BANKRUPTCY – Appeal by a trustee of a bankrupt’s estate from an order of a Federal Magistrate setting aside a sequestration order made by a Registrar – Federal Magistrate hearing a review pursuant to s 104(2) of the Federal Magistrates Act 1999 (Cth) – whether the Federal Magistrate should have made an additional order pursuant to s 153B of the Bankruptcy Act 1966 (Cth) annulling the bankruptcy – whether upon setting aside a sequestration order an annulment order should also be made to allow the trustee in bankruptcy to recover his remuneration and expenses.
Cross appeal – respondent ordered to pay appellant’s costs on the respondent’s successful application to set aside a sequestration order – whether Federal Magistrate should have made an order for costs.
Held – Appeal – Federal Magistrate had a discretion to make an order annulling the bankrupt’s bankruptcy in addition to setting aside the sequestration order – no error shown in the exercise of the Federal Magistrate refusing to make an annulment order – appeal dismissed.
Held – Cross appeal – no error shown in the exercise of the Federal Magistrate’s discretion on costs – cross appeal dismissed.
Bankruptcy Regulations Federal Court Rules, O 35, r 7 Federal Magistrates Court Rules, r 16.05, r 20.00A, r 20.02, r 20.03, r 21.01, r 29, r 35.02, r 35.03, r 35.04 Federal Magistrates Court (Bankruptcy) Rules 2006, r 7.02, r 7.03, r 7.04
[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.
[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.
[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.
Consideration
[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.
[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.
Continue reading Pattison v Hadjimouratis
Sign in free to access the full text
Details
AGLC
Pattison v Hadjimouratis [2006] FCAFC 153
Case
[2006] FCAFC 153
Decision Date
CaseChat Overview and Summary
Pattison v Hadjimouratis involved a dispute between the bankrupt, Hadjimouratis, and the trustee, Pattison, regarding the annulment of a sequestration order. The Federal Magistrate had discretion over whether to annul the order but declined to exercise it. Pattison appealed, and Hadjimouratis cross-appealed, challenging the Federal Magistrate’s decision.
The central legal issue was whether the Federal Magistrate had the power to dismiss the petition and annul the sequestration order. This required interpreting relevant provisions of the Federal Magistrates Act 1999, the Federal Magistrates Court Rules, and the Bankruptcy Act 1966. Additionally, the court considered the principles applicable to the delegation of judicial power to Registrars, as discussed in Harris v Caladine.
The Federal Magistrate exercised his discretion to refuse annulment, ordering the sequestration order to be set aside instead. He reasoned that it would be unfair to burden Hadjimouratis with the costs of administering the estate, leaving the trustee to pursue remedies at general law. The Federal Magistrate's decision aligned with the approach taken by Weinberg J in Kryiackou v Shield Mercantile Pty Ltd (No2). The court found no error in the Federal Magistrate’s exercise of discretion.
The appeal was dismissed, and the cross-appeal was also dismissed. The court upheld the Federal Magistrate's decision, finding no grounds to overturn the outcome. The Federal Court and the Federal Magistrates Court were confirmed to have concurrent jurisdiction in bankruptcy, exclusive of other courts except the High Court and the Family Court. The Registrar's power to make a sequestration order was upheld as a delegated judicial power, subject to review by a judge.
Orders
Orders of the court
1. The appeal be dismissed.
2. The cross-appeal be dismissed.
Background
Background to the litigation
The Federal Magistrate proceeded on the basis that he had a discretion whether or not to make an annulment order. He declined to exercise his discretion. I can see no error in this.HISTORY AND BACKGROUND FACTS I will not repeat the background facts set out in the judgment of Lander J. The significant fact to be borne in mind is that on 18 May 2005, two weeks after service of the sequestration order, Mr Hadjimouratis’ solicitors wrote to the Trustee. The letter asserted that their client was solvent, that he wished to pay his debts and “discharge himself from bankruptcy as soon as possible”. The Trustee was therefore on notice at a very early stage that Mr Hadjimouratis’ disputed his bankrupt status and intended to make an application to the Court. Indeed, the Trustee accepted this in his letter of 25 May 2005 to Mr Hadjimouratis, in which he set out the amount required to annual the bankruptcy THE REASONS OF THE FEDERAL MAGISTRATE The learned Federal Magistrate said at [15] that in his view the letter of 18 May 2005 indicated that the Trustee had very early warning of what was asserted by Mr Hadjimouratis. He went on to say, at [15] – [16] that the Trustee was on early notice that Mr Hadjimouratis intended to set aside or challenge the validity of the sequestration order. The Federal Magistrate said that the Trustee was therefore required to exercise caution in incurring expenses. The approach which His Honour took to determining the matter was to decide, in the exercise of his discretion, to refuse to annul the bankruptcy. Rather, he ordered that the sequestration order be set aside. He said it would be unfair to burden Mr Hadjimouratis with the costs of administering the estate, and left the Trustee to pursue his remedies at general law. The learned Federal Magistrate’s approach was taken in accordance with the decision of Weinberg J in Kryiackou v Shield Mercantile Pty Ltd (No2) [2004] FCA 1338 (‘Kyriackou’), to which he referred in his judgment.WHETHER THE FEDERAL MAGISTRATE HAD POWER TO DISMISS AND ANNUL The question of whether the Federal Magistrate had power to dismiss the petition and, at the same time annul the sequestration order, is one of statutory construction. It turns upon the provisions of the Federal Magistrates Act 1999 (Cth), the Rules of the Federal Magistrates Court and the provisions of the Bankruptcy Act 1966 (Cth) (‘Bankruptcy Act’). The particular question of statutory construction must be determined in light of the principles applicable to the delegation of a part of the jurisdiction of the Federal Magistrates’ Court to the Registrars; see Harris v Caladine (1990) 172 CLR 84 (‘Harris v Caladine’). The combined effect of ss 102(2) and 103(1) of the Federal Magistrates Act 1999 (Cth) and Rule 20.00A(1)(c) of the Federal Magistrates Court Rules is that the power to make a sequestration order under s 43(1) of the Bankruptcy Act is delegated to the Registrars. As Lander J observes at [121], this is an exercise of judicial power.
Evidence
Evidence Before The Court
Full text does not contain this section.
Decision
Reasons for decision
Rule 20.02(1) requires that the application for review of the exercise of power of a Registrar must be in accordance with the form of application for review set out in Part 1 of Schedule 2: r 20.02(1).The power to set aside a judgment or order There is an alternative procedure to review where a bankrupt seeks to set aside a sequestration order. Rule 16.05(2) of the FMCR provides:‘The Court may vary or set aside its judgment or order after it has been entered if:(a) the order is made in the absence of a party; or(b) the order is obtained by fraud; or(c) the order is interlocutory; or(d)the order is an injunction or for the appointment of a receiver; or(e)the order does not reflect the intention of the Court; or(f) the party in whose favour the order is made consents.’ As already observed, this rule is in pari materia to O 35 r 7(2) of the Federal Court Rules. The respondent, in these proceedings, sought to utilise r 16.05(2) as an alternative procedure to the procedure for review under s 104(2) of the FMA. Again, as already observed, the Federal Magistrate did not deal with this part of the respondent’s notice of motion and no complaint is made of that on this appeal. The procedure, however, must be noted because it is important in due course in an understanding of the authorities.The proceedings before the Federal Magistrate In this case, as already noticed, the respondent brought a notice of motion seeking the alternative relief referred to in the notice of motion. The notice of motion did not conform with r 20.02(1) of the FMCR because it was not in the form set out in Part 1 of Schedule 2. Nor does the notice of motion conform with Form 155 of that Schedule which provides for notice of an annulment application. No point was taken before the Federal Magistrate on the form and no point has been taken on appeal in that regard. The notice of motion was served on the trustee (the appellant) and the appellant participated in the hearing. The respondent was right to serve the appellant. The notice of motion sought an order for annulment. Rule 35.02, as it then was, of the FMCR required an application of that kind to be served on the trustee. The appellant did not seek to become a party to the proceeding, nor did any other party seek to make the appellant a party to the proceeding. The petitioning creditor participated in the review. The respondent’s application for review was out of time and an extension of time was necessary for a review of the Registrar’s decision. The petitioning creditor consented to an extension of time being granted. The appellant did not seek to be heard on the respondent’s application for an extension of time. An extension of time was granted. On this appeal, the appellant did not challenge the grant of that extension of time. On the hearing of the review of the Registrar’s decision, the respondent sought an order that the Registrar’s order be set aside. The petitioning creditor neither opposed nor consented to that order. The appellant did not seek to be heard on the application for a review because the trustee accepted that was a matter between the petitioning creditor and the respondent.
Ratio Decidendi
Legal Principle Established
The Federal Court and the Federal Magistrates Court have concurrent jurisdiction in bankruptcy which is exclusive of the jurisdiction of any other court, except the High Court’s jurisdiction under s 75 of the Constitution and the Family Court’s jurisdiction under ss 35 and 35A of the Bankruptcy Act: s 27 of the Bankruptcy Act.The Registrar’s power to make a sequestration order The sequestration order was made by a Registrar. Section 102 of the FMA identifies a number of powers of the Federal Magistrates Court which may, if the court or a magistrate has directed, be exercised by a Registrar. The power to make a sequestration order is not one of those powers. However, s 102(2) provides:‘(2)The following powers of the Federal Magistrates Court may, if the Federal Magistrates Court or a Federal Magistrate so directs, be exercised by a Registrar: …(i)a power of the Federal Magistrates Court prescribed by the Rules of Court;’ Subsections (1) and (2) of s 103 of the FMA provide:‘(1)The Rules of Court may delegate to the Registrars any of the powers of the Federal Magistrates Court, including (but not limited to) all or any of the powers mentioned in subsection 102(2).(2)A power delegated by Rules of Court under subsection (1), when exercised by a Registrar, is taken, for all purposes, to have been exercised by the Federal Magistrates Court or a Federal Magistrate, as the case requires.’ Division 20.1 of the FMCR deals with the delegation of powers to Registrars. Rule 20.00A provides:‘(1)For subsection 130(1) of the Act, the following powers are delegated to each Registrar:(a) the powers mentioned in subsection 102(2) of the Act;(b) …(c)a power of the Court under a provision of the Bankruptcy Act mentioned in Schedule 4.’ Item 5 of Schedule 4, as it then was, is the power to make a sequestration order pursuant to s 43(1) of the Bankruptcy Act. The making of a sequestration order is an exercise of judicial power: The Queen v Davison (1954) 90 CLR 353. A delegation by a Federal Court of its judicial powers to an officer of the Court, provided the exercise of that delegate’s power is subject to review, does not offend Chapter III of the Constitution. In Harris v Caladine (1991) 172 CLR 84, Mason CJ and Deane J said at 95:‘It seems to us that, so long as two conditions are observed, the delegation of some part of the jurisdiction, powers and functions of the Family Court as a federal court to its officers is permissible and consistent with the control and supervision of the Family Court’s jurisdiction by its judges. The first condition is that the delegation must not be to an extent where it can no longer properly be said that, as a practical as well as a theoretical matter, the judges constitute the court. This means that the judges must continue to bear the major responsibility for the exercise of judicial power at least in relation to the more important aspects of contested matters. The second condition is that the delegation must not be inconsistent with the obligation of a court to act judicially and that the decisions of the officers of the court in the exercise of their delegated jurisdiction, powers and functions must be subject to review or appeal by a judge or judges of the court. For present purposes it is sufficient for us to say that, if the exercise of delegated jurisdiction, powers and functions by a court officer is subject to review or appeal by a judge or judges of the court on questions of both fact and law, we consider that the delegation will be valid. Certainly, if the review is by way of hearing de novo, the delegation will be valid. The importance of insisting on the existence of review by a judge or an appeal to a judge is that this procedure guarantees that a litigant may have recourse to a hearing and a determination by a judge. In other words, a litigant can avail him or herself of the judicial independence which is the hallmark of the class of court presently under consideration.’