Gittany v Gittany
[2014] FCCA 2998
•23 December 2014
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) |
| Commonwealth Bank of Australia v Jeans [2005] FCA 978 Gittany v Gittany [2014] NSWSC 761 Petrie v. Redmond (1942) 13 ABC; (1943) QSR Re Brink; Ex parte The Commercial Banking Company of Sydney Ltd (1980) 44 FLR 135 |
| 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 Court (Bankruptcy) Rules 2006 (Cth), on condition that Bankruptcy Notice No. BN 173183 issued on 9 July 2014 was served on the applicant on 23 July 2014, the time fixed for compliance by the applicant with the requirements of the Bankruptcy Notice is extended up to and including 16 March 2015.
If the date referred to in order 2 is not suitable to any of the parties, the parties have leave to apply for a different hearing date, such application to be made, in the first instance, by email to the Associate of Judge Manousaridis.
Costs are reserved.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY |
SYG 2226 of 2014
| CHARLES GITTANY |
Applicant
And
| JOSEPH GITTANY |
Respondent
REASONS FOR JUDGMENT
Introduction
Joseph Gittany (Joseph) applies for the summary dismissal of an application filed by his brother (Charles) to set aside a bankruptcy notice that was issued to Charles on the application of Joseph.
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
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 46-481
a)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.
On the basis of these allegations Joseph claimed that Charles was indebted to Joseph in the amount of $975,055.45.[22] This was the sum of the following amounts:
a)$381,309.82, which represented the sum of the unpaid balances of the loans;[23]
b)$4,868.12, which represents loan establishment costs for loan 1;[24]
c)$12,682.51, which represents the loan repayments Joseph made immediately after he drew on the loans;[25] and
d)$250,000, being the minimum amount Charles agreed he would pay to Joseph.[26]
[22] Charles Gittany affidavit 08.08.14, exhibit CG1, page 473, [38]
[23] Charles Gittany affidavit 08.08.14, exhibit CG1, page 473, [34]
[24] Charles Gittany affidavit 08.08.14, exhibit CG1, page 473, [35]
[25] Charles Gittany affidavit 08.08.14, exhibit CG1, page 473, [35]
[26] Charles Gittany affidavit 08.08.14, exhibit CG1, page 473, [37]
Dismissal of application to set aside Judgment
Charles applied to set aside the Judgment. He supported his application with an affidavit and a draft defence.[27] In the draft defence, Charles admitted there was an agreement under which Joseph would lend the amounts Joseph alleged he agreed to lend. Charles alleged, however, that Joseph made the agreement with Gittany Constructions, not with Charles. Charles also admitted that Gittany Constructions would service the entire amount of Loan 1 but alleged that it was agreed that, after the completion of the Brookvale land development, Joseph would account to Charles for the benefit he would receive for servicing that part of Loan 1 that was used to discharge a debt of $164,631.88 Joseph owed.
[27] Charles Gittany affidavit 08.08.14, exhibit CG1, page 536
In addition, the draft defence pleaded Gittany Constructions made two classes of repayments. The first are amounts listed in Schedule A to the draft defence totalling $325,337. The second are payments said to have been made to third parties for the benefit and at the request of Joseph. The amounts are listed in Schedule B to the draft defence, and total $78,439.74.
At the hearing of Charles’s application to set aside the default judgment, Joseph contended that Charles’s proposed defence was not raised in good faith, and Joseph, through his legal representative, was given leave to cross-examine Charles on whether his proposed defence was made in good faith.
Her Honour Justice McCallum refused to set aside the Judgment.[28] Her Honour was not persuaded that Charles “genuinely believes that the loan funds he accepted from his brother, which have not been repaid, were advanced by way of loan to the company, Gittany Constructions Pty Ltd”.[29] On the contrary, her Honour was “satisfied that the contention that the loan was to the company and not to Charles Gittany personally is a deliberate confection. I am not persuaded that it is a defence raised in good faith”. [30]
[28] Gittany v Gittany [2014] NSWSC 761
[29] Gittany v Gittany [2014] NSWSC 761 at [49]
[30] Gittany v Gittany [2014] NSWSC 761 at [49]
Her Honour relied on a number of matters. There was nothing in the surrounding circumstances to support the contention that the loan was made to Gittany Constructions rather than to Charles personally.[31] Charles did not depose in direct terms to any conversation to sustain that defence.[32] There was no evidence that Gittany Constructions was in any way involved in the Brookvale land development at the time Charles approached Joseph for the loan.[33] And the amount Joseph allegedly advanced to Gittany Constructions exceeded that company’s share in the Brookvale land development.[34]
[31] Gittany v Gittany [2014] NSWSC 761 at [36]
[32] Gittany v Gittany [2014] NSWSC 761 at [36]
[33] Gittany v Gittany [2014] NSWSC 761 at [38]
[34] Gittany v Gittany [2014] NSWSC 761 at [38]
Although Charles did not plead in his draft defence, or adduce any affidavit evidence to the effect that the loans Joseph made have been repaid in full, under cross-examination Charles said “we paid him [Joseph] all the money”.[35] In relation to that claim, her Honour said:[36]
To the extent that Charles Gittany claims there have been additional payments made to Joe Gittany which were not addressed in the proposed defence or in evidence before me, those claims can be raised in the bankruptcy proceedings.
[35] Gittany v Gittany [2014] NSWSC 761 at [43]
[36] Gittany v Gittany [2014] NSWSC 761 at [54]
Going behind a judgment
In his application to set aside the bankruptcy notice, Charles relies on the principle that a court of bankruptcy is not bound to accept that a judgment on the basis of which a bankruptcy notice has been issued records a true debt: a court of bankruptcy may “go behind the judgment”, and determine for itself whether there is in truth a debt owing by the judgment debtor.
A court of bankruptcy will not, however, go behind a judgment as a matter of course. It will only do so “where reason is shown for questioning whether behind the judgment or as it is said, as the consideration for it, there was in truth and reality a debt due to the petitioning creditor”.[37] Stated another way, a court of bankruptcy accepts as a matter of discretion that a judgment is satisfactory proof of the petitioning creditor’s debt. That discretion, however, “is not well exercised where substantial reasons are given for questioning whether behind that judgment there was in truth and reality a debt due to the petitioner”.[38]
[37] Wren v Mahony (1972) 126 CLR 212 at page 224 (Barwick CJ, with whose reasons Windeyer and Owen JJ agreed)
[38] Wren v Mahony (1972) 126 CLR 212 at page 224-225 (Barwick CJ, with whose reasons Windeyer and Owen JJ agreed)
That a judgment has been entered by default is a potential reason for going behind a judgment. It has been said that “the court looks with suspicion on consent judgments and default judgments”.[39] It has also been said:[40]
But, wherever the judgment in question is a judgment by default, 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.
[39] Petrie v. Redmond (1942) 13 ABC at pp 48, 49; (1943) QSR at pp 75, 76 (Latham CJ) quoted with approval in Corney v Brien (1951) 84 CLR 343 at page 348
[40] Corney v Brien (1951) 84 CLR 343 at pages 357-358 (Fullagar J)
Other potential reasons for going behind a judgment are where the judgment has been entered as a result of a compromise or as a result of fraud or collusion.[41]
Circumstances tending to show fraud or collusion or miscarriage of justice or that a compromise was not a fair and reasonable one, in the sense that even if not fraudulent it was foolish, absurd and improper, or resulted from an unequal position of the parties . . . offer occasions for the exercise by the Court of Bankruptcy of its power to inquire into the consideration for the judgment.
[41] Wren v Mahony (1972) 126 CLR 212 at page 223 (Barwick CJ, with whose reasons Windeyer and Owen JJ agreed)
On the other hand, if the judgment the bankruptcy court is urged to go behind “followed a full investigation at a trial on which both parties appeared, the court will not reopen the matter unless a prima-facie case of fraud or collusion or miscarriage of justice is made out”.[42]
[42] Corney v Brien (1951) 84 CLR 343 at pages 356-357 (Fullagar J)
In Corney v Brien Fullagar J said that no “precise rules exist as to what circumstances call for an exercise of the power” to go behind a judgment.[43] In my opinion, however, there are two broad considerations that explain the circumstances in which it has been recognised that a bankruptcy court may go behind a judgment. First, paragraph (g) of s.40(1) of the Act assumes that “for most purposes as between the parties, [a judgment] is conclusive evidence of the existence of the obligation which it creates”,[44] and that a judgment debtor’s failure to pay the judgment debt affords the surest proof of a person’s inability to pay his or her debts. This assumption, however, holds good usually if the judgment has been entered after a contested hearing. It is a court’s entering judgment after hearing and determining a contested claim for the payment of money that entitles a court of bankruptcy to be satisfied that the judgment is supported by a true debt.
[43] Corney v Brien (1951) 84 CLR 343 at page 356
[44] Corney v Brien (1951) 84 CLR 343 at page 353 (Fullagar J)
Second, where, on the other hand, a judgment has been entered without the hearing or adjudication of a contested claim, a bankruptcy court can no longer necessarily assume there is a true debt behind such judgment. That by itself, however, does not mean a bankruptcy court must go behind the judgment. For, in addition to assuming that, for most purposes, a judgment is conclusive evidence of the obligation it creates, the Act also assumes that a court other than a bankruptcy court will normally adjudicate disputed claims for the payment of money, and that the judgment debtor would take the opportunity to defend claims made in such court for the payment of money. At least two consequences flow from that assumption.
One is that, when determining whether it should go behind a judgment that has been entered without a contested hearing, it is relevant to consider why the judgment debtor did not or was unable to challenge the claim for the payment of money that was made in the court in which the judgment was entered. Thus, it may be relevant, in the exercise of the court’s discretion whether to go behind a judgment that was entered without a contested hearing, that the judgment debtor did not avail himself or herself of the right to apply to set aside a judgment entered by default.
The second consequence arises where the judgment debtor did contest the claim that was decided adversely to him or her, but did not raise a defence or claim that it was open to her or him to raise. In those circumstances, the fact that it was open to the judgment debtor to raise, but the judgment debtor did not raise the defence or claim will be a factor against the court exercising its discretion to go behind the judgment. That will be so even though there might a defence or claim which the court issuing the judgment did not adjudicate.
Counter-claim, set-off or cross demand
A judgment debtor on whom a bankruptcy notice is served does not commit a bankruptcy notice if he or she satisfies the Court that he or she has:
a counter-claim, set-off or cross demand equal to or exceeding the amount of the judgment debt or sum payable under the final order, as the case may be, being a counter-claim, set-off or cross demand that he or she could not have set up in the action or proceeding in which the judgment or order was obtained.
The matters of which a Court must be satisfied before it can be satisfied that a debtor has a counter-claim, set-off or cross demand against the creditor have been stated in different ways, and in ways that sometimes overlap. The various statements were summarised by Lindgren J in Glew v Harrowell, in the matter of Glew.[45] In broad terms, a debtor must satisfy the Court that the counter-claim, set-off or cross demand is made in good faith, and that there is sufficient substance to the counter-claim, set-off or cross demand asserted to make it one which the debtor should, in justice, be permitted to have heard and determined in the usual way, rather than be forced to comply with the bankruptcy notice by payment or to commit an act of bankruptcy.
[45] [2003] FCA 373 at [9]
That the judgment debtor may have a “counter-claim, set-off or cross demand equal to or exceeding the amount of the judgment debt” is relevant to whether a bankruptcy notice can be set aside only if the counter-claim, set-off or cross demand “could not have been set up” by the judgment debtor in the proceeding in which the judgment was obtained. The expression “could not have been set up” has been construed narrowly:[46]
The words “that he could not have set up in the action or proceeding in which the judgment or order was obtained” mean “which he could not by law set up in the action.”: see Re Jocumsen (supra) at p. 85; Re A Debtor 1914 3 K.B. 726 per Avory J. at p. 730 and Re Stockvis (1934) 7 A.B.C. 53 especially per Lukin J. at p. 57 where his Honour said: “I take a counter claim, set off, or cross demand which could not be set up as one which, from the point of time, or from its nature, or from absence of empowering provisions, or from positive inhibition so to do, could not be set up in the particular case in which judgment was obtained . . . Mere failure to take advantage of the opportunity can hardly be said to be inability.”
[46] Re Brink; Ex parte The Commercial Banking Company of Sydney Ltd (1980) 44 FLR 135 at page 139 (Lockhart J)
What is the question I must decide?
The question I must decide on the application before me is not whether there are substantial grounds for going behind the Judgment, or whether Charles has a counter-claim, set-off or cross demand equal to or exceeding the amount of the Judgment. It was agreed by the parties that the question I am required to consider is whether Charles has no reasonable prospect of successfully prosecuting his application to set aside the bankruptcy notice within the meaning of s.17A(2) of the Federal Circuit Court of Australia Act 1999 (Cth) (FCC Act).
The High Court in Spencer v The Commonwealth of Australia[47] considered s.31A(2) of the Federal Court of Australia Act 1976 (Cth) which is identical to s. 17A(2) of the FCC Act. The plurality said that no paraphrase of the expression “no reasonable prospect” “can be adopted as a sufficient explanation of its operation, let alone definition of its content”, and that the “judicial creation of a lexicon of words or phrases intended to capture the operation of a particular statutory phrase like “no reasonable prospect” is to be avoided”.[48] Rather “full weight must be given to the expression as a whole” so that the Court may exercise the power “if, and only if, satisfied that there is “no reasonable prospect” of success”.[49]
[47] (2010) 241 CLR 118
[48] (2010) 241 CLR 118 at page 141 ([58])
[49] (2010) 241 CLR 118 at page 141 ([60])
Going behind the Judgment
The ground on which Charles submits this Court should go behind the Judgment is that Charles has arguable defences to the claim on the basis of which the Judgment was entered. Most, if not all, of the evidence on which Charles proposes to rely in support of that contention is evidence he did not adduce in support of his application in the Supreme Court to set aside the Judgment.
Before I consider whether there is no reasonable prospect that Charles will succeed on his contention that the Court should go behind the Judgment, it will be useful if I identify the evidence on which Charles proposes to rely.
Charles’s evidence
First, there is his affidavit of 8 August 2014 in which Charles deposes to a number of matters: the conversations he says he had with Joseph in about September 2002 as a result of which Joseph agreed to lend money to Gittany Constructions; the receipt and distribution of the loan money; the servicing of the interest payable under the loans Joseph took out; the purchase of development sites; payments on behalf of Joseph of invoices totalling $78,521.54; the repayment of the loans; the overpayment of interest; the breakdown of Charles’s relationship with Joseph; and Charles’s retainer of the solicitor who represented him in the Supreme Court and his dealings with that solicitor in connection with the Supreme Court proceedings.
There are two other matters to which Charles deposes in his affidavit of 8 August 2014. The first are matters which purport to explain why the evidence on which Charles wishes to rely in his application to set aside the Judgment was not put before the Supreme Court when Charles applied to set aside the Judgment. Charles blames, and blames entirely, his solicitor. Charles has deposed that he has “learned that he [the solicitor] allowed default judgment to be entered against me, then prepared inadequate evidence in support of my application to set aside default judgment”.[50]
[50] Charles Gittany affidavit 08.08.14, [70]
Second, Charles deposes to matters which explain why he did not rely in the Supreme Court on the counter-claim he says he has against Joseph. Charles deposes:[51]
The set-off or cross demand was not raised in the Supreme Court of New South Wales before McCallum J due to the fact that my former solicitor . . . failed to file a defence to the Statement of Claim filed 1 November 2012. I thought that my solicitor had everything under control. [The solicitor] failed to demonstrate to the court that Gittany Constructions paid Joe more than the amount that he is claiming in the Bankruptcy Notice issued. I was never given the opportunity by [the solicitor] to show the court that the payments Joe is claiming in respect of the Bankruptcy Notice have in fact been paid. The decision of the Supreme Court has been made without me being given the opportunity to prove that Gittany Constructions has paid the debt Joe is claiming that I owe.
[51] Charles Gittany affidavit 08.08.14, [74]
The second affidavit on which Charles relies is one he made on 19 September 2014. To that affidavit Charles annexes financial statements of Gittany Constructions for the year ending 30 June 2004. The balance sheet lists as a current liability the sum of $634,569 which is described “Loan – Joe Gittany”.[52] The affidavit also contains a correction to interest calculations contained in his affidavit of 8 August 2014, and a calculation of the amount by which Charles claims Joseph has been overpaid the amounts owing to Joseph under the September 2002 agreement.
[52] Charles Gittany affidavit 19.09.14, annexure “A”
The third affidavit on which Charles proposes to rely is one made by Anthony Gittany (Anthony) on 19 September 2014. In that affidavit, Anthony deposes to conversations he had with Charles about Charles’s discussions and dealings with Joseph concerning the loan Joseph agreed to make, the receipt of the loan money, the repayment of the loan; and an attempt to negotiate the dispute between Joseph and Charles.
Next, Charles relies on two affidavits made on 28 November 2014. In one of those affidavits, Charles identifies that portion of the loans Joseph took that was used by Joseph, the amounts Joseph claimed in the statement of claim is owing by Charles, the amounts Charles says were repaid, and the payment of interest. In the other affidavit, Charles responds to an affidavit Joseph made on 29 October 2014.
No reasonable prospect of persuading the Court to go behind the Judgment?
As I have noted above, a Court will go behind a judgment if there is some reason for questioning the judgment. The issue before me is whether Charles has no reasonable prospect of persuading the Court there is some reason for questioning the Judgment.
Counsel for Charles submitted there are two grounds on which the Court may go behind the Judgment. The first is that Charles contends there is evidence to support the contention that Joseph lent the money to Gittany Constructions, not to Charles.[53]
[53] T14.25
In my opinion, there is no reasonable prospect that on the hearing of Charles’s application to set aside the bankruptcy notice the Court would accept this ground as a reason for going behind the Judgment. The ground assumes that all that is needed for a bankruptcy court to go behind a judgment is that it be satisfied there is evidence that, if accepted, would show that the debt on which the judgment is based is not owed by the judgment debtor.
That is not correct. If it were correct, a judgment debtor would be entitled to re-litigate before a bankruptcy court the claim that was decided against him or her; at least if the grounds on which the judgment debtor defended the claim included evidence which the court that had given the judgment did not accept but which, if it had accepted it, would have decided the claim in favour of the judgment debtor. That the judgment debtor can put before a bankruptcy court evidence which shows he or she does not owe the debt for which judgment has been awarded against him or her cannot by itself, therefore, constitute a substantial reason for going behind a judgment.
The second ground on which Charles relies for contending the Court may go behind the Judgment is the following passage from McCallum J’s reasons for judgment that I have already quoted:[54]
To the extent that Charles Gittany claims there have been additional payments made to Joe Gittany which were not addressed in the proposed defence or in evidence before me, those claims can be raised in the bankruptcy proceedings.
[54] Gittany v Gittany [2014] NSWSC 761 at [54]
Counsel for Charles submits that by this passage McCallum J expressly set aside or preserved the right of Charles to claim by way of defence that the amount Joseph lent has been repaid in full “on the strength of proper documentation”.[55]
[55] T16.20
In my opinion, it cannot be said that, notwithstanding McCallum J’s acknowledgment that Charles could in another forum claim he has repaid more of the loan than Charles had stated in his draft defence, Charles has no reasonable prospect of persuading the Court that it should go behind the Judgment; at least to the extent of permitting Charles to prove he has paid in full the amount of the Judgment. The reason the Court might consider exercising its discretion is that a Judge of the Supreme Court of New South Wales, being the court in which the Judgment was entered, acknowledged that the Judgment may be for an amount greater than it should be, and that, whether or not that is so, is a matter than could be litigated in another forum.
That does not mean, however, that the Court would necessarily exercise its discretion in favour of allowing Charles to litigate in this Court his claim that Joseph has been paid all the amounts he was owed under the September 2002 agreement. There are a number of matters that may be relevant to whether the discretion should be exercised to permit Charles to do that. This may include whether there is an adequate explanation for Charles not having sought to allege in the draft defence that he submitted with his application to set aside the Judgment, let alone tender evidence that shows that amounts greater than the amounts included in the draft defence were paid to Joseph.
There is a suggestion that Joseph contends that even if Joseph was paid amounts owing to him under the September 2002 agreement, Charles cannot rely on those payments because Gittany Constructions, not Charles, made the payments. That Gittany Constructions may have made the payments does not mean Charles has no reasonable prospects of showing that the payments discharged pro tanto any liability Charles had to Joseph under the September 2002 agreement. As a general rule, a stranger to a debt may satisfy the debt by payment if the creditor accepts the payment as a discharge of the debt, and the stranger made the payment as agent for and on behalf of the debtor, and with the prior authority of or subsequent ratification by the debtor.[56] I do not find that Charles has no reasonable prospects of showing, if he were permitted to do so, that payments he can prove were made by Gittany Constructions to Joseph were made for and on behalf of Charles.
[56] Sheahan v Carrier Air Conditioning Pty Ltd (1997) 189 CLR 407 at page 430 where the plurality describe this as the “general rule” that is to be derived from the “established pattern of English authority”. See also J Beatson and P Birks “Unrequested Payment of Another’s Debt” (1976) 92 LQR 188
Counter-claim
Charles describes the counter-claim he asserts he has against Joseph as follows:[57]
As evidenced in the documents in my Exhibit, and as set out above, Gittany Constructions has paid Joe Gittany the total amount of $1,138,791.20. The amount claimed by Joe on the Bankruptcy Notice issued 9 July 2014 is the amount of $1,000,721.96. Gittany Constructions has exceeded the payment of the amount claimed by Joe in the amount of $138,069.24.
[57] Charles Gittany affidavit 08.08.14, [73]
Charles has no reasonable prospect of relying on this asserted counter-claim. That is so because Charles has no reasonable prospect of establishing that he could not have set up this counter-claim in the proceedings in which the Judgment was entered. Charles’s assertion that it was due to his solicitor’s default to set up the counter-claim in the proceedings does not mean he was, as a matter of law, not able to set up the counter-claim. Clearly, he could have filed a cross-claim seeking judgment in the amount of the overpayments Charles claims he made to Joseph.
Conclusion and disposition
I find that Charles has no reasonable prospects of persuading the Court to go behind the Judgment to claim that the September 2002 agreement was made not between Joseph and Charles, but between Joseph and Gittany Constructions. I also find that Charles has no reasonable prospects of persuading the Court that the counter-claim he asserts he has against Joseph is one he could not have raised in the proceedings in which the Judgment was entered. I do not find that Charles has no reasonable prospect of persuading the Court to go behind the Judgment to the extent he claims Gittany Constructions made payments on account of the amounts owing to Joseph under the September 2002 agreement beyond those he identified in his draft defence.
The consequence of my findings is that Charles’ application to set aside the bankruptcy notice may continue to be pursued, but only in so far as it relies on the claim that Joseph was paid amounts beyond those which Charles identified in the draft defence he submitted in support of his application to set aside the Judgment.
The final question I must address is how that claim should proceed. It is open to me to consider as a preliminary question whether the Court ought to exercise its discretion to go behind the Judgment to the extent Charles wishes to claim that he paid amounts beyond those which Charles identified in the draft defence he submitted in support of his application to set aside the Judgment.[58] In my opinion, that is the course I should adopt.
[58] Commonwealth Bank of Australia v Jeans [2005] FCA 978 (Hely J)
Accordingly, I propose to make orders giving effect to these reasons, and to set down for hearing the preliminary question to which I refer in the previous paragraph.
I certify that the preceding fifty-one (51) paragraphs are a true copy of the reasons for judgment of Judge Manousaridis
Associate:
Date: 23 December 2014
0
8
5