Klewer v Official Trustee in Bankruptcy

LEGISLATION CITED: Vexatious Proceedings Act 2008, s 16 Bankruptcy Act 1966 (Cth), ss 58, 116

Attorney General (NSW) v Klewer (No 3) [2010] NSWSC 9; 264 ALR 535 Jones v Skyring [1992] HCA 39; 109 ALR 303 Kay v Attorney General [2000] VSCA 176; 2 VR 436 CASES CITED: Klewer v Official Trustee in Bankruptcy [2008] FMCA 274 Klewer v Official Trustee in Bankruptcy (No 2) [2008] FCA 1788 Klewer v Attorney General in and for the State of New South Wales [2010] NSWCA 219 Re Vernazza [1960] 1 QB 197

Lucy Patricia Klewer (Applicant) PARTIES: Official Trustee in Bankruptcy (Respondent) Attorney General in and for the State of New South Wales (pursuant to s 16 of the Vexatious Proceedings Act 2008)

Applicant in person COUNSEL: F Assaf (Respondent) K E Oliver (Attorney General in and for the State of New South Wales)

Applicant in person SOLICITORS: Harris Freidman Lawyers (Respondent) I V Knight, Crown Solicitor (Attorney General in and for the State of New South Wales)

LOWER COURT JURISDICTION: Supreme Court

LOWER COURT DATE OF DECISION: 18 December 2009

LOWER COURT MEDIUM NEUTRAL CITATION: [2009] NSWSC 1396

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 2008/283972

McCOLL JA CAMPBELL JA SACKVILLE AJA

29 September 2010 LUCY PATRICIA KLEWER v OFFICIAL TRUSTEE IN BANKRUPTCY Judgment THE COURT 1 By a summons dated 27 May 2010, the applicant seeks leave to appeal from orders made by a Judge of this Court (Schmidt J) ("Orders") on 18 December 2009: Official Trustee in Bankruptcy v Klewer [2009] NSWSC 1396. Her Honour acceded to motions filed by the respondent ("Official Trustee") and made the Orders striking out the applicant's defence and granting the Official Trustee summary judgment for possession of a property at Korora in New South Wales ("Korora Property"). In addition, the primary Judge struck out a cross-claim filed by the applicant. 2 A sequestration order was made against the applicant's estate on 20 September 2005. The property of the applicant, including the Korora Property, thereupon vested in the Official Trustee: Bankruptcy Act 1966 (Cth) ("Bankruptcy Act"), s 58(1)(a). The Official Trustee became registered as proprietor of the Korora Property on 20 July 2007. 3 The applicant has thus far resisted attempts to get her to vacate the Korora Property. She has not paid any rent. She claims that she has paid land tax in respect of the Korora Property even though she is no longer the registered proprietor. 4 The Official Trustee commenced proceedings on 15 April 2008 seeking possession of the Korora Property. The Orders were made in these proceedings. 5 Shortly before the Official Trustee commenced the proceedings seeking possession of the Korora Property, the Federal Magistrates Court delivered judgment on an application by the applicant that the Korora Property be declared non-divisible among her creditors. The applicant contended in those proceedings that she held the Korora Property in trust for her son and that accordingly it was not an asset in her estate divisible among creditors (Bankruptcy Act, s 116(2)(a)). She further contended that substantially the whole of the moneys used to purchase the Korora Property constituted "protected money" for the purposes of s 116(2D) of the Bankruptcy Act and for that reason also the Korora Property was not an asset in her estate divisible among creditors (s 116(2)(n)). 6 The Federal Magistrates Court (Raphael FM) rejected the applicant's claims: Klewer v Official Trustee in Bankruptcy [2008] FMCA 274. His Honour found that although a small proportion of the funds used to purchase the Korora Property comprised "exempt money", the applicant had not established that "substantially the whole of the money paid for the purchase" was protected money. Accordingly, s 116(2D) of the Bankruptcy Act was not satisfied and the Korora Property was property divisible among the applicant's creditors. 7 The applicant's appeal to the Federal Court was dismissed: Klewer v Official Trustee in Bankruptcy (No 2) [2008] FCA 1788. Her application for special leave to appeal to the High Court was dismissed by Hayne and Crennan JJ on 5 August 2009. Their Honours observed that there was no reason to doubt the correctness of the decisions made by the courts below. 8 The applicant subsequently commenced new proceedings in the Federal Magistrates Court seeking declarations that the Korora Property was non-divisible among the creditors of her bankrupt estate. This application, which was based on the same grounds as the earlier proceedings, was dismissed on 22 December 2009. 9 In response to the Official Trustee's motions in the present proceedings the applicant followed the practice adopted by her in other proceedings of repeatedly seeking adjournments of the Official Trustee's motions: see Klewer v Attorney General in and for the State of New South Wales [2010] NSWCA 219. She also withdrew from the hearing, but later sought and was granted the opportunity to make written submissions. 10 The primary Judge noted that the applicant's defence to the Official Trustee's claims appeared to rest on a misapprehension of the judgments given in the earlier proceedings determined by the Federal Magistrates Court and, on appeal, by the Federal Court. Her Honour, after referring to the judgments in the earlier proceedings, reasoned as follows (at [23]-[27]): "23 As the Official Trustee submitted, Mrs Klewer advances no basis upon which the further money which she may have paid off the mortgage since these judgments were given, or the further sums which she now has available to pay, can be treated any differently under s 116 of the Bankruptcy Act , upon which she relies. The section does not give her a right to possession of the property. That is what is here in issue between the parties. There is no question that the Official Trustee is the registered proprietor of the property. Mrs Klewer has not advanced any basis upon which it might be concluded that she has a right to possession of the property which she no longer owns, or that the property is no longer a divisible asset vested in the Official Trustee. 24 It is also apparent that the relief which she seeks in the new proceedings which she has brought in the Federal Magistrates Court and the defence which she seeks to advance in these proceedings, are subject to res judicata, or issue estoppel, given the earlier judgments given by those courts. 25 A defendant is, of course, not to be denied a contested merits hearing unless the absence of a defence is clearly demonstrated. The test which the Official Trustee must meet is that discussed in General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 129. I am satisfied that this is such a case. There are no serious conflicts on the facts. The legal issues on which Mrs Klewer now relies were dealt with in the earlier proceedings which she brought in the Federal Magistrates Court and the Federal Court. Her application for special leave in the High Court failed. The hearing of these proceedings was deferred, pending that consideration. In those circumstances, it must follow that the onus which now falls on the Official Trustee to show that there is no possibility of Mrs Klewer's defence succeeding has been satisfied. What she seeks to agitate in the new proceedings which she has taken in the Federal Magistrate's Court and what she has here advanced in relation to s 116 of the Bankruptcy Act , plainly raises no new issues upon which this Court's consideration of the claim for possession could depend. 26 Mrs Klewer's endeavours to prevent the Official Trustee from obtaining possession of the property may be understandable in a human sense, but this Court is bound to adhere to the requirements imposed upon it by s 56 of the Civil Procedure Act 2005 , which provides that 'The overriding purpose of this Act and of rules of court, in their application to civil proceedings, is to facilitate the just, quick and cheap resolution of the real issues in the proceedings'. In this case, that purpose will not be achieved if the orders sought by the Official Trustee are refused. 27 I am satisfied that it has been shown that Mrs Klewer has no defence to the Official Trustee's claim." 11 The primary Judge then considered the Official Trustee's application to strike out the applicant's cross-claim. In that cross-claim, the applicant sought damages for losses allegedly sustained by her as the result of a fire that occurred on the Korora Property in December 2007. 12 As the primary Judge pointed out, the fire occurred after the Official Trustee had become the registered proprietor of the Korora Property, but at a time when the applicant remained in possession. As her Honour also pointed out, the cross-claim did not identify any basis on which the applicant's claims could succeed. In particular, it was not alleged that the fire resulted from any act or omission of the Official Trustee nor that the Official Trustee breached any duty owed to the applicant. Her Honour struck out the cross-claim but gave the application leave to replead one aspect of the claim. 13 The applicant was the subject of orders made under s 84(1) of the Supreme Court Act 1970 ("Supreme Court Act") on 5 February 2010: Attorney General (NSW) v Klewer (No 3) [2010] NSWSC 9; 264 ALR 535. Those orders are deemed to be vexatious proceedings orders under the Vexatious Proceedings Act 2008 ("VP Act"): VP Act, sch 1, cl 3(2). An application by the applicant for leave to appeal from the orders made under s 84(1) of the Supreme Court Act has been dismissed in a judgment also being delivered today: Klewer v Attorney General in and for the State of New South Wales [2010] NSWCA 219. 14 The application for leave to appeal from the Orders constitutes the institution of proceedings for the purposes of s 14(1) of the VP Act: Jones v Skyring [1992] HCA 39; 109 ALR 303, at 310, per Toohey J, citing Re Vernazza [1960] 1 QB 197, at 209-210, per Ormrod LJ; at 215, per Willmer LJ; cf Kay v Attorney General [2000] VSCA 176; 2 VR 436, at 446 [27], per Chernov JA. The applicant therefore requires leave to file the summons seeking leave to appeal: VP Act, s 14(2). To obtain such leave, she must satisfy the Court that the application for leave to appeal is not a vexatious proceeding and that there are prima facie grounds for making the application for leave to appeal: VP Act, s 16(4). 15 The applicant has not advanced any argument capable of satisfying this Court that there are prima facie grounds for her application for leave to appeal from the orders made by the primary Judge. As the primary Judge held, the applicant is simply attempting to agitate claims already made by her and rejected in other legal proceedings. This is precisely the kind of repetitive and futile litigation by a vexatious litigant that the VP Act is designed to prevent. 16 It is appropriate to mention, however, that one basis upon which the applicant claimed before the Federal Magistrates Court that the property was held on trust for her son was because she had declared a trust in her will, which she had then lost. The learned magistrate concluded at [15] that: "… Mrs Klewer did at no time intend to create an existing trust for the property, only that she intended to leave the property to her son Robert through a trust, to be administered by one of her other children. The declaration of a trust by will does not take effect until the will takes effect. I am satisfied that there is no enforceable trust in favour of Robert Klewer." 17 The applicant says she has now found the will in question, and wishes to present it as "new evidence". It is unnecessary to examine the terms of the document said to be the newly discovered will. Whatever its terms, it could not be deployed, in proceedings in the Supreme Court, to overcome the effect of the res judicata or issue estoppel that arises from the earlier judgments of the Federal Magistrate's Court and, on appeal, of the Federal Court.

18 The Attorney General appeared on the hearing of this application. His counsel, Mr Oliver, submitted that, once a vexatious proceedings order had been made, the court approached any subsequent application for leave to institute proceedings with a presumption that the proceedings sought to be instituted were vexatious. We do not agree. Rather, once a vexatious proceedings order has been made, VP Act s 16(4) has the effect of casting an onus on the person against whom the order has been made to satisfy the court that the proceedings are not vexatious proceedings, and that there are one or more prima facie grounds for the proceedings.

19 No notice of the application pursuant to s 14(2) of the VP Act was given to the Solicitor General before the hearing. However, the Court made orders for service of the Solicitor General in conformity with the requirements of s 16(1)(a) and (b) of the VP Act. The Solicitor General advised the Court that he did not wish to be heard. 20 Leave to institute the application for leave to appeal (or an appeal if leave not be required) is refused. Save that there is no occasion to make any order for costs in favour of the Attorney General (who made brief submissions), that refusal should be with costs. **********

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