Gargan v Kippin Investments Pty Ltd

2. That upon trial, on the Statement of Claim filed herewith, the bankruptcy of the Applicant be annulled.

3. Such orders as the Court deems appropriate under s 22 Federal Court of Australia Act 1976

6 The amended application also seeks interim relief. The nature of that interim relief is not presently material. As this morning's applications were teased out, it appeared that Mr Gargan's claims, effectively, were as follows: (a) He sought to annul the 1994 bankruptcy pursuant to s 153B of the Bankruptcy Act 1966 (Cth). (b) He sought to annul the bankruptcy in 2004 which had been ordered by Hely J, again pursuant to s 153B. (c) He sought an account against Kippin for its role in the alleged misdeeds of Sam Industries. In particular, a claim was made against Kippin that it had engaged in a breach of fiduciary duty. (d) Mr Gargan sought to articulate a negligence claim against the second respondent, the Official Trustee, which the statement of claim delivered with the amended application quantified at $40 million. (e) Mr Gargan sought the issue of orders in the nature of mandamus against the Official Trustee seeking to compel him to comply with what he said was its duty to seek an account against Sam Investments or Kippin. (f) Mr Gargan articulated a right to civil compensation pursuant to s 13 of the Crimes Act 1914 (Cth) or, latterly developed in argument, s 14 of the Criminal Procedure Act 1986 (NSW). These provisions are common informer provisions which entitle any member of the public to bring criminal proceedings in certain circumstances. (g) Mr Gargan relied upon s 7 of the Bankruptcy Act 1966 (Cth) to maintain an argument that Hely J should not have made him bankrupt. 7 They were the arguments which Mr Gargan deployed. It does not seem to me that on a fair reading of the application or amended application or the statement of claim, necessarily all of those arguments emerged with crystal clarity, or at all. Nevertheless, having regard to the nature of the application, it seems to me to be appropriate to proceed upon the basis that these arguments were articulated in the pleadings. It is appropriate, in those circumstances, to consider each of them. 8 As to the annulment of the 1994 bankruptcy, this Court has vested in it, by s 27 of the Bankruptcy Act 1966 (Cth), exclusive jurisdiction in bankruptcy. The meaning of that expression has recently been considered by a Full Court of this Court in the decision of Meriton Apartments Pty Ltd v Industrial Court of New South Wales [2008] FCAFC 172. It is unnecessary for present purposes to determine the precise boundaries of the nature of jurisdiction in bankruptcy. It suffices to observe that an application to annul a bankruptcy pursuant to s 153B lies squarely within the heartland of that jurisdiction. 9 Section 153B provides: Annulment by Court

(1) 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.

(2) In the case of a debtor's petition, the order may be made whether or not the bankrupt was insolvent when the petition was presented.

10 It is apparent from a cursory reading of s 153B that there are two elements to it. The first is the satisfaction in the Court of the fact that a sequestration order ought not to have been made. The second is an exercise by the court of a discretionary power if that condition precedent is satisfied. 11 That operation of s 153B was confirmed by Flick J in this Court in Samootin v Wagner [2008] FCA 1066 at [32] and [33]. His Honour applied what had fallen from Carr, Finn and Sundberg JJ in Heinrich v Commonwealth Bank of Australia [2003] FCAFC 315 at [20]: 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 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 FCA 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.

12 That decision, of course, binds me. In those circumstances, the first thing which needs to occur in relation to the 1994 bankruptcy is the identification by Mr Gargan of the means by which he says that the condition precedent to the operation of s 153B has been made out. 13 As I understood his submissions, the central proposition was that whilst he accepted he had consented to the making of the sequestration order in 1994, he had done so in circumstances where he was naïve about the operation of the legal system. His admission that the sequestration order had been by consent is recorded in the reasons of Kiefel J in Re Gargan; Ex parte Official Trustee in Bankruptcy [1996] FCA 685 (unreported, Kiefel J, 23 August 1996). Those proceedings involved an earlier attempt by Mr Gargan to annul the bankruptcy. 14 Her Honour recited an affidavit (at [21]) which had been filed by Mr Gargan and which recorded the fact that he no longer opposed the making of the sequestration order. I did not understand Mr Gargan to cavil with that in the course of argument but instead, as it were, he sought to admit and avoid. 15 Notwithstanding his, at times, ingenious submissions, I am not persuaded that the circumstances surrounding the making of the sequestration order in 1994 are such that I could now be satisfied that it ought not to have been made. It seems, therefore, that the power under s 153B to annul the 1994 bankruptcy does not arise. 16 Although it is unnecessary in those circumstances to consider the likely disposition of the exercise of the discretionary power thereby conferred if it had arisen, I should say for completeness, even if the power in s 153B had been enlivened, I would not have exercised the discretion in Mr Gargan's favour. This is because first, it is apparent and indeed accepted, that the sequestration order was not ultimately resisted. Whatever else one might say about that, it provides a powerful discretionary reason, 14 years later, not now to undo it. 17 Secondly and, perhaps, related to the first point, is the fact that there has now been an extensive delay of 14 years. Finally, there is, of course, the fact that a prior application has been made to annul this bankruptcy and has failed. In each of those circumstances, it seems to me that even construing the amended application and statement of claim in the most charitable of fashions, it simply could not be the case that a claim, now to be brought by Mr Gargan to annul the first bankruptcy, would have any prospects whatsoever. 18 I then turn to the annulment of the second bankruptcy. It is not necessary to recite the principles again. It suffices to note that the sequestration order was made by Hely J of this Court on the basis of a costs order, which had been made in the Local Court of the Australian Capital Territory. An appeal from that order, Mr Gargan informed me, was dismissed for want of prosecution. There was, insofar as I can see, no appeal from Hely's J sequestration order. Mr Gargan marshalled a number of original arguments in his attack upon that order. At the outset, it seems to me they should all be rejected, because, without Hely's J order having been set aside on an appeal, it remains valid and binding. It is not possible to attack, in a collateral fashion, an order of that kind. That would be sufficient, I think, to dispose of each of these arguments. 19 However, out of deference to the manner in which those arguments were developed, I should just briefly record them. Mr Gargan effectively advanced six arguments to establish the invalidity of the orders made by Hely J. The first was an argument based upon the Habeas Corpus Act 1640 (16 Car 1, c 10). As I understand the argument, it was that the Act required effectively, a form of trial by jury in relation to the Local Court matter. The consequence of having been deprived of the right to trial by jury was that the Habeas Corpus Act 1640, being an Imperial statute, could not be thwarted by later domestic law, be that Commonwealth law or State law. This argument seems to me to be without merit. Whatever the terms of the Habeas Corpus Act 1640 might be, the powers of Hely J derived from the Federal Court of Australia Act 1976 (Cth), which in turn derived its authority from Chapter III of the Constitution. 20 It is long established that the powers of the Commonwealth Parliament are unfettered within the limits placed upon them by s 51. I take the operation of the Australia Act 1986 (Cth) to be similar. In that circumstance, whatever the contents of the Habeas Corpus Act 1640 - and I say nothing about that - they could not possibly have the consequence of requiring a matter in the Local Court of the Australian Capital Territory to be tried by jury. 21 The second argument was that the International Covenant on Civil and Political Rights done at New York on 16 December 1966 had become Commonwealth law; that the Convention outlawed discrimination; and that the requirement of s 80 of the Constitution that indictable offences against the laws of the Commonwealth be tried by jury was discriminatory because it deprived persons who were not charged with indictable offences of the right to trial by jury. In my opinion, this argument is without merit. The ICCPR does not form part of the domestic law of this country. The Human Rights and Equal Opportunity Commission Act 1986 (Cth) does not make it such. In that circumstance, it is not necessary to comment upon the correctness or otherwise of the discrimination argument. 22 Thirdly, Mr Gargan put forward a similar argument based upon the Statute of Westminster 1275 (3 Edw 1), which required certain modes of trial to be conducted by a jury. Even assuming that the Statute of Westminster 1275 once formed part of the law of New South Wales, Queensland, or even the Australian Capital Territory, it seems to me that to the extent that it was inconsistent with whatever laws the Local Court was operating under, it was impliedly repealed. In any event, I do not think it is possible to extract out of the meagre material of that statute a constitutional requirement to trial by jury in all matters. 23 Fourthly, Mr Gargan relied upon the proposition that the Australian Capital Territory Local Court was a State court and that through various procedural alterations to the jurisdictions of State courts over the last 20 years, they had become unfit receptacles for federal jurisdiction within the meaning of the High Court's decision in Kable v Director of Public Prosecutions (NSW) (1996) 189 CLR 51. This argument is without merit. The Local Court of the Australian Capital Territory is not a State court for the purposes of the doctrine in Kable. Even if it were, Mr Gargan did not point to any provisions of the kind at suit in Kable itself which might give rise to the suggested incompatibility. 24 Fifthly, Mr Gargan placed some reliance upon the Common Law Procedure Act 1899 (NSW) which, outside consent matters, gave a right to trial by jury. The short answer is that that Act has been replaced by the Supreme Court Act 1970 (NSW). In any event, any application that Act may have had to Local Court proceedings in Canberra or to Federal Court proceedings before Hely J, remains even now, elusive. 25 Finally Mr Gargan relied upon the notion that he was pursuing a civil penalty within the meaning of the Evidence Act 1995 (Cth). I do not think that argument has any substance. It follows that I do not think that any of the arguments launched against Hely's J sequestration order have any prospects of success. 26 I turn then to Mr Gargan's suggested claim of account against Kippin. Any right that Mr Gargan has in relation to Kippin must be property which is divisible among creditors within the meaning of s 116 of the Bankruptcy Act 1966 (Cth). The inevitable consequence of that conclusion is that those rights became vested in the Official Trustee in Bankruptcy by s 58 of the Act. 27 Insofar as the argument is advanced based upon s 13 of the Crimes Act 1914 (Cth), that is, on the common informer provisions, I respectfully adopt what was said by Hely J in Commonwealth Bank of Australia v Gargan (2004) 140 FCR 1, where his Honour dismissed the same argument. I should note for completeness that at [11] Hely J relied upon what Adams J had said in Gargan v Scott (unreported, Supreme Court of New South Wales, 27 October 2003) and I respectfully adopt what Adams J said at [4]. I do not think that the argument based upon s 13 has any substance whatsoever. 28 I turn then to the claim articulated in negligence against the Official Trustee for $40 million. Insofar as a claim in negligence is concerned, there is nothing in the statement of claim which adequately explains how that tort is committed or in what ways there was a breach of duty by way of identifying particular facts and features. I refer in particular to the statement of claim at [31]: All attempts to obtain justice from the Official Trustee in Bankruptcy failed, and they resisted all attempts to have the Estate investigated, citing lack of money in the Estate, cooperating with Kippin Investments Pty Ltd to frustrate every attempt to bring about an accounting. This of course cost them more money than they would have spent doing their job properly in the first place.

29 Paragraph 57 of the statement of claim provides: The Official Trustee in Bankruptcy has a duty to require all Associated entities, within the definition of Associated Entities, contained in sections 5A-E Bankruptcy Act 1966 to render an Account under S 86 (1) Bankruptcy Act 1966, a Duty as an agent of the Commonwealth, to apply for and get funds to conduct its business properly, under s 305 Bankruptcy Act 1966, and a Duty to accept and apply the provisions of Section 51 Placitum xxxi, Constitution when the Commonwealth as the Sovereign Government of Australia acquires property from an individual for distribution to other individuals, by a Sequestration Order.

30 Particular 7 of the "fraud" claim provides: By virtue of the failure of the Official Trustee in Bankruptcy as Agent of the Commonwealth to do its due diligence in investigating the estate of the applicant, despite being given all reasonable opportunity to do so, the Applicant claims damages in the amount of $40,000,000.

31 I do not think that on the bare bones of that structure it is possible to say that there is a properly pleaded claim in negligence. 32 Put in those terms, however, that conclusion might only warrant the dismissal of the pleading with leave to re-plead. I do not think that that course should be taken. First, Mr Gargan's negligence claim appears to be based upon an erroneous assumption that s 86 of the Bankruptcy Act 1966 (Cth) imposes upon the Official Trustee a positive duty to take a step to bring about the account. Section 86 provides: Mutual credit and set-off

(1) Subject to this section, where there have been mutual credits, mutual debts or other mutual dealings between a person who has become a bankrupt and a person claiming to prove a debt in the bankruptcy:

(a) an account shall be taken of what is due from the one party to the other in respect of those mutual dealings;

(b) the sum due from the one party shall be set off against any sum due from the other party; and

(c) only the balance of the account may be claimed in the bankruptcy, or is payable to the trustee in the bankruptcy, as the case may be.

(2) A person is not entitled under this section to claim the benefit of a set-off if, at the time of giving credit to the person who has become a bankrupt or at the time of receiving credit from that person, he or she had notice of an available act of bankruptcy committed by that person.

33 One would not have thought that authority was needed for the proposition that that section is a well-known provision which operates in insolvency statutes to bring about a mutual set-off and is not one which imposes upon statutory officers, such as trustees in bankruptcy or liquidators, any affirmative action to take a positive step. 34 However, if authority were needed, the Full Court of this Court has decided in Heinrich v Commonwealth Bank of Australia [2001] FCA 661 that Mr Gargan's argument was unsound. I note that Mr Gargan had some involvement in that case. I refer particularly to [7], [8] and [19]. Nothing in Gye v McIntyre (1991) 171 CLR 609, in my opinion, provides any succour whatsoever to the notion that s 86 imposes affirmative duties. For that reason, I do not think that such a negligence claim, even if articulated, has prospects. In any event, the only real way the claim could currently be formulated would be pursuant to ss 178 and 179 of the Bankruptcy Act 1966 (Cth). 35 They provide: 178 Appeal to Court against trustee's decision etc.

(1) If the bankrupt, a creditor or any other person is affected by an act, omission or decision of the trustee, he or she may apply to the Court, and the Court may make such order in the matter as it thinks just and equitable.

(2) The application must be made not later than 60 days after the day on which the person became aware of the trustee's act, omission or decision.

(1) The Court may, on the application of the Inspector-General, a creditor or the bankrupt, inquire into the conduct of a trustee in relation to a bankruptcy and may do one or both of the following:

(2) The Inspector-General or a creditor may at any time require a trustee to answer an inquiry in relation to the bankrupt's estate or affairs.

36 Mr Golledge makes the point in relation to these provisions, and I accept the submission, that they do not confer an entitlement to hold an inquiry for the purposes of working out whether a trustee should compensate a person. Rather there is a necessity, in the first instance, to demonstrate some actual matters giving rise to the need for the provisions to be activated. I do not think that any such grounds are made out in this case. 37 Mr Gargan also argued that he had an entitlement to the issue of orders in the nature of mandamus against the Official Trustee. There may be a question in my mind as to whether that kind of right is a right which would vest, or would be property which is capable of vesting, in the Official Trustee. There are decisions of the New South Wales Court of Appeal which indicate that the right to seek mandamus may be a right which vests in the trustee: cf. Daemer v Industrial Commission (NSW) (1988) 12 NSWLR 45 at 54. However, for present purposes, it is not necessary to explore that proposition. On any view, the duties which are capable of being litigated in a mandamus application are duties of a public kind. I do not think that even if the difficulties in s 86 could be overcome by Mr Gargan that the duty thereby created could be described as public duty. Accordingly, I do not think that a case for issue of orders in the nature of mandamus has any prospects of success. 38 It is then necessary to say a little bit about the nature of the applications which are currently before the court. The first is an application pursuant to s 31A of the Federal Court of Australia Act 1976 (Cth). Section 31A of that Act provides: Summary judgment

(1) The Court may give judgment for one party against another in relation to the whole or any part of a proceeding if:

(a) the first party is prosecuting the proceeding or that part of the proceeding; and

(b) the Court is satisfied that the other party has no reasonable prospect of successfully defending the proceeding or that part of the proceeding.

(2) The Court may give judgment for one party against another in relation to the whole or any part of a proceeding if:

(a) the first party is defending the proceeding or that part of the proceeding; and

(b) the Court is satisfied that the other party has no reasonable prospect of successfully prosecuting the proceeding or that part of the proceeding.

(3) For the purposes of this section, a defence or a proceeding or part of a proceeding need not be:

(4) This section does not limit any powers that the Court has apart from this section.

39 It has been said that s 31A lowers the bar in terms of summary judgment applications. The operation of s 31A was considered by Rares J in Boston Commercial Services Pty Ltd v GE Capital Finance Australasia Pty Ltd (2006) 236 ALR 720. I do not think it necessary to enter into the interesting questions of what the particular standard imposed by the new version of s 31A might be. This is because whatever the bar is, the current applications pass well beneath it. That is, I find that they are, despite their creativity, devoid of merit. It follows, in my opinion, that there should be orders under s 31A. That makes it unnecessary for me to consider the operation of Order 20 rule 5 or to consider the operation of Order 11 rule 16 in so far as the statement of claim is concerned. 40 Mr Gargan argued that s 31A was constitutionally invalid. Normally s 78B of the Judiciary Act 1903 (Cth) would impose upon this Court an obligation not to proceed to deal with Mr Gargan's constitutional argument without adjourning the proceeding in order to allow the various Attorneys-General for the States and of the Commonwealth a chance to intervene. However, s 78B operates on constitutional matters. I do not think that a constitutional argument which is completely devoid of merit amounts to a constitutional matter within the meaning of those provisions. To make good that point, it is necessary to take account of what the argument is. 41 The argument is that s 31A operates to "dictate" to the Federal Court what the outcome of the case is. There may well have been an issue if s 31A had commanded the Court to dismiss a proceeding which had any of the qualities described in s 31A(1)(a) or (b). However, the plain text of s 31A is that the Court "may" give judgment. There is simply no room to argue whatever that s 31A operates as a dictation. Accordingly I reject that argument. The necessary consequence is that there must, on both notices of motion, be judgment for the first and second respondents under s 31A(2) of the Federal Court of Australia Act 1976 (Cth). 42 The first and second respondents apply for indemnity costs orders in relation to the dismissal which I have just ordered. It seems to me that in the exercise of the costs discretion the following matters are pertinent. First, the current proceeding involves attempts to re-litigate a number of matters which Mr Gargan has extensively litigated in the past and unsuccessfully. Secondly, in relation to the annulment application, he has made at least one prior annulment application before Kiefel J and failed. Thirdly, he has sought to articulate an argument based upon s 86 of the Bankruptcy Act 1966 (Cth), which operation has been determined, to his knowledge, in a contrary way by the Full Court in Heinrich. 43 Finally, I take into account as a matter of overall impression, that this proceeding commenced by Mr Gargan, in common with a number of other proceedings commenced by him, involve what appear on their face sometimes to be engaging, if obscure, legal questions. However, those arguments are rarely thought through to their final conclusion, and despite Mr Gargan's protestation of having studied law for two years, seem to indicate a desire more to be involved in the disposition of clever legal arguments in court rather than any focused attention upon what the consequences of his actions might be in relation to the parties against whom he brings his proceedings. 44 I am particularly mindful of the fact that Mr Gargan is an undischarged bankrupt. The provisions of the Bankruptcy Act 1966 (Cth) are, by and large, directed to preventing the bringing of proceedings of the current kind. Although Mr Gargan articulated various ways in which it might plausibly be thought in some obscure circumstances that the current applications might be brought, I have found that those attempts were wholly unsuccessful and meritless. It seems to me that it is appropriate to mark disapprobation of the bringing of these proceedings by the making of the costs orders sought. I certify that the preceding forty-four (44) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Perram.

Associate: Dated: 8 December 2008 The applicant appeared in person.

Counsel for the First Respondent: Mr CP Carter

Solicitors for the First Respondent: Brock Partners Solicitors

Counsel for the Second Respondent: Mr SM Golledge

Solicitors for the Second Respondent: Australian Government Solicitor