Menzies v Paccar Financial Pty Ltd

REASONS FOR JUDGMENT 1 The proceeding which came before me today as duty judge was commenced on 9 August 2010 by the filing of an application, ostensibly pursuant to O 52, r 4 of the Federal Court Rules. Ian and Colleen Menzies are named as the applicants. Paccar Financial Pty Ltd is named as the first respondent, and Paul Andrew Burness and Morgan Gerard James Lane are named as the second respondents. The latter are the trustees of the bankrupt estates of the applicants pursuant to a sequestration order made by the Federal Magistrates Court on 11 June 2010. 2 The applicants appealed to this court against the making of that order and other orders made at the same time. In that appeal, Paccar Financial Pty Ltd was the only respondent. The applicants applied for certain interlocutory relief including a stay of the sequestration order. On that application, on 1 July 2010, Ryan J made orders which included the following: All proceedings under the sequestration order made on 11 June 2010 be stayed until the hearing and determination of the appeal or further order on condition that each of the appellants lodge with the trustee in bankruptcy ("the trustee") a statement of his or her affairs in conformity with s 54 of the Bankruptcy Act 1966. 3 To understand the nature of the questions which later became controversial, it is necessary to set out the terms of s 54(1) of the Bankruptcy Act referred to in the order of Ryan J: Where a sequestration order is made, the person against whose estate it is made shall, within 14 days from the day on which he or she is notified of the bankruptcy: (a) make out and file with the Official Receiver for the District in which the sequestration order was made a statement of his or her affairs; and (b) furnish a copy of the statement to the trustee. In the circumstances of the present case the 14-day period referred to in s 54(1) expired on 29 June 2010. 4 On the day after the making of the orders by Ryan J, 2 July 2010, the trustees' solicitor wrote to the applicants' solicitor in terms which included the following: The condition of the stay has not been satisfied because statements of affairs have not been lodged. The condition can never be satisfied because statements of affairs cannot now be lodged within 14 days of notification of the bankruptcy, as mandated by section 54 and accordingly there can never be statements lodged in conformity with section 54. While Justice Ryan has not yet given reasons for making the order, we heard your submissions and assume that he made the orders in part because you assured him of past and future co-operation by the bankrupts with the trustees. However, you did not tell his Honour, as was the fact, that the bankrupts' co-operation did not extend to filing their statements of affairs on time and in consequence they had committed a strict liability offence by contravening section 54. Perhaps if his Honour had been told this, he may have declined to make the order. At least he would not have made the order he did, with a condition that was incapable of being fulfilled. As there is no stay (and can never be a stay under present orders), and as statements of affairs have not been furnished, the trustees have no option but to continue to carry out their statutory duties, including to ascertain the assets and liabilities of the bankrupts (section 19(1)), and to forthwith take possession of all the property of the bankrupts capable of manual delivery (section 129(1)). Please confirm by close of business today that the bankrupts will voluntarily give the trustees full and free access to their farm and books and allow them to make copies of, or take extracts from, any such books and will further permit them to seize and remove property of the bankrupts that is stored on the farm. According to information received from Paccar that property was listed by the bankrupts as being worth approximately $1 million a few years ago. Absent such consent, it may be necessary for the trustees to elicit the support of the Official Receiver to accompany them to the farm (section 77AA(1)), and/or apply to the court for a section 130 warrant authorising them to lawfully enter and search the farm to take possession of property and books of the bankrupts. According to the applicants, the sending of this letter amounted to a contempt of court. They submitted that, by the letter, the trustees "purposively and deliberately breached the orders of the Court". 5 The applicants' motion for contempt came before Sundberg J on 13 July 2010. Before his Honour on that day also was a Notice of Motion filed by the trustees on 8 July 2010, in which the following relief was sought: (a) An order declaring whether, upon the true construction of Ryan J's order, a stay of all proceedings under the sequestration order came into effect, and if so, when. (b) An order declaring whether, upon the true construction of the order, any stay of the proceedings under the sequestration order can ever become effective. (c) A declaration that the transmission of the letters of 2 July 2010 did not cause the trustees to breach the stay order. (d) An order that the undertakings given by the appellants on 1 July 2010 that they will not deal with their assets during the period of any stay, save to fund the costs of ordinary living or with the consent of the trustees or as ordered by the Court, stand as if they were embodied in the order of 1 July 2010 or be embodied in the orders to be made on the present motion. 6 By way of disposition of the two Notices of Motion to which I have referred, on 22 July 2010 Sundberg J made the following orders and declarations: (1) On the appellants' motion, notice of which was filed on 7 July 2010, the court orders that: (a) Paul Andrew Burness and Morgan Lane be joined as parties to the appeal for the purposes only of the said motion and the motion the subject of paragraph 2 of this order. (b) The motion be otherwise dismissed. (2) On the motion of Paul Andrew Burness and Morgan Lane as trustees of the bankrupt estates of the appellants notice of which was filed on 8 July 2010, the court declares that: (a) The stay of proceedings in the order made by Justice Ryan on 1 July 2010 came into effect on 7 July 2010. (b) The trustees' solicitors' two letters to the appellants' solicitor of 2 July 2010 did not cause the trustees to breach the stay order. (3) On the motion the subject of paragraph 2 of this order, the Court notes that the appellants' oral undertakings given to Ryan J on 1 July 2010 referred to in paragraph 33 of the reasons for judgment herein, but are not recorded in the written orders made on that date, were in fact given, and were renewed on the hearing of the motions. His Honour also made an order with respect to costs. 7 The applicants' case before Sundberg J was that the order made by Ryan J on 1 July 2010 was immediately effective to stay the operation of the sequestration order, and that the trustees' letter of 2 July 2010, proceeding as it did by reference to the proposition that the stay not only was not in place but could never have operative effect, was a purposive and deliberate breach of the stay order. In his reasons of 22 July 2010, Sundberg J rejected the premise upon which the applicants' motion was based. His Honour held that, on 2 July 2010, the stay was not in operation. He so held because of the view which he took on the construction of the order of Ryan J. His Honour had before him three submissions on that question: (a) The applicants' submission that the stay came into effect upon the making of the order but would be dissolved if the condition referred to in the order was not fulfilled; (b) The primary submission of the trustees that the order was ineffective because the 14 day period had expired and it was no longer possible for statements of affairs to be lodged in conformity with section 54; and (c) The fallback position of the trustees, and that advanced on behalf of Paccar Financial Pty Ltd, that the stay did not become effective until the statements of affairs were filed and furnished. His Honour held the third submission to be the correct one. 8 In rejecting the position for which the applicants contended, Sundberg J said: Nor do I accept the appellants' construction of the order. It is not, in my view, the natural reading of the words. Rather than by reading the order as a whole. It proceeds by claiming that Ryan J first ordered a stay, which came into effect forthwith, and then attached a condition which, having regard to the operative stay, could not be treated as if it were a condition precedent to the stay becoming operative. The appellants' construction also suffers from the difficulty that it does not contain any mechanism for determining when the stay dissolves if no statements are provided. His Honour also said: The context in which the order was made supports the preferred construction. Mr Hall, the appellants' solicitor, informed Ryan J that he had mistakenly thought the appellants had to file and furnish the statements within 28 days rather than 14 days. His Honour then asked what was the appellants' position "now about filing the statements of affairs? Are they prepared to do that…". Mr Hall replied: "In exchange for a stay, your Honour, yes." That was the basis on which the order was made. The exchange involved the provision of the statements and the contemporaneous grant of a stay. 9 It seems that the applicants did file their statements of affairs on 7 July 2010, thereby satisfying the condition referred to in the order of Ryan J. That explains paragraph 2(a) of the declarations made by Sundberg J on 22 July 2010. On the construction given to Ryan J's order by Sundberg J, there was no stay in place on 2 July 2010, when the trustees' solicitor wrote to the applicants' solicitor. It followed that that letter could not have been in contempt of court in the respect proposed by the applicants. That conclusion was sufficient to dispose of the applicants' motion for contempt. 10 However, Sundberg J also considered the other points raised by the applicants on the motion. His Honour held that: (a) The order was not coercive or injunctive in that it did not require the trustees to do or to refrain from doing anything; (b) There was no evidence that the trustees purposively and deliberately breached the order of the court; (c) The trustees acted on legal advice as to the meaning and operation of the order of Ryan J and never intended to proceed in breach of it; and (d) The individual charges of contempt brought by the applicants had not been made good. 11 I now return to the application which was filed on 9 August 2010. As amended by leave given earlier today, that application reads as follows: (1) The applicant(s) apply for leave to appeal from the judgment of Justice Sundberg sitting as a single judge of the Federal Court of Australia in proceedings P(VID)495.2010 (themselves an appeal proceedings from the Federal Magistrates Court of Australia to the Federal Court of Australia), given on 11th June, 2010 in Melbourne. (2) Leave to appeal may be required by virtue of the fact that the decision subject of appeal whilst in one respect interlocutory and made in a substantive proceedings is, in another respect final, in that it conclusively purported to determine matters at issue subject of a discrete hearing of a notice of motion and against a non-party in the proceedings subject of appeal from the court below. (3) The grounds of the application appear in the annexed affidavit. (4) To the extent necessary, the Applicants claim an order in accordance with Section 25(2) of the Federal Court Act: (a) for leave to appeal to the Court; and/or (b) for this application to be heard and determined by a Full Court, if the single judge assigned to the matter is dis-inclined to grant the applicant's leave to appeal. (5) In the event that an order is required dispensing time as is otherwise required under Order 52 sub rule 5(2), then the applicant(s) seek an order in accordance with sub rule 5(3), that compliance with sub rule 5(2) is dispensed with. Paragraph 1 of the application is confusing in its reference to the date of the sequestration order rather than to the date of the order of Sundberg J, but the intent is clear. I should also add that, on the hearing of the application today, no party suggested that I should give a direction pursuant to section 25(2)(e) of the Federal Court of Australia Act 1976 (Cth). 12 A problem which appears on the face of the application now before the court is that the form which has been used is that for which O 52 r 4 provides. Such a form is appropriate only in the case of an application for leave to appeal from a judgment other than an interlocutory judgment of the court. The applicants accepted that the judgment of Sundberg J was an interlocutory one, albeit that it carried consequences which, in their submission, were permanent in their practical effect. If the judgment were not interlocutory, the applicants would have a right of appeal under section 24(1)(a) of the Federal Court Act. An application for leave to appeal would be incompetent. The present matter must, therefore, be resolved on the footing that the judgment of Sundberg J was an interlocutory one, and that leave is required. The applicants did, therefore, use the wrong form in bringing the present application before the court. They should have moved on notice under O 52 r 10(2). 13 Use of the wrong form may, of itself, usually be a matter of little moment, but the procedure which the applicants opted to follow has consequences of substance. The present application was filed on the 18th day after Sundberg J's orders. That would have been within time under O 52 r 5(2)(a), but it was 11 days out of time under the provision which did govern in the circumstances, O 52 r 10(2A)(b). The problems to which I have just adverted were drawn to the attention of the court in the submissions made by counsel for the trustees. I invited him not to address me on why I should not allow further time under the discretion given by O 52 r 10(2A) until and unless an application invoking that discretionary power was made on behalf of the applicants. No such application was made. There was no suggestion that time should be extended to permit the filing on 9 August 2010 of a Notice of Motion seeking leave to appeal from the interlocutory judgment of Sundberg J. In the circumstances, I am obliged to hold that the present application is out of time and to dismiss it as incompetent. 14 That is, perhaps, an unsatisfactory place to leave the matter, and since I have heard argument on the purported application for leave to appeal, I propose to deal with the points raised by counsel. The test is, of course, whether the judgment below is attended by sufficient doubt to warrant being reviewed by the Full Court, and if so, whether substantial injustice would result if leave to appeal were not granted, assuming the judgment below to have been in error: Décor Corporation Proprietary Limited v Dart Industries Incorporated (1991) 33 FCR 397 at 398-400. 15 Counsel for the applicant based his client's application in all but very minor respects on what were said to be errors in the way Sundberg J decided the point of construction arising under the order made by Ryan J. I have referred to the construction preferred by Sundberg J above. Before me, counsel for the applicants made the same submission as he had before his Honour, but with a twist. It was said that his Honour had been in error in failing to appreciate that the order of Ryan J picked up the terms of rr 3 and 4(2) of O 35 of the Federal Court Rules. 16 Rules 3 and 4 of O 35 read as follows: 3 A judgment or order shall take effect on the date on which it is pronounced or made, unless the Court orders that it take effect at an earlier or later date. 4 (1) Subject to subrules (3) and (4), an order which requires a person to do an act shall specify the time within which he is required to do the act. (2) The time shall, unless the Court otherwise orders, be 14 days after the date of service of the order on the person required to do the act. (3) Subrules (1) and (2) apply to an order which requires a person to pay money into Court but otherwise do not apply to so much of an order as requires a person to pay money. (4) Where an order requires a person to do an act within a specified time the Court may, by order, require him to do the act within another specified time. (5) Where an order requires a person to do an act but does not specify a time within which he is required to do the act, the Court may, by order, require him to do the act within a specified time. 17 The submission put on behalf of the applicants was that Ryan J's order had immediate effect under O 35 r 3, that so much of the order as referred to the filing of a statement of affairs was an order requiring a person - each of the applicants - to do an act and that, in the absence of a time specified by Ryan J, the applicants had 14 days within which to do the act in question, namely, the filing of a statement of affairs. On this formulation of the constructional and regulatory environment, the stay was said to be in place and effective during those 14 days. 18 I do not consider that there is any substance in this submission. The orders of Ryan J did not require the applicants to file a statement of affairs. His Honour left it to their choice whether to do so although, doubtless, he was aware that they came under an obligation to do so pursuant to section 54 of the Bankruptcy Act. As he said in para 17 of his reasons of 2 July 2010: [T]he stay has been conditioned on the appellants' each lodging a statement of affairs in accordance with s 54 of the Bankruptcy Act. That is to say, if the applicants lodged their statements, they would have their stay. I consider that O 35 r 4(2) was irrelevant to the question which came before Sundberg J. 19 The matter might also be approached by reading O 35 r 3 generically, that is, by treating the reference in it to a later date as encompassing the occurrence of a specified event in the future - here, the filing of a statement of affairs. Counsel for the trustees submitted that it was not necessary to read the rule in this sense, and that it was sufficient to regard Ryan J's order as having immediate but conditional effect. Absent performance of the condition, the stay would not be operative. I accept that submission. However the matter is looked at, the only practical sense in which the order can be understood leads to the conclusion that the sequestration order was not subject to a stay on 2 July 2010. 20 It follows that I am unable to form the view that the decision of Sundberg J on the construction point is attended by sufficient doubt to warrant being reviewed by a Full Court. To the contrary, I consider, with respect, that his Honour's decision was manifestly correct. If there were a competent application for leave to appeal before the court, it would have to fail for this reason. In the circumstances, it is unnecessary, and it would be gratuitous, for me to enter upon the other substantive and alternative bases offered by Sundberg J for his conclusion that the trustees' solicitors' letter of 2 July 2010 did not constitute a contempt of court. 21 It is also, strictly speaking, unnecessary for me to consider the matter of substantial injustice, but I must say that I am quite unconvinced that, even if one assumes that the decision which Sundberg J reached was the wrong one, substantial injustice would be the likely result. It was argued, on behalf of the applicants, that the practical result of a wrong decision would be that their legitimate attempt to bring the trustees to justice for their presumptive contempt of court would be forever blocked. I accept that in a case of civil contempt, like the present, where an order is made for the benefit of a party, the inability of that party to prosecute enforcement proceedings may indeed work an injustice on him or her, and it is not difficult to see how it might well be a substantial one. But that is not this case. 22 The trustees' solicitors' letter of 2 July 2010 did not, of itself, either take or involve further proceedings under or in reliance on the sequestration order. Although the solicitor foreshadowed what might happen if the applicants did not act as required, in the event, nothing did happen. It is not suggested that the applicants took any step to their disadvantage because of the promptings in the letter, or that their position was materially altered or affected by receipt of the letter. Even assuming that the sending of the letter was a contempt of court, neither the applicants' rights nor the practical incidents of their positions in their bankruptcies were affected by it. Thus, while I do not for a moment depreciate the significance of a finding that particular conduct was or was not a contempt of court, in the particular circumstances of the present case I would not be persuaded that substantial injustice would result if the orders made by Sundberg J were left undisturbed, even assuming that his Honour was in error to have held the letter of 2 July 2010 not to be a contempt. 23 The order of the court will be that the applicants' application filed on 9 August 2010 be dismissed as incompetent. I certify that the preceding twenty-three (23) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jessup.