FEDERAL COURT OF AUSTRALIA Freeman v National Australia Bank Ltd [2002] FCA 427 BANKRUPTCY – motion for a stay of a sequestration order until the appeal against the sequestration order is heard – competence of the Court to stay all proceedings under a sequestration order pursuant to O 52 r 17 Federal Court Rules – whether there is an arguable point on the proposed appeal – whether the balance of convenience favours the granting of a stay – whether a claim by the bankrupt in respect of default in the sale of property by the Receiver is against the Receiver or the petitioning creditor who appointed the Receiver Bankruptcy Act 1966 (Cth), ss 52, 178, 5(1), 58(1)(a), 116(1) Federal Court of Australia Act 1976 (Cth), s 24 Federal Court Rules, O 52 r 17 Coleman v Lazy Days Investment Pty Ltd (1994) 55 FCR 297, approved Evans v The Heather Thiedeke Group Pty Ltd (1990) 95 ALR 424, approved Commonwealth Bank of Australia v Muirhead [1997] 1 Qd R 567, considered Cummings v Claremont Petroleum NL (1995-1996) 185 CLR 124, applied LYNTON NOEL CHARLES FREEMAN v NATIONAL AUSTRALIA BANK LIMITED No Q 44 of 2002 SPENDER J BRISBANE 9 APRIL 2002 IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY Q 44 OF 2002 BETWEEN: LYNTON NOEL CHARLES FREEMAN APPLICANT AND: NATIONAL AUSTRALIA BANK LIMITED RESPONDENT JUDGE: SPENDER J DATE OF ORDER: 9 APRIL 2002 WHERE MADE: BRISBANE THE COURT ORDERS THAT: (1) Proceedings under the sequestration order made on 12 March 2002 against Lynton Noel Charles Freeman be stayed until the determination of Mr Freeman's appeal from the order making that sequestration order or earlier order. (2) The applicant prepare and file his statement of affairs within fourteen days of today. (3) The stay of proceedings under the sequestration order continue only whilst the appeal against the making of the sequestration order is prosecuted with due expedition and diligence. (4) There be liberty to apply to each party on three days notice. (5) There be no order in respect of the costs of the Trustee concerning today's motion. Otherwise, the costs of the motion be costs in the appeal. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY Q 44 OF 2002 BETWEEN: LYNTON NOEL CHARLES FREEMAN APPLICANT AND: NATIONAL AUSTRALIA BANK LIMITED RESPONDENT JUDGE: SPENDER J DATE: 9 APRIL 2002 PLACE: BRISBANE REASONS FOR JUDGMENT 1 This is a notice of motion filed 2 April 2002 whereby Mr Lynton Noel Charles Freeman (Mr Freeman) seeks an order that: "… a Stay of the Sequestration Order in … be continued from the Order of Justice Spender of the 12th March, 2002 until the date of the hearing of the Appeal in the Full Court of the Federal Court of Australia, in this matter." 2 Notwithstanding the inelegance of what is sought by way of order on the motion, what Mr Freeman seeks is a stay of proceedings under the sequestration order I made against the estate of Mr Freeman on 12 March this year. On that day, I also ordered that all proceedings under the sequestration order be stayed for a period of twenty-one days. The purpose of making that order was to permit the consideration of an appeal from the making of the sequestration order. 3 On the last day of the stay ordered on 12 March, Mr Freeman filed a notice of appeal from the making of the sequestration order and has now purported to file an amended notice of appeal. The question for consideration is whether the Court ought to make an order staying proceedings on the sequestration order until the appeal has been determined. I am satisfied that, as the notice of appeal has been filed, it is competent for the Court to stay all proceedings under the sequestration order, pursuant to O 52 r 17 of the Federal Court Rules, and I so find, notwithstanding the terms of s 52(3) of the Bankruptcy Act 1966 (Cth) (the Act). On this point, I am in respectful agreement with the judgment of Carr J in Coleman v Lazy Days Investment Pty Ltd (1994) 55 FCR 297 and Pincus J in Evans v The Heather Thiedeke Group Pty Ltd (1990) 95 ALR 424. 4 The relevant considerations in determining whether a stay of proceedings should be granted are whether there is an arguable point on the proposed appeal and whether the balance of convenience favours the granting of a stay. The primary ground of appeal which is arguable in my opinion is the applicability of the ratio of the judgment in Commonwealth Bank of Australia v Muirhead [1997] 1 Qd R 567 in the circumstances of this case. 5 Whether in fact any default by the Receiver in the sale of the property of Mr Freeman can be sheeted home to the National Australia Bank, the petitioning creditor, notwithstanding the contractual provision which asserts that the Receiver is the agent of the mortgagor, is a contentious point in the appeal and is a matter of quite considerable practical importance. I am not to be taken as indicating any view as to the strength of this point, but I am not prepared to say that it is unarguable, given that the property was sold at a figure which was considerably less than the valuation which the National Australia Bank's valuer had placed on the property at a not irrelevant time. On the question of the balance of convenience, no prejudice has been asserted as flowing to National Australia Bank in the event that a stay is granted. 6 There are other considerations which are not central but which have to be borne in mind. Firstly, it is relevant but not determinative that Mr Freeman has a special leave application pending in the High Court from the dismissal by the Queensland Court of Appeal of his appeal from the judgment of Ambrose J in the Supreme Court of Queensland. In the absence of a stay, the continuation of that application would be the subject of consideration by the Trustee. It may be that the Trustee would assign that litigation to Mr Freeman but there is some conjecture concerning that aspect of the Trustee's decision-making. 7 In Cummings v Claremont Petroleum NL (1995-1996) 185 CLR 124, The High Court held that bankrupts against whom a money order had been made had no locus standi to institute the appeals, yet the majority (Brennan CJ, Gaudron and McHugh JJ) concluded that, in the circumstances of that case, the right of appeal conferred by s 24 of the Federal Court of Australia Act (1976) (Cth) was not property as defined by s 5(1) of the Bankruptcy Act and hence was not property of the bankrupt as defined by s 5(1) that vested in the Trustee by s 58(1)(a) of the Act. Consequently, the right of appeal was held not to be property of the bankrupt divisible amongst creditors within s 116(1) of the Act. At page 138, Brennan CJ, Gaudron and McHugh JJ said: "A bankrupt's contingent interest in a surplus does not give him an interest which would allow him to sue to enforce proprietary rights and, that being so, it cannot give him an interest to appeal to minimise liabilities. If the bankrupt cannot appeal against such a judgment, does his trustee have the power to do so? The powers of a trustee are defined by s 134. By sub-s (1)(j), the trustee is authorised to 'bring, institute or defend any action or other legal proceeding relating to the administration of the estate.' That is an ample power to permit the trustee to institute an appeal against a judgment entered against a bankrupt that affects the administration of the estate but if the judgment against which a bankrupt wishes to appeal reflects on his personal or professional character (as the present judgment does), it seems unjust to leave the institution of an appeal to the discretion of a trustee whose interests do not extend, or do not necessarily extend, to the preservation of the bankrupt's personal or professional character. Is the bankrupt without any prospect of relief in such circumstances? When a trustee declines to exercise his power to sue or to appeal against a judgment, the bankrupt may apply to the Court under s 178 of the Act and the Court is empowered to make such order 'as it thinks just and equitable.' That jurisdiction has long been exercised by the courts charged with the supervision of administrations in bankruptcy." There is further discussion concerning the possible application of s 178 of the Act in the majority judgment (at 139). 8 The second consideration is the recent institution of proceedings in the Supreme Court of Queensland for money orders against the National Australia Bank by Mr Freeman. Those proceedings are property of the bankrupt which vest in the Trustee and again, it is a matter for the Trustee (in the absence of a stay) whether to continue with that litigation or whether to assign that litigation to Mr Freeman. 9 That possible consequence does not, in my opinion, bear heavily on the balance of convenience in respect of the granting of a stay. However, as I think that there is a possible argument that may be pursued on appeal, a stay should be granted and I am prepared to do so in this case. It should, however, be on terms. As with Carr J in the Lazy Days case, I consider that the Trustee should be aware of Mr Freeman's affairs and the extent of the property which the Act has vested in the Trustee. 10 Consequently, I order that: (1) Proceedings under the sequestration order made on 12 March 2002 against Lynton Noel Charles Freeman be stayed until the determination of Mr Freeman's appeal from the order making that sequestration order or earlier order. (2) The applicant prepare and file his statement of affairs within fourteen days of today. (3) The stay of proceedings under the sequestration order continue only whilst the appeal against the making of the sequestration order is prosecuted with due expedition and diligence. (4) There be liberty to apply to each party on three days notice. (5) There be no order in respect of the costs of the Trustee concerning today's motion. Otherwise, the costs of the motion be costs in the appeal. I certify that the preceding ten (10) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Spender. Associate: Dated: 17 April 2002 The Applicant appeared on his own behalf Counsel for the Respondent: Mr Ian Perkins Solicitor for the Respondent: Mallesons Stephen Jaques Solicitor for the Trustee: Forbes Dowling Lawyers Date of Hearing: 9 April 2002 Date of Judgment: 9 April 2002