Nadarajapillai v Naderasa

the decision of the primary judge 10 Before the primary judge the appellant opposed the making of a sequestration order on the following grounds: (1) the statement of claim in the District Court was defective in that it relied upon an oral agreement whereas, in particulars provided later, it was asserted that the agreement was partly oral and partly in writing; (2) the Civil Procedure Act 2005 (NSW), the Civil Procedure Rules 2005 (NSW) and the Evidence Act 1995 (NSW) were not followed in the conduct of the hearing; (3) the applicant did not in fact make loans of the amounts under the contract as pleaded but only dressed up loans earlier made so that they appeared to have been made under a contract; and the trial judge's decision contained a number of errors, including that he ignored the evidence of the parties and based his judgment entirely on admissions apparently contained in the pleadings and concessions made by the defendant's counsel at the hearing. 11 The primary judge observed that very similar arguments were made by the appellant in the Court of Appeal and set out that Court's summary of the District Court Proceedings and its reasons for dismissing the appeal: see Naderasa at [4]-[6]. 12 The appellant relied on an affidavit affirmed by him on 12 June 2015 in which he denied that he was indebted to the respondent pursuant to the judgment of the District Court of New South Wales but did not explain why that was so. The appellant was cross-examined and the primary judge observed at [7] that the appellant was asked about the defence filed on his behalf in the District Court Proceedings which contained an admission about the borrowings. The appellant's evidence was that he signed the defence and his affidavit on trust but he did not know what was in them. The primary judge rejected that evidence. 13 The primary judge found that the appellant was represented by a solicitor and counsel in the District Court Proceedings and that, apart from the complaints made to the Court of Appeal about the quality of representation, there was no evidence to suggest that they did not act upon the instructions of the appellant in conducting those proceedings. The primary judge found that the appellant was evasive in giving answers under cross-examination and that, together with the lack of any detail in his evidence as to what he claimed to be the true situation, led the primary judge to conclude that the appellant was not truthful in his evidence. 14 The primary judge observed at [9] of his judgment that the appellant had failed to come to grips with the fact that he had conceded both the fact and the amounts of the loans made to him by the respondent and that there was no evidence before him that would support any conclusion that the concession was not properly made upon legal advice. 15 The primary judge refused to go behind the judgment of the District Court. The primary judge found at [11] that: There is no sufficient reason to question the existence of a real debt behind the judgment in this case. In particular, there is not a skerrick of evidence that the concessions and admissions made by the respondent before the District Court were induced by fraud or collusion or that there was a miscarriage of justice in the conduct of the proceedings in that Court. 16 The primary judge found that there was no reason to go behind the judgment which was the basis for the bankruptcy notice that was issued on 22 May 2014. The primary judge found that an act of bankruptcy was committed on 1 July 2014, the date on which an application to set aside the bankruptcy notice was dismissed, by the appellant's failure to pay the respondent the amount of $128,471.72. The primary judge was otherwise satisfied of the matters required by the Act to be established and observed that the appellant did not establish that he was able to pay his debts or that there were other sufficient reasons within s 52(2)(b) of the Act. Accordingly, the primary judge made a sequestration order against the estate of the appellant.

The notice of appeal 17 In his notice of appeal the appellant seeks an order that the sequestration order made by the primary judge be set aside. 18 The appellant raises three grounds of appeal. They are (as written): (1) The Orders of the Federal Circuit Court of Australia given on .,17 July 2015 ,,,Sydney New South Wales. be set aside on the ground that the sequestration order made by the Federal Circuit Court of Australia was wrong and incorrect in so far and in as much as there was no satisfactory proof of the petitioner creditor's debt. (2) The Federal Circuit Court of Australia was wrong and incorrect in concluding that there was no reason to question whether behind the judgment there was in truth or reality a debt due and owing as alleged for which he obtained his judgment and on which the Bankruptcy Notice is founded, when there was clear overwhelming evidence to the effect that in truth and reality, no debt was due and owing in respect of matters which formed the basis of the judgment and the Bankruptcy Notice. (3) The Courts judicial discretion to accept the judgment of the District Court as satisfactory proof of that debt was not well exercised and has thus resulted in miscarriage of justice.

Statutory framework 19 The Court's jurisdiction to make a sequestration order is found in s 43(1) of the Act. The Court may make a sequestration order on a petition presented by a creditor where a debtor has committed an act of bankruptcy and at the time of committing that act the debtor was personally present or ordinarily resident in Australia; had a dwelling-house or place of business in Australia; was carrying on business in Australia or was a member of a firm or partnership carrying on business in Australia by means of a partner or partners or of an agent or manager. 20 Section 44 of the Act sets out when a creditor's petition can be presented against a debtor. It relevantly provides: Conditions on which creditor may petition (1) A creditor's petition shall not be presented against a debtor unless: (a) there is owing by the debtor to the petitioning creditor a debt that amounts to $5,000 or 2 or more debts that amount in the aggregate to $5,000, or, where 2 or more creditors join in the petition, there is owing by the debtor to the several petitioning creditors debts that amount in the aggregate to $5,000; (b) that debt, or each of those debts, as the case may be: (i) is a liquidated sum due at law or in equity or partly at law and partly in equity; and (ii) is payable either immediately or at a certain future time; and (c) the act of bankruptcy on which the petition is founded was committed within 6 months before the presentation of the petition. … 21 Section 52 of the Act sets out the matters of which the court requires proof at the hearing of a creditor's petition and other matters relating to the proceedings on a creditor's petition. It relevantly provides: Proceedings and order on creditor's petition (1) At the hearing of a creditor's petition, the Court shall require proof of: (a) the matters stated in the petition (for which purpose the Court may accept the affidavit verifying the petition as sufficient); (b) service of the petition; and (c) the fact that the debt or debts on which the petitioning creditor relies is or are still owing; and, if it is satisfied with the proof of those matters, may make a sequestration order against the estate of the debtor. … (2) If the Court is not satisfied with the proof of any of those matters, or is satisfied by the debtor: (a) that he or she is able to pay his or her debts; or (b) that for other sufficient cause a sequestration order ought not to be made; it may dismiss the petition.

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.

dispositon 41 The appeal should be dismissed and the appellant ordered to pay the respondent's costs. I will make orders accordingly. I certify that the preceding forty-one (41) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Markovic.