Federal Court of Australia

Fitzgerald v Fitzgerald [2021] FCAFC 225

ORDERS

THE COURT ORDERS THAT:

1.    The appeal be dismissed.

2.    The interlocutory application be dismissed.

3.    The appellant pay the respondents’ costs of and incidental to the appeal, to be fixed by a Registrar if not agreed. On the fixing of those costs, the Registrar is to allow the costs of and incidental to the original preparing, filing and serving of the respondents’ outline of submissions, together with the costs of and incidental to the preparing, filing and serving of the respondents’ supplementary submissions.

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

REASONS FOR JUDGMENT

(REVISED FROM TRANSCRIPT)

LOGAN J:

1    The present is an unusual case for many reasons. Not the least of these is that one sibling, the appellant, in each of the two appeals has, as a result of an order made in one of those appeals, been made bankrupt at the behest of another sibling, his sister, and the other respondents (being corporations controlled by her). But the bankruptcy law contains no exception in respect of familial relations in terms of whether or not a sequestration order may be made.

2    It is convenient first to deal with the appeal against an order made by this Court on 6 November 2020 by which an application to set aside a bankruptcy notice was dismissed. The bankruptcy notice concerned was grounded in an unsatisfied order for costs as made and quantified in the Supreme Court of Queensland, the execution of which had not been stayed. The background to the Supreme Court proceeding was that of a dispute between Mr Fitzgerald and his sister, Ms Fitzgerald, and the respondent companies, in relation to what was said to be moneys owing to the appellant by way of a share of profits in respect of an alleged joint venture for the development of real estate.

3    On 27 May 2019, over the opposition of the present respondents, Mr Fitzgerald succeeded in persuading Flanagan J in the Supreme Court to adjourn the trial of the Supreme Court proceeding. The order made that day by his Honour included that:

The plaintiff [Mr Fitzgerald] is to pay forthwith, and in each case on the indemnity basis, the defendants [ie, the present respondents] costs of this application and thrown away as a consequence of the adjournment, such costs to include the costs of the case conference on 13 May 2019 before the Resolution Registrar, and correspondence and other costs incurred as a result of the plaintiff’s non-compliance with the orders of the Court made on 2 April 2019 and on 13 May 2019.

4    Subsequently, and in accordance with the practice of the Supreme Court, the costs of the respondents in relation to that order were assessed by a costs assessor. On 28 February 2020 a registrar of the Supreme Court issued an order, the terms of which required that the appellant pay the costs in accordance with the amount as assessed by the costs assessor, namely, $137,758.52. There has been no appeal by Mr Fitzgerald against the order made by Flanagan J on 27 May 2019. Nor has there been any stay of that costs order.

5    Before the learned primary judge there were two bases upon which it was put that the bankruptcy notice should be set aside. These were:

(a)    that [Mr Fitzgerald] had a counter-claim, set-off or cross demand in the terms of s 40(1)(g) of the [Bankruptcy Act 1966 (Cth)] which was equal to or in excess of, the judgment debt; and

(b)    that the Court should go behind the judgment debt and determine that there was no debt due and owing to Ms Fitzgerald.

6    The learned primary judge dealt comprehensively with each of these bases of challenge. Indeed, while the present appeal is necessarily one by way of rehearing, so comprehensive are the reasons for judgment in respect of the bases of challenge and such is my agreement with them, that one basis for disposing of the appeal, in my view, would be that it should be dismissed for the reasons given by the learned primary judge.

7    It is necessary, even though the appeal be by way of rehearing, for the Court to be persuaded on appeal that the orders made were attended with error. As to the challenge based on s 40(1)(g) of the Bankruptcy Act 1966 (Cth), it was not put to us on behalf of Mr Fitzgerald that the reasons for judgment of the learned primary judge displayed any error of principle.

8    As to principle, his Honour cited, with respect, pertinently, in my view, at [21], a passage from the judgment of Lindgren J in Glew v Harrowell, in the matter of Glew (2003) 198 ALR 331, at [11] and [12]:

[11]    Plainly, in order to “satisfy” the court for the purposes of s 40(1)(g), the debtor is not required to prove, as on a final hearing, the asserted entitlement to recover from the creditor. Accordingly, evidence tendered on an application to set aside is to be tested for admissibility, not as if the proceeding were one in which the debtor’s claim was being finally determined, but by reference to the question whether the court should be satisfied that the debtor has a claim deserving to be finally determined.

[12]    Perhaps little more can usefully be said than that a debtor must satisfy the court that there is sufficient substance to the counter-claim, set-off or cross-demand asserted to make it one which the debtor should, in justice, be permitted to have heard and determined in the usual way, rather than be forced to comply with the bankruptcy notice by payment or to commit an act of bankruptcy.

(Emphasis added by primary judge)

9    The emphasis in the passage just quoted is that of the primary judge and is, with respect, apt. It was necessary for Mr Fitzgerald to satisfy the Court that there was sufficient substance in the counter-claim, etcetera, for that to be heard and determined in the usual way rather than for Mr Fitzgerald to be forced to comply with the bankruptcy notice. The onus fell on Mr Fitzgerald to engender that persuasion.

10    In relation to the Supreme Court proceedings, and as the learned primary judge observed, the pleadings were in a state of flux. That was so, even after Mr Fitzgerald had succeeded in persuading Flanagan J to grant an adjournment. That was hardly a basis to engender confidence in relation to the sufficiency of the case to be heard in the usual way but, in any event, in terms of substance, at the heart of the dispute, and as the learned primary judge so plainly appreciated, was a conflict of oral evidence as between brother, Mr Fitzgerald, and sister, Ms Fitzgerald, in relation to alleged terms of what was said to be by Mr Fitzgerald a joint venture agreement. Ms Fitzgerald’s account was that there was no such agreement and that she had expressly declined to enter into any oral arrangement with Mr Fitzgerald, with her assent being nothing more than to an arrangement by which he would provide a fee for service in relation to the development of real estate.

11    In terms of contemporaneous documentation, what is telling and what was telling to the learned primary judge was a series of invoices rendered on a time-spent basis by Mr Fitzgerald to the respondents which, in turn, had been promptly paid, evidenced by that contemporaneous documentation. Where, as here, there is no suggestion of fraud in the creation of that documentation, that always has a particular influence in terms of resolution of conflicts of oral evidence.

12    The conclusion by the learned primary judge that there was not sufficient substance shown in terms of the alleged counter-claim, etcetera, is one which, approaching the evidence again for the purposes of rehearing, I share. The appellant’s case on appeal really rose no higher than inviting just such a reassessment of the evidence. Thus I do not consider there is no substance to that part of the challenge to the order refusing to set aside the bankruptcy notice which relied on s 40(1)(g).

13    As to the other aspect, once again, there was no suggestion in the submissions of the appellant that the learned primary judge had misapprehended the principle in relation to the ability of a court of bankruptcy to go behind a judgment. His Honour made reference to the classic pronouncement on that subject by Sir Garfield Barwick in Wren v Mahony (1972) 126 CLR 212, at 224 – 225. In short, a judgment is never conclusive in bankruptcy.

14    It is necessary in this case, however, also to recall the nature of the judgment which Mr Fitzgerald submitted the Court should go behind. As to this, our attention was helpfully drawn by counsel for the respondents to the judgment of Colvin J in Kitay, in the matter of Frigger (No 2) [2018] FCA 1032, where his Honour considered, at [29] – [43], the position in relation to a challenge based on an assertion that a Court of Bankruptcy should go behind a judgment in relation to costs.

15    As to that, and as his Honour observed, the order for costs is, itself, productive of the liability. There is no antecedent debt. What occurs, as a consequence of the order for costs, is a quantification of the liability. But the debt, as quantified, is brought into existence by the making of the order. The order here reflected a discretionary value judgment of a superior court judge in respect of an opposed adjournment application. There was something of a cri de coeur, apparently, in the original jurisdiction, repeated before us, as to the staffing shortages which had attended in 2019 Mr Fitzgerald’s solicitors. But the place for the provision of such evidence, in terms of whether and how the costs discretion should be exercised, was in the Supreme Court of Queensland in 2019.

16    As the learned primary judge appreciated, the evidence before him disclosed nothing more and nothing less than an order not attended by any fraud which had been quantified by a costs assessor. There was no appeal against that order nor was there any evidence of any stay. In those circumstances, it is, with respect, unremarkable that his Honour concluded that there was no reason to go behind the judgment.

17    For these reasons, in my view, there is no merit in the submissions made on behalf of the appellant as to the orders made by the primary judge in respect of the setting aside application.

18    I turn then to the challenge to the sequestration order. Whether or not to make that order, in the circumstances prevailing at the time, entailed, axiomatically, the exercise of a judicial discretion. Mere existence of an appeal against the order refusing to set aside the bankruptcy notice did not in itself provide occasion for the adjournment of the creditor’s petition as requested by Mr Fitzgerald. At the very least, it was necessary for Mr Fitzgerald to do more than just assert the existence of an appeal and prospects of success.

19    The learned Federal Circuit Court judge made reference in his Honour’s reasons for judgment to an absence of precedent in relation to an application for the adjournment of a creditor’s petition pending the resolution of an appeal against a refusal to set aside a bankruptcy notice. My own researches have not disclosed any such case. That may be because it is unusual for a creditor to press a petition in the face of such an appeal. But, truly, these cases are inherently fact-specific.

20    His Honour did refer to a case where there was a pending application for special leave to appeal to the High Court, Watts v Bendigo and Adelaide Bank Ltd (No 4) [2011] FCA 310. There is a qualitative difference between a case where there has been the exercise of an appeal as a right and a case where an appeal as of right has been exhausted and all that remains is an application for special leave to appeal.

21    However that may be, it is apparent that the learned primary judge adverted to prospects, such as could be determined from the way in which Mr Fitzgerald’s case was presented before him. That was not exhaustive of the factors that fell for consideration, a bankruptcy proceeding being one conducted not just in the interests of creditors but also having public interest elements to it.

22    It is apparent that his Honour was much influenced by the reasons for judgment delivered by Reeves J in disposing of the application to set aside the bankruptcy notice. That is understandable. The learned primary judge considered these reasons and related evidence, as I read his Honour’s reasons, to the end of determining whether, in all of the circumstances before him, there was a sufficient case to warrant adjournment. In circumstances where contemporaneous documentation supported an account given by Ms Fitzgerald, one might be guarded as to prospects in relation to an appeal, but it is important to recall the inherently fact-specific nature of this particular case.

23    Once again, whatever difficulties had attended Mr Fitzgerald’s solicitors in 2019 in terms of applying for an adjournment, these were matters that went to facts that should have been placed before the Supreme Court. They could not establish, in my view, any basis for refusing to adjourn the sequestration application.

24    Further, and in any event, that the appeal against the refusal to set aside the bankruptcy notice ought, in my view, to be dismissed is not without relevance in terms of the disposal of the appeal against the refusal to adjourn the hearing of the creditor’s petition.

25    There was no suggestion before us, as there was not before the learned Federal Circuit Court judge, that there had been other than a failure to comply with the terms of the bankruptcy notice. In these circumstances, it seems to me it would be unusual where there is an unchallenged act of bankruptcy in respect of a bankruptcy notice not set aside after appeal to do other than leave a sequestration order in place.

26    I cannot help also but observe that the prosecution of this appeal has not been assisted by a lamentable inattention on the part of Mr Fitzgerald to the requirements of this Court’s practice. To some extent, that inattention has already been addressed by an interlocutory costs order. As to that and in fairness, that there was occasion for such an order and that it should be quantified was not contested by those acting for Mr Fitzgerald.

27    The appeal books are in an unfortunate state. That motivated the respondents to seek to have the appeal dismissed, in any event, on the basis of a want of prosecution. In my view, the justice of the case is such that each appeal is better disposed of on its substantive merits, rather than on the basis of a want of prosecution or noncompliance with the rules.

28    A consequence of that noncompliance is that, notably, a particular order of the Supreme Court of Queensland consensually made adjourning an apparent challenge to the costs assessor’s quantification was before us but was not before either the judge of this Court who determined the bankruptcy notice challenge or the Federal Circuit Court Judge who made the sequestration order. As to that, there is no injustice, in my view, in our having seen that and, indeed, that was not the subject of objection by the respondents. The reason for that is that it makes it pellucid that there is no stay at all of the judgment which grounded the bankruptcy notice. Further, a noteworthy feature of this case is that, notwithstanding a successful adjournment application, the proceedings in the Supreme Court, including, it seems, a challenge to the costs assessment, have just not been prosecuted. Those are relevant considerations (as they were before the Federal Circuit Court) in relation to whether or not there is an adjournment of a creditor’s petition warranted.

29    This is just a case where there is an unsatisfied judgment and where, whatever the merit may be in the substantive claim in the Supreme Court or in any challenge to any quantification of costs, there has been no progress by Mr Fitzgerald.

30    For these reasons, in my view, the appeal against the refusal of the adjournment of the creditor’s petition should be dismissed.

31    In expressing that view I add that there was no error either in the exercise of the discretion by the learned primary judge not to transmit the creditor’s petition proceeding to this Court. It was a case where his Honour was just as well equipped as any judge of this Court on the evidence before him to decide whether or not to sequestrate.

32    For these reasons then I would dismiss each of the appeals.

[After delivery of reasons for judgment by Rangiah J and Downes J]

33    The order then, in respect of each appeal, is that the appeal be dismissed.

34    In our view, some allowance should be made for the additional costs visited on the respondents as a consequence of the noncompliance with various appeal book preparation and cost submission deadline requirements in the practice notes. We shall therefore, allow in each appeal costs of and incidental to the preparation of both the original as well as supplementary submissions of the respondents.

Associate:    

Dated:    15 December 2021

REASONS FOR JUDGMENT

(REVISED FROM TRANSCRIPT)

RANGIAH J:

35    I agree with the reasons of Justice Logan.

Associate:    

Dated:    15 December 2021

REASONS FOR JUDGMENT

(REVISED FROM TRANSCRIPT)

DOWNES J:

36    I agree with the reasons of Justice Logan.

Associate:    

Dated:    15 December 2021