Watts v Bendigo and Adelaide Bank Limited

Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court's website.

GENERAL DIVISION NSD 1126 of 2010

ON APPEAL FROM THE FEDERAL MAGISTRATES COURT OF AUSTRALIA

REASONS FOR JUDGMENT 1 By notice of motion filed on 3 September 2010, Gambhir Watts and Bhoji Watts (the applicants) seek the following orders: 1. The operation of the sequestration order by the Federal Court [sic] Magistrate Smith delivered on 11 August 2010 and all proceedings pursuant to it be stayed until the disposal by the Court of the current appeal NSD 1126 of 2010 in the above matter. 2. The applicants' passports delivered to the Trustee be returned to the applicants.

BACKGROUND FACTS 2 On 31 August 2010, the applicants filed a notice of appeal in this Court, appealing from a judgment of the Federal Magistrates Court made on 11 August 2010: see Bendigo and Adelaide Bank Limited v Watts & Anor [2010] FMCA 623 (the FMC reasons). The FMC reasons describe a protracted history of litigation between the applicants and Bendigo and Adelaide Bank Limited (the respondent): see particularly [4]-[51]. 3 The matter before the Federal Magistrates Court concerned a creditor's petition presented on 20 January 2010 by the respondent with respect to the applicants and opposed by them. The grounds of opposition to the creditor's petition were pleaded by the applicants as follows: 1. The creditor's petition dated 20 January 2010 was presented outside the time prescribed by section 44(1)(c) of the Bankruptcy Act 1966. 2. For other sufficient cause a sequestration order ought not be made. 4 The Federal Magistrates Court made the following orders:

ORDERS (1) A sequestration order be made against the estates of GAMBHIR WATTS and BHOJI WATTS. (2) All proceedings under the sequestration order are stayed under s.52(3) of the Bankruptcy Act 1966 (Cth) for 21 days, on the following conditions: (a) That Mr Watts shall deliver all his current passports to his trustee before 4pm on 12 August 2010, and shall not leave Australia without the permission of his trustee. (b) That Mrs Watts shall return to Australia and deliver all her passports to her trustee no later than 4pm on 19 August 2010, and thereafter shall not leave Australia without the permission of her trustee. (c) That Mr and Mrs Watts before 4pm on 25 August 2010 shall file with the Official Receiver and furnish to their trustee statements of their affairs in accordance with s.54(1). (d) That Mr and Mrs Watts shall not enter into nor incur any new liability exceeding the amount of $5,000, or such other amount as is agreed upon by their trustee. (3) The applicant creditor's costs, including all reserved costs, be taxed and paid from the estate of the respondent debtors in accordance with the Bankruptcy Act 1966 (Cth). (4) Note that the date of the act of bankruptcy is 29 July 2009. (5) Note that a consent to act as trustee has been signed by Scott Pascoe and has been lodged with the Official Receiver in Sydney. (6) The applicant must within 2 days give a copy of this order to the Official Receiver in Sydney. 5 The stay of proceedings under the sequestration order granted by the Federal Magistrates Court in order 2 above expired on 1 September 2010. On 31 August 2010, the applicants filed an interim application in the Federal Magistrates Court seeking the same relief sought in the present motion. On 3 September 2010, the Federal Magistrates Court refused that application on the ground that the Federal Magistrates Court's powers "are confined by ss.37(2)(a) and 52(3) of the Bankruptcy Act 1966 (Cth)." The applicants then proceeded to file the present motion in this Court.

Relevant law 6 Section 52(3) of the Bankruptcy Act 1966 (Cth) (the Bankruptcy Act) relevantly states: 52 Proceedings and order on creditor's petition … (3)The Court may, if it thinks fit, upon such terms and conditions as it thinks proper, stay all proceedings under a sequestration order for a period not exceeding 21 days. 7 Section 37 of the Bankruptcy Act relevantly states as follows: 37 Power of Court to rescind orders etc. (1) Subject to subsection (2), the Court may rescind, vary or discharge an order made by it under this Act or may suspend the operation of such an order. (2) The Court does not have the power to rescind or discharge, or to suspend the operation of: (a) a sequestration order; … 8 Order 52 r 17 of the Federal Court Rules provides: (1) An appeal to the Court shall not: a. Operate as a stay of execution or of proceedings under the judgment appealed from; or b. Invalidate any intermediate act or proceeding; except so far as the Court or a Judge of the court below may direct. (2) The Court may vary or vacate any direction of the Court or the court below referred to in subrule (1). (3) An application for a direction of the Court or a Judge under subrule (1) shall be made to the Court or a Judge by motion upon notice, and may be made whether or not a similar application has been made to the court below. An application for a direction under subrule (2) shall be made to the Court by motion upon notice, and may be made whether or not a similar application has been made to the court below. 9 Section 29 of the Federal Court of Australia Act 1976 (Cth) provides: (1) Where an appeal to the Court from another court has been instituted: (a) the Court or a Judge, or a judge of that other court (not being the Federal Magistrates Court or a court of summary jurisdiction), may order, on such conditions (if any) as it or he or she thinks fit, a stay of all or any proceedings under the judgment appealed from; and (b) the Court or a Judge may, by order, on such conditions (if any) as it or he or she thinks fit, suspend the operation of an injunction or other order to which the appeal, in whole or in part, relates. (2) This section does not affect the operation of any provision made by or under any other Act or by the Rules of Court for or in relation to the stay of proceedings. 10 The effect of these provisions is that this Court has a discretionary power to order that the operation of a sequestration order be stayed beyond the 21 day period specified in s 52(3), provided that a notice of appeal has been filed in this Court: Evans v Heather Thiedeke Group Pty Ltd (1990) 95 ALR 424 per Pincus J at 425. 11 The considerations relevant to the exercise of the discretion to grant a stay are well settled. The Court must consider whether an arguable ground has been raised on the appeal and whether the balance of convenience favours the granting of a stay: Freeman v National Australia Bank Limited [2002] FCA 427 per Spender J at [4]; Boumelhem v Commonwealth Bank of Australia (2008) 171 FCR 462 per Graham J at [23]; Reynolds v Aluma-Lite Products Pty Ltd [2010] FCA 322 per Spender J at [10]; cf Rigg v Commonwealth Bank of Australia [2001] FCA 1340 at [31] and Burns v AMP Finance Ltd [2005] FCA 761 at [5] as to whether, as a matter of practice, evidence of the financial position of the applicant for the stay is necessary in order for the discretion to be exercised favourably. 12 In Evans at 425, Pincus J held that where there is a bona fide appeal challenging the existence of the debt, a stay of the sequestration order should fairly readily be granted. His Honour stated that "If that is not done, then the appeal (if successful) may be partly nugatory."

The grounds of appeal 13 The grounds of appeal set out in the applicants' notice of appeal filed in this Court are as follows:

1. The Creditor's Petition dated 20 January 2010 was presented outside the time prescribed by section 44(1)(c) of the Bankruptcy Act 1966. Federal Magistrates Smith erred by wrongly interpreting the Date of First Return of the Notice of Appeal filed in the Federal Court of Australia by the appellants on 13 May 2009.
2. Federal Magistrate Smith erred in concluding that the appellants Claim in the Supreme Court of New South Wales had no chance of success.
3. Other grounds will be formulated after the appellants receive a copy of the judgment with reasoning.

Preliminary observations 14 Before considering whether the notice of appeal raises an arguable ground of appeal, it is convenient to say something about the attitude of the respondent and the trustee in bankruptcy to the relief sought by the applicants in their motion. 15 The applicants appeared on the hearing of their motion and were unrepresented. The respondent was represented by Ms Van Ravels from the respondent's solicitors. The applicants' trustee in bankruptcy, Mr Pascoe, was not identified in the notice of motion as a party to the motion, as he should have been. Nevertheless, there was evidence that Mr Pascoe had been served with the notice of motion and the affidavit of Gambhir Watts affirmed on 3 September 2010. That affidavit reveals Mr Watts' desire to travel to Hong Kong this month and to India in early December 2010. Ms Van Ravels informed me that she had been in contact with Mr Pascoe who was aware of the hearing of the motion this morning. She informed me that Mr Pascoe did not intend to appear and would abide the orders of the Court. From all this I would understand that, as trustee of the bankrupt estates, Mr Pascoe raised no objection to the relief that was sought. Ms Van Ravels also informed me that the respondent did not actively oppose the granting of a stay but did oppose the return of the applicants' passports and the granting of permission to Mr Watts to travel overseas. I shall return to that matter later in these reasons.

Ground one 16 The first ground of appeal raises the same issue pleaded in the first ground of opposition to the creditor's petition before the Federal Magistrates Court. 17 Section 44(1)(c) of the Bankruptcy Act provides that a creditor's petition shall not be presented against a debtor unless "the act of bankruptcy on which the petition is founded was committed within 6 months before the presentation of the petition." 18 In order to assess this ground of appeal, it is necessary to set out further detail about the sequence of events which lead to this appeal. 19 The source of the applicants indebtedness to the respondents was summarised in the FMC reasons as follows: 5 In short, the Bank lent money to BMG Poseidon Corp Pty Ltd ("BMG") under two loan agreements entered into in 2004. Mr and Mrs Watts were the principals and controllers of BMG at all relevant times, and gave guarantees for the obligations of BMG under the loan agreements. They also provided security over a residential house property at Lyons Road, Drummoyne, whose value never exceeded the amount of BMG's indebtedness. 6 Default by BMG occurred in 2005, and a statutory demand was served in relation to the mortgaged property. The Bank obtained orders for possession of the property on 3 April 2006, and took possession of it on 1 November 2006. There were then exchanges between Mr and Mrs Watts and the Bank concerning realisation of the security, and a summary of their exchanges appears in the judgment of Foster J. Eventually, the Bank ended the efforts of Mr and Mrs Watts themselves to find a purchaser, and itself entered into a contract to sell the property on 2 April 2007 for $1,000,000, with a purchaser, Mr Campbell, with whom Mr and Mrs Watts had previously been negotiating. 7 The Bank also obtained a default monetary judgment against BMG and Mr and Mrs Watts on 3 April 2006, in the sum of $1,028,725.29. As a result of the Bank's sale of the Drummoyne property, it realised a substantial part of that indebtedness, but a significant debt remained owing, and the Bank proceeded to take further recovery measures against BMG and Mr and Mrs Watts. The indebtedness relied upon under the petition is $64,561.19, and additional liabilities may be owed to the Bank, including under costs orders. 8 A statutory demand was served on BMG on 27 August 2007, and bankruptcy notices were issued against Mr and Mrs Watts. A series of bankruptcy notices were set aside in circumstances which it is unnecessary to explore. The bankruptcy notice which is now relied upon was issued on 21 November 2008, and was served personally on Mr Watts on 5 December 2008 and on Mrs Watts on 26 November 2008. 9 BMG disputed the statutory demand by commencing proceedings in the Federal Court in its corporation's jurisdiction on 11 September 2007. These proceedings were adjourned pending the outcome of litigation which was also commenced by Mr and Mrs Watts and BMG in the Supreme Court, seeking to set aside the default judgment. 10 The application to set aside the default judgment was dismissed by McCallum J on 12 February 2008 (see Adelaide Bank Limited v BMG Poseidon Corp Pty Limited [2008] NSWSC 68). An application for leave to appeal to the NSW Court of Appeal was refused on 6 August 2008. An application for special leave to appeal to the High Court, requiring an extension of time, was refused on 11 February 2009. 20 The application to set aside the statutory demand on BMG, referred to in the FMC reasons at [9], was heard in this Court by Foster J who declined to set aside the statutory demand in a judgment delivered on 24 April 2009: BMG Poseidon Corp Pty Ltd v Adelaide Bank Limited; In the Matter of BMG Poseidon Corp Pty Ltd (No 2) [2009] FCA 404. In that proceeding, BMG and Mr and Mrs Watts contended, amongst other things, that they had offsetting claims against the respondent exceeding the amount claimed in the statutory demand, based on an allegation that the respondent had sold the Drummoyne property at an undervalue. Foster J considered this contention in his reasons for judgment at [85]-[90] and concluded that it was without merit. 21 Meanwhile, on 16 December 2008, the applicants applied to the Federal Court to have the bankruptcy notice issued on 21 November 2008 set aside. Several orders were made extending time for compliance with the bankruptcy notice while those proceedings were on foot. On 29 April 2009, Buchanan J delivered a judgment dismissing the application to set aside the bankruptcy notice: Watts v Adelaide Bank Limited [2009] FCA 420. His Honour made the following orders: 1. The application to set aside bankruptcy notice No NN 4517/08 is dismissed with costs. 2. Time to comply with the bankruptcy notice is extended to 8 May 2009. 22 On 8 May 2009, Jagot J made the following order, apparently on the ex parte application of Mr and Mrs Watts: 1. Pending further or other order: (a) Extend the time to comply with Bankruptcy Notice NN4517/08 until 19 May 2009 and, if a notice of appeal against the decision in Watts v Adelaide Bank Ltd [2009] FCA 420 is filed on or before that date, extend the time for compliance with the said bankruptcy notice until the first return date of the notice of appeal at which time a further application for an extension of time may be made; (b) Otherwise, if a notice of appeal is not filed on or before 19 May 2009, extend the time to comply with the said Bankruptcy Notice until 26 May 2009. 2. Direct the applicant to give notice of the making of these orders to the respondent by 5.00 pm on 11 May 2009. 3. Grant liberty to both parties to restore the application on 24 hours notice. 4. Leave to enter these orders forthwith. 23 The effect of this order was a matter of contention before the Federal Magistrates Court. The issue was summarised in the FMC reasons as follows: 20 In the event, a notice of appeal was filed on 13 May 2009. The effect of her Honour's order was therefore to "extend the time for compliance with the said bankruptcy notice until the first return date of the notice of appeal at which time a further application for an extension of time may be made". The correct identification of that date in the light of subsequent events is now in issue. 21 Mr and Mrs Watts' first contention in opposition to the petition is that the date specified by Jagot J first occurred on 10 June 2009, which was the date when a Registrar of the Federal Court held a conference to settle the appeal index. If so identified, it is common ground that the petition was filed outside the six month period under s.44(1)(c) of the Bankruptcy Act, and was therefore incompetent. 22 However, the Bank contends that the date specified by Jagot J occurred on 29 July 2009, which was the date of the call‑over of the appealheld before Moore J. If that contention is correct, then the petition was brought within the necessary six month period, and is competent. 24 After setting out some further procedural history, the Federal Magistrates Court reached the following conclusion on this issue: 56 However, in my opinion, the language of Jagot J's order is clear, when understood in the context in which it was made. The context was an urgent application by a debtor after the delivery of an adverse judgment at first instance refusing to set aside a bankruptcy notice, where the first instance Judge had allowed only a very short extension to allow consideration of an appeal. 57 In this context, the words used by Jagot J to qualify her reference to "the first return date of the notice of appeal" acquire significance. The qualifying words describe such a listing as one "at which time a further application for an extension of time may be made". In my opinion, it is clear from these words that her Honour envisaged that the "first return date" identified by her would be an event when the parties were first appearing before a judicial officer with power, time, and inclination to entertain an application for an order extending the time for compliance with the bankruptcy notice. 58 Jagot J referred to that event as a "first return date" in circumstances where that phrase had no technical meaning, whether in practice or under the Federal Court Rules or other legislation. This perhaps explains why she added the additional qualifying words, to explain the type of listing which she had in mind. Moreover, in common parlance in legal circles, a "first return date" is a reference to a listing before a judicial officer, rather than some administrative appointment with a Registrar or other court official. 59 Both wings of the description of the extended date for compliance specified in her order therefore point against the interpretation contended by Mr and Mrs Watts. 60 Moreover, the Federal Court Rules and practices which I have discussed above in relation to appeal index conferences, in my opinion, do not meet the usual description of a "first return date" in common legal parlance, nor a date at which "a further application for an extension of time may be made". 61 If there were doubts about the effect of Jagot J's order, of which I entertain few, the orders should be construed in favour of the debtors, by adopting a construction which gave them the longest extension of time. This is because at the time it was made the order was manifestly obtained by Mr and Mrs Watts for the purpose, and was intended to give them the benefit, of an extension of time to bring an appeal and have it listed before a Judge with power to extend time for a further period, so as to avoid the necessity for them to elect between paying the debt or incurring an act of bankruptcy during the pendency of their appeal. 62 For all these reasons, in my opinion, the construction relied upon by the Bank should be accepted, and the contention that the date identified by her Honour occurred when the Registrar held the index settlement conference should not be accepted. 63 On the evidence before me, in my opinion, the first time when the appeal proceeding was listed on an occasion when "a further application for an extension of time may be made", was at the call‑over before Moore J on 29 July 2009. In my opinion, that was an occasion at which Mr Watts could have applied to Moore J for an extension of time, and perhaps this possibility was obliquely raised by Moore J with Mr Watts. For whatever reasons, Mr Watts did not apply for a further extension of time at any time, and in my opinion an act of bankruptcy occurred at the end of that day. 64 I am therefore satisfied that the act of bankruptcy relied upon by the petition occurred on the date asserted in the petition, and that it occurred within the time period required by s.44(1)(c) of the Bankruptcy Act. The petition was therefore not incompetent under that section. 25 The applicants did not seek to advance submissions to explicate their grounds of appeal. I have nevertheless considered the FMC reasons in conjunction with each ground of appeal. 26 In my view it cannot be said that the first ground of appeal is devoid of any reasonable prospect of success. Although the Federal Magistrates Court provided a number of reasons supporting the conclusion which it favoured concerning the construction of the orders made on 8 May 2009, the identification in those orders of "the first return date of the notice of appeal" is not uncontroversial. After all, the relevant notice of appeal itself identified when the appeal proceeding was to first come before the Court. That date was 10 June 2009, when the appeal papers were to be settled. No other date was specified in the notice of appeal for bringing the parties to the appeal before the Court. 27 The Federal Magistrates Court placed controlling significance on the further statement in the orders that, at the relevant time, "a further application for an extension of time may be made". The Federal Magistrates Court reasoned that such an application could only be made before a Judge of the Court. It followed, on that reasoning, that the date in the notice of appeal requiring attendance to settle the appeal index was not "the first return date" within the meaning of the orders. 28 I am not required to express any final view on the correctness of the construction favoured by the Federal Magistrates Court. It is sufficient for me to form the view that, in relation to that matter, there exists an arguable ground of appeal. I am satisfied that ground 1 of the notice of appeal raises an arguable ground of appeal. In my view, it does not necessarily follow that the further words in the orders made on 8 May 2009 have the controlling significance that the Federal Magistrates Court placed on them. 29 In my view a stay should be granted pending the determination of the applicants' appeal. I am conscious of the fact that significant time has already elapsed since the relevant bankruptcy notice was served on the applicants in November 2008 and that the granting of the stay will occasion further delay in payment of the applicants' indebtedness. By the same token, as I have already noted, the respondent does not actively oppose the granting of a stay. Furthermore, it is clear that, if the Federal Magistrates Court was wrong in the construction it favoured, the petition on which the sequestration order was made was presented outside the time prescribed by s 44(1)(c) of the Bankruptcy Act with the result that the sequestration order should not have been made on that petition.

Ground two 30 In light of my conclusions in relation to ground 1 of the appeal, it is not strictly necessary for me to express a view on whether ground 2 of the notice of appeal raises an arguable ground of appeal. I will, however, briefly deal with that matter for completeness. 31 The applicants' second ground of appeal apparently relates to a proceeding commenced in the Supreme Court of New South Wales earlier this year, in which BMG is named as the first plaintiff and Mr and Mrs Watts are named as the second and third plaintiffs (the 'Supreme Court proceeding'). The respondent in this proceeding is named as the sole defendant in the Supreme Court proceeding. 32 Part of a statement of claim filed in the Supreme Court proceeding on or about 3 May 2010 is set out in the FMC reasons at [50]: 17 Pursuant to section 420A of the Corporations Act 2001 ('Act'), the defendant owed the first, second and third plaintiffs a duty to take all reasonable care to sell the Property for: a) if, it has a market value - not less than that market value; or b) otherwise, the best price that is reasonably obtainable, having regard to the circumstances when the Property is sold. 18 The defendant also owed the first, second and third plaintiffs a duty to act in good faith by doing all things necessary to achieve the best possible sale price when selling the Property. 19 On or about 24 May 2007, in breach of its duty under section 420A of the Act and its duty of good faith, the defendant sold the Property to Glenn Campbell for the sum of $1,000,000. Particulars a) The defendant failed to sell the Property for its true value. b) The defendant failed to proceed with the development application already lodged by the first, second and third plaintiffs with Canada Bay Council. c) Had the defendant obtained the development consent already applied for by the first, second and third plaintiffs the Property could have been sold for somewhere between $2,300,000 to $2,500,000. d) In about December 2006, the Property was valued at $1,200,000 (without the development consent) by the Commonwealth Bank. e) The defendant failed to sell the Property to Glenn Campbell for the original sale price of $1,075,000. 20 As a result of the defendant's breach of section 420A of the Act and its duty to act in good faith, the first, second and third plaintiffs have suffered loss and damage. Particulars a) The first plaintiff has lost the benefit of the post development approval sale price. b) In the alternative, the first defendant has lost the benefit of the original sale to Glenn Campbell. c) The second and third plaintiffs have jointly and severally become liable under the Guarantee for the residual amount of $122,570. d) The second and third plaintiffs' costs of Federal Magistrates Court of Australia Proceedings No. SYG 101/2010. 33 The 'Property' referred to in the statement of claim filed in the Supreme Court proceedings is apparently the same property in Drummoyne which was the topic of argument before Foster J. 34 The Federal Magistrates Court noted that there was no evidence before it as to the current state of the Supreme Court proceeding, but that BMG had been placed into liquidation on 27 May 2010, and no applicant for leave to proceed by that company had yet been made in the Supreme Court. 35 The Federal Magistrates Court considered whether the existence of the Supreme Court proceeding constituted "sufficient cause" as to why a sequestration order ought not be made, within the meaning of s 52(2) of the Bankruptcy Act. The Federal Magistrates Court cited authority for the proposition that a claim sounding in money against a creditor will only provide sufficient cause for dismissing a petition if it is "probable that the debtor has against the petitioning creditor a claim which is likely to succeed" and that a court should be satisfied that "the debtor is well advanced with litigation likely to result in the debtor being in a position to pay his or her debts": Re Schmidt; Ex parte Anglewood Pty Ltd (1968) 13 FLR 111; Ling v Enrobook Pty Ltd (1997) 74 FCR 19. 36 The Federal Magistrates Court considered evidence on the issue of the valuation of the Drummoyne property. The evidence was in the form of an affidavit attaching a valuer's report by Malcolm Geoffrey Garder dated 6 July 2010. The Federal Magistrates Court concluded (at [49]) that this evidence proceeded on a false assumption, and did not materially advance the merits of the applicants' claims against the respondent. Indeed, the Federal Magistrates Court concluded (at [73]) that the valuation evidence did not show any prospects of success at a factual level. 37 The Federal Magistrates Court considered this evidence against the background of findings of fact made in the earlier proceedings before Foster J and on appeal from his Honour's judgment. The status of these findings as admissible evidence before the Federal Magistrates Court on the hearing of the petition is unclear on the face of the FMC reasons: see s 91 of the Evidence Act 1995 (Cth). These findings, nevertheless, were influential in the Federal Magistrates Court's consideration of this issue: see [71] and [78] of the FMC reasons. Unless informed otherwise, I can only assume that no objection was taken to reliance on these findings. 38 The Federal Magistrates Court also dismissed an argument that the statement of claim itself carried evidentiary weight due to an attached affidavit made by a director of BMG verifying the facts stated within and what was argued to be a certificate under s 347 of the Legal Profession Act 2004 (NSW) (at [75]-[76]). 39 The Federal Magistrates Court also noted that the Supreme Court proceeding was commenced only after the bankruptcy proceedings were well advanced, and after Mr and Mrs Watts had failed to make out their claims against the respondent in protracted litigation, reaching the High Court on two occasions. 40 The Federal Magistrates Court reached the following conclusions on this point: 78 I consider that the merits and prospects of the statement of claim in the Supreme Court must be regarded with considerable scepticism, both from its timing and the previous findings of Judges which I have set out above, albeit on evidence which is slightly less extensive than the evidence now before me. Certainly in my opinion, the timing and state of preparation in the matter points against, rather than towards, a public interest in allowing Mr and Mrs Watts to pursue the Bank in the Supreme Court. I note that there seems little prospect that the matter could be resolved in favour of Mr and Mrs Watts during the life of the petition which is now due to expire in January next year. 79 My above assessment of the pending Supreme Court matter has not given substantial weight to several additional points made by counsel for the Bank, suggesting that the Bank has several legal defences to the statement of claim which are likely to succeed, and may even support a strikeout application. However, I accept that such defences appear well arguable. They include the absence of leave to proceed in relation to BMG, and a series of legal defences. Counsel submitted that there was a weight of authority against s.420A of the Corporations Act 2001 (Cth) providing a cause of action in damages for the benefit of either the mortgagor or a guarantor, and also authorities suggesting that the duties on a mortgagee exercising its power of sale were enforceable only in equity by way of opposition to actions of a mortgagee rather than by way of a cause of action in damages (citing Permanent Custodians Ltd v AGB Developments Pty Ltd [2010] NSWSC 540). Counsel for Mr and Mrs Watts challenged some of these submissions, but I do not find it necessary to examine these potential defences further. It is enough for me to indicate that I have concluded that there is a stronger likelihood that the Bank will be able successfully to have the new Supreme Court proceedings summarily dismissed, than that Mr and Mrs Watts would be able to obtain a verdict exceeding their indebtedness to the Bank. 41 The second ground of appeal misstates the relevant finding of the Federal Magistrates Court. The Federal Magistrates Court did not conclude that the Supreme Court claim had no chance of success. Rather, the Federal Magistrates Court concluded, in effect, that there was a stronger likelihood that the applicants would not succeed in that claim. On that basis the Federal Magistrates Court further concluded that the existence of the claim in the Supreme Court raised no proper foundation to decline to make the sequestration order on discretionary grounds. 42 Once again, the applicants advanced no submission to explicate this ground of appeal. I proceed on the basis that they disagree with the conclusion that was reached. But the second ground of appeal does not descend to any detail as to why, specifically, the discretion exercised by the Federal Magistrates Court miscarried on the material before that court so as to constitute appealable error. 43 On the material before me, I am not satisfied, therefore, that ground 2 of the notice of appeal would, of itself, raise a sufficiently arguable ground of appeal to warrant the grant of a stay. However, as I have determined, ground 1 of the notice of appeal justifies the granting of a stay pending the determination of the appeal.

Ground three 44 For completeness I should also note that, as yet, no further grounds of appeal have been formulated as foreshadowed by paragraph 3 of the notice of appeal.

RETURN OF PASSPORTS 45 Section 77(1)(a)(ii) of the Bankruptcy Act requires a bankrupt, unless excused by the trustee or prevented by illness or other sufficient cause, to give the bankrupt's passport to the trustee forthwith upon the bankruptcy. 46 Mr Watts has given evidence that the applicants have delivered their original passports to their trustee, in compliance with orders 2(a) and (b) of the Federal Magistrates Court, set out above. 47 The applicants now seek an order that the applicants' passports delivered to the trustee be returned to them. The orders of the Federal Magistrates Court required both applicants to obtain the permission of their trustee before travelling overseas. Beyond the relief claimed in paragraph 2 of the notice of motion, it does not seem that a separate request for permission to travel has been made to the trustee. I note that the applicants do not expressly seek an order that they be permitted to travel, however it is clear from Mr Watts's evidence that he intends to do so if his passport is returned. 48 In support of this application, Mr Watts deposes that his employment requires him to travel overseas and that such trips are planned in a short time. He states that he plans to visit Hong Kong between 15 and 18 September 2010 in relation to negotiating a consultancy project, which has the potential to generate consulting fees in excess of $500,000 over a period of 18-24 months. I was informed this morning that, since making that affidavit, Mr Watts now wishes to travel to Hong Kong during the period 18 to 22 September 2010 and that he would be in a position to provide evidence of his travel arrangements in that regard to his trustee by 16 September 2010. 49 Mr Watts also deposes that he plans to visit India in the beginning of December 2010, to attend an 'International Symposium on Yogism for Healthy & Happy Living and Ageing and CME on Management of Lifestyle Health Problems' from 5 to 7 December 2010. He states that he has been asked to chair some of the sessions in a voluntary capacity, and that it is very important for his social status. 50 There is no evidence currently before the Court as to why Mrs Watts requires her passport to be returned. 51 As I have noted, the respondent opposes the return of the applicants' passports and the granting of permission to Mr Watts to travel overseas. The respondent expressed concern that Mr Watts may not return to Australia and noted that his business trip related to overseas business interests. 52 No evidence was tendered by the respondent that would show that Mr Watts is a "flight" risk. He has had, apparently, long-standing connections with Australia. I have no reason to doubt that his marriage to Mrs Watts is other than one that is stable and enduring. Both live in a Sydney suburban residence formerly owned by them but now said to be owned by their daughter, from whom they rent. There is no material before me that would indicate that his intended business trip this month is to be undertaken other than for the reason given in his affidavit or would lead to him staying overseas so as to defeat or delay his creditors. 53 Section 178 of the Bankruptcy Act provides: (1) If the bankrupt, a creditor or any other person is affected by an act, omission or decision of the trustee, he or she may apply to the Court, and the Court may make such order in the matter as it thinks just and equitable. (2) The application must be made not later than 60 days after the day on which the person became aware of the trustee's act, omission or decision. 54 In Re Tyndall, ex parte Official Receiver (1977) 17 ALR 182 at 186, Deane J, sitting in this Court, considered an application by a bankrupt for the return of his passport and permission to travel overseas. His Honour made the following observations about s 178: In my view, the wording of s 178 of the Act is such as to confer upon the court the widest possible discretion as to the appropriate order which should be made in the particular case and is quite inconsistent with the approach that, upon an application made pursuant to the section by a bankrupt, creditor or other person affected by an act, omission or decision of the trustee, the court is only empowered to interfere with the trustee's act, omission or decision if it is of the view that the trustee has acted absurdly or unreasonably or in bad faith. 55 In Weiss v Official Trustee in Bankruptcy (1983) 1 FCR 40 at 43 Bowen CJ observed: It is a basic principle that a resident of Australia is entitled to expect that he may travel freely notwithstanding the fact that he is a bankrupt provided it will not lead to his staying overseas in order to defeat or delay his creditors and provided it will not interfere with the due administration of his bankrupt estate (see Tyndall's case at 15). It is to secure the proper administration of bankrupt estates that bankrupts are required by the Bankruptcy Act 1966 (Cth) to give their passports to the trustee (par 77(a)) and to obtain the permission of the trustee before travelling overseas (par 272(c)). This interference with the travel of bankrupts is not for the purpose of punishing or expressing disapproval of them for offences or alleged offences against the Bankruptcy Act 1966 (Cth). See also Talacko v Talacko (2010) 183 FCR 311 at [33]. 56 By service of the notice of motion and Mr Watts' affidavit on him, Mr Watts' trustee must be taken to be aware of the applicants' application to have their passports returned and of Mr Watts' requests to travel. As I have said, it does not seem that a separate request for permission to travel has been made to the trustee. Nevertheless, I shall treat the service of the notice of motion and the affidavit as constituting a request to travel and the absence of any indication from the trustee that he consents to the relief claimed in the notice of motion or has given permission for Mr Watts to travel overseas, as an "act, omission or decision of the trustee" attracting the jurisdiction conferred by s 178(1) of the Bankruptcy Act. In the circumstances the question then becomes what order, if any, should be made that is just and equitable. 57 In my view the material presently before the Court does not justify an order in blanket terms that the applicants' passports be returned to them. However, Mr Watts should be permitted to undertake travel to Hong Kong this month. As to his desire to travel to India later this year, it seems to me that the appropriate course would be to permit Mr Watts to undertake that travel subject to no objection being raised by his trustee, provided he gives details of his travel arrangements to his trustee. 58 The orders I propose to make will permit Mr Watts to travel to Hong Kong during the period 18 to 22 September 2010 provided he gives details of his travel arrangements to the trustee (including flight numbers and intended place of accommodation in Hong Kong) by no later than 4.00 pm on 16 September 2010. It will also be a condition of that permission that Mr Watts return his passport to his trustee by no later than 4.00 pm on 24 September 2010. I will also make orders that will permit Mr Watts to travel to India in December this year, subject to no objection being taken by his trustee, provided details of his travel arrangements are also provided and his passport subsequently returned to the trustee. It will no doubt be in Mr Watts' interests to bring the details of those intended arrangements to his trustee's attention in the near future. 59 The costs of the notice of motion will be costs in the appeal. I certify that the preceding fifty-nine (59) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Yates.