Nida v BKA Practice Co Pty Ltd

Case [2022] FCA 1257

FEDERAL COURT OF AUSTRALIA

Nida v BKA Practice Co Pty Ltd [2022] FCA 1257 

Appeal from: BKA Practice Co Pty Ltd v Nida [2021] FCCA 334
File number: VID 116 of 2021
Judgment of: ANDERSON J
Date of judgment: 25 October 2022
Catchwords: BANKRUPTCY – appeal from the decision of the Federal Circuit Court of Australia – where the Appellant has not identified any legal, factual or discretionary errors made by the primary judge – appeal dismissed with costs  
Legislation: Bankruptcy Act 1966 (Cth)
Cases cited:

Ahern v Deputy Commissioner of Taxation (Qld) [1987] FCA 504

BKA Practice Co Pty Ltd v Nida [2021] FCCA 334

Compton v Ramsay Health Care Australia Pty Ltd (2016) 246 FCR 508

Corney v Brien (1951) 84 CLR 343

Ex Parte Lennox (1885) 16 QBD 315

Ramsay Health Care Australia Pty Ltd v Compton (2017) 261 CLR 123

Whiteman v Deputy Commissioner of Taxation [2022] FCA 975

Wolff v Donovan (1991) 22 FCR 480

Wren v Mahony (1972) 126 CLR 212
Division: General Division
Registry: Victoria
National Practice Area: Commercial and Corporations
Sub-area: General and Personal Insolvency
Number of paragraphs: 45
Date of hearing: 6 October 2022
Counsel for the Appellant:  Mr J Burnside KC with Mr M James
Solicitor for the Appellant: NOH Legal
Counsel for the Respondent: Mr E Moon
Solicitor for the Respondent: Belleli King & Associates

 

ORDERS

VID 116 of 2021
BETWEEN:

ROONA NIDA FAZAL

Appellant
AND:

BKA PRACTICE CO PTY LTD (ACN 149 958 127)

Respondent

ORDER MADE BY:

ANDERSON J

DATE OF ORDER:

25 OCTOBER 2022

THE COURT ORDERS THAT:

1.The appeal be dismissed.

2.The Appellant pay the Respondent’s costs.

Note:   Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.


REASONS FOR JUDGMENT

ANDERSON J:

INTRODUCTION

  1. The Appellant appeals a decision of a judge of the Federal Circuit Court of Australia made 25 February 2021: BKA Practice Co Pty Ltd v Nida [2021] FCCA 334 (Reasons).

  2. The application brought below by the Appellant concerned a review of a Registrar’s decision to order a sequestration of the Appellant’s estate under the Bankruptcy Act 1966 (Cth) (Act).  The sequestration occurred on 3 December 2020.  The primary judge dismissed the Appellant’s application for review.

  3. The Appellant seeks orders setting aside the primary judge’s decision and, accordingly, that the sequestration order made against the Appellant be set aside.

  4. The Appellant, by a Notice of Appeal dated 12 March 2021, raises three grounds of appeal:

    (1)Ground 1 - the primary judge erred in law by failing and/or refusing to consider relevant and important evidence available in the proceeding.

    (2)Ground 2 - the primary judge erred in law by failing to consider the established authority to “go behind” the judgment resulting in the bankruptcy order.

    (3)Ground 3 - the primary judge erred in law by failing to make an appropriate assessment of the procedural history of the proceedings in considering the cause of delays and estimating the time of delays.

    BACKGROUND AND PROCEDURAL…

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Nida v BKA Practice Co Pty Ltd [2022] FCA 1257
Case
[2022] FCA 1257
Decision Date

CaseChat Overview and Summary

Nida, the Appellant, appealed against the decision of the Federal Circuit Court of Australia, which had dismissed her application to review the decision to order the sequestration of her estate. The primary issues raised by the Appellant were whether the primary judge had erred in failing to consider relevant evidence, to consider the authority to “go behind” the judgment resulting in the bankruptcy order, and to make an appropriate assessment of the procedural history of the proceedings in considering the cause of delays and estimating the time of delays. The Appellant submitted that the Court should exercise its discretion to “go behind” the judgment and assess the underlying debt, rather than relying on the judgment as conclusive proof.

The court considered the relevant statutory provisions, case law, and submissions by the parties. The court held that the Appellant had not identified any legal, factual, or discretionary errors made by the primary judge. The court found that the primary judge had appropriately considered the evidence and the legal principles applicable to the case. The court held that the primary judge had correctly exercised its discretion and dismissed the appeal. The court ordered that the appeal be dismissed with costs in favour of the Respondent.

The court's reasoning and outcome were based on a careful analysis of the relevant legal principles and evidence in the case. The court found that the primary judge had not erred in law or in the exercise of discretion. The court held that the primary judge had correctly applied the relevant statutory provisions and case law. The court's decision was consistent with the principles of bankruptcy law and the protection of third-party interests. The final orders of the court dismissed the appeal and ordered the Appellant to pay the Respondent’s costs.

Orders

Orders of the court

1. The appeal be dismissed.

2. The Appellant pay the Respondent’s costs.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

The Appellant, by a Notice of Appeal dated 12 March 2021, raises three grounds of appeal:(1)Ground 1 - the primary judge erred in law by failing and/or refusing to consider relevant and important evidence available in the proceeding.(2)Ground 2 - the primary judge erred in law by failing to consider the established authority to “go behind” the judgment resulting in the bankruptcy order.(3)Ground 3 - the primary judge erred in law by failing to make an appropriate assessment of the procedural history of the proceedings in considering the cause of delays and estimating the time of delays.BACKGROUND AND PROCEDURAL HISTORY The background and procedural history was summarised by the primary judge at Reasons [3]-[38]. It is sufficient for the purposes of this appeal to note the following:(1)On 4 September 2018, the Respondent obtained default judgment against the Appellant in the Magistrates’ Court of Victoria in the amount of $22,682.14 (Default Judgment).(2)On 25 September 2018, the Respondent issued a bankruptcy notice against the Appellant, relying upon the Default Judgment (Bankruptcy Notice).(3)On 18 October 2018, the Appellant initiated a proceeding in the Federal Circuit Court of Australia to set aside the Bankruptcy Notice.(4)On 31 January 2019, a Judicial Registrar of the Federal Circuit Court dismissed the Appellant’s application to set aside the Bankruptcy Notice and, accordingly, the Appellant was deemed to have committed an act of bankruptcy on that day.(5)On 13 March 2019, the Respondent presented its creditors petition to the Federal Circuit Court seeking an order for the sequestration of the Appellant’s estate due to her failure to comply with the Bankruptcy Notice.(6)There were multiple hearings in this matter in the Federal Circuit Court, culminating on 3 December 2020 when a Judicial Registrar made an order for the sequestration of the Appellant’s estate (Sequestration Decision).(7)On 12 January 2021 the Appellant filed an application to review the Sequestration Decision.(8)The application was dismissed by the primary judge on 25 February 2021.APPELLANT'S SUBMISSIONS The Appellant submitted that the primary issue to be determined on this appeal is “in what circumstances can, and should, a bankruptcy court determining proof of debt under s 52(1)(c) of the Act exercise its discretion to go behind a judgment?”. The Appellant submits that the starting point is to consider s 52(1)(c) of the Act which provides as follows:At the hearing of a creditor’s petition, the Court shall require proof of:…the fact that the debt or debts on which the petitioning creditor relies is or are still owing;and, if it is satisfied with the proof of those matters, may make a sequestration order against the estate of the debtor.(Emphasis added.) The Appellant submits that the ultimate question for the Court is whether it is persuaded by the petitioning creditor that the debt on which the creditor relies is still owing, in circumstances where “the emphasis is upon the paramount need to have satisfactory proof of the petitioning creditor's debt”: Wren v Mahony (1972) 126 CLR 212 (Wren), at 224.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

The background and procedural history was summarised by the primary judge at Reasons [3]-[38]. It is sufficient for the purposes of this appeal to note the following:(1)On 4 September 2018, the Respondent obtained default judgment against the Appellant in the Magistrates’ Court of Victoria in the amount of $22,682.14 (Default Judgment).(2)On 25 September 2018, the Respondent issued a bankruptcy notice against the Appellant, relying upon the Default Judgment (Bankruptcy Notice).(3)On 18 October 2018, the Appellant initiated a proceeding in the Federal Circuit Court of Australia to set aside the Bankruptcy Notice.(4)On 31 January 2019, a Judicial Registrar of the Federal Circuit Court dismissed the Appellant’s application to set aside the Bankruptcy Notice and, accordingly, the Appellant was deemed to have committed an act of bankruptcy on that day.(5)On 13 March 2019, the Respondent presented its creditors petition to the Federal Circuit Court seeking an order for the sequestration of the Appellant’s estate due to her failure to comply with the Bankruptcy Notice.(6)There were multiple hearings in this matter in the Federal Circuit Court, culminating on 3 December 2020 when a Judicial Registrar made an order for the sequestration of the Appellant’s estate (Sequestration Decision).(7)On 12 January 2021 the Appellant filed an application to review the Sequestration Decision.(8)The application was dismissed by the primary judge on 25 February 2021.APPELLANT'S SUBMISSIONS The Appellant submitted that the primary issue to be determined on this appeal is “in what circumstances can, and should, a bankruptcy court determining proof of debt under s 52(1)(c) of the Act exercise its discretion to go behind a judgment?”. The Appellant submits that the starting point is to consider s 52(1)(c) of the Act which provides as follows:At the hearing of a creditor’s petition, the Court shall require proof of:…the fact that the debt or debts on which the petitioning creditor relies is or are still owing;and, if it is satisfied with the proof of those matters, may make a sequestration order against the estate of the debtor.(Emphasis added.) The Appellant submits that the ultimate question for the Court is whether it is persuaded by the petitioning creditor that the debt on which the creditor relies is still owing, in circumstances where “the emphasis is upon the paramount need to have satisfactory proof of the petitioning creditor's debt”: Wren v Mahony (1972) 126 CLR 212 (Wren), at 224. The Appellant submits that the “debt” referred to in s 52(1)(c) of the Act is the debt underlying the judgment and the petitioning creditor cannot rely upon the judgment concerning the debt as a res judicata (i.e., as a given): Wren at 224. The Appellant submits that while the Court has a “discretion” to “accept the judgment as satisfactory proof of the petitioning creditor's debt”, this discretion ought to be used reasonably as the Court has a statutory duty to be “satisfied” as to the existence of the petitioning creditor’s debt and a creditor should not be able to make a person bankrupt on a debt which may not be provable: Ahern v Deputy Commissioner of Taxation (Qld) [1987] FCA 504 at 146; Ex Parte Lennox (1885) 16 QBD 315 at 324, 328.

Ratio Decidendi

Legal Principle Established

The Appellant submits that the starting point is to consider s 52(1)(c) of the Act which provides as follows:At the hearing of a creditor’s petition, the Court shall require proof of:…the fact that the debt or debts on which the petitioning creditor relies is or are still owing;and, if it is satisfied with the proof of those matters, may make a sequestration order against the estate of the debtor.(Emphasis added.) The Appellant submits that the ultimate question for the Court is whether it is persuaded by the petitioning creditor that the debt on which the creditor relies is still owing, in circumstances where “the emphasis is upon the paramount need to have satisfactory proof of the petitioning creditor's debt”: Wren v Mahony (1972) 126 CLR 212 (Wren), at 224. The Appellant submits that the “debt” referred to in s 52(1)(c) of the Act is the debt underlying the judgment and the petitioning creditor cannot rely upon the judgment concerning the debt as a res judicata (i.e., as a given): Wren at 224. The Appellant submits that while the Court has a “discretion” to “accept the judgment as satisfactory proof of the petitioning creditor's debt”, this discretion ought to be used reasonably as the Court has a statutory duty to be “satisfied” as to the existence of the petitioning creditor’s debt and a creditor should not be able to make a person bankrupt on a debt which may not be provable: Ahern v Deputy Commissioner of Taxation (Qld) [1987] FCA 504 at 146; Ex Parte Lennox (1885) 16 QBD 315 at 324, 328. The Appellant relies upon the following statement of principle by Lee and Hill JJ in Wolff v Donovan (1991) 22 FCR 480 at [20]:… Once the judgement is proved, and it is prima facie evidence of the existence of the underlying debt there is a tactical onus on the debtor to show that there are circumstances which make it appropriate to go behind the debt to see whether the judgement was in truth and reality a true debt. The overall onus of proof of the existence of a real debt underlying a judgment, however, remains with the petitioning creditor. The Appellant also relies upon the following statement of Barwick CJ in Wren at 223 and 224:… Circumstances tending to show fraud or collusion or miscarriage of justice or that a compromise was not a fair and reasonable one… offer occasions for the exercise by the Court of Bankruptcy of its power to inquire into the consideration for 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 judgement 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 judgement as such satisfactory proof. It must then exercise its power, or if you will, its discretion to look at what is behind the judgement: to what is its consideration. The Appellant also relies upon the following statement by Kiefel CJ, Keane and Nettle JJ in Ramsay Health Care Australia Pty Ltd v Compton (2017) 261 CLR 123 (Ramsay) at [67] and [68]:[67]… As has been seen, the notion that a party is bound by the conduct of his or her case has never been a sufficient reason not to look behind a consent judgment or a default judgment. That is because a Bankruptcy Court is concerned, not to discipline litigants or to protect finality in the administration of justice as between parties to litigation, but to protect the interests of third parties who were not participants in the litigation which led to the judgment in question.[68]For the purposes of s 52 of the Act, a judgment may usually be taken to be sufficient evidence of a debt in that a judgment against a debtor in favour of a creditor obtained after a trial is, generally speaking, a reliable indication of the true state of indebtedness as between creditor and debtor…. But where the merits of a claim and counterclaim have not been tested in adversarial litigation, a judgment debt will not have this practical guarantee of reliability.