VASILIOU v Tasiopoulos Lambros and Co
[2004] FMCA 670
•13 October 2004
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| VASILIOU v TASIOPOULOS LAMBROS & CO | [2004] FMCA 670 |
| BANKRUPTCY – Default judgment – going behind judgment – challenge to truth and reality of debt. |
Bankruptcy Act 1966, ss.43, 52(1)
Ex parte Lennox In re Lennox (1886) 16 QBD 315
Wren v Mahony (1972) 126 CLR 212
Ahern v Deputy Commissioner of Taxation (1987) 76 ALR 137
Chancliff Holdings Pty Ltd v Bell (1999) FCA 1708
| Applicant: | ANDREW VASILIOU |
| Respondent: | TASIOPOULOS LAMBROS & CO (A FIRM) |
| File No: | MLG 1019 of 2004 |
| Delivered on: | 13 October 2004 |
| Delivered at: | Melbourne |
| Hearing date: | 27 September 2004 |
| Judgment of: | O’Dwyer FM |
REPRESENTATION
| Applicant: | In person |
| Counsel for the Respondent: | Mr Galvin |
| Solicitors for the Respondent: | Tasiopoulos Lambros & Co |
ORDERS
The Application for Review filed on 17 September 2004 is dismissed.
The Court’s orders of 14 September 2004 are affirmed.
The Respondent’s costs of this proceeding be taxed in accordance with the Federal Court Rules and paid from the estate of the Applicant in accordance with the Bankruptcy Act 1966.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT MELBOURNE |
MLG 1019 of 2004
| ANDREW VASILIOU |
Applicant
And
| TASIOPOULOS LAMBROS & CO (A FIRM) |
Respondent
REASONS FOR JUDGMENT
Introduction
This proceeding comes before the Court on an Application for Review filed by the Applicant on 17 September 2004 in which he seeks to have “all orders made be set aside or dismissed”. The Applicant was unrepresented. Although there has been a number of earlier orders made in the Court, it was evident from his submissions from the bar table that his application sought to set aside the orders of Registrar Wood made on 14 September 2004. In that order Registrar Wood made a sequestration order against the estate of the Applicant.
When this matter came before me, it did so as a de novo hearing (that is, as a fresh hearing as if it was the first) of the Respondent’s Petition for a Sequestration Order.
The Respondent is a judgment creditor in respect of a default judgment obtained in the Magistrates’ Court at Melbourne in the sum of $23,220.82. By his application, the Applicant sought to challenge the debt (see below) and ask the Court to go behind the default judgment of the Magistrates’ Court.
The applicable law
The Applicant is not a trained lawyer and was not in a position to put his case to me in the terms of the applicable law. It was very evident, however, that he challenged the debt upon which the petition for bankruptcy was mounted; that challenge being expressed in his assertion that he did not owe money to the Respondent; that the Respondent, who acted for him as his legal advisers in two building disputes, had been remiss in their professional duty to him and had charged him for work they did not do and/or had charged him excessive amounts. These were, in broad terms, his complaints against the Respondent and formed the basis of his challenge. I have set out below, in order to give the Applicant a better understanding of how my decision was reached, the law applying to his application before me.
It is clear that on the hearing of a creditor’s petition the Court has the power, or discretion, under s.52(1) of the Bankruptcy Act 1966 (the Act) to examine the circumstances out of which a judgment arose where the judgment is relied upon, as in this case, as proof of the existence of a debt. For a court exercising bankruptcy jurisdiction a judgment is not necessarily conclusive of the existence of a true debt. It must be shown to the Court, however, that there are circumstances which justify the Court going behind a judgment to examine whether in “truth and reality” there is a real debt underlying the judgment.
The Court may be persuaded to exercise that power more readily where the judgment relied upon is a judgment by default, as in this case.
The principle was stated as follows by Lord Esher M.R. in Ex parte Lennox In re Lennox (1886) 16 QBD 315 at 323:
“It cannot be doubted that a judgment is prima facie evidence of a debt, and that a judgment or order to which a debtor has consented is far stronger evidence against him of the validity of the debt for which it purports to be given than a mere judgment by default. It is very strong evidence against him. Nevertheless, it seems to me that, upon certain allegations being brought forward, the Court is entitled to inquire into the alleged debt, and the Court, exercising a judicial authority, is bound to do so upon a sufficient case being shewn. Circumstances may be alleged which would shew that the judgment ought to be disregarded in bankruptcy.”
Barwick CJ amplified the point in Wren v Mahony (1972) 126 CLR 212 at pages 224 to 225:
“Lord Esher in emphasizing that the Bankruptcy Court did not go behind a judgment as a matter of course but only if appropriate circumstances were shown to exist, said in Re Flatau; Ex parte Scotch Whisky Distillers Ltd (1888) 22 QBD 83 at pp 85-86:
“There is no statute which imposes any such obligations on the Court of Bankruptcy. Section 7 [of which s 52(1) is a counterpart] does no more than give a discretion.”
His Lordship, in using this expression, was not intending, in my opinion, to weaken the emphasis he had always placed on the need for the Court of Bankruptcy to be satisfied of the existence of the petitioning creditor’s debt. Rather, if one reads all his expressions in the several cases I have cited, he was pointing out that the Bankruptcy Court could in general accept a judgment debt as sufficient proof of that debt particularly where it resulted from a fully heard contest between parties but that it always had power to go behind the judgment and if the case was a proper one, should do so. The judgment is never conclusive in bankruptcy. It does not always represent itself as the relevant debt of the petitioning creditor, even though under the general law, the prior existing debt has merged in a judgment. But the bankruptcy Court may accept the judgment as satisfactory proof of the petitioning creditor’s debt. In that sense that court has 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 was 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 satisfactory proof of the petitioning creditor’s debt is mere matter of its own discretion. Nothing in Corney v Brien (1951) 84 CLR 343 lends support for such a view. Rather the emphasis is upon the paramount need to have satisfactory proof of the petitioning creditor’s debt. The Court’s discretion in my opinion has a discretion to accept the judgment as satisfactory proof of that debt. That discretion is not well exercised where substantial reasons are given for questioning whether behind that judgment there was in truth and reality a debt due to the petitioner.”
In Ahern v Deputy Commissioner of Taxation (1987) 76 ALR 137 at 148 the Full Court of the Federal Court said as follows:
“These cases rest on the broad principle that before a person can be made bankrupt the court must be satisfied that the debt on which the petitioning creditor relies is due by the debtor and that if any genuine dispute exists as to the liability of the debtor to the petitioning creditor it ought to be investigated before he is made bankrupt. Bankruptcy is not mere inter partes litigation. It involves changes of status and has quasi-penal consequences.”
It should be noted that there is no inflexible rule as to the circumstances in which the power to go behind a judgment is to be exercised, but it may be said that a Court will not act unless it is persuaded that there is cause to do so. Such cause will not be demonstrated by mere complaint of dissatisfaction which does not identify material which points to the need for further inquiry to be made by the Court to ensure that the law of bankruptcy will be justly applied and not used as an instrument to further a miscarriage
(see Chancliff Holdings Pty Ltd v Bell (1999) FCA 1708).
Background
The history of this proceeding commences, as I understand it from the submissions made by the Applicant, in litigation involving the Applicant and a builder in respect of two projects. The builder, incidentally, is the supporting creditor in the subject petition for bankruptcy. The Respondent firm acted for the Applicant in the litigation. The subject judgment debt relates to the firm’s legal fees, plus interest owed by the Applicant to the Respondent.
The Respondent issued proceedings in respect of the fees in the Magistrates’ Court at Melbourne. On 25 January 2000 judgment in default was entered against the Applicant. The judgment was for $23,220.82. With accrued interest of $9,229.35, the debt due and claimed in the Bankruptcy Notice was $32,450.17.
On 8 March 2000 the Applicant applied to the Magistrates’ Court to set aside the default judgment. He did not attend the hearing, on his statement from the bar table, due to ill health. Consequently, his application was refused and the default judgment affirmed. On 26 July 2004 a further application to set aside the judgment, at which time the Applicant was present, was heard and determined by the Magistrates’ Court. The Applicant was unsuccessful and his application was refused. This determination by the Magistrates’ Court has been, and remains, the subject of an application for leave to appeal to the Supreme Court.
On 15 June 2004, this Court heard and determined an application by the Applicant to set aside the Bankruptcy Notice, which forms the basis of the petition I am considering. The Court declined to do so and found the Bankruptcy Notice to be valid. The ground upon which the Applicant sought to rely for setting the Notice aside was essentially that relied on in this proceeding; namely the default judgment was wrong and should be set aside. The Applicant informs me that he has lodged an appeal against that decision.
Findings
Apart from making assertions that the Respondent has failed in its professional obligations, has colluded with the supporting creditor, has “inflicted upon me serious bad things”, and has charged for work not done, or charged excessively, the Applicant has provided no material that would raise a concern about the “truth and reality” of the judgment debt. His attempts to set aside the default judgment and the Bankruptcy Notice have failed to persuade competent tribunals that such should be done. In light of that, and the lack of any other evidence or material that the judgment debt is open to real challenge, I cannot be satisfied that I should exercise my discretion other than to accept the truth and reality of the judgment debt. Accordingly, I am not persuaded that I should go behind the judgment debt.
The Respondent has the onus of proof in this proceeding. I am satisfied that the Respondent has satisfied that onus and make the following findings under s.52(1) of the Act:
(i)
the Applicant is indebted to the Respondent petitioner in the sum stipulated in the Bankruptcy Notice; namely $32,450.17 being the default judgment obtained by the Respondent in the Magistrates’ Court at Melbourne on
25 January 2000 plus interest. That debt remains unpaid.
(ii)that the original Bankruptcy Notice together with supporting documents as detailed in the affidavit of George Petselis sworn 26 May 2004, was properly served on the Applicant on 24 May 2004.
(iii)
that the Applicant committed an act of bankruptcy on
29 June 2004.
(iv)that the petition, together with the other material referred to in the affidavit of George Petselis sworn on 3 September 2004, was properly served on the Applicant on 30 August 2004.
(v)that the Respondent is entitled to a sequestration order under s.43 of the Act and was so entitled on 14 September 2004.
Conclusion
The Applicant sought to have the Court go behind the default judgment which formed the basis of the petition for bankruptcy. He failed to persuade me that there was any reason to do so. There is a history of failed attempts to persuade other tribunals of the lack of “truth and reality” of the debt. Nothing was presented by way of evidence that persuaded me that I could not have confidence in the judgment which was the subject of this application and that there are circumstances which justify the Court going behind the judgment debt.
All other proofs required for a sequestration order to be made have been met and had been so at the time of Registrar Wood’s sequestration order of 14 September 2004. Accordingly, the Application for Review is dismissed and the orders of 14 September 2004 are affirmed.
I certify that the preceding nineteen (19) paragraphs are a true copy of the reasons for judgment of O’Dwyer FM
Associate:
Date: 13 October 2004
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