Federal Court of Australia

Sherman v Lamb [2023] FCA 168

ORDERS

THE COURT ORDERS THAT:

1.    A sequestration order be made against the estate of Siobhan Patricia Lamb, the respondent.

2.    The costs of the petition to the credit petitioner, of and incidental to this proceeding, be fix by lump sum by the Registrar if not agreed and paid in accordance with the Bankruptcy Act 1966 (Cth).

The Court notes that there is on the court file a consent of Mr Christopher Baskerville, a registered trustee to act as trustee.

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

REASONS FOR JUDGMENT

(REVISED FROM TRANSCRIPT)

LOGAN J:

1    Mr Sheldon Sherman has presented a creditor’s petition by which he seeks the making of a sequestration order under s 52 of the Bankruptcy Act 1966 (Cth) (Bankruptcy Act) against the estate of the respondent debtor, Ms Siobhan Patricia Lamb. The Court’s power to make a sequestration order on a creditor’s petition is found in s 43(2) of the Bankruptcy Act. Section 52 of that Act is directed to proceedings on a creditor’s petition. Section 52(1) provides:

At the hearing of a creditor’s petition, the Court shall require proof of:

(a)    the matters stated in the petition (for which purpose the Court may accept the affidavit verifying the petition as sufficient);

(b)     service of the petition; and

(c)    the fact that the debt or debts on which the petitioning creditor relies is or are still owing; and, if it is satisfied with the proof of those matters, may make a sequestration order against the estate of the debtor.

The presence of the word “may” in s 52(1) indicates that the power to make a sequestration order is discretionary.

2    The hearing of the petition was adjourned on a number of occasions by registrars after its initial presentation. On 30 November 2022, a registrar adjourned the petition for hearing on 8 February 2023. When the case came on before a registrar that day, the solicitors then acting for Ms Lamb signified that the application for sequestration was opposed. The solicitor concerned did so by reference to a notice in Form 85 specifying grounds of opposition, which had been lodged with the Court at 6.11 pm on 7 February 2023 in conjunction with an affidavit made that day by Ms Lamb.

3    The earlier interlocutory directions had required the filing of any notice of opposition many months earlier. In effect, at the time when it was filed or lodged, Ms Lamb required leave for the filing of a notice of opposition. It is a weakness in the Court’s electronic filing system that there is no filtering by a registry officer or, on reference by a registrar, of documents which have been filed contrary to earlier court directions and which would require a grant of leave. As it transpired, the notice of intention to oppose having been drawn to the registrar’s attention on 8 February 2023, the registrar, as it appears she was obliged so to do, referred the hearing of the petition listed that day to a judge.

4    All these events, in conjunction with the all too familiar unreliability of the means by which the solicitor came to appear that day, namely via Microsoft Teams, resulted in a referral to me as duty judge not being able to be heard until late in the day on 8 February. It was not at all possible, so late it was after yet further difficulties with the Microsoft Teams link, to hear the petition that day or, for that matter, to do other than grant a short adjournment. I should indicate that a longer adjournment was then sought by the solicitors for Ms Lamb. I adjourned the hearing of the petition to today.

5    When the petition was called on, counsel for Ms Lamb, by an interim application filed by leave, applied for an adjournment further of the hearing of the creditor’s petition. Another affidavit of Ms Lamb was filed by leave in support of that application. As it happens, that particular affidavit, read in conjunction with the earlier affidavit made by her and the interlocutory history of the case, together with an affidavit of debt by Mr Sherman filed today, did not persuade me that there was occasion for an adjournment.

6    A registrar had, on 8 December 2022, dismissed an application by Ms Lamb to set aside the bankruptcy notice. It appears to me that, if not from 30 November 2022, most certainly on and from 8 December 2022, Ms Lamb has been alerted to the prospect that the creditor’s petition would be heard on 8 February 2023. She deposed in her second affidavit to the experience of her solicitor proceeding on recreational leave for part of the period which transpired between 8 December 2022 and 8 February 2023. She also deposed, and I made a particular point in refusing this period of a further adjournment, and still do, of taking into account the dreadful circumstance of her experience over this period of advice given to her father of a particularly serious medical condition. I did not doubt, and still do not, that there were all too human, and so very understandable, distractions which that advice occasioned her.

7    Even so, the creditor’s petition proceedings have been on foot since 16 June 2022. The contingency that she may have to show a reason why a sequestration order should not be made started at that time and was made crystal clear when the registrar dismissed the application to set aside the bankruptcy notice. In the ordinary course, petitions have a limited life, a limited currency. It is now past the halfway point in respect of the ordinary currency of a creditor’s petition. Against the particular background of the history of the proceeding and also an assessment of the evidence, it did not appear to me that the case was one where there was sufficient cause for an adjournment beyond the very short adjournment that had already been granted.

8    It is necessary to approach a bankruptcy proceeding in circumstances where, as I am satisfied, an act of bankruptcy has been proved, against the background that there is a public interest in persons who have prima facie committed an act of bankruptcy being subject to insolvency administration. That bespeaks a very focused attention indeed by a respondent debtor on discharging, at an evidentiary level, why it is a sequestration order should not be made. I am quite satisfied that Ms Lamb has had sufficient time to do that. In terms of putting on evidence, whether that evidence persuades me is a subject to which I shall return shortly. For the present, I am satisfied, on the evidence, that she has failed to comply with a bankruptcy notice – in other words, that there is an act of bankruptcy committed. I am also satisfied that the petition has been served. I am further satisfied that the debt on which the petitioning creditor relies is still owing. That requires some further elaboration.

9    In his affidavit of debt this morning, Mr Sherman deposed to transfers having been made to the trust account of his solicitors. He stated that he had been advised by his solicitor and believed to be true that Ms Lamb had made payments into his solicitor’s trust account of $100,000 on the evening of 9 February 2023 and $60,000 on 10 February 2023. He deposed to Ms Lamb’s being indebted to him in the total sum of $301,694.

10    For her part, in her more recent affidavit, Ms Lamb deposed to having made transfers to the solicitor’s trust account but put those transfers in a slightly higher amount. She stated that in total, and at the time of making the affidavit, she had made payments of $200,000 to Mr Sherman. She stated that she had made two separate transfers in amounts of $20,000 and $100,000 on 9 February. She also stated:

These were the maximum transferable amounts I had until yesterday understood that the 64,000 –

I interpolate that was the initial District Court cost debt.

She stated she executed today further transfers in the amount of 20,000 and 60,000 dollars to the solicitor’s trust account.

11    The difference between the account of Mr Sherman and Ms Lamb was not explored further by way of cross-examination of either, but it does not at all follow, in my view, that each is not giving a true and accurate position in their affidavits. It may very well be that there are just different snapshots in time as to when transfers have showed up, for example, in a solicitor’s trust account and when Mr Sherman was given information by his solicitors about what was evident. I am quite prepared to and do act on Ms Lamb’s account as to how much she has sought to transfer. It may just be that the transfers had not shown up at the time Mr Sherman was given advice by his solicitors with respect to the position prior to his deposing as to it. I do note that Ms Lamb has annexed particular banking records which support her account of transfers.

12    Mr Sherman, having mentioned in his affidavit the amounts transferred as he understood the position from his solicitors, also stated:

I reject the respondent’s transfer, as it does not wholly satisfy the debts owed to me by the respondent. I am also concerned that given the respondent’s apparent insolvency, part or all of the sum paid might be recoverable from me by any trustee in bankruptcy appointed to the respondent’s estate in the future.

13    It seems to me that this, in the circumstances as revealed by the earlier affidavit of Ms Lamb, and even taking into account her further affidavit, was a reasonable basis upon which to reject a tender made, as it was, on the very day upon which a creditor’s petition would be heard and in circumstances where, at the very least, on the evidence, there was a basis for the concern as to solvency voiced by Mr Sherman. Further, I am satisfied that the debt to which he deposes is owing and that there has been, in any event, no tender of an amount which would either satisfy it in full or even bring it below a threshold by reference to which a bankruptcy notice and later creditor’s petition might proceed in a court exercising Federal bankruptcy jurisdiction.

14    The overall position, then, is that I am satisfied that the formal proofs, in terms of the commission of an act of bankruptcy, service of the petition and that the debt is still owing, are made out by Mr Sherman. The real question is whether or not, as a matter of discretion, a sequestration order against Ms Lamb’s estate should be made?

15    Mr Sherman conducted the hearing of the petition on the basis that it should be determined by reference to the notice of opposition. In other words, although it was highlighted that it had been filed out of time, it was accepted – as for that matter, so evidently it was on the outline filed on Mr Sherman’s behalf on 8 February – that he should meet the grounds of opposition on the merits. I am quite satisfied that it is in the interests of justice to deal with the creditor’s petition in that manner. Insofar as the same may be necessary, I grant leave to Ms Lamb to file the notice in Form 85 opposing the application.

16    After the initial formal reading of material in support of the creditor’s petition, and after I had refused the application for an adjournment, Ms Lamb’s counsel and solicitors sought leave to withdraw. Ms Lamb came then to act for herself and made submissions in support of the grounds as had been specified in the notice of opposition.

17    As first pleaded, those grounds were:

1.    Pursuant to s 52(2)(a) of the Bankruptcy Act 1996 (the Act), the Applicant is solvent and is able to pay her debts;

2.    The petition is defective as it incorrectly identifies the act of bankruptcy alleged to have been taken by the Respondent;

3.     The filing of the petition by the Applicant is an abuse of process in circumstances where the Applicant was aware that the Respondent had filed a set aside notice in the Sydney Registry of the Federal Court of Australia;

4.    The Respondent has a cross-claim on foot against the Applicant in the Australian Human Rights Commission;

5.     The Applicant has a cross-claim against a third party in which judgement has been awarded in her favour;

6.     The Court should exercise its discretion to go behind the judgement upon which the petition is based and consider whether the amount of the claimed debt as a whole is owed by the Respondent to the Applicant.

18    Not all of these were pressed after amendments. Some of those grounds may be dealt with in short order in any event. The petition is not inaccurate in relation to its identification of the act of bankruptcy. Further, I am quite satisfied from the court record that the petition was filed before an application to set aside the bankruptcy notice was made. Further, and in any event, that application has been dismissed.

19    The reference in [5] to a cross-claim against a third party is a subject best considered in the overall context of whether or not it is that she is solvent. It is not a cross-claim against Mr Sherman. Ms Lamb does allege in [4] that she has a cross-claim on foot against Mr Sherman in the Australian Human Rights Commission. Axiomatically, that is not a claim in a judicial proceeding, only a claim to an emanation of the executive government under statute. That particular claim has yet to be dealt with by the Australian Human Rights Commission.

20    I turn now to consider the subject of solvency.

21    Read together, and in conjunction with court documents in Mr Sherman’s material which give further insight into proceedings in the Queensland Courts, Ms Lamb’s affidavits raise as many questions as they answer in respect of solvency, in my view.

22    As to solvency, s 5(2) and (3) of the Bankruptcy Act provide:

(2)    A person is solvent if, and only if, the person is able to pay all the person’s debts, as and when they become due and payable.

(3)    A person who is not solvent is insolvent.

23    It has been said of the solvency test in the Act that it is a cash flow rather than a balance sheet test. A most helpful collection of pertinent authority in relation to the determination of solvency for the purposes of the Bankruptcy Act and the analogue, s 95A in the Corporations Act 2001 (Cth), is to be found in Murphy J’s judgment in Tarwala v Amirbeaggi as trustee for bankruptcy [2022] FCA 1593, at [18] – [23]:

18    Section 95A of the Corporations Act 2001 (Cth) and ss 5(2) and (3) of the Act enshrine the cash flow test of insolvency: Keith Smith East West Transport Pty Ltd (in liq) v Australian Taxation Office [2002] NSWCA 264; 42 ACSR 501 at [33]. The test involves an assessment of an ability to meet any debts as and when they fall due, which focuses on liquidity and the viability of the person or business. That is appropriate because the words “as and when they become due and payable” requires looking into the future beyond the day on which the question of solvency or insolvency is to be determined: New Cap Reinsurance Corp Ltd (in liq) v Westpac Banking Corp (No 9) [2008] NSWSC 1015; 68 ACSR 176 at [44].

19    Under the cash flow test the debtor’s solvency will depend on whether he or she can pay the debts, not on whether the relevant balance-sheet shows a surplus of assets over liabilities: Bank of Australasia v Hall (1907) 4 CLR 1514 at 1521 (Isaacs J). In general, it will be no answer for a person or company which is unable to meet its debts to say that the person or company’s assets exceed its liabilities overall, as doing so will not satisfy the test of being able to pay debts “as and when they become due and payable”: Re Cube Footwear Pty Ltd [2013] 2 QSC 398; 2 Qd R 501 at [1] (Jackson J).

20    It is not necessary that the relevant person be able to pay all of his or her debts from his or her own moneys. If, having regard to commercial realities, the Court is satisfied that funds can be obtained from borrowings secured on assets, or unsecured borrowings, it may be that the person has funds to pay his or her debts as they fall due and will therefore be solvent: Lewis v Doran (2004) 184 FLR 454 at [116] (Palmer J); Lewis v Doran (2005) 219 ALR 555 at [109]-[112] (Giles JA with whom Hodgson and McColl J JA agreed).

21    Notwithstanding the availability of assets that may be converted into cash whether by sale, mortgage or pledge, they must be able to be realised within a relatively short period of time and be of a certain class in order to establish solvency: Francis v Eggleston Mitchell Lawyers Pty Ltd [2014] FCAFC 18 at [32]-[40] (Rares, Flick and Bromberg JJ). What is a “relatively short time” is not defined, but in Hall at 1543 Isaacs J held that the cash must be realisable “in time to meet the indebtedness as the claims mature”.

22    It is not for the Court to guess when funds may become available. It is for the party bearing the relevant onus to adduce evidence as to the date upon which the funds are likely to become available so that the court may consider whether or not this is reasonable: Big River Group Pty Ltd v Visnic [2010] FMCA 276 at [9].

23    A preponderance of assets over liabilities may not be material to the question of a person’s solvency. While a person’s balance-sheet position may be a useful indicator of solvency, the balance sheet test is only useful as a “rule of thumb”: Quick v Stoland Pty Ltd [1998] FCA 1200; 87 FCR 371 at 380.

24    As has been said, the focus is on liquidity, and the words “as and when they become due and payable” in relation to debts requires looking to the future beyond the day on which the question of solvency or insolvency is to be determined.

25    Ms Lamb is not without assets. She deposed to, and it is not challenged, that she is the owner of two properties, one at Moonee Ponds in Victoria (“the Moonee Ponds property”) the other at O’Sullivan Beach in South Australia (“the O’Sullivan Beach property”). Each of these is subject to a mortgage securing a loan.

26    Ms Lamb stated that the Moonee Ponds property “is estimated to be worth $2 million”. There is no valuation evidence or even, for that matter, a market appraisal which is in evidence which would support that estimation. Ms Lamb stated that the Moonee Ponds property is subject to a mortgage with ING Bank. She stated that approximately $960,000 is owing on that mortgage, leaving an equity which she estimated to be in the order of $1 million. She stated that this property is currently tenanted and that she was receiving rent of $1200 per week for that property. That, I took to be gross rent. I have no evidence at all as to the net amount in respect of the letting of that property. In other words, I have no evidence which would give me an indication of the amount net of rates and maintenance in respect of the property, or, for that matter who is responsible for public utility charges in relation to that property. I do, though, assume in Ms Lamb’s favour that in all likelihood, the tenant is responsible for bearing the public utility charges.

27    The same position obtains in relation to the O’Sullivan Beach property. It is, so Ms Lamb deposed, subject to a mortgage with Westpac Bank. It is said by her approximately $75,000 is outstanding on the mortgage and that she has $425,000 in equity. There is no supporting valuation or even market appraisal, for that matter, in evidence. It is said that it is currently tenanted and that she is receiving $380 per week by way of rent. Once again, I have no evidence as to whether this is gross or net, and I certainly have no evidence of expenses in respect of the property, be they rates or maintenance.

28    Neither do I have any evidence in terms of bank statements as to the amounts currently owing either to ING Bank or, as the case may be, Westpac Bank.

29    In her earlier affidavit, Ms Lamb deposed that she had savings of approximately $70,000. She annexed to that affidavit a redacted copy of her current savings account balance. She also offered the following tabulation of her current financial position:

30    Ms Lamb also stated in her earlier affidavit, at [50] and [51], in respect of costs orders, the following:

50.    Throughout the course of the defamation proceedings, the following costs orders have been made in favour of Mr Sherman:

a.    17,078.48 pursuant to an order of the District Court of Queensland dated 26 April 2022;

b.    $63,759.90 pursuant to an order of the Queensland Court of Appeal dated 30 September 2022;

c.    $145,592.72 pursuant to an order of the District Court of Queensland dated 21 October 2022;

d.    $10,000 pursuant to the Judgement of the District Court of Queensland dated 23 September 2022;and

e.    $795.00 pursuant to an order of the District Court of Queensland dated 18 November 2022.

51.    I have not included these orders in my current financial situation as outlined above, due to the existence of the Appeal proceedings and the fact that these costs orders may be challenged or altered dependant on the outcome of the Appeal.

31    I have mentioned that looking at her earlier and later affidavits raises as many questions as it answers. As I have already mentioned, and notwithstanding her initial statement that she currently had savings of approximately $70,000, it is apparent that she was able in short order to pay $200,000 into the trust account of the solicitors for Mr Sherman. In neither affidavit, though, is there any indication that she has sought to obtain and is able to obtain loan funds which would discharge in full even the amount owed to Mr Sherman.

32    The picture as to liabilities is scant. Ms Lamb deposes to weekly basic living expenses of $1,000, but I have no indication at all as to the instalment amounts on the property loans. It may well be that these are able to be met from the apparently gross rental amounts to which she deposes in her earlier affidavit, but I just have no means of being assured of that on the balance of probabilities on the evidence. In any event, I do not have evidence of her ability to raise further funds at present. It appears that in some way, shape or form, she has been able to raise funds beyond the savings to which she deposed in her earlier affidavit, so it may be that that is the limit of her ability to raise funds.

33    I also note, in terms of assets, that she was able to pay some $35,000 into court by way of security for costs in respect of an application for leave to appeal pending in the Queensland Court of Appeal. Of course, whether or not that is an asset depends on the fate of the leave to appeal proceeding in that court. It will be necessary to make some further reference to that and other Queensland Court proceedings shortly. At the moment, I am left with a feeling that it is just possible that Ms Lamb may be able to raise further funds, having regard to assets mentioned, but I am not persuaded that she has established solvency on the evidence to hand on the balance of probabilities. It may be that that is the result of an absence of necessary focus on the position in which she has found herself in terms of having to resist a creditor’s petition, and certainly since 8 December 2022, but the case is to be decided on evidence, not intuition or mere possibility.

34    Another interrogative note in relation to Ms Lamb’s financial position is sounded by a judgment which she has secured in her favour against a former employer in proceeding number SYG1911/2020 in the Federal Circuit and Family Court of Australia Division 2 (Circuit Court) at Parramatta. On 11 April 2022, Judge Humphreys made the following orders:

1.    A declaration that the respondent contravened s 340 of the Fair Work Act 2009 (Cth) (“the Act”).

2.    That the respondent pay compensation to be determined pursuant to s 545 of the Act for the pain, injury, loss and damage as a result of the adverse action.

3.    An order pursuant to s 545 of the Act that the respondent pay compensation to be determined to the applicant for past and future loss of remuneration which the applicant would have earned had she remained employed by the respondent.

4.    An order pursuant to s 546 of the Act imposing a pecuniary penalty to be determined, upon the respondent as a consequence of the adverse action.

5.    An order pursuant to s 546 of the Act that all pecuniary penalties be paid to the applicant.

6.    Interest is calculated in relation to the amounts payable to be ordered by the court.

7.    Costs are reserved. Any application for costs should be made by way of an application in a proceeding noting the limiting provisions of s 570 of the Act in relation to costs orders.

8.    The matter be listed for Directions at 9:30am on 29 April 2022, noting that the parties are expected to provide to the Court consent orders as to timetabling of evidence.

35    As is apparent on the face of the order, the amounts of compensation and pecuniary penalty and interest are not quantified. It appears that the proceeding was one as between Ms Lamb and a former employer RPS AAP Consulting Pty Ltd (RPS). The worth of the order is therefore uncertain, both in terms of judicial quantification as well as the worth, if any, of RPS in being able to satisfy some or all of the Court’s orders. I have, however, taken into account that she has that judgment in her favour, but its worth in terms of being able to raise any funds at all is moot.

36    As to the complaint before the Australian Human Rights Commission, that complaint is relatively recent, and Ms Lamb herself deposes to the Commission taking some 12 months to deal with such complaints to finality. Even if the Commission did, it is axiomatic that the Commission is not empowered constitutionally to exercise Commonwealth judicial power. Whatever wrong has been done in relation to the matters the subject of the complaint may have to be determined at some later stage by an exercise of judicial power either by this Court or the Circuit Court. For the present, the worth of that particular complaint is completely moot.

37    Ms Lamb also secured, at one stage in the proceedings in the Queensland District Court as between Mr Sherman and her, a costs order in her favour. There have been others, including that which grounds the bankruptcy notice, made against her. However, on the material to hand, I am just ignorant of the quantification or assessment of the costs order made in her favour. The position is different in relation to the costs orders against Ms Lamb in favour of Mr Sherman. They have been assessed. The judgment which grounded the bankruptcy notice was in respect of interlocutory costs orders in the amount of $64,468.14. The overall debt, which I have already mentioned, is entirely grounded in that and other costs orders.

38    The debt the subject of the bankruptcy notice arises from an order by Judge Porter KC in the District Court on 14 August 2021 (see Sherman v Lamb [2021] QDC 192).

39    There was a subsequent challenge in the Queensland Court of Appeal in respect of a costs order made in the District Court. That court costs order, as is evident from the judgment of the Queensland Court of Appeal, Lamb v Sherman [2021] QCA 290, arose in circumstances where the District Court proceeding, which was one where damages were claimed in respect of alleged defamation, had been set down for trial for several days. Ms Lamb had applied to have the statement of claim struck out and for judgment in the proceeding, or alternatively to have certain parts of the proceeding struck out. That application was dismissed. She was ordered to pay the costs of it. It was against that costs order that she appealed to the Court of Appeal.

40    The overall background to that proceeding – and, I have no doubt, to the present – is, at the most general level of abstraction, a breakdown in a relationship as between Mr Sherman and Ms Lamb. One manifestation of that was what was said to be a defamatory statement made to an officer of the New South Wales Police by way of a complaint by Ms Lamb to the police officer. Mr Sherman had pleaded in the District Court that her complaint to police defamed him. The details are set out in the Court of Appeal’s judgment. It is not necessary to reproduce those further. It is also necessary to note that the District Court defamation claim did proceed to trial and was the subject of some findings in Mr Sherman’s favour, which saw an award of damages of $10,000 together with costs.

41    The controversy in the Court of Appeal was resolved in Mr Sherman’s favour. It centred around, it seems, a use, or rather alleged misuse, contrary to an implied undertaking in matrimonial causes proceedings, of a letter and certain other information. McMurdo JA observed at [28] in the Court of Appeal:

28    The use, or proposed use, of this letter and the information within it could be said to be an abuse of process, if at all, only on the basis that it would bring the administration of justice into disrepute. In my conclusion, it is not demonstrated that it would do so. Saying nothing about the underlying merits of Mr Sherman's case, in my opinion his use of the letter could not be said to prevent or stultify the fair and just determination of this case in the District Court.

The other members of the court, Daubney and Boddice JJ, agreed with his Honour. The end result was that the appeal was dismissed with costs.

42    It is contended by Ms Lamb that there is nonetheless occasion for going behind the judgments in the Queensland Courts which have resulted in costs orders in her favour.

43    That there is power on the hearing of a creditors petition for a court of bankruptcy to go behind the prima facie existence of a debt evidenced by judgment of another court – or even, for that matter, this Court – is not in doubt. In Dean v Pepper Finance Corporation Ltd (Trustee) [2016] FCA 648, Katzmann J stated at [43]:

43    The language his Honour used was certainly inapt to describe the statutory task. When a court decides to inquire into the existence of the debt, it does not set aside the judgment; it has no power to do that: Emerson v Wreckair Pty Ltd (1992) 33 FCR 581 (Full Court) at 588. Rather, it “goes round the judgment, and inquires into the subject matter” for the purpose of satisfying itself that the petitioning creditor founds his petition on a “good debt”: In Re Fraser; Ex parte Central Bank of London [1892] 2 QB 633 at 636 (Lord Esher MR).

44    In turn, the subject was one given detailed consideration by Wigney J in Katter v Melhem (No 2) (2014) 319 ALR 646, at [69] – [79]:

[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. While the circumstances in which the court will (2014) 319 ALR 646 at 659 inquire into the validity of a judgment debt are not closed (Commonwealth Bank of Australia v Jeans [2005] FCA 978 (Commonwealth Bank v Jeans) at [15]) and there is no inflexible rule (Re Wong; Ex parte Kitson (1979) 27 ALR 405 ; Chancliff Holdings Pty Ltd v Bell [1999] FCA 1708 (Chancliff) at [90] ), it is possible to identify a number of guiding principles.

[71]    First, the court looks with suspicion on consent judgments and default judgments: Corney v Brienat 348 per Dixon, Williams, Webb and Kitto JJ citing Latham CJ in Petrie v Redmond (1942) 13 ABC 44 at 48–9 . 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 Brienat 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 Brienat 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 Brienat 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 Brienat 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: Harrison v Charalambous [1999] FCA 902 (Harrison v Charalambousat [9]).

[74]    Where a party challenges a judgment entered on a compromise and that party has acted on the advice of counsel, the judgment will not generally be reopened: Corney v Brienat 357. The presumption in such circumstances is that it is difficult, although not impossible, to impugn the compromise: Harrison v Charalambousat [9]. One instance where the court may go behind a judgment in these circumstances is where both parties knew the original claim was not a bona fide claim and the judgment or compromise was obtained by dishonesty known to both parties: Ex parte Banner; Re Blythe (1881) 17 Ch D 480 (Re Blythe). If, however, counsel had full knowledge of all relevant facts, and no suspicion of unfairness or impropriety in the compromise arises, a court may decline to go behind a judgment submitted to on the advice of counsel: Re A Debtor [1929] 1 Ch 125; Chancliffat [100]; Smith v Abbott, Stillman & Wilson [2007] FCA 1256.

[75]    The fact that the debtor may have been pressured by his legal advisers to compromise the claim, despite the merits of his defence, will not generally be sufficient to warrant going behind the judgment entered pursuant to that compromise. That will particularly be the case where the judgment creditor was unaware of, or was not implicated in, the alleged undue pressure: Harrison v Charalambousat [11]. In that case, Finkelstein J said (at [12]):

[12]    To my mind, what has occurred in this case is not a sufficient basis to go behind the judgment based on the compromise. Although the debtor may have been placed under undue pressure to enter into the compromise, I cannot discern any unfairness or impropriety of such a kind as would justify me in looking behind the judgment. The reality is that the debtor, perhaps through no fault of his own, was placed in a position (2014) 319 ALR 646 at 660 where his commercial interests necessitated a compromise and he agreed to it in accordance with those interests. In one sense the position the debtor found himself in is not very different to the circumstances which other litigants have often had to confront. I do not doubt that litigants regularly compromise actions otherwise than in accordance with the true merits of the claims made, but that is not a sufficient reason to deny efficacy to the agreements to compromise that these litigants reach. It is certainly not a sufficient reason in this case.

[76]    It is implicit in this statement that the mere fact that the compromise may not have been “in accordance with the true merits of the claims made” will not be sufficient to impugn the compromise. Such a circumstance alone will therefore not warrant the court going behind 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: Emerson v Wreckair Pty Ltd (1992) 33 FCR 581 at 589; 109 ALR 539; Olivieri v Stafford (1989) 24 FCR 413 ; 91 ALR 91 (Olivieri v Stafford ) at 431–2 per Gummow J; Re Cosimo Longo Ex parte: Cosimo Longo [1995] FCA 1324 at [23]–[25]; Cumins v DCT (2008) 172 FCR 425; [2008] FCAFC 185 at [7]–[10]; Re Riviere; Ex parte Original Mont de Piete Ltd (1919) 20 SR (NSW) 77 at 83–4 (Re Riviere).

[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: Commonwealth Bank v Jeansat [18]–[21]; Olivieri v Staffordat 424 per Beaumont J.

[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: see for example Commonwealth Bank v Jeans. Once the court decides that it will go behind the judgment “the whole [of the] matter is open”: Corney v Brienat 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. There has to be found, on the evidence, some occasion, though, for going behind the debt as evidenced by judgments.

45    In short, there has to be found, on the evidence, some occasion, though, for going behind the debt as evidence by judgments. It seems to me that, on the evidence to hand, whatever use or misuse of a letter or information occurred in District Court proceedings has already been explored or taken into account by the Queensland Court of Appeal. I do not see anything beyond that which would warrant, on the evidence upon which Ms Lamb relies, occasion for going behind any costs judgment. They look to me nothing more than discretionary value judgments where costs have followed the event. There is certainly no reason for going behind the judgment of the Queensland Court of Appeal, which dismissed with costs her appeal.

46    As to the substantive judgment in the defamation proceedings, that is the subject of an as yet unresolved application for leave to appeal to the Queensland Court of Appeal. Whether or not that court would be disposed to grant leave is moot. The sum involved in the damages award is quite modest. Submissions have been made already in writing by the parties, but quite when the leave application would be heard is not apparent from the material in evidence. What is apparent is that the submissions for Ms Lamb have been authored by senior and junior counsel instructed by solicitors. I have no evidence as to whether either counsel or solicitors are acting pro bono for her. In turn, that sounds a yet further interrogative note as to whether I have been given any or at least any full picture by Ms Lamb as to amounts owed in respect of costs as between the solicitor and client, including outlays.

47    It only comes to this. Whilst I accept that it is an open-ended discretion, ultimately, as to whether or not to make a sequestration order, Mr Sherman, as petitioning creditor, has proved the necessary formal elements. I am not satisfied, on the evidence, that Ms Lamb is solvent. As I have already mentioned, it is possible, but speculative, that she may be. Such is the ultimate breadth of discretion, it may be, if I were disposed to see the case as one where there was occasion for going behind judgments in the Queensland Courts, that even that possibility, in conjunction with the occasion for going behind, might persuade me not to make a sequestration order. I remind myself, though, that a countervailing consideration is the public interest in person who is prima facie insolvent, having committed an act of bankruptcy, being under insolvency administration. In summary:

(i)    I am not satisfied that there is occasion to exercise a discretion not to make a sequestration order.

(ii)    I am not satisfied on the balance of probabilities, on the evidence, that Ms Lamb is solvent.

(iii)    I am not satisfied that there is occasion to go behind any judgment in respect of costs or otherwise against her in the Queensland Courts.

48    The end result, then, is that I am satisfied that the act of bankruptcy is proved and of all other necessary proofs required by s 52(1). I make a sequestration order against the estate of Siobhan Patricia Lamb, the respondent.

49    I have expressly taken into account, even though that be but assertion, that the making of a sequestration order may adversely affect employment and, related to that, a security clearance apparently possessed or necessary on the part of Ms Lamb. In my view, that does not itself, having regard to the other matters mentioned, provide occasion not to make a sequestration order. There are orders accordingly.

Associate:    

Dated:    3 March 2023