Stratton v Bowles (No 2)

Case [2015] FCA 43

FEDERAL COURT OF AUSTRALIA

Stratton v Bowles (No 2) [2015] FCA 43

Citation: Stratton v Bowles (No 2) [2015] FCA 43
Appeal from: Bowles v Stratton [2014] FCCA 2270
Parties: MELINDA MARGARET STRATTON v ROBIN GLYN BOWLES
File number: VID 613 of 2014
Judge: BEACH J
Date of judgment: 3 February 2015
Catchwords: BANKRUPTCY – appeal of sequestration order – Family Court costs order basis for bankruptcy notice and petitioning creditor’s debt – leave to appeal application on foot – cross-claim in State court on foot – whether creditor’s petition should have been dismissed for “other sufficient cause” – Bankruptcy Act 1966 (Cth) s 52(2)(b) – meaning of “other sufficient cause” – whether Federal Circuit Court erred in failing to adequately consider prospects of success of leave to appeal (and any appeal) and cross-claim – whether Federal Circuit Court erred in failing to consider adjournment of the creditor’s petition to await the outcome of Family Court leave to appeal application – appeal allowed and matter remitted
Legislation: Bankruptcy Act 1966 (Cth) s 52
Federal Court of Australia Act 1976 (Cth) s 25(1AA)(a)
Cases cited: Adamopoulos v Olympic Airways SA (1990) 95 ALR 525
Ahern v Deputy Commissioner of Taxation (Qld) (1987) 76 ALR 137
Ali v Retail Decisions Pty Ltd [2012] FCA 1130
Bayne v Baillieu (1907) 5 CLR 64
Cain v Whyte (1933) 48 CLR 639
Clyne v Deputy Commissioner of Taxation (1985) 5 FCR 1
Corney v Brien (1951) 84 CLR 343
Council of the City of Sydney v Obeid [2013] FCA 149
Deputy Commissioner of Taxation v Cumins (2008) 101 ALD 78
Hilellis v Mobil Oil Australia Ltd [2000] FCA 1139
ICM Agriculture Pty Ltd v Young (2009) 260 ALR 515
Olivieri v Stafford (1989) 24 FCR 413
Radich v Bank of New Zealand (1993) 45 FCR 101
Re Lewin; Ex parte Milner (1986) 11 FCR 312
Re Schmidt; Ex Parte Anglewood Pty Ltd (1968) 13 FLR 111
Re Verma; Ex parte Deputy Commissioner of Taxation (1984) 4 FCR 181
Rigg v Baker (2006) 155 FCR 531
Rozenbes v Kronhill (1956) 95 CLR 407
Russell v Polites Investments Pty Ltd [2012] FCA 11
Singh v Deputy Commissioner of Taxation [2011] FCA 889
St George Bank Ltd v Helfenbaum [1999] FCA 1337
Totev v Sfar (2008) 167 FCR 193
Date of hearing: 2 February 2015
Place: Melbourne
Division: GENERAL DIVISION
Category: Catchwords
Number of paragraphs: 53
Counsel for the Appellant: The appellant appeared in person
Counsel for the Respondent: The respondent appeared in person

IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY

GENERAL DIVISION

VID 613 of 2014
ON APPEAL FROM THE FEDERAL CIRCUIT COURT OF AUSTRALIA
BETWEEN:

MELINDA MARGARET STRATTON
Appellant
AND:

ROBIN GLYN BOWLES
Respondent

JUDGE:

BEACH J

DATE OF ORDER:

3 FEBRUARY 2015

WHERE MADE:

MELBOURNE

THE COURT ORDERS THAT:

1.Paragraphs 3 and 4 of the orders of Judge Hartnett made on 2 October 2014 in Federal Circuit Court proceeding MLG 1528 of 2014 be set aside.

2.The respondent's creditor’s petition filed…

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Stratton v Bowles (No 2) [2015] FCA 43
Case
[2015] FCA 43
Decision Date

CaseChat Overview and Summary

The case of Stratton v Bowles (No 2) involves the appellant, Ms. Stratton, and the respondent, Ms. Bowles. The dispute revolves around the validity of a bankruptcy notice issued against Ms. Stratton based on an unpaid Family Court costs order. Ms. Stratton filed an appeal against the Family Court costs order, and this appeal is central to the dispute. The matter was heard in the Federal Circuit Court, where Ms. Bowles filed a creditor's petition based on Ms. Stratton's failure to comply with the bankruptcy notice. Ms. Stratton opposed the petition on several grounds, including the unjust nature of the Family Court costs order and the pendency of her appeal against it.

The primary legal issues the court needed to address were whether the creditor's petition should have been dismissed under section 52(2)(b) of the Bankruptcy Act 1966 (Cth) due to "other sufficient cause," and whether the Federal Circuit Court erred in not considering the prospects of success of Ms. Stratton's appeal and cross-claim, or in failing to adjourn the creditor's petition. The court was also tasked with determining whether the Federal Circuit Court correctly assessed the grounds for refusal of the sequestration order.

The court found that the Federal Circuit Court did not adequately consider the merits of Ms. Stratton's appeal against the Family Court costs order, nor did it properly evaluate the potential success of her appeal and cross-claim. The court held that the existence of a genuine and arguable appeal against the underlying judgment could justify adjourning the creditor's petition or refusing the sequestration order. The court concluded that the Federal Circuit Court had not sufficiently inquired into the grounds of Ms. Stratton's appeal, thus failing to exercise its discretion properly. The appeal was allowed, and the matter was remitted to the Federal Circuit Court for redetermination in accordance with the court's reasons.

The orders of the Federal Circuit Court were set aside, the respondent's creditor's petition was remitted for redetermination, and the costs of the hearing were reserved for further determination by the Federal Circuit Court. There was no order as to the costs of the appeal.

Orders

Orders of the court

1. Paragraphs 3 and 4 of the orders of Judge Hartnett made on 2 October 2014 in Federal Circuit Court proceeding MLG 1528 of 2014 be set aside.

2. The respondent's creditor’s petition filed on 28 July 2014 be remitted to her Honour for redetermination in accordance with these reasons.

3. The costs of the hearing before her Honour on 2 October 2014 be reserved to her Honour for further determination.

4. There be no order as to the costs of this appeal.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

For the reasons that follow, I have determined to allow the appeal.BACKGROUND TO THE APPEAL On 13 September 2013, an order for costs was made by the Honourable Justice Loughnan of the Family Court of Australia (proceeding SYC 889 of 2008) against the appellant in favour of the respondent in the sum of $14,000 (Family Court costs order). I will say something later about how the Family Court costs order was obtained and how it has been sought to be challenged. For present purposes, it is to be noted that the Family Court costs order, which has remained unsatisfied, provided the substratum for a bankruptcy notice which the respondent caused to be issued and then served on the appellant on 30 April 2014 (the bankruptcy notice). On 21 May 2014, an application was made by the appellant to the Federal Circuit Court to extend the time for compliance with the bankruptcy notice and various extensions were granted. Ultimately, the time for compliance was extended until 14 July 2014 but not thereafter. At that time, the extension application was dismissed by the Federal Circuit Court. The bankruptcy notice claimed $14,110.85, being the judgment debt constituted by the unsatisfied Family Court costs order of $14,000, together with $110.85 in accrued interest. As it remained unsatisfied after 14 July 2014, non-compliance therewith constituted an available act of bankruptcy. On 28 July 2014, the respondent filed a creditor’s petition based upon that available act of bankruptcy. The debt said to be due and owing by the appellant to the respondent was the debt identified in the bankruptcy notice. On 15 September 2014, the appellant filed a notice setting out her grounds of opposition to the petition. They were expressed in the following terms:1. Ms Stratton has filed an appeal in the Family Court in Sydney: EA51 of 2013. Orders sought in this appeal include payment by Mrs Bowles to Ms Stratton of all Ms Stratton’s costs associated with legal proceedings related to Mrs Bowles publication of the book ‘Have You Seen My Child’. This will result in a requirement that Mrs Bowles pay Ms Stratton’s debt associated with the costs order of 13 September 2013 in addition to costs related to adjournment of bankruptcy proceedings and bankruptcy proceedings.2. The costs order of 13 September 2013 was made unjustly, it is based on wrongful dismissal (by orders made on 12 April 2013) of Ms Stratton’s orders seeking injunctions restraining publication, sale and promotion of the book ‘Have You Seen My Child’ and orders seeking that the Family Court request the AFP investigate Mrs Bowles with the view to prosecution for breach of s121 of the Family Law Act 1975 as a result of her publication of the book.3.Ms Stratton is seeking substantial damages for aggravated defamation against Mrs Bowles for the highly defamatory content of the book she published: ‘Have You Seen My Child’. Defamation proceedings are list [sic] in the Supreme Court in Sydney: 2013/178073. Damages will exceed any interlocutory costs orders.

Evidence

Evidence Before The Court

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Decision

Reasons for decision

Second, even if “other sufficient cause” has been shown, that merely enlivens the Court’s discretion to refuse to make a sequestration order. The power in s 52(2) is permissive, not mandatory. Even if a debtor can bring himself or herself within s 52(2)(b), that does not entitle him or her to have a sequestration order refused (Russell v Polites at [24] per Flick J).(a) Appeal against judgment Relevantly to the present case, it is appropriate to consider the significance of an appeal or leave to appeal application having been lodged against a judgment which underpins the debt the subject of the bankruptcy notice and the petition. Generally, a court has a discretion to go behind a judgment. This may be exercised where: (a)the judgment was obtained by default or compromise;(b)the judgment was procured by or tainted with fraud or collusion; or(c)the judgment was obtained following an adjudication on the merits where both parties appeared, but where there are substantial reasons for questioning whether there is in substance a debt. In each case a court may go behind the judgment to ascertain whether the judgment is founded on a real debt (Corney v Brien (1951) 84 CLR 343 at 347 per Dixon, Williams, Webb and Kitto JJ; Ahern v Deputy Commissioner of Taxation (Qld) (1987) 76 ALR 137 (Ahern) at 147-8 per Davies, Lockhart and Neaves JJ). This is a s 52(1)(c) question and see generally Ali v Retail Decisions Pty Ltd [2012] FCA 1130 at [17]-[20] per Bromberg J, although some authorities have also brought this within s 52(2)(b). Further, a court should not proceed to sequestrate the estate of a debtor where an appeal is pending against the judgment relied on as the foundation for the bankruptcy proceedings, provided that the appeal is based on genuine and arguable grounds (Ahern at 148 per Davies, Lockhart and Neaves JJ; Rigg v Baker (2006) 155 FCR 531 (Rigg v Baker) at [67] per French J; Adamopoulos v Olympic Airways SA (1990) 95 ALR 525 at 532 per Burchett and Gummow JJ; Council of the City of Sydney v Obeid [2013] FCA 149 at [37]-[39] per Robertson J). This is a s 52(2)(b) question. At the least, the existence of an appeal or leave to appeal application based upon genuine and arguable grounds may provide a basis for adjourning the hearing of the creditor’s petition, even if it does not provide a basis for ultimately refusing a sequestration order. But the mere fact that an appeal has been lodged does not without more give rise to a duty to postpone the hearing of the petition (Cumins at [17] per Gilmour J). The judgment debtor must point to grounds having “a real chance of success on appeal” (Re Lewin; Ex parte Milner (1986) 11 FCR 312 at 318 per Pincus J). Mere assertion is not sufficient. The onus is on the judgment debtor to establish the substantial nature of the grounds of challenge (Re Verma; Ex parte Deputy Commissioner of Taxation (1984) 4 FCR 181 at 187-8 per Beaumont J; Cumins at [18] per Gilmour J). Of course, a court is not bound to postpone the hearing of a petition or to refuse to make a sequestration order to enable the judgment debtor to invoke all possible avenues of appeal. One ought not underestimate the capacity of judgment debtors to innovatively invoke new grounds of challenge and new proceedings in an attempt to overturn judgments against them. Nevertheless, the court in a particular case should, where an appeal or an application for leave to appeal has been lodged against a judgment and s 52(2)(b) has been invoked by the judgment debtor, properly inquire into the grounds of challenge and its substance in order to ascertain, first, whether the condition in s 52(2)(b) has been satisfied and, second, whether the discretion to adjourn the petition or the discretion to refuse to make the sequestration order has been enlivened and should be invoked. I am not satisfied after reading Judge Hartnett’s reasons that her Honour undertook the task required by the authorities in the present case. In fairness to her Honour, she had little assistance from the parties in that respect.(b) The existence of a cross-claim

Ratio Decidendi

Legal Principle Established

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