FEDERAL COURT OF AUSTRALIA Bhagat v Global Custodians Ltd [2002] FCAFC 331 BANKRUPTCY – application to set aside sequestration order – where trial judge made sequestration order on creditor's petition based on failure to comply with bankruptcy notice – whether trial judged erred in making sequestration order – where allegations of fraud made against petitioning creditor – whether denial of natural justice or miscarriage of justice in making of sequestration order by reason of alleged fraud – where particulars of fraud not given – where allegations of fraud already ventilated and determined in previous proceedings. Wentworth v Rogers (No 5) (1986) 6 NSWLR 534, applied HARI BHAGAT v GLOBAL CUSTODIANS LTD N 496 of 2002 MOORE, MADGWICK & GOLDBERG JJ 6 NOVEMBER 2002 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 496 of 2002 BETWEEN: HARI BHAGAT Appellant AND: GLOBAL CUSTODIANS LTD Respondent JUDGE: MOORE, MADGWICK & GOLDBERG JJ DATE OF ORDER: 6 NOVEMBER 2002 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The appeal be dismissed. 2. The appellant pay the respondent's costs of and incidental to the appeal. 3. The three motions filed by the appellant on 4 November 2002 be dismissed with costs. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 496 of 2002 BETWEEN: HARI BHAGAT Appellant AND: GLOBAL CUSTODIANS LTD Respondent JUDGE: MOORE, MADGWICK & GOLDBERG JJ DATE: 6 NOVEMBER 2002 PLACE: SYDNEY REASONS FOR JUDGMENT THE COURT: 1 In 1998 the appellant, ("Mr Bhagat"), who appeared without legal representation, commenced action No 3398 of 1998 in the Equity Division of the Supreme Court of New South Wales against a number of defendants, one of whom was the respondent petitioning creditor in this proceeding, Global Custodians Ltd ("Global"). In that proceeding Mr Bhagat sought damages from the defendants for the tort of abuse of process. An application was made in that proceeding by the defendants for the summary dismissal of the proceeding on the ground that no causes of action were disclosed. On 13 April 2000 Young J, having given Mr Bhagat a number of opportunities to plead acceptable causes of action, ordered that the further amended statement of claim be struck out and that Mr Bhagat's claim against Global and most of the other defendants be dismissed and he ordered that Mr Bhagat pay Global's and the other successful defendants' costs on an indemnity basis. Global's costs were subsequently taxed in the sum of $64,689.93 and on 1 May 2001 a judgment was entered in Global's favour in that amount with effect from 13 April 2000. 2 Mr Bhagat sought leave to appeal from the order dismissing the proceeding from the New South Wales Court of Appeal and that leave was refused. The appellant sought special leave to appeal to the High Court and that application has not proceeded to a hearing. 3 On 9 May 2001 Global served a bankruptcy notice on Mr Bhagat which required him within twenty‑one days after service of the notice to pay the amount of the judgment debt (the costs order) or to make an arrangement to the satisfaction of Global for settlement of the debt. Mr Bhagat filed an application to set aside the bankruptcy notice on 24 May 2001 and filed a further application attacking the bankruptcy notice on 4 July 2001. On 24 July 2001 Beaumont J declined to set aside the bankruptcy notice but granted Mr Bhagat an extension of time for compliance with the bankruptcy notice up to and including 14 August 2001. Mr Bhagat did not comply with the bankruptcy notice. 4 Mr Bhagat applied for leave to appeal against the order made by Beaumont J and on 13 March 2002 a Full Court of the Federal Court refused the application for leave to appeal: Bhagat v Global Custodians Ltd [2002] FCAFC 51. 5 On 16 August 2001 Global presented a creditor's petition seeking an order that the estate of Mr Bhagat be sequestrated, the act of bankruptcy relied upon being Mr Bhagat's failure to comply with the bankruptcy notice. The petition came on for hearing before Branson J. On 24 May 2002 her Honour ordered that the estate of Mr Bhagat be sequestrated and on 31 May 2002 her Honour published her reasons for judgment. 6 Mr Bhagat now appeals against the order of Branson J on 24 May 2002 sequestrating his estate. Primary judge's reasons 7 Branson J was satisfied with Global's proof of the matters stated in the petition, the service of the petition and the fact that the debt on which the petitioning creditor relied was still owing, as was required by s 52(1) of the Bankruptcy Act 1966 (Cth) ("the Act"). According to her Honour, Mr Bhagat initially conceded that the matters identified in pars (a), (b) and (c) of s 52(1) of the Act had been proved and subsequently Mr Bhagat sought to withdraw his concession. Her Honour ruled that he was not entitled to do so. Her Honour was satisfied that at the time Mr Bhagat committed the act of bankruptcy upon which Global relied, he was ordinarily resident in Australia and that he had been living in Australia for at least the past twelve years with visits to India twice a year for up to three months. Her Honour was also satisfied that Mr Bhagat was not able to pay his debts. 8 The principal issue which her Honour addressed was whether Mr Bhagat had satisfied the court that there was nonetheless sufficient cause for a sequestration order not to be made. The cause which Mr Bhagat propounded before her Honour was based upon an assertion that Global had engaged in fraudulent conduct. Her Honour observed that the relationship which Mr Bhagat asserted between the alleged fraudulent conduct and the act of bankruptcy upon which the creditor's petition was founded had not been made clear. 9 Her Honour noted that the history of the dealings between Mr Bhagat and Global were set out in the judgment of the Full Court in Bhagat v Global Custodians Ltd (supra) and her Honour said that that judgment should be read together with her reasons. Her Honour observed that the Full Court had rejected Mr Bhagat's contention that the judgment debt upon which the bankruptcy notice was based had been obtained as a result of the fraud of Global. Her Honour found that Mr Bhagat had not established that the order for costs was obtained as a result of the alleged fraud of Global. 10 Her Honour was satisfied that Mr Bhagat had failed to establish that Global had engaged in fraudulent conduct at all and had not been able to point to evidence that might establish the requisite knowledge to found an allegation of fraud by Global. Her Honour said at [8]: "As the reasons for judgment of the Full Court make clear (see partic [25] and [26]), for the allegations of fraud made by Mr Bhagat against the creditor to be substantiated, it must be shown that the creditor knew or ought to have known certain matters concerning a Mr and Mrs Speight and a Mr and Mrs Greenlees. Before the Full Court Mr Bhagat was not able to point to evidence that would or might establish the requisite knowledge in the creditor. Nor was he able to do so on the hearing of the petition. The recent judgment of the Supreme Court upon which Mr Bhagat placed reliance on the hearing of the petition does not assist him in this regard." 11 Her Honour found that Mr Bhagat did not put evidence before the court as to the impact of the alleged fraud upon his financial position and she was not satisfied that any aspect of the conduct of Global or any other matter gave rise to sufficient cause not to make a sequestration order. The appeal 12 On 29 May 2002 Mr Bhagat filed a notice of appeal. That notice of appeal was followed subsequently by an amended notice of appeal filed on 31 May 2002, a further amended notice of appeal filed on 3 June 2002, a third further amended notice of appeal filed on 18 June 2002 and a fourth further amended notice of appeal filed on 27 June 2002. The fourth further amended notice of appeal is the notice upon which Mr Bhagat relies and it is the most extensive of the notices of appeal filed. The grounds of appeal may be summarised, in general terms, in the following way: (a) the sequestration order was a denial of natural justice and a miscarriage of justice as it was obtained by fraud as all the true facts were not before the Court. Eighteen instances of such facts were then set out; (b) the sequestration order was a denial of natural justice and a miscarriage of justice as Mr Bhagat had a set‑off, cross‑demand or counterclaim by reason of the Supreme Court proceeding he had instituted [No CLD 20235/02]; (c) the sequestration order was a denial of natural justice and a miscarriage of justice as Global and its company secretary obtained the sequestration order by fraud. Five matters were then set out which we take to be particulars of the fraud alleged; (d) the sequestration order was a denial of natural justice and a miscarriage of justice as the concession made by Mr Bhagat at the hearing was obtained by the fraud of Global and its company secretary and the matters of which the court required proof in accordance with s 52(1) of the Act had not been established. It was also said that it was in the public interest that the bankruptcy notice and the sequestration order be annulled; (e) the sequestration order was a denial of natural justice and a miscarriage of justice as it was obtained by the fraud of Global by reason of the allegations set out in Supreme Court proceeding No CLD 20235/02 in which Mr Bhagat is seeking to set aside the orders of Young J. This is not a complete recitation of the grounds of appeal but it is sufficient for present purposes. Mr Bhagat filed a seventy‑nine page submission in support of the grounds of appeal and expanded on these submissions in oral submissions. 13 We are satisfied that there is no substance whatsoever in any of the grounds of appeal or in Mr Bhagat's submissions and that the appeal should be dismissed. We are conscious of the fact that Mr Bhagat is not represented and is not legally qualified, although he appears well‑educated, is articulate and he has been involved in a number of legal proceedings in recent years. Nevertheless we must express our concern as to the content of the notice of appeal and the written submissions. An allegation of fraud is a serious matter and must be particularised in a precise and clear manner: Wentworth v Rogers (No 5) (1986) 6 NSWLR 534 at 538. It is quite inappropriate and unacceptable to make an allegation of fraud without proper particulars of the conduct relied upon. In the present case Mr Bhagat has used the expressions "fraud" and "fraudulent" indiscriminately, seemingly without regard to the consequences of what is conveyed by the use of those words. 14 For example, there are a number of allegations in Mr Bhagat's written submission that Global "fraudulently filed" the proceeding constituted by the issue of the bankruptcy notice, that Global "fraudulently obtained" Beaumont J's order of 24 July 2001, that Global "fraudulently filed" the creditor's petition, and that Global "fraudulently obtained" the Full Court judgment on 13 March 2002. The facts asserted to support these claims form no basis whatsoever for an allegation of fraud. 15 None of the grounds of appeal and nothing in Mr Bhagat's written or oral submissions identify any error by the primary judge. 16 A substantial number of the matters raised by Mr Bhagat were raised by him and comprehensively rejected by the Full Court on 13 March 2002: Bhagat v Global Custodians Ltd (supra). It must be remembered that the genesis of the sequence of events which has led to the making of the sequestration order was the order of Young J that the proceeding be dismissed and that Mr Bhagat pay Global's costs on an indemnity basis which were fixed in the sum of $64,689.93. On 1 May 2001 judgment was entered in Global's favour for that sum with effect from 13 April 2000. The bankruptcy notice was founded on that order and the creditor's petition was founded upon Mr Bhagat's failure to comply with that bankruptcy notice. 17 In those circumstances, and having regard to the matters Global was required to prove on the hearing of the petition, there was no warrant for the allegations or claims that the sequestration order was obtained by fraud. Insofar as, and to the extent that, Mr Bhagat wishes to reactivate the matters raised before Young J in the Supreme Court of New South Wales and before Beaumont J in the Federal Court and before the Full Court of the Federal Court in relation to his application to set aside the bankruptcy notice, those matters have no bearing upon his allegation that the sequestration order was obtained by fraud. They were comprehensively rejected by the Full Court when they were raised before it. 18 In any event there is no material before the Court which supports the proposition that the obtaining of the sequestration order or the service of the bankruptcy notice or the obtaining of the judgment for costs in the Supreme Court in New South Wales was procured in any manner by fraudulent conduct or behaviour. It is a well‑established principle that if an allegation of fraud is made it must be clearly articulated. In Wentworth v Rogers (No 5) (supra) Kirby P, at 538‑539, set out a number of principles which relate to proceedings and allegations based on fraud. What is particularly relevant for present purposes is Kirby P's fifth principle, at 539: "Fifthly, it must be shown by admissible evidence that the successful party was responsible for the fraud which taints the judgment under challenge. The evidence in support of the charge ought to be extrinsic …" No such evidence was before the Full Court on the hearing of the appeal against the refusal of Beaumont J to set aside the bankruptcy notice, and no such evidence was before this Court. In particular, there was no foundation for the claim that the sequestration order was obtained by fraud or vitiated by fraud. 19 There was no material before Branson J, or before this Court, which supported a finding that Mr Bhagat had a set‑off, cross‑demand or counterclaim by reason of any of the proceedings referred to in the notice of appeal or in the written or oral submissions which warranted Branson J concluding that a sequestration order should not be made. 20 The gravamen of Mr Bhagat's complaint against Global was that it obtained an assignment from Mr J and Mrs J Speight and Mr A and Mrs N Greenlees of all their right, title and interest in the Estate Mortgage Fighting Fund Trust when it knew that they had no beneficial interest in that Fund. He claimed that Global obtained the assignments fraudulently. Mr Bhagat raised substantially the same issue before the Full Court which refused him leave to appeal against the order of Beaumont J. The Full Court said at [35]‑[36]: "In the Court below, Mr Bhagat had alleged that Global had acted fraudulently when it commenced proceedings against the trustees of the Fighting Fund Trust in the Account Proceedings. When asked by his Honour to particularise the fraudulent conduct, Mr Bhagat, referring to the Speights and the Greenlees, said: 'The fraud is that these two were not the beneficiaries of the trust at all.' Understandably, that answer did not satisfy his Honour; he pressed Mr Bhagat to explain 'what did Global do that was fraudulent?' Mr Bhagat replied: 'What Global did was, they were not entitled to become beneficiaries and Young J has already ruled that the assignment was not proper in D2539 proceedings.' Mr Bhagat's answer showed that there were two factors that he either did not understand or would not accept. In the first place, Young J had held that the Speights and the Greenlees were beneficiaries of the Trust and the Court of Appeal had refused Mr Bhagat leave to appeal against that decision. Whilst it is open to this Court in Bankruptcy proceedings to go behind a judgment and reconsider an issue afresh, it does not do so lightly. There is an onus on a person such as Mr Bhagat to satisfy the Court that there is a sufficient reason to question the earlier judgment. The mere repetition of the allegation of fraud, no matter how many times it might be made, is not sufficient to discharge the onus that an applicant in Mr Bhagat's position bears. He has the obligation of placing material before the Bankruptcy court which is of such a nature as to place in doubt the correctness of the judgment that founded the Bankruptcy notice. In this case that judgment was the order for costs but the issue of overriding importance was the decision of Young J wherein he declined to accept Mr Bhagat's allegations of fraud. In the second place Young J did not 'rule' that 'the [Speight] assignment was not proper'. On the contrary, his Honour held that it was 'proper' but that it was of limited effect. Mr Bhagat had been given ample opportunity by his Honour to formulate his arguments. His Honour had endeavoured to assist Mr Bhagat in the presentation of his case by pressing him to particularise his complaints and to identify his evidence in support of his complaints but to no avail. The transcript of the proceedings before his Honour shows that Mr Bhagat, far from particularising his complaints, merely repetitively asserted bald statements to the effect that the Speights and the Greenlees had never been beneficiaries of the Fighting Fund Trust and that Global's actions against him had been commenced for 'the collateral purpose' of distracting Mr Bhagat from pursuing his lawful claims against Global. We are of the opinion that his Honour gave Mr Bhagat sufficient time and consideration within which to develop his arguments. In any event, as Beaumont J pointedly said in his reasons for judgment: '… it is not apparent how any failure, if there was a failure, by the Speights to make the contribution of $100 can be relied upon as fraud on the part of the judgment creditor [Global].'" 21 We can see no reason to take a different view. Mr Bhagat was pressed to identify his strongest evidence to support his claim of fraud on the part of Global. He pointed to an affidavit of Mr David O'Bryen, the company secretary of Global, sworn on 17 May 1999 in earlier proceedings in the Equity Division of the Supreme Court of New South Wales in which Global was seeking a declaration that it was entitled to inspect all books of account of the Estate Mortgage Fighting Fund Trust. In that affidavit Mr O'Bryen said that on 11 May 1999 Global's solicitors sent him a copy of a letter they had received from the Estate Mortgage Fighting Fund Association Inc. The letter, which was dated 28 April 1998, had been addressed to Global by reference to its earlier name "Tyndall Australia Limited" at its address. The letter stated that the Estate Mortgage Fighting Fund Trust had returned the $100 which Mr Speight had deposited with the Fighting Fund in order to have an interest in it on 22 July 1990. Mr Bhagat pointed to the fact that the deed of assignment from Mr and Mrs Speight of their interest in the Estate Mortgage Fighting Fund Trust to Global was dated 17 February 1998. Mr O'Bryen said that although the letter had been addressed to the business address of Global and marked for his attention he did not recall seeing it or having any knowledge of it prior to receiving a copy of it on 11 May 1999, that is after the date of the deed of assignment from Mr Speight to Global. Mr O'Bryen then swore: "I have caused searches to be made in the offices of the Plaintiff [Global] however I am unable to locate either the April Letter or the letter from Mr Speight to which it refers." 22 Mr Bhagat seized upon this paragraph as his strongest evidence of fraud against Global. The statement provides no basis whatsoever for an allegation of fraud. In particular it provides no basis for any understanding of the state of knowledge of Global as at the date of the deed of assignment or before the proceeding instituted by Global to enforce its claimed rights under the assignments. Mr Bhagat submitted that before having the assignment executed Mr O'Bryen, who attested the seal of Global to the deed of assignment, should have made enquiries of Mr and Mrs Speight as to whether they were still beneficiaries under the Trust Deed. The only material before us is that no such inquiry was made but the absence of any such inquiry provides no basis for any allegation of fraud against Global. 23 Mr Bhagat also challenged the evidence of Mr Greenlees who had said that he made a contemporaneous note of the fact that he had sent his contribution of $100 to the Fighting Fund on or about 15 August 1990. After cross‑examination of Mr Greenlees by Mr Bhagat as to the contemporaneity of the note he had made in relation to the payment, Young J accepted Mr Greenlees as a witness of truth and accepted that he did pay the $100 to the Fighting Fund by bank cheque. Mr Bhagat raised an issue as to the envelope on which the note was made, submitting that the note could not have been made on that envelope at that time. The evidence does not permit a conclusion that there is any substance in Mr Bhagat's submission. In any event, it provides no basis for a claim that the assignment by Mr and Mrs Greenlees to Global was fraudulent or that Global had any particular state of knowledge as at the date of the deed of assignment or thereafter. 24 Branson J did not fall into error in her reasoning set out in par [10] above. There was no material before us which warranted the claim that at the time the deed of assignment by Mr and Mrs Speight was executed on 17 February 1998 Global knew that Mr and Mrs Speight were no longer beneficiaries under the Estate Mortgage Fighting Fund Trust. Nor was there any material before us which warranted the claim that at the time the deed of assignment by Mr and Mrs Greenlees was executed on 30 May 1988 Global knew anything other than that Mr and Mrs Greenlees were beneficiaries under the Estate Mortgage Fighting Fund Trust. 25 We are satisfied that Branson J did not fall into error in any manner in her reasoning which led her to the conclusion that a sequestration order should be made against the estate of Mr Bhagat. Her Honour found that Mr Bhagat failed to establish at the hearing of the petition that Global had engaged in fraudulent conduct at all and her Honour did not err in this finding. 26 The three notices of motion filed by Mr Bhagat on 4 November 2002 seeking orders in relation to orders made by Young J in the Supreme Court of New South Wales and seeking a stay of the sequestration order made by Branson J if judgment was reserved in the appeal should be dismissed with costs. 27 The appeal will be dismissed with costs. I certify that the preceding twenty‑seven (27) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Moore, Madgwick & Goldberg. Associate: Dated: 6 November 2002 Counsel for the Appellant: The appellant appeared in person Counsel for the Respondent: A Spencer Solicitor for the Respondent: Holding Redlich Date of Hearing: 4 November 2002 Date of Judgment: 6 November 2002