CATCHWORDS BANKRUPTCY - going behind judgment - default District Court judgment - unsuccessful application to set aside in District Court. ESTOPPEL - Business Names Act (Qld) - effect of registration thereunder. PRACTICE - judgment against two defendants where onty one can be liable, but not both - invalid. RE: JQHN GRATTAN MARSHALL EX PARTE: JAMES HARDIE & COY PTY LTD OLD PET 262 OF 1985 PINCUS J. BRISBANE 8 JULY 1985 IN THE FEDERAL COURT OF AUSTRALIA ) GENERAL DIVISION ) QLD PET 262 or 1985 BANKRUPTCY DISTRICT OF THE SOUTHERN ) DISTRICT OF THE STATE OF QUEENSLAND ) RE: JOHN GRATTAN MARSHALL EX PARTE: JAMES HARDIE & COY PTY LTD PINCUS J. 8 JULY 13585 REASONS FOR JUDGMENT This is a contested creditor's petition in which a judgment debtor, John Grattan Marshall, seeks to have this Court go behind the judgment debt relied on in the petition of James Hardie & Coy Pty Ltd, the petitioning creditor. The circumstances are, perhaps, somewhat urusual in that after 1ssue of the petition, based on the judament, an unsuccessful application was made to the District Court toa set the judgment aside. The grounds of that application included allegations placed before this Court and dealt with below. To that extent, then, the determination of the issue here involves a re-consideration of a matter specifically raised in the District Court. The District Court heard some cross-sxamination, I nave not. On 29 March 1983 the judgment debtor applied cto the petitioning creditor for the opening of a "credit ledger account" in the name "Townsville Pumping & Hydraulics". A credit ledger account had the effect of allowing the proprietor of the firm to pay for goods supplied on order up to "the end of the month following (the) month of delivery". The application ftorm also contained this clause: "I/We agree that 1f, after approval of credit, there 18 a change of name or ownership or the pusiness 15s incorporated as a company the credit facility shall be deemed cancelled unless and until James Hardie & Coy Pty Ltd are notified in writing of such change and approve of same". After the application for a credit facility was accepted, the debtor ordered goods from the petitioning creditor onan order form which he or an employee of his prepared. The form contained, inter alia, the Dusiness name at the top and was signed by the debtor at the foot. Goods were supplied in accordance with the orders, and credit was given in accordance with the credit facility agreement. The debtor says, and it is not disputed, that the judgment debt relates to goods bought from the creditor between January 1984 and April 1984; he says, and 1t 1s disputed, that the goods were bought by a company named Marshall Irrigation Fty td and not by him. It is common ground that tne yoods were ordered in the name "Townsville Pumping & Hydraulic Services" and Ehe judgment debtor had told the creditor, in the application form referred to above, that he traded in that name; the creditor has therefore argued that it was entitled to assume, until distinctly told tc the contrary, that orders received ain that name could be put to the account of the debtor. Presumably the foundation of that argument is that ain the absence of clear notice of the change, the debtor 15 estopped from denying the continuing truth of the assertion in the application form. To meet that, the debtor relies on a number of circumstances. 1. The register kept by the Commissioner for Corporate Affairs, who keeps the records under the Business Names Act 1962 of the State of Queensland records that on 13 July 1983 the debtor ceased to carry on business under the name "Townsville Pumping and Hydraulics Services" and that the company, Marshail Irrigation Pty Ltd, commenced to carry on business on that date, under the same name. There 1S no evidence as to when the Commissioner was told of these alleged changes, but I assume for present purposes that notice was given to his office before the goods 1n question were ordered. Counsel for the debtor submitted that tne entry 1n the register showed that the company traded in the name in question at the relevant dates. The evidence of the contents of the register 15 suggestive rather than conclusive. It is aumprobable, 1n view of the content of the register, that the debtor owned the business in question during the period the goods were order2d, January 1984 to April 1984. But he may have done; there 1s no evidence of any assignment of chattels or other assets to the company, nor that any employee, from July 1983, was paid by the company rather than the debtor. The effect of this registration 15 dealt with further, below. 2. The debtor says that on 30 April 1984 a part-payment of the debt of "Townsville Pumping and Hydraulic Services" was made by the company; this 15 irrelevant, ain view of its date. More generally, the debtor has sworn that "all payments made by the firm Townsville Pumping and Hydraulic Services to the judgment creditor have been on cheques recording that the drawer 1s 'Marshall Irrigation Pty Ltd trading as Townsville Pumping and Hydraulic Services'". That is most unlikely to be true, in view of the admitted fact that the business name was being used by the debtor personally before July 1983. Perhaps the debtor meant to say that all such payments since July 1983 were made by cheques drawn on the company, but I am disinclined to make that assumption in favour of the debtor, since his affidavits contain a:gumentative and loose material, suggestive of a lack of care in their preparation. It should have been a simple matter to show, 1f that was the fact, that before or during the period when the qcoods were ordered the creditor got cheques from the company; in the absence of specific evidence to that effect, I do not propose to take the assertion mentioned, that all payments were made py company cheques, into account in favour of the debtor. 3. The debtor says that the goods in questicn were ordered on forms setting out the name of the company and that was done by stamping on the form, in ink, the words "Marshall Irrigation Pty Ltd (Inc. an Qld.) trading as T'ville Pumping & Hydraulic Services 3/241 Ingham Road, Garbutt, 4814, Qld." A sample of the stamp is produced and 1t shows that the company's name 1s in small print, much smaller than the business name; however, depending on the degree of care with which the stamp was applied, the former would have been legible. The creditor does not deny this evidence, its credit manager saying in paragraph 6 of his affidavit of 15 May 1985 that it was "not clear from the order form" that the company was involved and that "the prominent wording was 'Townsville Plumbing and Hydraulic Services' and that was the onlv account which had been arranged with my company". It as odd that there 1s no explicit evidence that those who received the orders on behalf of the creditor continued to rely on the information 1n the application form referred to above, or that they farled to notice the stamp. In response to this material, the creditor advances some evidence about discussion which, it 1s suggested, led it to believe that the debtor continued to trade in the firm name; that evidence is too vague to be worthy of consideration. To better effect, the creditor relies upon a telex admittedly sent by the debtor's solicitor, Me C.J. Turnbull, dated 4 Fepruary i985. This unequivocally sets out that Mr Turnbull acts for the debtor and seeks an extension of time to pay. Mr Turnbull has sworn that the "offer" in the telex was on behalf of the company but that 1s inconsistent with the plain terms of the decument. The creditor also rélies upon the inference which may be drawn from the fact that its action was undefended. The debtor says that he does not recall being served with the District Court plaint but his Honour Judge McCracken, before whom the debtor was cross-examined, has found that he was and this Court should accept that finding. It follows that the debtor's failure Eo respond to the plaint, particularly when considered with the telex just referred to, weighs against him. On the other hand, there is no reason to doukt the existence of the company nor the fact that, at least close ta the relevant time, 1t had a cheque book. It seems reasonable to anfer that in mid-1983 the debtor decided, to put it in the vernacular, to "trade as a company" and took steps to that end. Something was sought to be made, in the course of addresses, of the registration under the Business Names Act 1962 of the State of Queensland. In this case, the registration is relevant ain favour of the debtor insofar as it increases the probability that the orders in question were in fact, whatever may have been the position ostensibly, given on behalf of the company, Since they were given some months after the date recorded in the reaister as that on which the company commenced trading in the name "Townsville Pumping and Hydraulic Services". The authorities show that in some circumstances registration may be put forward as constituting a representation which may or may not support an estoppel, depending upon whether the party asserting the estoppel relied upon the representation: Press v. Mathers (1927) V.L.R. 326; Re Johnson; ex parte Greendale Engineering and Cables Pty. Ltd. (1967) 11 FP.L.R. 335; and Aikman v. Brown (1973) 1 A.C.T.R. 121. Here, there 1s no evidence that the creditor either relied on the initial registration or was aware of the change in the registration. On the whole. I am satisfied that the allegation that there 1s no real debt 1s made bona fide, in that it has some documentary support. I have recently considered the appropriate test to be applied in deciding whether or not to go behinda default judgment, in Re V. & J. Removals; ex parte Earl and Williams (unreported; 21 June 1985). The Court need not always go behind a default judgment even if a bona fide allegation of no real debt 1s made. Rather, there must be substantial reasons for questioning whether there 1s a debt in truth and reality 'see Barwick C.J. ain Wren v. Mahony (1972) 126 C.L.R. 212 at pp.222, 224-225) and that principle applies, in my view, in all cases, both default judgments and others; however the Court should regard default judgments with more suspicion. In this case, although the judgment arose by default, it was ina sense confirmed upon an application to have it set aside. The fact of the fallure of the application does not preclude this Court from going behind the judgment (Re Johnson; ex parte Greendale Engineering and Cables Pty. Ltd. (1967) 11 F.L.R. 235 at p.341) and the principle enunciated above is, I think, applicable. I have not found it easy to determine what course to take. The debtor's position is an inherently unattractive one, in that, taking his case at its best, he did not clearly draw the attention of the creditor to the important change which had occurred. I donot think the clause mentioned above in the application form, by which the debtor agreed that the credit facility would be cancelled unless the creditor were advised of a change of the ownership of the business, has any real bearing on the question whether the debtor can be heard to say that he did not order the goods. Yet it seems scarcely honest for the debtor to have taken no step to inform the creditor, so far as the evidence shows, other than by use of a stamp in which the company's name epnveared in tiny print. I have, however, come to the conclusion that I should exercise my discretion in favour of the judgment debtor. The factor which tips the balance is that, in my respectful opinion, the judgment entered by the District Court was on any view incorrect. Whether the goods were ordered by the company or by the debtor and whether or not the debtor 1s estopped from asserting the former, a judgment in favour of the creditor against both John Grattan Marshall and "Townsville Pumping and Hydraulic Services" cannot be right. There 15 a faint suggestion that the debtor should be treated as guarantor, in an affidavit by Me Cairns, but otherwise there is no reason to think that both the debtor and the company, Marshall Irrigation Pty Ltd, are liable for the sum in question. Yet that appears to be the effect of the District Court judgment. The name "Townsville Pumping and Hydraulic Services" in the title cannot refer to Mr Marshall himself, who 1s defendant in his own name and must be taken to identify the company, which is registered in the office of the Commissioner for Corporate Affairs as trading in the business name. No doubt the creditor searched before issuing proceedings, in August 1984, and ascertained that, 1f not already aware of the fact. In very similar circumstances, admittedly not una case of high authority, it has been held in Canada that judgment cannot ge against both the individual and the company: M. & M. Insulation Ltd. v. Brown (1967) 60 W.W.R. 115. The conclusion to which I have come, then, 15 that the application to go behind the judgment must succeed and the judgment debtor 15 entitled to an investigation of the question whether the debt exists "in truth and reality". Since, regrettably, that cannot adequately be determined on the written material I have, I must hear counsel as to the procedural orders which should be made to achieve a resolution of the matter. ares rae het ' certify thar this cndthe yp Pages are a true copy of the reasons for judgment herein of His Herour Mr. Justice Pincus J wo SS 4/7/35 sociate Dated Can « 7d *, ' . 1 ' - boat "wan, . - whee Mba ate ole " FEDERAL LAW COURTS *850305* 2437 of 10056 DATACOM INFORMATION SYSTEMS