FEDERAL COURT OF AUSTRALIA

Narain v Euroasia (Pacific) Pty Ltd [2010] FCA 1352

THE COURT ORDERS THAT:

1.    Pursuant to O 46 r 6(3)(a) of the Federal Court Rules, any person have leave to inspect any of the following documents on the Court file:

(a)    the affidavit of Paul Somers sworn on 29 July 2010 and the exhibits to that affidavit;

(b)    the affidavit of Samuel E Dipnall sworn on 2 August 2010 and the exhibits to that affidavit;

(c)    the affidavit of Michael Douglas Main sworn on 10 September 2010 and the exhibits to that affidavit;

(d)    the affidavit of Michael Douglas Main sworn on 1 October 2010 and the exhibits to that affidavit;

(e)    the affidavit of Edwina Kate Narain sworn on 1 October 2010; and

(f)    the affidavit of Matthew James Kandelaars sworn on 21 October 2010 and the exhibit to that affidavit.

2.    The application for leave to appeal out of time be dismissed.

3.    There be no order as to the costs of the application.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court’s website.

REASONS FOR JUDGMENT

The nature of the proceeding

1    This application for leave to appeal was filed on 29 July 2010. The applicant, Ms Edwina Narain, wishes to appeal against the judgment of the Federal Magistrates Court of Australia, given on 24 March 2010 and published as Euroasia (Pacific) Pty Ltd v Narain [2010] FMCA 188. The learned federal magistrate affirmed a decision of a registrar, made on 22 December 2009, to grant a sequestration order against Ms Narain, and made other related orders. Leave to appeal is required by O 52 r 15(2) of the Federal Court Rules (“the Federal Court Rules”), because the time within which an appeal as of right could have been brought has expired.

2    Although not opposed by the respondent, Euroasia (Pacific) Pty Ltd (“Euroasia”) (which was the successful petitioning creditor in the proceeding at first instance), the application for leave to appeal raises issues about Ms Narain’s explanation for the delay in exercising her right of appeal, whether no prejudice has resulted from that delay, and the prospects of success of her proposed appeal. It is also necessary for me to say something about a claim for confidentiality in relation to certain of the exhibits to an affidavit sworn by the applicant’s solicitor and filed in support of the application.

The legislative provisions

3    In making the original sequestration order on 22 December 2009, the registrar was exercising a power of the Federal Magistrates Court delegated to him pursuant to s 103(1) of the Federal Magistrates Act 1999 (Cth) (“the Federal Magistrates Act”) by item 5 of Sch 2 to the Federal Magistrates Court (Bankruptcy) Rules 2006. For constitutional reasons, it was necessary for there to be a power of review of the exercise of that power by the registrar. Such a right of review was provided by s 104(2) and (3) of the Federal Magistrates Act. In reviewing the registrar’s exercise of the power, the federal magistrate was required to exercise it afresh, on the material before him, and not to determine whether the registrar had been correct on the material before the registrar.

4    The crucial provisions under which the federal magistrate was required to determine whether to make a sequestration order are the following provisions of s 52 of the Bankruptcy Act 1966 (Cth) (“the Bankruptcy Act”):

(1)    At the hearing of a creditor’s petition, the Court shall require proof of:

    (a)    the matters stated in the petition (for which purpose the Court may     accept the affidavit verifying the petition as sufficient);

    (b)    service of the petition; and

    (c)    the fact that the debt or debts on which the petitioning creditor relies     is or are still owing;

    and, if it is satisfied with the proof of those matters, may make a sequestration order against the estate of the debtor.

...

(2)    If the Court is not satisfied with the proof of any of those matters, or is satisfied by the debtor:

    (a)    that he or she is able to pay his or her debts; or

    (b)    that for other sufficient cause a sequestration order ought not to be     made;

    it may dismiss the petition.

5    It should be noted that, in conferring the power to make a sequestration order or to dismiss a creditor’s petition, s 52(1) and (2) of the Bankruptcy Act use the word “may”. Section 33(2A) of the Acts Interpretation Act 1901 (Cth) (“the Acts Interpretation Act”) now provides:

Where an Act assented to after the commencement of this subsection provides that a person, court or body may do a particular act or thing, and the word may is used, the act or thing may be done at the discretion of the person, court or body.

6    The date of commencement of s 33(2A) was 18 December 1987, when the Royal Assent was given to the Statute Law (Miscellaneous Provisions) Act 1987 (Cth) (“the Miscellaneous Provisions Act”). The amendment was effected by s 3 and Sch 1 of the Miscellaneous Provisions Act. By s 2(1), unless other specific provision was made, the amendment came into operation on the date on which the Miscellaneous Provisions Act received the Royal Assent. No other specific provision was made. Section 52 of the Bankruptcy Act was enacted, substantially in its present form, prior to 18 December 1987. In particular, the word “may” appeared in the provision prior to that date. It may therefore be necessary to have regard to principles of statutory interpretation that were applied by the courts prior to the enactment of s 33(2A) of the Acts Interpretation Act, in order to determine whether s 52(1) and (2) of the Bankruptcy Act confer discretionary powers, or powers that the court is required to exercise if the conditions precedent to their exercise for which the legislation provides are found to have been fulfilled. The relevant principles were discussed at length by the High Court in Ward v Williams (1955) 92 CLR 496 at 504-507. At 506, the court said:

A distinction obviously exists between the possession by a person interested, on the one hand, of a right to call upon the officer upon whom a power is conferred to exercise his discretion and, on the other hand, of a right to call upon him to exercise the power. The former means no more than that, when called upon, the officer is under a duty to exercise his discretion according to law, the latter that he is under a duty to take whatever active measures may be authorized by the power. In construing a statute conferring a power by permissive or facultative expressions, it is important not to mistake indications or evidences, found in the context or subject matter, of an intention that a right to call for the exercise of the discretion should exist, for indications or evidences of an intention that the officer in whom the power is reposed should be under a duty, upon request and upon fulfilment of the necessary conditions, to do the thing authorized.

At 507, the court said:

But there is one consideration which is usually accounted very strong. It is that the power is conferred upon a judicial tribunal and to be invoked by a judicial proceeding. Jurisdiction and powers are conferred on judicial bodies, usually for the enforcement of rights and the protection of interests, and permissive language will often in such a case be used not because it is intended to give the tribunal a discretion to grant or refuse the remedy, but because, although it is intended or contemplated that persons interested will be entitled to the remedy the tribunal is empowered to give, it is also intended, or at all events taken for granted, that the existence of the interest and the validity of the claim to the remedy of a person seeking it will be for the tribunal to determine.

The court then discussed considerations that pointed in the opposite direction, before concluding that the provision at issue in that case conferred a discretion. A majority of the High Court reached the opposite conclusion in relation to a different statute in Finance Facilities Pty Ltd v Federal Commissioner of Taxation (1971) 127 CLR 106. At 134, Windeyer J, with whom Barwick CJ agreed, said:

The question, which comes back to the words “may allow”, is not to be solved by concentrating on the word “may” apart from its context. Still less is the question answered by saying that “may” here means “shall”. While Parliament uses the English language the word “may” in a statute means may. Used of a person having an official position, it is a word of permission, an authority to do something which otherwise he could not lawfully do. If the scope of the permission be not circumscribed by context or circumstances it enables the doing, or abstaining from doing, at discretion, of the thing so authorized. But the discretion must be exercised bona fide, having regard to the policy and purpose of the statute conferring the authority and the duties of the officer to whom it was given : it may not be exercised for the promotion of some end foreign to that policy and purpose or those duties. However, that general proposition is irrelevant in this case. Here the scope of the permission or power given is circumscribed. Conditions precedent for its exercise are specified as alternatives. The question then is, must the permitted power be exercised if one of those conditions be fulfilled?

This does not depend on the abstract meaning of the word “may” but of whether the particular context of words and circumstance make it not only an empowering word but indicate circumstances in which the power is to be exercised―so that in those events the “may” becomes a “must”.

7    In both cases, the High Court made it clear that the fundamental question of the meaning of the word “may” in a particular statutory context involves the ascertainment of the intention of Parliament. This requires the consideration of the particular legislative provision in the context of the statute in which it appears. In Sarina v Council of the Shire of Wollondilly (1980) 48 FLR 372, the question was raised whether a debtor who had proved that he was able to pay his debts (thereby bringing himself within s 52(2)(a) of the Bankruptcy Act) was entitled to have the creditor’s petition against him dismissed. At 376-377, the Full Court discussed the authorities, referred to other provisions of the Bankruptcy Act, and concluded at 377:

The power conferred upon the court by s. 52 (2) is permissive not mandatory, although it seems that the occasions on which the discretion not to dismiss the petition might be exercised would not be frequent. It may, in a proper case, require the refusal of a sequestration order yet permit the adjournment of the petition rather than its dismissal. The variety of circumstances that may arise in particular cases renders plain the undesirability of seeking to define parameters of the exercise of the power.

The Full Court then rejected an argument that a sequestration order should be made because, although able to pay his debt to the petitioning creditor, the debtor was unwilling to do so. In Re Dolman; Ex parte Elder Smith Goldsbrough Mort Ltd (1967) 10 FLR 384 at 391, Gibbs J said of an earlier provision corresponding with s 52(2) of the Bankruptcy Act:

The Court has a discretion to exercise ; it is a wide discretion and must be exercised in the light of all the circumstances, not forgetting on the one hand that the petitioning creditor, if he has proved the existence of the debt and the act of bankruptcy, has what may be called a prima facie right to a sequestration order, and, on the other hand, that the fact that a majority in number and value of the creditors desires an administration under the deed is a matter to be considered, and is an important matter if the majority is substantial. Finally, however, the Court has to decide in what manner the discretion should be exercised in all the circumstances of the particular case, having regard to the interests of the various parties and the interest of the public

8    In Re SVIR; Ex parte Commissioner of Taxation (1998) 83 FCR 314 at 317, Burchett J followed Cain v Whyte (1933) 48 CLR 639 in saying:

each case has to be examined on its own facts in order to determine whether they raise the statutory discretion, and if so, whether it should be exercised in favour of the debtor.

9    It is too late to argue, by reference to the principles of statutory construction that prevailed prior to the coming into operation of s 33(2A) of the Acts Interpretation Act, that s 52(2)(b) of the Bankruptcy Act creates an objectively determined category of “other sufficient cause”, which, if established, entitles a debtor to have a creditor’s petition dismissed. It is clear that the Court retains a discretion to dismiss, or not to dismiss, a petition. Clearly, that discretion is to be exercised judicially, in accordance with the purpose of the legislation. One thing that is made clear by s 52(2) is that the onus of establishing “sufficient cause” to warrant the exercise of the discretion in favour of the debtor, if all of the elements prescribed by s 52(1) have been established, falls upon the debtor.

10    Order 52 r 15 of the Federal Court Rules provides relevantly as follows:

(1)    The notice of appeal shall be filed and served:

(a)    within 21 days after:

(i)    the date when the judgment appealed from was pronounced;

(ii)    the date when leave to appeal was granted; or

(iii)    any later date fixed for that purpose by the court appealed from; or

(b)    within such further time as is allowed by the Court or a Judge upon application made by motion upon notice filed within the period of 21 days referred to in the last preceding paragraph.

(2)    Notwithstanding anything in the preceding subrule, the Court or a Judge for special reasons may at any time give leave to file and serve a notice of appeal.

11    It is clear from subr (2) that the onus of demonstrating “special reasons” falls upon the person applying for leave to file and serve a notice of appeal after the expiration of the relevant time limit fixed by subr (1).

12    Finally, some reference should be made to the Evidence Act 1995 (Cth) (“the Evidence Act”). Section 119 provides:

Evidence is not to be adduced if, on objection by a client, the court finds that adducing the evidence would result in disclosure of:

(a)    a confidential communication between the client and another person, or between a lawyer acting for the client and another person, that was made; or

(b)    the contents of a confidential document (whether delivered or not) that was prepared;

for the dominant purpose of the client being provided with professional legal services relating to an Australian or overseas proceeding (including the proceeding before the court), or an anticipated or pending Australian or overseas proceeding, in which the client is or may be, or was or might have been, a party.

Section 122 of the Evidence Act provides, so far as relevant:

(1)    This Division does not prevent the adducing of evidence given with the consent of the client or party concerned.

(2)    Subject to subsection (5), this Division does not prevent the adducing of evidence if the client or party concerned has acted in a way that is inconsistent with the client or party objecting to the adducing of the evidence because it would result in a disclosure of a kind referred to in section 118, 119 or 120.

(3)    Without limiting subsection (2), a client or party is taken to have so acted if:

(a)    the client or party knowingly and voluntarily disclosed the substance of the evidence to another person; or

(b)    the substance of the evidence has been disclosed with the express or implied consent of the client or party.

The history of the litigation

13    Euroasia’s creditor’s petition alleged as the act of bankruptcy the failure of Ms Narain to comply with the requirement of a bankruptcy notice served on her, that she pay within the time required a debt owing to Euroasia. The debt was a judgment debt, resulting from a judgment of the Supreme Court of Victoria. Euroasia had sued Ms Narain, her husband Mr Ravi Narain, and another party on a deed of guarantee, arising out of dealings in relation to the business of a company called Golden Dragon Abalone Pty Ltd (“Golden Dragon”). That proceeding was settled. Ms Narain signed the terms of settlement. They required her to pay a sum of money by a particular date, and made provision for the entry of judgment if the payment were not made. Ms Narain defaulted, as a result of which Euroasia applied to enter judgment. Ms Narain failed to respond to that application, as a result of which judgment was entered by default. Ms Narain then sought to set aside the default judgment. On 11 April 2008, Master Daly, as her Honour then was, set aside that judgment in so far as it applied to Ms Narain.

14    Euroasia appealed against that order. The appeal was heard by Robson J, whose judgment was given on 13 May 2008 and published as Euroasia (Pacific) Pty Ltd v Narain [2008] VSC 153. It is apparent from his Honour’s reasons for judgment that Ms Narain was attempting to resist the judgment against her on the terms of settlement by reference to the principles applied in Yerkey v Jones (1939) 63 CLR 649 and Garcia v National Australia Bank Ltd (1998) 194 CLR 395. Those principles operate to prevent a creditor from enforcing against a wife a guarantee executed by the wife of a debt of her husband, in circumstances in which: the wife lacked understanding of the effect of the transaction; the wife was a volunteer in the sense that she obtained no gain from the contract the performance of which was guaranteed; the creditor was aware that the wife relied on her husband in matters of business and therefore understood that the husband may not explain fully and accurately the effect of the transaction to the wife; and the creditor took no steps to explain, or to procure an objective explanation, of the effect of the transaction. In his reasons for judgment at [130], Robson J held that those principles apply only to a suretyship agreement. At [158], his Honour also held that, in the absence of any allegation that Euroasia had constructive knowledge of the kind required by the principles in Yerkey and Garcia, the argument that Euroasia ought to have made inquiries could not be accepted. His Honour allowed the appeal and set aside the order of Master Daly. The result was that the default judgment against Ms Narain remained.

15    Ms Narain then attempted to appeal out of time against that default judgment. She also sought to appeal against the judgment of Robson J. She sought a stay of execution of the judgment, pending her appeal, which the Court of Appeal granted on 17 September 2008, at the same time as it ordered Ms Narain to provide security for Euroasia’s costs of the appeal against the judgment of Robson J. The Court of Appeal’s reasons for judgment are published as Narain v Euroasia (Pacific) Pty Ltd [2008] VSCA 195.

16    Ms Narain’s application for leave to appeal against the original default judgment, and the appeal against that judgment, were determined by Hollingworth J on 1 December 2008. Her Honour’s reasons for judgment are published as Euroasia (Pacific) Pty Ltd v Narain [2008] VSC 524. Her Honour gave Ms Narain leave to appeal and extended the time for filing a notice of appeal, but dismissed the appeal. At [88], her Honour was not persuaded that Ms Narain had established an arguable defence to a claim based on the terms of settlement. Her Honour adopted the reasons of Robson J in reaching this conclusion.

17    Ms Narain appealed from the judgment of Hollingworth J. The judgment of the Court of Appeal was delivered on 11 December 2009. The reasons for judgment are published as Narain v Euroasia (Pacific) Pty Ltd [2009] VSCA 290. The appeal was dismissed. Nettle JA, with whom Bongiorno JA and Byrne AJA agreed, discussed at some length the question whether the principles in Yerkey and Garcia could be extended beyond contracts of suretyship. At [41], Nettle JA referred to the view expressed by Santow JA (with whom Campbell JA agreed) in Elkofairi v Permanent Trustee Co Ltd [2002] NSWCA 413, that it was not permissible for an intermediate Court of Appeal to treat Yerkey as capable of application or extension to anything other than suretyship. At [43]-[45], Nettle JA said:

Were it not for Elkofairi, I should have thought that it was open to this court to construe Yerkey as capable of application to instruments apart from suretyship which operate to a wife’s husband’s advantage or confer a voluntary benefit on him. I say that because, although Dixon J reasoned in Yerkey from the premise that the three invalidating presumptions ‘have a special importance when the transaction in question is one of suretyship’, I find it hard to see why in logic or principle those presumptions should have any less importance in cases of other instruments operating to a husband’s advantage in respect of which the obligee is on notice that the husband’s wife is a volunteer. I know of no policy which would dictate a different result. The point of distinction appears to be arbitrary.

As I understand the High Court’s most recent edict on stare decisis, however, this court does not have power to change the common law of this country, only to apply it, and we are not to depart from another state appellate court’s interpretation of the common law of this country unless we think it is plainly wrong. Strictly speaking, Santow and Campell [sic] JJA’s remarks in Elkofairi were obiter, but I take them to be ‘seriously considered’ obiter and, with respect, I am not persuaded that they are plainly wrong.

It follows that I reject the contention that Yerkey is capable of application to instruments apart from suretyship which operate to a wife’s husband’s advantage or confer a voluntary benefit on him. In my judgment, therefore, Hollingworth J was right to hold that Yerkey does not apply to instruments other than instruments of suretyship.

18    The stay of execution of the judgment having been removed upon the dismissal of the appeal from the judgment of Hollingworth J, Euroasia was free to proceed with its creditor’s petition. The result was the sequestration order made by the registrar on 22 December 2009. On 23 December 2009, Ms Narain filed in the High Court of Australia an application for special leave to appeal from the judgment of the Court of Appeal. On 4 February 2010, Euroasia filed a summary of argument in relation to the application for special leave to appeal. The first point relied on was that Ms Narain was bankrupt and had no standing to appeal.

19    On her application to the Federal Magistrates Court to review the registrar’s decision to make a sequestration order, Ms Narain relied heavily on the proposition that the creditor’s petition ought to be dismissed, so that she could pursue her application for special leave to appeal to the High Court. She hoped to be able to persuade the High Court that the principles in Yerkey and Garcia ought to be applied to contracts other than contracts of suretyship. The result would be that the judgment of the Supreme Court of Victoria on which the creditor’s petition was based would be set aside, and Ms Narain could contest in that court the application for judgment against her on the terms of settlement, by endeavouring to bring herself within those principles.

20    As I have said, the judgment of the federal magistrate was given on 24 March 2010. The application that is before me, for leave to appeal out of time from that judgment, was filed on 29 July 2010. On 30 July 2010, Ms Narain’s application to the High Court for special leave to appeal was stood out of the list at the request of counsel appearing for her, on the basis that it should not proceed unless and until Ms Narain could succeed in having the sequestration order against her set aside.

The federal magistrate’s reasons for judgment

21    At [28]-[29] of his reasons for judgment, the federal magistrate referred to the need to be satisfied of the matters stated in the creditor’s petition, of the service of that petition, and of the fact that the debt on which Euroasia relied was still owing and found there was no serious dispute. At [30], his Honour pointed out that Ms Narain had not sought at any stage to file material to the effect that she was able to pay the debts alleged against her. His Honour was therefore not able to be satisfied that she was able to pay her debts. At [31]-[36], his Honour said:

The question then becomes whether for other sufficient cause, a Sequestration Order should not be made (section 52(2)(b)).

Here, Mrs Narain points fairly and squarely to her application for special leave. It is not an assertion without force. Master Daly thought that, notwithstanding the difficulties that Mrs Narain might face, her case was arguable in the light of the consideration of Garcia.

The various countervailing points to be made to that submission are, in my view, as follows:

a.    the view expressed by Master Daly was not accepted by Robson J;

b.    it was not accepted by Hollingworth J;

c.    it was not thought to be clearly wrong by Nettle JA and the other two members of the Court of Appeal in Victoria;

d.    it was thought to be correct by the Court of Appeal of New South Wales;

e.    even if the legal position for which Mrs Narain contends in her special leave application were to be correct, the Court of Appeal in Victoria, led by Nettle JA, found squarely against her.

    Nettle JA, in the reasons I have earlier described, found that she was not a volunteer to the Deed of Settlement and obtained benefit thereby;

f.    the administration has been underway since December 2009 (although this is a relatively minor point);

g.    the amounts allegedly owing are conceded to be owing;

h.    the application for special leave will clearly be strongly resisted, and while its chances of success cannot be said to be negligible, they are clearly uncertain, at least so far as this Court is concerned;

On the other hand, however, it should be noted that the making of a Sequestration Order is highly likely to deprive Mrs Narain of the capacity to pursue her application for special leave and, if granted, her appeal to the High Court.

Balancing all of the above considerations together, it seems to me that the proper exercise of my discretion is to make a Sequestration Order. In my view, it is not appropriate to ignore the fact that the arguments sought to be placed before the High Court have been rejected by two puisne Judges of the Supreme Court of Victoria and three Justices of Appeal in the Supreme Court of New South Wales. Although the argument as to the application of Yerkey found favour with Nettle JA, he was not prepared to say that the decision of the Court of Appeal in New South Wales was plainly wrong, and the other two Justices of the Court of Appeal of Victoria did no more than to adopt his Honour’s reasons. They also adopted his Honour’s reasoning that Mrs Narain was not a volunteer.

In all the circumstances, and based upon the remarks set out above, I think that the proper exercise of my discretion is to make a Sequestration Order. In the light of the observations of the Full Court of the Federal Court in Totev v Sfar, I will affirm the decision of Registrar Luxton to make a Sequestration Order and dismiss the application for review.

The evidence in support of the application

22    Accompanying the application for leave to appeal when it was filed was an affidavit of Paul Somers, sworn on 29 July 2010. In part, this affidavit dealt with the history of litigation leading up to the making of the sequestration order and its affirmation by the federal magistrate. There are several exhibits to that affidavit, including an affidavit previously sworn by Matthew Kandelaars on 23 December 2009. The exhibits to the affidavit of Mr Kandelaars were not included. To the extent to which Mr Somers wished them to be relied on, they were produced as exhibits to his own affidavit.

23    Because Euroasia elected not to participate in the hearing of the application for leave to appeal, it was necessary for Ms Narain to prove service. She did so by means of an affidavit of Samuel E Dipnall, sworn on 2 August 2010. The exhibits to that affidavit were simply copies of the documents that had been served.

24    Ms Narain also relied on an affidavit of Michael Douglas Main, the principal solicitor acting for her in relation to the application. That affidavit has three exhibits.

25    When the application for leave to appeal was first listed for hearing on 13 September 2010, it became apparent that the material in support of it was inadequate. At the request of counsel for Ms Narain, I adjourned the hearing of the application to 21 October 2010, and gave Ms Narain leave to file and serve an amended application and further affidavit material. As a result, two further affidavits were filed. One was an affidavit of Ms Narain herself, sworn on 1 October 2010. It is a short affidavit, with no exhibits. In para 3 of that affidavit, Ms Narain deposes that she has read an affidavit of Mr Main, sworn on 1 October 2010, and that his affidavit is accurate so far as it relates to certain matters. The other affidavit filed is the affidavit of Michael Douglas Main, sworn on 1 October 2010. That affidavit exhibits print-outs of emails passing between Mr Main and Ms Narain’s husband, and between Mr Main and Ms Narain. In respect of the exhibits to that affidavit, Mr Main says at para 14:

The confidential exhibits to this affidavit are provided in order to respond to issues expressed by His [sic] Honour Justice Gray on 13 September 2010. The documents are provided to this Honourable Court on a confidential basis, as they constitute communications between solicitor and client and are the subject of legal professional privilege which is expressly reserved.

26    The claim to confidentiality of these exhibits, to the extent to which it is based on client legal privilege, cannot be sustained. An examination of the provisions of s 122 of the Evidence Act, quoted in [12] above, makes it clear that there is no such thing as a partial retention of the privilege. Once the contents of a privileged document are disclosed to another person, either knowingly and voluntarily on the part of the client, or with the express or implied consent of the client, the privilege is lost in such circumstances. By s 122(3), the client is taken to have acted in a way that is inconsistent with the retention of the privilege, for the purposes of s 122(2). Ms Narain’s express adoption of Mr Main’s affidavit of 1 October 2010 covers the communications that are the subject of the exhibits to that affidavit. She has consented to the evidence of the contents of those exhibits being adduced, within the meaning of s 122(1) of the Evidence Act. Even if it could be said that she has not consented in terms of s 122(1), because she has been misled into thinking that she can withhold her consent to wider publication, she has certainly acted in a way that is inconsistent with objecting to such wider disclosure, within the meaning of s 122(2) and (3).

27    Suppression of the contents of the exhibits to Mr Main’s affidavit of 1 October 2010 would only be possible if an order were to be made pursuant to s 50(1) of the Federal Court of Australia Act 1976 (Cth). Such an order can only be made if it: “appears to the Court to be necessary in order to prevent prejudice to the administration of justice or the security of the Commonwealth.” No occasion arises in the present case for such an order. The principle of open justice is a powerful one. The fact that embarrassing details about the personal life of a litigant may be revealed by the publication of evidence provides no occasion for the suppression of such publication. Initially, counsel for Ms Narain attempted to justify an order for confidentiality of the exhibits on the basis that they contain such details. On reflection, however, he recognised that no such claim was possible. Evidence is not to be suppressed because it might lead to an inquiry as to whether Ms Narain’s bankrupt estate contains more assets than she might wish to have her trustee in bankruptcy deal with.

28    If the evidence the subject of the affidavits had been given in open Court, it would have been available for any member of the public to hear. Because it is given by means of affidavits, which are not read aloud in open Court, to suit the convenience and the efficient operation of the Court, it is necessary that members of the public be at liberty to read the evidence that is in the affidavits and the exhibits to them, by inspecting the Court file. Such inspection is not normally available, with respect to an affidavit, by reason of O 46 r 6(3)(a) of the Federal Court Rules. Order 46 r 6(3) makes provision for the Court to grant leave to inspect an affidavit. When an affidavit is relied upon to provide evidence to the Court, such leave ought normally to be granted in terms that would permit any member of the public wishing to know what the evidence in a case is to inspect the affidavit concerned. Such an order granting leave should be made in this case, with respect to all of the affidavits on which Ms Narain relied.

29    Counsel for Ms Narain also relied on an affidavit of Matthew James Kandelaars. According to the terms of the first paragraph of this affidavit, it was sworn 29 July 2010. This statement is an error, no doubt arising from the use of a computer to prepare the affidavit, without proper care being taken to alter the details that required change. The affidavit was in fact sworn on 21 October 2010. Its function is to exhibit a proposed amended notice of appeal, on which Ms Narain wishes to rely if she is granted leave to appeal out of time.

The explanation for the delay

30    In his affidavit, which was sworn on 29 July 2010, Mr Somers said at para 11:

I am informed by Mr Main (who is currently overseas), and believe, that the Applicant has not been able to bring her application earlier than the day of the filing of this Application because of financial constraints upon her.

In his affidavit of 10 September 2010, Mr Main said at para 3:

Mr Somers deposed that the Applicant has not been able to bring her application earlier than the day of the filing of this Application because of financial constraints upon her.

Mr Main did not say that the statement of Mr Somers, said to have been made on information from Mr Main, was true. The material before the Court contains limited information about the state of the financial affairs of Ms Narain. In an email to Mr Main on 3 June 2010, exhibited to his affidavit of 1 October 2010, she said that she has furniture worth up to $1,500, a car she bought last year for $2,000 and clothing. She also said that she was then earning $400 (presumably per week), as well as receiving family benefits, which were paid into a joint bank account with Mr Narain. There was no evidence as to expenses incurred by Ms Narain.

31    It was not the case that Ms Narain was determined to appeal from the judgment of the federal magistrate, and was seeking assistance to accomplish this, but was failing to obtain assistance because of her lack of ability to pay. So far as her own affidavit shows, she had not given any thought to the possibility of an appeal. In December 2009, she and Mr Narain separated. Thereafter, according to Ms Narain’s affidavit, her life was in turmoil as a result of the bankruptcy and the marriage breakdown and she could not cope emotionally. She was embarrassed by the position she was in and tried to deal with a number of issues on her own. Although she received messages from Mr Narain that Mr Main needed to speak to her, because of her emotional state she could not face dealing with the legal issues into which she says she was dragged as a consequence of Mr Narain’s business problems. She also said that her mobile phone was not operating, because her financial position was such that she was unable to purchase any credit for it. She was also without access to a computer and the internet.

32    In his affidavit of 1 October 2010, Mr Main referred to a number of emails that he had sent to Ms Narain from December 2009 onwards, relating to the sequestration order made by the registrar in December 2009 and subsequent matters. In his affidavit of 10 September 2010, Mr Main said that, after 24 March 2010, he made a number of attempts to contact Ms Narain for instructions in respect of her bankruptcy, her legal options and the possibility of an appeal from the judgment of the federal magistrate. His “primary means” of contacting Ms Narain was then through her husband.

33    In late April 2010, Mr Narain informed Mr Main that he and Ms Narain had separated. Ms Narain left the matrimonial home after Christmas 2009, taking two of the three children of the family with her. The following passage appears in Mr Main’s affidavit of 1 October 2010 at para 5:

Once I was told of the marriage breakdown, I specifically asked Ravi Narain if he was able to speak to his wife and let her know that I needed to speak to her urgently regarding her rights of appeal. I also asked him to provide me with her new contact details so I could contact her directly. [Emphasis added]

34    On 21 May 2010, Mr Narain forwarded to Mr Main an email from a Mr Maverick Gleed of Insolvency Trustee Service Australia (“ITSA”). The email concerned attempts by Mr Gleed to contact Ms Narain about her obligation to file a statement of affairs. Mr Narain’s email referred to a draft statement of affairs, which he said he and Ms Narain had left with Mr Main a couple of months earlier. He asked Mr Main to forward that document to him. On the same day, Mr Main replied:

I will send you a copy. I understood you were passing on my message to Edwina to call me so I could complete the Statement of Affairs for her. You may have done so, but I have not heard from her. I also have issues regarding the High Court Appeal I need to discuss with her.

Since you are using her email address I assume she isn’t, so could you please pass on her contact details ?

In Mr Narain’s reply, he apologised and said that he had asked Ms Narain to call Mr Main, and told her that it was urgent. He supplied a mobile telephone number and a landline telephone number. Mr Main sent a further email to Mr Narain on the same day, saying that he had tried both numbers but could not get an answer. He asked for an email address or a physical address. In reply, Mr Narain gave him a street name in Ocean Grove, but said he was not sure of the number.

35    In this exchange of emails on 21 May 2010, there is no mention specifically of any need for Ms Narain to speak to Mr Main about the possibility of an appeal from the judgment of the federal magistrate. The focus is on her statement of affairs and on her attempt to appeal to the High Court.

36    On 30 May 2010, Ms Narain finally sent an email to Mr Main, saying that she had received a message that he was trying to contact her. She said that her telephone was not working, but she could now be reached by email and would check her emails daily.

37    Mr Main replied to this email on the following day, 31 May 2010. His email sought instructions about Ms Narain’s statement of affairs. Ms Narain replied on 3 June 2010, giving some details about her income and assets, and raising some issues about what was hers from the marriage. Mr Main replied to this email on 4 June 2010. His email included the following paragraph:

Obviously I cannot ask Ravi to pass on instructions from you, given the breakdown of your relationship, and I do need to talk to you in person about continuing with your High Court Appeal and other consequential matters. I am offering to help on a pro bono basis, i.e. at no cost to you for any of my time, but naturally it is up to you whether you wish to take up that offer or not. I won’t be offended if you would prefer to consult someone else, and I’d be happy to pass on anything I know that may assist you.

38    Once again, Mr Main did not specifically give advice, or seek instructions, about the prospect of any appeal from the judgment of the Federal Magistrates Court.

39    On 11 June 2010, Mr Main and Ms Narain met for approximately one hour. Both of their affidavits are silent about what occurred in this meeting in relation to the possibility of an appeal from the judgment of the federal magistrate. Mr Main’s affidavit of 1 October 2010 refers only to details Ms Narain provided to him about her personal circumstances, and the reasons why she had not contacted him previously.

40    If it be assumed that, in their meeting of 11 June 2010, Mr Main received instructions from Ms Narain to institute an appeal from the judgment of the federal magistrate, he did not then carry out those instructions. Each of his affidavits states that, throughout June 2010, he attempted to find suitable counsel prepared to appear on Ms Narain’s behalf on a pro bono basis. In his affidavit of 1 October 2010, Mr Main detailed some discussions he had with a particular barristers’ clerk, who indicated that it would be difficult to find someone prepared to act pro bono while counsels’ fees relating to earlier proceedings remained outstanding.

41    There is one further exchange of emails in evidence. It began on 30 June 2010, when Mr Main made an urgent request to Ms Narain for some documents. The reason for the urgency was that Mr Main was to be on leave after the following day. The exchange, which continued on 1 July 2010, was entirely about the preparation and delivery of the statement of affairs, and about Mr Main’s impending leave.

42    On 2 July 2010, Mr Main left Australia. On the same day, the High Court sent a letter to Ms Narain’s solicitors, advising them that her application for special leave to appeal to the High Court was listed for hearing on 30 July 2010. This letter arrived on or about the following Monday, 5 July 2010. Mr Main learned of it in a telephone conversation with Mr Kandelaars on or shortly after that day.

43    Whilst in the United Kingdom, Mr Main spoke with counsel who had appeared for Ms Narain in the Victorian Court of Appeal, and who agreed to act for her on a pro bono basis in relation to the application for special leave to appeal to the High Court.

44    The time within which a notice of appeal from the judgment of the federal magistrate was required to be filed and served, in accordance with O 52 r 15(1)(a)(i) of the Federal Court Rules, expired on 14 April 2010. Three months and two weeks elapsed before the application for leave to appeal, pursuant to O 52 r 15(2) of the Federal Court Rules, was filed. In part, but not altogether, the delay for that period is explained by Ms Narain’s state of mind following her separation from Mr Narain and her lack of financial resources. After 4 June 2010, both of these factors disappeared. By that time, Ms Narain had the benefit of Mr Main’s offer to act for her pro bono. In the email exchanges between herself and Mr Main, she demonstrated that she was perfectly capable of facing, and taking action to deal with, issues related to her bankruptcy. Engaging a solicitor to act for her relieved her of much of the responsibility of worrying about how she would attempt to escape from her predicament. The fact that Mr Main had offered to act pro bono also meant that financial constraints no longer prevented Ms Narain from filing an application for leave to appeal out of time, if she were motivated to do so. The assistance of counsel was unnecessary for the filing of such an application. As a solicitor, Mr Main would have been aware that the time for filing and serving a notice of appeal had already expired some six weeks before he was able to communicate with Ms Narain. He would have been aware of the importance of acting promptly to file the application, so that Ms Narain did not suffer prejudice in relation to the application from further lapse of time.

45    In his affidavits, Mr Main said that he was attempting to contact Ms Narain after 24 March 2010, through her husband, about the possibility of an appeal from the judgment of the federal magistrate. He also says that he “specifically” asked Mr Narain to let Ms Narain know that he needed to speak to her urgently “regarding her rights of appeal.” In the light of these statements, it is odd that, when Mr Main did establish email contact with Ms Narain, he took no step to raise with her at the earliest opportunity any question of any appeal, whether the application for special leave to appeal to the High Court or a possible appeal against the judgment of the federal magistrate. As I have said, Mr Main’s affidavit does not reveal whether or not he discussed the possibility of an attempt to appeal out of time with Ms Narain when they met on 11 June 2010. If he sought and obtained instructions to proceed with an application, he did not act on those instructions by filing one. If not, then it is odd that he did not raise that question.

46    An application for leave to appeal out of time could, and should, have been filed and served as soon as practicable after that meeting on 11 June 2010. See Wilson v Alexander [2003] FCAFC 272 (2003) 135 FCR 273 at [24]. Nothing appears in any email communication produced in evidence concerning the possibility of making such an application. The absence of such communication, and the fact that nothing was done until after counsel’s agreement to appear in the High Court application, gives rise to the possible inference that neither Ms Narain’s mind nor Mr Main’s mind had been directed to the possibility that an application for leave to appeal out of time might be necessary, until counsel raised the question. The affidavit evidence certainly does not reveal when Ms Narain was asked if she wished to proceed with such an application.

47    On the evidence before me, it is impossible to make a finding as to when Ms Narain’s mind was first directed to the possibility of applying for leave to appeal out of time. Indeed, there is nothing to suggest that her mind was ever directed to the making of such an application. She did not swear an affidavit in relation to the application until after its hearing had been adjourned. For reasons I have given, the delay is not explained in whole by reference either to difficulties experienced by Mr Main in attempting to contact Ms Narain, or by Ms Narain’s financial position. After Mr Main’s offer to provide pro bono assistance on 4 June 2010, there is no explanation for the delay other than attempts to find pro bono counsel. As I have said, the assistance of counsel was not required in order to file and serve an application. Further, the attempts to find pro bono counsel focussed only on making inquiries of one barristers’ clerk, who was reluctant to suggest counsel who might be willing to act, on the basis that counsels’ fees for earlier proceedings remained outstanding.

48    In all the circumstances, I am forced to conclude that there was no adequate explanation for the delay in making the application for leave to appeal out of time.

Prejudice

49    Euroasia has chosen not to appear in opposition to Ms Narain’s application for leave to appeal out of time, so has not suggested that it would be prejudiced by reason of the lapse of time. It does not follow, however, that I should find that no prejudice has occurred. A sequestration order having been made against Ms Narain, it is necessary for her trustee in bankruptcy to proceed with the administration of her bankrupt estate. There is no material in support of the application suggesting that any inquiry has been made of ITSA, as to the progress that has been made in the administration of the bankrupt estate. It would have been relatively easy for Ms Narain’s solicitors to make such an inquiry, and to place the result of it before the Court. In the absence of such material, I am unable to find that there would be no prejudice arising out of an order granting Ms Narain leave to appeal at this late stage.

The prospects of success

50    The greatest obstacle to Ms Narain’s success in any appeal from the federal magistrate’s judgment is that the judgment involved an exercise of discretion. The principles on which an appellate court approaches an appeal from an exercise of discretion are set out in the following passage from the judgment of Dixon, Evatt and McTiernan JJ in House v The King (1936) 55 CLR 499 at 504-505:

The manner in which an appeal against an exercise of discretion should be determined is governed by established principles. It is not enough that the judges composing the appellate court consider that, if they had been in the position of the primary judge, they would have taken a different course. It must appear that some error has been made in exercising the discretion. If the judge acts upon a wrong principle, if he allows extraneous or irrelevant matters to guide or affect him, if he mistakes the facts, if he does not take into account some material consideration, then his determination should be reviewed and the appellate court may exercise its own discretion in substitution for his if it has the materials for doing so. It may not appear how the primary judge has reached the result embodied in his order, but, if upon the facts it is unreasonable or plainly unjust, the appellate court may infer that in some way there has been a failure properly to exercise the discretion which the law reposes in the court of first instance. In such a case, although the nature of the error may not be discoverable, the exercise of the discretion is reviewed on the ground that a substantial wrong has in fact occurred.

51    Like any discretion, the discretion to grant or refuse to make a sequestration order, or to adjourn the hearing of a creditor’s petition, must be exercised judicially. An important principle is found in the judgment of the Full Court in Ahern v Deputy Commissioner of Taxation (Qld) (1987) 76 ALR 137 at 148:

It is also well established that in general a court exercising jurisdiction in bankruptcy should not proceed to sequestrate the estate of a debtor where an appeal is pending against the judgment relied on as the foundation of the bankruptcy proceedings provided that the appeal is based on genuine and arguable grounds

This proposition was quoted by Burchett and Gummow JJ in Adamopoulos v Olympic Airways SA (1990) 95 ALR 525 at 531 and by French J (with whom Spender J expressed his general agreement) in Rigg v Baker (2006) FCAFC 179 (2006) 155 FCR 531 at [67]. The proposition from Ahern is clearly stated as a general rule and not an absolute principle.

52    The submissions of counsel for Ms Narain included the proposition that the federal magistrate was bound to give her an opportunity to pursue her application for special leave to appeal to the High Court, and any resulting appeal, so that the federal magistrate’s refusal to do so established that his Honour was in error. That proposition cannot be sustained. It cannot be the case that a court dealing with a creditor’s petition is bound to permit the debtor to invoke every possible avenue of appeal. The capacity of some debtors to generate new proceedings, in vain attempts to overturn judgments against them, is part of the experience of every judicial officer who deals with bankruptcy cases. The existence of a discretionary power carries with it the proposition that each exercise of discretion must be based on the circumstances of the particular case.

53    Counsel for Ms Narain also submitted that the injustice of denying Ms Narain the right to pursue her application for special leave to appeal to the High Court gave rise to a “substantial wrong” within the meaning of the last sentence in the passage quoted from House in [50] above. That proposition cannot be accepted. The sentence concerned relates to a case in which the reasons of the primary judge do not explain how that judge reached the result about which the appellant complains. Only in such a case, as Dixon, Evatt and McTiernan JJ said, can the result be examined, to see whether it is such that there must have been a failure properly to exercise the discretion. This is not such a case. The reasoning of the federal magistrate appears clearly in his Honour’s reasons for judgment. It is to those that it is necessary to turn, to see if there was error.

54    When the passage from his Honour’s reasons for judgment set out in [21] above is examined, it becomes very difficult to find a wrong principle upon which the discretion was exercised, or an extraneous or irrelevant matter that his Honour took into account. Nor was there any mistake of fact, or a failure to take into account any material consideration. As the proposition from Ahern requires, his Honour appears to have treated the existence of the application for special leave to appeal to the High Court as the most weighty factor. His Honour referred to it at [32] and again at [34]. His Honour then engaged in the balancing exercise that an exercise of discretion requires, setting against the weighty principle that favoured Ms Narain the countervailing considerations that he itemised at [33]. It would be extremely difficult for an appeal court to identify an error in his Honour’s reasoning of the kind referred to in House.

55    The proposed grounds of appeal, found in the amended form of the proposed notice of appeal exhibited to the affidavit of Mr Kandelaars sworn on 21 October 2010, are two in number. Both rest heavily on the fact that Ms Narain had already filed her application for special leave to appeal to the High Court, which concerned the judgment upon which the creditor’s petition was founded. As I have said, the existence of the application for special leave to appeal was not a matter that the federal magistrate failed to take into account. His Honour gave that matter great weight, as he was obliged to do.

56    An appeal court dealing with his Honour’s judgment would no doubt consider a number of circumstances. First, if the application for special leave were to proceed, Ms Narain would have to persuade the High Court not only that there was an arguable case that the Victorian Court of Appeal was wrong in following Elkofairi, and should have extended the principles in Yerkey and Garcia to the terms of settlement, but also that the particular case is an appropriate vehicle for the resolution of that controversy. This might be difficult, given that, as the federal magistrate pointed out, the Victorian Court of Appeal held that Ms Narain could not bring herself within the Yerkey and Garcia principles in any event, because she was not a volunteer. At [49] of his reasons for judgment, Nettle JA pointed out that, even if Ms Narain had no liability under the deed on which she had been sued in the original proceeding in the Supreme Court of Victoria, because of the application of the principles in Yerkey and Garcia, she still received something of value under the terms of settlement. What she received was a promise of release from her ostensible liability under the earlier deed, which was good consideration for her assumption of liability under the terms of settlement. At [50], his Honour specifically stated that she was not a volunteer. The High Court might well say that this factor makes the case an inappropriate vehicle for resolving the controversy over the correctness of Elkofairi, on the ground that Ms Narain would fail in any event because she could not bring herself within the principles in Yerkey and Garcia.

57    If this obstacle were overcome, and Ms Narain succeeded in her appeal in the High Court, the result would be that the default judgment entered on the consent to judgment given in the terms of settlement would be set aside. This is the judgment on which the creditor’s petition on which the federal magistrate made a sequestration order was based. The setting aside of that judgment would not necessarily bring about the end of litigation between the parties. Ms Narain has never had her evidence that she fell within the principles in Yerkey and Garcia tested. There would need to be a trial of those allegations. In particular, her assertion that she did not understand the nature of the transaction when she signed the terms of settlement, and that she had not received advice from the solicitor then acting for her, would have to be tested. Assuming findings were made in her favour, so that she would not be liable under the terms of settlement, Euroasia would then be in a position to revive its original proceeding. The consideration moving from Ms Narain for Euroasia’s forbearance from proceeding with its original claim, namely the assumption of liability for a lesser sum than that originally claimed, would have totally failed. Ms Narain could not rely on the terms of settlement as a shield when she was not fulfilling her obligations under them. If the original proceeding were continued, Ms Narain would again have to bring herself within the principles in Yerkey and Garcia with respect to the original deed on which she was sued as a guarantor. She would have to overcome the fact that she was more than just the wife of Mr Narain, signing whatever he asked her to sign for the purpose of his business endeavours. She herself was a shareholder and director of Golden Dragon, the company whose debt was guaranteed by the deed, as well as its secretary. Once again, she might well have difficulty establishing that, so far as the deed was concerned, she was a volunteer.

58    If a court hearing an appeal from the judgment of the federal magistrate reached the point of finding that there was error in his Honour’s exercise of the discretion to make a sequestration order, and proceeded to exercise the discretion itself, it might well find that the prospect of future litigation of that kind would amount to a significant injustice to Euroasia. The appeal court might take the view that it would exercise the discretion in the same way as the federal magistrate had done, in the light of this factor when added to the countervailing factors on which the federal magistrate relied to outweigh the existence of the application for special leave to appeal to the High Court.

59    For all of these reasons, I am of the view that Ms Narain would be extremely unlikely to succeed in an appeal from the judgment of the federal magistrate. By far the most likely result would be that the federal magistrate’s decision to make a sequestration order would be upheld.

Conclusion

60    Ms Narain has failed to explain adequately the delay in making her application for leave to appeal. She has not established that there would be no prejudice arising from a grant of leave to appeal out of time. She has not persuaded the Court that she would have serious prospects of success in an appeal, if leave were granted. For all of these reasons, she has not established the “special reasons” that she is required to establish before an order in her favour pursuant to O 52 r 15(2) of the Federal Court Rules can be made. Her application for such an order must be dismissed. Given that Euroasia chose not to participate in that application, no order for costs should be made.

Associate:

Dated:    6 December 2010