CATCHWORDS BANKRUPTCY ~ creditor's petition - application by debtor for dismissal of petition - petition based on judgment of District Court - proceedings instituted in Supreme Court for relief - whether "sufficient cause" to dismiss petition — circumstances in which Bankruptcy Court will go behind a judgment - whether adjournment should be granted. Bankruptcy Act 1966 ss. 33(1)(a), 52(2)(b). In Re Flatau; Ex parte Scotch Whisky Distillers Ltd. (1888) 22 Q.B.D. 83 Re Basile; Ex parte Ancich (1979) 37 F.L.R. 501 Corney v. Brien (1951) 84 C.L.R. 343 Wren v. Mahony (1971-2) 126 C.L.R. 212 Simon v. Vincent J. O'Gorman Pty Ltd (1979) 41 F.L.R. 95 RE: GERRIT PETRUS JORNA; EX PARTE: WESTPAC BANKING CORPORATION No. P 622 of 1986 Jackson J. Sydney 22 August 1986 IN THE FEDERAL COURT OF AUSTRALIA GENERAL DIVISION BANKRUPTCY DISTRICT OF THE STATE OF No. P622 of 1986 NEW SOUTH WALES AND THE AUSTRALIAN CAPITAL TERRITORY RE: GERRIT PETRUS JORNA Debtor EX PARTE: WESTPAC BANKING CORPORATION Petitioning Creditor CORAM: JACKSON J. DATE: 22 August 1986 PLACE: SYDNEY MINUTES OF ORDER THE COURT ORDERS THAT: l. The application to dismiss the petition be refused. 2. The application to adjourn the petition be refused. 3. The matter be remitted to the Registrar. NOTE: Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules. IN THE FEDERAL COURT OF AUSTRALIA GENERAL DIVISION BANKRUPTCY DISTRICT OF THE STATE OF No. P622 of 1986 NEW SOUTH WALES AND ee eed THE AUSTRALIAN CAPITAL TERRITORY RE: GERRIT PETRUS JORNA Debtor EX PARTE: WESTPAC BANKING CORPORATION Petitioning Creditor CORAM: JACKSON J. DATE: 22 August 1986 PLACE s SYDNEY REASONS FOR JUDGMENT This matter came before me in the Bankruptcy List where the debtor sought to oppose the making of a sequestration order on a creditor's petition. A presiding Registrar's Certificate has not yet been given but the parties were in agreement that I should determine the "questions to which I shall advert below before such a certificate is given, and that if I am against the debtor on those issues, the matter will then go back to the Registrar for that purpose. I should say that the debtor does not contend that the case is one where, on the material before me, a sequestration order might not properly be made. Rather the debtor's first contention is that notwithstanding those matters the case is yet one where, in terms of s.52(2)(b) of the Bankruptcy Act 1966, I should "for other sufficient cause" dismiss the petition. The petition in question is based on failure to comply with a bankruptcy notice, the bankruptcy notice itself being based on a judgment of the District Court of New South Wales given on 3rd October 1984 in the sum of $20,000. The reasons for judgment in the District Court did not become available, it is said, until early 1986 and on 30th July 1986 proceedings were instituted in the Supreme Court of New South Wales by the debtor seeking cancellation of the contract sued on and other equitable relief. I express no opinion on whether in the light of s.6 of the Law Reform (Law and Equity) Act 1972 the relief now claimed might have been relied on in the District Court, as was urged upon me, and I express no opinion on the debtor's prospects of success in the proceedings in the Supreme Court. hy The particular grounds upon which the debtor seeks to establish "other sufficient cause" why a sequestration order ought not to be made are set out in paragraphs 4, 5 and 6 of his affidavit. They are as follows:- "4. At the hearing of the suit I say that certain equitable defences were precluded from me by virtue of the limits of the jurisdiction of that Court. 5. I say that proceedings have been instituted by me in the Supreme Court of New South Wales in suit no. 17689 of 1986 in relation to the contract upon which the Petitioner relied seeking Orders in the Supreme Court for cancellation of the said contract and an Injunction restraining the Petitioner itself from enforcing the District Court judgment in proceedings no. 25409 of 1981 entered on the 21st December 1984. 6. I deny that the alleged debt upon which the Bankruptcy Notice was based was a debt incurred by me and say that the circumstances of the debt was [sic] that of a company of which I was a Director to which the Petitioner bound me in an instrument of Mortgage which was never properly executed or applied and for which there was no real consideration." In my opinion the grounds suggested by the debtor do not constitute "sufficient cause" why a sequestration order ought not to be made against his estate. The case seems to me to fall clearly within the principles exemplified by In Re Flatau; Ex parte Scotch Whisky Distillers Ltd. (1888) 22 Q.B.D. 83, a case concerning a provision in the Bankruptcy Act 1883 specifically giving the Court a discretion to stay or dismiss a petition in the event that an appeal was pending from the judgment forming the basis of the petition. The principles stated in In Re Flatau; Ex parte Scotch Whisky Distillers Ltd. are two, first that the mere fact that an appeal is pending from the judgment which is the basis of a petition is not a sufficient ground for staying the proceedings on the petition and, secondly, that a Bankruptcy Court will not inquire into the validity of a judgment debt as a matter of course, but will do so only when there is evidence that the judgment has been obtained by fraud or collusion, or that there has been some other miscarriage of justice. In relation to the first principle, the approach adopted in In Re Flatau; Ex parte Scotch Whisky Distillers Ltd. was followed in Re Basile; Ex parte Ancich (1979) 37 F.L.R. 501, an additional factor influencing the Court to refuse an adjournment in that case being 'delay in the institution of the appeal. In this case of course there is no "appeal" in the strict sense but there was a delay of over five months in instituting the proceedings in the Supreme Court after, on the debtor's evidence, a copy of the reasons for judgment in the District Court became available to him and I take that factor into account. In relation to the second principle stated in In Re Flatau, clearly this Court has the power to go behind the judgment relied on by the petitioner and inquire whether it is founded on a real debt. See e.g. Corney v. Brien (1951) 84 C.L.R. 343, Wren v. Mahony (1971-2) 126 C.L.R. 212. But as was recognized in Wren v. Mahony (supra) at 222-3, 233 (citing with approval In Re Flatau; Ex parte Scotch Whisky Distillers Ltd.) it is not an inquiry instituted as a matter of course. In particular, as Lockhart J. said in Simon v. Vincent J. O'Gorman Pty Ltd (1979) 41 F.L.R. 95 at 1ll:- "The courts are reluctant to exercise this jurisdiction where the judgment was entered after a full investigation of the issues at a trial where both parties appeared and had ample opportunity to put their case to the court." I consider that the present case is one where I should demonstrate the reluctance to which Lockhart J. referred and I decline to dismiss the petition pursuant to s.52(2)(b). I was asked in the alternative to exercise my discretion under s.33 of the Act and to grant an adjournment of the proceedings pending the outcome of the appeal to the Supreme Court. I decline to exercise my discretion to grant an adjournment for reasons similar to those set out above. I add that the size of the debt now due to the petitioner is not insubstantial being $23,948.00 and remains wholly unpaid. When the matter was last before me I inquired of Mr Bizannes who appeared for the debtor whether, in the event that an adjournment was granted, the debtor would be in a position to pay into Court or provide other security for all or any part of that sum. After a short adjournment Mr Bizannes informed me that he could obtain no instructions to give any such payment or security. In these circumstances I decline the adjournment sought and-remit the matter to the Registrar as sought by the petitioner. I certify that the 5 preceding pages are a true copy of the Reasons for Judgment herein of his Honour Mr Justice Jackson. Associate: Dilarnchenth Dates 22 August 1986 Solicitor for the debtor: Victor A. Bizannes Counsel for the petitioning creditor: Mr G. McVay ' Solicitors for the petitioning creditor: Minter Simpson Date of hearing: 19 August 1986