Chep Australia Ltd v Russo (No 2)

Link copied
Case Copied 47 min read

FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA

(DIVISION 2)

CHEP Australia Ltd v Russo (No 2) [2023] FedCFamC2G 978   

File number: MLG 425 of 2021
Judgment of: JUDGE CHAMPION
Date of judgment: 2 November 2023
Catchwords: BANKRUPTCY– Creditor’s petition – Where the Court exercised its discretion to go behind the judgment because there was substantial reason to question whether the debt is owing in circumstances in which there was a genuine dispute about whether a third party had apparent authority as to actions which gave rise to the debt – Agency – Whether third-party had apparent authority arising out of a course of dealing such that the debtor owed the debt the subject of the creditor’s petition – Debtor as principal revoked authority of third party – No apparent authority for third party’s actions which gave rise to the debt – No debt of statutory minimum owing – Creditor’s petition dismissed – Sequestration order set aside
Legislation:

Bankruptcy Act 1966 (Cth) ss. 40, 43, 44, 52

Corporations Act 2001 (Cth) s. 129

Federal Circuit and Family Court of Australia Act 2021 (Cth) s. 256

Bankruptcy Regulations 2021 (Cth) reg. 10A
Cases cited:

Ali v Retail Decisions Pty Ltd [2012] FCA 1130

CHEP Australia Ltd v Russo [2021] FedCFamC2G 27

Cristovao v Tan & Tan Lawyers Pty Ltd [2018] FCAFC 41

Deputy Commissioner of Taxation v Cumins (2008) 101 ALD 78, 81; [2008] FCA 353

Equiticorp Finance Ltd (in liq.) v Bank of New Zealand (1993) 32 NSWLR 50

In re Fraser ex parte Central Bank of London [1892] 2 QB 633, 636

Jones v Dunkel (1959) 101 CLR 298

Joosse v Deputy Commissioner of Taxation (2004) 137 FCR 576; 57 ATR 92; FCFCA 245

NIML Ltd v Man Financial Australia Ltd (2006) 15 VR 156; [2006] VSCA 12 [40]

Ramsay Health Care Australia Pty Ltd v Compton (2017) 261 CLR 132; [2017] HCA 28

Re Kitay, Frigger (No. 2) [2018] FCA 1032

Robson v Body Corporate for Sanderling at Kings Beach CTS 2942 & Anor. (2021) 286 FCR 494; [2021] FCAFC 143

Russo v CHEP Australia Ltd [2022] FCA 949

Stratton v Bowles (No. 2) [2015] FCA 43

Wolff v Donovan (1991) 29 FCR 480

Wren v Mahoney (1972) 126 CLR 212
Division: Division 2 General Federal Law
Number of paragraphs: 117
Date of last submissions: 28 August 2023
Date of hearing: 28 August 2023
Place: Melbourne
Counsel for the Applicant: Ms Carruthers
Solicitor for the Applicant: Law Squared
Counsel for the Respondent: Mr Golledge SC
Respondent: In person

ORDERS

MLG 425 of 2021

FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
BETWEEN:

CHEP AUSTRALIA LTD

Applicant
AND:

DOMENICO RUSSO

Respondent

ORDER MADE BY:

JUDGE CHAMPION

DATE OF ORDER:

2 NOVEMBER 2023

THE COURT ORDERS THAT:

1.The creditor’s petition is dismissed.

2.The sequestration order made on 6 May 2021 is set aside.

3.On or before 4:00 pm on 9 November 2023 the Trustee file and serve submissions (not exceeding 5 pages) and any…

CaseChat AU logo

Keep reading for free

Create a free CaseChat account to read Chep Australia Ltd v Russo (No 2) and more:

  • Read every judgment in full
  • Ask AI and get answers linked to paragraphs
  • See how each paragraph was cited in later cases
  • Download judgments as PDF or Word
Continue with Google

One click creates your free account or signs you in.

By continuing you agree to the Terms and Privacy Policy.

Details
Case
[2023] FedCFamC2G 978
Decision Date

CaseChat Overview and Summary

Chep Australia Ltd (CHEP) brought a creditor’s petition against Mr. Russo, the sole director and shareholder of Baby Blue Pty Ltd, a company that had been wound up in liquidation. CHEP sought a sequestration order, alleging that Baby Blue Pty Ltd owed CHEP a debt of at least $10,000. Mr. Russo contested the petition, arguing that the debt was not owing. The court had to determine whether CHEP had discharged its burden of proving that the debt was indeed owing.

The key legal issue was whether CHEP had proven that Baby Blue Pty Ltd owed CHEP the claimed debt. CHEP argued that the debt arose from transactions involving CHEP pallets that were transferred to Baby Blue Pty Ltd. Mr. Russo contended that there was no debt because the third party who facilitated these transactions did not have the authority to bind Baby Blue Pty Ltd. The court had to decide whether the third party had apparent authority, which would make Baby Blue Pty Ltd liable for the debt.

The court found that the third party did not have apparent authority to bind Baby Blue Pty Ltd because Mr. Russo had revoked this authority. Consequently, Baby Blue Pty Ltd did not owe CHEP the debt in question. The court exercised its discretion to go behind the judgment because there was substantial reason to doubt the existence of the debt. Since the debt did not meet the statutory minimum of $10,000, the creditor’s petition was dismissed, and the sequestration order was set aside.

The court ordered that the creditor’s petition be dismissed and the sequestration order set aside. The Trustee, Applicant, and Respondent were given deadlines to file and serve submissions on consequential issues. The court noted that, in the absence of an application for an oral hearing, the consequential issues would be determined on the papers. The form of the order was subject to entry in the Court’s records.

Orders

Orders of the court

THE COURT ORDERS THAT:

1. The creditor’s petition is dismissed.

2. The sequestration order made on 6 May 2021 is set aside.

3. On or before 4:00 pm on 9 November 2023 the Trustee file and serve submissions (not exceeding 5 pages) and any affidavit on which she seeks to rely as to consequential issues.

4. On or before 4:00 pm on 16 November 2023 the Applicant and Respondent file and serve submissions (not exceeding 5 pages) and any affidavit on which they seek to rely as to consequential issues.

5. There be liberty to apply.

AND THE COURT NOTES THAT:

A. In the absence of any application by a party for an oral hearing, consequential issues will be determined on the papers.

Note: The form of the order is subject to the entry in the Court’s records.

Background

Background to the litigation

Mr Rahmani and Mr Russo were cross-examined. Ms Dixon was not cross-examined.FACTSMr Russo and his Company, Baby Blue Pty Ltd (now in liquidation) In August 2018, Mr Russo incorporated the Company, Baby Blue Group Pty Ltd. Mr Russo was its sole director and shareholder: Mr Russo, [8]: CB92. The Company was wound up on 24 March 2021 and is in liquidation. In early 2019, Mr Russo arranged for the Company to rent a warehouse in the Coffs Harbour district (Coffs Harbour Warehouse) from where it operated its business: Mr Russo, [9]; (CB92). The Company operated as a fruit and vegetable broker, mainly in blueberries and cucumbers: Mr Russo [9], CB92. The Company’s business involved the purchase of fresh produce from growers, its packaging and its delivery to various markets: Mr Russo, [9]: (CB92-93). The Company’s business need for pallets for the transport of fresh produce needs no further explanation.CHEP’s Business CHEP has a large business hiring pallets. At any given time, it has a pool of approximately 300,000,000 pallets in circulation: Mr Rahmani, [3] (CB424). Mr Rahmani described the “myCHEP” platform. The “myCHEP” platform is an electronic record system which tracks the movement of CHEP pallets. Mr Rahmani deposed at [5]-[12] (CB425):5.[…] All receipts, transfers and returns of pallets are recorded in the myCHEP platform, tracking how many pallets any CHEP customer has at any given time.6. Any time there is activity (an order placed, or a transfer received or sent) through the myCHEP platform or by email, an automatic notification is sent to the customers nominated email account.7.Customers have two (2) ways to order pallets, once their application has been accepted and any required deposit has been paid: a.the customer can log into their myCHEP account, and place orders; orb. transfers can be made between trading partners, with the transfers to be logged on the MyCHEP portal as valid notification to CHEP.8. When an order is placed, CHEP subsequently updates the customer’s myCHEP account to ensure that there is an up-to-date history of pallets received and sent.9. Customers of CHEP can order pallets to be delivered to them, can deliver pallets back to a CHEP service centre, and can send and receive CHEP pallets from other customers. Any of these transfers are recorded on the customer’s myCHEP platform.10. Once a customer has placed an order, they may either attend a CHEP service centre and collect the pallets themselves, or they can organise for them to be delivered through their preferred transport provider.11.If a customer is transferring pallets to another customer (eg: if one company is delivering 4 pallets of goods to a trading partner) the transferor will log the delivery of 4 pallets to the recipient on their myCHEP platform. Once the transferor logs the delivery, the transferred pallets will appear on the recipient’s myCHEP account, as well as on their invoice rendered by CHEP.12. Customers have 60 days to reject or challenge the transfer (for example, if they dispute the number of pallets, the date of the transfer, or similar). In the event that no rejection of the pallets occurs on the recipient’s MyCHEP account, or no notice is provided to CHEP in writing within those 60 days, CHEP takes the transfer as being approved by the recipient.[Emphasis added]

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

On 6 May 2021 a Registrar of this Court made a sequestration order. On 7 September 2021 a Judge of this Court dismissed Mr Russo’s review application as to the Registrar’s decision: CHEP Australia Ltd v Russo [2021] FedCFamC2G 27 (Primary Decision). On 17 August 2022 the Federal Court upheld Mr Russo’s appeal against the Primary Decision in Russo v CHEP Australia Ltd [2022] FCA 949 (McElwaine J) (FCA Decision) and remitted the rehearing of the review application to this Court. A de novo review I am therefore conducting a de novo review of the creditor’s petition before the Registrar. The Court’s power on review is to make any order or orders it thinks fit in relation to the matter: Federal Circuit and Family Court of Australia Act 2021 (Cth), s. 256. My task is to consider afresh the creditor’s petition of CHEP and whether it has proved each of the matters in s. 52(1)(a)-(c) of the Act.A preliminary issue: competency of the review application CHEP submitted that “it was not clear” (AS, 15) that Mr Russo had complied with r. 7.05 of the Bankruptcy Rules 2021 (Cth) (Bankruptcy Rules) and its requirements that Mr Russo serve the review application on the Trustee and on each person known to Mr Russo to be a creditor. To the extent (if any) there was not strict compliance with r. 7.05, in the interests of justice I dispensed with the requirement for compliance or full compliance with the rules: Bankruptcy Rules, r. 1.04(2); Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth), r. 1.07. There was no relevant prejudice by permitting Mr Russo to proceed with his review application.MATERIAL RELIED ON There was no contest that CHEP had proved the formal matters under s. 52(1)(a) and (b) of the Act. As to those formal matters, CHEP read and relied on: (a)an affidavit of Ms Jacqueline Wilcock, solicitor, made on 12 March 2021 verifying paragraph 4 of the creditor’s petition: (CB31-42); (b)an affidavit of Ms Rosetta Delguidice, law clerk, made on 26 April 2021 (proving service of an order made at the first return of the creditor’s petition);(c)an affidavit of debt of Mr Rahmani made on 25 August 2023: (CB555); and(d)an affidavit of final search of Ms Jacqueline Wilcock made on 25 August 2023: (CB557- 559). As to the contested matters under s. 52(1)(c) of the Act, CHEP read the following affidavits:(a)an affidavit of Mr Enayat Rahmani, CHEP’s Senior Debt Recovery Specialist, made on 8 August 2023: (CB425-525); and(b)an affidavit of Ms Chantelle Dixon, CHEP’s National Security Manager, made on 8 August 2023: (CB526-554). Mr Russo read two affidavits:(a)his first affidavit (with annexures) made on 10 June 2023. As this was Mr Russo’s primary affidavit, references in these reasons are to it: (CB92-419); and(b)his second affidavit (with annexures) made on 17 June 2023: (CB420–424). I ruled certain parts of different paragraphs of the affidavits inadmissible in the course of the trial. In addition, I admitted into evidence a single annexure page (page 123) of an annexure to an earlier affidavit of Mr Russo made on 7 June 2021 which detailed his admission into Westmead Hospital on 3 May 2021 in connection with a neurological illness (T90-92). The earlier affidavit itself is not in evidence. The relevance of the hospital admission was to explain Mr Russo’s absence from the hearing when the creditor’s petition was first before the Judicial Registrar in May 2021. I have not drawn any inferences as to whether the debt is truly owing from the fact that Mr Russo did not appear before Judicial Registrar Ryan on 6 May 2021. I also have not drawn any inferences from the fact that Mr Russo did not challenge the default judgment in the NSW Local Court. A court exercising a bankruptcy jurisdiction is not concerned to protect the finality in the administration of justice as between parties to litigation but to protect the interests of third parties who are not participants in the litigation which led to the judgment in question: Ramsay Health Care Australia Pty Ltd v Compton (2017) 261 CLR 132; [2017] HCA 28, [67].

Ratio Decidendi

Legal Principle Established

On 24 March 2021, by Court order, the Company was wound up in liquidation.CONSIDERATION Section 43(1)(a) of the Act provides that “subject to this Act” where a debtor has committed an act of bankruptcy the Court may, on a petition presented by a creditor, make a sequestration order against the estate of the debtor. Section 43(1)(b) was satisfied in the current case. The relevant act of bankruptcy was the debtor’s non-compliance with the bankruptcy notice under s. 40(1)(g) of the Act. Before making a sequestration order, I must be satisfied as to each of the matters in s. 52(1)(a) –(c). CHEP has proved the formal matters in s. 52(1)(a) and (b). The question in this case is whether CHEP has discharged its onus under s. 52(1)(c) to prove the debt on which it relies is owing. The burden of proof is on CHEP as the petitioner: Deputy Commissioner of Taxation v Cumins (2008) 101 ALD 78, 81; [2008] FCA 353, [14] (Gilmour J). A petitioning creditor has a “prima facie right” to a sequestration order once proof of each of the matters required by s. 52(1) has been satisfied: Stratton v Bowles (No. 2) [2015] FCA 43, [27] (Beach J).Legal principles: a discretion to “go behind” the judgment Whether a debt is in truth and reality owing is a question which arises under s. 52(1)(c) of the Act: Ali v Retail Decisions Pty Ltd [2012] FCA 1130 at [17]–[20] (Bromberg J). Although a judgment is usually taken to be determinative evidence of the existence of a debt, a judgment is not conclusive upon the hearing of a creditor’s petition and the Court has a discretion to “go behind” a judgment debt to determine whether in fact there is a debt owing: Ramsay, [39], [40] [47]; FCA Decision, [30]. Mr Russo carries the initial or tactical onus: Ali, [20] (Bromberg J); FCA Decision, [43]. The court exercising bankruptcy jurisdiction does not “set aside” the judgment of the other court but “goes round the judgment and inquires into the subject matter” (see: In re Fraser ex parte Central Bank of London [1892] 2 QB 633, 636 approved in Wren v Mahoney (1972) 126 CLR 212, 222, Barwick CJ). A two-step process It is a two-step process. As explained in Cristovao v Tan & Tan Lawyers Pty Ltd [2018] FCAFC 41 at [34] (Bromberg, Mortimer and Lee JJ): When considering to go behind the prima facie evidence of the debt constituted by the judgment, a two-stage process inquiry arises: first, as to whether there is sufficient reason to question the existence of a real debt behind the judgment; and secondly, if there is, determining that issue (although these two steps may be determined together: [citations omitted]The first step: whether there is a proper basis for the Court to exercise its discretion to go behind the judgment In Ramsay, Edelman J expressed the relevant inquiry (or test) as to when the Court should exercise its discretion to go behind the judgment debt in two ways. First, by reference to whether there are “substantial reasons […] for questioning whether behind that judgment there was in truth and reality a debt due to the petitioner”. Or, secondly, as expressed in earlier (older) cases, if there is “a prima facie case impeaching the judgment”: Ramsay, [110] (Edelman J); cited in the FCA Decision, [41]. In Joosse v Deputy Commissioner of Taxation (2004) 137 FCR 576; 57 ATR 92; FCFCA 245 at [6] the Court framed the relevant question as whether there was “substantial reason for doubting whether there is […] a debt”. Colvin J in Re Kitay, Frigger (No. 2) [2018] FCA 1032 at [20] framed the relevant inquiry as to whether there was “merit in the attack” on the judgment.