Lithgow Enterprises Pty Ltd v Sparrow (No 2)

[2005] FMCA 217

FEDERAL MAGISTRATES COURT OF AUSTRALIA

LITHGOW ENTERPRISES PTY LTD v SPARROW (No 2) [2005] FMCA 217

BANKRUPTCY – Creditors Petition – going behind judgment – sequestration order.

Corporations Act 2001, s.236, 237.

Lithgow Enterprises Pty Ltd v Sparrow [2005] FMCA 26
Wren v Mahoney (1972) 126 CLR 212
Corney v Brien  (1951) 84 CLR
McDonald v McDonald (1965) 113 CLR 529

Applicant: LITHGOW ENTERPRISES PTY LTD

Respondent: ROBYN JESSICA MARGARET SPARROW

File No: ADG 142 of 2003

Delivered on: 18 February 2005

Delivered at: Melbourne (by video link to Adelaide)

Hearing Date: 18 February 2005

Judgment of: McInnis FM

REPRESENTATION

Counsel for the Applicant: Mr M. Sykes

Solicitors for the Applicant: Sykes Bidstrup

Counsel for the Respondent: Ms H. Pertsinidis

Solicitors for the Respondent: Andersons Solicitors

ORDERS

1. The Orders of the Registrar made on 12 November 2003 be set aside.

2. A Sequestration Order be made against the estate of Robyn Jessica Margaret Sparrow.

3. The Applicant Creditor's costs be taxed pursuant to the Federal Court Rules and paid from the estate of the Respondent Debtor in accordance with the Bankruptcy Act 1966. 

4. A certificate be granted pursuant to s.10 of the Federal Court Proceedings (Costs) Act 1981 to both parties of those costs of and incidental to the rehearing. 

5. Liberty to apply is granted to the parties in relation to any difficulties identifying those costs .

The Court notes the date of act of bankruptcy is 16 June 2003.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
ADELAIDE

ADG 142 of 2003

LITHGOW ENTERPRISES PTY LTD

Applicant

and

ROBYN JESSICA MARGARET SPARROW

Respondent

REASONS FOR JUDGMENT

(Revised from transcript)

1. This is the hearing of a creditor's petition by Lithgow Enterprises Pty Ltd (the Applicant Creditor) seeking a sequestration order against Robyn Jessica Margaret Sparrow (the Respondent Debtor). 

2. The proceedings have had a somewhat chequered history.  They in fact commenced in this court, as indicated in the petition, on 30 June 2003.  I had been instructed and directed to rehear the matter after an earlier preliminary issue was considered by the court by way of application for review of a registrar's decision, whereby the petition had been dismissed.  I did that on 17 January 2005 and on 18 January 2005 delivered my reasons for judgment in Lithgow Enterprises Pty Ltd v Sparrow [2005] FMCA 26 and in relation to the narrow issue which had been agitated before the registrar and upon which the learned registrar had then dismissed the petition I decided that the learned registrar was in error and to that extent indicated on that preliminary issue that there would be a need, given this is a hearing de novo, to consider the petition and other issues arising out of it, on a further date.

3. It is clear in the circumstances that the parties were entitled to provide further affidavit material and make other submissions over and above the submissions made in relation to the issues which were agitated before me on 17 January 2005 and which were the subject of the decision to which I have referred.  So that it is perfectly clear and in the interests of the parties I regard my decision on that date as a decision in relation to a preliminary matter and shall direct that my reasons for decision on that date shall form part of and be incorporated with the further decision that I am about to deliver this day.  It seems to me that in the circumstances and given the delay in this matter it is appropriate and fair that I should make that direction in the interests of both parties. 

4. It should also be noted that in the decision of the matter of Lithgow Enterprises Pty Ltd v Sparrow to which I have referred I had indicated during the course of the hearing that I would be sympathetic towards any application the parties might make in relation to costs arising out of or due to the rehearing.

5. The creditor's petition is one which relies upon a judgment obtained by the applicant creditor by consent against the respondent debtor in the Supreme Court of South Australia in proceedings 1756/2001.  The judgment was obtained on 31 March 2003.  In brief terms the judgment of the applicant creditor arose from claims in relation to loan accounts and it should be noted that the respondent debtor and David Guy Lithgow had been co-directors of the applicant creditor.  It also noted that there has been an extensive history of litigation and one might describe it as conflict between the parties, who at one time, for a period which I do not need to determine, had been in a de facto relationship.

6. Essentially the arguments advanced for and on behalf of the debtor in opposing the petition by the applicant creditor rests on the assertion that this court ought go behind the judgment by consent of the Supreme Court to which I have already referred.  Significant affidavit material has been relied upon by the debtor.  The Debtor relies upon an affidavit sworn by her on 2 October 2003 and filed on 3 October 2003, an affidavit sworn by her on 27 October 2003 and filed the same date and further a more recent affidavit sworn 17 February 2005 and filed on the same date.  Apart from the usual affidavits to be relied upon by the applicant creditor in relation to search and debt as required under the rules there are further substantive affidavits which have been relied upon for an on behalf of the applicant creditor.  In particular an affidavit sworn by David Guy Lithgow on 12 October 2003 and filed 13 October 2003 has been relied upon.  A more recent affidavit of the same deponent sworn 3 February 2005 and filed the same date has also been relied upon in support of this petition.

7. It is noted that a reply to the affidavit of the debtor sworn 17 February 2005 has not been filed and served, though I note, for the sake of completeness, an application is made by the applicant creditor to file and serve additional material if it is considered relevant and appropriate in the circumstances. 

8. It is clear to me on a proper reading of that affidavit material and other material on the file that there is a significant issue that had been sought to be agitated over a period of time, indeed almost two or three years, between the respondent debtor on the one hand and Mr Lithgow of the applicant creditor on the other in relation to a loan account and in relation to what is described as the process by which funds in relation to a loan account have been paid or not paid and indeed issues relating to what is described by a trust, namely the Wallback Trust.  Those issues were the subject of significant and detailed correspondence passing between solicitors acting for the respective parties as far back as February 2002. 

9. It is perhaps also significant to note that in commencing the proceedings in the Supreme Court there is no dispute that application had to be made and indeed was made for proceedings to be issued pursuant to s.237 of the Corporations Act, the application having been made pursuant to s.236 of that Act. There is also no dispute that having brought the application pursuant to s.236 leave was granted pursuant to s.237 for the proceedings to be commenced. Judgment, as

   
   

   I indicated, was entered by consent on 31 March 2003. During the course of the s.237 proceedings, which had commenced on

   
   

   19 December 2001 and which had clearly appeared to be protracted the debtor was then represented by solicitors and counsel.  Significant facts and circumstances were the subject of those proceedings.  I infer from the material before me that the statutory requirements would not have been met in relation to those proceedings had there not been material of an appropriate kind placed before the court in order to allow a decision to be made. 

10. In considering the detailed allegations that are now sought to be relied upon by the debtor it seems clear to me that a very careful and considered analysis has been undertaken of all documents in order to assert, amongst other things, that there is a suggestion of the corporate structure being what might be described as a sham and, further, I take it from the material relied upon by the debtor that either by inference or directly it is suggested that there has been an element of fraud in relation to the basis upon which the claim was made against the respondent debtor by the applicant creditor which ultimately was the subject of the judgment by consent to which I have referred.

11. It is relevant at the outset in an application of this kind to note that the power of this court to go behind a judgment, particularly a consent judgment and particularly against the backdrop of the chronology of events to which reference is made in the affidavit material, that the court must have regard to the principles to be applied, which have been referred to in High Court decisions.  The court's discretion, it has been stated by the High Court in Wren v Mahoney (1972) 126 CLR 212 at 225 is a discretion to accept the judgment as satisfactory proof of the petitions in creditor's debt. That discretion is not well exercised where substantial reasons are given for questioning whether behind that judgment there was in truth in reality a debt due to the petitioner. The court may have sufficient reason not to exercise its discretion to treat the judgment as satisfactory proof of the debt where there are substantial reasons for doubting whether there really is a debt due to the creditor (see Fullagar J in Corney v Brien (1951) 84 CLR 343 at 353-358).

12. It should be noted that in considering whether or not an issue of fraud has been properly raised and in applying the principles which are appropriate the court needs to consider that the Debtor is required if an attack is to be made successfully on the judgment, to establish the fraud as affecting the judgment and as requiring it to be set aside in the interests of justice, either particularly in relation to the parties or generally in relation to the administration of justice (see McDonald v McDonald (1965) 113 CLR 529 at 533). The fraud must be ‘definitely alleged and proved’ (See McDonald at 540). Fraud is a significant allegation. In the circumstances of this case it is clear at the very least that the debtor has expressed considerable reservations and doubts based upon an analysis of material available to her. What is clear about this case is that at no stage has there been any application to set aside the judgment by consent. At no stage has there been any appeal lodged in relation to that judgment, nor has there been any stay or other process pursued by the debtor.

13. In circumstances of this kind the Court should be reluctant to go behind the judgment where I am satisfied that as far back as February 2002, based upon the correspondence which is referred to in the affidavit of Mr Lithgow sworn 12 October 2003, the debtor had either an active involvement and/or an opportunity to access the appropriate material and further where her own material sworn as early as 2 October 2003 she acknowledges an awareness of the structure of the company and had access to relevant documents. It is my view that in a matter of this kind unless there can be properly found to be a substantive reason for doubting whether there really is a debt to the creditor this court should be very reluctant to go behind a judgment. The reluctance to go behind a judgment, particularly a consent judgment, is perhaps greater than what it might be in the case of a default judgment or where judgment is entered in the absence of a debtor. But nevertheless in this case, having regard to the Corporations Act proceedings, which were protracted and where the parties were represented, having regard to the fact that the debtor was indeed throughout the substantive period of the process represented and had, by virtue of her role in the company, a knowledge of the matters which are now said to be matters which provide a basis upon which I should go behind the judgment, it is my view that as a court of bankruptcy it would be an incorrect exercise of my discretion not to accept the judgment as being a proper basis upon which a debt could be founded and upon which the bankruptcy notice and ultimately creditor's petition should proceed.

14. In my view it would be inappropriate, for those reasons, to go behind the judgment. That being so there is a debt which is properly the subject of the bankruptcy notice and petition. I am satisfied on the material before me that the requirements of s.52 of the Bankruptcy Act have otherwise been met. Accordingly it follows that in all the circumstances the appropriate order of the court will be that a sequestration order be made against the estate of Robyn Jessica Margaret Sparrow and the applicant creditor's costs be taxed pursuant to the Federal Court Rules and paid from the estate of the respondent debtor in accordance with the Bankruptcy Act 1966. 

15. I note the date of act of bankruptcy is 16 June 2003.  As I indicated earlier it seems to me that I should further make an order that those costs do not include the costs of the parties of and incidental to the rehearing of the matter which was the subject of the judgment

    
    

    I delivered in Lithgow Enterprises Pty Ltd v Sparrow.  I am satisfied that in the circumstances it is appropriate for this court to grant a certificate pursuant to s.10 of the Federal Court Proceedings (Costs) Act 1981 to both parties of those costs of and incidental to the rehearing.  It is clear to me that both parties have sensibly pursued the matter in the most convenient way in the interests of their respective clients but neither party should be out of pocket as a result of the steps taken in the rehearing.  I shall further grant liberty to apply should there be any difficulties in identifying those costs and I shall of course be prepared to provide the appropriate certificate.

I certify that the preceding fifteen (15) paragraphs are a true copy of the reasons for judgment of McInnis FM

Associate: 

Date:  18 February 2005