Sims v McCormack - [2006] FMCA 122

FEDERAL MAGISTRATES COURT OF AUSTRALIA

SIMS v McCORMACK

[2006] FMCA 122

BANKRUPTCY – Application to set aside Bankruptcy Notice – going behind judgment.

Bankruptcy Act 1966, s.52

Re Hutchins; Ex parte: Wall & Anor [1998] 581 FCA (6 May 1998)
Corney v Brien (1951) 84 CLR 343
Wren v Mahoney (1972) 126 CLR 212

Applicant:

PAULA SIMS

Respondent:

FREDERICK MCCORMACK

File Number:

PEG 246 of 2005

Judgment of:

McInnis FM

Hearing date:

16 December 2005

Delivered at:

Perth

Delivered on:

6 February 2006

REPRESENTATION

Applicant:

In person

Respondent:

In person

ORDERS

The application filed on 10 November 2005 be dismissed.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
PERTH

PEG 246 of 2005

PAULA SIMS

Applicant

And

FREDERICK MCCORMACK

Respondent

REASONS FOR JUDGMENT

In this application the applicant seeks to set aside a bankruptcy notice issued on 30 September 2005 at the request of Frederick McCormack (the Creditor) against Paula Sims (the Debtor). The bankruptcy notice relies upon a default judgment obtained by the creditor against the debtor in the State Magistrates Court of Western Australia on 21 March 2003 for $6454.05.
The judgment obtained by the creditor against the debtor in default relates to a debt owed by the debtor to the creditor for storage costs relating to containers.
The debtor made application to the state Magistrates Court on 11 November 2005 seeking to set aside the judgment which had been obtained on 21 March 2003. The debtor supported that application by an affidavit sworn by her on 9 November 2005. In that affidavit the debtor refers to not receiving the summons in 2003 "due to ill health, suffering from depression and being prescribed very strong medication". She also refers to having suffered what she describes as "a severe accident in January 2004 which involved attending Rural Perth Hospital for physiotherapy and other check-ups for up to 10 hours a week until I was discharged in November 2004".
In her affidavit provided in support of the application to set aside the 2003 order, the debtor refers to the claim for storage charges which had involved a company called Impex Corporation, which apparently is a company in administration. The debtor was a director of that company, along with her brother, from whom she is now estranged. She deposes she had a "fixed and floating charge over Impex" and was "the only secure creditor". She refers in some detail to the creditor being an unsecured creditor of Impex and refers to the storage of three containers registered as the property of Impex which were accruing rental. In brief terms, that is sufficient to understand the nature of the relationship as the debtor asserts that the creditor acted upon her charge over Impex and assumed responsibility for the storage fees, or the balance thereof, in return for release of the contents from the containers.
In any event, the application by the debtor to set aside the 2003 order in the state Magistrates Court was opposed by the creditor. The creditor relied upon an affidavit before the state Magistrates Court sworn 25 November 2005. In that affidavit the creditor referred in detail to the chronology of events, though specifically states in the affidavit that he did not address the issue of proof of debt in the application. He confirmed that before this court, when both parties, who are unrepresented, made submissions.
The chronology referred to by the creditor refers to the commencement of proceedings in the state Magistrates Court by summons issued on 25 February 2003 served upon the debtor on 5 March 2003. As he received no response, he proceeded with the summons, and it is not in dispute, as indicated earlier, that a default judgment was obtained on 21 March 2003. Other forms of execution of a judgment were attempted, including an application for a judgment summons, and he had earlier obtained a warrant of execution. Adjournments occurred in relation to the judgment summons whereby it is claimed that that summons was adjourned on 21 January 2005 until 15 April 2005 and then further adjourned until 27 May 2005.
The bankruptcy notice was issued on 30 September 2005 and, as set out earlier, the application by the debtor to set aside the State Magistrates order of 2003 was not filed until 11 November 2005.
In any event, the state Magistrates Court made an order on 1 December 2005 that the application to set aside be refused, and it is noted that the default judgment of that Court stands.
The debtor then filed a notice of appeal in the District Court of Western Australia on 6 December 2005 seeking to appeal from the decision of the state Magistrates Court dated 1 December 2005. That appeal is pending.
In support of her application before this court to set aside the bankruptcy notice based upon the 2003 Magistrates Court judgment, the debtor has relied upon affidavits sworn by her on 10 November 2005, 7 December 2005 and 15 December 2005. The debtor also sought to advance further submissions in support of her application and referred to what may be further available medical evidence to support the assertions regarding her medical condition during the relevant time.
It seems to be common ground in this matter that the state Magistrates Court, in refusing to set aside its 2003 order, primarily took into account the chronology of events and the delay by the debtor in making the application.
Before this court the debtor has sought to either set aside the bankruptcy notice or, at the very least, adjourn this application pending the outcome of the District Court appeal.
It is clear that the debtor now seeks to assert that there is no debt and that she should have the opportunity to present material at a defended hearing in relation to the debt. At one point it was suggested she may even have a counterclaim for what I take to be alleged hurt and distress suffered as a result of these proceedings.
In considering the issue of whether to go behind a judgment upon which a bankruptcy notice is founded, the principles are similar to those which apply in going behind a judgment upon the hearing of a creditors petition (see Re Hutchins; Ex parte: Wall & Anor [1998] 581 FCA (6 May 1998). However, it is noted that clearly the consequences of having committed an act of bankruptcy are not as severe as the making of a sequestration order and that in any event, upon a creditors petition being filed, a debtor may still seek to raise concerns in relation to the debt and other matters to be properly considered by the court, amongst others, arising out of s.52 of the Bankruptcy Act 1966 (the Bankruptcy Act).
Authorities provide that the court would only inquire into the validity of a judgment where there is evidence that it has been obtained by fraud or collusion or there is some reason to doubt that it is founded on a real debt or real consideration. This is particularly so in the case of a default judgment (see Corney v Brien (1951) 84 CLR 343 and Wren v Mahoney (1972) 126 CLR 212).
Generally the court is reluctant to go behind a judgment which has been the subject of adjudication. In the present case I am satisfied that the state Magistrates Court, whilst not adjudicating the issue between the parties at the time of entering the default judgment, has subsequently entertained and rejected an application to set aside the order made in 2003. It has done so by considering the chronology of events and the delay. It is understandable that the court did not then pursue the issue of the disputed debt or require the creditor to provide further evidence of proof of debt.
In my view it would be inappropriate for this court to go behind a judgment in the circumstances, notwithstanding that there is currently pending in the District Court of Western Australia an appeal from the Magistrates Court decision to refuse to set aside its 2003 order. The chronology of events in the present case is perhaps just as relevant as it appears to have been before the state Magistrates Court. The fact remains that the action taken by the debtor to set aside the order made in 2003 only appears to have occurred after the bankruptcy notice was issued and served.
The creditor has relied upon an affidavit sworn by him in these proceedings on 12 December 2005, and for present purposes I accept that it accurately sets out the chronology of events, and in particular when combined with the affidavit of the creditor referred to earlier, which had been relied upon in the application to set aside the 2003 order, it is evident to me that there have been extensive and protracted discussions between the parties concerning payment of the debt.
Whilst the court may have some reservations about the nature of the debt, there is insufficient material before me to encourage this court to conclude that it should go behind the judgment, as I do not accept that there are any unusual features which would persuade this court that it should indeed embark on the task of going behind the judgment in this instance. Generally a court should accept the judgment as being conclusive of the existence of the debt unless there was some reason to question that judgment.
In this case, whilst there may be some issues concerning the addressee of invoices which founded the debt, there is sufficient evidence to at least demonstrate that the debtor, acting pursuant to the charge and as being the only secure creditor, did assume responsibility for the debt. I am otherwise satisfied that a third party referred to in this proceeding, whilst making a contribution to the debt, did not extinguish the debt, and without analysing the matter in further detail, I see no reason why the court should not regard the order made in 2003 as being conclusive, particularly having regard to the fact that an application to set aside that order has now been refused. It is not for this court in bankruptcy to further intrude into this process simply because there is now a pending District Court appeal.
As I have indicated, the chronology of events in this court on the face of it demonstrates what might be described for the purposes of these applications as a lack of bona fides, given that the attempt to attack the judgment upon which the bankruptcy notice is founded has only occurred in recent times. Whilst I am prepared to make due allowance for the applicant as a result of her claimed illness, it is clear that that illness did not prevent her from engaging in correspondence and otherwise undertaking activities, at least over a significant period of time of almost two years within which she had the opportunity to take some action in relation to the orders made in 2003.
In my view it follows that accordingly there is no basis upon which the court should go behind the judgment and there is no other basis upon which this court, acting according to law, should set aside the bankruptcy notice. As indicated earlier, there may be other arguments advanced upon the hearing of a creditors petition, which no doubt would be considered at the appropriate time according to law. In this instance, however, the appropriate order is that the application filed on 10 November 2005 should be dismissed. Given that both parties are unrepresented, I do not anticipate that there is any application for costs.

I certify that the preceding twenty-two (22) paragraphs are a true copy of the reasons for judgment of McInnis FM

Associate:

Date: 6 February 2006