Maclean v Brylewski, in the matter of Maclean

FACTUAL BACKGROUND 6 Ms Maclean is the widow of the late Emil Radecki ("the deceased") who died on 17 April 2022. Mrs Brylewski is his niece. The deceased resided for many years in a home unit situated at 1/1 Rome Street, Canterbury, NSW ("the Canterbury property"). 7 The judgment debt was founded on a costs order made by the New South Wales Court of Appeal on 8 June 2023 in Maclean v Brylewski [2023] NSWCA 128. That proceeding was an application for leave to appeal orders made by Basten AJ on 6 December 2022 in proceedings commenced in the Common Law Division of the New South Wales Supreme Court by Mrs and Mr Brylewski against Ms Maclean, Mr David Rayner and the deceased for possession of the Canterbury property ("the Common Law proceeding"). The Canterbury property was from time to time occupied by the deceased, Ms Maclean and Mr Rayner prior to the deceased's death. The Court of Appeal dismissed the application for leave to appeal with costs. 8 Ms Maclean says she met the deceased in 2008 when she was living in Katoomba with Mr Rayner in a property jointly owned by them. According to her evidence Ms Maclean and Mr Rayner were not romantically involved. Sometime after that, Mr Rayner would from time to time stay in a spare room during the week as the deceased's guest when Mr Rayner was working in Sydney. 9 In 2010, the deceased had a heart operation and, during this recovery, appointed Mrs and Mr Brylewski as his enduring guardians. He also made a will ("the 2010 Will") in which he gave the whole of his estate to them. Ms Maclean says she started assisting with the deceased's care in 2011, when she formed the view that Mrs Brylewski's care for the deceased was inadequate based on observations formed when visiting him. 10 Mrs and Mr Brylewski entered into a deed dated 23 January 2013 with the deceased ("the 2013 Deed") under which, in consideration of $100,000 payable by instalments, they received a half-share in the Canterbury property. The deceased also agreed that he would make a will devising the balance of his interest to Mrs and Mr Brylewski. The 2013 Deed was executed by the deceased before his solicitor, Mr David White, who also witnessed his signature to a transfer dated 11 February 2013 in which the deceased transferred a half-share in the Canterbury property to Mrs and Mr Brylewski as joint tenants. The transfer, which was expressed to be for a consideration of $1.00, was duly registered. 11 According to Ms Maclean, the deceased's general practitioner informed her in early 2016 that the deceased should not be living alone, and in November 2016 Ms Maclean moved into the Canterbury property on a permanent basis. Early the following year she was granted a carer's pension. 12 On 9 March 2017, Ms Maclean and the deceased were married. Mrs and Mr Brylewski contend (in other proceedings) that the deceased, then 89 years of age, did not have the capacity to enter into a valid marriage. It is not necessary to explore this contention further for the purposes of determining the present application. I proceed on the basis that the deceased and Ms Maclean were validly married on 9 March 2017. 13 According to Ms Maclean, on 8 April 2018, the New South Wales Trustee and Guardian ("TAG") was appointed by NCAT as the deceased's guardian with power to decide where he would reside. On about 18 November 2018, TAG directed that the deceased enter the Canterbury Opal Aged Care Facility on a temporary basis and on 8 January 2019 it directed that he stay there on a permanent basis. 14 On 18 March 2020 the deceased made a will ("the 2020 Will") which, aside from a bequest of $10,000 to his friend, left all his property to Ms Maclean. Mrs and Mr Brylewski contend that the deceased lacked the testamentary capacity to make a valid will at that time. It is not necessary to explore this contention further for the purposes of determining the present application. I proceed on the basis that the 2020 Will was valid. 15 On 3 August 2021, Mrs and Mr Brylewski commenced the Common Law proceeding. As previously mentioned, the deceased died on 17 April 2022. 16 On 14 July 2022 Ms Maclean commenced the Equity proceeding, seeking a declaration that the 2020 Will was the deceased's last valid will. Mrs and Mr Brylewski were named as the first and second defendants. In that proceeding, Ms Maclean seeks a grant of probate in respect of the 2020 Will and, further or in the alternative, an order in her favour under the Family Provision Act 1982 (NSW) ("Family Provision Act"). She also seeks order setting aside the 2013 Deed. The Equity proceeding has not yet been heard. 17 By a cross-claim filed in the Equity proceeding Mrs and Mr Brylewski seek a declaration that the marriage of Ms Maclean and the deceased was a nullity, and that the 2020 Will is invalid. They also seek an order for the grant of letters of administration annexing the 2010 Will and an order for specific performance of the 2013 Deed. Mrs and Mr Brylewski allege that the 2010 Will was not revoked by Ms Maclean's marriage to the deceased because the marriage was invalid. They also allege that the 2020 Will in favour of Ms Maclean was invalid because the deceased lacked testamentary capacity at the time it was made. 18 On 27 March 2023 Hallen J made various orders in the Equity proceeding. These include the following notation: … to the extent that the Defendants wish to oppose the Plaintiff's claims for relief on behalf of the estate of the deceased, they be appointed to represent the deceased's estate in relation to those claims and to the extent that the Plaintiff wishes to oppose the claims for relief on behalf of the estate made by the Defendants, that she represent the estate in that regard. 19 There were two applications heard by Basten AJ in the Common Law proceeding. The first was made by Mrs and Mr Brylewski and resulted in the order for possession made by his Honour in their favour on 6 December 2022. The other application was made by Ms Maclean pursuant to the notice of motion filed by her on 6 June 2022 which was the subject of an order made on 26 August 2022 by Davies J which is discussed further below. Acting Justice Basten dismissed Ms Maclean's notice of motion (in the form amended by her on 20 November 2022). As to the Canterbury property, his Honour made an order for possession in favour of Mrs and Mr Brylewski subject to them giving certain undertakings concerning the property including that it not be let for a period of more than six months and, if it is sold, that the net proceeds of sale be held on trust by their solicitors until further order. As previously mentioned, Ms Maclean's application for leave to appeal from his Honour's judgment was dismissed, with a costs order made on 8 June 2023. 20 His Honour did not make any order for costs on 6 December 2022. Mrs and Mr Brylewski subsequently applied to his Honour for a costs order in respect of the applications the subject of his Honour's judgment. His Honour gave judgment on that application on 12 March 2024 holding that Ms Maclean should pay Mrs and Mr Brylewski's costs which his Honour awarded on a gross sum basis in the amount of $67,500: Brylewski v Maclean (No 2) [2024] NSWSC 227. It is not disputed by the respondents that his Honour's costs order post-dates Ms Maclean's bankruptcy and is not provable in the bankruptcy: Foots v Southern Cross Mine Management Pty Ltd (2007) 234 CLR 52 at [67]. However, the respondents submitted that this debt is relevant to the question of solvency, which is a matter to which I will return. 21 There was another application for leave to appeal brought by Ms Maclean at an earlier stage of the Common Law proceeding, which was dismissed with costs. Ms Maclean sought leave to appeal from an interlocutory order made by Davies J on 26 August 2022 listing the notice of motion filed by Ms Maclean on 6 June 2022 for hearing on 28 November 2022, being the same date as the hearing of the other application the subject of the Common Law proceeding (for possession). By that notice of motion, Ms Maclean sought orders appointing her as administrator of the deceased estate including the Canterbury property. Ms Maclean's application for leave to appeal his Honour's orders was dismissed with costs on 27 October 2022: see Maclean v Brylewski [2022] NSWCA 217 (Ward P and White JA, Brereton JA dissenting). The costs awarded against Ms Maclean by the Court of Appeal on 27 October 2022 have since been assessed at $16,221.23. 22 The costs order made by Basten AJ and the costs orders made in the two applications for leave to appeal to the Court of Appeal (including costs associated with the cost assessment itself) total approximately $146,000. 23 Mrs and Mr Brylewski remain the registered proprietors of a half-share in the Canterbury property. The other half-share in the Canterbury property remains registered in the name of the deceased. The evidence indicates that there are a number of debts owed by the deceased's estate in respect of the Canterbury property and for aged care fees. These amounts total approximately $36,000. In addition, TAG was owed, as at 21 December 2021, the amount of $5,000. The Canterbury property is presently valued at $520,000 and is unencumbered. 24 As to Ms Maclean's contention that the 2013 Deed is invalid, the evidence in this Court, which includes the affidavit of the deceased's solicitor at the time, Mr David White, does not provide any support for Ms Maclean's case. Mr White was the deceased's solicitor for around 15 years and provided him with independent legal advice relating to the 2013 Deed. According to Mr White's affidavit, the deceased received legal and financial advice before entering into the 2013 Deed at a meeting with Mr White on 23 January 2023. Mr White says in his affidavit that he was satisfied that the deceased was of sound mind and not under any undue influence. In circumstances where Mrs and Mr Brylewski became registered proprietors of their half-share in the Canterbury property in 2013, and in the absence of any evidence of fraud or undue influence, Ms Maclean's claim to Mrs and Mr Brylewski's half-share is far from strong. 25 The evidence indicates that, apart from a half-share interest as a joint tenant in the Katoomba property which she jointly owns with Mr Rayner, Ms Maclean has very little in the way of assets. In an affidavit dated 14 June 2023 filed in the Equity proceeding and read in this proceeding, Ms Maclean indicated that she is an owner of a half-share in the Katoomba property, but it would be unsafe for her to live in the Katoomba property with Mr Rayner. In an affidavit made in opposition to the sequestration order regarding her interest in the Katoomba property ("1 February 2024 Affidavit") which was tendered by the trustee, Ms Maclean stated that she had been "rendered homeless by the decision of Basten [AJ]", in the Common Law proceeding. 26 In her Statement of Affairs, Ms Maclean values the Katoomba property at $650,000. On that basis, a half-share interest in the Katoomba property may be worth up to $325,000. However, in the 1 February 2024 Affidavit, Ms Maclean asserted that she does not own a half-share in the Katoomba property, describing herself as a "minority investor" and asserting that the property "is mostly owned by Mr Raynor [sic]". There was no other evidence given by Ms Maclean as to the extent or value of her interest in the Katoomba property nor has she produced any document that sheds any further light on that matter. 27 The trustee's affidavit indicates that the Katoomba property is the subject of a mortgage to Members Equity Bank Limited ("MEB"). The trustee says that the amount owing to MEB is either $107,000 or $130,000, and that he has been unable to confirm which is the correct amount. In particular, he says that Ms Maclean has refused to provide him with a statement of account showing the amount owing to MEB. 28 Ms Maclean's solicitor, Mr Adamson, has registered a caveat over the Katoomba property which refers to an agreement between Mr Adamson, Ms Maclean and Mr Rayner creating an equitable lien for legal costs. In a Statement of Affairs dated 20 February 2024, Ms Maclean indicates that Mr Adamson has an equitable lien for his costs secured against the Katoomba property and that the amount currently outstanding to him and secured against it is $391,000. Mr Adamson asserted the Statement of Affairs dated 20 February 2024 had been "withdrawn". Another Statement of Affairs dated 19 February 2024 did not mention the equitable lien. 29 Mr Adamson issued Ms Maclean with four tax invoices on 14 December 2023 for legal services totalling $391,000. The first of them (JM1) is for $130,000 for legal services payable in connection with the Common Law proceeding heard by Basten AJ. Another (JM2) for $44,000 appears to relate to the proceeding in the Court of Appeal which culminated in the decision dated 27 October 2022 refusing leave to appeal from the orders of Davies J. It appears that another invoice (JM3) for $77,000 relates to legal services provided to Ms Maclean in relation to the application for leave to appeal from the judgment of Basten AJ dismissed by the Court of Appeal on 8 June 2023. The last of the four invoices (JM4) is for $140,000 and appears to relate (in part) to the Equity proceeding. 30 The evidence includes a Land Title search in respect of the Katoomba property which shows that Mr Rayner and Ms Maclean own the property as joint tenants. The search also discloses the existence of the mortgage to MEB and registration of the caveat in the name of Mr Adamson, referred to above. Each of the invoices issued by Mr Adamson is in Ms Maclean's name. There is no evidence from either Ms Maclean or Mr Rayner relating to any equitable lien granted by Mr Rayner to Mr Adamson. There are costs agreements in evidence which show that Ms MacLean may have agreed to grant an equitable lien to Mr Adamson but there is nothing in the evidence to show that Mr Rayner did so. 31 The trustee says that he has not been provided with the information necessary for him to form a view as to whether or not Ms Maclean is indebted to Mr Adamson for $391,000. He says that there are a number of other small creditors whose debts total $3,892.04. In addition, the trustee says that as at 9 May 2024 he had incurred costs, fees and disbursements of $100,055.17 since his appointment, including legal costs of $65,000. 32 The trustee's evidence is that, due to lack of information, he cannot form a view as to the validity of the lien claimed by Mr Adamson, the reasonableness of his charges, the legal merits of the Ms Maclean's claims in the Supreme Court, any additional costs likely to be incurred in pursuing those claims, or the value of those claims.

THE RELEVANT PRINCIPLES 33 An applicant who seeks an annulment of their bankruptcy must place before the Court all relevant material with respect to their financial affairs so that the Court may be properly informed and may make a judgment that is based on the circumstances of the applicant: Re Papps; Ex parte Tapp (1997) 78 FCR 524 at 531 per O'Loughlin J. 34 A bankruptcy may be annulled under s 153B(1) if the sequestration order "ought not to have been made". In determining whether a sequestration order "ought not to have been made" the Court is not confined to a consideration of whether the order should have been made on the facts known to the Court at the time at which it was made. The Court must take account of facts known when the sequestration order was made and also those known at the time of the annulment application: Re Raymond; Ex parte Raymond (1992) 36 FCR 424 ("Raymond") at 426; Boles v Official Trustee in Bankruptcy (2001) 183 ALR 239 ("Boles") at [16] per Emmett J (with whom Katz and Conti JJ agreed). A sequestration order "ought not to have been made" if the Court would have been bound not to make the sequestration order on the facts known at the time of the annulment application: Boles at [16]. 35 A sequestration order "ought not to have been made" if it is established that the debtor was not, at the time the sequestration order was made, indebted to the petitioning creditor: Re Deriu (1970) 16 FLR 420 at 422. The Court is not precluded from annulling the bankruptcy because the bankrupt has not sought to have a default judgment set aside, or has failed to oppose the creditor's petition, or failed to seek a review of the sequestration order: Raymond at 426. 36 Another basis upon which a creditor's petition may be dismissed or a sequestration order not made is where the debtor has a cross-claim against the creditor. As French J (with whom Spender J agreed on this point) observed in Rigg v Baker (2006) 155 FCR 531 at [65]-[66]: [65] One basis upon which a creditor's petition may be dismissed is that the debtor has a cross-claim against the creditor: Ling v Enrobook Pty Ltd (1997) 74 FCR 19 at 25. In St George Bank Ltd v Helfenbaum [1999] FCA 1337, Sundberg J said (at 9) [at [13]]: The existence of a cross-claim may be "a sufficient cause" within s 52(2)(b) for declining to make a sequestration order. It is for the debtor to establish the existence of "sufficient cause". He must establish that he has a real claim against the creditor that is likely to succeed. If the Court is satisfied that there is such a claim, and that its quantum is likely to equal or exceed the creditor's claim, it will not make a sequestration order. If the claim is likely to be less than the creditor's claim, the Court will require the debtor, if he is to avoid a sequestration order, to pay the difference between the judgment debt and the amount he is likely to recover on his claim. A debtor does not establish a real claim that is likely to succeed merely by producing a statement of claim in an action against a creditor or by pointing to the existence of current litigation against the creditor. While the Court does not try the cross-claim in advance, the debtor must adduce sufficient evidence to show that it is a real claim which is likely to succeed. [66] A distinction has been drawn between a claim against the petitioner creditor which is likely to succeed and which would warrant refusal of a sequestration order and a "real claim" which has sufficient prospect to warrant the debtor being granted an opportunity to have it litigated. In the latter case an adjournment of the petition may be appropriate: Re Jovanovic (1997) 42 NSWLR 520 citing Re James; Ex parte Carter Holt Harvey Roofing (Aust) Pty Ltd (No 2) (1994) 51 FCR 14 at 22 (Olney J). The existence of a cross-claim against the petitioning creditor which is likely to succeed may support the proposition that the sequestration order ought not to have been made and should be annulled. On the other hand the existence of a real claim which might have warranted adjournment would not necessarily support that conclusion. That is not to exclude the possibility that in appropriate circumstances the registrar or judge hearing the petition ought to grant an adjournment on the basis of a "real cross-claim". 37 A bankruptcy may also be annulled if the creditor's petition upon which it was founded was filed for an improper purpose. However, the improper purpose must be the predominant purpose: Williams v Spautz (1992) 174 CLR 509 at 529 per Mason CJ, Dawson, Toohey and McHugh JJ. 38 I was referred by the parties to the decision of the Full Court in Beaman v Bond (2017) 254 FCR 480. That was an appeal against the primary judge's dismissal of an application brought by Ms Beaman seeking to annul her former partner's bankruptcy on the ground that the debtor's petition he presented and upon which his bankruptcy was founded, was an abuse of process. She argued that the debtor's petition had been presented for the predominant purpose of frustrating a proceeding brought by her against the bankrupt under Pt 5A of the Family Court Act 1997 (WA) or preventing the payment of a sum of money to Ms Beaman in accordance with orders made in that proceeding. 39 Justice McKerracher (with whom Gilmour and Charlesworth JJ agreed) at [99]-[101] referred to various authorities concerned with allegations of abuse of process including in the bankruptcy context, most of which included bankruptcy resulting from presentation of the debtor's own petition. Those authorities establish that "a petition will constitute an abuse of process if it is presented for a purpose, whatever that purpose may be, which is foreign to the bankruptcy laws": Edelsten v Deputy Commissioner of Taxation (NSW) (1989) 86 ALR 257 at 261 per Lockhart, Wilcox and Pincus JJ applying Clyne v Deputy Commissioner of Taxation (1984) 154 CLR 589. Further, as McKerracher J observed at [148]: An abuse of process should not lightly be inferred. Indeed, when the bankrupt, himself or herself, seeks to rely on an abuse, the onus of proving it is heavy: Davidova v Murphy [2009] FCA 601 (at [44]) … 40 The power conferred on the Court by s 153B(1) is discretionary in nature. Even if persuaded that the sequestration order ought not to have been made, the Court can, in appropriate circumstances, decline to annul the bankruptcy: Boles at [16]. Considerations which may be relevant to the exercise of discretion in any given case include, inter alia, delay in the making of the application, whether or not the applicant is solvent, whether or not the applicant has made full disclosure of his or her financial affairs, any failure by the bankrupt to oppose the creditor's petition or attend the hearing at which the sequestration order was made and the bankrupt's willingness to pay costs thrown away by reason of the annulment application and the trustee's costs and expenses: see Yang v L & H Group (a limited partnership) [2015] FCA 932 per Beach J at [29].

CONSIDERATION 41 The first question is whether Ms Maclean has established that Mrs and Mr Brylewski commenced the bankruptcy proceeding against her for an improper purpose which, in the submission of her solicitor, was to prevent her from prosecuting the Equity proceeding. There is no direct evidence bearing on Mrs and Mr Brylewski's purpose. In particular, neither of them made an affidavit and there was therefore no written or oral evidence from them relevant to the question of their purpose. Ms Maclean's case is based on an inference she says should be drawn from facts established by other evidence including, as previously mentioned, the speed with which Mrs and Mr Brylewski obtained the sequestration order in respect of Ms Maclean's estate. 42 The costs order on which Mrs and Mr Brylewski relied to obtain the judgment debt upon which the bankruptcy notice was founded was made by the Court of Appeal on 8 June 2023. Ms Maclean did not seek leave to appeal the Court of Appeal's judgment or apply for a stay of the enforcement of the costs order. The evidence indicates that Mrs and Mr Brylewski applied for their assessment of the costs awarded by the Court of Appeal on 7 July 2023. On 14 July 2023, the assessment was referred to a Costs Assessor whose report is dated 9 October 2023. It is apparent from that report that Ms Maclean raised objections to the bill of costs and that a small number of items were disallowed by the Costs Assessor. The amount awarded to Mrs and Mr Brylewski including sums in respect of interest and the costs of the assessment came to $53,650.96. The Cost Assessor's costs of the assessment payable by Ms Maclean came to $6,301.35. The judgment debt was based on a certificate of determination of costs dated 9 October 2023 sent to the parties on 20 October 2023. 43 There is nothing in the evidence to suggest that the time between the making of the costs order and the date of the assessment was out of the ordinary. In particular, there is no reason to infer that Mrs and Mr Brylewski were doing anything other than pursuing their entitlement under the costs order as quickly as they could so that they could be paid what they were owed as soon as possible. There is no evidence to suggest that they are wealthy people or that the legal costs incurred by them were insignificant to them. The inference I draw is that they were desirous of obtaining payment for the amount owed to them with as little delay as possible. 44 The bankruptcy notice was served on 30 October 2023 with Ms Maclean being required to comply with it by 20 November 2023. Very soon after the time for compliance with the bankruptcy notice expired, Mrs and Mr Brylewski lodged the creditor's petition and the supporting affidavit. 45 There is no evidence to suggest that between the date on which the certificate dated 9 October 2023 was issued, and the date for compliance with the bankruptcy notice, Ms Maclean took any steps to pay the assessed costs or any part thereof. Nor is there any evidence that she took any steps to realise her interest in the Katoomba property or attempt to borrow against it in order to pay the amount owing to Mrs and Mr Brylewski. Their decision to lodge the creditor's petition when they did must be viewed against that background and the fact that the costs order made in their favour had been made almost six months earlier. 46 I am not persuaded that Mrs and Mr Brylewski's predominant purpose in obtaining the sequestration order (including issuing the bankruptcy notice and filing the creditor's petition) was foreign to the bankruptcy laws or otherwise improper. I am therefore not persuaded that Ms Maclean's bankruptcy should be annulled. 47 Ms Maclean's financial circumstances also weigh against the making of any annulment order. It is clear that she is unable to pay her debts. I make the following four points. 48 First, the legal costs incurred by Ms Maclean recorded in the invoices referred to in paragraph [29] above (which do not include any amount owing to Mrs and Mr Brylewski) are for a total amount that is equal to around 75% of the market value of the Canterbury property. 49 Secondly, in assessing Ms Maclean's financial circumstances, I have ignored her interest in the Katoomba property. Even if she is entitled to a half-share of that property (which she denies), that improves her overall financial circumstances by around $260,000 (after allowing for the mortgage to MEB of $130,000). That would still not lead me to conclude that she is able to pay her debts once allowance is made for her legal costs. 50 Thirdly, as to Ms Maclean's claim for orders setting aside the 2013 Deed, that claim is, in my view, highly speculative. Basten AJ was also unconvinced as to the legal merit of that claim. His Honour said that he was "not persuaded that there is any seriously arguable basis for Ms Maclean to challenge the validity of the 2013 Deed": Brylewski v Maclean [2022] NSWSC 1654 at [34] - [35]. There is no evidence before me which would lead me to any different conclusion. 51 Fourthly, on the assumption that the challenge to the validity of the 2013 Deed fails, it seems that the most that Ms Maclean could hope to recover under the 2020 Will and the Family Provision Act is what would amount to a half-share of the deceased estate. It is important to recognise that this claim by Ms Maclean is a claim against the deceased estate, rather than Mrs and Mr Brylewski in their personal capacity. In any event, it is difficult to see how she could receive anything more than $220,000 or thereabouts from the estate (accounting for debts owed by the estate). Moreover, a portion of her legal costs in the event she is successful would most likely be payable out of the deceased estate meaning that her net recovery would be very modest indeed. In addition to her own legal fees, Ms Maclean is already indebted to Mrs and Mr Brylewski for more than $140,000. Her net debt on these assumptions and figures already exceeds $300,000 and is likely to increase even further over time.

DISPOSITION 52 Ms Maclean has not established that the bankruptcy proceeding was commenced for an improper purpose or that she had (or has) a seriously arguable claim against Mrs and Mr Brylewski, the petitioning creditors. She has not advanced any proposal for the payment of the judgment debts owing to them, or the payment of the trustee's costs and expenses. Further, I am satisfied that she was, at the time the sequestration order was made, and remains, insolvent. Ms Maclean has not established that the sequestration order ought not to have been made. Her application for an order under s 153B of the Act will be dismissed. She must pay the respondents' costs of her application. 53 Orders accordingly. I certify that the preceding fifty-three (53) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Nicholas.