When is a judgment final?

Posted on November 1st, 2017

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There are some specific circumstances in which a Court will ‘go behind’ a judgment – even though it remains ‘on the record’ of a court and has not been set aside by appeal. One such circumstance is in bankruptcy proceedings. Although a judgment is ‘prima facie’ proof of a debt, in bankruptcy a judgment is never conclusive proof that a debt exists.

Where, for example, a judgment was entered by default (that is, the debtor did not actively defend the claim) a Bankruptcy Court can, and often does, look behind the judgment to see if there was a genuine debt upon which the judgment was based.  This generally occurs in circumstances where the debtor is seeking to set aside a Bankruptcy Notice or Creditor’s Petition, based on the judgment. 

Another situation in which a Court can go behind a judgment is where judgment was entered on the basis of a compromise or settlement. What the Court looks at here is not the underlying debt, but the compromise itself.  There is some authority for the proposition that if the original claim was not bona fide, and the compromise was obtained by dishonesty known to both parties, then the judgment resulting from the compromise can be set aside.

These principles were recently considered by the Federal Court in a case by a judgment debtor seeking to have a judgment (on which a bank sought to bankrupt him) set aside.  The application was ultimately unsuccessful and the judgment and bankruptcy notice were confirmed.  However the discussion of principle shows that in some circumstances, perhaps counter intuitively, it may be better for a creditor with a valid claim to proceed to a fully defended hearing than to obtain judgment by default or by consent against a debtor.  The cost of doing so is no doubt often greater; but the chance of the debtor later ‘going behind’ the judgment, if enforcement by way of bankruptcy proceeding is attempted, is substantially less:  Psevdos v Commonwealth Bank of Australia (No. 2) [2017] FCA 19.

 

Tony Cavanagh Director at Mullane & Lindsay Solicitors, NewcastleTony Cavanagh is a Director at Mullane & Lindsay Solicitors and practises extensively in Commercial dispute resolution and litigationand employment lawIf you require any assistance in these areas please contact Tony Cavanagh to arrange a consultation or contact our Newcastle or Sydney office. 

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