Manna v Minister for Immigration and Citizenship

[2001] FMCA 28

FEDERAL MAGISTRATES COURT OF AUSTRALIA

Name: Mercantile Mutual Custodians Pty Ltd  v Ryle Matthew O’Brien

Citation No:  [2001] FMCA 28

File No:  BZ 204/00

CatchwordsBANKRUPTCY – creditors petition –

going behind judgment

ApplicantMERCANTILE MUTUAL CUSTODIANS PTY LTD

Respondent:  RYLE MATTHEW O’BRIEN

File No:BZ 204/00

Delivered on:  23 May 2001

Delivered at:  Brisbane

Hearing Date:  19 April 2001

Judgment of:  Baumann FM

REPRESENTATION:

Solicitors for the Applicant:             Raj Lawyers of Brisbane

Solicitors for the Respondent:        Respondent appeared in person

ORDERS:

1.I make a sequestration order against the estate of the Debtor RYLE MATTHEW O’BRIEN.

2.The Applicant’s costs, including reserved costs (if any), be taxed and paid from the Estate of the Respondent in accordance with the Bankruptcy Act 1966.

IN THE FEDERAL MAGISTRATES COURT OF AUSTRALIA

BRISBANE REGISTRY

No ZB 204of 2000

MERCANTILE MUTUAL CUSTODIANS PTY LTD

Applicant

And

RYLE MATTHEW O’BRIEN

Respondent

REASONS FOR JUDGMENT

INTRODUCTION

1.This is a contested creditor’s petition. The notice of opposition by the judgment debtor, RYLE MATTHEW O’BRIEN (“the Debtor”) seeks to argue that the judgment debt on which the creditor’s petition is founded “is not in truth a true debt because it was incurred as a consequence of misrepresentation and breach of contract by the petitioning creditor”.

2.This is the second occasion when a creditor’s petition filed by MERCANTILE MUTUAL CUSTODIANS PTY LTD (“the Creditor”) has been opposed by the Debtor. An earlier notice of opposition by the debtor relied upon an assertion that the Debtor has a valid counterclaim which could not have been raised at the time of judgment. Spender J, in his reasons for judgment delivered 8 November 2000 found it unnecessary to deal with that ground of opposition although he observed that: -

“It seems, however, to involve a misunderstanding on Mr O’Brien’s part as to what constitutes an inability to set up a counterclaim.”

The petition at that time was dismissed as Spender J found that the Bankruptcy Notice relied upon was a nullity, because it was founded on two separate judgments. (see MERCANTILE MUTUAL CUSTODIANS V O’BRIEN (2000) FCA 1672)

3.The current petition is founded on a Bankruptcy Notice (QN840/2000) dated 13 November 2000 which relies on the Judgment of Judge Noud DCJ of 18 October 1999 for $143,017.51 (“the Judgement”). Although the Judgment contained a stay of execution “until the counterclaim is disposed of”, on 24 November 1999 Judge Noud DCJ made orders as set out below.

ISSUE TO BE DECIDED AND PRINCIPLES TO BE APPLIED

4.The Debtor no longer seeks to oppose the petition on the basis of s40(1)(g) of the Bankruptcy Act (counterclaim he could have set up in an action). He seems to have been aware of Spender J’s observations above, which may have been based on the fact that a counterclaim was set up by the Debtor at the relevant time, but was dismissed. I will say more about that shortly.

5.The sole basis upon which the Debtor now seeks to oppose the petition is that a debt does not in reality exist.

6.It is accepted that a Court does have jurisdiction to go behind a judgment to determine whether there is a debt owed by the petitioner: Wren v Mahony (1972) 126 CLR 212; Corney v Brien (1951) 84 CLR 343. That is to say, in bankruptcy proceedings the existence of a judgement is only prima facie evidence of debt, it is not conclusive evidence.

7.In Re:  Longo; ex parte Longo (1995) 57 FCR 523 at 527, Cooper J succinctly summarises the law in this area when he said: -

“The existence of a judgement is prima facie evidence of a debt (Re: Fraser; ex parte Central Bank of London [1892] 2 QB 633 at 636). However, a judgement is never conclusive in bankruptcy and the Court has a discretion to go behind a judgement to determine whether there is in truth and reality a debt due (Wren v Mahoney (1972) 126 CLR 212 at 224-225). Before the Court will exercise the discretion there must be established substantial reasons for questioning whether there is in truth and reality a debt owing to the creditor; the Court will not inquire into the validity of a judgement debt as a matter of course (Simon v Vincent J O’Gorman Pty Ltd (1979) 41 FLR 95 at 111; Re: David; ex parte Lahood (1979) 26 ALR 306 at 307). The requirement may more readily be met where there has been no adjudication on the merits, for example a default judgement and there exists a bona fide allegation that no real debt lies behind in judgement (Corney v Brien (1951) 84 CLR 343 at 3537-358; Petrie v Redmond [1943] QSR 71 at 76; Re: Vojnovski; ex parte Malcolm [1970] ALR 355 at 359; Olivieri v Stafford (1989) 24 FCR 413 at 422.”

HISTORY

7.The history of the dispute between the parties was summarised by Spender J ON 8 November 2000 as follows; -

“What happened was this:   Mr O’Brien leased a shop from Mercantile Mutual Custodians Pty Ltd. On 17 November 1997 Mercantile Mutual Custodians issued a District Court pliant against Mr O’Brien claiming $78,330.02 for rental and outgoings payable by him to it, together with interest. The plaint referred to rent owing for various periods during which it was unpaid, as well as unpaid amounts for fit-out of the premises. In respect of that plaint, Mr O’Brien filed an entry of appearance and defence and counterclaim on 17 December 1997.

The defence and the counterclaim both set up that, in addition to the terms of the agreement, there was a further representation that all businesses in the premises in which Mr O’Brien’s shop was located were to operate in compliance with core trading hours, and that contrary to that representation and to a clause in the agreement, the business did not operate during those core hours and as a result Mr O’Brien suffered damage, being loss of custom and loss of profits. The counterclaim claimed $250,000 damages for breach of contract, and further and in the alternative $250,000 damages pursuant to s 82 of the Trade Practices Act 1976 (Cth)

On 3 December 1998, Boulton DCJ ordered that:

“1.the Plaintiff be given leave to sign Judgement against the Defendant in the sum of seventy-eight thousand three hundred and thirty dollars and two cents ($78,330.02) with interest of 9% per annum from 1 July 1997 to today’s date.

2.the Defendant have liberty to peruse his counter claim.

3.the execution of the Plaintiff’s Judgement to be stayed pending determination of the counter claim or earlier Order of the Court, conditional upon the Defendant pursuing this counter claim expeditiously.

4.liberty to be granted to both parties to apply within two (2) days in writing to each other.

5.the Defendant pay the Plaintiff’s costs of and incidental to this application and costs of and incidental of the principal action, excluding the counterclaim to be taxed.”

On 9 February 1999 there was an amended entry of appearance and defence and counterclaim, filed on Mr O’Brien’s behalf by a firm of solicitors. That counterclaim was in substance the same as the earlier one, based on representations concerning adherence to core hours by businesses in the complex in which Mr O'Brien’s shop was located. The only significant difference in the amended counterclaim was the addition of a claim under s 87 of the Trade Practices Act seeking an order “varying the contract or agreement in such manner as and from such date as this Honourable Court deems fit.”

On 20 October 1999 the plaintiffs made an amended claim, seeking a total of $221,347.53 as monies due for rental and outgoings by Mr O’Brien to Mercantile Mutual Custodians. That sum of $221,347.53 included a claim for rental of $146,854.43. While it is not transparently clear from the document, the amended claim is directed at unpaid rental for periods other than those in respect of which Boulton DCJ gave judgement on 3 December 1998, and the total amount claimed comprehends the sum of $78,330.02 in respect of which Boulton DCJ gave judgement on 3 December 1998 and a further sum of $146,854.43.

On 18 October 1999, Noud DCJ gave judgment.

“The JUDGMENT OF THE COURT IS THAT the Defendant pay to the Plaintiff the amount of $143,017.51.

THE COURT ALSO ORDERS THAT:

1.The Judgment is in addition to the judgement pronounced by His Honour Judge Boulton at an earlier stage namely on 3 December 1998. These 2 judgements total $221,347.53.

2.There will be a stay of execution in respect of those 2 amounts which is mentioned. There is a stay because the stay that His Honour ordered applies until the counterclaim is disposed of.

3.In relation to the judgment a similar stay apply.

4.The case be adjourned to a date to be fixed.

5.The costs thrown away as a result of the adjournment be paid by the Defendant to the Plaintiff.

6.The costs thrown away as a result of further pleading be paid by the Defendant to the Plaintiff.

7.These orders in relation to costs be stayed pending the completion of the litigation or earlier order.

8.The Defendant deliver an amended counterclaim to the Plaintiff by 3 November 1999, that delivery however, can be effected by the amended pleading being sent by facsimile.”

There were other orders made, and the matter was stood over for further directions on 9 November 1999. On 24 November 1999 Noud DCJ made orders that:

“1.       The Defendant’s counter-claim be dismissed.

2.The Defendant pay the Plaintiff’s costs of and incidental to the counter-claim, including reserved costs, if any, to be assessed.

3.Stay of execution of orders per Boulton DCJ, of 3 December, 1998 and Noud DCJ, 18 October 1999 lifted and Plaintiff be at liberty to enforce these orders.”

EVIDENCE AND FINDINGS

9.        The Debtor’s opposition to the petition is based on allegations that: -

(a)The judgment debt “was obtained by default” and was not “obtained following a hearing on the merits”

(b)The judgment debt was incurred “as a consequence of misrepresentation and breach of contract by the petitioning creditor”; and

(c)“The petitioning creditor has used his superior legal resources to prevent the merits being heard. I submit that it would be unfair and unreasonable for the petition to succeed because it can be shown that the debt upon which the judgement is founded is not owing.”

10.The only evidence which the Debtor relied upon was an Affidavit filed 30 January 2001 and, by reference to paragraph 5 of that Affidavit, and without objection from the Creditor, his Affidavit filed 11 May 2000 and 3 November 2000.

DEFAULT JUDGMENT

11.The Debtor says that the judgment was obtained by default. The Debtor was not legally represented and in his submissions relied particularly on the judgement of Fullager J in Corney v Brien (1951) 84 CLR 343. He produced a copy of parts of a text on Bankruptcy Law by McQuade. The judgment in Corney was of course a judgment entered in “default of appearance”. In this case, as the history shows, the Debtor had filed a counter-claim and had subsequently amended the counter-claim. Judgment was not obtained by default, but was obtained when the Debtor agreed to withdraw the counter-claim. The transcript of the hearing before Noud DCJ on 24 November 1999 reveals the following exchanges; as far as is relevant: -

“HIS HONOUR:         This is the matter of Mercantile Mutual and O’Brien. Mr O’Brien, I have been told that you don’t wish to proceed any further with this matter, that’s my information.

DEFENDANT:          Yes that’s right, your Honour. We’d Like of course to be able to pursue it, your Honour, but you know for the years that we’ve [indistinct] if you like there but if we’ve taken a wrong turn then we feel there’s no point in just wasting valuable people’s time so we’ll fall on the sword here so to speak and see what we can tidy up and try again a little bit better again.

HIS HONOUR:          I’m sorry, Mr O’Brien, but thank you for those – expressing it in that way. Thank you very much, Yes Mr Hack.

MR HACK:                Your Honour, in that event may I seek the following orders: that the defendant’s counterclaim be dismissed; that the defendant pay the Plaintiff’s costs of and incidental to the counterclaim including reserved costs if any to be assessed; (3) that the stay of execution of the orders of Boulton DCJ of 3 December 1998 and Noud DCJ of 18 October 1999 be lifted and that the Plaintiff be at liberty to enforce those orders.

HIS HONOUR:          Yes. Does that cover-------

MR HACK:                Your Honour gave us judgement for the additional claim the last time - that is, on 18 October – and your Honour I think made orders as to costs on that occasion but stayed them so that an order needs to be done just to lift the stay of that order and Judge Boulton’s order.

HIS HONOUR:          That’s right. What about interest till today?

MR HACK:                No, the--------

HIS HONOUR:          That’s right.

MR HACK: --------judgement will carry what used to be section 73 interest, it’s now something in the Supreme Court Act but the post judgement-------

HIS HONOUR:          That’s right.

MR HACK:                --------runs by virtue of the statute.

HIS HONOUR:          I understand. Thank you, Mr Hack. Any comment on any of those orders, Mr O’Brien?

DEFENDANT:          No, no objection, your Honour.”

11.The Debtor explains his conduct in withdrawing by saying: -

“I withdraw because I had no practical alternative in that I could not prepare the damages case that Judge Noud gave me 3 weeks to do.”

12.The Affidavit of JUSTIN KY RATANATRY (the Solicitor for the Creditor) deposes to a lengthy history of litigation in the District Court  action 4838/1997 by the Debtor including the filing by the Debtor, as Defendant of: -

Appearance, Defence & Counterclaim on 17.12.97

Notice Requiring Discovery on 24.2.98

Affidavit of Documents on 16.3.98

Request for Further & Better Particulars on 3.4.98

Answer to Plaintiff’s Request for Particulars on 15.4.98

Supplementary Affidavit of documents on 20.4.98

Answer to Interrogations on 29.10.98

Amended Entry of Appearance Defence & Counterclaim on 9.2.99

13.The Judgment in this matter is described in the order of Noud DCJ as

“Basis of Judgment:  Judgment after trial of the claim filed 17 November 1997”

The history of the proceedings and the notation to this order, makes it clear in my view that is was not a judgement by default within the meaning of that term referred to in the authorities relied upon by the Debtor. So far as the Judgment was concerned, I am satisfied that it was determined on the merits.

14.Interestingly, when both judgments were entered, the Debtor was given liberty to pursue his counter-claim and a stay on the execution of the judgment was ordered “pending determination of the counter-claim” (Boulton DCJ Order of 3 December 1998) and to apply “until the counter-claim is disposed of” (Noud DCJ order of 18 October 1999). As set out above, the counter-claim was disposed of when the Debtor withdrew it on 24 November 1999.

15.No attempt has been made to set aside the judgment and no basis for any such an application has been advanced.

16.The judgment is based essentially on a claim for moneys owed under a lease. Two separate Judges of the Queensland District Court were asked at different times to grant judgment to the Creditor for sums owing under the lease. They were both satisfied that there was an existing debt, although initially both preserved the right of the Debtor to pursue his counter-claim.

17.There is no evidence before the Court which persuades me that some special circumstances exists to venture behind the judgement in this matter. Some examples of “special circumstances” identified by the authors of McDonald Henry & Meek, Australian Bankruptcy Law and Practice (Butterworths Fifth Edition) at page 2892 include, where judgment was obtained:

(a)by fraud, collusion or a miscarriage of justice

(b)without serving the debtor: with the originating process

(c)by an unfair compromise

(d)where fresh and previously unobtainable evidence was likely to result in a different verdict.

There is no evidence before the Court which supports any of these special circumstances.

18.The Debtor has had, and was given, ample opportunity to pursue his counter. He gives many reasons for not doing so including: -

(a)insufficient time (the alleged 3 weeks period given by Noud DCJ)

(b)lack of resources

(c)the conduct of the petitioning creditor who “has used his superior legal resources to prevent the merits being heard”.

19.Even in the circumstances where the Debtor says that the

“experience on 18 October 1999 confirmed advice given to me previously that I was in the wrong Court in that the Federal Court was the Court experienced in Trade Practices Act matters”

he has taken no action to commence a claim against the Creditor in the Federal court.

20.In fact the spprosch the Debtor chose to adopt is identified at: -

(a)paragraph 3 of his Affidavit filed 11 May 2000 where he says: -

“I could see no choice but to withdraw my defense (sic) to the hearing referred to in 2 above and to seek justice in the Federal Court. I advised Gary Woodman of Raj Lawyers (Solicitors for the Applicant) that I would proceed with my counter-claim in the Federal Court should he proceed to the point of petitioning for my bankruptcy"”

and in similar terms at: -

(b)paragraph 9 of his Affidavit filed 3 November 2000.

21.Section 52(1) of the Bankruptcy Act makes it clear that the Court has a discretion whether to make a sequestration order against the Debtor. The Debtor also had an opportunity to satisfy me, pursuant to s52(2)(a) of the Act that he is able to pay his debts. No evidence as to solvency was produced by the Debtor.

22.From the analysis above, I am satisfied that a real debt exists which underlies the judgment and that, in the exercise of my discretion, it is not appropriate to go behind the judgment.

23.I am satisfied about the matters set out in s52(1)(a)(b) & (c) of the Bankruptcy Act and I will make a sequestration order against the estate of the Debtor RYLE MATTHEW O’BRIEN.

I certify that the preceding twenty-three (23) paragraphs are a true copy of the reasons for judgment of Baumann FM

Associate:

Date:   23 May 2001