O'Farrell v Palicave Pty Ltd - [2009] FCAFC 64

FEDERAL COURT OF AUSTRALIA
O’Farrell v Palicave Pty Limited [2009] FCAFC 64
BANKRUPTCY – whether creditor estopped from claiming a debt additional to that sued for – no inconsistency between a judgment for instalments of principal under an agreement and a judgment for the balance outstanding under the same agreement
Boles v Esanda Finance Corporation Ltd (1989) 18 NSWLR 666 followed
Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd (2001) 117 FCR 424 applied
Emerson v Wreckair Pty Limited (1992) 33 FCR 581 applied
Fox v Percy (2003) 214 CLR 118 referred to
Goodrich Aerospace Pty Ltd v Arsic (2006) 66 NSWLR 186 referred to
Ling v Commonwealth (1996) 68 FCR 180 followed
Macquarie Bank Ltd v National Mutual Life Association of Australia Ltd (1996) 40 NSWLR 543 applied
Mifsud v Campbell (1991) 21 NSWLR 725 referred to
Mt Lawley Pty Ltd v Western Australia Planning Commission (2004) 29 WAR 273 referred to
O’Mara Constructions Pty Ltd v Avery (2006) 151 FCR 196 referred to
Port of Melbourne Authority v Anshun Proprietary Limited 1981) 147 CLR 589 referred to
Public Service Board of New South Wales v Osmond (1986) 159 CLR 656 referred to
R & J Lyons Family Settlement Pty Ltd v 155 Macquarie Street Pty Ltd [2008] NSWSC 232 referred to
Waterways Authority v Fitzgibbon (2005) 221 ALR 402 referred to
KARL JOHN O'FARRELL v PALICAVE PTY LIMITED (ACN 080 402 535)
NSD 152 of 2009
JACOBSON, EDMONDS AND BARKER JJ
28 MAY 2009
SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

NSD 152 of 2009

ON APPEAL FROM THE FEDERAL MAGISTRATES COURT OF AUSTRALIA

BETWEEN:
KARL JOHN O'FARRELL
Appellant

AND:
PALICAVE PTY LIMITED (ACN 080 402 535)
Respondent

JUDGES:

JACOBSON, EDMONDS AND BARKER JJ

DATE OF ORDER:

28 MAY 2009

WHERE MADE:

SYDNEY

THE COURT ORDERS THAT:
1.The appeal be dismissed.
2.The appellant pay the respondent’s costs of the proceeding.

Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

The text of entered orders can be located using eSearch on the Court’s website.

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

NSD 152 of 2009

ON APPEAL FROM THE FEDERAL MAGISTRATES COURT OF AUSTRALIA

BETWEEN:
KARL JOHN O'FARRELL
Appellant

AND:
PALICAVE PTY LIMITED (ACN 080 402 535)
Respondent

JUDGES:

JACOBSON, EDMONDS AND BARKER JJ

DATE:

28 MAY 2009

PLACE:

SYDNEY

REASONS FOR JUDGMENT
INTRODUCTION

This is an appeal from an order made by Federal Magistrate Driver that the estate of Karl John O’Farrell be sequestrated.
The creditor’s petition was filed by Palicave Pty Limited (“Palicave”) on 6 March 2008. It was based upon a debt of $399,131.33 pursuant to a consent order for judgment in the District Court of New South Wales. The judgment was for four instalments of principal due under a loan agreement made between Palicave and Mr O’Farrell on 7 August 2004.
After the creditor’s petition was filed, Mr O’Farrell paid the judgment debt, but Palicave then amended…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2009] FCAFC 64
Decision Date: 28 May 2009

CaseChat Overview and Summary

O'Farrell v Palicave Pty Ltd involves a dispute between the creditor, Palicave Pty Ltd, and the debtor, Mr O'Farrell. The central issue is whether Mr O'Farrell breached a loan agreement by failing to make certain payments and whether this breach justified Palicave's reliance on it to petition for Mr O'Farrell's bankruptcy. The case was heard in the Federal Court of Australia, which has jurisdiction over bankruptcy matters.

The primary legal issue before the court was whether the failure to make monthly instalments under the loan agreement constituted a breach that justified Palicave's reliance on it to petition for Mr O'Farrell's bankruptcy. Additionally, the court had to consider whether Mr O'Farrell's oral agreement with Palicave's representative, Mr Wilson, to defer payments constituted a valid variation of the loan agreement. The court needed to determine if this oral agreement could be admitted as evidence to support Mr O'Farrell's defence.

The Federal Court found that Mr O'Farrell did indeed fail to make the required monthly payments, which constituted a breach of the loan agreement. However, the court also acknowledged that the loan agreement did not include an acceleration clause, which would have made the entire debt payable immediately upon default. The court ruled that the oral agreement between Mr O'Farrell and Mr Wilson did not amount to a valid variation of the loan agreement, as it lacked the necessary formality. Consequently, the court dismissed the appeal and upheld the bankruptcy order, directing that Mr O'Farrell pay Palicave's costs of the proceeding.

Orders

Orders of the court

1. The appeal be dismissed.

2. The appellant pay the respondent’s costs of the proceeding.

Note:

Background

Background to the litigation

The fourth ground complains of a finding made by His Honour that there was some “slight of hand” (sic) between the parties.FACTUAL BACKGROUND There were, for present purposes, three essential terms of the loan agreement. The first was that Palicave would advance to Mr O’Farrell $2,675,000, in addition to the amount of $1,250,000 outstanding under the earlier agreement, bringing the total amount advanced to Mr O’Farrell to $3,925,000. The second was that Mr O’Farrell would repay the loan with interest by 31 December 2006 by monthly instalments. Third, the minimum monthly instalment was set at $75,000, although the agreement stated that it was anticipated that higher instalments would be paid so as to extinguish the debt in full by the due date. Importantly, the loan agreement did not contain an acceleration clause providing that the whole of the remaining principal and interest would fall due in the event that Mr O’Farrell failed to pay any one instalment. During 2006, Mr O’Farrell failed to pay the minimum monthly instalment of $75,000 due under the loan agreement for the months of February, March, April and May of that year. On 8 June 2006, Palicave filed a Statement of Claim in the District Court claiming the sum of $300,000 for the four unpaid monthly instalments. In his defence to the Statement of Claim in the District Court, Mr O’Farrell admitted that he did not pay the monthly instalments for February, March, April or May 2006, but he denied that he was in breach of the loan agreement. In particular, Mr O’Farrell asserted in his defence that the loan agreement had been varied by an oral agreement made with Mr Wilson to defer payments due under the loan agreement. The District Court matter was resolved by agreement between the parties. The agreement was dated 19 November 2007 and provided for judgment in the sum of $396,593.69, on or before 27 November 2007. Judgment was entered shortly after that date. As we said earlier, the creditor’s petition was filed in the Federal Magistrates Court on 6 March 2008 upon the basis of the consent judgment. The judgment debt was paid in July 2008. On 26 September 2008, Palicave filed its amended petition based upon its claim to be a creditor of Mr O’Farrell for an amount of in excess of $2.3 million, being the balance due under the loan agreement. Palicave continued to rely on the same act of bankruptcy as in the original petition, namely failure to comply with a bankruptcy notice served on 24 December 2007 which expired on 29 January 2008.PRELIMINARY OBSERVATIONS Although the debt upon which Palicave’s petition was founded was not the subject of a judgment, that was no bar to its being relied upon to support a creditor’s petition: Emerson v Wreckair Pty Limited (1992) 33 FCR 581 at 588. Nor is the presentation of a creditor’s petition the enforcement of a debt. As a Full Court observed in O’Mara Constructions Pty Ltd v Avery (2006) 151 FCR 196 at [53], the authorities recognise that a creditor may proceed in insolvency for the purposes of recovering his or her debt.ESTOPPEL

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

JACOBSON, EDMONDS AND BARKER JJ

Full text does not contain this section.

Ratio Decidendi

Legal Principle Established

Established by: JACOBSON, EDMONDS AND BARKER JJ

Full text does not contain this section.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 152 of 2009

BETWEEN:	KARL JOHN O'FARRELL Appellant
AND:	PALICAVE PTY LIMITED (ACN 080 402 535) Respondent

JUDGES:	JACOBSON, EDMONDS AND BARKER JJ
DATE OF ORDER:	28 MAY 2009
WHERE MADE:	SYDNEY

JUDGES:	JACOBSON, EDMONDS AND BARKER JJ
DATE:	28 MAY 2009
PLACE:	SYDNEY