—— * IN THE FEDERAL COURT OF AUSTRALIA ) GENERAL DIVISION ) QLD. PET. NO. 656 of 1986 BANKRUPTCY DISTRICT OF THE SOUTHERN ) ) DISTRICT OF THER STATE OF QUEENSLAND ) RE: DAVID CATRNS EX PARTE: CHILD & HENRY PUBLISHING PITY. LIMITED SPENDER J. BRISBANE 25 MAY 1987. PEASONS FOR JUDGMENT This 1¢ a contested creditor's petition in which the judqment debtor, David Cairns, seeks to have the Court go behind the judgment debt relied on in the petiticn of Child & Henry Publisning Pty. Limited, on the ground that the debt upon which the default judgment was entered and which founds the petition was properly owed by a company, David Cairns and Associates Pty. Ltd. and not by David Cairns. On 26 September 1983, Child & Henry Publishing Pty. Limited obtained judgment in the sum of $63,540.43 and $359.00 costs against the judgment debtor in the Supreme Court of New South Wales. A Bankruptcy Notice in respect of the total of that amount was issued out of the Bankruptcy District of the Southern District of Queensland on 15 November 1985. An affidavit of service deposing to service of that Bankruptcy Notice on 9 March 1986 at an address in Cleveland, Brisbane, is sworn to. On 20 June 1986, one Bernard Luton deposes to the fact that no affidavit of counter-claim, set-off or cross-demand has been filed nor has there been a securing of the sum referred to in the Bankruptcy Notice to the satisfaction of the Court. nor any application in that regard. There was no application to set aside the Bankruptcy Notice. A Creditor's Petition dated 12 June 1936 was issued out of th fh) Federal Court and an affidavit of service of the petition deposes to service on 1C duly 1986 at the same address in Cleveland. The Creditor's Petition was returnable before the Federal Court on 18 August 1986. On that day a Notice of Intention to Oppoge Petition was filed by leave, notwithstanding the requirements of Rule 209. The affidavit material in suoport of the Notice of Motion to oppose the creaitor's petition was alse not filed until the time of the hearing of the petiticn. That material shows that a company, David Cairns and Associates Pty. Ltd., was incorporated on 21 August 1978, with one of its objects being the importing and wholesaling of books. David Cairns and his wife were the shareholders and directors of that company. Mr. Cairns deposes that in early 1981 at a time when he had known a Mr. Henry for eight or nine years, Henry approached Cairns at 61 O'Connell Terrace, Bowen Hills, which was \ the then place of business of the company, and an agreement was made in relation to the distributorship of books. No written contract containing the terms of that agreement was ever entered into. He says that, at that time, a business card was given to Mr. Henry which is the business card of David Cairns and Associates Pty. Ltd., Importers and Distributors, with David L. Cairns personally named in the lefthand corner. Mr. Cairns says that it was the company which received books, then dastributed them on behalf of Child & Henry Publishing Pty. Limited. He says the company began to experience financial difficulties within the next few months, became indebted to the creditor and, in about December 1981, ceased to trade. Mr. Cairns says that towards the middle of 1982 he first learned that the creditor was looking to Mr. Cairns personally to pay the deht. He claims that at that time he haa never personaliy conducted business with the creditor; the relationship was between the company and the creditor and that he had no personal responsibility for any moneys owing by the company. Mr. Cairns' present claim is therefore not new, but it 1s one which he has, until now, never pursued to a determination. Legal proceedings were instituted by the creditor against David Cairns. His solicitors wrote on 5 May 1983 saying, in part, that the Statement of Claim "...ought more properly he directed to David Cairns & Associates Pty. Ltd. the Company with whom your client Company originally contracted." The material shows that after the letters of 5 May and 19 May 1983, wherein the assertion is made that it is a company debt and not that of David Cairns personally, the solicitors for the judgment creditor wrote to the then solicitor for Mr. Cairns, informing him that, 1f no defence was filed by the end of May, then he had instructions to enter judgment. A judgment in default was obtained in the Supreme Court of New South Wales on 26 September 1983. Mr. Cairns says he was net in a position financially to defend the proceedings. Mr. Cairns says he had no further contact with the judament creditor until in May 1985 he learned from Mr. Henry's wife that the creditor had obtained judgment against Cairns personally. A few hours later, at the Parkroyai Motel in Brisbane, he again says he disputed the debt, that it was a company debt and not a debt which he was personally liable to pay. Mr. Cairns asserts that, although he became aware in May 1985 that the judgment had been esntered against him personally, he did not seek legal redress for the reason that he was not then financially able to doso. It 1s not irrelevant to note, however, that not anly were no steps taken over now more than thre 't years to challenge the judgment against him, or have it set aside, he took no steps in respect of the Bankruptcy Notice, and took no steps concerning the Petition until the hearing of it. Notwithstanding the extraordinary standing-by of the judgment debtor, if there are substantial reasons for questioning whether there is in truth and reality a debt behind the Petition, then the Court will go behind it. Latham C.d., with whom McTiernan and Rich JJ. agreed, said in Petrie v. Redmond [1943] 5t.R.Qd. 71 at pp.75-76:- "The court 15 entitled to go behind the judgment and inquire into the validity of the debt where there has been fraud, collusion or miscarriage of justice ... Also the court looks with suspicicn on consent judgments and default judgments. The Court also strives to prevent creditors frem being defrauded by collusive or dishonest proceedings by friends of the debtor or other people. The Bankruptcy Court does not examine every judgment debt. Special circumstances must be established before it will do so. It 1s impossible to lay down ary general rule." Similariy, un Wren v. Mahony (1972) 126 C.L.R. 212, Barwick C.J. said at 222, in a judgment agreed in by Windeyer and Owen JJ., that the Court will not "as a matter of ccurse inquire into the validity of a judgment debt." Lockhart J. in Simon v. Q'Gorman Pty.Ltd. (1979) 27 A.L.R. 619, which was a default judgment case, said at 633 that the Court "will not inguire as a matter of course" into the validity of the judgment debt. It is therefore necessary to consider whether there are substantial reasons for questioning the existence of the debt. There is in existence a letter on 7 September 1979, some two years before there was any arrangement concerning distribution of books, wherein Mr. Murray Child wrote to Mr. David Cairns, David Cairns & Associates Pty. Ltd., 61 O''Connell Terrace, Bowen Hills. There is the business card in the name of David Cairns and Associates Pty.Ltd. which Mr. Cairns says he gave to Mr. Henry in early 1981. On the other hand, it is clear that the statements of account by the judgment creditor concerning books were addressed in every case to The Proprietors, David Cairns and Associates, 67 O'Connell Terrace, Bowen Hills Q1d.,4006. There are some eight statements of account, twelve credit motes and thirty-one invoices, all of which are addressed to David Cairns and Associates. There ig no evidence that at any tire during the currency of the dealings relating to the distribution of books that Mr. Cairns, or anybody «lse, wrote to, ar contacted, the supplier of books, informing it that the addressee referred to in all the statements of account, invoices and credit notes, was erroneously described and that the books had been received by, and were to be paid for by, a company. Only two payments were made in respect of books supplied by the judgment creditor. The first was in April 1982 for the amount of $6,058.22 drawn on David Cairns & Associates P/L No.2 A/c and the second was on 24 May 1982 for $100.00 drawn on the account of David Cairns & Associates Pty. Ltd.. As noted by Lockhart J. in Simon v. O'Gorman Pty. Ltd. (1979) 27 A.L.R. 619 at 637, (with which observation McGregor J. agreed in Re _ Draper; Ex parte Brosalco Pty.Ltd. (1983) 48 A.L.R. 656 at 661,) "it is not uncommon in business for payments to be made by persons other than those with whom the relevant contract has been made." There 1s, in my view, a document of significant evidentiary value, which is headed "Supply Agreement" dated 21st January 1981. That agreement is said to be between Child & Henry Publishing Pty. Ltd. of 27 King Road, Hornsby, N.S.W. and David Cairns & Associates of 67 O'Connell Terrace, Bowen Hills, Queensland. Mr. Cairns asserts that no entity such as David Cairns & Associates existed, that it was his intention and understanding that the distributor was the company. and further that the Supply Agreement related specifically to two books. This document, in its context of the dealings between the petitioning creditor and Mr. Cairns, evidences that Mr. Cairns, 1n relation to the supply of some hooks from the petitioning creditor, acted on his own behalf and not as an agent for a disclosed principal, David Cairns and Associates Pty.Ltd. The parties are identified in the document as Child and Henry Publishing Pty.Ltd. and David Cairns and Associates. It is signed on behalf of Child and Henry Publishing Pty.Ltd. by Mr. Child. The company name, underneath which is typed William Murray Knox Child, Director, appears on the left of the page, and Mr. Child's signature to the right. Underneath the typed words "David Cairns and Associates" on the left of the page are hand-printed the words "David Cairns", to the right of which appears Mr. Cairns' signature. On May 2, 1985, Mr. Cairns executed a deed. The deed recited:- "WHEREAS : (a) On the Twenty-sixth day of September, 1983 the Supreme Court of New South Wales gave judgment to the Judgment Creditor against the Judgment Debtor for the sum of SIXTY THREE THOUSAND FIVE HUNDRED AND FORTY DOLLARS FORTY THREE CENTS (63,540.43) for claim for moneys owing for goods sold and delivered together with THREE HUNDRED AND FIFTY NINE DOLLARS ($259.00) for casts and interest on the said claim at the rate of 15.5 per centum per annum from the date of judgment until payment. (bp. The Judgment Debtor has acknowledged the debt and has reached certain agreements with the Judgment Creditor as set out herein:-" and there are then set out certain steps. Mr. Cairns says that he signed this deed after Mr. Henry had said to him, "I suggest you sign this otherwise we will bankrupt you immediately and there is nothing you can do about it." He says that he signed because he believed he had "no alternative other than so to do." I cannot help but observe that, had he not signed the deed and bankruptcy proceedings then issued, perhaps the question of the existence of the debt would have surfaced much earlier than it has. Qn the whole of the material, in my opinion, the Court should not go behind the judgment. Far from suggesting that there are substantial reasons for questioning whether there is a debt "in truth and reality", the evidence leaves me with the clear view that Mr. Cairns is really and truly indebted to the petitioning creditor. I will hear the parties further, t cartny rages cre o true Copy oF the reascns for pidernant Rote c" his Honour cam dy (tr Just.ce Sender \ | aot Lis " Associate as § 84