DuluxGroup (Australia) Pty Ltd v Hado
[2020] FCCA 1887
•10 July 2020
FEDERAL CIRCUIT COURT OF AUSTRALIA
| DULUXGROUP (AUSTRALIA) PTY LTD v HADO | [2020] FCCA 1887 |
| Catchwords: BANKRUPTCY – Proceedings in connection with sequestration – Petition and sequestration order – Hearing of creditor’s petition and form of sequestration order – Going behind judgment. |
| Legislation: Federal Circuit Court (Bankruptcy) Rules 2016 (Cth), rr.2.02(3), 4.06(3) |
| Cases cited: DuluxGroup (Australia) Pty Ltd v Hado [2020] FCCA 1077 Katter v Melhem (No 2) [2014] FCA 1176 Ramsay Health Care Australia Pty Ltd v Compton (2017) 261 CLR 132 |
| Applicant: | DULUXGROUP (AUSTRALIA) PTY LTD ACN 000 049 427 |
| Respondent: | GEORGE MATTE HADO |
| File Number: | BRG 14 of 2020 |
| Judgment of: | Judge Jarrett |
| Hearing date: | 1 June 2020 |
| Date of Last Submission: | 1 June 2020 |
| Delivered at: | Brisbane |
| Delivered on: | 10 July 2020 |
REPRESENTATION
| Solicitors for the Applicant: | Rostron Carlyle Rojas Lawyers |
| Solicitors for the Respondent: | Joseph Burke Law Pty Ltd |
ORDERS
Within seven (7) days of the date of these orders the parties must confer an attempt to reach agreement on directions to be made by the court for the purposes of resolving the remaining issues in dispute;
In the event the parties are unable to reach agreement about the form of directions to be made by the court, each party must, within seven days of the date of these orders provide to the court the directions for which that party contends;
Directions will thereafter be made on the papers;
The application is adjourned for further hearing to 10 August, 2020.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT BRISBANE |
BRG 14 of 2020
| DULUXGROUP (AUSTRALIA) PTY LTD ACN 000 049 427 |
Applicant
And
| GEORGE MATTE HADO |
Respondent
REASONS FOR JUDGMENT
On 20 February, 2020 a Registrar of this Court made a sequestration order against the estate of the respondent, who for the sake of clarity I shall refer to as the debtor. The order was entered on 20 February, 2020 but amended on 21 February, 2020 to record the correct date of the act of bankruptcy committed by the debtor.
On 24 March, 2020, the debtor applied to review the Registrar’s decision. The petitioning creditor opposes the application. The application initially came before me on 9 April, 2020. On 7 May, 2020 I delivered reasons granting the debtor an extension of time within which to apply for a review of the sequestration order against him. I made some directions for the parties to file further material if they wish to do so in support of their respective cases: DuluxGroup (Australia) Pty Ltd v Hado [2020] FCCA 1077.
Both parties have now filed further material. The debtor has filed three further affidavits, one on 18 May, 2020, another on 29 May, 2020 and a final affidavit on 1 June, 2020. The petitioning creditor has filed the necessary statutory affidavits and an answering affidavit to the debtor’s claims.
The debtor says that there is in truth no debt sufficient to support the making of sequestration order owing by him to the petitioning creditor. He asks the Court to go behind the judgment debt upon which the sequestration order is based and reach that conclusion.
The principles
It is not in dispute that the Court has power to do so. The principles are, with respect, conveniently summarised most recently in Lowbeer v De Varda (2018) 264 FCR 228. At [53] the Full Court of the Federal Court of Australia said:
[53] On the hearing of a creditor’s petition, the court has a statutory duty to be satisfied for the purposes of s 52 of the Bankruptcy Act 1966 (Cth) as to the existence of the petitioning creditor’s debt. Therefore, on such an application, a judgment or order is never conclusive of the existence of a debt. Rather, the court must decide whether to accept the judgment or order as proof of the debt or to go behind the judgment or order (sometimes described as a discretion). Usually, a determination after a contested hearing will provide a practical guarantee of reliability that will mean that the court will not go behind the judgment or order. The court looks with suspicion on consent judgments and default judgments. However, all depends upon the circumstances. If the court is persuaded to go behind the judgment or order then it will investigate the debt upon which the creditor’s petition is based. For a creditor’s petition to be dismissed on the basis that in truth and reality there is no debt behind the judgment, there must first be a proper basis to exercise the discretion to go behind the judgment and then an assessment that, in truth and reality, there is no debt. These are separate questions that might be determined separately. As to these matters, see the judgment of Kiefel CJ, Keane and Nettle JJ in Ramsay Health Care Australia Pty Ltd v Compton [2017] HCA 28 at [16], [37]‑[38], [65]‑[71].
In Ramsay Health Care (above) Kiefel CJ, Keane and Nettle JJ explained (citations omitted):
68. For the purposes of s 52 of the Act, a judgment may usually be taken to be sufficient evidence of a debt in that a judgment against a debtor in favour of a creditor obtained after a trial is, generally speaking, a reliable indication of the true state of indebtedness as between creditor and debtor. Indeed, such a judgment can usually be expected to provide the most reliable statement of the debt humanly attainable because the ordinary processes of the adversarial system provide a practical guarantee of reliability. The testing of the relative merits of a claim and counterclaim under the rigours of adversarial litigation will usually establish the true state of accounts as between the parties to the proceedings. Accordingly, a Bankruptcy Court will usually have no occasion to investigate whether the judgment debt is a true reflection of the real debt. But where the merits of a claim and counterclaim have not been tested in adversarial litigation, a judgment debt will not have this practical guarantee of reliability.
The evidence
When I delivered my earlier reasons for judgment in this matter on 7 May, 2020 I was not satisfied that the material then before me on behalf of the debtor established any basis for going behind the judgment upon which the bankruptcy notice in this matter was based. Having permitted the debtor the opportunity to place before the Court further evidence that might assist his case, the question becomes whether that further evidence changes the position. I think it does.
Relevantly, in his affidavit filed on 18 May, 2020 the debtor swears that
a)in relation to his previous affidavit of 13 March, 2020 he assumed that he was being overcharged for materials that arose out of work he did for Henley Arch Pty Ltd at the sites of Keysborough, Heathmont and Wantirna South, but he now realises that this is not the case;
b)of the purchases set out in the most recent statement of account held by the petitioning creditor (contained in the affidavit of Ellen Nowland filed on 7 April, 2020), eight purchases are identified as having taken place at the Keilor Park branch of petitioning creditor and one purchase at Sunshine Branch of the petitioning creditor;
c)the debtor has never purchased anything from the Keilor Park branch of petitioning creditor or the Sunshine branch of the petitioning creditor;
d)the debtor has “never stepped foot in [the Keilor Park branch of the petitioning creditor] or ever had a phone call from any Dulux staff from either of those stores”;
e)all purchases made by the debtor from the petitioning creditor were made at its branches at Dandenong South, Bayswater, Surrey Hills, Springvale, Clayton and Narre Warren;
f)he believes that the petitioning creditor has made a mistake; and
g)he accepts that he is responsible for the $825 which is owing for what is described as “the Exsulite onsite training”.
The petitioning creditor relies upon an affidavit filed on 25 May, 2020 and sworn by Bart van Riel who was described as the “Team Leader – Risk and Recoveries”. He swears to have access to the books and records of the petitioning creditor. In that affidavit Mr van Riel annexes ten tax invoices to his affidavit which he says are those “referenced in the Applicants (sic) Account Statement and issued by the Applicant to the Respondent”. He swears that the invoices were sent to the debtor’s address as recorded in the petitioning creditor’s records. He swears that the petitioning creditor has two branches that are close to the debtor’s address, one at Campbellfield (12.6 km from the debtor’s address) and the other at Keilor Park (16 km from the debtor’s address). He swears that the Keilor Park branch carries “specialised rendering and cladding products, which would be relevant to the Respondent’s business – The Render Group”.
He also annexes to his affidavit four delivery dockets for the goods the subject of four of the invoices annexed to his affidavit. The deliveries were made to an address at Diggers Rest. Mr van Riel swears that:
13. I am duly informed by Denis Flannery, Team Leader at the Applicant’s Keilor Park store, and verily believe that Mr Flannery was informed by the Respondent and the Respondent’s work colleague Paul, over the period from about August 2018 to about December 2018 to the effect that:
a. the Respondent was working out of a garage at the Diggers Rest Address in or about November to December 2018; and
b. the Diggers Rest Address was the address of Frank Lumani who was a relative of the Respondent or Paul.
14. On 28 December 2018, goods were ordered with the customer reference “Craigieburn” and invoiced to the Respondent on 31 January 2019 as particularised in paragraph 4(i.) above. The goods were accepted by “Paul” and the goods were dispatched from Dulux’s Sunshine store, located approximately 12 km west of the Melbourne CBD.
Mr van Riel also swears that the Exsulite training which the debtor says he attended on 27 November, 2018 was conducted on-site at the petitioning creditor’s store at Keilor Park. Mr van Riel swears that the respondent purchased goods at the Keilor Park store on the same day as the training. It is one (1) of the invoices attached to his affidavit.
In his second affidavit filed on 29 May, 2020, the debtor takes issue with some of Mr van Riel’s evidence. In particular, he swears that:
6. The Exsulite training did not take place at the Keilor Park store. It actually took place in Chadstone on 27 November 2018, and I was there all day. It would not have been possible for me to attend the Keilor Park store on this date as this training lasted all day.
7. I have emails sent to me from AcraTex Registrations of Dulux, which confirm that the Exsulite training took place at the Chadstone campus of Holmesglen TAFE on 27 November 2018. These are enclosed in annexure 1.
The annexure to the debtor’s affidavit bears out his evidence. Further, he swears that:
8. Mr Bart Van Riel has then stated that the goods to which I have been invoiced were delivered to the address of a Frank Lumani in Diggers Rest.
9. I did not authorise anyone named Frank Lumani or Paul to either order or accept goods on my behalf.
10.1 have not signed proof of delivery for any of these items in invoices 51120, 51292, 51295, 52341, 52635, 52764, 53577, 285512 or 54023.
11.1 do not operate any business from Diggers Rest.
12.1 certainly did not order these goods.
13.1 have been invoiced for items that I have not ordered or received.
The petitioning creditor also relies upon an affidavit sworn by Denis Flannery and filed on 25 May, 2020. In that affidavit, Mr Flannery swears:
1. I am the Team Leader at the Applicant’s Keilor Park store and I am duly authorised to swear this Affidavit on behalf of the Applicant.
2. I have been employed by the Applicant since about July 2017 and am based at the Applicant’s store at Keilor Park, which is approximately 15 kms north-west from the Melbourne CBD, carries specialised rendering and cladding products.
3. I recall meeting the Respondent and his work colleague, Paul in the Keilor Park store over the period from about August 2018 to about December 2018. I recall that the Respondent and Paul would attend in-store in distinctive uniforms that “stood out”.
4. From my discussions in store with the Respondent and Paul between about August to December 2018 I recall being informed to the effect that:
a. the Respondent was working out of a garage at Diggers Rest in or about November to December 2018. I recall this information because I reside at Sunbury which is an adjacent suburb to Diggers Rest;
b. The Diggers Rest property belonged to Frank Lumani who was a relative of the Respondent or Paul.
5. I recall the drivers complaining to me about making deliveries to the Respondent at Diggers Rest because the orders were about 2 to 3 pallets and it was difficult to unload the goods at the back shed of the property at Diggers Rest.
6. I cannot recall whether I saw the Respondent attend the Exsulite training on 27 November 2018 in the Keilor Park store but I do recall that the Exsulite training was held in store in 2018 and the training representatives would give the attendees discounts for purchases made in-store upon the completion of the training session.
The debtor also takes issue with Mr Flannery’s evidence. He swears that he has never met Mr Flannery or attended the Keilor Park store operated by the petitioning creditor. He denies being a relative of the person called Frank Lumani. He also denies ever having “worked out of a garage at Diggers Rest”.
When the matter came before me for hearing on 1 June, 2020 I raised with the parties the significant issues of fact that were apparent on the affidavit evidence and how they might be resolved. I received no assistance from the parties’ solicitors with that issue. The petitioning creditor’s solicitor submitted that given that the debtor admits part of the debt (the training fee of $825), there would be no point in going behind the judgment. The submission was that the Court had to find that there was no debt at all before it would be appropriate to go behind the judgment. These submissions, however, misunderstand the principles to be applied. I do not consider that the authorities to which the petitioning creditor directed my attention stand for that proposition. A creditor may not present a petition for the sequestration of the debtor’s estate unless the debt owed to the petitioning creditor debt that amounts to the statutory minimum: s.44(1) Bankruptcy Act. It would seem curious that a Court would be precluded from going behind a judgment to determine if a debtor truly owed a debt to a petitioning creditor if it was uncontroversial that the debtor owed the creditor some amount albeit less than the statutory minimum required to present a petition.
As the passages from Lowbeer and Ramsay Health Care above show, the Court has a discretion to look behind a judgment. The Court can approach the matter in two stages. The first is to decide if there is a proper basis to go behind the judgment. The second, if the first is answered in the affirmative, is to determine whether there is in fact a debt owed by the debtor to the petitioning creditor. Again, in Ramsay Health Care (above), the plurality said (citations omitted):
It may be noted here that no objection was raised to the separate determination of the question of whether to go behind the Judgment. This practice provides a convenient way of proceeding where a question is raised as to whether a judgment establishes the amount truly owing to the petitioning creditor. This procedure was approved by the Full Court of the Federal Court in Wolff v Donovan; but it is apparent from the decision of Philp J in Petrie v Redmond that this had been the practice of the Bankruptcy Court for many years before the decision in Wolff v Donovan.
Disposition
In this case I have reached the conclusion that it is appropriate to go behind the judgment of the Magistrates Court at Moorabbin. I reach that conclusion from the following reasons:
a)the judgment in the Magistrates Court was a default judgment given in the absence of an appearance and defence by the debtor;
b)although the debtor has not adequately explained his failure to appear in those proceedings that is only one matter which is to be taken into account. He has applied to have a judgment by default set aside but apparently those proceedings have been placed on hold on the basis of a perception that he does not have standing to bring those proceedings. I doubt that perception is correct;
c)there has been no adjudication on the merits of the petitioning creditor’s claim and the debtor’s response to it;
d)the evidence for each of the parties demonstrates substantial issues of fact between them. If the debtor’s case is accepted, then apart from the sum of $825 there is no other debt owing; and
e)a debt of $825 is insufficient to support the making of the sequestration order.
The Court looks with suspicion on consent judgments and default judgments. Where the judgment in question is a default judgment, it appears that the Court will always “go behind” the judgment if there is what it regards as a bona fide allegation that no real debt lay behind the judgment: Katter v Melhem (No 2) [2014] FCA 1176 at [69]. Here, I am satisfied that there is a bona fide allegation that no debt sufficient to sustain the making of the sequestration order lays behind the judgment.
Having determined to go behind the judgment debt, it is now to determine how to manage the case forward so that an enquiry into the amount owed, if any, by the debtor to the petitioning creditor can be conducted. In that regard, I direct that the parties and confer and within the next seven days send to my Chambers a minute of directions agreed between them for that purpose. In the event that the parties are unable to reach agreement about that, they must each send, within seven days of the date of these orders, a copy of the directions contended for by that party to my associate and I will make appropriate directions on the papers.
The application should be listed for further hearing. I am conscious that there is presently a sequestration order in place in respect to the debtor was a state. I will fix the matter further hearing and determination on 10 August, 2020. The parties directions should take that hearing date into account.
I certify that the preceding twenty-one (21) paragraphs are a true copy of the reasons for judgment of Judge Jarrett delivered on 10 July, 2020.
Associate:
Date: 10 July 2020
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