Corney v Brien

[1951] HCA 31

High Court of Australia|1951-07-01|Before: Kitto JJ, Astbury J

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Source facts

Court

High Court of Australia

Decision date

1951-07-01

Before

Kitto JJ, Astbury J

Source

Original judgment source is linked above.

Judgment (35 paragraphs)

[1]

High Court of Australia Dixon, Williams, Webb, Fullagar and Kitto JJ. Corney v Brien [1951] HCA 31

[2]

ORDER Appeal allowed with costs. Sequestration order set aside. Petition dismissed with costs.

[3]

This is an appeal by W. R. Corney from an order sequestrating his estate made by the Federal Court of Bankruptcy on 17th March 1950. The respondent J. C. Brien is the petitioning creditor, the debt alleged in his petition being the sum of £517 14s. 0d. and interest due under a final judgment signed by Brien on 19th January 1949. This judgment was obtained in default of appearance to a writ issued out of the Supreme Court of New South Wales on 25th October 1948 claiming that the sum of £496 4s. 0d. was owing by the appellant and one F. J. Irvine to Brien in respect of the purchase of a Cletrac tractor. On 5th April 1949 Brien served a bankruptcy notice on Corney with which Corney failed to comply, and it was in respect of this act of bankruptcy that Corney was made bankrupt. Corney opposed the making of the sequestration order on the ground that he was not indebted to Brien in the sum of £517 14s. 0d. or in any sum whatsoever. In his affidavit he stated that the debt alleged in the petition was based upon an alleged agreement between Brien and himself for the purchase from Brien of the tractor, whereas there never was at any time any such agreement between them giving rise to such indebtedness or any part thereof. He also stated in his affidavit that on or about 12th September 1946 he and Irvine had entered into an agreement with one Newham of Lithgow for the hire of the tractor with an option of purchase and that this agreement was rescinded by mutual consent on or about 23rd October 1946 and the hiring thereby determined.

[4]

Section 56 (2) (a) of the Bankruptcy Act 1924-1950 provides that the court at the hearing shall require proof of the debt of the petitioning creditor. Under this provision the Court of Bankruptcy has undoubted jurisdiction to go behind a judgment obtained by default or compromise or where fraud or collusion is alleged and inquire whether the judgment is founded on a real debt. In Ex parte Kibble [1] Sir W. M. James L.J. said: "It is the settled rule of the Court of Bankruptcy, on which we have always acted, that the Court of Bankruptcy can inquire into the consideration for a judgment debt". Sir G. Mellish L.J. said: "It is quite clear that in the Court of Bankruptcy the consideration for a judgment may be investigated, particularly when the judgment has gone by default" [2] . This case was discussed and followed in Ex parte Lennox [3] , where the reasons why the Court of Bankruptcy will go behind a judgment debt are fully discussed. Lindley L.J. said that "the Court of Bankruptcy will not allow itself to be put in motion at the instance of a person who is not a real creditor" [4] . In In re Fraser [1] Kay L.J. said: "It is old law in bankruptcy that, neither upon an attempt to prove a debt, nor upon a petition for an adjudication of bankruptcy or a receiving order against a debtor, is a judgment against him for the debt conclusive. In Ex parte Bryant [2] Lord Eldon said: "Proof upon a Judgment will not stand merely upon that, if there is not a Debt due in Truth and Reality, for which the Consideration must be looked to"." In In re Gooch [3] Scrutton L.J. said: "The county court registrar held quite correctly that he was at liberty to go behind the judgment, and see whether there was a good debt to support it". In In re a Debtor [4] Astbury J. said "True it is that the Bankruptcy Court may, upon a prima-facie case being shown, go behind a judgment for the purpose of satisfying itself that the debt enforceable thereunder was a real debt." In Petrie v. Redmond, a case in this Court [1] , Latham C.J. said: "The court (that is, the Court of Bankruptcy) 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."

[14]

Even assuming there was an agreement between Corney and Irvine and Brien on the terms of the document, a further objection exists to the proof of the judgment debt. Clause 9 of the document is in the following terms: "If I shall at all times duly comply with the terms and conditions of this instrument and duly pay all moneys which may become payable by me hereunder if this hiring continues for the full term I may upon the expiration of the said term of hiring, elect to purchase the goods by notifying you in writing of my election but until such election the property in the goods shall remain exclusively in you and I shall be bailee thereof only Provided that nothing herein contained shall affect or restrict my implied statutory right as purchaser to complete my purchase of the goods at any time in accordance with the provisions of the statute". Corney and Irvine did not at any time comply with the terms and conditions of the document. They did not pay any of the instalments of hire. They could not and did not elect to purchase the tractor by notifying Brien of their election. Accordingly the claim in the writ that they were indebted to Brien for the purchase money was wrong. They were indebted to Brien if at all for the instalments of hire and for interest on the overdue instalments. It is to be noted that in his reasons for judgment his Honour does not refer to the freedom with which a Court of Bankruptcy goes behind a judgment obtained by default. He refers only to the court inquiring into the consideration for a judgment debt that has been obtained by fraud or collusion or where there has been some miscarriage of justice. Unless there was a sale of the tractor by Brien to Corney and Irvine there was no consideration for the purchase money. The fact that Corney and Irvine may have been indebted to Brien in a different sum for a different consideration, namely for the instalments for the hire of the tractor, is immaterial. It is clear that there was no consideration for the judgment debt. It was not a good debt irrespective of the judgment.

[20]

It is to be noted that the rule applied in such cases as Ex parte Spurrier [2] did not exclude the voluntary creditor from proof. It merely postponed him to creditors for consideration. And, if, in its application to judgments, the court had not gone beyond inquiring whether the debt upon which the judgment purported to be founded was voluntary or upon consideration, the consequences might not have been very drastic. But it seems obvious that, when once a court was persuaded to "look behind" a judgment, a wide field might be opened up, and various grounds of impeachment of the judgment might appear and be pressed upon the court. The position may have been advanced too by the language of the Act, 5 Geo. II, c. 30, s. 23, which required a creditor to make affidavit of "the Truth and Reality" of his debt. Thus Lord Eldon in Ex parte Bryant [1] says: - "Proof upon a Judgment will not stand simply upon that, if there is not a debt due in " Truth and Reality " ". It is true that he adds: - "for which the Consideration must be looked to", but the passage has often been quoted, and no limiting effect has ever been ascribed to the concluding words. In any case it is clear that more than a century ago, whether by attributing a very wide meaning to the word "consideration" or simply by a natural extension of an obviously elastic principle, the courts administering the bankruptcy law had assumed a very wide power of investigating a judgment to see whether a valid debt "lay behind" it. In Ex parte Kibble; In re Onslow [2] we find the court rejecting a judgment on the ground that the Infants' Relief Act 1874 would, if it had been raised, have afforded a good defence to the plaintiff's claim, and both James L.J. and Mellish L.J. treating the question raised as a question of "consideration". But in later cases the rule is stated in the widest terms and without any reference to "consideration". Thus in Ex parte Lennox; In re Lennox [3] , Cotton L.J. treats Ex parte Kibble; In re Onslow [4] as having decided "that, for the purpose of deciding whether there ought to be an adjudication of bankruptcy, the court will, on the application of the debtor, enter into the question whether a judgment is sufficient evidence of a debt - whether, when the facts behind the judgment are known, there is sufficient evidence to satisfy the court that a debt really existed". In the same case [1] , Lindley L.J. said: "The court will not allow bankruptcy proceedings to be had recourse to for the purpose of enforcing debts which are fictitious, and not real, even although they are in the form of judgment debts." And in In re Fraser; Ex parte Central Bank of London [2] Lord Esher M.R., referring to Ex parte Lennox [3] , 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." In Re Crum; Ex parte Noyes Bros. (Sydney) Ltd. [1] Lukin J. stated the purpose of "looking behind" a judgment as being "in order to see whether the debt alleged against the debtor justifies the exercise by the court of its jurisdiction to make a sequestration order". But an inquiry into what lies behind a judgment may be undertaken either on the petition for sequestration or when, after sequestration, a judgment creditor comes in to prove a debt: see, e.g., Ex parte Revell; In re Tollemache [2] .

[24]

I have already quoted the statement of the principle by Cotton L.J. in Ex parte Lennox; Re Lennox [4] . When the learned Lord Justice used the word "will", it is obvious that he did not mean "will always" or "will as a matter of course", and, with respect, I think that the whole trend of the cases before and since shows that he did not state the power, or the purpose for which the power might be used, too widely. 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. [1] Fry L.J. 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". Where judgment has been entered in pursuance of a compromise, ground must be shown for challenging the compromise as such before the subject matter of the judgment will be reopened. But in In re Hawkins; Ex parte Troup [2] , it was held that such a judgment should be reopened in circumstances which fell far short of fraud and merely persuaded the court that the compromise was unfair and unreasonable because one party knew certain relevant facts of which the other was ignorant. Lord Esher M.R., who was possibly prepared to go a little further in those matters than some other judges, said: "I myself should say that the question for the court is whether there is, or is not, a reasonable doubt that the judgment has been obtained by one side or the other fairly" [3] . But Lopes L.J. agreed with him in the result, though Rigby L.J. dissented. Where the party challenging a judgment entered on a compromise has acted on the advice of counsel, the judgment will not generally be reopened (see In re a Debtor [4] ), but in Ex parte Banner; In re Blythe [1] a judgment entered in pursuance of a compromise was reopened although counsel had advised the compromise. It was held that there had been a yielding to an unjust claim through fear of disclosures which were likely to be made if the "debtor", by resisting the claim, necessarily submitted himself to cross-examination as to credit. In In re Fraser; Ex parte Central Bank of London [2] the "debtor" had entered an appearance to a specially indorsed writ. He did not, however, appear on a summons under Order XIV, and judgment was entered against him on the summons. He applied to have the judgment set aside, but his application was dismissed. He appealed to the Court of Appeal, but his appeal was dismissed. It was nevertheless held by the Court of Appeal that a creditor's petition for sequestration was rightly dismissed because, on a reopening of the matter, it appeared that the "debtor" was not in law indebted and the judgment was not soundly based in law. This case perhaps goes as far as any. 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.