The improper purpose point
70 If the judgment debtor can establish that the creditor's petition was brought for an improper purpose then that may constitute 'other sufficient cause' why a sequestration order ought not to be made within s 52(2)(b) and may lead the Court to dismiss the creditor's petition.
71 The relevant principles as to what constitutes an improper purpose were stated by the High Court in Rozenbes v Kronhill (1956) 95 CLR 407. The Court referred to a number of English authorities on what amounts to 'extortion'. The Court said that the question is whether the court process is being used for illegitimate purposes such as recovering a larger amount from the debtor than could be recovered by legal proceedings. The Court said (at 417):
'The case seems finally to establish that the ultimate principle involved is that a court will not allow its process to be abused. There is an abuse of process if a pending bankruptcy petition, or a threat of proceedings in bankruptcy, is used as a means of extortion. The word "extortion" is not a technical term, and it has in bankruptcy law "no special and artificial significance divorced altogether from the ordinary implication of the word". The court will look strictly at the conduct of a creditor using or threatening bankruptcy proceedings, and extortion may be held to have taken place if the creditor has used, or attempted to use, a pending petition, or a threat of a petition, in order to extract from the debtor money which the debtor is not bound to pay, or in order to obtain some secret and unfair advantage over other creditors. But extortion will not be held to have taken place "in the absence of mala fides or anything amounting to oppression in fact". There must be a real intention on the part of the creditor to use the process for some other end than its legitimate end, and there must be a real exertion of pressure.'
72 The other point which emerges from the case (at 419) is that even if an improper purpose is established it does not follow that a sequestration order will not be made. The Court retains a discretion to make such an order.
73 Although the improper purpose point was not referred to in the appellant's Notice of Intention to Oppose Petition, there is no doubt that it was raised as a ground of challenge both before the Registrar on 20 June 2006 and the Federal Magistrate on 5 July 2006.
74 In support of this ground of challenge the appellant sought to put forward the affidavit of Mr Michael Gawronski.
75 Counsel for the appellant submitted that the Federal Magistrate erred in ruling that paragraphs 13.1 to 13.5 inclusive of Mr Gawronski's affidavit were inadmissible. Counsel submitted that those paragraphs support the appellant's case that the creditor's petition was brought for an improper purpose.
76 I should say that a submission was made to the Federal Magistrate that even without the evidence from Mr Gawronski there was sufficient evidence of an improper purpose on the part of the respondent. That submission was rejected, correctly in my view, by the Federal Magistrate and as I understand it not repeated by the counsel who appeared for the appellant on the appeal. In other words, counsel for the appellant accepted that if, contrary to his submission, the Federal Magistrate was correct to exclude the relevant paragraphs of Mr Gawronski's affidavit, then the improper purpose point must fail.
77 The Federal Magistrate ruled that paragraphs 13.1 to 13.5 inclusive of Mr Gawronski's affidavit were inadmissible and the transcript suggests that he delivered reasons at the time of his ruling but no copy of his reasons appears on the file. This potential difficulty is overcome by the fact that in his later reasons for judgment he sets out the basis upon which he excluded paragraphs 13.1 to 13.5 inclusive. He said:
'I also disallowed those paragraphs for the reasons given in a separate judgment, which can be summed up as the paragraph not being in proper form because the conversations deposed to were not set out in direct speech but consisted of a summary of the conversation. Not having the relevant part of the affidavit in evidence I would not make orders for discovery or grant an adjournment on that ground. I can also only give very little weight to the allegations by the debtor of collateral purpose in relation to the bankruptcy proceedings. As things stand they amount to an assertion of such from the debtor, and a claim that her assertion is evidenced or corroborated by the fact that the creditor has consistently refused to accept her tenders for what is in effect a very small amount of money, and that both the creditor and the supporting creditor are represented by the same firm of solicitors. Mr Gawronski's evidence would obviously be very important and I have difficulty in understanding why, it having been rejected by Registrar Christie, it was not put into proper form prior to the hearing before me.'
78 The Federal Magistrate and the parties before me proceeded on the basis that the same rules applied to the question of the admissibility of the relevant paragraphs in the affidavit as applied had there been an attempt to give the evidence orally. I will proceed on that basis.
79 In theory, evidence of a conversation may be given in any one of three forms, namely, by recounting the actual words used by the parties to the conversation, or by recounting the substance or effect of what was said, or by recounting the witness's conclusions as to the effect of the conversation. At common law, evidence of the conversation given in the first form is admissible and evidence of the conversation given in the third form is not. At common law, evidence in the second form is routinely admitted. Often a witness will be asked if he or she can remember the actual words used and if (as is often the case) they are not able to, they are invited to recount the conversation in terms of the substance or effect of what was said. When I use the word 'effect' here, I mean the effect of what was said, not the witness's mere conclusions or impressions of the conversation.
80 In Commonwealth of Australia v Riley (1987) 5 FCR 8, the Full Court of this Court said, albeit in the context of the Extradition (Foreign States) Act 1966 (Cth) (at 34):
'Counsel submitted that there were two other categories of material which should also be disregarded: evidence of conversations which is not in the form of direct speech and statements of conclusions of witnesses. We disagree. Section 26(1)(a) of the Extradition (Foreign States) Act 1966 deals with the form of evidence in a proceeding under the Act namely: