Evans v Heather Thiedeke Group Pty Ltd

Re: JOHN DAVID EVANS
And: THE HEATHER THIEDEKE GROUP PTY LTD
No. G 56 of 1990
FED No. 551
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA

QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION
Lockhart(1), Neaves(1) and Ryan(1) JJ.

CATCHWORDS

Bankruptcy - Sequestration order - Judgment debt - Judgment obtained after contested hearing in superior court - Whether satisfactory proof of petitioning creditor's debt - Whether circumstances such that before making sequestration order court required to go behind the judgment and examine for itself whether petitioning creditor's debt existed

Bankruptcy - Creditor's petition - Prescribed form - Statement of amount of debt and consideration for it - Affidavit verifying petition - Form of - Requirement that facts be set out which if verified and not disputed would suffice to establish debt of requisite amount

Bankruptcy - Sequestration order - Order staying proceedings - Effect

Bankruptcy Act 1966 (Cth), ss.47, 52

Bankruptcy Rules, rule 12, Sch.1 Form 5

HEARING

CANBERRA

#DATE 28:9:1990

Counsel for the respondent: Mr P.D. McMurdo

Solicitors for the respondent : Morris Fletcher and Cross

ORDER

The appeal be dismissed.

The respondent's costs of the appeal be taxed and paid in accordance with s.109 of the Bankruptcy Act 1966 (Cth) as if they were the costs of a petitioning creditor.

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

JUDGE1

This is an appeal by John David Evans ("the appellant") from a judgment of this Court constituted by a single judge (Spender J.) given on 4 May 1990. By that judgment, which was pronounced following the hearing of a contested creditor's petition presented on behalf of The Heather Thiedeke Group Pty Ltd ("the respondent") on 1 September 1989, a sequestration order was made against the estate of the appellant.

The petition alleged that the appellant was justly and truly indebted to the respondent in the sum of $57,409.70 "for architects fees and interest thereon". It further alleged that the appellant had committed an act of bankruptcy by reason of his failure on or before 28 August 1989 to comply with the requirements of a bankruptcy notice (numbered BN 443 of 1989) duly served on him on 6 April 1989 or to satisfy the Court that he had a counter-claim, set-off or cross demand equal to or exceeding the amount of $57,409.70, being a counter-claim, set-off or cross demand that he could not have set up in the action or proceeding in which the judgment or order on which the bankruptcy notice was founded was obtained. Although the time fixed for compliance with the bankruptcy notice was a period of 14 days after the service of the notice, that time was subsequently extended up to and including 28 August 1989.
The judgment on which the bankruptcy notice was founded was a judgment of the Supreme Court of Queensland constituted by a single judge (G.N. Williams J.) given on 24 December 1987. That judgment, which clearly was a final judgment within the meaning of that expression in s.40(1)(g) of the Bankruptcy Act 1966 (Cth), was pronounced in an action brought by the respondent as plaintiff against the appellant as defendant to recover the balance of fees alleged to be due under an agreement whereby the respondent was retained to carry out the architectural and planning work involved in obtaining the necessary approvals for, and in designing and supervising the construction of, a 52 unit retirement village development on certain land owned by the appellant at Broulee just south of Bateman's Bay in the State of New South Wales. The appellant, who was represented throughout the trial by counsel, raised a number of defences to the claim and also relied upon a counter-claim against the respondent. In the result, each of the defences failed, as did the counter-claim, and judgment was entered in the action for the amount claimed by the respondent together with interest thereon up to the date of judgment.
From that judgment an appeal was taken by the appellant to a Full Court of the Supreme Court of Queensland. The appellant was represented on the hearing of the appeal by senior and junior counsel. The appeal was unanimously dismissed on 9 September 1988 by a Court constituted by Andrews C.J. and Connolly and Ryan JJ. An application to the High Court (Wilson, Deane and Dawson JJ.) for special leave to appeal from the judgment of the Full Court was dismissed on 25 November 1988.
On 5 April 1989, the bankruptcy notice (numbered BN 443 of 1989) to which reference has already been made was issued. The appellant applied to this Court to set aside the notice, that application being heard by Pincus J. on 19 May 1989. The application was dismissed. An appeal from that judgment was dismissed by a Full Court of this Court (Morling, Hartigan and Lee JJ.) on 14 August 1989. An application to the High Court (Brennan, Gaudron and McHugh JJ.) for special leave to appeal from the judgment of the Full Court was, by majority, dismissed on 17 November 1989.
It should also be mentioned that a bankruptcy notice (numbered BN 236 of 1988) based on the judgment of the Supreme Court of Queensland had been issued at the instance of the respondent on 5 February 1988. The appellant applied to this Court for an order setting aside that notice, such application being dismissed by Spender J. on 13 April 1989. Although an act of bankruptcy had been committed by the appellant by reason of his failure to comply with the requirements of the notice, no creditor's petition was presented by the respondent, or by any other creditor of the appellant, based upon that act of bankruptcy. By 13 April 1989 when Spender J. gave judgment upon the appellant's application, the time within which a creditor's petition might be presented had expired.
The hearing of the creditor's petition presented on behalf of the respondent commenced before this Court (Spender J.) on 20 November 1989 and continued on 6 and 16 February 1990. The appellant had, pursuant to rule 20 of the Bankruptcy Rules, filed a notice of intention to oppose the making of a sequestration order, specifying therein a number of grounds. It is, however, only relevant for present purposes to refer to the first of those grounds, that ground being expressed in the following terms:

"That the Judgment relied upon in the creditor's claim for $57,409.70 was obtained by fraud and/or ought otherwise not to be enforced by the exercise of the powers conferred upon this Honourable Court which having regard to the evidence ought to go behind that judgment to determine the issue."

In support of that ground of opposition the appellant relied on various affidavits and other documentary material to relevant parts of which reference will be made later in these reasons.

Spender J., in considering whether the Court should go behind the judgment, referred to the history of the proceedings between the appellant and the respondent, citing passages from the various judgments, and said:

"While a court exercising jurisdiction in bankruptcy has discretion to go behind the judgment if it is proper to do so, the full curial history of this matter underlines the difficulty of persuading a court exercising jurisdiction in bankruptcy that in this case it would be proper to do so. Mr Evans seeks, at the petition stage, to advance the same contentions concerning the judgment as he advanced at his challenge to the bankruptcy notice, and which he pursued to the Full Court of the Federal Court and to the High Court in seeking special leave to appeal. A detailed consideration of the basis for the invitation to go behind the judgment and, in particular, an appreciation of the basis on which the Full Court concluded that the appeal to it from the judgment of Williams J. should be unsuccessful, fails to persuade me that it would be in the proper exercise of discretion to go behind the judgment. As such, subject to the bases sought to be advanced as sufficient cause under s.52(2), there is no reason why a sequestration order ought not be made."

After referring to the application which the appellant had also made that certain questions of fact be tried before a jury pursuant to s.30(3) of the Bankruptcy Act, his Honour continued:

"The debtor presents no new evidence on which he could base his request for a jury trial into the issues he raises. Those matters were the subject of consideration on previous occasions. There must first be a prima facie case for impeaching a judgment before a court exercising jurisdiction in bankruptcy will go behind it. Lord Esher M.R. said in In re Hawkins; ex parte Troup (1895) 1 QB 404 at 412: 'It is, therefore, I am of opinion, clear that the Court of Bankruptcy is not bound by a judgment at law, but is entitled to investigate all the facts of the case whenever, but not before, a prima facie case impeaching the judgment is made out. Otherwise a man might defeat all his just creditors by allowing judgment to be taken by default or consent. The principle appears to be that it would be unjust and impolitic to allow a man to be subjected to the pains and penalties of bankruptcy unless it was established that there were grounds for so doing by the existence of a good petitioning creditor's debt, and unjust to the general body of creditors to permit one creditor, by means of a judgment which had no solid foundation, to obtain an undue advantage over them, and obtain payment of his alleged debt in full to their prejudice.'

I myself am not satisfied that such a case has been established here. It seems to me wrong therefore to permit an enquiry directed to establishing whether there might be a basis on which such a case existed. A fortiori, when such an enquiry would involve the disruption necessarily attending the resolution of a question by a jury."

His Honour then proceeded to consider the other grounds upon which the appellant relied as providing sufficient cause for the Court to exercise its discretion under s.52(2) of the Bankruptcy Act to dismiss the petition. Not being satisfied that sufficient cause had been shown, his Honour made the sequestration order which is the subject of the present appeal. The sequestration order was signed and sealed within the meaning of those words in s.37(2) of the Bankruptcy Act on 17 May 1990.
The essence of the appeal to this Court is an assertion on the part of the appellant that Spender J. erred in failing to go behind the judgment of the Supreme Court of Queensland and examine the question whether, behind that judgment or as the consideration for it, there was in truth and reality a debt due by the appellant to the respondent: see Wren v. Mahony (1972) 126 CLR 212 per Barwick C.J. at pp 224-5.
For the grounds upon which the appellant relies in support of the appeal to be fully understood, it is necessary to refer, in greater detail than has already been done, to the issues that arose in the proceedings in the Supreme Court, to the judgments given in that Court, and to the subsequent proceedings to which we have already referred. As will appear, much of the appellant's case has its focus in the evidence which was given at the trial before Williams J. as to what was said at a meeting held on 12 November 1984.
The circumstances in which the dispute between the appellant and the respondent arose may be shortly stated. The appellant had sought advice concerning the development project at Broulee from Mr John Crisp, a builder of some experience, who carried on business as a building consultant. The appellant and Mr Crisp decided that the services of an architect were required and Mr William Stephen Heather, a registered architect and a principal in the respondent, was consulted. Mr Heather carried out substantial work in relation to the project but, when tenders for Stage I of the building work were received, they were found to be higher than anticipated. As a result the appellant was unable to obtain the necessary finance on terms satisfactory to him and the project did not proceed. The appellant paid certain moneys to the respondent in respect of the work performed by Mr Heather but declined to pay the balance of the fees demanded.
By way of defence to the respondent's claim, the appellant alleged that the respondent had failed to carry out the terms of its retainer with the consequence that the amount sued for was not due and owing. It appears from the judgment of Williams J. that, by his defence, the appellant asserted that the terms of the retainer were partly oral and partly in writing; that the written terms were to be found in the following documents, namely a letter dated 6 December 1984 from the respondent to the appellant, the reply by the appellant dated 20 December 1984 and a further letter from the respondent to the appellant dated 28 December 1984 with which was enclosed a document dated 29 December 1984 headed "Fee proposal for architectural services"; and that the oral terms were agreed at meetings held on 14 November 1984 and 3 January 1985.
The appellant further alleged that it was a term of the retainer, a term which it was said the respondent had failed to perform, that the construction "would be so designed and prepared by the (respondent) as to enable the village to be marketable at an average of $70,000.00 per unit and to enable the (appellant) to obtain finance raised progressively against the security of the land upon which the retirement village was to be constructed". That term was said to have been agreed at the meeting on 14 November 1984 attended by Mr Heather, Mr Crisp and the appellant. It may be noted that Connolly J., in whose judgment the other members constituting the Full Court of the Supreme Court of Queensland agreed, expressed the alleged term in somewhat different language. According to Connolly J., the appellant alleged that it was a term of the retainer that "the units would be so designed that the cost of their construction would not exceed a figure which would return a profit of 20 per cent. to the appellant if they were sold at an average price of $70,000".
In considering what were the terms of the retainer, Williams J. made findings as to what took place at various meetings of which evidence had been given and made reference to correspondence passing between the parties. In particular his Honour made findings as to what occurred at meetings which took place on 12 and 14 November 1984. However, his Honour concluded that the only relevant terms of the retainer were those to be derived from the terms of the correspondence and particularly from the letter dated 6 December 1984 and the document dated 29 December 1984 headed "Fee proposal for architectural services". His Honour found that, while the discussions between Mr Heather on the one hand and Mr Crisp and the appellant on the other revealed a desire on the part of the appellant to keep the sale price per unit as close as possible to an average of $70,000, there never was a contractual term that the respondent's design should be such that the units could be marketed profitably at that price. In reaching his conclusions, Williams J. clearly accepted the evidence given by Mr Heather rather than that of the appellant and Mr Crisp. As to the meetings of 12 and 14 November 1984, his Honour said:

"Heather has extensive notes of meetings on 12th November and 14th November. There was a dispute as to whether or not the defendant was present personally at the first meeting. Heather's notes of that meeting make frequent reference to the defendant, but that is not inconsistent with Crisp alone being there. Heather's evidence is that both the defendant and Crisp were at the meeting, whereas the other evidence suggests that only Crisp attended. There is no doubt that the defendant attended the meeting on 14th November. The conflict as to who was at the meeting on 12th November is not of critical importance. If Heather's evidence is incorrect then it is an honest mistake on his part, brought about because of the extensive references in his notes of that meeting to the defendant."

The references to the defendant are, of course, references to the present appellant.

The evidence of the principal witnesses before Williams J. took the form of written statements which had been previously prepared and exchanged and upon which the witnesses could be cross-examined. The material before us includes that part of the written statement of Mr Heather that related to the meetings of 12 and 14 November 1984. To that statement were annexed Mr Heather's contemporary notes of what took place at those meetings. We do not have before us the evidence given at the trial by Mr Crisp and the appellant. As will appear, however, the general tenor of Mr Crisp's evidence as to what was said at the meeting of 12 November 1984 may be gathered from the judgment of Connolly J.
On the hearing of the appeal before the Full Court of the Supreme Court of Queensland the appellant unsuccessfully sought to introduce as fresh evidence the contemporaneous notes made by Mr Crisp concerning the meeting of 12 November 1984 and a conversation which he had later that day with the appellant during which he informed the appellant of what had been said at his meeting with Mr Heather. A copy of the contemporaneous notes was annexed to an affidavit sworn by Mr Crisp on 2 February 1988. In that affidavit Mr Crisp deposed that he had not at any time prior to or during the trial before Williams J. informed the appellant's legal advisers of the existence of the diary notes. The notes read as follows:

"12.11

9AM. All morning in conference with Bill Heather assessing if he is interested in our Project and if we would be happy with him as our architect. The answer was yes on both counts. Bill seems to have many good ideas and he suggested that we inspect several of his retirement villages. 1PM Travelled to J. Evans house meeting. Set out all Bill and I talked about and at 3PM decided we would inspect Bill designed village. Proceeded to Meron St then to Tweed Head. Quite impressed by Tweed Heads Village St. Cuthberts returned home 5.45. Time Spent 8 HRS."

Mr Crisp further deposed in his affidavit sworn on 2 February 1988 that, although in the course of his evidence at the trial he had stated both in writing and orally that the appellant was not present at the meeting on 12 November 1984, he was not cross-examined on the question who were the persons present at that meeting. The appellant has also deposed in affidavits included in the material before us that he was not cross-examined at the trial on that subject.

Connolly J. identified the question for consideration by the Full Court of the Supreme Court as being whether the finding of fact made by Williams J. that the respondent was never a party to an agreement such as was contended for by the appellant could be displaced. His Honour expressed himself as being in no doubt that, on the evidence, there was no inherent improbability in the appellant's seeking to have the respondent investigate the feasibility of the proposal within the financial constraints with which he was concerned and that the conclusion reached by Williams J. that the respondent was not retained to design units within those constraints depended in the long run on his Honour's preference for the evidence of Mr Heather. His Honour disagreed with the finding of Williams J. that the whole of the agreement between the parties was to be found in the written material. That material, Connolly J. said, did not even identify the project. It followed, in his Honour's judgment, that "the contract between the parties required resort to evidence which went beyond the correspondence". His Honour added that nothing in the correspondence could have precluded a finding that the respondent had agreed to design the units in such a way that the cost constraints referred to by the appellant could be satisfied.

As to the meeting on 12 November 1984, Connolly J. said:

"Mr Crisp's evidence is that he and Mr Heather, the appellant not being present, spent the morning of that day discussing the appellant's concept for a retirement village on the Broulee land. He says that the concept was for a three stage development of a 52 unit village with good community facilities. His evidence is that the units were to be two storeyed and so designed and built as to sell for an average of $70,000.00; that the land was possibly worth about $600,000.00 and that the whole of the funds required for the first stage would have to be obtained against the security of the land, including the buildings in course of erection upon it. His evidence is that Mr Heather, after making calculations, told him that the project would be 'a goer' at an average of $70,000.00 per unit. I interpolate at this point that Mr Heather, who has obviously been accepted by the learned trial Judge, said that he had no knowledge of building costs on the south coast of New South Wales and that he was given unit building costs by Mr Crisp. There is no doubt that Mr Heather made calculations which led to a figure of $70,000.00 for his notes are in evidence. In relation to the $70,000.00 average price, Mr Crisp says that Mr Heather recommended that the appellant should inspect a low cost retirement village known as St Cuthbert's designed by him and located at Tweed Heads and this in fact was done.

There is much common ground between Mr Crisp and Mr Heather about the matters discussed on 12th November, 1987 but a curious issue emerged in that Mr Heather contended that the appellant himself was present on 12th November. This is flatly denied by both Mr Crisp and the appellant."

After stating that he was unable to attach to certain of the material the same significance as had been attached to it by Williams J., Connolly J. said:

"For my part I would, I think, have been disposed to conclude that where a client conveys to a designing architect a desire to limit cost in a particular way, that will ordinarily be a term of the retainer so that if the restraint cannot be complied with, the contract either goes off or is modified. Indeed, Mr Heather conceded that the architect must produce something which will meet the budget of the client and that this is a reasonable constraint for the client to impose. Nevertheless I feel considerable difficulty about giving effect to this view in the teeth of the finding of fact for in the long run it is a question of fact whether the architect agreed to work within the constraint. This, in turn, must depend, in a case such as this, on the impression which the witnesses made on the trial Judge. It is at this stage that the significance of the issue as to whether the appellant was or was not present on 12th November, 1984 emerges. The learned Judge said of this conflict of testimony that it was not of critical importance. His Honour continued: 'If Heather's evidence is incorrect then it is an honest mistake on his part, brought about because of the extensive references in his notes of that meeting to the defendant.' In fact the notes of the meeting on 12th November cover three foolscap pages and the references to the appellant are three in number, all on the first page, the first identifying him as a party to the proposal, the second referring to his relations with a previous architect and the third being a proposal that he should make fortnightly visits for inspection to the project. They scarcely warrant the description extensive but his Honour may well have had in mind the possibility that Heather's recollection was coloured by the references on the first page of his notes. This is not altogether easy to accept when one sees that Heather not merely states that the appellant was present but attributes certain statements to him and other statements to Crisp. I must say that this occasions me some concern but at the end of the day I cannot persuade myself that it is a sufficient reason for this Court, which did not have his Honour's advantage in seeing and hearing the critical witnesses, refusing to accept his preference for Mr Heather, rather than the appellant and Mr Crisp. Moreover, in this connection there is, I think, considerable force in the point which was made by Mr McMurdo for the respondent that most of the matters discussed on 12th November were the subject of further discussion on 14th November so that a mistake, if one occurred, is not so difficult to understand.

Mr Heather's explanation of the calculation which he did and which appears in his notes leading to the figure of $70,000.00 is that it was an exercise to satisfy himself that the project was worth his investigating. He asserted consistently, and he seems to be borne out by the other evidence in this respect, that he was given the building costs by Mr Crisp and that he had no personal knowledge of building costs on the south coast of New South Wales. He conceded that he was aware that Mr Evans and Mr Crisp were aiming at a $70,000.00 cost per unit. It was put to him that the statement was made to him by either Mr Crisp or Mr Evans that the units must be designed and built so as to sell at an average of $70,000.00 and he replied that he did not recall it in as clear terms as that. This answer, which appears to be at least a partial concession, can also be understood as meaning no more than that he was aware that this was the figure at which they were aiming.

The matter however does not end here. When the tenders came in the appellant did not immediately complain of the respondent's failure to comply with what is now contended to be a critical term of the contract and continued to seek ways of completing the project. In the result, I see no basis on which we could properly interfere with the finding of fact of the learned trial Judge."

His Honour then considered whether, even if the term contended for by the appellant had been a term of the retainer, the evidence satisfactorily established that the respondent was in breach of that term. He concluded that the appeal should be dismissed.

As previously mentioned, the High Court on 25 November 1988 refused special leave to appeal from the judgment of the Full Court of the Supreme Court.
In dismissing the application by the appellant to set aside the bankruptcy notice numbered BN 236 of 1988, Spender J., on 13 April 1989, said:

"I hope I am not doing him (Mr Evans) an injustice when I say that it (the application) centres on an assertion that Mr Heather, the principal witness on behalf of the plaintiff in the proceedings before Mr Justice Williams, was dishonest and unreliable and uncreditworthy in that his account of what occurred on 12 November can be shown to be wrong and therefore the findings of credit by the primary judge do not have the consequences that his Honour thought should follow from his assessment of the witnesses on the evidence before him."

Later, his Honour said:

"Now, the discretion to go behind a judgment, which undoubtedly exists in a bankruptcy court, is not one to be exercised on a nice assessment of questions of evidence, particularly in the circumstance - after a lengthy trial with both parties represented by counsel and an appeal - of this matter. Essentially, the complaint of Mr Evans is that there is now material which points to a resolution of the conflict regarding the persons who attended on 12 November, and that if this could be canvassed, then the creditworthiness assessments made by the learned primary judge might very well be reversed.

I think Mr Evans would put it higher than that, but that, at least, is the nature of the application that is made. For my part, having looked at the material, this is not a case where it can be said that prima facie the judgment of the primary judge is tainted by fraud or that there is involved, at least to the level that the authorities speak of, sufficient evidence of a miscarriage as to require or even suggest the desirability of going behind the judgment. The matter in truth, in my assessment, is not one that has that extensive consequence. The position seems to be that there is a judgment which involves questions of assessing the credit of various witnesses, and that a matter has been latched on to as being a possible basis of reversing the findings that the primary judge arrived at. That matter having been canvassed before the Full Court and some recognition of its merits being given by Connolly J., at the end of the day he concluded that this was not a case where those considerations ought to lead to setting aside the judgment.

There is no order made that the matter be re-tried, notwithstanding the view taken by Connolly J. on this aspect of the matter. Quite frankly, it seems to me to be plain that this is a case where a court exercising jurisdiction in bankruptcy ought not to go behind the judgment and, for that reason, the application to set aside the bankruptcy notice is refused."

An appeal was instituted against the judgment given by Spender J. but that appeal apparently did not proceed to a hearing.

Pincus J., in giving judgment on 19 May 1989 dismissing the appellant's application to set aside the bankruptcy notice numbered BN 443 of 1989, referred to the judgment of Williams J., to the criticisms of that judgment made by the Full Court of the Supreme Court, to Mr Crisp's diary note of the meeting on 12 November 1984 and to the terms of the respondent's letter dated 6 December 1984. His Honour then said:

"It appears to me that this case is one where the critical aspect has to be the document which, it is common ground, was not in evidence before the Supreme Court, and that is the diary note of Mr Crisp which I have already mentioned, referring to the alleged meeting of 12 November 1984. The diary note, as Mr Evans remarks, provides a strong element in support of his case that he was not present at the meeting of 12 November.

But the factor which has impressed me most in this case is that the Full Court itself seemed very doubtful of the strength of the considerations that were put forward in support of the trial judge's conclusion on that aspect of the matter, and it appears to me that on a reading of the reasons as a whole, that (sic) they did not decide the case on the assumption that the learned primary judge was correct about that. They seemed to have thought, whether or not he was right about the meeting, there was sufficient in the case to support his judgment, or to put it the other way around, there was just sufficient to prevent them from interfering with his Honour's conclusion on the matter of credit.

In essence, with the one exception I have mentioned, the same sort of appeal is made to me. I said to Mr Evans during the course of the hearing - speaking, perhaps, too broadly - that this is, in effect, akin to an appeal to the Federal Court from the Full Court of the Supreme Court, since he has failed to obtain leave to go to the High Court. I do not see any ground upon which I could sensibly disagree with the views of the Full Court as to the findings of Williams J. although I share their Honours' unease about the evidence of Heather.

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."

In dismissing the appeal taken by the appellant from the judgment of Pincus J., the Full Court of this Court cited a passage from the judgment of Barwick C.J. in Wren v. Mahony (1972) 126 CLR 212 at p 224 and continued:

"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."

Later, their Honours said:

"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."

The High Court, by majority, refused special leave to appeal from the judgment of the Full Court of this Court. Brennan J., in giving the reasons of the majority, said:

"No error of law appears in the approach of either Pincus J. or the Full Court. If the facts of this case would lead to the view that it was appropriate to go behind the judgment, that question depends upon the complexion which the facts wear. That is not a matter which warrants the grant of special leave nor, in the state of the application book, can it be shown that the conclusion arrived at by Pincus J. was arguably wrong."

It is a condition of the power conferred upon a court exercising jurisdiction in bankruptcy to make a sequestration order upon a creditor's petition that the court be satisfied with the proof of the matters stated in the petition (for which purpose it may accept the affidavit verifying the petition as sufficient), of service of the petition and of the fact that the debt or debts on which the petitioning creditor relies is or are still owing (Bankruptcy Act 1966 (Cth), sub-s.52(1)). A creditor's petition is to be in accordance with the prescribed form and verified by the affidavit of a person who has knowledge of the facts (sub-s.47(1)). The prescribed form of creditor's petition (see Form 5 in Schedule 1 to the Bankruptcy Rules) requires that the petition not only state the amount for which the debtor is said to be justly and truly indebted to the petitioning creditor but also show the consideration for the debt. There is no prescribed form of affidavit verifying a creditor's petition.
All too frequently the requirement that the petition show the consideration for the debt relied upon by the petitioning creditor is not observed at all or is met by a cryptic statement concerning the nature of the debt without any reference to the facts which are alleged to establish the debt or, where the debt has been merged in a judgment, to the details of such judgment. It has also become the usual practice for the affidavit verifying the petition to be confined to an assertion that the statements contained in the petition, or in specified paragraphs thereof, are, within the deponent's own knowledge, true. Where the petition and the affidavit verifying it are in the form mentioned, there is a dearth of material before the Court upon which it can be satisfied with the proof of the debt owing by the debtor to the petitioning creditor. The intendment of the legislature appears to have been that the petition should set out facts which, if verified and not disputed, would suffice to establish the existence of a debt of the requisite amount.
As has already been mentioned, the petition in the present case relevantly alleged only that the appellant was justly and truly indebted to the respondent in the sum of $57,409.70 "for architects fees and interest thereon". Neither the petition nor the affidavit verifying it gave further details of the appellant's alleged indebtedness to the respondent, the affidavit verifying the petition being limited to asserting that the statement in the petition was true. There was no reference, either in the petition or the affidavit, to the proceedings between the appellant and the respondent in the Supreme Court of Queensland to which reference has been made earlier in these reasons. In particular, no reference was made to the judgment entered in that Court consequent upon the hearing and determination of those proceedings. The paucity of the information thus available to the Court to establish the requisite indebtedness may be contrasted with that contained in the creditor's petition that was considered by the High Court in Wren v. Mahony (supra). Even the filing and serving by the appellant of affidavits in opposition to the petition did not prompt the respondent to supplement the material it had placed before the Court.
It was, however, apparent to his Honour from the material received into evidence on behalf of the appellant that judgment for an amount of $57,409.70 had been obtained in the Supreme Court of Queensland by the respondent against the appellant and that the debt which had merged in that judgment was the debt alleged in the petition. It further appeared from the appellant's material that the judgment had been obtained following a contested hearing in which the appellant had been legally represented.
It is clear from the passages from his Honour's judgment that are set out earlier in these reasons that his Honour, having regard to the curial history of the matter, accepted the judgment of the Supreme Court of Queensland as sufficient evidence of the indebtedness of the appellant to the respondent as alleged in the petition. The question is whether his Honour was correct in doing so. To answer that question involves an inquiry whether substantial reasons had been shown for questioning whether behind the judgment there was in truth and reality a debt due to the respondent.
The power of a court exercising jurisdiction in bankruptcy to go behind a judgment, even a judgment of a superior court, is beyond question (Corney v. Brien (1951) 84 CLR 343; Wren v. Mahony (supra)). It is also well established that a court will not, as a matter of course, inquire into the validity of a judgment debt. Cogent reasons must be established to warrant its doing so (In re Flatau; Ex parte Scotch Whisky Distillers (1889) 22 QBD 83).
Many instances can be found in which a court exercising such jurisdiction has gone behind a judgment. The power has been exercised where the circumstances tended to show fraud or collusion or miscarriage of justice (Cameron v. Cole (1944) 68 CLR 571); where the judgment was entered in default of defence (Ex parte Kibble (1875) LR 10 Ch 373; Re Vernon Arnfield (1925) 25 SR (NSW) 517); or after a defence has been struck out (Wren v. Mahony (supra)) or where the debtor has consented to the judgment (Ex parte Lennox (1885) 16 QBD 315); or where the judgment was obtained by compromise and the compromise and the surrounding circumstances tend to show that the compromise was not a fair and reasonable one (In re Hawkins; Ex parte Troup (1895) 1 QB 404). It is no bar to the exercise of the power that the debtor has failed to have the judgment set aside even at appellate level (In re Fraser; Ex parte Central Bank of London (1892) 2 QB 633).

The courts have not laid down inflexible rules as to the circumstances in which the power should be exercised and there is no reason in principle why, in an appropriate case, a court exercising jurisdiction in bankruptcy may not go behind a judgment obtained after a contested hearing in which the debtor was legally represented. The fact that the judgment was obtained in those circumstances will, of course, be significant in determining whether the court should go behind the judgment. Almost inevitably, where a court is asked to exercise the power in relation to a judgment so obtained, it will scrutinize the reasons advanced in support of the exercise of the power much more carefully than it would were the judgment obtained by default: see Corney v. Brien (supra) per Fullagar J. at pp 356-7; Wren v. Mahony (supra) per Menzies J. at p 233; Olivieri v. Stafford (1989) 91 ALR 91.
It must be recognised, however, that, the circumstance that the court, after such examination, is not satisfied with the proof of the petitioning creditor's debt does not result in the judgment being set aside. It will remain, evidencing, as a matter of record, the indebtedness of the debtor to the petitioning creditor in the sum of the judgment debt outstanding and enforceable by any process available for that purpose (see In re Vitoria; Ex parte Vitoria (1894) 2 QB 387). It would, however, follow that a sequestration order could not be made based upon the judgment debt.
What, then, are the grounds relied upon by the appellant in support of his contention that, before making the sequestration order, Spender J. should have inquired for himself whether the debt alleged in the petition was due by the appellant to the respondent?
First, the appellant pointed to the conclusion reached by Williams J., a conclusion with which the Full Court of the Supreme Court disagreed, that the only relevant terms of the contract of retainer were those recorded in correspondence passing between the parties. It was said that, because of his conclusion on that issue, Williams J. had not been concerned to examine in detail what had been said at the various oral discussions between Mr Heather on the one hand and Mr Crisp and the appellant on the other and had made no findings in that regard.
Secondly, the appellant pointed to the fact, emphasised by the Full Court of the Supreme Court, that the credibility of the participants in the oral discussions was a vital element in ascertaining what had been orally agreed at those discussions. It was submitted that a number of circumstances demonstrated that no reliance could be placed upon the acceptance by Williams J. of Mr Heather as a reliable witness. In this regard, considerable attention was directed to the evidence concerning the meeting held on 12 November 1984.
Mr Heather had given evidence not only that the appellant was present at that meeting, but that almost the whole of the discussion had been between himself and the appellant with very little participation by Mr Crisp, except as to building costs. Mr Heather had said that, while he recollected the meeting, he had refreshed his memory from a contemporaneous note he had made. As the Full Court of the Supreme Court observed, the contemporaneous note made only limited reference to the appellant. Three references were noted, the first identifying the appellant as a party to the proposal, the second referring to his relations with a previous architect and the third being a proposal that he should make fortnightly visits for inspection to the project. A consideration of the note leads us to conclude that the third reference was not, in fact, to the appellant but to Mr Crisp. However that may be, the note clearly does not go any distance towards establishing that the appellant was present at the discussion.
Mr Crisp had given evidence before Williams J. that the appellant had not been present at that meeting, evidence which his contemporary note, which was not in evidence before the Supreme Court, clearly confirms. There is also uncontroverted evidence before this Court that, at the hearing before Williams J., neither the appellant nor Mr Crisp was cross-examined concerning the participants in the meeting held on 12 November 1984.
The appellant also referred to the evidence that the appellant was not present at that meeting contained in a letter dated 6 December 1984 signed by Mr Heather and addressed to the appellant, a letter which was in evidence before Williams J. and to which his Honour referred on another aspect of the case. In that letter, Mr Heather referred to the initial meeting between himself and the appellant as having taken place on 14 November 1984.
The appellant also submitted that, if one accepted as accurate Mr Heather's account of what was said at the meeting on 14 November 1984, it was inherently improbable that the appellant had made, on 12 November 1984, some of the statements which Mr Heather ascribed to him at the earlier meeting. He pointed to the evidence, again uncontroverted, of Mr Crisp set out in his affidavit sworn 5 April 1988 as supporting the conclusion that certain statements alleged by Mr Heather to have been made at the meeting of 12 November 1984 had not been made either at that meeting or at the meeting two days later.
In so far as the view taken by Williams J. that the conflict as to who was present at the meeting on 12 November 1984 was not of critical importance was based on his conclusion that many of the topics said by Mr Heather to have been discussed at that meeting were again dealt with at the meeting on 14 November 1984, the appellant has stated on oath, again without challenge, that at no time did he have any discussion with Mr Heather as to some of the topics referred to in Mr Heather's written statement of evidence.
Thirdly, the appellant refers to the statement by Williams J. that he accepted the evidence given by Mr Heather that a meeting took place on 3 January 1985 at which the letter dated 28 December 1984 and the document dated 29 December 1984 (to which reference has been made earlier in these reasons) were discussed and at which "additional budget estimates were made available by Crisp". Again, there is uncontroverted evidence before this Court that Mr Crisp did not attend that meeting as he was overseas at the time. Indeed, the appellant goes so far as to assert, again without challenge, that Mr Heather did not claim to have explained those documents to the appellant at a meeting on 3 January 1985 and, further, that no one said or suggested in evidence that a meeting took place on that date at which Mr Crisp was present.
Fourthly, the appellant asserts that evidence was given before Williams J. by Mr Crisp that Mr Heather had at the meeting on 12 November 1984, as well as at the meeting on 14 November 1984, agreed to the term of the retainer on which the appellant's defence to the proceedings was founded. Again, this assertion is not controverted in any of the material placed before the Court by the respondent and is supported by Mr Heather's note of the meeting of 12 November 1984 at least to the extent that at that meeting Mr Heather made calculations which showed that an average price for each unit of $70,000 was feasible.
The case made by the appellant is a strong one and, but for the countervailing circumstance to which we shall refer, could well be seen as sufficient to justify an examination, before the sequestration order was made, of the question whether, in truth, the debt alleged in the petition was due by the appellant to the respondent.
All of the matters relied upon by the appellant relate to the correct resolution of the issue whether the contract of retainer included a term that "the units would be so designed that the cost of their construction would not exceed a figure which would return a profit of 20 per cent. to the appellant if they were sold at an average price of $70,000". However, even if the Court were, upon the holding of the inquiry which the appellant seeks, to find that the contract of retainer contained such a term, that circumstance would not, of itself, operate to displace, for the purpose of the bankruptcy proceedings, the alleged indebtedness. That would follow if, and only if, it were to be coupled with a finding that there was a failure on the part of the respondent to perform the contract including that term.
The latter question was the subject of consideration by the Full Court of the Supreme Court. Connolly J., with whose judgment, it will be remembered, the other members of the Full Court agreed, dealt with the question thus:

"Moreover the evidence that the respondent's design was not capable of being executed within the financial constraints contended for is far from satisfactory. It really seems to come down to a contention that the tenderers, none of whom was familiar with carrying out building construction under the supervision of an architect, were concerned about the stringency of the specification and therefore submitted prices which were inflated on this account. In dealing with the counterclaim the learned trial Judge rightly rejected the contention. The specification defines the work to be performed and enables the architect to hold the builder to a satisfactory standard. Without a properly drawn specification the building owner's bargain may well prove illusory for there is no guarantee that he will get a satisfactory result for the contract price. There was no expert evidence that the specification was unsatisfactory and no expert evidence that it was impossible to build to the specification within the financial constraints which the appellant desired."

There is nothing in the material before this Court to suggest that, before making a sequestration order, the Court should have gone behind that part of the judgment of the Full Court of the Supreme Court. That being so, to embark upon an inquiry, with its attendant expense, into the question whether the contract of retainer included the term alleged would be a futile exercise. On that ground, we are of opinion that the principal ground of appeal must fail.

The appellant also relied upon a ground of appeal that Spender J. had erred in the exercise of the discretion arising under s.52(2) of the Bankruptcy Act to dismiss a petition where a debtor satisfies the Court that he is able to pay his debts or that for other sufficient cause a sequestration order ought not to be made.
In his reasons for judgment Spender J. referred to
the course of the proceedings and the material put before him by the appellant on this aspect of the matter and, referring to the appellant, continued:

"Fundamentally, his position in relation to the discretionary basis of s.52(2) was directed to the effect of the significance of a sequestration order on the estate of a sole legal practitioner. In particular, he deposed that it would be detrimental to all the debtor's creditors, and not the least to the petitioning creditor, if the debtor solicitor's practice were to be terminated due to the latter's inability on sequestration to conduct a trust account. It was suggested that a Part X arrangement with priority given to the petitioning creditor and to the minor creditors by the majority creditors (the major creditors being essentially the debtor's family and Mr Crisp), would not interfere with the conduct of his practice and would enable him to become involved in the current opportunities to accumulate funds to meet his liabilities and for his eventual retirement. Furthermore, he said that having regard to his age of 68 years, the court should permit the debtor to do everything in his power to continue in practice and to save his creditors, his family (including his wife and teenage dependant children) and himself from unnecessarily heavy loss.

On a fair view of the entirety of the material I am not satisfied that the debtor has established that he is able to pay his debts as and when they fall due. The other considerations urged by him excite genuine sympathy but I do not think that sufficient cause has been shown why a sequestration order ought not be made on the petition of the petitioning creditor. The position is as expressed in Cain v. Whyte (1932-33) 48 CLR 639, where the High Court unanimously adopted the reasons of the first instance judge, Henchman J. At pp 645-6 of the CLR report, the following extract from Henchman J.'s judgment appears: '...I am fully entitled to examine the contention put forward by Mr Philp on behalf of the debtor that there is, in the present case, other sufficient cause sufficient to justify the dismissal of this petition. I approach that question with the full appreciation that, prima facie, on proof of the matters mentioned in sec. 56(2), the Court will proceed to make an order for sequestration, and that it is for the debtor to show some cause overriding the interest of the public in the stopping of unremunerative trading, and the rights of individual creditors who are unable to get their debts paid to them as they become due. Something has to be put before the Court to outweigh those considerations before it can be said that sufficient cause is shown against the making of a sequestration order.' This is far from a case of unremunerative trading, but I am not satisfied that sufficient cause has been shown why a sequestration order should not be made."

We have fully considered the material on which the appellant relied. We are, however, unconvinced that the exercise of the discretion under s.52(2) of the Act miscarried. This ground of appeal, therefore, also fails.
There is one other aspect of the matter with which we must deal. Following the making of the sequestration order on 4 May 1990, Spender J. made a further order that "all proceedings under the sequestration order are to be stayed pursuant to s.52(3) until 4.00 p.m. Friday, 18 May 1990". On that day, following the filing by the appellant of a notice of appeal from the making of a sequestration order, a Deputy District Registrar of the Court made an order that the time set out in the order made by Spender J. be extended until 4.00 p.m. on 25 May 1990. No question has been raised before us as to his power to do so. On 23 May 1990, Pincus J. ordered that "the proceedings under the sequestration order made by Spender J. on 4 May 1990 be stayed until 4.15 p.m. on Friday, 27 July 1990". On 25 July 1990, at the conclusion of the hearing of argument upon the appeal, this Court, by consent, ordered that "the proceedings under the sequestration order made on 4 May 1990 be stayed until the determination of this appeal or further order". The Court declined to accede to a request by the appellant that the proceedings under the sequestration order be stayed for a further period beyond the date on which the appeal is determined, indicating that that request would be further considered by the Court before judgment was given upon the appeal.
It is clear from what was said to us by the appellant that he is under the impression that, by reason of the orders to which we have referred, his status has not been affected by the making of the sequestration order on 4 May 1990. He is further under the impression that, if his appeal to this Court is unsuccessful, his status will be affected as from the date of the dismissal of his appeal, a consequence from which he seeks to be relieved for a sufficient period to enable him to consider whether an application should be made to the High Court for special leave to appeal from this Court's decision.
It is apparent that the order made by Spender J. on 4 May 1990 was an order under s.52(3) of the Bankruptcy Act. Following the terms of that provision, it stayed all proceedings under the sequestration order. Such an order is to be contrasted with an order under s.37(1) of the Act suspending the operation of a sequestration order. The contrasting effect of the two kinds of order was considered in Re Wardle; Ex parte Widin (1987) 70 ALR 633. It is not the sequestration order itself which operates to change the debtor's status or vest his property in the trustee: the making of the order is but the factum upon which the statute (particularly ss.43(2) and 58(1)) operates to bring about the consequences upon the debtor's status and property. What was said by a Full Court of this Court in Allanson v. Midland Credit Ltd (1977) 16 ALR 43 is also in point. It follows that, in the present case, the appellant has had the status of a bankrupt since the making of the sequestration order on 4 May 1990. We should add that, the sequestration order having been signed and sealed as provided by the Bankruptcy Rules on 17 May 1990 (see s.37(2)), no order may now be made under s.37(1) suspending the operation of that order.
We are also of opinion, having regard to the curial history of this matter, that we should not now make an order further extending the period during which proceedings under the sequestration order were stayed.
The appeal is dismissed. We further order that the
respondent's costs of the appeal be taxed and paid in accordance with s.109 of the Bankruptcy Act as if they were the costs of a petitioning creditor.

[1990] FCA 551

28 SEPTEMBER 1990