Horvath, Gabor v Commonwealth Bank of Australia

[1997] FCA 516

IN THE FEDERAL COURT OF AUSTRALIA )

)

VICTORIA DISTRICT REGISTRY       )    No. VG 65 of 1997

)

GENERAL DIVISION                 )

ON APPEAL FROM A JUDGMENT OF A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN: GABOR HORVATH

(First Appellant)

AND:     AGOTA HORVATH

(Second Appellant)

AND:     COMMONWEALTH BANK OF AUSTRALIA

(ACN 123 123 124)

(Respondent)

CORAM:    Ryan, Hill and Heerey JJ

DATE:     4 June 1997

PLACE:    Melbourne

REASONS FOR JUDGMENT

RYAN J:   In this matter the Court has come to a unanimous view as to the disposition of the Appeal.  I shall ask Hill J to deliver the judgment of the Court.

HILL J:   The appellants, Mr and Mr Horvath, appeal against the judgment of a Judge of this Court, Merkel J, pursuant to which his Honour made a sequestration order against their estates.  Mr and Mrs Horvath are unrepresented before us and without intending any disrespect to them, this may, to some
extent, explain the difficulties we have had in understanding the basis of their appeal.

In substance, however, it is either that the learned primary Judge should have gone behind the judgment debt on which the bankruptcy notice was based to see whether there was a real consideration for that judgment debt or, to the extent that he did, should have held that there was no such debt.

The history of the litigation between the parties is a lengthy one.  It commences on 24 February 1995 when the respondent, the Commonwealth Bank of Australia ("the Bank"), obtained a judgment in default of appearance against Mr and Mrs Horvath in the sum of $338,816.93. On 30 March 1995 Mr and Mrs Horvath and their son, against whom judgment was also entered, made application to the Supreme Court of Victoria to have the default judgments set aside.

On 6 April 1995 the judgment entered against the son was set aside, but not the judgment against Mr and Mrs Horvath.  The judgment against the son was set aside because he was a minor at the time the Bank advanced moneys to Mr and Mrs Horvath and to him.  The advance was, however, joint and several and this no doubt was the reason why the judgment was not set aside against them.  However, the Master stayed the judgment against Mr and Mrs Horvath pending the trial of the proceedings against the son.

The Bank then appealed the orders of the Master.  That appeal was heard on 23 May 1995 before Beach J of the Supreme Court of Victoria.  The orders made by Master Wheeler so far as they ordered a stay of the judgment against Mr and Mrs Horvath were set aside.

It might at this stage be said that the only ground upon which Mr and Mrs Horvath sought to have the debt set aside or to maintain the stay related to the infancy of their son.  No other defence was suggested by them at the time. In March 1996 the proceedings against the son were heard in the Supreme Court of Victoria by O'Brien J and judgment was ultimately given in favour of the Bank against the son. That judgment has been appealed, but the appeal has not been heard.  The appeal does not in any way involve Mr and Mrs Horvath.

On 29 March 1996 a bankruptcy notice was served upon Mr and Mrs Horvath based upon the judgment which had been entered against them. In April 1996 Mr and Mrs Horvath made application to extend time for compliance under s. 41(6) of the Bankruptcy Act 1966 ("the Act").

It seems that the time for compliance had in fact at that time expired. Application was also made to set aside the bankruptcy notice.  Those proceedings were heard initially by a Registrar who refused to set aside the bankruptcy notice or extend the time for compliance under it.  Application was then made to Northrop J to review the decision of the Registrar.

On 29 May 1996 his Honour gave judgment dismissing the application to set aside the bankruptcy notice.  In his judgment his Honour noted that there was a doubt whether Mr and Mrs Horvath had standing to seek a review of the Registrar's decision since the time for compliance with the bankruptcy notice had long since expired.

Nevertheless, his Honour considered the merits of the matter based upon the evidence then before him.  Two matters were put to his Honour, the first concerned the question of service of the bankruptcy notice and requires no further mention.  The second, however, was that there was no true debt upon which the judgment was based.

Northrop J records the argument to have been that the continuation of the proceedings in the Supreme Court against the son were of such a nature as to vitiate or to have some effect upon the judgment obtained against the two applicants.  His Honour pointed out that what happened as far as the son was concerned did not in any way affect the judgment which had been entered against the parents.

Accordingly, so far as the application to set aside the bankruptcy notice was based upon the validity of the judgment debt, it failed.  However, his Honour noted that the matter could be raised again at the hearing of the petition.  He pointed out the importance, whether or not a litigant acts in person, that there be evidence on affidavit, setting out in a clear manner what the facts are.

That apparently had not happened in the proceedings before Northrop J.  It seems it did not happen either when the petition based upon non-compliance with the bankruptcy notice came for hearing before Merkel J.  The sole ground of opposition expressed in the petition proceedings related to the validity of the debt, having regard to the fact that the son was a minor.

The case therefore put in the petition proceedings was the same as had been put in the proceedings to set aside the bankruptcy notice, namely that the loan of the parents was infected by the minority of the son and that there was still currently an appeal to the Court of Appeal against the judgment obtained before O'Brien J in the Supreme Court.

The learned primary Judge held on the evidence before him that the loan was a joint and several liability.  He found that the outcome of the appeal in the Supreme Court could not affect the liability of Mr and Mrs Horvath.  Even if the loan were void against the son, Mr and Mrs Horvath would remain liable for the payment of it.

His Honour noted that he did have a discretion to look behind the judgment in accordance with the principles set out in Ahern v The Deputy Commissioner of Taxation (Qld) (1987) 76 ALR 137 at 1478 and also that he had a broad discretion under s. 52 of the Act whether to make a sequestration order.

However, his Honour was of the view that there were no grounds disclosed on the evidence before him for going behind the judgment or exercising a discretion not to make the sequestration order.  The evidence showed that an advance had been made to Mr and Mrs Horvath.  The sum was initially $200,375.07 and no acceptable basis was put to the Court as to why the amount was not owing.

His Honour made a sequestration order accordingly.  Mr and Mrs Horvath now appeal to this Court. They have provided a lengthy written submission which seeks to assert, not on oath, matters of fact from which it is said the Court should conclude that it now should go behind the judgment debt.  As the Full Court of this Court said in Makhoul v Barnes (1995) 60 FCR 572:

The circumstances in which fresh evidence may be heard in an appeal may perhaps be wider when a matter appealed against is a sequestration order than in other cases of civil litigation.  This is so because bankruptcy involves wider interests than the mere interests of the parties, particularly the interests of creditors and, indeed, the public interest.  However, the Court will not as a matter of course admit fresh evidence, particularly where the circumstances are such that all that evidence was available at the time of trial. (See F. Lisciandro v The Official Trustee in Bankruptcy (1996) 139 ALR 689)

The fact that the parties, seeking to adduce fresh evidence, have encountered difficulty in obtaining documents from solicitors does not mean that the evidence was unavailable at the time of trial, particularly where no attempt was used to invoke the process of the Court to obtain documents by way of subpoena or even to secure an adjournment until the material became available.

In Makhoul v Barnes, the Court noted that the issue whether there existed a real debt may arise both at the time of bankruptcy notice and at the time of a petition.  This is not a particularly efficient course and the Court noted that if the question were litigated at the time of an application to set aside a bankruptcy notice, it would be rare that the Court would permit the question to be litigated again at the time of hearing of the petition.

We would add that a fortiori where a matter is raised both at the time of hearing an application to set aside the bankruptcy notice and at the time of petition, the public interest in finality of litigation militates against allowing the matter to be raised again on fresh evidence on the hearing of an appeal against a sequestration order that has been made.

To the extent therefore that the applicant seeks to have us consider fresh evidence, we would reject that course.  We should, however, say that even if the matters raised in the written submissions were taken into account, they do not seem to lead to the conclusion either that there was no advance by the Bank or that the moneys advanced were not repayable.

The matters raised, apart from the question of the infant son, concern a circumstance where the original agreement to purchase one lot was changed to an agreement to purchase another lot.  There is some suggestion of forgery and a hint of a suggestion that the Bank had agreed to the loan being unsecured.

However, a mortgage appears to have been executed by Mr and Mrs Horvath as well as their son.  It is now registered on the title of land purchased in their joint name with the aid of moneys provided by the Bank.  Moreover, Mr and Mrs Horvath concede that they agreed to accept Lot 5 in substitution for Lot 4, a certificate of title to Lot 5 issued in their names subject to a mortgage to the Bank and a building was later erected on Lot 5.

All of that occurred with the assistance of funds advanced by the Bank.  However, it still remains the case that the material sought to be used by the applicants in their written submission was not material that was before the learned primary Judge nor was it on oath.  The only real matter before the primary Judge as stated in the notice of opposition filed by Mr and Mrs Horvath was the question of the validity of the loan having regard to the fact that the son was a minor.  For the reasons his Honour gives, the minority of the son could not affect the liability of Mr and Mrs Horvath, where that liability was not merely joint, but was also several. In these circumstances, the appeal should be dismissed with costs.

RYAN J:   For the reasons explained by Hill J, the order of the Court is that the appeal be dismissed with costs.

I certify that this and the preceding eight (8) pages are a true copy of the Reasons for Judgment of the Court.

Associate:

Date:

Counsel for the Appellants     :  -

Solicitors for the Appellants  :  Appearance in person

Counsel for the Respondent     :  Mr S. Gardiner

Solicitors for the Respondent  :  Lander & Rogers

Date of Hearing               :  4 June 1997

Date of Judgment              :  4 June 1997