FEDERAL COURT OF AUSTRALIA Mackendrick v Lawless [2018] FCA 735 File number: WAD 227 of 2017 Judge: BANKS-SMITH J Date of judgment: 22 May 2018 Date of publication of reasons: 23 May 2018 Catchwords: BANKRUPTCY AND INSOLVENCY – Creditor's petition – Act of bankruptcy comprised failure to comply with bankruptcy notice founded on a judgment debt for taxed costs – Application to review decision of Registrar making sequestration order against the respondent's estate – Rehearing – Where no justification to go behind judgment debt – Where no sufficient cause to prevent making sequestration order Legislation: Bankruptcy Act 1966 (Cth) s 52 Federal Court of Australia Act 1976 (Cth) Federal Court (Bankruptcy) Rules 2016 (Cth) rr 4.06, 7.05 Cases cited: Cottrell v Nicholls [2004] FCA 102 Harris v Caladine [1991] HCA 9; (1991) 172 CLR 84 Lawless v Mackendrick [No 4] [2013] WASC 272 Lawless v Mackendrick [No 3] [2016] WASCA 208 Martin v Commonwealth Bank of Australia [2001] FCA 87; (2001) 217 ALR 634 Ramsay Health Care Australia Pty Ltd v Compton [2017] HCA 28; (2017) 345 ALR 534 Totev v Sfar [2008] FCAFC 35; (2008) 167 FCR 193 Zdrilic v Hickie & Anor [2016] FCAFC 101; (2016) 246 FCR 532 Date of hearing: 15 May 2018 Registry: Western Australia Division: General Division National Practice Area: Commercial and Corporations Sub-area: General and Personal Insolvency Category: Catchwords Number of paragraphs: 53 Counsel for the Applicants: The applicants appeared in person Counsel for the Respondent: The respondent appeared in person ORDERS WAD 227 of 2017 BETWEEN: ALASTAIR MACKENDRICK First Applicant PAMELA GABRIELS Second Applicant AND: KEVIN GERARD LAWLESS Respondent JUDGE: BANKS-SMITH J DATE OF ORDER: 22 MAY 2018 THE COURT ORDERS THAT: 1. The Registrar's order made 28 August 2017 is affirmed. 2. The respondent's application for review is otherwise dismissed. 3. The respondent is to pay the applicants' costs to be assessed if not agreed. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT BANKS-SMITH: Background 1 On 28 August 2017 a Registrar of this Court made a sequestration order in respect of the estate of the respondent, Mr Kevin Lawless. The applicants, Dr Mackendrick and Ms Gabriels, are the petitioning creditors. Mr Lawless now seeks a review of the Registrar's order. A review is provided for under s 35A of the Federal Court of Australia Act 1976 (Cth). 2 Such a review is conducted de novo: Harris v Caladine [1991] HCA 9; (1991) 172 CLR 84 [95]; Totev v Sfar [2008] FCAFC 35; (2008) 167 FCR 193 [14] - [15]; Martin v Commonwealth Bank of Australia [2001] FCA 87; (2001) 217 ALR 634; Zdrilic v Hickie & Anor [2016] FCAFC 101; (2016) 246 FCR 532 [24] – [32], [66]. 3 The parties are all self-represented on this application. 4 I made formal orders on 22 May 2018 and now publish my reasons. Chronology of key events 5 In 2006, Mr Lawless commenced proceedings in the Supreme Court of Western Australia claiming common law damages against three defendants arising out of the acquisition of the Imperial Inn at York by Curtin Hotels Pty Ltd (Curtin) in 2000. Mr Lawless was the sole director of Curtin. Curtin ran the business for some five years. The business failed and a liquidator was appointed to Curtin. Mr Lawless took an assignment of Curtin's causes of action against the defendants and issued proceedings. The applicants were the first defendants. 6 The claims brought by Mr Lawless against the applicants were primarily advanced under the tort of deceit and alleged negligent misrepresentation, and related to claims said to have been made about the business at the time of the negotiations for its sale and purchase. 7 On 31 July 2013 and after trial, the primary judge dismissed Curtin's and Mr Lawless' claims: Lawless v Mackendrick [No 4] [2013] WASC 272. 8 The applicants had the benefit of a costs order against Mr Lawless. The costs were taxed in the sum of $142,967.05. 9 Mr Lawless lodged an appeal from the primary judge's decision. 10 On 26 June 2014 the respondent issued a bankruptcy notice in reliance on the unpaid taxed costs plus interest, being a total debt of $150,543.51. The bankruptcy notice was served on 4 July 2014. 11 On 25 July 2014 Mr Lawless applied to the Federal Circuit Court for an extension of time in which to comply with the bankruptcy notice pending judgment in the appeal. 12 The Court of Appeal dismissed Mr Lawless' appeal on 1 December 2016: Lawless v Mackendrick [No 3] [2016] WASCA 208. 13 The applicants were also awarded their costs of the appeal, which were taxed in the sum of $53,249.43. The sum of $20,000 which had been paid into court by Mr Lawless by way of security for costs of the appeal was paid out to the applicants. 14 On 9 December 2016, the Federal Circuit Court dismissed Mr Lawless' application for an extension of time in which to comply with the bankruptcy notice, and accordingly the relevant date of the act of bankruptcy is 9 December 2016. 15 The applicants issued a creditor's petition on 23 May 2017. It was filed within six months of the act of bankruptcy as required. 16 Mr Lawless filed an application for special leave to appeal to the High Court from the Court of Appeal's decision on or about 1 August 2017. 17 Dr Mackendrick and Ms Gabriels filed a notice of appearance in the special leave application on 10 August 2017 by their then solicitor and counsel, Mr Rabe. 18 Dr Mackendrick filed affidavits in the bankruptcy proceedings on 23 May 2017, 25 July 2017 and 4 August 2017 verifying the creditor's petition and establishing that Mr Lawless had received the bankruptcy notice. 19 Affidavits of process server Mr Goldfinch and legal secretary Ms Colotti were filed as to service of the bankruptcy notice (both filed 25 July 2017). An affidavit of process server Ms Iannetta was filed verifying service of the creditor's petition (filed 14 June 2017). 20 Dr Mackendrick also filed an affidavit on 23 May 2017 to the effect that the debt remained unpaid. By affidavits filed 23 May 2017, 30 June 2017, 4 August 2017 and 25 August 2017 Mr Rabe deposed to (when read together) the continued existence of the debt, his provision of the creditor's petition and verifying affidavits by email to Mr Lawless and his searches of the Federal Court, Federal Circuit Court and National Personal Insolvency Index. 21 On 28 August 2017 the Registrar heard the application for a sequestration order. Mr Lawless appeared in person. The applicants were represented by Mr Rabe. The Registrar was made aware at the hearing that Mr Lawless had filed a special leave application. The Registrar proceeded to make a sequestration order. 22 On 18 September 2017 Mr Lawless brought this application for a review of the Registrar's sequestration order. 23 On 8 November 2017 Mr Lawless' application for special leave to appeal to the High Court from the decision of the Court of Appeal was refused. 24 This application for review first came before Siopis J for programming orders in October 2017. His Honour programmed the filing of any further affidavits and submissions. Mr Lawless filed an affidavit on 19 October 2017, in which he asserted that the Registrar had been misled by Mr Rabe. Mr Lawless said that Mr Rabe told the Registrar that he had not seen the application for special leave when he must have seen it, because Mr Rabe had filed a notice in the special leave application. 25 In response, Mr Rabe swore an affidavit that included the following: (1) I appeared at the hearing of the Petition before Registrar Jan on 31 July 2017 where orders were made for: (a) the applicants to file and serve an affidavit verifying paragraph [2] of the Petition by 7 August 2017; (b) the applicants to file and serve copies of all the documents in the proceedings by sending them to the respondent's email address [redacted] by 7 August 2017; (c) the respondent to file and serve any Notice of Opposition supported by affidavit by 21 August 2017 (the 31 July Orders). (2) I was notified of the respondent's application for special leave to appeal to the High Court by my clients in early August 2017 who gave me a copy of the document. The copy document given to me by my clients is in identical terms to the second document annexed to the respondent's affidavit (the 'Application'). (3) My clients instructed me to enter an appearance to the application which I did on 10 August 2017 and the first document annexed to the respondent's affidavit is in identical terms to the Notice of Appearance which I caused to be entered. I confirm that the signature on the Notice of Appearance on the first document annexed to the respondent's affidavit is my signature. (4) I entered an appearance to the application only after I had seen the application. (5) The adjourned hearing of the Petition before Registrar Trott took place on 28 August 2017 (the Hearing). I appeared for the applicants at the hearing and the respondent appeared in person at the hearing. (6) In the course of my submissions to the Registrar, I told the Registrar that no documents had been served on me by the respondent in compliance with 31 July orders but that to my knowledge the respondent had since then made an application for special leave to the High Court. (7) The Registrar said the application was not on the Court file. (8) I accordingly handed up my copy of the application to the Registrar which was returned to me by the Registrar's associate at the end of the hearing. (9) I handed up the application to the Registrar only after I had seen the application. (10) The Registrar said in handing down his judgment on the Petition that in circumstances where: (a) the applicants had fully complied with the 31 July Orders; and where (b) the respondent had failed to comply adequately or at all with the 31 July orders; 'my hands are tied' and that the applicants were entitled to the order sought on the Petition. (11) I have ascertained that there is no transcript made of the hearing before Registrar Trott on 28 August 2017. 26 Mr Lawless did not file submissions. Dr Mackendrick filed short submissions to the effect that he relied upon what was said in Mr Rabe's affidavit and noting the application for special leave was in any event dismissed. 27 The review application first came before me for hearing on 27 April 2018. 28 In light of the review hearing being a hearing de novo, it was apparent to me that both the applicants and respondent needed to take additional steps in order to comply with the Federal Court (Bankruptcy) Rules 2016 (Cth). Mr Lawless needed to confirm that he had served his trustee and notified his creditors of his application (r 7.05) and he was at that time unable to do so. Dr Mackendrick and Ms Gabriels needed to file the additional affidavits that must be filed immediately before a hearing (r 4.06) as to an updated search of the National Personal Insolvency Index and as to the debt remaining unpaid (as addressed in, for example, Martin v Commonwealth Bank of Australia [16]; Totev v Sfar [2008] FCAFC 35; (2008) 167 FCR 193 [14]–[15]). 29 Taking into account that the parties are self-represented, I drew these matters to their attention and adjourned the hearing to provide an opportunity for the matters to be addressed. I provided the parties with a copy of Martin v Commonwealth Bank of Australia and also a copy of the relevant rules. 30 At the hearing Mr Lawless sought leave to file a supplementary affidavit that attached two particular documents. I granted leave. 31 Mr Lawless subsequently filed a supplementary affidavit attaching a copy of his application for special leave dated 1 August 2017 and a Notice of Appearance signed by Mr Rabe on behalf of the applicants, dated 10 August 2017 and bearing the special leave filing number P35 of 2017. 32 Mr Lawless repeated in his affidavit that Mr Rabe said to the Registrar at the hearing the words, 'I have not seen the application to the High Court.' 33 Mr Rabe subsequently swore a supplementary affidavit again denying Mr Lawless' report of events at the hearing and attaching his file note of the hearing that suggested he had addressed the Registrar on the relevance of the fact a special leave application had been filed. For example, the file note refers to 'Ramsay', and Mr Rabe recalls that this was a reference by the Registrar to the High Court's decision in Ramsay Health Care Australia Pty Ltd v Compton [2017] HCA 28; (2017) 345 ALR 534. Mr Rabe said that he had provided a copy of the special leave application to the Registrar during the hearing and the Registrar had returned the copy to him. The review application 34 The adjourned hearing proceeded on 15 May 2018. I granted the parties leave to file certain supplementary affidavits by 18 May 2018 and they complied. The petitioning creditors' application 35 I am to be satisfied of the matters required by s 52 of the Bankruptcy Act 1966 (Cth) as at the date of the hearing before me. 36 The applicants adduced the evidence required by that provision. In case it was required, I granted leave to the applicants to rely on the affidavits filed for the purpose of the hearing before the Registrar and referred to above at paragraphs [18] – [20] of these reasons. Those affidavits provide the requisite proof as to the matters stated in the creditor's petition, service of the creditor's petition and that the debt on which the applicants rely as petitioning creditors is still owing. Those affidavits also prove that at the time of the hearing before the Registrar the debt was still owing and that the necessary searches had been undertaken. The fact that the debt was still owing as at the date of the hearing before me was proved by the affidavit of Dr Mackendrick filed 15 May 2018. The updated information as to searches as required by r 4.06(3) was provided by the affidavits of Dr Mackendrick filed 15 May 2018 and 18 May 2018. 37 None of those formal matters were in dispute. 38 I informed the parties at the hearing that I was satisfied as at that date that the requirements of s 52 of the Bankruptcy Act had been met subject to and effective upon receipt of the additional affidavit of 18 May 2018 from Dr Mackendrick (which was received) and that the applicants have a prima facie right to a sequestration order. Mr Lawless' submissions 39 Mr Lawless does not claim he is able to pay his debts. I invited Mr Lawless during the hearing to address me on any cause which he relies on to say that a sequestration order should not be made. 40 Mr Lawless' submissions at the hearing involved a general and somewhat vitriolic attack on Dr Mackendrick by way of inadmissible assertions. However, doing the best I can, I was able to discern the following arguments: (a) the primary judge made mistakes in the Supreme Court trial and did not understand the significance of the evidence; (b) Mr Lawless has evidence that shows that the primary judge was wrong; (c) Mr Lawless has arranged for statements to be taken by a barrister and solicitor that reveal the evidence at trial was 'perjured evidence'; (d) those statements were drafted by a solicitor 3 months before the judgment was delivered by the primary judge; (e) he has a 'heavyweight of evidence…. to bring forward' to show that he is telling the truth and other witnesses lied; (f) the bankruptcy was instigated by the applicants to prevent Mr Lawless proceeding in the High Court; (g) Mr Lawless has filed a further application for special leave to appeal to the High Court. 41 Despite the programming orders made by Siopis J, Mr Lawless did not evince any evidence in support of his claims that he has evidence that shows that the primary judge's decision was wrong or that witnesses had perjured themselves. The alleged witness statements were not provided. He did not provide any copies of his alleged further special leave application. There was no suggestion he has brought any stay application pending the determination of a further special leave application. 42 Mr Lawless repeated during oral submissions the assertion that he had made in his affidavits to the effect that Mr Rabe had misled the Registrar. 43 Distilling Mr Lawless' submissions in the context of a rehearing, it is not necessary to determine whether Mr Rabe told the Registrar that he had never seen the special leave application. In any event, the evidence, including Mr Rabe's evidence to the effect that he knew about the special leave application and had filed the appearance prior to the hearing, tells against Mr Lawless' version of what was said. Mr Rabe's version is inherently credible. In light of his contemporaneous file note, I would accept Mr Rabe's evidence that there was discussion during the hearing about the special leave application with the Registrar. Mr Rabe said that he told the Registrar no documents had been served on him by the respondent. That is a different statement to the one alleged by Mr Lawless to the effect that he did not have such documents at all. It may be that Mr Lawless simply misunderstood what was said by Mr Rabe at the time. Regardless, it is not in issue that the Registrar knew at the hearing that a special leave application had been filed when he made the sequestration order. Even on Mr Lawless' version of events, that must be the case. 44 However, I take Mr Lawless' submission about the conduct of Dr Mackendrick and the Supreme Court proceedings to be a submission that there is no underlying debt because judgment should not have been entered against him and so no costs order would have been made against him. Such a submission is relevant on a rehearing and invites the Court to go behind the judgment in the Supreme Court proceedings. 45 In Ramsay Health Care Australia Pty Ltd v Compton, the plurality said (at [68]): [68] For the purposes of s 52 of the Act, a judgment may usually be taken to be sufficient evidence of a debt in that a judgment against a debtor in favour of a creditor obtained after a trial is, generally speaking, a reliable indication of the true state of indebtedness as between creditor and debtor. Indeed, such a judgment can usually be expected to provide the most reliable statement of the debt humanly attainable because the ordinary processes of the adversarial system provide a practical guarantee of reliability. The testing of the relative merits of a claim and counterclaim under the rigours of adversarial litigation will usually establish the true state of accounts as between the parties to the proceedings. Accordingly, a Bankruptcy Court will usually have no occasion to investigate whether the judgment debt is a true reflection of the real debt. But where the merits of a claim and counterclaim have not been tested in adversarial litigation, a judgment debt will not have this practical guarantee of reliability. 46 In this case, Mr Lawless has not satisfied me that circumstances exist that justify an investigation as to how the judgment debt arose. The costs orders arose following a trial that had occupied some 10 hearing days, after which Mr Lawless unsuccessfully appealed to the Court of Appeal. Mr Lawless was represented by counsel both before the primary judge and before the Court of Appeal. The application for special leave to appeal to the High Court was dismissed. 47 Based on his oral submissions before me, much of Mr Lawless' complaints about the trial outcome relate to a letter dated 7 January 2000 (Letter) from Dr Mackendrick to Ms Groves of Joseph Charles Learmonth Duffy Real Estate. The Letter was the subject of close examination and factual findings by the primary judge. It was described as 'pivotal' and a 'central underlying feature of the case' (at [51], [73]). The primary judge made various factual findings about the date Mr Lawless first was shown or received a copy of the Letter, facts that had the effect of denying Curtin's claims against the applicants (at [215] – [233]). The findings about the Letter were the principal issue in the appeal. Each ground of the appeal was dismissed. The High Court in rejecting leave to appeal expressly stated that Mr Lawless had not identified a question of law sufficient to warrant a grant of special leave, had otherwise advanced no arguable ground of appeal and would enjoy no prospect of success on an appeal to the High Court. 48 When Mr Lawless filed his final affidavit in this review hearing, he handed to the Registry staff a copy of what appears to be the Letter. It was not formally tendered before me or attached to any affidavit. 49 I simply note that I have seen the Letter. Even had it been tendered, there is nothing on the face of the letter that causes me to doubt the findings of Martin J or the validity of the costs orders that comprise the judgment debt. 50 The evidence before me, including Mr Lawless' affidavits, provides no basis for this Court to reconsider the findings made in the Supreme Court proceedings. 51 Nor is there any evidence to support the scandalous assertions made by Mr Lawless against the applicants or Mr Rabe during his submissions before me. Determination 52 I have taken into account the submissions of Mr Lawless that I take to be submissions that I should go behind the judgment debt. I expressly invited Mr Lawless to address me on any cause upon which he relied to say the sequestration order should not be made. I have also considered afresh the matters as to which I must be satisfied under s 52 of the Bankruptcy Act as at the date of the hearing. Mr Lawless clearly feels deeply aggrieved by the outcome of the litigation against the applicants, but I am satisfied as to the matters required by s 52 of the Bankruptcy Act and I am not satisfied that there is any other reason why a sequestration order should not be made. 53 Accordingly I affirm the Registrar's order. There is authority for the view that such order is the appropriate order on a review application: Cottrell v Nicholls [2004] FCA 102 [16]. There is no reason costs should not follow the event and so I order that Mr Lawless is to pay the applicants' costs to be assessed if not agreed. I certify that the preceding fifty-three (53) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Banks-Smith. Associate: Dated: 23 May 2018