A & J Morphett Nominees Pty Ltd v JBT Lawyers Pty Ltd
[2022] VSC 238
•17 May 2022 (delivered ex tempore)
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
JUDICIAL REVIEW AND APPEALS LIST
S ECI 2021 03062
| A & J MORPHETT NOMINEES PTY LTD (ACN 071 770 477) | Appellant |
| v | |
| JBT LAWYERS PTY LTD (ACN 135 848 181) | First Respondent |
| MAGISTRATES' COURT OF VICTORIA | Second Respondent |
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JUDGE: | John Dixon J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 17 May 2022 |
DATE OF JUDGMENT: | 17 May 2022 (delivered ex tempore) |
CASE MAY BE CITED AS: | A & J Morphett Nominees Pty Ltd v JBT Lawyers Pty Ltd & Anor |
MEDIUM NEUTRAL CITATION: | [2022] VSC 238 |
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AGENCY – Stakeholder – Where deposit held by solicitor as stakeholder on behalf of both parties to sale transaction – Where stakeholder failed to refund deposit to purchaser who validly terminated the contract prior to completion and did not interplead – Interest to be awarded from date refund of deposit lawfully demanded.
JUDICIAL REVIEW AND APPEALS – Appeal of Magistrates’ Court decision – Where Magistrate erred by misconstruing meaning and effect of Family Court order – Magistrates’ Court Act 1989 (Vic) s 109.
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APPEARANCES: | Counsel | Solicitors |
| For the Appellant | Mr N Bird, of counsel | Taylor Splatt & Partners |
| For the First Respondent | JBT Lawyers Pty Ltd |
TABLE OF CONTENTS
Background......................................................................................................................................... 1
Grounds of appeal............................................................................................................................. 3
The magistrate’s reasoning.............................................................................................................. 4
Resolution of the appeal................................................................................................................... 5
Interest and costs................................................................................................................................ 8
HIS HONOUR:
Background
On 26 July 2021, a magistrate dismissed the appellant’s claim against the first respondent (‘respondent’)[1] and made no order as to costs.
[1]The second respondent, the Magistrates’ Court of Victoria, filed a notice to abide the decision.
Pursuant to s 109 of the Magistrates’ Court Act 1989 (Vic), the appellant seeks orders that the Magistrates’ Court judgment be set aside, a declaration that the respondent held certain monies as stakeholder or trustee for the appellant, an order that the respondent forthwith return the monies to the appellant and an order that the respondent pay the appellant’s costs both of the appeal and of the proceeding in the Magistrates’ Court.
The proceeding below was brought by the appellant, A & J Morphett Nominees Pty Ltd, as plaintiff, against Chloe Estelle Pty Ltd, as first defendant, and the respondent, JBT Lawyers Pty Ltd, as second defendant. The dispute concerned a contract for the sale by Chloe Estelle Pty Ltd, as vendor, of a business to the appellant. In respect of that transaction, the respondent acted as the solicitors for the vendor to whom the appellant paid a deposit of $42,000 as required by the contract. It has never been in dispute that the respondent received that sum as a stakeholder for the appellant and Chloe Estelle Pty Ltd.
The appellant and Chloe Estelle Pty Ltd entered into the contract on 26 November 2018, and the appellant paid the deposit to the respondent on 6 December 2018. On 21 March 2019, the appellant by written notice terminated the contract and requested that the respondent repay the deposit to it.
On 29 March 2019, the Federal Circuit Court made an order in another proceeding between different parties that became relevant and that I will come to shortly.
On 15 May 2019, on the failure of the respondent to do so, the appellant commenced the subject proceeding in the Magistrates’ Court at Frankston. By its defence in that proceeding, the respondent admitted that it received the deposit sum as a stakeholder as alleged by the appellant. The claim before the magistrate included a claim against the respondent that it pay to the appellant interest on the sum of $42,000.
On 24 June 2019, the appellant entered default judgment in the proceeding against Chloe Estelle Pty Ltd, which included an amount for interest and costs. However, the appellant did not recover on that judgment as Chloe Estelle Pty Ltd was insolvent. On behalf of Chloe Estelle Pty Ltd, the respondent filed an application for a rehearing on 15 July 2019, but on 18 July 2019, an administrator was appointed to Chloe Estelle Pty Ltd, effectively terminating that application. It was subsequently ordered to be wound up. The liquidators made no claim for the deposit.
The respondent apparently took the view that it was prohibited from returning the deposit to the appellant by the operation of an order made by Judge Small on 29 March 2019 in the Federal Circuit Court in the matter of a family law dispute to which Christopher Fitzpatrick was a party.
The order relevantly stated that:
[JBT Lawyers Pty Ltd] be and are hereby restrained from dealing with or disbursing any monies held on behalf of [Christopher Fitzpatrick] as a result of … the sale or attempted sale of the business without the written agreement of the parties first having been obtained or pursuant to an Order of a Court.
Christopher Fitzpatrick was then a director of Chloe Estelle Pty Ltd and the order refers to the sale of the business to the appellant. It appears that each of Mr Fitzpatrick and Chloe Estelle Pty Ltd retained JBT Lawyers to represent them in their respective legal transactions.
On 24 July 2019, the respondent stated its intention to pay the sum of $42,000 into the Magistrates Court if the solicitors for the wife consented to that course. The letter stated:
We confirm that we hold the deposit for the sale of the business which did not occur in the sum of $42,000 as Stakeholder and not on behalf of Christopher Fitzpatrick, and to be clear as Stakeholder between the Vendor, Chloe Estelle Pty Ltd, and the Vendor, A & J Morphett Nominees Pty Ltd, the Purchaser.
…
We propose to pay the monies into the Magistrates’ Court. Please confirm your clients consent to same by way of return letter or email by close of business Thursday 25 July 2019.
The respondent thereafter refused to return the deposit to the appellant, resulting in the contested hearing on 4 June 2021. At the hearing, the appellant argued that by virtue of the default judgment against Chloe Estelle Pty Ltd, the respondent is no longer holding the deposit on behalf of Mr Fitzpatrick, and hence is not constrained by Judge Small’s order.
The magistrate reserved his judgment and, before he handed it down on 26 July 2021, the appellant’s solicitors established that the proceeding between Mr Fitzpatrick and his wife had been finalised in the Family Court of Australia. The solicitor filed an affidavit with the Magistrates’ Court deposing to these matters. The appellant accordingly argued, in the alternative, that because the Family Court proceedings have concluded, even if Judge Small’s order still constrained the respondent, such order has been discharged by the finalisation of the family proceeding.
The magistrate nevertheless dismissed the appellant’s claim.
Grounds of appeal
The appellant raised four grounds of appeal. The learned magistrate erred—
(a) by failing to find that the respondent held the deposit monies as stakeholder or trustee for the appellant;
(b) by failing to order the respondent to return the deposit monies to the appellant;
(c) to the extent that he considered the preceding order precluded him from finding that the respondent held the deposit monies for the appellant as stakeholder or trustee, or from ordering the respondent to return them; and
(d) in those circumstances by making no order as to costs.
The appellant contended that the appeal raised four questions of law, being whether:
(a) the orders of the learned magistrate ought be set aside;
(b) The court ought to declare that the respondent held the deposit monies as stakeholder or trustee for the appellant;
(c) the respondent ought forthwith to return the deposit monies to the appellant; and
(d) the respondent ought to pay the appellant’s costs, both of the appeal and of the proceeding below, on a standard basis to be taxed in default of agreement.
The magistrate’s reasoning
In his reasons, the magistrate first noted that the proceeding against Chloe Estelle Pty Ltd was determined by the entry of a default judgment and that he was only concerned with the claim made against the respondent. The magistrate then noted some of the background facts, already stated, and dealt with some procedural issues including permitting into evidence correspondence from the Family Court of Australia. The magistrate then recorded that the respondent’s defence was that although he offered to pay the deposit into court, he was restrained from doing so by Judge Small’s order made on 29 March 2019. The magistrate noted that the appellant had served notice on Chloe Estelle Pty Ltd that the contract was terminated and requested a refund of the deposit money on 21 March 2019 prior to Judge Small’s order.
The magistrate found that at that time Judge Small made the order, there was a live dispute between the appellant and Chloe Estelle Pty Ltd about the sale of the business and the fate of the deposit was contested. The magistrate concluded that Judge Small was seeking to prevent any dealing with monies that the wife may be entitled to and to prevent the husband, Mr Fitzpatrick, from engineering or manipulating an outcome that might see the wife deprived of money that she could have been entitled to a share of. Accordingly, he concluded the order was intended to preserve the status quo until the division of matrimonial property was resolved.
The magistrate reasoned that the respondent was obligated to hold the deposit unless there was an agreement between the husband and wife or there was a court order that allowed for it to be disbursed. As neither of these conditions had been fulfilled, the order remained binding and operative and the magistrate considered the letter from the Associate to the Family Court Judge stating that the proceeding had concluded to be inconclusive as to whether the division of matrimonial property was resolved.
On this basis the magistrate ruled that he could not be satisfied on the balance of probabilities that the respondent had acted unlawfully or in breach of trust, or that it had been unjustly enriched.
Resolution of the appeal
I am satisfied that the magistrate fell into error in a number of respects.
First, he misconstrued the terms upon which the respondent held the deposit. The respondent never asserted any interest in the deposit itself, admitting that it held the deposit as stakeholder pending the completion or other termination of the contract between the appellant and Chloe Estelle Pty Ltd. The parties with an interest in the stake were the appellant and Chloe Estelle Pty Ltd.
The uncontested evidence before the magistrate was that the appellant had lawfully terminated that contract and that the liquidators of Chloe Estelle Pty Ltd made no claim to its return. The only party with any claim to the deposit was the appellant.
There was no basis to find that Mr Fitzpatrick had any claim to the deposit. None was advanced by the respondent. In oral submissions, the respondent contended that Chloe Estelle Pty Ltd was a trustee of a trust of which Mr Fitzpatrick was a beneficiary. While there was possibly some evidence of that trust before the Federal Circuit Court, I cannot say for want of evidence, the magistrate made no finding about such matters and I am not in a position to do so. There was no evidence to suggest that Chloe Estelle Pty Ltd was itself likely to take any steps to disburse those funds to Mr Fitzpatrick had it received the stake. But in any event, all of this is of no moment, because it was clear that Chloe Estelle Pty Ltd was not entitled to receive the moneys under the stake.
In such circumstances the respondent, as stakeholder, was required to pay the deposit to the appellant. From no later than 24 June 2019, it was clear that Chloe Estelle Pty Ltd could not, or did not, maintain any claim to the deposit. It was not shown that it ever had any basis to do so.
It is well established that the applicable principle is that a deposit under a contract of sale is held by a stakeholder to abide the outcome of the contract. If completion occurs it becomes the property of the vendor as part of the purchase price. If completion does not occur for reasons other than the default of the purchaser, it is refunded to the purchaser. If there is any dispute as to whether the circumstances that determine how the stakeholder is to deal with the deposit, the stakeholder will generally either interplead and pay the money into court or retain the money on trust pending an order of the court charged with resolving the dispute between the parties to the contract.[2]
[2]See, eg, Salvo v New Tel Ltd [2005] NSWCA 281, [79]; Dal Pont, Law of Agency, LexisNexis, [2.16]-[2.18].
A second error was that it is implicit in the magistrate’s reasons that he considered that the respondent held the deposit for Mr Fitzpatrick, or at least that Judge Small’s order should be understood so as to apply regardless of whether the deposit was held for Mr Fitzpatrick. In so doing, the magistrate was attempting to second guess Judge Small’s intention rather than objectively assessing the outcome of the sale dispute on the evidence and the express text of the order. This was clearly an error as Mr Fitzpatrick, as I have noted, had no entitlement to the deposit and the magistrate ignored the clear and unambiguous meaning of the restraining order.
When construing Judge Small’s order, its expressed terms only restrained dealings by the respondent with ‘monies held on behalf of the husband’. Although the order refers to the ‘sale or attempted sale of the business’, Mr Fitzpatrick was not a party to that sale transaction and did not have any contractual or other entitlement to the deposit. There was no basis for the respondent to contend that it held ‘monies on behalf of the husband’. It did not do so and the respondent knew that. It admitted that it was a stakeholder in respect of a contract by its defence holding the deposit moneys for the parties to the contract and made the point again to the solicitors for the wife in the letter of 24 July 2019 set out above. The order was, on its express terms, inapplicable to restrain the respondent from dealing with his obligations as stakeholder of the deposit, notwithstanding the reference in the order to the sale of a business.
This error was evident when the magistrate stated:
In my view it cannot be said nor assumed, once the Family Court proceeding had concluded, that there no longer exists any court order restricting the ability to deal with or disburse the deposit. It may be that such restriction continues; that the Family Court orders continued such restriction pending the implementation of final property orders. (emphasis added)
This passage reveals a further error in the magistrates’ reasoning. His concentration on whether final orders had been made in the Family Court proceeding in respect of a property division was misplaced because the relevant restraining order permitted the respondent to deal with monies held on behalf of the husband (assuming contrary to the fact that the deposit fitted this description) pursuant to an order of a court. In reality, Judge Small’s order was entirely irrelevant. The magistrate was a court and was not constrained from dealing with the deposit (assuming Mr Fitzpatrick was entitled to it) when it was unambiguously clear that the deposit was to be returned to the appellant. The respondent’s contention that the order referred to a ‘Court’ rather than a ‘court’ and thereby excluded the magistrate was misconceived.
Returning to the questions of law set out above, the answers are as follows:
(a) Question 1 – yes;
(b) Question 2 – yes;
(c) Question 3 – yes;
(d) Question 4 – yes.
Accordingly, I will set aside the judgment of the magistrate on 26 July 2021 in the proceeding below. I will declare that the respondent held the deposit monies as stakeholder and became obliged on and from 21 March 2019 to forthwith return the deposit monies to the appellant.
Interest and costs
By reason of the dismissal of the proceeding by the magistrate, the appellant’s claim for interest was not determined. The appellant lawfully demanded the return of the deposit on 21 March 2019 and the respondent has not established that there was any lawful basis for it to deny that request. Even had it anticipated a dispute between vendor and purchaser over the entitlement to the deposit, such anticipation had evaporated by 24 June 2019. That said, there was no evidence of any such anticipation before the magistrate. The appellant has been held out of these funds since 21 March 2019 without justification. Further, although the respondent admitted in the proceeding below that it held the deposit as stakeholder, it took an active position before the magistrate, raising the issue of Judge Small’s order and contending that it was not obliged to repay the deposit for reasons that it has been unable to justify.
I am satisfied that the appellant is entitled to interest pursuant to s 58 of the Supreme Court Act 1986 (Vic) on the sum of $42,000 from 21 March 2019 at the rate affixed under s 2 of the Penalty Interest Rates Act 1983 (Vic), and I will so order. I invite the appellant’s counsel to submit a note as to the calculation of the sum of interest to be awarded.
The appellant assessed the costs of the proceeding before the magistrate calculated in accordance with the scale of costs prescribed by the Magistrates’ Court General Civil Procedure Rules 2020 (Vic) at $25,041. I will order that the respondent pay the costs of the proceeding before the magistrate fixed in that sum and that it pay the costs of the appeal on a standard basis.
I will grant an indemnity certificate to the respondent in respect of those costs, pursuant to s 4 of the Appeal Costs Act 1998 (Vic).
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