FEDERAL COURT OF AUSTRALIA Day, in the matter of Gould v Gould [2000] FCA 1377 BANKRUPTCY – application for stay of sequestration order Bankruptcy Act 1966 (Cth) ss 37, 52, 153A Federal Court Rules, O 52 r 17 Coleman v Lazy Days Investments Pty Limited (1994) 55 FCR 297 considered Bayne v Blake (No 2) (1909) 9 CLR 360 referred to IN THE MATTER OF STEPHEN GOULD JULIAN DAY & ANOR v STEPHEN GOULD N 7178 OF 2000 EMMETT J 12 SEPTEMBER 2000 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 7178 OF 2000 IN THE MATTER OF STEPHEN GOULD BETWEEN: JULIAN DAY FIRST APPLICANT ALAN MANLY SECOND APPLICANT AND: STEPHEN GOULD RESPONDENT JUDGE: EMMETT J DATE OF ORDER: 12 SEPTEMBER 2000 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. Proceedings under the sequestration order, other than the obligation arising under section 54 of the Bankruptcy Act 1966 (Cth), be stayed up to and including 5 October 2000. 2. The bankrupt file and serve, no later than 29 September 2000, detailed written submissions outlining his grounds of appeal and referring to all evidence before Conti J that will be relied upon in support of those grounds. 3. The bankrupt pay the petitioners' costs of today. 4. The motion for stay be stood over to 5 October 2000 at 10.15 a.m. 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 7178 OF 2000 IN THE MATTER OF STEPHEN GOULD BETWEEN: JULIAN DAY FIRST APPLICANT ALAN MANLY SECOND APPLICANT AND: STEPHEN GOULD RESPONDENT JUDGE: EMMETT J DATE: 12 SEPTEMBER 2000 PLACE: SYDNEY REASONS FOR JUDGMENT 1 On 7 September 2000, Conti J made a sequestration order against the estate of Mr Stephen Gould. On the same day Mr Gould filed a motion seeking a stay of proceedings under the sequestration order pursuant to section 52(3) of the Bankruptcy Act 1966 (Cth) ("the Bankruptcy Act"). On the same day Mr Gould sent a facsimile communication to the Registrar of the Court indicating that he sought a stay until the hearing of an appeal against the order made by Conti J. 2 The matter came before me today as duty judge and argument proceeded on the basis that Mr Gould sought a stay of proceedings under the sequestration order; first to enable him to raise funds to pay the amount owing to the petitioning creditors; and secondly pending an appeal. 3 Section 52(3) of the Bankruptcy Act provides: "The Court may, if it thinks fit, upon such terms and conditions as it thinks proper, stay all proceedings under a sequestration order for a period not exceeding 21 days." That provision must be understood in the context of section 37 of the Bankruptcy Act which provides as follows: "37 (1) Subject to subsection (2), the Court may rescind, vary or discharge an order made by it under this Act or may suspend the operation of such an order. (2) The Court does not have power to rescind or discharge, or to suspend the operation of: (a) a sequestration order; or (b) an order for the administration of the estate of a deceased person under Part XI." 4 Under Order 52 rule 17 of the Federal Court Rules, an appeal to the Court does not operate as a stay of proceedings under the judgment appealed from except in so far as the Court or a judge of the Court may direct. While it is not entirely clear, the power to grant a stay under Order 52 rule 17 in the exercise of the Court's appellate jurisdiction is in addition to the power granted by section 52(3) of the Bankruptcy Act. 5 In Coleman v Lazy Day Investments Pty Limited (1994) 55 FCR 297 Carr J considered the inter-relationship of section 52(3) of the Bankruptcy Act and Order 52 rule 17. His Honour concluded that the prohibition in section 37 of the Bankruptcy Act is not inconsistent with the provisions of Order 52 rule 17. I am prepared to accept for present purposes therefore that I have power pursuant to Order 52 rule 17 to order a stay pending any appeal. 6 On 8 September 2000, Mr Gould filed a notice of appeal from the order of Conti J that his estate be sequestrated. The notice of appeal also purports to be an appeal from a decision of Conti J not to disqualify himself and a decision of Conti J to refuse a stay of 21 days under section 52(3) of the Bankruptcy Act before making a sequestration order. In so far as the appeal is brought from the last two decisions it seems to be misconceived. If there was a proper basis for disqualification then the failure to disqualify would be a ground of appeal from the sequestration order. Section 52(3) of the Bankruptcy Act applies only in relation to an order once it has been made, not to an adjournment. The powers of adjournment are quite independent of section 52(3) of the Bankruptcy Act. 7 The primary ground upon which Mr Gould seeks a stay is to enable him to raise funds to pay the petitioning creditors the debt upon which the petition was based. That does not appear to me to be a proper basis upon which to found a stay under section 52(3). It is certainly not a proper basis to found a stay under Order 52 rule 17. The evidence upon which Mr Gould bases such an application is confused and not convincing. 8 Mr Gould claims that he is recognised as a world expert in his field of what he describes as "B2B E-Commerce". He has a connection with an organisation known as Open Interchange Consortium ("OIC"). The status of that organisation is not entirely clear except that it is conceded that it is not an incorporated body but some loose arrangement the terms of which are not entirely clear. Mr Gould says that there are discussions scheduled to take place with a number of people travelling to Sydney for the purpose of the Olympic Games. He says that those discussions are about "B2B E-Commerce" projects which he has been invited to join. However, I have no specific evidence as to the identity of those people or the projects with which they might be concerned. 9 Whether or not there is a power to grant a stay under section 52(3) because of the possibility that the bankrupt may be able to raise money to discharge his debts I am not satisfied that the evidence before me would justify the making of such an order. If Mr Gould is in fact able to pay his debts in full then his bankruptcy would be annulled by the operation of section 153A(1) of the Bankruptcy Act if the trustee is satisfied that all his debts have been paid in full. The Trustee in Bankruptcy at present is the Official Receiver by the operation of section 160. The Official Receiver has taken no part in this application although I have been informed that his office is aware of the application. 10 So far as a stay pending appeal is concerned there are a number of matters upon which Mr Gould based his opposition to the sequestration order. He says that because of those matters a sequestration ought not to have been made and that those matters constitute sufficient cause within the meaning of section 52(2)(b) of the Bankruptcy Act. No application has been made under section 153B of the Bankruptcy Act. I shall deal separately which each of the matters relied on. 11 The proceedings have an odd history. It appears that an application was made by Mr Gould to set aside the bankruptcy notice upon which the petition was based. The petitioners then applied for summary dismissal of that application but in the meantime had apparently filed a petition. The matters came before Sackville J who dismissed the application to set aside the bankruptcy notice and also struck out the petition as being incompetent, a prematurity at that stage. Sackville J apparently raised a question as to the amounts owing. However, by the time the petition came before Conti J the discrepancy had been resolved and there was no question about the amount claimed. 12 These matters seem to be related. The judgment debt is an order for the payment of costs. It appears that Mr Gould brought proceedings in the District Court against the petitioners. He was unsuccessful in those proceedings which were dismissed. He was ordered to pay the petitioners' costs. The fact that the order is for costs is not a basis for suggesting that the sequestration order ought not to have been made. 13 It also appears that in the course of proceedings in the District Court an order was made in favour of Mr Gould against the petitioners in respect of the costs of two days which I am told related to failure to produce documents in answer to a subpoena. Mr Gould says that there were many other occasions upon which the petitioners failed to produce documents and that on the basis of the precedent of the order to which I have just similar orders ought to be made against the petitioners. However, it appears, so far as I have been able to glean from statements from the bar table, that on the occasions when the matter was before the District Court applications were made for costs and either refused or the costs were made costs in the cause. In either event there is no basis for Mr Gould being given any order for costs by the District Court. 14 It is asserted that the petitioners' long term malice limited Mr Gould's financial credibility. There was considerable material by way of affidavit relied on in this regard, although the few instances to which I was taken did not convince me that there is a strong case. 15 It is not entirely clear whether Mr Gould puts his case on malice on the basis that the petition itself was prompted by malice. It could be that if it can be shown that a petition is brought with malice, that would be a basis upon which a sequestration order ought not to be made under section 52(2)(b). However, the fact of malice in the past would not normally constitute a reason for refusing to make a sequestration order. If it were to be established that the petition itself was an abuse of process, that may be a basis for refusing an order. But if there was a valid debt and a valid petition established after an act of bankruptcy has been committed, prior malice would not, of itself, constitute a ground for opposing the making of a sequestration order – see Bayne v Blake (No 2) (1909) 9 CLR 360. 16 Next, it is said that Mr Gould has cross-claims against the petitioners. He relies on the existence of two proceedings. 17 In proceedings brought against Mr Manly in the Supreme Court of New South Wales (Plaint No 12242 of 1999) the claim is still extant. Interlocutory skirmishes are continuing. An application by Mr Gould for the joinder of additional parties was refused by Master Harrison. An appeal from that order was dismissed by O'Keefe J. Mr Gould is seeking leave to appeal from O'Keefe J's order to the Court of Appeal. I have nothing before me to suggest that there are any prospects of success in that application for leave. More importantly, nor do I have, or have I been taken, to any material to indicate that there is a substantial claim against Mr Manly. 18 In addition, Mr Gould brought proceedings in the District Court against Mr Day. Those proceedings were dismissed and Mr Gould has appealed to the Court of Appeal from that dismissal. Once again, I have no material to indicate the likelihood of success in the appeal. If it could be established that there was material before Conti J to show that there are some prospects of success in either of those proceedings, that may have constituted a basis for refusing to make a sequestration order, or at least for adjourning the petition. 19 Next, it is said that Mr Gould is solvent and is able to pay all his trading debts. Once again, I have not been taken to any material to indicate that Mr Gould is able to pay his debts from his own money as they fall due. He asserts from the bar table that he has paid other trade creditors in the ordinary course and that the only outstanding debt is that due to the petitioners. He acknowledges however, as I understand it, that as at today he does not have funds that would enable him to pay that debt. 20 If it be the fact that the only debt outstanding is the debt due to the petitioners and that Mr Gould is able to show some relevant abuse of process by the petitioners in relation to the petition, the two in conjunction may have constituted a basis for refusing to make a sequestration order. The material to which I have been taken today, however, does not persuade me that there is such a ground. 21 Finally, there is an assertion that discussions are taking place with another organisation, the details of which were said to be confidential. The precise basis upon which this matter was put to Conti J is not clear to me. If however, there was evidence before Conti J that would have supported a conclusion that there was a reasonable prospect of some arrangement being entered into, that, coupled with the other matters, could have constituted a ground for either adjourning the petition or refusing to make an order. 22 The reasons of Conti J for making the sequestration order are not presently available to me. I have heard argument during the course of today, much of which was undirected and repetitive. I am mindful of the entitlement on the part of the petitioners to have this matter finalised once way or the other. However, as a general rule, where there is an appeal, so long as the property of a bankrupt is not in jeopardy, it is appropriate, so long as the appeal is bona fide and has at least an arguable prospect of success, that there be a stay to allow the appeal to be prosecuted. The prejudice to a debtor of his estate being sequestrated would outweigh the inconvenience to creditors, so long as there is no prejudice to the assets of the bankrupt. 23 In the circumstances, while I am by no means convinced at this stage that there are any prospects of success in the appeal, I am disposed to stay proceedings under the sequestration order in part until 5 October. However, I consider that the Official Receiver should be made aware of Mr Gould's affairs and the extent of the property which, by the operation of the Bankruptcy Act, has become vested in the Official Trustee by the operation of Section 160. It is appropriate therefore that Mr Gould prepare and file a statement of affairs that would normally be required from the day on which the bankrupt is notified by the operation of section 54. I do not see any reason to extend the time for complying with that requirement. 24 The stay will only continue so long as I am satisfied that any appeal is prosecuted with all due expedition and I am satisfied that there are some rational prospects of success. I therefore propose to direct Mr Gould to file and serve no later than 29 September a detailed submission outlining his grounds of appeal and referring to all of the evidence before Conti J that he intends to rely on in support of his appeal. There is no reason why the petitioners should not have their costs of today if any costs have been incurred. I note that they have appeared in person and not through legal advisers. I certify that the preceding twenty-four (24) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett. Associate: Dated: 26 September 2000 The first applicant appeared in person. The second applicant appeared in person. The respondent appeared in person. Date of Hearing: 12 September 2000 Date of Judgment: 12 September 2000