FEDERAL COURT OF AUSTRALIA

Driessen v Parkinson [2000] FCA 871

BANKRUPTCY – contested creditor’s petition – whether court should exercise discretion to go behind judgment to determine whether there was, in truth and reality, a debt due – consideration of the relevance of agreement founding debt having been admitted into evidence despite not having been stamped.

Bankruptcy Act 1966

Stamp Act 1894 – s 4A

Wolff v Donovan (1991) 29 FCR 480 cited

Udovenko v Mitchell (1997) 160 ALR 161 cited

PETER ANTONIUS DRIESSEN & MARIETTE BERNADETTE DRIESSEN v DAVID PARKINSON

Q 7123 OF 1999

SPENDER J

14 JUNE 2000

BRISBANE

THE COURT ORDERS THAT:

1.                  A sequestration order be made against the estate of David Parkinson.

2.                  Costs of and incidental to the creditor’s petition, including reserved costs, be taxed and paid in accordance with the Bankruptcy Act 1966.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

REASONS FOR JUDGMENT

1                     This is a contested creditor’s petition.  The sole ground on which the petition is now opposed is that set out in the amended notice of intention to oppose the petition, which was filed on 3 May 2000, as follows:

“This Honourable Court should exercise its discretion to dismiss the Creditor’s Petition because, notwithstanding that the Applicants entered a judgment in the Magistrates Court against the Respondent on 1 February, 1994 in proceedings 21173 of 1993, behind that judgment there was, in truth and reality, no debt due to the Applicants by the Respondent.”

2                     It is accepted by the parties that the history of the matter is as follows:  on 1 February 1994, in Magistrates Court Action 21173 of 1993, the applicants (as plaintiffs) obtained against the respondent and one Fiona Margaret Parkinson (as second defendants) a judgment comprised of $25,000 for claim, $733.90 for interest, and $878.25 for costs, making a total of $26,612.15.

3                     The claim against the second defendants in the Magistrate Court, who were Mr and Mrs Parkinson, was for moneys owing by them under a guarantee.  The judgment was made in default of entry of appearance and defence.  An application was made to the Magistrates Court to set aside that judgment.  On 31 March 1995, the Magistrates Court dismissed the application, and ordered the costs of it against Mr and Mrs Parkinson.  By notice dated 21 April 1995, Mr and Mrs Parkinson and the other defendant in the action appealed against the decision dismissing the application to set aside the judgment.  In the event, they did not proceed with the appeal, and it was struck out with costs.  No further application to set aside the judgment or to enliven the appeal has been made. 

4                     On 1 November 1995, bankruptcy notice No. 1648 of 1995 was issued.  It was served on Mr Parkinson on 15 November 1995.  Creditor’s petition No. 750 of 1995 was filed on 14 December 1995.  That petition was adjourned from time to time, and ultimately was not proceeded with.  A further bankruptcy notice was issued on 19 December 1997.  This fresh bankruptcy notice was served on 10 March 1998.

5                     An order was made on 8 May 1998 extending the time for compliance with the bankruptcy notice until after the determination of Mr Parkinson's application to set it aside, and on 24 February 1999 Dowsett J dismissed the application.  Creditor’s petition Q 7123 of 1999, with which I am presently concerned, was filed on 24 March 1999.

6                     For the petitioning creditors, it is submitted that the Court should not exercise the discretion it has to go behind the judgment because six years have elapsed since the entry of judgment, the applicant has unsuccessfully attempted to set aside the judgment (which procedure involved examination of the existence of a defence), and he did not prosecute his appeal against the refusal to set aside the judgment.  It is further submitted on behalf of the petitioning creditors that no unusual circumstances on the part of the respondent have been put forward, and that in respect of Mr Parkinson’s contention that he has a cross-claim set-off or cross-demand equal to or in excess of the creditors' claim, no proceedings have been taken to enforce any such right or entitlement, and it is now more than six years since any such right or entitlement could have arisen, so that any action to enforce such right or entitlement is statute barred.

7                     For Mr Parkinson, it was submitted that the Court ought to go behind the judgment, and on so doing would not be satisfied that there was, in truth and reality, a debt.  In Wolff v Donovan (1991) 29 FCR 480, Davies J said at 481:

“It is clear that, in an appropriate case, a bankruptcy court both may and should go behind a judgment to ascertain that the debt relied upon is a good debt, a debt due in truth and reality.

…

In the present case, the petition relied upon a judgment obtained by default.  The bankruptcy court will go behind such a judgment debt provided that a ground for questioning the truth and reality of the debt has been raised.”

8                     His Honour noted that, in that case:

“…the unusual circumstance that the debtor, Mr B.S. Wolff, was said to be liable as a "silent partner", a situation which he wished to dispute, was a sufficient ground for looking into the reality of the debt.”

9                     Lee and Hill JJ, in the same case, said at 485:

“As was said by the Full Court of this Court in Boral Johns Perry Industries Pty Ltd v Piccardi, (unreported, 23 June 1989, at 13): ‘It is well established that a Court exercising bankruptcy jurisdiction has power to go behind a default judgment, and will do so, in a case where a reason is shown for questioning whether - behind the judgment, or, as is sometimes said, as the consideration for it - there was really a debt: see Petrie v Redmond [1943] QSR 71; Corney v Brian (1951) 84 CLR 343; Wren v Mahoney (1972) 126 CLR 212’.”

10                  Their Honours continued:

“As the above quotation makes clear it will not be in every case that the court will go behind a judgment.  The existence of the judgment is prima facie evidence of the debt: cf Re Fraser; Ex parte Central Bank of London [1892] 2 QB 633 at 636-637.  No doubt it will be relevant that the judgment debtor has made no attempt to set aside the judgment although failure to do so may be explained, as it was in the present case, by the fact that the debtor lacked funds to pursue this course.  It was, however, made clear by Lord Esher in Re Flatau; Ex parte Scotch Whiskey Distillers Ltd (1888) 22 QBD 83 at 85-86 that the Court will not go behind the judgment as a matter of course but only if appropriate circumstances are shown to exist.”

11                  In support of the invitation to go behind the judgment, it was submitted on behalf of the respondent debtor that the facts surrounding the entry of judgment were as follows:

“(a)     on 5 April, 1993, Glenloch Pty Ltd (‘Glenloch’), a company controlled by the Respondent, entered into a distribution agreement, (‘the agreement’) with the applicants whereby Driessen acquired the right to distribute foodstuffs within the territory for five years …;

(b)              it is not disputed that, although the purchase price was $30,000.00 was payable under clause 4.2 of the Agreement … Driessen only paid Glenloch the sum of $25,000.00;

(c)               relevantly, the Agreement contained the following terms:

(i)       if, before the expiration of three months from the date of this agreement, Driessen gives written notice to Glenloch of its intention to terminate, Glenloch will refund Driessen the sum of $30,000.00 within 30 days of notification (clause 4.5);

(ii)     David Parkinson and Fiona Parkinson jointly and severally guarantee the due performance by Glenloch of its obligations under the agreement (clause 5.2);

(d)              The Applicants claim that Driessen served a notice to terminate the Agreement upon Glenloch pursuant to clause 4.5, by a letter dated 1 July, 1993 …  The respondent denies that Driessen sent this notice to terminate or otherwise terminated the Agreement…;

(e)               The Respondent claims that Glenloch sold the Brisbane business, including Driessen’s distribution run, to one Ellem by a contract dated 2 August, 1993 … The Applicants deny this and say that Ellem was merely a manager and never acquired an ownership interest in the business …;

(f)                The Respondent claims that Ellem experienced cash flow difficulty so, to preserve the goodwill of its business, Glenloch gave Ellem a number of its cheques in blank, signed by him, to pay wages and essential operating costs of the business…;

(g)              it is not disputed that Driessen received one of these Glenloch cheques in the sum of $25,000.00 which was subsequently dishonoured.

…”

12                  It is the petitioning creditors’ claim that the cheque, although subsequently dishonoured, was in purported satisfaction of Glenloch's obligations pursuant to clause 4.5 of the agreement.  Mr Parkinson claims that Ellem, in breach of his authority, made out this cheque and gave it to Driessen.  The applicants assert that the cheque was authorised.

13                    Against that background, the applicants/petitioning creditors commenced proceedings in the Magistrates Court against Glenloch, Mr Parkinson and Mrs Parkinson, claiming $25,000 as a cheque drawn by Glenloch payable to Driessen which was dishonoured on presentation, or further or alternatively, a sum payable pursuant to the guarantee given by the Parkinsons.

14                  Mr Parkinson claimed that he was never served with a plaint and summons in that matter.  An entry in default of an entry of appearance and defence was entered on 1 February 1994.  The claim against Mr and Mrs Parkinson was pursuant to the guarantee.  The claim arising from dishonouring the cheque was only against the company, Glenloch.  The default judgment was entered on the ground of the guarantee. 

15                  As earlier noted, on 20 January 1998 Mr and Mrs Parkinson filed an application for an order to set aside the default judgment.  It is now claimed that on that application there were a number of matters which the respondent's then solicitor omitted to mention to the Magistrate, and that there were a number of issues which were not argued.  In particular, and crucially, so it was submitted on behalf of the respondent, it was not there argued by the respondent's solicitor that the agreement had not been stamped and should thus not have been allowed to be put in evidence by the applicants.

16                  This is in reliance of s 4A of the Stamp Act 1894, which then provided:

“4A.(1) An instrument chargeable with stamp duty (whether under this Act or under any prior Act) shall not, except in criminal proceedings, be given in evidence, or be available for any purpose whatever, unless it is duly stamped.

                   (2)However –

(a)           when any such unstamped instrument is tendered as evidence in any court in any proceeding (except criminal proceedings) – the judge, or presiding magistrate, or justice of such court may admit the same in evidence on the party producing the same in evidence or the party’s solicitor giving such security or written undertaking as may be prescribed to pay the whole or the deficiency of the stamp duty and any penalty that may be imposed;

(b)           when any copy of any instrument chargeable with stamp duty in Queensland is tendered as evidence in any court in any proceeding (except criminal proceedings) – the judge, or presiding magistrate, or justice of such court may admit the same in evidence on the party producing the same in evidence or the party’s solicitor giving such security or written undertaking as may be prescribed to produce the original or duplicate thereof and to pay the whole of the deficiency of the stamp duty thereon and any penalty that may be imposed.”

17                  It is submitted that, having regard to the criticisms which are now made of the quality of the representation of Mr Parkinson on his application to set aside the default judgment, and in particular having regard to the fact that the agreement containing the guarantee (which was at the foundation of the petitioning creditors’ claims in the Magistrates Court) was not  stamped, the court should now go behind the judgment and not treat the judgment as evidencing a debt, and would then conclude that there was not in truth or reality a debt.

18                  The claim that there was no debt involves matters of factual dispute.  It is also said that the non-stamping of the agreement is a conclusive defence to the applicants’ claim, and of itself ought to quash any assertion that there is a debt owing to the applicants in truth and reality.  I reject that submission.  The fact is that at the time the judgment was entered the applicants had not put the un-stamped document into evidence, the allegations concerning the agreement having been taken to be admitted by the failure to defend. 

19                  While it is true that the guarantee is based on a written agreement which was not stamped, s 4A of the Stamp Act 1894 provides that appropriate undertakings might be given by a party or his solicitor if objection is taken or if there is any contention concerning the unstamped status of the instrument.  Moreover, it seems to me that questioning the admissibility of an unstamped instrument hardly founds a persuasive argument when one is concerned with the justice of the situation and with the merits of whether, in fact, there was in truth and reality a debt.  The lack of stamping of the agreement may have evidential consequences, but does not, in my view, impinge on the question of whether in truth and reality there was a debt owing pursuant to the guarantee contained in it.

20                  It is true that the judgment in this case was a default judgment.  However, there was an inquiry into the merits of the matter and into the defence that Mr Parkinson wished to make to the claim, and in dismissing the application to set aside the judgment the magistrate referred to the material, including three affidavits from Mr Parkinson, and heard from the parties, Mr Parkinson being represented by a solicitor. 

21                   On the material that was before the Magistrate, the Magistrate found:

“I found the affidavits of Parkinson unconvincing.  I am not persuaded to doubt the proof of service.  I am not persuaded by attempts to cast doubt on the contractual obligations of either the first defendant [Glenloch] or the second defendants [Mr and Mrs Parkinson] under the guarantee.  I am not persuaded by Parkinson's attempts to explain the delay in bringing this application.  I doubt that the grounds of this application are genuine.  I consider it likely this application has been brought for the purpose of delay only.”

22                  Importantly, the Magistrate said:

“I am satisfied the plaintiff has established a good cause of action on the guarantee.  I am satisfied the judgment was regularly entered.  I am not satisfied that the applicant has established any good defence to the action.  I am not satisfied that the applicant has explained the inordinate delay in bringing this application.  I do not consider that the interests of justice would otherwise be served by setting aside the judgment and allowing the applicants to defence and I consider that given the unavoidable delay the plaintiff would be unduly prejudiced by such a course.”

23                  The Magistrate then dismissed the application to set aside the judgment and ordered the applicants to pay the costs of Mr and Mrs Driessen.  On that material I would not go behind the judgment.  I am satisfied that the judgment evidences, in truth and reality, the debt owing by Mr Parkinson to the petitioning creditors.  The reasons that I am not prepared to go behind the judgment are based on the history of the matter, and the fact that, while the original judgment was a default judgment, the application to set it aside permitted an inquiry into the merits of the matter after which the Magistrate strongly found that the claims Mr Parkinson advanced there, which are similar to the claims he advanced here, on the merits were without substance.

24                  But for the point about the failure to have the agreement stamped, there would clearly, in my view, be no basis on which the Court should go behind the judgment.  In respect of the significance of the lack of stamping of the agreement, it was submitted on behalf of the debtor that it was a conclusive defence to the applicants’ claim.  I have already indicated that I do not so regard it, and rely in this regard on a judgment of the Full Court of the Federal Court (Davies, Foster and Carr JJ) in Udovenko v Mitchell (1997) 160 ALR 161. 

25                  In Udovenko, a creditor's petition was dismissed.  The petitioning creditor, a solicitor, breached the statutory obligation imposed by the then s 198 of the Legal Profession Act 1987 (NSW) by claiming for costs without having given a bill of costs more than one month prior to the institution of the proceedings.  In fact, no bill of costs had ever been delivered.  The Court held that:

“As the creditor was not entitled to his judgment in the Local Court and had no liquidated sum due or payable either immediately or at a certain future time, because no proper bill of costs had been delivered to the debtors, it was not a question of discretion as to whether the court would go behind the judgment of the Local Court.  It was a matter of a duty for the court to give effect to the fundamental principles stated in s 44(1)(b) of the Bankruptcy Act 1966 (Cth).”

26                  Section 44(1) of the Bankruptcy Act 1966 (the Act) provides:

“A creditor's petition shall not be presented against a debtor unless:

(a)      there is owing by the debtor to the petitioning creditor a debt that amounts to $2,000 or 2 or more debts that amount in the aggregate to $2,000, or, where 2 or more creditors join in the petition, there is owing by the debtor to the several petitioning creditors debts that amount in the aggregate to $2,000;

(b)      that debt, or each of those debts, as the case may be:

(i)            is a liquidated sum due at law or in equity or partly at law and partly in equity; and

(ii)          is payable either immediately or at a certain future time; and

(c)   the act of bankruptcy on which the petition is founded was committed within 6 months before the presentation of the petition.”

27                  In my opinion, the non-stamping of the agreement does not mean that there is no debt owing.  In this case, I accept the judgment as satisfactory proof of the petitioning creditors’ debt.  No good reason, in my opinion, has been shown why in justice the Court should not so accept the judgment as evidencing a true debt.  The history of the matter, and in particular the factual circumstance of the offering of a cheque for $25,000, tells very strongly in favour of the petitioning creditors’ claims.

28                  I am satisfied of the other matters of which the Act requires proof.  I make a sequestration order against the estate of David Parkinson.  I order that the costs of and incidental to this petition, including reserved costs, be taxed and paid in accordance with the Act.

Associate:

Dated:              27 June 2000