Ogle v Brown
[2008] FMCA 1234
•3 September 2008
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| OGLE v BROWN | [2008] FMCA 1234 |
| BANKRUPTCY – Application to set aside bankruptcy notice – whether there is a counterclaim set-off or cross demand that could not have been set up in earlier proceedings – issue estoppel. |
| Bankruptcy Act 1966, s.40 Federal Magistrates Act 1999, s.34 Partnership Act 1891 (Qld), s.27 |
| Brown v Ogle [2006] QSC 074 Hoystead v Federal Commissioner of Taxation (1925) 37 CLR 290 Blair v Curran (1939) 62 CLR 464 Re Ling; ex parte Ling v Commonwealth of Australia (1995) 58 FCR 129 Re Brink; Ex parte Commercial Banking Co of Sydney Ltd (1980) 44 FLR 135 Chamberlain v Deputy Commissioner of Taxation (1988) 164 CLR 502 |
| Applicant: | DONALD GORDON OGLE |
| Respondent: | WARREN THOMAS BROWN |
| File Number: | BRG 419 of 2008 |
| Judgment of: | Wilson FM |
| Hearing date: | 19 August 2008 |
| Date of Last Submission: | 19 August 2008 |
| Delivered at: | Brisbane |
| Delivered on: | 3 September 2008 |
REPRESENTATION
| Counsel for the Applicant: | Mr Handran |
| Solicitors for the Applicant: | Cranston McEachern |
| Counsel for the Respondent: | Mr De Jersey |
| Solicitors for the Respondent: | Rostron Carlyle Solicitors |
ORDERS
The application filed 1 July 2008 is dismissed
The applicant shall pay the respondent’s costs of and incidental to the application to be taxed.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT BRISBANE |
BRG 419 of 2008
| DONALD GORDON OGLE |
Applicant
And
| WARREN THOMAS BROWN |
Respondent
REASONS FOR JUDGMENT
The applicant seeks to set aside a bankruptcy notice, served on him on 11 June 2008, on the ground that he has a counterclaim, set-off or cross demand within the meaning of s.40(1)(g) Bankruptcy Act 1966. The applicant, in his application filed 1 July 2008 also seeks an interim order that the proceeding be referred to mediation, pursuant to s.34 Federal Magistrates Act 1999.
On 12 April 2006, the respondent obtained judgment against the applicant in the Supreme Court of Queensland for $2,516,400. Together with statutory post judgment interest, the amount sought in the bankruptcy notice was $2,974,867.40.
Section 40(1)(g) of the Act provides that an act of bankruptcy is committed:
(1) A debtor commits an act of bankruptcy in each of the following cases:
(g) if a creditor who has obtained against the debtor a final judgment or final order, being a judgment or order the execution of which has not been stayed, has served on the debtor in Australia or, by leave of the Court, elsewhere, a bankruptcy notice under this Act and the debtor does not:
(i) where the notice was served in Australia–within the time specified in the notice; or
(ii) where the notice was served elsewhere–within the time fixed for the purpose by the order giving leave to effect the service;
comply with the requirements of the notice or satisfy the Court that he or she has a counter‑claim, set‑off or cross demand equal to or exceeding the amount of the judgment debt or sum payable under the final order, as the case may be, being a counter‑claim, set‑off or cross demand that he or she could not have set up in the action or proceeding in which the judgment or order was obtained;
There was no contest on the application that the respondent held a final judgment in the requisite amount, that execution had not been stayed, that the bankruptcy notice was in any way defective, or that it had not been complied with. The only matter argued on the application was whether the applicant could, and had, satisfied the court that he had the requisite counterclaim, set-off or cross-demand. The applicant sought an adjournment of the application to set aside the bankruptcy notice pending the determination of an application brought by the respondent in the Supreme Court of Queensland. I will deal with that application in the course of my reasons.
The basis of the applicant’s claim against the respondent arises from an agreement between them to develop property at Mount O’Reilly formerly owned by the applicant.
In his affidavit filed 1 July 2008 the applicant asserts that:
a)On 5 August 1995 he and the respondent agreed to enter into a partnership to develop the Mount O’Reilly property;
b)To that end they executed a written partnership agreement dated 5 August 1995;
c)The Mount O’Reilly property became partnership property;
d)On 10 September 1998 the applicant and the respondent entered into a further written agreement (“the second agreement”);
e)Following the execution of the second agreement, the partnership continued and the respondent continued to act as the applicant’s partner by, inter alia, discussing the development and sale of the property, attending meetings, receiving and replying to partnership correspondence, and arranging finance for a material change of use application;
f)On 22 November 1999 the respondent filed a claim in the Supreme Court of Queensland claiming an interest in the Mount O’Reilly property under the partnership agreement;
g)Because of the conduct of the respondent, the applicant assumed and continued that they were continuing in partnership and in reliance on that assumption he incurred liabilities on behalf of the partnership to the extent of $8,717,004.24;
h)He incurred the liabilities in order to undertake works necessary to apply for a material change of use application that was lodged with the Pine Rivers Shire Council on 28 June 2002;
i)The respondent failed to indemnify him or contribute towards these liabilities;
j)On 19 May 2008 the applicant filed proceedings in the Supreme Court seeking an indemnity in relation to the liabilities.
I note that the applicant’s evidence before this Court is somewhat different to the stance he took before the Supreme Court. In that jurisdiction he maintained that there was no partnership between him and the respondent.
It is a critical plank in the applicant’s argument that the partnership subsisted beyond 10 September 1998. The applicant relies on s.27(1)(b) Partnership Act 1891 (Qld) which provides:
“The interests of partners in the partnership property and their rights and duties in relation to the partnership must be decided, subject to any agreement express or implied between the partners, by the following rules –
(b) the firm must indemnify every partner in relation to payments made and personal liabilities incurred by the partner –
(i) in the ordinary and proper conduct of the business of the firm; or
(ii) in or about anything necessarily done for the preservation of the business or property of the firm”
I emphasise the words “subject to any agreement express or implied between the partners”.
Of course, a partner is also entitled to contribution towards partnership debts in equity.
The second agreement, dated 10 September 1998, was central to the respondent’s Supreme Court proceedings. It is brief. Its full terms are:
“This agreement relates to the property at Mt O’Reilly (Area 1089 acres).
This agreement cancels all other agreements made between Ogle and Brown concerning the Mt O’Reilly property, and this agreement is enforceable from this date.
Ogle agrees to pay Brown the sum of 2 Million Australian dollars (A$2,000,000.00) in full settlement of any claims Brown may have against the Mt O’Reilly property.
Terms of Settlement
The settlement is subject to Ogle selling the property with the normal Pine Rivers Shire Council approval for not less than 5 Million Australian dollars (A$5,000,000.00). Plus legal costs already paid up to $160,000.”
The applicant argues that notwithstanding this agreement, and how it was construed in the Supreme Court of Queensland, liabilities that he incurred after 10 September 1998 were incurred on behalf of the partnership, and he is thereby entitled to be indemnified by the respondent to the extent of one half of such liabilities.
On the other hand the respondent says that the present application must fail for five reasons:
a)The applicant’s own material does not show that he has paid any money nor incurred any liability that would entitle him to seek contribution from his partner, even if a partnership subsisted when the debts were incurred;
b)The applicant is precluded by an issue estoppel from raising the matters by way of counterclaim, set-off or cross-demand because the issues have already been litigated to judgment in Brown v Ogle [2006] QSC 074;
c)The matters now sought to be raised by the applicant could and should have been raised in the earlier proceedings;
d)The applicant has previously given sworn evidence that he and the respondent were not in partnership;
e)In July 2007 the applicant commenced Supreme Court proceedings seeking a declaration that the respondent was liable to pay outstanding debts to the partnership of $4,569,375. By consent on 17 September 2007 those proceedings were dismissed.
It is convenient to deal first with the second and third arguments raised by the respondent, because if either argument is successful the present application is doomed to fail.
The issue estoppel argument arises from the judgment of Mullins J in Brown v Ogle [2006] QSC 074, in particular at paragraphs [52], [81], [82], [99], [110] and [111] thereof.
In short the respondent says that the second agreement of 10 September 1998 set out the terms upon which the parties agreed that their partnership would be terminated and their mutual obligations dealt with. The applicant says that the judgment in Brown v Ogle did not determine the meaning and effect of the partnership agreement touching upon the applicant’s claim, and it was not relevantly necessary to do so, therefore no issue estoppel arises.
In her Reasons for Judgment, Mullins J said:
a)At [3] that the meaning and effect of the second agreement (i.e. that dated 10 September 1998) and whether it is enforceable were issues in the proceeding;
b)At [43] that the respondent’s evidence was that in September 1998 the applicant telephoned him and asked if he would be prepared to get out of Mt O’Reilly with a clear $2 million. The respondent said that he responded affirmatively. The applicant said he would pay the respondent $2 million plus reimbursement of legal expenses that the respondent had already paid, and the balance of the sale proceeds of the Mt O’Reilly property would belong to the applicant. The respondent said he agreed to that proposition. This evidence was accepted by her Honour;
c)At [44] that the respondent’s evidence was that the second agreement was prepared by the applicant;
d)At [48] that she rejected the applicant’s evidence as to the timing and manner of production of the typed draft of the second agreement;
e)At [63] to [66] sets out work done to the property by the applicant, following the making of the second agreement, which forms part of the claim now made by the applicant against the respondent;
f)At [78] set out the main issues that had to be determined in the respondent’s action. These included the meaning of the second agreement;
g)At [81] that the first agreement amounted to a contract of partnership to develop the Mt O’Reilly property. The consideration that moved from the respondent in order to obtain an interest in the partnership was his agreement to provide funds for litigation that the applicant was engaged with a mortgagee Carpenter;
h)At [83] that it was not issue that the respondent had paid legal fees as requested by the applicant, which were found to be in the sum of $162,122.58;
i)At [86] that immediately prior to the signing of the second agreement by the parties, the first agreement remained in existence under which the respondent had performed his obligations and was entitled to the benefits that flowed from the partnership that was created as a result of the first agreement. As one of the consequences of the second agreement was that it brought the first agreement to an end, the giving up by the respondent of his rights under the first agreement was good consideration moving from the respondent to the applicant to support the promises of the applicant under the second agreement;
j)At [90] that the applicant had pleaded that the second agreement was unenforceable and not supported by consideration;
k)At [91] that the applicant had pleaded that there were implied terms of the second agreement;
l)At [94] construed the second agreement such that the words “Plus legal costs already paid up to $160,000” were treated as an addition to the third paragraph of the second agreement, such that the applicant’s obligation was to pay the respondent $2,160,000;
m)At [99] that “it was clear to both parties at the time of entering into the second agreement that the attraction of the second agreement for the [respondent] was that it gave him the opportunity for recovering the moneys that he had already spent on legal fees of about $160,000 plus a share of the profit from the sale of the Mt O’Reilly property fixed at $2,000,000, provided the agreed minimum sale price of $5,000,000 was achieved by the [applicant] and, further, that the second agreement enabled the [respondent] to withdraw from the continuing obligations under the first agreement, such as providing a guarantee in respect of any borrowings by the partnership to pay out Carpenter and develop the Mt O’Reilly property.”
n)At [102] that “when consideration is given to the main purpose of this condition in the second agreement, the inclusion of the words “with the normal Pine Rivers Shire Council subdivisional approval” should be construed as imposing an obligation on the [applicant] to take action towards obtaining that approval, in order to achieve the sale at the minimum price which would give the [respondent] the entitlement to payment under the second agreement.”
o)At [111] “I accept the [applicant’s] submission that the sale of the Mt O’Reilly property by Elliott Harvey was achieved after significant steps had been taken by the [applicant] towards achieving a material change of use, even though the sale took place without any subdivisional approval. On the proper construction of the second agreement, the sale of the Mt O’Reilly property for $5,000,000 by Elliott Harvey as mortgagee exercising power of sale without any subdivisional approval was a sale that fulfilled the condition of settlement under the second agreement.”
In my view, it is clear from the above reference to the Reasons for Judgment of Mullins J that her Honour had to decide the meaning and effect of the second agreement, and concluded:
a)That is was valid and binding on the parties;
b)That it operated to terminate the partnership agreement then subsisting between them;
c)That pursuant to the second agreement the respondent was entitled to be paid the “clear” sum of $2 million plus legal costs that he had already outlaid of $160,000.
It is also clear that the second agreement displaced the rule relied on in s.27(1)(b) of the Partnership Act. It was an express agreement dealing with how the partnership assets would be distributed, and who was responsible for meeting obligations.
As Hoystead v Federal Commissioner of Taxation (1925) 37 CLR 290 and Blair v Curran (1939) 62 CLR 464 make clear a party is precluded from asserting, in a second action, the contrary of any issue determined in the first action, that was necessary for the judgment.
In this case, the respondent’s entitlement to be paid a sum of money pursuant to the second agreement required Mullins J to make the determinations set out in paragraph [18] above. The applicant cannot now advance a contrary case. That is precisely what he seeks to do. If the applicant is entitled to claim against the respondent for one half of the monies expended by him in pursuing a development application, that claim runs directly into the findings of Mullins J that it was the applicant’s obligation to pursue the development application, at his cost, and more bluntly that the respondent was entitled to be paid $2 million “clear”. The respondent wouldn’t be receiving “clear” monies if they were subject to disgorgement on a subsequent claim for an indemnity or contribution.
I therefore accept the respondent’s argument that the applicant is precluded from pursuing his counterclaim, set-off or cross demand.
It is convenient to deal at this point with the applicant’s request for an adjournment. The respondent has applied in the Supreme Court for summary judgment against the applicant’s claim. The applicant submits that it would be appropriate to adjourn the present application to ascertain how the Supreme Court deals with that summary judgment application.
I disagree. Quite different tests are involved in the two applications. Different onuses apply. In this Court the applicant must persuade me that he has a claim that he should be allowed to pursue. In the Supreme Court the respondent carries the onus of proving that the claim should be terminated. Obviously, if the respondent succeeds in the Supreme Court, the determination of the application before me would be made much easier. However, the converse is not true. If the application for summary judgment is unsuccessful, it is impossible to predict on what basis it will fail. The determination of that application in the applicant’s favour will not be determinative of the application before me. Further, any decision made by me on this application does not bind the Supreme Court of Queensland. If I dismiss the present application, and the Supreme Court refuses summary judgment and decides that the applicant has an arguable case to the indemnity he seeks, then that can be raised by the applicant to oppose the making of a sequestration order.
In all of the circumstances, I decline the request for an adjournment of this application.
Next, I deal with what appears to be a fundamental obstacle to the success of the present application. It is whether the claim now sought to be advanced by the applicant could have been set up in the action decided by Mullins J.
In those earlier proceedings, the applicant gave evidence of the work that he did with a view to securing a development approval. The Mount O’Reilly property was sold on 11 June 2004. All of the expenses or liabilities incurred by the applicant must have been incurred before that date. The action before Mullins J was tried between 30 August and 1 September 2005. Reasons for Judgment were delivered on 12 April 2006.
The applicant says that his claim against the respondent was not raised in the respondent’s action, that lead to the judgment against the applicant for the following reasons:
a)The respondent’s action was brought on 22 November 1999 and the liabilities in respect of which the indemnity is sought had not yet been incurred;
b)The application for a material change of use had not been made when the respondent’s action was commenced;
c)The Mount O’Reilly property was sold on 11 June 2004;
d)The respondent’s action did not seek to wind up the partnership nor the taking of partnership accounts;
e)At issue in the respondent’s action the validity and enforceability of the partnership agreement was in issue;
f)The applicant’s claim could not have been brought without the issues in the respondent’s action having first been resolved.
None of these reasons withstand scrutiny. The question posed by s.40(1)(g) Bankruptcy Act is answered by reference to legal considerations: Re Ling; ex parte Ling v Commonwealth of Australia (1995) 58 FCR 129; Re Brink; Ex parte Commercial Banking Co of Sydney Ltd (1980) 44 FLR 135 at 138-9.
The applicant could have sought to claim the amounts spent or incurred by him in the Supreme Court proceedings. He could have claimed in respect of debts paid after the commencement of proceedings. In fact, the respondent’s established entitlement to the payment of $2,160,000 arose after the commencement of the proceedings. The only substantial argument advanced by the applicant as to why the claim could not have been raised in the earlier proceedings was because it was inconsistent with the applicant’s pleaded case that there was no partnership. However, the claim could have been pleaded in the alternative. After all, the applicant denied that there was a partnership so he did not have to pay the respondent the sum of $2,160,000. He could just as easily pleaded that he did not have to pay the respondent that sum in the event that a finding was made that there was a partnership because he had a set off or counterclaim exceeding that sum.
Accordingly, I consider that the necessary prerequisite in s.40(1)(g) of the Act has not been established.
I would not decide the present application adversely to the applicant on the first ground articulated by the respondent. Whilst the applicant’s evidence is necessarily incomplete, it does not appear that the applicant himself has paid the amounts in respect of which he seeks an indemnity or contribution. However, the respondent argues that in order to be entitled to claim an indemnity or contribution the applicant has to have actually paid the amounts. I disagree. I consider it is enough if the applicant has incurred a liability for those sums. The evidence does not presently prove such a liability but subsequent evidence may do so. For example, it is said that some of the amounts were paid by Basildene Pty Ltd. That company was incorporated by the applicant and the respondent for an earlier commercial venture. Subsequent evidence may establish the applicant’s liability to Basildene Pty Ltd.
Similarly, I would not decide the present application on the fourth ground raised by the respondent. There has been a finding that the parties were in partnership. If that gives rise to legal rights in the applicant then so be it. The rejection of his evidence about the existence of a partnership should not act as a bar to the enforcement of such rights. The bar in this case is the issue estoppel and the fact that the claims now sought to be made could have been agitated in the earlier proceedings.
That second point is highlighted by the respondent’s fifth argument. In July 2007 the applicant filed an application in the respondent’s Supreme Court action. By that application the applicant sought that the respondent pay in excess of $4 million on account of partnership debts. That application was dismissed by consent. Counsel for the respondent referred to Chamberlain v Deputy Commissioner of Taxation (1988) 164 CLR 502 at 508 to make the submission that a judgment by consent still gives rise to the principle of res judicata. The applicant sought relief for the payment of alleged partnership debts. Those proceedings were dismissed by consent. It is difficult to see why the applicant should be permitted to pursue fresh proceedings seeking the same relief.
In all of the circumstances, the application to set aside the bankruptcy notice should be dismissed.
I should deal with the applicant’s request to refer the matter to mediation.
By letter dated 3 July 2008 the solicitors for the respondent stated that “our client has no interest in mediation with your client”. That view was understandable, given that the respondent obtained a judgment in April 2006 that remains unsatisfied, and has served a bankruptcy notice that was not complied with. Given the nature of the dispute between the parties, the fact that there has already been substantive litigation in the Supreme Court, and the nature of the proceedings in this Court, I see no good reason why the matter should be referred to mediation.
I certify that the preceding thirty-seven (37) paragraphs are a true copy of the reasons for judgment of Wilson FM
Associate: Lynnette Chin
Date: 3 September 2008
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