FEDERAL COURT OF AUSTRALIA

Greyson v Commonwealth Bank of Australia (ACN 123 123 124) [2005] FCA 1108

BANKRUTPCY – application for stay pending appeal against Federal Magistrate’s orders – whether hearing of creditor’s petition should have been adjourned pending the hearing of an appeal in the Supreme Court of Western Australia or by reason of the late filing of submissions – application dismissed

Supreme Court Rules O 46 r 6

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

Grundy v Wattyl [2002] FCA 615 cited

General Steel Industries Inc v Commissioner of Railways (NSW) (1964) 112 CLR 125 cited

Eaton Developments Pty Ltd v NTC Pty Ltd (1998) 19 WAR 552 cited

Adamopoulos v Olympic Airways SA (1990) 95 ALR 525 cited

DONALD ALLAN GREYSON and YVONNE FRANCES GREYSON v COMMONWEALTH BANK OF AUSTRALIA (ACN 123 123 124)

WAD 141 OF 2005

SIOPIS J

12 AUGUST 20005

PERTH

On Appeal from the Federal Magistrates Court of australia

THE COURT ORDERS THAT:

1.                  The appellants’ motion dated 16 June 2005 is dismissed.

2.                  The appellants are to pay the respondent’s costs, including any reserved costs.

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

On Appeal from the Federal Magistrates Court of australia

REASONS FOR JUDGMENT

1                     This is an application for the stay of sequestration orders made in respect of the appellants, and orders consequential thereon, by the Federal Magistrate on 8 June 2005, pending the hearing of an appeal by the appellants against the making of the orders.  The sequestration orders and consequential orders were made on a creditor’s petition brought by the respondent.

2                     For the reasons set out below, the application should be dismissed.

Background

3                     The respondent advanced monies to a company, Greyson Nominees Pty Ltd (‘the borrower company’) as trustee of the Greyson Family Trust.  The appellants were the sole shareholders and directors of the borrower company.  The appellants executed mortgages over properties as security for the repayment of the loan.

4                     The borrower company went into default.  The respondent appointed receivers and managers.  The receivers and managers realised the assets of the borrower company.  There was a deficit of $1,294,983.  The respondent issued demands against the appellants, which were not met.  The respondent issued a writ in the Supreme Court of Western Australia (‘the Supreme Court’) against the appellants claiming $1,294,983 and vacant possession of the mortgaged properties.  There was no appearance to the writ by the appellants and judgment was entered in default against the appellants.  The mortgaged properties were duly sold and the proceeds were credited against the judgment debt.  The balance of the judgment debt was $731,249.

5                     A bankruptcy notice was issued for the balance of the judgment debt.  This was not satisfied and the respondent issued a creditor’s petition.

6                     At a time after the mortgaged properties had already been sold and the proceeds realised, the appellants learned that the respondent had, in the accounts it kept for the loan facility of the borrower company, credited the amounts which had been obtained from the proceeds of the sale of the appellants’ mortgaged properties and then had recorded the borrower company’s debt as irrecoverable.  The respondent closed the account and then produced a statement reflecting a zero balance.  The respondent, however, continued to issue statements to the appellants asserting the continuance of the debt.

7                     On 24 May 2004, the appellants applied to the Supreme Court to stay the execution of the original default judgment in that Court under O 46 r 6 of the Rules of the Supreme Court.  Before the Supreme Court the appellants argued that the ‘write off’ by the respondent of the balance of the borrower company’s debt in its accounts, meant that they as mortgagors no longer owed any money under the judgment debt.  The argument advanced was that by recording a zero balance in the account for the borrower company’s debt, the respondent has released the appellants from the judgment debt and, therefore, they as mortgagors no longer owe any money under the judgment debt.  The appellants argued that the respondent is bound by the entry in its books, the appellants only had to pay the balance of the amount recorded in the borrower company’s loan account and after the respondent ‘wrote off’ the borrower company’s debt as irrecoverable they were released from all liability under the judgment debt.  This argument failed before the Master of the Supreme Court.  On 6 September 2004, the Master dismissed the appellants’ application to stay the execution of the judgment.  The appellants then appealed against the decision of the Master.  The appeal was out of time and leave had not been sought.  On 28 February 2005, the Master refused to extend the time within which the appellants could bring an application for leave to appeal against his decision on the grounds that the appeal had no prospects of success.

8                     The appellants then instituted an appeal against the refusal of the Master to extend time, in the Court of Appeal of the Supreme Court.

9                     The creditor’s petition was first due to be heard on 19 July 2004 in the Federal Magistrates Court of Australia.  The appellants succeeded in obtaining a number of adjournments of the hearing of the petition so that they could pursue their attempts to obtain a stay of execution of the judgment in the Supreme Court.

10                  Eventually, the petition came on for hearing before the Federal Magistrate on 8 June 2005.  On that date, the appellants’ appeal in the Court of Appeal of the Supreme Court against the Master’s decision to refuse leave to extend time for the bringing of an application for leave to appeal against his decision to dismiss the stay application in the Supreme Court, was pending.  It has still not been heard.

11                  At the hearing of the petition the first named appellant, who appeared on his own behalf and on behalf of the second named appellant, asked that the hearing be adjourned again.  The appellants relied on two grounds.  Firstly, that the respondent’s submissions had not been served on the appellants prior to the hearing and the respondent had not complied with a Court direction that submissions be filed by 31 May 2005.  Secondly, that the appellants had not yet exhausted the appeal process in the Supreme Court.

12                  The Federal Magistrate adjourned the hearing of the petition for about 30 minutes to permit the first named appellant to read the submissions which were filed by the respondent.  The Federal Magistrate then heard the petition and, after hearing argument from both parties, made the sequestration orders.

The Federal Magistrate’s decision

13                  In his judgment the Federal Magistrate considered the appellants’ submission that the ‘write off’ by the respondent of the borrower company’s debt in its accounts had the effect of releasing them as judgment debtors of their liability under the judgment debt, and on that basis the petition should be adjourned to permit the argument to be presented before the Court of Appeal of the Supreme Court.  The Federal Magistrate noted that the appellants had raised this argument before the Master in the Supreme Court and that the Master had refused an extension of time within which to seek leave to appeal his decision, on the grounds that the appellants’ appeal, founded on that argument, lacked any reasonable prospect of success.  The Federal Magistrate also referred to the fact that no appeal had been brought against the judgment itself.  The Federal Magistrate also addressed the merits of the argument himself.  He said at [28]:

‘The documents to which reference has been made by the respondent debtor which are set out in the respondent’s submissions in opposition are documents which, in my view, do no more than demonstrate that there has been what could be described as a “write  off” of the debt.  The arguments otherwise advanced for and on behalf of the respondent debtors, are, as I have indicated, misconceived.  Where the applicant creditor has for accounting purposes written off the debt, then that does not of itself provide any or any proper basis upon which this Court can conclude that the debt is no longer owing.  It does not provide any or any proper basis of evidence or forgiveness of debt or other compromise, nor am I satisfied on the material before me that there are any contractual rights vesting in the respondent debtors which would otherwise satisfy this Court as a Court in bankruptcy that the amount of the judgment is not still owing…and more importantly that the applicant creditor is not entitled to pursue a sequestration order, relying as it does on the petition and supporting affidavits.  Those supporting affidavits I am satisfied include the more recent updated affidavits of continuing debt…’

14                  As to the appellants’ complaint that they had not seen the respondent’s submissions until arriving at the Federal Magistrate’s Court that morning, the Federal Magistrate found that the submissions were mainly a recitation of the long history of the proceedings in the form of a chronology.  Further, the Federal Magistrate said that propositions of law in the submissions were simply an expression of well known principles in relation to the hearing of creditor’s petitions.  The Federal Magistrate found that the late filing of the submissions by the respondent did not, therefore, warrant a further adjournment.  Further, the Federal Magistrate said that having heard the whole of the appellants’ submissions he was confirmed in his view that the hearing of the petition should have proceeded.

15                  Accordingly, the Federal Magistrate refused to adjourn the petition and made the sequestration orders.

The grounds of appeal

16                  The appellants’ grounds of appeal are in effect:

(a)               The Federal Magistrate erred in not adjourning the petition to permit the appellants to exhaust the appeal process in the Court of Appeal of the Supreme Court.

(b)               The Federal Magistrate erred in not adjourning the application to permit the appellants to have an opportunity to absorb and respond to the respondent’s  submissions, and in permitting the respondent to rely on the submissions at the hearing of the petition.

The applicable principles

17                  The relevant principles in determining whether a stay 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 (Freeman v National Australia Bank Limited [2002] FCA 427 at [4]).

Reasoning

18                  I deal firstly with the ground that the Federal Magistrate erred in not adjourning the petition to enable the appellants to exhaust their appeal rights in the Court of Appeal of the Supreme Court. The Federal Magistrate refused to adjourn the petition on the basis that there was no appeal pending in respect of the judgment itself, there were no reasonable prospects of success in the appeal in relation to the stay of execution of the judgment, and, in effect, that there was no basis for the Court as a Court in bankruptcy to go behind the judgment on which the creditor’s petition was based.

19                  In argument before me, the appellants submitted that the legal basis for their argument that they owed no money under the judgment debt, was to be found in contract.  The appellants referred to cl 10 of the standard terms of the loan agreement between the respondent and the borrower company.  In particular, the appellants relied on subcl 10.8 which stated that the amounts outstanding on the relevant account remained payable without the respondent having first to make demand on the borrower company.  The appellants were not able to point to any clause in the loan agreement, the mortgages or any other document which stated that they were to be released from liability under any judgment obtained against them in the event that the respondent recorded the borrower company’s debt as irrecoverable in its accounts.  Neither were the appellants able to refer to any authority to support their argument that a ‘write off’ of the borrower company’s debt in the books of the respondent amounted to an agreement to release them from the judgment debt.  In my view, neither subcl 10.8, nor any other part of cl 10, of the loan agreement amounts to an agreement by the respondent to release the appellants from their liability under the judgment debt in the event that the respondent decides to record the borrower company’s debt as irrecoverable in its records, nor is it arguable that the clause has that effect.  It follows that in my view, it is not arguable that the Federal Magistrate erred in not adjourning the petition pending the outcome of the appeal in the Court of Appeal of the Supreme Court.

20                  I now turn to the grounds of appeal founded on the fact that the respondent’s submissions were only provided to the appellants on the morning of the hearing. When this matter came on for hearing on 19 July 2005 I adjourned the hearing to give the appellants an opportunity to file an affidavit deposing to the prejudice that they suffered by getting the submissions on the morning of the hearing.  The appellants availed themselves of that opportunity by filing an affidavit dated 25 July 2005.  The appellants say they would have referred the Federal Magistrate to the dictum of Moore J in the case of Grundy v Wattyl [2002] FCA 615 (‘Grundy’) to the effect that the position of an unrepresented litigant is different from a represented litigant and that frequently a court must assume the burden of ‘endeavouring to ascertain the rights of parties which are obfuscated by their own advocacy’.  Second, the appellants say that they would have referred the Federal Magistrate to the dicta of Barwick CJ in the case of General Steel Industries Inc v Commissioner of Railways (NSW) (1964) 112 CLR 125 at 128‑130 (‘General Steel’) to the effect that a claim should not be summarily dismissed unless it is clearly untenable; and also to the principle that a court should be careful not to risk stifling the development of the law by the summary rejection of a claim that might raise the possibility that as the law develops, a cause of action might be found to lie.  Third, the appellants submitted that they would also have referred the Federal Magistrate to a dictum of Owen J in the case of Eaton Developments Pty Ltd v NTC Pty Ltd (1998) 19 WAR 552 at 556 (‘Eaton Developments’) in support of an argument that there was a reasonable prospect of success in their appeal against the Master’s decision not to extend time, because the Court of Appeal is, on the basis of this dictum, likely to focus more on the extent of the delay in making application for leave to appeal the Master’s decision, than on the merits of their argument in the appeal.  The relevant dictum of Owen J is at 558 of the judgment:

‘It has often been said that there are 4 main factors to consider in deciding whether to exercise the discretion to extend time.  They are, first, the length of the delay, secondly, the reasons for the delay, thirdly, whether there is an arguable case and fourthly, the extent of any prejudice to the respondent:  see Esther Investments Pty Ltd v Markalinga Pty Ltd (1989) 2 WAR 196 at 198.  There is a clear distinction to be drawn between an application to extend time to commence an appeal and an application to extend the time for taking a procedural step in an appeal that has been regularly instituted:  see Jackamarra v Krakouer (1998) 72 ALJR 819.  The main difference is that in the latter case the merits will usually be irrelevant unless it can be said that the appeal is so devoid of merit that it would be futile to extend time.  Even in relation to an application for an extension of time within which to institute an appeal, the merits are not generally the first or primary consideration.  In Palata Investments Ltd v Burt & Sinfield Ltd [1985] 1 WLR 942 at 946; [1985] 2 All ER 517 at 520, Ackner LJ said in cases where the delay is short and there was an acceptable excuse for the delay, as a general rule the appellant should not be deprived of its right of appeal and no question of the merits of the appeal will arise.  Palata was approved generally in Esther.  In other words, initial attention must be paid to the delay and the consequences for the respondent before any question of the merits can arise.’

21                  In my view, it was unfortunate that the submissions of the respondent were not served in compliance with the order of the Court and in sufficient time before the hearing of the petition to permit the appellants an opportunity to absorb the contents of the submissions.  This is particularly so in circumstances where as in this case the appellants were self‑represented.  If it were arguable that the appellants suffered any prejudice which may have affected the outcome of the hearing, as a consequence of the late filing and serving of the submissions, I would have granted a stay. However, in my view it is not arguable that the exercise of discretion of the Federal Magistrate to deny an adjournment on these grounds, resulted in any prejudice being suffered by the appellants that may have affected the outcome of the hearing of the petition.

22                  I have come to that view for a number of reasons.  First, the appellants did refer the Federal Magistrate to Adamopoulos v Olympic Airways SA (1990) 95 ALR 525 to support the argument that a bankruptcy Court would be slow to make sequestration orders when there was an appeal pending in another court in relation to the very judgment on which the bankruptcy notice was based. The Federal Magistrate took that case into account in coming to this decision.  Second, the Federal Magistrate considered the merits of the appellants’ argument that they were not liable for the judgment debt, and found that it was without substance.  In fact, he said that having heard the argument it confirmed his view that no adjournment should have been granted.  Third, the dictum of the case of Grundy would, in any event, have been of no assistance to the appellants because this is not a case where the appellants have been unable to articulate effectively an argument which has an underlying merit, but rather it is a case of well articulated argument which has no arguable underlying merit.  Fourth, the dicta from General Steel would, in any event, have been of no assistance to the appellants because the Federal Magistrate came to the view that the appellants’ argument was clearly untenable.  Further, the principle in relation to a court being cautious in cases of summary judgment so as not to inhibit the development of the law would not have assisted the appellants because the argument made by the appellants is founded on the construction of a contract between the respondent and the borrower company.  It is not founded on any proposition of law which has a reasonable prospect of being adopted by the Court as expansion of existing principles of law.  Fifth, the dictum in Eaton Developments also would, in any event, have been of no assistance to the appellants.  The dictum recognises the relevance of the merits of the argument to be raised on the appeal, and accepts that even in circumstances where there is already an appeal on foot, there may be circumstances where an extension of time will not be granted because it would be futile to extend the time.  In Eaton Developments Owen J addressed the merits of the appeal and found that the merits of the appeal satisfied that criterion.  However, the overriding consideration is that, as mentioned above, the Federal Magistrate considered the merits of the appellants’ argument as to why they were not liable for the judgment debt, and found it to be without substance.  He also agreed with the Master’s view that on the basis of that argument there were no reasonable prospects of success in the appeal.

23                  It follows that I am of the view that there is no arguable point in the proposed appeal.

24                  It also follows that the balance of convenience does not arise.  However, I record that the first named appellant is a director of a company which holds a liquor licence and I accept that the making of a sequestration order would, in that and other respects, have serious adverse consequences for him.

25                  For the reasons set out above, I dismiss the application.

Associate:

Dated:                    12 August 2005