Hendrik Prins v Body Corporate for the Wave CTS
[2013] FMCA 148
•14 February 2013
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| HENDRIK PRINS & ANOR v BODY CORPORATE FOR THE WAVE CTS | [2013] FMCA 148 |
| BANKRUPTCY – Bankruptcy notice – application for extension of time for compliance – judgment supporting notice under appeal – arguable appeal points available – application for stay of enforcement of judgment unsuccessful – appeal against judgment refusing stay – whether appeal against stay order has same effect as an application for stay – requirement to consider other discretionary factors – significance of overall insolvency as a discretionary factor – application refused. |
| Bankruptcy Act 1966 (Cth), ss.41(6A), 41(6A)(a), 149 Body Corporate and Community Management Act 1997 (Qld), s.100 Body Corporate and Community Management (Accommodation Module) Regulation 2008, ss. 42, 149 |
| Bryant v Commonwealth Bank of Australia (1995) 130 ALR 129 Byron v Southern Star Group Pty Ltd (1997) 73 FCR 264 Conway v Jackson [2001] FCA 230 Liew v JNS Technologies (M)Sdn Bhd [1999] FCA 1428 Porter v OAMPS Ltd [2004] FMCA 272 Re Gerard; Ex parte Reid & Others (Unreported Judgment FCA 11 February 1994) Re Nugent v Ex parte Commissioner of Taxation [1995] FCA 1036 Re Taylor ; Ex parte Deputy Commissioner of Taxation (1983) 74 FLR 377 Warner v Frost [1999] FCA 830 |
| First Applicant: | HENDRIK PRINS |
| Second Applicant: | SOKHOM PRINS |
| Respondent: | BODY CORPORATE FOR THE WAVE CTS |
| File Number: | BRG 1124 of 2012 |
| Judgment of: | Burnett FM |
| Hearing date: | 30 January 2013 |
| Date of Last Submission: | 30 January 2013 |
| Delivered at: | Brisbane |
| Delivered on: | 14 February 2013 |
REPRESENTATION
| Counsel for the Applicant: | In person |
| Solicitors for the Applicant: |
| Counsel for the Respondent: | Mr Ferigo |
| Solicitors for the Respondent: | O'keefe Mahoney Bennett |
ORDERS
That the application filed on 20 December 2012 be dismissed.
That the applicant pay the respondent’s costs of and incidental to the application to be taxed in accordance with the Federal Court Rules 2011 (Cth) paid from the estate of the applicant debtor in accordance with the Bankruptcy Act 1966 (Cth).
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT BRISBANE |
BRG 1124 of 2012
| HENDRIK PRINS |
First Applicant
| SOKHOM PRINS |
Second Applicant
And
| BODY CORPORATE FOR THE WAVE CTS |
Respondent
REASONS FOR JUDGMENT
(Revised from Transcript)
On 7 December 2012, a bankruptcy notice was issued in respect of the applicants, Sokhom Prins and Hendrik Prins. They were served on 13 December 2012. On 20 December 2012, they applied pursuant to section 41(6A)(a) of the Bankruptcy Act 1966 (Cth)(“the Act”) for extensions of time to comply with the bankruptcy notice because they are appealing the judgments upon which the bankruptcy notices are based.
The judgment was one pronounced on 10 October 2012 following a trial between the creditor and the debtor arising from their relationship as a Body Corporate and members of the Body Corporate respectively for the Waves Community Title Scheme (CTS) 36237. Surprisingly, the judgment sum relates to the Body Corporate’s claim for outstanding Body Corporate dues of approximately $15,000 together with the Body Corporate’s costs on a full recovery basis.
I say surprisingly because of the disproportionate differences between those figures. However, for reasons which follow, the basis for the extensively high costs assessment can be seen in the conduct of the proceedings. It is that judgment which is now under appeal. It has behind it a somewhat convoluted history.
By proceedings commenced on 27 April 2011, the creditor sought to recover a debt from the debtors of $6,654.00 for unpaid Body Corporate contributions. Those proceedings concluded with a summary judgment application being heard and determined on 2 May 2012 and judgment being entered against the debtors for a sum of $12,847.08.
The difference between the claim and the judgment is explained by additional unpaid contributions incorporated into the judgment, together with penalty interest. It appears that at the hearing, the creditors also sought judgment for the recovery of costs. However, that matter was in dispute and not capable of summary determination. Accordingly, the costs issue was listed for trial some months later on 23 and 24 July 2012.
By reason of later and better estimates, five days were, in fact, allocated. There were the initial two days allowed for in July and then three subsequent days in October. The trial commenced as planned and proceeded over four of the five days allocated. Throughout that time, the debtors conducted the case on their own. It should be noted, in that regard, that Mr Prins is a qualified lawyer in South Africa, although he’s not admitted in Australia and has not practised in Australia.
On the fourth day of the trial, the creditor made a successful application to the Court for orders that the debtors’ cross-examination be subject to limiting orders. The debtors’ response was to protest the perceived unfairness of the order and withdraw from further participation in the proceedings, including withdrawing from the proceedings altogether. To that point, only the creditor had called witnesses. From that point, it continued to do so until satisfied it had placed before the Court all evidence necessary to prove its claim.
The debtors having withdrawn the latter evidence called by the creditor was not challenged. Nor did they lead any evidence to challenge the creditor’s evidence, nor lead any evidence of their own case, whatever that case may have been. The Magistrate subsequently determined the case on the facts that had been presented before him and gave judgment for the creditor against the debtor in the sum of $150,000.00 being the costs assessed the creditor was entitled to (the costs judgment). That order was made on 19 October 2012.
Subsequently, there were some instalment payments applications agitated. However, those applications are a distraction from that which underlies this application.
The debtor appealed the decision of 19 October 2012 by filing a notice of appeal in the District Court of Queensland on 15 November 2012. They appear to have complied with the court’s practice directions and other rules. They have, to this date, filed their outline of argument. On the same day – that is, 15 November 2012, the debtors also made an application to stay enforcement of the judgment. That application was contested by the creditor and subject to a cross-claim for security for costs on the appeal.
Both applications were listed before Magistrate Kilmartin for hearing on 27 and 28 November 2012. At that hearing, which came on, in fact, on the 28 November 2012, the stay application was dismissed. The security for costs application was adjourned and when it came on for determination on 11 January 2013, security was ordered to be paid in the amount of $40,000.00. The debtors have since appealed both those orders.
However, in the meantime, the creditor sought the issue of the bankruptcy notice in respect of the judgment entered on 19 October 2012. The debtors seek an extension of time for compliance with the bankruptcy notices issued pursuant to s.41(6A)(a) because of the appeal outstanding in respect of that judgment, ie, the costs judgment.
I have sought to set these matters out in some detail because there was considerable focus by the debtors at the hearing of the application upon matters that, in my view, were irrelevant to the determination of this application. The judgment relied upon for the bankruptcy notice was the judgment entered on 19 October 2012. The other judgments and orders provide an interesting mosaic; perhaps illustrating the litigious character of the debtors and support a submission made that they take every point irrespective of merits and are driven by some misguided perception as to the strength of their own case.
In their affidavits in support, the debtors principally claim for an extension of time because of their appeal in respect of the judgment of 19 October 2012. Later material filed does not support that ground. For instance, in an affidavit filed on 21 January 2013, it addresses, inter alia, a request for an adjournment rendered otiose by the passing of time, instalment application orders, orders for stay, security for costs in their appeals and the continued failure to pay contributions. Except for paragraph 5, the affidavit is of no real assistance in this application.
The debtors’ affidavit filed 22 January 2013 also contains extraneous features and is not fully to the point. There is some material addressing discretionary factors and only that material has been considered by me. I have already noted the circumstances surrounding the entry of judgment. I will expand upon them shortly. However, first it is necessary to mention the appeal.
The Notice of Appeal was filed on 15 November 2012. It was subsequently followed by another Notice of Appeal filed on 21 January 2013. That Notice of Appeal does not relate to the judgment in question but rather relates to orders made for security for costs and/or for stay. Dealing then with the Notice of Appeal, which is relevant, it addresses 52 grounds. The grounds themselves broadly fall into three areas.
First, there is an allegation which can broadly be described as a denial of natural justice by the presiding magistrate in the conduct of the proceedings; Secondly, there is a complaint that the proceedings for costs were not authorised in the sense that the proceedings were made ultra vires the powers of the Body Corporate Manager; and, finally there is an appeal on the basis that the judgment is one which was not open to be prosecuted in the manner in which it was because it was not for a liquidated amount and therefore not authorised by a Body Corporate resolution.
The debtors contend their appeal has been prosecuted bona fide and subjectively, I accept that is the case. Objectively, however, following later lack of success before other judicial officers in persuading them of the underlying injustice, a question arises as to whether they are objectively responding appropriately by pursuing their current course of action. However for reasons which follow, I do not think it is necessary to immediately determine that point.
Ultimately, the question for s.41(6A) is one which is to be resolved on a discretionary basis, the discretion, of course, being one which must be exercised judicially. It is accepted that it is a discretion at large: See generally Re Taylor; Ex parte Deputy Commissioner of Taxation [1983] FCA 316; (1983) 74 FLR 377. That of course means that the court should not generally review the merits of the appeal, although an exception to that rule is said to exist where the prospects of appeal are slight or unusually strong: See Byron v Southern Star Group Pty Ltd (1997) 73 FCR 264.
The relevant discretionary considerations then are these:
a)Whether in the absence of other relevant factors, the circumstances require an exceptional case or at least quite special circumstances for time to be extended where no stay has been obtained;
b)Where there are no exceptional circumstances supporting a debtors’ application, then the debtors’ solvency is relevant: see Re Nugent v Ex parte Commissioner of Taxation [1995] FCA 1036;
c)The question of prospects of appeal;
d)The question of prejudice to the debtors: see, generally Porter v OAMPS Ltd [2004] FMCA 272;
e)The question of the significance of the relation back period in the overall context: see Conway v Jackson [2001] FCA 230 at [30]; and,
f)The question of whether there has been any undertaking given in respect of the outstanding judgment: See Silberman v Citigroup Pty Ltd [2011] FMCA 860.
There are many authorities which provide guidance in relation to the exercise of the discretion. It is fair to say that largely, each case turns upon its own facts. In this instance, this case is very similar factually to a decision of Liew v JNS Technologies (M)Sdn Bhd [1999] FCA 1428.
In Liew, Kenny J conducted a close examination of a number of the leading authorities addressing the question of exercise of the discretion, pursuant to s.41(6A). In particular, her Honour referred with approval to a decision of Hely J in Warner v Frost [1999] FCA 830.
In Warner v Frost (Supra) his Honour gave a clear exposition of the divergence of views of the Federal Court in its approach to this kind of application. There, his Honour was considering an application for extension of time for compliance until the hearing of appeal. A stay had earlier been applied for but refused, as is the case here. At paragraph [5], his Honour continued:
5…I have been referred to a number of decisions of judges of this Court in which the principles governing whether an extension of time should be granted are discussed. The first was a judgment of Kiefel J in Re Baker; ex parte Baker v Staples (unreported, Federal Court, 4 September 1995), where her Honour concluded that the subsistence of an arguable outstanding appeal against the judgment on which the bankruptcy notice was based, was of itself a sufficient ground on which to extend time for compliance with the bankruptcy notice.
6 That view has not prevailed in the general run of judgments in this court: Bryett v Deputy Commissioner of Taxation (1997) 37 ATR 141, Wenkart v Abignano (unreported, Federal Court, 28 August 1998) and Byron v Southern Star Group Pty Limited (1997) 73 FCR 264 are cases which have proceeded in a different direction. It is possible, I suppose, to synthesise from this group of decisions three views. The first is the view of Kiefel J which I have just indicated; the second is the view of Sheppard J referred to in Re Geard; ex parte Reid (unreported, Federal Court, 11 February 1994) that quite special circumstances are required before the Court will extend the time for compliance with a bankruptcy notice when an application has not been made to the court in which judgment was given for a stay of proceedings, and the third is the view of Lehane J in Byron that whilst weight should be given to that matter it is not necessarily conclusive.
7 For myself, I think with respect, that the view of Lehane J is to be preferred and I propose to follow it but the problem is that really the only matters which were relied upon in support of a stay were these: first, the existence of an arguable appeal. Second, the application for a stay was made but at least inferentially a reason for its refusal was the inability on the part of the applicant to put up security in sufficient sums. Thirdly, the impact of a change in status consequential upon the refusal of a stay. Fourthly, no showing of any prejudice to the respondent should an extension be granted and, finally, the appeal is likely to be heard and decided in a period of eight months or less.
8 In my view, these factors are insufficient to outweigh the proposition that the Court in which this judgment was obtained has declined to stay its execution and something more than an arguable appeal needs to be shown before the Bankruptcy Court would grant an extension of time for compliance with the bankruptcy notice, which would produce a similar effect to the granting of a stay. Really nothing more has been shown in this case other than that there is an arguable appeal and that the consequence of refusing an extension will be the commission of an act of bankruptcy but, as Lehane J said in Byron at 270:
"The commission of an act of bankruptcy is, undoubtedly, a serious matter; it is, however, of a different order of gravity from the change of status brought about by the making of a sequestration order; and there is also to be taken into account the interest of both the judgment creditor and other creditors of the judgment debtor in ensuring that, if ultimately a sequestration order is made, the relevant act of bankruptcy occurs earlier rather than later."
The matter of the application for a stay appeared in that instance to be decisive, although not a conclusive consideration. Perhaps that is or was because a stay application, as an application of this kind, commonly requires a consideration of inter alia, whether or not the applicant has an arguable case, and, of course, further where the balance of convenience lies, pending the argument in order to ensure the preservation of the subject matter of the proceeding.
Looking, then, to this case. First, the appeal. The debtor has appealed the judgment relied upon. The Notice of Appeal relies upon 52 grounds. As I have earlier noted these grounds are broadly divided into three classes.
The first class addresses the complaint of a denial of natural justice in the conduct of the proceedings. In that respect, a number of issues are raised. First, a complaint that inadequate consideration was given to the fact that the debtors were self represented. Second there are complaints about the issue of trial directions and the conduct of the trial, particularly directions limiting cross-examination and of course, proceeding with the trial after the debtors withdrew, including a complaint that the Magistrate did not refer to material filed, but which I note was not put up by them in their case. Finally there are complaints in respect of the credit findings. Each of those matters were within the full discretion of the trial Magistrate, and nothing appears from his decision to suggest that his discretion miscarried.
The debtors, in short compass, are simply unhappy with his Honour’s findings and rulings. Respectfully, these grounds have limited prospects and could not be assessed as strong, not that I intend to conduct any preliminary examination of the detail of the complaints. It is noteworthy that the circumstances are somewhat similar to the circumstances that faced the Full Court in: Bryant v Commonwealth Bank of Australia (1995) 130 ALR 129.
The next substantive ground is that the proceedings to which the costs were claimed were not authorised by the Body Corporate. This has its basis in a complaint that the Body Corporate unlawfully rejected payment proposals made to it by the debtors: See grounds 24 to 43. The essence of the complaint concerned evidence by Body Corporate management on the point. The complaint was that there was no consideration of the issue, as required by the rules, by the Body Corporate Committee. In particular, s.149 of the Body Corporate and Community Management (Accommodation Module) Regulation 2008, provides:
Section 149 Spending by committee
1. The committee may only give effect to a proposal involving spending above the relevant limit for committee spending for the community titles scheme if –
(a) the spending is specifically authorised by ordinary resolution of the body corporate.
There is no argument here that the sum involved regarding legal costs involved expenditure above the relevant limit. But the complaint is that on 5 December 2011, the Body Corporate instructed body corporate management not to accept the offer in response to an offer addressed to it. It seems that no body corporate meeting was conducted between the time of the offer or on or about 29 November 2011 and 5 December 2012. It follows, arguably, that there was no instruction by the Body Corporate Committee or no ordinary resolution by the Body Corporate in respect of that matter and, by inference, in respect of the expenditure of money.
Evidence before the Magistrate was contained in the affidavit of Ms Todd, which was supplied following the hearing. In particular, at paragraphs 26 to 33. It dealt with these matters, detailing the Body Corporate’s consideration of the arrears and the issue of penalty costs and interest. Of course, those matters postdate the relevant date of the complaint. Community title body corporates’, like any other body corporate, are subject to regulation, and there is nothing to suggest that the usual regulations that govern corporations do not apply.
The indoor management rule highlights the reluctance of courts to interfere with internal irregularities that are capable of being ratified by ordinary resolution of a general meeting of members, as is noted in Understanding Company Law by Lipton, Herzberg and Welsh, Reuters Law Co 2012, 16th edition, at paragraph [17.485]:
…This aspect of the rule in Foss v Harbottle was rationalised on the basis that it would be futile to allow minority members standing to bring legal actions against the company or its directors if the general meeting could afterwards ratify the irregularity.
What is complained of here is, in essence, an irregularity in the manner in which the Body Corporate conducted its proceedings. It is a matter which, by reference to regulation 149(1)(a) can be resolved by ordinary resolution of the Body Corporate. There is no reason to expect that in this instance that did not occur, as is deposed to in the affidavit of Ms Todd. It seems to me, having regard to those matters, that, again, that ground of appeal does not appear to have particularly good prospects, although I hasten to add that I am not intending to express any formal view in relation to that matter.
The final ground is that as the claim was not for a liquidated amount the Body Corporate’s action in instituting the proceedings was ultra vires the powers of the Body Corporate manager. It is claimed by grounds 44 to 52 of the Notice of Appeal that the Body Corporate was not authorised to make this demand. Section 42 of the Body Corporate and Community (Accommodation Module) Regulation 2008 is in these terms:
42 Restricted issues for committee[SM, s 42]
A decision is a decision on a restricted issue for the committee if it is a decision –
…
(e) to start a proceeding, other than –
(i) a proceeding to recover a liquidated debt against the owner of a lot.
Section 100 of the Body Corporate and Community Management Act 1997 (Qld), deals with the power of the committee to act for a body corporate. It provides as follows:
100 Power of committee to act for body corporate
(1) A decision of the committee is a decision of the body
corporate.
(2) Subsection (1) does not apply to a decision that, under the
regulation module, is a decision on a restricted issue for the
committee.
There may be an argument in relation to the question of whether or not the proceedings were authorised. It seems, I think, beyond doubt that the proceedings were, indeed, for an un-liquidated sum, that is, the recovery of costs on an indemnity basis. It follows arguably that at least in respect of this ground there does appear to be some basis for prospects on the appeal.
In addition to the matter of the appeal, and perhaps most significantly in this case however, is the question of the stay. The debtors have been refused a stay. Their answer to the refusal was to seek to appeal that refusal order. As was noted by Hely J in Warner v Frost (Supra), what the debtor now seeks is, in effect, what he was denied by the Magistrate, that is, a stay. At its best, the debtors are now in the position of applicants for an extension of time who have not applied for a stay in the court, making the order from which they now seek a stay.
That follows because the stay application now being prosecuted, in effect, is an appeal from another court. In my view, that appeal falls into the class identified by Sheppard J in Re Gerard; Ex parte Reid & Others (Unreported Judgment FCA 11 February 1994), summarised by Hely J in Warner v Frost (Supra) at [6], where his Honour noted Sheppard J had said that quite special circumstances are required before a court would extend the time for compliance with a bankruptcy notice when an application has not been made to the court in which the judgment was given for a stay of proceedings. By that I understand his Honour’s views to extend to an application having been made but dismissed.
Overall, I think there are many compelling reasons why the debtors ought not have an extension of time. When one comes back to the discretionary considerations which I earlier outlined; while there is on foot an appeal which, on one ground, arguably has some prospects, that is not the sole and determining factor. Other discretionary factors arise.
In this case there is no stay order made by the court which made the judgment. There is an application for an appeal of the order refusing the stay, but that is not the same. It follows, in my view, that the applicants must demonstrate exceptional circumstances. They have not done so.
But in any event, even if I were to be wrong on that point, the fact remains the debtors, on their own evidence, appear to be, if not insolvent, very close to it. That factor bears, in my view, upon the importance of the bankruptcy notice, in terms of the general duty owed as a matter of public law to other potential creditors.
It is appropriate on that basis alone that the notice not be extended. Furthermore, the debtors cannot demonstrate any real prejudice in respect of the issue of a bankruptcy notice. It has to be remembered that the issue of the notice itself does not impact upon the debtor’s rights, and it is only upon the prosecution of the creditor’s petition that the debtors have the real prospect of suffering some detriment.
I acknowledge the submissions made by the debtor concerning the consequences to them if time is not extended. However, those factors ought not bear upon the overall discretion in relation to the issue of the notice itself. There is, in my view, nothing in the material that compels the granting of the relief sought by the applicants. The application is dismissed.
I certify that the preceding forty-two (42) paragraphs are a true copy of the reasons for judgment of Burnett FM
Date: 2 April 2013
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