Waterton v Lafferty

Case [2019] FCA 1267

FEDERAL COURT OF AUSTRALIA

Waterton v Lafferty, in the matter of Lafferty [2019] FCA 1267

File number: WAD 420 of 2018
Judge: BANKS-SMITH J
Date of judgment: 14 August 2019
Catchwords: BANKRUPTCY AND INSOLVENCY - creditor's petition - where debt relied upon is unpaid costs order - where costs order made after trial of issues in which debtor was unsuccessful plaintiff - where debtor seeks to go behind costs order and seeks to go behind underlying judgment dismissing claim - where debtor claims creditor acted fraudulently with respect to execution of father's will and will invalid - where validity of father's will not relevant to issues before trial judge - whether substantial reasons shown for questioning costs order - whether petition abuse of process
Legislation:

Bankruptcy Act 1966 (Cth) s 52

Evidence Act 1995 (Cth) s 75

Federal Court (Bankruptcy) Rules 2016 (Cth) r 4.06

Wills Act 1997 (Vic) ss 7, 9

Rules of the Supreme Court 1971 (WA) O 66 r 57
Cases cited:

Calandra v Murden [2015] NSWCA 231

Compton v Ramsay Health Care Australia Pty Ltd [2016] FCAFC 106; (2016) 246 FCR 508

Corney v Brien (1951) 84 CLR 343

Culleton v Balwyn Nominees Pty Ltd [2017] FCAFC 8

Katter v Melhem (No 2) [2014] FCA 1176

Kitay, in the matter of Frigger (No 2) [2018] FCA 1032

Lafferty v Waterton [No 2] [2017] WASC 84

Lafferty v Waterton [No 4] [2017] WASC 302

Lowbeer v De Varda [2018] FCAFC 115

Psevdos v Commonwealth Bank of Australia (No 2) [2017] FCA 19

Ramsay Health Care Australia Pty Ltd v Compton [2017] HCA 28; (2017) 261 CLR 132

Simon v O'Gorman Pty Ltd (1979) 27 ALR 619

Walsh v Sloan as executor of estate of Keddie [2019] WASCA 107

Wren v Mahoney (1972) 126 CLR 212
Date of hearing: 16 May 2019
Registry: Western Australia
Division: General Division
National Practice Area: Commercial and Corporations
Sub-area: General and Personal Insolvency
Category: Catchwords
Number of paragraphs: 102
Counsel for the Applicant: Mr MI Lenhoff
Solicitor for the Applicant: Williams & Hughes
Counsel for the Respondent: Mr PG Clifford
Solicitor for the Respondent: Armeli & Molony Lawyers

ORDERS

WAD 420 of 2018

IN THE MATTER OF SUSAN JUANITA LAFFERTY
BETWEEN:

WILLIAM FRANK WATERTON

Applicant
AND:

SUSAN JUANITA LAFFERTY

Respondent

JUDGE:

BANKS-SMITH J

DATE OF ORDER:

14 AUGUST 2019

THE COURT ORDERS THAT:

1.There be a sequestration order under the Bankruptcy Act 1966 (Cth) against the estate of Susan Juanita Lafferty.

2.The costs of the applicant be assessed by a Registrar of the Court and be paid from the bankrupt estate of Susan Juanita Lafferty in accordance with the Bankruptcy Act.

The Court notes that the date of bankruptcy is 21 August 2018.

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


REASONS FOR JUDGMENT

BANKS-SMITH J:

  1. This is an application for a sequestration order.  It is opposed on the basis that the judgment upon which it is based is said…

Continue reading Waterton v Lafferty

Sign in free to access the full text

Details
AGLC
Waterton v Lafferty [2019] FCA 1267
Case
[2019] FCA 1267
Decision Date

CaseChat Overview and Summary

William Waterton filed an application for a sequestration order against his sister, Susan Lafferty, relying on a costs order made after a trial in which she was unsuccessful. Susan opposed the application, arguing that the underlying judgment was tainted by fraud and that the petition was an abuse of process. The central issue before the court was whether the petitioner's costs order, which was based on an unpaid debt, could be considered without regard to the alleged fraud concerning the execution of their father's will, which was not relevant to the issues in the trial.

The court addressed the distinction between a costs order and an underlying debt judgment, acknowledging that costs orders are not immune from scrutiny simply because they arise from a separate monetary liability. The court noted that if costs orders were given special protection, it could allow creditors to avoid challenges to potentially fraudulent monetary judgments. However, the court found that in this case, the manner in which the costs order was determined was not challenged, and there was no evidence of procedural unfairness or misconduct by the creditor. The court concluded that the petitioner's reliance on the costs order did not amount to an abuse of process.

Ultimately, the court found that there were no substantial reasons to question the costs order and dismissed Susan's objections. The court issued a sequestration order against Susan, and her costs were to be assessed and paid from her bankrupt estate. The date of bankruptcy was noted as 21 August 2018.

Orders

Orders of the court

1. There be a sequestration order under the Bankruptcy Act 1966 (Cth) against the estate of Susan Juanita Lafferty.

2. The costs of the applicant be assessed by a Registrar of the Court and be paid from the bankrupt estate of Susan Juanita Lafferty in accordance with the Bankruptcy Act.

The Court notes that the date of bankruptcy is 21 August 2018.

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

Background

Background to the litigation

This is an application for a sequestration order. It is opposed on the basis that the judgment upon which it is based is said to be tainted by fraud and on the basis that the creditor's petition is an abuse of process.Background The applicant creditor, William Waterton, is one of three children of the late William and Peggy Waterton. The respondent, Susan Lafferty, is his sister. There has been a history of litigation between the members of the family in the Supreme Court of Western Australia, culminating in the decision of Allanson J following trial in Lafferty v Waterton [No 4] [2017] WASC 302. In Allanson J's reasons, the parents were referred to as Mr Waterton and Mrs Waterton respectively. Their three children were referred to as William, Susan and Madelaine. I will continue that convention, and mean no disrespect by doing so. Mr Waterton died on 3 December 2003. Probate of his will dated 29 November 2003 (Will) was granted by the Supreme Court of Victoria on 22 July 2004. Mr Waterton left the whole of his estate to Mrs Waterton, who was then aged 80 and had been wholly dependent on her husband. Mrs Waterton died on 8 August 2015. In 2013, so before Mrs Waterton died, Susan commenced proceedings against Mrs Waterton, William and Madelaine. As summarised by Allanson J, Susan claimed that she was entitled to one‑third of her mother's estate and that property that her mother had given to William and Madelaine was impressed with a trust as to that one‑third interest. The claim was based on a letter written by Mrs Waterton in about 2004. Susan contended that her mother, and later her mother's estate, was estopped from acting other than in accordance with the representations made in that letter: Lafferty v Waterton [No 4] at [1]. For the purpose of these reasons, it is important to keep in mind that the proceedings issued by Susan related to her mother's estate. After Mrs Waterton died, the executors of her estate (William and Madelaine) were joined in that capacity. The trial proceeded before Allanson J over the course of three days in September 2017 and judgment was delivered in October 2017. Susan was represented by senior counsel during the trial and in interlocutory disputes: see, for example, the application for further and better discovery determined by Allanson J in March 2017 in Lafferty v Waterton [No 2] [2017] WASC 84 in which senior counsel appeared. Susan was unsuccessful at trial. The decision was not appealed by Susan. The action was dismissed after a contested hearing where the parties were given an opportunity to provide evidence and to make submissions. Following judgment, William obtained the benefit of a costs order against Susan. It is not in issue that costs followed the event. In his creditor's petition presented on 19 September 2018, William relies on non-compliance with a bankruptcy notice served 30 July 2018 that claimed an alleged debt in the sum of $193,451.05 as assessed on a taxation of a bill of costs by a Registrar of the Supreme Court of Western Australia. Under O 66 r 57 of the Rules of the Supreme Court 1971 (WA), the costs allowed by a taxation officer on a certificate of taxation shall be deemed to be a judgment of the Court. Such a provision has the effect of creating a judgment without any further action being required: Calandra v Murden [2015] NSWCA 231 at [5]; and Kitay, in the matter of Frigger (No 2) [2018] FCA 1032 at [2].

Evidence

Evidence Before The Court

William is entitled to the costs of the litigation that Susan pursued regarding her mother's alleged representation, as reflected in the costs order. The use of bankruptcy proceedings upon non-payment is a process that was legitimately open to William. It is not an attempt to obtain some advantage for which bankruptcy proceedings are not designed or to seek any collateral advantage beyond what the laws offers. No case of abuse of process is made out.Evidence issues It remains to say something about the affidavits relied upon and the objections to affidavits. The objections to Susan's affidavits were many. Indeed, for one affidavit of 46 paragraphs there were some 58 separate objections listed in a schedule of short‑form or one word comments of the nature recently discouraged by the Western Australian Court of Appeal and described as unhelpful: Walsh v Sloan as executor of estate of Keddie [2019] WASCA 107 at [65]‑[76]. Although some general submissions were made about the objections at the initial hearing (which was adjourned), counsel did not pursue the objections at the final hearing. Accordingly I will deal with them only briefly. Susan swore two affidavits, one of 16 October 2018 and one of 30 November 2018. The content of the affidavits was objected to almost entirely, including on the basis of relevance. The relevance objections were founded in William's argument that the costs order should be considered without any regard to the question of fraud on the underlying judgment of the primary judge. To the extent I have referred in these reasons to paragraphs the subject of such objection, the evidence in both affidavits is relevant for the purpose that is apparent from my particular reference to it. Put generally, it is relevant to the purpose of considering the arguments relied upon by Susan as to the issue of fraud, taking into account my reasons at [67]‑[76]. As to the balance paragraphs to which a relevance objection was taken and to which I have not referred, then the evidence is either irrelevant or did not play any significant part in my reasons. However, I note in particular that paragraphs 33 to 39 of Susan's affidavit of 30 November 2018 address an alleged omission by William of certain land in the application for probate, an omission that Susan says was later rectified by William, but which Susan asserts she has also brought to the attention of the police for investigation. Susan has not satisfied me that the allegation is materially relevant to the argument as to invalidity of the will or fraud with respect to the matters before the primary judge. I allow William's relevance objections to those paragraphs. There were also various hearsay objections. Taking into account the nature of the preliminary inquiry, I am prepared to assume it is formally interlocutory although an adverse determination would determine a substantive right: Ramsay Health Care [2016] FCAFC 106 at [49]. Accordingly those objections are overruled on the basis that hearsay evidence on such an application is permissible: Evidence Act 1995 (Cth) s 75. However, it is still open to the court to give such hearsay evidence the weight it considers appropriate taking into account the nature of the evidence and its context and other grounds of objection. Relevantly, William objected on various grounds to paragraphs 6, 7, 8, 12, 18 and 26 of Susan's affidavit of 30 November 2018 (all of which refer to advice of a legal nature given to her by Mr Lafferty). Whilst the hearsay objections to those paragraphs are overruled, the evidence is not admissible as proof of the legal conclusions stated but is relevant on the limited basis that it discloses Susan's knowledge of issues at the time. I have referred to some of that evidence in my reasons on that basis.

Decision

Reasons for decision

Full text does not contain this section.

Ratio Decidendi

Legal Principle Established

After some discourse during the hearing, the parties accepted that the basis upon which the hearing proceeded before me was that it was a preliminary investigation as to whether the Court should 'go behind' the judgment, and that if the question were answered in the affirmative, there would be a second hearing. If it were answered in the negative, and subject to satisfaction of the requisite formalities, then it was open to me to make a sequestration order: Corney v Brien at 358; Compton v Ramsay Health Care Australia Pty Ltd [2016] FCAFC 106; (2016) 246 FCR 508 at [13].Consideration William submits that he does not rely upon the judgment of Allanson J in the Supreme Court action to prove the underlying debt. He relies upon the making of the costs order and the assessment of his bill of costs pursuant to that order. William contends that, relying on Kitay, costs orders are distinct from a determination in respect of an underlying debt and that there is no antecedent liability to be impugned. On that basis, he contends that none of the evidence as to the circumstances of the execution of the Will are relevant. The Court should only be concerned with any question as to the manner in which the costs order itself was determined, and in this case there is no challenge to the assessment process or whether the indemnity principle was met (and so no argument analogous to that made in Lowbeer). In my view, the submission assumes a distinction between a scenario where a costs judgment follows a finding in favour of a creditor who has established an antecedent monetary claim and any costs judgment which does not follow such a finding. That distinction alone may not, in my view, resolve the question. Care must be taken not to attribute to a debt by way of costs order any special protection from investigation merely because it gives rise to a separate monetary liability. If there were such special protection, then a creditor who succeeds at trial and obtains a monetary judgment that might be impugned by fraud, but who also succeeds in obtaining a separate costs order on the basis that costs follow the event, could pursue a sequestration order based solely on the unpaid costs order and avoid any question of the bankruptcy court going behind the monetary judgment. Kitay is an example of where the conduct of the debtor was such that a costs order was made in favour of the petitioning creditor regardless of any determination of the underlying issue before the Court. The conduct reflected in the costs order concerned the manner in which the debtor dealt with the confidential affidavit contrary to orders of the Court. The truth or otherwise of the confidential affidavit was not to the point and no determination was required on that issue by the Court for the purpose of the application seeking delivery up. So too in Psevdos, the Court was concerned with the conduct of the debtor (his abandonment of a claim). That conduct in the proceedings led to a costs order in favour of the creditor, an order made regardless of the determination of the underlying proceedings between the creditor and the debtor.