Lu v AC and R Kitchens Pty Limited
[2014] FCCA 1478
•11 July 2014
FEDERAL CIRCUIT COURT OF AUSTRALIA
| LU v AC & R KITCHENS PTY LIMITED | [2014] FCCA 1478 |
| Catchwords: BANKRUPTCY – Review of Registrar’s sequestration order – debtor claiming judgment debt obtained by fraud and or that contract of guarantee on which default judgment was pursued was signed under duress – at time proceedings commenced in ACT Supreme Court debtor was legally represented – debtor chose not to file defence in proceedings that led to default judgment being entered – debtor estopped from raising issues of duress and fraud in review proceedings when she chose not to raise and have them tested in Supreme Court proceedings. |
| Legislation: Bankruptcy Act 1966, ss.43, 52 Federal Circuit Court Act 1999, s.104 |
| Corney v Brien (1951) 84 CLR 343 Dunwoodie v Teachers Mutual Bank [2014] NSWCA 24 Ebert v Union Trustee Co of Australia (1960) 104 CLR 346 Guss v Johnstone (2000) 171 ALR 598 Joosse v Deputy Commissioner of Taxation (2004) 137 FCR 576 Lu v AC & R Kitchens Pty Limited [2013] FCA 671 Olivieri v Stafford (1989) 24 FCR 413 Port of Melbourne Authority v Anshun (1981) 147 CLR 589 Totev v Sfar (2008) 167 FCR 193 Wren v Mahoney (1972) 126 CLR 212 |
| Applicant: | JENNY LU |
| Respondent: | AC & R KITCHENS PTY LIMITED |
| File Number: | CAG 76 of 2013 |
| Judgment of: | Judge Neville |
| Hearing date: | 28 February 2014 |
| Date of Last Submission: | 25 March 2014 |
| Delivered at: | Canberra |
| Delivered on: | 11 July 2014 |
REPRESENTATION
| Counsel for the Applicant: |
| Solicitors for the Applicant: | Self represented |
| Counsel for the Respondent: | Mr R Vivekananda |
| Solicitors for the Respondent: | Macphillamy's, Canberra |
ORDERS
The Review Application filed on 20th February 2014 be dismissed with costs, either as agreed or as taxed.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT CANBERRA |
CAG 76 of 2013
| JENNY LU |
Applicant
And
| AC & R KITCHENS PTY LIMITED |
Respondent
REASONS FOR JUDGMENT
Introduction
By Application filed on 20th February 2014, the Applicant seeks a review of orders made by a Registrar on 30th January 2014 in the following terms:
i.A sequestration order be made against the estate of Jenny Lu;
ii.The Applicant Creditor’s costs fixed in the amount of $5,901.60 be paid from the estate of the Respondent Debtor in accordance with the Bankruptcy Act 1966
The Registrar noted that the date of the act of bankruptcy is 6th June 2013.
The Grounds of Review state, in effect, that the debtor is (or will be) seeking to have “the original default judgment” set aside.
In the affidavit in support of her Application, Ms Lu says that, until 30th January 2014, she was unaware that she needed to apply [to the Supreme Court of the Australian Capital Territory] to have the default judgment against her set aside. She contends that she was under the mis-apprehension that all proceedings were required to be in this Court.
I note the following from the affidavit material filed on behalf of the Applicant Debtor (filed 20th February 2014), and an affidavit, filed 25th March 2014, by the solicitor for the petitioning Creditor, Mr Macphillamy.
Affidavit Evidence
Ms Lu’s Affidavit: Ms Lu’s evidence, for the most part summarily stated, is as follows.
The first three paragraphs of Ms Lu’s affidavit, filed 20th February 2014 are of particular importance. She deposed:
1. I genuinely understood that all proceedings had to be in the Federal Circuit Court, it was not until the hearing on 30 January 2014 that I was told that I needed to apply to have the default judgment upon which the bankruptcy notice was based set aside.
2. Had I been aware of that I would have applied to have the default judgment set aside.
3. In addition, it was not until these proceedings commenced (and after the default judgment was entered) that I became aware of the following information that would have allowed me to apply to have the default judgment set aside.
As explained below, while Ms Lu may have genuinely believed these matters to which she deposed, the facts suggest that she should have been well aware, and in fact was aware, of the process(es) related to, and the significance of, setting aside the relevant judgment in the Supreme Court of the Australian Capital Territory (“the Supreme Court”).
The substance of the remainder of her affidavit sets out facts which, she says, demonstrate that (a) she entered a contract for the supply and installation of commercial kitchen equipment under duress (paras.7-9), and/or (b) she was not provided with all relevant terms of the contract she signed until some time after signing the contract (para.10), (c) the judgment Creditor’s solicitor concealed the default judgment from Ms Lu (para.11), (d) the statement of claim filed against her was based on “fraudulent information” (para.15).
Various other contentions are made in her affidavit, including some form of inferred inappropriate agreement between “the liquidator Kazar Slaven” and others who have the benefit of, or who will benefit from, the kitchen equipment that gives rise to the unpaid debt that founds the current Application.
Ms Lu lastly deposed that she had applied to the Supreme Court on 10th February 2014 to set aside the relevant default judgment. She said that it had been adjourned to 24th February.
In this regard, the Court has before it a sealed copy of an order by the Registrar of the Supreme Court, dated 24th February 2014, which dismissed Ms Lu’s application (in matter no.SC 543 of 2011) to set aside the default judgment dated 17th May 2012.
The Court has since been made aware that an appeal has been lodged in the Supreme Court by Ms Lu against the decision of the Registrar. The appeal has yet to be determined.
Mr Macphillamy’s Affidavit: With relevant supporting material annexed to his affidavit (as I have earlier noted, filed on 25th March 2014), Mr Macphillamy relevantly deposed as follows.
First, he acted for the petitioning Creditor in the proceedings in the Supreme Court. He confirmed that judgment was ultimately entered against each of the individual defendants to that action. The corporate defendant in the proceeding, Lu Wong Phu Pty Ltd, had gone into liquidation after the proceedings had commenced.
The bankruptcy notice that issued in this Court was founded upon the judgment debt in the Supreme Court. That notice issued on 19th March 2013. The same debt founded the creditor’s petition that was filed in this Court on 3rd December 2013.
Secondly, Mr Macphillamy deposed that in the course of the proceeding in the Supreme Court, he sent and received correspondence from a law firm in the ACT, KJB Law, who acted for Ms Lu. Annexure CEM 1 to this affidavit is a letter from KJB Law, dated 15th February 2012, which informed that Ms Lu (a) had provided instructions, and (b) that her solicitors said “we are not instructed to file a defence.”
The other annexures to this affidavit provide copies of particulars sought (on 8th November 2011) by, and provided to, Ms Lu’s legal representatives on 16th December 2011.
The remainder of Mr Macphillamy’s affidavit sets out relevant detail from the originating statement of claim filed in the Supreme Court. Among other things, para.2(k) of that statement of claim pleaded that each of the named defendants (including Ms Lu) guaranteed the payments under the contracts for the supply and installation of the commercial kitchen equipment entered into on 10th September 2010. The supply and installation of the kitchen equipment was completed, according to the statement of claim, on 31st January 2011.
Applicant Debtor’s Submissions
Ms Lu’s submissions, in large part, argued points that she had raised in her affidavit.
She submitted that the “basis of the bankruptcy was fraudulent.” She said further that her ‘Christian values’ meant that she did not proceed with a “counter claim.” She said that she was under stress and seeking professional help for this. She challenged the evidence provided by the creditor, contending that it was (unlike her evidence) not sworn.
Ms Lu again contended that certain terms and conditions of the ‘personal guarantee’ were deliberately with-held from her; as well, she said that the kitchen equipment had a commercial re-sale value of $80,000, but which was now being used by a person she alleged was in some form of relationship with the creditor. These matters, she submitted, meant that there had been a breach of ss.23, 24 and 51 of the Competition and Consumer Act 2010 (ACT).
Ms Lu further contended that there had been certain breaches of directors’ duties by persons named in her submission, but which need not be repeated here.
The balance of her submissions related to further contentions by which she disputed the validity of the contract (and the relevant guarantee related to it) that was the foundation for the supply and installation of the kitchen equipment, and subsequently, the basis for the proceeding in the Supreme Court.
Petitioning Creditor’s Submissions
After noting that, pursuant to s.104 of the Federal Circuit Court Act 1999, and Rule 2.03 of this Court’s Bankruptcy Rules, an application for review is a hearing de novo, the Creditor noted the procedural history of the matter, including the number of occasions applications had been made to extend time for compliance with the bankruptcy notice. I do not say this in any necessarily critical way.
On 5th July 2013, Foster J dismissed Ms Lu’s Application to review the Registrar’s decision to issue a bankruptcy notice.[1]
[1] Lu v AC & R Commercial Kitchens Pty Ltd [2013] FCA 671.
The Creditor’s submissions (a) narrate, in detail, the service of the petition and associated documents, (b) confirm the affidavit of debt, and (c) confirm service of the creditor’s petition, search of the National Insolvency Index, and search of the records of the court which issued the judgment upon which the Bankruptcy Notice and Creditor’s Petition are based.
The submissions confirm that the act of bankruptcy relied upon is the failure by Ms Lu to comply with (or to make relevant arrangements for the payment of) the judgment debt set out in the Bankruptcy Notice. The last date for compliance with that Notice was 6th June 2013.
The Creditor rejects the Debtor’s contentions in relation to the relevant contract having been signed under duress. It does so on three bases: (a) no relevant evidence was provided on such matters in the proceedings before the Supreme Court, and (b) the claims made by Ms Lu do not conform with relevant principle in relation to such matters, such as articulated by McColl JA in Dunwoodie v Teachers Mutual Bank [2014] NSWCA 24 at [51] – [55]. I need not detail those principles.
The third ground relied upon by the Creditor for rejecting Ms Lu’s claim of duress is that that claim is directed to a person (or persons) who are not the petitioning creditor. Moreover, the Creditor contends that the contentions of Ms Lu are simply (or at their highest) nothing more than ‘bare assertions’, and are otherwise uncorroborated.
The Creditor further submits that the assertions of Ms Lu do not come within the usual prescriptions entertained under the Bankruptcy Act in relation to her having a genuine counter-claim, set-off, or cross demand.
In relation to this latter aspect, it is sufficient to note here the instruction of the High Court (Dixon CJ, McTiernan & Windeyer JJ) in Ebert v Union Trustee Co of Australia:[2]
The debtor clearly must satisfy the Court that there exists in him a counter-claim, set-off or cross demand. "”Cross demand” is the word relied upon here. The appellant cannot satisfy the Court that a cross demand exists by showing no more than that she propounds one and states how she suggests that she can make it out. … Perhaps the standard may be expressed by saying that the debtor must show that he has a prima facie case, even if then and there he does not adduce the admissible evidence which would make out a prima facie case before a court trying the issues that are involved in his counter-claim, set-off or cross demand.
[2] Ebert v Union Trustee Co of Australia (1960) 104 CLR 346 at p.350. More recently, see the further discussion by the High Court in Guss v Johnstone (2000) 171 ALR 598.
In my view, in this matter there is significantly less than a prima facie claim made out by Ms Lu that she has a set-off, counter-claim or cross demand. Accordingly, I put this possibility aside, and turn to the disposition of the matter as argued by Ms Lu.
Consideration & Disposition
First, there is no dispute that a review of a Registrar’s order by this Court is a hearing de novo.[3]
[3] See Totev v Sfar (2008) 167 FCR 193.
Secondly, giving every allowance for Ms Lu as an unrepresented litigant, on the material put before the Court, the only ground essentially argued by Ms Lu, as I apprehend her affidavit and submissions, is that the judgment debt upon which the sequestration order is ultimately based is flawed. It is flawed, she says, because it was obtained ‘fraudulently’ and or by duress exerted on her at the time of entering the relevant contract. As such, this would require the Court, according to principle, to go behind the judgment upon which the judgment debt is founded.
There is no doubt that the Court has power ‘to go behind’ a judgment. It will not do so unless there is a prima facie case of fraud, collusion or miscarriage of justice. There is abundant authority for such propositions, beginning with Corney v Brien.[4]
[4] Corney v Brien (1951) 84 CLR 343 at pp.356-57. See also Wren v Mahoney (1972) 126 CLR 212 at pp.224-25.
In Joosse v Deputy Commissioner of Taxation, the Full Court (North & Finkelstein JJ) said:[5]
The court can go behind a judgment to determine whether it is founded on a real debt because a sequestration order should not be made on the petition of a person who is not a real creditor. The court has a discretion whether or not to go behind the judgment. The discretion is of a limited kind. In Wren v Mahony [1972] HCA 5; (1972) 126 CLR 212, Barwick CJ, with whom Windeyer and Owen JJ agreed, said (at 224-225) that "[t]he Court’s discretion ... is a discretion to accept the judgment as satisfactory proof of [the petitioning creditor’s] 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."
[5] Joosse v Deputy Commissioner of Taxation (2004) 137 FCR 576.
In my view, there are two insurmountable hurdles to Ms Lu succeeding in her Application to review the Registrar’s order of 30th January 2014.
The first difficulty is her claim that she did not know about the relevant course of action to set aside the default judgment in the Supreme Court. The correspondence attached to the affidavit of Mr Macphillamy to which I have earlier referred confirms that she was legally represented at the time proceedings were commenced in that Court. This Court may reasonably infer that she was properly and fully advised of the consequences of not defending them, and in turn, what might happen if judgment was entered against her. Accordingly, I have significant doubts about her alleged lack of knowledge at the relevant time given that she was legally represented by a well-known firm of lawyers in the ACT.
It is true that courts will more amenable to go behind a judgment where it is obtained by default.[6] But there is much more at work here in this matter.
[6] Olivieri v Stafford (1989) 24 FCR 413.
Ms Lu had the opportunity to raise the issues of duress and such matters in the Supreme Court but she did not take it. In choosing, for whatever reason, not to defend those proceedings, and specifically not to raise issues of duress and the like in relation to the original contract/guarantee in the Supreme Court she has placed herself, in my view, in the position of not being permitted to raise such matters in this Court.[7] She had an opportunity elsewhere to have her grievances considered and determined; she did not do so, and she was legally represented at the time. She cannot now be permitted to raise them in the course of a review of a Registrar’s order in this Court.
[7] See Port of Melbourne Authority v Anshun (1981) 147 CLR 589.
There is a further difficulty Ms Lu faces more generally, which is that, as noted in submissions by the petitioner, the duress she alleges in relation to the original contractual documents is not directed to the petitioning creditor but rather to one of her co-defendants in the Supreme Court proceedings.
For completeness, I should also be taken to accept the petitioner’s submissions that, by and large, Ms Lu’s claims proceed by way of bare assertion only.
For these reasons, the Review Application filed on 20th February 2014 must be dismissed with costs as agreed or taxed.
I certify that the preceding forty-four (44) paragraphs are a true copy of the reasons for judgment of Judge Neville
Associate:
Date: 11th July 2014
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