Ramsay Health Care Australia Pty Ltd v Compton [2017] HCA 28

HIGH COURT OF AUSTRALIA

KIEFEL CJ, GAGELER, KEANE, NETTLE AND EDELMAN JJ

RAMSAY HEALTH CARE AUSTRALIA PTY LTD APPELLANT

AND

ADRIAN JOHN COMPTON RESPONDENT

Ramsay Health Care Australia Pty Ltd v Compton [2017] HCA 28 Date of Order: 4 May 2017 Date of Publication of Reasons: 17 August 2017 S53/2017

ORDER

1. Appeal dismissed.

2. Appellant pay the respondent's costs.

On appeal from the Federal Court of Australia

Representation

J Stoljar SC with J E Hynes for the appellant (instructed by MinterEllison)

G O'L Reynolds SC with M J O'Meara and S Kanagaratnam for the respondent (instructed by Pavuk Legal)

Notice: This copy of the Court's Reasons for Judgment is subject to formal revision prior to publication in the Commonwealth Law Reports.

CATCHWORDS

Ramsay Health Care Australia Pty Ltd v Compton

Bankruptcy – Creditor's petition – Where petitioning creditor relied upon judgment debt – Where judgment debt resulted from contested hearing – Where no suggestion of fraud or collusion in obtaining judgment – Where evidence adduced to suggest debt not truly owing – Whether Bankruptcy Court has, and should exercise, discretion to "go behind" judgment to investigate debt.

Words and phrases – "debt truly owing", "fraud, collusion or miscarriage of justice", "'go behind' a judgment", "miscarriage of justice".

Bankruptcy Act 1966 (Cth), s 52.

KIEFEL CJ, KEANE AND NETTLE JJ. A Bankruptcy Court exercising jurisdiction under s 52 of the Bankruptcy Act 1966 (Cth) ("the Act") may, in some circumstances, "go behind" a judgment in order to be satisfied that the debt relied upon by the petitioning creditor is truly owing. The Bankruptcy Court may take this course in order to satisfy itself that there is an extant petitioning creditor's debt as a necessary foundation for the making of a sequestration order. In this case, the primary judge decided not to go behind a judgment in favour of the appellant, Ramsay Health Care Australia Pty Ltd ("Ramsay"). The judgment was given after a trial at which both parties were represented, and there was no suggestion that the judgment had been obtained by fraud or collusion. On that basis, the primary judge rejected an application by the judgment debtor that he should investigate whether the debt was truly owing. The Full Court of the Federal Court held that the primary judge erred in declining to investigate whether the debt was truly owing, given that the material before the primary judge raised substantial questions as to whether there was, in truth and reality, a debt due to Ramsay. Ramsay appealed to this Court. At the conclusion of the hearing of the appeal, because there was some urgency attending the determination of the matter, and because at least a majority of the Court was of opinion that the decision of the Full Court was correct, the Court made orders dismissing Ramsay's appeal with costs. What follows are our reasons for joining in the making of those orders. Background Ramsay and associated corporate entities operate private hospitals within Australia and overseas. In November 2012, Ramsay entered into an agreement with Compton Fellers Pty Ltd trading as Medichoice ("Medichoice"), whereby Medichoice agreed to import medical products on Ramsay's behalf and was appointed Ramsay's distributor to coordinate the procurement, importation, logistics and inventory management of the products. The directors of Medichoice were Adrian Compton (the respondent in this appeal) and Anna Stevis. The shares in the company were owned by Mr Compton and his wife, Amy. Pursuant to cl 3.1 of a "Guarantee and Indemnity" ("the Guarantee") executed in connection with the agreement, which Mr Compton signed in his personal capacity, Mr Compton irrevocably and unconditionally guaranteed to Ramsay the payment of all money that Medichoice might become liable to pay Ramsay on any account in connection with Medichoice's performance of its obligations under the agreement. Pursuant to cl 12 of the Guarantee, the parties agreed that "[a] certificate from Ramsay stating that an amount is owing or an event has occurred is taken to be correct unless the contrary is proved". The agreement expired on 30 June 2013. Medichoice subsequently went into liquidation and took no further active part in the proceedings. The judgment debt On 2 June 2014, Ramsay commenced proceedings in the Commercial List of the Equity Division of the Supreme Court of New South Wales against Mr Compton, claiming money purportedly owing to it by Mr Compton under the Guarantee. Prior to the trial of Ramsay's action against Mr Compton, both sides retained solicitors and briefed counsel in the proceedings. Both sides also filed and served evidence on the issue of the quantum of the alleged indebtedness. Ramsay's commercial list statement filed in the Supreme Court proceedings put in issue the quantum of Mr Compton's indebtedness to Ramsay; but Mr Compton's commercial list response raised only a non est factum defence to Ramsay's claim. At the trial in the Supreme Court before Hammerschlag J, Mr Compton relied solely on his non est factum defence. He did not tender evidence in respect of quantum, nor did he seek to dispute the quantum of the alleged debt. As Hammerschlag J noted in his reasons for judgment, "[q]uantum is not in dispute". Mr Compton's non est factum defence failed; and, in the absence of any issue as to the quantum of the debt alleged by Ramsay, Hammerschlag J awarded judgment for Ramsay against Mr Compton in the amount of $9,810,312.33 ("the Judgment"), being the amount stated in a Certificate of Debt adduced by Ramsay in accordance with cl 12 of the Guarantee. Mr Compton did not appeal from the Judgment; and on 29 April 2015, Ramsay served a bankruptcy notice on Mr Compton requiring that he pay the amount of the Judgment or make arrangements for settlement of the debt by 20 May 2015. The bankruptcy proceedings Mr Compton failed to comply with the bankruptcy notice, thereby committing an act of bankruptcy. On 4 June 2015, Ramsay presented a creditor's petition in reliance upon that act of bankruptcy in the Federal Court of Australia. On 7 July 2015, Mr Compton filed a notice stating grounds of opposition to the creditor's petition. Mr Compton contended that "no debt is or was really owed by [Mr Compton] to [Ramsay] because the [J]udgment is not founded on a debt that in truth and reality was or is owed by [Mr Compton] to [Ramsay]" and that "the Court should exercise its discretion to go behind the [J]udgment upon which the Creditor's Petition is based and consider whether the amount of the claimed debt as a whole is actually owed by [Mr Compton] to [Ramsay]". Section 52(1) of the Act relevantly provides: "At the hearing of a creditor's petition, the Court shall require proof of: … (c) the fact that the debt or debts on which the petitioning creditor relies is or are still owing; and, if it is satisfied with the proof of those matters, may make a sequestration order against the estate of the debtor." Mr Compton filed an interim application, seeking an order that there be a separate determination of the question of whether the Court should exercise its discretion to go behind the Judgment to investigate the debt upon which the creditor's petition was based, and to consider whether it was actually owed. It may be noted here that no objection was raised to the separate determination of the question of whether to go behind the Judgment. This practice provides a convenient way of proceeding where a question is raised as to whether a judgment establishes the amount truly owing to the petitioning creditor. This procedure was approved by the Full Court of the Federal Court in Wolff v Donovan; but it is apparent from the decision of Philp J in Petrie v Redmond that this had been the practice of the Bankruptcy Court for many years before the decision in Wolff v Donovan. The primary judge's decision The primary judge (Flick J) dismissed Mr Compton's interim application. At the hearing before the primary judge, Mr Compton sought to rely on a "reconciliation" of the indebtedness between the parties. It was submitted on Mr Compton's behalf that, if accepted, the "reconciliation" established that it was Ramsay that owed money to Medichoice, and not the other way around. The "reconciliation" was supported by evidence on affidavit from Ms Stevis. In addition, Richard Albarran (one of three joint liquidators of Medichoice) gave affidavit evidence to the effect that it was more likely that Ramsay was indebted to Medichoice than vice versa. Before the primary judge, senior counsel for Ramsay said that it was an "open question" whether the calculations set forth in the "reconciliation" with respect to "offsets" and "rebates" were factually correct. He submitted that "the best finding of fact your Honour could make on this application in relation to the issue is that perhaps there's enough evidence to show that there is a matter that upon further inquiry might lead to a different result". The primary judge declined to go behind the Judgment. His Honour approached the issue before him on the basis that two questions were involved: first, whether the discretion to go behind the Judgment had arisen at all; and secondly, whether that discretion should be exercised in favour of going behind the Judgment. It may be that his Honour unduly complicated the resolution of the application before him: there was only one discretion to be exercised. As Barwick CJ explained in Wren v Mahony: "The Court's discretion in my opinion is a discretion to accept the judgment as satisfactory proof of [the petitioning creditor's] 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 primary judge decided not to make his own investigation as to whether the debt relied on by Ramsay was truly owing. In concluding that he had no discretion to go behind the Judgment, his Honour noted that: . Mr Compton was represented by counsel in the proceedings before the Supreme Court; . there was available evidence that had been filed in that Court addressing the quantum of any debt that may be owed; and . a forensic decision had been made to confine the issue to be resolved by that Court to the enforceability of the Guarantee. His Honour considered that, even if the circumstances had enlivened the discretion to go behind the Judgment, the discretion should not be exercised in this case, for the same reasons, together with further reasons including that: . the factual materials upon which the "reconciliation" was carried out were available to Mr Compton at the time of the Supreme Court hearing; . no explanation was advanced on behalf of Mr Compton as to why the quantum of indebtedness was not put in issue before the Supreme Court or why the "reconciliation" was not previously undertaken; . Ramsay maintained that there remained outstanding an indebtedness of a significant amount, although it accepted that the amount may be less than $9,810,312.33; and . there was a "disturbing discrepancy" between the affidavits of Ms Stevis before the Supreme Court and before the Federal Court. It is convenient to note here that the "disturbing discrepancy" referred to by the primary judge was the difference between Ms Stevis' estimate, for the purposes of the Supreme Court proceedings, of a balance of account in favour of Medichoice of approximately $2.45 million, and her estimate of $2.26 million in the bankruptcy proceedings. Given the relatively small amount of this discrepancy, and Mr Albarran's evidence in the bankruptcy proceedings, it is readily understandable that the primary judge was not disposed to treat the discrepancy as indicating a want of good faith on the part of Mr Compton in seeking to challenge the debt. Mr Compton sought leave to appeal from this decision to the Full Court of the Federal Court. The Full Court In a unanimous judgment, the Full Court (Siopis, Katzmann and Moshinsky JJ) granted leave to appeal and allowed Mr Compton's appeal. Ramsay argued that the decision of this Court in Corney v Brien established that a Bankruptcy Court should not go behind a judgment which follows a full investigation at trial at which both parties were represented. Ramsay argued that this decision stands for the proposition that "fraud, collusion or miscarriage of justice" are exhaustive of the circumstances in which a Bankruptcy Court may or should go behind a judgment. The Full Court rejected that argument, concluding that neither the plurality judgment in Corney v Brien, nor the reasons of Fullagar J, established such a narrow view of the function of a Bankruptcy Court. The Full Court applied the approach of Barwick CJ (with whom Windeyer and Owen JJ agreed) in Wren v Mahony that in circumstances "where reason is shown for questioning whether behind the judgment ... 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" but rather must "exercise its ... discretion to look at what is behind the judgment". The Full Court went on to hold that the primary judge erred in focusing on: "the way in which Mr Compton conducted his case in the Supreme Court rather than on the central issue, which was whether reason was shown for questioning whether behind the judgment there was in truth and reality a debt due to the petitioning creditor". The Full Court held that a focus upon that "central issue" reveals that substantial reasons were shown for questioning whether Mr Compton was indebted to Ramsay. The Court held that the evidence supporting the "reconciliation" and Ramsay's concession that there was a "question" as to the debt raised a question which required resolution before the Bankruptcy Court could proceed to make a sequestration order. While some, and possibly all, of the factual materials underpinning the "reconciliation" may have been available before the Supreme Court, the issue for the Bankruptcy Court was not the finality of forensic choices made by the parties in the litigation which resulted in the Judgment, but the requirement of s 52(1) of the Act that the Bankruptcy Court have satisfactory proof of the petitioning creditor's debt before proceeding to make a sequestration order. The Full Court held that the primary judge erred in concluding that the discretion to go behind the Judgment had not been enlivened. Their Honours said that these same considerations tended towards a conclusion that the primary judge also erred in holding that should the discretion be enlivened, it should not be exercised. The Full Court proceeded to consider afresh whether to go behind the Judgment, and concluded that the Bankruptcy Court should go behind the Judgment, to determine whether there was in truth and reality any debt owing to the petitioning creditor. Accordingly, the Full Court granted leave to appeal and allowed Mr Compton's appeal, ordering that the Bankruptcy Court should go behind the Judgment. By special leave, Ramsay appealed to this Court, arguing that the Full Court erred in setting aside the decision of the primary judge to decline to go behind the Judgment. The parties' arguments in this Court Ramsay Ramsay again put at the forefront of its submissions the contention that this Court's decision in Corney v Brien established that a Bankruptcy Court's discretion to go behind a judgment after a contested hearing is enlivened only in the event of some fraud, collusion or miscarriage of justice. There was no suggestion of fraud or collusion, and Ramsay argued that the expression "miscarriage of justice" refers, in this context, only to circumstances which impeach the judgment such that the judgment should never have been obtained. Ramsay argued that the Full Court did not, and could not, conclude that the Judgment was affected by miscarriage of justice in this special sense. These propositions were said to be consistent with the principle of finality in litigation, which is part of the common law framework in which the discretion conferred by s 52 of the Act should be considered. It was said that the statutory discretion conferred by s 52 should be applied in a manner giving primacy to a final judgment given after a contested hearing. Ramsay argued that the Full Court took too broad a view of the holding in Wren v Mahony. That broad view was said to overlook the circumstance that Wren v Mahony involved a default judgment, with Barwick CJ observing that "[t]here had been no more in the Supreme Court than a contest at the pleading stage of the action". As to the concession before the primary judge that there was an "open question" as to whether the debt was in fact owed, Ramsay submitted that this amounted to no more than an acceptance of the obvious proposition that if the Bankruptcy Court were in due course to go behind the Judgment, there would be a factual contest as to the amount of the debt, a contest which would be resolved on further evidence to be adduced by Ramsay. Mr Compton Mr Compton submitted that, by reason of s 52(1)(c) of the Act, and as Wren v Mahony concluded, the question for the Bankruptcy Court was whether the judge was persuaded that there was a debt truly owing to the petitioning creditor. It was said that the Bankruptcy Court should go behind a judgment where sufficient reason is shown for questioning whether behind the judgment there is in truth and reality a debt due to the petitioning creditor, and that sufficient reason was shown in this case. An examination of the competing arguments shows that, both in point of authority and in point of principle, Ramsay's contentions should be rejected and those advanced for Mr Compton accepted. Corney v Brien By reason of s 52 of the Act, a Bankruptcy Court must be satisfied with the proof of "the fact that the debt … on which the petitioning creditor relies is … still owing", if the court's power to make a sequestration order is to be enlivened. The plurality in Corney v Brien did not hold that a Bankruptcy Court must treat a judgment as satisfactory proof of the petitioning creditor's debt save in cases of fraud, collusion or miscarriage of justice. Rather, the plurality held that a Bankruptcy Court has "undoubted jurisdiction" to go behind a judgment in those circumstances. To say that the court may do a thing in certain circumstances is not to say it may do that thing only in those circumstances. In point of authority, it is important to appreciate that, in Corney v Brien, the plurality referred with evident approval to the earlier decision in Petrie v Redmond. An examination of the decision in Petrie v Redmond shows that it stands squarely against the propositions for which Ramsay contends in this case. In Petrie v Redmond, Philp J, sitting as the Bankruptcy Court, decided, of his own motion, to go behind a judgment given after a trial where both parties "were represented by independent counsel, and there is no suggestion of fraud or collusion in the obtaining of the judgment", to investigate an issue that had not been raised in the course of the contested proceedings which led to the judgment. Having heard argument on that issue, his Honour concluded that it should be resolved in favour of the petitioning creditor. On the basis that he would not be "doing any injustice to the other creditors", Philp J proceeded to order a sequestration. On appeal to the High Court, Latham CJ, with whom Rich and McTiernan JJ agreed, said of the course taken by Philp J: "The judge was doing only what he was required to do to satisfy himself that there was a petitioning creditor's debt." Wren v Mahony In Wren v Mahony, Barwick CJ, with whom Windeyer and Owen JJ agreed, said: "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." There are good reasons why this statement should not be given the artificially narrow application urged on behalf of Ramsay. First, it is not correct to say that Wren v Mahony involved a default judgment. In truth, it involved a default that resulted from the defendant's failure to plead a good defence, having chosen to defend the claim on a point of law that was resolved against him. The primary judge in bankruptcy declined to reconsider the resolution of the point of law; and the High Court held that the primary judge erred in failing to reconsider the point, which the High Court went on to uphold. Secondly, Wren v Mahony held that a Bankruptcy Court may go behind a judgment, notwithstanding that the judgment was obtained after a contested hearing. That can be seen by reference to the reasons of the dissentients, reasons that were necessarily rejected by the majority. In this regard, Menzies J, with whom Walsh J agreed, expressly rested his judgment in the case: "solely upon my view that it was within the discretion of the judge of the Court of Bankruptcy not to reconsider the judgment of the Supreme Court of New South Wales obtained in the circumstances stated". The circumstances to which Menzies J referred were that the Bankruptcy Court was "faced with a judgment of the Supreme Court of one of the States, fairly obtained without collusion or fraud after a contested hearing". This statement reflects a submission made by the respondent's counsel, who submitted: "No cases have gone behind the judgment where the only issue has been litigated, in the absence of fraud or collusion." As the consideration of Petrie v Redmond shows, that submission was incorrect. In point of authority then, the decision of the majority in Wren v Mahony stands as a rejection of Ramsay's proposition that the circumstance that a judgment of the Supreme Court was obtained without collusion or fraud after a contested hearing precludes the possibility of sufficient reason for questioning whether behind that judgment there was, in truth and reality, a debt due to the petitioner. Wren v Mahony has long been accepted as standing against the proposition advanced by Ramsay. Thus, in Simon v O'Gorman Pty Ltd, Lockhart J, with whom Fisher J agreed, said: "The circumstances in which the court will inquire into the validity of a judgment debt are not closed; but it is clear that the court will not inquire as a matter of course into that question. Circumstances tending to show fraud, collusion or miscarriage of justice or that a compromise was not a fair and reasonable one are the most frequent examples of the exercise by the court of this jurisdiction. 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". To the same effect are statements by Davies, Lockhart and Neaves JJ in Ahern v Deputy Commissioner of Taxation (Qld), and Sackville, North and Hely JJ in Wenkart v Abignano. As Lockhart J explained in Simon, "fraud, collusion or miscarriage of justice" are the most frequent examples of the exercise of a Bankruptcy Court's jurisdiction to go behind a judgment; but the overarching obligation imposed by s 52(1) of the Act requires a Bankruptcy Court to be satisfied that there is, in truth and reality, a debt. It is convenient to note here that Ramsay relied, as did the primary judge, on the decision of Hely J in Commonwealth Bank of Australia v Jeans, in which his Honour refused to go behind a judgment, saying of the case before him: "[T]he circumstances of this case are far removed from a case in which a judgment is entered by default. There was a fully contested hearing ... on the issue of the debtor's liability under the guarantee, after the debtor had a reasonable opportunity to raise whatever grounds he wished to rely upon to resist the Bank's case based upon the guarantee. As is always the case, the scope of the contest was determined by the respective cases put forward by the parties, who are ordinarily bound by the way in which they have chosen to conduct the proceedings." It must be understood, however, that in Jeans, Hely J explicitly applied the approach in Wren v Mahony in reaching his decision. Hely J refused to go behind a judgment on a guarantee given after the trial judge had refused the debtor leave to withdraw his admission that he had signed the guarantee. Leave to withdraw the admission was refused for reasons which included the circumstance that the debtor had repeatedly and deliberately admitted that he had signed the guarantee. The circumstances which justified refusal of leave to withdraw the admission meant that no question was raised in good faith in the Bankruptcy Court as to whether the debt based on the guarantee was truly owing. By contrast, in the present case, the primary judge did not conclude that the "discrepancy" in the evidence of Ms Stevis to which he referred revealed a want of good faith in Mr Compton's application. It may be that the investigation which the primary judge declined to conduct would have led to the conclusion that the evidence disputing the debt was not reliable. However, that conclusion could only have been reached had his Honour proceeded to investigate the issue. Impeaching the judgment Ramsay's argument that "miscarriage of justice" in this context is confined to the kind of miscarriage of justice which would suffice to impeach the obtaining of the judgment echoes the contention unsuccessfully advanced in the course of argument in Wren v Mahony by the respondent's counsel, who submitted: "The Bankruptcy Court must not become an appeal court from other tribunals." That submission resonated only with the dissentients, Menzies J and Walsh J. That the submission failed to carry the day is understandable because the concern to which it gave voice is misconceived. In point of principle, scrutiny by a Bankruptcy Court of the debt propounded by a judgment creditor seeking a sequestration order in no sense involves an attempt to impeach the judgment. A Bankruptcy Court is not concerned with whether the judgment should be set aside as upon an appeal, or even as a default judgment or a judgment obtained by fraud may be set aside; nor is a Bankruptcy Court concerned to deny the effect of the judgment as "res judicata" between the parties to it. A Bankruptcy Court is not concerned to prevent the judgment creditor from invoking the ordinary processes of execution available under the general law. Rather, a Bankruptcy Court is concerned with whether the debt on which it is based is truly a basis for the making of a sequestration order. A Bankruptcy Court has a statutory duty to be "satisfied" as to the existence of the petitioning creditor's debt; a creditor should not be able to make a person bankrupt on a debt which is not provable. The scrutiny required by s 52 as to whether there is, in truth and reality, a debt owing to the petitioning creditor serves to protect the interests of third parties, particularly other creditors of the debtor. It is of critical importance to appreciate that such persons were not parties to the proceedings that resulted in the judgment debt. It has long been recognised that their interest in being paid their debts in full should not be prejudiced by the making of a sequestration order in reliance on a judgment debt which does not reflect the true indebtedness of the debtor to the petitioning creditor. In In re Fraser; Ex parte Central Bank of London, Lord Esher MR said: "The decision is based upon the highest ground – viz, that in making a receiving order, the Court is not dealing simply between the petitioning creditor and the debtor, but it is interfering with the rights of his other creditors, who, if the order is made, will not be able to sue the debtor for their debts, and that the Court ought not to exercise this extraordinary power unless it is satisfied that there is a good debt due to the petitioning creditor. The existence of the judgment is no doubt prima facie evidence of a debt; but still the Court of Bankruptcy is entitled to inquire whether there really is a debt due to the petitioning creditor." Almost a century later, the effect of the authorities on the topic was summarised in similar terms in Ahern v Deputy Commissioner of Taxation (Qld) by Davies, Lockhart and Neaves JJ: "[B]efore a person can be made bankrupt the court must be satisfied that the debt on which the petitioning creditor relies is due by the debtor and that if any genuine dispute exists as to the liability of the debtor to the petitioning creditor it ought to be investigated before he is made bankrupt. Bankruptcy is not mere inter partes litigation. It involves change of status and has quasi‑penal consequences." The cases do not suggest that the merger of a debt in a judgment limits the power of a Bankruptcy Court to go behind a judgment so that it is confined to circumstances in which the judgment itself might be set aside. Nothing in Corney v Brien supports Ramsay's argument in this respect. And the protean character of the concept "miscarriage of justice" suggests that it is not limited to cases where the judgment is so tainted that it may be set aside. The circumstance that under the general law a prior existing debt is taken to merge in a judgment has not been regarded as in some way operating to relieve a Bankruptcy Court of the paramount need to have satisfactory proof of the petitioning creditor's debt. In Wren v Mahony itself, Barwick CJ expressly adverted to the principle of the general law that a debt merges in a judgment, and went on to observe that "[t]he judgment is never conclusive in bankruptcy" and that that is so "even though under the general law, the prior existing debt has merged in a judgment". As his Honour said, in s 52(1)(c) of the Act "the emphasis is upon the paramount need to have satisfactory proof of the petitioning creditor's debt". It may also be noted that the reasons of the dissenting judges in Wren v Mahony were not grounded on any conceptual concern that the judgment extinguishes the prior existing debt. A similar view prevails in the United Kingdom. In Cambridge Gas Transportation Corporation v Official Committee of Unsecured Creditors of Navigator Holdings plc, Lord Hoffmann – with whom Lord Bingham of Cornhill, Lord Hutton, Lord Rodger of Earlsferry and Lord Carswell agreed – referred to the proposition that under the general law, "[t]he judgment itself is treated as the source of the right" of the creditor, but went on to say: "The purpose of bankruptcy proceedings, on the other hand, is not to determine or establish the existence of rights, but to provide a mechanism of collective execution against the property of the debtor by creditors whose rights are admitted or established." Ramsay sought to support its contention that, by the time a creditor's petition is presented on the basis of a judgment, any cause of action arising from the original underlying factual contest has merged with that judgment and the "debt" referred to in s 52(1)(c) is the debt comprised in the judgment itself, by reference to observations of Etherton J in Dawodu v American Express Bank. There, his Lordship, acknowledging that the phrase "miscarriage of justice" is capable of wide application, said that, in this context, what is required is that: "the court be shown something from which it can conclude that had there been a properly conducted judicial process it would have been found, or very likely would have been found, that nothing was in fact due to the claimant." It is not entirely clear that this statement supports Ramsay's argument, but if it does, it is at odds with the course of authority. Indeed, Etherton J had, earlier in his judgment, referred with evident approval to the statement of Warner J in McCourt and Siequien v Baron Meats Ltd and the Official Receiver that "the grounds upon which a bankruptcy court may go behind a judgment are more extensive than the grounds upon which an ordinary court of law or equity may set it aside". Ramsay also sought support for its argument in the observation of Buckley LJ in In re Van Laun; Ex parte Chatterton: "It is sufficient, in the language of Lord Esher, to shew miscarriage of justice – that is to say, that for some good reason there ought not to have been a judgment." That statement, understood in context, does not support Ramsay's argument at all. It appears after Buckley LJ had said: "It is well settled that the Court can inquire into the consideration for a judgment debt." Indeed, his Lordship went on to hold that it was permissible to say to a putative creditor "'Very well, you say you are a creditor; make out your case as if there was … no judgment. Satisfy me that the amount for which you say you are creditor is right.'" Clearly, his Lordship was not concerned with whether there was reason to set aside a judgment, but with whether the evidence established the true state of accounts between the parties. Finally in this regard, it is to be noted that in no case has it been said that whether, or the extent to which, a Bankruptcy Court may go behind a judgment turns in any way upon the choice of the petitioning creditor to base its petition upon the anterior debt or the judgment. Indeed, if it were thought that the choice to rely upon the judgment might limit the scope for the Bankruptcy Court to go behind the judgment, no petitioning creditor would ever choose to base its petition upon the antecedent debt rather than a judgment for the debt. Finality in litigation Before the primary judge, there were, in the words of Barwick CJ in Wren v Mahony, "substantial reasons … for questioning whether behind [the] judgment there was in truth and reality a debt due to the petitioner". It may be accepted, as Ramsay argued, that the concession made by its senior counsel before the primary judge was made only for the purpose of the inquiry into whether the court should go behind the Judgment (as opposed to the findings which should be made at the subsequent hearing that would take place if the court chose to investigate the debt for itself). The concession was no more than an acknowledgment of the existence of evidence which might tend towards a different result from that reflected in the Judgment. But that concession meant that, before the primary judge, there was evidence which, if left unanswered, would support the conclusion that Mr Compton was not indebted to Ramsay at all. While the failure of Mr Compton to rely upon this evidence at trial was unexplained, there was on the face of things a real question as to whether Mr Compton had failed to present his case on its merits at the trial in the Supreme Court. It is no answer to the latter point for Ramsay to say, as the primary judge did, that Mr Compton is bound by the conduct of his case on his behalf at the trial in the Supreme Court. As has been seen, the notion that a party is bound by the conduct of his or her case has never been a sufficient reason not to look behind a consent judgment or a default judgment. That is because a Bankruptcy Court is concerned, not to discipline litigants or to protect finality in the administration of justice as between parties to litigation, but to protect the interests of third parties who were not participants in the litigation which led to the judgment in question. For the purposes of s 52 of the Act, a judgment may usually be taken to be sufficient evidence of a debt in that a judgment against a debtor in favour of a creditor obtained after a trial is, generally speaking, a reliable indication of the true state of indebtedness as between creditor and debtor. Indeed, such a judgment can usually be expected to provide the most reliable statement of the debt humanly attainable because the ordinary processes of the adversarial system provide a practical guarantee of reliability. The testing of the relative merits of a claim and counterclaim under the rigours of adversarial litigation will usually establish the true state of accounts as between the parties to the proceedings. Accordingly, a Bankruptcy Court will usually have no occasion to investigate whether the judgment debt is a true reflection of the real debt. But where the merits of a claim and counterclaim have not been tested in adversarial litigation, a judgment debt will not have this practical guarantee of reliability. In Petrie v Redmond, Latham CJ, with whom Rich and McTiernan JJ agreed, said that the Bankruptcy Court: "is 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 suspicion on consent judgments and default judgments. … The Bankruptcy Court does not examine every judgment debt. Special circumstances must be established before it will do so. It is impossible to lay down any general rule." The first two sentences of that passage were cited with evident approval by Dixon, Williams, Webb and Kitto JJ in Corney v Brien. The passage was explicitly concerned with consent judgments and default judgments. As a matter of practical experience, these are the sorts of cases in which third parties can be expected to be disadvantaged by the making of a sequestration order based on a judgment which was not the outcome of the rigorous processes of adversarial litigation. The same concern may also arise in a case where the judgment was obtained in circumstances which suggest a failure on the part of the judgment debtor to present his or her case on its merits in the litigation that led to the judgment. In the present case, the unexplained failure by Medichoice and Mr Compton to present and rely upon evidence of the kind on which the "reconciliation" is based before the trial in the Supreme Court is consistent with the possibility that the present was such a case. To say this is not to say that a suspicion of inadequate representation is of itself sufficient to give rise to a question worthy of investigation by a Bankruptcy Court. But in this case, there was evidence before the primary judge which, while it remained uncontradicted, was apt to suggest that the debt was not truly owing; and as noted above, the primary judge did not consider that this evidence was not adduced in good faith. If it were the case that this evidence was not adduced by reason of a failure on the part of Mr Compton or those representing him and Medichoice in the Supreme Court to present their case on its merits, that failure should not enure to the disadvantage of persons who were not parties to those proceedings. Third parties, such as Mr Compton's creditors, should not have been prejudiced by the making of a sequestration order with that question unresolved. Conclusion The Full Court was correct to conclude that there was a substantial question as to whether the debt on which Ramsay relied was owing. That being so, the Bankruptcy Court should proceed to investigate this question in order to decide whether it was open to it to make a sequestration order.