FEDERAL COURT OF AUSTRALIA

Ramsay Health Care Australia Pty Ltd v Compton [2015] FCA 1207

THE COURT ORDERS THAT:

1.    The parties are to bring in Short Minutes of Orders to give effect to these reasons within 14 days.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

1    In June 2015 there was filed in this Court a Creditor’s Petition. The petitioning creditor is Ramsay Health Care Australia Pty Ltd (“Ramsay Health Care”). The Respondent is Adrian John Compton. Ramsay Health Care’s Petition maintained that Mr Compton owed it $9,810,312.33, that amount being the amount of a judgment entered pursuant to orders of the Supreme Court of New South Wales (the “Supreme Court”).

2    Mr Compton was a director of Compton Fellers Pty Ltd, which formerly traded as MediChoice. The company is now in liquidation. It acted as a distributor to co-ordinate the procurement, logistics and inventory management of medical non-consumable products for use in hospitals operated by the Ramsay group of companies. Mr Compton had signed a guarantee.

3    A Notice stating grounds of opposition to the Creditor’s Petition was filed on 7 July 2015. Mr Compton opposes the Creditor’s Petition upon the basis that no debt “is or was really owed” to Ramsay Health Care and that the Court ought to exercise its discretion to go behind the judgment upon which the Petition is based.

4    On 7 July 2015 there was also filed in this Court an Interim Application seeking (inter alia) an order that this Court exercise its discretion to “go behind” the Supreme Court judgment.

5    The Interim Application is to be dismissed.

6    It is concluded that this Court should not “go behind” the Supreme Court judgment.

The factual basis upon which Compton proceeds

7    In March 2015 his Honour Justice Hammerschlag, a Judge of the Supreme Court of New South Wales, entered judgment against Mr Compton in the sum of $9,810,312.33: Ramsay Health Care Pty Limited v Adrian Compton [2015] NSWSC 163. That judgment followed a three day hearing.

8    The evidence filed in that proceeding included:

    an affidavit of the Group Financial Controller for Ramsay Health Care, Mr Michael Hirner, sworn on 29 September 2014 attempting a quantification of the amounts owing and the integers to be taken into account and concluding that as at that date the amount outstanding was $6,892,946.29;

    an affidavit of the Distribution and Warehouse Manager of a wholly owned subsidiary of Ramsay Health Care, Mr Affan Shoaib, sworn on 29 September 2014, which attempted a quantification of what were referred to as “rebates” and concluded that as at that date the sum of $6,142,072.17 remained outstanding;

    an affidavit filed on behalf of Mr Compton, being an affidavit of Ms Anna Stevis which calculated the amount owing to Ramsay Health Care at $2,264,824.17; and

    an affidavit of Mr Compton, sworn on 24 November 2014, which dealt with his medical condition and with “the alleged guarantee”.

Although filed and served, such evidence was not relied upon. Ms Stevis, apparently, was available to be cross-examined should the decision have been made that her evidence was to be relied upon. She was said to have been present in Court throughout the hearing. Notwithstanding the availability of such evidence, the basis upon which the Supreme Court proceeding was conducted was confined to the question of whether Mr Compton was bound by the guarantee signed by him in November 2012. He maintained that he did not sign the guarantee and also advanced a defence of non est factum. Indeed, it is perhaps curious that such evidence was filed given the fact that during the course of a directions hearing previously held on 25 July 2014 Counsel for Mr Compton sought a hearing date because:

    the case was said to involve “an extremely narrow issue which is simply whether or not Mr Compton signed a guarantee…”.

But that curiosity may be left to one side.

9    The evidence that was relied upon before the Supreme Court also included:

    an affidavit sworn by Mr Compton on 24 November 2014 in which he gave evidence as to the circumstances in which the guarantee was signed – but which said nothing as to the quantum of any monies owing in the event that the guarantee could be enforced; and

    a Certificate of Debt given pursuant to cl 12 of the guarantee, certifying that as “at 18 February 2015 the amount payable to Ramsay in connection with the Guarantee totals $9,810,312.33, calculated as set out in the attached Schedule”. The Schedule set forth a calculation based upon invoices, rebates, exchange rate variations and the like. The Certificate was admitted without objection. Clause 12 provided that such a certificate was to be “taken to be correct unless the contrary is proved”.

Notwithstanding the evidence that had been filed by both Ramsay Health Care and Mr Compton going to the quantum of any liability for which Mr Compton was said to be liable, his Honour’s reasons note that “[q]uantum is not in dispute”: [2015] NSWSC 163 at [6].

10    But the quantum of any indebtedness was sought to be put in issue in this Court. Before this Court, Senior Counsel on behalf of Mr Compton relied upon what was said to be a “reconciliation” of the extent of any indebtedness. That “reconciliation” provided as follows (without alteration):

The factual detail that lay behind this “reconciliation” was to be found in the evidence primarily of Ms Stevis and Mr Hirner. Senior Counsel for Ramsay Health Care did not put in issue the proposition that those factual details resulted in the calculations undertaken in that “reconciliation”. What was not accepted on behalf of Ramsay Health Care was the factual accuracy or reliability of those details.

11    If accepted, what the “reconciliation” exposed – according to Senior Counsel for Mr Compton – was the fact that:

    the amount said to be owing was an amount less than the amount for which judgment has been entered by the Supreme Court;

and, moreover:

    if anything, Ramsay Health Care was the entity said to be owing monies.

Senior Counsel for Ramsay Health Care accepted that:

    the “reconciliation” was basically correct down to the line disclosing the amount payable to it being in the sum of $20,881,015;

    the indebtedness of Mr Compton was for an amount less than the judgment amount; and

    it was an “open question” as to whether the calculations thereafter set forth in respect to “offsets”, “rebates” and the like were factually correct.

The primary line of opposition pursued on behalf of Ramsay Health Care was that the circumstances in which the discretion to “go behind” the Supreme Court judgment were not enlivened or, alternatively, as a matter of discretion this Court ought not do so.

12    The evidence filed in this Court included:

    an affidavit of Mr Hirner, sworn on 17 September 2015, recording an analysis of invoices which have not been paid by Ramsay Health Care and accepting that in any proof of debt “the amount of the unpaid and undisputed invoices outstanding ... would need to be set off by the relevant liquidator and trustee”. The amount of those invoices totals $3,431,604.20; and

    an affidavit of Ms Stevis, affirmed on 4 September 2015, stating that “Ramsay owes MediChoice at least $2.449 million”.

A number of investigations and inquiries as to the competing claims being made have been conducted and are still being undertaken. One such investigation was initiated in December 2014 when Ramsay Health Care requested that KPMG “undertake an independent assessment”. The liquidators of MediChoice continued that investigation into 2015.

The principles to be applied

13    The circumstances in which a Court may “go behind” a judgment relied upon in bankruptcy proceedings have been well canvassed. The seminal decisions include Corney v Brien (1951) 84 CLR 343 and Wren v Mahoney (1972) 126 CLR 212. Many decisions have since applied these authorities and earlier English decisions.

14    One such decision of this Court is Ahern v Deputy Commissioner of Taxation (QLD) (1987) 76 ALR 137 (“Ahern”). Davies, Lockhart and Neaves JJ there stated the position to be as follows:

It is well established that a court exercising bankruptcy jurisdiction has undoubted discretion to go behind a judgment, particularly one obtained by default or compromise or where fraud or collusion is involved and inquire whether the judgment is founded on a real debt: Corney v Brien (1951) 84 CLR 343. Where the judgment is by default the court will go behind the judgment if there is a bona fide allegation that no real debt underlies the judgment: Corney v Brien. Even where the judgment was obtained following a hearing on the merits where both parties appeared, if there are substantial reasons for questioning whether behind the judgment there is in truth and reality a debt due to the petitioning creditor, the court will go behind the judgment and inquire into the consideration for it: Wren v Mahony (1972) 126 CLR 212 per Barwick CJ, with whose reasons Windeyer and Owen JJ agreed; Menzies and Walsh JJ dissenting. Barwick CJ said (at 224):

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 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 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 also well established that in general a court exercising jurisdiction in bankruptcy should not proceed to sequestrate the estate of a debtor where an appeal is pending against the judgment relied on as the foundation of the bankruptcy proceedings provided that the appeal is based on genuine and arguable grounds …

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 change of status and has quasi-penal consequences: (1987) 76 ALR 137 at 147 to 148.

In the present case, particular emphasis was sought to be placed by Senior Counsel for Mr Compton upon the observations of Barwick CJ in Wren v Mahoney (1972) 126 CLR at 224. See also: Re Hughes; Ex parte Geo M Hume Pty Ltd [1997] FCA 680 per Merkel J.

15    Reference should also be made to the decision of Hely J in Commonwealth Bank of Australia v Jeans [2005] FCA 978. The debtor had there unsuccessfully sought to withdraw an admission that he had duly executed a guarantee. In rejecting a submission that there had not been a “fully contested hearing” such that the Court should “go behind” the judgment, his Honour concluded:

[17]    The debtor, on the other hand, contends that there has not been a fully contested hearing on the merits because the debtor was precluded from raising as an issue in the proceedings his contention that he did not sign the guarantee (on p 12) as guarantor. It is submitted that, upon this aspect, the case is analogous to a default judgment, and substantial reasons have been given for questioning whether there really was a debt due to the petitioning creditor.

[18]    In my view, the circumstances of this case are far removed from a case in which a judgment is entered by default. There was a fully contested hearing … on the issue of the debtor’s liability under the guarantee, after the debtor had a reasonable opportunity to raise whatever grounds he wished to rely upon to resist the Bank’s case based upon the guarantee. As is always the case, the scope of the contest was determined by the respective cases put forward by the parties, who are ordinarily bound by the way in which they have chosen to conduct the proceedings.

…

[20]    … The debtor’s submission that he was prevented ‘for procedural reasons’ from raising the issue of non-execution is not a fair reflection of why the debtor was not permitted to raise that issue.

[21]    In my view, the fact that the debtor was shut out from raising the defence on which he now seeks to rely because the proper administration of justice so required provides an insufficient foundation for this Court to go behind a judgment regularly obtained. I acknowledge that in Wren v Mahoney Barwick CJ said (at 224) that whether the Court of Bankruptcy will consider ‘whether there is a satisfactory proof of the petitioning creditor’s debt’ is not a mere matter of its own discretion. Indeed, the circumstances may be such that the Court must exercise its power to look at what is behind the judgment. However, for the reasons which I have given, this is not such a case.

[22]    Therefore, I decline to exercise my discretion to go behind the judgment on which the petition is based, and I determine the preliminary question accordingly …

(Emphasis in original)

16    The earlier decisions have also been more recently reviewed by Wigney J in Katter v Melhem (No 2) [2014] FCA 1176, (2014) 319 ALR 646. His Honour there helpfully summarised the principles to be applied as follows:

Relevant principles — “Going behind” a judgment

[69]    The existence of a judgment is prima facie evidence of a debt: Corney v Brien (1951) 84 CLR 343 at 355; [1951] ALR 525 (Corney v Brien) per Fullagar J. However, a judgment is never conclusive in bankruptcy and the court has a discretion to “go behind” the judgment to investigate whether there was a good debt to support it: Corney v Brien at CLR 347 per Dixon, Williams, Webb, Kitto JJ, at 353–4 per Fullagar J.

[70]    The court will not, however, inquire into the consideration for a judgment as a matter of course: Wren v Mahoney (1972) 126 CLR 212 at 222–3; [1972] ALR 307 per Barwick CJ. Whilst the circumstances in which the court will inquire into the validity of a judgment debt are not closed … and there is no inflexible rule … it is possible to identify a number of guiding principles.

[71]    First, the court looks with suspicion on consent judgments and default judgments … Where the judgment in question is a default judgment, 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: Corney v Brien at 357–8 per Fullagar J.

[72]    Second, if the judgment in question followed a full investigation at a trial at which both parties appeared, the court will not reopen the matter unless a prima facie case of fraud or collusion or miscarriage of justice is made out: Corney v Brien at 356–7 per Fullagar J. In Re Flatau; Ex parte Scotch Whisky Distillers Ltd (1888) 22 QBD 83 at 86, Fry LJ said: “this power has never, so far as I am aware, been extended to cases in which a judgment has been obtained after issues have been tried out before a [c]ourt”. In Corney v Brien, Fullagar J said (Corney v Brien at 358) that he had not been able to find any such case since Fry LJ made this statement in 1888.

[73]    Third, where judgment has been entered in pursuance of a compromise, grounds must be shown for challenging the compromise before the subject matter of the judgment will be reopened: Corney v Brien at 357 per Fullagar J. That is because it is the compromise and not the claim that was compromised that is the foundation of the judgment …

…

[77]    Fourth, the court should not go behind a judgment where the grounds upon which the judgment is challenged are such that, if accepted, they would only support a finding that the amount of the debt be reduced and would not support a finding that there was, in truth, no debt at all …

[78]    The particular circumstances of any given case may no doubt throw up other considerations relevant to whether the court should exercise its discretion to go behind a judgment. Where the judgment debtor seeks to go behind the judgment on particular grounds, it is difficult to see why it would not be a relevant consideration that those grounds could have been, but were not, raised in opposition to the judgment, or in an application to set aside the judgment. Parties are ordinarily bound by the way they have chosen to conduct litigation. The fact that, for whatever reason, a party did not put particular arguments before the court that made (or refused to set aside) the judgment does not mean that there was no relevant hearing on the merits …

[79]    The question whether the judgment is to be reopened or “gone behind” at all will usually involve some preliminary investigation of the merits of the attack of the judgment: Corney v Brien at 358. That question can and often is dealt with as a preliminary question … Once the court decides that it will go behind the judgment “the whole [of the] matter is open”: Corney v Brien at 358. Where it is legitimate to go behind a judgment entered after trial, there would effectively be no alternative but to retry the whole case.

The discretion exercised

17    It is concluded that in the present case this Court should not “go behind” the judgment of the Supreme Court for either of two reasons, namely:

    the circumstances in which the discretion should be exercised have not been enlivened; and/or

    as a matter of discretion, the Court ought not to do so.

To a large extent these two reasons tend to overlap.

18    As to the former reason, it would be a mistake to construe the phrase “fraud, collusion or miscarriage of justice” as artificially confining the circumstances in which the discretion to “go behind” a judgment may be exercised. That phrase, as employed by Wigney J in Katter [2014] FCA 1176 at [72], (2014) 319 ALR at 659, picks up the observations to the same effect as made by Fullagar J in Corney v Brien where his Honour said:

… If the judgment in question followed a full investigation at a trial on which both parties appeared, the court will not re-open the matter unless a prima-facie case of fraud or collusion or miscarriage of justice is made out … (1951) 84 CLR at 356 to 357.

Cases of “fraud” or “collusion” may presently be left to one side. The true width of the observations of Fullagar J may, obviously enough, depend upon the breadth of operation of the phrase “miscarriage of justice”. But the manner in which his Honour there expressed himself, with respect, should not be construed as an exhaustive statement of the circumstances in which the discretion may be enlivened. As Wigney J correctly observed in Katter ([2014] FCA 1176 at [70], (2014) 319 ALR at 658 to 659), the “circumstances in which the court will inquire into the validity of a judgment are not closed…”.

19    The concern of the Court, it is considered, must constantly remain whether it is just to permit a judgment debtor to “go behind” a judgment and attempt to show that there is “in truth and reality” no debt due to the petitioning creditor: Wren v Mahoney (1972) 126 CLR at 224. Bankruptcy, it must constantly be recalled, “is not mere inter partes litigation”: Ahern (1976) 76 ALR at 148. The different expressions employed by different Judges are an attempt to identify those circumstances in which it is just to permit a judgment debtor to do so.

20    In the circumstances of the present case, it is respectfully concluded that no circumstances have been exposed which would make it just to “go behind” the judgment of the Supreme Court. Even if it be accepted that the “reconciliation” relied upon by Mr Compton raises an “open question” as to the extent of any liabilities that may be owed either by Mr Compton to Ramsay Health Care or by Ramsay Health Care to Mr Compton, the discretion to “go behind” the judgment is not enlivened in circumstances where:

    Mr Compton was represented by Counsel in the proceeding in the Supreme Court;

    there was available evidence that had been filed in that Court addressing the quantum of any liability that may be owed; and

    a forensic decision was made to confine the issue to be resolved by that Court to the enforceability of the guarantee.

Moreover, and even though Mr Compton had not attempted in his affidavit filed in that proceeding to put in issue the quantum of any liability:

    no prejudice was occasioned by his inability to attend the Supreme Court proceeding and be cross-examined on his affidavit. The transcript of that proceeding records the fact that Senior Counsel for Ramsay Health Care consented to his affidavit being relied upon.

The observations of Barwick CJ in Wren v Mahoney, it is respectfully considered, are not to be read as any qualification to the statement of general principle as formulated by Fullagar J in Corney v Brien.

21    In such circumstances, there has been no “miscarriage of justice” and no “injustice” in holding Mr Compton to the manner in which he conducted his proceeding in the Supreme Court.

22    Even if this conclusion be erroneous, the discretion to “go behind” the judgment of the Supreme Court would not have been exercised in favour of Mr Compton. The decision to refuse to exercise that discretion in his favour is founded upon:

    the same considerations that have dictated the former conclusion;

together with such further considerations as that:

    the factual materials upon which the “reconciliation” has now been carried out were available to Mr Compton at the time of the Supreme Court hearing. The “reconciliation” now available to this Court could have been undertaken – either in whole or in part – and presented to the Supreme Court for consideration. Although that factual material may have been available as at the date of the Supreme Court hearing, it must nevertheless be recognised that what was not available at that time were the subsequent inquiries and expressions of opinion by the liquidators of MediChoice – including an opinion expressed in May 2015 that the liquidator was “currently in the process of completing my investigations into the Company’s affairs” and that “based on investigations completed to date, I consider the indebtedness of the company to Ramsay is likely to be a figure significantly less than the amount of the judgement, and there is a prospect that Ramsay may in fact be indebted to the Company”; and

    no explanation has been advanced on behalf of Mr Compton as to why the quantum of any indebtedness was not put in issue before the Supreme Court or why the “reconciliation” now available was not previously undertaken.

Other considerations taken into account when exercising the discretion include:

    the fact that Ramsay Health Care now accepts that the indebtedness is a sum less than $9,810,312.33 but maintains that there remains outstanding an indebtedness of a significant amount;

    reservation as to whether the “reconciliation” provides “substantial reasons for questioning whether behind the judgment there is in truth and reality a debt due to the petitioning creditor”. There remains, for example, a disturbing discrepancy between the evidence of Ms Stevis given in the Supreme Court proceeding and the evidence now given in this Court. The analysis now undertaken by Ms Stevis calculates an amount owing by Ramsay Health Care in an amount of at least $2.4 million. Previously, her evidence in the Supreme Court was that the amount owing to Ramsay Health Care Services was $2,264,824.17. In any contested hearing as to the quantum of any indebtedness, questions would have arisen with respect to the admissibility of her evidence; and

    the fact that there also remain a number of outstanding inquiries and investigations as to the competing claims being made. The relevance of such inquiries and investigations is simply to underline the fact that there is no certainty as to the factual merits of those competing claims and, more relevantly, the absence of any relatively reliable factual foundation to question whether in “truth and reality” there remains a debt owing to Ramsay Health Care, albeit not a debt in the sum of $9,810,312.33 as claimed in the Creditor’s Petition.

Albeit of lesser importance, a further matter of relevance is:

    the fact that Mr Compton has provided no evidence as to his current solvency.

23    In reaching these two conclusions, it is recognised that the fact that there has been “a hearing on the merits where both parties appeared” (Ahern (1987) 76 ALR at 147) does not preclude the exercise of the discretion to “go behind” a judgment. There may also be circumstances where that discretion may be exercised notwithstanding the fact that there has been such a hearing and notwithstanding the forensic decisions that may have been made by the parties as to the issues to be resolved at such a hearing. Cases may arise where, for example, facts later come to light which were not available at the date of hearing. Separate from any analysis of the factual merits of a case, there may also be circumstances in which the facts as found may give rise to a legal issue which was overlooked at the time of hearing and which could potentially have been raised on appeal. But normally a party is bound by the manner in which he conducts a hearing. Such is the present case.

24    As a practical matter, it perhaps matters not whether the ultimate conclusion is best reached by the route of concluding that the discretion is not enlivened by the facts of the present case or whether those facts dictate a conclusion that the discretion – even if enlivened – should not be exercised. The considerations relevant to each route of analysis substantially overlap. Either way, the result is the same.

CONCLUSIONS

25    The application to exercise the discretion of the Court to go behind the Supreme Court judgment is to be rejected. It is concluded that the circumstances in which a Court may normally be called upon to exercise that discretion are not presented or, if the discretion is more unconfined, the discretion should not be exercised.

26    To the extent that it is submitted on behalf of Mr Compton in his written submissions that “it would be a serious injustice to bankrupt Mr Compton in respect of guaranteeing a debt that is not owed and in respect of a judgment that should never have been entered against him”, it is concluded that there would be no “injustice” to Mr Compton. He has participated in a three day hearing before the Supreme Court of New South Wales in circumstances where there was available evidence as to the quantum of any indebtedness in the event that Ramsay Health Care could proceed upon the guarantee executed by him in November 2012. He made a forensic decision not to put the quantum of any indebtedness in issue in circumstances where he was represented by both Counsel and solicitors. And the highest that such evidence as is now available to this Court reaches as to the quantum of any indebtedness is that there remains an “open question” whether there is any indebtedness. Although there are undoubtedly cases where the making of a sequestration order may well be open to question (e.g., Hacker v Weston [2015] FCA 363 at [73]), it certainly cannot be said in the present case that judgment “should never have been entered against” Mr Compton upon the evidence placed before the Supreme Court.

THE ORDER OF THE COURT IS:

1.    The parties are to bring in Short Minutes of Orders to give effect to these reasons within 14 days.

Associate:    

Dated:    11 November 2015