Fuji Xerox Australia Pty Limited v Nand [2014] FCCA 2793 (11 December 2014)

Last Updated: 16 December 2014

FEDERAL CIRCUIT COURT OF AUSTRALIA

FUJI XEROX AUSTRALIA PTY LIMITED v NAND

[2014] FCCA 2793

Catchwords: BANKRUPTCY – Review of Registrar’s order for sequestration – whether failure to comply with ss44(2), (3) and (4) – estimate of security held – whether bankruptcy notice is compliant – whether other sufficient cause pursuant to s.52(2)(b) – sequestration order made.

Legislation: Bankruptcy Act 1966, ss.43, 44, 52(2)(b) 104(3) Civil Liability Act 2002, ss.101, 306 Civil Procedure Act 2005 Uniform Civil Procedure Rules 2005, r.36.7

Adams v Lambert (2006) 228 CLR 409 Biron Capital Limited v Anstee [2005] FMCA 1100 Bryant v The Commonwealth Bank of Australia [1995] FCA 1687 Chulio & Anor v Kelly [2010] FMCA 193 Investec Bank (Aust) Limited v Bakamovic [2009] FMCA 441 Jones v Verity [2007] FMCA 1108 McKean Park (a firm), in the matter of Lawrence v Lawrence [2011] FCA 1291 Russell v Polites Investments Pty Limited [2012] FCA 11 The Commonwealth Bank of Australia v Tancock (2001) 183 ALR 469 Wren v Mahony [1972] HCA 5; [1972] 126 CLR 212

Applicant:

FUJI XEROX AUSTRALIA PTY LIMITED (ACN 000 341 819)

Respondent:

SHARDA NAND (AKA PADMA NAND AKA PADMA ALAID SHARDA NAND)

File Number:

SYG 397 of 2014

Judgment of:

Judge Altobelli

Hearing date:

30 October 2014

Date of Last Submission:

30 October 2014

Delivered at:

Sydney

Delivered on:

11 December 2014

REPRESENTATION

Counsel for the Applicant:

Mr Muston

Solicitors for the Applicant:

Polczynski Lawyers

Solicitors for the Respondent:

Bowles Lawyers

ORDERS

(1) A sequestration order is made against the estate of SHARDA NAND (aka PADMA NAND aka PADMA ALAIS SHARDA NAND).
(2) The Applicant Creditors costs be taxed and paid from the Respondent Debtor’s estate in accordance with the Bankruptcy Act 1966 (Cth).
(3) The Court notes that the date of the act of bankruptcy is 6 September 2013.

NOTATION

(4) The Court notes the obligations on the Applicant Creditor to notify, enter and serve these orders in accordance with the Federal Circuit Court (Bankruptcy) Rules 2006 (Cth).

FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY

SYG 397 of 2014

FUJI XEROX AUSTRALIA PTY LIMITED (ACN 000 341 819)

Applicant

And

SHARDA NAND (AKA PADMA NAND AKA PADMA ALAID SHARDA NAND)

Respondent

REASONS FOR JUDGMENT

Introduction

1. By way of a Creditor’s Petition filed 21 February 2014, the Applicant petitions the Court for a sequestration order under s.43 of the Bankruptcy Act 1966 against the estate of the Respondent.
2. By way of an Amended Notice Stating Grounds of Opposition to Creditor’s Petition dated 13 October 2014 the Respondent opposes the petition on certain grounds.
3. On 28 April 2014 Registrar Tesoriero, exercising the powers of the Federal Circuit Court of Australia, made a sequestration order against the estate of the Respondent. The Respondent seeks a review of that order. On hearing a review of the Registrar’s decision under s.104(3) of the Federal Circuit of Australia Act 1999, this Court is required to consider the matter afresh and itself be satisfied that a sequestration order should be made.

Background

4. The Creditor’s Petition relies on a debt owed by the Respondent to the Applicant in the sum of $288,953.65 pursuant to a Judgment of the Supreme Court of New South Wales, dated 20 August 2012. The Applicant concedes that it holds security over the property of the Respondent to an estimated value of $212.584. The security held by the Applicant consists of a charge on the Respondent’s real property pursuant to a deed of guarantee, charge and indemnity dated 17 August 2011, signed by the Respondent as guarantor, chargor and indemnifier. The Applicant alleges that the unsecured debt remains at $76,369.65.
5. In her amended Notice Stating Grounds of Opposition to Creditor’s Petition filed 13 October 2014 the Respondent raises three grounds of opposition:
   1. that the Applicant has failed to comply with ss.44 (3) and (4) of the Bankruptcy Act;
   2. that the estimate of the value of security held by the Applicant is inaccurate and/or unreliable and that, in fact, there is no unsecured liability; and
   100. that the bankruptcy notice fails to set out the statutory provision under which interest is claimed and therefore fails to comply with an essential requirement of the Bankruptcy Act.
6. In argument, the Respondent’s solicitor further submitted that there was other sufficient cause for the purposes of s.52(2)(b) of the Act, such that the petition should be dismissed.

The evidence and proceedings before the Court

7. At hearing, the Applicant relied upon the following documents:
   • Creditor’s Petition, filed 21 February 2014;
   • Affidavit of David John Edney, affirmed 20 February 2014;
   • Affidavit of Robert John Wright, sworn 21 March 2014;
   • Affidavit of David John Edney, affirmed 24 April 2014;
   • Affidavit of Final Debt of Nada Ramraj, sworn 28 April 2014;
   • Affidavit of Final Search of James Alexander Johnston, sworn 28 April 2014;
   • Affidavit of service of Robert John Wright, sworn 7 May 2014;
   • Affidavit of Maxwell William Prentice affirmed 13 June 2013;
   • Affidavit of Alan Ma, affirmed 28 October 2014; and
   • Affidavit of David Edney, affirmed 28 October 2014.
8. The Applicant was represented by Mr Muston, of Counsel.
9. The Respondent required both Mr Edney and Mr Ramraj to be available for cross-examination, and they were both so cross-examined.
10. The Respondent relied upon the following documents:
    • Notice Stating Grounds of Opposition to Creditor’s Petition, filed 28 March 2014;
    • Amended Notice Stating Grounds of Opposition to Creditor’s Petition, filed 13 October 2014;
    • Application for Review, filed 13 May 2014;
    • Affidavit of Nicola Aspinall, affirmed 12 December 2013;
    • Affidavit of Stephen Doherty, affirmed 17 January 2014;
    • Affidavit of Sharda Nand, sworn 11 April 2014;
    • Affidavit of Sharda Nand, sworn 8 May 2014; and
    • Affidavit of Ron Pommering (registered valuer), sworn 16 October 2014.
11. Whilst the Respondent had previously filed an Affidavit on 11 April 2014, the solicitor appearing for her, Mr Bowles, placed no reliance on this evidence and confirmed that the Respondent would not be giving evidence in her case.

Compliance with section 44(3) and (4) of the Bankruptcy Act

12. Section 44 of the Act sets out the conditions on which a creditor may petition the Court to make a sequestration order. Subsections (3) and (4) provide as follows:
    • (3) A secured creditor may present, or join in presenting, a creditor's petition as if he or she were an unsecured creditor if he or she includes in the petition a statement that he or she is willing to surrender his or her security for the benefit of creditors generally in the event of a sequestration order being made against the debtor.
    • (4) Where a petitioning creditor is a secured creditor, he or she shall set out in the petition particulars of his or her security.
13. On hearing the submissions made by Mr Bowles at the hearing it became apparent that the Respondent’s real concern was in fact based on s.44(2) which provides as follows:
    • (2) Subject to subsection (3), a secured creditor shall, for the purposes of paragraph (1)(a), be deemed to be a creditor only to the extent, if any, by which the amount of the debt owing to him or her exceeds the value of his or her security.
14. The substance of the Respondent’s argument, therefore, was that the Applicant was in fact secured for the entirety of its debt and that there was, therefore, no “amount of the debt owing to him or her exceeds the value of his or her security.” In effect, grounds of opposition 1 or 2 contained in the Amended Notice raise the same legal issue.
15. The Respondent’s case hinges on the evidence of Mr Pommering, a registered valuer, who prepared valuations of the two residential properties in respect of which the Applicant holds security. Mr Pommering valued these properties at $495,000 and $425,000, totalling $920,000. The Applicant’s estimate of security is set out in the Affidavit of David Edney, affirmed 28 October 2014. He values the property, for present purposes, at $835,000. The difference between these figures, of course, is greater than the amount that the Applicant contends it is unsecured for.
16. Mr Edney was cross-examined by Mr Bowles, the solicitor for the Respondent. It should be noted that Mr Edney carefully sets out his methodology in his Affidavit. It is clear from cross-examination that in providing the estimated values that he did, on behalf of the Applicant, he had clearly taken into account the valuations prepared by Mr Pommering, but did not agree that, for present purposes, the basis of Mr Pommering’s valuation was appropriate. In short, the differences between the methodologies adopted is that Mr Edney’s approach was on a forced sale basis, whereas Mr Pommering’s was a fair market value. Mr Edney also made a number of assumptions about costs to be incurred on a forced sale basis, including assumptions that the Respondent would strongly oppose not just the bankruptcy, but any subsequent attempts at sale by a trustee.
17. What became abundantly clear from the cross-examination of Mr Edney is that his estimate of the value, and of the costs likely to be incurred in realisation, which formed the basis of the Applicant’s estimate about the amount of debt in respect of which it is unsecured, was all done in good faith. It was not suggested in cross-examination that Mr Edney was not acting bona fide, or in a misguided way.
18. Mr Edney’s methodology for reaching the estimate of the value of the security held, and thus the unsecured liability, is set out in detail in his Affidavit. He had available to him not just the trustee’s estimated values, but the Respondent’s own estimated values as set out in her statement of affairs. He also had access to information about the amount owed by the Respondent pursuant to registered mortgages. He had access to the market appraisals upon which the trustee formed his opinion as to value. He also had access to and took into account the values ascribed by Mr Pommering. Ultimately, at paragraph 21 of his Affidavit (for example), Mr Edney explained the difference between Mr Pommering’s valuation, and Mr Edney’s estimate, was that the former provided a valuation on the basis of a “willing but not over-anxious vendor and purchaser”, rather than the forced sale basis adopted by Mr Edney.
19. In addition, Mr Edney provided detailed evidence about the costs of realising the security including, for example, the costs of applying for judicial sale and possession, the costs of an anticipated appeal, and the costs of sale. At paragraph 45 he estimates that the total actual costs of enforcing the Applicant’s security would be $123,012. He deposes at paragraph 46 to having rounded that sum down to $100,000.
20. Mr Bowles’ submission to the Court on behalf of the Respondent is that there was an arbitrariness in relation to the Applicant’s approach about estimating the value of the security which should be rejected in preference to the evidence of a registered valuer. He argued, for example, that the evidence of the value of the securities given by a registered valuer should be preferred by the Court, over the estimates given by Mr Edney, based on market appraisals.
21. The Court does not accept the Respondent’s argument. A secured creditor is only required to state in its petition an estimate of the value of its security, and not the actual value of the security. Provided that the petitioner acts in good faith, in the event of a sequestration order being made, it is not even bound by the estimate when it seeks to prove its debt. In this case it was entirely reasonable for the petitioning creditor to rely on appraisals based on a forced sale: The Commonwealth Bank of Australia v Tancock (2001) 183 ALR 469 at 24. There is no obligation on the petitioning creditor to set out the actual value, provided the estimate of the value of its security is given in good faith, and not in an arbitrary or capricious manner: Bryant v The Commonwealth Bank of Australia [1995] FCA 1687 at 25. Once the Court is satisfied that the estimate given is a genuine one, there is no obligation to inquire into its correctness: Biron Capital Limited v Anstee [2005] FMCA 1100 at 28. A genuine estimate was made as to the value of the security. It was not a false, intentionally illusory or excessively low estimate: Investec Bank (Aust) Limited v Bakamovic [2009] FMCA 441 at 40.
22. The Respondent’s argument simply fails. It is hard to imagine how Mr Edney could have been more transparent, or reasonable, in calculating the value of the security held by the Applicant, and the amount in respect of which it expected to be unsecured. The petition is otherwise clear in terms of setting out the security held. Given that the Respondent chose not to give evidence herself, she is not in a position to cavil with the assumptions made by Mr Edney about the effort and the cost that will need to be undertaken in order for the trustee to realise its security. Indeed, if the Respondent’s history of litigation arising out of this matter is indicative of the future, his estimate may well be optimistic, rather than pessimistic. The Respondent defended the Supreme Court proceedings that resulted in a judgment against her, including costs. The Respondent unsuccessfully appealed the judgment against her in the Supreme Court. In his estimate of realisation costs Mr Edney contemplated that the Respondent would probably seek to appeal the present decision, as well as any Orders for judicial sale or possession of the properties in question. He was not challenged about this in cross-examination and, indeed, it would have been difficult to do so in circumstances where the Respondent chose not to give evidence herself.
23. Grounds of opposition 1 and 2 are dismissed.

Alleged defects in the Bankruptcy Notice

24. On behalf of the Respondent it was asserted that the Bankruptcy Notice was defective because it failed to identify the relevant legislation relied on as regards the interest claimed. Indeed, in the schedule of post-judgment interest calculation which appears at page 3 of the Bankruptcy Notice, the statutory provision is identified as Uniform Civil Procedure Rules 2005, r.36.7. On behalf of the Respondent, it was submitted that strict compliance required an express reference to s.101 of the Civil Liability Act 2002, and that this was a matter in respect of which s.306 of the Act could not remedy. The Respondent relied on two authorities in this regard, Jones v Verity [2007] FMCA 1108, and Chulio & Anor v Kelly [2010] FMCA 193, approving and following Jones v Verity. Both decisions were decisions of Federal Magistrates (as they then were).
25. The problem with the Respondent’s submission, and reliance on these cases, is that Jones v Verity was expressly overruled by North J in the Federal Court, in McKean Park (a firm), in the matter of Lawrence v Lawrence [2011] FCA 1291. His Honour was referred to the High Court’s decision in Adams v Lambert (2006) 228 CLR 409 in the context of the argument that Jones v Verity was wrongly decided. His Honour said at paragraphs 15 to 25 of his reasons for judgment:
    • 15. The question arises whether the omission of the reference to s 100(7) of the Magistrates’ Court Act invalidates the bankruptcy notice, or whether s 306 of the Bankruptcy Act avoids that consequence. Section 306(1) provides:
      • Proceedings under this Act are not invalidated by a formal defect or an irregularity, unless the court before which the objection on that ground is made is of the opinion that substantial injustice has been caused by the defect or irregularity and that the injustice cannot be remedied by an order of that court.
    • 16. In the usual way, the application for a sequestration order was listed before a registrar of the court. There was no appearance by the debtor. The registrar was satisfied that the application complied with all the statutory requirements save for the omission of reference to s 100(7) of the Magistrates Court Act in the interest calculation section of the bankruptcy notice. Such an omission was held by the Federal Magistrates Court in Jones v Verity [2007] FMCA 1108 (Jones) to invalidate the bankruptcy notice. Consequently, the registrar referred the application for determination by this court.
    • 17. The debtor did not appear to oppose the making of a sequestration order. Mr Fary appeared as counsel on behalf of the creditor. He argued that the bankruptcy notice was valid by operation of s 306 of the Bankruptcy Act as interpreted by the High Court in Adams v Lambert (2006) 228 CLR 409 ; 225 ALR 396; [2006] HCA 10 (Adams). He argued that Jones was wrongly decided.
    • 18. In Adams the terms of s 41(2) of the Bankruptcy Act, reg 4.02(1) of the Bankruptcy Regulations and the prescribed form of bankruptcy notice were the same as applicable in the present case. Paragraph (a) of the interest calculation in Adams stated that interest was claimed pursuant to s 83A of the District Court Act 1973 (NSW). This section related to prejudgment interest. The section which should have been referred to was s 85 which dealt with post judgment interest. The High Court held that s 306(1) applied so that the reference to the wrong section of the District Court Act did not invalidate the bankruptcy notice.
    • 19. A defect or irregularity in a bankruptcy notice will invalidate the notice if the defect or irregularity could reasonably mislead the debtor as to what is necessary to comply with the bankruptcy notice or if the defect or irregularity fails to meet a requirement made essential by the Bankruptcy Act. Otherwise the defect or irregularity will be a formal defect or irregularity and attract the protection of s 306(1): Kleinwort Benson Aust Ltd v Crowl (1988) 165 CLR 71 ; 79 ALR 161; [1988] HCA 34.
    • 20. In Adams, although the interest calculation referred to the prejudgment entitlement provision, the bankruptcy notice as a whole made it clear that the interest claimed included post judgment interest, and the calculation of the interest amount was correct. The court held that the reference to the wrong section in the entitling Act could not reasonably have misled the debtor as to what was necessary to comply with the bankruptcy notice. It required payment of interest in the amount which was correctly calculated, and which included post judgment interest.
    • 21. The court then considered whether it was an essential requirement of the Bankruptcy Act that the correct entitling provision be stated. The court said:
      • 30. ... Is it the purpose of the legislation that any slip, such as giving a reference to the statutory provision governing pre-judgment interest when what is intended is a reference to the provision governing post-judgment interest, should invalidate the notice? Is this so no matter how clear it might be from other parts of the notice that the claim is for post-judgment interest?
      • 31. Section 306, in its application to bankruptcy notices, makes it plain that some instances of non-compliance with the requirements as to the form of a notice will not invalidate the notice. The practical significance of an error or deficiency could vary according to the circumstances of each particular case. Errors or deficiencies in compliance with requirements as to form may involve questions of degree as well as of kind. At the same time, the decision in Kleinwort Benson shows that an error may be covered by s 306 even though it involves a substantial misstatement of an amount of money. It was essential that the bankruptcy notice state the amount claimed. Was it essential that the amount be correct? Section 41(5) made it clear that an overstatement, even a large overstatement, would not necessarily invalidate the notice. This Court concluded that it was not the legislative purpose that a substantial understatement should necessarily invalidate the notice. That is to say, accurately stating the amount of interest owing was not a matter of such importance that error necessarily resulted in invalidity. In the present case, overstatement or understatement of the amount of post-judgment interest owing would not necessarily have invalidated the notice. That is part of the context in which legislative purpose is to be considered in deciding whether the reference to s 83A rather than s 85 was fatal.
      • 32. In Lewis, Gyles J accurately identified the question as whether correct completion of the form prescribed by the regulations in every respect is a requirement made essential by the Act. Bearing in mind that, in the present case, the error could not have misled the respondent as to what it was necessary to do in order to comply with the requirements of the notice, it is difficult to understand how, consistently with Kleinwort Benson, the respondent could succeed without an affirmative answer to that question.
    • 22. The first question in the present case is whether the failure to refer to s 100(7) of the Magistrates’ Court Act could reasonably mislead the debtor as to what was necessary to comply with the bankruptcy notice. As in Adams, the amount of the interest calculation is correct. The debtor is thus aware of the amount necessary to pay in order to comply with the bankruptcy notice. The debtor is correctly informed of the rate of interest and the statutory source of that rate. The only misstatement is in para (a) of the interest calculation which states that interest is claimed pursuant to the Penalty Interests Act 1983 (sic) as though this was the entitling Act. The misstatement could not reasonably mislead the debtor as to what is necessary to comply with the bankruptcy notice. Indeed it is arguable that there is no misstatement at all. Had s 100(7) of the Magistrates’ Court Act been referred to it would have led the debtor to s 2 of the Penalty Interest Rates Act which is incorporated by reference. The two together might properly be seen to be the provisions pursuant to which interest is claimed and which the form requires to be included. If so, the failure to refer to the Magistrates’ Court Act was an omission rather than a misstatement. And it was an omission which could not have misled the debtor as to what was necessary to comply with the bankruptcy notice. In passing it should be noted that the misnaming of the Penalty Interest Rates Act as the Penalty Interests Act could not alone amount to anything more than a formal defect.
    • 23. The second question is whether the reference to s 100(7) of the Magistrates’ Court Act in para (a) of the bankruptcy notice was a requirement made essential by the Bankruptcy Act. As in Adams, it is difficult to imagine that the failure to include that reference was intended to invalidate the bankruptcy notice when the failure could not have reasonably misled the debtor as to what was necessary to comply with the bankruptcy notice. For the reasons explained in Adams at [30]–[32] referred to above, the Bankruptcy Act did not make it an essential requirement that para (a) of the interest calculation in the form of bankruptcy notice be completed correctly when the bankruptcy notice was otherwise accurate and where para (a) made reference to the rates Act which was part of the provision of the entitling Act to which reference should have been made.
    • 24. The circumstances in Jones are indistinguishable from the present case. The Federal Magistrate in that case considered that a failure to refer to the Magistrates’ Court Act was a failure to meet a requirement made essential by the Bankruptcy Act. He said that the situation was distinguishable from Adams because in Adams the bankruptcy notice referred to the entitling Act and this was the requirement stipulated in the prescribed form. The Federal Magistrate reasoned that because the prescribed form of bankruptcy notice required reference to the entitling provision, that requirement was thereby made essential by the Act. However, the mere fact that the Act stipulates certain requirements does not automatically lead to the result that those requirements are essential to the validity of the proceeding in question. As the High Court said in Adams at [29]:
      • To describe an error or a deficiency in a bankruptcy notice as involving a failure to meet a requirement made essential by the Act is to state a conclusion reached after a consideration of the legislative purpose and an evaluation of the significance or importance of the error or deficiency in the circumstances of the case. That question is not answered by observing that there has been a failure to meet a requirement.
    • 25. It follows that Jones was wrongly decided on this issue.
26. Quite apart from feeling obliged to follow His Honour’s decision, this Court respectfully agrees with His Honour’s analysis of the law, and interpretation of Adams v Lambert. There is no defect in the Bankruptcy Notice. Whilst it is unnecessary to decide, because this Court finds that s.306 remedies any perceived defect or irregularity, it is probably the case that reference to the Uniform Civil Procedures Rules r.36.7 was sufficient because the rule itself identified the provision of the Civil Procedure Act 2005 under which post-judgment interest is payable, as well as the rate at which interest accrues.
27. The third ground of opposition also fails.

Other sufficient cause?

28. The Respondent’s argument in this regard appears to have as its foundation the evidence adduced before this Court, which was probably not adduced in the Supreme Court, and which strongly suggests that both the Respondent, and the Applicant, were victims of a fraud perpetrated by a third party. It is not necessary for this Court to make findings about the fraud allegations. Indeed, it would be improper to do so. However, the evidence adduced does suggest that a Mr Rahul Raju, the Second Defendant in the Supreme Court proceedings, not only induced the Respondent to enter into the guarantee and indemnity but then fraudulently induced the Applicant to advance funds using forged documents purporting to be those of the Respondent. The vagueness of these assertions was probably not assisted by the Respondent’s decision not to give evidence in her own case. Nonetheless, the documents produced do tend to suggest that, at the very least, Mr Raju fraudulently induced the Applicant to advance funds to him and/or an entity controlled by him as an act independent of and occurring subsequent to, the Respondent providing the security that she did.
29. Mr Bowles, on behalf of the Respondent, did not go so far as to submit that the Supreme Court judgment was tainted by the fraud, or that the outcome would have been different, or that the Applicant in some way bore, or shared, culpability for the fraud. All he could say is that, through no fault of the Respondent, the judgment against her was “unsafe” and that in those circumstances the Applicant ought not to be entitled to rely on it.
30. It is impossible, however, to discern any basis on which, as a result of this new evidence, the Respondent would be entitled to set aside the Supreme Court judgment against her. There is no suggestion, for example, that the Applicant was in any way culpable. Indeed, the impression is that both the Applicant and the Respondent were the victims of fraud by Mr Raju. Is the s.52 discretion nonetheless wide enough to justify the petition not being granted, in the circumstances? The answer is unequivocally no. Flick J in Russell v Polites Investments Pty Limited [2012] FCA 11 said at 23:
    • Upon proof of the matters set forth in s 52(1) a petitioning creditor has been said to have a “prima facie right” to the making of a sequestration order: Deputy Cmr of Taxation v Cumins [2008] FCA 353 at [14], [2008] FCA 353; 101 ALD 78 at 81. Gilmour J there helpfully summarised the general principles to be applied as follows:
    • [14] On proof of the matters mentioned in s 52(1) of the Bankruptcy Act 1966 (Cth) (the Act) a petitioning creditor has a prima facie right to the making of a sequestration order and the court will proceed to make a sequestration order unless the court is satisfied that for other sufficient cause a sequestration order should not be made: s 52(2)(b) of the Act; Cain v Whyte [1932] HCA 6; (1933) 48 CLR 639 at 646. The onus is on the respondent debtor to demonstrate “sufficient cause”: Commissioner of Taxation v Bayeh (1999) 100 FCR 144 ; [1999] FCA 1223 at [12].
    • [15] Section 52(2)(b) of the Act is wide enough to entitle the court, in a proper case, to adjourn or dismiss a petition in the exercise of its discretion, where the debtor demonstrates a genuine dispute as to the liability to pay the debt: Re Verma; Ex Parte Deputy Commissioner of Taxation [1984] FCA 340; (1984) 4 FCR 181 at 185 and 187. This power is discretionary: Clyne v DCT [1982] FCA 266; (1982) 45 ALR 323 at 328.
    • [16] The court is entitled to inquire whether a judgment is founded on a real debt. In general, a court exercising jurisdiction should not proceed to sequestrate the estate of a debtor where an appeal is pending against the judgment relied on as the foundation of the bankruptcy proceedings, provided that the appeal is based on genuine and arguable grounds: Ahern v DCT (Qld) [1987] FCA 312; (1987) 76 ALR 137 at 148; Bayne v Baillieu (1907) 5 CLR 64 ; [1907] HCA 39.
    • [17] The mere fact that an appeal has been lodged does not without more, give rise to a duty to postpone the hearing of the petition: in Re Flatau; Ex Parte Scotch Whisky Distillers (1882) 22 QBD 83 (CA) at 84–85; nor will the court as a matter of course inquire into the validity of a judgment debt: Wren v Mahony [1972] HCA 5; (1972) 126 CLR 212 at 222–223 ; [1972] HCA 5; [1972] ALR 307 at 312–314.
    • [18] The test to be applied has been described variously. The judgment debtor must point to grounds having “a real chance of success on appeal”: Re Lewin; Ex Parte Milner (1986) 11 FCR 312 at 318; or ensure “that substantial reasons are given for questioning” whether there was in truth a debt: Wren at 225. It is not enough to rely upon mere assertion. The onus is on the applicant for a stay to show the existence of a genuine dispute by adducing evidence establishing the substantial nature of the grounds of challenge: Re Verma and Re Virendra Kumar Verma; Ex Parte Deputy Commissioner of Taxation (FCA, Beaumont J, 14 November 1984 unreported) referred to with approval in Re Verma at 187: [ [2008] FCA 353]
    • In Re Dolman; Ex parte Elder Smith Goldsbrough Mort Ltd (1967) 10 FLR 384 at 391 Gibbs J also referred to a creditor who had proved the existence of a debt and an act of bankruptcy having “what may be called a prima facie right to a sequestration order”. See also: Burgess v Permanent Custodians Ltd [2010] FCA 986 at [37].
31. None of the matters referred to above apply in this case. Is there any warrant to go behind the Supreme Court judgment? When one has regard to the High Court’s decision in Wren v Mahony [1972] HCA 5; [1972] 126 CLR 212 at 224-5 there is likewise no basis. There is simply no evidence before the Court that would lead it to exercise the discretion it has to find that there is another sufficient cause not to grant the petition.
32. The final basis of opposition to the petition is also dismissed.

Conclusion

33. All of the evidence before the Court leads to a conclusion that the requirements set out in s.52 of the Act have been met. Apart from the issues specifically raised by the Respondent, and discussed in these reasons, no other basis for not granting the petition was advanced. The petition will be granted, and a sequestration order made.

I certify that the preceding thirty-three (33) paragraphs are a true copy of the reasons for judgment of Judge Altobelli

Associate:

Date: 11 December 2014