Evans v The Heather Thiedeke Group

[1992] HCATrans 111

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IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Brisbane No B41 of 1990

B e t w e e n -

JOHN D. EVANS

Applicant

and

THE HEATHER THIEDEKE GROUP

Respondent

Application for special

leave to appeal

DEANE J

DAWSON J

Evans 1 10/4/92

TRANSCRIPT OF PROCEEDINGS

FROM BRISBANE BY VIDEO LINK TO CANBERRA

ON FRIDAY, 10 APRIL 1992, AT 1.12 PM

Copyright in the High Court of Australia

MR P.L.R. SHEILS, QC:  May it please the Court, I appear for

the applicant with my learned friend,

MR D.A. BERTINI. (instructed by Caradoc Evans & Co)

MR P.D. McMURDO:  May it please Your Honour, I appear for

the respondent. (instructed by Morris Fletcher &

Cross.

DEANE J: Yes, Mr Sheils.

MR SHEILS:  May it please the Court. Do Your Honours have

an outline of our submissions? It has been handed

to the Court, but I think it might have been a

little bit late. Because we were here, we brought

it with us.

DEANE J:	No, we have not, Mr Sheils.
MR SHEILS:	I am sorry, Your Honour, I thought it had been

handed to the Court. Your Honours, this is a

matter which has been before a number of courts in

a different guise on a number of occasions.

MR McMURDO:  Excuse me, Your Honours. I am sorry to

interrupt, but I cannot hear my learned friend.

MR SHEILS: Well I apologize for that, but it might be an

advantage to my learned friend. Perhaps I should

keep talking and my learned friend, Mr McMurdo, can

tell me when, if he can hear me.

MR MCMURDO:  I have just heard that, thank you.

DEANE J:	Good, thank you Mr McMurdo.	Yes, Mr Sheils.
MR SHEILS:	May it please the Court.	Your Honours, the

affidavit it quite complex, but the outline of

submission reduces it to a small ambit. If I may

take Your Honours quickly through that, it will be

quite simple.

DEANE J: Well, does Mr McMurdo have a copy of this.

MR SHEILS: Yes, Your Honours, that was faxed up this

morning, early. Your Honours, the applicant has

been made bankrupt. That bankruptcy rests upon a

judgment debt. That judgment debt was in respect

of an action by the petitioning creditor for breach of contract and the plaintiff, as he then was, made

a claim for fees for work done as a consulting

architect. The judgment awarded to the plaintiff

depended substantially upon the finding of the

trial judge that he preferred the credibility of

the plaintiff to that of the defendant, the

applicant in this proceeding.	So we start off
behind in that respect.

Evans 2 10/4/92

This finally depended heavily, Your Honours, upon a finding that the defendant was present at a

certain meeting with the plaintiff. The

independent witness at that meeting was a Mr Crisp.

Now the issue is in paragraph 7: the plaintiff said

the defendant was present. The defendant and

Mr Crisp said the defendant was not present. They were not cross-examined as to this at the hearing. The witness Crisp had a diary which contained a

contemporaneous note of the meeting and established

the case of the defendant as correct; that is that

he was not present. Because neither the witness

Crisp nor the defendant were cross-examined as to

the defendant's presence at the meeting, the diary

never became evidence in the hearing. Mr Crisp has

since then made an affidavit that he did not bring

to anyone's attention the fact that he had the

diary until after the hearing.

The trial judge never knew of this evidence

and if the diary had become part of the evidence,

in our submission, it is likely that the

plaintiff's version of the meeting would not have
been accepted. If the plaintiff's version was not

accepted, it would have affected his credibility

very strongly. On appeal the defendant sought to

have the courts look at the diary to ascertain

whether there was evidence on which the judgment

may be impugned and this was refused. So it is not

now open for the applicant to impugn the judgment;

it will remain.

In the bankruptcy proceedings, that is in the

proceedings for the hearing of the petition and

since then, the courts have refused to receive the

diary into evidence for the purpose of considering

whether there is reason to question the existence

in truth of a debt behind the judgment.

Several judges have stated that they felt

reservations or disquiet concerning the judgment,

and some of these references are conveniently

gathered together in the judgment of

Mr Justice Spender of 4 May which is beginning in

the application book at page 1. Starting at

page 3, if I may take Your Honours to that quite

shortly, there are perhaps four references I need

to refer Your Honours to. The first, Your Honours,

is at page 3 at the bottom, about line 27, where

His Honour said this:

It is fair to say that the Full court of the

Supreme Court in a number of respects had some

reservations about the case which was

presented against Mr Evans and accepted by the

primary judge. In the result, however, while

making certain criticisms of the reasons of

Evans 3 10/4/92

the primary judge, the Full Court dismissed

the appeal. The reasons of the Full Court

were given by Connolly J, who expressed his

reservations in these terms:

"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."

The next, Your Honours, is page 43 of the

application book where part of what His Honour

Mr Justice Connolly said, giving the reasons of the

Full Court of Queensland, is reproduced in the Full

Court judgment of the Federal Court. At line 5, the Federal Court had this to say:

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 -

that is the judge at first instance -

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.

We say of course, hence the importance of the

diary. If I may take Your Honours to line 46, the

beginning of a sentence there, His Honour is

dealing with a number of testimony matters:

They scarcely warrant the description

extensive -

Evans 4 10/4/92

these are references to the defendant being

present -

but his Honour may well have had in mind the

possibility that Heather's recollection -

that is the plaintiff'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.

Your Honours, there are only two more. His Honour

also, as I have just said, disagreed with the basis

of accepting the plaintiff's version.

Your Honours, what Mr Justice Connolly said was the

reasoning adopted by the Full Court. In the

application before Mr Justice Pincus to have the

bankruptcy notice set aside, which is at page 4 of

this application book, there is another matter. I

have just referred Your Honours to page 3. At the

bottom of page 4 there is another reference, at the

very bottom, the last line:

Pincus J said of the reasons of the Full

Court:

"They seem to have thought, whether or not he

[the trial judge) 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."

He later commented:

"I do not see any ground on 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."

Evans 5 10/4/92

That is even without considering the diary because

the diary has never been in evidence.

From that judgment Mr. Evans appealed to

the Full Court of the Federal Court,

constituted by Marling, Hartigan and Lee JJ.

For reasons given on 14 August 1989 in the

course of dismissing the appeal the Full Court

said:

"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 the High Court,

he [Pincus J.] had a discretion to go behind

the judgment if it was proper to do so."

It concluded that Pincus J. was not in error in failing to find that such a prima facie

case was established.

And the last reference is at page 58, in the

judgment of the Full Court of the Federal Court,

which was Justices Lockhart, Neaves and Ryan. At

the top of page 58 the judgment reads:

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.

Their Honours then went on to point out that there was not expert evidence - and this is the matter they have referred to as dealt with later on - that

there was not expert evidence to the effect that
the retirement village could not be built at the

rate of $70,000 per unit. However, His Honour

Mr Justice Williams, the judge at first instance,

has found that the tenders received were, as he

puts it, for practical purposes, double what had
been expected, and the project was abandoned

because finance was not available for the

development, and in addition the respondent to this

application has filed an affidavit, which is no

doubt before Your Honours, in which they have said
the tenders were, for the stage, at least, 20 times

the budgetary amount of $70,000.

Now, Your Honours, the submission we make is

on page 3 of our submission out of all of this.

What has happened is this: the courts have said, even though we have concerns about the judgment we

will not look at the evidence tended by the

Evans 6 10/4/92

applicant to see if we should look behind the

judgment, because what the applicant has been

seeking to do is, say, "Because these people were
not cross-examined the diary never got into

evidence. Please look at the diary because if you

look at the diary you will have a disturbing

situation in which it is clear that the finding is

not one that ought to be supported". Now, he

cannot have judgment set aside, so we have to go

then to the next matter.

Now, looking at a bankruptcy situation,

Your Honours, it is our submission that if you

consider a judgment, given by consent or by default

in a bankruptcy matter, unless other evidence is

then tended and looked at by the court, then the
court will never be able to look behind a judgment
for the purposes of bankruptcy, and that is,

indeed, the basis of the decision in Wren v Mahony,

126 CLR 213, which is really the only case, despite

the number of authorities that we have put on our

list, that Your Honours need consider.

In that case, Your Honours, may I take you to

page 221 in the judgment of His Honour the

Chief Justice Sir Garfield Barwick, where he refers

to Ex parte Lennox and quotes from Lord Esher.	I
have highlighted the parts I am going to read, which is two-thirds of the way down the page, so
that it will be easy to find.
Your Honours, we did bring them, and we were asked to bring them by the Court, and I do
apologize.	I had arranged with the assistant

Registrar that we would bring the photocopies with us.

DEANE J:	We have them anyway, Mr Sheils.
MR SHEILS: May it please Your Honours.	It is a short part

that I will be referring you to.

DEANE J: Except we have it in dual colours.

MR SHEILS: Yes, well I do not think you will think suffer

from that, Your Honours. Lord Esher said:

It seems to me that the question is, not

so much what is the right of the debtor, or
what the conduct of the debtor or of the

creditor has been, but rather whether the Court ought to exercise this great power,

which deals not only with the particular debt

of the petitioning creditor, but with the

whole class of the creditors of the debtor,

including the petitioning creditor, - whether the Court of Bankruptcy ought to exercise its

Evans 7 10/4/92

power and authority when there are the

strongest grounds for believing that there is

no petitioning creditor's debt upon which it

can be put upon motion, and the whole

foundation upon which the Court is authorized

and empowered to do such a strong thing as to

make a receiving order, or to declare a man a

bankrupt, is that a petitioning creditor's

debt exists.

His Honour the Chief Justice is, of course, dealing at this stage only with the rationale behind the

practice of looking behind judgments when it is

appropriate.

Over the page, His Honour the Chief Justice,

referring again to Lord Esher, points out that
His Lordship said that the principle is:

that the Court of Bankruptcy is entitled to

see that it is not put in motion without

foundation.

Now, at page 223, His Honour again refers,

this time in Hawkins; Ex parte Troup, to what

Lord Esher said:

We have said that the Court will go

behind the judgment, and I think the cases

shew that the Court will go behind a judgment

by consent. I am also of opinion that a

judgment obtained by a compromise does not of

itself stop the Court from going behind it.

We have tried to say that the Court will go into the whole transaction, because the

question is not one of a dispute between the

two parties; it is a matter which will

affect, and materially affect, the rights of

all the creditors who are not before the Court

when it has to determine whether a receiving

order should or should not be made, which will

or may result in the debtor being made a

bankrupt.

I need not trouble Your Honours any further with

that, but I take Your Honours, if I may, to

page 224.

At page 224, just more than half-way down,

there is a sentence which begins about the middle

of the page:

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

Evans 10/4/92

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 lends

support for such a view. Rather the emphasis

is upon the paramount need to have

satisfactory proof of th~ 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.

Now, Your Honours, on that we make this

submission: the obligation of the court is, in our

respectful submission, to be satisfied as to the

debt. There is a discretion to rely upon the

judgment for that purpose but this has been

reversed by the courts in this case. What they

have said is: there is a judgment; we must now be

persuaded to exercise a discretion to not rely on

it but to look behind it; but without looking at

the tendered evidence the court cannot tell whether

there is reason to look behind it.	We are in a
circular situation.

Our second submission in respect of that is No

20.       We would say, with respect, that the correct

approach is for a court to say, "Here is a

judgment. There is reason to be dissatisfied with

it as proof of the debt". It need not be more than

just "there is reason'', as we adopt, with respect,

what the Chief Justice has said. "There is other

evidence available, we are told, which may

reinforce this dissatisfaction. In these

circumstances, the court of bankruptcy can no
longer accept the judgment as satisfactory proof of

the debt", and those are the words of the Chief

Justice in those circumstances.

So that the point of law is, because there is

a real reason to question whether there is in truth

Evans 9 10/4/92

a debt behind this judgment, it is inappropriate to

exercise the discretion to accept the judgment as

sufficient evidence of the debt and, in such

circumstances, an obligation arises to ascertain

the truth by looking behind the judgment.

As I have put, Your Honours, there are five

judges who have questioned this debt, in three

different courts - two individually and one,

Mr Justice Connelly, supported in his reasoning by two other judges in the Full Court.

The three points which we say are of general

importance to the law in this matter are these:

first, have the courts correctly understood where

the discretion lies? And we respectfully say,

"No". It is not a discretion, having a judgment

debt, to look behind it. The discretion is to

accept the judgment debt without the need to look

for other satisfactory proof of the debt.

What Their Honours have said is, "We have a

judgment debt, we have reasons for disquiet, but we

won't exercise the discretion to look behind it".

What we respectfully say is that that is the

incorrect approach. Their Honours should be

saying, "We have a judgment debt. There is reason

for disquiet. Therefore we will not exercise the

discretion which we do have to accept the judgment

debt as enough" . And that is what we say the

Chief Justice said, because, we would respectfully

submit, it is only exercisable when there is no

reason to be dissatisfied with the judgment.

The second point of general reference is: how

far is it necessary for anyone to go in order to

persuade a court of bankruptcy to look at evidence

which was not before a previous court in order to

decide whether the matter is one which comes within

the test framed by the Chief Justice in Wren v

Mahony? Because Their Honours, we would

respectfully submit, seem to be not very clear as
to where the line is drawn.	At least, even if we

are wrong in our first submission, we would

respectfully submit they need some guidance as to:

"These are the circumstances in which you can or

you cannot".

That brings me to our third and last

submission. It is submitted that the courts need a

clearer statement so that they may understand more

easily, one, when the principles of Wren v Mahony

require them to look behind a judgment; or, two,

when those principles justify them in so doing even

if they are not required to do it. And, again,

perhaps to look at any other evidence which was not

Evans 10 10/4/92

before the initial court.	Your Honours, those are
our submissions.

DEANE J:  Mr Sheils, I follow what you say about the

expressions of disquiet, but the starting point

must be that the Full Court of the Supreme Court of

Queensland, having been informed of the relevant

material, decided that it did not warrant

interfering with the decision of a trial judge who

had heard the evidence in a contested case.

MR SHEILS:  Yes and no, Your Honour. I know that sounds a

funny way of putting it, but what the Full Court
did was refused to admit the diary into evidence on
the ground that it was merely confirmatory evidence
of Mr Crisp's evidence in-chief. The reason it was

never any more than that was, Mr Crisp was never

cross-examined as to that and it never became

something that anyone's attention was drawn to.

The situation is, Mr Crisp said, Mr Evans was

not at the meeting, he was not cross-examined as to

that.

DEANE J:  Yes, I appreciate the way it went.

MR SHEILS: He since says, "But I had a diary", and everyone

says, "Well, goodness, there is a diary, Your

Honours", and they say, "Well, it is only

confirmatory of that evidence and that was found

against him, so we will not look at it". So Their

Honours did not have this other evidence before them, because they refused to receive it. Then,

when the bankruptcy matters came into the

Bankruptcy Court, the test is different, Your

Honours, we would submit. It is not a case of

fresh evidence or evidence that could have been

available and was left out by mistake; there is a

difference in a bankruptcy matter where the

Bankruptcy Court has its own special duty.	We
cannot set aside the judgment, that can be executed

upon; but the bankruptcy is a different matter and

the Bankruptcy Court has a separate distinct duty

to look behind a judgment where there is this

disquiet, as distinct from a court of appeal, in

the ordinary sense, saying, "Well, we are not going

to let in further evidence". There is a very big

difference, in our submission. There is nothing

more we can say, Xour Honours.

DEANE J:  Thank you, Mr Sheils. The Court need not trouble

you, Mr McMurdo.

The Court is of the view that an appeal in

this case would not enjoy sufficient prospect of

success to warrant a grant of special leave to

Evans 11 10/4/92

appeal. Accordingly, the application for special

leave to appeal is refused.

MR McMURDO:  May it please the Court, I ask for costs and I

ask for an order in terms of that made by the

Full Court of the Federal Court, which is set out

at page 64 of the application book.

MR SHEILS:  May it please the Court, I do not think I can

say anything to resist costs.

MR McMURDO: That is, Your Honours, that the respondent's

costs of the application:

be taxed and paid in accordance with

section 109 of the Bankruptcy Act as if they

were the costs of a petitioning creditor.

DEANE J: Very well, we make an order for costs in those

terms.

AT 1.39 PM THE MATTER WAS ADJOURNED SINE DIE

Evans 12 10/4/92