Bunnings Forest Products P/L v Bullen, E.g

[1994] FCA 940

BUNNINGS FOREST PRODUCTS PTY LIMITED v. EDMUND GERALD BULLEN, SUSANNE LEE
BULLEN and DAVID JOHN FROST
No. WAG92 of 1994
FED No. 940/94
Number of pages - 9
Bankruptcy - Practice And Procedure
(1994) 126 ALR 660
(1994) 54 FCR 342

COURT

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
CARR J

CATCHWORDS

Bankruptcy - Practice And Procedure - Full Court declaration that deed of arrangement void - application for stay of Full Court declaration pending application for special leave to appeal to High Court - whether power to grant stay - assuming power (having concluded otherwise) - factors relevant to exercise of discretion.

Federal Court of Australia Act 1976 (Cth) s.25(2)(d)

Jennings Construction Ltd v. Burgundy Royale Investments Pty Ltd (No. 1) (1986) 161 CLR 681
Allanson v. Midland Credit Ltd (1977) 16 ALR 43
Smith Kline and French Laboratories (Australia) Ltd v. Secretary, Department of Community Services and Health (1991) 99 ALR 417
McBride v. Sandland (1918) 25 CLR 369
Cavanagh v. Bank of New Zealand (1990) 22 FCR 124
Manfal Pty Ltd (in liq.) v. Trade Practices Commission (1990) 65 ALJR 256
Edelsten v. Ward (No. 2) (1988) 63 ALJR 346
Ahern v. Deputy Commissioner of Taxation (1987) 76 ALR 137
Adamopoulos v. Olympic Airways S.A. (1990) 95 ALR 525

HEARING

PERTH, 24 November 1994
#DATE 2:12:1994

Counsel for the Applicant: Mr K.L. Christensen

Solicitors for the Applicant: Messrs Phillips Fox

Mr E.G. Bullen appeared in person for the First Respondents

Counsel for the Second Respondent: Mr G.J. O'Hara

Solicitors for the Second Respondent: Messrs Kott Gunning

ORDER

The Court Orders That:
1. The second respondent's motion be dismissed.
2. The second respondent pay the appellant's costs of that motion to be

taxed.

NOTE: Settlement and entry of Orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

Introduction
CARR J This is a motion on behalf of Mr David John Frost, one of the unsuccessful respondents to an appeal decided by the Full Court of this Court, for a stay of the Full Court's order. Mr Frost was the trustee named in a deed of arrangement which he and the first respondents (Mr Edmund Gerald Bullen and his wife Mrs Susanne Lee Bullen) executed on 8 July 1994 purportedly pursuant to Part X of the Bankruptcy Act 1966 (Cth) ("the Act"). Mr Frost seeks a stay of the Full Court's order pending the hearing of his application for special leave to appeal to the High Court of Australia and, if that application is successful, the hearing of that appeal.

Factual Background
2. On 30 March 1994 Mr and Mrs Bullen signed authorities under s.188 of the Act authorising Mr Frost to call meetings of their creditors for the purposes of Part X of the Act and to take over the control of their property.

1. Following the making of orders extending time, a meeting of Mr and Mrs Bullen's creditors was held on 31 May 1994. A resolution requiring Mr and Mrs Bullen to execute a deed of arrangement was put to the meeting but failed to carry. The meeting was adjourned to 7 June 1994.

2. On 3 June 1994 Bunnings Forest Products Pty Ltd ("Bunnings") presented a petition for a sequestration order against Mr and Mrs Bullen's estates. The acts of bankruptcy relied upon were the signing of the authorities referred to above (s.40(1)(i)) and that a meeting of creditors had been called pursuant to those authorities (s.40(1)(j)).

3. On 7 June 1994 at the adjourned meeting of creditors, a resolution requiring Mr and Mrs Bullen to execute a deed of arrangement in substantially similar terms to the deed previously proposed was put and again failed to carry. The meeting was adjourned to a date to be fixed.

4. The reconvened creditors meeting took place on 6 July 1994. At that meeting a special resolution was passed requiring Mr and Mrs Bullen to execute a deed of arrangement which was in terms substantially similar to those originally proposed but with certain changes. As mentioned above, the deed was executed on 8 July 1994.

5. On 14 July 1994 Bunnings applied to the Federal Court of Australia under s.222 of the Act for a declaration that the deed of arrangement was void. The principal ground upon which that declaration was sought was that the deed was not grounded upon a valid resolution.

6. French J refused to declare the deed void and dismissed the application.

7. On 4 November 1994 the Full Court allowed Bunnings' appeal from the orders of French J and declared that the deed of arrangement was void.

8. On 17 November 1994 the Full Court order was entered in the following terms:
   

"THE COURT ORDERS THAT:

1. The appeal be allowed.

2. The deed of arrangement executed by the respondents on 8 July 1994 is void.

3. The respondents pay the appellant's costs of the appeal and of the application."

1. Although paragraph 2 of the above orders should have been expressed as a declaration I do not think there is any doubt that it takes effect as a declaration despite the fact that the word "declare" is not used.

Proceedings since the Full Court's order
12. On 18 November 1994 Mr Frost's solicitors filed:

. in the High Court of Australia an application for special leave to appeal to that Court; and . in this Court a Notice of Motion seeking a stay of the Full Court's order.

1. The relevant portion of that Notice of Motion seeks an order that:
   

"Until further order there be a stay of the order made by the Full Court on 4 November 1994 that the deed of arrangement executed by the Respondents on 8 July 1994 is void."

1. At the hearing of the motion, I asked Mr O'Hara who appeared for Mr Frost how it was possible to stay a declaration that had been made and duly entered. I invited him to consider whether, instead, his client might seek orders in personam with a view to preventing a sequestration order from being made in respect of Mr and Mrs Bullen's estates until the High Court dealt with his client's application for special leave to appeal. Mr O'Hara explained that a stay of the declaratory order was sought in addition to any stay of the creditor's petition pending against Mr and Mrs Bullen. The petition was listed for hearing on the same day as this motion.

2. Mr O'Hara relied upon s.25(2)(d) of the Federal Court of Australia Act 1976 (Cth) which provides that applications "to stay an order of a Full Court" may be heard and determined by a single Judge or by a Full Court. Neither counsel was able to cite any decision in which a declaratory order had been stayed pending appeal and I have been unable to find one. In response to my suggestion that the stay referred to in s.25(2)(d) was a stay of execution of, or other proceedings consequent upon, a judgment or order as, for example, referred to in Order 37 rule 10 of the Federal Court Rules, Mr O'Hara relied upon the difference between the language in Order 37 rule 10 ("The Court may stay execution of a judgment or order".) and the language of s.25(2)(d) which simply refers to staying an order.

3. The distinction sought to be made was that the rule refers to execution while the section does not. There does not appear to be any relevant difference in the present context between a judgment and an order. "Judgment" is defined in s.4 of the Federal Court of Australia Act as meaning "a judgment, decree or order, whether final or interlocutory, or a sentence".

4. Mr O'Hara sought to draw an analogy between the circumstances of this matter and the respective circumstances in a group of five cases. The first case cited was Allanson v. Midland Credit Ltd (1977) 16 ALR 43 - a decision of a Full Court of this Court. That case involved a provision in the High Court Rules, as they then were, whereby upon an appeal to the High Court and upon the sum of $100 security for the prosecution of the appeal being given, there was an automatic stay of the judgment appealed from. The judgment appealed from in that matter was a sequestration order. Leave was sought from the Federal Court to continue and take fresh steps in proceedings against the bankrupt in the Supreme Court of Victoria. The Court referred to the distinction between the above provision in the High Court Rules and an earlier High Court rule which merely stayed all process in execution of the judgment. The case is potentially in point because the subject matter of the appeal was a sequestration order which, of course, has a radical effect on the legal status of the debtor from the date of its making. However, the Full Court left open the question whether the effect of the stay brought into existence under the rule prevented the judgment and sequestration order remaining as a fact. For that reason I do not think that Allanson's case provides any assistance on whether s.25(2)(d) confers power to stay a declaratory order.

5. Next Mr O'Hara, in his written submissions, referred to Marconi's Wireless Telegraph Co Ltd v. The Commonwealth (No. 3) (1913) 16 CLR 384 as an example of the stay of an order of a fundamentally different nature to a judgment for a sum of money. Marconi involved a step in proceedings for infringement of a patent. The High Court made an order for inspection of certain apparatus. The Commonwealth applied for the inspection order to be stayed pending its application for special leave to appeal to the Privy Council against that order. A stay was granted upon the basis that the case was a very peculiar one and that unless the stay was granted the Commonwealth's appeal would be nugatory. The order was an interlocutory order far removed, in my opinion, from a final declaratory order of a Full Court of this Court. I do not think that the decision provides any guidance in the present matter.

6. Reliance was placed on the decision of Brennan J in Jennings Construction Ltd v. Burgundy Royale Investments Pty Ltd (No. 1) (1986) 161 CLR 681 which it was said concerned an order which was not for a sum of money and had the same nature and effect as a declaration. I return below to this case but at this stage I think it is sufficient to point out that the order made in that case at first instance (the appeal was dismissed) was that certain liens be cancelled. The stay order provided that so much of the orders in the Court below as ordered the cancellation of the applicant's liens, be stayed. The stay operated to prevent steps being taken pursuant to the judgment.

7. Smith Kline and French Laboratories (Australia) Ltd v. Secretary, Department of Community Services and Health (1991) 99 ALR 417 was also cited as a case where there was no criticism in the High Court of a temporary injunction which had been granted by Sheppard J which, so it was argued, had the effect of completely reversing the decision of the Full Court of this Court. In my view the Smith Kline case (in which, incidentally, the relief sought was refused) falls into the same category as Marconi save that the decision in the Court appealed from in Smith Kline was the refusal to grant a final injunction to restrain the disclosure of certain technical information.

8. Next it was put that because a sequestration order was similar to a declaratory order and a sequestration order can be stayed pending an appeal therefore there was power to stay a declaratory order. I would acknowledge that there are some similarities between a declaratory order and a sequestration order made against the estate of a debtor. By virtue of that order and the operation of s.43(2) of the Act there arises what I have referred to above as a radical change in the legal status of the debtor. I think that the correct position is that the making of a sequestration order may be stayed or suspended but that once the order has been made s.37(2) of the Act governs the situation. Section 37(2) relevantly provides:
   

"The Court does not have power to rescind or discharge, or to suspend the operation of:

(a) a sequestration order; or

(b) . . . ."

1. Recently I drew a distinction between staying the operation of a sequestration order pending an appeal against that order, and staying certain administrative proceedings designed to give effect to the statutory consequences of such an order, see Coleman v. Lazy Days Investments Pty Ltd (unreported 31 October 1994) where some of the authorities are discussed.

2. In my opinion, a comparison with the situation where a sequestration order is concerned tends, if anything, to confirm that there is no power to stay a declaratory order. That does not mean that there is no power, in an appropriate case, to stay proceedings which might be taken consequent upon such a declaratory order.

3. Finally, reliance was placed upon McBride v. Sandland (1918) 25 CLR 369 as a case where it was said that the High Court recognised that in certain circumstances it would be appropriate for a Court to grant a stay of a declaration. I do not read McBride's case as authority for that proposition. What was under consideration in that case was the stay of certain proceedings for possession of land consequent upon a declaration as to the ownership of the land. The order, made in the Supreme Court of Australia and set aside by the High Court, was not to suspend the declaration itself. The order stayed the Supreme Court proceedings for possession pending an appeal to the Privy Council against the declaratory order made by the High Court in earlier proceedings.

4. While I very much appreciate the efforts by counsel on both sides to come up with authorities on the point, I do not think that these cases provide a basis for holding that there is power to stay a declaratory order. In the apparent absence of authority one has to look elsewhere.

5. The New Shorter Oxford English Dictionary relevantly defines "stay" as "suspension or postponement of a judicial proceeding, sentence or judgement". The Macquarie Dictionary speaks in terms of "to suspend or delay (proceedings, etc)". The same two dictionaries define the verb "to suspend" as including "to make temporarily inactive" and "to cease from operation for a time". In that sense it might be said that an order which had already taken effect could be suspended temporarily. However, once a declaration has been made, as here, that a deed is void it seems to me that the order itself has done its work. The legal rights or obligations of the parties which depended upon whether the deed had any effect or not are, subject to appeal, settled. In the absence of clerical or similar errors arising from a slip or accidental omission the order stands unless set aside on appeal. It seems likely that the declaration took effect upon its pronouncement but could have been recalled by the Full Court before it was passed and entered - see the discussion by Von Doussa J of this matter in another context, in Cavanagh v. Bank of New Zealand (1990) 22 FCR 124. Furthermore, if an appeal were foreshadowed and the circumstances warranted taking such a course, a Full Court might before pronouncing judgment or, perhaps, before entry of judgment stay a declaratory order by suspending or postponing its coming into effect for a period fixed by reference to some appropriate stage of the further appellate process. Alternatively, the Court or a judge might, in an appropriate case, stay the exercise of rights which might be declared to exist, pending an appeal which might have the result of the declaration being set aside.

6. However, I was not asked to make any other order than that which is set out above. I decline to make that order on the basis that, in my opinion, the power to do so does not exist.

7. In case that conclusion is wrong, I shall now consider whether, assuming power to stay the declaration (by bringing temporarily to an end its hitherto operation and suspending its legal effect), such a discretion should be exercised in Mr Frost's favour.

8. Mr Christensen, who appeared for Bunnings, recognised that the arguments relating to Mr Frost's application for a stay of the Full Court's order had much in common with the question whether his client's petition should be adjourned pending the hearing by the High Court of the special leave application. Accordingly, I propose to consider both questions simultaneously as I consider that they are closely related.

9. The relevant principle seems to be that this Court should not grant a stay, pending the hearing of an application for special leave to appeal, unless satisfied that a stay is required to preserve the subject matter of the litigation or that refusal of a stay would make it difficult for the High Court, in the determination of the appeal, to grant the relief sought or where otherwise the right of appeal would be rendered nugatory: Manfal Pty Ltd (in liq.) v. Trade Practices Commission (1990) 65 ALJR 256 at p 257 - a judgment of Toohey J.

10. In Jennings Construction Ltd v. Burgundy Royale Investments Pty Ltd (No. 1) (1986) 161 CLR 681 at p 684 Brennan J said:
    

"A stay to preserve the subject-matter of litigation pending an application for special leave to appeal is an extraordinary jurisdiction and exceptional circumstances must be shown before its exercise is warranted."

As his Honour later pointed out in Edelsten v. Ward (No. 2) (1988) 63 ALJR 346 it is not the purpose of a stay to keep matters in status quo until the litigation is finally resolved. The jurisdiction is an exceptional jurisdiction. For example, in the Jennings Construction case if a stay had not been granted, whatever security the liens involved in that case may have provided would have been lost and the applications for special leave would have been futile.

1. Mr O'Hara submitted that Mr and Mrs Bullen would be "in a difficult position" and that in the absence of a stay the appeal to the High Court would be nugatory because it would not be possible for the deed to be restored to its previous effect. He pointed to the obligations expressed in the deed of arrangement that Mr and Mrs Bullen make further lump sum contributions to his client. Had the deed still been in force, the next payment would have been due on 31 January 1995 in the sum of $10,000 and the earliest date upon which the special leave application could be heard by the High Court would be in late March or early April 1995. Other substantial payments fell due at six-monthly intervals. Clause 10 of the deed provided that the deed would terminate upon Mr and Mrs Bullen failing to make any of these payments within thirty days of the due dates. If the payments were not made to the trustee and the High Court appeal were successful then even in those circumstances s.235(d) of the Act would operate to terminate the deed. Section 235(d) provides that a deed of arrangement is terminated by the occurrence of any circumstances or event on the occurrence of which the deed provides that it is to terminate. That submission is predicated on an assumption that Mr and Mrs Bullen would not pay those moneys to the trustee in anticipation of the High Court setting aside this Court's declaration that the deed is void.

2. I do not think that it has been demonstrated that the refusal of a stay would render the appeal nugatory or that it would make it difficult for the High Court in the determination of the appeal to grant the relief sought or that a stay is required to preserve the subject matter of the litigation. In essence what is sought is merely to preserve the status quo pending the appeal. I do not consider that exceptional circumstances have been shown which would justify the exercise of the discretion to grant a stay.

3. However, I think that it would be appropriate to adjourn Bunnings' petition until the hearing by the High Court of Mr Frost's application for special leave to appeal.

4. Mr Christensen made submissions in relation to the stay application which he adopted as part of his opposition to the adjournment of his client's petition. These included:
   

. the fact that Mr and Mrs Bullen's property would be no longer under control - see s.189 of the Act; . the fact (on Bunnings' case) that there were various matters in respect of Mr and Mrs Bullen's affairs which required investigation as soon as possible; . the fact that there would be prejudice to the creditors in delaying the trustee in bankruptcy (if a sequestration order were made) in seeking to avoid any settlements, fraudulent dispositions and preferential payments. As he put it "the trail could go cold" and furthermore interest on any preferential payment would be lost; . that various factors pointed to the balance of convenience being in favour of a sequestration order being made. This included a submission that the strictures of bankruptcy were not very different to those applicable under the deed of arrangement.

1. Mr Christensen also submitted that nothing had been said about the merits or otherwise of the appeal.

2. On this latter point I think it is sufficient to say that on a reading of the copies of the papers lodged with the High Court, the prospect of a grant of special leave cannot be characterized as being "insubstantial". This is the way in which Brennan J approached the respondent's submission that special leave was unlikely to be granted in the Jennings Construction case. I appreciate that that was in the context of an application for a stay whereas what is being considered here is an adjournment of the petition. Nevertheless, I consider that the principles are analogous.

3. It will be remembered that the acts of bankruptcy relied upon by Bunnings are the signing of the authorities by Mr and Mrs Bullen and the calling of the meeting of creditors. The success of the appeal is closely linked to the foundation of the bankruptcy proceedings. In Ahern v. Deputy Commissioner of Taxation (1987) 76 ALR 137 at p 148 a Full Court of this Court said:
   

"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 (authorities cited)."

See also the Full Court decision in Adamopoulos v. Olympic Airways S.A. (1990) 95 ALR 525.

1. In my view the application for special leave is based on genuine and arguable grounds. I have considered the submissions made by Mr Christensen, some of which are summarised above and the further submissions made in argument by him in relation to the balance of convenience. However, in my opinion the interests of justice require that the petition be adjourned until the High Court hears Mr Frost's application for special leave to appeal.

2. I propose to make orders which will reflect the above reasons.