FEDERAL COURT OF AUSTRALIA

Stratton v Bowles (No 2) [2015] FCA 43

THE COURT ORDERS THAT:

1.    Paragraphs 3 and 4 of the orders of Judge Hartnett made on 2 October 2014 in Federal Circuit Court proceeding MLG 1528 of 2014 be set aside.

2.    The respondent's creditor’s petition filed on 28 July 2014 be remitted to her Honour for redetermination in accordance with these reasons.

3.    The costs of the hearing before her Honour on 2 October 2014 be reserved to her Honour for further determination.

4.    There be no order as to the costs of this appeal.

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

REASONS FOR JUDGMENT

1    The appellant has appealed the orders made by her Honour Judge Hartnett of the Federal Circuit Court of Australia who on 2 October 2014 made a sequestration order against the estate of the appellant on the petition of the respondent. The relevant date of the act of bankruptcy was 14 July 2014, being the date of non-compliance with a bankruptcy notice.

2    The appeal comes before me as a single judge of this Court exercising the appellate jurisdiction of this Court pursuant to s 25(1AA)(a) of the Federal Court of Australia Act 1976 (Cth).

3    For the reasons that follow, I have determined to allow the appeal.

Background to the Appeal

4    On 13 September 2013, an order for costs was made by the Honourable Justice Loughnan of the Family Court of Australia (proceeding SYC 889 of 2008) against the appellant in favour of the respondent in the sum of $14,000 (Family Court costs order).

5    I will say something later about how the Family Court costs order was obtained and how it has been sought to be challenged. For present purposes, it is to be noted that the Family Court costs order, which has remained unsatisfied, provided the substratum for a bankruptcy notice which the respondent caused to be issued and then served on the appellant on 30 April 2014 (the bankruptcy notice). On 21 May 2014, an application was made by the appellant to the Federal Circuit Court to extend the time for compliance with the bankruptcy notice and various extensions were granted. Ultimately, the time for compliance was extended until 14 July 2014 but not thereafter. At that time, the extension application was dismissed by the Federal Circuit Court. The bankruptcy notice claimed $14,110.85, being the judgment debt constituted by the unsatisfied Family Court costs order of $14,000, together with $110.85 in accrued interest. As it remained unsatisfied after 14 July 2014, non-compliance therewith constituted an available act of bankruptcy.

6    On 28 July 2014, the respondent filed a creditor’s petition based upon that available act of bankruptcy. The debt said to be due and owing by the appellant to the respondent was the debt identified in the bankruptcy notice.

7    On 15 September 2014, the appellant filed a notice setting out her grounds of opposition to the petition. They were expressed in the following terms:

1.    Ms Stratton has filed an appeal in the Family Court in Sydney: EA51 of 2013. Orders sought in this appeal include payment by Mrs Bowles to Ms Stratton of all Ms Stratton’s costs associated with legal proceedings related to Mrs Bowles publication of the book ‘Have You Seen My Child’. This will result in a requirement that Mrs Bowles pay Ms Stratton’s debt associated with the costs order of 13 September 2013 in addition to costs related to adjournment of bankruptcy proceedings and bankruptcy proceedings.

2.    The costs order of 13 September 2013 was made unjustly, it is based on wrongful dismissal (by orders made on 12 April 2013) of Ms Stratton’s orders seeking injunctions restraining publication, sale and promotion of the book ‘Have You Seen My Child’ and orders seeking that the Family Court request the AFP investigate Mrs Bowles with the view to prosecution for breach of s121 of the Family Law Act 1975 as a result of her publication of the book.

3.    Ms Stratton is seeking substantial damages for aggravated defamation against Mrs Bowles for the highly defamatory content of the book she published: ‘Have You Seen My Child’. Defamation proceedings are list [sic] in the Supreme Court in Sydney: 2013/178073. Damages will exceed any interlocutory costs orders.

8    Her Honour heard the petition on 2 October 2014. The appellant appeared for herself. The respondent was then legally represented.

9    On the hearing of the petition, the following occurred.

10    First, an issue arose concerning the form of the petition. Leave was given to amend the petition and no challenge to that leave has been made on this appeal.

11    Second, the respondent tendered evidence establishing the matters required to be proved under s 52(1) of the Bankruptcy Act 1966 (Cth) (the Act). Her Honour accepted such proofs and found that such matters had been proved accordingly. There is no appeal against such findings concerning proof of the matters required by s 52(1).

12    Third, her Honour then turned her attention to the matters required under s 52(2), which the appellant had the onus of establishing.

13    In relation to the question of whether the appellant was able to pay her debts (s 52(2)(a)), the appellant put forward no evidence supporting that position. Indeed, the appellant put forward affidavit material explaining that she was the holder of a pension card and on Centrelink benefits. She further indicated to her Honour during the course of argument that she had a substantial excess of liabilities over assets; indeed, she said that she had very little in the way of assets. Her Honour rightly held that the appellant had not discharged the onus of establishing the matters set out in s 52(2)(a). No appeal from that finding has been pursued before me. Moreover, during the course of the appeal before me, the appellant stated that her financial position had not substantially changed.

14    The principal issue before her Honour and on the appeal before me concerned s 52(2)(b). In relation to the question of whether “for other sufficient cause a sequestration order ought not to be made” (s 52(2)(b)), the appellant put forward three matters in substance:

(a)    First, that the Family Court’s judgment dismissing the appellant’s injunction application, which the Family Court costs order derived from, was itself under a leave to appeal application, which it was said also embraced the Family Court costs order.

(b)    Second, that she had a substantial damages claim for defamation against the respondent, which claim, if substantiated, well exceeded the quantum of the Family Court costs order together with accrued interest.

(c)    Third, on the basis of points (a) and (b), the hearing of the respondent’s petition should have been adjourned pending the outcome of such leave to appeal proceedings and also the outcome of the proceedings in the New South Wales Supreme Court.

The Family Court Costs Order

15    The first issue raised concerns the challenge to the Family Court costs order and the underlying judgment. Her Honour dealt with that matter at [13]-[22] of her reasons in the following terms:

13.    On 24 September 2012, the Respondent debtor filed an Application in the Family Court of Australia (file number (P)SYC889 of 2008) (‘the FCA proceeding’) seeking an injunction restraining the Applicant from the ongoing publication of an electronic book. The application was heard on 9 January 2013.

14.    On 12 April 2013, Loughnan J delivered Reasons for Judgment and made Orders dismissing the Respondent debtor’s application.

15.    On 7 May 2013, the Respondent debtor applied for leave to appeal against the Orders made by Loughnan J on 12 April 2013 (‘the FCA appeal proceeding’).

16.    On 12 August 2013, Loughnan J heard costs submissions arising from the Orders made on 12 April 2013.

17.    On 2 September 2013, the Respondent debtor filed an Amended Notice of Appeal in the FCA appeal proceeding.

18.    On 13 September 2013, Loughnan J delivered Reasons for Judgment in the FCA proceeding and ordered the Respondent debtor pay the Applicant the sum of $14,000 within six months.

19.    On or about 12 June 2014, the Applicant became aware that the Respondent debtor had filed an Application to stay the orders made in the FCA proceeding on 13 September 2013.

20.    On 19 June 2014, Loughnan J made Orders in the FCA proceeding staying the Orders made on 13 September 2013 conditional on the Respondent debtor seeking leave to appeal those Orders within 21 days of 19 June 2014 and upon the Respondent debtor diligently prosecuting the application for leave and, if leave was granted, the resultant appeal.

21.    The Amended Notice of Appeal referred to in paragraph 17 above was filed by the Respondent debtor on 2 September 2013, being prior to the making of the costs Order on 13 September 2013. The Respondent debtor argued before this Court that the general order sought by her on appeal, and at an earlier point in time than the making of the 13 September 2013 costs Order, would cover all following costs orders that might be made. She had sought:

“any costs ordered against me by the other parties in relation to proceedings in the Family Court concerning publication of the book and in relation to appeal proceedings in the Family Court concerning publication of the book and in relation to appeal proceedings concerning publication of the book are hereby dismissed.”

22.    The Orders made by Loughnan J on 19 June 2014 were as follows:-

“1. The operation of the orders made on 13 September 2013 be stayed pending the determination of an Appeal in relation to those orders.

2. Order 1 is made on the condition that within twenty one (21) days from today’s date the applicant seeks leave to appeal in relation to those orders and secondly, that the applicant diligently prosecutes that application and if granted the resultant Appeal.”

These Orders were formulated such that no appeal was considered by the Court to be on foot in relation to the costs Order made on 13 September 2013. On the hearing of the stay application by Loughnan J on 19 June 2014, the Respondent debtor deposed that she was put on notice that she would need to amend her then current Notice of Appeal EA 51 of 2013 to include an appeal against the 13 September 2013 costs Order. The Respondent debtor claims she amended her Notice of Appeal EA 51 of 2013 to have any costs incurred in the proceedings related to the book paid by the other parties. However, the Eastern Appeals Registry would not accept the Amended Notice of Appeal and advised that the Respondent debtor was required to prepare a separate notice of appeal, summary of argument, appeal book index and appeal books to appeal against the 13 September 2013 costs Order (Affidavit of Ms Melinda Stratton sworn 9 September 2014 at [66]). The Respondent debtor then failed to satisfy the condition as set out in the Orders of Loughan J on 19 June 2014, as conceded by her. Those Orders are clear – if an appeal process was not commenced within the time stipulated, then the judgment debt became enforceable. Further, there is no basis to “go behind” the Judgment which is in evidence before the Court. There is no evidence to support a finding that the judgment is affected by fraud, collusion or a miscarriage of justice. There is thus in this argument not other sufficient cause (Olivieri v Stafford (1989) 24 FCR 413).

16    Now there was some confusion as to what precisely was on foot in terms of the challenge to the various Family Court orders, in terms of leave to appeal applications and any appeal, either as to the Family Court costs order or the underlying decision to dismiss the injunction application. Moreover, the vast majority of her Honour’s analysis related to when the Family Court costs order became enforceable; all of [13]-[22] is devoted to that issue, save and except the last three sentences of [22].

17    Further, as to the second and third last sentences of [22], there is no articulation of any underlying reasoning. Moreover, her Honour seems to have posed the test in terms of it being necessary to show evidence:

…to support a finding that the judgment is affected by fraud, collusion or a miscarriage of justice.

18    It must be said that her Honour’s considerable emphasis on the distracting question of when the Family Court costs order became enforceable and little emphasis on the more important question of the strength of any challenge to that order (even assuming that it had become enforceable) embraced in the challenge to the principal decision to dismiss the injunction application and the prospects of success on obtaining leave to appeal were a reflection of how the respondent’s legal representative put his case and the appellant’s self-represented status; the appellant also only appeared by telephone. Moreover, the respondent’s legal representative did not place before her Honour the relevant authorities that I will address shortly or, indeed, any authority. Further, reference was only made by her Honour in her written reasons to Olivieri v Stafford (1989) 24 FCR 413, a case her Honour identified, and which was a case addressing the setting aside of a bankruptcy notice (cf the present context) albeit that it discussed the circumstances where it was appropriate for a court to go behind a judgment.

19    Her Honour seems to have also taken the view that because nothing had been filed in accordance with Loughnan J’s order of 19 June 2014 that there was nothing on foot challenging the Family Court costs order. Yet the application for leave to appeal the principal order (and its amendment on 2 September 2013, although in form the amended document is headed “Notice of Appeal”) certainly purported to embrace it, whether this met the Family Court’s procedural requirements or not (see points 7 and 8 on p 7 thereof). Moreover, as Loughnan J said in his reasons on 13 September 2013 at [34]:

I note that, in part, the mother's submissions addressed the merits of her appeal against the orders of 12 April 2013. As I sought to explain to her during the costs hearing, my consideration of the costs applications arising out of the interlocutory proceedings determined by me, necessarily proceeds on the basis that the substantive orders were correct. In the event that the appeal succeeds then the impact of that decision on a costs determination made at first instance, would be a matter for the Full Court.

20    True it is that a document was not filed in accordance with Loughnan J’s orders of 19 June 2014, but it seems readily apparent that the appellant was seeking to challenge the Family Court costs order, derivative on her challenge to the main decision to dismiss the injunction application. The appellant had sought or was proposing to seek leave to appeal against the Family Court costs order and the prospects of such challenge rose or fell with the prospects of the challenge against the principal orders, as indeed Loughnan J indicated. Yet none of this appears in substance to have been fully analysed, including the bona fides and merits of the challenge. The appellant had put in evidence before her Honour her summary of argument relating to the challenge (exhibit MS-21 to the appellant’s affidavit of 9 September 2014) and set out in [46]-[50] of her affidavit some of the details of the grounds of challenge.

The New South Wales Defamation Proceedings

21    The second issue raised concerns the NSW defamation proceedings. Her Honour dealt with that matter at [23]-[24] of her reasons in the following terms:

23.    The other matter put before the Court by the Respondent debtor as a basis on which the Creditor’s Petition should be dismissed was that the Respondent debtor has a “cross demand”, being defamation proceedings filed by her against the Applicant and other parties in the Supreme Court of New South Wales. The Respondent debtor is seeking a payment of damages. The Court notes such claim can still be prosecuted by the Respondent debtor despite being an undischarged bankrupt pursuant to s.116(2)(g) of the Act. However, the Respondent debtor put before the Court that this proceeding was a “set off” that would enable her to pay out the debt owed to the Applicant and result in a payment from the Applicant to her.

24.    The Court observes the Supreme Court of New South Wales proceeding was filed by the Respondent debtor on 11 June 2012. Little happened in the ensuing two years to advance the matter, save as against the third, fourth, fifth and sixth defendants, the Statement of Claim was struck out. Ms Stratton appeared in Court for the first time on 7 April 2014, having not appeared before. On 7 April 2014, the presiding Judge noted that there had not been a diligent prosecution of the matter by the Respondent debtor. The statement of claim needed to be amended. The Respondent debtor claims that has been done, but whether the proceedings shall remain on foot is uncertain. Currently, the Respondent debtor has not been granted permission to file her amended statement of claim. That remains outstanding to be determined judicially. In fact, the Respondent debtor claims to have two possible statements of claim. In these circumstances the Court cannot be satisfied, and on the evidence and lack thereof as put before the Court by the Respondent debtor, that the defamation proceeding will actually proceed; that it has a reasonable prospect of success; and that it will result in a payment of monies from the Applicant to the Respondent debtor. The Court is not satisfied by the debtor that for other sufficient cause a sequestration order ought not be made.

22    First, her Honour proceeded through an incorrect factual lens. Her Honour analysed the matter on the incorrect assumption that the NSW proceedings had been filed on 11 June 2012, and that, “[l]ittle happened in the ensuing two years to advance the matter.” In fact, the proceedings had been filed on 11 June 2013. The mistake was caused by an incorrect date in one of the appellant’s affidavits. Nevertheless, the typographical error should have been readily apparent on a review of the material and particularly considering the time the underlying publication had been made. Second, true it was that there had been pleading issues arising, a not unusual circumstance when dealing with defamation cases and their nuanced formalism. But from my review of the material dealing with the NSW proceedings it is not apparent that the claim lacked bona fides or was untenable, albeit that its formulation was under challenge. And the proceeding is still on foot.

Generally

23    Her Honour proceeded to deal with the petition, and did not adjourn it over. She held that the appellant had not discharged the onus of establishing the matters set out in s 52(2)(b). In her reasons, her Honour did not expressly deal with the adjournment question in terms.

Appeal Grounds

24    By an amended notice of appeal dated 18 November 2014, the appellant has raised the following appeal grounds:

1.    Her Honour failed to adequately consider the evidence before the Court and my submissions regarding my counterclaim with appeal EA 51 of 2013 filed in the Full Court of the Family Court in Sydney on 7 May 2013 and my cross demand in defamation proceedings filed in the Supreme Court in Sydney on 11 June 2013, the merits and strength of those claims and the fact that they amount to funds equal to or exceeding the costs ordered against me on 13 September 2013 (s40 (1)(g), s116 (2) (g) and s60(4) of the Bankruptcy Act).

2.    In the alternative to Ground 1, given the evidence I had placed before the Court as stated in Ground 1, her Honour failed to extend time for compliance with the requirements of the bankruptcy order in order to better consider my counter claim and cross demand and to adequately and justly determine that her Honour is satisfied that I do have these claims, they are bona fide and with strong merit and therefore a sequestration order should not be made. (s41(7))

3.    Her Honour failed to justly consider extending time for compliance with the bankruptcy orders when I provided evidence that I had initiated proceedings to set aside the requirements of the bankruptcy order before the time for compliance with the bankruptcy order had expired.

4.    Her Honour in considering a finding for other sufficient cause against making a sequestration order erred at [13] of her 17 October 2014 Reasons for Judgment in failing to mention that I had not only sought an injunction, but that I had sought an injunction pursuant to s68B(1)(a) of the Family Law Act 1975 in relation to the welfare of a child and that I had sought investigations into the prima facie breach of s121, a serious indictable offence. In erring in this way her Honour failed to accurately reflect the seriousness and extent of the miscarriage of justice against perpetrated against me by Mrs Bowles and therefore the strength of my appeal and likelihood that any costs arising against me will be dismissed (s52(2)(b)).

5.    Her Honour, in considering a finding in my favour for other sufficient cause against making a sequestration order erred in stating that no appeal was considered to be on foot against the 13 September 2013 costs orders (17 October 2014 Reasons for Judgment at [22]).

6.    Her Honour erred in stating there is no evidence to support a finding that the judgment is affected by a miscarriage of justice and therefore there is no basis to “go behind” the Judgment (17 October 2014 Reasons for Judgment). The judgment from which the debt arose is the first instance trial heard on 9 January 2013 with judgment delivered on 12 April 2013.

7.    Her Honour unjustly failed to consider the strength and merit of my defamation proceedings as other sufficient cause based on my incorrect use of a legal term ‘set off’ rather than ‘cross demand’ rather than on the facts and merit concerning my defamation proceedings which were before her Honour.

8.    Her Honour erred in finding that little had happened for two years to advance the defamation proceedings (17 October 2014 Reasons for Judgment at [24]). Her Honour based this finding on an unjust and inadequate consideration of the reasons for adjournments and findings of McCallum J on that issue and her Honour based the finding on a typing error in my Affidavit sworn 9 September 2014 in which I stated that I filed the statement of claim on 11 June 2012. This was incorrect, I filed the statement of claim on 11 June 2013 which was in evidence before her Honour.

9.    Her Honour erred in not extending the time for requirement to comply with the bankruptcy notice when I had applied in time to have the bankruptcy notice set aside on the basis that I had a cross demand (which I referred to as a set off), I provided evidence of the merits of the cross demand, that delays were justified and that the latest delay in proceedings was not my fault and when her Honour reasoned that she had not been able to determine whether the cross demand (defamation proceedings) was to succeed or not (s41 (7)).

25    I confirmed with the appellant that her main complaints were in substance the following:

(a)    First, that her Honour had failed to address adequately the appellant’s leave to appeal challenge to the Family Court’s dismissal of her injunction application, also in substance embracing leave to appeal against the Family Court costs order. It was said that this constituted a “sufficient cause” for the purposes of s 52(2)(b). Alternatively, the appellant contended that her Honour was in error in not adjourning over the petition pending the outcome of such challenge; I clarified with the appellant that she sought to raise such a ground, although the matter was not expressed with clarity, and some of the language used was more directed to the extension of time for compliance with the bankruptcy notice.

(b)    Second, it was said by the appellant that her Honour failed to adequately address the bona fides and merits of the appellant’s defamation proceedings. It was said that this constituted a “sufficient cause” for the purposes of s 52(2)(b).

(c)    Third, ground 9 of the amended notice of appeal referred to a failure to extend the time for compliance with the bankruptcy notice. But that matter was not before her Honour as that application had ultimately been dismissed at an earlier point in time in separate proceedings. That particular ground can be put to one side for present purposes.

26    In my view there is substance to both dimensions of the appellant’s first complaint as set out in [25(a)]. As to the second complaint, although there are factual errors involved in her Honour’s decision, I would not set aside her Honour’s decision on that ground alone. The third complaint can be put to one side.

Relevant Legal Principles – s 52(2)(b)

27    A petitioning creditor has a “prima facie right” to a sequestration order once proof of the matters required by s 52(1) has been satisfied (Deputy Commissioner of Taxation v Cumins (2008) 101 ALD 78 (Cumins) at [14] per Gilmour J; Cain v Whyte (1933) 48 CLR 639 (Cain v Whyte) at 646 and 648, the Court agreeing with Henchman J; Russell v Polites Investments Pty Ltd [2012] FCA 11 (Russell v Polites) at [23]-[24] per Flick J; Rozenbes v Kronhill (1956) 95 CLR 407 at 414 per Dixon CJ and Webb and Fullagar JJ). Nevertheless, there is a discretion to refuse such an order for inter alia “other sufficient cause” (s 52(2)(b)).

28    In relation to the concept of “other sufficient cause” a number of points should be made.

29    First, the circumstances which may constitute “other sufficient cause” are extremely variable, and it is inappropriate to catalogue or circumscribe them (Clyne v Deputy Commissioner of Taxation (1985) 5 FCR 1 at 5 per Fisher, Morling and Wilcox JJ; Cain v Whyte at 645).

30    Second, even if “other sufficient cause” has been shown, that merely enlivens the Court’s discretion to refuse to make a sequestration order. The power in s 52(2) is permissive, not mandatory. Even if a debtor can bring himself or herself within s 52(2)(b), that does not entitle him or her to have a sequestration order refused (Russell v Polites at [24] per Flick J).

(a)    Appeal against judgment

31    Relevantly to the present case, it is appropriate to consider the significance of an appeal or leave to appeal application having been lodged against a judgment which underpins the debt the subject of the bankruptcy notice and the petition.

32    Generally, a court has a discretion to go behind a judgment. This may be exercised where:

(a)    the judgment was obtained by default or compromise;

(b)    the judgment was procured by or tainted with fraud or collusion; or

(c)    the judgment was obtained following an adjudication on the merits where both parties appeared, but where there are substantial reasons for questioning whether there is in substance a debt.

33    In each case a court may go behind the judgment to ascertain whether the judgment is founded on a real debt (Corney v Brien (1951) 84 CLR 343 at 347 per Dixon, Williams, Webb and Kitto JJ; Ahern v Deputy Commissioner of Taxation (Qld) (1987) 76 ALR 137 (Ahern) at 147-8 per Davies, Lockhart and Neaves JJ). This is a s 52(1)(c) question and see generally Ali v Retail Decisions Pty Ltd [2012] FCA 1130 at [17]-[20] per Bromberg J, although some authorities have also brought this within s 52(2)(b).

34    Further, a court should not proceed to sequestrate the estate of a debtor where an appeal is pending against the judgment relied on as the foundation for the bankruptcy proceedings, provided that the appeal is based on genuine and arguable grounds (Ahern at 148 per Davies, Lockhart and Neaves JJ; Rigg v Baker (2006) 155 FCR 531 (Rigg v Baker) at [67] per French J; Adamopoulos v Olympic Airways SA (1990) 95 ALR 525 at 532 per Burchett and Gummow JJ; Council of the City of Sydney v Obeid [2013] FCA 149 at [37]-[39] per Robertson J). This is a s 52(2)(b) question. At the least, the existence of an appeal or leave to appeal application based upon genuine and arguable grounds may provide a basis for adjourning the hearing of the creditor’s petition, even if it does not provide a basis for ultimately refusing a sequestration order.

35    But the mere fact that an appeal has been lodged does not without more give rise to a duty to postpone the hearing of the petition (Cumins at [17] per Gilmour J).

36    The judgment debtor must point to grounds having “a real chance of success on appeal” (Re Lewin; Ex parte Milner (1986) 11 FCR 312 at 318 per Pincus J). Mere assertion is not sufficient. The onus is on the judgment debtor to establish the substantial nature of the grounds of challenge (Re Verma; Ex parte Deputy Commissioner of Taxation (1984) 4 FCR 181 at 187-8 per Beaumont J; Cumins at [18] per Gilmour J).

37    Of course, a court is not bound to postpone the hearing of a petition or to refuse to make a sequestration order to enable the judgment debtor to invoke all possible avenues of appeal. One ought not underestimate the capacity of judgment debtors to innovatively invoke new grounds of challenge and new proceedings in an attempt to overturn judgments against them. Nevertheless, the court in a particular case should, where an appeal or an application for leave to appeal has been lodged against a judgment and s 52(2)(b) has been invoked by the judgment debtor, properly inquire into the grounds of challenge and its substance in order to ascertain, first, whether the condition in s 52(2)(b) has been satisfied and, second, whether the discretion to adjourn the petition or the discretion to refuse to make the sequestration order has been enlivened and should be invoked. I am not satisfied after reading Judge Hartnett’s reasons that her Honour undertook the task required by the authorities in the present case. In fairness to her Honour, she had little assistance from the parties in that respect.

(b)    The existence of a cross-claim

38    The existence of a cross-claim (in the present case, the appellant’s defamation proceedings against the respondent in the NSW Supreme Court) may be a “sufficient cause” if the claim, if successful, well exceeds the judgment debt.

39    An important distinction is to be made between a cross-claim which is likely to succeed and a cross-claim which is a bona fide and reasonably arguable claim, but where it is not established by the judgment debtor that it is likely to succeed. In the former case, where it is established that the claim is likely to succeed, such a claim may warrant the refusal of a sequestration order (Rigg v Baker at [66] per French J; Singh v Deputy Commissioner of Taxation [2011] FCA 889 (Singh) at [14] per Collier J). In the latter case, only a basis for adjourning the creditor’s petition may be established, but the refusal of a sequestration order may not be justified (Rigg v Baker at [66] per French J).

40    There is a theoretical question. If you have the latter case, do you establish a “sufficient cause” at all? Some authorities suggest that you do not and that only cases in the former category fit within s 52(2)(b) (St George Bank Ltd v Helfenbaum [1999] FCA 1337 at [13] per Sundberg J; ICM Agriculture Pty Ltd v Young (2009) 260 ALR 515; [2009] FCA 1169 at [85] per Lindgren J; Hilellis v Mobil Oil Australia Ltd [2000] FCA 1139 at [8] per Hely J; Singh at [14] per Collier J; Totev v Sfar (2008) 167 FCR 193 at [85]-[87] per Cowdroy J). In my view, these authorities support what was said in Rigg v Baker that cases in the former category support a refusal of a sequestration order, whereas cases in the latter category support only an adjournment of the petition. In such a case, a “sufficient cause” has not been shown. The discretion to adjourn does not then arise under s 52(2), but rather arises more generally as to when the petition should be decided. In any event, there is little doubt that one way or the other the discretion to adjourn arises in the latter case (Re Schmidt; Ex Parte Anglewood Pty Ltd (1968) 13 FLR 111 at 116 per Gibbs J).

41    The present case falls in the latter category at most.

42    Finally, it should be said that a judgment debtor does not establish a bona fide and reasonably arguable claim by merely producing a statement of claim in a separate proceeding or by pointing to such litigation. There must be sufficient evidence or other material to show that it satisfies both criteria to justify an adjournment; to demonstrate that it is reasonably arguable or of substance may require prima facie verification of the key factual elements as well as demonstrating legal tenability.

(c)    Adjournment generally

43    A decision to adjourn a hearing constitutes an exercise of a court’s discretion. An appellant bears a heavy onus in establishing that the exercise of such a discretion has miscarried. A court will be reluctant to interfere with the exercise of such a discretion.

Her Honour’s Analysis

44    In my view, her Honour did not sufficiently analyse the effect and significance of the appellant’s challenge to the Family Court costs order derivative on the challenge to the dismissal of the injunction application.

45    First, there is little discussion by her Honour of the relevant authorities that I have referred to earlier.

46    Second, except for two sentences, the majority of her Honour’s analysis concentrated on the question of when the Family Court costs order became enforceable. To put it another way, her Honour did not deal, in my view, with the more important question as to whether there was in substance a leave to appeal application which embraced the Family Court costs order and the bona fides and merits of that potential challenge. But on the existing authorities, as I have referred to earlier, when one is looking at the question of “sufficient cause” for the purposes of s 52(2)(b), her Honour was required to engage in substance and in detail with that particular issue. And as I say, apart from two sentences in [22] of her Honour’s reasons, she does not seem to have fully engaged with that question.

47    Third, the lens used by her Honour in the second and third last sentences of [22] of her reasons was too narrow in one respect and astigmatic in another, and not well focused on the considerations required to be looked at as set out in the authorities referred to above ([31]-[37]).

48    Fourth, there was no discussion or reference in her Honour’s reasons to any adjournment of the respondent’s petition to await the outcome of the Family Court challenge. In fairness to her Honour, and given that the appellant was self-represented, it may be that this dimension of the appellant’s arguments was not fully to the fore or was not as transparent as it could have been. Nevertheless, in my view, it was clearly embraced within the matters that were raised before her Honour. This is confirmed by various transcript references of the hearing before her Honour (T28, lines 5-14; T29, line 5; T30, line 25).

49    On the question of her Honour’s analysis of the NSW defamation proceedings, in my view, there were several factual errors. But on the whole, I am inclined not to disagree with her Honour’s overall conclusion that it was not established that the defamation claim was reasonably arguable factually and legally. But as I intend to remit this matter back to her Honour for redetermination, that matter will have to be considered by her Honour afresh and on the circumstances that then exist at the time of the redetermination.

50    For completeness, there are two other matters that I should discuss.

51    First, one matter that has concerned me is whether, given the appellant’s concession before me that she is still insolvent, I should set aside her Honour’s sequestration order even if I found error in relation to how her Honour addressed the matters in s 52(2)(b). But it seems to me that if I have found such error in relation to s 52(2)(b), the appellant is entitled to have the matter properly considered again by the Federal Circuit Court. First, each of the limbs of s 52(2) are expressed disjunctively; the concession clearly rules out s 52(2)(a), but s 52(2)(b) has independent work to do. Further, a sequestration order is not based on insolvency per se. Rather, it is based upon establishing the matters set out in s 52(1), with an absence of the debtor establishing the matters in s 52(2) including s 52(2)(b). Further, the appellant is entitled to have her argument under s 52(2)(b) correctly dealt with. Alternatively she is entitled to have the adjournment issue dealt with correctly. It may be though that once s 52(2)(b) has been dealt with again by her Honour, the question of insolvency may well weigh in the discretion to be exercised under s 52(2) if “other sufficient cause” is shown. But conversely, it might be said that if the appellant has little in the way of assets and the making of a sequestration order would be an exercise in futility, then this may also provide a basis to decline to make a sequestration order (see a discussion of this question in Radich v Bank of New Zealand (1993) 45 FCR 101 at 111-5 per Einfeld J; see also Bayne v Baillieu (1907) 5 CLR 64 at 67 per Griffith CJ). This is particularly so if it was established that the petition and the pursuit of a sequestration order were being pursued for the collateral purpose of thwarting other proceedings, such as the NSW defamation case or the Family Court challenge, even if in reality the bankruptcy of the appellant could not have that effect in law in any event. But these are all ultimately matters for her Honour to consider on any redetermination. Indeed, it may be that her Honour in the first instance merely adjourns the further hearing of the petition until the outcome of the Family Court challenge is known, perhaps on the undertaking by the appellant to prosecute that challenge with all due diligence.

52    Second, and generally, it may be that on a full and proper consideration of all of the above matters, her Honour comes to exactly the same result that she originally came to. So be it. But in my view, given the nature and public significance of proceedings of this type, a fuller consideration of the issues that I have discussed earlier was necessary.

53    The sequestration order will be set aside and the matter remitted to her Honour for redetermination.

Associate:

Dated: 5 February 2015