Re Neal, D.A.K. and Anor v Ex parte Neal, D.A.K. and Ors

[1994] FCA 546

RE: DONALD ALAN KEITH NEAL and COLIN JOHN TAYLOR
EX PARTE: DONALD ALAN KEITH NEAL and COLIN JOHN TAYLOR v
DUNCAN PROPERTIES PTY LTD
No. QN125 of 1994
FED No. 546/94
Number of pages - 10
Estoppel and Bankruptcy
(1994) 123 ALR 614

COURT

IN THE FEDERAL COURT OF AUSTRALIA
BANKRUPTCY DISTRICT OF THE STATE OF QUEENSLAND
GENERAL DIVISION
SPENDER J

CATCHWORDS

Estoppel - issue estoppel - previous bankruptcy notice and later bankruptcy notice issued on basis of same judgment debt - previous bankruptcy notice set aside because debtor established a stay of the judgment debt by operation of a deed of compromise - validity of deed of compromise upheld in proceedings on previous bankruptcy notice despite assertion by judgment creditor that deed was inoperative because of breach by judgment debtor - judgment creditor issued later bankruptcy notice claiming that deed of compromise was ineffective to stay judgment because deed was induced by misrepresentation - whether judgment creditor was estopped on the basis of the Anshun principle from raising this issue, it not having been raised in previous proceedings.
Bankruptcy - bankruptcy notice - setting aside notice as vexatious and as an abuse of process.

Henderson v. Henderson 67 ER 313
Port of Melbourne Authority v. Anshun Pty Ltd (1981) 147 CLR 589
In Re Vitoria; Ex parte Vitoria (1894) 2 QB 387
Re Hilton; Ex parte March (1892) 76 LT 594

HEARING

BRISBANE, 12 May 1994
#DATE 12:8:1994

Counsel for the petitioning creditor: Mr R. Chesterman QC and

Mr P. Dunning

instructed by: Tobin and Co.

Counsel for the debtors: Mr B. Clarke

instructed by: Hill and Taylor

ORDER

THE COURT ORDERS THAT:
(i) Bankruptcy Notice No. 125 of 1994 be set aside;
(ii) the respondent pay the costs of this application.
NOTE: Settlement and entry of orders is dealt with in Rule 124 of the
Bankruptcy Rules.

JUDGE1

SPENDER J This is an application to set aside Bankruptcy Notice No.125 of 1994 ('the bankruptcy notice'). It is asserted by the applicants that that bankruptcy notice is an abuse of process and vexatious, in that:

(a) the bankruptcy notice is based on the same judgement debt as Bankruptcy Notice No. 41 of 1993 issued out of this registry of this Court on 11 January 1993;

(b) bankruptcy notice No. 41 of 1993 was by Order of this Court set aside;

(c) the Order setting aside the bankruptcy notice No. 41 of 1993 was made and upheld by the Full Court of the Federal Court of Australia on the grounds that:-

(i) the said judgement debt had been discharged and released and proceedings on the judgement stayed by the terms of a Deed of Settlement date 22 October 1993; and

(ii) the purported rescission of the said Deed of Settlement by the Respondent Duncan Properties Pty Ltd on 8 January 1993 was of no effect.

1. An alternative ground for setting aside the bankruptcy notice is that the judgment on which that bankruptcy notice was founded has been discharged and released and proceedings on the judgment stayed pursuant to a deed of compromise dated between 22 October 1992 entered into between the applicants and others and the respondent prior to the issue of the bankruptcy notice.

2. On 1 February 1994, Duncan Properties Pty Ltd ('Duncan Properties') sought and obtained the issue of the bankruptcy notice No. 125 of 1994. It was based on a sealed copy of a final judgment obtained by Duncan Properties against the applicants in the District Court of Queensland held in Brisbane on 12 June 1992. On that day, Acting Judge Brabazon QC gave leave to sign judgment for the sum of $150,560.00 together with interest to 28 February 1992 of $26,116.27, together with further interest at the rate of 2% per calendar month from 28 February 1992 to the date of entering judgment, and costs fixed in an amount of $3,750.00. The bankruptcy notice dated 2 February 1994 required the applicants to pay $143,615.09, which is said to be the balance owing under that judgment, being the amount of the judgment, namely, $193,615.09, less $50,000.00 paid to the judgment creditor on 20 October 1992 in reduction of the judgment debt.

3. As the details of the application suggest, this is a further attempt by Duncan Properties to issue a bankruptcy notice against the applicants in respect of the judgment of Acting Judge Brabazon of 12 June 1992, and the present application is based on the curial history of the matter.

4. On 11 January 1993, Duncan Properties issued Bankruptcy Notice No. 41 of 1993 against the applicants as debtors. The bankruptcy notice the subject of the present application, No. 125 of 1994, refers to and relies upon the same judgment debt as referred to and relied upon in Bankruptcy Notice No. 41 of 1993.

5. On 11 May 1993, Drummond J ordered that Bankruptcy Notice No. 41 of 1993 be set aside. It will be necessary to refer in some detail to the basis on which his Honour made that Order.

6. On 10 August 1993, the Full Court of the Federal Court ordered that an appeal by Duncan Properties from the order of Drummond J made on 11 May 1993 be dismissed. Again, it will be necessary to refer to the order and reasons of the Full Court of 10 August 1993.

7. Before Drummond J, the applicants, who were the debtors of Duncan Properties, relied on a deed of compromise dated 22 October 1992. According to the recitals in the deed, the applicants were then indebted for $666.065.00, the total of a Supreme Court judgment for $476,200.00 and a District Court judgment for $189,865.09. A bankruptcy notice was served on the applicants in July 1992, and following non-compliance with the demand contained in that bankruptcy notice, a petition was subsequently served. After service of the petition, the deed of compromise was entered into by the parties.
   

In his reasons of 11 May 1993, Drummond J said (at p. 25): " I will order that the bankruptcy notice referred to in the debtor's notice of motion be set aside on the ground that the Deed of Compromise, including the stay provided for by clause 7.3, remains in force and on the further ground that the creditor continues to be estopped from denying that that stay has ceased to operate until it undertakes to pay the legal costs the debtors incurred in seeking to make the arrangement for the transfer of the $100,000.00 to the creditor's solicitors to which I have referred. "

1. It should be said that the parties to the deed of compromise included, in addition to Duncan Properties and the applicants, a company, Amartec Pty Ltd (a company of which Mr Neal was a director) and Spyros Fallas, a person involved in Supreme and District Court litigation involving both Duncan Properties and the applicants.

2. A Full Court of the Federal Court of Australia (Sweeney, Wilcox and Spender JJ) dismissed an appeal by Duncan Properties from the order of Drummond J on 10 August 1993. As the Full Court noted, the intent of the deed was, inter alia, that all proceedings relating to the present applicants, including the pending bankruptcy proceedings, would be terminated upon the performance by them of three separate obligations. The first obligation was the delivery by the present applicants to Duncan Properties' solicitors of a bank cheque for $50,000.00, delivery to be effected by 5 p.m. on 22 October 1992. The second obligation was the payment by the present applicants of Duncan Properties' costs of the various court proceedings, the amount to be assessed by a nominated firm of costs consultants. These obligations were duly met by the present applicants. The third obligation of the deed was the subject of the appeal to the Full Court.

3. In the deed of compromise, the phrase "Due Bill" in clause 1 of the deed, was defined as "the Due Bill bearing date 16th day of December 1992 being No. 92/103 drawn by Euro Scotia Funding Limited addressed to the Montreal Trust Co. of Halifax, Nova Scotia, Canada, payable to the order of Amartec...for the sum of Seventy-Two Thousand Five Hundred U.S. dollars ($US72,500.00)". Clause 2 of the deed required Amartec and the present applicants by 5 p.m. on 3 November 1992 to deliver the bill to Duncan Properties' solicitors, with a copy of written advice by Amartec to Euro Scotia of the assignment of Amartec's interest in the bill and a letter of acknowledgment from Euro Scotia to Amartec agreeing that the proceeds of the bill would be paid to the appellant when due under the terms of the bill. Clause 3 required Amartec to endorse the bill for payment to the appellant. Clause 4.2, a provision of considerable importance on the appeal to the Full Court, provided:
   

" Amartec hereby assigns to Duncan Properties its interest in the Bill and shall sign all such documents and do all such acts as may be necessary from time to time for Duncan Properties to receive the full proceeds of the Bill when due. "

1. Clause 7.3 of the deed read:
   

" Upon the execution of this Agreement by all parties, the District Court proceedings, the Third Party District Court proceedings, the Supreme Court proceedings, and the Third Party Supreme Court proceedings shall be stayed and the parties hereto undertake not to take any further step or interlocutory proceedings in any or all of the proceedings referred to in this paragraph, nor to incur any further party and party costs and/or disbursements in respect of any or all of the proceedings referred to in this paragraph until Duncan Properties receives all of the monies owing to it under this Agreement, or until default by Amartec, Taylor or Neal of any of their obligations pursuant to the terms of this Agreement, whichever is the sooner. "

1. Clause 9.2 contained a release on the condition expressed as:
   

" Subject to Amartec and Neal and Taylor carrying out their obligations under this Agreement. "

1. Clause 10 provided:
   

" In the event of default by Amartec, Taylor or Neal of any of their obligations pursuant to the terms of this Agreement then this Agreement may be rescinded by Duncan Properties and thereupon Duncan Properties and Fallas shall be entitled to continue with the Supreme Court proceedings and District Court proceedings and Duncan Properties shall be entitled to commence bankruptcy proceedings against Neal and Taylor. "

1. Amartec endorsed the bill and delivered it with the stipulated letters to the solicitors for Duncan Properties, who delivered the bill to a bank for presentment and collection.

2. However, and importantly, the bill was not presented to Montreal Trust on 16 December 1992, the due date. When it was eventually presented on 22 December, the bill was not paid. The solicitors for Duncan Properties formed the view that Montreal Trust's refusal to pay had the effect of putting the respondents in breach of their obligations under cl. 4.2 of the deed with the result that the release was inoperative and cl. 10 applied. They purported on behalf of Duncan Properties to rescind the deed and issued Bankruptcy Notice No. 41 of 1993 dated 11 January 1993. The present applicants moved to set aside that notice contending that the deed remained in force and that its effect was to stay enforcement of the judgment on which the notice was based.

3. Before the Full Court, Duncan Properties argued that cl. 4.2 of the deed imposed on Amartec an obligation to ensure payment to Duncan Properties of the value of the bill. This construction was not accepted by the Full Court. The Full Court concluded that, as a matter of construction, cl. 4.2 imposed no obligation on Amartec to ensure payment of the bill on presentment. The Full Court said (at p. 9):
   

" The clause is intended to do no more than compel Amartec to sign such documents and do such acts as may be necessary, from time to time, the better to effectuate the assignment of the bill and entitle the appellant to recover whatever payment may be obtainable under it, having regard to its intrinsic limitations and worth. "

1. The Full Court further concluded that, if contrary to its view Amartec came under an obligation pursuant to cl. 4.2 of the deed of compromise to ensure payment of the bill upon presentment, that obligation had no practical effect because there was in fact no presentment. The Full Court said (at p. 10):
   

" This also would have been fatal to the appellant's case. "

The Full Court concluded:

" The bankruptcy notice was not authorised by s. 40(1)(g) of the Bankruptcy Act 1966. His Honour correctly ordered that it be set aside. The appeal must be dismissed with costs. "

1. The affidavit material on the present application filed on behalf of Duncan Properties alleges, and for the first time, that the deed of compromise of 22 October 1992 was induced by misrepresentation, including fraud.

2. The issue before Drummond J and the Full Court was as to the effect of the deed of compromise. It was successfully asserted on behalf of the present applicants before Drummond J and upheld by the Full Court that the stay provided by the deed of compromise was in force, with the consequence that the judgment relied on by Duncan Properties was not a judgment "the execution of which had not been stayed".

3. By its notice of intention to oppose the application to set aside Bankruptcy Notice No. 125 of 1994, Duncan Properties asserts that "a contract of compromise which by its terms would have prevented the respondent enforcing its judgment has been rescinded and/or avoided by reason of misrepresentation inducing its formation".

4. It is conceded by senior counsel on behalf of Duncan Properties that the factual circumstances on which it presently relies in respect of its claims for misrepresent-ation and fraud were known to it prior to the proceedings before Drummond J and, a fortiori, before the proceedings in the Full Court.

5. By a document headed "Notice of Rescission" dated 20 September 1993, Duncan Properties asserts that it was induced to become a party to the deed of compromise and become bound by its terms by representations by named persons acting on behalf of, inter alios, the applicants, to the effect that money had been provided to ensure that the bill of exchange would be honoured. The notice asserted that the representations were untrue and that the agent of Neal and Taylor knew the representation made by him to be untrue. It appears from other material that the alleged misrepresentations occurred in late October 1992.

6. On 8 January 1993, the solicitors for Duncan Properties by letter asserted that the present applicants were in breach of the deed of compromise by reason of their failure to pay the total sum of money to Duncan Properties pursuant to the deed of compromise and the letter concluded:
   

" We confirm our previous advice to you that by reason of that breach our client hereby determines the Agreement. " The notice of rescission of 20 September 1993 stated: " DUNCAN PROPERTIES PTY LTD has rescinded the said Deed of Settlement by letter from its solicitors to Messrs Smit Leslie Barwick of 8th January 1993. As a further ground for rescinding the Deed of Settlement DUNCAN PROPERTIES PTY LTD relies upon the misrepresentation described above. In the event that the letter of 8th January 1993 is not or was not effective to rescind the Deed of Settlement DUNCAN PROPERTIES PTY LTD by this Notice rescinds the contract by reason of the said misrepresentation. "

1. Bankruptcy Notice No. 41 of 1993, being the notice which was set aside by the order of Drummond J, was applied for by Duncan Properties on the same day as its solicitors' letter of 8 January 1993 and that Bankruptcy Notice issued on 11 January 1993.

2. Much authority was referred to in the submissions of counsel for the parties, but in my view much of it is irrelevant for the determination of the present question. This is not a case of involving the principles of res judicata. The claim by the present applicants is that Duncan Properties is estopped from asserting that it has rescinded the deed of compromise by reason of misrepresentation vitiating its formation, on the basis of the extended principle stated by Sir James Wigram VC in Henderson v. Henderson 67 ER 313 at 319 and discussed by the High Court in Port of Melbourne Authority v. Anshun Pty Ltd (1981) 147 CLR 589.

3. It seems to me that the present question can be couched in the words of Gibbs CJ, Mason and Aickin JJ, in Anshun:
   

" The critical issue, then, is whether the case falls within the extended principle expressed by Sir James Wigram VC in Henderson v. Henderson (1843) 3 Hare, at p 115 (67 ER at p 319). The Vice-Chancellor expressed the principle in these terms:

' where a given matter becomes the subject of litigation in, and of adjudication by, a Court of competent jurisdiction, the Court requires the parties to that litigation to bring forward their whole case, and will not (except under special circumstances) permit the same parties to open the same subject of litigation in respect of matter which might have been brought forward as part of the subject in contest, but which was not brought forward, only because they have, from negligence, inadvertence, or even accident, omitted part of their case. The plea of res judicata applies, except in special cases, not only to points upon which the Court was actually required by the parties to form an opinion and pronounce a judgment, but to every point which properly belonged to the subject of litigation, and which the parties, exercising reasonable diligence, might have brought forward at the time. ' "

1. It is important for present purposes to acknowledge the dual caution contained in the joint judgment at 598-599:
   

" Although it has been said that the principle operates so as to extend the doctrines of issue estoppel as well as res judicata, its application to cases of issue estoppel is to be treated with caution. Lord Wilberforce in Carl Zeiss

(1967) 1 AC at p 966 observed that Henderson v. Henderson was an instance of res judicata. Lord Reid in the same case

(1967) 1 AC at p 916 noted that confusion had been introduced by applying to issue estoppel without modification rules designed to deal with res judicata. "

1. After discussing authority, the joint judgment at 602 expressed its preferred formulation of the test as follows:

2. " ...there will be no estoppel unless it appears that the
   

matter relied upon as a defence in the second action was so relevant to the subject matter of the first action that it would have been unreasonable not to rely on it. Generally speaking, it would be unreasonable not to plead a defence if, having regard to the nature of the plaintiff's claim, and its subject matter it would be expected that the defendant would raise the defence and thereby enable the relevant issues to be determined in the one proceeding. "

Their Honours noted:

" It has generally been accepted that a party will be estopped from bringing an action which, if it succeeds, will result in a judgment which conflicts with an earlier judgment. "

And later:

" By 'conflicting' judgments we include judgments which are contradictory, though they may not be pronounced on the same cause of action. It is enough that they appear to declare rights which are inconsistent in respect of the same transaction. "

1. For Duncan Properties it was asserted that it was neither an abuse of process nor vexatious to issue a further bankruptcy notice upon an unsatisfied judgment in circum-stances where an earlier bankruptcy notice based upon the same judgment debt was dismissed. Reliance was placed on In Re Vitoria; Ex parte Vitoria (1894) 2 QB 387. In that case, upon the hearing in a County Court of a bankruptcy petition against a judgment debtor founded on his non-compliance with a bankruptcy notice served upon him by the judgment creditor, the Registrar enquired into the consideration for the debt for which judgment had been obtained, and, being of opinion that it did not constitute a good petitioning creditor's debt, refused to make a receiving order. The Court of Appeal held that the decision of the Registrar did not operate as res judicata with respect to the sufficiency of the petitioning creditor's debt and it did not therefore prevent the creditor from serving another bankruptcy notice and obtaining a receiving order in respect of the same judgment.

2. The case was one of res judicata not issue estoppel on the extended principle in Anshun and the case is no authority for the proposition that the issue of a second bankruptcy notice cannot be an abuse of process or vexatious. Kay LJ, at 391, expressly contemplated the possibility that a second notice might be vexatious. In Re Vitoria decides that a decision of a Registrar that a receiving order ought not be made was not a decision that the judgment relied on by the petitioner did not constitute a debt, because the Registrar had no jurisdiction to make such a determination. Accordingly, the decision of the Registrar could not be res judicata on the question of whether there was a present judgment debt.

3. Duncan Properties asserts that there is no issue estoppel in the extended sense arising in the present case because the matter in controversy before Drummond J was whether the deed of compromise had been discharged and ceased to be of effect because the applicants, inter alios, had not performed the obligation imposed on them by the deed, so that by its terms it could be discharged and set aside. It is submitted that the present question is whether Duncan Properties was induced to become a party to the deed by reason of misrepresentation made by the applicants' agents. It was submitted that rescission of the deed of compromise for fraud was not so relevant to a purported termination for breach, that it was unreasonable not to have raised fraud in the earlier proceedings.

4. In my opinion, the submissions of the applicant proceed on too narrow a view of what the issue was before Drummond J. What was in dispute before him was the right in Duncan Properties to issue a bankruptcy notice. The application to set aside Bankruptcy Notice No. 41 of 1993 challenged an essential element of that entitlement, namely, that Duncan Properties was a person entitled to issue execution in respect of the judgment debt. Such an element is essential having regard to the requirement in s. 40(1)(3)(b) that at the time of an application for the issue of a bankruptcy notice, execution of the judgment or order to which it relates has not been stayed.

5. While the deed of compromise remained on foot, its terms prevented the respondent from enforcing the judgment debt. Before Drummond J, Duncan Properties asserted that the deed of compromise had been discharged and ceased to be of effect because of default by the present applicants, with the consequence that the deed by its terms could be discharged and set aside.

6. The ground on which Duncan Properties claimed before Drummond J that the deed did not prevent the respondent from enforcing the judgment debt is not the same as the ground on which it now asserts that it is not prevented from enforcing the judgment debt.

7. What is now claimed is, on analysis, a different ground for the same claim, namely that the deed of compromise does not prevent Duncan Properties from enforcing the judgment debt.

8. If Duncan properties is successful in establishing that it was induced to become a party to the deed of compromise by reason of misrepresentations made by the applicants' agent and, as a consequence, it has rescinded the deed of compromise or that the deed of compromise is otherwise inoperative, the result will be that the judgment debt which founds the bankruptcy notice is not one the execution of which has been stayed. Drummond J concluded that the deed, including the stay provided for by cl. 7.3, remained in force. If Duncan Properties' present contentions are correct, the deed is inoperative. In my opinion, such a judgment would be contradictory in the sense referred to by Gibbs CJ, Mason and Aickin JJ in Anshun. As their Honours noted:
   

" It is enough that they appear to declare rights which are inconsistent in respect of the same transaction. "

1. In my opinion, having regard to the nature of the claim made by the present applicants in the proceedings before Drummond J and the subject matter of that claim, it was unreasonable not to raise the matter now presently agitated by Duncan Properties at that time, and thereby enable the questions directed to the issue of whether the judgment was able to be enforced to be determined in the one proceeding.

2. The fundamental issue before Drummond J was whether the deed of compromise was operative, with the consequence that the judgment on which Duncan Properties relies then and now was stayed or not. It was open to Duncan Properties to raise all grounds justifying its assertion that the deed of compromise was not operative. It now says that there is a further basis on which it is entitled to execution, being a right to avoid the deed of compromise which, in the proceedings before Drummond J, it silently reserved.

3. If this submission of Duncan Properties is correct, but Duncan Properties were to fail in the substantive hearing as to misrepresentation, one might rhetorically ask whether there is anything to stop Duncan Properties issuing a further bankruptcy notice and resisting a further attempt to set aside that bankruptcy notice based on the deed of compromise, by then asserting that the deed of compromise is invalid for a further reason, say, want of capacity on the part of Duncan Properties at the time it was entered into.

4. There is some similarity between the present question and that considered by Williams J in Re Hilton; Ex parte March (1892) 76 LT 594. In that case, the respondent sued for one of the debts included in an assignment to him. The trustee in bankruptcy of the assignor claimed the money, the trustee contending that the respondent had notice of an act of bankruptcy. The issue was decided against the trustee. The trustee then afterwards applied to set aside the assignment upon other grounds, namely, that the assignment was a fraudulent preference. It was asserted on behalf of the trustee that the mere omission to raise a point which might have been raised did not now preclude the parties from raising it in a second action. Williams J said at 595:
   

" If you do not set up a defence which you might have done, by reason of the maxim Interest reipublicae ut sit finis litium, you cannot say 'there was another point which I might have raised and did not raise, but which will conclude the matter, and I should like to raise it here'. The omission to raise the point does not preclude the party from raising it on the ground that he has admitted the point, but he is precluded from raising it merely upon the grounds that it is to the interest of the State that litigation should be put an end to. "

1. And his conclusion was:
   

" The true question which was litigated was whether or not the title of the assignee to these debts could be defeated by the title of the trustee on the bankruptcy of the assignor supervening, and that being the question one trial ought to conclude the matter. "

1. For the above reasons, Bankruptcy Notice No. 125 of 1994 is an abuse of process and vexatious, and so ought to be set aside. The respondent should pay the costs of this application.