Endresz v Australian Securities and Investments Commission

Federal Court of Australia|2014-10-23|Before: Beach J

The interlocutory applications filed by each Appellant on 26 September 2014 for a stay are dismissed.
The Appellants are to pay the Respondent's costs of and incidental to each such application.
In addition to order 2, and to the extent necessary and applicable (if the appeals are subsequently dismissed), the costs of the Respondent of and incidental to each such application are to be treated as costs of the administration of the bankruptcy of each of the Appellants and given the priority accorded by s 109(1)(a) of the Bankruptcy Act 1966 (Cth).
The interlocutory applications filed by each Appellant on 17 October 2014 seeking leave to adduce new evidence on appeal pursuant to s 27 of the Federal Court of Australia Act 1976 (Cth) be adjourned over to the hearing of the appeals in each case.
The Respondent is to file and serve any responding evidence in respect of each such application referred to in order 4 on or before 1 December 2014.
The costs of the applications referred to in order 4 are reserved.
Leave is granted to the Appellants to amend paragraph 1(c) of the notice of appeal in each appeal to substitute the reference to s 8(5) of the Australian Securities and Investments Commission Act 2001 (Cth) with s 8(3) and each such notice is to be treated as so amended without the need for the filing of any amended notices of appeal.
Not later than 4.00 pm on 2 February 2015 the Appellants are to file 4 copies and serve on the Respondent a copy of Part D of the appeal book, which Part D shall comprise of any new evidence that the Appellants seek leave to adduce and rely upon as sought in the interlocutory applications referred to in order 4, together with a copy of such applications and any responding evidence filed by the Respondent as contemplated by order 5.
For the avoidance of doubt, Part D of the appeal book shall also include an index of the material referred to in order 8 and should be compiled such as to eliminate any duplication of annexures or exhibits. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 483 of 2014

BETWEEN: DAWN MAY ENDRESZ and others according to the schedule attached

AND: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

JUDGE: BEACH J DATE: 23 OCTOBER 2014 PLACE: MELBOURNE

REASONS FOR JUDGMENT 1 Sequestration orders were made against the estates of each of the appellants by Pagone J on 29 July 2014 (see Australian Securities and Investments Commission v Endresz [2014] FCA 786). The Official Trustee is the trustee of each estate. 2 On 19 August 2014, each appellant filed a notice of appeal against his Honour's judgment and orders. 3 Currently, there has been no stay of any proceedings under the sequestration orders. 4 On 26 September 2014, each appellant filed an interlocutory application seeking in each case that the "sequestration order made on 29 July 2014 … be stayed" until the hearing and determination of each respective appeal. Each stay has been sought under r 36.08 of the Federal Court Rules 2011 (Cth) which provides: 36.08 Stay of execution or proceedings under judgment appealed from (1) An appeal does not: (a) operate as a stay of execution or a stay of any proceedings under the judgment subject to the appeal; or (b) invalidate any proceedings already taken. (2) However, 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. (3) An application may be made under subrule (2) even though the court from which the appeal is brought has previously refused an application of a similar kind. 5 The material filed in support of the stay applications consists of: the affidavits of Allan Paul Endresz sworn 26 September, 17 October and 21 October 2014; the affidavits of William Arthur Forge sworn 26 September, 17 October and 21 October 2014; the affidavits of Jozsef Endresz sworn 26 September, 17 October and 21 October 2014; the affidavits of Dawn May Endresz sworn 26 September, 17 October and 21 October 2014; the affidavit of Sean McShane sworn 14 October 2014; and the affidavit of Robert Eastoe sworn 21 October 2014. 6 The respondent, the Australian Securities and Investments Commission (ASIC), has opposed the stay applications. It relied upon an affidavit of Tina Lesley Beltrame affirmed 16 October 2014, a senior specialist in the Chief Legal Office of ASIC. The Official Trustee was not represented on these applications but indicated that it would abide any order of the Court.

Form of application 7 The form of the stays sought in the interlocutory applications are not well conceived. 8 It is apparent from the provisions and operation of the Bankruptcy Act 1966 (Cth) (the Act) that it is inapposite to talk of a stay of a sequestration order as such. When a sequestration order is made, it takes immediate and automatic effect by force of the Act. There is an immediate vesting of property in the trustee in bankruptcy. Moreover, after-acquired property of the bankrupt vests as soon as it is acquired. See, generally, Nand v Fuji Xerox Australia Pty Ltd [2014] FCA 757 at [3] per Yates J. It is conceptually incoherent to contemplate a judicial stay order as being available to countermand automatic legislative operation where no question of invalidity is involved. 9 In concept, one can only consider whether there should be a stay of any proceedings or action under a sequestration order, rather than a stay of the order itself. So much is made plain by the language of s 52(3) of the Act which uses the language of "stay all proceedings under a sequestration order". I interpolate at this point that s 52(3) also has a time limit of 21 days. Nevertheless, in the Court's appellate jurisdiction under r 36.08, such a time bar does not limit the Court's power thereunder. A separate source of jurisdiction can be invoked, rather than that applicable under s 52(3). 10 Further, reference should also be made to s 37(2)(a) of the Act, which provides that the Court does not have power to suspend the operation of a sequestration order. 11 In summary, the Court only has power to stay proceedings or action under the sequestration order. The present interlocutory applications do not identify what proceedings or action ought to be stayed and why. They fail in limine on this aspect alone. 12 Nevertheless, in the oral submissions made on the appellants' behalf by their counsel, Mr Stewart Maiden, the appellants recognised this difficulty and sought a stay generally of any "proceedings" under the sequestration orders, in accordance with the language of r 36.08. I enquired of counsel what this meant, as I was concerned to understand what it was that was sought to be prevented that, if the stays were not granted, would cause the appellants prejudice between now and the hearing of the present appeals, which are due to be heard in the February 2015 sittings of the Full Court of this Court. The appellants referred to the exercise of unrelated rights of appeal in unrelated Australian Capital Territory Supreme Court proceedings that I will address shortly, but there were several difficulties with this identification: First, such rights of appeal at the moment are hypothetical. They have not yet arisen because no final orders have been made in those proceedings. Second, if I was to enjoin the Official Trustee now from exercising or dealing with such rights of appeal once they arose and assuming that they were vested in the Official Trustee, that would cause difficulty for the appellants because they would not, even if I granted the stays, be free to exercise such rights for themselves (assuming those rights were not vested in them). In such circumstances, stays operating in essence against the Official Trustee which prevented any dealing with such rights would be more harmful than helpful to the appellants.

Principles applicable to stays 13 The principles upon which a stay may be granted are not in doubt. 14 Rule 36.08 confers a broad discretion. Generally, there must be demonstrated "a reason or an appropriate case" to warrant the exercise of discretion in favour of granting a stay (see Powerflex Services Pty Ltd v Data Access Corp (1996) 67 FCR 65 at 66). 15 More specifically, two questions must be considered. 16 First, is there an arguable point on the proposed appeal (see Nolten v Groeneveld Australia Pty Ltd [2011] FCA 1494 (Nolten) at [24] per Kenny J) or is there some "rational prospect of success" in relation to any of the grounds of appeal (see Burns v AMP Finance Ltd [2005] FCA 761 (Burns) at [5] per Emmett J)? Second, does the balance of convenience favour the grant of a stay (see Nolten at [24] and [46])?

Arguable Grounds of Appeal 17 The appellants' written submissions asserted that the grounds of appeal were arguable. ASIC took issue with that proposition in its written submissions, but did not focus much attention on that question. In the circumstances, I am prepared to accept for the purposes of the present applications that the grounds of appeal are arguable. It is inappropriate to comment further, including commenting upon what the applications made under s 27 of the Federal Court of Australia Act 1976 (Cth) might indicate as to the prospects of these grounds of appeal. Let me turn to the balance of convenience.

Balance of convenience 18 Does the balance of convenience favour the granting of a stay? Is there a real risk of irreparable injury to the appellants if the stays are not granted (see Nolten at [24] and [46] per Kenny J)? In this context, it is clear that the absence of any stay order does not render the appellants' appeal rights against the sequestration orders nugatory. The right to appeal the sequestration orders is not "property" under s 5(1) of the Act and does not vest in the Official Trustee. The appellants can pursue their appeals in the absence of any stay. Further, the Official Trustee is not presently in a position to realise any assets of the appellants pending the appeals. Those assets have been frozen by orders made in other litigation and the Official Trustee is derivatively "encumbered" by such orders. 19 More specifically, the following factors also point against the appellants on this balance of convenience question. 20 First, the point made by the appellants concerning the perception or reality of the "stigma of bankruptcy" in the absence of the stays is not convincing. The appellants are now bankrupt. The sequestration orders themselves cannot be stayed or suspended. Accordingly, if there is a stigma, that cannot be altered or significantly ameliorated by any stay sought. Further and in any event, an asserted deleterious effect on reputation is not a sufficient condition for a stay (see Kellow v Dudzinski [2003] FCA 143 at [3]-[4] per Spender J). Finally, I have no evidence as to what their baseline reputation was prior to the making of the sequestration orders in any event. 21 Second, the appellants have not pointed to any precise actual or anticipated action or proceedings of the Official Trustee that they want restrained, but if otherwise were allowed to go ahead would now cause them significant prejudice. 22 Third, the appellants have not put forward any material suggesting or demonstrating real loss to them if the stays were refused. The appellants' submissions were couched in nebulous possibilities, if not nebulous atmospherics. 23 Fourth, apart from one appellant, and then only in a limited if not unsatisfactory sense, the appellants have not put forward any detailed material as to their assets and liabilities or income or expenditure positions. There is some material with respect to some assets, but there is little, if anything, on these other financial aspects. On the existing material I cannot conclude that any of the appellants are presently solvent (see Burns at [5] per Emmett J and Singh v Owners Strata Plan No 11723 [2012] FCA 538 at [57] per Griffiths J). 24 Fifth, as I have said, the appellants' assets are now frozen. Accordingly, there is little chance of the Official Trustee now dealing with such assets or their realisation between now and when the appeals in this Court are heard. Of course, if that position changes, the appellants can bring a further application for a stay. 25 Sixth, it is asserted that the Official Trustee may incur significant expenditure or debts in the interim. I am not sure what these might be. The matter is speculative. Moreover, given that the appellants' assets have been and remain frozen by orders made in another context, I very much doubt the likelihood of the Official Trustee in the short term incurring significant expenditure or debts, particularly when it does not have access to the corresponding assets. 26 Seventh, in any event, there is a public interest in not restraining the Official Trustee from engaging in such investigations as it thinks fit in terms of the affairs of the appellants. The statements made by Mr Allan Endresz to Pagone J at trial (see transcript at p 65, lines 7-20) raise some questions as to whether he may have arranged his affairs in a manner and at some stage to put assets beyond the reach of actual or future creditors. The appellants have sought to put a putatively innocent interpretation on what Mr Endresz said to his Honour. I do not need to decide any of these questions, but at the least it might be said that there are matters that might potentially enliven the interest of the Official Trustee, including perhaps ascertaining the real beneficial owner of these "beyond reach" assets. But in my view, on the limited material before me at the moment, it is a likely inference to draw from the fact that there have been freezing orders made in relation to all assets, which orders in substance "encumber" the Official Trustee, that the Official Trustee is not in a position at the moment to undertake substantial investigations that would warrant corresponding substantial expenditure. 27 Eighth, the appellants have argued that there may be prejudice, if the stays were not granted, concerning their potential rights of appeal relating to separate ACT Supreme Court proceedings. They assert the following at [36] of their written submissions: First, the [Official Trustee] will have the right to exercise any right of appeal against any orders made by Refshauge J concerning the appellants' property, and any right to seek damages under the Commonwealth's undertaking that might flow from that appeal. Final orders might be made any day. If they are delivered before this appeal is determined, the time to appeal will run while the rights to appeal are vested in the trustee. The complexity of the Supreme Court proceedings is evident from the 329-page reasons for judgment (Commonwealth v Davis Samuel Pty Ltd (2013) 282 FLR 1). There were 29 defendants and one third party. It took Refshauge J almost five years after final submissions to deliver reasons, and it has been 14 months since then without final orders having been made. The trustee will be called on to decide whether to file a notice of appeal or to apply for an extension of time within 28 days of final orders being made: Court Procedures Rules 2006 (ACT), r. 5405 [sic]. The trustee does not have the advantage of access to lawyers who represented the appellants at trial, because they represented themselves. The appellants' rights of appeal may be irreparably prejudiced by decisions made by the trustee if their appeal against the sequestration orders then succeeds. 28 Now there are a number of problems with the appellants' argument in this context in terms of seeking to justify a stay. First, at the moment there have been no final orders made in the ACT proceedings. Necessarily, one is therefore engaging in speculation at the moment about how rights of appeal, once they spring into existence, may be looked at by the Official Trustee and exercised or not as the case may be. Second, in relation to these appeal rights, and when they do spring into existence, they arguably may be vested in the Official Trustee by automatic operation of the Act; this seems to be conceded by the appellants although there may be some doubt as to this (see the discussion of the ambit of "property" within the meaning of s 5(1) of the Act in Cummings v Claremont Petroleum NL (1996) 185 CLR 124 at 132-136 per Brennan CJ and Gaudron and McHugh JJ); of course, if they did not so vest, then the appellants would not need any stay as they could exercise them for themselves. I cannot stay the operation of the sequestration order or the automatic consequences that flow from how the Act operates in relation to after acquired property. Third, if these appeal rights spring into place (assuming they are vested in the Official Trustee) and the appellants are unhappy with any decision that the Official Trustee might take or not take, then, of course, it is open to them to either "negotiate" with the Official Trustee, or if they do not achieve any satisfaction in that respect, to challenge the Official Trustee's decision(s) or conduct. Fourth, and as I said at the outset, it may be more harmful to the appellants if I were to make orders that they in fact belatedly seek against the Official Trustee in relation to these future rights of appeal. Assume that those rights, when they arise, vest in the Official Trustee. If the Official Trustee is prevented from dealing with those rights, then there may be no one to exercise those rights. The appellants cannot unilaterally exercise them as this future acquired property, as predicated, may not vest in them. The rights of appeal may then inappropriately lapse. The appellants in reality should not want to restrain the Official Trustee from exercising such rights of appeal when they arise. Rather, they should want the Official Trustee to exercise such rights when they arise, but, as they would desire it, at the appellants' direction. 29 At the moment this is all hypothetical. If the position changes in the sense that final orders are made in the ACT proceedings and there is some concrete issue to deal with that might enliven the need to consider a specific form of stay, negative or mandatory injunction, or a Court direction to the Official Trustee, the appellants will have the opportunity to deal with that in the known circumstances at the appropriate time. Alternatively, if the appellants take the view that such appeal rights do not vest in the Official Trustee at all, then they can exercise them for themselves; moreover, s 60(2) is no bar as they are defendants in the ACT proceedings (see Commonwealth of Australia v Davis Samuel Pty Ltd (No 7) (2013) 282 FLR 1).

Conclusion 30 In my opinion, the balance of convenience does not justify the stay sought. The appellants' interlocutory applications will be dismissed. I will make orders accordingly, including directions for further procedural steps in addition to those made on 19 September 2014. I certify that the preceding thirty (30) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Beach.

Associate: Dated: 27 October 2014 Schedule of Parties Federal Court of Australia District Registry: Victoria Division: General VID 483 of 2014

VID 483 of 2014 Appellant: DAWN MAY ENDRESZ Respondent: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION VID 484 of 2014 Appellant: JOZSEF ENDRESZ Respondent: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION VID 485 of 2014 Appellant: WILLIAM ARTHUR FORGE Respondent: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION VID 486 of 2014 Appellant: ALLAN PAUL ENDRESZ Respondent: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

Bankruptcy Act 1966(Cth)ss 5(1), 37(2), 52(3), 60(2)

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