FEDERAL COURT OF AUSTRALIA Hahnheuser v WorkCover Corporation of South Australia [2001] FCA 1729 AXEL HAHNHEUSER v WORKCOVER CORPORATION OF SOUTH AUSTRALIA Q 174 OF 2001 DOWSETT J 12 NOVEMBER 2001 BRISBANE IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY Q 174 OF 2001 ON APPEAL FROM THE FEDERAL MAGISTRATES COURT BETWEEN: AXEL HAHNHEUSER APPELLANT AND: WORKCOVER CORPORATION OF SOUTH AUSTRALIA RESPONDENT JUDGE: DOWSETT J DATE: 12 NOVEMBER 2001 PLACE: BRISBANE REASONS FOR JUDGMENT 1 This is an appeal against a sequestration order made by a Federal Magistrate in Adelaide. At the outset the appellant bankrupt has indicated that he wishes to raise as a ground of his appeal an assertion that the commencement and/or prosecution by the respondent creditor of the bankruptcy proceedings was an abuse of process. He relies upon two letters which are dated 22 January 1999 and 5 March 1999. Counsel for the respondent suggested to me that there was perhaps some other material before the Magistrate which may have been relevant to this issue, but the appellant has expressly eschewed any reliance upon such material and has objected to any reference to it. In those circumstances I have indicated that I will not have regard to it. In other words, I have acceded to the appellant's request. 2 The two letters I set out below. That of 22 January 1999 was addressed to the appellant and came from the solicitors for WorkCover Corporation of South Australia, the present respondent. It was in the following terms: Re: WorkCover Corporation Judgment. We have been advised by Stanley & Partners that they no longer act for you. The matter comes on before Master Kelly again on 27 January 1999 at 10.15 am. Please ensure that the Master is able to contact you by telephone at that time on that date. We have been instructed by our client to convey to you their offer to settle this matter. They are prepared to forego pursuing the moneys still in contention following the judgment of his Honour, Judge Lunn of the District Court provided that the judgment sum of $24,340.88 is paid to our client together with $3000.00 as a contribution towards our costs and provided terms of repayment can be agreed. Alternatively, if the sum of $20,000.00 is paid to our client within 30 days our client will release you from all further liability to it. If agreement cannot be reached on either of the alternatives it will be our recommendation to our client that they proceed to your bankruptcy. 3 The letter is marked "without prejudice". The second letter is dated 5 March 1999 and is from Royal and Sun Alliance to the WorkCover Corporation. It is in the following form: We are enclosing a copy of reasons for decision of Master Berry in respect to our application for costs and interest. Master Berry has allowed interest of $3500.00 and awarded costs against the worker. While the worker may well appeal the decision, a decision needs to be made on whether to issue the bankruptcy proceedings to enforce the judgment. The worker has offered a lump sum of $3000.00 to satisfy the debt. We went back with a counter offer of an initial payment of $3000.00 plus monthly instalments of $1000.00 until the full debt is cleared. The worker's response was $1000.00 up front and $25.00 per month. If Workcover is prepared to sanction the bankruptcy we will likely get a more realistic offer from the worker after the proceedings are served. We won't take any further action until we hear from you. 4 The respondent maintains any entitlement to privilege which it may have with respect to this correspondence but has not objected to my referring to it for present purposes. That present purpose is of course solely the determination of the question of whether the appellant should be allowed to lead further evidence in the form of these two letters, which evidence was admittedly not before the Magistrate, for the purpose of arguing this issue of abuse of process, which was also not argued before the Magistrate. 5 The appellant relies primarily upon two authorities as establishing his proposition that it is arguable that there was an abuse of process. The first is the judgment of Emmett J in Brunninghausen v Glavanics [1998] 230 FCA. His Honour observed at p 5 of the judgment: I was referred to decisions of this Court of Re Sterling; Ex parte Esanda Pty Limited (1980) 44 FLR 125 and Re Lentini; Ex parte Lentini v CSR Limited (1991) 29 FCR 363 as to the inherent power of the Court to set aside a bankruptcy notice as an abuse of process. I did not understand counsel for the creditor to dispute the Court's jurisdiction to act in that way and I take it to be undisputed that if it is apparent that the purpose of the bankruptcy notice is to put pressure on a debtor to pay a debt rather than to invoke the Court's jurisdiction in relation to insolvency, then the filing of a bankruptcy notice is an abuse of process. 6 It was pointed out to me by counsel for the respondent that the circumstances in which these observations were made appear clearly from the second page of the reasons. It seems that following a judgment in favour of the creditor and against the debtor, there was an appeal and that the solicitors were negotiating concerning the position which should obtain during the period prior to the hearing and determination of the appeal. The judgment debtor had offered security in an amount which appears to have been in excess of the amount of the debt, but negotiations between the solicitors were continuing and, without notice, the bankruptcy notice was issued. In those circumstances it seems that the issue between the parties at that time was not the question of whether or not the debt should be paid immediately, or even less the question of the judgment debtor's insolvency, but rather the form of security which was to be taken in the meantime. There would be little difficulty in inferring an improper purpose in those circumstances, namely to obtain a more favourable outcome in the negotiations concerning security. 7 More to the point for present purposes is the judgment of the High Court in Rozenbes v Kronhill (1956) 95 CLR 407, especially at pages 415 to 417. I will not refer to that passage in great detail for present purposes. It is sometimes said that the Bankruptcy Act 1966 (Cth) (the "Act") is not to be used as a means of debt collecting. Rozenbes demonstrates that the improper purpose is that of obtaining money which the debtor is not bound to pay or obtaining some secret and unfair advantage over other creditors (at 417). In serving a bankruptcy notice or presenting a petition, the judgment creditor is, I would think, usually motivated by a desire to recover his or her debt. Such a motivation is not, as I understand it, a basis for disqualifying him or her from invoking the Act. It is only where it is clear that the creditor's motivation goes beyond that, and so infects the purpose as to make it a purpose beyond the ambit of the Act that there will be an abuse. 8 It is clear to me that in the letter of 22 January the solicitor was asserting that the client had an entitlement to interest and to costs which needed only to be perfected by resolution of the appropriate application before the Master, and that he was urging the appellant to resolve the matter without incurring further costs by accepting the proposals which were being put forward. It would be, I think, extraordinary if such a letter were to result in the creditor being deprived of its entitlement to have recourse to the Act. 9 In those circumstances it seems to me that the argument must fail, and for that reason, there would be no purpose in allowing it to be ventilated. However there is another reason why the application should not be ventilated. The appellant was aware of this matter at the time of the bankruptcy proceedings and should have raised it then if it was to be raised at all. The letter of 22 January 1999 was clearly within his knowledge and in his possession at the time that the bankruptcy hearing. The sequestration order was made on 18 July 2001, but the hearing had taken place in January 2001. Apparently, the letter of 5 March 1999 came into the appellant's possession after the hearing in January this year, but before the judgment. He says that it added something to the state of his knowledge concerning the respondent's motivation. I cannot see that it really went beyond the earlier letter, save that by the time it was written, interest had been fixed and costs awarded. This point ought to have been raised before the Federal Magistrate. I am not willing to allow the appellant to lead evidence on that matter now, it having been available at the time of the earlier hearing. In any event, I do not think there is any substance in the point. I certify that the preceding nine (9) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Dowsett. Associate: Dated: 12 November 2001 The Appellant appeared In Person. Counsel for the Respondent: Mr M O'Donnell Solicitor for the Respondent: Thomson Playford Date of Hearing: 12 November 2001 Date of Judgment: 12 November 2001