Ganesh v Dobrowolski

Consideration 64 Although Ms Ganesh's notice of appeal contains 12 grounds, some of which are lengthy, the substance of her contention on appeal is that the primary judge erred in deciding not to go behind the judgment of the Magistrates' Court of Victoria. 65 Section 52(1)(c) of the Bankruptcy Act provides that, at the hearing of a creditor's petition, the Court shall require proof of "the fact that the debt or debts on which the petitioning creditor relies is or are still owing". 66 Section 52(2)(b) provides that if the Court is not satisfied with the proof of any of those matters (being the matters referred to in subsection (1)) or is satisfied by the debtor "that for other sufficient cause a sequestration order ought not to be made", it may dismiss the creditor's petition. 67 The circumstances in which a bankruptcy court exercising jurisdiction under s 52 of the Bankruptcy Act may go behind a judgment were considered by the High Court in Ramsay. In the judgment of Kiefel CJ, Keane and Nettle JJ, their Honours referred at [37] to the submissions of Mr Compton and indicated at [38] their acceptance of those submissions. Their Honours stated: 37 Mr Compton submitted that, by reason of s 52(1)(c) of the Act, and as Wren v Mahony concluded, the question for the Bankruptcy Court was whether the judge was persuaded that there was a debt truly owing to the petitioning creditor. It was said that the Bankruptcy Court should go behind a judgment where sufficient reason is shown for questioning whether behind the judgment there is in truth and reality a debt due to the petitioning creditor, and that sufficient reason was shown in this case. 38 An examination of the competing arguments shows that, both in point of authority and in point of principle, Ramsay's contentions should be rejected and those advanced for Mr Compton accepted. (Footnote omitted.) 68 Further, Kiefel CJ and Keane and Nettle JJ set out, at [42], an extract from Wren v Mahony (1972) 126 CLR 212 at 224, and stated, at [43], that there were good reasons why that passage should not be given an artificially narrow application. Their Honours stated at [44], that Wren v Mahony held that a bankruptcy court may go behind a judgment, notwithstanding that the judgment was obtained after a contested hearing. Their Honours stated at [54]-[56]: 54 In point of principle, scrutiny by a Bankruptcy Court of the debt propounded by a judgment creditor seeking a sequestration order in no sense involves an attempt to impeach the judgment. A Bankruptcy Court is not concerned with whether the judgment should be set aside as upon an appeal, or even as a default judgment or a judgment obtained by fraud may be set aside; nor is a Bankruptcy Court concerned to deny the effect of the judgment as "res judicata" between the parties to it. A Bankruptcy Court is not concerned to prevent the judgment creditor from invoking the ordinary processes of execution available under the general law. Rather, a Bankruptcy Court is concerned with whether the debt on which it is based is truly a basis for the making of a sequestration order. A Bankruptcy Court has a statutory duty to be "satisfied" as to the existence of the petitioning creditor's debt; a creditor should not be able to make a person bankrupt on a debt which is not provable. 55 The scrutiny required by s 52 as to whether there is, in truth and reality, a debt owing to the petitioning creditor serves to protect the interests of third parties, particularly other creditors of the debtor. It is of critical importance to appreciate that such persons were not parties to the proceedings that resulted in the judgment debt. It has long been recognised that their interest in being paid their debts in full should not be prejudiced by the making of a sequestration order in reliance on a judgment debt which does not reflect the true indebtedness of the debtor to the petitioning creditor. In In re Fraser; Ex parte Central Bank of London, Lord Esher MR said: "The decision is based upon the highest ground - viz, that in making a receiving order, the Court is not dealing simply between the petitioning creditor and the debtor, but it is interfering with the rights of his other creditors, who, if the order is made, will not be able to sue the debtor for their debts, and that the Court ought not to exercise this extraordinary power unless it is satisfied that there is a good debt due to the petitioning creditor. The existence of the judgment is no doubt prima facie evidence of a debt; but still the Court of Bankruptcy is entitled to inquire whether there really is a debt due to the petitioning creditor." 56 Almost a century later, the effect of the authorities on the topic was summarised in similar terms in Ahern v Deputy Commissioner of Taxation (Qld) by Davies, Lockhart and Neaves JJ: "[B]efore a person can be made bankrupt the court must be satisfied that the debt on which the petitioning creditor relies is due by the debtor and that if any genuine dispute exists as to the liability of the debtor to the petitioning creditor it ought to be investigated before he is made bankrupt. Bankruptcy is not mere inter partes litigation. It involves change of status and has quasi-penal consequences." (Footnotes omitted.) See also at Ramsay at [97]-[98], [110]-[112] per Edelman J. 69 In the present case, having considered Ms Ganesh's written and oral submissions, no error has been shown in the judgment or orders of the primary judge. In particular, no error has been shown in the decision of the primary judge not to go behind the judgment of the Magistrates' Court of Victoria. 70 First, insofar as Ms Ganesh contends (and gives evidence) that there was no agreement between her and Mr Dobrowolski, this does not provide a sufficient reason for questioning whether behind the judgment of the Magistrates' Court there was in truth and reality a debt due to Mr Dobrowolski. In the Magistrates' Court proceeding, Mr Dobrowolski gave sworn evidence that there was an oral agreement between Mr Dobrowolski and Ms Ganesh, made on or about 8 April 2011, for Mr Dobrowolski to lend $85,000 to Ms Ganesh. That evidence was accepted by the Magistrate at a trial on the merits (albeit one in which Ms Ganesh did not appear). The fact that Ms Ganesh disputes that evidence and has a different version of events, does not itself provide a sufficient reason for questioning whether there was a debt due to Mr Dobrowolski. 71 Further and in any event, there does not appear to be any issue that Mr Dobrowolski advanced the $85,000 to the vendor to enable Ms Ganesh to complete the purchase of the Property. Even if (contrary to Mr Dobrowolski's evidence in the Magistrates' Court) no conversation took place between Mr Dobrowolski and Ms Ganesh on or about 8 April 2011 to the effect that he would lend her the $85,000, and thus there was no contract, there is not a sufficient reason to question whether there was a debt due to Mr Dobrowolski. This is because an alternative basis of claim in the Magistrates' Court proceeding was "money had and received" and, on the face of things, the money was recoverable on that basis. I note ground 7(b) of Ms Ganesh's notice of appeal, which relies on an absence of good faith and fair dealing in response to the "money had and received" claim. However, in my view, there is insufficient substance to Ms Ganesh's affidavit material to support that ground. 72 Secondly, insofar as Ms Ganesh contends that Mr Dobrowolski breached his fiduciary duties to her, this does not provide a sufficient reason for questioning whether behind the judgment of the Magistrates' Court there was in truth and reality a debt due to Mr Dobrowolski. The breach of fiduciary duty contention is not clearly developed in the evidence or the submissions. The main difficulty with the contention is that, even if Mr Dobrowolski did breach his fiduciary duties to Ms Ganesh in connection with the $85,000 loan, it is not sufficiently established that there was any loss or damage flowing from the breach such that Ms Ganesh is not liable to repay the $85,000 to Mr Dobrowolski. The evidence of loss in Ms Ganesh's affidavit material is expressed in very general terms and is not linked to any breach of fiduciary duty. 73 Thirdly, insofar as Ms Ganesh contends that the judgment of the Magistrates' Court was obtained by fraud or misconduct by or on behalf of Mr Dobrowolski, the evidence does not establish any such fraud or misconduct. While Mr Dobrowolski gave evidence of a conversation with Ms Ganesh during which it was agreed that he would lend her the $85,000, and Ms Ganesh disputes that version of events, this does not establish fraud or misconduct on the part of Mr Dobrowolski (or the lawyers acting for him). It merely establishes that Mr Dobrowolski and Ms Ganesh have two different versions of events. Ms Ganesh's evidence (including her documentary evidence, such as the email from Mr Dobrowolski to Ms Ganesh dated 16 June 2011, set out above) does not provide a sufficient basis to conclude that (as she contends) Mr Dobrowolski committed perjury in his evidence in the Magistrates' Court proceeding. 74 Ms Ganesh also makes submissions about the way the proceeding was conducted in the Magistrates' Court by Mr Dobrowolski and his lawyers. She refers, in particular, to the pleadings in the Magistrates' Court (that is, the Complaint filed by Mr Dobrowolski). The fact that the Complaint referred to a request for a loan by Ms Ganesh that was "partially verbal and partially in writing", but the case as presented at the Magistrates' Court hearing was based on an oral request, does not suggest misconduct by the lawyers; it merely indicates that the case as ultimately presented in evidence and submissions did not entirely match the case as earlier pleaded. Likewise, the fact that the Complaint sought interest under a loan agreement, but this was not pressed at the hearing, does not suggest misconduct. Insofar as Ms Ganesh contends that relevant documents were not provided, and should have been provided, by Mr Dobrowolski's lawyers to the Magistrates' Court, the factual premise of this contention is not established. The primary judge found at [32] that a bundle of documents was tendered before the Magistrates' Court. The primary judge also accepted that this bundle included the email of 16 June 2011. Further, the partial transcript indicates that counsel for Mr Dobrowolski drew the Magistrate's attention to the adverse findings of the CIO. 75 Accordingly, I reject Ms Ganesh's contentions based on fraud or misconduct in connection with the Magistrates' Court proceeding. 76 Fourthly, insofar as Ms Ganesh contends that Mr Dobrowolski breached provisions of the NCCP Act, while the preliminary findings of the CIO provide some support for these contentions, I am not persuaded that the contentions provide a sufficient reason to question whether there was in truth and reality a debt due to Mr Dobrowolski. It is true that the preliminary findings of the CIO, summarised above, provide some support for Ms Ganesh's contentions. The CIO found (on a preliminary basis) that Mr Dobrowolski breached a number of provisions of Pt 3-1 of the NCCP Act in relation to the loan from AMP to Ms Ganesh. Although the CIO did not examine whether Mr Dobrowolski had breached provisions of Pt 3-2 of the NCCP Act in relation to the loan from Mr Dobrowolski to Ms Ganesh (Pt 3-2 being the relevant Part for that loan), the CIO's findings in relation to Pt 3-1 (in relation to the AMP loan) suggest that there may have been comparable breaches of Pt 3-2 (in relation to Mr Dobrowolski's loan). 77 The difficulty, however, is that for any such breaches to lead to a result where Ms Ganesh was not required to repay all or part of the $85,000, she would need to show that she suffered loss or damage as a result of any contraventions of the NCCP Act by Mr Dobrowolski (see ss 178 and 179 of the NCCP Act). The evidence put forward by Ms Ganesh does not sufficiently establish that she suffered any such loss or damage. While the affidavit material contains some general assertions that Ms Ganesh suffered loss and damage, it is not clearly linked with any contraventions of the NCCP Act by Mr Dobrowolski. Moreover, the context of the situation does not suggest that Ms Ganesh suffered any loss or damage as a result of the loan. Ms Ganesh needed to borrow the $85,000 in order to complete the purchase of the Property (to which she was already committed). The advance by Mr Dobrowolski enabled her to complete the purchase (even if, as she contends, she was unaware of the source of the funds). Ms Ganesh was apparently willing to borrow the same amount from a private party. 78 Insofar as Ms Ganesh relies on other matters in her submissions, I do not consider any of them to suggest error by the primary judge. 79 For the above reasons, no error has been shown in the primary judge's conclusion that sufficient reason had not been shown for questioning whether behind the judgment of the Magistrates' Court there was in truth and reality a debt due to Mr Dobrowolski.

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