CBA v Horvath Jnr - [2001] FMCA 43

FEDERAL MAGISTRATES COURT OF AUSTRALIA

COMMONWEALTH BANK OF AUSTRALIA v HORVATH Junior
[2001] FMCA 43

BANKRTUPCY – Creditors Petition – Sequestration Order – Going behind judgment where appeal process concluded – Bankruptcy Act s 40(1)(g) ss 52(1) and (2)(b)

Horvath v Commonwealth Bank of Australia (1999) 1VR 643
Wren v Mahony (1972) 126 CLR 212
Ex parte Longo (1995) 57 FCR 523

Applicant:

COMMONWEALTH BANK OF AUSTRALIA

Respondent:

GABOR HORVATH Junior

File Nos:

MZ 187 of 2001

Delivered on:

18 July 2001

Delivered at:

Melbourne

Hearing Date:

4 June 2001

Judgment of:

McInnis FM

REPRESENTATION

Counsel for the Applicant:

Mr Gardiner of Counsel

Solicitors for the Applicant:

Lander & Rogers

Respondent:

Mr Gabor Horvath Junior in person

ORDERS

The estate of Gabor Horvath (Junior) be sequestrated.
The petitioning creditor’s costs including any reserved costs be taxed and paid in accordance with the Bankruptcy Act 1966 (Cth).

FEDERAL MAGISTRATES COURT OF AUSTRALIA AT MELBOURNE

MZ 187 of 2001

COMMONWEALTH BANK OF AUSTRALIA

Applicant

And

GABOR HORVATH Junior

Respondent

REASONS FOR JUDGMENT

This is a Creditors Petition filed on behalf of the Commonwealth Bank of Australia Limited (the applicant) against Gabor Horvath Junior (the respondent).
The applicant seeks a sequestration order against the estate of the respondent based upon an order which had been made for the sum of $18,172.60 being the balance due under final judgment obtained by the applicant against the respondent in a Court of Appeal at Melbourne on 30 September 1998 (as amended by Order of the Court of Appeal made on 22 September 2000). The claim relates to costs.
At the hearing of this matter, the applicant was represented by Mr Gardner of counsel and the respondent appeared in person.
The applicant has relied upon affidavit evidence in this matter as follows:
·Ronald James Cheail sworn 16 March 2001;
·
Andrew David Stamp sworn 28 March 2001, 3 May 2001,

1 June 2001, 1 June 2001, 4 June 2001 and 4 June 2001;
·Robert Felix Preac sworn 2 May 2001;
·John Patrick Doherty sworn 3 May 2001 and 4 June 2001.
·Steven John Macchi sworn 1 June 2001
The respondent relied upon affidavits sworn by him on 4 April 2001 and 23 May 2001. The respondent filed and served a Notice of Intention to Oppose the Application on 4 April 2001. Attached to that notice was a document entitled “Form 25 – Notice to Admit Facts and Authenticity of Documents” which was also dated 4 April 2001. The respondent further filed and served an Amended Notice of Intention to Oppose the Application or Petition on 23 May 2001. At the hearing, the respondent indicated to the Court that he wished to rely upon the amended notice but also sought to refer to and rely upon the document to which I have referred, namely “Form 25 – Notice to Admit Facts and Authenticity of Documents” which as indicated had been filed with the original Notice of Intention to Oppose on 4 April 2001.
In his amended Notice the respondent relied upon the following grounds:
“1.The Commonwealth Bank of Australia has no right to commence legal proceedings and execute any instrument against a person where the matter has stemmed from a minor being in a contract. This is also contained within Form 25 (Order 18, Rule 2) which was filed and served on the applicant on the 4^th April 2001. This includes the following sections of relevant law:
Supreme Court Act 1986
Division 4 – Contracts of Minors.”
(The respondent then sets out what purports to be an extract from the relevant legislation).
2.The order supplied with the creditors petition is that of a taxing Master of the Supreme Court (Master Bruce, order made 11^th May 2000). This order is that of a taxing master and is not a judgment or such order.
3.By virtue of section 49-50-51 Supreme Court Act 1986 Division 4 – Contracts of Minors, the Bankruptcy Notice be set aside and the applicants petition be struck out.”
At the hearing the respondent agreed that grounds 1 and 3 were similar and that he did not seek to make submissions in relation to ground 3 which were any different to those submissions made concerning ground 1.
During the course of the hearing, an order was made that a Notice of Motion dated 30 April 2001 be removed from the file, as it appeared to relate to other proceedings where the respondent’s father was a party and which had been heard by the Court on the same day.
The background in this matter has been usefully set out in the affidavit of Steven John Macchi sworn 1 June 2001. It is not in dispute, that the Respondent, and his parents Gabor Horvath Senior and Agota Horvath were registered proprietors of land described in Certificate of Title Volume 9801 Folio 263 and known as factory 1 and factory 2, 9 Superior Drive, Dandenong South (“the land”).
On or about 19 August 1988, the respondent, Gabor Horvath Senior and Agota Horvath executed a mortgage over the land in favour of the CBA to secure advances made from time to time. Advances were made to Mr and Mrs Horvath who ceased making payments to the bank in the sums advanced after 21 May 1993 and as at 12 November 1993, an amount owing to the bank was $295,287.01. On 12 November 1993, the CBA sent letters of demand and subsequently sent notices under s 76 of the Transfer of Land Act 1958 to the Horvaths.
On 21 December 1994, the bank issued proceedings No. 9168 of 1994 in the Supreme Court of Victoria (the Supreme Court proceedings) against the Horvaths. On 20 January 1995, the CBA entered judgment against the respondent in the Supreme Court proceedings. On 24 February 1995, the CBA obtained judgment against Gabor Horvath Senior and Agota Horvath in default of appearance in the Supreme Court proceedings.
On or about 30 March 1995, the respondent, Gabor Horvath Senior and Agota Horvath applied to have the default judgments against them set aside. The application to set aside the default judgments was heard by Master Wheeler on 6 April 1995. Master Wheeler set aside the judgments against the respondent, but not the judgments against Gabor Horvath Senior and Agota Horvath.
By Notice of Appeal dated 10 April 1995, the applicant appealed against the order of Master Wheeler setting aside the judgment against the respondent and also appealed against the order of the Master which had stayed part of the judgment relating to possession of the land against Gabor Horvath Senior and Agota Horvath.
The applicant’s appeal against the orders of Master Wheeler was heard on 23 May 1995 by Justice Beach in the Practice Court of the Supreme Court of Victoria. His Honour ordered that the judgment entered against the respondent be set aside but allowed the applicant’s appeal in relation to a stay of execution of the judgment for possession against Gabor Horvath Senior and Agota Horvath.
In or about March 1996, the applicant filed an Amended Statement of Claim in the Supreme Court proceedings.
On or about 19 March 1996, the respondent filed an Amended Defence in the Supreme Court proceedings. In that Amended Defence, the applicant pleaded that he would “… rely upon the provisions of Division 4 of Part 5 of the Supreme Court Act 1986 (Vic).”
The proceeding between the applicant and the respondent was the subject of a trial before Justice O’Bryan on 14, 15 and 18 March 1996. On 2 April 1996, a judgment was delivered by Justice O’Bryan. In his orders, Justice O’Bryan relevantly decided to order that the applicant became entitled on or about 23 August 1988 to an equitable lien or charge on the land and was entitled to be paid by the respondent the sum of $39,165 plus interest of $14,813 — making a total of $53,978.00. It is relevant to note that His Honour also ordered that the respondent pay the taxed costs including any reserved costs of the CBA and the Registrar of Titles.
The judgment of Justice O’Bryan was the subject of a Notice of Appeal by the respondent. In the Notice of Appeal the respondent relied upon the following statement:
“His Honour ought to have held, because the instrument of mortgage of the said land was void ab initio as against the appellant/defendant by reason of s 49(1) of the Supreme Court Act 1986, it was not capable upon its registration of affecting the interests of the appellant/defendant in the said land.”
The appeal was heard by the Court of Appeal on 24 February 1998 and on 30 September 1998 the appeal was dismissed. The Court was referred to the report of the appeal which appears as Horvath v Commonwealth Bank of Australia (1999) 1VR 643. The Court also received as an exhibit in the proceedings a copy of the Reasons for Judgment delivered by Justice O’Bryan on 2 April 1996.
Essentially in this application the respondent relies heavily upon the grounds which would suggest that this Court should go behind the judgment of Justice O’Bryan and/or the Court of Appeal. The applicant submits that the Court should not go behind the judgment or indeed permit the respondent to challenge the decisions in the Supreme Court to which I have referred.
It should be noted as additional background fact that at the trial before Justice O’Bryan, the respondent was represented by counsel though before the Court of Appeal the respondent appeared in person.
In the judgment of Justice O’Bryan, he found that the applicant could not enforce the mortgage against the respondent but further found that in the circumstances “an equitable lien in the nature of a vendor’s lien has been established and exists against the third defendant independently of the mortgage”, the third defendant being the respondent in the present proceedings.
It is not appropriate for a court of bankruptcy to analyse in detail the reasoning of a court of appeal where it is clear that the appeal rights of the respondent have been exhausted. No application for special leave has been made to the High Court and I therefore find that the appeal rights have been exhausted. The court of appeal judgment is a most detailed consideration of technical issues of law. It is not for a court in bankruptcy to sit as a further court of appeal and this is clearly not a case where the respondent seeks to avoid bankruptcy as a result of an appeal pending. It is sufficient to refer to a portion of the headnote relied upon by counsel for the applicant where it is stated:-
“Per curiam: if the mortgage had been of no effect, then, because the original advance was used to purchase the land, the bank would have been entitled to be subrogated to an equitable lien on the land to the extent of the unrepaid portion of the advance that was applied to the purchase.”
It was submitted that although the respondent succeeded on the issue of the mortgage he failed on appeal to overturn the decision of O’Bryan J on the issue of the equitable lien. It is clear that this raised a technical and esoteric issue of law and it is perfectly understandable that the respondent may have difficulty understanding, comprehending and indeed ultimately accepting the court of appeal decision and indeed the decision of the trial judge.
Nevertheless the authorities in relation to going behind a judgment are clear. The court does have jurisdiction to go behind a judgment in determining whether there is a debt owed to a petitioner (Wren v Mahony (1972) 126 CLR 212). However, before the Court decides to go behind a judgment and exercise its discretion it needs to be established that there are substantial reasons for questioning whether there is in truth and reality a debt owed to the creditor (Ex parte Longo (1995) 57 FCR 523).
This is not a case where there is any suggestion and/or basis for fraud or collusion or miscarriage of justice nor could it be suggested the judgment has not been obtained without any adjudication on the merits. Hence in my view it is inappropriate for this court to go behind the judgment.
Accordingly grounds 1 and 3 raised by the respondent should fail.
In relation to ground 2 it was claimed that the order of a taxing master is not a judgment or order which would properly provide a basis for the bankruptcy notice in the present case. It was suggested that the order was a order of the taxing master and not an order of the court.
The bankruptcy notice in the present case claims the sum of $18,172.60 which are costs obtained in the applicant’s favour in the court of appeal in the Supreme Court of Victoria and an order was made by Master Bruce on 15 February 2000 where costs were taxed at $18,172.60 and then another order was made on 11 May 2000 which corrects the date in the earlier order which had incorrectly referred to the court of appeal judgment of 30 September 1999 and should have referred to the date as being, “30 September 1998”. All of the orders were referred to as annexures to the bankruptcy notice. I am satisfied accordingly that there is in fact a proper order for costs made by the court of appeal which ultimately was taxed and in the normal course of events the taxation of costs in those circumstances is sufficient to constitute an order which in turn can be relied upon in the present case to support the bankruptcy notice.
Accordingly I find that ground 2 relied upon by the respondent cannot be sustained.
Affidavits have been filed in accordance with the Bankruptcy Act and I am satisfied that the amount of the debt is still outstanding. There is no other basis put to the Court as to why the amount is not owing pursuant to the order and indeed no other basis has been relied upon which satisfies me that I should exercise my discretion under s 52 in favour of the judgment debtor. In those circumstances I find that the debtor has committed the act of bankruptcy alleged in the petition of the petitioning creditor. I also am satisfied as to proof of those matters required pursuant to s 52(1) of the Act. I note the date of the act of bankruptcy is 1^st March 2001.
In accordance with the reasons it is appropriate to make the following orders:
(1)The estate of Gabor Horvath (Junior) be sequestrated.
(2)The petitioning creditor’s costs including any reserved costs be taxed and paid in accordance with the Bankruptcy Act 1966 (Cth).

I certify that the preceding thirty two (32) paragraphs are a true copy of the reasons for judgment of McInnis FM

Associate:

Date: 18 July 2001