Elkhoury, Louis Joseph v Farrow Mortgage Services Pty Ltd (in liq)

[1993] FCA 1060

IN THE FEDERAL COURT OF AUSTRALIA	) 1
NEW SOUTH WALES DISTRICT REGISTRY )	No. NG 947 of 1992

1

GENERAL DIVISION

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BETWEEN:  LOUIS JOSEPH ELKHOURY and
BRENDAN PHILLIP TORPEY

Applicant

AND :  FARROW MORTGAGE SERVICES PTY
LIMITED (IN LIOUIDATIONl

Respondent

24 JUNE, 1993

REASONS FOR JUDGMENT

LOCKHART J . -

This is a motion by Louis Joseph Elkhoury and Brendan Phillip Torpey for orders that proceedings on sequestration orders made against their respective estates on 11 December 1992 be stayed until determination of an application for special leave to appeal to the High Court of Australia from a judgment of this Court in its appellate jurisdiction given on 3 June 1993. The motion also seeks an order that if special leave is granted by the High Court, this Court should today by its order render the stay operative until determination of the appeal in the High Court.

undertake to prosecute the application for special leave with reasonable diligence and expedition. The motion of the

The applicants proffer, through their counsel, undertakings to the Court not to deal with, or dispose of, their assets or income other than to meet ordinary living expenses and the costs of their application for special leave to appeal, and they

applicants is opposed by the respondents.

The genesis of the proceedings lies in an order made by a judge of this Court, Ryan J, making sequestration orders against each of the applicants. The respondent was the petitioning creditor. It was those orders of his Honour that were the subject of the appeal to a full bench of this Court constituted Gummow J and Lee J and me. We gave joint reasons for judgment dismissing the appeal from Ryan J's order and ordering the present applicants to pay the costs of the respondent.

At all relevant times up to and including today, there has been in force an order staying the operation of the sequestration order of Ryan J. In essence, it is that order which the applicants seek to continue by order of this Court today.

The jurisdiction of a Court, from whose judgment it is High Court, to hear an application for a stay of proceedings on	sought to bring an application for special leave to appeal to the	its judgment pending the hearing of the application for special leave, is an interesting and curious one. It has been the subject of a fair degree of expression of judicial opinion. The seminal statement of principle is that of Brennan J in Jennings
Construction Limited v Burgundy Royal e Investments Pty Limited
(1986) 161 CLR 681 at 684 where his Honour said this:

"When an application for special leave to appeal is made to [the High Court], a jurisdiction to stay may be exercised by the court below and it is to that court - the

court in which the matter - is pending and which is familiar with the matter, that an application to stay should first be made. In this case the Court of Appeal, not wishing to pre-empt the view that may be expressed in this Court, tailored its order accordingly. In future, there should be no inhibition on the court in which the matter is pending framing a stay order, if a stay be appropriate, to avoid the necessity for application to this Court."

I need not pause to mention the authorities which have followed and applied that statement of principle including some expression of opinion by the present Chief Justice, Sir Anthony Mason in Smith Kline & French Laboratories (Aust) Ltd v

Secretary, Department of Community Services (1991) 99 ALR 417.

It has been held by at least two single judges of this Court that an application of the kind that is before me this morning is one which may be heard by a single judge of the Court, although, prima facie it is desirable that the matter be dealt with by a Full Court, unless convenience dictates otherwise. It

has not been practicable for a Full Court to hear this motion

this morning; hence I am dealing with it as a single judge.

The jurisdiction of the Court to make an order of the kind that is sought is challenged by counsel for the respondent on one ground: namely, that, although the jurisdiction is generally available, it is not available in a case of this kind where the stay that is sought is the stay of the operation of a sequestration order. Counsel points to S. 52 of the Bankruptcy Act 1966 which confers upon the court pronouncing the sequestration order againstdebtors a very limited power of stay, which expires upon the expiration of the period of days referred to therein. In this case, those days have well and truly since expired.

There is, of course, additional power in this Court in effect to stay the operation of sequestration orders based on

0 52 r 17, but that is a jurisdiction which is intended to

preserve the substratum of the appeal once the appeal to this Court has been determined, as in this case, it has been. It was argued that that jurisdiction and power then goes. So, counsel argues, there is nothing left upon which this Court can exercise its jurisdiction to grant the stay of the kind sought, in particular because the order of the Full Court simply dismissed the appeal from Ryan J's judgment. There was no order, as it were, in terms made by the Full Court which is susceptible of a stay. That is the nub of the argument.

The point is not free from difficulty, but in my view the reasoning of the High Court in Burgundy Royale as further explained by Mason CJ in Smith Kline 6 French, is such that the jurisdiction is appropriate to be exercised even in a case of the kind before the Court today. The High Court itself would have undoubted jurisdiction to grant a stay of the order of Ryan J, pursuant to 0 70 of its rules. As I understand the rationale that the High Court says underlies the jurisdiction of inferior courts to grant stays pending motions for leave to appeal to the

High Court, this court, as presently constituted, is in a position to deal with the motion and has jurisdiction to do so.

The four matters on which the Court must be satisfied before
it can accede to an application for special leave to appeal, are

expressed by Brennan J in Burgundy Royale at 685 in these words:

" In exercising the extraordinary

jurisdiction to stay, the following factors are material to the exercise of this Court's discretion. In each case when the Court is satisfied a stay is required to preserve the subject-matter of the litigation, it is relevant to consider: first, whether there is a substantial prospect that special leave to appeal will be granted; secondly, whether the applicant has failed to take whatever steps are necessary to seek a stay from the court in which the matter is pending; thirdly, whether the grant of a stay will cause loss to the respondent; and fourthly, where the balance of convenience lies."

It is, of course, true that an appeal against the making of a sequestration order in bankruptcy, if successful, will result	in the sequestration order being set aside, so that the person
who was until then a bankrupt ceases to be a bankrupt ab initio. There has been a conflict of judicial opinion on this point, but the law has been resolved at this stage, as I have mentioned. Otherwise, a debtor would be in the impossible position of winning an appeal against a sequestration order against his estate and yet be deemed to have been bankrupt in the meantime.
Even if that were not the law, it would mean that a sequestration order would be in force and the trustee of his estate would be bound to administer the estate. That could result in administration to the point where, if the bankrupt succeeded in the appeal, grave injustice could be done to him and his assets, as well as to his status. I am satisfied that this is a case where a stay is required to preserve the subject matter of the litigation.

Is there a substantial prospect that special leave to appeal will be granted? This is a very difficult matter for the Court from whose judgment the appeal to the High Court is to be brought. In particular, the Full Court in this matter, of which

I was a member, expressed the views on the law which it did and

it is therefore difficult for a Court, as it were, to put itself in the objective position of saying whether there is a substantial prospect that special leave to appeal against that

decision will be granted, bearing in mind the high thresholds	that must be answered and met by applicants for special leave to
succeed.
However, the case does raise questions of importance in the law. Doing the best I can, it seems to me that there is some reasonable prospect that special leave to appeal would be granted by the High Court. Whether, of course, if leave were granted, that appeal would succeed is a matter that is entirely different, and on which I have no view.

Have the applicants failed to take whatever steps are necessary to seek a stay from the court in which the matter is pending? Plainly that is not an issue that can be found against the applicants; they have sought stays at all relevant points and obtained them.

Third, will the grant of a stay cause loss to the respondent? The grant of a stay will mean that the operation of a sequestration order is further suspended and it seems, from what I have been told, that would be a stay that would operate until at least September this year when the application for special leave is likely to be heard by the High Court. Of course there is prejudice to a respondent in these circumstances and a sequestration order operates not only in personam but in rem so that there is prejudice to the public by the stay being granted. However, I am satisfied on balance that the discretionary considerations that call for a stay outweigh any question of loss

to the respondent.

I have already dealt in what I have said with the balance

of convenience. Accordingly, I am of the view that the stay that
is sought should be granted.

The Court orders that:

1. The operation of the sequestration order made by Ryan J on 11 December 1992 against the estates of Louis Joseph Elkhoury and

Brendan Phillip Torpey be stayed until the determination by the High Court of Australia of their application for special leave to appeal (which was lodged in the Sydney Registry of the High Court this morning) from the judgment of this Court of 3 June

1993.

2. The costs of this motion be reserved. I note that it is the intent of the Court that if the High Court should grant special leave to appeal, the costs of this motion shall be treated as if they were the respondent's costs in the motion. If the special leave is refused, the intent of this Court is that the applicants should pay the respondents costs of this motion. I mention those matters in the event so that it may become unnecessary to bring the matter back under the reservation of leave.

3 .    There be liberty to apply to the Court on three days notice.

Joseph Elkhoury and Brendan Phillip Torpey by their counsel not The Court notes the undertakings to the Court by Louis

to deal with, or dispose of, their assets or income other than to meet ordinary living expenses and the costs of the application for special leave to appeal.

The Court notes further the undertaking of Louis Joseph Elkhoury and Brendan Phillip Torpey by their counsel to prosecute the application for special leave to appeal with reasonable expedition and diligence.

I certify that this and the preceding eight (8) pages are a true copy of the reasons for

Dated: 24 June 1993

Counsel for the Applicants	: D Robinson
Solicitors for the Applicants :	Kemp Strang & Chippindall
Counsel for the Respondent	. R Harper
Solicitors for the Respondent :	Abbott Tout Russell Kennedy

Date of Hearing . 24 June 1993

Date of Judgment : 24 June 1993