FEDERAL COURT OF AUSTRALIA

Grundy v Wattyl Australia [2002] FCA 615

BANKRUPTCY – application for interlocutory relief pending the hearing of an appeal from a decision of the Federal Magistrate – where the Federal Magistrate dismissed an application for review of a sequestration order – where the bankrupt seeks to stay the effect of the sequestration order – where the bankrupt’s estate has been in administration for eight months – whether the bankrupt has an arguable case.

Bankruptcy Act 1966 (Cth) ss 52, 153B, 154

Federal Court of Australia Act 1976 (Cth) ss 23 and 29

Federal Magistrates Act 1999 (Cth) ss 102, 104(3)

Federal Court Rules O 52 r 17

Freeman v National Australia Bank Ltd [2002] FCA 427 cited

Stirling Harbour Services Pty Ltd v Bunbury Port Authority (No 2) [2000] FCA 87 cited

Coleman v Lazy Days Investments Pty Ltd (1995) 55 FCR 297 cited

Alexander v Cambridge Credit Corporation Ltd (1985) 2 NSWLR 685 cited

Powerflex Services Pty Ltd v Data Access Corporation (1996) 67 FCR 65 cited

Minogue v Human Rights and Equal Opportunity Commission (1999) 84 FCR 438 cited

Neil v Nott (1994) 121 ALR 148 cited

Stankiewicz v Plata [2000] FCA 1185 discussed

Trustees of the Franciscan Missionaries of Mary v Weir (2000) 98 FCR 447 cited

Re Almassy (1999) 92 FCR 597 cited

Symonds v Bateman [1999] FCA 658 cited

Re Gollan; Ex parte Gollan (1992) 40 FCR 38 cited

Mackay v Mobil Oil Australia Ltd [1999] FCA 1124 cited

Re Maas [1998] FCA 1447

Re Sarina; Ex parte Wollondilly Shire Council (1980) 43 FLR 163 cited

Re Stubberfield; Ex parte Paradise Grove Pty Ltd (1995) 134 ALR 169 cited

PHILLIP GRUNDY v WATTYL AUSTRALIA PTY LTD AND SCOTT DARREN PASCOE AS THE TRUSTEE OF THE PROPERTY OF PHILLIP GRUNDY

N 249 of 2002

MOORE J

14 MAY 2002

SYDNEY

IN AN APPEAL FROM THE FEDERAL MAGISTRATE

THE COURT ORDERS THAT:

1.         Until further order the proceedings under the sequestration order made on 13 September 2001 in relation to the estate of Mr Phillip Grundy be stayed insofar as it permitted or required the sale of 2a Mount Vincent Road, Mount Vincent.

2.         Until further order the Trustee be restrained from selling the property.

3.         Until further order and upon Mr Phillip Grundy giving an undertaking to vacate the property within 7 days of any judgment dismissing his appeal from the judgment of the Federal Magistrate of 13 March 2002, the Trustee permit Mr Phillip Grundy to enter and occupy the property until judgment in the appeal.

4.         Cost of the stay application be costs in the appeal.

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

IN AN APPEAL FROM A FEDERAL MAGISTRATE

REASONS FOR JUDGMENT

Introduction

1                     This judgment concerns an application by Mr Phillip Grundy for an order staying the sale of a property he owned and allowing him to re-enter the property.  These orders are sought pending the hearing and determination by this Court of an appeal from a judgment of a Federal Magistrate given on 13 March 2002.  Mr Grundy is a bankrupt as a result of a sequestration order made by a Registrar of the Federal Magistrates Court on 13 September 2001.  Both the Trustee in Bankruptcy and the petitioning creditor, Wattyl Australia Pty Ltd (“Wattyl”) appeared and opposed the stay order being made.  The property to which the proposed orders relate was Mr Grundy’s home which he shared with his elderly father.  He was required to leave it by the Trustee in January 2002 to facilitate its sale as part of the administration of his estate.

Background

2                     In order to understand the issue raised in the notice of motion it is necessary to describe, in a summary way, some of the history of the matter.  Some of it is uncontentious as it is a matter of public record.  Some other aspects of the history are contentious and are set out in affidavits filed in this application or the proceedings before the Federal Magistrate to which reference was made in these proceedings.  However the evidence in the affidavits was not tested in this application.  The parties approached the matter on the footing that issues of fact were raised by the affidavits but no findings of fact had to be made.

3                     On 3 July 2001 a creditor’s petition was filed by Wattyl.  The petition was based on the failure of Mr Grundy to comply with a bankruptcy notice which issued on 23 April 2001 and was served on Mr Grundy on 1 May 2001.  The bankruptcy notice was, in turn, based on a default judgment of $8,495.05 obtained by Wattyl in the North Sydney Local Court on 11 April 2001.  The judgment apparently related to the unpaid purchase price of spray painting equipment.  Mr Grundy did not attend the local court proceedings and claims to have had no knowledge of them.  The creditor’s petition was returnable on 9 August 2001 and, on that occasion, Mr Grundy appeared unrepresented and Wattyl was represented by Mr Lamich from Lamich & Co.  Accompanying Mr Lamich was a solicitor of that firm, Ms Helen Cook. 

4                     Both in an affidavit filed in the Federal Magistrates Court on 25 February 2002 and in a further affidavit filed in this Court on 29 April 2002, Mr Grundy asserts that he had a conversation with Mr Lamich.  In the affidavit filed on 25 February 2002 he said:

“5.       I attended the hearing at this Court in August, 2001 at which time the presiding registrar adjourned proceeding until 13^th September, 2001.  She ordered Wattyl’s legal representative Mr. Lamich of Lamich and Co. to discuss a suitable arrangement in the hallway.  Which we proceeded to do.  I also informed the registrar during this appearance that I did not wish to be made Bankrupt and that I felt an alternative was within reason.

6.         At the discussion with Mr. Lamich I told him that I was prepared to pay the full amount owing plus his costs by one of two arrangements either by instalments over the next 6 months or by getting a personal loan, once I new the true amount owing.  Mr. Lamich indicated to me at this meeting that it would take him some time to organise the repayment as he would have to seek advise from Wattyl and in any event would probably take longer than the 3 weeks to the 13^th September, 2001.  As I had informed Mr Lamich that I was due to start full-time employment at the Mirriwinni Gardens Aboriginal Academy, Bellbrook N.S.W. some 480kms from the Sydney Court.  He told me that it would not be necessary for me to appear at the hearing at the Magistrates Court set down for September 13^th and as he put it “I will tell them that we have reached an agreement and that I have told you not to appear, then I will let you know how and when to make the payment, I am surprised it got this far, but now we will fix it up and I’ll keep in touch.  I gave Mr Lamich the name and address of my new employer and my Mount Vincent telephone number instructing him that he could leave a message with my father on that number and it would be returned within a day or two as I was constantly in touch with him.

7.         We received no other advise from Mr. Lamich prior to 11^th September, 2001 at which time I attempted to contact Mr Lamich’s office and the Federal Court prior to the 13^th without success due to congested telephone services, probably due to the events in New York on the 11^th September, 2001.

8.         A couple of weeks later I received a letter from the Trustee Sims Lockwood informing me that I had been made bankrupt on the 13^th September, 2001.  This letter also informed me that I would receive a statement of assets and liabilities forthwith and to complete this and return it to them with 14 days.”

In the affidavit filed in these proceedings on 29 April 2002 Mr Grundy repeats the gist of this assertion about what he was told by Mr Lamich.  That is, he was told it was unnecessary for him to attend on 13 September 2001.

5                     Mr Grundy’s father has also sworn an affidavit which, amongst other things, is corroborative of Mr Grundy’s account of the conversation he had with Mr Lamich.  His evidence was to the effect that Mr Lamich said it was unnecessary for Mr Grundy to appear on the next occasion.  Mr Grundy also relies in these proceedings on a letter dated 24 August 2001 which he says he sent Mr Lamich confirming the arrangement about him not having to attend on 13 September 2001.  Even given the state the evidence is presently in, I have significant reservations about this letter and do not propose to give it any weight.

6                     Evidence was also given about what occurred on 9 August 2001 by Ms Cook.  Her evidence was that she was with Mr Lamich for most of the time he attended at Court acting for Wattyl and was present for most of the time when Mr Lamich discussed the petition with Mr Grundy but, significantly, not for all of the time.  She did not recall any discussions concerning the future appearance of the applicant before the Court on 13 September or at any other time.  As events transpired, it was Ms Cook who represented Wattyl on 13 September 2001 when the sequestration order was made by the Registrar in Mr Grundy’s absence. 

7                     There appears to be no issue that by probably the middle of September 2001 Mr Grundy was aware that the sequestration order had been made.  On 28 September 2001 he telephoned Mr Michael Studman, an employee of the Trustee.  The file notes made by Mr Studman suggest that Mr Grundy continued to dispute the original judgment debt.  Also in the file note was recorded:

“Disputes process – fraud – current affair.”

This is, in my opinion, significant.  That the complaint was made adds some weight to Mr Grundy’s contention about the discussion he had had with Mr Lamich on 9 August 2001.  In his affidavit of 25 February 2002 Mr Grundy said that following these events he was hospitalised by a severe angina attack and that he also spoke to a Registrar about how he might appeal and was sent some papers.  He then says in the affidavit he contacted a Mr Paul Formosa who is a barrister.  In evidence is an account from Mr Formosa which suggests Mr Grundy contacted him on about 13 November 2001 which was the date when Formosa first conferred with Mr Grundy.  On 4 January 2002 Mr Formosa furnished Mr Grundy with written advice.  He advised that Grundy would have considerable difficulty in having the sequestration order annulled.  He further advised that Grundy really did not have any alternative but to pay the original debt, other creditors and the Trustee which totalled $34,282-00.  At that time the Trustee’s costs were approximately $11,000.  I do not presently distinguish between costs, charges, expenses and remuneration of the Trustee.

8                     Mr Grundy did not accept this advice and on 25 February 2002 lodged with the Federal Magistrates Court a completed standard form document entitled “Application for Review”.  Mr Grundy’s explanation for the delay between when this advice was apparently given and the filing of the application in the Court is not entirely clear.  First he says he received the advice by registered mail.  That may explain some brief part of the delay.  He was also denied access to his home on 29 January 2002 though he was, at the time, actually residing in a house provided by his then employer.  That may explain some further part of the delay.  He also says that the Federal Court was closed until early March 2002.  That is obviously wrong, and, in any event, the application was filed in late February 2002 and was filed in the Federal Magistrates Court.  However both Courts share, for practical purposes, a common registry in Sydney. 

9                     In the application filed on 25 February 2002, in the section of the standard form used to identify the orders sought, Mr Grundy wrote:

“That the Sequestration Order for Bankruptcy be annulled on the grounds set out in my sworn affidavit attached. Due to the misleading actions of the petitioning creditor and their legal representative Mr Lamich of Lamich & Co.

That I be exempt from all fees and charges created by the said Trustee in the matter to date namely Sims Lockwood.  That I be compensated in full for all costs associated with the misdealings by other parties in this matter given the evidence as set out in my attached Affidavit.”

10                  In the affidavit of 25 February 2002 Mr Grundy repeated his request that the Federal Magistrates Court annul the bankruptcy.  There was plainly uncertainty as to the relief sought given the use of the form for a review of a Registrar’s decision.  Section 104(3) of the Federal Magistrates Act 1999 (Cth) provides that that the Federal Magistrates Court may review, of its own motion or on application by a party, an exercise of any power of that Court by a Registrar. Part 20 of the Federal Magistrates Rules sets out the time in which an application for review must be made and the procedure for review.  The Federal Magistrates Court also has power to annul a bankruptcy. 

11                  The Federal Magistrate was, understandably, unclear as to the relief sought.  That is reflected both in his Honour’s reasons and the orders made on 13 March 2002 (and entered on 25 March 2002) which were in the following terms:

“1.       That the Application for Review filed 25 February 2002 be dismissed.

2.         In so far as any application for annulment of the Sequestration Order, made 13 September 2001, is made in the Application for Review filed 25 February 2002, that Application be dismissed.

3.         That the Applicant pay the costs of the First Respondent and the costs of the Second Respondent, such costs to be paid in accordance with the Federal Court Rules.”

Order 2 does not appear in the orders published with his Honour’s reasons several weeks later.  The Federal Magistrate understood that the application was either an application for a review which was out of time or an application for an order annulling the bankruptcy.  To the extent that the application was for a review of the exercise by the Registrar of the powers of the Federal Magistrates Court which was filed out of time by many months, the Federal Magistrate said:

“5.       Because of the time delay it would have been necessary for the applicant to make an application to extend the time.  The court, in the exercise of its powers, may extend time in relation to these applications for review and indeed in relation to almost any matter coming before it.  Mr Skinner says that his client would not consent to such an application and Mr Haylen, who appears for the petitioning creditor, supports that view.

6.         As Mr Grundy hasn’t made an application for extension of time and hasn’t supported such an application with an affidavit setting out why he believes time should be extended it would be difficult for me to consider that matter today.  Mr Grundy, in his submissions to me, referred to his affidavit and indicated that the reason why the matter was delayed was a combination of his own ignorance as to the original debt, the alleged responses by the trustee to his suggestion that he make such an application, to unsatisfactory legal advice and to hospitalisation.

7.         I do not think that in the circumstances where an application for review has been delayed for five months evidence in this form is satisfactory and I would require much more from the debtor to persuade me to grant an extension of time.

The affidavit his Honour was referring to was the affidavit of 25 February 2002 filed on that day.  It is fairly clear that much of the affidavit is directed to explaining the delay in bringing the proceedings.  The document itself is handwritten in part and typed in part.  However, it purports to be sworn and also purports to be witnessed by a Justice of the Peace.  There are parts of it that are objectionable in form though there are other parts of it which are not.  However a key complaint in the affidavit is that Mr Grundy was led to believe by the legal representative of Wattyl that it was unnecessary for him to attend Court on 13 September 2001 when the sequestration order was made.

12                  Another reason given by the Federal Magistrate for dismissing the application for review was that, in the circumstances, the appropriate mechanism for dealing with the sequestration order was for Mr Grundy to apply for the annulment of the bankruptcy.  His Honour said:

8.         However, Mr Haylen also submits that an application for review is not the appropriate application to make in these circumstances.  It is his view, which is supported by Mr Skinner, that the appropriate application for Mr Grundy to make is for an annulment.  In support of that submission he cites Re Deriu (1970) FCR 420, a decision of Gibbs J.  This case dealt with an application for a recision of a sequestration order which was a power granted to the court under section 37 of the Bankruptcy Act.  That power is still in the Act but in respect of a matter such as this it is generally considered that the appropriate application should be for review.

9.         Mr Skinner’s submission is that the finding by his Honour that in this type of case the appropriate application is for annulment carries over to situations where there is a sequestration order that is capable of review and no timely application for review has been made.  Mr Haylen makes a further point, he says an application for review is closely limited as to time for the purposes of ensuring the proper administration of estates in bankruptcy and that when sequestration orders have been made and work has been done upon a bankrupt’s estate for some period of time a late application for review is not appropriate and an application for annulment is to be preferred.  I think there is much force in this argument.

10.       The Bankruptcy jurisdiction relies on the assistance of bankruptcy trustees who are entitled to feel confident that a sequestration order which has been made is unlikely to be challenged after the period of review has expired.  Before that time the trustee may not have done very much work or incurred very much in the way of costs but after that time he will begin to exercise his responsibilities as trustee of the estate, discover creditors, bring in the assets et cetera.”

13                  I turn now to consider the issue raised in this application.  The power to make the orders sought, as I understood the submissions of the Trustee and Wattyl, was not put in issue.  Both s  29 of the Federal Court of Australia Act 1976 and O 52 r 17 of the Federal Court Rules 1979 confer power to make an order staying proceedings under a sequestration order or steps taken under a sequestration order if that is the subject matter of the appeal:  as to O 52 r 17 see Freeman v National Australia Bank Ltd [2002] FCA 427.  Injunctions can issue in the Court’s original jurisdiction under s 23 to preserve the subject matter of an appeal pending the hearing and determination of the appeal:  see Stirling Harbour Services Pty Ltd v Bunbury Port Authority (No 2) [2000] FCA 87.  Whether that power can be exercised when an appeal is brought against a judgment of a Federal Magistrate invoking this Court’s appellate jurisdiction is an issue I need not address.

14                  In Coleman v Lazy Days Investments Pty Ltd (1995) 55 FCR 297Carr J considered whether the Court had power to grant a stay, pending the hearing of an appeal against a sequestration order, of some or all of the proceedings or steps which would otherwise be taken as a consequence of the sequestration order.  His Honour drew a distinction between staying certain proceedings under the sequestration order and suspending the order.  His Honour held that the discretion and power to grant the stay arose under Or 57 r 17 of the Federal Court Rules which applied because an appeal against a sequestration order is brought under s 24 of the Federal Court of Australia Act 1976 (Cth) and not under the Bankruptcy Act 1966 (Cth).  Likewise, this appeal is brought pursuant to s 24.  For examples of more recent cases where the Court has considered the power to grant a stay of proceedings under a sequestration order:  see Freeman v National Australia Bank Ltd (supra); Pollak v National Australia Bank Limited [2001] FCA 1643 and Rigg v Commonwealth Bank of Australia [2001] FCA 1340.

15                  There are, as far as I am aware, no decisions concerning the principles to be applied in deciding whether an order of a Federal Magistrate should be stayed pending the hearing and determination of an appeal by this Court or whether orders should be made preserving the subject matter of the appeal.  Counsel for the Trustee submitted that the appropriate principles to be exercised in a case such as this are those discussed by the Court of Appeal of New South Wales in Alexander v Cambridge Credit Corporation Ltd (1985) 2 NSWLR 685.  I am content to proceed on that basis and it is an approach that has been adopted in this Court in relation to appeals from a single judge:  see Powerflex Services Pty Ltd v Data Access Corporation (1996) 67 FCR 65.

16                  A convenient starting point in considering whether the orders sought should be made are the prospects of Mr Grundy succeeding in his appeal.  At the forefront of the submissions of the Trustee and also the submissions made by Wattyl, was that the appeal had no prospects of success.  In my opinion that is putting the matter too highly.  The learned Federal Magistrate had before him an application which, in form, was one of two things.  It was either an application for a review or an application to annul the bankruptcy or perhaps both.  His Honour also had before him an affidavit, while defective in some respects in form, explaining the delay in bringing the proceedings.  In my opinion it is not beyond argument that his Honour erred in simply, as he arguably did, rejecting out of hand the material relied upon by Mr Grundy in support of his application for a review.  It plainly raised a number of reasons why he had taken the time he did to institute the proceedings.  While there are limits on what a Court can do to assist unrepresented litigants, their position is different to that of represented litigants:  see Minogue v Human Rights and Equal Opportunity Commission (1999) 84 FCR 438 at [26] and following.  As the High Court said in Neil v Nott (1994) 121 ALR 148 at 150:

“A frequent consequence of self-representation is that the court must assume the burden of endeavouring to ascertain the rights of parties which are obfuscated by their own advocacy.”

Arguably the Federal Magistrate should have treated the material before him as involving an application for an extension of time to bring a review which had to be dealt with on the merits.  The evidence filed by Mr Grundy could not, at least arguably, be simply put to one side.

17                  There is, of course, the additional consideration relied upon by the Federal Magistrate, namely that in circumstances such as those confronting him, a bankrupt should be called on to have the bankruptcy annulled and should not be permitted to seek to impugn the sequestration order in a review of the decision of the Registrar making the order.  Counsel for the Trustee referred me to several authorities where this approach has been viewed as the preferred one and it is an approach apparently endorsed by a Full Court in Stankiewicz v Plata [2000] FCA 1185 involving a case not dissimilar to the present.  In that matter the Full Court said:

“The bankrupt appeared in person both before the trial Judge and in this Court.  The application filed by him sought an order that ‘the order of the Court made [on] 11 March 1998 be set aside and annulled under section 153B of the Bankruptcy Act [1966 (Cth)]’.  Despite the reference to the order being ‘set aside’, the trial Judge treated the application as limited to relief under s 153B of the Bankruptcy Act, which provides that:

            ‘If the Court is satisfied that a sequestration order ought not to have been made…the Court may make an order annulling the bankruptcy’.

3.         The trial Judge was correct in dealing with the application in this way.  The Court does not have power to rescind or discharge a sequestration order: Bankruptcy Act s 37(2)(a).  The Court has power to review a decision of the Registrar to make a sequestration order: Federal Court Rules (“FCR”), O 77 r 8(3).  An application for review of a decision must, however, be brought within twenty-one days of the decision: FCR, O 77 r 8(2); see also Federal Court of Australia Act 1976 (Cth), s 35A(6).  The bankrupt did not seek review of the decision of the Registrar within the specified time.  Nor was any application ever brought for an extension of time in which to seek review of the sequestration order: cf Re Gollan; Ex parte Gollan (1992) 40 FCR 38.”

However, in my opinion, the circumstances in this case, as alleged by Mr Grundy, arguably set it apart from the usual case.  This is not a situation where the bankrupt simply failed to attend at the hearing when the sequestration order was made.  On the account of Mr Grundy (which has never been tested and was not tested before the Federal Magistrate because of the way in which his Honour dealt with Mr Grundy’s affidavit), he alleges that he was induced not to attend the hearing at which the sequestration order was made by the conduct of the solicitor appearing for the petitioning creditor.  It is a contention Mr Grundy wished to raise in the application for review. 

18                  A further matter which was arguably relevant to how the Federal Magistrate should have approached Mr Grundy’s application was that the Registrar was exercising delegated judicial power and what Mr Grundy was seeking to demonstrate before a judicial officer, was that the order should not have been made by the delegate.  The power was delegated by the Court pursuant to s 102(2) of the Federal Magistrates Act 1999 (Cth):  see also Federal Magistrates Court (Delegation to Registrars) Rules 2000.  The right to seek a review (in this case conferred by s 104(3)) of a delegate’s exercise of judicial power is an important one.  Its importance, in the context of the Bankruptcy Act 1966 (Cth), was explained in Trustees of the Franciscan Missionaries of Mary v Weir (2000) 98 FCR 447 at [20]:

“20.     The authorities establish that a federal court may constitutionally be empowered to delegate the exercise of its judicial powers to an officer of that Court, subject to quite strict conditions.  What is essential is that the control and supervision of the Court over the exercise of the delegated powers must be so real and effective that the decision, being within the Court’s jurisdiction, though made by an officer who is not a judge, can still be seen to be a decision of the Court:  Harris v Caladine (1991) 172 CLR 84; Cheesman v Waters (1997) 77 FCR 221; D’Antuono v Minister of Health (1997) 80 FCR 226 at 229-231; Taylor v Deputy Commissioner of Taxation [1999] FCA 195 at paras 13-27.  The last of these decisions specifically upheld the validity of a delegation indistinguishable from that with which we are concerned.

21.       But if the effectiveness of the review of a Registrar’s decision by a Judge is so restricted that important aspects of the decision may be required to be carried out, over a significant period, before its correctness is judicially determined, there may well be a question whether the Constitutional requirements are satisfied.”

19                  In my opinion the Federal Magistrate was arguably in error in adopting the approach, in the circumstances of this case, that the objective of Mr Grundy to set aside (I do not mean that in any narrow sense) the sequestration order should be pursued by what might be described as the usual approach.  By denying Mr Grundy a review, assuming he could make good a case for the extension of time, he would be denied the opportunity of putting a case he did not put concerning whether his estate should be sequestrated because of, on his account, the conduct of the solicitor acting for the petitioning creditor.  That is, his Honour was arguably in error by requiring Mr Grundy to seek the annulment of the bankruptcy.

20                  Were Mr Grundy required to follow the approach of applying to annul his bankruptcy only (though he informed me he has recently made such an application) he would confront the following.  The power under s 153B to annul the bankruptcy is discretionary and a consideration which will often be relevant to the exercise of the discretion is the bankrupt’s demonstrated willingness and ability to pay costs incurred by the trustee in the administration of the estate, see: Re Almassy (1999) 92 FCR 597 and Stankiewicz v Plata (supra).  In any event if an annulment order is made then s 154 applies.  Section 154(1)(b) provides:

“the trustee may apply the property of the former bankrupt still vested in the trustee in payment of the costs, charges and expenses of the administration of the bankruptcy, including the remuneration and expenses of the trustee.” 

Section 154(2) provides:

“if the property of the former bankrupt referred to in paragraph (1)(b) is insufficient to meet the costs, charges and expenses referred to in that paragraph, the amount of the deficiency is a debt due by the former bankrupt to the trustee and is recoverable by the trustee by action against the former bankrupt in a court of competent jurisdiction.”

21                  In the present case the evidence indicates that by 18 December 2001 the costs of the Trustee in administering Mr Grundy’s estate were slightly in excess of $11,000.  There is further evidence establishing that the costs of administering the estate had, by 11 April 2002, risen to slightly over $25,000 and would rise a further $20,000 approximately if an order was made annulling the bankruptcy. Counsel for the Trustee submitted that if the orders were stayed it would simply exacerbate the financial difficulties Mr Grundy was and remains in.  Further costs would be incurred in administering his estate and, as I understood it, that would include further legal costs associated with these proceedings.  Funds available to creditors would be diminished.  Two points can be made about this.

22                  I accept that Mr Grundy’s comparatively slow response to a number of events and in particular the delay in seeking legal advice and the delay in acting by commencing the proceedings in the Federal Magistrates Court after he received and apparently rejected that advice, have contributed to the cost of administering his estate increasing and increasing substantially.  Under s 154 the Trustee would be entitled to sell Mr Grundy’s home to satisfy his costs, charges and expenses.  However if, as a matter of fact, the root cause of these costs being incurred was the conduct of the petitioning creditor’s solicitor (though it might be said it was the anterior failure of Mr Grundy to pay the debt to Wattyl), then it may be that these costs of administration should, in whole or in part, be borne by the petitioning creditor or its solicitor and not satisfied by operation of s 154.  I am not aware of any power the Court might exercise in annulment proceedings that would ameliorate the effect of s 154 operating in terms:  see Symonds v Bateman [1999] FCA 658.  It is at least arguable that in a review an order can be made against a party to those proceedings concerning not only legal costs but the Trustee’s costs of administering a bankrupt’s estate as well:  see Re Gollan; Ex parte Gollan (1992) 40 FCR 38 at 42.  I am, of course, not implying that the Trustee’s position should not ultimately be secured in relation to his proper costs.  It plainly should be.  Nor am I overlooking the burdens the Trustee has assumed:  see Adsett v Berlouis (1992) 37 FCR 201 at 208.

23                  Moreover, while I must acknowledge it was not a matter I raised with counsel, I entertain some doubt as to whether the Trustee should have a role in these proceedings which, to the extent that they concern an application for review, challenge the sequestration order made at the behest of the petitioning creditor, Wattyl:  see the observations of Einfeld J in Mackay v Mobil Oil Australia Ltd [1999] FCA 1124 at [10].  If this is right, the further legal costs incurred directly by the Trustee may be minimized.  Different considerations may obtain in relation to any application for an annulment:  see Re Maas [1998] FCA 1447; compare Re Finikiotios [2002] FCA 341 at [39].  I accept, however, that if the appeal is unsuccessful, that may impact on Mr Grundy’s estate because Wattyl might have its costs paid out of Mr Grundy’s estate:  see Guss v Johnstone [2000] FCA 1587. 

24                  The second point concerns the financial position of Mr Grundy from time to time and the cause of it.  When the sequestration order was made on 13 September 2001 it may have then been necessary to consider Mr Grundy’s solvency at least if he had appeared and opposed his estate being sequestrated.  I accept, as Mr Haylen representing Wattyl submitted, even where the Court is satisfied that a debtor is able to pay his debts when they fall due, it has a discretion under s 52(2) to make a sequestration order:  see Re Sarina; Ex parte Wollondilly Shire Council (1980) 43 FLR 163.  However it is difficult to envisage circumstances where the Court would make a sequestration order when the debtor is able to pay his or her debts (even if unwilling to do so) and where a creditor has recourse to other means to enforce payment; see Re Stubberfield; Ex parte Paradise Grove Pty Ltd (1995) 134 ALR 169.

25                  In this matter, an affidavit sworn on behalf of the Trustee on 26 April 2002 sets out information concerning the assets and liabilities of Mr Grundy.  His assets included a Toyota Landcruiser with a net realisable value, estimated by the Trustee at $15,500 and a net realisable value in his home at Mount Vincent, estimated by the Trustee at $30,690. On the basis of that evidence, it appears likely that at the time the sequestration order was made, Mr Grundy’s realisable assets exceeded both the value of the judgment debt on which the creditor’s petition was based and the total of Mr Grundy’s debts estimated in the affidavit of the Trustee to be $20,200.  Whether Mr Grundy was solvent is another question.  However this material would indicate that it is at least arguable that Mr Grundy was solvent when the sequestration order was made, though different considerations may have obtained in February 2002 when the application for review first came before the Federal Magistrates Court.  However it cannot, in my opinion, be said that on either 13 September 2001 or 25 February 2002, Mr Grundy was demonstrably insolvent.  His present difficulties, in substantial part, arise from the costs of administering his estate. 

26                  I have decided, on balance, I should make the orders sought by Mr Grundy.  However I will do so conditionally on him giving an undertaking to the Court that he will vacate the property within 7 days of judgment being given in the appeal if the appeal is unsuccessful.

Associate:

Dated:              14 May 2002

The applicant appeared in person