Gittany v Gittany - [2014] FCCA 2998

FEDERAL CIRCUIT COURT OF AUSTRALIA

GITTANY v GITTANY

[2014] FCCA 2998

Catchwords:
BANKRUPTCY – Application to dismiss an application to set aside bankruptcy notice as an abuse of process – whether applicant has a reasonable prospect of succeeding on his claim that the Court should go behind the judgment on the basis of which the bankruptcy notice was issued – whether applicant has reasonable prospect of succeeding on his claim that he has a counter-claim, set-off or cross demand against the respondent that he could not have set up in the proceedings in which the judgment was entered.

Legislation:

Bankruptcy Act 1966 (Cth), ss.40(1)(g), 41(6A)

Federal Circuit Court of Australia Act 1999 (Cth), s.17A(2)
Federal Circuit Court (Bankruptcy) Rules 2006 (Cth), r.3.03
Federal Court of Australia Act 1976 (Cth), s.31A(2)

Commonwealth Bank of Australia v Jeans [2005] FCA 978
Corney v Brien (1951) 84 CLR 343

Gittany v Gittany [2014] NSWSC 761
Glew v Harrowell, in the matter of Glew [2003] FCA 373

Petrie v. Redmond (1942) 13 ABC; (1943) QSR

Re Brink; Ex parte The Commercial Banking Company of Sydney Ltd (1980) 44 FLR 135
Sheahan v Carrier Air Conditioning Pty Ltd (1997) 189 CLR 407
Spencer v The Commonwealth of Australia (2010) 241 CLR 118
Wren v Mahony (1972) 126 CLR 212

Applicant:

CHARLES GITTANY

Respondent:

JOSEPH GITTANY

File Number:

SYG 2226 of 2014

Judgment of:

Judge Manousaridis

Hearing date:

3 December 2014

Delivered at:

Sydney

Delivered on:

23 December 2014

REPRESENTATION

Counsel for the Applicant:

Mr E. Muston

Solicitors for the Applicant:

Gadens

Solicitors for the Respondent:

Mr G. Penhall of
Penhall & Co Lawyers

DECLARATION

The applicant has no reasonable prospect of succeeding on his application to set aside bankruptcy notice BN 173183 issued on 9 July 2014 to the extent that that application relies on:
(a)the Court’s going behind the judgment of the Supreme Court of New South Wales in case number 2012/341101 for $1,000,721.96 (Judgment) so as to find that the agreement on the basis of which the Judgment was entered (Agreement) was made not between the applicant and the respondent but between Gittany Constructions Pty Ltd and the respondent; and
(b)the applicant having a counter-claim, set-off or cross demand in relation to a claimed overpayment of amounts owing to the respondent under the Agreement.

ORDERS

Subject to order 4, there be set down for hearing at 10.15am on 16 March 2015 the preliminary question of whether the Court ought to exercise its discretion to go behind the Judgment so as to decide whether the applicant or some other person on his behalf paid to the respondent amounts owing to the respondent under the Agreement beyond the amounts the applicant, in a draft defence on which he relied for applying to set aside the Judgment, alleged was paid to the respondent on account of the amount the respondent was owed under the Agreement.
Pursuant to subsection 41(6A) of the Bankruptcy Act 1966 (Cth) and rule 3.03 of the Federal Circuit…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

Continue reading Gittany v Gittany

Details

AGLC: Gittany v Gittany [2014] FCCA 2998
Case: [2014] FCCA 2998
Decision Date: 23 December 2014

CaseChat Overview and Summary

This matter concerned an application by Charles Gittany to set aside a bankruptcy notice issued by Joseph Gittany. The bankruptcy notice was based on a default judgment of $1,000,721.96 obtained by Joseph against Charles in the Supreme Court of New South Wales. This judgment represented amounts Joseph alleged Charles failed to pay under an agreement made in September 2002. Charles sought to set aside the notice on two grounds: firstly, that the judgment was not supported by a true debt, as he claimed the agreement was with a company, Gittany Constructions Pty Limited, which had repaid the amounts; and secondly, that he possessed a counter-claim, set-off, or cross-demand within the meaning of s.40(1)(g) of the *Bankruptcy Act 1966* (Cth).

The court was required to determine whether Charles had established grounds to set aside the bankruptcy notice. Specifically, it needed to consider whether the default judgment was a final judgment, given that a prior application by Charles to set it aside had been dismissed by Justice McCallum, who found his defence to be a "deliberate confection". The court also had to assess whether Charles had an arguable counter-claim, considering Joseph's submission that there was a lack of mutuality as Charles had not personally paid the amounts he claimed constituted the overpayment.

In reaching its decision, the court noted that a bankruptcy court may go "behind a judgment" in certain circumstances. However, it also considered the principles governing the setting aside of bankruptcy notices based on asserted counter-claims. The court was required to be satisfied that Charles's application was not an abuse of process before it could summarily dismiss it. The underlying dispute stemmed from loans made by Joseph to Charles in November 2002 for a real estate development, pursuant to the September 2002 agreement. The statement of claim alleged Charles was to repay these loans and a further amount of up to $300,000, guaranteeing at least $250,000. Charles allegedly ceased payments in April 2007, leading Joseph to cover the loan instalments.

The court ultimately found that Charles had no reasonable prospect of setting aside the bankruptcy notice. It held that the prior decision of Justice McCallum, which dismissed Charles's application to set aside the judgment and characterised his defence as a "deliberate confection", was binding. Furthermore, the court found that Charles's asserted counter-claim lacked mutuality, as he had not personally made the payments he alleged constituted an overpayment to Joseph. Consequently, the application to set aside the bankruptcy notice was dismissed.

Orders

Orders of the court

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Background

Background to the litigation

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Evidence

Evidence Before The Court

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Decision

Reasons for decision

The bankruptcy notice demands payment of a judgment of $1,000,721.96 that Joseph recovered by default against Charles in the Supreme Court of New South Wales (Judgment). The Judgment represents the total of amounts Joseph alleged Charles failed to pay to Joseph under an agreement Joseph made with Charles in around September 2002 (September 2002 Agreement). Charles seeks to set aside the bankruptcy notice on two grounds. The first is that the Judgment is not supported by any true debt. Charles claims that, although in September 2002 he did enter into an agreement with Joseph substantially on the terms alleged by Joseph, Charles made that agreement on behalf of, and only on behalf of a company called Gittany Constructions Pty Limited (Gittany Constructions). He also claims Gittany Constructions repaid to Joseph the amounts that were payable under the agreement. The second ground on which Charles relies for setting aside the bankruptcy notice is that he has a counter-claim, set-off or cross demand within the meaning of s.40(1)(g) of the Bankruptcy Act 1966 (Cth) (Act). The counter-claim is said to arise out of payments totalling $1,138,791.20 Charles claims he caused Gittany Constructions to make to Joseph. The claim is he overpaid amounts owing to Joseph under the September 2002 agreement. Joseph submits Charles has no reasonable prospect of setting aside the bankruptcy notice. He submits that the Judgment, although recovered by default, is in substance a final judgment. That is so because, in a judgment delivered on 10 June 2014,[1] her Honour Justice McCallum dismissed an application made by Charles to set aside the Judgment. Her Honour found that the defence on which Charles proposed to rely, namely, that Joseph made the September 2002 agreement with Gittany Constructions, not with Charles, was “a deliberate confection”.[2] Joseph also submits Charles has no arguable counter claim because Charles did not pay the amounts Charles claims were paid to Joseph. There is, therefore, a lack of mutuality.[1] Gittany v Gittany [2014] NSWSC 761[2] Gittany v Gittany [2014] NSWSC 761 at [49] Before I consider whether I should summarily dismiss Charles’s application to set aside the bankruptcy notice, it will be necessary that I describe the allegations made in the statement of claim on the basis of which the Judgment was entered, Charles’s application in the Supreme Court to set aside the Judgment, the grounds on which a bankruptcy court may go “behind a judgment”, the circumstances in which an asserted counter-claim may lead to the setting aside of a bankruptcy notice, and of what I must be satisfied before I would be entitled to summarily dismiss the application to set aside the bankruptcy notice as an abuse of process. The Judgment was entered on the basis of the following allegations made in a statement of claim filed on behalf of Joseph:[3][3] Charles Gittany affidavit 08.08.14, exhibit CG1, pages 46-481a)In November 2002 Joseph took out three loans, one on 25 November 2002 for $487,500 (Loan 1), one on 21 November 2002 for $160,000 (Loan 2), and one on 28 November 2002 for $550,000 (Loan 3).[4][4] Charles Gittany affidavit 08.08.14, exhibit CG1, page 463, [3]b)$318,000 of Loan 1 was credited to Joseph’s account with the Commonwealth Bank and Joseph drew a cheque for $317,000 in favour of Charles and delivered the cheque to Charles.[5][5] Charles Gittany affidavit 08.08.14, exhibit CG1, page 463, [5]c)Each of Loan 2 and Loan 3 was made to Charles by the delivery to him of a bank cheque payable to Charles.[6][6] Charles Gittany affidavit 08.08.14, exhibit CG1, page 463-64, [6]d)Joseph obtained the loans referred to in (a) at the request of Charles for use in a real estate development at Shackel Avenue, Brookvale (Brookvale land development).[7] The request was made pursuant to an agreement made in around September 2002 under which Joseph agreed to lend Charles a sum exceeding $1 million for the purchase of the Brookvale land with a view to developing it.[8]e)On or about 3 March 2003 Charles, Anthony Gittany (Anthony), and Gittany Constructions purchased the Brookvale land.[9]f)Apart from Joseph initially repaying amounts totalling $12,682.51 towards Loans 1, 2, and 3,[10] Charles commenced to directly pay interest on the loans after Joseph made some initial payments.[11]g)It was a term of the agreement referred to in (d) that Charles would repay the loans within two years,[12] Charles would be responsible for paying all brokerage and other fees,[13]and all instalments payable under Loans 1, 2, and 3.[14]h)It was a further term of the agreement referred to in (d) that Charles would pay Joseph up to $300,000 depending on the level of financial success of the Brookvale land development, and would in any event guarantee payment to Joseph of $250,000.[15]i)By on or about 26 November 2004 Charles repaid $150,000 towards Loan 2,[16] and $495,000 towards Loan 3.[17]j)In or about December 2004 Joseph requested payment of the balance of the loans and the $250,000-$300,000, but Charles said he would continue paying the instalments.[18]k)In or about April 2007, Charles ceased making any payments on Loans 1, 2, or, 3 and Joseph then made the payments from May 2007.[19]l)The Brookvale land development was completed by about September 2004, but Charles, in breach of the agreement referred to in (d) has not paid to Joseph the amount of $250,000.[20]m)By failing to repay the loans, Charles repudiated the agreement and Joseph has been obliged to continue to pay the loan instalments.[21][7] Charles Gittany affidavit 08.08.14, exhibit CG1, page 464, [8][8] Charles Gittany affidavit 08.08.14, exhibit CG1, page 464, [9][9] Charles Gittany affidavit 08.08.14, exhibit CG1, page 465, [12][10] Charles Gittany affidavit 08.08.14, exhibit CG1, page 465, [13][11] Charles Gittany affidavit 08.08.14, exhibit CG1, page 465, [14][12] Charles Gittany affidavit 08.08.14, exhibit CG1, page 467, [15(g)][13] Charles Gittany affidavit 08.08.14, exhibit CG1, page 468, [15(h)][14] Charles Gittany affidavit 08.08.14, exhibit CG1, page 468, [15(i)][15] Charles Gittany affidavit 08.08.14, exhibit CG1, page 468, [15(k)][16] Charles Gittany affidavit 08.08.14, exhibit CG1, page 469, [16][17] Charles Gittany affidavit 08.08.14, exhibit CG1, page 469, [17][18] Charles Gittany affidavit 08.08.14, exhibit CG1, page 469-70, [18][19] Charles Gittany affidavit 08.08.14, exhibit CG1, page 470, [21]-[22][20] Charles Gittany affidavit 08.08.14, exhibit CG1, page 472, [30][21] Charles Gittany affidavit 08.08.14, exhibit CG1, page 473, [33]. The statement of claim incorrectly alleges the “plaintiff”, that is, Joseph, repudiated the agreement.

Ratio Decidendi

Legal Principle Established

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