CATCHWORDS BANKRUPTCY - Practice and procedure - costs - bankruptcy notice set aside by consent - judgment obtained against debtor personally where debt owing by company - refusal to agree to have judgment set aside - judgment creditor sought to enforce judgment with full knowledge of background circumstances and subsequent events. Re James George McFarlane Ex parte Kelvin Frederick Reid No. QN84 of 1995 Cooper J, Brisbane, 30 August 1995 IN THE FEDERAL COURT OF AUSTRALIA GENERAL DIVISION BANKRUPTCY DISTRICT OF THE STATE OF QUEENSLAND No. QN84 of 1995 RE: JAMES GEORGE McFARLANE EX PARTE: KELVIN FREDERICK REID JUDGE MAKING ORDER:Cooper J. WHERE MADE: Brisbane DATE OF ORDER: 30 August 1995 MINUTES OF ORDER THE COURT ORDERS THAT: 1. By consent, the bankruptcy notice filed 7 February 1995 be set aside; 2. Kelvin Frederick Reid pay the applicant's costs of and incidental to the application to set aside the bankruptcy notice to be taxed if not agreed. 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 QUEENSLAND No. QN84 of 1995 RE: JAMES GEORGE McFARLANE EX PARTE: KELVIN FREDERICK REID CORAM: Cooper J. PLACE: Brisbane DATE: 30 August 1995 REASONS FOR JUDGMENT The judgment creditor, Kelvin Frederick Reid, obtained judgment by default from the Magistrates Court at Southport exercising Small Debts jurisdiction in the sum of $1,800.00 plus costs on 2 March 1993. The judgment debtor, James George McFarlane, failed to attend at the hearing because, it is deposed, he was expecting to be advised of the hearing date by his solicitor. He says this did not occur. In any event, judgment was given in default of appearance. Prior to that point in time there had been filed in the Magistrates Court an application in the nature of a claim against Mr McFarlane which related to a contract for bitumen paving works entered into and performed in November 1991. On 6 November 1992, an entry of appearance and defence was filed in response to the plaint which claimed that the work had been performed for a company, McFarlane Constructions Pty Ltd, and that the plaintiff had not contracted with the defendant, Mr McFarlane, personally. Having looked at the entry of appearance and defence there can be no doubt that it was clearly put in issue in November 1992 that the wrong party had been sued. The position of the judgment debtor throughout has been that the debt was incurred by the company and not by himself, and that position has not changed. Notwithstanding the default judgment, the judgment debtor made three applications to the Magistrates Court to have the default judgment set aside. In the material before the court, there are the bench notes of the Magistrate from which it is seen that the Magistrate in the exercise of his discretion refused to set the judgment aside on the basis of delay in bringing those applications. There has never been any consideration of the matter by a Magistrate on the merits. It is also clear that the parties appeared personally on those occasions and that the judgment creditor resisted any attempt to set aside the judgment which he had the benefit of. On 13 August 1993, the solicitor for the judgment debtor wrote to Mr Reid personally advising that his client was aggrieved with the Magistrate's decision and was prepared to litigate the matter further. Mr Reid was advised that advice had been sought in respect of proceedings to the Full Court of the Supreme Court of Queensland by way of prerogative writ and it was indicated that the costs of such an appeal would be in the vicinity of $10,000.00 which sum seemed wholly out of proportion to a debt claimed of $1,800.00. The letter also requested that to avoid this course, he reconsider his position and voluntarily join with the judgment debtor in setting aside the judgment and allowing the matter to be litigated on its merits before the Magistrates Court exercising Small Debts jurisdiction. That offer was not taken up. In the material before the court, there is an order on the letterhead of McFarlane Constructions Pty Ltd directed to Mr Reid dated November 1991 in respect of paving work, the subject of the debt and judgment in issue. Additionally, an affidavit was filed by a Mr Sorrentino, an employee of the company, confirming that the paving work was done for the company by Mr Reid. In the circumstances Mr Sorrentino's affidavit inferentially supports the position of the judgment debtor that the order was one from the company and that the work was performed for the company. In response, the judgment creditor has filed an affidavit setting out the background. The affidavit contains an obvious error in that Mr Reid speaks of doing the work in 1993. There is no suggestion that the judgment creditor had any direct dealings with the judgment debtor at the time of the placement of the order. So far as the judgment creditor deposes, he was told simply to do the work and furnish an invoice to McFarlane Constructions which he did originally in November 1991. There is nothing in being told that the work was to be done for McFarlane Constructions which would indicate that a personal liability was being accepted by the judgment debtor. The judgment creditor deposes to a series of telephone conversations at a later date wherein it is alleged that the judgment debtor said that the amount owing would be paid. In my view, this is quite consistent with the debt being that of the company. There is no suggestion that there was a fresh consideration or new agreement whereby the judgment debtor agreed to personally pay the monies due. Having regard to the authorities, the case is and would have been in the absence of some agreement of the parties to which I will refer to shortly, one where the court would have gone behind the judgment, and having gone behind the judgment, it is clear on the balance of probabilities that there is in truth and reality no debt due by the judgment debtor personally to the judgment creditor. On the balance of probabilities, the debt was due by the company and arises out of work done pursuant to the work order of November 1991 which is in evidence. On that basis the bankruptcy notice would be set aside. In any event, the parties have agreed that the bankruptcy notice ought to be set aside by consent. The question is one of costs. It was put by counsel for the judgment creditor that costs ought to be paid by the judgment debtor for two reasons. First, the non-appearance of the judgment debtor in the Magistrates Court had allowed judgment to be entered and delay on the part of the judgment debtor had cruelled any application to have the judgment set aside. Second, the failure of the judgment debtor to take proceedings in the Supreme Court as foreshadowed in the letter of August 1992 had left in place a judgment which the judgment creditor was entitled to rely upon and issue bankruptcy proceedings. I do not accept Counsel's submissions. Three attempts were made to set aside the judgment in the Magistrates Court. On each occasion the application was resisted. Having seen the outline of submissions put to the Magistrate, I have some difficulty in understanding why, in the interests of justice, the Magistrate refused to look at the merits. Be that as it may, the judgment debtor attempted to set the judgment aside and it was always open to the judgment creditor to consent to this course. When the letter of 13 August was written and received, logic demanded that $10,000.00 expense over an $1,800.00 claim was not justified as between the parties and that the appropriate course to follow was to set the judgment aside by consent. That course was offered and refused. It then lay within the power of the judgment creditor to either seek to enforce the judgment with the risk, and the obvious risk in the bankruptcy jurisdiction, that there would be an application to have it set aside and to seek to go behind the judgment, or, alternatively, to simply leave the matter lie and not to enforce the judgment, having regard to the known circumstances. The judgment creditor has elected to seek to enforce the judgment by bankruptcy proceedings. He has done so with full knowledge of the background circumstances giving rise to the judgment and subsequent events. It does not sit well with him now to say that there has been some failure on the part of the judgment debtor to avoid cost when there has been a consistent refusal by the judgment creditor to agree to set aside the judgment. In the circumstances, the appropriate order is that the judgment creditor, the respondent to the application, pay the applicant's costs. I order accordingly. THE COURT ORDERS THAT : 1. By consent, the bankruptcy notice filed 7 February 1995 be set aside; 2. Kelvin Frederick Reid pay the applicant's costs of and incidental to the application to set aside the bankruptcy notice to be taxed if not agreed. I certify that this and the preceding four (4) pages are a true copy of the reasons for judgment herein of his Honour Justice Cooper. Date: 30 August 1995 Associate Counsel for the Applicant: Mr D. Kelly Solicitor for the Applicant: P. Dent, Lawyer Counsel for the Respondent: Mr J. Logan Solicitors for the Respondent: Lippiatt & Co. Date of Hearing: 30 August 1995 Place of Hearing: Brisbane Date of Judgment: 30 August 1995