FEDERAL COURT OF AUSTRALIA Kirk v Ashdown [1999] FCA 522 BANKRUPTCY - grounds for challenging validity of bankruptcy notice founded on a judgment debt - whether judgment predicated on perjured evidence - requisite nexus between fraud and order made - whether witness credibility a collateral issue Wren v Mahony (1972) 126 CLR 212 Cited Emerson v Wreckair Pty Ltd (1992) 33 FCR 581 Cited Olivieri v Stafford (1989) 24 FCR 413 Cited Wenkart v Abignano [1999] FCA 354, Full Court, unreported Cited McDonald v McDonald (1965) 113 CLR 529 Cited Monroe Schneider Associates (Inc) v No 1 Raberem Pty Ltd (No 2) (1992) 37 FCR 234 Cited Bourke v Beneficial Finance Corporation Ltd (1993) 47 FCR 264 Refd to Byron v Southern Star Group Pty Ltd (1997) 73 FCR 264 Refd to Re Geard; Ex parte Reid, Sheppard J [1994] FCA 45 Refd to DEBORAH ANN KIRK v RONALD CLIVE ASHDOWN and HELEN IVY ASHDOWN QG 7430 of 1998 JUDE CHRISTOPHER KIRK v RONALD CLIVE ASHDOWN and HELEN IVY ASHDOWN QG 7507 of 1998 KIEFEL J BRISBANE 29 APRIL 1999 IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY QG 7430 OF 1998 BETWEEN: DEBORAH ANN KIRK Applicant AND: RONALD CLIVE ASHDOWN and HELEN IVY ASHDOWN Respondents JUDGE: KIEFEL J DATE OF ORDER: 29 APRIL 1999 WHERE MADE: BRISBANE THE COURT ORDERS THAT: 1. The application be dismissed. 2. The order made on 28 October 1998 extending time for compliance with the bankruptcy notice be vacated. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY QG 7507 OF 1998 BETWEEN: JUDE CHRISTOPHER KIRK Applicant AND: RONALD CLIVE ASHDOWN and HELEN IVY ASHDOWN Respondents JUDGE: KIEFEL J DATE OF ORDER: 29 APRIL 1999 WHERE MADE: BRISBANE THE COURT ORDERS THAT: 1. The application be dismissed. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY QG 7430 OF 1998 BETWEEN: DEBORAH ANN KIRK Applicant AND: RONALD CLIVE ASHDOWN and HELEN IVY ASHDOWN Respondents AND IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY QG 7507 OF 1998 BETWEEN: JUDE CHRISTOPHER KIRK Applicant AND: RONALD CLIVE ASHDOWN and HELEN IVY ASHDOWN Respondents JUDGE: KIEFEL J DATE: 29 APRIL 1999 PLACE: BRISBANE REASONS FOR JUDGMENT 1 Mr and Mrs Kirk each apply for orders with respect to bankruptcy notices served upon them following the conclusion of proceedings in the Supreme Court of Queensland, brought by Mr and Mrs Ashdown. A point initially raised, as to whether service had properly been effected upon Mrs Kirk, is no longer pursued. 2 On 27 October 1998, Mrs Kirk filed an application seeking an order that the time for compliance with the bankruptcy notice be extended and that it be set aside. A Deputy District Registrar made an order extending the time for compliance until further order. Mrs Kirk also seeks an account from Mr and Mrs Ashdown for the sum of $106,100 alleged to have been paid by Mr and Mrs Kirk to them. An application by Mr Kirk, in identical terms, was filed on about 14 December 1998 but not within the time limited by the notice. He also applies for an extension of time to comply with the notice. Background 3 The notices were founded upon a judgment of the Supreme Court of Queensland of 3 April 1997 which was given in favour of Mr and Mrs Ashdown against Mr and Mrs Kirk in the sum of $250,000 together with interest. The proceedings arose out of an agreement by Mr and Mrs Kirk to purchase a house property owned by Mr and Mrs Ashdown for $2,600,000. The written agreement, dated 5 September 1994, provided for a deposit of $250,000 to be paid by Mr and Mrs Kirk in two instalments: a sum of $50,000 within 180 days from the signing of the contract and a further sum of $200,000 within 360 days. The first mentioned sum was not paid in the time required, and by letter dated 6 March 1995, Mr and Mrs Ashdown advised Mr and Mrs Kirk that the contract was at an end. Proceedings were then brought to recover the deposit monies under the terms of the contract and culminated in the judgment earlier referred to. 4 The legal objection by Mr and Mrs Kirk to the Ashdowns' case in the Supreme Court depended upon the construction of a clause in the standard form of contract providing for the right of retention or recovery of outstanding deposit monies, paid and unpaid. This was resolved in the Ashdowns' favour by the trial Judge, Byrne J, on 3 April 1997 and upheld in the following judgment of the Court of Appeal on 1 May 1998. The construction point was the only issue argued before the Court of Appeal of the Supreme Court. Indeed, a ground of appeal which claimed that perjured evidence had been given was abandoned at the outset of the hearing. That is the contention sought to be advanced in these proceedings. An application for special leave to the High Court, based on the construction point, was heard on 16 April 1999 and was unsuccessful. At no time has a new trial been sought on the ground of perjury, nor is it intended to seek one for the reason, I infer, that difficulties are apprehended in the way of evidence. 5 Both the application to set aside the bankruptcy notices and the claim for an account have their basis in the circumstances surrounding the sum of $106,100 which, it is said, Mr Ashdown had transferred overseas and which Mr Kirk says were monies to which he and his wife were at all times entitled. 6 In the proceedings before Byrne J, no claim was made by Mr and Mrs Kirk with respect to those monies and no issue was raised concerning them on the pleadings. It was submitted before me that Mr and Mrs Kirk were constrained in raising all issues surrounding the ownership and payment of the monies because of the terms of an order made in summary judgment proceedings in that action, with respect to the delivery of a defence. A reference to the order, however, discloses that it was made by consent, and that Mr and Mrs Kirk were to have leave to defend on the grounds set out in the draft defence but on no other ground, except by leave of the Court. No application for leave was made. In any event, the order would not appear to have restricted their bringing a counter claim in the action. 7 Reference to the dealings between the parties concerning these monies arose in two parts of his Honour's reasons in considering defences put forward by Mr and Mrs Kirk. The first concerned representations alleged by them to have been made by the vendor's real estate agent. His Honour considered the accounts, as to what had been said, put forward by Mr and Mrs Kirk, Mr and Mrs Ashdown and the agent Mr Reid. There was difficulty with each of the versions but his Honour ultimately preferred that of the agent. His Honour rejected the evidence of Mr Kirk as unreliable but was also clearly unimpressed with that given by Mr Ashdown. In that latter respect, his Honour recorded Mr Ashdown's evidence concerning the receipt of the $106,100 as not assisting his credit-worthiness, in particular because it appeared to involve Mr Ashdown in dealings of doubtful propriety. In addition to the nature of the transactions, to which I shall shortly refer, his Honour also referred to misstatements of fact by Mr Ashdown in an earlier affidavit and concluded that "Mr Ashdown's testimony deserves careful scrutiny". Whilst Mr Kirk was also involved in these dealings, his Honour did not base the conclusion, that his evidence was also to be approached with care, on his participation in them but on other factors including the evidence given by him in relation to the other ground of defence, which was that the termination of the contract had been consensual. 8 The dealings between the parties, connected with the sum of $106,100, to which his Honour referred were not relevant to the question as to what, if any, representations had been made about matters relevant to the contract the subject of the proceedings. The reference to them by his Honour was by way of highlighting problems with credit-worthiness and in particular that of Mr Ashdown. His Honour did not attempt to determine what had in fact taken place between the parties concerning the monies, and noted that the detail provided in evidence was "obscure". In submissions before me they have become more so. His Honour's understanding was that Mr Ashdown had received the sum of $106,100 from Mr Kirk and this was to be used "clandestinely" to acquire an interest in a ship then lying in Brisbane. Mr Ashdown assisted Mr Kirk to disguise Mr Kirk's outlay in the ship from the "Australian authorities". The owner of the ship, Mr Lin, was overseas. Mr Ashdown believed he was able to apply the monies received from Mr Kirk, on Mr Lin's behalf, towards the purchase of a horse from his, Mr Ashdown's, stables. 9 His Honour also observed that the sum accounted for an increase in the sale price of the house property from $M2.5 to $M2.6 and the creation of a document, at the same time that the contract was executed, signed by Mr Ashdown and authorising him to retain those monies "until the interested parties can agree on a suitable disbursement" if the purchase of the house was not completed. 10 Mr and Mrs Kirk also defended the action on the basis that there had been a consensual termination. His Honour did not accept Mr Kirk's evidence as to this largely, it seems, because it appeared to be of recent invention. That a meeting had occurred at the Ashdowns' stud at Mutdapilly and that the future of the contract was discussed, were matters not in dispute. Mr Kirk contended that Mr Ashdown was simply agreeable to discharging the contract, so long as they continued to pay rent for the house. Mr Ashdown, however, said that when he was told of the Kirks' inability to complete, he advised that if rent and "the deposits" were paid Mr and Mrs Kirk would not be held to the balance, but that Mr Kirk did not agree with this. 11 His Honour considered that Mr Kirk's account was "most improbable". There were then no other prospective purchasers and Mr Ashdown was not liable to be conciliatory towards the Kirks for a number of reasons. No instructions to their solicitor, consistent with Mr Kirk's version, were apparent from what then took place. When the defendant's new solicitor wrote, no mention was made of it. 12 Mr Kirk also contended that another meeting followed at which Mr Ashdown prepared a document dated 22 February 1995 for him to sign, because the sale was over and it needed to be shown that the Kirks owed no monies. It was a document "…to send that money supposedly on my behalf to Hong Kong, or something". This is somewhat difficult to follow when regard is had to the terms of the document: "I Jude Kirk formerly (sic) request that the $106,100 paid to Glengarry Stud on 5th November 1993 and never used for the intended purpose, now be transferred to "Aella Pty Ltd" (C.K. LIN) by bank draft as soon as possible." Mr Ashdown explained the document as arising from the need to acknowledge Mr Lin's entitlement to the monies because of bankruptcy proceedings which another person had threatened to bring against Mr Kirk. He was concerned that he might be required to pay the sum both to the trustee in bankruptcy and also to Mr Lin. His Honour accepted this as more plausible. Here, it may also be observed that his Honour's findings were not linked to the narrative concerning the complex transactions. His Honour was concerned only with the meaning of a direction to transfer and whether it could be said to support Mr Kirk's account that he and his wife were to have no further liability to the Ashdowns. The Ground of Perjury 13 Mr and Mrs Kirk submit that this Court ought not regard the judgment as conclusive of the question whether there is a debt and should go behind it: Wren v Mahony (1972) 126 CLR 212. It is submitted that they are able to show that the judgment was procured by fraud, by reason of the perjured evidence of Mr Ashdown and others in relation to the transactions concerning the $106,100. 14 The allegations of perjury were first raised in these proceedings in a document entitled "Draft Points of Claim". It contained very general allegations that evidence was untrue. Extensive examinations of witnesses, upon subpoena, were foreshadowed, to establish the falsity of the evidence. I am not concerned, for present purposes, with the question whether perjury may be established, and it is sufficient to have regard to the nature of the evidence sought to be put forward and the issues on findings in the former action to which it is said to relate. The "Draft Points of Claim" did not identify with any clarity the evidence said to have been false, and it did not address questions as to whether that evidence had a connexion with the resulting judgment and whether the evidence which is now sought to be brought forward could have been adduced at trial. A summary of this evidence was requested. A complex table of various evidence ranging from the topic of the monies, to contradictions of apparently minor aspects of Mr Ashdown's evidence, was produced. It is said, for example, that Mr Lin would say that he had not heard of Mr Kirk, or the purchase of a horse and is not the vendor of the ship. It seeks to go into the details of the transaction concerning the ships, including identification of the vendor and purchaser and the part played by Mr Ashdown and his entities in that transaction. It contains further evidence of Mr Ashdown concerning the termination of the contract and references to other transactions, which are not immediately apparent to have connection to the dealings with respect to the $106,100. It was submitted, in very general terms, that had the perjured evidence not been given, presumably (and the other evidence been available, on the same topic), his Honour would have found that the agreement was terminated. A reference to the written submissions provided discloses that this is said to follow because it would all go to show that the $106,100 would not have been released other than on the basis that the contract was terminated, which is to say, the Kirks' case could have been made out. 15 The matters sought to be raised by Mr and Mrs Kirk under the banner of perjury would seem to me largely to involve maters which could have been raised at trial, if they were considered to be relevant and significant. I have some doubt about that. This is because the reference by his Honour to the transactions concerning the sum in question was collateral and because it said something about credit. I deal further with this topic in these reasons. It was submitted that the evidence was only discovered late, but I take that to be so because it was not sought earlier. It seems to me, therefore, that what is proposed is in truth a re-trial on the defence of consensual termination. That is clearly inappropriate: see Emerson v Wreckair Pty Ltd (1992) 33 FCR 581, 587-588; Olivieri v Stafford (1989) 24 FCR 413, 429; Wenkart v Abignano [1999] FCA 354, Full Court, unreported. It was submitted however that exceptional circumstances exist here because of the fraud which was perpetrated upon the Court and for that reason alone the judgment ought to be regarded as inconclusive. 16 In proceedings to set aside a judgment obtained by fraud, while it is unnecessary to show that the evidence relied on in that connexion would be admissible on the issues between the parties to the action leading to the judgment in question, it is nevertheless necessary to establish the fraud as "directly material" to the judgment: McDonald v McDonald (1965) 113 CLR 529, 532; Monroe Schneider Associates (Inc) v No 1 Raberem Pty Ltd (No 2) (1992) 37 FCR 234, 242, such that if it had been received at trial, then in all probability, the judgment would have been reversed: Monroe Schneider 244. Evidence relating to a collateral issue, such as credit, may then lack the necessary materiality: McDonald 532; Monroe Schneider 242. The evidence must be "fresh", previously unavailable. In Bourke v Beneficial Finance Corporation Ltd (1993) 47 FCR 264, 272 the Full Court held, in connexion with the making of a sequestration order, that whilst it is not the task of a bankruptcy Court to set aside a judgment procured by fraud, it is appropriate for it to be guided by the principles which govern such a proceeding, although in an appropriate case the Court might apply a more flexible approach. 17 I have already observed that there does not seem to me to have been much in the way of further evidence which could not have been obtained for the purposes of trial, if issues had been properly raised and the minds of the Kirks' legal representatives had been directed at the topic. The likelihood appears to be that they were not, and that the topic emerged at trial. Certainly nothing of it was pleaded and that brings me to the topic of materiality. The fraud identified as having something to do with the judgment was in connexion with Mr Ashdown's evidence as to what took place about the $106,100. However it was used, in the first place, by his Honour to discount Mr Ashdown's evidence. Insofar as Mr Kirk's evidence was not accepted, this was in part because of the view his Honour took about his evidence relating to the alleged agreement to terminate the contract. The document referred to by Mr Kirk as lending support to his story did contain a reference to the $106,100 but, as I have said, his Honour did not explore the background transaction relating to that sum. His Honour was concerned only with respect to the likely meaning of it, which on its face bore little relationship to that Mr Kirk attributed to it. That is to say, at no point did his Honour make any finding about the transaction. To the extent to which his Honour relied upon events as narrated by Mr Ashdown, it was adverse to his credit because they carried with them the suggestion of wrongdoing. There is, in my view, no basis shown for concluding that a different conclusion must have been reached by his Honour had much of the evidence now pointed to been admitted. That is itself highly doubtful. There is, then, no ground shown for setting aside the bankruptcy notices. 18 The application for leave to bring an appeal from the judgment has now been refused and there are no special circumstances to warrant an extension of time to comply with the notice (see Byron v Southern Star Group Pty Ltd (1997) 73 FCR 264, 272; Re Geard; Ex parte Reid [1994] FCA 45). In Mrs Kirk's case, an order had been made extending time for compliance "until further order". I doubt the appropriateness of such an order. It was apparently contemplated that the question of whether an extension should be granted would be determined on this hearing. I will now vacate that order. 19 There remains the claim for an account. It is not, and cannot be, suggested that it is sought to be raised by way of set-off or counterclaim against the judgment. No other basis has been shown for the continuance of the claim in the event that the applications are otherwise to be dismissed. Each of the applications will be dismissed and the order made on 28 October 1998 in the proceedings relating to Mrs Kirk will be vacated. I certify that the preceding nineteen (19) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Kiefel. Associate: Dated: 29 April 1999 Solicitor for the Applicant: Mr A Abaza Counsel for the Respondent: Mr P Hack Solicitor for the Respondent: Raj Lawyers Date of Hearing: 23 March 1999 Date of Judgment: 29 April 1999