Federal Court of Australia

Scott v NIMLAW Pty Ltd (No 2) [2023] FCA 1472

ORDERS

THE COURT ORDERS THAT:

1.    The relief sought by paragraphs 1 and 2 of the Applicant’s interlocutory application dated 19 November 2023, seeking a stay of the execution or operation of any proceedings on the Bankruptcy Notice BN 260942 issued on 20 July 2023, be refused.

2.    The Applicant pay the Respondent’s costs of the application for a stay.

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

REASONS FOR JUDGMENT

O’BRYAN J:

Introduction

1    By originating application filed on 8 August 2023, the applicant, Dr Susan Jane Scott, applied to set aside a bankruptcy notice, served upon her by the respondent, NIMLAW Pty Ltd, on 27 July 2023. The bankruptcy notice claimed an amount owing of $20,446.82 and required payment within 21 days of the date of service. The amount claimed to be owing was due under a judgment of the District Court of South Australia made on 5 June 2023: see Nimlaw Pty Ltd v Scott [2023] SADC 42 (Slattery J).

2    The originating application to set aside the bankruptcy notice stated a number of grounds, including that the applicant had a counter-claim, set-off or cross demand as is referred to in s 40(1)(g) of the Bankruptcy Act 1966 (Cth) (Act). By s 41(7) of the Act, the time for compliance with the bankruptcy notice was deemed to have been extended until and including the day on which the Court determined the application.

3    On 15 November 2023, Charlesworth J made orders dismissing the originating application and published reasons on 17 November 2023: Scott v NIMLAW Pty Ltd [2023] FCA 1420. Her Honour also ordered that the operation of the bankruptcy notice be stayed until 48 hours following the transmission to the applicant of the Court’s written reasons for judgment.

4    On 19 November 2023, the applicant filed an interlocutory application seeking the following relief:

1.     A stay of the execution or operation of any proceedings of the bankruptcy notice to allow the Appeal of the Order of 104/2023, 15th October to be heard and decided.

2.     A stay of the execution or operation of any proceedings of the bankruptcy notice as actions of set-aside of Default Judgment(s) and the underlying Judgment as fraud in evidence, misrepresentation, denial of defence, prejudicial proceedings and cross-claim currently ongoing in the Supreme Court and District court.

3.     The Court to grant Leave to Appeal the Order of 104/2023, 15th October. The Bankruptcy Act does not refer to a requirement of leave to appeal.

5    By paragraphs 1 and 2 of the interlocutory application, the applicant seeks a stay of the operation of the bankruptcy notice. By paragraph 3, the applicant seeks leave to appeal the orders made by Charlesworth J. The interlocutory application was supported by an affidavit of the applicant dated 22 November 2023 and written submissions dated 22 November 2023.

6    The application for a stay was referred to me as Commercial and Corporations Duty judge to be heard and determined as an urgent application. These reasons only concern the application for a stay and do not concern the application for leave to appeal.

7    As already identified, both paragraph 1 and 2 of the interlocutory application seek a “stay of the execution or operation” of the bankruptcy notice. Paragraph 1 is expressly directed to a stay pending the determination of the applicant’s application for leave to appeal. If a stay were warranted, I consider that the appropriate form of order would be to stay the effect of the orders made by Charlesworth J until the determination of the application for leave to appeal and, if leave is granted, the appeal. The effect of that order would be to re-enliven the operation of s 41(7) of the Act and extend the time for compliance with the bankruptcy notice.

8    The meaning of paragraph 2 of the interlocutory application is unclear. If and insofar as it seeks a “stay of the execution or operation” of the bankruptcy notice under s 41(6A) of the Act on the basis that proceedings have been issued by the applicant to set aside the underlying judgment debt, there is no evidence before me that any such proceedings have been instituted. No such application was made before Charlesworth J and, by her affidavit dated 26 October 2023, Ms Minicozzi deposed that the applicant had not appealed the underlying judgment and is now out of time to do so. It follows, in my view, that paragraph 2 of the interlocutory application does not state a separate basis for a stay of the operation of the bankruptcy notice.

9    The relevant question is therefore whether it is appropriate, in the circumstances of this case, to stay the effect of the orders made by Charlesworth J until the determination of the application for leave to appeal and, if leave is granted, the appeal.

Relevant principles

10    There is no doubt that the Court has power to grant a stay of an order of a trial judge pending the determination of an application for leave to appeal and an appeal. A stay pending appeal is specifically addressed in r 36.08 of the Federal Court Rules 2011 (Cth), but rr 41.03 and 41.11 provide for the stay of any judgment or order, or the execution of a judgment or order.

11    In relation to the principles applicable to an application for a grant of a stay of judgment or orders pending an appeal, in Powerflex Services Pty Ltd v Data Access Corporation (1996) 67 FCR 65 at 66, the Full Federal Court agreed with the principles stated by the New South Wales Court of Appeal in Alexander v Cambridge Credit Corporation Ltd (Receivers Appointed) (1985) 2 NSWLR 685 at 694-5. The principles there stated include the following:

(a)    it is unnecessary to show “special” circumstances for the grant of a stay and it is “sufficient that the applicant for the stay demonstrates a reason or an appropriate case to warrant the exercise of discretion in his favour”;

(b)    a successful party is entitled to the benefit of the judgment obtained and is entitled to commence with the presumption that the judgment is correct;

(c)    it follows that the onus is upon the applicant for the stay to demonstrate a proper basis for a stay that will be fair to all parties;

(d)    the Court will weigh considerations such as the balance of convenience and the competing rights of the parties before it;

(e)    if an appeal will be rendered nugatory unless a stay is granted, that will be a substantial factor in favour of the grant of a stay; and

(f)    while the Court will not generally speculate about the appellant's prospects of success (given that argument concerning the substance of the appeal is typically and necessarily attenuated on a stay application), the Court may make some preliminary assessment about whether the appellant has an arguable appeal in order to assess the competing interests of the parties.

12    The last consideration is protective of the position of a judgment creditor where it may be plain that an appeal has been lodged without any real prospect of success and simply in the hope of gaining a respite against immediate execution upon the judgment. Usually, in the case of an application for a stay of proceedings under a sequestration order, the appellant must establish that there is an arguable point on the proposed appeal or some “rational prospect of success” in relation to any of the grounds of appeal, and that the balance of convenience favours the grant of a stay: see Endresz v Australian Securities and Investments Commission [2014] FCA 1139 at [16] per Beach J.

Consideration

13    The applicant has not advanced any sound basis for the grant of a stay of the orders made by Charlesworth J.

14    The background facts and circumstances are set out in the judgment of Charlesworth J at [7]-[10] as follows:

7    The bankruptcy notice states that Dr Scott owes to NIMLAW a debt in the amount of $20,446.82. The debt forming the subject matter of the bankruptcy notice has its history in a retainer between Dr Scott and a legal practice operated by a company, formerly named Minicozzi Lawyers. I will refer to that entity as the Firm. Dr Scott has made submissions about the proper identity of the debtor.

8    It appears to be undisputed that Dr Scott engaged the Firm to perform legal services in connection with disputes that she had with other entities and persons concerning the treatment of her now deceased mother and the management of her deceased estate. That is perhaps an overly simplistic description of the subject matter of the legal services provided because, on the basis of submissions made before this Court today, it appears that Dr Scott has for many years now been engaged in legal proceedings relating to the treatment of her mother and aspects of her financial affairs and her health. Nothing I am about to say should be understood as diminishing the importance of those matters to Dr Scott.

9     The legal services performed by the Firm were the subject of invoices issued to Dr Scott. It appears to be undisputed that Dr Scott subsequently entered into deeds with the Firm, which recorded arrangements for the payment of the invoices.

10     Ultimately, NIMLAW commenced proceedings in the Magistrates Court of South Australia, being an action in debt with respect to the fees alleged to be owing under the deeds or, at least, part of it. Those proceedings became the subject of a judgment of the District Court of South Australia on 27 April 2023: Nimlaw Pty Ltd v Scott [2023] SADC 42 (Slattery J).

15    In the application before Charlesworth J to set aside the bankruptcy notice, the question that arose for determination was whether the applicant has a counter-claim, set-off or cross demand equal to or exceeding the amount of the judgment debt, being a counter-claim, set-off or cross demand that the applicant could not have set up in the action or proceeding in which the judgment was obtained, within the meaning of s 40(1)(g) of the Act. Justice Charlesworth considered the evidence adduced and submissions advanced by the applicant and answered that question in the negative.

16    The grounds of appeal in the applicant’s proposed notice of appeal are lengthy. Most of the grounds are incoherent and most do not relate to Charlesworth J’s judgment. By way of preliminary assessment for the purposes of this stay application (which has been brought on urgently), I consider that the proposed grounds of appeal do not identify any error in the judgment of Charlesworth J and have no prospect of success. In stating that conclusion, I emphasise that it is a conclusion reached for the purpose of this stay application, and is not a conclusion for the purposes of the application for leave to appeal. It is possible that, in a future hearing of the application for leave to appeal, the applicant may advance different arguments with respect to the grounds of appeal. On the arguments presented before me on this urgent stay application, I consider that the grounds have no prospect of success.

17    Further, the applicant has not satisfied me that she will suffer material prejudice if the stay is refused and the appeal succeeds. Nor will the appeal be rendered nugatory unless a stay is granted. If the stay is refused, the applicant will have to elect whether to comply with the bankruptcy notice. If the applicant does not comply with the bankruptcy notice, the respondent may file a creditor’s petition under s 43 of the Act. The applicant is entitled to oppose any such creditor’s petition on numerous grounds, including the conditions specified in ss 44 and 52 of the Act. Any such opposition will require a hearing in the court in which the creditor’s petition is filed. It is only at the conclusion of that hearing that a sequestration order could be made against the applicant and the applicant would become a bankrupt. There is no realistic possibility that the application for leave to appeal, and the appeal if leave is granted, will not be heard and determined before any sequestration order is made. If (contrary to the views I have expressed earlier) the applicant were to succeed on the appeal and the bankruptcy notice were set aside, any creditor’s petition founded upon the bankruptcy notice would become invalid. The respondent would bear the risk of that outcome and any cost consequences.

18    In my view, the respondent is entitled to the benefit of the judgment of Charlesworth J and there is no reason for the grant of the stay sought by the applicant.

Conclusion

19    In conclusion, and for the reasons given above, I refuse the relief sought by paragraphs 1 and 2 of the applicant’s interlocutory application seeking a stay of the execution or operation of any proceedings on the bankruptcy notice.

20    As the applicant was unsuccessful on her application, I consider that the usual order as to costs should be made, and for the applicant to pay the respondent’s costs of the stay application, being that part of the interlocutory application determined by this judgment.

Associate:

Dated:    27 November 2023