Barodawala v Perinparajah

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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…

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Details
Case
[2022] VSCA 198
Decision Date

CaseChat Overview and Summary

In Barodawala v Perinparajah, the applicant sought to enforce a judgment debt against the respondent who had become bankrupt and was subsequently discharged. The dispute centred around whether the judgment debt was exempt from discharge under the Bankruptcy Act 1966 (Cth) due to being incurred by fraud. The applicant argued that the findings in the 2011 reasons for judgment constituted findings of fraud even though fraud was not pleaded or argued. The court was required to determine if the judgment debt was indeed a debt incurred by means of fraud and whether the doctrines of merger by judgment and res judicata meant that this character ceased upon the entry of the judgment.

The court held that the 2011 judgment debt was not ‘a debt incurred by means of fraud’ under the Bankruptcy Act. The findings regarding the falsity of representations did not constitute findings of fraud, as fraud was not pleaded or argued. The court also held that the doctrines of merger by judgment and res judicata did not mean the debt was not ‘incurred by means of fraud’. The judge disagreed with Power v Kenny [1977] WAR 87, stating that the doctrines of merger by judgment and res judicata did not restrict the operation of section 153(2)(b) of the Bankruptcy Act based on principles relating to finality in litigation.

The appeal was dismissed, and leave to appeal to the High Court was granted. The court relied on Banque Commerciale SA (in liq) v Akhil Holdings Ltd (1990) 169 CLR 279, Yorke v Lucas (1985) 158 CLR 661, and Paper Products Pty Ltd v Tomlinsons (Rochdale) Ltd (1994) ATPR 41-315 in reaching its decision. The court emphasised that the original claim under the Trade Practices Act 1974 (Cth) did not constitute ‘a debt incurred by means of fraud’ and that this character did not cease upon the entry of the judgment. The case highlights the importance of pleading and arguing fraud explicitly when seeking to exempt a debt from discharge under the Bankruptcy Act.

Orders

Orders of the court

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Background

Background to the litigation

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Evidence

Evidence Before The Court

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). 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. 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.

Decision

Reasons for decision

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Ratio Decidendi

Legal Principle Established

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