Farrell v Gray

[2009] NSWSC 1297

CITATION:	Farrell v Gray [2009] NSWSC 1297
HEARING DATE(S):	3 October 2008, 11 and 25 November 2008, 16 July 2009 and 13 November 2009
JUDGMENT DATE :	30 November 2009
JUDGMENT OF:	Smart AJ
DECISION:	Judgment for Plaintiff, including interest Order for costs No Order made on s 37A Conveyancing Act claim First Defendant adjudged guilty of contempt of court Motion against Second Defendant for contempt of court dismissed See paragraph 87 for detailed orders.
CATCHWORDS:	Entitlement to costs orders against first defendant to partnership proceedings - s37A Conveyancing Act claim - intent to defraud by first defendant, first and second defendants acting together - subsequent mortgages registered not vulnerable to attack - inability to grant useful relief - case not adequately pleaded - contempt of court established as against first defendant but not second defendant
LEGISLATION CITED:	Civil Procedure Act 2005 Conveyancing Act 1919 Real Property Act 1900 Supreme Court Act 1970 Uniform Civil Procedure Rules
CATEGORY:	Principal judgment
CASES CITED:	Bartels v Behm & Anor (1990) 19 NSWLR 257 Behm v Bartels (1988) 14 NSWLR 432 Cardile v LED Builders Pty Ltd (1999) 198 CLR 380 O'Halloran v RT Thomas & Family Pty Ltd (1998) 45 NSWLR 262 Pheeney v Doolan (1977) 1 NSWLR 601 Silvera v Savic (1999) 46 NSWLR 124 Target Holdings Ltd v Redferns [1996] 1 AC 421
PARTIES:	Gavin Edward Farrell (Plaintiff) Andrew Richard Hewell Gray (First Defendant) Melanie Maree Gray (Second Defendant)
FILE NUMBER(S):	SC 2999/04
COUNSEL:	N Obrart (Plaintiff) CM Lawrence (Defendants - 11 November 2008 only) Exparte otherwise
SOLICITORS:	Kenny Spring (Plaintiff) Garvins (Defendants - 3 October 2008 and 11 November 2008 only) Exparte otherwise

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

Smart AJ

Monday 30 November 2009

2999/04 Gavin Edward Farrell v Andrew Richard Hewell Gray and Melanie Maree Gray (neé Eldridge) – (No 3)

JUDGMENT

1 This judgment should be read with my judgments of 26 September 2008 and 13 November 2009.

2 On 26 September 2008 I determined that Mr Gray was indebted to Mr Farrell in the sum of $62,754.00, being the balance due consequent upon a partnership between them and its dissolution. It remains to deal with the question of interest and costs.

3 The third matter is Mr Farrell’s claim under s 37A of the Conveyancing Act 1919 in respect of a voluntary transfer of 72 Morrissett Street Bathurst from Mr Gray to Mrs Gray (then Ms Eldridge). The fourth matter is a motion to deal with Mr Gray for contempt in not obeying an order of this Court made on 10 February 2006. The fifth matter is a motion to deal with Mrs Gray for contempt of court for not obeying an order of this Court of 2 November 2004 as subsequently extended (on 9 February 2007).

Procedural matters

4 On 11 November 2008 the plaintiff and the defendants were each legally represented. On that day the plaintiff read the affidavits of the plaintiff of 18 May 2004 and 8 September 2004, of Mr AV Edwards (the plaintiff’s solicitor) of 12 September 2007 and 25 September 2008 and that of Mr Skinner of 23 September 2008. Those affidavits had also been read on 26 September 2008.

5 On 11 November 2008 (T 3, lines 48 – 50) I told the parties that I would deal with the costs and interest issues and the s 37A application and then determine how we went from there. Counsel for the plaintiff had previously stated that, in relation to the contempt proceedings against Mrs Gray, access to documents subpoenaed from her former solicitors was needed to meet the affidavit evidence of Mrs Gray. Such documents had not been produced at that stage. They were produced subsequently. The hearing was stood over to 25 November 2008, and then generally. On 16 July 2009 the plaintiff was granted access to the documents produced by the defendants’ former solicitors.

6 On 11 November 2008 I heard counsel for both parties on the questions of costs and interest and had embarked on the s 37A application. Difficulties arose in dealing with that as the transcript records. The s 37A application was part-heard at the end of the hearing on 11 November 2008. I will return to the problems. Neither of the defendants was present nor represented when the hearing of the s 37A application resumed on 13 November 2009, so that the hearing proceeded ex-parte. On that latter date I also heard the contempt motions. The affidavit of 1 October 2008 of each defendant read on 11 November 2008 had to be disregarded as neither attended for cross-examination at the resumed hearing on 13 November 2009.

Costs

7 The plaintiff sought his costs from 11 October 2004, being the date of the declaration of dissolution of the partnership, to date. The plaintiff split his claim to costs into two segments. In respect of the first segment of 11 October 2004 to 1 April 2005, being the date of the Report of the Receiver (Mr Skinner), the plaintiff sought his costs on the ordinary basis as against Mr Gray. The grounds relied upon included:

a) Mr Gray had control over the partnership funds and record keeping.
b) Mr Gray’ s failure to properly keep and/ or retain the business records caused the necessity for the Report of 1 April 2005.
c) The matters the subject of such Report were matters within the First Defendant’s knowledge and responsibility.
d) The First Defendant’s conduct not only caused the necessity for the Report, but was contumelious and /or reckless.

8 Mr Gray was responsible for attending to the financial aspects of the partnership and the keeping of the records. It was reasonable for Mr Farrell to seek the preparation of a report by a qualified accountant. That was the first step in sorting out the mess which Mr Gray had allowed to develop. Mr Skinner’s task was made more difficult by the absence of adequate records. I referred to some of the difficulties in the judgment of 26 September 2008. Mr Skinner took a broad approach and his report of 1 April 2005 provided a basis from which to assess the amount due to Mr Farrell.

9 As to the second segment, that is, from 1 April 2005 to date, the plaintiff sought that Mr Gray pay his costs for that period. Mr Farrell also sought that Mr Gray pay such costs on an indemnity basis.

10 Counsel for Mr Farrell submitted that the costs incurred from 1 April 2005 to date had not been costs properly incurred in respect of the Receivership of the partnership, but had been solely caused by the defaults and dilatory conduct of Mr Gray. From 1 April 2005 to 26 September 2008 Mr Gray contested Mr Farrell’s entitlement to his share of the missing funds and persistently sought adjournments and additional time to adduce evidence. Such evidence was not forthcoming.

11 On 10 February 2006 orders and directions were made by an Associate Judge for the taking of accounts of the partnership. Inter alia, Mr Gray was ordered to file by 10 April 2006 a verified detailed account of all of the dealings and transactions of the partnership from 30 May 2001 up to and including August 2003. To date the orders have not been complied with. Mr Gray was represented by counsel at the hearing on 10 February 2006. The orders are not expressed to be made by consent. An order was made that Mr Gray pay the costs of the Motion filed by Mr Farrell seeking in substance the relief obtained. There were also the orders made by Rein J on 4 February 2008 and the admissions noted in the Short Minutes.

12 The following reasons were advanced by Mr Farrell in support of his claim that the costs he incurred after 1 April 2005 should be paid on an indemnity basis:

a) Mr Gray’s conduct of proceedings has caused unreasonable delay and expense.
b) Mr Gray unreasonably delayed an admission of liability for the purpose of obtaining a tactical advantage. Reliance was placed on Mrs Gray obtaining further mortgage advances.
c) Mr Gray has achieved a result no better than a prior settlement offer. The offer relied on was that contained in the letter of 18 July 2007 from Kenny Spring to Mr Gray. The offer required a payment of $55,000.00 by Mr Gray to Mr Farrell, inclusive of costs, and a deed providing for mutual releases and an indemnity by Mr Gray in favour of Mr Farrell in relation to the partnership. The offer stated that, upon payment of the settlement sum and exchange of deeds, Mr Farrell would discontinue the proceedings against Mr Gray and his wife. The offer of discontinuance as distinct from verdicts could result in proceedings being brought again. The terms of the indemnity were not stated. While I regard the terms of the offer as reasonable, that is not the test. I do not think it can be used to ground an order for indemnity costs. It leaves some matters unresolved. Further negotiation of the terms was required.
d) Mr Gray continued to contest proceedings when he should have known that his resistance had no real prospects of success. Mr Farrell submitted, correctly, that the defendant filed no evidence in relation to the substantive proceedings.

13 Mr Farrell submitted that each of the grounds given would justify an order for indemnity costs. He also relied on their cumulative effect.

14 These proceedings were commenced by Summons filed 20 May 2004. That sought that Mr Gray deliver to the Court the financial accounts and records of A & G Paving for the years 20 June 2000, 2001, 2002 and 2003, an order that accounts be taken of the partnership styled A & G Paving and an order restraining Mrs Gray from selling or encumbering 72 Morrissett Street Bathurst.

15 On 9 September 2004, pursuant to an order of 26 August 2004, Mr Farrell filed a Statement of Claim seeking a declaration that the partnership was dissolved on 30 October 2003 or on the date of the making of the declaration of dissolution, an order that the partnership business be wound up under the direction of the Court, an order that Mr JE Skinner be appointed receiver and manager of the partnership business, an order that an account be taken of all the dealings and transactions of the partnership and of the partners in relation to the partnership, and an order that an inquiry be held as to the assets of the partnership and the respective interests of the partners therein.

16 An Amended Statement of Claim was filed on 4 October 2004. That alleged additionally that about 30 October 2003 Mr Gray transferred his interest in 72 Morrissett Street Bathurst to Ms MM Eldridge (later Mrs Gray) for $1.00. The additional relief sought was an order that the transfer of 72 Morrissett Street Bathurst from Mr Gray to Ms Eldridge be set aside pursuant to s 37A.

17 On 11 October 2004 the proceedings came before Hamilton J. By consent, the Court declared that the partnership known as A & G Paving was dissolved on 30 October 2003. By consent, the Court ordered:

1) The partnership business be wound up under the direction of this Court.
2) JE Skinner be appointed Receiver and Manager of the partnership business.
3) Account be taken of all the dealings and transactions of the partnership and of the partners or any of them in relation to the partnership.
4) An enquiry be held by the Receiver as to what the assets of the partnership consist of and the respective interests of the partners therein.
…

8) The Motion stood over to 2 November 2004 for hearing.

The Court further ordered:

10) The Second Defendant be restrained from transferring or encumbering or causing to be further encumbered the Property (72 Morrissett Street Bathurst).
11) In respect of the approval or advance of $78,000.00 by the Commonwealth Bank in respect of the Property on or about 14 September 2004 (“the moneys”) the Second Defendant is restrained until 5 pm on 2 November 2004 from dispersing or using the moneys other than for the purpose of renovation of the Property.

18 In his judgment of 11 October 2004 Hamilton J stated:

“A loan has already been negotiated in circumstances which are controversial and contested but the inclusion of order 11 makes it plain that moneys can continue to be drawn under that loan, provided they are used only for the purpose of renovation of the property that they are secured on.”

19 This suggests that a mortgage had already been registered on the title of the property to secure the moneys being advanced.

20 On 2 November 2004 Bergin J reviewed the history of the matter. She recorded that after the proceedings were commenced in May 2004 an undertaking was given to the plaintiff by the defendants’ solicitors that there would be no selling or encumbering of the property. It was further recorded that the Statement of Claim of 9 September 2004 sought no relief by way of restraint or any declaratory relief in respect of the property and that five days later the property was encumbered (or further encumbered) to the amount of $78,000.00.

21 The Judge referred to the orders she had made by consent, namely:

a) The Second Defendant be restrained from transferring or encumbering or causing to be further encumbered the Property until 28 days after the report from the Receiver following the conclusion of his enquiry as foreshadowed in Order 4 of the Orders made 11 October 2004.

b) In respect of the approval or advance of $78,000.00 by the Commonwealth Bank in respect of the property on or about 14 September 2004 (‘the Moneys’), the Second Defendant is restrained until 28 days after the report from the Receiver following the conclusion of his enquiry as foreshadowed in Order 4 of the Orders made 11 October 2004 from dispersing or using the Moneys other than for the purpose of renovation of the Property.

The Judge ordered the Second Defendant to pay the Plaintiff’s costs of the Notice of Motion.

22 Counsel for Mr Gray submitted that, as the plaintiff in his Statement of Claim sought a declaration of the dissolution of the A & G Paving partnership and for an accounting process to take place, the costs of the parties (Messrs Farrell and Gray) should be borne by the partnership assets. Legal costs would ordinarily be incurred by a party upon the dissolution of a partnership.

23 It was submitted that the plaintiff’s primary claim for indemnity costs was based on the conduct of the first defendant in advancing his defence or being a party to these proceedings. He could have been a plaintiff as it is open for any partner to come to court and seek the orders which were sought. It was further submitted that in the affidavit of AV Edwards there was evidence that Mr Gray was in fact running about trying to get together the reports and documents which he had been ordered to provide. Both he and his solicitors were trying to comply with those orders.

24 Mr Gray submitted that it was the orders made after 11 October 2004 which became relevant on the question of indemnity costs and that in lieu of broad generalisation more specific material was required and that until the Court made an order for the dissolution of the partnership on 11 October 2004 the costs to that point, at least, were costs incurred in dissolving the partnership. It was contended that, absent some agreement between the parties prior to the commencement of the proceedings, it would have been necessary to obtain a dissolution of the partnership, the appointment of a receiver and account to be taken.

25 It was submitted by Mr Gray that indemnity costs could not be ordered before the purported Calderbank offer expired on 9 September 2005. It was submitted that after 9 September 2005 there was evidence that the first defendant was trying to obtain records and evidence to support his belief that the missing or unaccounted for $125,000.00 could be accounted for by him. It was not until February 2008 before Rein J that Mr Gray conceded that he could not find the records and evidence to support his belief and contention that he could account for the moneys allegedly missing. In the end, Mr Gray did not have the records to evidence and support his claim. It was not in dispute that unaccounted for moneys are deemed to be part of the partnership assets. It was submitted that it did not follow that there was an entitlement to costs or to indemnity costs because somebody has not been able to produce evidence to account for unaccounted profits. It was also submitted that there was no evidence of contemptuous conduct.

26 Mr Gray submitted that the first time that either of the parties could have become aware of the gap in the ledger was on receipt of Mr Skinner’s report of 1 April 2005, and that he, Mr Gray, endeavoured to explain what had happened and to fill in the gap. It was submitted that there was nothing unusual in that circumstance which would entitle the plaintiff to an order for indemnity costs because Mr Gray did not capitulate on the date the report was provided and that it was not until the report was accepted by the Court that the quantum of the unaccounted profits crystallised and therefore could possibly be paid by the parties, i.e., by Mr Gray.

27 As to the submission that Mr Gray had secured a tactical advantage by his delays in admitting liability, it was submitted that it was Mrs Gray who encumbered the property, that she was a third party and that the Court should not infer on the evidence adduced that Mr Gray ever sought or obtained a tactical advantage.

28 As to the Calderbank offer, it was submitted that this pre-dated the further amended statement of claim, which is where judgment for the sum of $62,754.00 was first sought.

29 Mr Gray appeared to accept that one basis for ordering indemnity costs is where the defendant has continued to contest proceedings that he should have known that his resistance had no real prospect of success.

30 It is important to focus on the facts of the present case. Mr Gray was responsible for keeping the records and accounts of the partnership and attending to the financial aspects. He did not maintain and keep proper records. He took an undue share of the partnership funds. This was revealed in Mr Skinner’s report. He was forced to take a broad approach to the partnership affairs because proper records had not been maintained and kept. With the meagre records available no other approach was practicable. This was not a case where the costs of the receiver and the legal costs of the parties should come out of the partnership funds. Mr Gray was responsible for what occurred.

31 Previous costs orders were made, for example, on 11 October 2004 (order 12), 2 November 2004, 10 February 2006, 9 February 2007 and 4 February 2008. So far as previous costs orders are concerned, I would not vary these by ordering that the costs be paid on an indemnity basis. Application should have been made at the time the orders were made, when the facts were fresh in the minds of the parties. Some of the orders for costs were made by consent.

32 Consequent upon the matters noted in the Short Minutes of 4 February 2008, Mr Gray should have realised that he had no reasonable prospect of success in resisting the claim for $62,574.00. He filed no affidavit evidence rebutting the material filed on behalf of Mr Farrell or otherwise adequately dealing with it. Mr Gray should pay the costs of Mr Farrell of the partnership proceedings (excluding those covered by previous orders) and those subsequent to 4 February 2008 on an indemnity basis.

Interest

33 The plaintiff sought that Mr Gray pay interest on $62,754.000 from 30 October 2003, the date of the dissolution of the partnership. Alternatively, interest was sought from 20 May 2004, the date of commencement of proceedings. I have earlier summarised the relief sought in the Summons, the Statement of Claim and the Amended Statement of Claim. It was not until the Further Amended Amended Statement of Claim filed 30 April 2007 that judgment was sought for $62,574.00. The plaintiff relied on s 100 of the Civil Procedure Act 2005 which provides that, in proceedings for the recovery of money (including any debt or damages or the value of any goods), the Court may include interest in the amount for which judgment is given. From 30 April 2007 there has been a claim for the recovery of money. Counsel for Mr Farrell relied upon the principle that the purpose of the discretion is to permit a successful party to be properly compensated for the practical loss it has suffered. In the Further Amended Statement of Claim there is no claim for interest, nor was there one in the earlier version or the Summons. An express claim for interest was made on 26 September 2008. UCPR 6.12.6 provides that an order for interest up to judgment must be specifically claimed (in the Statement of Claim or Summons). See also UCPR 6.12.7, Pheeney v Doolan (1977) 1 NSWLR 601 at 605 and 606. Late amendments may be permitted to raise an interest claim. At 613 Reynolds JA pointed out that the power to award interest is not designed to compensate a plaintiff for loss arising out of the cause of action, but to provide compensation where it is otherwise appropriate to do so for the circumstance that a sum of money has been outstanding to him for a period of time.

34 In Equity the Court frequently does not talk about interest as such but equitable compensation. In O’Halloran v RT Thomas & Family Pty Ltd (1998) 45 NSWLR 262 at 272 Spigelman CJ said:

“The object of equitable compensation is to restore persons who have suffered loss to the position in which they would have been if there had been no breach of the equitable obligation.” (citations omitted)

At 272 – 273 the Chief Justice cited passages from the speech of Lord Browne-Wilkinson in Target Holdings Ltd v Redferns [1996] 1 AC 421 at 432 E – H:

"At common law there are two principles fundamental to the award of damages. First, that the defendant's wrongful act must cause the damage complained of. Second, that the plaintiff is to be put 'in the same position as he would have been in if he had not sustained the wrong for which he is now getting his compensation or reparation' Livingston v Rawyards Coal Co (1880) 5 App Cas 25 at 39, per Lord Blackburn. Although, as will appear, in many ways equity approaches liability for making good a breach of trust from a different starting point, in my judgment those two principles are applicable as much in equity as at common law. Under both systems liability is fault-based: the defendant is only liable for the consequences of the legal wrong he has done to the plaintiff and to make good the damage caused by such wrong. He is not responsible for damage not caused by his wrong or to pay by way of compensation more than the loss suffered from such wrong. The detailed rules of equity as to causation and the quantification of loss differ, at least ostensibly, from those applicable at common law. But the principles underlying both systems are the same."

The Chief Justice also said at 273:

“In Canson Enterprises Ltd v Boughton & Co (1991) 85 DLR (4th) 129, her Ladyship Justice McLachlin, who was in the minority, said (at 163E-G):

‘In summary, compensation is an equitable monetary remedy which is available when the equitable remedies of restitution and account are not appropriate. By analogy with restitution, it attempts to restore to the plaintiff what has been lost as a result of the breach, i.e. the plaintiff's lost opportunity. The plaintiff's actual loss as a consequence of the breach is to be assessed with the full benefit of hindsight. Foreseeability is not a concern in assessing compensation, but it is essential that the losses made good are only those which on a common sense view of causation, were caused by the breach.’

In my opinion this also represents the law in Australia.”

35 Mr Farrell submitted that, as the funds found to be due and owing were partnership funds which were withheld from him, those funds should have been payable to the plaintiff on dissolution. The plaintiff also accepted that the commencement of proceedings may also be an appropriate date.

36 The plaintiff relied upon the decision of Young J in Behm v Bartels (1988) 14 NSWLR 432. The actual decision was affirmed by the Court of Appeal (1990) 19 NSWLR 257. It was a different case from the present one. It was held that where, after termination of a partnership but before winding up was completed, one partner borrowed money at interest to enable partnership debts to be discharged, the partner was entitled to credit for the interest paid on the basis of indemnity for liability incurred to the other partner, as part of the accounting on the winding up of the partnership. The Court of Appeal did not comment upon the general discussion of principle by Young J at pp 434 et seq. The Court of Appeal indicated that it had decided the case for somewhat different reasons from those of Young J. Young J at 435 dealt with five categories of cases. He stated:

“… throughout the categories runs the principle that interest in partnership accounts will be awarded where it would be unconscionable not to do so, but that situations within the general rule do not raise matters of conscience.”

37 The general rule in partnership suits is that no interest is payable on any advance of capital after dissolution until the Master’s certificate issues. At 437 Young J expressed his view that the claim was within s 94 of the Supreme Court Act as proceedings to recover money and his agreement with Lindley’s comment that s 94 of the Supreme Court Act, the predecessor of s 100 of the Civil Procedure Act, does not affect the question of interest in partnership proceedings.

38 Counsel for Mr Gray submitted that he should only be ordered to pay interest from the date of the determination by the Court on 26 September 2008. What emerges from the authorities cited by Young J in Behm v Bartels and the judgment of the Court of Appeal in Bartels v Behm & Anor is that, while there are a number of principles applying to different situations, careful regard must be paid to the facts of the particular case.

39 As from the Receiver’s report of 1 April 2005 it emerged that there was a deficiency of $125,508.00 That was the responsibility of Mr Gray, and over the ensuing years he was not able to provide an adequate explanation. He did not comply with the order to file verified accounts. On 26 September 2008 I relied on the Receiver’s report. In the circumstances of the present case that should be treated as the equivalent of a Master’s certificate. I would allow a period of one month to consider the Receiver’s report. I would allow compensation at the rate of 9% per annum from 1 May 2005 to the date of this judgment on $62,574.00. This amounts to a figure of $24,891.94 and would result in a judgment of $87,465.94.

Section 37A Conveyancing Act Claim

40 About 30 October 2003 Mr Gray transferred his interest in 72 Morrissett Street to his wife for $1.00. This was during the period the plaintiff was unsuccessfully seeking access to the books and records of the partnership. In his Summons filed 10 May 2004, Mr Farrell sought an order restraining Mrs Gray from selling or encumbrancing 72 Morrissett Street Bathurst. As noted earlier, an undertaking was given to the plaintiff by the defendants’ solicitors that there would be no selling or encumbering of the property.

41 The matter was before the Court on a number of occasions.

42 On 26 August 2004 it was ordered by consent that the matter proceed by way of pleadings with the plaintiff to file and serve a Statement of Claim by 6 September 2004. On 9 September 2004 the plaintiff filed his Statement of Claim seeking relief in respect of the partnership business. No relief was sought in respect of 72 Morrissett Street. Five days later that property was further encumbered to the extent of $78,000.00, making a total of $180,000.00, to the Commonwealth Bank. The loan was for the purpose of renovating 72 Morrissett Street.

43 On 4 October 2004 an Amended Statement of Claim was filed seeking partnership relief and an order that the transfer of 72 Morrissett Street between Mr and Mrs Gray be set aside pursuant to s 37A of the Conveyancing Act. I have earlier summarised the orders made by Hamilton J on 11 October 2004. The transfer was of Mr Gray’s undivided one half-share interest in the fee simple of 72 Morrissett Street. The Office of State Revenue assessed the value of the half share interest for duty purposes as $55,000.000 as at 30 October 2003. Mr and Mrs Gray married in November 2003. Mr Farrell asserted that prior to October 2003 Mr Gray renovated and extended the property (paragraph 28 of the plaintiff’s affidavit of 18 May 2004). He also said in paragraph 10 of that affidavit that he was aware that, prior to entering into the A & G Partnership in 2001, Mr and Mrs Gray purchased a house at 72 Morrissett Street.

44 The mortgage history of 72 Morrissett Street includes:

a) Mortgage dated 17 October 2003, No AA187473, from Melanie Maree Eldridge to Australian and New Zealand Banking Group Limited for $102,000.00.
b) Mortgage dated 25 May 2004, No AA963300, from Melanie Maree Gray to Commonwealth Bank of Australia for $102,000.00.
c) Office of State Revenue (NSW Treasury) Approval Upstamping

Date of advance 14.9.04

Amount advanced $78,000.00

Total advanced $180,000.00

d) Mortgage dated 22 December 2005, No AC17980, from Melanie Maree Gray to Perpetual Trustee Company Limited for $220,300.00. This was witnessed by her husband.
e) Mortgage dated 8 March 2007, No AD3929, from Melanie Maree Gray to GEL Custodians Pty Limited for $265,000.00. Initially it appears to have been for $220,000.00.

45 It appears from the Search that 72 Morrissett Street was previously under Old System title and that Mrs Gray had a limited title (s 28T(4) of the Real Property Act) and a Qualified Title (s 28J). As at 25 September 2008 Mortgage AD3929 to GEL Custodians Pty Limited was registered on the title.

46 Counsel for the plaintiff stated that he could not challenge the title of any of the mortgagees, all of whose mortgages had become registered. Counsel also accepted that, in view of the unchallenged registered estates of the various mortgagees, the plaintiff could not obtain an order that the transfer of the property (72 Morrissett Street) comprised in folio identifier B/156379 between the first and second defendants be set aside pursuant to s 37A of the Conveyancing Act 1919. See especially s 37A(3).

47 On 11 November 2008 I raised with counsel the difficulty of obtaining an order. Counsel responded that a declaration was sought that the transfer of 30 October 2003 from Mr Gray to Ms Eldridge (now his wife) was an avoidable transfer pursuant to s 37A, that is, that it was a transfer made with intent to defraud creditors (T 28 of 11 November 2008).

48 The plaintiff submitted that the making of a declaration that the transfer of 30 October was an avoidable transaction would not prejudice any of the existing rights of the mortgagee and that the declaration should be expressly framed to make that clear.

49 The plaintiff submitted that it cannot be that by her contempt the second defendant can put out of the plaintiff’s reach her capacity to satisfy a judgment. The plaintiff relied on the Judgment which arose out of the order of Bergin J that the second defendant pay the costs of the plaintiff’s motion. These were determined by the Costs Assessment of 29 June 2005 at $14,540.15 and $673.75, being the costs of the costs assessor.

50 The plaintiff submitted that, if the transfer of 30 October 2003 was not undone, because of the mortgage the position would be that a refinancing in contempt of the orders of the Court has totally frustrated the Court’s process and the plaintiff’s capacity to execute his judgment.

51 The plaintiff submitted that the person prima facie responsible for the loan is the second defendant and that putting the property back in both names does not change the person responsible for the loan. That does not assist in the resolution of the problems in the present case. The security provided for the loans is of much importance. The mortgage is in her name and she has the obligation to observe its terms. The mortgagee may not wish to accept Mr Gray as a mortgagor in view of his credit history.

52 One of the difficulties is that the first mortgage given was that to Australian and New Zealand Banking Group Ltd, No AA17433. It was signed by Ms Eldridge in anticipation of, and on the basis that, she was the sole registered proprietor of 72 Morrissett Street. His half-interest was transferred to her on 30 October 2003. The evidence does not disclose when the money was advanced.

53 The annexures to the affidavit of 10 October 2008 of Laurence Lexley Parkes, Mortgage broker, reveal that, as at 29 July 2003, 72 Morrissett Street had a value of $170,000.00 approximately. The customer-stated value of 72 Morrissett street was $180,000.00 or $190,000.00. An ANZ Kerbside Valuation Request and Report of 30 July 2003 estimates the price of the property at $180,000.00. The initial loan application was made in the name of MM Eldridge. ANZ Banking Group declined to approve a loan for $102,000.00 in the name of both defendants due to the poor credit history of Mr Gray. However, it did approve, on 16 October 2003, of a loan of $102,000.00 to MM Eldridge on the security of 72 Morrissett Street and the security documents were executed the following day.

54 This mortgage was apparently refinanced by mortgage dated 25 May 2004, No AA963300, from MM Gray to the Commonwealth Bank of Australia for $102,000.00. From subsequent dealing I would infer that it was envisaged that further moneys would be advanced.

55 On 26 May 2004 the Summons of 20 May 2004 was served on each of the first and second defendants. As earlier mentioned, that sought an order restraining the second defendant from selling or encumbrancing 72 Morrissett Street.

56 By letter of 25 June 2004, the solicitor for the defendants wrote “Melanie Eldridge will undertake not to sell or encumber the house for the period of the adjournment.”

57 The matter was listed on 28 June 2004. It was adjourned to 29 July 2004 and then to 26 August 2004. As Bergin J pointed out, five days after the Statement of Claim was filed (which did not seek any relief as to 72 Morrissett Street) Mrs Gray extended her mortgage commitment on 14 September 2004 to the Commonwealth Bank by an extra $78,000.00 to a total of $180,000.00.

58 As at September – October 2003, Mr Gray had a number of creditors as well as Mr Farrell. Mr Gray had a poor credit rating. ANZ Banking Group Ltd would not do business with him but was willing to lend his wife substantial sums. 72 Morrissett Street needed substantial renovations. I would infer that he transferred his half interest in 72 Morrissett Street to his wife with intent to defeat delay and hinder creditors. Since October 2003 Mrs Gray has been responsible for all repayments under the various mortgages. No lending body would advance money to Mr Gray. If he had remained on the title, 72 Morrissett would never have been renovated as no reputable lending body would have advanced moneys to the defendants jointly to carry out the renovations and the evidence does not suggest that the defendants had the necessary resources.

59 The difficult question is whether the Court can grant Mr Farrell an adequate remedy. In Silvera v Savic (1999) 46 NSWLR 124 at [72] Hodgson CJ in Eq stated:

“What s 37A says is that the ‘alienation’ is ‘voidable’. In my opinion, when an application is made under s 37A to the Supreme Court, that Court can achieve the effect of avoiding the alienation by such measures as seem appropriate in the particular case.”

I would follow the course suggested if I could devise suitable and permissible ways of doing so.

60 The plaintiff submitted that if the Court made a declaration that the transfer of 30 October 2003 was voidable at the instance of Mr Farrell, he could then seek to execute against the property. This is not a practical course in view of the mortgage on the title.

61 There are some unusual circumstances. The mortgages executed in 2005 and 2007 resulted in Mrs Gray further encumbering the property. The increase of $78,000.00 in the amount borrowed from the Commonwealth Bank on about 14 September 2004 occurred while the partnership proceedings were pending. Mr Gray had worked on the property prior to transferring his interest in it in October 2003. When he made the transfer of his half interest the value of the property was substantial. Since the transfer he has lived in the property with his wife. His wife had to care for three relatively young children. It does not appear who in fact is meeting the mortgage payments and from what source. This evidence would primarily be within the knowledge of Mr and Mrs Gray. Since 30 October 2003 renovations and extensions to the property have continued and it now appears to be a substantial family home. The renovations have been financed from moneys borrowed on mortgage. What Mr Gray did, if anything, does not appear. In Cardile v LED Builders Pty Ltd (1999) 198 CLR 380 at 388 five Justices stated that alienation is the transfer of value from one person to another. There has been a transfer of substantial value from Mr Gray to his wife. I would infer that Mrs Gray was aware of her husband’s intent. She was focussed on obtaining a home in which to live and renovating and extending it.

62 There is limited valuation evidence before the Court. From Mr Parkes’ file documents it appears that the property was valued at $180,000.00 approximately, at the end of July 2003. It also appears that there was an existing mortgage to Mitchell Housing Society on which about $52,000.00 was outstanding. ANZ Banking Group Limited was prepared to lend $102,000.00 in October 2003. Some of this money was to be spent on renovations which would improve the property. The figure of $55,00.00 used by the Office of State Revenue to assess duty appears to be on the low side. A valuation report of Ralph Toyer and Associates as at 7 November 2008 states:

“The subject property is a single storey semi-detached dwelling dating from the 1880s with a recent rear addition with construction comprising brick walls, corrugated galvanised iron and colorbond roof, timber floor on brick piers, rendered brick and plasterboard internal linings, timber-framed and aluminium-framed windows.

…

The layout of the cottage is conventional with décor and finishes reflective of the recent renovations and extensions with new bathroom and kitchen.

…

The cottage was erected in the c 1880s / 2000s (extensions and renovations) and is in sound condition …”

The market value as at 7 November 2008 was assessed at $360,000.00.

63 There is limited reliable evidence on which to determine the value of the half-interest of Mr Gray transferred to Mrs Gray in October 2003. If a valuation of the property of about $180,000.00 is taken and a mortgage amount of about $52,000 is deducted that would leave a balance of about $128,000.00. A half-interest would be about $64,000.00. As at November 2008 the property had a value of about $360,000.00 and a mortgage of about $265,000.00. That leaves an interest of about $95,000.00, half of which would be $47,500.00. The amounts borrowed and the frequent re-financing suggest that interest only may have been paid on the various loans. That information would be within the knowledge of the defendants. The amounts mentioned are but general guides.

64 I have considered making a declaration along the lines of that now sought by the plaintiff and two consequential possibilities, namely, entering judgment for the plaintiff against Mrs Gray of the value of the half-interest in the property transferred to her by her husband, or ordering her to execute an unregistered mortgage for such value in favour of the plaintiff. Relief of that kind has not been pleaded in the Further Amended Statement of Claim, nor the facts necessary to support such relief. No useful alternative was suggested.

65 The combination of the transfer of October 2003 and the circumstances mentioned earlier in this judgment point to Mr and Mrs Gray acting in combination. The ramifications and consequences of that have not been fully considered or pleaded.

66 If I had been persuaded that there was utility in making the declaration now sought I would have made it.

67 Regrettably, I am not able to grant the plaintiff any useful relief in respect of his s 37A claim.

Contempt – Mr Gray

68 By Mr Farrell’s motion, filed 17 September 2007, he sought:

“1. The Defendant be found guilty of contempt of Court for failing to comply with the order of the Court made on 10 February 2006 in that he failed to:

(a) By 7 October 2006 file and serve on the Plaintiff:

(i) A detailed account verified by Affidavit of all of the dealing transactions of the partnership the subject of these proceedings and of the partners and each of them in relation thereto from commencement of the partnership on 20 May 2001 up to and including August 2003. Such account shall specify in respect of each payment or receipt the date and amount thereof, to whom the account was paid and the purpose or account for or to which the amount was paid or received.

(ii) A detailed statement of what is claimed to be:

(ii.i) The assets and liabilities of the said partnership as at August 2003; and

(ii.ii) The respective interests of the partners therein having regard to the said liabilities and to all other relevant matters and specifying each item clearly and in respect of each item specifying its nature and its value or amount.


2. The Defendant be committed to imprisonment for his disobedience to the order of the Court and that a warrant issue accordingly.

3. The Sheriff be directed to bring the Defendants before the Court before taking him to the place of imprisonment.

4. Costs.

5. Such other orders as the Court thinks fit.”

69 Mr Gray was represented on 10 February 2006 when an Associate Judge made the order earlier mentioned. Mr Gray did not comply with the order in whole or in part.

70 From the materials appearing in Mr Skinner’s report of 1 April 2005 I doubt if Mr Gray was ever in a position to comply with the orders of 10 February 2006. He made no application to vary the orders, nor did he attempt to comply with the orders to the best of his ability, that is, by drawing on his recollection and using such records as he had available to him. This made the taking of accounts in the conventional way impossible and ultimately a broad approach had to be adopted as outlined in the judgment of 26 September 2008.

71 What the Associate Judge was told on 10 February 2006 does not appear.

72 There is a discrepancy in the papers. The formal Orders as entered required Mr Gray to file and serve the requisite verified account and statement by 7 October 2005. The Associate Judge stipulated on or before 10 April 2006. The motion filed 17 September 2007 refers to 7 October 2006. This discrepancy does not matter because the requisite verified account and statement were never filed and served by Mr Gray.

73 Mr Gray is adjudged guilty of civil contempt as charged in paragraph 1 of the Notice of Motion of 17 September 2007.

74 While I was satisfied that all the elements of the charge have been proved beyond reasonable doubt, I was not satisfied that the contempt or disobedience of the order was wilful or contumacious.

Contempt Motion against Mrs Gray

75 By Mr Farrell’s Motion filed 26 September 2008 he sought:

“1. The Second Defendant be found guilty of contempt of Court for failing to comply with the order of the Court made on 2 November 2004 in that she further encumbered the real property situate and known as 72 Morrissett Street, Bathurst in the State of New South Wales by mortgaging that property by $265,000.00 to GEL Custodians Pty Limited by dealing AD393929S on or about 8 March 2007 notwithstanding the following orders made on 2 November 2004 and extended by orders dated 1 February 2005, 5 April 2005, 5 May 2005, 29 July 2005, 11 August 2005, 30 October 2006, 15 December 2006 and 9 February 2007:

(a) The Second Defendant be restrained from transferring or encumbering or causing to be further encumbered the Property until 28 days after the report from the Receiver following the conclusion of his enquiry as foreshadowed in Order 4 of the Orders made 11 October 2004 from dispersing or using the Moneys other than for the purpose of renovation of the Property.
(b) In respect of the approval or advance of $78,000.00 by the Commonwealth Bank in respect of the Property on or about 14 September 2004 (‘the Moneys’), the Second Defendant is restrained until 28 days after the report from the Receiver following the conclusion of his enquiry as foreshadowed in Order 4 of the Orders made 11 October 2004 from dispersing or using the Moneys other than for the purpose of renovation of the Property.
(c) Further on or about 1 February 2005, 5 April 2005, 5 May 2005, 29 July 2005, 11 August 2005, 30 October 2006, 15 December 2006 and 9 February 2007 the orders of 2 November 2004 were extended.


2. The Defendant be committed to imprisonment for her disobedience to the order of the Court and that a warrant issue accordingly.

3. The Sheriff be directed to bring the Defendant before the Court before taking her to the place of imprisonment.

4. Costs.

5. Such other orders as the Court thinks fit.”

76 I have earlier set out the orders made by Bergin J on 2 November 2004 and order 4 made on 11 October 2004.

77 On 2 November 2004 Mrs Gray was restrained from “… encumbering or causing to be further encumbered the property until 28 days after the report from the Receiver following the conclusion of his enquiry as foreshadowed in Order 4 made 11 October 2004.”

78 The Receiver made a report on 1 April 2005. On one view of the order of 2 November 2004, the restraint lasted until 29 April 2005, or perhaps when the Receiver’s report was formally served. The plaintiff relied on various extensions of these orders as specified in his Notice of Motion. While the records for the period are incomplete in that some of the Short Minutes of Orders relied on are not in the file and there may be gaps in the periods during which the injunctions and orders of 2 November 2004 applied, the critical dates are 8 March 2007, being the date on which Mrs Gray mortgaged the property to GEL Custodians Pty Limited, and 9 February 2007. On that day McLaughlin AsJ made this order:

“Order of 2 November 2004 extended until further order of the Court.”

79 That was contained in Short Minutes of Order signed by counsel for the plaintiff and by Mr Gray. He was described as the “1^st defendant and acting for 2^nd defendant Melanie Gray”.

80 That order was made in the course of the granting of an application by Mr Gray for the adjournment of the hearing of a Motion brought by the plaintiff.

81 One difficulty that arises is that the restraint in the order of 2 November 2004 continues “until 28 days after the Report from the Receiver following the conclusion of his enquiry as foreshadowed in Order 4 of the Orders made 11 October 2004”.

82 While the order made on 9 February 2007 could have been more happily drafted, what was probably intended by the extension of the order was that Mrs Gray would not transfer or encumber or cause to be further encumbered the property until the further order of the Court. It is a pity that the order did not say so expressly. There would have been no point in extending the orders of 2 November 2004 until further order if the restraint was to be taken as having expired in 2005. This was an interim measure designed to preserve assets pending the Court finally resolving the disputes between the parties.

83 There is a further difficulty. Mrs Gray was not present in Court on 9 February 2007. She was not legally represented at that stage but she had been legally represented at an earlier stage. Her husband is recorded as also representing her. There is no evidence of her being served with a copy of the order made, nor of a letter being sent to her on or shortly after 9 February 2007 advising of the extension of the orders of 2 November 2004. This was not unimportant having regard to the limited duration of the restraining order made on 2 November 2004. There is no evidence that she was, or was made, aware of the terms of the order made on 9 February 2007 or its effect.

84 On the evidence as it stands I am not satisfied beyond reasonable doubt that she should be adjudged guilty of the contempt with which she has been charged. There is, in my opinion, no sufficient basis for holding that her conduct has been contumacious.

85 I dismiss the contempt motion as against Mrs Gray and I make no order as to the costs of that motion.

86 As I indicated during the hearing on 13 November 2009, if I found either defendant guilty of contempt I would stand over the hearing and deal with penalty separately in case such defendant wanted to lead evidence or make submissions on the question of penalty. I will deal with the question of penalty at 10:00 am on Wednesday 3 February 2010. Mr Gray should realise that this is particularly serious because Mr Farrell is seeking an order that Mr Gray be sent to prison for his contempt. Mr Gray should appreciate that the hearing will proceed on that day and that he should be in attendance at Court.

87 I make the following orders:

1. I enter judgment for the plaintiff for $87,465.94.

2. Order Andrew Richard Hewell Gray to pay the costs of Mr Farrell of the partnership proceedings (excluding those covered by previous orders) as from 11 October 2004 and those subsequent to 4 February 2008 on an indemnity basis.

3. Decline to grant the plaintiff any relief in respect of his claim under s 37A of the Conveyancing Act.

4. Adjudge that Andrew Richard Hewell Gray is guilty of civil contempt of Court in that he failed to comply with the order of the Court made on 10 February 2006 by not filing and serving on the plaintiff by 10 April 2006:


(i) A detailed account verified by Affidavit of all of the dealing transactions of the partnership the subject of these proceedings and of the partners and each of them in relation thereto from commencement of the partnership on 20 May 2001 up to and including August 2003. Such account shall specify in respect of each payment or receipt the date and amount thereof, to whom the account was paid and the purpose or account for or to which the amount was paid or received.

(ii) A detailed statement of what is claimed to be:

(ii.i) The assets and liabilities of the said partnership as at August 2003; and

(ii.ii) The respective interests of the partners therein having regard to the said liabilities and to all other relevant matters and specifying each item clearly and in respect of each item specifying its nature and its value or amount.


5. Dismiss the motion of 26 September 2008 seeking to adjudge Melanie Maree Gray guilty of contempt. No order as to the costs of such motion.

6. A copy of this judgment is to be sent by prepaid post to each of Mr Gray and Mrs Gray at 72 Morrissett Street, Bathurst.

7. Adjourn the hearing of the motion for contempt as against Andrew Richard Hewell Gray to 3 February 2010 at 10 am to deal with the question of the penalty to be imposed on Mr Gray and the costs of the contempt motion against him. Direct the plaintiff to notify Andrew Richard Hewell Gray accordingly by letter addressed to him and left for him at 72 Morrissett Street, Bathurst.

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