Watts v Adelaide Bank Limited - [2009] FCAFC 169

FEDERAL COURT OF AUSTRALIA
Watts v Adelaide Bank Limited [2009] FCAFC 169
CORPORATIONS – appeal from dismissal of an application by judgment debtor pursuant to s 459G of the Corporations Act 2001 (Cth) to set aside creditor’s statutory demand – where judgment obtained by default – whether primary judge erred in determining no “genuine dispute” within the meaning of s 469H(1)(a) of the Corporations Act – whether primary judge erred in concluding there was no offsetting claim within the meaning of s 459H(1)(b) of the Corporations Act
BANKRUPTCY – appeal from dismissal of an application to set aside a bankruptcy notice – whether primary judge in error in determining it inappropriate to go behind a default judgment entered against the appellant – whether primary judge in error in concluding there was no counter-claim, set-off or cross-demand
Held: appeals dismissed
Bankruptcy Act 1995 (Cth), s 41(7)
Corporations Act 2001 (Cth), ss 459E, 459G, 459H, 459J
Adelaide Bank Limited v BMG Poseidon Corp Pty Limited [2008] NSWSC 68 referred to
BMG Poseidon Corp Pty Ltd v Adelaide Bank Limited; In the Matter of BMG Poseidon Corp Pty Ltd (No 2) [2009] FCA 404 affirmed
Brunninghausen v Glavanics [1998] FCA 230 distinguished
IFA Homeware Imports Pty Ltd v Shanghai Jerrys Candle Co Ltd [2003] FCA 533 distinguished
Killoran v Duncan, in the matter of Killoran [1999] FCA 1574 cited
Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 290 cited
Richardson v Leonard Cohen & Co [2008] FCA 1392 referred to
Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452 cited
Tokich Holdings Pty Ltd v Sheraton Constructions (NSW) Pty Ltd (in liq) (2004) 185 FLR 130; [2004] NSWSC 527 referred to
Watts v Adelaide Bank Limited [2009] FCA 420 affirmed
BHOJI WATTS and GAMBHIR WATTS v ADELAIDE BANK LIMITED
ACN 061 461 550
NSD 419 of 2009
BMG POSEIDON CORP PTY LIMITED ACN 058 909 256 v ADELAIDE BANK LIMITED ACN 061 461 550
NSD 421 of 2009
LINDGREN, GILMOUR AND JAGOT JJ
3 DECEMBER 2009
SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

GENERAL DIVISION

NSD 419 of 2009

ON APPEAL FROM THE FEDERAL COURT

BETWEEN:
BHOJI WATTS
First Appellant

GAMBHIR WATTS
Second Appellant

AND:
ADELAIDE BANK LIMITED ACN 061 461 550
Respondent

JUDGES:

LINDGREN, GILMOUR AND JAGOT JJ

DATE OF ORDER:

3 DECEMBER 2009

WHERE MADE:

SYDNEY

THE COURT ORDERS THAT:
1.The appeal be dismissed.
2.The appellants pay the respondent’s costs of the appeal as agreed or taxed.
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

The text of entered orders can be located using Federal Law Search on the Court’s website.

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

GENERAL DIVISION

NSD 421 of 2009

ON APPEAL FROM THE FEDERAL COURT

BETWEEN:
BMG POSEIDON CORP PTY LIMITED ACN 058 909 256
Appellant

AND:
ADELAIDE BANK LIMITED ACN 061 461 550
Respondent

JUDGES:

LINDGREN, GILMOUR…

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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Details

Case: [2009] FCAFC 169
Decision Date: 3 DECEMBER 2009

CaseChat Overview and Summary

In the matter of Watts v Adelaide Bank Limited, the appellants, Mr. and Mrs. Watts, sought to appeal the decision of Buchanan J to dismiss their application to set aside a bankruptcy notice served by the respondent, Adelaide Bank Limited. The bankruptcy notice was issued in reliance on a judgment debt of $64,561.19, which was based on a previous default judgment from the Supreme Court. The Watts argued that no real debt existed, that the Bank was misusing the bankruptcy procedure, and that the Bank acted unreasonably in pursuing the matter. The primary judge, Buchanan J, found that there was no basis to go behind the Supreme Court's judgment and dismissed the application.

The legal issues before the court were whether the primary judge correctly exercised his discretion in not examining the validity of the underlying judgment debt, whether he correctly confined his reasons to the issues raised by the Watts, whether there was a valid counterclaim, set-off, or cross-demand, and whether the proceedings constituted an abuse of process. The Watts argued that the primary judge erred in each of these respects, but the court found no merit in these contentions. The primary judge's decision not to examine the underlying judgment debt was upheld, as there was no sufficient cause identified by the Watts to warrant such an examination. The court also found that the primary judge's reasons were appropriately confined to the issues raised and that there was no valid counterclaim, set-off, or cross-demand. Finally, the court concluded that the Watts' claims did not rise to the level of an abuse of process.

The appeal was dismissed, and the Watts were ordered to pay the Bank's costs of the appeal as agreed or taxed. The court upheld the primary judge's decision in its entirety, finding that no errors were made in the exercise of discretion or in the reasoning provided. The Bank's reliance on the Supreme Court's judgment was deemed valid, and the Watts' claims were found to be without merit. The Watts' application to set aside the bankruptcy notice was therefore properly dismissed.

Orders

Orders of the court

1. The appeal be dismissed.

2. The appellants pay the respondent’s costs of the appeal as agreed or taxed.

Note:

1. The appeal be dismissed.

2. The appellant pay the respondent’s costs of the appeal as agreed or taxed.

Note:

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

LINDGREN, GILMOUR AND JAGOT JJ

The primary judge’s conclusion in [120]-[121] that BMG had not made a serious attempt to make good its claim for damages against the Bank (rather than attempting to establish that BMG did not owe the Bank any money) does not disclose error. BMG did not, by any recognisable or conventional means, identify or support a cause of action against the Bank for damages. Conclusions BMG has not made out any of its grounds of appeal against the orders of Foster J. It follows that the appeal against his Honour’s orders of 24 April 2009 must be dismissed. Costs should follow the event.THE WATTS PROCEEDINGBuchanan J’s reasons Buchanan J’s reasons for judgment (at [1]) record the fact that the bankruptcy notice which the Bank served on Mr and Mrs Watts concerned an amount of $64.561.19 founded on the judgment of the Supreme Court identified above. After recording the background to the matter (at [2]-[7]), Buchanan J recorded (at [8]) Mr and Mrs Watts’ claims that: - (i) no real debt lay behind the default judgment of the Supreme Court or the orders of that Court on which the Bank relied, (ii) the Bank was misusing the bankruptcy notice procedure to put undue pressure on Mr and Mrs Watts, and (iii) the Bank acted unreasonably in commencing the proceedings in the Supreme Court and later taking possession of the property. Buchanan J accepted that he had power to go behind the Supreme Court’s judgment (at [10]) but declined to do so for reasons given in [11]-[13]. His Honour’s reasons for declining to do so were that: - (i) both the Supreme Court and Foster J had engaged in detailed examinations, and (ii) Mr and Mrs Watts had not identified an adequate cause to do so. Buchanan J (at [14]) noted the “separate claims” for losses and thus concluded that there was no counter-claim, set-off or cross-demand within the meaning of s 41(7) of the Bankruptcy Act 1995 (Cth). In [15]-[18] his Honour dealt with the abuse of process allegation. Referring to Brunninghausen v Glavanics [1998] FCA 230 and Killoran v Duncan, in the matter of Killoran [1999] FCA 1574, Buchanan J was satisfied that Mr and Mrs Watts’ claims did not rise above mere assertion of unreasonable conduct by the Bank. In Brunninghausen there was a proper evidentiary foundation for finding that the bankruptcy notice was intended to put pressure on the debtor to pay the debt rather than to invoke the Court’s insolvency jurisdiction. In Killoran the facts did not permit that inference to be drawn. In the present case Buchanan J considered that “none of the features in Brunninghausen” were present. For these reasons Buchanan J dismissed the application to set aside the bankruptcy notice.Discussion of Appeal Grounds As noted, Mr and Mrs Watts relied on their submissions in the BMG proceeding in order to support this appeal. We have considered and rejected those submissions above. The specific grounds of appeal in the Watts proceeding can be summarised as follows:(1)Buchanan J erred in the exercise of his Honour’s discretion in concluding it was not necessary or appropriate to go behind the judgment of the Supreme Court to determine whether a real debt existed (grounds 1 and 2).(2)Buchanan J erred in confining his reasons for judgment to the first two issues identified in the appellant’s written submissions (ground 3).(3)Buchanan J erred in concluding that there was no counter-claim, set-off or cross-demand (grounds 4 to 6).(4)Buchanan J erred in concluding that the facts could not be characterised as an abuse of process (grounds 7 to 10).

Ratio Decidendi

Legal Principle Established

Established by: LINDGREN, GILMOUR AND JAGOT JJ

Full text does not contain this section.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION	NSD 419 of 2009

JUDGES:	LINDGREN, GILMOUR AND JAGOT JJ
DATE OF ORDER:	3 DECEMBER 2009
WHERE MADE:	SYDNEY

BETWEEN:	BMG POSEIDON CORP PTY LIMITED ACN 058 909 256 Appellant
AND:	ADELAIDE BANK LIMITED ACN 061 461 550 Respondent