Forrester v Island Industries Pty Ltd (No 3)
[2010] NFSC 4
•19 August 2010
SUPREME COURT OF NORFOLK ISLAND
Forrester v Island Industries Pty Ltd (No 3) [2010] NFSC 4
Citation: Forrester v Island Industries Pty Ltd (No 3) [2010] NFSC 4 Parties: JOHN KENNETH FORRESTER v ISLAND INDUSTRIES PTY LTD and JOHN TERENCE BROWN File number: SC 4 of 2008 Judge: LANDER J Date of judgment: 19 August 2010 Catchwords: PRACTICE AND PROCEDURE – deferment of judgment – whether payment of judgment would entail serious hardship for the defendants – exercise of discretion.
Held: No serious hardship for first defendant on the evidence – deferment of judgment from second defendant would prejudice the plaintiff.
Legislation: Court Procedures Act 2007 (NI) s 81
Judiciary (Stay of Proceedings) Act (ACT) s 4 (repealed)
Moratorium Act 1932 (NSW) s 28 (repealed)Cases cited: Malick v Nabty (1942) 59 WN (NSW) 21 cited
Reslau Robes Pty Ltd v Luke (1938) 55 WN (NSW) 213 cited
Union Offset Pty Ltd v Wigham (1977) 14 ACTR 43 appliedDate of hearing: 29 July 2010 Place: Norfolk Island Division: General Category: Catchwords Number of paragraphs: 46 Counsel for the Plaintiff: Mr A Lo Surdo Solicitor for the Plaintiff: Swaab Attorneys Counsel for the Defendants: Mr J Brown Solicitor for the Defendants: McIntyres Lawyers
IN THE SUPREME COURT OF NORFOLK ISLAND
GENERAL DIVISION
SC 4 of 2008
BETWEEN: JOHN KENNETH FORRESTER
PlaintiffAND: ISLAND INDUSTRIES PTY LTD
First DefendantJOHN TERENCE BROWN
Second Defendant
JUDGE:
LANDER J
DATE:
19 AUGUST 2010
PLACE:
NORFOLK ISLAND
REASONS FOR JUDGMENT
This is an application by the defendants pursuant to s 81 of the Court Procedures Act 2007 (NI) (the Court Procedures Act) to stay until 31 December 2010 the execution of a judgment entered in favour of the plaintiff against the defendants in the sum of $169,872.51 on 15 March 2010.
On 16 February 2010 Downes J, a Judge of this Court, published reasons for judgment in which he assessed the compensation payable pursuant to a deed between the plaintiff and the defendants as approximately $175,000. At the time that he published his reasons he delayed entering the orders to enable the parties to consider the matters to which he had referred in his reasons. On 15 March 2010 he entered judgment for the sum of $169,872.51. He ordered the defendants to pay one-quarter of the plaintiff’s costs on a party and party basis.
On 16 March 2010 the plaintiff’s solicitor wrote to the defendants requesting payment of the judgment amount without delay, but received no response. On 13 May 2010 the plaintiff filed and served a bankruptcy notice on the first defendant.
On 3 June 2010 the defendants made this application under s 81 of the Court Procedures Act seeking an order that the judgment herein be deferred until 31 December 2010. An application under that section operates as a stay of the proceedings until the application is heard: s 81(2). Because the application was brought within the time prescribed in the Bankruptcy Notice (21 days), the application meant that no act of bankruptcy has yet occurred.
The defendants filed an affidavit in support of their application. Subsequently, in response to a direction made by me, the plaintiff filed an affidavit in response.
The proceedings which gave rise to the judgment were based upon a deed made in June 1999 under which, by reference to other documents, the defendants undertook to remediate the damage done to the plaintiff’s property and buildings as a result of the first defendant’s drilling, blasting and removal of rock from the plaintiff’s land.
Originally the defendants undertook to complete the remediation by July 1999, but in fact no work was carried out, as a result of which the plaintiff sued upon the deed. Justice Downes attributed the delay for that to the second defendant saying:
It is an unfortunate aspect of this case that more than ten years after the deed was executed there has still not been adequate remediation of the land. For this delay Mr Brown must bear the largest share of responsibility. Again and again, Mr Forrester wrote and spoke to Mr Brown about his obligations. Some activity took place, but the parties do not rely on that work except by recognising that it is the land in its present state which must be remediated. The overwhelming impression I have from the material before me is that Mr Brown repeatedly failed to perform his obligations although constantly being requested to do so. True, there were some delays for which he was not responsible – a proposal of Mr Forrester and his son, Brad, for the building of a maintenance road as a means of carrying out the remediation – is an example. Nevertheless, I do not doubt that if Mr Brown had produced appropriate plans at an early date and promptly carried out the work provided for in the plans, this litigation was likely to have been avoided. As it is, Mr Forrester commenced these proceedings on 11 November 2008.
Forrester v Island Industries Pty Ltd [2010] NFSC 1 at [22].
The defendants admitted their liability under the deed and the matter came before Downes J merely for the purpose of assessing the compensation payable under that deed.
The plaintiff is an 84 year old resident of Norfolk Island who in May 1996 was diagnosed with prostate cancer and underwent six weeks of radiation treatment. He has continued to receive treatment for that cancer as his PSA levels have risen. In or about mid 2001 he was diagnosed with Atrial Fibrulation and is on medication to thin his blood. He is required to visit a heart specialist in Sydney approximately every six months. As a result of a nerve compression in his back he is only able to walk with the aid of two walking sticks. He claims that his medical conditions have been exacerbated by the stress of the legal proceedings.
In September 2009 he borrowed $250,000 from Westpac Banking Corporation for the purpose of maintaining these legal proceedings. In January 2010 he was obliged to borrow a further $160,000.
The interest rate payable on the loan is 7.94%. The loan was due to be reviewed by 31 March 2010 but the plaintiff has not suggested that the amount will be called up by Westpac. The amount owing as at 28 June 2010 was $378,930.55. Interest accrued in the sum of $2,758.32 in the month of May.
The second defendant is a solicitor who is a director and shareholder of the first defendant. On 23 March 2010, in response to the plaintiff’s solicitor’s claim, the second defendant wrote indicating that the first defendant would be able to commence the remediation works to the plaintiff’s property “immediately” under the supervision of Mr Darren Crane.
On 23 March 2010 the plaintiff’s solicitors responded saying that the judgment was for the sum of $169,872.51 and that their client required payment of that amount.
The second defendant has three sources of income. First, from his legal practice, although he said in the last year he earned no profit and this year expected not to earn any profit; secondly, in his interest in the first defendant which operates the business of quarrying, rock crushing, manufacture of pre-mix concrete and general contracting; and thirdly, from his shareholding in Resort Investments Pty Ltd, which owns the All Seasons Colonial of Norfolk Island which is a 55-room tourist hotel on Norfolk Island.
On 31 March 2010 the Commonwealth Bank declined to renew the loan owing by Resort Investments Pty Ltd to it and demanded payment of $2,597,431.20 within seven days. On 8 April 2010, as a result of the default of Resort Investments Pty Ltd, the Commonwealth Bank appointed receivers and managers.
Both defendants have guaranteed the Resort Investments Pty Ltd’s indebtedness to the Commonwealth Bank. On 13 April 2010 the Commonwealth Bank issued formal demands to both defendants for payment of the amount owing.
The second defendant says that the value of his investment in the first defendant is $2,450,000 and the value of his investment in Resort Investments Pty Ltd is $2,200,000, provided in both cases the respective companies’ assets are not disposed of on a fire sale basis. He says that the net value of his legal practice is $40,000, which includes debtors and work in progress.
The second defendant is also the owner of real estate on Norfolk Island: (a) three blocks of cliff-top land, upon which is erected a house, at Two Chimneys Road, Steeles Point, Norfolk Island which have been valued at $1,080,000 and are subject to a first mortgage to Westlawn Finance for $580,000, together with a second mortgage to the Commonwealth Bank to support his guarantee over the borrowings by Resort Investments Pty Ltd, and a third mortgage to G Blake SC and others to secure payment of up to $300,000 in legal fees; (b) a home on a block of level land at Two Chimneys Road, Steeles Point, Norfolk Island valued at $330,000, which is subject to a first mortgage with the Commonwealth Bank of $187,000 and a second mortgage to G Blake SC and others as additional security; (c) an industrial property in Stockyard Road, Norfolk Island valued at $800,000 subject to a first mortgage to Westlawn Finance as additional security for the $580,000 loan referred to in (a) above, and a second mortgage to G Blake SC and others as additional security; (d) a house at Shortridge Road, Norfolk Island valued at $237,000, which is subject to a first mortgage to the Commonwealth Bank of $135,508 and a second mortgage to J Lisner in the sum of $90,000.
The second defendant claims that the value of real estate owned by him is $2,447,000, which is subject to mortgages in the sum of $1,292,508 plus the guarantee liability to the Commonwealth Bank in relation to the borrowings by Resort Investments Pty Ltd.
The second defendant says that he is a co-borrower with his wife in respect of a loan of $311,811 which is secured against his wife’s house and which sum was used for a part of his investment in Island Industries Pty Ltd. He has credit card liabilities of $320,000.
He deposed in his affidavit sworn on 3 June 2010 that the land in (a), (b) and (c) above has been offered for sale through Island Realty in Norfolk Island, but no offers have been received. He said in that affidavit that arrangements have been made to offer those properties for sale by tender which closed on 6 July 2010. He has not indicated in any later evidence the result of that tender process.
He said that the business of the first defendant has been listed for sale and he intends to engage a mainland valuer to value the company’s inventory.
He says that the tourist industry has suffered during the last two financial years as a result of which the Norfolk Island Government has contracted its spending and as a consequence the first defendant, which has the Norfolk Island Government as its major customer, will receive less than a half of that which it has received in normal years.
He claims that both defendants have suffered significant losses and that the immediate payment of the whole of the judgment debt will entail serious hardship.
Section 81 of the Court Procedures Act provides:
81. (1) If it is shown to the satisfaction of a court that a person, against whom the court has given judgment or made an order for the payment of a sum of money—
(a) has suffered such a loss; or
(b) is in such circumstances;
that the immediate payment of the whole or any part of the sum will entail serious hardship, the court may, at the time of giving the judgment or the making of the order, or subsequently, on the application of the person adjudged or ordered to pay the sum of money, in its discretion, if in all the circumstances it considers it desirable so to do, order that the payment of the whole or part of the sum shall be deferred until the time and on the conditions that the court considers appropriate.
(2) An application under this section shall operate as a stay of proceedings on the judgment or order until the hearing of the application.
A person who is seeking to avail himself or herself of the advantages of s 81 has the onus of establishing:
(a)that a judgment has been given against that person for the payment of a sum of money;
(b)that person has suffered such a loss or is in such circumstances that the immediate payment of the whole or any part of the sum would entail serious hardship; and
(c)that in all the circumstances it is desirable that the payment of the whole or part of the sum shall be deferred until the time and on the conditions that the Court considers appropriate.
The legislation is not unique to Norfolk Island. The same provision was at one time in place in the Australian Capital Territory: s 4 of the Judiciary (Stay of Proceedings) Act 1933 (ACT) (the Judiciary (Stay of Proceedings) Act). A similar provision was in place in New South Wales; s 28 of the Moratorium Act 1932 (NSW) (the Moratorium Act). Both Acts have now been repealed. Section 28 of the Moratorium Act differed by referring to “great hardship” rather than “serious hardship”.
In Reslau Robes Pty Ltd v Luke (1938) 55 WN (NSW) 213, Bavin J considered s 28 of the Moratorium Act. Four statements of principle can be extracted from his Honour’s reasons:
(1)the onus thrown upon an applicant for relief is not discharged “merely, by showing that it is inconvenient for the judgment debtor to pay the debt, or even by showing that its immediate enforcement may lead to bankruptcy. That is the natural consequence of inability to meet a debt when due;”
(2)it is not sufficient for an applicant to show that “the immediate payment of the debt will involve the sacrifice of assets which, if payment is deferred, might realise a higher price … Every debtor who has assets is presumed to know that if judgment is recovered against him his assets must be made available to meet his debt, and that assets sold under such conditions do not always realise their full value;
(3)a judgment debtor “… must show that there are special circumstances which could not have reasonably been contemplated when the debt was incurred …”; and
(4)“… the normal legal or business consequence of failure to pay debts when they become due …” does not constitute the necessary hardship.
That decision was applied in Malick v Nabty (1942) 59 WN (NSW) 21.
Section 4 of the Judiciary (Stay of Proceedings) Act was considered by Connor J in Union Offset Pty Ltd v Wigham (1977) 14 ACTR 43. Justice Connor noted the difference between that section and s 28 of the New South Wales Act. He said at 46:
The section is similar to the provision in s 28 of the Moratorium Act 1932 of New South Wales which is now defunct. The provisions in the New South Wales Act are to the same effect except that the court must be satisfied that immediate payment of the whole or part of the money would inflict great hardship. I think that “great hardship” indicates a somewhat higher degree of hardship than “serious hardship”. I think this should be borne in mind when considering the reported authorities in New South Wales on s 28 of the Moratorium Act: see for example Reslau Robes Pty ltd v Luke (1938) 55 WN (NSW) 213; Malick v Nabty (1942) 59 WN (NSW) 21.
His Honour said it was unwise to set out an exhaustive statement of matters that need be considered under the section but identified seven circumstances which he thought to be relevant; three of which are relevant on this application.
(a)the onus is on the applicant to satisfy the Court that the immediate payment of the whole or any part of the judgment sum will entail serious hardship;
(b)the section is deigned “… to deal with a situation of relatively short duration to enable the situation to be improved or overcome so that an immediate execution will not produce a serious hardship …”
(c)the “… discretion of the court is a wide one and in some cases it may be relevant to consider any serious hardship which the granting of the application will cause to the judgment creditor.”
I am satisfied first, that the Court has ordered by way of judgment the plaintiff to pay the amount of the judgment sum referred to above. Secondly, I am satisfied that in the present circumstances the immediate payment of the whole or any part of that sum would entail serious hardship for the second defendant. His financial position appears to be illiquid. However, I am not satisfied on the evidence that payment of the judgment sum would cause the first defendant any harm. There is no evidence before me of the first defendant’s assets or liabilities. There is no evidence of its income or expenditure. All I have is an assertion that the first defendant’s income will be reduced because of the reduction in tourist traffic. How that will affect the profitability of the company is not explained. There is evidence that the second defendant’s investment in the first defendant has a value of $2,450,000, which may indicate that the first defendant is in a position to meet the judgment debt.
Because the first defendant has decided not to put its financial position before me, I cannot make a finding that payment of the judgment sum or any part of it would entail the first defendant in serious hardship. Insofar as the first defendant seeks an order deferring payment of the judgment sum, its application must be dismissed.
The remaining question is whether in the exercise of my discretion I consider it desirable to order that the payment of the whole or part of the judgment sum by the second defendant should be deferred and, if so, upon what conditions.
Any order delaying payment of the judgment sum until 31 December 2010 will cause the plaintiff hardship in two ways. First, it will put the plaintiff to the cost of paying the additional interest which will accrue on the amount owing to the Westpac Bank which was raised for the purpose of bringing the legal proceedings which were ultimately successful, albeit in respect of a judgment for a lesser sum than the amount borrowed. Secondly, the non-payment of the judgment sum will continue to be a source of aggravation and stress on a man in the winter of his life and with the medical disabilities identified.
In my opinion, both defendants have done little over the past 10 years to satisfy the plaintiff’s claim that the defendants have, without the plaintiff’s consent, carried out quarrying operations on his property with the result that his property and the buildings upon them have diminished in value. It was not until judgment was entered that the defendants then offered to carry out the work, which the plaintiff rejected.
I am not satisfied that the second defendant will take steps to obtain the necessary funds to meet the defendants’ obligations to the plaintiff under the judgment by the end of this year. The second defendant has deposed to the steps that he is taking to realise his assets. However, there is an antecedent question which must be answered. What is the value of the second defendant’s investment in Resort Investment Pty Ltd? Moreover, what liability will the defendant’s face if the Commonwealth Bank cannot recover its investment? One would have thought that the appointment of receivers and managers would have had an adverse effect on that investment. The Receiver and Manager, it was said, intends to sell the property and business. The second defendant has not deposed to what has happened in that regard since he swore his affidavit nearly eight weeks earlier on 3 June 2010.
The defendants are now at risk for the sum claimed on the guarantees. It is likely that the Commonwealth Bank will take steps to protect itself in relation to Resort Investment Pty Ltd’s indebtedness. The second defendant has not deposed as to the likely exposure in relation to this loan.
The second defendant has a significant personal liability of $320,000 on his credit cards. The interest payable on credit cards would create very great liabilities in a short time.
The second defendant has not deposed to the result of the tender process by which tenders were to close on 6 July 2010. He has not indicated whether the first defendant’s business has yet been listed for sale.
The second defendant on his own account will have little income from his investments between now and 31 October 2010.
There is nothing on the evidence which would indicate that the second defendant would have any better prospects of meeting the judgment debt on 31 December 2010. It is likely, having regard to his liabilities, that his position will worsen unless he can realise his assets very quickly. He has not done so.
Whilst I accept that the second defendant will suffer serious hardship, I do not think an order should be made because to do so would prejudice the plaintiff in circumstances where the hardship might be the same or greater as at 31 December 2010. I also think that the plaintiff should be entitled to attempt to execute on his judgment in view of the second defendant’s parlous state which could well deteriorate.
I am not confident at the end of the period of grace which is sought by the defendants that the second defendant will be in any better position to meet the judgment debt than he is today. The second defendant has had the benefit of a stay between the date of filing this application and the delivery of these reasons: s 81(2). He should not have any further indulgence.
The application is dismissed.
I will hear the parties as to costs.
I certify that the preceding forty-six (46) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lander. Associate:
Dated: 19 August 2010
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