FEDERAL COURT OF AUSTRALIA
Owen v Sandhu [2024] FCA 198
File number: WAD 196 of 2023 Judgment of: FEUTRILL J Date of judgment: 6 March 2024 Catchwords: BANKRUPTCY – application to set aside bankruptcy notice and for extension of time for compliance with notice – where bankruptcy notice founded on deemed judgment of the District Court of Western Australia arising from costs order and assessment of mining warden – whether service valid when bankruptcy notice served by email – whether bankruptcy notice invalid for failing to specify method of payment – where debtor alleged bankruptcy notice issued and served by intermeddling third party – whether bankruptcy notice an abuse of process or not issued in good faith – where debtor alleged mining warden’s decision affected by errors of fact, procedural unfairness and legal unreasonableness – where Supreme Court of Western Australia dismissed debtor’s proceedings for judicial review raising substantially the same issues – where debtor alleged mining warden’s decision obtained through creditor’s criminal conduct – whether Court should go behind mining warden’s decision to ascertain if the judgment debt is in truth and reality due to creditor – where debtor alleged entitlement to costs orders against creditor in other proceedings before mining warden – whether off-setting claim equal to or exceeding judgment debt – whether in all the circumstances time for compliance with bankruptcy notice should be further extended Legislation: Acts Interpretation Act 1901 (Cth) s 28A
Bankruptcy Act 1966 (Cth) ss 5, 30(1), 40(1)(g), 40(1), 40(2), 40(3)(b), 41, 41(1), 41(1)(a), 41(2), 41(2A)(a), 41(3)(a)-(b), 41(6A), 41(6A)(b), 41(6C), 41(7), 52, 306(1), 309(2); Pt IV, Div 2
Electronic Transactions Act 1999 (Cth) ss 9(1)(d), 9(2)(d), 9(5)(c)
Federal Court of Australia Act 1976 (Cth) s 35A(1)(h), 35A(5)
Federal Court (Bankruptcy) Rules 2016 (Cth) rr 2.02(1), 2.03(3), 3.02; Sch 1
Bankruptcy Regulations 2021 (Cth) regs 9, 9(1), 102, 102(3); Sch 1
Mining Act 1978 (WA) s 98, 98(1); Pt IV, Div 2
Mining Regulations 1981 (WA) regs 165(1), 168, 168(1), 168(2); Pt VIII
Cases cited: Abigroup Ltd v Abignano {1992] FCA 871; (1992) 39 FCR 74
Adams v Lambert [2006] HCA 10; (2006) 228 CLR 409
Australian Securities and Investments Commission v Forge [2003] FCAFC 274; (2003) 133 FCR 487
Bechara v Bates [2021] FCAFC 34; (2021) 286 FCR 166
Byron v Southern Star Group Pty Ltd [1997] FCA 151; (1997) 73 FCR 264
Campbells Cash & Carry Pty Ltd v Fostif Pty Ltd [2006] HCA 41; (2006) 229 CLR 386
Clyne v Deputy Commissioner of Taxation [1982] FCA 166; (1982) 42 ALR 703
Coshott v Prentice, in the matter of Coshott (No 2) [2016] FCA 1531
Deloitte Touche Tohmatsu v JP Morgan Portfolio Services Ltd [2007] FCAFC 52; (2007) 158 FCR 417
Fostif Pty Ltd v Campbells Cash & Carry Pty Ltd [2005] NSWCA 83; (2005) 63 NSWLR 203
Fuller v Alford [2017] FCA 782; (2017) 252 FCR 168
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- Owen v Sandhu [2024] FCA 198
- Case
- [2024] FCA 198
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CaseChat Overview and Summary
In the matter of Owen v Sandhu, the Federal Court of Australia was tasked with reviewing an application to set aside a bankruptcy notice and to extend the time for compliance with that notice. The dispute involved the validity of the bankruptcy notice, the method of service, and the underlying judgment debt. The respondent, Sandhu, contested the application on several grounds, including the sufficiency of the application itself, the legality of the service method, and the alleged invalidity of the underlying judgment debt.
The court addressed several legal issues, including whether the bankruptcy notice was served validly via email, if the notice was invalid for failing to specify a method of payment, and whether the court could go behind the Warden's decision to determine the validity of the judgment debt. The respondent argued that the application was defective and that the bankruptcy notice should stand as it was issued in good faith. The court found that while there were deficiencies in the initial application, the subsequent affidavits could be considered for the purpose of extending the compliance time. The court concluded that the bankruptcy notice was validly served and that there was no basis to question the good faith of the issuance.
The court further considered whether it could go behind the Warden's decision to ascertain the validity of the judgment debt, referencing Ramsay Health Care Australia Pty Ltd v Compton. The court held that it would not routinely inquire into the validity of a judgment debt but noted that special circumstances, such as fraud or miscarriage of justice, might warrant such an inquiry. The court found no such special circumstances in this case and thus upheld the Warden's decision.
Ultimately, the court dismissed the application to set aside the bankruptcy notice but varied the time for compliance with the notice to provide the applicant additional time to address the debt. The court also ordered the applicant to pay the respondent's costs of the application for review.
The court addressed several legal issues, including whether the bankruptcy notice was served validly via email, if the notice was invalid for failing to specify a method of payment, and whether the court could go behind the Warden's decision to determine the validity of the judgment debt. The respondent argued that the application was defective and that the bankruptcy notice should stand as it was issued in good faith. The court found that while there were deficiencies in the initial application, the subsequent affidavits could be considered for the purpose of extending the compliance time. The court concluded that the bankruptcy notice was validly served and that there was no basis to question the good faith of the issuance.
The court further considered whether it could go behind the Warden's decision to ascertain the validity of the judgment debt, referencing Ramsay Health Care Australia Pty Ltd v Compton. The court held that it would not routinely inquire into the validity of a judgment debt but noted that special circumstances, such as fraud or miscarriage of justice, might warrant such an inquiry. The court found no such special circumstances in this case and thus upheld the Warden's decision.
Ultimately, the court dismissed the application to set aside the bankruptcy notice but varied the time for compliance with the notice to provide the applicant additional time to address the debt. The court also ordered the applicant to pay the respondent's costs of the application for review.
Orders
Orders of the court
1. The orders of Registrar Parkyn of 5 December 2023 be affirmed except as to the extension of time for compliance with the bankruptcy notice made by orders of 21 December 2023 and 8 February 2024, as varied in paragraph 3 of these orders, and otherwise, the applicant’s application for review of the Registrar’s orders filed 20 December 2023 be dismissed.
2. Pursuant to s 309(2) of the Bankruptcy Act 1966 (Cth), service of Bankruptcy Notice Number BN 260906 may be effected by sending an electronic copy of the Bankruptcy Notice to the email address of the applicant provided as the address for service in these proceedings.
3. If the bankruptcy notice be served in accordance with paragraph 2 of these orders, then time to comply with the terms of Bankruptcy Notice Number BN 260906 issued on 25 July 2023 be the later of 4.15 pm (AWST) on 2 April 2024 or the date that is 21 days after the date of that service.
4. The applicant pay the respondent’s costs of the application for review of the Registrar’s orders to be assessed on a lump sum basis by a Registrar in accordance with the Federal Court of Australia’s costs practice note (GPN-COSTS) or as agreed.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
Background
Background to the litigation
A review of a Registrar’s exercise of power involves a rehearing de novo: Bechara v Bates [2021] FCAFC 34; (2021) 286 FCR 166 at [1]-[8] (Allsop CJ, Markovic and Colvin JJ). As it is a rehearing de novo, the Court may admit and make its decision on review based on additional or different evidence to that upon which the Registrar’s exercise of power was founded: West International Pty Ltd v Ultradrilling Pty Ltd [2008] FCA 1443; (2008) 68 ACSR 108 at [6]; G & J Gears Australia Pty Ltd v Brobo Group Pty Ltd [2006] FCA 330; (2006) 229 ALR 638 at [55]. However, the ability to admit additional evidence remains subject to normal rules of evidence and any limitations on its relevance to the exercise of power under review. Therefore, while the applicant’s further affidavit of 8 February 2024 was read, if the respondent’s submission to the effect that he was not permitted to rely on it to cure a defective application is correct, then the further affidavit cannot be relied upon in support of the application to set aside the bankruptcy notice.Background facts and evidence In October 2018 the applicant made applications under s 98 the Mining Act 1978 (WA) for the forfeiture of four mining tenements issued under that Act of which the respondent was then the legal owner. In December 2019 the applicant made further applications for the forfeiture of three other mining tenements of which the respondent was the legal owner. A mining Warden heard the applications for forfeiture of the four tenements on 9, 10 and 11 June 2020. On 10 July 2020 that Warden recused himself apparently because he had made adverse findings of credit against the respondent in other proceedings. In October 2020 another Warden, on the application of the respondent, determined that the applications for forfeiture of the four tenements and the further applications for forfeiture of the three tenements be heard together. Directions were made to program all seven applications towards a ‘substantive hearing’ within the meaning of that expression in the Mining Regulations 1981 (WA). Although a Warden determines an application for forfeiture in the exercise of administrative and not judicial power, there may be a substantive hearing on such applications involving a trial and oral evidence, cross-examination and extensive legal submissions. The seven applications were listed for a five-day substantive hearing commencing on 12 July 2021. On 1 July 2021, following an oversight of the applicant’s solicitors to summon two witnesses, a Warden made orders that had the effect of vacating the substantive hearing that was to commence on 12 July 2021 for all seven applications, maintaining the listing of the three applications on 12 July 2021, re-listing the hearing of the four applications on 11 October 2021 and reserving the costs thrown away consequent on vacating the hearing of the four applications. The hearing of the three applications then took place over five days between 12 and 16 July 2021.
Evidence
Evidence Before The Court
The respondent filed a written outline of submissions dated 13 October 2023. The respondent also made oral submissions. The substance of the respondent’s submissions is as follows:(1)The application should be dismissed because it was not made in accordance with r 3.02 of the Bankruptcy Rules. The applicant’s affidavit of 22 August 2023 contained no more than assertion and failed to state the grounds (through facts) in support of the application and failed to attach a copy of any application to set aside the judgment or order in respect of which the bankruptcy notice was issued. The applicant’s affidavits of 17 September 2023 and 8 February 2024 should not be received on the application because the applicant is not permitted to supplement a defective application with evidence outside the 21-day period within which the applicant was required to make an application to set aside the notice. Even if received in evidence the applicant’s claims in his affidavits are no more than assertion and he has not demonstrated that his off-setting cost claims could not have been set up against the judgment debt. Further, the claimed amounts which are in the same right (against the respondent) are less than the judgment debt. (2)Service was properly effected on the applicant by email in accordance with the provisions of reg 102 of the Bankruptcy Regulations, s 28A of the Acts Interpretation Act 1901 (Cth) and ss 9(1)(d) and 9(2)(d) of the Electronic Transactions Act 1999 (Cth).(3)The bankruptcy notice was not invalid by indicating the payment could be made at the address of the respondent’s solicitor. Payment could be made at that place by cash or cheque or by contacting the solicitors at that address and making arrangement for some other form of payment.(4)There is no foundation for the assertion of a lack of good faith.(5)There is no basis to go behind the judgment. The applicant sought to set aside the Warden’s orders in the Supreme Court and failed. The applicant’s claims of criminal conduct are bare assertion.(6)There is no basis for extending the bankruptcy notice on the grounds that the judgment debt may be set aside or that the applicant has off-setting claims.Defective application and supplementary evidence There are deficiencies in the contents of the applicant’s affidavit of 22 August 2023 to the extent that it is intended to be relied upon in support of the application to set aside the bankruptcy notice. However, it is not necessary to resolve the issue of whether the application should be dismissed at the threshold or whether the applicant should be permitted to rely on his affidavits of 17 February 2023 and of 8 February 2024 to supplement and (or) cure the deficiencies in his affidavit of 22 August 2023 for two reasons. First, all of the affidavit material is relied upon in support of the application for an order extending the time for compliance with the bankruptcy notice. Therefore, the affidavits are, at least, available for that purpose. Second, and in any event, even if these affidavits were considered to be part of the materials before the Court on the application to set aside the bankruptcy notice, for the reasons that follow, the application must be dismissed. That is, taking the applicant’s evidence at its highest, there are no grounds for setting aside the bankruptcy notice.Legislative framework
Decision
Reasons for decision
The applicant deposes in his affidavit of 8 February 2024 that the respondent is a non-managing director and majority shareholder of Gold Tiger Holdings. Although there was no direct evidence of Mr Hawker’s relationship to Gold Tiger Holdings or the respondent, in Owen v Sandhu [2021] WAMW 15 at [1] and [119], the Warden records that there was evidence in those proceedings to the effect that Mr Hawker was the managing director of Gold Tiger Resources (Australia) Ltd and Gold Tiger Holdings was a subsidiary of that company. It is evident that there is some form of business connection or association between Gold Tiger Holdings and the respondent. As already mentioned, in the absence of any evidence to the contrary, the inference I draw is that Mr Hawker was appointed the respondent’s agent for the purpose of serving the bankruptcy notice on the applicant electronically. There is no basis for the applicant’s assertion that the bankruptcy notice was not issued in good faith.Going behind warden’s decisionApplicable principles The Court should go behind a judgment where sufficient reason is shown for questioning whether there is in truth and reality a debt due to the creditor: Ramsay Health Care Australia Pty Ltd v Compton [2017] HCA 28; (2017) 261 CLR 132 at [37]-[38] (Kiefel CJ, Keane and Nettle JJ). The circumstances in which sufficient reason may be shown are not closed, but the Court will not inquire as a matter of course. Circumstances tending to show fraud, collusion, miscarriage of justice or that a compromise was not fair and reasonable are the most frequent examples. Courts are reluctant to exercise the jurisdiction where the judgment was entered after a full investigation of the issues at a trial where both parties appeared and had ample opportunity to put their cases: Ramsay at [39]-[51]. Nonetheless, the Full Court and High Court considered that the primary judge was in error in Ramsay for not considering that there was sufficient reason to inquire even though the judgment had been obtained after a contested trial. Ramsay concerned proceedings for a sequestration order under s 52 of the Bankruptcy Act. In proceedings in the Supreme Court of New South Wales the creditor obtained judgment against the debtor for a debt due under a guarantee. The debtor had not contested the quantum of the alleged indebtedness and had raised a non est factum defence to the claim under the guarantee. The defence was not successful and judgment was entered for the undisputed amount of the debt. The debtor failed to comply with a bankruptcy notice based on the judgment debt. In the bankruptcy proceedings the debtor opposed the petition on the ground that the judgment was founded on a debt that was not in truth and reality owed. There was evidence that ‘might tend towards a different result from that reflected in the Judgment’ and ‘there was on the face of things a real question as to whether [the debtor] had failed to present his case on the merits at the trial in the Supreme Court [of New South Wales]’. After concluding that the circumstances in which the Court will inquire into the validity of a judgment debt are not closed, the majority in Ramsay made the following observations about the exercise of the power when a judgment has been made after a contested hearing or trial:67It is no answer to [the point that there was a real question as to whether the debtor had failed to present his case on the merits at the trial] to say, as the primary judge did that [the debtor] is bound by the conduct of his case on his behalf at the trial in the Supreme Court. 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. 68For the purposes of s 52 of the Act, a judgment may usually be taken to be sufficient evidence of a debt [Ex parte Lennox; In re Lennox (1885) 16 QBD 315 at 323; In re Flatau; Ex parte Scotch Whisky Distillers Ltd (1888) 22 QBD 83 at 85; Corney v Brien (1951) 84 CLR 343 at 353] 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. Indeed, such a judgment can usually be expected to provide the most reliable statement of the debt humanly attainable because the ordinary processes of the adversarial system provide a practical guarantee of reliability. The testing of the relative merits of a claim and counterclaim under the rigours of adversarial litigation will usually establish the true state of accounts as between the parties to the proceedings. Accordingly, a Bankruptcy Court will usually have no occasion to investigate whether the judgment debt is a true reflection of the real debt. 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. 69In Petrie v Redmond [[1943] St R Qd 71 at 75-76], Latham CJ, with whom Rich and McTiernan JJ agreed, said that the Bankruptcy Court: “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. … The Bankruptcy Court does not examine every judgment debt. Special circumstances must be established before it will do so. It is impossible to lay down any general rule.” 70The first two sentences of that passage were cited with evident approval by Dixon, Williams, Webb and Kitto JJ in Corney v Brien [(1951) 84 CLR 343 at 348]. The passage was explicitly concerned with consent judgments and default judgments. As a matter of practical experience, these are the sorts of cases in which third parties can be expected to be disadvantaged by the making of a sequestration order based on a judgment which was not the outcome of the rigorous processes of adversarial litigation. The same concern may also arise in a case where the judgment was obtained in circumstances which suggest a failure on the part of the judgment debtor to present his or her case on its merits in the litigation that led to the judgment.
Ratio Decidendi
Legal Principle Established
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