Papas v Westpac Banking Corporation

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FEDERAL COURT OF AUSTRALIA

Papas v Westpac Banking Corporation [2014] FCA 290

Citation: Papas v Westpac Banking Corporation [2014] FCA 290
Appeal from: Commonwealth Bank of Australia & Anor v Papas [2013] FCCA 1261
Parties: JOHN PAPAS v WESTPAC BANKING CORPORATION ABN 33 007 457 141
File number: QUD 556 of 2013
Judge: RANGIAH J
Date of judgment: 28 March 2014
Catchwords:

BANKRUPTCY AND INSOLVENCY – appeal from decision of primary judge to grant a sequestration order against the estate of the appellant – original petitioning creditor obtained compromise with appellant – respondent applied to be substituted as petitioning creditor – where proceedings pending in Supreme Court of Queensland in relation to outstanding debt – whether appellant established sufficient evidentiary basis for a defence of estoppel – whether genuine dispute in relation to debt

PRACTICE AND PROCEDURE – primary judge refused to grant adjournment to enable appellant to obtain legal representation – where appellant objected to hearing of sequestration application without it having been set down for hearing – whether leave to appeal required from interlocutory decision to refuse adjournment – whether appellant denied procedural fairness – where appellant failed to adduce evidence on appeal demonstrating a genuine dispute in relation to the debt – whether a substantial wrong or miscarriage of justice need be demonstrated to enable a new trial to be ordered  
Legislation: Bankruptcy Act 1966 s. 52(2)(b)
Federal Court of Australia Act 1976 (Cth) ss 27,  28(1A) and 24(1E)
Federal Court Rules 2011 (Cth) r 36.24
Cases cited: Adamopoulos v Olympic Airways SA (1990) 95 ALR 525 cited
Ahern v DCT (Qld) (1987) 76 ALR 137 cited
August v Commissioner of Taxation [2013] FCAFC 85 at [119] cited
Bodenstein v Minister for Immigration and Citizenship [2009] FCA 50 cited
Cameron v Cole (1944) 68 CLR 571 cited
Gerlach v Clifton Bricks Pty Ltd (2002) 209 CLR 478 applied
House v The King (1936) 55 CLR 499 cited
McGibbon v Linkenbagh (1996) 41 ALD 219 cited
Minister for Immigration and Multicultural Affairs v Bhardwaj (2002) 209 CLR 597 cited
Moussa v Commonwealth Bank [2011] FCA 067 cited
New South Wales v Canellis (1994) 181 CLR 309 applied
Nguyen v Minister for Immigration and Multicultural Affairs (2000) 101 FCR 20 cited
R v Thames Magistrates’ Court, ex parte Polemis [1974] 1 WLR 1371 applied
Rogers v Law Coast Mortgages Pty Ltd [2002] FCA 181 applied
Stead v State Government Insurance Commission (1986) 161 CLR 141 distinguished
Sullivan v Department of Transport (1978) 20 ALR 323 cited
SZOTK v Minister for Immigration and Citizenship [2011] FCA 1461 cited
SZRVR v Minister for Immigration and Border Protection [2013] FCAFC 915 cited
Date of hearing: 13 February 2014
Place: Brisbane
Division: GENERAL DIVISION
Category: Catchwords
Number of paragraphs: 81
Counsel for the Appellant: Mr L Boccabella
Solicitor for the Appellant: Dowd and Company Lawyers
Counsel for the Respondent: Mr T Sullivan QC
Solicitor for the Respondent: Thomsons Lawyers

IN THE FEDERAL COURT OF AUSTRALIA

QUEENSLAND DISTRICT REGISTRY

GENERAL DIVISION

QUD 556…

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Details
Case
[2014] FCA 290
Decision Date

CaseChat Overview and Summary

The appeal in the matter of Papas v Westpac Banking Corporation was brought before the court by the appellant, Mr Papas, against the decision of the primary judge who granted a sequestration order against his estate. The dispute centered around the claim by Westpac that Mr Papas owed a substantial debt, which he disputed. The legal issues before the court were whether the primary judge was correct in refusing to grant an adjournment for Mr Papas to obtain legal representation and whether the primary judge properly understood the case presented by Mr Papas, which asserted a genuine dispute regarding the debt. The court examined the procedural fairness afforded to Mr Papas and whether he established a sufficient evidentiary basis for a defence of estoppel against the claims of Westpac.

The court considered that the primary judge did not err in his refusal to grant an adjournment, as Mr Papas had not demonstrated a substantial wrong or miscarriage of justice that would warrant a new trial. The court found that Mr Papas had not provided adequate evidence to support his claims of estoppel or misrepresentation, and therefore, the primary judge's decision was upheld. The court also noted that the primary judge did not fail to appreciate Mr Papas’ case, as the allegations of misleading conduct by Westpac were considered but found insufficient to warrant a dismissal of the sequestration order. The court concluded that Mr Papas did not meet the burden of proof required to establish a plausible contention that would prevent the making of a sequestration order.

The appeal was dismissed, and the court ordered that Mr Papas pay the costs of the appeal to Westpac. The court's decision emphasised the importance of demonstrating a plausible contention with sufficient evidence to challenge the claims of a creditor in bankruptcy proceedings.

Orders

Orders of the court

1. The appeal is dismissed.

2. The appellant pay the respondent’s costs of the appeal.

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

Background

Background to the litigation

Mr Papas has appealed against the judgment of the Federal Circuit Court. The grounds of appeal pressed by Mr Papas are, firstly, that the primary judge erred in refusing to grant an adjournment and, secondly, that the primary judge erred in failing to appreciate his case which, properly understood, raised a genuine dispute in respect of the debt alleged by Westpac to be owing. Background In August 2007 Mr Papas and his wife entered into an agreement with Westpac to borrow an amount of over $2.6 million pursuant to a 12 month bill facility. The debt was secured by a registered mortgage over land at Newmarket in Brisbane. The date for repayment under the facility was 30 August 2008, but Mr and Mrs Papas obtained a variation of the facility on 30 March 2009 extending the repayment date by 10 months to 30 June 2009. They obtained a further variation on 29 September 2009 which extended the repayment date by 6 months to 31 December 2009. They did not repay the loan. Mr and Mrs Papas subsequently made partial repayments of about $742,000 on 1 February 2010 and $300,000 on 9 April 2010. The circumstances under which Mr Papas claims these payments were made, which will be discussed later, have some significance. Westpac issued a notice of exercise of its power of sale on 22 June 2011 requiring repayment of some $1.6 million and a second notice on 7 September 2011 requiring repayment of some $1.7 million. On 26 September 2011, Westpac sold the Newmarket property for $762,500. The proceeds were insufficient to meet the whole of the remaining debt. On 18 April 2013, Westpac commenced proceedings in the Supreme Court of Queensland in respect of the balance of the debt. Mr and Mrs Papas have filed a defence. Westpac has not applied for summary judgment and those proceedings are ongoing. Westpac alleges that it is now owed over $1.3 million. The Commonwealth Bank of Australia obtained a judgment against Mr and Mrs Papas in respect of another debt and served bankruptcy notices on each of them. When they failed to comply with the requirements of that notice, the Commonwealth Bank presented a creditor’s petition against Mr and Mrs Papas on 8 April 2013. Westpac and Bank of Queensland entered appearances as supporting creditors. The Commonwealth Bank eventually reached a compromise with Mr and Mrs Papas and was granted leave to withdraw on 12 June 2013. Both Westpac and the Bank of Queensland each filed an interim application seeking to be substituted as the petitioning creditor. On 26 June 2013, the creditor’s petition was listed for directions before the primary judge. Westpac decided not to proceed against Mrs Papas but intended to continue against Mr Papas. The legal representatives for Bank of Queensland and Westpac made it clear that there was to be a contest between them as to which one should be substituted as the petitioning creditor. Westpac’s counsel submitted that the Court should hear the creditor’s petition on the same day that the application for substitution was heard. His Honour asked Mr Papas whether he understood that on the return date, “What they propose to do is to proceed with the application for sequestration.”

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

The primary judge reserved his judgment and handed it down on 2 August 2013. The judgment below Section 52 of the Bankruptcy Act 1966 (Cth) provides, relevantly:(1) At the hearing of a creditor’s petition, the Court shall require proof of:(a)the matters stated in the petition (for which purpose the Court may accept the affidavit verifying the petition as sufficient);(b)service of the petition; and(c)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.…(2)If the Court is not satisfied with the proof of any of those matters, or is satisfied by the debtor:(a) that he or she is able to pay his or her debts; or(b)that for other sufficient cause a sequestration order ought not to be made;it may dismiss the petition. Mr Papas asserted that there was “other sufficient cause [why] a sequestration order ought not to be made”. That sufficient cause was said to be the fact that the proceedings in the Supreme Court for the same debt, in which Mr Papas denied that he was indebted to Westpac, were yet to be determined. In his reasons, the primary judge said:[13] The role of this court in considering the debtor’s complaints about the substituted creditor’s conduct is not to determine or second guess the outcome of Supreme Court proceedings, but is really to determine whether or not, by reason of the material and the complaints made, there is a realistic prospect that the cause of action contended for is such that the debtor ought to be permitted an opportunity to pursue his action before the substituted creditor has the relief it claims under the Act. That is there should be a plausible contention requiring investigation: Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 and Menzies v Paccar Financial Pty Ltd [2011] FCA 460 In the appeal, Mr Papas did not take issue with his Honour’s statement of the issue that he had to decide. The primary judge identified Mr Papas’ grounds of opposition to the amended creditor’s petition as follows:a)That Westpac, the present substituted creditor, engaged in misleading and deceptive conduct in that it did not roll over a facility as promised after large amounts of money were paid off the facility;b)That Westpac sold the subject property at a significant undervalue;c)That there was a failure of due process in Westpac repossessing the property, because, as he says, “flawed notices were sent to the wrong addresses”; andd)That the substituted creditor has just served documents [the Supreme Court proceedings]… and that he intends to lodge a defence and counterclaim in respect of that claim. His Honour rejected all four grounds. The first and fourth grounds are related and his Honour’s conclusions in relation to them are challenged in this appeal. Mr Papas has not challenged his Honour’s rulings upon the grounds that the property was sold at an undervalue and that notices were flawed and sent to the wrong address.

Ratio Decidendi

Legal Principle Established

Rule 36.24 of the Federal Court Rules 2011 (Cth) requires a respondent who contends that a judgment should be affirmed on grounds other than those relied on by the court appealed from to file a notice of contention. Westpac failed to file any notice of contention. Mr Papas indicated that if leave to file a notice of contention were to be sought, he would seek leave to adduce further evidence. Westpac then did not seek leave to file a notice of contention. I consider that Westpac was required by r 36.24 of the Federal Court Rules to file a notice of contention in order to pursue its further ground. No application was made for dispensation from compliance with the rule. In these circumstances, I decline to deal with that ground.Consideration The two grounds of appeal, that the primary judge was in error in refusing an adjournment and failing to appreciate Mr Papas’ case, are closely related. Mr Papas submits that, properly understood, his case demonstrated a genuine dispute, but, even if not, he should have been granted an adjournment so that he could obtain legal advice and have the opportunity to obtain evidence and properly articulate his defence. It is convenient to deal with the grounds of appeal in reverse order.The second ground: Whether the primary judge failed to appreciate the debtor’s case Section 52(2)(b) of the Bankruptcy Act requires the debtor to satisfy the Court that “for other sufficient cause” a sequestration order ought not to be made. On the state of the evidence and submissions, the primary judge concluded that Mr Papas had not satisfied his onus of demonstrating that there was “a plausible contention requiring investigation”. Mr Papas submitted that this conclusion was erroneous because he had raised a sufficient evidentiary basis to demonstrate an arguable defence of estoppel in the proceedings brought by Westpac in the Supreme Court. In his reasons, the primary judge specifically identified one of Mr Papas’ grounds of opposition to the amended creditor’s petition as being that Westpac had engaged in misleading or deceptive conduct in that it did not roll over the facility as promised after large amounts of money were paid off the facility. There is no reason to think that his Honour failed to appreciate that these allegations potentially raised a defence of estoppel, as well as founding a case of breach of s 52 of the Trade Practices Act1974 (Cth) (repealed) and common law misrepresentation. I therefore reject Mr Papas’ submission that his Honour failed to appreciate that he had raised a defence of estoppel. In any event, it was never made clear how estoppel would confer some greater advantage to Mr Papas than reliance on breach of s 52. Mr Papas’ next submission was that the primary judge misunderstood the basis of his defence to the Supreme Court proceedings. His Honour decided the case on the basis that Mr Papas was asserting that the debt had not been rolled over as represented; but even if it had been rolled over Mr Papas would still have been indebted to Westpac because he had not repaid the debt by the roll-over date. Mr Papas argued that his Honour should have appreciated that the detriment he alleged was that if the misrepresentations had not been made, he would not then have paid down his debt to Westpac. He could then have obtained refinancing from Suncorp and would then have been able to develop the land and realise a price that was sufficient to pay out the debt.