O'Meara v Hitwise Pty Ltd

REASONS FOR JUDGMENT THE COURT: 1 The primary point of this appeal concerns an apparently unexplored issue of bankruptcy practice and procedure in the Federal Magistrates Court and this Court, namely, whether, where a court reviews a sequestration order made by a Registrar, the proceeding can be amended by substitution of the petitioning creditor. 2 On 27 September 2005 a Registrar of the Federal Magistrates Court made a sequestration order against the estate of the appellant, Hedley John O'Meara, on the petition of Hall & Wilcox (a firm). Warren Brian White, the second respondent, was appointed Trustee of the estate of the appellant. On 11 October 2005 the appellant filed an application for review of that order. On 24 October 2005, the sequestration order was stayed. On 10 November 2005 the judgment, which had formed the basis of the debt to Hall & Wilcox, was set aside and that proceeding was to continue as a contested matter in the Victorian Magistrates Court. On 14 November 2005 Hall & Wilcox sought and was granted leave to withdraw from the proceeding and the proceeding was adjourned to enable an application for substitution as petitioning creditor to be made. On 25 November 2005 the first respondent, Hitwise Pty Ltd, was substituted as the petitioning creditor based upon a judgment debt in its favour and leave was granted to file an amended creditor's petition. The sequestration order continued to be stayed. On 22 December 2006 the application for review of the sequestration order was dismissed (O'Meara v Hitwise Pty Ltd [2006] FMCA 1927). Thus, the sequestration order made by the Registrar stands. 3 The review was conducted in the Federal Magistrates Court pursuant to s 104(3) of the Federal Magistrates Act 1999 (Cth) and r 20.03 of the Federal Magistrates Court Rules 2001, which were as follows: "104 … (3) The Federal Magistrates Court may, on application under subsection (2) or on its own initiative, review an exercise of power by a Registrar under subsection 102(2) or under a delegation under subsection 103(1), and may make any order or orders it thinks fit in relation to the matter in respect of which the power was exercised." "20.03 Procedure for review The review of an exercise of power by a Registrar: (a) must proceed by way of a hearing de novo; and (b) may receive as evidence any affidavit or exhibit tendered before the Registrar; and (c) may with leave receive further evidence; and (d) may receive as evidence: (i) any transcript of the proceeding before the Registrar; or (ii) if there is no transcript, an affidavit sworn by a person who was present at the proceeding before the Registrar as a record of the proceeding." 4 The de novo nature of the review was spelled out in the rule rather than being left to deduction as was the case in the then comparable position in the Federal Court (Martin v Commonwealth Bank of Australia (2005) 217 ALR 634). The application for review did not operate as a stay of the exercise of the power under review in this case until the Court ordered otherwise (r 20.2(4)). The hearing of the review was delayed for a considerable period, principally because of what were said to be health difficulties of the appellant. Indeed, the proceeding was dismissed for failure of the appellant to appear at one stage, although that order was set aside to enable the matter to proceed. Three Magistrates were involved at different stages. The final hearing of the review took place on 24 August 2006 with judgment delivered on 22 December 2006. Wilson FM considered the matter afresh, having regard to the provisions of s 52 of the Bankruptcy Act 1966 (Cth) ("the Act") on the evidence before him. He was satisfied that all of the conditions had been met, that a sequestration order was appropriate and the review was dismissed. 5 The reasoning of the decision is somewhat unusual, no doubt because of the unusual procedural history of the matter. Wilson FM was of the view that there was no power to make the order for substitution of a petitioning creditor whilst the sequestration order existed. However, he held that he had no power to set the order aside and proceeded as if it was valid. The order for substitution also permitted an amended petition to be filed. When filed, it purported to amend the act of bankruptcy to allege non-compliance with the creditor's own bankruptcy notice. Wilson FM held that this was not permissible, and not within the scope of the order allowing amendment, and so was to be notionally disallowed and ignored. It is not necessary to consider the correctness of that view in a case where failure to comply with the second bankruptcy notice had occurred prior to the date of the petition (cf s 33(1)(b); MacDonald v Official Trustee in Bankruptcy (2001) 107 FCR 72; Jensen v Queensland Law Society Inc (2006) 154 FCR 525 at [32]-[34]). His Honour then went on to consider proof of the matters required by s 52 of the Act. The principal matters raised by the appellant were: (1) that he was not indebted to the respondent; and (2) that he was solvent. Each was considered in detail and rejected. His Honour was satisfied of the matters required to be proved by s 52 in relation to the amended petition. 6 The appellant has represented himself on this appeal and has had difficulty in framing and supporting grounds of appeal. The original notice of appeal was significantly amended. His written and oral submissions strayed beyond that which was relevant to the grounds of appeal. We shall concentrate upon the points of substance relied upon in relation to the grounds which were pressed. 7 The first and second grounds of appeal can be taken together and are as follows: "1. The primary and secondary Magistrates' erred by denying the Appellant procedural fairness and natural justice by not determining the proceeding solely on the basis of it being a "review of the Registrar's decision" made on the 27th September 2005. Such a review is to proceed by way of a hearing de novo and the powers of a Federal Magistrate on a review are set out in r 20.03 of the Federal Magistrates Court Rules 2001. 2. The primary and secondary Magistrates' made an error of law in proceeding on the basis that the 1st Respondent could be substituted as the petitioning creditor after a sequestration order had been made. Particulars: The original petitioning creditor Hall & Wilcox relied on a judgment of the Magistrates Court of Victoria at Melbourne to ultimately obtain the sequestration order against the Appellant. The sequestration order was then stayed by the Federal Magistrates Court pending the Appellant's application for leave to the Melbourne Magistrates Court to have this judgment set aside and a new hearing take place. The Appellant was subsequently successful and the judgment was set aside. Hall & Wilcox then sought to withdraw, but advised the Court that there was anther creditor that could be substituted." (Original emphasis.) 8 The appellant's basic point in relation to these grounds was that, once the judgment in favour of Hall & Wilcox was set aside and the firm sought leave to withdraw as a party, the proper course was to allow the review and set aside the sequestration order as the basis for it had disappeared. Another way of putting the point is that there was no power to either amend the proceeding or to consider the case otherwise than according to the circumstances existing at the time of the Registrar's decision. This was, more or less, the opinion of Wilson FM. If correct, consideration of the status of the order for substitution for the purposes of the review and this appeal will be required. 9 The Court was not referred to any case in the Court that has considered the question as to whether an order for substitution can be made pursuant to s 49 of the Act in a review proceeding. In our opinion, the answer to that question is yes, because of the nature of a de novo review which has been discussed in three decisions of the High Court: Builders Licensing Board v Sperway Constructions (Syd) Pty Ltd (1976) 135 CLR 616; Re Coldham; Ex parte Brideson (No 2) (1990) 170 CLR 267; and Harris v Caladine (1991) 172 CLR 84. The general position is that (Sperway 135 CLR 616 per Mason J at 620): "the rights of the parties must be determined by reference to the circumstances as they then exist [at the time of the decision] and by reference to the law as it then exists; the appellate court may give such judgment as ought to be given if the case at that time came before the court of first instance." The reviewing court makes its own decision on the merits of the case. It is a fresh proceeding. There is no scrutiny of the original reasons for error. It would follow that the petitioning creditor is required to prove the various matters required to be proved, including those specified in s 52(1) of the Act, in the review, as recently held by Mansfield J in Moore v Wilson[2006] FCA 79; cf Emmett J in Owners - Strata Plan No 69405 v Azizova [2005] FCA 1340 at [4]-[5]. Lander J discussed the nature of the hearing in Pattison v Hadjimouratis (2006) 155 FCR 226 (at [148]-[156]) and concluded (at [156]): "The federal magistrate who is hearing an application for review of a sequestration order made by a Registrar must approach the task as if the application for the sequestration order was being heard for the first time. It is procedure sui generis." (See also Nicholson J at [6], [7] and [13] and Jacobson J at [43].) 10 Some guidance can be obtained from considering other examples of de novo "appeals" and reviews. The Quarter Sessions or District Court appeal from summary conviction by a magistrate is a long standing example. In that context, prior to recent amendments, a charge could be amended on the de novo hearing, notwithstanding the existence (pro tem) of the conviction (Appeal of Ower, (1945) 46 SR (NSW) 51 at 54-55; R v Salamane [1964-5] NSWR 184 per Herron CJ at 188, McClemens J at 193 and Walsh J at 193; (1964) 6 FLR 112; (1964) 81 WN (Pt 1) (NSW) 192; unaffected on this point by Bacon v Salamane (1965) 112 CLR 85). The complete nature of the Quarter Sessions hearing is established by many authorities including Wishart v Fraser (1941) 64 CLR 470 and Blacker v Parnell [1978] 1 NSWLR 616. 11 The application of s 49 of the Act is a routine feature of the hearing of a creditor's petition and reflects long standing public policy in this area of the law. It is available where the petitioning creditor's judgment is set aside after the petition has been filed (Re Hayes; Ex parte Thomas Borthwick & Sons (Australasia) Ltd (1970) 18 FLR 216; 2000 Olympic Games Pty Ltd v Daly [2000] FCA 1286). 12 It must be remembered that the review was initiated by the appellant who chose to invoke that process. It would be surprising if, by doing so, he were able to avoid the consequences of a full rehearing. The position was put concisely by McHugh J in Harris v Caladine 172 CLR 84 (at 165): "At the relevant time, O. 36A, r. 7(4) provided that the review of 'an exercise of power by a Judicial Registrar or a Registrar shall proceed by way of a hearing de novo'. Neither that sub-rule nor any other provision of O. 36A purported to give any conclusory or presumptive effect to any finding of a judicial registrar or registrar. Any order of the judicial registrar or registrar could not take effect if a litigant wished his or her case to be retried by a judge of that Court since a litigant, dissatisfied with such order, was entitled to have his or her case heard de novo by a judge of the Court: O. 36A, r. 7(4)." This passage reflected a similar view to that which his Honour had earlier taken in Goldfinch v R (1987) 30 A Crim R 212 at 218-219: "An appeal to the District Court under s 122 is not an appeal in the sense that lawyers now use that term. It is an election to have the case retried on new materials. Once a person elects to appeal under s 122 the Crown must prove again its case. It may do so by the introduction of new evidence on the issues of liability and sentence. This exposes the appellant to the chance of an increased sentence. Likewise the appellant is not bound by the way he conducted the case in the Local Court. He may require the Crown to prove the case against him even though he pleaded guilty before the Local Court. Moreover, in an appeal under s 122, the sentence is the sentence of the judge, not that of the magistrate." 13 We would, therefore, respectfully disagree with the opinion of the Federal Magistrate that there was no jurisdiction to make the order for substitution of Hitwise Pty Ltd as petitioning creditor pursuant to s 49 of the Act. Whether or not the appellant was entitled to challenge the substitution in the proceeding before Wilson FM, and on this appeal, there was power to make the order and the assumption made by Wilson FM that the order stood was correct in substance. These grounds of appeal should be rejected. 14 The question as to whether simply dismissing the review was the correct order does not arise on these grounds of appeal. That course is consistent with the opinion of Allsop J in Cottrell v Nicholls (Trustee); in the matter of Cottrell (bankrupt) [2004] FCA 102, particularly at [16] and [31], applied recently by Gordon J in Moran v Lydiard Financial Services Pty Ltd [2007] FCA 872 at [24]. Resolution of that question is best left to an occasion where it directly falls for decision. 15 The next grounds can be taken together and are as follows: "The primary and secondary Magistrates' erred in concluding that there was no other sufficient cause why a sequestration order ought not to be made; in particular that the Appellant originally deposed that he was solvent and did have sufficient funds at his disposal to pay the amount owing to the 1st Respondent. The secondary Magistrate erred by either ignoring or not giving sufficient weight to the Appellant's proffer to establish his solvency by depositing with the Court sufficient funds to pay the debts owing." 16 Wilson FM considered, in some detail, the contention on the part of the appellant that the judgment of Hitwise Pty Ltd was a default judgment and did not reflect a true debt, including the various unsuccessful attempts by the appellant to have the judgment set aside and the judicial review proceedings which then were, and still were at the hearing of the appeal, pending in the Supreme Court of Victoria to challenge those decisions. He was against the appellant. Wilson FM also considered the question of solvency in some detail and was not satisfied that the appellant was solvent. No appealable error has been demonstrated in the manner in which those issues were disposed of. 17 The last ground of appeal is as follows: "In the alternative, the secondary Magistrate erred by not ordering that the respondent's costs of both applications be assessed and paid out of the Appellant's bankrupt estate in accordance with S109(1)(a)." The order for costs was, "the applicant pay the respondent's costs of both applications, including reserved costs, to be assessed". No separate submissions were directed to this ground of appeal. There is no reason why the order should not stand. 18 The appeal should be dismissed and the appellant ordered to pay the first respondent's costs of the appeal. I certify that the preceding eighteen (18) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Kiefel, Sundberg and Gyles.