Macks v Brown
[2005] FMCA 605
•13 May 2005
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| MACKS v BROWN | [2005] FMCA 605 |
| BANKRUPTCY – Application pursuant to s.120 of the Bankruptcy Act – agreement reached at mediation – application to enforce agreement – s.14 of the Federal Magistrates Act. |
| Bankruptcy Act – ss.120, 121, 100 Federal Magistrates Act – ss.53A, 14 Federal Court of Australia Act – ss.22, 23, 32 |
| Darling Downs Investments Pty Ltd v Ellwood (1988) 80 ALR 203 Pallas v Finlay (1985) 65 ALR 220 Macteldir v Dimovski (2003) FCAFC 228 Jones v Dunkel (1959) 101 CLR 298 |
| Applicant: | PETER MACKS |
| Respondent: | LEAH YVONNE BROWN |
| File Number: | ADG 270 of 2003 |
| Judgment of: | Lindsay FM |
| Hearing date: | 11 February 2005 |
| Delivered at: | Adelaide |
| Delivered on: | 13 May 2005 |
REPRESENTATION
| Counsel for the Applicant: | Peter Thatcher & Associates |
| Solicitors for the Applicant: | Baycity Law |
| Counsel for the Respondent: | Mr Riggall |
| Solicitors for the Respondent: | Mr Margitich |
THE COURT ORDERS AND DECLARES THAT:
The applicant has an equitable interest in the land comprised and described in Certificate of Title Register Book Volume 5440 Folio 40 (“the land”) by virtue of an express or resulting trust consequent upon payment of $35,000 by the bankrupt on account of purchase of the land;
There be judgment for the applicant in the sum of $35,000 plus interest at 10% calculated from 10 May 2004.
The land be sold forthwith and the proceeds applied as follows:
3.1 Firstly in discharge of Registered Mortgage M9046177;
3.2 Then in payment of selling costs and disbursements;
3.3Then in payment to the applicant of the sum of $35,000 plus interest at 10% calculated from 10 May 2004;
3.4Then the balance to the respondent.
To give better effect to these orders:
4.1The applicant may appoint a licensed land agent with sole authority to sell the land by public auction, or with the consent of the respondent or by order of this court, by private treaty;
4.2The respondent shall vacate the land at the expiry of 42 days from the date hereof;
4.3The applicant shall before offering the land for sale by public auction obtain a written appraisal from the said licensed land agent and provide the same to the respondent who shall have liberty to apply to this court on short notice in the event that the appraisal is less than what she contends to be the fair value of the land;
4.4The respondent shall do all things reasonably necessary and execute all authorities and documents needed to give effect to this order.
Liberty to apply for consequential orders to give effect to this order.
FEDERAL MAGISTRATES |
ADG 270 of 2003
| PETER MACKS |
Applicant
And
| LEAH YVONNE BROWN |
Respondent
REASONS FOR JUDGMENT
The applicant is the trustee of the bankrupt estate of Jordan Favotto.
Mr Favotto was made bankrupt on 24 June 2002.
In December 2000 he and the respondent entered into a contract (“the contract”) to buy real property at Mount Barker South Australia ("the property").
On 6 February 2001, Favotto transferred $45,000 from his bank account to the bank account of the respondent ("the money").
On 12 February 2001, Favotto assigned his interest in the contract to the respondent.
On 15 February 2001 the respondent purchased the property.
Some of the money was used by the respondent to purchase the property.
On 1 December 2003, the applicant filed a claim in this court seeking declarations and orders pursuant to sections 120 and 121 of the Bankruptcy Act ("the Act"). Certain of the declarations sought were referable to other sections of the act.
On 18 December 2003 the Court ordered the parties to attend mediation. It did so pursuant to rule 27.05 of the rules of this Court and section 53A of the Federal Magistrates Act.
On 5 February 2004, the mediation commenced. The respondent was in attendance with two solicitors, Mr Kavanagh and Ms McCrohan. The mediation was adjourned to 27 February 2004.
On that day the respondent was once again accompanied by those solicitors. The matter settled.
On 8 March 2004 the Court was told of the settlement and asked to adjourn the matter until 18 June 2004 to enable the settlement to be effected. It was specifically noted that a notice of discontinuance may be filed after 31 May 2004.
A handwritten note of the terms of settlement was signed by Mr McGregor, of the applicant's firm, and by the respondent. It provided as follows:
The matter is settled upon the following terms:
1.That subject to paragraph 2 the respondent pay the sum of $35,000 on or before 31st May 2004 in full and final settlement of all claims Macks has against the respondent.
2.That the respondent forthwith execute a withdrawal in blank in respect of bank account number 17-0521 Westpac Marion SA (“the account”).
3.The respondent acknowledges that she makes no claim to the monies comprising the balance of that account.
4.In the event that conditions one or two are not complied with to the reasonable satisfaction of the trustee then the respondent will consent to judgement on the following terms:
4.1Order in accordance with paragraphs 2 and 4 of the application save that the sum shall be read as $35,000;
4.2That the amount paid to the applicant from the sale be $35,000 plus interest at 10% p.a. from 31 May 2004;
4.3That the amount standing in the said account be paid to the applicant as his sole beneficial property;
4.4That the applicant and respondent each bear their own costs save and except that the applicant will be entitled to the cost of obtaining judgement and any costs necessarily incurred thereafter including any cost of and incidental to realising his interest in the land.
5.The parties acknowledge that this settlement was reached on the basis of certain representations made by the applicant in a letter from the applicant’s solicitors dated 17/2/04.
6.The parties otherwise release each other from all suits and demands.
Paragraph 4.1 refers to paragraphs [2] and [4] of the application. Those paragraphs seek the following orders:
“2.Alternatively a declaration that he has an equitable interest in the land by virtue of an express or resulting trust consequent upon payment of the sum of $47,000 by the bankrupt on account of the land (“the transfer”).
4.Alternatively an order that the land be sold and the proceeds paid to the applicant.”
On 18 June 2004 the application was adjourned to 1 July 2004. The respondent was not legally represented. By then it was clear that the respondent was no longer prepared to adhere to the settlement. Her reasons for that were made more clear as time passed and as she obtained representation again.
Ultimately the matter came on for trial before me in November 2004 and on 11 February 2005. I reserved my judgment.
The applicant seeks to enforce the terms of settlement. Only if I decline to do that does he seek orders pursuant to sections 100 and 121 of the Act.
The applicant relies upon section 14 of the Federal Magistrates Act:
Determination of matter completely and finally
In every matter before the Federal Magistrates Court, the Federal Magistrates Court must grant, either:
(a) absolutely; or
(b) on such terms and conditions as the Federal Magistrates Court thinks just;
all remedies to which any of the parties appears to be entitled in respect of a legal or equitable claim properly brought forward by him or her in the matter, so that, as far as possible:
(c) all matters in controversy between the parties may be completely and finally determined; and
(d) all multiplicity of proceedings concerning any of those matters may be avoided.
This is a mirror image of the legislative provision considered in Darling Downs v Ellwood (1988) 80 ALR 203 which was section 22 of the Federal Court of Australia Act.
In that case, the judge at first instance had enforced the terms of a settlement of proceedings. The proceedings had not been discontinued or otherwise terminated when judgment was entered. On appeal, it was contended that the original proceedings were extinguished by the compromise, leaving the parties with a contractual right to sue on the agreement but only in separate proceedings, in respect of which proceedings the Federal Court did not have a jurisdiction. It appears that the judge at first instance did not rely on section 22 of the Federal Court of Australia Act.
Fisher J, dissenting, considered that the enforcement proceedings were beyond the jurisdiction of the court. He applied the, "common substratum of facts" test and said that the enforcement proceedings were unrelated to the original cause of action. Section 22 gave additional powers but no additional jurisdiction. The court having no jurisdiction, the enforcement proceedings could not be described as "properly brought forward" in the language of the section. He found that an earlier Full Court decision of Pallas v Finlay (1985) 65 ALR 220 had been decided upon those same grounds and that the judge at first instance fell into error in considering that it was distinguishable on the facts before him from Pallas (supra).
The majority (Pincus and Einfield JJ) were not persuaded by the argument that the matter fell to be determined on accrued jurisdiction principles.
At 214 they say:
Stated broadly, the question is whether the enforcement of the settlement was permissible as part of the court’s disposition of the federal matter. The point does not depend on the order’s being for payment of money; it might equally arise if the compromise had required the performance of some other act, such as a transfer of property. Nor does it depend on the judgment’s having been opposed; if it was beyond power, consent could not save it.
It is conceded that, where a claim is settled on an agreement to pay a particular sum, the Supreme Court would have power to enforce the compromise by giving judgment, in the settled proceedings, for that sum. The question is whether the statute under which this court was established, on its proper construction, intended that this court should have a similar power.
The provisions of ss22, 23 and 32 of the Federal Court Act of Australia 1976 (Cth) (the Act) would, without the cases, lead towards the conclusion that ordinary ancillary powers of that kind were intended to be vested in this court. But the question is whether this general intention of Parliament has been given effect to by appropriate language. No constitutional point is or could be raised and the question is one of construction of the statute; it is of course clear that the Federal Court may be empowered to make such orders.
As to the "jurisdiction/power" issue, their Honours find at 218:
The issue here, however, is not about the substance of the matters which this court may entertain, but rather about the consequences of their litigious resolution.
It is clear that s22 cannot have been intended merely to give the court power to make orders of particular kinds “in relation to matters in which it has jurisdiction”; that work is explicitly done by the following provision, s23 What the court is required to do by s22 is to grant all remedies to which any party appears to be entitled in respect of a claim properly brought forward in a matter. Is an order enforcing a compromise of a case such a remedy? On general principles it would seem at least arguable that the enforcement of a compromise of a claim is a remedy in a new claim and abovementioned; have taken the contrary view. If, as McPherson J held (in our respectful opinion, correctly), the Queensland equivalent of a s24(7) of the Judicature Act 1873 (UK) enlarged the circumstances in which a compromise may be enforced by order in the action compromised, that was only so because such an order is a remedy of the kind referred to in the section. McPherson J did not decide the case before him on the basis that what was sought was nothing but a remedy in respect of a fresh cause of action in contract; nor should we so decide this case.
They note, at 215, that Pallas (supra) appears to have been determined on an accrued jurisdiction basis but have no difficulty in finding that section 22 has the same or similar effect as the Judicature Acts provisions examined by them and also examined in the authorities upon which they relied.
Neither did their Honours think that anything turned upon any distinction that could be drawn between accord executory and accord and satisfaction (see page 219) though such remarks are obiter dicta in the light of their view that the facts before them constituted more than the acceptance of a promise.
The case of Macteldir v Dimovski [2003] FCAFC 228 was a section 22 case which went the other way but upon the basis of a number of very clearly distinguishable factual considerations. The view of the majority in Darling Downs (supra) was specifically endorsed at [50]. Critically, the cause of action was at an end when enforcement was sought (see [53]); involved undertakings and not orders ([51]); and were properly characterised as involving matters extraneous to the original suit in respect of which substantial questions remain to be determined ([52]).
Nevertheless, the case emphasises the existence of a discretion as to whether enforcement will be granted and describes matters which might be thought relevant to the exercise of the discretion ([40] and [39]).
The respondent argues that the relief pursuant to section 14 of the Federal Magistrates Act should be refused. She says that the agreement reached at mediation was made by her only because she was misled by the applicant’s solicitors on that day as to the true state of affairs pertaining with respect to Mr Favotto's application for annulment of his bankruptcy in this Court (of which application, more hereafter).
Ms Brown was aware that Favotto had filed such an application. It was clearly capable of having a significant impact upon the course of the proceedings involving her and the trustee. Almost inevitably the trustee's application pursuant to sections 120 and 121 would fail or would be discontinued should Favotto's bankruptcy be annulled.
It will be recalled that the settlement was reached on 27 February 2004.
Favotto's application was before the court on 10 February 2004. He was represented by a legal practitioner. He applied through her for an adjournment. It was refused. In fact, his annulment application was dismissed. He was given, however, liberty to reinstate the application by written application made before 10 March 2004.
Ms Brown says that through her solicitor Ms McCrohan and during the course of the mediation on 27 February 2004 she inquired of Ms Moat, one of the legal practitioners representing the applicant, as to the outcome of Favotto's application and was told that Favotto had not turned up and that his application had been dismissed. She says therefore that she was not told that he did have a lawyer present on the day and was not told of the liberty to apply having been granted.
On account of the pressure to settle exerted upon her at the conference and the stressful nature of the proceedings in which her continued ownership of her house was at risk, these alleged misrepresentations, she said, had a significant impact upon her. She felt very upset and shocked and thought that all hope for her defence of the proceedings had gone. Only on account of these misrepresentations did she elect to settle the matter on the terms described.
If the truth of this account and the materiality of the representation is admitted, then the consent to the agreement must be vitiated just as it would be if the outcome had been an order having been made by consent. The consent must be informed and not the product of false representations or inducements. In any event, use could not be made of section 14 in that it could not be said that the claim for enforcement in such circumstances was "properly brought forward" by the applicant.
But the respondent's account is disputed as are the materiality of the representations.
There will be cases where the agreement itself is so controversial and attended with so much doubt that the court will not embark upon a determination of the enforcement application pursuant to section 14 at all. Here, I had to hear the evidence of the events of the day of the mediation in a summary procedure clearly contemplated by the judgments in Darling Downs and Macteldir (supra). It was proper and convenient to do so. The issues were clearly staked out. In the end result, I entertained no doubt as to the appropriateness of holding the parties to the agreement reached at mediation.
Ms Moat denied that she gave other than an accurate account of the outcome of the Favotto hearing on 10 February 2004 to Ms Brown's solicitors but even if I did not accept her evidence (and I do, in preference to that of Ms Brown, for reasons I will discuss shortly), I do not consider there was any material difference between what actually occurred on 10 February 2004 and what Ms Brown claims to have been told as having occurred. It was agreed before me that Favotto terminated his lawyer's instructions shortly after 10 February 04 and reinstated his application pursuant to the liberty to apply to do so. The application was ultimately dismissed after a number of applications for adjournment had been made by Mr Favotto and refused by the Court. His appeal from that dismissal has itself been dismissed. On both versions of what transpired on 10 February, the respondent is informed of the dismissal of the action. Whether Favotto had a lawyer present (shortly thereafter to be dismissed) can hardly be seen to be of any moment. The one thing missing from Ms Moat's information as described by the respondent (who herself relied on Ms McCrohan's account to her) is the opportunity to reinstate having been granted, and we know that ultimately that opportunity has been taken but without success.
But even if I am wrong about the materiality, I simply did not accept the respondent's account of these matters for the following reasons.
She did not call either of the legal practitioners present with her on the day. The suggestion that one or both of them was sued or was intended to be sued by her does not satisfactorily explain that circumstance in such a way as would disentitle me, in accordance with longstanding authority, from inferring that if those witnesses or either of them were called they would not assist her case (Jones v Dunkel (1959) 101 CLR 298). The proposed witnesses are officers of the court. They would be expected to tell the truth as to the relevant events, notwithstanding any alleged personal disgruntlement with being sued. McCrohan was a vital witness. She was the conduit of the misrepresentation. I am prepared to infer that neither she nor Mr Kavanagh would have assisted the respondent had they been called to give evidence.
This inference is made with further reason when the contents of exhibit 8 (Ms Brown's written instructions to her solicitors on the day of the mediation) are considered. It is recorded therein:
I am also aware Jordan has an application before the Federal Magistrates Court to annul his bankruptcy. I am advised that the trustee Macks' lawyers say Jordan's lawyers didn't show up at the last hearing and it is proposed at the next hearing (sic) the application be dismissed and that any annulment would be conditional on paying Macks' costs, which are substantial.
Whilst it corroborates her account of the information as to the absence of legal representation, it gives a different account of the crucial issue of dismissal. It is said that the application will be dismissed on a subsequent occasion, arguably a better outcome than dismissal with leave to reinstate.
In addition, I found Ms Moat to be a witness who carefully and conscientiously gave her recollection of the relevant events. She was not present at the Favotto hearing and was herself relying on another's account. The understanding Ms McCrohan (or Mr Kavanagh, it is not clear whom) had as to the presence of Ms Richards at the hearing on 10 February 2005 (though Favotto was absent) is consistent with the room for error which is latent in the passing down of information through so many hands. The respondent's evidence on this topic was far less convincing. The impact of the alleged misrepresentation upon her decision making at the mediation was not described in any convincing fashion but, rather, seemed strained to accommodate the propositions being advanced by counsel on her behalf. My evaluation of her evidence on this topic was also influenced by my rejection of her evidence on other topics (see under).
Mediation is an important part of the work of the court. The utility of mediation is obviously reduced if a party can be entitled to resile from a bargain struck on unsubstantiated grounds. If I seriously entertained the possibility that Ms Brown only entered into this agreement because of what she says McCrohan says Moat said, then I would not hold her to it, and nothing in section 14 would authorise me so to do, but I reject that possibility. I am confident that Ms Brown entered into the agreement because it represented an appropriate outcome to the proceedings and that she took into account all of the matters which exhibit 8 says she took into account in reaching her decision. The agreement should be enforced in accordance with section 14. I will come to the terms of the enforcement in a moment.
Putting to one side what I have found to be the proper claim for enforcement, I would have had little hesitation in any event in finding the claim for relief pursuant to section 120 as having been made out. I am not at all satisfied that the repayments Ms Brown says were made to Favotto prior to notice of his bankruptcy having been given to her were in fact made. Furthermore, the respondent has already upon her oath denied having ever received the moneys from Favotto.
On 7 October 2003 the respondent swore an affidavit which was filed on her behalf in proceedings in the District Court of South Australia involving a caveat that had been lodged by the applicant over her interest in the property. The affidavit described the events relating to the contract and the assignment of Favotto's interest in it to her. The affidavit was provided in evidence as exhibit 3. It includes the following paragraphs:
9. On the 5th day of October 2003 I had a meeting with Jordan Joshua Favotto and he acknowledged to me that he had never given or loaned to me any money at any time. He further acknowledged to me that he had no claim whatsoever over my residence. He has acknowledged these matters in writing and sworn a declaration to that effect on the 5th day of October 2003, a copy of which declaration is annexed hereto and marked LYB4.
10. I oppose the orders sought by the plaintiff as the plaintiff has no basis whatsoever upon which to found his action.
11. The plaintiff has not produced any evidence whatsoever in support of his claim and I contended (sic) that this application by the plait (sic) if (sic) is nothing more than a fishing expedition to try and gather evidence when in fact the plaintiff has none whatsoever.
Before me, the respondent contended that she began to repay the money to Favotto on 23 January 2001 (or 23 February 2001, depending on whether we rely upon the receipt book, which was exhibit 6, or one or other of the schedules of repayment, which are exhibits 18 and 19) and had repaid $44,052 by the time the sequestration order was made. Paragraph 9 of the affidavit must be taken to mean that Ms Brown accepted the truth of Favotto's statement to her on 5 October 2003 and his swearing of a declaration on that same that day that:
He had never given or loaned to me any money at any time.
There was no point in including that information unless Ms Brown was inviting its truth to be accepted. Favotto making a false statement to her would not assist her in resisting a caveat being maintained on the property. It is the truth of what he tells her that matters. Of course, Ms Brown may have simply hoped that the distinction between the two positions would not be noticed and was hoping that the court would rely upon the implied truth of what she knew to be false. Either way, this does enormous damage to her creditworthiness. She was either misleading the District Court or she was misleading me. She was not assisted by the evidence of Mr Favotto on this topic who, when confronted with the terms of his statutory declaration referred to in the affidavit, was unable to provide any or any proper explanation for it.
I was unable to obtain any assistance from Mr Favotto on any other topic. He was evasive and, at times, belligerent on the issue of his solvency. I have no hesitation in finding he was utterly insolvent at all stages relevant to his annulment application. Significant errors and omissions attained to his Statement of Affairs. I could not accept him as a witness of credit on any topic; specifically I do not accept his evidence as to the alleged repayments of the sum advanced to the applicant.
There were two separate schedules of payments tendered in evidence. One (exhibit 19) was given to Ms Moat during the course of her attendance at the applicant solicitor's office and included a number of payments made by the applicant to Favotto after she had notice of his bankruptcy. Ms Moat says that she saw the receipt book which had given rise to that schedule, and I accept her evidence. However, a second schedule (exhibit 18) of cash payments based upon the receipt book tendered in evidence (exhibit 6) contained far more payments made to Favotto prior to such notice. Ms McCrohan, again, was someone who could have shed some light on the discrepancies in the schedules but she was not called. The inference I draw is that she would not have assisted Favotto in her claim for reliance upon the schedule containing the greater number of pre-bankruptcy payments or, should I say, payments made prior to her notice of Favotto's bankruptcy.
I had no hesitation in accepting the evidence of Mr McGregor in relation to his communications with Ms Brown and I accepted that evidence and rejected Ms Brown's evidence where their testimony conflicted. On the topic of these communications, as on a number of other topics, Ms Brown was evasive and argumentative when giving her evidence.
Had it been necessary for me to determine the matter on the basis of the tracing exercise pursuant to section 120, I would have had little hesitation in making the orders sought by the applicant. The transfer of the money occurred within two years of the bankruptcy. Taking into account the respondent's notice of Favotto's bankruptcy, an order for payment of a judgment sum of $35,000 would have been appropriate.
As it is, I am satisfied it is appropriate to hold the respondent to the agreement reached at mediation. The agreement provided for orders to be made if "conditions 1 and 2" were not complied with to the reasonable satisfaction of the applicant. Condition 1, at least, was not complied with at all. The orders now sought are more detailed in the provisions they make as to the sale of the property and differ in other matters as to detail, but such matters, again, having regard to the provisions of section 14 of the Federal Magistrates Act, are appropriate.
For the foregoing reasons, there will be orders as set out at the commencement of this judgment, and the orders I am making are as set out in the following paragraphs of the minute of order attached to the draft of this judgment.
I will hear the parties as to costs.
The agreement reached at mediation had its own provision with respect to interest. The orders made reflect that provision. But if either party wants to be heard on that topic, I will hear them first before formally pronouncing the orders.
I certify that the preceding fifty-five (55) paragraphs are a true copy of the reasons for judgment of Lindsay FM
Associate: S.M. Smart
Date: 10 May 2005
5