Blair v Curran

REASONS FOR JUDGMENT THE COURT: The appellant, Mr Makhoul, appeals against the judgment of a judge of this Court dismissing a creditor's petition against his ex wife, Ms Barnes. Mr Makhoul also seeks an order that there be admitted in the appeal fresh evidence. In support of the application to admit fresh evidence counsel was permitted to read an affidavit to which was exhibited copies of the transcript of proceedings in this Court before Cooper J and Drummond J and various affidavits filed in the District Court. We indicated that we would, when giving judgment, rule on the application to admit fresh evidence.

For present purposes the dispute between the parties had its beginning in 1991 when Mr Makhoul commenced proceedings in the District Court in Brisbane against Ms Barnes. Ms Barnes lodged a notice of appearance and defence to those proceedings, but her defence was struck out on 14 September 1992. On 27 October in that year, judgment was entered against Ms Barnes in the sum of $41,000. Subsequently, a warrant of execution was issued and an order made that Ms Barnes be orally examined. Before that examination could take place an application was made to set aside the judgment. For the purposes of the application to set aside the judgment, various affidavits were filed. The application was subsequently dismissed. On 30 June 1994 a bankruptcy notice was issued out of this Court upon the request of Mr Makhoul, based upon the judgment debt. That notice was served upon Ms Barnes on 6 July 1994. It alleged the existence of a judgment debt in the sum of $41,000 and required compliance within twenty-eight days of service. Application to set aside the bankruptcy notice was made by Ms Barnes on 5 August 1994, that is to say, on or about the last day for compliance with the notice. Ms Barnes also alleged that she had a counter-claim, set-off or cross demand of the kind referred to in s40(1)(g) of the Bankruptcy Act 1966 (Cth) ("the Act"). The application contained an annexure said to contain details of the counter-claim, set-off or cross demand. In this annexure, however, were claims which went to the form of the notice based on submissions. There were also claims that Ms Barnes had not had an opportunity properly to defend the proceedings and that there had been a miscarriage of justice without the merits being determined. The objections as to the form of the bankruptcy notice were litigated before Cooper J and were dismissed by his Honour in a judgment dated 30 September 1994. His Honour stood over the remaining grounds until 1 November 1994. On that day counsel for Ms Barnes advised counsel for Mr Makhoul that Ms Barnes did not wish to pursue her attack on the bankruptcy notice. It is agreed that counsel for Ms Barnes said words to the effect that Ms Barnes would pursue the question whether there was underlying the judgment a real debt at the petition stage. In the result the application to set aside the bankruptcy notice was dismissed with costs. Mr Makhoul issued a creditor's petition on 20 December 1994. This was served on Ms Barnes on 6 February 1995. At a directions hearing on 9 February 1995, a direction was given for the filing by Ms Barnes of the evidence on which she intended to rely in opposition to the petition. The direction was not complied with. After an attempt to have the matter relisted in March, it came again before the Registrar on 15 May 1995 at the request of Mr Makhoul. No evidence had, at that time, been filed. The petition was then adjourned until 29 May 1995 before a judge of the Court. On 26 May, that is to say on the Friday before the hearing listed for the following Monday, evidence was filed. Copies of that evidence were only handed to counsel for Mr Makhoul on the morning of the hearing. Counsel for Mr Makhoul was asked whether he had read the material relied upon by Ms Barnes. It was indicated the material had been read, although served very late. His Honour then asked counsel for Mr Makhoul whether he was ready to proceed. Counsel replied that there were no new issues really raised by the affidavits, that he had "objections to one or two matters of argument in them, but that these matters had been canvassed to a large extent". However, it is fair to say that counsel for Mr Makhoul did object to the affidavits being received late. The explanation for the late filing of the affidavits as given was that Ms Barnes was impecunious and had difficulty in giving instructions and obtaining copies of documents filed in the District Court. His Honour then said to counsel for Mr Makhoul: "You are content to pursue your application for a sequestration order now, notwithstanding the late service of the material? Mr Stephens I am your Honour."

His Honour then said that he would proceed. Counsel for Ms Barnes then indicated to his Honour that he had not expected the matter to proceed on that day and sought an adjournment. His Honour stood the matter over until 2.15pm, particularly as counsel who had familiarity with the matter was not present to argue the case on behalf of Ms Barnes. When the matter resumed, counsel for Mr Makhoul formally read the evidence upon which he proposed to rely in the petition. Counsel for Ms Barnes then read certain affidavits that had been filed. No objection was taken to the reading of these affidavits or, for that matter, to any material in them. The matter then proceeded by way of argument. In the course of the argument his Honour again asked both counsel whether they wished to proceed and was advised by both that they did. THE JUDGMENT APPEALED AGAINST After setting out the course of the proceedings between the parties, to which reference has already been made, Drummond J noted that the claim for which judgment was ultimately entered was in two parts. The first was for an amount of $35,000; the second for an amount of $6,000. The larger of the two claims concerned the proceeds of sale of land in Western Australia registered in the name of Mr Makhoul and his brother. The registered proprietors had given Ms Barnes a power of attorney in March 1990. The land had been sold by Ms Barnes, on the evidence before his Honour, for $25,000. She had not accounted for the proceeds of sale. It was Ms Barnes' case that there had been a deed of property settlement in 1987 under which Mr Makhoul had agreed to pay maintenance of $400 a week, that he had been in arrears to the extent of nearly $29,000 in April 1992 and that the power of attorney was given to her on terms that the sale proceeds would be for her immediate use. As his Honour observed, the fact that the judgment was for $31,000 whereas the independent evidence showed the sale price as being $25,000 with a net return after agents' commission of $22,428, cast doubt on the reliability of the claim that in this respect $35,000 was owing. The remaining $6,000 claim related to the proceeds of sale by Ms Barnes of a motor vehicle. It was Ms Barnes' case that the car was a gift to her by her husband and that he had signed a transfer of the registration as proof of ownership. For his part Mr Makhoul claimed that there was merely a bailment of the car. Affidavit material filed in the application to set aside the District Court judgment supported the wife's case. His Honour, after referring to non-compliance with directions, said: "Although, in a sense, the debtor may well have obtained a tactical advantage from her refusal to comply with directions given by the Court to inform the creditor of her grounds for resisting the petition, there is material before me which I must consider and which shows, for the reasons given, that there are good reasons for doubting that the debtor is truly indebted to the petitioning creditor. I am accordingly not satisfied that behind the judgment on which the petition is founded there is a debt truly due by the debtor to the creditor on the same basis on which the judgment was obtained. The petition must therefore be dismissed."

THE APPELLANT'S SUBMISSIONS It was submitted for the appellant that his Honour had erred in dismissing the petition in the following respects. (1) That having regard to the non-compliance by Ms Barnes of the directions for filing of evidence, his Honour should not have permitted that evidence to be read. (2) That almost all of the affidavit material was inadmissible and his Honour should not have allowed it into evidence. Particularly it was submitted that there was considerable evidence merely given on information and belief where the source of the information or belief was not set out as required by the Bankruptcy Rules. (3) That Ms Barnes, having agreed to the dismissal of her application to set aside the bankruptcy notice, was estopped from litigating in the petition proceedings the question whether there was in truth and reality a real debt behind the judgment. (4) That his Honour erred in finding facts contrary to the weight of the evidence. (5) That his Honour, having found there was doubt as to whether there lay behind the judgment debt a real debt, should have directed a trial of that issue. THE APPLICATION TO ADMIT FRESH EVIDENCE The application for the admission of fresh evidence was submitted to have become necessary because the appellant had been taken by surprise at the trial by the evidence adduced and in consequence fell victim to a contrivance stratagem or deception. It was submitted that, if the real evidence were looked at, there was no default in payment of maintenance, that Ms Barnes had agreed to pay the money for the land that had been sold and that Ms Barnes had at various times given conflicting accounts of the arrangements concerning the land.

The application was said to be made pursuant to O52 r36 of the Federal Court Rules. However, O1 r11 of those Rules provides that the Federal Court Rules are not to apply to proceedings under the Act. The practice and procedure of the Court in relation to proceedings under the Act are governed by the Bankruptcy Rules, subject to the immaterial exception contained in Order 41. The Bankruptcy Rules themselves make no specific reference to the question of the admission of fresh evidence on appeal. There seems little doubt, however, that s27 of the Federal Court of Australia Act 1976 (Cth) would empower the Court to take further evidence, including fresh evidence on appeal. A Full Court of this Court in Totterdell v Nelson (1990) 26 FCR 523 at 529 accepted s27 as the source of that power. As that case, however, pointed out, the general principles applicable to the admission of fresh evidence, which are of very narrow compass, are subject to an important exception where matters of public interest are involved, such that there are wider interests involved than those of the parties. Thus Toohey J in Re Australasian Meat Industry Employees' Union (WA Branch); Ex parte Ferguson (1986) 67 ALR 491 (in the context of a challenge to a union election, a matter of wider public interest than the dispute between the applicants and the union) said (at 494): "... the conventional tests for the introduction of fresh evidence are too narrow. The prevailing consideration is that the Court reaches a satisfactory conclusion in regard to those irregularities that have been mentioned and that appear to warrant consideration."

If the traditional tests set out in cases such as Council of the City of Greater Wollongong v Cowan (1954) 93 CLR 435 at 444 were applied, it would be clear that the application to admit fresh evidence would have to be rejected. What is said to be fresh evidence is not fresh evidence at all. It is all evidence which was available at the time of the trial. Although bankruptcy may be said to involve wider interests than the interests of the parties, particularly the interests of persons not parties to the petition (ie other creditors), the present is not an appropriate case for the exercise of discretion to admit such evidence. The petitioner was given every opportunity by his Honour to adjourn the proceedings if caught by surprise and to adduce, if need be, further evidence. For purposes of his own, counsel for Mr Makhoul chose not to take this course. To the contrary, counsel was concerned to ensure the case was not adjourned, no doubt having regard to the delays which had already taken place. However, where a deliberate course has been taken not to adduce evidence it would be a rare case indeed where this Court would, on appeal, permit that evidence to be tendered. The present is not such a case. In the circumstances the application for the admission of fresh evidence should be rejected.

THE OBJECTIONS TO EVIDENCE The grounds of appeal which seek to have evidence rejected, either because that evidence was filed late or because it was otherwise inadmissible, must likewise fail. Although at one stage counsel for Mr Makhoul raised objection to the reading of evidence on the grounds of lateness, that objection evaporated and was not later pressed. No doubt the reason it was not pressed was because counsel for Mr Makhoul was opposing an application by counsel for Ms Barnes for an adjournment and wished to maintain the position that there was no prejudice to his client in the matter proceeding. No objection at all was made to the admission of evidence on grounds of admissibility. To the contrary, although it was said there were one or two matters of argument to be addressed, the trial was conducted on the basis that counsel for the petitioning creditor was content that the affidavits tendered on the part of Ms Barnes could be read. Where a party does not object to evidence being read, it will be too late at the appeal stage for objection then to be taken when the outcome has turned out differently from that expected. The appellant has in these respects shown no error on the part of his Honour.

ESTOPPEL It is far from clear from a reading of the transcript of proceedings at first instance that the question of issue estoppel was ever raised. If it was, it was certainly raised only obliquely. Presumably his Honour did not understand estoppel to be raised because the matter is not dealt with at all in the judgment. No objection was, however, taken before us that the matter had not been raised below and should not be raised on appeal. Essentially the question is one of law and there is no dispute between the parties as to the facts. Accordingly, the matter having been argued, it is appropriate that it be dealt with. Put simply, the appellant's submission is that the application to set aside the bankruptcy notice raised before Cooper J the question whether the judgment debt which founded that bankruptcy notice reflected a genuine pre-existing debt. It is said that by agreeing to that application being dismissed, the appellant was thereafter estopped from raising at the hearing of the petition the question whether underlying the judgment upon which the petitioning creditor relied, that being the judgment upon which the bankruptcy notice was founded, there lay a true debt. The well-known decision of the High Court in Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 509 was relied upon.

The starting point for any discussion of the law of issue estoppel in Australia is the decision of Dixon J in Blair v Curran (1939) 62 CLR 464 at 531-33 where his Honour said: "A judicial determination directly involving an issue of fact or of law disposes once for all of the issue, so that it cannot afterwards be raised between the same parties or their privies. The estoppel covers only those matters which the prior judgment, decree or order necessarily established as the legal foundation or justification of its conclusion, whether that conclusion is that a money sum be recovered or that the doing of an act be commanded or be restrained or that rights be declared. The distinction between res judicata and issue-estoppel is that in the first the very right or cause of action claimed or put in suit has in the former proceedings passed into judgment, so that it is merged and has no longer an independent existence, while in the second, for the purpose of some other claim or cause of action, a state of fact or law is alleged or denied the existence of which is a matter necessarily decided by the prior judgment, degree or order. Nothing but what is legally indispensable to the conclusion is thus finally closed or precluded. In matters of fact the issue-estoppel is confined to those ultimate facts which form the ingredients in the cause of action, that is, the title to the right established. Where the conclusion is against the existence of a right or claim which in point of law depends upon a number of ingredients or ultimate facts the absence of any one of which would be enough to defeat the claim, the estoppel covers only the actual ground upon which the existence of the right was negatived. But in neither case is the estoppel confined to the final legal conclusion expressed in the judgment, decree or order. In the phraseology of Coleridge J. in R. v. Inhabitants of the Township of Hartington Middle Quarter [(1885) 4 E & B 780 at 794] the judicial determination concludes, not merely as to the point actually decided, but as to a matter which it was necessary to decide and which was actually decided as the groundwork of the decision itself, though not then directly the point at issue. Matters cardinal to the latter claim or contention cannot be raised if to raise them is necessarily to assert that the former decision was erroneous. In the phraseology of Lord Shaw, a fact fundamental to the decision arrived at' in the former proceedings and the legal quality of the fact' must be taken as finally and conclusively established. ... But matters of law or fact which are subsidiary or collateral are not covered by the estoppel. Findings, however deliberate and formal, which concern only evidentiary facts and not ultimate facts forming the very title to rights give rise to no preclusion. Decisions upon matters of law which amount to no more than steps in a process of reasoning tending to establish or support the proposition upon which the rights depend do not estop the parties if the same matters of law arise in subsequent litigation."

It was not suggested in the present case that there could be a res judicata arising out of the dismissal of the application to set aside the bankruptcy notice. The submission was confined to issue estoppel. In determining whether in the present case there has been an issue estoppel it is necessary to resolve a series of questions. First, as Blair v Curran and Ramsay v Pigram (1967-8) 118 CLR 271 at 277 per Barwick CJ both emphasise, it will be necessary to identify the precise issues necessarily decided in the first proceeding to determine whether any of them is identical with an issue sought to be raised in the subsequent proceeding. Secondly it must be decided whether it is necessary before an issue estoppel arises that the issue be the subject of an actual decision given after argument or whether the estoppel can arise where the proceedings are disposed of by consent. Thirdly, it must be determined whether the decision of the issue is a final decision on that issue. Finally there must be asked whether the case is one to which the decision of the High Court in Anshun has relevance. THE ISSUES INVOLVED Where an application is made to set aside a bankruptcy notice the dismissal of that application clearly involves a finding that the bankruptcy notice is valid. If the attack goes to the form of the notice, as on any view of the matter it did in the present case, the dismissal of the application will thus involve the finding that in form the bankruptcy notice was valid. As the judgment of Gummow J in Olivieri v Stafford (1980) 24 FCR 413 at 431 points out, it was settled practice in England that the question whether there was in truth a debt underlying the judgment upon which a bankruptcy notice was founded should not be taken upon the hearing of an application to set aside the bankruptcy notice but left for determination until the hearing of the petition. Thus in that country the only basis for impeaching a bankruptcy notice depended upon form. Clearly therefore in England the dismissal of an application to set aside a bankruptcy notice could never involve a finding that there was no real debt underlying the judgment upon which the bankruptcy notice was founded. There is much to be said as a matter of policy for a practice that ensures that the question whether there is a real debt can arise only at one defined stage in bankruptcy proceedings, whichever that stage may be. It may also be said that the resolution of the question whether a bankruptcy notice should be set aside involves no question of discretion as is involved at the petition stage and discussed later so that it may well be more consistent with principle to examine the existence of a debt at the petition stage rather than on an application to set aside the bankruptcy notice. However, Gummow J also points out the English practice was not adopted in Australia from at least as early as the decision in Re Murray; Ex parte Mercantile Bank (1890) 6 WN (NSW) 104, a decision under the Bankruptcy Act 1887 (NSW). In that case the Court proceeded upon the ground that an application to set aside a bankruptcy notice could be made on the basis that the Court could go behind the judgment upon which the notice was founded. The New South Wales practice gained support from r95 of the Bankruptcy Rules then in force which provided that any objection to a bankruptcy notice MUST be taken on the hearing of the application to set aside the bankruptcy notice: cf In Re Riviere; Ex parte Original Mont de Piete Ltd (1920) 20 SR 77 at 84. The present rules contain no such requirement. However, as Gummow J points out, it seems now to be generally accepted that the Court will, on the application of a debtor, in an appropriate case go behind the judgment referred to in the bankruptcy notice on an application to set that notice aside: cf, for example, Re Sterling; Ex parte Esanda Ltd (1980) 44 FLR 125 at 129. On such an application the onus lies on the debtor to establish that the bankruptcy notice should be set aside, for example, on the basis that the judgment is based upon an invalid agreement (Wilkinson v Osborne (1915) 21 CLR 89) or is not founded on a genuine debt of the debtor (Re Sterling). The question of whether or not the Court might be satisfied, should a petition subsequently be based upon any failure to comply with the bankruptcy notice, that for sufficient cause a sequestration order ought not to be made, does not arise at this stage. The only High Court authority dealing directly with a case where a debtor sought to go behind a judgment on an application to set aside a bankruptcy notice is Wilkinson v Osborne where the Court accepted without argument that it could, in an appropriate case, go behind the judgment and in fact did so. That case, likewise, was a decision on the 1898 Bankruptcy Act of New South Wales and r95 of the Bankruptcy Rules was also applicable. No case appears to have expressly considered the relevance of r95 to the New South Wales practice or whether the fact that there is now no comparable rule should involve a different conclusion. The matter was not addressed in argument and the parties proceeded on the basis that it was appropriate to litigate the question on an application to set aside the bankruptcy notice. There is room for argument whether the grounds of the application to set aside the bankruptcy notice made by Ms Barnes did raise the question whether there was an underlying debt. However, on balance, it should be so construed, having regard to the contention contained in it, that there had been a miscarriage of justice in circumstances where the merits of the husband's claim had not been determined. In these circumstances it can be said that an issue involved in the application to set aside the bankruptcy notice was whether the judgment upon which the bankruptcy notice was based was founded upon a real debt. The judgment of Spender J in Re Neal (1994) 123 ALR 614 is distinguishable. In that case the debtor sought to set aside a second bankruptcy notice based on the same judgment debt as founded an earlier notice which had been set aside because subsequent to the judgment there was a deed of compromise which released or operated to stay the judgment debt. To permit the second bankruptcy notice to stand would have involved an inconsistent judgment and an issue estoppel arose. The issue of the second bankruptcy notice involved an abuse of process and for this reason too the notice was set aside. When a petition comes on for hearing, s52 of the Act imposes upon the Court a duty to require proof, inter alia, of all matters stated in the petition. For this purpose the Court may accept the affidavit verifying the petition as sufficient proof. Among the matters required to be proved will be the commission by the debtor of an act of bankruptcy. Additionally the creditor will need to show a presently existing debt in the amount of at least $1,500 (where only one debt is sought to be relied upon). While there is nothing in the terms of s44(1) which expressly requires the debt to have accrued at any particular time provided that at the time of petition it is due and payable either immediately or at a certain future time, it has long been accepted that the petitioning creditor's debt must have accrued due before the act of bankruptcy upon which the petition is founded: Moss v Smith (1908) 1 Camp 489; 170 ER 1031; Re Mendonca; Ex parte Commissioner of Taxation (1969) 15 FLR 256; Taylor v Commissioner of Taxation (1987) 16 FCR 212. Thus, generally speaking, where a petitioner has obtained a judgment which founds a bankruptcy notice, which judgment remains unsatisfied, the petitioning creditor will need to rely upon the debt underlying that judgment as founding as well the entitlement to a sequestration order. Where no application had been made to set aside a bankruptcy notice, the Court, if not accepting the affidavit verifying the petition, would need to be satisfied that the notice purporting to be a bankruptcy notice was indeed such a notice. Put in another way, if there were a question as to the validity of the bankruptcy notice involving matters of form, that question could be litigated at the time of petition. Likewise, it is well established that at the time of petition, at least where the matter has not been litigated in an application to set aside the bankruptcy notice, the Court will consider in an appropriate case whether a real debt lies behind the judgment: Corney v Bryan (1951) 84 CLR 343; Wren v Mahoney (1972) 126 CLR 212. The Court will not, however, inquire into the validity of a judgment debt as a matter of course for the Court has a discretion to accept proof of the judgment as satisfactory proof of the petitioning creditor's debt. The nature of that discretion is discussed by Barwick CJ in Wren v Mahoney at 224. In addition, if the Court is satisfied by the debtor either that he or she is able to pay his or her debts, or that for other sufficient cause a sequestration order ought not to be made, it may dismiss the petition (s52(2) of the Act).

In a case where the Court, having concluded that it would be appropriate to inquire into the judgment debt, does so inquire and in the result is unable to be satisfied that there was consideration for it, the Court will exercise its discretion against the making of a sequestration order. The creditor will not have satisfied that burden on it of establishing the case for the making of the petition (Wolff v Donovan (1991) 29 FCR 480). The Court, however, does not determine as an issue between the parties the ultimate question whether the judgment debtor is indebted to the judgment creditor in the amount claimed. The judgment remains and an order dismissing the petition would not found an estoppel if a subsequent petition were presented: R v Henderson (1890) 8 AC 720 at 730; In Re Vitoria; Ex parte Vitoria [1894] 2 QB 387. Similarly, if the Court finds at the petition stage that the bankruptcy notice was not valid as a matter of form, it is hard to imagine that the Court would have a discretion nevertheless to make a sequestration order. The Court would be bound to dismiss the petition. Although s52(2) uses the word "may" it would not seem that a court could proceed to make a sequestration order if there were not proof of the matters of which s52(1) requires proof.

Failure to show a real debt underlying the judgment gives rise to a discretion, in the sense discussed above, to refuse to make a sequestration order, notwithstanding that evidence of the judgment has been tendered. Once the validity of the bankruptcy notice has been established in proceedings to set aside that notice, failure to comply with it will automatically give rise to an act of bankruptcy. In the present case, an issue estoppel would have arisen at the conclusion of the proceedings to set aside the bankruptcy notice as to the validity of that notice. A court would not, at the petition stage, entertain a submission that no act of bankruptcy had been committed on the grounds that the bankruptcy notice was invalid for Cooper J had ruled on its validity. However, the Court has a discretion whether to make a sequestration order even where an act of bankruptcy has been committed. If the Court determines that the circumstances are such that the Court should go behind the judgment debt relied upon in a bankruptcy notice and having done so is not satisfied that there has been shown to be real consideration for it, it will, in the sense discussed above in the exercise of that discretion, dismiss the petition notwithstanding a proved act of bankruptcy. Where the Court has already investigated that question on an application to set aside the bankruptcy notice, it would no doubt rarely, if ever, do so again. But this is not because an issue estoppel has been raised. It is because the debt has already been investigated by the Court so that it would not be an appropriate case to revisit the matter. Rather, the Court would (at least ordinarily) accept the judgment as evidence of the debt. In other words, because the Court at the petition stage does not actually decide as between the parties that no debt existed but rather only whether the circumstances are such that in the exercise of discretion a sequestration order should not be made, the decision not to set aside the bankruptcy notice does not involve the same issue as arises on the petition so as to found an issue estoppel. Although this makes consideration of the remaining questions unnecessary, they may be shortly disposed of. WHETHER ISSUE ESTOPPEL ARISES WHERE APPLICATION DISMISSED BY CONSENT

While the formulation of the principle of issue estoppel contained in Blair v Curran could be read as contemplating that the relevant issue be one actually decided by a court after argument and adjudication, it seems now to be clear that a judgment entered by consent is as much a judgment as one obtained after a full argument and as such capable of founding an estoppel: see Spencer-Bower and Turner Res Judicata 2d Ed 1969 at 37 and cases cited at Note 5. Thus, provided it is clear what the issues involved in the consent order may be, those issues will be taken as having been conclusively determined so as to prevent there being raised in subsequent proceedings: cf Thompson v Moore (1889) 23 LR Ir 599. Those issues may be determined from the pleadings or, as here, from the application to set aside the bankruptcy notice. The position may be different when judgment is entered because of procedural default (TRAM Pty Ltd v The Grand Hotel Pty Ltd (1993) 170 LSJS 313). HAS THE ISSUE BEEN FINALLY DETERMINED? It has been suggested that an issue determined in interlocutory proceedings will not give rise to an issue estoppel: Whitemark Pty Ltd v Cann Australia Pty Ltd (French J, unreported, 31 March 1993 at 6). We think this proposition to be too broadly expressed. There is authority that, in certain circumstances where an issue is finally determined in what are interlocutory proceedings, an issue estoppel may arise: Carl Zeiss Stiftung v Raynor & Keeler Ltd (No.3) [1970] Ch 506 at 538-539; Joseph Lynch Land Co Ltd v Lynch [1995] 1 NZLR 37 (CA) at 42-43. These cases suggest that the correct approach is to consider whether in the circumstances it is reasonable to regard the earlier decision as a final determination of the issue which one of the parties wishes to raise again: Joseph Lynch Land Co Ltd at 43, rather than to restrict consideration to the nature of the proceedings.

The parties to the present appeal have not clearly accepted that a ruling in the application to set aside the bankruptcy notice, as to whether the judgment debt is one which will be acted upon in the bankruptcy jurisdiction of the Court, should be finally decisive between them on that issue. Neither their conduct nor the nature of the application brought would lead to that conclusion. In those circumstances it would be unreasonable to hold that the dismissal of the application precluded the respondent from raising that issue on the hearing of the petition. WHETHER THE ANSHUN PRINCIPLE SHOULD BE APPLIED

Counsel for the appellant relied upon the decision of the High Court in Anshun as authority for the proposition that an issue estoppel arose, not merely with respect to matters actually decided in the proceedings to set aside the bankruptcy notice, but also in respect of all matters which might have been brought forward: cf Henderson v Henderson (1843) 3 Hare at 115, 67 ER at 319. As the joint judgment of Gibbs CJ, Mason and Aicken JJ points out, Anshun was not a case of issue estoppel in the strict sense. Nor was it a case of res judicata. Indeed there is a warning given in the joint judgment (at 598) that the application of the extended principle expressed by Sir James Wigram VC in Henderson v Henderson (supra) should be treated with caution in the case of its application to issue estoppel. The so-called extended principle of estoppel in Henderson has no relevance here because the existence of the underlying debt was, in any event, put in issue in the proceedings to set aside the bankruptcy notice: cf Re Isabell v Reginald St Leon; Ex parte National Australia Bank Ltd (unreported, Lindgren J, 19 December 1994). To the extent that Anshun has any relevance to the present submission, it can only be as authority for the proposition that a party is estopped from raising in a second case an issue in circumstances where the determination of that issue could give rise to two inconsistent judgments. It is true that a decision that a sequestration order be made would invariably involve a finding that there has been an act of bankruptcy. In the present circumstances that would mean both that there has been a valid notice and that there has been a failure to comply with it. Such a finding would be inconsistent with an earlier finding that the bankruptcy notice was invalid because there was no real debt. However the converse is not the case. The dismissal of a petition does not involve a finding inconsistent with the validity of the bankruptcy notice. It involves, as has already been pointed out, merely the finding that the circumstances of the case do not warrant the exercise of the discretion to make the sequestration order. In the circumstances there is no warrant for applying the extended principle referred to in Anshun.

WHETHER DRUMMOND J ERRED IN DISMISSING THE PETITION

The appellant's submission is that his Honour erred, having found that there was doubt as to the question whether there was behind the judgment a real debt, in not ordering then a trial of the issue. The submission ultimately relies upon the use by his Honour of the word "accordingly" in the passage earlier cited. It is clear that in not all cases will the Court go behind a judgment debt to see if there is a real consideration. It will do so only where reasons are shown for questioning whether there was really a debt: Boral Johns Perry Industry Pty Ltd v Piccardi (unreported, Full Court, Wilcox, Burchett & Hill JJ, 23 June 1989 at 13). The existence of the judgment will be prima facie evidence of the debt and the Court will not go behind the judgment as a matter of course: In re Flateau; Ex parte Scotch Whisky Distillers Ltd (1888) 22 QBD 83 at 85-6 per Lord Esher MR. As was pointed out in the judgment of Lee and Hill JJ in Wolff v Donovan there will be circumstances where the question will involve a two stage process. A party may seek to have the judge in bankruptcy decide as a preliminary question whether reason has been shown for questioning whether behind the judgment there was a real debt before proceeding to determine that issue itself. The judgment discusses an appropriate procedure to be adopted in such a case. However in other cases it will be appropriate for the two questions to be determined at the one time, as indeed happened in Wolff. What is important is that all parties be aware how the case is to proceed. Although it is not completely clear in the present case, it seems that his Honour did not decide as a preliminary question whether to go behind the debt and then proceed, from the conclusion that it was, to the conclusion that the petition should be dismissed without investigating whether there was a real debt. Rather, his Honour having investigated the question whether the petitioner had a real debt in at least the amount of $1,500 being part of the debt which founded the bankruptcy notice, was of the view that the petitioner had not satisfied the onus of showing the existence of that debt. In such a circumstance the petition would of necessity be required to be dismissed, as it was. Accordingly it has not been demonstrated that his Honour erred in dismissing the petition. WHETHER THERE WAS EVIDENCE UPON WHICH HIS HONOUR COULD MAKE FINDINGS AS HE DID

If it be correct that his Honour dismissed the petition on the basis that the petitioner had not satisfied the onus of showing the existence of a debt in at least $1,500, that conclusion was clearly open to him. No evidence at all was led in support of the debt by Mr Makhoul other than the judgment. As his Honour points out, the material in evidence on behalf of Ms Barnes, unsatisfactory although it might be, cast doubt upon the question whether there really was a debt in the amount of $1,500. There was no need for his Honour to find on the balance of probabilities what the arrangements were between Mr Makhoul and Ms Barnes, either in respect of the land the subject of the power of attorney or in respect of the car and his Honour did not. Such evidence as there was led his Honour to the conclusion that Mr Makhoul had not established the debt on the balance of probabilities. The appeal should accordingly be dismissed and the appellant pay the costs of it. I certify that this and the preceding twenty-eight (28) pages are a true copy of the Reasons for Judgment herein of their Honours. Associate:

Counsel and Solicitors L Stevens instructed by for Applicant: Stephen, Jones & Leach Counsel and Solicitors D Lewis instructed by for Respondent: John K Harris Date of Hearing: 3 August 1995 Date Judgment Delivered: 24 November 1995