Barodawala v Perinparajah

[2022] VSCA 198

SUPREME COURT OF VICTORIA

COURT OF APPEAL

S EAPCI 2022 0050

ISMAIL BARODAWALA	Applicant
v
SUJEETHA PERINPARAJAH	Respondent

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JUDGES:	KYROU, SIFRIS and WALKER JJA
WHERE HELD:	Melbourne
DATE OF HEARING:	5 August 2022
DATE OF JUDGMENT:	16 September 2022
MEDIUM NEUTRAL CITATION:	[2022] VSCA 198
JUDGMENT APPEALED FROM:	[2022] VSC 247 (Garde J)

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BANKRUPTCY AND INSOLVENCY – In 2011 applicant obtained judgment under s 82 of Trade Practices Act 1974 (Cth) against respondent for being knowingly concerned in her company’s misleading or deceptive conduct – Respondent bankrupt in 2012 and discharged from bankruptcy in 2015 – In 2020 applicant sought to enforce judgment – Whether judgment debt not discharged on basis it was ‘a debt incurred by means of fraud’ under Bankruptcy Act 1966 (Cth) s 153(2)(b) – Whether findings regarding falsity of representations in 2011 reasons for judgment constituted findings of fraud even though fraud not pleaded or argued – 2011 judgment debt not ‘a debt incurred by means of fraud’ – Leave to appeal granted, appeal dismissed – Banque Commerciale SA (in liq) v Akhil Holdings Ltd (1990) 169 CLR 279; Yorke v Lucas (1985) 158 CLR 661; Paper Products Pty Ltd v Tomlinsons (Rochdale) Ltd(1994) ATPR 41-315 considered – Trade Practices Act 1974 (Cth) ss 52, 75B(1), 82; Bankruptcy Act 1966 (Cth) ss 82(1), 149(4), 153.

BANKRUPTCY AND INSOLVENCY – Whether if applicant’s original claim under Trade Practices Act 1974 (Cth) constituted ‘a debt incurred by means of fraud’ that character ceased upon judgment being entered in 2011 due to doctrines of merger by judgment and res judicata – Judge held on basis of Power v Kenny [1977] WAR 87 that doctrines of merger by judgment and res judicata had this effect – Consideration of text, context and purpose of Bankruptcy Act 1966 (Cth) s 153(2)(b) and consequences of competing interpretations – Consideration of comparative authorities from United Kingdom and Canada – Doctrines of merger by judgment and res judicata did not mean debt was not ‘incurred by means of fraud’ – No implied restriction in operation of section based on principles relating to finality in litigation – Power v Kenny wrongly decided and should no longer be followed.

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Counsel
Applicant:		Mr AM Dinelli with Mr A Terzic
Respondent:		Ms A Carruthers
Solicitors
Applicant:	CAV Law
Respondent:	Hutchinson Legal

KYROU JA
WALKER JA:

1. This matter concerns the proper construction and application of s 153(2)(b) of the Bankruptcy Act 1966 (Cth). Section 153 relevantly provides as follows:

   153 Effect of discharge

   (1)Subject to this section, where a bankrupt is discharged from a bankruptcy, the discharge operates to release him or her from all debts (including secured debts) provable in the bankruptcy, whether or not, in the case of a secured debt, the secured creditor has surrendered his or her security for the benefit of creditors generally.

   …

   (2)      The discharge of a bankrupt from a bankruptcy does not:

   …

   (b)release the bankrupt from a debt incurred by means of fraud or a fraudulent breach of trust to which he or she was a party or a debt of which he or she has obtained forbearance by fraud; ….

2. In 2010 the applicant, Mr Barodawala, sued the respondent, Ms Perinparajah, in the New South Wales Supreme Court (‘NSW proceeding’). He alleged that in 2008 she had engaged in misleading or deceptive conduct in breach of s 52 of the Trade Practices Act 1974 (Cth) (‘TPA’) and/or s 42 of the Fair Trading Act 1987 (NSW) (‘FTA’).[1] He also alleged, in the alternative, that she had been knowingly concerned in the misleading or deceptive conduct of Sterco International Pty Ltd (‘Sterco’),[2] a company of which she was the sole director and shareholder. Additionally, he alleged that she had breached s 588G of the Corporations Act 2001 (Cth), which deals with the duty of a director to prevent insolvent trading by a company; and he sought compensation in relation to that breach under s 588M of the Corporations Act. He made no express allegation of common law or equitable fraud.

   [1]The points of claim referred to s 41 of the FTA, but this must be understood as a reference to s 42. Mr Barodawala also alleged breaches of other sections of the TPA and the FTA, but it is not necessary to consider those allegations further.

   [2]This was an allegation that Sterco had contravened the TPA and that Ms Perinparajah had been ‘involved in the contravention’ within the meaning of s 75B of the TPA.

3. Ms Perinparajah filed a defence and an affidavit, but did not appear at the hearing. Her defence was struck out and her affidavit was not read. Nonetheless, the Court did not enter default judgment; it conducted a hearing of Mr Barodawala’s claim at which it heard evidence. In 2011, Ball J found that Ms Perinparajah had made representations to Mr Barodawala concerning the delivery of a quantity of steel pursuant to a contract between Mr Barodawala and Sterco, that Sterco never had the intention to deliver that quantity of steel, and that her representations were false.[3] The Court entered judgment against Ms Perinparajah in the sum of $127,591.90 (‘NSW judgment’). It also ordered Ms Perinparajah to pay Mr Barodawala’s costs. In March 2012, Mr Barodawala registered the NSW judgment in Victoria.

   [3]Re Sterco International Pty Ltd (in liq) [2011] NSWSC 1560 (‘NSW Reasons’).

4. In April 2012, Ms Perinparajah entered bankruptcy. In November 2012, the trustee in bankruptcy admitted Mr Barodawala to vote in the amount of approximately $253,000 (reflecting the judgment debt and costs). Mr Barodawala received his petitioning creditor’s costs as a priority in the bankruptcy. However, it appears that he did not receive any amount referable to the judgment debt.

5. On 18 May 2015, Ms Perinparajah was discharged from bankruptcy by operation of s 149(4) of the Bankruptcy Act.

6. In March 2020, Mr Barodawala sought leave to enforce the NSW judgment against Ms Perinparajah by way of warrant of execution.[4] Leave was granted in April 2020 and a warrant was issued in July 2020. In March 2021, Ms Perinparajah sought to set aside the warrant on the basis that she had been released from her provable debts by reason of her discharge from bankruptcy. Mr Barodawala submitted that Ms Perinparajah’s debt to him was incurred by means of fraud and thus s 153(2)(b) applied, such that Ms Perinparajah was not released from the debt. In July 2021 a judicial registrar rejected Mr Barodawala’s submissions and set aside the warrant.[5]

   [4]Leave to issue the warrant was required because more than six years had elapsed since the judgment took effect: Supreme Court (General Civil Procedure) Rules 2015, r 68.02(1)(a) (‘SCV Rules of Court’).

   [5]Barodawala v Perinparajah [2021] VSC 387.

7. Mr Barodawala appealed from the decision of the judicial registrar to a judge in the Trial Division on the basis that Ms Perinparajah’s debt to him was incurred by means of fraud and thus s 153(2)(b) applied. The primary judge dismissed that appeal, on the following two bases:

   (a)Mr Barodawala’s claim and cause of action had merged in the NSW judgment and become res judicata, so that s 153(2)(b) was not engaged (following Power v Kenny,[6] a 1977 decision of a single judge of the Supreme Court of Western Australia); and

   (b)there was no debt incurred by means of fraud because no finding of fraud at common law or in equity was considered or made in the NSW proceeding.[7] 

   [6][1977] WAR 87.

   [7]Barodawala v Perinparajah (No 2) [2022] VSC 247, [81] (‘Reasons’).

8. Mr Barodawala now seeks leave to appeal from the primary judge’s decision on two proposed grounds:[8]

   (a)Ground 1: The primary judge erred in concluding that, because Mr Barodawala’s claim and cause of action had merged in the NSW judgment, there was no ‘debt incurred by means of fraud’ within the meaning of s 153(2)(b). By this ground Mr Barodawala contended that Power v Kenny was wrongly decided and should not be followed.

   (b)Ground 2: The primary judge erred in concluding that, because no finding of fraud at common law or in equity was considered or made in the NSW proceeding, there was no ‘debt incurred by means of fraud’ within the meaning of s 153(2)(b).

   [8]For convenience, the proposed grounds are referred to in our reasons as grounds.

9. The applicant accepted that he needed to succeed on both grounds in order to succeed in his proposed appeal.

10. For the reasons that follow, we would reject ground 2. It follows that Mr Barodawala’s proposed appeal cannot succeed. However, it is nonetheless appropriate for us to express our opinion on ground 1, in light of the importance of the issue and the fact that the point was fully argued before us. In our opinion, Power v Kenny was wrongly decided and ought not be followed. For that reason we would grant leave to appeal; but, in light of our conclusion on ground 2, we would dismiss the appeal.

GROUND 2

1. It is convenient to begin with ground 2, which is directed to whether the particular debt in issue in this proceeding — being the debt arising from the NSW judgment — was a ‘debt incurred by means of fraud’. We note at the outset that the case for Mr Barodawala on the appeal was that the debt in question was incurred by actual fraud, as revealed by the NSW Reasons.

The NSW proceeding

1. In order to address this ground, it is necessary to deal in some length with the NSW proceeding.

   Mr Barodawala’s claims and pleadings in the NSW proceeding

2. It is important to note the nature of the claims Mr Barodawala made in the NSW proceeding.

   (a)First, Mr Barodawala alleged that Ms Perinparajah was liable to pay compensation under s 588M of the Corporations Act because she knew that there were grounds for suspecting that Sterco was, or would become, insolvent at the time it incurred the debt to him.

   (b)Secondly, Mr Barodawala sought damages under s 82 of the TPA on the basis that he had been induced to enter into the contract with Sterco by misleading or deceptive conduct on the part of Sterco, and that Ms Perinparajah was a person involved in that contravention within the meaning of s 75B of the TPA and consequently was also liable to pay damages under s 82.

   (c)Thirdly, Mr Barodawala sought damages against Ms Perinparajah for a contravention of s 42 of the FTA.

3. We pause to note that s 82 of the TPA relevantly provided for damages to be awarded for an act done in contravention of a provision of pts IV or V of the TPA. Mr Barodawala contended that he had been induced to enter into the contract with Sterco by misleading and deceptive conduct on the part of Sterco — that is, he contended that Sterco had contravened s 52 of the TPA (which was found in pt V). To establish a contravention of s 52 of the TPA or s 42 of the FTA, it was not necessary to prove that the defendant had an intention to mislead or deceive. A person may engage in misleading or deceptive conduct even though they acted honestly and reasonably.[9]

   [9]Yorke v Lucas (1985) 158 CLR 661, 666 (Mason ACJ, Wilson, Deane and Dawson JJ); [1985] HCA 65 (‘Yorke’).

4. In so far as Ms Perinparajah’s liability was concerned, the effect of s 75B of the TPA was, relevantly, that she was involved in Sterco’s contravention of s 52 if:

   (a)she had aided, abetted, counselled or procured the contravention (s 75B(1)(a)); or

   (b)she was directly or indirectly knowingly concerned in, or a party to, the contravention (s 75B(1)(c)).

5. To establish accessorial liability under s 75B, it was necessary to prove that the relevant person intentionally aided or abetted or was knowingly concerned in the contravention by the principal wrongdoer, and to form that intention that person must have knowledge of the essential matters which make up the contravention whether or not he or she knew that those matters amounted to a contravention.[10] This required proof that the person not only knew that the principal wrongdoer made the impugned representations but also that they were false.[11] However, knowledge of the elements of the contravention ‘does not require knowledge or awareness that the conduct has the capacity to mislead nor knowledge that it may be a contravention of s 52’.[12]

   [10]ASIC v Lewski (2018) 266 CLR 173, 205 [80] (the Court); [2018] HCA 63, referring to Yorke (1985) 158 CLR 661, 669–70 (Mason ACJ, Wilson, Deane and Dawson JJ); [1985] HCA 65. ASIC v Lewski concerned s 79 of the Corporations Act, which was in the same terms as s 75B of the TPA.

   [11]Yorke (1985) 158 CLR 661, 668–70 (Mason ACJ, Wilson, Deane and Dawson JJ); [1985] HCA 65.

   [12]Paper Products Pty Ltd v Tomlinsons (Rochdale) Ltd(1994) ATPR 41-315, 42,204 (French J).

6. Mr Barodawala pleaded that various representations made by Ms Perinparajah on behalf of Sterco were false and that they were misleading or deceptive and in breach of s 52 of the TPA. Mr Barodawala also pleaded that Ms Perinparajah was knowingly concerned in or party to the contraventions by Sterco, and thus involved in the contraventions by reason of s 75B. However, he did not plead that either Sterco or Ms Perinparajah acted dishonestly or committed either common law or equitable fraud. Nor, so far as the material before this Court reveals, did Mr Barodawala conduct the hearing before Ball J on the basis that either Sterco or Ms Perinparajah acted dishonestly or committed common law or equitable fraud. In light of the principles discussed above, it was not necessary for Mr Barodawala to so plead, or so conduct the hearing, in order to make good the causes of action upon which he relied.

The NSW Reasons

1. Ball J set out the three claims made by Mr Barodawala. He then observed that Ms Perinparajah had filed a defence in which she pleaded to those claims. He recorded that, when the matter was called on for hearing, Ms Perinparajah did not appear. Ball J stated that he was satisfied that Ms Perinparajah had adequate notice of the hearing and that it was appropriate for Mr Barodawala to proceed ex parte. His Honour struck out Ms Perinparajah’s defence. And, as already observed, her affidavit was not read. Ball J then proceeded to hear the case.[13]

   [13]NSW Reasons, [1]–[6].

2. After setting out the factual background, based on the evidence adduced by Mr Barodawala, Ball J made the following more detailed findings about the Ms Perinparajah’s conduct:

   28I am satisfied that Sterco engaged in misleading and deceptive conduct and that Ms Perinparajah was involved in that conduct since she was the sole director and shareholder of Sterco who engaged in the acts which constituted that conduct.

   29In my opinion, the evidence establishes that Ms Perinparajah represented prior to entry into the agreement that Sterco had the capacity and the intention to deliver 72 tonnes of scrap stainless steel in circumstances where it never had that capacity or intention.

   30The representation that Sterco had the capacity and intention to deliver 72 tonnes of scrap stainless steel can be inferred from the negotiations leading up to the contract by which Sterco agreed to supply that quantity of stainless steel scrap.

   31The fact that Sterco and, in particular, Ms Perinparajah never had the intention of delivering that quantity of stainless steel can be inferred from a number of matters. The evidence suggests that Ms Perinparajah was prepared to say whatever was necessary in order to obtain a contract and, in particular, to be paid. Whether or not Sterco was insolvent in February 2008, its financial position was very serious and it can be inferred that that fact drove Ms Perinparajah’s conduct. Originally, Ms Perinparajah represented that Sterco had approximately 300 tonnes of stainless steel to sell and that it was of grade 316. It seems clear, however; that those representations were false. Ms Perinparajah continued to negotiate the agreement for the sale of 72 tonnes when she must have known that the containers were being loaded with material that meant that it would not be possible to deliver 72 tonnes of stainless steel. When the issue was raised with her, she gave instructions to ensure that the containers were properly loaded. However, given what happened, it seems clear that she never intended those instructions to be complied with. The evidence … suggests that she was seeking to conceal from Mr Barodawala her true intentions. The actual material delivered fell so far short of the contractual obligation and the amount for which Mr Barodawala had paid, that I think it can be inferred that Ms Perinparajah did not intend Sterco to deliver 72 tonnes of stainless steel material. The conclusions I have reached are reinforced by the fact that Ms Perinparajah did not appear at the hearing or seek to offer any explanation for her non-attendance and by the fact that it appears that she sought to avoid [Barodawala’s solicitors’] telephone call to the work number he had for her.[14]

   [14]NSW Reasons, [28]–[31] (emphasis added).

3. It was these comments that were the key parts of the NSW Reasons upon which Mr Barodawala relied as constituting a finding of actual fraud.

4. We note that Ball J’s findings in paragraph 28 are to be understood as a finding that Sterco had contravened s 52 of the TPA, and that Ms Perinparajah was involved in that contravention by reason of s 75B — most likely, paragraph (1)(c) of s 75B, given that the language of that paragraph was reflected in the language of Mr Barodawala’s pleading.

The primary judge’s reasons in relation to ground 2

1. The primary judge held that the NSW judgment was ‘not based on a claim of fraud’. His Honour said as follows:

   The findings of Ball J concern[ed] the claim for involvement in misleading and deceptive conduct. Ball J did not make findings about fraud, whether at common law or in equity. The words ‘fraud’ and ‘fraudulent’ do not appear in the NSW judgment.[15]

   [15]Reasons, [68].

2. The primary judge acknowledged that ‘fraud’ in s 153(2)(b) has a broad meaning, so as to capture equitable fraud.[16] His Honour considered the authorities concerning the need to plead and particularise fraud if it is to be alleged, concluding that:

   (a)an allegation of fraud, in the strong sense of deliberate falsehood or reckless indifference to the truth, is required to be pleaded specifically and particularised;

   (b)the seriousness of a finding of fraud does not permit of other than a specific finding that the fraud has in fact occurred; and

   (c)absent an adequately pleaded allegation of fraud, a judge cannot make findings of fraud consistent with, but going beyond, a pleaded case of misleading and deceptive conduct or innocent or negligent misrepresentation and which have not been put to the relevant party.[17]

   [16]Reasons, [71].

   [17]Reasons, [75].

3. The primary judge also said that he agreed with the obiter remarks of Sackville J in Bucketts Road Business Services Pty Ltd v Phalona Pty Ltd, where his Honour said that he had ‘considerable doubts’ as to whether s 153(2)(b) could ‘apply to a claim based on misleading or deceptive conduct’, or to any other conduct ‘that is not specifically pleaded to be fraudulent,’ even though ‘a finding consistent with fraud might ultimately be made’.[18]

   [18][2007] FCA 1444, [16], quoted in Reasons, [77].

4. The judge observed that no allegations of fraud of any type were made in the NSW proceeding. He held as follows:

   In my view, it is not open to treat a judgment not based on fraud of any kind as akin to, or being in substance, a judgment for fraud. In the present case, fraud was not alleged or defended before the trial judge, and was not adjudicated or found at common law or in equity. The defendant had no notice of a claim of fraud of any kind, and no opportunity to defend herself from such a claim. She has subsequently deposed that she ran out of money and that her legal representatives had to withdraw from the NSW trial. She did not attend that trial. As a matter of procedural fairness, it would be surprising if over a decade later the judgment could be treated as if it were a judgment in fraud against her.[19]

   [19]Reasons, [78] (emphasis added).

The parties’ submissions on ground 2

1. In summary, Mr Barodawala contended that the primary judge fell into error in the following respects:

   (a)the authorities concerning the need to plead fraud on which the primary judge relied were not applicable;

   (b)the text and context of s 153(2)(b) do not require, as a precondition to its operation, that fraud is pleaded — what matters is how a court characterises the defendant’s conduct, not how the plaintiff pleaded his or her claim;

   (c)the primary judge’s conclusion conflicts with the comparative cases on which Mr Barodawala relied;

   (d)a narrow construction of s 153(2)(b) to require that fraud be pleaded would disregard the policy concern of bankruptcy law that ‘fraudsters do not prosper’;

   (e)the findings of substance made by Ball J show that Ms Perinparajah made deliberate misrepresentations for financial gain;

   (f)considerations of procedural fairness are irrelevant, because Ms Perinparajah had had the opportunity to respond to the case put against her in the NSW proceeding; and

   (g)The primary judge placed undue weight on the fact that Mr Barodawala’s claim was one of involvement in misleading or deceptive conduct, because that conduct is ‘essentially a species of equitable fraud’ that could fall within s 153(2)(b).

2. In relation to this final point, although it appeared to suggest that Mr Barodawala’s claim was that Ms Perinparajah’s conduct involved equitable fraud, his written submissions also accepted that the authorities diverge on this issue.[20] In oral argument counsel for Mr Barodawala made it clear that his case turned on what he contended was Ball J’s finding of actual fraud; he did not rely on the broader notion of equitable fraud, and it would thus not be necessary for this Court to resolve the question of whether equitable fraud falls within the scope of s 153(2)(b).

   [20]Mr Barodawala cited Barewa Oil & Mining NL (in liq) v Isim Mineral Development Pty Ltd (1981) 38 ALR 288, 295–6 (Brinsden J); Chittick v Maxwell (1993) 118 ALR 728, 736 (Young J); Maxwell v Chittick [1994] NSWCA 196; Re Bosun Pty Ltd (in liq) (2000) 34 ACSR 597, 602 [18] (Debelle J); [2000] SASC 180; Skalkos v Smiles [2006] NSWSC 192, [62]–[65] (Johnson J); and Re Earth Civil Australia Pty Ltd [2021] NSWSC 966, [2491] (Ward CJ in Eq).

3. In contrast, Ms Perinparajah submitted that the primary judge was correct to have found that the NSW judgment was not ‘based on a claim of fraud’ and that it was therefore not open to treat it as being a ‘judgment for fraud’, broadly for the reasons his Honour gave. She submitted that:

   a.neither fraud nor fraudulent breach of trust were alleged against either Sterco or Perinparajah in the NSWSC proceeding;

   b.neither Sterco [nor] Perinparajah had opportunity to defend, give evidence, or be cross examined regarding an allegation of fraud, meaning that procedural fairness would be denied if such findings were to be made in these circumstances;

   c.the TPA cause of action against Perinparajah was as a director of a contravening entity, not as the contracting party, calling into question whether the debt in any event could be one, ‘to which [Perinparajah] was a party’ for the purposes of the fraud carveout;

   d.no findings of fraud or fraudulent breach of trust were made, nor could there be in the absence of an adjudication on the merits of any such matter; and

   e.the NSW Judgment was handed down over ten years ago, in Perinparajah’s absence.

4. She submitted that Mr Barodawala is now ‘asking a separate Court in a separate jurisdiction to read the NSW Judgment, and make a fresh finding that Perinparajah committed fraud, without her having any way of defending those allegations’.

Consideration of ground 2

1. In our opinion, Ball J did not make a finding of actual fraud on the part of Ms Perinparajah in the NSW proceeding. In light of that conclusion, and Mr Barodawala’s concession recorded above, ground 2 must fail.

2. We note at the outset that the following analysis assumes, without deciding, that it may be permissible in certain circumstances to conclude that a debt was incurred by means of fraud in circumstances where fraud was not pleaded, but a finding of actual fraud is apparent from the terms of the judgment. We turn now to the features of the present matter that are relevant to our conclusion.

3. First, fraud was not expressly pleaded in the NSW proceeding. That alone might not be sufficient to rule out a finding of fraud by a judge, noting that what is in issue in a proceeding can change as the proceeding progresses. That is, we should not be understood as holding that an express pleading of fraud is always a ‘necessary precondition’ to the application of s 153(2)(b). Rather, the pleadings provide the necessary starting point in understanding what was in issue in the proceeding, so as to assist in understanding what the judge did or did not find.

4. We do not consider that a pleading of involvement under s 75B of the TPA is to be equated with a pleading of fraud. To so conclude would be to overlook the importance that is attached to the proper pleading and particularisation of fraud, which is intended to ensure that the defendant knows the case they have to meet.[21] In that regard, French CJ, Gummow, Hayne and Kiefel JJ observed in Forrest v Australian Securities and Investments Commission that an allegation of fraud must be identified separately from an allegation of misleading or deceptive conduct.[22] In our opinion, the same extends to an allegation of involvement in misleading or deceptive conduct. If actual fraud is to be alleged, it ought to be separately and clearly pleaded, so as to put the defendant on notice of the serious allegation of fraud.

   [21]See the discussion in Banque Commerciale SA (in liq) v Akhil Holdings Ltd (1990) 169 CLR 279, 285–6 (Mason CJ, Gaudron J); [1990] HCA 11 (‘Banque Commerciale’). See also Sgro v Australian Associated Motor Insurers Ltd (2015) 91 NSWLR 325, 337 [56] (Beazley P); [2015] NSWCA 262 (‘Sgro’).

   [22](2012) 247 CLR 486, 502–3 [26]; [2012] HCA 39. See also Uniform Civil Procedure Rules 2005 (NSW) r 14.14 and SCV Rules of Court, r 13.10, which require fraud to be specifically pleaded and properly particularised.

5. Secondly, we accept that, in a particular case, the parties might deliberately choose some issue different from that disclosed by the pleadings as the basis for the determination of their rights and liabilities.[23] If that occurs, then the case may be decided on a basis different from that disclosed by the pleadings. However, such an inference is unlikely to be drawn in circumstances where one party was not present at the hearing. Indeed, in Banque Commerciale, a case in which fraud was not expressly pleaded, Mason CJ and Gaudron J held as follows:

   It may be that, in a clear case, mere acquiescence by one party in a course adopted by the other will be sufficient to ground such an inference. In the present case, the Bank not having been present at the hearing, there could be no acquiescence by it in such course, if any, by which Akhil might have attempted to extend the issues at the hearing to encompass a case of fraud as against the Bank. Nor, in our view, can acquiescence be inferred from the Bank’s failure to participate in the hearing coupled with its knowledge that an allegation of fraud on its part had been raised in the amended reply to the defence filed against Mr Messara. That was a bare and unparticularized assertion. In that context, a choice by the Bank to have its liability determined on the basis of fraud would be tantamount to a decision to forego the right to be informed of the case to be made against it. The facts will not support such an inference.[24]

   [23]Banque Commerciale (1990) 169 CLR 279, 287 (Mason CJ, Gaudron J); [1990] HCA 11.

   [24]Banque Commerciale (1990) 169 CLR 279, 287; [1990] HCA 11.

6. By parity of reasoning, in the present case there was no deliberate choice by the parties to have their rights and liabilities resolved on a different basis from that pleaded by Mr Barodawala. Ms Perinparajah’s failure to participate in the hearing cannot, in our opinion, constitute a form of acquiescence in the determination of a fraud claim in the NSW proceeding. That is particularly so given that there was not even a ‘bare and unparticularised assertion’ of fraud by Mr Barodawala.

7. Thirdly, the seriousness of a finding of fraud does not permit of other than a specific — that is, express — finding that the fraud has in fact occurred.[25] There was no such specific or express finding in the NSW Reasons; the words ‘fraud’ or ‘fraudulently’ do not appear. Nor does the word ‘dishonest’.

   [25]Sgro (2015) 91 NSWLR 325, 336–7 [54] (Beazley P); [2015] NSWCA 262.

8. Fourthly, and subject to the second point raised above, a judge should not make a finding of fraud unless fraud is pleaded and proved to the requisite standard (in the present case reflected in s 140(2) of the Evidence Act 1995 (NSW) and in the oft-cited decision of Briginshaw v Briginshaw[26]). In the present case, as already observed, fraud was not pleaded. Because it is generally not appropriate for a judge to make a finding of fraud where fraud is not pleaded, we ought to be slow to conclude that Ball J made such a finding in the present case.

   [26](1938) 60 CLR 336; [1938] HCA 34.

9. Fifthly, the judge did not refer to s 140(2) of the Evidence Act or the Briginshaw standard in his factual findings concerning Ms Perinparajah. The absence of reference to s 140(2) or Briginshaw indicates that Ball J did not make a finding of actual fraud.

10. Sixthly, in our opinion, when the key paragraphs of the NSW Reasons are closely examined, his Honour should not be understood as making a clear and express finding of actual fraud.

    (a)In paragraph 28 Ball J set out his conclusion, namely that Ms Perinparajah was ‘involved in’ Sterco’s misleading and deceptive conduct. We do not consider that that is to be equated to or understood as a clear and express finding of actual fraud.

    (b)In paragraph 29 Ball J concluded that the evidence established two things: first, that Ms Perinparajah had represented to Mr Barodawala that Sterco had the capacity and the intention to deliver 72 tonnes of scrap stainless steel; and secondly, that Sterco never had that capacity or intention. Neither finding involves a clear and express finding of actual fraud.

    (c)Nor is there a clear and express finding of actual fraud in the two paragraphs that follow. Those paragraphs are ancillary to paragraph 29; they set out the evidence that supported his Honour’s conclusion in that paragraph. But if paragraph 29 is not to be understood as an express finding of actual fraud then, in our opinion, a recitation of the evidence that supported that conclusion does not, separately, amount to a finding of fraud.

11. Finally, the manner in which Ball J expressed his findings about the evidence does not support a conclusion that he was making findings of fraud. Not only, as already mentioned, did he not use the word ‘fraud’, or refer to Briginshaw or s 140(2) of the Evidence Act, it is notable that at various places in the relevant paragraphs Ball J used tentative language not apt for a finding of fraud. We refer to the following examples:

    (a)‘The evidence suggests that Ms Perinparajah was prepared to say whatever was necessary’;

    (b)‘It seems clear … that [Ms Perinparajah’s] representations were false’, when ‘she must have known’ that it would not be possible to deliver the steel for which Sterco had contracted; and

    (c)‘it seems clear’ that she did not intend her instructions to properly load the containers to be complied with.[27]

    [27]NSW Reasons, [31].

12. For these reasons, we have concluded that the NSW Reasons, upon which Mr Barodawala’s claim turns,[28] do not support a conclusion that the debt owed by Ms Perinparajah to Mr Barodawala was ‘incurred by means of fraud’. That conclusion does not turn on any one single factor (such as the failure to expressly plead fraud, Ms Perinparajah’s failure to appear at the hearing of the NSW proceeding, or Ball J’s failure to make an express finding of fraud). Rather, it turns on the particular combination of factors present in this particular case.

Comparative authorities

[28]As explained further below, Mr Barodawala accepts that, by reason of the doctrine of res judicata, he cannot now go behind the judgment debt and the NSW Reasons.

1. In light of the above conclusions concerning what Ball J found and did not find, it is not necessary to discuss the comparative authorities to which we were taken.[29] Those authorities were relied upon for the proposition that it is permissible to conclude that a debt was incurred by means of fraud in circumstances where fraud was not pleaded, but a finding of actual fraud is apparent from the terms of the earlier judgment. We have assumed, without deciding, that it may be possible for a judgment debt to be regarded as one ‘incurred by means of fraud’ even if fraud was not pleaded. And we have accepted that the question whether a judgment debt is to be so characterised is to be answered by reference to the reasons for judgment, understood in their context. We have concluded that, when that exercise is undertaken, and the NSW Reasons are carefully analysed in light of the manner in which the NSW proceeding unfolded, those reasons do not contain a finding of actual fraud. The comparative authorities do not cause us to reach any different view about the NSW Reasons.

   [29]The relevant authorities were Re Ropchan (1996) 40 CBR (3d) 297, Holmes v Mayer [2000] 97 ACWS (3d) 252, Turner v Midland Doherty Ltd (1992) 13 CBR (3d) 16 (‘Turner’), and Jenkins v Fereday (1872) LR 7 CP 358.

GROUND 1

1. Ground 1 is directed to whether a judgment debt falls within the scope of ‘a debt incurred by means of fraud’, as that phrase is used in s 153(2)(b) of the Bankruptcy Act. It raises for consideration the question whether Power v Kenny was wrongly decided.

The primary judge’s reasons in relation to ground 1

1. As noted above, the primary judge held that there was no ‘debt incurred by means of fraud’ owed by Ms Perinparajah to Mr Barodawala upon Ms Perinparajah’s discharge from bankruptcy on 18 May 2015 because Mr Barodawala’s claim and cause of action had merged in the NSW judgment.[30]

   [30]Reasons, [81].

2. In his reasons in support of that conclusion, his Honour commenced with a discussion of Power v Kenny. He observed that Wallace J there held that the debt incurred by means of fraud had merged into the judgment, thus becoming res judicata and extinguishing the cause of action in fraud. After release from bankruptcy, there was no existing ‘debt incurred by means of fraud’ within the meaning of s 153(2)(b) of the Act.[31] His Honour then considered various authorities concerning the doctrine of res judicata, following which he said as follows:

   The underlying logic of Power is that the cause of action for a debt or liability ceased to exist when the judgment was entered by reason of the doctrine of merger. The merger predated the defendant’s entry into bankruptcy. It followed that when the defendant was discharged from bankruptcy, there was no debt or liability incurred by means of fraud because the cause of action for a debt incurred by means of fraud had ceased to exist, and could not be revived.[32]

   [31]Reasons, [23].

   [32]Reasons, [44].

3. The judge observed that Power v Kenny has stood as the law in Australia for over 40 years without being challenged or called into question by courts or textbook authors; nor has its effect been altered by legislation.[33] Noting that the decision concerned federal legislation, the primary judge correctly observed that he should follow Power v Kenny unless satisfied that it is ‘clearly wrong’.[34]

   [33]Reasons, [45].

   [34]Reasons, [48].

4. The primary judge then went on to explain that not only did he not consider Power v Kenny to be ‘clearly wrong’, he considered it to be correct.[35]

   [35]Reasons, [49].

5. In so far as the text of s 153(2)(b) is concerned, the primary judge said as follows:

   Section 153(2)(b) of the Act speaks of the ‘release’ of the bankrupt from ‘a debt incurred by means of fraud’. For the provision to take effect, there must be in existence a debt incurred by means of fraud at the time of the discharge of the bankrupt from bankruptcy. The immediate difficulty for the plaintiff is that there was not, at the time of discharge from bankruptcy, a debt incurred by means of fraud, as the debt and the associated cause of action had ceased to exist years earlier when they were merged by judgment into a judgment debt.[36]

   [36]Reasons, [54].

6. In so far as purpose is concerned, his Honour observed that there are several relevant purposes to consider, beyond those found in the Act or s 153(2)(b) itself, because the Act was enacted against the background of the common law and the various Rules of Court.[37] Thus he considered the following purposes to be relevant:

   (a)the purposes of the common law doctrine of merger, which include furthering the general community interest and the interests of individual litigants in the termination of disputes, and the extinction of the relevant cause of action;[38] and

   (b)the purpose of ‘finally concluding disputes and related enforcement’, as reflected in the various Rules of Court concerning the duration of warrants of execution.[39]

   [37]Reasons, [57]–[61].

   [38]Reasons, [57].

   [39]Reasons [58]. Under rr 68.05(1)–(3) of the SCV Rules of Court, a warrant of execution is valid for only one year after the day it is issued, but its validity may be extended by an order of the Court for not more than one year at any one time; such an order cannot be made after the date of expiry of the warrant. Further, a warrant of execution to enforce a judgment cannot be issued without leave of the Court where six years have elapsed since the judgment took effect: r 68.02(1)(a).

7. His Honour then observed as follows:

   The purpose of s 153(2)(b) of the Act is to except debts incurred by means of fraud from the ordinary effect of discharge from bankruptcy. However, that purpose is qualified by the fact that the Act evinces no intention to override the high importance that both the common law and the various Rules of Court place on the finality given by a judgment. Ongoing attempts to enforce judgments over a decade later must be subject to some limits. The alternative is to permit enforcement to extend over the lifetime of the debtor and beyond, into the administration of the debtor’s deceased estate regardless of the debtor’s discharge from one or more bankruptcies. The construction adopted in Power is a reasonable compromise between the need for finality and the concept of merger by judgment, and the desire to allow victims of fraud a greater opportunity than other types of litigants to pursue and recover loss.

   Civil litigation and enforcement must end somewhere. Section 153(2)(b) should be construed so as to coexist with, and not displace, the doctrine of res judicata.[40]

   [40]Reasons, [59]–[60].

8. The judge observed that his construction of s 153(2)(b) did not leave the provision with no work to do. It would, he observed, continue to apply in relation to debts incurred by means of fraud where there were no proceedings initiated or completed prior to the bankruptcy. In that regard, he observed, a fraud may be undiscovered, or a victim may not have the opportunity, means or ability to take proceedings against a perpetrator prior to the perpetrator’s bankruptcy.[41]

   [41]Reasons, [61].

9. As for the comparative authorities to which his Honour was taken from the United Kingdom and Canada,[42] he considered those to be distinguishable because none of them contained any consideration of the doctrine of merger by judgment.[43]

   [42]Jones & Pyle Developments Ltd v Rymell [2021] EWHC 385 (Ch) (‘Jones’); Turner (1992) 13 CBR (3d) 16; Re Ropchan (1996) 40 CBR (3d) 297; and Re Hottman (2003) 40 CBR (4th) 84.

   [43]Reasons, [62]–[66].

Mr Barodawala’s submissions on ground 1

1. Mr Barodawala submitted that the reference in s 153(2)(b) to a ‘debt incurred by means of fraud’ requires attention to the conduct of the debtor that resulted in the debt existing. Thus, he submitted, the fact that the debt he was now seeking to enforce was a judgment debt, and the fact that his original cause of action had merged in the judgment, had no bearing on whether Ms Perinparajah was released from her debt to him by reason of her discharge from bankruptcy. Section 153(2)(b) operates, he submitted, not by reference to the legal source of the debt, but by reference to the debtor’s underlying conduct. He submitted that this conclusion followed as a matter of text, context and purpose. He further submitted that, if Parliament had intended to exclude judgment debts from the operation of s 153(2)(b), it would have done so expressly, particularly as the Bankruptcy Act elsewhere refers to court judgments and judgment debts.[44]

   [44]He referred, by way of example, to: Bankruptcy Act, s 5 (definition of ‘enforcement process’); s 40(1)(g) (reference to ‘judgment debt’); s 40(3) (references to ‘judgment’ and ‘judgment or order for the payment of money made by the Court’); ss 41(1) and 41(3) (references to ‘final judgment or final order’).

2. In so far as purpose is concerned, Mr Barodawala submitted that his construction of s 153(2)(b) is supported by ‘the fundamental purpose of modern bankruptcy law of protecting the unfortunate — but honest — debtor who has fallen on hard times, and the corresponding concern that dishonest debtors do not escape their obligations’.[45] More specifically, he submitted that the fact that the legal source of the debt is a court judgment, obtained in legal proceedings where evidence will ordinarily have been tested according to established rules in an adversarial context, reinforces the conclusion that such a debt may properly be the subject of s 153(2)(b). He submitted that a dishonest debtor against whom a creditor has obtained a court judgment should be no more privileged than any other dishonest debtor.

   [45]He referred to Commonwealth, Parliamentary Debates, House of Representatives, 27 June 1924, 1715 (Littleton Groom, Attorney-General); Committee Appointed by the Attorney-General of the Commonwealth, Review of the Bankruptcy Law of the Commonwealth (December 1962) 55 [129]; Commonwealth, Parliamentary Debates, House of Representatives, 20 May 1965, 1719 (Billy Snedden, Attorney-General); John Quick and Robert Garran, The Annotated Constitution of the Australian Commonwealth (LexisNexis Butterworths, 1901) 586. 

3. Further, Mr Barodawala submitted that the primary judge erred in concluding that the purpose of s 153(2)(b) is qualified by the need for finality in litigation and enforcement.

   (a)First, he submitted that the need for finality is achieved by prohibiting a party from re-litigating a dispute that has been resolved by the exercise of judicial power. In that sense the application of s 153(2)(b) to a judgment debt does not displace the doctrine of res judicata or undermine the need for finality. To the contrary, both principles are advanced where the creditor is seeking to enforce a judgment already obtained, and is not seeking to re-litigate any issue that had been resolved in the prior proceeding.

   (b)Secondly, he submitted that the primary judge’s statement that ‘[o]ngoing attempts to enforce judgments over a decade later must be subject to some limits’, the alternative being ‘to permit enforcement to extend over the lifetime of the debtor and beyond’[46] involved error. The law already imposes strict limits on the enforcement of judgments, and leave of the Court is required to bypass those limits. Thus the primary judge erred by imposing an additional, undefined temporal limit through s 153(2)(b).

   (c)Thirdly, he submitted that the primary judge erred in concluding that Power v Kenny ‘strikes a reasonable balance having regard to the need for finality and the purpose of s 153(2)(b).’

   [46]Reasons, [59].

4. As already noted, Mr Barodawala submitted that Power v Kenny was wrongly decided. He observed that Power v Kenny rested on the proposition that a judgment debt arising from a claim for damages for fraudulent misrepresentation was not ‘a debt incurred by means of fraud’ within the meaning of s 153(2)(b) because the underlying cause of action merged in the judgment and ceased to have an independent existence. He submitted as follows:

   Power not only represents a significant departure from the text, context and purpose of s 153(2)(b), it is also wrong as a matter of law. The Court in Power erred by not applying Jenkins v Fereday, which it treated as obiter. Further, there was no valid legal basis in Power — as in this case — for applying the doctrine of merger in any analysis of whether a judgment debt was a debt incurred by means of fraud within the meaning of s 153(2)(b). In the proceeding before the primary judge, Barodawala did not pursue any cause of action or relief against Perinparajah, nor did he ask the Court to make any new findings of fact. He was (simply) seeking to enforce the judgment. In doing so, he relied on s 153(2)(b), which required the primary judge to evaluate Perinparajah’s conduct, by reference to the NSW Reasons, to determine whether it was the means by which she incurred the judgment debt. That evaluative assessment did not require the primary judge to find any new facts: the facts on which Barodawala relied were already set out in the NSW Reasons, which speak for themselves.

   There is also no sound policy reason why the doctrine of merger should preclude the operation of s 153(2)(b) to judgment debts.[47]

   [47]Citations omitted.

5. Mr Barodawala also relied on various foreign authorities from Canada and the United Kingdom.[48] He submitted that, in those jurisdictions, each of which has an equivalent provision to s 153(2)(b), the courts have applied the equivalent provision in the manner in which he contends s 153(2)(b) should apply. No principle of the kind espoused by Wallace J in Power v Kenny could, he submitted, be found in the comparative authorities. But the fact that those cases contained no consideration of the doctrine of merger as expounded in Power v Kenny was, he submitted, not a basis for distinguishing the foreign cases; rather, it indicated that the doctrine had no work to do in relation to a provision of this kind.

   [48]In addition to the cases referred to in n 42, above, Mr Barodawala referred to Masters v Leaver [2000] I.L.Pr 387; McAteer v Billes (2006) 26 CBR (5^th) 119 (‘McAteer’); Bacci v Green [2022] EWHC 486 (Ch) and Holmes v Mayer [2000] 97 ACWS (3d) 252. 

Ms Perinparajah’s submissions on ground 1

1. Ms Perinparajah submitted that the primary judge had not erred in his construction of s 153(2)(b). She broadly relied upon the primary judge’s reasons. More specifically, she submitted that:

   (a)Power v Kenny remains good law and should be followed. It has been an uncontroversial and unchallenged decision for 45 years.

   (b)A cause of action involving fraud that has been pursued to judgment is, upon judgment being entered, no longer a ‘debt incurred by means of fraud’, it is a liquidated sum which is a provable debt and its character has changed. It is a debt incurred by way of orders made by the court.

   (c)Parliament has, from time to time, specified when a carveout from discharge extends to judgments or orders, as well as to debts. For example, a predecessor of s 153(2) had been amended to include ‘liability under a judgment … in an action for seduction or for breach of promise of marriage’.[49] Ms Perinparajah submitted that the reference to ‘liability under a judgment’ stands in contradistinction to the section relating to fraud, which referred only to a ‘debt or liability’. The absence of any reference to a judgment ‘is telling, and supports the confirmation of Power v Kenny, that the fraud carveout does not extend to liquidated judgment debts provable in bankruptcy’. Further, both s 153(2)(c) and s 153(2A) expressly refer to orders. The absence of such a reference in s 153(2)(b) suggests that that paragraph is not intended to apply to judgments or orders.

   (d)Parliament has from time to time broadened and narrowed the carveouts, but has not, before or after Power v Kenny, amended the wording of s 153(2)(b) (or its predecessors) to extend to judgment debts.

   [49]Bankruptcy Act 1924 (Cth) s 121(1)(c), as amended by Bankruptcy Act 1927 (Cth), s 14.

Consideration of ground 1

1. The starting point in any exercise of statutory construction is the text of the provision. However, the text is to be considered in light of its context and purpose.[50] Context includes the legislative context, because the meaning of a provision must be determined by reference to the entire Act.[51] Consideration of purpose is further reinforced by s 15AA of the Acts Interpretation Act 1901 (Cth), which provides as follows:

   In interpreting a provision of an Act, the interpretation that would best achieve the purpose or object of the Act (whether or not that purpose or object is expressly stated in the Act) is to be preferred to each other interpretation.

   [50]SAS Trustee Corporation v Miles (2018) 265 CLR 137, 149 [20] (Kiefel CJ, Bell and Nettle JJ), see also 157 [41] (Gageler J), 162–3 [64] (Edelman J); [2018] HCA 55. See also Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (2009) 239 CLR 27, 46–7 [47] (Hayne, Heydon, Crennan and Kiefel JJ) and the cases there cited at n 105; [2009] HCA 41.

   [51]Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355, 381 [69] (McHugh, Gummow, Kirby and Hayne JJ); [1998] HCA 28 (‘Project Blue Sky’).

2. It is permissible to have regard to extrinsic materials in resolving the meaning of the text, particularly in cases of ambiguity.[52] However, legislative history and extrinsic materials cannot displace the meaning of the statutory text.[53] It is also permissible, in determining which of two competing interpretations of a statute ought to be adopted, to have regard to the consequences of each interpretation.[54]

Power v Kenny

[52]Acts Interpretation Act 1901 (Cth) s 15AB.

[53]Commissioner of Taxation (Cth) v Consolidated Media Holdings Ltd (2012) 250 CLR 503, 519 [39] (French CJ, Hayne, Crennan, Bell and Gageler JJ); [2012] HCA 55.

[54]R v Young (1999) 46 NSWLR 681, 687–8 [15] (Spigelman CJ); [1999] NSWCCA 166. See also Project Blue Sky (1998) 194 CLR 355, 384 [78] (McHugh, Gummow, Kirby and Hayne JJ); [1998] HCA 28; CTM v The Queen (2008) 236 CLR 440, 509 [237] (Heydon J); [2008] HCA 25. See generally the discussion in Dennis Pearce and Robert Geddes, Statutory Interpretation in Australia (LexisNexis Butterworths, 8^th ed, 2014) 79–83 [2.38]–[2.40].

1. It is convenient to commence with a consideration of Power v Kenny, for if that decision is correct then ground 1 must fail. However, as will emerge, we are of the view that it was wrongly decided. We note at the outset that, unlike the primary judge, we are not required to apply deference to Power v Kenny by the application of a standard of ‘clearly wrong’ or ‘plainly wrong’, even though the decision is one concerning federal legislation.[55]

   [55]Contrast Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89, 151–2 [135] (Gleeson CJ, Gummow, Callinan, Heydon and Crennan JJ); [2007] HCA 22, where the High Court held that ‘intermediate appellate courts and trial judges in Australia should not depart from decisions in intermediate appellate courts in another jurisdiction on the interpretation of Commonwealth legislation or uniform national legislation unless they are convinced that the interpretation is plainly wrong’.

2. Power v Kenny concerned an attempt by the plaintiffs to enforce a judgment more than 12 years old. The judgment had followed a finding of fraudulent misrepresentation in the sale of a business by the defendant to the plaintiffs. The defendant failed to pay the sum of $6,975 (being the judgment debt and costs) and, as a result of the plaintiffs’ petition, the defendant’s estate was sequestered. During the administration of the defendant’s bankrupt estate the plaintiffs received $4,787 in dividends. In 1972, the defendant was discharged from bankruptcy.[56]

   [56]Power v Kenny [1977] WAR 87, 88.

3. The plaintiffs submitted that the defendant’s discharge from bankruptcy had not released him from his debt to them, by reason of s 153(2)(b) of the Bankruptcy Act. The defendant argued, and Wallace J accepted, that — 

   the plaintiffs’ judgment is not a debt incurred by means of fraud, the cause of action having merged into the judgment thus becoming res judicata and extinguishing the cause of action in the judgment which is pronounced. Transit in rem judicatam, ‘the very right or cause of action claimed or put in suit has in the first proceedings passed into judgment, so that it merged and has no longer an independent existence’: per Dixon J in Blair v Curran (1939) 62 CLR 464 at 532.[57]

   [57]Power v Kenny [1977] WAR 87, 88.

4. Wallace J went on to observe that none of the authorities cited to him involved circumstances where the debt in fraud was the subject of a judgment. His Honour referred to Jenkins v Fereday,[58] which had involved a judgment debt, but observed that ‘Bovil CJ’s observations’ in that case were obiter, and further that there had been no argument in that case concerning res judicata.[59]

   [58](1872) LR 7 CP 358.

   [59]Power v Kenny [1977] WAR 87, 89.

5. In relation to the purpose of the Bankruptcy Act, Wallace J observed as follows:

   It is true … that the protection of bankruptcy exists for the benefit of honest debtors — see Brett MR in Cooper v Pritchard (1883) 11 QBD 351 at 354, and no doubt this should be borne in mind when construing s 153(2)(b) of the Bankruptcy Act. But one should also look at s 150(6)(h) which would occasion the court in exercising its powers in granting a discharge to a bankrupt to do so only conditionally. [In the present case] Hale J granted an unconditional discharge and, in the respect in which I have always held that learned judge, I have every reason to believe that the fraud to which the subsection in question and the debt involved in this application is directed is other than that involved in a cause of action merged in a judgment.[60]

   [60]Power v Kenny [1977] WAR 87, 89.

6. Before turning to the substance of the analysis in Power v Kenny, we observe that, in so far as the judgment turned on there being no authorities where the s 153(2)(b) exception had involved a judgment debt, it involved error.

7. First, Wallace J erred in his treatment of Jenkins vFereday. That case had involved a judgment debt and, when the passages in that case are carefully considered, it is apparent that the remarks of Bovill CJ were not obiter.

   (a)The case concerned an attorney who had brought an action without authority from the plaintiff and been ordered to pay the defendant’s costs. An order was made by a Master for the payment of £30 in costs. Meanwhile, the attorney had entered bankruptcy and a meeting of his creditors agreed to accept 2s and 6d in the pound.

   (b)The question in the case was whether the attorney’s debt of £30 remained payable, or whether the defendant (and his trustee in bankruptcy, he having subsequently gone bankrupt), was limited to 2s and 6d in the pound.

   (c)The defendant argued that he was entitled to the full £30, because of s 49 of the Bankruptcy Act 1869 (UK), which provided that an order of discharge did not apply to debts incurred by means of fraud (ie it was the analogue of s 153(2)(b)). He also relied upon s 4(4) of the Debtors’ Act 1869 (UK) in support of the proposition that the liability was not one included in s 31 of the UK Bankruptcy Act, which dealt with what constituted provable debts. Section 4(4) of the UK Debtors’ Act provided that an attorney’s default in payment of costs for misconduct was excepted from the enactment abolishing imprisonment for debt.

   (d)In contrast, the attorney argued that bringing an action without authority was not ‘fraud’ within the meaning of s 49, thus that section did not prevent the debt from being discharged. 

   (e)Bovil CJ, with whom Byles J concurred, held as follows:

   I am clearly of opinion that the liability to pay these costs comes within the 4th subsection of the 4th section of the Debtors’ Act. This is a default by an attorney in payment of costs, when ordered to pay costs in his character of an officer of the court. Therefore the attorney would not be exempted under that Act from imprisonment upon an attachment for noncompliance with the order. Whether, however, the provisions of that section would apply if the liability were one of such a nature as to be discharged under the Bankruptcy Act, 1869, it is unnecessary to determine. This is no doubt a liability or debt for some purposes, but assuming it to be one proveable under a bankruptcy within s 31 of the Act, yet it seems to me clear that it comes within the 49th section of the Bankruptcy Act, as being a debt incurred by means of a fraud. I think an order of discharge in bankruptcy does not discharge from such a liability as the present, because the party incurring it was guilty of fraud within the section.[61]

   (f)Brett J held as follows:

   [I]t is not necessary to decide whether this is a debt or liability of such a nature as to be proveable under the Bankruptcy Act 1869, because, even if it is, it appears to me to be clearly a liability incurred by means of a fraud under the 49th section of the Act. I am decidedly of opinion that for an attorney to bring an action when he knows that he has no authority to do so is a gross fraud.[62]

   [61]Jenkins v Fereday (1872) LR 7 CP 358, 359.

   [62]Jenkins v Fereday (1872) LR 7 CP 358, 360.

8. Mr Barodawala submitted, and we accept, that Bovill CJ’s conclusion concerning s 49 of the Bankruptcy Act was dispositive and ought to be regarded as the ratio of the case. Section 4(4) of the Debtors’ Act was not directly in issue (it being concerned with imprisonment for debt). Rather, what was in issue was whether the debt of £30 survived the bankruptcy. Bovill CJ is properly to be understood as concluding that it was unnecessary to determine either the s 4(4) issue or the s 31 issue, because of his conclusion that the debt fell within s 49 of the UK Bankruptcy Act, which had the consequence that, even if provable, the debt was not discharged by an order of discharge in bankruptcy. Brett J’s conclusion was plainly to the same effect.

9. Secondly, Wallace J erred in stating that, other than Jenkins v Fereday, there were no cases cited to him where the debt in fraud was the subject of a judgment. That is because Emma Silver Mining Co v Grant[63] — to which the Court had, according to the headnote to Power v Kenny, been referred — was such a case,[64] as Ms Perinparajah properly accepted. Thus there were at least two English authorities in which the UK equivalent of s 153(2)(b) had been applied in relation to a judgment debt.

   [63](1880) 17 Ch D 122.

   [64]The earlier judgment was reported at (1879) 11 Ch D 918.

10. We accept that Wallace J was correct in pointing out that in Jenkins v Fereday there was no consideration of the doctrine of merger by judgment or res judicata. The same observation may be made in relation to Emma Silver Mining. We return to the significance of this omission later in these reasons, when we consider more generally the comparative authorities. But for present purposes, we consider that the weight to be accorded to the decision in Power v Kenny is substantially reduced by reason of Wallace J’s misapprehension as to the state of the authorities.

11. We further observe that, in so far as Wallace J considered the purpose of the Act in his construction of s 153(2)(b), he appeared to regard that purpose (of protecting honest debtors) as affected by the existence of s 150(6)(h), which permitted a court exercising its power to grant a discharge to do so conditionally.[65] His Honour then observed that, in that case, Hale J had granted an unconditional discharge, which led Wallace J to conclude that the fraud referred to in s 153(2)(b) was not directed to a cause of action merged in a judgment. In our opinion this involves two errors in reasoning.

    (a)First, the Court’s then power to impose conditions on discharge, conferred by a different section of the Bankruptcy Act, was not relevant to the scope of a provision that excluded certain debts from release upon discharge at all.[66]

    (b)Secondly, the manner in which the discretion to impose conditions on discharge had been exercised in the particular case by a particular judge, and Wallace J’s opinion of that judge, had no relevance to the proper construction of s 153(2)(b).

    [65]Power v Kenny [1977] WAR 87, 89.

    [66]We note that this aspect of the Bankruptcy Act has been amended, by the removal of court ordered discharge and the implementation of a regime for automatic discharge after three years, subject to extension if the trustee in bankruptcy has filed an objection: see div 2 of pt VII.

1. These matters provide further reasons why we think Power v Kenny was attended by error.

Text and context

1. We turn now to the proper construction of s 153(2)(b), commencing with the text of the sub-section, considered in its context. It is appropriate to set out s 153 in full for the purposes of the analysis. It provides as follows:

   153  Effect of discharge

   (1)Subject to this section, where a bankrupt is discharged from a bankruptcy, the discharge operates to release him or her from all debts (including secured debts) provable in the bankruptcy, whether or not, in the case of a secured debt, the secured creditor has surrendered his or her security for the benefit of creditors generally.

   Note:The operation of this section in relation to accumulated HEC debts and semester debts under the Higher Education Funding Act 1988 is affected by section 106YA of that Act.

   (2)      The discharge of a bankrupt from a bankruptcy does not:

   (a)      release the bankrupt from:

   (i)       a debt on a recognizance; or

   (ii)a debt with which the bankrupt is chargeable at the suit of the sheriff or other public officer on a bail bond entered into for the appearance of a person prosecuted for an offence against a law of the Commonwealth or of a State or Territory; or

   (aa)release the bankrupt from liability to pay an amount to the trustee under subsection 139ZG(1); or

   (b)release the bankrupt from a debt incurred by means of fraud or a fraudulent breach of trust to which he or she was a party or a debt of which he or she has obtained forbearance by fraud; or

   (c)subject to any order of the Court made under subsection (2A), release the bankrupt from any liability under a maintenance agreement or maintenance order;

   Note:A discharged bankrupt remains liable under any pecuniary penalty order because such liabilities are not provable in bankruptcy, see subsection 82(3A).

   (2A)The Court may order that the discharge of a bankrupt from bankruptcy shall operate to release the bankrupt, to such extent and subject to such conditions as the Court thinks fit, from liability to pay arrears due under a maintenance agreement or maintenance order.

   (3)The discharge of a bankrupt from a bankruptcy does not affect the right of a secured creditor, or any person claiming through or under him or her, to realize or otherwise deal with his or her security:

   (a)if the secured creditor has not proved in the bankruptcy for any part of the secured debt—for the purpose of obtaining payment of the secured debt; or

   (b)if the secured creditor has proved in the bankruptcy for part of the secured debt—for the purpose of obtaining payment of the part of the secured debt for which he or she has not proved in the bankruptcy;

   and, for the purposes of enabling the secured creditor or a person claiming through or under him or her so to realize or deal with his or her security, but not otherwise, the secured debt, or the part of the secured debt, as the case may be, shall be deemed not to have been released by the discharge of the bankrupt.

   (4)The discharge of a bankrupt from a bankruptcy does not release from any liability a person who, at the date on which the bankrupt became a bankrupt:

   (a)was a partner or a co‑trustee with the bankrupt or was jointly bound or had made a joint contract with the bankrupt; or

   (b)was surety or in the nature of a surety for the bankrupt.

   (5)Where a bankrupt has been discharged from a bankruptcy, all proceedings taken in or in respect of the bankruptcy shall be deemed to have been validly taken.

2. Section 153 is an important provision in the operation of the bankruptcy regime. By s 153(1) a bankrupt is released from any debts that were provable in the bankruptcy. In that sense, the section (and the Act) reflect a forgiving approach to debtors (as we discuss further below). That forgiving approach is, however, not extended to all debts that were provable in the bankruptcy. Rather, s 153 contains various exceptions to which s 153(1) is subject. Section 153(2)(b) is one such exception.

3. Turning to the text of s 153(2)(b), it is silent as to the status of judgment debts. It simply refers to ‘a debt incurred by means of fraud’. Plainly, the debt in question must have been one that was provable in the bankruptcy, for it is only debts of that kind that are released by reason of s 153(1). Section 82(1) provides that, subject to div 1 of pt VI:

   all debts and liabilities, present or future, certain or contingent, to which a bankrupt was subject at the date of the bankruptcy, or to which he or she may become subject before his or her discharge by reason of an obligation incurred before the date of the bankruptcy, are provable in his or her bankruptcy.

4. As a general proposition, a judgment debt is capable of being a debt that was provable in the bankruptcy, given the width of s 82(1), unless it fell within one of the express exceptions in s 82.[67] Thus a judgment debt is capable of falling within the scope of s 153(1), with the effect that the bankrupt is released from such a debt upon discharge from bankruptcy. That is so even though neither s 82(1) nor s 153(1) expressly refers to judgment debts. Indeed, this may seem obvious; but it is significant in understanding the scope of the exception in s 153(2)(b).

   [67]See, eg, Foots v Southern Cross Mine Management Pty Ltd (2007) 234 CLR 52, 76 [67] (Gleeson CJ, Gummow, Hayne and Crennan JJ); [2007] HCA 56.

5. Section 153(2)(b), like s 153(1), does not refer to judgment debts. Nor is there any indication in the text that a judgment debt that falls within s 153(1) falls outside the operation of s 153(2)(b) simply by reason of the fact that it is a judgment debt. Indeed, the natural reading of the two sub-sections together would be that any debt that falls within s 153(1) is capable of falling within s 153(2)(b), so long as it satisfies the descriptor found in the section.

6. In so far as the descriptor is concerned, what, for present purposes, causes a debt to fall within s 153(2)(b) is that it was ‘incurred by means of fraud’. In our opinion, that language directs attention to the conduct of the debtor that caused the debt to come into existence. It does not refer to the legal source of the debt. If the debtor’s conduct was fraudulent, then the debt was incurred by fraud and s 153(2)(b) is engaged. That is so even though the underlying cause of action has now merged in the judgment. Thus, in our opinion the text of the section supports the proposition that s 153(2)(b) is not concerned with the legal source of the debt, but with the conduct of the debtor.

7. We accept Mr Barodawala’s submission that, if Parliament had intended to exclude judgment debts from the operation of s 153(2)(b), it would have done so expressly.

8. Relatedly, we do not accept Ms Perinparajah’s submission that the fact that s 153(2)(b) has not been amended since Power v Kenny was decided, even though other amendments have been made to s 153(2), indicates a legislative intention that s 153(2)(b) bears the meaning given to it in that case. In our opinion the taking of no action by the legislature should not in the present context be treated as if it was a form of legislative confirmation of the decision in question. In that regard, we do not consider that this argument invokes the presumption applicable in cases of consolidation or re-enactment.[68]

   [68]See discussion in DPP Reference No 1 of 2019 (2021) 392 ALR 413, 426–7 [51] (Gageler, Gordon and Steward JJ), see also 416 [10] (Kiefel CJ, Keane and Gleeson J); [2021] HCA 26.

9. We note that in Geelong Harbour Trust Commissioners v Gibbs, Bright & Co, McTiernan and Menzies JJ observed, in relation to an argument directed to the overruling of a decision of the High Court:

   Nevertheless in Australia a decision of this Court has stood without question for over fifty years and has, inevitably, been present to the minds of those responsible for legislation made during this time, including the Act now under consideration. Moreover, commerce has, no doubt, been conducted on the footing of the correctness of what this Court has decided.[69]

   A similar remark was made by Kitto J.[70]

   [69](1970) 122 CLR 504, 518; [1970] HCA 16 (‘Geelong Harbour Trust’).

   [70]Geelong Harbour Trust (1970) 122 CLR 504, 518; [1970] HCA 16.

10. More recently, however, in Flaherty v Girgis, Mason ACJ, Wilson and Dawson JJ observed as follows in relation to the proposition that the amendment of legislation that has been the subject of judicial interpretation, without departing from that interpretation, can indicate the ‘tacit approval’ of the Parliament and provide a guide to the legislative intention:

    That is to overstate the position somewhat. Whilst it is true that, where an inference can be drawn from the terms in which subsequent legislation has been passed that Parliament itself has approved of a particular judicial interpretation of words in an earlier statute, a court should adhere to that interpretation, the difficulty is in discerning the existence of parliamentary approval: see Geelong Harbour Trust Commissioners v. Gibbs Bright & Co. Mere amendment of a statute not involving any re-enactment of the words in question could seldom if ever constitute approval of an interpretation of those words. Even re-enactment of the words in circumstances not involving any reconsideration of their meaning, as eg, in a consolidating statute, does not do so: Williams v Dunn’s Assignee; Melbourne Corporation v Barry. At most the principle affords a presumption of no great weight concerning the meaning of the words used and cannot be relied upon to perpetuate an erroneous construction: Salvation Army (Victoria) Property Trust v Fern Tree Gully Corporation. Indeed, in Reg v Reynhoudt, Dixon CJ said:

    In any case the view that in modern legislation the repetition of a provision which has been dealt with by the courts means that a judicial
    interpretation has been legislatively approved is, I think, quite artificial. To repeat what I have said before, the mechanics of law-making no longer
    provide it with the foundation in probability which the doctrine was supposed once to have possessed.

    For the reason given by Dixon CJ, the suggested rule nowadays is little use as a guide and it will not be permitted to prevail over an interpretation otherwise appearing to be correct.[71]

    [71](1987) 162 CLR 574, 594; [1987] HCA 17 (emphasis added) (citations omitted). This passage was cited with approval in DPP Reference No 1 of 2019 (2021) 392 ALR 413, 427 [53] (Gageler, Gordon and Steward JJ), see also 417 [14] (Kiefel CJ, Keane and Gleeson JJ); [2021] HCA 26.

11. Ms Perinparajah’s argument in the present case concerned ‘mere amendments’ to s 153(2) of the Bankruptcy Act, while leaving s 153(2)(b) untouched. In our opinion that did not amount to legislative approval of Power v Kenny. In that regard, we do not think that the remarks of the majority in Geelong Harbour Trust are applicable to Wallace J’s decision in Power v Kenny. That is so even though, as Ms Perinparajah pointed out, counsel for Mr and Mrs Power, Mr Harmer, was the Commissioner in Charge of the General Insolvency Inquiry undertaken by the Australian Law Reform Commission in 1988. The report of that inquiry (the ‘Harmer Report’) recommended that debts incurred by fraud be released on discharge, subject to the creditor seeking an order to the contrary, so as to strike an ‘appropriate balance’ between the policy of rehabilitating bankrupts and the rights of the debtor ‘who should not be regarded as an ordinary debtor’.[72] However, we do not think very much can be drawn from this. Mr Harmer was a law reform commissioner, not a member of parliament. His report contained no discussion of Power v Kenny, and very limited discussion of s 153(2)(b). No recommendation was made in relation to judgment debts. And while many of the recommendations in the Harmer Report were acted upon, the recommendation made concerning s 153(2)(b) was not acted upon by the legislature.

    [72]Australian Law Reform Commission, General Insolvency Inquiry (Report No 45, December 1988) 321 [792].

12. Ultimately, as Mason J observed in Babaniaris v Lutony Fashions Pty Ltd:

    The fundamental responsibility of a court when it interprets a statute is to give effect to the legislative intention as it is expressed in the statute. If an appellate court, particularly an ultimate appellate court, is convinced that a previous interpretation is plainly erroneous then it cannot allow previous error to stand in the way of declaring the true intent of the statute. … The injustice or inconvenience which will result from displacement of a long-standing decision is certainly a very important factor to be considered, but there is no support in principle or authority for the proposition that the court should persist with a manifestly incorrect interpretation on the ground that it will cause injustice or inconvenience. There is, after all, an obvious injustice in departing from the legislative intention and in most cases a proposed departure from antecedent authority involves competing detriments.[73]

    [73](1987) 163 CLR 1, 13; [1987] HCA 19 (emphasis added) (citations omitted).

13. To like effect, Lord Macnaghten observed in Hamilton v Baker that it would be wrong to follow a decision that the court considered contrary to the intention of the legislature, ‘merely because it has happened, for some reason or other, to remain unchallenged for a certain length of time.’[74]

Purpose

[74](1889) 14 App Cas 209, 222.

1. Our preferred construction of s 153(2)(b) is supported by the purpose of s 153 and of the Bankruptcy Act more generally. That purpose, described at a relatively high level of generality, is to protect the honest but unfortunate debtor who has fallen on hard times, but not to permit dishonest debtors to escape their obligations.[75] Correspondingly, while in the ordinary case creditors may be required to forgo full payment of their debts, creditors who have been the subject of fraud are given a greater degree of protection by reason of s 153(2)(b). In our opinion a construction of s 153(2)(b) that excludes from the operation of s 153(1) any debt resulting from the fraudulent conduct of the debtor better advances the purpose of the Act than a construction that excludes from the operation of s 153(1) only a sub-set of those debts resulting from the fraudulent conduct of the debtor. In that regard, we accept Mr Barodawala’s submission that a dishonest debtor against whom a creditor has obtained a court judgment should be in no different position from a dishonest debtor against whom a creditor has not obtained a court judgment. And a creditor who has pursued a claim of fraud through to judgment should be in no worse position than a creditor who has not done so.

   [75]See, eg, Commonwealth, Parliamentary Debates, House of Representatives, 27 June 1924, 1715 (Littleton Groom, Attorney-General); Commonwealth, Parliamentary Debates, House of Representatives, 20 May 1965, 1719 (Billy Snedden, Attorney-General).

2. In so far as the primary judge relied on purposes found outside the Bankruptcy Act, in the common law and the SCV Rules of Court, we consider that that reliance was misplaced.

   (a)In so far as the SCV Rules of Court are concerned, we do not consider that it is appropriate to utilise the local rules of a particular jurisdiction in aid of the interpretation of a federal statute. Indeed, as a general proposition, it is rare to rely on subordinate legislation to assist in the construction of legislation.[76]

   (b)In so far as the background of the common law is concerned, it may be accepted that, as the primary judge observed, the Bankruptcy Act was enacted against the background of the common law doctrine of merger by judgment, one purpose of which is furthering the interests of the community and of individuals in the termination of disputes.[77] It does not follow, however, that s 153(2)(b) ought to be interpreted contrary to what we regard as its ordinary meaning in order to advance those interests.

   [76]Hunter Resources Ltd v Melville (1988) 164 CLR 234, 244 (Mason CJ and Gaudron J); [1988] HCA 5; Plaintiff M47/2012 v Director-General of Security (2012) 251 CLR 1, 42 [56] (French CJ); [2012] HCA 46.

   [77]Reasons, [57].

3. Indeed, the Bankruptcy Act contains various time periods elsewhere. Thus:

   (a)section 149 provides for the discharge of a bankrupt after a period of three years;

   (b)but s 149A provides for the extension of the period of bankruptcy to five years or eight years, based on certain grounds of objection.

   In light of that, had s 153 been intended to deal with issues concerning the effluxion of time, we consider it would have done so expressly.

4. Further, in so far as the policy concerns underpinning the common law doctrine of merger and the Rules of Court are the interest in finality and in the termination of disputes, those policy concerns are advanced elsewhere than in s 153 of the Bankruptcy Act. Thus, for example:

   (a)section 5(4) of the Limitation of Actions Act 1958 provides for a limitation period of 15 years for enforcement of a judgment;

   (b)the Limitation of Actions Act provides various limitation periods, and by s 27, also provides for the extension of a period of limitation for an action based on fraud, or where the right of action is concealed by fraud; and

   (c)the SCV Rules of Court, to which the primary judge referred, impose time limitations on the enforcement of a judgment debt, including that a warrant of execution shall not be issued without the leave of the Court where six years have elapsed since the judgment took effect, and including limits on the extension of the period of validity for such a warrant.[78]  

   [78]SCV Rules of Court, rr 68.02, 68.05.

5. Given that there exist provisions of that kind to advance the policy matters that concerned the judge, in our opinion it is not appropriate to construe s 153(2)(b) narrowly in order to advance those policy considerations.

6. Further, we note that the primary judge was influenced to some extent by the timing of the events that occurred in the present dispute. However, we note that Mr Barodawala remains within the 15-year limitation period for enforcement of the judgment he obtained against Ms Perinparajah. Had it not been for her bankruptcy, he would have been entitled to the benefit of that relatively lengthy limitation period in relation to the enforcement of the NSW judgment (subject to the SCV Rules of Court concerning the warrant of execution). The fact that s 153(2)(b), by preserving Ms Perinparajah’s liability to him, might operate to permit Mr Barodawala to recover the debt owed to him some 14 years after the representations were made is, in that sense, not contrary to the general policy of the law, which would entitle him to 15 years after the date of the judgment.

7. In so far as the primary judge relied on the related doctrines of merger by judgment and res judicata as part of his purposive analysis, we accept Mr Barodawala’s submissions that that involved error.

   (a)First, the doctrine of merger by judgment results in the plaintiff’s cause of action merging in the judgment, so that it cannot be re-litigated. But that is not properly characterised as the debt having merged in the judgment; the debt remains, although it is now a right of a ‘higher nature’. The statutory question — of how the debt was ‘incurred’ — remains to be answered by reference to the debtor’s conduct, not by reference to the legal source of the debt.

   (b)Secondly, where a creditor seeks to rely on a judgment debt, and utilises the trial judge’s reasons for judgment in determining whether the debt was ‘incurred by means of fraud’, that does not involve ‘going behind’ the judgment or otherwise acting in a manner inconsistent with the doctrine of res judicata. It involves no re-litigation of the cause of action and involves no new evidence.

1. The applicant contended before the primary judge and this Court that pursuant to s 153(2)(b) of the Act, such release did not ‘release [the respondent] from a debt incurred by means of fraud’.

2. The primary judge held that the Judgment Debt was not a debt incurred by means of fraud and, in any event, any claim for fraud, even if made, merged in the Judgment Debt and effectively escaped the exception provided by s 153(2)(b) of the Act for debts incurred by means of fraud. As the Judgment Debt was a provable claim it was released.

3. The applicant challenges both findings, contending that Ball J found actual fraud,[98] whether pleaded or not, and that a preferred construction of the relevant provisions permits the Court to consider the nature or character of the conduct that informed the Judgment.

   [98]In written submissions the applicant contended that equitable fraud was sufficient.

4. On 7 July 2020, a warrant of execution was issued against the respondent. Various interlocutory steps followed. On 23 May 2022, the primary judge dismissed an appeal against the decision of Irving JR made on 1 July 2021 setting aside the warrant.[99] The applicant seeks leave to appeal this decision.

   [99]Barodawala v Perinparajah [2021] VSC 387.

5. The relevant background is set out in the joint judgment of Kyrou and Walker JJA, which I gratefully adopt.

The legislation

1. The issues in this application turn on the proper construction of s 153(2)(b) of the Act. Section 82(1) of the Act is also relevant.

2. Section 82(1) of the Act provides:

   Subject to this Division, all debts and liabilities, present or future, certain or contingent, to which a bankrupt was subject at the date of the bankruptcy, or to which he or she may become subject before his or her discharge by reason of an obligation incurred before the date of the bankruptcy, are provable in his or her bankruptcy.

3. Section 153 of the Act, relevantly provides:

   (1)Subject to this section, where a bankrupt is discharged from a bankruptcy, the discharge operates to release him or her from all debts (including secured debts) provable in the bankruptcy, whether or not, in the case of a secured debt, the secured creditor has surrendered his or her security for the benefit of creditors generally.

   …

   (2)The discharge of a bankrupt from a bankruptcy does not:

   …

   (b)release the bankrupt from a debt incurred by means of fraud or a fraudulent breach of trust to which he or she was a party or a debt of which he or she has obtained forbearance by fraud; …

The proposed grounds of appeal

1. There are two proposed grounds of appeal as follows:

   (a)Power v Kenny[100] was wrongly decided and should not be followed. It conflicts with the text, context and purpose of s 153(2)(b). There is also no sound policy reason why the doctrine of merger or res judicata should preclude the operation of s 153(2)(b) to judgment debts.

   (b)None of an express pleading of fraud, the consideration of fraud as a cause of action at common law or in equity, nor the use of the words ‘fraud’ or ‘fraudulent’ in reasons for judgment against a defendant are necessary preconditions for the application of s 153(2)(b) to a judgment debt in circumstances where the conduct of the defendant, howsoever described in reasons for judgment, in fact amounts to fraud. To hold otherwise would be contrary to the text, context and purpose of s 153(2)(b).

   [100][1977] WAR 87 (‘Power’).

Proposed ground 2

1. I agree with Kyrou and Walker JJA that proposed ground 2 must fail substantially for the reasons that they give.

2. I do not accept that the Judgment Debt was incurred by means of fraud, notwithstanding certain findings in the reasons of Ball J, arguably capable of supporting a fraud claim that was not made.

3. Fraud was not pleaded. Fraud was not referred to in the applicant’s submissions. Fraud was not referred to by Ball J. This is because, by design, the case was not about fraud. It was about consumer law and corporations law. The debt was incurred by means of a breach of the consumer law. This is what was pleaded and this is what the findings were directed to. The findings were made in the context of the case as pleaded and conducted. In these circumstances, I do not accept that it is open for a judgment creditor 11 years later, to engage in a microscopic retrospective analysis of the reasons of the judge, who dealt with a fundamentally different case, in order to cherry pick statements arguably supporting a fraud case, that was not made, so as to fortuitously fall within the exception.

4. Although the applicant accepts that fraud was not pleaded and was not an issue at trial, he points to and relies on the findings of Ball J, findings which, it was submitted, stand as part of the reasons unless reversed on appeal. I do not accept that in the circumstances, the applicant is entitled to rely on unnecessary and irrelevant comments made by Ball J, notwithstanding their apparent finality. Further, more importantly and in any event, I do not consider that Ball J made findings sufficient to establish the unpleaded actual fraud. Such findings need to be stated clearly and the reasons fully and properly articulated. This is not meant as a criticism, as there was no occasion to make such a finding. A finding of fraud, based on the required standard, was simply not made and was not required.

5. The reliance by the applicant on fraud goes well beyond procedural unfairness. It is no answer to say that the finding stands unless appealed. Stands for what? It cannot stand for anything more than that which was necessary to establish the cause of action. Ball J was simply not at liberty[101] to find actual fraud and did not do so.

   [101]Banque Commerciale SA (in liq) v Akhil Holdings Ltd (1990) 169 CLR 279, 285–86 (Mason CJ, Gaudron J); [1990] HCA 11; Sgro v Australian Associated Motor Insurers Ltd (2015) 91 NSWLR 325, 337 [56] (Beazley P); [2015] NSWCA 262.

6. In the final analysis a provable debt comprising the Judgment Debt was released. It was not incurred by means of fraud. If a fraud claim was now to be made, using the exception it would fail for many reasons.

Proposed ground 1

1. Given that the debt was not incurred by means of fraud for the reasons set out above, it is strictly not necessary to deal with proposed ground 1. However, given the importance of the issue and the detailed submissions of the parties, it is desirable to consider the proposed ground. However, as I am in the minority my remarks will be brief.

Applicant’s submissions

1. The gravamen of the applicant’s submission is that on a plain reading of the text, the exception is directed to and qualifies the release of the Judgment Debt (a provable debt) that would otherwise take place. Accordingly, it was submitted that merger, res judicata and the extinguishment of the original causes of action were irrelevant and did not bring about a new and different debt (the Judgment Debt) that escaped the exception and fell within the release.

Respondent’s submissions

1. The respondent submitted that the primary judge was correct and that the release related to the Judgment Debt, a provable debt unrelated to any prior debt or cause of action the subject of the carve out or exception.

Judge’s reasons

1. In relation to the fraud exception provided by s 153(2)(b) of the Act, the primary judge relied on the decision of Wallace J in Power, to which I will return, and held that after her release from bankruptcy there was no existing debt incurred by means of fraud because any claim for fraud had merged into the Judgment and was extinguished.

2. In dealing with Power and the merger point, the primary judge said:

   Power involved a claim for fraudulent misrepresentation which resulted in a judgment debt. After an extended period of bankruptcy, the defendant was discharged. Wallace J held that the debt incurred by means of fraud had merged into the judgment, thus becoming res judicata and extinguishing the cause of action in fraud. After release from bankruptcy, there was no existing debt incurred by means of fraud within the meaning of s 153(2)(b) of the Act.

   In construing s 153(2)(b), Wallace J relied on the decision in Blair v Curran [(1939) 62 CLR 464], where Dixon J said of res judicata that:

   the very right or cause of action claimed or put in suit has in the former proceedings passed into judgment, so that it is merged and has no longer an independent existence.

   The principles relating to res judicata and its effect on the rights and obligations in controversy between the parties to litigation and their privies are well settled by decisions of the High Court and other authorities.

   …

   The underlying logic of Power is that the cause of action for a debt or liability ceased to exist when the judgment was entered by reason of the doctrine of merger. The merger predated the defendant’s entry into bankruptcy. It followed that when the defendant was discharged from bankruptcy, there was no debt or liability incurred by means of fraud because the cause of action for a debt incurred by means of fraud had ceased to exist, and could not be revived.[102]

   [102]Barodawala v Perinparajah (No 2) [2022] VSC 247, [33]–[35], [44] (citations omitted).

3. The primary judge then considered the principles of statutory construction, which are not in dispute. In relation to the text, the primary judge said:

   Section 153(2)(b) of the Act speaks of the ‘release’ of the bankrupt from ‘a debt incurred by means of fraud’. For the provision to take effect, there must be in existence a debt incurred by means of fraud at the time of the discharge of the bankrupt from bankruptcy. The immediate difficulty for the plaintiff is that there was not, at the time of discharge from bankruptcy, a debt incurred by means of fraud, as the debt and the associated cause of action had ceased to exist years earlier when they were merged by judgment into a judgment debt. As was said in Tomlinson v Ramsey Food Processing Pty Ltd [(2015) 256 CLR 507], the rights and obligations in controversy between the plaintiff and the defendant had ceased to have an independent existence and had merged in the final judgment.

   In Clayton v Bant [(2020) 95 ALJR 34], Edelman J said that a court order replicates the prior right with added consequences such as enforcement mechanisms, and the prior right has no longer an independent existence. Here, the plaintiff’s prior right transmuted to a right to enforce the NSW judgment, a right of a higher nature.

   The consideration of the statutory text inevitably leads to the conclusion that the decision in Power is correct, because any debt incurred by means of fraud ceased to have an independent existence at the time of the judgment, long before the discharge from bankruptcy.[103]

   [103]Ibid [54]–[56] (citations omitted).

4. In relation to the purpose of the fraud exception, the primary judge said:

   The purpose of s 153(2)(b) of the Act is to except debts incurred by means of fraud from the ordinary effect of discharge from bankruptcy. However, that purpose is qualified by the fact that the Act evinces no intention to override the high importance that both the common law and the various Rules of Court place on the finality given by a judgment. Ongoing attempts to enforce judgments over a decade later must be subject to some limits. The alternative is to permit enforcement to extend over the lifetime of the debtor and beyond, into the administration of the debtor’s deceased estate regardless of the debtor’s discharge from one or more bankruptcies. The construction adopted in Power is a reasonable compromise between the need for finality and the concept of merger by judgment, and the desire to allow victims of fraud a greater opportunity than other types of litigants to pursue and recover loss.

   Civil litigation and enforcement must end somewhere. Section 153(2)(b) should be construed so as to coexist with, and not displace, the doctrine of res judicata. In the present case, the representations in question were made in February 2008, the NSW judgment was entered in December 2011, and the discharge from bankruptcy occurred in May 2015. Seven years have subsequently passed. Over fourteen years have elapsed since the representations were made.

   The construction of s 153(2)(b) adopted in Power does not leave the provision without work to do. It continues to apply in relation to debts incurred by reason of fraud where there were no proceedings prior to the bankruptcy or where they were not completed. A fraud may be undiscovered, or a victim may not have the opportunity, means or ability to take proceedings against a perpetrator prior to the perpetrator’s bankruptcy. Power strikes a reasonable balance having regard to the need for finality and the purpose of s 153(2)(b). These considerations as to purpose confirm that the reasoning in Power is correct.[104]

Analysis

[104]Ibid [59]–[61].

1. I am in substantial agreement with the reasons of the primary judge. In my opinion, the approach taken by Wallace J in Power and followed by the primary judge, is the correct approach.

2. In summary, I have concluded as follows:

   (a)The text is not clear and unambiguous. It provides a clear constructional choice equally open. According to the applicant, ss 153(1) and 153(2)(b) are related such that s 153(2)(b) qualifies the release in s 153(1). According to the respondent and the primary judge — although not fully argued or expressed in this way — the sections operate separately and independently in relation to the extent or ambit of any discharge.

   (b)The context and purpose of the relevant discharge and release provisions, within the Act as a whole, points strongly to the sections having an independent operation directed to ensuring that a defrauded creditor is not excluded and is able to participate either in the bankrupt estate, or subsequently. The provisions are not intended to ensure or facilitate a full recovery or even provide preferential treatment to one creditor over another, albeit a defrauded creditor. The object is to ensure participation, either in the estate of the bankrupt, or if not, later participation. If a creditor with a provable debt elects not to make a claim or lodge a proof of debt, such creditor is bound by the discharge. The defrauded creditor however, is not bound and has recourse to the exception.

   (c)The consequence is that the defrauded creditor can make a claim, provided the claim has not mutated or merged into a judgment. It correctly puts the defrauded creditor into a different position. On the rival construction, the debt is never released until it is paid in full. Not only does this contradict fundamental bankruptcy principles of pari passu and the like (a defrauded creditor is not relevantly in a different category to other unsecured creditors), but it encourages multiple executions and bankruptcies because the debt is never released until paid in full. This offends another fundamental principle, namely, that of finality.

3. The principles to be applied are not in dispute. The High Court has repeatedly stated that the process of statutory construction starts with the actual text of the statute. The text, however, is to be considered in light of the context and purpose of the statute or particular provision.

4. In CIC Insurance Ltd v Bankstown Football Club Ltd, the High Court said:

   Further, inconvenience or improbability of result may assist the court in preferring to the literal meaning an alternative construction which, by the steps identified above, is reasonably open and more closely conforms to the legislative intent.[105]

   [105](1997) 187 CLR 384, 408; [1997] HCA 2 (citations omitted) (‘CIC Insurance’).

5. In Certain Lloyd’s Underwriters v Cross, French CJ and Hayne J emphasised the need to look at what the statute says:[106]

   The context and purpose of a provision are important to its proper construction because, as the plurality said in Project Blue Sky Inc v Australian Broadcasting Authority, ‘[t]he primary object of statutory construction is to construe the relevant provision so that it is consistent with the language and purpose of all the provisions of the statute’ (emphasis added). That is, statutory construction requires deciding what is the legal meaning of the relevant provision ‘by reference to the language of the instrument viewed as a whole’, and ‘the context, the general purpose and policy of a provision and its consistency and fairness are surer guides to its meaning than the logic with which it is constructed’.

   Determination of the purpose of a statute or of particular provisions in a statute may be based upon an express statement of purpose in the statute itself, inference from its text and structure and, where appropriate, reference to extrinsic materials. The purpose of a statute resides in its text and structure. Determination of a statutory purpose neither permits nor requires some search for what those who promoted or passed the legislation may have had in mind when it was enacted. It is important in this respect, as in others, to recognise that to speak of legislative ‘intention’ is to use a metaphor. Use of that metaphor must not mislead. ‘[T]he duty of a court is to give the words of a statutory provision the meaning that the legislature is taken to have intended them to have’ (emphasis added). And as the plurality went on to say in Project Blue Sky:

   Ordinarily, that meaning (the legal meaning) will correspond with the grammatical meaning of the provision. But not always. The context of the words, the consequences of a literal or grammatical construction, the purpose of the statute or the canons of construction may require the words of a legislative provision to be read in a way that does not correspond with the literal or grammatical meaning.

   [106](2012) 248 CLR 378, 389–90 [24]–[25]; [2012] HCA 56 (‘Certain Lloyd’s Underwriters’).

6. In Project Blue Sky Inc v Australian Broadcasting Authority, the plurality said that the legal meaning is ‘the meaning that the legislature is taken to have intended [the provision] to have’.[107] It may or may not be the same as the literal meaning.[108]

   [107](1998) 194 CLR 355, 384 [78]; [1998] HCA 28 (‘Project Blue Sky’).

   [108]Ibid.

7. Difficulties may arise if the literal meaning conflicts with the legislative purpose. In such circumstances, a departure from the literal meaning may be justified. The resultant tension was described by Francis Bennion in Statutory Interpretation: A Code as follows:

   Consideration of the enactment in its context may raise factors that pull in different ways. For example the desirability of applying the clear literal meaning may conflict with the fact that this does not remedy the mischief that Parliament intended to deal with.[109]

   [109]Francis Bennion, Statutory Interpretation: A Code (Butterworths, 3^rd ed, 1997) 344, referred to with approval in Project Blue Sky.

8. In Colonial Range Pty Ltd v CES-Queen (Vic) Pty Ltd, this Court gave examples of conflicts between the literal meaning and the identified legislative purpose which have justified departure from the literal meaning. These include circumstances where:

   (a)      the literal meaning would conflict with other provisions of the statute;

   (b)      the literal meaning is inconsistent with the purposes of the statute;

   (c)      the literal meaning is incapable of practical application; or

   (d)adoption of the literal meaning would lead to a result that is absurd, unreasonable or anomalous.[110]

   [110][2016] VSCA 328, 18 [53] (citations omitted).

9. Departure from the literal meaning will only be justified if the alternative construction is ‘reasonably open’[111] and ‘consistent with the language in fact used by the legislature’.[112] The purpose of legislation must be derived from what the legislation says, and not from any assumption about the desired or desirable reach or operation of the relevant provisions.[113]

   [111]CIC Insurance (1997) 187 CLR 384, 408; [1997] HCA 2.

   [112]Taylor v The Owners—Strata Plan No 11564 (2014) 253 CLR 531, 549 [39]; [2014] HCA 9.

   [113]Certain Lloyd’s Underwriters (2012) 248 CLR 378, 390 [26]; [2012] HCA 56.

1. In the case of two strongly competing interpretations, the High Court has said:

   If the choice is between two strongly competing interpretations, as we have said, the advantage may lie with that which produces the fairer and more convenient operation so long as it conforms to the legislative intention. If, however, one interpretation has a powerful advantage in ordinary meaning and grammatical sense, it will only be displaced if its operation is perceived to be unintended.[114]

   [114]Cooper Brookes (Wollongong) Pty Ltd v Commissioner of Taxation (1981) 147 CLR 297, 321; [1981] HCA 26.

2. A literal reading of s 153(2)(b) clearly invites consideration of the cause or reason for the Judgment Debt, ignoring the legal consequences relating to the move from a cause of action to a Judgment Debt that is provable, able to participate in the bankruptcy, and, as in this case, did indeed participate in the bankruptcy.

3. However, in my opinion, for the reasons set out below, such a literal construction does not correspond with the context of the words or the purpose of the statute. Such consideration requires the words to be read in a way that may not entirely correspond with the literal meaning, but is not in conflict with it. Adoption of the suggested literal meaning would in my view lead to unreasonable or unintended consequences.

4. It is first necessary, and in my view of critical importance, to assess the position of the judgment creditor, in this case the applicant, following judgment and the orders made. In relation to this question there is no dispute. The original cause of action has been extinguished and the matter, the subject of the original cause of action, is res judicata. Further, by the doctrine of merger, the indebtedness of the bankrupt, that is the respondent, to the applicant arises out of the Judgment Debt and not the original cause of action. Although the original cause of action is not extinguished ab initio, it does not exist and is of historical relevance only.

5. The next critical question, in the context of this appeal, is whether despite the release of the Judgment Debt — a provable claim that was admitted to proof — the exception saves the release despite being directed to the conduct that led to the Judgment Debt, conduct otherwise of no ongoing relevance. Of course if the debt, the subject of the Judgment Debt, was not incurred by means of fraud, as I have found, the question does not arise.

6. It is only provable debts that are released, whether subject to a proof of debt or not. This includes a judgment debt, in this case the Judgment Debt. A debt incurred by means of fraud is not released. It is not released because it is not provable. It stands outside the proof of debt regime, unless it becomes subject to it, by becoming a new indebtedness by merger, an indebtedness that is provable and entitled to participate in the bankrupt estate.

7. There is no dispute that, subject to the exception, the release is directed to the Judgment Debt. There is also no dispute that the original cause of action has been extinguished and has merged in the Judgment creating the Judgment Debt, a new and different liability or indebtedness. The sole question is whether the release operates on the Judgment Debt because, it, that is the Judgment Debt, the subject of the release, was incurred by means of fraud.

8. Of course, there is no dispute that the Judgment Debt itself — this new liability the subject of the release — was not incurred by means of fraud. The applicant ignores this new liability and submits that it is irrelevant, as the plain wording of the text invites a simple consideration of whether the Judgment Debt was incurred by means of fraud.

9. In my opinion, the applicant has misconstrued the proper application of the exception. It only applies to preserve a debt incurred by means of fraud, where there is no judgment. In other words, if a creditor with a fraud claim does not pursue such a claim, nothing is released and there is no bar to a claim post discharge from bankruptcy. This may be contrasted with the position of a creditor with a provable claim that does nothing. Such a claim is released. There is no difficulty in releasing the claim of a creditor that could have proved, but for whatever reason did not, but preserving a claim of a creditor that is not provable. However, if a claim or debt arising originally out of fraud or by means of fraud is pursued to judgment resulting in the judgment comprising a provable debt, it is that debt that is released. The exception does not and is not intended to affect that release because the fraud claim has been made and dealt with. Under the comprehensive bankruptcy regime, if it has not been dealt with, there is nothing to release and the creditor should — given the seriousness of the claim and its non-provable character — be permitted to make it post discharge. By waiting, such creditor is no better or worse off, if indeed this be a relevant enquiry. It would depend on the circumstances.

10. The reason why the applicant cannot springboard off the Judgment Debt and continue to enforce it by a warrant of execution is because as a provable debt it has been released and cannot anchor any further proceedings by way of execution. The reason why the exception does not apply (and has the restricted operation as referred to) is because the Judgment Debt has become subject to and is dealt with exclusively under the comprehensive bankruptcy regime. Participation in this regime does not generally admit exceptions or preferential treatment unless clearly and specifically stated. This further right comprising the exception only operates outside of the provable debt regime.

11. The bankruptcy regime is a comprehensive regime directed to the collection, recovery and pursuit of all the assets of the bankrupt, assessing the claims of the creditors and making a distribution in accordance with stated priorities. Numerous powers are given to trustees to ensure that all assets and liabilities are properly considered and a fair and proper distribution made. This is to ensure that upon discharge all claims are released and the bankrupt is able to move on unencumbered by any further provable claims, whether made or not. Of course, the trustee may report improper or criminal activity to the appropriate authorities and this conduct, whether fraud or otherwise, may be dealt with separately.

12. In short, the applicant has engaged in the comprehensive bankruptcy process and had his debt, a provable debt comprising the Judgment Debt dealt with together with all of the other debts of the bankrupt. He is bound by the result and the distribution and cannot continue with a warrant of execution, which is anchored in a debt that has been dealt with. Finally to do this 11 years later and after such full participation, by the belated reliance on the unnecessary and irrelevant findings of a judge is not only opportunistic but wrong.

13. In the final analysis, a review of the context in which the exception appears, compels the conclusion that the applicant cannot participate in the bankruptcy and the proof of debt regime that has release as a consequence, and then, being dissatisfied with his distribution, continue to effectively claim through the released debt by use of the exception, directed as it is to an entirely different situation, that is preserving a claim where no claim has been made. This is not inconsistent with the text.

14. The reason for the exception is not to enable full recovery but rather the participation of the defrauded party in the bankruptcy process so as to ensure such party receives her aliquot share, no more and no less. Unless and until this happens, such rights are preserved. Once a fraud claim is converted to a provable debt, such participation takes place. The legislation provides for a right to participate and no more. Otherwise a defrauded creditor may be able to undertake multiple bankruptcies.

15. What precisely does it mean, within the contended construction, that a debt incurred by means of fraud is not released, in circumstances where a proof of debt has been lodged in respect of a provable debt, no less a judgment of the court? If it is not released it must still exist as an enforceable debt. But it does not exist and is not deemed to exist. A further, additional or new claim cannot be made. The obstacles to such a claim are numerous and trite and need not be stated. What then are the practical consequences if no further claim can be made? Repeated and continuous execution, of the very Judgment Debt against the after acquired property of the bankrupt, is an extravagant notion that is not only not supported by the text or purpose of the relevant provisions but offends the fundamental principles of pari passu and finality that underpin a critical aspect of the orderly bankruptcy regime.

16. Finally, for the reasons given, and to repeat, the exception does not qualify the release of provable debts provision. Rather, it has a different and independent operation and stands outside of the provision, so as to effectively enable participation by a defrauded party, despite such release.

17. I now turn to the relevant authorities. In my opinion, Power remains good law and should continue to be followed.

18. In Power, Wallace J said:

    However, the plaintiffs say that this discharge does not free the defendant from accounting to them in full. They say this because of the provisions of s 153(2)(b) of the Bankruptcy act which has the effect of not releasing a bankrupt from a debt incurred by means of fraud. In support of that proposition a long list of authorities has been provided, but in no instance in those cases was a debt incurred by fraud the subject of a judgment of a court.

    Hence the defendant argues that the plaintiffs’ judgment is not a debt incurred by means of fraud, the cause of action having merged into the judgment thus becoming res judicata and extinguishing the cause of action in the judgment which is pronounced. Transit in rem judicatam, ’the very right or cause of action claimed or put in suit has in the first proceedings passed into judgment, so that it merged and has no longer an independent existence‘: per Dixon J in Blair v Curran (1939) 62 CLR 464 at 532. The justification for the doctrine of merger is most ably illustrated by the learned author G Spencer-Brown in Res Judicata, 2nd ed by Turner, par 425, p 356 et seq.

    It is true that a court exercising jurisdiction under the Bankruptcy Act 1966–1973 has the power to inquire into the consideration for a judgment debt when this debt is relied upon by a creditor who presents a creditor’s petition to the court or who seeks to prove in bankruptcy. The power is a discretionary one and will not normally be exercised where the judgment has been entered after a full trial of all the issues arising in the action: see Fullagar J in Corney v Brien (1951) 84 CLR 343 at 353 et seq; [1951] ALR 525 at 532. But this is not a question of going behind the judgment but rather the establishment of a debt incurred by means of fraud, the existence of which the defendant now denies.

    I have previously said that of all the authorities cited by counsel for the plaintiffs in no instance was the debt in fraud the subject of a judgment. The research of Mr Walton would confirm this fact, though he has directed my attention to what would appear at first sight to be an exception, that of Jenkins v Fereday (1872) LR 7 CP 358. However, a reading of that authority establishes Bovil CJ’s observations on the point in question as obiter and again there was certainly no argument before the court on the subject of res judicata.[115]

    [115]Power [1977] WAR 87, 88–89.

19. Wallace J proceeded on the assumption that there was no case where a debt in fraud was the subject of a judgment. Although this may not be accurate,[116] there is no indication that his Honour would have reached any different decision.

    [116]See Emma Silver Mining Company v Grant (1880) 17 Ch D 122 and Jenkins v Fereday (1872) LR 7 CP 358 (‘Jenkins v Fereday’). Both cases involved a prior judgment but the doctrine of merger was not referred to.

20. The applicant relied on decisions in England and Canada, and submitted that the reasoning in those cases suggested that Power was wrongly decided. While the decisions are informative, they are decided in their own context and in the context of the statutory provisions operative in those jurisdictions. They do not persuade me that Power was wrongly decided. Given the extent and context in which the provable debt regime operates, as set out above, I do not consider that Power was wrongly decided. To the contrary, I consider that it represents the correct approach to the orderly participation in the estate of the bankrupt.

21. As I have sought to demonstrate, the preferred construction of the exception is a narrow construction permitting a fraud claim (or more precisely a debt incurred by means of fraud) to be advanced, notwithstanding the bankruptcy discharge, and consequent release, in circumstances where the defrauded creditor has not participated in the provable debt regime. If the creditor has so participated, by lodging a proof of debt based on a judgment of the court, the exception does not apply.

22. Accordingly, I do not consider those cases where there is no judgment (or merger) or where there is a judgment but no discussion in relation to merger to be relevant or of assistance in determining the preferred construction above. This leaves for consideration Jenkins v Fereday and Masters v Leaver.[117] To the extent that they are on point, I decline to follow them.

    [117][2000] IL Pr 387 (English Court of Appeal) (‘Masters v Leaver’).

23. In Jenkins v Fereday, cited by Wallace J in Power, an attorney was ordered to pay the defendant’s costs because he commenced a proceeding without the authority of the plaintiff. Bovill CJ held that a ‘discharge in bankruptcy does not discharge from such a liability as the present, because the party incurring it was guilty of fraud within the section’[118] and that it did not matter if it was a provable debt. There is no discussion of the doctrine of merger. It was simply assumed by the court that even if provable, the costs debt would not be discharged.

    [118]Jenkins v Fereday (1872) LR 7 CP 358, 359.

24. In Masters v Leaver, the deputy judge of the Chancery Division, Hazel Williamson QC, held that a discharge from bankruptcy did not release a bankrupt from an indebtedness the subject of a judgment obtained in Texas because the indebtedness arose in respect of a fraud and within the relevant exception. The judge dealt with res judicata but not merger. As a matter of construction, the judge favoured looking at the origin of the debt as suggested by the text of the section. It was, according to the judge, a simple construction matter. On appeal, Morritt LJ accepted without argument or analysis that the ‘debt in question is the original liability, not the judgment into which, in England, it would have merged’.[119] His Lordship then dealt with evidentiary matters in relation to fraud. The decision does not assist in the determination of the appropriate constructional choice.

    [119]Masters v Leaver [2000] IL Pr 387, 393 [25].

25. In the relevant cases referred to, it has simply and understandably been assumed, without adequate, and in some cases any analysis, that, as per the text, the exception invites a consideration of the origin of the debt, ignoring everything else. This is not, with respect, a proper application of the exception, as I have sought to demonstrate.

26. I would grant leave to appeal on both grounds but dismiss the appeal.

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