FEDERAL COURT OF AUSTRALIA

Burmingham v Colman Francis Moloney trading as Davies Moloney

[2011] FCA 1490

THE COURT ORDERS THAT:

1.    The appeal be allowed.

2.    The application be remitted to the Federal Magistrates’ Court to be determined in accordance with law.

3.    The respondent have leave to apply for a costs certificate by filing an application by 2 December 2011.

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

REASONS FOR JUDGMENT

1    Before the Court is an appeal from orders made by the Federal Magistrates Court on 19 May 2011 that an application for review of a decision of a Registrar of the Court be dismissed. The Registrar made a sequestration order on 7 February 2011 against the estate of the appellant, David Burmingham. The appellant filed a notice of appeal on 9 June 2011.

2    The appellant is not legally represented and the notice of appeal traversed many matters which could not be the subject of a valid appeal. On 13 July 2011, the respondent filed a notice of motion seeking to have the notice of appeal dismissed as incompetent. On 19 July 2011, Gray J made orders requiring the appellant to file and serve an amended notice of appeal by 31 August 2011. The reason for that order was that the notice of appeal filed by the appellant failed to identify the errors made by the Federal Magistrate in a way which conformed with the Rules of the Federal Court.

3    The appeal was fixed for hearing on 25 November 2011. The appellant failed to comply with the orders made by Gray J. The respondent then sought to have the appeal struck out for non-compliance.

4    The appellant took no further steps to prosecute the appeal but rather, sent correspondence to the Court which was copied to the respondent. The correspondence, in essence, sought that the appeal be adjourned to allow the appellant time to comply with the orders of the Court.

5    In support of the adjournment application, the appellant submitted some medical reports from Dr Gary Martin. Those reports were dated 17 November 2011, 3 November 2011, 27 October 2011, 20 October 2011, 14 July 2011 and 2 July 2011. The reports indicated that the appellant suffers from a number of chronic medical conditions including chronic fatigue syndrome, fibromyalgia, neutrally mediated hypertension, basilar migraines, complex regional pain syndrome, non-alcoholic fatty liver degeneration, depression and anxiety. The medical reports are examples of strong advocacy rather than detached scientific reports. They strongly contend that the appellant is in no medical condition to deal with the stress and work involved in preparing for the appeal.

6    The hearing of the appeal and the associated applications proceeded on the date fixed, namely 25 November 2011. In order to accommodate the appellant’s situation, he appeared by telephone from Queensland.

7    The respondent was represented by Mr Cafari. He accepted the tentative view put to him by the Court that without any challenge to these medical reports, the Court had no good reason to refuse the application for an adjournment. There was no application to cross-examine Dr Martin and no point was taken that the reports were not tendered by way of sworn evidence. As the appellant was not legally represented, it was appropriate to act on the material in the form it was produced.

8    There are, however, other reasons why the adjournment should not be granted and the appeal dealt with on its merits today. Because the appellant is not legally represented, the Court has some responsibility to ensure that his interests are not prejudiced by his lack of legal representation. It is incumbent on the Court to scrutinise the judgment of the Federal Magistrates Court to determine whether there is any obvious reason why the appeal should succeed or fail on the basis that it were heard today.

9    The Federal Magistrate was asked, in effect, to defer the appellant’s application on the ground that the appellant lacked the mental and, at times, physical capacity to deal with the litigation effectively.

10    The Federal Magistrate referred to reports from Dr Martin and remarked on the apparent lack of professional independence exhibited in those reports. The Federal Magistrate then implicitly rejected the application for an adjournment. There is no express rejection of the medical evidence of Dr Martin. It is difficult to see how the application for adjournment could have been properly rejected in view of the unchallenged evidence of Dr Martin, without some finding that it was an insufficient or unreliable basis of proof of the medical conditions which the appellant claims to suffer.

11    The Federal Magistrate then considered a number of possible grounds which the appellant might have been able to raise in support of an argument to set aside or annul the sequestration order. The act of bankruptcy upon which the sequestration order was made was the failure to comply with a bankruptcy notice. The bankruptcy notice was based on a default judgment entered against the appellant in the Magistrates’ Court of Victoria for moneys said to be owing to the respondent for professional legal services rendered to him. The Melbourne Magistrates’ Court judgment was entered by default in the first instance. The appellant sought a rehearing on the basis that he was not present when the default judgment was made. The rehearing application was unsuccessful because the respondent contended that the appellant had no standing in view of the making of the sequestration order in the interim. The Federal Magistrate considered the basis of the bankruptcy notice, namely, the default judgment obtained in the Melbourne Magistrates’ Court and at [8] and [9] said as follows:

Now, he also had, the last time he was before me, indicated that he had a challenge to the underlying judgment in the Melbourne Magistrates Court that would have been heard a few days after we last were in Court. I am now informed today that that challenge was unsuccessful.

The reason for the challenge being unsuccessful, Mr Burmingham says, is that a technical point was taken by the judgment creditor based upon arguments under s 58 of the Bankruptcy Act that he didn’t have standing to bring the application, having regard to the subsisting sequestration order. He therefore feels as though the strengths and merits of his application to set aside the judgment debt have not been tested. However, I take the view that the application was unsuccessful. I cannot go beyond that. As a ground, that is also denied Mr Burmingham.

(emphasis added)

12    In this passage, it is clear that the Federal Magistrate determined that he was not able to go behind the judgment of the Melbourne Magistrates’ Court. This is wrong in law. The Federal Magistrate had power to go behind the judgment of the Melbourne Magistrates’ Court. Indeed, that the judgment was a default judgment and that the rehearing judgment was determined without reference to the merits, are the very circumstances in which a bankruptcy court will characteristically examine the facts to determine whether there was a debt: Wren v Mahony (1972) 126 CLR 212 at 233; [1972] ALR 307. See also Wolff v Donovan 29 FCR 480 at 486, where Lee and Hill JJ said:

Where a judgment is obtained by default, the court in bankruptcy will more readily look behind the judgment than it would if the judgment were obtained following a hearing on the merits.

13    In Joosse v Commissioner of Taxation [2004] FCASC 245, North and Finkelstein JJ compared the position in bankruptcy with the well established position that an appellate court will not interfere with the exercise of a judge’s discretion unless it is satisfied that the judge has made an error. At [3] it was said:

The position is different in bankruptcy. The court can go behind a judgment to determine whether it is founded on a real debt because a sequestration order should not be made on the petition of a person who is not a real creditor. The court has a discretion whether or not to go behind the judgment. The discretion is of a limited kind. In Wren v Mahony (1972) 126 CLR 212, Barwick CJ, with whom Windeyer and Owen JJ agreed, said (at 224-225) that:

[t]he Court’s discretion….is a discretion to accept the judgment as satisfactory proof of [the petitioning creditor’s] debt. That discretion is not well exercised where substantial reasons are given for questioning whether behind that judgment there was in truth and reality a debt due to the petitioner.

Thus, where the Federal Magistrate said that he was unable to go behind the failure of the application for rehearing, he misdirected himself in law.

14    Mr Burmingham indicated to the Federal Magistrate that he wished to argue that there was no basis for the Melbourne Magistrates’ Court judgment as there was never any liability to the respondent. In the circumstances, the Federal Magistrate should have considered whether to go behind the judgment of the Melbourne Magistrates’ Court and hear the contentions to be made by the appellant that there was, in fact, no debt. Although the appellant has not himself raised this ground to impugn the judgment of the Federal Magistrates Court, there is an obvious error in the judgment and it is inevitable that the appeal would be allowed despite the failure of the appellant to articulate his grounds of appeal. The appeal must therefore be allowed and the matter remitted for hearing by the Federal Magistrates Court.

Associate:

Dated:    21 December 2011