Kuhadas v Gomez
[2014] FCCA 1130
•30 May 2014
FEDERAL CIRCUIT COURT OF AUSTRALIA
| KUHADAS v GOMEZ | [2014] FCCA 1130 |
| Catchwords: BANKRUPTCY – Application to set aside bankruptcy notice – bankruptcy notice based on foreign judgment registered pursuant to order made under the Foreign Judgments Act 1991 (Cth) (FJ Act) – whether bankruptcy courts have power to go behind an order made under FJ Act to register a foreign judgment – whether judgment debtor has given substantial reasons for questioning whether judgment entered in Singapore High Court and registered under s.6 of the FJ Act is liable to be set aside under s.7(2)(a)(ix) of the FJ Act on the ground that the Singapore judgment has been discharged – whether Singapore judgment was discharged by agreement – bankruptcy notice set aside. |
| Legislation: Bankruptcy Act 1924-1950, s.56(2)(a) Bankruptcy Act 1966, ss.40(1), 40(1)(g), 52(1), 52(1)(c) Foreign Judgments Act 1991 (Cth), ss.5, 6, 6(1), 6(3), 6(7), 7, 7(1), 7(2)(a), 7(2)(a)(ix), 14 |
| Alliance Craton Explorer Pty Ltd v Quasar Resources Pty Ltd [2013] FCAFC 29 Marinchek v Cabport Pty Ltd [2010] NSWCA 334 Wren v Mahony (1972) 126 CLR 212 |
| Applicant: | VIVEKANANDA KUHADAS |
| Respondent: | KEVIN BENNETT GOMEZ |
| File Number: | SYG 743 of 2014 |
| Judgment of: | Judge Manousaridis |
| Hearing date: | 12 May 2014 |
| Delivered at: | Sydney |
| Delivered on: | 30 May 2014 |
REPRESENTATION
| Applicant in person. |
| Solicitors for the Respondent: | Mr Christiansen Sparke Helmore Lawyers |
ORDERS
Bankruptcy notice BN 169661 issued on 26 February 2014 against the applicant is set aside.
The respondent pay the applicant’s costs.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY |
SYG 743 of 2014
| VIVEKANANDA KUHADAS |
Applicant
And
| KEVIN BENNETT GOMEZ |
Respondent
REASONS FOR JUDGMENT
Introduction
The applicant, Mr Kuhadas, applies to set aside a bankruptcy notice that was served on him on 4 March 2014.
The bankruptcy notice demands payment of $1,253,214.38. That represents the Australian dollar equivalent of a judgment for SGD1,211,289.70 the respondent, Mr Gomez, obtained against Mr Kuhadas in the High Court of the Republic of Singapore (High Court of Singapore) on 28 October 2011, together with interest (Singapore judgment). On 14 February 2014 Mr Gomez registered the Singapore judgment with the Supreme Court of New South Wales (Supreme Court) under s.6 of the Foreign Judgments Act 1991 (Cth) (FJ Act).
Mr Kuhadas, who is not legally represented, contends the bankruptcy notice should be set aside because of an agreement he made with Mr Gomez on 22 February 2013. Mr Kuhadas claims the agreement constituted a “scheme of arrangement” which discharged him of his obligation to satisfy the Singapore judgment.
Mr Gomez accepts Mr Kuhadas and he made an agreement on 22 February 2013. Mr Gomez submits, however, that the Singapore judgment, having been registered under the FJ Act, has effect as if it were a judgment of the Supreme Court, and Mr Kuhadas has not exercised his right under s.7 of the FJ Act to apply to set aside the registration of that judgment. In those circumstances, Mr Kuhadas “has not shown that the debt arising from that judgment does not exist”. Additionally, or in the alternative, Mr Gomez submits the agreement of 22 February 2013 did not discharge Mr Kuhadas from his obligation to satisfy the Singapore judgment.
Two issues, therefore, arise for my determination. First, assuming the 22 February 2013 agreement discharged Mr Kuhadas of his obligation to perform the Singapore judgment, does that constitute a ground for setting aside the bankruptcy notice issued against him? Second, if it does constitute a ground for setting aside the bankruptcy notice, did the 22 February 2013 agreement, as Mr Kuhadas contends, discharge him of his obligation to satisfy the Singapore judgment?
Before I consider these two issues, it will be necessary to set out the facts that led to the making of the agreement, and the terms of the two emails of 22 February 2013 that the parties accept gave rise to an agreement.
Facts
Mr Kuhadas was one of two directors of a Singaporean company known as Magnetron Insurance & Financial Services Pty Limited (MIFS). MIFS was in the business of selling insurance and financial products. Until around 2009 the other director of MIFS was the mother of Mr Gomez.
In April 2007 MIFS appointed Mr Gomez a financial adviser under an agency agreement. The agency agreement remained on foot until 1 July 2008 when MIFS summarily terminated it.
In September 2008 Mr Gomez commenced proceedings against MIFS in the High Court of Singapore claiming commission he had earned under the agency agreement but which he claimed MIFS had not paid to him.
In September 2010 Mr Gomez filed an amended writ and statement of claim in which Mr Kuhadas was added as a party. The amended writ claimed from Mr Kuhadas the same amounts Mr Gomez was claiming from MIFS. Mr Gomez alleged that Mr Kuhadas was the agent or alter ego of MIFS and, for that reason, it was just and equitable that the veil of incorporation surrounding Mr Kuhadas’s management of MIFS be lifted.
On 28 September 2010 Mr Kuhadas filed a bare defence, putting in issue all the allegations contained in the amended statement of claim. In about April 2011 Mr Gomez obtained default judgment against Mr Kuhadas, subject to the quantum of the claim being quantified. Mr Kuhadas says that the default judgment was obtained against him because his lawyer died unexpectedly in March 2011, and Mr Kuhadas could not afford another lawyer. In any event the quantum of Mr Gomez’s claim was assessed and, on 28 October 2011, judgment for each of the amounts of SGD140,967.87, SGD1,082,321.92, SGD3,000, and SGD10,000 was entered against Mr Kuhadas.
On 30 August 2012 Mr Gomez filed with the High Court of Singapore a creditor’s bankruptcy application. That application was returnable before a Registrar on 4 October 2012. The proceedings were then adjourned a number of times.
Sometime before 22 February 2013, Mr Kuhadas opened negotiations with Mr Gomez’s lawyer, Mr Boye Swee Siang. Those negotiations resulted in an agreement both Mr Kuhadas and Mr Gomez agree is contained in an exchange of emails between Mr Kuhadas and Mr Siang. The first email is that sent by Mr Siang from Singapore to Mr Kuhadas on 22 February 2013:
Dear Sir,
In response to your e-mail:
1.The first tranche of S$25,000 shall be paid to us by no later than 1 March 2013 at 4 p.m.
2.The second tranche of S$25,000 shall be paid to us upon sale of . . . your unit in Ballota Park, with interest at the rate of 10% p.a. from 1 March 2013 until date of full payment.
3.We shall continue to retain your cheque of S$50,000 as security for the above payment.
4.You shall sign and return the properly and duly executed documents for the issuance of new Magnetron shares by today, 4 p.m.
In consideration of the same, our client is agreeable to withdraw the bankruptcy application once items 1 and 4 have been done, and you have unequivocally given your agreement to item 3.
Mr Kuhadas responded by email he sent from Sydney on 22 February 2013:
Hi Boey Swee Siang
I just arrived in Sydney from Singapore at 6pm australian [sic] time today and read your message upon reaching home
Enclosed, please find the respective documents for the creation of new share certificates as well as the transfer of shares of MAGNETRON INSURANCE
Yes I agree to Item 3 and I will ensure $25,000 is paid to your office no later than 1st March 2013 and the balance $25,000 will accrue interest at 10%p.a till paid
Thank you for your assistance.
Mr Kuhadas paid the first tranche of $25,000 before 7 March 2013. On that day, Mr Siang sent to Mr Kuhadas the following email:
Dear Sir,
Please be informed that the bankruptcy petition filed by my client was heard today, and, as per the agreement between parties, in consideration of your payment of S$25,000 upfront, and a further S$25,000 (with interest at the rate of 10% p.a.) to be paid upon the sale of your property at Balotta [sic] Park, we applied for leave to withdraw the bankruptcy application.
Leave was granted for the withdrawal.
Mr Kuhadas has deposed that he has placed the property at Ballota Park on the market through “a reliable property agent” but “till todate [sic] there has been no firm offer”.[1]
[1] V Kuhadas affidavit, dated 14.04.14, at [14]
On or about 6 February 2014 Mr Gomez filed a summons with the Supreme Court of New South Wales for an order under s.6 of the FJ Act to register the Singapore judgment. On 14 February 2014 the Singapore judgment was registered with the Supreme Court. Mr Kuhadas has not applied pursuant to s.7 of the FJ Act to set aside the registration of the Singapore judgment.
Is the asserted discharge of the Singapore judgment a ground for setting aside the bankruptcy notice?
Whether it is open to Mr Kuhadas to seek to set aside the bankruptcy notice on the ground that he has been discharged of his obligation to satisfy the Singapore judgment requires me to first identify the essential legal principles that, in my opinion, that issue raises.
Legal principles – going behind judgments
A person in Australia is made bankrupt when a court makes a sequestration order under s.52(1) of the Bankruptcy Act 1966 (Cth) (Act). Before a court can make a sequestration order, it must be satisfied the person against whom it is sought has committed one of the “act[s] of bankruptcy” defined in s.40(1) of the Act.
One act of bankruptcy is defined in paragraph (g) of s.40(1) of the Act. That paragraph applies to persons who are judgment debtors; that is, persons against whom a final judgment for an amount of money has been obtained in a court. A judgment debtor commits an act of bankruptcy if he or she fails to comply with a bankruptcy notice issued under the Act demanding payment of the amount of the debt recorded in, or to be more accurate, constituted by the judgment.[2]
[2] “Generally speaking, a judgment at law for a sum of money creates an obligation of its own force. The pre-existing obligation, which the judgment is intended to enforce, merges in the new obligation so created . . . .” (per Fullagar J in Corney v Brien (1951) 84 CLR 343 at page 353).
The reason s.40(1)(g) of the Act requires that it be a judgment debt rather than some other debt which the debtor must fail to pay before the court can be satisfied a person has committed an act of bankruptcy is the nature of a judgment debt: a judgment debt “creates an obligation of its own force” and “for most purposes as between the parties, it is conclusive evidence of the existence of the obligation which it creates”.[3] In other words, a judgment debt constitutes the highest proof of a debt that can be obtained, and thus provides the surest grounds for inferring a judgment debtor’s inability to pay his or her debts when the judgment debtor does not pay the judgment debt in response to a bankruptcy notice issued under the Act.
[3] Corney v Brien (1951) 84 CLR 343 at page 353 (Fullagar J)
In most cases courts of bankruptcy accept judgment debts as recording a true debt, and accept a judgment debtor’s failure to pay the judgment debt demanded in a bankruptcy notice as an act of bankruptcy. A judgment debt, however, “is never conclusive in bankruptcy”; it “does not always represent itself as the relevant debt of the petitioning creditor, even though under the general law, the prior existing debt has merged in a judgment”.[4] Courts of bankruptcy, therefore, hold in reserve the power to inquire into whether the judgment debt is in fact based on a true debt. And a bankruptcy court’s determining whether a debt recorded in a judgment records a true debt is known as “going behind the judgment”.
[4] Wren v Mahony (1972) 126 CLR 212 at page 224 (Barwick CJ).
A bankruptcy court’s power to go behind a judgment has most often been exercised at the hearing of a creditor’s petition under s.52(1) of the Act. The nature and the reasons for the exercise of the power of going behind a judgment were amply described in the following passage from the judgment of the plurality in Corney v Brien:[5]
Section 56 (2) (a) of the Bankruptcy Act 1924-1950 provides that the court at the hearing shall require proof of the debt of the petitioning creditor. Under this provision the Court of Bankruptcy has undoubted jurisdiction to go behind a judgment obtained by default or compromise or where fraud or collusion is alleged and inquire whether the judgment is founded on a real debt. In Ex parte Kibble . . . Sir W.M. James L.J. said: "It is the settled rule of the Court of Bankruptcy, on which we have always acted, that the Court of Bankruptcy can inquire into the consideration for a judgment debt". Sir G. Mellish L.J. said: "It is quite clear that in the Court of Bankruptcy the consideration for a judgment may be investigated, particularly when the judgment has gone by default" . . . . This case was discussed and followed in Ex parte Lennox . . . where the reasons why the Court of Bankruptcy will go behind a judgment debt are fully discussed. Lindley L.J. said that "the Court of Bankruptcy will not allow itself to be put in motion at the instance of a person who is not a real creditor" . . . In In re Fraser . . . Kay L.J. said: "It is old law in bankruptcy that, neither upon an attempt to prove a debt, nor upon a petition for an adjudication of bankruptcy or a receiving order against a debtor, is a judgment against him for the debt conclusive. In Ex parte Bryant . . . Lord Eldon said: 'Proof upon a Judgment will not stand merely upon that, if there is not a Debt due in Truth and Reality, for which the Consideration must be looked to'." In In re Gooch . . . Scrutton L.J. said: "The county court registrar held quite correctly that he was at liberty to go behind the judgment, and see whether there was a good debt to support it". In In re a Debtor . . . Astbury J. said "True it is that the Bankruptcy Court may, upon a prima-facie case being shown, go behind a judgment for the purpose of satisfying itself that the debt enforceable thereunder was a real debt." In Petrie v. Redmond, a case in this Court . . . Latham C.J. said: "The court (that is, the Court of Bankruptcy) is entitled to go behind the judgment and inquire into the validity of the debt where there has been fraud, collusion or miscarriage of justice. . . . Also the court looks with suspicion on consent judgments and default judgments."
[5] (1951) 84 CLR 343 at pages 347-348 (Dixon, Williams, Webb, and Kitto JJ)
A court of bankruptcy will not, however, go behind a judgment as a matter of course. It will do so only in certain circumstances. The circumstances in which it will do so have been described in different ways. In Corney v Brien the plurality said that s.56(2)(a) of the Bankruptcy Act 1924-1950 (Cth), which in substance was the same as s.52(1)(c), conferred “undoubted jurisdiction to go behind a judgment obtained by default or compromise or where fraud or collusion is alleged and inquire whether the judgment is founded on a real debt”.[6] In Wren v Mahony Barwick CJ (with whose reasons Windeyer and Owen JJ agreed) said:[7]
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.
[6] Corney v Brien (1951) 84 CLR 343 at page 347
[7] Wren v Mahony (1972) 126 CLR 212 at page 223
In the same case, Barwick CJ stated in broader terms the circumstances in which a court of bankruptcy may go behind a judgment:[8]
The judgment is never conclusive in bankruptcy. . . . But the Bankruptcy Court may accept the judgment as satisfactory proof of the petitioning creditor’s debt. In that sense that court has a discretion. It may or may not so accept the judgment. But it has been made quite clear by the decisions of the past that 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, the Court of Bankruptcy can no longer accept the judgment as such satisfactory proof. It must then exercise its power, or if you will, its discretion to look at what is behind the judgment. . . . The Court’s discretion in my opinion is a discretion to accept the judgment as satisfactory proof of that debt. That discretion 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.
[8] Wren v Mahony (1972) 126 CLR 212 at pages 224-225
The court’s power to go behind a judgment debt that is exercised on an application for a sequestration order is available to be exercised after a bankruptcy notice demanding payment of the judgment debt has been issued but before the time for complying with it has expired. It is available to be exercised on an application to set aside a bankruptcy notice.[9]
[9] Olivieri v Stafford (1989) 91 ALR 91 at pages 107-109 and in particular the discussion by Gummow J of Wilkinson v Osborne & Anor (1915) 21 CLR 89, Re Vernon Arnfield (1925) 25 SR (NSW) 517 and Re Riviere; Ex parte Original Mont de Piete Ltd (1919) 20 SR (NSW) 77.
This discussion raises the following issues:
a)Do the principles on which courts of bankruptcy act to go behind judgment debts in general apply to orders made under the FJ Act to register foreign judgments?
b)If so, has Mr Kuhadas given substantial reasons for questioning whether the Singapore judgment ought to have been registered under the FJ Act or ought to remain registered under that Act?
Effect of registering a judgment under the FJ Act
Under s.6 of the FJ Act, a person in whose favour a judgment to which Part 2 of the Act applies may apply to an appropriate court to have the judgment registered. The judgments to which Part 2 applies are judgments of courts of other countries to which Part 2 of the FJ Act have been made to apply by regulations made under s.5 of the FJ Act. Part 2 of the FJ Act has been made to apply to the “Supreme Court of Singapore (consisting of the: Court of Appeal; High Court)”.[10]
[10] Foreign Judgments Regulations 1992 (Cth), reg.5, Schedule Superior Courts, item 24.
Subsection 6(3) of the FJ Act provides that, subject to the FJ Act and the proof of matters prescribed by relevant rules of court,[11] if an application for registration is made under s.6, the relevant Supreme Court or the Federal Court of Australia “is to order the judgment to be registered”. Subsection 6(7) of the Act provides that, subject to s.7 and s.14:
[11] In the case of the Supreme Court, the matters that must be proved are specified in r.53.3 of the Uniform Civil Procedure Rules 2005 (NSW).
(a)a registered judgment has, for the purposes of enforcement, the same force and effect; and
(b)proceedings may be taken on a registered judgment; and
(c)the amount for which a judgment is registered carries interest; and
(d)the registering court has the same control over the enforcement of a registered judgment;
as if the judgment had been originally given in the court in which it is registered and entered on the date of registration.
Subsection 7(1) of the FJ Act provides that a party against whom a registered judgment is enforceable may seek to have the registration of the judgment set aside by applying to the court in which the judgment was registered. Subsection 7(2)(a) of the FJ Act identifies grounds on which the registering court, if satisfied they exist, must set aside the registration of the judgment. Relevant to the application before me is the ground identified in s.7(2)(a)(ix), namely, “that the judgment has been discharged”.
In my opinion, when an order is made under s.6 of the FJ Act to register a foreign money judgment, once registered, the foreign judgment becomes a judgment debt of the court in which it is registered. The judgment debt so created is no different from any other judgment debt that is entered in a court in Australia. At common law, a money judgment of a foreign court (as, indeed, a money judgment of a municipal court) could have been recovered in an action for debt. The foreign judgment was a “pre-existing obligation” which the judgment based on it was “intended to enforce”; and, when a judgment based on it was entered, thereby creating “an obligation of its own force”, the pre-existing obligation “merge[d] in the new obligation so created”.[12] The same analysis applies to a foreign judgment registered under the FJ Act. Before registration, the foreign judgment is a pre-existing obligation that could found an application for an order under s.6 of the FJ Act. After registration, that obligation is merged to the obligation that arises under s.6(7) of the FJ Act when the foreign judgment is registered.
[12] The quoted passages are from the judgment of Fullagar J in Corney v Brien (1951) 84 CLR 343 at page 353.
The consequence of a foreign judgment that is registered under s.6(1) of the FJ Act becoming a judgment debt of the court in which it is registered is that the power bankruptcy courts have to go behind judgments applies to orders pursuant to which judgments are registered under the FJ Act. That is to say, the bankruptcy court may inquire into whether the judgment debtor is in truth liable to pay the foreign money judgment that has been registered, notwithstanding the fact that the judgment has been registered. And the matters into which the bankruptcy court can inquire when determining that issue would be the same as the matters the court to whom application for registration has been made would inquire, either at the time an application is made under s.6 of the FJ Act to register the judgment, or at the time an application is made under s.7(2)(a) of the FJ Act to set aside the registration of the judgment.
Accordingly, if Mr Kuhadas has given substantial reasons for questioning whether in truth and reality the Singapore judgment ought to have been registered, or for questioning whether its registration could withstand being set aside pursuant to s.7(2)(a) of the FJ Act, this Court has power to determine for itself whether the Singapore judgment ought to have been registered or is liable to be set aside under s.7(2)(a) of the Act.
Are there substantial reasons for questioning order for the registration of the Singapore judgment?
In my opinion, there are substantial reasons for questioning whether the Singapore judgment ought to have been registered, or for questioning whether its registration can withstand being set aside on one of the grounds set out in s.7(2)(a) of the FJ Act. First, as will be seen when I turn to the 22 February 2013 agreement itself, Mr Kuhadas at the very least has raised an arguable case that the effect of that agreement was to discharge Mr Kuhadas of his obligation to satisfy the Singapore judgment, and that the Singapore judgment, therefore, has been discharged within the meaning of s.7(2)(a)(ix) of the FJ Act. Second, a court has not determined Mr Kuhadas’s claim that the agreement has had that effect. The judgment debt that has been created as a result of the registration of the Singapore judgment under s.6 of the FJ Act, therefore, is analogous to a judgment that has been entered by default.
Mr Gomez submitted it is not appropriate for this Court to go behind the order registering the Singapore judgment because Mr Kuhadas has taken no steps to set aside the registration of the Singapore judgment under s.7 of the FJ Act. In my opinion, it is relevant to the exercise of the discretion to go behind the order registering the Singapore judgment that Mr Kuhadas has not applied to set aside the order, just as it is relevant to the exercise of such power in relation to default judgments if the debtor has not applied to set aside the default judgment. However, as has been said in connection with default judgments, and which, in my opinion, may be said in relation to the right under s.7 of the FJ Act to apply to set aside the registration of a foreign judgment, the failure to apply to set aside a judgment may be explained.[13]
[13] Wolff v Donovan (1991) 29 FCR 480 at page 486: “No doubt it will be relevant that the judgment debtor has made no attempt to set aside the judgment although failure so to do may be explained, as it was in the present case, by the fact that the debtor lacked funds to pursue this course.” (Lee and Hill JJ).
In my opinion, the evidence entitles me to infer an explanation. Mr Kuhadas has deposed he does not have any assets in Australia. The only asset the evidence appears Mr Kuhadas has in Singapore is a unit at Ballota Park. And from the fact that under the 22 February 2013 agreement, Mr Kuhadas agreed to pay SGD25,000 out of the proceeds of the sale of that property, I infer that Mr Kuhadas has no equity in the property beyond the SGD25,000 he has agreed to pay to Mr Gomez. I do so because, if Mr Kuhadas held equity in a greater amount, it is reasonable to expect that Mr Gomez would have succeeded in extracting an agreement from Mr Kuhadas to pay more than the SGD25,000. Further, Mr Kuhadas is representing himself both in these proceedings and in what Mr Kuhadas has deposed are other bankruptcy proceedings in Singapore. From this evidence, I infer that Mr Kuhadas does not have the means to pursue an application to set aside the registration of the judgment.
There is another factor that, in my opinion, acts as a counterweight to Mr Kuhadas not having applied to set aside the registration of the Singapore judgment. The ground on which Mr Kuhadas seeks to set aside the bankruptcy notice rests on a discrete point of construction concerning the 22 February 2013 agreement that calls for the review of a very limited amount of material. It is within the jurisdiction of this Court to consider the point raised; and not to consider the point in this application will result in additional expense and delay in having the point determined in another forum.
In my opinion, therefore, it is appropriate for me to go behind the order registering the Singapore judgment, even though Mr Kuhadas has not exercised his right under s.7 of the FJ Act to set aside the registration of that judgment.
Did the 22 February 2013 agreement discharge Mr Kuhadas of his obligation to pay the Singapore judgment?
Whether or not the 22 February 2013 agreement discharged Mr Kuhadas of his obligation to satisfy the Singapore judgment ultimately depends on the proper construction of the 22 February 2013 agreement. There are, however, a number of preliminary matters I must consider.
Can a judgment debt be discharged other than by satisfaction?
A judgment debt, being a species of debt, can be discharged in the same way as ordinary debts. This includes satisfaction of the judgment debt by paying to the judgment creditor the entire amount of the debt; discharge by release under seal; discharge by an accord and satisfaction; and discharge by operation of law. Section 7 of the FJ Act itself distinguishes between satisfaction of a judgment and discharge of a judgment as grounds for setting aside the registration of a foreign judgment.
System of law to be applied
No party has submitted that the questions raised by Mr Kuhadas’s application are to be determined by the law of Singapore or by some other system of law other than the laws of the Commonwealth or such laws of New South Wales as apply to the issues that arise before me.[14] In those circumstances, I will assume that the proper law of the agreement made on 22 February 2013 is the common law of Australia.
[14] Section 79, Judiciary Act 1903 (Cth)
Consideration
An agreement to pay part of a debt cannot constitute consideration for the creditor’s agreement to release the debt. If, as Mr Kuhadas submits, the 22 February 2013 agreement constituted a release by Mr Gomez of Mr Kuhadas’s obligation to satisfy the Singapore judgment, was that release supported by consideration?
Mr Gomez has not submitted that the 22 February 2013 agreement was not binding because it was not supported by consideration. And in my opinion, Mr Gomez was correct in not so submitting. Mr Kuhadas bound himself under the agreement to do more than only pay part of the Singapore judgment. He agreed to pay interest at the rate of 10% on the amount of SGD25,000 pending payment of that amount on sale of the unit at Ballota Park; he agreed to sign and return documents necessary for the issuing of new shares in MIFS; he agreed to take steps to sell the Ballota Park unit; and he agreed to Mr Gomez’s retaining a cheque for SGD50,000 as security for the payment of the SGD25,000 from the sale of the Ballota Park unit.
Construction of the 22 February 2013 agreement
With these preliminary matters out of the way, I now consider the proper construction of the 22 February 2013 agreement.
The general approach to construing commercial agreements – of which the 22 February 2013 agreement is an example – is not in doubt in Australia. It was recently described by the High Court in Electricity Generation Corporation v Woodside Energy Ltd in the following passage:[15]
The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding "of the genesis of the transaction, the background, the context [and] the market in which the parties are operating". As Arden LJ observed in Re Golden Key Ltd, unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption "that the parties ... intended to produce a commercial result". A commercial contract is to be construed so as to avoid it "making commercial nonsense or working commercial inconvenience".
[15] [2014] HCA 7 at [35] (references omitted)
Consideration of the language of the 22 February 2013 agreement, therefore, must be the starting point for properly construing the agreement. And most of the language of the agreement is to be found in Mr Siang’s email of 22 February 2013.
That email (which I have set out in paragraph 13 of these reasons) does two things. First, it identifies things that Mr Kuhadas must do: Mr Kuhadas must agree to:
a)pay Mr Gomez SGD25,000 by 1 March 2013 (item 1 referred to in email);
b)cause to sell the Ballota Park property, and from the proceeds of sale pay to Mr Gomez a further SGD25,000 (second SGD25,000 payment) (part of item 2);
c)pay interest of 10% on the second SGD25,000 payment until payment in full of that amount (part of item 2);
d)Mr Gomez continuing to hold a cheque for SGD50,000 as security for the second SGD25,000 payment (item 3); and
e)sign and return the properly and duly executed documents for the issuance of new MIFS shares by 4 pm on 22 February 2013 (item 4).
Second, Mr Siang’s email identifies the thing Mr Gomez will do and the circumstances in which he will do it. The thing is Mr Gomez’s being “agreeable to withdraw the bankruptcy application”. I construe this phrase as a statement that Mr Gomez will agree to withdraw the bankruptcy application. Mr Gomez’s so agreeing, however, is stated to depend on Mr Kuhadas paying Mr Gomez SGD25,000 by 1 March 2013, Mr Kuhadas signing and returning the properly and duly executed documents for the issuance of new MIFS shares by 4 pm on 22 February 2013, and Mr Kuhadas agreeing to Mr Gomez continuing to hold a cheque for SGD50,000 as security for the payment of the second SGD25,000 payment.
Standing alone, Mr Siang’s email is an offer. It is an offer that Mr Gomez will agree to withdraw the bankruptcy application in the Singapore High Court if Mr Kuhadas paid Mr Gomez SGD25,000 by 1 March 2013, returned by 4pm on 22 February 2013 signed documents that would permit the issuing of MIFS shares, and Mr Kuhadas agreed to the other matters set out in Mr Siang’s email. And Mr Kuhadas unequivocally accepted that offer by his email of 22 February 2013.
The question of construction that arises concerns the scope of what Mr Gomez agreed to do under the agreement. Did he only undertake to withdraw the bankruptcy application that he had filed in the Singapore High Court, and reserve to himself the right to enforce the Singapore judgment in any way and at such time as he saw fit? Or did Mr Gomez release Mr Kuhadas of his obligations to pay the Singapore judgment, and instead content himself with looking to Mr Kuhadas performing the matters stipulated in Mr Siang’s email?
In support of the construction that Mr Gomez reserved the right to be at liberty to enforce the Singapore judgment is the absence from Mr Siang’s email of express words to the effect that Mr Gomez will release Mr Kuhadas of his obligations to perform the Singapore judgment or that Mr Gomez will not seek to enforce payment of the Singapore judgment. The absence of such express words, however, is not determinative. A party may be taken to have released another person of a claim without expressly stating so if, on the proper construction of the agreement considered in the context in which it was made it can be said that the parties intended that claims would be released.[16]
[16] See, for example, Marinchek v Cabport Pty Ltd [2010] NSWCA 334 at [34] and [35] (Macfarlan JA with whom Handley AJA and Harrison J agreed).
In my opinion, there are two aspects of the agreement that strongly suggest the parties intended that Mr Kuhadas be released of his obligations to pay the Singapore judgment. The first is the parties agreeing that the SGD50,000 cheque be retained by Mr Gomez as security for “the above payment”, that payment being the second SGD25,000 payment. This indicates the parties contemplated that the only debt that Mr Kuhadas would owe to Mr Gomez once the agreement came into effect would be the second SGD25,000 payment Mr Kuhadas agreed to pay from the proceeds of sale of the Ballota Park property, together with 10% interest. If the parties in truth contemplated that Mr Kuhadas would remain liable to pay the amount of the Singapore judgment, the cheque would have been expressed to be security for the amount of the Singapore judgment. Further, the notion that the cheque of SGD50,000 is to be held by Mr Gomez only as security implies that upon payment of the second SGD25,000 payment, the cheque would be returned to Mr Kuhadas. That is inconsistent with the parties assuming that Mr Kuhadas would remain liable to pay the Singapore judgment.
Second, there is the term that requires Mr Kuhadas to pay interest of 10% on the second SGD25,000 payment. That too indicates that the only debt the parties contemplated Mr Kuhadas would be liable to pay once the agreement came into effect is the second SGD25,000 payment. If, in truth, the parties intended that Mr Kuhadas would remain liable to pay the Singapore judgment, there does not appear to be any rational reason for the parties choosing to apply interest on a very small portion of it, namely, SGD25,000.
Quite apart from the language contained in the emails that were exchanged between Mr Siang and Mr Kuhadas, there is another consideration that favours the construction that the parties intended that Mr Kuhadas be released of his obligation to pay the Singapore judgment. To so construe the agreement would avoid making a commercial nonsense of the agreement. On the construction for which Mr Gomez contends, it would have been open to Mr Gomez to seek to enforce the Singapore judgment immediately after he withdrew the bankruptcy application. That cannot reasonably be considered as having been in the contemplation of the parties.
In oral address, Mr Christiansen, who represented Mr Gomez, submitted that “this agreement, for all intents and purposes, is an agreement to get a bit of money out of the applicant”;[17] that “in that sense, it is being used as a tool to enforce the Singapore judgment”;[18] and that “it is an agreement to get what money [Mr Gomez] could get out of the applicant at that time”.[19] Mr Christiansen then adopted as his submission my statement that it would then be “at the creditor’s choosing [to] get more if he thinks it’s appropriate”.[20]
[17] T27.20
[18] T27.25
[19] T27.25
[20] T27.30
Whether or not that accurately reflects the subjective intention of Mr Gomez or Mr Siang in making the 22 February 2013 agreement, it is not relevant to construing the agreement. In my opinion, reasonable persons in the position of Mr Gomez and Mr Kuhadas would not have understood the 22 February 2013 agreement as being one whose purpose was to enable Mr Gomez to squeeze some money out of Mr Kuhadas, and then to leave it to the choosing of Mr Gomez to recover the balance as and when he saw fit. It is implausible that a person in the position of Mr Kuhadas would have entered into the agreement if he knew that that was the intention of Mr Gomez; and it is equally implausible that a reasonable person in the position of Mr Gomez would have believed that Mr Kuhadas agreed to enter into an agreement with the expectation that Mr Gomez would be at liberty to recover the balance of the Singapore judgment as and when he saw fit.
In my opinion, therefore, the proper construction of the 22 February 2013 agreement is that the words “to withdraw the bankruptcy application” appearing in Mr Siang’s email is to be construed to mean “to withdraw the bankruptcy application and thereby release you from your obligation to pay the judgment on which the bankruptcy application is based”. And that discharge was to take effect upon Mr Kuhadas agreeing to the matters set out in Mr Siang’s email and Mr Kuhadas paying by 1 March 2013 SGD25,000, Mr Kuhadas signing and returning to Mr Siang “the properly and duly executed documents for the issuance of new Magnetron shares by today, 4 p.m”, and by Mr Kuhadas unequivocally giving his agreement to “item 3”, that item being Mr Gomez continuing to retain Mr Kuhadas’s cheque of SGD50,000 as security for the second SGD25,000 payment.
Was the Singapore judgment discharged?
In his email of 22 February 2013, Mr Kuhadas said he agreed with “item 3” and “enclosed” the “respective documents for the creation of new share certificates as well as the transfer of shares of” MIFS. Given that Mr Gomez withdrew the bankruptcy application, I infer that Mr Kuhadas also paid the SGD25,000 by 1 March 2013. Thus, all of the conditions on which Mr Gomez’s agreement “to withdraw the bankruptcy application” (which I have construed to also include the release of Mr Kuhadas’s obligation to satisfy the Singapore judgment) were satisfied, with the consequence that Mr Gomez released Mr Kuhadas from his obligation to satisfy the Singapore judgment. That obligation was replaced by Mr Kuhadas being obliged to pay the second SGD25,000 payment out of the proceeds of sale of the Ballota Park property.
On my construction of the 22 February 2013 agreement, Mr Gomez’s agreement “to withdraw the bankruptcy application” (which I have construed to also include the release of Mr Kuhadas’s obligation to satisfy the Singapore judgment) was expressly made conditional on Mr Kuhadas satisfying items 1 and 3 of Mr Siang’s email of 22 February 2013, and specifically agreeing to item 4 of that email. It was not made conditional on Mr Kuhadas satisfying item 2, namely, making the second SGD25,000 payment. Thus, if Mr Kuhadas has failed or will fail to satisfy item 2, that does not or will not entitle Mr Gomez to claim payment of the Singapore judgment.
Analysis based on implication of term
What I have concluded is the proper construction of the 22 February 2013 agreement involves the reading of words that do not appear in Mr Siang’s email (“and thereby release you from your obligation to pay the judgment on which the bankruptcy application is based”) with words that do appear in that email (“to withdraw the bankruptcy application”). In these circumstances, it might be considered that my conclusion is not the product of any process of construction, but the product of the implication of a term into the agreement.
There is no clear division between construing a contract and implying a term into a contract.[21] And on one view, that expressed by Lord Hoffman in Attorney General of Belize & Ors v Belize Telecom Ltd & Anor,[22] the process of implication is synonymous with the process of construction. In that case his Lordship said that “in every case in which it is said that some provision ought to be implied in an instrument, the question for the court is whether such a provision would spell out in express words what the instrument, read against the relevant background, would reasonably be understood to mean”.[23]
[21] See the discussion in J W Carter The Construction of Commercial Contracts Hart Publishing, 2013, chap 3.
[22] [2009] UKPC 10
[23] Attorney General of Belize & Ors v Belize Telecom Ltd & Anor [2009] UKPC 10 at [21]
This view, however, has not expressly been held by any court to represent the law in Australia.[24] The position, therefore, is that under the common law of Australia, there is a distinction between the construction of a contract and the implication of a term into a contract. In this part of my reasons, therefore, I will assume that my conclusion concerning the 22 February 2013 agreement represents the implication of a term rather than the construction of the agreement. And I will consider whether the application to the 22 February 2013 agreement of what may be regarded as the established approach in Australia to the implication of terms into a contract would lead me to imply a term to the effect of the words I have read into the text of Mr Siang’s email of 22 February 2013.
[24] Although I should note here that in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at page 345 Mason J (as his Honour then was) said that “the implication of a term is an exercise in interpretation, though not an orthodox instance”. I should also note that the Full Federal Court in Alliance Craton Explorer Pty Ltd v Quasar Resources Pty Ltd [2013] FCAFC 29 at [76] said: “The principles which guide the Court in determining whether a term should be implied are well-known. They are set out in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 at 282-283; Attorney General of Belize v Belize Telecom [2009] UKPC 10 at [16]-[27] and elsewhere.”
The established approach in Australia[25] to the implication of terms as a matter of fact that courts must follow is to apply the criteria identified by the Privy Council in BP Refinery (Westernport) Pty Ltd v Shire of Hastings:[26]
In their [Lordship’s] view, for a term to be implied, the following conditions (which may overlap) must be satisfied: (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that “it goes without saying”; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.
[25] See, for example, Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at page 347; Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (2000) 202 CLR 588 at page 609 (Gaudron, McHugh, Gummow and Hayne JJ).
[26] (1977) 180 CLR 266 at 283
The meaning of the first, fourth and fifth criteria have received little consideration in the cases. The second criterion has received more consideration. The expression “business efficacy” entered into this area of the law of contract via the judgment of Bowen LJ in The Moorcock in which his Lordship said:[27]
In business transactions such as this, what the law desires to effect by the implication is to give such business efficacy to the transaction as must have been intended at all events by both parties who are business men . . . .
[27] (1889) 14 PD 64 at 68.
However, as was noted by the plurality in Butts v O’Dwyer,[28] the principle expressed in this passage formed part of the law of contract well before The Moorcock:
It has been held in cases too numerous to mention both before and after the classic statement of Bowen L.J. in the case of The Moorcock that the law raises an implication from the presumed intention of the parties where it is necessary to do so in order to give to the transaction such efficacy as both parties must have intended that it should have.
[28] (1952) 87 CLR 267 at page 280 (Dixon CJ, Williams, Webb and Kitto JJ)
Another useful formulation of the principle is contained in the following passage from the judgment of Jordan CJ in Heimann v Commonwealth of Australia:[29]
In order to justify the importation into a contract of an implied term which is not to be found in the express language of the contract when properly construed, and is not annexed by some recognised usage, or by statute or otherwise, it is essential that the express terms of the contract should be such that it is clearly necessary to imply the term in order to make the contract operative according to the intention of the parties as indicated by the express terms. It is not sufficient that it would be reasonable to imply the term . . . . It must be clearly necessary. And the test of whether it is clearly necessary is whether the express terms of the contract are such that both parties, treating them as reasonable men – and they cannot be heard to say that they are not – must clearly have intended the term, or, if they have not adverted to it, would certainly have included it, if the contingency involving the term had suggested itself to their minds.
[29] (1938) 38 SR (NSW) 691 at page 695
It will be seen from these passages that “necessity” is something that is assessed by reference to the presumed intention of the parties. Jordan CJ indicated that the intention is to be that “indicated by the express terms”. But the presumed intention of the parties may be inferred not only from the express terms of the contract, but from the matters identified in the passage from Electricity Generation Corporation v Woodside Energy Ltd[30] that I have set out above. A term will be implied if it is necessary to enable the parties to fulfil their mutual intentions as can be inferred from the material from which it is legitimate for a court to infer those intentions.
[30] [2014] HCA 7 at [35] (references omitted)
The third criterion referred to in BP Refinery that must be satisfied before a term may be implied is the term must be so obvious that it goes without saying. That criterion is seen as being tested by following the approach illustrated by MacKinnon LJ in Shirlaw v Southern Foundries (1926) Ltd:[31]
Prima facie that which in any contract is left to be implied and need not be expressed is something so obvious that it goes without saying; so that, if, while the parties were making their bargain an officious bystander were to suggest some express provision for it in their agreement, they would testily suppress him with a common ‘Oh, of course!’
[31] [1939] 2 KB 206 at page 227
The parties to whom the officious bystander is supposed to direct his question must be reasonable persons in the position of the parties to the contract into which the term is to be implied. And the unanimous answer it must be supposed the parties will give in response to the officious bystander must be assessed by reference to the presumed intention of the parties, as inferred from the express terms of the contract and all the other material from which such intention may legitimately be inferred.
I now apply these criteria to the 22 February 2013 agreement. That is, do the additional words I have read into the 22 February 2013 agreement, assuming it is a term, satisfy each of the criteria identified in BP Refinery? I first consider whether it would be fair and equitable to imply such term.
As with the notion of “necessity” demanded by the second criterion, the notions of reasonableness and equity are to be assessed by reference to the presumed intention of persons in the position of Mr Gomez and Mr Kuhadas that is to be inferred from the express terms of the agreement and all other available material and considerations. For the reasons I give in paragraphs 52 and 53, the only debt the parties contemplated Mr Kuhadas would be liable to pay once the agreement came into effect is the second SGD25,000 payment. In those circumstances, it would be fair and equitable to imply a term that upon the coming into effect of the agreement, Mr Kuhadas would be released of his obligation to pay the Singapore judgment. That would prevent Mr Gomez from acting contrary to the common contemplation of the parties.
The second criterion specified in BP Refinery is also satisfied. Given that I have found that, upon the satisfaction of the preconditions to Mr Gomez agreeing to “withdraw the bankruptcy application”, the parties contemplated that the only debt for which Mr Kuhadas would be liable is the second SGD25,000 payment (together with 10% interest), it is necessary to imply a term that Mr Gomez would release Mr Kuhadas of his liability to pay the Singapore judgment. Without such implication, Mr Gomez would be at liberty to enforce the Singapore judgment, and that would be contrary to the common contemplation of the parties that Mr Kuhadas would only be liable to pay the second SGD25,000 payment.
Further, had an officious bystander inquired of Mr Gomez and Mr Kuhadas whether they should also include in their agreement a term that on Mr Kuhadas complying with items 1, 3 and 4 of Mr Siang’s email, Mr Kuhadas would be released of his obligation to pay the Singapore judgment, they would have unanimously answered “of course”. That would be so because, as I have found, Mr Gomez and Mr Kuhadas contemplated that, upon the satisfaction of the preconditions to Mr Gomez agreeing to “withdraw the bankruptcy application”, the only debt for which Mr Kuhadas would be liable is the second SGD25,000 payment.
Finally, I turn to the fourth and fifth criteria. The proposed term is capable of clear expression. And it does not contradict any express term of the 22 February 2013 agreement.
In my opinion, therefore, the criteria specified in BP Refinery are satisfied in the case of the implied term that, upon the 22 February 2013 agreement coming into effect, Mr Gomez would release Mr Kuhadas of his obligation to pay the Singapore judgment.
Conclusions and disposition
My conclusions may be summarised as follows:
a)A bankruptcy court has power to set aside a bankruptcy notice based on a foreign judgment registered under s.6 of the FJ Act.
b)A bankruptcy court will exercise that power where the judgment debtor has given substantial reasons for questioning whether in truth and reality the foreign judgment ought to have been registered, or for questioning whether its registration could withstand being set aside under s.7(2)(a) of the FJ Act.
c)Mr Kuhadas has given substantial reasons for questioning whether the registration of the Singapore judgment could withstand being set aside on the ground that it had been released within the meaning of s.7(2)(a)(ix) of the FJ Act.
d)The Singapore judgment was released as a result of the 22 February 2013 agreement and Mr Kuhadas satisfying items 1, 3, and 4 of the email dated 22 February 2013 from Mr Siang to Mr Kuhadas.
e)The registration of the Singapore judgment, therefore, is liable to be set aside under s.7 of the FJ Act.
f)The debt demanded in the bankruptcy notice issued against Mr Kuhadas based on the registration of the Singapore judgment is not a debt Mr Kuhadas owes Mr Gomez.
Accordingly, I propose to order that the bankruptcy notice Mr Gomez arranged to be issued against Mr Kuhadas be set aside, and that Mr Gomez pay the costs of Mr Kuhadas.
I certify that the preceding seventy-seven (77) paragraphs are a true copy of the reasons for judgment of Judge Manousaridis
Associate:
Date: 30 May 2014
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