Commonwealth of Australia v Endresz, in the matter of Endresz

Federal Court of Australia|2020-08-27|Before: Gleeson J

The estate of Allan Paul Endresz be sequestrated under the Bankruptcy Act 1966 (Cth).
The applicant creditor's costs fixed in the sum of $19,739.01 be paid from the estate of the respondent debtor in accordance with the Bankruptcy Act 1966 (Cth).
The applicant provide a copy of this order to the Official Receiver within two days. THE COURT NOTES THAT:
The date of the act of bankruptcy is 3 March 2020. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

GLEESON J: 1 The applicant, the Commonwealth of Australia (Commonwealth), seeks a sequestration order against the respondent (Mr Endresz) under s 43 of the Bankruptcy Act 1966 (Cth) (Act). 2 The creditor's petition, filed on 13 March 2020, states that Mr Endresz owes the Commonwealth the amount of $11,588,824.42 being the balance of the judgment debt amount of $18,633,178.47 pursuant to Order C.3 of the orders dated 21 November 2014 (final orders) made by the Supreme Court of the Australian Capital Territory in proceedings SC 75 of 1999 (ACTSC proceedings) less $7,044,354.05 received by the Commonwealth in part satisfaction of the judgment debt. 3 Paragraph 2 of the creditor's petition notes that the Commonwealth holds security over property of Mr Endresz consisting of an equitable charge over real property, leaving an unsecured debt of $10,308,824.42. 4 The act of bankruptcy stated in the creditor's petition is as follows: The respondent debtor failed to comply on or before 4.30 pm on 3 March 2020 with the requirements of a bankruptcy notice served on him on 11 February 2020 or to satisfy the Court that he had a counter-claim, set-off or cross-demand equal to or more than the sum claimed in the bankruptcy notice, being a counter-claim, set-off or cross-demand that he could not have set up in the action in which the judgment referred to in the bankruptcy notice was obtained.

Mr Endresz' grounds of opposition 5 As stated in the notice filed on 20 April 2020, Mr Endresz opposed the creditor's petition on the following grounds: 1. Under s 52(1)(c) of the Act, the Court cannot be satisfied that the judgment debt upon which the Commonwealth relies is or are still owing. … 3. Under s 52(2)(b) of the Act, the Court must dismiss the petition where Mr Endresz has demonstrated, in all the circumstances, "other sufficient cause" where the Court could not be satisfied that there was "in truth and reality" a debt, where the debt was predicated on an equitable liability under the second limb of Barnes v Addy (1874) LR 9 Ch App 244 that went beyond the "metes and bounds" of the Amended Originating Application (AOA) filed in the ACTSC proceedings seeking only common law restitution. 4. Under s 52(2)(b) of the Act, the Court must dismiss the petition where Mr Endresz has demonstrated in all the circumstances, "other sufficient cause" where the Court could not be satisfied that there was "in truth and reality" a debt, where the debt was predicated on an equitable liability contrary to the findings by Refshauge J that the transactions were, in fact, illegal and void as being ultra vires the Commonwealth in line with the principles stated in Auckland Harbour Board v R [1924] AC 318. It was not open for Refshauge J to impose equitable remedies where s 83 of the Constitution only invokes common law remedies according to the Auckland Harbour Board principles and the proposition that s 64 of the Judiciary Act 1903 (Cth) is "not seen by the courts as overriding all constitutional properties that inhere in the Commonwealth" (Commonwealth of Australia v Davis Samuel Pty Ltd & Ors (No 7) (2013) 95 ACSR 258; [2013] ACTSC 146 (Davis Samuel (No 7)) at 1752. 6 Three other grounds stated in the notice were not pursued at the hearing of the creditor's petition. 7 The Commonwealth contended that the matters raised by Mr Endresz as to the existence of the debt were determined against him by the Full Court in Endresz v Commonwealth of Australia [2019] FCAFC 197 (2019 Full Court judgment). In that decision, the Full Court allowed an appeal by Mr Endresz and others, on the basis (relevantly) that a creditor's petition previously presented in relation to Mr Endresz had lapsed. The Full Court additionally addressed other grounds of appeal that broadly correspond with the matters now raised by Mr Endresz. Mr Endresz acknowledged that the reasons of the Full Court are persuasive on the matters now raised by him. 8 In written submissions, Mr Endresz raised an additional matter, not set out in the notice, disputing that the evidence proves the matters stated in para 2 of the creditor's petition. This argument was also not pursued at the hearing of the creditor's petition. 9 There was no dispute that the formal requirements for the making of a sequestration order were satisfied, except to the extent of the issues identified above.

Legal framework 10 Section 43 of the 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. 11 Section 52 of the Act provides: (1) At the hearing of a creditor's petition, the Court shall require proof of: (a) the matters stated in the petition (for which purpose the Court may accept the affidavit verifying the petition as sufficient); (b) service of the petition; and (c) the fact that the debt or debts on which the petitioning creditor relies is or are still owing; and, if it is satisfied with the proof of those matters, may make a sequestration order against the estate of the debtor. (2) If the Court is not satisfied with the proof of any of those matters, or is satisfied by the debtor: (a) that he or she is able to pay his or her debts; or (b) that for other sufficient cause a sequestration order ought not to be made; it may dismiss the petition. 12 For the purposes of s 52(1)(c), the Court must be satisfied that "in truth and reality" there is a debt owing. Thus, in Wren v Mahoney [1972] HCA 5; (1972) 126 CLR 212 at 224‑225, Barwick CJ said: … [T]he emphasis is upon the paramount need to have satisfactory proof of the petitioning creditor's debt. The Court's discretion in my opinion is a discretion to accept the judgment as satisfactory proof of that debt. That discretion is not well exercised where substantial reasons are given for questioning whether behind that judgment there was in truth and reality a debt due to the petitioner. 13 A Bankruptcy Court may go behind a judgment, even though it was obtained after a contested hearing: Ramsay Health Care Australia Pty Ltd v Compton [2017] HCA 28; (2017) 261 CLR 132 (Ramsay) at [44]. At [54] and [55], Kiefel CJ, Keane and Nettle JJ explained the correct approach as follows: [54] In point of principle, scrutiny by a Bankruptcy Court of the debt propounded by a judgment creditor seeking a sequestration order in no sense involves an attempt to impeach the judgment. A Bankruptcy Court is not concerned with whether the judgment should be set aside as upon an appeal, or even as a default judgment or a judgment obtained by fraud may be set aside; nor is a Bankruptcy Court concerned to deny the effect of the judgment as "res judicata" between the parties to it. A Bankruptcy Court is not concerned to prevent the judgment creditor from invoking the ordinary processes of execution available under the general law. Rather, a Bankruptcy Court is concerned with whether the debt on which it is based is truly a basis for the making of a sequestration order. A Bankruptcy Court has a statutory duty to be "satisfied" as to the existence of the petitioning creditor's debt; a creditor should not be able to make a person bankrupt on a debt which is not provable. [55] The scrutiny required by s 52 as to whether there is, in truth and reality, a debt owing to the petitioning creditor serves to protect the interests of third parties, particularly other creditors of the debtor. It is of critical importance to appreciate that such persons were not parties to the proceedings that resulted in the judgment debt. It has long been recognised that their interest in being paid their debts in full should not be prejudiced by the making of a sequestration order in reliance on a judgment debt which does not reflect the true indebtedness of the debtor to the petitioning creditor. In In re Fraser; Ex parte Central Bank of London, Lord Esher MR said: "The decision is based upon the highest ground - viz, that in making a receiving order, the Court is not dealing simply between the petitioning creditor and the debtor, but it is interfering with the rights of his other creditors, who, if the order is made, will not be able to sue the debtor for their debts, and that the Court ought not to exercise this extraordinary power unless it is satisfied that there is a good debt due to the petitioning creditor. The existence of the judgment is no doubt prima facie evidence of a debt; but still the Court of Bankruptcy is entitled to inquire whether there really is a debt due to the petitioning creditor."

Evidence 14 The Commonwealth's evidence comprised the following: (1) the creditor's petition and affidavit of Zita Maree Rowling sworn 13 March 2020 purporting to verify the facts stated in the creditor's petition; (2) affidavit of service of the bankruptcy notice of Ginette Gay Fellows sworn 12 February 2020; (3) affidavit of service of the creditor's petition of Ms Fellows sworn 20 April 2020; and (4) affidavit of debt and search of Ms Rowling sworn 18 August 2020. 15 Mr Endresz relied on an affidavit sworn by him on 9 June 2020.

Relevant facts 16 The Commonwealth commenced the ACTSC proceedings in January 1999. 17 According to Mr Endresz, the ACTSC proceedings concerned payments of $6 million of the Commonwealth's funds to CTC Resources NL in April 1998 and $2.725 million of the Commonwealth's funds to the Davis Samuel partnership in September 1998. The payments were made by David Muir, an employee of a contractor of the Commonwealth, Callform Pty Ltd. Mr Muir was subsequently convicted in the ACTSC of defrauding the Commonwealth in respect of the payments. 18 On 1 August 2013, Refshauge J handed down judgment on liability in the ACTSC proceedings: Commonwealth v Davis Samuel (No 7) [2013] ACTSC 146. 19 As summarised by Mr Endresz, Refshauge J found that the April and September 1998 payments were ultra vires of the Commonwealth as they were made without Parliamentary authority and therefore illegal and void. His Honour also found that Mr Muir and Callform breached fiduciary duties owed to the Commonwealth in making the payments. Refshauge J went on to conclude, relevantly, that Mr Endresz (among others) was liable under the second limb of Barnes v Addy for knowingly assisting in the breaches of fiduciary duty. 20 On 21 November 2014, the final orders were made against Mr Endresz and others, including Order C.3 referred to above. 21 On 23 December 2014, Mr Endresz and others filed an appeal in the ACT Court of Appeal from the final orders (ACT appeal). 22 In May 2016, Refshauge J heard an application made by Mr Endresz and others to set aside the final orders ex debito justitiae. 23 On 30 June 2016, the ACT appeal was dismissed for want of prosecution: Davis Samuel Pty Ltd v Commonwealth of Australia [2016] ACTCA 22 at [138]. 24 On 13 January 2017, Refshauge ACJ dismissed the application heard in May 2016: Commonwealth of Australia v Davis Samuel Pty Limited & Ors (No 11) [2017] ACTSC 2 (Davis Samuel (No 11)). 25 On 12 April 2017, the Commonwealth filed creditor's petitions against Mr Endresz and other defendants arising from acts of bankruptcy through non-compliance with bankruptcy notices issued in respect of the final orders. 26 On 18 May 2018, Neville J made orders after the event, relevantly extending the creditor's petition against Mr Endresz which otherwise had lapsed on 12 April 2018: Commonwealth of Australia & Anor v Endresz & Ors [2018] FCCA 1543. 27 On 8 March 2019, Flick J made orders sequestering the estate of Mr Endresz and others: Commonwealth of Australia v Endresz [2019] FCA 301 (Flick J's judgment). 28 On 15 November 2019, by the 2019 Full Court judgment, the Full Court set aside the orders of Flick J on the grounds that the creditor's petitions had lapsed, but rejected the appeal on all substantive grounds of opposition raised by Mr Endresz and other judgment debtors. 29 On 5 February 2020, the bankruptcy notice on which the Commonwealth now relies was issued. 30 On 11 February 2020, the bankruptcy notice was served on Mr Endresz. 31 Mr Endresz did not comply with the bankruptcy notice.

No debt owing "in truth and reality" 32 Mr Endresz acknowledged that similar arguments in relation to whether there is a debt owing "in truth and reality" were considered in the 2019 Full Court judgment. 33 Mr Endresz noted (and the Commonwealth did not dispute) that the Full Court's consideration of those arguments did not form part of the ratio decidendi of the Full Court in granting the appeal: see Garcia v National Australia Bank Ltd [1998] HCA 48; (1998) 194 CLR 395 at [56]. 34 Mr Endresz submitted that this Court is bound to consider the arguments afresh and is not bound by the dicta of the Full Court in considering the similar arguments before it. In particular, it is submitted that the Full Court did not properly construe the ambit of the AOA in the ACTSC proceedings and did not properly contend with the special status of the Commonwealth in respect of payments made out of consolidated revenue without Parliamentary authority.

Orders for equitable compensation lay outside the AOA

Mr Endresz's submissions 35 Mr Endresz contended that the final orders are "a nullity" because no claims for equitable relief were made in the AOA, on the basis of which the matter proceeded before the ACTSC. For this reason, Mr Endresz contended, the equitable jurisdiction of the ACTSC was never invoked by the Commonwealth in the ACTSC proceedings. 36 Mr Endresz developed this argument by reference to s 25 of the Supreme Court Act 1933 (ACT) which provided, at all material times, that in every cause or matter commenced in the ACTSC, law and equity shall be administered according to, inter alia, s 26 of that Act. Section 26 provided that in proceedings in the ACTSC, the plaintiff is entitled to equitable relief where, in pre-Judicature Act proceedings of the same type, the plaintiff would have been entitled to such relief. Thus, Mr Endresz argued, any entitlement of the Commonwealth to equitable relief in the ACTSC was conditional upon it bringing an action for such relief in the ACTSC. Pursuant to the Rules of Court in force at the commencement of the proceeding (given force by s 36 of the Supreme Court Act), all actions were to be commenced by the filing of an originating application pursuant to Order 2, which relevantly required identification of each cause of action and the relief sought in respect of each cause of action. 37 Mr Endresz submitted that, consequently, in order to engage the ACTSC's jurisdiction in equity, the Commonwealth was required to identify, in an originating application, each equitable cause of action relied upon and/or the relief sought in respect of those causes of action. 38 The indorsement on the AOA which is in the following terms (also recorded in the 2019 Full Court judgment at [34]): Nature of action: Recovery of money payable by the defendants to the plaintiff being funds of the plaintiff paid:- (a) to the first defendant without the authority of the plaintiff; (b) an accounting or damages for monies paid to the first defendant; (c) a claim for breach of contract as against the third defendant; (d) to the sixth defendant without the authority of the plaintiff; (e) an accounting or damages for monies paid to the sixth defendant; and (f) a claim for breach of contract as against the third defendant. Relief claimed: Repayment of $8,525,000, an accounting for monies had and received by the first defendant and an accounting for monies had and received by the sixth defendant, damages and interest. 39 Mr Endresz contended that none of the matters set out in the indorsement makes any claim for equitable relief (or indeed any relief against Mr Endresz). Rather, the claims and relief relate to restitutionary claims (apart from the claims for breach of contract set out at (c) and (f)). The claim to an accounting at (b) and (e) is clearly a reference to the relief sought of "an accounting for monies had and received by the first/sixth defendant". Next, Mr Endresz argued, the availability of such an accounting is a particular feature of the common law claim for monies had and received citing Turner PG, Leeming M, Heydon D, Meagher, Gummow and Lehane's Equity: Doctrines & Remedies (5th ed, LexisNexis Butterworths, 2002) (Meagher, Gummow and Lehane) at [26-015]-[26-020]. Further, reference to "damages" ought only to be read as common law damages. The term "equitable damages" properly refers to monetary compensation awarded under Lord Cairns' Act in lieu of or in addition to an order for injunction or specific performance: Meagher, Gummow and Lehane at [23-010]-[23-015]. 40 Mr Endresz also cited Re Pritchard [1963] Ch 502, it which it was held that a proceeding that appeared to be duly issued but that failed to comply with a statutory requirement would be a nullity. In that case, at 523-524, the Court, by majority, identified as a "classes of nullity", proceedings which have never started at all owing to some fundamental defect in issuing the proceedings and proceedings which appear to be duly issued but fail to comply with a statutory requirement. 41 Mr Endresz argued that, by failing to institute an action for equitable relief in the AOA, the Commonwealth failed to invoke the equitable jurisdiction of the ACTSC under s 26 and was therefore not entitled to any such relief in the ACTSC. Mr Endresz noted that the ACTSC is a statutory court and to the extent it has jurisdiction in equity, that jurisdiction is granted by statute. The Commonwealth had failed to satisfy the statutory precondition to an award of equitable relief and any such relief granted was therefore a nullity. According to Mr Endresz, it follows that the orders for equitable compensation cannot demonstrate that in truth and reality Mr Endresz is indebted to the Commonwealth by reason of the award of equitable compensation in Order C.3. 42 Alternatively, Mr Endresz argued, relief for equitable compensation granted by the ACTSC was not within the "metes and bounds" of the claim indorsed in the AOA and therefore at all material times, claims for such compensation were liable to be struck out. Mr Endresz observed that an originating process "marks out the perimeter or range of the area within which the plaintiff may express his claim in a formal fashion in his statement of claim" while the statement of claim states the claim endorsed on the writ: Renowden v McMullin [1970] HCA 24; (1970) 123 CLR 584 (Renowden) at 595-596. Mr Endresz referred to the following statement by Barwick CJ and McTiernan J in Renowden at 597: If a statement of claim is amended within the range of the indorsement of the writ there is of course no need to amend the indorsement of the writ. But this does not mean that the indorsement has ceased to have effect. Clearly enough, in our opinion, the ambit of permissible amendment of the statement of claim will be determined by reference to the terms of the indorsement. If the statement of claim, or a proposed amendment of it, should exceed the indorsement, the statement of claim would be struck out or leave to make the amendment would be refused, as the case may be, unless the indorsement can be amended. 43 Mr Endresz submitted that the award of equitable compensation against him fell outside the "metes and bounds" of the AOA by reason of the matters set out above and that irregularity has not been rectified and it remains to this day. This irregularity strikes at the heart of Mr Endresz's alleged indebtedness. Furthermore, any suggestion that Mr Endresz had waived (or otherwise lost) his right to object to the irregularity in the ACTSC proceedings is irrelevant to the question of whether the irregularity called into question his indebtedness for the purposes of these bankruptcy proceedings, in particular having regard to the interests of third party creditors, as identified in Ramsay and set out above.

Consideration 44 Mr Endresz' first proposition fails because the final orders were orders of a superior court and are valid until quashed or set aside on appeal: Berowra Holdings Pty Ltd v Gordon [2006] HCA 32; (2006) 225 CLR 364 (Berowra Holdings) at [11]. Thus, I do not accept the proposition that any failure by the Commonwealth to satisfy a statutory precondition to an award of equitable relief produces the result that the final orders were a nullity. 45 Further, I do not accept that the equitable jurisdiction of the ACTSC was never invoked by the Commonwealth in the ACTSC proceedings because no claims for equitable relief were made in the AOA. Even assuming that no such claim was made in the AOA, the ACTSC's equitable jurisdiction was invoked by the sixth further amended statement of claim (6FASOC) in the ACTSC proceedings, which explicitly sought equitable compensation. 46 In Davis Samuel (No 11), Refshauge ACJ noted (at [112]) that the severity and rigidity of the decision in Re Pritchard had led to new rules of court in England to overturn the decision. At [113], his Honour noted: … McMurdo J went so far as to say in Stone v ACE-IRM Insurance Broking Pty Ltd [2003] QCA 218 at [21] that a rule such as O 69 r 1 of the Supreme Court Rules "had provided that non-compliance with [the rules] should not render any proceedings void unless the court so directed", an approach with which, with respect, I entirely agree. Thus, the room for proceedings being a nullity is very limited, largely restricted to those proceedings where the plaintiff had no standing, no cause of action or no title to sue at the time of commencement of the proceedings: Deveigne v Askar [2007] NSWCA 45; (2007) 69 NSWLR 327. 47 The proposition that failure by the Commonwealth to satisfy a statutory precondition to an award of equitable relief caused the ACTSC proceedings to be a nullity is inconsistent with s 68 of the Court Procedures Act 2004 (ACT), unless that failure can be characterised as a fundamental defect. Section 68 provides: (1) No proceedings in the court are to be invalidated by any formal defect or by any irregularity, unless the court is of opinion that substantial injustice has been caused and that the injustice cannot be remedied by an order of the court. (2) The court may make an order declaring that any proceeding is valid despite any formal defect or any irregularity. 48 However, Mr Endresz pointed to no authority that would support a conclusion that this is a correct characterisation. 49 Further, Mr Endresz' argument is incompatible with the following statement of the High Court in Berowra Holdings, identified by Rares and Markovic J in the 2019 Full Court judgment: [15] In the adversarial system of justice, choice rests primarily with the parties and it is generally the case that the court's power of decision or order is exercised upon the application of a party. Generally there is in law no restriction upon a person's right to start an action and to carry it to the point at which a choice is cast upon the defendant to make some response in order to avoid judgment in default. Once the procedural law has been engaged, all parties to the litigation are subject to it. [16] None of the above denies the possibility of a defendant denying the plaintiff's right to invoke the jurisdiction of the court, for example where the plaintiff's right is conditional upon there being an action cognisable within that jurisdiction. However, the material point is that that denial must be made within the structure of the relevantly engaged procedural law, and not outside it. Accordingly, the defendant may challenge at an interlocutory level the strength of the plaintiff's alleged case by seeking to have a plaintiff's action struck out for failure to disclose a reasonable cause of action, or dismissed as incompetent. Alternatively, the defendant may have recourse to judicial review by a superior court, challenging the right of an inferior court to adjudicate the plaintiff's claim and seeking orders to prevent the inferior court continuing to hear the claim. However, the invocation of jurisdiction ordinarily enlivens the authority of the court in question at least in the first instance to decide whether it has jurisdiction[8]. 50 It is also incompatible with the observations of the Full Court in Betfair v Racing NSW [2010] FCAFC 133; (2010) 189 FCR 356: [51] At trial a party is entitled to have the opposing party confined to that party's pleadings because the first party is entitled to come to trial to meet only the issues raised on the pleadings. However, if the first party does not seek to so confine the opposing party but allows the other party to raise other material facts and issues for the determination of the court, then in our opinion the court is permitted and possibly obliged to decide the proceeding on the further material facts and issues raised and addressed at trial: Banque Commerciale SA (in liq) v Akhil Holdings Ltd (1990) 169 CLR 279 at 296-297; Gould v Mount Oxide Mines Ltd (in liq) (1916) 22 CLR 490 at 517. If it were otherwise, the party who has failed to plead all of the material facts or issues upon which the party's case relies, but has brought those material facts or issues to the attention of his or her opponent at trial, would be denied natural justice if at the end of the trial the court decided the proceeding on the pleadings without notice to that party. The first party in those circumstances would have been denied the opportunity to apply to amend those pleadings so as to formalise what was in fact addressed at the trial. [52] Pleadings are a means to an end and not an end in themselves (Banque Commerciale per Dawson J at 292-3). As early as 1916 Isaacs and Rich JJ said, in Gould at (517): Undoubtedly, as a general rule of fair play, and one resting on the fundamental principle that no man ought to be put to loss without having a proper opportunity of meeting the case against him, pleadings should state with sufficient clearness the case of the party whose averments they are. That is their function. Their function is discharged when the case is presented with reasonable clearness. Any want of clearness can be cured by amendment or particulars. But pleadings are only a means to an end, and if the parties in fighting their legal battles choose to restrict them, or to enlarge them, or to disregard them and meet each other on issues fairly fought out, it is impossible for either of them to hark back to the pleadings and treat them as governing the area of contest. (Original emphasis.) 51 As to the argument based on Renowden, in Davis Samuel (No 11) at [177], Refshauge ACJ observed at [177] that, "apart from a reference at 595 to an insufficient indorsement or a writ not being a nullity, there was no reference in Renowden v McMullin to nullity at all". 52 I also note the view expressed by Blackburn, Deane and Ellicott JJ in J & S Holdings Pty Ltd v NRMA Insurance Ltd [1982] FCA 78; (1982) 41 ALR 539 that the decision in Renowden has no application to a case where an application to amend a statement of claim is made on the hearing of an appeal to regularise the propounding by the plaintiff of his overall claim in a way in which it was, within the relevant limitation period, propounded in the lower court. 53 Finally, I note that Mr Endresz made no submissions as to the legal and factual findings that led to the judgment debt. 54 Having regard to these matters, I am not satisfied that Mr Endresz' arguments set out above provide any good reason to doubt the existence of the judgment debt.

Commonwealth not otherwise entitled to equitable relief by reason of Auckland Harbour Board principles

Mr Endresz's submissions 55 Alternatively, Mr Endresz argued, Refshauge J found that the payments the subject of the ACTSC proceedings, were made without Parliamentary authority and as such the payments were illegal and void under the principles in Auckland Harbour Board v The King [1924] AC 318 (Auckland Harbour Board). 56 Mr Endresz noted that the principle that "no money can be taken out of the consolidated Fund into which the revenues of the State have been paid, excepting under a distinct authorization from Parliament itself" (Auckland Harbour Board at 326) is entrenched by s 81 and s 83 of the Constitution. Consequently, "[a]ny payment out of the consolidated fund made without Parliamentary authority is simply illegal and ultra vires, and may be recovered by the Government if it can, as here, be traced": Auckland Harbour Board at 327. 57 Mr Endresz argued that such payments, give rise to a restitutionary claim in common law (ie a claim in debt) by the Commonwealth. However, unlike other causes of action in restitution, no defence of estoppel or change of position is available: Commonwealth v Burns [1971] VR 825 (Burns) at 830. Further, it applies whether or not funds can be traced in any equitable or proprietary sense but only in the sense that the identity of the recipient can be "traced": Burns at [828-829]. It is a restitutionary right that is "peculiar to the Revenue" (Mason and Carter's Restitution Law in Australia, 3rd Edition (LexisNexis) at [2101] and is not affected by s 64 of the Judiciary Act 1903 (Cth): Burns at 830. 58 Mr Endresz next contended that the peculiar position of the Commonwealth precluded it, in the ACTSC, from seeking accessorial liability in equity under the principles in Barnes v Addy (1874) LR 9 Ch App 244 (Barnes v Addy), relying on the following statement by Lord Selborne LC at 251-252: But, on the other hand, strangers are not to be made constructive trustees merely because they act as the agents of trustees in transactions within their legal powers, transactions, perhaps of which a Court of Equity may disapprove, unless those agents receive and become chargeable with some part of the trust property, or unless they assist with knowledge in a dishonest and fraudulent design on the part of the trustees. (Emphasis added.) 59 Mr Endresz argued that Lord Selborne LC's formulation of accessorial liability was made specifically in respect of trustees, whose legal powers in respect of trust property is a given. The extension of such accessorial liability to fiduciaries generally (Consul Development Pty Ltd v DPC Estates Pty Ltd [1975] HCA 8; (1975) 132 CLR 373 at 397) did not remove the necessary focus on the legal powers of the trustee/fiduciary. Relevantly, the Commonwealth's contractors, in effecting the April and September 1998 payments, had acted not only in excess of their own authority but also that of the Commonwealth. The Commonwealth's contractors accordingly had no legal power and control over trust property or property held subject to a fiduciary obligation; the Commonwealth had not conferred, and could not confer, such power on them. The transactions were void as being beyond the power of the principal to undertake (ie the Commonwealth), as distinct from those which, under Barnes v Addy, might be rendered voidable via the imposition of equity. In those circumstances, the Barnes v Addy principles could not apply. 60 Further, to the extent that the Commonwealth's contractors owed the Commonwealth a fiduciary duty, that duty must be understood in light of the particular relationship. Relevantly, that relationship arose out of contracts between the contractors and the Commonwealth. As stated by Mason J in Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41 at 97: The fiduciary relationship, if it is to exist at all, must accommodate itself to the terms of the contract so that it is consistent with, and conforms to, them. The fiduciary relationship cannot be superimposed upon the contract in such a way as to alter the operation which the contract was intended to have according to its true construction. 61 Mr Endresz argued that it is relevant that the Commonwealth, with its special constitutional rights as enunciated in Auckland Harbour Board, was the counterparty to the relevant contracts. Any fiduciary duty owed to the Commonwealth arising out of those contracts must be construed in that light. To the extent that there might be a fiduciary duty that can relate to the payment of funds from consolidated revenue without Parliamentary authority, it is subsumed by the principles from Auckland Harbour Board. 62 Finally, Mr Endresz contended that, whilst debt and equitable relief are not necessarily mutually exclusive, the position is different for liability under Auckland Harbour Board which operates as a "special overriding principle applicable to public moneys": Burns at 827. Moreover, it is a principle of public law which is separate and distinct from that which may apply in analogous circumstances between subject and subject: Burns at 827; Auckland Harbour Board at 327.

Consideration 63 Rares and Markovic JJ addressed the substance of this argument in the 2019 Full Court judgment at [125] and following. Their Honours observed (at [125]) that Auckland Harbour Board "said nothing of the ability to bring a claim under the second limb of Barnes v Addy or where, in circumstances where liability arises because moneys have been paid without Parliamentary authority and thus illegally, such a claim is precluded". Mr Dunning QC did not dispute this proposition. 64 At [128], their Honours referred to the relevant reasoning in Barnes v Addy and stated: Nothing in that passage permits a conclusion that a third party recipient of funds which were obtained by reason of a transaction which is found to be void, because it was made without authority, is discharged from equitable liability. 65 I respectfully agree. Further, the passage is directed to the importance for commerce that honest agents may rely on the legal powers of the trustee. 66 The submission that the fiduciary relationship arising between the Commonwealth and its contractors is "subsumed by the principles from Auckland Harbour Board" begs the question whether the relevant obligations are affected by the principles articulated in Auckland Harbour Board. 67 The argument that Mr Dunning QC sought to make by reference to Burns was not clear. It is sufficient to say that Burns is not authority for the proposition that the Commonwealth is precluded from bringing a claim under the second limb of Barnes v Addy. Section 64 of the Judiciary Act was raised in Burns against the Commonwealth in support of a contention that the Commonwealth was estopped from denying that payments had been made to her without lawful authority. 68 Accordingly, I conclude that the Auckland Harbour Board principles provide no basis for doubting the existence of the debt on which creditor's petition is based.

Conclusion 69 The requirements for making a sequestration order have been satisfied and a sequestration order should be made against Mr Endresz's estate. I certify that the preceding sixty-nine (69) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Gleeson.

Courts Procedures Act 2004(ACT)s 68

Bankruptcy Act 1966(Cth)ss 43, 52

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