Du Bray v ACW

Federal Court of Australia|2020-08-03|Before: Vincent J, Wigney J, Rares J, Stewart J

THE COURT ORDERS THAT:

The appellant's interim application filed on 23 July 2020, as amended orally on 3 August 2020, is dismissed.
The appellant is to pay the respondent's costs of the application.
The parties are given leave to apply for the reconsideration of order 2 by filing written submissions (of no more than three pages) within seven days of these orders.
In the event that a party makes an application referred to in order 3, the other party shall file any written submissions (of no more than three pages) in response and the application will be determined on the papers. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Introduction 1 On 16 July 2020, Wigney J made an order sequestrating the estate of Lee Francis Du Bray (ACW v Du Bray (No 2) [2020] FCA 994). His Honour then stayed all proceedings under the sequestration order under s 52(3) of the Bankruptcy Act 1966 (Cth) until 23 July 2020. 2 On 23 July 2020, Rares J, in this proceeding, by consent of the parties, extended the stay of all proceedings under the sequestration order until today. 3 Today, before me, Mr Du Bray seeks an order under r 36.08(2) of the Federal Court Rules 2011 (Cth) staying proceedings under the sequestration order of Wigney J pending the hearing and determination of an appeal against the sequestration order. In the latter regard, a notice of appeal was filed by Mr Du Bray on 23 July 2020. Mr Du Bray also undertakes to the Court that he will pursue the appeal expeditiously.

Relevant principles 4 Section 52(3) of the Bankruptcy Act provides that 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. That period of 21 days expires on 6 August 2020. Clearly, the appeal will not be heard before then. Mr Du Bray can accordingly not rely on that section in seeking a stay. 5 Instead, Mr Du Bray relies, as I have said, on r 36.08(2) of the Rules which, relevantly, provides that "an appellant or interested person may apply to the Court for an order to stay the execution of the proceeding until the appeal is heard and determined." 6 It is uncontroversial that a sequestration order takes effect immediately it is made. The debtor immediately becomes a bankrupt, and his or her property immediately vests in the trustee in bankruptcy. Those are the effects of ss 43(2) and 58(1) of the Bankruptcy Act. 7 Under s 43(2) of the Bankruptcy Act, upon the making of a sequestration order against the estate of the debtor, the debtor becomes a bankrupt, and continues to be a bankrupt until either they are discharged by force of s 149(1) (which is not presently relevant), or their bankruptcy is annulled by force of s 74(1) (also not relevant) or s 153A(1) (also not relevant), or under s 153B. 8 Section 153B(1) of the Bankruptcy Act provides that if the court is satisfied that a sequestration order ought not to have been made, the court may make an order annulling the bankruptcy. Under s 37(2) the court does not have power to suspend the operation of a sequestration order. If an appeal against a sequestration order is successful, the sequestration order can be set aside (under s 28 of the Federal Court of Australia Act 1976 (Cth); Simon v Vincent J O'Gorman Pty Ltd (1979) 27 ALR 619 at 625 and 631; De Robillard v Carver [2007] FCAFC 73; 159 FCR 38 at [149]-[150] and [1]) or the bankruptcy may be annulled (under s 153B(1)). In either event the sequestration order has operation while it remains extant: Pattison v Hadjimouratis [2006] FCAFC 153; 155 FCR 226 at [58]. 9 There are two points to take from the above. The first is that the power that the court has is not to stay the sequestration order, but only to stay proceedings under the order. The sequestration otherwise immediately takes effect until it is set aside or annulled. The other is that even if the appeal is successful and the sequestration order is set aside, it would have continued to operate in the interim. The relevance of this will become apparent shortly. 10 An appellant who seeks a stay under r 36.08 of the Rules must satisfy the court that a stay is required to preserve the subject matter of the litigation, or that the refusal of a stay would make it difficult for the court, in the determination of the appeal, to grant the relief sought. Generally, it is not necessary to show special or exceptional circumstances to afford a stay of the execution of orders the subject of an appeal which lies as of right. See Bryant v Commonwealth Bank of Australia [1996] HCA 3; 134 ALR 460 at 463 per Kirby J and Alexander v Cambridge Credit Corp Ltd (1985) 2 NSWLR 685 at 693-694. 11 Mr Du Bray must establish that there is an arguable point on the proposed appeal or some "rational prospect of success" in relation to any of the grounds of appeal, and that the balance of convenience favours the grant of a stay. See Endresz v Australian Securities and Investments Commission [2014] FCA 1139 at [16]. In relation to the prospects of success on the appeal, a decision on a stay application should not become an occasion for a detailed analysis of the issues that will arise in the appeal: Bryant at 463. 12 The right to appeal the sequestration order is not property under s 5(1) of the Bankruptcy Act and will not vest in the trustee; the appellant is free to pursue an appeal in the absence of any stay: Endresz at [18] and Dimitriou v Pineview Property Holdings Pty Ltd [2019] FCA 2123 at [13].

Ground of appeal 13 In the introductory portion to his Honour's reasons for judgment, Wigney J identified that the petitioning creditor, ACW, applied by creditor's petition for a sequestration order against Mr Du Bray on the basis that Mr Du Bray owes her the amount of $6,558,934.61. That indebtedness was said to arise from a series of orders made by this Court between 7 May 2015 and 12 December 2017. 14 Some of those orders involved the registration of judgments, pursuant to the Trans-Tasman Proceedings Act 2010 (Cth), given by courts in New Zealand. Others relate to costs orders made in proceedings relating to Mr Du Bray's unsuccessful attempt to have the registration of some of the New Zealand judgments set aside. The New Zealand judgments were the outcome or culmination of many years of protracted litigation between ACW and Mr Du Bray following the breakup of their domestic relationship. 15 Mr Du Bray opposed the petition and the making of a sequestration order. His main ground of opposition was that the Court could not be satisfied that the debts upon which ACW relied were owing. He urged the Court, in that context, to exercise its discretion to "go behind" the main New Zealand judgment on the basis that he had been "debarred from actively participating" in the proceeding which gave rise to that judgment and the judgment was "tainted by bias". He also raised an objection based on the proposition that the petition was not verified by a person who had knowledge of the relevant facts as required by s 47(1) of the Bankruptcy Act. 16 As will be seen, the only ground of appeal that Mr Du Bray intends pressing relates to the latter identified ground of objection to the petition for sequestration. 17 Wigney J (at [107]) recorded that Mr Du Bray did not dispute the existence of the orders of this Court relied on in the creditor's petition, or suggest that he had paid ACW the amounts he had been ordered to pay her. Indeed, it was accepted before me that there was no evidentiary suggestion before Wigney J that anything like some $6 million had been paid. 18 Mr Du Bray's contention that the amended creditor's petition was not verified by a person who had knowledge of the facts was based entirely on the fact that the affidavit verifying the petition was sworn by the applicant's Australian solicitor, Ms Peacock, who deposed that "the statements made in paragraphs 1, 2 and 3 of the amended creditor's petition remain within my own knowledge true, on the basis of information and belief from [the applicant]": the judgment at [108]. 19 The contention was that because Ms Peacock's assertion that the statements in the petition were within her knowledge true was qualified by the words "on the basis of information and belief from [the applicant]", it necessarily followed that she did not know the "relevant facts" as required by s 47(1) of the Bankruptcy Act: the judgment at [108]. 20 Wigney J referred to Re Cirillo; Ex parte Commissioner of Taxation [1992] FCA 408; 36 FCR 279 at 285-286, Daly v Watson [1994] FCA 361; 50 FCR 544 at 545-546 and 553 and Culleton v Balwyn Nominees Pty Ltd [2017] FCAFC 8; 343 ALR 632 at [107] and concluded that a solicitor can swear or affirm an affidavit verifying a creditor's petition if they have knowledge of the relevant facts, even if that knowledge was acquired in the course of their acting for the creditor, including knowledge acquired from the creditor, so long as that knowledge amounted to more than mere instructions: the judgment at [120]. 21 His Honour concluded that Ms Peacock had sufficient knowledge of the relevant facts for the purposes of s 47 of the Bankruptcy Act. In her verifying affidavit, she stated that she had acted for ACW in each of the proceedings referred to in the creditor's petition. In another affidavit she stated that she had acted for ACW in all of the proceedings before this Court since 2015 and gave a detailed recitation of the extensive chronology of the proceedings between ACW and Mr Du Bray, including the proceedings in New Zealand. His Honour concluded that there could be little doubt that Ms Peacock acquired knowledge of the matters in the creditor's petition in the course of her acting for ACW and not simply as a result of instructions: the judgment at [121]. 22 It was submitted on behalf of Mr Du Bray that his Honour appeared to overlook unchallenged evidence of Mr Du Bray that there was a process in New Zealand for obtaining payments towards the orders made by Ellis J (one of the orders that was the subject of the bankruptcy notice and subsequent creditor's petition) and that he did not know the full amount that ought to have been "credited" through that process. It was said that it had been accepted in the proceedings that Ms Peacock only acted in the Australian proceedings and not in the New Zealand proceedings. It was accordingly submitted that Ms Peacock did not have the relevant knowledge as that question was explored in Daly v Watson. It was identified that in the appeal it is proposed to be submitted that his Honour's conclusion that a solicitor could swear the affidavit as long as it amounted to more than mere instructions was a new test and was inconsistent with Daly v Watson and not supported by other authority. It is to be submitted in the appeal that to the extent that the long-followed authority of Re Cirillo is to the contrary, it is wrong. 23 It was said that Mr Du Bray also intends to submit that the subsequent affidavit of Ms Peacock, referred to by Wigney J, does not establish the requisite matters because it was inadmissible hearsay. 24 Before me it was accepted on behalf of Mr Du Bray that it was not contended before Wigney J that the whole of the claimed debt, or even most of it, had been paid. That is recorded by his Honour (at [124]) where it is said that there was no dispute that the orders of this Court required Mr Du Bray to pay sums of money to ACW which he had not paid. On that basis, there appears to be little if any basis to challenge his Honour's finding that, as in Daly v Watson, there was in any event sufficient admissible evidence before the Court to prove that the debt was still owing even if the verifying affidavit did not meet the technical requirement. 25 In the circumstances, it appears to me, on the limited basis on which I have explored this question which includes not having before me the evidence that was before Wigney J, that the prospects of success on appeal are not good - it is better that no more is said about those prospects in this application for a stay. I am nevertheless prepared to accept for the purpose of this application that the appeal is reasonably arguable and in that sense bona fide, but I cannot put the matter higher than that.

Balance of convenience 26 Mr Du Bray's affidavit in support of his stay application stated the following insofar as is relevant to balance of convenience: 3. I am currently a party to an appeal in the Family Court of Australia, [registry and proceeding number] in which I am appealing against a judgment against me regarding an alleged maintenance liability I have towards ACW (which I deny and say is not maintainable under Australian law). If a stay is not granted in this Creditors Petition matter I will not be able to continue to fund the Federal Circuit Court appeal. This is particularly prejudicial as any maintenance liability survives bankruptcy, so may continue to affect me in future though I will have lost my appeal rights by that time. 4. I am the sole director of the following companies: (a) Du Bray & Associates Pty Ltd (b) Bad Wolf Purchasing Pty Ltd (c) Automation Discounters Pty Ltd (d) Du Bray & Associates Ltd (a company incorporated in New Zealand) (e) Sofia Engineering Inc (a company incorporated in the USA) 5. If a stay is not granted in this Creditors Petition matter and I am no longer able to be the director of those companies, the governance of those companies will cease and those companies will collapse, likely leading to unpaid creditors who would otherwise be paid in the ordinary course of business of those companies. 27 It is convenient to deal with each of those matters in turn. 28 Insofar as the appeal to the Family Court of Australia is concerned, Mr Du Bray offers insufficient evidential basis on which it might be concluded that in the absence of a stay the prosecution of his appeal in that proceeding will be thwarted. Whilst he states that he will not be able to continue to fund the appeal, he does not say that any such funding is still required. He does not say at what stage the appeal has reached. It may be that the appeal has already been heard and judgment is reserved. Or it may be that his lawyers have already been placed in funds or would be prepared to continue to act without further funding. Or it may be that the appeal is of such a nature that he can argue it himself without significant detriment. On the evidence, I am simply not in any position to conclude that the refusal of the stay that he seeks will prejudice him to any material degree in that appeal. 29 Insofar as Mr Du Bray's position as sole director of the five identified companies is concerned, there are a number of obstacles to any conclusion being reached that the refusal of a stay will cause prejudice of any significant degree to Mr Du Bray or the companies, or at least to a conclusion as to the degree of such prejudice. 30 First, there is no evidence that any of the companies is trading. It may be that the companies are all shelf companies. Thus, it may be that even if the "governance … will cease and [they] will collapse", that is no great prejudice to anyone. 31 Secondly, as I have already indicated, the sequestration order has already taken effect and it will continue in effect until the sequestration is set aside or the bankruptcy is annulled. In those circumstances, the disqualification from being a director of a company to which Mr Du Bray alludes has already taken effect and will be unaffected by any stay that I might order. In that regard, s 206B(3) of the Corporations Act 2001 (Cth) provides that a person is disqualified from managing corporations if the person is an undischarged bankrupt under the law of Australia, its external territories or another country. Until such time as the sequestration order is set aside or the bankruptcy is annulled, Mr Du Bray will remain an undischarged bankrupt. 32 Mr Du Bray has the possible remedies referred to in s 201B(2) of the Corporations Act. That subsection provides that a person who is disqualified from managing corporations under Pt 2D.6, in which s 206B(3) is located, may only be appointed as a director of a company if the appointment is made with permission granted by ASIC under s 206GAB or leave granted by the Court under s 206G. What is clear, is that a stay of proceedings under the sequestration order will not save Mr Du Bray's current directorships. 33 In the above regard, in Re Watts [2011] FCA 1185; 284 ALR 403, Mr Watts, an undischarged bankrupt, applied for leave under s 206G of the Corporations Act to act as a director of corporations. Yates J (at [7]) observed that Mr Watts had been disqualified from managing corporations since the making of the sequestration order against his estate and that the stays of proceedings under the sequestration order pending an appeal did not alter his status in that regard. See also Mehajer v Weston (Trustee), in the matter of Mehajer [2018] FCA 608 at [33] per Lee J. 34 Thirdly, two of the corporations are in any event registered abroad. There is no evidence before me as to the relevant law in their countries of registration. It was not submitted that it should be presumed that the relevant foreign law is the same as the domestic law, i.e. that a local bankrupt is prohibited from being a director of a corporation under the law of the relevant foreign countries. If that had been the submission, the complete answer to that might have been that the presumption does not operate to the benefit of the party who bears the onus of proving the foreign law: Damberg v Damberg [2001] NSWCA 87; 52 NSWLR 492 at [126] per Heydon JA citing BP Exploration Co (Libya) Ltd v Hunt [1980] 1 NSWLR 496 at 503 per Hunt J.

Conclusion 35 In the circumstances, I am not satisfied that either of the particular grounds of prejudice that Mr Du Bray seeks to have me weigh in the balance of convenience are made out. Even taking into account some inevitable prejudice to Mr Du Bray in the fact of proceedings under a sequestration order not being stayed on the assumption that the sequestration order is later set aside or the bankruptcy is annulled on appeal, I cannot find that the balance of convenience favours a stay. When taken together with the weak prospects of the appeal, I cannot be satisfied that there should be a stay in this case. 36 In any event, in the exercise of my residual discretion with regard to whether or not to order a stay I would take into account the fact that on the uncontested evidence before me there are three costs orders of this Court in fixed amounts which have not been paid by Mr Du Bray. In that regard: (1) On 4 July 2017, Mr Du Bray and associated companies were ordered to pay $154,034.69 to ACW of which only $25,364.78 has been paid; (2) On 29 March 2018, a costs order of the Full Court was quantified by a registrar on a lump-sum basis in the amount of $60,516.14 which has not been paid; (3) On 20 December 2018, Mr Du Bray was ordered to pay $20,950 to ACW in respect of her costs which has not been paid. 37 Given the history of the protracted litigation between the parties including the exhaustive efforts by Mr Du Bray to resist judgments against him in favour of ACW at every turn as documented in the judgment of Wigney J, his continued failure to pay the above costs orders is a substantial factor to weigh against Mr Du Bray in the exercise of my discretion. If I had not otherwise been satisfied not to grant the stay, in the exercise of my residual discretion I would not have granted the stay on account of the unpaid costs. 38 Mr Du Bray submits that if he was to have paid the costs judgments against him those would stand to be set aside as voidable preferences in his sequestration (under s 122 of the Bankruptcy Act), and that his failure to pay them should therefore not be held against him. There are several reasons why that submission cannot be accepted. 39 First, those judgments were quantified and unpaid a long time - years even - before the sequestration order. The creditor's petition was presented on 12 March 2019 with the result that the relevant period for voidable preferences commenced six months before, i.e. on 12 September 2018. That post-dates two of the costs orders I have referred to and in one case by well more than a year. 40 Second, the third costs order was in respect of ACW's costs of responding to Mr Du Bray's unsuccessful application to set aside the bankruptcy notice that was the subject of the proceeding before Wigney J. Those costs would likely enjoy priority under s 109(1)(a) of the Bankruptcy Act as taxed costs of the petitioning creditor. 41 Third, and in any event, Mr Du Bray's submission must be considered on the assumption that he is successful in the appeal - if he is to be unsuccessful then there would be no justification for granting the stay. On the assumption that he is successful, there will be no bankruptcy so payment of the costs orders will not be void under s 122 of the Bankruptcy Act. 42 In the circumstances, Mr Du Bray's application for a stay should be dismissed. 43 I do not see any reason why the costs should not follow the event. Mr Du Bray should accordingly pay ACW's costs of the stay application. However, recognising that I have not received submissions on costs, I will make provision for that costs order to be reconsidered on application by either party within seven days. I certify that the preceding forty-three (43) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Stewart.

Corporations Act 2001(Cth)ss 201B, 206B, 206GAB, 206G

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