Zhang v Cheng (No.2)
[2020] FCCA 507
•9 March 2020
FEDERAL CIRCUIT COURT OF AUSTRALIA
| ZHANG v CHENG (No.2) | [2020] FCCA 507 |
| Catchwords: BANKRUPTCY – Application for a sequestration order – whether the Court has the power to make an order nunc pro tunc – whether the Court should go behind the judgment debt – sequestration order made. |
| Legislation: Bankruptcy Act 1966 (Cth), ss.27, 43, 52, 306 |
| Cases cited: Emanuele v Australian Securities Commission (1997) 188 CLR 114 |
| Applicant: | MEI ZHANG |
| Respondent: | YE CHENG |
| File Number: | SYG 617 of 2018 |
| Judgment of: | Judge Street |
| Hearing date: | 9 March 2020 |
| Date of Last Submission: | 9 March 2020 |
| Delivered at: | Sydney |
| Delivered on: | 9 March 2020 |
REPRESENTATION
| Counsel for the Applicant: | Ms I Sethi |
| Solicitors for the Applicant: | CSJ Legal |
| Counsel for the Respondent: | Mr I Leong |
| Solicitors for the Respondent: | SHL & Associates Pty Ltd |
ORDERS
Order 1 made on 6 March 2020 is varied so as to extend time nunc pro tunc from 7 March 2019.
A sequestration order is made against the estate of Ye Cheng.
The petitioning creditor’s costs be paid out of the bankrupt estate in accordance with the priority to which they are entitled in an amount to be agreed or taxed.
The Court makes an order under s.52(3) Bankruptcy Act 1966 (Cth) staying all proceedings under the sequestration order for a period of 21 days.
THE COURT NOTES THAT
The act of bankruptcy occurred on 4 December 2017.
DATE OF ORDER: 9 March 2020
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY |
SYG 617 of 2018
| MEI ZHANG |
Applicant
And
| YE CHENG |
Respondent
REASONS FOR JUDGMENT
This is an application for a sequestration order within the Court’s jurisdiction under s.27 of the Bankruptcy Act 1966 (Cth) (“the Act”). The creditor’s petition was filed on 8 March 2018. The act of bankruptcy occurred on 4 December 2017 in respect of a debt that was then the subject of a default judgment arising out of an alleged loan between the petitioning creditor and the respondent. The loan was the subject of three signed acknowledgements by the respondent in respect of the loan.
The respondent commenced proceedings to seek to have the default judgment set aside and succeeded. The matter was reheard on the merits and was subject of a decision by the learned Judge Montgomery delivered on 20 February 2020. That was a decision on the merits.
The respondent has lodged a notice of appeal on 9 March 2020 and advances a combination of arguments as to why a sequestration order ought not to be made. The first argument concerns the order made by Judge Dowdy on 8 March 2019. Mr Leong of counsel on behalf of the respondent submits that, properly construed, s.52(5) of the Act required not just the application for an extension of time but the making of the order to occur prior to the expiry of the 12 month period and that this is a jurisdictional requirement, the nature of which means that the order made by the learned Judge Dowdy on 8 March 2019 was of no effect because the period of time had already elapsed.
It is common ground, albeit informally, that an application was made to the Court for an extension of time on 7 March 2019. Where the application was made prior to the expiration of the period of 12 months, the Court is satisfied that it has power to make an order extending time of the kind identified by Judge Dowdy. That is a power, in essence, to make the order nunc pro tunc.
Mr Leong drew the Court’s attention to the fact that the order made by Judge Dowdy does not purport to be nunc pro tunc from 7 March 2019.
The making of the order under s.52(5) of the Act requires the consideration of certain matters in terms of whether it is just and equitable to make the order and whether it should be made on terms and conditions. At the time the order was made, it is patent that there were steps being taken to dispute the underlying alleged debt and it was obviously just and equitable to make an order extending time for the creditor’s petition at that stage.
Mr Leong submitted that the Court can only make an order in relation to Judge Dowdy’s extension of time if the Court is satisfied that it falls within the scope of the slip rule and that there is no evidence to support any intention of Judge Dowdy to make an order to the effect of an extension of time nunc pro tunc from 7 March 2019.
This Court has ample jurisdiction pursuant to s.27 of the Act and taking into account s.306 of the Act to deal with issues of irregularity or form. The Court does not accept that it was a jurisdiction requirement that the order must be made prior to the expiry of the 12 month period. Once it is common ground, as it is, that there was an application, albeit informal, made for an extension of time before the expiry of the 12 month period, this Court finds that it has jurisdiction to make an order nunc pro tunc extending the time.
The mere fact that Judge Dowdy had not expressed his order to be an order nunc pro tunc from 7 March 2019 is not a basis why the order made on 8 March 2019 should be regarded as invalid. There was power to make such an order had it been made nunc pro tunc.
This Court also raised with Mr Leong why this Court should not, in any event, itself make an order if the petition is being heard within the relevant time period under s.52 of the Act extending time nunc pro tunc from 7 March 2018.
In respect of the order made by Judge Dowdy, Mr Leong again submitted that there was simply no power and that is the reason why it is not just and equitable to make such an order. No other argument was advanced as to why the order should not be made.
For the reasons that will be given, this Court is satisfied that it has ample power to make an order nunc pro tunc in the circumstances of the present case. It is sufficient to refer to the decision of the High Court of Australia in Emanuele v Australian Securities Commission (1997) 188 CLR 114 and the discussion of nunc pro tunc orders commencing on page 121 and the judgment of the learned Toohey J and in the judgment of the learned Kirby J commencing page 152.
The Court does not accept that it has to find that there is a slip rule basis for making an order nunc pro tunc in the circumstance of the present case.
Mr Leong submitted that the Federal Circuit Court Rules 2001 (Cth) (“the Rules”) and r.16 of the Rules exclude the power of this Court to make an order nunc pro tunc in relation to the extension of time under s.52(5) of the Act. There is no such exclusion found in the Rules and, indeed, this Court can dispense with those rules insofar as it considers it necessary.
Accordingly, the Court will in fact make an order varying order 1 made on 6 March 2020 so as to extend time nunc pro tunc from 7 March 2019. The Court is satisfied that, in the circumstances of the present case, this petition concerns a debt arising from events in 2015 in respect of a shareholder loan between the petitioning creditor and the respondent. The Court finds that it is just and equitable from the purpose of making the order extending time and making it nunc pro tunc in respect of the application that was made to the Court on 7 March 2019. The Court does not accept that it is necessary to find that Judge Dowdy had any intention, nor was it necessary, to apply the slip rule.
Mr Leong submitted that a sequestration order ought not be made because the order made by this Court on 6 March 2020 was itself invalid because this Court cannot make an order under s.36(2) of the Acts Interpretation Act 1901 (Cth) in circumstances where, Mr Leong submits, s.52(5) of the Act identifies a jurisdictional requirement and does not fall within the scope of s.36(2) of the Acts Interpretation Act 1901 (Cth).
Mr Leong accepted that the substance of what is identified in s.52(5) Act requires a thing to be done. In respect of the period concerning the expiration of lapsing of the petition on its face, that is a thing to be done within the meaning of s.36(2) of the Acts Interpretation Act 1901 (Cth). In these circumstances, the Court does not accept that the application of s.36(2) of the Acts Interpretation Act 1901 (Cth) is excluded from s.52(5) of the Act.
Mr Leong also focused on the following words of s.52 of the Act: “…and not exceeding 24 months, commencing on the date of presentation of the petition as is specified in the order.” Mr Leong submitted that, effectively, the Court was making an order permitting the expiration of the petition to occur on 24 months and one day and that the legislative provision excluded the application of the Acts Interpretation Act 1901 (Cth).
The Court does not accept that construction. It is clear that it is a thing to be done which falls within s.36(2) of the Acts Interpretation Act 1901 (Cth) and, accordingly, the Court had power to make the order that was made on 6 March 2020 extending time up to and including, taking into account the weekend, today’s date being 9 March 2020.
Mr Leong’s next submission was that the Court should go behind the judgment. Mr Leong relied in substance upon the issues identified in the notice of appeal which, in substance, seeks to agitate whether there was good consideration of the loan and whether the trial judge’s decision was the subject of relevant error.
The trial judge’s reasons clearly identify on the construction of the acknowledgements that there was good consideration in the nature of forbearance in respect of the three acknowledgement agreements. Further, it is apparent from the underlying loan agreement that these were two shareholders who signed the loan agreement in their personal capacity. There is no evidence before the Court to support the contention that they were signed in the capacity of a director in relation to the borrowing of funds between one shareholder and another.
The Court can see no basis why the Court, in the circumstances of the present case, should go behind the judgment of the learned Judge Montgomery.
There is a further basis in which the respondent’s case is doomed to failure, which is that it is apparent from the third acknowledgement, quite apart from the good consideration in the nature of forbearance, the provision of a further sum of $50,000. That of itself constitutes good consideration by the by the petitioning creditor to the respondent in respect of the obligation to repay $600,000.
There is no proper basis identified why this Court should go behind the judgment.
On the face of the evidence before the Court, it is the same debt that is the subject of the judgment of the learned Judge Montgomery that was the subject of the bankruptcy notice and the act of bankruptcy. No argument to the contrary has been advanced.
The next ground submitted by Mr Leong was that the Court should find that there is other sufficient cause why a sequestration order ought not to be made because of the lodging of the appeal today in which the respondent is seeking to pursue an appeal. The Court has been informed that senior counsel has been instructed in the appeal. No evidence has been tendered of any advice identifying the proper basis upon which it could be said there is any real prospect of success in respect of the appeal.
It is the case that in the period the subject of the validity of the petition the Court would ordinarily take the position that it would permit the parties to agitate the pursuit of an argument in respect of whether the substantive debt is likely to be impacted by a pending appeal.
The Court has the benefit of the grounds and the notice of appeal in the present case. None of those grounds properly address the findings in respect of consideration that were identified in paragraphs 78, 84, 86, 110, 111 of the judgment of the learned Judge Montgomery. The grounds have no real prospect of success.
In these circumstances, the Court is not persuaded that there is other sufficient cause why a sequestration order ought not to be made. Affidavit evidence has been read by the applicant that satisfies the Court that the requirements of s.43 of the Act have been met, in that there has been an act of bankruptcy committed by the bankrupt being a person who is ordinarily resident in Australia.
Further, under s.52 of the Act, the Court is satisfied that the petitioning creditor has established the matters identified in sub-ss (a), (b) and (c) and that the debt is still owing. There is no issue that has been advanced on the basis that the petitioning creditor is able to pay his debts. There was a notice of objection filed that referred to a proposed tender. The tender was completely inconsistent with the assertion of no debt that has been advanced. No evidence has been adduced to establish that there has been some agreement to settle the matter of a kind that would extinguish the underlying debt. Accordingly, that part of the notice of objection fails to identify any proper basis upon which a sequestration order ought not to be made and no submissions were advanced by Mr Leong in that regard.
For the reasons already given, the Court is not satisfied this is an appropriate matter in which to go behind the judgment debt. The judgment debt was obtained as a result of a contested hearing and based on findings made by the learned trial judge that, on the face of the trial judge’s reasons, were clearly open in the context of the underlying acknowledgements that were put into evidence and the underlying agreement between the two shareholders that was put into evidence.
The petitioning creditor sought to rely upon two further affidavits that have not been filed in these proceedings, copies of which were not brought to Court and the Court declined to permit the petitioning creditor to do so.
Belatedly, the respondent also endeavoured to file an amended defence during the course of argument. The Court had given the parties an opportunity to identify the evidence, and it is clear from the record that the parties confirmed what was the evidence before the Court. This was not a case where the Court was satisfied that it was appropriate to permit the adducing of further evidence in respect of the amended defence, just as the Court had rejected the evidence of the petitioning creditor that was belated.
Further, the amended defence is not something that could have given rise to any further basis upon which to go behind the judgment when the Court has the benefit of the notice of appeal and the benefit of the judgment made by the learned Judge Montgomery. Other sufficient cause why a sequestration order ought not to be made has not been made out. The Court is satisfied that this is an appropriate matter in which to make a sequestration order.
The Court notes that, on 6 March 2020, the Court foreshadowed that it could hear the petition on the same day. The Court expressly raised the issue as to whether any validity challenge would be advanced in respect of the Court making an order extending time. A solicitor for the respondent consented to the order extending time and confirmed that no issue would be raised.
Mr Leong of counsel correctly identified that the Court cannot obtain jurisdiction by consent. However, even if Mr Leong had otherwise succeeded before this Court on a ground arising in respect of the validity of this Court’s order, this Court would have made an order in any event that the respondent pay the petitioning creditor’s costs of the proceedings, given the consent that was given to the Court and the issue as to invalidity being identified as not being one that would be raised.
This Court is entitled to place reliance upon legal practitioners being officers of the Court. Where the Court is informed by a legal practitioner on behalf of a litigant before that litigant takes a particular course and then recants from it, there is every reason why this Court should impose the cost consequence if it is that recanting that gives rise to any success. However, as the respondent has not succeeded, it is not necessary for the Court to make that order.
I certify that the preceding thirty-seven (37) paragraphs are a true copy of the transcript of the published oral reasons for judgment of Judge Street delivered in open Court on 9 March 2020 and the parties were provided sealed copies of the Court’s orders
Associate:
Date: 25 March 2020
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