Federal Court of Australia

Pan v Macarthur Central Shopping Centre Pty Ltd [2023] FCA 1199

ORDERS

THE COURT ORDERS THAT:

1.    The appellant has leave to amend the Notice of Appeal in accordance with the draft which is schedule 1 to the interlocutory application dated 20 September 2023, except for the inclusion of the proposed ground of appeal 2.

2.    The following is admitted into evidence on the appeal:

(a)    exhibit TME-2 to the affidavit of Timothy Myles Elliott affirmed 20 September 2023;

(b)    affidavit of Julia Louise Egarr affirmed 25 September 2023.

3.    The appeal be dismissed.

4.    The respondent’s costs of the interlocutory application, and of the appeal, be paid with priority from the appellant’s estate.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

DOWNES J:

Relevant background

1    The respondent as lessor, and the appellant as lessee, were parties to a lease of premises in MacArthur Central Shopping Centre, Brisbane, which commenced on 8 July 2016. The respondent operated a hairdressing salon in that shopping centre. That business experienced financial difficulties and the respondent terminated the lease on 30 June 2021. The respondent then brought proceedings in the District Court of Queensland claiming outstanding amounts owing under the lease, damages and interest.

2    The appellant defended those proceedings on the basis that she had entered into an agreement with the respondent, pursuant to which it was agreed that, in effect, the lease would come to an end, a bank guarantee would be called upon by the respondent and the appellant would pay an additional sum of $26,804.72 (with no further amounts to be paid by the appellant).

3    On 11 November 2021, summary judgment was entered in the District Court in favour of the respondent against the appellant for part of its claim in the sum of $54,483.63, together with damages for breach of contract to be assessed by the Court: Macarthur Central Shopping Centre Pty Ltd v Di Pan [2021] QDC 344 (DCJ).

4    A bankruptcy notice was issued on 6 December 2021 in reliance on the judgment debt. A creditor’s petition was then filed in the Federal Circuit and Family Court of Australia (Division 2) (FCFCOA) on 19 January 2022.

5    Annexed to an affidavit sworn by the appellant on 28 March 2022 is an email dated 13 December 2021 from the appellant to the solicitors for the respondent which relevantly stated:

I do not have savings and my business account has been closed by the bank. I own no assets, I own no properties, I have no home, I do not even own a car.

6    Another email dated 28 February 2022, also annexed to that affidavit, refers to the appellant receiving social security payments (Centrelink) and applying to LawRight to seek assistance.

7    On 30 March 2022, a registrar of the FCFCOA made an order that the estate of the appellant be sequestrated under the Bankruptcy Act 1966 (Cth).

8    By application for review dated 20 April 2022, the appellant applied to the FCFCOA to review the decision of the registrar. That application was heard on 8 December 2022, and judgment was delivered on 9 December 2022 which dismissed the application: Macarthur Central Shopping Centre Pty Ltd v Pan [2022] FedCFamC2G 1029 (J).

9    Counsel for the appellant was unable to advise whether the trustee in bankruptcy had been served with the review application as required by r 7.05(2) of the Federal Circuit and Family Court of Australia (Division 2) (Bankruptcy) Rules 2021 (Cth). No point was taken about this by either party.

10    Separately, the appellant sought to appeal the DCJ to the Queensland Court of Appeal, but her notice of appeal was set aside on 12 August 2022 on the basis that she had no standing to institute or continue the appeal because of her status as a bankrupt: Pan v Macarthur Central Shopping Centre Pty Ltd [2022] QCA 150.

11    The appellant (who was self-represented at that time) then filed a Notice of Appeal in this Court from the decision of the FCFCOA. The hearing of the appeal was listed before me on 4 October 2023. The trustee did not appear at the appeal and no report from the trustee was before the Court.

12    On 15 August 2023, the appellant appointed solicitors to represent her in this appeal. By interlocutory application dated 20 September 2023, the appellant applied to amend the Notice of Appeal to delete the existing grounds of appeal and to raise only two grounds of appeal as follows:

1.    His Honour Judge Egan erred in law by applying the wrong test as to when the Court may go behind a judgment debt; and

2.    Grounds exists [sic] to go behind the judgment debt upon which the sequestration order was made, and upon which the creditor’s petition should be dismissed pursuant to section 52(2) of the Bankruptcy Act 1966.

13    Leave was also sought by both sides to adduce further evidence on the appeal. There was no opposition to that leave being granted.

14    The amended orders sought by the appellant in the proposed Notice of Appeal were:

1.    Appeal granted.

2.    If the appellant pays the Respondent the sum of $26,804.72 within 14 days of the date of this order, the sequestration order made against the Appellant on 30 March 2022 is set aside and the creditor’s petition filed 19 January 2022 is dismissed pursuant to s 52(2) of the Bankruptcy Act 1966.

3.    Upon filing and service of an affidavit proving payment in accordance with order 2 above, a Registrar of this Court must seal a final order that:

(a)    the sequestration order made against the Appellant on 30 March 2022 is set aside and the creditor’s petition filed 19 January 2022 is dismissed pursuant to s 52(2) of the Bankruptcy Act 1966;

(b)    The respondent must pay the appellant’s costs of this appeal, the review before Egan J and the original hearing of the creditor’s petition.

15    The hearing proceeded on the basis that the decision as to whether leave to amend would be given would be determined at the same time as the appeal. No submissions were made by either party which addressed the grounds of appeal as they had appeared in the original Notice of Appeal.

16    For the following reasons, leave will be granted to amend the Notice of Appeal in all respects except for the inclusion of the proposed ground 2 (to which objection was taken) and the appeal will be dismissed with costs to be paid with priority from the estate of the appellant.

Consideration

Whether legal error by the primary judge (ground 1)

17    This ground relates to [8] J at which the primary judge stated:

…At the time of the hearing before the Court, the respondent relied upon a number of affidavits, none of which disclosed any good basis for the Court going behind the judgment of the District Court of Queensland. There was no evidence of fraud, improper collusion or any other miscarriage of justice which had been made out in the respondent’s material. There was otherwise no special circumstance justifying this Court going behind the judgment of the District Court. The submissions made by the applicant were to the effect that the District Court judgment was wrong.

(citations omitted.)

18    The footnote to the proposition that “[t]here was no evidence of fraud, improper collusion or any other miscarriage of justice” cited Corney v Brien (1951) 84 CLR 343 at [356]–[357] (which I construe as a reference to Fullagar J’s reasons at pages 356 to 357) and Ramsay Health Care Australia v Compton (2017) 261 CLR 132 at [91].

19    In relation to this ground, the submissions of the appellant will be addressed seriatim.

20    The appellant submitted in writing that the reasons in [8] J indicate that the test that the primary judge applied for going behind the judgment debt was whether there was any “evidence of fraud, improper collusion or any other miscarriage of justice”. However, that submission cannot be accepted, as the primary judge went on to state that “[t]here was otherwise no special circumstance justifying this Court going behind the judgment of the District Court” (emphasis added).

21    The appellant submitted that the citations referred to in the footnote “demonstrate an error of law in taking too narrow a view of the Court’s discretion in this regard”. That was said to be because the citation to Ramsay at [91] is to the minority decision of Gageler J whereas a complete (and accurate) statement of the legal test which should have been articulated by the primary judge should have included a reference to the final sentence of Ramsay at [70] in which the majority (comprised of Kiefel CJ, Keane and Nettle JJ) stated that:

The same concern [that is, that a sequestration order has been made which was based on a judgment that was not the outcome of rigorous processes of adversarial litigation] may also arise in a case where the judgment was obtained in circumstances which suggest a failure on the part of the judgment debtor to present his or her case on its merits in the litigation which led to the judgment.

22    However, the final sentence in [70] of Ramsay does not form part of the legal test to be applied for the purposes of deciding whether to go behind a judgment debt such that the primary judge erred in law in not reciting it. It is an articulation of an example of a situation where a court might consider going behind a judgment debt, and needs to be read in the context of the discussion at [68]–[70] of Ramsay.

23    Finally, this ground of appeal was advanced on the premise that, because the appellant is “a self represented litigant for whom English is not her first language, and who struggles to follow the complexities of court procedure and litigation”, the appellant was unable to present her case on its merits in the District Court (ergo the statement in the final sentence of [70] of Ramsay was apposite).

24    However, there was no cogent evidence before the primary judge to support a finding that the appellant was unable to (or did not) present her case on its merits in the District Court proceeding, and nor was any such submission made. In those circumstances, it is not surprising that the primary judge did not address the issue of whether the appellant was able to present her case on its merits in the District Court. To the contrary, the appellant’s case before the primary judge was to the effect that the DCJ was wrong (as noted in [8] J and about which statement no complaint is made). I am therefore unable to discern error because the primary judge did not appreciate that, in addition to the arguments which the appellant did advance, there was a further one which was not advanced which had the consequence that the propositions in Ramsay at [70] should have received particular focus.

25    Further, the appellant has not adduced satisfactory evidence on this appeal to demonstrate the facts relied upon to claim that she was unable to present her case on its merits in the District Court. Instead, I have been asked to draw an inference from transcripts as to her ability to speak English and to understand legal concepts, effectively based on her own statements made in other courts. I am not prepared to draw such an inference in circumstances where these matters could have been, but were not, the subject of direct evidence by the appellant in this appeal (subject to leave being granted), and where other evidence which was adduced contradicted such an inference.

26    Notably, the evidence shows that the appellant was the author of documents written in the English language (such as emails); the District Court judge was satisfied that the appellant did not require an interpreter at the hearing of the summary judgment application; and the appellant’s counsel accepted that all of the relevant evidence relied upon by her to support her defence of the claim (which was documentary) was before the District Court judge who decided the summary judgment application.

27    It follows that no error of law has been demonstrated and ground 1 fails.

Whether grounds exist to go behind judgment debt (proposed ground 2)

28    It was submitted by counsel for the appellant that:

The motivating reason why we say that the judgment should be gone behind is because Ms Pan was a self-represented litigant with English as a second language who was simply not [equipped] to deal with the summary judgment procedure, let alone the nuances of questions such as… which category of Masters v Cameron this was, how principles of contractual interpretation should be applied to this scenario to ultimately come to an outcome…

29    While it was accepted by the appellant that all relevant evidence was before the District Court judge, it was submitted that there were legal submissions that were not made that could have been made had the appellant been legally represented.

30    However, leave will not be granted to include ground 2 in the Notice of Appeal in circumstances where:

(1)    The factual premise relied upon to go behind the judgment was not established by the evidence, for the reasons already explained.

(2)    To the extent that it might be inferred that the appellant did not know or appreciate the legal arguments that could have been, but were not, presented by her in the District Court, there was no evidence that the appellant did not understand that she could have had legal representation at the hearing in the District Court, or to explain why she did not have legal representation.

(3)    There was no explanation in the evidence as to why the appellant did not have legal representation before the primary judge to justify why she should now be permitted to advance the proposed ground 2 on this appeal (being an argument not advanced before the primary judge).

(4)    There is a public interest in the finality of litigation.

31    A further reason for refusing leave to amend is that the proposed ground 2 lacks merit such that, were it permitted to be advanced, it would fail in any event.

(1)    The appellant accepts that the same case that she advances before this Court – that a binding agreement was reached with the respondent for her to pay a lesser sum – was advanced by her in the District Court.

(2)    As already observed, there is no satisfactory evidence which demonstrated that the appellant was unable to, or did not, present her case on its merits in the District Court proceeding.

(3)    This is not a case involving a consent judgment or a default judgment. On the contrary, the merits of the appellant’s case were tested in a contested hearing at which both parties appeared. All of the relevant evidence was before the District Court. The reasons of the District Court contain an analysis of the merits of the contention by the appellant that an agreement to pay a lesser sum was reached by reference to that evidence: see [17]–[20] DCJ.

(4)    That the appellant elected not to be legally represented in the District Court (unlike on this appeal) does not have the consequence that she has been deprived of presenting her case on the merits so as to justify going behind the judgment. A suspicion of inadequate representation is not of itself sufficient to give rise to a question worthy of investigation by a bankruptcy court: Ramsay at [71].

(5)    That there were additional arguments which could have been advanced by the appellant in the District Court, but were not, will not suffice to put in issue whether there “is in truth or reality” a debt upon which a person’s sequestration has been sought: see, generally, Doggett v Commonwealth Bank of Australia [2019] FCAFC 19 (Kerr, Davies and Thawley JJ) at [34].

32    Even if the appellant’s contentions about the agreement which she says she reached with the respondent are correct, the position remains that the appellant does not dispute that she continues to owe a debt to the respondent of $26,804.72. The appellant therefore does not contend that there is, in reality, no debt due, or that her debt is below the statutory minimum required to sustain a sequestration order. Although this is not decisive, this would provide an additional and powerful reason not to go behind the judgment debt, even if leave to advance ground 2 had been given.

33    As observed by the Full Court in Cumins v Deputy Commissioner of Taxation (2008) 172 FCR 425; [2008] FCAFC 185 (North, Emmett and Rares JJ) at [8]–[10]:

… [W]here the Court, at hearing of the petition, is satisfied that there was a real debt on which the judgment was founded, although judgment was entered for an amount greater than the sum truly owing to the judgment creditor, the Court is entitled to proceed to make the debtor bankrupt. There is no principle that if a judgment is irregular, because it was entered for an excessive amount, the irregularity should necessarily invalidate subsequent bankruptcy proceedings: Re Bedford; Ex parte HC Sleigh (Qld) Pty Ltd (1967) 9 FLR 497 at 499.

The judgment created a new debt which bound the appellant. Until that judgment was set aside it remained the measure of the debt payable by the appellant.

The bankruptcy notice speaks at the date of its issue: Walsh v Deputy Commissioner of Taxation (1984) 156 CLR 337 at 339; Emerson v Wreckair Pty Ltd (1992) 33 FCR 581 at 587 (Emerson). At that date, the judgment debt was $38,084,522.24 as recorded in item 1 in the Schedule to the bankruptcy notice. The fact that the judgment sum might be or is reduced in the future does not invalidate the bankruptcy notice: Emerson 33 FCR at 587. A court exercising bankruptcy jurisdiction may go behind a judgment, but would not do so if the grounds upon which the judgment is challenged are such that, if accepted, they would only support a finding that the amount of the debt would be reduced and would not support a finding that there was no debt at all: Emerson 33 FCR at 589. It may also be relevant if the amount of the judgment would be reduced below the statutory minimum that supports a petition: Wilson v Official Trustee in Bankruptcy [1999] FCA 1760 at [40].

(emphasis added.)

Insolvency of appellant

34    Even had both proposed grounds of appeal been permitted to be advanced, and both had succeeded, I would have declined to make the orders sought by the appellant.

35    The primary judge made an unchallenged finding at [10] J that the appellant is unable to pay her debts as and when they fall due.

36    There is no evidence before me by which I can be satisfied that, if the sequestration order is set aside and the creditor’s petition is dismissed (as is sought by the appellant):

(1)    the costs of the trustee in bankruptcy will be paid and how that will occur. As the sequestration order was made in March 2022, it cannot be assumed that these costs would be insignificant;

(2)    the interests of other creditors of the appellant’s estate would not be affected adversely by the proposed orders; and

(3)    the appellant would be able to pay her debts as and when they fall due, and why that is the case, considering the statements in her previous emails about her financial position and the unchallenged finding by the primary judge to the effect that she is insolvent.

Associate:

Dated:    11 October 2023