Barton v Malcolm Johns Legal Pty Ltd

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FEDERAL COURT OF AUSTRALIA

Barton v Malcolm Johns Legal Pty Ltd [2014] FCA 1057

Citation: Barton v Malcolm Johns Legal Pty Ltd [2014] FCA 1057
Appeal from: Barton v Malcolm Johns Legal Pty Ltd [2014] FCCA 1287
Parties: NATHANIAL KELBURN DUNBAR BARTON v MALCOLM JOHNS LEGAL PTY LTD
File number: NSD 760 of 2014
Judge: GLEESON J
Date of judgment: 30 September 2014
Catchwords: BANKRUPTCY – application for stay of sequestration order – where appeal bona fide and not hopeless – where appeal listed for hearing in 4 weeks’ time – where no evidence of prejudice to creditor or trustee – sequestration order stayed until hearing date  
Legislation: Bankruptcy Act 1966 (Cth) s 52(3)
Federal Court Rules 2011 (Cth) r 36.08(2)
Cases cited: Commonwealth Bank of Australia v Pattison [2012] FCA 1511
Kellow v Dudzinski [2003] FCA 238
Lahood v Bank of Western Australia [2013] FCA 137
Nolten Groeneveld Australia Pty Ltd [2011] FCA 1494
Powerflex Services Pty Ltd v Data Access Corporation (1996) 67 FCR 65
StarborneHoldings Pty Ltd v Radferry Pty Ltd [1998] FCA 548
Date of hearing: 29 September 2014
Place: Sydney
Division: GENERAL DIVISION
Category: Catchwords
Number of paragraphs: 28
Counsel for the Appellant: The appellant appeared in person
Counsel for the Respondent: Mr James T Johnson
Solicitor for the Respondent: Megan McCormick & Andrew Williams Lawyers

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

GENERAL DIVISION

NSD 760 of 2014
ON APPEAL FROM THE FEDERAL CIRCUIT COURT OF AUSTRALIA
BETWEEN:

NATHANIAL KELBURN DUNBAR BARTON
Appellant
AND:

MALCOLM JOHNS LEGAL PTY LTD
Respondent

JUDGE:

GLEESON J

DATE OF ORDER:

30 SEPTEMBER 2014

WHERE MADE:

SYDNEY

UPON THE APPELLANT GIVING THE UNDERTAKING IN PARAGRAPH 11 OF HIS AFFIDAVIT DATED 26 SEPTEMBER 2014, THE COURT ORDERS THAT:

1.Until 5 pm on 28 October 2014 or further order, the execution of the proceedings below be stayed to the extent that no further step be taken to sell or otherwise dispose of the breeding stock that forms part of the bankrupt estate of the appellant except by the agreement of the appellant and Louise Anne Thompson, the trustee of the bankrupt estate of the appellant.

2.The appellant serve a copy of these orders on Louise Anne Thompson:

(a)By registered post at Veritas Advisory, Level 12, 88 Pitt Street Sydney on or before Friday 3 October 2014; and

(b)By email to lthompson@veritasadvisory.com.au on or before 2 pm on Tuesday 30 September 2014.

3.The appellant attend a meeting with a Registrar of the Court on or before Friday 10 October 2014 to identify which of the documents in the six volumes of documents provided to the Federal Circuit Court (“six volumes”) will form part of the Appeal Book on the appeal.

4.The appellant serve on the respondent a list of the documents in the six volumes that will form part of the Appeal Book within 48 hours after the meeting with a Registrar of the Court.

5.The parties or Louise Anne Thompson have liberty to apply…

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Details
Case
[2014] FCA 1057
Decision Date

CaseChat Overview and Summary

Barton, the appellant, sought a stay of a sequestration order against his estate to allow time for an appeal to be heard. The case before the Federal Circuit Court involved the respondent, Malcolm Johns Legal Pty Ltd, and the appellant's concerns about the sale of his breeding stock as part of the bankruptcy proceedings. The appellant argued that the appeal was bona fide and had a reasonable prospect of success, especially considering the issues surrounding a potential counter-claim against the respondent. The court had to determine whether the appeal was sufficiently meritorious to warrant a stay of the sequestration order, balancing the interests of the appellant and the respondent, as well as the trustee in bankruptcy.

The legal issues centred on whether the appellant had demonstrated sufficient grounds to justify a stay of the sequestration order. This included assessing the bona fides and the prospects of success of the appeal, as well as whether the appellant could show a lack of prejudice to the petitioning creditor or the trustee if the stay were granted. The court had to consider whether the appellant had a substantial counter-claim or set-off against the respondent that might affect the outcome of the appeal. Additionally, the court needed to evaluate the balance of convenience and whether the appellant's concerns about the sale of his breeding stock warranted a temporary stay.

The court found that the appeal was bona fide and not hopeless, particularly in light of the potential counter-claim against the respondent. The appellant had not provided clear evidence of his solvency but had offered an undertaking to refrain from disposing of his assets until the appeal's outcome. The respondent did not present any evidence of prejudice from a stay, nor did the trustee object to the stay. The appeal was scheduled for a hearing in four weeks, and the appellant expressed significant concern about the sale of his breeding stock. The court concluded that this was an appropriate case for a limited stay to protect the appellant's breeding stock and to prevent potential detriment to him during the appeal process.

The orders granted by the court included a stay of the sequestration order until the appeal hearing, with specific provisions to prevent the sale of the appellant's breeding stock without mutual agreement between the appellant and the trustee. The appellant was also required to serve notice of these orders on the trustee and to identify documents for the appeal within specified timeframes. The court allowed for further applications on short notice, reflecting the urgency and sensitivity of the matter.

Orders

Orders of the court

1. Until 5 pm on 28 October 2014 or further order, the execution of the proceedings below be stayed to the extent that no further step be taken to sell or otherwise dispose of the breeding stock that forms part of the bankrupt estate of the appellant except by the agreement of the appellant and Louise Anne Thompson, the trustee of the bankrupt estate of the appellant.

2. The appellant serve a copy of these orders on Louise Anne Thompson:

(a) By registered post at Veritas Advisory, Level 12, 88 Pitt Street Sydney on or before Friday 3 October 2014; and

(b) By email to lthompson@veritasadvisory.com.au on or before 2 pm on Tuesday 30 September 2014.

3. The appellant attend a meeting with a Registrar of the Court on or before Friday 10 October 2014 to identify which of the documents in the six volumes of documents provided to the Federal Circuit Court (“six volumes”) will form part of the Appeal Book on the appeal.

4. The appellant serve on the respondent a list of the documents in the six volumes that will form part of the Appeal Book within 48 hours after the meeting with a Registrar of the Court.

5. The parties or Louise Anne Thompson have liberty to apply on 24 hours’ notice.

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

Background

Background to the litigation

Full text does not contain this section.

Evidence

Evidence Before The Court

The fact of a bona fide and timely appeal does not of itself justify the grant of a stay: StarborneHoldings Pty Ltd v Radferry Pty Ltd [1998] FCA 548; Kellow v Dudzinski [2003] FCA 238 at [7]. The applicant must demonstrate an appropriate case to warrant a favourable exercise of the Court’s broad discretion: Powerflex Services Pty Ltd v Data Access Corporation (1996) 67 FCR 65.Evidence Mr Barton relied on two affidavits in support of his application, being affidavits sworn on 2 and 26 September 2014, and a bundle of documents handed up at the interlocutory hearing. The evidence discloses the following:a.An alleged failure by the respondent to pay an amount of $50,000 to the estate of Welsh from an amount of approximately $52,000 held in trust by the respondent for Mr Barton. The suggestion appears to be that, in the absence of the payment to the estate of Welsh, this money was available in trust and should have been used to pay the counsel’s fees that form the judgment debt.b.In February 2014, Mr Barton filed an affidavit in the Roberts Fund proceedings, said to attach an amended second cross claim against the respondent and Malcolm Johns, seeking relief including an amount of $1.5 million. Mr Barton says that he relied on that affidavit at the hearing before the primary judge.c.The trustee has lodged a caveat over real property owned by Mr Barton. Mr Barton completed a statement of affairs, which is annexed to Mr Barton’s 26 September 2014 affidavit. d.In his 2 September 2014 affidavit, Mr Barton said that the trustee in bankruptcy had not permitted Mr Barton to sell horses “that form the basis for my income”. Mr Barton’s 2 September 2014 affidavit also refers to various professional disciplinary matters concerning the respondent and Malcolm Johns. In particular, in late 2013 Mr Barton made a complaint about Mr Johns to the Office of the Legal Services Commissioner. On 25 July 2014, Mr Barton wrote to the Law Society of New South Wales seeking suspension of the respondent’s practising certificate. On 29 August 2014, Mr Barton discovered that the respondent had had its practising certificate suspended. Mr Johns was suspended from practising as a solicitor on 29 May 2014. The suspension was not disclosed at the FCC hearing on 30 May 2014. Mr Barton adduced no evidence as to his solvency. However, he proffered an undertaking not to dispose of any of the stock, furniture and other property disclosed in the statement of affairs until the outcome of the appeal is known. The respondent did not tender any evidence. It did not identify any particular prejudice flowing from the grant of a stay. Nor was there any evidence from the trustee in bankruptcy, although I was informed from the Bar table when the matter was last in court that the trustee did not consent to a stay of the sequestration order.ConsiderationMerits of appeal The notice of appeal contains eight grounds of appeal. The material before me did not enable me to form a clear view about the strength of the appeal. The case appears to depend primarily upon Mr Barton’s ability to demonstrate that he has a counter-claim or set off against the respondent.

Decision

Reasons for decision

There is no evidence of any particular prejudice to either the petitioning creditor or the trustee that might be suffered by the grant of a stay.Conclusion I am satisfied that this is an appropriate case for relief in the nature of a limited stay of the sequestration order to preserve Mr Barton’s breeding stock and prevent the detriment to Mr Barton that I have identified above. The order will only operate until the hearing of the appeal, when I will hear any application for an extension of the stay. The orders will also permit the sale of breeding stock with the mutual agreement of Mr Barton and the trustee.

Ratio Decidendi

Legal Principle Established

The respondent did not tender any evidence. It did not identify any particular prejudice flowing from the grant of a stay. Nor was there any evidence from the trustee in bankruptcy, although I was informed from the Bar table when the matter was last in court that the trustee did not consent to a stay of the sequestration order.ConsiderationMerits of appeal The notice of appeal contains eight grounds of appeal. The material before me did not enable me to form a clear view about the strength of the appeal. The case appears to depend primarily upon Mr Barton’s ability to demonstrate that he has a counter-claim or set off against the respondent. Counsel for the respondent conceded that the appeal was not hopeless. The alleged failure by the respondent to pay an amount of $50,000 to the estate of Welsh is not mentioned in the judgment below. Rather, the primary judge recorded that Mr Barton did not know whether Counsel’s fees had been paid or not. The state of the evidence before the primary judge on this point is not clear. The primary judge also referred to an “extensive cross-claim” lodged by Mr Barton against his lenders and the respondent. His Honour said that Mr Barton had “literally flooded the Court” with documents in support of his claims, but that he was not satisfied that Mr Barton had a fair chance of success or a prima facie case. The judgment does not contain any analysis of the material before the FCC except to say that it “paints a somewhat sorry history of what turned out to be unsuccessful litigation, during which Mr Barton accumulated a very substantial liability for legal fees.” The absence of analysis of the material may well be explained in due course by the manner in which Mr Barton ran his case before the primary judge. The manner in which the case was run may also explain the primary judge’s observation that the mere production of a cross-claim alleging facts which, if true, might give rise to such a claim, will be insufficient to satisfy the Court. However, that observation is incongruous in the face of the earlier comment that Mr Barton had flooded the Court with documentary evidence. On the face of the reasons, there is an issue as to whether the primary judge might have made an error in addressing this aspect of Mr Barton’s case. I am satisfied that the appeal is bona fide and that its prospects are not hopeless. In particular, there appears to be an issue as to whether the primary judge may have erred in failing to find that Mr Barton had demonstrated sufficient evidence of a counter-claim against the respondent in an amount exceeding the judgment debt.Balance of convenience The appeal is listed for hearing in four weeks. At the hearing of the application, Mr Barton expressed particular concern about the sale of his breeding stock, particularly at an undervalue. The breeding stock comprises nine Australian stock horses, a stallion “Nanima Neptune”, two colts “Nanima Champ” and “Nanima Lucky” and eight fillies.