Renshaw v Queensland Mining Corporation Limited

Federal Court of Australia|2016-08-23|Before: Mr J, Katzmann J

Background 11 Section 40(1) of the Bankruptcy Act 1966 (Cth) provides that a debtor commits an act of bankruptcy in each of the cases listed in the subsection. Paragraph 40(1)(g) provides that a debtor commits an act of bankruptcy: if a creditor who has obtained against the debtor a final judgment or final order, being a judgment or order the execution of which has not been stayed, has served on the debtor in Australia … a bankruptcy notice under this Act and the debtor does not … within the time specified in the notice … comply with the requirements of the notice or satisfy the Court that he or she has a counter-claim, set-off or cross demand equal to or exceeding the amount of the judgment debt or sum payable under the final order, as the case may be, being a counter-claim, set-off or cross demand that he or she could not have set up in the action or proceeding in which the judgment or order was obtained. 12 A debtor has 21 days in which to comply with a bankruptcy notice: see Re Scerri (1998) 82 FCR 146. In the event that an application is made to the court to set aside the notice before the expiration of the 21 days, the court may extend the time for compliance (subject to s 41(6C), which is presently irrelevant): s 41(6A)(b). 13 On 28 January 2015 Mr Renshaw applied to the Federal Circuit Court to set aside the bankruptcy notice and, on 9 February 2015, relying on s 41(6A) of the Act, the District Registrar extended the time for compliance up to and including 31 March 2015. But Mr Renshaw's application to set aside the bankruptcy notice was not heard on that day. It was not heard until 4 June 2016. Still, s 41(7) provides that: Where, before the expiration of the time fixed for compliance with the requirements of a bankruptcy notice, the debtor has applied to the Court for an order setting aside the bankruptcy notice on the ground that the debtor has such a counter-claim, set-off or cross demand as is referred to in paragraph 40(1)(g), and the Court has not, before the expiration of that time, determined whether it is satisfied that the debtor has such a counter-claim, set-off or cross demand, that time shall be deemed to have been extended, immediately before its expiration, until and including the day on which the Court determines whether it is so satisfied. 14 The creditor's petition was filed in the Federal Circuit Court on 30 July 2015. The alleged debt was an amount of $382,273.81 made up of a judgment debt of $363,000 and post-judgment interest. The act of bankruptcy upon which the petition was based was his failure to comply on or before 4 June 2015 with the requirements of a bankruptcy notice served on him on 8 January 2015 or to satisfy the Court that he had a counter-claim, set-off or cross-demand equal to or greater than the sum claimed in the notice which could not have been set up in the action in which the judgment was obtained (apparently relying on s 40(1)(g)). 15 Section 44(1)(c) of the Bankruptcy Act precludes a creditor from presenting a petition against a debtor unless the act of bankruptcy on which the petition is founded was committed within six months before the presentation of the petition. In the present case that means that QMCL was not entitled to present the petition unless Mr Renshaw did not comply with the bankruptcy notice (whether by discharging the debt or establishing that he had a relevant counter-claim etc) in the period between 30 January 2015 and 29 July 2015: see Acts Interpretation Act 1901 (Cth), ss 2G and 36(1), item 7. 16 By amended notice stating grounds of opposition to the petition, Mr Renshaw indicated that he intended to oppose the petition on the following grounds: (1) he had not committed an act of bankruptcy within the six months before the presentation of the petition; (2) he had an offsetting claim for an amount exceeding the amount of the relevant debt; (3) he was solvent; and (4) the creditor's petition was an abuse of process. 17 The final ground was added at the hearing of the creditor's petition on 27 April 2016. Written submissions had been filed for Mr Renshaw on 3 December 2015 directed to the second and third grounds. At the hearing Mr Renshaw conceded that he was not solvent and the contention that there was "an offsetting claim" was not pressed. 18 In the court below Mr Renshaw argued that the District Registrar's order extending time was invalid and s 41(7) did not operate. The primary judge rejected the argument, finding that on the evidence before the Court (which his Honour did not identify) the act of bankruptcy occurred on 4 June 2015 (being the date on which he had dismissed Mr Renshaw's application to have the bankruptcy notice set aside). 19 Mr Renshaw also argued that the creditor's petition was an abuse of process and not all the matters stated in the petition were true, because the petitioning creditor failed to disclose that it held security over his property. The basis for this argument was that QMCL had lodged a caveat over a property owned by Mr Renshaw and his partner, asserting an equitable interest in proportion to the amount of trust monies to which QMCL was entitled and which had been applied by Mr Renshaw to the purchase of the land and/or an equitable charge or lien over the land to secure repayment of those monies. Yet, Mr Renshaw argued, the deponent of the affidavit verifying the creditor's petition knew about the caveat at the time he swore his affidavit because he was a witness to the caveat. The primary judge rejected this argument, too, apparently on the ground that the mere fact that the caveat had been lodged did not mean that QMCL was a secured creditor and Mr Renshaw, who was in a position to prove that it was, had called no evidence on the subject. 20 His Honour said that he was satisfied that Mr Renshaw was unable to pay his debts, that he had committed an act of bankruptcy, and that there was no sufficient cause not to make the order.

Should security be granted? 21 I am satisfied that it is in the interests of justice that an order for security be made. 22 First, there is every reason to believe that Mr Renshaw cannot or will not satisfy a costs order that may be made against him. 23 QMCL adduced evidence to show that to date it has incurred costs exceeding $400,000 in proceedings involving Mr Renshaw in which he and his company were unsuccessful and which it has never recovered. On the face of things this provides an additional reason to believe that Mr Renshaw is highly unlikely to satisfy any adverse costs order. I put little weight on it, however, as there was no evidence to indicate that QMCL had taken any action at any time to recover its costs. Indeed, I was informed by its counsel that it had not. 24 Nevertheless, Mr Renshaw is a bankrupt. The effect of the sequestration order is to vest in his trustee in bankruptcy all "divisible" property (as defined in s 116 of the Bankruptcy Act), including "after-acquired property": Bankruptcy Act, s 58(1). While he initially opposed the making of a sequestration order on the ground that he was solvent, he abandoned this ground at the hearing of the creditor's petition, presumably, as QMCL submitted, because he was unable to prove it. Mr Renshaw did not contend otherwise. Indeed, at the hearing, Mr Johnson of counsel who appeared for Mr Renshaw both in this Court and in the Federal Circuit Court, did not dispute that his client was insolvent. According to the trustee's report exhibited to Mr Du's affidavit of 18 July 2016, as at 27 June 2016 Mr Renshaw's total liabilities exceeded his total assets by nearly $250,000. 25 Second, while "the general rule is that poverty is no bar to a litigant", it is generally accepted that the position is different in the case of appeals where the insolvent party is not excluded from the courts, "only prevented, if he cannot find security, from dragging his opponent from one Court to another": Cowell v Taylor (1885) 31 Ch D 34 at 38. See also Dye at [27]; Nati v Bunt (No 2) [2013] FCA 325 (Perram J). But contrast Kiefel v State of Victoria [2014] FCA 604 at [38] (Mortimer J). In Maher v The Official Trustee in Bankruptcy [2013] FCA 1143, an application to annul a bankruptcy, Jessup J observed at [5]: "The purpose in ordering security for costs is to provide protection to a party brought into litigation by a party who is unable to meet the costs of that other party, should the litigation be unsuccessful": Delta Electricity v Blue Mountains Conservation Society Inc [2010] NSWCA 264 at [4]. ... [N]ormally a court would be reluctant to order an individual applicant to provide security, if the effect would be to stultify his or her access to justice: Barton v Minister for Foreign Affairs (1984) 2 FLR 463, 469; and see the Federal Court authorities collected by Heydon JA in Melville v Craig Nowlan and Associates Pty Ltd (2002) 54 NSWLR 82, 102-106 [84]-[94]. But this consideration is a discretionary one, rather than an absolute bar to the provision of security: Ninan v St George Bank Ltd (2012) 294 ALR 190, 197-198 [28]-[31]. One conventional instance in which the voice with which the consideration speaks is muted is where the individual appeals from a judgment at first instance which has gone against him or her: Cowell v Taylor (1885) 31 Ch D 34, 38. The policy consideration which informs that practice is that, prima facie at least, the need for the individual to have access to justice will have been satisfied by the hearing at first instance, and that the successful respondent would, therefore, have a stronger claim for security on the appeal: Ng v Van Der Velde [2010] FCA 89 at [28]. 26 Mr Johnson submitted that Mr Renshaw's impecuniosity means that an order for security would stifle the appeal. But there is an evidential burden on an impecunious litigant to establish a reason why security should not be granted: Addenbrooke Pty Ltd v Duncan (No 3) [2014] FCA 322 (Jacobson J), citing Prynew at [16]. 27 The fact that Mr Renshaw is insolvent does not necessarily signify that he lacks the means to prosecute the appeal. He could have put on evidence that he was without such means but he did not. For all I know he may have a benefactor. After all, he has retained a solicitor and a barrister to act for him on the appeal and to resist QMCL's interlocutory application and there is no evidence to indicate that they are doing so pro bono. In these circumstances I am not satisfied that the making of the orders QMCL seeks would stultify the appeal or be oppressive. 28 Third, Mr Renshaw did not contend that his impecuniosity was caused by QMCL. 29 Fourth, not even Mr Renshaw's own counsel submitted that the appeal enjoyed good prospects of success. QMCL argued that it was unlikely to succeed and supported the argument with written and oral submissions on the substantive grounds. Mr Johnson merely submitted that the appeal was not unarguable. In his written submissions he made no attempt to explain why or to respond to QMCL's submissions on the subject. In oral argument he did little to make up for the deficit. 30 In substance, according to the amended notice of appeal, the errors allegedly made by the primary judge are: (1) failing to find that the act of bankruptcy relied upon for the creditor's petition occurred outside the six month period contemplated by s 44(1)(c) and failing to give adequate reasons for his finding to the contrary (ground 1); (2) failing to find that the caveat was evidence of a claim by QMCL as a secured creditor and, in doing so, effectively reversing the onus of proof (ground 2); (3) failing to find that the evidence of the "asset and liability" position of either party, together with the matters referred to in grounds 1 and 2, constituted "other sufficient cause" for not making a sequestration order within the meaning of s 52(2)(b) of the Bankruptcy Act (grounds 3 and 4); (4) failing to give adequate reasons to support his conclusion that there was no sufficient cause for not making a sequestration order (ground 4). 31 Mr Johnson described the first ground as tenuous and the second as arguable, though he did not articulate, let alone develop the argument. The third and fourth he did not address at all. While there appears to be merit in the complaint about the dearth of reasons, neither party suggested that if it were successful the appeal should be allowed and the matter remitted to the Federal Circuit Court. The powers of this Court on appeal are broad and there is no apparent reason why a remittal would be required. Accordingly, the fate of the appeal turns on the strength of the substantive grounds. 32 It is unnecessary to say more about the grounds at this stage. I am prepared to assume in Mr Renshaw's favour that ground 2 and so much of grounds 1 and 4 as challenge the adequacy of the reasons are at least arguable. 33 When all these matters are weighed in the balance, they favour a grant of security. Contrary to Mr Johnson's contention, there is no public policy militating against an order for security by a bankrupt for the costs of an appeal. Certainly, he cited no authority in support of the submission. In Moussa v Commonwealth Bank of Australia [2011] FCA 67 Tracey J made an order for security for costs against a bankrupt on an appeal from a review of a registrar's decision to make a sequestration order. His Honour made no reference to any public policy to the contrary.

In what amount? 34 The next question is in what amount security should be ordered. As the appeal is expected to last no more than half a day and as QMCL's counsel is very familiar with the case, having appeared in the hearing before the primary judge, I consider that the order should be made at the bottom end of Mr Du's estimated range. If that proves too conservative, which I doubt, QMCL can always apply for additional security.

Conclusion 35 Mr Renshaw should be ordered to provide security in the sum of $35,000. In the event that the order be insufficient to protect QMCL, QMCL is at liberty to apply for additional security. 36 Mr Johnson argued against the making of proposed order 2 (in effect, a self-executing order seeing the appeal dismissed under r 36.09(1)(c) if the security is not provided within the requisite period). Instead, he urged the court instead to stay the proceeding indefinitely. It seems to me, however, that a stay would be singularly inappropriate in a matter of this nature. Bankruptcy is not mere inter partes litigation. It affects the rights of other creditors. There is also a public interest in the timely disposition of bankruptcy proceedings. In Totev v Sfar (2008) 167 FCR 193 at [17] Emmett J said that "[c]ourts exercising bankruptcy jurisdiction must be assiduous in avoiding delay in dealing with any question concerning the making of a sequestration order". As I foreshadowed at the hearing, however, I am minded to extend the time for the provision of security from the date proposed in QMCL's application. I propose giving Mr Renshaw until 30 September 2016 to come up with the security, in default of which the appeal will be dismissed. If he does, then the appeal can be heard during the next Appeals and Full Court sitting period in November. With these variations, then, the orders QMCL seeks will be made. I certify that the preceding thirty-six (36) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Katzmann.

Federal Court Rules 2001(Cth)rr 19.01, 36.09

Acts Interpretation Act 1901(Cth)ss 2G, 36(1), item7

Bankruptcy Act 1966(Cth)ss 44(1)(c), 58(1)

Relevant principles 2 The power to make the order for security derives from s 56 of the Federal Court of Australia Act 1976 (Cth). That section relevantly permits a judge of the Court to order an appellant in an appeal to give security for the payment of costs that may be awarded against him or her in an amount and at such time and in such manner and form as the judge directs. It also permits the judge to order that the proceeding or appeal be dismissed if security is not given in accordance with such an order. 3 Rule 19.01 of the Federal Court Rules 2001 (Cth) provides that a respondent may apply for such an order and that any such application must be accompanied by an affidavit stating the facts on which the order is sought and, in particular: (a) whether there is reason to believe that the applicant will be unable to pay the respondent's costs if so ordered; (b) whether the applicant is ordinarily resident outside Australia; (c) whether the applicant is suing for someone else's benefit; (d) whether the applicant is impecunious; and (e) any other relevant matter. 4 Although r 19.01 applies to proceedings in the original jurisdiction, the parties proceeded as if it also applies to appeals. Yet it is r 36.09 that applies to security for the costs of an appeal. That rule is not as prescriptive as r 19.01 and only requires that an application be accompanied by an affidavit stating the facts in support of the application. Be that as it may, Mr Renshaw accepted that the requirements of r 19.01 had been satisfied and that QMCL was entitled to make the application. 5 Self-evidently the power to make an order under s 56 of the Act is broad. It is unconstrained by anything other than the requirement that it be exercised judicially: Bell Wholesale Co Ltd v Gates Export Corporation (1984) 2 FCR 1 at 3-4. The "touchstone" is fairness: Madgwick v Kelly (2013) 212 FCR 1at [92] (Allsop CJ and Middleton J). That said, without wishing to be prescriptive, a number of considerations will bear upon the exercise of the discretion. They include the matters referred to by Emmett J in Dye v Commonwealth Securities Ltd [2012] FCA 992 at [26] ("Dye"): (a) the prospects of success … ; (b) the risk that an order for costs will not be satisfied; (c) whether the making of an order for security would be oppressive insofar as it would stifle a reasonably arguable claim; (d) whether impecuniosity of an appellant arises out of the conduct that is the subject of complaint in the relevant proceeding; (e) whether there are any aspects of public interest that weigh in the balance against granting security; and (f) whether there are any other particular discretionary matters peculiar to the circumstances of the case. 6 It is generally accepted that the party seeking security bears a legal onus of establishing that the party against whom the order is sought will be unable to pay its costs if it succeeds on the appeal: see, for example, Knight v Beyond Properties Pty Ltd [2005] FCA 764 at [27] (Lindgren J); Prynew Pty Ltd v Nemeth [2010] NSWCA 94 at [16] ("Prynew"). I say generally because, as I pointed out in Waters v Commonwealth (Australian Taxation Office) [2015] FCAFC 46; 108 ACSR 445 at [45] (North J agreeing), there is an ostensible conflict in the authorities about whether it is correct to speak of a burden of proof on an application for security for costs.

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