Brookfield v Real Estate Now Pty Ltd

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FEDERAL COURT OF AUSTRALIA

Brookfield v Real Estate Now Pty Ltd [2019] FCA 993

File number: QUD 913 of 2018
Judge: DERRINGTON J
Date of judgment: 27 June 2019
Catchwords: CORPORATIONS – winding up – statutory demand – whether debt disputed – whether issue estoppel arising from earlier bankruptcy proceedings between the same parties – whether application is an abuse of process – application dismissed
Legislation:

Bankruptcy Act 1966 (Cth)

Corporations Act 2001 (Cth), s 459S
Cases cited:

Australian Securities and Investments Commission v Lanepoint Enterprises Pty Ltd (2011) 244 CLR 1

Blair v Curran (1939) 62 CLR 464

Don King Productions Inc v Warren [2000] Ch 291

Gye v McIntyre (unreported, Beaumont J, 26 May 1992; sometimes cited as [1992] FCA 235)

Helstan Securities Ltd v Hertfordshire County Council [1978] 3 All ER 262

In re Vitoria; Ex parte Vitoria [1894] 2 QB 387

King v Henderson [1898] AC 720

Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 AC 85

Makhoul v Barnes (1995) 60 FCR 572

Mooloolaba Development Corp Ltd v Evans Harch Constructions Pty Ltd (1992) 33 FCR 524

National Mutual Life Association of Australasia Ltd v Oasis Developments Pty Ltd [1983] 2 Qd R 441

Owen-Pearse v Lander Land Co Pty Ltd [2018] FCA 2077

Pacific Brands Sport & Leisure Pty Ltd v Underworks Pty Ltd [2006] FCAFC 40

Re Allco Newsteel Pty Ltd (1990) 2 ACSR 609

Re Gasbourne Pty Ltd [1984] VR 801

Re Quatrovision [1982] 1 NSWLR 95

RH Mortgage Corporation Ltd v Kerry Ann Properties Pty Ltd [2011] NSWSC 298

Whyked Pty Ltd v Yahoo Australia and New Zealand Pty Ltd [2006] NSWSC 650

Yates Property Pty Ltd v Boland (2000) 179 ALR 664
Date of hearing: 5 June 2019
Date of last submissions: 19 June 2019
Registry: Queensland
Division: General Division
National Practice Area: Commercial and Corporations
Sub-area: Corporations and Corporate Insolvency
Category: Catchwords
Number of paragraphs: 51
Counsel for the Plaintiff: The plaintiff appeared in person
Counsel for the Defendant: Mr M Martin QC
Solicitor for the Defendant: Mills Oakley

ORDERS

QUD 913 of 2018
BETWEEN:

IAN WALTER BROOKFIELD

Plaintiff
AND:

REAL ESTATE NOW PTY LTD ABN 50 153 307 432

Defendant

JUDGE:

DERRINGTON J

DATE OF ORDER:

27 JUNE 2019

THE COURT ORDERS THAT:

1.The application dated 12 December 2018 is dismissed.

2.Each party bear their own costs of the application.

Note:   Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.


REASONS FOR JUDGMENT

DERRINGTON J:

Introduction

  1. The application before the Court is for the winding up of the company Real Estate Now Pty Ltd.  It is brought by Mr Ian Walter Brookfield who claims to be a creditor of the company as the result of an assignment of rights or benefits under a contract.  The matter has an unfortunate history and involves a significant amount of enmity and animosity between Mr Brookfield on the one hand and Mr Mark Mergard, the director of the company, on the…

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Details
Case
[2019] FCA 993
Decision Date

CaseChat Overview and Summary

Brookfield v Real Estate Now Pty Ltd involved a claim by Mr Brookfield that Real Estate Now Pty Ltd owed him approximately $290,000. This debt arose from an agreement between Real Estate Now Pty Ltd and Blueprop Pty Ltd, where the former agreed to purchase a "rent roll" for $100,650. Although the contract was performed by transferring the rent roll, Mr Brookfield claimed that the purchase price was not paid. Real Estate Now Pty Ltd denied owing the debt and failed to make a timely application to set aside the statutory demand served by Mr Brookfield. The matter was brought before the Court with Mr Brookfield seeking to wind up the company.

The primary legal issue was whether Mr Brookfield was a creditor of the company, given that the indebtedness between the parties had been determined in earlier bankruptcy proceedings. The Court had to decide if the determination in the earlier proceedings created an issue estoppel in the current matter. Additionally, the Court needed to determine whether the application to wind up the company was an abuse of process, considering the ongoing litigious disputation between the parties.

The Court found that the earlier determination by the Federal Circuit Court did not create an issue estoppel because the question before the Federal Circuit Court was whether a sufficient debt was owing at the time of the application, which was not established. The Court also dismissed the allegation of abuse of process, as the application was not brought for the purpose of intimidation or harassment. The Court held that the company had failed to establish the abuse of process it alleged. The winding up application was dismissed because the company was solvent, and the debt was disputed on substantial grounds.

ORDERS:
1. The application dated 12 December 2018 is dismissed.
2. Each party bear their own costs of the application.

Orders

Orders of the court

1. The application dated 12 December 2018 is dismissed.

2. Each party bear their own costs of the application.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

There are two significant features of this matter. The first is that the issue of whether Mr Brookfield is a creditor of the company has been considered and determined in other proceedings although that is now contested by the respondent company. Second, the respondent company denies that it is indebted to Mr Brookfield as he claims, however, it failed to make an application within time to set aside the statutory demand served by Mr Brookfield on it which relied on that asserted indebtedness. Background The genesis of Mr Brookfield’s claimed debt of approximately $290,000 is an agreement apparently entered into between the company and Blueprop Pty Ltd on 6 July 2015. By that agreement the company agreed to purchase a “rent roll” from Blueprop for the sum of $100,650. Although the terms of the sale agreement are poorly worded it seems clear enough that, from the date of contract to the date of completion, Mr Mergard was to take over the existing rent roll and operate it using his licence as a real estate agent. That said, it appears that, until completion, the profits of the rent roll were to remain with or be paid to Blueprop. Relevantly, the contract made provision in respect of the assignment of rights under the contract. Clause 12.5 provided:12.5 AssignmentA party must not assign or permit a third party to obtain the benefit of its rights and interests under this Agreement except with the prior written consent of the other party. Mr Brookfield says that the contract was performed to the extent that the rent roll was transferred to the company but, so he asserts, the purchase price was not paid. It should be acknowledged that Mr Mergard now asserts that he acquired the rent roll under a different agreement to the one identified by Mr Brookfield. On 31 October 2016, a deed of assignment was entered into between Blueprop on the one hand and Mr Brookfield on the other. By that agreement Blueprop purported to assign the debt arising under the sale agreement to Mr Brookfield. It appears that notice of the assignment was given to the company on 31 October 2016. However, the company refused to pay Mr Brookfield any money. This led to both a number of attempts by Mr Brookfield to wind up the company as well as numerous collateral disputes. In an affidavit of Mr Mergard filed 24 April 2019 some of that disputation is evidenced by what appear to be Facebook messages, text messages and emails. Some of those messages or posts seem to refer to another business operated by Mr Mergard and his wife which involves marine passenger operations to Lady Musgrave Island. Mr Brookfield apparently conducts a competing passenger business. Although many of the texts or Facebook posts are not dated, the dates which do appear all seem to show that the relevant conduct occurred between 2015 and early 2017. The relevance of this becomes clearer subsequently in these reasons. On 23 December 2016, Mr Brookfield made an application to wind up the company. That application was dismissed by Reeves J of this Court on 12 September 2017 as a result of defects in Mr Brookfield’s material. The substance of the application was not considered.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

In the result, the circumstances are not such that it can be said that the application was brought for the purpose of intimidation or harassment of the company and Mr Mergard or his wife. It follows that the company has failed to establish the abuse of process it alleged.Conclusion on application for winding up In the result the company has satisfied the Court that, absent the disputed debt, it is solvent and that the debt is disputed by it on substantial grounds. In those circumstances the winding up application should be dismissed: ASIC v Lanepoint; National Mutual Life Association of Australasia Ltd v Oasis Developments Pty Ltd [1983] 2 Qd R 441; Re Allco Newsteel Pty Ltd (1990) 2 ACSR 609 at 613. Costs The company seeks an order for costs in its favour upon the dismissal of the application. Whilst that may not have been inappropriate were the circumstances different, in this case the company is the author of much of its own difficulties. First, the company did not effectively seek to set aside the statutory demand. For that reason it required the leave of the Court to defend the application on the grounds which it did. Had it made the necessary application within time and supported it by appropriate material this hearing would not have been necessary. Secondly, its attitude towards contesting the claimed indebtedness appears to be erratic. There is no doubt that Mr Brookfield considered his success before the Federal Circuit Court as an indication that he had a valid debt of which the company did not really dispute. The company did not explain why it was that it did not adduce relevant material on the hearing of the application for a sequestration order to properly demonstrate that the debt may not have been owing. Third, the parties appear to be involved in ongoing litigious disputation and it is not apparent that the manner in which this application was conducted by the company was not partly designed to or, at least, could have been expected to increase costs. On a number of occasions the matter was adjourned to allow the company to obtain an expert’s report on its solvency. None was forthcoming and all that was produced was an affidavit of Mr Mergard on the day before the hearing in which he inaptly described the company’s financial position. The substance of that affidavit had to be corrected and improved by an affidavit on the day of the hearing. Fourthly, the company failed on a number of its substantial arguments. In those circumstances, the appropriate order is that each party bear their own costs of the application.

Ratio Decidendi

Legal Principle Established

Orders were made for the filing of affidavits and submissions by the parties. By the time the matter came on for hearing several documents had been filed although none of the submissions filed were of any significant assistance in ventilating the relevant issues. ConsiderationWhether Mr Brookfield is a creditor of the company The first question was whether the evidence established that Mr Brookfield was a creditor of the company so as to have standing. This involves a consideration of whether the determination of Judge Jarrett in the Federal Circuit Court created any issue estoppel in relation to these issues. That is, did the determination by his Honour foreclose in these proceedings the question of whether Mr Brookfield was a creditor of Real Estate Now? There is no doubt that an issue which was considered by the Federal Circuit Court when dismissing the application for a sequestration order was the same as that which is now before this Court, namely whether the company owes a debt to Mr Brookfield. There is also no doubt that Judge Jarrett determined, on the evidence before him, that such a debt did exist and that it substantially exceeded the debt claimed by the company. It can be observed that, for some unexplained reason, the company did not really dispute the evidence adduced by Mr Brookfield in the matter before the Federal Circuit Court. It did not suggest, as it does now, that the contract on which Mr Brookfield relies was not that which actually effected the transaction to sell the rent roll and that significant amounts were paid by it in discharge of its obligations to pay the purchase price. Although, prima facie, it appears that the issue of the indebtedness between the parties was one determined by the Federal Circuit Court and, therefore, within the scope of the issue estoppel principle as articulated in decisions such as Blair v Curran (1939) 62 CLR 464, 531-533 and Yates Property Pty Ltd v Boland (2000) 179 ALR 664, 685-688, [72]-[78], it would appear that the decision not to make the sequestration order did not have that effect. The question before the Federal Circuit Court on the application for a sequestration order was whether it was satisfied as at that time a sufficient debt was owing and whether, in the exercise of the Court’s discretion, the sequestration order should be made. This was explained by Beaumont J in Gye v McIntyre (unreported, Beaumont J, 26 May 1992; sometimes cited as [1992] FCA 235). In that case a judge had previously refused to make a sequestration order on the basis that he was not satisfied that a sufficient debt was then due and owing. In subsequent proceedings by the petitioning creditor, the debtor alleged an issue estoppel existed as to the question of indebtedness. His Honour held that no issue estoppel arose because the only question before the first judge was whether there existed a relevant debt at the time of the application and, as that had not been established, the discretion was exercised to refuse to make the sequestration order. His Honour said:Moreover, the dismissal of a creditor’s petition in bankruptcy does not, in any final or conclusive sense, create an estoppel on the issue whether the petitioner’s claim is a good debt (see In Re Vitoria Ex parte Vitoria [1894] 2 QB 387; King v Henderson [1898] AC 720 at 729-30; Dowling v Colonial Mutual Life Assurance Society Ltd (1915) 20 CLR 509 per Isaacs J at 518-9). As Isaacs J pointed out in Dowling, whatever be the position at common law, a bankruptcy court, as a court of equity, has a discretion to look behind a judgment in a proper case “even if the existence of the debt as a matter of law may be undoubted and unchallengeable” (see also Wren v Mahoney (1972) 126 CLR 212 per Barwick CJ at 224-5).Put differently, there is no issue estoppel here because the present question is not the same question as that before Einfeld J (see O’Donel v The Commissioner for Road Transport and Tramways (NSW) (1938) 59 CLR 744; Lizzio v Ryde Municipal Council (1983) 155 CLR 211 per Deane J at 232; Marr (Contracting) Pty Limited v White Constructions (ACT) Pty Limited, Neaves, Beaumont and Burchett JJ, 15 November 1991, unreported). Nor, in my view, can it be appropriate here to apply any Henderson extension of the issue estoppel principles. In the Bankruptcy Court, the question for determination, depending on a finding of insolvency, actually inferred or assumed, is whether the Court, in its discretion, will make a sequestration order. If the Bankruptcy Court declines to exercise that discretion, it does not follow that the Court has finally determined that no debt actually exists. That is a different question.