Dogra v Dogra

Interaction with bankruptcy notices

The relevant bankruptcy notices relate solely to the unpaid costs sum. The time for compliance is fixed as 21 days. Thus both Aruna and Kapil will commit an act of bankruptcy under s 40(1)(g) of the Bankruptcy Act 1966 if they fail to satisfy the claimed debt within 21 days of the date of service, unless an extension of time is obtained or the respective notices are set aside.
As noted above, Aruna's application for time to be extended is returnable before the Federal Court on 22 August 2024.
It may be anticipated that a relevant consideration in respect of Aruna's application and Kapil's foreshadowed application in the Federal Court is whether there is in place a stay in relation to the judgment which underpins the bankruptcy notices (see Sharpe v W H Bailey & Sons Pty Ltd [2014] FCA 921 at [29] per Gleeson J).
If Aruna is made bankrupt, her appeal proceeding would be automatically stayed until the trustee in bankruptcy elected to proceed or discontinue the proceeding. The same position applies to Kapil and his cross-appeal. They both contend that this could effectively render their proceedings inutile, particularly if they ultimately succeeded in the appeal and cross-appeal respectively.
The starting point is that a successful party is entitled to the fruits of its judgment (McBride v Sandland (No 2) (1918) 25 CLR 369 at 374; [1918] HCA 59). Despite that, courts have often granted stays pending appeals where the appellant is at risk of being made bankrupt if a stay were not granted. The essential reason is that the appeal would be rendered nugatory in the case of the appellant's bankruptcy; and in that way the appellant would suffer a significant prejudice if a stay were not granted.
In Shade Systems Pty Ltd v Probuild Constructions (Aust) Pty Ltd [2016] NSWCA 234, the appellant, Shade, sought to stay the costs order made below. Shade was close to insolvency. Basten JA granted the stay. One reason was that the appeal raised an important issue as to the ability to quash an adjudicator's determination under security of payments legislation in the absence of jurisdictional error. Moreover (at [11]): In these circumstances, there is an important issue raised by the appeal as to which the appellant has reasonable prospects of success; it would be unfortunate if the appeal were precluded or delayed because the appellant is presently liable to an immediately enforceable liability to pay the respondent's costs in the Equity Division, which could lead to the appointment of a liquidator. There may be other outstanding amounts which might also lead to the appointment of a liquidator, but regarding which there is insufficient information before the Court to place any weight upon them. Otherwise, the amount the subject of the claim is a significant amount. It would appear, and as will be noted presently, it is part of the respondent's case, that should the appellant succeed on the appeal the amount which will be recoverable pursuant to the adjudication will be sufficient to pay the outstanding liabilities of the company and allow the company to continue to operate.
In granting a stay pending appeal in Porges v Adcock Private Equity Pty Ltd [2018] NSWCA 285, Macfarlan JA considered as important the risk that the Federal Court would not extend the time for compliance with the bankruptcy notice if a stay were not granted; the applicant's likely inability to comply with the bankruptcy notice and the concomitant reputational damage (as the applicant would be unable to continue as a director); the risk that bankruptcy proceedings would be brought promptly and before hearing and determination of the appeal; the fact that the applicant would lose control of his appeal if declared bankrupt; the lack of prejudice to the respondent, given the applicant had no assets which could be used to satisfy the judgment now and which might be unavailable in the future; and the limited duration of the stay.
Different principles apply to the granting of a stay pending an appeal in Victoria, where "special or exceptional circumstances" must be shown to exist before a stay will be granted (see, eg, Kairouz v Jasper Nominees Ltd [2024] VSCA 68 at [22]-[23] per Walker JA). In that case her Honour granted the stay for reasons which are set out at [25]: In the present case, I accept that, unless the Federal Circuit Court sets aside the bankruptcy notice, it is very likely that Mr Kairouz will be made bankrupt. That is, there is not merely an assertion of a risk of bankruptcy - given the issue of the bankruptcy notice, and Mr Kairouz's financial position, it is likely that bankruptcy will eventuate if a stay is not issued. I also accept that Mr Kairouz's ability to prosecute his application for leave to appeal would be impeded if he is rendered bankrupt. That is principally a consequence of the fact that upon his bankruptcy, his application for leave to appeal will be automatically stayed until the trustee in bankruptcy makes an election to proceed with or discontinue the proceeding. That is, conduct of the application for leave to appeal will lie with his trustee in bankruptcy.
Generally, the Court will not speculate about an appellant's prospects of success, but usually the Court will make a preliminary assessment about whether the appellant has an arguable case.
For the following reasons I consider that Aruna and Kapil should obtain stay orders.
On a preliminary assessment, I do not consider either the appeal or cross-appeal to be particularly strong. But nor do I consider either to be frivolous, unreasonable or lacking any merit. Counsel for Aruna added that one of the proposed grounds of appeal raises a separate issue, independently of Fox v Percy constraints (see Fox v Percy (2003) 214 CLR 118; [2003] HCA 22). It relates to whether the primary judge erred in refusing leave to cross-examine Mamta on matters which arose in Local Court proceedings which Aruna claims are adverse to Mamta's credit. Aruna's counsel candidly conceded that she may have difficulty overcoming the adverse credit findings made by the primary judge and the principles associated with such findings.
Counsel for Kapil emphasised how the cross-appeal was now narrowed by the outline of written submissions. He said that the cross-appeal will also rely upon Aruna's claim that the primary judge wrongly narrowed the ambit of Mamta's cross-examination on credit.
Turning to the issue of the relevant risk of prejudice and other discretionary considerations pertaining to the balance of convenience, the appeal and cross-appeal are now scheduled to be heard in four weeks' time, which is imminent. There was no claim that either Aruna or Kapil has been dilatory in the preparation of those proceedings. On the contrary, it appears that Mamta has caused some delay in the late filing of her written submissions.
I am particularly concerned that there is a risk that if the costs orders are not stayed, sequestration orders could be made against either or both Aruna and Kapil before this Court has an opportunity to publish reasons for judgment. This could have the effect of rendering those proceedings inutile. Depending on the timing of any such order, both Aruna and Kapil could lose control of the respective proceedings if the official trustee in bankruptcy becomes involved on the making of any sequestration order.
Based on the material before me, I reject Mamta's challenges regarding the financial circumstances of either Mamta or Kapil. Neither was required for cross-examination. There is no reason to doubt Aruna's evidence as to her age, medical issues or dependency on her Centrelink pension. I also accept her evidence that she no longer has the opportunity to borrow money from family or friends to pay the costs. The Court has no evidence before it as to the arrangements or cost agreement Aruna has with her legal representatives which have enabled her to prepare the appeal to date.
I turn to Kapil's financial circumstances. No reason has been advanced for doubting his evidence regarding his financial circumstances. Mr O'Dea, who appeared for Mamta, invited the Court, based on ASIC records, to find that Kapil, and not his sister, controlled the company which provided migration agency services by various personnel, including Kapil. I would not make any such finding in circumstances where Kapil was not required to attend for cross-examination and was given no opportunity to respond to such a serious allegation.
Mr O'Dea also challenged Kapil's evidence relating to his estimated income as a migration agent and his estimates of the money he has spent on mortgage repayments, education and the children's welfare. I do not accept those contentions in circumstances where Kapil was not required to attend for cross-examination.
As to Mr O'Dea's submission that Kapil's expenditure far outweighed his income as a migration agent, with the consequence that the Court should find that he has access to other available sources of income, this overlooks [11] of Kapil's affidavit. He acknowledged there that apart from using his own savings and funds for the various cases in which he has been involved, he has also borrowed money from his sister and friends. None of those persons is now willing to lend him the amount of the costs order. I have no reason to doubt that evidence.
I appreciate that Mamta is prima facie entitled to enjoy the fruits of her victory and that she also has incurred significant legal costs over many years in relation to the present and other proceedings. I consider, however, that the balance of convenience weighs more heavily in favour of Aruna and Kapil than it does for Mamta.

Conclusion

For all these reasons, I will grant the relief sought in both motions. The costs of those motions should be costs in the appeal. I therefore make the following orders: In respect of the appellant's notice of motion filed 12 August 2024, order that: (1) Order 4 of the orders made by Lindsay J on 22 December 2023 be stayed until 21 days after the determination of the appeal in these proceedings or until further order. (2) The judgment/order of the District Court of New South Wales, Sydney Registry, Proceedings No. 2024/00275250 issued on 26 July 2024 be stayed until 21 days after the determination of the appeal in these proceedings or until further order. (3) Costs of the motion be costs in the appeal. In respect of the second respondent's notice of motion dated 14 August 2024, order that: (1) Upon the giving of an undertaking by the solicitor of the second respondent to bear any costs of filing, the notice of motion dated 14 August 2024 be filed in Court. (2) Order 4 of the orders made by Lindsay J on 22 December 2023 be stayed until 21 days after the determination of the appeal in these proceedings or until further order. (3) The judgment/order of the District Court of New South Wales, Sydney Registry, Proceedings No. 2024/00275250 issued on 26 July 2024 be stayed until 21 days after the determination of the appeal in these proceedings or until further order. (4) Costs of the motion be costs in the appeal.

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