6.3 Should the Court go behind the Local Court Judgment?
90 Ms Kimber claimed that the Court should go behind the Local Court Judgment and set aside the overstated Bankruptcy Notice because, in effect, the judgment debt was based on a false representation of overdue levies of which the Owners Corporation was aware and, as such, the Owners Corporation was not legally entitled to make the claim that led to the Local Court Judgment.
91 Ms Kimber submitted that at the time she applied to have the Default Judgment set aside, she had no outstanding levies owing. She relied on a levy notice from Strata Choice for the period 1 September 2013 to 30 November 2013 for an amount of $938.80 which recorded "nil" against the items: "arrears", "interest on arrears", "outstanding owner invoices" and "less prepaid". Recorded in handwriting on that notice was "all paid 17/9/13". The same was the case for the levy notices issued on 30 October 2013 and 29 January 2014 for the periods 1 December 2013 to 28 February 2014 and 1 March 2014 to 31 May 2014 respectively. She further submitted, based on a letter dated 9 January 2009 from Grace Lawyers to the Owners Corporation included in her May Affidavit, that it followed that at the time the Default Judgment was set aside (i.e. 10 October 2013) the Owners Corporation was not entitled to file an amended claim because there were no levies outstanding.
92 In particular, Ms Kimber relies on the following part of that letter:
Section 80
How does an owners corporation recover unpaid contributions and interest?
(1) An owners corporation may recover as a debt a contribution not paid at the end of one month after it becomes due and payable, together with any interest payable and the expenses of the owners corporation incurred in recovering those amounts.
(2) Interest paid or recovered forms part of the fund to which the relevant contribution belongs.
It is our view that Section 80 of the Act allows for all of the Owners' legal costs incurred in recovering unpaid levies to be recoverable against [Ms Kimber] should the Owners be successful in their claim. We believe that this view is supported by the Supreme Court decision in the matter of Coshott v The Owners of Strata Plan No 48892 [2006] NSWSC 308. However, we also note the Supreme Court decision of Owners of Strata Plan 63800 v Wolfe & Ors [2007] NSWSC 204 (16 March 2007) in which the Supreme Court upheld a decision of the Local Court not to grant to the Owners Corporation their costs pursuant to Section 80 of the Act. The highlighting feature of the Wolfe case to that of the Coshott case appears to be the proposition that where an order is made for Section 80 expenses only, then such a claim may fail and that any claim, in order to succeed in as much as it seeks to recover expenses pursuant to Section 80 of the Act, should also be made together with a claim for unpaid levy contributions. It is our view that any Section 80 claim in those proceedings will be successful on the basis that it has been made together with a claim for unpaid interest and contributions.
93 Ms Kimber submitted that based on the evidence at [31] above, Strata Choice and Grace Lawyers should have known her address and should have been able to notify her of the Local Court Proceeding, of which she says she was not aware in 2009. She submitted that the fact she paid an amount for levies on 24 January 2009 of $1,804.74, as evidenced by an extract of her bank statement for January 2009 included in the May Affidavit, demonstrated that she had been in contact by telephone with somebody who had informed her of the amount due. She submitted that she made that payment believing that was the levy due without knowledge that the proceeding had been commenced against her and without being aware that additional solicitor fees had been added to her levies. She further submitted that by 24 April 2009, that is, within one month of the filing of the statement of claim of which she was unaware, she had paid everything owing except $154. She contended that, having been told on 19 March 2009 (see [29] above) that if she did not make full payment within 28 days then Grace Lawyers would seek instructions to enter judgment, she subsequently paid $1,000 to address any remaining levy arrears within this timeframe. Notwithstanding that, judgment was entered against her for the balance owing of $154 plus interest and costs. She said that she felt she had met the lawyers' instructions and that at the time, as she was not aware of additional solicitors' fees being accrued for a statement of claim that had not been served, she did not know why she still owed $154.
94 Olivieri v Stafford (1989) 24 FCR 413 was a case in which the appellant claimed that the bankruptcy notice served on him was overstated. He provided notice in accordance with s 41(5) of the Act. One of the issues raised was whether the Court should go behind the judgment on which the bankruptcy notice was based on the application to set aside the bankruptcy notice. The respondents contended that it could not do so. A majority of a Full Court of this Court (Beaumont and Gummow JJ, Sweeney ACJ dissenting) dismissed the appeal.
95 Only Gummow J considered the question of whether the Court should go behind the judgment. After referring to Corney v Brien (1951) 84 CLR 343 (Corney) and noting that it was on the basis provided by s 52(2) of the Act (concerning creditors' petitions) that the majority of the High Court in Wren v Mahony (1972) 126 CLR 212 (Wren) held that this Court "was bound to consider for itself whether what was alleged in the petition could and did establish a debt due to the petitioning creditor", Gummow J said at 427:
What the appellant sought to have the Court do in the present case was to "look behind" the District Court judgment debt at an earlier stage, namely to impugn a bankruptcy notice based on that judgment debt. This was sought in circumstances where under the provisions of the Act the time for compliance with the bankruptcy notice had been extended to permit an approach to be made to the District Court to set aside (or more appropriately on the facts of this case, to vary) the judgment in question, that application was made and was unsuccessful, and yet a further extension of time for compliance with the bankruptcy notice was in force.
96 At 429-430 his Honour said:
In Corney v Brien … Fullagar J said that an inquiry as to what lies behind a judgment might be undertaken either on the petition or after sequestration when the judgment creditor sought to prove. His Honour did not say that the inquiry might be made upon an application to set aside a bankruptcy notice based on the judgment. An early example of such an application to the court of bankruptcy is Re Murray; Ex parte Mercantile Bank (1980) 6 WN (NSW) 104, a decision upon the Bankruptcy Act 1887 (NSW). The decisions to which I have referred above carry over that procedure to the Bankruptcy Act 1924 (Cth) and to the present Act.
The procedure evinced by those authorities is in my view too deeply entrenched to be displaced at this stage; I would not construe the 1980 amendments to s 41 of the Act as meaning that the sole means by which a judgment may be looked behind upon a motion to set aside a bankruptcy notice is by extending the time for compliance with the bankruptcy notice so as to permit sufficient time for an application to the relevant court to set aside or vary the judgment in question. …
What is crucial to the present appeal is an understanding of the basis of the jurisdiction of this Court to set aside bankruptcy notices. In my view, the Court permits the debtor to go behind the judgment so as to have the bankruptcy notice set aside, on the footing that the Act is not given effect to or not carried out if a bankruptcy notice has been issued for a debt which is liable to be set aside or varied such that the creditor does not have a debt upon which bankruptcy proceedings can be founded. I refer later in these reasons to authority for that proposition. …
97 Those comments by Gummow J suggest that in an appropriate case the Court can go behind a judgment on which a bankruptcy notice is based so as to consider whether it should be set aside. The Owners Corporation did not suggest to the contrary and I accept that course is open on this application. The question is, as articulated by Gummow J, whether a bankruptcy notice has been issued for a debt that is liable to be set aside or varied so that the creditor would not have a debt on which bankruptcy proceedings can be founded.
98 I turn then to consider the circumstances in which a Court can go behind a judgment. They were recently considered by the High Court in Ramsay Health Care Australia Pty Ltd v Compton (2017) 345 ALR 534; [2017] HCA 28 (Ramsay). Ramsay Health Care Australia Pty Ltd (Ramsay) had obtained judgment against the respondent, Mr Compton. It then had a bankruptcy notice issued and served on Mr Compton who did not comply with it. Ramsay presented a creditor's petition. Mr Compton filed a notice of grounds of opposition contending that no debt was owing and that the Court should go behind the judgment upon which the creditor's petition was based.
99 The plurality of the High Court (Kiefel CJ, Keane and Nettle JJ) commenced their analysis by referring to the decision of the High Court in Corney. Their Honours said at [39] that:
… The plurality in Corney 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.
(footnotes omitted)
100 Their Honours then considered the decision in Wren at [42]-[44] noting that:
42. In Wren, 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."
43. 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 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.
44. Secondly, Wren 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.
(footnotes omitted)
101 At [48]-[49] their Honours said:
48. Wren 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."
49. 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.
(footnotes omitted)
102 At [68] the plurality noted that, "[f]or the purposes of s 52 of the Act, a judgment may usually be taken to be sufficient evidence of a debt … [because] a judgment against a debtor in favour of a creditor obtained after trial is, generally speaking, a reliable indication of the true state of indebtedness" between those parties. Their Honours acknowledged that "the testing of the relevant 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 proceeding" and that, in those circumstances, "a Bankruptcy Court will usually have no occasion to investigate whether the judgment debt is a true reflection of the real debt". However, their Honours also noted that where the merits of the claim or counter-claim had not been tested in adversarial litigation, a judgment debt would not have that practical guarantee of reliability. Their Honours then said at [69]-[70]:
69. In Petrie, 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."
70. The first two sentences of that passage were cited with evident approval by Dixon, Williams, Webb and Kitto JJ in Corney. 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.
(footnotes omitted)
103 I turn then to consider whether, in this case, there is sufficient reason to question whether there is a real debt behind the Local Court Judgment and, if there is to then determine that issue.
104 Ms Kimber did not appeal the Local Court Judgment. There is evidence that Ms Kimber prepared a notice of intention to appeal for filing in the District Court but she accepted that it was never filed and she never pursued an appeal. The Local Court Judgment was obtained after a contested hearing. It is evident from the material relied on before me that the parties were given an opportunity to provide evidence and to make submissions to that court. The Local Court Judgment was not obtained by default or in the absence of Ms Kimber nor could it be said that there was any fraud or collusion which resulted in the obtaining of that judgment, being the most frequent, but not the only circumstance in which the Court will go behind a judgment: Ramsay at [48]-[49].
105 Ms Kimber is not satisfied with the outcome of the contested hearing. Her submissions suggest that the result was wrong in law but she did not appeal the Local Court Judgment, which she was entitled to do. Ms Kimber complains that she was not aware of the Local Court Proceeding. That may have been so at the time of its commencement but the evidence shows that by 19 March 2009 she was aware of the proceeding and was on notice that, if she did not pay the full amount due, judgment would be entered against her. The Default Judgment was then entered because Ms Kimber failed to pay the full amount due, albeit only by a small amount. The Default Judgment was successfully set aside by Ms Kimber some four years later and, after several interlocutory steps and a contested hearing, the Local Court Judgment was entered.
106 Ms Kimber was not legally represented in the Local Court Proceeding and in particular at the hearing which resulted in the Local Court Judgment. The evidence discloses that she has had no legal representation in any of the proceedings referred to above, either before the Local Court, NCAT, the Supreme Court or in this Court. I accept that self-represented litigants face challenges in presenting their case to the court but that fact in and of itself does not mean that Ms Kimber was not able to argue her case on the merits before the Local Court. Ms Kimber has not provided any evidence to suggest otherwise nor has she satisfied me that there was any other reason for the Court to go behind the Local Court Judgment, for example, by establishing that there was any arguable error in that judgment. There are no special circumstances evident here. Taking account of all the circumstances, I am not satisfied that I should exercise my discretion to go behind the judgment.