BANKRUPTCY – dismissal of annulment application – appeal – refusal by primary judge to go behind judgment debts – history of litigation challenging judgment debts – solvency not proven – discretion to refuse annulment application irrespective of proof of solvency – no appealable error
Shaw v Yarranova Pty Ltd and NewQuay Stage 2 Pty Ltd (Unreported, Supreme…
Grounds of appeal
[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.
[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.
[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.
Consideration
[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.
[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.
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AGLC
Shaw v Yarranova Pty Ltd [2017] FCAFC 88
Case
[2017] FCAFC 88
Decision Date
CaseChat Overview and Summary
In Shaw v Yarranova Pty Ltd, the appellant, Mr. Shaw, appealed against the decision of the primary judge to dismiss his application to annul his bankruptcy, which had been made on the basis of a creditor's petition. The primary judge had refused to go behind the judgment debts on which the sequestration order was based, and rejected Mr. Shaw's contention that the sequestration order ought not to have been made. The grounds of appeal included several issues, such as the primary judge's refusal to go behind the judgment debts, the authority of the solicitor who issued the bankruptcy notice and presented the creditor's petition, the dismissal of Mr. Shaw's applications for the discovery and production of documents, the finding that Mr. Shaw had failed to establish his solvency at the time of the sequestration order, the primary judge's assessment of Mr. Shaw's conduct, and the adequacy of the reasons provided by the primary judge for his interlocutory rulings and final judgment. The Court considered the nature of the jurisdiction exercised by the Court in making the sequestration order, the jurisdiction exercised by the primary judge in dismissing the annulment application, and the nature of the appeal. The Court held that the appeal was not an occasion for Mr. Shaw to re-agitate arguments that had been rejected in the sequestration proceedings or other proceedings against the respondents. The Court found that the primary judge's refusal to go behind the judgment debts was not an appealable error, as the primary judge had discretion to decline to annul the bankruptcy even if satisfied that the sequestration order ought not to have been made. The Court also found that Mr. Shaw's conduct in his dealings with the respondents revealed a disregard for the entitlements of others in his pursuit of those he claims for himself. The appeal was dismissed, and Mr. Shaw was ordered to pay the respondents' costs of the appeal. The parties were granted leave to apply for orders varying or revoking the order in paragraph 2 within seven days of the date of these orders.
Orders
Orders of the court
1. The appeal is dismissed.
2. The appellant is to pay the respondents’ costs of the appeal.
3. The parties have leave to apply for orders varying or revoking the order in paragraph 2, such leave to be exercised within seven days of the date of these orders.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
Background
Background to the litigation
Full text does not contain this section.
Evidence
Evidence Before The Court
Full text does not contain this section.
Decision
Reasons for decision
The cumulative effect of these principles is that the appeal is not an occasion for Mr Shaw to re-agitate arguments that were rejected in the sequestration proceedings, or other proceedings in which he has been unsuccessful against the respondents, so as to have this Court determine the issues afresh in his favour. Rather, he must demonstrate appealable error affecting the decision of the primary judge not to annul his bankruptcy in accordance with the principles we have stated.THE JUDGMENT DEBT ISSUE This issue is to be determined having regard to the nature of the jurisdiction exercised by the Court in making the sequestration order against Mr Shaw, the nature of the jurisdiction exercised by the primary judge in dismissing the annulment application and the nature of this appeal.Principles The power to make a sequestration order may be exercised only where a debtor has committed an act of bankruptcy: BankruptcyAct, s 43(1)(a). The petitioning creditor must prove, among other things, that the debt or debts upon which he or she relies is, or are, still owing: BankruptcyAct, s 52(1). The requirement that the creditor prove that the debt relied upon is still owing will ordinarily be more easy to fulfil in respect of a judgment debt, the judgment being prima facie evidence of the debt: Corney v Brien (1951) 84 CLR 343 at 355 (Fullagar J). The Court nonetheless has the power to go “round the judgment”, to enquire into its subject matter, so as to satisfy itself that the creditor’s petition is founded on a “good debt”: Dean v Pepper Finance Corporation Ltd (Trustee) [2016] FCA 648 at [43] (Katzmann J); see also Corney at 347 (Dixon, Williams, Webb and Kitto JJ), 353 — 354 (Fullagar J). In Wren v Mahony (1972) 126 CLR 212 (at 224 – 225) Barwick CJ considered Lord Esher’s oft-quoted statement in Re Flatau; Ex parte Scotch Whisky Distillers Ltd (1888) 22 QBD 83 at 85 — 86 to the effect that the power to go behind the debt is a “mere discretion”. Barwick CJ said:His Lordship, in using this expression, was not intending, in my opinion, to weaken the emphasis he had always placed on the need for the Court of Bankruptcy to be satisfied of the existence of the petitioning creditor’s debt. Rather, if one reads all his expressions in the several cases I have cited, he was pointing out that the Bankruptcy Court could in general accept a judgment debt as sufficient proof of that debt particularly where it resulted from a fully heard contest between parties but that it always had the power to go behind the judgment and if the case was a proper one, should do so. The judgment is never conclusive in bankruptcy. It does not always represent itself as the relevant debt of the petitioning creditor, even though under the general law, the prior existing debt has merged in a judgment. But the Bankruptcy Court may accept the judgment as satisfactory proof of the petitioning creditor’s debt. In that sense that court has a discretion. It may or may not so accept 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 judgment 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 judgment as such satisfactory proof. It must then exercise its power, or if you will, its discretion to look at what is behind the judgment: to what is its consideration. It is not the law, in my opinion, that whether in any case the Court of Bankruptcy will consider whether there is satisfactory proof of the petitioning creditor’s debt is a mere matter of its own discretion. Nothing in Corney v Brien lends support for such a view. Rather the emphasis is upon the paramount need to have satisfactory proof of the petitioning creditor’s debt. The Court’s discretion in my opinion is a discretion to accept the judgment as satisfactory proof of that 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.(Footnote omitted)
Ratio Decidendi
Legal Principle Established
There are 75 grounds of appeal. For the reasons that follow, the grounds are not made out and the appeal should be dismissed.THE SEQUESTRATION AND ANNULMENT PROCEEDINGS Mr Shaw was made bankrupt by a sequestration order on a creditor’s petition presented by the respondents, Yarranova Pty Ltd and NewQuay Stage 2 Pty Ltd: Yarranova Pty Ltd v Shaw (No 2) [2014] FCA 616. Gordon J held that Mr Shaw had failed to comply with a bankruptcy notice requiring him to pay certain judgment debts and that he had therefore committed an act of bankruptcy: Bankruptcy Act, s 43(1)(a). Her Honour rejected a series of arguments advanced by Mr Shaw to the effect that, among other things, he did not owe the respondents the judgment debts and that the respondents were not otherwise bona fide creditors. A court may dismiss a creditor’s petition if the debtor proves that he or she is able to pay his or her debts: Bankruptcy Act, s 52(2)(a). Mr Shaw did not adduce evidence before Gordon J to prove his solvency at the time that the sequestration order was made. Her Honour made no findings on that question. Mr Shaw appealed against the sequestration order. He applied on his appeal to adduce new evidence to establish his solvency at the time of the proceedings before Gordon J. The Full Court dismissed the application to adduce new evidence and the appeal itself: Shaw v Yarranova Pty Ltd [2014] FCAFC 171 (Bennett, Flick and Yates JJ). Mr Shaw made his application under s 153B of the Bankruptcy Act five days later. On such an application a bankruptcy may be annulled if the Court is satisfied that the sequestration order ought not to have been made: Bankruptcy Act, s 153B(1). In considering the application, the primary judge had a discretion to decline to annul the bankruptcy, even if satisfied that the sequestration order ought not to have been made: Ozer v Australian Liquor Marketers Pty Ltd [2001] FCA 1197 at [30] (Heerey, Emmett and Allsop JJ). His Honour refused to go behind the judgment debts and rejected Mr Shaw’s contention that the sequestration order ought not to have been made. His Honour said that even if he had been satisfied that the sequestration order ought not to have been made, he would not have annulled Mr Shaw’s bankruptcy because Mr Shaw’s conduct in his dealings with the respondents had revealed “a disregard for the entitlements of others in his pursuit of those he claims for himself” (Reasons [18]).ISSUES ARISING ON THE APPEAL The grounds of appeal are contained in a notice of appeal (NOA) dated 26 February 2016. They are repetitive and most of them contain multiple contentions. There is no utility in reproducing the grounds of appeal here. Where appropriate, they will be referred to by their paragraph numbers in the course of these reasons. Mr Shaw’s central arguments are to the effect that the primary judge erred by:(1)refusing to go behind the judgments upon which the debts specified in the bankruptcy notice were based (the judgment debt issue);(2)failing to find that the bankruptcy notice had been issued, and the creditor’s petition presented, by a solicitor acting without the respondents’ authority (the authority issue);(3)dismissing in whole or in part Mr Shaw’s various applications for the discovery and production of documents (the discovery issue);(4)finding that Mr Shaw had failed to establish that he was solvent at the time that the sequestration order was made (the solvency issue);(5)viewing Mr Shaw’s conduct vis á vis the respondents as going beyond that of a person seeking to rely upon his legitimate rights (the conduct issue); and(6)giving inadequate reasons for interlocutory rulings and final judgment (the reasons issue).