FEDERAL COURT OF AUSTRALIA

Lewis v Lamru Pty Ltd; In the Matter of Lewis (No 3) [2011] FCA 1177

IN THE MATTER OF PETER LAWRENCE LEWIS

THE COURT ORDERS THAT:

1.    Pursuant to Rules 2.42 and 2.43 of the Federal Court Rules 2011, the amount of $472,000.00 which was paid into Court on 8 July 2011 by Toomey Pegg lawyers on behalf of the applicant and thereafter held in the Federal Court of Australia Litigants’ Fund be forthwith paid out to the respondent.

2.    The applicant pay the respondent’s costs of and incidental to the Interlocutory Application filed by the respondent on 12 August 2011.

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

IN THE MATTER OF PETER LAWRENCE LEWIS

REASONS FOR JUDGMENT

1        On 6 July 2011, I delivered judgment in this matter (Lewis v Lamru Pty Ltd; In the Matter of Lewis [2011] FCA 758) (the first judgment). The application determined by that judgment was an application made by the applicant (Mr Lewis) for an order reviewing a Registrar’s decision whereby the Registrar refused to set aside a Bankruptcy Notice (No 4655 issued on 19 October 2010) (the Bankruptcy Notice) issued by the Official Receiver against Mr Lewis upon the application of Lamru Pty Ltd (Lamru) as creditor. By the first judgment, I refused to set aside the Bankruptcy Notice.

2        Immediately after I published my Reasons for Judgment and pronounced the orders which were set out in that judgment, Counsel for Mr Lewis said:

If the court pleases. I’m instructed to seek an extension of time for compliance for a further seven days to enable consideration of your Honour’s judgment, with a view to a potential appeal. We would be content for that to be conditional upon payment in within 24 hours of the amount that’s subject of the bankruptcy notice into the Federal Court of Australia.

3        Mr Lewis’ application for an extension of the time within which he might comply with the Bankruptcy Notice was opposed by Counsel for Lamru. In a submission made subsequently during argument on 6 July 2011, Counsel for Mr Lewis said:

… we’re offering a condition that the money be paid in, into this court, as the full amount of the debt the subject of the bankruptcy notice, so that the position of the respondent is protected. If we then chose to appeal within that period of time, an appropriate application can be made to a judge sitting as the Full Court for an extension of the time for compliance pending the hearing of the appeal.

4        Ultimately, on 6 July 2011, I acceded to Mr Lewis’ application for an extension of time. The orders which I made on that day were orders that:

1.    The Application be dismissed.

2.    The applicant pay the respondent’s costs of and incidental to the Application.

3.    Upon condition that the applicant pay into Court by 4.00 pm on Friday 8 July 2011 the amount of $424,969.29 plus interest for the period from 1 July 2010 up to and including Friday 8 July 2011 at the rate required by order 3(f) of the orders of the New South Wales Court of Appeal made on 12 June 2009, the time for compliance with Bankruptcy Notice No 4655 issued on 19 October 2010 (the Bankruptcy Notice) be extended up to and including Wednesday 13 July 2011.

5        I also directed that:

4.    In the event that the applicant appeals from the judgment delivered by Foster J this day and wishes to seek a further extension of the time for compliance with the Bankruptcy Notice, such application for further extension be made to a Judge acting on behalf of the Full Court.

6        On 8 July 2011, Mr Lewis’ lawyers paid into Court the amount of $472,000.00 by way of a cheque drawn on their Trust Account (the payment in). There was no evidence before me as to the identity of the person or entity which put those lawyers in funds so as to enable them to make the payment in. In particular, there was no evidence establishing that the source of those funds was Mr Lewis. The payment in was said to be in satisfaction of the condition specified in Order 3 made by me on 6 July 2011. According to Mr Lewis’ lawyers, $471,225.59 was the amount claimed to be due in the Bankruptcy Notice together with interest on the judgment relied upon in that Notice up to and including 8 July 2011. In order to ensure that the condition specified in Order 3 was complied with, that amount was rounded up to $472,000.00.

7        On 27 July 2011, Mr Lewis appealed from the orders which I made on 6 July 2011. In his Notice of Appeal, he claims an order setting aside those orders. He also seeks an order setting aside the Bankruptcy Notice. The Grounds of Appeal specified in Mr Lewis’ Notice of Appeal are:

1.    His Honour erred in determining the validity of the bankruptcy notice number NN4655 of 2010 (the “Bankruptcy Notice”) upon a subjective basis in circumstances where the authorities required that he do so on an objective basis.

2.    Considered on the materials before the Court, on an objective basis, the Court ought to have reviewed the decision of the Registrar and set aside the Bankruptcy Notice.

3.     There was no dispute before the trial judge that the operative orders of the Supreme Court of New South Wales giving any entitlement to payment on the part of the creditor were the orders of Justice Hamilton on 23 May 2006 (Affidavit of Paul Andrew Chapman sworn 9 November 2010, Annexures A and B) and the orders of the Supreme Court of New South Wales, Court of Appeal on 21 December 2009 (Affidavit of Paul Andrew Chapman sworn 9 November 2010, Annexure C) and not the document attached to the Bankruptcy Notice.

8        I do not know whether Mr Lewis obtained from a judge of the Full Court any further extension of the time within which he might comply with the Bankruptcy Notice. There was no evidence before me that established that he had obtained such an order nor was I told that he had obtained such an order. I will proceed upon the basis that Mr Lewis has not obtained any further extension of the time for compliance with the Bankruptcy Notice. That time, therefore, expired at midnight on 13 July 2011.

9        By Interlocutory Application filed on 12 August 2011, Lamru applied to this Court for an order that the payment in be paid out to it. That order is opposed by Mr Lewis who contends that the payment in should remain in Court at least until Mr Lewis’ appeal has been determined by the Full Court.

10        These Reasons for Judgment determine Lamru’s claim for an order that the payment in be immediately paid out to it.

SOME BACKGROUND MATTERS

11        As I mentioned in the first judgment (especially at [22]–[26]), Mr Lewis and Lamru have been in dispute for many years, probably from at least 1995. The litigation between them and interests associated with them in the Supreme Court of New South Wales was finally resolved by the orders made by the New South Wales Court of Appeal on 12 June 2009 and on 21 December 2009 (as to which see [24]–[26] of the first judgment). An application for Special Leave to Appeal from those orders was refused by the High Court in July 2010.

12        At [29]–[32] of the first judgment, I said:

29    The circumstances which led to the entry of what the respondent has described as “the consolidated orders” are set out at [22] to [27] above. There is no doubt that the terms of paragraphs 3(d) and 3(f) of those orders (being the paragraphs relied upon by the creditor for the purposes of the Bankruptcy Notice) accurately reflect the Court of Appeal’s 12 June 2009 orders which themselves varied the 23 May 2006 orders made by Hamilton J. Those orders are final and have not been stayed or disturbed.

30    The fact that the orders were entered twice (on 21 December 2009 and again on 23 July 2010) is neither here nor there.

31    Furthermore, given the history of the litigation involving the applicant, corporations with which he is connected and the creditor, which has spanned some 15 years and many proceedings, it is inconceivable that the applicant was misled by the way in which the relevant orders were referred to and relied upon in the Bankruptcy Notice and inconceivable that he did not fully understand at all relevant times that the Notice was founded upon the orders of the Court of Appeal made on 12 June 2009. There was no evidence before me that suggested that the applicant had been misled in any respect.

32    The fact that the sealed orders attached to the Bankruptcy Notice contained an incorrect statement of fact as to the date when the relevant orders were “made or given” does not, in my view, invalidate the Bankruptcy Notice. The creditor attached a sealed copy of the relevant orders, as it was obliged to do, and it was no part of the creditor’s function to alter or tamper with those orders. In the Bankruptcy Notice itself, the creditor did not specifically mention the date when the orders were “made or given” but simply relied upon the date when those orders were entered. The orders are final orders which are susceptible to immediate execution. The terms of the orders are well known to the applicant and to the creditor. Those orders meet the requirements of s 40(1)(g) of the Bankruptcy Act (see Amos v Brisbane TV Ltd (2000) 100 FCR 82 at [23]–[24] (pp 88–89)).

13        As I noted at [39] of the first judgment, Mr Lewis conceded at the earlier hearing before me that, in the Bankruptcy Notice, Lamru had correctly calculated the interest payable on the amounts specified in Order 3(d) of the orders relied upon by Lamru for the purposes of the Bankruptcy Notice if, as I held in the first judgment, Order 3(f) operated according to its terms.

14        At the hearing of the present application, Counsel for Mr Lewis quite properly conceded that:

(a)    The orders made by the Court of Appeal on 12 June 2009 in the matters reported as Kation Pty Ltd v Lamru Pty Ltd (2009) 257 ALR 336 (in particular, Orders 3(d) and 3(f) made by the Court of Appeal in substitution for Orders 3(d) and 3(f) made by Hamilton J on 23 May 2006) were final orders which were now not susceptible to further challenge, the Lewis interests’ application for Special Leave to Appeal to the High Court from inter alia those orders having been refused in July 2010;

(b)    The calculations of interest pursuant to Order 3(f) made by the Court of Appeal on 12 June 2009 made by Lamru for the purposes of the Bankruptcy Notice for the period up to 30 June 2010 were correct;

(c)    Mr Lewis had not paid any monies to Lamru in satisfaction of Orders 3(d) and 3(f) made by the Court of Appeal on 12 June 2009; and

(d)    Therefore, Mr Lewis remained liable to Lamru pursuant to those orders for $471,225.59 plus interest calculated in accordance with Order 3(f) from 8 July 2011 until payment. The total amount now due exceeds the payment in ($472,000.00).

CONSIDERATION

15        For reasons which I gave in a second judgment given by me on 31 August 2011 (Lewis v Lamru Pty Ltd; In the Matter of Lewis (No 2) [2011] FCA 1025) (the second judgment), I adjourned the hearing of Lamru’s present application in order to enable Mr Lewis to investigate and perhaps address with evidence, matters raised by Lamru in an affidavit sworn by Mr Lamb, the principal of Lamru, on 31 August 2011.

16        Ultimately, Mr Lewis did not attempt to respond to Mr Lamb’s affidavit sworn on 31 August 2011 and did not file any further evidence. Mr Lamb was not cross-examined.

17        At [8]–[9] of the second judgment, I said:

8    Yesterday, on 30 August 2011, the solicitor for Mr Lewis, Mr Chapman, filed and served an affidavit which raised some matters collateral to the present Application. I do not need to deal with that affidavit in great detail. It is sufficient for present purposes for me to say that the affidavit establishes that, on 18 August 2003, the High Court of New Zealand entered judgment in the amount of NZ$400,000 plus interest in favour of Mr Lewis against Mr Lamb. That judgment was registered in the Supreme Court of New South Wales on 1 April 2004. The affidavit of Mr Lewis’ solicitor also establishes that, in recent times, attempts to recover the amount of that judgment from Mr Lamb have been undertaken by Mr Lewis. Included amongst those attempts was the obtaining of a garnishee order against Lamru Pty Ltd on the basis that Lamru Pty Ltd owes money to Mr Lamb and that Mr Lewis is entitled to attach those moneys by way of garnishee order.

9    The affidavit of Mr Chapman, which was filed yesterday, has spawned an affidavit from Mr Lamb which has been sworn this morning. That affidavit traverses a number of matters designed to answer the affidavit filed by Mr Chapman yesterday. In very broad terms, the affidavit of Mr Lamb seeks to establish that, through a series of transactions between him and Lamru Pty Ltd, no money is due from Lamru Pty Ltd to him.

18        In his affidavit sworn on 31 August 2011, Mr Lamb said that, as at 31 August 2011, Lamru did not owe him any money. He said that Lamru had not been indebted to him at all since 31 August 2010. That evidence was not challenged and I accept it.

19        In any event, in resisting Lamru’s present application, Counsel for Mr Lewis did not make any submission in his closing submissions to the effect that Lamru was indebted to Mr Lamb. Nor did he rely upon such an assertion in order to support a further proposition that I should not order the payment in to be paid out to Lamru because, were I to do so, the monies would then immediately be required to be paid to Mr Lewis pursuant to various processes of execution which he has put in train directly against Lamru in an endeavour to secure payment of the New Zealand judgment debt owed by Mr Lamb personally to Mr Lewis. The entire collateral inquiry originally set in motion by Mr Lewis’ solicitor in his affidavit sworn on 30 August 2011 was ultimately not pursued by Mr Lewis in closing submissions made by his Counsel in relation to the present application.

20        The submissions that were made by Counsel for Mr Lewis in support of his client’s resistance to the order sought in the present application were:

(a)    The payment in operated as complete satisfaction of the Bankruptcy Notice according to its terms. For that reason, Mr Lewis did not commit an act of bankruptcy when the most recent extension of the time for compliance with the Bankruptcy Notice which I had granted to him expired at midnight on 13 July 2011. Because Mr Lewis has not committed an act of bankruptcy, the payment in should remain in Court pending the final determination of Mr Lewis’ appeal from the orders made on 6 July 2011.

(b)    Alternatively, if Mr Lewis has now committed an act of bankruptcy, and should he be made bankrupt based upon that act of bankruptcy, it would be inappropriate to order that the payment in be paid out to Lamru because the payment in will have to be refunded and paid by Lamru to Mr Lewis’ trustee in bankruptcy as a preference.

(c)    In any event, as a matter of discretion, the payment in should remain in Court pending the determination of Mr Lewis’ appeal.

21        I think that all of these submissions are unsound and I reject them. I propose to order that the payment in be immediately paid out to Lamru.

22        My reasons are as follows:

(a)    The payment in was made voluntarily on behalf of Mr Lewis as a consequence of his election to make arrangements for the payment to be made and thus to satisfy the condition specified in Order 3 made on 6 July 2011. The payment in was made as the price for the extension of time for compliance with the Bankruptcy Notice which he sought and was granted on 6 July 2011. The Court did not order him to make the payment in nor did he make that payment pursuant to an undertaking to the Court to do so. He was free to decide not to arrange for the payment to be made. The only consequence of the payment not being made would have been that the extension of time for compliance with the Bankruptcy Notice granted by the Court on 6 July 2011 would never have come into effect.

(b)    Any extension of time for compliance with the Bankruptcy Notice beyond 13 July 2011 was directed by me to be referred to a judge of the Full Court or to the Full Court itself. As I understand the present position, no such extension has been granted. Therefore, if the Bankruptcy Notice is valid, Mr Lewis will have committed an act of bankruptcy immediately after midnight on 13 July 2011.

(c)    The Bankruptcy Notice provided that it might be satisfied by payment to Lamru of the amount claimed in that Notice at the offices of its lawyers (the name and address of whom are specified in the Notice) or by making arrangements to Lamru’s satisfaction for settlement of the debt claimed in that Notice (Cl 1 on p 2 of the Bankruptcy Notice). The Bankruptcy Notice does not provide that it may be satisfied by a payment into Court.

In my judgment, the payment in could not and did not operate as satisfaction of the Bankruptcy Notice. It did not operate as a tender of the amount due (cf Ex Parte Danks; In the Matter of Farley (1852) 2 DE G.M.&G 936).

Counsel for Mr Lewis referred me to Re Smyth; Ex Parte North (1892) 3 BC (NSW) 17. He submitted that that authority supported his submissions which I have noted at [20(a)] above. In that case, Manning J granted a temporary stay to a judgment debtor who was seeking to have a bankruptcy notice set aside or to have its operation suspended upon terms which included a requirement that the debtor pay the entire amount of the judgment debt into Court. The judgment debtor claimed to have a right to set off against the judgment debt the amount of a liquidated claim which he was pursuing in the Supreme Court. His Honour said that, in the circumstances of that case (which included the fact that the judgment debt was for monies which the debtor had embezzled from the judgment creditor), “… the judgment should be secured in the best possible way …” (at 18). Subsequently, in a second judgment (Re Smyth; Ex Parte North (No 2) (1892) 3 BC (NSW) 45), Manning J ordered that the amount which the judgment debtor had paid into Court pursuant to his Honour’s earlier orders should be paid out to the judgment creditor. By the time of the second judgment, the judgment debtor had consented to a nonsuit being entered against him in the action which he had brought and relied upon as the basis for claiming a set-off against the judgment debt relied upon by the judgment creditor in the bankruptcy notice. In the second judgment, Manning J also ordered that the bankruptcy notice be set aside because, in his judgment, the payment into Court was a compliance with the bankruptcy notice.

Re Smyth; Ex Parte North is of limited assistance to the resolution of the present case. The basis upon which the order for payment out was made in that case was that the payment in constituted “compliance” with the bankruptcy notice. The consequence of that finding was that the amount of the payment in should be regarded as the property of the judgment creditor. In the present case, the payment in did not constitute a compliance with the Bankruptcy Notice.

Nonetheless, Re Smyth; Ex Parte North does support the more general proposition that the disposition of monies paid into Court is a matter for the Court and that, even in a bankruptcy setting, if there can be no dispute as to the judgment creditor’s entitlement to be paid the amount of his or her judgment and if there is little likelihood that the amount of the payment in, if paid out, will have to be disgorged as a preference, it would be an appropriate exercise of the Court’s discretion to order the amount of the payment in to be paid out to the judgment creditor.

(d)    Mr Lewis’ appeal from the orders which I made on 6 July 2011 only concerns the validity of the Bankruptcy Notice. Complete success in his appeal would result in the Bankruptcy Notice being set aside. The judgment of the Court of Appeal delivered on 12 June 2009 and the orders made by that Court on the same day cannot be affected by the outcome of Mr Lewis’ appeal in this Court. His challenges to the Bankruptcy Notice are technical challenges. The judgment and orders of the Court of Appeal are now impregnable. Pursuant to the Court of Appeal’s orders made on 12 June 2009, Mr Lewis is obliged to pay $119,371.00 plus compound interest calculated in accordance with Order 3(f) made by the Court of Appeal on that day. As at today’s date, the amount due from Mr Lewis to Lamru pursuant to the orders of the Court of Appeal is more than $472,000.00. Whether or not the Bankruptcy Notice is set aside, Mr Lewis is presently indebted to Lamru in an amount which exceeds the payment in.

(e)    There is no suggestion in the evidence before me that Mr Lewis cannot meet his financial obligations as and when they fall due. Nor is there any evidence that any creditor of Mr Lewis (other than Lamru) wishes to and is prepared to take steps to bankrupt him. The evidence demonstrates that Mr Lewis resisted Lamru’s claims in the Supreme Court on every basis that he could conceive and that all avenues of appeal from the judgments of that Court have now been exhausted. Mr Lewis is well aware that he must pay Lamru the amount claimed by it yet he refuses to do so. He has done everything in his power to delay payment. The inevitable consequence of this approach is that he must now pay compound interest for a much longer period than he would have had to had he paid the amount due a long time ago.

On the evidence before me, the likelihood of Mr Lewis being made bankrupt in the near future by any of his creditors other than Lamru or on his own petition is remote. The likelihood of Lamru having to disgorge the payment in to a trustee in bankruptcy appointed to Mr Lewis’ estate is equally remote. Indeed, there is no evidence that the payment in was made from Mr Lewis’ own funds. For all I know, the funds may have come from an entirely separate source. In my judgment, the possibility that the $472,000.00 will have to be disgorged at some time in the future does not justify a refusal of the relief now sought by Lamru.

(f)    When Mr Lewis arranged for the payment in to be made, he ceded the future disposition of the payment in to this Court. He did so in circumstances where he knew and accepted that he was indebted to Lamru as at 8 July 2011 in an amount which approximated very closely to the payment in. He did so in order to avoid committing an act of bankruptcy while he considered whether to appeal from the orders which I made on 6 July 2011. This Court will not determine Lamru’s substantive claims against Mr Lewis. Those claims have already been decided by the Supreme Court. This Court is dealing only with Mr Lewis’ challenges to the Bankruptcy Notice.

23        As I have already observed, the payment in should immediately be paid out to Lamru. I propose to so order. Mr Lewis must pay the costs of the present application.

Associate:

Dated:    19 October 2011