Simon, Otto & Anor v Vincent J. O'Gorman Pty Ltd & Anor [1979] FCA 112

Bankruptcy - Powers of Federal Court on appeal from sequestration order - - Going behind judgment on which petition based - Whether judgment in proceedings against agent after prior judgment against principal can satisfy requirement for sequestration order - - Election ~ Merger

OTTO SIMON and KATHY EVA SIMON v. VINCENT J. O'GORMAN PTY.

IN THE FEDERAL COURT OF AUSTRALIA ) NEW SOUTH WALES DISTRICT REGISTRY No. 23 of 1979

JUDGES MAKING ORDER: Franki, Fisher and Lockhart JJ.

DATE OF ORDER: 2 November 1979. WHERE MADE: Sydney.

2. The sequestration order of the Federal Court of Bankruptcy is set aside and the petition is dismissed. :

3. The first respondent is to pay the costs, including any reserved costs, of the appellants of the proceedings before the trial judge,of the proceedings in the High Court and of the appeal

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• . 7

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY No. 23 of 1979 )

BETWEEN : OTTO SIMON AND KATHY EVA SIMON Appellants AND : VINCENT J. O'GORMAN PTY. LIMITED and

This is an appeal from a sequestration order made by a judge of the Federal Court of Bankruptcy in respect of the estate of both appellants, Otto Simon and Kathy Eva Simon. The order was made on 13 December 1973 and thereafter an appeal was lodged by both appellants to the High Court of Australia. On 5 April 1979 the High Court, pursuant to s.44 of the Judiciary Act 1903, ordered that the matter be

referred to this Court and that the costs of the proceedings in the High Court, including those of the day when the matter

The appeal to the High Court was dated 4 January 1974 but no stay was obtained although in February 1975 an affidavit is before us which was filed seeking a stay and alleging that the appellants were unable to prosecute the

The first respondent, Vincent J. O'Gorman Pty. Limited ("O'Gorman") carried on the business of stock buyers and wholesale butchers and supplied meat to butcher shops. The second respondent was the official receiver at the relevant time. It was common ground that prior to 14 October 1969 O'Gorman had supplied meat on credit to the two appellants who conducted in partnership two businesses, one at Parramatta

: On 14 October 1969 a company, Simon's Meats Pty. Limited, ("the company") was incorporated and the two appellants were directors and shareholders of that company, the first appellant being chairman and managing director.

Meat was supplied by the first respondent to the two businesses during the week ended 24 December 1969 and the three weeks following and;,on 10 March 1970,the first respondent brought

an action against the company in the District Court of New South Wales by way of a default summons claiming money payable for goods sold and delivered amounting to $2,078.98 and giving credit for $150.00. It is clear that the $150.00 was received by way of a cheque drawn by the company and bearing the name

of Simon's Meats Pty. Limited dated 10 March 1970. It

appears that the company did not have funds to satisfy the

judgment. About the time of the issue of the default

-3- summons correspondence took place between the solicitors for O'Gorman and the solicitor for the company. Four letters from O'Gorman's solicitors to the solicitor for the company are dated 6, 18 and 23 March 1970 and 18 May 1970. Each of these letters is headed "re: Vincent J. O'Gorman Pty. Ltd. v. Simon's Meats Pty. Ltd." The first letter refers to several telephone conversations between

"Our client is adamant that we are to proceed to the issue of a summons herein."

The second letter refers to the company's cheque for $150.00

"A summons has been prepared and has been lodged with the District Court."

The letter of 23 March 1970 refers to Mr. Simon being in

"Should your client make default in the payments beforementioned we will not hesitate in seeking our client's instructions to proceed to the issuing of winding up proceedings."

In the letter of 18 May 1970 reference is made to the

judgment against the company, which is said to have been

signed on 22 April 1970, and the letter conveys information

"We were instructec to threaten it with winding up proceedings."

This letter also contains certain threats of proceedings against Mr. Simon under ss.303 and 304 of the Companies Act, 1961 (N.S.W.)

and jsuggests that he might want "to reconsider this matter and make a greater effort than he obviously has made in attempting to satisfy the creditors of his company." There is also a letter of 19 May 1970 from O'Gorman's solicitors to a firm of accountants which again refers to the possibility of proceedings being issued against Mr. Simon under ss.303 and 304 of the Companies Act. It is interesting to note that s.303(3) at

the relevant time dealt in substance with the case of an officer of a company who was knowingly a party to contracting a debt provable in the winding up, which the company, at the time the debt was contracted, had "no reasonable or probable ground of expectation" of being able to pay. It is also relevant to note that s.304 dealt in substance with the responsibility of a person who was knowingly a party to carrying on of the business of a company where any business had been carried on with intent to defraud creditors of the company. These threats would have been quite extraordinary

if O'Gorman had not thought that the company was the principal

O'Gorman then issued a second default suxumons on 11 September 1970 out of the District Court against the two appellants claiming the same amount of $1928.98 in respect of causes of actions which included one for money payable by the defendants to the plaintiff for goods sold and delivered by the plaintiff to the defendants. No particulars were given of the amount although it was said "Particulars of which are within the knowledge of

Default judgment was signed against the two appellants on 8 November 1971 for $1871.88 and costs. It is not clear why the amount of the judgment differed from the amount claimed. It was common ground that both judgments were based upon the same transactions. Application was made on 17 November 1972 to a judge of the District Court to have the second judgment set aside and the first appellant appeared in person upon that application. The application was refused. On 16 February 1973 an application for a new trial was heard by another judge of the District Court but that application was also refused. A further application was heard by another judge of the District Court on 23 March 1973 who dismissed that application. An application to the Federal Court of Bankruptcy under s.41(7) of the Act was dismissed on 27 March 1973. At all relevant times the first appellant claimed that the debt was that

first was that in the relevant transactions the first

~6 appellant had authority to bind the company, he had the intention to do so, he disclosed the existence and name of the principal and credit was granted by O'Gorman to the company. The second argument was that if the company was an undisclosed principal, then, at least after judgment was obtained against the company and whilst that judgment stood, it was not possible for O'Gorman to proceed against the appellants in relation to a debt which could only have arisen out of the same transaction as that in respect of

which the judgment against the company still existed.

There was evidence from Mr. Simon that he had handed a card showing his name as chairman and managing director

of the company to Mr. O'Gorman the managing director of

O'Gorman. Whilst Mr. O'Gorman did not deny this he indicated that he did not recall it. There was also some evidence from the first appellant that he had a conversation with Mr. O'Gorman at the end of October 1972 in which he said to Mr. O'Gorman:

"I am no longer trading as a partnership but as a company proprietary limited and I am the managing director of the company, SimonS Meats Pty. Ltd." He also said Mr. O'Gorman

took the card and said "That is all right, so we know how

we stand." Mr. O'Gorman, at least, did not concede that

this conversation took place or that the card was handed

the learned trial judge thought was the more truthful

~7- or reliable witness but, in the view I take, this Court as not concerned to assess the truth or otherwise of any disputed issues because the ultimate result of this

There is nothing in the evidence from which the precise terms can be ascertained of the offer and acceptance which gave rise to the contract pursuant to which meat was apparently supplied and from which the alleged debt arose. I draw, what seems to me to be the only reasonable inference, that at the relevant time, the first appellant had power to order meat as agent for the company. There was no contest, and there can be no real doubt, that in the relevant period the trading at the two businesses was being carried on by the company and not by the partnership. I consider that the

The main issue before this Court was whether, in relation

to the supply of meat in the relevant period, there was

• ~s- sufficient to satisfy the requirements of s.52 of the Bankruptcy Act 1966 ("the Act"). The Court, in the circumstances of this appeal, should exercise its power to look at what is behind the judgment upon which the bankruptcy notice was based rather than accept that judgment as satisfactory proof of the petitioning creditor's debt. See Wren v. Mahony (1972) 126 C.L.R. 212 at p.224.

When the proceedings were commenced against the company, and when judgment was obtained against it, the respondent apparently held one of two views, either that the original contracts were made with the company as a disclosed principal (in which case the appellants were not subject to any liability) or that the original contracts were made with the company by transactions entered into by one or other of the appellants as agent for the company, an undisclosed principal. There is no suggestion that the second appellant had any part in the making of any relevant contract and,therefore, if O'Gorman did not accept the fact that the company was the principal, and no agent had acted in the matter, it must have been proceeding upon the basis that the

first appellant had entered into the transaction as the company's agent. At least by the time judgment was obtained against the company O'Gorman must have accepted one of these two alternatives. It is clear that at the time when the action, which gave rise to the judgment debt upon which the bankruptcy notice was founded, was commenced

against the appellants a judgment existed against the principal, in this case the company, for a debt arising

-9- It seems well established that a debt enforceable by action does not exist in these circumstances. In Buckingham v. Trotter (1901) 1 S.R. 253 at p.261 Darley C.J. in delivering judgment of the Full Court said:

"The principle to be adduced from the authorities is that in the

case of principal and agent the election to sue one or the other

1s not concluded until after final judgment has been obtained in the action against one or the other, put after obtaining this final judgment against the one so long

as it remains on record, no action is maintainable against the other lest such second action bring about the inconvenient results alluded to py Lord Cairns in Kendall v. Hamilton."

Kendall v. Hamilton is reported in (1879) 4 A.C. 504.

| The passage I have just cited from Buckingham v. Trotter, was cited with approval in the joint judgment of Dixon J. (as he then was) and Fullagar and Kitto JJ. in Petersen v.

Moloney (1951) 84 C.L.R. 91 at pp.103-104. At pp.102-103

the Court was considering the position of principal and agent

and said at p.102 citing from Morel Brothers and Co., Ltd. v.

Rarl of Westmorland ff903] 1 K.B. 64,;/904] A.C.11:

"In such a case a finai election to treat either as liable would preciude
the plaintiff from proceeding against ' the other, and it is a well-settled ; general principle that, while the i commencement of an action against

one of two persons alternatively liable does not, the entry of judgment against one of them does, constitute

At p.103 the Court, before citing the passage set out above from Buckingham v. Trotter, expressed the view that where an action has proceeded to judgment the

"There must not be more than one judgment where there is only one antecedent obligation."

The same approach was taken in Clarkson Booker Ltd. v. Andjel {i964] 2 Q.B. 775 where Willmer L.J., with whose judgment Davies L.J. concurred, said at p.793 in relation to a case where a contract had been made by an agent as agent for an undisclosed principal that if judgment had been obtained against the principal the plaintiffs would, of course, have been precluded from subsequently taking proceedings against the agent for their cause of action would have been merged in the

judgment obtained against the principal. Russell L.J. at p.795 said:

"...if judgment is obtained against either principal or agent, this is

more than election, thovgh frequently referred to as election : the judgment supersedes the contractual right against either, and if obtained against the agent precludes action against

was ignorant of his existence and therefore unable to elect."

The same principle is set out in Bowstead_ on Agency 14th ed. at p.372 where London General Omnibus Company, Limited

v. Pope (1922) 38 T.L.R. 270 is cited, and 1t is said:

"The liability of an agent on any contract made by him on behalf o

his principal is discharged bv Lhe oblaining of judgment against the principal..."

The application of the principle just considered makes it unnecessary to discuss whether any election sufficient to bar proceedings had been made before jgudgment (see generally Clarkson Booker Ltd. v. Andjel,

I was concerned with the lapse of time which had taken place since the appeal was filed. However, apart from the question of possible lack of funds, nothing is before us to show why the appeal had not been disposed of earlier and it was not submitted that the granting

Although at the suggestion of this Court an affidavit was filed by the first appellant setting out the events which have happened since the sequestration order, the paragraphs of that affidavit relating to that period were not read to the Court, nor did any party seek to place evidence relating to that period before the Court. In the result there is no evidence before us concerning the position in relation to the estates of the appellants since the sequestration order was made. It was submitted on behalf of the official receiver, who was joined by the appellants as a party to the appeal, that it may be that the official receiver

would in some way be prejudiced but no details af that

prejudice was before us in evidence. The position of

the official receiver was considered by Clyne J. in

Counsel for the official receiver cited a judgment of Gibbs J. in Re Deriu (1970) 16 F.L.R. 420 in which it was said that in circumstances where a sequestration order ought not to have been made because the debtor was not indebted to the petitioning creditor,the proper way of getting rid of the sequestration order was to annul it under s.154 of the Act. However, in that case his Honour was considering an application for recision under s.37 of the Act and not an appeal from the making of a sequestration order. In all the circumstances I consider that if we decide that the sequestration order was wrongly made we should uphold the appeal in such a way as to avoid the consequences and stigma of bankruptcy attaching to the appellants and possibly affecting the rights of any other creditors.

The order which was made by the High Court in Wren v.

"Appeal allowed with costs. Order of the Court of Bankruptcy set aside and in lieu thereof order that the petition be dismissed with costs."

A similar order was made by the Full Court of this Court in Re Schierholter; Ex parte Geis (1978) 19 A.L.R. 113. Both appellants appealed by filing the one notice of appeal ,but there is evidence before us that, although

appellants, the second appellant does not wish to pursue the appeal. Since the order made by the trial judge was that the Court "hereby makes a sequestration order against the estate of the debtors", it is

appropriate to make an order that the appeal be allowed.

that the sequestration order of the Federal Court of

/ Bankruptcy be set aside and in lieu thereof order that the petition be dismissed and that the first respondent pay the costs, including any reserved costs, of the appellants of the proceedings before the trial judge, of the proceedings in the High Court and of the appeal to this Court.

IT certify that this and the leelug preccding pages are a true copy of the Reasons for Judgment herein of his Honour lux. Justice Benbe

) NEW SOUTH WALES DISTRICT REGISTRY ) No. 23 of 1979

FISHER J.: In this matter I have had the advantage of reading

in draft form the reasons of each of my brothers Franki and Lockhart. I agree that the appeal shovld be allowed and I agree generally wath their reasons for arriving at this conclusion. Moreover I would adopt the statement of relevant facts set

out by Lockhart J. and his reasons for dismissing the first

In respect of the second ground of appeal, I would for

my part prefer to base my conclusion solely on the fact that

at the relevant time a good defence was available, namely the plea of judgment recovered. In consequence of this defence judgment should not have been entered against the appellants for the debt upon which the relevant bankruptcy notice was founded. In these circumstances it is not necessary to rely upon the common law doctrine of election except in the sense

that the creditor had a choice of which party to pursue to

This defence of judgment recovered 1S stated in Bullen

Leake and Jacob's Precedents of Pleadings 12th Ed. as follows

at p.1145: "A judgment recovered by the plaintiff 1n an action an an English court of record merges the original cause of action and affords a good defence t a second action for the same cause." At p.1149 a passage appears which has particular application to the circumstances of this matter: "One who has a claim which he may enforce at his election against either of two different persons may, by suing one of them to judgment, determine his election and

prevent himself from afterwards suing the other of them in respect of the same claim."

The respondent Vincent J. O'Gorman Pty. Limited ("the creditor") enterec judgment in the earlier proceedings against Simon's Meats Pty. Limited ("the Company"), in circumstances where there was but one cause of action, albeit enforceable in the alternative against the company or the appellants. This entry of judgment, in my opinion, in the circumstances concludes the matter. It 1s therefore unnecessary to speculate whether

the appellant Otto Simon ("Otto Simon") contracted on his own

behalf (or on behalf of the partnership of his wife and himself)

or as agent for a prancipal whether disclosed or undisclosed.

I am algo not obliged to consider the challenges to the findings

of the trial judge or matters crucial to the question of election, namely whether the creditor became aware of the relationship

between Otto Simon and the Company, and 1f so when, and whether

it had suffacient knowledge of the relevant facts when it"

"elected" to sue the Company in the first instance. It suffices

for the reasons that follow that there was one obligation which produced only one cause of action, and the creditor, having : obtained judgment on that cause of action against the Company, ) could not enter judgment on the same cause of action against the appellants. This 1s an application of the maxim "causa transit

in rem judicatam" in circumstances where the debt merges in and

The farst extract from Bullen, Leake and Jacob, supra sets out the law as applicable in English Courts. The following principles are in my opinion supported by authority: There shall not be more than one judgment on one entire debt, the cause of action in respect of which has merged

Clarkson Booker Ltd. v Andgel (1964) 2 Q.B. 775 at pp.788-9 and 795

The law does not countenance the co-existence of two judgments in respect of the same debt or cause of action.

Kendall v Hamilton (1879) 4 App. Cas. 504 at p.515 ,

In a prancipal and agent situation, a final judgment obtained against the agent, whilst 1t remains on foot prevents the third party from suing the principal even though he was unaware of the principal at the time of judgment, and the judgment remains unsatisfied.

The consequences are the same if the undisclosed principal ' is sued in the first anstancc.

London General Omnibus Co v Pope (1922) 38 T.L.R. 270

This is also the law in Australia aS was established by the High Court in Petersen v Moloney (1951) 84 C.L.R. 91 at p.103 per Dixon J. (as he then was) and Fullagar and Kitto JJ., who after referring to Morel Bros & Co +td v Earl of Westmoreland

"In each of those cases the plaintiff had obtained judgment against one of two defendants, of whom one but not both might have been liable, and then, without setting aside or seeking to set aside that judgment, had sought Judgment against the other. This offended against the rule stated by Atkin L.J. (as he then was) 1n Moore v Flanagan that 'a plaintiff cannot sue an agent to judgment and then sue the prancipal'. The plaintiff in this case is not offending against that rule. It is to be noted that although the rule is often stated in terms which would seem to make it depend on election, Vaughan Williams J. (as he then was) in Ilammond v Schofield said; 'the basis of this defence is not the election or unconscious election, if there

can be such a thing, of the plaintiff, but the right of the co-contractor when sved in a second action on the same contract to insist, though not a party to the first action, on the rule that there shall not be more than

one judgment on one entire contract'. This passage is quoted by Scrutton L.J. in Moore v Flanagan. Moore v Flanaqan was not, and this case is not, a case of 'co-contractors', but the same rule 1s applicable and it must rest on the same basis. There must not be more

than one judgment where there in only one antecedent obligation. What Vaughan Williams J., said 2n Hammond

v Schofield seems to be in accord with what Lord Cairns said in Kendall v Hamilton. In Buckingham v Trotter (1901) 1 S.R. (N.S.W.) 253 at 261, Darley C.J., speaking for the Full Court, said: 'The principle to be deduced from the authorities 1s that, in the case of principal and agent, the election to sue one or the other 1s not concluded until after final judgment has been obtained against the one or the other, but, after obtaining this fanal judgment agaznst the one, so long as it remains of record, no action 1S maintainable against the other,

lest such second action brings ahout the inconvenient results alluded to by Lord Cairns in Kendall v Hamilton'."

The crux of this statement of the law appears to be that when there 1s but one cause of action, arising out of one antecedent

obligation, there can be but one judgment. Thus in circumstances

where a third party has the right to pursue a cause of action

in the alternative against a number of persons, Judgment against one extanguished the cause of action. It 1s otherwise,of course, if a number of remedies are available arising out of the one antecedent obligation, in that different remedies may be available against different parties. The crucial fact is that even though a number of rights may accrue in favour of the third party, such rights are alternative and not cumulative where there is only one cause of action, and the pursuit of one to judgment exhausts

the remedy. It therefore becomes necessary to be satisfied on the facts of this matter of the nature of the rights which the ereditor had to enforce its claim to recover the cost of the goods sold by it. Its rights against the appellants and the

Company may be joint, joant and several or alternative.

The trial judge found that the creditor entered into only one contract, (or perhaps more correctly a series of contracts i each in respect of the sale of a parcel of meat) but with only one person, namely the appellant Otto Simon. There was but one obligation, namely the obligation of Otto Simon or the partnership i to pay for each parcel of meat. The creditor was entitled to

thank that it had made a contract with that appellant, and only

that appellant. Upon Otto Simon failing to pay the agreed price, t the creditor had one cause of action and one remedy, namely to claim against Otto Simon the cost of the goods sold. Ultimately | however the creditor became aware, in consequence of receipt | of the Company's cheques, of its existence, and doubtless suspected )

that for some reason it was obliged to pay, and was paying,

probably was that the Company had had the benefit of the purchases,

the debts of the partnership. The most obvious explanation the same heving been made on 1ts behalf by the appellant Otto

Simon. The creditor then "elected" to sue the Company on the cause of action arising out of its dealings with Otto Simon, although it had not had any dealings with the Company from which

The trial judge found that these proceedings were brought under a misapprehension and 21n ignorance of the actual contractual relationship that existed. However, a judgment having been obtained, these findings are nothing to the point. They may have relevance on an application to set aside the judgment. Moreover 1f the creditor was or should have been aware of the existence of the Company at the tame of the contracts of sale this factor does nothing but strengthen the case against the creditor. I proceed however on the basis of accepting the trial

The crucial matter 1s that there was but one obligation and one cause of action in respect of which there was a judgment. The Company in correspondence and otherwise did not dispute the ereditor's raght to enforce this obligation against it. However, the obligation remained the original obligation which arose in consequence of the dealings between the Company and Otto Simon. It was neither an additional obligation nor a new cause of action. The creditor had reason to believe that it had an additional right of enforcement of that obligation and cause of actaon and it acted on this belief. The attitude of the Company confirmed that this belizef was correct. But no new obligation arose from this additional raght of enforcement and the creditor was only entitled to enforce the original obligation, albeit against a new

party. Once enforced to the stage of judgment, the obligation

would as a matter of law merge in the judgment. No additional cause of action could accrue in the circumstances in favour of

In the present matter it was conceded, and in my opinion correctly conceded, that the goods the subject of the second summons against the appellants, were the same goods the price of which was claimed in the first summons against the Company. There vere additional causes of action pleaded as against the appellants, namely for money lent and on accounts stated, but these claims were acknowledged to be without foundation and can be ignored. It follows that even accepting all the trial judge's findings the cause of action for the price of the goods having merged into the judgment against the Company and consequently having ceased to exist, there 1s during the subsistence of the judgement, no cause of action available to the creditor upon which to sue the appellants. It might be otherwise if the

creditor succeeded in having this first judgment set aside.

On the other hand 1t was strongly argued that the proper finding was that the male appellant entered into the contracts as agent for an undisclosed principal, the Company. In this case without doubt the right against the Company was in the alternative: '.

Kendall v Hamilton and London General Omnibus Co v Pope supra.

The creditor accepted this situation and the apparent benefits thereof when it sued the Company. Alternatively, the creditor may have believed that for some reason it had an additional

right in respect of %s existing cause of action, namely to sue the Company on the obligation entered into by Otto Simon. In

neither anstance did it acquire or could it acquire an additional

cause of action. In each case the right to sue the Company was an alternative right, and there was no joint or joint and several

liability on the part of the appellants and the Company.

In the circumstances the creditor was not entitled to enter the judgment against the appellants and the judgment thus obtained does not provide a sound basis for the relevant bankruptcy notice.

It follows that a sequestration order should not have been made.

The appeal must therefore be allowed and the sequestration order set aside. In lieu thereof the order should be that the petition be dismissed and that the first respondent pay the costs, including any reserved costs, of the appellants of the proceedings before the trial judge, and the High Court and of the appeal to

this Court. T would make no order for the costs of the second

I certify that this and the 7 preceding pees are a true copy of the Reasons for

VINCENT J. O'GORMAN PTY. LIMITED and BRIAN ROSS WILSON

This 1s an appeal from an order of the Federal Court of Bankruptcy (Riley J.) made on 14 December 1973 sequestrating the estates of Otto Simon and Kathy Eva Simon ("the appellants"). The act of bankruptcy was the failure of the appellants to comply

with the requirements of a bankruptcy notice dated 9 January 1973

and served on them on 7 February 1973. The bankruptcy notice was

based on a final judgment obtained by the petitioning creditor, Vincent J. O'Gorman Pty. Limited ("the first respondent"), against

the appellants in the District Court of the Metropolitan District

at Sydney on 8 November 1971 1n the sum of $1,871.88 for debt

whether those costs had been taxed when the bankruptcy notice was issued. The appellants take no point that this affects the valadity of the bankruptcy notice.

The appellants assert that they were never indebted to the first respondent for the judgment debt on the ground that, although there was a debt due to the first respondent for goods sold and delivered, 1t was owed by a company controlled by the appellants known as Simon's Meats Pty. Lamited ("the company"). This issue was heard by Riley J. an 1973 and his Honour held that it was the appellants who were the debtors of the first respondent.

contend before this court that his Honour was in error in reaching that conclusion.

Alternatively, they contend that as the first respondent sued the company and obtained a final judgment against 1s before it sued the appellants and obtained the fanal judgment against them which founded the bankruptcy notice in this case, both actions being for the recovery of the price of the same goods, the first respondent is barred from suing the appellants; and in those circumstances no sequestration order ought to have been made.

Before turning to these questions, I will deal with a preliminary question raised by the respondents. They contend that the appeal is misconce2zved on the ground that no appeal lies from the making of a sequestration order, the person made bankrupt being confined to making an application to the court for annulment of or discharge from his bankruptcy.

The argument 2s said to be based on the decision of

Gibbs J. 1n Re Deriu (1970) 16 F.L.R. 420 where a bankrupt

applied for an order under s. 37 of the Bankruptcy Act 1966 ("the Act") to rescind a sequestration order made against him, upon a creditor's petition, on the ground of his failure to comply with a bankruptcy notice.

The bankrupt alleged that he was never 1undebted to the petitioning creditor. Gibbs J. held that the court had jurisdiction to go behind the default judgment in the District Court on hearing the application For rescission under s. 37, and to inquire whether it was founded on a real debt. He held that the judgment was not founded on a real debt and that the petitioning creditor had not been entitled toa sequestration order. Section 154 (1) of the Act provides that where a court is satisfied, inter alia, that a sequestration order ought not to have been made, the court may make an order annulling the bankruptcy. His Honour held that he was satisfied that the sequestration order ought not to have been made and annulled the bankruptcy. He said that the rescission of a sequestration order does not put an end to the bankruptcy and relied for that conclusion on the reasons for judgment of Williams J. 1n Cameron v. Cole (1944) 68 C.L.R. 571 at p. 610 and the terms of s. 43 (2) of the Act which provide:- ,

(a) he 1s discharged by force of section 149 of thas Act;

(b) he is discharged by order of -he Court; (c) the sequestration order is annulled." His Honour was considering a different question to

the one before us. H:is Honour did not say that there was no power in the court to rescind a sequestration order under s. 373; but rather that, in the circumstances of the case before him, as the rescission of the sequestration order would not put an end to the bankruptcy, "the proper way of getting rid of the sequestration order is by annulling it

The question before us is quite different namely, whether this court, on hearing an appeal against the making of a sequestration order, can uphold the appeal. There is nothing 1n his Honour's reasons for judgment in Re Deriu which bears on this question.

Where an order has been correctly made in the first instance and a party seeks to antroduce evidence of events that have subsequently happened which would justify the court an making an order for rescission of the original order, generally the proper course is to apply for an order for rescission under s. 373; but if the order had been wrongly

made in the first instance the usual course of appealing against 1t should be followed: see Re Norris; ex parte Norris (1890) 7 Mor. 8 at p. 10 and Re Edgar: ex parte

Davidson and Michael Hunt's Health Club. Piy. Limited (1973) 2 A.L.R. 649,

of the application for rescission, variation, discharge

or suspension under s. 37 should be taken out before the

court hears an application under s. 37: see Re McDonald

distinction between the rescission of an order under the express statutory power conferred by s. 37 and orders

The distinction is further emphasised by Se 39 (2) (a) of the Act whach, at the time the appeal 'was anstituted an the present case, expressly provaded for an appeal to the High Court "from a sequestration order made by the court", Sections 38 and 39 of the Act were repealed by the Bankruptcy Amendment Act 1976, which commenced on 1 February 1977 and substituted a new s. 38 vesting this court with jurisdiction to

Cameron v. Cole (supra) per Willaams J. at p. 604 and

In my opinion an appeal lies from the making of a sequestration order by the Federai Court of

the Haigh Court ordered that an appeal by the bankrupt

against the making of a sequestration order be allowed, that the order of the Court of Bankruptcy

be set aside and in lieu thereof that the petition be dismissed. The Full Bench of this Court made an order to the same effect in Re Schierholter; ex parte Geis (1979) 19 A.L.R. 113. These decisions confirm the view I have reached notwithstanding that the point asserted by the respondents does not appear to have

It was contended by the respondents that the appeal ought to be dismissed in the discretion of the court as more than five years have passed since the making of the sequestration order and, in the meantime, the debtors' property has been under the control of the second respondent, as the trustee of

Certainly the case 1s unusual. The sequestration order was made on 14 December 1973 and

it 1s now 1979. An appeal was lodged from the making

of the sequestration order to the High Court of Australia

on 4 January 1974. An affidavit was failed on behalf of the appellants in the Federal Court of Bankruptcy apparently in support of some application to stay the

resolution of the appeal to the High Court. That affidavit was sworn by the mie appellant on 6 February 1975. We do not know the fate of any application for stay except that no stay was ordered. On 5 April

1979 the High Court referred the appeal to this court

The evidence does not enable us to say why the appellants took no steps to prosecute their appeal to the High Court between 1973 and 1979, except that there 1s some suggestion on the evidence that they lacked the fianancial means to prosecute

Unusual though 1t may be for an appeal to remain on foot without being prosecuted for some fave years, it 1t not for the respondents to complain as they did not take any steps to have the appeal dismissed for want of prosecution, as they could have

We asked the respondents if they wished to apply to tender any evidence of prejudice that may

be suffered by them if the appeal were to be allowed;

but no such application was made; nor was any submission

NR eR er RTE ng er eprint Se pnyen tien eyewear emma

For these reasons I am satisfied that the appeal 1s competent and ought to be determined

was due by the company, uot by the appellants themselves.

The Federal Court of Bankruptcy, and later this court, has jurisdiction upon the hearing of a petition to go behind a judgment and inquire whether it was founded on a real debt; see Corney v. Brien (1951)

The jurisdiction arises because s. 52 (1) of the Act requires that, at the hearing of a creditor's

petition, the court shail require proof, inter alia,

of the fact that the debt or debts on which the petitioning

ereditor relies is or are still owing. Sir Garfield

Barwick referred 1n Wren v. Mahoney (supra) at p. 223 to:

"the dominant place the mandatory words of s. 52 (1) occupy 1m relation to the making of a sequestration order and that the resolution of the question whether or not the proof of the petationing creditor's debt is satisfactory does not concern only

clearly expressed by Lord Esher in In re Hawkins; Ex parte

Troup 1895 1 Q.B. 404 at p. 408-409 in these words:-

"We have said that the Court will go behind the gudgment, and I think the cases shew that the Court

will go behind a judgment by consent. I am also of opinion that a judgment obtained by a compromise

does not of itself stop the Court from going behind ut. We have tricd to say that the Court will go into

one of a dispute between the two parties; it is a metter whach will affect, and materially affect, the rights of all the creditors who are not before the

Court when it has to determine whether a receiving order should or should not be made, which will or may result in the debtor being made a bankrupt. The Court will go into the whole matter, and see whether upon the whole 1t 1s fair to the whole body of creditors that the man, on the particular transaction between himself and the petitioning creditor, should have a receiving order

made against ham, In the same way, when a creditor comes to prove in bankruptcy the Court will go behind the judgment, and anquire into the whole transaction which preceded 1t. To make a man a banirupt is obviously a strong interference with the rights of the general body of his creditors. Each creditor is materlally affected to the extent that he cannot by his own diligence get the whole of his debt. From the moment of bankruptcy, though he be the most diligent of the creditors, he has to go ynto equal competition with the most idle."

The circumstances in which the court will inquire into the validity of a judgment debt are not closed; but tt is clear that the court will not anquire as a matter of course into that question: see In Re Flatau; ex parte Scotch Whisky Distillers Limited (1888) 22 Q.B.D. 83; In Re Hawkins; Ex

parte Troup (supra); Re Morris 1871 2 V. R.(IIL)2; Re Monks an Bankruptcy

(1886 )i2 V.L.R. 7123; Re Cole; Trustee/v. Public Trustee

Circumstances tending to show fraud, collusion or miscarrsage of justice or that a compromise was not afair and reasonable one are the most frequent examples of the exercise by the court of this jurisdiction: see Corney v. Brien (supra);

The courts are reluctant to exercise this jurisdiction where the judgment was entered after a full investigation of the issues at a trial where both parties appeared and had ample opportunity to put their case to the court; see Corney v. Brien (supra) and Re Vojnovski; Ex parte Malcolm 1970 A.L.R. 3553; Wren v. Mahoney (supra).

in the present case Riley J. allowed the appellants to fully explore whether the judgment was founded on a real debt. Evidence was led by the appellants and by the first respondent, each of whom was represented by counsel. It was contended on behalf of the first respondent before this court that the inquiry, whether the judgment was founded on a real debt, ought not to have been conducted as there was no suggestion here of fraud or collusion and the appellants had ample opportunity in the Distract Court to apply to set aside the jgudgment.

The judgment was signed on 8 November 1971. Application was made by the appellants on 17 November 1972 to set aside that judgment, the application boing heard by his Honour Judge Leslie of the District Court. His Honour referred to the fact that the judgment was entered after a hearing at Penrith District Court on 8 November 1971. The male appellant appeared in person before his Honour that day and either made submissions or gave evidence or both. His Honour held that the male appellant was guilty of delay in applying to set aside the gudgment and that, although the defence that the true debtor was the company, not the appellants themselves, was one which "in strict terms...

may be a defence if it 1s made out" nevertheless was not one

} which was "very meritorious". His Honour dismissed the | I

On 16 Pebruary 1973 the appellants applied to the t

District Court (Godfrey-Smith J.) for a new trial. The | appellants were present, evidence was called and his Honour held that there had been no evidence placed before him which i i

would in any way alter the position arrived at by Judge

Leslie. 1 t Another application for a new trial was made by the

appellants. This time it was heard by Judge Loveday on

Shortly after service upon the appellants of the bankruptcy notice, and before they had committed an act of bankruptcy, it seems they filed an affidavit to the effect that they had a counter-claim, set-off, or cross demand

of the kind referred to in ss. 40 (1) (g) and 41 (7) of the

Act. The Federal Court of Bankruptcy (C.A. Sweeney J.) treated

the matter on 27 March 1973 as an application by the

appellants under s. 41 (7) of the Act, the first respondent being represented by counsel, but there being no appearance by or on behalf of the appellants. Has Ilonour dismissed the application.

On 21 November 1973 the appellants filed in the Registry of the Federal Court of Bankruptcy a notice of antention to oppose the petition presented by the first

"there is no money payable by Otto ' Simon and Kathy Eva Simon to the petitioner and no goods were sold

The petition came into the list on a number of occasions and was fully heard by Riley J. who found against the appellants and made a sequestration order against their estates.

In my opinion Riley J. was entitled to determine the question whether the appellants were in truth indebted

to the first respondent for the reasons given by the High

Court in Corney v. Brien (supra) and Wren v. Mahoney (supra).

whether 1t was the appellants or the company who were indebted

The appellants carried on a butchery and smallgoods

busaness in partnership from two premises, one at Parramatta the other at Lidcombe, the former under the name of 0. and K. Simon (but sometimes as Continental Butchery, being the name of the busaness as it was when they took it over) the Latter as A.W.A. Butchery and Smallgoods.

The company was incorporated on 14 October 1969. At all material times 1t had a paid up capital of $3.00, one share held by Mr, Simon another by Mrs. Samon and the third by their daughter. The appellants were directors of the company. Although the evidence is not very full, it secns that the company took over the partnership business conducted

partnership ceased to trade at or about the time of the

The debt due to the first respondent was for meat or smallgoods purchased from it and delivered to the Parramatta shop during the period December 1969 to January 1970 for a value of $626,53 and during the same period to the Lidcombe shop to the value of $1452.45, a total of $2,087.98. There was evidence before his Ilonour that the company made payments to the first respondent over the period December 1969 to March 1970, those payments being accepted by the petitioning creditor in reduction of what it claimed to be the andebtedness of the appellants and what the appellants claimed to be the indebtedness of the company.

Mr. Simon gave evidence before his Honour that on a

Monday morning at the end of October 1969, he spoke to Mr.

Vancent O'Gorman, the managing director of the first respondent

at premises known as the Country Hall at Homebush, and took with him some business cards, a specimen of which is in evidence, and describes Mr. Simon as chairman and managing director of the company and contains the addresses and telephone numbers of the Parramatta and Lidcombe premiscs.

He said that he toid Mr. O'Gorman that the partnership of his wife and himseif was no longer carrying on business; but that the business was now carried on by the company which his wife and he had formed and of which he was the managing

director. Ile said that Mr. O'Gorman was content to do

Mr. O'Gorman gave evidence. Ne did not specifically

deny that the conversation took place or that, if it did,

it was in the terms alleged by Mr. Simon; but he said

that he dad not think he had been given the business card. Ile said elsewhere in his evidence that at no stage until the commencement of legal proceedings was he aware that there

had ever been a connection between the company and the farsl

Mr. Simon said that when the partnership was conducting the business it periodically received delivery

dockets from the first respondent in one or other of the

trading names used by the partnership; and that, after the

company was incorporated and carried on business, the dockets

were received in the company's name; yet he could produce

sales manager of the first respondent, on the same day that he

spoke to Mr. O'Gorman at the Country Hall at Homebush, and

gave him a business card also and told him that the company

Mr. Boyden swore an affidavit in which he said, amongst other things, that since the beginning of 1968 he had never had any conversation with either of the appellants

or anyone else acting on their behalf relating to the

granting of any credit, and that he dealt with Mr. Simon

ian relation to various purchases of meat on a credit basis, but this was pursuant to a weekly credit arrangement already entered into by Mr, Simon and authorised by Mr. O'Gorman on

behalf of the first respondent. Mr. Boyden was not called

to give oral evidence at the hearing, apparently due to some arrangement between the parties that he need not attend for cross - ~examination as he was away at country sales.

Accordingly, the conversation to which Mr. Simon deposed as having occurred between himself and Mr. Boyden was not denied by Mr. Boyden, the evidence of Mr. Simon

having been given in the course of his cross- - examinat zon.

At one stage during his cross-examination Mr. Simon

said that on the first occasion he saw Mr. O'Gorman, at a time when the business was conducted, on any view of the evidence, by the partnership of himself and his wife, his understanding of the matter was that he personally was being granted credit by the first respondent. He said an eross-examination that he acted on that credit ever since. Wis Honour held that there was no contractual relationship established between the first respondent and the company. His Ilonour accepted that part of Mr. Samon's evidence which I have just referred to about the granting of

credit. He said that there was in his opinion a contractual

relationship between the farst respondent and the appellants.

His Honour's reasons for judgment are brief. He said nothing as to the credit of any witness; but to reach the conclusion he did, he must have accepted Mr. O'Gorman as a truthful witness and rejected Mr, Simon on critical matters. The particular passage from the evidence of Mr. Samon as to the extension of credit which was in terms

adopted by his Honour was, of course, against Mr. Simon's

own interest and could not constitute a general acceptance by his Honour of the credibility and reliability of Mr. Simon.

I have not set out all the relevant evidence bearing on the question of the identity of the party contracting with the first respondent; but there was ample evidence before his Honour to found the conclusion that the contract was with the appellants, given the rejection of the evidence of Mr. Simon, which I have mentioned earlier.

There was evidence of a course of trading by Mr. Simon, as the representative of himself and his wife in partnership, with the first respondents and the granting of credit to them and the continuance of that relationship covering also the period of the company's existence notwith - standang that cheques drawn by the company in reduction of the account with the first respondent were accepted by it from time to time over the period December 1969 to March 1670.

That fact 1s not in itself inconsistent wath/eace of the first respondent.

In my opinion the evidence of Mr. O'Gorman, when read as a whole, amounts to a denial of any conversation with Mr. Simon when the existence of the company and the question of the company taking over the business previously conducted by the partnership was brought to his attentzon, Mr. O'Gorman's evidence 1s in substance that at all times the dealings of the farst respondent were wath the appellants and not with the company.

' His Honour had the advantage of seeing and hearing

the watnesses who gave evidence before him. In my opinion, no ground has been established for interfering with his Honour's decision, the case depending essentially

However, where the matters that fall for aetermination depend on inferences to be drawn from facts which have been found and are no longer in contest or facts that are agreed or otherwise not in dispute, an appellate court 1s 1m as good a position as the trial judge to decide on the proper inferences to be drawn from those facts; but giving respect and weight to the conclusion of the trial judge; see Warren v. Coombes (1979) 53 A.L.JoR. 293 and the cases cited therein.

We were asked to anfer from the fact that cheques were arawn and paid by the company on its account and received by the first respondent over the period December 1969 to March 1970 that the first respondent must be treated as recognising the company as the contracting party. As I have said already those facts are not inconsistent with the case for the first respondent, namely that the proper contracting parties were the appellants. It 1s not uncommon in business for payments to be made by persons other than those vith whom the relevant contract has been made.

I turn to the second question, be1rng the question primarily relied on by the appellants, namely that, on the assumption that the first question 1s answered against them so that the proper contracting party is taken to be the

appellants themselves, nevertheless they 1n fact contracted,

as agents for the company,ithe company being an undisclosed

principal in the sense of a principal whose existence is undasciosed, rather than one whose existence 1s known to

the other party but whose identity 1s not disclosed, The appellants contended that by issuing the default summons

out of the District Court against the company and prosecuting it to judgment, the first respondent 1s barred from suing the appellants. The appellants! case 1s put in the alternative. First, at is said that these acts constitute an unequivocal act of election by the first respondent barring 1t+ from proceeding against the appellants. Alternatively, it 1s said that the same acts gave rise to one cause of action which the first respondent could have pursued against the company or the appellants; but, on recovering judgment against the company, the cause of action was extinguished, I turn first to the argument based on the doctrine of election.

The principles relating to the doctrine of election are expounded by Stephen J. 1n Sargent v.

A.S.L, Developments Limited (1974) 131 C.L.R. 634 at pp. 641 to 648,

For the doctrine of election to operate, there must be both some element of knowledge on the part of the "elector" and words or conduct sufficient to constitute the making of an election as between the two inconsistent rights which he possesses: see Craine v. Colonial Mutual Pare Insurance Co. Ltd. (1920) 28 C.L.R. 305 at p. 326; United Australia Limited v. Barclays Bank Limited 1941 A.C. 1 at p. 30 per Lord Atkin at p. 31.

of the knowledge which the elector must possess, and the

time at which he must possess it, for the doctrine to operate. The authorities have been reluciant to regard the issue of the writ as the relevant time, and genemlly treat the relevant time as being the signing of judgment,

The farst respondent contracted i1uth the appellants, not the company; but it was the company's cheques that were accepted by the first respondent in reduction of the indebtedness of the appellants over the period December 1969 to March 1970. Although the first respondent did not contract with the company, there can be no doubt that by the time the farst respondent's solicitors issued the default summons against the company on 10 March 1970, they did so deliberately asserting a claim that the contracting party was the company. The cause of action expressed in the default summons was the common money count for goods sold and delivered. A credit of $150.00 was given to the company in the default summons, that credit representang a cheque drawn by the company on ats account and paid from that account.

Judgment was signed against the company on 22 Apral 1970.

The instructions for the issue of the default summons were given to the first respondent's solicitors by a Miss

Grace, a senior clerk employed by the First respondent. She

was uncertain as to who should be sued. The first respondent's

solicitor suggested to her that she see who paid the accounts most recently, and her enquiries revealed that this was the company. The summons was then issued against the company. Before this, the solicitor had discussed the question of Liability with Mr. O'Gorman and Miss Grace.

After the issue of the summons there were discussions between the solicitors for the first respondent and the solicitors for the company to resolve the dispute, ancluding discussions as to the possibility of the company executing a charge in favour of the farst respondent to secure the andebtedness.

On 23 March 1970, after the issue of the summons, but before judgment was signed against the company, the first respondent's solicitors wrote to the company's solicitors setting out what, on their instructions, were the terms of an agreement reached between Mr, Simon on behalf of the company and someone on behalf of the first respondent.

In this letter, the solicitors for the first respondent

1970 we have to advise that the summons herein was served upon your client on the 17th of March 1970. It appears that your client reacted ammediately, as Mr. Simon contacted our client

on the following day. On this occasion the partzes discussed the debt herein and came to some agreement as to the manner in which the

debt will be repaid. It was agreed between the parties that:

1. That the Defendant pay our client through thas office a sum of $150.00 monthly. Payments are to be made on or before the

2. That the dofendant will pay a sum of $500.00 into this office in the course of nexi month, apart from the payment mentioned in paragraph
3. above, a sum of $500.00; and

per annum upon the debt herein from the date the debt arose t111 the date that same is

satisfied. Interest will be calculated from the 16th of January 1970. i It is our intention to proceed to sagning Judgement / when the time arises. Your client will, of course, be responsible for our costs and disbursements in this matter. Should your client make default in the payments beforementzoned we will not hesitate in sceking our client's unstructions to proceed to the issuing of winding up proceedings. This should be made perfectly clear to your client," Although the evidence is not entirely clear, it seems that after judgment was signed against the company it proceeded into liquidation; and it was that event which led to the 1ssue of the second default summons on 11 September 1970, this time against the appellants personally. It 1s common ground that the second summons relates to the same goods the subject of the farst summons and claims the same amount of money, notwithstanding that there 1s added to the second summons the common money counts for money lent and accounts stated, It was common ground that nothing turned on the fact that these additional conmon money counts were added, as no money was lent by the farst respondent to the appellants nor vere any accounts stated between the appellants and the first respondent,

Riley J. held that the action brought by the furst respondent against the company was brought under a mis-apprehension and in ignorance of the actual contractual relationship that existed and didnot constitute an election to pursue one of two

Whilst gavang due and careful weight to this finding of his Honour, I have come to the conclusion that at the time the summons was issued by the first respondent against the company on 10 March 1970, the farst respondent had decided to sue the company as being the party with whom it had the relevant contract. In my opinion the knowledge of the solicitors, and thoir acts in and abovt the issue of the first summons, and the signing of judgment must be imputed to the

first respondent atself and it 1s bound by those acts: See

Sargent v. A.S.L. Developments Limited (supra) per Stephen J. at p. 649, In my opinion the act of the first respondent in suing the company and proceeding to sign judgment against it on 22 April 1970 were deliberate and unequivocal acts evidencing an assertion by the first respondent that the company was andebted to 1t, the indebtedness arising out of a contract between them. The right of the first respondent to sue the company could arise only if Mr. Simon was ian truth the agent for the company. The evidence is rather meagre as to the agency of Mr. Simon. The company was incorporated and Mr. Simon was one of the three shareholders. He was also chairman and managing director. The company had a bank account and used the funds in it to pay the first respondent certain of the liabslaties of the appellants.

Notwithstandiug the absence of balance sheets and other documentary evidence verifying the fact that Mr, Samon regarded

the company as the principai in his business dealings, especially

those with the farst respondent, in my opinion the evidence warrants the conclusion that, as between the company and Mr. Simon, he was treated as the company's agent, with the concurrence of his wife as another director of the company. Hence in my opinion, Mr. Simon did contract with the farst

respondent for the company as an undisclosed principal.

I turn to the alternative argument advanced on behalf

Where there 1s one cause of action which a person may pursue in the alternative against more than one person, gudgment recovered against one extinguishes the cause of action. The cause of action merges in the judgment. The position is different where the same facts give rise to more than one cause of action which may be pursued against different persons: see Kendall v. Ham2zlton (1879) 4 App. Cas. 504 esp. per Lord Cairns at pp. 514 and 515; Clarkson Booker Limited v. Andjel (1964) 2Q.B. 775-

This pranciple and the doctrine of election are not the same. In some cases the same facts may give rise to the application of either principle; but the dastanction between

the two must not be elided: see Buckingham v. Trotter (1901)

In my opinion there was but one cause of action which

the first respondent pursued against the company. After judgment was signed against the company, that cause of action merged in the judgment. It could not co-exist

with a cause of action on the same facts against the

For these reasons the appellants have established that the first respondent was barred from suing the appellants and that the sequestration order

In my opinion the appeal should be allowed, the sequestration order of the Federal Court of Bankruptcy made on 14 December 1973 set aside and in l1zeu thereof, the petition should be dismissed. The first respondent should pay the costs of the appellants of the petition ancluding reserved costs, the costs of the proceedings in the High Court (the High Court having ordered that the costs of proceedings in that Court be in the discretion of this court) and the costs of the appeal to this court.

Otherwise there should be no order as to the costs of any