Nadarajapillai v Naderasa

Judgment (9 paragraphs)

[1]

Appeal dismissed.
Appellant to pay the respondent's costs. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

[2]

MARKOVIC J: 1 On 17 July 2015, after a hearing, a sequestration order was made by a judge of the Federal Circuit of Australia (Federal Circuit Court) against the estate of the appellant: see Naderasa v Nadarajapillai [2015] FCCA 2171 (Naderasa). The appellant now appeals from that order.

[3]

background 2 In 2011, the appellant and the respondent entered into a loan agreement whereby the respondent loaned the appellant a total of $85,000. On 30 January 2013, the respondent commenced proceedings against the appellant in the District Court of New South Wales seeking recovery of the amount loaned and interest at the rate of 3.5% per month which the respondent alleged was payable on the balance outstanding (the District Court Proceedings). 3 In paragraphs 1 and 2 respectively of his statement of claim filed in the District Court Proceedings, the respondent alleged that the moneys were loaned to the appellant pursuant to an oral agreement and set out the terms of the loan. By letter dated 27 February 2013, the appellant sought particulars of the statement of claim. In relation to [1] of the statement of claim, the appellant asked: Was the agreement one that was purely in the form of an oral agreement? a. If the agreement was in the form of both an oral and a signed written agreement if you will supply us with a copy of the written agreement, I undertake to pay your reasonable photocopying charges 4 By letter dated 27 March 2013, the respondent provided the following response to the request for particulars of [1] of the statement of claim: The agreement was partly oral and partly written. The written part of the agreement comprised 2 emails sent by you (as the defendant) to the plaintiff on 28 April 2011 one of which was sent at 1.15pm and the other at 2.20 pm. As you are the sender of the emails you should have a copy of these. There is no 'signed' agreement as such. Nevertheless a copy of the two emails received from you is attached to this letter (annexures A and B respectively). 5 The appellant filed his defence filed in the District Court Proceedings on 1 May 2013. In relation to the alleged agreement pleaded in [1] of the statement of claim and the response provided to the request for particulars in relation to that paragraph, the appellant relevantly: (1) admitted that he and the respondent entered into an agreement which was partly written and partly oral; (2) admitted that the written part of the agreement was in part reflected in "the document dated 27 April 2011 and attached to the email marked B of the Letter"; (3) denied that the "schedule attached to the email marked A of the Letter formed part of the agreement but admitted that another substantially similar (almost identical) document formed part of the written agreement"; (4) admitted that on or about June and July 2011 respectively, he borrowed the sums of $50,000 and $35,000 from the plaintiff; and (5) says that in early January 2012 the parties agreed to consolidate the borrowings. 6 On 10 April 2014, after a hearing before Judge Kearns, a verdict and judgment in the amount of $128,471.72 was entered for the respondent in the District Court Proceedings. In his judgment Judge Kearns made the following findings and observations: (1) by October 2012 the parties were in agreement that the appellant owed the respondent money pursuant to the loan agreement but disagreed as to the amount - the difference was minor; (2) the respondent presented his case on the basis of his accepting the appellant's assertion as to the amount owed at the time, namely $82,353.67, and that nothing had been paid since that time; (3) the appellant's defence to the claim was that it was a term of the agreement that the respondent had to give ninety days' notice if he required repayment of the money he had lent and that the respondent was in breach of that term because he had not given that notice and accordingly was not entitled to recover the monies; (4) the respondent said he did give such notice and relied on three demands: one made on 26 September 2011 for the immediate repayment of $35,000; a second made in February 2012 when the respondent went to the appellant's warehouse and said "I can't wait anymore and want you to repay all the money" and a third in a letter from the respondent's solicitors to the appellant dated 15 October 2012 which included a statement that "[o]ur client now demands the repayment of $84,102.99 comprising the principal owing and interest calculated to 22 October 2012"; (5) none of the demands specified 90 days in which to pay: (a) the first required immediate repayment. Judge Kearns found that he could put it "aside" because it related only to part of the money lent and, when the consolidated agreement was made in December 2011, it would have "overrun any demand that would have been made before then"; (b) however, the subsequent two demands were sufficient compliance with the contractual obligation to give the appellant 90 days' notice after the demand to make payment. It was also observed that the District Court Proceedings were commenced well enough after 90 days had expired from the date of the respondent's solicitors' letter; (6) the respondent had not breached the agreement by presenting post-dated cheques that had been provided to him by the appellant, it seemed as some form of security. The respondent was entitled to present the cheques when their dates accrued and doing so did not breach the agreement. Even if it did, it was not a breach that disentitled the respondent to otherwise rely on the agreement; (7) the 90 days' notice required by the agreement had been given to the appellant, he had not repaid the moneys loaned as required by the agreement and thus the respondent was entitled to a verdict and to simple interest at 3.5% per month on the principal outstanding. 7 On 23 June 2014 the appellant filed a notice of appeal in the NSW Court of Appeal from the orders made in the District Court Proceedings (the Appeal Proceedings). On 27 April 2015, the New South Wales Court of Appeal (the Court of Appeal) dismissed the Appeal Proceedings: see Nadarajapillai v Naderasa [2015] NSWCA 109. In doing so Emmett JA (with whom Macfarlan and McColl JA agreed), after setting out the amended grounds of appeal, summarised the issues in the District Court Proceedings at [19]: It is apparent that, apart from the basis on which interest was to be calculated, in respect of which the Borrower was successful, the only issue before the primary judge was whether the Lender was entitled to repayment of the loans prior to giving either 90 days' or three months' notice that repayment was required. While, in the Statement of Claim, the Lender also sued on the cheques, it is clear enough that that claim was not pressed before the primary judge, in circumstances where the Borrower admitted that the loans had been made, admitted that an amount of $82,353.67 was owing in respect of the loans, admitted that interest at the rate of 3.5 per cent per month was payable on the outstanding loans, and admitted that demand for repayment had been made in October. 8 Emmett JA found at [20] that demand had been made more than 90 days prior to commencement of the District Court Proceedings, it followed that as at the date of commencement of the proceedings the principal of the loans was due and owing and there was no reason why the lender (the respondent in these proceedings) could not bring proceedings for recovery of the principal with contractual interest to the date of judgment. His Honour concluded that there was no substance in any of the amended grounds of appeal relied on by the appellant: at [22]. 9 A bankruptcy notice was subsequently issued to the appellant by the respondent. The appellant failed to comply with that notice. The respondent then filed a creditor's petition and sought that a sequestration order be made in respect of the appellant. The appellant opposed the making of the sequestration order. After a hearing, the primary judge ordered that a sequestration order be made against the estate of the appellant and that the applicant creditor's costs be fixed in the amount of $3,744 and paid from the estate of the appellant in accordance with the Bankruptcy Act 1966 (Cth) (the Act).

Going behind the judgment 22 It is beyond doubt that the court has jurisdiction to go behind a judgment to see if there is in fact a debt owing. The circumstances in which a court can exercise its discretion to do so has been set out in the authorities. 23 In Corney v Brien (1951) 84 CLR 343 (Corney v Brien) the High Court considered an appeal from an order sequestrating the estate of Mr Corney. The judgment on which the creditor's petition was based was obtained in default of an appearance. The petitioning creditor served a bankruptcy notice on Mr Corney with which he failed to comply and, as a result of that act of bankruptcy, Mr Corney was made bankrupt. Mr Corney opposed the making of the sequestration order on the ground that he was not indebted to the petitioning creditor in the sum claimed. At the time s 56(2)(a) of the Bankruptcy Act 1924-1950 (Cth) (the 1924 Act) provided that the court at the hearing shall require proof of the debt of the petitioning creditor. 24 In their judgment, the plurality (Dixon, Williams, Webb and Kitto JJ) found that under s 56(2)(a) of the 1924 Act the Court of Bankruptcy had jurisdiction to go behind a judgment "obtained by default or compromise or where fraud of collusion is alleged" and to enquire whether the judgment was founded on a real debt. Their Honours referred to the early authorities which supported that conclusion and said at 347-348: … In Ex parte Kibble Sir W. M. James L.J. said: "It is the settled rule of the Court of Bankruptcy, on which we have always acted, that the Court of Bankruptcy can inquire into the consideration for a judgment debt". Sir G. Mellish L.J. said: "It is quite clear that in the Court of Bankruptcy the consideration for a judgment may be investigated, particularly when the judgment has gone by default". This case was discussed and followed in Ex parte Lennox, where the reasons why the Court of Bankruptcy will go behind a judgment debt are fully discussed. Lindley L.J. said that "the Court of Bankruptcy will not allow itself to be put in motion at the instance of a person who is not a real creditor". In In re Fraser Kay L.J. said: "It is old law in bankruptcy that, neither upon an attempt to prove a debt, nor upon a petition for an adjudication of bankruptcy or a receiving order against a debtor, is a judgment against him for the debt conclusive. In Ex parte Bryant Lord Eldon said: 'Proof upon a Judgment will not stand merely upon that, if there is not a Debt due in Truth and Reality, for which the Consideration must be looked to'." In In re Gooch Scrutton L.J. said: "The county court registrar held quite correctly that he was at liberty to go behind the judgment, and see whether there was a good debt to support it". In In re a Debtor Astbury J. said "True it is that the Bankruptcy Court may, upon a prima-facie case being shown, go behind a judgment for the purpose of satisfying itself that the debt enforceable thereunder was a real debt." In Petrie v. Redmond, a case in this Court, Latham C.J. said: "The court (that is, the Court of Bankruptcy) is entitled to go behind the judgment and inquire into the validity of the debt where there has been fraud, collusion or miscarriage of justice... Also the court looks with suspicion on consent judgments and default judgments". (citations omitted) 25 Fullagar J, in a separate judgment, considered the nature and extent of the power of the Court of Bankruptcy to go behind a judgment. After reviewing the authorities his Honour said at 356-357: … No precise rules exist as to what circumstances call for an exercise of the power, but certain things are, I think, clear enough. If the judgment in question followed a full investigation at a trial on which both parties appeared, the Court will not reopen the matter unless a prima facie case of fraud or collusion or miscarriage of justice is made out. … And at 358: The question whether the judgment is to be reopened or "gone behind" at all will, of course, often involve some preliminary investigation of the merits of the attack on the judgment. But, when once the court decides that it will "go behind" the judgment, the cases which I have cited show, in my opinion, that the whole matter is open. When once it is considered proper to "reopen", the only question will be whether there was, in fact and in law, a debt which could legally found the judgment whether there was in "Truth and Reality" an obligation not of record before there was an obligation of record. If the case should be one of those rare cases (I have not actually found one in the Reports since 1888, when Fry L.J. said that he knew of none) where it is legitimate to "go behind" a judgment entered after trial in court, there would be, I think, no alternative but to re-try the whole case. The matter to be decided is the existence or nonexistence of a debt antecedent to the judgment. It has been said on several occasions that the judgment is prima-facie evidence of the antecedent debt. But, when once the inquiry is undertaken, I think that the ultimate burden of proof rests on the person claiming to be a creditor. As Lord Esher M.R. said in In re Fraser; Ex parte Central Bank of London: "The existence of the judgment is no doubt prima-facie evidence of the existence of a debt; but still the Court of Bankruptcy is entitled to inquire whether there really is a debt due to the petitioning creditor". 26 Wren v Mahony (1972) 126 CLR 212 concerned an appeal by Mr Wren from a sequestration order made against his estate. Commencing at 221 Barwick CJ (with whom Windeyer and Owen JJ agreed) considered the place a judgment occupies in bankruptcy proceedings. After reviewing the authorities his Honour said at 224-225: …Rather, if one reads all his expressions in the several cases I have cited, he was pointing out that the Bankruptcy Court could in general accept a judgment debt as sufficient proof of that debt particularly where it resulted from a fully heard contest between parties but that it always had the power to go behind the judgment and if the case was a proper one, should do so. The judgment is never conclusive in bankruptcy. It does not always represent itself as the relevant debt of the petitioning creditor, even though under the general law, the prior existing debt has merged in a judgment. But the Bankruptcy Court may accept the judgment as satisfactory proof of the petitioning creditor's debt. In that sense that court has a discretion. It may or may not so accept the judgment. But it has been made quite clear by the decisions of the past that where reason is shown for questioning whether behind the judgment or as it is said, as the consideration for it, there was in truth and reality a debt due to the petitioning creditor, the Court of Bankruptcy can no longer accept the judgment as such satisfactory proof. It must then exercise its power, or if you will, its discretion to look at what is behind the judgment: to what is its consideration. It is not the law, in my opinion, that whether in any case the Court of Bankruptcy will consider whether there is satisfactory proof of the petitioning creditor's debt is a mere matter of its own discretion. Nothing in Corney v. Brien lends support for such a view. Rather the emphasis is upon the paramount need to have satisfactory proof of the petitioning creditor's debt. The Court's discretion in my opinion is a discretion to accept the judgment as satisfactory proof of that debt. That discretion is not well exercised where substantial reasons are given for questioning whether behind that judgment there was in truth and reality a debt due to the petitioner. 27 In other words, while a judgment is never conclusive in bankruptcy, a court exercising jurisdiction in bankruptcy has a discretion: it may accept the judgment as satisfactory proof of the petitioning creditor's debt but where a reason is shown for questioning whether behind the judgment there is in truth and reality a debt due, the court can no longer accept the judgment as satisfactory proof. In those circumstances the court must exercise its power or discretion to go behind the judgment. 28 In Emerson v Wreckair Pty Ltd (1992) 33 FCR 581 a Full Court of this Court considered when a court exercising jurisdiction in bankruptcy may "go behind" a judgment. That matter concerned an appeal from part of a judgment by which the primary judge dismissed the appellants' application for the bankruptcy notice served on them to be set aside. The bankruptcy notice was based upon a final judgment obtained by the respondent against the appellants in the District Court of Queensland after a contested hearing in which the parties were legally represented. The Court said at 587-588: It is not open to doubt that a court exercising jurisdiction in bankruptcy may, in an appropriate case, "go behind" a judgment and inquire whether it was founded on a real debt: Coney v Brien (supra); Wren v Mahony (1972) 126 CLR 212; Oliveri v Stafford (supra), per Beaumont J (at 422-423). Such a court, however, has no power to set aside a judgment but only to prevent the judgment creditor from having recourse to the provisions of the Bankruptcy Act: see Re Vitoria [1894] 2 QB 387; King v Henderson [1898] AC 720. As between the parties, the judgment remains unimpeached and may be enforced accordingly by whatever means may otherwise be available. In the present case, there had been a full hearing before the District Court at which the appellants and the respondent appeared and were legally represented. All the issues were carefully examined and judicially determined. This is not a case, like many of the cases in this area of the law, where judgment was entered in default of appearance or defence. There may be circumstances which justify, in a particular case, a review of the proceedings in another court which, after a hearing, have resulted in the entry of judgment against a debtor: see Wilkinson v Osborne (1915) 21 CLR 89. For example, if an allegation is made that a judgment has been obtained by fraud, it may be proper for a court exercising jurisdiction in bankruptcy to go behind the judgment to ascertain whether there is a real debt. But there is nothing in the facts of the present case that would have warranted this Court embarking on what would have amounted to a re-trial of the issues that had been determined after a contested hearing and which were the subject of an appeal to the Supreme Court of Queensland. That Court, not this Court, was the appropriate forum in which to review the correctness of the District Court judgment. … 29 In Xu v Wan Ze Property Development (Aust) Pty Ltd (in liquidation) (2014) 315 ALR 523 Robertson J considered whether bankruptcy notices which had been issued and served on the applicants, who were husband and wife, should be set aside. His Honour said at [55] that: This Court may, in an appropriate case, go behind a judgment to see whether in truth and reality a debt is due from the judgment debtor to the judgment creditor: Corney v Brien (1951) 84 CLR 343; Wren v Mahony (1972) 126 CLR 212. The power to go behind a judgment may be exercised on an application to set aside a bankruptcy notice: Olivieri v Stafford at 430-431 per Gummow J. Nevertheless, the power to go behind a judgment is not readily exercised if there has been a substantive hearing of the matter on its merits by the court in which the judgment was granted.

consideration 30 The three grounds of appeal raise a common issue for determination. In effect, they each challenge the primary judge's refusal to go behind the judgment. As a result, they can be dealt with together. 31 In his written submissions, the appellant submits that: (1) the Court of Appeal failed to deal with the substantive arguments put by the appellant in that Court in support of his amended grounds of appeal and no proper reasons for dismissing the appeal were given by the Court of Appeal; (2) the primary judge has adopted the findings of the Court of Appeal to support his own findings and has failed to give his "own independent reasons", has not taken "fully into account and into consideration all arguments advanced in the oral and written submissions made to him by the appellant" and did not take into account the evidence given by the respondent; (3) the respondent's affidavit evidence establishes that what is alleged in the statement of claim filed in the District Court Proceedings is false and that the only conclusion the evidence can lead to is that the judgment debt is "grounded on a false premise" and that there has "been a miscarriage of justice"; (4) the primary judge (and the Court of Appeal) misunderstood the appellant's complaint in relation to the pleadings and how that complaint was relevant to demonstrate that there was a failure to accord natural justice; (5) to the extent the primary judge found the appellant's submissions incomprehensible, it was open to him to seek clarification and that the rejection of the appellant's claims is based on the premise that the primary judge could not comprehend the substance of the argument being put. The appellant contends that the submissions were not hopelessly incomprehensible. 32 In oral submissions, the solicitor for the appellant submitted that the primary judge erred because he should have exercised his discretion to go behind the judgment as there was a miscarriage of justice occasioned by: (1) the failure on the part of the respondent to properly plead his case in the District Court Proceedings because in his statement of claim he pleaded an oral agreement when the agreement was partly oral and partly in writing; and (2) the District Court Judge misinterpreted the critical term of the agreement concerning the basis upon which a demand for repayment could be made. That is, the District Court Judge found that two of the three demands were valid but those demands were not sufficiently specific as they did not refer to the 90 days' notice and set out a date on which payment was required, having regard to that notice requirement 33 The solicitor for the appellant submitted that "going behind a judgment" requires a court to look at the evidence and to investigate, independently of the judgment, if there is a prima facie case which is supported by the judgment. The appellant contends that the "bankruptcy court" looks at the judgment on its own and does not consider whether the judgment which underpins a bankruptcy notice is right or wrong. It reaches its own decision on the basis of the material that is put to it. The primary judge could not simply adopt the judgments which underpinned the debt the subject of the bankruptcy notice, in this case, judgments of the District Court and the Court of Appeal. The primary judge was required to analyse and consider whether he was convinced that those Courts were correct. 34 The appellant's arguments are misconceived. As is demonstrated by the authorities set out above, the Court can, where appropriate, inquire into the consideration for or go behind a judgment. Where the Court is satisfied that there is a reason to question the truth and reality behind the debt then it will exercise its discretion to go behind the judgment to ascertain whether there is a real debt. The circumstances in which a court will go behind a judgement are limited. There must be shown to be fraud, collusion or a miscarriage of justice. Often a court will go behind a judgement where it has been obtained in default of appearance. 35 The primary judge was not satisfied that there was any basis on which he should exercise his discretion to go behind the judgment. While his reasons are shortly put, they do not ignore the grounds put by the appellant, as is contended. The primary judge set out the grounds of opposition and rejects them, having heard and made findings in relation to the evidence in support of those grounds, and considered the material. 36 I agree with the conclusion of the primary judge that there was no basis for him to exercise his discretion to go behind the judgment. The appellant contends that there was a miscarriage of justice which should lead the Court to go behind the judgment. In my opinion no miscarriage of justice is made out. 37 The first basis upon which the miscarriage of justice is said to arise is from the pleadings in the District Court. In particular the appellant contends that by the respondent pleading in the statement of claim that the loan agreement was oral, when it was partly oral and partly written, there was a miscarriage of justice. The issue of the form of the contract was clarified in a request for and answers to particulars. The appellant then admitted in his defence that the agreement was partly oral and partly in writing. The appellant was legally represented when he filed his defence. There can be no suggestion that the appellant was misled. The primary judge rejected the appellant's evidence that he signed his defence and affidavit on trust and did not know what was in them. 38 There can be no miscarriage of justice arising from the way in which the matter was pleaded in the District Court. The fact that the agreement was pleaded in one way and then the allegation of the form of the agreement clarified or changed by way of particulars does not, as the solicitor for the appellant contends, make the pleading misleading such that there was a miscarriage of justice. Ultimately the issues for determination in the District Court Proceedings were defined on the pleadings and by the parties and determined by the District Court Judge. 39 The second basis upon which a miscarriage of justice is said to arise is from the misinterpretation by the District Court Judge of the term of the agreement requiring 90 days' notice to be given for repayment of the loan. By this submission it seems that the appellant's real complaint is with the District Court's finding that two of the three demands made complied with the term. That is, the requirement for 90 days' notice to be given. That was a finding of fact made by the District Court Judge. Any challenge to the finding of fact or the interpretation of the agreement was properly made to the Court of Appeal. Such grounds were raised in the Court of Appeal. The appellant's appeal was dismissed by that Court. The alleged misinterpretation of that term of the agreement does not in my opinion amount to a miscarriage of justice. 40 The judgment on which the creditor's petition was based was obtained following a substantive hearing on the merits in the District Court of New South Wales. Both parties were represented at the hearing, the issues for determination were defined and agreed and judgment was given after a consideration of the issues. The appellant appealed to the Court of Appeal. Once again both parties were represented, the appellant was granted leave to amend his notice of appeal at the hearing and the appeal was dismissed after a substantive hearing. In my opinion there is nothing in the facts of this case to justify the exercise of the Court's discretion to go behind the judgment. There was no error in the approach of the primary judge in refusing to exercise his discretion to do so.

At a glance

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Judgment (9 paragraphs)

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Legislation Cited (4)

Cases Cited (7)