Wharton v Household Financial Services Ltd

[1996] HCATrans 127

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Melbourne   No M74 of 1995

B e t w e e n -

STEPHEN LYNNE WHARTON

Applicant

and

HOUSEHOLD FINANCIAL SERVICES LIMITED

Respondent

Application for special leave to appeal

GAUDRON J
McHUGH J
KIRBY J

TRANSCRIPT OF PROCEEDINGS

AT MELBOURNE ON TUESDAY, 16 APRIL 1996, AT 3.12 PM

Copyright in the High Court of Australia

MR A.K. PANNA:   May it please the Court, I appear for the applicant.  (instructed by Oakley Thompson & Co)

MR J.A. NOLAN:   May it please the Court, I appear for the respondent.  (instructed by Home Wilkinson & Lowry)

GAUDRON J:   Yes.

MR PANNA:   It is submitted that this application raises for consideration three broad issues.  Firstly, whether a contingent liability under a guarantee satisfies the test of a debt owing for the purposes of the Bankruptcy Act, section 52(1)(c), in circumstances where the principal debtor’s - - -

GAUDRON J:   You assume it is a contingent liability.

MR PANNA:   Yes, your Honour, I do assume it is a contingent liability.

GAUDRON J:   You use “contingent liability” in a way that is quite foreign to its normal meaning.

MR PANNA:   In my submissions, in circumstances where section 7 of the Hire-Purchase Act makes the enforcement of any of the obligations under the Hire-Purchase Act not possible until a breach of section 7(1) is rectified,  then no part of the agreement can be enforced.  The section does not distinguish between enforcing an obligation to pay.  It simply makes the agreements unenforceable.  In those circumstances, in my submission, it must be contingent because it is dependent upon a breach by the primary debtor of its obligations to pay under the agreements.  That is why it is used in other contexts.

Your Honour, even if I were to say it is not a contingent liability, the issue still arises whether, in circumstances where you have a prohibition by an Act of Parliament to the enforcement of any part of the agreement, whether a court sitting in bankruptcy should, in fact, proceed to make a sequestration order.

GAUDRON J:   That is the point that you abandoned, I think, at an earlier stage.

MR PANNA:   Sorry, your Honour, I did not hear that.

GAUDRON J:   I said did you not in fact abandon the point at an earlier stage that the bankruptcy proceedings were proceedings to enforce the unenforceable debt?

MR PANNA:   That part, yes, your Honour.  That was certainly not arguable.  But the point I am raising is not that the bankruptcy proceedings were to enforce the agreements, it goes back one stage further.  Clearly, the petitioning creditor, when they applied in the Magistrates Court to seek enforcement of the hire purchase agreement, at that stage they were seeking to enforce the agreement and it was at that stage that the breach of the Act had occurred.  Now, clearly, when it got to the court on the petition for a sequestration order, that was not seeking to enforce the agreements and we had to abandon that proposition.

However, it does not deal with the issue raised then and in the Full Court and that was given that you have an Act of Parliament prohibiting the enforcement of the hire purchase agreement, an Act which is designed for the benefit of hirers, should a court then proceed to make a sequestration order?  There is an ancillary argument and that is should the court, at that stage, have gone behind the judgment and examined for itself.

GAUDRON J:   That is the only question, is it not?

MR PANNA:   That is the real question.

GAUDRON J:   And that is the only question in the proceedings.

MR PANNA:   Your Honour, in one sense, yes, it is.  But in order to answer that question one must go back and say, “What should the court have done and what conclusion could the court have come to by asking that?”

GAUDRON J:   And it had to make its decision in that regard in a context in which application to set aside the judgment debt on the precise grounds which you now raise had been refused?

MR PANNA:   Yes, your Honour.  There had not been, at that stage, an application filed with the Supreme Court seeking a review of that judgment which the applicant said was wrongly denied.  Notwithstanding the fact that there had been a denial of the application to set aside the original court’s decision, in my submission, the trial judge should, at that stage, have done one of two things:  either examined for himself whether there was truly an enforceable debt at that time or adjourned the petition to a time after the application made.

GAUDRON J:   There was no application for adjournment.

MR PANNA:   Your Honour, there was no open application but - - -

GAUDRON J:   There was no application.

MR PANNA:   Yes, your Honour, I concede there was no application.  However, with an experienced court, that would be implicit in the proposition that has been put forward to the court at that stage, that is, one should - - -

GAUDRON J:   Hardly be implicit if there had been no application for judicial review made.

MR PANNA:   There was an application at that stage, your Honour, to look behind the judgment which was refused by the trial judge.

GAUDRON J:   It was an application for the Federal Court to go behind the judgment which the court in which it had been issued had refused to do.  You were asking the Federal Court to overrule another court that had already looked at the issue that you wished to raise.

MR PANNA:   With respect, no, your Honour.  This Court in Wren v Mahony, for example, did precisely that in quite different circumstances.  The circumstances were that in Wren v Mahony there had been a summary judgment application which the applicant had, in fact, contested and lost, so there had been a judicial determination of the very point which finally went to this Court in Wren v Mahony.  In those circumstances, the Court nevertheless went behind the judgment and examined for itself whether there was truly a debt owing.  In my submission, if it was possible in Wren v Mahony to go behind a determination on a full hearing of the point, it should not be impossible in the circumstances of this case to have said, “There has been an application to set aside the judgment at the Magistrates Court level and, although it has been denied, the applicant has a right to review that decision.”

McHUGH J:   It has not got a right.  He can ask the judge to exercise his discretion.  The judge refused to go behind it.  I must say this case borders on the fruitless in terms of a special leave application in this Court.

MR PANNA:   With respect, your Honour, in Wren v Mahony it may have been said that given that there was a judicial determination of the point in issue, then it was quite remarkable that this Court granted special leave and, in fact, overturned the original decision.

McHUGH J:   It certainly was.  I was counsel for the respondent.

MR PANNA:   In my submission, in the context of this case, there was an enforcement - it was possible for the petitioning creditor to evade, by fortuitous circumstance of getting a default judgment, the effect of section 7(2) of the Hire-Purchase Act and, in those circumstances, the - - -

McHUGH J:   The big difference was that in Wren v Mahony you had an appeal as of right to this Court.  Now, you are coming by way of special leave.  You have to convince us that there is a special leave point here because the Full Court erred in not setting aside the exercise of discretion by Justice Northrop.

KIRBY J:   A most hopeless task, really, it seems to me, with respect.  It seems the most unpromising application for special leave to appeal since I have been here.

MR PANNA:   I hear what the Court is saying.

McHUGH J:   You put your argument.  I mean counsel have arguments to put and it is not for the Court to say.  Obviously, your client wanted to push this application and perhaps he was told he had no prospect or it is not arguable.  There are all sorts of reasons.  You put your argument.  At the moment, it just seems to me it is very close to a frivolous application having regard to the hurdles that you have to overcome.

KIRBY J:   Keep in mind in respect of my comment, that I have not been here for long, but I have done an awful lot of leave applications in another place.

MR PANNA:   I have put my submissions, your Honour, in the applicant’s summary of argument.  I might make two points further and that is the test that was applied by the Full Court was one of was there a debt owing?  In my submission, that is not the correct test.  The test is whether the debt was due and enforceable, not merely owing, and the reason why I put that submission is this:  it is not merely the question of whether a debt is owing at any particular time, it is whether it is also enforceable.  Now, you can have, not just under this Act, that is under section 7(1), an enforceability of a debt, you can also have it under the Limitation of Actions Act.  For example, under that Act the debt is still owing but it is unenforceable.  You could have circumstances where someone obtains judgment by default on an unenforceable debt had the point been taken.

McHUGH J:   Mr Panna, the big problem is that there is an act of bankruptcy.  That is what founds the petition and, in this particular case, the judge has found there is an act of bankruptcy and refused to go and look at whether or not there was an underlying debt when there was a judgment debt.  It is very difficult coming up on a third layer.  I mean, you had a difficult enough task in front of the Full Court.  Now, you are asking us if there is something special about this case.  That is what you have to identify.  I mean, litigants have to understand that there has to be something special about a case to attract the grant of special leave.  Not even error is enough.  I am not suggesting there is error in this case, but error itself is not sufficient to get a grant of special leave.  People just pile up costs by running applications which really should not be brought.    Now, that is no criticism of you at all but that message has to be understood.

MR PANNA:   If your Honour pleases.  I take it then if the Court does not feel that the petitioning creditor has been able to sidestep the effect of section 7(2) of the Hire-Purchase Act and obtain enforcement of - I am not saying in the Federal Court - but effectively obtain enforcement of an enforceable debt, then I would have to concede that there is no other special leave point?

GAUDRON J:   No, your difficulty, Mr Panna, is this:  the argument that it was an unenforceable debt was rejected by the Local Court on the application to set aside the judgment.  You have run that argument.  You ran it in the Magistrates Court; you might have had an opportunity if you had pursued it to run it in the Supreme Court, but once it had been run and rejected, where was the obligation on the Federal Court, in the face of an act of bankruptcy, to hear that argument again?

MR PANNA:   That is because a judgment is not a bar in bankruptcy.  The court can always go behind the - - -

GAUDRON J:   If there is a debt.  But the very argument which you raised did not go to the question whether or not there was a debt.  It went to whether it was enforceable and even that argument had been lost in the Magistrates Court.

MR PANNA:   Yes, your Honour.

GAUDRON J:   And that is your difficulty.

MR PANNA:   If your Honour pleases.  I have no further submissions to make. 

GAUDRON J:   Yes, thank you.  We need not trouble you, Mr Nolan.

Special leave is refused.  Do you apply for costs?

MR NOLAN:   Your Honour, I do. In a case such as this we would, of course, apply for costs from the estate of the bankrupt. Mr Wharton is, in fact, a bankrupt and has been since the stay was lifted prior - at the Full Court handing down its decision - sorry, he has always been a bankrupt. There was a stay under the proceedings for the bankruptcy. The costs that have been occurred in this appeal, we would submit, your Honour, should bear the same priority as all other costs of the petitioning creditor. In fact, we have proceeded to a petition and to a sequestration order and then have been brought through a Full Court appeal in which this order was made that the costs be the petitioning creditor’s costs. We would seek a similar order in this case, that the costs be costs of the petitioning creditor for the purpose of section 109 of the Bankruptcy Act to enable the petitioning creditor, who brings the petition on behalf of all creditors, to obtain that priority which the Parliament recognises and, in a sense, rewards it in respect of bringing the application on behalf of the creditors.

KIRBY J:   Is the order that you seek in Part IVA of your submissions?

MR NOLAN:   It is, your Honour, yes.

GAUDRON J:   We will see if there is any resistance to that?

MR PANNA:   No, no resistance by me.

KIRBY J:   Is that the correct order in the circumstances, the order that is sought, or do you have any comments on the order that is sought?

MR PANNA:   No, your Honour, I do not have any comments on that because it does not directly affect - - -

GAUDRON J:   Special leave is refused with costs, and the order is that the costs of the application be taxed and paid out of the

estate of the applicant as costs of the petitioning creditor in the application of section 109 of the Bankruptcy Act 1966 (Cth).

MR NOLAN:   If the Court pleases.

AT 3.28 AM THE MATTER WAS CONCLUDED