Re Lovell-Verinder, P.m. & anor Ex parte Airlite Windows P/L

[1992] FCA 597

Re: PETER MICHAEL LOVELL-VERINDER and LEAH ELIZABETH LOVELL-VERINDER
Ex Parte: AIRLITE WINDOWS PTY LTD
No. 2040 of 1992
FED No. 597
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA

GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE STATE OF NEW SOUTH WALES
Morling J.(1)

CATCHWORDS

Bankruptcy - bankruptcy notice - appliction to set aside - notice based on judgment in District Court - whether debtors have cross-claim - whether cross-claim could have been raised in District Court - judgment based on guarantee document - allegation that guarantee document not stamped - effect of alleged non-stamping on judgment - application dismissed

Stamp Duties Act (NSW) 1920, s 29(1)

Olivieri v Stafford (1989) 91 ALR 91

Acclaim Holdings Pty Ltd v Vlado Pty Ltd (1989) 1 WAR 128

Ash Street Properties Pty Ltd v Pollnow (1987) 9 NSWLR 80

Wren v Mahony (1972) 126 CLR 212

HEARING

SYDNEY

#DATE 21:8:1992

Counsel for the applicants: M.K. Meek
instructed by Stewart Cuddy and Mockler

Counsel for the respondent: F.P. Donohoe
instructed by J.A. Meagher and Decoek

ORDER

THE COURT ORDERS AS FOLLOWS:

1. Application dismissed.

2. Applicants to pay judgment creditor's costs.
Note: Settlement and entry of orders is dealt with in Bankruptcy Rule 124.

JUDGE1

This is an application to set aside a bankruptcy notice. The bankruptcy notice is based upon a judgment obtained by Airlite Windows Pty Limited ("the judgment creditor") against the applicants, Mr and Mrs Lovell-Verinder, in the sum of $88,120.36. It is common ground that the judgment has not been satisfied.

1. The application to set aside the bankruptcy notice is based upon two grounds. First, it is submitted that this Court should go behind the judgment entered against the applicants in the District Court because the debt in respect of which the judgment creditor sued arose from the execution by the applicants of a guarantee document which was unstamped. Secondly, it was asserted that Mr Lovell-Verinder had a cross-claim against the judgment creditor for an amount in excess of the judgment debt. This cross-claim, so it was submitted, could not have been set up in the proceedings in the District Court.

2. In my opinion, there is no substance in either of these claims. It is convenient to consider first the alleged cross-claim. It is said to arise out of poor workmanship performed by the judgment creditor on a building constructed by Mr Lovell-Verinder for one of his clients. It was alleged that in arbitration proceedings between Mr Lovell-Verinder and his client the arbitrator had found the client entitled to damages for the poor workmanship alleged to have been carried out by the judgment creditor. However, an examination of the arbitrator's award makes it plain that the poor workmanship was performed by Mr Lovell-Verinder not by the judgment creditor. I am satisfied on the evidence that Mr Lovell-Verinder does not have a valid cross-claim against the judgment creditor. Moreover, even if he has such a claim, there was nothing to stop him raising it in the District Court proceedings. He gave evidence that his solicitor advised him that the alleged cross-claim could not be raised in those proceedings. This advice (if given) was plainly incorrect. I think it highly unlikely that the advice was given in the form deposed to by Mr Lovell-Verinder. It is much more likely that the solicitor advised that, on the facts, there was no valid cross-claim against the judgment creditor. Any such advice would have been consistent with the view subsequently taken by the arbitrator. Be that as it may, no case has been made out that the cross-claim relied upon by Mr Lovell-Verinder could not have been set up in the District Court proceedings.

3. I turn now to consider whether this Court should go behind the judgment entered against the applicants in the District Court. Subsequent to the entry of the judgment against the applicants they made an application to have it set aside. On 22 July 1992 this application came before a judge of the District Court who dismissed it. It is not in doubt that this Court has jurisdiction to go behind a judgment upon which a bankruptcy notice is based: Wren v Mahony (1972) 126 CLR 212, particularly per Barwick C.J. at 221 et seq. But the Court will not exercise its discretion to go behind a judgment unless good cause is shown. This Court will not, as a matter of course, enquire into the validity of a judgment debt. The Court will normally accept the judgment as satisfactory proof of the debt upon which a bankruptcy notice or petition is based. But as Barwick C.J. pointed out in Wren v Mahony (supra) at p 224, where reason is shown for questioning whether behind the judgment there was "in truth and reality" a debt due by the judgment debtor, a Court of Bankruptcy can no longer accept the judgment as satisfactory proof of the debt.

4. In the present case, an application to set aside the District Court judgment has already been made and has failed. Indeed, it is not asserted by the applicants that they did not execute the guarantee document upon which they were sued, nor that the principal debtor has defaulted in its obligations to the respondent. In these circumstances it cannot fairly be said that there was not in truth and reality a debt owing by them to the respondent. Moreover, upon the stamping of the guarantee it would have effect from the date of its ordinary operation: Ash Street Properties Pty Ltd v Pollnow (1987) 9 NSWLR 80. Accordingly, I do not think that I should, in the exercise of my discretion, go behind the judgment.

5. In Olivieri v Stafford (1989) 91 ALR 91 a judgment had been obtained in the District Court and an application to set aside that judgment had failed. In those circumstances, Beaumont J said that a Court of Bankruptcy should ... "accept that a process of adjudication in the District Court has established that the underlying transactions created a true debt which could, in turn, provide a proper foundation for the entry of a judgment in respect of which a bankruptcy notice could properly issue." I think his Honour's dictum is apposite in the present case.

6. But even if I were of the opinion that I should go behind the judgment, I do not think the material adduced before me demonstrates with sufficient certainty that the judgment was improperly entered.

7. The only evidence as to whether the guarantee was stamped or not was given by Mr Lovell-Verinder. He annexed to one of his affidavits a form of guarantee which he said was a copy of the document he signed. That document does not bear a stamp. But the original was neither tendered nor called for. He gave evidence that, to the best of his knowledge, no stamp duty had been paid on the document. This evidence falls short of showing that the original document was unstamped, if indeed it was. For all the evidence discloses, it may well have been stamped.

8. In Acclaim Holdings Pty Ltd v Vlado Pty Ltd (1989) 1 WAR 128 a Full Court of the Supreme Court of Western Australia, in a majority decision, set aside a default judgment which had been based upon an unstamped chargeable instrument. The Court held that, since the instrument was unstamped, the judgment was based upon a nullity and should therefore be set aside. There are at least two reasons for distinguishing that case from the present. In the first place, the endorsement of the claim upon the writ disclosed that the claim was based upon the instrument which was unstamped. In the present case, there is nothing before me to indicate what was endorsed on the writ. Secondly, in Acclaim Holdings the proceedings before the Court arose on appeal from a decision of a judge of the District Court upholding the validity of the default judgment. In the present case, an application to set aside the default judgment was made in the District Court and dismissed. In these circumstances I do not need to decide whether I should follow the decision in Acclaim Holdings.

9. The question in the present case is whether I should go behind a judgment properly obtained in the District Court. There is nothing in the evidence before me to show that that judgment was improperly obtained.

10. For the above reasons, I am of the opinion that neither of the grounds relied upon by the applicants have been made out. Accordingly, the application to set aside the bankruptcy notice is dismissed with costs.