Ground 2 (j)
The Federal Magistrate denied procedural fairness in that she failed to take into consideration that:
i. Blueprint's claim on the bankruptcy notice of the amount of the Taxing Master's assessment of legal costs dishonestly includes the legal costs of Rod Goodwin's proceedings 4216 and 4217 of 2002 to which the respondent has a counterclaim;
ii. Blueprint's claim is disputed on the bases of i) and that the Supreme Court of Victoria has failed to conduct the review of taxation of costs upon the appellant's filed objections and to confirm a final order on the taxation of the costs, as required under Supreme Court Rules Rule 63.56.1(5);
iii. Mr Terry (Blueprint) and Mr Lassen and Ms Santamaria (Herbert Geer) made false sworn statements in the bankruptcy notice and petition that the respondent's payment to Blueprint of $1,750 on 6 December 2007, that lifted the Supreme Court's 2 August 2006 stay on the hearing of the appellant's appeal against the Taxing Master's order of 31 January 2006 striking the application for review of taxation of costs out of the Callover list, was payment to reduce the amount stated on the bankruptcy notice;
iv. the legal costs claimed in the bankruptcy notice were incurred by Ms Winn's solicitor, Garland Hawthorn Brahe, filing out of time and without instruction proceeding 4215 of 2002, an application for leave to appeal a non-monetary VCAT order that was in Ms Winn's favour, and by Garland Hawthorn Brahe and Herbert Geer Rundle for Blueprint together litigating the application to incur legal costs of over $74,000.00 in respect of a minor civil claim of $1,877 then claiming all those costs from Ms Winn and together pursuing bankruptcy against Ms Winn for same;
v. service of the petition is invalid;
vi. the petition was issued after the respondent filed an appeal to have the bankruptcy notice set aside; and an order for substituted service was made on 13 April 2010 by a registrar, without an application or appearance, after the hearing of the appeal on 9 April 2010;
vii. that the creditor's petition included an affidavit that contained the statement that the appeal (VID 817 of 2009) filed 12 November 2009 in respect of the bankruptcy notice had not yet been determined.
87 Many elements of ground 2(j) substantially repeat aspects of ground 2(g).
88 Grounds 2(j)(i) to (iv) were not established. The Federal Magistrate took into account the appellant's principal allegations of invalidity of the bankruptcy notice on various bases although she concluded that they had already been determined against the appellant and dismissed them.
89 In her written submissions under ground 2(g)(i), the appellant submitted that the Federal Magistrate failed "properly and independently" to consider the grounds of opposition and that:
the FM was not bound by the reasons of another FM or findings of another court where these have been contested throughout and Winn had evidence to support her claims. On the hearing of a petition, the FM had power to investigate issues related to service of the notice, validity of the notice, validity of the judgment, creditors' dishonesty, service and validity of the petition. Indeed, an FM is compelled by statute to properly consider some of these.
90 The appellant reiterated that submission in various forms at other points in her written submissions. The first respondent submitted that the appellant was precluded by issue or Anshun estoppel, or on some aspects, res judicata, from challenging either the judgment or bankruptcy notice in the present appeal.
91 The appellant's contention, while insinuated, not explicit, was rather that the Federal Magistrate dismissed without considering arguments to which issue or Anshun estoppel did not apply, and thereby erred.
92 Even were such an error established, Ryan J in the appeal from Phipps FM's decision comprehensively dismissed the appellant's allegations of invalidity of the bankruptcy notice and judgment, together with her assertions of a counter-claim or set off.
93 For completeness, however, in my opinion, the Federal Magistrate did not err in failing to consider, on the erroneous basis that estoppel applied, issues she was required to determine.
94 In Kuligowski v Metrobus (2004) 220 CLR 363 (at 375), the High Court held:
A "final" decision [in the context of issue estoppel]… is one which is not of an interlocutory character but is completely effective unless and until rescinded, altered or amended. The fact that an appeal lies from a decision does not make it any less final. It must be "final and conclusive on the merits": "the cause of action must be extinguished by the decision which is said to create the estoppel".
95 In so far as the appellant alleged matters which could and should reasonably have been raised in earlier proceedings, Anshun estoppel applied.
96 In Makhoul v Barnes (1995) 60 FCR 572 ("Makhoul"), the Full Court considered in detail the principles governing and distinguishing res judicata, issue estoppel and Anshun estoppel in the context of an appeal from the dismissal of a creditor's petition, in circumstances where an application to set aside a bankruptcy notice issued by the appellant against his ex-wife had previously been dismissed by consent. At the hearing of the creditor's petition, the debtor filed new evidence challenging the existence of the underlying debt. The primary judge found that there were good reasons for doubting that the debtor was truly indebted to the petitioning creditor and was not satisfied that a true debt lay behind the judgment on which the petition was based.
97 The appellant appealed on various bases, including that the primary judge erred in failing to hold that the debtor was estopped from litigating in the petition proceedings the question whether a real debt lay behind the judgment.
98 The Full Court dismissed the appeal. Their Honours noted, inter alia, that the question of issue estoppel was raised only obliquely, if at all, before the primary judge.
99 The Full Court observed (at 578) that issue estoppel precluded the subsequent raising of matters already decided in a prior judgment, decree or order which it was necessary to decide and was actually decided as the ground work of the decision itself, though not then directly the point at issue, so that "[m]atters cardinal to the latter claim or contention cannot be raised if to raise them is necessarily to assert that the former decision was erroneous", citing Coleridge J in R v Inhabitants of the Township of Hartington Middle Quarter (1885) 4 E and B 780 at 794.
100 The Full Court observed that in the case before them, it was necessary to determine, inter alia, whether any issue decided in the application to set aside a bankruptcy notice was identical with an issue sought to be raised in the creditor's petition proceeding.
101 Their Honours acknowledged that Australian bankruptcy practice generally accepted that on an application to set aside a bankruptcy notice, the Court would (as recognised in Wilkinson v Osborne (1915) 21 CLR 89), in an appropriate case, go behind the judgment.
102 They accepted that in the case before them, in the application to set aside the bankruptcy notice the debtor had raised the question whether the judgment on which the bankruptcy notice was based was founded on an underlying debt.
103 The Full Court observed that at the hearing of a creditor's petition, where a petitioning creditor has obtained a judgment which founds a bankruptcy notice, and which judgment remains unsatisfied, the petitioning creditor needed to rely on the debt underlying the judgment, as it also founded the entitlement to a sequestration order. Where no application to set aside the bankruptcy notice had been made, the court might, on hearing the creditor's petition, consider whether a bankruptcy notice was valid as to form, and would consider, in an appropriate case, whether a real debt underlay the judgment. Nevertheless, (irrespective of whether there had been an application to set aside the bankruptcy notice) the court would not inquire into the validity of the judgment debt as a matter of course. Rather, it had a discretion to accept proof of the judgment as satisfactory proof of the petitioning creditor's debt.
104 If, at the petition stage, the court inquired into the judgment and was unsatisfied, or considered that the bankruptcy notice was not valid in form, it would exercise its discretion against making a sequestration order and would dismiss the petition. If, on the other hand, the validity of the bankruptcy notice had been established in proceedings to set aside that notice, failure to comply with it would automatically give rise to an act of bankruptcy.
105 The Full Court stated that:
In the present case, an issue estoppel would have arisen at the conclusion of the proceedings to set aside the bankruptcy notice as to the validity of that notice. A court would not, at the petition stage, entertain a submission that no act of bankruptcy had been committed on the grounds that the bankruptcy notice was invalid for Cooper J had ruled on its validity.
106 The Full Court noted that even where the validity of the bankruptcy notice were already determined and an act of bankruptcy established, issue estoppel would not prevent the Court from going behind the debt relied on in the bankruptcy notice, and, if not satisfied, exercising its discretion to dismiss the petition. It would rarely, if ever do so, however, where that question had already been investigated in an application to set aside the bankruptcy notice; it would ordinarily accept the judgment as evidence of the debt.
107 The Full Court stated (at 582):
In other words, because the Court at the petition stage does not actually decide as between the parties that no debt existed but rather only whether the circumstances are such that in the exercise of discretion a sequestration order should not be made, the decision not to set aside the bankruptcy notice does not involve the same issue as arises on the petition so as to found an issue estoppel.
108 The Full Court also observed that the Anshun principle estopping a party from raising an issue in a second case where it could give rise to two inconsistent judgments did not apply in the case before it, because the "dismissal of the petition did not involve a finding inconsistent with the validity of the bankruptcy notice", but "merely the finding that the circumstances of the case did not warrant the exercise of the discretion to make a sequestration order" (at 583).
109 The Full Court nevertheless recognised that, on the other hand, the making of a sequestration order would invariably involve a finding that there had been an act of bankruptcy (and, in the case at hand, that there was a valid notice and a failure to comply with it), which would be inconsistent with an earlier finding that the bankruptcy notice was invalid because there was no real debt.
110 Thus, the Full Court held that on the hearing of a creditor's petition, the Court is:
(a) neither precluded nor required to go behind the judgment and merely has a discretion to do so, which would rarely be exercised if the validity of the debt has been investigated in an application to set aside the bankruptcy notice; and
(b) entitled to rely on the judgment as proof of the debt in determining whether to exercise its discretion to make a sequestration order.
111 Nevertheless, the Full Court in Makhoul indicated that at the petition stage, issue estoppel would apply if a prior application to set the notice aside based on alleged invalidity as to form had been dismissed. Only if the question of validity of form had not previously been decided would the Court, at the petition stage, exercise its discretion against making a sequestration order on that basis.
112 In National Australia Bank Ltd v Westbrook [2000] FCA 246 ("Westbrook"), Gray J dismissed a creditor's petition based on a bankruptcy notice which the debtors had previously unsuccessfully applied to set aside, on the basis that they had a counter-claim, set off or cross-demand that they could not have set up in the proceeding in which judgment was obtained.
113 Gray J found that the bankruptcy notice (non-compliance with which constituted the act of bankruptcy on which the petition was based) was a nullity, and appeared to reject the creditor's "faint attempt" to rely on Anshun estoppel, as the Court would not have the jurisdiction to make the sequestration order in the absence of a valid bankruptcy notice. The Full Court in Trustees of the Franciscan Missionaries of Mary v Weir (2000) 98 FCR 447 subsequently disagreed with Gray J's conclusion that the bankruptcy notice was a nullity but expressed no view on his Honour's brief comments on Anshun estoppel. Clearly the question was not fully argued before Gray J and the application to set aside the bankruptcy notice in Westbrook involved a determination of whether there were a relevant counter-claim or set off, rather than whether the bankruptcy notice was a nullity due to its essential deficiencies or potentially misleading qualities.
114 To the extent of any tension, the Full Court's analysis in Makhoul prevails over the observations in Westbrook which do not, in any event, assist the appellant in this case. Consistently with the Full Court's analysis in Makhoul, Hartnett FM was not precluded by issue estoppel from going behind the judgment, irrespective of whether Phipps FM had considered it. She was not, however, bound to do so, and its previous consideration by Phipps FM rendered the revisitation of that issue unlikely. Her Honour accepted, as was open to her, the judgment as proof of the validity of the underlying debt.
115 To the extent that Phipps FM found that the bankruptcy notice was invalid as to form, issue estoppel precluded her Honour from determining the repeated challenge. Further, in so far as the appellant alleged matters which she should reasonably have raised before Phipps FM or other courts, but did not, or which could have resulted in findings inconsistent with previous decisions, Anshun estoppel would have applied.
116 It is unnecessary to analyse the potential application and status of various species of estoppel in relation to all of the many grounds the appellant relied on before Hartnett FM. Her Honour was bound by Phipps FM's findings of validity as to the form of the bankruptcy notice and the absence of counter-claim and by the finding of validity of the substituted service orders. Her Honour was entitled to accept that the judgment was proof of the debt. The circumstances and other previous determinations to which her Honour referred cogently explained why she did not exercise a discretion to go behind the judgment at the hearing of the petition.
117 Further, Ryan J's decision dismissing the appellant's appeal from Phipps FM's decision was handed down before the hearing of this appeal. Issue or Anshun estoppel applies to his Honour's findings on the appellant's challenges to the validity of the bankruptcy notice identical to the issue raised on this appeal, or which the appellant could and should reasonably have raised in that appeal or other proceedings.
118 Ground 2(j)(v) is not established. The Federal Magistrate, in her reasons, identified the matters deposed to in the affidavit of Alexandra Santamaria sworn 20 April 2010 as the basis for concluding that the creditor's petition had been validly served. Moreover, the appellant filed an appearance on 4 May 2010 and in her affidavit of the same date deposed that the creditor's petition was left outside her house on 19 April 2010 and she became aware of it on that date.
119 Grounds 2(j)(vi) and (vii), which refer to matters discussed in relation to ground 2(j)(i), were not established.