Jarrett v Fleur De Lys Pty Ltd
[2005] FMCA 800
•16 June 2005
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| JARRETT v FLEUR DE LYS PTY LTD | [2005] FMCA 800 |
| BANKRUPTCY – Application to set aside order for costs – where an application was made by the judgment debtor to set aside a bankruptcy notice – whether the applicant had obtained an order by fraud – whether the applicant could be allowed to retain the benefit of such an order. PRACTICE & PROCEDURE – Discussion of the approach to be taken in determining the proper method of impeaching a completed judgment on the ground of fraud – whether a party seeking to set aside judgment on the ground of fraud must commence a fresh action – whether the action to impugn an original judgment should be taken in the court where the original judgment was obtained. |
| Corporations Act 2001, s.459G |
| Fleur de Lys Pty Ltd v Jarrett [2004] FCA 1357 Bourke and Another v Beneficial Finance Corporation Limited (1993) 47 FCR 264 McDonald v McDonald (1965) 113 CLR 529 Jonesco v Beard (1930) AC 298 Permanent Trustee Co (Canberra) Ltd v Stocks & Holdings (Canberra) Pty Ltd 15 ACTR 45 Amieu v Mudginberri Station Pty Ltd (1986) 12 FCR 14 Monroe Schneider Associates (Inc) and Another v No 1 Raberem Pty Ltd and Others (No 2) (1992) 37 FCR 234 Spies v Commonwealth Bank of Australia (1991) 21 NSWLR 691 Biritz v National Australia Bank [2001] FCA 1635 Cleaver v Mutual Reserved Fund Life Association (1892) 1 QB 147 Beresford v Royal Insurance Company Ltd (1938) AC 586 Russel Fraser Henderson and Ors v Amadio Pty Ltd & Ors [1995] 1029 FCA. |
| Applicant: | KEVIN JARRETT |
| Respondent: | FLEUR DE LYS PTY LTD T/AS MULTIFORM FURNITURE |
| File Number: | SYG 860 of 2002 |
| Judgment of: | Raphael FM |
| Hearing date: | 27 May 2005 |
| Date of Last Submission: | 27 May 2005 |
| Delivered at: | Sydney |
| Delivered on: | 16 June 2005 |
REPRESENTATION
| Solicitor for the Applicant: | Mr Mark Vine |
| Counsel for the Respondent: | Mr John Chippindall |
| Solicitors for the Respondent: | Proctor Phair Lawyers |
ORDERS
Order 2 of the Orders of 1 April 2003 is set aside.
The respondent to this application pay the applicant’s costs to be taxed if not agreed in accordance with the Federal Court Act and Rules.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG 860 of 2002
| KEVIN JARRETT |
Applicant
And
| FLEUR DE LYS PTY LTD |
Respondent
REASONS FOR JUDGMENT
This proceeding is an application by a judgment creditor to set aside an order for costs made against it on 1 April 2004 when acceding to an application by the judgment debtor to set aside a bankruptcy notice.
In order to understand the dilemma now faced by this court it is necessary to rehearse the history of the proceedings between the parties.
On 21 September 1993 judgment was entered in the Local Court of NSW favour of Fleur De Lys Pty Ltd (“FDL”) against Kevin Jarrett (“KJ”) for $23,000 pursuant to a compromise noted on the court record. KJ defaulted on payments under the settlement terms and between 1994 and 1995 attempts were made through court processes in the local court to recover some funds from him. On 9 February 1996 judgment was again entered in favour of FDL for the full amount of the judgment debt pursuant to a compromise. KJ defaulted on those settlement terms. A further judgment was entered on 5 March 1996. Further attempts were made to obtain payment and on 5 August 1996 KJ was arrested and examined by a registrar. More examination summonses took place in 1997 and writs of execution were issued against KJ during that year. The matter then went into abeyance for four years but in 2002 a writ of execution was issued again against KJ. On 28 August 2002 KJ was served with a bankruptcy notice issued by FDL. On the last day before expiry of the bankruptcy notice KJ filed the notice of motion in the local court seeking to set aside the judgment or permanently stay the proceedings. On 28 November 2002 Dillon LCM made an order permanently staying execution of the judgment. KJ then sought to set aside the bankruptcy notice. FDL claimed that this order had been obtained by fraud. It made several attempts to bring this matter to the attention of the local court but was unsuccessful because one of the directors of the company insisted on representing the company and was forbidden to do so by the Local Court magistrates.
The matter came before me. I made certain directions on 18 February 2003 (although the order says 18 February 2002). At that time I had made it clear to Mr Chapman that I required the company to be represented by a solicitor at the hearing, which was set down for
1 April 2003. Mr Chapman did not produce a solicitor on 1 April 2003 and by that time it was clear that the local court judgment remained stayed. I gave Mr Chapman leave to appear for the company in order to accept his signature on orders setting aside the bankruptcy notice and paying KJ’s costs. At all times during the course of these proceedings Mr Chapman had made it clear that he believed that the stay of execution had been procured by KJ by fraud. In an affidavit dated
23 December 2004 Mr Chapman deposes to the fact that a firm of solicitors had been instructed to act on his behalf in connection with the proceedings on 1 April 2003 and that they had give him advice that the company’s position was untenable unless he could first prove the fraud in the local court.
Mr Chapman is nothing if not resilient. He fought the decision of the local court not to allow him to represent the company up to the Supreme Court and succeeded. In August 2003 three motions were heard before Dillon LCM the third of which was to set aside the permanent stay ordered on 28 November 2002. There is no need to quote extensively from the lengthy judgment of Dillon LCM save for what is contained in paragraph 56:
“In my opinion it is overwhelmingly demonstrated that the order I made on 28 November 2002 wasp procured as a result of false evidence given by Mr Jarrett and accepted at that time by me. The order was obtained, irregularly, illegally and against good faith by fraud. The judgment creditor’s motion ought therefore be granted pursuant to Part 26 Rule 3 or, to adopt the approach of Mason P in Hoskins the judgment creditor ought to be granted relief xexdebito justitiae. Whichever approach is taken, the order made by me on 28 November 2002 must be set aside. I will also direct that the papers be sent to the director of public prosecutions for consideration.”
The finding of Dillon LCM meant that the substratum of the grounds upon which the Bankruptcy Notice was rendered invalid, namely that the judgment upon which it was based had been stayed, fell away. But there remained on foot my order of 1 April 2003 that FDL pay TJ’s costs in respect of the setting aside of that bankruptcy notice.
If FDL is resilient TJ would appear to be an exemplar of the Australian tradition of “never say die”. While some people might have taken the magistrate’s judgment home and licked their wounds in private, TJ moved immediately onto the front foot. The costs of the proceedings before me had been taxed and on 2 September 2003 a certificate was issued certifying the tax costs to be $17,492.62. Two days before Dillon LCM’s decision on 5 December 2003 a statutory demand was issued by KJ against FDL for that sum. KJ also lodged an appeal against the decision of Dillon LCM but discontinued the appeal as a result of an agreement between himself and FDL.
On 5 August 2004 FDL filed an originating process in the Federal Court under section 459G of the Corporations Act 2001 (Cth) seeking an order setting aside the statutory demand. But it also sought an order setting aside a number of decisions allegedly infected by the defendant’s fraud and perjury. One of those decisions was that made by this court on 1 April 2003. As an alternative to the order seeking to set aside the decision FDL sought an order that the applicant be granted leave under FCR Order 52 Rule 15(2) to appeal my decision. These matters came before Hely J; Fleur de Lys Pty Ltd v Jarrett [2004] FCA 1357. Hely J set aside the notice of demand. In relation to the two applications which would have directly affected my orders of 1 April 2003 His Honour said:
“21 It is convenient first to consider the relief sought in pars 2 and 3 of the originating process. Clearly enough, that relief is not sought under the Corporations Act and may not be appropriately included in an originating process filed under that Act, but no point was taken by the defendant on this account.
22 Paragraph 2(a) of the originating process is misconceived, as I do not have any power to set aside a decision made by a Federal Magistrate, except upon an appeal from a decision of the Federal Magistrate, and then only if the Chief Justice considers that it is appropriate that the appellate jurisdiction of the Court in that respect be exercised by a single judge: Federal Court of Australia Act 1976 (Cth) s 25(1A). The plaintiff relied upon Order 35 rule 7(2)(b) of the Federal Court Rules (‘the Federal Court Rules’) which enables the Federal Court to set aside a judgment or order after the order has been entered when the order was obtained by fraud. However, this rule applies to judgments and orders of the Federal Court; it does not extend to judgments and orders of the Federal Magistrates Court. Rule 16.05(2)(b) of the Federal Magistrates Court Rules 2001 contains a corresponding provision which would enable the Federal Magistrates Court to set aside a judgment or order of that Court after entry if the order is obtained by fraud. But the plaintiff has not made any application to the Federal Magistrates Court to set aside the orders made by Raphael FM on 1 April 2003.
23 As for par 3(a), an appeal lies to the Federal Court from a judgment of the Federal Magistrates Court, and under the Federal Court Rules (O 52 r 15) the notice of appeal is to be filed and served within 21 days after the date on which the judgment appealed from was pronounced. The time for appealing from the decision of Raphael FM expired more than a year ago, hence the plaintiff requires an extension of time within which to lodge an appeal. There are a number of problems associated with the granting of an extension of time, none of which were addressed by the plaintiff’s solicitor in his oral submissions. First, the orders made by Raphael FM on 1 April 2003 were made by consent, hence an appeal may not be the appropriate method of challenging those orders which appear to have been regularly made. Second, the plaintiff made application to the Local Court on 22 April 2003 to set aside the orders made by Dillon SM on 28 November 2002 on the grounds that they had been obtained by the defendant’s perjury. The plaintiff then knew of the fraud, but there is no explanation for the delay in seeking to impeach the orders made by Raphael FM on 1 April 2003 which has occurred since. Third, on 23 September 2003 the plaintiff applied for an extension of time to appeal from the decision of Raphael FM on 1 April 2003, but it lodged a Notice of Discontinuance of those proceedings on 20 October 2003, and the proceedings were dismissed by consent by Lindgren J on 21 October 2003. No reason has been shown as to why the plaintiff should now be permitted to resile from the course which it then chartered, and to reactivate the application which it then, with complete knowledge of the fraud, abandoned.
24 For these reasons, I decline to make an order under Order 52 r 15(2) granting leave to file the application out of time as special reasons have not been shown.”
In regard to the statutory demand His Honour said:
“26 The first of the debts claimed in the statutory demand ($18,868.54) is supported by a certificate of taxation issued by a Registrar of this Court, and the second of those debts ($2,026.02) is supported by the terms of the consent order made by Lindgren J. I am therefore not satisfied in terms of s 459H(1)(a) of the Act that there is a genuine dispute between the plaintiff and the defendant about the existence or amount of those debts. The bare possibility that at some stage in the future the plaintiff may make an application to the Federal Magistrates Court to set aside the orders of Raphael FM made on 1 April 2003, is insufficient to enliven the provisions of s 459H(1)(a) of the Act. If application were made to the Federal Magistrates Court to set aside that order, the Court might take the view that the order made by Raphael FM was part of the fruit of the defendant’s perjury, but I should not anticipate or pre-empt the decision of the Federal Magistrates Court on that question.”
It is this application presaged by Hely J that is now before me.
Discussion
In this proceeding both parties were represented. FDL put forward a simple case. It argued that a person who obtained an order by fraud should not be allowed to retain the benefit of that order. The benefit of the order obtained by fraud, the stay of execution in the local court, was carried into this court and enabled the debtor to obtain an order setting aside the bankruptcy notice and for payment of its costs. It would be wrong in all the circumstances to allow this costs order to stand.
The respondent takes a more technical approach. He argues that the proper construction of the application before me is to set aside the orders of 1 April 2003 on the basis that that order was obtained by fraud. Whilst agreeing that the court has jurisdiction to set aside orders obtained by fraud; Part 16 Rule 16.05(2)(b) FMC Rules, he argues that if the court is to act under those rules it must do so in accordance with established law. There are a number of authorities on the approach to be taken in determing the proper method of impeaching a completed judgment on the ground of fraud. In Bourke and Another v Beneficial Finance Corporation Limited (1993) 47 FCR 264 the Full Bench,Sheppard, Einfeld and Beazley JJ at 271 and 272 indicated that the fraud must be proved “by fresh evidence which was not available and could not have been discovered with reasonable diligence before the judgment was delivered” although “fresh evidence which is relied on to established fraud need not be admissable evidence in the action in which the judgment is sought to be impugned; McDonald v McDonald (1965) 113 CLR 529 per Barwick CJ (at 533)”. The Full Bench also discussed whether perjury was sufficient to set aside a judgment on the ground of fraud. My reading of the court’s view on this matter is that provided the perjury is material it would constitute such a ground. KJ relies on the decisions of the House of Lords in Jonesco v Beard (1930) AC 298 and Permanent Trustee Co (Canberra) Ltd v Stocks & Holdings (Canberra) Pty Ltd 15 ACTR 45 at 47-48 to argue that a party seeking to set aside a judgment on the ground of fraud must commence a fresh action in which the particulars of the fraud must be exactly given and the allegation must be established by strict proof. KJ argues that what is required in respect of this application is effectively a retrial of the fraud allegation made before Dillon LCM.
I do not accept this submission. All the cases cited by KJ and those which I have found indicate that the action to impugn the original judgment should be taken in the court where the original judgment was obtained; see also Amieu v Mudginberri Station Pty Ltd (1986) 12 FCR 14, Monroe Schneider Associates (Inc) and Another v No 1 Raberem Pty Ltd and Others (No 2) (1992) 37 FCR 234, Spies v Commonwealth Bank of Australia (1991) 21 NSWLR 691, Biritz v National Australia Bank [2001] FCA 1635. To my mind this is not the court where the fraud took place. The fraud took place before Dillon LCM. He has recognised this in a lengthy and well reasoned judgment. Why should FDL have to reprove what it has already so substantially proved in another court. Why should I not accept His Honour’s judgment, against which there is no extant appeal, as sufficient evidence that the stay of execution was improperly obtained and that therefore the setting aside of the bankruptcy notice based upon the existence of that stay was likewise improperly obtained. Why should KJ be allowed to keep the fruits of his improper actions in this court? Public policy stands stoney faced against persons attempting to recover the fruits of crime committed by a plaintiff. In Cleaver v Mutual Reserved Fund Life Association (1892) 1 QB 147 at 156 Fry LJ said:
“It appears to me that no system of jurisprudence can with reason include amongst the rights which it enforces rights directly resulting to the person asserting them from the crime of that person.”
This dicta was approved by the House of Lords in Beresford v Royal Insurance Company Ltd (1938) AC 586 at 596 per Lord Atkin and that decision was itself approved by the Full Bench of the Federal Court in Russel Fraser Henderson and Ors v Amadio Pty Ltd & Ors [1995] 1029 FCA.
I would make the order requested by the applicant and set aside order 2 of my orders of 1 April 2003. I order that the respondent to this application pay the applicant’s costs to be taxed if not agreed in accordance with the Federal Court Act and Rules.
I certify that the preceding thirteen (13) paragraphs are a true copy of the reasons for judgment of Raphael FM
Associate:
Date:
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