Federal Court of Australia

Chang v Haughton, in the matter of Haughton (No 2) [2021] FCA 998

ORDERS

THE COURT ORDERS THAT:

1.    The Respondent’s interlocutory application of 6 August 2021 is dismissed.

2.    The Respondent pay any costs incurred by the Applicants of and incidental to the interlocutory application of 6 August 2021.

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

EX TEMPORE REASONS FOR JUDGMENT

(Revised from Transcript)

WHITE J:

1    On Tuesday, 8 June 2021, a Registrar of the Court made an order that the estate of the respondent, Peter Scott Haughton, be sequestrated under the Bankruptcy Act 1966 (Cth).

2    By an interlocutory application filed on 6 August 2021 in the proceedings in which the sequestration order was made, Mr Haughton, who is unrepresented, seeks the following orders:

(1)    That the Sequestration Order made on the 8th June 2021 be dismissed without prejudice.

(2)    I seek an order for costs, as against the applicant/s.

(3)    Any other Order the Honourable Court deems fit and proper.

3    In the accompanying affidavit, Mr Haughton deposed that the bankruptcy notice on which the petition had been based, had “not been served proper”. He attached copies of photographs relied on by the process server in support of the proof of service of the bankruptcy notice which he said, in effect, did not identify him. I will return to that subject matter.

4    In a later affidavit affirmed on 11 August 2021, Mr Haughton deposed to matters which, at least in his view, undermined the judgment of the District Court of South Australia on which the bankruptcy notice and the creditor’s petition were founded.

5    In substance, Mr Haughton seeks the making of the orders sought in the interlocutory application on the following basis:

(a)    he was not served with the Bankruptcy Notice issued by the applicants on 8 September 2020;

(b)    the affidavit containing the proof of service by the applicants’ process server had been affirmed 204 days (ie, more than six months) after the alleged service and this was a breach of “r 42”. I understood Mr Haughton to be referring to reg 4.02A of the Bankruptcy Regulations 1996 which were in force at the time of the service relied upon by the applicants;

(c)    the matters to which the process server deposed in identifying him when affecting service of the bankruptcy notice were not sufficient for that purpose;

(d)    there are issues affecting the correctness of the judgment in the District Court of South Australia on which the bankruptcy notice and petition were founded and in relation to the appeal to the Supreme Court of South Australia from the District Court judgment. With respect to Mr Haughton, several of these issues seemed to be of an uncertain kind.

6    In the submissions today, Mr Haughton has, in addition to seeking the order set out in [1] of his interlocutory application, sought in the alternative a stay of the sequestration order.

7    I will now mention some history. On 24 July 2020, Judge McIntyre in the District Court entered judgment against Mr Haughton in favour of the applicants in the sum of $364,988 inclusive of interest: Haughton v Chang [2020] SADC 94. Mr Haughton did not commence an appeal in the Supreme Court of South Australia against that judgment until 17 June 2021, that is, for just on 11 months later and then only after the sequestration order had been made. The appeal has not yet been heard.

8    Mr Haughton lodged an earlier interlocutory application in this Court, on 21 June 2021, seeking an order that the sequestration order made on 8 June 2021 be stayed until further order. He supported that application with his own affidavit made on 21 June 2021. It indicated that Mr Haughton sought the stay because of his commencement of the appeal in the Supreme Court of South Australia on 17 June 2021, to which I have just referred. Mr Haughton filed the notice of appeal as an unrepresented litigant.

9    As Mr Haughton sought an urgent hearing of his interlocutory application filed on 21 June 2021, the matter was referred to me as Duty Judge. I listed the matter for hearing on 25 June 2021. At that hearing, Mr Haughton was unrepresented and sought an adjournment of the hearing in order that he could obtain legal advice. Against the opposition of the applicants, I granted that adjournment but drew Mr Haughton’s attention to issues concerning the Court’s power to grant an order of the kind he sought. I also referred him to s 35A(5) and (6) of the Federal Court of Australia Act 1976 (Cth) (the FCA Act) and to r 3.11 of the Federal Court Rules 2011 (Cth) (the FCR) . Sections 35A(5) and (6) provide for review by a judge of the Court of a decision of a Registrar. Rule 3.11 requires that any application for such a review be commenced within 21 days of the decision. When adjourning the hearing, I recommended to Mr Haughton that he obtain legal assistance urgently and put in place a timetable for the filing of further affidavits. The hearing was adjourned to 2 July 2021.

10    Mr Haughton did not comply with the timetable for filing further affidavits and did not attend the resumed hearing on 2 July 2021. He did, however, on the morning of 2 July 2021, lodge for filing with the Registry an extensive affidavit. That affidavit contained an array of material most of which was, on any view, entirely extraneous to his application for a stay.

11    At the hearing on 2 July 2021, the applicants’ counsel sought the dismissal of the application pursuant to r 5.23(1) of the FCR, by reason of Mr Haughton’s default in failing to comply with the Court’s orders concerning the filing of further affidavits and his failure to attend the hearing. I acceded to counsel’s application and the interlocutory application of 21 June 2021 was dismissed.

12    In my view, a number of matters indicate that the present application should also be dismissed. An initial matter is identifying the Court’s power to make an order “dismissing” a sequestration order once properly made. As already indicated, s 35A(5) and (6) of the FCA Act provide the principal means by which a Registrar’s orders may be reviewed by a Judge of the Court and, on such a review, a sequestration order of the kind made in this case could be set aside.

13    Mr Haughton has not sought to invoke that procedure, even though, on 25 June 2021, his attention was drawn to s 35A(5) and (6) within the 21 day period fixed by r 3.11.

14    Section 37(2) of the Bankruptcy Act provides that the Court does not have power to rescind or discharge or to suspend the operation of a sequestration order. Such a power is available when an appeal has been instituted against a sequestration order (r 36.08 of the FCR) but that is not this case.

15    The Court does have a power under s 153B(1) of the Bankruptcy Act to make an order annulling a sequestration but, in order to make such an order, the Court has to be satisfied that the sequestration order should not have been made. Mr Haughton has not made any application under s 153B(1). In any event, as will be seen, he has not demonstrated that, in the circumstances before the Registrar, the order ought not to have been made.

16    Accordingly, there are real issues about the Court’s power presently, to make the order of the kind which Mr Haughton seeks.

17    Another matter is that Mr Haughton seeks relief on an interlocutory application in proceedings which have already concluded. Although there are exceptions, interlocutory applications are a form of application appropriate in respect of current proceedings (see Pt 17 of the FCR). Subject to the possibility of an application pursuant to s 35A(5) or (6) or possibly an application to reopen, the proceedings commenced by the applicants’ creditors’ petition filed on 7 April 2021, were concluded by the order made by the Registrar on 8 June 2021 and then ceased to be current proceedings. It is not immediately apparent, therefore, that an interlocutory application of the present kind is a vehicle by which Mr Haughton can seek the dismissal of the sequestration order.

18    However, it is not necessary to express a concluded view about the manner in which Mr Haughton has made his application because there are in any event discretionary considerations. The proper place for Mr Haughton to have sought dismissal of the applicants’ creditors’ petition was at the hearing on 8 June 2021 before the Registrar. I note in this respect that, at the first return of the creditors’ petition on 25 May 2021, the Registrar directed Mr Haughton, who was then in attendance and had raised issues about the manner in which he had been served with the bankruptcy notice, to file any notice of opposition and affidavits in support by 7 June 2021. The Registrar directed specifically that the affidavits explain why Mr Haughton asserted that he had not been properly served and that he provide information concerning his solvency. Mr Haughton did file an affidavit on 3 June 2021, but that affidavit did not depose to any matter concerning the service of the bankruptcy notice or the creditors’ petition on him. Instead, his affidavit was related to issues concerning the existence of the debt on which the creditors’ petition was based.

19    Mr Haughton confirmed today that he had been given notice of the hearing before the Registrar some six weeks or so before 25 May 2021. The affidavit of service of the creditors’ petition indicates that it was served on Mr Haughton on 9 April 2021, and that a copy of the affidavit concerning service of the bankruptcy notice was serviced on him at the same time. Mr Haughton has accordingly known at least since 9 April 2021 of the service, and means of service, of the bankruptcy petition on which the applicants relied.

20    Thus, Mr Haughton had ample opportunity to bring to the Registrar’s attention any issues concerning the service of the bankruptcy notice or the creditors’ petition before the sequestration order was made and he did not do so.

21    Mr Haughton’s reliance on the date upon which the process server’s affidavit was sworn (7 April 2021) seems to be based on a misunderstanding.

22    As I indicated, although Mr Haughton referred to a r 42, I understood him to be referring to reg 4.02A of the Bankruptcy Regulations 1996 which were in force at the relevant time. That regulation requires a bankruptcy notice to be served within a period of six months commencing on the date of issue of the bankruptcy notice or within any further period that the Official Receiver may allow. It does not fix a period within which the affidavit deposing to the proof of service must be made.

23    The process server’s affidavit indicates that he served the bankruptcy notice dated 8 September 2020 on 15 September 2020. That was well within the requisite period of six months.

24    It is possible that Mr Haughton was intending to refer to r 4.02 of the Federal Court (Bankruptcy) Rules 2016, but that Rule is not apposite either.

25    The process server says that he identified the person served by two means. The first were photographs (copies of which the process server annexed to his affidavit) of a group of persons, one of whom was the person he served. There are also two photographs of an individual. Mr Haughton disputes the capacity of the photographs to identify him but, on my understanding, does not depose positively that he is not one of the people in the photograph.

26    The second matter was the conversation which the process server had with the person served:

I said “Are you Peter Haughton?”

He replied “Yes”

I then said “I have some documents for you”

I then pointed to the Bankruptcy Notice and said “Is this your name Peter Scott Haughton?”

He responded “no”

27    The process server then deposed:

I attempted to hand them to the person at (address)

78 (AKA) 86 Liston Road, Lonsdale SA 5160

The person refused to accept them. I put them down and left them in the presence of the person and said to the person

“You have been served, giving the documents back will not change that”

28    The bankruptcy notice required Mr Haughton to satisfy the debt within six months, so the petition filed on 7 April 2021 was well within the six month period fixed by s 44(1)(c) of the Bankruptcy Act, which in this case expired on 15 March 2021.

29    Having regard to all these circumstances, including the initial admission by Mr Haughton of his identity, there does not seem to me to be a proper basis upon which the Court could make the order sought in the interlocutory application, namely, the “dismissal” of the sequestration order. That application is refused.

30    As previously indicated, in his oral submissions, Mr Haughton sought, in the alternative, a stay of the sequestration order until, as I understood it, his appeal to the Supreme Court has been heard and determined. The copy of the notice of appeal to the Supreme Court which Mr Haughton annexed to his affidavit of 21 June 2021 indicates that the appeal is listed for callover on 21 August 2021. It is not known when the appeal will be heard.

31    This is Mr Haughton’s second application for such a stay. His first application, made on 21 June 2021, was dismissed on 2 July 2021 in the circumstances described earlier.

32    At the hearing on 25 June 2021, I raised with Mr Haughton a number of issues concerning the Court’s power to grant a stay of the kind which he then sought and I referred him to the judgment of Du Bray v ACW [2020] FCA 1142 in which some of the issues were discussed.

33    A number of matters indicate that it would be not appropriate for the Court, today, to grant a stay of the sequestration order, as Mr Haughton sought in his oral application. The first is that the effect of the Registrar’s order on 8 June 2021 was that Mr Haughton became bankrupt immediately upon its making: Du Bray at [6] and Endresz v Australian Securities and Investments Commission [2014] FCA 1139 at [8]. That is to say, by virtue of ss 43(2) and 58(1) of the Bankruptcy Act, Mr Haughton’s property vested immediately in the appointed trustee in bankruptcy: Du Bray at [6].

34    In these circumstances, there is an important point in principle, noted by Beach J in Endresz v ASIC, which makes the grant of a stay of the sequestration order inappropriate. His Honour said, at [8]:

It is apparent from the provisions and operation of the Bankruptcy Act 1966 (Cth) (the Act) that it is inapposite to talk of a stay of a sequestration order as such. When a sequestration order is made, it takes immediate and automatic effect by force of the Act. There is an immediate vesting of property in the trustee in bankruptcy. Moreover, after-acquired property of the bankrupt vests as soon as it is acquired … It is conceptually incoherent to contemplate a judicial stay order as being available to countermand automatic legislative operation where no question of invalidity is involved.

(Citation omitted)

35    Section 37(2) of the Bankruptcy Act (to which I referred earlier) provides that the Court does not have the power under the Bankruptcy Act to, amongst other things, suspend the operation of a sequestration order.

36    Section 52(3) of the Bankruptcy Act provides that the Court may, if it thinks fit, upon such terms and conditions as it thinks proper, stay all proceedings under a sequestration order for a period not exceeding 21 days.

37    As is apparent, s 52(3) permits the Court to stay proceedings under a sequestration order but not the order itself. Even then, the Court may stay the proceedings under a sequestration order only for a maximum period of 21 days. It is not clear what “proceedings” there are to stay but, even if the power in s 52(3) be available to Mr Haughton presently, its exercise is unlikely to avail him because the Court does not have any information upon which to conclude that his appeal to the Supreme Court will be both heard and determined within the period of the next 21 days.

38    The power available to this Court pursuant to r 36.08(2) to grant a stay on the execution of proceedings pending the hearing and determination of an appeal is not available presently because that power relates to appeals in this Court, not to appeals in another Court. The Court would have had power under s 35A(6) to make a stay order had Mr Haughton commenced an application under s 35A(5) but he has not done so, even though his attention was drawn to those provisions on 25 June 2021.

39    The discretionary considerations to which I referred earlier also point against Mr Haughton’s alternative application. A significant discretionary consideration is that Mr Haughton has already had ample time in which to challenge the underlying debt which founded the creditors’ petition, but he allowed 11 months to elapse before commencing his appeal to the Supreme Court against the District Court judgment. I note, in addition, that even after the dismissal of the interlocutory application filed on 21 June 2021, on 2 July 2021, Mr Haughton did not bring his present application until 6 August 2021.

40    For these reasons, I refuse Mr Haughton’s alternative application.

41    The formal order of the Court is that Mr Haughton’s interlocutory application of 6 August 2021 is dismissed.

Associate:

Dated:    20 August 2021