Zhang v Cheng (No.2) - [2020] FCCA 507

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
Acts Interpretation Act 1901 (Cth), s.36

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…

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.

Continue reading Zhang v Cheng (No.2)

Details

AGLC: ZHANG v CHENG (No.2) [2020] FCCA 507
Case: [2020] FCCA 507
Decision Date: 9 March 2020

CaseChat Overview and Summary

This matter concerned an application by the creditor, Mr. Zhang, for a sequestration order against the debtor, Mr. Cheng, in the Federal Court of Australia. The dispute arose from an outstanding judgment debt owed by Mr. Cheng to Mr. Zhang.

The primary legal issues before the Court were whether it possessed the power to make a sequestration order *nunc pro tunc* (meaning, with retrospective effect) and whether it should inquire behind the validity of the judgment debt upon which the sequestration application was based.

Justice Street considered the established principles regarding applications for sequestration orders, particularly in circumstances where a debtor seeks to challenge the underlying judgment debt. His Honour affirmed that a court generally has the power to make orders *nunc pro tunc* where appropriate, and that the discretion to go behind a judgment debt is exercised cautiously, typically only in exceptional circumstances, such as where there is evidence of fraud or a fundamental miscarriage of justice. In this instance, the Court found no such exceptional circumstances to warrant going behind the existing judgment.

Consequently, the Court made the sequestration order against Mr. Cheng.

Orders