FEDERAL COURT OF AUSTRALIA

Beames v Rigby [2002] FCA 806

BANKRUPTCY – motion for a stay of sequestration order until the appeal against the sequestration order is heard – whether there is an arguable point on the proposed appeal – whether the balance of convenience favours the granting of a stay

Bankruptcy Act 1966 (Cth) ss 41(7) and 60(2)

Freeman v National Australia Bank Limited [2002] FCA 427 followed

Thomas v St George Bank Ltd [1999] FCA 166 followed

DOUGLAS MACLEOD BEAMES v GEOFFREY IAN RIGBY

Q 88 OF 2002

DRUMMOND J

BRISBANE

18 JUNE 2002

THE COURT ORDERS THAT:

1.                  The notice of motion filed 11 June 2002 be dismissed.

2.                  The applicant pay the respondent’s costs of and incidental to the notice of motion.

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

REASONS FOR JUDGMENT

1                     The applicant, Mr Beames, by notice of motion filed 11 June 2002 seeks the stay of a sequestration order made on 30 May 2002 by a Federal Magistrate.   I am satisfied that I have jurisdiction to grant the stay sought, which is the stay of proceedings under the sequestration order, until the determination of the appeal which Mr Beames has lodged.   See Freeman v National Australia Bank Limited [2002] FCA 427 at [3].  

2                     The considerations upon which the outcome of the motion depends are set out in that case at par 4, where Spender J says:

“The relevant considerations in determining whether a stay of proceedings [under a sequestration order] should be granted are whether there is an arguable point on the proposed appeal and whether the balance of convenience favours the granting of a stay.”

3                     The notice of appeal challenges, firstly, the Magistrate’s decision that the act of bankruptcy relied on by the petitioning creditor, Mr Rigby, was committed.  More specifically, there is a challenge to the Magistrate’s decision that the time for compliance with the bankruptcy notice had not been automatically extended pursuant to s 41(7) the Bankruptcy Act 1966 (Cth).

4                     Another point agitated before the Magistrate in this regard was whether an express order extending the time for compliance with the bankruptcy notice had been made pursuant to s 41(6A) the Bankruptcy Act.  The Magistrate determined that issue against Mr Beames and that particular finding is not the subject of the proposed appeal.  It would follow that the time for compliance with the bankruptcy notice upon which the petition was founded was 21 days after its service on 15 December 2001 on Mr Beames.

5                     I do not think that Mr Beames has any significant prospect of being able to challenge the Magistrate’s determination as to the automatic extension of time for compliance with the bankruptcy notice not having occurred.  The issue advanced by Mr Beames, so far as has been exposed in the proceedings before me, was whether the filing of an application pursuant to s 41(7) was, without more, sufficient to produce the automatic extension of time for compliance.  That that point does not have strong prospects of success is supported by the decision of Lindgren J in Thomas v St George Bank Ltd [1999] FCA 166 where His Honour summarises the effect of authority in par [13] and says, at par [16]:

“I do not think that subs 41(7) is activated by nothing more than the filing of an application which meets the literal terms of the subsection.   There must at the very least be a bona fide assertion of a genuine counter-claim, set-off or cross demand.”

6                     No attempt has been made to demonstrate that the Magistrate erred in failing to find that the latter requirement referred to by Lindgren J in that passage was satisfied by the application that Mr Beames filed seeking to challenge the bankruptcy notice which is the foundation for the present motion.

7                     The second challenge, the subject of a number of grounds in the notice of appeal, is based on the assertion by Mr Beames that Mr Rigby’s invocation of the bankruptcy process was an abuse of the process of the Court.  A variant of that argument was run unsuccessfully before the Magistrate in proceedings brought prior to institution of the application challenging the bankruptcy notice.  A more elaborate case is said by Mr Beames to exist and it is the case which he wishes to run in support of these grounds of appeal.

8                     It is said that Mr Beames is involved in litigation with the State of Queensland over the state of title to two pieces of land:  land at 59 Gillan St, which I will call lot 28, in respect of which Mr Beames was previously registered proprietor, but which has now been sold by Mr Rigby exercising his mortgagee’s power of sale; and land at 61 Gillan St, lot 29, in respect of which Mr Beames remains registered proprietor but which Mr Rigby intends, according to what Mr Beames says, to exercise that same mortgagee power of sale.  Mr Beames asserts that the invocation by Mr Rigby of the bankruptcy process that has led to the sequestration order the subject of his appeal was an abuse of process because the Registrar of Titles and Mr Rigby were parties to an unlawful conspiracy pursuant to which the Registrar has registered Mr Rigby as proprietor of lot 28 and will register him as proprietor of lot 29 in due course.  He claims damages from both the State of Queensland and Mr Rigby.

9                     Mr Beames makes it clear that the issue he wishes to run in support of this ground of appeal will require him to obtain leave from the Full Court to put evidence before the Full Court that was not before the Magistrate to make good this abuse of process contention which, of course, goes to the discretionary power to make a sequestration order.  In par 1.3 of his written submissions, Mr Beames says that it was not possible to bring this evidence of conspiracy before Baumann FM at the hearing of the creditor’s petition.  He does not say why.  If the orders sought today by Mr Beames are made, he says he will seek directions for the bringing of this “new” evidence before the Full Court at the directions hearing on 10 July 2002.

10                  Mr Beames’ apparent familiarity with Court process is not an accident, he has long been a solicitor.  But though Mr Beames makes these assertions as to there being an evidentiary foundation for these various grounds of appeal turning upon an abuse of process argument, he does not expose any of that evidence he apparently intends to rely on to me.  He asserts it exists and says it can be found in the evidence that is presently before the Supreme Court in the proceedings involving the State of Queensland and himself, but to which it appears Mr Rigby is not a party.  It was not explained why this evidence could not have been put before the Magistrate.

11                  I am not prepared to accept, on the state of the material before me, that there is an argument with arguable grounds of success in relation to the abuse of process point based on this conspiracy.  In my view, it was obvious that in order to demonstrate that there was an arguable basis for these particular grounds of appeal it was necessary to put at least some of that evidence before me.

12                  I turn now to the balance of convenience.  Mr Beames challenged Mr Rigby’s standing as a creditor, unsuccessfully, in the proceedings involving the hearing of the creditor’s petition.  That issue is not pursued by Mr Beames in his notice of appeal.  However, it is, I think, of some significance to note what the Magistrate found in relation to that issue.

13                  It appears that back in 1995 Mr Rigby advanced $384,000 to Mr Beames, secured on mortgages over the two properties I have referred to.  It further appears from the Magistrate’s decision that Mr Beames has made only minuscule repayments in respect of that quite large sum:  one instalment of $5,440 paid on 19 October 1998 and a further $500 paid on 20 November 1998.  Interest, as one might expect, has accumulated to a very substantial amount on top of almost the whole of the principal that has remained unpaid.  The indebtedness of Mr Beames to Mr Rigby in respect of this 1995 advance was only reduced to a significant extent, ie, by about $130,000 or so, as a result of Mr Rigby exercising his power of sale as mortgagee in respect of lot 28.  As at the date of the hearing of the petition, the Magistrate noted that Mr Beames was indebted to Mr Rigby to the extent of $619,703.20 in respect of the 1995 advance of $384,000.00. 

14                  Mr Beames acknowledges that apart from his land, lot 29, of which he still apparently remains registered proprietor though it is mortgaged to Mr Rigby, and his proceedings to recover lot 28, the assets in his estate consist wholly of the actions for damages in the proceedings involving the State of Queensland and himself.  I should note that Mr Beames has proceedings on foot against Mr Rigby and others and they too may also be regarded as potential assets in his estate.  But all those proceedings brought by Mr Beames have been stayed by operation of the Bankruptcy Act upon the making of the sequestration order.

15                  The point of the matter is that the material indicates that Mr Beames is, subject only to the uncertain fate of the litigation, insolvent.  The rights of action that I have referred to have passed to the trustee on the making of the sequestration order.  The administration is at an early stage, as is apparent from the Official Trustee’s report to the Court.  It is uncertain what may happen in relation to these rights of action in the sense that it is uncertain whether the Trustee will elect to pursue any or all of them or whether the Trustee will enter into an agreement with Mr Beames to transfer some or all of them to him, a possibility that cannot be completely discounted given that the proceedings involving the State of Queensland and Mr Beames have progressed to the stage where there is a decision reserved by the Queensland Court of Appeal in those proceedings.  But the value of these rights of action is, on the material before me, entirely speculative and incapable of assessment.

16                  It seems to me though that given the considerations I have referred to, the balance of convenience also favours the rejection of the stay application.  For these reasons, I will therefore dismiss the motion seeking a stay.

Associate:

Dated:              21 June 2002