FEDERAL COURT OF AUSTRALIA Tomlinson v Hoefler [1999] FCA 1700 Wolff v Donovan (1991) 29 FCR 480 Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589 Tomlinson v Hoefler [1999] FCA 1700 Q7360 of 1999 DOWSETT J 1 DECEMBER 1999 BRISBANE IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY Q7360 of 1999 BETWEEN: JEAN TOMLINSON Applicant AND: PETER HOEFLER Respondent JUDGE: DOWSETT J DATE OF ORDER: WHERE MADE: BRISBANE THE COURT ORDERS THAT: 1. A sequestration order be made against the estate of the judgment debtor pursuant to section 43 of the Bankruptcy Act. 2. The petitioning creditor have her costs of the petition, including reserved costs, paid out of the estate with priority in accordance with section 109 of the Bankruptcy Act. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY Q7360 of 1999 BETWEEN: JEAN TOMLINSON Applicant AND: PETER HOEFLER Respondent JUDGE: DOWSETT J DATE: 1 December PLACE: BRISBANE REASONS FOR JUDGMENT 1. This is a petition for a sequestration order. The petitioning creditor's debt is based upon a judgment of Drummond J made on 29 August 1995, varying an earlier judgment made on 18 August 1995. The judgment debtor was an employee of a company called Cut Price Deli Pty Limited, which sold a business to persons called Tomlinson, one of whom was Mrs Jean Tomlinson, the present petitioner. The Tomlinsons alleged various acts of misconduct against Cut Price Deli and against certain employees, including the present judgment debtor, which conduct induced them to acquire the business. As a result, they suffered loss. They obtained judgment for damages for breach of provisions of the Trade Practices Act against Cut Price Deli and some of its employees, including the present judgment debtor who was, in those proceedings, the fourth respondent. For reasons associated with the way in which Drummond J decided the matter, judgment was entered against Cut Price Deli on 12 July 1995. The matter was then adjourned for further submissions from the other respondents, including the judgment debtor. Judgment was subsequently entered against them on 18 August and varied on 29 August to correct an arithmetical error. 2. The present petition is based upon a bankruptcy notice served on the judgment debtor on 24 January 1999, with which he has not complied. He opposes the making of a sequestration order upon the basis that he was not given an opportunity, at the trial of the action in which judgment was entered against him, to be heard in accordance with the rules of natural justice. It has been accepted, for the purposes of argument, that if that allegation is made out - that he was not heard in the usual way at the trial - then the judgment would be liable to be set aside ex debito justitiae. It would seem to follow that, in those circumstances, no sequestration order could be made. This is the only issue which has been argued, and as I understand it, it is the only basis upon which the judgment debtor resists a sequestration order. 3. The judgment debtor swears that he was not served with the originating process, and there is no other evidence on that score. Nonetheless, he took an active part in the trial. He swore a number of affidavits, in the headings of which he is described as the "fourth respondent". He was cross-examined at the trial and was asked by counsel for the applicant, "Now, you are a party to this action?" He replied, "Mm", which, for those familiar with the way in which these matters are reported, can reasonably be taken to be assent to the proposition. Indeed, he does not deny that he knew that he was the fourth respondent, nor that he knew he was a party. He asserts that he did not understand that this meant that there was a claim against him, which might result in a judgment. 4. The judgment debtor asserts that Mr Snelgrove, a solicitor who purported to appear for him in the action and instructed counsel at the trial, was actually retained on behalf of Cut Price Deli and that he was without instructions to act for the judgment debtor. In other words, although the judgment debtor knew that he was a respondent and a party, and although he knew that Mr Snelgrove was acting in the matter, he did not appreciate that Mr Snelgrove was purporting to act for him. The veracity of the allegation is doubtful. Quite apart from any other reason, the content of a draft statement of claim (which is exhibited to one of the applicant's affidavits) in connection with certain proceedings proposed to be commenced against Mr Snelgrove in New South Wales, does not make such an unequivocal allegation. Although paragraph 14 may mean that he did not know that Mr Snelgrove was acting for him, there is really nothing else in the statement of claim which suggests that. The claim appears rather to be that Mr Snelgrove breached his duty to the judgment debtor pursuant to his retainer. 5. There are other circumstances which lead me to doubt the assertion by the judgment debtor that Mr Snelgrove was not instructed to act for him. He asserts that he first became aware of his possible exposure in the action on 18 July when he was told by Mr Snelgrove that he had been "found guilty" in the proceedings, and that he might lose his house. This was some days after Drummond J published his reasons for judgment. He was given some advice as to an appeal but told that this would cost him at least $20,000. This conversation was subsequently confirmed in writing by Mr Snelgrove in a letter dated July 19 in which he said: You will see from reading the judgment that further submissions have been called for by his Honour from us in relation to whether or not and in what circumstances and in what amount you, Enzo, and Ron are jointly and severally liable for the whole of the judgment of $248,175.00. 6. On the judgment debtor's version, Mr Snelgrove had instructions to lodge a notice of appeal on his behalf. It is not clear what happened thereafter, leading to the judgment entered on 18 and 29 August, but even assuming that Mr Snelgrove had not previously had instruction to act on the behalf of the judgment debtor, it seems likely that his instructions would have extended to making the further submission contemplated in the letter of 19 July. The notice of appeal said nothing about the judgment debtor having been denied an opportunity to defend himself. However, as was pointed out in argument, it is unlikely that Mr Snelgrove would have filed a notice of appeal raising that issue as it would have reflected quite seriously upon him. At about this time, or perhaps a little later, the judgment debtor sought advice from another solicitor, although he says that it was limited to whether or not Mr Snelgrove's estimate of the costs of appeal was accurate. Nonetheless, one would have expected that of the judgment debtor when seeking other legal advice, would have also raised the question of Mr Snelgrove's acting without authority and sought appropriate advice. He did not do so. 7. A further matter of concern arises from more recent events. It seems that earlier this year, on 8 February, his present solicitors, Messrs Tony O'Brien and Associates, wrote to the solicitors for the petitioner concerning the judgment. Some aspects of the letter are of interest. In the second paragraph it is said that: We are unable to comment on why our client, a mere employee of Cut Price Deli Pty Ltd, was included as a respondent to the action, but query the absence of indemnity or contribution from the employer. 8. In the third paragraph, it is observed that: During the course of the action, our client believed that the dispute was between Cut Price Deli Pty Ltd and its franchisees, Mr/Mrs Tomlinson. Our client did not become aware of his expose [sic] to liability from the judgment until July 1995. At that time, Snelgrove and Partners, the solicitors for Cut Price Deli Pty Ltd informed him that an application for a stay was being made together with an appeal. Neither of those courses of action were perused.[sic] 9. It is then said that: We query the legal advice given to Mr Hoefler (if any) by the firm of Snelgrove and Partners who it seems acted on behalf of all the respondents. However, even if an indemnity and/or contribution order was obtained against the employer, it most likely would have had little effect given the company's financial position in 1995. Mr Hoefler instructs us that he was unable to afford legal representation in 1995 when he first discovered that he could be held liable for the judgment debt. Around this time Cut Price Deli Pty Ltd represented to him that they would satisfy the judgment debt. Mr Hoefler fully appreciates the position he now finds himself in. He is unable to satisfy the judgment debt. He currently owns no assets. He does, however, hold a good position of employment and wishes to make a proposal in respect to this matter. If possible, Mr Hoefler wants to avoid being made a bankrupt. We have requested that he prepare a detailed statement of assets and liabilities and a copy of this will be forwarded to your office together with Mr Hoefler's proposal in the near future. 10. Fairly clearly, there is no allegation in this letter of the kind now being made. Whilst it is suggested that Mr Snelgrove may have been primarily concerned with the affairs of Cut Price Deli, there is no suggestion that he was without instructions to act in the action on behalf of the judgment debtor. Further, the judgment debtor indicated a willingness to go some way towards satisfying the judgment. This was the second occasion on which he had offered to do so. According to his own affidavit, he had previously made such an offer in late 1995 or early 1996. See paragraph 33. It was conceded in the course of argument that it is only in the last couple of weeks that any claim has been made to those acting for the petitioner, challenging Mr Snelgrove's authority to act in the judgment debtor's defence of the proceedings in 1995. 11. These objective facts all point inevitably to the conclusion that the judgment debtor instructed Mr Snelgrove in the 1995 proceedings. It is not unusual, where employees of a company are sued with it, for the company to assume primary responsibility for the conduct of the defence, nor is it, in my experience, unusual for such employees to expect that in the event of a judgment against them, the company will meet it, assuming that it has assets. I would not be surprised if Mr Hoefler had thought, at all relevant times, that the matter was really between the Tomlinsons and Cut Price Deli and that his primary role was as a witness. That does not mean that he was unaware of his own possible exposure in the matter. As I have said, he admits that he knew he was the fourth respondent and that he was a party. I have observed the judgment debtor giving evidence. He is by no means a stupid person. He has substantial experience in business in a number of managerial positions and has tertiary educational qualifications. I formed the view that he was both reasonably well-educated and quite intelligent. 12. I heed the warning given by his counsel that as a lawyer, one should be careful not to impute to a non-lawyer, knowledge and understanding peculiar to those with legal training. However I find it very difficult to conclude that this judgment debtor did not understand that being a party to proceedings meant that he was at risk of an unfavourable judgment. I am fortified in this view by the fact that until recently, he had taken no effective step to remedy the position or even to raise such an allegation. He has twice sought to compromise the claim against him. After 19 July 1995 he took no step to try to avoid judgment being entered against him. 13. It is true, as his counsel has said, that he asserts on his oath that he was not aware that he was a party in the sense of somebody who was liable to have an order made against him. However, in light of the other circumstances, I am simply unable to accept that assertion. I did not find him to be a particularly convincing witness. He seemed very enthusiastic to "talk his way out of trouble". In the end, it is the objective evidence which creates the overwhelming impression that he must have known that he was a party to those proceedings in the well-understood meaning of that term. His oral evidence in no way undermined the inference which I consider inevitably to flow from those circumstances. 14. For present purposes the question is whether I should exercise a discretion to go behind the judgment debt for the purpose of determining whether or not the petitioner is a creditor and whether or not there is an available act of bankruptcy. In so doing I apply the test which appears in the judgment of Lee and Hill JJ in Wolff v Donovan (1991) 29 480 at 485-6. I have proceeded to this stage upon the assumption that the judgment debtor has demonstrated some arguable basis for defending the action if permitted to do so. Of course, if he was appropriately represented at the trial, then questions of issue estoppel arise in both the narrower and the broader senses addressed by the High Court in Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589. 15. I am satisfied, on the balance of probabilities, that the judgment debtor was aware, during the trial of the proceedings before Drummond J, that he was a party and that he was being represented by Mr Snelgrove. Having regard to all of the circumstances, there is no proper basis for attacking the judgment or the judgment debt. There should be a sequestration order. 16. I make a sequestration order against the estate of the judgment debtor pursuant to section 43 of the Bankruptcy Act. The petitioning creditor is to have her costs of the petition, including reserved costs, out of the estate with priority in accordance with section 109 of the Bankruptcy Act. I certify that the preceding sixteen (16) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Dowsett. Associate: Date: 6 December 1999 Counsel for the Appellant: Mr P J McHugh Solicitor for the Appellant: Nicol Robinson Halletts Counsel for the Respondent: Mr G Beacham Solicitor for the Respondent Corrs Chambers Westgarth as T/A for Tony O'Brien & Associates Date of Hearing: 1 December 1999 Date of Judgment: 1 December 1999