Defenceless victims have been declared bankrupt, without the alleged debtors' knowledge.

Defenceless victims have been declared bankrupt, without the alleged debtors' knowledge. Photo: Tanya Lake

Innocent Victorians are being declared bankrupt for debts that do not exist - without them even knowing they have been taken to court.

Apparent flaws in the justice system, along with alleged legal breaches, are enabling so-called ''creditors'' to obtain debt judgments against unsuspecting people and businesses at all levels of the justice system.

It can be revealed that many of the defenceless victims have been declared bankrupt, while in other cases steps have been taken to wind up the companies of those who it is alleged owe money. This is all happening without the alleged debtors' knowledge.

By law, anyone taking civil action in this state must inform all other parties involved. But all that the courts require for proof are sworn affidavits from those bringing the action that states they have notified everyone.

Melbourne woman Louisa Meagher claims the first she knew about any legal action being taken against her was when she received a text message in December from an unknown number informing her she had been declared bankrupt.

Sworn affidavits that were presented to the court state that she was informed about the legal action and all court hearing dates thereafter. But the addresses where the correspondence was allegedly sent were wrong.

And independent witnesses have deemed it impossible that she was hand-delivered court papers in the circumstances stated in one of the many sworn affidavits of those bringing the action.

Following an eight-month legal battle that has cost her more than $47,000 to have the bankruptcy order set aside, a federal magistrate recently declared the debt she was said to have owed was ''a complete fiction''. The entire case against her, the federal magistrate ruled, had ''no proper basis''.

Ms Meagher is one of at least nine people who claim to have been surreptitiously dragged through the legal system by the same litigants, Antonio Dattilo and wife Patricia. They currently have several matters still before the courts, and Mrs Dattilo has been accused in open court of fraudulent activity regarding service of legal documents.

Several victims say the couple have potentially committed perjury, extortion and deceptions among myriad other possible offences and law breaches along the way. Many allege it was Dattilo who owed them money before he set about

financially crippling them for debts he claimed they owed him. They say their battles to restore their financial status has cost them thousands.

Gerard Brody, of the Consumer Action Law Centre, said default judgments in Victoria were far too easy for creditors, considering they did not have to prove the debts existed.

''While we acknowledge funding pressures on courts, we think it is highly inappropriate if complaints are merely rubber stamped and think that more should be done by courts to ensure complaints indicate evidence that a debt is owed,'' he said.

Victorian Magistrates Court data from 2005-06 shows that from the 30,814 finalised civil complaints in the court, 30,169 - or 98 per cent - ended in default judgment.

''We believe it is highly unlikely that 98 per cent of claims are entirely valid, or that the amount sought is the correct amount owed, and that there is no valid defence,'' he said.

''We agree that more should be done to ensure that debtors are actually making a positive decision not to challenge a court complaint, and courts should not assume that because a debtor has not responded, that the complaint is entirely valid.''

Law Institute of Victoria president Michael Holcroft said if information contained in any court affidavit was false, the person was committing perjury and the matter should be reported to police.

''If a person is systematically misleading the court, and obtaining judgments to which he is not entitled with a view to extorting money, then this is also a criminal offence of obtaining or attempting to obtain property by deception, or possibly even blackmail,'' he said.

''All of the offences are very serious and could result in sentences of imprisonment.''

The executive officer of the Federation of Community Legal Centres, Hugh de Kretser, said better enforcement was necessary.

''There's no fail-safe system, you have to balance the operation of the courts and practical measures to make sure that people are doing what they're saying they're doing, against the risk of people defrauding the courts,'' he said. ''What criminology research would tell us is that people aren't so much worried about increasing penalties that would make people adjust their behaviour so much as their perceived risk of being punished for it.

''If people can get away with this, the system isn't working properly. Regulatory agencies including the police need to take it seriously and investigate and prosecute if there's enough evidence.''

Attorney-General Robert Clark - who has the power to apply to the Supreme Court to have a person declared a vexatious litigant - said the government was moving to tighten laws ''to ensure the community was better protected against costly and unjustified claims brought by vexatious litigants''.