Ekes v QBE Insurance (Australia) Limited [2011] FCA 230

FEDERAL COURT OF AUSTRALIA

Ekes v QBE Insurance (Australia) Limited [2011] FCA 230 Citation: Ekes v QBE Insurance (Australia) Limited [2011] FCA 230

Parties: HECTOR EKES v QBE INSURANCE (AUSTRALIA) LIMITED

File number: NSD 139 of 2011

Judge: COWDROY J

Date of judgment: 18 March 2011

Corrigendum: 19 April 2011

Catchwords: BANKRUPTCY – Application for stay of sequestration order pursuant to O 52 r 17 – whether circumstances justified a stay of proceedings – whether petitioning creditor was entitled to continue with bankruptcy proceedings in view of a compromise agreement in which the creditor participated in – whether proceedings constituted a 'fresh step' pursuant to s 229 of the Bankruptcy Act 1966 (Cth) – stay granted subject to conditions.

Legislation: Bankruptcy Act 1966 (Cth) ss 52(3), 188, 229 Federal Court of Australia Act 1976 s 24 Federal Court Rules O 52 r 17

Cases cited: Alexander v Cambridge Credit Corporation Ltd (Receivers Appointed) (1985) 2 NSWLR 685 Coleman v Lazy Days Investment Pty Ltd (1994) 55 FCR 297 Evans v Heather Thiedeke Group Pty Ltd (1990) 95 ALR 424 Freeman v National Australia Bank Ltd [2002] FCA 427 Henderson and Ors v Amadio Pty Ltd and Ors (No 3) (1996) 65 FCR 66 Kellow v Dudzinski [2003] FCA 238 Powerflex Services Pty Ltd v Data Access Corporation (1996) 67 FCR 65 Re Middle Harbour Investments Ltd (In liq) (unreported), Court of Appeal NSW, 15 December 1976

Date of hearing: 14 February 2011

Place: Sydney

Division: GENERAL DIVISION

Category: Catchwords

Number of paragraphs: 23

Counsel for the Applicant: Mr Baran

Solicitor for the Applicant: Avondale Lawyers

Counsel for the Respondent: Mr Cook

Solicitor for the Respondent: Turks Legal

FEDERAL COURT OF AUSTRALIA

Ekes v QBE Insurance (Australia) Limited [2011] FCA 230 CORRIGENDUM 1. When this decision was originally published, the file number NSD 139 of 2011 was omitted from the Orders and the Reasons page. It has now been included. I certify that the preceding one (1) numbered paragraph is a true copy of the Corrigendum to the Reasons for Judgment herein of the Honourable Justice Cowdroy.

Associate: Dated: 19 April 2011 IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 139 of 2011

BETWEEN: HECTOR EKES

Applicant

AND: QBE INSURANCE (AUSTRALIA) LIMITED

Respondent

JUDGE: COWDROY J DATE OF ORDER: 18 MARCH 2011 WHERE MADE: SYDNEY

THE COURT ORDERS THAT:

1. The orders made by this Court on 14 February 2011 be confirmed. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court's website.

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 139 of 2011

BETWEEN: HECTOR EKES

Applicant

AND: QBE INSURANCE (AUSTRALIA) LIMITED

Respondent

JUDGE: COWDROY J DATE: 18 MARCH 2011 PLACE: SYDNEY

REASONS FOR JUDGMENT 1 Before the Court is a notice of motion filed on 14 February 2011 seeking a stay of a sequestration order made by Smith FM on 31 January 2011 against Mr Ekes ('the applicant') in proceedings SYG 1151 of 2010 of the Federal Magistrates Court of Australia ('FMC'). Smith FM granted a stay of such order under s 52(3) of the Bankruptcy Act 1966 (Cth) ('the Act') for 14 days on certain conditions to enable the applicant to obtain legal advice for the purpose of deciding whether to appeal the sequestration order. The period of such stay expired on the date of this application. 2 The Court granted a further stay on 14 February 2011 as sought by the applicant subject to conditions but reserved its reasons. The Court now delivers its reasons.

Decision of Smith FM 3 The facts giving rise to the sequestration order are contained in his Honour's judgment. From those facts the following is established. 4 The applicant, who the Court is informed is a solicitor of the Supreme Court of New South Wales, found himself unable to pay his debts as they fell due. The respondent ('QBE') commenced proceedings No 4673/08 ('the District Court proceedings') in the District Court of New South Wales on 3 October 2008. QBE alleged that the applicant owed QBE $106,500.00 under a deposit bond issued in 2006. The statement of claim joined Wajiha Ahmed, the applicant's former wife, as a second defendant. The total claim of QBE, together with costs and interest amount to $110,114.62. 5 Following the institution of the District Court proceedings Mr Ekes initiated the provisions of Part X of the Act. On 11 June 2009 a controlling trustee was appointed pursuant to s 188 of the Act. 6 QBE claimed to be a creditor of the applicant and lodged a proof of debt dated 15 July 2009 with the controlling trustee, attaching a copy of the statement of claim in the District Court proceedings. The documentation lodged with the trustee indicated that QBE had not 'obtained a judgment', nor received any payments in reduction of its debt owed to it by the applicant. 7 The controlling trustee's report included QBE as a creditor and identified QBE's debt as the same as that referred to in the District Court proceedings. 8 On 16 July 2009 QBE participated in a meeting of the creditors which approved the proposed agreement of compromise ('the compromise agreement') amongst the applicant's creditors. Under this agreement, the applicant's unsecured creditors would receive an estimated dividend of 2.17 cents in the dollar. 9 On 2 September 2009 the applicant was allegedly surprised to learn that the District Court proceedings had been fixed for hearing on that day. The applicant attended the District Court where he negotiated a document entitled 'terms of judgment/order' which recorded terms of settlement of the District Court proceedings. Such document made provisions for payment of QBE's debt by instalments of $30,000 to be paid over a period of 12 months. Judgment was entered against the applicant for the total amount of the liability allegedly owing to QBE ('the judgment'). 10 The terms of the settlement were not fulfilled by the applicant. Accordingly QBE issued a bankruptcy notice and subsequently a bankruptcy petition against the applicant, relying upon the judgment obtained in the District Court proceedings. The act of bankruptcy relied upon by QBE was the applicant's non-compliance with the provisions of a bankruptcy notice served on 24 February 2010. Such date was subsequently extended until 12 April 2010 by orders of Smith FM. 11 On the hearing of the bankruptcy petition before Smith FM the applicant argued that QBE was bound by the compromise agreement made pursuant to s 229(1) of the Act, and as such it was not competent for QBE to commence any legal proceeding in respect of its debt, or to take any 'fresh step' in such a proceeding (see s 229(2)(c) of the Act set out below). Smith FM dismissed the applicant's submissions and made the sequestration order against the applicant. 12 Section 229(2) of the Act provides: (2) If a personal insolvency agreement has become binding on the creditors of the debtor, it is not competent for a creditor, so long as the agreement remains valid: (a) to present a creditor's petition against the debtor, or to proceed with such a petition presented before the agreement became so binding, in respect of a provable debt; or (b) to enforce any remedy against the person or property of the debtor in respect of a provable debt; or (c) to commence any legal proceeding in respect of a provable debt or take any fresh step in such a proceeding.

Grounds of Appeal 13 The claim made by the applicant in these proceedings raises a question of law, namely whether his Honour erred in finding that the District Court judgment could properly be relied upon to found a bankruptcy petition in view of the compromise agreement and of s 229 of the Act.

Findings 14 Section 52(3) of the Act vests in a court having jurisdiction under the Act, the power to stay 'all proceedings under a sequestration order for a period not exceeding 21 days'. 15 The applicant appeals to this Court for relief against the decision of Smith FM pursuant to s 24 of the Federal Court of Australia Act 1976 (Cth) ('the Court Act'). Further, O 52 r 17 of the Federal Court Rules ('the Rules') generally authorises the Court to grant a stay. Neither s 24 of the Court Act nor O 52 r 17 of the Rules contain a time limit upon the duration of a stay. 16 In Evans v Heather Thiedeke Group Pty Ltd (1990) 95 ALR 424 the Court held that the power to grant a stay pursuant to s 52(3) of the Act does not nullify the Court's jurisdiction to order a stay under O 52 r 17 of the Rules. Further, since the application for a stay against the operation of the sequestration order was made under s 24 of the Court Act and not under any provision of the Bankruptcy Act, the time limit of 21 days prescribed by s 52(3) of the Bankruptcy Act did not apply. Instead, O 52 r 17 empowers the Court to grant a stay of proceedings unlimited as to time. 17 Subsequent decisions of this Court have referred to and impliedly agreed with the decision in Evans: see Kellow v Dudzinski [2003] FCA 238 per Cooper J; Coleman v Lazy Days Investment Pty Ltd (1994) 55 FCR 297; Freeman v National Australia Bank Ltd [2002] FCA 427 per Spender J. 18 In Powerflex Services Pty Ltd v Data Access Corporation (1996) 67 FCR 65 Burchett J, delivering the judgment of the Court at 66, referred to the matters necessary to warrant a stay of proceedings. In doing so his Honour referred to two authorities, namely Alexander v Cambridge Credit Corporation Ltd (Receivers Appointed) (1985) 2 NSWLR 685 at 694 and Re Middle Harbour Investments Ltd (In liq) (unreported), Court of Appeal NSW, 15 December 1976. Such authorities refer to the necessity for an applicant for a stay to demonstrate a reason or an appropriate case to warrant the exercise of the Court's discretion in his favour. 19 In Cambridge Credit Corporation, the New South Wales Court of Appeal at 694 quoted an extract from the decision of Mahoney JA in Middle Harbour Investments Ltd as follows: Where an application is made for a stay of proceedings, it is necessary that the applicant demonstrate an appropriate case. Prima facie, a successful party is entitled to the benefit of the judgment obtained by him and is entitled to commence with the presumption that the judgment is correct. These are not matters of rigid principle and a court asked to grant a stay will consider each case upon its merits, but where an applicant for a stay has not demonstrated an appropriate case but has left the situation in the state of speculation or of mere argument, weight must be given to the fact that the judgment below has been in favour of the other party. 20 In Henderson and Ors v Amadio Pty Ltd and Ors (No 3) (1996) 65 FCR 66, Heerey J adopted such test in respect of an application made under O 52 r 17(1) of the Rules, and said at 69: 'I do not think however the circumstances need to be "special" or "exceptional" in the sense of being unusual or rare'. 21 Prima facie, the subject matter of QBE's District Court proceedings is the same as that for which QBE sought to be included as a creditor of the applicant. Whether QBE was entitled to take any 'fresh step' in the District Court proceedings in view of the compromise agreement clearly raises an important question and justifies the granting of a stay. 22 The Court is satisfied that unless a stay is granted the applicant's claim for relief would be rendered nugatory. 23 For the above reasons the Court ordered on 14 February 2011 that a stay be granted, subject to conditions. I certify that the preceding twenty-three (23) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Cowdroy.

Associate: Dated: 18 March 2011