Hudson v Sigalla
[2014] FCCA 1652
•19 December 2014
FEDERAL CIRCUIT COURT OF AUSTRALIA
| HUDSON v SIGALLA | [2014] FCCA 1652 |
| Catchwords: BANKRUPTCY – Challenge to composition made under the Bankruptcy Act 1966 (Cth) – whether the composition should be set aside or terminated considered – ongoing proceedings between the parties in the NSW Supreme Court – whether the applicant should have leave to set off an asserted debt by cross-claim in those proceedings considered. |
| Legislation: Bankruptcy Act 1966 (Cth), ss.58, 64D, 64ZA, 73, 74, 75, 76B, 86, 109, 136, 149, 149B, 153, 178, 196 204, 222, 222C, 224A, 232, 239, 243, 248 |
| Ackers v Austcorp International Ltd [2009] FCA 432 Beard v Prestige Baking Industries Pty Ltd (1981) 52 FLR 384 Caparo Industries v Dickman [1990] 2 AC 605 For the Good Times Pty Ltd v Boyle [2009] FMCA 512 Gertig v Davies (2003) 85 SASR 226 Goldschmidt v MacDonald (1909) 9 SR NSW 693 Hingston v Westpac Banking Corporation [2012] FCAFC 41 Ifx Markets Ltd v Rapport [2009] FMCA 893 In Re Codrington; Ex parte Don McKay Tourist & Charter Pty Ltd (unreported, Fed Ct of Aust, Burchett J, 1 September 1989) Keith Smith East West Transport Pty Ltd v Australian Taxation Office (2002) 42 ACSR 561 Moran v Robertson [2012] FCA 371 New Age Constructions (NSW) Pty Ltd v Etlis [2013] FCA 884 Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 Re Dingle; Westpac Banking Corporation v Worrell (1993) 47 FCR 478; 119 ALR 265 Re Doukidis; Ex parte Consolidated Constructions Pty Ltd (unreported, Fed Ct of Aust, Toohey J, 26 June 1985) Re Heerey; ex parte Heinreich (2001) 185 ALR 106 Re McLean; Ex Parte Friends’ Provident Life Office (1992) 36 FCR 502 Re Veghelyi; Smith v Official Trustee in Bankruptcy (1993) 45 FCR 413 Singh v Official Trustee in Bankruptcy (2007) 214 FLR 84 Stanley Yeung Kai Yung v Hong Kong and Shanghai Banking Corporation [1981] AC 787 Ward v Zozi [2012] FMCA 898 Willingale v Norris [1909] 1 KB 57 |
| Applicant: | FRANK HUDSON |
| Respondent: | ANDREW JOHN SIGALLA |
| File Number: | SYG 793 of 2014 |
| Judgment of: | Judge Driver |
| Hearing dates: | 18 June, 25 July 2014 |
| Date of Last Submission: | 13 August 2014 |
| Delivered at: | Sydney |
| Delivered on: | 19 December 2014 |
REPRESENTATION
| Counsel for the Applicant: | Mr Wood |
| Solicitors for the Applicant: | Marque Lawyers |
| Counsel for the Respondent: | Mr C Botsman |
| Solicitors for the Respondent: | Kemp Strang |
ORDERS
The Court grants leave pursuant to s.58(3) of the Bankruptcy Act 1966 (Cth) nunc pro tunc for the applicant to commence and take further steps in his cross-claim in Supreme Court proceedings 2013/216320.
The application is otherwise dismissed.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY |
SYG 793 of 2014
| FRANK HUDSON |
Applicant
And
| ANDREW JOHN SIGALLA |
Respondent
REASONS FOR JUDGMENT
Introduction and background
The applicant (Mr Hudson) is, or was at the relevant time, a bookmaker registered in Victoria and New South Wales. By application filed on 25 March 2014, Mr Hudson seeks orders pursuant to ss.222(1), 222(5) and/or 222C(1) of the Bankruptcy Act 1966 (Cth) (Bankruptcy Act), setting aside or terminating a composition made on 21 May 2013 in the bankruptcy of Andrew John Sigalla (Mr Sigalla).
Mr Hudson also seeks orders pursuant to ss.222(8) and/or222C(3) extending the period of Mr Sigalla’s bankruptcy and permitting his trustee (Mr Turner – the Trustee) under the composition to retain remuneration paid to him. Mr Hudson seeks further relief pursuant to s.58(3) of the Bankruptcy Act nunc pro tunc, to commence and proceed with a cross-claim he has filed in proceedings 2013/216320 in the Supreme Court of NSW (Supreme Court proceedings) and an order that the cause of action set out in the statement of claim by Mr Sigalla in the Supreme Court proceedings vest in Mr Turner pursuant to s.74(6) of the Bankruptcy Act.
It is common ground that the agreement terminating Mr Sigalla’s bankruptcy was a composition within the meaning of s.73 of the Bankruptcy Act. Sections 222 and 222C apply by virtue of s.76B.
In the alternative, Mr Hudson seeks a declaration that he is and was a person claiming to prove in Mr Sigalla’s bankruptcy within the meaning of s.86 of the Bankruptcy Act and that he can set off his cross-claim in the Supreme Court proceedings against Mr Sigalla’s claim against him in those proceedings.
Mr Sigalla’s claim against Mr Hudson in the Supreme Court proceedings arises out of investment dealings between them in respect of a company called TZ Limited (ACN 073 979 272) (TZ). Mr Sigalla claims in those proceedings that he and Mr Hudson agreed to purchase shares in TZ in part with funds borrowed pursuant to margin loan facilities provided by two Dutch banks[1]. It is further alleged that Mr Hudson and Mr Sigalla entered into an offsetting agreement with another company and KAS whereby KAS would provide overdraft facilities on Mr Hudson’s and Mr Sigalla’s accounts which could be set off against other accounts with the purpose of KAS calculating the amount of the overdraft to be granted to them. It is alleged to be an implied term of that offsetting agreement that, in the event of Mr Hudson becoming indebted to KAS, Mr Hudson would ask Mr Sigalla to use Mr Sigalla’s margin loan facility to discharge Mr Hudson’s debts and vice versa. Mr Sigalla further claims that it was an implied term of the offsetting agreement that, to the extent that a borrower incurred losses discharging the debt of the other borrower, the second borrower would indemnify the first borrower against such losses. Mr Sigalla claims in the Supreme Court proceedings that Mr Hudson is indebted to him following Mr Hudson’s account running very substantially into debit and the forced sale of TZ shares to satisfy that indebtedness. In the Supreme Court proceedings, Mr Sigalla claims an amount in Australian dollars and Euros of approximately AUD$2 million.
[1] Westlandutrechteffectenbank (Westland) and KAS Bank NV (KAS)
Mr Hudson has sought to cross-claim in the Supreme Court proceedings for gambling debts alleged to be owed to him by Mr Sigalla. Mr Sigalla in the Supreme Court proceedings has sought to have Mr Hudson’s cross-claim summarily dismissed on several bases. These are that Mr Hudson cannot prove the bets said to underpin the alleged debt, that Mr Hudson has failed to comply with his obligation under the Racing Act 1958 (Vic) (Racing Act) to record the bets which are thus unenforceable and thirdly, and significantly, that the annulment of Mr Sigalla’s bankruptcy pursuant to the composition can be pleaded in bar to the gambling debts the subject of the cross-claim.
The Supreme Court proceedings have been stayed pending the resolution of Mr Hudson’s challenge to the composition in this Court.
Mr Hudson asserts that the composition should be set aside because it is unfair and not in the interests of creditors as a whole. He points out that the composition was entered into only a short time before Mr Sigalla was due to be discharged from bankruptcy pursuant to s.149 of the Bankruptcy Act, which if it had occurred, would have meant that Mr Sigalla’s cause of action would have remained vested in his trustee in bankruptcy. The effect of the composition was to revest in Mr Sigalla personally that cause of action to enable him to institute and pursue the Supreme Court proceedings. Mr Hudson also points out that the amount payable to creditors pursuant to the composition was a trifling sum in respect of some $17 million in debts and that, in fact, while a return to creditors was forecast, only the Trustee and the petitioning creditor (Mr Tom Waterhouse) have benefitted. Mr Hudson also points out that Mr Sigalla did not list him as a creditor in his statement of affairs and claims that he did not know of the Sigalla bankruptcy. Mr Hudson also claims that he was deprived of the opportunity of voting on the composition because he did not know of it until after its approval by creditors. He claims that it is unfair that, pursuant to the composition, Mr Sigalla is free to pursue the Supreme Court proceedings against him but that he is unable to cross-claim against Mr Sigalla in respect of the alleged gambling debts.
Accordingly, Mr Hudson seeks to have the composition set aside and the period of the bankruptcy extended for a sufficient period to allow him to prove in the bankruptcy. In the alternative, Mr Hudson seeks to have Mr Sigalla’s cause of action revest in the Trustee (who has previously taken no steps to pursue it) which would have been the result achieved by s.153 of the Bankruptcy Act, but for the composition. Further, or in the alternative, Mr Hudson seeks leave of this Court to pursue his cross-claim in the Supreme Court proceedings.
The evidence and submissions
Mr Hudson relies upon his own affidavit made on 25 March 2014 and the annexures to it and his affidavit made on 12 May 2014 (and the exhibits to it). He also relies upon two affidavits of Damian Bruce Sturzaker made on 26 March 2014 and 18 June 2014 and the annexures to them. The deponents were both cross-examined on their affidavits.
Mr Sigalla relies upon affidavits by his solicitor, Peter Leigh Harrison, made on 17 June 2014 and 15 July 2014 (and the exhibits to those affidavits) and the affidavit of Salvatore Francipane made on 17 June 2014 and the annexures to that affidavit. A further affidavit by Paul James made on 17 June 2014 was not read. Only Mr Francipane was required for cross-examination.
I also received the following exhibits tendered at the trial:
·A1 – letter from Gadens to Federal Circuit Court, 22/07/2014;
·R1 – List of text messages sent from Mr Hudson’s mobile phone records;
·R2 – Ledger;
·R3 – Folder tendered by Mr Sigalla on 25/07/2014;
·R4 – Four folders of records produced by Mr Hudson on 19/05/2014;
·R5 – Three folders of Racing Victoria records;
·R6 – Letter from Commonwealth Bank;
·R7 – Letter from Trustee to Kemp Strang, 25/02/2013.
The parties both made oral and written submissions, including submissions after the trial.
Consideration
Mr Hudson presents his claim as a case about set-off to which he should be entitled because of the legislative intention behind s.86 of the Bankruptcy Act. He places emphasis on his asserted ignorance of the Sigalla bankruptcy and the composition which he attributes to Mr Sigalla’s failure to list him as a creditor in his statement of affairs and his alleged giving the Trustee an incorrect address for him. Mr Hudson asserts that Mr Sigalla has sought to abuse the provisions of the Bankruptcy Act to bring about a result whereby he can pursue the Supreme Court proceedings against him and resist the set off in the cross-claim.
For the purposes of these proceedings, Mr Sigalla has quantified the value of his claim in the Supreme Court proceedings at $1,930,729. Mr Hudson claims that Mr Sigalla owes gambling debts to him of around $3 million.
Mr Hudson places emphasis on the facts that the bets giving rise to the gambling debts were placed with him by Mr Sigalla through an agent known as a commission agent, being Mr James, and yet neither Mr Sigalla nor Mr James have given evidence[2]. Mr Hudson submits that I should draw an adverse inference from that lack of evidence.
[2] Mr Sigalla did not prepare any affidavit and was not called as a witness. Mr James did prepare an affidavit but it was not read
Mr Sigalla defends these proceedings on three general bases. First, Mr Sigalla contends that Mr Hudson cannot establish that he is a creditor at all, let alone for the amount of $1,930,729 necessary to establish that he is a net creditor. Secondly, Mr Sigalla contends that Mr Hudson cannot satisfy the threshold requirement in s.222 of the Bankruptcy Act that setting aside the composition would be in the interests of creditors generally (as opposed to his personal interest in resisting Mr Sigalla’s claim in the Supreme Court proceedings). Thirdly, Mr Sigalla contends that the Court should exercise its residual discretion against Mr Hudson on account of his disentitling conduct, in particular:
a)attempting to limit the scrutiny of his betting records;
b)engineering the abridgement of his own cross-examination; and
c)attempting to circumvent an understanding reached on 4 April 2014 that the Supreme Court proceedings would be stayed to allow these proceedings to adjudicate the questions of the composition and Mr Hudson’s status as a creditor.
In resolving this dispute, it is necessary first to consider the events associated with Mr Sigalla’s bankruptcy.
28 June 2010 sequestration order
On 28 June 2010 a sequestration order was made against Mr Sigalla[3]. At around the same time, Mr Turner was appointed as trustee of Mr Sigalla’s bankrupt estate[4].
[3] 17 June 2014 Harrison affidavit, Exhibit PLH1, 1
[4] see Annexure PLH2, 3
Conversation with Mr Francipane
From late 2009 through early 2010, KAS was allegedly engaged in the forced selling of Mr Hudson’s shares and debiting money from Mr Sigalla’s accounts to compensate for significant debit balances in Mr Hudson’s KAS bank account[5].
[5] see Mr Sigalla’s Amended Statement of Claim in the Supreme Court proceedings, Annexure FH2, pp 29-30
On 19 February 2010, Mr Hudson was sent a letter by Hall Chadwick concerning his margin loan account with KAS[6]. (Hall Chadwick were receivers for a company with an interest in shares being sold from Mr Sigalla’s account to compensate for the deficit in Mr Hudson’s account).
[6] see Francipane affidavit, Annexure SF3
Sometime after that conversation, Mr Francipane and Mr Hudson allegedly had a telephone conversation in which Mr Francipane made reference to the fact that Mr Sigalla was a bankrupt[7]. Under cross‑examination on 25 July 2014, Mr Francipane was not shaken on his recollection.
[7] affidavit, [7]
Mr Hudson Retains the law firm Landerer & Co
On 1 March 2010 Mr Sigalla sent an SMS message to Mr Hudson requesting a meeting[8].
[8] see Exhibit PLH1, 105
On 3 March 2010 Mark Houston of Landerer & Co sent an email to Mr Sigalla’s then lawyer, referring to the 1 March 2010 SMS and indicating that Mr Hudson had no wish to meet with Mr Sigalla and indicating that any proposal from Mr Sigalla should be communicated via lawyers[9].
[9] ibid
At no point did Landerer & Co indicate that Mr Sigalla owed Mr Hudson money.
Landerer & Co were also representing TZ in litigation against Mr Sigalla, and to pursue those proceedings had sought leave on 20 July 2010 under s.58 of the Bankruptcy Act to proceed against Mr Sigalla[10].
[10] see Exhibit PLH1,111
On 11 October 2010, the Landerer & Co solicitor responsible for the s.58 application sent an email to Mr Sigalla’s then lawyer copying Mr Houston (Mr Hudson’s lawyer) that referred to the bankruptcy of Mr Sigalla. It follows that by 11 October 2010, Mr Hudson’s lawyer knew that Mr Sigalla was a bankrupt. It does not necessarily follow from that, that Mr Hudson knew, but it would be surprising if he was not told.
Mr Sigalla’s statement of affairs
On 15 August 2010 Mr Sigalla filed his statement of affairs[11]. In section 31 (“Money Owed to You”), Mr Hudson is alleged to owe €728,792.01 to Mr Sigalla. The statement of affairs makes no reference to an address or a phone number for Mr Hudson. In section 40 (“Unsecured Creditors”) where Mr Sigalla disclosed the names of persons to whom he owed money, no reference is made to Mr Hudson.
[11] Annexure FH-14, 582
On 23 August 2010, Mr Turner sent a letter to Mr Hudson referring to the €728,792.01 debt to Mr Sigalla and advising that, as Mr Sigalla’s assets had vested in him, Mr Hudson should repay the debt to Mr Turner. The letter was addressed to Mr Frank Hudson at 54 Harold Street, Middle Park, Victoria[12]. That is apparently not where Mr Hudson was living at the time. He denies receipt of that letter.
[12] Annexure FH-14, 569
Communications from Mr Hudson to KAS, including in relation to Mr Sigalla’s bankruptcy
In November 2009, Mr Hudson produced documents to ASIC[13]. That production included letters from KAS addressed to Mr Hudson at his correct 40 Harrold Street address as well as emails from KAS[14].
[13] see PLH1, 4
[14] Examples of the former are at PLH2 5 and 10, examples of the latter are at PLH2, 10 and 9
A 2 August 2007 email[15] involved notice from KAS to Mr Hudson of a margin call on his account. On 3 August 2007 Mr Sigalla sent an email to Mr Hudson indicating that Mr Hudson had received an email from KAS concerning a margin call and had raised it with Mr James[16]. That shows that Mr Hudson checked emails from KAS.
[15] at Exhibit PLH2, page 9
[16] see Exhibit R-1, 3 August 2007 SMS at 6:38am
On 9 August 2010 KAS wrote to Mr Hudson to inform him of Mr Sigalla’s bankruptcy[17]. Mr Hudson deposed[18] that he did not read the letter because he left KAS matters to Mr Sigalla.
[17] see Annexure FH-11
[18] Hudson affidavit at [42]
On 17 August 2010, KAS sent an email to Mr Hudson attaching the 9 August 2010 letter that was sent by registered mail. Mr Hudson says he has no recollection of reading the email[19].
[19] see Hudson affidavit, [44]; Annexure FH-12
Mr Sigalla introduces the Trustee to KAS
Beginning on 30 May 2011 Mr Sigalla sought to have Mr Turner prosecute a claim against Mr Hudson based on Mr Sigalla’s bank account being debited to compensate for deficits in Mr Hudson’s account. Thus:
a)on 30 May 2011 Mr Sigalla wrote to Raymond de la Rambelje of KAS (copying Mr Turner and his associate, Margaret Lester) noting that Mr Turner did not have sufficient information to pursue Mr Hudson and asked KAS to provide Mr Turner with all the evidence of how KAS debited Mr Sigalla’s account to compensate Mr Hudson’s and suggesting the types of documentation that would assist Mr Turner[20];
b)on 6 June 2011 KAS forwarded to Mr Turner’s associate a 31 May 2011 email sent to Mr Sigalla attaching various documents and said he thought it contained all the details Mr Turner would need[21] (among the attached documents was a compensation agreement setting out Mr Hudson’s 40 Harrold Street address[22]);
c)on 6 June 2011 Mr Sigalla sent an email to KAS, copied to Mr Turner’s associate, and asking KAS to provide evidence of the money being debited from his account and paid to Mr Hudson’s account[23];
d)on 1 February 2012 Mr Sigalla sent an email to Mr Turner and his lawyer attaching Mr Hudson’s account opening instructions to KAS and the Compensation Agreement underpinning his claim against Mr Hudson. He asked Mr Turner and his lawyer to explain why the debt owed by Mr Hudson to his bankrupt estate was not being collected. He said that there was clear evidence that the Hudson account had been paid out under the compensation agreement and that the compensating payments from his property were collectible under law. He concluded by saying that if he did not receive a satisfactory response he would attempt to have Mr Turner removed and effect a s.73 composition with a new trustee in place[24].
[20] Exhibit PLH1, 77
[21] PLH1, 76
[22] see PLH1, 80
[23] PLH1, 87-88
[24] see Annexure PLH1, 92
On the same day (ie, 1 February 2012) Mr Turner sent a letter to Catherine York of ASIC stating that he had received confirmation that KAS had applied credit funds from Mr Sigalla’s account to offset a liability of Mr Hudson and indicating that he wished to proceed for recovery of that offset against Mr Hudson[25]. He asked ASIC to provide a translated copy of the compensation agreement so that he could immediately commence recovery proceedings against Mr Hudson and added: “You will appreciate that there has already been significant delay in progressing this matter and I would appreciate your urgent attention”. Despite concluding that there was a claim against Mr Hudson and despite Mr Sigalla authorising KAS to provide information to Mr Turner and procuring information for Mr Turner, Mr Turner did not pursue the claim against Mr Hudson.
[25] see Exhibit PLH2, 3
Trustee’s report to creditors, composition proposal, meeting of creditors
On 8 May 2013 a proposal was submitted on behalf of Mr Sigalla for a composition with his creditors in full and final satisfaction of his debts along with various documents including a report to creditors from Mr Turner[26]. Mr Turner gave notice that a meeting of creditors would occur on 21 May 2013.
[26] Exhibit PLH-1, 3
The essential terms of the composition were that upon acceptance of the proposal by a special resolution of a meeting his creditors, other persons would pay an amount of $110,000 on Mr Sigalla’s behalf as composition funds. In his report, Mr Turner reported that acceptance of the proposal would provide for a dividend to creditors and annul the bankruptcy.
The following key issues are addressed in the Trustee’s Report[27], the Composition Proposal[28] and the creditors’ meeting[29].
[27] PLH1, 6-10, 18-24
[28] PLH1, 11 -17
[29] PLH1, 25-34
Proposal funds
The Trustee indicated[30] that $110,000 would be paid by third party sources that would not otherwise be available in the bankrupt estate. In the event of acceptance such funds would be paid to an administration account that the Trustee would use to prepare a payment to creditors in accordance with the terms of the composition. At the creditors meeting, the Trustee referred[31] to a statutory declaration to the effect that the composition funds were not generated by the bankrupt and were drawn from the declarants’ own earnings or borrowings. The Trustee concluded he was satisfied that the funds would not otherwise be available in the bankruptcy.
[30] PLH1, 6
[31] PLH1, 26
Investigations involving ASIC
In his report to creditors, the Trustee noted[32] that ASIC had pursued legal proceedings against Mr Sigalla throughout the bankruptcy and “had control of Mr Sigalla’s personal financial records”. He added that Mr Sigalla asserted that this prevented him from providing information concerning his affairs, the Trustee was obliged to make inquiries to identify assets “from the extensive affidavits and records prepared [by Mr Sigalla] for the legal action by ASIC”. In his remuneration approval notice[33] the Trustee also referred to correspondence with ASIC.
[32] PLH1, 6-7
[33] PLH1, 18
Illustrative of the communications between the Trustee and ASIC is a 23 November 2010 email from Jonathon Bowers-Taylor (the lawyer for the Trustee) and Michelle Kelly (ASIC), copied to Ms York (ASIC) and Mr Turner and Ms Lester (the Trustee’s assistant)[34] where Mr Bowers-Taylor:
a)summarises for ASIC the outcome of a hearing in the proceeding between TZ and Mr Sigalla; and
b)after noting that the Trustee and ASIC are “bending over backwards to help each other”:
i)asked ASIC to send a document to the Trustee; and
ii)referred to ASIC (Mr Chambers) passing on information about alleged gambling activity by Mr Sigalla at Crown Casino and asked ASIC to provide the Trustee with any information that it had about such activity.
Other investigations[35]
[34] see PLH2, 1
[35] PLH1, 6-7
The Trustee noted that he had investigated the merits of a claim by TZ against Mr Sigalla and a cross-claim by Mr Sigalla against TZ. Regarding the claim against Mr Hudson, he noted that “[f]rom the documents provided by ASIC” and from information in Mr Sigalla’s statement of affairs he had learned that substantial funds held by Mr Sigalla in KAS “had been offset against a liability of Mr Frank Hudson”. According to the Trustee, “only limited documentation” reflecting Mr Hudson’s liability to Mr Sigalla had been received and such information was “insufficient to support legal action for recovery”. The Trustee made “other extensive enquiries” to identify assets that might be realisable in the bankrupt estate and could find none.
Assets[36]
[36] PLH1,7
The Trustee reiterated that despite having “conducted significant investigations” no assets had been recovered in the administration of the bankruptcy. In his remuneration approval notice[37] the Trustee noted that on the topic of “Dealing with Assets” he had corresponded with KAS.
[37] PLH1, 19
Mr Hudson’s debt
The Trustee acknowledged[38] Mr Sigalla’s view that Mr Hudson was liable to him for the offset of funds from their margin loan accounts but said that without adequate documentation to support his claim and without funding he was unable to pursue the claim.
[38] PLH1,7
Costs from ASIC
The Trustee noted[39] that Mr Sigalla had been awarded costs against ASIC and said that while he took the view that pre-bankruptcy costs vested in him, he conceded that his view might be contested and concluded that he was unable to state that such costs would be recovered. At the creditors meeting, the Trustee acknowledged that Mr Sigalla had been the recipient of an order that ASIC pay 75% of his legal costs. He advised that Bridges Lawyers had claimed a lien over such costs and would dispute the Trustee’s entitlement to costs[40]. Bridges Lawyers indicated that they did not think that the costs orders were an asset of the bankruptcy and advised that other lawyers claimed liens over the costs orders.
[39] PLH1,7
[40] PLH1, 26
Assessment of income based on the payment of legal fees by third parties
The Trustee noted[41] that he had assessed Mr Sigalla as liable to pay income contributions of $226,709.64, and that this amount had been increased on a review to the Inspector-General to $231,817.50. It was noted that Mr Sigalla had appealed the decision to the Administrative Appeals Tribunal (AAT) and strongly disagreed with the assessment, such that the actual collection of any income would be time consuming and require legal action. At the creditors’ meeting the Trustee acknowledged[42] that as Mr Sigalla claimed not to be in receipt of any income, his related parties would be the likely source of payment for income purposes, and this would make recovery problematic. Bridges Lawyers noted that there was no authority that legal costs paid on a bankrupt’s behalf was a benefit and such an assessment would be challenged and potentially reduced. The Trustee acknowledged that a substantial amount of the assessment included legal expenses paid on Mr Sigalla’s behalf and there was a risk that the income assessment would be overturned by the AAT.
[41] PLH1,7-8
[42] PLH1, 27
Anticipated distribution from proposed composition
The Trustee explained[43] that after deducting government charges and his remuneration, disbursements and legal costs from the $110,000 in composition funds, funds available to creditors would be $9,560, resulting in an anticipated dividend of $0.0005 cents in the dollar. The Composition Proposal did not address the anticipated dividend to creditors.
[43] PLH1, 8
Anticipated distribution from continuing bankruptcy
The Trustee explained[44] that after deducting government charges and his remuneration, disbursements and legal costs from the assessed income contribution of $231,817.50 and estimated future income contributions of $16,000, funds available to creditors would be $32,310.03. (The trustee did not calculate it but this fund would have resulted in a return to creditors of $0.0018 cents in the dollar). The Trustee considered that Mr Sigalla would attempt to avoid liability for payment for such income contributions. The Trustee concluded that in light of Mr Sigalla’s previous conduct, and without an indemnity from creditors, the scenario of a return to creditors of $32,310.03 “is unlikely to be achievable”.
[44] PLH1, 9
Distribution of the composition fund
According to the Composition Proposal[45], the fund of $110,000 would be applied: first, as to $100,000 in full and final payment of the Trustee’s entitlements, second, in the order of priority prescribed by s.109 of the Bankruptcy Act; and third, pari passu in payment of the debts of participating creditors.
[45] PLH1, 14
Trustee’s remuneration
In his report, the Trustee indicated[46] that pursuant to the bankrupt’s proposal he would be accepting $100,000 in full and final settlement of his entitlement (which, at the time, amounted to $155,807.50 including GST). He indicated that he was willing to accept such a settlement “if creditors resolve to accept the proposal, annul the bankruptcy and receive a nominal dividend”. He indicated[47] that in the event of creditors rejecting the proposed composition, he would seek “payment in full of [his] remuneration” from funds becoming available in the bankruptcy.
[46] PLH1, 9
[47] PLH1, 10
Trustee’s recommendation
In his report, the Trustee noted that while the return to creditors from the proposed composition was less than in a continuing bankruptcy, there was less certainty of a return in the bankruptcy and any dividend in the bankruptcy would not be paid until income contributions were paid by Mr Sigalla. He said that because the composition funds would be held in a trust account:
creditors are therefore assured of a dividend payment (albeit nominal) in accepting the proposal. Therefore, I recommend that creditors accept the proposal.
Consequences of annulment
By clause 4.10 of the Composition Proposal it was acknowledged[48] that if accepted the proposal may be pleaded by the bankrupt in bar of any debt, whether or not the debt was admitted or established in accordance with clause 5. By clause 4.11 it was acknowledged that the claim of any creditor not admitted as a Participating Creditor would forever be barred and discharged. By clause 6 it was acknowledged[49] that upon acceptance the Trustee would cease to be a trustee of the bankrupt’s property and would be appointed to act as the Composition Trustee. By clause 4.3 it was disclosed[50] that following annulment, property that had vested in the Trustee would revert to Mr Sigalla, namely:
a)any claim that Mr Sigalla might have on the ASIC costs orders given the competing claims of himself, Melissa Sigalla (his wife) (Mrs Sigalla), and the lawyers acting in the ASIC matter on his behalf;
b)any cause of action against ASIC, in addition to the ASIC Costs Order;
c)a claim against Mr Hudson for an indemnity for the withdrawal by KAS of money from the bankrupt’s account to reduce Mr Hudson’s indebtedness to KAS;
d)a claim against Chris Kellaher for repayment of a debt;
e)a claim against Linda Lau for repayment of a debt; and
f)any claims for defamation of Mr Sigalla.
[48] PLH1, 13
[49] PLH1, 14
[50] PLH1, 12
Related parties
The Trustee set out a full list of known creditors at Annexure 1 to his report to creditors[51]. That list identified three parties as Related Parties:
a)BZI Pty Ltd ($4,775,802.35);
b)Melissa Sigalla ($276,800); and
c)Terrence Caplice ($320,000).
[51] PLH1, 8, 17
There was some contention over a debt claimed by a company called Pontego Investments Inc (Pontego). The Trustee did not refer to Pontego as a “Related Party”. At the creditors’ meeting[52], these same three persons were disclosed as having relationships with Mr Sigalla. At the Creditors Meeting the Trustee noted[53] that he had met with Mr Sigalla’s advisor six months previously when the possibility of a composition was broached and that from that time “he [had] required significant amounts of documentation to prove the related party claims, he [had] been meticulous in assessing the claims and he [had] rejected over $5 million in related party claims”. He concluded that he was content for the related parties’ eligibility to vote for the amounts specified (see below). Mr Sigalla was asked (the only question put to him at the meeting) whether the related parties would claim in any dividend and his answer was probably not but that he could not say for certain (the Trustee noted that they were not restricted by the Proposal from participating in any dividend).
[52] PLH1, 26
[53] PLH1, 28
Voting at the creditors’ meeting
Fourteen proxies were received for the meeting[54]. Two of the creditors described by the Trustee as related parties were admitted to vote for smaller amounts than their proofs of debt[55]. Thus, Mrs Sigalla was admitted to vote for $160,400 (not $276,800) and Mr Caplice was admitted to vote for $240,000 (not $320,000). Pontego, while not identified by the Trustee as a related party, was admitted to vote for $1,036,583.39 (not the proof amount of $7,900,304.48).
[54] PLH1, 25
[55] compare PLH1, 17 and PLH1, 25
Mr Hudson submitted a table (“Summary of creditors votes in relation to composition proposal”) which is different, albeit in a way that is favourable to Mr Sigalla. While Mr Hudson’s table suggests that American Express voted in favour of the proposal, they voted against. The actual result was that nine of the fourteen creditors, representing $6,374,455.34 (95%) of the amount admitted to vote voted in favour of the proposal and four of the creditors, representing $346,635 (5%) of the amount admitted to vote voted against the proposal. Because the resolution was approved by a majority in number and at least three-quarters in value of the voting creditors, the special resolution was passed.
Upon the passing of the special resolution, Mr Sigalla’s bankruptcy was, by operation of s.74(5), annulled on 21 May 2013. By operation of s.75(1), the composition once accepted in accordance with Division 6 of Part IV of the Bankruptcy Act became binding on all of Mr Sigalla’s creditors so far as it related to all provable debts due to them from him.
Mr Hudson did not attend the meeting. He claims not to have known that Mr Sigalla was a bankrupt. In his second affidavit, he claims[56] that he did not learn of the bankruptcy until 8 August 2013.
[56] at [40]
I accept Mr Sigalla’s submission that if Mr Hudson had proved after learning of Mr Sigalla’s bankruptcy and had managed to satisfy the Trustee that he had a debt at the time of Mr Sigalla’s bankruptcy, his mere presence at the meeting of creditors would have made no difference to the passage of the resolution because the voting would have been nine to six instead of nine to five. To have blocked the resolution, Mr Hudson would have had to be admitted to vote for $1,778,184. That figure is derived by:
a)adding 25% to the existing votes in favour ($6,374,453) which produces a total creditor vote of $8,449,272;
b)calculating twenty-five per cent of that total creditor vote ($2,124,819); and
c)subtracting the existing creditor vote of $346,635 from $2,124,819 (to give $1,778,184).
It is necessary also to survey the background to and the conduct of these proceedings.
Mr Sigalla’s statement of claim in the Supreme Court proceedings; ensuing inter partes correspondence
On 11 June 2013 Mr Sigalla’s lawyers sent a letter of demand to Mr Hudson in respect of a debt of $1,930,729.05 arising from the operation of the KAS margin loan account[57].
[57] see Exhibit PLH-2, 56
On 16 July 2013 Mr Sigalla filed a statement of claim alleging, among other things, that he was entitled to an indemnity from Mr Hudson in respect of monies deducted from Mr Sigalla’s side of a joint margin loan account to compensate for debts incurred by Mr Hudson[58].
[58] see PLH1, 36-43
On 12 August 2013, Mr Hudson’s lawyers indicated in inter partes correspondence that Mr Sigalla owed Mr Hudson millions of dollars in respect of gambling debts and forecast a cross-claim for such amounts. The same letter also referred to Mr Sigalla’s bankruptcy being annulled[59].
[59] see PLH1, 46
On 25 September 2013 Racing Victoria produced records to Mr Hudson[60]. Mr Sigalla contends that, as of that date, it appears that Mr Hudson had access to all the records produced to the Court in response to Mr Sigalla’s Notice to Produce of 10 April 2014; that is, the documents that comprise Exhibit R-4.
[60] see Annexure A to Mr Hudson’s Notice to Admit Facts, Exhibit A1
In his report to creditors the Trustee indicated[61] that Mr Sigalla’s bankruptcy would be discharged on 6 October 2013.
[61] PLH1,9.2
On 25 November 2013, a first cross-claim was filed on behalf of Mr Hudson[62]. Mr Hudson alleged that the total amount of gambling debts owed to him by Mr Sigalla was $1,936,930, that is, roughly $6,000 more than the debt the subject of the 11 June 2013 Letter of Demand from Mr Sigalla.
[62] see 12 May 2014 Hudson affidavit, [8]
On 5 February 2014, in a letter requesting further and better particulars of the first cross-claim, Mr Sigalla’s lawyers asked whether there was any real issue that[63]:
a)Mr Hudson had provable claims;
b)Mr Hudson had failed to prove for such claims; and
c)any claims that Mr Hudson may have had were or would be extinguished as a consequence of the annulment.
[63] see PLH1, 59-67 at 66
On 11 March 2014, Mr Hudson’s lawyers indicated that Mr Hudson’s claim was a provable debt in Mr Sigalla’s bankruptcy and that Mr Hudson had issued instructions to apply to have the composition set aside[64]. It was asserted that the composition should not have the effect of preserving Mr Sigalla’s claim but barring Mr Hudson’s claim and that such an outcome warranted the Court’s intervention. That is the unfairness allegation which was pursued in these proceedings.
[64] see PLH1, 74-75
On 14 March 2014, Mr Sigalla filed a notice of motion in the Supreme Court proceedings seeking summary dismissal of Mr Hudson’s cross-claim on the basis that the debt was barred by the annulment[65].
[65] 26 March 2014 Sturzaker affidavit, [13]
On 25 March 2014 Mr Hudson filed an application in this Court seeking, among other things, an order setting aside or terminating Mr Sigalla’s composition, or alternatively, giving Mr Hudson leave to proceed with his cross-claim in the Supreme Court proceedings[66].
[66] 26 March 2014 Sturzaker affidavit, [2], [15]
The purported proof of debt
On 7 March 2014 Mr Hudson wrote to the Trustee claiming to be a pre-bankruptcy creditor of Mr Sigalla’s and asking for copies of the documentation provided to creditors[67].
[67] 26 March 2014 Sturzaker affidavit, DBS3, 31
On 12 March 2014 the Trustee indicated that he would provide such documentation upon receipt of documentary evidence of the debt.
On 13 March 2014 Mr Hudson responded by providing the Trustee with his first cross-claim and four emails referred to in that cross claim. In relation to those which Mr Hudson continues to rely on[68]:
a)FH8 is a 14 November 2006 email communication from Mr Sigalla to Mr Hudson. In it, Mr Sigalla says that he is owed $290,000 in respect of shares purchased for Mr Hudson and asks Mr Hudson to deduct it from amounts owed by Mr James to Mr Hudson. At point eight, Mr Sigalla refers to a message from Mr James consistent with Mr Hudson indicating that he would sue Mr James. In oral testimony, Mr Hudson acknowledged that in theory, the person he looks to for payment is the commission agent, not the punter[69].
b)FH9 is a 24 September 2008 email from Mr Sigalla to Mr James copied to Mr Hudson in which Mr Sigalla refers to payments he has made on Mr Hudson’s behalf in relation to shares and asks Mr Hudson to recognise a credit of $55,000.
c)FH10 is a 21 August 2009 email from Mr Sigalla to Mr Hudson that is concerned with the KAS bank account and makes no reference to bets. The gist of it is that Mr Sigalla was using his shares to cover debts in Mr Hudson’s account and says that he is not asking for money, although he contends that there is an implication that he might have to.
[68] 26 March 2014 Sturzaker affidavit, DBS4, 34
[69] Transcript (T)58.45
On 18 March 2014 the Trustee advised that it was not clear to him how the documents relied on by Mr Hudson “establish that a debt remained owing to Mr Hudson by Mr Sigalla, at the date of the bankruptcy”. He said that as a bookmaker, Mr Hudson should have records and said that if Mr Hudson had “more direct records of the claim at the date of bankruptcy, supported by the records he is required to maintain” he would consider it[70].
[70] 26 March 2014 Sturzaker affidavit, DBS5, 37
On 20 March 2014 Mr Hudson sent a proof of debt to the Trustee[71]. The instructions on the proof of debt form note that it is the applicant’s responsibility to prove the debt to the Trustee and attach documentary evidence of the claim[72]. Mr Hudson attached no documents in support of his proof. In a letter dated 23 July 2014 the Trustee indicated that as of that date no documents had been received from Mr Hudson in support of his proof of debt. In the same letter he indicated that he expected to write off $100,000 in costs incurred on the estate and that the petitioning creditor (Mr Tom Waterhouse) had accepted $9,560 in full and final settlement of his costs[73].
[71] 26 March 2014 Sturzaker affidavit, DBS6, 40
[72] see DBS6, 42
[73] Sigalla tender bundle, tab 1
On 21 March 2014, Mr Hudson wrote to the Trustee referring to the 20 March 2014 email attaching the proof of debt and indicating that he wished to prove in Mr Sigalla’s composition[74].
[74] DBS7, 47
On 28 March 2014 the Trustee’s lawyers wrote to Mr Hudson’s lawyers referring to recent correspondence and indicating that the Trustee required further evidence from Mr Hudson to assess his claim to being a creditor. He referred to the requirement of the bookmaking rules for Mr Hudson to record details of bets in a betting book and said that the Trustee would need to review such records to satisfy himself that Mr Hudson was a creditor[75].
[75] Sigalla tender bundle, tab 6
Notices to Produce and subpoenas
On 10 April 2014 Mr Sigalla issued a subpoena to Racing Victoria and served a Notice to Produce on Mr Hudson.
Among other things, the subpoena called for account opening documents for Mr Sigalla or address details and address details for P James. By letter dated 23 May 2014 Racing Victoria indicated that there were no such documents save that the records revealed that Mr James had an account with Mr Hudson. In a an email dated 23 June 2014 Racing Victoria clarified that it did come across a client list for Mr Hudson, but not within the time period (2006-2008) requested[76].
[76] PLH2, 12
Among other things the Notice to Produce asked Mr Hudson to produce account opening and address details for Mr Sigalla and Mr James. Mr Hudson testified that he did not have a client record for Mr Sigalla although he conceded that there was a Racing Victoria rule requiring him to fill out a form for new clients[77].
[77] T43.15-.17; T44.41-.44
On 16 June 2014 Mr Sigalla served a further Notice to Produce on Mr Hudson calling for all documents comprising:
a)client lists and names addresses and dates of birth of all clients and their authorised agents from whom Mr Hudson accepted bets in the 2006 to 2008 period; and
b)signed written authorities from Mr James, Mr Sigalla or “S Edwards” authorising Mr Hudson to accept bets on their behalf or on behalf of their authorised agent.
At the resumed hearing on 25 July 2014 the Court was told that there were no documents to produce[78].
Mr Sigalla’s allegations concerning these proceedings – the late production of evidence, the abridgment of cross-examination, and the frustration of further cross-examination
[78] T4.25
Mr Sigalla submits that in certain respects, Mr Hudson’s prosecution of his application has been cynical.
Apart from the temporal issue that Mr Hudson only applied to set aside the composition when his cross claim was made the subject of a summary dismissal motion, on 4 April 2014, Mr Sigalla complains that just before the commencement of the trial in these proceedings, Mr Hudson’s counsel adverted to additional documents that would be relied on. He then produced a handwritten ledger and various Racing Victoria records. Mr Sigalla contends that the belated attempt to rely on the only documents supporting the claimed debt is consistent with an attempt to limit the scrutiny of Mr Hudson’s claim.
Mr Sigalla also complains that, at the hearing on 18 June 2014 the cross-examination of Mr Hudson was curtailed. I did limit the time of it. When by letter on 20 June 2014 Mr Sigalla foreshadowed an application to re-open the cross-examination, Mr Hudson did not respond to the correspondence. He did not attend the resumed 25 July 2014 hearing, preventing (in a practical sense) Mr Sigalla’s application from being heard. I do not accept that any injustice to Mr Sigalla resulted from that. Mr Hudson was tested sufficiently on the available betting records.
Legislative scheme
The composition is binding on all creditors so far as it relates to provable debts[79]. It is common ground that the debts said to be owed by Mr Sigalla to Mr Hudson were provable debts. Because those debts would be released by a discharge from bankruptcy, they are discharged by the composition[80].
[79] Section 75(1)
[80] discharge and annulment, s.75(2)
Sections 222–222D, 224 and 224A apply in relation to the composition as if the composition was a personal insolvency agreement (PIA)[81]. The provisions relied on by Mr Hudson are:
a)section 222(1) – power to set aside the composition on application by a creditor if the terms of the agreement are unreasonable, not calculated for the benefit of creditors generally, or for any other reason;
b)section 222(5) – setting aside the composition on the application of a creditor if the debtor has given false or misleading information;
c)section 222C – application by a creditor where the composition cannot proceed without injustice to the creditors, or that it should be terminated for any other reason.
[81] Section 76B
Notwithstanding the absence of any regulations pursuant to s.76B of the Bankruptcy Act, s.222(5)(e)(i) should be read as referring to the statement of affairs presented by the bankrupt for the purposes of the composition[82].
[82] Hingston v Westpac Banking Corporation [2012] FCAFC 41; (2012) 200 FCR 493 at [105] – [106], pages 513–514, 519
Sections 222(8) and 222C(3) empower the Court to make ancillary orders. The ancillary orders sought in paragraph 2 of the application seek to put the parties back into their pre-composition position. It would then be a matter for the Trustee to determine whether or not he should, as he apparently contemplated doing in this case, lodge an objection under s.149B to the automatic discharge. This approach is not inconsistent with the approach of the Full Federal Court in Hingston v Westpac Banking Corporation[83] because in this matter the three year period of the bankruptcy would have expired when the order is made.
[83] [2012] FCAFC 41 at [132]
Under s.149 of the Bankruptcy Act, the bankrupt is discharged at the end of three years from the date on which he filed a statement of affairs unless the trustee objects to the discharge under s.149B. The effect of automatic discharge is that the bankrupt is released from all debts provable in the bankruptcy[84].
[84] Section 153(1)
According to Flick J in Moran v Robertson[85], the comments of Merkel J in Re Mills, Ex parte Lloyd’s[86], on the old s.222 and s.239(2) are still relevant to the exercise of the discretion:
a)whether a greater opportunity to enquire into the debtor’s affairs on a more comprehensive explanation by the debtor were called for;
b)whether there are, or is a suspicion that there may be, arguable causes of action that may benefit creditors. It is not necessary to establish that the creditors will be more likely to be advantaged by the bankruptcy merely that the prospect or possibility of an economic advantage to creditors may justify the conclusion[87];
c)if the amount offered under the composition is little or trivial there may be no harm of any consequence to creditors of setting aside the composition if other factors warrant that course;
d)the Court may be more inclined to set aside the composition if no payment has been made to creditors;
e)a misleading report to creditors would be a relevant factor.
[85] [2012] FCA 371
[86] (1997) 73 FCR 551 at 559 – 561
[87] citing Augustyn v Putnam (1988) 83 ALR 514 at 515
In Moran v Robertson, Flick J added a number of factors:
a)whether creditors who have voted in favour of the proposed insolvency arrangement indicated that they would not participate in any distribution of assets and the reason therefore;
b)whether the trustee recommends the acceptance or rejection of the proposal and the basis for that recommendation.
Should the composition be set aside?
Test for setting aside a composition
The Court has power to set aside a composition on several grounds under s.222 or to terminate it under s.222C. In support of his application to set aside the composition, Mr Hudson relies on this Court being satisfied that:
a)the terms of the composition are unreasonable or are not calculated to benefit the creditors generally; or for any other reason the agreement ought to be set aside[88];
b)Mr Sigalla either gave false or misleading information in answer to a question with respect to his conduct or examinable affairs that was put to him at the creditors meeting at which the resolution was passed[89]; or he omitted a material particular from his statement of affairs or included an incorrect and material particular in that statement[90];
c)Mr Sigalla has failed to carry out or comply with a term of the composition or the composition cannot be proceeded with without injustice or undue delay to creditors[91].
[88] cf. s.222(1)(d)(e)
[89] cf. s.222(5)(d)
[90] cf. s.222(5)(e)
[91] cf. s.222C(1)
Thus, with the exception of s.222(5), setting aside or terminating a composition relies on the court discerning a benefit from such a course to creditors generally. Mr Sigalla contends that the single most important reason why Mr Hudson’s application should be rejected is that while Mr Hudson laments the alleged injustice suffered at the hands of Mr Sigalla, and how his claim will be protected (by setting the composition aside) he does not explain how setting the composition aside will result in benefits to creditors generally. The composition may have been a poor deal for creditors but, as explained by the Trustee in his report to creditors, the continuation of the bankruptcy was likely to be an even poorer deal. No new transactions or potential investigations are identified. Putting the parties back in their pre composition position in accordance with the ancillary relief sought by Mr Hudson[92] would benefit Mr Hudson if he had a claim that could give rise to a sequestration order but it does not benefit creditors generally.
[92] cf. applicant’s submissions at [17]
I am not persuaded that the composition should be set aside. First, there is real doubt whether Mr Hudson is a creditor of Mr Sigalla at all. Secondly, even if he is a creditor, the evidence does not persuade me that he is a net creditor. Thirdly, even if Mr Hudson is a net creditor, the setting aside of the composition, while benefitting him personally, would not benefit creditors generally. My detailed reasons follow.
Telephone Bookmaking Rules and agency
Section 2.2 of the Bookmaker’s Telephone Betting Rules 2001 (Vic) (Telephone Betting Rules)[93] mandates that a bookmaker such as Mr Hudson using the Racing Victoria telephone betting system must:
a)lodge with Racing Victoria the names and addresses of all clients and their authorised agents from whom the bookmaker accepts bets and to promptly advise Racing Victoria;
b)obtain a written authority from the client authorising the bookmaker to accept bets from the client or the client’s authorised agent prior to taking a bet from the client over the phone system; and
c)must not accept any bets over the phone system unless the client has signed and completed the written authority or is the authorised agent of a client as disclosed in the written authority and is transacting the bet on behalf of his or her principal and the bookmaker has first lodged with Racing Victoria a true and complete copy of the persons signed and completed written authority.
[93] Mr Hudson’s Victorian Racing Legislation & Rules (Legislation Folder), 998-99
There was also discussion during argument about general principles of agency. I accept Mr Sigalla’s submissions on those principles. Under the common law of agency, an agent must make it clear that he is contracting on the principal’s behalf if he wishes to avoid liability in his own name. The statutory context within which the common law operates may be relevant to deciding the scope of the common law. In the tort context, for example, McHugh J commented in Graham Barclay Oysters Pty Ltd v Ryan[94] that a statutory power is not the source of a common law duty of care, but it may be an important factor in finding one. To similar effect is Caparo Industries v Dickman[95] where the statutory context for the misleading statement (an auditor’s statement under the Companies Act 1985 (UK) provided the courts with a mechanism to determine the scope of the duty of care.
[94] (2002) 211 CLR 540, 575
[95] [1990] 2 AC 605
The general principle is that “if a man signs a written contract, he is to be considered as the contracting party, unless it clearly appears that he executes it as agent only”[96].
[96] Ackers v Austcorp International Ltd [2009] FCA 432 at [148] (Rares J) and the authorities cited therein
The relationship of principal and agent may be constituted in two ways, first, by agreement, whether contractual or not, between principal and agent, which may be express, or implied from the conduct or situation of the parties and, secondly, retrospectively, by subsequent ratification by the principal of acts done on his behalf. Agency as between Mr Sigalla and Mr James is not influenced by the fact that Mr James was a Commission Agent because that term reflected an agency relationship between Mr James as agent and Mr Hudson as principal that involved Mr Hudson paying commissions to Mr James for procuring bets.
A court presumes that a person who signs a contract in his or her own name without any qualification is prima facie a contracting party and thus personally liable upon the contract. For the agent to exclude liability he must do more than merely disclose the identity or existence of the principal; he must make it clear that he is contracting on the principal’s behalf and not on his or her own[97] or, it would seem to follow in this context, on the part of some other punter. In other words say the learned authors of Dal Pont the agent must name his principal as the person to be responsible. In this context, if Mr James wanted to exclude his own liability for telephone betting using the Racing Victoria system he needed to adhere to the prescription in the Telephone Betting Rules and indicate to Mr Hudson that the particular bet he was placing was on behalf of Mr Sigalla and not some other punter (or himself). In other words, it is not the fact that the third party is aware that the agent is in fact an agent which exonerates the agent from liability on the contract; it is the circumstance that it has been made clear that the agent is acting in a solely representative capacity (for a particular principal) and in no other which is important.
[97] see Dal Pont Law of Agency (3rd ed, Lexisnexis Butterworths, 2013) at [23.13] (Dal Pont)
According to the learned authors of Dal Pont[98], it follows that even where a third party knows that an agent is acting for a principal, the agent may nonetheless be personally liable because liability as a contracting party has not been disclaimed. Thus it has been said that “[a] man may have absolute knowledge that the broker is a broker, and may know that he is acting for a principal, and nevertheless if a broker chooses to make himself responsible under the contract he [the broker] is personally responsible”[99]. Put simply, the knowledge of a third party of the existence of the principal is not sufficient to excuse an agent from liability[100]. To do otherwise would permit oral evidence to contradict the written agreement.
[98] at [23.14]
[99] ibid
[100] Stanley Yeung Kai Yung v Hong Kong and Shanghai Banking Corporation [1981] AC 787 at 795
On the question of onus, the learned authors of Dal Pont state at [19.6] that:
A contracting party who brings an action against a principal on a contract made by an agent must prove the existence of an enforceable contract and the authority (actual or ostensible) of the agent to make it. Part and parcel of this onus requires the contracting party to prove ‘that the person with whom he dealt was the agent of the defendant, and that, in making the contract, the agent was acting as the agent of the defendant’. In other words, ‘[i]t is not enough that a man should be the agent of another to enable him to make any contract on his behalf; he must make it as his agent’. (Emphasis in original)
The need for specific disclosure in respect of the contract in issue is confirmed by one of the authorities relied on by Mr Hudson[101]. That was a case where the issue was whether the respondent had contracted as a principal or as agent for a company of which he was managing director. The contract in question was for repair to a car which was being acquired by the company on hire purchase. The respondent gave the appellant the name of the insurer of the vehicle, and also gave him a card with the company’s name and address on it. When the repairs were complete, the appellant sent an invoice to the insurer for the account of the company. The insurer repudiated liability. When the company became insolvent, the appellant sought recovery from the respondent. At first instance the Magistrate dismissed the claim upon the basis of the principle obtained from Halsbury’s Laws of England, 3rd edition, Vol 1 para 518 that:
where a person in making a contract discloses both the existence and the name of a principal on whose behalf he purports to make it, he is not, as a general rule, liable on the contract to the other contracting party.
[101] H J Lyons & Sando Ltd v Houlson [1963] SASR 29
On appeal Chamberlain J reversed the Magistrate’s decision, referring to the principle relied on by the Magistrate and stated[102]:
… properly understood, it is, of course, correct. But what must be borne in mind is that in order to escape personal liability the agent must do more than disclose the identity of the principal, he must make it clear that he is contracting on the principal’s behalf and not on his own. “No rule of law is better ascertained, or stands upon a stronger foundation, than this; that, where an agent names his principal, the principal is responsible; not the agent: but for the application of that rule, the agent must name his principal as the person to be responsible”: per Erskine LC in Ex parte Hartop (1806) 12 Ves Jun 349, at p 352 (33 ER 132, at p 133) (italics supplied). The prima facie position is that when a man orders work to be done he impliedly undertakes to pay for it, and if he desires to avoid the liability so undertaken by setting up that he was acting purely as agent for another person, he must have made that position clear to the other contacting party.
[102] at 31
In Goldschmidt v MacDonald[103], the second authority relied on by Mr Hudson, is similarly authority[104] for the proposition that a person contracting in his own name must disclose the agency in the contract (either in the body of the contract or by qualification appended to his signature) if he is to avoid liability. Universal Steam Navigation Co Limited v McKelvie[105], the third authority relied on by Mr Hudson is to the same effect. Thus, these authorities support Mr Sigalla’s argument that the generic disclosure by Mr James “in or around early 2006” that he would be placing bets on credit on behalf of Sigalla[106] does not satisfy the need established by the common law, informed by the Telephone Betting Rules, for specific disclosure in each of the hundreds of betting contracts between Messrs James and Hudson.
[103] (1909) 9 SR NSW 693
[104] at 700
[105] [1923] AC 492 at 505-06
[106] cf. Hudson affidavit at [11]
I will hear the parties as to costs.
I certify that the preceding two hundred and twenty-seven (227) paragraphs are a true copy of the reasons for judgment of Judge Driver
Associate:
Date: 19 December 2014
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