Hudson v Sigalla (No.2)
[2015] FCCA 542
•30 March 2015
FEDERAL CIRCUIT COURT OF AUSTRALIA
| HUDSON v SIGALLA (No.2) | [2015] FCCA 542 |
| Catchwords: BANKRUPTCY – Whether s.58(3) of the Bankruptcy Act 1966 (Cth) has any application following annulment of bankruptcy considered. |
| Legislation: Bankruptcy Act 1966 (Cth), ss.43, 58, 74,75, 222, 222C |
| Allanson v Midland Credit Ltd & Anor (1977) 30 FLR 108 Re Hudson; ex parte Australia and New Zealand Banking Group Limited v Bird (1993) 50 FCR 281 |
| Applicant: | FRANK HUDSON |
| Respondent: | ANDREW JOHN SIGALLA |
| File Number: | SYG 793 of 2014 |
| Judgment of: | Judge Driver |
| Hearing date: | 10 March 2015 |
| Delivered at: | Sydney |
| Delivered on: | 30 March 2015 |
REPRESENTATION
| Counsel for the Applicant: | Mr C Wood |
| Solicitors for the Applicant: | Marque Lawyers |
| Counsel for the Respondent: | Mr G O’L Reynolds SC, with Mr C A Botsman |
| Solicitors for the Respondent: | Kemp Strang |
ORDERS
Proceedings SYG793 of 2014 be reopened.
Orders 1 and 2 made on 19 December 2014 be set aside.
The application filed on 25 March 2014 is dismissed.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY |
SYG 793 of 2014
| FRANK HUDSON |
Applicant
And
| ANDREW JOHN SIGALLA |
Respondent
REASONS FOR JUDGMENT
Introduction and background
On 19 December 2014 I handed down my judgment in the principal proceedings in this matter[1]. Relevantly, I ordered:
1.The Court grants leave pursuant to s.58(3) of the Bankruptcy Act 1966 (Cth) nunc pro tunc for the applicant to commence and take further steps in his cross-claim in Supreme Court proceedings 2013/216320.
[1] Hudson v Sigalla [2014] FCCA 1652
I secondly ordered that the application otherwise be dismissed.
On 10 February 2015, Mr Sigalla moved the Court for orders reopening the proceedings with the objective of having my first order (granting leave pursuant to s.58(3) of the Bankruptcy Act 1966 (Cth) (Bankruptcy Act)) set aside. The consequence would be the unqualified dismissal of Mr Hudson’s application.
I agreed to hear the motion on 10 March 2015. The parties prepared written submissions and presented oral arguments on that date.
For the reasons which follow I am persuaded that the proceedings should be reopened and that the orders that I made on 19 December 2014 should be set aside.
Reopening proceedings
I accept Mr Sigalla’s submission that the Court has jurisdiction to reopen proceedings before the entry of orders even though reasons for judgment have been given[2].
[2] De L v Director-General, NSW Department of Community Services (No 2) (1997) 190 CLR 207 at 215, 216
This jurisdiction exists where:
a)arguments have been put to the Court but have not been dealt with by the Court in its reasons for judgment[3];
b)a Court has erred in a material matter in its approach to the case[4];
c)the Court has general reason to consider that, in its earlier judgment, it has proceeded on a misapprehension as to the law[5];
d)where “there is some matter calling for review”[6];
e)where the court has proceeded upon an incorrect analysis[7]; or
f)“where the interests of justice so require”[8].
[3] see Autodesk Inc v Dyason (No 2) (1993) 176 CLR 300 at 301-302
[4] Autodesk at 302
[5] Autodesk at 303
[6] see De L at 215
[7] see Dib Group Pty Ltd v Coolabah Tree Aust-Wide Pty Ltd [2011] FCAFC 57 at [80]–[85]
[8] Autodesk at 322
In this case, Mr Sigalla seeks leave to re-open on the following grounds. The first ground is that as a result of the annulment of his bankruptcy Mr Sigalla is not a bankrupt and, in law, never was a bankrupt. Because an ongoing bankruptcy is a “statutory condition precedent” to granting leave under s.58(3) of the Bankruptcy Act, the grant of leave in this case engaged sub-paragraphs 7(b)-(f), above. Alternatively, since Mr Sigalla’s submission that leave should not be granted because his bankruptcy was “not ongoing” was not dealt with by the Court in its reasons, sub-paragraph 7(a) is engaged. Secondly, because Mr Hudson’s debt-claim was extinguished by annulment and the annulment was affirmed by the Court, granting Mr Hudson leave to pursue an unenforceable debt-claim engaged sub-paragraphs 7(b)-(f), above. Thirdly, because the debt-claim was unenforceable for the separate reason that it was barred by the Gambling Regulation Act 2003 (Vic) (Gambling Regulation Act), the grant of leave engaged sub-paragraphs 7(b)-(f), above.
The first ground involves an asserted misapprehension as to jurisdiction[9]. The second and third grounds involve asserted misapprehensions within jurisdiction, namely, whether a court can grant leave under s.58(3) in respect of a claim that it has found to be unenforceable.
[9] See Federated Engine Drivers and Fireman’s Association of Australasia v Broken Hill Proprietary Co Ltd (1911) 12 CLR 398 at 415 (Griffiths CJ) (the first duty of any court is to satisfy itself that it has jurisdiction)
Did the Court misapprehend its jurisdiction?
My principal judgment proceeded on the assumption that relief under s.58(3) of the Bankruptcy Act was available as an alternative to the principal relief sought by Mr Hudson; that being orders pursuant to ss.222(1), 222(5) and/or 222C(1) of the Bankruptcy Act setting aside or terminating a composition made on 21 May 2013. Mr Hudson had from the outset sought ancillary relief including the grant of relief pursuant to s.58(3). That relief would have been necessary if Mr Hudson had succeeded in having the composition set aside because, in that event, Mr Sigalla would have remained a bankrupt and leave would have been necessary in order for Mr Hudson to continue proceedings in the NSW Supreme Court that would otherwise have been barred pursuant to s.58(3). The question is whether s.58(3) was enlivened in circumstances where the composition was not set aside. That is a jurisdictional issue which was only lightly touched upon in written submissions in the principal proceedings and, as I recall, was not the subject of oral argument. The jurisdictional question has now been argued and I am satisfied that it warrants reopening the proceedings.
The starting point for the resolution of this question is the decision of the Full Federal Court in Allanson v Midland Credit Ltd & Anor[10]. That was an appeal from a decision of Franki J that he had no jurisdiction to grant leave under s.58(3). The circumstances were different from the present in that, because of a stay issued in other proceedings in the High Court, there was doubt whether the debtor was bankrupt at the time. Ultimately, the Full Court granted the leave sought.
[10] (1977) 30 FLR 108
Relevantly, however, the Full Court established (at 112) that whether s.58(3) is enlivened depends upon whether the debtor is a bankrupt at the time the discretion is to be exercised. At 115 the Court held that where there is doubt as to whether a debtor is bankrupt at the relevant time the bankruptcy court is empowered to grant leave pursuant to s.58(3). Such a grant was held to be appropriate in circumstances where the need for the leave sought involves difficult and complicated questions of law or fact.
Mr Sigalla submits that because s.43(2) of the Bankruptcy Act relevantly specifies that a debtor “becomes” a bankrupt, and continues to be a bankrupt until the bankruptcy has been annulled (relevantly by s.74(5) of the Bankruptcy Act) the person’s status as a bankrupt at the time of the leave application depends on whether the bankruptcy has been annulled.
Mr Sigalla submits that in the present case, he became a bankrupt on 28 June 2010 when a sequestration order was made. He continued to be a bankrupt until 21 May 2013 when a composition proposal was accepted by his creditors. In my principal judgment I found at [57] that acceptance of the composition proposal had the immediate effect of annulling Mr Sigalla’s bankruptcy under s.74(5). It was not until 25 March 2014 that Mr Hudson sought leave under s.58(3). Mr Sigalla submits that because the annulment preceded the application for leave, he did not “continue to be a bankrupt” at the time he applied for leave and s.58(3) was therefore not enlivened.
Support for this proposition can be found in Re Hudson; ex parte Australia and New Zealand Banking Group Limited v Bird[11]where Northrop J said:
The effect of an annulment of bankruptcy is to put the bankrupt back in the position he would have been in if the bankruptcy had never occurred. In Re Lawson (1939) 11 ABC 137 Clyne J, at 138, said that the effect of an annulment is, subject to the matters to be mentioned later in these reasons, “to remit the party whose bankruptcy is set aside to his original situation”.
An annulment is to be contrasted with a discharge of bankruptcy which confirms the existence of the bankruptcy prior to discharge. The legal consequence of an annulment is discussed at length in Theissbacher v MacGregor Garrick & Co [1993] 2 Qd R 223 by Pincus JA and White J at 228-230. At 226 Fitzgerald P referred to the effect of an annulment order involving “the retrospective annihilation of the sequestration order”. In the later case of Coyle v Cassimatis, Court of Appeal, Qld 1 November 1993, unreported, Fitzgerald P in speaking of annulment under s74(5) said:
“... although only annulled "on" the day of the creditors' special resolution, the annulment was retrospectively effective to annihilate the (bankrupts') bankruptcy and its consequences except as otherwise provided by the Act, notably subs 74(6). Prima facie, therefore, the (bankrupts) were, in law, never bankrupt ...”
Subsection 74(6) of the Bankruptcy Act contains special provisions protecting action taken by a trustee before annulment. That subsection is set out in full:
“(6) Where a bankruptcy is annulled under this section, all sales and dispositions of property and payments duly made, and all acts done, by the trustee or any person acting under the authority of the trustee or the Court before the annulment shall be deemed to have been validly made or done but, subject to subsection (7), the property of the bankrupt still vested in the trustee vests in such person as the Court appoints or, in default of such an appointment, reverts to the bankrupt for all his estate or interest in it, on such terms and subject to such conditions (if any) as the Court orders.”
[11] (1993) 50 FCR 281 at 289
There is no authority available to me precisely on the question of whether s.58(3) is enlivened in the present circumstances. In Norilya Minerals Pty Ltd, in the matter of Dean Edward Ireland v Adam Jonathon Ireland as named executor of the estate of Dean Edward Ireland[12] French J (as his Honour then was) considered the problem in respect of a bankrupt who had been discharged from bankruptcy. At [31]-[34] his Honour said:
[12] [2006] FCA 1235
The position is somewhat complicated in this case by the discharge from bankruptcy of Mr Dean Ireland. Having been discharged in March 1998 he was released from all debts provable in the bankruptcy. The question would arise whether that release operates as a defence to any proceedings brought in respect of such a debt and so makes the question of leave moot.
Discharge of a bankrupt does not spell the end of the trustee’s duties to distribute to creditors such property as remains vested in the trustee. Property, including choses in action, which has vested in a trustee by reason of bankruptcy continues to be so vested after the discharge of the bankrupt. The release provision, s 153(1), does not revest in the bankrupt property previously vested in the trustee – Daemar v Industrial Commission of NSW (No 2) (1990) 22 NSWLR 178. In that case the Court of Appeal of New South Wales held that a right of action which the former bankrupt had to challenge certain orders of the Industrial Commission, remains vested in his trustee. It would seem to be implicit in the continuing responsibility of the trustee for the distribution of the former bankrupt’s estate to creditors, in respect of provable debts, that the leave requirement under s 58(3) remains in place to the extent that there is a dispute about the existence of such a debt. Such leave could authorise a resolution of that dispute in separate proceedings. The leave requirement is not expressly limited in time. Section 58(3) refers to the period ‘... after a debtor has become bankrupt’. It may be noted that the definition of ‘bankrupt’ in s 5 of the Act means a person:
who has become a bankrupt by virtue of the presentation of a debtors petition;’
Provisions of the Act relating to ‘a bankrupt’ are not therefore temporally limited by that term – Official Receiver v Todd (1986) 14 FCR 177 in which it was held that liability to examination under s 81(1) of the Bankruptcy Act does not expire upon discharge. It would seem that in all but the most unusual cases, of which this is one, questions of the kind raised here would not arise in any practical sense.
The release for which s 153(1) provides does not extend to release the bankrupt from a debt incurred by means of fraud. One of the claims made against Mr Dean Ireland was that he practiced a fraud upon Norilya.
Norilya is concerned that the discharge of Mr Ireland from bankruptcy does not excuse it from the requirement to seek leave to prosecute its claim for fraud in the civil action. It is concerned, moreover, that the claim for fraud may arguably be a claim for liquidated damages comprising the purchase price paid by it to Mr Ireland at the direction of Acarus to acquire a 30% interest in the tenements. So the damages claim, albeit based in fraud, may give rise to a ‘provable debt’ within the meaning of s 82. To the extent that the claim seeks recovery of moneys paid by way of the purchase price for the tenements, it is arguably a claim for liquidated damages. As was said in Spain v Union Steamship Co of New Zealand Limited [1923] HCA 21; (1923) 32 CLR 138 (at 142 per Knox CJ and Starke J):
is well said by Mr Odgers (Pleading and Practice, 5th ed, p 41), “whenever the amount to which the plaintiff is entitled ... can be ascertained by calculation or fixed by any scale of charges, or other positive data, it is ... liquidated”.’
On the other hand, in Cornelius v Barewa Oil and Mining NL (In liq) (1982) 42 ALR 83 Burt CJ observed that (at 84):
claim for damages for fraudulent misrepresentation remains a claim or demand for unliquidated damages even if the relief as claimed is for a liquidated amount.’
That decision can be distinguished on the basis that the Court was there dealing with discharge from bankruptcy in circumstances where not all debts were discharged. An annulment of bankruptcy is of a different order to a discharge from bankruptcy. It is probably true that the fraud exception dealt with by the Federal Court in Norilya Minerals could apply equally in the case of an annulment because of the effect of s.75(2) of the Bankruptcy Act. On the other hand, unlike a discharge, property which had vested in Mr Sigalla’s trustee in bankruptcy revested in Mr Sigalla upon the acceptance of the composition. Further, provable debts were released, at least to the extent that they would have been upon a discharge.
Senior counsel for Mr Sigalla also took me to the decision of the Full Federal Court (Greenwood, McKerracher and Nicholas JJ) in Hingston v Westpac Banking Corporation[13] where their Honours said:
The acceptance of the composition proposal by the passing of the special resolution on 2 October 2009 at the s 73 meeting of creditors effected by s 74(5) an annulment of Dr Hingston’s bankruptcy by operation of the Bankruptcy Act. The annulment of the bankruptcy on 2 October 2009 by operation of s 74(5) is understood as having operated “retrospectively ... to annihilate the ... bankruptcy and its consequences except as otherwise provided by the Act, notably subs 74(6)” [deemed validity of acts of the Trustee before annulment] (Coyle v Cassimatis (Court of Appeal, Supreme Court of Queensland) BC 9303327, 1 November 1993, unreported, per Fitzgerald P, Thomas J and MacKenzie J; Theissbacher v MacGregor Garrick & Co (1993) 2 Qd R 223 per Pincus JA and White J), or as having put the bankrupt back in the position he would have been in if the bankruptcy had never occurred: Re Hudson; Ex parte Australian and New Zealand Banking Group Ltd v Bird (1994) 50 FCR 281; Worrell v Westpac Banking Corporation (1994) 51 FCR 304; Re Coyle [1993] FCA 161; (1993) 42 FCR 72; Union Club v Lord Battenberg [2006] NSWCA 72; (2006) 66 NSWLR 1 at [59] to [80] per Giles JA.
[13] [2012] FCAFC 41 at [126]
The only discordant note in this analysis appears to be the decision of the Full Federal Court in Official Receiver v Todd & Ors[14] where Lockhart J said at 185:
Nor does discharge affect the sequestration order. Whether the discharge occurs by operation of s. 149 or by order of the Court under s. 150 the sequestration order is not rescinded, varied or otherwise affected. It is the critical act or event which makes a person a “bankrupt” and unless it is successfully appealed from or rescinded it remains alive; discharge or annulment of bankruptcy says nothing about it. Indeed, after discharge the Court may rescind the order of discharge where the bankrupt was discharged by order of the Court or set aside the discharge where the bankrupt was discharged by force of s. 149 whereupon the bankruptcy which was commenced by the sequestration order revives. Similar considerations apply to sub-s. 43(2) and to sub-ss. 56(16) and 57(10).
[14] (1986) 14 FCR 177
Whilst reliance upon those observations was placed by counsel for Mr Hudson, in my opinion, they say no more than that the Court of bankruptcy generally retains jurisdiction to undo what has been done to terminate a bankruptcy. In the present case there is no doubt that the Court had jurisdiction to set aside the composition. I did not do so. The effect of the composition was to not only terminate but to extinguish the bankruptcy and to release Mr Sigalla from provable debts in that bankruptcy. The consequence, in my opinion, is that s.58(3) was not enlivened when subsequently called in aid by Mr Hudson and has no work to do in circumstances where the composition was confirmed by the Court. It follows that I fell into error in granting leave pursuant to s.58(3) for the cross-claim initiated by Mr Hudson in the Supreme Court to continue. While the composition represents an obstacle to the pursuit of that cross-claim, s.58(3) does not. Neither the statutory bar nor the lifting of that bar in the exercise of the Court’s discretion arises for consideration.
For completeness, I reject the other bases upon which Mr Sigalla sought to reopen the proceedings. Those go to the exercise of the Court’s discretion to grant leave pursuant to s.58(3) if the provision were enlivened. In circumstances where Mr Sigalla gave no evidence and the evidence of Mr Hudson provided no proper basis for the Court to reach a concluded view as to whether he was a creditor of Mr Sigalla in any particular amount, I took the view that that issue was better left to the Supreme Court of NSW. It is true that I found that Mr Hudson’s claim was fraught with difficulties, including the obstacle created by the Gambling Regulation Act. However, I did not consider myself to be in a position to draw a definitive conclusion that the cross-claim was statute barred, either under that Act or the Bankruptcy Act. If s.58(3) had been enlivened, this is precisely the sort of case involving difficult and complicated questions of law and fact that would, on the authority of Allanson, have warranted the granting of leave.
I will order that the orders I made on 19 December 2014 be set aside and, in lieu thereof, I will order that the application filed on 25 March 2014 be dismissed.
I will hear the parties as to costs.
I certify that the preceding twenty-three (23) paragraphs are a true copy of the reasons for judgment of Judge Driver
Associate:
Date: 30 March 2015
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