Lahood v Bank of Western Australia

REASONS FOR JUDGMENT 1 This is an application to stay a sequestration order made against Mr David Lahood on 14 February 2013 by a Federal Magistrate, together with an ancillary injunction to prevent the trustee in bankruptcy dealing with certain cars formerly owned by Mr Lahood in a car yard located on Parramatta Road in Homebush. The basis of the application is that there is an appeal pending against the sequestration order and that a stay is needed to ensure that the appeal is not rendered nugatory. At a practical level, it is put that the stay will permit a refinancing of the creditor's debt to take place. The debt upon which the sequestration order is based is a default judgment debt obtained by the judgment creditor, the Commonwealth Bank of Australia in 2010 in the Supreme Court of New South Wales. 2 There is no current application to set aside that default judgment which remains in place, and to date, no such application has been made. The situation then is that the judgment debt with which these proceedings are concerned is in its third year. Before the learned Federal Magistrate, Mr Lahood sought to adjourn the proceedings on the day. The basis upon which this was done was the following contentions. First, a notice to produce had been issued by Mr Lahood to the bank to produce documents relating to the facility the subject matter of the default judgment. Secondly, perusal of those documents indicated that the amount claimed by the bank could not be fully justified by reference to the material which had been produced by the bank. Thirdly, it was said that there had been a failure by the bank fully to comply with the notice to produce. Finally, there was tendered before the Federal Magistrate an unsigned draft report of a forensic accountant, Mr Paul. It was submitted that the failure to be able to provide the documents substantiating the loan indicated that there were real questions about what the actual amount owing was. The learned Federal Magistrate, so I was informed from the bar table, declined to admit the unsigned draft report into evidence and thereafter declined to adjourn the proceedings. The reasons of the Federal Magistrate are not yet available, although the order was, as I have said, made on 14 February 2013. 3 No suggestion was made to me that there was some part of the oral reasons which had been announced in open court, that called specifically for attention or that some part of the reasons orally pronounced could be presently identified as disclosing, in terms, error by the Federal Magistrate in refusing the adjournment. 4 There are two sources of jurisdiction in the Court to grant the stay which Mr Lahood seeks. The first is conferred by s 52(3) of the Bankruptcy Act 1966 (Cth) ('the Act') which provides, in terms, that: The Court may, if it thinks fit, upon such terms and conditions as it thinks proper, stay all proceedings under a sequestration order for a period not exceeding 21 days. The second source of jurisdiction to grant a stay is to be found in the Federal Court Rules 2011 (Cth) ('the Rules') r 36.08(2) which provides, in terms: However, an appellant or interested person may apply to the Court for an order to stay the execution of the proceeding until the appeal is heard and determined. 5 In Commonwealth Bank of Australia v Pattison [2012] FCA 1511, Jessup J considered that the discretionary considerations going to both s 52(3) of the Act and those of r 36.08 of the Rules were the same (at [4]). In doing so, he followed remarks which had been made by Kenny J in Nolten v Groeneveld Australia Proprietary Limited [2011] FCA 1494 at [24]. The particular passage contains, with respect, a useful summary of the principles to be applied when considering whether a stay of a sequestration order pending appellate proceedings in this Court should be granted. Her Honour said: Rule 36.08 of the Rules confers a broad discretion to order a stay notwithstanding that an appeal shall not operate as a stay of execution or of proceedings under the judgment appealed from. In Powerflex Services Pty Ltd v Data Access Corporation (1996) 67 FCR 65, a Full Court of this Court held that the appropriate test for a stay under the equivalent of Rule 36.08 of the current Rules was that set down in Alexander v Cambridge Credit Corporation Ltd (1985) 2 NSWLR 685, namely, whether the applicant for a stay showed a reason or an appropriate case to warrant the exercise of discretion in his favour. More specifically, with respect to an application for a stay of a sequestration order, the question is whether there is an arguable point on the proposed appeal and whether the balance of convenience favours the granting of a stay: see Freeman at [3]-[4]; Coleman at 303; Beames v Rigby [2002] FCA 806 at [2]; Kellow v Dudzinski [2003] FCA 238 ("Dudzinski") at [8]; and Shirreff v Beck Legal Pty Ltd [2010] FCA 1407 at [67], (2010) 119 ALD 284 at 293-294 [67]. The test for a stay under s 52(3) of the Act is not materially different. 6 One is left, therefore, with the slightly difficult position of trying to ascertain, as best one can, possible arguable errors in a set of reasons which have not yet been delivered. That is, I am left to apply the test indicated by r 36.08 and s 52(3) without the benefit of the reasons under challenge. That said, based on what has been said from the bar table, I can, as presently advised, discern no obvious error in the refusal of the Federal Magistrate to adjourn the proceedings which had, as I was informed from the bar table, already been adjourned 10 times. This is more so where the apparent basis for the adjournment application was the production of an unsigned draft report. 7 It is also not without relevance that the judgment debt upon which the sequestration order is based is a default judgment from 2010, and a view is available that that was a matter which would have been relevant to the exercise of the learned Federal Magistrate's discretion in dealing with the adjournment application. I do not overlook, in making those remarks, Mr Lahood's health problems, which I accept extended into 2009, but even allowing that to be so, they do not explain why it is that, in effect, nothing has been done in respect of the Supreme Court judgment debt since 2010. In those circumstances, at least as presently advised, I am unable to discern any arguable error in a refusal by the Federal Magistrate to adjourn the proceedings. It seems to me that refusal to adjourn the proceedings was entirely within the range of what might be expected. 8 There are, of course, other relevant matters in considering what should be done. Although I have concluded that, I do not think that there is in substance at the moment an arguable ground of appeal, it is still necessary to look at the balance of convenience. That, of course, includes the fact that the petitioning creditor is unlikely to be prejudiced excessively by the grant of the stay, other than perhaps in terms of minor annoyance and legal expense. On the other hand, I do accept that the position of the trustee is one which will involve some prejudice if the stay were to be granted. In particular, I was informed from the bar table by the trustee that presently a security guard on his behalf had taken control of or was guarding the cars in question on Parramatta Road. 9 It is not difficult to see that there could be some complexities attending the granting of a stay in those circumstances, and in particular, working out precisely who is to ensure the safety of the cars. On the other hand, there is no doubt that a refusal now to grant a stay will have a significant impact upon the position of Mr Lahood. The bankruptcy will take its course, and it is not difficult to see that the trustee may move to sell what might otherwise be seen as a reasonably liquid asset in the form of the cars. I also take into account what seems to me to be a very relevant mater, namely, the failure of Mr Lahood on this application to tender the payment of the undisputed portion of the Supreme Court default judgment debt from 2010. 10 It became obvious during argument that some $400,000 to $450,000 of that default judgment are not in dispute even taking into account the effects of the unsigned draft report of Mr Paul. I explored during argument whether a stay might be granted on a condition that that sum should be paid, but in the circumstances which presently obtain it seems to me that it was incumbent upon a person in Mr Lahood's position to tender to the creditor the amount which was not in dispute. Notwithstanding my acceptance of the proposition that Mr Lahood is likely to be prejudiced if the stay has not been granted, taking into account all of the other circumstances and what seems to me to be the weakness of his proposed case, I will dismiss the interlocutory application. That leaves the notice of appeal on foot, I think. That will make its way in the ordinary way. 11 Application is also made for an injunction that the trustee be restrained from removing any of the motor vehicles and/or assets and equipment forming the trading stock, fixtures and fittings of the debtor located on the premises of the company Dave Lahood Proprietary Limited at 131A Parramatta Road in Homebush pending further order. There are two ways that injunction might be pursued. The first is it could be seen as being an ancillary order sought to buttress the effects of the stay application. If the application for an injunction were to be viewed in that fashion, then it would follow that it would rise and fall together with the fate of the stay application. 12 Because I have dismissed the stay application, it would follow that if that is the purpose which the injunction serves, that I would dismiss it. On the other hand, it may be that the injunction is sought for some purpose beyond preserving the subject matter of the appeal from the sequestration order. However, if that is so, it is difficult to see why the grant of the injunction would serve any legitimate purpose related to the exercise of my jurisdiction. Whichever way one views the proposed injunction, it seems to me that it ought to be dismissed. 13 There are two additional matters I would observe about the injunction. The first is that I accept, as was submitted, that the trustee does not oppose the making of this order, but his failure or his decision not to oppose it does not clothe this Court with a jurisdiction which it otherwise lacks, and secondly, it is, once one moves away from the power of the Court to give effect to the exercise of its appellate jurisdiction, difficult to identify any legal, statutory or equitable role which the injunction can be seen legitimately as serving. This provides an additional, perhaps overarching, reason why the injunction should be refused, and I so refuse it. The order I will make in relation to costs is that costs be costs in the cause. I certify that the preceding thirteen (13) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Perram.