The state of the existing authorities
157 In considering the authorities concerned with the orders to be made when there has been some form of successful challenge to the making of a sequestration order, care must be taken to differentiate those cases dealing with the orders to be made where there is a successful appeal against the making of a sequestration order. As has been noted, cases of that kind raise different considerations. The difference arises because of the nature and extent of powers that may be exercised by an appellate court consequent upon a successful appeal.
158 Nevertheless, in some respects the cases concerned with the consequences of an appeal order setting aside a sequestration order consequent upon a successful appeal give rise to issues of a related kind to those which arise in the present proceedings. Also, one such case, Flint, was relied upon by the primary judge. Therefore, for both those reasons, it is appropriate to consider them when reviewing the state of the existing authorities.
159 Contrary to the present position, for a considerable period of time, the Bankruptcy Court had a general power to review, rescind or vary any order made by it in its bankruptcy jurisdiction, a power that extended to the making of a sequestration order: see s 26 of the Bankruptcy Act 1924 (Cth); and s 37 of the Bankruptcy Act 1966. Prior to 1966, the Court also had power to order the annulment of a sequestration order (as distinct from annulment of the bankruptcy): see the reference to the authorities and the former statutory provision in Cameron v Cole (1944) 68 CLR 571 at 581-584 (Latham CJ), 600 (McTiernan J), 608, 610 (Williams J). This power continued until 1992, although it was not available after 1980 if the sequestration order had been entered.
160 Therefore, care must be taken in transposing observations expressed in this former legislative context which is quite different to the present context and which did not take account of the possibility that a sequestration order might be made in the exercise of delegated judicial power.
161 There are a number of cases under the former provisions of the Bankruptcy Act where the view was expressed that rescission did not operate to bring the bankruptcy to an end. Rather, what was needed was annulment or discharge. Examples of the view that rescission of the sequestration order did not bring the bankruptcy to an end are: Cameron v Cole at 610 (Williams J); Re Deriu (1970) 16 FLR 420 at 422; Re Bond; Ex parte A Bankrupt (1978) 36 FLR 131 at 133; Simon v Vincent J O'Gorman Pty Ltd (1979) 41 FLR 95 at 108; and Re Anasis; Ex parte Total Australia Ltd (1985) 11 FCR 127 at 133-134.
162 These cases were given passing reference in Clyne v Deputy Commissioner of Taxation (1984) 154 CLR 589. In that case, a sequestration order was made on a debtor's petition. Subsequently a sequestration order was made on a creditor's petition which was sought to be expressed to operate before the earlier sequestration order. The issue was whether the later sequestration order could be made at a time when the debt that was said to give rise to the act of bankruptcy was a debt that arose at a time that was the subject of the bankruptcy that was brought into existence by the earlier sequestration order. The significance of the point lay in the consequences for the relation back period of the bankruptcy.
163 The High Court found that there could be no sequestration order on the creditor's petition because by the time the petition was heard the debt on which the creditor's petition was based had merged in the bankrupt estate brought into existence by the earlier sequestration order made on the debtor's petition. In the course of the reasons, the following obiter view (cf Gibbs CJ, Murphy, Brennan and Dawson JJ) was expressed as to the form of order that ought to have been made:
The proper course was, in our opinion, to annul rather than to rescind the second order (see Re Deriu … and Re Bond …) but that does not affect the present case.
164 This appears to be a reference to the possibility of an order annulling the sequestration order (albeit expressed at a time when the legislation referred to annulling the bankruptcy). As has been indicated, no such possibility exists under the Bankruptcy Act as now expressed. Annulment is an order that now pertains to the bankruptcy itself.
165 It was also observed in Clyne that a bankruptcy that comes into effect upon the making of a sequestration order continues in effect until discharged or annulled referring to s 43(2) and s 55(8) of the Bankruptcy Act 1966: at 598. Significantly that view was expressed in the context of an appeal not a review of the exercise of delegated judicial power.
166 It is convenient to say something at this point about Simon v Vincent J O'Gorman. This was an appeal against the making of a sequestration order on a creditor's petition by a judge of the Court. No question of delegated power arose. The Court on appeal went behind the judgment and found that there was no real debt, applying Wren v Mahony (1972) 126 CLR 212. It was put to the Court that on the authority of Re Deriu that if a sequestration order ought not to have been made the proper order was to annul the order under s 154 (of the Bankruptcy Act 1966). This was rejected. The Court made clear (at 102 (Franki J), 107-109 (Lockhart J)) that the Court's powers on appeal enabled it to set aside the sequestration order. Reliance was placed on the order made by the High Court in Wren v Mahony. Franki J made clear that the order was designed to 'avoid the consequences and stigma of bankruptcy' attaching to the debtors: at 102.
167 In The Austral Brick Company Pty Ltd v Daskalovski [1998] FCA 782, Emmett J made an order under s 153B annulling a bankruptcy of the debtor. The sequestration order was made by a registrar in circumstances where the debtor had not been served and had not appeared. The debtor applied under what was then O 35 r 7, a provision in the Federal Court Rules, which allowed for orders to be set aside for irregularity. His Honour was satisfied that the sequestration order ought not to have been made but instead of setting aside the order under the rule made an order annulling the bankruptcy because the estate had already been administered. His Honour found that the power under the rule 'would normally be exercised in circumstances where the matter comes before the Court very soon after the order has been made and before there has been any administration in bankruptcy pursuant to a sequestration order'.
168 In Symons v Bateman [1999] FCA 658, sequestration orders had been made by a registrar in the absence of the debtors who had believed that there was an agreement not to proceed with the petition on the day. The application made to the Court (French J) was to set aside the sequestration orders on the grounds that they were made in the absence of the parties, that they were obtained by fraud and that the petition was an abuse of process. Prior to the hearing agreement was reached to set aside the orders under the same rule considered by Emmett J in Austral Brick with no order as to costs and that the creditor's petition be adjourned. A trustee had been appointed and he wanted his remuneration and costs secured and suggested an annulment under s 153B or, in the alternative, if an order was made under the rule, ancillary orders modelled on those which would apply in the event of an annulment. French J expressed serious reservations as to whether orders could be made for the remuneration of the trustee for administration up until setting aside orders under the same rule. His Honour also agreed with the observations of Emmett J in Austral Brick. In the result, French J refused to make the consent orders (consensual that is as between the parties, though not the trustee) under the rule concerned with setting aside orders for irregularity and adjourned the application for the parties to confer as to whether some other form of order such as under s 153B could be agreed.
169 It is to be noted that even though the sequestration orders in Austral Brick and Symons were made by registrars, these cases were not concerned with the review of the exercise of delegated judicial power.
170 Re Gollan was a case that did concern an application to review a sequestration order made by a registrar. The debtor did not appear before the registrar but on review demonstrated that his assets exceeded his liabilities by a very large sum. There was an undertaking by the debtor to pay the costs of the Official Trustee reasonably incurred. Spender J determined that the review power (referring to the then s 14(5) of the Bankruptcy Act 1966) should be exercised and the decision of the registrar set aside and in lieu thereof the petition dismissed. Notwithstanding the undertaking, an order was made that Mr Gollan as the debtor seeking the review pay the reasonable costs of the administration undertaken by the Official Trustee. His Honour also indicated that if not minded to make those orders, then an order for annulment would have been made. The basis for doing so was not the subject of any reasons in the decision.
171 In Rangott v Marshall [2004] FCA 961; (2004) 139 FCR 14, the trustee as applicant brought a proceeding to determine whether he was still a trustee and the bankrupt still a bankrupt and orders concerning the administration costs. The matter came before Gyles J on remitter from the Full Court which had overturned his orders and had set aside the sequestration order that Gyles J had earlier made a year before the appeal judgment. The Full Court made no consequential orders to deal with the costs of the administration. Gyles J referred to the bankrupt estate having been 'actively administered' from the date of the sequestration order, but that the administration had 'effectively been on hold' since the appeal decision: at [5]. His Honour referred to Re Deriu as having determined that an order for rescission of a sequestration order (then available but, as has been observed, since made the subject of a statutory bar) would not put an end to the bankruptcy, at least not without consequential orders concerning the re-vesting of the property. His Honour also referred to Clyne.
172 The argument advanced to Gyles J was to the effect that if a sequestration order is set aside on appeal, it is as if it were never made and thus it is taken that there never was any valid triggering of the statutory consequence of bankruptcy: at [17]. Accepting the authority of Simon v Vincent J O'Gorman and relying upon the ample power that the Court has on appeal, Gyles J accepted that submission by concluding as follows at [29]:
It would follow from the Full Court decision [Simon v Vincent J O'Gorman] that the sequestration order made on 13 August 2002 and the consequent appointment of the applicant as trustee are set aside. If full effect is given to these provisions it is as if the sequestration order had never been made and the respondent had never been a bankrupt. On that basis the applicant is no longer trustee of the estate of the respondent and was not trustee at the date this proceeding was commenced.
173 In reaching that conclusion, Gyles J relied upon Guss v Johnstone [2000] HCA 26. In that case, a debtor served with a bankruptcy notice sought to persuade the Court that he had a counter-claim, set-off or cross-demand. A declaration was made to the contrary. An unsuccessful appeal was brought. The matter was pursued in the High Court. By effluxion of time there was an act of bankruptcy in failing to satisfy the bankruptcy notice. It was suggested that the Court lacked power to do anything about the act of bankruptcy. As to that submission, the High Court reasoned at [62] as follows:
It is true that there is no statutory grant of power to annul an act of bankruptcy, or to extend the time for compliance with a bankruptcy notice other than in a case where the conditions of s 41(6A) have been satisfied. Suppose, however, that it had been demonstrated to the Full Court that the decision at first instance was based upon an error of law, perhaps involving a misapprehension as to the test to be applied in considering whether the judge was satisfied within the terms of the statute. In such a case, the Full Court may well have set aside the declaration.
(footnotes omitted)
174 The effect of the decision in Rangott v Marshall is that even though the bankruptcy had not been annulled, the decision of the Full Court had the consequence that there was not and never had been a sequestration order and the respondent was not and never had been a bankrupt. Significantly, however, it appears that his Honour was of the view that a different result as to the availability of consequential orders may have been able to have been achieved if the Full Court had exercised its ample powers on appeal in a different manner: see the reference to Shephard v Chiquita Brands South Pacific Limited [2004] FCAFC 76 and the comments at [30] that 'the problem has emanated from the form of order made by the Full Court'. The observation appears to contemplate the possibility that on appeal an order may have been made which would have enabled the trustee to have recovered some or all of the costs of the administration carried out under the authority of the order under appeal, even though the decision on appeal was to the effect that there was no bankruptcy.
175 Rangott v Marshall and Simon v Vincent J O'Gorman were approved and followed in De Robillard v Carver (to which reference has already been made) at [149]-[150] in the following terms:
We, of course, are not strictly bound by Simon v Vincent J O'Gorman Pty Ltd 41 FLR 95; 27 ALR 619 except by considerations of comity. However, with respect, any other approach would accept an implicit fetter upon the appellate powers clearly granted by s 28 of the Federal Court of Australia Act 1976 (Cth). In my respectful opinion the course followed by Gyles J was not only correct as a matter of precedent but was correct in law. The power of this Court on appeal to set aside a sequestration order with the result that 'it is as if no valid sequestration order was ever made' was also referred to, and not doubted, in Pattison v Hadjimouratis (2006) 155 FCR 226 (per Nicholson J at [14]; see also per Jacobson J at [51]-[53] and per Lander J at [177]-[181]).
The consequence, for the present appeal, is that an order upholding the appeal and setting aside the sequestration order made by the primary judge will have the consequence that the appellant is not to be treated as bankrupt from the pronouncement of the sequestration order, notwithstanding the effect of s 43(2) of the Bankruptcy Act (see Commissioner for Railways (NSW) v Cavanough (1935) 53 CLR 220 at 224-225).
176 In De Robillard v Carver, Buchanan J referred to [29] of the reasons of Gyles J in Rangott v Marshall and the reference there to Sackville J's comments in Shephard v Chiquita Brands.
177 In Kyriackou v Shield Mercantile Pty Ltd (No 2) [2004] FCA 1338, on appeal from a decision of a federal magistrate, a bankruptcy notice that had been the foundation for making a sequestration order was found to be invalid. The sequestration order had been made by a federal magistrate, so no exercise of delegated judicial power was involved. The bankrupt then sought an order in the appeal to the effect that the sequestration order be set aside and 'strenuously resisted' any order for annulment of the bankruptcy: at [7]. The bankrupt submitted that the Court had power to order the petitioning creditor to pay the expenses of the Official Trustee in administering the bankrupt estate, alternatively that the Official Trustee ought to bear those costs because of the obligation to proceed with caution when there was an issue raised as to the bankruptcy notice.
178 The Official Trustee submitted that there should be an order for annulment because (at [15]):
… the failure to annul the bankruptcy would deprive the Official Trustee of any opportunity to recoup the costs expended in administering the appellant's estate after the sequestration order had been made, apart from any rights that he might have to bring separate proceedings to recover those costs.
179 It was further submitted that if an order were made setting aside the sequestration order there would be no basis for the Official Receiver to recoup expenses, apart from a possible equitable lien. It was submitted that annulment was the appropriate order even though as a matter of fairness the petitioning creditor should bear the costs because the Court did not have power to make an order requiring the petitioning creditor to bear the costs.
180 Weinberg J dealt with the matter on the basis that the Court was faced with a choice between two alternatives: (a) annulment which would mean that the Official Receiver could recover costs from the property of the estate in accordance with the statutory provisions dealing with the consequences of annulment; or (b) set aside the sequestration order which would lead to the consequence that the Official Trustee would have no avenue for summary recovery of the costs of administration of an estate where the sequestration order had been set aside. His Honour approached the matter on the basis that it was for the Court to determine whether the appropriate order was an annulment or an order to set aside the sequestration order. Referring to Austral Brick and Symons, his Honour said at [41]:
There may be some cases, in which it will be appropriate to annul a bankruptcy under s 153B, thereby triggering the operation of s 154, rather than setting aside a sequestration order. Certainly, Emmett J took that approach in Austral. French J, in Symons, was prepared to contemplate a similar course, though not without reservations. In my opinion, this is not such a case.
181 However, as has been noted, those two cases were not concerned with the orders to be made consequent upon a successful appeal against a sequestration order. Rather, they were concerned with an application under a provision in the Federal Court Rules that allowed for an order to be set aside for irregularity in certain circumstances. For reasons already given, it is clear that the Court can set aside a sequestration order on appeal. Therefore, with due respect, the reasons appear to proceed upon a misunderstanding of the nature of the power being exercised.
182 Later his Honour referred to circumstances that tilt the balance in favour of the bankrupt and concluded at [43] that the Official Trustee must bear his own costs and expenses of the administration. The case is often cited for the proposition that caution is to be exercised by a trustee in bankruptcy in incurring expenses where the validity of the sequestration order is in issue: see, as examples, Flint at [58]; and Boensch v Somerville Legal [2021] FCAFC 79 at [165]. To that extent, the reasoning may be accepted. However, with respect to his Honour, the proper course given the fact that the case was determined on appeal was to consider the orders that might have been made in an appropriate exercise of the powers available to the Court on appeal.
183 In Flint the issue was whether what is commonly known as the slip rule enabled the Court to extend a creditor's petition after the petition had lapsed by operation of provisions of the Bankruptcy Act. A sequestration order had been made by a judge of this Court after the purported extension of the petition. The Full Court found that the slip rule did not apply with the consequence that there had been no power to make the sequestration order. For that reason, the appeal was allowed and the sequestration order was set aside. In lieu of the order of the primary judge, it was ordered that the petition be dismissed. This left an issue as to what should occur concerning the costs of the administration pursuant to the sequestration order which operated as a valid order of the Court until the determination on appeal that it was beyond power.
184 The trustee intervened in the appeal to make submissions as to costs and remuneration incurred in administering the bankruptcy. He sought an order that the bankruptcy be annulled (with the consequence that the statutory provisions would apply which would allow remuneration from the administered assets, subject to the supervision by the Court of the reasonableness of that remuneration). As to the justification for that submission, the Court observed at [49]:
If the sequestration order were set aside, the creditor's petition dismissed and no order annulling the bankruptcy made, the authorities reveal that the trustee would have no statutory basis for any remuneration and his action (and the consequences thereof) would be left to the general law: see the discussions in Austral Brick Company Pty Ltd v Daskalovski [1998] FCA 782; Symons v Bateman [1999] FCA 658; Kyriackou … and Pattison … The exposure of the trustee to that position in this case would be a gross injustice, as we later explain.
185 As to Pattison, to be considered below, the Court said at [51]:
… in Pattison the Full Court (by majority) held that it was open to the court to make orders both setting aside a sequestration order and annulling the bankruptcy. No party in this appeal contended that Pattison was wrongly decided and the course it sanctioned appears to be within the terms of s 153B.
186 In short, the Court in Flint found that annulment was an order that might be made in such a case. The Court then provided reasons as to why that would be an unjust outcome in the case at hand.
187 The Court went on to exercise its powers on appeal to require each of the appellant (debtor) and respondent (creditor) to bear a specified proportion of the reasonable costs of the trustee and made an order as to the extent of a right of indemnity against the assets that had been administered. In doing so, the Court said at [55] (by reference to the particular circumstances of the case):
In these circumstances, the preferable course is to set aside the sequestration order and dismiss the petition, but to make consequential orders dealing with the costs and remuneration of the trustee. No party submitted that such orders were either inappropriate or beyond power. Irrespective of the position under the Bankruptcy Act, all the parties accepted that the Court had power to make them under s 28 of the Federal Court of Australia Act 1976 (Cth).
188 Therefore, Flint is another case that involves the exercise of the broad appellate powers of the Court to deal with the consequences of an order made, on appeal, setting aside a sequestration order. By reason of the position adopted by the parties, the question whether an annulment might be ordered upon an application to review a sequestration order and in the exercise of delegated judicial power was treated as determined by Pattison.
189 Which brings us to Pattison. It was a case concerned with the exercise of delegated judicial power to make a sequestration order. A registrar of what was then the Federal Magistrates Court made a sequestration order in respect of the estate of a debtor. The order was made in the absence of the debtor. The trustee began to administer the estate. Within a few weeks, solicitors acting for the debtor informed the trustee that he wished to take urgent steps to pay his debts and discharge himself from bankruptcy. The trustee advised a figure that would be required for an annulment of the bankruptcy. It included trustee's fees and petitioning creditor's costs and an estimate of future fees and disbursements of the trustee. Together those amounts were more than half the amount to be paid. A dispute as to the amount of the estimate was not resolved and the debtor applied for a review of the sequestration order and an order setting aside the sequestration order, alternatively an order annulling the bankruptcy.
190 On the review, the debtor submitted that the sequestration order should not have been made and therefore should be set aside. The trustee argued that the appropriate order was for annulment. The magistrate ordered that the sequestration order be set aside and that the debtor pay the costs of the trustee and the petitioning creditor 'of and with respect to the proceedings'. The magistrate declined to order an annulment, giving the following reasons (quoted at [102]):
While it is clear that the Trustee has certain obligations, the Trustee in this instance had knowledge very early on that the bankrupt was challenging the validity of the sequestration order and was required to exercise some caution when incurring expenses while the status of the bankruptcy remained uncertain. It would be quite unfair in my view to burden the applicant who is the successful applicant in this proceeding with the costs of administering the estate. For these reasons, I am satisfied it is appropriate to set aside the sequestration order but that it is not appropriate to make the order annulling the bankruptcy. This leaves the Trustee to pursue whatever remedies that he might have by virtue of the general law.
191 The trustee appealed seeking the substitution of an order that the bankruptcy be annulled for the order setting aside the sequestration order. The debtor filed a notice of contention to the effect that it was not open to annul the bankruptcy on the rehearing of the petition by way of review. Annulment should only have been ordered if the application for an extension of time to review was refused or upon review the magistrate did not determine that the petition should be dismissed.
192 The issues were joined on the question whether there could be an order by way of annulment. However, the question whether, in the event that there could be no order by way of annulment, the appropriate order on the review was to set aside the sequestration order was not addressed. In other words, there was no issue raised as to whether it was appropriate on the review de novo to make an order that had the effect of bringing to an end all legal authority of the sequestration order even though it was a valid judicial order at the time it was made (and it was not sought to establish on review that there was no authority on the part of the registrar to make the sequestration order in the exercise of delegated judicial power).
193 Both the appeal and the cross-appeal were dismissed. All judges agreed as to the result, but their reasons diverged. Lander J delivered the principal judgment with which the judgments of Nicholson and Jacobson JJ engaged.
194 Lander J reasoned by reference to the decision in Harris v Caladine as to the nature of the review that was required to be conducted by the magistrate: at [122]-[127], [148]-[153]. His Honour examined with some care the course of the proceedings before the magistrate. In particular at [139], his Honour observed:
On the hearing of the review of the Registrar's decision, the respondent sought an order that the Registrar's order be set aside. The petitioning creditor neither opposed nor consented to that order. The appellant did not seek to be heard on the application for a review because the trustee accepted that was a matter between the petitioning creditor and the respondent.
195 The position of the trustee was that he should be protected in respect of his remuneration and expenses and a submission was made that there should also be an order annulling the bankruptcy: at [140]. The submission had an obvious eye to the statutory provision that allowed for the trustee to be paid remuneration, costs and expenses out of the property of the estate of such an order was made. In the alternative an order was sought in terms providing for the payment of remuneration and expenses of the administration out of the estate: at [141].
196 His Honour then, correctly with respect, stated at [152] that:
A party seeking a review of an order made by a Registrar must bring the application in the time prescribed … Indeed, a hearing of this kind requires the party seeking the sequestration order to establish all of the matters upon which the order is based. In a case such as this the onus remains upon the petitioning creditor to show an entitlement to a sequestration order …
197 His Honour went on, also correctly, to observe that an application to review the decision of the registrar (being a delegated exercise of judicial power) was not an application to be discharged from bankruptcy, nor an application for an annulment, nor in the nature of an appeal, even an appeal de novo: at [156]. It should be noted that the magistrate did not make an order dismissing the creditor's petition. His Honour then described succinctly and accurately the nature of the review by the federal magistrate of the exercise by the registrar of delegated judicial power in the following terms:
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.
198 His Honour dealt with the manner in which a bankruptcy may be brought to an end, namely by discharge or annulment: at [166]-[173]. Then his Honour observed that the possibility of rescission of a sequestration order was one that no longer existed under the Bankruptcy Act: at [174].
199 Lander J then turned his attention to the precise character of the procedure for review of the registrar's decision stating correctly at [176] that it 'is not an application which, if granted, will bring the bankruptcy to an end either by way of discharge or annulment or in any other way'. Rather, it is an application that will lead, if successful, to the dismissal of the creditor's petition. Then his Honour referred to the equivalent provision to s 104(3) of the FCCA Act which allowed the federal magistrate to make any order he or she thinks fit in relation to the matter in respect of which the power was exercised.
200 It may be observed that as to the reasoning up until this point there is nothing in the reasoning of the other members of the Court that disagrees in any substantial respect with the analysis of Lander J which accords with the views expressed in Bechara v Bates. The issue on which the members of the Court diverged concerned what could be done given the sui generis nature of the review.
201 As to the orders that should be made, Lander J stated that 'ordinarily' the federal magistrate who was allowing an application for review in respect of a decision seeking review of a decision by a registrar making a sequestration order would reason in the same way as a Court sitting on appeal. His Honour then reviewed the appellate decisions and concluded at [181]-[182] that:
These cases demonstrate that the Court not only makes its own order to allow the appeal but discharges or sets aside the order made below.
On a review it might be prudent for the Magistrate, out of an abundance of caution, to set aside the Registrar's order as well as dismissing the petitioning creditor's petition. However, the effect of dismissing the petitioning creditor's petition on review is that no valid sequestration order was ever made.
202 It is the reasoning by analogy to the power that a Court may exercise on appeal that may be questioned. As has been noted, the Court has an ample power on appeal to make orders dealing with the consequences of an order setting aside a decision under appeal. Flint is a clear example. The question whether power exists to set aside a determinative order on a review of the exercise of delegated judicial power depends upon the terms of the statute (and the limits of the constitutional authority to effect such a delegation). In such a case, the starting point is that a sequestration order made in the exercise of delegated judicial power is valid and effective. It is burdened from the outset by the prospect of a review by a judge. However, a successful review does not, of itself, undo with retrospective effect the operation of the sequestration order.
203 Rather, the question to be considered on the review of the exercise of delegated judicial power is whether the power under the relevant statutory provision concerning the review enables an order to be made that affects the sequestration order prior to the decision on the review and if so in what manner. The power that was under consideration in Pattison was in like terms to that under consideration in the present appeal. It was a power to make any order the federal magistrate thinks fit in relation to the matter in respect of which the delegated judicial power was exercised. That issue is a question of construction (assuming the provision is within constitutional limits). It is the issue raised by Issue (2) and is addressed in detail below.
204 However, it may be observed at this point that there is much to be said for the view of Lander J that no question of annulment arises when it comes to the power to be exercised on the review de novo. When a debtor faces the prospect of a creditor's petition, there is no prospect that the Court may dismiss the creditor's petition but nevertheless bankrupt the debtor. Annulment only arises where there has been a bankruptcy. If the Court on review determines that the creditor's petition must be dismissed, it is difficult to see how an order annulling the bankruptcy sits consistently with that decision.
205 To burden a review with the possibility that, even though a judge on review may be persuaded that the creditor's petition should be dismissed, nevertheless the bankruptcy may remain in place and then be annulled is to offer something that is not a review of the delegated exercise of power. Rather, it gives an ongoing consequence to the delegated exercise of judicial power even though, on review, a different decision is made by the judge. It assumes that despite the order dismissing the creditor's petition there remains a bankruptcy to be annulled (as distinct from a past administration under the registrar's sequestration order, being an order that comes to an end when the decision is made on review to dismiss the creditor's petition).
206 Therefore, for those reasons, the view of Lander J that an annulment could not be ordered as the outcome of a successful review has much to commend it.
207 Jacobson J reached a different view. His Honour summarised that view at [27]-[30] in the following terms:
[The views of Lander J] turn upon [his Honour's] approach to the question of the constitutional conditions for the valid delegation of a judicial power to a Registrar and the requirement that there be a hearing de novo on an application for review.
In my view these conditions do not give rise to the constraints upon the Federal Magistrate's powers which follow from His Honour's views.
It seems to me clear upon the proper construction of the relevant statutory provisions, the Federal Magistrates Court has a discretion, upon a review of the order of the Registrar, to annul the bankruptcy, if the Federal Magistrate is of the view that the sequestration order should not have been made.
The Federal Magistrate proceeded on the basis that he had a discretion whether or not to make an annulment order. He declined to exercise his discretion. I can see no error in this.
208 His Honour, correctly with respect, then posed the question for consideration in the following terms (at [39]):
The question of whether the federal magistrate had power to dismiss the petition and, at the same time annul the sequestration order, is one of statutory construction.
209 It may be noted that the question was not posed in terms that considered whether it was appropriate to set aside the sequestration order made by the federal magistrate if the petition was dismissed on review.
210 His Honour then reasoned that the scope and effect of the review must be governed by the terms of the enactment creating it: at [44]. So too, the effect of the registrar's order pending the review (and perhaps also by the status of the Federal Magistrates Court as an inferior court of record): at [45].
211 Then, again by analogy to what might be done on an appeal, Jacobson J reasoned that the Court has power to uphold the review, set aside the sequestration order and dismiss the petition: at [51]-[57] relying on Re Gollan. On that basis the power conferred by the equivalent to s 104(3) of the FCCA Act included a power to annul.
212 Some support was sought to be found from Austral Brick, Symons, Kyriackou and Rangott v Marshall although the different context in which those decisions were reached was properly acknowledged. For reasons already given, all those cases must be distinguished. With respect to his Honour, what is absent is any reasoning as to why, on a proper construction of the provision and having regard to the nature of the review, a power to annul might be available. This is especially so given that the statutory power to order an annulment is premised on the existence of an ongoing bankruptcy (as distinct from a past administration under the order made by the registrar) which cannot be the case once the order is made on review for the creditor's petition to be dismissed.
213 Nicholson J emphasised the need for the review conducted by the federal magistrate to be by way of de novo hearing: at [6]-[7]. His Honour observed, correctly, that an application for review is not an application for annulment: at [8]. His Honour then stated at [9]:
It is apparent from these requirements that it is correct to conclude that the application to set aside a sequestration order is a different application to one seeking to annul a bankruptcy. However, that conclusion does not itself determine that, on an application for a review of the making of a sequestration order giving rise to an existing bankruptcy, it is not open for an accompanying application to be brought for annulment of the bankruptcy in the event of the review succeeding or for a federal magistrate to consider the possibility of annulment.
214 The difference in reasoning as between Lander J and Jacobson J was then noted by Nicholson J. His Honour then stated that he was influenced to agree with Jacobson J 'by the strength of the statutory provision vesting power in a federal magistrate on review considered in its context': at [11]. The powers in the equivalent to s 104(3) of the FCCA Act were said to 'admit of the making of an order of annulment'.
215 Nicholson J reasoned at [11]:
At the point when the federal magistrate comes to consider the making of an order he or she will be faced by the existence of a sequestration order and a trustee appointed in the administration of what at that point is still a bankrupt estate. Section 43(2) provides that a bankrupt continues until discharge or annulment. Until the federal magistrate makes an order on the review the status of a bankrupt continues. The finding that the sequestration order ought not to have been made does not itself operate to change that status.
216 Then at [12] after characterising the language used in the statutory provision as giving the federal magistrate 'the widest possible choice of powers', his Honour said:
Given the breadth of the powers vested by statute, I do not consider that the making of such an order of annulment would be a recognition of the validity of the sequestration order: rather it would be an order to resolve the circumstances found to be in appropriate as the result of a finding to the contrary.
217 Reliance was also placed by Nicholson J upon the terminology used to condition the annulment power to instances where 'the Court is satisfied that a sequestration order ought not to have been made or, in the case of a debtor's petition, that the petition ought not to have been present or ought not to have been accepted by the Official Receiver … ': at [13].
218 His Honour found that the outcome of a successful review may be that a Court makes orders setting aside the sequestration order and dismissing the petition in which case, 'it is as if no valid sequestration order was ever made': at [14]. With respect, to put the position so absolutely would seem to be incorrect. To set aside a decision would deprive it of its legal effect, not its existence as an historical fact. Further, in a different case where the delegated judicial power was conferred upon a registrar of a superior court of record, the order would speak until set aside: see the recent consideration of the principles in Minister for Immigration, Citizenship, Migrant Services and Multicultural Affairs v Moorcroft [2021] HCA 19 at [19]-[20].
219 His Honour then reasoned that each of Re Gollan, Austral Brick, Symons and Kyriackou provided some support for a view that an order for an annulment could be made on review rather than an order setting aside the sequestration order. His Honour's reasoning was to the effect that an annulment may be ordered under the statutory power to make orders as the Court thinks fit on review, not in the exercise of the express statutory power to annul. For reasons already given, those authorities do not provide a foundation for that conclusion.
220 In Zdrilic v Hickie [2016] FCAFC 101; (2016) 246 FCR 532, an application for review of a sequestration order made by a registrar exercising delegated judicial power was summarily dismissed by a judge. The Court (Katzmann, Farrell and Markovic JJ) found that an application of that kind was misconceived given the nature of a review application in which the party bringing the creditor's petition is the applicant for review. At [89] their Honours reasoned:
Whether or not the appellants' opposition to the sequestration proceedings had merit or any reasonable prospect of success, the appellants had a statutory right based on a 'constitutional imperative' to a review of the registrar's exercise of power conducted by a judge. It is extremely difficult to contemplate any circumstance where the exercise of that right would constitute an abuse of process. An application for review of a registrar's decision filed pursuant to s 104 of the Federal Circuit Court Act is not an application which is prosecuted by a debtor/applicant for the review; it is a demand that a claim for relief (a sequestration order) brought by the creditor be heard by a judge as if no sequestration order had been made. The 'prosecutor' of an application for a sequestration order based on a creditor's petition is the creditor; the only onus a debtor bears is the one (s)he assumes if (s)he seeks to resist the grant of an order based on proof of solvency or 'any other sufficient cause' under s 52(2) of the Bankruptcy Act. In our opinion, the respondents should not have filed their application for summary dismissal and the primary judge should not have entertained it.
221 In Bechara v Bates, the authorities concerning the nature of the review of a delegated exercise of judicial power in the context of the hearing of a creditor's petition were reviewed: at [17]-[30]. That analysis concluded with the following summary at [27]-[30]:
Thus, relevant to the matter before us, the following is, and has been since the mid-1990s, clear about the nature of a de novo hearing by way of review of a sequestration order in bankruptcy made by a registrar:
(a) The application for review leads to a hearing de novo of the creditor's petition.
(b) The hearing (or rehearing) of the creditor's petition is not prosecuted by the debtor (applicant for review) but by the creditor in the proceeding in which the registrar's order was made.
(c) The application for review is a demand that the claim for relief (the sequestration order) be heard by a judge.
(d) The onus is upon the creditor to prosecute its petition. The only onus of the debtor/bankrupt against whose estate a sequestration order has been made is to prove either solvency or any other sufficient cause under s 52(2) of the Bankruptcy Act 1966 (Cth).
(e) An appreciation of the above considerations makes it evident that summary or default judgment terminating an application for review is highly likely to be misconceived and founded upon a misconception that the applicant for review has an onus to prosecute an application or to show error in the approach of the registrar.
There are some complexities and difficulties yet to be fully and certainly resolved, but the approach of the Court conformable with the Constitutional requirements laid down by Harris v Caladine has been clear and consistent.
The complexities are brought about by the intersection of the above nature of the de novo hearing, the orders that can or should be made upon the success or failure of the prosecution of the creditor's petition before the judge on review, and the status of the extant sequestration order as an order of the Court (see s 103(2) of the Circuit Court Act).
The complexities are: first, the issue that divided the Court in Totev v Sfar concerned with proper construction of s 52(4) and (5) of the Bankruptcy Act; secondly, the issue that divided the Court in Pattison: if a creditor's petition is dismissed on the rehearing whether in the alternative to setting aside the sequestration order an order for an annulment can be made; and, thirdly, whether there is power to be found in s 104(3) of the Circuit Court Act or s 35A(6) of the Federal Court Act, as an incident of making orders on the review and in particular setting aside the sequestration order, to order some division of responsibility for the trustee's costs between the trustee, the debtor and the creditor …
222 Now that the particular characteristics of an application for review of a decision made in the exercise of delegated judicial power has been properly exposed, the issues raised on the present application (which include the second and third issues foreshadowed in Bechara v Bates) now fall for determination.