CATCHWORDS Poesy ~ > > F LiMacanae E + J , ort wag ; fe JU aids Vi. Woo ccencveccseeel aoscecesneee Bankruptey - bankruptey petition ~ application that court go behind the judgment - factors relevant in determining whether to go behind the judgment. RE: ALI DAVID EX PARTE: ABDA LAHOOD LOCKHART J. 13 NOVEMBER 1979 IN THE FEDERAL COURT OF BANKRUPTCY BANKRUPTCY DISTRICT OF THE STATE OF } yo. p 1582 of 1978 NEW SOUTH WALES AND THE AUSTRALIAN RN CAPITAL TERRITORY RE: ALI DAVID EX PARTE: ABDA LAHOOD ORDER JUDGE MAKING ORDER: LOCKHART J. WHERE MADE: SYDNEY DATE OF ORDER: 13 NevemacR WT, THE COURT ORDERS THAT: A sequestration order be made against the estate of the debtor. Costs, including reserved costs and the costs of all proceeding pefore Lockhart J. be taxed and paid according to the Act. A draft of this order be Lodged with the Registrar within seven days in accordance with rule 124 (2). IN THE FEDERAL COURT OF BANKRUPTCY ) —— | BANKRUPTCY DISTRICT OF THR STATE OF No. P 1582 of 1978 NEW SOUTH WALES AND THs AUSTRALIAN CAPITAL TERRITORY RE: ALE DAVID EX PARTE: ABDA LAHOOD REASONS FOR JUDGMENT [3 Newen3e% arg LOCKHART J. This is a petition for a sequestration order against the estate of Ali David. The act of bankruptcy on which the petition is founded is the failure of the debtor to comply with the requirements of a bankruptcy notice issued on 26 July 1978 and served on the debtor on 23 August 1978. The bankruptcy notice is based on a judgment obtained by the petitioning creditor, Abda Lahood, against the debtor in the District Court of New South Wales at Sydney on 21 June 1977 in the sum of $5,000.00 together with interest. The debtor opposes the petition on the following grounds:- 1. That the judgment was obtained by the petitioning creditor fraudulently and in bad faith; 2/2 2. That the debtor has instituted proceedings in the District Court to set aside the judgment on the grounds of the petitioning creditor's fraud and deception and the action has not yet been heard or determined by the District Court. The debtor asks this court to go behind the judgment jand to dismiss the petition. The court, on the hearing of a petition has jurisdiction to go behind the judgment on which the petitioning creditor's claim is based in various circumstances. One instance is "where substantial reasons are given for questioning whether behind that judgment there was in truth and reality a debt due to the petitioner": per Barwick C. J. in Wren v. Mahoney (1971-1972) 126 C.L.R. 212 at p. 225, judgment p. 223. The court will not inquire into the validity of a debt as a matter of course. "Circumstances tending to show fraud or collusion or miscarriage of justice or that a compromise was not a fair and reasonable one, in the sense that even if not fraudulent it was foolish, absurd and improper, or resulted from an unequal position of the parties...offer occasions for the exercise by the Court of Bankruptcy of its power to inquire into the consideration for the judgment:" per Barwick C. J. in Wren v. Mahoney (supra) at I refer to what I said on this question in Re Wong; Ex parte Kitson judgment delivered on 22 October 1979, unreported, oe 0/3 The petition first came on for hearing on 27 February 1979 and has been adjourned since then on a number of occasions at the request of the debtor. On 28 September 1979, I specially fixed the petition for hearing on 2 November 1979 to determine the question whether this court should go behind the judgment. I gave directions for the filing and serving of affidavits by both parties, so that this question could be determined, The petitioning creditor commenced proceedings against the debtor in the District Court of New South Wales claiming damages for breach of promise of marriage. The proceedings were defended and heard by Judge Leslie over a period of four days from 21 to 24 March 1977. Both parties were represented by counsel. His Henour reserved his decision and gave judgment on 21 June 1977. There was a substantial conflict of evidence. His Honour rejected the debtor as a witness of truth and believed the petitioning creditor, He delivered a carefully reasoned judgment and awarded the plaintiff $5,000.00 damages. The debtor appealed to the Court of Appeal of New South Wales. The petitioning creditor cross appealed. On 16 December 1977, the Court of Appeal, by consent of both parties, dismissed the appeal and the cross appeal with no order as to costs. The form of consent order was signed by the debtor personally and by the solicitor for the petitioning creditor. wee /4 The only relevant evidence before me is that the debtor commenced proceedings on 7 September 1979 in the District Court of New South Wales against the petitioning creditor alleging that the judgment for $5,000.00 was obtained by the petitioning creditor "fraudulently and against good faith" and that the petitioning creditor "deliberately misled and deceived" the District Court "and concealed from it evidence of a material matter" and that accordingly the judgment should be set aside. Particulars of the alleged fraudulent conduct appearing in the District Court statement of claimare as follows:- "a) That up to the time thet she first had intercourse with the Plaintiff she had not formed any association with any other men, b) That she had not accepted any proposals of marriage whilst living in Lebanon, c) That before she met the Plaintiff she had not gone out with any men, ad) That before having intercourse with the Plaintiff she had never had intercourse with any other man. e) Further that by misrepresentation and implication the general effect and tenor of the Defendant's evidence was that she had never been married previously to her association with the Plaintiff and to the Defendant's own knowledge this was false. £) By reasons of the foregoing fraud and deception the Plaintiff asks this Honourable Court to set aside the judgment dated 21st June, 1977 and to order that the Plaintiff's costs in defending the action be paid by the Defendant, and that the Defendant pay the Plaintiff's costs herein," There is no evidence as to the truth of any of those allegations. : oo e/D -5- In the circumstances the debtor asks the court to go behind the judgment and inquire into the validity of the judgment debt. The following passage from the judgment of Fullagar J. in Corney v. Brien (1951) 84 C.L.R. 343 at p. 356 and 357 is apposite:- "No precise rules exist as to what circumstances call for an exercise of the power, but certain things are, I think, clear enough. If the judgment in question foliowed a full investigation at a trial on 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. In In re Flatau; Ex parte Scotch Whisky Distillers Tta. "(TSEBy 22 Dd, at op. So, Fry Led. said: Whis 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 court", " In Wren v. Mahoney (supra) Menzies J. said at Pe 2353:- " ...it has been repeatedly said that, when a judgment has been given in open court against a person who is representea, it is only in exceptional cases that the Court of Bankruptcy should exercise its discretionary power, See for instance In re Flatau; Ex parte Scotch Whisky Distiiters btd. (188d)22 Q.E.. 83 ; and n re Howell (1915) 84 L.J.K.B. 1399. In the former case Lord Esher H.R. said at p. 85: "It is not necessary now to repat that, when an issue has been determined in any other court, if evidence is brought before the Court of Bankruptcy of circumstances tending to shew that there has been fraud, or collusion, or miscarriage of justice, the Court of Bankruptcy has power to go behind the judgment and to inquire into -the validity of the debt. But that the Court of Bankruptcy is bound in every case as a matter of course to go behind a judgment is a preposterous proposition." «22/6 -6= "Pry L.J. said at p. 86: "It is true that in some cases the Court of Bankruptcy has gone behind a judgment, when it has been obtained by fraud, collusion, or mistake. But 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 court." " Although Menzies J. dissented, together with Walsh J., from the decision of the majority of the court in_Wren v. Mahoney (supra), the passage which I have cited is not inconsistent with the reasons for judgment of Barwick C.J., with whom Windeyer and Owen JJ. agreed, The debtor has not established a prima facie case of fraud or collusion or miscarriage of justice. The judgment entered against him by Leslie J. followed a contested hearing lasting four days with both parties represented by counsel, His Honour reserved his decision and gave full reasons to support the judgment in the petitioning creditor's favour in the sum of $5,000.00, The debtor appealed from the decision of his Honour. It was: dismissed by consent. There is no suggestion that there are any grounds for challenging the agreement reached -by the parties resulting in the dismissal of the appeal and the cross appeal. For these reasons the opposition to he petition fails. Counsel for the debtor contended, in the alternative, that the question whether the judgment was fraudulently obtained should be determined in the District Court as the appropriate forum, rather than this court and that the petition should be adjourned to enable the District Court to hear the action. -7T- I decline to adjourn the petition further, On 28 September 1979, I fixed 2 November 1979 for the purpose of determining the question whether this court should go behind the judgment. I have heard evidence and submissions and decided that I should not go behind the judgment. That is an end of the matter, Further, the petition expires on 5 December 1979 (s. 52 (4) ). It is unlikely that the proceedings in the District Court will be heard and determined by then, The unsuccessful party in those proceedings may appeal, so that for all practical purposes, this court will not know the fate of the proceedings in the District Court before the petition lapses. In my opinion it would not be. proper in all the circumstances to adjourn the petition when the inevitable consequence will be that the petition will lapse. The District Court proceedings to set aside the judgment were not commenced by the debtor until 7 September 1979. It is true that the delay is explained in part by the fact that the debtor applied for legal aid for a new trial of the earlier District Court proceedings and that the application necessarily took some time to be dealt with. It was contended by counsel for the debtor that, if the debtor is made bankrupt, the right of action that he has against the petitioning creditor to set aside the District Court judgment will vest in the Official Receiver as part of his property (s. 581 (a) ) I need not determine whether this contention is correct. 20e/8 Either the right of action will remain vested in the debtor for him to pursue or it will vest in the Official Receiver who may decide whether to continue the action. This alternative ground of opposition to the petivion fails. I am satisfied that the act of bankruptcy relied on in the petition was committed. I am satisfied as to the other matters of which s. 52 (1) of the Act requires proof. I make a sequestration order against the estate of the debtor. JI order that costs, including reserved costs and the costs of all proceedings before me, be taxed and paid according to the Act. I direct that a draft of this order be lodged with the Registrar within seven days in accordance with rule 124 (2). { certify that this and ie +7" preceding pages are a true cory ci Reasons for Judgment herein cf his Honour Mr. Justice Lockhart. LAG LE ihtige "As sociate a thee (GF) | the Dated: /5 Weve " _