McLean v Biztole Corporation Pty Ltd

[1996] FCA 773

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(Judgment by: Ryan, Foster, Nicholson JJ)

Stephen Frank McLean
Biztole Corporation Pty Ltd (rcvr & mngr apptd) (ACN 050 139 083)

Court:

Judges:
Ryan
Foster
Nicholson JJ

Subject References:
Bankruptcy
sequestration order
proceedings in Supreme Court alleging invalidity of appointment of receiver and manager
notice of opposition grounded on invalidity of appointment of Receiver and Manager
further amended notice of opposition providing greater particularity of invalidity point
whether adjournment should have been granted by a trial judge to permit subpoenas to be called in and documentation examined in relation to invalidity issue
whether lack of natural justice in failure to provide that opportunity
whether trial judge in error in failing to go behind judgment debt
whether trial judge failed to give proper weight to debtors offer to pay into court
whether trial judge failed to give due weight to debtors counter-claim

Legislative References:
Bankruptcy Act 1966 (Cth) - 52; 52(2)

Case References:
Ahern v Deputy Commissioner of Taxation (Qld) - (1987) 76 ALR 137
Ainsworth v Criminal Justice Commission - (1992) 175 CLR 564
In the marriage of Bartlett - (1994) 17 Fam LR 405 (FC)
Boston Clothing Co Pty Ltd v Margaronis - (1992) 27 NSWLR 580
Cain v Whyte - (1933) 48 CLR 639
Clyne v Deputy Commissioner of Taxation - (1985) 5 FCR 1
Corney v Brien - (1951) 84 CLR 343
Goktas v GIO (NSW) - (1993) 31 NSWLR 684
House v R - (1936) 55 CLR 499
Kioa v West - (1985) 159 CLR 550
Olivieri v Stafford - (1989) 24 FCR 413
R v Windridge; Ex parte Pacific Coal Pty Ltd - (1992) 2 Qd R 180
Stead v State Government Insurance Commission - (186) 161 CLR 141
Thai v Deputy Commissioner of Taxation - (1994) 123 ALR 570
Wren v Mahoney - (1972) 126 CLR 212

Hearing date: 14 March 1996
Judgment date: 30 August 1996

Melbourne

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Judgment by:
Ryan
Foster
Nicholson JJ

This is an appeal from a sequestration order made against the appellant's (judgment debtor's) estate.

The trial judge found the order was made in the following circumstances. During the period from 7 November 1991 to 18 December 1991 the appellant, who had a controlling interest in the respondent (the judgment creditor), executed certain securities on behalf of the respondent and fifteen other companies associated with the appellant in favour of The Australian and New Zealand Bank Ltd ("the Bank"). The respondent defaulted under those securities and on 20 December 1991 a receiver and manager ("the Receiver") was appointed to the respondent and the associated companies by the Bank.

The respondent (through the Receiver) made demand on a debt owed by the appellant. The appellant did not comply with that demand. As a consequence proceedings were instituted in the Supreme Court of Victoria in which it was claimed the appellant owed the respondent certain sums of money. A number of associated Supreme Court proceedings were also begun which related to the respondent and the appellant's family. A complicated settlement was subsequently entered into between 31 different parties on 13 September 1993 evidenced by a Deed. It required certain monies be paid on certain dates, failing which judgment would be entered by consent in those Supreme Court proceedings against the appellant. No monies were paid under the Deed. As a consequence judgment was entered against the appellant. That judgment forms the basis of the creditor's petition in this action.

The appellant's amended notice of appeal seeks to challenge the learned trial judge's judgment on essentially two related grounds. The main ground is the refusal of the trial judge to allow an adjournment to enable the appellant to bring before the Court evidence said to establish sufficient grounds to enable the trial judge to go behind the judgment. The other grounds are failure to go behind the judgment debt, failure to take account of the debtor's offer to pay into court and failure to give due weight to the debtor's counter claim.

The matters before the trial judge involved a consideration by him of s52 of the Bankruptcy Act 1966 (Cth) ("the Act") which relevantly provides:

"(1)

At the hearing of a creditor's petition, the Court shall require proof of -

(a)

matters stated in the petition (for which purpose the Court may accept the affidavit verifying the petition as sufficient);

(b)

service of the petition; and

(c)

the fact that the debt or debts on which the petitioning creditor relies is or are still owing, and, if it is satisfied with the proof of those matters, may make a sequestration order against the estate of the debtor.

(2)

If the Court is not satisfied with the proof of any of those matters, or is satisfied by the debtor-

(a)

that he is able to pay his debts; or

(b)

that for other sufficient cause a sequestration order not to be made, it may dismiss the petition."

The Supreme Court proceedings

It is convenient to commence with an explanation of the proceedings in the Supreme Court of Victoria.

On 13 January 1992 the appellant together with the respondent and another fifteen companies commenced proceeding numbered 4168 of 1992 in that Court ("the Supreme Court proceeding") whereby they sought orders against the Bank and the Receiver restraining the latter from exercising any power and requiring him to deliver up all assets and undertakings. The basis of the claim was an allegation that the Bank was not entitled to appoint the Receiver as it had purported to do on 20 December 1991.

On 14 January 1992, the plaintiffs in the Supreme Court proceeding sought interlocutory orders to restrain the Bank from enforcing any security documents and the Receiver from exercising any powers. On 23 January 1992 the application was dismissed with costs. These were taxed on 1 April 1992.

The Bank and the Receiver sought to recover the costs by serving bankruptcy notices upon the appellant and issuing creditors petitions. These were challenged.

On 30 June 1992 and 1 July 1992 the plaintiffs in the Supreme Court proceeding sought to file a notice of discontinuance of that proceeding. On 1 July 1992 a Master in the Supreme Court ordered the notices of discontinuance purportedly filed be removed and the proceeding be stayed until further order with leave to the plaintiffs to file such notice only after payment of the costs which had been taxed on 1 April 1992.

On 25 June 1992 the respondent was placed into liquidation and a liquidator ("the liquidator") appointed.

The taxed costs were paid by a third party on or about 19 October 1994. On 2 March 1995 a Master of the Supreme Court lifted the stay order on the Supreme Court proceedings. Notwithstanding that, the plaintiffs did not file any notice of discontinuance. However, they sought and were granted leave to file an amended statement of claim with further leave to amend the title of the proceedings by deleting reference to the respondent as a plaintiff.

There was other litigation between the Bank, various companies associated with the appellant, the appellant, the respondent, and various members of his family or business associates. In particular proceeding number 6347 of 1992 was instituted by the respondent against the appellant ("the second Supreme Court proceeding"). It is in this proceeding that the judgment, the subject of the relevant bankruptcy notice founding the petition, was made by consent. The second Supreme Court proceeding and another were fixed for trial on 13 September 1993, the other proceedings being adjourned. By a Deed of Settlement dated that date ("the Deed of Settlement") the appellant and another (his son) agreed to pay to the respondent and Biztole Developments Pty Ltd (an associated company of the respondent) the sum of $3,400,000 by 3 November 1993. It was a term of the Deed of Settlement that in the event of the appellant failing to make payments as required pursuant to the terms of the Deed the respondent should be entitled to enter judgment in the proceeding between the appellant and the respondent for the sum of $320,484 together with interest and costs. The appellant failed to pay the monies.

On 9 November 1993 the appellant and his wife, issued a further proceeding in the Supreme Court of Victoria seeking orders restraining the respondent from exercising its rights under the Deed of Settlement and entering judgment pursuant to the default provisions. The outcome of those proceedings was that on 25 November 1993 the parties executed Terms of Settlement ("the Terms of Settlement") resolving those proceedings. The Terms of Settlement made provision for the payment by the appellant of monies to, amongst others, the respondent. Further, the Terms of Settlement provided for there to be judgment entered against the appellant in favour of the respondent as if there had been an event of default. Provision was made for a stay of the judgment until 1 March 1994. The result was that judgment was entered by consent against the appellant in the second Supreme Court proceeding on 25 November 1993.

The appellant failed to comply with the Terms of Settlement and on 6 December 1993 the respondent successfully made application to the Supreme Court of Victoria to lift the stay in the second Supreme Court proceedings. That judgment was the foundation of the bankruptcy notice issued on 17 December 1993. The appellant filed a notice of opposition in the bankruptcy proceeding on 6 July 1994.

The invalidity contention

The appellant contends that when he executed the securities to the Bank it was represented to him by the Bank that they were necessary for the Bank to continue to fund the operations of the respondent.

The appellant claims to have read in a newspaper on 11 April 1995 that the officer of the Bank in charge of the respondent's account had acted fraudulently and contends that the Bank never disclosed its knowledge of the activities of the officer. The appellant says that had he known of the officer's activities he would not have executed the further securities requested by the Bank. As a result, the appellant argues, the Bank would not have been able to appoint the Receiver and would not have been able to make the debt owed by the appellant to the respondent immediately due and payable. Further, the appellant contends, the Bank never intended to provide further finance - it insisted on further security only to protect itself against the consequences of the actions of the fraudulent officer.

Proceedings before the trial judge

On 11 May 1995 the appellant was given leave to file and serve amended grounds of opposition. Ground 3 of the notice filed pursuant to that leave alleged that the appointment of the Receiver had been invalid so the judgment was improperly and irregularly obtained and in consequence the petition was invalidly issued. Grounds 1 and 2 were tried as a separate issue on 31 May 1995 and, the Court having found the bankruptcy notice was duly served on 20 December 1993, the further hearing of the petition was adjourned to 14 June 1995.

On 9 June 1995 the appellant caused three summonses to witness to be issued to officers of the Bank and a summons for production of documents to be issued addressed to the General Manager of the Bank.

On 13 June 1995 the appellant filed an application for leave to further amend the notice of opposition and for the adjournment of the further hearing to allow sufficient time to enable the appellant to present his case on the further amended notice. The new grounds on their face raised additional issues associated with the appellant's contention that it was necessary for the Court to go behind the judgment and examine the appointment of the Receiver.

Examination of the transcript before the trial judge on 14 June 1995 discloses the following. Counsel for the appellant referred to the application for leave to further amend the notice of opposition and for the adjournment. He accepted that the subpoenas to produce documents should be called on only if they were able to persuade the learned judge that the appellant should be allowed to rely upon the additional grounds. He said if that threshold could be met the additional time was necessary, firstly, to review the documents which would be produced in response to the subpoena and, secondly, to persuade the liquidator of the petitioning creditor to change his view not to support an attack on the appointment of the receiver and manager of the petitioning creditor.

After canvassing the merits of the matters raised by the amended grounds and the notice of further amended grounds, Counsel for the appellant sought to persuade the trial judge that the Supreme Court attack on the securities provided by the respondent was sufficiently arguable for the Court to exercise its discretion not to make a sequestration order, the judgment debtor being otherwise solvent. He continued:

"If there are grounds under s52(2) why the court ought not exercise its discretion to make a sequestration order, those grounds, in summary are these: There is a basis for saying that the underlying judgment obtained by [the respondent] is invalidly obtained and [the Receiver] was invalidly appointed and a basis for saying that the petition was invalidly issued. Secondly, the contributories or the contributory of the company seeks to challenge that appointment.

Thirdly, the debtor is otherwise solvent on the assumption that the Supreme Court proceedings will succeed."

The appellant's case was therefore that the amendment to the grounds was sought following which the subpoenas would be called on and the adjournment sought for the purposes stated. In addition, it was proposed there be payment into court of the amount of the judgment debt within fourteen days.

Counsel for the respondent submitted to the learned trial judge that the threshold question was whether he should accede to the application to go behind the judgment. The submission continued:

"...in my submission, the way to approach my learned friend's application today is for your Honour to hear argument on whether it is appropriate to go behind the judgment and if your Honour is persuaded that you should, then to deal with the question of what that involves and how it should be dealt with."

Additionally, the respondent's counsel submitted:

"...if your Honour were to decide that this is not a case where you should go behind the judgment debt, the judgment upon which the debt is founded, then that is the end of today's application by my learned friend. I do not know that my learned friend agrees or disagrees but I would seek to embark upon that exercise now if that were a convenient course to your Honour."

The learned trial judge accepted that as the appropriate course.

Counsel for the respondent advised he was instructed by the Bank to state it would oppose the production of documents and seek to set aside the summons. He said the documents, the possession of which was sought from the Bank had not been discovered in the Supreme Court proceedings. Counsel submitted the appellant was seeking to use the processes of this Court for the purposes of pursuing a proceeding in another court where the processes of the other court were equally available.

The respondent's counsel handed up an outline of submissions on the further matters that remained to be dealt with after the hearing on 31 May. Those submissions listed the following three matters:

"(a)

that the judgment debtor seeks to go behind the judgment and establish that the judgment is liable to be set aside because Beatty's appointment as receiver and manager of the judgment creditor was invalid;

(b)

the petition is not validly issued because Beatty had no authority to institute or execute the petition when the judgment creditor was in liquidation; and

(c)

the judgment creditor has a cross-claim against the persons who will receive the benefit of the judgment debt, not the judgment creditor, which exceeds the judgment."

On the question of whether the Court could go behind the judgment debt it was submitted for the respondent the Court could do so to ascertain whether the debt relied upon was a good debt and a debt due in truth and reality: Corney v Brien (1951) 84 CLR 343; Wren v Mahoney (1972) 126 CLR 212; Olivieri v Stafford (1989) 24 FCR 413 and Ahern v Deputy Commissioner of Taxation (Qld) (1987) 76 ALR 137. Counsel submitted that in the Supreme Court proceedings, in which the Bank was not a party, no attempt had been made to set aside the judgment resulting from the Terms of Settlement. The only attack on the judgment was a collateral one not raised in the proceeding itself and which is said to give rise to a cross-demand. As far as the Court was concerned the debt was due and it was sufficient to say that the proceedings should never have been brought. Additionally, he submitted that in settling the Supreme Court proceedings which gave rise to the judgment, the appellant had accepted the authority of the Receiver to bring the proceedings and to compromise them.

After development of these submissions the learned trial judge put to counsel for the respondent the question whether the existence of a claim against the Bank (as the party behind the petitioning creditor) would amount to some other sufficient cause enabling the Court in its discretion to decline a sequestration order within s52(2)(b). Respondent's counsel submitted that if the trial judge were not persuaded to go behind the judgment it would take exceptional circumstances for the discretion to be exercised under s52(2) merely on the basis of a nascent cross-claim, particularly where the material in support of it had in substance not been the subject of any answering affidavit on behalf of the Bank. He submitted that to exercise that discretion on the basis of the cross-claim would be in effect to go behind the judgment to see what might collaterally attack it.

In reply counsel for the appellant said it was inaccurate to suggest the attack on the validity of the appointment of the Receiver left unchallenged the existence of the judgment debt. The Deed of Settlement had expressly contemplated the survival of the claim attacking the appointment of the Receiver in the event of the settlement failing, as it had done. It was said the preparedness of the Court to look behind a judgment in particular circumstances must depend, amongst other things, on the prejudice in doing so to the petitioning creditor or other parties involved.

Appellant's counsel then submitted the need to obtain documentary material on the return of the subpoenas was not dependent solely upon leave being granted to make the amendments. The submission was made that there ought to be leave to make the amendments but that, in any event, there was a proper basis for calling on the subpoenas and allowing sufficient time to put forward a case after consideration of the documents produced. This was clearly a different approach to that which counsel for the appellant had taken in relation to the calling of the subpoenas in his opening submissions.

His Honour then said:

"What I propose is that I will rule on the matters that have been raised today, that is the whole raft of things such as the application for amendment. The question in any event is whether - I suppose it is all bound up together - the question of whether the court ought, in this case, to look behind the judgments and having ruled on those matters I would suspect the best way to approach them if the matter is to proceed directions be given concerning the subpoenas and any other matters arising."

The trial judge then gave leave for written submissions to be filed on the manner in which the discretion under s52(2) of the Act should be exercised in the light of a nascent cross-claim against a party standing behind the petitioning creditor.

Written submissions to trial judge

Pursuant to that leave, respondent's counsel filed written submissions addressing this question. It was said in them that upon proof of the matters required by s52(1) of the Act prima facie the Court will proceed to make a sequestration order. Section 52(2), it was submitted, gives the Court a discretionary power to dismiss the petition notwithstanding the prima facie entitlement of the creditor. It is the debtor or (the appellant here) who carries the onus of establishing facts to show that he is able to pay his debt or that there is "other sufficient cause" why a sequestration order ought not to be made: Cain v Whyte (1933) 48 CLR 639 at 645-6; Clyne v Deputy Commissioner of Taxation (1985) 5 FCR 1 at 5.

The petitioning creditor's submissions disputed that the appellant was able to pay his debts, saying the appellant's submission assumed the Supreme Court proceeding would succeed: see s52(2)(a) of the Act.

As to what may constitute "other sufficient cause" for dismissing a bankruptcy petition pursuant to s52(2)(b) of the Act, the submissions for the respondent acknowledge such circumstances are "extremely variable". It was said the interest of the public was a very important consideration and involved in this was the conduct of the debtor. It was submitted the conduct of the appellant had been such as to rule out the exercise of the discretion. The conduct relied on was the claim of the appellant in the Supreme Court proceedings which had been the subject of litigation since January 1992; the subject of an interlocutory injunction in January 1992 which was dismissed; which had lain dormant in the Supreme Court of Victoria until January 1995 after commencement of the bankruptcy proceedings; and which, if successful, could not affect the indebtedness of the appellant to the respondent and therefore could not affect the relationship of debtor and creditor between the appellant and the respondent.

In relation to the claim which the appellant said he had against those standing behind the respondent, the written submission of the respondent stated:

"That is too distant to attract the operation of the discretion. There is no case in which the discretion under s52(2)(b) of the Act has been exercised due to the existence of a demand against someone other than the judgment creditor. That is not surprising. The basis for exercising the discretion is that there is truly a cross- claim which, if successful, may equal or exceed the judgment debt and thus extinguish it."

It was then submitted the pursuit of the claim in the Supreme Court proceeding, with or without the respondent as a party, could not affect the judgment in question, because the relief would sound in damages only, and secondly, because the respondent was in liquidation. That second consideration meant that, if the appointment of the Receiver were set aside, the liquidator not the appellant as a director or contributory would have the right to decide whether to enforce the judgment. It was submitted the liquidator was precluded from enforcing any claim against the Receiver and the Bank by virtue of a deed dated 5 October 1993. It was further submitted the Court should not enter upon an enquiry as to whether or not the appellant's claim against the Bank and the Receiver in the Supreme Court might possibly succeed because the nature of his claim should be balanced against the interests of the respondent, other creditors and the public and it was not likely that the appellant's claim was such as could outweigh these interests.

In written submissions in response for the appellant it was submitted the concentration in the written submissions for the respondent on the likely success or otherwise of the appellant's Supreme Court proceeding as a determining consideration in the exercise of the discretion under s52(1) and (2) of the Act was misconceived. Rather it was the function of the court to determine whether there were grounds not to exercise the discretion under s52(1) or to exercise the discretion under 52(2). It was submitted there was ample material to support grounds of the proposed further amended notice.

The relevant portions of the reasons of the trial judge are referred to in addressing the grounds of appeal.

Natural justice

In the reasons of the learned trial judge it was stated:

"The petitioning creditor opposed the adjournment and the further amendment of the notice of opposition. It was submitted that the Court should refuse the orders sought and then proceed to determine whether it was appropriate to go behind the judgment on which the petitioning creditor relied. It was said that if the Court decided not to go behind the judgment a sequestration order should be made. However, if the Court did not decline to go behind the judgment and were to allow the further amendment of the grounds of opposition then the petitioning creditor would want leave to adduce further material in response.

After hearing extensive argument the court invited counsel to make any further submissions they wished to put to the Court in writing. Both parties have taken up the Court's invitation and these reasons are in response to the arguments advanced orally on 14 June 1995 and the subsequent written submissions."

In the result the trial judge reached the following conclusion on the adjournment application:

"The proposed further amended grounds of opposition do not raise any ground not already encompassed by the amended grounds of 11 May 1995. Apart from the grounds which are raised in similar terms in the amended grounds of 11 May 1995, the proposed further amended grounds do no more than to plead with a greater degree of particularity that Beatty's appointment was invalid and that the debtor asserts that he has a monetary claim against ANZ and Beatty in excess of the judgment debt. I am of the firm opinion that the proposed further amended grounds of opposition amount to no more than an exercise in obfuscation designed to delay the finalisation of the hearing of the petition. In the circumstances the application to further amend the grounds of opposition will be dismissed. It follows that the basis upon which the debtor seeks to have a hearing adjourned does not arise."

That passage, the appellant contends, misstates what his counsel submitted below and that as a result he was wrongly denied the opportunity to amend his grounds of opposition to the bankruptcy petition in order to challenge the judgment against him and to put before the court evidence that would support the amended grounds of opposition in circumstances amounting to a denial of procedural fairness. (In our view this is more aptly styled `natural justice': see Kioa v West (1985) 159 CLR 550 at 583). It is submitted if the learned judge contemplated disposing of the entirety of the case he should have invited counsel for the appellant to make submissions on the assumption the application for leave to further amend and adjourn would be refused. Because that was not done it is contended there has been a denial of natural justice to the appellant: Ainsworth v Criminal Justice Commission (1992) 175 CLR 564.

Furthermore, it is submitted that because counsel for the appellant made it clear the return of the subpoenas was not solely dependent upon leave being granted to make the further amendments, the case for the appellant had been deprived of the use of the witnesses and documents available in response to the subpoenas. The submission is that the learned judge erred in depriving the debtor of an opportunity to adduce evidence and then using the absence of evidence as a basis for exercising the discretion against him: In the marriage of Bartlett (1994) 17 Fam LR 405 (FC). It is submitted the lack of procedural fairness is alone such as to entitle the debtor to a new hearing: Goktas v GIO (NSW) (1993) 31 NSWLR 684 (CA); Kioa v West.

The case for the appellant also relies upon the following authorities. In R v Windridge; Ex parte Pacific Coal Pty Ltd (1992) 2 Qd R 180 there was an appeal from a Mining Warden's Court where counsel for the objectors had sought to make certain objections based on a Supreme Court appeal. The warden took the view those matters were irrelevant to the grant of the mining lease under consideration and proceeded to decide the matter without giving counsel for the objectors an opportunity to be heard on whether those matters were irrelevant. It was held by Thomas J at 191:

"It therefore seems that the warden, no doubt quite unwittingly, denied natural justice to the objectors by depriving them in part of their right to be heard on that question, which in the event was the basis upon which the warden decided the application. It is not a case where one could safely conclude that the completion of such submissions could have made no difference to the outcome (Stead v SGIC (1986) 161 CLR 141)."

It was also held in Boston Clothing Co Pty Ltd v Margaronis (1992) 27 NSWLR 580 at 589:

"Where, however, the denial of natural justice affects the entitlement of a party to make submissions on an issue of fact, especially when the issue is whether the evidence of a particular witness will be accepted, it is more difficult for a court of appeal to conclude that compliance with the requirements of natural justice would have made no difference."

It is apparent in the passage where the trial judge spoke of ruling on "the whole raft of things" which were before him that he did not list only the matter which had arisen in submissions in reply on behalf of the appellant - namely, whether the subpoenas should be called on even if leave to make the amendments were refused. Had the subpoenas been called on, an adjournment must have been granted for the parties to have time to study the resulting documents. The question is whether in approaching the matter as he did the trial judge denied natural justice.

The argument for the respondent on this ground relied heavily on the history of the Supreme Court proceedings. It was said no attack had been made on the judgment. An adjournment application had been made on 31 May 1995. A cross-vesting application had not been pursued. There had been no pursuit of discovery. There had been evidence of the appellant's acceptance of the Receiver in entering into the Deed of Settlement and Terms of Settlement. In connection with the hearing on 14 June 1995 it was only on 13 June 1995 the adjournment application based on the subpoenas had been made.

It is said for the respondent that being an exercise of discretion the appeal cannot succeed unless that exercise can be shown to be infected with an error of principle: House v R (1936) 55 CLR 499 at 504-5. For the respondent it is submitted, for reasons it is not necessary to canvas, the discretion was properly exercised.

As part of these submissions it is also said for the respondent that it was plain, if not at the outset, then certainly by the time the addresses before the trial judge concluded, the trial judge was hearing, and the respondent was putting, the whole of the case for the purposes of obtaining a sequestration order if no further material were permitted to be introduced and no adjournment were granted. It was further urged that it was plain that no material would be introduced without an adjournment. In our opinion, that is entirely correct up to the point when, in reply, counsel for the appellant raised for the first time the possibility that, whether or not the amendments were allowed, there was a proper basis for calling on the subpoenas and for providing sufficient time by way of adjournment to enable the appellant to consider the documentation obtained pursuant to them.

The question arises whether the opportunity to make written submissions to the trial judge provided the opportunity to cure the alleged defect in natural justice contended for by the appellant. That was an opportunity confined to the exercise of the discretion, conferred by s52(2) of the Act which necessarily could not address any evidence which might have been adduced after the calling on of the subpoenas.

There is also the question whether the provision of an adjournment would have made any difference given the finding by the trial judge that the "further amended grounds of opposition amount to no more than an exercise in obfuscation designed to delay the finalisation of the hearing of the petition" and constituted no more than a pleading with a greater degree of particularity of the matters raised in the amended grounds of 11 May 1995. That finding did not constitute a ban to the provision of an opportunity to call on the subpoenas because the question remained whether any evidence resulting therefrom might have been relied on in respect of the already amended grounds.

The remaining question is whether if an opportunity had been given to call on the subpoenas and examine any resulting documentation it would have been likely to make any difference to the exercise of the discretion under s52(2) of the Act.

In his reasons the trial judge examined "the invalidity ground" by recounting the history of the Supreme Court proceedings and the bankruptcy proceeding, being matters which he considered went to the exercise of the discretion arising under s52(2) of the Act. He continued:

"The foregoing chronology gives rise to serious doubts as to the genuineness of the debtor's assertions concerning the validity of [the Receiver's] appointment. At least twice in the past he has been prepared to treat with [the Receiver] on the basis of [the Receiver's] standing as receiver and manager of the petitioning creditor and although that in itself may not prevent him from challenging the validity of the appointment in an appropriate forum, the overall circumstances of the case suggest that the issue is one raised in this proceeding as a last resort as a device to avoid the normal consequences of having committed an act of bankruptcy and I do not think that it provides sufficient reason to warrant an exercise of discretion under s52(2)(b)."

In so characterising the invalidity contention the trial judge precluded the opportunity for the characterisation to be tested against documentation which might have been yielded by the calling on of the subpoenas. Had they yielded evidence to support the arguable genuineness of the invalidity contention, that would not only have displaced his Honour's characterisation but would have provided important, if not decisive, additional evidence to be weighed in the exercise of the discretion under s52(2) of the Act. While the characterisation thus arrived at by the trial judge was open to him, we do not consider he should have moved to weigh that characterisation in the final balance of factors under s52(2) without taking up the opportunity requested by counsel for the appellant to have the subpoenas called. If the appellant's contention proves right, it is so fundamental that there might well be factors which could outweigh the other considerations relied on by the trial judge in purporting to exercise the discretion in s52(2). The presumptive additional information might make a world of difference: cf Stead v State Government Insurance Commission (186) 161 CLR 141 at 145; Thai v Deputy Commissioner of Taxation (1994) 123 ALR 570 at 590. We therefore consider the learned trial judge failed to take into account a material consideration (the request to call in the subpoenas on the amended notice) so that there has been an error of principle in the purported exercise of his discretion.

In our opinion, that conclusion is not precluded by the absence of any step by the appellant in the Supreme Court proceedings to set aside the judgment on the invalidity ground. It was not in dispute before the trial judge that the appellant only learned of the fraudulent conduct of the officer of the Bank on 11 April 1995. In those circumstances the appellant was bound to take steps in the then pending bankruptcy proceeding.

Wrongly exercising discretion not to go behind the judgment It is also contended for the appellant the trial judge otherwise wrongly exercised the discretion arising pursuant to s52(2) of the Act in deciding not to go behind the judgment. It was first said that no argument had been put by counsel for the appellant on the substantive merits of this ground. We accept the submissions for the respondent that it was clear from the case argued on behalf of the respondent that the substantive issues were before the trial judge and required addressing on behalf of the appellant either in reply or in the written submissions.

Then it is contended the trial judge erred in focusing his attention on the narrow question of whether or not there was a debt in determining whether to go behind the judgment. The subsection, on this argument gives the Court a discretion to have regard to all the relevant circumstances including, in this case, the alleged lack of bona fides on the part of the Bank. The trial judge is said to have erred in failing to recognise the judgment debt arose in effect from a default judgment behind which the court should always go when there is a bona fide allegation that no real debt underlies it and by failing to look at all the relevant dealings between the parties. The authority cited for this is Olivieri v Stafford (1989) 24 FCR 413.

In our opinion, if the learned trial judge did not err in failing to allow time to call on the subpoenas, he did not err in these additional ways. This was not a case where, absent evidence resulting from the subpoenas, there was any evidence on which it could have been held that there was not in truth and reality a debt underlying the judgment.

Payment into court

The next contention is the trial judge failed to properly exercise his discretion under s52(2) of the Act because he failed to give appropriate weight to the consideration that the appellant had proposed to pay into court the amount of the judgment pending the outcome of the proceedings. We accept the submission for the respondent that in the context in which the proposal for payment into court was made it was contingent upon the grant of an adjournment to provide the opportunity for the subpoenas to be called on and the resultant documents examined. As a consequence, the trial judge was not bound to have regard to the offer of payment into court unless he reached the point of granting the adjournment.

Counter-claim

The trial judge said the view he had formed concerning the invalidity contention would be inconsistent with accepting the cross-claim as a basis for exercising the discretion to dismiss the petition. In addition, he said there were other reasons why the cross-claim ground should be rejected.

He said:

"There may be circumstances in which a debtor's cross-claim against a petitioning creditor would justify the Court dismissing a petition, although it is difficult to imagine such a case arising unless the debtor could prove not only that the cross-claim is such that it would extinguish the debt relied upon in support of the petition but also that the debtor is solvent."

He continued:

"...the ground as pleaded does not provide any justification in the facts of this case for dismissing the petition. First, it is not suggested that the cross-claim would extinguish the judgment debt, and second, unless the debtor can establish his solvency - and he has tried and failed to do that - neither the existence, nor the quantum, of a cross-claim provides any basis for the exercise of discretion in favour of the debtor."

If, and only if, there is nothing in the invalidity contention, these conclusions were open to the trial judge.

Conclusion

The history of the Supreme Court proceedings and the bankruptcy proceeding has undoubtedly been long and troublesome. Nevertheless, we do not consider the possibility of the invalidity contention succeeding can be precluded without affording the appellant the opportunity to call in the subpoenas and examine any documentation which results. Inasmuch as the exercise of discretion by the trial judge foreclosed this course we consider it to have given rise to an error of principle. Leave should therefore be given to amend the grounds of appeal by inclusion of the fifth ground relating to natural justice.

We would then allow the appeal, set aside the sequestration order and return the matter to the trial judge for orders to be made for calling on the subpoenas for the limited purpose of the re-exercise of the discretion under s52 of the Act.