FEDERAL COURT OF AUSTRALIA

Nand v Fuji Xerox Australia Pty Limited [2014] FCA 757

THE COURT ORDERS THAT:

1.    Orders 1 and 2 made on 16 July 2014 be set aside.

2.    Proceedings under the sequestration order made on 28 April 2014 be stayed pending the determination of this appeal.

3.    Costs of the interlocutory application filed on 25 June 2015 be costs in the appeal.

4.    The respondent give written notice to the trustee in bankruptcy of the making of these orders.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

(REVISED FROM TRANSCRIPT)

1    A sequestration order was made against the estate of the applicant, Sharda Nand, on 28 April 2014 by a registrar exercising the powers of the Federal Circuit Court of Australia (the Federal Circuit Court) in that regard. The applicant’s application under s 104(2) of the Federal Circuit Court of Australia Act 1999 (Cth) (the FCCA Act) for a review of the exercise of that power was dismissed with costs by the primary judge, Judge Raphael, on 16 June 2014: Nand v Fuji Xerox Australia Pty Limited [2014] FCCA 1300 (the review judgment).

2    On 25 June 2014, a notice of appeal from the review judgment was filed in this Court. On the same day, the applicant filed an interlocutory application in which she sought, amongst other things:

…an urgent order that the said Sequestration Order made against Applicant on the 28th April, 2014 by the Federal Circuit Court of Australia in (P) SYG 397 of 2014 be permanently stayed until and unless the final determination of the Court of Appeal, Supreme Court of New South Wales, Appeal No: 2014/1053 is heard and determined according to Law.

3    A sequestration order cannot be stayed under the Bankruptcy Act 1966 (Cth) (the Bankruptcy Act): see s 37(2). However, as the appellate jurisdiction of the Court has been enlivened by the filing of the applicant’s notice of appeal, the Court has power to grant a stay in relation to proceedings under the sequestration order: see r 36.08 Federal Court Rules 2011 (Cth) (the Federal Court Rules): Evans v Heather Thiedeke Group Pty Ltd (1990) 95 ALR 424 at 425; Watts v Bendigo and Adelaide Bank Limited [2010] FCA 1013 at [10]. I propose to treat the interlocutory application as seeking that relief. The exercise of that power is not constrained by the time period set out in s 52(3) of the Bankruptcy Act.

4    The considerations relevant to the exercise of the discretion to grant a stay are well-established. The Court must consider whether an arguable ground has been raised on the appeal and whether the balance of convenience favours the granting of a stay: Freeman v National Australia Bank Limited [2002] FCA 427 at [4]; Boumelhem v Commonwealth Bank of Australia (2008) 171 FCR 462 at [23]; Reynolds v Aluma-Lite Products Pty Ltd [2010] FCA 322 at [10]; Watts at [11].

Previous proceedings

5    On 23 August 2012, the respondent obtained default judgment in the Supreme Court of New South Wales against the applicant in the amount of $265,805.48, based on a guarantee she had given to the respondent with respect to the rental of printing equipment (the Supreme Court proceeding). The Supreme Court proceeding was commenced on 9 December 2011. On 28 March 2012, a statement of claim was served on the applicant. She filed no defence to the claim. On a number of occasions during the pendency of the Supreme Court proceeding, the applicant was warned by the respondent’s solicitors that an application for default judgment would be made against her in the absence of a defence being filed. Despite indicating in correspondence that a defence would be filed, the applicant did not heed the warnings she had been given. Default judgment was obtained accordingly.

6    On 16 October 2012, the applicant was served with an examination order. Without explanation, she failed to attend her examination on 15 November 2012, as ordered. Despite the entreaties of the respondent’s solicitors that she take steps to protect her interests, including by obtaining legal representation, the applicant apparently continued to ignore the orders made against her. Consequently, an order for her arrest was sought. On the return day of the notice of motion seeking the order for her arrest, the applicant was directed to make any application to set aside the default judgment by 15 April 2013. No such application was made.

7    On 16 August 2013, the respondent served a bankruptcy notice on the applicant. Thereafter, on 26 August 2013, the applicant filed a notice of motion in the Supreme Court proceeding seeking an order setting aside the default judgment.

8    The motion to set aside the default judgment came on for hearing on 3 February 2014 before Nicholas AJ. On 4 February 2014, his Honour dismissed the motion with costs: Fuji Xerox Australia Pty Limited v Print Media & Publishing Group (Australia) Pty Limited [2014] NSWSC 112.

9    In his reasons for judgment, Nicholas AJ said:

36.    In my assessment, Mrs Nand, who appeared to be an intelligent woman, simply chose to ignore the claim, and to take no step to protect her interests. She provided no explanation for continuing to rely upon Raju [a co-defendant] when it was obvious that it was detrimental to her interests to do so. Furthermore, no rational explanation was proffered for the failure to comply with the Court's directions as to filing a defence, or for the failure to take advantage of the opportunities provided over a long period to do so. Contrary to her obligation under s 56(3) of the Act [Civil Procedure Act 2005 (NSW)], she failed altogether to participate in the Court's process and to comply with its orders and directions.

37.    In my opinion, the inevitable conclusion is that Mrs Nand deliberately chose to take her chances with Raju. Her choice exposed her to the risk, of which she had been made aware, that judgment would be entered against her for a substantial sum. The risk eventuated. In the circumstances, I do not think the interests of justice require that the Court should excuse, or relieve, her from the consequences of her failure to defend the claim.

10    His Honour’s reasons record that the applicant accepted that she had signed the guarantee. But the applicant alleged that she was not bound by the guarantee because her co-defendant, Mr Raju, had represented to her that it was an application for shares in the capital of the corporate lessee of the leased equipment.

11    His Honour found:

45.    In my opinion the evidence goes no further than to show that Mrs Nand signed a document which she did not read, and which her friend told her was a share certificate. Apparently she was unable to read because she was without her glasses. There was no evidence to suggest that at the time she was unable to make a judgment as to her own best interests, or that her mind had been overborne. There was no evidence to show that had she wanted to obtain her glasses she would not have had the time or opportunity to do so. There was no factual foundation established capable of shifting responsibility for her own conduct to either the plaintiff or to Raju.

12    His Honour noted the defences that the applicant wished to raise, but concluded that, on the whole of the evidence, he was unpersuaded that the applicant had a good or arguable defence on the merits.

13    As I have noted, on 28 April 2014 a sequestration order was made against the applicant’s estate. In the affidavit read in support of the present application, the applicant says that she only came to know of her bankruptcy when, on 5 May 2014, she sought to withdraw money from her bank. She says that it was only at that time she came to know that a sequestration order had been made. However, the court file from the Federal Circuit Court indicates that the applicant appeared on each occasion on which the creditor’s petition against her was before that court (28 March 2014, 11 April 2014 and 28 April 2014). On 28 March 2014, the applicant sought an adjournment of the hearing of the petition on the basis that she wanted to obtain legal advice. An adjournment was granted. The applicant made a similar application on 28 April 2014. On that occasion, her application for an adjournment was unsuccessful and a sequestration order was made by a registrar on the evidence then before the Federal Circuit Court.

14    The applicant’s application for a review of the making of the sequestration order was filed on 13 May 2014, and was heard and dismissed on 16 June 2014. In his reasons for dismissing the application, the primary judge recorded the applicant’s evidence of the circumstances in which she came to sign the guarantee. His Honour noted the reasons for judgment given by Nicholas AJ for dismissing the motion to set aside the default judgment in the Supreme Court proceeding, and quoted various passages therefrom. His Honour also noted that the applicant had by then filed a notice of appeal from Nicholas AJ’s judgment.

15    In his reasons, the primary judge said:

6.    Ms Nand appeared before the court today. She told me that she seeks a stay of the sequestration order, but it was explained to her that this court is unable to grant general stays of such orders longer than a period of 21 days … and that all the court could do for her was to consider whether or not it was appropriate to set aside the sequestration order in the circumstances.

7.    Having heard Ms Nand, and giving the matter its consideration, the court is not of the view that it should set aside the sequestration order. The judgment upon which the bankruptcy notice was founded still exists. One attempt to have it set aside has been unsuccessful after a substantial hearing. Nothing that Ms Nand has told the court or is contained in the notice of appeal convinces this court that there is a reasonable prospect that the appeal will be successful. Whilst the court accepts that it may have been the case that Ms Nand was misled by Mr Raju, that is not something for which the applicant could be held responsible. It is clear from Ms Nand’s own evidence before Nicholas J that she intended to have some financial interest in this company and was therefore someone who the applicant might be considered able to rely upon as a guarantor of the company’s obligations.

The appeal to this Court

16    In her notice of appeal to this Court, the applicant raises the following grounds of appeal (errors in original):

1.    That the said Learned Judge has error in Law.

2.    That the said matter originated from the Supreme Court of New South Wales Civil Case which is still pending on Appeal at the Court of Appeal, Supreme Court of New South Wales in Civil Case Number 2014/71053 and has not been heard and determined according to Law.

3.    That the Respondent has obtained a Sequestration Order made against the Estate of Sharda Nand aka Padma Nand aka Padma ALAIS SHARDA NAND dated the 28th April, 2014 and the said matter by the Respondent in the Bankruptcy Proceedings as against the Appellant is an abuse of the process of the Court.

4.    That the Appellant has been denied an opportunity to seek the services of a Legal Advisor and a Hindi Interpreter in the matters before the Court.

5.    That the Appellant is suffering from serious medical conditions and the said actions and demonstrated behaviour of the Respondent has put undue pressure on the Appellant by the grant of the said Sequestration Order.

6.    That the Appellant has been dined Justice and Fairness in Bankruptcy Proceedings as the original matter is still pending on Appeal before the Court of Appeal, Supreme Court of New South Wales.

17    The relief sought in the notice of appeal includes orders, expressed in various ways, that the sequestration order “be permanently stayed”. The relief sought also includes an order that the respondent be restrained from continuing proceedings in the Federal Circuit Court against the applicant without leave. The relief sought does not seem to be apt. Moreover, the basis for seeking this relief, as expressed in the orders themselves, appears to be misconceived. This is a matter that requires attention by the applicant.

Consideration

18    The gravamen of the applicant’s challenge appears to be that it was an abuse of process, and a denial of justice and fairness, for the respondent to seek and obtain a sequestration order against the applicant in light of the pendency of her appeal from Nicholas AJ’s judgment: see grounds 2, 3, and 6. Given Nicholas AJ’s findings, and the fact that there is no stay of the default judgment, the prospects of success of those grounds appear to be slim, as indeed do the prospects of success of the appeal from Nicholas AJ’s judgment.

19    As to the remaining grounds of appeal, the applicant has not articulated the error of law referred to in ground 1 of the notice of appeal. Further, the question of her medical condition referred to in ground 5 of the notice of appeal is extraneous to any issue arising in the bankruptcy proceeding.

20    As to ground 4, namely that the applicant had been denied an opportunity to seek the services of a legal adviser and a Hindi interpreter, there is no evidence before me that the applicant has ever sought the services of a Hindi interpreter. The applicant appeared in person in the proceeding before the Federal Circuit Court, including on the review application. There is nothing in the record of the Federal Circuit Court proceeding or the primary judge’s reasons to indicate that the applicant sought the services of a Hindi interpreter or had any language difficulties when representing herself. I should add that the applicant represented herself on the hearing of this application and spoke in English. I had little difficulty in understanding her and observed no difficulty in the applicant understanding me. She certainly professed to have no language difficulties at the time.

21    Further, as I have noted, when the creditor’s petition was first before the Federal Circuit Court for hearing, the applicant was granted an adjournment for the purpose of obtaining legal assistance. Apparently, that assistance was not forthcoming. The fact that the applicant was denied an adjournment sought on a similar basis on 28 April 2014, when the sequestration order was made, provides no viable ground for impeaching the making of that order. Moreover, there is nothing in the primary judge’s reasons to suggest that the applicant sought to adjourn the hearing of the review application because she had no legal representation at that time. But even if she had, unsuccessfully, made such an application, it does not follow that the judgment appealed from was thereby tainted by error.

22    At the hearing before me, the applicant advanced a number of submissions to support her application for a stay. First, she submitted that she had reason to doubt that the signature on the guarantee was, in fact, her signature. That submission is plainly contrary to the evidence that the applicant placed before Nicholas AJ in the application to set aside the default judgment and before the primary judge in the review application. I give that submission little weight. Secondly, she submitted that she needed a lawyer for the hearing of the appeal from Nicholas AJ’s judgment and that she was in financial difficulties and could not afford a lawyer. Thirdly, she said she had a claim against Mr Raju. Neither submission advances the present application. Further, the applicant raised no specific matter relating to the balance of convenience, other than that she should not be subjected to bankruptcy whilst the appeal from Nicholas AJ’s judgment remains on foot. In light of the grounds advanced by the applicant for a stay, I do not consider that factor alone to be a significant one to be weighed in the balance.

23    Having regard to the nature of the grounds of appeal expressed in the notice of appeal, my assessment of their prospects of success (which I consider to be slight), and the lack of any significant factor weighing in favour of granting a stay, I formed the view at the hearing on 16 July 2014 that the application for a stay should be dismissed with costs. I made orders accordingly and said that I would publish my reasons at a later date. Those reasons are the matters I have summarised above. However, in the course of setting down those reasons, I reflected on the way in which the primary judge had expressed his own reasons. This led me to hold real reservations that the primary judge had undertaken the review in the manner required by s 104(2) of the FCCA Act.

24    In this connection, the primary judge’s reasons seem to be encapsulated in the two paragraphs I have quoted at [15] above. Those reasons, on further analysis, are expressed in terms which suggest that his Honour may have approached the review not on the basis of hearing the petition afresh, as his Honour was obliged to do, but on the basis that he was reviewing the exercise of the registrar’s discretion and determining whether, in the circumstances then before his Honour, the registrar’s discretion had miscarried, such that the sequestration order should be set aside. The fact that his Honour’s reasons are silent as to his satisfaction of the matters required to be proved by the Bankruptcy Act and the Federal Circuit Court (Bankruptcy) Rules 2006 (Cth) in order for a sequestration order to be made, add materially to my concern that the primary judge may have approached his task in this way: Martin v Commonwealth Bank of Australia (2001) 217 ALR 634; Cottrell v Wilcox [2001] FCA 866. If the primary judge did approach his task in this way, his Honour did not conduct the review to which the applicant was entitled at law.

25    In light of this realisation, it seems to me that, contrary to my original view, and the basis on which I made orders on 16 July 2014, the applicant’s appeal, advanced on the basis to which I have referred immediately above, would have sufficient prospects of success to justify a stay of proceedings under the sequestration order until the appeal is determined.

26    I have raised this matter with the parties and have given them an opportunity to be heard. I was assisted by submissions from counsel for the respondent.

27    The respondent submitted that if a stay is granted there will be a delay in realisation of the applicant’s secured assets which will prejudice the position of unsecured creditors because interest will continue to accrue on secured debts that will not have been paid out. I have before me a copy of the trustee in bankruptcy’s report dated 27 June 2014. However I have no evidence as to what steps, if any, have been taken to date or are planned to be taken by the secured creditors, or indeed the trustee in bankruptcy, to realise the secured property, or the timing of any such steps.

28    The respondent also submitted that, assuming an appeal is successful, I should take into account the prospects of a sequestration order being made on a review conducted according to law. The difficulty with that submission is that if the primary judge did not approach the review as a hearing de novo, then there was no proper review according to law. The significance of such a review cannot be overstated: see for example, observations of Lander J in Pattison v Hadjimouratis (2006) 155 FCR 226 at [122]-[127]. In those circumstances, I do not think that I should express my own views as to how I think the discretion to grant a sequestration order would or should be exercised on a proper review, assuming proof of all antecedent matters necessary to be proved for the making of a sequestration order.

Disposition

29     I have come to the view that the orders made on 16 July 2014 should be set aside under r 39.04 of the Federal Court Rules and that a stay should be granted. Orders will be made accordingly.

Associate: