Euroasia (Pacific) Pty Ltd v Narain [2010] FMCA 188 (24 March 2010)

Last Updated: 29 March 2010

FEDERAL MAGISTRATES COURT OF AUSTRALIA

EUROASIA (PACIFIC) PTY LTD v NARAIN

[2010] FMCA 188

BANKRUPTCY – Application for review of decision of Registrar – debt on which Bankruptcy Notice subject to application to set aside – dismissed by Court of Appeal (Vic) – application for special leave to High Court – whether Federal Magistrates Court should evaluate chances of success of application for special leave.

Bankruptcy Act 1966, ss.52, 52(1), 52(2)(a) Federal Court (Bankruptcy) Rules 2005, R4.06

Yerkey v Jones [1939] HCA 3; [1939] 63 CLR 649 Elkofairi v Permanent Trustee Co Ltd [2002] NSWCA 413 Commercial Bank of Australia Limited v Amadio [1983] HCA 14; [1983] 151 CLR 447

Applicant:

EUROASIA (PACIFIC) PTY LTD (A.C.N. 006 604 922)

Respondent:

EDWINA KATE NARAIN

File Number:

MLG 91 of 2008

Judgment of:

Burchardt FM

Hearing date:

22 February 2010

Date of Last Submission:

22 February 2010

Delivered at:

Melbourne

Delivered on:

24 March 2010

REPRESENTATION

Counsel for the Applicant:

Mr G O’Hara

Solicitors for the Applicant:

Gadens Lawyers

Counsel for the Respondent:

Dr E Boros

Solicitors for the Respondent:

Russell Kennedy

ORDERS

(1) Compliance with Rule 4.06 of the Federal Court (Bankruptcy) Rules be dispensed with.
(2) The decision of Registrar Luxton on 22 December 2009 to make a Sequestration Order in respect of the estate of Edwina Kate Narain is affirmed.
(3) The application for review be dismissed.
(4) The Applicant’s costs of and incidental to the Petition, including reserved costs, be taxed pursuant to Order 62 of the Federal Court Rules and be paid in accordance with the statute.

AND THE COURT NOTES THAT:

(5) The date of the act of bankruptcy is 20 August 2007.

FEDERAL MAGISTRATES COURT OF AUSTRALIA AT MELBOURNE

MLG 91 of 2008

EUROASIA (PACIFIC) PTY LTD (A.C.N. 006 604 922)

Applicant

And

EDWINA KATE NARAIN

Respondent

REASONS FOR JUDGMENT

Introductory

1. This is an application for a review of the decision of Registrar Luxton made on 22 December 2009. The Registrar ordered a Sequestration Order in respect of the estate of Edwina Kate Narain, who was the respondent to the Creditor’s Petition but who is now the applicant in the application for review.
2. For the reasons that follow, I think that the application should be dismissed and the decision of the Registrar should be affirmed.

Procedural History

3. The proceedings that give rise to this application have been going on long enough almost to exhaust the standard limitation period of six years. A proceeding was originally instituted by Euroasia (Pacific) Pty Ltd (“Euroasia”) on 23 August 2005 against Andrew John Michael,
   Mrs Narain (the applicant) and her husband, Ravi Amrit Narain.
4. On 28 October 2005, all parties to that litigation executed a Deed of Settlement for the settlement of the proceeding. Each of the parties, including Mrs Narain, covenanted to repay amounts of $1,641,034.25 in the manner set out in the Deed of Release (referred to in the Judgment of the Victorian Court of Appeal at paragraph [5]).
5. The Deed of Settlement was not complied with and this subsequently led to further proceedings pursuant to which, on 12 May 2006,
   Master Evans in the Supreme Court of Victoria gave Judgment for Euroasia on the Deed of Settlement, together with interest and costs.
6. Thereafter, a Bankruptcy Notice was served upon Mrs Narain on
   29 July 2007, which itself was followed on 25 January 2008 by the Petition which has given rise to these proceedings.
7. It should be noted that on 12 March 2008, Mrs Narain filed a Notice of Opposition, the ground of which was that the substantive Judgment on the Deed of Settlement was the subject of an application to set aside. In an affidavit filed the same day, Mrs Narain deposed that the Deed had been executed by her in about June 2005 but without advice, and made a number of other points. These included the assertion that she had never instructed the solicitor who ostensibly acted for her, and the fact that she had no personal benefit from the Deed of Settlement.
8. On 13 March 2008, Registrar Hetyey permitted amendment of the Petition to a lower sum of $785,034.79.
9. Leaving aside various adjournments of the hearing of the Petition which occurred from time to time, the matter finally reached
   Registrar Luxton on 22 December 2009, on which occasion, as I have indicated earlier, he made the Sequestration Order.

Proceedings in the Supreme Court of Victoria

10. The proceeding in this Court has been by no means the only one. There have been extensive proceedings in the Supreme Court of Victoria. Following the order of Master Evans to which I have already referred, an application to set aside was issued. There has been substantial dispute as to the formalities of the proceedings in the Supreme Court of Victoria which I will overlook for these purposes, as they are not in my view relevant.
11. Suffice it to say on 11 April 2008 Master Daly (as her Honour then was) made an order setting aside the Judgment. Her Honour’s reasons are in evidence before me as part of exhibit MJK 6 to the affidavit of Matthew James Kandelaars, filed 24 December 2009. Her Honour indicated that:
    • “While I accept that Mrs Narain may face some substantial hurdles in seeking to avoid liability under the original loan agreement and the settlement deed, in particular by the terms of the release provided in the settlement deed, it appears to me to be at least arguable that the principles in NAB v Garcia may apply to Mrs Narain’s position under the original loan agreement, and that the subsequent agreement to release the plaintiff from any claims by her with respect to the loan agreement may be tainted as a result.”
12. That decision was appealed to Robson J, who gave judgment on
    13 May 2008. It is not necessary to set out his Honour’s reasons in detail. It is sufficient to note that his Honour reversed the decision.
    At [62] –[63] of his decision, his Honour dealt with certain deficiencies in the affidavit material originally filed by Mrs Narain, which failed to deal with the execution of the Deed of Settlement and certain ancillary matters.
13. At [85], his Honour dealt with later affidavit material deposing as to execution of the Deed. I note that his Honour described the affidavit’s contents in the following terms:
    • “She confirms that she executed it in the offices of Beveridge Eaton and says that she was informed at that time only that the document was to formally resolve her dispute with Euroasia and that it was “important” that she should sign it. She says the deed of settlement was never explained to her and that she had no idea of the arrangements that had been agreed upon in that document.”
14. His Honour dealt with the case on the footing that the decision of the High Court in NAB v Garcia (“Garcia”) extended only to the operation of suretyship agreements, and not to documents such as the Deed of Settlement. On that footing, his Honour found that Mrs Narain had no arguable defence and reversed the decision of the Master.
15. The matter was the subject of a subsequent hearing before Hollingworth J on 22 May 2008, and her Honour gave judgment on
    1 December 2008. It is not necessary to detail the complicated way in which it arose, but I would point to the following observation of her Honour, by way of explanation, at [52]:
    • “Given the procedural morass into which this proceeding has, unfortunately descended”
16. With respect, that seems to me to be an accurate description.
17. It is sufficient to say that her Honour, at [83] - [88], adopted the reasons given by Robson J insofar as they related to the merits of Mrs Narain’s proposed defence. In other words, Hollingworth J came to the conclusion, as Robson J had before her, that Mrs Narain had no arguable defence.
18. Those findings, however, must be considered against the basal consideration that both Robson J and Hollingworth J proceeded on the footing that the observations of the High Court in Garcia extended only to suretyship agreements, and not to documents such as the Deed of Settlement upon which the Judgment of Master Evans was founded.
19. The matter then went to the Court of Appeal, which effectively disposed both of the endeavoured appeal from Robson J and the appeal from Hollingworth J. By decision given on 11 December 2009, the Court of Appeal rejected Mrs Narain’s arguments.
20. The leading argument was given by Nettle JA. Bongiorno JA and Byrne AJA simply agreed with his Honour’s reasons.
21. Relevantly for these proceedings, Nettle JA arrived at the following conclusions:
    1. His Honour held that Hollingworth J was right to hold that the decision of the High Court in Yerkey v Jones ([1939] [1939] HCA 3; 63 CLR 649) (“Yerkey”) does not apply to instruments other than instruments of suretyship (at [45]).
    2. This was so even though his Honour for his part would have thought, absent the decision of the Court of Appeal of New South Wales in Elkofairi v Permanent Trustee Co Ltd ([2002] NSWCA 413), that Yerkey should apply on a broader basis than that set out in (a) (at [43]).
    100. That irrespective of the reservation set out in (b), in this instance the appellant received something of value from the Deed of Settlement, and thus received good consideration (at [48] – [49]).
    4. The fact that Mrs Narain was not advised of the effect of the Deed of Settlement and had no idea of the arrangements that had been agreed upon in it, would not avail her under Yerkey, because she was not a volunteer (at [50]).
    5. His Honour did not need to deal with any questions as to unconscionable conduct under the broad principle enunciated in Amadio (Commercial Bank of Australia Limited v Amadio [1983] HCA 14; [1983] 151 CLR 447) because those were not pursued by counsel (at [54]).

The Application to the High Court

22. Mrs Narain has sought special leave to appeal from the decision of the Court of Appeal of Victoria, and in my view has done so promptly. Nonetheless, her application for special leave cannot be heard before the final expiry of the extended time life of the Petition on 25 January 2010.
23. Both sides addressed me in detail about the prospects of success in the application for leave to appeal to the High Court. Both sides invited me to embark upon a detailed consideration of its likely success or otherwise.
24. I confess that I find this an inappropriate undertaking. It seems to me to be highly inappropriate that a member of the Federal Magistrates Court, being the inferior Court in the federal jurisdiction, should be offering some sort of pronouncements as to what the High Court, the superior Court in the federal jurisdiction, is likely to make of an appeal.
25. I note merely that the application does not of itself operate as a stay.
    I further note that the application cannot be said on any view to be frivolous or vexatious. Nettle JA clearly expressed a view that he regarded the decision of the New South Wales Court of Appeal in Elkofairi as being wrong. This tension may no doubt give rise to resolution in an appropriate case.
26. What, it seems to me, I have to decide is not whether the High Court will or will not grant special leave, or even whether it is necessarily more likely than otherwise to do so. For the reasons given, I regard this as an inappropriate endeavour on my part, even assuming I were thought to be capable of performing it.
27. What I have to decide is whether, in this hearing de novo, the powers exercised by the Registrar should be affirmed or not.

Consideration of the matters in Section 52(1) of the Bankruptcy Act (“the Act”)

28. As this is a hearing de novo, I am required to be satisfied of the matters stated in the Petition, service of the Petition, and the fact that the debt or debts on which the petitioning creditor relies are still owing. If I am satisfied of those matters, I may make a Sequestration Order.
29. Here, not only have recent affidavits of search and proof of debt been filed in December last year, but there is no serious dispute.
    Mrs Narain’s position has always proceeded on the footing that she is well aware of the Petition and she is well aware of the debts, which she denies. In the circumstances it seems entirely appropriate, as I indicated without demur from counsel for either party during the proceeding, to waive further compliance with Rule 4.06 of the Federal Court (Bankruptcy) Rules 2005. I will do so.

Consideration of matters contained in Section 52 of the Act

30. Mrs Narain has not sought at any stage to put on material to the effect that she is well-able to pay the debts alleged against her. I am not able in these circumstances to be satisfied that she is able to pay her debts. Whatever the stage of the administration of her estate since the Sequestration Order made by Registrar Luxton on 22 December 2009, it has not given rise to any material suggesting that she is able to satisfy the terms of s.52(2)(a) of the Act.
31. The question then becomes whether for other sufficient cause, a Sequestration Order should not be made (section 52(2)(b)).
32. Here, Mrs Narain points fairly and squarely to her application for special leave. It is not an assertion without force. Master Daly thought that, notwithstanding the difficulties that Mrs Narain might face, her case was arguable in the light of the consideration of Garcia.
33. The various countervailing points to be made to that submission are, in my view, as follows:
    1. the view expressed by Master Daly was not accepted by
       Robson J;
    2. it was not accepted by Hollingworth J;
    100. it was not thought to be clearly wrong by Nettle JA and the other two members of the Court of Appeal in Victoria;
    4. it was thought to be correct by the Court of Appeal of New South Wales;
    5. even if the legal position for which Mrs Narain contends in her special leave application were to be correct, the Court of Appeal in Victoria, led by Nettle JA, found squarely against her.
       Nettle JA, in the reasons I have earlier described, found that she was not a volunteer to the Deed of Settlement and obtained benefit thereby;
    6. the administration has been underway since December 2009 (although this is a relatively minor point);
    7. the amounts allegedly owing are conceded to be owing;
    8. the application for special leave will clearly be strongly resisted, and while its chances of success cannot be said to be negligible, they are clearly uncertain, at least so far as this Court is concerned;
34. On the other hand, however, it should be noted that the making of a Sequestration Order is highly likely to deprive Mrs Narain of the capacity to pursue her application for special leave and, if granted, her appeal to the High Court.
35. Balancing all of the above considerations together, it seems to me that the proper exercise of my discretion is to make a Sequestration Order. In my view, it is not appropriate to ignore the fact that the arguments sought to be placed before the High Court have been rejected by two puisne Judges of the Supreme Court of Victoria and three Justices of Appeal in the Supreme Court of New South Wales. Although the argument as to the application of Yerkey found favour with Nettle JA, he was not prepared to say that the decision of the Court of Appeal in New South Wales was plainly wrong, and the other two Justices of the Court of Appeal of Victoria did no more than to adopt his Honour’s reasons. They also adopted his Honour’s reasoning that Mrs Narain was not a volunteer.
36. In all the circumstances, and based upon the remarks set out above, I think that the proper exercise of my discretion is to make a Sequestration Order. In the light of the observations of the Full Court of the Federal Court in Totev v Sfar, I will affirm the decision of Registrar Luxton to make a Sequestration Order and dismiss the application for review.
37. I am minded to make the usual order as to costs, and to note the date of bankruptcy as that set out in the orders by Registrar Luxton. I will hear from the parties before making these orders finally.

I certify that the preceding thirty-seven (37) paragraphs are a true copy of the reasons for judgment of Burchardt FM

Associate: Ms B. Evans

Date: 24 March 2010

ADDENDUM

1. Since dictating these Reasons, my chambers has received a further affidavit filed by the Trustee pursuant to leave granted by me on
   2 March 2010. Objection has been taken to it by Mrs Narain’s lawyers. Given the conclusions I have already reached, the admission into evidence of the affidavit is not a matter of great moment. While I am not in any way critical of the Trustee for filing an affidavit for which leave was given, I note that from the terms of the affidavit and its annexures (see paragraphs 6 and 7) it may be contentious.
2. In the circumstances, the affidavit will be filed on the Court file but I have had no regard to its contents in formulating these Reasons for Judgment.