Leave to appeal: Overview
41 In applications of this nature, the Court usually proceeds on the basis of the approach articulated in Decor Corp Pty Ltd v Dart Industries Inc [1991] FCA 844; (1991) 33 FCR 397 at [2] - [6], where the Full Court drew attention to two inquiries: First, whether in all the circumstances the decision below is attended by sufficient doubt to warrant it being reconsidered by a Full Court; secondly, whether substantial injustice would result if leave were to be refused, supposing the decision below to be wrong.
42 As we have noted, the applicants' application for leave to appeal was referred to a Full Court on the basis that the application and any consequent appeal be heard at the same time. As the Full Court observed in Samsung Electronics Co Limited v Apple Inc [2013] FCAFC 138 at [21], on occasions a Full Court will entertain an application for leave to appeal together with the appeal itself, particularly where the hearing of an application for leave and the appeal itself canvas much the same factual and legal territory. The Full Court cautioned, nonetheless, that, although this procedure might be followed, no encouragement should be given to a course whereby the statutory requirement to first obtain leave:
… can be subverted and relegated to an unnecessary distraction from a consideration of the arguments sought to be raised on appeal.
43 It is also important to note that the judgment in the present case is not merely interlocutory in nature but discretionary in character. In Oswal v Burrup Fertilisers Pty Limited (Receivers and Managers Appointed) [2011] FCAFC 117; 85 ACSR 531, the Full Court said (at [8]):
8. The primary decision was a discretionary decision made on a matter of practice and procedure. The character of the two applications imposes a heavy burden on PO and RO. As was said in House v The King (1936) 55 CLR 499 at 505, an appeal from a discretionary judgment should not be allowed unless the Court is persuaded that the decision was made in error involving the primary judge acting upon a wrong principle, allowing extraneous or irrelevant matters to guide or affect the decision, by mistaking the facts, or by failing to take into account some material consideration. There are good reasons for that cautious approach. It avoids the risk of the pre-trial processes becoming fragmented, and so causing lengthier and more expensive litigation than is necessary. It avoids the risk of deferring or delaying the postponement of the final decision of the dispute between the parties. It avoids inappropriate intrusion into appropriate case management of cases by the primary judge, with a view to bringing the matter to a speedy, efficient, effective and just resolution. More generally, therefore, it may interfere with the proper administration of justice, as now reflected in s 37M of the FCA Act. For instance, in Johnson Tiles Pty Ltd v Esso Australia Pty Ltd (2000) 104 FCR 564, French J at [42] said:
The time and resources of the Court and the parties should not be lightly taken up with appeals about decisions in connection with proceedings which do not finally determine the rights of the parties.
44 Although trite, it is worth repeating that, in relation to such judgments, an appeal will not succeed simply because the appeal court is able to conclude that it would have taken a different view from that taken by the primary judge: Bomanite Pty Ltd v Slatex Corp Australia Pty Ltd [1991] FCA 698; (1991) 32 FCR 379 at [10]. It is necessary to demonstrate error in the judgment appealed from.
45 The applicants identified 16 substantive grounds of appeal which they addressed by reference to eight headings. We will consider the proposed grounds below.
46 As to the question of substantial injustice, the applicants submitted that the effect of the primary judge lifting the statutory stay was to require the expenditure of substantial sums on a defence which might be rendered otiose depending on the outcome of the Commonwealth's audit and reconciliation process.
47 By the time of the hearing of the application for leave to appeal, the Department had arrived at a preliminary view on the outcome of that process. Its preliminary view was that only approximately $9.2 million in VET FEE-HELP assistance was payable to Phoenix. This is well short of the $106 million already advanced, and the further $253 million claimed by Phoenix.
48 The Deed Administrators have expressed their expectation that a proceeding against the Department for judicial review and/or declaratory relief will be commenced seeking the Court's determination on questions of principle concerning the operation of cl 43 of Sch 1A to the Higher Education Support Act. The applicants argued that there was no reason to think that substantial delay would be occasioned by adopting that course. They argued that such proceedings would involve no complex forensic inquiry and were highly likely to be substantially less costly than preparing evidence to defend the principal proceeding.
49 The applicants submitted further that, if the result of such proceedings were to be unfavourable to them, then the principal proceeding would not be defended and the remaining funds of the applicants would be distributed to creditors. In these circumstances, the applicants submitted, it would be manifestly and substantially unjust to refuse leave to appeal (assuming that the primary judge should have refused leave to proceed).
50 Thus, a central theme in the presentation of the applicants' application for leave to appeal was the contention that, in light of the concurrent audit and reconciliation process being undertaken by the Commonwealth, the primary judge acted prematurely in granting leave to proceed. This theme was echoed in a number of the submissions advanced by the applicants in support of their proposed grounds of appeal.
51 It is appropriate at this stage to explore what is likely to be involved in completing the audit and reconciliation process. The process comprehends all the legal challenges which the Deed Administrators might choose to bring in the interests of creditors. The applicants have already foreshadowed one question of principle that likely will require legal adjudication, namely the point at which Phoenix's entitlement to payment under cl 55 of Sch 1A arises. Phoenix's position is that its entitlement to payment arises upon satisfaction of the steps in cl 43 of Sch 1A. The Commonwealth disputes this. It says that, before it is required to make payments under cl 55, it is entitled to inquire into the circumstances in which students come to be enrolled and to be satisfied that the enrolments are (to use its expression) bona fide. There is, therefore, a fundamental difference between the parties as to when the Commonwealth's liability under cl 55 is triggered.
52 As we have noted, at the time of the leave to proceed application, the audit and reconciliation process was underway, but not completed. The evidence before the primary judge was that, once the Commonwealth's position in relation to the audit and reconciliation process was communicated to the Deed Administrators, Phoenix would be given an opportunity to respond before a final determination is made. There was evidence before the primary judge that there was no right to a merits review in relation to that process. Mr Garey, a Senior Executive Lawyer employed by the Australian Government Solicitor acting for the respondents, said that the Commonwealth anticipated that Phoenix would commence legal proceedings if disappointed with the outcome of the audit and reconciliation process. The form of such a challenge was unclear but, given the substantial number of enrolments involved, that challenge would likely take a significant period of time (at least 12 months) to resolve.
53 Mr Georges, one of the Deed Administrators, gave this evidence:
42. I anticipate that, if the Commonwealth Department of Education and Training informs Phoenix that the proposed outcome of the audit and reconciliation processes is that Phoenix is not entitled to amounts of VET FEE-HELP assistance for all or a large number of its 2015 and 2016 enrolments, it will be necessary to respond as appropriate. If the basis for the conclusion is a view, based on the (limited) material requested, that enrolments were not (or were not likely to be) bona fide, my staff and I would need to devote significant resources to gathering an 'evidence base' to establish the bona fides of the enrolments, to support Phoenix's entitlements to amounts of VET FEE-HELP assistance, possibly on an enrolment-by-enrolment basis. In those circumstances, Mr Lindholm and I may also elect to pursue any review and appeal rights which are available to Phoenix in respect of any such decision.
43. As stated above, Phoenix had 11,679 students who enrolled in 21,713 courses of study in 2015 and 2016. If it becomes necessary to build an 'evidence base' to substantiate Phoenix's entitlement to amounts of VET FEE-HELP assistance on an enrolment-by-enrolment basis, it will be necessary to retrieve and review records relating to each enrolled student from a variety of sources, including:
(a) core enrolment records relating to each application for enrolment;
(b) documents held by brokers and agents who interacted with applicants for enrolment;
(c) documents relating to the verification procedures undertaken by Phoenix and CTI in connection with each application for enrolment (including telephone recordings of contact with applicants for enrolment);
(d) documents relating to each enrolled student's participation in courses; and
(e) documents recording or relating to contact between Phoenix's employed trainers and teachers and enrolled students.
I am informed by Mr Paul Harlond of my staff that it takes, on average, approximately 45 minutes per student to retrieve and review all documents (including voice recordings) held by Phoenix relating to a student. This does not include the time which is associated with liaising with brokers and agents about any records they hold about enrolled students.
54 At the hearing of the present application for leave to appeal, Mr Georges gave evidence that he intended to respond to the Commonwealth's present view that only $9.2 million was owing to Phoenix, before a final reconciliation takes place. He said that, if the outcome of the final reconciliation does not result in a significant change to the Commonwealth's position concerning Phoenix's entitlement, then the proceeding that the Deed Administrators would likely bring would seek the Court's determination of (amongst other things):
the extent to which the participation or engagement of enrolled students in VET units of study is relevant to the entitlement of students to VET FEE-HELP assistance and to the entitlement of a VET provider to payments from the Commonwealth under cl 55 of Sch 1A (if at all);
the extent to which the Commonwealth has erroneously construed cl 43 of Sch 1A;
the extent to which the Department has taken into account irrelevant considerations and/or failed to take into account relevant considerations, in undertaking the reconciliation and determining Phoenix's entitlement to be paid amounts in respect of VET FEE-HELP assistance relating to its 2015 and 2016 enrolments; and/or
the amount of VET FEE-HELP assistance to which persons enrolled with Phoenix were entitled and the amounts consequently payable to Phoenix under cl 55 of Sch 1A.
55 As reflected in the applicants' submissions before us (see [49] above), Mr Georges said that if the outcome of this foreshadowed legal challenge is unfavourable to Phoenix, then he expected that the Deed Administrators would form the view that it was not in the interests of creditors to defend the principal proceeding and that they would, in due course, distribute the funds they hold to creditors under the DOCA rather than incur legal and other expenses in defending the principal proceeding.
56 On the other hand, Mr Georges said that, if the outcome of the foreshadowed legal challenge is favourable to Phoenix, then subject to the availability of funds, and to the DOCA not terminating, it is likely that the Deed Administrators would give instructions to defend the principal proceeding at which time the Deed Administrators anticipated that they would not oppose leave being granted to the respondents to proceed with the principal proceeding.
57 Before us, the applicants focused on the prospect of proceedings for judicial review or for declaratory relief, as explained above. Before the primary judge, the emphasis, at least in the evidence, was on the possible need for the Deed Administrators to undertake a significant amount of work to marshal an appropriate evidence base to meet a determination by the Commonwealth that the enrolments in question were not bona fide. This difference in focus is important because, as we have noted, on the application for leave to appeal, the applicants contended that the determination of proceedings for judicial review and/or declarations would be confined and that the primary judge erred in finding that the audit and reconciliation process would result in substantial delay to the principal proceeding. However, as we shall recount below, in reaching her conclusion on delay, the primary judge was informed by Mr Georges' evidence quoted at [53] above: see also below at [97] and the primary judge's reasons at [125].
58 For their part, the respondents submitted that none of the proposed grounds of appeal raise arguable errors of principle, such as would lead to the decision being set aside on appeal. Further, the respondents submitted that no substantial injustice is apparent. The respondents argued that, although the cost burden of defending the principal proceeding might be adverse to the interests of creditors, the primary judge's reasons reveal that these are not the only interests involved.
59 Further, the respondents submitted that the applicants' argument that the proceedings arising from the audit and reconciliation process would not lead to substantial delay was "speculative and probably wrong". Such proceedings would not be "a simple judicial review case".
60 The respondents also disputed the submission that the principal proceeding would not be defended should the result of the new proceedings contemplated by the Deed Administrators be unfavourable to the applicants. The respondents said that, despite the submission advanced on this application, the Deed Administrators had not, in evidence, committed themselves to that position and that the highest the evidence could be put was that they do not wish to be forced to commit resources to the principal proceeding at the present time.