Commonwealth Bank of Australia v Violi

[2014] FCCA 409

FEDERAL CIRCUIT COURT OF AUSTRALIA

COMMONWEALTH BANK OF AUSTRALIA v VIOLI [2014] FCCA 409

Catchwords:
BANKRUPTCY – Application for adjournment of the hearing of creditor’s petition – whether adjournment should be granted because debtor proposes to seek leave to appeal against dismissal of application to set aside default judgment – whether debtor has genuine and arguable grounds for leave to appeal against decision dismissing application to set aside default judgment – application for adjournment granted on terms.

Legislation:

Bankruptcy Act 1966 (Cth), s.52

Uniform Civil Procedure Rules 2005 (NSW), rr.36.16, 50.12

Adams v Kennick Trading (International) Ltd (1986) 4 NSWLR 503
Décor Corporation Pty Ltd v Dart Industries Inc (1991) 33 FCR 397
Deputy Commission of Taxation v Cummins [2008] FCA 353
Garrard v Email Furniture Pty Ltd (1993) 32 NSWLR 662
Jones v Dunkel (1959) 101 CLR 298
Water Board v Moustakas (1988) 190 CLR 491

Applicant: COMMONWEALTH BANK OF AUSTRALIA ABN 48 123 123 124

Respondent: FRANCESCO P VIOLI

File Number: SYG 1333 of 2013

Judgment of: Judge Manousaridis

Hearing date: 3 March 2014

Date of Last Submission: 3 March 2014

Delivered at: Sydney

Delivered on: 6 March 2014

REPRESENTATION

Counsel for the Applicant: Mr Sulan

Solicitors for the Applicant: K & L Gates

Counsel for the Respondent: Mr Levet

Solicitors for the Respondent: Simmons & McCartney Lawyers

Ms Reynolds appeared for supporting creditor.

ORDERS

1. Subject to order 2, the hearing of the creditor’s petition be adjourned to:

   (a)a day not less than three business days after the determination by the New South Wales Court of Appeal of an application for leave to appeal by the respondent debtor against the orders made by Balla DCJ on 13 December 2013 or,

   (b)if leave to appeal is granted, a day not less than three business days after the determination of the appeal.

2. Order 1 is made on the term that the respondent debtor must pursue with due diligence the application for leave to appeal and, if leave is granted, the appeal.

3. The applicant creditor has liberty to apply on three days’ notice for an order vacating order 1 on the ground that the respondent debtor has not or is not pursuing with due diligence the application for leave to appeal or, if leave is granted, the appeal.

4. Subject to order 5, the respondent debtor pay the applicant creditor’s costs of and incidental to the hearings of 3 February and 3 March 2014.

5. The parties have liberty to apply within seven days for an order vacating or varying order 4.

6. The parties otherwise have leave to apply on such notice as the circumstances warrant.

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT SYDNEY

SYG 1333 of 2013

COMMONWEALTH BANK OF AUSTRALIA ABN 48 123 123 124

Applicant

And

FRANCESCO P VIOLI

Respondent

REASONS FOR JUDGMENT

Introduction

1. Before the Court is an application to adjourn the hearing of a creditor’s petition filed by the Commonwealth Bank of Australia (Bank) against Mr Violi. The Bank’s petition is based on a default judgment for $520,871.34 that was entered against Mr Violi in the District Court of New South Wales on 9 January 2013.

2. On 20 December 2013, Judge Balla of the District Court of New South Wales heard and determined an application by Mr Violi to set aside the default judgment.[1] Although her Honour found that Mr Violi had an arguable defence to the Bank’s claim, her Honour declined to set aside the default judgment because she did not accept Mr Violi’s evidence about when he first became aware of the statement of claim.

   [1] Presumably made pursuant to r.36.16 of the Uniform Civil Procedure Rules 2005 (NSW)

3. On 16 January 2014 Mr Violi filed a notice of intention to appeal to the New South Wales Court of Appeal against Judge Balla’s order dismissing the application to set aside the default judgment. There is in evidence a draft notice of appeal, and I heard evidence from Mr     Violi’s solicitor that he proposed to file that notice of appeal on the day I heard this application.

4. The Bank opposes the adjournment. It submits the proposed notice of appeal is incompetent and, in any event, the grounds set out in the proposed notice of appeal lack merit. Further, the Bank submits there has been delay in Mr Violi’s pursuing the appeal.

5. At the conclusion of the hearing of the application for an adjournment of the creditor’s petition, I informed counsel that I proposed to reserve my decision, but I invited counsel for the Bank to proceed with proving the matters required by s.52(1) of the Bankruptcy Act 1966 (Cth) (Act). I indicated that if I declined the application for an adjournment and if the Bank can prove the matters prescribed by s.52(1) of the Act, I would make a sequestration order against the estate of Mr Violi.

Principles

1. For the purposes of this application, I will rely on the following principles stated by Gilmour J in Deputy Commissioner of Taxation v Cumins:[2]

   16 The Court is entitled to inquire whether a judgment is founded on a real debt. In general, a court exercising jurisdiction should not proceed to sequestrate the estate of a debtor where an appeal is pending against the judgment relied on as the foundation of the bankruptcy proceedings, provided that the appeal is based on genuine and arguable grounds: Ahern v Deputy Commissioner of Taxation (Qld) (1987) 76 ALR 137 at 148; Bayne v Baillieu (1907) 5 CLR 64.

   17 The mere fact that an appeal has been lodged does not without more, give rise to a duty to postpone the hearing of the petition: in Re Flatau: Ex Parte Scotch Whisky Distillers (1882) 22 QBD 83 (CA) at 84-85; nor will the court as a matter of course inquire into the validity of a judgment debt: Wren v Mahony (1972) 126 CLR 212 at 222-223.

   18 The test to be applied has been described variously. The judgment debtor must point to grounds having "a real chance of success on appeal": Re Lewin: Ex Parte Milner (1986) 11 FCR 312 at 318; or ensure "that substantial reasons are given for questioning" whether there was in truth a debt: Wren 126 CLR 212 at 225. It is not enough to rely upon mere assertion. The onus is on the applicant for a stay to show the existence of a genuine dispute by adducing evidence establishing the substantial nature of the grounds of challenge: Verma, Virendra Kumar v Deputy Commissioner of Taxation [1983] FCA 388 referred to with approval in Re Verma 4 FCR 181 at 187.

   [2] [2008] FCA 353

Relevance of incompetency of proposed appeal

1. The proposed procedure by which Mr Violi intends to appeal against the orders of Balla DCJ is incorrect. Counsel for the Bank submits, and counsel for Mr Violi accepts, that a decision dismissing an application to set aside a default judgment is an interlocutory decision, and that, therefore, an appeal against the orders of Balla DCJ can only be brought by leave. This raises a number of issues.

2. One issue is whether the principles that have been applied to applications for an adjournment of the hearing of a creditor’s petition on the ground that the debtor has lodged an appeal, apply to applications for an adjournment based on the debtor’s having lodged an application for leave to appeal. In my opinion they do. The relevant question becomes whether the debtor can show that his or her application for leave to appeal is “based on genuine and arguable grounds”.

3. Two other issues arise from Mr Violi’s having proceeded on the basis that the orders of Balla DCJ are final rather than interlocutory. The first is that Mr Violi had not, at the time of the hearing before me, prepared the document by which applications for leave to appeal must be brought in the Court of Appeal, namely a summons. Under r.50.12(4) of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR), a summons seeking leave to appeal must contain a statement of the nature of the case, the reasons why leave should be given, and, if applicable, the reasons why time for leave should be extended. The summons must also set “out briefly the grounds relied on in support of the appeal including, in particular, any grounds on which it is contended that there is an error of law in the decision of the court below”. A potential consequence of Mr Violi not having prepared a summons is that there is nothing before me by reference to which I can assess whether Mr Violi has genuine and arguable grounds for obtaining leave to appeal against the orders of Balla DCJ.

4. A second difficulty is that under r.50.12 of the UCPR an application for leave to appeal to the Court of Appeal must be made by summons, and it must be filed within twenty eight days of the order against which leave to appeal is sought was pronounced. Mr Violi has not filed a summons, and he is, therefore, substantially out of time for filing a summons.

5. In my opinion, neither of these two difficulties is fatal to Mr Violi’s application for an adjournment. Although it is true I do not have before me any form of summons for leave to appeal, I do have before me the proposed grounds of appeal which, in substance, is one of the matters required to be included in the summons. And this is sufficient material on the basis of which I can assess whether Mr Violi has arguable grounds for obtaining leave to appeal. Although appellate courts have regularly stated there are no rigid rules for determining whether leave to appeal should be granted, two issues are usually considered. These are whether the decision at first instance was attended with sufficient doubt to warrant it being reconsidered, and whether substantial injustice would result if leave is refused.[3] It has also been said that “although in form and law an order may be interlocutory, where it effectively determines, with finality, the legal rights of the parties, leave to appeal will more readily be granted”.[4]

   [3] Décor Corporation Pty Ltd v Dart Industries Inc (1991) 33 FCR 397 (Sheppard, Burchett, Heerey JJ)

   [4] Garrard v Email Furniture Pty Ltd (1993) 32 NSWLR 662 at 664 (Kirby A-CJ)

6. As to Mr Violi’s not having filed a summons within the twenty eight days prescribed by r.50.12(1)(a) of the UCPR, the Court of Appeal has power under r.50.12(1)(c) of the UCPR to extend the time for filing the application.

Does Mr Violi have genuine and arguable grounds for leave to appeal?

1. In my opinion, given that the practical effect of the order of Balla DCJ is to finally determine the rights between the Bank and Mr Violi, Mr Violi has arguable grounds for contending that he will suffer an injustice if leave to appeal from the orders of Balla DCJ is not granted and those orders ought not to have been made.

2. That, then, leaves for me to consider whether Mr Violi has genuine and arguable grounds for contending the decision of Balla DCJ is attended with sufficient doubt to warrant appellant intervention. This requires me to set out the relevant part of her Honour’s reasons for judgment, and the grounds, as set out in the draft notice of appeal, on which Mr Violi relies for claiming her Honour erred.

3. As I say above, Balla DCJ held that the defence Mr Violi raised based on the Contracts Review Act1980 (NSW) was arguable. Her Honour, however, did not accept Mr Violi’s excuse for not filing a defence in time. Her Honour’s reasoning in that regard was as follows (emphasis added):

   I do not accept the evidence of the fourth defendant in relation to not having received the documents until July or August 2013. I am satisfied that he does not have a reliable recollection of when and how he was first made aware of these proceedings. There is conflicting evidence from him in relation to this issue. . . .

   In cross-examination he said he did not recall how he had received the statement of claim. He thought it might have been through his brother, Dennis, who is the second defendant to these proceedings.

   As I have said, one copy of the statement of claim was affixed to his front door. He lives with his son and has a cleaning lady. He says he did not receive that copy, and his son and the cleaning lady have told him that they have not seen the documents. However, despite this matter having been adjourned today to enable [Mr Violi] to put on evidence in relation to the explanation, there is no evidence from either of them [that is, Mr Violi’s brother and the housekeeper] and the failure to call that evidence has not been explained. I infer their evidence would not have assisted [Mr Violi]. Counsel for [Mr Violi] conceded that if I made such a finding the fourth defendant’s application must fail.

4. The draft notice of appeal raises two grounds. The first ground relates to her Honour’s finding that there was no reasonable explanation for Mr Violi’s delay. Here, it is claimed that her Honour “failed in making a finding pursuant to Jones v Dunkel” and relied on a concession which her Honour had misunderstood counsel for Mr Violi had made. The second ground is that her Honour failed to balance, on the one hand, the finding that Mr Violi had an arguable defence and, on the other, her Honour’s not accepting Mr Violi’s evidence that he did not receive the statement of claim until July or August 2013.

5. In my opinion, it is not reasonably arguable that her Honour misapplied Jones v Dunkel.[5] Whether it is reasonably arguable that her Honour misunderstood counsel’s concession, however, requires some consideration.

   [5] (1959) 101 CLR 298

6. Counsel for Mr Violi submitted before me that her Honour understood counsel for Mr Violi to have conceded that if her Honour draws a Jones v Dunkel inference in relation to Mr Violi’s brother and housekeeper, Mr Violi’s application to set aside the default judgment must fail. Counsel for the Bank, on the other hand, submitted that the concession to which her Honour intended to refer was the concession counsel for Mr Violi in fact made. That concession was made in the following submissions made by Mr Violi’s counsel (emphasis added):[6]

   Your Honour, there are two issues and the first is adequate explanation for delay, and the second issue is whether or not there is a reasonably arguable defence. Your Honour, as to the first issue, that is a credit issue. In my respectful submission, for your Honour not to be satisfied as to a reasonable explanation for delay, you would have to disbelieve Mr Violi on his oath that he had not received the document or had it drawn to his attention. If your Honour disbelieves him on oath, it goes no further. I concede that at that point I am not able to make out a case.

   [6] Exhibit A, page 26

7. In my opinion, it is barely arguable that the concession of counsel her Honour had in mind was a concession to the effect that if a Jones v Dunkel inference is drawn, Mr Violi’s application must fail. On the other hand, it is strongly arguable that the concession to which her Honour intended to refer and did refer was the concession counsel for Mr Violi actually made, namely, if her Honour disbelieved Mr Violi his application would fail or, in the words counsel used, Mr Violi would not be “able to make out a case”. That is what her Honour decided. Immediately after referring to counsel’s concession, her Honour concluded:

   I am satisfied that the fourth defendant has not shown sufficient cause for the making of the order and I decline to set aside the default judgment.

8. And this leads to the second ground of the proposed grounds of appeal. In my opinion, it is reasonably arguable that her Honour decided Mr Violi’s application on the assumption that counsel’s concession – that if Mr Violi’s evidence is not accepted then Mr Violi would not be “able to make out a case” – was correct. But it is also reasonably arguable that her Honour made an error in the exercise of the discretion under r.36.16 of the UCPR in deciding the application to set aside judgment by accepting and relying on counsel’s concession. That is so because it is not necessarily the case that an application to set aside a default judgment will fail if the applicant does not give an explanation for the failure to file a defence. In that regard, I need only refer to two passages, one from each of the reasons for judgment of Hope JA and Mahoney JA in Adams v Kennick Trading (International) Ltd.[7]

   [7] (1986) 4 NSWLR 503

9. In Adams, Hope JA, speaking of Pt.13, r.1(2) of the District Court Rules1973, said:[8]

   A court exercising jurisdiction under this subrule has to look at the whole of the relevant circumstances and decide whether or not sufficient cause has been shown. The existence of a bona fide ground of defence and an adequate explanation for the failure to defend and any delay are the most relevant matters to consider, but there may be other matters . . . . A refusal of relief to an applicant is not automatically justified because he has failed to establish one relevant matter, such as an adequate explanation for the failure to defend or for delay; such a failure must be considered in the light of all the circumstances. The absence of an adequate explanation, particularly if it is coupled with prejudice, may justify the denial of relief, but only when considered with the other relevant circumstances of the case, bearing in mind what Lord Wright said in Evans v Bartlam [1937] AC 473 at 489:

   … if merits are shown the Court will not prima facie desire to let a judgment pass on which there has been no proper adjudication.

   [8] At page 506 (Glass JA agreeing). Pt.13, r.1(2) provided: “A default judgment under this rule may, on sufficient cause being shown, be set aside, on terms, by order of the Court.”

10. Mahoney JA said:[9]

    [T]he defendant against whom judgment was entered was entitled to have the judgment set aside if there was “sufficient cause”. In determining whether there is such cause, a court will ordinarily, and perhaps necessarily, consider whether there is a defence on the merits and an appropriate explanation for the defendant's default in filing a defence. However, the Court will not, in my opinion, be confined to these two matters. They are neither a necessary nor a sufficient basis for the exercise of the general discretion granted to the judge.

    [9] At page 510

11. Counsel for the Bank submitted that in the Court of Appeal Mr Violi will face the difficulty that his counsel had conceded that if Mr Violi was not believed his application to set aside the judgment must fail. It is of course true, as a general proposition, that a party is bound by the conduct of his or her counsel. But that is not a principle applied inflexibly, at least not, where it is in the interests of justice that the rule not be applied. The relevant principle was stated by the plurality in Water Board v Moustakas:[10]

    More than once it has been held by this Court that a point cannot be raised for the first time upon appeal when it could possibly have been met by calling evidence below. Where all the facts have been established beyond controversy or where the point is one of construction or of law, then a court of appeal may find it expedient and in the interests of justice to entertain the point, but otherwise the rule is strictly applied.

    [10] (1988) 180 CLR 491 at 497

12. I am of the opinion, therefore, that Mr Violi, when he files a summons, will have genuine and arguable grounds for obtaining leave to appeal against the orders of Balla DCJ and, if leave is granted, will have an appeal against those orders which will be based on genuine and reasonable grounds.

Delay

1. Counsel for the Bank submitted there has been delay in Mr Violi’s prosecuting his leave to appeal. Counsel referred to a letter dated 28 January 2014 from the Bank’s solicitors to Mr Violi’s solicitor stating that the decision of Balla DCJ was interlocutory, and that Mr Violi required leave to appeal. In evidence given before me, Mr Violi’s solicitor said that he first turned his mind to the letter dated 28 January 2014 when he received it and sought counsel’s advice about whether the decision was interlocutory. He also gave evidence that he briefed counsel to draw the appeal papers about fourteen days before the hearing of 3 March 2014.

1. It is regrettable that Mr Violi’s solicitor did not act sooner. It is also regrettable that he appears to have received incorrect advice about whether the order of Balla DCJ was interlocutory. In my opinion, however, these matters should not lead me to exercise my discretion in a way which may as a practical matter put it out of the power of Mr Violi to have a court adjudicate what Balla DCJ found was an arguable defence.

2. Counsel also relied on a chronology of the events relating to the District Court proceedings and the proceedings in this Court. The chronology, on its face, shows extremely dilatory conduct on the part of Mr Violi and may suggest an intention by Mr Violi to frustrate the legal proceedings that have been set in motion against him. I am not prepared, however, to make any such finding based on the bare facts identified in the chronology and hence rely on those facts as a ground for denying the adjournment Mr Violi seeks.

Disposition

1. In my opinion it is in the interests of justice to grant to Mr Violi an adjournment of the hearing of the creditor’s petition pending the determination by the Court of Appeal of an application for leave to appeal and, if leave is granted, until the appeal is determined. I will so order.

2. I propose to grant the adjournment on terms, those terms being that Mr Violi pursue with due diligence his application for leave to appeal. The Bank will have liberty to apply for an order that its petition be heard before the determination of the application for leave to appeal or, if leave is granted, the determination of the appeal, if Mr Violi does not pursue his application for appeal with due diligence.

1. I also propose to order that Mr Violi pay the Bank’s costs of the hearing on 3 February and 3 March 2014, although I will grant the parties liberty to apply for a different order as to costs.

I certify that the preceding thirty (30) paragraphs are a true copy of the reasons for judgment of Judge Manousaridis

Associate: 

Date: 6 March 2014