Re Michael Colin Stevens

[1990] FCA 656

Re: MICHAEL COLIN STEVENS
No. B1668 of 1990
FED No. 656
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA

BANKRUPTCY DISTRICT OF THE STATE OF NEW SOUTH WALES AND THE AUSTRALIAN CAPITAL TERRITORY
GENERAL DIVISION
Davies J.(1)

CATCHWORDS

Bankruptcy - application to set aside bankruptcy notice - notice issued on judgment debt - application pending to have judgment debt set aside.

Real Property Act 1900 (NSW) s.74J

Supreme Court Rules - Pt 40 r 4, Pt 61 r 1 Sch E Pt 2

HEARING

SYDNEY

#DATE 21:11:1990

Counsel for the debtor: Mr P.H. Blackburn-Hart

Solicitor for the debtor: Richard Gonda and Associates

Counsel for the creditor: Mr A. Lakeman

Solicitor for the creditor: Schollbachs

ORDER

The application be adjourned for 14 days.

Note: Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules.

JUDGE1

This is an application by the debtor, Michael Colin Stevens, to set aside a bankruptcy notice issued in favour of the judgment creditor, Tiseri Pty Limited ("Tiseri"), or alternatively to extend the time for compliance therewith .

1. For bankruptcy purposes, a judgment is only prima facie evidence of a debt. Linley L.J. said in Ex parte Lennox: In Re Lennox (1885) 16 QBD 315 at 329:-
   

"The Court will not allow bankruptcy proceedings to be had recourse to for the purpose of enforcing debts which are fictitious and not real, although they are in the form of judgment debts."

See also Corney v. Brien (1951) 84 CLR 343, Wren v. Mahony (1972) 126 CLR 212 and Olivieri v. Stafford and Others (1989) 91 ALR 91. Particularly is this so when the judgment was not obtained after a trial in which the facts and the law were investigated.

1. In this present matter, the debtor, Mr Stevens, has applied to the Supreme Court of New South Wales to have the judgment, on which the bankruptcy notice was based, set aside. The motion for setting aside has been given a return date later this month; but whether it can be heard and disposed of on that day remains to be seen. I have received the evidence which the parties wish to tender in this application and have heard the oral evidence of one deponent, Mr R. Gonda, the solicitor for Mr Stevens, who was cross-examined and re-examined, on the matters set out in his affidavit. I adopted that course as counsel for the judgment creditor, Tiseri alleged that the motion for setting aside the judgment had no prospect of success.

2. In April 1986, Mr P.J. Burns and his wife, Mrs K.J. Burns, agreed to sell a property at Bathurst to the debtor and to his wife, Mrs J.M. Stevens. At about the same time, Tiseri, a company of which the shareholders and directors were Mr and Mrs Burns, agreed to purchase from Farlurn Pty Limited ("Farlurn"), a company of which Mr and Mrs Stevens were the directors and shareholders, a property at Tuggerah. Subsequently, a problem arose with respect to the deposits to be payable on the two properties and, on 7 October 1986, it was proposed by the solicitors for Farlurn and Mr and Mrs Stevens that the deposit payable for the Bathurst property should be $60,000 and should be secured by an unregistered second mortgage to be given by Farlurn to Tiseri. That proposal was accepted and a mortgage under the Real Property Act 1900 (NSW), which appears to have been originally executed and dated on 1 May 1986, was amended to provide a security for the payment of $60,000 from Farlurn to Tiseri over the land being Vol. 14720 Fol. 76, which was the Tuggerah land.

3. Thereafter, the sale from Mr and Mrs Burns to Mr and Mrs Stevens was completed save that the $60,000 was not paid. The sale from Farlurn to Tiseri did not proceed. On or about 12 March 1987, Farlurn served a notice to complete and, on 15 April 1987, Farlurn served a notice of rescission. Tiseri, for its part, treated the contract as being still on foot and disputed the ability of Farlurn to complete and its right to rescind.

4. On 14 July 1987, a caveat was lodged by Tiseri to protect its interest as mortgagee pursuant to the memorandum of mortgage securing the sum of $60,000. In or about May 1989, notice was given to Tiseri under s.74J of the Real Property Act 1900 (NSW) that the caveat would lapse upon the expiration of 21 days unless an order extending the operation of the caveat was obtained from the Supreme Court of New South Wales.

5. Tiseri forthwith instituted proceedings in the Equity Division of the Supreme Court of New South Wales against Farlurn as First Defendant, Mr Stevens as Second Defendant and Mrs Stevens as Third Defendant seeking a declaration that it was entitled to have the contract for the sale of the Tuggerah property specifically performed, an order for specific performance and alternatively an order for the payment of the deposit or damages. The summons also sought the following orders:-
   

"5. A DECLARATION that the First, Second and Third Defendants are jointly and/or severally liable to the Plaintiff for a debt of $60,000.00 together with interest thereon.

6. A DECLARATION that the Plaintiff has a beneficial interest in property known as Lot 101, Pacific Highway, Tuggerah as mortgagee under unregistered memorandum of mortgage dated 1 May 1986 from the First Defendant as mortgagor.

7. An ORDER interim and final pursuant to Section 74J(2) of Real Property Act, 1900 extending the operation of caveat number X68809."

Farlurn in due course lodged a cross-claim against Tiseri in relation to the Tuggerah land.

Farlurn was thereafter included in the title as cross claimant and Tiseri as cross defendant.

At some stage, the name of Mrs Stevens disappeared from the title.

1. There was an interlocutory hearing before a Master at which the caveat was extended. Subsequently, there was correspondence between the solicitors for the parties. Some of this correspondence was headed in the name of the companies, Tiseri and Farlurn and on other occasions the name of Stevens was included. I see little significance in the manner in which the correspondence was entitled and I reject the suggestion contended for by the solicitor for Mr Stevens that the dispute was understood to be a dispute simply between the two companies. The summons in the Equity Division of the Supreme Court was quite clear, both in naming Mr Stevens as respondent and in seeking orders against him. I assume, for it was not contended to the contrary, that Mr Stevens formally appeared by his solicitor in those proceedings. Moreover, those proceedings arose out of the contract of sale between Mr and Mrs Burns and Mr and Mrs Stevens. It was the outstanding purchase of that property of which recovery was sought.

2. In February 1990, at a time when Farlurn urgently required Tiseri's consent to a plan of subdivision, there were discussions between the solicitors as to settlement. It was orally proposed that the sum of $49,000 would be paid in full and final settlement of the dispute between the parties. On 16 February 1990, there was a letter from Schollbachs, the solicitors for Tiseri, to Richard Gonda and Associates, the solicitors for Farlurn and Mr and Mrs Stevens, which read as follows:-
   

"Re: Tiseri Pty Ltd and Farlurn Pty Ltd

We refer to your letter of 12 February 1990 and advise our client has instructed that he will consent to your request, that is to say, to execute an authority to the Registrar General to the consent to the registration of your proposed plan of subdivision. However, prior to doing so our client requires a written undertaking from your Mr Gonda that on completion of the sale to the Wyong Shire Council you will pay to our client the sum of $49,000.00 in full and final satisfaction of our client's claim against your client. Further, our client will require appropriate terms of settlement to be filed. Accordingly, if the above is acceptable to your client, kindly fax to us that written undertaking and draft terms of settlement and subject to these documents being satisfactory, we will return to your our client's consent addressed to the Registrar General."

This was replied to by a letter from Richard Gonda.

"Re; Farlurn Pty Ltd and Tiseri Pty Ltd

We have your facsimile of the 16th February, 1990. We are instructed to provide herewith an undertaking that on completion of the sale to Wyong Council your client will be paid the sum of $49,000.00 in full and final satisfaction of your client's claim against our client.

We enclose herewith Terms of Settlement for your execution. Kindly, as a matter of urgency, provide your client's consent to the Registrar General in the form provided in previous correspondence, copy of which is enclosed, as a matter of extreme urgency and return back to us."

The terms of settlement which were enclosed were drawn in a form appropriate for filing in the Supreme Court. The title to the document listed Tiseri as Plaintiff, Farlurn as First Defendant, Mr Stevens as Second Defendant, Farlurn as Cross-claimant and Tiseri as Cross-Defendant. The terms provide as follows:-

"BY CONSENT

1. Caveat No. X68809 be withdrawn.

2. The defendants pay to the Plaintiff the sum of $49,000-00 in full and final settlement of the unregistered Mortgage herein dated 1st May, 1986, between the First Defendant as Mortgagor and the Plaintiff as Mortgagee.

3. Each party to pay its own costs.

4. These terms not to be disclosed."

1. Subsequently, there was a letter of 22 February 1990 from the Schollbachs to Richard Gonda and Associates which read as follows:-
   

"Re; Tiseri Pty Ltd and Farlurn Pty Ltd

We refer to your letter of the 19th instant and now enclose herewith letter of authority from our client addressed to the Registrar General's Department.

We are attending to filing Terms of Settlement and a sealed copy of same will be served in due course.

Please let us have settlement details informing us where and when settlement is to take place.

Settlement cheques should be drawn as follows:- Tiseri Pty Ltd $47,500.00 Schollbachs Solicitors 1,500.00"

1. Richard Gonda and Associates, having received the letter of consent directed to the Registrar General, duly lodged that consent thus allowing a plan of subdivision affecting the Tuggerah property to proceed. However, the $49,000 was never paid.

2. On 23 March 1990, the terms of settlement were filed in the Supreme Court and, on that day, the following orders were made by a Registrar of the Court under Part 61 Rule 1 Schedule E Pt 2 of the Rules of the Supreme Court:-
   

"1. Caveat No. X68809 be withdrawn.

2. The Defendants pay to the Plaintiff the sum of $49,000.00"

1. In this present application, it was contended on behalf of Mr Stevens that the terms of settlement were intended as an agreement between the parties and that it was not intended that any order be taken out. I cannot accept this contention. It was made clear by Schollbachs that the terms of settlement were to be filed. The effect of the filing of consent terms is that an order by consent may be made pursuant to the Rules of the Supreme Court. I reject the contention that Mr Gonda did not understand that. The terms were formally drawn up for filing in the Supreme Court. The terms did not record simply an agreement between the parties but, by the opening words "By Consent", set out the terms of an order to be made by consent.

2. It was contended that the consent order made did not reflect the consent filed for much of clause 2 and all of clauses 3 and 4 were not included in the formal order. But it is clear that the order appropriately expressed the consent. The words in clause 2 which were omitted were so omitted because clause 4 provided that the terms not be disclosed. Therefore, the order as made reflected only that part of the terms as was essential to the order. The order of the Court was, of course, a public document. The remainder of the consent could be private to the parties if they so chose, as they did.

3. It was next contended that the order for the payment of the $49,000 was invalid or ineffective for it did not specify a time in which the payment must be made. Reference was made to Part 40 Rule 4 of the Supreme Court Rules. However this submission was founded upon a misreading of the Rules. The order for the payment of the $49,000 was a money order, not an order for the doing of an act. An order for the doing of an act should specify a time so that, if the act not be performed within the time, proceedings can be taken against the defaulting party for failure to do that which the Court has ordered shall be done. But a money order stands in a different position. It is effective forthwith and, if not complied with, execution may issue. See e.g. In re Oddy Major v. Harkness (1906) 1 Ch 93.

4. I have given consideration as to whether the order that the caveat be withdrawn was an order to do an act and the order to pay the sum of $49,000 was interconnected and so required that payment was to be made in exchange for the withdrawal of a document withdrawing a caveat. But that is not a correct reading of the order. Order 1 will take effect notwithstanding that no act is taken by the caveator. The effect of the order was to terminate the interlocutory order extending the life of the caveat and to dismiss the claim for extension thereafter. Thereupon the caveat lapsed, or would do so on the filing of the order with the Registrar-General. Accordingly, orders 1 and 2 are not interdependent orders requiring on each side acts to be done. Each order stands on its own. Order 2, which is a money order, may be enforced by the ordinary process of execution. It is a final order on which execution may be levied and which is the proper subject of a bankruptcy notice if the sum ordered to be paid is not paid.

5. The final ground of challenge was that the terms of settlement filed in the Court were the result of a unilateral or mutual mistake. It was contended that the consent order founded on that mistake should be set aside. It was not in dispute that the Supreme Court has power to set aside a consent order if there be a mistake invalidating the consent on which the order was founded. See Huddersfield Banking Co Ltd v. Henry Lister and Sons Ltd (1895) 2 Ch 273; Wilding v. Sanderson (1897) 2 Ch 534; Kinch v. Walcott (1929) AC 482.

6. The mistake was said to be the inclusion in the terms of settlement of the obligation on the part of Mr Stevens to pay the sum of $49,000. Mr Gonda conceded in his evidence that the terms of settlement were intended to settle the whole dispute in the Supreme Court proceedings. However, he said that in his oral telephone conversation with the solicitor for Tiseri prior to the drawing up of the terms of settlement, no reference was made to Mr Stevens.

7. In the absence of any evidence to the contrary, I must accept Mr Gonda's evidence on this point. However, the settlement reached was not an oral settlement. The terms of settlement were not intended to reflect terms of an agreement already made. The letter from Schollbachs of 16 February made it clear that appropriate terms of settlement were required and requested that Mr Gonda draw up and forward draft terms of settlement. Such draft terms of settlement were prepared and, being satisfactory to Schollbachs and their client, were accepted. The offer was made in writing by Mr Gonda on behalf of his client and was accepted in writing. Certainly this is not a case of mutual mistake.

8. Moreover, the evidence does not enable me to conclude that there was any mistake on the part of Mr Gonda or Farlurn or Mr Stevens. The terms of settlement were quite clear. These terms settled proceedings in which Mr Stevens was a defendant and in which a claim was made against him personally. Clause 2 of the terms of settlement distinguished between "The defendants" and "The First Defendant". Mr Gonda in his evidence did not specify who drew up the terms of settlement, whether it was himself, an employee or counsel. Nor did he say in his evidence that, when he signed the document he misread it and understood that it referred only to Farlurn. Nor did he say that he was not authorised to sign the terms of settlement in the form in which they were drafted. Nor did Mr Stevens give evidence that the terms of settlement and the consent order were not authorised by him. Indeed, on advice, Mr Stevens absented himself from the proceedings.

9. In brief, I cannot draw a conclusion from the terms of the correspondence or from Mr Gonda's evidence that any mistake was involved.

10. I would add that there are strong discretionary reasons for not setting aside the order. Farlurn has taken advantage of the settlement by lodging the letter of authority to the Registrar General which enabled the plan of subdivision to be approved and thereby part of the land to be transferred by Farlurn. Farlurn and Mr Stevens have taken the benefit of the agreement reached but have failed to do what the terms of settlement require to be done on their part, namely to pay the sum of $49,000.

11. For these reasons, on the evidence before me, I would not set aside the bankruptcy notice. However, there is a motion before the Supreme Court listed for a few days hence. It seems to me that, out of courtesy to that Court, I should delay making a final ruling on this application. Should the Supreme Court be able to deal with the matter on the date listed and should it, on the evidence before it, come to the view that the consent order should be set aside, that is a matter which I should take into account. I therefore propose to adjourn this application for 14 days to ascertain what occurs. If the Supreme Court is unable to deal with the matter on the day for which it is listed, I presently have in mind to dismiss the application.