FEDERAL COURT OF AUSTRALIA

Watson v Owners Corporation Strata Plan 79827 [2018] FCA 1959

ORDERS

THE COURT ORDERS THAT:

1.    The appeal be dismissed.

2.    The appellants pay the respondent’s costs.

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

REASONS FOR JUDGMENT

MARKOVIC J:

1    This is an appeal from orders made and judgment given by the Federal Circuit Court of Australia (Federal Circuit Court) on 30 November 2017 dismissing an application for review of the decision of a registrar of that court (Registrar) not to grant Wezley Brian Watson and Gloria Lorraine Watson an adjournment of the hearing of a creditor’s petition and, by implication, the order made by the Registrar that their estates be sequestrated: Owners Corporation Strata Plan 79827 v Watson [2017] FCCA 2962 (SP 79827 v Watson).

background facts

2    The following facts are largely taken from the primary judge’s reasons.

3    The facts that give rise to this appeal commenced in 2005 when Mr and Mrs Watson, by themselves or through a company, borrowed funds from the National Australia Bank (NAB) to purchase and develop properties, including a property situated at Laurieton (Property). Mr and Mrs Watson completed the development of the Property, at least up to the stage of establishing a strata scheme, and were at the relevant time the registered proprietors of lot 9 in the relevant strata plan.

4    By 2010 Mr and Mrs Watson were in financial difficulty. They blamed the NAB for those difficulties and claimed that it engaged in maladministration when it provided the loans to them from 2005. They also alleged that the NAB had not met its obligations to them as customers experiencing financial difficulty.

5    Mr and Mrs Watson’s claim was referred to the Financial Ombudsman Service Australia (FOS) which issued a determination on 10 February 2014 that found that Mr and Mrs Watson had not established that the NAB engaged in maladministration in lending but found that the NAB had not met its obligations to them as customers experiencing financial hardship. The FOS determined that the NAB should recalculate Mr and Mrs Watson’s outstanding debt so that they did not pay any default interest from the date of expiry of the outstanding facility to the date of recalculation. Within 14 days of Mr and Mrs Watson accepting the FOS determination, the NAB was to inform them of the recalculated amount.

6    On 15 January 2016 bankruptcy notice BN187524 (Bankruptcy Notice) was issued to Mr and Mrs Watson by the Official Receiver requiring payment of $32,275.14 to the Owners Corporation Strata Plan 79827 (Owners Corporation), the respondent in this proceeding. The Bankruptcy Notice was based on a judgment entered in the Local Court of New South Wales (Local Court) on 24 December 2015 for unpaid levies for the Property which was within the strata plan managed by the Owners Corporation.

7    The Bankruptcy Notice was served on each of Mr and Mrs Watson on 18 January 2016.

8    Mr and Mrs Watson failed to comply with the requirements of the Bankruptcy Notice by 9 February 2016.

9    On 29 February 2016 the Owners Corporation filed a creditor’s petition applying for a sequestration order under s 43 of the Bankruptcy Act 1966 (Cth) (Act) against the estates of both Mr and Mrs Watson. That creditor’s petition was served on each of Mr and Mrs Watson on 14 March 2016 together with affidavits of service of the Bankruptcy Notice and affidavits verifying [1]-[4] of the creditor’s petition and stating that a search of the records of the Federal Circuit Court and this Court disclosed that Mr and Mrs Watson had made no application in relation to the Bankruptcy Notice.

10    On 30 March 2016 Mr Watson sent an email to Nicole Small at Strata Professionals in which he wrote:

If we get the strata paid this week in full would the strata look at discontinuing the bankruptcy proceeding.

My aim is to complete my negotiations with the bank and the financial ombudsman to sell the property hopefully this will happen in the very near future.

Once again I apologise for the inconvenience.

11    Later on 30 March, after being informed by Mrs Small that Tony Maher of Higgins & Dix was acting for the Owners Corporations in connection with the recovery of the outstanding levies, Mr Watson sent an email to Mr Maher in which he said:

I have been in contact with Nicole Small and she has explained you are the one to discuss making a payment to and trying to resolve the matter.

When would you think we could have an answer to our offer of payment.

12    On 4 April 2016 Higgins & Dix wrote to Mr Watson. In their email they referred to Mr Watson’s email of 30 March 2016 but also noted that the current proceeding was the latest between Mr and Mrs Watson and their client in relation to outstanding liabilities in respect of the Property. Higgins & Dix referred to six proceedings, including the Local Court proceeding which led to the judgment upon which the Bankruptcy Notice was based. The letter continued:

For at least the past 4 years, my client has been compelled to obtain judgments, and to enforce those judgments, against you and Gloria Watson for the costs and expenses to which you are liable as the registered owners of Lot 9, 60 Bold Street Laurieton.

Given this history, and that you have continued to default on your strata levies and accompanying liabilities that have accrued since the most recent judgment against you (with the latest liability being greater than $13,000), I am instructed to proceed with the creditor's petition listed for hearing on 5 April 2016.

Notwithstanding that any issues between you, the Financial Ombudsman Service and your bank do not concern my client, my client takes no comfort in your statement "My aim is to complete my negotiations with the bank and the financial ombudsman to sell the property hopefully this will happen in the very near future." You made similar representations in relation to negotiations and the Financial Ombudsman Service in 2013/14 during the previous Federal Circuit Court proceedings with no positive result.

13    On 4 April 2016 at 5.38 pm Mr Watson sent an email to “NSW Listings” at the Federal Circuit Court in which he applied for a phone hearing. He said:

The reason for the phone hearing is we would like time to get legal advice, we have been in financial hardship due to this property for some years and late today the NAB have offered to let us surrender the property to them with no legal perusal (sic). We currently have good jobs and without the burden of the property can meet all of our financial commitments.

Within the email to NSW Listings, Mr Watson then set out a copy of an email which appeared to be from a senior case manager at the NAB and was in the following terms:

We have a copy of the Council Strata Approval (attached), however, we are unaware as to whether the relevant conditions have been compiled with. However, it is our view that you have had ample time to refinance the commercial units and/or sell with Strata Approval. Therefore, the Bank’s position remains unchanged and we have decided that 30 June 2016 is the extent of our forbearance.

Alternatively, NAB presents to you one other option,

You agree to surrender possession to the Bank by 31 May 2016 and the bank will sell the property. To this end, if you agree to provide possession to the NAB, the Bank agrees to cap its debt to $1.2m and in the event there is a surplus of funds (over $1.2m) post sale, these funds will be paid to you. In the event of any of shortfall (less than $1.2m) the Bank will accept the sale price in full and final settlement and not pursue you for any remaining shortfall. In this circumstance you must agree to include the attached Strata approval documents being sold with the property (ie it would attach to the sale contract).

The above would need to be finalised via a Deed within 14 days with mutual releases and must include Mrs Watson.

If this offer is not acceptable, the Bank reserves its rights to recover any shortfall from the joint borrowers.

NAB expressly reserves all of its rights.

14    On 5 April 2016 at 6.45 am Mr Watson sent an email to Mr Maher which included:

We have had financial trouble due to this property for many years now and in no way have we mislead the Strata, Case 413264 with the financial ombudsman only finished yesterday with the completion we have agreed to surrender the property over to the NAB to sell. Once the deed is signed we will no longer have anything to do with the property and the bank will take over all of the strata commitments.

Alternatively, NAB presents to you one other option,

You agree to surrender possession to the Bank by 31 May 2016 and the bank will sell the property. To this end, if you agree to provide possession to the NAB,

With our bank now taking possession of the property we would hope that the case today doesn't need to go ahead. If you need anything else from us please let us know.

15    On 5 April 2016 Mr Watson appeared by telephone before the Registrar at the hearing of the creditor’s petition. Mr Watson informed the court that he opposed the making of a sequestration order against his and Mrs Watson’s estates on the basis that:

… I’ve come to an agreement with the bank where the bank is taking the property over and they’re going to sell the property and we haven’t got the burden of the property any more as I – we’ve got to sign a deed within 14 days. We agreed to everything with the bank and we’re both of an income of around 150 k which is more than enough to pay, you know, any debts that we have…

16    The transcript of the hearing records the following exchange between the Registrar and Mr Watson:

REGISTRAR:    Right. So what’s the bank going to do?

MR WATSON:    The bank is taking the property over. They’re going to sell the property. We have no further dealings with the property. If they get higher than 1.2, we will get any proceeds over and above. If they get below, they won’t pursue us for anything. It’s basically a – yes, they’re taking the property over, sell it, and we walk away.

REGISTRAR:    All right. And what about this debt?

MR WATSON:    I’m just – that’s why I wanted to get legal advice. I don’t know whether the bank are going to pay the debt or then we have to pay it. Either way I can have it paid. I’m just waiting on clarification of that, whether the bank take that debt on with the ownership of the property. Yes, I just have to have that clarified. As I said, this only come through to me 3 o’clock yesterday afternoon.

17    A little later in the exchange Mr Watson informed the Registrar that he had “offered to pay the 32,000 to the Strata last week”; that “they didn’t accept it” and that “if it comes up that I’ve got to pay it, I will have it paid, and if it comes up that the bank takes it over, well, the bank will pay it”. Mr Watson then sought an adjournment for two weeks.

18    In response, counsel appearing for the Owners Corporation submitted that there was no evidence before the court as to what Mr Watson said; Mr Watson’s dealings with the bank had nothing to do with the Owners Corporation; there was nothing that would cause the court to exercise its discretion if it was otherwise satisfied that all of the criteria for the making of sequestration orders had been met; and that, in those circumstances, the court should proceed.

19    After giving Mr Watson an opportunity to respond to the submissions made on behalf of the Owners Corporation, the Registrar refused the application for an adjournment and made a sequestration order against the estates of Mr and Mrs Watson. In doing so she said:

REGISTRAR:    All right. Well, it appears to me that you are insolvent, based on the material that has been lodged in the court, and in the absence of there being any evidence to the contrary, I am satisfied that you are insolvent. I’m also concerned that you may be seeking to liquidate assets which ultimately might cause some creditors to have a preference over others, and this is an insolvency court, so it’s really about ensuring that the creditors get paid in an equitable fashion and people don’t continue to incur debts when they are insolvent. So on that basis I decline your application for an adjournment and I make a sequestration order against both your estate and the estate of Gloria Lorraine Watson and order that the applicant creditor’s costs – have you got a fixed amount for me?

20    By an amended application filed on 22 March 2017 Mr and Mrs Watson sought a review of the Registrar’s decision not to grant them an adjournment of the creditor’s petition and, by implication, that their estates be sequestrated. The primary judge noted that, in summary, Mr and Mrs Watson contended that the Registrar ought to have granted them the adjournment because they had informed her that they had accepted an offer from the NAB and they required time to obtain legal advice. Mr and Mrs Watson also contended that they had a counter claim. The primary judge also noted that Mr and Mrs Watson claimed additional relief.

21    On 30 November 2017 Mr and Mrs Watson’s amended application was dismissed by the primary judge.

the primary judge’s reasons

Application for review

22    The primary judge noted that, in refusing to adjourn the hearing of the creditor’s petition, the Registrar had declined to exercise the power conferred on registrars by the combined operation of s 102(2)(i) of the Federal Circuit Court of Australia Act 1999 (Cth) (FCCA Act) and r 2.02 of the Federal Circuit Court (Bankruptcy) Rules 2016 (Cth) (Bankruptcy Rules) and that in making the sequestration order, the Registrar exercised a power conferred on registrars by the combined operation of s 102(2)(i) of the FCCA Act and r 2.02 of the Bankruptcy Rules: SP 79827 v Watson at [3].

23    The primary judge also noted that s 104(2) of the FCCA Act provides that a party to proceedings in which a registrar has exercised any of the powers of the court under s 102(2) may, within the time prescribed by the rules of the court, or within any further time allowed in accordance with those rules, apply to the court for review of the exercise of that power. His Honour pointed out that under r 2.02(3) of the Bankruptcy Rules an application under s 104 of the FCCA Act must be made within 21 days after the day on which the power was exercised “subject to any direction by the Court or a Judge to the contrary”. As Mr and Mrs Watson did not apply for a review within the 21 day period prescribed by the Bankruptcy Rules, the primary judge identified that the first question for determination was whether he should direct that it was not necessary for Mr and Mrs Watson to have applied for review within the prescribed period. His Honour noted that in determining that issue he would need to consider up to three issues:

    first, whether Mr and Mrs Watson had a sufficiently arguable case that the Registrar ought to have granted the adjournment or ought not to have made the sequestration order, noting that he must consider that question afresh because a review under s 104(2) of the FCCA Act is a hearing de novo;

    secondly, whether Mr and Mrs Watson have provided an adequate explanation for the delay in filing their application for review of the Registrar’s decision; and

    thirdly, if he was to direct that it was not necessary for Mr and Mrs Watson to have applied for a review of the Registrar’s exercise or failure to exercise her powers within the prescribed 21 day period, whether the trustee in bankruptcy who was appointed following the making of the sequestration order, or any other person would suffer prejudice and, if so, whether the prejudice could be avoided by imposing various terms: SP 79827 v Watson at [17]-[18].

24    In relation to the first issue the primary judge found, based on the material before him, that Mr and Mrs Watson did not have a sufficiently arguable case that the creditor’s petition ought to have been adjourned to give them an opportunity to enter into a deed with the NAB. His Honour said that, although there was credible evidence that the NAB was willing to accept Mr and Mrs Watson’s interest in the Property in full and final satisfaction of their indebtedness to it, there was no evidence that that would have enabled Mr and Mrs Watson to pay the debt owing to the Owners Corporation, at least not by the end of the two week period for which they sought the adjournment or within a not unreasonably longer period of time: SP 79827 v Watson at [30].

25    The primary judge found that, although Mr Watson informed the Registrar that they had the means to pay the debt owing to the Owners Corporation because he and Mrs Watson would be relieved of responsibility for the Property, that statement was unsupported by any evidence by which it could have been assessed. The primary judge noted that Mr Watson did not adduce, either before the Registrar or before him, any evidence of his or Mrs Watson’s income or their assets and liabilities and that, without such evidence, the Registrar could not reasonably have been “induced” to have adjourned the hearing of the creditor’s petition as requested. The primary judge also noted that the evidence suggested that Mr and Mrs Watson may have been unable to pay the debt owing as set out at [24] above because it appeared that they may have had creditors in addition to the NAB and the Owners Corporation: SP 79827 v Watson at [31]-[32].

26    The primary judge was also not satisfied that Mr and Mrs Watson had sufficiently arguable grounds for contending that the hearing of the creditor’s petition ought to have been adjourned because of an asserted counter claim against NAB which his Honour noted was only relevant to the exercise of the power conferred by s 52(1) of the Act if it is asserted against the petitioning creditor: SP 79827 v Watson at [33].

27    Given the primary judge’s conclusion that Mr and Mrs Watson did not have a sufficiently arguable case for claiming that the hearing of the creditor’s petition ought to be adjourned, his Honour did not go on to consider the remaining two issues he had identified (referred to at [23] above). The primary judge therefore found that Mr and Mrs Watson’s application for review failed because they did not file the application within the prescribed 21 day period and his Honour was not satisfied that it was appropriate that they be permitted to apply for review outside that period: SP 79827 v Watson at [34]-[35].

28    The primary judge then went on to consider Mr and Mrs Watson’s claims for additional relief.

Setting aside the sequestration order

29    The primary judge first turned to consider Mr and Mrs Watson’s claim that the sequestration order should be set aside under s 153B of the Act because the order should not have been made. The primary judge noted that, in support of that claim, Mr and Mrs Watson relied on the same matters that they relied on in their claim that the Registrar ought to have adjourned the hearing of the creditor’s petition. His Honour identified that the question for the court was whether, given those matters, the sequestration order should be set aside; that the answer to that question depended on whether the Owners Corporation proved the matters prescribed by s 52(1) of the Act; and, assuming it did, whether the matters relied on by Mr and Mrs Watson constituted other sufficient cause such that a sequestration order ought not to have been made: SP 79827 v Watson at [36]-[38].

30    The primary judge rejected the claim. His Honour was satisfied first, that the Owners Corporation had proved the matters it was required to prove under s 52(1) of the Act and the Bankruptcy Rules; and secondly, that the matters on which Mr and Mrs Watson relied did not constitute other sufficient cause for a sequestration order not to be made. His Honour came to the latter view because, in his opinion, for the reasons he had already given, the matters relied on by Mr and Mrs Watson could not reasonably have induced the court to grant an adjournment of the hearing of the creditor’s petition as requested and because the cross claim asserted by Mr and Mrs Watson was against the NAB and not the Owners Corporation: SP 79827 v Watson at [39]-[40].

Claim against trustee in bankruptcy

31    The primary judge then considered and rejected a claim made by Mr and Mrs Watson in their written submissions by which they applied for leave to challenge the “Trustee’s conduct and remuneration” because the trustee had breached his statutory duty “in the nature of a fiduciary duty” due to the “loss of the Deed of sale offered from the [NAB]”. In support of that claim Mr and Mrs Watson relied on communications attached to Mr Watson’s affidavit which the primary judge summarised at [41] of his reasons. The primary judge concluded that on the material before him, it was not possible to say whether there had even been an arguable breach of duty by the trustee and, even if the material disclosed an arguable breach of duty, his Honour said that it would not be open to him to consider such a claim because the trustee was not a party to the application. Thus the primary judge held that Mr and Mrs Watson’s application failed to the extent it sought relief against the trustee in bankruptcy: SP 79827 v Watson at [43].

Claim against the NAB

32    Finally, the primary judge considered and rejected a claim made by Mr and Mrs Watson in their written submissions seeking an injunction to restrain “the power of sale” of the Property presumably held by the NAB as mortgagee. His Honour found that that claim was not arguable because Mr and Mrs Watson no longer held an interest in the Property as it had vested in their trustee in bankruptcy upon the making of the sequestration order and the NAB was not a party to the application: SP 79827 v Watson at [44].

the Appeal

33    Mr and Mrs Watson rely on an amended notice of appeal which is discursive in nature but can be summarised as follows:

(1)    the Registrar’s refusal to grant a two week adjournment was a denial of procedural fairness and natural justice;

(2)    in relation to the primary judge’s comment at [23] of the primary judgment to the effect that it was unclear what affidavit Mr and Mrs Watson had in mind when they submitted that “only getting the offer the night before did not leave them time for an affidavit to be accepted by the court”, Mr and Mrs Watson said that they meant an affidavit which would enable them to put their case forward with the evidence needed for a fair trial to defend the creditor’s petition. They thought they had no other way of producing evidence to the court;

(3)    in relation to the primary judge’s comment at [31] of the primary judgment that Mr and Mrs Watson did not adduce evidence before the Registrar or him of their income, assets and liabilities so as to fail to reasonably induce the Registrar or a judge to have adjourned the hearing of the creditor’s petition, the Registrar had a copy of the “deed offer” received the day before the hearing so the Registrar could clearly see that the NAB had stated that any surplus funds (over $1.2m) post sale would be paid to Mr and Mrs Watson;

(4)    there was “other sufficient cause” pursuant to s 52(2)(b) of the Act because Mr and Mrs Watson had offered to make full payment before the hearing which was declined by the Owners Corporation; and

(5)    the creditor’s petition was an abuse of process and the “sequestration order ought not to have been presented to the court” because “the Owners Corporation defeated the rights of others in the bankruptcy process” thus amounting to “other sufficient cause” pursuant to s 52(2)(b) of the Act.

34    Mr and Mrs Watson are not legally represented. After discussion at the first case management hearing and subsequent confirmation by Mr Watson, who appeared on his and Mrs Watson’s behalf, at the hearing it was agreed that, in substance, their grounds of appeal amounted to, and that the appeal would proceed on the basis of, the following as set out in the Owners Corporation’s submissions:

I.    The primary judge erred by failing to take into account whether there was any "other sufficient cause" within the meaning of s. 52(2)(b) of the Bankruptcy Act so as to find that the registrar should have dismissed the creditor's petition, leading to his Honour's failure to dismiss the creditor's petition on the review. That other sufficient cause being the appellant's having offered full payment before the hearing by the registrar.

II.    The primary judge erred in failing to find that the creditor's petition was an abuse of process by reason of the creditor's petition having defeated the rights of others in the bankruptcy process.

III.    The primary judge erred in failing to find that the registrar denied the appellants procedural fairness by declining to grant them a two week adjournment on 5 April 2016.

35    Mr and Mrs Watson were not required to file a further amended notice of appeal to reflect the clarification of their grounds of appeal as set out in the preceding paragraph.

36    Mr and Mrs Watson provided written submissions and a document titled “chronology” which were supplemented by oral submissions made by Mr Watson at the hearing. I do not propose to set their submissions out in full. Without meaning any disrespect to Mr and Mrs Watson, who are not legally represented, their material was, in parts, difficult to follow. In summary, Mr and Mrs Watson submitted that:

(1)    the Registrar erred by failing to allow a two week adjournment of the hearing of the creditor’s petition to permit Mr and Mrs Watson to seek legal advice. In denying an adjournment, the Registrar denied them procedural fairness and natural justice. Mr and Mrs Watson needed legal advice to confirm whether the NAB would include the amount owing to the Owners Corporation in the “offer of deed” due to only receiving it at 3.00 pm on the afternoon before the hearing. Mr Watson told the Registrar that he sent his email to the Court the night before the hearing stating he was going to request time to get legal advice because he had only just received the offer of deed. Mr Watson noted that the Owners Corporation had submitted at the hearing before the Registrar that he could not give evidence orally in the way he had but Mr and Mrs Watson submitted that, as they only received the offer from the NAB the night before, they thought their only option was to “email a copy to all concerned”. Mr Watson, “having no knowledge of the court systems … believed this was the correct way to contact the court”. They submitted that “an offer of deed” is the “most serious indication to the public that a person really means to do what he or she is doing” and not having the opportunity to obtain legal advice and complete the “offer of deed” was a denial of procedural fairness and a “denial to other creditors for getting paid in full”;

(2)    the primary judge erred when he stated at [30] of his reasons that “[t]here is no evidence that that would have enabled Mr and Mrs Watson to pay the debt owing to SP79827, at least not by the end of the two week period for which Mr and Mrs Watson sought the adjournment, or within a not unreasonably longer period of time”. Mr and Mrs Watson contended that they had already offered full payment before the hearing which had been refused by the Owners Corporation and there was nothing before the Court to say that they could not pay the debt in the two week period. They said that this gave them “other sufficient cause” for challenging the creditor’s petition;

(3)    the primary judge erred by giving judgment without “all the evidence”. Mr and Mrs Watson suffered a disadvantage because they represented themselves and said that if the primary judge needed a copy of their financial statements to “ensure the fairness of the trial” then that could have been suggested at the directions hearing; and

(4)    the use of the bankruptcy proceeding by the Owners Corporation to collect the debt owing by Mr and Mrs Watson was an abuse of process and not “a genuine effort to make the Watson’s bankrupt”. Mr and Mrs Watson contended that the Owners Corporation used the bankruptcy process for reasons other than securing the orderly distribution of their estates. Mr and Mrs Watson also rely on s 52(2)(b) of the Act in this regard alleging that it amounted to another sufficient cause as to why the sequestration order should not have been made.

consideration

37    The grounds of appeal must be considered in the context of the application that was before the primary judge, an application for review of the Registrar’s decision to refuse to grant an adjournment of the hearing of the creditor’s petition and, it followed, an appeal of her decision to make the sequestration order. That application was filed out of time. I was informed by counsel appearing for the Owners Corporation that it was 310 days late. Thus his Honour was first required to consider whether he should permit the review to proceed in circumstances where it was out of time. In doing so, his Honour considered all of the grounds raised by Mr and Mrs Watson but concluded that Mr and Mrs Watson did not have a sufficiently arguable case for claiming that the creditor’s petition ought to have been adjourned. His Honour, after considering other additional grounds raised by Mr and Mrs Watson, dismissed the application.

Procedural fairness ground

38    Given the context of the application it is convenient to first consider the third ground of appeal set out at [34] above, namely the contention that the primary judge erred in failing to find that the Registrar denied them procedural fairness by declining to grant them a two week adjournment of the hearing of the creditor’s petition.

39    Culleton v Balwyn Nominees Pty Ltd (2017) 343 ALR 632; [2017] FCAFC 8 (Culleton) concerned an appeal from a sequestration order where the appellant asserted that the primary judge erred in refusing to grant an adjournment of the hearing of the creditor’s petition. At [35]-[38] a Full Court of this Court (Allsop CJ, Dowsett and Besanko JJ) discussed the principles concerning appellate review of a refusal of an adjournment of the hearing of a creditor’s petition as follows:

[35]    The review by an appellate court of the refusal of an adjournment of a matter regularly fixed for hearing must first recognise the quintessentially discretionary character of the decision. A Court will not lightly interfere in such a decision, and certainly not merely because it would have made a different decision.

[36]    A Full Court of this Court in Ahern v Deputy Commissioner of Taxation (Qld) (1987) 76 ALR 137 (Ahern) set out principles that, whilst they must be considered in the light of Part VB of the Federal Court of Australia Act 1976 and especially s 37M, are of enduring importance. In that case a judge of the Court had refused an adjournment of the creditor’s petition that was based on a default judgment that was the subject of a pending appeal. The Court referred (Ahern at 146) to the expression of the matter by Atkin LJ in Maxwell v Keun [1928] 1 KB 645 at 653 that was approved of in Bloch v Bloch (1981) 180 CLR 390 at 395; 37 ALR 55 at 58by Wilson J, with whom Gibbs CJ, Murphy and Aickin JJ agreed (at CLR 392; ALR 56):

The decision whether or not to adjourn the hearing of the petition was within the discretion of the primary judge. It is well established that an appellate court will rarely interfere with a trial judge's exercise of discretion upon an application for adjournment. However, the refusal to grant an adjournment may in some cases prevent the party seeking it from presenting his case or defence and in some circumstances this may result in injustice of such kind or magnitude as to warrant interference on appeal. In Maxwell v Keun [1928] 1 KB 645 Aitken LJ [sic] said (at 653): “I quite agree the Court of Appeal ought to be very slow indeed to interfere with the discretion of the learned judge on such a question as an adjournment of a trial, and it very seldom does do so; but, on the other hand, if it appears that the result of the order made below is to defeat the rights of the parties altogether, and to do that which the Court of Appeal is satisfied would be an injustice to one or other of the parties, then the court has power to review such an order, and it is, to my mind, its duty to do so.

[37]    The Court (Ahern at 146) also referred to and approved the further but similar expression of the matter by Sir Jocelyn Simon P in Walker v Walker [1967] 1 All ER 412 (at 330):

First where the refusal of an adjournment would result in a serious injustice to the party requesting the adjournment, the adjournment should only be refused if that is the only way that justice can be done to the other party; and, secondly, that although the granting or refusal of an adjournment is a matter of discretion, if an appellate court is satisfied that the discretion has been exercised in such a way as would result in an injustice to one of the parties, such appellate court has both the power and the duty to review the exercise of the discretion.

[38]    In Ahern, in circumstances where there was accepted to be a genuine and arguable appeal, the Court said (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: Re Rhodes; Ex parte Heyworth (1884) 14 QBD 49; Bayne v Baillieu (1907) 5 CLR 64 and Re Verma; Ex parte Deputy Commissioner of Taxation (1984) 4 FCR 181.

40    At [40] the Full Court recognised the special nature of the bankruptcy jurisdiction relevantly observing:

[40]    In considering the question of an adjournment of the hearing of a creditor’s petition, it is fundamental to keep firmly in mind, at all times, the nature of the jurisdiction. Bankruptcy is not just a variety of inter partes litigation; it does not deal only with the private rights and obligations of the debtor and creditor; it is not a form of judgment execution. It is directed to the estate of a person who is insolvent. In that sense it has a public interest, through the general body of creditors and potential creditors of the debtor and prospective bankrupt, and through what is referred to as the change of status of the person who becomes a bankrupt. That status is changed because of the provisions of the Act which inhibit conduct and affect rights and obligations of the bankrupt, including making the bankrupt susceptible to criminal punishment for what would otherwise be innocent conduct. …

41    At [45] the Full Court also noted that the centrality of the question of solvency or insolvency might be a reason why an adjournment would not be granted when solvency is asserted. Their Honours continued:

[45]    … If material before the Court gives rise to the inference that further time to prove solvency is unlikely to be of utility, there may be a risk of further prejudice to creditors generally if there is delay in making the order. On the other hand, if the evidence reveals the real possibility that there is further material that may prove the debtor is solvent, attention should generally be given to the question whether some time or opportunity should be afforded to the debtor. Whether it is afforded will depend upon all the circumstances.

42    The primary judge did not err in his consideration of whether he should permit the application for review of the Registrar’s decision to proceed. To the extent his Honour was exercising his discretion, it did not miscarry.

43    In considering the application for review of the Registrar’s decision, the primary judge correctly observed that he was required to consider the question de novo and, after identifying the power of a registrar to adjourn any proceedings before it, set out the guiding principles for a review of a registrar’s decision. His Honour then considered the grounds raised by Mr and Mrs Watson as to why an adjournment should have been granted.

44    The Owners Corporation submitted that, on the material before the primary judge, it was evident that there was no utility in the Registrar granting the adjournment sought, a factor which was borne out by the state of affairs that existed at the time of the hearing before him. In particular, by the time of the hearing before the primary judge, more than 12 months after the Registrar made her decision, it was not apparent that Mr and Mrs Watson had taken any steps to seek the legal advice they said they had been denied. Before me, Mr Watson submitted that he and Mrs Watson had sought legal advice, apparently after the sequestration orders were made. But there was no evidence of that before the primary judge. Accordingly, I accept the Owner’s Corporation’s submissions in this regard. Further, in the meantime, the bankruptcies had proceeded.

45    But more critically, this was not a case where there was an appeal pending in relation to the very judgment on which the bankruptcy notice was based, a factor which might well militate in favour of an adjournment. Nor was there evidence before the Registrar or the primary judge that, given time, Mr and Mrs Watson may provide further material to prove their solvency. That was particularly so by the time the matter came before the primary judge given the lengthy period which had passed since the making of the sequestration order.

46    The primary judge considered the grounds raised by Mr and Mrs Watson. His Honour found that there was no evidence that, had the adjournment been granted, Mr and Mrs Watson would have been able to pay the monies owing to the Owners Corporation. That Mr and Mrs Watson may enter into a deed with the NAB did not establish or provide evidence of an ability to pay the monies owing to the Owners Corporation. There was no evidence before the primary judge or the Registrar of Mr and Mrs Watson’s financial position. Further, the primary judge expressed some concern about the existence of other creditors (including the Australian Taxation Office) who were owed approximately $100,000 based on the evidence before his Honour. These debts may or may not have existed at the time the Registrar made her decision.

47    I now turn to address the remaining two grounds.

Section 52(2)(b) of the Act – offer to pay the debt in full

48    Mr and Mrs Watson contend that the primary judge erred by failing to take into account whether there was any “other sufficient cause” within the meaning of s 52(2)(b) of the Act so as to find that the Registrar should have dismissed the creditor’s petition. The “other sufficient cause” relied on by Mr and Mrs Watson was their offer of full payment to the Owners Corporation before the hearing of the creditor’s petition which they allege was declined. Mr and Mrs Watson also argued abuse of process as another basis for finding that there was other sufficient cause under s 52(2)(b) of the Act. I consider that ground at [64] below. In support of the former assertion, Mr and Mrs Watson relied on the emails dated 30 March 2016 set out at [10] and [11] above and the reply from Higgins & Dix dated 4 April 2016 set out at [12] above.

49    Section 52 of the Act relevantly provides:

(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.

50    It is convenient to note at this point that no challenge is made to the primary judge’s finding that the matters required to be proved under s 52(1) of the Act had been established by the Owners Corporation. The challenge is to the primary judge’s finding that there was no “other sufficient cause” to lead him to dismiss the petition.

51    In my opinion, this ground fails for two reasons.

52    First, the evidence relied on by Mr and Mrs Watson does not support their contention that they offered to pay the debt in full.

53    The first email relied on dated 30 March 2016 was from Mr Watson to Ms Small at Strata Partners. In it Mr Watson asks “[i]f we get the strata paid this week in full would the strata look at discontinuing the bankruptcy proceeding”. Mr Watson also informed Ms Small that he was looking to complete his negotiations with the NAB and the FOS “in the very near future”. That does not amount to an offer to pay the amount claimed in the Bankruptcy Notice. It went no higher than an inquiry as to whether, if the amount was paid in full that week, the proceeding would be discontinued. It did not set out when in fact the amount would be paid nor how. The second email relied on by Mr and Mrs Watson is an email to Mr Maher in which he asked when he would have a response to his and Mrs Watson’s “offer of payment”. The “offer of payment” referred to was that set out in Mr Watson’s earlier email of the same date. It takes the matter no further.

54    In response, on 4 April 2016, the Owners Corporation’s lawyers informed Mr Watson that the Owners Corporation intended to proceed with the hearing of its creditor’s petition on 5 April 2016 because of the history of its dealings with Mr and Mrs Watson and because it could take no comfort from Mr Watson’s statement that his “aim [was] to complete [his] negotiations with the bank and the financial ombudsman to sell the property” and that “hopefully this will happen in the very near future”.

55    Relevantly, after they received Higgins & Dix’s letter, Mr Watson responded informing them that they had agreed to surrender the Property to the NAB and that “[o]nce the deed is signed we will no longer have anything to do with the property and the bank will take over all of the strata commitments”. That email similarly did not constitute an offer to pay the amount owing in full. It referred to a future event contingent upon signing a deed and represented that the NAB would take over “all of the strata commitments” without providing any certainty.

56    Secondly, as submitted by the Owners Corporation and contrary to Mr and Mrs Watson’s submissions, tender of payment does not amount to other sufficient cause for the purpose of s 52(2)(b) of the Act.

57    In International Alpaca Management Pty Ltd v Ensor [1999] FCA 72 at [43] Katz J said:

43    As to the debtor’s argument that, in the particular circumstances of the present case, no question arose of the rights of individual creditors who are unable to get their debts paid to them when they become payable, that argument obviously seeks to use against the petitioning creditors their refusal to accept his tender of the amount owing for the taxed special leave application costs. However, reliance upon that refusal in an argument of “other sufficient cause” appears to me to be foreclosed by the High Court’s decision in McIntosh v Shashoua (1931) 46 CLR 494. That case was decided when para56(3)(b) of the 1924 federal bankruptcy legislation was in force, that paragraph being, as I have already mentioned above, the predecessor to subs52(2) of the Act. In that case, the petitioning creditor had refused to accept payment of the amount owing after the presentation of her petition and that refusal was made, at the hearing of the petition, part of the debtor’s argument of “other sufficient cause” why no sequestration order ought to be made against his estate (see at 496-497). The order was, however, made and the debtor then appealed to the High Court, including as one of his grounds of appeal that the trial Judge ought not, in the exercise of his discretion, to have made the order, for reasons which included the petitioning creditor’s refusal to accept payment (see at 499). The Court in effect rejected that reason as a sufficient cause for not making a sequestration order: see at 505 (Gavan Duffy CJ and Dixon J); at 508 (Starke J); and at 521 (McTiernan J).

58    Mr and Mrs Watson relied on Clyne v Deputy Commissioner of Taxation (1985) 5 FCR 1 (Clyne) as authority for their contention that the circumstances that constitute other sufficient cause for the purposes of s 52(2)(b) of the Act include where a debtor offers payment but their offer is declined by the creditor. In Clyne at 5 a Full Court of this Court (Fisher, Morling and Wilcox JJ) said that the circumstances which may constitute “other sufficient cause” are extremely variable and that it was not appropriate to attempt to catalogue or circumscribe them. However, the Full Court did not find that those circumstances included where a debtor’s offer of payment is rejected. Rather, the Court considered whether, among other things, evidence of Mr Clyne’s financial dealings and current assets and their disclosure to the Deputy Commissioner of Taxation, the petitioning creditor, constituted “other sufficient cause” for the purpose of s 52(2)(b) of the Act – the Full Court found that it was not.

Abuse of process ground

59    By the remaining ground Mr and Mrs Watson contend that the primary judge erred in not finding that the creditor’s petition was an abuse of process because it defeated the rights of other creditors. In effect Mr and Mrs Watson submitted that the Owners Corporation used the bankruptcy proceedings as a means to obtain payment of its debt rather than as “a genuine effort” to bankrupt the appellants. Mr and Mrs Watson contended that this was “another sufficient cause” under s 52(2)(b) of the Act for which the creditor’s petition should have been dismissed.

60    In Culleton one of the issues that the appellant contended justified the adjournment we sought as legally necessary was an asserted abuse of process arising as a result of alleged collusion between the ANZ Bank and the creditor. In addressing this ground of appeal, at [66]-[68] the Full Court discussed the nature of abuse of process:

[66]    Abuse of process occurs when a party seeks to use court processes in a way which is likely to cause manifest unfairness to another party or otherwise to bring the administration of justice into disrepute. Abuse of process may involve the commencement and prosecution of proceedings for an improper purpose. In Dowling v Colonial Mutual Life Assurance Society Ltd (1915) 20 CLR 509 at 521-22, Isaacs J said:

In English law there has long been recognized a form of wrong by malicious use of process — such as by malicious arrest. But in order to maintain an action for malicious use of the process there must have been a termination of the suit in plaintiff's favour. If, however, there has been an abuse of the process, as distinguished from the use of it, it is unnecessary to show any such termination of the suit. If the object sought to be effected by the process is within the lawful scope of the process, it is a use of the process within the meaning of the law, though it may be malicious, or even fraudulent, and in the circumstances the fraud may be an answer; if, however, the object sought to be effected by means of the process is outside the lawful scope of the process, and is fraudulent, then — both circumstances concurring — it is a case of abuse of that process, and the Court will neither enforce nor allow it to afford any protection, and will interpose, if necessary, to prevent its process being made the instrument of abuse. ... The purpose is foreign to the nature of the process. ...

Where it can be shown in a case of insolvency that the creditor is making his application not intending to pursue it to a recognized lawful end — whatever his motive may be for attaining that lawful end — but for the real purpose of attaining some other and improper end, such as extorting money as in Davies' Case, where the petition was hung up while in existence and used as a means of extortion, there is an abuse of process.

(Footnotes omitted.)

[67]    In Williams v Spautz (1992) 174 CLR 509 at 526; 107 ALR 635 at 646, Mason CJ, Dawson, Toohey and McHugh JJ said, concerning that passage:

The observations ... of Isaacs J. in Dowling, to which we referred earlier, represent an attempt to achieve a formulation which keeps the concept of abuse of process within reasonable bounds. To say that a purpose of a litigant in bringing proceedings which is not within the scope of the proceedings constitutes, without more, an abuse of process might unduly expand the concept. The purpose of a litigant may be to bring the proceedings to a successful conclusion so as to take advantage of an entitlement or benefit which the law gives the litigant in that event.

(Footnotes omitted.)

Their Honours continued, at CLR 526-7; ALR 647:

It is otherwise when the purpose of bringing the proceedings is not to prosecute them to a conclusion but to use them as a means of obtaining some advantage for which they are not designed or some collateral advantage beyond what the law offers. So, in Dowling, Isaacs J. pointed out that “if, for instance, it had been shown that the Society had simply threatened Dowling that unless he did what they had no right to demand from him, namely, give up certain names, they would proceed to sequestration, and they had proceeded accordingly, there would have been in law an abuse of the process”. However, because the Society wished to use the process for the very purpose for which it was designed, there was no abuse of process. (Footnotes omitted.)

[68]    In Tomlinson v Ramsey Food Processing Pty Ltd (2015) 256 CLR 507; 323 ALR 1; [2015] HCA 28 at [25], the majority of the High Court said:

Although insusceptible of a formulation which comprises closed categories, abuse of process is capable of application in any circumstances in which the use of a court's procedures would be unjustifiably oppressive to a party or would bring the administration of justice into disrepute.

61    In their written submissions titled “chronology” Mr and Mrs Watson suggested that the nature of the abuse here was that the Owners Corporation had deferred bankruptcy proceedings for six months to allow a part sale to proceed to one of the existing lot owners but when the sale fell through it initiated the proceeding. Mr and Mrs Watson relied on a series of emails between, among others, the prospective purchaser and Mr Watson in which it seemed that the sale was in part subject to the swap of common property which was to be approved by the Owners Corporation at an extraordinary general meeting. However, there was no evidence as to whether that approval was given. Furthermore, Mr Watson’s submissions before the Registrar suggested that the sale did not proceed because “[his] bank had stopped that sale” and not because of any actions on the part of the Owners Corporation.

62    There was simply no evidence before the primary judge or me to support the assertion that the bankruptcy proceeding was an abuse of process. None of the matters raised before the primary judge could establish that the Owners Corporation was using the proceeding to obtain some advantage beyond that for which the proceeding is designed nor could it be said that it was using the Court’s processes in a way that was unjustifiably oppressive to Mr and Mrs Watson.

63    On the contrary, the evidence established that there was a lengthy history of the Owners Corporation having to take enforcement steps to have levies paid. Further, there was no evidence before the primary judge of Mr and Mrs Watson’s financial circumstances. His Honour found that the evidence before him suggested that Mr and Mrs Watson would have been unable to pay the debt owing to the Owners Corporation, at least within the 14 day adjournment period requested or “within any not unreasonably longer period”. His Honour also found that either Mr or Mrs Watson individually or both of them collectively had creditors additional to the Owners Corporation and the NAB which may have existed as at 5 April 2016, the date on which the adjournment of the hearing before the Registrar was sought.

64    Mr and Mrs Watson have not established that the primary judge erred in failing to find that the creditor’s petition was an abuse of process.

conclusion

65    For those reasons Mr and Mrs Watson have failed to establish any error on the part of the primary judge. Their appeal should be dismissed with costs. I will make orders accordingly.

Associate:

Dated:    7 December 2018