Boumelhem v Commonwealth Bank of Australia

REASONS FOR JUDGMENT 1 The matters presently before the Court are applications for a stay of proceedings under sequestration orders made by Raphael FM in the Federal Magistrates Court on 11 July 2008 against the estates of two debtors, being Amin Boumelhem (the husband) and Jamal Boumelhem (the wife). Notices of Appeal from the judgments of the learned Federal Magistrate were filed in this Court on 30 July 2008. The husband's appeal is NSD 1192 of 2008 and the wife's appeal is NSD 1191 of 2008. On 25 August 2008, I ordered that the two appeals be heard together. 2 In each appeal, a Notice of Motion seeking a stay of proceedings was filed on 27 August 2008. The evidence before the Court on the hearing of the motions took the form of two affidavits sworn 27 August 2008 by the husband, one affidavit being filed in his application and the other in his wife's application. In addition, certain documents were tendered which became exhibits A, B, C and 1, all of which were admitted into evidence without objection. 3 Exhibit A was a copy of the reasons for judgment of J.C. Gibson DCJ in Boumelhem v Commonwealth Bank of Australia [2008] NSWDC 75, being reasons for judgment delivered by her Honour on 14 May 2008 in proceedings brought by the husband and the wife against the bank in respect of the sale of a property at 69 Roberts Street, Dapto ('the Dapto property'), to which further reference will be made shortly. 4 Exhibit B comprised orders made by the learned Federal Magistrate on the hearing of creditor's petitions, to which reference will be made shortly, on 6 June 2008, which were entered on 10 June 2008 and an accompanying transcript of proceedings in the Federal Magistrates Court of 6 June 2008. 5 Exhibit C comprised a series of judgments in the Federal Magistrates Court. These were as follows: · 22 May 2007, Commonwealth Bank of Australia v Amin Boumelhem [2007] FMCA 730 (These reasons for judgment were delivered upon the hearing of a creditor's petition against the husband and also a creditor's petition against the wife, the two petitions being heard concurrently with evidence in one being evidence in the other) · 13 June 2008, Commonwealth Bank of Australia v Amin Boumelhem [2008] FMCA 789 · 13 June 2008, Commonwealth Bank of Australia v Jamal Boumelhem [2008] FMCA 800 · 11 July 2008, Commonwealth Bank of Australia v Amin Boumelhem (No. 2) [2008] FMCA 995 · 11 July 2008, Commonwealth Bank of Australia v Jamal Boumelhem (No. 2) [2008] FMCA 994 6 Exhibit 1 was a form of order made by Raphael FM on 10 July 2007 standing the hearing of the creditor's petitions over until 5 March 2008, the parties having liberty to apply on three days' notice. Orders to that effect were made in each matter on 10 July 2007. 7 A brief chronology recording the history of this matter, so far as it is relevant, is as follows. On 9 December 2004, the Commonwealth Bank of Australia ACN 123 123 124 ('the Bank') secured a default judgment against the applicants for $375,945, with a writ of possession being issued in respect of the Dapto property. On a date in or around February 2006, the Dapto property was sold by the Bank in exercise of its power of sale as mortgagee for $260,000, leaving a shortfall of some $115,945. Bankruptcy notices were served by the Bank on each of the applicants and on 7 December 2006 creditor's petitions were filed seeking sequestration orders against the estates of the respective applicants. Those creditor's petitions were filed in the Federal Magistrates Court. In the case of the husband the proceedings were SYG 3647 of 2006 and in the case of the wife SYG 3646 of 2006. 8 In 2007 the applicants instituted the proceedings in the District Court of New South Wales (proceedings 3442 of 2007) which led to the judgment of J.C. Gibson DCJ to which reference has been made. The applicants had sought relief in those proceedings in respect of the sale of the Dapto property which was said to have been at under value. Reference was apparently made to the recent decision of the Federal Court in Upton v Tasmanian Perpetual Trustees Limited (2007) 158 FCR 118 in which the duty of a mortgagee exercising power of sale was canvassed in some detail. J.C. Gibson DCJ decided the case adversely to the applicants and ordered that the judgment be entered for the defendant Bank. The applicants were ordered to pay the Bank's costs. 9 A succession of adjournments were sought and granted by the learned Federal Magistrate in respect of the hearing of the creditor's petitions directed at allowing the District Court proceedings to be brought to a conclusion. It was not suggested, of course, that the District Court proceedings were proceedings which, under s 40(1)(g) of the Bankruptcy Act 1966 ('the Act'), might justify a non-compliance with the relevant bankruptcy notices. My understanding is that the first adjournment of the creditor's petitions was ordered on 26 April 2007, the relevant reasons being given on 22 May 2007. The adjournments that were then ordered were until 20 June 2007. On 20 June 2007 the petitions were further adjourned to 10 July 2007 and on that date they were adjourned to 5 March 2008. 10 On 4 March 2008 the matters were taken back to the Federal Magistrates Court pursuant to the liberty to apply which had been granted, whereupon they were stood over to 25 June 2008, the hearing date of 5 March 2008 being vacated. 11 It would appear that the Bank became aware of the fact that it had not secured an order under s 52 of the Act extending the 12 month period for which s 52(4) of the Act provided before the petitions lapsed. Sections 52(4) and (5) of the Act relevantly provided: '52(4) 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. (5) The Court may, at any time before the expiration of the period of 12 months commencing on the date of presentation of a creditor's petition, if it considers it just and equitable to do so, upon such terms and conditions as it thinks fit, order that the period at the expiration of which the petition will lapse be such a period, being a period exceeding 12 months and not exceeding 24 months, commencing on the date of presentation of the petition as is specified in the order.' 12 On 6 June 2008 orders were made by the learned Federal Magistrate in each matter in the following terms: '1. Pursuant to Order 35.7(3) of the Federal Court Rules, that the orders made on 11 July 2007 (sic) there be amended nunc pro tunc by the addition of an order that: Pursuant to section 52(5) of the Bankruptcy Act 1966 (Cth) that the time for expiration of the Creditor's Petitions in matters no. SYG 3646 of 2006 and SYG 3647 of 2006 be extended up to and including 5 December 2008.' The orders also provided for the two matters to be listed for 13 June 2008. The orders of 6 June 2008 were made by consent. 13 Rule 1.05 of the Federal Magistrates Court Rules 2001 relevantly provided: '1.05(2) … if in a particular case the Rules are insufficient or inappropriate, the Court may apply the Federal Court Rules … in whole or in part and modified or dispensed with, as necessary.' 14 Order 35, rule 7(3) of the Federal Court Rules relevantly provided: '7(3) A clerical mistake in a judgment or order, or an error arising in a judgment or order from an accidental slip or omission, may at any time be corrected by the Court.' 15 Whilst no orders were in fact made by the Federal Magistrate on 11 July 2007, it is common ground that the orders of 6 June 2008 were directed at providing, nunc pro tunc, for an extension of time for the expiry of the creditor's petitions up to and including 5 December 2008, as if those orders had been made on 10 July 2007. 16 Notwithstanding the consent of the applicants to the making of those orders on 6 June 2008, the applicants wish to advance an argument on the hearing of the appeals to the effect that it was beyond the power of the learned Federal Magistrate on 6 June 2008 to extend the time for the expiry of the creditor's petitions. Such an argument would run, as I understand it, by firstly considering s 52(5) of the Act which provides for the power of extension to be available 'at any time before the expiration of the period of 12 months commencing on the date of presentation of a creditor's petition'. As previously mentioned, the creditor's petitions in these matters were filed on 7 December 2006 with the consequence that the 12 month period expired on 7 December 2007, long before the orders were made by the learned Federal Magistrate on 6 June 2008. 17 When the matter came before the Federal Magistrates Court again on 13 June 2008 an application was made for the further adjournment of the hearing of the creditor's petitions on the basis that the applicants had, as I understand it, instituted proceedings in the Court of Appeal of the Supreme Court of New South Wales, seeking leave to appeal from the judgment of J.C. Gibson DCJ which had been handed down by her Honour on 14 May 2008. 18 The adjournment application was made on 13 June 2008 with a view to allowing the applicants to obtain the necessary leave to appeal. It will be appreciated that as at 13 June 2008 the extended life of the creditor's petitions was due to come to an end on 5 December 2008. 19 The reason why leave to appeal was necessary in relation to the judgment of J.C. Gibson DCJ was that the amount involved was of the order of $65,000. 20 The learned Federal Magistrate proceeded to address the applications for adjournment of the hearing of the creditor's petitions on 13 June 2008 and his Honour concluded that 'on balance this is not a case where a further adjournment should be granted' (see [2008] FMCA 789 at [8] - [16] and [2008] FMCA 800 at [8] - [16]). Notwithstanding his Honour's refusal to order an adjournment sufficient to allow the applicants to seek the leave to appeal which they sought from the judgment of J.C. Gibson DCJ, his Honour was disposed to grant an adjournment for a further period of 28 days in order that the applicants may take whatever action they saw fit in respect of his Honour's decision to refuse an adjournment in the terms which the applicants had sought. 21 As it transpires, no action was taken by the applicants to challenge the decisions of the learned Federal Magistrate made on 13 June 2008 in each of the matters which were before his Honour. When the creditor's petitions came before the learned Federal Magistrate again on 11 July 2008, Mr Badarne, who appeared on behalf of the applicants, asked the learned Federal Magistrate to afford each of the applicants a further adjournment. Reference was made to, inter alia, Ahern v Deputy Commissioner of Taxation (1987) 76 ALR 137 and Adamopolous v Olympic Airways SA (1990) 95 ALR 525. 22 The learned Federal Magistrate was not disposed to accede to the request for a further adjournment. His Honour distinguished the two cases to which reference has been made and proceeded to deal with the creditor's petitions in accordance with s 52 of the Act. Inter alia, his Honour said (see [2008] FMCA 995 at [4]): 'For the reasons given in this judgment, and in the judgment of 13 June 2008, I am also satisfied that there are no other reasons why the sequestration order should not be made' (see also [2008] FMCA 994 at [4]). 23 It was common ground between the parties that, for the applicants to secure a stay of proceedings under Order 52 rule 17 of the Federal Court Rules, it would be necessary for the applicants to establish an arguable case in respect of the grounds of appeal identified in their Notices of Appeal and, also, that the balance of convenience favoured the granting of the relevant stays. 24 The grounds of appeal specified in the Notices of Appeal were, to all intents and purposes, identical, although in the case of the wife's Notice of Appeal the word 'her' took the place of the word 'him'. Counsel for the applicants, Mr Ash, acknowledged that ground of appeal 2, as originally expressed, could not be made good. He sought leave to effect amendments to the Notices of Appeal filed 20 July 2008 and the amendments sought were not opposed. The grounds of appeal, accordingly, became as follows: '1 The Federal Magistrate erred in ordering that the appellant's estate be sequestrated upon a creditor's petition presented on 7 December 2006, the petition having lapsed and the order extending the life of the petition purportedly made on 6 June 2008 being void. 2 The Federal Magistrate erred in failing to grant an adjournment pending the hearing of the appellant's leave to appeal the judgment on a claim by him [her] against the respondent in District Court proceedings 3442 of 2007.' 25 I would have thought that ground of appeal 2 was not an appeal against the making of the relevant sequestration order but, rather, an appeal against an interlocutory order made by the learned Federal Magistrate refusing to grant an extended adjournment on 13 June 2008 and a further adjournment on 11 July 2008. In the circumstances, I would have thought that leave to appeal would be required for ground of appeal 2 to be arguable before the Court. 26 In any event, it would seem to me that ground of appeal 2 is not one which answers the description of providing an arguable case. The learned Federal Magistrate was not to know what is now common ground between the parties, that is, that the application for leave to appeal from the District Court judgment is to be heard concurrently with the appeal itself. The learned Federal Magistrate was confronted on 11 July 2008 with the prospect of having the petitions expire on 5 December 2008 without having addressed whether or not sequestration orders should be made upon them. Had the learned Federal Magistrate granted a further adjournment he could reasonably have expected that the Court of Appeal's consideration of an application for leave to appeal would take some time and that it would be followed by an appeal which would take a further period of time, with little likelihood of the appeal, if any, being decided before the petitions ultimately expired on 5 December 2008. 27 This is not a case where I would have thought it appropriate for the exercise by the learned Federal Magistrate of his discretion to be disturbed, applying House v The King principles. 28 In saying this it must be recognised that I am presently dealing with an interlocutory application myself. I would not, by saying what I have just said, wish to shut out the possibility of a different conclusion being reached on the hearing of the appeals against the judgments of 11 July 2008, under which the sequestration orders were made. 29 Ground of appeal number 1 falls into a slightly different category. The Act not only includes the provisions within ss 52(4) and (5), which have been set out above, but also s 52(3), which provides: '52(3) The Court may, if it thinks fit, upon such terms and conditions as it thinks proper, stay all proceedings under a sequestration order for a period not exceeding 21 days.' 30 I would understand the reference to 'the Court' in s 52(3) to be a reference to the relevant court exercising jurisdiction in bankruptcy when the relevant sequestration order was made. Under s 27 of the Act, the Federal Magistrates Court and this Court have concurrent jurisdiction in bankruptcy. In circumstances where the Federal Magistrates Court made sequestration orders against the estates of the applicants it would seem to me that it is that Court which was empowered by s 52(3) to order a stay of up to 21 days. 31 Section 43(2) of the Act provided, in respect of sequestration orders, as follows: '43(2) Upon the making of a sequestration order against the estate of a debtor, the debtor becomes a bankrupt, and continues to be a bankrupt until: (a) he or she is discharged by force of subsection 149(1); or (b) his or her bankruptcy is annulled by force of subsection 74(5) or 153A(1) or under section 153B.' Section 153B(1) of the Act provided: '153B(1) If the Court is satisfied that a sequestration order ought not to have been made or, in the case of a debtor's petition, that the petition ought not to have been presented or ought not to have been accepted by the Official Receiver, the Court may make an order annulling the bankruptcy.' 32 These provisions have come under consideration in a number of decisions of this Court. In Griffiths v Boral Resources (Qld) Pty Ltd (2006) 154 FCR 554 ('Griffiths') at [29] - [33] a Full Court comprising Spender ACJ, Dowsett and Collier JJ held with some diffidence that it should find that under the slip rule, to which reference has been made (Order 35 rule 7(3) of the Federal Court Rules) it was open to a court to make an order, which would operate nunc pro tunc, extending the life of a creditor's petition as from a date which fell within the permitted period for bringing applications for an extension under s 52(5) of the Act. Their Honours considered that they should follow the approach adopted by the Court in Elyard Corporation Pty Ltd v DDB Needham Sydney Pty Ltd (1995) 61 FCR 385 ('Elyard') in relation to s 459R of the Corporations Law, which bore some similarity to the relevant terms of s 52 of the Act. Elyard was an appeal, by leave, from a judgment of Sheppard J in DDB Needham Sydney Pty Limited v Elyard Corporation Pty Limited (1995) 131 ALR 213. Sheppard J held, amongst other things, that s 459R of the Corporations Law was so expressed as to exclude the operation of s 1322(4)(d) of the Corporations Law which authorised the making of nunc pro tunc orders extending time limits after the event. 33 Section 459R of the Corporations Law allowed the Court to extend the time within which an application to wind-up a company in insolvency may be determined in circumstances where the application for an extension of the time was made within the time fixed by s 459R(1). Sheppard J held that where the time limit for an extension application had not been complied with, an order could, nevertheless, be made under the slip rule after the event extending the time on the basis that the order providing the extension of time was taken to have been made when the slip occurred. 34 On the hearing of the appeal in Elyard, the Chief Justice expressed his agreement with the reasons for judgment of Lockhart J and Lindgren J. Lockhart J recited the facts at 388 as follows: 'An application for the winding up of a company is to be determined within six months after it is made (s 459R(1)). In this case, the period of six months expired on 18 May 1995. That period was extended up to and including 9 June 1995 by order of the Registrar on 21 April 1995 (s 459R(2)); but no further extension was sought by the respondent, and therefore none was included in the orders made by the Registrar on 9 June. The Registrar's order of 9 June had not been entered at any relevant time. The application came before the learned primary judge on 16 June 1995. He delivered reasons for judgment on 20 July 1995 and made orders on 9 August 1995. The reasons for judgment of his Honour recited the circumstances which led to the respondent not seeking a further extension of the relevant period on 9 June. His Honour went on to find that he was entitled to apply the slip rule, which he did, by correcting the orders of the Registrar made on 9 June. He added an order that, subject to further order, the time within which the application for winding-up may be determined be further extended until 5 pm on 30 November 1995.' (Emphasis added) 35 In both the reasons for judgment of Lockhart J and those of Lindgren J in Elyard, the primary question was whether s 459R(2)(b) of the Corporations Law prevented the making of the order for extension on 9 August 1995 (see pages 388 and 401). In the result the Court ordered that the appeal be dismissed. The circumstances in which the slip rule applied were extensively canvassed by Lockhart J at 390-392 and by Lindgren J at 401 et seq. In Griffiths, the Court recognised that Elyard was a decision of long standing and their Honours were reluctant to reconsider it. Their Honours said at [30]: '… Although it does not directly bind us in applying s 52 of the Bankruptcy Act, to take a different approach would cause substantial confusion in insolvency practice.' 36 In the recent decision of Lindgren J in Roskell v Snelgrove (2008) 246 ALR 175 his Honour held at [38] that Order 35 rule 7(3) of the Federal Court Rules was available to Driver FM who was then considering an application for the extension of the life of a creditor's petition after it had expired, there having been an accidental slip or omission in orders previously made by the learned Federal Magistrate in that case. Lindgren J said at [38]: '38 I agree with counsel that if O 35 r 7(3) was not available to Driver FM, there would, in any event, have been available to him an implied power to the same effect. In my view, however, O 35 r 7(3) was available to his Honour.' 37 In the circumstances of this case it is not suggested that I should depart from the decision of the Full Court in Griffiths and find that Raphael FM was without power on 6 June 2008 to order that the orders made by him on 11 July 2007 [sic] be amended by the addition of orders in each matter extending the relevant creditor's petitions up to and including 5 December 2008. However, the applicants wish to keep the issue alive so that they may approach the High Court and seek relief which would involve the judgment of the Full Court in Griffiths being overturned. 38 The question which arises is whether or not the arguable case which the applicants are required to demonstrate must be an arguable case which could succeed before this Court on the hearing of the relevant appeals or is it sufficient for the applicants to demonstrate an arguable case that could succeed were the matter taken under consideration by the High Court. I am inclined to the view that the latter alternative is sufficient for the purpose of the Court's consideration of whether or not a stay of proceedings should be ordered. 39 It seems clear that the Court has power to order a stay under Order 52 rule 17 of the Federal Court Rules notwithstanding the provisions of the Act to which I have earlier referred (see for example Evans v Heather Thiedeke Group Pty Ltd (1990) 95 ALR 424 at 425). 40 The question which remains is whether or not the Court's discretion to order a stay of proceedings on the sequestration orders should be exercised favourably to the applicants. I am not persuaded that the discretion should be so exercised. 41 The affidavits of the husband, to which reference has been made, set out, amongst other things, what are said to be the assets of the husband and of the wife. The affidavits indicate that the husband is employed as a factory hand and that his wife is employed as a sales assistant. It would seem to me that the applicants present a case of being, relatively speaking, penniless. In the circumstances, one would have thought that no relevant prejudice would be sustained by them retaining their bankrupt status pending the hearing of the appeals. 42 The effect of a successful appeal in relation to a sequestration order was addressed by Buchanan J in his reasons for judgment in de Robillard v Carver (2007) 159 FCR 38. In his reasons for judgment, with which Moore and Conti JJ agreed, consideration was given by his Honour to the general effect of an order of annulment and to orders of the Court setting aside sequestration orders that may have been made (at [140] - [150]). Buchanan J drew attention to the judgment of Gyles J in Rangott v Marshall (2004) 139 FCR 14 in which Gyles J considered himself constrained to follow Simon v Vincent J O'Gorman Pty Ltd (1979) 41 FLR 95 to which Buchanan J referred at [142]. As Buchanan J observed at [150]: '… an order upholding the appeal and setting aside the sequestration order made by the primary judge, will have the consequence that the appellant is not to be treated as bankrupt from the pronouncement of the sequestration order, notwithstanding the effect of s 43(2) of the Bankruptcy Act (see Commissioner for Railways (NSW) v Cavanough (1935) 53 CLR 220 at 224-225).' 43 In the affidavits of the husband, to which reference has been made, there is an oblique and imprecise reference to other litigation. Relevantly, paragraph 10 of the affidavit in the husband's matter (see paragraph 11 of his affidavit in the wife's matter) included: '10. There are also the two sets of proceedings that my wife and I are involved in at present. These proceedings are:- • [the leave application in respect of the District Court judgment] • I am involved in proceedings against the New South Wales Crime Commission. These proceedings are in the Supreme Court and numbered 20477 of 2002. The proceedings only involve me and a company called "Leisure Coast Tobacconist & Giftware Pty Limited", which is in liquidation. These proceedings were also previously against the New South Wales Police Force, but that matter was settled and the solicitors for Leisure Coast Tobacconist & Giftware Pty Limited and I received $160,000 from that settlement. I believe that amount should cover the legal costs of the Plaintiffs in the proceedings. As to the future conduct of the proceedings, I understand there is a question of whether the claim was passed to the trustee or remains with me, insofar as my interest in the proceedings is concerned. In any event, I intend to discuss with the trustee the further prosecution of those proceedings.' 44 It may be observed that there is no indication as to who the parties to the Supreme Court proceedings, just referred to, may be. No indication is given as to the husband's status as a party to those proceedings. No indication is given as to the terms of the settlement with the Police Force to which reference is made. No indication is given as to the entitlement of the husband to share in the amount of $160,000, to which reference has been made. No indication has been given as to when that money was paid, if at all, and what has become of it. No indication is given as to the nature of the claims, if any, made against the New South Wales Crime Commission. Nothing has been said in the husband's affidavits to suggest that the further conduct of the proceedings involving the New South Wales Crime Commission will be prejudiced if a stay of the proceedings on the sequestration orders is not made. 45 In my opinion this is not a proper case for the grant of a stay of proceedings in accordance with Order 52 rule 17 of the Federal Court Rules pending the hearing of the appeals. In the circumstances I consider that the Notices of Motion should be dismissed with costs. I certify that the preceding forty-five (45) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Graham.