FEDERAL COURT OF AUSTRALIA
Mulhern v Pearce (No 2) [2014] FCA 805
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IN THE FEDERAL COURT OF AUSTRALIA |
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DATE OF ORDER: |
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WHERE MADE: |
THE COURT ORDERS THAT:
1. The affidavit of Mark William Pearce sworn 13 June 2014 be admitted to evidence.
2. The affidavit of Paul Gerard Lynch affirmed 13 June 2014 be admitted to evidence.
3. The affidavit of Michael Richard Mulhern sworn 18 June 2014 be admitted to evidence.
4. The application of Michael Richard Mulhern filed 12 September 2013 be dismissed.
5. The interim applications filed by Michael Richard Mulhern on 12 February 2014 and 5 March 2014 be dismissed.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
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NEW SOUTH WALES DISTRICT REGISTRY |
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GENERAL DIVISION |
NSD 1888 of 2013 |
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BETWEEN: |
MICHAEL RICHARD MULHERN (AUSTRALIAN MADE BANKRUPT) Applicant |
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AND: |
MARK WILLIAM PEARCE AND ANDREW JOHN HEERS AS FEDERAL COURT OF AUSTRALIA APPOINTED TRUSTEES OF THE AUSTRALIAN ESTATE OF MICHAEL RICHARD MULHERN First Respondent JOSEPH MICHAEL DODRILL (A BANKRUPT) Second Respondent JOHN ANTHONY DODRILL (A BANKRUPT) Third Respondent BANK OF QUEENSLAND Fourth Respondent |
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JUDGE: |
COLLIER J |
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DATE: |
1 AUGUST 2014 |
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PLACE: |
BRISBANE |
REASONS FOR JUDGMENT
1 Mr Michael Mulhern is a bankrupt under the Bankruptcy Act 1966 (Cth) (“Bankruptcy Act”), and has been a bankrupt since 3 February 2010 when a sequestration order was made against him by a Registrar in the Brisbane Registry of this Court (Application No BRG 976/2009). I understand that the date of the act of bankruptcy was noted in that sequestration order as 17 December 2009. I also understand that no review of the sequestration order was sought by Mr Mulhern.
2 There have been numerous applications in this Court and in the Federal Circuit Court involving Mr Mulhern. Over time, Mr Mulhern has sought a number of orders, including that his bankruptcy be annulled, or alternatively orders related to the discharge of his bankruptcy, and for the return of his passport and US Green Card. In his originating application in these proceedings filed on 12 September 2013, Mr Mulhern sought the following orders:
• Pursuant to section 153B of the Bankruptcy Act 1966 (Cth) that the Sequestration order made against the Applicant on 3 February 2010 be annulled or in the alternative set aside.
• Pursuant to rule 132 of the Federal Court Rules 2011, the bankruptcy of Richard Mulhern be discharged forthwith.
• In the alternative, the Court orders the Trustee discharge Michael Richard Mulhern from his bankruptcy.
• Further or in the alternative, the Court orders the Trustee to return to Mr Mulhern his Irish passport and his US Greencard.
3 Before me however is an interim application filed by Mr Mulhern’s trustees in bankruptcy (“the trustees”) on 17 February 2014 seeking orders for summary dismissal of Mr Mulhern’s originating application, or alternatively security for costs (“the trustees’ interim application”). It is this interim application which is the primary focus of this judgment. I say “primary” focus, because there also two other interlocutory applications filed by Mr Mulhern which the trustees have asked me to rule on in the course of this decision.
4 In their interim application filed 17 February 2014 the trustees seek the following orders:
1. Pursuant to sec. 56 Federal Court of Australia Act 1976 and/or rule 1.03(2) Federal Court (Bankruptcy) Rules 2005 and 19.01(1) Federal Court Rules 2011
a. The Interim Respondent Michael Richard Mulhern pay the sum of $68,158.77 to the Registrar of the Court as security for the costs of these proceedings within 14 days of the date of this order;
b. These proceedings be stayed until the payment by the Interim Respondent Michael Richard Mulhern of the amount of security for costs so ordered;
c. In the event that the Interim Respondent Michael Richard Mulhern does not comply with order 1(a) these proceedings shall be deemed dismissed and the costs of the proceedings shall be costs in the administration of the estate of the bankrupt.
2. In the event that security is ordered and provided in accordance with Order 1(a), Application No. NSD 1888 of 2013 be dismissed pursuant to Rule 1.03(2) Federal Court (Bankruptcy) Rules 2005 and rule 26.01(1) Federal Court Rules 2011.
3. In the event that the relief sought by the Interim Respondent Michael Richard Mulhern in Application No. NSD 1888/2013 (including the Bankrupt’s Interim Application) is dismissed, an order, pursuant to sec. 37AO(2) of the Federal Court of Australia Act 1976 and/or Rule 6.02 of the Federal Court Rules 2011 that Michael Richard Mulhern must not start or continue any other proceeding in the Court against any of the Interim Applicants without the leave of the Court.
4. That the costs of this application be paid by the Interim Respondent Michael Richard Mulhern and form part of any security for costs order in the event that the Court grants the relief sought in paragraph 1(a).
RELATED MATTERS
5 On 18 February 2014 I made directions in these proceedings. These directions were as follows:
1. The Trustees’ Interim Application for security for costs and summary dismissal of the proceedings filed on 17 February 2014 be set down for hearing at 10.15 am on 12 March 2014 for half a day.
2. The Trustees file and serve any further affidavits to be relied upon by them on their application for security for costs and summary dismissal by 4.00pm on 21 February 2014.
3. The Bankrupt file and serve any affidavits to be relied upon by him on the application for security for costs and summary dismissal by 4.00pm on 28 February 2014.
4. The Trustees file and serve any further affidavits in reply by 4.00pm on 7 March 2014.
5. The Bankrupt’s Interim Application filed 12 February 2014 and other relief sought by the Trustees in paragraphs 3-4 in their Interim Application on 17 February 2014 be adjourned to a date to be fixed.
6. The costs of the directions hearing be the parties’ costs in the proceedings.
6 Clearly, following the directions of 18 February 2014, it is only paragraphs 1 and 2 of the trustees’ interim application with which the Court is currently concerned.
7 As is also apparent from the directions set out in this judgment, Mr Mulhern has filed an interim application of his own. In the interim application of Mr Mulhern filed on 12 February 2014 (“first Mulhern interim application”) Mr Mulhern sought the following orders:
1. The immediate return of his Irish Passport and USA Green Card and all other property that was seized by or on behalf of the First Respondents following his arrest at the Sydney airport by the Australian Federal Police pursuant to a warrant issued at the request of the Respondents on or about 16 January 2012 as the First Respondents have no basis to hold such documents, their holding of them is contrary to a Court Order and the Green Card and Irish Passport are not items covered by s 77 of the Bankruptcy Act.
2. A declaration that the Applicant be discharged from Bankruptcy forthwith pursuant to s 149 of the Bankruptcy Act as there is no basis for his Bankruptcy being maintained and in any event a Sequestration Order should never have been made.
3. Any other Order that his honourable Court deems fit.
4. Costs.
8 Subsequently, on 5 March 2014 Mr Mulhern filed a further interim application (“second Mulhern interim application”) which in effect reiterated three of the orders he sought in his earlier interim application, namely:
1. The time for service of this Application be abridged.
2. A declaration that the Applicant be discharged from Bankruptcy forthwith pursuant to section 149 of the Bankruptcy Act as there is no basis for his Bankruptcy being maintained and in any event the Sequestration Order should never have been made.
3. Such other Order as this honourable Court deems fit.
4. Costs.
9 The second Mulhern interim application was supported by an affidavit of Mr Mulhern’s solicitor, Mr Douglas McClelland, affirmed 4 March 2014. In that affidavit Mr McClelland deposed as follows:
1. I am the solicitor for the applicant and am authorised to swear this Affidavit.
2. On 18 February 2014 this honourable Court made Orders and directions with respect to the future conduct of the Application and Interim Application. A copy of those Orders appears as “DLM 1”.
3. In the intervening period the first respondents, the trustees has complied with Orders 1 and 2 of the Directions.
4. In so far as Order 3 was concerned the only response to the material provided by the trustees was to be via Submissions only.
5. On 28 February 2014 upon instructions from Mr Mulhern I filed an Application for Review of objection with the Inspector General. A copy of the Application and relevant annexures appears as “DLM 2”.
6. On Monday 3 March 2014 I received a number of distressing telephone calls from Mr Mulhern requesting that he be released from his bankruptcy and be able to return to his family.
7. On Tuesday 4 March 2014 I received an email from Mr Mulhern requesting an urgent Application be filed in this Court seeking relief. A copy of that email appears at “DLM3”.
8. I am informed and verily believe that Mrs Mulhern’s treating Doctor will provide a report should this matter proceed to a hearing on Thursday 6 March 2014.
9. All the facts and circumstances herein deposed to are within my own knowledge save such as are deposed to from information only and my means of knowledge and sources information appear on the face of this my affidavit.
10 The email annexed to Mr McClelland’s affidavit as DLM3 appears to be a copy of an email from Mr Mulhern to Mr McClelland stating that Mr Mulhern’s wife is very ill and has returned to Northern Ireland.
11 It is clear that the relief sought by Mr Mulhern in the first Mulhern interim application and the second Mulhern interim application was substantially identical to the relief sought by Mr Mulhern in his originating application filed on 12 September 2013. The trustees have submitted that if I am minded to dismiss Mr Mulhern’s originating application, it would also be appropriate to dismiss these two interim applications filed by Mr Mulhern. Indeed on 21 February 2014 the trustees filed a Notice of Opposition in respect of the first Mulhern interim application as well as seeking an order that it be summarily dismissed. In the Notice of Opposition the trustees claim that the first Mulhern interim application should be summarily dismissed on the grounds that:
• It is vexatious and is an abuse of process and is liable to be dismissed pursuant to the Federal Court Rules 2011
• The Court has no jurisdiction to make the orders sought in Order 1 of the Interim Application
• The Court has no jurisdiction to make the order sought in Order 3 of the Interim Application because sec 149 of the Bankruptcy Act 1966 relied upon by the Bankrupt does not confer power on the Court to discharge the Bankrupt from his bankruptcy
• The interim application so far as it purports to join the Second and Third Respondents is a nullity because no leave of the Court has been sought authorising the commencement of these proceedings against the Second and Third Respondents both of whom are undischarged bankrupts.
12 On 12 March 2014 when the matter returned before the Court the situation became even more complex. Counsel for Mr Mulhern sought to apply for leave to amend Mr Mulhern’s application to include review of the trustees’ decision pursuant to s 178 of the Bankruptcy Act. After some delay, including temporary adjournment, I refused leave on the basis that time to review the trustees’ decision had expired pursuant to s 178(2) and the Court was not empowered to extend time for the making of an application under s 178(1). To that extent I adopted the principles explained in Heshmati v Burness [2012] FMCA 884 and Tomasetti v Scott [2013] FCCA 1693.
13 Further, on 12 March 2014 the hearing in respect of paragraphs 1 and 2 of the trustees’ interim application was adjourned. The matter returned to Court on 3 April 2014 when legal representatives for both parties made substantive submissions. I reserved judgment at the conclusion of those submissions.
14 Subsequently, on 16 June 2014 the trustees filed a further interlocutory application to have the proceeding (in respect of which judgment had been reserved) reopened, in order to adduce further evidence. The application for reopening was heard on 19 June 2014, at which time Mr McClelland for Mr Mulhern also made an oral application to adduce further evidence in response to the trustees’ further evidence. I indicated to the parties at that point that I would make a ruling on these applications for re-opening at the same time as delivering judgment in the respect of the trustees’ interim application.
EVIDENCE FILED IN THESE PROCEEDINGS
15 Since Mr Mulhern’s application for annulment of his bankruptcy was filed, evidence has been filed on behalf of both the trustees and Mr Mulhern.
Evidence filed on behalf of the trustees
16 A number of affidavits have been filed on behalf of the trustees, namely:
An affidavit of Mr Mark Pearce who is one of the trustees, sworn 24 September 2013.
An affidavit of Mr Michael Graham sworn 20 February 2014. Mr Graham is a solicitor and costs assessor.
Three affidavits of Mr Andrew Heers, who is one of the trustees. These affidavits were dated 14 February 2014, 17 February 2014 and 21 February 2014.
An affidavit of Mr Michael Dullaway, who is a senior manager in the insolvency accounting firm of the trustees. This affidavit was sworn 7 March 2014.
17 The evidence of these witnesses may be summarised as follows.
Mr Pearce’s affidavit
18 Mr Pearce deposes as to some history of the current proceedings before the Court involving Mr Mulhern and the trustees. In particular he gives evidence in relation to:
earlier applications for annulment of his bankruptcy brought by Mr Mulhern;
earlier applications of Mr Mulhern seeking return of passports and permission for overseas travel;
other orders made against Mr Mulhern and facts relevant to the change of venue of these proceedings from Sydney to Brisbane.
19 It is not in dispute that earlier applications for annulment of his bankruptcy brought by Mr Mulhern were:
QUD 208 of 2012 heard by Dowsett J on 31 May 2012;
QUD 242 of 2012 heard by Besanko J on 17 August 2012, being an appeal from orders of Dowsett J in QUD 208 of 2012. The decision in this matter appears at Mulhern v Pearce [2012] FCA 884.
QUD 577 of 2012 heard by Reeves J on 15 November 2012 and 26 November 2012; and
SYG 2805 of 2012 heard by Burnett FM (as his Honour then was). The decision in this matter appears at Mulhern v Pearce [2012] FMCA 1186.
20 All of these applications were dismissed.
21 Earlier applications by Mr Mulhern seeking return of his passports and for permission to travel overseas were:
QUD 176 of 2011 heard by Jagot J on 2 February 2012. The decision in this matter appears at Pearce (Trustee) v Mulhern (bankrupt) (No 4) [2012] FCA 54.
QUD 208 of 2012 heard by Logan J on 19 April 2012. The decision in this matter appears at Mulhern, in the matter of Mulhern (bankrupt) v Pearce [2012] FCA 570.
QUD 244 of 2012 heard by Greenwood J on 19 June 2012. The decision in this matter appears at Mulhern v Pearce [2012] FCA 631.
SYG 2805 of 2012 heard by Burnett FM. The decision in this matter appears at Mulhern v Pearce [2013] FMCA 229.
22 In all of these matters the Court dismissed Mr Mulhern’s application for the return of his passport and other travel documentation, and confirmed the decision of the trustees in respect of Mr Mulhern’s overseas travel.
23 Other applications in this Court include:
QUD 88 of 2010 heard by Reeves J on 6 May 2010; and
QUD 176 of 2011 heard by Logan J on 9 August 2011, by Buchanan J on 11 January 2012 and by Flick J on 16 and 17 January 2012.
24 I note that orders were made in these matters including the issue of a warrant for the arrest of Mr Mulhern, a further order for the issue of an arrest warrant and orders for his detention in custody.
25 Finally I note that in Mulhern v Pearce [2013] FMCA 229 Burnett FM ordered Mr Mulhern to provide security for costs in the amount of $68.158.77. I understand that these costs have not been recovered from Mr Mulhern.
Mr Graham’s affidavit
26 Mr Graham deposes that he is an expert in respect of costs assessment, and gives his qualifications to support his status as an expert. He states that he has been retained by the solicitors for the trustees in bankruptcy to provide an opinion as to the likely amount of party and party legal fees and disbursements that will be incurred by the trustees in bankruptcy in opposing the relief sought by Mr Mulhern in these proceedings. Mr Graham deposes that he has had particular regard to the following documents:
(a) Application No NSD 1888/2013 filed 12 September 2013;
(b) Affidavit of Michael Richard Mulhern filed 12 September 2013;
(c) Bankrupt’s Interim Application filed 13 February 2014;
(d) Affidavit of Michael Richard Mulhern filed 13 February 2014;
(e) Trustee’s Interim Application dated 17 February 2014;
(f) Judgment of Burnett FM in Mulhern v Pearce [2013] FMCA 229;
(g) Judgment of Robertson J in Mulhern v Pearce [2013] FCA 1138;
(h) His own affidavit in Application No SYG 2805/2012.
27 Mr Graham deposes that the amount of party and party costs that the Trustees will incur in these proceedings is $88,072.38 calculated as follows:
(a) Costs already incurred $29,002.38;
(b) Costs that will be incurred in these proceedings until the first day of trial $68,822.38;
(c) Costs for the two further days $19,250.00.
Mr Heers’ affidavit of 14 February 2014
28 In his affidavit sworn 14 February 2014 Mr Heers deposes that:
On 1 February 2012 his co-trustee in bankruptcy, Mr Pearce, swore an affidavit in which he provided details of Mr Mulhern’s failure to comply with his duties under the Bankruptcy Act and undertakings Mr Mulhern gave to comply with his duties including providing the trustees with information and records requested by them.
Other than information disclosed in his Statement of Affairs, information provided under oath at public examinations, a letter from his former solicitors and an incomplete income questionnaire, Mr Mulhern has failed to voluntarily attend to any of the matters requested in Mr Pearce’s correspondence to Mr Mulhern.
Between February 2012 and December 2013 the trustees have written to Mr Mulhern eleven times requesting that he provide information and documents in accordance with his duties under the Bankruptcy Act and the undertakings he gave to the Federal Court on 16 January 2012.
Mr Heers’ letter of 17 December 2013 sets out in detail matters required of Mr Mulhern and directs him to provide information or pay monies to his trustees in bankruptcy. These matters include payment of cash at bank at the date of Mr Mulhern’s bankruptcy; a direction that Mr Mulhern pay income in the amount of $AU31,858.05 by way income contribution, payment of money paid to Mr Mulhern by his daughter; information concerning the deceased estate of Mr Mulhern’s father; information concerning unauthorised overseas travel by Mr Mulhern; information concerning properties jointly owned by Mr Mulhern and his wife in New York; bank, credit card and loan statements; and information concerning Celtic Pacific General Building Contractors LLC, an entity associated with Mr Mulhern.
Mr Mulhern appears to have lived rent free, and had his legal fees and general living expenses paid on his behalf by third parties.
Mr Mulhern continues to fail to pay income contributions to his trustees, or cash at bank at the date of his bankruptcy.
29 In particular, Mr Heers summarises Mr Mulhern’s misconduct as a bankrupt as follows:
24. The Bankrupt, in breach of his duties under the Act and the undertakings which he gave to the Federal Court of Australia on 16 January 2012, has failed to:–
(a) Provide the Trustees with any of the information and documentation requested in the Trustees’ two letters to the Bankrupt dated 18 January 2012 (which appear at Exhibit MWP-22, pages 160 to 222) of the February Affidavit (other than inadequate information provided under oath at public examinations, a letter from the Bankrupt’s former solicitors, Murphy’s Civil Lawyers and an inadequate Income Questionnaire for CAP 2);
(b) Provide the Trustees with any of the information and documentation requested in their correspondence set out in paragraph 4 of this Affidavit; and
(c) Provide the Trustees with any of the information and documentation requested in My 17 December 2013 Letter, or respond to such letter.
25. the Bankrupt left Australia in or about February or March 2011 and on or about 1 August 2011, without obtaining the Trustees’ written consent, being a breach of Section 272 of the Act.
26. The Bankrupt has failed to attend to the following matters during the period of his bankruptcy, being a breach of his obligations under the Act:–
(a) Pay required income contributions to the Trustees for the first contribution assessment period of his bankruptcy, totalling $31,858.05; and
(b) Pay the amount of $US32,000.00 to the Trustees, being funds which the Bankrupt disclosed in his Statement of Affairs that he held in a bank account at the date of his bankruptcy;
(c) Initially attend public examinations pursuant to Section 81 of the Act in the Federal Court of Australia on 9 August 2011, despite being personally served with a summons to attend the public examinations;
(d) Provide the Trustees with completed and accurate Income Questionnaires for the period of his bankruptcy;
(e) Provide the Trustees with requested information and documentation relating to his income;
(f) Provide the Trustees with bank statements for bank accounts which he holds, or has held;
(g) Provide the Trustees with requested information and documentation relating to assets which he owns;
(h) Disclose in his Statement of Affairs that he owns a one-half interest in properties at 10 and 12 (Lot 105 and 106) Brittany Lane, New Rochelle, New York, United States of America;
(i) Voluntarily deliver his passports to the Trustees despite being personally served with a written request to do so on 19 July 2011 and further requests to do so dating back to 15 February 2010;
(j) Attend the Trustees’ office for an interview on 22 July 2011, despite being personally served with a written request to do so;
(k) Provide the Trustees with a copy of his father’s Will;
(l) Provide the Trustees with contact details for the following parties who may be able to provide the Trustees with a copy of his father’s Will:–
(i) His mother; and
(ii) The executors of his father’s deceased estate or the solicitors for the executors;
(m) Provide the Trustees with information and documentation regarding legal fees totalling $107,000 which were paid on his behalf between 11 September 2012 and 20 August 2013;
(n) Provide the Trustees with information and documentation regarding further legal fees which have likely been paid on his behalf;
(o) Provide the Trustees with certain other relevant information and documentation relating to his examinable affairs
27. The Bankrupt has also failed to provide the Trustees with any satisfactory basis for his failure to attend to the matters referred to in paragraph 26 of this Affidavit in accordance with his duties under the Act and the undertakings which he gave to the Federal Court of Australia on 16 January 2012.
28. The Bankrupt’s failure to attend to his statutory requirements under the Act, and comply with the undertakings which he gave to the Federal Court of Australia on 16 February 2012, is:–
(a) Frustrating the orderly administration of his bankrupt estate;
(b) Increasing the costs of administering the bankruptcy;
(c) Frustrating the Trustees’ attempts to identify assets of the Bankrupt which are located in Australia and the United States of America…
(d) Frustrating the Trustees’ attempts to identify and obtain financial information regarding the Bankrupt’s associated entities in the United States of America;
(e) Delaying and frustrating the Trustees’ attempts to obtain the Bankrupt’s banking records, which are relevant to their investigations regarding the Bankrupt’s examinable affairs;
(f) Frustrating the Trustees’ attempts to assess the Bankrupt’s income and collect income contributions from the Bankrupt;
(g) Frustrating the Trustees’ attempts to recover the amount of $US32,000, being funds which the Bankrupt disclosed in his Statement of Affairs that he held in a bank account at the date of his bankruptcy;
(h) Delaying and frustrating the Trustees’ attempts to obtain a copy of the Bankrupt’s father’s Will in order to determine whether the Bankrupt is a beneficiary of his father’s deceased estate and the value of any interest which the Bankrupt has in the estate;
(i) Delaying and frustrating the Trustees’ attempts to obtain other relevant information and documentation relating to the Bankrupt’s examinable affairs.
30 Mr Heers deposes that he is concerned that if Mr Mulhern’s passports are returned to him and he is authorised to travel overseas, he will not return to Australia, particularly given that:
29. …
(a) The Bankrupt failed to voluntarily deliver his passports to the Trustees, despite him being personally served with a written request to do so on 19 July 2011 and further written requests being made of the Bankrupt to do so dating back to 15 February 2010,
(b) The Bankrupt has travelled overseas in or about February or March 2011 and on or about 1 August 2011, despite the Trustees requesting that he deliver his passports to them and notifying him that he is not authorised to travel overseas without their written consent; and
(c) The Bankrupt has failed to comply with his duties under the Act and the undertakings which he gave to the Federal Court of Australia on 16 January 2012 and he has shown a general disregard for his duties as a Bankrupt and the undertakings which he has given to the Court.
31 Mr Heers gave evidence that on or about 11 December 2012 the Trustees filed an objection to Mr Mulhern’s discharge from bankruptcy, which has extended the period of the bankruptcy to eight years from the date he filed his statement of affairs.
32 Mr Heers deposes that the total debts of Mr Mulhern’s bankrupt estate are in the amount of $51,757,750, of which the major creditor is Goldman Sachs following an assignment of a debt owed to the Bank of Queensland to that entity.
33 Finally, Mr Heers deposes that no funds have been realised in the bankrupt estate to the date of the affidavit, and their unpaid remuneration, costs, charges and expenses of the estate including legal costs are in the sum of $515,398.
Mr Heers’ affidavit of 17 February 2014
34 In his affidavit affirmed 17 February 2014 Mr Heers gives evidence in respect of a letter from Mr Mulhern’s solicitors dated 12 February 2014 requesting that the trustees’ objection to Mr Mulhern’s discharge from bankruptcy be withdrawn. Mr Heers states that the letter purports to explain and deal with the various reasons and grounds for an objection being filed to Mr Mulhern’s discharge from bankruptcy.
Mr Heers’ affidavit of 21 February 2014
35 In his affidavit affirmed 21 February 2014 Mr Heers deposes as to the grounds upon which the Trustees assert that the originating application and the first Mulhern interim application should be summarily dismissed. These grounds are as follows.
36 In relation to Mr Mulhern’s originating application filed 12 September 2013:
1. The Trustees lodged an objection to the discharge of the bankrupt from his bankruptcy on 11 December 2012 and provided a copy of the objection to the bankrupt on the same date.
2. The bankrupt has failed to seek to have the objection to his discharge from bankruptcy reviewed by the Inspector-General in Bankruptcy pursuant to sec 149K of the Bankruptcy Act 1966.
3. The last formal request that the bankrupt made for permission to travel overseas to the Trustees was made by the bankrupt on 15 November 2012 and the Trustees made a decision refusing such permission on 30 November 2012 and notified the bankrupt of their decision by letter dated 30 November 2012 …
4. The bankrupt did not seek to review the decision of the Trustees denying him permission to travel overseas within 60 days of the bankrupt being notified of such decision.
5. The bankrupt did not seek permission to travel overseas from the Trustees between 30 November 2012 and the date of the commencement of these proceedings such that the Trustees have made no decision concerning permission for the bankrupt to travel overseas that could be the subject of review pursuant to sec 178 of the Bankruptcy Act 1966.
6. Application SYG 2805/2012 was commenced by the bankrupt on 30 November 2012 and dismissed by the Court on 9 April 2013 and these proceedings were commenced on 12 September 2013.
7. The relief sought in Application SYG 2805/2012 included annulment of the bankruptcy pursuant to sec. 153B of the Bankruptcy Act 1966 and an order for the return by the Trustees of the bankrupt’s Green Card and Irish Passport which relief is claimed in these proceedings.
8. The grounds upon which the bankrupt was seeking annulment of his bankruptcy in Application SYG 2805/2012 and these proceedings are the same grounds.
Affidavit of Mr Dullaway
37 In his affidavit Mr Dullaway deposes as to certain events concerning Mr Mulhern’s briefcase and certain financial arrangements involving Mr Mulhern. Further, Mr Dullaway deposes as to the trustees’ belief that, having regard to Mr Mulhern’s bankruptcy and his failure to pay past costs orders, Mr Mulhern would not be in a position to pay the trustees costs of these proceedings if an order for costs is made against him.
38 In particular Mr Dullaway deposes:
3. On 16 January 2012, I attended this Honourable Court with the Trustees’ solicitor, Mr Paul Lynch. A transcript of that day’s proceeding (“the First Day’s Proceeding”) appears at Annexure RM3, pages 25 to 49 of the Affidavit of the Bankrupt sworn on 28 November 2013.
4. During the course of the First Day’s Proceeding the Australian Federal Police provided me with a briefcase which contained various documents of the Bankrupt which I understand the Australian Federal Police took from the Bankrupt at or about the time of his arrest.
5. On or about the morning of 17 January 2012, I arranged for the contents of the briefcase to be photocopied.
6. On 17 January 2014, I again attended this Honourable Court with the Trustees’ solicitor, Mr Paul Lynch. I brought with me the Bankrupt’s briefcase and the documents which were contained therein at the time it was delivered to me (“the Second Day’s Proceeding”)
7. Shortly after the commencement of the Second Day’s Proceeding I returned the Bankrupt’s briefcase and the original documents which were contained therein, by handing the briefcase to the Court Officer who then returned the briefcase and documents to the Bankrupt in my presence whilst the bankrupt was in Court.
8. …
9. to the best of my knowledge all documents of the Bankrupt which were contained in the briefcase provided to me by the Australian Federal Police were returned to the Bankrupt.
10. The Bankrupt’s United States of America Greencard and Irish and Australian Passports were not contained in the Bankrupt’s briefcase when it was delivered to me by the Australian Federal Police but were located in the Custody Section of the Australian Federal Police at Sydney Airport and were returned to the Trustees subsequently by the Australian Federal Police. The Irish and Australian Passports and Green Card were never in the briefcase at the time it was provided to me by Australian Federal Police.
Evidence of Mr Mulhern
39 A number of affidavits have been filed on behalf of Mr Mulhern. These were:
affidavits of Mr Mulhern, one affirmed 12 February 2014 and one sworn 12 March 2014;
affidavits of Mr McClelland, one affirmed 4 March 2014 and one sworn 26 March 2014.
Mr Mulhern’s affidavit of 12 February 2014
40 In his affidavit affirmed on 12 February 2014 Mr Mulhern deposed (materially) as follows:
All problems facing himself and his family arose from his family’s adverse dealings with the Bank of Queensland. He is concerned that his application has been transferred to Queensland because the nature of his complaints involve the highest levels of government in Queensland and he may not receive an unbiased decision.
The transfer of the matter to the Queensland registry was against his will.
He has effectively been made a prisoner in Australia since his return to Australia and subsequent arrest on 8 January 2012.
He has not seen his wife, nor had any significant family contact since he left New York on 7 January 2012. His employer Mulhern Properties Inc is financially affected by his imprisonment.
In the intervening period his father has died and his wife has emigrated to Ireland for medical reasons and herself become a bankrupt.
He made a complaint to the Australian Federal Police regarding the seizure of his property, however they were unable to be of assistance.
The solicitor for the trustees gave an undertaking to return to Mr Mulhern the contents of his briefcase however this has not been complied with.
He has participated and co-operated fully with the trustees, and should have been automatically discharged from bankruptcy on 23 April 2013. The trustees in bankruptcy have extended his bankruptcy because he has allegedly failed to cooperate.
Mr Mulhern’s affidavit of 12 March 2014
41 In this affidavit Mr Mulhern gives brief evidence relating to a decision of Robertson J of this Court in a related proceeding, and certain documents. Materially, in the body of the affidavit he deposes as follows:
1. …
2. Annexed hereto as MRM1 are true copies of my New York drivers licences issued 27 July 2008 and 7 May 2011 respectively. It was these documents which following my arrest I was left with to survive in Australia since January 2012.
3. On 31 October 2013 I unexpectedly became self represented and appeared before his Honour Robertson J in the Federal Court of Australia, in Sydney….
4. At paragraph 12 and 13 of the decision there is a reference to my consent to an order dismissing my prior annulment proceeds amongst other things.
5. The reason for the withdrawal of those prior application [sic] was because the Courts had indicated that there would be an inordinate delay in having the matter brought before a Court as I remain and always have been extremely anxious to be reunited with my family.
6. I was also informed that such withdrawal would preserve my right to bring other applications.
7. It would appear that the only “assets” that are being administered by the Trustees are my Irish Passport and USA Green Card.
8. …
Mr McClelland’s affidavit of 4 March 2014
42 In this affidavit Mr McClelland deposed as follows:
1. I am the solicitor for the applicant and am authorised to swear this Affidavit.
2. On 18 February 2014 this honourable Court made Orders and directions with respect to the future conduct of the Application and Interim Application. A copy of those Orders appears as “DLM1”.
3. In the intervening period the first respondents, the trustees has [sic] complied with Orders 1 and 2 of the Directions.
4. In so far as order 3 was concerned the only response to the material provided by the trustees was to be via Submissions only.
5. On 28 February 2014 upon instructions from Mr Mulhern, I filed an Application for Review of objection with the Inspector General. A copy of the Application and relevant annexures appears as “DLM2”.
6. On Monday 3 March 2014 I received a number of distressing telephone calls from Mr Mulhern requesting that he be released from his bankruptcy and be able to return to his family.
7. On Tuesday 4 March 2014 I received an email from Mr Mulhern requesting an urgent Application be filed in this Court seeking relief. A copy of that email appears at “DLM3”.
8. I am informed and verily believe that Mrs Mulhern’s treating Doctor will provide a report should this matter proceed to a hearing on Thursday 6 March 2014.
Mr McClelland’s affidavit of 26 March 2014
43 In his affidavit sworn 26 March 2014 Mr McClelland deposed at paragraph 2:
Exhibit “DLM1” is the Affidavit of Joseph Michael Dodrill, the partitioning [sic] creditor, filed in the Supreme Court of Queensland 2487 of 08. It is clear in those proceedings that Mr Lynch, who now represents the trustees, acted for the Dodrills and was armed with the knowledge, at least on 19 May 2008, that Mr Lynch knew that Mr Mulhern was in the United States of America and had no intention to return to Australia.
44 Annexure DLM1 is an affidavit of Mr Joseph Dodrill sworn 19 May 2008. On the copy of Mr Dodrill’s affidavit annexed to Mr McClelland’s affidavit the heading “Circumstances of Mr Mulhern’s non-attendance in Australia” appears to be circled in pen. Paragraphs following that heading in Mr Dodrill’s affidavit appear to be as follows:
25. On Monday 12 May 2008 I was present in the Magistrates Court at Brisbane for the committal proceedings brought against Kenneth John Stockley.
26. At the commencement of the committal proceedings I heard the Prosecutor inform the presiding Magistrate:-
(a) the Prosecutor had spoken with Mr Mulhern a month previous and that Mr Mulhern a month previous has assured the Prosecutor that he would be present in Brisbane on 12 May 2008 to give evidence in the committal proceedings brought against Mr Stockley;
(b) the Prosecutor had spoken to Mr Mulhern’s assistant the previous Monday and she had assured the Prosecutor that Mr Mulhern would be present in Brisbane on 12 May 2008 to give evidence;
(c) the Prosecutor had received an e-mail over the weekend of 10-11 May 2008 from Mr Mulhern which stated that Mr Mulhern would not be returning to Australia because he feared that he would be arrested if he returned but that he would be prepared to give evidence by telephone;
(d) the Prosecutor informed the Magistrate that the Defence Counsel had objected to the giving of evidence by telephone.
26. [sic] The Prosecutor sought an adjournment of the proceedings to consider the Crown’s position and the proceedings were adjourned until 11.30am on that date.
27. I was present in the Magistrates Court when the court resumed the committal proceedings at 11.30am and I heard the Prosecutor inform the presiding Magistrate that the Crown could not guarantee the Court that Mr Mulhern would ever return to Australia. The Prosecutor then informed the Court that the Crown elected to offer no evidence against Mr Stockley.
28. The presiding Magistrate then dismissed the charges against Mr Stockley.
EVIDENCE SOUGHT TO BE FILED IN THESE PROCEEDINGS
45 Both the trustees and Mr Mulhern have sought to file additional evidence in these proceedings.
Mr Pearce’s affidavit of 13 June 2014 (on behalf of the trustees)
46 In his affidavit sworn 13 June 2014 Mr Pearce deposed, inter alia, that he had received a number of phone calls from members of the Australian Federal Police. In particular at [4] and [5] Mr Pearce deposed:
4. On 12 June 2014 I received a telephone call from Federal Agent Kim Dwyer of the Australian Federal Police Brisbane office. Ms Dwyer told me that:-
(a) she had recently spoken to Mr Mulhern and he had requested that she provide him with an Australian Federal Police report number for a report that Mr Mulhern had made to the Australian Federal Police in Sydney in which he complained that his passports had been stolen;
(b) Mr Mulhern told Ms Dwyer that he was speaking with United States authorities about obtaining a new passport and that in order to obtain a United States passport he needed to provide the Australian Federal Police report number concerning his earlier complaint.
5. Having regard to the above matters I am concerned that Mr Mulhern’s apparent attempts to obtain a United States passport are in breach of the undertaking provided by Mr Mulhern to Justice Flick on 16 January 2012 that Mr Mulhern would not seek to obtain another passport.
Mr Lynch’s affidavit of 13 June 2014 (on behalf of the trustees)
47 On behalf of the trustees Mr Lynch, the trustees’ solicitor, has sworn an affidavit attaching a copy of a statement of claim provided to him by Mr McClelland (the solicitor for Mr Mulhern) on 12 June 2014 as well as a redacted copy of a letter from Mr McClelland to the Queensland Law Society dated 26 May 2014.
48 The statement of claim appears to have been prepared on behalf of 12 plaintiffs including Mr Mulhern and his wife, Mrs Jacqueline Mulhern. It names as defendants the Bank of Queensland, Bentleys Corporate Recovery Pty Ltd and Pearce & Heers Insolvency Accountants. It does not appear that the statement of claim has been filed, however the plaintiffs appear to seek relief including various declarations, damages for contravention of the Trade Practices Act 1974 (Cth) and/or the Australian Securities and Investments Corporation [sic] Act 2001 (Cth), compensation, damages for breach of contract and costs.
49 So much of the letter as is annexed to Mr Lynch’s affidavit contains the following paragraph:
In any event in a normal course of bankruptcy, Mr Mulhern our client, should have been discharged from Bankruptcy by operation of law on 23 April 2013. That date was extended by Mr Mulhern’s trustees without notice. The only things of value that Mr Mulhern’s trustees appear to be administering are Mr Mulhern’s Irish passport, (the property of the Irish government) and his USA greencard which allows him to work in the USA. Both of those documents can only be said to be retained for the value of leverage in the off chance Mr Mulhern will submit to disclosing his full financial interest which are located outside the jurisdiction.
Mr Mulhern’s affidavit of 18 June 2014
50 In this affidavit Mr Mulhern deposes, in summary, as follows:
He has not had any physical contact with his wife and young children since 8 January 2012 (he also states that he has not seen his wife or family since January 2008).
He continues to believe that he should never have been made a bankrupt in Australia.
That he was no longer conducting business in Australia nor an Australian resident was recognised by Mr Lynch and the Bank of Queensland when they sent Mrs Mulhern a pre-annulment agreement.
There has been collusion between the Bank of Queensland, the trustees and/or Mr Lynch in maintaining Mr Mulhern’s bankruptcy in order to prevent him bringing to Court his legitimate concerns and claims for damages against those persons who have committed wrongs against himself and his family.
The petitioning creditors, John and Mitch Dodrill, were also party to a conspiracy against him.
He was unable to attend his father’s funeral.
He has instructed his solicitors to write to the trustees’ solicitor to request the return of his property, namely his Irish passport and USA residency card.
He has received inquiries and advice from the FBI and the Irish Foreign Affairs Office, inquiring about his wellbeing, and advising him to report his Irish passport and Green Card as stolen.
On 20 December 2012 his application to renounce his Australian citizenship was accepted by the Department of Immigration and Citizenship.
SUBMISSIONS OF THE TRUSTEES
51 Primarily, the trustees seek an order that the proceedings be summarily dismissed. In the alternative, they seek an order for security for costs.
52 In relation to their claim for summary dismissal the trustees rely on r 1.03(2) of the Federal Court (Bankruptcy) Rules 2005 (Cth) (“Federal Court (Bankruptcy) Rules”) and r 26.01(1) of the Federal Court Rules 2011 (Cth) (“Federal Court Rules”). In summary, they submit as follows:
The only factual assertions relied on by Mr Mulhern in seeking an order that his bankruptcy be annulled pursuant to s 153B of the Bankruptcy Act concern the fact that he was not personally served with either the bankruptcy notices or the creditor’s petitions. However the judgment creditors obtained orders for substituted service of both the bankruptcy notices and the creditors’ petitions, and service was carried out in accordance with those orders. It is irrelevant that Mr Mulhern was not in Australia. In the circumstances Mr Mulhern has no reasonable prospects of proving to the Court that a sequestration order ought not to have been made because he was not served with the relevant bankruptcy notices or creditors petitions.
Mr Mulhern’s evidence does not support the conclusion that he did not carry on business in Australia as at 17 December 2009. He merely makes a bare assertion to this effect. Further, there is ample evidence to support the finding that Mr Mulhern was carrying on business in Australia either personally or by an agent or manager as at 17 December 2009.
There was uncontested evidence before the Court at the time of the making of the sequestration order that Mr Mulhern had a place of business in Australia. Further, there is no challenge by Mr Mulhern to any of the evidence before the Court on 2 February 2010 when a sequestration order was made.
In Pearce v Mulhern [2010] FCA 446 Reeves J found that Mr Mulhern was a shareholder in numerous companies in Australia, and was conducting business in Australia in the period to 3 February 2010 including the date of bankruptcy. ASIC company searches disclosed that Mr Mulhern had a place of residence in Australia, and this evidence was before the Court at the hearing of the sequestration order.
Mr Mulhern has not contested any of the factual evidence upon which the Court relied in making a sequestration order against him. He did not appear at the hearing of the creditor’s petitions against him and took no other step to oppose the sequestration orders sought. Accordingly the Court can make a determination on the uncontested evidence before it that Mr Mulhern has no reasonable prospects of obtaining an annulment of his bankruptcy.
The uncontested evidence before the Court was that Mr Mulhern was hopelessly insolvent as at the date of the making of the sequestration order, owing some $61 million.
Four years has elapsed since the sequestration order was made, giving Mr Mulhern ample time to adduce any evidence.
There is no explanation for Mr Mulhern’s delay in making this application for annulment.
There is no explanation for Mr Mulhern’s delay in making multiple annulment applications, based on the same grounds, or his failure to pursue each application.
The uncontested evidence before the Court discloses that Mr Mulhern had not made full disclosure of his financial affairs.
Mr Mulhern has failed to respond to the trustees’ requests for information.
The rights and interests of the creditors are relevant to the exercise of the discretion to summarily dismiss Mr Mulhern’s annulment application. Mr Mulhern’s continuing misconduct has prejudiced the creditors.
Contrary to his undertaking to Flick J in Pearce (Trustee) v Mulhern (Bankrupt) No 3 [2012] FCA 16, Mr Mulhern has sought to obtain another passport, obviously for the purpose of leaving Australia.
The trustees have continued to administer the bankrupt estate in accordance with their duties and responsibilities and in doing so have incurred costs and expenses in excess of $500,000.
There is a public interest in maintaining and enforcing the provisions of the Bankruptcy Act.
In paragraph 2 of his originating application Mr Mulhern seeks an order pursuant to r 132 of the Federal Court Rules that the bankruptcy of Mr Mulhern be discharged. There is no such relevant rule.
In paragraph 3 of his originating application Mr Mulhern seeks an order that the Court order the trustees to discharge him from his bankruptcy. No source of power for the making of this order is identified.
In paragraph 4 of his originating application Mr Mulhern seeks an order that the trustees return his Irish passport and USA Green Card. Section 77 of the Bankruptcy Act empowers the trustees to retain possession of the bankrupt’s passport and Green Card. It is inappropriate to treat an application for the return of travel documents separately from a request to travel overseas by the bankrupt: Mulhern v Pearce [2013] FMCA 229.
Although Mr Mulhern asserts that the trustees, through their solicitors, provided an undertaking to the Court to return to Mr Mulhern “documents contained in the brief case seized by the trustees on 8 January 2012”, there is evidence before the Court in the affidavit of Michael Dullaway filed 7 March 2014 that the briefcase did not contain Mr Mulhern’s Irish and Australian passports and Green Card. Further, it is apparent from an examination of the transcript of 16 January 2012 that no undertaking was given by the trustees or their solicitor to the Court, and in any event the briefcase and its contents were returned to Mr Mulhern.
If Mr Mulhern wished to travel overseas, he can seek the approval of the trustees, and in the event of refusal he can seek review of that decision by the Court.
The orders sought in Mr Mulhern’s interim application filed 13 February 2014 are unsustainable because he has no reasonable prospects of success.
Although Mr Mulhern submitted that s 77(1)(a)(ii) of the Bankruptcy Act applied only to an Australian passport, no authority was cited for this proposition. There is considerable authority to the contrary.
The terms of Mr Mulhern’s interim application dated 4 March 2014 seek substantive relief which is identical to that sought in paragraph 2 of his interim application filed 13 February 2014, and is an abuse of process.
53 In relation to their application for security for costs the trustees submit that taking into account appropriate matters, security should be ordered because:
Mr Mulhern has no prospects of success in respect of his application for his passport to be returned.
The application for annulment of the bankruptcy faces significant obstacles.
It is open to the Court to infer that the bankrupt cannot satisfy a costs order.
Mr Mulhern has repeatedly and flagrantly breached the Bankruptcy Act and has repeatedly commenced legal proceedings which have no chance of success. These are matters which are relevant to the exercise of the Court’s discretion.
Mr Mulhern admits he has no assets in Australia.
This factual situation is very similar to that before the Court in Mulhern v Pearce [2013] FMCA 229 and the trustees rely on the findings of the primary judge in that case as to relevant discretionary factors.
54 The trustees have also retained an independent expert costs assessor to provide an expert opinion as to the appropriate quantum of an order for security for costs. They seek an order for the provision of $88,072.38 as security for costs.
55 In relation to their interlocutory application for the admission of new evidence in the affidavits of Mr Lynch and Mr Pearce sworn 13 June 2014, the trustees submit, in summary:
The evidence they have sought admitted concerns:
o an admission in a letter from Mr Mulhern’s lawyers that Mr Mulhern has overseas financial interests he has deliberately concealed from the trustees;
o provision by Mr Mulhern’s lawyers of a (possibly unfiled) statement of claim by which Mr Mulhern seeks to sue the trustees;
o an apparent attempt by Mr Mulhern to obtain a US passport having regard to information provided by him to Australian Federal Police.
The admission concerning concealment of overseas financial interests is relevant to whether Mr Mulhern has made full disclosure of his financial affairs to the trustees, and the degree of his co-operation with the trustees.
His conduct in taking steps to obtain a second passport is in breach of the undertaking provided by him to Flick J.
The delivery of the pleading attached to Mr Lynch’s affidavit would constitute a breach of the injunction granted by the Court against Mr Mulhern on 3 April 2014, and is relevant to his conduct.
Although Mr Mulhern contended that evidence as to Mr Pearce’s interaction with the Australian Federal Police was hearsay, the prohibition against hearsay does not apply to interlocutory applications (s 75 Evidence Act 1995 (Cth) (“Evidence Act”).
SUBMISSIONS OF MR MULHERN
56 Legal representatives for Mr Mulhern have filed a number of submissions in respect of the matters currently before the Court, including submissions filed on 13 March 2014 and 26 March 2014. Oral submissions have also been made in Court by Mr Mulhern’s legal representatives.
57 Mr Mulhern submits, in summary, as follows:
On or about 16 January 2012 Flick J ordered the trustee to return all property of Mr Mulhern which was in his seized briefcase. This included the Green Card and Mr Mulhern’s Irish passport. Neither of these documents has been returned, and should be.
His US Green Card is not a document which falls within the scope of s 77(1)(a) of the Bankruptcy Act.
The passport is the property of the Irish government. Section 77(1)(a) of the Bankruptcy Act must be read as referring to an Australian passport.
Mr Mulhern is not an Australian citizen, as he has renounced his Australian citizenship.
He has filed an application in this Court seeking annulment of his bankruptcy pursuant to s 153B of the Bankruptcy Act, which grants the Court discretionary powers to annul bankruptcies in appropriate circumstances.
The sequestration order against him ought never have been made because the jurisdictional pre-conditions prescribed by s 43(1)(b) of the Bankruptcy Act were not met. At all relevant times Mr Mulhern was living outside Australia. The address used in both the bankruptcy notice and the creditor’s petition was a property that the petitioning creditors knew the applicant had sold prior to the issue of those documents.
Being a director and controller of a company that carries on business does not necessarily mean that Mr Mulhern was carrying on a business.
The pre-annulment agreement prepared by the trustees’ solicitor is evidence of Mr Mulhern having no involvement in the business of the Mulhern Group.
Mr Mulhern’s evidence is not contradicted on the critical issue of whether the jurisdictional connecting factors are established to validate the making of the sequestration order.
No evidence has been filed by the trustees to answer Mr Mulhern’s claims that the debt the subject of his bankruptcy is and was paid.
The bankruptcy notice and the creditor’s petition were not personally served on Mr Mulhern, but rather the petitioners were granted orders for substituted service.
In such circumstances there is authority that the defendant ought be permitted to defend if he has a substantial case which he desires to try: Watt v Barnett (1878) 3 QBD 183 at 185.
58 Further, Mr McClelland for Mr Mulhern made oral submissions supporting the admission of Mr Mulhern’s affidavit sworn 18 June 2014 and opposing the admission of the additional material sought to be tendered by the trustees. Mr McClelland sought to file this affidavit of Mr Mulhern in order to answer the statements in the affidavits sought to be tendered by the trustees. In summary, his objections to the admission of the additional evidence tendered by the trustees were (transcript 19 June 2014 p 6):
There was already evidence before the court of the trustee’s objections with respect to the extension of the bankruptcy.
The trustee’s main objection for the extension or the discharge of Mr Mulhern’s bankruptcy was that he was uncooperative. However it is understandable that someone is uncooperative if they believe they have been wronged. Further, Mr Mulhern’s lack of co-operation with his trustees in bankruptcy is nothing new.
CONSIDERATION
Admission of further evidence
59 As it transpired, no objection was made at the hearing by Mr McClelland on behalf of Mr Mulhern to evidence of Mr Pearce as hearsay, and indeed had such an objection been made it could have been answered by reference to s 75 of the Evidence Act on the basis that Mr Pearce stated the source of the relevant hearsay in his affidavit: cf Thomas v Mowbray (2007) 233 CLR 307; British American Tobacco Australia Services Limited v Laurie (2011) 242 CLR 283.
60 As Kenny J explained in Inspector-General in Bankruptcy v Bradshaw [2006] FCA 22 the overriding principle to be applied in considering whether to grant leave to reopen a proceeding to permit the admission of further evidence is whether the interests of justice are better served by allowing or rejecting the application for leave to reopen. However it is also important that the evidence which the applicant for reopening seeks to have admitted is relevant within the meaning of s 56 of the Evidence Act: Bing! Software Pty Ltd v Bing Technologies Pty Ltd (No 2) [2008] FCA 1761; Lee v Professional Services Review Committee No 292 (No 2) [2010] FCA 1490.
61 The additional material sought to be filed by the trustees – that is, the affidavits of Mr Pearce and Mr Lynch – is material which is relevant to the current proceedings, and which was not available at the time of the hearing. The affidavits also contain information relevant to the exercise of the Court’s discretion in determining whether Mr Mulhern’s bankruptcy should be annulled, in that the evidence therein concerns:
the possibility of assets to which Mr Mulhern has not otherwise admitted;
the prospect of Mr Mulhern commencing fresh legal action; and
the question whether Mr Mulhern has taken inappropriate steps to obtain a new passport.
62 In my view these affidavits ought be admitted to evidence.
63 Mr Mulhern’s affidavit of 18 June 2014 to a large degree repeats allegations previously made by him. It also contains scandalous allegations and bare assertions concerning the trustees. However he also seeks to answer the evidence of Mr Lynch and Mr Pearce in their affidavits. While I consider Mr Mulhern’s affidavit to be of little probative value, in the interests of justice I will allow it to be admitted.
The trustees’ interim application – summary dismissal
64 The trustees seek an order for summary dismissal of Mr Mulhern’s originating application filed on 12 September 2013 pursuant to r 1.03(2) of the Federal Court (Bankruptcy) Rules and r 26.01(1) of the Federal Court Rules.
65 Rule 1.03 of the Federal Court (Bankruptcy) Rules provides:
Application of these Rules and other rules of the Court
(1) Unless the Court otherwise orders:
(a) these Rules apply to a proceeding to which the Bankruptcy Act applies; and
(b) Part 14 applies to a proceeding in the Court under the Cross-Border Insolvency Act.
Note 1: The Federal Circuit Court does not have jurisdiction under the Cross-Border Insolvency Act.
Note 2: For the definition of Federal Circuit Court, see section 4 of the Act.
(2) The other rules of the Court apply, to the extent that they are relevant and not inconsistent with these Rules:
(a) to a proceeding in the Court to which the Bankruptcy Act applies; and
(b) to a proceeding in the Court under the Cross-Border Insolvency Act that is commenced after 29 March 2009.
66 Rule 26.01(1) of the Federal Court Rules provides:
(1) A party may apply to the Court for an order that judgment be given against another party because:
(a) the applicant has no reasonable prospect of successfully prosecuting the proceeding or part of the proceeding; or
(b) the proceeding is frivolous or vexatious; or
(c) no reasonable cause of action is disclosed; or
(d) the proceeding is an abuse of the process of the Court; or
(e) the respondent has no reasonable prospect of successfully defending the proceeding or part of the proceeding.
67 In particular, the trustees submit that Mr Mulhern has no reasonable prospect of successfully prosecuting the originating process filed by him on 12 September 2013, and specifically no reasonable prospect of obtaining the orders he sought in that originating process, namely:
• Pursuant to section 153B of the Bankruptcy Act 1966 (Cth) that the Sequestration order made against the Applicant on 3 February 2010 be annulled or in the alternative set aside
• Pursuant to rule 132 of the Federal Court Rules 2011, the bankruptcy of Richard Mulhern be discharged forthwith
• In the alternative, the Court orders the Trustee discharge Michael Richard Mulhern from his bankruptcy
• Further or in the alternative, the Court orders the Trustee to return to Mr Mulhern his Irish passport and his US Greencard.
68 The trustees do not rely on s 31A of the Federal Court of Australia Act 1976 (Cth) (“Federal Court Act”) which has similar language. As Gordon J observed in Zippo Manufacturing Co v Jaxlawn Pty Ltd [2011] FCA 1125 in applications for summary dismissal commenced under r 26.01(1) the Court should have regard only to the statutory language of that rule, and not to s 31A which specifically provides (in s 31A(3)) that a proceeding need not be hopeless or bound to fail for it to have “no reasonable prospect of success”.
69 In applying r 26.01(3), full weight must be given to the expression “no reasonable prospect of successfully prosecuting the proceeding” (cf observations of the High Court in Spencer v Commonwealth of Australia (2010) 241 CLR 118 at 141). Indeed, as Rares J explained in Boston Commercial Services Pty Ltd v GE Capital Finance Australasia Pty Ltd [2006] FCA 1352 at [38], at the heart of the exercise in these circumstances is the Court’s assessment, on the incomplete materials available on a summary application, of the applicant’s prospects of success were the matter to proceed to trial in the ordinary way. His Honour in that case at [43] noted comments of the Judicial Committee of the Privy Council in Hocking v Bell (1947) 75 CLR 125 at 130-131, where their Lordships in turn compared the absence of a reasonable prospect of successfully prosecuting a proceeding with the common law test for determining whether a jury properly instructed could reach a verdict for a plaintiff. In particular, in Hocking v Bell at 130-131 their Lordships approved the following statement of Latham CJ in the High Court:
If there is evidence upon which a jury could reasonably find for the plaintiff, unless that evidence is so negligible in character as to amount only to a scintilla, the judge should not direct the jury to find a verdict for the defendant, nor should the Full Court direct the entry of such a verdict. The principle upon which the section is based is that it is for the jury to decide all questions of fact, and therefore to determine which witnesses should be believed in case of a conflict of testimony. But there must be a real issue of fact to be decided, and if the evidence is all one way, so that only one conclusion can be said to be reasonable, there is no function left for the jury to perform, so that the court may properly take the matter into its own hands as being a matter of law, and direct a verdict to be entered in accordance with the only evidence which is really presented in the case.
(Emphasis added.)
70 Unsurprisingly, traditionally the Courts have approached the power to summarily dismiss a proceeding for want of reasonable prospects of success with extreme caution. As Dixon J said in Dey v Victorian Railways Commissioners (1949) 78 CLR 62 at 91:
A case must be very clear indeed to justify the summary intervention of the court to prevent a plaintiff submitting his case for determination in the appointed manner by the court with or without a jury.
(cf General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 129; Batistatos v Roads and Traffic Authority (NSW) (2006) 226 CLR 256 at 275; Spencer v Commonwealth of Australia (2010) 241 CLR 118 at 140; Tropical Reef Shipyard Pty Ltd v QBE Insurance (Australia) Limited [2011] FCAFC 145 at [32]; Macquarie Bank Limited v Commissioner of Taxation [2013] FCAFC 119 at [6]).
71 In applying these principles to the facts before me, it is in my view clear that Mr Mulhern’s application filed 12 September 2013 has no reasonable prospects of success and should be summarily dismissed. Mr Lynch on behalf of the trustees has provided detailed submissions in support of the trustees’ application for summary dismissal, and in my view those submissions accurately point to the reasons why this is the correct outcome. However as the trustees’ application for summary dismissal was strongly resisted by Mr Mulhern I will set out in detail my reasons for reaching this conclusion.
Paragraph A 1 of Mr Mulhern’s application
72 In paragraph 1 of his application Mr Mulhern seeks an order that:
Pursuant to section 153B of the Bankruptcy Act 1966 (Cth) that the Sequestration order made against the Applicant on 3 February 2010 be annulled or in the alternative set aside.
73 A sequestration order resulting in bankruptcy is a very serious matter. An order annulling a bankruptcy is an equally serious matter, because it means that the sequestration order, the resultant bankruptcy, and the heavy financial and legal constraints placed on the bankrupt, should never have occurred in the first place. Indeed in Theissbacer v MacGregor Garrick & Co [1993] 2 Qd R 223 at 226 the Court of Appeal of Queensland described annulment as the retrospective annihilation of the sequestration order and its consequences. The power of annulment must be exercised with great caution and should not be exercised unless under special circumstances: Starke J in Cameron v Cole (1944) 68 CLR 571 at 594.
74 The task of the Court when an annulment of a bankruptcy is sought is plain from the terms of s 153B of the Bankruptcy Act, which provides:
If the Court is satisfied that a sequestration order ought not to have been made or, in the case of a debtor’s petition, that the petition ought not to have been presented or ought not to have been accepted by the Official Receiver, the Court may make an order annulling the bankruptcy.
75 Section 153B(1) was examined by the Full Court of this Court in Heinrich v Commonwealth Bank of Australia [2003] FCAFC 315. In that case the Court at [20] said:
The Court must first consider whether the sequestration order ought not to have been made. If it so finds, then the Court must consider whether, in the exercise of its discretion, the bankruptcy should be annulled: Re Deriu (1970) 16 FLR 420. Later evidence of previously unknown facts may disclose matters which show that the sequestration order ought not to have been made. That is, the Court is entitled to consider not only the case as disclosed at the time when the sequestration order was made, but also those facts now known then to have existed. The Court excludes those facts which have occurred since the order was made. Later evidence of previously unknown facts may disclose matters which show that the sequestration order ought not to have been made: Re Frank; Ex parte Piliszky (1987) 16 FCR 396; Stankiewicz v Plata [2000] FCA 1185 at [19]; Re Williams (1968) 13 FLR 10 at 23; Re Ditfort; Ex parte Deputy Commissioner of Taxation (1988) 19 FCR 347. These authorities, all of which were cited by the learned primary judge in his judgment, were accepted at first instance as reflecting the relevant law.
76 Accordingly, it follows that I should first consider whether Mr Mulhern has any reasonable prospects of success in claiming that the sequestration order made 3 February 2010 resulting in his bankruptcy should not have been made.
77 In my view he does not. In submissions put to me by Mr Mulhern’s legal representatives (Mr Frigo and Mr McClelland) and in the evidence filed in these proceedings on behalf of Mr Mulhern, it appears that the bases upon which Mr Mulhern contends that the sequestration order should not have been made are:
1. He was never personally served with the bankruptcy notice which founded the creditor’s petition (paragraphs 16-17 of Mr Mulhern’s affidavit filed 12 September 2013) and he was never personally served with the creditor’s petition which founded his bankruptcy (paragraph 20 of Mr Mulhern’s affidavit filed 12 September 2013).
2. The jurisdictional pre-conditions prescribed by s 43(1)(b) of the Bankruptcy Act were not met. At all relevant times Mr Mulhern was living outside Australia. In particular:
(a) he was not an Australian resident from May 2008 (paragraph 11 of Mr Mulhern’s affidavit filed 12 September 2013);
(b) he did not conduct business in Australia as at 17 May 2010 (paragraph 22 of Mr Mulhern’s affidavit filed 12 September 2013).
3. No evidence has been filed by the trustees to answer Mr Mulhern’s claims that the debt the subject of his bankruptcy is and was paid.
78 I will consider each of these arguments in turn.
1. Service of relevant bankruptcy notices and creditor’s petitions
79 In these proceedings the trustees have filed a great deal of material supporting the fact of substituted service of the bankruptcy notices and the creditor’s petitions on Mr Mulhern. In particular I note the following material:
Orders for substituted service on Mr Mulhern of the relevant bankruptcy notices (order of Burnett FM in Application No BRG 758/2009 made 4 November 2009 and order of Burnett FM in Application No BRG 757/2009 made 4 November 2009).
Evidence of service of the relevant bankruptcy notices in compliance with orders of the Federal Magistrates Court (affidavit of NJ Abercrombie sworn 17 December 2009 in Application No BRG 976/2009 and affidavit of NJ Abercrombie sworn 17 December 2009 in Application No BRG 970/2009).
Orders for substituted service on Mr Mulhern of the relevant creditor’s petitions (order of Burnett FM in Application No BRG 976/2009 made 22 December 2009 and order of Burnett FM made 22 December 2009 in Application No BRG 970/2009).
Evidence of service of the relevant creditor’s petitions in compliance with orders of the Federal Magistrates Court (affidavit of AJ Andrews sworn 24 December 2009 and affidavit of PG Lynch sworn 24 December 2009 in Application No BRG 976/2009; affidavit of AJ Andrews sworn 24 December 2009 and affidavit of PG Lynch sworn 24 December 2009 in Application No BRG 970/2009).
80 Section 309(2) of the Bankruptcy Act provides as follows:
Where a notice or other document is required by this Act to be served on or given to a person, the Court may, in a particular case, order that it be given or served in a manner specified by the Court, whether or not any other manner of giving or serving the notice or other document is prescribed.
81 I have already noted that orders were made by the Federal Magistrates Court for substituted service of the relevant bankruptcy notices and creditor’s petitions on Mr Mulhern.
82 In Battenberg v Restrom (2006) 149 FCR 128 the Full Court of this Court considered the question of substituted service of a bankruptcy notice when the debtor is outside the jurisdiction. At [18]-[19] their Honours observed:
[18] In Re Mendonca; Ex parte Commissioner of Taxation (1969) 15 FLR 256 at 261, Gibbs J , sitting as a Judge of the Federal Court of Bankruptcy, observed that subs 309(2) and rule 113(1) (which authorized the Court to give directions as to practice and procedure) conferred ‘... ample power to order service outside the jurisdiction ... .’ of a bankruptcy petition. In that case the petition was issued after the debtor had left Australia. It seems that his Honour did not consider that fact to be a bar to such an order. In other words, exercise of the power conferred by subs 309(2) is not conditional upon a debtor’s presence in Australia. It is true that Gibbs J considered that an order for such service would be made only if one of the criteria identified in par 43(1)(b) were present. In this case the evidence does not presently establish, or deny the existence of, any of those criteria. That is no doubt because issue and service of the bankruptcy notice (as opposed to making a sequestration order) are not conditional upon the existence of one of those criteria.
[19] It is clear that a bankruptcy notice may be served out of Australia, subject to leave being granted by the Court. The only question is as to the mechanics of service. We accept that the notice, itself, can only be served by leave, but as we have pointed out, there is a history of serving notice of proceedings rather than the initiating writ. There is also a history of making orders for substituted service which do not involve actual service. Re Mendonca establishes that subs 309(2) authorizes service out of Australia even when the relevant process was issued after the debtor left Australia. The only jurisdictional requirement is that contained in par 43(1)(b) which has no present application. There is no reason why s 309(2) should not also authorize an order for substituted service of a bankruptcy notice made whilst the debtor is out of Australia.
(emphasis added.)
83 In this case there is also evidence before the Court that, in the application before the learned Federal Magistrate seeking substituted service, the judgment creditors deposed that they were unaware of Mr Mulhern’s location but understood that he was in the United States (affidavits of NJ Abercrombie filed 27 October 2009 in Application No 757/2009 and Application No BRG 759/2009).
84 Mr Mulhern does not contend that the evidence of service of the relevant bankruptcy notices and creditor’s petitions was false. Further, no suggestion is made by Mr Mulhern that there was any defect in relation to the service of the relevant bankruptcy notices or creditor’s petitions. That Mr Mulhern was not personally served with either the relevant bankruptcy notices or creditor’s petitions is not relevant in light of the facts whereby orders for substituted service were made.
85 In my view Mr Mulhern has no reasonable prospects of success in claiming that his bankruptcy should be annulled because he was not personally served with either the relevant bankruptcy notices or creditor’s petitions.
2. Jurisdictional prerequisites
86 Section 43(1) of the Bankruptcy Act provides:
(1) Subject to this Act, where:
(a) a debtor has committed an act of bankruptcy; and
(b) at the time when the act of bankruptcy was committed, the debtor:
(i) was personally present or ordinarily resident in Australia;
(ii) had a dwelling-house or place of business in Australia;
(iii) was carrying on business in Australia, either personally or by means of an agent or manager; or
(iv) was a member of a firm or partnership carrying on business in Australia by means of a partner or partners or of an agent or manager;
the Court may, on a petition presented by a creditor, make a sequestration order against the estate of the debtor.
87 Paragraphs 43(1)(b)(i), (ii), (iii) and (iv) are in the alternative. It was only necessary for the Court, in making the sequestration order, to be satisfied of one of the subparagraphs in s 43(1)(b) as pertaining to Mr Mulhern’s circumstances.
88 Mr Mulhern’s case is that at the time of the act of bankruptcy he was not ordinarily resident in Australia (within the meaning of s 43(1)(b)(i)) and he was not carrying on business in Australia (within the meaning of s 43(1)(b)(iii)). In his affidavit filed 13 February 2014 Mr Mulhern claims that his 2006 Income Tax Assessment was evidence that he was not living in or conducting business in Australia at the time of the making of the sequestration order against him on 3 February 2010.
89 In my view this aspect of Mr Mulhern’s case can be dealt with swiftly.
90 It may well be that Mr Mulhern was not ordinarily resident in Australia as at the date of his act of bankruptcy, being 17 December 2009. The only evidence of Mr Mulhern to this effect, however, is his bare assertion and the 2006 Income Tax Assessment. Conversely, the trustees rely on company searches annexed to the affidavit of Mr Abercrombie dated 2 February 2010 and produced to Reeves J in Pearce v Mulhern [2010] FCA 446, which recorded Mr Mulhern as listing his place of residence in Australia. His Honour in Pearce v Mulhern observed at [48] that there was no evidence before the Court contradicting matters recorded in the company registers of the relevant companies. The evidence of neither party in relation to this issue is particularly compelling. On balance, I am not prepared to say that Mr Mulhern would have no reasonable prospect of establishing that he was not ordinarily resident in Australia at the time of his act of bankruptcy.
91 However, the trustees have filed ample evidence that at the time of his act of bankruptcy Mr Mulhern either had a place of business in Australia for the purposes of s 43(1)(b)(ii) or was carrying on business in Australia for the purposes of s 43(1)(b)(iii) of the Bankruptcy Act. In particular:
As to the fact that Mr Mulhern had a place of business in Australia at the relevant time, the trustees rely on evidence that Mr Mulhern was maintaining an office at Suite 1, The Anchorage, 10-20 Masthead Drive Cleveland as at 17 December 2009 including:
o an email dated 27 October 2009 sent by Mr Mulhern to Mr Marc Clancy in which Mr Mulhern referred to a visit by Mr Clancy to the Cleveland premises and stated “we note you have visited our office in Queensland” (affidavit of Marc Clancy filed in Application No BRG 976/2009 on 2 February 2010);
o evidence of the petitioning creditor, Mr Joseph Dodrill, that he saw Mr Mulhern’s personal assistant Ms Louise Dunker entering the Cleveland premises in September 2009 and on site on 27 January 2010 (affidavit of Joseph Dodrill filed in Application No BRG 976/2009 on 2 February 2010);
o evidence of Mr Samios of his visit to the Cleveland premises on 22 January 2010 including his conversation with a woman who identified herself as “Teresa” and who also identified the premises as being “Mulhern Group” (affidavit of John Samios filed in Application No BRG 970/2009 on 2 February 2010);
o an email dated 29 January 2010 sent by Mr Mulhern to Mr John Samios in which Mr Mulhern stated “we manage the property through our office, Louise Dunker, whom you have already met will remain your first point of contact” (affidavit of John Samios filed in Application No BRG 970/2009 on 2 February 2010).
As to the fact that Mr Mulhern was carrying on business in Australia either personally or by an agent or manager at the relevant time, the trustees rely on evidence including:
o an email dated 27 October 2009 sent by Mr Mulhern to Mr Marc Clancy (affidavit of Marc Clancy filed in Application No BRG 976/2009 on 2 February 2010);
o evidence of Mr John Samios as to a conversation between Mr Samios and persons premises at the Cleveland premises on 22 January 2010 and 27 January 2010 (affidavit of John Samios filed in Application No BRG 976/2009 on 2 February 2010);
o an email dated 29 January 2010 sent by Mr Mulhern to Mr John (affidavit of John Samios filed in Application No BRG 970/2009 on 2 February 2010);
o Mr Dodrill’s identification of Ms Dunker at the Cleveland premises on 22 January 2010 (affidavit of Joseph Dodrill filed in Application No BRG 976/2009 on 2 February 2010);
o finance documentation executed by Mr Mulhern including a guarantee and facility agreements on 21 December 2009, as well as emails to and from his personal assistant Ms Dunker, annexed to Mr Dullaway’s affidavit sworn 7 March 2014.
92 None of this evidence is contested by Mr Mulhern. A bare assertion by him that he was not carrying on business and had no place of business in Australia at the time of his act of bankruptcy is not sustainable in the face of this evidence. On the material he has produced to the Court, he has no reasonable prospect of establishing that his bankruptcy ought be annulled because his circumstances do not fall within s 43(1)(b) of the Bankruptcy Act.
3. Mr Mulhern’s claims that the debt the subject of his bankruptcy is and was paid
93 This is a bare assertion by Mr Mulhern. In the absence of elaboration it is difficult to know its provenance. A claim of this nature goes to the question whether a bankrupt has actually committed an act of bankruptcy, however there is no material before me to suggest that at any time before now Mr Mulhern has sought to challenge his bankruptcy on the basis that the relevant debt was not owing to the petitioning creditor at the time of the sequestration order.
94 In any event, I have already noted it is not in dispute that Mr Mulhern was insolvent at the time the sequestration order was made. Even if he had paid the debt owing to the judgment creditor, the authorities are clear that it is generally not possible for a debtor to make out a case for annulment if he or she was in fact insolvent at the time of being made bankrupt: Re Coyle (1993) 42 FCR 72 at 77-78; De Robillard v Carver (2007) 159 FCR 38 at [140].
95 On the material before me Mr Mulhern has no reasonable prospect of successfully maintaining this argument.
Conclusion
96 There is no material before me to substantiate a claim that a sequestration order should not have been made in respect of Mr Mulhern. The arguments and evidence he has put to this Court are, in my view, without merit. On the material before me Mr Mulhern has no reasonable prospect of successfully prosecuting a claim for annulment of his bankruptcy on this basis.
Paragraph A 2 of Mr Mulhern’s application
97 In paragraph 2 of his application Mr Mulhern seeks an order that:
Pursuant to rule 132 of the Federal Court Rules 2011, the bankruptcy of Richard Mulhern be discharged forthwith.
98 There is no r 132 in the Federal Court Rules. There is r 34.132 however it has no potential application to discharge of a bankruptcy.
99 Mr Mulhern has no reasonable prospect of success in obtaining an order for the discharge of his bankruptcy pursuant to this contention.
Paragraph A 3 of Mr Mulhern’s application
100 In paragraph 3 of his application Mr Mulhern seeks an order that:
In the alternative, the Court orders the Trustee discharge Michael Richard Mulhern from his bankruptcy.
101 In short, the Court has no power to order the trustees to discharge Mr Mulhern from his bankruptcy. A bankrupt is discharged by operation of law in accordance with Part VII of the Bankruptcy Act.
102 Mr Mulhern has no reasonable prospect of success in obtaining an order for the discharge of his bankruptcy pursuant to this contention.
Paragraph A 4 of Mr Mulhern’s application
103 In paragraph 4 of his application Mr Mulhern seeks an order that:
Further or in the alternative, the Court orders the Trustee to return to Mr Mulhern his Irish passport and his US Greencard.
104 Section 77 of the Bankruptcy Act imposes certain duties on a bankrupt. These include:
forthwith after becoming bankrupt, delivering to the trustee all books that relate to the bankrupt’s examinable affairs and the bankrupt’s passport: s 77(1)(a);
attending the trustee whenever the trustee reasonably requires: s 77(1)(b);
giving such information about any of the bankrupt’s conduct and examinable affairs as the trustee requires: s 77(1)(ba);
executing such instruments and generally doing all such acts and things in relation to his or her property and its realization as are required by the Bankruptcy Act or by the trustee or as are ordered by the Court upon the application of the trustee: s 77(1)(e);
disclosing to the trustee, as soon as practicable, property that is acquired by the bankrupt or devolves on the bankrupt, before his or her discharge, being property divisible among his or her creditors: s 77(1)(f); and
aiding, to the utmost of his or her power, in the administration of his or her estate: s 77(1)(g).
105 Clearly one of Mr Mulhern’s chief concerns is the withholding of his passport and US Green Card by the trustees. He has previously agitated unsuccessfully for the return of his passport in this Court (Pearce (Trustee) v Mulhern (Bankrupt) (No 4) [2012] FCA 54; Mulhern v Pearce (Trustee) [2012] FCA 570; and Mulhern v Pearce [2012] FCA 631) and in the Federal Magistrates Court (Mulhern v Pearce [2013] FMCA 229). Similarly, Burnett FM (as his Honour then was) in Mulhern v Pearce [2013] FMCA 229 dismissed an interim application by Mr Mulhern for the return of his Green Card, and Logan J in Mulhern v Pearce (Trustee) [2012] FCA 570 refused to order that Mr Mulhern’s US travel documentation be returned to him.
106 As is clear from s 77(1)(a)(ii) of the Bankruptcy Act, unless the Court orders otherwise, a trustee in bankruptcy has the right to retain the passport of the bankrupt while the bankrupt estate is being administered. This power prevents bankrupts from leaving the jurisdiction without complying with their duties. As explained in McQuade PP and Gronow MGR, Australian Bankruptcy Law and Practice (Thomson Reuters, subscription service) at [272.1.10]:
The restrictions upon overseas travel under the bankruptcy legislation is aimed at ensuring the proper administration of the bankruptcy laws and of bankrupt estates under such laws and not as a penalty imposed upon a citizen as a consequence of becoming bankrupt. The provisions of s 77(1)(a) and s 272 of the Act recognise that a bankrupt’s legitimate desires to travel overseas must, in an appropriate case, be subordinated to what is necessary for the proper and efficient administration of his estate in bankruptcy and the administration of the bankruptcy law: Re Tyndall (1977) 30 FLR 6; 17 ALR 182. Followed in Weiss v Official Trustee in Bankruptcy (1984) 1 FCR 40; Luna v Pattison (2004) 2 ABC(NS) 249; [2004] FMCA 237 (Bryant CFM); Maxwell-Smith v Donnelly (2006) 4 ABC(NS) 621; [2006] FCAFC 150 at [62] (Moore, Nicholson and Conti JJ); Maxwell-Smith v Donnelly (2007) 5 ABC(NS) 232; [2007] FCA 894.
107 The learned authors go on to note (at [272.1.30]) that in considering a bankrupt’s request to travel, the trustee is required to take into account various factors including:
• the genuineness of the bankrupt’s reasons for travel,
• the likelihood of the bankrupt returning to Australia as promised, and
• the impact the bankrupt’s absence will have on the due administration of the estate (eg whether the trustee will need to be in contact with the bankrupt during the proposed period of absence; whether the bankrupt’s trip will result in a benefit to the estate such as the earning of income which could be contributed for the benefit of creditors). See Re Tyndall (1977) 30 FLR 6; 17 ALR 182 at 186, 190–191 (ALR); Re Hicks; Ex parte Lamb (1994) 217 ALR 195, [1994] FCA 1473; Mayger v Prentice [2000] FCA 99 at [11] (Gyles J); Luna v Pattison (2004) 2 ABC(NS) 249; [2004] FMCA 237 at [20]–[31] (Bryant CFM); Casella v Prentice [2002] FMCA 48 at [18]–[19] (McInnis FM); Maxwell-Smith v Donnelly (2006) 4 ABC(NS) 621; [2006] FCAFC 150 at [62] (Moore, Nicholson and Conti JJ); Maxwell-Smith v Donnelly (2007) 5 ABC(NS) 232; [2007] FCA 894.
108 A right of review to the Court of any decision by a trustee refusing a request to travel lies under s 178 of the Bankruptcy Act. I note that Mr Mulhern has previously made such a request and the trustees’ refusal to grant his travel request was upheld by Jagot J in Pearce (Trustee) v Mulhern (Bankrupt) (No 4) [2012] FCA 54. On that occasion her Honour observed:
It seems to me that the Trustees, as I have done, gave genuine and anxious consideration to Mr Mulhern’s request and decided, in all of the circumstances, that it should not be acceded to. I share the Trustees’ view and am not persuaded that it would be just and equitable, in all of the circumstances, for the orders Mr Mulhern seeks to be made.
109 The trustees contend that their retention of Mr Mulhern’s Green Card is pursuant to s 77(1)(a)(i) and s 58 of the Bankruptcy Act. Relevantly, s 77(1)(a)(i) requires a bankrupt to give to the trustee in bankruptcy all books (including books of an associated entity of the bankrupt) that are in the possession of the bankrupt and relate to any of his or her examinable affairs. Section 58 provides that property of the bankrupt, not being after-acquired property, vests in the debtor’s trustee in bankruptcy upon bankruptcy.
110 No real argument of substance has been put by Mr Mulhern for the return of either his passport or Green Card. Clearly the return of Mr Mulhern’s passport would permit him the means to immediately leave Australia, which would be at odds with the decision of the trustees (affirmed in Pearce (Trustee) v Mulhern (Bankrupt) (No 4) [2012] FCA 54) to refuse to allow him to travel internationally. The reason for his apparent anxiety to regain his Green Card is less clear, although it appears to be uncontentious that the Green Card is physical proof that Mr Mulhern is a lawful permanent resident of the United States and to that extent presumably would allow him unimpeded entry to the United States should he also regain his passport.
111 Mr Mulhern’s arguments for the return of these documents are technical, namely:
the passport and the Green Card were in a briefcase, and the solicitor for the trustees undertook to Flick J to return documents in the briefcase to Mr Mulhern;
Mr Mulhern’s passport is an Irish passport, and does not fall within the scope of s 77(1)(a)(ii) of the Bankruptcy Act;
the Green Card does not fall within the scope of s 77(1)(a)(ii) of the Bankruptcy Act
112 In my view these arguments are without merit.
113 First, there is uncontested evidence of Mr Dullaway in this Court that Mr Mulhern’s passport and Green Card were not in Mr Mulhern’s briefcase when the briefcase was provided to Mr Dullaway by the Australian Federal Police following Mr Mulhern’s arrest. To that extent, any order of a Judge of this Court concerning the return of the contents of Mr Mulhern’s briefcase to him would not include the passport and the Green Card.
114 In any event, and in the alternative, I note that there have been several orders of this Court specifically refusing relief sought by Mr Mulhern in the form of the return of his passport and Green Card. Even if those documents had been in Mr Mulhern’s briefcase when the briefcase was delivered to the trustees by the Australian Federal Police, in the absence of specific consideration by Flick J of the question of return of Mr Mulhern’s passport and Green Card to him, I consider it extremely unlikely that his Honour would have intended to circumvent specific rulings of other Judges of this Court in relation to the passport and Green Card by the simple expedient of an order referable to the contents of a briefcase.
115 Second, no authority is cited by Mr Mulhern for the proposition that the power of a trustee in bankruptcy to take possession of a bankrupt’s “passport” in s 77(1)(a)(ii) does not extend to foreign passports. There is, however, extensive authority to the contrary: Groves (bankrupt) v Robinson (trustee) [2013] FCA 490; ex parte Molina re Wiley [1995] FCA 1760.
116 Further, as s 7(1) specifically provides that the Bankruptcy Act extends to debtors being persons who are not Australian citizens, “passport” must be read as including passports of persons who are not Australian citizens. It follows that “passport” within s 77(1)(a)(ii) must include foreign passports.
117 Third, while I accept that a Green Card is not a “passport” and cannot be retained by the trustees pursuant to s 77(1)(a)(ii) of the Bankruptcy Act, nonetheless I accept the argument of the trustees that it is “property” of Mr Mulhern which can properly be seized by them pursuant to s 58 and s 77(1)(a)(i).
Conclusion
I have already noted the caution with which Courts approach applications for summary dismissal. I am satisfied, however, that in this case the order for summary dismissal sought by the trustees in respect of Mr Mulhern’s application filed 12 September 2013 is warranted. I will make an order to that effect.
Other interim applications of Mr Mulhern
118 These first and second interim applications of Mr Mulhern were not the subject of specific argument at the hearing. However it is clear that the relief sought by Mr Mulhern in these interim applications completely overlaps with the relief sought by him in his application filed on 12 September 2013.
119 In that light I agree with the trustees that the interim applications filed by Mr Mulhern on 12 February 2014 and 5 March 2014 should also be dismissed.
Security for costs
120 Although my decision to summarily dismiss Mr Mulhern’s application filed 12 September 2013 as well as his interim applications filed on 12 February 2014 and 5 March 2014 disposes of the matter, the trustees have asked that I comment on their alternative application for security for costs in the event that I had declined to order summary dismissal of Mr Mulhern’s substantive application. I now do so.
121 The Court is empowered by s 56 of the Federal Court Act and r 19.01 of the Federal Court Rules to order security for costs in appropriate circumstances.
122 Recently the Full Court of this Court reiterated the purpose of an order for security for costs, namely to provide protection to a party brought into litigation by a party who is unable to meet the costs of that other party, should the litigation be unsuccessful (Madgwick v Kelly (2013) 212 FCR 1 at [144]; citing Delta Electricity v Blue Mountains Conservation Society Inc [2010] NSWCA 264 at [4]). It is a discretion which must be exercised judicially (Bell Wholesale Co Pty Ltd v Gates Export Corporation (1984) 2 FCR 1 at 3; Madgwick v Kelly at [142]). Relevant factors for the Court to consider in determining whether security for costs should be ordered in any particular case include:
whether the applicant has assets in the jurisdiction;
whether an order for security would stifle the proceedings;
the chances of success of the applicant;
the quantum of risk that the applicant cannot satisfy a costs order;
whether the applicant’s impecuniosity arises from the matter in respect of which relief is sought;
whether there are public interest considerations.
123 In respect of the trustees’ application for security for costs against Mr Mulhern in respect of his application filed 12 September 2013 I make the following observations.
124 First, it appears that Mr Mulhern has no assets in the jurisdiction to satisfy a costs order should he be unsuccessful in respect of his substantive application. This is not surprising in light of his current state of bankruptcy. The fact that he has no assets militates in favour of an order for security for costs, and that he is a bankrupt does not prevent the Court making such an order.
125 Second, it is difficult to ascertain whether an order for security for costs would stifle Mr Mulhern’s capacity to prosecute his substantive application. Although he is a bankrupt, he has been legally represented throughout this proceeding. I do not understand his legal representatives to have acted pro bono. By these comments, I simply note that Mr Mulhern may have received some form of financial support so far as concerns his legal expenses, and to that extent there is no suggestion that an order for security for costs would be oppressive.
126 Third, on the material before me Mr Mulhern has no prospects of success in respect of his substantive application seeking to have his bankruptcy annulled. In addition to the reasons I have already given, I note that:
There has been a delay of more than three years between the making of the sequestration order and the current substantive application.
There is uncontested evidence before the Court that Mr Mulhern had debts in excess of $61 million as at the date of his bankruptcy (affidavit of Mr Mark Pearce sworn 15 May 2012 and filed in proceeding QUD 208/2012).
As I noted earlier in this judgment by reference to affidavits sworn in this proceeding by the trustees, the trustees depose that Mr Mulhern has consistently failed to disclose information as to his assets, and has pursued a pattern of non-cooperation with the trustees. This non-cooperation is relevant to discretionary factors the Court should consider in deciding whether a bankruptcy should be annulled, as explained in Heinrich v Commonwealth Bank of Australia [2003] FCAFC 315.
127 Fourth, in my view in light of Mr Mulhern’s bankruptcy, there is a very serious risk that he would not satisfy a costs order against him. Further, I consider it possible that, in light of his history of lack of cooperation, Mr Mulhern may simply refuse to satisfy a costs order against him in favour of the trustees.
128 Fifth, while Mr Mulhern’s bankruptcy does arise from the sequestration order made against him, it is also not in dispute that at the date of his bankruptcy he was also hopelessly insolvent in the sum of approximately $61 million.
129 Sixth, it is not in dispute that Mr Mulhern has been deliberately uncooperative with his trustees in bankruptcy. This lack of cooperation was conceded by Mr McClelland at the most recent hearing in this matter. I also note that Mr Mulhern has repeatedly commenced proceedings which are, in many respects, repetitive. Indeed I note that he was the subject of a security for costs order by Burnett FM in Mulhern v Pearce [2013] FMCA 229, in respect of a substantive application very similar to that currently before me. In my view these are relevant public interest factors which lend weight to a finding that security for costs should be ordered in this case.
130 To that extent, it follows that, should I be wrong in respect of my decision to order summary dismissal of Mr Mulhern’s application filed 12 September 2013, I consider that it would be appropriate to order security for costs in the sum of $88,072.38, calculated by Mr Graham as follows:
(a) Costs already incurred $29,002.38;
(b) Costs that will be incurred in these proceedings until the first day of trial $68,822.38;
(c) Costs for the two further days $19,250.00.
131 I form this view in light of the evidence provided by Mr Graham, which is not contested. An appropriate order had I not summarily dismissed Mr Mulhern’s substantive application would have been in the following terms:
Pursuant to sec. 56 Federal Court of Australia Act 1976 and/or rule 1.03 (2) Federal Court (Bankruptcy) Rules 2005 and 19.01 (1) Federal Court Rules 2011
a. Michael Richard Mulhern pay the sum of $88,072.38 to the Registrar of the Court as security for the costs of these proceedings within 14 days of the date of this order;
b. These proceedings be stayed until the payment by Michael Richard Mulhern of the amount of security for costs so ordered;
c. In the event that Michael Richard Mulhern does not comply with order a. herein these proceedings shall be deemed dismissed and the costs of the proceedings shall be costs in the administration of the estate of the bankrupt.
REMAINING ISSUES
132 The trustees in paragraph 4 of their interim application sought their costs. However, paragraph 3 of the trustees’ interim application remains extant. It may be that the issue of costs should not be determined until this aspect of the trustees’ interim application has been dealt with by the Court, and I will ask the parties for submissions in respect of these matters.
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I certify that the preceding one hundred and thirty-two (132) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Collier. |
