FEDERAL COURT OF AUSTRALIA Global Custodians Ltd v Bhagat [2002] FCA 701 BANKRUPTCY – creditor's petition- proceedings and order on creditor's petition – reasons for making sequestration order Bankruptcy Act 1966 (Cth) ss 43, 52(1) Bhagat v Global Custodians Ltd [2002] FCAFC 51 cited Cain v Whyte (1933) 48 CLR 639 cited Ling v Enrobook Pty Ltd (1997) 74 FCR 19 cited IN THE MATTER OF HARI BHAGAT GLOBAL CUSTODIANS LTD v HARI BHAGAT N 7379 of 2001 BRANSON J 31 MAY 2002 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 7379 OF 2001 IN THE MATTER OF HARI BHAGAT BETWEEN: GLOBAL CUSTODIANS LTD APPLICANT AND: HARI BHAGAT RESPONDENT JUDGE: BRANSON DATE: 31 MAY 2002 PLACE: SYDNEY REASONS FOR JUDGMENT 1 On 24 May 2002, following the hearing of the creditor's petition, I ordered that the estate of Hari Bhagat be sequestrated. These are the reasons for the making of that order. 2 I was satisfied, on the basis of affidavit evidence filed by the creditor, with the proof of the matters identified in pars (a), (b) and (c) of s 52(1) of the Bankruptcy Act 1966 (Cth) ("the Act"). Indeed, apparently to gain the perceived advantage of addressing the Court ahead of his creditor, Mr Bhagat initially conceded that each of the matters identified in those paragraphs had been proved. Subsequently, having addressed the Court ahead of counsel for the creditor, Mr Bhagat sought to withdraw his concession asserting that it had not been established that at the time that he committed the act of bankruptcy upon which the creditor relied that he was ordinarily resident in Australia. I ruled that Mr Bhagat was not entitled to withdraw his concession. First, there was no suggestion that Mr Bhagat had not been personally present in Australia at the time that he committed the act of bankruptcy relied upon (see s 43(1)(b)(i) of the Act). Secondly, Mr Bhagat's own affidavit evidence disclosed that he has in fact been living in Australia for at least the past twelve years – albeit that he has ordinarily returned to India twice a year for stays that may extend to three months in length. The fact, as Mr Bhagat asserts, that he is not entitled to social security and does not hold a Medicare card is not relevant to this issue. 3 I was further satisfied, indeed Mr Bhagat did not suggest to the contrary, that Mr Bhagat is not able to pay his debts. 4 The real issue before the Court on the hearing of the petition 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 sought to propound was based upon an assertion that the creditor had engaged in fraudulent conduct. The asserted relationship between the alleged fraudulent conduct and the act of bankruptcy upon which the creditor's petition was founded was not made clear. 5 All but the most recent aspects of the history of the dealings between Mr Bhagat and the creditor are set out in the judgment of the Full Court in Bhagat v Global Custodians Ltd [2002] FCAFC 51. I do not consider it necessary to set that history out again. To that extent the judgment of the Full Court should be read together with these reasons. 6 Mr Bhagat had contended before the Full Court, on the hearing of his appeal against the refusal of Beaumont J to set aside the bankruptcy notice served on him by the creditor, that the judgment debt upon which the bankruptcy notice was based had been obtained as a result of the fraud of the creditor. The Full Court rejected the contention. At [4]‑[5] of the reasons for judgment of the Full Court, the Court summarised the circumstances giving rise to the judgment debt in the following way: "The Bankruptcy Notice was based upon an unpaid judgment debt which debt was incurred in the following circumstances. In Action No 3398 of 1998 in the Equity Division of the Supreme Court of New South Wales, Mr Bhagat had sued a number of defendants, one of whom was the judgment creditor in these proceedings, Global Custodians Ltd ("Global"). Mr Bhagat had sought, inter alia, damages from Global for the tort of abuse of process. However, Global was successful before Young J on 13 April 2000 in obtaining an order summarily dismissing Mr Bhagat's claim against it; it also obtained an order that Mr Bhagat pay its costs on an indemnity basis. Those 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 sum with effect from 13 April 2000. Mr Bhagat unsuccessfully sought leave to appeal to the New South Wales Court of Appeal against the order for the summary dismissal of his claim. He is presently seeking special leave to appeal to the High Court." 7 The evidence on the hearing of the petition, which included the evidence that was before the Full Court, disclosed that the order of the Supreme Court of New South Wales ("the Supreme Court") which summarily dismissed Mr Bhagat's claim was consequent upon Mr Bhagat's failure, despite being given a number of opportunities to do so, to plead in an acceptable way a cause of action against the defendants. The present creditor was one of those defendants. In this circumstance, it is not easy to see how it could be established that the order for costs made by the Supreme Court was obtained as a result of the fraud of the creditor. It was not so established at the hearing of the petition. 8 Indeed, Mr Bhagat failed to establish at the hearing of the petition that the creditor has engaged in fraudulent conduct at all. 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. 9 In any event, Mr Bhagat did not put evidence before the Court as to the impact of the alleged fraud upon his financial position. Nor did he identify any cause which would override the interests of the public in preventing his incurring debts which he is unable to pay and the interests of his creditors in having their debts paid (Cain v Whyte (1933) 48 CLR 639 at 646). To the extent that Mr Bhagat placed reliance on other litigation to which he is a party, the courts do not recognise a public interest in allowing a debtor to prosecute litigation generally (Ling v Enrobook Pty Ltd (1997) 74 FCR 19 at 26). 10 Mr Bhagat did not satisfy me that any aspect of the conduct of the creditor gave rise to sufficient cause not to make a sequestration order. Nor did he satisfy me of any other sufficient cause for a sequestration order not to be made. In the circumstances it was encumbent on me to make a sequestration order against Mr Bhagat's estate. I certify that the preceding ten (10) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Branson. Associate: Dated: 31 May 2002 Counsel for the Applicant: Mr A Spencer Solicitor for the Applicant: Holding Redlich The Respondent appeared in person Date of Hearing: 24 May 2002 Date of Judgment: 24 May 2002