FEDERAL COURT OF AUSTRALIA

Yarranova Pty Ltd v Shaw (No 2) [2014] FCA 616

THE COURT ORDERS THAT:

1.    A sequestration order be made against the estate of John Rashleigh Shaw.

2.    The applicants’ costs, including reserved costs, be taxed and paid from the estate of John Rashleigh Shaw in accordance with the Bankruptcy Act 1966 (Cth).

3.    The court notes that the date of the act of bankruptcy is 25 October 2013.

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

REASONS FOR JUDGMENT

1.    INTRODUCTION

1    There is a long history of proceedings between the parties.

2    On 20 December 2013, the applicant creditors filed a creditors’ petition. The creditors’ petition was founded upon an act of bankruptcy by the failure of the Respondent (Mr Shaw) to comply with a bankruptcy notice, or to satisfy the court that he had a counter-claim, set-off, or cross demand equal to, or more than, the sum claimed in the bankruptcy notice which was served on him on 14 December 2012 (the Bankruptcy Notice). The Bankruptcy Notice was founded on a debt of $388,880.16 owed to the applicant creditors.

3    Mr Shaw applied to set aside the Bankruptcy Notice. That application was dismissed on 25 October 2013. On 28 May 2014, an appeal against the dismissal of the application to set aside the Bankruptcy Notice was dismissed with costs: Shaw v Yarranova Pty Ltd [2014] FCA 557.

4    These reasons for judgment concern the applicant creditors’ application for a sequestration order. That application was vehemently opposed by Mr Shaw. It will be necessary to deal with Mr Shaw’s various applications and grounds of opposition. They may be addressed under the following headings:

1.    Apprehended bias application;

2.    Application for orders made on 24 April 2014 in relation to a Notice to Produce to be set aside;

3.    Application for an adjournment of the hearing pending the outcome of an appeal from the orders of Vickery J in the Supreme Court of Victoria of 7 May 2014;

4.    A fresh Notice to Produce;

5.    Application to go behind the judgment which supports the applicant creditors’ application for a sequestration order; and

6.    Whether the applicant creditors’ application for a sequestration order was an abuse of process.

2.    FACTS

5    As noted earlier, there is a long history between these parties. For present purposes, it is sufficient to refer to the following facts and matters.

6    On 12 April 2000, an apartment known as Lot 1002, CPT464 and ST166 The Boyd, New Quay, Docklands (the Apartment) was sold by Yarranova Pty Ltd (Yarranova) (as nominee for MAB Docklands Pty Ltd), to Mr Shaw under a contract of sale (the Contract).

7    On 13 December 2000, Yarranova assigned the benefit of its interest under the Contract to NewQuay Pty Ltd (NewQuay) as nominee for MAB Docklands Pty Ltd (Assignment). Mr Shaw was given written notice of the assignment from Yarranova to NewQuay on 15 February 2002.

8    The certificate of title for the Apartment was issued to NewQuay on 28 June 2002.

9    In July 2002, NewQuay called on Mr Shaw to complete the Contract by paying the balance of the purchase price. Mr Shaw refused to do so because, he alleged, the works were incomplete. As Mr Shaw would not complete, in August 2003, NewQuay served a notice of default and rescission on him.

10    In October 2003, Mr Shaw lodged a caveat over the Apartment, and on 1 December 2003, Mr Shaw brought a claim in the Supreme Court of Victoria seeking specific performance of the Contract. Justice Bell determined that Mr Shaw had no right to refuse to make the final payment, that the Contract had been validly rescinded and that Mr Shaw had forfeited his deposit. On 8 March 2006, Bell J made orders that the proceeding be dismissed and that there be judgment for the applicant creditors in their counterclaim for the removal of the caveat. Mr Shaw was ordered to pay the applicant creditors’ costs of the claim and counterclaim.

11    On 17 March 2006, Mr Shaw appealed from the orders of Bell J. Mr Shaw also applied for a stay of Bell J’s orders, which was granted on 26 May 2006, subject to an undertaking as to damages and payment of security.

12    Mr Shaw’s appeal from the orders of Bell J was dismissed by the Court of Appeal (Warren CJ, Eames & Neave JJA) on 15 December 2006. On 20 April 2007, the Court of Appeal ordered an inquiry as to damages sustained by the applicant creditors by reason of the stay that was ordered on 26 May 2006.

13    Damages were assessed by Master Daly (as she then was) of the Supreme Court of Victoria on 7 March 2008. The orders made by Master Daly were:

1    [Mr Shaw] pay the [applicant creditors] damages assessed at $54,706.13, plus interest of $5,683.44.

2.    [Mr Shaw] pay the [applicant creditors’] costs of the assessment, save for the costs of preparing the supplementary affidavit of Ian Michael Smith affirmed 8 November 2007, and the costs reserved on 11 December 2007, on a party/party basis.

3.    [Mr Shaw] pay the [applicant creditors’] costs thrown away by reason of the hearing on 11 December 2007, fixed at $2,497.00.

4.    The sum of $60,389.57 held in ANZ Bank Account Number 700514299 pursuant to the undertaking made to the Court of Appeal on 26 May 2006 be paid to the [applicant creditors].

5.    The balance of the funds held by the solicitors for the [applicant creditors] be paid to [Mr Shaw].

…

(Assessment Orders of 7 March 2008)

14    On 12 March 2008, Mr Shaw appealed from the Assessment Orders of 7 March 2008. On 14 March 2008, Mr Shaw filed a further notice of appeal from the Assessment Orders of 7 March 2008.

15    The parties then entered into a settlement agreement on 27 March 2008. The terms of the Settlement Agreement recorded that:

A.    Pursuant to the orders of Master Wood made 10 September 2007, 16 November 2007 and 18 February 2008, in proceeding 9046 of 2003 Mr Shaw is indebted to [the applicant creditors] in the sum of $231,118.15 (“the judgment debt”).

B.    On 12 March 2008, [the applicant creditors] commended (sic) proceeding 5110 of 2008 for orders … freezing Mr Shaw’s assets worldwide and an ancillary order that Mr Shaw disclose his assets worldwide.

C.    On 12 March 2008, Mr Shaw filed a notice of appeal from the orders of Master Daly made 7 March 2008 in proceeding 9046 of 2003. On 14 March 2008, Mr Shaw filed a notice of appeal from the orders of Master Daly made 7 March 2008 in proceeding 9046 of 2003 (“the notices of appeal”).

D.    On 20 March 2008, [the applicant creditors] filed a summons in proceeding 9046 of 2003 for orders, inter alia, altering the sequence of execution … and/or alternatively a stay of Mr Shaw’s notices of appeal subject to payment of the judgment debt.

E.    Subject to the terms set out below, Mr Shaw and [the applicant creditors] have agreed for valuable consideration to compromise proceeding 5110 of 2008 and Mr Shaw’s liability in respect of the judgment debt.

16    The Settlement Agreement included terms that:

1.    Upon execution, Mr Shaw irrevocably authorised and agreed that $90,000 held in ANZ Bank Account 700514299 (defined as “the ANZ account”) be paid directly to Yarranova from the ANZ account: cl 1.

2.    Within 2 business days of execution of the [Settlement Agreement], the balance of the ANZ account remaining after disbursement of (a) $60,389.57 pursuant to paragraph 4 of the Assessment Orders of 7 March 2008 and (b) the $90,000 pursuant to paragraph 1 of this [Settlement Agreement], be paid directly from the ANZ account by way of electronic transfer into an account nominated and held solely by Mr Shaw: cl 2.

3.    On or before 24 April 2008, Mr Shaw would pay to Yarranova $141,118.15 in full and final satisfaction of the judgment debt, such payment to be made by way of bank cheque drawn payable to Yarranova: cl 5.

17    On or about 1 April 2008, cl 2 of the Settlement Agreement was satisfied. Mr Shaw did not comply with cl 5 of the Settlement Agreement. The applicant creditors then applied for a stay of Mr Shaw’s appeal of the Assessment Orders of 7 March 2008 and reinstituted an earlier application for a freezing order.

18    On 2 June 2008, Judd J of the Supreme Court of Victoria found Mr Shaw to have breached the Settlement Agreement. The applicant creditors’ application for a stay of Mr Shaw’s appeal of the Assessment Orders of 7 March 2008 was granted with costs. However, the applicant creditors’ application for a freezing order was dismissed in light of an undertaking given by Mr Shaw in open Court that he would not dispose of, deal with or otherwise encumber, the land contained in certificate of title volume 4119 folio 629, otherwise known as 5 Mast Gully Road, Upwey in the State of Victoria (the Upwey Property). Mr Shaw then applied for leave to appeal from Judd J’s orders. That application was dismissed by the Court of Appeal (Warren CJ and Buchanan JA) on 1 August 2008.

19    On 27 August 2008, the applicant creditors obtained a warrant in respect of various outstanding judgment debts owed by Mr Shaw to the applicant creditors. Despite numerous attempts at execution, the warrant was returned unsatisfied on 7 November 2008. The applicant creditors then successfully applied for a warrant of seizure and sale of the Upwey Property (the Warrant). An auction of the Upwey Property was arranged for 27 May 2009. On 25 May 2009, Mr Shaw applied for an order staying execution of the Warrant to prevent the auction on 27 May 2009. That application was dismissed with costs on 27 May 2009. The Upwey Property was auctioned on 27 May 2009. It did not sell. There were no bids. On 16 July 2009, the applicant creditors obtained an order that the Sheriff auction the Upwey Property without reserve. Mr Shaw was given an opportunity to be heard on that application, but declined that opportunity.

20    In late July or early August 2009, a second auction of the Upwey Property was scheduled for 9 September 2009. On 19 August 2009, the applicant creditors applied for an order that the Warrant be extended for a period of one year, to allow for the execution of the Warrant by the Sheriff at that auction. Mr Shaw opposed the application, but it was granted with costs by Kings AsJ on 24 August 2009. An appeal from those orders was lodged by Mr Shaw. The appeal was heard by Forrest J on 3 September 2009. His Honour dismissed the appeal with costs.

21    On 8 September 2009, the applicant creditors were informed that Mr Shaw had granted a mortgage over the Upwey Property on 17 August 2009, in breach of the undertaking he had given to Judd J on 2 June 2008. The applicant creditors made a further application for a freezing order, resulting in an interim freezing order made on 30 September 2009 by Vickery J in the amount of $310,000, and a freezing order made on 21 October 2009 by Harper J in the amount of $400,000.

22    Between 24 September 2009 and 11 October 2011, the following taxed costs orders were made against Mr Shaw in favour of the applicant creditors:

23    On 4 September 2012, Mr Shaw sought by summons to set aside the Assessment Orders of 7 March 2008. On 18 October 2012, Mukhtar AsJ dismissed the summons on procedural grounds, without adjudication of its merits. At the same time, Mukhtar AsJ set aside subpoenas directed to the proper officer of each of the applicant creditors requiring each to attend to give evidence and produce documents.

24    On 7 December 2012, the Bankruptcy Notice was issued. It was served on Mr Shaw on 14 December 2012. The Bankruptcy Notice was founded on a debt of $388,880.16 due to the applicant creditors on account of unpaid costs orders: see [22] above. From the total of $412,891.64 of unpaid costs orders, it is necessary to subtract the sum of $24,011.48, consisting of costs in the sum of $22,567.70 which, on 18 April 2012, Wood AsJ ordered be paid by the applicant creditors to Mr Shaw and “offset against any sums owing” by him to the applicant creditors “arising out of any other orders made in proceedings 9046 of 2003 and 2285 of 2011”, and interest for the period from 19 April 2012 to 27 November 2012. This leaves a figure of $388,880.16 that is owed to the applicant creditors by Mr Shaw and the subject of the Bankruptcy Notice.

25    On 24 December 2012, Mr Shaw applied for an order extending the time for compliance with the Bankruptcy Notice and for an order seeking to set aside the Bankruptcy Notice. Time for compliance with the Bankruptcy Notice was extended on 21 February 2013 by order of Registrar Luxton, pending the hearing of an application brought by Mr Shaw in the Supreme Court of Victoria.

26    Mr Shaw made his application in the Supreme Court of Victoria – he appealed against the orders of Mukhtar AsJ. The de novo appeal was dismissed by Dixon J on 11 April 2013. Mr Shaw appealed the orders of Dixon J.

27    On 3 August 2013, Mr Shaw filed proceeding VID 796 of 2013 in the Victorian Registry of the Federal Court of Australia against the applicant creditors (and some others). Mr Shaw alleged the tort of conspiracy, fraud, the tort of deceit, fraudulent concealment, breaches of s 52 of the Trade Practices Act 1976 (Cth), unconscionable conduct, breaches of the Corporations Act 2001 (Cth) and the tort of intimidation. On 31 October 2013, Jessup J heard the applicant creditors’ application for summary judgment or a permanent stay of the proceeding. On 22 November 2013, Jessup J gave judgment for the applicant creditors: Shaw v MAB Corporation Pty Ltd [2013] FCA 1231. Mr Shaw sought leave to appeal from those orders and an extension of time in which to make that application. On 17 February 2014, Mortimer J granted Mr Shaw’s application for an extension of time but dismissed his application for leave to appeal the orders of Jessup J: Shaw v MAB Corporation Pty Ltd [2014] FCA 62. On the same day, Jessup J ordered Mr Shaw to pay the applicant creditors’ costs of the proceeding before him on an indemnity basis: Shaw v MAB Corporation Pty Ltd (No 2) [2014] FCA 88.

28    Mr Shaw applied to set aside the Bankruptcy Notice on 24 December 2012. That application was heard by Judge Burchardt on 7 August 2013 and dismissed on 25 October 2013. On 28 May 2014, an appeal against the dismissal of the application to set aside the Bankruptcy Notice was dismissed with costs: Shaw v Yarranova Pty Ltd [2014] FCA 557.

29    The applicant creditors’ petition was filed on 20 December 2013.

30    Mr Shaw then took two important steps. On 24 February 2014, Mr Shaw filed a notice setting out grounds of opposition to the applicant creditors’ petition. Two grounds were identified – the application was an abuse of process and he had an off-setting claim that had not been finally determined. On the same day, he also filed an interlocutory application seeking (1) that the applicant creditors’ petition be transferred to Sydney, (2) that the hearing of the applicant creditors’ petition be adjourned to allow him time to prepare an affidavit and (3) that the applicant creditors’ petition be stayed and time for compliance be extended to the date of the hearing of the appeal of Judge Burchardt’s orders of 25 October 2013.

31    The applicant creditors opposed Mr Shaw’s interlocutory application. The matter was listed for hearing on 27 February 2014. The following orders were made:

1.    [Mr Shaw’s] application for change of venue is dismissed.

2.    By 4:00pm on 1 May 2014, [Mr Shaw] file and serve any further material upon which he relies.

3.    The application for a sequestration order is adjourned for hearing to 30 May 2014 at 9:30am.

4.    Costs reserved.

32    On 14 March 2014, Mortimer J ordered Mr Shaw to pay the applicant creditors’ costs of and incidental to the applications determined on 17 February 2014 on a party and party basis.

33    On 24 March 2014, the Court of Appeal granted Mr Shaw leave to appeal from the orders of Dixon J made on 11 April 2013, ordered that the appeal be allowed, but that the appeal from the orders of Mukhtar AsJ made on 18 October 2012 be dismissed with costs, and ordered the applicant creditors to pay Mr Shaw’s costs of the appeal. The Court of Appeal noted that Mr Shaw’s application to set aside the Assessment Orders of 7 March 2008 must be made by writ with a properly particularised statement of claim in a separate proceeding.

34    On 7 April 2014, Mr Shaw attempted to lodge a fresh writ in the Supreme Court of Victoria. The Court refused to accept it. On 14 April 2014, Mr Shaw attempted to lodge a second writ in the Supreme Court of Victoria. The Court refused to accept the writ. That refusal was reviewed by Vickery J and upheld on 7 May 2014. Mr Shaw has appealed Vickery J’s orders. It will be necessary to return to consider that draft endorsed writ of 14 April 2014 in further detail later in these reasons.

3.    APPLICABLE STATUTORY FRAMEWORK

35    Section 52 of the Bankruptcy Act 1966 (Cth) (Bankruptcy Act) relevantly provides:

(1)        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.

…

(2)    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.

(Emphasis added.)

4.    MR SHAW’S APPLICATIONS

36    Each application referred to in [4] above will be dealt with in turn.

4.1    Apprehended bias application

37    Mr Shaw submitted that I should recuse myself from hearing the creditors’ petition on the grounds that “there is a reasonable apprehension that a fair-minded person might think there might be some element of bias against [him]”. That application was refused and these are the reasons for that refusal.

38    The applicable principles are well established. The test for determining whether a judge should disqualify himself or herself by reason of apprehended bias is whether “a fair-minded lay observer might reasonably apprehend that the judge might not bring an impartial mind to the resolution of the question the judge is required to decide”: Ebner v Official Trustee in Bankruptcy (2000) 205 CLR 337 at [6] and [33].

39    As Gleeson CJ, McHugh, Gummow and Hayne JJ said in Ebner at [8]:

The apprehension of bias principle admits of the possibility of human frailty. Its application is as diverse as human frailty. Its application requires two steps. First, it requires the identification of what it is said might lead a judge (or juror) to decide a case other than on its legal and factual merits. The second step is no less important. There must be an articulation of the logical connection between the matter and the feared deviation from the course of deciding the case on its merits. … Only then can the reasonableness of the asserted apprehension of bias be assessed.

40    Mr Shaw identified the following material as supporting his application:

1.    The refusal to grant leave for Mr Shaw to file an interim application dated 29 May 2014 and supporting affidavit affirmed 28 May 2014 on the day before the adjourned hearing of the creditors’ petition;

2.    The case management of the matter including the conduct of a directions hearing on 27 February 2014, which Mr Shaw attended by telephone;

3.    The refusal to grant Mr Shaw leave to issue three subpoenas (leave refused on 4 March, 12 March and 18 March 2014); and

4.    The conduct of a hearing on 24 April 2014 and the orders made that day setting aside a Notice to Produce served on the applicant creditors by Mr Shaw.

Mr Shaw submitted that he was unfairly treated, placed under undue duress in relation to the case management of the matter and that a reasonable person would think that he was not getting “a fair go”.

41    It is necessary to address each of the matters identified by Mr Shaw.

42    The refusal to grant leave for Mr Shaw to file documents on 29 May 2014 does not support Mr Shaw’s application. The documents comprised an interim application and supporting affidavit. The interim application sought the following orders:

1.    Adjournment of the proceeding pending the outcome of an appeal of the orders of Vickery J dated 7 May 2014.

2.    The orders of the Honourable Gordon J, 24 April 2014 be set aside per 16.05 & of [Federal Circuit Court Rules] & 10.72 of [Federal Court Rules].

3.    The Honourable Gordon J be recused from further adjudication in this proceeding.

4.    Any other order the Court sees fit.

43    The delay in making the application was not justified. Mr Shaw had been ordered to file and serve any material on which he intended to rely at the hearing of the creditors’ petition by 1 May 2014: see [31] above. He in fact filed material early, on 28 April 2014. The first matter referred to in the application had occurred on 7 May 2014. The second matter had occurred on 24 April. In relation to the third item (the bias application), each matter relied upon by Mr Shaw (see [40] above) in support of that application (other than the refusal to grant him leave to file the interim application) preceded the date by which he was required to file his material.

44    As will become apparent, notwithstanding the delay in making these applications, Mr Shaw was given leave to file the interim application and supporting affidavit at the hearing of the creditors’ petition on 30 May 2014, and the interim application was the subject of evidence and submissions at that hearing.

45    Next, the case management of the matter including the conduct of the directions hearing on 27 February 2014, which Mr Shaw attended by telephone. Mr Shaw submitted that he was placed in a position of duress, felt that the cards has been stacked against him and that he had to juggle two balls in the air. Having carefully reviewed the transcript of the hearing on 27 February 2014 and the orders made on that date, I do not accept that this material provides any foundation to suggest that the creditors’ petition would be decided other than on its legal and factual merits. Indeed, on that date I acceded to Mr Shaw’s application to adjourn the hearing of the applicant creditors’ petition to a date after the hearing of Mr Shaw’s appeal against Judge Burchardt dismissing Mr Shaw’s application of 24 December 2012 for an order setting aside the Bankruptcy Notice: Shaw v Yarranova Pty Ltd [2013] FCCA 1627. The steps taken and directions given at that hearing and throughout the lead-up to the hearing on 30 May 2014 were consistent with proper case management of modern litigation: see s 37M of the Federal Court of Australia Act 1976 (Cth); Aon Risk Services Australia Limited v Australia National University (2009) 239 CLR 175 at 213 [97]-[98], 217-218 [113]-[114] and Expense Reduction Analysts Group Pty Ltd v Armstrong Strategic Management Marketing Pty Ltd (2013) 303 ALR 199 at 210-213 [51]-[57].

46    The third matter – the refusal to issue three subpoenas – may be dealt with shortly. Each was a subpoena to produce documents. Each was addressed to the proper officer of one of the applicant creditors – Yarranova. The documents initially sought were:

1.    All documents, letters, emails & file notes including but not limited to statements and memoranda, relating to the terms of retainer between [Arnold Bloch Leibler] (ABL) and Yarranova … for matter 9046 of 2003 including all letters of engagement and fee arrangements.

2.    All financial statements, documents, letters, emails & file notes including but not limited to statements and memoranda, relating to losses and legal expenses incurred by Yarranova … as a result of proceeding 9046 of 2003.

3.    All invoices, documents, letters, emails & file notes including but not limited to statements and memoranda, relating to invoices rendered by ABL to Yarranova regarding matter 9046 of 2003 from October 2003 to date of this subpoena.

4.    All documents, letters, emails & file notes including but not limited to statements and memoranda, relating to payments made by Yarranova to ABL, Newquay … and/or MAB Corporation in relation to proceeding 9046 of 2003.

5.    All documents, letters, emails & file notes including but not limited to statements and memoranda, verifying Yarranova’s liability to pay Newquay and/or MAB Corporation legal expenses incurred by Newquay and/or MAB Corporation … in proceeding 9046 of 2003.

6.    All documents, letters, emails & file notes including but not limited to statements and memoranda, relating to Yarranova’s belief that [Mr Shaw] is insolvent & instructions to ABL to make the Bankruptcy applications.

47    On the refusal of that subpoena, Mr Shaw requested the Court to issue a subpoena seeking production of the following:

1.    All documents, letters, emails & file notes including but not limited to statements and memoranda, relating to the fees & terms of payment for the legal services provided by ABL to Yarranova … which are related to the costs orders which form the basis of bankruptcy application BN8049.

2.    All financial statements, documents, letters, emails & file notes including but not limited to statements and memoranda, relating to legal costs incurred by Yarranova … that relate to the costs orders which form the basis for bankruptcy application BN8049.

3.    All invoices & receipts for payment including but not limited to statements and memoranda, relating to services rendered by ABL to Yarranova relating to costs orders which are the basis of bankruptcy application BN8049.

4.    All documents, letters, emails & file notes including but not limited to statements and memoranda, relating to Yarranova’s belief that [Mr Shaw] is insolvent & instructions to ABL to make the Bankruptcy application BN8049.

48    On the refusal of that subpoena, Mr Shaw then requested the Court to issue a subpoena seeking production of the following:

All invoices & receipts including but not limited to statements and memoranda relating to payment by Yarranova for services rendered by ABL to Yarranova relating to costs orders & judgement (sic) debts which are the basis of bankruptcy application BN8049.

49    Leave to issue each subpoena was refused. Each draft subpoena was an abuse of process. It was being used for an impermissible purpose and further or alternatively being used to obtain discovery from a party. Each was oppressive. The relevance of the documents sought could not be assessed. At no time did Mr Shaw seek leave to review those decisions.

50    The final matter – the conduct of a hearing on 24 April 2014 and the orders made setting aside a Notice to Produce served on the applicant creditors by Mr Shaw – is the last matter referred to by Mr Shaw. Mr Shaw submitted that he was not given “formal notice” of this hearing he did not think he needed to attend, and the hearing should not have been conducted in his absence.

51    On 8 April 2014, Mr Shaw served a Notice to Produce on the applicant creditors. On 14 April 2014, the applicant creditors’ solicitor informed Mr Shaw and the Court that they wished to bring an application in relation to the Notice to Produce as soon as possible and explained that the reason they wished to bring the application as soon as possible was because Mr Shaw was required to file and serve any further material upon which he intended to rely at the hearing of the creditors’ petition by 1 May 2014. The next day, 15 April 2014, the Court advised Mr Shaw and the applicant creditors that the application would be heard at 9:30am on 24 April 2014.

52    On 22 April 2014, the applicant creditors’ solicitor sent three emails to Mr Shaw. The first email sought confirmation that he had received notice from the Court of the hearing date and time, and sought confirmation as to whether he intended to appear in Melbourne or from Sydney (by video or telephone). The second and third emails served on Mr Shaw an affidavit (including annexures) sworn by one of the applicant creditors’ solicitors in support of their application to set aside the Notice to Produce and an outline of submissions. The next day, the applicant creditors’ solicitor wrote again to Mr Shaw seeking confirmation that he had received the documents.

53    The matter came on for hearing on 24 April 2014. He did not attend. Reasons for judgment were published: Yarranova Pty Ltd v Shaw [2014] FCA 403. Mr Shaw did not seek leave to appeal that decision until he attempted to file his interim application of 29 May 2014.

54    Mr Shaw gave the following sworn evidence:

[23]    I did not receive a formal notice of the basis for or the date & place time (sic) for hearing of the application resulting in orders of Gordon J dated 24 April 2014 setting aside my Notice to Produce dated 8 April.

[24]    As I was not given proper notice of the substance or form of the application I did not attend the hearing in Melbourne as am living in Sydney & I did not believe that I was required to.

55    Mr Shaw was given notice of the application and asked whether he would attend by telephone or video from Sydney so that arrangements could be made for him. He chose to ignore the notice and that offer.

56    Moreover, as noted above, Mr Shaw did not seek leave to appeal the decision to set aside the Notice to Produce until he attempted to file his interim application of 29 May 2014. At the hearing of the creditors’ petition on 30 May 2014, Mr Shaw did not pursue the application in relation to the setting aside of the Notice to Produce: Yarranova Pty Ltd v Shaw [2014] FCA 403. That is not surprising. As the reasons for judgment point out, the application was heard and determined on the material then filed. There was nothing preventing Mr Shaw, at any time, from seeking discovery of relevant documents. He failed to do so.

57    At the hearing of the creditors’ petition, Mr Shaw did seek to challenge the costs order made on 24 April 2014, namely that he pay the applicants creditors’ costs of and incidental to the application, such costs to be taxed if not agreed. On the assumption that I am entitled to reconsider that order, that application is refused. There was no basis to set aside the order, let alone the costs order.

58    None of the matters listed satisfy the first or the second step identified in Ebner. Each step is important. There was no articulation of any logical connection between any of the matters raised and a feared deviation from the course of deciding the case on its merits. The application is refused.

4.2    Application for orders made on 24 April 2014 in relation to Notices to Produce to be set aside

59    This application has been considered in the context of the apprehended bias application and is refused for those reasons: see [51]-[58] above.

4.3    Application for an adjournment of the hearing pending the outcome of an appeal from the orders of Vickery J in the Supreme Court of Victoria of 7 May 2014

Application to go behind the judgment which supports the applicant creditors’ application for a sequestration order

4.3.1    Introduction

60    It is appropriate to address these applications together. They are inter-related.

61    As noted earlier, on 24 March 2014, the Court of Appeal, inter alia, granted Mr Shaw leave to appeal from the orders of Dixon J made on 11 April 2013, ordered that the appeal be allowed but that the appeal from the orders of Mukhtar AsJ made on 18 October 2012 be dismissed with costs: see [33] above. The Court of Appeal noted that Mr Shaw’s application to set aside the Assessment Orders of 7 March 2008 had to be made by writ with a properly particularised statement of claim in a separate proceeding.

62    On 7 April 2014, Mr Shaw attempted to lodge a fresh writ in the Supreme Court of Victoria seeking to set aside the Assessment Orders of 7 March 2008. The Court refused to accept it. On 14 April 2014, Mr Shaw attempted to lodge a second endorsed writ in the Supreme Court of Victoria. The Court refused to accept the second endorsed writ. That refusal was reviewed by Vickery J and upheld. Mr Shaw has sought leave to appeal Vickery J’s orders. Justice Vickery has provided no reasons. Mr Shaw is waiting for a return date from the Court of Appeal.

63    Mr Shaw applied to adjourn the hearing of the creditors’ petition on the grounds that he had a set-off. In support of the alleged set-off, Mr Shaw submitted that the Court should consider the proposed endorsed writ which Vickery J had refused him leave to file. Mr Shaw submitted that the endorsement on the writ established that the Assessment Orders of 7 March 2008 were obtained by fraud. Mr Shaw accepted that (1) he needs to have a proceeding on foot and (2) he needs to demonstrate that the proceeding has some prospect of success to justify an adjournment of the hearing of the creditors’ petition.

64    The endorsement on the writ was relevantly in the following terms:

Tort of Deceit, Conspiracy & Fraud

3.    On or about September 2007, MAB Corporation Pty Ltd (MAB) instructed … [ABL] to initiate proceedings on behalf of Yarranova & Newquay against [Mr Shaw] for an assessment of damages allegedly suffered by Yarranova & Newquay due to a Court of Appeal undertaking to pay any damages that might be due to maintaining a caveat from on or around Jan 2007. (The caveat that had been placed by [Mr Shaw] in Nov 2003 on a property purchased by [Mr Shaw] from Yarranova in May 2000).

4.    On or around Oct 2007 to Mar 2008 & in order to fraudulently gain unjust advantage, MAB, Yarranova & Newquay, (hereafter called the MAB parties) unlawfully conspired to, and tendered false evidence, fraudulent accounting of alleged losses and claims of lost opportunity to invest in MAB projects that were alleged to have been open to [Newquay].

5.    On or around Oct 2007 to Mar 2008, the MAB parties unlawfully conspired to, and tendered false evidence, fraudulent accounting of alleged losses and claims of lost opportunity to minimise interest on alleged loans that [Yarranova & Newquay] had no liability to repay to fraudulently gain unjust enrichment for MAB & injure [Mr Shaw].

6.    On or around Oct 2007 to Mar 2008 the MAB parties, conspired and suborned Mr Ian Smith to swear false evidence before the court regarding the ownership, business activities & investments of MAB, Yarranova &Newquay to persuade the court to make an award of damages in favour of Yarranova & Newquay and cause injury to [Mr Shaw].

Particulars

In particular On (sic) or around Oct 2007 to Mar 2008 Mr Smith conspired with Mr Calvi & the proper officers of MAB, Yarranova & Newquay, & formed a common purpose to tender fraudulent & misleading affidavits & falsely testified on behalf of Yarranova & Newquay that:

a)    Yarranova & Newquay were wholly owned subsidiaries of MAB Corporation Pty Ltd.

b)    Mr Smith could have (& most likely would have) directed funds paid to Newquay by [Mr Shaw] to finance other (MAB) projects such as Quay Vista, University Hill, Brand Junction & Translink Developments.

c)    Newquay had outstanding bank bill debts at the relevant time & funds paid by [Mr Shaw] could have been used to offset those debts.

d)    At the relevant time, Mr Smith could have & would have directed that any funds Newquay received from [Mr Shaw] towards the debts of other (MAB owned) entities such as Conder Tower Pty Ltd & Aquavista Pty Ltd.

e)    Based on cost of Newquay being deprived of proceeds to put toward offsetting the interest costs of bank loans the loss of use of money cost to Newquay was at least, $91054.03 (sic)

f)    Based on cost of' Newquay being deprived of proceeds to put toward the Conder and/or Aquavista projects the loss of use of money cost was at least. $75442.84 (sic)

65    After setting out the alleged sources for these allegations, the draft endorsed writ alleged that each claim made in paragraphs 9(a)-(f) (which I have taken to be a reference to paragraph 6 of the endorsed writ) was false and misleading and made by Mr Smith with the deliberate intention of deceiving Mr Shaw and the Court and misrepresenting the quantum of losses suffered by Yarranova and Newquay: paragraph 9. The draft endorsed writ then alleged that the MAB parties knew that the claims made by Mr Smith were false and conspired to deceive the Court and Mr Shaw: paragraph 10. The relief sought was relevantly an order setting aside the Assessment Orders of 7 March 2008 and costs.

66    The applicant creditors opposed the adjournment application and submitted that the Court should not exercise its discretion to look behind the Assessment Orders of 7 March 2008 on the ground that they were procured by fraud. They submitted that none of the matters that Mr Shaw referred to provide any basis, let alone a sufficient basis, for an allegation of fraud.

4.3.2    Applicable principles

67    There are two. The applicable principle in relation to an adjournment of the creditors’ petition is set out in Ahern v Deputy Commissioner of Taxation (Qld) (1987) 76 ALR 137 at 148 as follows:

It is also well established that in general a court exercising jurisdiction in bankruptcy should not proceed to sequestrate the estate of a debtor where an appeal is pending against the judgment relied on as the foundation of the bankruptcy proceedings provided that the appeal is based on genuine and arguable grounds: Re Rhodes; Ex parte Heyworth (1884) QBD 49; Bayne v Baillieu (1907) 5 CLR 64 and Re Verma; Ex parte DCT (1985) 4 FCR 181.

These cases rest on the broad principle that before a person can be made bankrupt the court must be satisfied that the debt on which the petitioning creditor relies is due by the debtor and that if any genuine dispute exists as to the liability of the debtor to the petitioning creditor it ought to be investigated before he is made bankrupt. Bankruptcy is not mere inter partes litigation. It involves change of status and has quasi-penal consequences.

(Emphasis in bold added, emphasis in italics in original.)

68    Of course, the principle acknowledges the existence of exceptions: Adamopoulos v Olympic Airways SA (1990) 95 ALR 525. In 2006, the principle was explained by Allsop J (as he then was) in Totev v Sfar (2006) 230 ALR 236 at [44] in these terms:

[T]he fact that there has been an act of bankruptcy does not make the claim by the debtor against the petitioning creditor irrelevant. It should be examined to assess whether it can be said that there is sufficient evidence to show that it is a real claim which is likely to succeed. Also relevant is the stage of the litigation, the length of time for its vindication and any other relevant matters. It goes without saying that solvency is a relevant consideration. In some circumstances, it may be difficult to assess the likelihood of success of the debtor’s claim. All the authorities show that central to the showing of “other sufficient cause” for the purposes of s 52(2)(b) is the question of the prospects of success. The case is not tried in the bankruptcy court, but the material is examined for the purpose alluded to by Gibbs J in Re Schmidt. As Olney J identified in Re James, if a likelihood of success can be demonstrated, that may justify a refusal of a sequestration order. Alternatively, the circumstances may reveal a claim of a character and nature in which likelihood of success cannot be predicted with accuracy but in the circumstances the petition should be dismissed or an adjournment of the petition should granted: see the approach of Sundberg J in Ling v Commonwealth (1996) 68 FCR 180 at 195-196; 139 ALR 159 at 172, with which Wilcox J and Whitlam J agreed. If the claim is one in which credit of witnesses will be involved, and a debtor sets out the nature and detail of the case and all his or her evidence the debtor may only be able to persuade the bankruptcy court that, if relevant criteria are believed, he or she has good prospects of success. What should be proved, or what is sufficient to be proved, in any given case will depend upon the circumstances. The context in which the issue arises is also important. The discretion involved in s 52(2)(b) is a broad one, and, importantly, it is informed by public interest considerations concerned with the dealing with insolvents.

69    The principles for going behind a judgment were summarised by Robertson J in Xu v Wan Ze Property Development (Aust) Pty Ltd (in liquidation) [2014] FCA 61 at [55]ff. The applicable principles may be summarised as follows:

1.    The Court may, in an appropriate case, go behind a judgment to see whether in truth and reality a debt is due from the judgment debtor to the judgment creditor: Corney v Brien (1951) 84 CLR 343 and Wren v Mahony (1972) 126 CLR 212.

2.    An appropriate case may include where a judgment debt that has been obtained by fraud or collusion or where there has been some miscarriage of justice: Corney at 347-348 and 352-353 and Emerson v Wreckair Pty Ltd (1992) 33 FCR 581 at 588.

3.    If the judgment in question followed a full investigation at a trial on which both parties appeared, the court will not reopen the matter unless a prima facie case of fraud or collusion or miscarriage of justice is made out: Corney at 356.

4.    The enquiry involved is a two stage process enquiring (1) as to whether there is sufficient reason to question the existence of a real debt behind the judgment and (2) if there is, determining that issue. These two steps may be determined together or independently: Makhoul v Barnes (1995) 60 FCR 572 at 584 and Wolff v Donovan (1991) 29 FCR 480.

4.3.3    Analysis

70    In light of the applicable principles, it is necessary to turn to consider Mr Shaw’s alleged “set-off” or claim against the applicant creditors. Mr Shaw accepted that he needed to have some evidence to show that the claim in the draft endorsed writ was likely to succeed.

71    Mr Shaw principally relied upon sworn evidence of Mr Smith, at the time the Chief Financial Officer of MAB Corporation Pty Ltd (MAB), the operating entity of the MAB Group of companies, filed by the applicant creditors in the proceeding before Master Daly which lead to the Assessment Orders of 7 March 2008. Mr Shaw identified the following passages in Mr Smith’s sworn evidence that he alleged were false.

72    There were two affidavits. In the first affidavit sworn on 17 October 2007, Mr Shaw referred to the following passages:

[The applicant creditors] are wholly owned subsidiaries of MAB: para 1.

…

In this instance, it is most likely that I would have used the Estimated Proceeds, had they been received by NewQuay, as finance for one or other of the projects which the MAB Group had in mid June 2006. These included the Quay Vista Commercial Office Development, the University Hill Coles and Brand Junction Retail Developments and the Translink Business Park Development: para 11.

…

As NewQuay was unable to sell the [A]partment in or about May 2006 and was therefore unable to use the Estimated Proceeds to fund another project, the cost of its being deprived of the use of such funds is calculated by me as follows: [LIST OF CALCULATIONS]: para 13.

Alternatively, I would have applied the Estimated Proceeds on behalf of NewQuay toward one or other of NewQuay’s bank debts. One of those debts, common to NewQuay, incurs interest at the 30 day bank bill rate including the banks (sic) lending margin (“Bank Bill Debt”). In this instance, I would have most likely applied the Estimated Proceeds toward (sic) to the Bank Bill Debt: para 14.

73    Mr Shaw alleged that NewQuay and Yarranova did not invest in the projects identified in Mr Smith’s affidavit. Mr Shaw then referred to a fax he sent to the applicant creditors’ solicitors on 22 October 2007 (after receiving Mr Smith’s affidavit in October 2007), in which he requested further details including NewQuay’s interests in the developments identified by Mr Smith at paragraph 11 of his affidavit. Mr Shaw submitted that no information was provided. Instead, he received a supplementary affidavit sworn by Mr Smith on 8 November 2007.

74    Mr Shaw placed considerable reliance on the fact that in Mr Smith’s supplementary affidavit, Mr Smith stated he no longer relied on paragraph 11 of this first affidavit and instead relied on the following:

Ordinarily, sale proceeds are applied by the relevant MAB entity to first discharge bank debts, secondly to discharge indebtedness to other MAB entities and thirdly to fund other projects in the MAB Group. In this instance, it is most likely that I would have used the Estimate Proceeds, had they been received by NewQuay as finance for one or other of the projects which the MAB Group had in mid June 2006. These included the Quay Vista Commercial Office Development, the University Hill Coles and Brand Junction Retail Developments and the Translink Business Park Development: para 3.

75    Next, Mr Shaw referred to the fact that in Mr Smith’s supplementary affidavit he no longer relied on paragraph 14 of the first affidavit and instead relied on the following:

Alternatively, I would have applied the Estimated Proceeds on behalf of NewQuay toward one of NewQuay’s debts (which commonly incur interest at the 30 day bank bill rate plus the banks lending margin) or one of the debts of another MAB Group entity. Two of those MAB entities which had bank debts over the relevant period are Conder Tower Pty Ltd (“Conder”) and Aquavista Tower Pty Ltd (“Aquavista”). In this instance, I would have most likely applied the Estimated Proceeds to the bank debts of Conder and Aquavista: para 9.

(Emphasis in original.)

76    Having regard to those passages and the corporate records filed with the Australian Securities and Investments Commission (ASIC), Mr Shaw submitted that:

1.    “MAB’s method of business” was to set up a company as an operating entity for a particular building project “in isolation from … any other activities” that MAB might be involved in;

2.    the entities were totally separate and “the obligations in one entity do not transfer to the obligations in another and vice versa”; and

3.    NewQuay could not – or had no obligation to – pay the debts of another entity.

77    Mr Shaw’s complaint was, notwithstanding the matters referred to above, the applicant creditors falsely represented to Master Daly (at the hearing preceding the Assessment Orders of 7 March 2008) that they were all part of a MAB Group, owned by MAB and benefitted each other. The “fraud’ was described by Mr Shaw as convincing Master Daly that by being held out from funds (the sale proceeds from the Apartment) and not being able to invest in these particular projects that they normally would invest in, the applicant creditors were losing money when in fact they could never have invested and did not invest in those projects. Further, Mr Shaw submitted that Mr Smith, as the Chief Financial Officer, was well aware of the structure of the companies and would have been well aware that what was being put to the Court was wrong, was false and was fraudulent.

78    In addition to those matters (referable to the claim made in the draft endorsed writ), Mr Shaw also alleged that the bank account into which the $90,000 was paid in accordance with cl 1 of the Settlement Agreement was not an account in the name of Yarranova but in the name of MAB and that was further evidence of a pattern of fraud.

79    Reference should be made to the corporate structure disclosed by the ASIC records. The records disclosed:

1.    The only registered shareholder of Yarranova was and is MAB Docklands Pty Ltd, which holds two shares non-beneficially;

2.    The two registered shareholders of NewQuay were and are Hillgarth Pty Ltd and Backgrove Pty Ltd, each of which holds one share non-beneficially;

3.    The two registered shareholders of MAB Docklands Pty Ltd are Andrew Buxton and Michael Buxton, who each beneficially hold one share;

4.    The two registered shareholders of Hillgarth Pty Ltd are Pitcher Partners Nominees Pty Ltd and ABL Fiduciary Corporation Pty Ltd, each of which holds one share non-beneficially; and

5.    The two registered shareholders of Backgrove Pty Ltd are Andrew Buxton and Geraldine Buxton, who each beneficially hold one share.

80    A redacted minute of a meeting of directors of ABL Fiduciary Corporation Pty Ltd held on 16 October 2002 was also in evidence. It resolved that ABL Fiduciary Corporation Pty Ltd, at the direction of Michael Buxton, acquired one ordinary share from Michael Buxton in, amongst others, Hillgarth Pty Ltd to be held by ABL Fiduciary Corporation Pty Ltd as bare trustee and nominee for Michael Buxton.

81    What other facts and matters were relied upon by Mr Shaw? There were two. First, Mr Shaw alleged that at the time the Assessment Orders of 7 March 2008, Yarranova was never in a position to pay any costs were made because Yarranova had assigned the benefit of the Contract to NewQuay. Second, Mr Shaw alleged that because MAB was instructing ABL, it was reasonable for him to ask how ABL’s costs were paid, if at all, by the applicant creditors. Put simply, Mr Shaw contends that Yarranova has not paid a cent in legal fees.

82    Mr Shaw sought to focus only upon the details of the relationships between entities in the group of companies of which each of Yarranova and NewQuay was part. Those aspects of the matter must always be considered in light of the undisputed fact that Mr Shaw did not pay money due as and when it was due. He cannot and does not deny that money has a time value. The details of corporate relationships to which Mr Shaw refers and on which he now relies were all matters that were directly raised by evidence tendered on the hearing of the assessment of damages (the subject of the Assessment Orders of 7 March 2008).

83    Against this background, it is evident that Mr Shaw’s alleged claim is not “based on genuine and arguable grounds”. There is nothing in the facts of the present case that would warrant this Court embarking on what amounts to a re-trial of the issues that had been determined after a contested hearing before Daly AsJ and which were the subject of an appeal to the Court of Appeal of the Supreme Court of Victoria.

84    Mr Shaw has not adduced any evidence of fraud. Indeed, even if the allegations made by Mr Shaw in the draft endorsed writ (see [64]-[65]) above were taken at their highest, a prima facie case of fraud or collusion would not be made out. Moreover, it must be recalled that the Assessment Orders of 7 March 2008 are not the only orders underpinning the Bankruptcy Notice: see [22] above. Mr Shaw does not seek to challenge the other orders relied upon.

85    The two applications are refused – the Application for an adjournment of the hearing pending the outcome of an appeal from the orders of Vickery J in the Supreme Court of Victoria of 7 May 2014 and the application to go behind the judgment which supports the applicant creditors’ application for a sequestration order.

4.4    Notice to Produce dated 21 May 2014

86    That leaves the question of the Notice to Produce served by Mr Shaw dated 21 May 2014 which he wished to call on during the course of the hearing. The notice sought the following documents:

1.    All invoices & receipts including but not limited to statements and memoranda relating to payment by Yarranova to ABL (for legal services rendered by ABL to Yarranova) relating to the damages assessment of [Master] Daly resulting in costs orders dated 07 March 2008 & which form part of the judgement (sic) debt basis of bankruptcy application BN8049.

2.    All invoices & receipts including but not limited to statements and memoranda relating to payment by Newquay to ABL (for legal services rendered by ABL to Newquay) relating to the damages assessment of [Master] Daly resulting in costs orders dated 07 March 2008 & which form part of the judgement (sic) debt basis of bankruptcy application BN8049.

87    Mr Shaw submitted that the notice was directed to:

1.    the allegation of fraud, being the question of ownership of the corporate entities, and the direction of funds away from Yarranova and Newquay to other MAB entities;

2.    whether Yarranova was ever in a position to pay legal costs; and

3.    whether money was paid by Yarranova or Newquay to ABL for the costs that were incurred.

88    The Notice to Produce should be set aside. Mr Shaw should not be permitted to fish for evidence of fraud through discovery or like processes. Mr Shaw should not be permitted to fish for this evidence in order to make out a prima facie case of fraud that he needed to establish to advance his applications discussed in Part 4.3 above. The Notice to Produce suffers from the same defects addressed in Yarranova Pty Ltd v Shaw [2014] FCA 403.

4.5    Applicant creditors’ petition an abuse of process

89    Mr Shaw then submitted that the applicant creditors’ petition was an abuse of process because:

1.    Yarranova was not a bona fide creditor and it would be an abuse of process for them to participate;

2.    The Bankruptcy proceeding was being used to coerce a recalcitrant debtor; and

3.    The applicant creditors had no reasonable belief as to the insolvency of Mr Shaw.

None of these grounds were made out.

90    First, the applicable principles. An abuse of process occurs when the purpose of bringing the proceedings is not to prosecute them to a conclusion, but to use them as a means of obtaining some advantage for which they are not designed or for some collateral advantage beyond what the law offers: Williams v Spautz (1992) 174 CLR 509 at 526. There is a heavy onus on the person alleging the abuse of process. In any particular case, whether there is a use of the process or an abuse of it depends upon the purpose rather than the result: Re Excel Finance Corporation (Receiver and Manager Appointed); Worthley v Australian Securities Commission (1993) 41 FCR 346. To establish abuse of process, more than mere assertion is required: Davidova v Murphy [2009] FCA 601 at [91] citing Watts v Adelaide Bank Limited [2009] FCA 420.

91    It is an abuse of process for a judgment creditor to pursue bankruptcy proceedings “for the purpose of stifling litigation”: Bayne v Baillieu; Bayne v Riggall (1908) 6 CLR 382 at 396. So, for example, if the purpose of the bankruptcy notice is to put pressure on a debtor to pay a debt rather than to invoke the Court’s jurisdiction in relation to insolvency, then the filing of a bankruptcy notice is an abuse of process: cf Maxwell-Smith v S & E Hall Pty Limited, in the matter of Maxwell-Smith (2006) 233 ALR 81.

92    The judgment of Gyles J in Killoran v Duncan, in the matter of Killoran [1999] FCA 1574 is apposite to the current circumstances. Adapting the words used by Gyles J at [12]-[14].

Whilst there is no debate about the jurisdiction of the Court to set aside a bankruptcy notice as an abuse of process where it can be concluded that it was simply to put pressure on the debtor rather than to genuinely invoke the Court’s jurisdiction, I am not satisfied that that is the position here. There is nothing to indicate that the [applicant creditors do] not genuinely intend to pursue the matter if there is default in complying with the notice. In my opinion, there is nothing special about abuse of process in this field, and, if a person wishes to resort to the jurisdiction of the Court for appropriate orders, then it will be an unusual case in which that will be prevented.

There is no evidence here of any collateral purpose or of any undue pressure being applied. It is correct, I think, that the time to judge abuse of process is the time that the bankruptcy notice is issued and that subsequent events have relatively slight relevance. They may be relevant insofar as they throw light upon circumstances which might have been appreciated and foreseen at the time of the issue of the notice.

If, contrary to my view, however, there were a prima facie case of abuse of process, the remedy is discretionary and, in my view, if circumstances following that time had altered significantly so that it would not be appropriate to set aside the notice, I think that the jurisdiction of the Court is wide enough to give effect to that. I have in mind here that whilst the immediate parties to the application are those with the most interest in the matter, the body of creditors generally also have an interest and I cannot be certain one way or the other about the position of solvency. It may be most unfortunate if a bankruptcy notice were set aside in circumstances where the debtor is in fact insolvent.

(Emphasis in original.)

93    Put simply, there is no evidence to suggest that Yarranova was not one of Mr Shaw’s creditors or that the use of the proceedings was an abuse by either applicant creditor. The fact that a creditor pursues bankruptcy proceedings in the face of conduct that has been described as designed to “vex” (Shaw v MAB Corporation Pty Ltd [2013] FCA 1231 at [46]) the creditors does not impugn the creditors’ motives in bringing these proceedings.

94    The final matter raised by Mr Shaw in this context – the applicant creditors had no reasonable belief of the insolvency of Mr Shaw – was not a matter for the applicant creditors.

95    Section 52(2)(a) of the Bankruptcy Act provides that if the Court is satisfied by the debtor that the debtor is able to pay his or her debts, it may dismiss the petition (emphasis added). The debtor bears the onus of establishing that he or she is solvent and able to pay his or her debts within the meaning of s 52(2)(a). The test of ability to pay debts was stated by Barwick CJ in Sandell v Porter (1966) 115 CLR 666 at 670:

Insolvency is expressed in s 95 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.

96    The applicant creditors sought to address this issue by filing an affidavit sworn on 15 May 2014 by Mr Ben Perry, the Senior Legal Counsel and the Company Secretary of MAB. Mr Shaw objected to the Court receiving this affidavit. Mr Shaw cross-examined Mr Perry. Mr Shaw’s initial questions were directed to the ownership of the MAB Group of companies. Mr Perry’s evidence during cross-examination disclosed:

1.    The applicant creditors were part of the MAB Group of companies;

2.    The owners of the MAB Group of companies were Mr Michael Buxton and Mr Andrew Buxton;

3.    Mr Perry is the company secretary of each of the applicant creditors;

4.    Mr Perry is authorised by the directors of each of the applicant creditors, Mr Michael Buxton and Mr Andrew Buxton, in relation to these proceedings;

5.    Each of the applicant creditors has incurred direct legal costs in relation to Mr Shaw, the costs have been taxed and are the subject of costs orders and that the accounts refer to the proceedings against Mr Shaw;

6.    Mr Perry has received invoices from ABL in relation to Mr Shaw and the Apartment. The invoices were sent to MAB and paid from the funds from the MAB Group of companies. The applicants creditors tendered an invoice which established that the invoices were rendered to MAB Docklands Pty Ltd care of MAB and headed “Apartment 1002, Boyd Tower, New Quay Docklands: Purchase Order No. 3656” (Invoice). The title to the Invoice referred to the Apartment; and

7.    The applicant creditors pursued these proceedings rather than applying for further warrants of seizure and sale because the searches of land owned by Mr Shaw revealed that the properties were encumbered and they were unable to discover the extent of the available equity.

97    As will be apparent, Mr Shaw’s cross-examination was addressed principally to two issues – the alleged fraud and his abuse of process contentions. None of this additional material supports either contention.

98    The application is dismissed. The applicant creditors are not pursuing bankruptcy proceedings “for the purpose of stifling litigation” (cf Bayne v Baillieu at 396). In the circumstances of this case, there is no evidence here of any collateral purpose or of any undue pressure being applied.

99    If, however, there were a prima facie case of abuse of process (and I do not consider that there is), the remedy is discretionary and, in all the circumstances and in the exercise of that discretion I do not consider that would not be appropriate to set aside the notice.

5.    APPLICATION FOR A SEQUESTRATION ORDER

100    The statutory requirements for making a sequestration order have been established. Mr Shaw has committed an act of bankruptcy. He owes significant amounts to the applicant creditors. Mr Shaw has not sought to establish his solvency. He has not sought to explain how he is able to pay the creditors within a reasonable period of time. There is not “some other reason” to dismiss the petition.

6.    ORDERS

101    There will be a sequestration order be made against the estate of John Rashleigh Shaw. The applicants’ costs, including reserved costs, are to be taxed and paid from the estate of John Rashleigh Shaw in accordance with the Bankruptcy Act. The Court notes that the date of the act of bankruptcy is 25 October 2013.

Associate:

Dated:    11 June 2014