FEDERAL COURT OF AUSTRALIA

Moran v Lydiard Financial Services Pty Ltd [2006] FCA 631

Bankruptcy Act 1966 (Cth) s 40(1)(g)

Moran v Lydiard Financial Services Pty Ltd [2005] FMCA 1821 referred to

Bhagat v Global Custodians Ltd [2002] FCA 223 cited

Ebert v Union Trustee Co of Australia Ltd (1960) 104 CLR 346 cited

Re Wakim; Ex parte McNally (1999) 198 CLR 511 cited

Ex parte Matthew; Re Matthew (1884) 12 QBD 506 distinguished

Re Debtor [1908] 1 KB 344 distinguished

Moran v Lydiard Financial Services Pty Ltd [2004] HCATrans 562

PP McQuade and MGR Gronow, McDonald, Henry and Meek: Bankruptcy Law and Practice (5^th edn, 1996)

JOHN GERARD MORAN v LYDIARD FINANCIAL SERVICES PTY LTD

VID 1508 OF 2005

SUNDBERG J

26 MAY 2006

MELBOURNE

ON APPEAL FROM THE FEDERAL MAGISTRATES COURT OF AUSTRALIA

THE COURT ORDERS THAT:

1.                  The appeal be dismissed.

2.                  The appellant pay the respondent’s costs.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

ON APPEAL FROM THE FEDERAL MAGISTRATES COURT OF AUSTRALIA

REASONS FOR JUDGMENT

background

1                     This is an appeal from a judgment of the Federal Magistrates Court (Phipps FM): Moran v Lydiard Financial Services Pty Ltd [2005] FMCA 1821.  In hearing and determining the appeal, I am exercising the powers of the Full Court pursuant to a determination by the Chief Justice under s 25(1A) of the Federal Court of Australia Act 1976 (Cth).

2                     Phipps FM dismissed the appellant’s application to set aside a bankruptcy notice served on him by the respondent.  Before the Magistrate, the appellant put forward three bases for the setting aside of the notice.

The first basis

3                     The first basis was that the notice was based on a debt that had been paid.

4                     The notice is dated 23 September 2005 and is based on certain orders of the Supreme Court of Victoria.  On 28 February 2003, the Court of Appeal (Phillips JA and O’Bryan J) dismissed the appellant’s application for an extension of time in which to appeal and ordered that:

“Mr John Gerard Moran do pay on an indemnity basis the costs of [the respondent] of this application.”

On 30 June 2003, Master Bruce ordered that those costs be taxed and allowed in the sum of $11,310.40.

5                     On 31 January 2005, the appellant wrote to the solicitors for the respondent as follows:

“Please find enclosed payment for $82,521.27 to be placed into your trust account for the payment of court costs to [the respondent].”

The enclosed payment was in the form of a promissory note (the note).  The note said that:

“Twenty years after fixed date I promise to pay [the solicitor for the respondent] the sum of eighty two thousand five hundred and twenty one dollars and twenty seven cents.  Payable at 205 Melbourne Road, Ballarat, Vic. 3350 at 4.00pm on 31 January 2025.”

The sum that is the subject of the note includes the sum that is the subject of the orders referred to at [4].

The second basis

6                     The second basis was that the appellant had a “counter-claim, set-off or
cross-demand” against the respondent that far exceeded the debt on which the notice is based (the claim).  See s 40(1)(g) of the Bankruptcy Act 1966 (Cth).  The claim was commenced in May 2005 by writ filed in Supreme Court of Victoria.  The claim was dismissed by Master Evans for (among other reasons) lack of standing.  An appeal from Master Evans’ decision was dismissed by Mandie J.  An appeal from Mandie J’s decision to the Court of Appeal is stayed pending the provision of security for costs.

The third basis

7                     The third basis was that the issue of the notice was an abuse of process.  Three earlier bankruptcy notices were set aside: the first because of a typographical error in the name of the respondent, the second because it did not attach the order of the Court of Appeal referred to at [4] and the third because it included creditors other than the respondent (the preceding notices).  However, the Magistrate noted at [22] that, in respect of the notice, “[n]o errors … are asserted and none are apparent”.

grounds of appeal

8                     The grounds of appeal are as follows:

“(a)     Federal Magistrate Phipps erred in law and in fact, when he assumed the outcome of an appeal in the Court of Appeal of the Supreme Court of Victoria on unsubstantiated submissions and affidavit material.

(b)        Federal Magistrate Phipps erred in law and in fact, when he dismissed an application to set aside a bankruptcy notice based on a judgment by the Supreme Court of Victoria, which was made pursuant to powers of the Constitution Act 1975 (Vic), assuming that that Act is legal.

(c)        Federal Magistrate Phipps erred in law and in fact, when he dismissed the validity of a promissory note to be a lawful payment and failing to state that the debt was dissolved until such time as the promissory note was redeemed at the appropriate time for redemption.

(d)        Federal Magistrate Phipps erred in law and in fact, when he stepped out of jurisdiction to make determinations as to the outcome of a trial in the Supreme Court of Victoria on only minimal evidence, which could only be described as hearsay because Master Evans was quoted without any transcript of those proceedings in the Supreme Court of Victoria.

(e)        Federal Magistrate Phipps erred in law and in fact as well as being out of jurisdiction, when he made rulings on who was the ‘first mortgagee’ in a matter before the Supreme Court of Victoria without the slightest evidence to be able to make such a ruling.

(f)        Federal Magistrate Phipps erred in law and in fact and was out of jurisdiction, when he decided what should or should not have been raised in an appeal by my late mother in 1997.  This is especially useful when the fraud committed by the respondent was not discovered until late 2002 after my mother’s death.

(g)        Federal Magistrate Phipps erred in law and in fact, when he stated that it was not sufficient to say that you have a claim but you have to show that you have a reasonable prospect of success.  Only the fully determined judgment in the appropriate jurisdiction can give an indication of success or not and to state otherwise indicates bias of the most extreme nature.

(h)        Federal Magistrate Phipps erred in law and in fact, when he stated that in the current bankruptcy notice, no defects were argued or noticed.  Given the previous grounds of appeal this can hardly apply and although I will not make a personal attack on the Magistrate, his behaviour did prompt me to look up the dictionary for the meaning of the words laziness and arrogance.”

9                     Of the three bases noted at [2] and described at [3] to [7], only the first and second are addressed by the grounds.  However, the third is addressed by the appellant’s written submissions.  Indeed, the appellant’s written submissions are cast not in terms of the grounds but in terms of the bases.  I will deal with the submissions in respect of the third basis once I have addressed each of the grounds.

10                  The grounds are utterly misconceived and devoid of merit.

groundS OF APPEAL (a) AND (g)

11                  According to the appellant, grounds of appeal (a) and (g) fix on what the Magistrate said at [15] and [16]:

“[The appellant] is seeking to satisfy the Court that he has a counter-claim, set-off or cross-demand as those terms are used in s 40(1)(g) of the Bankruptcy Act 1966 (Cth).  It is not sufficient for a debtor to assert that he has a claim and then set out the basis for the claim.  He must satisfy the Court that he has a genuine demand.  The Court must be satisfied it has a reasonable prospect of success.  I refer to Bhagat v Global Custodians Ltd [2002] FCA 223 at [52] as one of the authorities for that proposition.  The debtor must show that he has a prima face case even if he does not adduce the admissible evidence which would make out a prima facie case (Ebert v Union Trustee Co of Australia Ltd (1960) 104 CLR 346 at 350).

The [appellant] does not show that he has a claim to pursue.  He has attempted to establish a claim in the Supreme Court of Victoria and the proceeding has been dismissed.  He has lodged an appeal against the decision of Mandie J, but that does not establish that his claim has any merit or any prospects of success, whether he has a prima facie case or a reasonable prospect of success.”

As noted at [6], the appeal against the decision of Mandie J is stayed pending the provision of security for costs.

12                  Ground of appeal (a) is misconceived.  The Magistrate did not “assume the outcome of [that] appeal”.  He did what the authorities (ie Bhagat and Ebert) called upon him to do: namely, make an assessment – solely for the purposes of the application before him – of the prospects of success of the appeal.  In making that assessment, he did not purport to decide the outcome of that appeal: the Court of Appeal is not bound to agree with that assessment if and when it comes to decide the appeal.  Further, the Magistrate could only have made that assessment on the basis of “submissions and affidavit material”.

13                  Ground of appeal (g) is contrary to the authorities – which the Magistrate correctly applied.  In support of that ground, the appellant otherwise sought to adduce evidence that was not before the Magistrate.  I refused him leave to do so.  Finally, the allegation of bias contained in that ground is baseless.

ground of appeal (d)

14                  According to the appellant, ground of appeal (d) fixes on what the Magistrate said at [12].  It contains two propositions.  First, that the Magistrate (somehow) exceeded his jurisdiction.  Secondly, that, in so doing, he relied on “hearsay”.  I deal with both of them at [16].

15                  The Magistrate said at [12] that:

“In Mr McGirr’s affidavit in the Court of Appeal …, he says that in oral reasons Master Evans indicated the following of the claim which [the appellant] is now relying on as the cross-claim.  It was patently obvious that the proceedings had no merit, that [the appellant] had no standing to bring the proceedings.  Only his late mother did.  The only other persons who might have standing were the subsequent mortgagees, who do not include [the appellant].  The only avenue open to [the appellant] was as a lessee, but that would only be if his lease was granted with the approval of the first mortgagee, which it was not.”

16                  As to the first proposition set out at [14], the appellant contends that the Magistrate cannot exercise the jurisdiction of a state court.  (Presumably, that contention is made in reliance on Re Wakim; Ex parte McNally (1999) 198 CLR 511.)  However, the Magistrate did not purport to do that.  All he did was record – as part of the task described at [12] – what Master Evans had said about the claim.  In so doing, he referred to an affidavit of Robert McGirr of solicitors for the respondent – which reference is the subject of the second proposition set out at [14].  However, the appellant relied on Mr McGirr’s affidavit before the Magistrate – having exhibited it to an affidavit of his own.  It does not lie in the appellant’s mouth to now complain that Mr McGirr’s affidavit was used against him – even if he only intended to rely on it in some respects and not others.

grounds of appeal (e) AND (f)

17                  Grounds of appeal (e) and (f) relate to the substance of the claim – which the Magistrate described at [8] to [11].

18                  According to the appellant, ground of appeal (e) fixes on what the Magistrate said in the last sentence at [12]:

“The only avenue open to [the appellant] was as a lessee, but that would only be if his lease was granted with the approval of the first mortgagee, which it was not.”

The appellant complains that this amounts to a ruling on a crucial issue in the claim: namely, who was the first mortgagee of a property located at Clarkes Hill that was sold by the respondent.

19                  Ground (e) is misconceived for the much the same reasons that ground (a) is misconceived.  The Magistrate did not purport to rule on that issue.  Rather, he merely recorded what Mr McGirr deposed Master Evans said was one of the reasons why the claim ought to be dismissed.  As I have explained at [16], the Magistrate’s reliance on that affidavit was unexceptionable.

20                  According to the appellant, ground of appeal (f) fixes on what the Magistrate said at [18] and [19]:

“Any claim which now exists in relation to the sale of the Clarkes Hill property by [the respondent] would have to lie with either the registered owner of the property at the time, which was the estate of [the appellant’s] late mother, or the mortgagees of the second mortgage.  [The appellant] is not one of those mortgagees.  He does not show any other basis for his making a damages claim in relation to the sale of the property.  In any event, the sale was conducted pursuant to a County Court order.  There was an appeal heard by Beach J [in the Supreme Court of Victoria], an appeal to the Court of Appeal … [(ie that which gave rise to the orders referred to at [4])] and an application to the High Court for special leave to appeal [(ie that referred to at [22])], all of which were unsuccessful.

Any claim which could have been raised should have been raised in those proceedings.  Any claim which [the appellant] puts forward under s 40(1)(g) fails because it must be something which could not have been raised in the previous proceedings.  The order which was made against him by the Court of Appeal was in proceedings between his late mother, or his late mother’s estate, and him and [the respondent].  They appeared to be injunction proceedings of some sort, but the underlying basis for them was the dispute which arose out of the mortgage.  No explanation is offered for the claim which was brought in the Supreme Court of Victoria this year [(ie the claim)] not being brought in that claim. …”

(The emphasis is mine.)

21                  Ground (f) must fail.  There is no reason to doubt the correctness of what the Magistrate said in the passage quoted at [20].  Nor is there any reason to hold that he exceeded his jurisdiction or trespassed on the jurisdiction of another court in so saying.

groundS OF APPEAL (b) AND (H)

22                  According to the appellant, grounds of appeal (b) and (h) fix on what is recorded in the last sentence at [7].  The appellant explained that in the light of that statement he thought it appropriate to raise an issue that he had not raised before the Magistrate, but had raised in other proceedings (including an unsuccessful application for special leave to appeal to the High Court of Australia): namely, that the Constitution Act 1975 (Vic) is “unlawful”.  (Presumably, because that Act establishes the Supreme Court of Victoria, this means that the orders referred to at [4] are null and void.)

23                  Before me, the appellant said that

“… I am sure you probably don't wish me to go through all the paper work where I can come to that conclusion, except that I wish to raise it as a point.”

(The emphasis is mine.)  However, he also said that

“I am guessing that you are not wanting to entertain any arguments on the lawfulness or the validity of [that] Act which gives rise to the Supreme Court [of Victoria].”

Therefore, the appellant did not elaborate on that issue.

24                  Leaving aside the gratuitous insult in ground (h), the Magistrate was hardly obliged to deal with an issue that was not raised before him.  It follows that I also do not need to deal with it.  Grounds (b) and (h) must fail.  In any case, I agree with what Hayne J said to the appellant about the issue in Moran v Lydiard Financial Services Pty Ltd [2004] HCATrans 562:

“These arguments are variants on arguments that have sometimes been put in the Court.  They are arguments that always end up proving far too much, Mr Moran, as they are arguments that, if they had any legs – which they do not – it would demonstrate that there was no ownership of land, there was no Corporations Law, and the arguments of a kind commonly deployed to demonstrate that somebody does not owe taxation.  It always proved too much.”

Ground of appeal (c)

25                  Ground of appeal (c) relates to the note.  It must also fail.

26                  The Magistrate said at [5] that:

“A promissory note does not constitute payment for costs,  It was returned by [solicitors for the respondent] by return mail in which they said it did not constitute legal tender.  A promissory note cannot constitute payment in the absence of acceptance of the promissory note or agreement that payment is to be made by promissory note.  Neither of those two things exist here.  In addition, there is no evidence of an ability to satisfy the promissory note.  Finally, it needs to be said, the order for costs made by the Court of Appeal contained no stay, nor did the Master’s order fixing the amount of the costs.  The promissory note, on its face, is payable at 4pm on 31 January 2025. …”

27                  The question is whether the respondent had accepted the note as payment of the debt that later became the subject of the notice.  That is a question of fact.  The circumstances in which a promissory note is accepted are not defined by s 22 of the Bills of Exchange Act 1909 (Cth): s 95(3).  I do not understand the Magistrate to have suggested otherwise by his use of the word “acceptance” in the passage quoted at [26].  I will use that word and its variants in the same sense as the Magistrate.

28                  Solicitors for the respondent wrote to appellant on 4 February 2005 as follows:

“We refer to your letter dated 31 January 2005 [(see [5])] enclosing promissory note for the sum of $82,521.27.  As you will appreciate, this does not constitute legal tender in satisfaction of the bankruptcy notice and we return it as we do not accept it.  Accordingly, you have failed to comply with the bankruptcy notice and an act of bankruptcy has been committed by you.

We are instructed to issue a creditor’s petition against you without further notice.”

(The emphasis is mine.)

29                  The appellant complains that the Magistrate failed to record that, after he received the letter referred to at [28]:

·        he again sent the note – accompanied by a “protest” – to solicitors for the respondent; and

·        solicitors for the respondent retained – and still retain – the note.

According to the appellant, the Magistrate’s failure to record those facts amounts to bias.  Further, the retention of the note amounts to acceptance of the note.  Both contentions must fail.

30                  The respondent has, by its solicitors, made abundantly clear that it does not accept the note as payment of the debt which is the subject of the notice.  That is clear from the letter quoted at [28].  It is put beyond doubt by the issue of the notice (and the preceding notices).  The fact that solicitors for the respondent retained the note after it was sent to them a second time is neither here nor there.  Having already said in the strongest terms that it did not accept the note, the respondent was not obliged to reiterate that statement.  Further, the note’s uncommercial terms – namely, payment in twenty years with no provision for interest (let alone for interest on judgment debts) – make it scarcely credible that the respondent accepted the note.

31                  The allegation of bias is baseless.

32                  For the reasons I gave at [30], it is also abundantly clear that there was no agreement that the debt which is the subject of the notice could or would be paid by way of the note.

33                  The appellant contends that the respondent’s “reliance” on the note in certain circumstances amounts to its acceptance.  This contention is specious.  In any case, it does not lie in the appellant’s mouth to now complain that the note was used against him.

34                  The appellant relies on the following passage in PP McQuade and MGR Gronow, McDonald, Henry and Meek: Bankruptcy Law and Practice (5^th edn, 1996) at [40.1.335]:

“A creditor who, after he or she has served a bankruptcy notice, takes from the debtor a bill of exchange or promissory note for the debt, cannot, during the currency of the bill or the note, obtain a sequestration order founded on the notice, since, until the bill or note is dishonoured, it must be treated as payment (Ex parte Matthew; Re Matthew (1884) 12 QBD 506) and the position is the same, if, although dishonoured, it is in the hands of a third person to whom it has been endorsed for value by the creditor: Re Debtor [1908] 1 KB 344.”

That passage does not assist the appellant.  It assumes that the creditor has accepted the note.  That the author uses the word “take” in that sense is made clear when one reads the two cases to which he refers.  In each of those cases, the note had been accepted.  For the same reason, each of those cases can be distinguished from the instant case.

THE THIRD BASIS

35                  The Magistrate was correct to say that the issue of the notice did not constitute an abuse of process.  The notice contained no defect.  It cannot be an abuse of process to issue such a notice – no matter how many defective notices preceded it.

MISCELLANEOUS

36                  The appellant points out that the Magistrate says at [24] that “[t]he application filed on 17 February 2005 by [the appellant] is dismissed”.  That was, in fact, the date on which one of the preceding notices was issued.  The appellant says that that error reflects on the Magistrate’s “ability to sit on the bench”.  Like ground of appeal (h), that is nothing more than a gratuitous insult.  Needless to say, the error is immaterial.

CONCLUSION

37                  The appeal must be dismissed with costs.

Associate:

Dated:              26 May 2006