Sharpe v CNH Capital Australia Pty Limited

Sharpe v CNH Capital Australia Pty Limited - [2018] FCA 49 - FCA 2018 case summary — Zoe

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A INTRODUCTION AND BACKGROUND 1 The appellant, Mr Sharpe, seeks an order that a sequestration order made by the Federal Circuit Court against his estate be set aside and that a creditor's petition presented by the petitioning creditor, CNH Capital Australia Pty Ltd (CNH), be dismissed. 2 Although there are subtleties in the argument, in broad terms, the appeal raises for consideration whether the primary judge erred in identifying when a Bankruptcy Court would "go behind" a judgment following a contested hearing and relatedly erred in finding that there was no substantial reason shown for questioning whether there was "in truth and reality" a debt owed by Mr Sharpe, as alleged by CNH. 3 In order to understand how these issues arise, it is necessary to provide a short chronology of the circumstances that led to the making of the sequestration order: (a) in July 2008, CNH and Mr Sharpe entered into a finance agreement (Finance Agreement) pursuant to which CNH agreed to loan $303,124.63 to Mr Sharpe; this amount was secured by a mortgage granted by Mr Sharpe to CNH over certain farm equipment (Mortgage); it is now common ground that the amount owing to CNH pursuant to the Finance Agreement was a "farm debt" secured by a "farm mortgage" (being the Mortgage) as those terms are defined in s 4 of the Farm Debt Mediation Act 1994 (NSW) (FDMA); (b) by July 2010, Mr Sharpe had defaulted in making monthly repayments pursuant to the terms of the Finance Agreement and, by November 2010, CNH had issued a "Notice of Termination and Demand for Payment" to Mr Sharpe, requiring payment of the whole amount due pursuant to the terms of the Finance Agreement; (c) Mr Sharpe did not comply with the demand and, in December 2010, CNH commenced proceedings in the District Court of New South Wales (First Proceeding); prior to the First Proceeding, notice had not been given by CNH to Mr Sharpe, in accordance with s 8 of the FDMA, of the intention of CNH to take enforcement action and of the availability of mediation under the FDMA; (d) prior to the First Proceeding, Mr Sharpe had issued to CNH a notice pursuant to s 9(1A) of the FDMA; this section allows a farmer who has not been given a s 8 notice by a creditor under the FDMA, "but who owes money to a creditor in relation to a farm debt", to notify the creditor in writing of a request for mediation concerning a farm debt (I pause the narrative to note that, as is evident from the quoted words, a statutory precondition for the service of a s 9(1A) notice is that the farmer giving the notice does owe money to a creditor in relation to a farm debt); (e) in any event, the First Proceeding was heard in July 2011 but final submissions were not made until June 2012; a month earlier, on 8 May 2012, a mediation took place and, on 18 June 2012, the New South Wales Rural Assistance Authority issued what was said to be a "Section 11 Certificate" to CNH which stated that "pursuant to [s 11 of the FDMA] the New South Wales Rural Assistance Authority is satisfied that the [FDMA] does not apply to the farm mortgage" (Certificate); accordingly, as can be seen, the Certificate was only obtained during the currency of the First Proceeding; (f) in August 2012, judgment was delivered in the First Proceeding and it was held that the action taken by CNH to recover the alleged debt was "void" by reason of non-compliance with the requirements of the FDMA; this was because s 6 of the FDMA provides that "enforcement action taken by a creditor to whom [the FDMA] applies otherwise than in compliance with the [FDMA] is void"; as would already be obvious, it was common ground that CNH had not given notice nor obtained a certificate pursuant to s 11 of the FDMA prior to the commencement of the First Proceeding; (g) in October 2012, CNH issued a further "Notice of Demand for Payment" to Mr Sharpe, which referred to the prior termination of the Finance Agreement and demanded repayment of the monies owing; (h) again, following a failure to comply with the demand, CNH commenced further proceedings in the District Court to recover the amount outstanding (Second Proceeding); importantly, there had been no further mediation between the termination of the earlier enforcement action, being the First Proceeding, and the commencement of the further enforcement action, being the Second Proceeding; in commencing the Second Proceeding, CNH relied on the Certificate, which had been given during the pendency of the First Proceeding, as having the result that CNH was not required to serve a s 8 notice prior to commencement of the Second Proceeding (the requirement to serve a notice by the creditor under s 8 does not apply if "a certificate is in force under section 11 in respect of the farm mortgage": see s 8(3) of the FDMA); (i) on 24 June 2014, the District Court gave judgment in favour of CNH against Mr Sharpe in the sum of $342,272.28 (Second Judgment) and ordered Mr Sharpe to pay the costs of CNH; during the course of the Second Proceeding, Mr Sharpe was self-represented and argued, among other things, that the Certificate was invalid; this argument, among many others, was rejected by the District Court; although Mr Sharpe filed a notice of intention to appeal in the Supreme Court of New South Wales on 25 June 2014, no appeal was ultimately pursued; (j) on 26 June 2014, Mr Sharpe filed a notice of motion seeking a stay in respect of the Second Judgment; the notice of motion was dismissed by the District Court in December 2014; (k) on 8 May 2015, CNH issued a bankruptcy notice on the basis of the Second Judgment; on 4 November 2015, Mr Sharpe applied to the Federal Circuit Court to have the bankruptcy notice set aside, but this application was dismissed in May 2016 (Sharpe v CNH Capital Australia Pty Ltd [2016] FCCA 1113); the decision of the Federal Circuit Court to dismiss the application to set aside the bankruptcy notice was not the subject of any appeal; (l) in June 2016, CNH filed a creditor's petition (Petition), which, at [1], averred: The Respondent Debtor owes the Applicant Creditor the amount of Three Hundred and Forty Two Thousand, Two Hundred and Seventy Two Dollars and Twenty Eight Cents ($342,272.28) being the amount of loan moneys due to the Applicant Creditor by the Respondent Debtor and for which sum judgment was entered in the Parramatta District Court of NSW having Case No 2012/00336219 on 24 June 2014 and which together with the interest thereon (at the rate of 8.5% from 25 June 2014 to 8 May 2015) being $25,346.90, makes a total of $367,619.18. (m) a notice of opposition was filed which contained multifarious grounds, none of which precisely captures the arguments advanced on the appeal; in any event, the primary judge rejected Mr Sharpe's entreaty to go behind the Second Judgment and, following the hearing of the Petition, the primary judge made the orders against which this appeal is brought. 4 Having set out the background, I now turn to how the primary judge dealt with the submissions made below by Mr Sharpe, which remain relevant.

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B THE RELEVANT ASPECTS OF THE PRIMARY JUDGMENT 5 After reciting the background facts and the evidence read in support of the Petition, the primary judge referred to s 52(2) of the Bankruptcy Act 1966 (Cth) (Act) which relevantly provides that the Court may dismiss the petition if it is satisfied the debtor is able to pay his or her debts or "that for other sufficient cause a sequestration order ought not to be made". Although noting that Mr Sharpe's arguments were difficult to follow, his Honour understood that Mr Sharpe contended that the Court ought go behind the Second Judgment and be satisfied that there was some "other sufficient cause" for which a sequestration order against the estate of Mr Sharpe ought not be made. Of the arguments persisted in on the appeal, albeit in a different guise, this contention was based on an assertion that the enforcement action which led to the Second Judgment was "otherwise" than "in compliance" with the FDMA and was "void" within the meaning of s 6 of the FDMA. 6 Turning to the basis upon which a Bankruptcy Court should exercise its discretion to go behind a judgment, the primary judge observed at [20]-[25]: [20] The principles in relation to going behind a judgment were summarised as follows by Robertson J in Xu v Wan Ze Property Development (Aust) Pty Ltd (in liq) (2014) 315 ALR 523; [2014] FCA 461 at [55]ff: • The Court may, in an appropriate case, go behind a judgment to see whether in truth and reality a debt is due from the judgment debtor to the judgment creditor: Corney v Brien (1951) 84 CLR 343; [1951] HCA 31 ("Corney") and Wren v Mahony (1972) 126 CLR 212; [1972] HCA 5; • An appropriate case may include a judgment debt that has been obtained by fraud or collusion (sic) where there has been some miscarriage of justice: Corney at 347-348 and 352-353 and Emerson v Wreckair Pty Ltd (1992) 33 FCR 581 at 588; • 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 case of fraud or collusion or miscarriage of justice is made out: Corney at 356; • The inquiry involved is a two-stage process enquiry: first, as to whether there is sufficient reason to question the existence of a real debt behind the judgment; and second, if there is, determining that issue. These two steps may be determined together: Makhoul v Barnes (1995) 60 FCR 572 at 584 and Wolff v Donovan (1991) 29 FCR 480. [21] In deciding whether to go behind the judgment of the District Court, it is relevant to recall that Mr Sharpe has never claimed that he did not owe a significant amount of money to CNH. Mr Sharpe admitted it on the pleadings in both sets of District Court proceedings and did not dispute it in this Court. At their highest, Mr Sharpe's arguments amount to a claim that, while he owes CNH hundreds of thousands of dollars, CNH simply cannot enforce that debt. That outcome alone suggests, in my view, sufficient reason not to go behind the judgment of the District Court. There are, as will be seen, other reasons for the same conclusion. [22] The first is that the District Court proceedings were fully contested. Some of the arguments relied on by Mr Sharpe in these proceedings were heard and rejected by Judge Delaney. [23] The second is that, subject to what follows, there was no allegation of fraud, collusion or any miscarriage of justice. The qualification to this is that, at the hearing of this matter, Mr Sharpe argued that Judge Delaney was not informed of a particular matter: namely, that there had been a mediation prior to his Honour's first judgment in August 2012. Mr Sharpe argued that, if his Honour had been informed of that fact, there may have been a different outcome such as the making of a declaration that the certificate issued by the Authority was invalid. This argument relied on the proposition that there had been no "satisfactory mediation" and so the Authority could not have been satisfied that such a mediation had taken place. I will deal with that argument more fully below. It is sufficient for present purposes to note that, even accepting that that was correct and that the District Court had the jurisdiction to make a declaration to that effect, none of this amounts to a miscarriage of justice. [24] The judgment in question arose out of the second District Court proceedings, not the first and, more importantly, the first judgment was in Mr Sharpe's favour. Critically however, Mr Sharpe, who was legally represented at the time of the first proceedings and during the course of the mediation, was just as aware of the mediation as CNH was and, as such, was able himself, to make the Judge aware of the mediation. In those circumstances there was no miscarriage of justice, or any other basis upon which to go behind the 2014 judgment on which the bankruptcy notice was based. [25] The third reason is that Mr Sharpe's arguments rely on a construction of the FDM Act which is inconsistent with its purpose and should not be accepted. 7 The primary judge then explained the construction argument advanced by Mr Sharpe below which, although resting on the ultimate contention that the Certificate was invalid, was different in terms to the attack on the validity of the Certificate as advanced on appeal. His Honour found that the argument as to invalidity made by Mr Sharpe was misconceived. 8 In any event, for the reasons explained, the primary judge: (a) declined to go behind the judgment; and (b) found that "other sufficient cause" had not been established to persuade him to decline making a sequestration order. The detail of the reasoning of his Honour extracted at [6] above is important and I will come back to it below.

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C MR SHARPE'S CONTENTIONS ON APPEAL 9 When the appeal was first commenced, Mr Sharpe represented himself, as he had done below. It is fair to say, without intended disrespect, that the initial arguments advanced by Mr Sharpe were less than pellucid. In circumstances where it seemed that there may be an issue as to whether the Certificate, obtained during the currency of enforcement action, could be a valid s 11 certificate under the FDMA (and that this contention may perhaps be relevant to the exercise of any discretion as to whether to go behind a judgment), I considered it appropriate that Mr Sharpe have the benefit of legal assistance. Mr Sharpe was referred for such assistance under FCR 4.12 and was represented at the hearing of the appeal by Ms Kaur-Bains (leading Mr Bagley), instructed by Jackson & Associates. I particularly wish to record my appreciation to both counsel and their solicitors for assisting Mr Sharpe on the referral. The Court has been greatly assisted by Ms Kaur-Bains' representation of Mr Sharpe, which has allowed for clarity to emerge in relation to the arguments that could be advanced on his behalf. 10 As to these arguments, it is convenient to commence by identifying the two core propositions now advanced on behalf of Mr Sharpe: (a) that at the time CNH petitioned, there was no debt owing to CNH by Mr Sharpe that was payable either immediately or at a certain future time within the meaning of s 44(1)(b)(ii) of the Act; and later, at the time of the making of the sequestration order, the primary judge ought not have been satisfied that the debt upon which CNH relied was "still owing" within the meaning of s 52(1)(c) of the Act (No Debt Owing Contention); (b) that the primary judge fell into error in his statement of the circumstances in which the Bankruptcy Court would go behind a contested judgment and that, in all the circumstances of the case, the proper exercise of discretion required the Court to go behind the Second Judgment (Principled Exercise of Discretion Contention).

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D.1.1 Part IV and Debts Generally 11 Part IV, Div 2 of the Act deals with creditors' petitions. In considering Mr Sharpe's argument about the lack of a debt owing to CNH at relevant times, it is worth stating three well-established propositions about the role of a 'debt' in the usual process of bankruptcy proceedings: (a) while the debt need not be the same debt as was relied upon for the anterior act of bankruptcy, the debt relied upon must, however, be a debt which existed at the time of the act of bankruptcy: Re Mendonca; Ex parte Commissioner of Taxation (1969) 15 FLR 256 at 257 per Gibbs J; Australia and New Zealand Banking Group Ltd v Coutts [2003] FCA 968; (2003) 201 ALR 728 (Conti J); Re Tait; Ex parte Commissioner of Taxation (1996) 65 FCR 592 (Lockhart J); McCracken v Phoenix Constructions (Queensland) Pty Ltd [2013] FCAFC 41; (2013) 210 FCR 149 at 158 [63] per Lander J (with whom Siopis and Gilmour JJ agreed); (b) the conditions upon which a creditor may petition (as set out in s 44 of the Act) include that a petition "shall not be presented against a debtor" unless there is "owing by the debtor to the petitioning creditor" a debt which meets the statutory minimum; that debt must be, in accordance with s 44(1)(b), "payable either immediately or at a certain future time"; importantly, if there is no debt that falls within the description in s 44, a necessary precondition to presentation is absent and it is not a question of discretion, but rather a matter of duty for the Court to give effect to s 44(1)(b) by dismissing the petition: see Udovenko v Mitchell (1997) 79 FCR 418 at 420 B-C (per Davies J with whom Foster J agreed); (c) section 52(1) of the Act provides that at the hearing of a creditor's petition, proof is required of the matters stated in the petition, including that the debt on which the petitioning creditor relies is "still owing"; in this regard, the reference to the debt being "still owing" is a reference to the same debt described as owing in s 44(1)(c) (and hence the relevant debt must have been owing at the time when the act of bankruptcy occurred): see Coutts at 736 [24]; McCracken at 160 [79] per Lander J (Siopis and Gilmour JJ agreeing).

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D.1.2 The Status of the Debt and Mr Sharpe's Argument 12 Given the above, the simple point made by Mr Sharpe is that there was no debt payable at any time throughout this process: not at the time of presentation, nor at the time of the hearing, of the Petition. Although it is not in dispute that an amount was outstanding to CNH under the Finance Agreement (being the "farm debt"), by reason of the operation of the FDMA, it was not possible to say that the debt owed by Mr Sharpe was payable. 13 The logic proceeded as follows: (a) the Certificate was not a valid s 11 certificate; (b) no enforcement action could be taken relevantly until: (a) 21 days had expired from notice under s 8 of the FDMA; or (b) a valid s 11 certificate was "in force"; (c) having not served a s 8 notice, CNH's reliance on the Certificate as being in force to allow commencement of the enforcement action constituted by the Second Proceeding was misconceived; (d) the judgment debt obtained in the Second Proceeding was entered in circumstances where the enforcement action was void and the judgment debt (obtained as a consequence of this flawed process) was, as a consequence, not payable. 14 Implicit in this argument was that the underlying debt (that is the farm debt) was also 'not owing' by reason of a statutory bar on enforcement action arising from non-compliance with the provisions of the FDMA. 15 As can be seen, the point of departure of the argument was that enforcement action, reliant on the Certificate, was void. The contention as to invalidity of the Certificate was initially put in three ways. 16 The first was that on a proper construction of the FDMA, a valid s 11 certificate could only be given when no enforcement action was being taken, whereas in the present circumstances the First Proceeding (being an enforcement action) was pendent when the Certificate was purportedly issued. The second (which was the subject of a contested application to adduce new evidence and which the appellant submitted only needs to be determined in the event that substantial reason was shown for going behind the Second Judgment), was that the Certificate was signed by officers of the Rural Assistance Authority, at least one of whom was unauthorised and that hence the Certificate was issued beyond power. The third was not substantively different from the first, and is that even if the Certificate was properly executed, the decision to certify was infected by jurisdictional error because the Rural Assistance Authority could not, in the circumstances, be satisfied, in accordance with the relevant subsection of s 11 (being subsection (1)(c)(i)) that "satisfactory mediation ha[d] taken place". This was because no satisfactory mediation could possibly have taken place in circumstances where enforcement action had already commenced.

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D.1.5 The Distinction between Status and Enforcement 21 Although, as I have explained, the basal contention of Mr Sharpe was that no debt was payable during the whole of the process leading up to the making of the sequestration order, much of the focus of the submissions of Mr Sharpe related to the requirement that at the time of presentation, the debt must be "payable either immediately or at a certain future time" (s 44(1)(b)(ii)). 22 It is useful, at the outset, when focusing on this statutory precondition for presentation, to highlight the importance of not eliding two matters which need to be kept separate: a restraint on the enforcement of a judgment debt and the distinct notion of the status of that debt as being one that is due and payable. 23 As Beazley JA (with whom Hodgson and Santow JJA agreed) noted in Australian Beverage Distributors Pty Ltd v Evans & Tate Premium Wines Pty Ltd [2007] NSWCA 57; (2007) 69 NSWLR 374 at 382 [26]: There is a body of authority that an order restraining the enforcement of a judgment debt does not alter the status of that debt as being one that is due and payable. 24 This body of authority includes Pollack v Commissioner of Taxation (1991) 32 FCR 40, where Pincus J stated at 51: I have found no authority in support of the proposition that a stay of enforcement of a judgment produces the result that the debt ceases to be payable; surely the judgment creditor could, despite the stay of enforcement, plead the debt as a common law set-off. 25 Similarly, in the same case, Gummow J observed at 56 that the debt "may be payable by the debtor although the means of enforcement are denied to the creditor" and that a stay of enforcement did not of itself and without more deprive a debt of its character as an obligation that is payable immediately. Similarly, in Re Brent Hughes; Ex parte Westpac Banking Corporation (unreported, 28 November 1997), Merkel J pointed out that: a stay of execution relates solely to a stay in respect of the legal processes of enforcement which are available in respect of the judgment but does not, of itself, suspend or otherwise affect the validity or operation of the judgment. 26 It is because this distinction exists that an instalment order that comes into force after the commission of an act of bankruptcy does not disqualify the creditor from presenting a petition: Re Agrillo; Ex parte The Bankrupt (1976) 29 FLR 484 (Riley J); Re Vittoria Di Giacomo; Ex parte Boral Steel Limited (1983) 68 FLR 106 (Evatt J). 27 This distinction is not singular to bankruptcy. In the context of a corporate insolvency, in Scope Data Systems v BDO Nelson Parkhill [2003] NSWSC 137; (2003) 199 ALR 56, Barrett J held that notwithstanding that a stay of execution had been ordered, a judgment debt obtained against a corporation remained due and payable such as to entitle a creditor to serve a statutory demand under s 459E of the Corporations Act 2001 (Cth). In doing so, his Honour observed that the stay did no more than preclude resort by the judgment creditor to remedies entailing execution of the judgment, and that the winding-up process does not involve the execution of judgment debts. It necessarily followed that a stay did not "call into question the 'existence' of the judgment debt": Scope Data Systems at 60 [16]; see also Alam v Quest Enterprises [2006] NSWSC 752 at [30] per White J; Australian Beverage Distributors. 28 Of course, these cases deal with circumstances somewhat different to those that presently concern the Court. Mr Sharpe says in his case there is not a mere statutory fetter on enforcement of a regularly obtained judgment: here it is said that the judgment itself is 'void' because CNH's non-compliance with the FDMA meant that there was a bar on any enforcement action anterior to the judgment being obtained. The question is: does the difference between the status and enforcement of a debt have significance in these circumstances?

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D.1.6 'Invalid' Judgments, the Second Judgment and the underlying debt 29 In arguing that the Second Judgment was 'void', reference was made by Mr Sharpe to a number of cases in which the legal efficacy of a judgment relied upon to support a bankruptcy notice was questioned. 30 There is some authority in relation to the issue of when the judgment upon which a bankruptcy notice was based is a 'nullity'. In Croker v Federal Commission of Taxation [2003] FCAFC 23; (2003) 52 ATR 226, the Full Court (Lee, Whitlam and Jacobson JJ) dealt with a purported 'registration' of a certificate of taxation of costs ordered by the High Court as a judgment by the Registrar of the Local Court of New South Wales. The lodgement of a certified copy of the certificate and its registration as a judgment was not authorised by the relevant statute and the entry into the records of the Court was invalid and of no effect. The consequence was that the relevant bankruptcy notice relied upon a non-existent judgment of the Local Court, with the result that the bankruptcy notice failed because a fact central to its validity, which it alleged to have existed, did not in fact exist: see Croker at 230 [10]-[11]. 31 A similar but not identical circumstance arose in both Re Devy; Ex Parte BBC Hardware Ltd (1996) 67 FCR 355 and Udovenko. Both cases involved unpaid legal costs. In Re Devy, a former solicitor of the bankrupt was substituted as petitioning creditor but the bankrupt had opposed the petition on the basis that he had not been provided with a bill of costs in taxable form (the delivery of which, pursuant to the Costs Act 1867 (Qld), was a precondition to commencing or maintaining any action or suit for the recovery of fees). The argument was made that notwithstanding the existence of this provision, it was only the remedy of recovery of the debt which had been barred, not the right itself. In rejecting this argument (as the Full Court was later to summarise in Udovenko at 430-1), Hill J noted at 358 that: Were [the argument] correct, a creditor whose debt, at the time the act of bankruptcy was committed, was statute barred in a jurisdiction where the right remained but the remedy was extinguished, could qualify as a petitioning creditor. 32 His Honour stated (at 359) that it was "clear in both principle and authority" that this was not so. His Honour relied upon the decision of the High Court in Motor Terms Co Pty Ltd v Liberty Insurance Ltd (1967) 116 CLR 177. In Motor Terms, the High Court considered whether a creditor whose debt was statute barred (the right remaining only, the remedy being barred) before the commencement of the winding up by the filing of a petition, was entitled to present that petition. On the facts, it was found that there had been an acknowledgment of the debt so that it was not statute barred. However, as Hill J noted, the High Court made it clear that had the debt been statute barred at the relevant time, the debtor would not have been entitled to present the petition. 33 In Udovenko, the Full Court again dealt with a state law prohibiting recovery of costs without certain formalities having been completed. Carr J (with whom Davies and Foster JJ agreed), noted at 430: In the present matter, I do not think that the debt upon which Mr Mitchell relied had been sufficiently established and quantified in law to form the foundation of a bankruptcy notice, let alone a sequestration order based upon failure to comply with that bankruptcy notice. Until the procedure referred to in s 198 has been complied with, Parliament has, in mandatory terms (shall not) prohibited a solicitor from commencing or maintaining proceedings for recovery of costs. … In my view, a solicitor claiming his fees in contravention of the section…cannot be said to have a debt which is "payable either immediately or at a certain future time" within the meaning of that phrase in the above subparagraph. He or she must first give to the client a bill of costs and thereafter at least 30 days must have passed. 34 Although still in the context of costs, by way of contrast, Northrop J in Re King; Ex parte Gallagher Ryan & Maloney v King (1994) 54 FCR 493 dealt with a somewhat different statutory provision (being s 61(1) of the Supreme Court Act 1986 (Vic)) which provided that a solicitor must not commence proceedings to recover costs until after the solicitor had complied with that section, except where there was a solicitor-client agreement. Northrop J proceeded on the basis that non-compliance with the section merely made a claim for costs unenforceable and such non-compliance did not go to the validity of the underlying claim. 35 At first glance these costs cases may seem difficult to reconcile, but one needs to pay attention to the precise terms of the various statutory provisions pursuant to which the solicitors were entitled to render legal fees which gave rise to an enforceable obligation to pay (that is, create a debt), and the distinct notion as to how that debt could be enforced by bringing proceedings to recover the debt. Allied to the distinction between the status and enforcement of debt of which I have already made mention, is the distinction between a debt which only has an existence upon statutory preconditions being fulfilled, and a debt that exists independently, but cannot be enforced licitly absent statutory compliance. 36 In recently considering Re King, the Full Court in Khouzame v All Seasons Air Pty Ltd [2015] FCAFC 28; (2015) 229 FCR 279 (Robertson, Wigney and Gleeson JJ) noted this difference between a statutory provision preventing commencement of proceedings enforcing an existing right and a provision which means there is no underlying debt in existence and where the debt only arises after, and by reason of, compliance with the legislation. 37 Khouzame dealt with an appeal against a refusal by a primary judge to set aside a bankruptcy notice where the bankruptcy notice was said to be founded on a judgment in the Local Court of New South Wales. The particular statutory context was an adjudication which was sought to be filed as a judgment for a debt under the Building and Construction Industry Security of Payment Act 1999 (NSW) (BCISPA). The relevant adjudication was not accompanied by an affidavit stating that the whole or part of the adjudicated amount had not been paid at the time the certificate was filed and the relevant section of the BCISPA provided that it could not be filed unless accompanied by such an affidavit. Critically, there was no underlying existing debt apart from that conferred by the BCISPA. The Full Court held that the adjudication 'judgment' was non-validly entered and accordingly was unenforceable. The Full Court noted that "there is no underlying existing debt apart from that conferred by the legislation" and that there "is no judgment to go behind": see 288 [39].

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D.1.7 Conclusion on No Debt Owing Contention 38 The distinction between the underlying debt and a judgment debt based on the underlying debt is, at one level, a difficult concept, but it is one well recognised in the law of bankruptcy. It is difficult because one is used to conceptualising a debt merging in a judgment. However, as Kiefel CJ, Keane and Nettle JJ noted in Ramsay Health Care Australia Pty Ltd v Compton [2017] HCA 28; (2017) 345 ALR 534 at 545 [58], merger of a debt in a judgment does not mean that the underlying debt is irrelevant; indeed, merger does not operate so as to relieve a Bankruptcy Court of the paramount need to have satisfactory proof of the debt owed to the petitioning creditor - to ascertain the "true state of accounts between the parties": at 546 [63]. 39 Returning to the present case, there is no doubt whatsoever as to the true state of accounts: Mr Sharpe was indebted as alleged. There was an attack on the validity of the judgment debt, but indubitably there was an extant underlying debt. Mr Sharpe conceded as much and indeed its existence was the necessary precondition to his service of the s 9(1A) notice requesting mediation (see [3(d)] above). As I have explained, it follows from s 5(2)(b) of the FDMA that there was and is no fetter, arising from the FDMA, upon the ability of CNH to rely upon the existence of the debt owing to it in the presentation and maintenance of the Petition. 40 There is not, of course, any requirement that the debt relied upon by the creditor be a judgment debt: Re Goldberg; Ex parte Law Society of New South Wales (1988) 82 ALR 271 (Wilcox J) (notwithstanding that most petitioning creditors are judgment creditors because most petitions are based on the failure to comply with a bankruptcy notice, which, of course, must be based on a judgment or order: see s 41(1) of the Act). The High Court implicitly recognised this in Ramsay Health Care at 546 [63] where reference was made to the choice of a petitioning creditor to rely on an antecedent debt rather than the judgment debt. As can be seen from [3(l)] above, the petition in this case relied upon both the underlying debt and the judgment debt. Nothing in the FDMA prevented CNH from doing so. Again, I pause to remark that the application to set aside the bankruptcy notice in this case was dismissed and no appeal was brought from that dismissal; nor was any appeal maintained in relation to the Second Judgment. 41 When CNH eventually petitioned, there was a debt owing to CNH by Mr Sharpe that was payable either immediately or at a certain future time within the meaning of s 44(1)(b)(ii) of the Act; and later, at the time of the making of the sequestration order, the primary judge did not err in concluding that the debt upon which CNH relied was "still owing" within the meaning of s 52(1)(c) of the Act.

[17]

D.2 Principled Exercise of Discretion Contention 42 This is not the end of Mr Sharpe's appeal. As I have already explained, it is a necessary precondition to the making of a sequestration order that the court hearing the petition not only be satisfied "that the debt on which the petitioning creditor relies is still owing" (s 52(1)(c) of the Act) but also that no other "sufficient cause" exists for the court to decline to make a sequestration order and dismiss the petition (s 52(2)(b) of the Act). 43 The primary judge declined to find that such a sufficient cause existed and the detailed reasoning of his Honour for reaching this conclusion has been extracted at [6] above. 44 As can be seen from that extract, the primary judge, after reciting the relevant principles, identified three reasons for declining the invitation to go behind the judgment debt: first, that Mr Sharpe admitted a debt to CNH and that his arguments related not to the existence of a debt but to the contention that "CNH simply cannot enforce that debt"; secondly, that there was no relevant "allegation of fraud, collusion or any miscarriage of justice"; and thirdly, that Mr Sharpe's arguments relied on an erroneous construction of the FDMA "which is inconsistent with its purpose and should not be accepted". 45 His Honour was at somewhat of a disadvantage because the primary judgment was delivered shortly before the High Court explained the principled approach to the exercise of the discretion in Ramsay Health Care. In particular, the argument that a person seeking to go behind a judgment must make out fraud or collusion or miscarriage of justice was rejected in Ramsay Health Care, with the majority holding that there is a broad discretion whether or not to go behind any 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. This can occur even in circumstances where a judgment debtor participated in a trial, and was represented by counsel. 46 Despite the fact it may be thought that his Honour may have (understandably in the circumstances) stated the legal principles in such a way as to restrict (arguably) the circumstances where a Bankruptcy Court may go behind a judgment following a contested hearing to circumstances where there is a substantive allegation of fraud, collusion or miscarriage of justice, it is tolerably plain that his Honour did not regard this matter as being in any way determinative. 47 The reasons of the primary judge demonstrate that in deciding whether to go behind the Second Judgment, his Honour regarded the first reason, which related to the existence of the debt, as being wholly decisive. In short, the fact that the money was owed by Mr Sharpe was regarded, in the circumstances, as "sufficient reason not to go behind the judgment of the District Court". This is in circumstances, it will be recalled, where there was no contest between the parties that at the hearing of the Petition, CNH relied upon the existence of both the Second Judgment and the underlying debt. 48 This is hardly a surprising result when one reflects on the reason why the discretion exits. In Wren v Mahony (1972) 126 CLR 212, Barwick CJ (with whom Windeyer and Owen JJ agreed) emphasised, at 224, that the relevant discretion arose in circumstances where there was a need for the Bankruptcy Court to be satisfied of the existence of the petitioning creditor's debt and that while a Bankruptcy Court could in general accept a judgment debt as sufficient proof of that debt, particularly where it resulted from a fully heard contest between parties, it always had the power to go behind the judgment and if the case was a proper one, should do so: see also Ramsay Health Care at 547 [68]. Here there was no contest as to the true state of indebtedness as between creditor and debtor and when this is appreciated this was not a case where the occasion arose to investigate the judgment debt. 49 Accordingly, I do not believe that Mr Sharpe has demonstrated any material error in the reasoning of the primary judge. The only apparent error, repeating a statement of legal principles drawn from a judgment of this Court, was immaterial in the sense that it made no difference to the question as to whether the primary judge should go behind the Second Judgment. 50 For completeness I should note that it is also clear that his Honour was correct to conclude (as his third reason) that the construction argument advanced before him by Mr Sharpe was misconceived. As can be seen from [27]-[36] of the primary judgment, this was a broader and, with respect, somewhat less subtle argument than as contended for on appeal. The primary judge was correct to reject the contention maintained below that a proper construction of the FDMA means that a creditor is prevented from recovering a debt which is owed, simply because there had been a prior breach of the FDMA: see [32].

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