Ryan v MCGRATH CORPORATION
[2010] FMCA 528
•8 July 2010
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| RYAN v MCGRATH CORPORATION | [2010] FMCA 528 |
| BANKRUPTCY – Where an application has been commenced before the expiration of the time fixed for compliance with the requirements of the bankruptcy notice – applicant seeks an extension of time. |
| Bankruptcy Act 1966 (Cth) |
| Bryant v Commonwealth Bank of Australia (unreported) Australian Civil Procedure, Bernard Cairns, 7th Ed Law Book Company, 2002 |
| Applicant: | ROSE ANN RYAN |
| Respondent: | MCGRATH CORPORATION |
| File Number: | BRG 585 of 2010 |
| Judgment of: | Burnett FM |
| Hearing date: | 7 July 2010 |
| Date of Last Submission: | 7 July 2010 |
| Delivered at: | Brisbane |
| Delivered on: | 8 July 2010 |
REPRESENTATION
| Counsel for the Applicant: | Mr J. Lee |
| Solicitors for the Applicant: | Griffiths Parry Lawyers |
| Counsel for the Respondent: | Ms M. Lyons |
| Solicitors for the Respondent: | Ruddy & Company |
ORDERS
Application dismissed.
The applicant to pay the respondent's costs of and incidental to the application, to be assessed on an indemnity basis.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT BRISBANE |
BRG 585 of 2010
| ROSE ANN RYAN |
Applicant
And
| MCGRATH CORPORATION |
Respondent
REASONS FOR JUDGMENT
(Revised from transcript)
Introduction
On 11 May 2010 the respondent creditor caused a bankruptcy notice to issue in respect of a judgment debt arising from a judgment obtained by it against the debtor following Supreme Court proceedings. The judgment debt was for a sum of $882,175.00, plus interest and costs. The bankruptcy notice itself only specified the quantified sum of $882,175.00 and interest, giving a total debt at the time of issue of $1,106,129.50. The applicant debtor now applies for an extension of time to comply with the requirements of the bankruptcy notice.
The bankruptcy notice was served upon the debtor on an unspecified date. No point has been taken that the application was made outside the time allowed by section 41(6A) Bankruptcy Act 1966 (Cth). Accordingly I infer this application has been commenced before the expiration of the time fixed for compliance with the requirements of the bankruptcy notice.
The applicant applies for and seeks, an extension of time until 14 days after the final determination of an appeal related to the judgment favouring the creditor upon which the bankruptcy notice is premised. The principal ground advanced by the applicant in support of the application is that she has good prospects in her appeal instituted by her from the adverse decision she has suffered at first instance.
Background Facts
The applicant was the purchaser of a luxury penthouse at Kangaroo Point. The contract was dated 18 April 2007. Time for completion provided for was 6 November 2007. At the time and place appointed for settlement the applicant failed to complete. The respondent was at that time ready, willing and able to complete, and in the absence of the applicant's ability to complete, elected to accept the applicant's failure as a breach and as repudiatory conduct. It elected to terminate the contract.
So much appears to have been agreed before the learned trial Judge, Justice M. Wilson, who noted at the outset of the proceeding before her that it was a proceeding for assessment of damages. Early in her judgment Her Honour noted that the issues at trial were:
a)The market value of the apartment at the date of the breach. The plaintiff's contention was that it was $2.5 million. The defendant contended that it was $3.35 million; and
b)What sale expenses ought properly have been brought to account, and if so, how.
By reference to the summary of assessment of damages contained at the end of Her Honour's judgment, which incorporates the contract price, it follows that the applicant by inference accepts, that even on her best case, that there was a loss occasioned by the respondent in the order of $70,000.00. That is the sum of $250,000.00, being the difference between the two valuations contended for, less $180,000.00, being the deposit. As I will explain shortly, there were further adjustments to be allowed for other factors bringing the total difference to something approaching $37,000.00.
In the event, the assessed market value was found to be $2.5 million thereby resulting in the judgment sum of $882,175.00 after allowance for appropriate sale expenses. That decision is now subject to appeal, and it is principally for that reason the applicant applies for his extension to comply with the terms of the bankruptcy notice.
Legal Principles
The appropriate approach to an application of this kind is well settled. First, there is a general discretion conferred on the Court under section 41(6A) Bankruptcy Act 1966 (Cth) being a discretion at large; Byron & Southern Star Group Pty Ltd[1]. It is a discretion which should be exercised having regard to all the relevant factors; Warner v Frost[2]. Helpfully, in a decision of McPhee v Glentham Pty Ltd[3], Lucev FM set out factors that a Court may take into account in exercising this discretion. For present purposes, those factors include:
a)Whether there is an arguable case on appeal;
b)Whether a stay of execution has been sought or obtained;
c)Prejudice to the debtor;
d)Whether or not undertakings have been given or conditions can be imposed in relation to, for example, non‑disposal of assets by the debtor; and
e)Prejudice to the creditor.
[1] (1997) 151 FCA
[2] [1997] FCA 830
[3] [2006] FMCA 1508
Prospects on appeal
The applicant appeals the decision of the primary judge on three grounds. The grounds identified in the notice of appeal are:
a)That the learned primary judge erred in both fact and law in finding that the market value of the property described as lot 109 on SP201981, County of Stanley Parish of South Brisbane, title reference 50686457, situated at 1 O'Connell Street, Kangaroo Point, Queensland (Unit 109) was $2,500,000.00.
b)Her Honour's decision was against the evidence and the weight of the evidence.
c)Her Honour's decision was made in the absence of evidence to support it.
The appellant seeks orders that the appeal be allowed and that the decision of Her Honour be set aside insofar as it determines the market value of the unit at $2.5 million together with consequential computations and that there be a retrial limited to the question of the market value of Unit 109 and any consequential calculations. In addition, the appellant seeks consequential orders in respect of costs. It is noteworthy that the grounds of appeal as identified in the notice of appeal are expressed very broadly although it need be noted, are apparently confined to the question of valuation.
In submissions produced by the applicant in accordance with the directions issued by the Court of Appeal, it confirms that the only issue to be agitated on appeal concerns the valuation. Significantly, the appeal does not seek to review other issues at the trial such as the issue of sale expenses. Given that matter, it follows that even if the appeal was successful, then that outcome would be for a judgment in favour of the respondent in the sum of $37,175.00.
Various grounds are advanced by the applicant as to why her prospects on appeal are good. The controversial findings of Her Honour's judgment are to be found at paragraphs 16 to 21 of Her Honour's judgment. Those paragraphs reveal that Her Honour largely preferred the evidence of the respondent's valuation witness over the applicant's valuation witness for the reasons which she explained therein.
The substantive argument on the appeal itself in respect of that matter can be found at paragraphs 8 to 11 of the applicant's outline submitted to the Court of Appeal and reflected in the outline before this Court.
Counsel for the applicant noted that at the trial the respondent had made ad hominian attacks upon the applicant’s valuer, Mr Quinlan, although Mr Quinlan did, in fact, approach his task consistent with the proper valuation theory. He submitted that while one can understand the motivation for this approach – that is, being derisory of Mr Quinlan because by his manner and demeanour, he was an easy target for ridicule, it allowed the respondent to divert the Court from the real task it faced. He submitted it meant that the Court did not receive the assistance it should have received so as to better understand the factual conflict and to make informed relevant decisions. He contended that as a consequence of the way in which the respondent, who was the plaintiff at trial, attacked the manner in which Mr Quinlan gave his evidence, his evidence was ignored entirely.
Further, he submitted that for reasons set out in the applicant's submissions at the end of the trial and in the outline of argument before the Court of Appeal, and in the reply to the respondent's outline in the Court of Appeal, Mr Quinlan should not have been ignored, at least if the result of doing so was to accept without question the evidence of the opposing valuer, Mr Early.
In considering applications of this kind, the Court ought be wary of second‑guessing outcomes on appeal. However, the Court is bound to at least consider prospects on appeal and the time likely for an appeal to be resolved. So much is expressed in the decision of the Full Court in Bryant & Commonwealth Bank of Australia, unreported, but which can be found at Butterworths’ cases 9400001. In particular, their Honours, at page 14 of the Butterworths’ cases report, noted, in response to a similar contention, that a Judge hearing an application of this kind is required to form some view of the prospects of success and to take into account, in the exercise of his discretion, the prospects of success and the period of time likely to pass before the appeal is heard and determined.
In referring to Bryant & Commonwealth Bank of Australia (supra), I note that the point in issue there was on all fours with the point here, that is, in that case the applicant had been unsuccessful in proceedings at first instance; a bankruptcy notice had been issued but before the time for expiration of the notice, a notice of appeal was filed; the appeal had not been heard, or determined; and the applicant/appellant sought for enlargement of the time within which to comply with the bankruptcy notice.
In making my general observation that the Court ought not second‑guess the outcome of appeal but obviously needs to consider its prospects, this Court cannot overlook the obvious challenges to the applicant on the appeal in this instance. This is particularly so as the applicant seeks to review a finding of fact founded upon a reasoned finding of credit. Those challenges are sufficiently summarised in Australian Civil Procedure, Bernard Cairns (7th Edition Law Book Company, 2002) at page 538. In particular the author noted:
“Although it does not necessarily deter an appeal Court from interfering with a judge's findings, the trial judge is said to have an advantage in assessing evidence. The judge observes a witness giving evidence. An appellate Court is limited to the sterility of a transcript and, as the majority observed in Fox & Percy, an appellate Court is not necessarily referred to, nor does it necessarily read, all the evidence admitted at the trial. In contrast, the trial judge must consider and draw conclusions from the whole of the evidence. An appellate Court does not, therefore, experience the feel of a case in the same way as a trial judge. Kirby J noted, in Whisprun Pty Ltd & Dixon, that an appellate Court is restrained in reversing a finding of fact that was influenced by credibility. Appellate Courts are protective of findings of fact at a trial.”
The author continued at page 539 to observe:
“While an appellate Court conducting a rehearing has the power to reverse a judgment where credibility of a witness was significant, it does so only in the limited conditions that the High Court explained in Fox & Percy. The appellate Court may substitute its judgment if the decision at first instance is "glaringly improbable" or "contrary to compelling inferences." McHugh J accepted that a trial judge's decision must end unless the judge "failed to use or probably misused" the trial judge's advantage as trial judge, acted on evidence that was inconsistent with the facts that were "incontroversially established" or the decision was "glaringly improbable." McHugh J was specific that for an appellate Court to reverse a decision based on demeanour, there must be "something that points decisively and not merely persuasively" to an error of the trial judge in acting on impressions of a witness.”
Further, there are significant challenges to the applicant seeking to review on appeal, for the first time, points that ought properly to have been raised below. Again referring to general observations on this point in Australian Civil Procedure at page 543, the author noted:
“The parties are normally bound by the course taken at trial. Although there are some exceptions, points of law and submissions not put forward at first instance cannot be taken for the first time on appeal. This is especially so when evidence relevant to the new point could have been given at the trial if it had been raised. Confining parties to the course they adopted at trial is based on the policy the trial should bring litigation to finality. Points cannot be reserved for tactical reasons to promote success at an appeal.”
I note that the respondent, in its submissions, contends that the appeal is bound to fail. In particular it submits that the appeal, in addressing findings on credit, has three difficulties. The respondent's counsel submitted that from the appellant's outline of submissions it could be seen the appeal rested on three points:
a)That the respondent's valuer referred to irrelevant matters in his report;
b)That the respondent's valuer, in fact, conducted an examination of the value of the apartment at the date of the contract rather than at the date of the breach; and
c)That the respondent failed to raise on the pleadings an issue as to the applicant's valuer's qualifications.
The difficulties the respondent's counsel identified with the points taken on appeal, in respect of the first and second items, was that the applicant did not pursue any of these matters or put any of these deficiencies in the respondent's valuer in the Supreme Court proceedings. So much, he submitted, can be discerned from the observations of the learned trial judge in her assessment of the respondent's valuation evidence to the effect that that evidence was "not seriously challenged in cross‑examination." Further, he submitted that these matters were noted by Her Honour not to have been the subject of any objection or submissions in those proceedings.
To that end, the respondent submits that the applicant must be bound by her conduct at trial and that she cannot seek to raise new arguments for the first time on appeal. I have earlier noted general observations in respect of that matter. The respondent's counsel, in any event, advances in support of that submission the authority of Metwally & University of WollongongNo.2 (1985) 60 ALR 68 at 71.
The third matter advanced by the applicant on appeal related to the valuer’s qualifications. The respondent's submission was that this was not a matter for pleading. He submitted it was a matter for evidence and the weight that should be afforded to it. He submitted that it was a matter which would have been improper to be plead. Additionally he contended it was irrelevant to the case on appeal that the respondent's valuation evidence should not have been accepted.
By reason of the matters I have noted above, and particularly when one has regard to those passages of Her Honour's judgment which are sought to be reviewed on appeal, I have formed the view that the prospects on appeal are not good.
Insofar as I consider the prospects not good, it is a factor that I take into account in the exercise of my discretion in this particular application.
There is nothing in the evidence to assist in terms of the time for the hearing of appeal, although I accept that the applicant would expeditiously pursue its appeal.
Stay
The next matter to be considered is the issue of a stay. For the respondent, it is contended that the applicant has not sought a stay of the judgment. He correctly submits that the mere institution of an appeal is not an effective stay of enforcement of the judgment under appeal and submits that the failure by the applicant to seek a stay is a factor to which considerable weight ought to be attached; Byron v Southern Star Group Pty Ltd (supra). He submitted that in the absence of other relevant factors it requires an exceptional case or at least a case with quite special circumstances for time to be extended where no stay has been obtained; Sidhom v Euphoric Pty Ltd[4]. Further, he contends that the applicant offers no explanation for the failure to seek a stay, nor, he says, is there an offer of any security.
[4] [2006] FMCA 827
I note that in the course of the application an undertaking was offered. I will address that matter in some detail shortly.
The applicant's contention broadly, insofar as these other discretionary considerations arose, was that their significance was diminished by what the applicant saw as its principal contention, that being that she had good prospects on its appeal. That matter, however, does not, in my view, address the essential matter, which is that view expressed by Barnes FM in Sidhom (supra), that in the absence of other factors it does require an exceptional case, or at least quite special circumstances, for time to be extended where no stay has been obtained.
Prejudice to Debtor
The next discretionary consideration concerns evidence of prejudice to the applicant. As a matter of general principle, an absence of evidence of irreparable damage to the debtor is a factor against the extension of time; Hovan v Goycolea‑Silva[5]. The mere fact that the applicant may commit an act of bankruptcy if an extension of time is not granted is itself not an act of prejudice; Sidhom & Euphoric Pty Ltd (supra).
[5] [2003] HCA 234
In this instance, the only ground of prejudice advanced by the applicant is that it may lose its right to appeal. Respectfully, that is not correct. Section 60(2) of the Bankruptcy Act provides that:
“60 Stay of Legal proceedings
…
(2) An action commenced by a person who subsequently becomes a bankrupt is, upon his or her becoming a bankrupt, stayed until the trustee makes election, in writing, to prosecute or discontinue the action.”
As to whether or not an appeal would be pursued is really a question for the trustee, if one is appointed. It is a matter in respect of which a trustee may be subject to review following any decision he may make but one which no doubt would be made by the trustee having regard to all the circumstances of the case. That, however, does not constitute a loss of right of appeal and to that end does not demonstrate prejudice to the applicant. In the meantime there is no impediment to the applicant prosecuting her appeal.
Prejudice to creditor
The principles in relation to prejudice to the creditor are best summarised in these terms:
a)A party holding the benefit of a judgment is entitled to enforce it without delay; State Bank ofVictoria v Parry[6].
b)The party seeking to deprive the judgment creditor of the benefit of its judgment needs to demonstrate special circumstances to justify the stay of execution; Burnet v Francis Industries[7].
[6] [1989] WAR 240
[7] [1987] 2 All ER 323
In this instance the respondent holds the benefit of a judgment against the applicant, and has taken steps to enforce that judgment. A bankruptcy notice issued in respect of the judgment and it has been served upon the applicant.
The applicant, however, seeks to delay the time for compliance with that notice until 14 days after the determination of the appeal. At this stage no appeal date has been set. I accept that the applicant will make its best endeavours to see that the appeal is prosecuted as expeditiously as the Court of Appeal permits. He has, however, little control over the date for hearing and any subsequent judgment. It seems that, in any event, the time for compliance with the bankruptcy notice on that basis would not arise until sometime well into the future which would give rise to significant delay to the respondent in the enforcement of its rights.
The delay that is occasioned could constitute prejudice to the respondent, first, by preventing it from enforcing its judgment, as it is entitled to do, but moreover, and assuming that the applicant is unable to satisfy the demands of the bankruptcy notice, it would have the effect of delaying the date for commencement of the relation back period. That period only commences from the date of commission of the act of bankruptcy; Re Nguyen; Ex Parte Commissioner of Taxation[8]. For reasons that I will address shortly in relation to the applicant's dealing with assets, that may or may not be an issue in this case and may possibly give rise to prejudice to the respondent.
[8] (1995) 54 FCR 403
Applicant’s disposal of assets
Finally the issue of the applicant's dealing with assets. It is contended on behalf of the respondent that the applicant has demonstrated a willingness to transfer assets of value out of the reach of creditors, and in particular that these events have occurred at a time shortly before the trial which is the subject of the judgment underlying the bankruptcy notice. In particular, in an affidavit sworn by the respondent's solicitor, Mr Mark Ruddy, filed 21 June 2010, commencing at paragraph 16, he deposed that:
“From the period 22 March 1990 until 28 October 2009, that is shortly before the hearing of the Supreme Court proceedings, the applicant was a director and secretary of a company Coogee Pty Ltd.”
He swore that the applicant was formerly a shareholder in Coogee, holding one of two ordinary shares issued by the company, and that then, Anthony Raphael Ryan, the applicant's husband held the other ordinary share. He swore that on or around 28 October 2009, that is shortly before the trial, the applicant and her husband transferred their ordinary shares in Coogee to Mr Denny Anthony Ryan and to Mr James Patrick Ryan respectively. The applicant, he swore, is no longer a shareholder of that company. So much is affirmed by the ASIC company extract for the company Coogee Pty Ltd, which demonstrates the cessation date of the applicant as director, being 28 October 2009, and notes the shareholdings although not the transfers.
For the applicant, it was contended that this matter did not materially bear upon any issue in particular because Coogee Pty Ltd is the trustee of a discretionary trust known as the DAR Trust. However, I note that the applicant is a primary beneficiary of the Trust and there are provisions which exist within the trust that would or could at least afford to the applicant benefits of distributions under that trust. There was no evidence as to the value of the shares in Coogee.
I do not draw any adverse inferences from the facts as they are presented but do note that the timing is serendipitous and that in the circumstances, the date of bankruptcy, which in turn would impact the relation back date, could have significance in the context of an application where the prospect is there may be significant indebtedness on the part of the applicant.
Undertaking
I note that an undertaking was offered from the bar table during the course of the hearing but as was conceded during the course of the hearing, there had been no earlier offers. There is no evidence to demonstrate whether the undertaking has any worth. No security has been offered, even in respect of the applicant's best possible outcome, which is that it is indebted to the respondent in the sum of $37,000.00.
Conclusion
Having regard to the broad discretion which is provided for under the Act and having considered all the relevant factors, I am satisfied that this is not an appropriate case to extend time for compliance with the notice and the application is dismissed.
Costs
In the absence of opposition to the usual order that costs follow the event, I direct that the applicant pay the respondent's costs of and incidental to the application.
The respondent relies upon clause 5 of the contract of sale in support of its contention it should have costs on an indemnity basis. The applicant contends that costs should not be assessed on an indemnity basis but rather on a standard basis. In broad terms, the applicant contends that clause 5 of the contract does not apply because these are bankruptcy proceedings and not particularly related directly to the enforcement of a contract.
Clause 5 of the contract for Unit 109 is in these terms:
“The buyer will indemnify the seller against any loss which the seller sustains as a result of the buyer's default. Without limiting the generality of this indemnity, the seller's costs will include legal costs both on party and party and solicitor and client of which the seller may incur.”
The significant words in clause 5, in my view, are the words "any loss which the seller sustains as a result of the buyer’s default." The question is really one of causation. Is the loss which arises by reason of the legal costs incurred in this application one which could be said to be sustained as a result of the buyer's default?
These proceedings are proceedings which have been brought by the applicant in response to a bankruptcy notice issued following the respondent's success in proceedings related to the contract. On that basis, it seems to me that there is sufficient causation between the loss which the seller has sustained in having to participate in these proceedings and the default of the buyer on the contract. It follows, in those circumstances, that clause 5 governs the agreement between the parties in respect of costs.
The Court, of course, has a broad discretion in relation to the matter of costs, but in the absence of any overarching factor, it seems to me that the Court ought to be reluctant to impose any other order which differs to that which the parties had contemplated by their contract at first instance. There are no circumstances in this case which militate against the parties having the benefit of the bargain manifest in the terms of their contract, and it follows that I think costs should be assessed on an indemnity basis.
I certify that the preceding forty-eight (48) paragraphs are a true copy of the reasons for judgment of Burnett FM
Date: 26 July 2010
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