Goodman v Zhao
[2011] FMCA 578
•26 July 2011
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| GOODMAN v ZHAO | [2011] FMCA 578 |
| BANKRUPTCY – Creditors petition – debtor disputing the judgment debt – issues in relation to the judgment debt already litigated as far as the High Court – previous judgment of this Court dismissing a challenge to the bankruptcy notice subject to appeal in the Federal Court – no reason to defer a sequestration order. |
| Bankruptcy Act 1966 Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth) |
| Goodman v Zhao [2008] NSWDC 373 Zhao v Goodman & Anor [2010] NSWCA 2 Zhao v Goodman [2011] FMCA 518 |
| Applicant: | MARLA SHOSHANA GOODMAN |
| Respondent: | YAN SHOU ZHAO |
| File Number: | SYG 1269 of 2011 |
| Judgment of: | Driver FM |
| Hearing date: | 26 July 2011 |
| Delivered at: | Sydney |
| Delivered on: | 26 July 2011 |
REPRESENTATION
| Solicitors for the Applicant: | Mr D Curry |
| The Respondent appeared in person |
ORDERS
A sequestration order be made against the estate of Yan Shou Zhao.
The petitioning creditor’s costs, including reserved costs, if any, be fixed in the sum of $3,000 and paid in accordance with the Bankruptcy Act 1966 (Cth).
The Court notes that the date of the act of bankruptcy is 17 May 2011.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG 1269 of 2011
| MARLA SHOSHANA GOODMAN |
Applicant
And
| YAN SHOU ZHAO |
Respondent
REASONS FOR JUDGMENT
(revised from transcript)
I have before me a creditor’s petition, presented on 17 June 2011, seeking a sequestration order against the estate of Yan Shou Zhao. The petition is supported by the verifying affidavit within it made by Caroline Quillan. The petition is further supported by the affidavit of Anita Gorney made on 17 June 2011, the affidavit of service of Frank Hoare made on 27 June 2011, the final affidavit of search of Holly Rayfield made on 25 July 2011 and the final affidavit of debt made by Robert Leach on 25 July 2011. I am satisfied on that material that, prima facie, the petitioning creditor is entitled to the relief sought in the petition and that the requirements of the Bankruptcy Act 1966 (Cth) (“the Bankruptcy Act”) and the Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth) have been sufficiently complied with.
The petition is opposed by Mr Zhao who relies upon a notice stating grounds of opposition to the petition. There are three grounds:
1. Marla Shoshana Goodman do not want to pay the house construction work program payment she lie to the insurance, that she want make me bankrupt see attachment.
2. The District Court of NSW Case No. 2011/93149 and Case No. 2011/166219 is relation to this Bankruptcy so I apply to wait until the District Court have a decision.
3.I apply the Appeal Court No. NSD 1070/2011 for this Bankruptcy see attachment so I apply to wait until the Appeal Court have a decision.
Essentially, Mr Zhao disputes the correctness of the judgment debt supporting the bankruptcy notice and the petition. He also refers to his unsuccessful attempt to have set aside the bankruptcy notice served upon him. That unsuccessful attempt was dealt with in this Court in Zhao v Goodman [2011] FMCA 518. The background relating to the dispute between the parties leading to the bankruptcy proceedings is dealt with in the judgment of Lloyd‑Jones FM at [5]-[23]:
Mr Zhao is a licensed building contractor trading as “YSZ Building Service” and Marla Shoshana Goodman is a home owner. The parties entered into a domestic building contract in February 2000 and that contract remained on foot until approximately March 2001. Various allegations were made, firstly by Mrs Goodman, concerning defective building work, and secondly by Mr Zhao, for unpaid monies. Vero Insurance Limited was a home warranty insurer of residential building works undertaken by Mr Zhao at the property owned by Mrs Goodman. In April 2004, Vero Insurance Limited paid an indemnity to Mrs Goodman in settlement of two claims lodged under her home warranty insurance for alleged defective building works carried out by Mr Zhao. Following that payment, Vero was subrogated to the rights of Mrs Goodman against Mr Zhao pursuant to the insurance contract and law. On 9 March 2006, Vero Insurance Limited filed a Statement of Claim in the District Court of New South Wales, proceedings 976/2006, using rights subrogated from Mrs Goodman’s claim in damages against Mr Zhao.
Mr Curry described this as a conventional Statement of Claim filed in the Building and Engineering list in the District Court in that Mrs Goodman sued Mr Zhao for defective and incomplete building work. It pleads that Mr Zhao breached the statutory warranty implied in the building contract by s.18B of the Home Building Act 1989 (NSW) (Statement of Claim, affidavit of Darren Curry, sworn 16 May 2011, annexure ‘A’).
On 7 April 2006, Mr Zhao filed a defence and critically for the purposes of these proceedings, a cross-claim against Mrs Goodman. As part of that pleading (para.4) Mr Zhao alleges that Mr Brian Goodman (Mrs Goodman’s husband) directed Mr Zhao not to do particular work specified in the contract which Mr Zhao claims he has confirmation indicating that he did not do those works. The next allegation (para.6) is that at various time during the course of doing the work, Mr Goodman requested Mr Zhao to do further work in addition to what he was required to do under the contract. Mr Zhao then alleges (para.10) that Mrs Goodman, in breach of her obligations under the contract, failed to pay Mr Zhao all of the monies due to him under the contract. The quantum sought was $61,285.00. The matter proceeded to trial before the District Court and ran for 15 days. Mr Zhao was legally represented in those proceedings. At the conclusion, judgment was given by his Honour Johnstone J in favour of Mrs Goodman and Mr Zhao was ordered to pay approximately $157,000.00. His Honour dismissed Mr Zhao’s cross-claim.
In Goodman v Zhao [2008] NSWDC 373 his Honour Johnstone J dealt with the cost claim in the following manner:
110. I turn, therefore, to the question of quantum. The claims made amount to a total of $58,306.40, being $53,940.00 for the termite claim, and $4,366.40 for sub-floor ventilation (Scott Schedule at Items 10 and 11). There were no substantive submissions challenging these amounts. The only submission made (at 12.5) was to the effect that the claim based on the detection and baiting system for termites is not a head of damages flowing from any breach by the defendant, and his liability should be limited to the repair of the termite damage, and should not extend to ongoing monitoring, which only became necessary after termite infestation, which steel mesh would not have prevented. This submission is, however, flawed because the unchallenged evidence is that the monitoring is required because of the defective ant capping, which cannot now be rectified, and the site conditions created by Mr Zhao.
111. For these reasons, I find the claims are reasonable and appropriate, and I award damages for these items in the amounts claimed.
112. In the light of the findings I have made it is not necessary that I make a finding as to whether the plaintiff agreed to excise the requirement for the installation of Termimesh in accordance with the specifications. In the event that were to become a relevant consideration, I was not satisfied that the requirement was excised. In my view the recording of the words "spray only" on the iteration of the quotation Mr Goodman stapled on the inside cover of the counterpart contract were equivocal. Apart from the question of credit that I have addressed on a number of occasions, which would persuade me to reject Mr Zhao’s evidence on the issue, having regard to my findings as to the applicable contract, it is clear that no amendments to the specifications were formally recorded. I find, therefore, that it was the common objective intention of the parties that the specifications, as incorporated into the Home Building Contract entered into between the parties, was binding on Mr Zhao. In the absence of any formal variation, therefore, he was contractually bound to install the Termimesh that the specifications required.
Summary of damages
113. The damages I have awarded are, in summary:
Items 1, 2 and 3 The terraces on levels 2 & 3 $ 23,878.21
Item 4 Defective render $ 68,962.29
Item 5 Kitchen fountain $ 443.05
Item 6 Front entry $ 2,016.63
Item 7 Garage ceiling $ 4,240.72
Item 10 Termite damage $ 53,940.00
Item 11 Sub-floor ventilation and abutting soil $ 4,366.40
Total $157,847.30
114. I find for the plaintiff on her claim against the defendant for that total amount, together with interest to date at the applicable statutory rate.
The cross-claim
115. I turn now to consider Mr Zhao’s cross-claim. The cross-claim was brought against the plaintiff, Mrs Goodman, and against her husband, Mr Goodman.
116. The cross-claim seeks payment for amounts in respect of various items of work Mr Zhao alleged he performed, which he claimed remain outstanding under the contract or were additional works requested on behalf of Mrs Goodman, for which he has not received payment.
117. I am unable to see any basis for the joinder of Mr Goodman as second cross-defendant. There was never any suggestion that he acted at any time other than as agent for Mrs Goodman, either in connection with the formation of the construction work, or in relation to the building works. There is no evidence that he was ever a principal in his own right and there can be no claim against him in contract. No other basis for personal liability on his part was pleaded, or argued. The cross-claim against him was misconceived and fails.
118. To the extent that the cross-claim against Mrs Goodman depends upon Mr Zhao’s version of the applicable construction contract, it fails for the reasons I have already given.
Mr Zhao then lodged an appeal against the District Court decision in the Court of Appeal in Zhao v Goodman & Anor [2010] NSWCA 2. At [133] of that judgment is the submission by Mr Zhao that he calculated the $61,285.00 owed to him as being the contract price, less work performed by the Goodmans, which resulted in the amount owing. In effect, Mr Zhao said there was a contract price and following discussions between the parties, the Goodmans decided to do certain work themselves and there was therefore a variation to remove that work from the contract.
At para.[138] – [139] of Zhao v Goodman & Anor (supra) the primary judge determined that no monies were owing to Mr Zhao and if anything, he had been overpaid:
[138] The primary judge (at [115]) accepted the calculations of the respondent with the consequence that no moneys were owing to the appellant — if anything, he had been overpaid. The question is whether it was open to his Honour to accept the respondent’s calculations in preference to those of the appellant.
[139] The respondents claimed both at trial and on the appeal that they had paid $420,162.12 to the appellant or his contractors and suppliers. As they were only required to pay the appellant $387,205, they submitted, and his Honour found at [119], they had overpaid the appellant for the fixed price contract works by some $32,867.12.
The Court then goes on to look at aspects of his Honour Johnstone J’s decision and concludes that there is no reason to disturb the finding of the Court below.
The Court of Appeal went on to make the following observations at [144] – [145]:
[144] But for present purposes, the critical finding of his Honour is at [119] where he found that even if the appellant had a valid claim for variations, he had in fact been paid for them as he accepted the calculations in the table that I have recorded at [135] above.
[145] His Honour therefore accepted that the first respondent had paid the appellant and his suppliers a total of $420,162.12. On the appellant’s own case, the total amount which he was entitled to be paid (including variations) was $406,685 (see [133] above). Although the appellant contended that he and his suppliers had only been paid $345,500, this assertion was rejected.
His Honour Tobias JA (McFarlane JA and McClellan CJ at CL agreeing) at [150] stated:
[150] Accordingly, in my view it has not been demonstrated that his Honour erred in finding at [119] that the total amount paid by the respondents exceeded that to which the appellant was entitled with the consequence that as no further monies were due to the appellant and unpaid, his cross-claim fails.
On 5 February 2010, Mr Zhao then applied for special leave to appeal to the High Court which was refused on 17 June 2010, by their Honours Hayden and Bell JJ.
After the judgment had been entered in the District Court, Mrs Goodman issued a Bankruptcy Notice NN2067of 2009 (‘first Notice’) in the amount of his Honour’s judgment from the District Court. As Mr Zhao had commenced his first appeal to the Court of Appeal, there was an Application to Set-Aside the Bankruptcy Notice on the basis of that appeal. Following the special leave refusal, Registrar Hedge dismissed the Application, allowing the bankruptcy to proceed. However, the Creditor’s Petition was not filed within six months of the date of bankruptcy due to an administrative oversight. The original Creditor’s Petition was subsequently withdrawn, when it was realised that it was more than six months after the date of the act of bankruptcy. As a result of this oversight, on 4 April 2011 a fresh Bankruptcy Notice NN2333 of 2011 (‘second Notice’) was filed. The Notice was served on Mr Zhao on 18 April 2011 by a licensed process server. On 6 May 2011, Mr Zhao filed an Application to Set-Aside the second Notice. The current Application to Set-Aside the second Bankruptcy Notice is based on an allegation that there is a cross-claim, set-off or cross-demand.
New District Court of New South Wales proceedings 2011/93149
On 23 March 2011, Mr Zhao filed a Statement of Claim in the District Court of New South Wales seeking relief for the sum of $68,820.00 plus interest and costs. That Statement of Claim is in respect of the same building works that were the subject of the original District Court proceedings. On 12 May 2011, Mrs Goodman filed a Defence. Mr Curry indicated to the Court that he held instructions to make a summary dismissal application in respect to the second proceedings.
Mr Curry indicated to the Court that at the hearing before Registrar Hedge, Mr Zhao indicated that he intended to bring a further action against
Mrs Goodman. In the Application for review filed on 25 May 2011, which is currently before this Court, Mr Zhao states at [8], under the heading
“Set out the decree(s) or order(s) sought in place of those to be reviewed”:In the hearing on 17/05/2011[before Registrar Hedge] I showed the Court the Attachment 3 that I had Just finished write in that day and asked the Court because my English no good, “please give me more time to finish the Statement of Claim dated 20/05/2011 see attached but the Court not give me more time, I don’t understand why the Court can give other people extra time but not give to me extra time in that day so I application for review the case.
Mr Curry indicated that what Mr Zhao was alluding to was that three days after Registrar Hedge dismissed his application, he filed a second Statement of Claim in the District Court (Case Number 2011/166219 filed 20 May 2011) against Mrs Goodman. The Statement of Claim is annexed to the Affidavit of Mr Yan Shou Zhao sworn 25 May 2011. Mr Curry made the observation that the new Statement of Claim contained pleadings that closely resemble Mr Zhao’s first District Court Statement of Claim (Case Number 2011/93149, filed 23 March 2011) that is already on foot.
An analysis of the two Statements of Claim reveal that Paragraphs 1 – 3 are identical and expressed in the following terms:
1. The Plaintiff is a natural person entitled to sue in and by his own name and capacity.
2. The Defendant is a natural person able to be sued in and by her own name and capacity.
3. By an agreement made on 25/1/2000 between the Plaintiff and the Defendant, the Plaintiff agreed for reward to carry out building work including residential building work for and on behalf of the Defendant (‘the building contract’).
Paragraphs [4] of the two statements differ, the first stating:
4. The Building work contract including. The Home Building Contract Booklet that signed after 19/2/2005. b. The Detail Building work Contract dated on 25/01/200 that Yan Shou Zhao carry work $366,805.00, and Marla Shoshana Goodman carry work $176, 995.00.
Paragraph [4] of the second Statement of Claim states:
4. The Building work contract including; a The Home Building Contract Booklet that signed after 19/2/2005. b. The Detail building work Contract dated on 25/01/2000.
Paragraph [5] of both statements are in identical terms:
5. The Plumbing Certificate and The Structure Engineer Certificate and the Termite ants cap Certificate and The Building Occupation Certificate all shows the building work meet Australian Standard.
Paragraph [6] – [10] of the first claim states:
6. The payment sum that supplied by Marla Goodman dated 2/1/2001 shows total paid to Yan was $327,500.00.
7. The payment daily record by Yan Shou Zhao dated 25/1/2000 it 2/1/2001 shows total received from Marla Goodman was $301,400.00.
8. Extra work paid by Marla Goodman to Yan was $17,450.00.
9. Other documents for extra work.
10. The letter to the Prime Minster and the answer, that proved Marla Goodman lie to the insurance company.
Paragraph [6] of the Second Claim states:
6. Marla Goodman’s illegal work and defect work and other work cause I loss $443,593.18.
Mr Zhao did not dispute any of the material put before the Court by Mr Curry by way of background to these proceedings. However, he wished to indicate that he was now initiating a further Statement of Claim to be filed in the District Court. He indicated that he was not getting any assistance with this because legal costs were too high. Mr Zhao indicated that there was further material and additional claims that he wished to put before the Court in support of his claim.
Mr Zhao has appealed to the Federal Court against the dismissal of his challenge to the bankruptcy notice. That appeal has not yet been heard. Mr Zhao has also instituted two new proceedings in the District Court of New South Wales, they being matters 93149/2011 and 166219/2011. I understand that the new proceedings in the District Court seek to advance two propositions. The first is that Ms Goodman undertook unapproved building work on the premises, the subject of the original dispute between Ms Goodman and Mr Zhao over defective building work, and that the unapproved work undertaken by Ms Goodman was the cause of the defects identified, rather than the work of Mr Zhao.
The other proposition Mr Zhao is seeking to agitate is that he is owed money for work undertaken by him. I am satisfied, both from the judgment of Lloyd‑Jones FM and of the material before me and the submissions of the solicitor for the petitioning creditor, that there is nothing new in the allegations sought to be advanced by Mr Zhao. He appealed unsuccessfully against the judgment debt to the New South Wales Court of Appeal. He also unsuccessfully sought special leave to appeal to the High Court. The dispute over the defective building work has been conclusively dealt with by the courts and I see no merit in the further proceedings sought to be agitated in the District Court. I am told that those proceedings have been stood over until September in order to permit Ms Goodman to move for the summary dismissal of those applications. Any further issue as to any asserted merit in the claims still being agitated by Mr Zhao can be considered by a trustee in bankruptcy.
I have considered whether the outstanding appeal against the judgment of this Court concerning the challenge to the bankruptcy notice is a reason for the Court to refrain from or defer making a sequestration order. It does not appear to me that that appeal raises any different issue to that being agitated in the new District Court proceedings, and I am not persuaded that there is any reason to defer the provision of the relief sought in the petition.
I am satisfied that Mr Zhao committed the act of bankruptcy alleged in the petition and I am satisfied with the proof of the other matters of which s.52(1) of the Bankruptcy Act requires proof.
I will order that a sequestration order be made against the estate of Yan Shou Zhao. I will further order that the petitioning creditor’s costs, including reserved costs, if any, be fixed in the sum of $3,000 and paid in accordance with the Bankruptcy Act.
I note that the date of the act of bankruptcy is 17 May 2011.
I certify that the preceding nine (9) paragraphs are a true copy of the reasons for judgment of Driver FM
Date: 28 July 2011
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