Russo v CHEP Australia Ltd

Case [2022] FCA 949

FEDERAL COURT OF AUSTRALIA

Russo v CHEP Australia Ltd [2022] FCA 949

Appeal from: CHEP Australia Ltd v Russo [2021] FedCFamC2G 27
File number(s): VID 526 of 2021
Judgment of: MCELWAINE J
Date of judgment: 17 August 2022
Catchwords: BANKRUPTCY AND INSOLVENCY – Appeal from decision of Federal Circuit and Family Court of Australia (Division 2) – where primary judge made sequestration order against the appellant – where debt relied upon is a default judgment – whether primary judge erred by refusing to go behind the judgment – whether a denial of procedural fairness – unrepresented litigant ­– inadmissible evidence remittal to Federal Circuit and Family court of Australia (Division 2)
Legislation:

Bankruptcy Act1966 (Cth)ss 47(1), 52

Corporations Act 2001 (Cth) s 129(3)

Federal Court of Australia Act 1976 (Cth) s 24

Federal Circuit Court (Bankruptcy) Rules 2016 (Cth) r 7.05
Cases cited:

ACW v Du Bray (No 2) [2020] FCA 994

Ali v Retail Decisions Pty Ltd [2012] FCA 1130

Bechara v Bates (2021) 286 FCR 166; [2021] FCAFC 34

Beale v Government Insurance Office of NSW (1997) 48 NSWLR 430

Boenesch v Sommerville Legal (2021) 286 FCR 293; [2021] FCAFC 79

Keith v Gall [2013] NSWCA 339

CHEP Australia Ltd v Russo [2021] FedCFamC2G 27

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

Culleton v Balwyn Nominees Pty Ltd (2017) 343 ALR 632; [2017] FCAFC 8

Daly v Watson (1994) 50 FCR 544

Freeman and Lockyer (a firm) v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480

Gronow v Gronow (1979) 144 CLR 513

House v The King (1936) 55 CLR 499

International Paper Co v Spicer (1906) 4 CLR 739

Johnson v Johnson (1997) 139 FLR 384

Lowbeer v De Varda [2018] FCAFC 115

NIML Ltd v Man Financial Australia Ltd (2006) VR 156

Park Trent Properties group Pty Ltd v ASIC (2016) 116 ACRS 473; [2016] NSWCA 298

Qantas Airways Ltd v Transport Workers’ Union of Australia [2022] FCAFC 71

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

Re Cirillo; Ex parte Commissioner of Taxation (1992) 36 FCR 729

Redbro Investments Pty Ltd v Ceva Logistics (Australia) Pty Ltd [2015] NSWCA 73

Russo-Chinese Bank v Li Yau Sam [1910] AC 174

Wolf v Donovan (1991) 29 FCR 480 at 486

Wren v Mahoney (1972) 126 CLR 212
Bowstead & Reynolds on Agency (22nd ed, Sweet and Maxwell, 2021)
Division: General Division
Registry: Victoria
National Practice Area: Commercial and Corporations
Sub-area: General and Personal Insolvency
Number of paragraphs: 80
Date of hearing: 26 July 2022
Counsel for the Appellant: Mr S Golledge SC (Pro Bono)
Counsel for the Respondent: Ms A Carruthers
Solicitor for the Respondent: Law Squared
Solicitor for the Intervener: Harwood Andrews Lawyers

ORDERS

VID 526 of 2021
BETWEEN:

DOMENICO RUSSO

Appellant
AND:

CHEP AUSTRALIA LTD

Respondent

ORDER MADE BY:

MCELWAINE J

DATE OF ORDER:

17 AUGUST 2022

THE COURT ORDERS THAT:

1.Leave is granted for the appellant…

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Details
AGLC
Russo v CHEP Australia Ltd [2022] FCA 949
Case
[2022] FCA 949
Decision Date

CaseChat Overview and Summary

Russo v CHEP Australia Ltd involved an appeal from a decision of the Federal Circuit and Family Court of Australia (Division 2) where a sequestration order was made against the appellant. The primary issue before the court was whether the primary judge erred in refusing to consider the merits of the debt claimed by CHEP Australia Ltd, which was a default judgment. This raised questions about whether the refusal constituted a denial of procedural fairness, particularly given that the appellant was an unrepresented litigant. Another significant issue was whether the primary judge erred by refusing to consider inadmissible evidence that the appellant sought to adduce.

The court found that the primary judge's refusal to go behind the default judgment amounted to error. The court held that while a bankruptcy court is not tasked with impeaching the judgment, it does have a duty to ensure that the debt on which the sequestration order is based is genuinely owed by the debtor. The court also found that the primary judge's refusal to consider inadmissible evidence was a procedural error, especially considering the appellant was unrepresented. This denial of procedural fairness necessitated the setting aside of the sequestration order.

The appeal was thus successful, leading to the setting aside of the sequestration order made by the primary judge. The case was remitted to the Federal Circuit and Family Court of Australia (Division 2) for a rehearing of the creditor’s petition upon the appellant's review application. The court requested written submissions from the parties and the Trustee regarding consequential orders and costs by a specified deadline.

Orders

Orders of the court

1. Leave is granted for the appellant to file the amended notice of appeal in the form handed to the Court on 26 July 2022.

2. The appeal is allowed.

3. The orders made by the Federal Circuit and Family Court of Australia (Division 2) on 10 September 2021 are set aside.

4. The hearing of the creditor’s petition upon the review application of the appellant filed on 21 May 2021 is remitted to the Federal Circuit and Family Court of Australia (Division 2) for hearing.

5. The parties and the Trustee (should she wish to be heard) are to provide short written submissions, not to exceed 3 pages, on the question of consequential orders and costs by no later than 4.00pm on 22 August 2022.

6. Subject to any further order or application by the parties or the Trustee, the determination of all consequential orders will be made on the papers.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

For the reasons that follow, I have concluded that the appeal succeeds and it follows that the sequestration order made by the primary judge must be set aside. I will hear the parties and the Trustee further before making consequential orders in this matter.BACKGROUND The credit application describes the nature of the business of the company as “Grower, Pacaging, Packhose and Merchant” (sic) and the date of commencement of the business is 19 October 2018. It states that the business has three employees, its postal address is denoted as a post office box in Sydney and its business address is recorded as 4/16 Hawke Drive Woolgoolga, NSW which is situated at Coffs Harbour (the Coffs Harbour premises). Under the heading “contact details” Mr Russo is nominated as the managing director or owner, his mobile telephone number is stated and the email address of “admin@babybluegroup.com” is recorded. Details are then recorded for each of the entries “Supply Chain”, “Sales”, “Accounts Payable” and “Invoice Receivables”. In each case, Mr Russo is nominated as the contact person with the email address “admin@babybluegroup.com”. A little further down on the credit application, Mr Russo is stated as the applicant in his capacity as “owner/director”. Next follows the heading “Estimated Monthly Requirements” for which the box “Pallets” is nominated and the figure 60 is recorded adjacent to the words “Anticipated monthly usage (number of units of equipment)”. On the third page there appear various warranties whereby “the applicant”, inter alia, “warrants that the person signing this Application on behalf of the Applicant has authority to sign on behalf of and to bind the Applicant”. Finally, and immediately above the signature clause, appears the following statement in bold capitalised type: “all transactions will be subject to the CHEP terms of hire and/or terms of sale attached (which contain releases, indemnities and guarantees in favour of CHEP) which the applicant has read and agrees with”. There were no such terms and conditions attached to the credit application that was signed by Mr Russo and submitted to CHEP. That omission was the subject of a separate application by Mr Russo to adduce new evidence in the form of standard terms and conditions that Mr Russo had recently obtained from the website of CHEP. Ultimately, because of the very sensible concession by counsel for CHEP that those terms are not materially different from the version that was in place at the time of the credit application, I received that document without objection. However, as I explain it is of no assistance in resolving the issues in this appeal. The fourth and fifth pages of the credit application contain the guarantee provision which specified Mr Russo as the guarantor and which is signed by him. It is not in dispute that pallets were ordered on behalf of the company in consequence of acceptance by CHEP of the credit application, commencing in October 2019, and which pallets were received and paid for by the company. Nor is it in dispute that Mr Russo, despite the details recorded on the credit application, did not personally place all of those orders. The reason is that Mr Russo was primarily based in Sydney. That pallets were required at the Coffs Harbour premises which were leased by the company. Mr Russo accepts that an individual, Mr Aaron Singh, had his and the company’s authority to place orders for pallets with CHEP for delivery to the Coffs Harbour premises. Importantly, Mr Russo repeatedly stated in various affidavits that were before the primary judge (whether those affidavits and those relied on by CHEP, were formally admitted into evidence is something that I deal with below) that Mr Singh was not employed by the company and, to the extent that he was authorised to place orders for pallets on its behalf with CHEP, that authority was limited to the placing of orders by use of his authorised email “aaron@babybluegroup.com.au” (the authorised email account).

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

Full text does not contain this section.

Ratio Decidendi

Legal Principle Established

Thirdly, the grounds do not distinctly, as oppose to peripherally, assert error by the primary judge by failing to analyse and “grapple with” the competing evidence in order to make relevant findings of fact: cf Keith v Gal [2013] NSWCA 339 at [109]- [119], Gleeson JA and Redbro Investments Pty Ltd v Ceva Logistics (Australia) Pty Ltd [2015] NSWCA 73 at [53], Leeming JA.Consideration It is elementary that upon this appeal by way of rehearing pursuant to s 24(1)(d) of the Federal Court of Australia Act 1976 (Cth), in order to succeed the appellant must demonstrate error of law, of fact or in the exercise of discretion by the primary judge. The present appeal is not an invitation for this Court to approach the discretion afresh absent demonstration of error. What is sought to be attacked by the appeal grounds is error which infects the exercise of the discretion by the primary judge not to “go behind” the default judgment for the reasons identified at PJ [33]. Before turning to how the discretion was exercised in this matter, it is important to understand the nature of the discretion, the favourable exercise of which was sought by Mr Russo. The plurality reasons of Kiefel CJ, Keane and Nettle JJ in Ramsay addressed the existence and scope of the discretion in the following passages:54. In point of principle, scrutiny by a Bankruptcy Court of the debt propounded by a judgment creditor seeking a sequestration order in no sense involves an attempt to impeach the judgment. A Bankruptcy Court is not concerned with whether the judgment should be set aside as upon an appeal, or even as a default judgment or a judgment obtained by fraud may be set aside; nor is a Bankruptcy Court concerned to deny the effect of the judgment as "res judicata" between the parties to it. A Bankruptcy Court is not concerned to prevent the judgment creditor from invoking the ordinary processes of execution available under the general law. Rather, a Bankruptcy Court is concerned with whether the debt on which it is based is truly a basis for the making of a sequestration order . A Bankruptcy Court has a statutory duty to be "satisfied" as to the existence of the petitioning creditor's debt; a creditor should not be able to make a person bankrupt on a debt which is not provable. 55.The scrutiny required by s 52 as to whether there is, in truth and reality, a debt owing to the petitioning creditor serves to protect the interests of third parties, particularly other creditors of the debtor. It is of critical importance to appreciate that such persons were not parties to the proceedings that resulted in the judgment debt. It has long been recognised that their interest in being paid their debts in full should not be prejudiced by the making of a sequestration order in reliance on a judgment debt which does not reflect the true indebtedness of the debtor to the petitioning creditor…. …72.The Full Court was correct to conclude that there was a substantial question as to whether the debt on which Ramsay relied was owing. That being so, the Bankruptcy Court should proceed to investigate this question in order to decide whether it was open to it to make a sequestration order. (Footnotes omitted.)