Case: Emerson v Wreckair Pty Ltd (1992) 33 FCR 581
Outcome: followed
In Re Wilson v Official Trustee in Bankruptcy [1999] FCA 1760 the applicants sought an annulment of their bankruptcies under s 153B of the Act . Sequestration orders had been made on the basis of a judgment debt obtained from the New South Wales District Court. The applicants claimed that the creditor was not entitled to judgment in the full amount of the debt because of certain payments earlier made. Emmett J dismissed the applications. He declined to follow Greenhill and held that s 41(5) "is concerned with a claim of a bankruptcy notice for an amount greater than is, in fact, [owed] under a judgment " (emphasis in original). His Honour explained his reasons for differing from Morling J as follows: "[39] A bankruptcy notice must require the debtor to pay the judgment debt, in accordance with the judgment. The pre-existing obligation, which the judgment is intended to enforce, will have merged in the new obligation created by the judgment see Corney v Brien [1951] HCA 31 ; (1951) 84 CLR 343 at 353-354. It may well be that there would be good grounds for setting aside a judgment which was entered for an excessive amount. Further, it may be that this Court, as a Court of Bankruptcy would go behind a judgement in order to determine whether there was, in fact, anything due. Following the entry of a judgment, however, the amount due by the judgment debtor to the judgment creditor, and the amount for which execution might issue, is the sum stated in the judgment. Where a bankruptcy notice claims that amount, it cannot be said that it claims an amount that exceeds the amount in fact due. By reason of the judgment itself, the amount of the judgment is due. [40] Upon an application to a court exercising jurisdiction in bankruptcy to set aside a bankruptcy notice, the court should not go behind a judgment where the grounds upon which the judgment is challenged are such that, if accepted, they would only support a finding that the amount of the debt be reduced, and would not support a finding that there was, in truth, no debt at all see Emerson v Wreckair Pty Ltd (1992) 33 FCR 581 at 589. That decision of a Full Court of this Court is binding upon me and, it appears to me, that it would preclude a Judge, on hearing a bankruptcy petition, to go behind the judgment if the only purpose for doing so would be to show that the amount of the judgment should be reduced, not to show that no amount was owing. It may be relevant, if the amount of the judgment should be reduced to an amount below the minimum amount that supports a petition. However, that is not the case here." 22 In Emerson the Full Court (presided over by Morling J) accepted that a bankruptcy notice may be invalid if the amount specified in the notice exceeds the amount in fact due. It held that the date on which the inquiry as to whether or not the amount specified in the notice is excessive was to be made as at the date of the issue of the notice. In that case the amount specified in the notice was an amount for which judgment had been obtained in the District Court in Queensland. After the bankruptcy notice had issued the Supreme Court allowed an appeal from the District Court's judgment and reduced the judgment sum by $5,400. The Court held that the notice claimed the amount of the judgment and did not, therefore, exceed the amount in fact due. The subsequent reduction of the amount of the judgment did not alter this position. The Court then dealt with the question of when it might be permissible for a Court of Bankruptcy to go behind a judgment on which a bankruptcy notice was founded. The Court said (at 587 588) that: "It is not open to doubt that a Court exercising jurisdiction in bankruptcy may, in an appropriate case, 'go behind' a judgment and inquire whether it was founded on a real debt: Corney v Brien ... . Such a Court, however, has no power to set aside a judgment but only to prevent the judgment creditor from having recourse to the provisions of the Bankruptcy Act ... As between the parties, the judgment remains unimpeached and maybe enforced accordingly by what ever means may otherwise be available. In the present case, there had been a full hearing before the District Court at which the appellants and the respondent appeared and were legally represented. All the issues were carefully examined and judicially determined. This is not a case, like many of the cases in this area of the law, where judgment was entered in default of appearance or defence. There may be circumstances which justify, in a particular case a review of the proceedings in another Court which, after a hearing, have resulted in the entry of judgment against a debtor ... For example, if an allegation is made that a judgment has been obtained by fraud, it may be proper for a Court exercising jurisdiction in bankruptcy to go behind the judgment to ascertain whether there is a real debt. But there is nothing in the facts of the present case which would have warranted this Court embarking on what would have amounted to a re-trial of the issues that had been determined after a contested hearing and which were the subject of an appeal to the Supreme Court of Queensland. That Court, not this Court, was the appropriate forum in which to review the correctness of the District Court judgment. The circumstance that the Supreme Court subsequently varied the judgment entered in the District Court, reducing it by the sum of $5,400, provides no support for the contention that this Court should have itself examined the correctness of the judgment. Nor, given the particular circumstances of this case, do any of the cases on which the appellants relied support the appellants' contention." 23 The appellants sought to distinguish Emerson on the ground that, in that case, the amount of the judgment debt was determined after a full hearing at which the parties were represented. In my view there is no reason, in principle, for not applying Emerson in the circumstances of the present case. This was not a case where the creditor had obtained a summary default judgment. Nor is it a case in which a tenable allegation that the judgment was fraudulently obtained is made. On the contrary, on their own case, the appellants agreed to sign and did sign consent orders under which they became liable to pay the sum appearing in the bankruptcy notices if, as happened, they failed to pay the nominated sum (and interest) by an agreed date. When this did not occur the consent orders were filed and judgment entered for that sum. The sum then became owing under a judgment of the District Court. The appellants did not, as they could have done, applied to the District Court to vary that judgment. There is no occasion for this Court to go behind the judgment and it should not do so.