FEDERAL COURT OF AUSTRALIA Wong v Britt [2007] FCA 1580 ANDREW WONG v ROBERT JOHN BRITT NSD 1035 OF 2007 GRAHAM J 31 AUGUST 2007 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NSD 1035 OF 2007 ON APPEAL FROM THE FEDERAL MAGISTRATES COURT OF AUSTRALIA BETWEEN: ANDREW WONG Appellant AND: ROBERT JOHN BRITT Respondent JUDGE: GRAHAM J DATE OF ORDER: 31 AUGUST 2007 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The appellant's application for leave to file in Court the '2nd Amended Notice of Appeal' signed by the current solicitor for the appellant and dated 31 August 2007 be dismissed. 2. The appeal be dismissed. 3. The appellant pay the respondent's costs. 4. The costs of the appeal and of the application within it be taxed and payed from the estate of the appellant debtor in accordance with the Bankruptcy Act 1966 (Cth). 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 NSD 1035 OF 2007 ON APPEAL FROM THE FEDERAL MAGISTRATES COURT OF AUSTRALIA BETWEEN: ANDREW WONG Appellant AND: ROBERT JOHN BRITT Respondent JUDGE: GRAHAM J DATE: 31 AUGUST 2007 PLACE: SYDNEY REASONS FOR JUDGMENT 1 Section 52 of the Bankruptcy Act 1966 (Cth) ('the Act') makes provision for the making of sequestration orders against the estates of debtors in certain circumstances. Relevantly, for present purposes, s 52 provides: '52(1) At the hearing of a creditor's petition, the Court shall require proof of: (a) the matters stated in the petition (for which purpose the Court may accept the affidavit verifying the petition as sufficient); (b) service of the petition; and (c) the fact that the debt or debts on which the petitioning creditor relies is or are still owing; and, if it is satisfied with the proof of those matters, may make a sequestration order against the estate of the debtor. … 52(2) If the Court is not satisfied with the proof of any of those matters, or is satisfied by the debtor: (a) that he or she is able to pay his or her debts; or (b) that for other sufficient cause a sequestration order ought not to be made; it may dismiss the petition.' 2 On 17 May 2007, a petition presented by the respondent to the present appeal came before the Federal Magistrates Court of Australia, constituted by Smith FM. His Honour made the following orders: '(1) A sequestration order be made against the estate of Andrew Wong. (2) The applicant creditor's costs, including all reserved costs, be taxed and paid from the estate of the respondent debtor in accordance with the Bankruptcy Act 1966. (3) Note that the petitioner alleges that the date of the act of bankruptcy is 14 March 2006. (4) Note that a consent to act as trustee has been signed by Phillip Kenneth Aggs and will be lodged with the Official Receiver in Sydney within 2 days. (5) The applicant must within 2 days obtain an entered sequestration order and give a copy the Official Receiver in Sydney (sic).' 3 This matter has a long history. I hope I do not do it an injustice by saying that it relates to a transfer of funds in the amount of $85,000 in or about December 1989. In 1994 one set of proceedings was commenced by the respondent seeking recovery of such an amount. 4 On or about 12 October 2001, a second proceeding was commenced in the District Court of New South Wales by way of an ordinary statement of claim, seeking relief on the part of the respondent against the appellant. On 16 August 2002 default judgment was apparently entered on that ordinary statement of claim for, as I would understand it, damages to be assessed. On 24 January 2003 the District Court of New South Wales, constituted by Certoma A-DCJ, assessed the damages payable by the appellant to the respondent at $197,159.01. 5 In 2005 bankruptcy notices were served upon the appellant, which led to challenges being made by the appellant to the earlier District Court judgment. There was, as I understand it, a second bankruptcy notice served on the appellant. In any event, there were three separate applications brought by the appellant to set aside the District Court judgment that had been entered against him. 6 The first application came before the District Court of New South Wales, constituted by McGuire DCJ, who dismissed that application on or about 7 December 2005. 7 The second application to set aside the District Court judgment was apparently dismissed by consent in February 2006. 8 Following the appellant's failure to obtain an order setting aside of the District Court judgment, the appellant's application in the Federal Magistrates Court of Australia to set aside the bankruptcy notice was dismissed by consent on 21 February 2006, and an act of bankruptcy was then committed. 9 On 12 May 2006, the creditor's petition, upon which the sequestration order was made, was presented. It was, itself, repeatedly adjourned. One of the reasons for its adjournment was to allow yet another application to be brought by the appellant in the District Court of New South Wales to set aside the judgment which had been entered against the appellant on 24 January 2003. 10 This application came before the District Court of New South Wales, constituted by Kearns DCJ, who on 24 January 2007 dismissed the application. 11 On 17 April 2007 orders were made by consent in the Federal Magistrates Court of Australia, which included an order that: 'The period at the expiration of which the Petition will lapse be a period of 24 months commencing on the date of presentation of the Petition.' 12 Under s 52(4) of the Act, a creditor's petition lapses at the expiration of a period of 12 months, commencing on the date of presentation of the petition, unless an order is made under s 52(5), fixing a longer period than the 12 month period for which s 52(4) provided. The order made by consent in the Federal Magistrates Court of Australia on 17 April 2007 had the effect of extending the life of the creditor's petition in this case for a further period of 12 months beyond the time when it would otherwise have expired, so that it remained – if I may say so – current until effectively 12 May 2008. The sequestration order made on 17 April 2007 was well within the time permitted under the section. 13 By Notice of Appeal filed 7 June 2007 the appellant appealed to this Court from the decision of Smith FM. There were 10 grounds of appeal identified in the Notice of Appeal as follows: '1. The Federal Magistrate erred in the exercise of his discretion pursuant to Section 52 of the Bankruptcy Act 1966 ("the Act"). 2. The Federal Magistrate erred in failing to find that "for other sufficient cause" within the meaning of Section 52 of the Act, a sequestration order ought not be made. 3. The Federal Magistrate erred in failing to go behind and enquire into the validity of the default judgment upon which the creditor's petition was founded. 4. The Federal Magistrate erred in accepting the default judgment as satisfactory proof of the debt alleged by the petitioning creditor. 5. The Federal Magistrate erred by relying on the findings of the District Court of NSW in respect of applications made by the appellant to set aside the default judgment, instead of making his own findings on the factual and legal issues relevant to the exercise of his discretion pursuant to Section 52 of the Act. 6. The Federal Magistrate erred by misapplying the legal principles relevant to the question of whether he should have gone behind and enquired into the validity of the default judgment upon which the creditor's petition was founded. 7. The Federal Magistrate erred by failing to find a substantial reason for questioning whether behind the default judgment there was in truth and reality a debt due to the petitioning creditor. 8. The Federal Magistrate erred by failing to find that the default judgment arose from an abuse of process. 9. The Federal Magistrate erred by failing to find that bona fide allegations existed that no real debt lay behind the default judgment. 10. The Federal Magistrate erred by failing to find that the sum of money advanced by the respondent to a third party corporate entity for the purposes of investment into a restaurant business did not constitute a debt owed or owing by the appellant to the respondent.' 14 The said Notice of Appeal was filed by Patrick Moloney, a solicitor of Moloney Lawyers of Potts Point in New South Wales. On 28 June 2007 Mr Moloney filed a Notice of Ceasing to Act. 15 On 5 July 2007 a Notice of Appearance for the appellant was filed by Mai Truong of 'City Law' of Sydney. On 30 August 2007 Bruce Bian of City Law filed a Notice of Appearance for the appellant. My understanding is that Ms Truong is an employee of Mr Bian, who is the principal in the firm. 16 When this matter was before the Court on Tuesday, 28 August 2007, Mr Killalea of counsel appeared for the appellant. He sought leave to file in Court an Amended Notice of Appeal dated 28 August 2007, signed by Mr Bian. The filing of the Amended Notice of Appeal was not opposed by the respondent, and leave was granted. 17 The Court noted the undertaking to the Court of the appellant to file and serve a Notice of Change of Solicitor from Mai Truong to Bruce Bian, both of City Law Pty Ltd, on or before 30 August 2007, and as earlier observed this occurred. 18 There was also before the Court on 28 August 2007 a Notice of Motion filed 14 August 2007 on the part of the respondent seeking security for costs in respect of the appeal. The motion and the appeal were stood over to today at 8.30 am. 19 The Amended Notice of Appeal filed 28 August 2007 included only one ground of appeal. It was expressed as follows: '1. His Honor (sic) erred in ordering that a sequestration order be made against the estate of Andrew Wong as the order was made contra ss.52(4) of the Bankruptcy Act 1966. Particulars The creditors petition was presented on 12 May 2006 ([14] of Reasons for Judgment). The judgment was given on 17 May 2007' 20 It can be seen that the Notice of Appeal upon which the appellant sought to rely raises, as its sole ground, the question of whether or not the sequestration order had, or had not, been made within the permitted time under s 52 of the Act. 21 As has been made abundantly clear from the matters referred to earlier, the sequestration order was within time, and to use Mr Killelea's expression earlier today 'the Amended Notice of Appeal can't be relied upon'. I understood him to be saying that the ground was unsustainable. In these circumstances the logical consequence would be that the appeal would be dismissed with costs. 22 However, at the heel of the hunt an application was made by Mr Killalea on behalf of the appellant for leave to file in Court a document styled '2nd Amended Notice of Appeal'. The ground of appeal specified in the draft 2nd Amended Notice of Appeal, signed by Mr Bian and dated 31 August 2007, was as follows: '1. The Court erred in its exercise of discretion under paragraph 52(2)(b) of the Bankruptcy Act 1966, by reason of being wrong and/or failing to take into account relevant considerations. Particulars House v The King The debt founding the Creditors Petition was a default judgment debt The judgment debt included interest from the date of the purported loan (1 Dec 1989) until settlement of the purported loan (28 Feb 1995), by the judgment creditor with his lending bank, (FMC judgment [9]) On 16 May 2007 the judgment creditor served an affidavit of the judgment creditor on the judgment debtor (FMC judgment, [23]). The judgment creditor depones in the affidavit, inter alia, "I propose to lend you $85,000 on the basis that my return on that loan is 10% of the profits of the business .." The pleadings of the judgment creditor in the District Court pleaded allegations of "joint venture agreement" or "upon trust" (not "loan").' 23 During the course of argument, I was referred to certain authorities. In House v The King (1936) 55 CLR 499 at 504-505, the classic statement of Dixon, Evatt and McTiernan JJ provided as follows: '… The manner in which an appeal against an exercise of discretion should be determined is governed by established principles. It is not enough that the judges composing the appellate court consider that, if they had been in the position of the primary judge, they would have taken a different course. It must appear that some error has been made in exercising the discretion. If the judge acts upon a wrong principle, if he allows extraneous or irrelevant matters to guide or affect him, if he mistakes the facts, if he does not take into account some material consideration, then his determination should be reviewed and the appellate court may exercise its own discretion in substitution for his if it has the materials for doing so. It may not appear how the primary judge has reached the result embodied in his order, but, if upon the facts it is unreasonable or plainly unjust, the appellate court may infer that in some way there has been a failure properly to exercise the discretion which the law reposes in the court of first instance. In such a case, although the nature of the error may not be discoverable, the exercise of the discretion is reviewed on the ground that a substantial wrong has in fact occurred.' 24 In relation to the quantum of the debt relied upon by the petitioning creditor, I was referred indirectly to the judgment of Owen AJ in In re Riviere; Ex parte Original Mont De Piete Limited (1919) 20 SR (NSW) 77 at 84, where his Honour said: '… I think it is … clear that the Court will only reconsider the judgment in order to ascertain whether the petitioning creditor's debt, on which the bankruptcy proceedings have been founded, should be struck out altogether. … The Court does not reconsider the judgment merely with a view to seeing whether the judgment debt should be reduced, but in order to ascertain whether the creditor has a debt upon which bankruptcy proceedings can be founded.' 25 This passage from the judgment of Owen AJ was cited with approval by Gummow J, sitting as a member of the Full Court, in Olivieri v Stafford (1989) 91 ALR 91 at 109. The headnote attributes to Gummow J and I think, reasonably fairly, the following: 'The court should not "go behind" the judgment in the present circumstances where on the debtor's case, to do so would leave a substantial sum still due and owing but unpaid. The court should not reconsider the judgment merely with a view to reduce the judgment debt but to ascertain whether the creditor had a debt upon which the bankruptcy proceedings could be founded.' 26 Whatever may be said as to the quantification of the debt in the present case, the heart of the matter is the amount of $85,000, which was the subject of a transfer of funds, in apparently December 1989. The nature of the arrangement and the legal obligations arising from this transfer have now been canvassed time and time again in the various attempts to set aside the District Court judgment in the sum of $197,159.01 which was entered on 24 January 2003. 27 In support of his application for leave to file in court a 2nd Amended Notice of Appeal, counsel for the appellant sought to raise issues in respect of the entry of the default judgment back in 2002/2003 and matters which were dealt with by the learned Federal Magistrate at [33] and following of his reasons for judgment. 28 It is appropriate to observe that at [22] of his reasons for judgment, the learned federal magistrate said in respect of the conduct of the proceedings before him: '22. …The respondent's representative [referring to the appellant's representative] relied only upon grounds 3 and 4 in the notice of opposition. These challenged, in effect, the existence of the debt relied upon by the applicant petitioner, and presented the circumstances of the obtaining of the judgment as discretionary reasons for refusing to make a sequestration order …' 29 As I understand the proposed 2nd Amended Notice of Appeal, it is sought to challenge the exercise of the relevant discretion under the subsections of s 52 of the Act, to which I have referred above. I will not take time to set out the conclusions of his Honour, as they are amply recorded at [23] to [39] inclusive. His Honour said, amongst other things, at [37] and [38]: '37. I am not persuaded that the contents of Mr Britt's affidavit provides, either in itself or in combination with the other evidence before me, "substantial reasons" for going behind the judgment debt in this case, or for exercising other discretions in favour of the respondent. 38. I am not satisfied that the respondent has presented any sufficient ground for declining to rely upon the judgment debt. Taking into account all the submissions that have been put to me, I am not persuaded to uphold the grounds of objection which were pressed on behalf of the respondent.' 30 The power of the court to allow the filing of an Amended Notice of Appeal in the present circumstances is contained in Order 52 rule 21(3) of the Federal Court Rules ('the Rules'), which provides: '21(3) The court may allow a notice of appeal to be amended on such terms and conditions as the Court thinks fit.' 31 The general requirement in relation to the filing and service of Notices of Appeal is that they be filed and served within 21 days after the date on which the judgment being appealed was pronounced. An opportunity exists for filing of a Notice of Appeal after such a time, provided that the relevant order extending the time has been sought within the relevant 21 day period. 32 There is also provision in Order 52 rule 15(2) of the Rules for leave to file a Notice of Appeal out of time to be granted by a judge of the Court for 'special reasons' at any time. In support of an application for leave to file a Notice of Appeal out of time, it is necessary that it be accompanied by an affidavit setting out the nature of the matter, the factual and legal issues in dispute and the reasons why leave should be given. 33 There has been no such affidavit in this case in respect of the 2nd Amended Notice of Appeal, but I have taken into account the matters that Mr Killalea has put to me as if his application was one for leave to file a Notice of Appeal out of time. 34 It is true that the application presently before the Court is for leave to file an amended Notice of Appeal. However, the 2nd Amended Notice of Appeal which the appellant seeks leave to file is one which seeks to raise grounds which were not entertained in the Amended Notice of Appeal which was filed on 28 August 2007 and which took the place of the original Notice of Appeal filed on 7 June 2007. Granted there is some correspondence between what appears in the current draft 2nd Amended Notice of Appeal and that which appeared in the earlier Notice of Appeal filed 7 June 2007, but it must be recognised by the appellant that none of those grounds were included in the Amended Notice of Appeal filed 28 August 2007. 35 A natural inference, in my opinion, is that the appellant accepted that there was no other reasonable basis on which the appeal could succeed than that which was included on its own in the Amended Notice of Appeal. 36 It is true that special reasons within the meaning of Order 52 rule 15(2) of the Rules do not have to be established in the present circumstances, but in my opinion they provide some guidance as to how the discretion under rule 21(3) should be exercised. 37 There have been numerous observations earlier in the several proceedings between the appellant and the respondent concerning the need for there to be finality in litigation. 38 In my opinion the judgment of the learned Federal Magistrate is not attended with any relevant doubt such as to warrant leave being granted to now challenge his decisions on the grounds proposed in the 2nd Amended Notice of Appeal. 39 Given the extension of time, which was ordered by consent on 17 April 2007, it is acknowledged by counsel for the appellant that if leave to file in Court a 2nd Amended Notice of Appeal is refused, then on the Notice of Appeal presently before the court, i.e. the Amended Notice of Appeal filed 28 August 2007, the only possible order that can be made is that the appeal be dismissed with costs. 40 I am not disposed to grant leave to the appellant to file in Court a 2nd Amended Notice of Appeal by way of 'amendment' of the existing notice of appeal. 41 Accordingly, I dismiss the application of the appellant for leave to file in court the '2nd Amended Notice of Appeal' signed by the current solicitor for the appellant and dated 31 August 2007. The dismissal of the appeal with costs follows. I certify that the preceding forty-one (41) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Graham. Associate: Dated: 12 October 2007 Counsel for the Appellant: R W Killalea Solicitor for the Appellant: City Law Pty Ltd Counsel for the Respondent: M P Cleary Solicitor for the Respondent: Warren McKeon Dickson Solicitors Date of Hearing: 31 August 2007 Date of Judgment: 31 August 2007