Judd v Margaret River Wine Growers Pty Ltd - [2006] FMCA 714

FEDERAL MAGISTRATES COURT OF AUSTRALIA

JUDD v MARGARET RIVER WINE GROWERS PTY LTD

[2006] FMCA 714

BANKRUPTCY – Review of Registrar’s Sequestration Order – where other sufficient cause to dismiss petition – going behind judgment – relevance of concurrent statutory demand on corporation for same debt relied upon in bankruptcy notice.

Bankruptcy Act 1966, s.52

Wren v Mahoney (1972) 126 CLR 212
Kendra v Everest Enterprises Pty Ltd; Eskay Leather Industries v Everest Pty Ltd [1984] 2 S.R. (W.A.) 103

Applicant:

PAUL JUDD

Respondent:

MARGARET RIVER WINE GROWERS PTY LTD (ADMINISTRATORS APPOINTED) (ACN 095 048 338)

File Number:

PEG 264 of 2005

Judgment of:

McInnis FM

Hearing date:

24 April 2006

Delivered at:

Perth (and by video link to Melbourne)

Delivered on:

19 May 2006

REPRESENTATION

Applicant:

In person

Counsel for the Respondent:

Mr A.H. Douglas-Brown

Solicitors for the Respondent:

Bentleys MRI

ORDERS

The Application for Review be dismissed.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
PERTH

PEG 264 of 2005

PAUL JUDD

Applicant

And

MARGARET RIVER WINE GROWERS PTY LTD (ADMINISTRATORS APPOINTED)
(ACN 095 048 338)

Respondent

REASONS FOR JUDGMENT

In the application before the court, Paul William Judd (the Debtor) seeks review of a decision of an order of a Registrar made on 7 November 2005. The Registrar made an order upon a creditor's petition filed by Margaret River Wine Growers Pty Ltd (Administrators appointed) which had been filed on 6 September 2005. The orders made in relation to the creditor's petition included a Sequestration Order against the estate of the Debtor.
By way of background, it is noted that the creditor's petition was supported by the usual affidavit material, and it is further noted that in the proceedings before this court seeking to set aside the Sequestration Order, both parties were self-represented. To the extent that it was necessary, the court granted leave to Mr Anthony Hayes Douglas‑Brown to appear as an administrator on behalf of the petitioning creditor.
At the hearing of this application the petitioning creditor sought to rely upon the usual affidavits of search and proof of debt which had been filed in court for the purpose of the hearing before the Registrar. I have taken the view that it is not necessary for an updated version of the material to be provided at the hearing in this instance. In any event, it would seem that the issue of indebtedness has not altered, and nor does it appear that any issue is taken in relation to service of the relevant documents. Likewise, there does not seem to be any alteration since the hearing before the Registrar of the National Personal Insolvency Index which had been the subject of an affidavit of search sworn by Jarrod John Munro and filed 7 November 2005.
The bankruptcy notice which is relied upon by the petitioning creditor was duly served upon the Debtor and refers to a debt of $25,541.35. The debt is claimed to arise from an order made in the local court of Western Australia on 29 October 2004, where it appears a judgment of $25,000 for debt and $541.35 for interest amounting to the total sum of $25,541.35 was given to the petitioning creditor against the Debtor.
The judgment debt relied upon a claim based upon a dishonoured cheque drawn on the personal account of the Debtor dated 31 May 2004 in the sum of $25,000 payable to "MRW" which, it is agreed, was intended to be payable to the petitioning creditor. There is no dispute that that cheque was tendered by the Debtor to the petitioning creditor. It appears to be common ground that the petitioning creditor had originally claimed that the sum of $33,159.58 was owing by the Debtor to the petitioning creditor, being an amount due for goods sold and delivered, described in a number of tax invoices which were tendered to the court along with, for convenience, a creditor's statutory demand for payment of debt to a company named ‘ACA Pty Ltd.’
It is common ground that the company, ‘ACA Pty Ltd’ does not exist. However, the Debtor in evidence before the court has indicated that that name may simply be an acronym used to describe another company called ‘Asia Connect Australia Pty Ltd’. That company, according to the Debtor's evidence, was a company incorporated in either late 2002 or early 2003. It was a company established by two Chinese families by the name of ‘Huang’ and ‘Li’, for whom the Applicant worked for a period of approximately two years. Initially he claimed to be employed by the two families and in particular was employed and paid by a company called "IT Warehouse Pty Ltd." The Debtor claimed that the purpose for establishing and incorporating the company called ‘Asia Connect Australia Pty Ltd’ was to act as an exporter of Australian produce to Asia, and specifically the Chinese market.
The name "ACA Pty Ltd" has significance as it appears on invoices and other documents and was the name of the company referred to in a creditor's statutory demand for payment of debt which, as indicated, became exhibit R2 and which was dated 30 October 2003.
It is of some interest to note that the copy tax invoices which became part of ‘Exhibit R1’ are dated 26 January 2003, 8 February 2003, 8 March 2003, 13 July 2003 and 14 July 2003. In an affidavit sworn by the Debtor on 24 March 2006, a number of documents are attached including the first page of the creditor's statutory demand for payment of debt referred to earlier in this judgment, plus, amongst others, a statement dated 27 May 2003 issued by Margaret River Wine Growers Pty Ltd.
The statement together with the invoices are all addressed as follows:
“Paul Judd
ACA Pty Ltd
20-21 Rosemary Court
MULGRAVE VIC 3170”
The invoices refer to a shipping address as follows:
“MVGC
20-21 Rosemary Court
MULGRAVE VIC 3170”
The invoices also refer to an ABN number; namely "68 095 048 338." It is noted that the statutory demand for payment of debt addressed to ACA Pty Ltd refers to an ABN number of "85 087 355 477."
It is not in dispute that the Applicant at all material times was the manager of the business operated as 20-21 Rosemary Court, Mulgrave. He has claimed in evidence that the shipping instruction to "MVGC" refers to the initials of the names of four people. He was not able to provide those names, though thought that each of the four initials referred to a name of an individual.
In simple terms, it appears that the petitioning creditor had received orders for wine and filled those orders with the wine described in the orders, so that ultimately a quantity of amount of wine was delivered at a cost including GST, freight and handling of $34,659.58. It is noted that the petitioning creditor, through the appointed administrator, has not produced copies of orders received. However, during the course of evidence, although the Debtor made reference to the failure of the petitioning creditor to produce copies of orders, it is my view, for reasons which will become apparent, that it is not necessary for copies of the orders to be produced, particularly when in the circumstances the Debtor does not deny placing the orders and that he negotiated and made arrangements for the wine to be delivered.
It is somewhat odd that the Debtor does not suggest that there was any system in place for checking the delivery of goods which were provided. It is also somewhat odd that the Debtor produced only one page of the creditor's statutory demand for payment of debt and was unable to produce from that facsimile document the other eight pages, which in part included the relevant invoices. He then complained that he had not seen the invoices prior to the court hearing date.
It is noted that in the Debtor's “Notice of Intention to Oppose the Application or Petition” filed 14 October 2005 sets out the following grounds in opposition to the petition:
“1.Despite my previous advices to this effect to the W.A. courts and the appointed lawyers and liquidators, I am not the liable party for the named debt.
2.There are other legal proceedings on foot in S.A. and Vic that prove my point re item 1 above. I believe this has been ignored for what appears to be commercial expediency by the liquidators to "get a result". Further particulars re "proof of purchase" have not been provided.”
The Debtor, in support of the notice of intention to oppose the petition, initially relied upon an affidavit purportedly sworn by him on 13 October 2005. In that affidavit the Debtor states:
“1. I was an employee of a company that ordered wine from various suppliers and the accounts have not been paid. As the officer of company "but not director", the liquidator has turned to me for payment.
2.In an effort to resolve this issue, I sought to get the account paid by private means, however, when I realised there was a pattern of wrongful commercial behaviour occurring I left the company concerned and ceased my efforts to assist in resolving this issue.”
In an affidavit sworn 7 November 2005, also relied upon in the creditor's petition proceedings before the Registrar, the Debtor relevantly deposes as follows:
“3.From on or about September 2002 until on or about June 2003 I was engaged as a Manager of Asia Connect Australia Pty Ltd, ACN 100 132 723 (the company).
4.I have never had any equity in the company or any other interest in the company.
5.My position has always been simply that I was a manager of the company.
6.I have never been a director of the company.
7.The shareholders and directors of the company are all of Chinese extraction.
8.Since leaving the company on or about June 2003 I have been working for an entirely different organisation in the field of computer sales (also as a manager).
9.The business of the company included the purchase of wine in Australia and the sale of wine overseas, notably to China.
10.The company did enter into an agreement with the Applicant for the supply of wine.
11.I was involved in the negotiations for the purchase of wine from the Applicant on behalf of the company.
12.The Applicant agreed to supply the company with wine and did so over a period of about six months. To the best of my recollection the company supplied about $33,000 worth of wine to the company over that time.
13.I understand that the company did not pay for the wine supplied by the Applicant.
14.I do not recall being required to provide credit information to the Applicant on behalf of the company in order that the Applicant could establish formal terms of credit. Indeed I do not recall seeing any requirement that the company cause any of its directors to give any personal guarantee or other assurance to the Applicant to support the grant of credit to the company for said supply.
15.I was not required to give any assurance to the Applicant personally.
16.In my discussions with the representatives of the Applicant, I informed the Applicant that the purchaser and the dialogue was always on the basis that it was the company who was conducting the negotiations and who was entering into the contract to purchase the wine.
17.The dialogue about this was quite clear and there is no possibility that I would have allowed the Applicant to believe that I was purchasing the wine on my own account.
18.I am not involved in the wine business in any way myself and there is no reason to believe that the Applicant would have thought I was purchasing wine on my account for shipping overseas or dealing in any other way.
19.Since I left the employment of the company I do not have access to the company records or correspondences and I am therefore hampered in my ability to produce documentation to show that the Applicant knew that it was trading with the company.
20.I do however refer to invoices issued by the Applicant to the company. It can be seen those invoices are directed (at least in part) to the company.
21.I believe there is also substantial other documentation in existence in the possession of the Applicant or of the company which shows that the dealings were between the Applicant and the company.
22.I believe this documentation will become available to me through discovery.
23.I observe from a search of the company that it has been de-registered, effective as at 30 June 2003.
24.I have attempted to approach the principals of the company to ascertain whether they have actually purchased the wine which is the subject of this claim and also if they have, as to why they have not paid for it.
25.I have not been able to obtain cooperation from them.
26.I believe it is likely however that the wine was in fact supplied and that the company does in fact owe the money for it.
27.After I had left the employment of the company I began to receive very numerous phone calls from Mr Doug Preston of Bentleys MRI, Chartered Accountants (Bentley) seeking payment of the money for the wine.
28.Bentley pressed me on the basis that I was to pay all of the money personally.
29.Bentley rang me on a very large number of occasions and pressed me continuously and harassed me to make payment.
30.On some occasions the telephone calls were two to three times a day.
31.I told Mr Preston that it was a company debt but he pressed me and said that my name was on the invoice and therefore I had to pay the money.
32.I did not receive any legal advice about this matter and I told Mr Preston that I would try to assist.
33.I initially paid a sum of $1500 from my own funds and then they continued to press me to a very great extent and informed me that I was liable and that if I did not pay the money they would proceed against me, and they said the reason I was liable was because my name was on the invoice.
34.I decided that I would probably have no alternative but to forward them further money and so I forwarded them a sum of $25,000 by way of a cheque on my personal account.
35.While I cheque for this amount was in transit I discussed the matter with my wife who was extremely upset and told me that she did not believe that I owed them money and accordingly I gave an order to the bank to stop payment on the cheque.
36.I do not believe that I am liable for any of the money the subject of the Local Court (now known as the Magistrates Court) claim in which the Applicant has obtained a default judgment against me, and I believe I have a good defence to the action.
37.I wish to pursue that defence and to get the judgment set aside and I wish to get full discovery and all records relating to the transaction, including the records of the Applicant concerning its supply arrangements and credit arrangements.
38.When the legal proceedings in this matter commenced I still did not receive legal advice and I did not understand the various processes which I needed to attend to.
39.I was continuing to discuss matters with Mr Preston and I thought that I had the matter under control by those discussions. I did not realise that it was important for me to obtain legal representation in Western Australia and to take action in the courts to stop the process proceeding.
40.I do not have any other creditors and my financial affairs are in order. Apart from this claim, there are no other actions or claims pending against me or likely to be raised against me.
41.That is to say I am solvent.
42.On or about Tuesday of last week I instructed Taylor Linfoot & Holmes to take action to intervene in the proceedings in the Federal Magistrates Court and also to take steps to set aside the Judgment in the Perth Magistrates Court.
43.But I have been in contact with my solicitors since then with a view to giving them instructions and I understand my solicitors have attempted to obtain an adjournment of these proceedings, due for Monday, 7 November 2005 and I understand my solicitors have written to the solicitors for the Applicant seeking an adjournment but have not had any response.”
I have deliberately included substantive parts of the affidavit of the Debtor sworn 7 November 2005 as that affidavit sets out in essence the position of the Debtor, repeated in part in subsequent affidavit material filed in support of the application currently before this court.
It should be noted that that affidavit material was before the learned Registrar when a Sequestration Order was made on 7 November 2005.
The Debtor in the proceedings before this court relied upon other affidavits sworn 8 December 2005 and 29 March 2006. The latter affidavit was filed pursuant to orders made by the court on 9 March 2006 and includes what is described as "submissions of Applicant in support of a review of Sequestration Order against Paul Judd estate". It attaches certain documents referred to earlier in this judgment.
Although both parties were given an opportunity to give notice requiring deponents to be available for cross‑examination, neither party sought to take advantage of that order. However, upon hearing the submissions and reading the material, I decided that it was appropriate that I should hear evidence from the Debtor given that there appeared to be a number of issues raised in the affidavit material which I found to be vague and which required further answers from the Debtor.
In addition, the Debtor, when he commenced making submissions, sought to raise further issues of fact from the bar table, which I considered inappropriate. In the circumstances, I permitted the Debtor to give evidence on oath, which in part adopted past affidavits, and otherwise provided an opportunity for other questions to be pursued by the court. In addition, the Debtor was able to raise new issues of fact in his viva voce evidence. Had the administrator appearing by leave for and on behalf of the petitioning creditor objected, then I was prepared to consider an adjournment of the matter and require the Debtor to file and serve further affidavit material. In any event, for reasons which will become apparent, I did not regard it as necessary to do so having heard the evidence of the Debtor and having regard to the affidavits relied upon by the Debtor.
In his most recent affidavit sworn 29 March 2006, the Debtor refers in more detail to his employment and the circumstances which gave rise to the order for wine being placed with the petitioning creditor. He acknowledges in the recent affidavit that the wine "was delivered to the business address of my employers". It should be noted, however, that during the course of his oral evidence, the Debtor indicated that he was in fact employed by a company called ‘IT Warehouse Pty Ltd’ which is not the same as the company ‘Asia Connect Australia Pty Ltd’. The employment of the Applicant commenced in or about February 2002 and concluded two years later in or about February 2004.
In the earlier affidavit set out above and sworn 7 November 2005, the Debtor stated in relation to invoices the following:
“20.I do, however, refer to invoices issued by the Applicant to the company. It can be seen those invoices are directed (at least in part) to the company.”
In evidence before this court the Applicant claimed not to have seen the invoices until they were produced by the administrator appearing by video-link from Perth when copies were forwarded by facsimile transmission to the court to enable the Debtor to view them. As pointed out earlier, the Debtor himself produced in his most recent affidavit sworn 24 March 2006 a copy of the "creditor's statutory demand for payment of debt", which has a facsimile date of 30 October 2003 and indicates that it is ‘page 1’ of a nine-page document, and yet the Debtor did not produce the other parts of that document which included the invoices.

I conclude that at a time prior to the swearing of the Debtor's affidavit of 7 November 2005, he did have in his possession copies of the relevant invoices, and I further conclude that on the balance of probabilities, it is likely that they were in his possession at or about the time he received a copy of the statutory demand for payment dated 30 October 2003. The significance of that finding will become evident later in this judgment.
The crucial issue in this case is the two payments made by the Applicant from his own personal account, of $1500 and $25,000 respectively, in circumstances where according to the Debtor's own evidence, at no stage did he order the goods for and on his own behalf. Rather, it was his evidence that the goods were ordered for and on behalf of others, and specifically, as I understand it, the company known as Asia Connect Australia Pty Ltd.
In brief terms, the Debtor seeks to explain those payments by suggesting that he had been pressured into making a payment by Mr Preston, who was seeking to collect the debt owed to the petitioning creditor. The Debtor claims that after an initial discussion with family members, an agreement was reached where his "in-laws would advance us $25,000 to get rid of the problem". It was after he issued the cheque for that amount to the petitioning creditor and forwarding it to Mr Preston that a further family discussion, according to the Debtor -
“ … revealed that some family members had formed the view that I was simply being treated as a ‘bunny’ and that it was totally wrong for me to give in to harassment and that the cheque for $25,000 should be stopped.”
It seems clear that payment on the cheque was in fact stopped.
In the affidavit sworn 24 March 2006 the Debtor referred to the payment of $1500 and stated as follows:
“8. On one occasion, I paid MARGARET RIVER WINEGROWERS $1,500.00 out of my personal funds whilst I addressed the issue with my immediate and extended family as to how we were to deal with this problem.”
The Applicant has indicated that he did not appear at the Local Court proceedings as he could not afford to retain a lawyer. He has provided no evidence of any application to set aside the default judgment dated 29 October 2004. Nevertheless, the Debtor seeks to set aside the Sequestration Order and asserts that the court should go behind the judgment of the local court, presumably on the basis that the Debtor, in forwarding the cheque, did so in the mistaken belief that he was indebted to the petitioning creditor or obliged to pay the debt. It should be noted it is common ground that the amount of $25,000 represents a compromise of the amount actually due to the petitioning creditor, which on the Debtor's own evidence appears in the statement dated 27 May 2003. The amount due was $34,659.58. It is not in dispute that the amount of $1500 was paid on 26 September 2003, accordingly reducing the amount due but still resulting in a significant debt of $25,000, which became the compromise and the subject of the amount payable in the cheque where payment was stopped and the cheque dishonoured.

The petitioning creditor's evidence and submissions

Clearly the petitioning creditor, now subject to a deed of company arrangement and represented by an administrator, has some difficulty in presenting clear evidence concerning the original debt. However, a great deal of the evidence is not in dispute, including the raising of invoices referred to by the Debtor in his earlier affidavit and which I am prepared to find were forwarded to the debt care of his then place of employment. Further, there does not appear to be any dispute that a compromise was reached whereby the petitioning creditor through the administrator agreed to accept the sum of $25,000 in full and final settlement of the balance due and payable to the petitioning creditor.
I should add in passing that a suggestion made by the Debtor that the liquidators had a financial stake in the petitioning creditor company or a vested interest does not appear to be in any way supported by evidence, and I accept that the administrator has no prior financial dealings with the petitioning creditor company before appointment as voluntary administrator.
It is instructive to note that in the affidavits sworn by Douglas Preston on 31 March 2006, a detailed chronology of contacts between Mr Preston and the Debtor is set out by way of an annexure. Mr Preston deposes, and this is not in dispute, as follows:
“6.In my initial discussions with Mr Judd I advised that the invoice was in his name and he did not deny liability for it. He advised that he would be paying the account that week. It is my recollection, and my contemporaneous notes confirm that he did not indicate that any one else was responsible for the debt. Over time it became apparent to me that the wine had been on sold to another party. He was keen to discuss with me a proposed investment of $100,000 in Margaret River Winegrowers, advising that this was still a possibility.”
In the same affidavit Mr Preston deposes in relation to the Debtor as follows:
“7.He has never denied the goods were not received, and by his comments to me the clear indication was that the wine had all been received.”
When those paragraphs were put to the Debtor during the course of his oral evidence before the court, he did not dispute the contents of the paragraphs which include the key features that at no stage did he deny liability for the wine and had indicated in the initial discussion that he would pay the account that week. The Debtor further confirmed his evidence that there had indeed been a discussion about a proposed investment of $100,000 in Margaret River Wine Growers, although he elaborated on that topic by suggesting the investment was to be made by those in charge of the company known as Asia Connect Australia Pty Ltd.
In any event, Mr Preston in his affidavit then records that in an initial telephone call where the Debtor indicated he would pay the debt, an amount was subsequently sent for $1500 in reduction of the account.

A series of emails annexed to the affidavit of Mr Preston together with file notes set out what could only be described as a significant chronology of contacts. Emails from the Debtor to Mr Preston include the following:
Email dated 25 September 2003
“Dear Doug,
Further to our recent conversations, we advise that settlement iof (sic) the above will be finalised on Wednesday, 8th October 2003.”
Email dated 4 December 2003
“Dear Doug,
Paul Judd here again.
It's too early to ring Perth. I left my mobile in a toilet at my Mother's Nursing Home in Adelaide last Tuesday and couldn't talk to you. Have got the phone back now and have news for you.
Please call me after 6.00 pm Melbourne time today as I have meetings until then.”
Email dated 22 April 2004
“Hi Doug,
Spoke to WESTPAC earlier this morning and then tried to call you.
Transfer was held over one day to clear funds.
I still have Bendigo Bank chq on hand after it was returned via mail late last week.
I am out all day today, as I was yesterday afternoon at a training thing - SORRY! I am on deck tomorrow.”
Email dated 23 April 2004
“Hi Doug,
Re: MRW
Have just ducked out from training for lunch and have found that you are not at Bentleys MRI as yet.
I have no idea if money has arrived in Perth. If not, I am free again after 5.30 pm Melbourne time for an hour.”
Email dated 5 May 2004
“Hi Doug,
I am off to Sydney tonight for the next two days. I have finally got in touch with my sister and she will call you at Bentleys MRI Perth number between the correct times in the next day or so. The t/f has happened and she is in control for now as it was done in Adelaide.”
Email dated 19 May 2004
“Hi Doug,
Have got the details you wanted - I am in APPLE training until 2.00 pm Melbourne time so can I please speak to you thereafter.”
Email dated 17 May 2004
“Hi Doug,
Sorry, I haven't been available. I cracked 3 ribs in a silly accident last Thursday. Have come in this morning on way to doctors to clear my emails.
Will be back on deck tomorrow (Tuesday).”
Email dated 20 May 2004
“Dear Doug,
I know what has happened to that transfer - GRRRRR!! Pretty easy to fix.
I am in training again until 2.00 pm, so I will talk to you after that.”
After referring to those emails, Mr Preston then deposed that the Debtor had advised him that he made payments in early September 2003 and sent copies of the transfers to Mr Preston by facsimile. According to Mr Preston in his affidavit:
“At this time he did not deny he was responsible for the debt.”
Mr Preston then annexed to his affidavit the facsimile of the transfers sent by the Debtor to Mr Preston. The amount of $16,000 and $2,000 deposits were not received as promised in those documents. The annexure appears to be a one-page document with what might be described as deposit "butt" entries from the ANZ Bank dated 5 September 2003 and 8 September 2003 for the amounts of $2000 and $16,000 respectively. A handwritten note on the page where the deposit butts have been photocopied, signed by the Debtor, states the following:
“Doug,
Our photocopier has died so I had to copy this on the fax machine (not easy).”
Mr Preston then sets out what he describes as a "running list" of conversations with the Debtor which shows that conversations commenced on 7 July 2003 and continued up to and including 19 July 2004. The running sheet shows that a number of times, attempts were made to contact the Debtor and there was no reply. Reference was made to the payment of $1500 together with the claimed transfer of the sums of $2000 and $16,000 promised to be transferred in September 2003. Relevantly, those notes refer to the issue of the sum of $25,000 which it would seem, the parties agree, had been the subject of an agreement reached sometime prior to 31 May 2004.
In the running sheet of contacts between Mr Preston and the Debtor, it is noted that as early as 15 March 2004 a notation appears:
“To send replacement cheque $25,000 in full & final settlement.”
Then on 16 April 2004 the note appears:
“Claims transferring from Westpac Bank cnr Grenfell St & William St Adelaide, $25,000. Cheque previously sent returned.”
On 12 July 2004 a notation appears:
“Rang Paul Judd - claims couldn't see banker on Friday. Claims he will go there tomorrow to sort out.”
A notation dated 13 July 2004 states:
“Rang - Claims in bank queue with wife. Please call later. Rang later - please call tomorrow.”
In a file note dated 14 July 2004 a notation appears as follows:
“Rang - Claims all sorted and payment has been authorised. Was concerned that he may have been blamed for collapse of company because the China deal did not eventuate. Told him I considered him as a debtor and when the funds were received he would receive confirmation that they are in full and final settlement of my debt.”
On 19 July 2004 the notation appears:
“Rang Paul Judd - Claims he was with bank this morning and they have corrected number and re - sent.”
It is clear from the running sheet of contacts between Mr Preston and the Debtor that an ongoing discussion arose concerning the $25,000, and it is noted the cheque presented on a National Bank account dated 31 May 2004 was not claimed to have been stopped by the Debtor.

Going behind the judgment

Essentially, in this application, which is a hearing de novo, the Debtor is seeking to persuade the court to go behind the judgment. It is accepted that the court has a discretion in deciding whether to accept a creditor's judgment as proof of debt relied on to found the petition. It is settled law that special circumstances must exist, however, before the court will go behind a judgment (see Wren v Mahoney (1972) 126 CLR 212).
In the present case there does not seem to be any direct suggestion that the judgment in this instance was obtained by fraud or is otherwise affected by fraud. It was a default judgment obtained on the basis of a dishonoured cheque. The complaints made by the Debtor in the present case could not be regarded as fresh evidence which was previously unattainable or which could not have been produced to the court when it considered the issue of the claim made, based upon the dishonoured cheque, hence it is not evidence of fraud, nor is it evidence which could be regarded as fresh evidence not previously available to the Debtor.
In this case it is relevant to consider the authorities which relate both to the issue of compromise and also in relation to a judgment obtained by default, relying on a dishonoured cheque. In one sense, those authorities relating to a compromise being the foundation of a judgment are not strictly relevant to the present application, as this judgment was obtained by default on the basis of a dishonoured cheque. Hence in my view the more relevant authorities relate to those cases where the courts have considered going behind a judgment obtained through an error in law resulting in a miscarriage of justice.
In this case the Debtor would need to establish that there are circumstances where the action against him by the petitioning creditor was not maintainable as a matter of law or that he had a good defence to the claim. In the present case this requires consideration of the defences which may be available to the Debtor in relation to a judgment which was obtained on the basis of a dishonoured cheque. Presumably, in the present case the Debtor, who is self-represented, relies upon the affidavit evidence set out earlier to establish that when he wrote the cheque, he did so in the mistaken belief that the debt was due and payable and/or that he did so under some pressure from Mr Preston who was pursuing the debt. The evidence in my view falls short of any duress claim or fraud. Further, I cannot conclude that there is any other defence including failure of consideration (See Kendra v Everest Enterprises Pty Ltd; Eskay Leather Industries v Everest Pty Ltd [1984] 2 S.R. (W.A.) 103).
The chronology of events and the history of conversations with the Debtor, together with his own evidence, lead to a conclusion that the wine in question had in fact been ordered by the Debtor. It was not ordered, in my view on the material, for and on behalf of "Asia Connect Australia Pty Ltd" even if I were to accept that that name was intended to be the name conveyed when reference was made on the invoices to "ACA Pty Ltd."
Over a period of some three years the Debtor has not only failed to defend the claim against him in the local court but has failed to take any action to set aside that judgment, and indeed on his own evidence has made an initial payment of the debt of $1500 and then reached a compromise and tendered a cheque for $25,000 in payment of that compromise.
I do not accept as credible the evidence of the Debtor when he denies indebtedness to the petitioning creditor. If the Debtor was genuinely purchasing wine on behalf of another person and/or company, then it is difficult to accept, and I certainly do not accept, that in the circumstances he would have paid $1500 of his own money in relation to the debt. Nor would he then reach a compromise to pay $25,000, leading to the tendering on at least one occasion of a cheque for that sum which was then dishonoured. He would not have, in my view, having regard to the authorities in relation to claims for dishonoured cheques, a defence to an action based on the dishonoured cheque. There is no basis upon which this court in my view can lawfully refuse to exercise its discretion to accept the creditor's judgment as proof of the debt relied upon as founding the creditor's petition.
This is not a case where the court can legitimately go behind the judgment. There is no evidence of fraud, nor in my view is there any evidence that there has been a miscarriage of justice or that the Debtor would have had a defence to the claim based upon the dishonoured cheque. His conduct and part payment prior to the presentation of the dishonoured cheque are consistent with acknowledgement of a debt and, combined with his compromise of the debt and willingness to at least advance a cheque in payment of that compromise, confirms, in my view, the debt.
The mere fact that the petitioning creditor has sought to pursue an alternative remedy under the Corporations Act by issuing a statutory demand does not detract from a right of the petitioning creditor to pursue the Debtor for this debt. It simply provides evidence that the petitioning creditor sought to pursue all reasonable avenues believed to be appropriate given that there was a company name and the Debtor's name on the relevant invoices.
In reaching my conclusion that it is inappropriate to go behind the judgment, I should make it clear that I did not find the evidence of the Debtor satisfactory. There were a number of inconsistencies in his evidence, including his knowledge of the invoices, the circumstances surrounding the payment of $1500 and the explanation for the ultimate stoppage of the cheque, when after reaching a compromise agreement he decided to forward a cheque to the petitioning creditor.
If in truth the Debtor had never owed money arising out of the delivery of the wine which was the subject of the invoices, then I find it implausible that he would have contemplated paying $1500 from his personal account, reaching a compromise in relation to payment of $25,000 and writing a cheque from his own personal account using funds arranged through relatives.
In my view the court, having regard to the relevant authorities, should not in this instance go behind the judgment.
The issue of solvency was raised somewhat obliquely by the Debtor, who on his own evidence was unable to afford a lawyer to represent him at the hearing of the proceedings in the local court and who clearly could not raise from his own personal funds the amount of $25,000 as a payment of the compromised debt. He has otherwise not provided any further information concerning solvency. I therefore conclude for the purposes of the relevant provisions of the Bankruptcy Act 1966 (the Act) that he is not solvent.
The Debtor has had ample opportunity to provide detailed affidavit material, and although a statement of affairs has not been required pending the outcome of this hearing, he could at least have provided a draft statement of affairs or made some attempt to provide the court with further details concerning his solvency. Although at the end of the proceeding he offered to provide further affidavit material, it seems to me that in circumstances where ample opportunity has been given to the Debtor, both before the Registrar and this court to provide further affidavit material, the court should not delay the matter any further or give the Debtor an opportunity to indeed seek to establish solvency.
At all material times, the main thrust of the affidavit material relied upon by the Debtor related to the question of whether he was personally indebted to the petitioning creditor. In my view on the material before me, it clearly did form a personal debt and the Debtor by his own conduct in making payment of $1500 together with drawing the cheque for $25,000 following the compromise, when looked at in the light of the invoices clearly addressed to the Debtor relating to goods ordered by the Debtor, can properly be regarded as being indebted to the petitioning creditor. The real amount of indebtedness I accept has been reduced by the compromise which led to the default judgment being entered against the Debtor.
I should also add that the lack of any appropriate action by the Debtor to set aside the default judgment debt is a further indication of the lack of bona fides of this Debtor and/or provides some indication of his insolvency.
For the reasons given it follows that the application to review the Registrar's order should be dismissed with an appropriate costs order. As this is a hearing de novo, I should add that the court is otherwise satisfied of the matters required to be proved pursuant to s.52 of the Bankruptcy Act, and I am prepared to rely upon the affidavit material placed before the Registrar in the earlier proceedings and do not require the petitioning creditor to file updated proofs of debt or searches.

I certify that the preceding sixty-four (64) paragraphs are a true copy of the reasons for judgment of McInnis FM

Associate:

Date: 19 May 2006