Majet v Goggin and Miller

[2015] QSC 38

SUPREME COURT OF QUEENSLAND

CITATION:

Majet & Anor v Goggin & Miller as Trustees of the Bankrupt Estate of Brett-Hall & Anor [2015] QSC 38

PARTIES:

CHRISTINE MAJET AND JOEL MAJET
(applicants)
v
JOHN JOSEPH GOGGIN AND GLENN LESLIE MILLER OF BRI FERRIER AS JOINT AND SEVERAL TRUSTEES OF THE BANKRUPT ESTATE OF HERBERT RATCLIFFE BRETT-HALL
(first respondents)
AND
ROBERT POWELL PALETHORPE TRADING AS ROBERT P PALETHORPE

(second respondent)

FILE NO/S:

SC No 442 of 2014

DIVISION:

Trial 

PROCEEDING:

Application

ORIGINATING COURT:

Supreme Court at Cairns

DELIVERED ON:

27 February 2015

DELIVERED AT:

Cairns

HEARING DATE:

10 December 2014

JUDGE:

Henry J

ORDERS:

The application of the first respondents is dismissed.1.   

It is declared the applicants are entitled to the deposit (“the deposit”) paid by Herbert Ratcliffe Brett-Hall under a contract dated 15 January 2014 for the sale and purchase of a property described as Lot 90 on Registered Plan 746256 in the County of Solander Parish of Salisbury (Title Reference number 21351084) and situated at 105 St Crispins Avenue, Port Douglas in the State of Queensland.2.   

The deposit is to be paid to the applicants’ solicitors.3.   

I will hear the parties as to costs, if costs are not agreed, on the giving of two days notice in writing by either party.4.   

CATCHWORDS:

CONVEYANCING – BREACH OF CONTRACT FOR SALE AND REMEDIES – ENTITLEMENT TO DEPOSIT – where the trustees for the bankrupt buyer disclaimed a real estate contract – whether the sellers are entitled to the deposit

BANKRUPTCY – PROCEEDINGS IN CONNECTION WITH SEQUESTRATION – DISCLAIMER – where the trustees for a bankrupt buyer disclaimed a real estate contract – whether in consequence of the disclaimer the buyer was in default – whether the proviso to s 133(2) Bankruptcy Act 1966 (Cth) applies – whether the sellers are entitled to the deposit

Abraham v Johns (No 2) [2010] VSC 212, considered
Anscor Pty Ltd v Clout (2004) 135 FCR 469, cited
Brady v Stapleton (1952) 88 CLR 322, cited
Ex parte Barrell; In re Parnell (1875) LR 10, applied
Foran v Wight (1989) 168 CLR 385, cited
Howe v Smith (1884) 27 Ch D 89, considered
Re Burman [1993] 1 Qd R 49, applied
Willmot Growers Group Inc v Willmot Florists Ltd (Recs and Mgrs. apptd) (in liq) & Ors (2013) 251 CLR 592, distinguished

Bankruptcy Act 1966 (Cth) s 5, s 115(1), s 121, s 122, s 123, s 133(1A), s 133(2)

COUNSEL:

Dr M Jonsson for the Applicants
CJ Ryall for the First Respondents

No appearance for the Second Respondent

SOLICITORS:

Williams Graham Carman Solicitors for the Applicants
Devenish Law for the First Respondent

No appearance for the Second Respondent

1. These cross-applications concern the fate of a deposit paid under a real estate contract that did not complete. 

1. The applicants, the sellers, seek an order that the deposit be paid to their solicitor accompanied by an order for forfeiture of the deposit or alternatively a declaration that the applicants are entitled to the deposit. The first respondents, trustees of the bankrupt estate of the buyer, seek an order that the deposit be paid to their solicitors accompanied by a declaration that the first respondents are entitled to the deposit.

1. The second respondent, the deposit holder, has indicated he will abide by the order of the court.

Background

1. On 15 January 2014 the applicants entered into a contract (“the contract”) to sell their real property (“the property”) at 105 St Crispins Avenue Port Douglas for $1,390,000 to Herbert Ratcliffe Brett-Hall.

1. On 4 February 2014 Mr Brett-Hall paid a deposit under the contract in the amount of $139,000 to the trust account of the applicants’ then solicitor Mr Palethorpe, the second respondent.  The contract recorded the deposit holder as being “Robert Palethorpe ‘Solicitor’ trust account”.  Mr Palethorpe, or at least his trust account, continues to hold the deposit the subject of the present controversy.  He played no active role in the hearing of the application.

1. The contract provided for the settlement date to be “on or before 150 days of contract date”, which made 14 June 2014 the relevant deadline for settlement under the contract.

1. The contract was conditional on completion of another contract for the sale of property at 18-20 Macrossan Street Port Douglas taking place contemporaneously with or before completion of the contract.  The seller in the other contract was Walsarb Pty Ltd as trustee for the Brett-Hall Family Trust.  The other contract completed on 23 May 2014.

1. A little over two months earlier, on 14 March 2014, Mr Brett-Hall was declared bankrupt and a sequestration order was made against his estate. The first respondents became trustees of his bankrupt estate and in effect assumed his responsibility as the buyer under the contract. 

1. On 29 April 2014 one of the first respondent trustees, Mr Goggin, disclaimed the contract as unprofitable by a notice to the applicants of disclaimer of onerous property under s 133(1A) Bankruptcy Act 1966 (Cth) (“the Act”). The disclaimer implicitly excluded reference to the deposit in identifying why the contract imposed obligations detrimental to the creditors. It said:

   “I confirm that I have deemed the above contract is an unprofitable contract on the basis that it imposes on the bankrupt estate financial obligations which I regard as detrimental to the creditors of the estate.  The said obligations are in the nature of legal costs, stamp duty costs and the balance of the purchase price.”

However, a dispute over the deposit soon developed. 

1. There ensued some email exchanges between Mr Goggin and Mr Palethorpe, who on 22 May 2014 wrote to Mr Goggin asserting:

   “By disclaiming the contract, you have clearly demonstrated your intention that you, standing in the shoes of the buyer, are not bound by the contract and nor do you intend to perform the buyer’s obligations under it.  Your anticipatory breach and/or repudiation of the contract therefore entitles my clients to terminate and forfeit the deposit.

   I therefore enquire as to your position concerning the deposit and I ask that you confirm that you lay no claim in respect of it in these circumstances.”

2. In an email to Mr Palethorpe of 28 May 2014, Mr Goggin requested the return of the deposit to the trustees. He referred to the fact the sequestration order of 14 March 2014 noted the date of the act of bankruptcy was 6 December 2013, prior to the entry in to the contract on 15 January 2014. Citing s 115(1) of the Act, Mr Goggin alleged any property of Mr Brett-Hall held or received after 6 December – the deemed commencement of the bankruptcy – was held in trust for them for the benefit of the estate creditors. The email asserted the deposit was therefore held in trust for the trustees and should be returned to them. That assertion did not directly confront the obstacle that property will not vest in a trustee in bankruptcy if transferred in a good faith transaction protected by s 123 of the Act.[1]  The email went on to imply a lack of good faith, asserting Mr Brett-Hall knew of the creditors’ petition against him when he paid the deposit and that the contract may be void as against the trustees. 

   [1]Anscor Pty Ltd v Clout (2004) 135 FCR 469, 481.

1. In a letter to Mr Goggin on 29 May 2014 Mr Palethorpe wrote:

   “Rightly or wrongly, you have elected to disclaim the contract between my clients and Brett-Hall.  Having done so, my clients are entitled to terminate the contract … My clients hereby elect to do that.

   It follows that my clients are entitled to forfeit the deposit and they elect to do that as well.

   As to my clients’ entitlement to the deposit I refer you to:
   a) Section 133(2) of the Bankruptcy Act 1966, which preserves my clients’ right in the event of a disclaimer;
   b)  Ex parte Barrell: re Parnell (1875) LR 10 Ch 512. Despite the age of this decision, it is still good law for the following proposition:

   “Where the trustee of a bankrupt purchaser of land disclaims the contract, he is, as regards the recovery of the deposit, in no better position than an ordinary purchaser whose contract goes off by default”. …”

2. The first respondents’ position remained that the deposit should be returned to them. 

1. On 10 June 2014 a company called Sailpalm Pty Ltd contracted to purchase the property.  Sailpalm Pty Ltd was the newly appointed trustee for the Brett-Hall Family Trust.  The new contract provided for the sale of the applicants’ property at the same price as the earlier contract with Mr Brett-Hall.  Its practical effect was that settlement would occur at worst only ten days later than settlement was supposed to have occurred under the original contract with Mr Brett-Hall.  In the end result, the financial outcome for the sellers was not materially different than it would have been, had the earlier contract completed.

Non-issues

1. The entry into the fray by the new buyer, Sailpalm Pty Ltd, was obviously not coincidental. That company, the new trustee for the Brett-Hall Family Trust, was appointed under a deed entered into with the applicants as the applicants’ attorney for the purposes of pursuing the action to recover the deposit.  The consideration identified in the deed in return for Sailpalm Pty Ltd entering into the contract to purchase the property was that Sailpalm Pty Ltd would be entitled to the deposit recovered by any recovery action.  That circuitous arrangement is not in issue here.  The trustees do not allege a transfer to defeat creditors or avoidance of preferences.[2]

   [2]See ss 121, 122 Bankruptcy Act 1996 (Cth).

1. Similarly irrelevant is the allegation made in Mr Goggin’s email of 28 May 2014 of bad faith in respect of Mr Brett-Hall’s entry into the contract.  The trustees have not elected to pursue such an allegation, at least not for the purposes of the present application.  The possibility that at the time of paying the deposit Mr Brett-Hall knew of the creditors’ petition against him and ought have known he was insolvent is of no moment in circumstances where the trustees do not seek to establish it.[3] 

   [3]Brady v Stapleton (1952) 88 CLR 322, 333-334.

The issue

1. The real issue here is the impact of the bankruptcy trustee’s disclaimer, pursuant to s 133(2) of the Act, upon the rights, interests and liabilities of the parties to the contract.

1. Section 133(2) provides:

   “A disclaimer under subsection (1) or (1A) operates to determine forthwith the rights, interests and liabilities of the bankrupt and his or her property in or in respect of the property disclaimed, and discharges the trustee from all personal liability in respect of the property disclaimed as from the date when the property vested in him or her, but does not, except so far as is necessary for the purpose of releasing the bankrupt and his or her property and the trustee from liability, affect the rights or liabilities of any other person.”

2. The contract’s provisions relating to the parties’ rights to the deposit are:

   “2.2 Deposit

   (1)         The Buyer must pay the Deposit to the Deposit Holder …

   The Deposit Holder will hold the Deposit until a party becomes entitled to it. …

   2.4 Entitlement to Deposit and Interest

   (1)         The party entitled to receive the Deposit is:
                (a)       if this contract settles, the Seller;

   (b)if this contract is terminated without default by the Buyer, the Buyer; and

   (c)if this contract is terminated owing to the Buyer’s default, the Seller. …”

3. The applicants’ position is that the disclaimer put it beyond the first respondents’ power to further perform the contract and the first respondents therefore defaulted under the contract. Because the contract was terminated owing to that default, the applicants submit they are entitled to receive the deposit pursuant to clause 2.4(1)(c) of the contract. The applicants contend the statutory consequence of the disclaimer is that while the first respondents are exonerated from any liability for the default, the applicants’ right to the deposit pursuant to the contract is preserved by the proviso in s 133(2).

1. On the other hand, the first respondents’ position is the deposit remained the beneficial property of the buyer unless and until the sellers became entitled to it under clause 2.4(1) of the contract.  Critical to their position is their submission that the disclaimer cannot give rise to a default in the sense contemplated by clause 2.4(1)(c) of the contract because by operation of law the disclaimer relieved the first respondents of any obligation to further perform the contract.  This, it is said, has the consequence that the sellers had no right to terminate and no prospect of entitlement to the deposit under the contract. The first respondents submit the deposit remained the beneficial property of the buyer and should thus be paid to his trustees.  Alternatively, it is submitted the buyer, and thus his trustees, are entitled to the deposit under the clause 2.4(1)(b) of the contract because the contract was terminated without default by the buyer. 

Discussion

1. Clause 2.4(1) of the contract deals with entitlement to the deposit.  Under that clause the sellers are entitled to the deposit if the contract settles.  However, if the contract is terminated the parties’ entitlement to the deposit depends upon whether or not the buyer was in default.  Hence the pivotal importance in this application of whether or not the disclaimer had the consequence that the buyer was in default.

1. Where the property disclaimed is a contract, s 133(2) does not on its terms terminate the contract. Rather it “operates to determine forthwith the rights, interests and liabilities of the bankrupt … in respect of the property disclaimed”. Here the disclaimer therefore ended the buyer’s rights, interests and liabilities in respect of the contract.

1. The disclaimer’s ending of the buyer’s rights under the contract is fatal to the first respondents’ argument in the alternative that the buyer, and thus his trustees, is entitled to the deposit pursuant to clause 2.4(1)(b) of the contract.  The trustees’ assertion of the buyer’s entitlement to the deposit through reliance upon an entitling term of the contract is an attempt to exercise a right in respect of the contract.  The disclaimer determined such a right forthwith. The buyer or his trustees were thereafter precluded from relying upon clause 2.4(1)(b).

1. The disclaimer did not however determine the seller’s rights under the contract. The proviso to s 133(2) provides a disclaimer “does not … affect the rights or liabilities of any other person” (“the proviso”). On the face of it, the applicants are therefore entitled to the deposit pursuant to clause 2.4(1)(c) because, as sellers, they terminated the contract owing to the buyer’s default.

1. It will be recalled the applicants terminated the contract because the first respondents, acting for the buyer, had by disclaiming the contract manifested an intention not to perform the contract and thus repudiated it, entitling the applicants to terminate. 

1. The first respondents do not dispute that in the normal course a contracting party’s manifestation of an unwillingness or inability to perform the contract would be repudiation by anticipatory breach, entitling the other party to terminate.[4]  Nor do they dispute that in the ordinary course such termination would, in the sense contemplated by clause 2.4(1)(c), be owing to the buyer’s default.  However, they emphasise the disclaimer forthwith ended the first respondents’ liability to perform the contract.  They submit the notice of disclaimer could not logically have had the effect of putting the buyer in default of the buyer’s liability to perform the contract when its statutory effect was to remove that liability. 

   [4]See for example Foran v Wight (1989) 168 CLR 385, 441.

1. That submission assumes that the obligations of the buyer under the contract, such as the obligation to complete, are “liabilities” within the meaning of s 133(2). However even if the obligation to complete is so characterised, it does not follow that the disclaimer transcends all consequences of the disclaimed contract.

1. Pursuant to s 133(2) the disclaimer only determined the rights, interests and liabilities of the bankrupt buyer and his property in respect of the contract. The disclaimer did not determine the sellers’ rights or liabilities under the contract. They are preserved by the proviso. In the present context their continued existence is inconsistent with 133(2) having the meaning that what was contractually required to occur must be entirely ignored because of the disclaimer. That the buyer was discharged from personal liability for the consequences of not proceeding did not render the factual consequences of the act of disclaimer irrelevant so far as the sellers’ rights were concerned.

1. There may be some cases in which the disclaimer’s ending of the bankrupt’s obligations under a contract necessarily ends all rights of the other contracting party.  For example in Willmott Growers Group Inc v Willmott Forests Ltd (Recs and Mgrs. apptd) (in liq) & Ors[5] the High Court concluded, in respect of a similar provision to s 133 in the Corporations Act 2001 (Cth), that the disclaimer of leases by liquidators for a landlord necessarily ended the tenants’ rights under the leases and thus their estates or interests in the land. The liabilities, interests and rights of the parties there were all correlative. Not so here.

   [5](2013) 251 CLR 592, 608.

1. The contract here specifically preserved to the seller a right in respect of the deposit which flowed inevitably from the very nature of the act of disclaimer.

1. The disclaimer of a contract is of its nature a manifestation of an unwillingness or inability to perform the contract and is prima facie a repudiation of the contract by anticipatory breach.[6] The disclaimer here clearly manifested an unwillingness or inability to perform the contract. Once armed with that knowledge the sellers were hardly obliged to wait until the settlement date and the inevitable failure to settle. There is nothing in s 133(2) that removed their right to promptly terminate because of the anticipatory breach heralded as a matter of fact by the notice of disclaimer.

   [6]See for example Ex parte Barrell; In re Parnell (1875) LR 10 Ch 512.

1. The fact the disclaimer ended the buyer’s liabilities in respect of the contract did not make the act of disclaimer any less the buyer’s default under the contract.  The contract was terminated owing to that default.  On the face of it the applicants are entitled to the deposit pursuant to clause 2.4(1)(c) of the contract. 

1. That entitlement or right is preserved by the proviso to s 133(2) so that it is unaffected by the disclaimer. The proviso is however subject to an exception within s 133(2).

1. The effect of the exception is that a disclaimer will affect the rights and liabilities of any other person “so far as is necessary for the purpose of releasing the bankrupt and his or her property and the trustee from liability” (“the exception”). 

1. The exception is of no relevance to the deposit as property.  The exception operates to release from liability.  To the extent the buyer ever had any “liability” in respect of the deposit, it was to pay it pursuant to the terms of the contract.  He had paid the deposit long prior to the disclaimer.  Further, it would be an unsustainable contortion of the language of the contract to characterise the deposit held by the deposit holder under the contract as a buyer’s property subject to a liability.  It is unnecessary to determine in what respect if any the buyer retained any “property” interest in the deposit once paid.[7]  That is because the deposit was not in any event subject to a liability from which it might fall to be released in the sense contemplated by the exception. 

   [7]As to which, see the broad definition of property at s 5 Bankruptcy Act 1996 (Cth) and, for example,  Howe v Smith (1884) 27 Ch D 89, 101; Abraham v Johns (No 2) [2010] VSC 212, [29].

1. As Ryan J explained in Re Burman,[8] a deposit of this kind is received and held by the deposit holder, “upon terms requiring him to account to one or other of the parties to the contract depending upon the outcome of an event”.  The deposit, once in the hands of the deposit holder, was subject not to liability but to rights, namely the contractual entitlement of either the sellers or the buyer to receive the deposit pursuant to the terms of clause 2.4(1).  Disentitling the sellers of the right to receive the deposit pursuant to the contract is not necessary to release the deposit “from liability”. 

   [8][1993] 1 Qd R 49,54.

1. The exception is also of no relevance to the liability of the bankrupt buyer or his trustees to complete the contract.  That is because it is not necessary to deprive the sellers of their right to the deposit in order to release the buyer or his trustees from their liability to complete.

1. The applicants are entitled to the deposit pursuant to clause 2.4(1)(c) of the contract.

1. This conclusion makes it unnecessary to decide who would be entitled to the deposit money held in Mr Palethorpe’s trust account in the event clause 2.4(1) had no application at all here.

Orders

1. The first respondents’ application should be dismissed.

1. The applicants sought an order for “forfeiture of the deposit” or alternatively a declaration as to their entitlement.  The former is not apt to this case in that the contract provides for entitlement to the deposit, not forfeiture of the deposit.  I will make a declaration as to the applicants’ entitlement.  Given the deed arrangements involving Sailpalm Pty Ltd, an order that the deposit be paid to the applicants’ solicitors is appropriate.

1. My provisional view as to costs is that they ought follow the event however I will make an order preserving the parties’ right to be heard on costs failing agreement between them.

1. My orders are:

1.          The application of the first respondents is dismissed.

2.          It is declared the applicants are entitled to the deposit (“the deposit”) paid by Herbert Ratcliffe Brett-Hall under a contract dated 15 January 2014 for the sale and purchase of a property described as Lot 90 on Registered Plan 746256 in the County of Solander Parish of Salisbury (Title Reference number 21351084) and situated at 105 St Crispins Avenue, Port Douglas in the State of Queensland.

3.          The deposit is to be paid to the applicants’ solicitors.

4.          I will hear the parties as to costs, if costs are not agreed, on the giving of two days notice in writing by either party.