Guss v Johnstone

1 This is an application seeking a stay of proceedings under a sequestration order made on 21 December 1998 against the estate of the appellant. The appellant seeks a stay of proceedings pending the hearing and determination of his application to the High Court of Australia for special leave to appeal against a judgment of the Full Court of the Federal Court given on 18 October 2000. In that judgment (Guss v Johnstone [2000] FCA 1455) the Full Court dismissed an appeal from orders, including the sequestration order, made by the primary Judge, Kenny J, on 21 December 1998. The appellant also seeks a stay of the orders in respect of costs made by the Full Court. 2 On 20 May 1999, a differently constituted Full Court ordered a stay of the orders made by Kenny J until the hearing and determination of the appeal to the Full Court or until further order. The stay was granted because on 14 May 1999 the High Court granted the present appellant special leave to appeal from a decision of another Full Court rejecting the appellant's challenge to a bankruptcy notice. It was the appellant's failure to comply with that bankruptcy notice that constituted the act of bankruptcy upon which the sequestration order was ultimately founded, albeit after the second respondent ("the Society") was substituted as the petitioning creditor. In the event, the High Court unanimously dismissed the appeal: Guss v Johnstone (2000) 171 ALR 598. 3 On 18 October 2000, I extended the stay that had been granted by the Full Court on 20 May 1999 until 4 pm on 8 November 2000. The extension was granted in order to give the appellant an opportunity to file an application for special leave to appeal to the High Court from the judgment of the Full Court dismissing the appeal from the orders made by Kenny J. 4 The appellant has now filed an application for special leave to the High Court. The grounds of the proposed appeal are that the Full Court erred in the following respects: (i) in finding that the primary Judge had applied the correct test in determining whether, by reason of the pending claim in the Supreme Court of Victoria against the second respondent ("the Society"), there was "other sufficient cause" within s 52(2)(b) of the Bankruptcy Act 1966 (Cth) ("Bankruptcy Act") to refuse to make a sequestration order against the appellant's estate; (ii) in finding that the primary Judge had applied the relevant test correctly; (iii) in finding that the refusal of the primary Judge to grant the appellant an adjournment did not occasion him injustice having regard to the operation of s 52(5) of the Bankruptcy Act; and (iv) in refusing to receive additional evidence that was not before the primary Judge. 5 The appellant invokes ss 23 and 25(2)(d) of the Federal Court of Australia Act 1976 (Cth) as the sources of power for a single Judge to stay proceedings under the sequestration order. Section 23 provides as follows: "The Court has power, in relation to matters in which it has jurisdiction, to make orders of such kinds, including interlocutory orders, and to issue, or direct the issue of, writs of such kinds, as the Court thinks appropriate." Section 25(2)(d) provides that the application to stay an order of a Full Court may be heard and determined by a single Judge. It should also be noted that the Federal Court Rules, O 37 r 10, empower the Court to "stay execution of a judgment or order". It has been accepted that a single judge of the Court has power, concurrently with a Full Court, to stay a judgment of the Court pending determination of a special leave application to the High Court: Carter v Geoff Layton & Co Pty Ltd (1993) 43 FCR 392, at 393, per Cooper J. 6 The better view is that the Court has power to stay proceedings under a sequestration order, notwithstanding ss 37(2) and 52(3) of the Bankruptcy Act. Section 37(2) prevents the Court suspending the operation of a sequestration order. An application to stay proceedings under a sequestration order, however, has been regarded as different from the suspension of the operation of a sequestration order: Re Wardle; Ex parte Widin v Australia and New Zealand Banking Group Ltd (1987) 70 ALR 633, at 635, per Neaves J; Coleman v Lazy Days Investments Pty Ltd (1994) 55 FCR 297, at 301-302, per Carr J. Section 52(3) of the Bankruptcy Act, which enables the Court to stay all proceedings under a sequestration order for a period not exceeding twenty-one days, is regarded as facultative, not restrictive: Coleman v Lazy Days, at 302. 7 In Jennings Construction Ltd v Burgundy Royale Investments Pty Ltd (No 1) (1986) 161 CLR 681, Brennan J observed (at 684) that a "stay to preserve the subject-matter of litigation pending an application for special leave to appeal is an extraordinary jurisdiction and exceptional circumstances must be shown before its exercise is warranted." It follows from these observations that the power is not exercised merely to preserve the status quo pending the determination of the special leave application: Edelsten v Ward (No 2) (1988) 63 ALJR 346; Bryant v Commonwealth Bank of Australia (1996) 70 ALJR 306, at 309, per Kirby J; Carter v Geoff Layton, at 393-394. 8 In Burgundy Royale, Brennan J stated (at 685) the factors that are material to the Court's discretion in exercising "the extraordinary jurisdiction to stay": "In each case when the Court is satisfied a stay is required to preserve the subject-matter of the litigation, it is relevant to consider: first, whether there is a substantial prospect that special leave to appeal will be granted; secondly, whether the applicant has failed to take whatever steps are necessary to seek a stay from the court in which the matter is pending; thirdly, whether the grant of a stay will cause loss to the respondent; and fourthly, where the balance of convenience lies." 9 The appellant says that these criteria are satisfied. 10 First, the appellant says that, in the absence of a stay, his "right of appeal" will be rendered nugatory, bearing in mind that a sequestration order has a radical effect on the status of the debtors. In particular, the appellant, who is a solicitor, claims that the conditions of his practising certificate are likely to be varied so as to prevent him receiving trust moneys. This, it is said, will make it difficult for him to maintain his practice and to represent clients. He says that he is also likely to lose several directorships and to be impeded in his ability to travel on business overseas. 11 Secondly, the appellant claims that he will be deprived of the opportunity to pursue his claim against the Society in the Supreme Court, unless the trustee in bankruptcy elects to continue the proceedings. 12 Thirdly, on the basis that the special leave application will be heard by about April 2001, the appellant says that no detriment will be caused to anyone by a further stay. 13 Fourthly, the appellant says that his prospects of obtaining special leave to appeal are "not insubstantial". 14 The appellant's submissions appeared to assume that the stay orders made by the Full Court on 20 May 1999 and subsequently extended by me have prevented his status changing to that of a bankrupt and have also prevented his property vesting in his trustee by virtue of s 58(1) of the Bankruptcy Act. This assumption appears not to be correct. It has been suggested that a stay of proceedings under a sequestration order (as distinct from a suspension of the sequestration order) does not prevent the change of status and the vesting of property which takes effect by statute on the making of a sequestration order: Re Wardle, at 635, per Neaves J; see also Allanson v Midland Credit Ltd (1977) 30 FLR 108, at 112-113. However, a stay in these terms prevents the taking of various administrative steps that are normally taken under the Bankruptcy Act once a sequestration order is made: Coleman v Lazy Days, at 301. 15 There were some unsatisfactory features of the appellant's evidence relating to the detriment he would experience if an extension of the stay were not granted. I am left in considerable doubt as to whether the appellant has more than a small number of matters before the courts in which he represents clients other than companies with which he is associated or members of his immediate family. No explanation was forthcoming as to why the proceedings pending in the Supreme Court of Victoria against the Society cannot be pursued by the appellant's daughter, who is a co-plaintiff in the proceedings. Nor has the appellant explained why his trustee in bankruptcy would be likely to refuse him permission to travel overseas, assuming the appellant complies with his obligations under the Bankruptcy Act. 16 Despite the gaps in the evidence and whatever the precise effect of the stay orders, I accept that the appellant will be subject to some prejudice if a continuation of the stay is not granted and should the application for special leave succeed and the appeal subsequently be allowed. In the intervening period, his bankrupt estate will be administered by the trustee, who will presumably ensure that all appropriate steps are taken to administer the estate. The appellant is likely to be impeded to some extent in the conduct of his legal practice, although he does not suggest that he will be prevented from practising as a solicitor. He will be unable in his own right to pursue the current litigation in the Supreme Court of Victoria, although if an appeal were allowed presumably any barrier to the further conduct of those proceedings by him would be removed. 17 For these reasons, I think it appropriate to approach the application for a stay on the basis that to refuse the stay would occasion the appellant some irremediable prejudice, even though a refusal to extend the stay would not render any appeal literally nugatory. But even the fact that the refusal of a stay would render an appeal nugatory does mean that the stay will necessarily be granted. The jurisdiction is discretionary and other matters are relevant to the exercise of discretion: Re The Duke Group Ltd (in liq) and Corporations Law of South Australia; Gerah Imports Pty Ltd v The Duke Group Ltd (in liq) (1994) 119 ALR 401, at 403, per Dawson J. An important consideration is whether the appellant has established that he has a substantial prospect that special leave to appeal will be granted: Burgundy Royale, at 685; Gerah Imports, at 403. 18 For obvious reasons, it is difficult for a Judge of this Court to assess the prospects of success of a special leave application before the High Court. It is especially difficult for a member of the Full Court that has unanimously dismissed the appeal. Nonetheless, I must do the best I can, having regard to the criteria for the grant of special leave to appeal laid down in s 35A of the Judiciary Act 1903 (Cth). In my view, the appellant has not shown that his prospect of success on the special leave application is "substantial" or (as it is sometimes put) "not insubstantial". 19 In general, the appellant relies on the same arguments as were put to and rejected by the Full Court. He contends that there is a significant distinction between the test of "sufficient cause" laid down in Re Schmidt; Ex parte Anglewood (1968) 13 FLR 111, at 116, per Gibbs J and by the Full Court in Ling v Enrobrook Pty Ltd (1997) 74 FCR 19. Yet in the latter case, Gibbs J's judgment was quoted at length with approval. The appellant also suggests that the Full Court in Love v Pattison (unreported, 24 July 1998) articulated a test in terms different from those expressed in Re Schmidt. Yet in Love v Pattison, too, the Full Court cited Re Schmidt with apparent approval. In any event, even if there is a distinction between the two tests, it is difficult to see how, on the facts of the present case, the application of the more lenient test for which the appellant contends would assist him. As the reasoning of the primary Judge and the Full Court shows, the evidence adduced in support of the appellant's claim against the Society was less than cogent. 20 It should be noted that the appellant's submission to the Full Court that the primary Judge had misapplied the correct test was not put on the basis that her Honour should have applied a more lenient test and that, had she done so, the outcome would have been different. The complaint was that the primary Judge had purported to make a final, rather than a provisional, assessment of the evidence: see Guss v Johnstone [2000] FCA 1455, at [23]. Had the appellant contended that a more lenient test would have produced a different result, the Full Court may well have said expressly that the application of a more lenient test would have made no difference to the outcome. 21 In my opinion, it is also difficult to see how the proceedings give rise to the question of whether the Court should "determine the validity of [a] pending proceeding when there is a conflict of expert evidence" (as the appellant submits it does). The Full Court held (at [26]) that there was no occasion for the primary Judge to choose between conflicting expert opinions. 22 The "further evidence" point failed before the Full Court, in part, because of the lack of cogency of the proffered material. It is not easy to see how that can raise an issue of general importance of the kind usually required for a grant of special leave to appeal to the High Court. Similarly, the appellant's submissions on the adjournment issue do not suggest that it raises any point of general importance. 23 Nor do I think that the balance of convenience lies in favour of a stay being granted, notwithstanding the detriment that the appellant is likely to suffer. The appellant says that the balance of convenience is in his favour, in part because the Society will not suffer any loss if a further stay is granted. But the Society succeeded in obtaining a sequestration order and in having that order upheld on appeal. It has an obvious interest in ensuring that the appellant's bankrupt estate is administered without further delays, in accordance with the provisions of the Bankruptcy Act. 24 Moreover, the public interest is involved in bankruptcy proceedings. In Bryant v Commonwealth Bank, a case involving an application to stay a sequestration order pending an application for special leave to appeal to the High Court, Kirby J said this (at 309): "it is clear that the status of the bankrupt is affected [by the sequestration order]. But so are, potentially, the interests of third parties. So too is the interest of the community. It would be therefore a mistake to approach the present application as if the only interests affected by its outcome werethose of the applicant and the respondent. Also to be kept in mind are the interests of other creditors, particularly unsecured creditors and of the community which has its own concerns in the due administration of the Act in respect of the estate of persons found to be bankrupt." (Emphasis added.) There was evidence before the primary Judge that the appellant had creditors other than the Society. There was no evidence before me as to whether the position has changed since her Honour delivered judgment. 25 It must also be borne in mind that the appellant's act of bankruptcy was committed some three and a half years ago. The sequestration order was made against him nearly two years ago. The appellant's attempt to set aside the bankruptcy notice failed before Sundberg J. The Full Court and the High Court (both unanimously) rejected appeals. His opposition to the making of a sequestration order failed before Kenny J and the Full Court (unanimously). The appellant was entitled to oppose the making or implementation of the sequestration order by any means lawfully open to him. Doubtless he will continue to do so. Nonetheless, it is relevant in assessing the balance of convenience to take into account the fact that, despite the appellant's lack of success, there have already been lengthy delays in giving effect to the sequestration order made by the primary Judge. Additional delays are not lightly to be countenanced. This is so regardless of whether or not the Society is the appellant's only creditor. 26 For these reasons, I decline to extend the stay of proceedings under the sequestration order or to stay the orders as to costs made by the Full Court. The motion should be dismissed and the usual costs order made. I certify that the preceding twenty-six (26) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Sackville.