Dwyer v B.J. Magees Pty Ltd - [2004] FMCA 525

FEDERAL MAGISTRATES COURT OF AUSTRALIA

DWYER & ANOR v B.J. MAGEES PTY LTD

[2004] FMCA 525

BANKRUPTCY – Application to set aside bankruptcy notice – where applicant claims the debt is not a true debt – whether the court should go behind the judgment.

Bankruptcy Act 1966 (Cth), s.40(1)(g)

Corney v Brien (1951) 84 CLR 343
Wren v Mahoney (1972) 126 CLR 212
Oliveri v Stafford (1989) 24 FCR 413
Wolff v Donovan (1991) 29 FCR 480
Devaynes v Noble (1816) 1 Mer 572; (1816) 35 ER 781 (Clayton's Case)

First Applicant:

DREW DARREN DWYER

Second Applicant:

RAELEEN KIM DWYER

Respondent:

B.J. MAGEES PTY LTD

File No:

BZ152 of 2004

Delivered on:

10 August 2004

Delivered at:

Brisbane

Hearing date:

2 August 2004

Judgment of:

Jarrett FM

REPRESENTATION

Counsel for the Applicants:

Mr. Bowden

Solicitors for the Applicants:

Creswicks Lawyers

Counsel for the Respondents:

Mr. Martin

Solicitors for the Respondent:

MacDonnells Solicitors

ORDERS

Application dismissed.
The applicants pay the respondent's costs of and incidental to the application to be taxed.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
BRISBANE

BZ152 of 2004

DREW DARREN DWYER and RAELEEN KIM DWYER

Applicants

And

B.J. MAGEES PTY LTD

Respondent

REASONS FOR JUDGMENT

(Revised from the transcript)

This is an application to set aside a bankruptcy notice by Drew Darren Dwyer and Raelene Kim Dwyer. The respondent is BJ Magees Pty Ltd. The bankruptcy notice was issued on 8 January 2004 and is based upon a judgment debt obtained by the respondent against the applicants in the District Court of Queensland on 6 May 2003. The judgment was given by Brabazon QC DCJ, and the formal record of the judgment[1] indicates that it was given after a trial of the claim filed on 13 January 2003.
[1] exhibit "G" to the affidavit of Drew Darren Dwyer filed on 24 March 2004
The evidence contained in Mr Dwyer's affidavit suggests that, in fact, what occurred before Brabazon QC DCJ was the hearing of a summary judgment application made pursuant to rule 292 of the Uniform Civil Procedure Rules (Qld). On that occasion His Honour determined that there was no real prospect of the defendant successfully defending all or any part of the plaintiff's claim in that there was no need for a trial of the claim or any part of the claim made by the respondent against the applicants. His Honour gave judgment for the respondent against the applicants for the whole of its claim against them.
His Honour, however, did not dismiss the applicants' counterclaim in those proceedings. Subsequently that counterclaim, which for the purposes of my reasons I will record simply as a claim for damages for personal injury, was dismissed by an order of McGill QC DCJ, made only a couple of weeks before this hearing before me.
The grounds upon which the applicants applied to set aside the bankruptcy notice are set out in the application. The first ground is that the applicant has a counterclaim, set-off or cross-demand of the kind referred to in s.40(1)(g) of the Bankruptcy Act1966 ("the Act"). Because of the decision of McGill QC DCJ dismissing the counterclaim, that ground is no longer pursued before me.
The only ground that remains and which is pursued before me is that this Court should go behind the judgment obtained in the District Court on 6 May 2003 to determine whether in truth and reality the debt founding the bankruptcy notice exists.
There is no doubt that in an appropriate case a court exercising federal jurisdiction in bankruptcy can go behind a judgment relied upon by a judgment creditor and inquire whether, despite the judgment, there is in truth and reality a debt due: Corney v Brien (1951) 84 CLR 343; Wren v Mahoney (1972) 126 CLR 212. The power to go behind the judgment may be exercised by the Court on an application to set aside a bankruptcy notice: Oliveri v Stafford (1989) 24 FCR 413.
In this particular case the judgment was obtained after a contested hearing in which the applicants were legally represented. A bankruptcy court will not readily go behind such a judgment. As I understand the authorities, substantial reasons must be shown by the debtor to question the sufficiency of the judgment as proof that the debtor is, in truth and reality, indebted to the creditor in the respect reflected in the judgment: Wren v Mahoney at 224 and 225; Wolff v Donovan (1991) 29 FCR 480 at 486. Because of the effect of a sequestration order, however, it is appropriate to go behind a judgment obtained even after a contested hearing on the merits if a judgment debtor presents to a bankruptcy court a sufficiently cogent case that he or she is not truly indebted.
Whether the Court should go behind a judgment is a matter of discretion. A bankruptcy court would only be prepared to re-try, as it were, the contest between the judgment debtor and the judgment creditor on the same materials on which the judgment creditor obtained the judgment in a wholly exceptional case. This, however, appears not to be one of those cases.
I should say a little more about the proceedings in the District Court. The pleadings in those proceedings[2] make it plain that in the hearing before his Brabazon QC DCJ the stance adopted by the applicants was to admit the principal debt alleged. The respondent, BJ Magees Pty Ltd sued the Dwyers on the basis of a guarantee. The guarantee was alleged, and admitted by the applicants to have been entered into on or about 6 April 2000. The guarantee was given in consideration of the respondent granting credit to, and continuing to provide goods and services to the applicants' company Drewleen Pty Ltd ("the principal debtor") pursuant to a trading agreement.
[2] exhibits "B", "C" and "D" to the affidavit of Drew Darren Dwyer filed on 24 March 2004
The trading agreement provided for goods to be supplied on a 30-day credit basis. The proceedings in the District Court sought to recover the judgment sum on the basis of the guarantee, there having been a default in payment by the principal debtor of moneys said then to be outstanding. By their defence the applicants admitted the amount claimed by the respondent against the principal debtor. No allegation was made in the defence that the debt was not owed by the principal debtor to the plaintiff in that case, that is, B.J. Magees Pty Ltd.
No facts were pleaded to contest the allegation that the sum for which the respondent ultimately obtained judgment was due and owing. The basis of the defence, as far as I can tell from the defence delivered by the applicants, seems to simply have been a claim that they had a set-off of some form or another of counterclaim against the respondent. Even then, the facts pleaded only led to the conclusion that the first applicant had such a counterclaim. There was an allegation by the applicants that no demand had been made but I do not think that much turns on that.
The matter came before Brabazon QC DCJ and His Honour gave judgment for the respondent. In the proceedings before me it is alleged that the amount for which judgment was given is not truly owing by the applicants to the respondent. The basis upon which that is said is as follows.
The guarantee entered into between the applicants and the respondent on 6 April 2000, it is said, has come to an end or been terminated. The basis upon which the termination has occurred, it is said, is that the respondent has changed the trading terms which formed the basis of the parties' dealings when the guarantee was entered into.
It is said that the guarantee, by its terms, is a divisible guarantee: that is, the consideration for it is divisible and in those circumstances, given the change in trading conditions between the respondent and the applicants, the guarantee was terminated. For reasons that will shortly appear, it seems to me that I do not need to decide whether that is so or not; because even if the guarantee was terminated on the day alleged by the applicants, the liability accrued up to that time under the guarantee would nonetheless remain. I do not understand it to be contended by the applicants that a termination of the guarantee works a discharge of any obligations that have accrued to that time: that is, it is a termination of the guarantee in futuro rather than a recision of the guarantee.
The evidence reveals that after the guarantee was entered into and after the trading agreement between the applicants and the principal debtor was made, the trading conditions changed. To put it bluntly, the respondent refused to extend any further credit to the principal debtor, because of the principal debtor's failure to pay according to the trading agreement.
Goods were still sold and delivered by the respondent to the principal debtor but on "cash on delivery" terms. There seems to be some contest about that, but again it seems to me to be unnecessary to resolve that conflict. Even if I accept the applicants' contention that no further goods were supplied on credit and that the principal debtor paid on a "cash on delivery" basis, it is plain that for each payment made by the principal debtor to the respondent there was consideration given by the respondent, that is, the supply of stock as ordered by the applicants. In those circumstances, it seems to me that there is really no room for the operation of the rule in Clayton's case[3] as contended for by the applicants.
[3] Devaynes v Noble (1816) 1 Mer 572; (1816) 35 ER 781
The moneys that were paid subsequent to the change in trading arrangements between the respondent, the applicants and the principal debtor were really a complete change in arrangements and a new contract came into existence on each occasion that the principal debtor or the applicants ordered stock from the respondent. In those circumstances any current account that might have existed between the respondent and the principal debtor (or perhaps the applicants) ceased to be current as it were. In those circumstances the rule in Clayton's Ccase has no application.
The applicants' contention that there is in truth or reality no debt relies on the assertion that the rule in Clayton's case does apply, and that any payments made by the applicants to the respondent or by the principal debtor to the respondent after the termination of the trading agreement must be applied to extinguish or discharge any liability accrued up to that time. I do not accept that argument. I do not think that the rule in Clayton's case applies in these factual circumstances.
I am therefore not satisfied that there is any sufficiently cogent case that the applicants are not truly indebted to the respondent and as a matter of discretion I would not in those circumstances "go behind" the judgment given by Brabazon QC DCJ in the District Court of Queensland.
For those reasons, the application will be dismissed. There will be an order that the applicants pay the respondent's costs of and incidental to the application to be taxed.

I certify that the preceding twenty (20) paragraphs are a true copy of the reasons for judgment of Jarrett FM

Associate:

Date: