Britt v Wong
[2007] FMCA 791
•17 May 2007
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| BRITT v WONG | [2007] FMCA 791 |
| BANKRUPTCY – Creditor’s petition – default judgment of District Court – District Court refused to set aside judgment – insufficient reasons for going behind – sequestration order made. |
| Bankruptcy Act 1966 (Cth), ss.51(1), 51(2), 52(1)(a), 52(2) |
Udovenko v Mitchell (1997) 79 FCR 418
Wolff v Donovan (1991) 29 FCR 480
Australian Litigation Fund Pty Ltd v Mearns (No 4) [2005] FMCA 1815
Wren v Mahony (1972) 126 CLR 212
Murdaca v Accounts Control Management Services Pty Ltd [2007] FCA 577
| Applicant: | ROBERT JOHN BRITT |
| Respondent: | ANDREW WONG |
| File Number: | SYG 1396 of 2006 |
| Judgment of: | Smith FM |
| Hearing date: | 17 May 2007 |
| Delivered at: | Sydney |
| Delivered on: | 17 May 2007 |
REPRESENTATION
| Counsel for the Applicant: | Mr M Cleary |
| Solicitors for the Applicant: | Warren McKeon Dickson Lawyers |
| Counsel for the First Respondent: | Mr P Moloney |
| Solicitors for the Respondent: | Moloney Lawyers |
ORDERS
A sequestration order be made against the estate of Andrew Wong.
The applicant creditor’s costs, including all reserved costs, be taxed and paid from the estate of the respondent debtor in accordance with the Bankruptcy Act 1966.
Note that the petitioner alleges that the date of the act of bankruptcy is 14 March 2006.
Note that a consent to act as trustee has been signed by Phillip Kenneth Aggs and will be lodged with the Official Receiver in Sydney within
2 days.
The applicant must within 2 days obtain an entered sequestration order and give a copy the Official Receiver in Sydney.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG 1396 of 2006
| ROBERT JOHN BRITT |
Applicant
And
| ANDREW WONG |
Respondent
REASONS FOR JUDGMENT
(revised from transcript)
I have before me a creditor's petition filed on 12 May 2006, seeking a sequestration order against the respondent. It alleges an act of bankruptcy and indebtedness to the applicant, both of which rely upon a judgment debt entered in the District Court of New South Wales on 24 January 2003 in the sum of $197,159.01. The debt relied on by the petition has been augmented by interest, and is now in the sum of $255,545.09.
The history of the matter in the District Court and this Court is lengthy. It includes the adjournment of the petition in this Court to allow the respondent debtor to make a third application to the District Court to set aside the judgment relied upon. That application was determined against the debtor, in a reserved decision of Kearns DCJ published on 24 January 2007.
Kearns DCJ has set out a detailed history of the proceeding in the District Court, and I do not need to repeat its details. In short, the present applicant first commenced proceedings against the present respondent in 1994, seeking recovery of a liquidated amount which was pleaded as a “loan” of $85,000 paid by the applicant and his wife to the respondent and his wife, and not repaid when demanded. The respondent and his wife filed a notice of grounds of defence to this claim, which contained bare denials of every paragraph and no properly pleaded defence. The proceeding then languished without any further activity, and may still not be finalised in the files of the District Court. The respondent in his evidence to this Court says that he made a deliberate decision not to take any action to bring that matter to a head, but accepted advice to “simply sit back and see what happens”.
A second proceeding was filed in the District Court by way of ordinary statement of claim on 12 October 2001. The present applicant was named as sole plaintiff. The present respondent was named as first defendant, without his wife being joined. The second defendant was the applicant's former solicitor in the first proceeding, on allegations of professional negligence, including by instituting “an incorrect cause of action against the first defendant” in the first proceeding.
As against the present respondent, three alternative causes of action were pleaded in the alternative, all of which referred to the transfer of $85,000 in or about December 1989 from the applicant to the respondent. The first count pleaded that there was a failure to apply that sum in accordance with an agreement between the parties “for the development of a Thai Restaurant and Karaoke Bar at 355 Sussex Street, Sydney”. The agreement is labelled as “a joint venture agreement”, and breaches of terms conditioned upon the transfer of that sum of money are pleaded, including by the payment of the money to a company, Hatire Investments Pty Ltd (‘the company’) without the knowledge or consent of the applicant. The second count relies upon the same events, but pleads that the money was paid “upon trust” for the applicant for the purpose of establishing and developing the business. Breaches of the trust were alleged, being the failure to apply the funds for that purpose and the payment of the sum to the company. The third count relied on the same events, but pleads that the money was “fraudulently misappropriated by the first defendant” when the money was paid into the company's account.
As Kearns DCJ related, the respondent employed a solicitor to act for him in the 2001 District Court action. Although the solicitor appeared on at least one occasion in the course of the proceedings in the District Court, he did not file a notice of appearance or address for service, and never filed a notice of defence. There is no evidence before me that he ever sought particulars of the general allegations made in the pleading so as to obtain more precision as to the material facts of the alleged agreement or transaction involving the transfer of $85,000.
The action was listed on many occasions in the District Court. On 16 August 2002, a default order for judgment against the present respondent was entered, due to the absence of a Defence and of any appearance for the respondent at the appointed hearing. At that hearing, the claim against the second defendant, the applicant's former solicitor, was settled on terms that are not revealed in the evidence. The claim against the respondent was then subsequently called over, and was listed for an assessment of damages on 24 January 2003. There was no appearance for the respondent on that date, and Certoma ADCJ entered the judgment, which has given rise to the debt now relied upon in this petition.
There was some controversy, on which Kearns DCJ made findings, whether the respondent was legally represented on 11 December 2002, when the assessment listing was made. His Honour concluded that the respondent was legally represented. However, he also addressed the issues before him, which I shall discuss further below, on the converse assumption. The respondent in this Court denies only that he was “informed as to that assessment hearing date by my then solicitor Andrew Lui or the applicant or his legal representatives”.
At the assessment hearing, evidence was taken by Certoma ADCJ in support of the damages which were awarded. The evidence was briefly identified in his Honour's judgment delivered on 24 January 2003:
I will briefly state the background evidence as follows, essentially that the plaintiff and the first defendant had agreed in 1989 to enter into a joint business venture, the establishment of a karaoke bar in Sydney and that the plaintiff was to contribute a sum of eighty five thousand dollars for this purpose. The money was obtained by the plaintiff on loan from the first defendant’s bank and the proceeds of the loan became available to the first defendant. The business was established in due course by the first defendant but the plaintiff never received any dividends on his investment and the principal was never repaid to the plaintiff.
The plaintiff gave evidence that after various communications between him and the first defendant as to the absence of any dividends for the joint venture in mid 1991 the first defendant stated to the plaintiff that he could have his money back. A further approach was made to the first defendant in late 1983 and the first defendant told the plaintiff again that he would get his money back. However the plaintiff as stated never received any monies from the first defendant.
The plaintiff, according to the evidence, settled his debt with the State Bank in 1995 for a compromised figure of seventy five thousand dollars. The plaintiff therefore claims the sum of seventy five thousand dollars. The capital sum on the loan is compromised with the bank. Interest paid on the loan from 1 December 1989 to 28 February 1995 when the loan was settled with his bank at court rates, and interest according to the District Court Rules form 1 March 1995 to date. All of which total one hundred and twenty two thousand one hundred and fifty nine dollars and one cent. Calculations are set out in exhibit B tendered in the proceedings.
I therefore assess damages against the first defendant in that sum and order accordingly.
It was only when the respondent was served with bankruptcy notices in 2005, that he became active in challenging the judgment debt. The subsequent chronology is also set out in the judgment of Kearns DCJ.
In the course of a challenge to a second bankruptcy notice, adjournments were given in this Court allowing the first of the respondent's three applications to set aside the judgment. This was dismissed by McGuire DCJ on 7 December 2005, after a contested hearing. His Honour's brief oral judgment is in evidence. He examined the chronology of the proceeding in the District Court, and was not persuaded that the judgment was entered by reason of any irregularity or against good faith. His judgment does not indicate whether he had been presented with particulars or evidence of a defence having any possible merit.
A second application to set aside the District Court judgment was made to that Court in February 2006 but was not pressed, being dismissed by consent on 10 February 2006.
Following the respondent’s failure to obtain the setting aside of the judgment, the proceeding in this Court to set aside the bankruptcy notice was dismissed by consent on 21 February 2006, and an act of bankruptcy then occurred. The occurrence of the act of bankruptcy due to failure by the respondent to comply with the bankruptcy notice is not disputed before me, although the date of the act of bankruptcy is not clearly identified. The applicant alleges that this occurred no later than 14 March 2006, being 21 days after the dismissal of the application to set aside the bankruptcy notice. I accept this submission, but shall not make a final determination as to the exact date of the act of bankruptcy. It may be that an earlier date could be determined, depending upon the terms of a stay – if any – given in or arising out of the application to this Court.
The present petition was then presented on 12 May 2006. It was repeatedly adjourned, to allow the respondents a third attempt to have the judgment set aside in the District Court. This application gave rise to the judgment of Kearns DCJ. The respondent was represented by senior counsel, and all issues seem to have been thoroughly addressed.
One of the contentions made to Kearns DCJ was that the obtaining of the judgment was an abuse of process, due to the un-finalised 1995 proceedings. The extent to which the respondent's solicitors were on notice of some of the listings in the District Court was also investigated. The respondent also gave evidence to Kearns DCJ of his account of the events involving the transfer of the $85,000. This included the presentation of a bank statement for an account held by the company, showing a transfer into its account on 21 November 1989 of $85,000 from an account in the name of the present applicant and his wife. It appears to me probable that the affidavit that was before Kearns DCJ was largely in the terms of the respondent’s affidavit filed in this Court, albeit that some parts of it, which I rejected, may have been admitted in that court.
In those parts of his affidavit admitted in this proceeding, the respondent accepted that there had been discussions between him and the applicant relating to a transfer of $85,000. He said: “One of the persons who expressed an interest in investing in the Shinju Movieland restaurant venture was the applicant, Robert Britt. Discussions took place between myself and Robert Brit concerning the investment”. He said that at that time “I was not a director or officer of that company”, and said that he “did not become a director until August 1990”. He made an explicit denial: “at no time did the applicant advance to me the sum of $85,000”. He asserted that the restaurant was operated by the company, and that he had no involvement “other than as a director and shareholder”.
I note that he has not presented evidence explaining the capacity with which he conducted the discussions that he admits to with the plaintiff in 1988 and 1989, leading to the applicant’s arranging for the payment of $85,000 on 21 November 1989. Nor does he present clear evidence of any agreement with another person which explains that payment. The exact terms of the admitted agreement with the applicant are not presented in his evidence nor in any draft pleading.
He alleges that: “I caused payments to be made, by way of dividend or otherwise, to the respondent and his wife from time to time in the years after 1990”. However, this evidence was general, and was presented on the basis that he had no corroborative or direct evidence of any such payments. He also alleged that the applicant dined free of charge in the restaurant. The remainder of his affidavit seeks to explain his failure to file a defence and defend the matter in the District Court, both before the order for judgment and at the assessment hearing. He blames all these omissions on the solicitor whom he instructed at the time. In effect, he disclaims knowledge of all that happened in the District Court, including events which must have been known to his solicitor.
Reviewing the evidence before me, both as to the circumstances in which the default judgment was arrived at, and in relation to considerations of justice in allowing it to be given effect in a bankruptcy proceeding, I find myself in respectful agreement with the findings of Kearns DCJ.
As I understand from his Honour’s reasoning, he made assumptions rather than findings that the defendant “has put forward material that discloses he has a defence on the merits, and on more than one ground, to the plaintiff's claims” (see para.32). Certainly, he does not enter into an examination of the evidence presented to him, to identify the particulars of the defence which had been presented to him and of any evidence which he thought gave substance to a defence. It would appear that, as with the respondent’s evidence before me, his defence amounted to a denial that he negotiated or entered into the agreements leading to the transfer of the $85,000 as a principal incurring personal obligations. However, there is little in the evidence before me which provides any real substance to this defence, and it would seem that little was presented to Kearns DCJ.
Kearns DCJ dealt with the motion to set aside by addressing in detail the procedures in the District Court, including the respondent’s arguments based on the concurrent existence of the 1995 action. He arrived at clear findings that the obtaining of the judgment in the 2001 action was not attended by “lack of good faith or abuse of process”. He also thought that the defendant had had a previous opportunity to “agitate all these points before McGuire J”, and dismissed the motion on 24 January 2007.
Following that dismissal, the present petition was listed for hearing before me today. The respondent’s representative relied only upon grounds 3 and 4 in the notice of opposition. These challenged, in effect, the existence of the debt relied upon by the applicant petitioner, and presented the circumstances of the obtaining of the judgment as discretionary reasons for refusing to make a sequestration order (see s.52(1) and (2) of the Bankruptcy Act).
Essentially, the case presented by the respondent concerned the familiar territory of “going behind” a judgment debt obtained by default. I was referred to well known authorities in the High Court, and to discussion of those authorities in the Federal Court and in this Court. I do not propose in this judgment to attempt to canvass the law again. The judgments of Davies J in Udovenko v Mitchell (1997) 79 FCR 418 and in Wolff v Donovan (1991) 29 FCR 480 were cited to me by counsel for both sides, and I have sought to apply his Honour's explanation of the authorities to the matter before me. I was also referred to an extensive, and with respect, useful summary of the authorities by Federal Magistrate Barnes in Australian Litigation Fund Pty Ltd v Mearns (No 4) [2005] FMCA 1815 at [11]-[21].
As I understood the respondent’s argument, it was accepted that I should first address whether the material presented by the respondent raised “substantial reasons…for questioning whether behind that judgment there was in truth a reality of debt due to the petitioner” (see Wren v Mahony (1972) 126 CLR 212 at 224-5). This question is relevant to deciding whether the Court should “accept the affidavit verifying the petition as sufficient” under s.52.(1)(a), whether under s.52(1) it should be “satisfied with the proof” of the debt provided prima facie by the judgment, and also whether there is “other sufficient cause” to exercise the Court’s discretion under s.52(2) to dismiss the petition.
It was accepted before me that an element of discretion, in the sense of broad evaluation, arose when considering whether reasons had been presented for going behind the judgment. This allowed the court to assess the processes which had led to the default judgment and the refusal of the District Court to set it aside. It also required me to assess the evidence attempting to cast doubt on the cause or causes of action presented in the action in which the default judgment had been obtained.
In relation to matters of process in the District Court, it was strongly argued for the respondent that the court should conclude that the judgment involved an abuse of process due to the previous un-finalised 1995 proceedings. It was submitted that the obtaining of the judgment was attended by “lack of good faith and an abuse of process”.
In effect, in my opinion, this was the same argument as was presented to Kearns DCJ, albeit addressed in the different context of the Bankruptcy Act. However, in my opinion, the arguments were more, rather than less, pertinent to the discretions which were exercised by Kearns DCJ, than to the considerations which need now to be addressed by me. They were thoroughly considered by Kearns DCJ in a reserved judgment. From the perspective of s.52 of the Bankruptcy Act, I would not take a view of what happened in the District Court different than was taken by Kearns DCJ.
I accept that the maintenance of two inconsistent proceedings in one court is a matter which can be characterised as ‘abuse of process’. However, such an abuse is normally able to be addressed in the procedures of the courts in which it occurred. The contended abuse has now been addressed in the District Court through the medium of the respondent’s application to set aside the 2003 judgment. The challenge to the judgment obtained in the second proceedings has failed in the District Court, and I now have difficult identifying such impropriety attending the obtaining of that judgment which causes me to decline to recognise its effectiveness, particularly since it has been allowed to stand in the face of the same arguments.
I have carefully considered the arguments presented to me in the respondent’s oral and written submissions addressing the history of the matter in the District Court, but do not find in that history reasons for going behind the judgment, whether considered alone or in conjunction with other aspects of the case. Indeed, my conclusion from examining the careful analysis provided by Kearns DCJ is that the public interest relating to the finality of litigation, which is a matter which can be taken into account in this court in proceedings such as this, points in favour of allowing the petitioner to rely on the judgment debt (cf. Murdaca v Accounts Control Management Services Pty Ltd [2007] FCA 577 at [13]-[21]). I therefore do not accept that there is any “process” objection which should cause me to go behind the judgment debt.
Turning to consider whether the respondent has raised substantial reasons for questioning whether there did exist a cause of action supporting the judgment debt, I have not been persuaded as to this by his evidence.
I have already above indicated the insubstantial nature of the evidence from the applicant himself in his affidavit, and the absence of any corroboration of his assertion that he incurred no personal liability in the course of his discussions with the applicant which provided the terms under which the $85,000 was paid by or at the request of the applicant, and which appears to have passed into the company account. I do not consider that the respondent provided evidence of substance showing that he did not conduct those conversations as a principal, or, at least, holding himself out as a principal. The bank account record itself, in my opinion, is equivocal as to the underlying transaction, since it establishes only that money was transferred by a bank from a joint account of the applicant and his wife into the company's account. Such evidence as is before me suggests that this may have occurred consistently with the District Court pleading in one of its alternatives.
A second piece of evidence, which the respondent’s solicitor relied upon to show that the judgment on the 2001 pleading was inconsistent with the “true” facts, was the contents of the 1995 pleading. However this was unverified, and was prepared by a solicitor who became the second defendant in the second proceeding upon allegations that he had mispleaded the applicant’s claim against the respondent. I do not consider that the contents of the 1995 pleading provides evidentiary support for a good defence to the 2001 pleadings.
The third piece of evidence, which was relied upon by the respondent’s solicitor to undermine the judgment debt, was provided by the tender of an affidavit sworn by the applicant, Mr Britt, on 16 May 2007. This had been belatedly prepared in the present proceeding, in response to the affidavit of the respondent sworn and filed in December 2006. It was first served on the legal representative of the respondent late yesterday, and came to his attention this morning. I allowed it to be filed, but objection was initially taken by the respondent’s solicitor on the basis that he had not had opportunity to take instructions concerning its contents, in particular, since his client was not personally present at court today. I upheld that objection, and refused to allow it to be read by counsel for the applicant. However, after a morning adjournment, the respondent’s solicitor himself tendered the affidavit in his own case, on the basis that it contained admissions inconsistent with the causes of action asserted in the 2001 District Court pleading.
The inconsistent passages in the affidavit were:
6.1In 1998 Andrew Wong approached me requesting a loan to assist with a business venture. He was proposing to fit out and set up a Thai restaurant on the 2nd floor of premises at 355 Sussex Street, Sydney. After several discussions I made an offer to provide finance on the following terms:
RB:“Andrew I propose to lend you $85,000.00 on the basis that my return on that loan is 10% of the profits of the business and the loan is secured by a mortgage over your home.”
6.2Andrew Wong said words to the effect:
AW:“I agree to those terms.”
6.3The proposal stated above is that I would receive 10% of the profit, not a 10% equity interest in the business
6.4Throughout our subsequent discussions Andrew Wong did not mention the company called Hatire Investments Pty Limited.
6.5I approached my then bank, the State Bank of New South Wales, China Town Branch, to obtain finance. I was dealing with the Manager of the China Town Branch, John Pearson. I understand that John Pearson was also Andrew Wong’s bank manager.
6.6While my loan application was being processed I was in constant contact with John Pearson and with Andrew Wong. I now understand that Andrew Wong was also privately having discussions about my loan with John Pearson.
6.7It was Andrew Wong who telephoned me to indicate that the loan had been approved.
6.8On or about 1992 or 1993 I reported John Pearson’s conduct to the banking ombudsman in relation to another loan I had with his branch of the bank. As a consequence of that complaint to the banking ombudsman I first became aware that the funds were deposited into the account of Hatire Investments Pty Limited. That was the first occasion when I became aware of that company.
6.9I now know that the State Bank drew down $85,000.00 from my account on the authority of John Pearson as directed by Andrew Wong. At that time my wife, Karen Britt had executed some of the bank’s document including an Authority and Direction to Pay with the payee and the amount left blank to be completed by the State Bank as is often done.
6.10I have subsequently found out that without my authority John Pearson released the $85,000.00 that I had borrowed and paid it to the account directed by Andrew Wong. I subsequently found out that that account was in the name of Hatire Investments Pty Limited.
6.11At no time did I loan money to Hatire Investments Pty Limited and at no time did I authorise the State Bank to drawdown the loan funds and deposit them into that account.
6.12 Following the banking ombudsman’s investigation I settled with the State Bank by paying it $75,000.00 to discharge the loan.
Two inconsistencies were particularly argued by the respondent’s solicitor. The first was that Mr Britt’s affidavit presented a different date for the alleged agreement than was alleged in the 2001 pleading. This alleged an agreement “in or about November 1989”. However, I do not read the affidavit as suggesting that the 1988 “approach” by Mr Wong produced an agreement at an earlier date than that which was pleaded.
It was also argued that the conversation which is set out in par. 6.1 of Mr Britt’s affidavit used language of “lend” and “the loan”, which is inconsistent with the pleading’s allegations that money was transferred as part of a “joint venture agreement” or “upon trust”. However, I am not persuaded that the affidavit is inconsistent with the causes of action presented to the District Court. The language used in a pleading may be quite different than the language eventually presented by a witness at a trial when establishing the pleaded transaction. In my opinion, it is not inconsistent for somebody in the circumstances suggested by Mr Britt in his affidavit, which it appears he also suggested to Certoma ADCJ at an assessment hearing, to have loosely referred to his agreement with the respondent as involving a loan of money for use in a business, particularly where the conversations also addressed arrangements for raising that money by way of bank loan.
I am not persuaded that the contents of Mr Britt's affidavit provides, either in itself or in combination with the other evidence before me, “substantial reasons” for going behind the judgment debt in this case, or for exercising other discretions in favour of the respondent.
I am not satisfied that the respondent has presented any sufficient ground for declining to rely upon the judgment debt. Taking into account all the submissions that have been put to me, I am not persuaded to uphold the grounds of objection which were pressed on behalf of the respondent.
I am satisfied, on all the evidence, that it is appropriate to accept the affidavit verifying the petition and the District Court judgment, as sufficient proof of the debt relied upon in the petition, and that it is appropriate to exercise my discretion under s.52 to make a sequestration order against the estate of the respondent. I am satisfied as to all the formal matters required to be established under s.52 and the other relevant provisions of the Act and Rules.
As I have noted above, although I am satisfied that the respondent committed the act of bankruptcy relied upon, and that it occurred no later than 14 March 2006, I am unable on the evidence before me to make a finding whether it may have occurred prior to that date. If this becomes a matter of controversy, then the trustee or other interested party may approach the Court to have it determined.
I certify that the preceding forty (40) paragraphs are a true copy of the reasons for judgment of Smith FM
Associate: Michael Abood
Date: 29 May 2007
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