Evans, J.D. v The Heather Thiedeke Group Pty Ltd

[1989] FCA 460

Re: JOHN D. EVANS
And: THE HEATHER THIEDEKE GROUP PTY LIMITED
No. G54 of 1989
FED No. 460
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA

QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION
Morling(1), Hartigan(1) and Lee(1) JJ.

CATCHWORDS

Bankruptcy - application to set aside bankruptcy notice - notice founded on judgment of Supreme Court - fresh evidence - considered on appeal to Full Court of supreme Court - appeal dismissed - application to a Bankruptcy Court to go behind judgment - discretion application refused - appeal - appeal dismissed.

Bankruptcy Act 1966 (Cth)

HEARING

SYDNEY

#DATE 14:8:1989

Counsel for appellant: P.D. Robin Q.C. with

D.R.M. Murphy instructed by: Carodoc Evans & Co.

Counsel for respondent: P.D. McMurdo

instructed by: Morris Fletcher & Cross

ORDER

Appeal dismissed.

Appellant to pay respondent's costs of the appeal.

NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

This is an appeal from a decision of a judge of the Court (Pincus J) dismissing an application brought by the appellant seeking to have set aside a bankruptcy notice served on him by the respondent.

1. The bankruptcy notice was issued on 4 April 1989 and was based upon a judgment of the Supreme Court of Queensland (Williams J) delivered on 24 December 1987. A previous bankruptcy notice, based upon the same judgment, was issued in 1988. An application to set aside the earlier notice was dismissed by Spender J on 30 April 1989. At the time of the hearing before Pincus J an appeal was pending against Spender J's decision. However, it appears that the first bankruptcy notice was issued and served such a long time ago that no petition can be based upon it.

2. It was the appellant's case before Pincus J that the Court should go behind the judgment of Williams J which, so it was submitted, had been obtained by fraud or, alternatively, was otherwise flawed by error. The basis of these submissions was that the appellant had new evidence, not tendered at the trial, which would have led Williams J to reach a different decision had it been before him.

3. An issue at the trial was whether the appellant had been present at a meeting with Mr Heather, a principal of the respondent company, on 12 November 1984. In evidence before Williams J, Heather said that the appellant was present at that meeting, but the appellant denied that he was. Williams J. found it unnecessary to decide the point. The new evidence would have supported the appellant's version of the facts.

4. The appellant appealed to the Full Court of Queensland from Williams J's decision. When the matter was in the Full Court, senior counsel for the appellant sought to rely upon the abovementioned new evidence. The Full Court declined to admit it.

5. The trial judge's crucial findings of fact were substantially influenced by his views as to the credit of the witnesses, including the appellant and Heather. He made it plain in his reasons that if Heather's evidence that the appellant was present at the meeting on 12 November was incorrect, the error was an honest mistake. It is plain from a reading of the reasons of Connolly J. (with whom the other members of the Full Court concurred) that he entertained some reservations as to whether that evidence could be explained as a mistake. Connolly J acknowledged that the trial judge had the advantage of seeing and hearing the critical witnesses and concluded that there was no reason to refuse to accept his Honour's preference for the evidence of Heather on the material issue as to the terms of the contract.

6. The Full Court in its adoption of the judgment of Connolly J gave considered and careful reasons for rejecting the appeal and pointed out that if some of the reasons set out by the trial judge were less compelling than others there was material that supported his Honour's findings of fact as to the terms of the contract.

7. Without descending to the fine details of the issues at the trial in the Supreme Court, it can be said that the real issue was whether there was a contractual term of the agreement between the parties that a substantial building designed by the respondent for the appellant could be erected within certain specified cost constraints. The trial judge preferred to accept the evidence of Heather rather than the appellant on this issue. The Full Court found, in effect, that he was entitled to do so.

8. Pincus J recognized that he had the power to go behind the judgment obtained in the Supreme Court. He referred in his reasons to the authoritative decision in Wren v Mahony (1972) 126 CLR 212. In that case Barwick C.J. referred to authorities which establish that a Bankruptcy Court may go behind a judgment and enquire into the validity of the petitioning creditor's debt, including In re Fraser; Ex parte Central Bank of London (1892) 2 QB 633, particularly at p 636 per Lord Esher M.R. Referring to remarks made by Lord Esher in an earlier English case, In re Flatau; Ex parte Scotch Whisky Distillers Ltd (1888) 22 QBD 83, Barwick C.J. said (at p 224):
   

"... he was pointing out that the Bankruptcy Court could in general accept a judgment debt as sufficient proof of that debt particularly where it resulted from a fully heard contest between parties but that it always had the power to go behind the judgment and if the case was a proper one, should do so. 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. It is not the law, in my opinion, that whether in any case the Court of Bankruptcy will consider whether there is satisfactory proof of the petitioning creditor's debt is a mere matter of its own discretion. Nothing in Corney v Brien

((1951) 84 CLR 343) lends support for such a view. Rather the emphasis is upon the paramount need to have satisfactory proof of the petitioning creditor's debt. The Court's discretion in my opinion is a discretion to accept the judgment as satisfactory proof of that debt. That discretion 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."

1. In our opinion it is clear that Pincus J well appreciated that he had a discretion (in the sense referred to by Barwick C.J.) to go behind the judgment. After a careful consideration of Connolly J's reasons, he came to the conclusion that he could not sensibly disagree with the Full Court's decision. It is impossible to say that he erred in reaching this conclusion. Having reached that conclusion, it was inevitable that he should refuse to exercise the discretion to go behind the Supreme Court's judgment.

2. Mr Murphy, who put every possible argument in support of the appeal, submitted that Pincus J erred in principle in placing any weight upon the circumstance that the Full Court had upheld the judgment of Williams J. He argued that lack of success in the appellate process does not disadvantage a judgment debtor in the Bankruptcy Court when he seeks to have set aside a bankruptcy notice founded upon a judgment debt. We agree that this is so, but we do not think that Pincus J took a different view. In the relevant passage in his judgment he said:
   

"I hold that it is only in a very unusual case that a Court exercising bankruptcy jurisdiction will go behind a judgment of the Supreme Court, upheld on appeal, concerning matters of credit."

1. That dictum is plainly correct. The fact that the appellant failed in the Full Court (and subsequently in an application for special leave to appeal to the High Court) did not disentitle him from seeking to have the Federal Court go behind the Supreme Court's judgment, and Pincus J did not hold that it did. It is plain from a reading of the whole of his reasons that he recognized that, notwithstanding the appellant's lack of success in the Full Court and in the High Court, he (Pincus J) had a discretion to go behind the judgment if it was proper to do so. But, as Lord Esher pointed out in In re Hawkins; Ex parte Troup (1895) 1 QB 404 at p 412, there must first be a prima facie case for impeaching the judgment before a Bankruptcy Court will go behind it. Pincus J was not in error in failing to find that such a prima facie case was established in the present case. He therefore correctly exercised the discretion not to go behind the Supreme Court's judgment.

2. In the result, the appeal must be dismissed with costs.