Federal Court of Australia

Russo v CHEP Australia Ltd [2022] FCA 949

ORDERS

THE COURT ORDERS THAT:

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.

REASONS FOR JUDGMENT

MCELWAINE J:

Introduction

1    The appellant, Mr Domenico Russo (Mr Russo), appeals from a judgment of the Federal Circuit and Family Court of Australia (Division 2) dated 10 September 2021which dismissed his de novo application to review a sequestration order made in respect of his estate by a Registrar of that Court on 6 May 2021: CHEP Australia Ltd v Russo [2021] FedCFamC2G 27 (PJ).

2    The creditor’s petition, which was presented on 12 March 2021 by CHEP Australia Ltd (CHEP or the respondent), relies upon the commission of an act of bankruptcy by Mr Russo being his failure to comply with the requirements of a bankruptcy notice issued on 8 July 2020 which claimed that Mr Russo was indebted to CHEP in the amount of $29,537.25 pursuant to a default judgment entered in the Local Court of New South Wales on 23 June 2020.

3    Although the Local Court pleadings are not presently before me, it is common ground that the default judgment is founded upon the contention that Mr Russo is liable as guarantor of the obligations of a company of which he was a director, Baby Blue Group Pty Ltd (ACN 628 490 102) (the company) which was wound up by orders made in the Supreme Court of Victoria on 24 March 2021. On or around 18 May 2019, Mr Russo in his capacity as a director of the company, made application to CHEP for commercial credit in relation to the supply of pallets to the company (credit application). The credit application contained a comprehensive guarantee and indemnity provision the effect of which was that Mr Russo guaranteed to CHEP “on demand the due and punctual performance of all obligations and liabilities owed by” the company to it. It is convenient to refer to this as the guarantee.

4    Mr Russo failed to appear upon the hearing of the creditor’s petition before a judicial registrar on 6 May 2021. On that day an order was made that his estate be sequestrated pursuant to the Bankruptcy Act 1966 (the Act) and Ms Alice Faye Ruhe was appointed as trustee of the bankrupt estate (Trustee). Mr Russo exercised his right of de novo review pursuant to s 7.05 of the Federal Circuit Court (Bankruptcy) Rules 2016 (Cth) on 24 May 2021. On 11 June 2021 he filed a notice which set out his grounds of opposition to the creditor’s petition. Of present relevance is that he contended that the default judgment debt arose as a result of the acceptance by CHEP of orders placed with it by a person who was not authorised to place orders and that the petitioning creditor had failed to produce “proper exhibits before the Court(s) of any bankruptcy, and alleged debt occurred by Domenico Russo the Respondent” (sic).

5    The de novo review was heard by the primary judge on 19 August 2021. For reasons published on 10 September 2021, the primary judge dismissed the application for review and ordered that the estate of Mr Russo be sequestrated pursuant to the Act.

6    On 14 September 2021, Mr Russo filed an appeal from the orders made by the primary judge. He did not at that time, or prior to it, have the benefit of legal assistance. Subsequently, he received legal assistance from pro bono senior counsel who, in due course, formulated the terms of an amended notice of appeal which was provided to the Court on 18 March 2022 and which was later refined in the form of the document handed to the Court upon commencement of the hearing on 26 July 2022. Leave to amend was not opposed, and was granted accordingly. The Court records its gratitude for the assistance that senior counsel for Mr Russo and counsel for CHEP have each provided.

7    The question upon this appeal is whether the primary judge erred in the exercise of his discretion not to go behind the judgment debt in order to be satisfied whether there is “in truth and reality a debt due to the petitioning creditor” (Wren v Mahoney (1972) 126 CLR 212 at 224, Barwick CJ).

8    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

9    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”.

10    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.

11    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.

12    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).

13    On 10 February 2020, Mr Russo sent an email to CHEP and requested that the account of the company be closed and that the bond provided be used as payment for any outstanding amounts. Receipt of that email was acknowledged that day, with advice that the account had been suspended. Later on that day, a further email was sent by CHEP to Mr Russo which relevantly advised:

If you wish to close the account you need to return stock that you have at the moment 556 pallets. As long as you have this stock you will be charged for them. Then the payment of money on the account Once all that is done. You need to send a email to open closed accounts at Chep (sic).

14    In these reasons I refer to the 556 pallets as “the disputed pallets” and the orders placed for them as the “disputed orders”. Then followed a series of emails, the effect of which is that Mr Russo claimed that since 9 January 2020 the company account had been used “illegally”, the disputed orders were placed without authority and the company ceased to trade on 8 January 2020 and vacated the Coffs Harbour premises. In an email sent on 8 March 2020 to CHEP Mr Russo stated:

Due to the illegal use of my account I did not authorise any pallets to be put on my account

The 586 pallets must be taken off and backdated to 8-1-20 and a credit must be applied for all charges I stopped using the account on that date and I am located in Sydney.

Whoever used my account must take full responsibility for them pallets and charges

(sic)

15    At the time, CHEP engaged a local agent at Coffs Harbour to act for it known as the Lindsay Australia Group, which comprised numerous corporations. On 27 April 2020, Mr Russo sent an email to CHEP and stated:

I have contacted Chep many times about this matter and it seems that Chep have not taken this case very seriously whatsoever.

My company stop trading on the 8-1-20 and was illegally used by Lindsay Bros and Aaron Singh manually without my authorisation and also my warehouse in Coffs was shut down so pallets that were dealt between Lindsay bro’s and Aaron Singh will be reported now as theft.

Lindsay Bros are very aware with all this illegal trading and Chep should have taken this very seriously and investigate more into this matter Lindsay Bros and Aaron Singh should reimburse Chep with the 586 pallets and a credit from the 11-1-20 till now should be applied to Baby Blue Group.

(sic)

16    As might be expected, CHEP internally investigated the allegations of Mr Russo, the outcome of which was detailed in an affidavit sworn by Ms Sandra Tadros on 13 August 2021 (the Tadros affidavit) which was also before the primary judge. Ms Tadros is employed as a “Bad Debt Recovery Specialist” by CHEP. She attached to her affidavit copies of delivery documents for each delivery of the disputed pallets between 3 January 2020 and 12 February 2020 (the delivery dockets). It is not in dispute that Mr Singh signed each as an acknowledgement of delivery. There are 16 such delivery dockets for a total of 570 pallets. The discrepancy with the total of 586 pallets was not addressed by the primary judge.

17    In any event, the evidence of Ms Tadros claimed that Mr Singh placed orders on behalf of the company by using a personal Gmail address (which for privacy reasons I do not record in these reasons and refer to only as the Gmail address). In particular, to confirm that fact, she attached an email of 31 March 2020 from a representative of Lindsay Bros to CHEP which in answer to the question:

In relation to the attached emails you provided from [the Gmail address] can you confirm if this email was used prior to this date of these emails to request CHEP pallets to be delivered to Baby Blue at 4/16 Hawke Drive Woolgoola NSW 2456. (The months prior being November early December 2019) – if not can you please confirm the email that the request came from.

I do not require the Issue dockets or email but please confirm as above

(sic)

to which the response was:

See below always been Aaron – Coffs Harbour have only dealt with [the Gmail address].

18    The ‘below” is a reference to an email from Mr Singh, dated 5 November 2019, sent from the Gmail address, for an order of 60 Pallets on account of the company and which records the company account number with CHEP.

19    Mr Russo disputed this evidence. In a further document, in the form of an unsworn affidavit dated 16 August 2021 (which was without objection before the primary judge), Mr Russo responded to the Tadros affidavit. He maintained his contention that the Gmail address was not authorised to be used by Mr Singh to place orders for pallets with CHEP on behalf of the company and stated that:

Aaron Singh is a blueberry grower owning his own farm/business and conducted his business affairs with Lindsay Transport, and was never employed by Baby Blue Group Pty Limited. Aaron assisted Baby Blue Group Pty Limited and was supplied an email and phone owned and monitored by Baby Blue group Pty Limited.

20    He then attached as an exhibit screenshots of various emails between Lindsay Transport and Mr Singh within the period 3 October 2019 to 26 November 2019. Each of those emails were sent from or received by Mr Singh at the authorised email account. Ms Tadros did not provide any further affidavit to dispute those facts, and nor did she qualify her earlier claim that Lindsay Bros or Lindsay Transport had only ever dealt with Mr Singh by using the Gmail address.

21    In the Tadros affidavit at paragraph 6, Ms Tadros gave evidence which assumed importance before the primary judge. Inter alia she said:

I have reviewed the Respondent’s Affidavit sworn 21 May 2021 and the exhibits and have checked the Applicant’s records. From the correspondence at DR-001 [the annexure to the affidavit] and the Applicant’s records, I am aware that:

a.    During the course of the business relationship between the Applicant and the Company, Mr Singh ordered pallets on behalf of the Company, citing the Company’s precise account number and using the email address: [the Gmail address]. All of the pallets ordered by Mr Singh were delivered to an address nominated as the Company’s business premises in the credit application, being/16 Hawke Drive Woolgoolga NSW 2456...

b.    For example, during the period 5 November 2019 until 29 November 2019 various pallets were ordered on behalf of the Company by Mr Singh using Mr Singh’s [Gmail address] (November 2019 Orders). Invoices were issued to the Company for the November 2019 Orders and were duly paid by the Company. Set out at page 1 of the Bundle is a true copy of a remittance received from the Company for invoices rendered by CHEP to the Company in November 2019.

…

22    Page one of the bundle is a recipient created tax invoice dated 6 December 2019 and in the amount of $152.53. It is itemised into four lines. Each is marked with the quantity (1), then follows a numeric description and a unit price. It is not possible to understand from that tax invoice which order it relates to or for how many pallets. Notably, although Ms Tadros attached copies of multiple delivery dockets for the period 3 January 2020 until 12 February 2020, she did not attach copies of the corresponding orders said to have been placed for those deliveries by Mr Singh and by use of the Gmail address save for the email of 5 November 2019, which order was not reconciled by her to any particular delivery.

the reasons of the primary judge

23    The proceeding before the primary judge was conducted remotely by video conference. In written submissions before me, senior counsel for Mr Russo described the hearing as of a “relatively routine” type. With respect, I am unable to agree with that characterisation. After taking appearances, the primary judge commenced to question Mr Russo as to the basis for his contention that he is not liable pursuant to the guarantee for the orders placed by Mr Singh for the disputed pallets. Variously, his Honour posed questions to Mr Russo and to counsel for CHEP. Some of those questions, at least implicitly, assumed the correctness of the central facts in issue as asserted by CHEP before its affidavit evidence was read. There was reference to the various affidavits that were filed, but at no point were the affidavits read or taken as formally read. No opportunity was provided to either party to raise any admissibility objection as to the content of any of the opposing affidavits. Mr Russo was not advised that he might object to evidence to be relied upon by the petitioning creditor. Nor was he asked whether he wished to cross-examine any of the witnesses who had provided affidavits on behalf of the petitioning creditor. Likewise, none of the affidavits made by Mr Russo were read or were taken to have been read into evidence and no opportunity was afforded to CHEP to make any admissibility submissions or to cross-examine

24    What is evident from the transcript is that each of Mr Russo, counsel for CHEP and the primary judge appear to have assumed that there was before the primary judge all of the affidavit evidence and that the purpose of the hearing was limited to the making of submissions for and against the respective cases. Some of the submissions that were put to his Honour were in the nature of evidence. No attempt was made at the hearing to isolate the factual matters that were in dispute and no mechanism was suggested by the parties, or indeed by the primary judge, as to how disputed or conflicting evidence might be satisfactorily tested or resolved so as to assist his Honour in the task of making relevant findings of fact.

25    At the conclusion of what can only be described as submissions that were put by Mr Russo and counsel for CHEP his Honour said:

All right. What I will do is I will reserve my decision. I will give a written decision in this. I suspect that this will not finish here, Ms Carruthers [counsel for CHEP], and in those circumstances I think it’s worthwhile just – with me reviewing the affidavits, exhibits, etcetera, that have been referred to; I’m finding it extremely difficult to do that over this medium. So I am sorry.

I ordinarily would be in a position to give a decision and deliver ex tempore reasons, but because of the volume of the material that has been referred to I think it’s in the interests of all of the parties that I take the opportunity to review that, and I will give a written decision.

26    His Honour did not indicate how he proposed to resolve disputed questions of fact that were material upon the affidavit evidence that he must be taken to have received upon the trial of the proceeding. It is also concerning that at the conclusion of the hearing, his Honour disclosed his difficulty in reviewing the affidavits and presumably in comprehending the respective cases. If his Honour was in difficulty, that fact ought to have been disclosed earlier so that the parties might have then afforded greater assistance to the Court.

27    In his judgment delivered on 10 September 2021, the primary judge summarised the procedural history, acknowledged that he was conducting a hearing de novo and then, under the heading “Background” between paragraphs [6] to [13], appears to have made findings of fact based upon some of the material contained in the affidavits that were filed by the parties. At [8] the primary judge summarised certain aspects of CHEP’s case which, as is apparent from his later reasoning, he must have accepted as true and must be taken to have found accordingly. He said:

In February 2020, Baby Blue sought to close its account with the Applicant. The Respondent made several allegations, which are set out in greater detail below, in respect of certain orders made on Baby Blue’s account, and said that those orders were unauthorised and fraudulent. The Applicant undertook an internal investigation into the Respondent’s allegations and, in effect, found that the orders appeared to be made by an employee of Baby Blue, were sent from an email linked to Baby Blue, and the pallets were delivered to Baby Blue’s business premises prior to the Respondent seeking to close the account with the Applicant.

28    Later and under the heading “Consideration” his Honour summarised aspects of the affidavit evidence of Mr Russo and Ms Tadros. What is missing from this portion of the judgment is an analysis by the primary judge as to which portions of the evidence were accepted or rejected, how disputed questions of fact were resolved and what findings of fact were made based upon the evidence. Critically, his Honour did not reject as untruthful or unreliable any of the evidence of Mr Russo or of Ms Tadros. In a paragraph which assumes importance in this appeal, the primary judge at [27] said:

The evidence of Ms Tadros discloses that the Applicant undertook an internal investigation into the Respondent’s claims about fraudulent use of the Baby Blue account. The result of the investigation, as deposed to by Ms Tadros, was that the company who provided services on behalf of the applicant in relation to the supply pallets, Lindsay Transport Australia (“Lindsay Transport”), provided information that Lindsay Transport had only dealt with orders placed by the personal email of the Baby Blue employee. The effect of that is that Baby Blue had only ever placed orders via the personal email of the Baby Blue employee, including all of those orders that were paid for by Baby Blue and where it is not suggested that they were ordered fraudulently.

29    His Honour did not grapple with the contrary documentary evidence produced by Mr Russo to the effect that between 3 October 2019 and 26 November 2019, Lindsay Transport dealt with Mr Singh through the authorised email account.

30    Next his Honour correctly acknowledged at [31] that a judgment, in particular one obtained by default, is not conclusive upon the hearing of a creditor’s petition and that a Bankruptcy Court, in appropriate circumstances, has power to “go behind” a judgment in order to determine whether there is in truth a debt owing as claimed by the petitioning creditor: Ramsay Health Care Australia Pty Ltd v Compton (2017) 261 CLR 132; [2017] HCA 28 (Ramsay). In this portion of the reasons, which the appellant does not criticise, his Honour quoted extensively from the decision of the Full Court in Lowbeer v De Varda (2018) 264 FCR 228 [2018] FCAFC 115 at [53-57], (Reeves, Farrell and Colvin JJ) and which it is not necessary to repeat. The appellant does not contend that his Honour failed to understand that he had a discretion to look behind the default judgment if a proper basis for doing so was made out.

31    Having identified the principles, his Honour correctly understood that a two-step process is involved, reasoning as follows:

32.     I accept that the proper approach this Court should take is to first determine whether it is persuaded that there is a proper basis to exercise its discretion to go behind the judgment, and if it is, whether or not, in truth and reality, there is a debt owed.

33.     In my the (sic) view there is no proper basis to go behind the judgment which forms the basis of [the] bankruptcy notice and the creditor's petition, as the evidence shows that:

(1)    the Respondent opened an account on behalf of Baby Blue with the Applicant and represented to the Applicant that Baby Blue had three employees;

(2)    the Respondent gave a personal guarantee in respect of Baby Blue’s account with the Applicant;

(3)    Baby Blue sought and received pallets, as ordered by one of Baby Blue’s employees, by way of the account Baby Blue had with the Applicant between June 2019 and February 2020;

(4)    the pallets were delivered to Baby Blue’s business premises, which remained rented by Baby Blue until after the conclusion of the business relationship between the Applicant and Baby Blue;

(5)    the Applicant was not aware that Baby Blue had ceased trading at those premises until notice was given on 14 February 2020; and

(6)     the pallets received by Baby Blue have not been returned, and the monies owed to the Applicant have not been paid.

34.     Whilst the Applicant has experienced upheaval through family violence, dealing with Family Court of Australia proceedings involving his children, and ill-health, it is significant that he did not defend the proceedings in the Local Court of NSW, where those proceedings resulted in the judgment debt. The Court is of the view that there is no proper basis to go behind the judgment, and therefore the judgment debt that resulted from orders made by the Court in relation to that judgment.

32    I return to this reasoning in detail below, but at the outset it must be observed that a primary difficulty is that his Honour does not make clear whether these are his findings of fact and if so, how he resolved conflicts in the evidence in order to make them. Finally, his Honour was satisfied that CHEP had proved the formal matters required by s 52(1) of the Act and therefore made the sequestration order.

the appeal to this court

33    On 14 September 2021, Mr Russo filed a notice of appeal in this Court. At the time of filing, Mr Russo was not legally represented. On 9 April 2022, following a referral for pro bono legal assistance, Mr Russo filed an interlocutory application seeking leave to file an amended notice of appeal and leave to adduce further evidence.

34    At the hearing before me, the application to file an amended notice of appeal was not opposed by CHEP, and I granted leave accordingly. The application to adduce further evidence was only pressed in relation to one document, being a copy of CHEP’s terms and conditions (the terms) which were said to be those referenced as apparent attachments to the credit application. This issue was sensibly resolved by counsel for CHEP accepting that the terms produced by Mr Russo are not materially different to those referenced in the credit application. In any event, as I explain those terms are not of assistance in resolving the appeal.

35    Although the amended notice of appeal set out three grounds, by the time of the hearing the scope of the appeal had narrowed and only grounds 2 and 3 were pressed which are as follows:

2.    The exercise by the trial judge of the discretion to decline to accept the Local Court judgment obtained by the Respondent as satisfactory evidence of the existence [of] a debt due from the Appellant miscarried for the following reasons:

(a)    the factual finding (at [33]) of the judgment that the "disputed pallets" had been ordered by an employee authorised to pledge the company's credit was not supported by the evidence and in any event was an irrelevant consideration absent a positive finding (which was not made) that such an employee had authority to bind his or her employer to the impugned transactions;

(b)    the factual findings (at [33]) of the judgment were based on evidence which was obviously inadmissible and ought to have been rejected or given no weight notwithstanding that the Appellant, a litigant in person, had not formally objected to the receipt of that evidence;

(c)    the Court ought to have found that the employee, Aaron Singh, did not have any actual or ostensible authority to place orders binding on Baby Blue Group Pty Ltd other than by use of the "authorised" company email account styled as "@babybluegroup.com" and ought to have concluded that debts arising from the placement of unauthorised orders were not payable by the Appellant pursuant to his guarantee.

3.    Had the Court's discretion been validly exercised it would have determined to "go behind the judgment" and, in that event, would or ought to have found that the evidence led by the Respondent did not establish the existence of a debt owed to it by the Appellant and, in those circumstances, the Court would have been obliged to dismiss the petition.

36    It is important to say something about the scope of the appeal as limited by these grounds. First, despite the way in which the hearing proceeded before the primary judge and save for the complaint that the primary judge acted upon “obviously inadmissible” evidence, it is not contended that conduct of the trial was procedurally unfair; cf Boensch v Somerville Legal (2021) 286 FCR 293; [2021] FCAFC 79 at [79]- [125] (Boensch), Katzmann, Markovic and Abraham JJ.

37    Secondly, no ground of appeal contends error by the primary judge by failing to expose his reasoning process, particularly as to how he approached the task of resolving evidentiary disputes that were apparent on the face of the affidavits relied upon by the parties: cf Beale v Government Insurance Office of NSW (1997) 48 NSWLR 430 at 442-443, Meagher JA.

38    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

39    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.

40    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.)

41    In separate concurring reasons, Edelman J at [110] and [111] said in part;

…The circumstances which enliven the discretion to go behind the judgment are not constrained to any categories, even when the judgment debt was obtained after a contested hearing. As for the exercise of the discretion to go behind the judgment and to conduct a hearing into whether the underlying debt existed (which was not in issue on this appeal), Barwick CJ said in Wren v Mahony that the discretion to accept a judgment as satisfactory proof of a debt "is not well exercised where substantial reasons are given for questioning whether behind that judgment there was in truth and reality a debt due to the petitioner". The reference to "substantial reasons" echoed the language of earlier cases including a reference to "a prima facie case impeaching the judgment", by which the courts meant that there were prima facie grounds upon which a court of equity would choose to intervene.

Whether a matter will amount to substantial reasons so as to permit the exercise of the discretion will depend upon the particular circumstances. But, as history shows, where a judgment debt has been obtained after the testing of the merits in adversarial litigation, then in the absence of some evidence of fraud, collusion, or miscarriage of justice, a court exercising bankruptcy jurisdiction will rarely have substantial reasons to investigate whether the debt which merged in the judgment was truly owed

(Original emphasis. Footnotes omitted.)

42    On the evidence that was before the primary judge, the substantial reason or issue that Mr Russo agitated in order to enliven the discretion to inquire into the existence of the underlying debt concerned the authority of Mr Singh to place orders for pallets on behalf of the company. If the primary judge had been satisfied that the circumstances as presented to him justified the exercise of his discretion to inquire into whether he should accept the default judgment as satisfactory proof of the debt relied upon by CHEP, then, as the second step, his Honour was obliged to conduct a hearing into that issue (although in appropriate cases the steps may be combined): Cristovao v Tan & Tan Lawyers Pty Ltd [2018] FCAFC 41 at [34], Bromberg, Mortimer and Lee JJ.

43    On the first question Mr Russo carried the initial or tactical onus: Ali v Retail Decisions Pty Ltd [2012] FCA 1130 at [20], Bromberg J. Further, as has been frequently remarked, where the judgment relied upon was obtained by default “the court in bankruptcy will more readily look behind” it: Wolff v Donovan (1991) 29 FCR 480 at 486, Lee and Hill JJ.

44    The primary thrust of the submissions put to me by counsel for the appellant is that Mr Russo put in issue the question whether Mr Singh had actual or ostensible authority to bind the company by placing the orders that resulted in the delivery of the disputed pallets in January and February 2020, and, despite the extensive affidavit and documentary evidence that Mr Russo relied upon, he was not cross-examined upon his evidence, none of it was referred to in the reasons of the primary judge and “the disconnect between the manner in which approved orders had been placed in 2019 and the disputed orders had been placed in 2020 was not referred to or discussed.” As further submitted, it is telling in favour of the case of Mr Russo, that CHEP did not lead evidence from any person who actually had dealings with Mr Russo or Mr Singh in relation to the disputed orders.

45    In oral submissions before me, counsel emphasised the well-known decision of the Privy Council in Russo-Chinese Bank v Li Yau Sam [1910] AC 174 delivered by Lord Atkinson, who at 184 said:

It is undoubted that a person who deals with an agent, whose authority he knows to be limited, as the plaintiff knew in this case, does so at his peril, in this sense, that should the agent be found to have exceeded his authority his principal cannot be made responsible. While the several authorities cited… establish, in their Lordships’ opinion, the proposition that, in order that the principle of “holding out” should in any given case of agency apply, the act done by the agent, and relied upon to bind the principal, must be an act of that particular class of act which the agent is held out as having a general authority on behalf of his principal to do; and, of course, the party prejudiced must have believed in the existence of that general authority and been thereby misled. In other words, if the agent be held out as having only a limited authority to do on behalf of his principal acts of a particular class, then the principal is not bound by an act done outside that authority, even though it be an act of that particular class, because, the authority being thus represented to be limited, the party prejudiced has notice, and should ascertain whether or not the act is authorised.

46    On the facts of this matter, counsel for Mr Russo emphasised that the authority of Mr Singh was limited. First, reliance was placed upon the terms of the credit application which only references Mr Russo as the contact person. Whilst that is so, as correctly observed by counsel for CHEP, the historic fact is that between October and at least November 2019, Mr Singh, with the knowledge of Mr Russo, is the person who placed orders for pallets which orders are not in dispute.

47    Secondly, it was submitted that the authority of Mr Singh was limited to the placement of orders by use, and use only, of the authorised email account. That submission was then sought to be tied to the terms document of which it was said “make[s] it clear that orders may only be placed with the Respondent by the company, Baby Blue Group, or its lawfully authorised agents or representatives.” The terms document is not as clear as that, but in any event it does not assist me for the reason that the question that was put in issue before the primary judge was the authority of Mr Singh to place orders on behalf of the company as its agent or authorised representative.

48    Thirdly, the evidence did not justify the conclusion of the primary judge that Mr Singh was always held out as an employee of the company such that no representation about any usual authority that may attach to an employee of a corporation was made by the company to CHEP. On this submission, CHEP was not entitled to make the statutory assumption at s 129 (3) of the Corporations Act 2001 (Cth) because Mr Singh was only held out as authorised to place orders by use of the authorised email account. At no point did the company hold out Mr Singh as having its authority to place orders by use of the Gmail address.

49    Counsel developed these arguments in order to attack as unsupported by the evidence critical findings of fact that were apparently made by the primary judge at PJ [33] which, it should be inferred, are each founded upon uncritical acceptance of the evidence of Ms Tadros at paragraph [6] of the Tadros affidavit. The subparagraphs in the affidavit that were focused upon are (a) and (b), set out above, together with (h) and (i) as follows:

h.    On 30 March 2020 Chantelle Dixon (National Security Manager of the Applicant) emailed the Respondent, informing him that:

i.     Mr Singh ordered pallets of the Company, using Mr Singh’s Email Address and she had seen an email from Mr Singh dated 5 November 2019 ordering CHEP equipment on behalf of the company and understood that the email address has been utilised to hire CHEP equipment since the account was opened; and

ii.     Mr Singh signed for the pallets at the Company’s address upon their delivery.

Set out at pages 2 to 19 of the Bundle is a copy of the email sent by Chantelle Dixon to the Respondent and the attachments therein, which Chantelle Dixon forwarded to me on 27 April 2020.

i.    Lindsay Transport Australia provides services for the Applicant, including receipt of orders and delivery in response to those orders. On 27 April 2020, Chantelle Dixon forwarded me an email chain between Chantelle Dixon and Marie Livingston (sic) of Lindsey Transport Australia in relation to the alleged fraudulent hires. Ms Livingstone informed the Applicant that “[Lindsey Transport] – Coffs Harbour have only dealt with [the Gmail address]”. Set out at pages 20 to 22 of the Bundle is a true copy of the email chain forwarded to me on 27 April 2020, with the irrelevant parts redacted.

(Original emphasis.)

50    The difficulty with paragraph (h) is that when one turns to pages 2-19 of the attached bundle, only two emails from Mr Singh are exhibited. Each is from the Gmail address. One is dated 5 November 2019 and (as explained above) cannot be reconciled with the delivery dockets and the other is dated 6 February 2020, which is an order for 60 of the disputed pallets. A further difficulty is that the statement attributed to Ms Livingstone at paragraph (i) was directly contradicted by the affidavit evidence of Mr Russo of 16 August 2021, where he attached numerous copies of email correspondence between Mr Singh and Lindsay Transport within the period 3 October until 26 November 2019, all of which was sent from or to the authorised email account. The primary judge did not reference these matters in his decision.

51    Counsel for CHEP commenced her submissions by emphasising inconsistencies in the affidavit evidence of Mr Russo. In particular, the statement made in the credit application that the company had three employees, in contrast with his later claims that it did not have any; inconsistencies in the dates given by Mr Russo as to when the company ceased to trade at the Coffs Harbour premises; the statement that Mr Russo was the only person authorised to place orders on the account of the company, when it is plain that for a considerable period Mr Singh did so; and whether Mr Singh was an employee or simply a person who “assisted” the company in the placement of orders. Drawing upon those inconsistencies, it was submitted that Mr Russo had contradicted himself in his evidence upon material questions, being who was authorised to place orders on behalf of the company, whether the orders could only be placed by use of the authorised email account and the date of cessation of trading at the Coffs Harbour premises. That there were contradictions may be accepted, but their existence was not adverted to by the primary judge in his apparent resolution of contested evidence adversely to Mr Russo.

52    It was further submitted that the credit application did not, on its face, provide that Mr Russo was the only person authorised to place orders, nor did it limit the method by which orders may be placed to exclusive use of the authorised email account. The course of dealing between the company and CHEP for the ordering and delivery of pallets that were not in dispute, whereby Mr Singh placed orders by email and by reference to the account number of the company, amounted to a representation that he had its authority to place orders. On that analysis, it does not matter that he used, for the placement of some orders, the Gmail address. Additionally, CHEP is entitled to rely on the statutory assumption of authority provided at s 129(3) of the Corporations Act. In response to the submission that the primary judge erred in receiving inadmissible evidence (where there was no opportunity to object) and further erred in not adverting to the need to allow cross-examination of witnesses on disputed questions of fact, counsel submitted that the unilateral attack that is now mounted by Mr Russo, if permitted, will cause prejudice to CHEP in that, if these matters had been raised at the trial, CHEP could have responded by adducing further evidence or by testing the evidence of Mr Russo by cross-examination. In summary, it was put to me that “strategic decisions were made. The egg cannot be unscrambled.”

53    It must not be overlooked that the appeal grounds challenge the exercise of the discretion of the primary judge not to “go behind” the default judgment. The Act does not set out criteria for the exercise of that discretion, such as by listing permissible, mandatory or prohibited criteria. The exercise of the discretion falls to be determined in accordance with the particular facts and circumstances that were before the primary judge. To succeed, Mr Russo must establish error in the exercise of the discretion: House v The King (1936) 55 CLR 499 (House) at 504-505, Dixon, Evatt and McTiernan JJ. More recently the House principles were addressed by Leeming JA in Park Trent Properties group Pty Ltd v ASIC (2016) 116 ACRS 473; [2016] NSWCA 298 at [51]- [53]:

51.    Two things of present importance emerge from the reasons of Gummow ACJ, Kirby, Hayne and Heydon JJ in Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar The Diocesan Bishop of The Macedonian Orthodox Diocese of Australia and New Zealand (2008) 237 CLR 66; 249 ALR 250; [2008] HCA 42 (His Eminence Petar). The first is the proposition accepted at [120] that:

“when a court is invited to make a discretionary decision, to which many factors may be relevant, it is incumbent on parties who contend on appeal that attention was not given to particular matters to demonstrate that the primary judge’s attention was drawn to those matters, at least unless they are fundamental and obvious.”

52.    The second is the explanation of the nature of the “orthodox approach to appellate intervention in relation to discretionary decisions” described at [137]–[138]. There it was pointed out that the expression “balancing exercise” is one to be employed with care, and that where (as in the present case) no statute mandates that particular weight be given to any one factor:

“[T]he question of what weight the relevant factors should be given or what balance should be struck among them is for the person on whom the discretion is conferred, provided no error of law is made, no error of fact is made, all material considerations are taken into account and no irrelevant considerations are taken into account, subject to the possibility of appellate intervention if there is a plain injustice suggesting the existence of one of the four errors just described even though its nature may not be discoverable, or if there is present what has come to be known as ‘Wednesbury unreasonableness’.”

53.    The same passage confirms that it is wrong to apply the words from House v R in isolation, as if they were not qualified by an absence of reasons explaining how the decision was reached. Park Trent’s selective statement of the principle upon which it relied has a tendency to dilute the test. The entire relevant passage from House v R, which was restated in the passage from His Eminence Petar, was as follows:

“It may not appear how the primary judge has reached the result embodied in his order, but, if upon the facts it is unreasonable or plainly unjust, the appellate court may infer that in some way there has been a failure properly to exercise the discretion which the law reposes in the court of first instance. In such a case, although the nature of the error may not be discoverable, the exercise of the discretion is reviewed on the ground that a substantial wrong has in fact occurred.”

Of course, that is not the present case, where the reasons of the primary judge are elaborate.

54    Ground 2 of the appeal grounds is narrowly focused. It is concerned first with whether the findings of the primary judge at [33] were supported by the evidence, secondly whether those findings were based on inadmissible evidence, thirdly that the primary judge ought to have found that Mr Singh did not have authority to place orders on behalf of the company otherwise than by use of the authorised email account and fourthly the absence of a positive finding that Mr Singh had authority to bind the company in placing the disputed orders. It is not sufficient for Mr Russo to contend that upon my review of the evidence, I should arrive at a different factual conclusion to that of the primary judge on the question of the authority of Mr Singh: Gronow v Gronow (1979) 144 CLR 513 at 519-520, Stephen J; Qantas Airways Ltd v Transport Workers’ Union of Australia (2022) 402 ALR 1; [2022] FCAFC 71 at [359], Bromberg, Rangiah and Bromwich JJ.

55    Further what must be acknowledged is that even if it is accepted that Mr Singh fraudulently placed the disputed orders on the account of the company, the difficulty faced by the appellant is that nonetheless the company is liable to CHEP if it acted in good faith upon those orders, without notice of the fraud or absence of authority and if placed within the scope of Mr Singh’s apparent authority: NIML Ltd v Man Financial Australia Ltd (2006) 15 VR 156; [2006] VSCA 128 at [27]-[35], Nettle JA; International Paper Co v Spicer (1906) 4 CLR 739; Bowstead & Reynolds on Agency (22nd ed, Sweet and Maxwell, 2021) at [8-062]-[8-064];

56    There is no dispute in the evidence, and the primary judge did not misunderstand, that Mr Singh was clothed by the company with authority to use the authorised email account, was authorised by it to place orders for pallets, placed orders between June and November 2019 which orders were invoiced to and paid by the company with the combined consequence that there was a holding out by the company to CHEP that Mr Singh acted with its authority. So viewed, it is simply not to the point that the primary judge found, contrary to the evidence, that Mr Singh was an employee of the company. Rather, the question is whether he was held out by the company to CHEP as having its authority to order pallets on its behalf for delivery to the Coffs Harbour premises, either generally or limited to the placement of orders by use, and use only, of the authorised email account. It is the scope of the apparent authority, examined through the lens of the representation and conduct of the principal, which is determinative of the estoppel which binds a principal to honour unauthorised acts of the agent: Freeman and Lockyer (a firm) v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 at 503, Diplock LJ.

57     It may be the case that ultimately upon investigation of the claimed limitation of authority, that Mr Russo may not be able to make good his central contention, but that is not to the point: the issue is whether Mr Russo identified a sufficient or substantial reason to engage the exercise of the discretion of the primary judge to interrogate that question and, correspondingly, whether the discretion miscarried (as based on the apparent factual findings of the primary judge at [33]) because the facts which were found were not open on the evidence or were based on evidence that ought to have been rejected as inadmissible.

58    Although each subparagraph at PJ [33] is premised with the words “as the evidence shows” I infer that this paragraph sets out the findings of fact made by the primary judge upon his consideration of the evidence. It must also be the case that the primary judge accepted as correct, and found in accordance with, the evidence that he summarised at PJ [27], which was, critically, to the effect that Mr Singh “had only ever placed orders” by use of the Gmail address which orders were “paid for by Baby Blue and where it is not suggested that they were ordered fraudulently”. The structure of the reasons of the primary judge leads me to conclude that the finding at PJ [33(3)] must be based upon acceptance of the evidence at PJ [27] and inferentially that was sufficient for the primary judge to be satisfied that placement of the disputed orders was at least within the ostensible authority of Mr Singh.

59    For several reasons, in my view, the primary judge erred in so finding. First, the finding that the company “sought and received pallets” between June 2019 and February 2020 does not accord with the evidence of Ms Tadros in the Tadros affidavit where she stated at paragraph [5] that the debt relied upon relates to the provision of pallets to the company between December 2019 and April 2020.

60    Secondly, implicitly the finding that the company “sought and received” pallets must be based upon acceptance by the primary judge of the evidence summarised at PJ [27] that the company, by Mr Singh, “had only ever” placed orders by use of the Gmail address. As I have explained, that fact is not supported by the bundle of documents attached to the Tadros affidavit and was directly contradicted by documentary evidence being the multiple emails sent and received between Mr Singh and Lindsay Transport within the period 3 October and 26 November 2019.

61    Thirdly, the internal investigation undertaken by Ms Dixon, which concluded that Mr Singh only used the Gmail address to place orders, accepted at face value the statement to that effect made by Ms Livingstone in her email to Ms Dixon of 31 March 2020, which was plainly contradicted by the various emails that Mr Russo attached to his affidavit of 16 August 2021. CHEP made no attempt to reconcile this inconsistency by placing further evidence before the primary judge.

62    Fourthly, Ms Tadros stated in her affidavit at paragraph [6(b)] that between 5 November and 29 November 2019 orders that were placed by Mr Singh using the Gmail address were invoiced to the company, which invoices were duly paid, evidenced by the recipient created tax invoice at page 1 of the documents attached to the affidavit. As I have explained, that tax invoice cannot be reconciled to the placement of any particular orders, let alone multiple orders that were said to have been placed within that period by Mr Singh.

63    Fifthly, the disputed orders as evidenced by the delivery documents relate to the period 3 January 2019 to 12 February 2020. It is not in dispute that Mr Russo advised CHEP in writing on 10 February 2020 that he wished to close the company account which resulted in advice from CHEP to Mr Russo on that day that “YOUR CHEP ACCOUNT HAS BEEN SUSPENDED”. Ms Tadros did not explain in her affidavit how suspension of the account is to be reconciled with her statement at paragraph [5] that the debt relates to the provision of pallets to the company between December 2019 and April 2020 nor why pallets were delivered after 10 February 2020.

64    Sixthly, Ms Tadros did not attach to her affidavit copies of the emails said to have been sent by Mr Singh by use of his personal email address for all of the disputed deliveries of pallets between 3 January and 12 February 2020. There were only two emails sent by Mr Singh for pallet orders on the Gmail address that were in evidence before the primary judge. One is dated 5 November 2019 and is for 60 pallets. The other is dated 6 February 2020 and is also for 60 pallets. Ms Tadros stated in her affidavit that all invoices rendered to the company in 2019 had been paid. But, as I have explained, the one document that she attached as evidence of that statement, being the recipient created tax invoice of 6 December 2019, cannot be reconciled as payment of any particular order or invoice. And plainly it is not an invoice for multiple orders. That evidence does not support the apparent acceptance by the primary judge of the evidence that he summarised at PJ [27] that all previous orders that had been placed by Mr Singh by using the Gmail address were duly paid by the company.

65    Seventhly, the primary judge apparently found at [33(6)] that the pallets received by the company had not been returned. The claim was for 586 pallets. In contrast, the delivery dockets for the disputed pallets were for 570 and the evidence of CHEP failed to reconcile that discrepancy.

66    With respect to the primary judge, his finding at PJ [33(3)] that the disputed pallet deliveries were “sought and received” by the company is not supported by the evidence that CHEP placed before his Honour. That finding implicitly proceeds upon acceptance by the primary judge that either Mr Singh had express authority to place the disputed orders or that the company represented to CHEP that the placement of the disputed orders was within the scope of his authority such that the company is estopped from denying authority. Express authority was directly contradicted by the evidence of Mr Russo. His Honour did not make an express finding of apparent authority but he must have resolved that issue adversely to Mr Russo based on the evidence which he summarised at PJ [27]. That summary in a critical respect was not supported by all of the evidence before his Honour in that the claim by Lindsay Transport that it “only ever” dealt with Mr Singh through the Gmail address directly conflicted with the copy emails that were attached to the affidavit evidence of Mr Russo. That was contemporaneous documentary evidence which clearly had far greater probative weight than the hearsay statement made by Ms Livingstone to Ms Dixon.

67    On this analysis resort to the assumption that may be made pursuant to s129(3) of the Corporations Act does not assist CHEP as it begs the question whether Mr Singh was “held out by the company” as its agent with the “authority to exercise the powers and to perform the duties customarily exercised or performed” by an agent of a similar company. If the holding out was limited, in the manner contended by Mr Russo to use only of the authorised email account, it follows that reliance on the assumption does not resolve the issue before the primary judge.

68    For these reasons I have concluded that ground 2(a) is made out. The primary judge declined to exercise his discretion to go behind the judgment debt based on findings of fact that were not supported by the evidence, were contrary to certain evidence that was before him and in circumstances where he made no attempt to reconcile the inconsistencies.

69    I turn next to ground 2(b). The reference to evidence that was “obviously inadmissible” is to paragraph 6 of the Tadros Affidavit where she deposes that in the course of her employment she has access to “the books and records” of CHEP, that she makes the affidavit “from my own knowledge and belief” and where she refers to information “given to me by another” she identifies its source and states her belief as to its truthfulness. The subparagraphs in question are (a), (b), (h) and (i), each of which are set out above. In summary, senior counsel for Mr Russo submitted that: (a) is inadmissible in that it purports to summarise the effect of documents which were inspected but not produced, (b) is to the same effect as (a) and should have been rejected as hearsay, (h) contains a hearsay summary of the results of an investigation by third person and (i) is also a hearsay summary of information supplied by third person who did not make an affidavit and was not available for cross-examination.

70    Counsel for CHEP submitted that it is open to a petitioning creditor to verify a petition by relying upon affidavit evidence that is strictly hearsay. That is so for verification to comply with s 47(1) of the Act where the deponent is an authorised person with sufficient knowledge of the facts: Daly v Watson (1994) 50 FCR 544 (Daly), Davies Beaumont and Gummow JJ; Re Cirillo; Ex parte Commissioner of Taxation (1992) 36 FCR 279, von Doussa J and ACW v Du Bray (No 2) [2020] FCA 994, Wigney J. However, as explained in Daly “strict proof” may be required on the hearing of a contested application where s 52 (1) requires proof of the matters stated in the petition, its service and the fact that the debt relied upon is still owing: Davies J at 546 and Beaumont and Gummow JJ at 542-543. In my view, each of the admissibility submissions that I have summarised is of merit and if objection had been taken at the hearing, it is likely that all (or substantial portions) of these paragraphs would not have been received in evidence. The primary judge in the particular circumstances should have at least informed Mr Russo of his right to object to inadmissible evidence (Johnson v Johnson (1997) 139 FLR 384 at 407, proposition 5), it was an error not to do so which was productive of the further error that this evidence was relied upon to make findings of fact critical to the unfavourable exercise of the discretion.

71    Counsel for CHEP further submits that if admissibility objections had been taken at the hearing, then the petitioning creditor would have had a fair opportunity to respond “or otherwise address the matters raised”, which I infer includes an adjournment in order to prepare, file and serve affidavits in admissible form. The difficulty with this submission is the anterior error committed by the primary judge: he did not, with respect, adopt an orthodox approach to the receipt of evidence upon the hearing. He did not identify the affidavits sought to be relied upon by the parties, those affidavits were not formally read, no opportunity was afforded to either party to take objection to the content of opposing affidavits and no opportunity was afforded to cross-examine. If Mr Russo had been legally represented at the hearing it may be (indeed there is a realistic possibility) that objections would have been taken to inadmissible portions of the Tadros affidavit on each of the grounds now identified.

72    The Full Court in Boensch ,recently summarised the obligations of a primary judge (in a bankruptcy case) to conduct a procedurally fair trial where a party does not have legal representation at [85]- [88] and concluded at [104] as follows:

There is a general duty to ensure that a litigant in person does not suffer any disadvantage from exercising his or her right to be self-represented. This includes an obligation to ensure that the litigant does not remain ignorant of a fundamental principle which, if invoked, might prove advantageous to his or her case. It has been recognised that in providing assistance the court should be concerned not to place the litigant in person in a position of advantage over his or her represented opponent. The assistance is to be limited to diminishing the disadvantage in which the litigant in person might otherwise find him or herself. That includes taking appropriate steps to ensure that the litigant in person has sufficient information about the practice and procedure of the court to enable the litigant to make effective choices about the conduct of his or her case.

73    And as further observed by the Court at [88] by reference to Culleton v Balwyn Nominees Pty Ltd (2017) 343 ALR 632; [2017] FCAFC 8 (Allsop CJ, Dowsett and Besanko JJ) particular care must be taken upon an application for sequestration of an estate as it is not simple inter partes litigation.

74    Although this ground of the appeal is not framed as a denial of procedural fairness (or failure to conduct the trial according to law), I am of the view that in the particular circumstances the primary judge ought not have acted upon the paragraphs in the Tadros affidavit which were objectionable as hearsay and where each went to the critical question of whether his Honour was satisfied that he had satisfactory proof of the contested debt, and if not, whether he should have exercised his discretion to go behind the default judgment debt. What is clear from PJ [33] is that his Honour’s expressed state of satisfaction that “there is no proper basis to go behind” the petitioning creditor’s claimed debt is based on acceptance of the hearsay evidence at paragraph 6 of the Tadros affidavit. In the circumstances of this case, his Honour with respect was wrong to do so. He ought to have appreciated that this evidence was not admissible and even in the absence of objection by Mr Russo (where no opportunity to do so was afforded) it was an error to rely upon it.

75    For these reasons ground 2(b) is made out.

76    Ground 2(c) raises a contestable question on the assumption that if the primary judge had exercised his discretion favourably to Mr Russo, then he “ought to have found” that Mr Singh did not have actual or ostensible authority to place the contested orders and then ought to have concluded that the debt was not one of the company as guaranteed by Mr Russo. It is not possible for me to determine that ground on this appeal which is limited to the correction of error by the primary judge and, in any event, the primary judge did not make that error because he did not proceed to the second stage.

77    Having determined that grounds 2(a) and (b) are made out, the proper course is to allow the appeal and remit the matter to the Federal Circuit and Family Court of Australia (Division 2) for that Court to rehear the creditor’s petition and in doing so to decide whether the discretion to go behind the default judgment is to be exercised. If the answer is that it should, then it will be a matter for that Court to determine how it will proceed in the conduct of the investigation. For these reasons, ground 2(c) is dismissed.

78    That leaves ground 3. It too is speculative and does not differ in substance to ground 2(c). I dismiss it for the same reasons.

Outcome

79    For these reasons, I allow the appeal and I set aside the sequestration order made on 10 September 2021. The hearing of the creditor’s petition upon the application to review of Mr Russo filed 21 May 2021 will be remitted to the Federal Circuit and Family Court of Australia (Division 2). Remittal for rehearing is not inutile. Although the creditor’s petition was presented on 12 March 2021, it did not expire 12 months thereafter by operation of s 52 (4) of the Act for the reason that the sequestration order made by Judicial Registrar Ryan on 6 May 2021 still stands and Mr Russo’s application for de novo review remains to be determined as explained by the Full Court in Bechara v Bates (2021) 286 FCR 166; [2021] FCAFC 34; at [144]- [156], Allsop CJ, Markovic and Colvin JJ.

80    It is appropriate that I hear from the parties and the Trustee before making consequential orders, including as to costs. I order as follows:

(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 not 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.

Associate:

Dated:    17 August 2022