McKinnon v Commonwealth Bank of Australia ACN 123 123 124 [2006] FCAFC 182 (15 December 2006)

BANKRUPTCY – where bankruptcy notice issued against appellants – where creditor’s petitions brought in Federal Magistrates Court and sequestration orders made – where special leave application pending in High Court with respect to decisions of Federal Magistrates Court and Federal Court upholding bankruptcy notice – whether Federal Magistrate erred in refusing to adjourn hearing of creditor’s petitions – where two debtors named in bankruptcy notice and creditor’s petitions – whether bankruptcy notice and creditor’s petitions served correctly – whether Federal Magistrate erred in ordering costs against debtor’s estate.

Held: Magistrate had discretion as to whether hearing of creditor’s petitions should be adjourned - no error established in refusal to adjourn – no obligation to serve bankruptcy notice or creditor’s petition on all named debtors at the same time – bankruptcy notice and creditor’s petitions correctly served – no error in Federal Magistrate ordering costs against the estate of the appellants – appeal dismissed.

Bankruptcy Act 1966 (Cth) s 41, s 52

Ahern v Deputy Commissioner of Taxation (Qld) (1987) 76 ALR 137 referred to
Australian Coal and Shale Employees’ Federation v The Commonwealth [1953] HCA 25; (1953) 94 CLR 621 referred to
House v The King [1936] HCA 40; (1936) 55 CLR 499 referred to
McKinnon v Commonwealth Bank of Australia [2005] FCA 576; (2005) 143 FCR 376 referred to
McKinnon v Commonwealth Bank of Australia [2006] FCAFC 10 referred to
Re Ward; Ex parte R W Brown and Company Pty Ltd (1991) 28 FCR 329 referred to

JEANNETTE BEVERLY DAWN MCKINNON AND DONALD NEIL MCKINNON v COMMONWEALTH BANK OF AUSTRALIA ACN 123 123 124
VID 1135 OF 2005

MANSFIELD, YOUNG AND BESANKO JJ
15 DECEMBER 2006
MELBOURNE

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VID 1135 OF 2005

ON APPEAL FROM THE FEDERAL MAGISTRATES COURT OF AUSTRALIA

BETWEEN:	JEANNETTE BEVERLY DAWN MCKINNON First Appellant DONALD NEIL MCKINNON Second Appellant
AND:	COMMONWEALTH BANK OF AUSTRALIA ACN 123 123 124 Respondent

JUDGES:	MANSFIELD, YOUNG AND BESANKO JJ
DATE OF ORDER:	15 DECEMBER 2006
WHERE MADE:	MELBOURNE

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VID 1135 OF 2005

ON APPEAL FROM THE FEDERAL MAGISTRATES COURT OF AUSTRALIA

BETWEEN:	JEANNETTE BEVERLY DAWN MCKINNON First Appellant DONALD NEIL MCKINNON Second Appellant
AND:	COMMONWEALTH BANK OF AUSTRALIA ACN 123 123 124 Respondent

JUDGES:	MANSFIELD, YOUNG AND BESANKO JJ
DATE:	15 DECEMBER 2006
PLACE:	MELBOURNE

1 This is an appeal by Jeannette Beverly Dawn McKinnon and Donald Neil McKinnon against orders made by a Federal Magistrate on 26 August 2005. The Magistrate made a sequestration order against the estate of Mrs McKinnon and a sequestration order against the estate of Mr McKinnon. He made other orders in relation to both appellants and their respective estates, but it is not necessary to set out the details of those orders. In each case the sequestration orders were made on a creditor’s petition presented by the Commonwealth Bank of Australia (‘the Bank’) and the Bank is the respondent to the appeal.

2 On 27 June 2001 the Bank obtained a judgment in its favour against the appellants for moneys due in the sum of $222,985.29 in the Supreme Court of Victoria.

3 On 10 October 2003 the Bank issued a bankruptcy notice against the appellants under s 41 of the Bankruptcy Act 1966 (Cth) (‘the Act’) and that notice was served on Mr McKinnon on 28 October 2003. He did not comply with the bankruptcy notice, and the Bank asserted that he thereby committed an act of bankruptcy. On 17 December 2003 the Bank presented a creditor’s petition against Mr McKinnon. In it the Bank claimed that he owed it the sum of $284,743.15 being the judgment sum and interest for the period from 28 June 2001 to 18 November 2003.

4 The bankruptcy notice issued by the Bank was served on Mrs McKinnon on 24 February 2004. She did not comply with the notice, and the Bank asserted that she thereby committed an act of bankruptcy. On 19 March 2004 the Bank presented a creditor’s petition against Mrs McKinnon. In it the Bank claimed that she owed it the sum of $292,920.83 being the judgment sum of $222,985.29 and interest for the period from 28 June 2001 to 16 March 2004.

5 The appellants sought to appeal against the judgment entered against them in the Supreme Court of Victoria. On 26 October 2001 the Victorian Court of Appeal ordered that the appellants’ application for leave to appeal out of time and for a stay of execution be dismissed with costs. On 3 October 2003 the High Court of Australia refused the appellants’ application for special leave to appeal from those orders.

6 On 15 March 2004 the appellants made an application to set aside the bankruptcy notice issued against them or for an order extending the time for compliance with the bankruptcy notice. On 16 March 2004 the appellants, by notice of motion, sought an extension of time to comply with the bankruptcy notice. Weinberg J dismissed that application and he refused to stay that order. On 24 March 2004 Ryan J refused leave to appeal from the order of Weinberg J. On 25 March 2004 the appellants’ application to set aside the bankruptcy notice was transferred to the Federal Magistrates Court and on 29 March 2004 the application was heard and was dismissed. On 16 April 2004 the appellants filed a notice of appeal to this Court against the order made by the Federal Magistrates Court. On 7 April 2005 Gray J, exercising the appellate jurisdiction of this Court, dismissed the appeal: McKinnon v Commonwealth Bank of Australia [2005] FCA 576; (2005) 143 FCR 376. On 28 April 2005 the appellant filed a notice of appeal in the Federal Court against the orders of Gray J. On 27 May 2005 the appellants filed an application (which was out of time) in the High Court for special leave to appeal against the orders of Gray J. On 24 June 2005 that application in the High Court was deemed to have been abandoned by reason of the fact that the appellants had failed to file and serve the necessary documents.

7 On 26 August 2005 the sequestration orders which are the subject of the present appeal were made. The Magistrate also granted a stay of proceedings under the sequestration orders for 21 days. On 23 September 2005 Goldberg J refused to grant a further stay and on 30 September 2005 Heerey J refused to grant leave to appeal from Goldberg J’s decision. On 3 November 2005 Marshall J refused an application for a stay and on 15 November 2005 Dowsett J refused to grant leave to appeal from Marshall J’s decision.

8 On 16 September 2005 the appellants filed the notice of appeal which is before this Court, and an affidavit of Mrs McKinnon.

9 Certain events which occurred after the orders which are under challenge in this appeal should be noted.

10 On 6 October 2005 a Judge of the High Court made an order reinstating the appellants’ application for special leave to appeal from the orders of Gray J. On 3 August 2006 the application for special leave to appeal was refused.

11 On 17 February 2006 the Full Court of this Court dismissed as incompetent the appellants’ purported appeal from the orders of Gray J: McKinnon v Commonwealth Bank of Australia [2006] FCAFC 10.

12 In his reasons for judgment the Magistrate first addressed the application by the appellants for an adjournment, and he then addressed the question of whether he should make the sequestration orders sought by the Bank.

13 The Magistrate noted that there was a purported appeal from the decision of Gray J to the Full Court of this Court. He said that he considered that it was conceded by all parties that the appeal was incompetent and had no prospects of success, and that indeed was the reason why the appellants were seeking special leave to appeal to the High Court. The Magistrate said that he was not persuaded that the fact of an outstanding appeal to the Full Court of this Court was a basis upon which he should grant an adjournment. The Magistrate then considered the significance of the appellants’ application for special leave to appeal to the High Court from the orders of Gray J. He referred to a timetable which he had specified in a previous order, and the appellants’ efforts to comply with that timetable. The Magistrate noted that by a letter dated 7 June 2005 which he considered arrived at the appellants’ address ‘possibly around’ 9 June 2005, the appellants were informed of the requirements under the rules of the High Court to provide a written case as to the grounds upon which they sought special leave to appeal. He referred to Mrs McKinnon’s emotional circumstances at that time and the fact that she made efforts on the very last day to comply with the requirements of the rules. The Magistrate said:

14 The essence of the Magistrate’s reasons for refusing the application for an adjournment are as follows:

15 The Magistrate then turned to consider whether he ought to make sequestration orders against the respective estates of the appellants. He referred to the long history of the matter. He referred to the notice of intention to oppose the creditor’s petitions, and dealt with each of the grounds raised in those notices.

16 The Magistrate began his consideration by reference to Mr McKinnon’s grounds for opposing the creditor’s petition.

17 The first three grounds related to the service of the bankruptcy notice and the issuing of the creditor’s petition against Mr McKinnon. The Magistrate rejected a submission that the bankruptcy notice must be served on the appellants at the same time and a submission that even if service could be effected at different times, service of the bankruptcy notice on Mrs McKinnon should have been effected before the creditor’s petition was presented against Mr McKinnon. The Magistrate said that it would have been quite open to the Bank to pursue one of the joint debtors named in the bankruptcy notice exclusively if it had wished to do so.

18 The Magistrate said that the fourth ground was to the effect that sequestration orders should not have been made because the Bank had not proved that one of the properties the subject of its securities had been sold. The Magistrate referred to evidence before him to the effect that the Bank did not have security over any assets of the appellants and he said that the fourth ground was without substance.

19 The Magistrate said that the fifth ground was to the effect that the Bank could not claim a debt which it had already written off. It was submitted by the appellants that the Bank’s statements indicate a ‘nil’ balance in relation to the debt. The Magistrate concluded that the debts were still in existence and that the Bank’s accounting does not ‘negate that reality’.

20 The Magistrate said that the sixth ground was to the effect that the Bank had given an undertaking to the High Court that it would not take any action until the resolution of the application to the High Court for special leave to appeal. The Magistrate noted that the Bank had complied with that undertaking and that the Bank was released from the undertaking, on 3 October 2003, when the High Court refused special leave to appeal from the decision of the Victorian Court of Appeal.

21 The Magistrate said that the seventh ground was to the effect that the High Court had not addressed a notice of motion which was said by the appellants to be before them on 3 October 2003. That notice of motion involved an attempt by the appellants to secure (among other things) an order that there be a trial by jury. The Magistrate considered that that was irrelevant to the issues before him and that the ground had no substance.

22 The Magistrate said that the eighth ground was to the effect that there were charges pending against one of the Justices of the High Court based upon an apparent conflict of interest. The Magistrate considered that that did not touch upon the issues which were before him ‘in a direct sense’ and was irrelevant.

23 The Magistrate then turned to address the notice of intention to oppose the creditor’s petition filed by Mrs McKinnon. In essence it raised the same issues as raised by Mr McKinnon and he rejected them for the same reasons.

24 The Magistrate also referred to an assertion raised by the appellants during the course of the hearing that they were solvent, and that the petitions should be dismissed on that ground. The Magistrate said that in support of that assertion he had been provided with what was described as an up-to-date valuation of one of the two properties said to be jointly owned by the appellants. That was a valuation of what is referred to in the Magistrate’s reasons for judgment as the Bellala property at a figure of $475,000 over which there was an encumbrance securing the sum of $152,500. There was no valuation of the appellants’ other property. The Magistrate said that it was trite law that the onus of proving solvency fell squarely upon the appellants and he said that the details of solvency proffered by the appellants were quite deficient. There was only an assertion by the appellants that the properties had been revalued, and that in broad terms there was equity of some $500,000 between the two properties, ‘perhaps a bit more’. The Magistrate noted that he had no evidence as to the liabilities of the appellants. He did not have evidence in an acceptable form as to the valuation of the properties, and he said because of the lack of evidence he was unable to find that the appellants were solvent. He noted that he had a discretion but that in the exercise of his discretion he must ‘pay due regard to the evidence that is presented, or the lack of it as they case may be, and to the history of the matter’.

25 The Magistrate also noted that the appellants had said that they did not intend to realise any of their assets and that underpinning ‘their whole position in the matter is that the judgment in the first instance is wrong and unjustified’ and he noted that the appellants intended to pursue all avenues open to them ‘to set the record straight and to address the grave injustice, as they see it done to them’.

26 The Magistrate was satisfied that it was appropriate to make the sequestration orders sought by the Bank.

27 The grounds of appeal as set out in the appellants’ notice of appeal are as follows:

28 The appellants appeared in person and Mrs McKinnon made submissions on her own behalf and, with leave, on behalf of her husband.

29 Mrs McKinnon made two preliminary submissions. She submitted that the Bank had no standing on the appeal because sequestration orders had been made and in those circumstances she submitted that the Bank should not be heard. The appellants appeal against the making of the sequestration orders and the Bank is the proper respondent to the appeal. There is no basis to this submission and it should be rejected. Mrs McKinnon also submitted that the Bank had not established that it was an incorporated body. It is far too late to raise this submission, and, in any event, there is nothing to suggest that there is any substance in it.

30 Mrs McKinnon submitted that the Magistrate erred in not adjourning the hearing of the creditor’s petitions. She pointed in particular to her intention to apply to have the application for special leave to appeal from the orders of Gray J reinstated as a reason the Magistrate should have adjourned the hearing of the petitions. She also pointed to her desire to produce evidence or further evidence that she and Mr McKinnon were solvent or, to use the words of the section, ‘able to pay his or her debts’ (s 52(2)(a) of the Act).

31 The Magistrate clearly had a discretion to adjourn the hearing of the petitions or to proceed to determine them: Ahern v Deputy Commissioner of Taxation (Qld) (1987) 76 ALR 137. That discretion is of a broad nature and the exercise of it by a judicial officer at first instance will only be set aside if a relevant error can be shown: Ahern v Deputy Commissioner of Taxation (Qld) (supra); Australian Coal and Shale Employees’ Federation v The Commonwealth [1953] HCA 25; (1953) 94 CLR 621 per Kitto J at 627; House v The King [1936] HCA 40; (1936) 55 CLR 499 at 504-505.

32 As far as the possibility of the application for special leave to appeal to the High Court from the orders of Gray J and the significance of that possibility is concerned, we do not think any error of the relevant type has been demonstrated. The Magistrate was entitled to take into account the delay by the appellants and the prospects of special leave to appeal being granted. As it happens, although reinstated the application for special leave to appeal was refused the day before the hearing of the appeal before this Court and that in itself may have been sufficient to justify a rejection of any challenge to the Magistrate’s decision not to grant an adjournment. However, we do not need to rest our decision on this ground because no error on the part of the Magistrate has been demonstrated.

33 Nor do we think any error has been shown in the exercise of the Magistrate’s discretion not to adjourn the petitions to enable the appellants to produce evidence or further evidence of their ability to pay their debts.

34 Mrs McKinnon submitted that the bankruptcy notice and creditor’s petition were not served correctly. We reject this submission. There is no requirement that a bankruptcy notice in which two debtors are named must be served at the same time, nor is there any requirement where two debtors are named in the one bankruptcy notice that a creditor’s petition may not be presented against one even though the bankruptcy notice has not been served on the other (see Re Ward; Ex parte R W Brown and Company Pty Ltd (1991) 28 FCR 329).

35 Mrs McKinnon submitted that the Magistrate should not have made the order for costs which he did. The order as to costs made by the Magistrate in the case of each estate was as follows:

36 There is nothing unusual about that order and we would not interfere with it.

37 We will deal with two other submissions made by Mrs McKinnon which, although not the subject of a ground of appeal, were raised in the course of oral submissions.

38 Mrs McKinnon submitted that the Bank had not realised or properly realised an asset over which it had security. It was not easy to follow the precise submission that was being made. At all events, whatever the exact purport of the submission it must be rejected because the Magistrate had before him evidence which he was entitled to accept that the Bank did not at the time the creditor’s petitions were presented hold security over the property of the appellants.

39 Mrs McKinnon submitted that even on the evidence before him the Magistrate should have found that the appellants were able to pay their respective debts. We reject this submission. Under s 52(2)(a) of the Act the onus is on the appellants to show by clear evidence that they were able to pay their respective debts. For the reasons given by the Magistrate, they clearly did not establish that fact.

41 The appeal must be dismissed and the appellants must pay the respondent’s costs of the appeal.

I certify that the preceding forty-one (41) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Mansfield, Young and Besanko.

The Appellant:	The first appellant appeared in person and with leave on behalf of the second appellant.

Counsel for the Respondent:	T Ellis

Solicitor for the Respondent:	A Harewood

Date of Hearing:	4 August 2006

Date of Judgment:	15 December 2006

Federal Court of Australia - Full Court Decisions

McKinnon v Commonwealth Bank of Australia ACN 123 123 124 [2006] FCAFC 182 (15 December 2006)