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[2014] FCAFC 20
Federal Court of Australia (Full Court)
2014-03-07
Perram J, Katzmann JJ
Original judgment source is linked above.
LEON LEWIS MACGILLIVRAY BOVAIRD IN HIS CAPACITY AS EXECUTOR OF THE ESTATE OF THE LATE MONICA CATHERINE BOVAIRD
THE TRUSTEE OF THE BANKRUPT ESTATE OF MAXWELL WALTER ALLEN FROST
JUDGES: JAGOT, BARKER, KATZMANN JJ DATE: 7 MARCH 2014 PLACE: SYDNEY
3.1 Issue 1 - whether fresh grant of leave required under s 249(3)? 17 The Frosts argued that "Basten JA's statement at [15] should…be taken as a properly considered statement by the Court of Appeal as to the meaning of the earlier judgment of Perram J". We reject the argument. 18 First, Basten JA was dealing with an appeal from orders made in the Supreme Court by Brereton J in the Bovaird v Frost Proceedings. Insofar as Perram J's grant of leave was relevant, Basten JA's statement was limited to the terms of the grant of the leave. He did not hear argument about the proper construction of s 249(3)(b) of the Act and was not exercising jurisdiction under that section (Green v Schneller (2001) 189 ALR 464; [2001] NSWSC 897 at [29] and [30]). The question which was squarely before the primary judge (the proper construction of s 249(3)(b)) was not an issue in the Court of Appeal. Accordingly, Basten JA's statement was no more than an obiter dictum. 19 Second, the language that Basten JA used in [15] ("it is apparent from the judgment of Perram J") indicates that his Honour was making an observation, rather than expressing a concluded view, on a matter he did not have to decide. 20 Third, and as the Bovairds submitted, no observation of Basten JA about the scope of Perram J's orders in an appeal from Brereton J could bind this Court exercising jurisdiction under s 249(3) of the Act. 21 The Frosts' submissions about the "practical difficulty" that might arise from "this difference of opinion between the two courts" overlook a fundamental fact. There is one judgment (of Basten JA) which contains a passing observation and another judgment (of this Court) which conclusively determines the issue unless set aside on appeal. There is thus no "difference of opinion" between the courts. No question of "deferral" by a Registrar of the Supreme Court of New South Wales to an opinion of a Judge of Appeal of that Court can arise. The primary judge's judgment is the only binding judgment. Accordingly, there is no "potential stalemate" as the Frosts claimed. 22 For the same reasons, the Frosts' submission that, consistent with authority (Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485; [1993] HCA 15 and Tillman v Attorney-General (NSW) (2007) 70 NSWLR 448; [2007] NSWCA 327), the primary judge should have followed the decision of the Court of Appeal cannot be accepted. This is not a case where an intermediate court of appeal in one jurisdiction decided an issue and a first instance court in another jurisdiction was confronted by the same issue. Here, as we have explained, there is no relevant inconsistency and it was not necessary for the primary judge to be satisfied that the intermediate court of appeal's view was plainly wrong. 23 Contrary to the submissions for the Frosts, there is no meaningful analogy with the circumstances considered in Repatriation Commission v Nation (1995) 57 FCR 25. Melnik v Melnik (2005) 144 FCR 141; [2005] FCAFC 160 at [48] is also not authority to the contrary. The Full Court's observation at [148], which may be read as consistent with the Frosts' argument, was made in passing in the absence of argument about the proper construction of s 249(3)(b). 24 Moreover, for reasons cogently expressed in the written submissions for the Bovairds, we are persuaded that the primary judge's conclusion was correct. As the Bovairds put it: 17. The language of that section, properly understood, directs attention to 2 possible circumstances: first, where the bankruptcy precedes the commencement of the proceedings and, secondly, where it occurs during the pendency of the proceedings. In the first situation, a grant of leave is required to "commence" proceedings; in the second leave is required to take "any fresh step". The section does not, require, however, a fresh grant of leave once leave has been given to commence proceedings. 18. Neither the Bankruptcy Act 1883 (UK) nor the Bankruptcy Act 1914 (UK) required a grant of leave to take a "fresh step" in proceedings. By 1898 it was well established that the English legislation did not engage proceedings already commenced: Re Wray [1887] 36 Ch D 138; Re Berry; Duffield v Williams [1896] 1 Ch D 939. In Australia, the inclusion of the phrase "fresh step" stemmed from s.10(3) of the Bankruptcy Act 1898 (NSW). Those words then formed the basis of s.60(2) of the Bankruptcy Act 1924 (Cth) and in turn ss.58(3) and 249(3) of the present Act. The mischief that was intended to be remedied by the 1898 New South Wales legislation and its federal successors was the lacuna that arose in relation to proceedings that were extant when the bankruptcy commenced. So understood s.249 of the present Act expanded the Court's supervisory jurisdiction to a class of case that was characterised by a temporal element - namely, its date of commencement having regard to the commencement of the bankruptcy. The background to the legislation does not suggest that the legislation was intended to require the Court to superintend the taking of every step in a case against the estate. 19. Such a construction would give rise to profound practical difficulties, having regard to the undoubted width of the expression "fresh step". No obvious legislative purpose is served if a Plaintiff was required to make formal amendments to an originating process or give particulars of the Statement of Claim. On the other hand, the practical difficulties in obtaining a grant of leave in the context of on-going litigation, or in the course of a trial, need not be spelt out. Such a construction would lead to absurd consequences that would infringe the so-called golden rule of statutory construction: see J J Richards & Sons Pty Limited v Fair Work Australia [2012] FCAFC 53; (2012) 201 FCR 297 at [50]. 20. On the true construction of s.249(3), a grant of leave to commence "legal proceedings" carries with it permission to take the steps which follow from the filing of the originating process - including amendments. The expression "legal proceedings" encompasses the steps that take a legal claim from its commencement to its conclusion at trial. Equally, the expression does not direct attention to a particular iteration of an originating process; an amended pleading is filed in the same "proceedings" as that which was the subject of a grant of leave. 21. The appellants do not point to any authority that directly supports their construction of s.249. There is, on the other hand, reasoning - founded on the analogous provisions of the Corporations Act - that leave under s.500 was not required in order to prosecute an appeal where that had been an earlier grant under s.471B: Mernda Developments v Alamanda [2011] VSCA 392; (2011) 86 ACSR 277 at [53]-[55]. There is no difference in substance between the leave provisions of the Corporations Act and the Act; with respect, this Court ought not to depart from the Victorian Court of Appeal's judgment, as a matter of comity, unless it considered that it was plainly wrong. 25 We agree. The natural and ordinary meaning of the words "such a proceeding" in s 294(3) is a proceeding which was commenced without the leave of the Court. The earlier forms of the equivalent provisions in the Bankruptcy Act 1924 (Cth) (s 60(2)) and the Bankruptcy Act 1898 (NSW) (s 10(3)) are consistent with this conclusion. Nothing in the legislative history indicates an intention to change the position from that which existed under those statutory schemes. 26 We do not accept the Frosts' argument that there is a "peculiar asymmetry" resulting from this construction so that one general grant of leave will suffice for the commencement of proceedings whereas leave for each and every fresh step is required if the proceedings have commenced before the bankruptcy order. In both cases the leave is to be granted "on such terms as the Court thinks fit". Accordingly, in both cases the leave may be as general or as confined as appears appropriate in the particular circumstances of the case. The real peculiarity, it seems to us, would result from the Frosts' construction. On that construction, despite a general grant of leave "to proceed with Supreme Court of New South Wales Equity Division proceedings number 2010/41888", the Bovairds would be required to seek and obtain leave for every fresh step in the proceeding, be it amending the statement of claim, filing a reply to a defence, filing a defence to a cross-claim, applying for discovery, applying to vacate the hearing date or the like. The suggested restriction of "fresh step" to a "substantial" step or a step capable of having a material effect on the position of the estate, as the primary judge concluded, is not supported by the legislative text and does not change the fact that the Frosts' construction would appear to increase the prospects of waste to the estate, being the very result they say they want to avoid. 27 In any case, the primary judge accepted that what was proposed was a "fresh step". That is not the point. The point is that, given the earlier grant of leave, the exemption in s 249(3) had been engaged. It follows that the Frosts' submission that s 249(3) is mandatory and cannot be avoided by fashioning an order that obviates the need to obtain leave for the taking of a "fresh step" must be rejected. It assumes the Frosts' erroneous construction of s 249(3) is correct and thus advances the matter no further. For the same reason the further submission that the grant of leave must be "read down" to accord with s 249(3) must also be rejected. 28 Issue 1, accordingly, must be answered "No".
3.2 Issue 2 - whether application falls within existing grant of leave? 29 The Frosts also contended that the primary judge erred in concluding that the application to amend the statement of claim was authorised by the earlier grant of leave. 30 First, they submitted that the conclusion involves an unnatural interpretation of the grant of leave. They maintained that "the Supreme Court proceedings …" the subject of the earlier order referred only to the proceedings pleaded in the statement of claim at the time leave was granted. Second, they submitted that clear words in the reasons for judgment would be required to construe the grant of leave as extending to pleadings "that could be amended in any manner at any time and to any extent at all". Third, they submitted that the prospect that the trustee might be joined, to which the primary judge referred at [14] and [15], was immaterial because the proposed amendments were unknown at that time and, even if the trustee had been joined, the "proceeding" would concern the existing allegations. 31 None of these submissions are persuasive. The primary judge's interpretation of the leave he granted accords with the natural meaning of the words used. There is no warrant for attempting to construe the grant of leave by reference to anything other than the terms of the grant. The submission that clear words would be needed in the judgment to construe the grant of leave in the way the primary judge did is unsupported by any authority. While it was common ground that regard could be had to the judgment for the purposes of construing the order, it may equally be said that clear words would be needed to confine an apparently general grant of leave to pursue the proceedings in the Supreme Court so as to exclude any substantial amendment application with which the Supreme Court is best placed to deal. Finally, the role of the trustee is relevant because, as the primary judge said, it is the trustee who is "to serve as the party monitoring developments in the devastavit proceedings". 32 It follows that issue 2 must be answered "Yes".
3.3 Issue 3 - whether amendments should be considered? 33 In view of the conclusions we have reached on the first two issues, it is strictly unnecessary to deal with this issue. For completeness, however, we will do so. 34 The Frosts submitted first that the primary judge erred by requiring a "direct" effect on the position of the estate at [24]. According to the Frosts, there is no such requirement in s 249(3). This impermissible gloss on s 249(3), it was said, led the primary judge to consider the potential or contingent impacts on the estate to be insufficient to warrant the variation of the leave as sought. Second, the Frosts submitted that the primary judge erred in excluding from consideration the possibility that the proposed amendments were sufficiently meritorious to warrant permitting them to be made even if not strong enough to be ultimately successful. It was submitted that this exclusion was wrong because the amendments might cause the executors and (if they are granted indemnity from the estate) the estate to incur "massive costs". As the written submissions for the Frosts put it, the fact that they, as executors, might succeed in resisting the application to amend "does not justify refusing to consider whether in the interests of the estate on a cost/benefit analysis that application should proceed at all". Accordingly, it was said the primary judge erred in "failing to exercise the bankruptcy court's supervisory jurisdiction with a view to confining the burden on the estate". 35 The problem with all of these submissions is that they do not accurately reflect the primary judge's reasons. 36 The primary judge did not articulate any proposition of law about the requirement for a direct impact on the estate and thus did not impose any impermissible gloss on s 249(3). His Honour correctly observed at [24] that, because the Full Court had not disturbed his conclusion that the trustee would not be justified in indemnifying the executors out of the estate in respect of the Waste Proceedings, the litigation would not directly affect the estate. This was nothing more than a statement of uncontroversial fact. His Honour did not say that a "direct effect" was required to be relevant under s 249(3). In any event, the primary judge recognised that the uncontroversial fact that the executors were not presently indemnified might change in the future. This is the "contingent risk" he identified at [25]. Far from ignoring or downplaying the significance of this contingent risk by erroneously requiring a direct effect, the primary judge carefully weighed the nature and extent of the contingent risk. His Honour acknowledged (at [27]) that the calculus for doing so was imperfect because it could not allow for amendments that were not so hopeless as to preclude the grant of leave to amend yet not so strong as ultimately to succeed. This remark shows that, far from refusing to consider the potential burden to the estate, his Honour was in fact undertaking that consideration, recognising the inevitable limits on his powers of prognostication. His Honour's observation (at [28]) concerning the paucity of the material before the Court did not involve any refusal to consider relevant matters or a failure to exercise the bankruptcy court's supervisory jurisdiction with a view to confining the burden on the estate. It was the only rational response in the circumstances. 37 The Bovairds's submissions about the observation at [28] should be accepted: 29. In considering the estate's contingent liability, Perram J postulated 2 possible hypotheses, the second of which was that the proposed claims, whilst not strong, were nonetheless of sufficient merit to justify amendment. He excluded this possibility from his first hypothesis but entertained it as the underlying assumption of the second. It is incorrect to submit…that his Honour entirely excluded this factor from his considerations. 30. In relation to this second hypothesis, Perram J considered that the appellants did not propound the specific contention recorded in the preceding paragraph. He was right in this regard…But, in all events, his Honour was right that he did not have material before him to assess such a contention; the affidavit of Mr Bates spoke to past costs, and did not attempt to provide an estimate of future costs at all - let alone on this second hypothesis. The costs/benefit analysis now invoked…could not be entertained by his Honour because the costs aspect of the equation was not the subject of evidence. 31. Perram J's judgment in this regard involved an exercise of discretion. He took into account the relevant considerations and applied the correct principles. There is no basis for intervention given the discretionary nature of his judgment: House v R (1936) 55 CLR 499. 38 The final matter is the Frosts' alternative argument that the primary judge should have varied the grant of leave under s 249(3) to exclude some of the proposed amendments. This argument must also be rejected. 39 One answer is that the submission can rise no higher than the more general submission that leave should be varied so as to exclude all of the proposed amendments. If there was no error in respect of that exercise of discretion, then there can be no error in not having excluded from the leave only some of the amendments. 40 Another answer is that the Frosts have not advanced any cogent reason to support the assertion of error by the primary judge in deciding that the merits, or otherwise, of the proposed amendments should be left to the Supreme Court. Analysis of their written submissions as to why leave should not be granted confirms the wisdom of this course. Each of the submissions invited consideration of the very issues the Supreme Court would have to consider to determine whether or not to grant leave to amend. 41 For example, the Frosts contended that the amendments in proposed paras 16A-16G involve a collateral attack on the decisions at both first instance and on appeal in the Bovaird v Frost proceedings. However, as the Bovairds submitted: The relevant test in devastavit is a different test from that applied by Brereton J. It is entirely consistent with his judgment that the Frosts have the benefit of the indemnity from the estate (under one set of legal principles) and that the Frosts are liable to the Bovairds for an amount equal to the indemnity (under legal principles relevant to devastavit): ASOC Relief Claimed [3]. The [Frosts] conflate the application of differing legal principles with their ultimate financial consequences. 42 The real point is that the Supreme Court is best placed to deal with these arguments. For this reason we do not propose to consider the individual submissions about each proposed amendment. There is no basis for the assertion of error by the primary judge and the arguments about individual amendments should not be entertained in this appeal. 43 In oral argument, the Frosts submitted that the primary judge erred in the exercise of his discretion in that, if the material did not allow the "kind of fine judgment" to which his Honour referred at [28], the leave necessarily had to be varied or withdrawn. This submission is outside the scope of the amended notice of appeal and, in any event, is without merit. Nor was the evidence "all one way" as the Frosts proposed. As noted already, the point his Honour was making (that there were limits to his powers of prognostication) was not only open but compelling. Recognising that those limits did not require the primary judge to vary or withdraw the leave, his refusal to do so involved no error. 44 For all these reasons issue 3 should be answered "No".
Frost
Bovaird
[2011] VSCA 392
(1993) 177 CLR 485
(2005) 2 Qd R 404
(2003) 85 SASR 226
(2001) 189 ALR 464
(1936) 55 CLR 499
(2012) 201 FCR 297
(2005) 144 FCR 141
(1995) 57 FCR 25
(2007) 70 NSWLR 448