Re Ellis, Peter John; Ex Parte Sapphire Excavations Pty Ltd [1997] FCA 873

IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY

BANKRUPTCY DISTRICT OF THE STATE OF VICTORIA VG 7080 of 1997

RE: PETER JOHN ELLIS

DEBTOR

EX PARTE: SAPPHIRE EXCAVATIONS PTY LTD (ACN 062 402 019)

PETITIONING CREDITOR

JUDGE: RYAN J

DATE: 25 AUGUST 1997

PLACE: MELBOURNE

REASONS FOR JUDGMENT HIS HONOUR: There is before the court a creditor's petition seeking a sequestration order against the estate of the debtor, Peter John Ellis. The debtor, in responding to the petition, has invited the court to go behind the judgment on which the debt stipulated in the bankruptcy notice has been founded. That was a judgment of the Country Court of Victoria in proceedings numbered MC 954650 brought by the petitioning creditor, Sapphire Excavations Pty Ltd ("Sapphire") against Glenburn Pty Ltd ("Glenburn") and the debtor, Mr Ellis, who apparently controlled Glenburn. Glenburn had acquired three excavators by paying out a contract between a Mr Gray, or a company controlled by Mr Gray, C J Gray & Son Pty Ltd, and a finance company, Australian Guarantee Corporation Ltd. Subsequently, Gray wanted to regain possession and use of the excavators, and it was agreed that they should be purchased from Glenburn. The purchase price has been a matter of considerable dispute, the debtor asserting it to have been $175,000 and Sapphire and those associated with it asserting it to have been $150,000. Sapphire was incorporated on 9 November 1993, and by agreement became the purchaser of the excavators. It was proposed that $150,000 would be obtained on the security of the excavators from another finance company, Household Financial Services. Apparently that was done, and it further appears that the sum of $150,000 was paid to Glenburn. One of the three excavators, an Excavator 270, was not delivered up by Glenburn because, according to the debtor, of non-payment of the $25,000 being the balance of the agreed price on the version advanced by Glenburn and Mr Ellis. In July 1995, Sapphire commenced the proceedings in the County Court in which the judgment against the debtor was eventually obtained. However, by that time the debtor had been imprisoned as a result of his conviction of an offence arising out of the death of a Ray Wheeler. The debtor sought in the County Court proceedings to agitate a cross-claim in respect of the disputed $25,000. He has also adverted in the affidavits filed on his behalf in the proceedings in this Court to a claim in respect of another item of equipment, a pulveriser, which he has asserted had been stolen by Sapphire or persons associated with it. As well, he contends that he gave instructions for the prosecution of a counterclaim in respect of hire charges allegedly due for the excavators, but that no such counterclaim was ever mounted in the proceedings in the County court. The trial of the County Court action proceeded between 16 January and 19 January 1996. The debtor, although still serving a term of imprisonment, was present on each day of the trial pursuant to a gaol order. Both defendants were represented by counsel and instructing solicitor. Earlier, on 21 August 1995, an interlocutory order had been made by his Honour Judge F B Lewis for delivery up of the Excavator 270 upon payment into court of $25,000 on behalf of the plaintiff, apparently as security for its undertaking as to damages. At the conclusion of the substantive trial on 19 January 1996, his Honour Judge Hanlon gave judgment in the form of a declaration that the plaintiff had unencumbered ownership of the Excavator 270, and awarded the plaintiff's damages of $62,000 together with interest from 17 July 1995, quantified at $4092. The judgment for $62,000 was significantly less than the amount of damages in excess of $200,000 originally claimed in the writ. His Honour also dismissed the counterclaim by Glenburn and the debtor for the allegedly unpaid amount of $25,000. As I have already noted, there seems to have been a continuing dispute between Sapphire and Glenburn and the debtor as to whether the $25,000 contended by the sellers to have been the balance of the price for the excavator was tendered to the sellers on two separate occasions, the first early in April 1994, and the second on 22 April 1994. On the latter occasion it was said to have been tendered in cash by Mr Gray to the debtor, Mr Ellis. According to Mr Freeland, a director of Sapphire, both tenders were refused. Neither defendant appealed against the orders of Judge Hanlon. This was explained in these terms by the debtor in paragraph 17 of his affidavit sworn on 8 July 1997: "Immediately after the hearing, I asked Shacklock [the solicitor for the defendant in the County Court proceedings] to appeal the decision of Judge Hanlon. He told me that I could not appeal. I believe that his reasons were that I did not have the means to fund the appeal." It occurs to me also that Mr Shacklock's advice to the debtor may at least in part have reflected the fact that his Honour's judgment depended very substantially on findings of fact which the Court of Appeal, not having had the advantage of hearing or seeing the witnesses, would be most reluctant to overturn. This court has an undeniable discretion to go behind a judgment of another Court to see whether in truth and reality there is a debt underlying it of a kind which supported the issue of the bankruptcy notice on which a petition for a sequestration order is founded. However, the discretion can be exercised only in exceptional circumstances where the foundational judgment has been entered after a full trial in which both parties have been represented by counsel and solicitors, and there has been a full and proper exploration of the legal and factual issues between the parties. The following observations of a Full Court of this court in Emerson v Wreckair Pty Ltd (1992) 33 FCR 581 at 588 can be paraphrased to apply mutatis mutandis to the present case: "In the present case there had been a full hearing before the District Court at which the appellants and the respondent appeared and were legally represented. All the issues were carefully examined and judicially determined. This is not a case, like many of the cases in this area of the law, where judgment was entered in default of appearance or defence. There may be circumstances which justify, in a particular case, a review of the proceedings in another court which, after a hearing, have resulted in the entry of judgment against a debtor (see Wilkinson v Osborne (1915) 21 CLR 89). For example, if an allegation is made that a judgment has been obtained by fraud, it may be proper for a court exercising jurisdiction in bankruptcy to go behind the judgment to ascertain whether there is a real debt. But there is nothing in the facts of the present case that would have warranted this Court embarking on what would have amounted to a re-trial of the issues that had been determined after a contested hearing and which were the subject of an appeal to the Supreme Court of Queensland. That Court, not this Court, was the appropriate forum in which to review the correctness of the District Court judgment. The circumstance that the Supreme Court subsequently varied the judgment entered in the District Court, reducing it by the sum of $5,400, provides no support for the contention that this Court should have itself examined the correctness of the judgment. Nor, given the particular circumstances of this case, do any of the cases on which the appellants relied support the appellants' contention." The magnitude of the difficulty which a debtor must surmount in a case like this was succinctly expressed by Fullagar J in the High Court in Corney v Brien (1951) 84 CLR 343 at 356-7: "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 followed 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 Re Flatau, Ex parte Scotch Whisky Distillers Ltd (1888) 22 QBD 83 at 86, Fry LJ said: `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.'" I fully accept that the matters to which Mr Lithgow has drawn attention appear to the debtor with hindsight as respects in which the litigation in the County Court could have been conducted more effectively or advantageously on behalf of himself and Glenburn. However, I am not persuaded that singly or in combination any of those matters constitutes fraud, collusion or a miscarriage of justice. I respectfully adopt the words of Pincus J in Re Huston; Ex parte Kendall, McAdam and O'Dwyer (1985) 8 FCR 355 at 356 where his Honour said: "The records of many trials, if examined by the unsuccessful litigants later, may disclose rather unsatisfactory features; that circumstance in itself cannot justify a process of going behind the bankruptcy notice. The principal unsatisfactory feature to which Mr Huston points is the late discovery and the lack of appreciation on his side of the precise significance of the computer print-outs. Also, of course, it is argued that the judgment debtors did not have a reasonable opportunity to appreciate the way in which the figure sought in the District Court was arrived at. I am of the view that those circumstances do not justify what must be an unusual course, and that is to treat as incorrect a judgment after trial given by another court of competent jurisdiction and from which no appeal was brought." For these reasons I decline to go behind the judgment of the County Court. In the circumstances I am satisfied that the act of bankruptcy relied on in the petition was committed on 25 October 1996. I am further satisfied as to the matters of which proof is required by s 52(1) of the Act. I shall therefore order that a sequestration order be made against the estate of the debtor and that the petitioning creditor's costs of and incidental to the petition, including any reserved costs, be taxed and paid out of the estate of the bankrupt in accordance with the Act. I certify that this and the preceding four (4) pages are a true copy of the Reasons for Judgment of the Honourable Justice Ryan.