Ground 2 - error in not adjourning
24 Ground 2 is:
His Honour erred in law or in fact in holding that proceedings in the Supreme Court of Western Australia against other parties did not identify a proper basis to adjourn the creditors petition (at [11] and [14]).
25 Under this broad ground, Ms Williams makes several attacks on the primary judge's conclusion that the petition ought not to have been adjourned. I will consider those below, but it must be said at the outset that her primary submissions did not grapple with the discretionary nature of the decision not to adjourn. To succeed on appeal, Ms Williams must identify one or more errors of the kind described in House v The King (1936) 55 CLR 499 at 504-505. Those are that the primary judge acted upon a wrong principle, or allowed extraneous or irrelevant matters to guide or affect him, or mistook the facts, or did not take into account some material consideration. If it does not appear how the primary judge reached the result embodied in his order, Ms Williams will need to establish that, on the facts, the decision is unreasonable or plainly unjust, so that this court may infer that in some way there has been a failure to exercise the discretion properly.
26 On Ms Williams's primary submission in relation to ground 2, the error is said to be a failure to recognise that refusing to adjourn would result in a serious injustice to her. The injustice is said to arise because if she successfully enforces the Deed, her liability to Mortgage Ezy and so the basis for the bankruptcy petition will be removed. It is said that since successful enforcement of the Deed will permit recourse to the assets of Victor and Turco & Co, to which Mortgage Ezy will not otherwise have access, allowing Ms Williams to pursue the SC Action cannot prejudice Mortgage Ezy.
27 In reply to the submission, Mortgage Ezy relies on Ling Full Court and Pineview Property Holdings Pty Ltd v Dimitriou (No 2) [2019] FCA 1416. They are not cases about adjournment, but about the exercise of the discretion under s 52(2)(b) to dismiss a petition for 'other sufficient cause'. In Endresz v Australian Securities and Investments Commission (No 2) [2015] FCAFC 33; (2015) 228 FCR 334 at [34]-[39] the Full Court made it clear that the discretion to adjourn a petition under s 33(1) of the Act is different to the discretion to dismiss a petition under s 52(2)(b), and engages potentially broader considerations. Nevertheless, there will obviously be overlap between the kinds of considerations that can be relevant to the decision to adjourn and those that can be relevant to a decision to dismiss under s 52(2)(b). In the first instance decision which was appealed in Maddestra v Penfolds Wines Pty Ltd (1993) 44 FCR 303, from which the Full Court quoted (at 307) with evident approval (see 309), Lee J said of the relevance of litigation against third parties:
If collateral litigation is well advanced and likely to bring a beneficial result to a debtor, there may be good cause for the Court not to make a sequestration order and it may be satisfied that such an order ought not to be made. The Court may mould its order according to the circumstances, deferring further hearing of the petition subject to review or it may be entirely satisfied that a sequestration order ought not to be made on the petition at any time and that the petition should be dismissed.
His Honour's reference to deferring further hearing of the petition shows that the considerations he outlined can be relevant to adjournment as well as to dismissal under s 52(2)(b).
28 Similarly, in the first instance decision in Re Ling; Ex parte Enrobook Pty Ltd (1996) 142 ALR 87 (Ling First Instance) which was affirmed in Ling Full Court, Lehane J discussed the principles in terms of both adjournment and dismissal of the petition. At 95-96 his Honour referred to two categories of case in which there can be sufficient cause to adjourn or dismiss a petition on the basis that the debtor has a claim against a person other than the petitioning creditor. One is 'where the claim against the third party is so intimately connected with the debt on which the petitioning creditor relies as to require that it be regarded substantially in the same way as a claim against the petitioning creditor'. The other is the kind of circumstance mentioned in Maddestra, 'where the debtor, although not presently solvent, establishes that there is a claim which is being diligently prosecuted, has good prospects of success, is likely to be determined in the near future and is likely, if determined favourably, to produce funds sufficient to discharge all claims against the debtor'. Lehane J said that relevant factors in such a case include:
whether the claim is likely to yield sufficient funds to discharge the claimant's debts; whether litigation has been prosecuted vigorously; whether an early determination is likely; whether there are prospects of a beneficial settlement and whether the petition has already been extended and is nearing the end of its life, so that it is necessary for a decision to be made.
29 The considerations referred to in Maddestra and in Ling First Instance are relevant to an application to adjourn or to dismiss a petition in circumstances such as the present. They are not exhaustive considerations, however; Lehane J spoke in terms of inclusion, and it is undesirable to reduce broad discretions of this kind to formulaic lists. In Endresz (at [59]) the court remarked that there is no exhaustive catalogue of the circumstances under which the court should grant an adjournment of a petition.
30 It is necessary to return to Endresz because Ms Williams relied on it quite heavily. The Full Court (Edmonds, Gordon and Beach JJ) held that the primary judge had erred in failing to take certain matters into account in deciding not to adjourn: see [40]. Those matters included the fact that the judgment debtors had an appeal on foot against the Commonwealth (not against the petitioning creditor, ASIC) in relation to a decision of the Supreme Court of the Australian Capital Territory to allow claims by the Commonwealth and to dismiss counterclaims against the judgment debtors. But that fact alone would not have compelled an adjournment; the Full Court made it clear that 'unique features' ([56]) and 'unusual and idiosyncratic features' ([59]) of the case meant that an adjournment should have been granted. The features on which the court principally relied were that freezing orders in the Supreme Court proceedings had been the cause of the debtors' inability to pay ASIC, and there had been extraordinary delays in the progress of the proceedings which were not the fault of the debtors: see [40], [44], [46]-[47], [51]. Their Honours accepted that the onus of establishing that the primary judge's discretion had miscarried was a heavy one ([41]), and that in considering whether to grant an adjournment due weight should be given to the prima facie right of the creditor to obtain a sequestration order and to avoiding or minimising delay once bankruptcy proceedings have been instituted: at [36], [56]. Endresz confirms that a claim by a debtor against a third party can support a finding that a bankruptcy petition should be adjourned, and Mortgage Ezy does not contend otherwise. But Endresz does not assist Ms Williams on its facts.
31 In the present case, it is plain that the existence of the SC Action was a relevant factor to be taken into account in deciding whether to adjourn or dismiss the petition. If that action is pursued to an outcome which results in the satisfaction of Ms Williams's debt to Mortgage Ezy, that would remove the foundation of the bankruptcy petition. Ms Williams's prospects of achieving that outcome were also relevant. So was the likely timeframe within which that outcome would be achieved, including whether Ms Williams had prosecuted the matter with diligence and whether she would do so in the future. In Endresz, the orders for adjournment were made on condition that the debtors prosecuted the relevant appeals against the Commonwealth with due expedition: see [7]. The effect of the appointment of a trustee in bankruptcy on Ms Williams's ability to prosecute the SC Action was relevant too. In Endresz the court found that the assertion by the trustee in bankruptcy that certain dimensions of the debtors' appeal rights had vested in the trustee was relevant because it adversely affected and curtailed the debtors' control of those rights: see [53]. And throughout, the drastic effect of a sequestration order on any individual should be steadily kept in mind. Those matters would all have to be weighed against Mortgage Ezy's prima facie right to obtain a sequestration order and the importance of the petition being determined with minimal delay. The interests of creditors other than Mortgage Ezy in seeing an orderly administration of the estate of an insolvent person are also relevant.
32 Did the primary judge err in failing to apply those considerations here, or in applying other considerations that were not relevant? His Honour recognised that there was a discretion to adjourn: see the first sentence of [12]. But there is reason to think that he conceived of the question in terms of whether the review proceeding before him should be adjourned, rather than whether the decision of the registrar making the sequestration order should be set aside because the registrar should have adjourned. This appears in particular from [11], where his Honour says that adjournment is not appropriate 'in respect of the review application' and says that review applications should ordinarily be heard on the day the order is made, and at [12] where he says that the respondent would remain a bankrupt unless the court granted some other interim relief. However no ground of appeal raises that as an error. Although counsel for Ms Williams did mention it in oral submissions, for the most part the parties approached the primary judgment on the basis that his Honour decided that there was no basis to adjourn the petition.
33 Approaching it in the same way, the difficulty is that the primary judge's brief ex tempore reasons, barely spanning three pages, do not reveal why he decided to exercise the discretion to adjourn against Ms Williams here. Apart from the matters he discussed in the balance of [12] (which are the subject of ground 3 below), the reasons consisted of conclusionary statements to the effect that the SC Action did not provide proper basis to adjourn, and that the interests of justice did not warrant an adjournment: see [11], [14]. It may be that the comment in [12] that the outcome of the 'substantive proceedings even if successful, is not one upon which the Court can be satisfied that the applicant's ability to pay her debts would be materially different' is a reference to the uncertain prospects of the SC Action or the uncertain prospects of enforcing any judgment. But apart from that, no reasons are expressed.
34 Ms Williams does not appeal on the ground of inadequacy of reasons. So this court is left in the position which the High Court described in House v The King at 505, where it does not appear how the primary judge has reached the result embodied in his order, and the appellate court should intervene if, on the facts, the decision is unreasonable or plainly unjust so that a substantial wrong has occurred.
35 I do not consider that Ms Williams has established that here. The circumstances before the primary judge included the following:
(1) In 2014 Ms Williams had made a claim in the Family Court to compel Victor and Turco & Co to pay Mortgage Ezy's debt.
(2) In 2020, two days after the application for a sequestration order against her, she commenced the SC Action for essentially the same relief as she was seeking, but not pursuing with any expedition, in the Family Court.
(3) It appears that Ms Williams had taken no steps to pursue that claim, including in the fourteen months between the dismissal of her appeal from the judgment in favour of Mortgage Ezy and the commencement of the SC Action. Her counsel sought to explain that by saying that she wanted to see whether Mortgage Ezy would be able to recover the debt from Mario. But there was no evidence of that, and there was nothing before the Federal Circuit Court which could have satisfied it that the claim had been or would be pursued vigorously.
(4) The defendants in the SC Action are contesting the claim. At the time of the primary judgment there was a possibility that the Supreme Court would strike the SC Action out. Even if Ms Williams was successful in resisting that application, the result would merely enable her to pursue the SC Action. It would not have indicated that she had good prospects of success in that action.
(5) The dealings between Ms Williams, Mario and the defendants are sufficiently involved to give the defendants counterclaims and other bases on which to resist the claim. It was impossible for the primary judge to assess the merits of the various claims and counterclaims, so it was impossible for him to be confident that Ms Williams would be ultimately successful.
(6) It was also impossible for the primary judge to have any confidence that the SC Action would be finalised any time soon. It had only been commenced recently. It appears from the evidence that as at the time of the Federal Circuit Court hearing, no defence had been filed, presumably because the defendants had applied to strike the proceeding out. As I have said, there was no evidence that Ms Williams intended to prosecute the SC Action with any vigour.
(7) It was also impossible for the primary judge to have any confidence that Ms Williams would be able to enforce any judgment. There was evidence that Victor is the registered proprietor of six properties in East Fremantle and Bicton, but there are certificates of title in evidence for four of these only. In each of the four, Victor was registered as to a one third share only. Mario and another brother, Tony, each had another one third share. Tony had lodged caveats over Victor's share (and over Mario's). It appears that Tony has commenced proceedings against Mario and Victor in relation to those four properties. And for each of the four there was a registered mortgage in favour of a finance corporation. The status of the remaining two properties is unclear. So even if the undertaking to the Family Court meant that Victor's and Turco & Co's asset positions would not deteriorate, there was no basis for confidence that any judgment in Ms Williams's favour in the SC Action would result in satisfaction of Mortgage Ezy's debt. Counsel for Ms Williams properly conceded before the primary judge that these property interests did not equate to 'funds raised'.
36 It appears from the transcript of the hearing before the primary judge that Ms Williams only sought an adjournment of the petition until the Supreme Court handed down judgment on the application to strike the SC Action out. Counsel for Ms Williams effectively conceded before the primary judge that if the SC Action was struck out, there would be no basis to resist the sequestration order, but said that if the decision went in Ms Williams's favour, the petition could then be relisted to assess the position in light of that.
37 However there would have been no utility in adjourning for that relatively short time if dismissal of the strike out application would not have led to a longer adjournment of the petition, or its dismissal. A favourable outcome on the strike out application would have said nothing about the merits of Ms Williams's claim, let alone the merits of the foreshadowed counterclaims against her. Assuming that the SC Action was permitted to proceed, the question remained whether it justified adjournment or dismissal of the petition. That question was to be answered in the circumstances just described, where there was a real prospect that adjourning the bankruptcy petition pending an outcome in the SC Action would have deferred any sequestration order, perhaps for years, with an uncertain outcome. Adequate justification for the primary judge's decision not to adjourn appears on the face of the evidence.
38 I therefore do not accept Ms Williams's submission that refusing to adjourn caused her serious injustice. It would only be a serious injustice if it deprived her of the ability to prosecute a claim that was likely to succeed and to result in the satisfaction of the debt to Mortgage Ezy within a relatively short time. The onus was on her to establish that. She did not.
39 I also do not accept the submission that there would have been no injustice to Mortgage Ezy if the petition had been adjourned. While that may have been the case for a short adjournment, the indefinite adjournment, which was really what was proposed here, would have delayed Mortgage Ezy's enforcement of the judgment it had obtained and defended on appeal, and would have increased the risk of dissipation of assets in the meantime. That included the risk that Ms Williams would spend legal fees in prosecuting the SC Action, ultimately to no avail. Weight must be given to the right of a judgment creditor to obtain a sequestration order with minimal delay.
40 Ms Williams's submissions placed emphasis on the character of the Deed as a deed, 'which is the most solemn act that a person can perform with respect to a particular piece of property or other right'. She said it was open to her to enforce it summarily, 'provided the Court is clearly satisfied that justice can be done under the summary procedure'. But there was no evidence that she had applied for summary judgment or intended to do so. The apparent intentions of the defendants to resist the SC Action, including on the basis of allegations of misleading conduct, mean that if she were to pursue it, there would probably need to be a full trial.
41 Ms Williams submitted that the primary judge had failed to take into account a relevant consideration, namely that by making the mistake during the refinancing, Mortgage Ezy exposed her to the risk of a claim being made against her for an outstanding debt. It is not clear whether this was put to the primary judge, but I do not accept that it has much weight in the exercise of the discretion. The operative factor which has led to Ms Williams's ongoing liability to Mortgage Ezy was the decision of Mario, Victor and Turco & Co to use for other purposes the funds that had been earmarked for Mortgage Ezy. While, as Ms Williams's counsel said, Mortgage Ezy's mistake satisfied the 'but for' test in relation to his client's current indebtedness, I do not consider that this bare causal connection with the inadvertent mistake Mortgage Ezy made justifies adjourning (or dismissing) the petition. That is so in circumstances where it gives no basis to think that there could be a counterclaim against Mortgage Ezy or that for any other reason it should not be permitted to seek repayment of the debt which has been conclusively established by judgment.
42 Ms Williams also submitted that the primary judge failed to consider the possibility that the trustee in bankruptcy could be deemed to have abandoned the SC Action if he does not elect to prosecute it: Bankruptcy Act s 60(3). Once again, it is not clear that this was put to the primary judge, but if it was, it is speculative. The evidence does not indicate what the trustee's intentions are. If the SC Action is indeed a worthwhile avenue to pursue payment of the debt to Mortgage Ezy, which proposition is the ultimate foundation of Ms Williams's case for the adjournment, then it may be expected that the trustee in bankruptcy will elect to prosecute it. But if the trustee does elect not to pursue the claim, that will not cause serious injustice to her. It will simply be an outcome of the trustee's duty not to risk assets or creditors' funds if in his judgement it is not a risk worth taking. While, as I have said, Ms Williams's loss of control over the SC Action is a relevant factor, in the absence of evidence of the trustee's intentions, I would not give it much weight.
43 Ms Williams has not established that the primary judge's decision was unreasonable or plainly unjust, or that his Honour otherwise committed appealable error in the exercise of his discretion. If I am wrong about that, for example because his Honour misunderstood that the question was the adjournment of the petition and not adjournment of the review application, then it would be appropriate for this court to exercise the discretion for itself, and for the reasons I have given I would exercise it against setting the bankruptcy order aside so that the petition can be adjourned. The drastic effects of a sequestration order on the individual involved mean it should never be made lightly. But here there was a judgment debt, Ms Williams could not pay it, and she had not put on evidence sufficient to persuade the court that the SC Action would materially change that, within a reasonably short time, or at all. Either way, I do not uphold ground 2.