Mulhern v Bank of Queensland Ltd

JUDGE: JACOBSON J DATE: 5 February 2014 PLACE: SYDNEY

INTRODUCTION 1 On 30 August 2012 the Applicant (Mrs Mulhern) was made bankrupt pursuant to a sequestration order issued by a Registrar of the Federal Magistrates Court of Australia (FMC) (as the Federal Circuit Court was then known) (see Mulhern v Bank of Queensland Limited [2012] FMCA 1124 ("Mulhern (No 1)") at [1]). 2 Shortly afterward, Mrs Mulhern made an unsuccessful application to the Federal Magistrates Court for an order under s 153B of the Bankruptcy Act 1966 (Cth) (the Act) to annul the bankruptcy. She did not appeal against the dismissal of her application. 3 Notwithstanding the comprehensive reasons for judgment given in two separate sets of reasons by Burnett FM (as his Honour then was) dismissing the application, Mrs Mulhern filed an application in this Court on 5 September 2013 for an order under s 153B of the Act to annul the sequestration order, or alternatively that it be set aside. 4 The First Respondent (the Bank) subsequently filed an interlocutory application seeking an order that the proceeding be dismissed under rule 26.01(1) of the Federal Court Rules 2011. The ground on which the Bank seeks that order is that the proceeding is an abuse of process. 5 I heard the application for summary dismissal and the annulment application together so as to avoid unnecessary costs and to ensure the efficient use of court time. I note that the same course was followed by Tracey J in one of the often cited authorities on the exercise of the power of annulment: see Bulic v Commonwealth Bank of Australia Limited [2007] FCA 307 ("Bulic") at [18].

BACKGROUND FACTS 6 Mrs Mulhern presently resides in Northern Ireland but at the time of the events which culminated in her bankruptcy, she was a director of five companies in a group known in this and other proceedings as the Mulhern Group of companies (Mulhern v Bank of Queensland Limited [2012] FMCA 1266 ("Mulhern (No 2)") at [5]). 7 Mrs Mulhern's husband, Michael Richard Mulhern, was also a director of the relevant companies in the Mulhern Group. Mr Mulhern was made bankrupt by a sequestration order dated 3 February 2010 (see judgment of Reeves J: Pearce v Mulhern [2010] FCA 446 at [2]). 8 There have been a number of other proceedings involving Mr and Mrs Mulhern. Many of them are described in the second judgment of Burnett FM. Both of his Honour's judgments were in evidence in this proceeding as they are directly relevant to the abuse of process issue. I will refer to these judgments in more detail later: see Mulhern (No 1) and Mulhern (No 2). 9 The events which resulted in Mrs Mulhern's bankruptcy are described in Mulhern (No 2) at [9] ff. Briefly, on 19 May 2010, some five days before the Bank appointed receivers to the Mulhern Group, Mrs Mulhern withdrew a sum of nearly $480,000 from one or more of the Mulhern Group companies' bank accounts and transferred that sum into her personal account. The Bank then obtained Mareva relief against Mrs Mulhern which she sought to set aside. Her application appears to have been largely unsuccessful and resulted, inter alia, in a costs order against her in the Supreme Court of Queensland. 10 The costs order made against Mrs Mulhern by Douglas J in Mulhern Constructions & Ors v Mulhern [2012] QSC 120 ("Mulhern Constructions") was assessed in an amount of $24,181.60 which founded the bankruptcy notice that culminated in the sequestration order against Mrs Mulhern (Mulhern (No 2) at [12] and [16]). 11 The bankruptcy notice was issued against Mrs Mulhern on 14 March 2012. It was for an amount slightly in excess of the judgment debt comprising the costs order because it included interest (Mulhern (No 1) at [3]). 12 Mrs Mulhern was not residing in Australia when the bankruptcy notice was issued. She left Australia in early May 2011 and lived at an address in Brittney Lane, New Rochelle, New York (the New York address) for a period of approximately 12 months, until early May 2012. 13 In early May 2012, Mrs Mulhern left her New York address and went to live at an address in Derry, Northern Ireland (the Northern Ireland address) where she now resides. 14 Although Mrs Mulhern's departure from the New York address appears to have occurred at a point of time which was close to the date of purported service of the bankruptcy notice on Mrs Mulhern at that address, there is no suggestion in this proceeding that her departure was prompted by a desire to avoid service. Mrs Mulhern's evidence is that she moved to her Northern Ireland address to obtain medical treatment in that country. 15 The Bank was plainly aware that Mrs Mulhern was residing outside Australia at, or shortly after, the time of issue of the bankruptcy notice because it obtained an order for service outside Australia. A Registrar of the Federal Magistrates Court made that order on 11 May 2012. 16 The bankruptcy notice was served on Mrs Mulhern by email in accordance with the Registrar's order on 14 May 2012. Mrs Mulhern denies receipt of the Bankruptcy Notice. Her evidence is that she had left her New York address and that the email address ceased operation in early May 2012. 17 However, the effect of Mrs Mulhern's failure to comply with the Bankruptcy Notice within the prescribed period, or to have it set aside, was that she committed an act of bankruptcy. 18 The Bank issued a creditor's petition from the Federal Magistrates Court on 10 July 2012. It obtained an order for service of the petition outside Australia and for substituted service under rule 4.05 of the Federal Court (Bankruptcy) Rules 2005 (Cth). The order contained a procedural error which was corrected by Burnett FM in Mulhern (No 1) at [5]. Mrs Mulhern denies receipt of the petition and accompanying documents which were served at her New York address and by email to the disabled email address. 19 As stated above, the sequestration order was made against Mrs Mulhern in the Federal Magistrates Court on 30 August 2012. The order was made in her absence and she did not become aware of it until shortly afterwards. 20 Mrs Mulhern filed her first application for an annulment under s 153B of the Act in the Federal Magistrates Court on 31 October 2012. His Honour's reasons for judgment in Mulhern (No 1) were given on 9 November 2012. They addressed the three grounds advanced in support of the application, all of which were directed at the alleged invalidity of service. The reasons in Mulhern (No 2) deal with other matters which his Honour permitted Mrs Mulhern to raise at an adjourned hearing. Those matters included solvency, the merits of the judgment which supported the bankruptcy notice and the question of whether the Federal Magistrates Court had jurisdiction to make an order against Mrs Mulhern as a non-resident of Australia.

THE PRINCIPLES GOVERNING THE POWER UNDER SECTION 153B 21 Section 153B of the Act provides that if the Court is satisfied that a sequestration order ought not to have been made it may make an order annulling the bankruptcy. 22 The jurisdiction to make an order is therefore only enlivened if the Court is satisfied that the sequestration order ought not to have been made. It is well established that the power to make the order is discretionary. Even if the Court is satisfied that the sequestration order ought not to have been made it is not bound to annul it, but must consider in light of all the circumstances of the case whether the order ought to be annulled: Stankiewicz v Plata [2000] FCA 1185 at [19]-[20] citing Re Williams (1968) 13 FLR 10 per Gibbs J; see also Cottrell v Wilcox [2002] FCA 1115 at [4] per Branson J. 23 In Bulic at [12] Tracey J distilled eight propositions which guide the exercise of the power from the authorities which have dealt with this issue. Three of his Honour's propositions are relevant to the present case. 24 The first is proposition number 2, that an applicant who seeks an annulment bears a heavy onus and it is incumbent on an applicant to place before the Court all relevant material with respect to his or her financial affairs. 25 The second is proposition number 7, which I have already addressed, namely that the power is discretionary. 26 The third is proposition number 8 which lists some of the considerations that may have a bearing on the exercise of the discretion. Of particular relevance here are whether Mrs Mulhern is solvent and has made full disclosure of her financial affairs.

MULHERN (NO 1) 27 It is not necessary to address each of the grounds considered by his Honour in Mulhern (No 1). As I have said, all of the grounds related to service. The essential point addressed by his Honour was the issue of substituted service and its bearing upon the application. He referred to long established authority for the principle that an order for substituted service is not final and conclusive where it is shown that the substituted service failed but the question is one in which the Court should exercise its discretion: Mulhern (No 1) at [12]-[14]. 28 His Honour was of the view that there was no question in this case that service of the creditor's petition followed precisely the terms of the order. It was therefore validly effected: Mulhern (No 1) at [17]. 29 His Honour went on to determine each of the grounds related to service adversely to Mrs Mulhern. He reached the following conclusion at [26]: Prima facie, here the Registrar acted properly in ordering the sequestration of the debtor, and had I been determining the application on 30 August 2012 I too would have made an order in terms identical to those made by the Registrar. Plainly, the first limb of the rule has not been established, that is that the sequestration order is one that ought to have been made. 30 However, his Honour went on to observe that Mrs Mulhern had failed to adduce evidence going to the merits of the application, that is to say, the issue of whether the power to annul the bankruptcy order ought nevertheless to be exercised having regard to issues such as the solvency of the debtor. 31 He took into account the uncontested evidence that Mrs Mulhern first had notice of the sequestration order after it was made, the fact that she was overseas and had health problems and the significance of a sequestration order to the person against whom such an order is made. His Honour decided that it was appropriate to adjourn the hearing so as to enable Mrs Mulhern to file material going to the merits of the application. 32 The particular matters which his Honour permitted Mrs Mulhern to address were those which were referable to the power of the Court under s 52(2) of the Act to dismiss a petition, namely: that the debtor is able to pay his or her debts; or that for other sufficient cause a sequestration order ought not to be made.

MULHERN (NO 2) 33 His Honour's judgment in Mulhern (No 2) addresses the grounds advanced by Mrs Mulhern in her evidence filed during the adjournment. Only three of those grounds need be mentioned. 34 The first is solvency. His Honour considered that the evidence filed in support of this ground was insufficient to discharge Mrs Mulhern's onus. The evidence consisted of affidavits filed by Mr Mulhern purporting to contend that the assets of the Mulhern Group were worth $82 million. His Honour observed (at [5]): There was no particularisation of the worth of the companies, no balance sheets, no profit and loss statements and no information about cash flows. Nor was there any other evidence adduced by the debtor to indicate what other liabilities she might have. While the evidence does demonstrate that she was at least a shareholder and director of five companies in the Mulhern Group, there was nothing else to indicate what value the shareholdings have, if any. As the applicant she bears the onus of proof in respect of these matters and it would appear, in my view, that she has failed to fulfil that onus. 35 The second is the merits of the judgment which supported the bankruptcy notice. His Honour dealt with the events that led to the proceedings that resulted in the judgment debt and described the relevant proceedings at [9]-[15]. 36 His Honour's conclusion on this issue was set out at [16] of Mulhern (No 2) as follows: In my view, the evidence demonstrates that the debtor has been afforded every opportunity to pursue her rights arising from the transactions. She has been unsuccessful. The result is that now she has outstanding the costs orders of 27 April 2011, which have been assessed at $24,181.60 and which order supports the Bankruptcy Notice, as well as other costs orders that have also been ordered against her, which are presently assessed as having a value of $167,234.37. It seems that overall she has been wholly unsuccessful and there are no merits to be prosecuted. 37 The third ground is residency. His Honour referred at [20] to the Australian jurisdictional requirements for the making of a sequestration order which are that the person is either a resident, or carries on business here or that the person has a place of business in Australia. 38 His Honour observed at [22] that in the application in the Supreme Court of Queensland, Mrs Mulhern filed a document on 12 June 2012, about three weeks after the date of bankruptcy, in which she gave her business address as a place in Queensland. He went on to refer to other evidence which supported the conclusion that the Queensland address was her place of business in that State at the time of bankruptcy. 39 His Honour's conclusion was stated at [24] as follows: Having regard to those matters, I am satisfied that the debtor did have a place of business in Australia at the time of bankruptcy and it follows that the Court's jurisdiction to determine a sequestration order was enlivened. Accordingly, it is unnecessary for me to determine questions in respect of both residence and carrying on a business as were agitated before the court. 40 Significantly, his Honour stated at [25] that Mrs Mulhern had been given the opportunity to place before the Court all the material she considered to be relevant to her annulment application. He referred to the guiding principles summarised by Tracey J in Bulic and concluded as follows at [27]: Nothing advanced by the debtor by reason of matters that have been placed before me persuades me that my prima facie conclusion expressed on the last occasion is wrong. I am not satisfied that the order was one that ought not to have been made; it follows that the jurisdiction to annul is not enlivened under s 153B.

THE FRESH APPLICATION FOR ANNULMENT 41 The present application proceeds upon the misconception that it is open to Mrs Mulhern to make a fresh application for annulment without regard to the order made by the Federal Magistrates Court dismissing her earlier application and without regard to the findings made in that matter. 42 It may be true, as Mr Pritchard SC who appeared for Mrs Mulhern submitted, that an order dismissing an application for an annulment under s 153B of the Act is interlocutory because it does not finally determine the rights of the parties in a legal sense: Hall v Nominal Defendant (1966) 117 CLR 423 at 440; Carr v Finance Corporation of Australia Ltd (1981) 147 CLR 246 at 248. But the ordinary rule is that even an interlocutory order of the court cannot be reopened in the absence of changed circumstances: see Adam P Brown Male Fashions Pty Ltd v Philip Morris Inc (1981) 148 CLR 170 at 178. 43 It may be that a slightly less stringent approach to the finality of interlocutory orders is applicable in bankruptcy matters. This may be gleaned from the observation of White J of the Court of Insolvency of South Australia in Re Prowse, Ex parte the Debtor (1981) 39 ALR 639 ("Re Prowse"). His Honour there said at 641 that the policy of the law that there must be an end to litigation does not apply with the same force in jurisdictions like bankruptcy where it is contemplated that successive orders will be made and previous orders will be varied or discharged. 44 However, as White J went on to say in Re Prowse at 641-2, one aspect of the policy of finality of litigation that does apply in the bankruptcy jurisdiction is that an application, whether of a final or interlocutory nature, having once been litigated and adjudicated upon, should not be reopened for the purpose of calling other evidence, unless that other evidence enjoys the qualities of genuine "fresh evidence". His Honour also observed that an attempt to relitigate the same proceeding by way of "a second bite of the same cherry" constitutes an abuse of process: see the discussion in Liprini v Liprini & Anor [2012] FMCA 666 at [54]-[55]. 45 I will deal with the issue of abuse of process later, but it is sufficient to say in addressing the substantive application for an annulment, Mrs Mulhern relied upon evidence which was substantially the same as that which had been tendered in the proceeding in the Federal Magistrates Court. 46 The principal ground on which it was submitted that the sequestration order ought not to have been made was that the Registrar of the Federal Magistrates Court did not have jurisdiction to make the order under s 43(1)(b) of the Act. 47 This ground was not raised in the points of claim which I ordered Mrs Mulhern to file and, in any event, was decided aversely to her in the earlier application in the Federal Magistrates Court. 48 The jurisdictional ground was raised in the written submissions served by Mrs Mulhern very shortly before the hearing but the terms in which that point was ultimately agued in oral argument by Mr Pritchard differed from the way in which the point was sought to be raised in the written submissions. 49 Mr Pritchard's ultimate submission was that the Bank had failed to establish any of the jurisdictional requirements specified in s 43(1)(b) of the Act, including the requirement that Mrs Mulhern must have had a place of business in Australia. In support of this submission he relied on the evidence of Mrs Mulhern in the present application that she has not resided in Australia since May 2011. 50 That submission was contrary to the finding made by Burnett FM in Mulhern (No 2) at [24] that the Federal Magistrates Court had jurisdiction because Mrs Mulhern had a place of business in Queensland. It was no answer to this finding to say that the Bank had failed to prove again in the present application the facts upon which it had succeeded in the earlier application. 51 But in order to ensure that there could be no doubt about this issue I gave leave to counsel for the Bank to re-open to adduce that evidence before me. I did so because it is plain that he was taken by surprise by the point which was raised for the first time in the closing address. 52 The Bank then tendered the document referred to in [22] of Mulhern (No 2) which noted Mrs Mulhern's business address as 29 Marsh Street, Cannon Hill, Queensland. I admitted the document as Exhibit 3. However, Mr Pritchard then submitted that this document was not evidence against Mrs Mulhern because it was signed only by Mr Mulhern as the "lawful husband of the defendant". 53 This was a submission which should not have been made. I gave leave to the Bank to re-open a second time to produce a document which I was told would provide a complete answer, albeit that a search was needed to find the document. 54 Eventually, counsel for the Bank tendered a document (after closing address) which was in evidence in the Federal Magistrates Court. It was an authority signed by Mrs Mulhern, the effect of which was to authorise Mr Mulhern to sign Exhibit 3 on her behalf. 55 Quite apart from the abuse of process involved in the events I have described, the evidence which the Bank tendered to meet the point shows that it was one that was entirely without merit. 56 Nor was there any merit in any of the other points sought to be agitated in the written or oral submissions advanced on Mrs Mulhern's behalf which merely cavilled with the findings made by the Federal Magistrates Court whilst relying on substantially the same evidence. 57 This observation applies with additional force to the purported evidence of solvency. I admitted that "evidence" somewhat reluctantly, albeit that it seemed to me to be nothing more than an unsupported assertion of the net worth of the Mulhern Group. It suffers from the same defects as were identified in Mulhern (No 2) at [4]-[5].

ABUSE OF PROCESS 58 The issues which Mrs Mulhern sought to litigate in her annulment application in this Court were quite plainly an attempt to relitigate the issues which were resolved adversely to her in Mulhern (No 1) and Mulhern (No 2). 59 It is well established by High Court authority that an attempt to do so may constitute an abuse of process notwithstanding that the earlier proceeding does not give rise to a res judicata or issue estoppel: Walton v Gardiner (1993) 177 CLR 378 at 393 (per Mason CJ, Deane and Dawson JJ); Rogers v The Queen (1994) 181 CLR 251; see also the analysis of the principle of abuse of process by French J in Spalla v St George Motor Finance Ltd [2004] FCA 1699 at [59] ff. 60 This principle was applied by a Full Court to an application in bankruptcy: Wilson v Commonwealth of Australia [1999] FCA 1308 at [11] ff (Burchett, Weinberg and Hely JJ). 61 It was expressly applied to an application for an annulment of a bankruptcy where the applicant sought to agitate a second time the same matters that he had relied upon unsuccessfully in an earlier application: Boothe (Trustee), in the matter of Malan (Bankrupt) v Malan [2000] FCA 685 at [12]-[14] (Branson J). 62 It applies with equal force here where Mrs Mulhern's application consists of nothing more than an attempt to relitigate an application in which she had been unsuccessful in the Federal Magistrates Court. The application is, to adopt the words of White J in Re Prowse at 641-642, a second application on the same or very similar or patched up similar facts which constitutes an abuse of process because it is: 'a second bite of the same cherry', a course contrary to the long-established and sensible policy of the law.

CONCLUSION 63 I have taken into account the fact that a sequestration order is a significant matter which affects Mrs Mulhern's private rights and extends into areas of public law. It is her status as a bankrupt person which she wishes to challenge. This is of special concern to her where she lives overseas and is apparently in ill-health. Moreover, her husband is also bankrupt and unable to leave Australia. 64 Nevertheless, for reasons which I have set out above, it is plain that the application for an annulment could not have succeeded on its merits and in any event was doomed to failure as an abuse of process. 65 The appropriate order is that the application be dismissed as an abuse of process. Mrs Mulhern should be ordered to pay the costs of the application including the Bank's costs of the interlocutory application for dismissal. The costs should be costs in the bankruptcy. I certify that the preceding sixty-five (65) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jacobson.