Yates, Re F.E. Gilchrist, Ex Parte T. - [1986] FCA 245

LIMITED DISTRIBUTION

CATCHWORDS

TRADE PRACTICES - Application to set aside default judgment

Whether shown that applicant

has defence on merits.

BANKRUPTCY - Contested petition - Application to Court to go

behind judgment to determine existence of debt.

Trade Practices Act 1974 ss.52, 75B

Bankruptcv Act 1966 9-52

Cornev v Brian (1951) 80 CLR 343, Wren

v Mahonev (1972) 126

CLR 212, Bill Acceptance Corporation Ltd	v G W Ltd (1983) 50
ALR 242 applied.

NSW G.72 of 1981

TERRENCE GILCHRIST v A T S AMUSEMENTS PTY LIMITED formerly

AUSTRALIAN TABLE SOCCER COMPANY LIMITED	& ORS
P.1452 of 1985

Re FRANKLYN ERNEST YATES (also known as FRANK YATES);

parte TERRENCE GILCHRIST

Wilcox J

Sydney

20 May 1986

I -

LIMITED DISTRIBUTION

IN THE FEDERAL COURT OF AUSTRALIA	1
)

NEW SOUTH W E S

DISTRICT REGISTRY 1

No. G.72 of 1981

)

GENEdAL DIVISION

BEPWEEN:

m E N C E GILCHRIST

First Applicant

AND:	A T S A M U S E " S P T Y LIMITED formerly AUSTRALIAN TABLE SOCCER
COMPANY LIMITED First Respondent
FRANK YATES
Second Respondent BRIAN HUNT
Third Respondent
JEFF W L E R
Fourth Respondent

CORAM:	WILCOX J
PLACE :	SYDNEY
DATE:	20 MAY 1986

MINUTES OF ORDER

2 .

THE COURT ORDERS THAT:

1. The motion to set aside the judgment in matter

No.G.72 of 1981 be dismissed.

The applicant in the motion

to set aside judgment,

Franklyn Ernest Yates, pay

to the respondent to that

motion, Terrence Gilchrist, his costs

of the motion.

NOTE:

Settlement and entry of orders is dealt with in Order

36 of the Federal Court Rules.

3 .

LIMITED DISTRIBUTION

IN THE FEDERAL COURT OF AUSTRALIA

)

GENERAL DIVISION

)

BANRKUTPCY DISTRICT OF THE STAE OF

1	No. P.1452 of 1985

NEW SOUTH MALES AND

THE AUSTRALIAN CAPITAL TERRITORY

RE: FRANKLYN ERNEST YATES

(also known as FRANK

YATES	)
Debtor

M PARTE: TERRENCE GILCHRIST

A Creditor

CORAM :	WILCOX J
PLACE :	SYDNEY
-	DATE :	20 MAY 1986

MINUTES OF ORDER

THE COURT ORDEXS THAT:

The further hearing

of the petition

be adjourned for

further hearing on Wednesday

11 June 1986.

NOTE :	Settlement and entry	of orders is dealt with by
Bankruptcy Rule 124.

LIMITED DISTRIBUTION

IN THE FEDERAL COURT OF AUSTRAGIA

) )

NEW SOUTH WALES DISTRICT REGISTRY )

No. G.72 of 1981

)

GENERAL DIVISION

)

BFltJEEN: TERRENCE GILCHRIST

Applicant

First Respondent

FRANK YATES

Second Respondent

BRIAN HUNT

Third Respondent-

JEFF WALLER

-	Fourth Respondent

IN THE FEDERAL COURT OF AUSTRALIA	) )
GENERAL DIVISION	)
)

BANKRUPTCY DISTRICT OF THE STATE OF ) No. P.1452 of 1985

NEW SOVTH WLES AND

) )

THE AUSTRALIAN CAPITAL

TERRITORY

)

FE: FRANKLYN ERNEST YATES

(also known as FRANK

YATES

A Debtor

EX PARTE: TERRENCE GILCHRIST

A Ctbditor

CORAM :	WILCOX J
PLACE :	SMNEY
-	DATE :	20 MAY 1986

E X E M P O R E REASONS FOR

JUDGMENT

Two applications made by Frank Yates have been heard

together. One application arises pursuant to 0.35 r.7(2) of

the Federal Court Rules whereby Mr Yates seeks

an order to set

aside a judgment obtained against him by

Terrence Gilchrist in

two stages in the years 1981 and 1982. The other application arises by way of opposition to the making of a sequestration

order under the Bankruptcv Act 1966 upon

the petition of Mr

Gilchrist, the debt relied upon in support of the judgment

being the award of damages made in this Court in

1982.

Mr Gilchrist cofnmenced proceedings in this Court

24 June 1981, naming a company called ATS Amusements Pty

Limited -- and which had been formerly

known as Australian

Table Soccer Company Pty Limited -- as first respondent,

Yates as second respondent and

two other individuals as third

and fourth respondents. By the applicant‘s Amended

Application, claims were made for certain declarations as

follows :

“1. A declaration that the 1st Respondent falsely

represented

That coin operated soccer equipment

had been manufactured to Australian

Table Soccer Association standards

that such equipment had the strength

and durability to last for years

that such equipment would be supplied

with accessories

that the acquiriers (sic) of such

soccer

equipment

from

the 1st

Respondent would be provided

with

prime locatinns for siting such equipment, promotional aids and training

that the 1st Respondent would conduct

a national advertising campaign and	a
table soccer tournament with a first prize of $10,000.00 in contravention of Section 53 of the Trade Practices Act, 1974 as amended

2. A declaration that the 1st Respondent by publishing the representations referred to in paragraph 1 hereof in a promotional brochure and newspaper advertisements engaged in misleading

and deceptive conduct in contravention

Section 52 of the said Act.

4 .

3. A declaration that the 1st Respondent by

representing in a newspaper advertisement that a

person who entered into a manufacturing assembly

contract with the company would be guaranteed a

gross of over $100.000.00 per annum engaged in

misleading and deceptive conduct in

contravention of Section 52 of the said Act.

4. A declaration that the 2nd, 3rd and 4th

Respondents or any one of them

aided abetted or

procured the contraventions alleged in

paragraphs 1 and 2 hereof, or were knowingly

concerned in or party

to such contraventions."

There was filed in support of the application an

affidavit by Mr Gilchrist dated 22 June 1981.

In that

affidavit Mr Gilchrist deposed

to having seen in a daily

newspaper in June 1980 an advertisement soliciting inquiries

by persons interested in assembling imported

games modules.

The advertisement included this sentence, "the company

guarantees a gross

of over $100,000 pa plus service and

delivery contracts as options".

The advertisement directed

inquirers to the marketing director of Australian Table Soccer

Company Pty Limited.

Mr Gilchrist said in

his affidavit that in response

to the advertisement he telephoned the company and arranged an

appointment to see Mr Yates,

who introduced himself to Mr

Gilchrist as the chairman of the company. His affidavit went on to say that in the first interview, and also in subsequent discussions, Mr Yates gave him certain information including

that the company

was seeking 27,000 outlets and that an

extensive advertising campaign would

be conducted. He said

that Mr Yates informed him that he had appointed an

advertising agent for

the company and he introduced him to Mr

Jeff Waller, the fourth respondent, as being	the sales
director of the company.

Mr Gilchrist was given an advertising brochure

which

is in evidence. It speaks in glowing terms of table soccer. become promoters of the company. It includes an answer to Line question, "what do I get for my investment?" in these terms, "equipment, locations, training, advertising, promotional

aids, and the big $10,000.00 cash soccer tournament". On the same page of the brochure, under the heading	"$10,000.00 cash
prize", the statement is made that:

"The first Australian tournament will be held

in 1980-81. Competitors from all areas will compete in doubles competition. The winning pair will take away $10,000.00 in cash, plus a

chance to compete in the U.S.	$1,000,000
tournament circuit."

On the back page of the brochure there is a

computation described as "projected cash returns

per table".

This shows both income and expenses, and under the heading of "advertising" the figure of ""$750.00 Nett" is shown, being

"joint promoters expenses subsidized by

the Company". This

apparently refers to the cost to be undertaken by a promoter

who has six tables. A t that rate the total amount expended on

advertising would be considerable.

6 .

Mr Gilchrist said in

his affidavit that on

4 July

1980 he entered into an agreement with the company to acquire

the sole assembly rights

to all soccer machines sold by that

company. That agreement was tendered in evidence before agreement calls for the payment of $50,000.00 in consideration of the grant to the applicant of sole assembly rights. That money was paid. Mr Gilchrist went on to say that between July

and November 1980 he made numerous inquiries of Mr Yates as to .

the commencement of the

advertising campaign and the arrival

of the first shipment of machines.

On 17 November 1980 he

attended a meeting with Mr Yates and Mr Waller, at

which Mr

Yates told him that the company was not

going to promote the

table soccer tournament and that the company was not going to conduct the promised advertising campaign. In an endeavour to

minimize his losses, Mr Gilchrist acquired

title to the soccer

tables in his possession but he found that such tables are

virtually unsaleable due to a lack of promotion of the game

and the shortage of spare parts-. Three agreements were

executed on 1 December 1980, whereby Mr Gilchrist, inter U,

took over title to approximately 57 machines which were not

then sold.

The evidence which is before me indicates that there was only one container load

of unas9embled machines imported

into Australia. The load comprised 110 units.

Mr Gilchrist

assembled 53 of those units. He was paid the total sum of

$10,600.00 for his work. This figure represents a rate of $200.00 per machine, rather than the figure of $100.00 per

machine referred to in the contract of 4 July.

The remaining

57 machines were undisposed of as at 1 December 1980. and it

was to these machines, pursuant

to the arrangements made on

that day, that Mr Gilchrist acquired

title; and the capacity

to deal with them for his

own benefit as best he could.

After the proceedings in this Court

were comenced a

.	notice of motion'was filed on behalf of Mr Yates by i'lr Michael
_.

Lynn, solicitor. Mr Lynn appeared on a number of occasions

when the matter was mentioned, but apparently

failed to comply

with certain directions made against

his client. Thereupon Mr

Gilchrist applied for summary judgment.

On 6 November 1981

Morling J made declarations that

the first respondent had

falsely represented to the

applicants the matters set out in

sub-paras.(a) to (e) inclusive in para.1 of the Amended Application; that the first respondent had engaged in misleading or deceptive conduct in the manner alleged in

paras.2 and 3 of the Amended Appllcation, and that the second

and third respondents

had aided, abetted and procured

the

contraventions alleged in

paras.1, 2 and 3 of the Amended-

Application.

The Court ordered that each of the first, second

and third respondents pay damages, in

an amount to be

assessed.

Damages were assessed by Morling J on 2 April 1982.

Notice of the hearing on damages was given to the respondents, but there was no appearance on behalf of any of them on that occasion. The total damages, as assessed by his Honour, came to $63,400.00, this consisting of the initial payment of

$50,000.00, loss of six months' income by

Ut- Gilchrist because

of his preoccupation with the amusement machines, loss

interest and certain bank charges; less, by deduction from

that; total sum, the amount of moneys received by

Mr Gilchrist.

The damages have not been paid.

In due course a bankruptcy

notice was issued against Mr Yates. The non-compliance by Mr the bankruptcy petition which is presently before the Court.

Counsel appearing for Mr Yates submits that the Court

should set aside

the judgment, in relation both to

the

declaration of liability and to the assessment of damages.

and, in the bankruptcy proceedings, that

the Court should not

make any sequestration order founded upon that judgment.

In relation to the reason why the present applicant

failed to appear and to contest the matter at the appropriate

time, reference is

made to the fact that a sequestration order

had been made against

Mr Yates' estate on 23 June 1980.

Yates has sworn an affidavit in which he

says that he was

advised by his solicitor, Mr Lynn, that it would be

inappropriate for him to defend the matter as he was already

bankrupt. It is

difficult to reconcile the claim that Mr Lynn

gave that advice with the active participation In the

proceedings in this Court by Mr Lynn on behalf, inter m,

Mr Yates. However,

as Mr Yates' claim is not contradicted I

propose to deal with the present matter upon

the basis that he

was advised to this

effect by Mr

Lynn and that this was the

reason why

he did not actively participate in the proceedings

in 1981 and 1982.

It would have been appropriate for Mr Gilchrlst to

prove in the previous bankruptcy of Mr Yates only if his cause

of action had arisen prior to the making of the sequestration

order on 23 June 1980.

The evidence does not

disclose whether

the advertisement referred to by Mr Gilchrist was seen by him

before or after 23 June. He merely says that

he saw it in

June. Nor is it established whether his first contact with Mr

Yates took place before or after that date. It follows that

it is not possible

to make any finding as to whether the

misrepresentations relied upon were made before or after 23

June 1980.

However, it is clear that

Mr Gilchrist did not go

into the transaction prior to 4 July.

As at 23 June 1980 he

may have been in

the position of having had his interest

titillated, but he was uncommitted and he had not incurred any

expense.

It would not have been possible for him

to make any

claim for damages as at that date:

he had not then incurred

any damage. There I s therefore no questlon of the present claim being barred because of the previous bankruptcy, and

10.

say this because it was suggested in argument that there may be a defence upon this basis. It follows of course that any

advice to the suggested effect

which Mr Lynn may have given

would have been erroneous. However, as I have said, for

present purposes I am prepared to accept that such advice was

given and I think it was the reason why Mr Yates did not take

any part in

the proceedings.

Under those circumstances the question arises as to

whether there is an arguable case that there is no valid debt behind the judgment which Mr Gilchrist has obtained. The test to be applied in relation to going behind a default judgment

for the purposes of bankruptcy proceedings has been referred

to in numerous cases. It is sufficient to refer to what was

said in Corne7 v

Brian (1951) 80 CLR 343 and in Wren v Mahonev

(1972) 126 CLR 212.

The language used by the various members

of the High Court in those two

cases differs a little but the

most liberal test, from

the point of view of a judgment

debtor, is that the court must be satisfied that there is a

substantial reason for questioning the existence of a debt to-

the petitioner.

It is important to remember that the reference is to

“a debt”.

It is not necessary to show that the amount of the

debt is precisely that

which is claimed by

the petitioner. If

the Court is satisfied that

there is a debt of an amount

sufficient to found a petition -- that is, at the date when

I '

11.

this petition was filed, $1,000.00 -- then the appropriate

course is to proceed

to make a sequestration order, leaving

to the trustee upon lodgment of a proof of debt to determine

the actual indebtedness.

It appears to me that there is no reason to doubt

that Mr Yates aided and

abetted or, to use more common

terminoloqy, was knowingly concerned

in false and misleading

conduct by the first respondent in relation

to Mr Gilchrist.

Counsel for Mr Yates points out,that it is not directly proved

that he had anything to do with

the lodgment of the newspaper

advertisement but I think that I am entitled to infer that the

chairman of a proprietary company, being

a person who was

actively engaged in the promotion of the relevant amusement

machines, would have been aware of the terms of an

advertisement lodged by his company. It is not as if Mr Yates

was a part-time chairman or devoted his attentions to other

aspects of the company's business. He appears to have been

the person principally concerned

in the negotiations with Mr

Gilchrist in response

to the

very subject matter

of the

advertisement. In respect of the brochure, it appears that he

was present when the brochure was actually delivered to Mr

Gilchrist.

In those circumstances it is necessary to -consider

whether there is reason

to doubt the correctness of the

finding of misleading conduct in regard to the matters

12.

contained in the advertisement and the brochure. So far as the advertisement is concerned, the only r e l h n t statement appears to be a prediction that the applicant will gross over

$100,000.00 per year.

I bear in mind the authorities which

emphasise that predictions only constitute misleading conduct for the purposes of 9-52 where it can be inferred that at the

time they were made there was no

genuine belief that

the

prediction would be fulfilled. See, for example, B

Acceptance Corporation Ltd v GWA Ltd (19831 50 ALR 242.

In the present case it is proper to infer that there

was no genuine belief in the ability of an assembler to earn

$100,000.00 per annum. The amount which was to be paid to the

successful applicant as at the time that the advertisement was

lodged. and as at the time the agreement was made on 4 July

was to be $100.00 per machine. This means that it would be

necessary for the assembler to assemble 1,000 machines per

year.

That is the equivalent of a little over nine container

loads.

In the period of five months whlch elapsed from the

time that the agreement was signed until the renegotiated

arrangements on 1 December only one container load

arrived in

Australia. Mr Yates has said in his recent affidavit that there were problems in having the container unloaded because

of industrial disputes on the wharves.

It may be that there

was some delay from this cause. But it is not suggested that

there was ever an order lodged for

a second container load.

There was

nothing said in the advertisement to suggest that

I '

15.

the $100.000.00 was only to commence to run after some

preliminary interval. The suggestion was that this amount was

available to the assembler upon appointment.

It seems to me that, in

been lodged for machines to be exported from the place of

manufacture to Australia prior to the time when the

advertisement was inserted, there was no possibility whatever

of the successful applicant for t'rs assembly rights earning at

the absence of orders having

the rate of $100,000.00. At

the most, it could-be-said

that

-- at some future date after appropriate steps had been taken

-- the earnings might-build up to that amount.-

In relation to the brochure, considerable emphasis is placed upon advertising. The whole effect of the brochure is

to suggest to readers that table soccer

will be the

subject of

significant promotion and that it will become very popular,

with substantial cash prizes for excellence in

using the

tables.

This is consistent only

with a major advertising

campaign. As I have indicated, Mr Gilchrist claimed that he was specifically told about an advertising campaign when he

had his discussion with Mr Yates.

He said that he

subsequently spoke to Mr Yates on numerous occasions from the

time of his initial agreement right up till the time when it

was decided that he should buy out the.unsold tabl'es, and that

there never was any advertising campaign. Eventual-ly Mr Yates

said that there would not be any campaign.

It think that the

14.

only inference which can be drawn is that there was no

genuine

intention of promoting the goods in the manner suggested by the brochure. It is not apparent why there would have been any failure to undertake an advertising campaign had it been

proposed all along that this 'would occur.

Consequently it

seems to me that

the complaints madb in respect of both the

advertisement and the brochure, that is

to say the matters

referred to respectively	in paras.3 and 2 of the Amended
Application, are made out.

In relation to para.1, there is no evidence of the

falsity of the matters referred to in sub-paras.(a), (b) or

(c). In relation to (d), the allegation overlaps with that

relating to the brochure because the reference there is to the

provision of prime locations for siting equipment, promotional

aids and training. It appears that none of this was ever

done, and I think that this must be judged

in the same way as

the advertising campaign.

Sub-paragraph (e) refers to the

stated intention

to conduct a national-

advertising campaign of

a table soccer tournament with the first prize

of $10.000.00.

This is apparently a reference to what is said

in the brochure

and is covered by what

I have already said.

It follows that in my opinion the evidence-

overwhelmingly demonstrates the making of representations

which were in fact

false and to the knowledge of Mr Yates.

Under those circumstances the applicant was entitled to

15.

succeed in bringing proceedings under

s.52 and to obtain

relief against Mr	Yates pursuant to s.75B of the Trade
Practices Act.

Counsel for Mr Yates submits that, even

if Mr

Gilchrist was entitled to succeed, the damages assessed were excessive. The basis of this submission is that Mr Gilchrist

had the benefit of the unsold machines -- apparently about 57

in number -- and that he could have sold these by way of

reduction, or even elimination, of his loss.

Reference is

made to the fact that, in

the brochure, the list of expenses

for a promoter includes as an outgoing six tournament soccer

tables, at a cost of $1,375.00 each.

Upon the basis of this

reference it is suggested that there	is evidence that unused
tables were worth $1,375.00.

It seems to me that there are at least two problems about that submission. The first of them is that

the value is

simply an assertion in a brochure, the accuracy of which, in

other respects, has been the subject of successful attack.

The figure is not verified in any way

for the purposes of

these proceedings. Secondly that is a figure to be demanded by Australian Table Soccer Company Pty Limited of promoters, but on the basis of a major promotion of soccer tables in

accordance with the brochure. It is another matter altogether whether the tables would realise that figure in the absence of

16.

such a

promotion, and when there will be a mere handful of

tables on the market so that they cannot achieve widespread

popular recognition and acceptance.

There is evidence that the actual cost of the

machines landed in Australia is $350.00 and the difference

between that figure and the asking

price of $1,375.00-

presumably represents the return desired to be achieved by of such promotional expenditure as it might eventually

unhrtake. I do not think there is any evidence at all that

these machines could have been sold for $1,375.00 or anything

like that figure. In the evidence before Morling J. Mr

Gilchrist said in

para.8 of his affidavit:

"In an endeavour to minimise my losses I

acquired title of the soccer tables in my

possession but find that such tables are

virtually unsaleable due to the lack of

promotion of the game and the shortage of

spare parts. "

In his judgment, Morling J referred to- the

question

whether the goods were saleable. He indicated-there was some evidence that they were saleable for some amount of money but

he declined to make any deduction in relation to the

machines

of which Mr Gilchrist had possession because he thought that there was no title in Mr Gilchrist. In this respect it is I think clear that his Honour fell into error. The error is

easy to understand because the only reference to title was

that contained in the paragraph of the affidavit to which I

17.

have referred.

This affidavit had been looked-

at when

liability was considered but

it was presumably not again read

when the matter of damages was before the Court.

The question is whether this would have made any

relevant difference. It seems to me that it clearly would not

have done. The only evidence before Morling J, assuming

title, was that

the tables are virtually unsaleable. There is

no evidence to suggesi; otherwise, even today. It may be that

some small amount could

have been realized by selling these

machines, either individually or in the aggregate, but there

is nothing to suggest that this would have been a significant

sum.

Certainly it is clear that the amount would not have

realized anything like the amount necessary to-reduce the.

figure to which Morling J held the applicant entitled	to a sum
not exceeding $1,000.00.

I am not satisfied that

the applicant has discharged

the onus of demonstrating that there is no relevant debt

behind the judgment which has been obtained. On the contrary,

and subject only

to the

matter of title, it seems to me that

the more complete evidence now before the Court reinforces the

correctness of the view taken by Morling J.

Consequently I

dismiss the application made in the trade practices

proceedings, that is to say number G.72 of 1981 to set aside

the judgment in that matter.

I certify that the seventeen (17) preceding pages are a true copy of

the Reasons for Judgment

his Honour Mr Justice Wilcox.

Associate:	Y-
No.G.72181

Counsel for the Applicant,

Terrence Gilchrist:	Mr F Lever -
Solicitors for the Applicant,
Terrence Gilchrist:	Messrs Kennedy & Kennedy-
Counsel for the Respondent,
Frank Yates:	Mr K Horler
Solicitors for the Respondent,
Frank Yates:	Messrs Horowitz & Bilinsky
No.P.1452 of 1985
Counsel for Petitioning Creditor:	Mr F Lever
Solicitors for Petitioning
Creditor:	Messrs Kennedy & Kennedy
Counsel for Debtor:	Mr K Horler
Solicitors for Debtor:	Messrs Horowitz 6r Bilinsky

Date(s) of hearing:

- 20 May 1986