Rose v Meriton Apartments Pty Limited

The notice of appeal 4 The notice of appeal contains two grounds, stated as follows: 1. His Honour erred in failing to find that the Appellant had a claim against the Respondent that would offset the Judgment Debt; 2. His Honour erred in not staying/adjourning the Respondent's Creditor's Petition pending resolution of the proceedings between the parties in the High Court of Australia and the NSW Industrial Court. 5 The appellant accepts that no error can be established on the basis of these grounds unless they can be read as accommodating two contentions. 6 The first contention, said by the appellant to be open on the first ground of appeal, is as follows: [T]hat his Honour erred by failing to take into account the existence of a discretionary jurisdiction to decline to make an order under s52 of the Bankruptcy Act 1966 because of the cross claim being the proceedings on foot in the Industrial Court of NSW and the subject of the application for special leave. 7 The second contention, said by the appellant to be open on the second ground of appeal, is as follows: [T]hat his Honour erred in failing to take into account that the making of the sequestration order under s52 would destroy the subject matter of the proceedings between the parties in relation to the assignment of the cause of action in the New South Wales Industrial Court to the appellant and the application for special leave to appeal. 8 In order to understand the reference to "the assignment" in the second contention, it is necessary to relate some additional facts. After the appellant had instituted the Industrial Court proceeding (which was based on s 106 of the Industrial Relations Act 1996 (NSW)) the appellant presented a debtor's petition, which was accepted. Thus the appellant's right to bring those proceedings vested in his then trustee in bankruptcy by operation of s 58 of the Bankruptcy Act 1966 (Cth) (the Act). The trustee in bankruptcy thereafter purported to assign the action to the appellant. Subsequently the appellant was discharged from bankruptcy. 9 The contentions on which the appellant seeks to rely are related in the sense that the second contention represents a specific discretionary consideration which the appellant says the presiding Federal Magistrate should have taken into account when considering whether a sequestration order should be made, all other conditions for the making of that order having been satisfied. 10 The difficulties facing the appellant in this regard are that: (a) on any reasonable reading, the grounds of appeal do not accommodate these contentions; and (b) neither contention was advanced in the course of the hearing of the creditor's petition as to why a sequestration order should not be made. 11 The respondent submits that the appellant should not be entitled to pursue these contentions in the absence of the notice of appeal being amended pursuant to r 36.10 of the Federal Court Rules 2011 (Cth). It submits that leave to amend, if sought, should be refused given that the substance of the two contentions was not argued below. 12 The appellant made clear in the course of argument on the appeal that, if necessary, leave to amend the notice of appeal - so as to cover the two contentions as grounds of appeal - was sought. In my view leave to amend is required. 13 In order to consider whether that leave should be granted it is necessary to consider the reasons for judgment of the Federal Magistrates Court given on 13 February 2012 and to explore the two contentions which the appellant seeks to advance.

The reasons of the Federal Magistrates Court 14 As the reasons of the Federal Magistrates Court given on 13 February 2012 are relatively short, it is convenient to set them out in full: 1. This matter came before me on 20 December 2011. It will be seen from the reasons that have been published that the petitioning creditor seeks to move on its petition for a debt of approximately $17,000.00 in respect of costs of a High Court application that were ordered against the respondent debtor. 2. On 20 December 2011, perhaps influenced by the approaching holidays and by the advocacy of Mr Stewart, I granted an adjournment of the petition until today because it seemed to me that there were conflicting arguments as to the appropriateness of continuing with this matter when the respondent had embarked on High Court proceedings which, if successful, would allow him to continue with certain other industrial proceedings that he had sought to commence against the creditor. 3. When the matter came back before me today, an affidavit was filed on behalf of the debtor by Elizabeth Jane McGill, a solicitor with conduct of the High Court proceedings. It should be made clear that the debt is in respect of the costs of other proceedings in the High Court, and not the current ones: see Guss v Johnston [2000] FCA 1455 at [13] referring to Ahern v Deputy Commissioner of Taxation (Qld) (1987) 76 ALR 136. The conduct of the High Court proceedings by Mr Rose, as the appellant, had not been as expeditious as one might have hoped, and certain documents that were required to be filed were filed out of time. 4. The respondent to that appeal could have brought some motion in the High Court to have the appeal dismissed, but does not appear to have done that. It has also not complied with its own obligations to file and serve its outline of argument. It applied for an extension of time for that until 3 February 2012, which was granted by the court, but no summary has been filed to date. 5. I am told today that Mr Rose is a legal practitioner with a current practising certificate. The debt that he owes to Meriton is not large but it has not been paid. There would seem to me to be no reason provided why Mr Rose could not have made some effort to pay down the debt from the earnings he could receive as a legal practitioner. 6. A creditor in the position of this applicant creditor is entitled to have the petition heard: Re Lewin and Glasson; Ex parte Milner (1986) 67 ALR 591. The existence of a possible claim against a creditor can, sometimes, be a reason for adjourning a petition. But, in this particular case, the situation is far from that. Special leave to appeal to the High Court has not been granted, and is unlikely to be granted in the near future. There is no evidence that Mr Rose has made any application arising out of the respondent's failure to file its outline of argument in the appeal. 7. Even if special leave was granted, the hearing will be unlikely to take place for, at least, six months. And then one can assume a further three or four months before judgment. If Mr Rose is successful, all that would happen is that he would be allowed to proceed in the Industrial Court with his claim. That may not be determined finally for several years. Why should Meriton be prevented from taking steps to enforce its judgment for its $17,000.00 for that time, particularly when it is owed by a man who would seem to be capable of making arrangements for paying it? 8. In my view, the better course of action is to allow this petition to proceed. Mr Rose, as a legal practitioner and as a person who is represented in these proceedings, is capable of obtaining advice as to how he may deal with his bankruptcy, when it ensues, including his ability to have it annulled or for him to enter into a composition with his creditor, at which time he may continue with his litigation. As the evidence that had been before me on the previous occasion shows, this is not a new dispute, but one that has been going through the court over a considerably lengthy period. See the decision of Barnes FM in Rose & Meriton Apartments Pty Ltd [2011] FMCA 721 for the history of these parties' disputes, set out in some detail. For these reasons the application for the adjournment is dismissed. 9. In hearing the petition I was mindful of the existence of a notice of objection which, whilst asserting a cross-claim, was effectively asserting the same cross-claim that was considered by Barnes FM in the proceedings to which I have already referred. It was not held to be sufficient to allow the setting aside of the bankruptcy notice. 10. The existence of a cross-claim is not a ground for declining to grant a sequestration order. Although it may influence the court when considering s. 52 of the Act. In reality, the purpose of the notice of objection seems to me to have been to pray it in aid of the application for the adjournment, which was argued before me both on 20 December 2011 and today. I will, therefore, dismiss the notice of objection. 11. I am satisfied that the respondent committed the act of bankruptcy alleged in the petition. I am satisfied of the proof of the other matters required by s.52 of the Bankruptcy Act 1966 (Cth) … I make a sequestration order against the estate of John Emmanuel Rose. I order that the applicant's costs, including any reserved costs, be taxed and paid from the estate of the respondent in accordance with the Act, and that under the Bankruptcy Regulations a copy of this sequestration order be given to the Official Receiver in Sydney within two days. 12. The court notes that the date of the act of bankruptcy is 16 December 2011. I note that a consent to act as trustee has been signed by Maxwell William Prentiss and has been lodged with the Official Receiver in Sydney. For the avoidance of doubt, the taxed costs shall include the costs of the hearing on 20 December 2011. 15 Two matters should be noted about these reasons. 16 First, it is apparent that, at the time of giving these reasons, the presiding Federal Magistrate had before him, and specifically referred to, his earlier reasons for granting the adjournment of the hearing of the creditor's petition on 20 December 2011: see Meriton Apartments Pty Ltd v John Emmanuel Rose [2011] FMCA 1041. His Honour's reasons given on 13 February 2012 should be read in the light of his reasons given on 20 December 2011. The parties did not contend otherwise and during the course of submissions on this appeal each party referred me to various parts of his Honour's earlier reasons as providing the context for considering the reasons set out above. 17 Secondly, it is plain from his Honour's reasons that no presently relevant additional matters were raised for his Honour's consideration in relation to the hearing of the creditor's petition and the making of the sequestration order beyond those matters that had already been advanced by the appellant as reasons for granting a further adjournment of the hearing.

The contentions 18 In essence, the appellant's contentions are that the presiding Federal Magistrate: (a) erred in misconceiving the discretion reposed in a court of bankruptcy in making a sequestration order under s 52 of the Act (Contention 1); and (b) erred in failing to take into account, in the exercise of that discretion, the fact that the making of the sequestration order would destroy the subject matter of the proceedings between the parties in the New South Wales Industrial Court (the Industrial Court proceeding) and the High Court of Australia (the second special leave application) (Contention 2).

Contention 1 19 The appellant submits that the presiding Federal Magistrate misconceived the discretion in making a sequestration order under s 52 when his Honour made the observations in [10] of his reasons, quoted above. He submits that his Honour's observation that the existence of a cross-claim "may influence the Court when considering s 52 of the Act" is "not a correct recognition or application of the discretionary jurisdiction", which stands as "a material error where the cross claim went to the heart of the underlying judgment debt and a making of the sequestration order would destroy the underlying proceedings". He submits that these matters are "powerful discretionary considerations" as to why a court of bankruptcy, properly seized of the discretion, would decline to make a sequestration order. 20 In my view the appellant has not demonstrated that the presiding Federal Magistrate erred in failing to understand that an exercise of discretion was involved in making a sequestration order under s 52 of the Act. 21 It is, of course, not in doubt that such discretion exists. This is reflected in the language employed in s 52(1), particularly when read with s 52(2): 52 Proceedings and order on creditor's petition (1) At the hearing of a creditor's petition, the Court shall require proof of: (a) the matters stated in the petition (for which purpose the Court may accept the affidavit verifying the petition as sufficient); (b) service of the petition; and (c) the fact that the debt or debts on which the petitioning creditor relies is or are still owing; and, if it is satisfied with the proof of those matters, may make a sequestration order against the estate of the debtor. … (2) If the Court is not satisfied with the proof of any of those matters, or is satisfied by the debtor: (a) that he or she is able to pay his or her debts; or (b) that for other sufficient cause a sequestration order ought not to be made; it may dismiss the petition. 22 The existence of this discretion is well-recognised in the case law. In Clyne v Deputy Commissioner of Taxation (1985) 5 FCR 1 at 5 the Full Court described the circumstances which may constitute "other sufficient cause" - and thus constitute a reason to dismiss a bankruptcy petition - as being "extremely variable". In that connection the Full Court cited the reasons for judgment of Henchman J (sitting in the Court of Bankruptcy (District of Southern Queensland)) which were quoted with approval in the report of Cain v Whyte (1933) 48 CLR 639 at 645. In that case Henchman J, after observing that provisions in the Bankruptcy Act 1924-1932 (Cth) relevantly similar to s 52 "do leave a certain amount of discretion", said: … To my mind, it is the duty of the Bankruptcy Judge to examine in each case, if the question is raised, whether there is other sufficient cause than the fact that the debtor is able to pay his debts in full, for refusing to make an order. 23 His Honour later said (at 645-646): … I approach that question with the full appreciation that, prima facie, on proof of the matters mentioned in [the equivalent of s 52(1)], the Court will proceed to make an order for sequestration, and that it is for the debtor to show some cause overriding the interest of the public in the stopping of unremunerative trading, and the rights of individual creditors who are unable to get their debts paid to them as they become due. Something has to be put before the Court to outweigh those considerations before it can be said that sufficient cause is shown against the making of a sequestration order. 24 In Re Schmidt; Ex parte Anglewood Pty Ltd (1968) 13 FLR 111 Gibbs J (sitting in the Federal Court of Bankruptcy) remarked (at 116) that where a debtor claims to be entitled to unliquidated damages against the petitioning creditor, there may be sufficient validity in the debtor's claims to justify the dismissal or adjournment of the petition. In making those remarks his Honour expressed agreement with what was said in Re Player (1962) 19 ABC 277 on that question. In Player Paine J said (at 282) that, in such a case, the debtor must at least produce "some real evidence to show that there is a reasonable ground for instituting an action by him, such an action as would result in awarding him a cross-claim or a counter-claim equal to or exceeding the amount of the judgment debt". 25 In Re James; Ex parte Carter Holt Harvey Roofing (Australia) Pty Ltd (No 2) (1994) 51 FCR 14 Olney J considered Gibbs J's remarks in Re Schmidt and made the following observations (at 22) as to when it would be appropriate to dismiss the petition and when it would be appropriate to adjourn it: In the passage from Re Schmidt which is quoted above, Gibbs J suggested that in many cases it would be more convenient to adjourn the proceedings to enable the debtor's claim to be tried in the ordinary courts, but such a course would be justified only on the assumption that the debtor showed that he had real claim to litigate. It seems to me that Gibbs J has distinguished between a claim of the debtor against the petitioning creditor that is likely to succeed (which would justify the Court refusing to make a sequestration order) and the existence of a "real claim" which presumably the Court has been unable to classify as one that is likely to succeed, but nevertheless is thought to have sufficient integrity to warrant the debtor being given an opportunity to have it litigated. In such a case Gibbs J thought that it would be appropriate to adjourn the petition pending resolution of the litigation. 26 A number of the observations in these cases have equal resonance in relation to the appellant's second contention. However, for the purpose of dealing with the appellant's first contention it is enough for me to find, as I do, that the presiding Federal Magistrate's observations in [10] of his reasons show that his Honour was cognisant that a discretion was reposed in the Federal Magistrates Court as to whether a sequestration order should be made in a given case and that the existence of a cross-claim (in this case, the Industrial Court proceeding) might stand as a sufficient reason, in a given case, for not making a sequestration order, even if all other requirements for the making of such an order were established. I also note, however, that no application was made by the appellant in the present case to dismiss the respondent's petition and no material was placed before his Honour to show that the Industrial Court proceeding had real prospects of success. I shall return to the last-mentioned matter when dealing with the appellant's second contention. 27 Part of the appellant's argument focuses on his Honour's further observation in [10] that, in reality, the purpose of the notice of objection was to support the application for an adjournment. The appellant submits that this observation reinforces the position that his Honour was acting under a misunderstanding. Here the appellant's argument seems to be that his Honour appreciated that a discretion was involved in granting or refusing an adjournment but that his Honour erroneously failed to appreciate that a separate discretion was involved in making or refusing to make a sequestration order under s 52 of the Act. 28 I do not agree. In my view [6] to [10] of his Honour's reasons must be read together. The particular observations made by his Honour concerning the notice of objection to which the appellant refers reflect the reality that what was being urged on his Honour was a further adjournment of the hearing of the creditor's petition, not that, if an adjournment were refused, a sequestration order should nevertheless not be made as a matter of discretion, even if it were otherwise appropriate for that order to be made. 29 It is clear that the basis for the adjournment sought was the pendency of the second special leave application and the underlying Industrial Court proceeding. It is not suggested that his Honour was in error in that particular understanding. Indeed ground 2 of the notice of appeal squarely focuses on his Honour's refusal to grant a further adjournment "pending resolution of the proceedings between the parties in the High Court of Australia and the NSW Industrial Court". That ground of appeal, however, is not pursued. Indeed, the appellant fairly accepts that it cannot succeed. 30 It is not in dispute that no separate submission was advanced at the hearing of the creditor's petition to the effect that, if the pendency of the appellant's various proceedings was not a sufficient reason to grant a further adjournment, it was, somehow, a sufficient reason to refuse to make a sequestration order. Thus, having refused to grant a further adjournment on the particular basis urged on him, it is a matter of little surprise that his Honour then went on to make the sequestration order when all the requirements for the making of that order were otherwise established and no additional matters of present relevance were put to him. 31 In my view no error, as alleged, is disclosed.

Contention 2 32 This contention, as expressed by the appellant, incorporates a fundamental error. The making of the sequestration order on 13 February 2012 did not, of itself, "destroy the subject matter" of the Industrial Court proceeding or such right as the appellant had to pursue the second special leave application. Any cause of action, or any right to bring proceedings (including the second special leave application), vested in the appellant's trustee in bankruptcy upon the making of the sequestration order: s 58(1) of the Act; Meriton Apartments Pty Ltd v Industrial Court of New South Wales (2008) 171 FCR 380 at [224]-[226]. 33 What the appellant seeks to argue is that when the presiding Federal Magistrate was considering whether to make the sequestration order he should have had in contemplation that, if made, the practical effect of the order would be to "destroy" the proceedings because the trustee in bankruptcy would not pursue or, perhaps more accurately, would be unlikely to pursue the special leave application and hence the Industrial Court proceeding. 34 Whether or not the trustee in bankruptcy would pursue those proceedings, if a sequestration order were to be made, was a matter of speculation at the time of the hearing on 13 February 2012. Nevertheless, the presiding Federal Magistrate's reasons make sufficiently clear at [8] quoted above that his Honour was certainly mindful of a real likelihood that, if bankruptcy ensued, the appellant's various proceedings would not be pursued by his trustee in bankruptcy. This is why his Honour contemplated that the appellant was "capable of obtaining advice as to how he may deal with his bankruptcy" and specifically referred, in that context, to some steps that the appellant might seek to take so that "he may continue with his litigation". 35 The appellant refers to and stresses "the significant history of effectively six years of litigation" which he submits "would be destroyed by the making of the sequestration order" and that this was "a material factor that can and should have been taken into account" by the presiding Federal Magistrate. However, in my view there can be no doubt that [8] of his Honour's reasons show that his Honour was well and truly seized of the significant history of the litigation between the appellant and the respondent and, as I have already noted, the likelihood that this litigation would not be pursued by a trustee in bankruptcy if a sequestration order were then to be made. Indeed, as I record below, this likelihood had been expressed earlier by his Honour on 20 December 2011. 36 In my view [8] of his Honour's reasons cannot simply be confined to his Honour's consideration of whether an adjournment of the hearing should be granted or refused. Here his Honour was plainly looking to the consequences that bankruptcy would have for the appellant in relation to the continuation of his litigation. In my view no error, as alleged, is disclosed. 37 It is apparent that, by advancing this contention, the appellant really seeks to challenge the correctness of the discretion that was in fact exercised by the presiding Federal Magistrate in making the sequestration order. 38 To succeed on that ground the appellant would have to demonstrate that the presiding Federal Magistrate committed an error of the kind described in House v The King (1936) 55 CLR 499 at 504-505: … It is not enough that the judges composing the appellate court consider that, if they had been in the position of the primary judge, they would have taken a different course. It must appear that some error has been made in exercising the discretion. If the judge acts upon a wrong principle, if he allows extraneous or irrelevant matters to guide or affect him, if he mistakes the facts, if he does not take into account some material consideration, then his determination should be reviewed and the appellate court may exercise its own discretion in substitution for his if it has the materials for doing so. It may not appear how the primary judge has reached the result embodied in his order, but, if upon the facts it is unreasonable or plainly unjust, the appellate court may infer that in some way there has been a failure properly to exercise the discretion which the law reposes in the court of first instance. In such a case, although the nature of the error may not be discoverable, the exercise of the discretion is reviewed on the ground that a substantial wrong has in fact occurred. 39 The appellant has not established that the presiding Federal Magistrate so erred. For the reasons I have given I am not satisfied that his Honour failed to take into account "some material consideration", namely the likely effect that the making of a sequestration order would have on the future conduct of the appellant's litigation. Moreover, I am not satisfied that, more generally, his Honour's discretion miscarried on other grounds. In particular, I am not satisfied that his Honour's making of the sequestration order was, in the circumstances of the case, unreasonable or plainly unjust. 40 As I have noted, when his Honour dealt with the further adjournment application and heard the creditor's petition on 13 February 2012 he had before him his reasons for granting the earlier adjournment on 20 December 2011. When dealing with the adjournment application on 20 December 2011 it is apparent that his Honour had before him the appellant's draft notice of appeal in the High Court and his summary of argument that had been filed on 15 December 2011 in relation to the second special leave application. The draft notice of appeal included an order that the costs order in the first special leave application be stayed until the determination of the Industrial Court proceeding. 41 In the course of argument on this appeal the parties drew my attention to (amongst other matters) three matters in the presiding Federal Magistrate's earlier reasons that are of present significance. There is no reason to think that the presiding Federal Magistrate held any different views on each of these matters when he declined to grant a further adjournment and heard the creditor's petition on 13 February 2012. 42 First, in the earlier reasons given on 20 December 2011, his Honour said that the summary of argument in support of the second special leave application appeared to express an arguable case for the granting of special leave, although there was nothing in the summary of argument dealing with the order for a stay of the costs order made in the first special leave application. His Honour noted that there was no evidence before him that would persuade him that it was likely that such a stay would be given, even if special leave were to be granted: see at [9] and [12] of those reasons. 43 I should note here that the order for costs in respect of the first special leave application was a final order from which there was no appeal. For my own part, I am unable to see why that order would be stayed either generally or pending the determination of the Industrial Court proceeding. In this connection I accept the respondent's submission that the presiding Federal Magistrate correctly identified (at [3] quoted above) that the case before him was not one within the general rule that a court exercising jurisdiction in bankruptcy should not proceed to sequestrate the estate of a debtor where an appeal is pending against the judgment relied on as the foundation of the bankruptcy proceedings, provided the appeal is based on genuine and arguable grounds: Ahern v Deputy Commissioner of Taxation (Qld) (1987) 76 ALR 137 at 148. 44 Secondly, his Honour expressed the view in the earlier reasons, based on the material then before him, that the appellant's final prospects of success in the Industrial Court proceeding "may not be all that high", although his Honour acknowledged that this view was taken "on the very flimsiest of knowledge of the matters in issue": see at [11]. Importantly, however, as I have already noted, no material was placed before the presiding Federal Magistrate to show that the Industrial Court proceeding had real prospects of success. As his Honour observed at [9] of his reasons on 13 February 2012, all that the appellant had done was to "assert" a cross-claim. This was the same cross-claim, his Honour noted, that Barnes FM considered in John Emmanuel Rose v Meriton Apartments Pty Ltd [2011] FMCA 721 but held to be insufficiently established so as to justify the setting aside of the bankruptcy notice on which the appellant's act of bankruptcy came to be based. 45 Thirdly, his Honour noted in the earlier reasons that if a sequestration order were to be made "it is unlikely that Mr Rose will be able to continue with his High Court proceedings and that the matter is complex": see at [10] of those reasons. This appreciation is, once again, reflected in [8] of his Honour's reasons given on 13 February 2012. 46 In my view his Honour was justified, in the particular circumstances of the present case, to proceed to make the sequestration order against the appellant on being satisfied that the requirements for that order were otherwise established and that no further adjournment of the hearing of the petition was warranted. Indeed, as I have said, it is a matter of little surprise that, having been satisfied that no further adjournment was warranted, his Honour then went on to make the sequestration order when all the requirements for the making of that order were otherwise established and no additional matters of present relevance were put to him as to why such an order should not be made.

Whether leave to amend should be granted 47 I am not persuaded that leave should be granted to the appellant to amend the notice of appeal so as to effectively allow the appellant's contentions to stand as his grounds of appeal. The substance of those contentions was not advanced before the presiding Federal Magistrate when his Honour came to hear the creditor's petition and neither contention can, in any event, be sustained. It would therefore be futile to grant the leave that is sought.

Disposition of the appeal 48 The appellant accepts that no error can be established based on the present grounds of appeal. It follows that the appeal should be dismissed with costs. I certify that the preceding forty-eight (48) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Yates.