Bagshaw v Jefferson (Trustee) [2002] FCA 1216

FEDERAL COURT OF AUSTRALIA

Bagshaw v Jefferson (Trustee) [2002] FCA 1216 Leith Gordon Bagshaw & Judith Hampton Bagshaw v PHILLIP GREGORY JEFFERSON & JAY ARSCOTT STEVENSON AS TRUSTEES OF THE BANKRUPT ESTATE OF LEITH GORDON BAGSHAW & john Joseph Scott N244 of 2002 JACOBSON J SYDNEY 24 SEPTEMBER 2002

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY N244 OF 2002

BETWEEN: LEITH GORDON BAGSHAW

FIRST APPLICANT

JUDITH HAMPTON BAGSHAW

SECOND APPLICANT

AND: PHILLIP GREGORY JEFFERSON & JAY ARSCOTT STEVENSON AS TRUSTEES OF THE BANKRUPT ESTATE OF LEITH GORDON BAGSHAW

FIRST RESPONDENT

JOHN JOSEPH SCOTT

SECOND RESPONDENT

JUDGE: JACOBSON J

DATE OF ORDER: 24 SEPTEMBER 2002

WHERE MADE: SYDNEY

THE COURT ORDERS THAT: 1. I dismiss the applications for relief set forth in paragraph 2 of the notice of motion filed on 2 July 2002 and in paragraphs 1 and 2 of the notice of motion filed on 21 August 2002. 2. I refer the balance of the motion filed on 2 July 2002 to the Full Court in order that it can be dealt with pursuant to the course directed by Sackville J on 31 July 2002.

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 N244 OF 2002

BETWEEN: LEITH GORDON BAGSHAW

FIRST APPLICANT

JUDITH HAMPTON BAGSHAW

SECOND APPLICANT

AND: PHILLIP GREGORY JEFFERSON & JAY ARSCOTT STEVENSON AS TRUSTEES OF THE BANKRUPT ESTATE OF LEITH GORDON BAGSHAW

FIRST RESPONDENT

JOHN JOSEPH SCOTT

SECOND RESPONDENT

JUDGE: JACOBSON J

DATE: 24 SEPTEMBER 2002

PLACE: SYDNEY

REASONS FOR JUDGMENT 1 I have before me two notices of motion filed by Mr John Joseph Scott to whom I will refer as Mr Scott. He is named as the second respondent in an appeal brought by Mr Leith Gordon Bagshaw, against Messrs Phillip Gregory Jefferson and Jay Arscott Stevenson as Trustees of the bankrupt estate of Mr Bagshaw, and against Mr Scott. 2 The first notice of motion was filed on 2 July 2002. In that motion Mr Scott sought an order inter alia that the appellant provide security for Mr Scott's costs of the appeal in an amount of $40,755 and that the proceedings be stayed until Mr Bagshaw lodges such security. The motion also sought an order that the proceedings be dismissed as an incompetent appeal pursuant to O 52 r 18 of the Federal Court Rules or alternatively, pursuant to O 52 r 20. 3 When the appeal was listed before Sackville J in a Full Court callover, which took place on 31 July 2002 his Honour, ordered that the application for dismissal be listed in the full court to be heard with the appeal, which has been listed for hearing for two days on 18 and 19 November 2002. Accordingly, the only aspect of this motion, which is before me today, is the application for security for costs. 4 On 21 August 2002 Mr Scott filed a further notice of motion. That motion seeks an order that an amended notice of appeal filed on 24 May 2002 be struck out. The amended notice of appeal purports to add Mrs Judith Hampton Bagshaw as a second appellant. Mrs Bagshaw is the wife of Mr Bagshaw. The amended notice of appeal also adds further grounds of appeal but I am not concerned with that issue in the application today. The motion seeks in the alternative to an order that the amended notice of appeal be struck out, an order that so much of the amended notice of appeal as refers to, or purports to bring an appeal by, Mrs Bagshaw be struck out. 5 The appeal is against orders made by Whitlam J on 12 April 2002. The orders were made by his Honour following upon a judgment, which was delivered on 20 March 2002. In the proceedings before Whitlam J, Mr Scott sought orders that certain properties owned by Mr and Mrs Bagshaw be subject to a charge in favour of Mr Scott as security for monies apparently lent only to Mr Bagshaw. Mr Scott relied in the proceedings before Whitlam J on part performance of oral agreements to grant to Mr Scott a charge over the properties. There was also evidence given by a Mr Livingstone, an accountant that Mr Bagshaw had agreed to provide a mortgage over one of the properties. 6 His Honour found that an agreement was to be inferred in respect of a property at Terrigal. His Honour also found that in relation to the other three properties which were the subject of the proceedings it was plain that an oral agreement was concluded on 7 or 8 November 1985 between Mr Livingstone and Mr Bagshaw. 7 His Honour stated that in relation to the claim made by Mr Scott, the position of Mrs Bagshaw was no different to that of Mr Bagshaw. I should mention that both Mr and Mrs Bagshaw were respondents to the proceedings before Whitlam J. Mr Bagshaw was the first respondent and Mrs Bagshaw was the second respondent. The third respondents were Mr Jefferson and Mr Stevenson as trustees of the bankrupt estate of Mr Bagshaw. I will refer to the matter of Mr Bagshaw's bankruptcy later in this judgment. 8 I note that Whitlam J referred in the judgment which he gave on 20 March 2002 to admissions which Mrs Bagshaw made in earlier interlocutory proceedings to the effect that Mr Bagshaw acted as her agent and with her authority in respect of any joint purchase including its financing. His Honour therefore held that Mrs Bagshaw was bound by Mr Bagshaw's agreement on her behalf. 9 The orders which were made by Whitlam J on 12 April 2002 were, firstly, a declaration that the properties were charged in favour of Mr Scott with repayment of so much of the monies lent to Mr Bagshaw as were to be ascertained by inquiry to be still owing. The second order was that there be a taking of accounts to ascertain the sum secured by the charges over the four properties. 10 Mr Bagshaw was made bankrupt by a sequestration order dated 12 October 1993. These proceedings were commenced in 1994 and Mr Bagshaw was not discharged from his bankruptcy by operation of law until 14 April 2002. Accordingly throughout the course of the proceedings and, indeed, up to the date on which the orders of Whitlam J were made Mr Bagshaw was an undischarged bankrupt. 11 Mr Bagshaw's notice of appeal was filed on 28 March 2002. Therefore, Mr Bagshaw had not been discharged from his bankruptcy at the date when the notice of appeal was filed. The notice of appeal seeks inter alia leave to adduce fresh evidence in the appeal to the Full Court. 12 The document entitled Amended Notice of Appeal, which joins Mrs Bagshaw as a second appellant, was filed on 24 May 2002. Mrs Bagshaw was made bankrupt by a sequestration order on 20 March 2001. The sequestration order was not made as a consequence of the present proceedings but resulted from unrelated proceedings. The motion to remove Mrs Bagshaw as a party to the appeal was filed after the matter was listed before Sackville J at the Full Court callover on 31 July 2002. 13 I will deal firstly, with the motion by Mr Scott for security for costs. Mrs Bagshaw was purportedly joined as a further appellant prior to the date on which that notice of motion was filed. The second notice of motion, as I have said, seeks to remove Mrs Bagshaw as a party. Further, Mr Scott seeks an order for security for costs against Mrs Bagshaw in the event that the motion to remove Mrs Bagshaw as a party is not successful. 14 Mr Jefferson and Mr Stevenson, who are the first respondent to the appeal, were the trustees of the bankrupt estate of Mr Bagshaw. They have filed a separate notice of appeal against the orders made by Whitlam J. However, Mr Scott has reached a conditional settlement with the trustees. The conditions include the approval of this court to the terms of settlement. If the conditions are satisfied, the appeal by the trustees will be dismissed against Mr Scott. Counsel for Mr Scott submits that Mr Scott should not be subjected to the risks of incurring irrecoverable expenses for the preparation and conduct of a 2-day appeal. 15 Mr Bagshaw's estate was not sufficient to pay in full the creditors of the bankrupt estate who were admitted to proof by the trustees. Mr Bagshaw was cross-examined by counsel for Mr Scott in relation to Mr Bagshaw's present financial position. The evidence before me is that Mr Bagshaw is a civil engineer. He is self-employed but has not as yet entered into any written agreements for the provision of his services. His evidence was that he is still negotiating for such agreements but that it is possible that one or more written agreements will be signed shortly. 16 Nevertheless, it seems to me to be clear enough that the prospect of Mr Bagshaw earning any significant sum from his profession in the near term is speculative. His evidence was that he has an amount of approximately $350 to $500 in a bank account. I think it is appropriate that I proceed upon the basis that he is impecunious and that there is a real risk that Mr Scott would not be able to recover against Mr Bagshaw on any costs order, which may be made by the Full Court. There is no evidence before me as to the financial position of Mrs Bagshaw but, of course, she is the subject of an existing sequestration order and has not yet been discharged from bankruptcy. 17 Dr Birch SC who appeared for Mr Scott has submitted that an order for security for costs against Mr Bagshaw would not stultify any appeal rights that Mr Bagshaw may have because the proceedings before Whitlam J were conducted by his trustees who are the sole repository of any appeal rights. However, it does seem to me that an order for security will stultify any appeal rights that Mr Bagshaw may have if his appeal is competent. 18 Dr Birch has submitted before me that Mr Bagshaw's appeal is incompetent. He relies on the decision of the High Court in Cummings v Claremont Petroleum NL (1996) 185 CLR 124 ("Cummings"). There, the High Court held that so far as any judgment entered in an action against a bankrupt creates or evidences a provable debt, the bankrupt has no financial interest which would confer locus standi on the bankrupt to appeal in his or her own name against the judgment. This was because, as was stated by Brennan CJ, Gaudron and McHugh JJ at pages 137-138, it is fundamental to the law of bankruptcy that the bankrupt is divested of his interest in property and liability for any provable debts. 19 In the present proceedings Whitlam J found that there was a valid equitable charge. His Honour's judgment did not evidence a provable debt and the question of the amount, which is secured by the charge, is to be determined by a taking of accounts. Whether the same principle applies as was stated by the High Court in Cummings in respect of orders declaring that a property or properties are subject to an equitable charge is a matter for the full court to determine. I do not consider that I should embark upon this issue, in particular, because Sackville J on 31 July 2002 specifically ordered that the question of competency of the appeal be heard together with the appeal on 18 and 19 November 2002. 20 It is clear, as Dr Birch has submitted, that if Mr Scott is found not to have been entitled to the orders made in his favour by Whitlam J the consequence will be that the equitable interest in the properties claimed by Mr Scott will fall into the pool of assets divisible amongst Mr Bagshaw's unsecured creditors. Accordingly, Mr Bagshaw has only an indirect interest in the pool if there is a surplus. 21 Dr Birch submitted that I ought to make an order under Order 28 of the Federal Court Rules. He relied upon O 28 r 3(1)(b). That rule imposes a two-part test. First, an applicant must establish that the party who is suing is not doing so for his or her own benefit. Secondly, it must be shown that the person is suing for the benefit of some other person. In Upton v TVW Enterprises (1984) 4 FCR 121, Toohey J pointed out that it is a far cry from the proposition that an applicant has creditors who stand to benefit from an award to say that the proceedings are therefore brought for the benefit of those creditors and not for the benefit of the applicant. 22 It seems to me that the indirect interest, which Mr Bagshaw has in the outcome of an appeal, precludes the operation of O 28 r 3(1)(b). However, even if I am wrong in expressing this view, I have a discretion under O 28 r 3 and for reasons which I will set out below, I would not exercise my discretion in favour of Mr Scott to order security. 23 Dr Birch relies in the alternative to O 28 upon the discretion to order security for costs under s 56 of the Federal Court of Australia Act 1976 ("the Act"). He relies upon the decision in Cowell v Taylor (1886) 31 Ch D 34 ("Cowell") at 38 for the proposition that even if there is a general rule that poverty should not be a bar to a natural person commencing litigation, that rule is subject to an exception in the case of an appeal. 24 Dr Birch also referred to a recent decision of Heydon JA in Melville v Craig Nolan & Associates Pty Limited (2002) 54 NSWLR 82 at 102-105. At paragraphs [83] – [94], his Honour reviewed the cases which have dealt in this court with the proposition that the general words of s 56 of the Act do not permit the court to make an order for security for costs against natural persons solely upon the grounds of impecuniosity. His Honour referred at page 105 to a judgment of Olney J in Thunderdome Race Timing & Scoring Pty Limited v Dorian Industries Pty Limited (1992) 36 FCR 297 at 308. Heydon JA observed that, if Olney J was correct, it follows that any restriction upon the "inherent jurisdiction" which is said to inhibit the making of security orders against impecunious natural persons has not survived the enactment of s 56. It is unnecessary for me to decide this issue. Of course, I would give a judgment of Heydon JA the greatest respect, but all of the judgments to which his Honour referred, are judgments of single justices of this court. Unless they are plainly wrong I would follow them: see Bank of Western Australia Limited & Ors v Commissioner of Taxation (1994) 55 FCR 233 at 255. In any event, as I have said, it is unnecessary for me to decide the question because Dr Birch relies upon the exception referred to in Cowell in relation to orders for security for costs in appeals. 25 I have come to the view that I ought not to exercise my discretion in favour of an order for security for costs under s 56 of the Act. There are a number of reasons why I have come to this view. Firstly, it does seem to me that on the evidence given by Mr Bagshaw he would be unable to raise the sum of $40,000, at least in the time available, and that an order for security would frustrate whatever rights of appeal he may have. 26 Second, although it may well be that an appeal to the Full Court is incompetent, that is not a matter for me to determine and the question of competency will be argued when the appeal commences on 18 November 2002. The third reason is that the appeal in this case may be distinguishable from the ordinary situation where the respondent has the benefit of a judgment at first instance. Here, Mr Bagshaw seeks to adduce fresh evidence. I do not know whether there is any substance to Mr Bagshaw's proposed application to re-open the case. The well-known test referred to by the High Court in Council of the City of Greater Wollongong v Cowan (1955) 93 CLR 435 may not be satisfied by Mr Bagshaw before the Full Court. 27 Nevertheless, I have before me an extract from the judgment of Windeyer J in separate proceedings in the Supreme Court of New South Wales. His Honour stated in that case that in cross-examination in the hearing before him Mr Scott said that practically everything he had sworn to in this first affidavit in the Federal Court of 16 November 1995 was untrue. Windeyer J observed that if that is the position then Mr Scott was guilty of perjury before that court. If it were not the position his Honour observed that Mr Scott was guilty of perjury in the proceedings before Windeyer J. 28 I am not in a position to determine whether any of the serious allegations made by Mr Bagshaw against Mr Scott can be supported but it does seem to me that in light of what Windeyer J said in his judgment, I ought at least to permit Mr Bagshaw to conduct the appeal in the event that it is competent. I stress that I do not express any view that the allegations made by Mr Bagshaw have any basis whatsoever. That is a matter for the Full Court if the appeal is competent and it is also a matter for the Full Court to determine whether fresh evidence can be adduced. 29 Dr Birch submitted that under s 178 of the Bankruptcy Act 1966 ("Cth") Mr Bagshaw has an avenue open to him to pursue the trustee of his estate in order to enforce his appeal rights. As the High Court observed in Cummings, at page 138, that is a jurisdiction, which has long been exercised by courts, charged with the supervision of bankrupt estates. 30 It seems to me that notwithstanding the provisions of s 178, there is insufficient time to allow Mr Bagshaw to pursue this course to completion prior to the hearing of the appeal. I note that Dr Birch raised the point for the first time in argument before me today. 31 I turn next to the orders sought in relation to Mrs Bagshaw. Mrs Bagshaw was a party to the proceedings before Whitlam J. The notice of appeal, which purports to join her as a party to the appeal, was out of time under O 52 r 15. It would therefore be necessary for Mr Bagshaw to show special reasons why leave ought to have been given to file and serve a notice of appeal. I accept Dr Birch's submission that the course taken by Mrs Bagshaw in filing an amended notice of appeal on 24 May 2002 is procedurally irregular and is not in accordance with the provisions of O 52 r 15(1). 32 Nevertheless, under O 52 r 14(2) I have a discretion to order the addition of a person as a party to an appeal. There is no time limitation referred to in O 52 r 14(2). Mrs Bagshaw is a necessary party because the charge is over properties owned by Mr and Mrs Bagshaw jointly. 33 Dr Birch contends that Mrs Bagshaw has no locus standi in an appeal for the same reasons as he gave for the incompetency of Mr Bagshaw's appeal. Thus, it seems to me that the same question of competency arises in relation to both of the appeals. I do not think that additional time would be taken in the Full Court in determining the question of whether Mr Bagshaw's appeal is competent. It seems to me that this issue ought to be determined by the Full Court at the same time, as the issue of competency is determined in relation to Mr Bagshaw's appeal. 34 Accordingly I propose to exercise my discretion under O 52 r 14(2) to validate ex post facto the joinder of Mrs Bagshaw as a party to the appeal. I do not propose to order security for the same reasons as I have given in relation to Mr Scott's application for security for costs against Mr Bagshaw. I certify that the preceding thirty-four (34) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jacobson.