FEDERAL COURT OF AUSTRALIA Ji-Shen Chen v Pyramid Building Society (In Liq) [1999] FCA 296 BANKRUPTCY – application for stay of a sequestration order pending an appeal – no point of principle. JI-SHEN CHEN v PYRAMID BUILDING SOCIETY (IN LIQUIDATION) N 161 OF 1999 MOORE J 17 MARCH 1999 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 161 OF 1999 BETWEEN: JI-SHEN CHEN Applicant AND: PYRAMID BUILDING SOCIETY (IN LIQUIDATION) Respondent JUDGE: MOORE J DATE OF ORDER: 17 MARCH 1999 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The application for a stay of the sequestration order made by O'Connor J on 4 February 1999 is dismissed with costs. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 161 OF 1999 BETWEEN: JI-SHEN CHEN Applicant AND: PYRAMID BUILDING SOCIETY (IN LIQUIDATION) Respondent JUDGE: MOORE J DATE: 17 MARCH 1999 PLACE: SYDNEY (EX TEMPORE) REASONS FOR JUDGMENT 1 This is an application to stay a sequestration order made by O'Connor J on 4 February 1999 pending an appeal against that order. There is no issue that under O 52 r 17 the Court has power to stay the order notwithstanding the provisions of s 52(3) of the Bankruptcy Act 1966. It is common ground that the relevant principles in determining whether the order should be stayed are those found in Alexander v Cambridge Credit Corporation Ltd (1985) 2 NSWLR 685. It follows that it is common ground that the applicant for the stay order, Mr Ji-Shen Chen, must make out a case for such an order. 2 Counsel for Mr Chen first submitted that the point sought to be raised in the appeal is one of substance. It relates to the role of the Court in considering an application for a sequestration order and the circumstances in which the Court ought go behind the debt, if it is a judgment debt, founding the creditors petition. In the present case, the judgment debt resulted from an order of the Supreme Court of New South Wales on 6 March 1993. That order arose against a background in which Mr Chen had guaranteed a loan of approximately $4 million to a company with which he was associated which had been engaged, as I was informed this morning, in the development of property. 3 The issue sought to be raised in the appeal is that O'Connor J found that there was an arguable point that there were no monies owing under the guarantee by Mr Chen. That was because after the original loan was guaranteed, the principle advanced was increased by the sum of approximately $460,000. As a result, it is said, the obligations of the surety were discharged. This was said to be founded on the judgment of the High Court in Ankar Pty Ltd v National Westminster Finance Australia Ltd (1987) 162 CLR 549 which was referred to subsequently by Meagher JA in Corumo Holding Pty Ltd v Itoh (1991) 24 NSWLR 370 at 404. 4 The submission of counsel for Mr Chen in these proceedings was that once O'Connor J had formed the view that this point was an arguable one, her Honour was then obliged to consider the point fully as part of the process of going behind the judgment debt. Support for the proposition that her Honour was obliged to follow that course was said to be found in the judgment of the Chief Justice in Wren v Mahony (1972) 126 CLR 212 in a passage her Honour quoted in her reasons for judgment of 4 February 1999. 5 In my view there is some substance to the point that the appellant wishes to argue in the appeal. However, that is not the end of the matter. The approach adopted by O'Connor J was not only to express the view that the point was an arguable one but also, after full debate before her, to express the tentative view that: If called upon to decide the question, I would favour the applicant creditor. 6 Those observations rather suggest that whilst her Honour formed the view that the point was an arguable one it could not be characterized as strongly arguable and could probably be characterized as barely arguable. 7 That, in my view, is a matter to be borne in mind in considering whether Mr Chen will ultimately succeed in this appeal in setting aside the sequestration order made by her Honour. It may emerge that even if he is able to establish that her Honour should have embarked upon the process of considering and determining the point, nonetheless the Full Court may ultimately conclude the point was not a good one and not one justifying the setting aside of the sequestration order on appeal. Moreover, the application for a stay order is made against a background in which the point that is now relied upon by those representing Mr Chen as establishing there is no debt is a point that was not taken by him in the litigation which gave rise to the judgment debt, Nor was it a matter that he sought to agitate by way of appeal either when judgment was given or when the point was adverted to in the determination of an appeal by others who had been in the initial proceedings. No application has been made by Mr Chen for an extension of time in which to appeal against the original judgment in the Supreme Court. 8 In addition to these considerations concerning the issue sought to be raised in the appeal are the discretionary considerations pointed to by counsel for Mr Chen flowing from the making of the sequestration order. Counsel points to the constraining effects of a sequestration order, indeed, what might be described as the oppressive effects of the making of such an order. In particular counsel points to the fact that Mr Chen has sought to go overseas and that has been, to this point, denied. 9 However in the overall circumstance of this case the oppressive effect of the sequestration order is not of itself, in my opinion, a matter of great moment in determining whether the sequestration order should be stayed pending the appeal. As to the specific loss of liberty, so described by counsel, that precludes Mr Chen travelling overseas, it is apparent from the material before me that the trustee does not have a closed mind as to whether ultimately Mr Chen should be allowed to travel and has indicated in correspondence to his solicitors that the matter would be reviewed in due course once certain material was provided to the trustee. Even if the trustee adheres to the earlier view effectively precluding Mr Chen from travelling, plainly enough Mr Chen has a remedy in this Court if such a decision is adhered to. 10 Other factors are also pointed to by counsel for Mr Chen as indicating that the sequestration order should be stayed. They are adverted to in the affidavit of Mr Chen and they concern his personal circumstances flowing from the making of the order. However, notwithstanding that some of them relate to the cultural circumstances attending Mr Chen, I am not satisfied that those personal considerations provide a basis for exercising the discretion to stay the sequestration order either in isolation or in conjunction with a consideration of the issue that is sought to be raised in the appeal. 11 I am not satisfied that the appellant, Mr Chen, has made out a case for an order staying the operation of the sequestration order and accordingly I dismiss the notice of motion with costs. I certify that the preceding fifteen (15) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Moore. Associate: Dated: 17 March 1999 Counsel for the Applicant: C Freeman Solicitor for the Applicant: T H Walker, Hedges & Co Counsel for the Respondent: S White Solicitor for the Respondent: Clayton Utz Date of Hearing: 17 March 1999 Date of Judgment: 17 March 1999