Farrow Mortgage Services Pty Ltd (in liq) v Stone, George Barry Everett

[1998] FCA 329

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NG 7249  of  1998

BETWEEN:	FARROW MORTGAGE SERVICES PTY LTD (IN LIQUIDATION) (ACN 006 125 757) Applicant
AND:	GEORGE BARRY EVERETT STONE Respondent

JUDGE:	EMMETT J
DATE:	24 MARCH 1998
PLACE:	SYDNEY

REASONS FOR JUDGMENT

HIS HONOUR:  There is before the Court a petition brought by Farrow Mortgage Services Pty Limited (“Farrow”) seeking the sequestration of the estate of George Barry Everett Stone (“Mr Stone”).  The petition alleges indebtedness of Mr Stone to Farrow in the sum of $1,765,853 being the balance with interest owing under a judgment obtained in the Supreme Court of New South Wales on 23 May 1997.  The judgment was for money lent by Farrow to Mr Stone and for interest on that money.

The act of bankruptcy relied upon by Farrow was failure to comply with a bankruptcy notice issued in respect of that judgment.  The act of bankruptcy occurred on 24 February 1998.  Mr Stone seeks an adjournment of the petition to enable him to pursue an appeal from the judgment which was given for reasons delivered by Bainton J on 23 May 1997 of the Commercial Division of the Supreme Court of New South Wales.

The essence of Mr Stone's complaint is not that the money was not owing but that in the exercise of power of sale under a mortgage given by Mr Stone to Farrow to secure the loan, Farrow acted in bad faith.  The mortgage related to two adjoining properties.  One had a house on it and the other was vacant.  The two properties could have been sold together or separately.  I shall refer to these together as “the Property”.  Mr Stone apparently argued before Bainton J that Farrow did not exercise its power of sale in good faith in that it was exercised at a time when the market was depressed, at a time too close to the Christmas festive season with an inadequate period of advertising and with advertising unsuited to a proper sale of the Property.

Mr Stone also contended before Bainton J that Farrow should have spent more of its own money in carrying out improvements to the Property "to put it in a proper state for presentation to the public".  Bainton J considered that Farrow's endeavours, or lack of them as Mr Stone contended, must be seen in their context.  That contract began no later than April 1990 when the Property was auctioned unsuccessfully by Richardson and Wrench on Mr Stone's instructions.

Bainton J found that after that auction, the Property was listed by Mr Stone with other agents and again it did not sell.  No later than July 1990, after Farrow had commenced proceedings to obtain possession, Farrow was persuaded by Mr Stone to let him remain in the Property for at least six weeks from 23 August 1990 so as to keep the Property in good condition.  He was to continue his endeavours to sell and the position was to be reviewed at the end of that period.  Bainton J found that Mr Stone was unable to find a buyer, at least at the price he was asserting the Property to be worth.  Bainton J found that Mr Stone did not reduce his asking price though advised by two local agents to reduce his asking price to below $700,000.

Bainton J then found that, having afforded Mr Stone that latitude, Farrow obviously concluded that Mr Stone either could not or was not really trying to sell the Property.  It then took over the handling of a realisation and took advice from a local agent and from a valuer.  His Honour found that it obtained a valuation from a competent valuer.  The market was depressed with no indication of any likely recovery in the short term.

Bainton J found that during the period between Farrow’s decision to proceed and the date fixed for auction of the Property on 13 December 1990, there was extensive advertising in publications with State-wide circulation and in local papers.  Bainton J found that, notwithstanding that Christmas was but two weeks away, advertising attracted inspection by some 58 groups and four of them had sought a copy of the proposed contract.  In fact, although the Property was not sold at the auction, Farrow did not execute a sale contract until mid February 1991, a little over two months later.  During that period Mr Stone was unable to obtain a better offer.

Bainton J summarised the evidence of Mr Mark Coleman, a principal of the real estate agency business known as Ray White Glebe.  Bainton J found that between August 1988 and February 1991 Mr Coleman had been an employee of Elders Real Estate Balmain Drummoyne and had become involved in Elders' endeavours to market the Property in late October 1990.

On 23 October 1990 Elders submitted a marketing programme to Farrow's solicitors.  Mr Coleman was put in charge of implementing that marketing programme and he said that it was, with some minor adjustments, carried out.  It involved an auction on Thursday, 13 December 1990 at Elders House, 4 O'Connell Street, Sydney.  That auction was extensively advertised.  On 6 December 1990 Elders were able to advise that 48 groups had then inspected the Property, an excellent response in the current market, and two copies of the contract of sale had then been issued to prospective purchasers.  Two more had been issued by 11 December.  Mr Coleman added that three of those four prospects had told him that if they bought they would demolish the house on the Property.

At the auction there were four bidders.  The two parcels were only offered together.  The highest bid was for $570,000 from a Mr Cosco.  Apparently that was below the reserve.  Mr Cosco signed a copy of the contract and left a deposit of $57,000 with Elders.  Mr Cosco's offer was then submitted to Farrow and “remained on the table” thereafter.

On 23 January 1991 a different officer of Elders wrote to Farrow's solicitors pointing out that, by the date of the auction, 66 groups had inspected the Property and that the other proposed buyer was not then in Australia though his wife had his power of attorney.  That was apparently a reference to a Mr and Mrs Anderson.  Mr Stone and Mr Anderson had known one another for over 20 years.

Mr Anderson said he was really only interested in bidding for the house block but offered $580,000 for the two parcels. 

On 6 February 1991 Elders sent a fax, on Farrow's instructions, to each of Messrs Anderson and Cosco in identical terms stating:

At this stage as there are now two interested parties the liquidators[of Farrow] have instructed Elders Real Estate Balmain, being the selling agents, to place their best offer to Elders which will immediately be faxed (to Elders).  I await your urgent reply.

Mr Stone was informed on the same day of what was done and his comments were invited.  Elders received a reply from Mr Cosco on the same day increasing his offer to $580,000 to meet Mr Anderson's.  Mr Anderson replied on 7 February seeking that a copy of the contract be sent to his solicitors and asserting that his offer of $580,000 for the Property stands.

Farrow decided to accept Mr Cosco's offer.  Contracts with Mr and Mrs Cosco were then exchanged at $580,000.  Bainton J concluded that he could:

see no reason whatever to conclude that Elders were doing otherwise than they considered best to secure a sale of this property.  That their views as to the market acceptability of this property differs from Mr Stone's shows only how little reliance can be placed on his views.

In the light of those findings it is difficult to see what grounds of appeal are open to Mr Stone which may be successful.  However, I have given Mr Stone the opportunity of addressing at some length to endeavour to ascertain just what grounds he wishes to rely upon in prosecuting his appeal.  It became apparent that in order to hear Mr Stone out, considerably greater time would be required.  He wishes to be able to develop an argument based on a detailed analysis of the evidence before Bainton J to indicate that Bainton J reached an erroneous conclusion not based on his Honour's assessment of the credibility of witnesses.

Bainton J gave reasons as to why he preferred the valuers called by Farrow rather than those called on behalf of Mr Stone although his conclusions did not depend upon direct findings as to credibility.  On the other hand, his Honour did say that he was unable to place any reliance on Mr Stone's evidence on any matter in which there is controversy.  He said that Mr Stone struck him as “one of those individuals whose views and assertions seldom coincide with reality”.  A similar view was formed by his Honour of Mr Stone's brother who also gave evidence in support of Mr Stone’s case.

In February of this year, Mr Stone made an application to the Chief Judge of the Commercial Division for a stay of Bainton J’s judgment.  That application was rejected.  Mr Stone then made an application to the Court of Appeal for a stay.  That application came before Beazley JA of the Court of Appeal on 23 February 1998.  Beazley JA observed that during the course of the submissions made by each party in the matter, the trial judge had considered the evidence adduced by both Mr Stone and Farrow and preferred the evidence of Farrow's witnesses including the expert witnesses over the evidence of Mr Stone himself and the evidence of Mr Stone's expert witnesses.

Beazley JA also observed that when the matter comes to hearing on appeal, should that occur, Mr Stone will be faced with the application of the principles enunciated in the High Court in Abalos v Australian Postal Commission (1990) 171 CLR 167 and later confirmed in Devries v Australian National Railways Commission (1993) 177 CLR 472. Her Honour considered that Mr Stone will face some difficulty in being able to prove that the trial judge erred in his preference of those witnesses unless he is able to demonstrate that the trial judge probably misused the advantage which he had in preferring the evidence of Farrow's witnesses. Beazley JA observed that there was nothing in the material which Mr Stone had presented to her nor on the face of the judgment which demonstrated that he was likely to be able to do that. Her Honour found it difficult to see that the appeal had much prospect of success and that was a very telling reason why a stay would not be granted. Her Honour therefore declined to grant the stay and dismissed the application.

Mr Stone said in argument before me that he had not understood the task which was effectively before him in seeking a stay and that the basis of the grounds which he wished to develop did not involve persuading the Court of Appeal that it should come to a different conclusion in relation to evidence given by witnesses whose credibility had rejected by Bainton J.  Mr Stone has therefore sought an extension of time within which to seek a review of the decision of Beazley JA by a Full Court of the Court of Appeal.  That application has been fixed for hearing on 27 April 1998.

The material to which I have been taken to date by Mr Stone does not persuade me to a different conclusion from that expressed by Beazley JA.  There is nothing in the reasons of Bainton J on their face which suggests that his Honour erred in the conclusions which he reached and which I have summarised.  Nevertheless, the question which I have to decide may not be the same as that which was before Giles CJ ComD and Beazley JA.

It is well established that, in general, a Court exercising jurisdiction in bankruptcy should not proceed to sequestrate the estate of a debtor where an appeal is pending against the judgment relied on as the foundation of the bankruptcy proceedings provided that the appeal is based on genuine and arguable grounds (see Ahern v Deputy Commissioner of Taxation (Qld) (1987) 76 ALR 137 at 148). The question is whether Mr Stone's appeal is based on genuine and arguable grounds. As I have said, I am not satisfied at present that the appeal is so based. However, in order to hear Mr Stone in relation to that matter, it appears to me that possibly several more hours of Court time will be involved in circumstances where a similar, although not necessarily the same, question is to be ventilated before the Court of Appeal on 27 April.

Of course, if I made a sequestration order today it may be that the appeal would not proceed because a trustee in bankruptcy may elect not to prosecute the appeal.  On the other hand the making of a sequestration order is not necessarily decisive of that matter.  The trustee in bankruptcy may be prepared to allow Mr Stone to prosecute the appeal himself although it may be that the prosecution of the appeal would be frustrated by an order for security for costs if such were sought by Farrow.  That is a possibility whether or not a sequestration order is made.

An adjournment may involve some prejudice to Farrow.  First, costs will be thrown away.  It appears to be common ground that Mr Stone is not in a position to meet any order for costs which might be made against him.  On the other hand, if I hear him out, the case will not finish today unless I cut him short before he finishes his address.  Thus a further day's costs are likely to be incurred to complete the hearing of his application for an adjournment.

The second possible prejudice is that Mr Leamey, the solicitor who has argued the matter on behalf of Farrow, may not be with Farrow’s solicitors at the time to which I propose to adjourn the petition.  Mr Leamey has had significant personal involvement in the litigation with Mr Stone and is very familiar with the issues, such that it could be unfairly prejudicial to Farrow for it to be deprived of the benefit of his assistance.  However, Mr Leamey did concede that it is reasonably possible that, notwithstanding that his direct relationship with those solicitors is to be terminated, he may well be able to continue to give some assistance in relation to any further hearing of the petition.

It really is a question of judgment as to the administration of the Court and the best use of judicial time and the further time of Mr Leamey.  Rather than take further time, I propose to adjourn the hearing of the petition to 9.30 am on 28 April 1998 before me.  However, no further adjournment will be granted to Mr Stone, unless he has filed and served no later than 20 April 1998 a document setting out the grounds of appeal upon which he says he has reasonable prospects of success, supported by any references to the evidence and proceedings before Bainton J and attaching copies of any of the material intended to be relied upon together with written submissions as to why this Court should be satisfied that the appeal is based on genuine and arguable grounds so as to justify any further adjournment of the petition.  I indicate that I would not propose to allow more than very brief argument from Mr Stone on 28 April.

If those documents are not filed and served by 20 April I propose to refuse to hear any further argument in support of a further adjournment and to proceed to hear the petition.  I order Mr Stone to pay the costs of today.

I certify that this and the preceding six (6) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett

Associate:

Dated:             24 March 1998

Solicitor for the Applicant:	Abbott Tout
Date of Hearing:	24 March 1998
Date of Judgment:	24 March 1998