Ali v Retail Decisions Pty Ltd

Federal Court of Australia|2012-10-17|Before: Bromberg J

REASONS FOR JUDGMENT 1 Under its trading name "Motorpass", the respondent ("Retail Decisions") operates a business in which it supplies fuel cards which facilitate the purchase by its customers of fuel on credit. The appellant ("Mr Ali") operates a tree lopping and removal business under the trading name "A Dangerous Tree Expert". Retail Decisions claims that Mr Ali applied for and was provided with fuel cards which he then used to purchase fuel, incurring a debt to Retail Decisions of $38,117. 2 On 8 May 2009 and in relation to that alleged debt, Retail Decisions obtained a default judgment (inclusive of interest) against Mr Ali in the Magistrates Court of Victoria at Melbourne in the sum of $39,537 inclusive of costs and interest. Having served a bankruptcy notice on 18 August 2009, Retail Decisions caused to be issued a creditor's petition ("the creditor's petition") in the Federal Magistrates Court. The creditor's petition included further interest accrued since the date of that judgment and claimed a total debt owing of $40,425 ("the debt"). 3 On 4 May 2010, a Registrar made a sequestration order against Mr Ali's estate. Mr Ali applied for review of that order by a Federal Magistrate. Mr Ali claimed that he had never applied for a fuel card and was not indebted to Retail Decisions. He further claimed that he was not insolvent. 4 The learned Federal Magistrate did not accept Mr Ali's case that he was not indebted to Retail Decisions. Nor did the Federal Magistrate accept that Mr Ali was solvent. On 6 October 2011, the Federal Magistrate delivered his reasons for judgment. Those reasons are published as Retail Decisions Pty Ltd v Ali [2011] FMCA 726. The Federal Magistrate determined that a sequestration order should be made but decided that the execution of the petition should be delayed for a period of two months to provide Mr Ali with an opportunity to pay the debt. 5 On 15 December 2011, the Federal Magistrate made orders sequestrating the estate of Mr Ali and ordering that he pay the costs of Retail Decisions. 6 Mr Ali has appealed to this Court in relation to those orders. Section 24(1)(d) of the Federal Court of Australia Act 1976 (Cth) provides for an appeal to this Court from a judgment of the Federal Magistrates Court. Such an appeal is neither a hearing de novo nor an appeal in a strict sense, but it is an appeal by way of re-hearing. To succeed, Mr Ali must demonstrate that the judgment under appeal is a consequence of some legal, factual or discretionary error: Allesch v Maunz (2000) 203 CLR 172 at [23] (Gaudron, McHugh, Gummow and Hayne JJ). 7 The following are the main issues raised for determination on appeal: (i) Did the Federal Magistrate err by imposing an unwarranted burden of proof upon Mr Ali?; and (ii) Did the Federal Magistrate err in not finding that Mr Ali was solvent? 8 For the reasons I will now explain, I have determined the first but not the second issue in favour of Mr Ali. It follows that the appeal should be allowed.

the debt issue 9 It is useful that I commence with a summary of the principal evidentiary matters before the Federal Magistrate. 10 Retail Decisions primarily relied upon the default judgment it had obtained against Mr Ali. It also relied upon other evidence. Retail Decisions' practice was to have an agent take applications for fuel cards over the telephone. That practice did not involve any verification of the identity of the person applying. An application form, filled in by an agent of Retail Decisions following a telephone call, recorded a fuel card application made for "Ali, Rashid". Under a heading "Contact Person" the name "Mr Tarek Ali" appears. The application form bears the trading name of Mr Ali's business and his trading address. The form also includes a telephone number and an ABN. 11 Retail Decisions also relied upon what may be characterised as an admission contained in business records relating to telephone conversations between its agents and a person recorded as being Mr Ali. The Federal Magistrate considered one such record to be both admissible and "decisive" (see at 43). That record was of a telephone conversation in which the agent recorded that the agent "spoke with Rashid". The record summarises the contents of the conversation in which the person with whom the agent spoke said that moneys owed would be paid. 12 There was also evidence that numerous invoices were forwarded by Retail Decisions to Mr Ali's address. There was no evidence of Mr Ali using the fuel cards. 13 In affidavits relied upon by Mr Ali, he deposed that he had never applied for a fuel card from Retail Decisions nor authorised any other person to do so. Mr Ali went much further than a bare denial. His evidence was extensive. He deposed to never having had a credit card and to never having used any fuel card. He paid for fuel using cash and he produced numerous receipts for petrol paid for in cash. He stated that he had not received invoices from Retail Decisions nor the Complaint lodged by Retail Decisions with the Victorian Magistrates Court. He became aware of the default judgment about a week after it was obtained. He immediately contacted Retail Decisions and spoke to a male employee about the debt. Mr Ali was told he owed money to Motorpass. He stated he did not apply for a fuel card. He sent a facsimile to Retail Decisions enclosing a photocopy of his driver's licence containing his signature. A week later he telephoned again and spoke to a male employee. He queried whether his driver's licence with his signature had been received. He was told that the application form in question did not contain a signature. He was further told that a man named Tarek Ali had applied for the fuel card. He advised the employee that Tarek Ali was not him, and that he owed no money to Motorpass. At that point he took no further action believing that the alleged debt was not in his name but instead, in the name of Tarek Ali. 14 Mr Ali further deposed that after he became aware that a sequestration order had been made against him, he contacted the Queensland Police because he believed that he had been the victim of identity fraud. He deposed that he suspected that the person who had applied for the fuel cards and had caused the debt owed to Retail Decisions was a person that he named, and whom I shall call Mr Z. Mr Ali deposed as to his belief that Mr Z had unlawfully used his personal details to incur the debt. Mr Z was one of three men who, in early 2008, began renting a caravan on Mr Ali's property located at the same address which appears on the application for the fuel cards. These men asked if they could use that address for their mail and with Mr Ali's consent they were given access to his mailbox. Mr Ali deposed that he had provided the Queensland Police with the documents he had in relation to his suspicion and was awaiting the completion of police investigations. 15 Mr Ali was not challenged in relation to any of the sworn testimony that he gave. He was not called for cross-examination. He had been ill and a number of adjournments had occurred as a result of his illness. The Federal Magistrate was informed that Retail Decisions did not require Mr Ali for cross-examination for reasons including, at least in part, his "anticipated ill health".

Did the Federal Magistrate impose an unwarranted burden of proof upon Mr Ali? 16 There is a discrepancy between the way in which a court's satisfaction of the existence of a debt is ordinarily dealt with in a case such as this, and the way it was dealt with by the Federal Magistrate in this case. That discrepancy, as well as many observations made in the judgment about the onus of proof upon Mr Ali, give rise to a suggestion that the Federal Magistrate may have misconstrued the relevant principles, including in relation to the burden of proof. Mr Ali's first and second grounds of appeal raise such a challenge. 17 On the hearing of a creditor's petition, proof of the debt is required by s 52(1)(c) of the Bankruptcy Act 1966 (Cth) ("the Bankruptcy Act"). The existence of a judgment is prima facie evidence of a debt: Wolff v Donovan (1991) 29 FCR 480, 486 (Lee and Hill JJ). However, a court has a discretion to go behind the judgment to determine whether it is founded on a real debt because "a sequestration order should not be made on the petition of a person who is not a real creditor": Joossé v Commissioner of Taxation (2004) 137 FCR 576 at [3] (North and Finkelstein JJ). 18 If the court exercises its discretion to look behind the judgment, the court can no longer accept the judgment as proof of the debt and must determine whether there is "in truth and reality a debt due to the petitioning creditor": Wren v Mahony (1972) 126 CLR 212 at 224-225 (Barwick CJ); Wolff at 486 (Lee and Hill JJ). 19 There is thus a two stage process which needs to be followed. As a first step the court considers whether it should go behind the judgment. It will more readily look behind the judgment where the judgment was obtained by default than where it was obtained following a hearing on the merits: Wolff at 486 (Lee and Hill JJ). The question at that stage is whether there is substantial reason for questioning whether there is a debt: Joossé at [6] (North and Finkelstein JJ). If the court determines that there is, it will then move to the second stage of a full consideration of the facts to determine whether there is a debt. 20 At the first stage, it is the respondent to the petition who bears the tactical onus of demonstrating that a basis exists for going behind the judgment, however, the overall onus of proof that the debt exists always remains with the petitioning creditor: Wolff at 487. 21 It is apparent from the Federal Magistrate's judgment that the Federal Magistrate did not approach the challenge made to the existence of a debt through the ordered two stage process which I have described. Retail Decisions contended that the fact that the majority of the judgment is concerned with the question of whether there was a debt, suggests that the Federal Magistrate exercised his discretion as to whether the court should look behind the judgment in favour of Mr Ali and moved directly to the second stage. That contention may be correct but involves speculation. It is equally possible that the Federal Magistrate failed to recognise that a two stage process was involved. Some aspects of the judgment suggests that the Federal Magistrate may have considered himself to be dealing with the first stage (see at [13] of the judgment). 22 The failure of the Federal Magistrate's reasons for judgment to clearly spell out the approach taken by the Federal Magistrate, makes it more difficult to evaluate the Federal Magistrate's reasoning process and test it for error by reference to the accepted principles referred to earlier. I have no difficulty however in coming to the conclusion that on the basis of the evidence before him, the Federal Magistrate's dismissal of Mr Ali's challenge to the existence of the debt was infected with error. That error arose because the Federal Magistrate required Mr Ali to discharge an evidentiary burden which should not have been required of him. 23 The Federal Magistrate's judgment focuses heavily upon the need for Mr Ali to establish what the Federal Magistrate regarded to be Mr Ali's assertion of identity fraud. It is difficult to read the judgment without coming to the view that the Federal Magistrate relied on Mr Ali's failure to conclusively establish that he was the victim of identity fraud, in reaching the conclusion that the debt was incurred by Mr Ali. 24 Whilst the Federal Magistrate acknowledged that a petitioning creditor carries the onus of proving the existence of the debt (see at [41] and [43]), he made many observations which suggest that, in order for Mr Ali to succeed, Mr Ali was required to satisfy an onerous evidentiary burden and prove that he had been the subject of identity fraud. For instance: At [13]: It should be clearly remembered at this stage what the issue is. Mr Ali does not say whether or not someone made an application for a fuel card (and five subsequent other fuel cards) in 2008 to 2009 from Retail Decisions through an agent that Retail Decisions then employed. Rather he says that whether such applications were made or not, they were fraudulently made by someone else. "An allegation of fraud and identity theft is a serious matter that is required to be addressed in the context of the emphasis in s.140 of the Evidence Act 1995": at [41]; "In substance, it was Mr Ali and he alone who was the possessor of the relevant evidence to either prove or disprove his assertions as to the identity theft": at [42]; Extensive observations are made at [43] about what the Federal Magistrate regarded as deficiencies in Mr Ali's account of his interrelationship with Mr Z and therefore deficiencies in Mr Ali's account of Mr Z as the person who had applied for the fuel cards and caused the debt owed to Retail Decisions; "On the balance of probabilities, and applying commonsense to what is nonetheless a serious matter attracting the operation of s.140 [of the Evidence Act 1995 (Cth)], I am quite satisfied that despite his denials, Mr Ali did indeed apply for, obtain and use the Motorpass card that he was given": at [45]; and At [73] the Federal Magistrate stated that Mr Ali had advanced a defence of fraud which had been rejected. 25 To have the Federal Magistrate go behind the judgment debt, Mr Ali needed to satisfy a tactical onus of demonstrating that there was a substantial reason for questioning the debt. The unchallenged evidence given under oath by Mr Ali that he did not apply for the fuel cards, did not authorise anyone else to do so and did not himself use any fuel cards, was sufficient to discharge that tactical onus. The standard of satisfaction required in such a challenge is no higher than that required by the "arguable case" or "serious question to be tried" criteria and at that stage, the court should not ordinarily embark upon an enquiry as to the credit of a deponent: Menzies v Paccar Financial Pty Ltd [2011] FCA 460 at [47]-[48]. 26 Thereafter, the onus of proof lay with Retail Decisions to establish that "in truth and reality" a debt was due to it. Its evidence was weak. In essence, Retail Decisions relied upon the Federal Magistrate drawing an inference that Mr Ali had made an admission. Not only was the evidentiary basis in support of such an inference highly speculative, but the alleged admission was never put to Mr Ali. Even if a generous view of Retail Decisions' position is taken and it is assumed that its evidence had done enough to require an evidentiary response from Mr Ali, a detailed response was given. Mr Ali gave the unchallenged evidence to which I have already referred. That evidence was neither challenged by cross-examination or put into contest by other evidence. Due regard must be given to sworn testimony. Unchallenged sworn evidence will usually be accepted unless so implausible as to demand its rejection. 27 There was nothing so implausible as to demand the rejection of Mr Ali's testimony that he did not apply for fuel cards nor authorise anyone else to do so. Retail Decisions' failure to have any proper verification processes in place when approving applications made identity fraud a plausible possibility. By his evidence, Mr Ali sought to take that possibility further by raising evidence that other persons had been given access to his mailbox. The forensic reason for Mr Ali doing that was obvious. The evidence served to provide a possible explanation as to how another person may have acquired his business name, address and other details as well as why Retail Decisions' invoices were not received by him. The satisfaction of the Federal Magistrate as to that possibility would have served to enhance any challenge made to Mr Ali's sworn denials. 28 However, for that purpose, it was only necessary for Mr Ali to prove that there was a possibility of identity theft. It was not incumbent upon Mr Ali to prove such a possibility was the reality or that Mr Z was the perpetrator. The fact that the Federal Magistrate was not satisfied that Mr Z had applied for fuel cards does not lead to the conclusion that Mr Ali's evidence that he had not applied for fuel cards was implausible. 29 It seems to me that Mr Ali's failure to conclusively demonstrate fraud led to the rejection of his unchallenged sworn evidence that he never applied for or used the fuel cards. The extent to which the Federal Magistrate imposed a burden upon Mr Ali to prove the alleged fraud is, in addition to the aspects of his reasons adverted to at [25] above, also demonstrated by [12] of those reasons. In that paragraph, the fact that Mr Ali was not cross-examined was viewed as "unfortunate" for Mr Ali because it was he who was "alleging fraud". Furthermore, Mr Ali was required to establish the fraud at the higher level of satisfaction contemplated by s 140(2) of the Evidence Act 1995 (Cth). 30 In my view, both the observations to which I have referred and the result arrived at by the Federal Magistrate, serve to demonstrate that the Federal Magistrate placed an unwarranted burden of proof upon Mr Ali to prove as a fact, that which had merely been raised as a plausible possibility. In so doing, the Federal Magistrate fell into error. The appeal should be allowed on that basis.

Was the Federal Magistrate correct to conclude that Mr Ali was not solvent? 31 By his fourth ground of appeal, Mr Ali sought to challenge the way in which the Federal Magistrate exercised the discretion conferred by s 52(2) of the Bankruptcy Act to dismiss a creditor's petition. One of the preconditions for the exercise of that discretion is the Court's satisfaction that the debtor "is able to pay his or her debts". Mr Ali contends that in assessing that pre-condition, the Federal Magistrate erred by failing to be satisfied that real estate owned by Mr Ali was capable of ready realisation. 32 Given my view that the appeal should be allowed, it is unnecessary that I explain in detail why I think this ground of appeal should be rejected, but I will do so briefly. 33 Mr Ali's contention turns upon whether the Federal Magistrate was right to conclude that he could not be satisfied that the properties were readily saleable because there was no evidence as to whether buyers were readily available. Mr Ali contended that the Federal Magistrate should have inferred that the properties were readily realisable from valuations for the relevant properties given by a registered valuer. 34 It may well be inferred from a valuation given by a registered valuer that the properties which have been valued are capable of attracting a purchaser. The fact that a property has substantial value is necessarily grounded in the view that some demand for the property is either extant or may be expected to be forthcoming. However, a valuation of itself is not evidence that the property in question is capable of being sold within a "relatively short time" (Eykamp v Deputy Commissioner of Taxation [2010] FCA 797 at [7] (Buchanan J)) or "in the reasonably immediate future" (International Alpaca Management Pty Ltd v Ensor [1999] FCA 72 at [19] (Katz J)). 35 Given that Mr Ali bore the onus of satisfying the Federal Magistrate that his equity in the properties could be realised within the limited time frame referred to by the authorities to which I have referred, I do not regard the Federal Magistrate to have erred by failing to draw the inference contended for by Mr Ali.

other matters 36 Ground 3 of Mr Ali's grounds of appeal asserts that the Federal Magistrate placed insufficient weight on evidence that several false credit cards were used to try and pay the outstanding debt to Retail Decisions. Mr Ali contended that the evidence demonstrated that unlawful activity had occurred on the account which warranted further investigation. However Mr Ali failed to identify how, if that evidence had been taken into account, it would have necessarily resulted in a different finding by the Federal Magistrate. It was not clear what different finding Mr Ali was contending should have been made, if that evidence was taken into account. That ground of appeal should therefore be dismissed. 37 Mr Ali did not press ground 5 of his grounds of appeal. 38 Finally, Retail Decisions contended that the appeal could be dismissed because Mr Ali had waived the grounds of appeal pursued. By reason of the adjournment to which I referred at [4], the matter was called on before the Federal Magistrate on 15 December 2011. The obvious purpose of that hearing was to update the Federal Magistrate as to whether Mr Ali had paid the debt during the adjourned period. As he had not, the Federal Magistrate made orders, including a sequestration order, on that day. Retail Decisions contended that it was open to Mr Ali to have applied at that hearing for the Federal Magistrate to reconsider his reasons for judgment and correct the errors in his reasoning alleged by the Amended Notice of Appeal. Retail Decisions says further that Mr Ali's Counsel "expressly disavowed" doing so and that having not done so, Mr Ali waived his right to pursue this appeal. 39 The contention is without merit. First, the only matter "disavowed" by Mr Ali's Counsel was the existence of any ground for resisting an order based upon Mr Ali availing himself of the opportunity to pay the debt afforded by the adjournment. Second, the contention wrongly assumes that the hearing was some open and unqualified opportunity for Mr Ali to seek the Federal Magistrate's reconsideration of his reasons for judgment. It was not. Third, even if such an opportunity had been afforded to Mr Ali, there is no inconsistency sufficient to ground a waiver in Mr Ali choosing to reserve his challenge for an appeal. Contrary to the submission made, the circumstances at hand bear no resemblance to and are not analogous to a waiver constituted by the failure of a litigant to assert a right to object to the continuing conduct of a proceeding by a judge on the ground of bias.

disposition 40 In the light of my determination that the appeal should be allowed, it follows that the sequestration order made by the Federal Magistrate should be set aside. I will make that order. 41 The question then arises as to whether I should dismiss the creditor's petition or remit it to the Federal Magistrate's Court. My preliminary view is that my reasons supporting the finding of error also support the conclusion that the creditor's petition should have been dismissed by the Federal Magistrate and should therefore now be dismissed. However, as I have not heard from the parties on that issue, I will give the parties an opportunity to address me in writing should they desire to do so. Additionally, as I have not heard the parties as to the question of costs either on this appeal or in the proceeding below, I will also give the parties an opportunity to provide submissions as to costs. I will make orders to address the exchange of submissions. I certify that the preceding forty-one (41) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Bromberg.

Bankruptcy Act 1966(Cth)ss 52(1)(c), 52(2)

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