FEDERAL COURT OF AUSTRALIA

Re:  Fuller [1999] FCA 1811

PRACTICE AND PROCEDURE – whether judgment upon which sequestration order was  made, was made without jurisdiction – whether judgment by a superior court void or voidable – whether subsequent sequestration order based on that judgment debt made within jurisdiction – whether bankruptcy proceedings should be stayed.

Re Wakim; Ex parte McNally (1999) 73 ALJR 839 followed

Cameron v Cole (1944) 68 CLR 571 followed

Re Karounos (1989) 89 ALR 580 cited

Jackson v Sterling Industries Limited (1987) 162 CLR 612 cited

Isaacs v Robertson [1985] AC 97 cited

Re Brown; Ex parte Amann (1999) 73 ALJR 839

Australia and New Zealand Banking Group Ltd v Merribee Pastoral Industries Pty Ltd (1998) 84 FCR 367 approved

RE:  MICHAEL JOHN FULLER

HUGH JENNER WILY (Trustee) AND ANOR v

LAIMA ANN FULLER AND ORS

NG 7049 OF 1996

HILL J

23 DECEMBER 1999

SYDNEY

RE:  MICHAEL JOHN FULLER, a Bankrupt

THE COURT ORDERS THAT:

1.                  The motion be dismissed.

2.                  Michael Fuller pay the applicants’ costs of the motion.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

RE:  MICHAEL JOHN FULLER, a Bankrupt

REASONS FOR JUDGMENT

1                     Mr Michael John Fuller (“Mr Fuller”) is a bankrupt.  He became so as a result of the making of a sequestration order by this Court on 20 May 1993 on the petition of Claremont Petroleum NL.  That petition was based upon non-compliance with a bankruptcy notice served upon Mr Fuller.  The bankruptcy notice in its turn was founded upon a judgment obtained by Claremont Petroleum NL against Mr Fuller in this Court on 11 September 1992.

2                     The proceedings by which Claremont Petroleum NL obtained judgment against Mr Fuller were based on contravention of s 233 and s 229 of the Companies (Qld) Code 1981 and the provisions of s 229(7) of that code.  The judgment of Wilcox J is reported at (1992) 110 ALR 239.  Although the report of that decision is silent on the basis for this Court exercising jurisdiction it would seem that this was the cross-vesting scheme.  It is common ground between the parties that the judgment which Wilcox J ordered be entered in favour of Claremont Petroleum NL was made without jurisdiction in consequence of the decision of the High Court in Re Wakim; Ex parte McNally (1999) 73 ALJR 839 because the relevant legislation authorising cross-vesting was invalid so far as it purported to give to this Court jurisdiction to exercise State judicial power.

3                     On 16 December 1996 Mr Wily, the trustee of Mr Fuller’s bankrupt estate, the first applicant, commenced proceedings in this Court against a number of parties including Mr Fuller.  M J Fuller Services Pty Limited (in liquidation) was also an applicant in those proceedings although the relief it sought was against Laima Ann Fuller, Mr Fuller’s wife.  That part of the present proceedings has on the application of Mrs Fuller been the subject of a declaration that the Court has no jurisdiction.  The only proceedings now before the Court are proceedings for substantive relief against Mr and Mrs Wilkinson to which proceedings Mr Fuller is a party.

4                     In a judgment which I gave on 13 January 1999 concerning interrogatories, I noted that no remedy was sought against Mr Fuller at all and observed that it was difficult to see why he had been made a party.  I observed that it appeared he was enthusiastic to remain a party and that no application has been made by him or Mr Wily that he be removed as such.  That remains the situation.

5                     Mr Fuller now moves the Court for orders that the proceedings in the Court, so far as they now remain, be dismissed for want of jurisdiction or alternatively that I order that Mr Wily be restrained from taking any further steps in them.  The proceedings in question are, as I have sought to make clear, proceedings by Mr Wily against Mr and Mrs Wilkinson to which Mr Fuller has been made a party.  No application has been made by Mr and Mrs Wilkinson that I dismiss the proceedings and indeed they have been listed for hearing next year.

6                     It is Mr Fuller’s submission that it is a consequence of Wakim not merely that the judgment obtained against him was obtained without jurisdiction but that it was void, that the resulting bankruptcy order made against him was likewise void and that this Court had no jurisdiction to entertain an application, prima facie based on s 30 of the Bankruptcy Act 1966 (“the Act”), whereby the purported trustee sought to recover assets for the benefit of Mr Fuller’s bankrupt estate.

7                     Alternatively Mr Fuller submits that I should in essence do what the High Court did in Re Brown;  Ex parte Amann (1997) 73 ALJR 839 and stay the invalid proceedings to the extent that I do not quash them.

8                     In my view the submissions made by Mr Fuller are misconceived.

9                     For present purposes I will accept the proposition put by Mr Fuller that it is a consequence of Wakim not merely that the judgment obtained against him was made in want of jurisdiction but also that a consequence of that is that the judgment was void and of no effect.  For reasons which I will later give, I do not think that this proposition is correct.  However for present purposes it is unnecessary to determine that.

10                  There can be no doubt that this Court has jurisdiction in bankruptcy matters.  The Court’s bankruptcy jurisdiction was exercised when a sequestration order was made in May 1993.

11                  It is no doubt correct that with the benefit now of Wakim it is clear that a sequestration order should not have been made.  On the basis of Mr Fuller’s submission this would be because the underlying judgment upon which the bankruptcy notice was founded was void.  But it does not follow from that that the sequestration order made was itself void.  In my view the situation is no different from that with which the High Court was concerned in Cameron v Cole (1944) 68 CLR 571.  In that case the Federal Court of Bankruptcy made a sequestration order in the absence of the debtor.  In due course the original sequestration order was annulled and a second sequestration order made following a rehearing.  The question before the Court was whether the Court had jurisdiction to make the second sequestration order.  It was held that the Court had jurisdiction to make the second sequestration order.  However, in the course of the judgments, the Court considered the status of the first sequestration order made in the absence of the debtor. 

12                  Latham CJ was of the view that the first sequestration order was null and void.  In consequence the second sequestration order was the first time that a valid order had been made by the Court.  However that view did not prevail with the majority of the justices of the High Court.  The view which prevailed was that, contrary to the view of Latham CJ, the Federal Court of Bankruptcy was a superior court and its orders were not void but merely voidable.  As Rich J said at 590: 

“It is settled by the highest authority that the decision of the superior court, even if in excess of jurisdiction, is at the worst voidable, and is valid unless and until it is set aside. ... I am unable to feel any doubt that the Federal Court of Bankruptcy is a superior court.”

13                  The principle for which the case stands is that the orders of a superior court of record, such as the Federal Court of Bankruptcy was and which the Federal Court of Australia is, will not be a nullity.  The Court will have power to determine its own jurisdiction and whether or not that determination is correct the orders of the Court will be valid.  This principle has been applied in a number of cases.  It suffices to refer to only one of them;  Re Karounos (1989) 89 ALR 580.  In that case orders had been made by consent purporting to extend the period at the expiration of which an objection to the bankrupt’s discharge would lapse.  Sheppard J held that the Court had no jurisdiction to make the order even by consent.  His Honour ultimately rescinded the order.  In so doing, his Honour referred to Jackson v Sterling Industries Limited (1987) 162 CLR 612 at 620, Cameron v Cole and some observations of the Privy Council in Isaacs v Robertson [1985] AC 97 at 102.  In the first of these cases, Wilson and Dawson JJ said:

“The orders made by the Federal Court are effective until set aside, discharged or stayed.  The fact that they are erroneously made is something to be taken into account in any proceedings consequent upon their having been disobeyed.  The principle remains, however, the order of a competent court must be obeyed whilst it remains in force.”

14                  In the third of these cases, the Privy Council discussed the distinction between orders which were void on the one hand and orders which were voidable on the other.  The former category did not, the Privy Council said, apply to orders of a court of unlimited jurisdiction.  No doubt there are cases where a court even of unlimited jurisdiction will set aside its orders on an application ex debito justitiae in the exercise of its inherent jurisdiction.  However orders of courts of unlimited jurisdiction are not void.

15                  Although in Re Brown, heard at the same time as Wakim, no reference was made to Cameron v Cole it seems clear enough that the decision of Cameron v Cole underlay the orders which the Court made.  In Re Brown an application was made to the High Court for certiorari to quash an order of this Court that a company be wound up under the Corporations Law of a State.  An application was also made for prohibition directed at this Court.  Although the High Court found that this Court had no jurisdiction to make a winding up order, the Court refused to make an order that the winding up be quashed.  It did so because the liquidator had incurred costs and expenses and third parties rights may well have been affected.  The Court did however make orders of prohibition prohibiting further steps being taken in the winding up.  In one sense, had the winding up order been void, as Mr Fuller submits it would be, there would be no point in quashing it or prohibiting steps being taken under it for the order itself would have been of no effect.

16                  Finally, reference may be made to the decision of Finkelstein J in the Full Court judgment in Australia and New Zealand Banking Group Ltd v Merribee Pastoral Industries Pty Ltd (1998) 84 FCR 367.  That case concerned an appeal from an order staying a winding up pending an appeal by the company the subject of that order to the High Court.  The case was of course decided before Wakim.  In holding that a stay should not have been granted, Finkelstein J said at 380-381:

“Even if these provisions (i.e. the Companies Corporation Code) are ultimately declared to be unconstitutional any order made by the Federal Court in reliance on them is nevertheless a valid order unless set aside on appeal or quashed by direct review: Cameron v Cole ... Chicot County Drainage District v Baxter State Bank (1940) 308 US 371; Woods Bros Construction Co v Yankton County (1931)54 F (2d) 304.  Further, the steps taken and the relations brought about as a consequence of any order made by the Federal Court in the exercise of jurisdiction under these provisions, even if unconstitutional, will not be rendered ineffective.  One reason for this is that an order of a superior court is valid until set aside and a declaration that a statute pursuant to which that order was made is unconstitutional will not affect the validity of the order made on reliance in that statute:  see Oliver Field, The Effect of an Unconstitutional Statute (1935), esp ch 7.

... In the case of a decision of a judge of a Federal Court sitting at first instance his or her decision may be appealed to a Full Court and then with leave to the High Court.  In addition, the High Court has power to quash the decision or prohibit any step being taken consequent upon the decision in proceedings commenced in accordance with O 55 of the High Court Rules 1952 (Cth):  Re Marks Ex parte; Australian Building Construction Employees’ & Buildings Labourers’ Federation (1981) 55 ALJR 395.”

17                  The situation therefore is this.  The sequestration order made by this Court was made within jurisdiction.  Even on the assumption that the order of Wilcox J was void, the Court did not lack jurisdiction to make the sequestration order.  No doubt the sequestration order is one which in light of Wakim should not have been made.  But this is a matter which may be cured by an application for annulment of the bankruptcy.  Unless and until it is annulled, the sequestration order will be valid and effective.  The power to annul is, of course, discretionary.  It will be for a court exercising that discretion, in an application made by Mr Fuller, to determine whether to annul the sequestration order.

18                  The alternative order which Mr Fuller seeks is, as I have indicated, an order in the nature of an injunction restraining the applicant from continuing with the present proceedings.  Mr Fuller asks that this order be made pending his making of an application to have his bankruptcy annulled.  He offers no undertaking as to damages.

19                  I do not think that I should grant such an injunction while a valid sequestration order exists.  While that order is on foot the Trustee has an obligation to collect the assets which form part of the bankrupt estate and otherwise administer that estate in accordance with the Act.  It is obvious that an undertaking for damages, even if proffered by Mr Fuller, would be of little value.  Even if the application is seen as stayed, I would not in the exercise of discretion order a stay while the sequestration order remained on foot and in circumstances where no material has been put before me to indicate any prejudice to Mr Fuller.

20                  As I have already indicated, I do not think that it is correct in any event that the judgment given by Wilcox J was itself void.  In my view that judgment, consistently with cases to which I have referred, was a valid, albeit voidable, judgment.  No doubt Mr Fuller as a person affected by it would be entitled to apply to the Court ex debito justitiae to have it set aside.  It may be, I express no view on the matter, that Mr Fuller must first make this application before seeking to have his bankruptcy annulled.  But, unless and until the judgment of Wilcox J is set aside, it is a valid and enforceable judgment.  No doubt a court of bankruptcy would be entitled to go behind the judgment to ensure that there was a real debt.  Given that the judgment was obtained without jurisdiction, it might well do so on an application for annulment without the necessity of a prior application being made by Mr Fuller to set the judgment aside.  It is, however, unnecessary here to determine that question.

21                  In my opinion the motion should be dismissed and Mr Fuller should pay the applicants’ costs of it.

Associate:

Dated:              23 December 1999