Bechara v Bates

1. The matter be stood over to a date to be fixed in the week commencing Monday 18 May 2020, for further case management.
2. The afternoon prior to the case management hearing the parties file submissions as referred to in [33] of the reasons herein. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

ALLSOP CJ: 1 This matter has a long and, to a degree, unfortunate history. Ms Bechara and Mr Bates are both legal practitioners. On 11 December 2015, a bankruptcy notice was issued on behalf of Mr Bates and served upon Ms Bechara. On 30 December 2015, she filed an application to set that bankruptcy notice aside. The bankruptcy proceedings, which culminated in a creditor's petition, concerned a sum of somewhat over $100,000 arising out of proceedings in State courts. It matters not, for present purposes, the nature of the asserted debt. 2 In due course, a creditor's petition was filed by Mr Bates. An application of substituted service was made and acceded to by a registrar of the Court, and a sequestration order was made by a registrar of the Court on 5 July 2016. Later that month, Ms Bechara filed an interim application in relation to the registrar's sequestration order. She asserted that she did not have notice of the creditor's petition. 3 There may, in due course, be importance in the precise form of that application. For present purposes, it has been treated as an application for review of the registrar's decision under s 104 of the Federal Circuit Court of Australia Act 1999 (Cth). It is important to recognise, at the outset, the nature of that review. The proper appreciation of the substantive character of that review is central to the proper procedural form of its vindication. In Totev v Sfar [2008] FCAFC 35; 167 FCR 193, Emmett J said the following about the nature of that review: 9 The rationale for the review regime briefly described above is that the making of a sequestration order involves the exercise of the judicial power of the Commonwealth. Under Ch III of the Constitution of the Commonwealth, that power cannot be exercised otherwise than by a justice appointed under Ch III. A registrar of the Federal Magistrates Court is not a justice. On the other hand, judges of the Federal Magistrates Court are justices appointed under Ch III. 10 For a delegation of power to a registrar of the Federal Magistrates Court to be valid, the powers and functions of the registrar must be subject to review by a judge of the Federal Magistrates Court on questions of both fact and law. If the review of the exercise of the power by the registrar is by way of hearing de novo, the delegation will be valid (Harris v Caladine (1991) 172 CLR 84 at 95). Indeed, on one view, nothing less than a hearing de novo would be sufficient. That is to say, there must be a complete rehearing of the facts and the law as they exist when the judge reviews the order made by the registrar; otherwise, the registrar, and not the judges of the Court, would be exercising the original jurisdiction of the Court (Harris v Caladine 172 CLR at 164). 11 It may be arguable that subjecting the exercise of powers or functions by a registrar to an appeal would be sufficient (Harris v Caladine 172 CLR at 95). However, that is not the safeguard that has been adopted in relation to the delegation of powers and functions to registrars of the Federal Magistrates Court. It is clear from r 20.03 of the General Rules that the review of a registrar's sequestration order is to be by way of a hearing de novo. 12 A hearing de novo is different from an appeal stricto sensu and is different from an appeal by way of rehearing. In the case of an appeal stricto sensu, the question would be whether, upon the material before the registrar, the conclusion reached by the registrar was correct. In an appeal by way of rehearing, the appellate court would rehear the matter as at the date of the appeal, but on the evidence called before the registrar, subject to a power to receive further evidence where appropriate: the rights of the parties would be determined by reference to the circumstances, including the law, as they existed at the time of rehearing (Harris v Caladine 172 CLR at 125). In each case any question concerning the exercise of discretion would be subject to the restrictions imposed on an appellate court in reviewing the exercise of a discretion (see House v The King (1936) 55 CLR 499). 13 In the case of a hearing de novo, however, the judge reviewing the order begins afresh and exercises for himself or herself any discretion exercised by the registrar. The parties commence the proceeding again, subject to any rules concerning the use of evidence adduced before the registrar. The hearing de novo involves the exercise of the original jurisdiction and the petitioner, in the case of a bankruptcy petition, must start again, call witnesses and make out the petitioner's case (Harris v Caladine 172 CLR at 124). 14 Because the hearing of an application for review of a sequestration order is a hearing de novo, it would not be sufficient for the reviewing judge to be satisfied that the registrar made no error and simply to dismiss the application for review. The judge who hears the review application must hear the petition afresh and must be satisfied as to the matters referred to in s 52 of the Bankruptcy Act. Thus, the reviewing judge must herself or himself be satisfied with the proof of: • the matters stated in the petition; • the service of the petition; and • the fact that the debt or debts on which the petitioning creditor relies is or are still owing. The reviewing judge must also exercise afresh the discretions conferred by s 52(2). 15 In particular, unless the Bankruptcy Rules are waived, the judge must have the affidavits referred to in r 4.06 of the Bankruptcy Rules, which must be sworn shortly before the hearing. Except in the case of a review on the sameday as the sequestration order was made, the affidavits relied upon before the registrar would not satisfy r 4.06. In the absence of fresh affidavits, it would be necessary that compliance with the Bankruptcy Rules be waived. (Emphasis added.) 4 See also to similar affect in Totev, Cowdroy J at 167 FCR 210-211 [91]-[100] with whom Bennett J agreed: 167 FCR 204 [51]. The same view had and has been expressed by other Full Courts of this Court in the decision of Zdrilic v Hickie [2016] FCAFC 101; 246 FCR 532 and Martin v Commonwealth Bank of Australia [2001] FCA 87. 5 The matter came into the docket of the Federal Circuit Court judge, who laid down a timetable requiring Ms Bechara to file material first in relation to the application. The direction appeared to assume that Ms Bechara, as the applicant under s 104 was responsible for leading evidence as to why the sequestration order should be set aside (being part of the relief claimed in the application). 6 The circumstances of the conduct of the case before the Federal Circuit Court Judge were less than satisfactory. Deadlines came and went, with little done to propound the detail of the case. No one took objection to the form of the order that had been made requiring Ms Bechara to go first. Nevertheless, when the time came in December 2016 for the hearing of the application, Ms Bechara was not present, having indicated an inability to come. An application for an adjournment was refused and the application was dismissed on the grounds of non-appearance and by reason of Ms Bechara failing to comply with orders and failing to prosecute her application with due diligence (Bates v Bechara [2016] FCCA 3489). 7 Ms Bechara made an application in January 2017 to reinstate her application for review. This was rejected in a judgment of the Federal Circuit Court Judge of 3 March 2017 (Bates v Bechara (No 2) [2017] FCCA 985). For present purposes of case management, this judgment does not need detailed consideration. It suffices to refer to [13]-[14] of that judgment to indicate the first clear illustration of the underlying problem in this case. The learned Circuit Court judge said the following: 13 The difficulty for Ms Bechara is that she has never articulated her case. The application filed on 25 July 2016, which was dismissed, as I said earlier, pursuant to two Rules of this Court, state that the "orders" made by Registrar Tesoriero on 5 July 2016 be set aside. This is the sequestration order. The application also included that Mr Bates' creditor's petition dated 7 April 2016, be dismissed. There is nothing in that application to indicate the grounds upon which the Court should move to make the orders sought. Nor was any evidence filed to satisfactorily explain that application. 14 What appears to have escaped Ms Bechara's attention in her written submissions is that there were a number of subsequent opportunities, and orders made by the Court, giving her the opportunity to address what I have described as the important deficiencies in the conduct of the application that she had made. It may be that Ms Bechara needs to focus on the fact that her "substantive" application was not just dismissed for want of appearance. It was dismissed for want of prosecution and her failure to comply with Court orders. Court orders which were directed to the issue of enabling her to set out her case. (Emphasis added.) 8 Reflection on the passages from Totev v Sfar and the other authorities to which I have referred would indicate that perhaps [13] reflected a view that, in some form, the applicant for review must demonstrate some vitiating error in the registrar's decision. Such a view would be to misunderstand the application and the nature of the review under s 104, at least in relation to a sequestration order. In any event, the application was dismissed with costs. 9 The matter then took the form of an application to this Court for an extension of time in which to file and serve an application for leave to appeal. That application would appear to fall squarely within the terms of ss 25(2)(a) and (b) of the Federal Court of Australia Act 1976 (Cth) (the Act), being illustrations of applications made in the appellate jurisdiction of the Court. That is important for the purposes to which I will come because s 24(1) of the Act says that: Subject to this section and to any other Act, whether passed before or after the commencement of this Act (including an Act by virtue of which any judgments referred to in this section are made final and conclusive or not subject to appeal), the Court has jurisdiction to hear and determine: (a) appeals from judgments of the Court constituted by a single Judge exercising the original jurisdiction of the Court; … (Emphasis added.) 10 Thus, when the matter came on before the Court the application was an interlocutory application in the appellate jurisdiction. The matter came on before the first Federal Court Judge on 15 March 2018. Her Honour delivered judgment and made orders on 6 April 2018 (Bechara v Bates [2018] FCA 460). The application for extension of time was dismissed. Again, for present purposes, I will not deal in detail with the reasons other than to note the terms of [30]-[31] of her Honour's reasons: 30 That object would be undermined if an applicant could file a bare application for review of a sequestration order and take, as here, no steps whatsoever to progress that application whether by way of appearing at hearings, complying with the requirements of rr 4.05 and/or 4.08 of the FCC Rules to file an affidavit to explain the grounds of review, complying with court orders, or otherwise. Even on the present application for an extension of time, no basis on which to challenge the sequestration order itself was identified by counsel for Ms Bechara. The Court and the respondent remain completely in the dark as to the basis on which Ms Bechara sought review of the Registrar's sequestration order. 31 Finally, the applicant relies in support of her construction upon the fact that s 104(2) of the FCCA Act imposes no obligation upon a party to establish an arguable case before the Court may review an order made in the absence of that party (Pattison at [155] (Lander J)). However, that does not alleviate a party of the obligation to identify some basis on which the application for review is made and otherwise to prosecute her or his application for review with due diligence. (Emphasis added.) 11 In those paragraphs, and in the judgment as a whole, her Honour could see no basis for any argument as to why the Federal Circuit Court judge fell into error. In particular, her Honour indicated that Ms Bechara had failed to take the relevant opportunity as described by the Federal Circuit Court judge to identify the basis upon which the application for review is made and, in effect, the error of the registrar. 12 Again, the issue arises as to whether this approach reflected a misconception of the process of review under s 104, at least of a sequestration order. 13 Section 25(2) of the Act describes the exercise of appellate jurisdiction as including: Applications: (a) for leave or special leave to appeal to the Court; or (b) for an extension of time within which to institute an appeal to the Court; … 14 By the Access to Justice (Civil Litigation Reforms) Amendment Act 2009 (Cth), subsection (4B) was inserted into s 33 of the Act. Subsection (4B) states: An appeal must not be brought to the High Court from a judgment of the Court (whether constituted by a Full Court or a single Judge) in the exercise of its appellate jurisdiction if the judgment is: (a) a determination of an application of the kind mentioned in subsection 25(2); or … (d) a decision to do, or not to do, any of the following: … (iv) a decision to extend the time for making an application for leave to appeal; … 15 Paragraphs 135 and 136 of the Explanatory Memorandum to the Access to Justice (Civil Litigation Reforms) Amendment Act 2009 (Cth) provide the context and reason for that prohibition on appeals of any kind to the High Court in those kinds of matters. An example of s 33(4B) being applied can be found in Binetter v Deputy Commissioner of Taxation (No 2) [2011] FCA 207. 16 Those then acting for Ms Bechara (who ceased to act for Ms Bechara some time prior to the show cause hearing in the High Court) appear to have understood these matters, in that they brought an application under s 75(v) of the Constitution to the High Court seeking to set aside the judgment of the Federal Court and thereby, through that, the judgment of the Federal Circuit Court on the basis, as I would understand it from reading the transcript, that there had been a misconstruction of the nature of the application for review, such that the nature of that review as explicated in Totev v Sfar and in the other judgments of the Full Court, had not been adequately appreciated, but rather the judicial task has been misunderstood to be the elucidation of error in the registrar's decision. 17 The matter came before a single justice of the High Court. Mr Martin had just taken over representation of Ms Bechara and was no doubt, for that reason, at a disadvantage. The submissions put to the High Court justice by Mr Bates, as I would understand the transcript, were to the effect that there had been a failure to exhaust appellate rights in the Federal Court, and the matter should be remitted to the Federal Court for hearing before a Full Court and the s 75(v) application be dismissed because of that failure. In an ex tempore judgment based on that assistance, that is what the justice of the High Court did (Bechara v Bates [2018] HCATrans 164). 18 The matter then came back to this Court and another judge of this Court heard the application for an extension of time and leave to appeal from the refusal of the first Federal Court judge to extend time. That application was acceded to (in both respects) and orders were made accordingly. The proceeding now in this Court is an appeal to a Full Court of the Court from a decision of a single judge, apparently exercising not the original jurisdiction of the Court, but the appellate jurisdiction of the Court, under s 25(2)(a) or (b). Orders have been made and documents prepared for the hearing of this appeal. 19 If the application before the first Federal Court judge had been framed as an application under s 39B(1) of the Judiciary Act 1903 (Cth) to set aside the Federal Circuit Court decision that application would have been in the original jurisdiction of the Court. 20 Importantly, in the judgment of the second Federal Court Judge (Bechara v Bates [2019] FCA 1077), there was a discussion of the matters that had been argued before the first Federal Court Judge and orders were made accordingly, and what was said to be a new point which was proposed to be argued. Again, I will not delay today's case management judgment by a detailed examination of the judgment of the second Federal Court judge. It suffices to say that the new point on which he granted leave and to which his Honour restricted the notice of appeal was that directed to Totev v Sfar, and the nature of the proper approach to a bankruptcy review after a sequestration order in the Circuit Court. In [42] of his reasons, the second Federal Court judge said: On one view, this newly formulated argument was the subtext to the arguments previously relied upon before the primary Judge. But, so expressed, it was not the argument previously articulated. 21 To the extent that it may be necessary in due course to deal with that paragraph, I should not be taken to agree with the characterisation of the new point as only the subtext of earlier argument. Whether or not this argument was properly articulated before the first Federal Court judge perhaps need not detain us today, but at the very least it could be said to have been the subtext, but it may have been more properly expressed as being the foundation of the arguments previously articulated. Nevertheless, it is unnecessary to take any more time with that. 22 The matter has now got to the point of a notice of appeal (which it has been indicated may be amended). For present purposes, it helps to understand that the notice of appeal presently indicates that the "courts below", meaning this Court and the Federal Circuit Court, erred by failing to follow and act in accordance with the Full Court decisions to which I have referred, and thus, the discretion and exercise of power by the Federal Circuit Court judge and this Court miscarried by reason of a failure to appreciate the nature of the proceeding under s 104 before the Federal Circuit Court. Importantly, in this context, the notice of contention raises a companion question to this: that is the meaning and content of what, in particular, Gaudron J said in Harris v Caladine [1991] HCA 9; 172 CLR 84 at p 154 (there dealing with a consent order made by a registrar of the Family Court) about what an applicant for review has to do to engage the review power, such that the respondent to the application has to act as the applicant in the rehearing. 23 Lest these reasons be impenetrable by their recitation of historical procedure in this proceeding, the point is a simple one. The sequestration of a party is a fundamental change of status. It is an exercise of judicial power. Harris v Caladine is the seminal High Court authority indicating that registrars may exercise that power as the Court, in circumstances where they are fully supervised by the judges of the Court. The three Full Court decisions to which I have referred make it clear that (at least in relation to a sequestration order) that means there is a hearing de novo of the application, not an attack on an order by a lower judicial officer by reference to some perceived and displayed error in the making of that order. In other words, if properly invoked, it was for Mr Bates, as the creditor, to prosecute his creditor's petition before the Federal Circuit Court judge, and if Ms Bechara was unwise enough not to turn up to the hearing, the creditor's petition would be heard again in her absence. Instead, the application for review was dismissed for want of prosecution or failure to comply with a timetable when, at least arguably, she had no part to play until the evidence of the petitioning creditor, sufficient to engage s 52 of the Bankruptcy Act 1966 (Cth), was filed and relied upon. In other words, this case, somewhat sad in its history, throws up a fundamentally important point about bankruptcy practice in the Federal Circuit Court and in this Court. 24 This is a case management hearing to manage the appeal that is on foot. There is no specific application before me. But the difficulty with the structure of the matter at the moment is that it is a purported appeal before a Full Court from a decision of a single judge apparently exercising the appellate jurisdiction of the Court. That said, there is or may be a fundamental problem, historically, in this case. Ms Bechara, on one view, being the view now propounded in the notice of appeal, has been made bankrupt without a s 104 de novo review, thereby depriving her of what might be said, and is said in the submissions in this case, to be the constitutional protection of the supervision of the judges of the Federal Circuit Court, which was the foundation of the constitutional validity of this delegation as found in Harris v Caladine. 25 One way of protecting her position at the time of moving to complain of the Federal Circuit Court's approach was to bring an application under s 39B(1) of the Judiciary Act 1903 (Cth) or combine such with the application for leave to appeal and any extension of time. The application would have been in the original jurisdiction of the Court, not the appellate jurisdiction, although it would be directed to the very same issues as the application that was made and that was in the appellate jurisdiction: that is, whether the Federal Circuit Court, in approaching the matter as he did, committed an error of approach by misunderstanding the nature of the proceeding before him. 26 If that had been done, and if the first Federal Court judge had dismissed both applications, and if the matter had been sought to be taken to a Full Court of this Court, Ms Bechara would not have been faced with a Full Court seeking to deal with an order in the appellate jurisdiction but, rather, in the original jurisdiction (that is a dismissal of the s 39B(1) application). 27 The merits of the underlying dispute that led to the proceedings and bankruptcy and the merits of the bankruptcy proceeding have almost been lost in the mists of procedure and time in this case. There is also, now, an issue as to the operation of s 52(4) of the Bankruptcy Act 1966 (Cth), an issue that divided the Court in Totev v Sfar [2008] FCAFC 35; 167 FCR 193. It is helpful just to identify that issue for present purposes. 28 Section 52(4) is in the following terms: A creditor's petition lapses at the expiration of: (a) subject to paragraph (b), the period of 12 months commencing on the date of presentation of the petition; or (b) if the Court makes an order under subsection (5) in relation to the petition - the period fixed by the order; Unless, before the expiration of whichever of those periods is applicable, a sequestration order is made on the petition or the petition is dismissed or withdrawn. 29 In short, the question is whether the creditor's position is stale, such that if it were proposed that the matter go back to the Federal Circuit Court for a hearing of the review, whether there would be any utility in that order, because of the passage of time. That issue might then raise the question of the state of the registrar's sequestration order, and whether, in the circumstances, it is extant or should be dealt with in some fashion. These are matters not without legal complexity. 30 The reason that I have taken the time to set out the history of this matter is that the matter raises important questions as to not only the conduct of the parties to their litigation, being litigation which is not just private litigation, given the public nature and importance of the law of bankruptcy, but also the approach that three courts have taken to the dealing with this matter. 31 I propose to raise two matters, one being a matter for Ms Bechara to consider, and the second being a matter for the parties to consider. The first matter, for Ms Bechara to consider, in particular in the light of the fact that I am told that she proposes to amend her notice of appeal, is whether she should consider an application (including any necessary leave or extension of time, if relevant, for the filing and serving of an originating application claiming relief against the Federal Circuit Court under s 39B(1) of the Judiciary Act in respect of the judgment of the Federal Circuit Court. That could be dealt with in the original jurisdiction of the Court by a Full Court after a direction under s 20(1A) of the Act by the same bench that would hear the appeal as instituted. It would raise precisely the same issues as the notice of appeal. That would, at least, allow in a procedurally clearly competent way for what she has been complaining about for three years to be ventilated appropriately. 32 The second suggestion is one for both parties to consider. In my view, and I will hear the parties but they should assume that I do not presently consider it to be a matter that I require their consent, I propose in all the circumstances of this case and of its importance to the administration of bankruptcy law in this country, to appoint an amicus curiae to assist the Court to the correct and appropriate decision. 33 I do not think it fair to require either Mr Martin or Mr Bates to put their final views about both matters now. I will give the parties leave to file brief submissions of no more than two pages as to the two courses of action that I have raised. 34 If Ms Bechara does not wish to seek to file that application, that would be the end of that matter. The appeal can proceed unaccompanied by the s 39B(1) application. If the parties object to an amicus assisting the Court they can say so in short order. If Ms Bechara does take up the suggestion of the application under s 39B, Mr Bates can in those two pages identify whether he opposes that and on what basis. 35 The only order I will make is to stand the matter over to a date to be fixed in the week commencing Monday 18 May 2020, for further case management. I certify that the preceding thirty-five (35) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Chief Justice Allsop.