FEDERAL COURT OF AUSTRALIA

 Fitzpatrick v Kidney [2007] FCA 1658

BANKRUPTCY – control of persons and property of bankrupt – stay of actions already commenced until trustee elects to prosecute or discontinue

BANKRUPTCY – discharge of bankrupt and annulment of sequestration order – annulment of bankruptcy – where bankrupt is able to pay outstanding debt but has not yet done so

Held:

(1)     Where other factors warranting a sequestration order are present, petitioning creditor's collateral purpose of causing proceedings on foot to be stayed is not improper

(2)     Mere preparedness and capacity of bankrupt to pay not, in general, a reason for annulment.

Bankruptcy Act 1966 (Cth) s 60

RAYMOND ARTHUR FITZPATRICK v TONY KIDNEY

ACD 21 OF 2007

ACD 22 OF 2007

ACD 23 OF 2007

MADGWICK J

19 SEPTEMBER 2007

CANBERRA

THE COURT ORDERS THAT:

1.                  The appeal be dismissed with costs.

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

THE COURT ORDERS THAT:

1.         The application be dismissed.

2.         The applicant pay the costs of the respondent, including reserved costs.

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

REASONS FOR JUDGMENT

HIS HONOUR

1                     Before the Court there are three proceedings.  The first is ACD 21 of 2007, which is convenient to see as an appeal against a judgment of the Federal Magistrates Court given by Federal Magistrate Mowbray in proceedings in that Court numbered CAG 17 of 2007 on 21 May 2007.  His Honour dismissed an application by the appellant, Mr Fitzpatrick, to have a bankruptcy notice issued against him set aside.

2                     Another proceeding is ACD 23 of 2007, which is convenient to see as an appeal against the judgment of Mowbray FM in proceedings numbered CAG 11 of 2007 in the Federal Magistrates Court by which his Honour made a sequestration order against Mr Fitzpatrick’s estate on 22 May 2007.

3                     The third proceeding before this Court is ACD 22 of 2007, and it appears to be some generalised application for, among other things, the setting aside of the orders appealed against.  As far as I can see, the only matter the application raises that the appeals do not is whether there should be some stay of the operation of the orders made by Mowbray FM which have been variously appealed against.

4                     In relation to ACD 22 of 2007 the respondent sought that it be struck out after another judge, who looked at the matter for the purpose of giving directions, expressed a preliminary view that it might be incompetent.  I have refrained from striking it out because it does raise the question of a stay.  For reasons that will emerge, there is no basis for or sense in granting any stay.

5                     In relation to the question of setting aside the bankruptcy notice, his Honour’s reasons appear to be correct for the reasons that he gave.  The bankruptcy notice was indeed, as his Honour explained, founded on a final judgment or final order for the requisite amount within the meaning of s 41(1) of the Bankruptcy Act 1966 (Cth) (‘the Act’), and it was not shown that Mr Fitzpatrick had such a counter-claim, set-off or cross demand, as would warrant the setting aside of the bankruptcy notice.  Again his Honour, it seems to me, unexceptionably, explained why that is so.

6                     In relation to the sequestration order, the substantial matters argued before his Honour, apart from some complaints about technical defects in documents, which have not been re-agitated here and in any event have no substance, were summarised by his Honour as follows:

To determine this issue it is helpful to set out in brief the chronology of events and in particular of the litigation: 

·                     a decision of Special Magistrate Symons on 22 September 2003 when she made orders against the applicant requiring him to pay certain costs and conduct money.  This included conduct money of $10 for the respondent 

·                     an order of Master Harper on 14 November 2003 in the ACT Supreme Court dismissing an application for leave to appeal from Special Magistrate Symons’ decision and awarding costs against the applicant 

·                     an order of Connolly J in the ACT Supreme Court on 6 February 2004 dismissing a notice of motion dated 17 December 2003 and also ordering the applicant to pay the respondent’s costs

·                     a certificate of taxation made by the Deputy Registrar of the ACT Supreme Court on 1 November 2004 for the two costs orders of 14 November 2003 and 6 February 2004  

·                     a notice of motion dated 20 October 2005 in the ACT Court of Appeal against both the decision of Master Harper and the decision of Connolly J dismissed by Crispin J on 1 February 2006.  He also ordered the applicant pay the respondent’s costs 

·                     an application for special leave to appeal to the High Court dismissed on 7 September 2006 by Hayne and Crennan JJ.

The applicant states that he currently has relevant proceedings before the Court of Appeal of the ACT relating to the costs matter the subject of the bankruptcy notice.  Thus he says there has been no final judgment.

7                     As to Mr Fitzpatrick’s supposed ability to pay his debts, the relevant debt was $8,110.76.  There was evidence that he had made an offer to pay the creditor $100 a fortnight, which had been rejected.  The only other material before the Court was that Mr Fitzpatrick had received a payout of an unspecified sum from his erstwhile employer.  As the learned Federal Magistrate said, in the context, the offer of $100 per fortnight was ‘hardly an indicator that the respondent has the capacity or ability “to pay his or her debts” ’ ([2007] FMCA 943 at [18]).

8                     Otherwise Mr Fitzpatrick’s argument had been that there was, within the meaning of s 52(2)(b) of the Act, ‘other sufficient cause’ to justify the Court in its discretion dismissing the petition.  His Honour firstly noted that litigation on the judgment debt which arose from orders for payment of costs in unsuccessful proceedings in the ACT Supreme Court was finalised, the litigation having gone as far as the High Court.  This appears to me to be undoubtedly correct.

9                     There is currently before the ACT Court of Appeal an appeal against a decision of the Registrar taxing costs ordered by Crispin P on 1 February 2006 in yet other proceedings between the parties.  Mr Fitzpatrick seeks to raise issues there which would re-litigate issues raised in the proceedings that terminated in the High Court and that involved the judgment debt, as well as other issues.  He also suggested that he had some counter-claim, although I have heard little in this regard.  In any event it was vague and uncertain and his Honour felt unable to give any great weight to a mere possibility of such a claim.

10                  Much of the argument before his Honour concerned the proposition that the Court should ‘go behind’ decisions of the ACT Supreme Court culminating in the costs orders that founded the judgment debt and decisions of Special Magistrate Symons in the ACT Small Claims Court.  His Honour said in Kidney v Fitzpatrick [2007] FMCA 943 at [25]:

Nothing before me has suggested that it would be appropriate, even if permissible, for me to go behind the judgments of the various judicial officers in the Supreme Court where they made orders for costs, or, indeed, the judgment of their Honours in the High Court.

11                  As far as I can make out, his Honour did not examine any of the detail of what it was that Mr Fitzpatrick was complaining about.  His Honour quoted Cain v Whyte (1933) 48 CLR 639 at 646 as indicating that there was the necessity to

show some cause overriding ... the rights of individual creditors who are unable to get their debts paid to them as they become due.  Something has to be put before the Court to outweigh [such] considerations before it can be said that sufficient cause is shown against the making of a sequestration order.

12                  His Honour commented at one point that Mr Fitzpatrick’s submissions were confused and confusing.  Judging by what has been filed and said before me, this is an understatement.  This is not to denigrate Mr Fitzpatrick, who I accept has been doing his best to explain strongly felt matters as best he can.  But nevertheless it has been no easy task to try to separate out such light as there might be from the undoubted heat that is present and to consider how far the former might truly shine and what it might or might not illuminate.

13                  In a sense it is true to say that the judgment debts had their genesis in a question about a mere ten dollars.  Mr Fitzpatrick was being sued in the Small Claims Court by a former solicitor for costs.  Mr Kidney, the respondent to the appeal of the petitioning creditor, was a senior employee of the ACT Law Society. 

14                  Mr Fitzpatrick had the idea that Mr Kidney, by virtue of such office, would be able to produce documents that he thought would help his case and that he ought to be able to give some evidence that would assist his, Mr Fitzpatrick’s, case.  He thought the same apparently of some other lawyers, including Mr Doig, a barrister.  He caused the Small Claims Court registry to issue subpoenas to have those people attend both to produce documents and to give evidence.  The case was listed for 22 September 2003 and Mr Fitzpatrick wanted the documents produced and the people to attend on that day.

15                  Registry officers took it on themselves to alter the dates proffered by Mr Fitzpatrick in the forms that he presented to the registry to have the people attend on 18 September.  It seems likely that they had in mind that they would have a day for the return of documents in relation to the subpoenas and did not sufficiently appreciate that Mr Fitzpatrick intended that the people should attend personally and be ready to give evidence themselves.  Mr Fitzpatrick objected to registry officers about this, explaining the position.  They told him to proceed with the documents as they had amended them and that they would cause fresh documents to be issued to require the intended recipients to be present on the day of the hearing, set for 22 September.

16                  Mr Fitzpatrick served subpoenas requiring attendance and production on the 18th.  He did not tender conduct money or witnesses' expenses.  Nevertheless the Law Society advised Mr Kidney that he should attend on the 18th, regardless of that later formality and the absence of payments of a pittance, and he did attend and produced some documents.  By this time it was in the offing that the case would not proceed on 22 September but would then be transferred to the ACT Magistrates Court.  Mr Kidney did not re-attend on the 22nd.  Mr Doig, by contrast, did attend on the 18th and again on the 22nd.

17                  The presiding magistrate, Special Magistrate Symons, was informed of the wish of the parties that the matter be transferred to the Magistrates Court and was clearly acquiescing in that.  Mr Doig was present in the Court and known to her Honour.  She deduced that he was present in relation to the proceedings between the parties and asked Mr Doig what he wanted.  There was some discussion, in the course of which Mr Doig asked for some allowance for witness’ expenses in connection with his half-hour attendance there.  The learned Special Magistrate indicated that she would order that he be paid $135. 

18                  The text of the transcript does not itself bear the definite conclusion that Mr Fitzpatrick consented to this course, but given Mr Fitzpatrick’s forensic pugnacity and his willingness to debate matters with the presiding judicial officer, as evidenced before me and in transcript before Master Harper in the Supreme Court, and to question the Court and so on, it seems very likely that the Magistrate would have understood, from things Mr Fitzpatrick said, that he had no objection to such a course.  The learned Special Magistrate seems to have thought that it was appropriate to make tidying up orders whereby the sum of $10 would be ordered to be paid to Mr Kidney on account of conduct money and for similar sums to be paid to some of the other people who had been summoned and who in one way or the other had complied with the subpoenas.  Again knowing something of the way in which Mr Fitzpatrick tends to conduct himself in court, it is very likely that the Special Magistrate again had the impression that he had no objection to the fact of the orders being made, or to the quantum.

19                  The learned Special Magistrate seems to have been acting under s 447 of the (now repealed) Magistrates Court Civil Jurisdiction Act 1982 (ACT), which provided that a person who attended for the purpose of giving evidence before the Small Claims Court under a summons was entitled to receive such fees and travelling expenses as the Court directed in accordance with the scale and conditions applicable in the Supreme Court, and provided also that such fees and travelling expenses were payable if the summons was issued at the request of a party in accordance with a direction of the Small Claims Court.

20                  There was no actual application by Mr Kidney for such an order, but, in reality, in the context of Mr Fitzpatrick’s forthright ways with the Court, there is no reason to think that the latter was not heard in relation to the matter.  If the Special Magistrate erred, it can, as Master Harper subsequently found when Mr Fitzpatrick sought leave to appeal from those orders of the Small Claims Court, hardly have been a result of an error of law but rather one, if at all, of some misapprehension of the facts or in the exercise of a discretion.

21                  Master Harper thought there was no error of law that might justify an appeal, that the decision was interlocutory, that the amounts were small and that leave should be refused.  Very belatedly, although for reasons that had some explanation from his own point of view, Mr Fitzpatrick sought leave to extend time in which to appeal against Master Harper’s order.  The matter came before Crispin P, who held that there was no viable basis for an appeal from what Master Harper had done.

22                  Crispin P relied on what he thought was a legislative policy fairly strictly to limit appeals from the Small Claims Court, especially in interlocutory matters.  An application for special leave to appeal was refused by the High Court, Hayne and Crennan JJ saying there was no reason to doubt the correctness of the decision of Crispin P. 

23                  Arising out of proceedings before Master Harper and Connolly J (also the subject of an appeal dealt with at the same time by Crispin P), costs orders were made which were taxed and certified.  The certification became the final judgments or orders upon which the bankruptcy notice, and, in due course, the act of bankruptcy relied on to found the sequestration order, were based.

24                  There were other proceedings taken by Mr Fitzpatrick, in particular before Crispin P, and in relation to which there was, at the time of the hearing before Mowbray FM, an appeal pending in the ACT Court of Appeal.  Those proceedings could not have resulted in orders which would have set aside the costs orders of the Court which led to the judgment debt which led to the bankruptcy.

25                  Over the years Mr Fitzpatrick has developed an enlarging sense of grievance.  He asserts that, contrary to my impressions of the matter, he was not content to let Special Magistrate Symons make the original orders that she did.  He says that he always considered that they were unjust and as a matter of principle, even though no great sum was involved, wished to challenge them as unlawfully made, particularly in a jurisdiction where the rule was that there were no costs as between the parties.  He says that there have been mistakes made, and coincidences and things said to him off and on the record which have led him to believe ultimately that there is widespread corruption in the judicial system in the ACT, extending even up to the High Court, and involving many people.  At the same time he says that, as a former long-serving police officer with much experience of the courts, he retains great respect for the judicial system as a whole and claims that it pains him to say the things that he does.  It does not have much to do with the case, but these things do not sit very happily together.

26                  From the great mass of the materials, confused and confusing, which he has put forward in writing and sought to admit orally, it seems to me that six possibly relevant matters can be distilled.  Not all of them appear to have been debated before Mowbray FM, but in the interests, almost certainly futile, of trying to satisfy Mr Fitzpatrick that the Court is genuinely interested in trying to understand what his complaints are and whether they have any justification in law, I will deal with them.

27                  The first involves the supposed injustice of the orders originally made in the Small Claims Court.  Quite apart from the apparently cogent reasons for refusing leave to appeal identified by Master Harper and Crispin P and endorsed by the High Court, on my own examination of the source material I am far from satisfied that there was any illegality or substantial injustice involved.  It is of course unfortunate that the registry altered the dates, but there must have been some small expense for Mr Kidney, even if subsidised by his employer, in attending at the Court and there was no injustice in the Court ordering that there be paid the conduct money which ordinarily ought to have been paid anyway.

28                  The second matter is that an effect of the sequestration order would be to activate s 60 of the Act whereby, under subs (2), ‘[a]n action commenced by a person who subsequently becomes a bankrupt is, upon his or her becoming a bankrupt, stayed until the trustee makes an election, in writing, to prosecute or discontinue the action’;  and under subs (3) if the trustee does not make such an election within 28 days, after notice of the action is served upon him or her by the other party to the action, he or she is deemed to have abandoned the action.  Mr Fitzpatrick apprehends that a reason for Mr Kidney wanting him to be made bankrupt was to be able to take advantage of the operation of those provisions of s 60 and conceives that this is improper.  Where other elements warranting the making of a sequestration order are present, I do not consider that such a collateral purpose, which merely seeks to invoke the processes of the Act consequent upon the making of a sequestration order, involves impropriety at all.  Secondly, Mr Fitzpatrick says the effect of this will be unfairly, and as a matter of practical hardship, to cause him to lose what might be the fruits of this appeal, including investigation of a great deal of what he says has been wrongful conduct by various people in authority and by his opponent and his legal advisers over the years.  There has been, apart from the appeal and the proceeding which provoked it, a good deal of litigation between the parties and a good deal of time and expense spent on investigating Mr Fitzpatrick’s complaints.  I do not in the circumstances feel that there is any injustice or hardship to him if the results should be as he apprehends they will be.

29                  Mr Fitzpatrick further points to a delay of the hearing of his appeal in the Court of Appeal and suggests that that delay has been orchestrated, with the probable connivance of officers of the Supreme Court, with a view to facilitating the bankruptcy proceedings rendering his appeal, as a practical matter, nugatory.  Nothing has been put before me which would satisfy me of any impropriety on the part of anybody in relation to the listing of the hearing, and I am unpersuaded that matters have proceeded other than in a regular way.

30                  Next, Mr Fitzpatrick says that he had no prior notice of the taxation of the bills of costs which gave rise to the judgment debt on which his bankruptcy was ultimately founded.  He says the first he knew of this was when, in 2005, efforts were made to garnishee his wages to satisfy the costs orders as quantified by the taxation.  Very belatedly, Mr Fitzpatrick changed tack and says that it is not that he was not notified of the taxation but that he was not there, that the taxation proceeded in his absence, and he does not know why.  The plain fact is that nothing has been put before me to suggest why that non-notification or lack of knowledge of the taxation or unexplained non-attendance was not raised in any proceeding before Mowbray FM dealt with the matter in May of this year.  Apparently it was not raised at all until today before me.  Had there been no notice to Mr Fitzpatrick of the taxation, that might have been a matter that could go to a reason for not making the sequestration order, although one would expect some evidence that it was likely that the amount of the taxed costs could be reduced to a level sufficient to reduce the debt below that which could found a valid bankruptcy notice, and there was no such evidence.

31                  Next, Mr Fitzpatrick made much of a claim that at one point Mr Kidney’s solicitor, also the solicitor for the Law Society, had requested that Mr Fitzpatrick pay amounts on account of the judgment debt direct to the Law Society rather than to Mr Kidney.  He says that this may indicate that the true creditor is the Law Society, in which case a supposed judgment debt to Mr Kidney is not something which the Court should countenance as the foundation of his bankruptcy.

32                  This is entirely misconceived.  It is certainly a matter of inference that the Law Society would at points have paid Mr Kidney’s costs and with his assent controlled the litigation.  It remains the fact that Mr Kidney was the party.  It remains the fact that Special Magistrate Symons had ordered the payment of the $10 to Mr Kidney personally, and that if that order were to be challenged, Mr Kidney personally was a necessary party to the challenge.  The fact that in some senses the entity really out of pocket is the Law Society rather than Mr Kidney personally is of no significance and does not amount to any reason why, alone or in combination with other factors, the sequestration order should not have been made.

33                  Finally, there was a curious set of orders made on 3 August 2007 by Neville FM in proceedings to annul the sequestration order that Mr Fitzpatrick brought.  As has apparently been noticed by Gyles J on another occasion, normally an annulment application would await the outcome of the hearing of an appeal against the sequestration order.  On 3 August it appears that Neville FM was seeking to engineer an arrangement whereby if Mr Fitzpatrick could and would, directly or indirectly, promptly satisfy his debts to Mr Kidney, and by that time also to the trustee, the bankruptcy would be annulled.  There was no appeal before me against the ultimate order of Neville FM made on 7 September dismissing the application for annulment and dismissing a further application which had sought to challenge the orders of 3 August 2007. 

34                  It seems tolerably clear that, with respect, Neville FM rather misunderstood the nature of the jurisdiction to annul a bankruptcy.  As a general rule, either there is a basis for concluding that the sequestration order ought not to have been made when it was or there is not.  A mere subsequent preparedness to pay, allied with a capacity to do so, is in general not a reason for annulment, though if consummated it may of course require the discharge of the bankrupt from bankruptcy.

35                  I mention the matter, however, because it might be thought that, if there had been grounds, in the opinion of a judicial officer expressed on a final basis, for the view that the sequestration order ought not have been made, it would appear inconsistent for the sequestration order to have been made.  This might be a matter that could be considered on appeal against the making of the sequestration order, if, for some reason, that view of the Federal Magistrate considering annulment had been unable to be carried into effect.  That however is not the position here as I apprehend it and the proceedings before Neville FM do not provide any basis for considering that the making of a sequestration order should be undone on appeal.

36                  I have otherwise read all the material that has been filed and considered it as best I can and I have also sought to consider the rest of the extensive material orally canvassed by Mr Fitzpatrick.  It is not practicable to deal with it in detail.  I simply say that none of it to me indicates a reason for disturbing on appeal the decision come to by Mowbray FM.

37                  Returning now to proceeding ACD 22 of 2007.  I have considered all the reasons discussed in relation to the appeal against the sequestration order in the context of ACD 22 and whether there is any reasonable basis for me to intervene to stay the operation of the sequestration order so that Mr Fitzpatrick would be guaranteed the continuation of his appeal proceeding in the Supreme Court.  The continuation of that proceeding would involve further expense for the petitioning creditor.  It is Mr Fitzpatrick's appeal, not the petitioning creditor’s.  The petitioning creditor has already been put to a substantial amount of expense which has otherwise resulted in the just position being, in the view of Mowbray FM and myself, that by reason of non-payment of debts incurred by Mr Fitzpatrick as a result of proceedings begun by Mr Fitzpatrick, there would need to be shown, first, some high probability of success in the appeal, and second, some reason for thinking that the trustee might not approach the matter in a proper and dispassionate manner.

38                  Nothing has been put to me to show that either of those two matters is made out.  I expect that the trustee has considered the matter properly, taking into account the due interests of Mr Fitzpatrick, as well as of his creditors, including the petitioning creditor, and I do not propose to order a stay or injunction or do anything else of the kind that would prevent the ordinary operation of s 60 of the Act. 

39                  Insofar as proceeding ACD 22 of 2007 otherwise seeks that somehow or other this Court will put at an end the sequestration order, the appropriate method of challenging a sequestration order is by an appeal, as has been made, and ACD 22 is otherwise incompetent.  ACD 22 will be entirely dismissed, as will each of the appeals.

40                  Mr Fitzpatrick is to pay the costs of the three proceedings.  There is no basis on which he should not.

Associate:

Dated:         31 October 2007