FEDERAL COURT OF AUSTRALIA Toyota Finance Australia Limited v Singh, in the matter of Singh [2020] FCA 949 File number: NSD 1850 of 2019 Judge: GLEESON J Date of judgment: 9 July 2020 Catchwords: BANKRUPTCY AND INSOLVENCY – application for sequestration order – failure to comply with bankruptcy notice – whether to "go behind" judgment debt – what constitutes "other sufficient cause" within the meaning of Bankruptcy Act 1996 (Cth) s 55(2)(b) – sequestration order made Legislation: Bankruptcy Act 1966 (Cth) ss 43, 52 Cases cited: Cristavao v Tan and Tan Lawyers Pty Ltd [2018] FCAFC 41 Deputy Commissioner of Taxation v Cumins (No 5) [2008] FCA 794 Doggett v Commonwealth Bank of Australia [2019] FCAFC 19 Kitay, in the matter of Frigger [2018] FCA 817 Lipman v Empire Facades [2017] NSWCA 217 Violi v Commonwealth Bank of Australia [2015] NSWCA 152 Date of hearing: 15 June 2020 Registry: New South Wales Division: General Division National Practice Area: Commercial and Corporations Sub-area: General and Personal Insolvency Category: Catchwords Number of paragraphs: 28 Solicitor for the Applicant: Mr Farrar of Farrar Lawyers Solicitor for the First Respondent: Mr Gordon of Senadheera & Gordon Lawyers ORDERS NSD 1850 of 2019 IN THE MATTER OF GURPREET SINGH BETWEEN: TOYOTA FINANCE AUSTRALIA LIMITED (ABN 48 002 435 181) Applicant AND: GURPREET SINGH First Respondent BALJINDER SINGH Second Respondent IQBAL SINGH Third Respondent JUDGE: GLEESON J DATE OF ORDER: 9 July 2020 THE COURT ORDERS THAT: 1. A sequestration order under the Bankruptcy Act 1966 (Cth) (Act) be made against the estate of Gurpreet Singh. 2. The costs of the applicant be assessed by a Registrar of the Court and be paid from the bankrupt estate of Gurpreet Singh in accordance with the Act. THE COURT NOTES THAT: 1. The date of the act of bankruptcy is 3 November 2019. 2. A copy of this order is to be provided to the official trustee within 2 days. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT GLEESON J: 1 The applicant (Toyota Finance) seeks a sequestration order against the first respondent (Mr Singh) under s 43 of the Bankruptcy Act 1966 (Cth). 2 The creditor's petition, filed on 8 November 2019, states that Mr Singh together with the second and third respondents owe Toyota Finance an amount of $507,052.60 for a judgment debt ordered in the District Court of New South Wales on 8 October 2019. The judgment debt was based on a guarantee executed by Mr Singh and the other respondents. 3 The act of bankruptcy stated in the creditor's petition is that Mr Singh failed to comply on or before 3 November 2019 with bankruptcy notice BN246716 issued 8 October 2019 and served on Mr Singh on 13 October 2019 or to satisfy the Court as to the existence of a relevant counter-claim, set off or cross-demand. 4 Sequestration orders have been made against the second and third respondents, based on the creditor's petition. 5 Mr Singh filed an amended notice of opposition to the creditor's petition, which raised eight purported grounds of opposition. However, at the hearing of the creditor's petition, Mr Singh made arguments which broadly corresponded with the following two grounds of opposition: (1) Mr Singh "is only liable for one third of the Judgment Debt based on his understanding and representation made to [him] by [Toyota Finance] when he entered into the Guarantee to secure the amounts now comprising the Judgment Debt". (2) Toyota Finance "pursuant to clause 39.3 of the Master Fleet Facility Agreement with [Mr Singh] dated 17 May 2017 is first required to attend to the ACDC expert mediation procedure therein prior to coming to the Honourable Court". 6 Mr Singh accepted that the formal requirements for making a sequestration order were satisfied, and he did not argue that s 52(2)(a) applies (that is, Mr Singh did not seek to demonstrate that he is able to pay his debts). To the contrary, Mr Singh submitted that he has not applied to set aside the default judgment pursuant to which the judgment debt exists because he cannot presently afford to do so. 7 Mr Singh contended that the Court should be satisfied that the matters raised by him provide sufficient cause that a sequestration order ought not to be made pursuant to s 52(2)(b) of the Act. Evidence and facts 8 Mr Singh relied on three affidavits, made on 5 February 2020, 6 March 2020 and 1 April 2020. In his February 2020 affidavit, Mr Singh stated relevantly: 6. … [W]hen entering into and executing the guarantee, I was never informed by the Creditor that I could be made jointly and severally liable for amounts secured by the guarantee. Had I been so advised, I would not have executed the guarantee. 7. My understanding of the guarantee in favour of the Creditor was that my maximum liability would be one third per each guarantor. I was not made aware that the Creditor could pursue me for the whole amount demanded under the guarantee. 9 In his March 2020 affidavit, Mr Singh stated relevantly: 5. I refer to the execution page for the Guarantors being page 22 of the affidavit of Mr Noble. All the signatures including my signature were witnessed by one person at the same time with all guarantors in the same room. 6. This witness to the guarantee "Adam Aslam" (sic) was not legally qualified, nor acting independently nor gave me an opportunity to read the guarantee or to seek legal advice and did not explain the contents, terms and risks of the guarantee to me. I was simply asked to sign documents put before me. 7. I also seek to inform the Honourable Court that I am born in India and English is my second language. I am a businessman and I do not suggest that I require a translator or cannot understand general documents. However I very much would have preferred a proper explanation of the guarantee and also if I was given time to consult with my accountant or lawyer before signing. 8. If I had known or had it explained to me that I would be liable for all amounts owing by EFX under the MFFA then I would not have signed the guarantee. At the minimum I would have required that my guarantee be limited to a fixed amount or limited to one third of any liability. 9. It was always my understanding that I would be liable on a guarantee equally with other guarantors. In the present case, my understanding was my guarantee would be one third in proportion to the other two guarantors who are the second and third respondents. 10 Toyota Finance relied on three affidavits of Geoff Noble sworn 26 February 2020, 25 March 2020 and 24 April 2020. 11 The relevant contract was a "Master Fleet Facility Agreement" dated 17 May 2017 between Toyota Finance and EFX Assets Pty Ltd (EFX) as the "Customer" and six companies and individuals as "Guarantors" for the obligations of EFX. Mr Singh relied on cl 39.3 of the contract. Clause 39.3 forms part of section 39 entitled "Dispute Resolution". Section 39 provides: 39.1 Notice of dispute (a) If a dispute between the parties arises out of or relates to a Transaction Document, or the breach, termination, validity or subject matter of it, or as to any claim in tort, in equity or pursuant to any domestic or international statute or law, then any party may give each other a notice of dispute adequately identifying and providing details of the dispute. (b) Notwithstanding the existence of a dispute, all parties will, subject to this Agreement, continue to perform and observe each Transaction Document. 39.2 Conference Within 10 Business Days after receiving a notice of dispute, the parties will confer at least once to resolve the dispute or to agree on methods of doing so. At every such conference each party will be represented by a person having authority to agree to such resolution or methods. All aspects of every such conference, except the fact of its occurrence, will be privileged. 39.3 Expert mediation (a) If the dispute is not resolved within the following 5 Business Days (or such further period as the parties may agree), the parties in dispute agree to endeavour in good faith to settle the dispute by mediation administered by the Australian Commercial Disputes Centre (ACDC) before having recourse to arbitration or legal proceedings. (b) The mediation will be conducted in accordance with ACDC mediation guidelines which set out the procedures to be adopted, the process of selection of the mediator and the costs involved. The terms of those guidelines are incorporated in this Agreement. (c) This clause does not merge upon termination or expiry of this Agreement. 12 Mr Singh's unchallenged evidence was that Toyota Finance never offered or engaged in the "compulsory mediation procedure required pursuant to Clause 39.3" before commencing the District Court proceeding or issuing the creditor's petition. Mr Singh's arguments 13 Mr Singh contended that the Court should look behind the default judgment to determine whether a debt truly is owed. Mr Singh submitted that, on the evidence, the circumstances surrounding his entry into the guarantee and indemnity make it unenforceable against him. 14 In Cristavao v Tan and Tan Lawyers Pty Ltd [2018] FCAFC 41 at [34], the Full Court explained the correct approach to deciding whether to "go behind" a judgment debt as follows: As was recently explained by Kiefel CJ, Keane and Nettle JJ in Ramsay Health Care Australia Pty Ltd v Compton [2017] HCA 28; (2017) 91 ALJR 803, in considering the requirement under s 52(1)(c), a Bankruptcy Court has a paramount need to have satisfactory proof of the debt owed to the petitioning creditor to ascertain the "true state of accounts between the parties": at 814 [63]. This means that a court should go behind a judgment where there is sufficient reason for questioning whether behind that judgment there is "in truth and reality" a debt owing. When considering to go behind the prima facie evidence of the debt constituted by the judgment, a two-stage process inquiry arises: first, as to whether there is sufficient reason to question the existence of a real debt behind the judgment; and secondly, if there is, determining that issue (although these two steps may be determined together: see Makhoul v Barnes (1995) 60 FCR 572 at 584 per Hill, Cooper and Branson JJ and Wolff v Donovan (1991) 29 FCR 480). 15 In Kitay, in the matter of Frigger [2018] FCA 817 at [14], Colvin J stated: It is well established that on the hearing of a creditor's petition, that the Court must be satisfied that there is a reason to go behind any judgment said to give rise to the debt on which the petition is based before it then considers matters that might be raised if the judgment is not accepted on its face. In effect, only if such a reason is demonstrated will the Court go behind the judgment. These principles were most recently considered by the High Court in Ramsay Health Care Australia Pty Ltd v Compton [2017] HCA 28. 16 In Totev v Sfar [2006] FCA 470 at [37]-[39], Allsop J (as his Honour then was) explained the operation of s 52(2)(b) as follows: [37] On proof of the matters in s 52(1) of the Act, the Court will generally proceed to make an order for sequestration. It is for the debtor to persuade the Court that the public interest in the dealing with the insolvent debtor and the rights of individual creditors are outweighed by other considerations: Cain v Whyte [1932] HCA 6; (1933) 48 CLR 639 at 645-6 and 648. In Cain v Whyte, the judgment of Henchman J sitting as the judge in bankruptcy for the District of Southern Queensland was approved by Rich, Starke, Dixon, Evatt and McTiernan JJ. At 645-46 Henchman J was recorded as saying the following: ... Mr. Philp, however, argues that the Court has a discretion even though the proofs that I have alluded to have been made. He suggests that in the present case "other sufficient cause" exists, within the meaning of sec. 56 (3) (b), which throws upon me an obligation to dismiss, or gives me a discretion to dismiss, the petition. I agree that the sections do leave a certain amount of discretion in the Bankruptcy Judge (see secs. 54, 56 (2) and 56 (3)), and I do not agree with the argument put forward by Mr. Graham that the words "other sufficient cause" should be limited to the one case where the Court is satisfied that the petition is put forward solely for some collateral illegitimate end, and not for the purpose of securing the equal distribution of the available assets amongst the creditors. To my mind, the High Court of Australia did not intend to put a limit on the meaning of the words "other sufficient cause" in Dowling v. Colonial Mutual Life Assurance Society (1915) 20 CLR 509, and I do not propose to be the first to say that such wide words as "other sufficient cause" are necessarily limited to meaning a cause in the nature of fraud or abuse of the provisions of the bankruptcy law. I can well conceive that "other sufficient cause" might arise in connection with any particular case. To my mind, it is the duty of the Bankruptcy Judge to examine in each case, if the question is raised, whether there is other sufficient cause than the fact that the debtor is able to pay his debts in full, for refusing to make an order. I rule then that I am fully entitled to examine the contention put forward by Mr. Philp on behalf of the debtor that there is, in the present case, other sufficient cause sufficient to justify the dismissal of this petition. I approach that question with the full appreciation that, prima facie, on proof of the matters mentioned in sec. 56(2), the Court will proceed to make an order for sequestration, and that it is for the debtor to show some cause overriding the interest of the public in the stopping of unremunerative trading, and the rights of individual creditors who are unable to get their debts paid to them as they become due. Something has to be put before the Court to outweigh those considerations before it can be said that sufficient cause is shown against the making of a sequestration order. ... [38] See also Rozenbes v Kronhill [1956] HCA 65; (1956) 95 CLR 407 at 414 per Dixon CJ, Webb J and Fullagar J; and Dowling v Colonial Mutual Life Assurance Society Ltd (1915) 20 CLR 509 at 520-521. [39] In Re Svir; Ex parte Commissioner of Taxation [1998] FCA 503; (1998) 83 FCR 314 at 317, Burchett J said the following after referring to the above passage from Cain v Whyte: This exposition of the law emphasises the width of the discretion conferred by the 1966 Act upon the Court. At the same time it points to a fundamental limitation imposed by the nature of the jurisdiction in bankruptcy, which requires the Court to keep in mind, not only the interests of the individual parties before it in the particular case, but also the public interest, which may be adversely affected by the propping up of insolvency. However, in the present case that factor does not provide the bar to an exercise of discretion in the debtor's favour that it would provide in many cases, since the debtor has a paucity of creditors, other than the petitioning creditor, who would be likely to have any reason for concern. Of course, that merely removes a bar; it does not provide a positive ground constituting "other sufficient cause" why a sequestration order ought not to be made. 17 In Doggett v Commonwealth Bank of Australia [2019] FCAFC 19 at [33] and [34], the Full Court said: [33] The breadth of what might constitute "other sufficient cause" extends beyond fraud, collusion and miscarriage of justice. It must be accepted that a decision, for example made in per incuriam of a binding decision or a statutory rule which makes a debt unenforceable, there would be sufficient cause to do so. It is not unknown for a critical statutory provision to be overlooked in proceedings. For example, albeit in a different context, see Fingleton v The Queen [2005] HCA 34; 227 CLR 166, where a critical statutory provision was not drawn to attention until well after very serious consequences had been brought to bear on a former Chief Magistrate of Queensland. [34] However the High Court's reasoning is not a warrant for the automatic re-litigation of propositions not advanced in the principal proceedings. A merely colourable point that may have been taken in prior litigation but was not will not, in our opinion, suffice to put in issue whether there "is in truth or reality" a debt upon which a person's sequestration has been sought. First argument 18 Mr Singh first argued that cl 39.3 is a restraint upon Toyota Finance commencing the District Court proceeding and this proceeding. 19 In support of his argument, Mr Singh relied upon Lipman v Empire Facades [2017] NSWCA 217. However, the dispute resolution clause in that case was materially different. It required the parties to give a notice of dispute in the event of a difference or dispute between the parties arising "out of or in any way in connection with the subject matter" of the contract. The issue addressed by the Court of Appeal concerned whether, on the proper construction of the contract, it was permissible to litigate in court disputes that had already been resolved by expert determination. Thus, this decision does not assist Mr Singh. 20 Mr Singh observed that, had cl 39.3 been invoked, it may have been possible to resolve the claim made against him by Toyota Finance. In a mediation, Mr Singh could have raised issues such as his understanding that he was only liable for one-third of the principal debt and that the claim was more appropriately brought in a court in Victoria. 21 I do not accept Mr Singh's first argument. On its face, cl 39.1 permits a party to invoke that provision by giving each party a notice of dispute in accordance with cl 39.1 but it does not oblige a party to invoke the provision. If and only if cl 39.1 is invoked, the parties are required to confer in accordance with cl 39.2. Clause 39.3 provides for a mediation only in the event that the dispute identified in accordance with cl 39.1 is not resolved by the process of conference in cl 39.2. 22 The possibility that a mediation might have led to a resolution of the claim does not, without more, support a conclusion that the Court should go behind the District Court judgment. Second argument 23 Mr Singh's second argument was not entirely clear, although it was based on evidence about the circumstances in which he executed the guarantee. When first questioned, the argument seemed to be that Mr Singh should have had an opportunity to go through the mediation process in cl 39.3 in order to negotiate his liability as a proportion only of the total judgment debt. However, subsequently, Mr Singh's solicitor stated: … [M]y client agrees it's one-third, but he may have a valid defence as to the guarantee which is the position in Violi v CommBank. 24 This was a reference to Violi v Commonwealth Bank of Australia [2015] NSWCA 152, in which the Court of Appeal (by majority) set aside a default judgment against Mr Violi. There was evidence as to the circumstances in which the relevant guarantee was signed which gave rise to a conclusion that, if those facts were established, they would afford Mr Violi a defence. 25 In this case, Mr Singh concedes a liability to Toyota Finance, albeit in an amount substantially less than the judgment debt. 26 In Deputy Commissioner of Taxation v Cumins (No 5) [2008] FCA 794, Gilmour J made a sequestration order in circumstances where the amended petition relied on a debt of over $38 million. The debt had been reduced by $31,007.72, reflecting payments and credits which, since the date of judgment, the applicant volunteered should be applied to the judgment debt by way of reduction. At [68], his Honour reasoned as follows: The bankruptcy notice claimed an amount that is calculated by reference to the amount of the original judgment. It is not to the point that the amount of that judgment has been reduced: Emerson v Wreckair Pty Ltd [1992] FCA 16; (1992) 33 FCR 581 at 587. The affidavit of Deborah Jayne Thiele sworn on 12 May 2008, on behalf of the applicant deposes that the amount of the outstanding debt as at that date was $37,983,152.29. This is the amount contained in the Amended Creditor's Petition less the amount by which the judgment debt was varied as well as the further amount of $17,940 in respect of credits applied after December 2007. It is the amount of the debt on which the applicant relies. This satisfies, as a matter of fact, the requirement under s 52(1)(c) of the Act. 27 In the light of Mr Singh's conceded liability and in the absence of an application to set aside the default judgment, I am not satisfied that there is "sufficient reason to question the existence of a real debt behind the judgment". Further, I am not satisfied that the matters raised by Mr Singh provide sufficient cause why a sequestration order ought not to be made, because they do no more than show that Mr Singh might have an arguable case that his liability is less than the judgment debt. In particular, Mr Singh has not identified any public interest consideration that would favour not making the sequestration order. Conclusion 28 As the other requirements for making the order are satisfied, a sequestration order should be made against the estate of Mr Singh. I certify that the preceding twenty-eight (28) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gleeson. Associate: Dated: 9 July 2020