CATCHWORDS BANKRUPTCY - Contested petition - Denial of debt - Principles in relation to going behind judgment - Non disclosure of alleged principal - Whether business conducted on behalf of debtor. Bankruptcy Act 1966 ss.52, 269 Wren v Mahony (1972) 126 CLR 212, Watteau v Fenwick £1893] 1 OB 346 applied. Corney v Brien (1951) 84 CLR 343, Re Pinkerton; ex parte BG Textiles Pty Limited (Wilcox J., 27 September 1984, not reported), Re V & J Removals; ex parte Earl (Pincus J., 21 June 1985, not reported), Re Johnson; ex parte Greendale Engineering and Cables Pty Limited (1967) 11 FLR 335 referred to. P.404 of 1984 Re ANTHONY JEFFREY t/as BLAINE GUIFFRE COUTURIERE EXCLUSIVE BRIDALWEAR; ex parte AUSTRALIAN CONSOLIDATED PRESS Wilcox J. Sydney 28 Febru 6;+7 March 1986 IN THE FEDERAL COURT OF AUSTRALIA GENERAL DIVISION BANKRUPTCY DISTRICT OF THE STATE OF NEW SOUTH WALES AND THE AUSTRALIAN CAPITAL TERRITORY B EX PARTE: CORAM: WILCOX J. DATE: 7 MARCH 1986 PLACE: SYDNEY No. P.404 of 1984 ANTHONY JEFFREY t/as ELAINE GUIFTFRE COUTURIERE EXCLUSIVE BRIDALWEAR Debtor AUSTRALIAN CONSOLIDATED PRESS Petitioning Creditor MINUTE OF ORDERS THE COURT ORDERS THAT: 1. The petition be dismissed. NOTE: Settlement and entry of orders is dealt with by Bankruptcy Rule 124. IN THE FEDERAL COURT OF AUSTRALIA GENERAL DIVISION BANKRUPTCY DISTRICT OF THE STATE OF No. P.404 of 1984 NEW SOUTH WALES AND wwe vevevrvevv ws THE AUSTRALIAN CAPITAL TERRITORY RE: ANTHONY JEFFREY t/as a ELAINE GUIFFRE COUTURIERE EXCLUSIVE BRIDALWEAR Debtor EX PARTE: AUSTRALIAN CONSOLIDATED PRESS Petitioning Creditor CORAM : WILCOX J. DATE: 28 FEBRUARY 1986 PLACE: SYDNEY REASONS FOR JUDGMENT The debtor Anthony Jeffrey has filed a Notice of Intention to Oppose Petition, specifying four grounds. When the matter came on for hearing counsel for the debtor indicated that only two grounds were pressed: that the . Nee en me te ee A te de kt te Ae ae e cose ed ~ Bankruptcy Notice had not been served and that, not withstanding the existence of a default judgment, no moneys were in fact owned by the debtor to the petitioning creditor. In relation to the first matter little needs to be said. Counsel for the petitioning creditor read the affidavit of Themis Michael, sworn 22 December 1983 and deposing to the service of the Bankruptcy Notice upon the debtor on 14 December 1983. Mr Michael was cross-examined about the circumstances of the service and gave evidence as to the location of service, which evidence accords well with the other evidence in the case. He gave a description of the person served which matches that of Mr Jeffrey. There is no reason to doubt Mr Michael's evidence and, in the end, counsel for the debtor did not contend otherwise. I am satisfied as to service of the Bankruptcy Notice. There is no question as to the power of this Court to go behind a judgment and to examine for itself the question whether the debt alleged by a petitioning creditor is in fact owing. The test to be applied in determining whether such a course should be adopted was considered by me in Re Pinkerton; ex parte B G Textiles Pty Limited (27 September 1984, not reported) and by Pincus J. in Re V & J Removals; ex parte Earl (21 June 1985, not reported). In Corney v Brien (1951) B84 CLR 343 Dixon, Williams, Webb and Kitto JJ. cited with approval various statements of principle, one of which was a Sue that the court may go behind a judgment "upon a prima facie case being shown". Fullagar J. at pp.357-358 said that the court will go behind the judgment "if there is what it regards as a bona fide allegation that no real debt 'lay behind' the judgment". However, this test was not adopted by the other members of the High Court in that case. Moreover, the test suggested by Fullagar J. is more generous than the test adopted in Wren v Mahony (1972) 126 CLR 212 by Barwick CJ., with whom Windeyer and Owen JJ. agreed, when he said at pp.224-225 that the discretion to accept the judgment as satisfactory proof of the debt is "not well exercised where substantial reasons are given for questioning whether behind that judgment there is in truth and reality a debt due to the petitioner". I apply this test in the present case by enquiring whether it appears, on the evidence now before this Court, that there are substantial reasons for questioning the true existence of a debt by the debtor to the petitioning creditor. The petitioning creditor, Australian Consolidated Press Limited, is the publisher of a periodical called "Mode for Brides". The claim is that the debtor is liable to the company for the cost of three advertisements published in the 1983 summer, autumn and winter editions of that organ. There is no doubt that the advertisements were commissioned by the then wife of the debtor, Elaine Margaret Jeffrey, who was known professionally as Elaine Guiffre and who managed a business conducted at 179 Parramatta Road, Annandale known as Elaine Guiffre Couturiere Exclusive Bridalwear. There is no doubt that the advertisements were in fact published; and there is no contest over price. The issue sought to be raised by the debtor is whether he is liable for the cost of those advertisements. Mrs Jeffrey was made bankrupt on 6 April 1981 and was not discharged from bankruptcy until 5 November 1985. She apparently had some prior experience in the bridal wear trade. On 31 March 1982 Mr Jeffrey -- who had himself previously been bankrupt but who was then discharged -- obtained registration, under the Business Names Act 1962 (NSW), of the business name "Elaine Guiffre Couturiere Exclusive Bridalwear". The registration was obtained in his own name alone, the place of business being shown as 179 Parramatta Road, Stanmore. This is, I think, the same place as the Annandale address previously mentioned. It should be noted that there is no prohibition in the Business Names Act upon the registration of a business name in the name of an undischarged bankrupt, although there are, of course, restrictions in 3.269 of the Bankruptcy Act 1966 upon a bankrupt obtaining credit and a prohibition upon a bankrupt carrying on business under a firm name without disclosing the fact of the bankruptcy to every person with whom he or she deals. The date upon which the bridalwear business commenced to operate does not appear from the evidence. It must have been before 28 July 1982 because it was on that day that Ms Sandra Larkin called on behalf of Australian Consolidated Press in a successful attempt to sell the first advertisement. She took her instructions from Mrs Jeffrey, as she did with the subsequent advertisements. According to her she met Mr Jeffrey once -- and only once -- namely on 15 November 1982 when she called with a proof of the first advertisement. At that time Mrs Jeffrey telephoned her husband, who at all material times conducted a florist shop across the road, and asked him to come over and see if he liked the proof. He did so. He was introduced to Ms Larkin by Mrs Jeffrey simply as "my husband Tony". He looked at the proof and said "That is alright". The debt incurred in respect of the three advertisements was not paid. On 19 July 1983 a Default Summons was issued by Australian Consolidated Press against Mr Jeffrey out of the Court of Petty Sessions, Newtown claiming $3,093.00 plus costs. On 10 August 1983 Mr Jeffrey attended ~ the court and there signed a Statement of Confession of Claim in which he admitted that the sum of $3,093.00 was due by him to the plaintiff and in which he sought the right to pay by instalments of $40 per week. Although the evidence is not entirely clear, it seems that he may have paid a first instalment of $40 on that day. No further instalments were paid, hence the proceedings in hankruptcy. / The debtor contends that, notwithstanding the fact that the business was registered in his name and his confession of the debt, the Court should reach the conclusion that there is a substantial reason to question his liability and, indeed, that, on the evidence, it ought to be held that he is not liable. There is no evidence to suggest that, at any relevant time, Australian Consolidated Press was aware that Mr Jeffrey was the owner of the business name. Therefore, says his counsel, there can be no estoppel arising out of that registration. He refers to Re Johnson; ex parte Greendale Engineering and Cables Pty Limited (1967) 11 FLR 335 at pp.341-342. In relation to the Statement of Confession of Claim, counsel concedes that, if this document stood alone, it would provide cogent evidence against his client by way of admission. However, he points to the evidence of Mr Jeffrey that, in August 1983, he was beset by various financial claims -- mainly incurred in relation to the florist shop -- that he was in some turmoil because of the breakdown of his marriage at about that time -- although apparently final separation did not occur until March 1984 -- and that, on that particular day, he took out seven or eight applications for instalments "to just pay the debts off to get rid of them". \ I think that there is substance in both of these submissions. In the absence of evidence of reliance by Australian Consolidated Press upon the register, the registration of the business name in the name of Mr Jeffrey cannot found an estoppel. The fact of registration in his name remains an important circumstance in considering what conclusion ought to be drawn in respect of the ownership of the business but it does not conclude the inquiry. Similarly, the fact that Mr Jeffrey signed a confession of debt, which he admitted he read and understood, is powerful evidence that this was in truth his debt; but it is not conclusive since it is possible to accept that, in his then situation, he was prepared to accept a responsibility which he did not believe was rightfully his. The case put by Mr Jeffrey is that there were no direct contractual dealings between himself and Australian Consolidated Press, that the debt was incurred on behalf of the business carried on under the name "Elaine Guiffre Couturiere Exclusive Bridalwear" and that, upon a true analysis of the facts, that business was the business of his wife. It is, I think, correct to say that there were no direct contractual dealings between Mr Jeffrey and Australian Consolidated Press. The only contact between them in respect of these advertisements was the visit by Mr Jeffrey to look at the proof of the first advertisement. This contact is neutral. Nothing was said on that occasion to indicate that f, he was the person incurring the obligation or that he was the proprietor of the business. He was introduced by Mrs Jeffrey as her husband. He did no more than express approval of the quality of the proof. It was entirely natural that Mrs Jeffrey should seek a second opinion on the proof; she might equally well have shown it to a shop girl or a customer. No contractual commitment may be inferred from Mr Jeffrey's approval of the proof. The second step in the argument -- that the debt was incurred on behalf of the business -- is also correct. That is made plain not only by the evidence of Ms Larkin as to her conversations with Mrs Jeffrey but also by the contemporaneous documents: the advertisements themselves, the various confirmations of instructions, the invoices and the correspondence. 80 the issue depends upon the answer to the question: who owned the business? If the business was that of Mr Jeffrey, it would be no defence for him to show that Australian Consolidated Press was unaware of that fact. An undisclosed principal is bound by a contract made on his behalf by his agent. The principle was enunciated by Wills J. in Watteau v Fenwick £1893] 1 QB 346, a case in which the manager of a business ordered goods usual for such a business without disclosing to the supplier that he was not the principal. The case was stronger than the present one in that ™- - os wet tee oe at vee aero we eee ane - the order was given despite a specific direction that such goods were to be acquired by the manager only from the principal. At pp.348-349 Wills J. said: ",.. once it is established that the defendant was the real principal, the ordinary doctrine as to principal and agent applies -- that the principal is liable for ali the acts of the agent which are within the authority usually confided to an agent of that character, notwithstanding limitations, as between the principal and the agent, put upon that ms authority. It is said that it is only so KU where there has been a holding out of authority -- which cannot be said of a case where the person supplying the goods knew nothing of the existence of a principal. But I do not think so. Otherwise, in every case of undisclosed principal, or at least in every case where the fact of there being a principal was undisclosed, the secret limitation of authority would prevail and defeat the action of the person dealing with the agent and then discovering that he was an agent and had a principal." Mr Jeffrey denies that he had any interest in the business. In his affidavit in opposition to the petition he we said this: : "T lent substantial sums to my wife to assist her in setting up the bridal wear business. I never undertook however to be responsible for my wife's debts and I had no interest whatsoever in the business either by way of capital, share of profits, management or control. Nor did I undertake to any creditors of my wife or persons with whom she was dealing in her business to pay for her accounts." However, other evidence emerged in cross-examination. Speaking about the commencement of the business, Mr Jeffrey said: ee et bebe ae nen en th ete ee an anne de ee a ts - - = ee "A —~, A He elaborated "Q When I registered the business name we did not open that business until afterwards and then, you know, I could not make dresses so she was the person there. We were going to open in another area so then we did not open there, we opened across the road, so then we put the name up, Elaine Guiffre Couturiere. When you say we, do you mean you and your wife? Yes. And the cheque account for that business: what name was that in? For the bridal business? It was in my name. »e- cheques drawn on that cheque account were signed by you, were they? Yes." on this evidence in answer to later questions: See, I put to you that you were involved in the running of the business when it was in your name in 1982 and 1983? What do you say to that? I originally -- I was only involved in the business for quite, for a couple of months when I first opened the business up and set her up in it. That was the only time I was involved in it. So you say that you opened the business up and set her and then took no further part in it do you? That is right. Except for signing cheques when they needed signing? I did not sign very many cheques and I will check on the cheque book and give you the exact cheques that were signed, but there was very little. Aa HIS A 11. But any cheques that needed signing were signed by you? I do not think so. I am not too sure, champ. I will have to look in the book and find out. Before I could commit myself to that I would have to get the cheque book and look in it. Was anybody else a signatory to the cheque account? I wag actually paying the debts and the things and when I opened that business the moneys to open that business came out of the company account. HONOUR: Mr Jeffrey, that is not what you were asked. You were asked whether anybody else was signing cheques in the cheque account? No, no. MR BOULTBEE: And what other things did you do in relation to the bridal shop business or the bridal wear business? I just bought the fittings and the machinery and opened the business there and that was the last of it. She started the business there and I had nothing to do with it. Except you had discussions with your wife about advertising in bridal magazines, is that correct? I had discussions with her at the time about any sort of advertising, I do not believe in it." I take from this evidence that the decision to establish the business was made jointly by Mr and Mrs Jeffrey. It was intended that Mrs Jeffrey manage the business but the project was a joint one, for which Mr Jeffrey supplied the capital through the company he 12. controlled which operated the florist shop. He actively assisted in the establishment of the business and was actively involved in its operation for the first couple of months. The bank account was in his name and he signed such cheques as were issued. He maintained an interest in the progress of the business, at least in regard to the matter of advertising. It is not inconsistent with that evidence that the business was in truth the business of Mrs Jeffrey, but that the registration of the business name and the bank accounts were in the name of her husband because she was a bankrupt. But it is equally consistent with that evidence that Mr and Mrs Jeffrey decided that, because she was bankrupt, the business should be owned by Mr Jeffrey, although conducted on his behalf by Mrs Jeffrey. Light could possibly have been thrown on the matter by production of internal records of the business. It seems probable that production of income tax returns would have assisted. But, although the business was carried on over a period of almost two years before the marital separation, no such records were produced. I do not disregard the statement by Mr Jeffrey in his affidavit that he had no interest whatever in the business but I have little confidence in his uncorroborated evidence. I found him evasive on a number of occasions in eo te ce ede a ee Let eee ne re 13. his testimony. In respect of three matters he gave evidence which I cannot accept: that he could not remember the names of any of his staff in the florist shop, that he would have objected strongly if shown the advertisement proof and that he did not know what advertising his wife was arranging. It appears to me that the evidence adduced by Mr Jeffrey, uncorroborated and unsupported by documents, is insufficient to displace the effect of the documentary evidence -- the registration of the business name and the Statement of Confession of Claim -- which, if it stood unchallenged, would sufficiently prove that he was in fact the owner of the business. I conclude that the debtor has failed to establish a substantial reason to go behind the judgment and that the ground of opposition based upon his denial of the existence of a debt should be rejected. I propose to make a sequestration order. te pee eae sae mere ene ne eer ree ph Serie cate cectee eee te ce ee ee DMs ae te ~ T . _ ae teal Tee ne ee hem cae me Me her Se Le wee a ee -'-- eee eta 14. DATE 7 MARCH 1986 EXTEMPORE FURTHER REASONS FOR JUDGMENT In this matter I gave judgment on 28 February 1986, in which I set out reasons for rejecting the two grounds of opposition advanced by the debtor in his Notice of Opposition. At that time I indicated an intention to proceed to make a sequestration order, but I was requested by counsel for the debtor to give to his client a last opportunity of payment of the debt. This was acceded to by the petitioning creditor, and I stood over the matter until today. I have today been informed that the debt has been paid in full, together with the petitioning creditor's cost. Under those circumstances I will not, of course, proceed to make a sequestration order. The order that I make is that on the application of the petitioning creditor and by consent the petition is dismissed. There will be no order as to costs. 15. I certify that the fourteen (14) preceding pages are true copies of the Reasons for Judgment herein of his Honour Mr Justice Wilcox of 28 February 1986 and 7 March 1986. Associate: Wome. A: Hetrorw Date: 18 March 1986 Counsel for the debtor: Mr J Hanly Solicitors for the debtor: Messrs Heidtman & Co Counsel for the petitioning creditor: Mr J F Boultbee Solicitors for the petitioning creditor: Messrs H N Chippindall & Co Date(s) of hearing: 26 February 1986