Tweed Shire Council v Whitlock, Ronald [1997] FCA 1375

FEDERAL COURT OF AUSTRALIA BANKRUPTCY - Creditor's Petition - Whether Court can go behind the judgment - Principles to be applied - Whether the judgments on which bankruptcy notice is based should be questioned

Bankruptcy act 1966 (Cth) s 52

Corney v Brien (1951) 84 CLR 343, appl. In Re Fraser; Ex parte Central Bank of London [1892] 2 QB 633, appl. Wren v Mahony (1972) 126 CLR 212, appl. Wilkinson v Osborne (1915) 21 CLR 89, cons. TWEED SHIRE COUNCIL v RONALD WHITLOCK NG 8146 of 1997 EMMETT J SYDNEY 10 DECEMBER 1997

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY NG 8146 of 1997

BETWEEN: Tweed Shire Council

Applicant

AND: Ronald Whitlock

Respondent

JUDGE: EMMETT J

DATE: 10 dECEMBER 1997

PLACE: SYDNEY

REASONS FOR JUDGMENT HIS HONOUR: There is before the Court a petition brought by Tweed Shire Council ("the Council") seeking an order for the sequestration of the estate of Ronald Whitlock ("Mr Whitlock"). The petition is opposed. The petition is based on an act of bankruptcy which was committed on 12 August 1997 when Mr Whitlock failed to comply with the requirements of a bankruptcy notice. The bankruptcy notice was served on 17 June 1997 and required payment within 21 days of a debt of $24,015.29. The debt was made up as follows: Judgment debt in the Local Court at Murwillumbah: $23,462.40 Fee for certificate of judgment: $11.00 Interest on the judgment: $541.89 TOTAL: $24,015.29

The judgment in the Local Court arose out of proceedings in which Mr Whitlock was alleged to have aided and abetted contraventions of Ordinance 30 made under the Local Government Act 1919 (NSW). Section 52 of the Bankruptcy Act 1966 (Cth) requires that, on the hearing of a petition, the Court be satisfied with proof of various matters including the fact that the debt or debts on which the petitioning creditor relies is or are still owing. For almost all purposes, a judgment is conclusive evidence, as between the parties, of the existence of the obligation which it creates. However, it has been settled for many years that in a Court of Bankruptcy, a judgment does not have such conclusive effect and the Court has power to "go behind" the judgment and enquire into the existence of the debt upon which it is said to be founded. The general power of the Court to investigate the foundation of a judgment has been described as "unquestioned and unquestionable" (per Fullager J in Corney v Brien (1951) 84 CLR 343 at 354). In Corney v Brien, Fullager J referred to the observations of Lord Esher MR In Re Fraser; Ex Parte Central Bank of London [1892] 2 QB 633 at 636, 637 to the effect that in making a sequestration order, the Court is not dealing simply with the petitioning creditor and the debtor but is interfering with the rights of other creditors who, if an order is made, will not be able to sue the debtor for their debts. The Court ought not to exercise that extraordinary power unless it is satisfied that there is a good debt due to the petitioning creditor. In Wren v Mahony (1972) 126 CLR 212, Barwick CJ (with whom Windeyer and Owen JJ agreed) said (at 224-5): The judgment is never conclusive in bankruptcy. It does not always represent itself as the relevant debt of the petitioning creditor, even though under the general law, the prior existing debt has merged in a judgment. But the Bankruptcy Court may accept the judgment as satisfactory proof of the petitioning creditor's debt. In that sense that court has a discretion. It may or may not so accept the judgment. But it has been made quite clear by the decisions of the past that where reason is shown for questioning whether behind the judgment or as it is said, as the consideration for it, there was in truth and reality a debt due to the petitioning creditor, the Court of Bankruptcy can no longer accept the judgment as such satisfactory proof. It must then exercise its power, or if you will, its discretion to look at what is behind the judgment: to what is its consideration. It is not the law, in my opinion, that whether in any case the Court of Bankruptcy will consider whether there is satisfactory proof of the petitioning creditor's debt is a mere matter of its own discretion. Nothing in Corney v Brienlends support for such a view. Rather the emphasis is upon the paramount need to have satisfactory proof of the petitioning creditor's debt. The Court's discretion in my opinion is a discretion to accept the judgment as satisfactory proof of that debt. That discretion is not well exercised where substantial reasons are given for questioning whether behind that judgment there was in truth and reality a debt due to the petitioner. The existence of the judgment is prima facie evidence of the debt but is not more than that. Accordingly, the Court will often look at a judgment entered by default. Further, if it can be shown that a judgment was obtained through fraud, that would be a reason for a Court exercising bankruptcy jurisdiction to conclude that there is in truth no debt as between petitioner and debtor. By his opposition to the petition, Mr Whitlock asked that the Court go behind the judgment of the Local Court. THE JUDGMENT DEBT On 3 March 1993, several informations were laid by Mr Terence Brian Lintern, an ordinance inspector employed by the Council. It was alleged that on various dates several persons did, without permission of the Council, engage in the hawking of seafood from a trailer on a public road and that Mr Whitlock did aid, abet, counsel and procure those persons in the commission of that offence. On 16 March 1993, two further informations were laid alleging the same offences against those persons on different occasions. The persons charged with the offences and the relevant dates were as follows: · Wayne Bryant: 14 November 1992, 28 November 1992 and 24 December 1992 · Lee O'Connor: 7 November 1992 · Janine Risson: 27 December 1992, 28 December 1992 and 9 January 1993 · Codi Smith: 17 January 1993 The summonses issued pursuant to the informations initially came before the Local Court at Murwillumbah on 23 April 1993. Subsequently, on 5 August 1993 and 9 September 1993, Mr B.J. Bright SM heard the charges against Wayne Bryant and Mr Whitlock. He adjourned the hearing to 23 September 1993 for decision. On 23 September 1993, Mr Bright dismissed the information summonses relating to the alleged offences on 28 November 1992 and 24 December 1992. However, he found that the offence as to 14 November 1992 was proven and convicted Mr Bryant and Mr Whitlock and fined them each $100. He also ordered payment of court costs of $45 and professional costs of $380.10. Mr Whitlock appealed from that decision to the District Court and that appeal was heard by Judge Downs sitting in Murwillumbah on 2 and 3 November 1995. On 27 November 1995 Judge Downs dismissed the appeals by Mr Whitlock and confirmed the convictions. His Honour also confirmed penalties, court costs and professional costs ordered to be paid by Mr Bright. His Honour ordered that those sums, which amounted to $2,665.50 be paid to the clerk of the Local Court Murwillumbah within three months. His Honour also ordered Mr Whitlock to pay the Council's costs of the appeal including counsel's fees. He ordered that the costs of the appeal be assessed or, failing agreement, taxed and that, when assessed or taxed as the case may be, that sum be included in the order. He ordered that the costs be paid by Mr Whitlock within three months of assessment or taxation. On 24 October 1996, the costs of Mr Whitlock's appeal to the District Court were taxed in the sum of $23,411.40. On 14 November 1996 Judge Downs ordered that Mr Whitlock pay that amount within three months of 24 October 1996. A certificate of the Registrar of the District Court as to the orders made by Judge Downs was registered in the Local Court at Murwillumbah. As a result, on 19 February 1997 judgment was entered in the Local Court in favour of the Council against Mr Whitlock in the sum of $23,462.40. THE LEGISLATIVE FRAMEWORK OF THE CHARGES Clause 12(a) of Ordinance 30 made under the Local Government Act 1919 (NSW) provided as follows: Except with the permission of the Council, a person shall not in any road set up or use any basket, box, stall, stand, or standing vehicle for the purpose of offering for sale any article, or for the pursuit of any business, calling, or employment. Clause 81 provides that any person other than the Council offending against any provision of that Ordinance was, where no other penalty was provided, to be liable to a penalty not exceeding $100, nor less than $1. Section 100 of the Justices Act 1902 (NSW) provided as follows: (1) Every person who aids, abets, counsels or procures the commission of any offence, now or hereafter made punishable on summary conviction, may be proceeded against and convicted, together with or before or after the conviction of the principal offender. (2) On conviction such a person shall be liable to the penalty and punishment to which the principal offender is liable. Mr Bryant was charged with contravention of clause 12(a) of Ordinance 30. Mr Whitlock was charged under section 100 of the Justices Act. As I understood Mr Whitlock's contentions and submissions, they were limited to asserting that no offence was committed by Mr Bryant under clause 12(a) of Ordinance 30. He did not advance any argument that, if such an offence was properly proved and a conviction properly entered against Mr Bryant, he, Mr Whitlock was not then guilty of aiding and abetting. PROCEEDINGS IN THE FEDERAL COURT On 1 July 1997, Mr Whitlock applied to this Court for an order that the bankruptcy notice be set aside. On 3 July 1997, the time for compliance with the requirements of the bankruptcy notice was extended to 29 July 1997. On that day, the time for compliance was extended up to and including 12 August 1997. On 12 August 1997, the application to set aside the bankruptcy notice came before Lindgren J who dismissed the application and ordered Mr Whitlock to pay the Council's costs of that proceeding. The petition was filed on 29 September 1997 and was served in Sydney on 7 October 1997. On 23 October 1997, Mr Whitlock filed a notice of intention to oppose the petition. Three grounds were specified as follows: 1. The respondent is in the process of taking out an action against the applicants, which would place the applicants in debt to the respondent far in excess of that claimed by the applicant. 2. That the applicants obtained the judgment that is behind their petition by deceitful means (unlawfully). 3. To have the Court go behind the applicants judgment to see how the applicants have used false evidence to obtain judgment behind their petition. The petition first came before me on 3 November 1997 when Mr Whitlock sought an adjournment of the hearing of the petition and an order transferring the proceedings to Brisbane for hearing. The reason advanced for transfer of the proceedings to Brisbane was that Mr Whitlock wished to call witnesses who were resident in Murwillumbah and that it would be a hardship for him to have to bear the costs of bringing them to Sydney to give evidence. That application was heard by video link on that day and on the following days, 4 and 5 November 1997. I indicated to Mr Whitlock that before I would consider transferring the hearing to Brisbane, I would require him to satisfy me that there was some prospect that his grounds of opposition may be made out. Mr Whitlock thereupon embarked upon the task of demonstrating that there was some substance in his grounds of opposition After 4.30 pm on 5 November, I intimated to the parties that I considered that the appropriate course would be for me to embark on a hearing of the petition by video link with Brisbane and fix the hearing of the petition before me on 20 November 1997. I also gave directions for the issue of subpoenas and gave directions for the filing and serving by Mr Whitlock of any affidavits on which he wished to rely in addition to the material which he had tendered on the hearing of the adjournment application. Mr Whitlock was to file and serve any affidavits on or before 12 November 1997 and the Council was to file any affidavits in response no later than 10 November 1997. Subpoenas were in fact issued by Mr Whitlock and on 17 November 1997 I heard an application to set aside certain of those subpoenas. I ordered that two of the subpoenas be set aside and gave directions concerning the payment of conduct money and attendance money by Mr Whitlock. I shall return to those orders later. Mr Whitlock advanced nothing in support of the first ground. Mr Whitlock's argument, as I understand it, is that the conviction was unsound and, therefore, the Court should not rely on the judgment debt which resulted from such a conviction. The obligation which underlies the judgment debt in the Local Court is the order made by Downs DCJ that Mr Whitlock pay the Council's costs of his appeal. Mr Whitlock has, in substance, invited this Court to go back one step further to look behind the order of Downs DCJ, contending that that order ought never to have been made because the conviction by the magistrate was unsound. In Wilkinson v Osborne (1915) 21 CLR 89, the High Court held that a contract which became the basis for a judgment was contrary to public policy and void. The High Court therefore held that the judgment could not be relied on as a foundation for bankruptcy proceedings. In other words, the High Court went behind the judgment and determined that "there is, therefore, behind the judgment nothing which the law can recognise as a legal foundation, and consequently there is no debt which can form the basis of the bankruptcy notice" (see per Isaacs J at 105). Of course, a court exercising jurisdiction in bankruptcy has no power to set aside a judgment but only to dismiss a petition if not satisfied with the proof of the petitioning creditor's debt (see Re Victoria; Ex parte Victoria [1894] 2 QB 387; King v Henderson [1898] AC 720). That is one of the difficulties with Mr Whitlock's position. He has not taken any steps to overturn the judgment of Downs DCJ which was the basis for the judgment debt. There are two broad bases upon which Mr Whitlock contends that the conviction was unsound. First, he says that the convictions were based on evidence given on behalf of the Council which was false. He also asserts that Ordinance 30, under which Mr Bryant was convicted, was invalid. I shall deal with each of those contentions separately. THE COUNCIL'S EVIDENCE