FEDERAL COURT OF AUSTRALIA

Flint v Richard Busuttil & Co Pty Limited [2013] FCAFC 131

THE COURT ORDERS THAT:

1.    Appeal allowed.

2.    Set aside orders 2 and 4 made by the Court on 7 June 2013 and in lieu thereof order:

   (a)    the creditor’s petition of the applicant dated 24 November 2011 be dismissed;

   (b)    the applicant pay the respondent’s costs.

3.    The respondent pay the appellant’s costs of the appeal.

4.    The appellant and the respondent in the proportion of 75:25 respectively pay the fair and reasonable remuneration and costs of Frank Lo Pilato in the administration of the estate of the appellant pursuant to the orders made by the Court on 7 June 2013 up to and including 1 November 2013 as if the administration was being conducted under the Bankruptcy Act 1966 (Cth) and, subject to the application of Div 2 of Pt VIII of that Act, for the review of claims for remuneration and costs.

5.    Without prejudice to order 4 above, Frank Lo Pilato be entitled in the first instance to indemnify himself for 75% of such reasonable remuneration and costs from the assets of the estate of the appellant held by him pursuant to the orders of 7 June 2013, but subject to the responsibility to repay to the appellant such part of the costs and remuneration that may be found not to be fair or reasonable.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

THE COURT:

1    Section 52(4) of the Bankruptcy Act 1966 (Cth) (“Bankruptcy Act”) relevantly provides that a creditor’s petition lapses 12 months after the date the petition is presented unless the court makes an order under subs (5) in relation to the petition. Subsection (5) confers a power on the court at any time before the expiration of the 12 month period to make an order extending the period (up to a maximum of 24 months from the date of presentation of the petition) if it considers that it is just and equitable to do so.

2    In this case an order was made to extend the petition after the petition had lapsed. The order was made in reliance on the rules of court incorporating what is commonly known as the slip rule. A sequestration order was later made based on the petition. The substantive question on this appeal is whether the slip rule was properly invoked. If it was not, then the primary judge had no power to make the sequestration order.

The facts

3    The appellant, Denise Flint, was served with a bankruptcy notice on 4 April 2011. The notice was founded on a judgment debt in favour of the respondent (“Busuttil”), the corporate name of a firm of solicitors which had acted for Ms Flint and whose fees she had not paid. Ms Flint applied to the Federal Magistrates Court (now the Federal Circuit Court of Australia) to have the notice set aside. That application was dismissed by the district registrar on 19 October 2011. On 10 November 2011 Ms Flint filed an application for review of the district registrar’s decision (“application for review”). Two weeks later, on 24 November 2011, also in the Federal Magistrates Court, Busuttil filed a creditor’s petition.

4    The application for review and the creditor’s petition were jointly managed by the federal magistrate. The creditor’s petition was adjourned on multiple occasions at Ms Flint’s request. On 29 August 2012 the federal magistrate made the following order:

Written submissions of no more than 3 pages, for both CAG20/2011 and CAG61/2011, be filed by the respondent within 21 days. The matter will then be determined in Chambers based on the Affidavit material and Submissions of each party.

5    The order was entered the same day. CAG20/2011 was the application for review, CAG61/2011 the creditor’s petition. It seems that the federal magistrate’s intention was to determine both the review application and a further application by Ms Flint to adjourn the hearing of the creditor’s petition.

6    Submissions were not forthcoming until 28 September 2012 at which time Ms Flint sought additional time to “properly instruct a legal adviser”.

7    The federal magistrate did not deliver his judgment until 7 December 2012. In the meantime (on 23 November 2012) the creditor’s petition lapsed.

8    The solicitor for Busuttil had written to the federal magistrate on 22 October 2012 alerting him to their concern that time was running, but did not apply for an extension of the petition. Nor had the federal magistrate made any such order of his own motion.

9    On 7 December 2012 the federal magistrate dismissed the review application. With respect to the proceedings involving the creditor’s petition he made the following orders:

(1)    Pursuant to s 52(5) of the Bankruptcy Act 1966 (Cth) the creditor’s petition, filed on 24 November 2011, shall be extended, and subject to further order of the Court, shall expire not before 23 November 2013.

(2)    The Court requests the Registry of the Court to list the creditor’s petition before Registrar of the Court at the earliest possible time.

10    In his reasons the federal magistrate referred to the order made on 29 August 2012 and said that the authorities confirm that there is power under the rules of court to amend orders retrospectively (giving as examples r 39.05 of the Federal Court Rules 2011 (Cth) (“Federal Court Rules”) and r 16.05 of the Federal Magistrates Court Rules 2001 (Cth) (“FMCR”)). He referred to the solicitor’s letter of 22 October 2012 and at [94] of his reasons he said:

In the circumstances where (a) the petition was founded upon and continues to rely upon the bankruptcy notice, (b) that bankruptcy notice was the subject of review by the Registrar, (c) the Registrar’s decision was itself the subject of review to this Court, and (d) orders were made on 29th August 2011, and a letter received from the legal representatives for the petitioning creditor seeking to have the matter re-listed and the same letter expressing concern about the possible expiry of the petition, in my view, the Court should order, pursuant to rule 16.05 of this Court’s rules, and in the light of the authorities mentioned, that the time for the life of the petition should be extended until 23rd November 2013.

11    The proceeding was later transferred to this Court and on 7 June 2013 the primary judge made a sequestration order against Ms Flint’s estate based on the creditor’s petition and appointed a trustee to administer the bankrupt estate.

The proceeding in the court below

12    At the hearing of the creditor’s petition Ms Flint was represented by a solicitor advocate. There was no issue about the formal matters that needed to be proved to enliven the court’s power to make a sequestration order. There was no satisfactory evidence that Ms Flint was solvent. No discretionary matters were raised. Nonetheless, the making of the order was opposed. The solicitor advanced two arguments. First, she submitted that the federal magistrate could only have extended the life of the petition by an order made in the period before the petition expired. She contended that there was therefore no jurisdiction to make any of the orders sought in the petition. The second argument is not presently relevant.

13    In substance, his Honour’s response to the first argument was that he was bound by the judgment of the Full Court in Griffiths v Boral Resources (Qld) Pty Ltd (2006) 154 FCR 554 (“Griffiths”) to hold that the slip rule could be invoked to overcome the effect of s 52(5) of the Bankruptcy Act in an appropriate case. He said (at [33]) that as at 29 August 2012 “it was almost certainly incumbent upon [Busuttil, the petitioning creditor] to make an application to the Federal Magistrate to have the Petition extended”. He also said that it was clear from the letter sent nearly two months later that Busuttil intended to make the relevant application at the appropriate time. He said that having regard to the complexity of the matter which was then before the federal magistrate (by which we understand him to be referring to the review application), it was “quite likely” that a judgment would not be delivered before the petition expired.

14    The primary judge found that the failure by Busuttil to ensure that the federal magistrate covered “the question of the expiration of the Petition” in the orders he made on 29 August 2012 was properly characterised as “an accidental slip or omission” (at [34]). He said there was no doubt that had the attention of the federal magistrate been drawn specifically to “the issue of the upcoming expiration of the Petition” he would have extended it on 29 August 2012. His Honour formed that view because, as he put it, the necessity for an extension arose from the multiple applications Ms Flint made to have the bankruptcy notice set aside. He concluded that the case fell squarely within the circumstances which the Full Court in Griffiths reasoned would attract the operation of the slip rule.

The legislative framework

15    We referred at the outset to the relevant provisions of s 52 of the Bankruptcy Act but it is convenient to set them out more fully at this point.

16    Section 52(4) of the Bankruptcy Act provides that a creditor’s petition lapses 12 months after the date the petition is presented or, if the Court makes an order under subs (5) extending the time, the time fixed by the order, unless before the expiration of the relevant period a sequestration order is made or the petition is dismissed or withdrawn. Section 52(5) is in the following terms:

The Court may, at any time before the expiration of the period of 12 months commencing on the date of presentation of a creditor’s petition, if it considers it just and equitable to do so, upon such terms and conditions as it thinks fit, order that the period at the expiration of which the petition will lapse be such period, being a period exceeding 12 months and not exceeding 24 months, commencing on the date of presentation of the petition as is specified in the order.

17    Section 33(1)(c) gives the Court the power to:

extend before its expiration or, if this Act does not expressly provide to the contrary, after its expiration, any time limited by this Act … for doing an act or thing…

18    Although the federal magistrate did not purport to rely on s 33(1)(c), in its written submissions Busuttil contended that the time prescribed by s 52(4) could have been extended under s 33(1)(c) as s 52(5) does not expressly provide to the contrary. The contention flies in the face of the Full Court’s decision in Re Young; Ex parte Smith (1985) 5 FCR 204 and, sensibly, it was not pressed.

The slip rule

19    It has long been accepted that courts have the power to correct clerical mistakes and accidental slips or omissions. In the case of the common law courts in England and their successors in Australia this is an inherent power, necessary for the administration of justice (Riley McKay Pty Ltd v McKay [1982] 1 NSWLR 264 at 270). In the case of a superior court of record created by statute there are no inherent powers (Logwon Pty Ltd v Warringah Shire Council (1993) 33 NSWLR 13 at 17) but similar powers may be implied (DJL v Central Authority (2000) 201 CLR 226). Care must always be taken to require that federal courts created under the authority of s 71 of the Constitution take their character and authority from Ch III and the statute that is the source of their power: Re Macks; Ex Parte Saint (2000) 204 CLR 158. All courts have developed rules providing for the correction of orders in certain circumstances, whether before or after orders have been entered.

20    The Federal Circuit Court is neither a common law court nor a superior court of record. But its rules enable the court to vary or set aside a judgment or order in some specified circumstances. Rule 16.05 of the FMCR (now the Federal Circuit Court Rules 2001 (Cth)) includes the power to vary or set aside a judgment or order after it has been entered if it does not reflect the intention of the Court. It does not, however, include a power to correct an accidental slip or omission. But s 43(2)(b) of the Federal Magistrates Act 1999 (Cth) (“Federal Magistrates Act”) (now the Federal Circuit Court of Australia Act 1999 (Cth)) relevantly provided that the Federal Court Rules apply, with necessary modifications, to the practice and procedure of the Federal Magistrates Court to the extent that the FMCR are insufficient. Rule 1.05(2) of the FMCR similarly provided that the Federal Magistrates Court can apply the Federal Court Rules to the extent that the FMCR are insufficient or inappropriate. Rule 39.05 of the Federal Court Rules relevantly provides that the Court may “vary or set aside” a judgment or order after it has been entered for a number of reasons including if:

(g)    there is a clerical mistake in a judgment or order; or

(h)    there is an error arising in a judgment or order from an accidental slip or omission.

21    In the present case the federal magistrate neither set aside nor varied any order. He referred to the August order but the order he made extending the petition did not in its terms vary the August order. Nevertheless, Ms Flint accepted for the purposes of this case that the order was made under r 39.05.

22    For completeness, we note that the FMCR applied to the proceedings until they were transferred to this Court unless they were inconsistent with the Federal Magistrates Court (Bankruptcy Rules) 2006 (Cth) (“Bankruptcy Rules”) (r 1.03(2) of the Bankruptcy Rules). It is not apparent that there is any inconsistency and no party suggested there was.

The argument

23    Ms Flint submitted that, having regard to the provisions of the Bankruptcy Act, and in particular ss 33(1)(c), 52(4) and 52(5), the federal magistrate had no power to extend the life of the creditor’s petition and the slip rule could not be used for that purpose. She further submitted that, as the decision to invoke the slip rule was beyond power, there was no power to make the sequestration order and that order should therefore be set aside and with it, all costs orders. As the appeal was argued, however, no point was taken about the capacity of the Federal Magistrates Court to resort to the slip rule in the form of rr 39.05(g) and (h) of the Federal Court Rules in an appropriate case.

24    In the notice of appeal Ms Flint also complained of the inadequacy of the federal magistrate’s reasons but made no submissions in support of this ground.

25    In Griffiths, which, like the present case, was concerned with the use of the slip rule by a federal magistrate, the Full Court said (at [14]) that it was an open question whether inferior courts had such a power. The court expressed some doubt about whether the words “as far as they are capable of application” in s 43(2)(b) would empower the federal magistrate to invoke rr 39.05(g) and (h), unless it could be demonstrated that the Federal Magistrates Court had an independent source of power (inherent power for instance) to make that order. We entertain no such doubt. Section 43(2)(b) of the Federal Magistrates Act makes the Federal Court Rules applicable; their applicability depends on their nature and whether they are apt for another court. Some rules, by their nature and terms, may not be capable of application in a court other than the Federal Court. We see no need for some inherent capacity in the Federal Magistrates Court to make such an order without the Federal Court Rules. Section 43(2)(b) and the Federal Court Rules constitute a separate source of power. Further, r 1.05(2) does not use the words present in s 43(2)(b) which led to the doubt of the Court in Griffiths. Rather, that rule uses the words “as necessary”. These are adequate, in our view, for the task of incorporation.

The scope of the slip rule

26    The purpose of the slip rule is to avoid injustice to litigants (Gould v Vaggelas (1985) 157 CLR 215 at 274-5) by ensuring that the court’s judgment or order reflects its intention at the time the order was made or the judgment was published, or reflects the intention that the court would have had but for the failure that caused the accidental slip or omission: Symes v Commonwealth (1987) 89 FLR 356 at 357. It may be exercised to prevent unintended consequences of the order and in this way give effect to the court’s intentions: Newmont Yandal Operations Pty Ltd v The J Aron Corporation and the Goldman Sachs Group Inc (2007) 70 NSWLR 411 (“Newmont Yandal”) at [116], [185], [194]. It is not confined to errors or omissions of the court; it extends to errors or omissions resulting from the inadvertence of a party’s legal representative: L Shaddock & Associates Pty Ltd v Parramatta City Council [No 2] (1982) 151 CLR 590 (“Shaddock”) at 594-5.

27    In Streimer v Tamas (1981) 37 ALR 211 Shepherd J suggested that the slip rule could be used to retrospectively extend the life of a bankruptcy notice. Later, in DDB Needham Sydney Pty Ltd v Elyard Corporation Pty Ltd (1995) 131 ALR 213 his Honour applied the rule to extend the time in which a winding up application could be determined. The Full Court dismissed an appeal from that decision in Elyard Corporation Pty Ltd v DDB Needham Sydney Pty Ltd (1995) 61 FCR 385 (“Elyard”). On the appeal the Court accepted that the slip rule may be invoked “where the proposed amendment is one upon which no real difference of opinion can exist” but noted that it does not apply if the amendment is a matter of controversy and does not extend to mistakes resulting from a deliberate decision (at 390-1 per Lockhart J, Black CJ agreeing).

28    Section 459R(1) of the Corporations Law (now the Corporations Act 2001 (Cth)), with which Elyard was concerned, required that an application to wind up a company in insolvency be determined within six months after it was made. Section 459R(2) conferred a discretion on the Court to make an order extending the period in which the application must be determined but only in special circumstances and, relevantly, only where the order was made within the six month period, or as last extended under the subsection. Section 459R(3) provided that an application is dismissed if not determined as required by the section. Counsel for the appellant in Elyard argued that the language of s 459R(2) required any application for an extension of time to be made before expiry of the period which had been the subject of an earlier extension made within the six month period, and that the application to wind up the appellant company was dismissed by operation of s 459R(3). In rejecting that argument, Lockhart J said at 391-3:

In my opinion, the argument rests on a misconception of the nature and operation of the slip rule. This is the case because the later order corrects the earlier order, and speaks from the date of the earlier order, which then operates with full force as corrected. Hence, the order made by the primary Judge in this case, on 9 August 1995, corrected the order of the registrar of 9 June 1995, which then operated with full force from 9 June 1995. The slip rule, with retrospective operation, corrected the earlier order … The essential purpose of the slip rule is to give effect to the intention which the Court would have had, if it were not for the failure which led to the accidental slip or omission.

…It is irrelevant that the later order ... which corrected the earlier order, was made after the expiration of the statutory time limit. The earlier order as corrected, and speaking by operation of the later order from the earlier date, operated with full force from a time which was within the statutory time frame.

…

[O]nce the earlier order has been corrected it speaks from the date of the earlier order, and it is deemed to have always operated from that date.

29    Lindgren J at 401-2 expressed the same view. Black CJ agreed at 387-8.

30    In Griffiths the Full Court expressed some disquiet about the decision in Elyard but declined to overrule it. It said (at [52]) that, although Elyard did not directly bind the Court in applying s 52 of the Bankruptcy Act, it would cause substantial confusion in insolvency practice if a different approach were taken in the bankruptcy jurisdiction.

31    Ms Flint maintained that Griffiths was not binding on this Court (the relevant remarks being obiter) and ought not be followed, and that Elyard was distinguishable. Nevertheless, during the hearing of the appeal Ms Flint accepted that the slip rule could be used in an appropriate case to extend the life of a creditor’s petition after it had lapsed. Ultimately her submission was that its operation was not engaged in the circumstances of this case.

32    In Amorin Constructions Pty Ltd v Kamtech Electrical Services Pty Ltd (2008) 73 NSWLR 627 (“Amorin”), Hammerschlag J accepted that the application of the slip rule extended to the intention that the Court would have had but for the failure that caused the accidental slip or omission. However, his Honour pointed out that the power given to the Court to extend the period within which to determine a winding up application under s 459R(2) of the Corporations Act is conditioned on the Court reaching the requisite state of satisfaction, namely, “if it is satisfied that special circumstances justify it” and as such, undoubtedly involves the exercise by the Court of an independent discretion. On this basis, Hammerschlag J considered that Elyard was plainly wrong to hold that the slip rule could be invoked in these circumstances and expressed surprise that neither in Elyard nor in the cases that followed was there any consideration of this precondition to the exercise of the statutory power. He pointed out that for the most part, the orders were justified on the basis of the court’s inherent jurisdiction. He referred to and applied Storey & Keers Pty Ltd v Johnstone (1987) 9 NSWLR 446 (“Storey & Keers”) where McHugh JA said the following (at 453):

The rationale of the slip rule … requires that an omission or mistake should not be treated as accidental if the proposed amendment requires the exercise of an independent discretion or is a matter upon which a real difference of opinion might exist: cf Brew v Whitlock (No 3) (at 506).

33    In Brew v Whitlock (No 3) [1968] VR 504 at 506 the Full Court of the Victorian Supreme Court said that it was “impossible … to apply the rule to a case where, on the application to correct the judgement, it is necessary to exercise an independent discretion”. Brew v Whitlock involved a failure by a party to apply for, and the court to order, interest under s 78 of the Supreme Court Act 1958 (Vic). The decision was approved on appeal to the High Court: Whitlock v Brew (1968) 118 CLR 445 (“Whitlock v Brew”) at 457-8 (per Kitto J), 463-4 (per Taylor, Menzies and Owen JJ).

Was the slip rule (as embodied in rr 39.05(g) and (h)) properly invoked?

34    We respectfully disagree with the primary judge that the slip rule was engaged in the circumstances of this case. In our view it was not open to the federal magistrate to do as he did. We have come to this conclusion, in short, because the facts do not demonstrate that an accidental slip or omission was made or, if it was, that there was necessarily any error in the order made on 29 August 2012 as a consequence of it.

35    For the slip rule to apply there must be an order in need of correction.

36    No argument was put to this Court that the order made on 29 August 2009 was not an order to which the slip rule could apply. For this reason, and because of the view we otherwise take about the appeal, it is unnecessary to deal with the discussion in Griffiths at [34]-[67] about the character of the order required for the slip rule to be engaged.

37    Because of the way the federal magistrate dealt with the matter on 7 December 2012, Busuttil did not put on any evidence in support of the invocation of the slip rule. One is therefore left to draw inferences from the events as they fell out both as to whether there was an accidental slip or omission – by the federal magistrate or the petitioning creditor – and as to whether there was an error in the order resulting from such a slip or omission.

38    On 29 August 2012 there was a directions hearing before the federal magistrate. If an application had been made on that day for an extension of the creditor’s petition under s 52 of the Bankruptcy Act, his Honour would have been required to consider whether it was just and equitable to extend the petition and, if so, in what terms the order should be made. We respectfully disagree with the conclusion of the primary judge that there is no doubt that the order would have been made. The review of the registrar’s decision was not without its complexity, but almost 3 months remained before the petition would lapse. Instead of extending the period of the creditor’s petition, the federal magistrate may have shortened the time for Ms Flint to file her submissions. He may have listed the creditor’s petition for hearing on a date in early November, conditionally, depending upon the outcome of the application before him. These steps would have reflected the expedition required and the public policy that inheres in the prompt dispatch of a creditor’s petition under s 52. The interests of creditors generally can be adversely affected by delays in the disposition of bankruptcy matters. Thus, if there was an error on the part of either the representative of the creditor in not making the application for an extension on (or before) 29 August or in the federal magistrate not adverting to the question, it is not clear what course would probably have been taken and, a fortiori, not clear that an order would have been made at that time extending the life of the creditor’s petition.

39    Furthermore, the evidence is not sufficient to support an inference of error or omission by the creditor’s lawyer or the federal magistrate. No doubt at some time after the petition had lapsed, most likely during the preparation of the reasons for judgment, the federal magistrate realised that there was a need to extend the petition and that he should have done so earlier. That is not to the point. The question is whether or not there was an accidental slip or omission on 29 August 2012.

40    Busuttil submitted that the inference could be drawn from its solicitors’ letter to the court of 22 October 2012 that the solicitors had omitted to apply for an extension of time two months earlier. But the evidence is not sufficient to enable that inference to be drawn. The evidence does not rise above speculation as to the position in August 2012.

41    The solicitors’ letter contained the following paragraph:

Undoubtedly his honour is aware, a petition for the bankruptcy of Ms Flint, was stayed as a result of her application to review. The writer is concerned with time running, to the extent that it has the validity of both the original bankruptcy notice and the petition which relies upon the bankruptcy, is maintained.

42    It is not possible from that paragraph or a consideration of all the circumstances to conclude that as at 29 August the author knew of the time pressure and that he forgot or overlooked its significance. The inference is equally open that he was aware of the time pressure, that he recognised that almost three months remained and that he would (as he did) raise the matter with the Court at a later date, if necessary. The mistake he made was not moving the Court for an order extending the petition before 23 November 2012.

43    The above reasons make it unnecessary to reconsider Elyard in the light of the doubts expressed in Griffiths and the criticism of Hammerschlag J in Amorin.

44    We would, however, make the following observations. Notwithstanding the logical force of the proposition that there is no room for the operation of the slip rule where an independent discretion must be exercised and the support of the authorities of Storey & Keers and Whitlock v Brew, there are two difficulties with accepting the proposition.

45    First, in Shaddock the High Court invoked the slip rule to amend an order to include an award of pre-judgment interest. Yet an award of interest is in the court’s discretion. Reference was made to Shaddock in both Storey & Keers and Amorin, but not to this point. In Newmont Yandal Spigelman CJ thought that some of the reasoning in Whitlock v Brew could not stand with later authorities including Shaddock. We respectfully agree.

46    Second, if the surrounding circumstances are such (as they can be taken to have been in Elyard) that it can be concluded that proper attendance to the matter (had the error not occurred) could only have resulted in the discretion being exercised in one way, it is difficult to see why the rule should not apply in the same way that it would if the discretion had been exercised and there had been a mere failure to record it. As Lockhart J said in Elyard at 392, the purpose of the rule is to avoid injustice. The force of Storey & Keers and Whitlock v Brew can be accepted if there is any room for debate as to the exercise of the discretion. For instance, if there is any debate as to whether it would have been just and equitable to have made an order under s 52, in line with well-established principle, the slip rule cannot apply.

47    That leaves the question of relief.

What orders should be made?

48    It follows that the appeal should be allowed. Ms Flint applied for an order setting aside the sequestration order. The trustee asked to be heard on the question.

49    The trustee was given leave to intervene as a party to protect his position. He submitted that an order annulling the bankruptcy should be made under s 153B of the Bankruptcy Act in order that his costs and remuneration be protected in accordance with s 154. If the sequestration order were set aside, the creditor’s petition dismissed and no order annulling the bankruptcy made, the authorities reveal that the trustee would have no statutory basis for any remuneration and his action (and the consequences thereof) would be left to the general law: see the discussions in Austral Brick Company Pty Ltd v Daskalovski [1998] FCA 782, Symons v Bateman [1999] FCA 658, Kyriackou v Shield Mercantile Pty Ltd (No 2) [2004] FCA 1338 (“Kyriackou”) and Pattison v Hadjimouratis (2006) 155 FCR 226 (“Pattison”). The exposure of the trustee to that position in this case would be a gross injustice, as we later explain.

50    An order for annulment would provide a simple means of enabling the trustee to recover his costs and remuneration in the administration of the bankruptcy. Ms Flint opposed the making of such an order on the ground that it is not possible to annul an order which was made without power.

51    Still, in Pattison the Full Court (by majority) held that it was open to the court to make orders both setting aside a sequestration order and annulling the bankruptcy. No party in this appeal contended that Pattison was wrongly decided and the course it sanctioned appears to be within the terms of s 153B.

52    The difficulty with adopting this course in the present case, however, is that it would place the totality of the burden of the trustee’s costs and remuneration on Ms Flint. For the reasons that follow this would be an unjust outcome.

53    On the one hand, Ms Flint is not without blame. Her completed statement of affairs lodged on 31 July 2013 reveals that she is solvent. Yet, she has steadfastly and without apparent justification refused to discharge the judgment debt that gave rise to the creditor’s petition and she failed to prove solvency at the hearing. Furthermore, she did not appeal within the 21 day period provided by the Federal Court Rules and required an extension of time to bring the appeal. In the meantime the trustee was undertaking work in the administration of the bankrupt estate.

54    On the other hand, Busuttil should share some of the responsibility for the trustee’s costs and remuneration. In its own interests it ought to have applied for an extension of the period for compliance with the creditor’s petition before the statutory period lapsed. It could have recognised that there was doubt about the validity of the federal magistrate’s order and the risks of moving on the petition in those circumstances (especially having regard to the impact on third parties). It could have issued a fresh bankruptcy notice. It could have conceded the point at the heart of the appeal.

55    In these circumstances, the preferable course is to set aside the sequestration order and dismiss the petition, but to make consequential orders dealing with the costs and remuneration of the trustee. No party submitted that such orders were either inappropriate or beyond power. Irrespective of the position under the Bankruptcy Act, all the parties accepted that the Court had power to make them under s 28 of the Federal Court of Australia Act 1976 (Cth).

56    Given the nature of the work undertaken, the benefit of that work to Ms Flint, the respective responsibilities of the parties for the positions in which they find themselves, and Ms Flint’s refusal to pay the judgment debt the subject of the petition (in circumstances where the report to creditors in evidence on the appeal indicates that she is and was at all material times solvent), Ms Flint and Busuttil should each pay a proportion of the trustee’s costs and remuneration. In all the circumstances, we consider that the fair result is that Ms Flint pay 75% and Busuttil 25%. Ms Flint’s costs in the appeal and of the proceeding below, however, should be borne by Busuttil, reflecting the usual order that costs follow the event.

57    There is one remaining question. That is whether the trustee should recover his expenses and remuneration for the 21 day period after the making of the sequestration order within which Ms Flint could have instituted an appeal.

58    In general, a trustee should act with caution when incurring expenses before the expiry of the 21 day period within which to challenge the sequestration order; during this period the status of the bankruptcy remains uncertain: Kyriackou at [42] per Weinberg J. It is apparent, however, that in the circumstances of this case no criticism could be made of the trustee’s conduct in expending time and money during that period. This is not a case where the trustee should be limited to recovering its costs incurred after the appeal period expired. The work he undertook immediately after his appointment concerned the settlement of a contract for sale of land that had been entered into by Ms Flint and her brother. Not only was the sale for her apparent benefit, but her brother made it clear to the trustee that he would be held responsible if the sale did not go ahead. Other steps taken by the trustee during this time, as afterwards, were either reasonable or required by law. In those circumstances, it would be manifestly unjust to deprive the trustee of his costs and remuneration for any part of the period between the making of the sequestration order and the setting aside of that order. The trustee should therefore have his costs and remuneration for the whole of the period after the sequestration order was made, although an avenue for their review should be available. The trustee’s costs should include the costs of intervening in these proceedings.

Associate:

Dated:    19 November 2013