Re v & J Removals v Ex parte Earl, W.H.
[1985] FCA 263
•21 JUNE 1985
Re: V. & J. REMOVALS
Ex Parte: WINSTON HENRY EARL
And: FREDERICK WILLIAMS
No. 963 of 1985
Bankruptcy
COURT
IN THE FEDERAL COURT OF AUSTRALIA
GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE SOUTHERN DISTRICT OF THE STATE OF QUEENSLAND
Pincus J.
CATCHWORDS
Bankruptcy - application to set aside a bankruptcy notice by going behind the debt - whether such an application can be made prior to the presentation of a creditor's petition - whether the test to be applied in going behind a default judgment debt is one of "bona-fide allegation" or one where "substantial reasons" need to be shown - default judgment reopened.
Corney v. Brien (1951) 84 CLR 343
Petrie v. Redmond (1943) St. R. Qd. 71
Re Vojnovski; ex parte Malcolm (1970) ALR 355
Wren v. Mahony (1972) 126 CLR 212
Simon v. O'Gorman Pty Ltd (1979) 27 ALR 619
Re Draper (1983) 48 ALR 656
HEARING
BRISBANE
#DATE 21:6:1985
JUDGE1
This is an application to set aside a bankruptcy notice issued by one Frederick Williams against V. & J. Removals. The latter is a business name of Winston Henry Earl.
It is necessary to set out the facts in some detail but before doing so I make the preliminary observation that neither side's version of them appears to me to be particularly satisfactory. Although the expressions are tendentious, I shall call Mr Williams the creditor and Mr Earl the debtor.
According to the creditor, in September 1980 he was telephoned by the debtor to arrange a meeting. He says the debtor, at the meeting, proposed that he undertake to arrange removal and storage business for the creditor.
I would remark that my perusal of the material filed on behalf of the creditor has not been assisted by the fact that some of it is barely legible, being either of microscopic size or very poorly photocopied.
The creditor says that he did work for the debtor, as arranged, for remuneration described as "between 10% and 20% commission depending on the size of the order". No clear explanation is given as to the way in which the commission has been worked out; he said, however, that "the smaller the order the larger the commission".
The creditor says that he did work of the sort arranged, beginning, apparently, in September 1981. There is no explanation given of the gap of a year from September 1980 to September 1981. The price of the work is set out in a plaint which is part of the material filed. So far as I can make out from its contents, it appears to me to assert that in each month from September 1981 to August 1983 inclusive (i.e. 24 months) the creditor became entitled to amounts of commission varying from $80 (in July 1983) to $1,000 (in January 1982).
The plaint also claims that the creditor was entitled to be "imbursed" (sic) for various expenses. These are listed in the plaint in what seem to me to be odd-looking amounts; the motor vehicle expenses are listed as $6,600, which looks like someone's inaccurate estimate of two-thirds of $10,000 motor vehicle expenses. Entertainment expenses are said to be $660, which has a similar appearance and the electricity is said to be $330. I do not know to what extent a court is entitled to have regard to what might be called mathematical improbabilities, but the coincidence that each of these three items begins with either the figures 66 or 33 is calculated to raise suspicion of guesswork in the most credulous. A similar remark applies to the early claims for commission, in the round sums of $1,000 and $1,500.
According to the debtor, in October 1981 the creditor telephoned him and asked him to remove some furniture from Brisbane to Sydney. The debtor did that work and "conducted removalist work at the request of" the creditor 12 times between then and April 1982. The debtor says that on five occasions he got cheques, "of varying amounts in reduction of the monies owing to my firm for work performed". The cheques are not produced, nor is any record of their receipt before me. On the other side, the creditor says that he was paid $450 in part-discharge of the monies due to him and no document is produced to substantiate that.
In May 1983 the debtor issued a plaint claiming the monies said to be due to him, namely $2,800. The creditor, as defendant, entered an appearance to the plaint, did not admit the allegations in it and counter-claimed along the lines set out above. The debtor omitted to plead to the counter-claim and the creditor obtained judgment, in June 1984, in respect of the sum claimed by the creditor. One odd aspect of the matter is that it appears that that summons was served only on the eve of the application.
On 23 April 1985 the debtor made application to set the judgment aside, on what might be called procedural grounds, and on 3 May 1985 the District Court refused that application. The grounds taken were of two kinds. First of all, it was said that not enough time had elapsed from the judgment summons to the date of hearing. Secondly, it was said that Messrs Thomson Mann, solicitors, on whom the documents claiming judgment was served, had no authority to receive them. These grounds were rejected in the District Court and I do not think that I have any right to give consideration to them. I take into account, however, the fact mentioned above, that there was a remarkably short time between the issue of the summons and the giving of judgment.
Although the creditor has produced some documents of a contemporaneous kind in support of his case, none of them seems to me particularly compelling. He produces copies of newspaper advertisements which, so far as I can make out with a magnifying glass, advertised the debtor's business, giving a phone number 267 6627. The creditor says enigmatically that the advertisements "were to contain my private telephone number". He says his number was 208 4664. Although the implication is that the presence of the advertisements is consistent with his case, I have not been able to understand why.
Mr C.J. Bennett, on behalf of the creditor, took what he describes as a preliminary point, namely that the question of going behind the debt could not arise until issue of a petition. I have not been able to find any authority which supports that and believe that I have a discretion to consider the matter now. Mr Koppenol on behalf of the debtor submitted that he had a right to have the questions which his client might have agitated in the District Court gone into here. That is, counsel submitted that I had no discretion. Since the view I take on counsel's submission may determine the fate of the application, it is necessary to go into the cases on which counsel relied, and others.
The foundation of the submission is the dictum of Fullagar J. in Corney v. Brien (1951) 84 CLR 343 at p 357:-
"But, wherever the judgment in question is a judgment by default, it appears that the Court will always 'go behind' the judgment if there is what it regards as a bona-fide allegation that no real debt 'lay behind' the judgment."
I note that the other judgment delivered in Corney v. Brien, that of Dixon, Williams, Webb and Kitto JJ., contained no similar expression, although their Honours (pp 347-348) quoted authority with reference to the special position of default judgments. One of the cases they relied on in that connection was Petrie v. Redmond 1943 St R Qd 71. The judgment of Latham C.J. in that case is hardly consistent with the view expressed by Fullagar J. Latham C.J., with whom the other members of the High Court agreed, said at pp 75-76:-
"The court is entitled to go behind the judgment and enquire into the validity of the debt where there has been fraud collusion or miscarriage of justice ... also the court looks with suspicion on consent judgments and default judgments. The court also strives to prevent creditors from being defrauded by collusive or dishonest proceedings by friends of the debtor, or other people. The bankruptcy court does not examine every judgment. Special circumstances must be established before it will do so. It is impossible to lay down any general rule."
These expressions are not easily reconcilable with the notion that, in respect of one class of judgment, the Court will always assent to go behind the judgment. However, in Re Vojnovski; ex parte Malcolm (1970) ALR 355 at p 359 Gibbs J., as he then was, said:-
"Since the judgment obtained by the petitioning creditor was a default judgment, a debtor is entitled to ask this court to go behind it and to enquire whether it was founded on a real debt."
The mention of entitlement is consistent with the view expressed by Fullagar J.
In Wren v. Mahony (1972) 126 CLR 212 Barwick C.J. said, in a judgment agreed in by Windeyer and Owen JJ., that the Court will not "as a matter of course enquire into the validity of a judgment debt" (p 222). However, his Honour held that in certain circumstances, the Court must go behind the judgment:-
"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 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 is 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 a satisfactory proof of the petitioning creditor's debt as a mere matter of its own discretion." (p 224)
Wren v. Mahony is authority for the view that where "reason is shown" (p 224) or "substantial reasons are given" (p 225) for questioning whether there is in truth and reality a debt due, the Court must exercise its discretion favourably to the alleged debtor. Although the rule so stated must result in the Court's going behind the judgment debt in many cases, it does not give any support to the notion that there is an absolute duty, subject to proof of bona-fides, wherever there is a default judgment.
The Full Court in Simon v. O'Gorman Pty Ltd (1979) 27 ALR 619, a default judgment case, did not rely upon the dictum of Fullagar J. to which reference is made above. Franki J., citing Wren v. Mahony (above), held at p 624 that the Court should exercise its power to go behind the judgment. Lockhart J. said at p 633 that the Court "will not enquire as a matter of course" into the validity of the judgment debt. I do not think that decision supports Mr Koppenol's submission.
Lastly, I refer to the decision of McGregor J. in Re Draper (1983) 48 ALR 656, another default judgment case. At p 662 his Honour referred to the dictum of Fullagar J. mentioned above and appeared to apply it at p 663:-
"This matter is not within the class of cases referred to by Fullagar J. in Corney at 357 where there is a 'bona-fide allegation that no real debt lay behind' the judgment. ... in my opinion the court should not go behind the judgment."
In the end, I have come to the conclusion that I should reject Mr Koppenol's submission and not apply the dictum of Fullagar J. The Court need not always go behind a default judgment, even if there is a bona-fide allegation of no real debt. I apply the law as laid down in Wren v. Mahony, that there must be substantial reasons for questioning whether there is a debt in truth and reality; it appears to me that that principle applies to all cases, both of default judgments and others, although the Court should regard default judgments with more suspicion.
The question then remains whether there are in this case substantial reasons for questioning the existence of the debt "in truth and reality". That is a more stringent test than the one suggested by Fullagar J. and advocated by counsel for the debtor. Nevertheless, it must let in for consideration in this Court quite a number of cases in which there have been default judgments, provided only that the judgment debtor can raise matters of substance against the existence of the debt. The Court can hardly have any enthusiasm for this task, involving as it does a trial for the first time of matters which should, and would but for the dilatoriness of the judgment debtor, have been tried in the District Court. But there appears to be no escape, in this matter, from the conclusion that the judgment must be reopened. The factors leading towards that conclusion are:-
(i) The questions have never in fact been tried and neither party's version is on the face of it much more credible than the other. That judgment was let to go by default must of course be weighed in the balance but the authorities make it plain that that mere circumstance does not put the judgment debtor out.
(ii) Although the sum claimed by the judgment creditor was said to have been earned from September 1981 to August 1983, there is no suggestion that a claim was made before the judgment debtor apparently provoked that, by issuing a plaint himself.
(iii) The principal part of the sum in question is based upon a right to commission at rates between 10% and 20%. There must be at least an argument that that part of the contract is too vague and that only a quantum meruit is allowable; the creditor gives no indication of the basis upon which the figure for commission has been selected.
(iv) The application for judgment was made only the day before judgment was given.
It may be repetitive to say so, but in my view the principal consideration against reopening the judgment is what appears to be the excessive lack of interest shown by the judgment debtor, in respect of the District Court proceedings. It does not appear to me that that can outweigh the considerable doubt I entertain that, if the matter were properly fought out, a result even approximating that obtained by default would ensue.
I will hear counsel on the form of order.
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