Stratton v Bowles

IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 613 of 2014

ON APPEAL FROM THE FEDERAL CIRCUIT COURT OF AUSTRALIA

JUDGE: BEACH J DATE: 3 NOVEMBER 2014 PLACE: MELBOURNE

REASONS FOR JUDGMENT 1 A sequestration order was made against the appellant by Judge Hartnett of the Federal Circuit Court on 2 October 2014. 2 The appellant by notice of appeal dated 14 October 2014 has sought to appeal that decision. 3 The appellant by an interlocutory application dated 15 October 2014 has sought a stay of Judge Hartnett's orders. Essentially what is sought is a stay of the sequestration order. 4 Presumably the stay is sought under r 36.08 of the Federal Court Rules 2011 (Cth) which provides: 36.08 Stay of execution or proceedings under judgment appealed from (1) An appeal does not: (a) operate as a stay of execution or a stay of any proceedings under the judgment subject to the appeal; or (b) invalidate any proceedings already taken. (2) However, an appellant or interested person may apply to the Court for an order to stay the execution of the proceeding until the appeal is heard and determined. (3) An application may be made under subrule (2) even though the court from which the appeal is brought has previously refused an application of a similar kind. 5 The appellant relies on an affidavit sworn on 15 October 2014 and an "amended" affidavit sworn on 27 October 2014. The amended affidavit arises in circumstances where my chambers sent an email to the appellant on 23 October 2014 informing her that her affidavit in support of the interlocutory application was specifically required to address the stay question.

Form of Application 6 The form of the stay sought in the interlocutory application is not well conceived. 7 It is apparent from the provisions and operation of the Bankruptcy Act 1966 (Cth) (the Act) that it is inapposite to talk of a stay of a sequestration order as such. When a sequestration order is made, it takes immediate and automatic effect by force of the Act. There is an immediate vesting of property in the trustee in bankruptcy. Moreover, after-acquired property of the bankrupt vests as soon as it is acquired (see generally Nand v Fuji Xerox Australia Pty Ltd [2014] FCA 757 at [3] per Yates J). It is conceptually inappropriate to contemplate a judicial stay order as being available to countermand automatic legislative operation where no question of invalidity is involved. 8 In concept, one can only consider whether there should be a stay of any proceedings or action under a sequestration order rather than a stay of the order itself. So much is made plain by the language of s 52(3) of the Act which uses the language of "stay all proceedings under a sequestration order". I interpolate at this point that s 52(3) also has a time limit of 21 days. Nevertheless, in the Court's appellate jurisdiction under r 36.08 such a time bar does not limit the Court's power thereunder. A separate source of jurisdiction can be invoked rather than that applicable under s 52(3). 9 Further, reference should also be made to s 37(2)(a) of the Act which provides that the Court does not have power to suspend the operation of a sequestration order. 10 In summary, the Court only has power to stay proceedings or action under the sequestration order. The present interlocutory application does not expressly identify what proceedings or action ought to be stayed and why. It fails in limine on this aspect alone. 11 Having pointed this matter out to the appellant at hearing, the appellant refocused her application and sought a stay specifically of action or steps that might be taken in relation to an appeal in Family Court proceeding EA 51 of 2013. I will return to this shortly.

Principles Applicable to Stays 12 The principles upon which a stay may be granted are not in doubt. 13 Rule 36.08 confers a broad discretion. Generally, there must be demonstrated "a reason or an appropriate case" to warrant the exercise of discretion in favour of granting a stay (see Powerflex Services Pty Ltd v Data Access Corp (1996) 67 FCR 65 at 66). 14 More specifically, two questions must be considered. 15 First, is there an arguable point on the proposed appeal (see Nolten v Groeneveld Australia Pty Ltd [2011] FCA 1494 (Nolten) at [24] per Kenny J) or is there some "rational prospect of success" in relation to any of the grounds of appeal (see Burns v AMP Finance Ltd [2005] FCA 761 at [5] per Emmett J)? Second, does the balance of convenience favour the grant of a stay (see Nolten at [24] and [46])? Alternatively expressed, is there a real risk of irreparable harm if the stay is not granted? 16 On the first question, the respondent has invited me to find that the grounds of appeal are not reasonably arguable. 17 At this stage and in this context, I cannot accept the respondent's submissions. 18 The appellant's grounds of appeal are the following: 1. Her Honour erred in granting leave to the Applicant to amend the Creditors Petition inserting the date 14 July 2014. On 8 July 2014 Registrar Wall of the Federal Court in Sydney dismissed my application seeking an adjournment of bankruptcy proceedings. Neither applicant nor respondent sought any further proceeding. There was no further application made. Registrar Wall without reason listed a hearing for 14 July 2014 for a review of his own ruling, yet neither party had sought that review and I explained that I was unable to attend. The correct date on which the adjournment of bankruptcy proceedings was dismissed was on 8 July 2014 before Registrar Wall, not 14 July 2014. 2. Her Honour failed to fairly or justly consider that I have a 'set off' (Full Court of the Family Court Appeal EA 51 of 2013) equal to the amount of the debt payable under the costs order of 13 September 2013, the subject of the creditors petition and I provided evidence that the set off claim has strong merit (1 October 2014 submissions [1] to [4] and Affidavit filed 17 Sept 2014 at [16] and [29] to [62]). 3. Her Honour failed to fairly or justly consider that I have a cross demand (Supreme Court 'Statement of Claim for damages in defamation') that exceeds the costs claimed in the creditors petition. I provided evidence that the cross demand has strong merit (1 October 2014 submissions [1] and [4] and Affidavit filed 17 Sept 2014 at [16] and [29] to [62] and s40 Acts of Bankruptcy and s41 Bankruptcy Notices). 4. Her Honour failed to fairly or justly consider case law argued in my 1 October 2014 submissions that supported my application seeking a dismissal or adjournment of bankruptcy proceedings. 19 I am not in a position presently to say that grounds 2, 3 and 4 are not reasonably arguable, and I proceed on the basis that they are reasonably arguable. 20 Let me turn to the second question which is relevant to the balance of convenience. In my opinion, subject to one matter which I will turn to later, the balance of convenience does not justify any stay. 21 First, the appellant does not point to any real prejudice if the stay is refused, subject to one matter that I will return to. There are no proceedings to be taken under the sequestration order that have been identified by the appellant that if not stayed would cause prejudice to her. I will return to the Family Court proceeding shortly. 22 Second, the appellant asserts that if she is not granted a stay, her present appeal against the sequestration order will be rendered nugatory. 23 Her present appeal rights against the sequestration order would not be rendered nugatory if a stay were refused. Her appeal rights are not "property" under s 5(1) of the Act. The appellant is free to pursue her appeal rights against the sequestration order even in the absence of a stay (see Cummings v Claremont Petroleum NL (1996) 185 CLR 124 (Cummings) at 132-136 per Brennan CJ and Gaudron and McHugh JJ). 24 Third, the appellant asserts that she would suffer prejudice by being required to complete a statement of affairs. In my view, that is no relevant prejudice. 25 Fourth, the appellant asserts that her reputation will suffer. But of course the appellant has now been made bankrupt and I cannot as a matter of law stay the operation of the sequestration order as such. Further, and in any event, an asserted deleterious effect on reputation is not itself a sufficient condition for a stay (see Kellow v Dudzinski [2003] FCA 143 at [3]-[4] per Spender J). 26 Fifth, the appellant asserts that the sequestration order may preclude her from beginning a business. That may be. But as I've already said, I cannot stay the sequestration order as such generally. I can only stay specific proceedings or action under the sequestration order. 27 Sixth, the appellant has not put forward any detailed material as to her assets and liabilities, income or expenditure positions. On the existing material I cannot conclude that she is presently solvent (see Singh v Owners Strata Plan No 11723 [2012] FCA 538 at [57] per Griffiths J). 28 Seventh, it is asserted that the Official Trustee may incur significant expenditure or debts in the interim. I am not sure what these might be. The matter is speculative. 29 Finally, there was one specific matter raised by the appellant that arguably justifies a limited form of order relating to the appellant's appeal rights in relation to Family Court proceeding EA 51 of 2013. Now if such appeal rights do not form property of her estate, then they would not be caught by s 58 of the Act (see Cummings). Accordingly, notwithstanding the sequestration order and the absence of any stay, the appellant would be free to pursue such rights in the Family Court and does not need a stay to address that. 30 But the appellant has asserted that from her perspective there is a real risk that such appeal rights necessarily vest in the Official Trustee, and therefore the appellant apprehends that there may be prejudice to her if such appeal rights were not exercised by the Official Trustee. At this stage I cannot form a final view about whether those appeal rights in the Family Court proceeding do in fact vest in the Official Trustee, but I am prepared to proceed on the basis that there is a real chance that they do. 31 In those circumstances it seems to me that the appellant has justified a limited form of order directed to the Official Trustee to the effect that the Official Trustee either exercise those appeal rights as directed by the appellant or that the appellant be free to exercise those appeal rights for herself and at her expense, notwithstanding that they might otherwise vest in the Official Trustee. 32 In the circumstances I am prepared to make an order in favour of the appellant in those terms.

Conclusion 33 The appellant has not demonstrated to my satisfaction that the balance of convenience favours the grant of any general stay. The form of general stay that has been sought by the appellant will be refused. 34 But I am prepared to grant a limited form of order dealing with Family Court proceeding EA 51 of 2013 as I have indicated. I certify that the preceding thirty-four (34) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Beach.