Ramsay Health Care Australia Pty Ltd v Adrian John Compton [2017] HCA 28
Summary
On 4 May 2017, the High Court of Australia dismissed an appeal case from the Full Federal Court concerning the nature in which a Bankruptcy Court may “go behind” a judgment in order to verify if a petitioning creditor’s debt is truly owing.
The High Court held that in a creditor’s petition filed pursuant to a judgment debt, the Bankruptcy Court has discretion to “go behind” a judgment if there are reasonable grounds even after a contested hearing has already taken place.
Facts
In November 2012, Ramsay Health Care Australia Pty Ltd (“Ramsay”) entered into an agreement with Compton Fellers Pty Ltd trading as Medichoice (“Compton Fellers”). Mr Adrian John Compton, one of the directors of Compton Fellers, provided a personal guarantee. The agreement ended late June 2013 when Medichoice became insolvent and entered into liquidation.
Ramsay commenced legal proceedings against Mr Compton in the Supreme Court of NSW claiming that $9,810,312.33 was owed to them under the agreement. Mr Compton’s Counsel did not dispute the indebtedness, however filed a defence denying Mr Compton’s liability. The Supreme Court found Mr Compton owed Ramsay the amount owed.
Ramsay served a bankruptcy notice on Mr Compton requiring that he pay the judgment debt. Mr Compton did not respond to the Bankruptcy Notice Ramsay had issued.
On 4 June 2015, Ramsay filed a creditor’s petition in the Bankruptcy Court due to Mr Compton’s failure to respond to the Bankruptcy Notice. Mr Compton filed a notice stating grounds of opposition to the creditor’s petition on the basis that the debt was not owed by Mr Compton. Mr Compton filed a separate interim application seeking a separate determination as to whether the Court should exercise its discretion to go behind the judgment to investigate the debt upon which the creditor’s petition was based, and to consider whether it was actually owed. The primary judge declined to go behind the judgment on the basis that Mr Compton’s counsel had not disputed the amount owing and did not bring evidence surrounding the quantum.
On appeal by Mr Compton, the Full Court unanimously held that the primary judge relied largely on the way Mr Compton conducted his side of the case rather than focusing on the central issue of whether there were reasons to question whether the debt was truly owing to Ramsay. The Full Court believed there were reasonable grounds to go behind the judgment and therefore allowed the appeal.
Ramsay appealed to the High Court claiming that only in the event of “fraud, collusion or miscarriage of justice” can a Court “go behind” a judgement after a contested hearing has already taken place.
Held:
By majority, the High Court denied Ramsay’s appeal for the following reasons:-
- Collusion or fraud that is not obvious after a contested hearing, does not dismiss the possibility of there being reason to question the underlying debt; and
- “Miscarriage of justice” is not limited to cases where a judgement is considerably unfair.
The majority concluded that after a perusal of Mr Compton’s evidence counterclaiming the apparent debt, the Full Court in the Federal Court was correct to conclude that the Bankruptcy Court should do a full investigation into the debt.
The High Court appeal was subsequently denied.