Cottrell v Wilcox

"There is an abuse of process if a pending bankruptcy petition, or a threat of proceedings in bankruptcy, is used as a means of extortion. The word 'extortion' is not a technical term, and it has in bankruptcy law 'no special and artificial significance divorced altogether from the ordinary implication of the word'. The court will look strictly at the conduct of a creditor using or threatening bankruptcy proceedings, and extortion may be held to have taken place if the creditor has used, or attempted to use, a pending petition, or a threat of a petition, in order to extract from the debtor money which the debtor is not bound to pay, or in order to obtain some secret and unfair advantage over other creditors. But extortion will not be held to have taken place 'in the absence of mala fides or anything amounting to oppression in fact'. There must be a real intention on the part of the creditor to use the process for some other end than its legitimate end, and there must be a real exertion of pressure."

6 The primary judge disposed of the improper purpose claim as follows (par 10):

"Mr Wilcox did not use the pendency of the bankruptcy proceedings as a means of exacting money from Mr Cottrell which Mr Cottrell was not bound to pay. The circumstance that the defendants to the Victorian County Court proceedings stood to benefit at least in a temporary or practical sense from Mr Cottrell's bankruptcy, subject to what the trustee in bankruptcy might elect to do, does not seem to me to be material in relation to the issue of alleged improper purpose on the part of Mr Wilcox. No suggestion of champerty was made by Mr Cottrell, nor do I think could have been rightly made. Doubtless for their part, the defendants to the Victorian County Court proceedings considered themselves substantially burdened by the subsistence of those protracted court processes in which they had become embroiled at the instance of a determined litigant who was without the financial means to meet any adverse court order for costs made in their favour."

His Honour then declined to "stay the making of a sequestration order" under s 52(3) of the Bankruptcy Act 1966 (Cth) on the grounds that the material disclosed no viable basis for opposing the making of the sequestration order, and the appellant was unable to particularise anything of substance or apparent reality in relation to his alleged counterclaim.

The respondent's motion 7 At a directions hearing on 9 March 2001 Beaumont J fixed the appeal for hearing on 17 May 2001, dispensed with appeal books, and ordered that any motion for summary dismissal of the appeal be made returnable before the Full Court on 17 May, be filed within seven days and served as soon as practicable together with any affidavit in support. A motion for summary dismissal was filed on 16 March and an affidavit in support on 20 April. The respondent's solicitors prepared folders containing the documents necessary for the Full Court's disposal of the appeal. When Beaumont J referred to a motion for summary dismissal, his Honour probably had in mind an application under O 52 r 38 for an order that the appeal be dismissed for want of prosecution. Instead the respondent's motion seeks relief under O 20 r 2 and O 52 r 18, and in substance asks the Court to dismiss the appeal because it is hopeless and cannot possibly succeed. We will return to this motion later.

Review of the Registrar's order 8 At a further directions hearing before Emmett J on 15 May, at which the appellant did not appear, his Honour expressed a concern that the primary judge may have dealt with the review as if it were a conventional appeal from the Registrar's decision, rather than a hearing de novo. His Honour drew attention to a recent decision of the Full Court in Martin v Commonwealth Bank [2001] FCA 87 ("Martin") which reaffirmed that a review under s 35A(6) of the Federal Court of Australia Act 1976 (Cth) ("the Act") requires a hearing de novo. When the appeal was called on for hearing, the Court explained to the appellant the nature and significance of this issue, and why it was being treated as a preliminary point. Counsel for the respondent then made submissions as to why Martin was distinguishable from the instant case. He did not persuade us that the primary judge had conducted a hearing de novo. A number of matters, taken together, have convinced us that the matter was approached as if it were an appeal. They are:

· During the hearing and in his reasons the primary judge referred to the matter before him variously as an application to set aside the Registrar's sequestration order and "in the nature of an appeal from the Registrar"

· His Honour did not have before him current affidavits as required by rule 19

· He did not say, as a judge customarily does when hearing an application for a sequestration order, that he was satisfied of the matters proof of which s 52 of the Act requires

· His Honour considered whether he should stay proceedings under s 52(3), by which we take him to be referring to a stay of the Registrar's sequestration order.

Abuse of process 9 Five of the sixteen grounds in the notice of appeal relate to the alleged abuse of process. We have set out the primary judge's reasons for holding that the appellant's abuse of process case does not come within the principle described in Rozenbes v Kronhill. We agree with his Honour's reasons and no purpose would be served by repeating them in our own words. The crime and tort of maintenance (including champerty), to which his Honour referred, was abolished in New South Wales by the Maintenance, Champerty and Barratry Abolition Act 1993 (NSW). However s 6 of that Act provides:

"This Act does not affect any rule of law as to the cases in which a contract is to be treated as contrary to public policy or as otherwise illegal."

This section leaves the law as to the effect of maintenance and champerty upon contracts unaffected by the abolition of them as crimes and torts: Trendtex Trading Corporation v Credit Suisse [1982] AC 679 at 762. On the evidence before the primary judge there was no concluded agreement as to the costs of the bankruptcy proceedings. Ms Branch said she made "an agreement" with the solicitor acting for the defendants whereby if the appellant was made bankrupt, the defendants would contribute towards the costs of obtaining the order. She did not know the names of those for whom the solicitor acted. The amount to be contributed by the defendants was still being negotiated. The primary judge said that the arrangement was that the respondent and the defendants would share the costs equally. But that is not the effect of the evidence, which was that the defendants had agreed to contribute to the costs, but that the quantum of contribution had not been determined. Even if a concluded agreement had been reached, it was not champertous. No one stipulated for a share of the proceeds of the action. Nor do we think it would have amounted to maintenance. Neither Ms Branch nor the respondent aided the defendants in their defence of the appellant's action. Cf Martell v Consett Iron Co Ltd [1955] Ch 363 at 376,399. 10 Three of the grounds of appeal were related to the abuse of process claim, but sought to make out the abuse by characterising the conduct of the respondent's solicitors as a breach of duty owed to this Court and a perversion of the course of justice. This variation of the abuse ground does not appear to have been put to the primary judge. In any event it has no substance. The appellant made no attempt to explain to us why the making of the costs agreement involved a breach of professional duty to the Court on the part of the two solicitors, or why it was a perversion of the course of justice or tended to defeat justice. The costs agreement did not bear any of these characterisations.

Defence/cross‑claim 11 Seven of the grounds of appeal asserted that the appellant has a good defence or a good cross‑claim in the Wagga Wagga Local Court proceedings and was applying to set aside that Court's judgment. All we need say about this is that, as the primary judge observed, no particulars were provided of the defence or cross‑claim. The primary judge correctly rejected this claim on the ground that it was not supported by evidence.

Oppression 12 The remaining ground is that the presentation of the creditor's petition amounted to oppression of the appellant by the respondent because of the appellant's illness. The primary judge accepted that the appellant suffered from some illness, but its nature and degree of severity is not the subject of evidence. It is apparently not severe enough to prevent him harassing his adversaries in the County Court, but too severe to enable his attendance in the Federal Court in the bankruptcy proceedings or on the appeal. In any event, on the material before us no ground of oppression is made out. Again, this ground was apparently not advanced before the primary judge.

Orders 13 In par 7 we said we would return to the respondent's notice of motion. Since we have dealt with the merits of the appeal, this motion serves no useful purpose and should be dismissed. On 17 May 2001 we made the orders set out below and said we would give our reasons for making them in due course. The orders were that:

(1) The notice of appeal be amended to add a further ground of appeal, namely

"18. That the learned judge failed to review the Registrar's decision of 29 November 2000 in the manner required by s 35A(6) of the Federal Court of Australia Act."

(2) The respondent's notice of motion of 16 March 2001 be dismissed.

(4) The orders made by the primary judge be set aside.

(5) The matter be remitted to the primary judge for further consideration in accordance with s 35A(6) of the Federal Court of Australia Act on the basis that there is no notice of opposition to the petition.

To make assurance double sure we add that the intention behind order (5) is that the primary judge's further consideration of the motion to review the Registrar's decision will be limited to the determination of the formal matters of proof referred to in s 51(1) of the Act, and will not extend to any further consideration of the issues dealt with in pars 9 to 11 of these reasons.

I certify that the preceding thirteen (13) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Sundberg, the Honourable Justice Emmett and the Honourable Justice Finkelstein.