Re Kumar, R.B Ex parte The abovenamed v Letheren, R

[1995] FCA 605

CATCHWORDS

BANKRUPTCY - Application to set aside bankruptcy notice - whether Court should go behind a judgment entered by compromise - judgment might be re-opened only in exceptional circumstances - no sham or impropriety shown by judgment debtor

Bankruptcy Act 1966 s 40(1)(g)

Wren v Mahony (1972) 126 CLR 212 Cons

Re V&J Removals Ex parte Earl (unreported decision of Pincus J Federal Court 21 June 1985) Refd

Corney v Brien (1951) 84 CLR 343 Refd

In Re a Debtor [1929] 1 Ch 125 Refd

Ex parte Banner  In Re Blythe (1881) 17 Ch D 480 Refd

Re Longo Ex parte Longo (unreported decision of Cooper J Federal Court 23 June 1995) Refd

Re Robert Bijay Kumar Ex parte The abovenamed v Ronald Letheren

No QB 551 of 1994

Kiefel J  Brisbane 11 August 1995

IN THE FEDERAL COURT OF AUSTRALIA

GENERAL DIVISION

BANKRUPTCY DISTRICT

OF THE STATE OF QUEENSLAND   No. QN 551 of 1994

RE:ROBERT BIJAY KUMAR

EX PARTE:THE ABOVENAMED

Applicant

AND:RONALD LETHEREN

Respondent

JUDGE MAKING ORDER:          Kiefel J.

DATE OF ORDER:   11 August 1995

WHERE MADE:   Brisbane

MINUTES OF ORDERS

THE COURT ORDERS THAT:

1.                The application be dismissed.

2.                The applicant pay the respondent's costs.

NOTE:        Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules.

IN THE FEDERAL COURT OF AUSTRALIA

GENERAL DIVISION

BANKRUPTCY DISTRICT

OF THE STATE OF QUEENSLAND   No. QN 551 of 1994

RE:ROBERT BIJAY KUMAR

EX PARTE:THE ABOVENAMED

Applicant

AND:RONALD LETHEREN

Respondent

CORAM:   Kiefel J.

DATE:   11 August 1995

PLACE:   Brisbane

REASONS FOR JUDGMENT

Mr Kumar seeks to set aside the bankruptcy notice issued on 4 May 1994 and served on 6 May 1994.  The notice required the payment of $16,482.08 due pursuant to a judgment entered in the Magistrates Court of Queensland on 9 September 1993.  That judgment was entered pursuant to an agreement for the compromise of proceedings in that Court which had been made between the creditor and debtor on 24 May 1993.  In those proceedings the creditors had claimed the balance of monies due under a contract for the sale of his business which had required completion by 11 December 1990.  Mr Kumar, who then had solicitors acting for him, filed a defence and counter claimed for the value of goods not supplied, totalling some $15,250 and for $4,375 representing the costs of establishing the business, bank charges and interest.  The action was settled when it came before the Court on 24 May 1993 and adjourned.  By the terms of settlement, which were
signed by the creditor's counsel and by Mr Kumar's solicitor, Mr Kumar undertook to pay $14,033.46, of the sum of $16,217.08 which had been claimed by the creditor, by instalments, the first of which fell due on 24 June 1993.  The undertaking provided that, in default of the payment of any instalment, the creditor was to be entitled to enter judgment in the action for the full sum claimed less any amount already paid by way of instalment.  The second last paragraph of the compromise document recorded Mr Kumar's agreement to collect items of equipment listed in the creditor's Reply and Answer.  A reference to that document discloses that the creditor stated that six only of the items the subject of Mr Kumar's counter-claim were in fact stored at his premises and could be collected at any time.  The terms concluded with a provision that, if the items were not collected, the creditor might dispose of them.

Mr Kumar appeared without representation on his application.  He says that when he and a Mr Currie, a litigation assessor, attended to collect the items on 30 May 1994 he found that they were not in working order and a later valuation suggested they were almost worthless.  Mr Kumar also explained that there had been an inspection of the items at the time of contract but he did not believe the equipment later offered was the same.  Mr Kumar's contention was that the basis of the compromise agreement was that the chattels and equipment to be handed over were to be in working order and that the creditor breached that agreement.  He said:

"... when the compromise was made by me I was led to believe that the machines etc. in question were in a good working order and condition...."

and that the creditor breached that agreement.

Mr Kumar did not pay the instalment due on 24 June 1993.  He made another offer of compromise on 6 July 1993.  The valuation of the goods to which I have earlier referred, was dated 7 July 1993.

The matter came before the Magistrates' Court again on 1 September, 1993.  Mr Kumar was still represented by a solicitor at this time.  An application to set aside the compromise appears to have been made at an earlier time although the material, if any, upon which it was based was not placed before me.  I take it that the issue as to the quality of the equipment was then raised by Mr Kumar's legal representative.  The Magistrate rejected that application and ordered that the plaintiff be at liberty to enter judgment pursuant to the compromise.  In short hand-written Reasons of 1 September 1993 Mr Webster S.M. recorded an earlier finding of another Magistrate, that there was no basis for an order setting aside the compromise, recorded his own finding that the settlement was clear in its terms, made with the advice of lawyers and that it was binding and concluded by saying there was no reason shown to interfere with it.

Mr Kumar, by his application, contended that he has a counter-claim, set-off or cross demand of the kind referred to in s.40(1)(g) of the Bankruptcy Act 1966.  What is required however by that provision is that it be one which he was unable to set up in the Magistrates' Court proceedings in which the judgment was obtained.  The short answer is that he was able to do so, he did so and judgment was entered on a compromise
of both the creditor's claim and his counter-claim.  The question which remains is whether this is a case where it is appropriate to look behind the judgment and the compromise.  In this respect Mr Kumar submitted that the reasons of the Magistrate disclose no consideration as to whether the creditor had breached the compromise agreement and, I infer, whether it should have been set aside on that basis. 

In bankruptcy proceedings a judgment is only prima facie evidence of a debt and the Court has a discretion to go behind it and to enquire whether there is, in truth a reality, or debt, consideration for the judgment:  Wren v. Mahony (1972) 126 CLR 212, 224-5.  That case is also authority for the proposition that the Court will not enquire into the validity of the debt as a matter of course and a judgment debtor must satisfy the Court that there are substantial reasons for questioning the validity of the judgment and requiring other, satisfactory, proof of the consideration for it:  Wren v. Mahony 224-5 and see also Re V&J Removals Ex parte Earl (unreported decision of Pincus J. 21 June 1985).

In the case of a judgment entered on a compromise of proceedings a debtor faces real difficulty.  It will be difficult to infer that there is no consideration for it given the pre-existing claim or claims and that the parties then proceed to make a bargain upon it to their satisfaction.  Whilst it is possible that such a judgment might be reopened it will only be in exceptional circumstances:  Corney v. Brien (1951) 84 CLR 343, 357-8 per Fullagar J. and In Re a Debtor [1929] 1 Ch 125, 127. These authorities and the case to which Fullagar J. referred by way of example, as to when such circumstances might arise, Ex parte Banner;  In Re Blythe (1881) 17 Ch. D. 480, were the subject of a
detailed review recently by Cooper J. in Re Longo Ex parte Longo unreported 23 June 1995.  There is no circumstance here pointed to which would lead one to conclude, as for instance in Banner's case, that the compromise and the claims the subject of it were a sham.  There is no suggestion of impropriety of any kind.  Whilst Mr Kumar says he believed the condition of the chattels to be essential to the compromise agreement and that he was "led" to that belief, he does not put forward any facts or circumstance suggestive of wrongful conduct on the part of the creditor, such as to affect the enforceability of the agreement.  Further, the terms of the compromise, which I must infer were approved by his solicitor, are contrary to the understanding he says he had.  The earlier contractual warranties were not reiterated.  Mr Kumar's liability to pay the monies was not expressed to depend in any way on the quality of the items or his satisfaction with them.  Rather it suggests that the vendor wished to be rid of them and his only obligation was to permit their collection.

The application to set aside the bankruptcy notice must therefore be dismissed.

I certify that this and the preceding four pages are a true copy of the reasons for judgment herein of the Honourable Justice Kiefel.

Associate

Date:          11 August 1995

Applicant:   In person

Solicitors for the respondent:   Welluer & Chittenden

Date of Hearing:   19 June 1995

Place of Hearing:   Brisbane

Date of Judgment:   11 August 1995