Hudson v Whalan

The Judgment at First Instance 4 Hill J summarised the history of the proceedings and the report prepared on behalf of the Official Trustee. That report stated that the appellant's statement of affairs had disclosed assets totalling about $1,000. Liabilities, including the judgment debt due to the respondents, were likely to exceed $34,000. 5 His Honour noted that the appellant had initially suggested that Tamberlin J should have disqualified himself by reason of what was said to be apprehended bias, but had not persisted with that submission. The appellant had ultimately put two submissions in support of his claim that the sequestration order should be annulled: · First, the application for special leave to the High Court raised "tenable points" which provided a basis for setting aside the sequestration order. · Secondly, since the appellant had no substantial assets, there was no prospect of a dividend to creditors and no advantage in the sequestration order remaining on foot. 6 Hill J rejected the first argument. His Honour pointed out that the application for special leave to appeal to the High Court was unlikely to proceed because the Official Trustee did not wish to pursue it and the appellant, being bankrupt, was unlikely to have standing to do so. In any event, the mere pendency of the special leave application did not mean that the sequestration order ought not to have been made. The contention that the sequestration order ought not to have been made in view of the special leave application therefore had little point to it. 7 His Honour also considered that it would be a rare case in which an application to annul a sequestration order could succeed on the basis that the trial Judge had made an error of law. Hill J was prepared to assume that the Court had jurisdiction to entertain the annulment application. However, the appropriate course, if it was thought that the trial Judge had erred, was to institute an appeal. In this case, no appeal had been brought against the sequestration order. His Honour continued (at 4-5): "where a sequestration order is made after full argument by a debtor who is legally represented and no question of the underlying judgment having been obtained by fraud arises, it would be extremely difficult for a single judge to conclude that the sequestration order ought not to have been made. Indeed, it would be invidious to ask one single judge to effectively double guess another single judge in this way. Rather, such matters should be agitated in an appeal which, if successful, will see the sequestration order set aside." 8 Hill J also rejected the appellant's second submission. The policy underlying the law of bankruptcy was not merely for the benefit of the debtor, but for the benefit of the community, in particular creditors and future creditors. His Honour said this (at 7): "An insolvent debtor released into the community by the non-making of the sequestration order may either seek to prefer one creditor to the other, an action which would conflict with the rateable distribution in bankruptcy, or incur further indebtedness which would merely increase the insolvency because the previous indebtedness revived by the annulment would itself contribute to the insolvency together with such new debts as the debtor might then incur." Section 153B of the Bankruptcy Act 9 Section 153B of the Bankruptcy Act provides as follows: "153BIf the Court is satisfied that a sequestration order ought not to have been made or, in the case of a debtor's petition, that the petition ought not to have been presented or ought not to have been accepted by the Official Receiver, the Court may make an order annulling the bankruptcy." The expression "ought not to have been made" reflects the wording of s 52(2)(b) of the Bankruptcy Act, which confers a discretion on the Court to dismiss a creditor's petition if "for other sufficient cause a sequestration order ought not to be made". 10 In Re Frank; Ex parte Piliszky (1987) 16 FCR 396, Fisher J contrasted the position of a Full Court on the hearing of an appeal under s 38 of the Bankruptcy Act against the making of a sequestration order and that of the Court when considering an annulment application under s 154(1)(a) (the equivalent of the current s 153B). His Honour said this (at 403): "In the light of the various contrasting avenues open to a bankrupt to approach the court to have the sequestration order set aside, it is in my opinion necessary to attach significance to the 'careful provisions' of s 154, and in particular the words 'ought not have been made'. In my opinion it can be said that a judge 'ought' not to have made an order only if he was 'bound' not to make the order. In circumstances where it was open to a judge to make an order in the exercise of his discretion, it can only be said he 'ought not to have made the order' if none of the circumstances could justify the making of an order. Alternatively it can be established that an order 'ought' not to have been made because subsequent evidence discloses that all of the true facts were not before the court when the order was made: Re Cook (1946) 13 ABC 245 at 249. ... In my opinion, 'ought' in s 154(1)(a) is of imperative significance and an order should not be annulled unless the judge was in the circumstances bound not to make it and even then there is a residual discretion not to annul." 11 Later cases have adopted this analysis: Re Gollan; Ex parte Gollan (1992) 40 FCR 38 (Spender J), at 40-41; Re Ginnane; Ex parte Ginnane (1994) 60 FCR 429 (Ryan J), at 444-445. It has been accepted that s 153B can be invoked, subject to the exercise of the Court's discretion, where the bankrupt can establish that, in the light of facts which existed at the time the sequestration order was made, the Court ought not to have made the order. As Ryan J said in Ginnane at 445, while the facts relied on must have been in existence at the time of the order, they need not have been before the Court at that time and may be established by proof of events occurring after the order was made: see also Re Raymond; Ex parte Raymond (1992) 36 FCR 424 (Spender J).

Reasoning 12 The appellant submitted that Hill J had erred in refusing to exercise the power under s 153B of the Bankruptcy Act simply because the issue on which the appellant relied had been determined adversely to him by the Full Court, on the appeal from the judgment of Lindgren J. As Hill J observed, there appears to have been no case in which s 153B of the Bankruptcy Act has been invoked to annul a sequestration order on a point of law, where the order was made after argument in proceedings in which the debtor was legally represented. Of course, the present is just such a case. 13 The language used in some of the authorities suggests that the terms of s 153B may be wide enough to permit the Court to annul a sequestration order where the basis of the application for annulment is that the Judge making the order erred in law. In the present case, Tamberlin J followed, as he was bound to do, the Full Court decision which was not only precisely in point, but between the same parties. (We leave to one side the question as to whether the decision of Lindgren J, affirmed by the Full Court, created an issue estoppel or an estoppel by judgment.) It is difficult to see how Hill J, who was equally bound by the decision of the Full Court, could have embarked on a fresh consideration of the legal arguments relied on by the appellant in the proceedings determined by Tamberlin J. 14 It is enough, for the purposes of this case, for us to say that we see no reason to reconsider the questions of law authoritatively determined between the parties by another Full Court. There is no basis for concluding, within the meaning of s 153B of the Bankruptcy Act, that the sequestration order made against the appellant "ought not to have been made". 15 Nor do we think that Hill J erred in rejecting the appellant's submission that, since he had no substantial assets, there was no public interest in the sequestration order remaining on foot. The mere fact that, without the Official Trustee having had an opportunity to investigate the affairs of the bankrupt, it appears that creditors will not receive a dividend from the estate, does not constitute a basis for annulling a sequestration order. Even if the bankrupt is prepared to forego the benefits of being freed from indebtedness (Bankruptcy Act, ss 82, 153(1)), there is a public interest in ensuring that the bankruptcy takes its normal course. For example, the trustee should be given an opportunity to investigate the bankrupt's affairs and his or her capacity to make contributions to the estate (Bankruptcy Act, s 19AA, Part 6, Div 4B) and, as Hill J said, the community may require protection from the actions of an insolvent person whose actions might place future creditors in jeopardy. 16 The appellant suggested that it was not in the public interest for the sequestration order to remain on foot, since he had brought the original proceedings in the Local Court at Gosford in the interests of the community. Whatever the appellant's motivation in bringing those proceedings (and it is far from obvious that they should be regarded as having been brought in the community's interest, as distinct from the appellant's own interests) the fact is that he failed to obtain the relief he sought and, in consequence, a costs order was made against him. The costs order provided the foundation for the bankruptcy notice and for the appellant's act of bankruptcy, in failing to comply with the terms of the notice (Bankruptcy Act, s 40(1)(g)). It does not constitute a ground for annulling the sequestration order that the bankrupt asserts that the original judgment debt on which the bankruptcy notice was based was incurred in the public interest. We note that no such suggestion appears to have been made either to Tamberlin J or to Hill J. 17 Finally, the appellant contended that Hill J should have annulled the sequestration order because of apprehended bias on the part of Tamberlin J. The apprehended bias was said to flow from the fact that Tamberlin J had sat on the Full Court which dismissed the appeal from Lindgren J. 18 It is by no means apparent that the appellant is entitled to raise this issue on the present appeal. No objection was taken by the appellant's counsel to Tamberlin J proceeding to hear the creditors' petition, notwithstanding that (as we were told) the transcript records that counsel was aware that his Honour had participated in the Full Court's decision. Thus any available objection may well have been waived. Moreover, the issue was not pursued before Hill J. 19 In any event, we do not think that there is any substance to the contention. The test in Australia of whether apprehended bias is made out is "whether fair-minded people might reasonably apprehend or suspect that the judge has prejudged or might prejudge the case": Webb v The Queen (1994) 181 CLR 41, at 47, per Mason CJ and McHugh J; Mobil Oil Australia Ltd v Wellcome International Pty Ltd (1998) 81 FCR 475 (FC), at 493. This principle does not mean that a Judge who has sat on one aspect of a case is precluded from dealing with other aspects, including the final hearing. In Livesey v New South Wales Bar Association (1983) 151 CLR 288 at 294, the Court gave this warning: "If a judge at first instance considers that there is any real possibility that his participation in a case might lead to a reasonable apprehension of pre-judgment or bias, he should, of course, refrain from sitting. On the other hand, it would be an abdication of judicial function and an encouragement of procedural abuse for a judge to adopt the approach that he should automatically disqualify himself whenever he was requested by one party so to do on the grounds of a possible appearance of pre-judgment or bias, regardless of whether the other party desired that the matter be dealt with by him as the judge to whom the hearing of the case had been entrusted by the ordinary procedures and practice of the particular court." In Gascor v Ellicott [1997] 1 VR 332 (SCt Vic, FC), Tadgell JA (with whom Brooking JA agreed) made these observations at 342: "Although the criterion of apprehension of partiality or prejudice is possibility, not likelihood, a reasonable apprehension is to be established to the court's satisfaction: it is a reasonable and not a fanciful or fantastic apprehension that is to be established; and the apprehension is to be attributed to an observer who is 'fair minded' - which means 'reasonable'. As Mason CJ and McHugh J pointed out in Webb v R, at 52, ' ... it is the court's view of the public's view, not the court's own view, which is determinative'. Even so, the court is to be satisfied that the criterion is met, not that it might be." 20 In this case, the Full Court ruling in which Tamberlin J participated, concerned a question of law arising out of the appellant's application to set aside the bankruptcy notice. The Court found no error in Lindgren J's reasoning. On the hearing of the application for a sequestration order, the appellant raised the same question in the context of his request for an adjournment to enable his special leave application to be pursued. Tamberlin J refused the adjournment application, on the ground that there were no reasonable prospects of the special leave application succeeding. In making this judgment, his Honour was performing a function similar to that performed by a single judge who, in the exercise of the Court's appellate jurisdiction, considers an application for leave to appeal from his or her own judgment. This is a not uncommon occurrence (see, for example, Thomas Borthwick & Sons (Pacific Holdings Ltd) v Trade Practices Commission (1988) 18 FCR 424) and has not been thought to involve any issue of apprehended bias. Moreover, Tamberlin J, like any other Judge of the Court, was bound by the decision of the Full Court. In these circumstances, we do not think that any case of apprehended bias can be made out. See Morton v Vouris, 23 April 1998, unreported, at 10, per Sackville J. Conclusion 21 The appeal must be dismissed. There will be no order as to costs. I certify that the preceding twenty-one (21) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Sackville, North & Hely JJ.

Solicitor for the Respondent: Tonkin Drysdale Partners