SRESBODAN & SRESBODAN AND ORS (NO. 2)
[2011] FamCAFC 240
•16 December 2011
FAMILY COURT OF AUSTRALIA
| SRESBODAN & SRESBODAN AND ORS (NO. 2) | [2011] FamCAFC 240 |
| FAMILY LAW ─ APPEAL ─ Application for leave to appeal ─ Appeal against order of Family Court Judge joining the third and fourth respondents (“the solicitors”) as parties to the proceedings ─ Where the solicitors lodged a proof of debt with the husband’s bankruptcy trustees ─ Where the solicitors lodged an appeal in the Federal Court against the trustees decision regarding the quantum of their entitlement ─ Where beyond what is recorded in the trial Judge’s reasons for judgment, this Court is unable to know on what basis the solicitors sought leave to intervene in the proceedings, and on what basis the husband opposed such leave being granted ─ Where the basis upon which the solicitors sought to remain interveners in the Family Court proceedings was squarely submitted to relate to “the mechanics of getting paid if and when the quantum of our debt is determined” ─ Where the Court was not aware of any suggestion, nor did they suggest that it would be appropriate in any event, for the dispute between the solicitors and the trustees with respect to the quantum of the husband’s indebtedness to the solicitors to be determined other than by the Federal Court, which has been seized of the dispute for months ─ Where it was concluded that, absent consideration of section 58(3) of the Bankruptcy Act 1966 (Cth), the discretion to grant leave for the solicitors to intervene miscarried, in that the trial Judge failed to have regard to a matter which was material to the exercise of his Honour’s discretion ─ Leave to Appeal granted ─ Appeal allowed FAMILY LAW ─ APPEAL ─ COSTS ─ Where it was common ground that, if the application was granted and the appeal allowed, an order for costs against the solicitors was appropriate ─ That the solicitors are to pay the husband’s costs of and incidental to the application for leave to appeal and appeal as agreed or assessed on a party/party basis |
| Family Law Act 1975 (Cth); Part VIII Bankruptcy Act 1966 (Cth) ss 58(3), 58(3)(a), 58(3)(b), 116(2), 178 |
| Banque Commerciale SA, En Liquidation v Akhil Holdings Pty Ltd (1990) 169 CLR 279 McDonald, Henry & Meek, Thomson Reuters, Australian Bankruptcy Law & Practice, vol 2 (at service 136) |
| APPELLANT: | Mr Sresbodan |
| RESPONDENT: | Ms Sresbodan |
| SECOND RESPONDENT: | Trustees of the Bankrupt Estate of Mr Sresbodan |
| THIRD RESPONDENT: | Mr R |
| FOURTH RESPONDENT: | Mr O |
| FILE NUMBER: | SYF | 4345 | of | 2006 |
| APPEAL NUMBER: | EAA | 86 | of | 2011 |
| DATE DELIVERED: | 16 December 2011 |
| PLACE DELIVERED: | Sydney |
| PLACE HEARD: | Sydney |
| JUDGMENT OF: | Coleman, Thackray & Young JJ |
| HEARING DATE: | 1 December 2011 |
| LOWER COURT JURISDICTION: | Family Court of Australia |
| LOWER COURT JUDGMENT DATE: | 18 July 2011 |
| LOWER COURT MNC: | [2011] FamCA 592 |
REPRESENTATION
| COUNSEL FOR THE APPELLANT: | Ms Obradovic |
| SOLICITOR FOR THE APPELLANT: | Pagano Burlovich Lawyers |
| COUNSEL FOR THE 1ST RESPONDENT: | Ms Nash |
| SOLICITOR FOR THE 1ST RESPONDENT: | Adrian Twigg & Co Solicitors and Conveyancers |
| COUNSEL FOR THE 2ND RESPONDENT: | Mr Ash |
| SOLICITOR FOR THE 2ND RESPONDENT: | Watson & Watson Solicitors |
| COUNSEL FOR THE 3RD & 4TH RESPONDENT: | N/A |
| SOLICITOR FOR THE 3RD & 4TH RESPONDENT: | K Firm |
Orders
That time to apply for leave to appeal against the orders of 18 July 2011 be extended to 4 pm 1 December 2011.
That the husband be granted leave to appeal against orders 3 and 4 of the orders of 18 July 2011.
That the appeal be allowed.
That orders 3 and 4 of the orders of 18 July 2011 be set aside.
That the solicitors pay the husband’s costs of and incidental to the application for leave to appeal and appeal as agreed or assessed on a party/party basis.
IT IS NOTED that publication of this judgment under the pseudonym Sresbodan & Sresbodan & Ors is approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
| THE FULL COURT OF THE FAMILY COURT OF AUSTRALIA AT SYDNEY |
Appeal Number: EAA 86 of 2011
File Number: SYF 4345 of 2006
| Mr Sresbodan |
Appellant
And
| Ms Sresbodan |
Respondent
And
| Trustees of the Bankrupt Estate of Mr Sresbodan |
Second Respondent
And
| Mr R |
Third Respondent
And
| Mr O |
Fourth Respondent
REASONS FOR JUDGMENT
introduction
By Amended Notice of Appeal filed 24 November 2011 Mr Sresbodan (“the husband”) purported to appeal against an order made by Watts J on 18 July 2011 joining Mr R and Mr O trading as K Firm (“the solicitors”) as parties to the proceedings. Having no interest in the matter, the first respondent Ms Sresbodan (“the wife”) and Trustees of the Bankrupt Estate of Mr Sresbodan (“the trustees”) took no part in the proceedings. The solicitors resisted the husband’s “appeal”.
The husband did not file an application for leave to appeal against Watts J’s order within time. Nor has the husband filed an application for an extension of time within which to apply for leave to appeal. It is not in doubt that both an extension of time within which to file an application for leave to appeal, and a grant of leave to appeal are required before Watts J’s order could be disturbed.
Although resisting the husband’s challenge to Watts J’s order, the solicitors sensibly did not oppose the granting of leave to make an oral application for an extension of time to apply for leave to appeal being granted to Counsel for the husband. Counsel for the husband undertook on behalf of her instructing attorney to file a written application in those terms.
BACKGROUND
On 27 November 2006 the wife applied for orders for settlement of property pursuant to the provisions of Part VIII of the Family Law Act 1975 (Cth) (“the Act”). The husband defended the wife’s application.
On 12 May 2009 the Federal Magistrates Court ordered that the husband’s estate be sequestrated and trustees appointed pursuant to the provisions of the Bankruptcy Act 1966 (Cth) (“the Bankruptcy Act”).
The husband’s trustees in bankruptcy intervened in the pending property settlement proceedings. Those proceedings have not been determined.
The solicitors, who had acted for the husband in the past, lodged a proof of debt with the husband’s bankruptcy trustees claiming that $273,246.67 was owed to them by the husband. The trustees admitted $189,364 of the solicitors’ claim, and rejected the balance. The solicitors appealed against the trustees’ decision. The solicitors’ appeal is pending in the Federal Court of Australia, and was listed for directions by that court in December 2011.
Pursuant to the orders made by Watts J on 7 June 2010, the trustees hold approximately $1,800,000 from the proceeds of sale of property of the husband to abide the Federal Court’s determination of the solicitors’ appeal, and other claims made by the husband which have the potential to impact upon the solicitors’ entitlement to be paid out of the fund currently held by the trustees.
REASONS FOR THE ORDER JOINING THE SOLICITORS IN THE MATRIMONIAL CAUSE
Watts J’s reasons for making the order granting the solicitors leave to intervene (order 3 made on 18 July 2011) recorded (at paragraph 19), that:
19.The circumstances in which they are seeking to be joined are that I had, in effect, made an order that the debt which they are owed by the husband be paid from the proceeds of the sale of the [K] property. That order has now been stayed pending the Full Court dealing with the husband’s application for leave to appeal certain orders that I have made. That stay may not be a stay which remains in place permanently. It will depend very much upon the course and progress of the husband’s proceedings in the Full Court.
His Honour concluded that:
20.The affidavit by Mr [R] sets out the basis upon which he says Mr [O] and he are creditors of the husband. The claim is for the substantial amount of $248,000. The trustee has assessed their claim at $189,000 and Mr [R] and Mr [O] are challenging that amount. The husband says no amount is yet payable for the services that Mr [R] and Mr [O] provided him because they had agreed to wait to be paid until [K property] was sold and he seeks to reverse the sale of [K property]. It is appropriate, given the circumstances that Mr [R] and Mr [O] are not getting their money because of the interim stay order which I have made, that they be allowed to be parties to the property proceedings so that:
20.1.They then would have standing to bring their own application, should they believe that the husband is not properly prosecuting his appeal that he has been given leave to prosecute out of time;
20.2.They would know if the stay was lifted and the matter was proceeding to a hearing; and
20.3.They might bring any application, at least, for injunctive orders, to secure funds and for payment to themselves once quantum is certain. I have expressed a preliminary view that I would not be involved in assessing the quantum of their claim.
THE PROPOSED CHALLENGE TO THE TRIAL JUDGE’S ORDERS
It is not in doubt that on 28 February 2011 the solicitors filed a formal appeal against the trustees’ assessment of their claim in the sum of $189,364 in lieu of the sum of $273,246.67 asserted by them pursuant to section 178 of the Bankruptcy Act. There was evidence of their having done so before Watts J on 18 July 2011. The solicitors’ challenge was pending in the Federal Court at the time of Watts J’s order.
This Court has not been provided with a transcript of the proceedings before Watts J on 18 July 2011. Beyond what is recorded in his Honour’s reasons for judgment, this Court is unable to know on what basis the solicitors sought leave to intervene in the proceedings, and on what basis the husband opposed such leave being granted.
It is common ground that, whatever the Federal Court ultimately holds their entitlement to be, subject to the outcome of the husband’s application to the Federal Court pursuant to section 116(2) of the Bankruptcy Act, the assets of the husband’s bankrupt estate are more than sufficient to enable the solicitors to be paid in full.
The only basis upon which the solicitors might not be paid in full out of the fund currently held by the trustees, given the previous interlocutory and injunctive orders of the Family Court, and the undertaking given to this Court by Counsel for the trustees on 1 December 2011, is if the determination by the Federal Court of the husband’s application pursuant to section 116(2) of the Bankruptcy Act renders available for creditors a sum less than whatever the Federal Court concludes the solicitors’ entitlement to be.
It was fairly conceded by the solicitors that there was no evidence before Watts J on 18 July 2011 that the trustees had, failed, or were likely to fail to discharge their fiduciary and statutory duties to them as creditors of the husband. In this Court, the basis upon which the solicitors sought to remain interveners in the proceedings was squarely submitted to relate to “the mechanics of getting paid if and when the quantum of our debt is determined”.
THE PROPOSED CHALLENGE IN RELIANCE UPON SECTION 58(3) OF THE BANKRUPTCY ACT
The husband’s Amended Notice of Appeal articulated two challenges which he sought leave to agitate, and provided that:
1.His Honour erred in joining [Mr R] and [Mr O] trading as [K Firm] as parties to proceedings SYF 345/2006
2.His Honour erred in not applying, correctly or otherwise, the provisions of section 58 of the Bankruptcy Act 1966 (Cth) in circumstances where the Court had jurisdiction under that Act
The second proposed ground of appeal was first addressed by Counsel for the husband, and it is convenient for us to deal first with that.
Counsel for the husband submitted that the trial Judge erred in making the order for intervention, as it was contrary to the provisions, or the spirit of section 58(3) of the Bankruptcy Act. Section 58(3) of the Bankruptcy Act provides that:
(3)Except as provided by this Act, after a debtor has become a bankrupt, it is not competent for a creditor:
(a)to enforce any remedy against the person or the property of the bankrupt in respect of a provable debt; or;
(b)except with the leave of the Court and on such terms as the Court thinks fit, to commence any legal proceeding in respect of a provable debt or take any fresh step in such a proceeding.
It was submitted that the trial Judge had erroneously failed to have regard to section 58(3) of the Bankruptcy Act when determining the solicitors’ application for leave to intervene. It was further submitted that the factors which led his Honour to grant the solicitors leave to intervene did not support his conclusion that leave should be granted.
In circumstances where there is no suggestion that the husband’s trustees have failed, or are likely to fail to discharge their statutory and fiduciary duties to the solicitors, it was submitted that there was no reason to grant the solicitors leave to intervene, and real potential for the proceedings to be needlessly prolonged and the costs of all parties to them increased by doing so.
Counsel for the husband submitted that the three particular factors identified by the trial Judge involved erroneous conclusions as to the ability of the solicitors to bring applications, and erroneous assumptions as to the role of the trustees in relation to each of the particular matters to which his Honour referred.
On behalf of the husband it was submitted that all of the concerns to which his Honour had regard were, in the absence of any evidence suggesting dereliction of duty on the part of the trustees, matters in respect of which the trustees would act to preserve the solicitors’ interests. Section 178 of the Bankruptcy Act was submitted to provide a clear and recognised basis for judicial intervention if there were reasonable grounds for concluding that they were, or might not do so.
On behalf of the solicitors, it was submitted that:
4.4Having regard to the above principles, it is appropriate for [K Firm] to have been joined as:
(a)they are indisputably creditors of the Husband’s bankrupt estate;
(b)although [K Firm] are indisputably creditors of the Husband’s bankrupt estate, the amount of their debt is in dispute and it may be appropriate for this dispute to be resolved in the Court’s accrued jurisdiction;
(c)their interests may be adversely affected by orders that may be made by the Court;
(d)at several points during the hearing before Watts J in May 2010, there was controversy as to the way [K Firm’s] claims should be dealt with and quantified, issues which could not be resolved without hearing from [K Firm]. (footnotes omitted)
There is no doubt that the solicitors are creditors of the husband’s bankrupt estate. Nor is there any doubt that the amount of the debt owed to the solicitors is “in dispute”. It is erroneous to suggest that the issue, of which the Federal Court is and has been seized for some time, may be appropriately resolved by this Court.
We are not aware of any suggestion, nor do we suggest that it would be appropriate in any event, for the dispute between the solicitors and the trustees with respect to the quantum of the husband’s indebtedness to the solicitors to be determined other than by the Federal Court, which has been seized of the dispute for months. The proceedings will be again before the Federal Court in December 2011.
In what way the interests of the solicitors “may be adversely affected” by any orders that may be made by this Court has not been identified, or demonstrated. If the interests of the solicitors are adversely affected, in the circumstances, that could only be as a result of the husband’s pending application to the Federal Court pursuant to section 116(2) of the Bankruptcy Act finding favour in that Court. The determination of that dispute would be binding upon this Court.
Similarly, the “way” the solicitors’ debt “should be dealt with and quantified” is, by the combination of the two sets of pending proceedings in the Federal Court, a matter which will be resolved by the Federal Court. The determination of that Court almost certainly being binding on this Court. Once quantified, there is no doubt as to the “way” in which the solicitors’ entitlement will be “dealt with”.
It was further submitted on behalf of the solicitors that:
5.1There was no issue raised by the Husband, the Trustee or the Wife as to the application of section 58 of the Bankruptcy Act. The Husband should not be permitted to raise any matter on appeal relating to the application of section 58 of the Bankruptcy Act as no reliance was placed on this section in the Court below: In the Marriage of Fagan. Had the point been raised before Watts J, it would not necessarily have succeeded because it might have been met by the calling of evidence or by seeking the leave required under sub-section 58(3)(b). (footnotes omitted)
In the absence of the transcript, we do not know whether the section 58(3) contention of Counsel now appearing for the husband was raised before the trial Judge. The absence of any reference to such a challenge to the solicitors’ application to intervene in the trial Judge’s reasons for judgment suggests that it was not.
In Suttor v Gundowda Pty Ltd (1950) 81 CLR 418 the High Court said (at page 438) that:
The circumstances in which an appellate court will entertain a point not raised in the court below are well established. Where a point is not taken in the court below and evidence could have been given there which by any possibility could have prevented the point from succeeding, it cannot be taken afterwards.
The High Court has followed that decision on numerous occasions (see Metwally (No 2) v University of Wollongong (1985) 60 ALR 68 at 71, Coulton v Holcombe (1986) 162 CLR 1 at 7 and Banque Commerciale SA, En Liquidation v Akhil Holdings Pty Ltd (1990) 169 CLR 279 at 284).
In what way, had it been raised before the trial Judge, the solicitors could or would have adduced evidence of the kind to which the High Court referred in Suttor v Gundowda (supra) had section 58(3) been raised before the trial Judge has not been identified. With respect to the solicitors, we can see no basis upon which, had the section 58(3) contention, now sought to be raised, been raised before the trial Judge, any further or additional evidence could or would have impacted upon the determination of that issue. To allow Counsel for the husband to agitate her client’s complaint in reliance upon section 58(3) would not in the circumstances be unfair to the solicitors.
In opposition to the contentions of Counsel for the husband, it was submitted on behalf of the solicitors that:
5.4Sub-section 58(3)(a) of the Bankruptcy Act imposes an absolute bar against a creditor enforcing a remedy in respect of a provable debt. This absolute bar is construed as applying to the enforcement of remedies as distinct from the institution of legal proceedings and their maintenance up to the point of recovery of judgment: Fraser v Commissioner of Taxation.
5.5The proceedings before Watts J do not concern any enforcement of remedies. No judgment on substantive issues has been given. Accordingly, sub-section 58(3)(a) of the Bankruptcy Act does not operate as a bar. (footnotes omitted)
In Fraser v Commissioner of Taxation (1996) 69 FCR 99 the Full Court of the Federal Court (Black CJ, Beaumont and Tamberlin JJ) concluded (at page 100) that:
The absolute incompetence of a creditor provided for in s 58(3)(a) [of the Bankruptcy Act] applies only to the enforcement of any remedy, including an extra curial remedy, against the person or property of the bankrupt as distinct from the institution of a legal proceeding and its continuance to judgment.
The logic of their Honours’ reasoning, and of section 58(3) is obvious, and cannot be disputed. Fundamental to the administration of the estate of a bankrupt is the role of a Court appointed trustee to realise the property of the bankrupt and, subject to proof, satisfy the entitlements of creditors of the bankrupt to the extent that the bankrupt’s estate is sufficient to do so. It is not in doubt that trustees in bankruptcy have both fiduciary and statutory duties to creditors of the bankrupt. Section 178 of the Bankruptcy Act, the learned authors of McDonald, Henry & Meek, Thomson Reuters, Australian Bankruptcy Law & Practice, vol 2 (at [178.1.10) suggest, “gives the court “a general power of review” of a decision of a trustee, and confers on the court a very wide discretion...”.
That suggestion is supported by the terms of section 178 of the Bankruptcy Act which provides:
178Appeal to Court against trustee’s decision etc.
(1)If the bankrupt, a creditor or any other person is affected by an act, omission or decision of the trustee, he or she may apply to the Court, and the Court may make such order in the matter as it thinks just and equitable.
With respect to the submissions on behalf of the solicitors, nothing to which we have been referred establishes that they have articulated any claim before Watts J of the kind referred to in Fraser v Commissioner of Taxation (supra). Nor have they identified a proposed claim of that kind. As the submissions of the solicitors before this Court confirm, they have at all times sought to enforce a “remedy” which is not disputed, although, the solicitors and the trustee disagree as to the quantum of that “remedy”. That issue will be determined by the Federal Court.
The submission on behalf of the solicitors before this Court to which we have earlier referred is entirely consistent with concluding that the solicitors in fact seek to enforce a remedy in this Court, rather than seeking to pursue “legal proceedings” which, if successful, would entitle the solicitors to a “remedy”. It is difficult to imagine, in the circumstances of this case, what legal proceedings of that kind the solicitors might reasonably seek to commence or pursue in this Court. The position of the solicitors, historically and at present, is, with respect to them, inconsistent with the submission made by the solicitors to this Court that they wish to be interveners in the matrimonial cause in order to be able to institute “legal proceedings and their maintenance up to the point of recovery of judgment”. The solicitors do not need a “judgment”. All they need to do is establish the quantum of their “remedy”. The Federal Court’s determination of the solicitors’ pending appeal will quantify their remedy.
It was further submitted by the solicitors that, notwithstanding that Watts J did not refer to section 58(3) of the Bankruptcy Act, the leave which his Honour granted was consistent with the purpose of the Bankruptcy Act. With respect to them, the passage from the judgment of Beaumont J in Fraser v Commissioner of Taxation (supra) relied upon by the solicitors militates against granting leave to intervene rather than supports it. As his Honour (at page 114) said:
The point is that there is no scope here for any role to be played by individual creditors acting on their own initiative; and if litigation is to be instituted with a view to the recovery of assets, it is the trustee’s function, and responsibility, to be the dominus litis and thus entirely in charge of the litigation to the exclusion of individual creditors. In other words, the relevant scheme of the legislation, specifically that of s 58(3), is that individual creditors have no right to decide to pursue, or not pursue, the assets of the bankrupt with a view to the satisfaction of individual debts.
As we have earlier observed, without the transcript of the proceedings before Watts J on 18 July 2011, we have no way of knowing what was or was not submitted to his Honour in support of and in opposition to the solicitors’ application for leave to intervene. No point has been taken by either party in relation to the absence of the transcript. We are thus obliged to determine the issue by reference to his Honour’s reasons for judgment and the submissions before this Court.
The provisions of section 58(3) of the Bankruptcy Act raised a strong presumption against granting the solicitors leave to intervene in the matrimonial cause. With respect to the trial Judge, and accepting that the point may not have been raised before him, we conclude that, absent consideration of section 58(3) of the Bankruptcy Act, the discretion to grant leave to intervene miscarried, in that his Honour failed to have regard to a matter which was material to the exercise of his Honour’s discretion. The trial Judge may not have been referred to section 58(3). If he had been, a different outcome may have resulted, but we cannot, and need not speculate about that.
THE PROPOSED CHALLENGE TO THE TRIAL JUDGE’S DECISION IN RELIANCE UPON OTHER FACTORS
With respect to his Honour, even if, as the solicitors submit, the husband ought not now be able to raise section 58(3) of the Bankruptcy Act, the factors which impelled the exercise of his discretion did not reasonably support granting leave to intervene. With respect to his Honour, in the absence of more than appears in his reasons for judgment, what application the solicitors would have gained “standing to bring” by being granted leave to intervene is not apparent, or suggested, and could not support granting the solicitors leave to intervene in the matrimonial cause.
The matters to which his Honour referred were all matters which the trustees would have been expected, and under a duty, to discharge on behalf of the solicitors. As we have noted earlier, it has fairly been conceded by the solicitors that there is no evidence that the trustees have ever failed to, or were likely in the future, to fail to discharge their statutory and fiduciary duties to the solicitors as creditors of the husband’s bankrupt estate.
CONCLUSION
In the circumstances, we are persuaded that leave to appeal should be granted and the appeal allowed.
COSTS
It was common ground that, if the application were granted and the appeal allowed, an order for costs against the solicitors was appropriate and the Court will so order.
I certify that the preceding forty-four (44) paragraphs are a true copy of the reasons for judgment of the Honourable Full Court (Coleman, Thackray & Young JJ) delivered on 16 December 2011.
Associate:
Date: 16.12.2011
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