Ganesh v Dobrowolski

Case [2021] FCA 909

FEDERAL COURT OF AUSTRALIA

Ganesh v Dobrowolski [2021] FCA 909

Appeal from: Ganesh v Dobrowolski [2020] FCCA 1013
File number: VID 316 of 2020
Judgment of: MOSHINSKY J
Date of judgment: 6 August 2021
Catchwords: BANKRUPTCY – appeal from Federal Circuit Court of Australia – sequestration order – where act of bankruptcy was failure to comply with bankruptcy notice based on judgment debt – where judgment given by the Magistrates’ Court of Victoria – where the primary judge declined to go behind the judgment – whether the primary judge erred – appeal dismissed
Legislation:

Bankruptcy Act 1966 (Cth), s 52

Federal Court of Australia Act 1976 (Cth), s 27

National Consumer Credit Protection Act 2009 (Cth), s 117, 123, 124, 178, 179

Federal Court Rules 2011, r 36.57

Cases cited:

Alliance Craton Explorer Pty Ltd v Quasar Resources Pty Ltd (2013) 296 ALR 465

Ganesh v Dobrowolski [2019] VSC 577

Ramsay Health Care Australia Pty Ltd v Compton (2017) 261 CLR 132

Sami v Minister for Immigration and Citizenship (2013) 139 ALD 1; [2013] FCAFC 128

Stratten v Bowles (No 2) [2015] FCA 43

Wren v Mahony (1972) 126 CLR 212
Division: General Division
Registry: Victoria
National Practice Area: Commercial and Corporations
Sub-area: General and Personal Insolvency
Number of paragraphs: 80
Date of last submissions: 21 May 2021
Date of hearing: 13 April 2021
Counsel for the Appellant: The appellant appeared in person
Counsel for the First Respondent: Mr MR Champion
Solicitor for the First Respondent: Featherbys Lawyers
Counsel for the Second Respondent: Mr J Kohn
Solicitor for the Second Respondent: DSA Law

ORDERS

VID 316 of 2020
BETWEEN:

ANANDAVALLI GANESH

Appellant
AND:

WALTER DOBROWOLSKI

First Respondent

MATTHEW GOLLANT AND NORMAN JONES, IN THEIR CAPACITY AS THE JOINT AND SEVERAL TRUSTEES OF THE BANKRUPT ESTATE OF ANANDAVALLI GANESH

Second Respondent

ORDER MADE BY:

MOSHINSKY J

DATE OF ORDER:

6 AUGUST 2021

THE COURT ORDERS THAT:

1.The appeal be dismissed.

2.Within seven days, the respondents file and serve a proposed form of order as to costs and a written submission (of no more than two pages) in support of the order sought.

3.If the appellant takes issue with the respondents’ proposed form of order:

(a)Within a further seven days, the appellant file and serve a proposed form of order as to costs and a written submission (of no more than two pages) in support of the order sought.

(b)Subject to further order, the issue of costs be determined on the papers.

Note:   Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.


REASONS FOR JUDGMENT

MOSHINSKY J:

Introduction

  1. The appellant, Ms Anandavalli Ganesh (Ms Ganesh) appeals from a judgment and orders of the Federal Circuit Court of Australia dated 1 May 2020.  The Federal Circuit Court dismissed an application for review filed by Ms Ganesh, seeking review of a sequestration order made in respect of her estate by a Registrar of the Federal Circuit Court.  The primary judge ordered that the estate…

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AGLC
Ganesh v Dobrowolski [2021] FCA 909
Case
[2021] FCA 909
Decision Date

CaseChat Overview and Summary

In the matter of Ganesh v Dobrowolski, the appeal was brought against a decision of the Federal Circuit Court of Australia, which had granted a sequestration order based on an act of bankruptcy stemming from a failure to comply with a bankruptcy notice issued over a judgment debt. The judgment debt originated from a decision of the Magistrates' Court of Victoria. The central issue in the appeal was whether the primary judge had erred by not questioning the validity of the debt behind the Magistrates' Court judgment. Specifically, the appellant argued that the primary judge should have gone behind the judgment due to arguable breaches by the respondent of the National Credit Code Protection Act.

The court considered whether sufficient reason had been shown for questioning the existence of the debt behind the judgment, in accordance with the principles established in Ramsay. The court concluded that the primary judge had not erred in declining to go behind the judgment, as there was no sufficient reason shown to doubt the existence of the debt. The scrutiny of the debt by the bankruptcy court is essential to protect the interests of third parties, particularly other creditors, who were not parties to the proceedings that resulted in the judgment debt.

In light of the above reasoning, the appeal was dismissed, and the court ordered the parties to file and serve their proposed forms of order regarding costs. The issue of costs would then be determined on the papers, unless the appellant objected to the respondent's proposed order within the specified timeframe.

Orders

Orders of the court

1. The appeal be dismissed.

2. Within seven days, the respondents file and serve a proposed form of order as to costs and a written submission (of no more than two pages) in support of the order sought.

3. If the appellant takes issue with the respondents’ proposed form of order:

(a) Within a further seven days, the appellant file and serve a proposed form of order as to costs and a written submission (of no more than two pages) in support of the order sought.

(b) Subject to further order, the issue of costs be determined on the papers.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

For the reasons that follow, no error has been shown in the judgment or orders of the primary judge. The appeal is therefore to be dismissed.Background facts The following summary of the background facts is substantially based on the reasons for judgment of the primary judge (the Reasons). I have also drawn on certain documents in the Appeal Book (AB) to which I was taken during the course of the hearing of the appeal. At the hearing of the appeal, Ms Ganesh applied for the Court to receive further evidence on appeal. Specifically, Ms Ganesh applied for the Court to receive five affidavits that were not before the primary judge. I deal with Ms Ganesh’s application for the Court to receive these affidavits later in these reasons. At this stage, in setting out the background facts, I have not drawn on this material. To assist the parties’ consideration of these reasons, I have included references in the following paragraphs to the Reasons or to the Appeal Book to indicate the source of the relevant fact. I note that the Appeal Book was filed in electronic form without pagination on each page. The references are therefore to the page of the PDF document that constitutes the Appeal Book. In 2011, Ms Ganesh and her husband, Mr Ganesh Radhakrishnan (Mr Radhakrishnan), were investors in residential real estate using largely borrowed funds (Reasons, paragraph 6). Mr Dobrowolski is a retired mortgage broker who was retained by Ms Ganesh to raise funds to complete the purchase of a property in Alfredton, a suburb of Ballarat (the Property). In August 2010, Ms Ganesh entered into a contract to purchase the Property for $550,000 (Reasons, paragraph 7). In January 2011 a rescission notice was served by the vendors of the Property and Ms Ganesh retained Mr Dobrowolski to secure finance to complete the purchase. Funds were raised through a loan in the sum of $440,000 from AMP Ltd (AMP), but there remained a shortfall of funds necessary to complete the purchase (Reasons, paragraph 8). In anticipation of the settlement (which took place on 12 April 2011), Mr Dobrowolski provided the sum of $85,000 to enable completion of the purchase to take place (Reasons, paragraph 9). There is an issue between the parties as to the circumstances in which Mr Dobrowolski advanced that sum of money. According to Mr Dobrowolski, there was a conversation between him and Ms Ganesh in which he offered to lend her the money and she accepted his offer. Mr Dobrowolski says that the conversation took place on the same day that he drew a cheque for the amount (see the partial transcript of the hearing in the Magistrates’ Court at AB 117-118). This places the timing of the conversation on or about 8 April 2011. According to Ms Ganesh, no such conversation took place and she was not aware on the date of settlement that the source of these funds was Mr Dobrowolski (see Ms Ganesh’s affidavit dated 15 November 2019 at AB 69-70). On 16 June 2011, Mr Dobrowolski sent an email to Ms Ganesh (AB 121), which stated in part:I want to discuss the issue of the $85,000. At the last minute, the investor pulled out of giving you the money because she felt that you were too high a risk and had no possible means of paying her back. She felt that she would lose all her money because there had not been time to organise a second mortgage between her and your bank on one of the other properties. So she said NO.So I decided that I would advance you the money to help you out. You had been stressed out enough. I borrowed the money quickly and sent a cheque to Ballarat to meet settlement. I did this on the basis that I would be able to refinance other properties with enough equity to pay me out. This of course depended on you being able to supply tax returns and Assessment Notices which showed you could service the debt. I assured my wife that you and Ganesh [i.e. Mr Radhakrishnan] – whatever else was happening in your lives – had a commitment to your children and to repaying the debt as soon as we could refinance again.My wife now believes that we have an $85,000 debt which we will have to pay back because of my trust in you and Ganesh. She knows that no-one – not even your family would have done this for you.So, it is now your turn to assure and help me, so that I can say to my wife – see my trust and faith – is being rewarded. This is the plan for us to complete the transaction with Ana.I wanted you to know the real situation so that we can start the process as soon as possible. This may involve us meeting in the next few days to see what is required. One of the things we need to discuss is how I protect my interests since there is no record of me having lent you any money and no agreement in place, should you not be in a position to refinance at all.(Bold emphasis added.)

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

For the above reasons, no error has been shown in the primary judge’s conclusion that sufficient reason had not been shown for questioning whether behind the judgment of the Magistrates’ Court there was in truth and reality a debt due to Mr Dobrowolski.Conclusion For these reasons, the appeal is to be dismissed. I will hear from the parties as to the appropriate form of order as to costs, given the bankruptcy of Ms Ganesh.

Ratio Decidendi

Legal Principle Established

During the hearing of the appeal, I raised with counsel for Mr Dobrowolski the following issue: whether the primary judge had erred by failing to find, on the basis of arguable breaches by Mr Dobrowolski of the NCCP Act, that a sufficient reason had been shown for questioning whether behind the judgment of the Magistrates’ Court of Victoria there was in truth and reality a debt due to the petitioning creditor. In circumstances where this issue had not been clearly raised in Ms Ganesh’s submissions, I gave Mr Dobrowolski the opportunity to file supplementary submissions in relation to this issue, and Ms Ganesh the opportunity to file submissions in response. Both Mr Dobrowolski and Ms Ganesh have filed supplementary submissions on this issue.Consideration Although Ms Ganesh’s notice of appeal contains 12 grounds, some of which are lengthy, the substance of her contention on appeal is that the primary judge erred in deciding not to go behind the judgment of the Magistrates’ Court of Victoria. Section 52(1)(c) of the Bankruptcy Act provides that, at the hearing of a creditor’s petition, the Court shall require proof of “the fact that the debt or debts on which the petitioning creditor relies is or are still owing”. Section 52(2)(b) provides that if the Court is not satisfied with the proof of any of those matters (being the matters referred to in subsection (1)) or is satisfied by the debtor “that for other sufficient cause a sequestration order ought not to be made”, it may dismiss the creditor’s petition. The circumstances in which a bankruptcy court exercising jurisdiction under s 52 of the Bankruptcy Act may go behind a judgment were considered by the High Court in Ramsay. In the judgment of Kiefel CJ, Keane and Nettle JJ, their Honours referred at [37] to the submissions of Mr Compton and indicated at [38] their acceptance of those submissions. Their Honours stated:37Mr Compton submitted that, by reason of s 52(1)(c) of the Act, and as Wren v Mahony concluded, the question for the Bankruptcy Court was whether the judge was persuaded that there was a debt truly owing to the petitioning creditor. It was said that the Bankruptcy Court should go behind a judgment where sufficient reason is shown for questioning whether behind the judgment there is in truth and reality a debt due to the petitioning creditor, and that sufficient reason was shown in this case.38An examination of the competing arguments shows that, both in point of authority and in point of principle, Ramsay’s contentions should be rejected and those advanced for Mr Compton accepted.(Footnote omitted.) Further, Kiefel CJ and Keane and Nettle JJ set out, at [42], an extract from Wren v Mahony (1972) 126 CLR 212 at 224, and stated, at [43], that there were good reasons why that passage should not be given an artificially narrow application. Their Honours stated at [44], that Wren v Mahony held that a bankruptcy court may go behind a judgment, notwithstanding that the judgment was obtained after a contested hearing. Their Honours stated at [54]-[56]:54In point of principle, scrutiny by a Bankruptcy Court of the debt propounded by a judgment creditor seeking a sequestration order in no sense involves an attempt to impeach the judgment. A Bankruptcy Court is not concerned with whether the judgment should be set aside as upon an appeal, or even as a default judgment or a judgment obtained by fraud may be set aside; nor is a Bankruptcy Court concerned to deny the effect of the judgment as “res judicata” between the parties to it. A Bankruptcy Court is not concerned to prevent the judgment creditor from invoking the ordinary processes of execution available under the general law. Rather, a Bankruptcy Court is concerned with whether the debt on which it is based is truly a basis for the making of a sequestration order. A Bankruptcy Court has a statutory duty to be “satisfied” as to the existence of the petitioning creditor’s debt; a creditor should not be able to make a person bankrupt on a debt which is not provable.55The scrutiny required by s 52 as to whether there is, in truth and reality, a debt owing to the petitioning creditor serves to protect the interests of third parties, particularly other creditors of the debtor. It is of critical importance to appreciate that such persons were not parties to the proceedings that resulted in the judgment debt. It has long been recognised that their interest in being paid their debts in full should not be prejudiced by the making of a sequestration order in reliance on a judgment debt which does not reflect the true indebtedness of the debtor to the petitioning creditor. In In re Fraser; Ex parte Central Bank of London, Lord Esher MR said:“The decision is based upon the highest ground – viz, that in making a receiving order, the Court is not dealing simply between the petitioning creditor and the debtor, but it is interfering with the rights of his other creditors, who, if the order is made, will not be able to sue the debtor for their debts, and that the Court ought not to exercise this extraordinary power unless it is satisfied that there is a good debt due to the petitioning creditor. The existence of the judgment is no doubt prima facie evidence of a debt; but still the Court of Bankruptcy is entitled to inquire whether there really is a debt due to the petitioning creditor.”56Almost a century later, the effect of the authorities on the topic was summarised in similar terms in Ahern v Deputy Commissioner of Taxation (Qld) by Davies, Lockhart and Neaves JJ:“[B]efore a person can be made bankrupt the court must be satisfied that the debt on which the petitioning creditor relies is due by the debtor and that if any genuine dispute exists as to the liability of the debtor to the petitioning creditor it ought to be investigated before he is made bankrupt. Bankruptcy is not mere inter partes litigation. It involves change of status and has quasi-penal consequences.”(Footnotes omitted.)See also at Ramsay at [97]-[98], [110]-[112] per Edelman J.