Federal Court of Australia

Williams (formerly Turco) v Mortgage Ezy Australia Pty Ltd [2020] FCA 1567

ORDERS

THE COURT ORDERS THAT:

1.    The appeal is dismissed.

2.    The appellant must pay the respondent's costs of the appeal, to be assessed if not agreed, with such costs to be paid out of the appellant's estate in accordance with s 109(1)(a) of the Bankruptcy Act 1966 (Cth).

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

REASONS FOR JUDGMENT

JACKSON J:

1    This is an appeal from a decision of a judge of the Federal Circuit Court of Australia affirming a decision of a registrar of that court to grant a sequestration order in respect of the estate of the appellant, Ms Williams. The respondent is the petitioning creditor, Mortgage Ezy Australia Pty Ltd.

2    The issue before the primary judge was whether the existence of certain proceedings in the Supreme Court of Western Australia against third parties (not Mortgage Ezy) warranted the adjournment of the petition, or meant that it should have been dismissed under s 52(2)(b) of the Bankruptcy Act 1966 (Cth) because, 'for other sufficient cause' a sequestration order ought not to have been made. The issue on this appeal is whether Ms Williams has demonstrated appealable error in the primary judge's exercise of his discretion adversely to her on both of those questions. For the following reasons, she has not, and the appeal must be dismissed.

Background

3    Ms Williams is the former wife of Mario Turco. In Turco v Mortgage Ezy Australia Pty Ltd [2020] FCA 1181, I dismissed an appeal against a sequestration order in relation to his estate. It is convenient to quote [7]-[10] of that judgment, which set out background that is relevant to the present appeal.

The following background was uncontentious. Mr Turco is an accountant by profession. In November 2003, he and his then wife, Suellen Turco, now Suellen Williams, borrowed $644,000 from Mortgage Ezy. The loan was secured by a mortgage over a property in East Fremantle.

In February 2005, Turco & Co Pty Ltd, an entity associated with Mr Turco and his brother, Vitorio Turco, obtained a $1.65 million facility from Bank of Western Australia Ltd. One of the purposes of the facility was to refinance the loan from Mortgage Ezy. The loan from Bankwest was to be secured by a mortgage over the East Fremantle property.

Due to a mistake made by Mortgage Ezy's representative at settlement, Mortgage Ezy discharged the mortgage without obtaining payment of the debt. The funds from Bankwest for the discharge of the debt owed to Mortgage Ezy were not paid to Mortgage Ezy. They were paid to Turco & Co. The result was that the debt to Mortgage Ezy, much of which remained outstanding, was still owing but became unsecured, and Turco & Co had access to substantial funds provided by Bankwest which had been intended to repay Mortgage Ezy.

Turco & Co disbursed those funds. It then continued the payments that were due under the loan agreement with Mortgage Ezy. Mr Turco was involved in the ongoing repayments. But Mortgage Ezy did not become aware of the mistake until September 2013, over eight years after it occurred.

4    Meaning no discourtesy, it will be convenient to refer to Mario Turco and Vitorio (Victor) Turco by their first names.

5    It appears that Bankwest and Mario fell into dispute after the refinancing, because in 2012 that bank (by then a division of Commonwealth Bank of Australia Ltd) commenced proceedings against Mario and Ms Williams in the Supreme Court of Western Australia. The proceedings were settled on terms which included a deed dated 14 June 2013 (Deed). Bankwest was not a party to the Deed but Ms Williams, Mario, Victor and Turco & Co were. It seems that there were also other proceedings in the Supreme Court involving Bankwest and Victor, Turco & Co and others. According to a recital of the deed, Ms Williams had agreed to settle her litigation with Bankwest on terms which required her to sell the East Fremantle property referred to above and pay part of the proceeds of sale in reduction of the debts which Mario, Victor and Turco & Co owed to Bankwest.

6    The operative terms of the Deed effectively required Mario, Victor, and Turco & Co to pay out Ms Williams' debt to Mortgage Ezy. This was to be done by 21 February 2014. There were other terms about Family Court of Western Australia proceedings between Ms Williams and Mario, and a term permitting Ms Williams to call for security for the obligation to pay out Mortgage Ezy, which do not need to be described in any detail.

7    Mortgage Ezy was not paid out in full by 21 February 2014. The evidence does not make it clear whether Mario, Victor or Turco & Co paid any part of that debt. On 24 March 2014 Victor gave an undertaking to the Family Court not 'to enter any transactions that would be of an extraordinary nature or designed to defeat any claim' of Ms Williams, and not 'to further encumber or dilute my interest in real or personal property or assets of Turco & Co Pty Ltd without first informing' Ms Williams. It is not clear from the evidence exactly why the undertaking was given, but it can be inferred that it was intended to give Ms Williams comfort that Victor and Turco & Co would retain assets sufficient to meet their liabilities under the Deed, or at least that their capacity to meet those liabilities would not be eroded.

8    Also on 24 March 2014, Mortgage Ezy, Victor and Turco & Co were joined to the Family Court proceeding. Ms Williams sought an order requiring Mario and/or Victor, the latter in his personal capacity and/or as a director of Turco & Co, to do whatever was necessary to satisfy her debt to Mortgage Ezy so as to effect her release from that debt, and in the absence of compliance with those obligations she sought the substitution of Mario as the sole debtor.

9    In April 2015 the Family Court heard Mortgage Ezy's claim against Ms Williams and Mario as a preliminary issue. On 8 November 2017, the Family Court gave judgment for $903,721.13 in favour of Mortgage Ezy against Mario and Ms Williams. That is the judgment on which the bankruptcy petition relevant to this appeal is based, and is also the judgment which formed the basis of the sequestration order against Mario. Ms Williams appealed against that judgment but on 28 November 2018 the appeal was dismissed. She took no steps to pursue the order she sought requiring Mario, Victor and or Turco & Co to satisfy her debt to Mortgage Ezy.

10    Mortgage Ezy applied for the sequestration order against Ms Williams on 9 January 2020.

11    On 11 February 2020, Ms Williams commenced proceedings against Victor and Turco & Co in the Supreme Court (the SC Action). The statement of claim alleges that the defendants have breached their obligations under the Deed to pay Ms Williams's debt to Mortgage Ezy and that this has caused her to suffer loss or damage. The loss or damage is pleaded to be the amount of the judgment debt in the Family Court, on which the bankruptcy petition is based. The writ also seeks an order that the defendants indemnify Ms Williams against any further claim by Mortgage Ezy.

12    On 21 February 2020 the solicitors acting for Victor and Turco & Co in the SC Action wrote to Mortgage Ezy's solicitors saying that their clients were going to seek to have the SC Action dismissed on the ground that the subject matter of those proceedings was already part of the proceedings in the Family Court, and also saying that their clients had defences to Ms Williams's claims and offsetting claims exceeding any amount that would be found to be due.

13    An affidavit which Victor swore in different Supreme Court proceedings is relevant to those claims. It was sworn in an application to set aside a statutory demand which Ms Williams had served on Turco & Co in connection with the Deed and a Heads of Agreement. It is not necessary to describe the affidavit in detail; suffice to say that it shows that there is a complex web of claims and counterclaims involving Ms Williams, Victor, Turco & Co and others. The affidavit alleges, on the basis of findings in the Family Court, that Ms Williams knew about Mortgage Ezy's mistake on settlement of the refinancing in 2005 which led to it becoming an unsecured creditor, and that she knew that she was in default under the loan. It alleges that Ms Williams induced the execution of the Deed by misleading Victor about her knowledge of the mistake and about whether Mario had been acting on her behalf in the course of the Bankwest refinancing. In those Supreme Court proceedings, on 21 February 2018 the court set aside the statutory demand by consent.

14    On 8 June 2020, the Supreme Court heard an application to strike out Ms Williams's claim in the SC Action. Master Sanderson in the Supreme Court reserved judgment on that application.

15    The registrar made the sequestration order on 16 June 2020 and an application for review was filed on 25 June 2020. The primary judge affirmed the registrar's decision at a hearing on 3 July 2020. Judgment on the application to strike out the SC Action was still reserved as at that date.

The primary judge's decision

16    The primary judge gave brief ex tempore reasons. His Honour found that all the requirements for an effective bankruptcy petition under the Bankruptcy Act and the rules of court had been complied with, and the correctness of those findings is not in dispute.

17    Ms Williams had submitted to the primary judge that the bankruptcy proceedings should be adjourned or that other sufficient cause not to make a sequestration order had been shown. The SC Action against Victor and Turco & Co was the basis of that submission. His Honour rejected the submission, for reasons he expressed as follows:

[11]    Those proceedings do not impeach the judgment debt, the subject of these proceedings. The pursuit of those proceedings are not a proper basis upon which an adjournment should be granted in the interest of the administration of justice. The petitioning creditor has established the requirements in support of the making of a sequestration order. The existence of the other proceedings in relation to the respondent debtor against other parties does not identify a proper basis upon which this Court is satisfied that an adjournment is appropriate in respect of the review application. The interests of the administration of justice do not warrant an adjournment. Ordinarily, review applications should be heard, preferably, on the day the order is made.

[12]    Whilst the Court does have power to adjourn the proceedings, the respondent would remain a bankrupt unless the Court granted some other interim relief. The proceedings before the Master are not such of a kind that warrant this Court adjourning the matter and it is not apparent that any success, if the respondent does succeed before the Supreme Court, will give rise to circumstances by reason of which it could be said that the respondent is able to pay her debts, nor is the Court satisfied that the existence of those other proceedings mean that there is other sufficient cause why a sequestration order ought not to be made. The reserved decision cannot give rise to any material difference in the respondent debtor's ability to pay her debts and the outcome of the substantive proceedings, even if successful, is not one upon which the Court can be satisfied that the applicant's ability to pay her debts would be materially different. Indeed, the more likely outcome of those proceedings appears to be adverse to the respondent debtor's financial position.

18    The primary judge also said (at [14]) that he was not satisfied that the pursuit of the SC Action gave rise to a proper basis by reason of which Mortgage Ezy should not be entitled to enforcement of the judgment it had obtained in the Family Court. At [17] he said that other sufficient cause as to why a sequestration order ought not to be made had not been made out. His Honour therefore affirmed the sequestration order which the registrar had made.

19    I will now set out and consider each of the four grounds of appeal in turn.

Ground 1 - no requirement for SC Action to impeach the judgment debt

20    Ground 1 is:

His Honour erred in law or in fact in holding that there was a requirement for the proceedings in the Supreme Court of Western Australia to impeach the judgment debt the subject of the creditors petition, in order to adjourn the creditors petition (at [11]).

21    This misstates what the primary judge said at [11]. He did not say that there was a requirement that the proceedings on which Ms Williams relied must impeach the judgment debt which was the basis of the bankruptcy petition. He merely observed that the SC Action did not impeach that debt. This was a relevant observation, because if the SC Action had sought to impeach the debt, that would have been a reason why the bankruptcy petition might have been adjourned or dismissed. In Ling v Enrobook Pty Ltd (1997) 74 FCR 19 (Ling Full Court) at 25, the Full Court said that the circumstance of a judgment debtor having a legitimate claim against the judgment creditor is likely to be a significant circumstance. That would be all the more so if the claim impeaches the judgment debt. The absence of that circumstance in the present case was worthy of note. That is all the primary judge did.

22    The submissions made on behalf of Ms Williams on this ground developed the proposition that the court's discretion to adjourn the bankruptcy proceedings was not fettered by any condition that the debtor was relying on proceedings that impeach the judgment debt. Those submissions are irrelevant because the primary judge did not proceed on the basis that there was any such fetter.

23    Ground 1 identifies no error and I do not uphold it.

Ground 2 - error in not adjourning

24    Ground 2 is:

His Honour erred in law or in fact in holding that proceedings in the Supreme Court of Western Australia against other parties did not identify a proper basis to adjourn the creditors petition (at [11] and [14]).

25    Under this broad ground, Ms Williams makes several attacks on the primary judge's conclusion that the petition ought not to have been adjourned. I will consider those below, but it must be said at the outset that her primary submissions did not grapple with the discretionary nature of the decision not to adjourn. To succeed on appeal, Ms Williams must identify one or more errors of the kind described in House v The King (1936) 55 CLR 499 at 504-505. Those are that the primary judge acted upon a wrong principle, or allowed extraneous or irrelevant matters to guide or affect him, or mistook the facts, or did not take into account some material consideration. If it does not appear how the primary judge reached the result embodied in his order, Ms Williams will need to establish that, on the facts, the decision is unreasonable or plainly unjust, so that this court may infer that in some way there has been a failure to exercise the discretion properly.

26    On Ms Williams's primary submission in relation to ground 2, the error is said to be a failure to recognise that refusing to adjourn would result in a serious injustice to her. The injustice is said to arise because if she successfully enforces the Deed, her liability to Mortgage Ezy and so the basis for the bankruptcy petition will be removed. It is said that since successful enforcement of the Deed will permit recourse to the assets of Victor and Turco & Co, to which Mortgage Ezy will not otherwise have access, allowing Ms Williams to pursue the SC Action cannot prejudice Mortgage Ezy.

27    In reply to the submission, Mortgage Ezy relies on Ling Full Court and Pineview Property Holdings Pty Ltd v Dimitriou (No 2) [2019] FCA 1416. They are not cases about adjournment, but about the exercise of the discretion under s 52(2)(b) to dismiss a petition for 'other sufficient cause'. In Endresz v Australian Securities and Investments Commission (No 2) [2015] FCAFC 33; (2015) 228 FCR 334 at [34]-[39] the Full Court made it clear that the discretion to adjourn a petition under s 33(1) of the Act is different to the discretion to dismiss a petition under s 52(2)(b), and engages potentially broader considerations. Nevertheless, there will obviously be overlap between the kinds of considerations that can be relevant to the decision to adjourn and those that can be relevant to a decision to dismiss under s 52(2)(b). In the first instance decision which was appealed in Maddestra v Penfolds Wines Pty Ltd (1993) 44 FCR 303, from which the Full Court quoted (at 307) with evident approval (see 309), Lee J said of the relevance of litigation against third parties:

If collateral litigation is well advanced and likely to bring a beneficial result to a debtor, there may be good cause for the Court not to make a sequestration order and it may be satisfied that such an order ought not to be made. The Court may mould its order according to the circumstances, deferring further hearing of the petition subject to review or it may be entirely satisfied that a sequestration order ought not to be made on the petition at any time and that the petition should be dismissed.

His Honour's reference to deferring further hearing of the petition shows that the considerations he outlined can be relevant to adjournment as well as to dismissal under s 52(2)(b).

28    Similarly, in the first instance decision in Re Ling; Ex parte Enrobook Pty Ltd (1996) 142 ALR 87 (Ling First Instance) which was affirmed in Ling Full Court, Lehane J discussed the principles in terms of both adjournment and dismissal of the petition. At 95-96 his Honour referred to two categories of case in which there can be sufficient cause to adjourn or dismiss a petition on the basis that the debtor has a claim against a person other than the petitioning creditor. One is 'where the claim against the third party is so intimately connected with the debt on which the petitioning creditor relies as to require that it be regarded substantially in the same way as a claim against the petitioning creditor'. The other is the kind of circumstance mentioned in Maddestra, 'where the debtor, although not presently solvent, establishes that there is a claim which is being diligently prosecuted, has good prospects of success, is likely to be determined in the near future and is likely, if determined favourably, to produce funds sufficient to discharge all claims against the debtor'. Lehane J said that relevant factors in such a case include:

whether the claim is likely to yield sufficient funds to discharge the claimant's debts; whether litigation has been prosecuted vigorously; whether an early determination is likely; whether there are prospects of a beneficial settlement and whether the petition has already been extended and is nearing the end of its life, so that it is necessary for a decision to be made.

29    The considerations referred to in Maddestra and in Ling First Instance are relevant to an application to adjourn or to dismiss a petition in circumstances such as the present. They are not exhaustive considerations, however; Lehane J spoke in terms of inclusion, and it is undesirable to reduce broad discretions of this kind to formulaic lists. In Endresz (at [59]) the court remarked that there is no exhaustive catalogue of the circumstances under which the court should grant an adjournment of a petition.

30    It is necessary to return to Endresz because Ms Williams relied on it quite heavily. The Full Court (Edmonds, Gordon and Beach JJ) held that the primary judge had erred in failing to take certain matters into account in deciding not to adjourn: see [40]. Those matters included the fact that the judgment debtors had an appeal on foot against the Commonwealth (not against the petitioning creditor, ASIC) in relation to a decision of the Supreme Court of the Australian Capital Territory to allow claims by the Commonwealth and to dismiss counterclaims against the judgment debtors. But that fact alone would not have compelled an adjournment; the Full Court made it clear that 'unique features' ([56]) and 'unusual and idiosyncratic features' ([59]) of the case meant that an adjournment should have been granted. The features on which the court principally relied were that freezing orders in the Supreme Court proceedings had been the cause of the debtors' inability to pay ASIC, and there had been extraordinary delays in the progress of the proceedings which were not the fault of the debtors: see [40], [44], [46]-[47], [51]. Their Honours accepted that the onus of establishing that the primary judge's discretion had miscarried was a heavy one ([41]), and that in considering whether to grant an adjournment due weight should be given to the prima facie right of the creditor to obtain a sequestration order and to avoiding or minimising delay once bankruptcy proceedings have been instituted: at [36], [56]. Endresz confirms that a claim by a debtor against a third party can support a finding that a bankruptcy petition should be adjourned, and Mortgage Ezy does not contend otherwise. But Endresz does not assist Ms Williams on its facts.

31    In the present case, it is plain that the existence of the SC Action was a relevant factor to be taken into account in deciding whether to adjourn or dismiss the petition. If that action is pursued to an outcome which results in the satisfaction of Ms Williams's debt to Mortgage Ezy, that would remove the foundation of the bankruptcy petition. Ms Williams's prospects of achieving that outcome were also relevant. So was the likely timeframe within which that outcome would be achieved, including whether Ms Williams had prosecuted the matter with diligence and whether she would do so in the future. In Endresz, the orders for adjournment were made on condition that the debtors prosecuted the relevant appeals against the Commonwealth with due expedition: see [7]. The effect of the appointment of a trustee in bankruptcy on Ms Williams's ability to prosecute the SC Action was relevant too. In Endresz the court found that the assertion by the trustee in bankruptcy that certain dimensions of the debtors' appeal rights had vested in the trustee was relevant because it adversely affected and curtailed the debtors' control of those rights: see [53]. And throughout, the drastic effect of a sequestration order on any individual should be steadily kept in mind. Those matters would all have to be weighed against Mortgage Ezy's prima facie right to obtain a sequestration order and the importance of the petition being determined with minimal delay. The interests of creditors other than Mortgage Ezy in seeing an orderly administration of the estate of an insolvent person are also relevant.

32    Did the primary judge err in failing to apply those considerations here, or in applying other considerations that were not relevant? His Honour recognised that there was a discretion to adjourn: see the first sentence of [12]. But there is reason to think that he conceived of the question in terms of whether the review proceeding before him should be adjourned, rather than whether the decision of the registrar making the sequestration order should be set aside because the registrar should have adjourned. This appears in particular from [11], where his Honour says that adjournment is not appropriate 'in respect of the review application' and says that review applications should ordinarily be heard on the day the order is made, and at [12] where he says that the respondent would remain a bankrupt unless the court granted some other interim relief. However no ground of appeal raises that as an error. Although counsel for Ms Williams did mention it in oral submissions, for the most part the parties approached the primary judgment on the basis that his Honour decided that there was no basis to adjourn the petition.

33    Approaching it in the same way, the difficulty is that the primary judge's brief ex tempore reasons, barely spanning three pages, do not reveal why he decided to exercise the discretion to adjourn against Ms Williams here. Apart from the matters he discussed in the balance of [12] (which are the subject of ground 3 below), the reasons consisted of conclusionary statements to the effect that the SC Action did not provide proper basis to adjourn, and that the interests of justice did not warrant an adjournment: see [11], [14]. It may be that the comment in [12] that the outcome of the 'substantive proceedings even if successful, is not one upon which the Court can be satisfied that the applicant's ability to pay her debts would be materially different' is a reference to the uncertain prospects of the SC Action or the uncertain prospects of enforcing any judgment. But apart from that, no reasons are expressed.

34    Ms Williams does not appeal on the ground of inadequacy of reasons. So this court is left in the position which the High Court described in House v The King at 505, where it does not appear how the primary judge has reached the result embodied in his order, and the appellate court should intervene if, on the facts, the decision is unreasonable or plainly unjust so that a substantial wrong has occurred.

35    I do not consider that Ms Williams has established that here. The circumstances before the primary judge included the following:

(1)    In 2014 Ms Williams had made a claim in the Family Court to compel Victor and Turco & Co to pay Mortgage Ezy's debt.

(2)    In 2020, two days after the application for a sequestration order against her, she commenced the SC Action for essentially the same relief as she was seeking, but not pursuing with any expedition, in the Family Court.

(3)    It appears that Ms Williams had taken no steps to pursue that claim, including in the fourteen months between the dismissal of her appeal from the judgment in favour of Mortgage Ezy and the commencement of the SC Action. Her counsel sought to explain that by saying that she wanted to see whether Mortgage Ezy would be able to recover the debt from Mario. But there was no evidence of that, and there was nothing before the Federal Circuit Court which could have satisfied it that the claim had been or would be pursued vigorously.

(4)    The defendants in the SC Action are contesting the claim. At the time of the primary judgment there was a possibility that the Supreme Court would strike the SC Action out. Even if Ms Williams was successful in resisting that application, the result would merely enable her to pursue the SC Action. It would not have indicated that she had good prospects of success in that action.

(5)    The dealings between Ms Williams, Mario and the defendants are sufficiently involved to give the defendants counterclaims and other bases on which to resist the claim. It was impossible for the primary judge to assess the merits of the various claims and counterclaims, so it was impossible for him to be confident that Ms Williams would be ultimately successful.

(6)    It was also impossible for the primary judge to have any confidence that the SC Action would be finalised any time soon. It had only been commenced recently. It appears from the evidence that as at the time of the Federal Circuit Court hearing, no defence had been filed, presumably because the defendants had applied to strike the proceeding out. As I have said, there was no evidence that Ms Williams intended to prosecute the SC Action with any vigour.

(7)    It was also impossible for the primary judge to have any confidence that Ms Williams would be able to enforce any judgment. There was evidence that Victor is the registered proprietor of six properties in East Fremantle and Bicton, but there are certificates of title in evidence for four of these only. In each of the four, Victor was registered as to a one third share only. Mario and another brother, Tony, each had another one third share. Tony had lodged caveats over Victor's share (and over Mario's). It appears that Tony has commenced proceedings against Mario and Victor in relation to those four properties. And for each of the four there was a registered mortgage in favour of a finance corporation. The status of the remaining two properties is unclear. So even if the undertaking to the Family Court meant that Victor's and Turco & Co's asset positions would not deteriorate, there was no basis for confidence that any judgment in Ms Williams's favour in the SC Action would result in satisfaction of Mortgage Ezy's debt. Counsel for Ms Williams properly conceded before the primary judge that these property interests did not equate to 'funds raised'.

36    It appears from the transcript of the hearing before the primary judge that Ms Williams only sought an adjournment of the petition until the Supreme Court handed down judgment on the application to strike the SC Action out. Counsel for Ms Williams effectively conceded before the primary judge that if the SC Action was struck out, there would be no basis to resist the sequestration order, but said that if the decision went in Ms Williams's favour, the petition could then be relisted to assess the position in light of that.

37    However there would have been no utility in adjourning for that relatively short time if dismissal of the strike out application would not have led to a longer adjournment of the petition, or its dismissal. A favourable outcome on the strike out application would have said nothing about the merits of Ms Williams's claim, let alone the merits of the foreshadowed counterclaims against her. Assuming that the SC Action was permitted to proceed, the question remained whether it justified adjournment or dismissal of the petition. That question was to be answered in the circumstances just described, where there was a real prospect that adjourning the bankruptcy petition pending an outcome in the SC Action would have deferred any sequestration order, perhaps for years, with an uncertain outcome. Adequate justification for the primary judge's decision not to adjourn appears on the face of the evidence.

38    I therefore do not accept Ms Williams's submission that refusing to adjourn caused her serious injustice. It would only be a serious injustice if it deprived her of the ability to prosecute a claim that was likely to succeed and to result in the satisfaction of the debt to Mortgage Ezy within a relatively short time. The onus was on her to establish that. She did not.

39    I also do not accept the submission that there would have been no injustice to Mortgage Ezy if the petition had been adjourned. While that may have been the case for a short adjournment, the indefinite adjournment, which was really what was proposed here, would have delayed Mortgage Ezy's enforcement of the judgment it had obtained and defended on appeal, and would have increased the risk of dissipation of assets in the meantime. That included the risk that Ms Williams would spend legal fees in prosecuting the SC Action, ultimately to no avail. Weight must be given to the right of a judgment creditor to obtain a sequestration order with minimal delay.

40    Ms Williams's submissions placed emphasis on the character of the Deed as a deed, 'which is the most solemn act that a person can perform with respect to a particular piece of property or other right'. She said it was open to her to enforce it summarily, 'provided the Court is clearly satisfied that justice can be done under the summary procedure'. But there was no evidence that she had applied for summary judgment or intended to do so. The apparent intentions of the defendants to resist the SC Action, including on the basis of allegations of misleading conduct, mean that if she were to pursue it, there would probably need to be a full trial.

41    Ms Williams submitted that the primary judge had failed to take into account a relevant consideration, namely that by making the mistake during the refinancing, Mortgage Ezy exposed her to the risk of a claim being made against her for an outstanding debt. It is not clear whether this was put to the primary judge, but I do not accept that it has much weight in the exercise of the discretion. The operative factor which has led to Ms Williams's ongoing liability to Mortgage Ezy was the decision of Mario, Victor and Turco & Co to use for other purposes the funds that had been earmarked for Mortgage Ezy. While, as Ms Williams's counsel said, Mortgage Ezy's mistake satisfied the 'but for' test in relation to his client's current indebtedness, I do not consider that this bare causal connection with the inadvertent mistake Mortgage Ezy made justifies adjourning (or dismissing) the petition. That is so in circumstances where it gives no basis to think that there could be a counterclaim against Mortgage Ezy or that for any other reason it should not be permitted to seek repayment of the debt which has been conclusively established by judgment.

42    Ms Williams also submitted that the primary judge failed to consider the possibility that the trustee in bankruptcy could be deemed to have abandoned the SC Action if he does not elect to prosecute it: Bankruptcy Act s 60(3). Once again, it is not clear that this was put to the primary judge, but if it was, it is speculative. The evidence does not indicate what the trustee's intentions are. If the SC Action is indeed a worthwhile avenue to pursue payment of the debt to Mortgage Ezy, which proposition is the ultimate foundation of Ms Williams's case for the adjournment, then it may be expected that the trustee in bankruptcy will elect to prosecute it. But if the trustee does elect not to pursue the claim, that will not cause serious injustice to her. It will simply be an outcome of the trustee's duty not to risk assets or creditors' funds if in his judgement it is not a risk worth taking. While, as I have said, Ms Williams's loss of control over the SC Action is a relevant factor, in the absence of evidence of the trustee's intentions, I would not give it much weight.

43    Ms Williams has not established that the primary judge's decision was unreasonable or plainly unjust, or that his Honour otherwise committed appealable error in the exercise of his discretion. If I am wrong about that, for example because his Honour misunderstood that the question was the adjournment of the petition and not adjournment of the review application, then it would be appropriate for this court to exercise the discretion for itself, and for the reasons I have given I would exercise it against setting the bankruptcy order aside so that the petition can be adjourned. The drastic effects of a sequestration order on the individual involved mean it should never be made lightly. But here there was a judgment debt, Ms Williams could not pay it, and she had not put on evidence sufficient to persuade the court that the SC Action would materially change that, within a reasonably short time, or at all. Either way, I do not uphold ground 2.

Ground 3 - the effect of success in the SC Action

44    Ground 3 is:

His Honour erred in law or in fact in holding that if the Appellant does succeed in the proceedings in the Supreme Court of Western Australia the Appellant's ability to pay her debts would not be materially different (at [12]), in circumstances where the proceedings were to enforce a deed pursuant to which the relevant defendants agreed to satisfy the debt the subject of the creditors petition.

45    In my view this ground is based on a mischaracterisation of what the primary judge held in his judgment at [12]. It is a characterisation that is open, because the paragraph is unclear, but construed in context I do not think that the ground accurately states the effect of what the primary judge said.

46    It will be recalled that before the primary judge, Ms Williams principally relied on the fact that the Supreme Court had reserved judgment on the application to strike the SC Action out as justifying an adjournment until after that judgment was delivered. Master Sanderson had heard that application. In my view, the primary judge was speaking of that application when at [12] he referred to the 'proceedings before the Master' and said that success would not mean that Ms Williams would be able to pay her debts. His Honour was saying that success in resisting the strike out application would not give her that ability. He then went on to speak more broadly of the SC Action as a whole when he said 'the outcome of the substantive proceedings, even if successful, is not one upon which the Court can be satisfied that the applicant's ability to pay her debts would be materially different'. Then, in saying at the end of [12] that 'the more likely outcome of those proceedings appears to be adverse to the respondent debtor's financial position', his Honour seems to have been referring to the fact that the outcome of the application before Master Sanderson could end Ms Williams's hope of pursuing Victor and Turco & Co in the Supreme Court. I do not suggest that most of this emerges clearly from the primary judge's reasons, but this appellate court must place some construction on them (unless they are wholly unintelligible) and in my view this is the correct construction in all the context.

47    It follows that the primary judge did not hold that if Ms Williams did succeed in the SC Action, her ability to pay her debts would not be materially different. In substance, his Honour said that the court could not be satisfied of that. That should be taken to mean that even if Ms Williams obtained judgment against Victor and Turco & Co, the court was not satisfied that she would recover any assets as a result. That view was open to his Honour in the circumstances I have described above, and reflects the fact that the practical onus of satisfying the court that there was good reason to adjourn or dismiss the petition was on Ms Williams.

48    I do not uphold ground 3.

Ground 4 - other sufficient cause

49    Ground 4 is:

His Honour erred in law or in fact in holding that the proceedings in the Supreme Court of Western Australia could not constitute other sufficient cause why a sequestration order ought not to be made (at [12] and [17]).

50    This relies on s 52(2)(b) of the Bankruptcy Act, instead of the power to adjourn. That provision gives the court a discretion to dismiss a bankruptcy petition if it is satisfied that the debtor is able to pay her debts or 'that for other sufficient cause a sequestration order ought not be made'.

51    It was, correctly, common ground that it is inherently more difficult to persuade the court to the standard of satisfaction contemplated there than it is to persuade the court that a petition ought to be adjourned. After all, the result of exercising the power under s 52(2)(b) is the dismissal of the petition. On the other hand, it was not submitted that there was any difference between the matters that are relevant (and not relevant) to the question of adjournment in the present case, and the matters that are relevant to the question of 'other sufficient cause'. The conclusions above about the grounds of appeal concerning adjournment therefore also dispose of this ground.

52    It is, however, worth mentioning the following passages from Ling Full Court, as they go directly to the issues here. At 25 the Full Court put it this way (citations removed):

A review of the authorities discloses that in certain circumstances, but not in all circumstances, the fact that the debtor has pending before a court a legitimate claim to funds sufficient to satisfy the petitioning creditor's debt will amount to 'other sufficient cause' not to make a sequestration order. The circumstance that the legitimate claim of the debtor is one against the judgment creditor is likely to be a significant circumstance for the purposes of s 52(2)(b).

53    But at 26 the court went on to say:

The authorities also show that satisfaction that the debtor is well advanced with litigation likely to result in the debtor being in a position to pay his or her debts may well provide a basis for a finding that there is a 'sufficient cause' for a sequestration order not to be made (see, for example, Maddestra v Penfolds Wines Pty Ltd). But the authorities do not suggest that it is in the public interest to allow insolvent debtors to prosecute litigation generally. They only recognise that it is not in the public interest for a debtor to be forced into bankruptcy by reason of a state of insolvency likely to be of only short duration.

54    Here, Ms Williams had put no evidence before the Federal Circuit Court capable of showing that she was well advanced with the SC Action, or that it was likely to result in her being in a position to pay her debts, or that her state of insolvency was likely to be of only short duration. Her counsel emphasised that this was not a simple case where she was pursuing a third party for payment of money which, if recovered, could be used to pay the petitioning creditor. Rather, the SC Action seeks to force two of the parties responsible for the ongoing existence of the debt to Mortgage Ezy - Victor and Turco & Co - to satisfy that debt and so procure her release. The claim was therefore intimately connected with the debt on which the petitioning creditor relies (see Ling First Instance at 96). But even so, that does not change the fact that Ms Williams had failed to discharge the practical onus on her of satisfying the primary judge that her prospects of procuring that satisfaction and release within any short time were sufficient to justify dismissing the petition. On the evidence, it was open to the primary judge not to be so satisfied, and it was open to him not to exercise the discretion in Ms Williams's favour. I do not uphold ground 4.

Conclusion

55    The appeal must be dismissed. There will be an order that Mortgage Ezy's costs be paid out of Ms Williams's bankrupt estate in accordance with s 109(1)(a) of the Bankruptcy Act.

Associate:

Dated:    30 October 2020