Commonwealth Bank of Australia v Jeans

REASONS FOR JUDGMENT 1 The applicant ('the Bank') has applied to the Court by a creditor's petition for a sequestration order under s 43 of the Bankruptcy Act 1966 (Cth) ('the Act') against the estate of the respondent ('the debtor'). The creditor's petition is based upon a debt allegedly owing by the debtor to the Bank under a final judgment entered by order of Sackville J in favour of the Bank on 16 May 2003 after a contested hearing which occupied some ten days: Deangrove Pty Ltd v Commonwealth Bank of Australia [2003] FCA 470. 2 The proceedings before Sackville J related to a facility which the Bank had provided to Deangrove Pty Ltd for property development. One of the securities required by the Bank in order to provide that facility was an unlimited guarantee from the debtor, who was the sole director and shareholder of Deangrove. The Bank held a document styled 'Deed of Guarantee' dated 12 June 1998 purportedly signed by the debtor (on p 12) as guarantor, and again (on p 13) as sole director and secretary of Deangrove by way of attestation of the affixing of the common seal of Deangrove to the document. 3 Deangrove and the debtor sued the Bank for damages for alleged misrepresentations by the Bank in relation to the facility, and the debtor applied for the guarantee to be set aside on the basis of those misrepresentations. The Bank cross-claimed against Deangrove and the debtor seeking a judgment for the amount outstanding under the facility. The cross-claim against the debtor was based on his liability under the guarantee. In the debtor's statement of claim in the Federal Court proceedings he alleged that he had executed the guarantee. He also admitted that he signed the guarantee in his defence to the Bank's cross-claim. Furthermore, in a number of affidavits filed in the proceedings, the debtor swore he had executed the guarantee. It was a fundamental premise of the case originally articulated by the debtor that he had executed the guarantee. 4 On the third day of the trial, whilst under cross-examination, the debtor asserted for the first time that he had not executed the guarantee as guarantor, although he accepted the genuineness of his signature as sole director and secretary of Deangrove. Thereafter, application was made to Sackville J for leave to withdraw the debtor's admission that he had duly executed the guarantee as guarantor, and for leave to amend the pleadings to allege that a Bank officer, Mr Cleary, who had purportedly witnessed the debtor's signature to the guarantee, had forged the debtor's signature on the guarantee. 5 Sackville J refused the leave sought: see Deangrove Pty Ltd v Commonwealth Bank of Australia[2003] FCA 268. At [28] to [35] Sackville J set out the principles to be applied to an application to withdraw an admission. After reviewing the authorities, his Honour held at [35] that: '… a party who makes a clear and distinct admission on a factual question, which is accepted and acted upon by the opponent, should not be permitted freely to withdraw that admission. Whether or not it is appropriate to grant leave will depend upon the particular circumstances of the case and an assessment of the interests of justice. The relevant circumstances include the nature of the admission, how it came to be made (for example, whether it was made deliberately or inadvertently), when and why the party seeks to withdraw the admission and the impact of any withdrawal on the other parties to the litigation.' 6 At [36] to [45] Sackville J set out the circumstances of the case that led him to the view that leave should not be granted. Among other matters, his Honour referred to the fact that: (a) the debtor had admitted that he had signed the guarantee repeatedly and deliberately; (b) having regard to the history of the litigation, the debtor had been given more than a fair opportunity to put forward any basis to challenge the validity or enforceability of the guarantee; (c) if leave to withdraw the admission were to be granted, this would open up other issues requiring exploration; (d) the issue sought to be raised by the debtor would not necessarily be determinative in his favour; and (e) an adjournment of the hearing would be required, which was not appropriate having regard to the "'lamentable history of the litigation', a state of affairs virtually wholly attributable to the failure of [the debtor and Deangrove] to comply with directions made by the Court". 7 The hearing continued resulting in the judgment referred to above. 8 An appeal to the Full Court from that judgment was dismissed: see Jeans v Commonwealth Bank of Australia Ltd [2003] FCAFC 309. The judgment of the Full Court includes the following (at [32]): 'We accept that if Mr Jeans had been given leave to withdraw the admission he had made the question whether he had executed the guarantee would have become a very significant issue in the application. While it might not, as his Honour said, have ultimately been determinative, refusal of the motion clearly locked Mr Jeans out for all time to have this issue determined. Failure to grant the motion thereby created a prejudice to Mr Jeans that could not thereafter be remedied. While this is clearly a very important matter to take into account in deciding whether leave should be granted it is not the only factor. Other factors, such as the prejudice to Mr Cleary and the Bank in dealing with the allegation of fraud some five years after the event will also be relevant. So too is the time at which the application is raised and the lack of an adequate explanation for the fact that the matter was raised at so late a time. Ultimately, as his Honour realised, the question is one of "the attainment of justice" as Dawson, Gaudron and McHugh JJ observed at 143 in JL Holdings. That involves balancing all relevant circumstances including the prejudice which must attach to one party or the other.' 9 An application for special leave to appeal to the High Court of Australia from the judgment of the Full Court was refused: see Jeans v Commonwealth Bank of Australia [2004] HCATrans 548. McHugh and Callinan JJ were not persuaded that there was any miscarriage of justice by reason of Sackville J refusing to grant the leave which the debtor had sought to withdraw the admission. 10 The debtor has given notice of intention to oppose the creditor's petition on a number of grounds. One of those grounds is that the Bankruptcy Court ought to exercise its discretion to go behind the judgment of the Federal Court in considering the creditor's petition. The ground on which the debtor seeks to go behind the judgment is the same ground on which he sought to withdraw his admission during the course of the Federal Court proceedings. He wishes to assert that he did not sign the guarantee which is the foundation of the judgment debt against him, but that his signature on that guarantee was forged by Mr Cleary. 11 On 6 May 2005 I decided, for reasons which I then gave, to determine as a preliminary question whether the debtor should be permitted to go behind the judgment of Sackville J on which the creditor's petition is based: Commonwealth Bank of Australia v Jeans [2005] FCA 569. 12 The assumptions on which that question falls for determination are implicit in the formulation of the preliminary question. They include an assumption that there is a prima facie case: (a) that the debtor did not in fact sign page 12 of the instrument of guarantee dated 12 June 1998 upon which the Bank sued him in the earlier proceedings; (b) that until the course of his cross-examination on the third day of the trial he did not realise that the signature was not his own notwithstanding his earlier admissions; (c) that the application to Sackville J to amend pleadings and to withdraw the admission as to due execution of the guarantee was made immediately upon that realisation; and (d) that there is expert evidence that supports the proposition that the signature on page 12 of the guarantee document was not written by the debtor. 13 Section 52(1) of the Act obliges the Court, on the hearing of a creditor's petition, to require proof of the matters stated in the petition, including proof that the debt on which the petition is based is owing by the debtor to the petitioning creditor. As Barwick CJ observed in Wren v Mahoney (1971-1972) 126 CLR 212 ('Wren v Mahoney') at 223, whether or not the proof of the petitioning creditor's debt is satisfactory does not concern only the immediate parties to the petition. That is because the making of a sequestration order will affect the rights of the general body of the debtor's creditors, who may not be before the Court: In re Hawkins; Ex Parte Troup (1895) 1 QB 404 at 408-409. 14 The existence of a judgment is at least prima facie evidence of the debt for which the judgment is entered, but '[T]he judgment is never conclusive in bankruptcy': Wren v Mahoney at 224. The Bankruptcy Court may accept the judgment as satisfactory proof of the petitioning creditor's debt, particularly where it resulted from a 'fully heard' contest between parties, but the Court always has the power to go behind the judgment, and to decide for itself whether the debtor is indebted to the petitioning creditor as claimed in the petition. 15 The circumstances in which the Court will enquire into the validity of a judgment debt are not closed, but it is clear that the Court will not enquire as a matter of course into that question: see Simon v Vincent J O'Gorman Pty Ltd (1979) 41 FLR 95 at 111. In Udovenko v Mitchell (1997) 79 FCR 418 at 421 Davies J said: 'The circumstances in which a court will go behind a judgment cannot be stated in a definitive manner; however there are two guiding principles. First, as Fullagar J said in Corney v Brien at 356-357: "If the judgment in question followed a full investigation at a trial on which both parties appeared, the Court will not reopen the matter unless a prima facie case of fraud or collusion or miscarriage of justice is made out." Secondly, in the same case, Dixon, Williams, Webb and Kitto JJ (at 348) cited the remarks of Latham CJ in Petrie v Redmond (1942) 13 ABC 44 at 49 that "… the court looks with suspicion on consent judgments and default judgments". Fullagar J put this point more forcefully when he said (at 357-358): "But, wherever the judgment in question is a judgment by default, it appears that the Court will always 'go behind' the judgment if there is what it regards as a bona-fide allegation that no real debt 'lay behind' the judgment".' 16 The Bank contends that this is a case, or at least analogous to a case, in which judgment was entered in its favour after a full investigation of the issues at a trial at which the parties appeared with legal representation and where they had an ample opportunity to put their case to the Court. The Bank relies upon the following observations of Fullagar J in Corney v Brian (1950-1951) 84 CLR 343 (at 356-357): 'No precise rules exist as to what circumstances call for an exercise of the power, but certain things are, I think, clear enough. If the judgment in question followed a full investigation at a trial on which both parties appeared, the court will not reopen the matter unless a prima-facie case of fraud or collusion or miscarriage of justice is made out. In In re Flatau; Ex parte Scotch Whisky Distillers Ltd Fry LJ said: "This power has never, so far as I am aware, been extended to cases in which a judgment has been obtained after issues have been tried out before a court".' 17 The debtor, on the other hand, contends that there has not been a fully contested hearing on the merits because the debtor was precluded from raising as an issue in the proceedings his contention that he did not sign the guarantee (on p 12) as guarantor. It is submitted that, upon this aspect, the case is analogous to a default judgment, and substantial reasons have been given for questioning whether there really was a debt due to the petitioning creditor. 18 In my view, the circumstances of this case are far removed from a case in which a judgment is entered by default. There was a fully contested hearing before Sackville J 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. 19 The matters on which the debtor relies as enlivening the power of the Court to go behind the judgment of Sackville J are the same matters upon which he unsuccessfully relied in support of his application to withdraw his admissions. As the decision of the Full Court on appeal from that decision demonstrates, there was no miscarriage of justice attending that decision. 20 Sackville J decided that in all of the circumstances of the case the proper administration of justice required that the debtor should be shut out from raising the issue of non-execution of the guarantee. The debtor's submission that he was prevented 'for procedural reasons' from raising the issue of non-execution is not a fair reflection of why the debtor was not permitted to raise that issue. 21 In my view, the fact that the debtor was shut out from raising the defence on which he now seeks to rely because the proper administration of justice so required provides an insufficient foundation for this Court to go behind a judgment regularly obtained. I acknowledge that in Wren v Mahoney Barwick CJ said (at 224) that whether the Court of Bankruptcy will consider 'whether there is a satisfactory proof of the petitioning creditor's debt' is not a mere matter of its own discretion. Indeed, the circumstances may be such that the Court must exercise its power to look at what is behind the judgment. However, for the reasons which I have given, this is not such a case. 22 Therefore, I decline to exercise my discretion to go behind the judgment on which the petition is based, and I determine the preliminary question accordingly. The parties should bring in short minutes of order to give effect to this determination, and for the further conduct of the proceedings. I certify that the preceding twenty-two (22) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Hely.