FEDERAL COURT OF AUSTRALIA Szepsevary v Weston [2016] FCA 91 Appeal from: Paul Gerard Weston & Anor (As Trustees of the Bankrupt Estate of Aaron Szepesvary & Anor) v Aaron Szepesvary & Anor (No 2) [2015] FCCA 3517 File number: VID 961 of 2015 Judge: JESSUP J Date of judgment: 12 February 2016 Catchwords: BANKRUPTCY AND INSOLVENCY – Appeal – Stay application – Negligible prospects of success – Discretionary considerations. Legislation: Bankruptcy Act 1966 (Cth) Bankruptcy Regulations 1996 (Cth) Cross-Border Insolvency Act 2008 (Cth) Federal Court (Bankruptcy) Rules 2005 (Cth) Judiciary Act 1903 (Cth) Property Law Act 1958 (Vic) Date of hearing: 12 February 2016 Registry: Victoria Division: General Division National Practice Area: Commercial and Corporations Sub-area: General and Personal Insolvency Category: Catchwords Number of paragraphs: 20 Counsel for the First Appellant: The first appellant did not appear Counsel for the Second Appellant: The second appellant appeared in person Counsel for the Respondents: Mr B Devanny Solicitor for the Respondents: Smith Leonard Fahey ORDERS VID 961 of 2015 BETWEEN: AARON PAUL SZEPESVARY First Appellant BUKET OZDIL Second Appellant AND: PAUL GERARD WESTON First Respondent PETR VRSECKY Second Respondent JUDGE: JESSUP J DATE OF ORDER: 12 FEBRUARY 2016 THE COURT ORDERS THAT: 1. The interlocutory application for a stay of the orders made by the Federal Circuit Court on 21 December 2015 be dismissed. 2. The listing of the proceeding at 10:15 am on Wednesday 17 February 2015 be vacated. 3. The appellants pay the respondents' costs. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT JESSUP J 1 This proceeding was commenced by appeal from the Federal Circuit Court of Australia filed on 30 December 2015. The appeal is brought from a judgment of that court given on 21 December 2015. In that judgment the Federal Circuit Court made declarations and orders as follows: Declaration: (1) The land described as Lot 2 on Plan of Subdivision 324371G being the whole of the land in Certificate of Title Volume 10101 Folio 392 ("the Land") being the land known as 44B Woodland Street, Strathmore, in the State of Victoria vests in the applicants pursuant to ss.58, 115(1) and 116(1) of the Bankruptcy Act 1966 (Cth) as tenants in common in equal shares. Orders: (2) The respondents deliver up to the applicants vacant possession of the Land within 14 days of this order. (3) Pursuant to s.234D of the Property Law Act 1958 (Vic) as applied by s.79(1) of the Judiciary Act 1903, the land and buildings comprising the property be sold by the applicants. (4) The applicants have the sole conduct and control of the sale of the Land, and are authorised to make all decisions with regard to the sale including appointing a real estate agent, appointing solicitors to undertake the necessary conveyance, choosing the method of sale and setting the reserve price (if any) for the sale. (5) In the event that the respondents fail to deliver up vacant possession of the Land in accordance with the order 2 above, a warrant of possession shall issue forthwith in favour of the applicants. (6) The respondents at their own cost and expense must remove from the Land all vehicles, chattels and personal possessions on the Land and any rubbish on the Land which has not vested in the applicants (the personal property) within 14 days of the date of this order. (7) In the event that the respondents fail to comply with order 6 above, the applicants are empowered to remove and dispose of the personal property as they see fit after 14 days have passed from the making of this order. (8) The respondents have liberty to bid at any auction sale of the Land on the condition that they have demonstrated, prior to any auction, the financial means to purchase the Land. (9) The proceeds of the sale of the Land be disbursed as follows: (a) first, in payment of all selling costs including agent's commissions, advertising and marketing expenses and all conveyancing and legal costs associated with the sale and the applicants' realisation costs; (b) secondly, in payment of the amount owing (if any) to the encumbrancer (if any); and (c) thirdly, the then available proceeds to be divided equally between the first and second applicant. (10) The applicant's costs of this application be paid by the respondents, to be taken in default of agreement. (10) The applicants' costs of this application be paid by the respondents, to be taxed in default of agreement. 2 The appellants were the registered proprietors of the land described, and the respondents are their trustees in bankruptcy. After filing the appeal, the appellants applied for a stay of the orders made by the Federal Circuit Court, and on 5 January 2016 Bromberg J made an order in the following terms: On the condition that on or before 7 January 2016 the appellants pay the National Australia Bank $5,000.00 in respect of monies due under a mortgage with the National Australia Bank upon the land described as Lot 2 on Plan of Subdivision 324371G, being the whole of the land in Certificate of Title Volume 10101 Folio 392, the orders made by Judge Riley of the Federal Circuit Court of Australia on 21 December 2015 in proceeding MLG1036 of 2015 are stayed forthwith, until further order or until the hearing and determination of this appeal. The condition referred to in that order was not satisfied. On the Interlocutory Application of the respondents, the matter came before Tracey J on 22 January 2016. In an ex tempore judgment which his Honour gave that day, his Honour made it clear that, the condition not having been satisfied, the stay thereupon lapsed and there was, as at the date of that judgment, no stay in place. 3 The respondents have caused a warrant of possession to issue conformably with order 5 made by the Federal Circuit Court on 21 December 2015. The sheriff was proposing to enter into possession of the property this morning, at which stage the appellants made the application which comes before me today. 4 The original basis of that application was a mistaken belief on the part of the appellants that Bromberg J's stay remained in place. By the time the second appellant appeared in court today however, she had read Tracey J's judgment and understood that the stay no longer existed. She is in a position, therefore, of being obliged to secure a fresh stay pending the hearing and determination of her appeal and the appeal of the first appellant. 5 In that project, it was first necessary for the second appellant to demonstrate that she has a reasonably arguable case that the appeal would succeed and that the balance of convenience and other appropriate discretionary circumstances favour the grant of the stay. Although the second appellant told me that she had not come to court today expecting to have to justify the merits of her appeal, it is her appeal, it was lodged about six weeks ago and the assumption I must make is that, either in person or as legally represented, an appellant knows enough about his or her appeal to provide a thorough and convincing explanation of the justification for it. 6 The second appellant first contended that the Federal Circuit Court should have held that the respondents' application failed to meet the standards required by rule 2.01(3)(a) of the Federal Court (Bankruptcy) Rules 2005. That paragraph requires that an application in the bankruptcy jurisdiction of this court, or presumably of the Federal Circuit Court, must state each section of the Bankruptcy Act 1966 (Cth) ("the Bankruptcy Act"), each regulation of the Bankruptcy Regulations 1996 or each section of the Cross-Border Insolvency Act 2008 (Cth) under which the proceeding is brought. It was submitted that the application in the Federal Circuit Court named not only s 30 of the Bankruptcy Act 1966 (Cth), as to which there was no complaint, but also two of the specific provisions in s 77, which, according to the second appellant, were not provisions under which the application was brought within the meaning of r 2.01(3)(a). I do not accept that submission. 7 It is provided in s 77(1)(e) and (g) of the Bankruptcy Act, which are that provisions of that section referred to by the second appellant, that: (1) A bankrupt shall, unless excused by the trustee or prevented by illness or other sufficient cause: … (e) execute such instruments and generally do all such acts and things in relation to his or her property and its realization as are required by this Act or by the trustee or as are ordered by the court upon the application of the trustee; and … (g) aid to the utmost of his or her power the administration of his or her estate. 8 The proceeding was brought under s 30 of the Bankruptcy Act, but that is a general provision which had specific application to the facts of this case by reason of s 77(1)(e) and (g). In short, it was the alleged defalcations of the bankrupts under those provisions which gave the respondents a substantial, as distinct from a purely procedural, cause of action under s 30. In my view, it was both regular and appropriate for the respondents to have adverted to s 77 in their application in the Federal Circuit Court. 9 The next point advanced by the second appellant was that the Federal Circuit Court judge had failed to address what was described as the proportional relationship between protected money and the amount that vested in the trustees. This was a reference to s 116 of the Bankruptcy Act and in particular, according to the reasons of the Federal Circuit Court on 21 December 2015, to subs (2)(d)(iii)(A) thereof. As I pointed out to the second appellant in the course of argument, it is apparent from paras 4, 5 and 6 of her Honour's reasons on that occasion that she did not fail to address this aspect of the appellants' then case. 10 I have considered what her Honour said about the subject, which largely related to what was said to be, but which there was no evidence of, the appellants' interest in superannuation funds. I can see no respect in which her Honour's reasons are legitimately open to criticism. It is as clear as may be that s 116 is concerned with the general question of the division of a bankrupt's property amongst creditors, rather than with the trustee's obligation to get in that property and, where necessary, to convert real estate into cash. 11 The next point put to me by the second appellant was that – and here I quote from Ground 4(a) in the appellants' Notice of Appeal – [t]he primary judge erred in the application of section 116 of the Act [by failing] to address the elements of the legislation by ascertaining whether in truth and reality a debt is due and owing by the respondents to creditors. In my view, however, questions as to the relationship between the respondents as trustees and the appellants' creditors is not a matter which bears upon the former's entitlement to possession of the property the subject of this appeal. Furthermore, I cannot see in her Honour's reasons in the Federal Circuit Court any respect in which this particular issue was agitated on behalf of the appellants. 12 The second appellant next referred to the matter dealt with in Ground 4(b) of the Notice of Appeal, namely, that the primary Judge had erred in the application of s 116 by failing to ascertain whether other property of the respondents would satisfy the debts due and owing to creditors. In her submissions to me today the second appellant made it clear that there was no evidence on this subject, which circumstance of itself would be sufficient to justify her Honour having made no reference to this dimension of the matter, or done anything about it in the orders which she made. 13 The second appellant then referred to Ground 4(d) of the Notice of Appeal, which was that the primary Judge erred in the application of s 116 of the Act by failing to resolve and to ascertain the true market value of the holding. It seems to be suggested that if the property was more than a certain amount in value it would not have been within the jurisdiction of the Federal Circuit Court to make an order of the kind sought by the respondents. However, the second appellant quite frankly told me that she could not take this submission any further and she was unable to draw my attention to any provision which would provide for such a limitation on the jurisdiction of that court. 14 Finally, the second appellant referred to Ground 5 of the Notice of Appeal, under which the primary Judge is said to have erred in the application of s 234D of the Property Law Act 1958 (Vic). This error was, it is alleged, a jurisdictional one. All I can say here is that no argument at all was addressed to the court in support of the viability of that ground. I was left with no idea what the point was going to be in relation to Ground 5. 15 Having considered the apparent merits of the proposed appeal, I take the view that it would have negligible prospects of success. In fact, I am unable to perceive any way in which any of these grounds might succeed. 16 Turning to the balance of convenience and other discretionary considerations, I accept that the property the subject of this appeal has been the residence of the appellants for some time, and that if a stay is not granted they will be put out of that property and will have to live somewhere else. That is a very serious adverse result for them and, more importantly perhaps, probably an outcome of sufficient seriousness to justify characterisation as something which would render the appeal nugatory. But, whilst an important consideration in itself, that is not the only one which I should take into account. 17 The respondents proceeded in a court having regular jurisdiction, and they achieved the orders which they sought. They should not lightly be deprived of the fruits of that success. As I have said, nothing would appear to throw any doubt upon the correctness of the disposition of the application on the part of the Federal Circuit Court. Further, I consider that there is a particular public interest in the creditors of bankrupt persons being able to rely upon the trustees promptly to administer the estates concerned. A delay of itself in the administration of a bankrupt estate is something which should be regarded as a self-evidently unsatisfactory situation. 18 There is another discretionary consideration to which I wish to refer. This is not a complicated case. Although it is in the appellate jurisdiction of the court, it has been referred to me as a single judge by the Chief Justice. As chance would have it, I would be able to hear the appeal on the merits next week. The respondents were prepared to facilitate such a hearing. The second appellant was not. Her preference is to have a hearing in May of this year at the next sittings of the Full Court. If it could have been heard next week, the respondents were prepared to consent to a stay for that short period. However, that option was not taken up by the second appellant, and the first appellant does not appear today. 19 Although there are powerful discretionary considerations which would favour the case which the second appellant has put to me, there are likewise considerations which would justify the conclusion that the grant of a stay would be unsatisfactory in a number of respects, particularly if, as appears to be the case, it would be of some months' duration. 20 For the reasons I have given, the application is rejected. I certify that the preceding twenty (20) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jessup. Associate: Dated: 1 March 2016