FEDERAL COURT OF AUSTRALIA
Tran v Pu [2015] FCA 97
Citation: Tran v Pu [2015] FCA 97 Appeal from: Tran v Pu [2014] FCCA 1980 Parties: PHILLIP TRAN v FENG PU File number(s): VID 539 of 2014 Judge(s): BEACH J Date of judgment: 20 February 2015 Catchwords: BANKRUPTCY – appeal against dismissal of review of sequestration order – Deed of Settlement in place between parties – construction of Deed – whether Deed a bar to bringing the application for review – the Court’s duty to carry out a rehearing de novo – requirements of s 52 of the Bankruptcy Act 1966 (Cth) – contractual bar cannot foreclose the Court’s function under s 52 – the Court’s discretion to go behind a judgment – whether there is in substance a debt – appeal allowed and matter remitted Legislation: Bankruptcy Act 1966 (Cth) ss 52, 153B
Federal Circuit Court of Australia Act 1999 (Cth) ss 17A(2), 104(2)
Federal Circuit Court Rules 2001 (Cth) rr 13.10, 20.03(a)
Federal Court of Australia Act 1976 (Cth) s 25(1AA)(a)Cases cited: Ahern v Deputy Commissioner of Taxation (Qld) (1987) 76 ALR 137
Ali v Retail Decisions Pty Ltd [2012] FCA 1130
Allesch v Maunz (2000) 203 CLR 172
Corney v Brien (1951) 84 CLR 343
Craig v South Australia (1995) 184 CLR 163
Ex parte Lennox; In re Lennox (1885) 16 QBD 315
Flint v Richard Busuttil & Co Pty Ltd (2013) 216 FCR 375
Harris v Caladine (1991) 172 CLR 84
In re Fraser; Ex parte Central Bank of London [1892] 2 QB 633
In re Hawkins; Ex parte Troup [1895] 1 QB 404
Kyriackou v Shield Mercantile Pty Ltd (No 2) [2004] FCA 1338
Martin v Commonwealth Bank of Australia (2001) 217 ALR 634
Pattison v Hadjimouratis (2006) 155 FCR 226
Shaw v Yarranova Pty Ltd [2014] FCAFC 171
Totev v Sfar (2008) 167 FCR 193
Williams v Spautz (1992) 174 CLR 509
Wren v Mahony (1972) 126 CLR 212
Yarranova Pty Ltd v Shaw (No 2) [2014] FCA 616Date of hearing: 19 December 2014 Place: Melbourne Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 48 Solicitor for the Appellant: Ms P Oman of MLC Lawyers Counsel for the Respondent: Mr P S Noonan Solicitor for the Respondent: O’Neill Behan & Associates Counsel for the Trustees: Mr P Fary Solicitor for the Trustees: Saxbys Lawyers
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
GENERAL DIVISION
VID 539 of 2014
ON APPEAL FROM THE FEDERAL CIRCUIT COURT OF AUSTRALIA
BETWEEN: PHILLIP TRAN
AppellantAND: FENG PU
Respondent
JUDGE:
BEACH J
DATE OF ORDER:
20 FEBRUARY 2015
WHERE MADE:
MELBOURNE
THE COURT ORDERS THAT:
1.The appeal is allowed.
2.Orders 1 and 2 made by Judge Whelan on 26 August 2014 be set aside.
3.The appellant’s application for review be remitted to her Honour for further hearing in accordance with these reasons.
4.The respondent is to pay the appellant’s costs of this appeal.
5.The trustees’ costs of and incidental to this appeal be treated as…
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- Tran v Pu [2015] FCA 97
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- [2015] FCA 97
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CaseChat Overview and Summary
The case of Tran v Pu involved an appeal against the dismissal of a review of a sequestration order. The parties were Tran (the appellant) and Pu (the respondent). The central dispute was whether the Court should have considered a Deed of Settlement (the Deed) entered into between the parties in relation to a judgment debt when reviewing the sequestration order. This dispute was heard in the Federal Circuit Court of Australia.
The primary legal issues the Court had to decide were whether the Deed could preclude the appellant from opposing the sequestration order and filing an application for review. Specifically, the Court needed to determine if the Deed constituted a contractual bar to the appellant's right to seek a review under section 52 of the Bankruptcy Act 1966 (Cth). Additionally, the Court had to examine whether it should have gone behind the judgment to investigate if there was a debt in substance, given the existence of the Deed.
The Court concluded that the Deed did not preclude the appellant from opposing the sequestration order or filing an application for review. The Court held that the Deed did not express any contractual preclusion against the appellant's capacity to defend the sequestration order or to proceed with the review application. The Court found that the respondent could not use the Deed as a bar to the appellant's actions, as the Deed's clauses were not intended to prevent the appellant from taking defensive steps. The Court further held that it should have considered the Deed in determining whether to go behind the judgment, but it had not done so properly. The Court allowed the appeal, set aside the orders made by Judge Whelan, and remitted the application for review to be heard de novo.
The final orders included allowing the appeal, setting aside the orders made by Judge Whelan, remitting the application for review to be heard anew, and directing that the respondent pay the appellant's costs of the appeal. The trustees' costs were to be treated as costs and expenses in the administration of the appellant's estate under section 109(1)(a) of the Bankruptcy Act 1966 (Cth).
The primary legal issues the Court had to decide were whether the Deed could preclude the appellant from opposing the sequestration order and filing an application for review. Specifically, the Court needed to determine if the Deed constituted a contractual bar to the appellant's right to seek a review under section 52 of the Bankruptcy Act 1966 (Cth). Additionally, the Court had to examine whether it should have gone behind the judgment to investigate if there was a debt in substance, given the existence of the Deed.
The Court concluded that the Deed did not preclude the appellant from opposing the sequestration order or filing an application for review. The Court held that the Deed did not express any contractual preclusion against the appellant's capacity to defend the sequestration order or to proceed with the review application. The Court found that the respondent could not use the Deed as a bar to the appellant's actions, as the Deed's clauses were not intended to prevent the appellant from taking defensive steps. The Court further held that it should have considered the Deed in determining whether to go behind the judgment, but it had not done so properly. The Court allowed the appeal, set aside the orders made by Judge Whelan, and remitted the application for review to be heard de novo.
The final orders included allowing the appeal, setting aside the orders made by Judge Whelan, remitting the application for review to be heard anew, and directing that the respondent pay the appellant's costs of the appeal. The trustees' costs were to be treated as costs and expenses in the administration of the appellant's estate under section 109(1)(a) of the Bankruptcy Act 1966 (Cth).
Orders
Orders of the court
1. The appeal is allowed.
2. Orders 1 and 2 made by Judge Whelan on 26 August 2014 be set aside.
3. The appellant’s application for review be remitted to her Honour for further hearing in accordance with these reasons.
4. The respondent is to pay the appellant’s costs of this appeal.
5. The trustees’ costs of and incidental to this appeal be treated as costs and expenses in the administration of the appellant’s estate pursuant to s 109(1)(a) of the Bankruptcy Act 1966 (Cth).
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
Background
Background to the litigation
For the reasons that follow, I have determined to allow the appeal.BACKGROUND On 16 April 2013, the respondent obtained default judgment against the appellant in the Magistrates’ Court of Victoria in the sum of $35,678.61 (the judgment debt). This amount comprised the principal underlying debt of $33,850, interest of $1,373.01 and costs of $455.60. On 14 October 2013, the respondent issued a bankruptcy notice based on the judgment debt. Throughout February 2014 there were settlement negotiations between the solicitors for the appellant and respondent. On 16 April 2014, a Deed of Settlement (the Deed) was entered into between the appellant, the respondent and Ocean Australia Pty Ltd for the payment by the appellant of $20,000 in full settlement of the judgment debt. Clauses 2-4 and 6 of the Deed provided:2.0 Release by parties2.1In consideration of the initial payment and dependent upon Phillip's continued compliance with Section 1.0 of this Deed, Feng and Eureka jointly and severally undertake not to initiate any legal proceedings on the basis of Phillip's failure to comply with the Bankruptcy Notice including, but not limited to, a Creditor's Petition in the Federal Circuit Court of Australia.2.2In consideration of the final payment and in consideration of the parties complying with all matters set out in Section 1.0 of this Deed, the parties release and forever discharge each other from all actions, proceedings, suits, claims, demands and costs of any description whatsoever which either party now has or at any time hereafter may have had or which but for the execution of this Deed could or might have had against the other in relation to the Agreement, including (but not limited to) the Debt, the Judgment, the Bankruptcy Notice and the Counterclaim.2.3For the avoidance of any doubt, nothing in this Deed prevents Phillip from initiating legal proceedings of any nature against Tommy for any claim or claims he may have with respect to payments made by Phillip to Tommy with respect to the Agreement or otherwise (including the payments referred to in paragraphs D and E of the recitals of this Deed) and Feng and Eureka further jointly and severally assign to Phillip all their rights and interest (if any) with respect to these payments made by Phillip to Tommy.3.0 Bar to proceedings3.1This deed may be pleaded as a full and complete defence by the parties to any action, suit or proceeding commenced, continued or taken by or on behalf of any party in connection with any of the matters referred to in this Deed. 4.0 Default4.1In the event that Phillip defaults in relation to any payment that is due under this Deed, and the default is not remedied within a period of seven days after the date on which Feng serves written notice of default on Phillip, then Feng shall be entitled to apply to the Court on the basis of Phillip’s non-compliance with the Bankruptcy Notice.…6.0 Entire agreement6.1This Deed contains the entire agreement and understanding between the parties on everything connected with the subject matter of this Deed and supersedes any prior agreement or understanding whether written or oral regarding anything connected with that subject matter.On 14 May 2014, the appellant defaulted on the first payment due under the Deed.
Evidence
Evidence Before The Court
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Decision
Reasons for decision
In summary, I do not consider the respondent’s platitudes to be an answer to the appellant’s criticism. Ground 1 is made out. That conclusion justifies setting aside her Honour’s decision and remitting the matter to her for reconsideration of the application for review. But it is appropriate to also address grounds 2 and 3, given that there is to be a remittal.Ground 2 – Failing “to go behind the judgment” As I have said, the significance of the Deed may have relevance as to whether her Honour should have gone behind the judgment, but no broader. One should distinguish between two steps in that process, viz:(a)First, is there a basis for going behind the judgment? Is there a substantial reason for questioning whether there is a debt?(b)Second, if this is answered in the affirmative, then a full investigation of whether there is a debt should then be undertaken. The significance of the Deed is directly relevant to the first step, but of less relevance to the second step subject to any release or covenant not to sue that may be applicable. I am not able to say that her Honour erred in failing to go behind the judgment. Rather, the real and anterior point is that if her Honour had carried out a rehearing de novo as required, her Honour ought to have considered the significance of the Deed in the context of the first step as to whether she should go behind the judgment. She did not so consider the Deed in that context, but rather considered the Deed as a broader bar, so that the application for review failed in limine.Ground 3 – Construction of the Deed It is said that her Honour erred in construing the terms and legal effect of the Deed in holding that it precluded the appellant from opposing the petition and also from filing and proceeding with the application for review. I agree. The Deed contained no such express contractual preclusion. Clause 4.1, an exception to the releases provided in cl 2, provided that if the appellant defaulted, the respondent was “entitled to apply to the Court on the basis of Phillip’s non-compliance with the Bankruptcy Notice”. It said nothing about the capacity of the appellant to defend such proceedings or to take any review proceedings relating to any orders made thereunder, which in substance would still be in the nature of a defensive step by the appellant. Clause 3.1 said little of relevance either. It referred to the Deed being “pleaded as a full and complete defence by the parties to any action”. Clearly, cl 3 is subject to cl 4.1. Now it is the respondent that brought the petition, as he was entitled to do, and the appellant who has defended it. It is difficult to see how the respondent could use the Deed as a defence in this context. And on the application for review, which is a rehearing de novo, the positions in substance have not altered. The appellant was still in substance in the defensive position. It would be a triumph of form over substance to say that the appellant’s application for review is an “action, suit or proceeding” which the respondent is “defending”. Clause 3.1 says little more than that if one party to the Deed brings an action, presumably contrary to the Deed or relating to a claim released by the Deed, then the party sued can plead the Deed in bar. But here, the respondent brought an action in conformity with the Deed (cl 4.1), the petition. Moreover, it is the appellant in substance defending it. The respondent’s position is twice removed from what cl 3.1 contemplates.
Ratio Decidendi
Legal Principle Established
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