Federal Court of Australia

Fleming v Calpis [2025] FCA 347

ORDERS

THE COURT ORDERS THAT:

1.    The estate of the respondent, Luke Calpis, be sequestrated under the Bankruptcy Act 1966 (Cth).

2.    The applicant creditor’s costs be taxed and paid from the respondent’s bankrupt estate as a priority in accordance with the Bankruptcy Act.

3.    The applicant creditor is to provide a copy of these Orders to the Official Receiver in Sydney within two days of the making of the Orders.

THE COURT NOTES THAT:

4.    The date of the act of bankruptcy of the respondent is 24 August 2023.

5.    A consent to act as trustee signed by Bruce Gleeson has been filed pursuant to s 156A of the Bankruptcy Act.

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

REASONS FOR JUDGMENT

MARKOVIC J:

1    On 3 August 2023 the applicant, George Fleming, served Bankruptcy Notice BN261088 issued by the Official Receiver on 3 August 2023 on the respondent, Luke Calpis. The Bankruptcy Notice sought payment of $141,510.90 made up of a judgment of the District Court of New South Wales given on 29 June 2023 and entered on 30 June 2023 (District Court Judgment) in proceeding 2022/295938 between Mr Fleming as plaintiff and Mr Calpis as defendant (District Court Proceeding) in the sum of $140,241.10, inclusive of interest (Judgment Sum) and further interest calculated on the Judgment Sum of $1,269.80.

2    The Bankruptcy Notice required either payment of the amount demanded in it or for Mr Calpis to make arrangements to Mr Fleming’s satisfaction for settlement of the amount claimed within 21 days. Mr Calpis failed to do either.

3    Accordingly, on 25 August 2023 Mr Fleming filed a Creditor’s Petition seeking sequestration of Mr Calpis’ estate under s 43 of the Bankruptcy Act 1966 (Cth). The Creditor’s Petition was personally served on Mr Calpis on 7 September 2023.

4    On 16 October 2023 Mr Calpis filed a Notice stating Grounds of Opposition to Creditor’s Petition together with an affidavit in support affirmed by him on the same day. On 2 April 2024 Mr Calpis filed an Amended Notice stating Grounds of Opposition to Creditor’s Petition, notifying the following grounds of opposition to the Creditor’s Petition (as written):

1.    The debt on which the petitioning creditor relies is not owing.

…

2.    The debt on which it the creditor’s petition is based:

i.    was not sufficiently proved and is not truly a basis for the making of a sequestration order; and

ii.    is the subject of a counter-claim, set off and or cross demand.

…

    (Underlining omitted. Particulars omitted.)

5    At the hearing of the Creditor’s Petition Mr Calpis abandoned ground 2(ii) of the Amended Notice of Opposition. The remaining grounds in effect raise the same issue, whether there is some other sufficient cause not to make a sequestration order, relying on s 52(2) of the Bankruptcy Act, because there is reason to go behind the District Court Judgment to inquire whether there is in truth a debt owing as explained in the authorities extracted below.

6    On 8 May 2024 the Court made an order pursuant to s 58(5) of the Bankruptcy Act that the period by which the Creditor’s Petition will lapse be extended to 25 August 2025.

Legislative framework and legal principles

7    Section 43 of the Bankruptcy Act empowers the Court, on a petition presented by a creditor, to make a sequestration order against the estate of a debtor where the debtor has committed an act of bankruptcy and at the time when the act of bankruptcy was committed, relevantly the debtor was personally present or ordinarily resident in Australia.

8    Section 52 of the Bankruptcy Act relevantly provides:

(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.

…

(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.

…

9    In Toyota Finance Australia Ltd v Youssef Berro [2022] FCA 497 at [33]-[37] Burley J conveniently summarised the principles applicable to the approach to an application for a sequestration order under s 52 of the Bankruptcy Act as follows:

[33]    The petitioning creditor has a prima facie right to a sequestration order once proof of the matters required by s 52(1) has been satisfied: Cain v Whyte [1933] HCA 6; 48 CLR 639 at 646 and 648 (Rich J, Starke, Dixon, Evatt and McTiernan JJ agreeing); Rozenbes v Kronhill [1956] HCA 65; 95 CLR 407 at 414 (Dixon CJ, Webb and Fullagar JJ).

[34]    Nevertheless, the Court retains a discretion to refuse such an order if the debtor is able to pay their debts (s 52(2)(a)) or for “other sufficient cause” (s 52(2)(b)). The onus is on the debtor, Mr Berro, to establish either or both of the preconditions. The circumstances which may constitute “other sufficient cause” are variable, and it is inappropriate to catalogue or circumscribe them: Clyne v Deputy Commissioner of Taxation [1985] FCA 4; 5 FCR 1 at 5 (Fisher, Morling and Wilcox JJ); Liang v LV Property Investments Pty Ltd [2015] FCA 1057 at [52] (Beach J).

[35]    The requirement that the creditor prove that the debt relied upon is still owing will ordinarily be easier to fulfil in respect of a judgment debt, the judgment being prima facie evidence of the debt: Wolff v Donovan [1991] FCA 222; 29 FCR 480 at 487 (Davies J).

[36]    One relevant matter is that the Court has power to go “round the judgment”, to enquire into its subject matter, so as to satisfy itself that the creditor’s petition is founded on a “good debt”: Shaw v Yarranova Pty Ltd [2017] FCAFC 88; 252 FCR 267 at [16] (North, Perry and Charlesworth JJ). The scrutiny required by s 52, which includes consideration of “whether there is, in truth and reality, a debt owing to the petitioning creditor[,] serves to protect the interests of third parties, particularly other creditors of the debtor”: Ramsay Health Care Australia Pty Ltd v Compton [2017] HCA 28; 261 CLR 132 at [55] (Kiefel CJ, Keane and Nettle JJ).

[37]    Even if “other sufficient cause” has been shown, that merely enlivens the court’s discretion to refuse to make a sequestration order. “The power in s 52(2) is permissive, not mandatory. Even if a debtor can bring himself or herself within s 52(2)(b), that does not entitle him or her to have a sequestration order refused”: Endresz v Australian Securities and Investments Commission (No 2) [2015] FCAFC 33; 228 FCR 334 at [37] (Edmonds, Gordon and Beach JJ); Russell v Polites Investments Pty Ltd [2012] FCA 11 at [24] (Flick J); Liang at [53] (Beach J).

10    In Ramsay Health Care Australia Pty Ltd v Compton [2017] HCA 28; 261 CLR 132 a majority of the High Court (Kiefel CJ, Keane and Nettle JJ) rejected Ramsay Health Care Australia Pty Ltd’s contention that the decision in Corney v Brien (1951) 84 CLR 343; [1951] HCA 31 established that a bankruptcy court's discretion to go behind a judgment after a contested hearing is enlivened only in the event of some fraud, collusion or miscarriage of justice. At [42]-[44] and [48] their Honours said:

[42]    In Wren v Mahony, Barwick CJ, with whom Windeyer and Owen JJ agreed, said:

“The judgment is never conclusive in bankruptcy. It does not always represent itself as the relevant debt of the petitioning creditor, even though under the general law, the prior existing debt has merged in a judgment. But the Bankruptcy Court may accept the judgment as satisfactory proof of the petitioning creditor’s debt. In that sense that court has a discretion. It may or may not so accept the judgment. But it has been made quite clear by the decisions of the past that where reason is shown for questioning whether behind the judgment or as it is said, as the consideration for it, there was in truth and reality a debt due to the petitioning creditor, the Court of Bankruptcy can no longer accept the judgment as such satisfactory proof. It must then exercise its power, or if you will, its discretion to look at what is behind the judgment: to what is its consideration.”

[43]    There are good reasons why this statement should not be given the artificially narrow application urged on behalf of Ramsay. First, it is not correct to say that Wren v Mahony involved a default judgment. In truth, it involved a default that resulted from the defendant’s failure to plead a good defence, having chosen to defend the claim on a point of law that was resolved against him. The primary judge in bankruptcy declined to reconsider the resolution of the point of law; and the High Court held that the primary judge erred in failing to reconsider the point, which the High Court went on to uphold.

[44]    Secondly, Wren v Mahony held that a Bankruptcy Court may go behind a judgment, notwithstanding that the judgment was obtained after a contested hearing. That can be seen by reference to the reasons of the dissentients, reasons that were necessarily rejected by the majority.

…

[48]    Wren v Mahony has long been accepted as standing against the proposition advanced by Ramsay. Thus, in Simon v O’Gorman Pty Ltd, Lockhart J, with whom Fisher J agreed, said:

“The circumstances in which the court will inquire into the validity of a judgment debt are not closed; but it is clear that the court will not inquire as a matter of course into that question.

Circumstances tending to show fraud, collusion or miscarriage of justice or that a compromise was not a fair and reasonable one are the most frequent examples of the exercise by the court of this jurisdiction.

The courts are reluctant to exercise this jurisdiction where the judgment was entered after a full investigation of the issues at a trial where both parties appeared and had ample opportunity to put their case to the court.”

    (Footnotes omitted.)

11    At [55]-[56] their Honours said:

[55]    The scrutiny required by s 52 as to whether there is, in truth and reality, a debt owing to the petitioning creditor serves to protect the interests of third parties, particularly other creditors of the debtor. It is of critical importance to appreciate that such persons were not parties to the proceedings that resulted in the judgment debt. It has long been recognised that their interest in being paid their debts in full should not be prejudiced by the making of a sequestration order in reliance on a judgment debt which does not reflect the true indebtedness of the debtor to the petitioning creditor. In Re Fraser; Ex parte Central Bank of London, Lord Esher MR said:

“The decision is based upon the highest ground — viz, that in making a receiving order, the Court is not dealing simply between the petitioning creditor and the debtor, but it is interfering with the rights of his other creditors, who, if the order is made, will not be able to sue the debtor for their debts, and that the Court ought not to exercise this extraordinary power unless it is satisfied that there is a good debt due to the petitioning creditor. The existence of the judgment is no doubt prima facie evidence of a debt; but still the Court of Bankruptcy is entitled to inquire whether there really is a debt due to the petitioning creditor.”

[56]    Almost a century later, the effect of the authorities on the topic was summarised in similar terms in Ahern v Deputy Commissioner of Taxation (Qld) by Davies, Lockhart and Neaves JJ:

“[B]efore a person can be made bankrupt the court must be satisfied that the debt on which the petitioning creditor relies is due by the debtor and that if any genuine dispute exists as to the liability of the debtor to the petitioning creditor it ought to be investigated before he is made bankrupt. Bankruptcy is not mere inter partes litigation. It involves change of status and has quasi-penal consequences.”

    (Footnote omitted.)

12    At [67]-[68] the majority also relevantly said:

[67]    It is no answer to the latter point for Ramsay to say, as the primary judge did, that Mr Compton is bound by the conduct of his case on his behalf at the trial in the Supreme Court. As has been seen, the notion that a party is bound by the conduct of his or her case has never been a sufficient reason not to look behind a consent judgment or a default judgment. That is because a Bankruptcy Court is concerned, not to discipline litigants or to protect finality in the administration of justice as between parties to litigation, but to protect the interests of third parties who were not participants in the litigation which led to the judgment in question.

[68]    For the purposes of s 52 of the Act, a judgment may usually be taken to be sufficient evidence of a debt in that a judgment against a debtor in favour of a creditor obtained after a trial is, generally speaking, a reliable indication of the true state of indebtedness as between creditor and debtor. Indeed, such a judgment can usually be expected to provide the most reliable statement of the debt humanly attainable because the ordinary processes of the adversarial system provide a practical guarantee of reliability. The testing of the relative merits of a claim and counterclaim under the rigours of adversarial litigation will usually establish the true state of accounts as between the parties to the proceedings. Accordingly, a Bankruptcy Court will usually have no occasion to investigate whether the judgment debt is a true reflection of the real debt. But where the merits of a claim and counterclaim have not been tested in adversarial litigation, a judgment debt will not have this practical guarantee of reliability.

    (Footnote omitted.)

13    In agreeing with the majority in Ramsay Health Care, Edelman J said at [110]-[111]:

[110]    Section 52(1)(c) of the Bankruptcy Act has antecedents at least as old as 1731, which were the subject of the application of equitable principles for more than two centuries before the same principles were adopted by this Court. As the reasons of Kiefel CJ, Keane and Nettle JJ explain, the modern position, reflected in the course of decisions of this Court in Petrie v Redmond, Corney v Brien, and Wren v Mahony, remains that a court exercising jurisdiction in bankruptcy is not bound to accept as conclusive a judgment debt. The circumstances which enliven the discretion to go behind the judgment are not constrained to any categories, even when the judgment debt was obtained after a contested hearing. As for the exercise of the discretion to go behind the judgment and to conduct a hearing into whether the underlying debt existed (which was not in issue on this appeal), Barwick CJ said in Wren v Mahony that the discretion to accept a judgment as satisfactory proof of a debt “is not well exercised where substantial reasons are given for questioning whether behind that judgment there was in truth and reality a debt due to the petitioner”. The reference to “substantial reasons” echoed the language of earlier cases including a reference to “a prima facie case impeaching the judgment”, by which the courts meant that there were prima facie grounds upon which a court of equity would choose to intervene.

[111]    Whether a matter will amount to substantial reasons so as to permit the exercise of the discretion will depend upon the particular circumstances. But, as history shows, where a judgment debt has been obtained after the testing of the merits in adversarial litigation, then in the absence of some evidence of fraud, collusion, or miscarriage of justice, a court exercising bankruptcy jurisdiction will rarely have substantial reasons to investigate whether the debt which merged in the judgment was truly owed.

    (Footnote omitted.)

Evidence

14    Evidence filed on behalf of Mr Fleming established the following matters as required by the Bankruptcy Act and the Federal Court (Bankruptcy) Rules 2005 (Cth):

(1)    the Bankruptcy Notice was served on 3 August 2023;

(2)    Mr Calpis neither paid nor secured the repayment of the amount claimed in the Bankruptcy Notice within the 21 day period specified in it. Accordingly, Mr Calpis committed an act of bankruptcy on 24 August 2023;

(3)    the Creditor’s Petition was issued on 25 August 2023. It was personally served on Mr Calpis on 7 September 2023 together with an affidavit of search undertaken on 24 August 2023 of the records of this Court and of the Federal Circuit and Family Court of Australia which disclosed that no application had been made by Mr Calpis in relation to the Bankruptcy Notice and an affidavit of service of the Bankruptcy Notice;

(4)    the debt the subject of the Bankruptcy Notice remains owing by Mr Calpis to Mr Fleming; and

(5)    a search of the National Personal Insolvency Index was returned with no entries in relation to Mr Calpis.

15    In addition, Mr Fleming filed and tendered a trustee consent to act declaration signed by Bruce Gleeson on 8 September 2023.

16    The balance of the evidence before me, which was voluminous, went principally to the question of whether there was in fact a debt owing to Mr Fleming. A summary follows.

Dealings between Messrs Fleming and Calpis

17    Messrs Fleming and Calpis have had a long business association.

18    Mr Fleming is a qualified chartered accountant (but has not practised since 1976) and a fellow of the Institute of Chartered Accountants. Since 2001 he has been involved in second tier lending on real property backed assets.

19    Mr Fleming’s earliest dealings with Mr Calpis were in 2016 when Mr Fleming (or a company associated with him) loaned $300,000 to Mr Calpis’ company, Freehold Capital Pty Ltd, at an interest rate of 22% per annum secured by a mortgage over a unit owned by Freehold in a development it had just completed in Stanley Street, Darlinghurst, New South Wales (Stanley Street Development). The loan was repaid upon sale of the final unit in the Stanley Street Development.

20    Freehold was subsequently placed into liquidation with debts owing to the Australian Taxation Office, Impero Constructions Pty Ltd and Mr Calpis’ mother, Diana Zubanski.

21    In March and October 2018 Mr Fleming arranged loans for projects undertaken by Mr Calpis in Darling Point and Surry Hills, New South Wales. The loan documents in evidence before me showed that the sums of $4,430,439 and $1,903,137 respectively were advanced to entities associated with Mr Calpis for those projects. In each case the loans were secured by mortgages, guarantees and/or general security deeds.

22    The loan advanced for the project in Darling Point was repaid on 8 July 2020. The four units in the Surry Hills development were sold in March 2020 for $7 million inclusive of GST which was sufficient to repay the capital amount owing to Australian Unity, the first mortgagee. At the time, no monies were repaid to Mr Fleming’s entity which was owed $3.2 million. As at early November 2023 the amount owing had increased to $7.298 million.

Goulburn Street Developments Pty Ltd and the Crown Street Development

23    According to Mr Calpis, he and Mr Fleming were in a quasi-partnership in a company called Goulburn Street Developments Pty Ltd (GSD). As at 21 June 2023, Messrs Calpis and Fleming were directors of and shareholders in GSD, each holding their respective shares through trusts. Mr Calpis’ corporate trustee was Calp Investments Pty Ltd and Mr Fleming’s corporate trustee was Gemi Family Pty Ltd. Those entities held 60% and 40% respectively of the shares in GSD.

24    Mr Calpis says that GSD’s purpose was to purchase and develop commercial property at 249-255 Crown Street, Surry Hills New South Wales (Crown Street Development) and subsequently GSD became a vehicle for exploring potential new property development sites. Through GSD, Mr Calpis undertook the work of identifying sites, securing options to purchase, attending to planning and development applications and overseeing the development while Mr Fleming advanced the money. Thereafter Messrs Calpis and Fleming split profits in proportion to their respective shareholding, after Mr Fleming or his corporate entities were repaid. This arrangement is referred to by Mr Calpis as the JV Purpose.

25    According to Mr Calpis this was the agreement in place for the Crown Street Development, beyond the initial loan advanced by Gemi Investors Pty Ltd, a company of which Mr Fleming was director and shareholder. He says that the money was Mr Fleming’s contribution to the project and repayment in full plus a profit share thereafter was his reward.

26    Mr Fleming denies that he has ever been in any form of quasi partnership with Mr Calpis in relation to GSD (or any other transaction) or that there was ever any “JV Purpose” associated with GSD as asserted by Mr Calpis. Rather, Mr Fleming gives the following evidence about how he came to be involved in GSD and the Crown Street Development.

27    Mr Fleming says that he was approached by Mr Calpis, although he does not say when, seeking funding to pay option, DA and architect fees for the Crown Street Development. Mr Calpis informed Mr Fleming at the time that the borrower was to be Darlinghurst Developments Pty Ltd but in a later conversation informed Mr Fleming that the borrower would be GSD rather than Darlinghurst Developments.

28    On 4 September 2019 Gemi 119 Pty Limited as lender, GSD as borrower and Calp, Mr Calpis and Darlinghurst Developments as guarantors entered into a loan agreement pursuant to the terms of which Gemi 119 agreed to loan $2,245,261.45 to GSD at an “Agreed Rate” of 29% and “Line Fee” of “4.4% of the Loan outstanding as at the Termination Date”, which was 21 November 2019 unless extended. The loan was secured by way of an unregistered mortgage over a property at 471B Bourke Street, Surry Hills, New South Wales, registered security interests over the assets and undertakings of GSD and guarantees provided by Calp, Darlinghurst Developments and Mr Calpis. Monies were then advanced to GSD.

29    Again, at a time not identified but I infer to be after the loan documents referred to in the preceding paragraph were executed, Mr Fleming had a conversation with Mr Calpis in which Mr Calpis said:

George I have a number of investors that will partner with me and take out your debt once the properties are settled and the DA in place. Can you assist.

Mr Fleming agreed to do so.

30    Subsequently Gemi Investors as lender, GSD as borrower and Mr Calpis, Calp and Darlinghurst Developments as guarantors entered into a loan agreement, Gemi Investors as secured party and Darlinghurst Developments, GSD and Calp as grantor entered into a general security deed, and on 21 February 2020 each of Calp, Darlinghurst Developments and Mr Calpis as guarantor and Gemi Investors as creditor entered into deeds of guarantee and indemnity. In addition, a registered second mortgage and an unregistered mortgage were granted by GSD over certain properties in favour of Gemi Investors to secure the monies advanced.

31    In October 2019 and February 2020 Mr Fleming had several conversations with Mr Calpis in which Mr Calpis asked him whether he was interested in being a joint venture partner, rather than a lender. Mr Fleming was not interested in doing so and on several occasions informed Mr Calpis accordingly.

32    In January 2020 Mr Fleming agreed to attend a meeting with Mr Calpis and Austar Fund Management. Mr Calpis informed Mr Fleming that the purpose of the meeting was that Austar was “looking to put in up to $30 million but GSD [may] need to kick in just over $10 million”. At the meeting Austar indicated that it was considering advancing a construction loan of $30 million to GSD but only if GSD injected $10.2 million to cover the balance of the costs and Messrs Calpis and Fleming provided personal guarantees.

33    On 24 January 2020 Mr Fleming sent an email to Mr Calpis in which he wrote (as written):

After a lot of thought I have made up my mind thst I am not proceeding with the Crown st development After looking st the costs and the capital that o require to invest my personal exposure although there could be some upside I don't want to go through the anxiety of the next 18 months worrying about cost overruns and finding Tennant's snd them eventual sale I know time is running out but you have to find and alternative to me Luke I am not going to change my mind My decision is not negotiable

34    After Mr Fleming sent that email, Mr Calpis called Mr Fleming on two occasions and, during the second call, asked Mr Fleming to meet with him. Following their meeting, Mr Fleming decided that he was prepared to lend the money requested by Mr Calpis but that he would need a greater level of protection given Mr Calpis’ financial status at the time. Accordingly, on 21 February 2020 GSD as “Owner” and Gemi Investors (referred to as Gemi in the agreement) entered into a Loan and Participation Agreement. It included:

(1)    under the heading “Introduction”:

A.    The Owner will be the registered proprietors of the whole of the land described in Folio Identifiers 1/135724, 1/922445, 1/668659 and 1/922447 (Property) after completion of the purchase scheduled for 21 February 2020.

B.    Gemi has agreed to lend the Owner the Loans referred to in this Agreement on the terms of this Agreement and the Loan Agreement.

C.    The Owner has agreed to Gemi participating in the Project on the terms of this agreement and on the understanding both parties are responsible to procure all funding required for the purposes of the Project and meeting all Project Costs and Gemi has the right to provide any of such funding if it wishes to do so.

(2)    at cl 2 titled “Project”:

2.1    The Owner and Gemi and each of them shall carry out the Project in an expeditious and professional manner and in accordance with the terms of this Agreement whilst they have management of the Project pursuant to clause 4.

2.2    The Owner and Gemi whilst they have management of the Project pursuant to clause 4 must:

(a)    prepare or cause to be prepared the application for the approval of any necessary Development Application;

(b)    use reasonable endeavours to obtain all Approvals for the Project;

(c)    perform the Project:

(1)    in accordance with applicable Laws;

(2)    in accordance with the Approvals and the latest design for the Project;

(3)    so as to ensure that the Works are performed by persons who are suitably qualified and experienced;

(4)    using reasonable endeavours to ensure that the Works reach practical completion on or before the date which is reasonable for the Project; and

(5)    by effecting and maintaining all usual insurances in respect of the conduct of the Project and employees or agents engaged in any way in the Project (including without limitation all professional indemnity insurance, Works insurance, public liability insurance for not less than $20 million with a recognised insurer carrying on business in NSW noting the interest of Gemi as mortgagee if that is the case, and all necessary workers' compensation insurances); and

(d)    pay all rates, taxes (excluding income tax), charges, outgoings and assessments that may be payable in respect of the Property.

(3)    at cl 3 titled “Gemi’s Loan and Participation”:

3.1    Contemporaneously with execution of this Agreement Gemi will pay the Completion Payment as a loan, such loan aggregating with the Existing Debt on the terms set out in this clause 3.

3.2    In consideration of Gemi participating in this agreement the Owner guarantees to the Creditor the full repayment of the Principal Sum which is included as part of the Existing Debt. The Owner agrees to execute any additional documents required by Gemi to give further effect to this clause

3.3    All amounts payable by the Owner to Gemi pursuant to this Agreement will be secured by the Gemi Initial Securities over the Property granted by the Owner over the Property as specified in the Loan Agreement.

3.4    …

3.5    In consideration of the payments referred to in clauses 3 and subject to the terms of this Agreement the Parties agree that Gemi is entitled to participate In the Gross Proceeds and the Distributable Amount arising from the sale of the Saleable Project Assets as set out in clause 8.1.

…

(4)    at cl 4 titled “Management of the Project”:

4.1    Subject to clause 4.8 the Project shall be managed by the Owner and Gemi jointly in accordance with clause 2 and this clause.

4.2    The Owner and Gemi jointly shall manage the Project through the Project Management Committee.

…

(5)    at cl 6 titled “Commercial Risk”:

Subject in all respects to the terms of this Agreement, the Owner and Gemi agree that they share the commercial risk of the execution of the Project to the intent that Gemi will receive its share of the Gross Proceeds and the Distributable Amount as provided in clause 8.1.

35    At the time of entering into the Loan and Participation Agreement Mr Fleming was not aware of various matters which would have negatively impacted his decision to do so. I do not propose to set those matters out.

36    Impero was appointed as the builders for the Crown Street Development and commenced work in March 2020. At the commencement of construction, a representative of Impero informed Mr Fleming that they were “very confident of getting the OC by mid January 2021”. Mr Fleming was content with that projection given that the Austar facility was due to expire on 21 May 2021. It allowed enough time even if Impero ran over by a month or so.

37    Despite what he was told by Impero about timeframes, Mr Fleming thought it would be wise to reach out to the National Australia Bank (NAB) to secure better terms of finance. As entities associated with him would have a second ranking position behind NAB he was keen to ensure the finance arrangements were in the best possible shape. He thus sought a meeting with his contact at NAB, Mark Algie. After undertaking a valuation, NAB indicated that it was prepared to lend $24 million with potential to increase the loan once the occupation certificate was issued and the property tenanted. However, to do that, NAB required a guarantee from Mr Fleming and for him to become director and shareholder of GSD to support the guarantee.

38    Mr Fleming then had a conversation with Mr Calpis to the following effect:

Mr Fleming:    I've spoken with NAB and I need me to be a director and shareholder of GSD.

Mr Calpis:    Fine with me.

Mr Fleming:    I propose that 40% of the shares are issued to my corporate trustee, but in the event the loans are paid in full with interest and fees that I would forgo any distribution claim as a shareholder.

Mr Calpis:    Sounds fair to me. You're stumping up all the money.

Mr Fleming:    Yes, I am and I want to try to get the best outcome.

39    Gemi Family subsequently became a shareholder in GSD and on 24 November 2020 Mr Fleming became a director of GSD.

40    The Crown Street Development did not complete by January 2021 and by April 2021 Mr Fleming formed the view that it was not likely to complete by the time of the expiration of the Austar facility.

41    On or about 27 May 2021 Mr Fleming learnt that, because of the quantity surveyor’s report that it had received, NAB was only prepared to loan $17 million. At that time GSD owed $25 million to Austar. The change in NAB’s position meant that Gemi Investors would need to fund the shortfall of $8 million.

42    While not fully explained, it seems that construction costs had also increased so that Mr Fleming had to find a further $2 million. Mr Fleming was annoyed with Mr Calpis given the significant cost blowouts and the fact that he was required to source funding to meet such further costs to address what he considered to be a “black hole”.

43    On 21 May 2021 GSD was ready to settle the finance with NAB, I infer, to pay out Austar, at least in part. However, at the time NAB informed Mr Fleming that caveats had “been registered over the title” which were impacting the ability for NAB to advance funds. It seems that the caveats were lodged by the liquidator of Freehold in relation to claims that he asserted Freehold had against GSD. The dispute between Freehold, its liquidator and GSD settled, and Mr Fleming says that he was required to source funds to pay as part of that settlement as well as to fund legal fees associated with it.

44    According to Mr Fleming, he was forced to take a more active role in relation to the Crown Street Development because of losses incurred on earlier loans and the costs “blowout” in that development. Mr Fleming says that he had to take a more active role to try to protect the loans made by his various related entities given the increasing size of the overall debt. If NAB had not required Mr Fleming to become a director and shareholder of GSD as a foundation for the guarantee it required, Mr Fleming would not have seen any need to do so. By providing the guarantee for GSD, Mr Fleming was taking on a significant financial obligation in circumstances where Mr Calpis’ financial position was “slight at best” and he had never contributed any of his own money.

Calp is wound up

45    Impero obtained judgment against Calp for unpaid construction costs of approximately $1.3 million. On 22 August 2022, on the application of Impero, Calp was wound up and liquidators were appointed to it.

A loan to Mr Calpis

46    The District Court Judgment concerns a loan which Mr Fleming says he made personally to Mr Calpis in December 2021.

47    On 11 November 2021 Shadd Daniel Danesi and Mr Calpis entered into an “Exclusive Due Diligence Deed” (First Due Diligence Deed) by which, in exchange for the “Exclusive Due Diligence Fee” payable by Mr Calpis to Mr Danesi of $25,000, Mr Danesi granted Mr Calpis a four week exclusive due diligence period in relation to property situated in Darlinghurst, New South Wales (Darlinghurst Property). Mr Danesi was the registered proprietor of the Darlinghurst Property and Mr Calpis had submitted an offer to acquire that property. The “Exclusive Due Diligence Period” expired on 5 December 2021.

48    On a later date Messrs Danesi and Calpis entered into a second “Exclusive Due Diligence Deed” (Second Due Diligence Deed) by which, in exchange for the “Exclusive Due Diligence Fee” of $100,000, Mr Danesi granted Mr Calpis an “Exclusive Due Diligence Period” in relation to the Darlinghurst Property. In the Second Due Diligence Deed the “Exclusive Due Diligence Period” expired on 28 January 2022.

49    On 18 December 2021 Mr Calpis sent an email to Mr Fleming in which he wrote:

This is a really positive meeting I had yesterday with George Karageorge a big land owner in the Surry Hills area. This partnership we probably work out better for me due to the fact he doesn’t want anything on his equity and we split the profits down the middle.

See below email I sent to him.

50    Later that day Mr Fleming responded in the following terms (as written):

Yep as I said I think he will suit your style better than Simon I don’t know him and you should make some enquiries Do you want me to ask Jon Adgemis about him?

51    A little time later on 18 December 2021 Mr Calpis sent an email in response to Mr Fleming stating (as written):

Not just yet thank you but I agree Can you just get your hands on 135k I don’t want to have to borrow money of bikkies lol

52    Danielle Patterson, Mr Fleming’s daughter, is employed by Gemi Investors and Gemi Investments Pty Ltd in the role of financial controller. Ms Patterson explained that the main difference between the two companies is that Mr Fleming uses his own funds when lending money via Gemi Investors and uses pooled funds when lending money via Gemi Investments.

53    On 20 December 2021 Ms Patterson had a conversation with Mr Fleming which included an exchange to the following effect:

Mr Fleming:    I am going to make a short term loan to Luke of around $130k. I don't have the details yet, but I will send them through once I get them.

Ms Patterson:    Okay, so you will let me know the specific amount and the account to put the money in?

Mr Fleming:    Yes, it might be later today or tomorrow.

Ms Patterson:    I will look out for it.

Mr Fleming:    You should put it in the system once the monies are paid over.

Ms Patterson:    Okay.

54    On 21 December 2021 Ms Patterson received an email from Mr Fleming which, in turn, attached to it a screenshot from Mr Calpis’ telephone providing details of the account into which the sum of $131,857 was to be paid (Loan Amount). The account details were for a solicitor’s trust account. After receipt of the email, Ms Patterson paid the specified sum as directed and sent an email to Messrs Fleming and Calpis confirming that the payment had been made and seeking instructions from Mr Fleming as to the applicable interest rate.

55    Ms Patterson paid the Loan Amount to Mr Calpis from Gemi Investors’ bank account. She did not have a conversation with Mr Fleming at the time to ascertain from which account the Loan Amount should be paid but assumed that it was to be paid from that account because it was a loan from Mr Fleming.

56    On 22 December 2021 Ms Patterson had the following exchange with her father:

Ms Patterson:    I've paid across those monies to [Mr Calpis].

Mr Fleming:    Yes, thanks for doing that.

Ms Patterson:    I sent you an email about the interest rate for [Mr Calpis’] loan.

Mr Fleming:    It is just for a couple of weeks so no need to put in any amount.

Ms Patterson:    Okay.

57    Given the time of year and other matters that had to be attended to, Ms Patterson was not focussed on Mr Fleming’s loan to Mr Calpis. It was not the type of loan that Gemi Investors or Gemi Investments would usually make as it was not secured by real property and was short term.

58    At the time Ms Patterson wrongly created a loan account for the Loan Amount from Gemi Investors to GSD. Ms Patterson assumed that, because the loan related to the Darlinghurst Property development, she should put it under GSD. She did so despite the fact that Mr Fleming did not tell her that GSD was the borrower but had in fact told her that Mr Calpis was the borrower. Ms Patterson explains that at the time Gemi Investors had made substantial loans to GSD for the Crown Street Development and she was confused. She treated the request from Mr Fleming like it was a favour to help him out, not as part of her role as financial controller of either Gemi Investors or Gemi Investments.

59    Statements were sent to borrowers by Gemi Investors and Gemi Investments each month. As Ms Patterson had incorrectly set up the loan to Mr Calpis, statements were sent to Mr Calpis as director of GSD and wrongly recorded an interest rate of 25%, which was the rate that Gemi Investors was charging GSD in relation to the Crown Street Development. Ms Patterson has since corrected the accounting errors by removing the loan from Gemi Investors to GSD and creating a journal entry in Mr Fleming’s loan account with Gemi Investors to show a liability by him to Gemi Investors for the Loan Amount which was loaned to Mr Calpis.

60    On 25 January 2022 at 2.58 pm Mr Fleming sent an email to Mr Calpis in the following terms (as written):

luke i have thought a lot about Flinders street and as i said originally i am not interested

It is a 5 year project snd i am not interested in Paying interest on close to $5m over the next 5years and paying you a salary for that period of time involving myself with lenders builders joint venture partners

I am over it I want to take a GAP year like my kids did I am 76 and working as hard as ever

i have enough on my plate with Crown street and there is still much to do there as well as paying interest each month on the debt

You want me to pay $2.75 on the 31st january but you think your joint venture partners will then take me out and pay you $1m plus $17k per month plus a share of the profits

Luke that's great for you and good luck to you but i am not prepared to put up the $2.75m unless there is a 100% excit for me in the next month which there will not be

You are not going to suck me in again on this one I am NOT NEGOTIABLE

61    On the same day at 3.25 pm Mr Calpis sent an email to Mr Fleming in which he wrote:

Thank you for sucking up 2 weeks of my time getting impero boys involved and leaving me 2 days. My joint venture partners IMP aren’t ready I need to show them a commercial scheme which im getting done by cob Monday

The District Court Proceeding

62    In the District Court Proceeding Mr Fleming as plaintiff sought payment of the Loan Amount from Mr Calpis as defendant plus interest and costs. The statement of claim filed by Mr Fleming pleaded that:

(1)    on or about 18 December 2021 Mr Calpis approached Mr Fleming seeking a loan for the Loan Amount for an option fee for the Darlinghurst Property;

(2)    Mr Calpis represented to Mr Fleming that the loan would be repaid to Mr Fleming within a few weeks;

(3)    on or about 21 December 2021 Mr Fleming transferred the Loan Amount to Mr Calpis’ solicitors; and

(4)    despite demand being made, Mr Calpis has failed, refused or neglected to repay the Loan Amount.

63    In support of his claim Mr Fleming relied on his affidavit sworn on 6 March 2023. At [3]-[4] of that affidavit, Mr Fleming gave the following evidence:

3.    On or about 18 December 2021, I received a phone call from the defendant and he said words to me to the following effect:

“I have an opportunity to do a development in Flinders Street, but I need $131k to pay an option fee. It will be paid back to you as I've got a potential partner in the development, George Karageorge, who has agreed to refund the option fee once the option is secured. I'll only need the money for a couple of weeks, then I will pay it back to you.”

4.    I replied, "OK".

64    Before me Mr Calpis was cross-examined about this evidence. While Mr Calpis recalled having a telephone conversation with Mr Fleming on or about 18 December 2021, he could not recall saying the words Mr Fleming attributes to him during the conversation.

65    In his affidavit sworn on 23 March 2023 filed in the District Court Proceeding Mr Calpis said that he did not borrow $130,500 from Mr Fleming in or around January 2022. He said that Mr Fleming was a “business partner and a joint venture partner in another dealing we had and still have” and that he “simply asked if [Mr Fleming] could ‘come up with the money’ within the time frame for the certain deal in discussion”.

66    The District Court Proceeding was listed for hearing before Newlinds DCJ on 28 and 29 June 2023.

67    Mr Calpis could not afford a lawyer for much of the time that the District Court Proceeding was on foot. He did not think the claim was about anything other than Mr Fleming’s claim that he personally loaned the Loan Amount, did not think anything else was relevant and did not know that he could bring other claims in the same proceeding to try to off-set Mr Fleming’s claim. Mr Calpis prepared all his evidence in the District Court Proceeding himself. He was confident that he would win.

68    Mr Calpis planned to act for himself at the hearing of the District Court Proceeding. On 23 June 2023 he went to see his solicitors so that they could have a look at the evidence and assist him with arguments that he might run. It was only then that he realised, because he was so advised, that his affidavit was largely in inadmissible form and that he had focused on only half of the relevant issues.

69    On 26 June 2023 Green & Associates filed a notice of motion in the District Court Proceeding on behalf of Mr Calpis seeking to vacate the hearing scheduled to commence on 28 June 2023 and for further directions to enable Mr Calpis “to tidy up and add to [his] evidence, and to obtain further information from the liquidator of Calp with a view to putting on a cross-claim against Mr Fleming and/or Gemi Family”. Mr Calpis believed that Calp had a potential claim against Gemi Family under Pt 2F.1 of the Corporations Act 2001 (Cth) and that both Calp and he had a claim against Mr Fleming for breach of directors’ duties and/or misleading and deceptive and/or unconscionable conduct under the Australian Consumer Law being Sch 2 to the Competition and Consumer Act 2010 (Cth).

70    Mr Calpis’ application for an adjournment of the District Court Proceeding was refused. The matter proceeded to hearing. At the hearing Mr Calpis was represented by Mr Green of Green & Associates, who had also appeared on the adjournment application.

71    On 29 June 2023 at the conclusion of the hearing of the District Court Proceeding Newlinds DCJ delivered ex tempore reasons which were later published: see Fleming v Calpis [2023] NSWDC 237. The District Court entered judgment in favour of Mr Fleming for $131,857, interest on that amount pursuant to s 100 of the Civil Procedure Act 2005 (NSW) to be calculated from 23 September 2022 and costs i.e. the District Court Judgment.

72    Mr Calpis did not appeal from the District Court Judgment.

Consideration

73    As set out above, a court should go behind a judgment where there is sufficient reason for questioning whether behind that judgment, relevantly for present purposes, the District Court Judgment, there is “in truth and reality” a debt owing. As a Full Court of this Court (Murphy, Mortimer and Lee JJ) recognised in Cristavao v Tan and Tan Lawyers Pty Ltd [2018] FCAFC 41 at [34] considering whether to go behind the prima facie evidence of a debt constituted by a judgment involves a two-stage inquiry: “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.” In some cases, the two steps may be determined together.

74    I turn to consider the first stage of the relevant inquiry.

75    Mr Calpis submits that the issue for this Court is the requirement in s 52(1) of the Bankruptcy Act that this Court have satisfactory proof of the debt before proceeding to make a sequestration order. He contends that in this case the satisfactory proof of the existence of the debt was deficient before the District Court and remains so in this Court. He submits that is so for three reasons.

76    Mr Calpis submits that the District Court was not satisfied about the terms of the conversation between the parties alleged to have taken place on 18 December 2021 about the alleged loan. Mr Calpis notes that the District Court concluded (at [36] of Fleming v Calpis) that the conversation was “couched in extremely vague terms, was probably rushed, with neither party really turning their minds to the true legal basis of the transaction” but observes that nevertheless the court went on to make the following finding, which he contends was incompatible with its earlier finding, at [42]:

I am satisfied that the common understanding of the parties at the time was that the advance would be a loan between the two of them. This is because of the emails that had been sent earlier in the day and, in particular, the email concerning the report by the defendant of the discussion he had had with George Karageorge which referred to a personal loan for the entirety of the equity investment then contemplated to secure the Victoria Street property, not by way of a further due diligence deed, but by entry into a more formal put and call option. That email is couched in clear terms as a personal loan.

77    Mr Calpis says that the email to which the District Court referred is dated 1 February 2024 (I assume that Mr Calpis intends to refer to an email dated 1 February 2022). Mr Calpis submits that the email does not relate to the alleged loan agreed on 18 December 2021 but to a later and distinct request for money that he made and therefore the email is not admissible to prove, by inference, that because on that later occasion Mr Calpis made a request for a loan in those terms, on 18 December 2021 he acted in a particular way, so as to characterise the alleged subject loan as a personal one, relying on s 97 of the Evidence Act 1995 (NSW).

78    Secondly, Mr Calpis submits that the District Court failed to engage with the antecedent email dated 25 January 2022 (see [60] above) which supported an inference that the original advance of the Loan Amount formed part of the short term investment in the Darlinghurst Property project which Mr Fleming was contemplating but by that stage had rejected. He contends that in particular Mr Fleming’s reference to “putting up” money and being “taken out” by Mr Calpis’ putative joint venture partner is not the language of a loan advance but of a short term investment and supports this conclusion.

79    Thirdly, Mr Calpis submits that in Calpis v Fleming at [18] and [47] the court was satisfied that the money trail upon which Mr Fleming relied was in fact, at that time, correctly recorded and was that he borrowed money personally from Gemi Investments, which was recorded by way of an entry in his loan account, which he in turn advanced to Mr Calpis. Judge Newlinds said that he had not overlooked that the “plaintiff’s corporate entity recorded the transaction as a loan between the companies” but accepted Mr Fleming’s evidence that that was a mistake which was later reversed.

80    Mr Calpis says that his Honour was not inclined to draw an adverse inference because Mr Fleming gave “unchallenged evidence that Danielle Patterson made the mistake”. Mr Calpis submits that this finding is not correct and that the transcript of the cross examination of Mr Fleming in the District Court squarely put in issue the truth of the reversal because the adjustment relied upon was not the subject of documentary evidence. He says that Mr Fleming was on notice of his intention to impeach the credibility of his story by the affidavit evidence exchanged before the hearing and the cross examination. Mr Calpis submits that Mr Fleming bore the onus of proving his case and this evidence, which was directly challenged, needed to have been assessed in accordance with the relative capacities of the parties to bring evidence on the topic. Mr Calpis submits that the unexplained failure to produce this evidence and the absent testimony of Ms Patterson compelled the drawing of an inference that the evidence would not have assisted Mr Fleming’s case and that there was no question that Ms Patterson was in Mr Fleming’s camp given her relationship to him and the fact that she was employed in the family business.

81    Mr Calpis submits that each of these matters provides a substantial basis upon which doubt would attend the conclusion that Mr Fleming discharged his legal and evidentiary onus to prove the debt in the District Court Proceeding and, as such, gives rise to a sufficient cause for going behind the judgment.

82    In my view Mr Calpis has not demonstrated that there is sufficient reason to question if there is a real debt behind the judgment.

83    The judgment was obtained after a contested hearing in the District Court which ran over two days. While Mr Calpis acted for himself in undertaking steps leading up to the hearing, he was legally represented at the hearing. Assisted by his solicitor, Mr Calpis gave evidence and presented arguments. He defended the claim on the basis that he had entered into a joint venture arrangement with Mr Fleming and companies associated with him which was operated through GSD and that he was not personally liable to Mr Fleming and/or that Mr Fleming was not the proper plaintiff. Those contentions, which are in effect the same contentions raised before me, were considered and disposed of in the District Court Proceeding.

84    In particular, Newlinds DCJ referred to the evidence given by each of Messrs Fleming and Calpis. His Honour proceeded on the basis that they had a “rushed conversation” on 18 December 2021, couched in “extremely vague terms” with no focus “in terms of express words as to what the transaction would actually be”: Fleming v Calpis at [40]. Judge Newlinds relied on the contemporaneous emails to find that Mr Calpis said something to the effect of needing money to secure the extension of an option agreement and that he asked Mr Fleming for that money, Mr Fleming agreed, and the money was advanced, having regard to the contemporaneous documents, by way of personal loan: Fleming v Calpis at [41]-[44]. His Honour was also fortified in his conclusion by the fact that the due diligence agreement in place and the new one contemplated, which was the vehicle used to secure the option to purchase the Darlinghurst Property and for which Mr Calpis sought the funds from Mr Fleming, was in Mr Calpis personal name, not in the name of a corporate vehicle: Fleming v Calpis at [46].

85    Judge Newlinds referred to the fact that Mr Fleming’s corporate entity recorded the transaction as a loan between companies but accepted Mr Fleming’s unchallenged evidence that Ms Patterson made a mistake when recording the advance of the Loan Amount as a loan from Gemi Investors to GSD, rather than as a loan from Mr Fleming to Mr Calpis personally and found that it was not necessary for Mr Fleming to call any further evidence to confirm that state of affairs and declined to draw an adverse inference against Mr Fleming for not calling any further evidence about that matter.

86    This was not a case where a consent or default judgment was entered or where Mr Calpis chose to defend the case on a limited basis only. Mr Calpis does not allege any fraud or collusion on the part of Mr Fleming in obtaining the District Court Judgment. To the contrary, there was a contested hearing on the facts at which both parties were represented. The court considered the evidence before it and gave judgment, having done so. In defending the District Court Proceeding, Mr Calpis raised the same issues as he wishes to raise before me, relying on much the same evidence.

87    It was open to Mr Calpis to appeal from the District Court Judgment. He did not do so. This proceeding is not an opportunity for Mr Calpis to pursue the types of argument he might pursue on an appeal, which the matters raised by his submissions attempt to do.

88    Given that I am not satisfied that there is reason to go behind the District Court Judgment, it is not necessary for me to consider the balance of Mr Calpis’ submissions by which he contends, having regard to the evidence, that the Court would not be satisfied that there is in truth a debt owing by him to Mr Fleming.

89    Based on the evidence referred to at [14] above I am satisfied of the matters stated in the Creditor’s Petition, that the Creditor’s Petition was served on Mr Calpis and that the debt on which the Creditor’s Petition relies remained owing. There is evidence before me that the searches and other requirements of the Federal Court (Bankruptcy) Rules have been carried out and/or met. Mr Calpis has not made out the grounds he relies on in his Amended Notice of Opposition and has not established that for other sufficient cause a sequestration order ought not to be made.

Conclusion

90    I am satisfied that a sequestration order ought to be made against Mr Calpis’ estate. The date of the act of bankruptcy by Mr Calpis is 24 August 2023. Mr Fleming’s costs of the Creditor’s Petition should be taxed and paid from Mr Calpis’ bankrupt estate.

91    I will make orders accordingly.

Associate:

Dated:    10 April 2025