Jones (Bankrupt), in the matter of Jones v Porter

REASONS FOR JUDGMENT 1 Richard Jones is a bankrupt. Jason Porter and Paul Gerard Weston are the trustees of Mr Jones' bankrupt estate ("the trustees"). The Official Receiver apparently served a notice under s 139ZQ of the Bankruptcy Act 1966 (Cth) on Mr Jones' former partner, alleging that the transfer to her of title to a property in Dorrigo was void against the trustees. Mr Jones applied to the Federal Circuit Court to set aside the notice and for other relief against the trustees. He alleged, amongst other things, wrongdoing by the trustees, including a breach of s 170(2) of the Bankruptcy Act, which requires that a trustee furnish a bankrupt with information he requests and reasonably requires concerning his property or affairs. The trustees did not file a response or grounds of opposition but applied for security for costs. Mr Jones applied for default judgment. At a directions hearing on 30 March 2015 at which Mr Jones appeared by telephone and without prior notice to the parties, the primary judge summarily dismissed Mr Jones' application and ordered that the trustees' costs of both applications be paid out of the bankrupt estate. 2 Mr Jones is understandably aggrieved by the primary judge's decision and wants this Court to set it aside on appeal. But the decision is an interlocutory decision, which means that he needs leave to appeal: Federal Court of Australia Act 1976 (Cth), s 24(1A); Rana v University of South Australia (2004) 136 FCR 344. An application for leave to appeal had to be filed within 14 days of the pronouncement of judgment: Federal Court of Australia Rules 2011 (Cth), r 35.13. Mr Jones did not file an application for leave to appeal within that time. Accordingly, he applies for an extension of time to do so and for leave to appeal. The application was supported by three affidavits dated 13 April, 27 April and 20 May 2015, which I have taken to be read. 3 The trustees filed an affidavit from a legal administrative assistant in the firm of solicitors they retained, Bamford Lawyers, which referred to the background to the application, attached copies of the various applications made in the court below, copies of the judgment and orders of the primary judge and, at my request, a copy of the transcript of the hearing before the primary judge on 30 March 2015. I take that affidavit to be read, too. 4 The Court has a discretion to extend time in order to do justice between the parties: Gallo v Dawson (1990) 93 ALR 479; [1990] HCA 30. Special reasons are not required. The discretion is broad and subject to no express limitations. But the onus is on the applicant to persuade the Court to exercise the discretion in his or her favour. To discharge that onus, it is generally necessary that there be an acceptable explanation for the delay and that the proposed appeal have some merit. The Court will also take into account the length of the delay and any prejudice to the other parties by reason of the delay. 5 The primary judge disposed of the matter in only 11 paragraphs. For this reason it is convenient to reproduce the judgment in its entirety: 1. I have before me an Application in a Case filed on 28 October 2014 from Jason Porter and Paul Gerard Weston, who are trustees of the bankrupt estate of Richard Jones. The trustees seek orders for Mr Jones to pay security in the sum of $40,000, or such other amount as may be ordered by the Court, within 30 days, in default of which proceedings by him would be stayed. Other ancillary relief is also sought in that application. 2. The principal proceedings were instituted by Mr Jones on 8 September 2014. In that application, Mr Jones sought to set aside a notice issued pursuant to s.139ZQ of the Bankruptcy Act 1966 (Cth) (Bankruptcy Act) in relation to a property at Waterfall Way, Dorrigo (Dorrigo property). The application also seeks relief in relation to asserted breaches of the Privacy Act 1988 (Cth), contests an issue of a conflict of interest allegedly suffered by lawyers acting for the trustee, complains of oppressive unlawful conduct by the trustee, asserts a breach of s.170(2) of the Bankruptcy Act, and asserts unlawful behaviour in relation to an alleged failure to provide a copy of the 139ZQ notice to Mr Jones. In an Application in a Case filed on 28 November 2014, Mr Jones seeks the same, as well as other ancillary relief. 3. The background to these proceedings was traversed in some detail in earlier proceedings in the Court. In particular, two judgments have been given. The first was Purnell Motors Pty Limited v Jones, and the second was Purnell Motors Pty Ltd v Jones (No.2). In the latter judgment, Judge Lloyd-Jones dismissed an application for annulment of the bankruptcy. 4. The trustees and Mr Jones have been in dispute over three properties. Apart from the Dorrigo property, the subject of the present proceedings, there is a property in Leichhardt (Leichhardt property) and a property in Armidale (Armidale property). The Leichhardt property apparently was formerly owned by Mr Jones. However, there was a substantial mortgage to the Westpac Bank, and that property has been sold by the mortgagee. It appears that there was no equity in the property after the discharge of the mortgage. 5. The properties at Dorrigo and Armidale were transferred by Mr Jones to others prior to his bankruptcy. There is an issue of whether those transfers were in breach of a freezing order obtained elsewhere. The Armidale property was transferred by Mr Jones to a company, Crest Australia (Crest), which is apparently the trustee of his superannuation fund. The Dorrigo property was transferred to his former de facto partner, Ms Sue Hombsch. 6. Section 139ZQ notices were issued in respect of those properties as a consequence of the transfers and the bankruptcy. Crest has not complied with the notice issued to it. That noncompliance is likely to be the subject of some legal proceedings in the future. It is up to the trustees to decide whether to take further proceedings to attempt to recover that property. There is no present issue requiring adjudication. 7. As to the Dorrigo property, Ms Hombsch has complied with the notice issued to her. The trustees now hold that property, although the transfer has not yet been registered, because the trustees are not in funds to pay stamp duty on the transfer from Ms Hombsch. 8. In my view, the consequence of the compliance by Ms Hombsch with the 139ZQ notice issued to her is that there is no issue requiring adjudication in this Court as between Mr Jones and the trustee. Mr Jones is concerned that he sought to make provision for his former partner by the transfer of the Dorrigo property to Ms Hombsch. She has, however, not contested the 139ZQ notice and has complied with it. That is a matter for her. It is not for Mr Jones to seek to act, in effect, on behalf of his former partner, to assert any rights she may have had. 9. Having perused the material on which the parties rely, and having heard the solicitor for the trustees and Mr Jones, I have come to the conclusion that there is no prospect of Mr Jones' application succeeding. In the circumstances, I see no utility in making an order for security sought in the trustees' application. The trustees are, however, entitled to other relief. 10. I will order that the Application filed on 8 September 2014 and the Application in a Case filed on 28 November 2014 be dismissed, pursuant to rule 13.10(a) of the Federal Circuit Court Rules 2001 (Cth). 11. The trustees' costs of the applications the subject of order 1 be costs in the administration of the bankrupt estate. (Footnotes omitted.) 6 Rule 13.10(a) of the Federal Circuit Court Rules 2001 (Cth) ("FCCR") states: 13.10 Disposal by summary dismissal The Court may order that a proceeding be stayed, or dismissed generally or in relation to any claim for relief in the proceeding, if the Court is satisfied that: (a) the party prosecuting the proceeding or claim for relief has no reasonable prospect of successfully prosecuting the proceeding or claim [.] 7 The relevant facts do not seem to be in dispute. 8 Mr Jones filed his application for substantive relief on 8 September 2014. On 28 October 2014, the trustees' application was filed. That application is not easy to understand. It sought, principally, security for costs and "[i]f that security is ordered…[Mr Jones'] Application be dismissed pursuant to Rule 13.07 (sic) of the Federal Circuit Court Rules 2001…". As the trustees had not filed a defence to Mr Jones' 8 September 2014 application (called a response under the FCCR and grounds of opposition in the Federal Circuit Court (Bankruptcy) Rules 2006 (Cth)), on 28 November 2014 Mr Jones filed his application for default judgment. 9 On 9 February 2015 the Registrar listed the matter for directions only. Despite that, the primary judge proceeded to hear the trustees' application for security. First, his Honour asked Mr Bamford what affidavits the trustees were relying on. Mr Bamford identified several. Then he asked Mr Jones whether the application for security was opposed. After he said it was, the following exchange took place: HIS HONOUR: Okay. And I see you've filed an affidavit on 4 February this year, I think, in opposition to the application. Do you rely on that? MR JONES: Yes, your Honour. HIS HONOUR: And do you rely on anything else? MR JONES: Not at this stage, your Honour. (Emphasis added.) 10 No affidavits were actually read. 11 During the course of his submissions Mr Bamford apparently handed to his Honour documents Mr Jones said he had not seen before and which he maintains he has still not seen. 12 His Honour asked Mr Bamford why he was not applying for summary dismissal. Mr Bamford did not take up the implicit invitation. Mr Jones was then called upon to address. 13 In the middle of his submissions his Honour said: I'm - myself minded not to grant the orders that the trustee is seeking. But I am minded to dismiss your application on the basis that it doesn't have a reasonable prospect of success. 14 After Mr Jones made some further submissions, his Honour said that he hadn't changed his mind, at which point Mr Jones exclaimed: Well, I must say I'm a bit flummoxed that - I - I thought this was a directions hearing in terms of how it would proceed from here and I understand where it has gone and Mr Bamford had prepared a submission. 15 In his affidavit of 13 April 2015, Mr Jones said that he had arranged to appear by telephone because it was a directions hearing: On the basis that the hearing was for directions only and given that I live some 600kms from the court, I am in poor health and impecunious, I applied Judge Driver for leave to appear by telephone. That leave was granted by letter dated 16th March, 2015. 16 In his application for an extension of time and leave to appeal Mr Jones did not list the grounds but attached the draft grounds of appeal appearing in the draft notice of appeal (without alteration): 1. Denial of procedural fairness 2. Over 6 months, my Application was un-apposed by the Trustee and the Official Receiver and no evidence was deposed in defence: • No Grounds of Opposition or defence to my Application was filed by the Trustee • No Grounds of Opposition or defence to my Application was filed by the Official Receiver 3. The Judgment erred in deciding significant facts including the Freezing Orders 4. The Judgment erred in law including: The Bankruptcy Act and Rules: S31(1)(c) 139ZQ and Division 3 and Sub Division J of the Bankruptcy Act S121 139ZS in the alternative S303 of the B Act S54(6) Ss170 Div 4 Bankruptcy Act Ss 170 and S179 and Ss29.07 and Ss 130.03 FCCA Rules in the alternative Ss2.06 Bankruptcy Rules 5. Denying the Bankrupt's right to challenge a 139ZQ Notice as allowed under S139Zs, Breaches Part111 of the constitution, in the alternative S303 of the Bankruptcy Act 17 Mr Jones was given leave to amend his application. This time, however, under the heading "Grounds of application" he merely referred to the affidavits he had filed. 18 In his notice of appeal Mr Jones sought the following orders: 1. Set aside the 139ZQ Notice -Waterfall Way, Darrigo (Ss139ZS) 2. That the Trustee breached the Privacy Act 3. That the Trustee has a conflict of interest and should not be using Bamford Lawyers 4. That the Trustee acted unlawfully and oppressively 5. That the Trustee acted unlawfully in breach of S170(2) of the Bankruptcy Act 6. That the Official Receiver acted unlawfully in failing to provide to the plaintiff (Applicant) a copy of the 139ZQ Notice (Ss139ZQ(5)) 7. Costs 19 In his submissions Mr Jones complained that the primary judge erred by: denying him procedural fairness by summarily dismissing his application without reference to the evidence in all the affidavits he had filed, on the basis of evidence relied upon on the security for costs application only and on the basis of oral submissions relating to that application; summarily dismissing the proceedings when the legal test for doing so had not been satisfied and when he considered only one of his grievances (the issuing of the notice); making various errors of fact. 20 The trustees' submissions were unhelpful. They failed to refer to the legal principles, address the applicant's evidence, or engage with his arguments. They focussed on matters of form, rather than substance. Moreover, it is difficult to understand their position. They accept that Mr Jones was denied procedural fairness. Indeed, in the event that the application were upheld, they indicated they would consent to the appeal being allowed, the orders below being set aside and the matter remitted to the Circuit Court. They do not suggest that they were prejudiced by the delay or that the delay has not been satisfactorily explained. In these circumstances, what possible basis could there have been to resist orders for an extension of time and leave to appeal? Yet, resist them they did. Why? - because the application did not adequately state the grounds and the orders sought in the draft grounds of appeal are inappropriate. None of these submissions offers any sound basis for denying Mr Jones the opportunity to have his case heard according to law. The Court was entitled to a good deal more assistance from the trustees in bankruptcy than this. 21 It is true, as the trustees submitted, that the application does not adequately state the grounds. It is true, too, that the orders Mr Jones would seek on the appeal are inappropriate. But the applicant is unrepresented. It may be expected that he might not know how to express his grievances in a way that conforms to the Court's requirements. Although they suffer from the want of legal assistance, his affidavits and submissions clearly identify the errors he alleges were made. On the question of procedural fairness, for example, he stated in his submissions: The hearing on the 30th March, 2015 denied me the reasonable opportunity to contest the 139ZQ notice and for the court to properly adjudicate the validity of the notice and defend allegations against me personally. I was further denied the statutory right to have the court exercise its jurisdiction in the control of the conduct of the trustee and the rules of the court… It is apparent from the brief Judgment of his Honour that the relevant issues have not been determined in accordance with the law or fair process. The hearing was clearly identified for directions on the interim applications. Without notice to the parties, his Honour summarily dismissed my applications without hearing evidence on the principal application and by reference to the Judgments of a fellow judge in a different matter. Further, it would seem, he placed reliance on evidence and unsworn oral submission pertaining only to the interim application by the Respondent in exercising his discretion and in so doing denied me procedural fairness and natural justice. 22 The only substantive complaint the trustees made in their submissions related to Mr Jones' application for default judgment. Mr Bamford described it as "an abuse of process" and asked the Court not to set aside the primary judge's order that this application be dismissed. He did not say why. In circumstances where the trustees had not filed a response to Mr Jones' originating application in accordance with the FCCR, however, one might think it obvious why Mr Jones was seeking default judgment. In any event, whether or not the default judgment was an abuse of process is scarcely relevant for present purposes. 23 In all the circumstances, the trustees' opposition to the application was unreasonable. 24 In summary, Mr Jones' explanation for the delay in filing his documents is as follows. 25 He read the information about lodging appeals that appears on this Court's website and understood that he had 21 days in which to appeal. 26 The 14 day period in which the application ought to have been made included the Easter long weekend. In the seven working days he had available, Mr Jones said he tried to get legal advice from the Registry and from Justice Connect. He also pointed to the difficulties he experienced as an indigent litigant in person living in a rural area trying to find a qualified person to witness his affidavit and in complying with time limits. 27 Mr Jones posted his leave application and accompanying documents on 13 April 2015, the last day within the Rules for filing such an application. Unfortunately the documents were not received in the Registry until the following day. The Registry returned the documents to him by ordinary post, together with a form to apply for an extension of time, but he did not receive the documents until 24 April 2015. He completed the form and submitted it with an affidavit in support, but these documents were also returned because of non-compliance with the rules relating to an address for service. Following a complaint to the Chief Justice, the documents were filed electronically on 6 May 2015. 28 There is no reason to doubt the truth of these assertions. Mr Jones was not required for cross-examination on his affidavit. The delay is therefore explained and I accept the explanation. 29 Mr Jones submitted that an extension would not prejudice the respondents and there is no evidence to suggest otherwise. 30 There is obvious merit in the complaint of procedural unfairness. It is unnecessary in the circumstances to deal with the other draft grounds. 31 The Federal Circuit Court is a very busy court. The judges are under a great deal of pressure to get through their heavy workload. Summary dismissal is a useful procedure for dealing with obviously unmeritorious applications. But it is fundamentally important that justice not only be done, but be seen to be done - "manifestly and undoubtedly": R v Sussex Justices; Ex parte McCarthy [1924] 1 KB 256 at 259. Regrettably, and with great respect, that did not occur in the present case. While the primary judge invited submissions, the course he took caught Mr Jones by surprise. He did not give him a fair opportunity to deal with his proposal. Moreover, as the matter was listed for directions only, he did not even have a fair opportunity to deal with the security for costs application. 32 As Flick J observed in SZRMQ v Minister for Immigration and Border Protection (2013) 219 FCR 212 at [51]: Natural justice or procedural fairness requires more than an opportunity in which a claimant may meaningfully advance his claims. Natural justice or procedural fairness requires that the hearing be one which is both procedurally fair and one which is seen to be procedurally fair. 33 The FCCR are designed to assist the just, efficient and economical resolution of proceedings: r 1.03(1). But the right balance needs to be struck. It is no accident that the Rules give pre-eminent position to the adjective "just". The just resolution of proceedings includes adherence to due process. Sometimes applications appear to be baseless but, upon close examination, there is a good point. The good point might easily be overlooked when efficiency becomes the overriding consideration. In this case, having reached a preliminary view that there were no reasonable prospects of the applicant succeeding, the primary judge should have listed for hearing the question of whether the proceeding should be summarily dismissed. That would have given each party, but most importantly Mr Jones, a fair opportunity to marshal his evidence and make his submissions and to do so in person and through a lawyer if he so chose. 34 It is salutary to recall what was said in Wentworth v Rogers (No 5) (1996) 6 NSWLR 534 at 536: [T]he appellant being a litigant now appearing in person, care must be taken to ensure that this significant disadvantage does not deprive her of the opportunity to have her claim, if any, determined according to law. Persons unfamiliar with the rules of pleading and the technicalities which surround the drafting of a statement of claim in adequate and permissible legal form are inevitably, if unrepresented, at a disadvantage. Courts should approach the peremptory termination of the litigation with special care to ensure that, within the possibly ill expressed and unstructured statement of the legal claim sought to be ventilated, there is no viable cause of action which, with appropriate amendment of the pleading and a little assistance from the court, could be put into proper form… 35 For all these reasons the application should be granted, the appeal allowed, the orders of the primary judge set aside and the proceeding remitted to the Federal Circuit Court. In the meantime, I would urge Mr Jones to seek legal advice and representation. 36 In view of the unreasonable position adopted by the trustees on Mr Jones' application, I do not consider that they should be entitled to an indemnity for their costs from the bankrupt estate. Instead, I would order that the trustees pay their own costs. I certify that the preceding thirty-six (36) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Katzmann.