Xu v Wan Ze Property Development

The proceedings in the Supreme Court of New South Wales 6 On 29 June 2012, judgment was given in the Supreme Court of New South Wales: In the Matter of Wan Ze Property Development (Aust) Pty Ltd [2012] NSWSC 722; (2012) 90 ACSR 593. The plaintiffs in those proceedings were Ms Hong Jiang (the second respondent in the proceedings before me), the company (the first respondent in these proceedings) and Mr Yongan Xie (the third respondent in these proceedings). Mr Yongan Xie and Ms Hong Jiang are husband and wife. The defendants in those proceedings were Mr Ren, Ms Xu (first and second defendants) (the two applicants in the proceedings before me), Mr Yi Cheng Jiang (third defendant) and Gloconnect Pty Ltd (fourth defendant). Neither Mr Yi Cheng Jiang nor Gloconnect Pty Ltd was a party in the proceedings before me, although Mr Yi Cheng Jiang gave evidence. 7 In broad terms the background was as follows. 8 Ms Hong Jiang and Mr Yongan Xie sought orders under s 237 of the Corporations Act 2001 (Cth) for leave to bring proceedings in the name of the second plaintiff, the company, in respect of certain allegations, substantive relief in respect of those allegations, orders in respect of oppression under s 233 of the Corporations Act, orders for the winding up of the company under s 461 of the Corporations Act and certain relief on Ms Hong Jiang's own account. 9 Ms Hong Jiang was a director and holder of 50% of the shares in the company. The other 50% interest in the company was owned by Gloconnect Pty Ltd. Mr Yongan Xie was also a director of the company. 10 In August 2008, Ms Hong Jiang, Mr Ren, Ms Xu and Mr Yi Cheng Jiang appear to have agreed that the company would purchase land at Baulkham Hills and develop it into twenty townhouses (or units) which would be sold. Ms Hong Jiang, Mr Yongan Xie and Mr Ren would each provide loan funding to the company which would also borrow moneys from a bank; and any profit from the venture would be distributed in agreed amounts. 11 In September 2008, the company entered into contracts to purchase the land at Baulkham Hills and on or about 18 September 2008 entered into a construction contract with a third party. It took out a bank loan in November 2008 and became the registered proprietor of the land on or about 1 December 2008. The construction of the townhouses began in January 2009 and was completed in October 2010. The company entered into contracts for the sale of 16 units in October 2010 and those sales were completed in December 2010. What became units numbered 5, 13, 16 and 20 remained. 12 In January 2011, the company transferred unit 16 in the Baulkham Hills development (unit 16) to Mr Yi Cheng Jiang for a stated purchase price of $485,000 which, it was alleged, was not paid. 13 In February 2011, the company transferred unit 20 in the Baulkham Hills development (unit 20) to Ms Xu for a stated purchase price of $520,000 which, it was alleged, was also not paid. 14 Justice Black found evidence of multiple withdrawals from the company's account. Ms Hong Jiang gave evidence, without objection, that inquiries made by her and Mr Yongan Xie and subpoenas issued to third parties indicated that payments of $278,348.22 had been made on 24 December 2010 and $300,000 on 31 December 2010 by the company to Mr Yi Cheng Jiang. Ms Hong Jiang's uncontested evidence was that she did not authorise the transfer of unit 16 to Mr Yi Cheng Jiang or the transfer of unit 20 to Ms Xu. 15 Justice Black held there had been a serious and prolonged non-compliance with the Court's orders by the defendants, including the applicants before me. On 13 June 2011, the defendants were ordered to provide verified lists of discovery by 13 June 2011 and they did not comply with that order. On 19 September 2011, the Supreme Court made a second order that they give verified discovery by 30 September 2011 and they also did not comply with that order. On that date, the defendants were directed to file any amended defence by 30 September 2011 and they did not do so. The defendants were also directed to serve evidence and they had not done so. 16 Justice Black found that the defendants had not sought to file any evidence in explanation of the defaults, nor had any suggestion been made that a short extension of time would lead to the result that a verified list of documents would be served, nearly 12 months after it had previously been required, or that affidavits would be served. 17 Justice Black addressed the application for summary judgment on the basis that the evidence which would be available at a final hearing was that evidence which had been filed by the plaintiffs. The question of summary judgment also needed to be approached, Black J said, on the basis that various areas where information was unknown to the plaintiffs, for example the identity of persons to whom payments were made by the company, reflected the fact that the defendants had failed to comply with orders made by the Supreme Court for discovery over an extended period and remained in breach of those orders when the application for summary judgment was heard. 18 The plaintiffs in the Supreme Court alleged that between 17 December 2010 and 18 February 2011, Mr Ren and Ms Xu approved a series of withdrawals of the company's funds to themselves, Mr Yi Cheng Jiang and various unknown parties, without the knowledge or authority of Ms Hong Jiang as a director of the company, without the company's authority and not for a proper purpose. The defendants had not led evidence to contest those allegations. 19 The plaintiffs sought orders that Mr Ren and Ms Xu, jointly and severally, pay to the company the amount of the payments made during the period between 17 December 2010 and 18 February 2011. Justice Black said the basis for that order was established where the relevant payments were made in breach of directors duties or breach of fiduciary duty, without the company's authority and not for a proper purpose, and the defendants had not led any evidence to suggest that any such payment was in fact for a proper purpose of the company. Although the defendants' solicitors had asserted, in correspondence, that several of those payments were for proper expenditures in relation to the development, the defendants did not seek to make good that assertion by evidence led in the proceedings or in the application heard in the Supreme Court. 20 The plaintiffs in the Supreme Court proceedings also sought a declaration that Mr Yi Cheng Jiang held unit 16 on trust for the company and that Ms Xu held unit 20 on trust for the company, and orders that Ms Xu and Mr Yi Cheng Jiang respectively do all things necessary to transfer title to the units to the company. The claim was founded on the basis that unit 16 was transferred to Mr Yi Cheng Jiang and unit 20 to Ms Xu for no consideration. That conclusion, Black J said in In the Matter of Wan Ze Property Development (Aust) Pty Ltd (in liq) [2013] NSWSC 189 at [14], could be supported on a number of bases, one of which was that amounts of money were not in fact paid by, or on behalf of, Ms Xu and Mr Yi Cheng Jiang, as distinct from by a third party or from the company's assets. The Supreme Court granted that relief. 21 On 19 July 2012 the Supreme Court of New South Wales made the following orders, so far as presently relevant, to give effect to the judgment of 29 June 2012, see In the Matter of Wan Ze Property Development (Aust) Pty Ltd (No 2) [2012] NSWSC 821: 1. … 2. Strike out the Defence filed by the Defendants pursuant to s 61 of the Civil Procedure Act 2005 (NSW) and UCPR r 12.7(2). 3. … 4. … 5. Declare that the First and Second Defendants acted in breach of their fiduciary duties owed to the Company as a director by causing or allowing a withdrawal to be made from the Company's bank accounts as set out in paragraph 35 of the Amended Points of Claim during the period between 17 December 2010 and 18 February 2011 without the authority of the Company and not for a proper purpose of the Company. 6. Declare that the Third Defendant acted in breach of his fiduciary duty owed to the Company as a director by causing or allowing a withdrawal to be made from the Company's bank accounts as set out in paragraph 35 of the Amended Points of Claim on 20 December 2010 without the authority of the Company and not for a proper purpose of the Company. 7. … 8. Order the First and Second Defendants, jointly and severally, to pay to the Company the sum of $2,364,995.70. 9. Order the Third Defendant, jointly and severally with the First and Second Defendants, to pay to the Company the sum of $10,000. 10. Declare that Unit 20, having Torrens Title Folio Identifier 20/SP84587, is held on a constructive trust by the Second Defendant in favour of the Company as sole beneficiary. 11. Order the Second Defendant to take all such steps as are necessary to transfer title in Unit 20 to the Company immediately and failing compliance, direct the Registrar to execute all documents on behalf of the Second Defendant required to effect such a transfer. 12. Declare that Unit 16, having Torrens Title Folio Identifier 16/SP84587, is held on a constructive trust by the Third Defendant in favour of the Company as sole beneficiary. 13. Order the Third Defendant to take all such steps as are necessary to transfer title in Unit 16 to the Company immediately and failing compliance, direct the Registrar to execute all documents on behalf of the Third Defendant required to effect such a transfer. 14. … 15. Orders that the Company be wound up. 16. … 17. … 18. … 22 Further proceedings were brought in the Supreme Court of New South Wales. Mr Ren, Ms Xu and Mr Yi Cheng Jiang sought leave under s 471B of the Corporations Act to bring proceedings against the company seeking to set aside the earlier judgment on the basis that it was procured by fraud or by conduct in bad faith by the plaintiffs in the earlier proceedings, Ms Hong Jiang and Mr Yongan Xie. 23 In a judgment delivered on 13 March 2013, In the Matter of Wan Ze Property Development (Aust) Pty Ltd (in liq) [2013] NSWSC 189, Black J ordered that the originating process and interlocutory process by which Mr Ren, Ms Xu, and Mr Yi Cheng Jiang sought that leave be dismissed. 24 Proceedings are now pending in the New South Wales Court of Appeal. There has been no application to stay the orders of the Supreme Court of New South Wales.

The interim applications 25 By interim applications filed on 6 September 2013 Ms Hong Jiang and Mr Yongan Xie sought the following orders in each matter, so far as presently relevant: 1. …. 2. A Declaration that the proceedings on the principal Application commenced by [each of the Applicants] … herein, and on the interim or interlocutory applications commenced by [him/her], were commenced and have been prosecuted in contravention of s. 471B of the Corporations Act, 2001. 3. …. 4. Orders that each of the said proceedings … and the said interim and interlocutory applications of [each of the applicants], be dismissed or permanently stayed as, (a) proceedings that are prohibited by section 471B of the Corporations Act; and/or (b) proceedings that are an abuse of process, and/or (c) proceedings that are being prosecuted by a contemnor. 5. Further to Order 4, Orders that the Orders made in [the proceedings] for extension of time for compliance with bankruptcy notices be discharged and set aside. 6. In the alternative, Orders that in each of proceedings … the questions: (a) whether the Applicant is estoppe[d] from alleging that the judgment on which the bankruptcy notice was procured by the fraud sought to be alleged by the Applicant in those proceedings, and (b) whether, further or in the alternative, it is an abuse of process for the Applicant to seek to maintain those allegations in those proceedings, and (c) whether there has in substance been judgment on the merits by the Supreme Court of New South Wales in respect of the subject matter of the judgment debt referred to in the bankruptcy notice, and (d) whether, if there has been an overstatement of the judgment by $14,000 as alleged in the alternative by the Applicant, that can be a sufficient basis for setting aside the bankruptcy notice, and (e) what relief or orders, if any, ought be made consequentially upon the answers to questions (a) to (d), be heard and determined separately from and before the hearing of the balance of the issues in those proceedings. 7. Further or in the alternative, Orders that each of proceedings … be summarily dismissed. … 26 Because these interim applications were filed in early September 2013 and heard in late September 2013 and the final hearing of the applications to set aside the bankruptcy notices was listed in October 2013, as I had warned the moving parties it was not possible to make orders disposing of the interim applications before the final hearing. 27 In consequence, the issues remaining are those that arise on the final hearing in relation to s 471B, abuse of process, contempt, estoppel and the question of a $14,000 overstatement. It is preferable to consider whether there has been, in the Supreme Court of New South Wales, judgment on the merits in the context of the applications to set aside the bankruptcy notices.

Section 471B of the Corporations Act 28 By a further amended application filed only on 18 October 2013, each of Mr Ren and Ms Xu sought an order nunc pro tunc pursuant to s 471B that leave be granted to commence and proceed with the present proceedings against the company. 29 Section 471B relevantly provides that while a company is being wound up in insolvency or by the Court a person cannot begin or proceed with: (a) a proceeding in a court against the company or in relation to property of the company; or (b) enforcement process in relation to such property; except with the leave of the Court and in accordance with such terms (if any) as the Court imposes. 30 The liquidator submitted that an application to set aside a bankruptcy notice is within the definition of a "proceeding". A Court is defined in s 58AA of the Corporations Act to include the Federal Court. "Property" is defined in s 9 of the Corporations Act to include any legal or equitable estate or interest. Further the definition in s 9 refers to a definition for the purposes of winding up generally, namely s 513AA. The company has a debt owing in the amount of $2,364,995.70 and clearly the debt amount was property of the company for the purposes of the Corporations Act. That being so, the liquidator submitted, s 471B was engaged. 31 The liquidator also submitted that the Court would grant leave, because to refuse such leave would result in Mr Ren and Ms Xu being precluded from exercising their legal right to challenge the bankruptcy notices. The liquidator referred to the question of terms on which leave may be granted. 32 In my opinion, assuming the leave of the Court is necessary, that leave should be granted so that the applicants may challenge the bankruptcy notices. I would not impose conditions on the grant of that leave. 33 I take into account that such leave was refused by the Supreme Court of New South Wales in In the Matter of Wan Ze Property Development (Aust) Pty Ltd (in liq) [2013] NSWSC 189 but that was for leave in respect of proposed proceedings seeking to set aside the earlier judgment in In the Matter of Wan Ze Property Development (Aust) Pty Ltd [2012] NSWSC 722; (2012) 90 ACSR 593 on the basis that it was procured by fraud or by conduct in bad faith of the plaintiffs in those proceedings (now being the second and third respondents before me). The present proceedings are applications to set aside bankruptcy notices. Plainly, each application under s 471B must be assessed by reference to the proceedings in fact proposed.

Abuse of process 34 Ms Hong Jiang and Mr Yongan Xie submitted that because the charge of fraud and, I assume, the charge of lack of good faith or bad faith had already failed when put directly in In the Matter of Wan Ze Property Development (Aust) Pty Ltd (in liq) [2013] NSWSC 189, the present applications attempted a collateral attack on that judgment. It was submitted that it was an abuse of process to propound charges inconsistent with that judgment. Ms Hong Jiang and Mr Yongan Xie referred to Arthur J S Hall & Co v Simons (a firm) [2002] 1 AC 615 at 706-707; Secretary of State of Trade and Industry v Bairstow [2004] Ch 1 at 16-17; Smith v Linskills (a firm) [1996] 1 WLR 763; Haines v Australian Broadcasting Corporation (1995) 43 NSWLR 404 at 410B, 415B. 35 In Arthur J S Hall & Co (a firm) v Simons [2002] 1 AC 615 at 702-703, Lord Hoffmann (Lord Hutton and Lord Millett agreeing) said: … the courts have a power to strike out attempts to relitigate issues between different parties as an abuse of the process of the court. But the power is used only in cases in which justice and public policy demand it … I agree with the principles upon which Lord Diplock said that the power should be exercised: in cases in which relitigation of an issue previously decided would be "manifestly unfair" to a party or would bring the administration of justice into disrepute. 36 Because the present proceedings are applications to set aside bankruptcy notices, the case is not simply a repetition of a previously failed application: compare Nominal Defendant v Manning (2000) 50 NSWLR 139 at 167 [124] to which I was referred by Ms Hong Jiang and Mr Yongan Xie. 37 The categories of abuse of process are not closed. Certain categories of conduct are referred to in Jeffery & Katauskas Pty Ltd v SST Consulting Pty Ltd (2009) 239 CLR 75 at [27]. Applying the expression used in Batistatos v Roads and Traffic Authority (NSW) (2006) 226 CLR 256 at 267 [14], the question is whether the proceedings are "seriously and unfairly burdensome, prejudicial or damaging" or "productive of serious and unjustified trouble and harassment"? 38 It is also relevant in my opinion that the fraud and bad faith allegations form only part of the basis on which the applicants seek to go behind the judgment on which the bankruptcy notices are founded. At best for the respondents it would be only the fraud and bad faith allegations which would be stayed. 39 In my opinion it is preferable in the present circumstances to deal with the allegations of fraud and bad faith without deciding whether or not there is abuse of process. I do so in my consideration of the applications to set aside the bankruptcy notices.

Estoppel 40 Ms Hong Jiang and Mr Yongan Xie submitted that Re Neal; Ex parte Neal v Duncan Properties Pty Ltd (1994) 123 ALR 614 was an instance of the ordinary law of issue estoppel applying in bankruptcy jurisdiction and that the applicants invited the Court to pronounce judgment inconsistent with the findings of the Supreme Court of New South Wales in the second case, which findings were essential to that Court's dismissal of the originating process. The applicants, Ms Hong Jiang and Mr Yongan Xie submitted, were estopped from again maintaining the same case; they had not raised any new charge of fraud or, I assume, bad faith and could not. Ms Hong Jiang and Mr Yongan Xie submitted that the applicants' liability for unauthorised transfers was a finding on which the Supreme Court in the first case decided the company should be wound up on the just and equitable ground. That unchallenged winding up order gave rise to a Blair v Curran (1939) 62 CLR 464 issue estoppel binding the applicants in favour of Ms Hong Jiang and Mr Yongan Xie who were each parties to it. Therefore there was no reason to look behind the judgment on any question of regularity: Re Ferguson; Ex parte E N Thorne & Co Pty Ltd (in liq) [1970] ALR 177 at 184; (1969) 14 FLR 311. 41 In my opinion, the claim of issue estoppel in relation to fraud and bad faith should be considered in light of the nature of the proceedings in In the Matter of Wan Ze Property Development (Aust) Pty Ltd (in liq) [2013] NSWSC 189, being an application for leave under s 471B of the Corporations Act to bring proceedings against the company seeking to set aside the judgment. Applying the approach of the Full Court in Makhoul v Barnes (1995) 60 FCR 572, the question is whether in the circumstances it is reasonable to regard the decision of the Supreme Court of New South Wales as a final determination of the issues of fraud and bad faith. In my opinion the preferable course is to proceed on the basis that the decision of the Supreme Court of New South Wales was not a final determination of the issues of fraud and bad faith in the circumstances and to assess the claims on their merits so far as relevant to applications to set aside bankruptcy notices. It is also relevant that this Court is hearing an application under the Bankruptcy Act 1966 (Cth). I distinguish Re Neal; Ex parte Neal v Duncan Properties Pty Ltd (1994) 123 ALR 614 as the other proceedings which founded the estoppel in that case were proceedings under the Bankruptcy Act. 42 In relation to the winding up order made by the Supreme Court, that is unchallenged. It gives rise to no issue in the present proceedings. In relation to what was described by counsel for Ms Hong Jiang and Mr Yongan Xie as the present applicants' liability for unauthorised transfers as found in In the Matter of Wan Ze Property Development (Aust) Pty Ltd [2012] NSWSC 722; (2012) 90 ACSR 593 operating as a Blair v Curran issue estoppel, in my opinion that estoppel is not made out since Black J referred in In the Matter of Wan Ze Property Development (Aust) Pty Ltd [2012] NSWSC 722; (2012) 90 ACSR 593 at [65] in an undifferentiated way in making the winding up order to "having regard to the matters to which I have referred above, including the exclusion of [Ms Hong Jiang] from the Company's management and the unauthorised payments and unauthorised transfers of property to which I have referred". Thus the matter of unauthorised transfers was not legally indispensable to the conclusion that the company be wound up. Further, in hearing applications under the Bankruptcy Act the preferable course in my opinion is to assess the claims on their merits so far as relevant to applications to set aside bankruptcy notices. Again, I distinguish Re Neal; Ex parte Neal v Duncan Properties Pty Ltd and do so for the same reason.

Contempt 43 The broad submission put by Ms Hong Jiang and Mr Yongan Xie was that each of the applicants was prima facie in contempt and should not be heard. Reliance was placed on KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189 per Beazley J (as her Honour then was). Reference was also made to Agricultural & Rural Finance Pty Ltd v Atkinson [2013] NSWSC 1066 at [33]-[37] per Stevenson J. 44 In KP Cable Investments Pty Ltd v Meltglow Pty Ltd at 206, Beazley J said there was no reason in principle, where there had been a breach of the court's orders, that the party in breach should be prevented from obtaining relief from the court and that the court had a discretion as to whether to hear such a party. Her Honour then referred to the possibility of a party being seriously prejudiced if there were an inflexible rule. See also the discussion by Lindsay J in Stokes (by her tutor Stokes) v McCourt [2013] NSWSC 1014 at [18] and following. 45 The factual foundation for the application that the applicants should not be heard related to an alleged breach of undertakings given to the Court by Mr Ren and Ms Xu on 5 December 2012 and renewed on 14 May 2013 in relation to the property of Gloconnect Pty Ltd at 109 Sutherland Street, Mascot. 46 In my opinion, for the purposes of the present proceedings it was not established to the requisite standard of proof that there had been a breach of the undertakings. 47 In any event, in my opinion, the better view is that the Court retains an overriding discretion to hear a party who is prima facie in contempt and I exercise that discretion so as to permit the applicants to be heard.

The question of a $14,000 overstatement 48 The applicants submitted there was an error contrary to their interests of $14,000 in the judgment sum awarded. The bankruptcy notices, it was submitted, both sought payment of an incorrect sum. The amount claimed exceeded or overstated the amount allegedly due. This was because, it was submitted, the judgment sum as ordered was said to be clearly wrong. For that reason, the applicant submitted, the bankruptcy notices were both invalid and a nullity. That submission, made in writing on 25 July 2013, was said to constitute notice to the creditor pursuant to s 41(5) of the Bankruptcy Act. 49 The liquidator submitted that a debtor may claim that a bankruptcy notice is invalid because the amount in the notice is overstated and may, pursuant to s 41(5), seek to give notice of that allegation. However a bankruptcy notice is not automatically invalidated if the amount claimed exceeds the correct sum due: Emerson v Wreckair Pty Ltd (1992) 33 FCR 581 at 587 and 589. There the Full Court said at 587 that the amount specified in the notice was the sum of the amounts stated in the judgment. Whatever pre-existing obligation there was between the parties merged in the new obligation created by that judgment. The amount due was the sum of the amounts stated in the judgment. The circumstance that the amount of the judgment was subsequently reduced was not to the point. In my opinion Emerson v Wreckair Pty Ltd answers this ground. 50 The liquidator further submitted that the first time that each applicant raised the misstatement in the bankruptcy notice (which was denied) was in written submissions dated 25 July 2013. The liquidator submitted that in the circumstances where each applicant was insolvent and unable to pay the judgment debt when it fell due irrespective of whether the amount was the amount of the judgment or the amount reduced by $14,000, which I find to be the case, there could be no misleading of the applicant by any overstatement. The liquidator referred to s 306 of the Bankruptcy Act and submitted there had been no "… substantial injustice … caused by the defect or irregularity" or "that the injustice cannot be remedied by an order of that court". 51 In my opinion, on the assumption that each application to go behind the judgment debt fails, which is the relevant assumption, no substantial injustice is made out and no injustice is made out that cannot be remedied by an order of the Court. It has not been established that the notice could reasonably mislead a debtor as to what is necessary to comply with the notice. I reject the submission on the part of the applicants that any overstatement in the judgment sum of $14,000 had the consequence that the bankruptcy notices were both invalid and a nullity: see Re Bedford; Ex parte H C Sleigh (Queensland) Pty Ltd (1967) 9 FLR 497 at 499; Cumins v Deputy Commissioner of Taxation (2008) 172 FCR 425 at [8]. Further, a mere claim that a judgment creditor would receive a lesser amount is not the basis on which the Court exercises its jurisdiction to set aside a bankruptcy notice: see Olivieri v Stafford (1989) 24 FCR 413 at 429-432 and Re Longo; Ex parte Longo (1995) 57 FCR 523 at 530. 52 Before leaving the interlocutory applications I should indicate my opinion that the costs of the interlocutory applications should be costs in the cause since, in effect, the hearing of the interlocutory applications was an early hearing of some of the respondents' contentions in the applications to set aside the bankruptcy notices.

The applications to set aside the bankruptcy notices 53 By a further amended application filed on 18 October 2013, each of Mr Ren and Ms Xu sought that their bankruptcy notice be set aside under s 30(1) and/or s 40(1)(g) of the Bankruptcy Act. 54 Those provisions are in the following terms: 30 General powers of Courts in bankruptcy (1) The Court: (a) has full power to decide all questions, whether of law or of fact, in any case of bankruptcy or any matter under Part IX, X or XI coming within the cognizance of the Court; and (b) may make such orders (including declaratory orders and orders granting injunctions or other equitable remedies) as the Court considers necessary for the purposes of carrying out or giving effect to this Act in any such case or matter. 40 Acts of bankruptcy (1) A debtor commits an act of bankruptcy in each of the following cases: … (g) if a creditor who has obtained against the debtor a final judgment or final order, being a judgment or order the execution of which has not been stayed, has served on the debtor in Australia or, by leave of the Court, elsewhere, a bankruptcy notice under this Act and the debtor does not: (i) where the notice was served in Australia - within the time specified in the notice; or (ii) where the notice was served elsewhere - within the time fixed for the purpose by the order giving leave to effect the service; comply with the requirements of the notice or satisfy the Court that he or she has a counter-claim, set-off or cross demand equal to or exceeding the amount of the judgment debt or sum payable under the final order, as the case may be, being a counter-claim, set-off or cross demand that he or she could not have set up in the action or proceeding in which the judgment or order was obtained; 55 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. 56 The reasoning of Gummow J in Olivieri v Stafford at 430-431 was founded on Wilkinson v Osborne (1915) 21 CLR 89 where it was successfully contended that the contract on which the judgment was founded was illegal. It is also to be noted that Wilkinson v Osborne was a case where, if that contention succeeded, as it did, no debt at all remained behind the judgment. 57 This Court does not have the power to set aside the judgment on which the bankruptcy notices are based, even if it does go behind the judgment. Of course, this Court is not hearing an appeal from the judgment on which the bankruptcy notices are based. Thus, as the Full Court pointed out in Emerson v Wreckair Pty Ltd at 587-588, the court exercising jurisdiction in bankruptcy 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. As between the parties, the judgment stands unimpeached until set aside by the Court which gave it: Re Vitoria; Ex parte Vitoria [1894] 2 QB 387, and the judgment may be enforced accordingly by whatever means may otherwise be available. Because the court of bankruptcy does not set aside the judgment, the expressions "going behind the judgment" or "going round the judgment" are used. 58 Corney v Brien concerned an appeal from an order sequestrating the estate of Mr Corney made by the Federal Court of Bankruptcy on a judgment obtained in default of appearance to a writ issued out of the Supreme Court of New South Wales. Section 56 of the Bankruptcy Act 1924-1950 (Cth) provided that the court at the hearing of a creditor's petition shall require proof of the debt of the petitioning creditor. Dixon, Williams, Webb and Kitto JJ said at 347-348: Under this provision the Court of Bankruptcy has undoubted jurisdiction to go behind a judgment obtained by default or compromise or where fraud or collusion is alleged and inquire whether the judgment is founded on a real debt. In Ex parte Kibble (1875) L.R. 10 Ch. 373, at p. 376 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" (1875) 10 Ch., at p. 378. This case was discussed and followed in Ex parte Lennox (1885) 16 Q.B.D. 315, 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" (1885) 16 Q.B.D., at p. 329. In In re Fraser (1892) 2 Q.B. 633, at pp. 637, 638 .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 (1813) 1 V. & B. 211, at p. 214 [35 E.R. 83, at p. 84] 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 (1921) 2 K.B. 593, at p. 603 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 (1929) 1 Ch. 125, at p. 127 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 (1942) 13 A.B.C., at pp. 48, 49; (1943) Q.S.R., at pp. 75, 76, 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." (Footnotes incorporated into the text) 59 The same judges, at 352-353 said: It is to be noted that in his reasons for judgment his Honour [the Federal Judge in Bankruptcy] does not refer to the freedom with which a Court of Bankruptcy goes behind a judgment obtained by default. He refers only to the court inquiring into the consideration for a judgment debt that has been obtained by fraud or collusion or where there has been some miscarriage of justice. 60 Fullagar J, in a separate judgment, after reviewing the history of the power in a court having jurisdiction in bankruptcy to "go behind" the judgment, said at 356-358: 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 … 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 non-existence of a debt antecedent to the judgment. … 61 The appeal was allowed unanimously. It was important to the reasoning that the judgment of the Supreme Court of New South Wales was obtained in default of appearance. 62 In Wren v Mahony the High Court by majority (Barwick CJ, Windeyer and Owen JJ; Menzies and Walsh JJ dissenting) allowed an appeal from a Federal Judge in Bankruptcy declining to go behind the judgment of the Supreme Court of New South Wales and making a sequestration order against Wren. 63 Again, the judgment was a judgment in default of a plea. No contested fact had been decided in the Supreme Court but it had been held that as a matter of law the deed between the parties had given rise in the undisputed circumstances recited in the petition to a debt due by the appellant to the respondent. The majority held that the amendment to the notice of intention to oppose so as to ask the Bankruptcy Court to go behind the judgment on the ground that it was a miscarriage of justice ought to have been allowed and an examination made of the question whether or not the debt claimed to be due to the respondent was due. The debt was claimed in the petition to arise out of the deed: it was not founded simply on the judgment. 64 Chief Justice Barwick, with whom Windeyer and Owen JJ agreed, reviewed the authorities as to the place a judgment occupies in bankruptcy proceedings. His Honour concluded at 224-5 that the emphasis was upon the paramount need to have satisfactory proof of the petitioning creditor's debt. The Bankruptcy Court's discretion was a discretion to accept the judgment as satisfactory proof of that debt. That discretion was not well exercised where substantial reasons were given for questioning whether behind that judgment there was in truth and reality a debt due to the petitioner. 65 Chief Justice Barwick at 229-230 held that the Bankruptcy Court ought not to have been satisfied that at the date of the lodgement of the petition the appellant owed a debt to the respondent for the sum stated in the petition or for any part thereof. The appeal was allowed and the order for sequestration set aside. 66 In Emerson v Wreckair Pty Ltd at 588 the Full Court said there had been a full hearing before the District Court of Queensland at which the appellants and the respondent appeared and were legally represented. All the issues were carefully examined and judicially determined. Their Honours continued: 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. The circumstance that the Supreme Court subsequently varied the judgment entered in the District Court, reducing it by the sum of $5,400, provides no support for the contention that this Court should have itself examined the correctness of the judgment. Nor, given the particular circumstances of this case, do any of the cases on which the appellants relied support the appellants' contention. We, therefore, agree with the conclusions reached by Pincus J that the discretion to go behind the judgment of the District Court should be exercised against the appellants and that, in consequence, the application to set aside the bankruptcy notice failed, though we do so on grounds different from those which his Honour embraced. We have some difficulty in seeing how, consistently with the conclusion that the court should not go behind the judgment, it was appropriate for his Honour to examine the correctness of the judgment and conclude that it was entered for too large a sum. We should add that we also have some difficulty with his Honour's reference to the circumstance that, if one did go behind the judgment and re-examine the matter, it would be found that there was a substantial debt due, "sufficient to support a bankruptcy notice". … 67 Before considering the specific grounds on which each applicant before me applied for their bankruptcy notice to be set aside I should explain the procedure which was adopted, although not with a view to recommending it as a precedent. Time not permitting the determination of a preliminary question, as to which in the context of a creditor's petition see Wolff v Donovan (1991) 29 FCR 480, each party put before me all the evidence on which they wished to rely, whether or not that evidence had been before the Supreme Court of New South Wales and whether or not that evidence would have been "fresh evidence" in a proceeding in the Supreme Court to set aside the first judgment for fraud or bad faith. I understood that this volume of evidence was filed so that if this Court was persuaded to exercise its power to go behind the judgment of the Supreme Court which founded the debt then, the whole matter being opened, the Court would have the necessary evidence. 68 As will appear, it has not been necessary for me to deal with the bulk of the evidence. Indeed, on the authority of Emerson v Wreckair Pty Ltd at 588 it would be inappropriate for me to do so. Consistently with my conclusion that the Court should not go behind the judgment, it is not appropriate for me to examine the correctness of the judgment with a view to concluding that it was entered for too large a sum.

Fraud 69 In my opinion, for the reasons which follow, so far as the allegation of fraud is concerned no good reason has been shown on the evidence to investigate the matter, applying the two steps referred to by the Full Court in Biritz v National Australia Bank Ltd (2002) 121 FCR 298 at 300. Despite the applicants having the opportunity to adduce evidence going to fraud, including by cross-examination, and without deciding whether or not that evidence was "fresh", as to which see Kirk v Ashdown [1999] FCA 522 at [16] per Kiefel J, cited with approval in Biritz v National Australia Bank Ltd (2001) 115 FCR 117 at [20] per Kenny J, no such good reason was established. No basis has been shown for the Court to go behind any order made in the Supreme Court on the ground that the order was obtained by fraud on the part of Ms Hong Jiang and Mr Yongan Xie as plaintiffs in those proceedings, or on the part of anyone else involved in the proceedings in the Supreme Court of New South Wales. Fraud has not been proved: Cabassi v Vila (1940) 64 CLR 130 at 147. 70 In this respect I refer to the evidence given before me by Ms Hong Jiang and Mr Yongan Xie and by their legal representatives. I accept their evidence. 71 I consider here the evidence of Ms Hong Jiang (the second respondent), the first plaintiff in the Supreme Court proceedings. I accept her evidence that she did not know that the consideration for unit 16 was $485,000 and that the $485,000 was paid on or about 7 January 2011. I accept her evidence that she knew there was an amount of money going into the account but that she did not believe that money was "for real". I accept her evidence that her state of mind was that Mr Yi Cheng Jiang had transferred $570,000 away and the incoming $485,000 did not explain much. 72 I refer to the evidence of Mr Yongan Xie (the third respondent), the other individual plaintiff in the Supreme Court proceedings. It was not established that he had been involved in any fraud in relation to the proceedings in the Supreme Court of New South Wales. 73 Mr Bin Xie, the son of Ms Hong Jiang and Mr Yongan Xie, gave evidence that from the bank statements obtained on 25 January 2011 he could tell that in December 2010 and January 2011 the present applicants and Mr Yi Cheng Jiang transferred a lot of money out. Mr Bin Xie gave evidence that in early January 2011, Mr Ren had told him that both Mr Ren and Mr Yi Cheng Jiang had been taking money away from the company account; Mr Ren $600,000 and Mr Yi Cheng Jiang $600,000 and Mr Ren had taken an extra $100,000. So "we" came to the conclusion that the money they used to purchase unit 16 and unit 20 was in fact the company's money. He said the bank statements also indicated that they transferred away the property payments including the loan. He said he noticed in the whole process of transactions they put some money in and then they took the money away again. I accept his evidence. It was not established that Mr Bin Xie had been involved in any fraud in relation to the proceedings in the Supreme Court of New South Wales. 74 I accept the evidence of Mr Cook of counsel who appeared for the plaintiffs in the Supreme Court of New South Wales that at the time of the hearing he did not know or have reason to believe that consideration had been paid for unit 16 or for unit 20. 75 I accept the evidence of Ms Annette Leung, solicitor for the plaintiffs in the Supreme Court of New South Wales, that in relation to units 16 and 20 and the issue of the payment of consideration she did not deliberately choose not to look at all relevant bank statements and entries in relation to the settlement of those properties on or about the dates of settlement so that she would not find out the truth or so that she would not find out that consideration might have been paid. I also accept her evidence that she did not shut her eyes to those statements because she did not want to find out that potentially consideration had been paid. 76 To the extent that the applicants submitted that the judgment was otherwise obtained by fraud, that is otherwise than in respect of unit 16 and unit 20, I reject that submission. 77 Looking at the states of mind at the time of the hearing in the Supreme Court of New South Wales in May 2012 it seems to me that a very significant factor is that requests for information from the present applicants about the transactions, including in respect of units 16 and 20, were sent by the plaintiffs, Ms Hong Jiang and Mr Yongan Xie, but were not answered. 78 The affidavit of Ms Annette Leung of 8 October 2013 sets out some of the history. 79 On 7 February 2011 a letter was sent to Mr Ren and Ms Xu alleging, amongst other things, that withdrawals of around $1.8 million had taken place between 24 December 2010 and mid-January 2011 without the knowledge or consent of Ms Hong Jiang and Mr Yongan Xie. The letter invited Mr Ren and Ms Xu to explain those transactions and sought an undertaking from them that they would not deal further with the company's assets without passing a directors' resolution. 80 No substantive response was received to that letter and an originating process was filed on 16 February 2011 in the Supreme Court of New South Wales. 81 On 21 February 2011 a restraining order was made in respect of assets of the company still in its possession and a number of procedural orders were made by consent. 82 On 18 March 2011 Ms Leung sent a letter to the solicitors for Mr Ren and Ms Xu demanding explanations of withdrawals of approximately $2,716,350 from 17 December 2010 to 18 February 2011. 83 Ms Leung deposed that in the course of the proceedings in the Supreme Court of New South Wales she made numerous attempts, through correspondence, and by obtaining orders for discovery, to obtain information from Mr Ren and Ms Xu concerning, amongst other things, the withdrawals particularised in paragraph 35 of the Further Amended Points of Claim and whether units 16 and 20 were paid for, and if so, whether they were paid for with the money of Ms Xu and Mr Yi Cheng Jiang. 84 Ms Leung deposed that apart from certain documents provided under cover of a letter dated 1 March 2011 from the solicitors for Mr Ren and Ms Xu and a partial response to her letter of 18 March 2011 received from those solicitors on 3 May 2011, each of which was in evidence before the Supreme Court of New South Wales on 24 May 2012, Mr Ren and Ms Xu did not offer explanations nor provide documents to explain: (a) whether or not Ms Xu had paid for unit 20; (b) if so, whether the alleged payment was from Ms Xu's own money as opposed to unauthorised withdrawals previously made from the company's accounts which Ms Hong Jiang and Mr Yongan Xie did not consent to nor were informed of; (c) whether or not Mr Yi Cheng Jiang had paid for unit 16; (d) if so, whether the alleged payment was from Mr Yi Cheng Jiang's own money as opposed to unauthorised withdrawals previously made from the company's accounts which Ms Hong Jiang and Mr Yongan Xie did not consent to nor were informed of; (e) to whom 13 specified amounts totalling some $2 million were paid and for what purpose. 85 Ms Leung deposed that the defendants in the Supreme Court of New South Wales proceedings did not comply with the discovery orders made in those proceedings and still had not done so. 86 A letter dated 15 May 2012 was sent to the present applicants setting out the contention of Ms Hong Jiang and Mr Yongan Xie that the transactions were conducted without their prior knowledge or consent and asking the present applicants to provide proof that the purchase consideration was paid in respect of each of the transactions and evidence of from where the funds were derived. No response was received. 87 I reject the submissions on behalf of the applicants that there was fraud on the part of Ms Hong Jiang and Mr Yongan Xie in the proceedings in the Supreme Court of New South Wales. I also reject the submissions that there was fraud on the part of the legal representatives of Ms Hong Jiang and Mr Yongan Xie in the proceedings in the Supreme Court of New South Wales. 88 It follows that even if this were a case where it was permissible to open up the allegation of fraud which had in substance been rejected by the Supreme Court of New South Wales in In the Matter of Wan Ze Property Development (Aust) Pty Ltd (in liq) [2013] NSWSC 189, that allegation and that ground fails.

Bad faith 89 As I understood the submission on behalf of the applicants, the claim of bad faith was founded on the claim of fraud which I have rejected and on the terms of s 237 of the Corporations Act which were, so far as relevant, as follows: 237 Applying for and granting leave (1) A person referred to in paragraph 236(1)(a) may apply to the Court for leave to bring, or to intervene in, proceedings. (2) The Court must grant the application if it is satisfied that: (a) it is probable that the company will not itself bring the proceedings, or properly take responsibility for them, or for the steps in them; and (b) the applicant is acting in good faith; … … That leave was sought and granted in In the Matter of Wan Ze Property Development (Aust) Pty Ltd [2012] NSWSC 722; (2012) 90 ACSR 593. 90 Having considered the matter for myself, I respectfully agree with the conclusions of the Supreme Court of New South Wales on this issue. At [13], Black J referred to Chahwan v Euphoric Pty Ltd t/as Clay & Michel (2008) 245 ALR 780 and to Showtime Management Australia Pty Ltd v Showtime Presents Pty Ltd [2008] NSWSC 618 at [77]. His Honour referred to relevant factors including whether Ms Hong Jiang honestly believed that a cause of action existed and had reasonable prospects of success and whether she was seeking to bring the action for a collateral purpose. Justice Black concluded at [14] that it was clear that Ms Hong Jiang and Mr Yongan Xie were acting in good faith. Ms Hong Jiang was a substantial shareholder in the company and Ms Hong Jiang and Mr Yongan Xie were substantial creditors of the company and a recovery of funds by the company would increase the value of their shares and increase the likelihood that the debt owed by the company to them would be repaid. There was no collateral purpose to be served by them in promoting the proceedings and they had acted diligently in their pursuit of the application under s 237 of the Corporations Act. His Honour found that the application was brought in good faith. 91 Without wishing to be taken to suggest that subsequent events may not throw light on whether an applicant is acting in good faith for the purposes of s 237(2)(b) of the Corporations Act, I reject the submission on behalf of the applicants that the provision imposes a continuing requirement as to the conduct of the proceedings, importing an obligation of full disclosure of matters that may be raised by another party to those proceedings in its defence, analogous to that which would apply in an ex parte application. I agree, with respect, with the reasoning of Black J in In the matter of Wan Ze Property Development (Aust) Pty Limited (in liq) [2013] NSWSC 189 at [99]-[101]. 92 I add that the proceedings before the Supreme Court of New South Wales in In the Matter of Wan Ze Property Development (Aust) Pty Ltd [2012] NSWSC 722; (2012) 90 ACSR 593 were not ex parte proceedings but, as I set out more fully below, Mr Ren and Ms Xu, the applicants before me, were legally represented in those proceedings but failed to give sufficient instructions to their legal representative in order successfully to resist the summary application. 93 I reject the submission that bad faith is evidenced by the circumstance that the Corporations Act s 237 application was heard and determined by the Supreme Court at the same time as the summary judgment application. 94 In my opinion Roach v B & W Steel Pty Ltd (1991) 23 NSWLR 110 does not assist the applicants. In the circumstances of that case the Court of Appeal said that a client could escape responsibility for the acts and omissions of his solicitor and barrister because neither was fully aware of the facts and that the knowledge of both would be imputed to the client but in my view, in the applications before me to set aside the bankruptcy notices, no relevant knowledge existed either on the part of Ms Hong Jiang and Mr Yongan Xie or on the part of their legal representatives in the proceedings in the Supreme Court of New South Wales.

Miscarriage of justice 95 This ground was submitted to relate to the combination of the matters relating to fraud and bad faith and the representation by Mr Terry Leung, solicitor. Because I have rejected the claims of fraud and of bad faith and in what follows I accept the evidence of Mr Terry Leung, I reject the submission that there was a miscarriage of justice in the proceedings in the Supreme Court of New South Wales.

Whether there has been judgment on the merits 96 There was no suggestion that the judgment in question of the Supreme Court was a default judgment. The judgment was, however, a summary judgment, the present applicants being represented in those proceedings by their then solicitor. The applicants submitted in this Court that the judgment of the Supreme Court of New South Wales had not been a judgment on the merits. 97 In my opinion whatever the categorisation of the circumstances in which the judgment was given in the Supreme Court of New South Wales the evidence of Mr Terry Leung, the solicitor for the present applicants in the proceedings in the Supreme Court of New South Wales, who was subpoenaed to give evidence before me by the liquidator, was compelling. His evidence, which I accept, was as follows. 98 Mr Leung was introduced to the present applicants by another client of his, commonly referred to as Mr Frank Yu. Mr Leung appeared at a number of directions hearings in respect of the claim made against his (former) clients in the Supreme Court of New South Wales. The instructions that he received for each of the directions hearings and for the substantive hearing in the Supreme Court were always received through Mr Frank Yu. At each of the meetings Mr Leung had with his former clients, some three or four, Mr Frank Yu was present also. At or after the first such meeting, when his former clients were present, Mr Leung was given a clear directive that in future instructions were to be obtained from Mr Yu. 99 Mr Leung said there was no evidence filed in the Supreme Court of New South Wales for the hearing on 24 May 2013 because he had sought instructions from Mr Yu as to the future conduct of the matter and the filing of evidence and he had repeatedly asked Ms Xu to provide him with information so that affidavit evidence could be filed but he, Mr Leung, was only given very limited instructions as to the contents. 100 Mr Leung said he had received a copy of a document headed "Affidavit" but he did not recall receiving a version of it that had been written in Chinese characters. It came through by email from Mr Yu and it was a response to an amended pleading. Mr Leung read that and asked for more information from Mr Yu as to how it should be formalised into an affidavit but he got no response and he did not get an explanation as to why there was no response. Mr Leung said that he made some 10 phone calls requesting more instructions. 101 He never received a spreadsheet which set out or attempted to set out any explanation of the financial transactions referred to in the pleadings. There were two or three handwritten pages as part of a small bundle of bank statements and invoices that he was supplied with and some part of the two or three handwritten pages was in Chinese, simply stating a date and the payee to certain transactions. He did ask for the financial information but apart from a limited response in about March 2011, he did not receive any other documents or information to answer the letters from the solicitors Austin Haworth & Lexon requesting information. 102 In relation to the townhouses unit 16 and unit 20 and to Mr Ren's assertion and Ms Xu's assertion that they had paid for those units, Mr Leung said that he tried to seek instructions from Ms Xu as to the nature of the payment and how they paid for the two units and the only response he got from them repeatedly was "yes, I got a loan for it". He then asked for further information as to when the money was drawn down from the loan and whether that money was paid into the company account and he was never given any more information. He asked Ms Xu for the paperwork in relation to those things and the paperwork was never provided to him. 103 As to why the orders that were made for discovery were not complied with, Mr Leung said he had provided the documents that were given to him by Mr Ren and Ms Xu. He had pressed for further documents and none were provided to him for production. Mr Leung said that he had warned his former clients and Mr Yu as to the consequences of not filing evidence or complying with discovery orders and it appeared to him that Mr Yu understood and made it clear that he would relay that advice to Mr Ren and Ms Xu. 104 Mr Leung said there were instructions given to him, I infer by Mr Yu, for the purposes of the hearing on 24 May 2013. Mr Ren and Ms Xu were not in Australia and Mr Yu told Mr Leung to expect a call from Mr Ren's daughter but he did not receive such a call. Discussions with counsel for the then plaintiffs about possible settlement were relayed to and from Mr Yu. Subsequent to the hearing in the Supreme Court of New South Wales Mr Leung sought instructions by way of email and instructions were received from Mr Yu. 105 Mr Leung said that he had advised his then clients, Mr Ren and Ms Xu, that if the matter was to be defended he recommended briefing counsel. There was a message at that point saying "we do not want counsel involved". That message was given through Mr Yu in Mr Ren's presence. 106 I accept this evidence although I also find that Mr Leung did not have file notes of telling Mr Frank Yu or Mr Ren or Ms Xu that if they did not file a list of documents their defence could be struck out or that summary judgment may be given. 107 I do not accept the evidence of the applicants before me that they did not have adequate legal representation in or in relation to the proceedings in the Supreme Court of New South Wales. In my opinion they had the opportunity to participate in the proceedings and should be taken to have chosen not to do so more fully. I note the evidence of Mr Ren given in cross-examination that he had a number of meetings with Mr Terry Leung and that he authorised Mr Frank Yu to give instructions to Mr Leung in relation to the Supreme Court proceedings on his, Mr Ren's, behalf and on behalf of his wife, Ms Xu. Mr Ren accepted that when Mr Leung attended hearings he was attending on behalf of himself and Ms Xu. 108 It follows that the matters referred to in Mr Ren's affidavit affirmed on 6 September 2012 as to his legal representation in the Supreme Court must be read in light of the evidence that communications were made through Mr Frank Yu. As I have said, I accept the evidence of Mr Terry Leung and prefer that evidence to the evidence of Mr Ren where there is a conflict. Of particular concern is that Mr Ren's affidavit evidence on this issue does not refer to the authority Mr Ren gave to Mr Frank Yu, which Mr Ren accepted in cross-examination. 109 I note that Ms Xu accepted in cross-examination that she went to the Supreme Court of New South Wales with Mr Leung and she also accepted that before November or December 2011 Mr Leung had either told her directly or indirectly through Mr Yu that she needed to prepare some evidence for the case. I note also that she said in evidence she did not give authority that Mr Leung could liaise with Mr Frank Yu on her behalf but she did accept, in answer to a question whether her husband directed her to use Mr Leung as her solicitor in the Supreme Court proceedings, that it was through Mr Frank Yu that she got in touch with Mr Leung. 110 No affidavit by Mr Frank Yu was filed or read and he was not called to give evidence before me. This makes it very difficult to conclude that the applicants before me were not adequately legally represented in the proceedings in the Supreme Court of New South Wales, either at all or so as to found a conclusion that there was a miscarriage of justice. It appears that Mr Frank Yu was a friend and colleague of Mr Ren and a person he trusted. As I have said, I do not accept the evidence of the applicants that they did not have adequate legal representation in or in relation to the proceedings in the Supreme Court of New South Wales. 111 I note that Mr Yi Cheng Jiang, in his affidavit of 6 September 2012, also referred to the question of his legal representation in the Supreme Court of New South Wales. Since he was not a party to the proceedings before me I assume this evidence was directed to corroborating the evidence of the applicants before me as to their dealings with Mr Terry Leung. I note that in cross-examination Mr Terry Leung said that his communication with Mr Yi Cheng Jiang had always been through Mr Frank Yu and that he got his instructions in relation to Mr Yi Cheng Jiang from Mr Frank Yu. As I have said, I accept the evidence of Mr Terry Leung.

Whether otherwise there are substantial reasons for questioning whether there is a debt due to the company 112 I shall assume in favour of the applicants that this ground was pressed by them even in the absence of fraud, bad faith or a miscarriage of justice. 113 This submission on behalf of the applicants was founded on the contention that they were at all times authorised to pay project expenses without reference to the company and the further contention that in relation to repayments of loans there was an agreement between the applicants and Ms Hong Jiang and Mr Yongan Xie that loans could be repaid from the proceeds of sale of the townhouses as they were received, again without reference to the company. The applicants submitted that, with the exception of some limited items, all of the entries which constituted the claim before Black J were either repayments of loans to or on behalf of the applicants or their company Gloconnect Pty Ltd and the remaining director Mr Yi Cheng Jiang or payments of expenses related to the company's development to third parties. 114 The applicants' case on authority had two sources, one was in what was said to be the common understanding of the parties as revealed in certain draft points of claim and the other was in conversations which Mr Ren said occurred in October 2010 and December 2010. 115 In my opinion the applicants have not established that there was an agreement or understanding which authorised them to distribute money to themselves without reference to the company. Neither have the applicants established that there were conversations in October or December 2010 so authorising them. I do not accept the evidence of Mr Ren in this respect, which I find to have been given in an unconvincing manner and to be inherently improbable. The evidence of Ms Xu on these matters was of no substance. I prefer the evidence of Ms Hong Jiang and Mr Yongan Xie. In particular I do not accept the evidence of Mr Ren that Mr Yongan Xie said in the course of the December 2010 meeting that he was short of $30,000. The applicants have not persuaded me that, therefore, there are substantial reasons for questioning whether there is a debt due to the company. 116 Once the applicants' contentions as to authority fail, as I have held they do, it becomes unlikely that substantial reasons are made out for questioning whether there is a debt due by them to the company. For completeness however I turn to consider briefly the items listing the entries which constituted the claim before Black J. 117 The evidence on behalf of the applicants, particularly the evidence of Ms Xu, did not persuade me that there are substantial reasons for questioning items 1, 2, 3 or 4. As to items 5 and 6, I am not persuaded that the payments of those amounts were authorised by the company and that there are therefore substantial reasons for questioning these items. Item 7, withdrawn on 31 December 2010, was said to be a repayment of a loan made at the end of 2009 by Mr Yi Cheng Jiang. I am not persuaded that that repayment was made with the authority of the company. Item 8, also dated 31 December 2010, was said to be a payment of interest of that amount to the brother of Mr Yi Cheng Jiang. Again, I am not persuaded that that payment was made with the authority of the company. Item 9, another amount of $300,000, was said by the applicants to be double counting and not relevant and I do not therefore consider it. Item 10 was in an amount of $10,000 and was said to be referable to landscaping. I am not persuaded of the authenticity of the transaction, particularly in the context of a lump sum building contract. Item 11 was in an amount of $20,000 and was said to be the repayment of a loan by Ms Xu but I am not persuaded by her evidence in this respect. Item 12, in the amount of $570,000 on 11 January 2011, was, according to the evidence of Ms Xu, transferred by internet transfer to her nephew, Mr Wang Xu. I am not persuaded that this payment was authorised. Item 13 is referable to the question of authority about which I am not persuaded by the applicants. Item 14 depends on the evidence particularly of Mr Ren and I am not persuaded that Mr Ren advanced that money to the company. Item 15 concerned the relatively small amount of $2,200 about which there were inconsistencies in the evidence and in relation to which, therefore, I am not persuaded that there are substantial reasons for questioning it. As to item 16, in the amount of $410,000, I am not persuaded that this was a contribution by Gloconnect Pty Ltd and thus that there are substantial reasons for questioning this item. Given the multitude of transactions, in the absence from the evidence of a cogent and comprehensive analysis of them, I have not been persuaded by the applicants' focus on individual entries.

Conclusion 118 I have referred above to the principles to be derived from Corney v Brien and Wren v Mahony. It is to be noted that both those cases involved a creditor's petition and the making of a sequestration order. The present applications are, by contrast, to set aside the bankruptcy notices. In Boglari v Coadys (a firm) (Receiver and Manager Appointed) [2009] FCA 1398, relied on by the applicants, Gray J at [12] seems to have reasoned that the principles referred to by North and Finkelstein JJ in JoossÉ v Commissioner of Taxation (2004) 137 FCR 576 at [3] with reference to Wren v Mahony at 224-225, were directly applicable in an application to set aside a bankruptcy notice. However, as their Honours explained in JoossÉ v Commissioner of Taxation, what underlay their approach was the consideration that a sequestration order should not be made on the petition of a person who is not a real creditor. I would not follow Gray J in this respect. I prefer the opinion of Hill J in Re Athans; Ex parte Athans (1991) 29 FCR 302 at 310. See also Re Briggs; Ex parte Briggs v Deputy Commissioner of Taxation (WA) (1986) 12 FCR 310 at 312 per Toohey J, cited with approval by Spender J in Re Hutchins; Ex parte Wall [1998] FCA 581. 119 I briefly consider other cases referred to by the applicants in this respect. Commonwealth Bank of Australia v Jeans (2005) 219 ALR 22 was also a case of a creditor's petition. Furthermore, no relevant principle was established, the only question being whether an order should be made for the separate determination of the question as to whether the Court should go behind the Federal Court judgment. Re Pinkerton; Ex parte BG Textiles Pty Ltd (in liq) (1984) 4 FCR 64 also concerned a petition for the making of a sequestration order, although in that context it also involved an attack on the bankruptcy notice itself. Bourke v Beneficial Finance Corporation Ltd (1993) 47 FCR 264; (1993) 124 ALR 716 was an appeal from a sequestration order, as was Wolff v Donovan (1991) 29 FCR 480. 120 At the risk of unnecessary repetition, the broad underlying principle in those cases is that before 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: Ahern v Deputy Commissioner of Taxation (Qld) (1987) 76 ALR 137 at 147-148. That is not the position where the nature of the proceeding is a bare attack on a bankruptcy notice. 121 Further, the present case does not concern a judgment obtained by default or compromise and, although fraud is alleged, I have found there to be no basis on which that allegation should be sustained in these proceedings. Equally I have found no basis for the allegation of bad faith or miscarriage of justice. 122 Also relevant is the discussion in Emerson v Wreckair Pty Ltd. The difference between that case and the present case is that there the Full Court found that there had been a contested hearing or a full hearing before the District Court of Queensland. In the present case, as I have held, Mr Ren and Ms Xu could have, but did not, participate fully in the proceedings which resulted in the judgment in In the Matter of Wan Ze Property Development (Aust) Pty Ltd [2012] NSWSC 722; (2012) 90 ACSR 593. 123 I note further that even in matters involving sequestration, the Court will not inquire as a matter of course into the validity of a judgment debt: Simon v O'Gorman (1979) 41 FLR 95 at 111 per Lockhart J. 124 Although I accept that the Court has jurisdiction on an application to set aside a bankruptcy notice to go behind the judgment on which the bankruptcy notice is founded, I am not persuaded so to proceed in the circumstances of this case. 125 First, I have rejected the claims of fraud, bad faith and miscarriage of justice. 126 Second, unlike Wilkinson v Osborne, the application to impeach the judgment of the Supreme Court of New South Wales is not founded on a question of law but on a consideration of detailed and disputed evidence. 127 Third, proceedings for leave to appeal from the judgments of the Supreme Court of New South Wales are pending in the New South Wales Court of Appeal. 128 Fourth, the judgment sought to be impeached was not a default judgment although it was a summary judgment given in the circumstances which I have set out in detail above. Of particular significance in this respect is the evidence of Mr Terry Leung, which I have accepted, as to the circumstances in which he had tried and failed to obtain from his then clients, the present applicants, documents to produce on discovery and evidence to meet the claims of the plaintiffs in the Supreme Court proceedings. The relevant consequence is that the present applicants seek to go behind the judgment which gave detailed consideration to the claims on the basis of evidence which was limited by reason of their failure to participate which should be attributed, on the evidence before me, to the present applicants as defendants in the Supreme Court. 129 Fifth, I am not satisfied that substantial reasons other than fraud, bad faith or miscarriage of justice have been shown for questioning whether behind the judgment there was in truth and reality a debt due to the company. 130 Sixth, the emphasis of the applicants' case before me was in relation to the transfer of unit 16 and unit 20. The judgment debts on which the bankruptcy notices were founded were not so based. As set out above, those orders reflected the amount of the payments made during the period between 17 December 2010 and 18 February 2011. As I have said, I am not satisfied that reason has been shown for questioning whether behind the judgment there was in truth and reality a debt due to the company. 131 In my opinion, speaking generally, the jurisdiction to go behind a judgment on a bare application to set aside a bankruptcy notice, that is apart from an attack on a bankruptcy notice as part of a debtor's resistance to the making of a sequestration order, will most often be apt to be exercised after the exhaustion of remedies in the court in which the judgment was given, including any appeal, and where a dispositive question of law could be decided by the court exercising jurisdiction under the Bankruptcy Act. Except in a clear case, questions of fraud, collusion, lack of good faith and miscarriage of justice, or whether substantial reasons have been shown for questioning whether behind the judgment there was in truth and reality a debt due to the judgment creditor, are more apt to be dealt with after the exhaustion of those remedies and where the Court is dealing with an application to make a sequestration order against the estate of the debtor. No doubt the circumstances in which the Court will go behind a judgment cannot be formulated precisely.

Orders 132 For these reasons the applications to set aside the bankruptcy notices are dismissed. I will hear the parties on any consequential orders that may be necessary and in relation to costs. I certify that the preceding one hundred and thirty-two (132) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Robertson.