Kellow v Dudzinski

REASONS FOR JUDGMENT 1 On 20 February 2003, a sequestration order was made against the estate of Waldemar Dudzinski. A stay of the sequestration order pending an appeal to a Full Court of this Court was refused on 3 March 2003. Mr Dudzinski now seeks leave to appeal the decision to refuse a stay of the sequestration order. 2 The application for a stay of the sequestration order was sought on the grounds that: (a) the stay was necessary to allow a consideration of the appeal; (b) a successful appeal would be rendered nugatory or partly nugatory if no stay were granted. 3 In support of his application for a stay, Mr Dudzinski relied upon the decision of Pincus J in Evans v Heather Thiedeke Group Pty Ltd (1990) 95 ALR 484 as authority for the proposition that: (a) the Court had power to order proceedings under the sequestration order be stayed pending determination of an appeal, notwithstanding the provision of s 52(3) of the Bankruptcy Act 1966 (Cth) ("the Act"); (b) where there is a bona fide appeal challenging the existence of the debt, a stay of the sequestration order should fairly readily be granted (at p 425); and (c) where a successful appeal would be rendered nugatory or partly nugatory in the absence of a stay, it was appropriate to grant a stay. 4 Spender J refused the stay, finding that: (a) Mr Dudzinski had a personal right to initiate and litigate an appeal against the making of the sequestration order: Jury v Westpac Banking Corporation & Anor [1997] FCA 1277; (b) other litigation initiated in this Court, the Supreme Court of Queensland and the High Court of Australia would not be prejudiced by the operation of the sequestration order. If such proceedings constituted property of the bankrupt which vested in the Trustee, then, if justified, the proceedings could be continued by the Trustee. Proceedings which did not fall within the category of property of the bankrupt continued to be enforceable by Mr Dudzinski, notwithstanding the existence of the sequestration order. 5 His Honour concluded: "[5] Applying the ordinary principles to the application for a stay, I decline to grant it. The main reason for seeking the stay is a weighty one, but Mr Dudzinski is not in any way precluded from initiating or prosecuting an appeal from the making of the sequestration order against his estate of 20 February 2003." 6 The principles applicable to an exercise of the discretion under O 52 r 17 of the Federal Court Rules, relating to the grant of a stay of proceedings pending an appeal, were considered by a Full Court of this Court in Powerflex Services Pty Ltd v Data Access Corporation (1996) 67 FCR 65. Delivering the judgment of the Court, Burchett J said (at 66): "The principles applicable depend on the terms of O 52, r 17 of the Federal Court Rules 1979 (Cth). Rule 17(1) provides: 'An appeal to the Court shall not: (a) operate as a stay of execution or of proceedings under the judgment appealed from; or - ... except so far as the Court or a Judge or the court below may direct.' The language of that rule suggests no limitation upon a broad discretion inhering in the Court. Several judges of the Court, most recently Heerey J in Henderson v Amadio Pty Ltd (No 3) (1996) 65 FCR 66 have followed the decision of the Court of Appeal of New South Wales in Alexander v Cambridge Credit Corporation Ltd (Receivers Appointed) (1985) 2 NSWLR 685, where, at 694, that Court said it was 'sufficient that the applicant for the stay demonstrates a reason or an appropriate case to warrant the exercise of discretion in his favour'. The Court of Appeal also referred with approval to a statement of Mahoney JA in Re Middle Harbour Investments Ltd (In liq) (unreported, Court of Appeal, NSW, 15 December 1976) where, with the concurrence of the other members of the Court, Mahoney JA said: 'Where an application is made for a stay of proceedings, it is necessary that the applicant demonstrate an appropriate case. Prima facie, a successful party is entitled to the benefit of the judgment obtained by him and is entitled to commence with the presumption that the judgment is correct. These are not matters of rigid principle and a court asked to grant a stay will consider each case upon its merits, but where an applicant for a stay has not demonstrated an appropriate case but has left the situation in the state of speculation or of mere argument, weight must be given to the fact that the judgment below has been in favour of the other party.' Notwithstanding that in the Supreme Court of Victoria a more stringent test has generally been applied (see Cellante v G Kallis Industries Pty Ltd [1991] 2 VR 653; Lagarna Pty Ltd v Bridge Wholesale Acceptance Corporation (Australia) Ltd [1995] 1 VR 150), we think we should follow the decision in Alexander v Cambridge Credit. 'Special' circumstances do not have to be shown. ..." 7 The fact of a bona fide and timely appeal does not of itself justify the grant of a stay: Starborne Holdings Pty Ltd v Radferry Pty Ltd and Ors [1998] FCA 548 at p 4. 8 In the context of appeals from the making of a sequestration order, it has been put that relevant considerations to the exercise of the discretion are whether there is an arguable point on the proposed appeal and whether the balance of convenience favours the granting of a stay: Coleman v Lazy Days Investments Pty Ltd (1994) 55 FCR 297 at 303; Freeman v National Australia Bank Ltd [2002] FCA 427 at [3]; Beames v Rigby [2002] FCA 806 at [2]. 9 In the present proceedings, Spender J held that the right to appeal to a Full Court of this Court from the making of the sequestration order was not property within the meaning of s 5 of the Act. Accordingly, the right of appeal did not vest in the trustee of Mr Dudzinski's bankrupt estate and remained enforceable at the suit of Mr Dudzinski if he chose to file and prosecute an appeal. In this, his Honour was undoubtedly correct: Cummings v Claremont Petroleum NL (1995) 185 CLR 124 at 133 - 136; Jury v Westpac Banking Corporation at p 2. 10 The making of the sequestration order did not have the effect of rendering Mr Dudzinski's appeal from that order nugatory or partly nugatory, in the absence of an order staying the operation of the sequestration order pending any appeal from it. 11 Spender J next considered other litigation which Mr Dudzinski had initiated, the prosecution of which Mr Dudzinski contended would be prohibited by the sequestration order. That litigation fell into two categories. Litigation directed at securing an award of damages or compensation on the one hand, and on the other hand litigation seeking to set aside the bankruptcy notice on which the act of bankruptcy, alleged against him in a subsequent bankruptcy petition, was based. 12 Causes of action seeking recovery of damages or compensation, not amounting to personal causes of action for personal injury or wrong done to the bankrupt, are property which vest in the trustee upon a person becoming bankrupt: s 58(1), s 116. A bankrupt has no right to bring or prosecute proceedings to protect, enhance or add to the property of which he or she has been divested on bankruptcy: Cummings v Claremont Petroleum at 135 - 136. Decisions as to the further prosecution of such proceedings fall to be determined in accordance with s 60(2) of the Act. That subsection provides: "60(2)An action commenced by a person who subsequently becomes a bankrupt is, upon his becoming a bankrupt, stayed until the trustee makes election, in writing, to prosecute or discontinue the action." 13 To the extent that a bankrupt has an interest in seeing claims for the benefit of the estate being litigated to a fruitful conclusion, the trustee's decision to discontinue such proceedings is reviewable by the Court at the suit of the bankrupt: s 178; see also the discussion in Cummings v Claremont Petroleum at 132, 139, 142. 14 Claims for personal injury and wrongs which do not become property of the trustee may be continued by the bankrupt in his or her own name: s 60(4). An action for defamation which claims damages for injury to the personal credit, character or reputation of the bankrupt is maintainable by the bankrupt, notwithstanding his or her bankruptcy: s 116; s 60(4): Bourke v State Bank of New South Wales [1995] FCA 566 (FC); Griffiths v Civil Aviation Authority (1996) 67 FCR 301 at 324. 15 Spender J dealt with the other pending litigation in the following way: "[4] He has indicated also that there are other matters which are presently on foot, and which a sequestration order may or may not have the effect of prohibiting. That consideration is not one which would incline the Court to grant a stay. The continuation of whatever other proceedings Mr Dudzinski had on foot prior to this sequestration order which come within the phrase "property of the bankrupt" is a decision for the Trustee. To the extent that proceedings on foot are not property of the bankrupt, they do not vest in the Trustee, and the making of a sequestration order will not affect Mr Dudzinski's prosecution of them, in the same way that the making of the sequestration order does not affect his prosecution of an appeal from the making of that order." 16 His Honour's statements do not disclose any misunderstanding, or mis-application, of the relevant legal principles or statutory provisions with respect to the then pending litigation to which Mr Dudzinski is a party. To the extent that the trustee has purported to elect not to continue certain of the litigation, that decision is reviewable under s 178 of the Act on the basis that the litigation was not of the type which passed to him as property, or if it passed, ought in the circumstances to have been pursued, or been made available to Mr Dudzinski to litigate himself. 17 Mr Dudzinski contends that he has been denied an effective appeal in respect of the bankruptcy proceedings because he cannot further prosecute his application for special leave to appeal to the High Court of Australia in application B108/2002. That application seeks leave to appeal from a decision of a Full Court of this Court in Dudzinski v Kellow [2002] FCAFC 402, wherein the Full Court refused to set aside the bankruptcy notice upon which the act of bankruptcy relied upon to obtain the sequestration order was based. Mr Dudzinski's position in relation to his special leave application is no different to his position in relation to his other litigation. If the right to bring an application for special leave to appeal is not property which passed to the trustee and is not otherwise caught by the operation of s 60(2) of the Act, Mr Dudzinski may prosecute the application for special leave. If the application is caught by s 60(2) and the trustee refuses to elect to prosecute the special leave application, then Mr Dudzinski has a right to seek review under s 178 of the Act. 18 Spender J dealt with the application for a stay on the basis that there was jurisdiction in an appropriate case to grant a stay. His Honour dealt with it on the ground advanced, namely that without a stay the appeal may be rendered nugatory or partly nugatory. He also considered whether or not any other reason for which a stay may be granted was disclosed (see par [3]). His Honour's conclusion in par [5] of his reasons was that no ground for a stay, on any basis, was made out on the material before him. 19 There is in the reasoning of his Honour no demonstrable error. 20 His Honour did not find that the proposed appeal was not bona fide or that it did not raise an arguable question of law or fact for determination on the appeal. However, even if one is satisfied that his Honour concluded that those two circumstances existed, and that the debt of the petitioning creditor was thereby put in issue, those two circumstances alone are insufficient for the grant of a stay pending appeal: Starborne Holdings Pty Ltd v Radferry Pty Ltd 4, 6. 21 In determining whether or not leave to appeal from an interlocutory judgment will be given, the Court considers, amongst other relevant circumstances, whether or not the decision in respect of which leave is sought is attended with sufficient doubt to warrant it being reconsidered by the Full Court. Another circumstance is whether substantial injustice would result if leave were refused supposing the decision to be wrong: see Décor Corporation Pty Ltd v Dart Industries Inc (1991) 33 FCR 397 (FC). 22 In the instant case, the reasoning of Spender J as to the right of Mr Dudzinski to pursue an appeal against the making of the sequestration order is not in any sense attended with doubt as to its correctness; it is in accord with the decided authorities. So too, his Honour's analysis, as to how rights to prosecute other proceedings will be determined, is in accordance with the Act and the authorities. 23 To the extent that Mr Dudzinski can prosecute his appeal against the making of the sequestration order and prosecute such other proceedings as are not vested in, or subject to the control of, his trustee in bankruptcy, no substantial injustice would be suffered if leave to appeal the refusal to grant a stay was not granted, supposing that the refusal to grant a stay was wrong, because he retains an effective right of appeal against the sequestration order. In respect of any decision of the trustee relating to other litigation which falls within the trustee's control, Mr Dudzinski has rights to seek review of those decisions if he contends that they were wrongly made and operate unjustly to his detriment. In those circumstances no real possibility of substantial injustice can be made out if leave to appeal from the refusal to grant the stay is denied. Mr Dudzinski has not shown that the existence of the sequestration order pending prosecution of his appeal operates, or may operate, to cause to him irreparable injustice which cannot be remedied if his appeal succeeds and the sequestration order is set aside. 24 The circumstances necessary to sustain the granting of leave to appeal have not been made out in accordance with the applicable general principles which operate when leave to appeal from an interlocutory order or judgment is sought. The application is dismissed. 25 Costs should follow the event in accordance with the general rule: Hughes v Western Australian Cricket Association Inc (1986) ATPR 40-748 at 48, 136; Cummings v Lewis (1993) 41 FCR 559 (FC) at 603. I certify that the preceding twenty-five (25) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Cooper.