilities, income and outgoings. On these assumptions Mr McGuire’s assets exceed his liabilities, including his liability to pay the amount the bankruptcy notice demands. That does not mean, however, that Mr McGuire will have discharged the burden that lies on him to prove he is able to pay his debts. The question is whether the evidence establishes that Mr McGuire “can procure” “within a relatively short time” the money required to pay the debts demanded by the bankruptcy notice, and all his other debts, “by realization by sale or by mortgage or pledge” of his interest in the Tyndale and Upper Orara properties.[81] I am not so satisfied. Mr McGuire holds his interest in the Tyndale and Upper Orara properties jointly with Mrs McGuire; and there is no evidence about Mr McGuire’s willingness or ability to realise or pledge his interest in the Tyndale and Upper Orara properties to satisfy me that Mr McGuire will be able to procure within a relatively short time the money necessary to pay the debts demanded by the bankruptcy notice. Nor is there any evidence from Mrs McGuire that she is willing and able to realise or pledge her interest in either of the Tyndale and Upper Orara properties jointly with Mr McGuire to facilitate Mr McGuire’s realisation or pledging within a relatively short time of his interest in those properties to procure the money required to pay the debts demanded by the bankruptcy notice.
[81] Sandell v Porter (1966) 115 CLR 666, at 670-671
OTHER SUFFICIENT CAUSE FOR NOT MAKING SEQUESTRATION ORDER?
Mr McGuire relies on a number of matters he in effect submits constitute sufficient cause for not making a sequestration order.
Costs assessor failed to address submissions
Mr McGuire submits that the costs assessor, Ms Hale, failed to address the submissions Mr and Mrs McGuire sent to Ms Hale to which I refer in paragraphs 43 and 44 above. The basis of Mr McGuire’s submission is that neither Ms Hale, nor the Review Panel, expressly refer to Mr McGuire’s submissions, or the emails by which Mr McGuire sent the submissions to Ms Hale. Mr McGuire has not adduced evidence of Ms Hale’s or the Review Panel’s reasons for determination; but I will assume that neither Ms Hale nor the Review Panel, in their reasons for determination, expressly referred to Mr McGuire’s submissions.
On this assumption I cannot be satisfied that it is open to infer that neither Ms Hale nor the Review Panel were aware or considered Mr McGuire’s submissions, only because they did not expressly refer to those submissions. That is so because Mr McGuire’s submissions could not reasonably have been considered by a decision maker in the position of Ms Hale or the Review Panel to have any merit and, therefore, be the subject of any express consideration.
(a)In his submissions Mr McGuire said that he saw little point in addressing many of the hundreds of items claimed “because the case should never have been commenced against Mr McGuire”.
(b)Mr McGuire made the general submission that it was “evident that an attempt is being made with a new document to try to benefit from a substantial increase”. That was not a submission that Ms Hale or the Review Panel could meaningfully have engaged with because Mr McGuire did not identify any particular costs he claimed were unreasonable, or the grounds on which such costs were unreasonable.
(c)Mr McGuire’s principal submission was that SSAA ought not to have commenced the Recovery Proceeding against Mr McGuire because he did not have the authority to instruct MJO to deal with the $26,624.16 Mr McGuire paid to MJO on 1 July 2010. That submission appears to be intended to challenge the judgment the Local Court entered against Mr McGuire in the Recovery Proceeding. It was, however, outside the costs assessor’s jurisdiction to determine whether the Local Court was correct in entering judgment against Mr McGuire in the Recovery Proceeding.
Even if I were to assume that neither Ms Hale nor the Review Panel considered Mr McGuire’s submissions, I would not be satisfied that that would arguably constitute a denial of procedural fairness. The question that would have arisen is whether, had Ms Hale or the Review Panel considered Mr McGuire’s submissions, that could realistically have resulted in Ms Hale or the Review Panel making a different decision such as would justify the conclusion that the costs determinations, or the Review Panel’s review of Ms Hale’s costs assessment, were affected by jurisdictional error.[82] I would answer that question in the negative because, for the reasons in paragraph 67, the submissions Mr McGuire made were irrelevant, and were of such generality, that they could not have logically influenced the assessment of SSAA’s costs.
[82] Minister for Immigration and Border Protection v SZMTA; CQZ15 v Minister for Immigration and Border Protection; BEG15 v Minister for Immigration and Border Protection [2019] HCA 3, at [45]
Finally, Mr McGuire’s submission in paragraph 67(c) is directed to the Recovery Proceeding, not to the Earthworks Proceeding. Even if, therefore, Mr McGuire’s submission did give rise to a doubt that the judgment entered against him in the Recovery Proceeding does not represent a real debt, it says nothing about the order for costs the Local Court made against him in the Earthworks Proceeding. That means that, if Mr McGuire were correct in submitting that judgment in the Recovery Proceeding should not have been entered against him, the amount demanded in the bankruptcy notice would be reduced to reflect one of the two judgments on the basis of which it was issued, namely, the judgment that was entered on the basis of the assessment of SSAA’s costs in the Earthworks Proceeding. In other words, even if Mr McGuire were correct in his submission, that “would only support a finding that the amount of the debt be reduced and would not support a finding that there was, in truth, no debt at all”.[83]
[83] Katter v Melhem (No 2) [2014] FCA 1176, at [77]
There are therefore no substantial reasons for questioning whether the costs determinations on the basis of which the bankruptcy notice was issued were made without any jurisdictional error because the costs assessor or the Review Panel did not expressly refer to Mr McGuire’s submissions.
Magistrate’s observations on SSAA’s costs
Mr McGuire relies on the passage from the judgment of Magistrate Heilpern I have reproduced in paragraph 40 above. Mr McGuire submits that his Honour had in effect ordered that the sum of the amounts identified in the bills of costs SSAA had submitted in support for its claim for a lump sum costs order was the sum of the costs that were to be assessed, but the costs SSAA submitted for the purposes of the costs assessment exceeded the amount of those costs. In other words, Mr McGuire submits that Magistrate Heilpern had ordered that SSAA’s costs could not exceed the amount stated in the bill of costs SSAA submitted in support of its application for a lump sum costs order, but SSAA had applied for the assessment of costs in an amount that exceeded those costs. Mr McGuire also submitted that the costs identified in the bill of costs SSAA submitted to Magistrate Heilpern represented the total amount of the costs SSAA in fact paid, but, by having applied for the assessment of costs that exceeds that amount, SSAA applied for costs which it had not paid or incurred.
It may be accepted that Magistrate Heilpern assumed that the costs of SSAA that were to be assessed are the costs identified in the bills of costs SSAA submitted in support of its application for a lump sum costs order. It is not arguable, however, that Magistrate Heilpern made any order limiting or capping the costs to which SSAA may have been entitled to the costs identified in the bills of costs SSAA submitted in support of its application for a lump sum costs order. His Honour made orders awarding costs “as agreed or assessed”. Even if, however, Magistrate Heilpern were to have made such an order, that “would only support a finding that the amount of the debt be reduced” to an amount not exceeding the sum of the costs SSAA identified in its application for a lump sum costs order, and “would not support a finding that there was, in truth, no debt at all”.[84]
[84] Katter v Melhem (No 2) [2014] FCA 1176, at [77]
It is the case that a party in whose favour an order for costs has been made is entitled to the benefit of such order only to the extent the party has in fact paid, or has incurred a liability to pay, legal costs. This is often referred to as the “costs indemnity principle”. Thus, it has been held that “costs are awarded by way of indemnity (or, more accurately, partial indemnity) for professional legal costs actually incurred in the conduct of litigation”.[85] The following is a frequently quoted statement of the “costs indemnity principle”:[86]
Costs as between party and party are given by the law as an indemnity to the person entitled to them they are not imposed as a punishment on the party who pays them, nor given as a bonus to the party who receives them. Therefore, if the extent of the damnification can be found out, the extent to which costs ought to be allowed is also ascertained. Of course, I do not say there are not exceptional cases, in which certain arbitrary rules of taxation have been laid down, but, as a general rule, costs are an indemnity, and the principle is this, - find out the damnification, and then you find out the costs which should be allowed.
[85] Cachia v Hanes [1994] HCA 14, at [11]; (1994) 179 CLR 403, at page 410
[86] Harold v Smith [1860] EngR 516; (1860) 5 H & N 381, at page 385; 157 ER 1229, at page 1231
There is no evidence that is capable of supporting a finding that there are substantial reasons for questioning that the judgments on the basis of which the bankruptcy notice was issued do not reflect amounts for legal costs SSAA paid or incurred in connection with the Recovery Proceeding or the Earthworks Proceeding. Even if, however, as Mr McGuire submits, SSAA paid or become liable to pay an amount that does not exceed the sum of the amounts SSAA submitted to Magistrate Heilpern in support of a lump sum costs order, SSAA’s submitting for assessment bills of costs exceeding the amounts it actually paid or assumed a liability to pay “would only support a finding that the amount of the debt be reduced and would not support a finding that there was, in truth, no debt at all”.[87]
[87] Katter v Melhem (No 2) [2014] FCA 1176, at [77]
SSAA’s submitting for assessment a bill of costs for amounts that exceed the amounts SSAA claimed in support of its application for a lump sum costs order does not afford substantial reasons for questioning whether the costs determinations on the basis of which the bankruptcy notice was issued were made without jurisdictional error.
Alleged improper conduct
Mr McGuire submits “there was some very improper, unlawful conduct, that took place in order to set me up so that I could be dragged into what became number 2010/345199”, that is, the Recovery Proceeding.[88] The basis of this submission is Mr James of MJO having asked Mr McGuire on 23 August 2010 what Mr McGuire wanted Mr James to do with the money in circumstances where Mr McGuire no longer had any authority to instruct Mr James what to do with the money. Mr McGuire further submitted there was a “shuffling” of money. That is a reference to the transactions recorded in the TML. Mr McGuire submitted he did not understand any of it, and he did not acquire any knowledge until 2017. Mr McGuire also referred to evidence in which he requested an explanation from Mr James of the transactions recorded in the TML.[89]
[88] T25.15
[89] Affidavit P C McGuire 29.03.2022
It is open to infer, and I find, that Mr McGuire does not understand in full the nature and purpose of the transactions recorded in the TML; and I am willing to accept that he believes those transactions reveal something untoward occurred. I do not accept, however, that Mr McGuire’s belief is reasonable. The contemporaneous documents clearly reveal what had occurred in relation to $26,624.16 of the SSAA’s money Mr McGuire paid into MJO’s trust account on 1 July 2010. Of particular relevance are the letters dated 23 August 2010 MJO sent to Mr McGuire (see paragraph 23 above), and the letter dated 31 August 2010 MJO sent to Schweizer Kobras (see paragraph 29 above), a copy of which MJO provided to Mr McGuire on 7 September 2010 (see paragraph 30 above). These letters reveal that MJO dealt with the $26,624.16 in the manner it did on the basis of instructions Mr McGuire gave. Further, MJO’s letter dated 31 August 2010 to Schweizer Kobras, which MJO sent to Mr McGuire on 7 September 2010, stated there was a dispute between Mr McGuire and SSAA about the $20,900 MJO retained in its account, after MJO paid the $3,774.75 to SSAA and deducted $1,949.41 for their costs. One inference that is available to explain the transactions recorded in the TML is that MJO initially treated SSAA as their client but, after they became aware of the dispute between SSAA and Mr McGuire, MJO made journal entries to record that their client was Mr McGuire.
I am therefore not satisfied that the transactions recorded in the TML afford a substantial reason for questioning whether the costs determinations on the basis of which the bankruptcy notice was issued were made free from jurisdictional error. Even if, however, the evidence were to suggest some impropriety, that would only relate to the judgment and orders for costs that were entered and made in the Recovery Proceeding. That would not affect the judgment or the order entered or made in the Earthworks Proceeding. Thus, even if there was merit in Mr McGuire’s submissions in relation to the transactions recorded in the TML, that “would only support a finding that the amount of the debt be reduced and would not support a finding that there was, in truth, no debt at all”.[90]
[90] Katter v Melhem (No 2) [2014] FCA 1176, at [77]
Other matters
I have noted that Mr McGuire is the beneficiary of a costs order Lee J made on 8 July 2019 dismissing a creditor’s petition the SSAA presented, and ordering SSAA pay 75% of Mr McGuire’s party/party costs. Those costs have not been assessed. There is no evidence to suggest, however, that those costs, if assessed, together with any costs Mr McGuire may be entitled to recover because of SSAA’s discontinuation of its defamation action, would equal or exceed the amount of the sum of the judgments on the basis of which the bankruptcy notice was issued. The order for costs in favour of Mr McGuire, and any other potential recovery of costs available to him, are not capable of affecting the outcome of Mr McGuire’s application for review.
DISPOSITION
SSAA has established the matters prescribed by s 52(1) of the Act and by the Bankruptcy Rules; I am not satisfied Mr McGuire is able to pay his debts; and I am not satisfied there is any sufficient cause for not making a sequestration order against the estate of Mr McGuire.
I propose, therefore, to dismiss Mr McGuire’s application for review. I also propose to order that SSAA’s costs be paid out of Mr McGuire’s estate, and that such costs have the same priority as the costs of the creditor’s petition.
I certify that the preceding eighty-one (81) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Manousaridis. Associate:
Dated: 22 April 2022
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