FEDERAL COURT OF AUSTRALIA

Nadarajapillai v Naderasa [2015] FCA 1022

THE COURT ORDERS THAT:

1.    The applicant’s interlocutory application filed on 6 August 2015 be dismissed.

2.    The applicant pay the respondent’s costs of the interlocutory application.

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

REASONS FOR JUDGMENT

Background

1    On 17 July 2015, a sequestration order was made against the estate of the applicant by Judge Smith in the Federal Circuit Court. The Official Trustee (Trustee) is the trustee of the applicant’s estate.

2    The bankruptcy notice served on the applicant was based on a judgment of the District Court of New South Wales which was subsequently the subject of an appeal to the New South Wales Court of Appeal. That appeal was dismissed. The applicant has filed an application for special leave to appeal in the High Court of Australia (High Court). That application has not yet been heard by the High Court.

3    The applicant failed to comply with the bankruptcy notice and a creditor’s petition was filed by the respondent and later served on the applicant. The applicant filed a notice stating grounds of opposition to the petition in the Federal Circuit Court of Australia. The sequestration order against the estate of the applicant was made by Judge Smith after hearing argument on the notice of opposition.

4    On 6 August 2015, the applicant filed a Notice of Appeal against the judgment and the order made by Judge Smith. On the same day, the applicant filed an interlocutory application seeking an order that the “sequestration order and all consequential orders made on 17 July 2015 at Sydney by the Federal Circuit Court of Australia be stayed until final hearing and final disposal of the appeal”. The respondent opposes the application for a stay. No evidence has been filed by either party.

Legal Framework

5    In oral submissions, Mr Patel, solicitor for the applicant, noted that his client sought the stay under r 36.08 of the Federal Court Rules 2011 (the Rules) which relevantly provides:

Stay of execution or proceedings under judgment appealed from

(1)    An appeal does not:

(a)    operate as a stay of execution or a stay of any proceedings under the judgment subject to the appeal; or

(b)    invalidate any proceedings already taken.

(2)    However, an appellant or interested person may apply to the Court for an order to stay the execution of the proceeding until the appeal is heard and determined.

…

Note:    Interested person is defined in the Dictionary.

6    The principles applicable to the consideration of a stay application are well settled. In Powerflex Services Pty Ltd v Data Access Corporation (1996) 67 FCR 65 the Court, after noting the broad discretion conferred on the Court by the language of what is now r 36.08, said at 66 that it was sufficient that an applicant for a stay demonstrate a reason for an appropriate case to warrant the exercise of discretion in favour of the grant of a stay.

7    The specific questions which must be considered by the Court were succinctly summarised by Beach J in Endresz v Australian Securities and Investment Commission [2014] FCA 1139 (Endresz) at [16] where his Honour noted:

First, is there an arguable point on the proposed appeal (see Nolten v Groeneveld Australia Pty Ltd [2011] FCA 1494 (Nolten) at [24] per Kenny J) or is there some “rational prospect of success” in relation to any of the grounds of appeal (see Burns v AMP Finance Ltd [2005] FCA 761 (Burns) at [5] per Emmett J)? Second, does the balance of convenience favour the grant of a stay (see Nolten at [24] and [46])?

The Order Sought

8    In making his submissions on behalf of the applicant, Mr Patel accepted that the Court does not have power to suspend the operation of a sequestration order and that, in determining whether a stay should be ordered, the Court can only consider whether there should be a stay of any proceedings or action under a sequestration order. Support for this approach can be found in s 52(3) of the Bankruptcy Act 1966 (Cth) (the Act) which provides that the Court may, if it thinks fit, upon such terms and conditions as it thinks proper, stay all proceedings under a sequestration order for a period not exceeding 21 days. As the Act makes clear in s 37(2)(a), the Court does not have power to rescind, discharge or suspend the operation of a sequestration order. The applicant in this case does not apply for a stay under s 52(3) of the Act but rather under r 36.08 of the Rules. Despite the different source of jurisdiction invoked by the applicant, the Court only has power to stay proceedings or an action under the sequestration order which takes immediate and automatic effect under the Act: see also Endresz at [7]–[11].

9    Mr Patel submitted that his client’s rights of appeal, namely his special leave application filed in the High Court and his right to pursue the current appeal filed in this Court, both vest in the Trustee upon the sequestration order being made and it is in relation to those matters that the stay is sought. That is, the applicant seeks to prevent the sequestration order from operating in relation to those proceedings.

Consideration

10    The first issue to consider is whether there is an arguable point on appeal. In his Notice of Appeal, the applicant relevantly includes the following grounds:

1.    The Orders of the Federal Circuit Court … be set aside on the ground that the sequestration order made by the Federal Circuit Court of Australia was wrong and incorrect in so far and in as much as there was no satisfactory proof of the petitioner [sic] creditor’s debt.

2.    The Federal Circuit Court … was wrong and incorrect in concluding that there was no reason to question whether behind the judgment there was in truth or reality a debt due and owing as alleged for which he obtained his judgment and on which the Bankruptcy Notice is founded, when there was clear overwhelming evidence to the effect that in truth and reality, no debt was due and owing in respect of matters which formed the basis of the judgment and the Bankruptcy Notice.

3.    The Courts [sic] judicial discretion to accept the judgment of the District Court as satisfactory proof of that debt was not well exercised and has thus resulted in [a] miscarriage of justice.

11    Mr Patel, on behalf of the applicant, elaborated on these grounds setting out the history of the proceedings upon which the bankruptcy notice was founded, including the basis of the appeal to the New South Wales Court of Appeal and the application for special leave to appeal filed with the High Court. Mr Patel submitted that, in summary, it was his client’s case that there was an error in the underlying judgment upon which the bankruptcy notice had been founded. He further submitted that, if the underlying judgment is set aside then it will follow that there will be no debt and the bankruptcy notice will be set aside. Mr Patel also submitted that Judge Smith had erred by not going behind the judgment which founded the bankruptcy notice and testing whether a debt was due from the judgment debtor to the judgment creditor.

12    The solicitor for the respondent, Mr Campbell, submitted that the appeal to this Court is without merit and that the grounds contained in the Notice of Appeal are nothing more than bald assertions.

13    The relevant threshold of arguable point is relatively low: see Nolten v Groeneveld Australia Pty Ltd [2011] FCA 1494 (Nolten) at [29]. In the circumstances, and for the purpose of this application, I am prepared to accept that there is an arguable point to be raised on appeal.

14    That then leaves the question of balance of convenience. In Nolten, Kenny J noted at [30] that:

In determining where the balance of convenience lies, relevant considerations include whether the appeal, if successful, will be rendered nugatory in the absence of a stay, and the prejudice to the other party should a stay be granted.

15    Also relevant to this factor is the consideration of whether there is a real risk of irremediable harm to the applicant if the stay is not granted: Nolten at [46].

16    On this issue, the submissions made on behalf of the applicant were to the effect that, in the absence of a stay, the applicant would be disentitled from pursuing his appeal rights in this Court and similarly disentitled from pursuing his appeal rights in the High Court. The decisions on whether to pursue those appeals would fall to the Trustee. Mr Patel noted that if the applicant is entitled to pursue those rights it would not involve what he termed as “big assets” or “big prejudice to anybody”.

17    Mr Campbell, on behalf of the respondent, submitted that the respondent had been denied the fruits of a favourable verdict for a period of 16 months during which time the respondent has had to respond to various applications and challenges which he described as “unmeritorious”. He submitted that all issues had been completely and thoroughly ventilated and that allowing further applications would lead to an unnecessary depletion of the applicant’s estate in bankruptcy. Mr Campbell also submitted that if the Court was minded to grant a stay it should be on condition that the applicant pay into Court the amount of $128,471.72 being the amount which, Mr Campbell noted in his written submissions, was included in the bankruptcy notice.

18    The making of the sequestration order does not render the applicant’s appeal from that order nugatory in the absence of an order staying the operation of the sequestration order until the hearing of the appeal. The right to appeal the sequestration order is not property under s 5(1) of the Act and does not vest in the applicant’s trustee: see Nolten at [33] and Endresz at [18]. The appeal to this Court remains enforceable in the hands of the applicant.

19    That then leaves the application for special leave to the High Court. The question arises as to whether that is property of the bankrupt that vests in the Trustee under s 58(1) of the Act such that the making of the sequestration order would prevent the applicant from pursuing his application for special leave to the High Court and, if so, whether this factor weighs in the applicant’s favour on the issue of balance of convenience.

20    If the application for special leave to appeal to the High Court is a proceeding which is “property of the bankrupt”, then the continuation of those proceedings is a decision for the Trustee to be determined in accordance with s 60(2) of the Act which provides as follows:

60    Stay of legal proceedings

…

(2)    An action commenced by a person who subsequently becomes a bankrupt is, upon his or her becoming a bankrupt, stayed until the trustee makes election, in writing, to prosecute or discontinue the action.

21    If the Trustee elects not to continue those proceedings then the applicant has other rights available to him as a decision by a trustee of that nature is reviewable by the Court at the suit of the bankrupt under s 178 of the Act.

22    On the other hand, if the application for special leave to the High Court is not property of the bankrupt then it does not vest in the Trustee and the sequestration order will not affect the applicant’s prosecution of that application.

23    In Kellow v Dudzinski [2003] FCA 238, Cooper J dismissed an application for leave to appeal from a decision of Spender J refusing to grant a stay of a sequestration order. Cooper J found that the basis on which the stay was refused did not disclose any misunderstanding or misapplication of the relevant legal principles in relation to then pending litigation to which Mr Dudzinski, the applicant on the stay and for leave to appeal, was a party. At [16] and [17] Cooper J noted that:

[16]    … To the extent that the trustee has purported to elect not to continue certain of the litigation, that decision is reviewable under s 178 of the Act on the basis that the litigation was not of the type which passed to him as property, or if it passed, ought in the circumstances to have been pursued, or been made available to Mr Dudzinski to litigate himself.

[17]    Mr Dudzinski contends that he has been denied an effective appeal in respect of the bankruptcy proceedings because he cannot further prosecute his application for special leave to appeal to the High Court of Australia in application B108/2002. That application seeks leave to appeal from a decision of a Full Court of this Court in Dudzinski v Kellow [2002] FCAFC 402, wherein the Full Court refused to set aside the bankruptcy notice upon which the act of bankruptcy relied upon to obtain the sequestration order was based. Mr Dudzinski’s position in relation to his special leave application is no different to his position in relation to his other litigation. If the right to bring an application for special leave to appeal is not property which passed to the trustee and is not otherwise caught by the operation of s 60(2) of the Act, Mr Dudzinski may prosecute the application for special leave. If the application is caught by s 60(2) and the trustee refuses to elect to prosecute the special leave application, then Mr Dudzinski has a right to seek review under s 178 of the Act.

24    The applicant in this case is in no different position. In my opinion, the balance of convenience does not weigh in favour of the applicant. There is no risk of irreparable harm to the applicant in the absence of a stay in the terms sought. I will make orders accordingly.

Associate:

Dated:    15 September 2015