Bakamovic v Investec Bank (Australia) Limited
[2008] FMCA 1513
•14 November 2008
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| BAKAMOVIC v INVESTEC BANK (AUSTRALIA) LIMITED | [2008] FMCA 1513 |
| BANKRUPTCY – Bankruptcy notice – application to set aside – stay on execution of judgment – whether agreement allowing a stay to be obtained – terms of settlement giving mortgagee the judgment debt and possession of security properties – whether mortgagee bound to realise security before executing generally – no actual or implied term established – application dismissed. |
| Bankruptcy Act 1966 (Cth), ss.40(1)(g), 41(3)(b) Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth) Real Property Act 1900 (NSW), s.57(2)(b) |
| BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 52 ALJR 20 Byrne v Australian Airlines Ltd (1995) 185 CLR 410 China & South Sea Bank Ltd v Tan [1990] 1 AC 536 Codelfa Construction Proprietary Limited v State Rail Authority of New South Wales (1982) 149 CLR 337 Commissioner of Taxation v Hadidi (1994) 51 FCR 453 Hawkins v Clayton (1988) 164 CLR 539 Kleinwort Benson Australia Ltd v Crowl (1988) 165 CLR 71 Omlaw Pty Ltd v Delahunty [1995] 2 Qd R 389 Re McCann [1985] 2 Qd R 381 |
| Applicant: | AHMET BAKAMOVIC |
| Respondent: | INVESTEC BANK (AUSTRALIA) LIMITED ACN 071 292 594 |
| File Number: | SYG 2644 of 2008 |
| Judgment of: | Smith FM |
| Hearing date: | 4 November 2008 |
| Delivered at: | Sydney |
| Delivered on: | 14 November 2008 |
REPRESENTATION
| Counsel for the Applicant: | Mr P Cook |
| Solicitors for the Applicant: | KP Lawyers & Barristers |
| Counsel for the Respondent: | Ms K Britton |
| Solicitors for the Respondent: | Gadens Lawyers |
ORDERS
The application is dismissed.
The applicant must pay the costs of the respondent, including reserved costs, as agreed or taxed pursuant to the Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth).
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG 2644 of 2008
| AHMET BAKAMOVIC |
Applicant
And
| INVESTEC BANK (AUSTRALIA) LIMITED ACN 071 292 594 |
Respondent
REASONS FOR JUDGMENT
This is an application to set aside bankruptcy notice NN 3189 of 2008, which Mr Bakamovic admits was served on him on 2 October 2008. The notice claimed that he owed the respondent Bank a debt of $9,491,222.46 at the date that it was applied for and issued, which was 28 August 2008. The Schedule to the notice claimed that this was the balance under a judgment debt for $12,693,037.29 plus interest, after deduction of $3,800,000.00 which was paid subsequent to the entry of judgment. The judgment was entered with Mr Bakamovic’s consent in the Supreme Court of NSW on 26 February 2008 in proceedings 15075 of 2007.
Mr Bakamovic does not dispute that he owes the claimed amount to the Bank under the judgment debt, but he contends that the bankruptcy notice is invalid because it was issued in contravention of s.41(3)(b) of the Bankruptcy Act 1966 (Cth). This directs that a bankruptcy notice “shall not be issued in relation to a debtor … if, at the time of the application for the issue of the bankruptcy notice, execution of a judgment or order to which it relates has been stayed”. The direction reflects a requirement of s.40(1)(g), that a bankruptcy notice must rely upon a judgment “being a judgment or order the execution of which has not been stayed”.
The Supreme Court judgment contains 5 orders which give effect to short minutes of orders signed by Mr Bakamovic’s solicitor. Paragraphs 1 and 2 gave the Bank possession, and leave to issue a writ of possession, in respect of properties which are identified as units 1 to 13 at 89 Queenscliff Road, Queenscliff NSW. Paragraph 5 imposed a brief stay on the judgment for possession in relation to “only” four of the identified units until 5pm on 26 February 2008. The evidence suggests that this stay was agreed by the Bank to allow Mr Bakamovic to complete sales of these units, to enable him to pay $3.8m towards the judgment debt. This payment was subsequently acknowledged in the bankruptcy notice.
Paragraphs 3 and 4 of the short minutes signed by Mr Bakamovic’s solicitor on 22 February 2008 provided:
3.the defendant pay to the plaintiff $12,693,037.29 being the amount owing to the plaintiff by the defendant under the Facility as at 11 January 2008;
4.interest and costs to accrue post 11 January 2008 in accordance with the terms of the Facility;
The short minutes do not explain “the Facility”, and the terms of the financing agreements between Mr Bakamovic and the Bank, including the terms under which the Bank was given security over the Queenscliff units, are not in evidence before me.
The certified judgment entered on 26 February 2008 repeats the wording of the orders in the short minutes, except that in order 4 the words “in accordance with the terms of the Facility” are struck out and there is handwritten: “up to the date of Judgment pursuant to s.100 of the Civil Procedure Act 2005”. This change is not explained in the evidence before me, and no point is now taken in relation to it by Mr Bakamovic.
Mr Bakamovic does not dispute that order 3 contained no qualification, condition or stay on its enforcement in its terms. Nor does he claim that he ever obtained a stay on execution by order of any court. However, he submits that at the date of the issue of the bankruptcy notice “there exist(ed) circumstances under which the Court would, if applied to, prevent the issue of execution”, relying on authorities cited in Commissioner of Taxation v Hadidi (1994) 51 FCR 453 at 463. The circumstances allowing him to obtain a stay on execution, he submits, arose from the terms of his agreement with the Bank pursuant to which he consented to the Supreme Court judgment.
In effect, he submits that it was an expressed or implied term of his agreement to incur the unqualified judgment debt, that the Bank would not take any steps to execute or otherwise enforce the judgment debt until after the Bank had exercised its rights of sale as mortgagee in possession of the properties, and had done so in accordance with promises which were made to him in an offer to settle made by the Bank’s solicitor in a facsimile letter dated 22 February 2008 (“the Bank’s offer”). The offer was in the following terms:
Investec Bank (Australia) Limited ats Ahmet Bakamovic
Supreme Court of New South Wales Proceedings No. 5348 of 2007 (Notice Proceedings)
Investec Bank (Australia) Limited ats Ahmet Bakamovic
Supreme Court of New South Wales Proceedings No. 15075 of 2007 (Possession Proceedings)
Property: Units 1 to 13, 89 Queenscliff Road, Queenscliff NSW
We refer to your email of yesterday containing a counter offer. We are instructed to make the following counter offer time being of the essence.
Offer
1.Judgment for possession and the outstanding debt be entered in favour of our client in the Possession Proceedings and leave to file for a writ of possession.
2.The Cross Claim filed in the Possession Proceedings be dismissed with no order as to costs.
3.Enforcement of the execution of the writ of possession for units 3, 4, 5 and 10 be stayed until 26 February 2008 to allow your client the opportunity to obtain a discharge over the titles for these units in exchange for a payment of $3.8 million by 26 February 2008 in reduction of the outstanding debt.
4.Your client to release our client in relation to all claims concerning the subject loan, the development and both sets of proceedings on terms satisfactory to our client at the time judgment is entered in the Possession Proceedings.
5.The Notice Proceedings be dismissed with no order as to costs.
6.Your client to refrain from occupying any of the units that comprise the Property and are the subject of our client’s mortgage until the outstanding debt has been repaid.
7.Our client to have complete control and discretion with respect to marketing the units within the Property that remain subject to our client’s mortgage, including but not limited to appointing the agent/s to sell the Property, making any necessary improvements to the Property prior to sale and setting reserve prices for units within the Property.
8.Our client to receive all rents payable in respect of the units within the Property that remain subject to our client’s mortgage until its debt is repaid.
9.Our client at its discretion may tenant any of the units within the Property that remain subject to our client’s mortgagee until its debt is repaid.
10.Your client not to impede or frustrate the sale process in any way whatsoever.
11.Provided your client complies with the above conditions our client will refrain from exchanging contracts for the sale of unit 12 within the Property until:
(a) the remaining units have been sold; or
(b) 31 December 2008,
whichever occurs earlier.
Sale of Unit 12
The purpose of the term contained in paragraph 11 is to provide your client with the opportunity to obtain a discharge of our client’s mortgage over unit 12 at the end of the sale process and upon repayment of the outstanding debt. This effectively affords your client the option to purchase this unit – with the purchase price being the remaining debt (if any) secured against unit 12 at the end of the sale process for the other units.
Other matters
Should the offer be acceptable we propose to:
A.incorporate paragraphs 1 to 3 (inclusive) into Terms of Settlement to be filed in the Possession Proceedings;
B.file a notice of discontinuance with no order as to costs in the Notice Proceedings (re term 5); and
C.prepare a Deed of Release for the purpose of giving effect to the condition set out in paragraph 4.
We note that you have scheduled a settlement for 2pm today for units 3, 4, 5, and 10. Please confirm that the settlement is to happen at our offices on L 12, 77 Castlereagh Street. It is a further condition of this offer that at settlement your client must provide signed copies of the documents referred to in A, B and C above. Our client is not obliged to proceed with settlement unless these documents have been signed by or on behalf of your client to our client’s satisfaction.
Please forward to us your sealed notices of appearance in both the Possession Proceedings and the Notice Proceedings.
This offer remains open for acceptance until 2:30pm today. Thereafter it lapses.
The evidence gives little insight into the surrounding circumstances which explain the events, litigation and negotiations leading to this offer and the entry of judgment. Mr Bakamovic’s affidavit states that “the settlement … was in accordance with” an undated deed of release signed by him. The deed recites the Bank’s proceedings “for possession and debt”, and Mr Bakamovic’s separate proceedings “in relation to a notice” issued by the Bank under s.57(2)(b) of the Real Property Act 1900 (NSW). It recites that “the parties have agreed to resolve the disputes between them on the terms set out” in the Bank’s facsimile offer which I have extracted above, and that the deed “gives effect to” the required release of the Bank. The operative parts of the deed contain such releases, and nothing more.
The deed, like the short minutes of consent orders, provides no evidentiary support for the alleged agreement by the Bank conditioning its rights to execute on its judgment debt. Nor, in my opinion, do the surrounding ‘matrix of facts’, in so far as they are implicit in the terms of the Bank’s offer and the other evidence bearing on the situation between the parties at the time of the settlement negotiations.
I am invited to infer or assume, and this was not disputed by the Bank, that the judgment debt represented borrowings which were secured by mortgages over the properties for which the Bank was given possession, and that it took possession of the properties subject to the normal obligations to Mr Bakamovic of a mortgagee in possession with a power of sale. These would include duties of care and accounting in relation to the receipt of rents and the realisation of the properties for the payment of the judgment debt and other secured debts owing to the Bank. However, it was not submitted to me by Mr Bakamovic that the bare circumstances of a mortgagee in possession with a power of sale gave rise to an implied agreement to stay execution in relation to any concurrently obtained judgment debt for the monies secured. On general principles, a secured creditor has a discretion which of its remedies to pursue and may pursue several remedies concurrently, including by issuing a bankruptcy notice (see China & South Sea Bank Ltd v Tan [1990] 1 AC 536 at 545, Omlaw Pty Ltd v Delahunty [1995] 2 Qd R 389 at 393, and Re McCann [1985] 2 Qd R 381). I understood Mr Bakamovic’s counsel to concede that an implied stay would not normally arise from consent orders of the present type, nor from the background circumstances suggested in the evidence before me, absent any actual agreement of the parties at the time of settlement.
Assuming that subsequent events are admissible to assist an understanding of the parties’ agreement, I do not consider that the evidence of events between February 2008 and the date of the issue of the bankruptcy notice assists Mr Bakamovic’s case. This evidence is extremely limited, and consists of unchallenged statements in his affidavit, which confirmed that the Bank did take possession of the units, that he paid “the refinancing” sum of $3.8m, and that the Bank “did not start marketing the units until 3 October, 2008”. However, I cannot see that these facts necessarily evidence an agreement by the Bank not to execute under its judgment debt until after all the units had been sold or before 31 December 2008.
Turning to consider the terms of the Bank’s offer, I am unable to find in it any such express promise, and I am left unpersuaded that the parties should be found to have implicitly intended that the Bank would be in any manner precluded from executing on its judgment debt.
The Bank’s offer in paragraph 1, that there be “judgment for … the outstanding debt be entered in favour of our client”, contains no qualification in relation to the Bank’s rights to execute upon property other than the secured properties. Nor do paragraphs 2, 3, 4 and 5 suggest any such qualification, but, rather, suggest the contrary. It is clear that they are directed to spelling out all the orders in the two proceedings which are being offered to finalise both matters. The offer expressly directs attention to what stays are being offered, and these are limited to a defined short stay on execution for the writ of possession in respect of four of the units. To emphasise the limited stay, the word “only” was included in paragraph 5 of the ensuing minutes of order. In this context, it might have been expected that an expressed offer of an order staying execution on the judgment would have been made, if the Bank intended to bind itself in that respect.
Paragraphs 6, 7, 8, 9 and 10 of the offer provide no support for the contended agreement. They address only the exercise by the Bank of its powers as mortgagee in possession, and say nothing about other rights of enforcement of the judgment debt. Even in relation to the Bank’s possession of the properties, these paragraphs appear intended to confirm, rather than to confine, the Bank’s unimpeded discretion as to the manner in which it would pursue payment of its judgment debt. In their terms, the Bank was not confined either to selling the units or to exploiting them for rent. The offer was for the Bank to have both “complete control and discretion with respect to marketing the units within the Property that remain subject to our client’s mortgage”, and also “at its discretion may tenant any of the units … until its debt is repaid”. In my opinion, the provisions recognising the Bank’s discretions as to possible recoupment of the debt by inconsistent remedies in relation to the security, also point against it intending to confine itself to either of those discretions when seeking recovery of its judgment debt, whether temporarily or permanently.
The only paragraph in the Bank’s offer which suggests any restrictive intention as to its enforcement remedies is paragraph 11, and its explanation under the heading “Sale of Unit 12”. In its terms, the offered restraint concerned the exercise of the Bank’s powers of sale and no other possible enforcement measure. Its apparent purpose was only to preserve unit 12 in Mr Bakamovic’s ownership until “the end of the sale process for the other units”, if that occurred before 31 December 2008. This purpose would, obviously, also be achieved if the Bank was able to recover its debt in full from other property owned by Mr Bakamovic or other sources, without exercising its power of sale over unit 12. In its expressed terms, therefore, the offer in paragraph 11 did not address nor qualify any of the Bank’s other options for recovering its judgment debt at any time by means other than the exercise of its power of sale over unit 12.
Notwithstanding the absence of any express agreement to stay the Bank’s general rights of execution for the judgment debt against all other property owned by Mr Bakamovic, Mr Bakamovic submitted that this was implicit in the Bank’s offer to “refrain from” selling unit 12 until “the remaining units have been sold” or 31 December 2008. He argued that the Bank’s offer overall provided a ‘mechanism’ for it to recover its debt fully by selling the identified units and, while in that process, also to apply rents in reduction of the debt. He argued that this mechanism implied that no other methods of recovery would be pursued before 31 December 2008. Mr Bakamovic’s obligation to pay in accordance with the judgment was therefore “suspended or qualified” by the terms of the Bank’s offer which was accepted by him (citing Kleinwort Benson Australia Ltd v Crowl (1988) 165 CLR 71 at 79).
I have above pointed to several reasons why I would not draw this conclusion. Mr Bakamovic has not tendered any evidence of surrounding facts which make it likely that the Bank would have intended to confine its options for recovery of its debt, otherwise than in respect of the timing of its possible sale of unit 12. No evidence of the Bank’s valuations of the properties is tendered to show that in February 2008 there was any likelihood that the debt would be fully recovered by the Bank itself ‘marketing’ the other units before 31 December 2008. No evidence of negotiations was tendered to show that this was a common expectation of the parties, or to establish that the persons who negotiated the settlement on behalf of the Bank represented that they had that expectation. On the bald circumstances shown in the evidence before me, it appears unlikely to me that the Bank would have had any intention to give away its options of general enforcement against Mr Bakamovic without making this intention clear in the terms of its offer.
As I have indicated, the terms of the offer themselves suggest that the Bank kept open almost all its options for recovery of the judgment debt. I do not accept the submission that the Bank bound itself to pursue marketing of the units according to any timetable, other than by the negative promise not to sell unit 12 before 31 December 2008. On my reading of its offer, the Bank retained for itself a ‘complete discretion’ as to how and whether it would exercise its powers as mortgagee in possession when seeking to recover its debt from Mr Bakamovic. In my opinion, if the parties had intended that the Bank would be confined in the manner argued, then they would have addressed this matter in their relevant correspondence and, importantly, in a stay order in their agreed short minutes of orders.
Applying the established principles for the implication of terms in a contract, I am far from satisfied that the suggested agreement was “necessary to give business efficacy to the contract”, or “so obvious that ‘it goes without saying’”, or not in contradiction with the terms of the Bank’s offer which implied that it would retain a general discretion as to its avenues for recovery other than in respect of unit 12 (applying tests summarised in BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 52 ALJR 20 at 26, cited in Codelfa Construction Proprietary Limited v State Rail Authority of New South Wales (1982) 149 CLR 337 at 347). I am not satisfied that the implication of this term was “necessary for the reasonable or effective operation of a contract of [this] nature in the circumstances of the case” (applying the formulation of Deane J in Hawkins v Clayton (1988) 164 CLR 539 at 573, which was applied in Byrne v Australian Airlines Ltd (1995) 185 CLR 410 at 422).
I therefore do not accept the ground for setting aside the bankruptcy notice which was argued by Mr Bakamovic. I note that he abandoned all the other points which had been raised in his written submissions. I must therefore dismiss the application.
I certify that the preceding twenty‑one (21) paragraphs are a true copy of the reasons for judgment of Smith FM
Associate: Lilian Khaw
Date: 14 November 2008
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